ITEM 1. FINANCIAL STATEMENTS
BGC PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
448,515
|
|
|
$
|
461,207
|
|
Cash segregated under regulatory requirements
|
|
|
6,911
|
|
|
|
3,199
|
|
Securities owned
|
|
|
212,056
|
|
|
|
32,361
|
|
Marketable securities
|
|
|
179,904
|
|
|
|
650,400
|
|
Receivables from broker-dealers, clearing organizations, customers and related
broker-dealers
|
|
|
1,763,834
|
|
|
|
812,240
|
|
Accrued commissions receivable, net
|
|
|
377,750
|
|
|
|
342,299
|
|
Loans, forgivable loans and other receivables from employees and partners, net
|
|
|
254,000
|
|
|
|
158,176
|
|
Fixed assets, net
|
|
|
155,340
|
|
|
|
145,873
|
|
Investments
|
|
|
42,709
|
|
|
|
33,813
|
|
Goodwill
|
|
|
830,246
|
|
|
|
811,766
|
|
Other intangible assets, net
|
|
|
219,059
|
|
|
|
233,967
|
|
Receivables from related parties
|
|
|
2,663
|
|
|
|
15,466
|
|
Other assets
|
|
|
318,922
|
|
|
|
290,687
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,811,909
|
|
|
$
|
3,991,454
|
|
|
|
|
|
|
|
|
|
|
Liabilities, Redeemable Partnership Interest, and Equity
|
|
|
|
|
|
|
|
|
Securities loaned
|
|
$
|
|
|
|
$
|
117,890
|
|
Accrued compensation
|
|
|
332,976
|
|
|
|
303,959
|
|
Payables to broker-dealers, clearing organizations, customers and related broker-dealers
|
|
|
1,613,337
|
|
|
|
714,823
|
|
Payables to related parties
|
|
|
16,831
|
|
|
|
21,551
|
|
Accounts payable, accrued and other liabilities
|
|
|
636,188
|
|
|
|
692,639
|
|
Notes payable and collateralized borrowings
|
|
|
969,111
|
|
|
|
840,877
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,568,443
|
|
|
|
2,691,739
|
|
|
|
|
Commitments and contingencies (Note 19)
|
|
|
|
|
|
|
|
|
Redeemable partnership interest
|
|
|
56,441
|
|
|
|
57,145
|
|
Equity
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Class A common stock, par value $0.01 per share; 750,000 and 500,000 shares authorized at
September 30, 2016 and December 31, 2015, respectively; 289,493 and 255,859 shares issued at September 30, 2016 and December 31, 2015, respectively; and 243,312 and 219,063 shares outstanding at September 30, 2016 and December 31, 2015,
respectively
|
|
|
2,895
|
|
|
|
2,559
|
|
Class B common stock, par value $0.01 per share; 150,000 and 100,000 shares authorized at
September 30, 2016 and December 31, 2015, respectively; 34,848 shares issued and outstanding at September 30, 2016 and December 31, 2015, convertible into Class A common stock
|
|
|
348
|
|
|
|
348
|
|
Additional paid-in capital
|
|
|
1,448,601
|
|
|
|
1,109,000
|
|
Contingent Class A common stock
|
|
|
44,673
|
|
|
|
50,095
|
|
Treasury stock, at cost: 46,181 and 36,796 shares of Class A common stock at
September 30, 2016 and December 31, 2015, respectively
|
|
|
(277,443
|
)
|
|
|
(212,331
|
)
|
Retained deficit
|
|
|
(309,544
|
)
|
|
|
(273,492
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(19,976
|
)
|
|
|
(25,056
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
889,554
|
|
|
|
651,123
|
|
Noncontrolling interest in subsidiaries
|
|
|
297,471
|
|
|
|
591,447
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
1,187,025
|
|
|
|
1,242,570
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable partnership interest, and equity
|
|
$
|
4,811,909
|
|
|
$
|
3,991,454
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to the unaudited Condensed Consolidated Financial Statements
are an integral part of these financial statements.
5
BGC PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions
|
|
$
|
496,265
|
|
|
$
|
521,264
|
|
|
$
|
1,469,940
|
|
|
$
|
1,424,357
|
|
Principal transactions
|
|
|
76,332
|
|
|
|
73,841
|
|
|
|
255,219
|
|
|
|
238,958
|
|
Real estate management services
|
|
|
49,373
|
|
|
|
48,867
|
|
|
|
140,960
|
|
|
|
135,997
|
|
Fees from related parties
|
|
|
6,126
|
|
|
|
6,609
|
|
|
|
18,061
|
|
|
|
19,310
|
|
Data, software and post-trade
|
|
|
11,834
|
|
|
|
29,124
|
|
|
|
36,599
|
|
|
|
68,344
|
|
Interest income
|
|
|
2,792
|
|
|
|
1,387
|
|
|
|
8,952
|
|
|
|
6,253
|
|
Other revenues
|
|
|
783
|
|
|
|
4,203
|
|
|
|
4,770
|
|
|
|
8,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
643,505
|
|
|
|
685,295
|
|
|
|
1,934,501
|
|
|
|
1,901,993
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and employee benefits
|
|
|
415,697
|
|
|
|
435,932
|
|
|
|
1,243,501
|
|
|
|
1,213,803
|
|
Allocations of net income and grant of exchangeability to limited partnership units and
FPUs
|
|
|
58,771
|
|
|
|
50,667
|
|
|
|
132,670
|
|
|
|
113,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation and employee benefits
|
|
|
474,468
|
|
|
|
486,599
|
|
|
|
1,376,171
|
|
|
|
1,327,724
|
|
Occupancy and equipment
|
|
|
46,513
|
|
|
|
51,300
|
|
|
|
146,026
|
|
|
|
157,373
|
|
Fees to related parties
|
|
|
5,060
|
|
|
|
4,876
|
|
|
|
14,803
|
|
|
|
13,564
|
|
Professional and consulting fees
|
|
|
15,549
|
|
|
|
15,201
|
|
|
|
45,160
|
|
|
|
53,702
|
|
Communications
|
|
|
30,568
|
|
|
|
31,503
|
|
|
|
92,076
|
|
|
|
88,550
|
|
Selling and promotion
|
|
|
22,613
|
|
|
|
23,370
|
|
|
|
73,725
|
|
|
|
70,609
|
|
Commissions and floor brokerage
|
|
|
8,493
|
|
|
|
8,865
|
|
|
|
27,633
|
|
|
|
25,616
|
|
Interest expense
|
|
|
15,383
|
|
|
|
16,944
|
|
|
|
43,465
|
|
|
|
51,285
|
|
Other expenses
|
|
|
19,709
|
|
|
|
26,802
|
|
|
|
66,204
|
|
|
|
75,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
638,356
|
|
|
|
665,460
|
|
|
|
1,885,263
|
|
|
|
1,863,445
|
|
Other income (losses) , net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on divestiture and sale of investments
|
|
|
7,044
|
|
|
|
2,717
|
|
|
|
7,044
|
|
|
|
3,396
|
|
Gains (losses) on equity method investments
|
|
|
683
|
|
|
|
1,042
|
|
|
|
1,741
|
|
|
|
2,678
|
|
Other income (loss)
|
|
|
91,653
|
|
|
|
59,728
|
|
|
|
98,748
|
|
|
|
92,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (losses), net
|
|
|
99,380
|
|
|
|
63,487
|
|
|
|
107,533
|
|
|
|
98,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income taxes
|
|
|
104,529
|
|
|
|
83,322
|
|
|
|
156,771
|
|
|
|
136,881
|
|
Provision (benefit) for income taxes
|
|
|
30,263
|
|
|
|
28,737
|
|
|
|
45,651
|
|
|
|
41,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss)
|
|
$
|
74,266
|
|
|
$
|
54,585
|
|
|
$
|
111,120
|
|
|
$
|
95,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income (loss) attributable to noncontrolling interest in subsidiaries
|
|
|
13,384
|
|
|
|
16,214
|
|
|
|
20,854
|
|
|
|
34,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
60,882
|
|
|
$
|
38,371
|
|
|
$
|
90,266
|
|
|
$
|
61,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
60,882
|
|
|
$
|
38,371
|
|
|
$
|
90,266
|
|
|
$
|
61,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.22
|
|
|
$
|
0.15
|
|
|
$
|
0.33
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average shares of common stock outstanding
|
|
|
278,601
|
|
|
|
252,354
|
|
|
|
276,144
|
|
|
|
239,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) for fully diluted shares
|
|
$
|
92,121
|
|
|
$
|
58,538
|
|
|
$
|
139,683
|
|
|
$
|
93,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully diluted earnings per share
|
|
$
|
0.21
|
|
|
$
|
0.15
|
|
|
$
|
0.32
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully diluted weighted-average shares of common stock outstanding
|
|
|
429,761
|
|
|
|
394,026
|
|
|
|
434,713
|
|
|
|
370,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share of common stock
|
|
$
|
0.16
|
|
|
$
|
0.14
|
|
|
$
|
0.46
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared and paid per share of common stock
|
|
$
|
0.16
|
|
|
$
|
0.14
|
|
|
$
|
0.46
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to the unaudited Condensed Consolidated Financial Statement
are an integral part of these financial statements.
6
BGC PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Consolidated net income (loss)
|
|
$
|
74,266
|
|
|
$
|
54,585
|
|
|
$
|
111,120
|
|
|
$
|
95,826
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
417
|
|
|
|
(8,101
|
)
|
|
|
4,534
|
|
|
|
(15,033
|
)
|
Available for sale securities
|
|
|
511
|
|
|
|
(2,607
|
)
|
|
|
543
|
|
|
|
(18,958
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss), net of tax
|
|
|
928
|
|
|
|
(10,708
|
)
|
|
|
5,077
|
|
|
|
(33,991
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
75,194
|
|
|
|
43,877
|
|
|
|
116,197
|
|
|
|
61,835
|
|
Less: Comprehensive income (loss) attributable to noncontrolling interest in subsidiaries, net of
tax
|
|
|
13,545
|
|
|
|
15,196
|
|
|
|
20,851
|
|
|
|
30,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to common stockholders
|
|
$
|
61,649
|
|
|
$
|
28,681
|
|
|
$
|
95,346
|
|
|
$
|
31,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to the unaudited Condensed Consolidated Financial Statements
are an integral part of these financial statements.
7
BGC PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Consolidated net income (loss)
|
|
$
|
111,120
|
|
|
$
|
95,826
|
|
Adjustments to reconcile consolidated net income (loss) to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Fixed asset depreciation and intangible asset amortization
|
|
|
56,865
|
|
|
|
62,428
|
|
Employee loan amortization and reserves on employee loans
|
|
|
44,656
|
|
|
|
30,861
|
|
Equity-based compensation and allocations of net income to limited partnership units and
FPUs
|
|
|
150,023
|
|
|
|
128,827
|
|
Deferred compensation expense
|
|
|
13,287
|
|
|
|
17,615
|
|
Losses (gains) on equity method investments
|
|
|
(1,741
|
)
|
|
|
(2,678
|
)
|
Amortization of discount (premium) on notes payable
|
|
|
(2,414
|
)
|
|
|
4,427
|
|
Unrealized loss (gain) on marketable securities
|
|
|
(973
|
)
|
|
|
(5,286
|
)
|
Impairment of fixed assets
|
|
|
3,737
|
|
|
|
18,800
|
|
Deferred tax provision (benefit)
|
|
|
(57,915
|
)
|
|
|
7,518
|
|
Sublease provision adjustment
|
|
|
(807
|
)
|
|
|
(1,385
|
)
|
Recognition of earn-out and related hedges
|
|
|
(67,016
|
)
|
|
|
(52,917
|
)
|
Realized losses (gains) on marketable securities (see Note 9 Marketable
Securities)
|
|
|
(11,792
|
)
|
|
|
(31,757
|
)
|
Change in the fair value of contingent consideration
|
|
|
(18,347
|
)
|
|
|
|
|
Loss (gain) on sale of cost method investment
|
|
|
(7,051
|
)
|
|
|
|
|
Loss (gain) on divestitures
|
|
|
|
|
|
|
(537
|
)
|
Forfeitures of Class A common stock
|
|
|
(374
|
)
|
|
|
(1,376
|
)
|
Other
|
|
|
(391
|
)
|
|
|
(1,750
|
)
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss), adjusted for non-cash and non-operating items
|
|
|
210,867
|
|
|
|
268,616
|
|
Decrease (increase) in operating assets:
|
|
|
|
|
|
|
|
|
Receivables from broker-dealers, clearing organizations, customers and related
broker-dealers
|
|
|
(948,476
|
)
|
|
|
153,851
|
|
Loans, forgivable loans and other receivables from employees and partners, net
|
|
|
(140,201
|
)
|
|
|
(56,142
|
)
|
Accrued commissions receivable, net
|
|
|
(19,632
|
)
|
|
|
25,229
|
|
Securities borrowed
|
|
|
|
|
|
|
62,736
|
|
Securities owned
|
|
|
(179,695
|
)
|
|
|
2,106
|
|
Receivables from related parties
|
|
|
13,544
|
|
|
|
(3,752
|
)
|
Cash segregated under regulatory requirements
|
|
|
(3,704
|
)
|
|
|
6,995
|
|
Other assets
|
|
|
9,166
|
|
|
|
24,963
|
|
Increase (decrease) in operating liabilities:
|
|
|
|
|
|
|
|
|
Payables to broker-dealers, clearing organizations, customers and related broker-dealers
|
|
|
897,494
|
|
|
|
(211,459
|
)
|
Payables to related parties
|
|
|
(4,795
|
)
|
|
|
9,897
|
|
Securities sold, not yet purchased
|
|
|
|
|
|
|
(1,526
|
)
|
Securities loaned
|
|
|
(117,967
|
)
|
|
|
54,731
|
|
Accounts payable, accrued and other liabilities
|
|
|
67,093
|
|
|
|
(108,178
|
)
|
Accrued compensation
|
|
|
(31,685
|
)
|
|
|
(101,507
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(247,991
|
)
|
|
$
|
126,560
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases of fixed assets
|
|
$
|
(36,844
|
)
|
|
$
|
(26,816
|
)
|
Capitalization of software development costs
|
|
|
(17,595
|
)
|
|
|
(12,470
|
)
|
Purchase of equity method investments
|
|
|
(7,612
|
)
|
|
|
(981
|
)
|
Payments for acquisitions, net of cash acquired
|
|
|
(119,212
|
)
|
|
|
(170,792
|
)
|
Purchase of marketable securities
|
|
|
(68,396
|
)
|
|
|
|
|
Proceeds from sale of marketable securities
|
|
|
618,090
|
|
|
|
1,922
|
|
Proceeds from sale of cost method investments
|
|
|
7,106
|
|
|
|
|
|
Disposal of assets and liabilities held for sale, net
|
|
|
|
|
|
|
(5,633
|
)
|
Capitalization of trademarks, patent defense and registration costs
|
|
|
(420
|
)
|
|
|
(744
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
$
|
375,117
|
|
|
$
|
(215,514
|
)
|
The accompanying Notes to the unaudited Condensed Consolidated Financial Statements
are an integral part of these financial statements.
8
BGC PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Continued)
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Repayments of collateralized borrowings
|
|
$
|
(5,121
|
)
|
|
$
|
(3,302
|
)
|
Repayments of convertible notes
|
|
|
(159,932
|
)
|
|
|
|
|
Issuance of senior notes, net of deferred issuance costs
|
|
|
295,768
|
|
|
|
|
|
Issuance of collateralized borrowings, net of deferred issuance costs
|
|
|
|
|
|
|
27,918
|
|
Earnings distributions
|
|
|
(60,629
|
)
|
|
|
(51,314
|
)
|
Redemption and repurchase of limited partnership interests
|
|
|
(27,664
|
)
|
|
|
(25,182
|
)
|
Dividends to stockholders
|
|
|
(126,318
|
)
|
|
|
(96,087
|
)
|
Repurchase of Class A common stock
|
|
|
(72,700
|
)
|
|
|
(6,786
|
)
|
Cancellation of restricted stock units in satisfaction of withholding tax requirements
|
|
|
(1,542
|
)
|
|
|
(520
|
)
|
Proceeds from issuance of Class A common stock, net of costs
|
|
|
15,280
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
86
|
|
|
|
627
|
|
Repayments of short-term borrowings
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(142,772
|
)
|
|
|
(149,646
|
)
|
Cash and cash equivalents classified as assets held for sale
|
|
|
|
|
|
|
23,228
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
2,954
|
|
|
|
(8,515
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(12,692
|
)
|
|
|
(223,887
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
461,207
|
|
|
|
648,277
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
448,515
|
|
|
$
|
424,390
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash information:
|
|
|
|
|
|
|
|
|
Cash paid during the period for taxes
|
|
$
|
55,196
|
|
|
$
|
19,438
|
|
Cash paid during the period for interest
|
|
|
45,169
|
|
|
|
45,956
|
|
Supplemental non-cash information:
|
|
|
|
|
|
|
|
|
Issuance of Class A common stock upon exchange of limited partnership interests
|
|
$
|
53,754
|
|
|
$
|
52,521
|
|
Issuance of Class A and contingent Class A common stock for acquisitions
|
|
|
5,857
|
|
|
|
35,062
|
|
Issuance of Class A common stock upon conversion of convertible notes
|
|
|
68
|
|
|
|
150,000
|
|
Shares received for Nasdaq earn-out
|
|
|
67,016
|
|
|
|
52,917
|
|
The accompanying Notes to the unaudited Condensed Consolidated Financial Statements
are an integral part of these financial statements.
9
BGC PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Year Ended December 31, 2015
(in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BGC Partners, Inc. Stockholders
|
|
|
|
|
|
|
|
|
|
Class A
Common
Stock
|
|
|
Class B
Common
Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Contingent
Class A
Common Stock
|
|
|
Treasury
Stock
|
|
|
Retained
Deficit
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Noncontrolling
Interest in
Subsidiaries
|
|
|
Total
|
|
Balance, January 1, 2015
|
|
$
|
2,202
|
|
|
$
|
348
|
|
|
$
|
817,158
|
|
|
$
|
47,383
|
|
|
$
|
(200,958
|
)
|
|
$
|
(268,920
|
)
|
|
$
|
4,303
|
|
|
$
|
180,406
|
|
|
$
|
581,922
|
|
Consolidated net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126,788
|
|
|
|
|
|
|
|
141,530
|
|
|
|
268,318
|
|
Other comprehensive gain, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,359
|
)
|
|
|
(3,876
|
)
|
|
|
(33,235
|
)
|
Equity-based compensation, 825,996 shares
|
|
|
8
|
|
|
|
|
|
|
|
2,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,454
|
|
|
|
4,371
|
|
Dividends to common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(131,360
|
)
|
|
|
|
|
|
|
|
|
|
|
(131,360
|
)
|
Earnings distributions to limited partnership interests and other noncontrolling
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70,538
|
)
|
|
|
(70,538
|
)
|
Grant of exchangeability and redemption of limited partnership interests, issuance of 9,445,664
shares
|
|
|
94
|
|
|
|
|
|
|
|
141,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,684
|
|
|
|
217,040
|
|
Issuance of Class A common stock (net of costs), 129,151 shares
|
|
|
1
|
|
|
|
|
|
|
|
860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
247
|
|
|
|
1,108
|
|
Redemption of FPUs, 539,275 units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(835
|
)
|
|
|
(835
|
)
|
Repurchase of Class A common stock, 1,416,991 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,371
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,743
|
)
|
|
|
(12,114
|
)
|
Forfeitures of restricted Class A common stock, 270,422 shares
|
|
|
|
|
|
|
|
|
|
|
688
|
|
|
|
|
|
|
|
(2,002
|
)
|
|
|
|
|
|
|
|
|
|
|
(387
|
)
|
|
|
(1,701
|
)
|
Cantor purchase of Cantor units from BGC Holdings upon redemption of founding/working partner
units, 1,775,481 units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,573
|
|
|
|
6,573
|
|
Re-allocation of equity due to additional investment by founding/working partners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80
|
)
|
|
|
(80
|
)
|
Issuance of Class A common stock for acquisitions, 1,199,052 shares
|
|
|
12
|
|
|
|
|
|
|
|
5,112
|
|
|
|
(4,579
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
545
|
|
Issuance of contingent shares and limited partnership interests in connection with
acquisitions
|
|
|
|
|
|
|
|
|
|
|
23,104
|
|
|
|
7,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,695
|
|
|
|
39,090
|
|
Conversion of 8.75% Convertible Notes to Class A common stock, 24,042,599 shares
|
|
|
240
|
|
|
|
|
|
|
|
117,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,582
|
|
|
|
150,000
|
|
Reclassification of Redeemable noncontrolling interest to noncontrolling interest for GFI Back-End
Merger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
222,148
|
|
|
|
222,148
|
|
Purchases of Newmark noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,219
|
)
|
|
|
(488
|
)
|
Other
|
|
|
2
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,806
|
|
|
|
1,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015
|
|
$
|
2,559
|
|
|
$
|
348
|
|
|
$
|
1,109,000
|
|
|
$
|
50,095
|
|
|
$
|
(212,331
|
)
|
|
$
|
(273,492
|
)
|
|
$
|
(25,056
|
)
|
|
$
|
591,447
|
|
|
$
|
1,242,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to the unaudited Condensed Consolidated Financial Statements are an integral part of
these financial statements.
10
BGC PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY(Continued)
For the Nine Months Ended September 30, 2016
(in thousands, except share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BGC Partners, Inc. Stockholders
|
|
|
|
|
|
|
|
|
|
Class A
Common
Stock
|
|
|
Class B
Common
Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Contingent
Class A
Common
Stock
|
|
|
Treasury
Stock
|
|
|
Retained
Deficit
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Noncontrolling
Interest in
Subsidiaries
|
|
|
Total
|
|
Balance, January 1, 2016
|
|
$
|
2,559
|
|
|
$
|
348
|
|
|
$
|
1,109,000
|
|
|
$
|
50,095
|
|
|
$
|
(212,331
|
)
|
|
$
|
(273,492
|
)
|
|
$
|
(25,056
|
)
|
|
$
|
591,447
|
|
|
$
|
1,242,570
|
|
Consolidated net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,266
|
|
|
|
|
|
|
|
20,854
|
|
|
|
111,120
|
|
Other comprehensive gain, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,080
|
|
|
|
(3
|
)
|
|
|
5,077
|
|
Equity-based compensation, 569,344 shares
|
|
|
6
|
|
|
|
|
|
|
|
1,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,003
|
|
|
|
2,967
|
|
Dividends to common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(126,318
|
)
|
|
|
|
|
|
|
|
|
|
|
(126,318
|
)
|
Earnings distributions to limited partnership interests and other noncontrolling
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56,562
|
)
|
|
|
(56,562
|
)
|
Grant of exchangeability and redemption of limited partnership interests, issuance of 6,269,630
shares
|
|
|
63
|
|
|
|
|
|
|
|
43,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,788
|
|
|
|
69,654
|
|
Issuance of Class A common stock (net of costs), 1,933,615 shares
|
|
|
19
|
|
|
|
|
|
|
|
13,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,445
|
|
|
|
17,320
|
|
Redemption of FPUs, 272,871 units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,981
|
)
|
|
|
(1,981
|
)
|
Repurchase of Class A common stock, 9,326,182 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64,684
|
)
|
|
|
|
|
|
|
|
|
|
|
(17,137
|
)
|
|
|
(81,821
|
)
|
Forfeitures of restricted Class A common stock, 59,317 shares
|
|
|
|
|
|
|
|
|
|
|
132
|
|
|
|
|
|
|
|
(428
|
)
|
|
|
|
|
|
|
|
|
|
|
(78
|
)
|
|
|
(374
|
)
|
Forfeitures of limited partnership units issued
|
|
|
|
|
|
|
|
|
|
|
11,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,768
|
)
|
|
|
|
|
Issuance of Class A common stock for acquisitions, 1,372,952 shares
|
|
|
13
|
|
|
|
|
|
|
|
7,575
|
|
|
|
(6,716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
232
|
|
|
|
1,104
|
|
Issuance of contingent shares and limited partnership interests in connection with
acquisitions
|
|
|
|
|
|
|
|
|
|
|
2,486
|
|
|
|
1,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
988
|
|
|
|
4,768
|
|
Conversion of 4.50% Convertible Notes to Class A common stock, 6,909 shares
|
|
|
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
68
|
|
Completion of GFI Back-End Mergers and Issuance of Class A common stock, 23,481,192
shares
|
|
|
235
|
|
|
|
|
|
|
|
258,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(258,690
|
)
|
|
|
(15
|
)
|
Purchase of Newmark noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(242
|
)
|
|
|
(58
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
(655
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
161
|
|
|
|
(494
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2016
|
|
$
|
2,895
|
|
|
$
|
348
|
|
|
$
|
1,448,601
|
|
|
$
|
44,673
|
|
|
$
|
(277,443
|
)
|
|
$
|
(309,544
|
)
|
|
$
|
(19,976
|
)
|
|
$
|
297,471
|
|
|
$
|
1,187,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to the unaudited Condensed Consolidated Financial Statements are an integral part of
these financial statements.
11
BGC PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1.
|
Organization and Basis of Presentation
|
Business Overview
BGC Partners, Inc. (together with its subsidiaries, BGC Partners, BGC or the Company) is a leading global
brokerage company servicing the financial and real estate markets through its two segments, Financial Services and Real Estate Services. Through its brands, including BGC
®
, GFI
®
and R.P. Martin
TM
, among others, the Companys Financial Services segment specializes in the brokerage of a broad range of products,
including fixed income (rates and credit), foreign exchange, equities, energy and commodities, and futures. It also provides a wide range of services, including trade execution, broker-dealer services, clearing, trade compression, post trade,
information, and other back-office services to a broad range of financial and non-financial institutions. BGC Partners integrated platform is designed to provide flexibility to customers with regard to price discovery, execution and processing
of transactions, and enables them to use voice, hybrid, or in many markets, fully electronic brokerage services in connection with transactions executed either over-the-counter (OTC) or through an exchange. Through its FENICS
®
, BGC Trader
, BGC Market Data and Capitalab
®
brands, BGC Partners offers fully
electronic brokerage, financial technology solutions, market data, post-trade services and analytics related to select financial instruments and markets.
Newmark Grubb Knight Frank (NGKF) is a full-service commercial real estate platform that comprises the Companys Real Estate
Services segment. Under brand names including Newmark Grubb Knight Frank
TM
, Newmark Cornish & Carey
TM
, ARA
®
, Computerized Facility Integration
TM
, Landauer
®
Valuation & Advisory, and Excess
Space Retail Services, Inc
®
, NGKF offers commercial real estate tenants, owners, investors and developers a wide range of services, including leasing and corporate advisory, investment sales,
and real estate finance, consulting, project and development management, and property and facilities management.
On February 26, 2015,
the Company successfully completed a tender offer to acquire shares of common stock, par value $0.01 per share, of GFI Group Inc. (GFI) for $6.10 per share in cash and accepted for purchase 54.3 million shares (the Tendered
Shares) tendered to the Company pursuant to its offer. The Tendered Shares, together with the 17.1 million shares already owned by the Company, represented approximately 56% of GFIs outstanding shares. On April 28, 2015, a subsidiary of
BGC purchased approximately 43.0 million newly issued shares of GFIs common stock at the price of $5.81 per share for an aggregate purchase price of $250 million, which increased the Companys ownership in GFI to approximately 67.0%. The
purchase price was paid to GFI in the form of a note due on June 19, 2018 that bore an interest rate of LIBOR plus 200 basis points.
On
January 12, 2016, the Company, Jersey Partners, Inc. (JPI), New JP Inc. (New JPI), Michael A. Gooch, Colin Heffron, and certain subsidiaries of JPI and the Company closed on a previously agreed upon merger. This merger
provided for the acquisition of JPI by BGC (the JPI Merger) as provided for by a merger agreement dated December 22, 2015. Shortly following the completion of the JPI Merger, a subsidiary of the Company merged with and into GFI
pursuant to a short-form merger under Delaware law, with GFI continuing as the surviving entity (the GFI Merger and, together with the JPI Merger, the Back-End Mergers). The Back-End Mergers allowed the Company to acquire the
remaining approximately 33% of the outstanding shares of GFI common stock that it did not already own. Following the closing of the Back-End Mergers, the Company and its affiliates now own 100% of the outstanding shares of GFIs common stock.
GFI is a leading intermediary and provider of trading technologies and support services to the global OTC and listed markets. GFI serves
institutional clients in operating electronic and hybrid markets for cash and derivative products across multiple asset classes.
The
Companys customers include many of the worlds largest banks, broker-dealers, investment banks, trading firms, hedge funds, governments, corporations, property owners, real estate developers and investment firms. BGC Partners has offices
in dozens of major markets, including New York and London, as well as in Atlanta, Beijing, Boston, Charlotte, Chicago, Copenhagen, Dallas, Denver, Dubai, Geneva, Hong Kong, Houston, Istanbul, Johannesburg, Los Angeles, Mexico City, Miami, Moscow,
Nyon, Paris, Philadelphia, Rio de Janeiro, San Francisco, Santa Clara, São Paulo, Seoul, Shanghai, Singapore, Sydney, Tokyo, Toronto and Washington, D.C., and over 50 other offices.
Basis of Presentation
The Companys unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S.
Securities and Exchange Commission (the SEC) and in conformity with accounting principles generally accepted in the U.S. (U.S. GAAP). The Companys unaudited condensed consolidated financial statements include the
Companys accounts and all subsidiaries in which the Company has a controlling interest. Intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to previously reported amounts to
conform to the current presentation.
12
During the three months ended March 31, 2016, the Company changed the line item formerly known as
Market data and software solutions to Data, software and post-trade. Reclassifications have been made to previously reported amounts to conform to the current presentation.
In addition, for the three and nine months ended September 30, 2015, the Company has made reclassifications to previously reported amounts
related to GFI to conform to the current presentation for the line items Compensation and employee benefits and Professional and consulting fees.
The unaudited condensed consolidated financial statements contain all normal and recurring adjustments that, in the opinion of management, are
necessary for a fair presentation of the unaudited condensed consolidated statements of financial condition, the unaudited condensed consolidated statements of operations, the unaudited condensed consolidated statements of comprehensive income
(loss), the unaudited condensed consolidated statements of cash flows and the unaudited condensed consolidated statements of changes in equity of the Company for the periods presented.
Recently Adopted Accounting Pronouncements
In February 2015, the Financial Accounting Standards Board (the FASB) issued ASU No. 2015-02, Consolidation (Topic 810): Amendments
to the Consolidation Analysis. The amendment eliminates the deferral of certain consolidation standards for entities considered to be investment companies and modifies the consolidation analysis performed on certain types of legal entities. The
guidance was effective beginning January 1, 2016 and early adoption was permitted. The adoption of this FASB guidance did not have a material impact on the Companys unaudited condensed consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, InterestImputation of Interest, which relates to simplifying the presentation of debt
issuance costs. This ASU requires that debt issuance costs related to a recognized liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The amendments
in this update were effective for the annual period beginning January 1, 2016 for the Company. The adoption of this FASB guidance did not have a material impact on the Companys unaudited condensed consolidated financial statements.
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period
Adjustments. This ASU requires adjustments to provisional amounts that are identified during the measurement period of a business combination to be recognized in the reporting period in which the adjustment amounts are determined. Acquirers are no
longer required to revise comparative information for prior periods as if the accounting for the business combination had been completed as of the acquisition date. The guidance was effective beginning January 1, 2016. The adoption of this FASB
guidance did not have a material impact on the Companys unaudited condensed consolidated financial statements.
New Accounting
Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which relates to how an entity
recognizes the revenue it expects to be entitled to for the transfer of promised goods and services to customers. The ASU will replace certain existing revenue recognition guidance. The guidance, as stated in ASU No. 2014-09, was initially effective
beginning on January 1, 2017. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with CustomersDeferral of Effective Date, which defers the effective date by one year, with early adoption on the original effective date
permitted. The standard permits the use of either the retrospective or cumulative effect transition method. Management is currently evaluating the impact of the new guidance on the Companys unaudited condensed consolidated financial
statements.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial StatementsGoing Concern, which relates to
disclosure of uncertainties about an entitys ability to continue as a going concern. This ASU provides additional guidance on managements responsibility to evaluate the condition of an entity and the required disclosures based on this
assessment. The amendments in this update are effective for the annual period ending after December 15, 2016, and early application is permitted. The adoption of this FASB guidance would not impact the Companys unaudited condensed consolidated
financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial InstrumentsOverall (Subtopic 825-10): Recognition
and Measurement of Financial Assets and Financial Liabilities. This ASU requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in
fair value in net income (loss) unless the investments qualify for the new practicability exception. Entities will also have to record changes in instrument-specific credit risk for financial liabilities measured under the fair value option in other
comprehensive income (loss). In addition, entities will be required to present enhanced disclosures of financial assets and financial liabilities. The guidance is effective beginning January 1, 2018, with early adoption of certain provisions of
the ASU permitted. Management is currently evaluating the impact of the new guidance on the Companys unaudited condensed consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This ASU requires lessees to recognize a right-of-use asset and lease
liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. The amendments also require certain quantitative and qualitative
disclosures.
13
Accounting guidance for lessors is largely unchanged. The guidance is effective beginning January 1, 2019, with early adoption permitted. Management is currently evaluating the impact of the new
guidance on the Companys unaudited condensed consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09,
Improvements to Employee Share-Based Payment Accounting
,
which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding
requirements, as well as classification of related amounts within the statement of cash flows. The new standard will become effective for the Company beginning with the first quarter of 2017, and early adoption is permitted. Management is currently
evaluating the impact of the new guidance on the Companys unaudited condensed consolidated financial statements.
In August 2016,
the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230)Classification of Certain Cash Receipts and Cash Payments, which makes changes to how cash receipts and cash payments are presented and classified in the statement of cash
flows. The new standard will become effective for the Company beginning with the first quarter of 2018 and will require adoption on a retrospective basis. Management is currently evaluating the impact of the new guidance on the Companys
unaudited condensed consolidated financial statements.
2.
|
Limited Partnership Interests in BGC Holdings
|
BGC Holdings, L.P. (BGC
Holdings) is a consolidated subsidiary of the Company for which the Company is the general partner. The Company and BGC Holdings jointly own BGC Partners, L.P. (BGC US) and BGC Global Holdings L.P. (BGC Global), the two
operating partnerships. Listed below are the limited partnership interests in BGC Holdings. The founding/working partner units, limited partnership units and limited partnership interests held by Cantor Fitzgerald, L.P. (Cantor)
(Cantor units), each as described below, collectively represent all of the limited partnership interests in BGC Holdings.
Founding/Working Partner Units
Founding/working partners have a limited partnership interest in BGC Holdings. The Company accounts for founding/working partner units
(FPUs) outside of permanent capital, as Redeemable partnership interest, in the Companys unaudited condensed consolidated statements of financial condition. This classification is applicable to founding/working partner
units because these units are redeemable upon termination of a partner, including a termination of employment, which can be at the option of the partner and not within the control of the issuer.
Founding/working partner units are held by limited partners who are employees and generally receive quarterly allocations of net income. Upon
termination of employment or otherwise ceasing to provide substantive services, the founding/working partner units are generally redeemed, and the unit holders are no longer entitled to participate in the quarterly allocations of net income. Since
these allocations of net income are cash distributed on a quarterly basis and are contingent upon services being provided by the unit holder, they are reflected as a component of compensation expense under Allocations of net income and grant
of exchangeability to limited partnership units and FPUs in the Companys unaudited condensed consolidated statements of operations.
Limited Partnership Units
Certain employees hold limited partnership interests in BGC Holdings (e.g., REUs, RPUs, PSUs, PSIs and LPUs, collectively the limited
partnership units). Generally, such units receive quarterly allocations of net income, which are cash distributed and generally are contingent upon services being provided by the unit holders. As prescribed in FASB guidance, the quarterly
allocations of net income on such limited partnership units are reflected as a component of compensation expense under Allocations of net income and grant of exchangeability to limited partnership units and FPUs in the Companys
unaudited condensed consolidated statements of operations. From time to time, the Company issues limited partnership units as part of the consideration for acquisitions; these units are not entitled to a distribution of earnings.
Certain of these limited partnership units entitle the holders to receive post-termination payments equal to the notional amount of the units
in four equal yearly installments after the holders termination. These limited partnership units are accounted for as post-termination liability awards, and in accordance with FASB guidance, the Company records compensation expense for the
awards based on the change in value at each reporting date in the Companys unaudited condensed consolidated statements of operations as part of Compensation and employee benefits.
The Company has also awarded certain preferred partnership units (Preferred Units). Each quarter, the net profits of BGC Holdings
are allocated to such units at a rate of either 0.6875% (which is 2.75% per calendar year) or such other amount as set forth in the award documentation (the Preferred Distribution). These allocations are deducted before the calculation
and distribution of the quarterly partnership distribution for the remaining partnership units and are generally contingent upon services being provided by the unit holder. The Preferred Units are not entitled to participate in partnership
distributions other than with respect to the Preferred Distribution. Preferred Units may not be made exchangeable into the Companys Class A common stock and are only entitled to the Preferred
14
Distribution, and accordingly they are not included in the Companys fully diluted share count. The quarterly allocations of net income on Preferred Units are reflected in compensation
expense under Allocations of net income and grant of exchangeability to limited partnership units and FPUs in the Companys unaudited condensed consolidated statements of operations. After deduction of the Preferred Distribution,
the remaining partnership units generally receive quarterly allocations of net income based on their weighted-average pro rata share of economic ownership of the operating subsidiaries.
Cantor Units
Cantor units are reflected as a component of Noncontrolling interest in subsidiaries in the Companys unaudited condensed
consolidated statements of financial condition. Cantor receives allocations of net income (loss), which are cash distributed on a quarterly basis and are reflected as a component of Net income (loss) attributable to noncontrolling interest in
subsidiaries in the Companys unaudited condensed consolidated statements of operations.
General
Certain of the limited partnership interests, described above, have been granted exchangeability into Class A common stock on a one-for-one
basis (subject to adjustment); additional limited partnership interests may become exchangeable for Class A common stock on a one-for-one basis (subject to adjustment). Because they are included in the Companys fully diluted share count, if
dilutive, any exchange of limited partnership interests into Class A common shares would not impact the fully diluted number of shares and units outstanding. Because these limited partnership interests generally receive quarterly allocations of net
income, such exchange would have no significant impact on the cash flows or equity of the Company. Each quarter, net income (loss) is allocated between the limited partnership interests and the common stockholders. In quarterly periods in which the
Company has a net loss, the loss allocation for FPUs, limited partnership units and Cantor units is allocated to Cantor and reflected as a component of Net income (loss) attributable to noncontrolling interest in subsidiaries in the
Companys unaudited condensed consolidated statements of operations. In subsequent quarters in which the Company has net income, the initial allocation of income to the limited partnership interests is to Net income (loss) attributable to
noncontrolling interests in subsidiaries, to recover any losses taken in earlier quarters, with the remaining income allocated to the limited partnership interests. This income (loss) allocation process has no impact on the net income (loss)
allocated to common stockholders.
GFI
On February 26, 2015, the Company successfully completed its tender offer to acquire shares of common stock, par value $0.01 per share, of GFI
for $6.10 per share in cash and accepted for purchase 54.3 million shares tendered to the Company pursuant to the offer. The Tendered Shares, together with the 17.1 million shares already owned by the Company, represented approximately 56% of the
then-outstanding shares of GFI. The Company issued payment for the Tendered Shares on March 4, 2015 in the aggregate amount of $331.1 million. On April 28, 2015, a subsidiary of the Company purchased from GFI approximately 43.0 million new shares at
that dates closing price of $5.81 per share, for an aggregate purchase price of $250 million. The purchase price was paid to GFI in the form of a note due on June 19, 2018 that bears an interest rate of LIBOR plus 200 basis points. The
new shares and the note eliminate in consolidation. Following the issuance of the new shares, the Company owned approximately 67% of GFIs outstanding common stock. On January 12, 2016, the Company completed its acquisition of JPI. Shortly
following the JPI Merger, a subsidiary of the Company merged with and into GFI pursuant to a short-form merger under Delaware law, with GFI continuing as the surviving entity. The Company issued approximately 23.5 million shares of its Class A
common stock and paid $111.2 million in cash in connection with the closing of the Back-End Mergers. Following the closing of the Back-End Mergers, the Company and its affiliates now own 100% of the outstanding shares of GFI common stock. The excess
of total consideration over the fair value of the total net assets acquired, of approximately $450.0 million, has been recorded to goodwill and was allocated to the Companys Financial Services segment. In addition, Total revenues
in the Companys unaudited condensed consolidated statements of operations for the nine months ended September 30, 2016 and September 30, 2015 included $416.2 million and $399.9 million, respectively, related to GFI.
The following tables summarize the components of the purchase consideration transferred and the allocation of the assets acquired and
liabilities assumed based on the fair values as of the acquisition date (in millions, except share and per share amounts).
Calculation of purchase consideration transferred
|
|
|
|
|
|
|
February 26,
2015
|
|
Cash
|
|
$
|
331.1
|
|
Cost value of shares already owned (17,075,464 shares)
|
|
|
75.1
|
|
Redeemable noncontrolling interest (56,435,876 shares at $6.10 per share)
|
|
|
344.3
|
|
|
|
|
|
|
Total purchase consideration and noncontrolling interest (cost value)
|
|
|
750.5
|
|
Appreciation of shares already owned (17,075,464 shares at $6.10 per share less cost
value)
|
|
|
29.0
|
|
|
|
|
|
|
Total purchase consideration and noncontrolling interest (fair value)
|
|
$
|
779.5
|
|
|
|
|
|
|
15
Allocation of the assets acquired and the liabilities assumed
|
|
|
|
|
|
|
February 26,
2015
|
|
Cash and cash equivalents
|
|
$
|
238.8
|
|
Receivables from broker-dealers, clearing organizations, customers and related-broker
dealers
|
|
|
704.8
|
|
Accrued commissions receivable, net
|
|
|
93.6
|
|
Fixed assets, net
|
|
|
58.4
|
|
Goodwill
|
|
|
450.0
|
|
Finite-lived intangible assets:
|
|
|
|
|
Non-compete agreement
|
|
|
15.4
|
|
Technology
|
|
|
39.2
|
|
Customer relationships
|
|
|
133.8
|
|
Acquired intangibles
|
|
|
6.7
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
Trade name
|
|
|
92.1
|
|
Other assets
|
|
|
194.2
|
|
Assets held for sale
|
|
|
208.3
|
|
Short-term borrowings
|
|
|
(70.0
|
)
|
Accrued compensation
|
|
|
(141.0
|
)
|
Payables to broker-dealers, clearing organizations, customers and related broker-dealers
|
|
|
(648.6
|
)
|
Accounts payable, accrued and other liabilities
|
|
|
(163.3
|
)
|
Notes payable and collateralized borrowings
|
|
|
(255.3
|
)
|
Liabilities held for sale
|
|
|
(175.5
|
)
|
Pre-existing noncontrolling interest
|
|
|
(2.1
|
)
|
|
|
|
|
|
|
|
Total
|
|
$
|
779.5
|
|
|
|
|
|
|
The following unaudited pro forma summary presents consolidated information of the Company as if the
acquisition of GFI had occurred on January 1, 2015, and as if the Company owned 100% of GFI from the date of acquisition. The unaudited pro forma results are not indicative of operations that would have been achieved, nor are they indicative of
future results of operations. The unaudited pro forma results do not reflect any potential cost savings or other operations efficiencies that could result from the acquisition. In addition, the unaudited pro forma condensed combined financial
information does not include any adjustments in respect of certain expenses recorded in the GFI financial statements that were associated with non-recurring events unrelated to the acquisition and does not include any adjustments in respect of any
potential future sales of assets. However, the unaudited pro forma results below for the nine months ended September 30, 2015 do include non-recurring pro forma adjustments directly related to the acquisition which mainly consisted of: (a) Prior to
the acquisition, GFI had entered into an agreement with the CME Group Inc. (CME) for CME to acquire GFI. The CME transaction was terminated, and as a result, GFI incurred breakage costs of approximately $24.7 million; (b) Severance
and compensation restructuring charges of $22.2 million incurred by GFI; (c) The aggregate of BGCs and GFIs professional fees incurred, which totaled $24.9 million; and (d) The $29.0 million gain recorded by the Company upon acquisition
of GFI on the 17.1 million shares of GFI common stock owned prior to the completion of the acquisition.
In millions (unaudited)
|
|
|
|
|
|
|
Nine Months Ended
September 30,
2015
|
|
Pro forma revenues
|
|
$
|
2,065.2
|
|
Pro forma consolidated net income (loss)
|
|
$
|
94.2
|
|
16
Other Acquisitions
On February 26, 2016, the Company completed the acquisition of Rudesill-Pera Multifamily, LLC (Memphis Multifamily). Memphis
Multifamily is a multifamily brokerage firm operating in Memphis and the Mid-South Region.
On June 17, 2016, the Company completed the
acquisition of The CRE Group, Inc. (CRE Group). CRE Group is a real estate services provider focused on project management, construction management and Leadership in Energy and Environmental Design (LEED) consulting.
On September 13, 2016, the Company acquired several management agreement contracts from the John Buck Company, LLC and Buck Management Group,
LLC. On September 30, 2016, the Company completed the acquisition of Continental Realty, Ltd. (Continental Realty), a Columbus, Ohio-based company. Continental Realty specializes in commercial realty brokerage and property
management throughout Ohio.
On September 23, 2016 the Company completed the acquisition of Perimeter Markets Inc. (PMI). PMI
develops and operates institutional and retail alternative marketplaces to provide electronic fixed income trading services in Canada.
The total consideration for acquisitions during the nine months ended September 30, 2016, was approximately $22.6 million in total fair
value, comprised of cash and BGC Holdings limited partnership units, of which $8.7 million may be issued contingent on certain targets being met through 2022. The excess of the consideration over the fair value of the net assets acquired has been
recorded as goodwill of approximately $20.2 million.
During the three months ended September 30, 2016, an agreement with the sellers of a
prior acquisition was entered into, whereby certain consideration was reduced, which resulted in the return to the Company of 1.6 million partnership units (with an acquisition date fair value of $14.9 million), the reduction of future cash
earn-outs of $17.3 million and a repayment to the Company of $1.0 million in cash. As a result, the Company recognized $18.3 million (comprised of $17.3 million earn-out reduction and $1.0 million cash received) in Other income
(loss) in the Companys unaudited condensed consolidated statements of operations. These reductions were performance-based.
The results of operations of the Companys acquisitions have been included in the Companys unaudited condensed consolidated
financial statements subsequent to their respective dates of acquisition. The Company has made a preliminary allocation of the consideration to the assets acquired and liabilities assumed as of the acquisition date, and expects to finalize its
analysis with respect to acquisitions within the first year after the completion of the transaction. Therefore, adjustments to preliminary allocations may occur.
Sales of KGL and KBL
In connection with the successful completion of the tender offer to acquire GFI on February 26, 2015, the Company acquired Kyte Group
Limited (KGL) which primarily included GFIs clearing business, and Kyte Broking Limited (KBL).
On January
24, 2015, GFI entered into an agreement to sell its 100% equity ownership of KGL, and the transaction was completed in March 2015. The total cash consideration received by the Company was approximately $10.6 million. The loss incurred from the sale
of KGL of $0.2 million is included within Gain (loss) on divestiture and sale of investments in the Companys unaudited condensed consolidated statements of operations.
On February 3, 2015, GFI entered into an agreement to sell 100% equity ownership of KBL. In May 2015, the Company completed the sale of KBL.
The transaction included total cash consideration of $6.1 million and the Company recorded a gain on the sale of $0.8 million, which is included within Gain (loss) on divestiture and sale of investments in the Companys unaudited
condensed consolidated statements of operations. KBLs operations prior to the completion of the transaction were included in the Companys unaudited condensed consolidated statements of operations.
Sale of Trayport
In connection with the successful completion of the tender offer to acquire GFI, the Company also acquired GFIs Trayport business. The
Trayport business was GFIs European electronic energy software business. On December 11, 2015, the Company completed the sale of its Trayport business to Intercontinental Exchange, Inc. (Intercontinental Exchange or
ICE). Under the terms of the purchase agreement, Intercontinental Exchange acquired the Trayport business from the Company in exchange for 2,527,658 ICE common shares issued with respect to the $650.0 million purchase price, which was
adjusted at closing. The Company recorded a pre-tax gain on the sale of $391.0 million, net of $10.4 million in fees, which was included within Gain (loss) on divestiture and sale of investments in the Companys consolidated
statements of operations for the year ended December 31, 2015. Trayports operations prior to the completion of the transaction were included in the Companys unaudited condensed consolidated statements of operations within the
Financial Services segment.
17
FASB guidance on Earnings Per Share (EPS) establishes
standards for computing and presenting EPS. Basic EPS excludes dilution and is computed by dividing net income (loss) available to common stockholders by the weighted-average shares of common stock outstanding and contingent shares for which all
necessary conditions have been satisfied except for the passage of time. Net income (loss) is allocated to the Companys outstanding common stock, FPUs, limited partnership units and Cantor units (see Note 2Limited Partnership
Interests in BGC Holdings).
The following is the calculation of the Companys basic EPS (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
60,882
|
|
|
$
|
38,371
|
|
|
$
|
90,266
|
|
|
$
|
61,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average shares of common stock outstanding
|
|
|
278,601
|
|
|
|
252,354
|
|
|
|
276,144
|
|
|
|
239,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.22
|
|
|
$
|
0.15
|
|
|
$
|
0.33
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully diluted EPS is calculated utilizing net income (loss) available to common stockholders plus net income
allocations to the limited partnership interests in BGC Holdings, as well as adjustments related to the interest expense on the convertible notes, if applicable (see Note 17Notes Payable, Collateralized and Short-Term Borrowings),
as the numerator. The denominator is comprised of the Companys weighted-average outstanding shares of common stock and, if dilutive, the weighted-average number of limited partnership interests and other contracts to issue shares of common
stock, including convertible notes, stock options and RSUs. The limited partnership interests generally are potentially exchangeable into shares of Class A common stock and are entitled to remaining earnings after the deduction for the
Preferred Distribution; as a result, they are included in the fully diluted EPS computation to the extent that the effect would be dilutive.
The following is the calculation of the Companys fully diluted EPS (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Fully diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
60,882
|
|
|
$
|
38,371
|
|
|
$
|
90,266
|
|
|
$
|
61,773
|
|
Allocation of net income (loss) to limited partnership interests in BGC Holdings, net of
tax
|
|
|
30,986
|
|
|
|
17,846
|
|
|
|
46,119
|
|
|
|
28,441
|
|
Interest expense on convertible notes, net of tax
|
|
|
253
|
|
|
|
2,321
|
|
|
|
3,298
|
|
|
|
2,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) for fully diluted shares
|
|
$
|
92,121
|
|
|
$
|
58,538
|
|
|
$
|
139,683
|
|
|
$
|
93,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock outstanding
|
|
|
278,601
|
|
|
|
252,354
|
|
|
|
276,144
|
|
|
|
239,856
|
|
Limited partnership interests in BGC Holdings
|
|
|
147,222
|
|
|
|
123,221
|
|
|
|
144,341
|
|
|
|
119,334
|
|
Convertible notes
|
|
|
2,121
|
|
|
|
|
|
|
|
11,495
|
|
|
|
|
|
RSUs (Treasury stock method)
|
|
|
423
|
|
|
|
666
|
|
|
|
425
|
|
|
|
770
|
|
Other
|
|
|
1,394
|
|
|
|
17,785
|
|
|
|
2,308
|
|
|
|
10,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully diluted weighted-average shares of common stock outstanding
|
|
|
429,761
|
|
|
|
394,026
|
|
|
|
434,713
|
|
|
|
370,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully diluted earnings per share
|
|
$
|
0.21
|
|
|
$
|
0.15
|
|
|
$
|
0.32
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, 2016 and 2015, respectively, approximately 1.0 million and
10.1 million potentially dilutive securities were not included in the computation of fully diluted EPS because their effect would have been anti-dilutive. Anti-dilutive securities for the three months ended September 30, 2016 included, on a
weighted-average basis, 1.0 million other securities or other contracts to issue shares of common stock. Anti-dilutive securities for the three months ended September 30, 2015 included, on a weighted-average basis, 10.1 million other
securities or other contracts to issue shares of common stock. These 10.1 million shares represented the weighted average of the 24.5 million shares that were to be issued for the completion of the Companys acquisition of GFI.
18
Additionally, as of September 30, 2016 and 2015, respectively, approximately 3.9 million and
7.0 million shares of contingent Class A common stock and limited partnership units were excluded from the fully diluted EPS computations because the conditions for issuance had not been met by the end of the respective periods.
6.
|
Stock Transactions and Unit Redemptions
|
Class A Common Stock
On June 22, 2016, at the Companys 2016 Annual Meeting of Stockholders, the stockholders approved an amendment to the Companys
amended and restated certificate of incorporation to increase the number of authorized shares of Class A common stock from 500 million shares to 750 million shares. The Company filed the certificate of amendment on June 23, 2016, and the
amendment was effective on that date.
Changes in shares of the Companys Class A common stock outstanding for the three and nine
months ended September 30, 2016 and 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Shares outstanding at beginning of period
|
|
|
241,292,033
|
|
|
|
213,656,458
|
|
|
|
219,063,365
|
|
|
|
185,108,316
|
|
Share issuances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchanges of limited partnership
interests
1
|
|
|
2,947,876
|
|
|
|
2,393,879
|
|
|
|
6,269,630
|
|
|
|
6,356,624
|
|
Issuance of Class A common stock for general corporate purposes
|
|
|
|
|
|
|
|
|
|
|
1,648,000
|
|
|
|
|
|
Vesting of restricted stock units (RSUs)
|
|
|
81,873
|
|
|
|
85,698
|
|
|
|
569,344
|
|
|
|
734,445
|
|
Acquisitions
|
|
|
125,111
|
|
|
|
|
|
|
|
24,854,144
|
|
|
|
757,287
|
|
Conversion of 8.75% Convertible Notes to Class A common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,042,599
|
|
Other issuances of Class A common stock
|
|
|
250,219
|
|
|
|
56,637
|
|
|
|
292,524
|
|
|
|
109,605
|
|
Treasury stock repurchases
|
|
|
(1,341,947
|
)
|
|
|
(100,000
|
)
|
|
|
(9,326,182
|
)
|
|
|
(841,081
|
)
|
Forfeitures of restricted Class A common stock
|
|
|
(43,657
|
)
|
|
|
(43,624
|
)
|
|
|
(59,317
|
)
|
|
|
(218,747
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period
|
|
|
243,311,508
|
|
|
|
216,049,048
|
|
|
|
243,311,508
|
|
|
|
216,049,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
The issuances related to exchanges of limited partnership interests did not impact the fully diluted number of shares and units outstanding.
|
Class B Common Stock
On June 22,
2016, at the Companys 2016 Annual Meeting of Stockholders, the stockholders approved an amendment to the Companys amended and restated certificate of incorporation to increase the number of authorized shares of Class B common stock
from 100 million shares to 150 million shares and to provide that Class B common stock shall be issued only to certain affiliated entities or related persons. The Company filed the certificate of amendment on June 23, 2016, and the amendment was
effective on that date.
The Company did not issue any shares of Class B common stock during the three and nine months ended
September 30, 2016 and 2015. As of September 30, 2016 and 2015, there were 34,848,107 shares of the Companys Class B common stock outstanding.
Controlled Equity Offering
The
Company has entered into a controlled equity offering (CEO) sales agreement with CF&Co (November 2014 Sales Agreement), pursuant to which the Company may offer and sell up to an aggregate of 20 million shares of Class A
common stock. Shares of the Companys Class A common stock sold under its CEO sales agreements are used primarily for redemptions and exchanges of limited partnership interests in BGC Holdings. CF&Co is a wholly owned subsidiary of Cantor
and an affiliate of the Company. Under this agreement, the Company has agreed to pay CF&Co 2% of the gross proceeds from the sale of shares. As of September 30, 2016, the Company has sold 12,419,806 shares of Class A common stock under this
agreement. For additional information, see Note 13Related Party Transactions.
19
Unit Redemptions and Share Repurchase Program
The Companys Board of Directors and Audit Committee have authorized repurchases of the Companys Class A common stock and
redemptions of BGC Holdings limited partnership interests or other equity interests in the Companys subsidiaries. In February 2014, the Companys Audit Committee authorized such repurchases of stock or units from Cantor, employees and
partners. On October 27, 2015, the Companys Board of Directors and Audit Committee increased the BGC Partners share repurchase and unit redemption authorization to $300 million, which may include purchases from Cantor, its partners or
employees or other affiliated persons or entities. As of September 30, 2016, the Company had approximately $168.1 million remaining from its share repurchase and unit redemption authorization. From time to time, the Company may actively
continue to repurchase shares and/or redeem units. The table below represents unit redemption and share repurchase activity for the three and nine months ended September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Total Number of
Units Redeemed or
Shares Repurchased
|
|
|
Average
Price Paid
per Unit
or Share
|
|
|
Approximate Dollar
Value
of Units and Shares
That May Yet Be
Redeemed/Purchased
Under the Plan
|
|
Redemptions
1,2
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2016March 31, 2016
|
|
|
775,791
|
|
|
$
|
8.59
|
|
|
|
|
|
April 1, 2016June 30, 2016
|
|
|
1,804,365
|
|
|
|
8.91
|
|
|
|
|
|
July 1, 2016September 30, 2016
|
|
|
2,444,069
|
|
|
|
8.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Redemptions
|
|
|
5,024,225
|
|
|
$
|
8.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases
3,4
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2016March 31, 2016
|
|
|
7,187,046
|
|
|
$
|
8.72
|
|
|
|
|
|
April 1, 2016June 30, 2016
|
|
|
797,189
|
|
|
|
9.04
|
|
|
|
|
|
July 1, 2016July 31, 2016
|
|
|
52,877
|
|
|
|
8.78
|
|
|
|
|
|
August 1, 2016August 31, 2016
|
|
|
94,003
|
|
|
|
8.81
|
|
|
|
|
|
September 1, 2016September 30, 2016
|
|
|
1,195,067
|
|
|
|
8.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Repurchases
|
|
|
9,326,182
|
|
|
$
|
8.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Redemptions and Repurchases
|
|
|
14,350,407
|
|
|
$
|
8.80
|
|
|
$
|
168,103,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
During the three months ended September 30, 2016, the Company redeemed approximately 2.3 million limited partnership units at an aggregate redemption price of
approximately $20.6 million for an average price of $8.90 per unit and approximately 132.7 thousand FPUs at an aggregate redemption price of approximately $1.2 million for an average price of $8.81 per unit. During the three months ended September
30, 2015, the Company redeemed approximately 1.5 million limited partnership units at an aggregate redemption price of approximately $13.6 million for an average price of $9.03 per unit and approximately 54.9 thousand FPUs at an aggregate redemption
price of approximately $294.4 thousand for an average price of $5.36 per unit.
|
2
|
During the nine months ended September 30, 2016, the Company redeemed approximately 4.8 million limited partnership units at an aggregate redemption price of
approximately $42.2 million for an average price of $8.87 per unit and approximately 272.9 thousand FPUs at an aggregate redemption price of approximately $2.3 million for an average price of $8.48 per unit. During the nine months ended September
30, 2015, the Company redeemed approximately 4.8 million limited partnership units at an aggregate redemption price of approximately $42.0 million for an average price of $8.82 per unit and approximately 82.5 thousand FPUs at an aggregate redemption
price of approximately $510.2 thousand for an average price of $6.18 per unit.
|
3
|
During the three months ended September 30, 2016, the Company repurchased approximately 1.3 million shares of its Class A common stock at an aggregate purchase
price of approximately $11.9 million for an average price of $8.90 per share. During the three months ended September 30, 2015, the Company repurchased approximately 100 thousand shares of its Class A common stock at an aggregate purchase price of
approximately $900.9 thousand for an average price of $9.01 per share
|
4
|
During the nine months ended September 30, 2016, the Company repurchased approximately 9.3 million shares of its Class A common stock at an aggregate purchase
price of approximately $81.7 million for an average price of $8.77 per share. During the nine months ended September 30, 2015, the Company repurchased approximately 0.8 million shares of its Class A common stock at an aggregate purchase price of
approximately $6.8 million for an average price of $8.07 per share.
|
The table above represents the gross unit redemptions
and share repurchases of the Companys Class A common stock during the nine months ended September 30, 2016. Approximately 4.3 million of the 5.0 million units above were redeemed using cash from the Companys CEO program, and therefore
did not impact the fully diluted number of shares and units outstanding. The remaining redemptions along with the Class A common stock repurchases resulted in a 10.0 million reduction in the fully diluted share count. This net reduction cost the
Company approximately $87.8 million (or $8.76 per share/unit) during the nine months ended September 30, 2016. This reduction partially offset the overall growth in the fully diluted share count which resulted from shares issued for general
corporate purposes, acquisitions, equity-based compensation and front office hires.
20
Redeemable Partnership Interest
The changes in the carrying amount of redeemable partnership interest for the nine months ended September 30, 2016 and 2015 were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Balance at beginning of period
|
|
$
|
57,145
|
|
|
$
|
59,501
|
|
Consolidated net income allocated to FPUs
|
|
|
5,588
|
|
|
|
3,227
|
|
Earnings distributions
|
|
|
(4,067
|
)
|
|
|
|
|
Re-allocation of equity due to additional investment by founding/working partners
|
|
|
|
|
|
|
80
|
|
FPUs exchanged
|
|
|
(1,890
|
)
|
|
|
(842
|
)
|
FPUs redeemed
|
|
|
(334
|
)
|
|
|
(243
|
)
|
Other
|
|
|
(1
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
56,441
|
|
|
$
|
61,726
|
|
|
|
|
|
|
|
|
|
|
7.
|
Securities Owned and Securities Sold, Not Yet Purchased
|
Securities owned primarily
consist of unencumbered U.S. Treasury bills held for liquidity purposes. Total Securities owned were $212.1 million as of September 30, 2016 and $32.4 million as of December 31, 2015. There were no Securities sold, not yet purchased as of
September 30, 2016 and December 31, 2015. For additional information, see Note 12Fair Value of Financial Assets and Liabilities.
8.
|
Collateralized Transactions
|
Securities loaned
As of September 30, 2016, the Company had no Securities loaned transactions. As of December 31, 2015, the Company had Securities
loaned transactions of $117.9 million with CF&Co. The market value of the securities lent was $116.3 million. As of December 31, 2015, the cash collateral received from CF&Co bore interest rates ranging from 0.80% to 1.00%. Securities
loaned transactions are included in Securities loaned in the Companys unaudited condensed consolidated statements of financial condition.
Marketable securities consist of the Companys ownership of
various investments. The investments had a fair value of $179.9 million and $650.4 million as of September 30, 2016 and December 31, 2015, respectively.
As of September 30, 2016 and December 31, 2015, the Company held Marketable securities classified as trading securities with a market
value of $168.1 million and $644.9 million, respectively. These securities are measured at fair value, with any changes in fair value recognized currently in earnings and included in Other income (loss) in the Companys unaudited
condensed consolidated statements of operations. During the three months ended September 30, 2016 and 2015, the Company recognized a net gain (realized and unrealized) of $6.1 million and $4.4 million, respectively, related to the
mark-to-market on these shares and any related hedging transactions when applicable. During the nine months ended September 30, 2016 and 2015, the Company recognized a net gain (realized and unrealized) of $12.8 million and $5.3 million,
respectively, related to the mark-to-market on these shares and any related hedging transactions when applicable.
In connection with the
Companys sale of its on-the-run, electronic benchmark U.S. Treasury platform (eSpeed) to Nasdaq, Inc. (Nasdaq, formerly known as NASDAQ OMX Group, Inc.) on June 28, 2013, the Company will receive a remaining
earn-out of up to 10,914,717 shares of Nasdaq common stock ratably over the next approximately 11 years, provided that Nasdaq, as a whole, produces at least $25 million in gross revenues each year. During the three months ended September 30,
2016 and 2015, in connection with the Nasdaq earn-out, the Company recognized gains of $67.0 million and $52.9 million, respectively, in Other income (loss) in the Companys unaudited condensed consolidated statements of
operations.
As of September 30, 2016 and December 31, 2015, the Company held marketable
securities classified as available-for-sale with a market value of $11.8 million and $5.5 million, respectively. These securities are measured at fair value, with unrealized gains or losses included as part of Other comprehensive income
(loss) in the Companys unaudited condensed consolidated statements of comprehensive income (loss). During the three months ended September 30, 2016 and 2015, the Company recognized a gain of $0.5 million and $0.1 million, respectively,
related to these Marketable securities classified as available-for-sale. During the nine months ended September 30, 2016 and 2015, the Company recognized a loss of $0.7 million and a gain of $12.8 million respectively, related to these
Marketable securities classified as available-for-sale. In addition, for the nine months ended September 30, 2015, the Company recorded a $29.0 million gain upon acquisition of GFI on the 17.1 million shares of GFI common stock owned prior to
the completion of the acquisition, which were previously classified as available-for-sale marketable securities. The $29.0 million gain previously recorded in Accumulated other comprehensive income (loss) was recorded as a gain in
Other income (loss) in the Companys unaudited condensed consolidated statements of operations.
21
During the nine months ended September 30, 2016, the Company purchased Marketable securities with
a market value of $68.4 million at the time of purchase and sold Marketable securities with a market value of $618.1 million at the time of sale. The majority (or $561.6 million) of the Marketable securities sold during the nine months
ended September 30, 2016 was related to the shares of ICE that the Company received for the sale of Trayport in December 2015.
10.
|
Receivables from and Payables to Broker-Dealers, Clearing Organizations, Customers and Related Broker-Dealers
|
Receivables from and payables to broker-dealers, clearing organizations, customers and related broker-dealers primarily represent amounts due
for undelivered securities, cash held at clearing organizations and exchanges to facilitate settlement and clearance of matched principal transactions, spreads on matched principal transactions that have not yet been remitted from/to clearing
organizations and exchanges and amounts related to open derivative contracts, including derivative contracts into which the Company may enter to minimize the effect of price changes of the Companys Nasdaq shares and/or ICE shares (see Note
11Derivatives). As of September 30, 2016 and December 31, 2015, Receivables from and payables to broker-dealers, clearing organizations, customers and related broker-dealers consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Receivables from broker-dealers, clearing organizations, customers and related
broker-dealers:
|
|
|
|
|
|
|
|
|
Contract values of fails to deliver
|
|
$
|
1,603,087
|
|
|
$
|
692,530
|
|
Receivables from clearing organizations
|
|
|
134,079
|
|
|
|
92,915
|
|
Other receivables from broker-dealers and customers
|
|
|
14,554
|
|
|
|
18,252
|
|
Net pending trades
|
|
|
11,048
|
|
|
|
6,544
|
|
Open derivative contracts
|
|
|
1,066
|
|
|
|
1,999
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,763,834
|
|
|
$
|
812,240
|
|
|
|
|
|
|
|
|
|
|
Payables to broker-dealers, clearing organizations, customers and related broker-dealers:
|
|
|
|
|
|
|
|
|
Contract values of fails to receive
|
|
$
|
1,551,527
|
|
|
$
|
660,365
|
|
Payables to clearing organizations
|
|
|
40,096
|
|
|
|
30,037
|
|
Other payables to broker-dealers and customers
|
|
|
20,939
|
|
|
|
23,287
|
|
Open derivative contracts
|
|
|
775
|
|
|
|
1,134
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,613,337
|
|
|
$
|
714,823
|
|
|
|
|
|
|
|
|
|
|
A portion of these receivables and payables are with Cantor. See Note 13Related Party
Transactions, for additional information related to these receivables and payables.
Substantially all open fails to deliver, open
fails to receive and pending trade transactions as of September 30, 2016 have subsequently settled at the contracted amounts.
In the normal course of operations, the Company enters into derivative
contracts. These derivative contracts primarily consist of interest rate swaps, futures, forwards, foreign exchange/commodities options, and foreign exchange swaps. The Company enters into derivative contracts to facilitate client transactions,
hedge principal positions and facilitate hedging activities of affiliated companies.
Derivative contracts can be exchange-traded or OTC.
Exchange-traded derivatives typically fall within Level 1 or Level 2 of the fair value hierarchy depending on whether they are deemed to be actively traded or not. The Company generally values exchange-traded derivatives using their closing
prices. OTC derivatives are valued using market transactions and other market evidence whenever possible, including market-based inputs to models, broker or dealer quotations or alternative pricing sources with reasonable levels of price
transparency. For OTC derivatives that trade in liquid markets, such as generic forwards, swaps and options, model inputs can generally be verified and model selection does not involve significant management judgment. Such instruments are typically
classified within Level 2 of the fair value hierarchy.
The Company does not designate any derivative contracts as hedges for accounting
purposes. FASB guidance requires that an entity recognize all derivative contracts as either assets or liabilities in the consolidated statements of financial condition and measure those instruments at fair value. The fair value of all derivative
contracts is recorded on a net-by-counterparty basis where a legal right to offset
22
exists under an enforceable netting agreement. Derivative contracts are recorded as part of Receivables from broker-dealers, clearing organizations, customers and related
broker-dealers and Payables to broker-dealers, clearing organizations, customers and related broker-dealers in the Companys unaudited condensed consolidated statements of financial condition. The fair value of derivative
contracts, computed in accordance with the Companys netting policy, is set forth below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
Derivative contract
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
Futures
|
|
$
|
67
|
|
|
$
|
336
|
|
|
$
|
39
|
|
|
$
|
44
|
|
Interest rate swaps
|
|
|
338
|
|
|
|
|
|
|
|
256
|
|
|
|
|
|
Foreign exchange swaps
|
|
|
607
|
|
|
|
439
|
|
|
|
883
|
|
|
|
375
|
|
Foreign exchange/commodities options
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
537
|
|
Forwards
|
|
|
|
|
|
|
|
|
|
|
821
|
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,066
|
|
|
$
|
775
|
|
|
$
|
1,999
|
|
|
$
|
1,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The notional amounts of these derivative contracts at September 30, 2016 and December 31, 2015 were
$11.8 billion and $10.9 billion, respectively. At September 30, 2016, the notional amounts primarily consisted of long futures and short futures of $5.7 billion each. As of September 30, 2016, these notional values of long and short
futures contracts were primarily related to fixed income futures in a consolidated VIE acquired in the acquisition of GFI, of which the Companys exposure to economic loss is approximately $4.3 million.
The interest rate swaps represent matched customer transactions settled through and guaranteed by a central clearing organization. Certain of
the Companys foreign exchange swaps are with Cantor. See Note 13Related Party Transactions, for additional information related to these transactions.
The replacement cost of contracts in a gain position at September 30, 2016 was $1.1 million.
The change in fair value of interest rate swaps, futures, foreign exchange/commodities options and foreign exchange swaps is reported as part
of Principal transactions in the Companys unaudited condensed consolidated statements of operations, and the change in fair value of equity options related to the Nasdaq and ICE hedges are included as part of Other income
(loss) in the Companys unaudited condensed consolidated statements of operations. The table below summarizes gains and losses on derivative contracts for the three and nine months ended September 30, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
Derivative contract
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Futures
|
|
$
|
2,356
|
|
|
$
|
2,058
|
|
|
$
|
6,824
|
|
|
$
|
7,845
|
|
Interest rate swaps
|
|
|
15
|
|
|
|
18
|
|
|
|
28
|
|
|
|
(57
|
)
|
Foreign exchange swaps
|
|
|
306
|
|
|
|
(148
|
)
|
|
|
563
|
|
|
|
(182
|
)
|
Foreign exchange/commodities options
|
|
|
2,735
|
|
|
|
1,100
|
|
|
|
9,292
|
|
|
|
7,511
|
|
Forwards
|
|
|
|
|
|
|
(378
|
)
|
|
|
152
|
|
|
|
527
|
|
Equity options
|
|
|
722
|
|
|
|
|
|
|
|
4,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss)
|
|
$
|
6,134
|
|
|
$
|
2,650
|
|
|
$
|
21,410
|
|
|
$
|
15,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As described in Note 17Notes Payable, Collateralized and Short-Term Borrowings, on
July 29, 2011, the Company issued an aggregate of $160.0 million principal amount of 4.50% Convertible Senior Notes due 2016 (the 4.50% Convertible Notes) that contained an embedded conversion feature. The conversion feature met the
requirements to be accounted for as an equity instrument, and the Company classified the conversion feature within Additional paid-in capital in the Companys unaudited condensed consolidated statements of financial condition. At
the issuance of the 4.50% Convertible Notes, the embedded conversion feature was measured at approximately $19.0 million on a pre-tax basis ($16.1 million net of taxes and issuance costs) as the difference between the proceeds received and the fair
value of a similar liability without the conversion feature and was not subsequently remeasured.
On July 13, 2016, certain holders of the
4.50% Convertible Notes converted $68.0 thousand in principal amount of notes, and upon conversion, the Company delivered 6,909 shares of its Class A common stock to such holders. On July 15, 2016, the Company, upon maturity, repaid the
remaining approximately $159.9 million principal amount of its 4.50% Convertible Notes.
Also in connection with the issuance of the 4.50%
Convertible Notes, the Company entered into capped call transactions. The capped call transactions met the requirements to be accounted for as equity instruments, and the Company classified the capped call transactions within Additional
paid-in capital in the Companys unaudited condensed consolidated statements of financial condition. The purchase price of the capped call transactions resulted in a decrease to Additional paid-in capital of $11.4 million
on a pre-tax basis ($9.9 million on an after-tax basis) at the issuance of the 4.50% Convertible Notes, and such capped call transactions were not subsequently remeasured. The capped call transactions expired unexercised on July 13, 2016.
23
12.
|
Fair Value of Financial Assets and Liabilities
|
FASB guidance establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1
measurementsUnadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 measurementsQuoted prices in markets that are not active or financial instruments for which all significant inputs are
observable, either directly or indirectly.
Level 3 measurementsPrices or valuations that require inputs that are both significant to
the fair value measurement and unobservable.
As required by FASB guidance, assets and liabilities are classified in their entirety based
on the lowest level of input that is significant to the fair value measurement. The following tables set forth by level within the fair value hierarchy financial assets and liabilities accounted for at fair value under FASB guidance at September 30,
2016 and December 31, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value at September 30, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Netting and
Collateral
|
|
|
Total
|
|
Marketable securities
|
|
$
|
179,904
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
179,904
|
|
Government debt
|
|
|
211,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
211,857
|
|
Securities ownedEquities
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199
|
|
Foreign exchange swaps
|
|
|
|
|
|
|
763
|
|
|
|
|
|
|
|
(156
|
)
|
|
|
607
|
|
Interest rate swaps
|
|
|
|
|
|
|
340
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
338
|
|
Futures
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
67
|
|
Foreign exchange/commodities options
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
392,014
|
|
|
$
|
1,170
|
|
|
$
|
|
|
|
$
|
(158
|
)
|
|
$
|
393,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities at Fair Value at September 30, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Netting and
Collateral
|
|
|
Total
|
|
Futures
|
|
$
|
|
|
|
$
|
336
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
336
|
|
Foreign exchange swaps
|
|
|
|
|
|
|
595
|
|
|
|
|
|
|
|
(156
|
)
|
|
|
439
|
|
Interest rate swaps
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
Contingent consideration
|
|
|
|
|
|
|
|
|
|
|
49,981
|
|
|
|
|
|
|
|
49,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
933
|
|
|
$
|
49,981
|
|
|
$
|
(158
|
)
|
|
$
|
50,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value at December 31, 2015
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Netting and
Collateral
|
|
|
Total
|
|
Marketable securities
|
|
$
|
650,315
|
|
|
$
|
85
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
650,400
|
|
Government debt
|
|
|
32,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,352
|
|
Securities ownedEquities
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
Forwards
|
|
|
|
|
|
|
869
|
|
|
|
|
|
|
|
(48
|
)
|
|
|
821
|
|
Foreign exchange swaps
|
|
|
|
|
|
|
1,256
|
|
|
|
|
|
|
|
(373
|
)
|
|
|
883
|
|
Interest rate swaps
|
|
|
|
|
|
|
283
|
|
|
|
|
|
|
|
(27
|
)
|
|
|
256
|
|
Futures
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
Foreign exchange/commodities options
|
|
|
309
|
|
|
|
|
|
|
|
|
|
|
|
(309
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
682,985
|
|
|
$
|
2,532
|
|
|
$
|
|
|
|
$
|
(757
|
)
|
|
$
|
684,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities at Fair Value at December 31, 2015
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Netting and
Collateral
|
|
|
Total
|
|
Forwards
|
|
$
|
|
|
|
$
|
226
|
|
|
$
|
|
|
|
$
|
(48
|
)
|
|
$
|
178
|
|
Futures
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
Government debt
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
Foreign exchange/commodities options
|
|
|
846
|
|
|
|
|
|
|
|
|
|
|
|
(309
|
)
|
|
|
537
|
|
Foreign exchange swaps
|
|
|
|
|
|
|
748
|
|
|
|
|
|
|
|
(373
|
)
|
|
|
375
|
|
Interest rate swaps
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
Contingent consideration
|
|
|
|
|
|
|
|
|
|
|
65,043
|
|
|
|
|
|
|
|
65,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
858
|
|
|
$
|
1,045
|
|
|
$
|
65,043
|
|
|
$
|
(757
|
)
|
|
$
|
66,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Level 3 contingent consideration measured at fair value on a recurring basis for the three
months ended September 30, 2016 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening
Balance
|
|
|
Total realized
and unrealized
gains (losses)
included in
Net income (loss)
(1)
|
|
|
Unrealized gains
(losses) included
in Other
comprehensive
income (loss)
|
|
|
Issuances
|
|
|
Settlements
|
|
|
Closing
Balance at
September 30,
2016
|
|
|
Unrealized gains
(losses) for Level 3
Assets /
Liabilities
Outstanding
at
September 30,
2016
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued and other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
62,272
|
|
|
$
|
16,570
|
|
|
$
|
(14
|
)
|
|
$
|
5,631
|
|
|
$
|
(1,366
|
)
|
|
$
|
49,981
|
|
|
$
|
(711
|
)
|
(1)
|
Realized and unrealized gains (losses) are reported in Other income (loss) in the Companys unaudited condensed consolidated statements of operations.
|
Changes in Level 3 contingent consideration measured at fair value on a recurring basis for the three months ended September 30, 2015 are
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening
Balance
|
|
|
Total realized
and unrealized
gains (losses)
included in
Net income (loss)
(1)
|
|
|
Unrealized gains
(losses) included
in Other
comprehensive
income (loss)
|
|
|
Issuances
|
|
|
Settlements
|
|
|
Closing
Balance at
September 30,
2015
|
|
|
Unrealized
gains (losses) for
Level 3
Assets /
Liabilities
Outstanding
at
September 30,
2015
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued and other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
77,693
|
|
|
$
|
(307
|
)
|
|
$
|
184
|
|
|
$
|
1,031
|
|
|
$
|
(2,554
|
)
|
|
$
|
76,293
|
|
|
$
|
(123
|
)
|
(1)
|
Realized and unrealized gains (losses) are reported in Other income (loss) in the Companys unaudited condensed consolidated statements of operations.
|
Changes in Level 3 contingent consideration measured at fair value on a recurring basis for the nine months ended September 30, 2016
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening
Balance
|
|
|
Total realized
and unrealized
gains (losses)
included in
Net income (loss)
(1)
|
|
|
Unrealized gains
(losses) included
in Other
comprehensive
income (loss)
|
|
|
Issuances
|
|
|
Settlements
|
|
|
Closing
Balance at
September 30,
2016
|
|
|
Unrealized gains
(losses) for Level 3
Assets /
Liabilities
Outstanding
at
September 30,
2016
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued and other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
65,043
|
|
|
$
|
15,822
|
|
|
$
|
131
|
|
|
$
|
7,042
|
|
|
$
|
(6,151
|
)
|
|
$
|
49,981
|
|
|
$
|
(1,314
|
)
|
(1)
|
Realized and unrealized gains (losses) are reported in Other income (loss) in the Companys unaudited condensed consolidated statements of operations.
|
25
Changes in Level 3 contingent consideration measured at fair value on a recurring basis for
the nine months ended September 30, 2015 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening
Balance
|
|
|
Total realized
and unrealized
gains (losses)
included in
Net income (loss)
(1)
|
|
|
Unrealized gains
(losses) included
in Other
comprehensive
income (loss)
|
|
|
Issuances
|
|
|
Settlements
|
|
|
Closing
Balance at
September 30,
2015
|
|
|
Unrealized
gains (losses) for
Level 3
Assets /
Liabilities
Outstanding
at
September 30,
2015
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued and other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
56,299
|
|
|
$
|
(1,772
|
)
|
|
$
|
383
|
|
|
$
|
25,250
|
|
|
$
|
(6,645
|
)
|
|
$
|
76,293
|
|
|
$
|
(1,389
|
)
|
(1)
|
Realized and unrealized gains (losses) are reported in Other income (loss) in the Companys unaudited condensed consolidated statements of operations.
|
The following tables present information about the offsetting of derivative instruments and collateralized transactions as of
September 30, 2016 and December 31, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
|
Gross
Amounts
|
|
|
Gross
Amounts
Offset
|
|
|
Net Amounts
Presented in
the
Statements of
Financial
Condition
|
|
|
|
|
|
Net Amount
|
|
|
|
|
|
Gross Amounts Not Offset
|
|
|
|
|
|
|
Financial
Instruments
|
|
|
Cash
Collateral
Received
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange swaps
|
|
$
|
763
|
|
|
$
|
156
|
|
|
$
|
607
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
607
|
|
Interest rate swaps
|
|
|
340
|
|
|
|
2
|
|
|
|
338
|
|
|
|
|
|
|
|
|
|
|
|
338
|
|
Futures
|
|
|
67
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
67
|
|
Foreign exchange /commodities options
|
|
|
54
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,224
|
|
|
$
|
158
|
|
|
$
|
1,066
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange swaps
|
|
$
|
595
|
|
|
$
|
156
|
|
|
$
|
439
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
439
|
|
Interest rate swaps
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures
|
|
|
336
|
|
|
|
|
|
|
|
336
|
|
|
|
|
|
|
|
|
|
|
|
336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
933
|
|
|
$
|
158
|
|
|
$
|
775
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Gross
Amounts
|
|
|
Gross
Amounts
Offset
|
|
|
Net Amounts
Presented in
the
Statements of
Financial
Condition
|
|
|
|
|
|
Net Amount
|
|
|
|
|
|
Gross Amounts Not Offset
|
|
|
|
|
|
|
Financial
Instruments
|
|
|
Cash
Collateral
Received
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forwards
|
|
$
|
869
|
|
|
$
|
48
|
|
|
$
|
821
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
821
|
|
Foreign exchange swaps
|
|
|
1,256
|
|
|
|
373
|
|
|
|
883
|
|
|
|
|
|
|
|
|
|
|
|
883
|
|
Interest rate swaps
|
|
|
283
|
|
|
|
27
|
|
|
|
256
|
|
|
|
|
|
|
|
|
|
|
|
256
|
|
Futures
|
|
|
39
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
Foreign exchange /commodities options
|
|
|
309
|
|
|
|
309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,756
|
|
|
$
|
757
|
|
|
$
|
1,999
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forwards
|
|
$
|
226
|
|
|
$
|
48
|
|
|
$
|
178
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
178
|
|
Foreign exchange swaps
|
|
|
748
|
|
|
|
373
|
|
|
|
375
|
|
|
|
|
|
|
|
|
|
|
|
375
|
|
Interest rate swaps
|
|
|
27
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures
|
|
|
44
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
Foreign exchange /commodities options
|
|
|
846
|
|
|
|
309
|
|
|
|
537
|
|
|
|
|
|
|
|
|
|
|
|
537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,891
|
|
|
$
|
757
|
|
|
$
|
1,134
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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26
Certain of the Companys foreign exchange swaps are with Cantor. See Note
13Related Party Transactions, for additional information related to these transactions.
Quantitative Information
About Level 3 Fair Value Measurements
The following tables present quantitative information about the significant unobservable
inputs utilized by the Company in the fair value measurement of Level 3 assets and liabilities measured at fair value on a recurring basis (in thousands):
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Fair Value as of
September 30,
2016
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Valuation Technique
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Unobservable Inputs
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Weighted Average
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Liabilities
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Accounts payable, accrued and other liabilities:
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Contingent consideration
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$
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49,981
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Present value of expected payments
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Discount rate
Forecasted financial
information
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6.0
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%(a)
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(a)
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The Companys estimate of contingent consideration as of September 30, 2016 was based on the acquired businesses projected future financial performance, including revenues.
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Fair Value as of
December 31,
2015
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Valuation Technique
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Unobservable Inputs
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Weighted Average
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Liabilities
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Accounts payable, accrued and other liabilities:
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Contingent consideration
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$
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65,043
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Present value of expected payments
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Discount rate
Forecasted financial
information
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5.6
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%(a)
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(a)
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The Companys estimate of contingent consideration as of December 31, 2015 was based on the acquired businesses projected future financial performance, including revenues.
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Valuation Processes Level 3 Measurements
Valuations for contingent consideration are conducted by the Company. Each reporting period, the Company updates unobservable inputs. The
Company has a formal process to review changes in fair value for satisfactory explanation.
Sensitivity Analysis Level 3
Measurements
The significant unobservable inputs used in the fair value of the Companys contingent consideration are the
discount rate and forecasted financial information. Significant increases (decreases) in the discount rate would have resulted in a lower (higher) fair value measurement. Significant increases (decreases) in the forecasted financial information
would have resulted in a higher (lower) fair value measurement. As of September 30, 2016 and December 31, 2015, the present value of expected payments related to the Companys contingent consideration was $50.0 million and $65.0 million,
respectively. The undiscounted value of the payments, assuming that all contingencies are met, would be $51.7 million and $76.1 million, respectively.
27
13.
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Related Party Transactions
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Service Agreements
Throughout Europe and Asia, the Company provides Cantor with administrative services, technology services and other support for which it
charges Cantor based on the cost of providing such services plus a mark-up, generally 7.5%. In the U.K., the Company provides these services to Cantor through Tower Bridge. The Company owns 52% of Tower Bridge and consolidates it, and Cantor owns
48%. Cantors interest in Tower Bridge is reflected as a component of Noncontrolling interest in subsidiaries in the Companys unaudited condensed consolidated statements of financial condition, and the portion of Tower
Bridges income attributable to Cantor is included as part of Net income (loss) attributable to noncontrolling interest in subsidiaries in the Companys unaudited condensed consolidated statements of operations. In the U.S.,
the Company provides Cantor with technology services for which it charges Cantor based on the cost of providing such services.
The
administrative services agreement provides that direct costs incurred are charged back to the service recipient. Additionally, the service recipient generally indemnifies the service provider for liabilities that it incurs arising from the provision
of services other than liabilities arising from fraud or willful misconduct of the service provider. In accordance with the administrative service agreement, the Company has not recognized any liabilities related to services provided to affiliates.
For the three months ended September 30, 2016 and 2015, the Company recognized related party revenues of $6.1 million and $6.6
million, respectively, for the services provided to Cantor. For the nine months ended September 30, 2016 and 2015, the Company recognized related party revenues of $18.1 million and $19.3 million, respectively, for the services provided to Cantor.
These revenues are included as part of Fees from related parties in the Companys unaudited condensed consolidated statements of operations.
In the U.S., Cantor and its affiliates provide the Company with administrative services and other support for which Cantor charges the Company
based on the cost of providing such services. In connection with the services Cantor provides, the Company and Cantor entered into an employee lease agreement whereby certain employees of Cantor are deemed leased employees of the Company. For the
three months ended September 30, 2016 and 2015, the Company was charged $12.5 million and $10.9 million, respectively, for the services provided by Cantor and its affiliates, of which $7.5 million and $6.0 million, respectively, were to cover
compensation to leased employees for the three months ended September 30, 2016 and 2015. For the nine months ended September 30, 2016 and 2015, the Company was charged $35.2 million and $32.3 million, respectively, for the services provided by
Cantor and its affiliates, of which $20.4 million and $18.7 million, respectively, were to cover compensation to leased employees for the nine months ended September 30, 2016 and 2015. The fees paid to Cantor for administrative and support services,
other than those to cover the compensation costs of leased employees, are included as part of Fees to related parties in the Companys unaudited condensed consolidated statements of operations. The fees paid to Cantor to cover the
compensation costs of leased employees are included as part of Compensation and employee benefits in the Companys unaudited condensed consolidated statements of operations.
For the three months ended September 30, 2016, Cantors share of the net loss in Tower Bridge was $1.4 million, and for the three
months ended September 30, 2015, Cantors share of net profit was $0.8 million. For the nine months ended September 30, 2016 and 2015, Cantors share of the net profit in Tower Bridge was $1.9 million and $1.7 million,
respectively. Cantors noncontrolling interest is included as part of Noncontrolling interest in subsidiaries in the Companys unaudited condensed consolidated statements of financial condition.
Equity Method Investment
On June 3, 2014, the Companys Board of Directors and Audit Committee authorized the purchase of 1,000 Class B Units of LFI Holdings, LLC
(LFI), a subsidiary of Cantor, representing 10% of the issued and outstanding Class B Units of LFI after giving effect to the transaction. On the same day, the Company completed the acquisition for $6.5 million and was granted an option
to purchase an additional 1,000 Class B Units of LFI for an additional $6.5 million. On January 15, 2016, the Company closed on the exercise of its option to acquire additional Class B Units of LFI Holdings, LLC. At the closing, the Company made a
payment of $6.5 million to LFI. As a result of the option exercise, the Company has a 20% ownership interest in LFI. LFI is a limited liability corporation headquartered in New York which is a technology infrastructure provider tailored to
the financial sector. The Company accounts for the investment using the equity method.
Clearing Agreement with Cantor
The Company receives certain clearing services from Cantor pursuant to its clearing agreement. These clearing services are provided in exchange
for payment by the Company of third-party clearing costs and allocated costs. The costs associated with these payments are included as part of Fees to related parties in the Companys unaudited condensed consolidated statements of
operations.
28
Other Agreements with Cantor
The Company is authorized to enter into short-term arrangements with Cantor to cover any failed U.S. Treasury securities transactions and to
share equally any net income resulting from such transactions, as well as any similar clearing and settlement issues. As of September 30, 2016 and December 31, 2015, the Company had not entered into any arrangements to cover any failed
U.S. Treasury transactions.
To more effectively manage the Companys exposure to changes in foreign exchange rates, the Company and
Cantor have agreed to jointly manage the exposure. As a result, the Company is authorized to divide the quarterly allocation of any profit or loss relating to foreign exchange currency hedging between Cantor and the Company. The amount allocated to
each party is based on the total net exposure for the Company and Cantor. The ratio of gross exposures of Cantor and the Company is utilized to determine the shares of profit or loss allocated to each for the period. During the three months ended
September 30, 2016 and 2015, the Company recognized its share of foreign exchange gains of $684 thousand and $64 thousand, respectively. During the nine months ended September 30, 2016 and 2015, the Company recognized its share of foreign
exchange losses of $106 thousand and $19 thousand, respectively. These gains and losses are included as part of Other expenses in the Companys unaudited condensed consolidated statements of operations.
Pursuant to the separation agreement relating to the Companys acquisition of certain BGC businesses from Cantor in 2008, Cantor has a
right, subject to certain conditions, to be the Companys customer and to pay the lowest commissions paid by any other customer, whether by volume, dollar or other applicable measure. In addition, Cantor has an unlimited right to internally use
market data from the Company without any cost. Any future related-party transactions or arrangements between the Company and Cantor are subject to the prior approval by the Companys Audit Committee. During the three months ended
September 30, 2016 and 2015, the Company recorded revenues from Cantor entities of $36.0 thousand and $62.0 thousand, respectively, related to commissions paid to the Company by Cantor. During the nine months ended September 30, 2016 and
2015, the Company recorded revenues from Cantor entities of $116.0 thousand and $266.0 thousand, respectively, related to commissions paid to the Company by Cantor.
In March 2009, the Company and Cantor were authorized to utilize each others brokers to provide brokerage services for securities not
brokered by such entity, so long as, unless otherwise agreed, such brokerage services were provided in the ordinary course and on terms no less favorable to the receiving party than such services are provided to typical third-party customers.
In August 2013, the Audit Committee authorized the Company to invest up to $350 million in an asset-backed commercial paper program for which
certain Cantor entities serve as placement agent and referral agent. The program issues short-term notes to money market investors and is expected to be used by the Company from time to time as a liquidity management vehicle. The notes are backed by
assets of highly rated banks. The Company is entitled to invest in the program so long as the program meets investment policy guidelines, including policies related to ratings. Cantor will earn a spread between the rate it receives from the
short-term note issuer and the rate it pays to the Company on any investments in this program. This spread will be no greater than the spread earned by Cantor for placement of any other commercial paper note in the program. As of September 30,
2016 and December 31, 2015, the Company did not have any investments in the program.
On June 5, 2015, the Company entered into an
agreement with Cantor providing Cantor, CF Group Management, Inc. (CFGM) and other Cantor affiliates entitled to hold Class B common stock the right to exchange from time to time, on a one-to-one basis, subject to adjustment, up to an
aggregate of 34,649,693 shares of Class A common stock now owned or subsequently acquired by such Cantor entities for up to an aggregate of 34,649,693 shares of Class B common stock. Such shares of Class B common stock, which currently can be
acquired upon the exchange of exchangeable limited partnership units owned in BGC Holdings, are already included in the Companys fully diluted share count and will not increase Cantors current maximum potential voting power in the common
equity. The exchange agreement will enable the Cantor entities to acquire the same number of shares of Class B common stock that they are already entitled to acquire without having to exchange its exchangeable limited partnership units in BGC
Holdings. The Companys Audit Committee and full Board of Directors determined that it was in the best interests of the Company and its stockholders to approve the exchange agreement because it will help ensure that Cantor retains its
exchangeable limited partnership units in BGC Holdings, which is the same partnership in which the Companys partner employees participate, thus continuing to align the interests of Cantor with those of the partner employees.
Under the exchange agreement, Cantor and CFGM have the right to exchange 14,850,946 shares of Class A common stock owned by them as of
September 30, 2016 (including the remaining shares of Class A common stock held by Cantor from the exchange of convertible notes for 24,042,599 shares of Class A common stock on April 13, 2015) for the same number of shares of Class B common stock.
Cantor would also have the right to exchange any shares of Class A common stock subsequently acquired by it for shares of Class B common stock, up to 34,649,693 shares of Class B common stock.
The Company and Cantor have agreed that any shares of Class B common stock issued in connection with the exchange agreement would be deducted
from the aggregate number of shares of Class B common stock that may be issued to the Cantor entities upon exchange of exchangeable limited partnership units in BGC Holdings. Accordingly, the Cantor entities will not be entitled to receive any more
shares of Class B common stock under this agreement than they were previously eligible to receive upon exchange of exchangeable limited partnership units.
29
On June 23, 2015, the Audit Committee of the Company authorized management to enter into a
revolving credit facility with Cantor of up to $150 million in aggregate principal amount pursuant to which Cantor or BGC would be entitled to borrow funds from each other from time to time. The outstanding balances would bear interest at the higher
of the borrowers or the lenders short-term borrowing rate then in effect, plus 1%. On October 1, 2015, the Company borrowed $100.0 million under this facility (the Cantor Loan). The Company did not have any interest
expense related to the Cantor Loan for the three and nine months ended September 30, 2016 or 2015. The Cantor Loan was repaid on December 31, 2015. As of September 30, 2016, there were no borrowings outstanding under this facility.
On February 9, 2016, the Audit Committee of the Board of Directors authorized the Company to enter into an arrangement with Cantor in which
the Company would provide dedicated development services to Cantor at a cost to the Company not to exceed $1.4 million per year for the purpose of Cantor developing the capacity to provide quotations in certain securities from time to time. The
services are terminable by either party at any time and will be provided on the terms and conditions set forth in the existing Administrative Services Agreement. The Company did not provide any development services to Cantor in the three or
nine months ended September 30, 2016.
In July 2016, the Audit Committee of the Company authorized the Company to provide real estate and
related services, including real estate advice, brokerage, property or facilities management, appraisals and valuations and other services, to Cantor on rates and terms no less favorable to the Company than those charged to third-party
customers. The Company and Cantor expect to enter into these arrangements from time to time. The Company did not provide any such real estate and related services in the three and nine months ended September 30, 2016.
Receivables from and Payables to Related Broker-Dealers
Amounts due to or from Cantor and Freedom International Brokerage, one of the Companys equity method investments, are for transactional
revenues under a technology and services agreement with Freedom International Brokerage as well as for open derivative contracts. These are included as part of Receivables from broker-dealers, clearing organizations, customers and related
broker-dealers or Payables to broker-dealers, clearing organizations, customers and related broker-dealers in the Companys unaudited condensed consolidated statements of financial condition. As of September 30, 2016 and
December 31, 2015, the Company had receivables from Freedom International Brokerage of $1.8 million and $4.1 million, respectively. As of September 30, 2016 and December 31, 2015, the Company had $0.6 million and $0.9 million,
respectively, in receivables from Cantor related to open derivative contracts. As of September 30, 2016 and December 31, 2015, the Company had $0.4 million and $0.4 million, respectively, in payables to Cantor related to open derivative
contracts. Additionally, as of December 31, 2015, the Company had $4.6 million in payables to Cantor related to fails and equity trades pending settlement. As of September 30, 2016, the Company did not have any payables to Cantor
related to fails and pending trades.
Loans, Forgivable Loans and Other Receivables from Employees and Partners, Net
The Company has entered into various agreements with certain employees and partners whereby these individuals receive loans which may be either
wholly or in part repaid from the distribution earnings that the individuals receive on some or all of their limited partnership interests or may be forgiven over a period of time. The forgivable portion of these loans is recognized as compensation
expense over the life of the loan. From time to time, the Company may also enter into agreements with employees and partners to grant bonus and salary advances or other types of loans. These advances and loans are repayable in the timeframes
outlined in the underlying agreements.
As of September 30, 2016 and December 31, 2015, the aggregate balance of employee loans, net of
reserve, was $254.0 million and $158.2 million, respectively, and is included as Loans, forgivable loans and other receivables from employees and partners, net in the Companys unaudited condensed consolidated statements of
financial condition. Compensation expense for the above-mentioned employee loans for the three months ended September 30, 2016 and 2015 was $23.7 million and $11.1 million, respectively. Compensation expense for the above-mentioned
employee loans for the nine months ended September 30, 2016 and 2015 was $44.7 million and $30.9 million, respectively. The compensation expense related to these employee loans is included as part of Compensation and employee
benefits in the Companys unaudited condensed consolidated statements of operations.
8.75% Convertible Notes
On April 1, 2010, BGC Holdings issued an aggregate of $150.0 million principal amount of 8.75% Convertible Senior Notes due 2015
(the 8.75% Convertible Notes) to Cantor in a private placement transaction. The Company used the proceeds of the 8.75%
30
Convertible Notes to repay at maturity $150.0 million aggregate principal amount of Senior Notes due April 1, 2010. On April 13, 2015, the Companys 8.75% Convertible Notes, due April 15,
2015, were fully converted into 24,042,599 shares of the Companys Class A common stock, par value $0.01 per share, and the shares were issued to Cantor as settlement of the notes. The Company did not record any interest expense related to the
8.75% Convertible Notes for the three months ended September 30, 2015. The Company recorded interest expense related to the 8.75% Convertible Notes of $3.8 million for the nine months ended September 30, 2015. See Note 17Notes Payable,
Collateralized and Short-Term Borrowings, for more information. On June 15, 2015, the Company filed a resale registration statement on Form S-3 pursuant to which 24,042,599 shares of Class A common stock may be sold from time to time by Cantor
or by certain of its pledgees, donees, distributees, counterparties, transferees or other successors in interest of the shares, including banks or other financial institutions which may enter into stock pledge, stock loan or other financing
transactions with Cantor or its affiliates, as well as by their respective pledgees, donees, distributees, counterparties, transferees or other successors in interest.
Repurchases from Cantor
On February 23, 2016, the Company purchased from Cantor 5,000,000 shares of the Companys Class A common stock at a price of $8.72 per
share, the closing price on the date of the transaction. This transaction was included in the Companys stock repurchase authorization and was approved by the Audit Committee of the Board of Directors.
Controlled Equity Offerings and Other Transactions with CF&Co
As discussed in Note 6Stock Transactions and Unit Redemptions, the Company has entered into the November 2014 Sales
Agreements with CF&Co, as the Companys sales agent. During the three months ended September 30, 2016, the Company sold 2.3 million shares under the November 2014 Sales Agreement for aggregate proceeds of $20.7 million, at a
weighted-average price of $9.05 per share. For the three months ended September 30, 2016 and 2015, the Company was charged approximately $0.4 million and $0.3 million, respectively, for services provided by CF&Co related to the Companys
November 2014 Sales Agreement. During the nine months ended September 30, 2016, the Company sold 6.0 million shares under the November 2014 Sales Agreement for aggregate proceeds of $54.4 million, at a weighted-average price of $9.12 per share. For
the nine months ended September 30, 2016 and 2015, the Company was charged approximately $1.1 million and $0.8 million, respectively, for services provided by CF&Co related to the Companys November 2014 Sales Agreement. These expenses are
included as part of Professional and consulting fees in the Companys unaudited condensed consolidated statements of operations.
The Company has engaged CF&Co and its affiliates to act as financial advisor in connection with one or more third-party business
combination transactions as requested by the Company on behalf of its affiliates from time to time on specified terms, conditions and fees. The Company may pay finders, investment banking or financial advisory fees to broker-dealers,
including, but not limited to, CF&Co and its affiliates, from time to time in connection with certain business combination transactions, and, in some cases, the Company may issue shares of the Companys Class A common stock in full or
partial payment of such fees.
On October 3, 2014, management was granted approval by our Board of Directors and Audit Committee to enter
into stock loan transactions with CF&Co utilizing shares of Nasdaq stock or other equities. Such stock loan transactions will bear market terms and rates. As of September 30, 2016, the Company had no Securities loaned transactions with
CF&Co.
On February 26, 2015, the Company completed the tender offer for GFI shares. In connection with the acquisition of GFI, during
the three months ended March 31, 2015, the Company recorded advisory fees of $7.1 million payable to CF&Co. These fees were included in Professional and Consulting Fees in the Companys unaudited condensed consolidated
statements of operations.
On May 7, 2015, GFI retained CF&Co to assist it in the sale of Trayport. During the year ended
December 31, 2015, the Company recorded advisory fees of $5.1 million payable to CF&Co in connection with the sale of Trayport. These fees were netted against the gain on sale in Gain (loss) on divestures and sale of investments
in the Companys consolidated statements of operations.
On May 27, 2016, the Company issued an aggregate of $300.0 million principal
amount of 5.125% Senior Notes due 2021 (the 5.125% Senior Notes). In connection with this issuance of 5.125% Senior Notes, the Company recorded approximately $0.5 million in underwriting fees payable to CF&Co and $18 thousand to
CastleOak Securities, L.P. These fees were recorded as a deduction from the carrying amount of the debt liability, which is amortized as interest expense over the term of the notes. Cantor Fitzgerald Securities, an affiliate of the Company,
purchased $15 million of such senior notes.
Under rules adopted by the Commodity Futures Trading Commission (the CFTC), all
foreign introducing brokers engaging in transactions with U.S. persons are required to register with the National Futures Association and either meet financial reporting and net capital requirements on an individual basis or obtain a guarantee
agreement from a registered Futures Commission Merchant. From time to time, the Companys foreign-based brokers engage in interest rate swap transactions with U.S.-based counterparties, and therefore the Company is subject to the CFTC
requirements. CF&Co has entered into guarantees on behalf of the Company, and the Company is required to indemnify CF&Co for the amounts, if any, paid by CF&Co on behalf of the Company pursuant to this arrangement. There have been no
payments made pursuant to this arrangement.
31
Transactions with Cantor Commercial Real Estate Company, L.P.
On October 29, 2013, the Audit Committee of the Board of Directors authorized the Company to enter into agreements from time to time with
Cantor and/or its affiliates, including Cantor Commercial Real Estate Company, L.P. (CCRE), to provide services, including finding and reviewing suitable acquisition or partner candidates, structuring transactions, negotiating and due
diligence services, in connection with the Companys acquisition and other business strategies in commercial real estate and other businesses. Such services are provided at fees not to exceed the fully-allocated cost of such services, plus 10%.
In connection with this agreement, the Company did not recognize any expense for the three and nine months ended September 30, 2016 and 2015.
The Company also has a referral agreement in place with CCRE, in which the Companys brokers are incentivized to refer business to CCRE
through a revenue-share agreement. In connection with this revenue-share agreement, the Company recognized revenues of $3.8 million and $0.5 million for the three months ended September 30, 2016 and 2015, respectively. The Company recognized
revenues of $5.6 million and $0.7 million for the nine months ended September 30, 2016 and 2015, respectively. This revenue was recorded as part of Commissions in the Companys unaudited condensed consolidated statements of
operations.
The Company also has a revenue-share agreement with CCRE, in which the Company pays CCRE for referrals for leasing or other
services. In connection with this agreement, the Company paid $0.1 million and $0.1 million to CCRE for the three months ended September 30, 2016 and 2015, respectively. The Company paid $0.4 million and $0.3 million to CCRE for the nine months
ended September 30, 2016 and 2015, respectively.
Cantor Rights to Purchase Limited Partnership Interests from BGC Holdings
Cantor has the right to purchase limited partnership interests (Cantor units) from BGC Holdings upon redemption of
non-exchangeable FPUs redeemed by BGC Holdings upon termination or bankruptcy of the founding/working partner. In addition, pursuant to the Sixth Amendment to the BGC Holdings Limited Partnership Agreement (the Sixth Amendment), where
either current, terminating, or terminated partners are permitted by the Company to exchange any portion of their FPUs and Cantor consents to such exchangeability, the Company shall offer to Cantor the opportunity for Cantor to purchase the same
number of new exchangeable limited partnership interests (Cantor units) in BGC Holdings at the price that Cantor would have paid for the FPUs had the Company redeemed them. Any such Cantor units purchased by Cantor are currently exchangeable for up
to 34,649,693 shares of Class B common stock or, at Cantors election or if there are no such additional shares of Class B common stock, shares of Class A common stock, in each case on a one-for-one basis (subject to customary anti-dilution
adjustments).
On November 4, 2015, the Company issued exchange rights with respect to, and Cantor purchased, in transactions exempt from
registration pursuant to Section 4(a)(2) of the Securities Act, an aggregate of 1,775,481 exchangeable limited partnership units in BGC Holdings, as follows: In connection with the redemption by BGC Holdings of an aggregate of 588,356
non-exchangeable founding partner units from founding partners of BGC Holdings for an aggregate consideration of $2,296,801, Cantor purchased 554,196 exchangeable limited partnership units from BGC Holdings for an aggregate of $2,115,306 (after
offset of a founding partners $46,289 debt due to Cantor). In addition, pursuant to the Sixth Amendment, on November 4, 2015, Cantor purchased 1,221,285 exchangeable limited partnership units from BGC Holdings for an aggregate
consideration of $4,457,436 in connection with the grant of exchangeability and exchange of 1,221,285 founding partner units. Exchangeable limited partnership units held by Cantor are exchangeable by Cantor at any time on a one-for-one basis
(subject to adjustment) for shares of Class A common stock of the Company.
As of September 30, 2016, there were 1,166,503 FPUs remaining
in which BGC Holdings had the right to redeem or exchange and Cantor had the right to purchase an equivalent number of Cantor units.
Transactions with Executive Officers and Directors
On May 9, 2014, partners of BGC Holdings approved the Tenth Amendment to the Agreement of Limited Partnership of BGC Holdings (the Tenth
Amendment) effective as of May 9, 2014. In order to facilitate partner compensation and for other corporate purposes, the Tenth Amendment creates a new class of partnership units (NPSUs).
NPSUs granted to Executive Officers are not entitled to participate in partnership distributions, will not be allocated any items of profit or
loss, may not be made exchangeable into shares of the Companys Class A common stock and will not be included in the fully diluted share count. Subject to the approval of the Compensation Committee or its designee, such N Units may be converted
into the underlying unit type (i.e. an NREU will be converted into an REU) and will then participate in partnership distributions, subject to terms and conditions determined by the general partner of BGC Holdings in its sole discretion, including
that the recipient continue to provide substantial services to the Company and comply with his or her partnership obligations. The Tenth Amendment was approved by the Audit Committee of the Board of Directors and by the full Board of Directors.
32
On January 1, 2015, (i) 1,000,000 of Mr. Lutnicks (the Companys Chief Executive
Officer) NPSUs converted into 550,000 PSUs and 450,000 PPSUs, with respect to which Mr. Lutnick was offered the right to exchange 239,739 PSUs and 196,150 PPSUs for shares and cash, which he waived at that time under the Companys policy, and
(ii) 142,857 of Mr. Merkels (the Companys Executive Vice President, General Counsel and Secretary) NPSUs converted into 78,571 PSUs and 64,286 PPSUs, of which 5,607 PSUs and 4,588 PPSUs were made exchangeable and repurchased by the
Company at the average price of shares of Class A common stock sold under the Companys controlled equity offering less 2%, or $91,558.
On January 30, 2015, the Compensation Committee granted 4,000,000 NPSUs to Mr. Lutnick and 1,000,000 NPSUs to Mr. Lynn (the Companys
President). These awards convert 25% per year on January 1 of each year beginning January 1, 2016 such that 1,000,000 of Mr. Lutnicks NPSUs and 250,000 of Mr. Lynns NPSUs may be converted into an equivalent number of
non-exchangeable PSUs/PPSUs for Mr. Lutnick and non-exchangeable LPUs/PLPUs for Mr. Lynn on each conversion date, subject to the approval of the Compensation Committee for all such conversions beginning in 2016. The grant of exchange rights with
respect to such PSUs/PPSUs and LPUs/PLPUs will be determined in accordance with the Companys practices when determining discretionary bonuses or awards, and any grants of exchangeability shall be subject to the approval of the Compensation
Committee. Upon the signing of any agreement that would result in a Change in Control (as defined in the Amended and Restated Change in Control Agreement entered into by Mr. Lutnick and the applicable Deed of Adherence entered into by
Mr. Lynn), (1) any unvested NPSUs held by Mr. Lutnick or Mr. Lynn shall convert in full and automatically be converted into exchangeable PSUs/PPSUs or LPUs/PLPUs (i.e., such PSUs and LPUs shall be exchangeable for shares of Class A common stock and
PPSUs and PLPUs shall be exchangeable for cash), and (2) any non-exchangeable PSUs/PPSUs held by Mr. Lutnick and non-exchangeable LPUs/PLPUs held by Mr. Lynn shall become immediately exchangeable, which exchangeability may be exercised in connection
with such Change in Control, except that, with respect to (1) and (2), 9.75% of Mr. Lynns LPUs/PLPUs shall be deemed to be redeemed for zero in proportion to such exchanges of LPUs/PLPUs in accordance with the customary LPU/PLPU
structure.
On January 30, 2015, the Compensation Committee approved the acceleration of the lapse of restrictions on transferability
with respect to an aggregate of 598,904 shares of restricted stock held by our executive officers as follows: Mr. Lynn, 455,733 shares; Mr. Merkel, 16,354 shares; Mr. Windeatt (the Companys Chief Operating Officer), 95,148
shares; and Mr. Sadler (the Companys former Chief Financial Officer), 31,669 shares. On January 30, 2015, these executives sold these shares to the Company at $7.83 per share. In connection with such sales, an aggregate of
87,410 of LPUs were redeemed for zero as follows: Mr. Lynn, 68,381 units; Mr. Windeatt, 14,277 units; and Mr. Sadler 4,752 units.
On July 27, 2015, the Compensation Committee granted exchange rights with respect to 8,536 PSUs and 6,983 PPSUs that were issued pursuant to
converted NPSUs that were awarded to Mr. Merkel in May 2014. On October 29, 2015, the Company repurchased (i) the 8,536 PSUs at a price of $8.34 per share, the closing price of the Class A common stock on the date the Compensation Committee
approved the transaction, and (ii) the 6,983 PPSUs at a price of $9.15 per share, the closing price of the Class A common stock on December 31, 2014.
On February 24, 2016, the Compensation Committee granted 1,500,000 NPSUs to Mr. Lutnick, 2,000,000 NPSUs to Mr. Lynn, 1,000,000
NPSUs to Mr. Merkel and 75,000 NPSUs to Mr. Windeatt. Conversion of NPSUs into PSUs/PPSUs for Messrs. Lutnick and Merkel and into LPUs/PLPUs for Messrs. Lynn and Windeatt may be (i) 25% per year with respect to NPSUs granted in 2016; (ii)
25% of the previously awarded NPSUs currently held by Messrs. Lutnick and Lynn based upon the original issuance date (the first 25% having already been converted); and (iii) 25% per year of the current balance of NPSUs previously awarded to Mr.
Merkel, provided that, with respect to all of the foregoing, such future conversions are subject to the approval of the Compensation Committee each year. The grant of exchange rights with respect to such PSUs/PPSUs and LPUs/PLPUs will be
determined in accordance with the Companys practices when determining discretionary bonuses or awards, and any grants of exchangeability shall be subject to the approval of the Compensation Committee.
On February 24, 2016, the Compensation Committee granted 750,000 non-exchangeable PSUs and 291,667 PPSUs (which may not be made
exchangeable) to Mr. Lutnick; 621,429 non-exchangeable LPUs and 241,667 PLPUs (which may not be made exchangeable) to Mr. Lynn; 114,583 non-exchangeable PSUs and 93,750 PPSUs (which may not be made exchangeable) to Mr. Merkel; 105,188
non-exchangeable LPUs and 40,906 non-exchangeable PLPUs (which may not be made exchangeable) to Mr. Windeatt; and 55,688 non-exchangeable LPUs and 21,656 non-exchangeable PLPUs (which may not be made exchangeable) to Mr. Sadler.
On February 24, 2016, the Compensation Committee approved the acceleration of the lapse of restrictions on transferability with respect to
612,958 shares of restricted stock held by our executive officers as follows: Mr. Lynn, 431,782 shares; Mr. Merkel, 150,382 shares; and Mr. Sadler, 30,794 shares. On February 24, 2016, Messrs. Lynn and Sadler sold these shares to the
Company at $8.40 per share, and Mr. Merkel sold 120,000 of such shares to the Company at $8.40 per share. In connection with such transaction, 64,787 of Mr. Lynns and 4,621 of Mr. Sadlers partnership units were redeemed for zero.
33
In February 2016, the Company granted exchange rights and/or released transfer restrictions with
respect to 2,127,648 rights available to Mr. Lutnick with respect to some of his non-exchangeable limited partnership units (which amount included the lapse of restrictions with respect to 235,357 shares of restricted stock held by him), which
were all of such rights available to him at such time. Mr. Lutnick has not transferred or exchanged such shares or units as of the date hereof.
On March 9, 2016, Mr. Lutnick exercised an employee stock option with respect to 250,000 shares of Class A common stock at an exercise price
of $8.42 per share. The net exercise of the option resulted in 17,403 shares of the Companys Class A common stock being issued to Mr. Lutnick.
In July 2016, the Audit Committee authorized the purchase by Mr. Lutnicks retirement plan of up to $350,000 in Class A common stock
at the closing price on the date of purchase. 36,405 shares of Class A common stock were purchased by the plan on August 16, 2016, at $8.77 per share, the closing price on the date of purchase.
On September 30, 2016, Mr. Merkel elected to sell, and the Company agreed to purchase, an aggregate of 16,634 shares of the Companys
Class A common stock at a price of $8.75 per share, the closing price of the Companys Class A common stock on such date. On September 30, 2016, certain trusts for the benefit of Mr. Merkels immediate family, of which
Mr. Merkels spouse is the sole trustee of each trust and Mr. Merkel has the power to remove and replace such trustee, elected to sell, and the Company agreed to purchase, an aggregate of 4,131 shares of the Companys Class A common
stock on the same terms. These transactions were included in the Companys stock repurchase authorization and authorized by the Audit Committee of the Board of Directors.
Transactions with Relief Fund
During the year ended December 31, 2015, the Company made an interest-free loan to the Relief Fund for $1.0 million in connection with the
Companys annual Charity Day. As a result of the loan, the Relief Fund issued a promissory note to the Company in the aggregate principal amount of $1.0 million due on August 4, 2016. On March 2, 2016, the promissory note was canceled
in connection with charitable contribution commitments related to the Companys annual Charity Day.
During the year ended December
31, 2015, the Company committed to make charitable contributions to the Relief Fund in the amount of $40.0 million, which the Company recorded in Other expenses in the Companys unaudited condensed consolidated statements of
operations for the year ended December 31, 2015. As of September 30, 2016, the remaining liability associated with this commitment was $37.9 million, which is included in Accounts payable, accrued and other liabilities in the
Companys unaudited condensed consolidated statements of financial condition.
On February 23, 2016, the Company purchased from the
Relief Fund 970,639 shares of the Companys Class A common stock at a price of $8.72 per share, the closing price on the date of the transaction.
Other Transactions
The Company is authorized to enter into loans, investments or other credit support arrangements for Aqua Securities L.P. (Aqua), an
alternative electronic trading platform that offers new pools of block liquidity to the global equities markets; such arrangements are proportionally and on the same terms as similar arrangements between Aqua and Cantor. On October 27, 2015, the
Companys Board of Directors and Audit Committee increased the authorized amount by an additional $4.0 million, to $16.2 million. The Company has been further authorized to provide counterparty or similar guarantees on behalf of Aqua from time
to time, provided that liability for any such guarantees, as well as similar guarantees provided by Cantor, would be shared proportionally with Cantor. Aqua is 51% owned by Cantor and 49% owned by the Company. Aqua is accounted for under the equity
method of accounting. During the three months ended September 30, 2016, the Company did not make any cash contributions to Aqua. During the three months ended September 30, 2015, the Company made $0.3 million, in cash contributions to
Aqua. During the nine months ended September 30, 2016 and 2015, the Company made $1.1 million and $1.0 million, respectively, in cash contributions to Aqua. These contributions are recorded as part of Investments in the
Companys unaudited condensed consolidated statements of financial condition.
The Company has also entered into a Subordinated Loan
Agreement with Aqua, whereby the Company loaned Aqua the principal sum of $980 thousand. The scheduled maturity date on the subordinated loan is September 1, 2018, and the current rate of interest on the loan is three month LIBOR plus 600 basis
points. The loan to Aqua is recorded as part of Receivables from related parties in the Companys unaudited condensed consolidated statements of financial condition.
34
Equity Method and Similar Investments
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Equity method investments
|
|
$
|
41,405
|
|
|
$
|
32,277
|
|
Cost method investments
|
|
|
1,304
|
|
|
|
1,536
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
42,709
|
|
|
$
|
33,813
|
|
|
|
|
|
|
|
|
|
|
The Company recognized gains of $0.7 million and $1.0 million related to its equity method investments for the
three months ended September 30, 2016 and 2015, respectively. The Company recognized gains of $1.7 million related to its equity method investments for both the nine months ended September 30, 2016 and 2015. The Companys share of the gains or
losses is reflected in Gains (losses) on equity method investments in the Companys unaudited condensed consolidated statements of operations. As a result of the GFI acquisition, the Company also had certain investments in brokerage
businesses in which the Company had a contractual right to receive a percentage of revenues, less certain direct expenses. The Company accounted for these investments in a manner similar to the equity method of accounting. The sale of KBL (see Note
4Divestitures) in May 2015 included these investments. Through the date of sale, the Companys share of gain on these investments was $1.0 million. The Companys total share of gains and losses is reflected in Gains
(losses) on equity method investments in the Companys unaudited condensed consolidated statement of operations.
See Note
13Related Party Transactions, for information regarding related party transactions with unconsolidated entities included in the Companys unaudited condensed consolidated financial statements.
Investments in Variable Interest Entities
Certain of the Companys equity method investments included in the tables above are considered Variable Interest Entities
(VIEs), as defined under the accounting guidance for consolidation. The Company is not considered the primary beneficiary of, and therefore does not consolidate, these VIEs. The Companys involvement with such entities is in the
form of direct equity interests and related agreements. The Companys maximum exposure to loss with respect to the VIEs is its investment in such entities as well as a credit facility and a subordinated loan.
The following table sets forth the Companys investment in its unconsolidated VIEs and the maximum exposure to loss with respect to such
entities as of September 30, 2016 and December 31, 2015. The amounts presented in the Investment column below are included in, and not in addition to, the equity method investment table above (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
Investment
|
|
|
Maximum
Exposure to Loss
|
|
|
Investment
|
|
|
Maximum
Exposure to Loss
|
|
Variable interest entities
1
|
|
$
|
4,886
|
|
|
$
|
5,866
|
|
|
$
|
3,858
|
|
|
$
|
4,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
The Company has entered into a subordinated loan agreement with Aqua, whereby the Company agreed to lend the principal sum of $980 thousand. As of September 30, 2016,
the Companys maximum exposure to loss with respect to its unconsolidated VIEs includes the sum of its equity investments in its unconsolidated VIEs and the $980 thousand subordinated loan to Aqua.
|
Consolidated VIE
Through the acquisition of GFI, the Company is invested in a limited liability company that is focused on developing a proprietary trading
technology. The limited liability company is a VIE and it was determined that the Company is the primary beneficiary of this VIE because the Company, through GFI, was the provider of the majority of this VIEs start-up capital and has the power
to direct the activities of this VIE that most significantly impact its economic performance, primarily through its voting percentage and consent rights on the activities that would most significantly influence the entity. The consolidated VIE had
total assets of $7.7 million at September 30, 2016, which primarily consisted of clearing margin. There were no material restrictions on the consolidated VIEs assets. The consolidated VIE had total liabilities of $1.6 million at September 30,
2016. The Companys exposure to economic loss on this VIE is approximately $4.3 million.
Cost Method Investments
As a result of the GFI acquisition, the Company acquired investments for which it did not have the ability to exert significant influence over
operating and financial policies. These investments are generally accounted for using the cost method of accounting in accordance with ASC 325-10, InvestmentsOther. At September 30, 2016 and December 31, 2015, the carrying value of these cost
method investments was $1.3 million and $1.5 million, respectively.
35
During the three months ended September 30, 2016, the Company sold cost method investments that
had a carrying value of $0.1 million for total proceeds of $7.1 million. As a result of this sale, the Company recognized a $7.0 million gain on the sale of these investments, which is included in Gain (loss) on divestiture and sale of
investments in the Companys unaudited condensed consolidated statements of operations.
Fixed assets, net consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Computer and communications equipment
|
|
$
|
148,012
|
|
|
$
|
142,511
|
|
Software, including software development costs
|
|
|
151,176
|
|
|
|
140,416
|
|
Leasehold improvements and other fixed assets
|
|
|
162,031
|
|
|
|
137,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
461,219
|
|
|
|
420,663
|
|
Less: accumulated depreciation and amortization
|
|
|
(305,879
|
)
|
|
|
(274,790
|
)
|
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
$
|
155,340
|
|
|
$
|
145,873
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $7.3 million and $8.7 million for the three months ended September 30, 2016 and 2015,
respectively. Depreciation expense was $20.9 million and $24.2 million for the nine months ended September 30, 2016 and 2015, respectively. Depreciation is included as part of Occupancy and equipment in the Companys unaudited
condensed consolidated statements of operations.
The Company has approximately $6.5 million of asset retirement obligations related to
certain of its leasehold improvements. The associated asset retirement cost is capitalized as part of the carrying amount of the long-lived asset. The liability is discounted and accretion expense is recognized using the credit adjusted risk-free
interest rate in effect when the liability was initially recognized.
For the three months ended September 30, 2016 and 2015, software
development costs totaling $7.3 million and $5.5 million, respectively, were capitalized. For the nine months ended September 30, 2016 and 2015, software development costs totaling $17.6 million and $12.5 million, respectively, were capitalized.
Amortization of software development costs totaled $6.3 million and $5.8 million for the three months ended September 30, 2016 and 2015, respectively. Amortization of software development costs totaled $20.9 million and $17.0 million for the nine
months ended September 30, 2016 and 2015, respectively. Amortization of software development costs is included as part of Occupancy and equipment in the Companys unaudited condensed consolidated statements of operations.
Impairment charges of $0.6 million and $1.1 million were recorded for the three months ended September 30, 2016 and 2015, respectively,
related to the evaluation of capitalized software projects for future benefit and for fixed assets no longer in service. Impairment charges of $3.7 million and $18.8 million were recorded for the nine months ended September 30, 2016 and 2015,
respectively, related to the evaluation of capitalized software projects for future benefit and for fixed assets no longer in service. Impairment charges related to capitalized software and fixed assets are reflected in Occupancy and
equipment in the Companys unaudited condensed consolidated statements of operations.
16.
|
Goodwill and Other Intangible Assets, Net
|
The changes in the carrying amount of
goodwill by reportable segment for the nine months ended September 30, 2016 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services
|
|
|
Real Estate Services
|
|
|
Total
|
|
Balance at December 31, 2015
|
|
$
|
418,929
|
|
|
$
|
392,837
|
|
|
$
|
811,766
|
|
Acquisitions
|
|
|
1,785
|
|
|
|
18,445
|
|
|
|
20,230
|
|
Measurement period adjustments
|
|
|
(3,803
|
)
|
|
|
1,856
|
|
|
|
(1,947
|
)
|
Cumulative translation adjustment
|
|
|
197
|
|
|
|
|
|
|
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2016
|
|
$
|
417,108
|
|
|
$
|
413,138
|
|
|
$
|
830,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended September 30, 2016, the Company recognized additional goodwill of approximately
$1.8 million which was allocated to the Companys Financial Services segment, and $18.4 million which was allocated to the Companys Real Estate Services segment. See Note 3Acquisitions for more information.
During the nine months ended September 30, 2016, the Company recognized measurement period adjustments of approximately $(3.8) million
relating to Financial Services, and $1.9 million for Real Estate Services.
36
Goodwill is not amortized and is reviewed annually for impairment or more frequently if
impairment indicators arise, in accordance with FASB guidance on Goodwill and Other Intangible Assets.
Other intangible assets consisted
of the following (in thousands, except weighted-average remaining life):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
|
Gross Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
|
Weighted-Average
Remaining Life
(Years)
|
|
Definite life intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer-related
|
|
$
|
118,510
|
|
|
$
|
24,380
|
|
|
$
|
94,130
|
|
|
|
17.7
|
|
Technology
|
|
|
23,960
|
|
|
|
5,420
|
|
|
|
18,540
|
|
|
|
5.4
|
|
Noncompete agreements
|
|
|
17,988
|
|
|
|
8,372
|
|
|
|
9,616
|
|
|
|
2.8
|
|
Patents
|
|
|
11,236
|
|
|
|
9,116
|
|
|
|
2,120
|
|
|
|
1.9
|
|
All other
|
|
|
16,437
|
|
|
|
13,539
|
|
|
|
2,898
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total definite life intangible assets
|
|
|
188,131
|
|
|
|
60,827
|
|
|
|
127,304
|
|
|
|
14.1
|
|
Indefinite life intangible assets:
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
90,255
|
|
|
|
|
|
|
|
90,255
|
|
|
|
N/A
|
|
Horizon license
|
|
|
1,500
|
|
|
|
|
|
|
|
1,500
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total indefinite life intangible assets
|
|
|
91,755
|
|
|
|
|
|
|
|
91,755
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
279,886
|
|
|
$
|
60,827
|
|
|
$
|
219,059
|
|
|
|
14.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Gross Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
|
Weighted-Average
Remaining Life
(Years)
|
|
Definite life intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer-related
|
|
$
|
118,725
|
|
|
$
|
18,020
|
|
|
$
|
100,705
|
|
|
|
17.9
|
|
Technology
|
|
|
23,960
|
|
|
|
2,852
|
|
|
|
21,108
|
|
|
|
6.2
|
|
Noncompete agreements
|
|
|
17,989
|
|
|
|
5,238
|
|
|
|
12,751
|
|
|
|
3.4
|
|
Patents
|
|
|
13,084
|
|
|
|
10,188
|
|
|
|
2,896
|
|
|
|
2.3
|
|
All other
|
|
|
16,161
|
|
|
|
11,409
|
|
|
|
4,752
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total definite life intangible assets
|
|
|
189,919
|
|
|
|
47,707
|
|
|
|
142,212
|
|
|
|
14.0
|
|
Indefinite life intangible assets:
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
90,255
|
|
|
|
|
|
|
|
90,255
|
|
|
|
N/A
|
|
Horizon license
|
|
|
1,500
|
|
|
|
|
|
|
|
1,500
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total indefinite life intangible assets
|
|
|
91,755
|
|
|
|
|
|
|
|
91,755
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
281,674
|
|
|
$
|
47,707
|
|
|
$
|
233,967
|
|
|
|
14.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible amortization expense was $4.8 million and $7.6 million for the three months ended September 30,
2016 and 2015, respectively. Intangible amortization expense was $15.0 million and $21.2 million for the nine months ended September 30, 2016 and 2015, respectively. Intangible amortization is included as part of Other expenses
in the Companys unaudited condensed consolidated statements of operations.
The estimated future amortization expense of definite
life intangible assets as of September 30, 2016 is as follows (in millions):
|
|
|
|
|
2016
|
|
$
|
4.4
|
|
2017
|
|
|
16.3
|
|
2018
|
|
|
12.4
|
|
2019
|
|
|
10.9
|
|
2020
|
|
|
9.3
|
|
2021 and thereafter
|
|
|
74.0
|
|
|
|
|
|
|
Total
|
|
$
|
127.3
|
|
|
|
|
|
|
37
17.
|
Notes Payable, Collateralized and Short-Term Borrowings
|
Notes payable, collateralized
and short-term borrowings consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
4.50% Convertible Notes
|
|
$
|
|
|
|
$
|
157,332
|
|
8.125% Senior Notes
|
|
|
109,240
|
|
|
|
109,147
|
|
5.375% Senior Notes
|
|
|
296,837
|
|
|
|
296,100
|
|
8.375% Senior Notes
|
|
|
249,078
|
|
|
|
255,300
|
|
5.125% Senior Notes
|
|
|
296,026
|
|
|
|
|
|
Collateralized borrowings
|
|
|
17,930
|
|
|
|
22,998
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
969,111
|
|
|
$
|
840,877
|
|
|
|
|
|
|
|
|
|
|
The Companys Convertible Notes and Senior Notes are recorded at amortized cost. As of September 30, 2016
and December 31, 2015, the carrying amounts and estimated fair values of the Companys Convertible Notes and Senior Notes were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
Carrying Amount
|
|
|
Fair Value
|
|
|
Carrying Amount
|
|
|
Fair Value
|
|
4.50% Convertible Notes
|
|
$
|
|
|
|
$
|
|
|
|
$
|
157,332
|
|
|
$
|
173,700
|
|
8.125% Senior Notes
|
|
|
109,240
|
|
|
|
116,820
|
|
|
|
109,147
|
|
|
|
121,095
|
|
5.375% Senior Notes
|
|
|
296,837
|
|
|
|
314,625
|
|
|
|
296,100
|
|
|
|
309,750
|
|
8.375% Senior Notes
|
|
|
249,078
|
|
|
|
259,350
|
|
|
|
255,300
|
|
|
|
263,724
|
|
5.125% Senior Notes
|
|
|
296,026
|
|
|
|
313,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
951,181
|
|
|
$
|
1,003,920
|
|
|
$
|
817,879
|
|
|
$
|
868,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of the Senior Notes and 4.50% Convertible Notes were determined using observable market prices
as these securities are traded and are considered Level 1 and Level 2, respectively, within the fair value hierarchy, based on whether they are deemed to be actively traded.
Convertible Notes
On April 1, 2010, BGC Holdings issued an aggregate of $150.0 million principal amount of the 8.75% Convertible Notes to Cantor in a private
placement transaction. The 8.75% Convertible Notes were senior unsecured obligations and ranked equally and ratably with all existing and future senior unsecured obligations of the Company. The 8.75% Convertible Notes bore an annual interest rate of
8.75%, payable semi-annually in arrears on April 15 and October 15 of each year, beginning on October 15, 2010. On April 13, 2015, the Companys 8.75% Convertible Notes were fully converted into 24,042,599 shares of the
Companys Class A common stock, par value $0.01 per share, issued to Cantor. The Company did not record any interest expense related to the 8.75% Convertible Notes for the three months ended September 30, 2015. The Company recorded
interest expense related to the 8.75% Convertible Notes of $3.8 million for the nine months ended September 30, 2015.
On July 29, 2011,
the Company issued an aggregate of $160.0 million principal amount of 4.50% Convertible Notes due July 15, 2016. The 4.50% Convertible Notes were general senior unsecured obligations of the Company. The 4.50% Convertible Notes paid interest
semiannually at a rate of 4.50% per annum and were priced at par. The Company recorded interest expense related to the 4.50% Convertible Notes of $0.5 million and $3.0 million for the three months ended September 30, 2016 and 2015, respectively. The
Company recorded interest expense related to the 4.50% Convertible Notes of $6.6 million and $9.0 million for the nine months ended September 30, 2016 and 2015, respectively.
On July 13, 2016, certain holders of the 4.50% Convertible Notes converted $68,000 in principal amount of notes, and, upon conversion, the
Company delivered 6,909 shares of its Class A common stock to such holders. On July 15, 2016, the Company repaid the remaining approximately $159.9 million principal amount of its 4.50% Convertible Notes that matured on July 15, 2016.
In connection with the offering of the 4.50% Convertible Notes, the Company entered into capped call transactions, which were expected to
reduce the potential dilution of the Companys Class A common stock upon any conversion of the 4.50% Convertible Notes in the event that the market value per share of the Companys Class A common stock, as measured under the terms of the
capped call transactions, was greater than the strike price of the capped call transactions. The capped call transactions expired unexercised on July 13, 2016.
38
Below is a summary of the Companys Convertible Notes (in thousands, except share and per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
4.50% Convertible Notes
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Principal amount of debt component
|
|
$
|
|
|
|
$
|
160,000
|
|
Unamortized discount
|
|
|
|
|
|
|
(2,668
|
)
|
Carrying amount of debt component
|
|
|
|
|
|
|
157,332
|
|
Equity component
|
|
|
|
|
|
|
18,972
|
|
Effective interest rate
|
|
|
|
|
|
|
7.61
|
%
|
Maturity date (period through which discount is being amortized)
|
|
|
7/15/2016
|
|
|
|
7/15/2016
|
|
Conversion price
|
|
$
|
|
|
|
$
|
9.84
|
|
Number of shares to be delivered upon conversion
|
|
|
|
|
|
|
16,260,160
|
|
Amount by which the notes if-converted value exceeds their principal amount
|
|
$
|
|
|
|
$
|
|
|
Below is a summary of the interest expense related to the Companys Convertible Notes (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.50% Convertible Notes
|
|
|
8.75% Convertible Notes
|
|
|
|
For the three months ended
|
|
|
For the three months ended
|
|
|
|
September 30,
2016
|
|
|
September 30,
2015
|
|
|
September 30,
2016
|
|
|
September 30,
2015
|
|
Coupon interest
|
|
$
|
280
|
|
|
$
|
1,800
|
|
|
$
|
|
|
|
$
|
|
|
Amortization of discount
|
|
|
207
|
|
|
|
1,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
$
|
487
|
|
|
$
|
3,006
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.50% Convertible Notes
|
|
|
8.75% Convertible Notes
|
|
|
|
For the nine months ended
|
|
|
For the nine months ended
|
|
|
|
September 30,
2016
|
|
|
September 30,
2015
|
|
|
September 30,
2016
|
|
|
September 30,
2015
|
|
Coupon interest
|
|
$
|
3,880
|
|
|
$
|
5,400
|
|
|
$
|
|
|
|
$
|
3,828
|
|
Amortization of discount
|
|
|
2,666
|
|
|
|
3,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
$
|
6,546
|
|
|
$
|
8,990
|
|
|
$
|
|
|
|
$
|
3,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.125% Senior Notes
On June 26, 2012, the Company issued an aggregate of $112.5 million principal amount of 8.125% Senior Notes due 2042 (the 8.125% Senior
Notes). The 8.125% Senior Notes are senior unsecured obligations of the Company. The 8.125% Senior Notes may be redeemed for cash, in whole or in part, on or after June 26, 2017, at the Companys option, at any time and from time to time,
until maturity at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued but unpaid interest on the principal amount being redeemed to, but not including, the redemption date. The 8.125% Senior Notes are listed on the
New York Stock Exchange under the symbol BGCA. The Company used the proceeds to repay short-term borrowings under its unsecured revolving credit facility and for general corporate purposes, including acquisitions.
The initial carrying value of the 8.125% Senior Notes was $108.7 million, net of debt issuance costs of $3.8 million. The issuance costs are
amortized as interest cost, and the carrying value of the 8.125% Senior Notes will accrete up to the face amount over the term of the 8.125% Senior Notes. The Company recorded interest expense related to the 8.125% Senior Notes of $2.3 million for
both the three months ended September 30, 2016 and 2015. The Company recorded interest expense related to the 8.125% Senior Notes of $6.9 million for both the nine months ended September 30, 2016 and 2015.
5.375% Senior Notes
On December 9, 2014, the Company issued an aggregate of $300.0 million principal amount of 5.375% Senior Notes due 2019 (the 5.375%
Senior Notes). The 5.375% Senior Notes are general senior unsecured obligations of the Company. These Senior Notes bear interest at a rate of 5.375% per year, payable in cash on June 9 and December 9 of each year, commencing June 9,
2015. The interest rate payable on the notes will be subject to adjustments from time to time based on the debt rating assigned by specified rating agencies to the notes, as set forth in the Indenture. The 5.375% Senior Notes will mature on December
9, 2019. The Company may redeem some or all of the notes at any time or from time to time for cash at certain make-whole redemption prices (as set forth in the Indenture). If a Change
39
of Control Triggering Event (as defined in the Indenture) occurs, holders may require the Company to purchase all or a portion of their notes for cash at a price equal to 101% of the
principal amount of the notes to be purchased plus any accrued and unpaid interest to, but excluding, the purchase date.
The initial
carrying value of the 5.375% Senior Notes was $295.1 million, net of the discount and debt issuance costs of $4.9 million. The issuance costs are amortized as interest cost, and the carrying value of the 5.375% Senior Notes will accrete up to the
face amount over the term of the notes. The Company recorded interest expense related to the 5.375% Senior Notes of $4.3 million for both the three months ended September 30, 2016 and 2015. The Company recorded interest expense related to the 5.375%
Senior Notes of $12.8 million for both the nine months ended September 30, 2016 and 2015.
8.375% Senior Notes
As part of the GFI acquisition, the Company assumed $240.0 million in aggregate principal amount of 8.375% Senior Notes due July 2018 (the
8.375% Senior Notes). The carrying value of these notes as of September 30, 2016 was $249.1 million. Interest on these notes is payable, semi-annually in arrears on the 19th of January and July. Due to the cumulative effect of downgrades
to the credit rating of GFIs 8.375% Senior Notes, the 8.375% Senior Notes were subjected to 200 basis points penalty interest. On April 28, 2015, a subsidiary of the Company purchased from GFI approximately 43.0 million new shares of GFI
common stock. This increased BGCs ownership to approximately 67% of GFIs outstanding common stock and gave the Company the ability to control the timing and process with respect to a full merger. Also on July 10, 2015, the Company
guaranteed the obligations of GFI under the 8.375% Senior Notes. These actions resulted in upgrades of the credit ratings of GFIs 8.375% Senior Notes by Moodys Investors Service, Fitch Ratings Inc. and Standard & Poors, which
reduced the penalty interest to 25 basis points effective July 19, 2015. In addition, on January 13, 2016, Moodys further upgraded the credit rating on GFIs 8.375% Senior Notes, eliminating the penalty interest. The Company recorded
interest expense related to the 8.375% Senior Notes of $5.0 million and $5.4 million for the three months ended September 30, 2016 and 2015, respectively. The Company recorded interest expense related to the 8.375% Senior Notes of $15.1 million
and $13.7 million for the nine months ended September 30, 2016 and 2015, respectively.
5.125% Senior Notes
On May 27, 2016, the Company issued an aggregate of $300.0 million principal amount of 5.125% Senior Notes due 2021 (the 5.125% Senior
Notes). The 5.125% Senior Notes are general senior unsecured obligations of the Company. These Senior Notes bear interest at a rate of 5.125% per year, payable in cash on May 27 and November 27 of each year, commencing
November 27, 2016. The 5.125% Senior Notes will mature on May 27, 2021. The Company may redeem some or all of the notes at any time or from time to time for cash at certain make-whole redemption prices (as set forth in the
Indenture). If a Change of Control Triggering Event (as defined in the Indenture) occurs, holders may require the Company to purchase all or a portion of their notes for cash at a price equal to 101% of the principal amount of the notes
to be purchased plus any accrued and unpaid interest to, but excluding, the purchase date.
The initial carrying value of the 5.125%
Senior Notes was $295.8 million, net of the discount and debt issuance costs of $4.2 million. The issuance costs are amortized as interest expense and the carrying value of the 5.125% Senior Notes will accrete up to the face amount over the term of
the notes. The Company recorded interest expense related to the 5.125% Senior Notes of $4.0 million and $5.6 million for the three and nine months ended September 30, 2016, respectively.
Collateralized Borrowings
On March 13, 2015, the Company entered into a secured loan arrangement of $28.2 million under which it pledged certain fixed assets as security
for a loan. This arrangement incurs interest at a fixed rate of 3.70% and matures on March 13, 2019. As of September 30, 2016, the Company had $17.9 million outstanding related to this secured loan arrangement, which includes $0.2 million of
deferred financing costs. The value of the fixed assets pledged as of September 30, 2016 was $5.2 million. The Company recorded interest expense related to this secured loan arrangement of $0.2 million and $0.3 million for the three months ended
September 30, 2016 and 2015, respectively. The Company recorded interest expense related to this secured loan arrangement of $0.6 million and $0.5 million for the nine months ended September 30, 2016 and 2015, respectively.
Credit Agreement
As part of the GFI acquisition, the Company acquired a credit agreement as amended (the GFI Credit Agreement) with Bank of America,
N.A. and certain other lenders, which provided for maximum revolving loans of up to $75.0 million. The amount outstanding was repaid by the Company on October 2, 2015, prior to the sale of the Companys Trayport division. For the three and nine
months ended September 30, 2015, the Company recorded interest expense related to the GFI Credit Agreement of $0.8 million and $1.9 million, respectively.
On October 1, 2015, the Company entered into a previously authorized $150.0 million revolving credit facility (the Facility) with
Cantor and borrowed $100.0 million under such facility (the Cantor Loan). The Cantor Loan bears interest at the rate of LIBOR plus 3.25% and may be adjusted based on Cantors short-term borrowing rate then in effect plus 1%.
The Facility has a maturity date of August 10, 2017. The Cantor Loan was repaid on December 31, 2015.
40
On December 24, 2015, the Company entered into a committed unsecured credit agreement with Bank
of America, N.A. The credit agreement provided for maximum revolving loans of $25.0 million through March 24, 2016. The interest rate on this facility was LIBOR plus 200 basis points.
On February 25, 2016, the Company entered into a committed unsecured credit agreement with Bank of America, N.A., as administrative agent, and
a syndicate of lenders. Several of the Companys domestic non-regulated subsidiaries are parties to the credit agreement as guarantors. The credit agreement provides for revolving loans of $150.0 million, with the option to increase the
aggregate loans to $200.0 million. The maturity date of the facility is February 25, 2018. Borrowings under this facility bear interest at either LIBOR or a defined base rate plus an additional margin which ranges from 50 basis points to 250 basis
points depending on the Companys debt rating as determined by S&P and Fitch and whether such loan is a LIBOR loan or a base rate loan. Contemporaneously with the closing of this credit agreement, the $25.0 million unsecured credit
agreement entered into on December 24, 2015 with Bank of America, N.A. was terminated. As of September 30, 2016, there were no borrowings outstanding under either the $150.0 million facility or the terminated $25.0 million facility. For
the three and nine months ended September 30, 2016, the Company recorded interest expense related to the credit facility of $0.2 million and $0.5 million, respectively.
The Companys Compensation Committee may grant various equity-based
and partnership awards, including restricted stock units, restricted stock, stock options, limited partnership units and exchange rights for shares of the Companys Class A common stock upon exchange of limited partnership units. On June 22,
2016, at the Annual Meeting of Stockholders of the Company, the stockholders approved the Seventh Amended and Restated Long Term Incentive Plan (the Equity Plan) to increase from 350 million to 400 million the aggregate number of shares
of Class A common stock of the Company that may be delivered or cash-settled pursuant to awards granted during the life of the Equity Plan. As of September 30, 2016, the limit on the aggregate number of shares authorized to be delivered allowed for
the grant of future awards relating to 217.5 million shares. Upon vesting of RSUs, issuance of restricted stock, exercise of employee stock options and exchange of limited partnership units, the Company generally issues new shares of the
Companys Class A common stock.
Limited Partnership Units
A summary of the activity associated with limited partnership units is as follows:
|
|
|
|
|
|
|
Number of
Units
|
|
Balance at December 31, 2015
|
|
|
76,401,775
|
|
Granted units
|
|
|
30,587,554
|
|
Redeemed/exchanged units
|
|
|
(9,301,772
|
)
|
Forfeited units
|
|
|
(2,516,434
|
)
|
|
|
|
|
|
Balance at September 30, 2016
|
|
|
95,171,123
|
|
|
|
|
|
|
During the three months ended September 30, 2016 and 2015, the Company granted exchangeability on 4.6 million
and 3.8 million limited partnership units for which the Company incurred non-cash compensation expense of $34.3 million and $34.4 million, respectively. During the nine months ended September 30, 2016 and 2015, the Company granted
exchangeability on 11.1 million and 10.9 million limited partnership units for which the Company incurred non-cash compensation expense of $92.7 million and $96.6 million, respectively. This expense is included within Allocations of net income
and grant of exchangeability to limited partnership units and FPUs in the Companys unaudited condensed consolidated statements of operations.
As of September 30, 2016 and December 31, 2015, the number of limited partnership units exchangeable into shares of Class A common stock
at the discretion of the unit holder was 11.0 million and 5.4 million, respectively.
As of September 30, 2016 and December 31, 2015, the
notional value of the limited partnership units with a post-termination pay-out amount held by executives and non-executive employees, awarded in lieu of cash compensation for salaries, commissions and/or discretionary or guaranteed bonuses, was
approximately $133.2 million and $30.4 million, respectively. As of September 30, 2016 and December 31, 2015, the aggregate estimated fair value of these limited partnership units was approximately $22.1 million and $11.3 million, respectively. The
number of outstanding limited partnership units with a post-termination pay-out as of September 30, 2016 and December 31, 2015 was approximately 14.6 million and 3.3 million, respectively, of which approximately 9.8 million and 1.6 million were
unvested.
Certain of the limited partnership units with a post-termination pay-out have been granted in connection with the
Companys acquisitions. As of September 30, 2016 and December 31, 2015, the aggregate estimated fair value of these acquisition-related limited partnership units was $25.5 million and $26.2 million, respectively.
Compensation expense related to limited partnership units with a post-termination pay-out amount is recognized over the stated service period.
These units generally vest between three and five years from the date of grant. The Company recognized compensation
41
expense related to these limited partnership units of $6.7 million and $3.8 million for the three months ended September 30, 2016 and 2015, respectively. The Company recognized compensation
expense, before associated income taxes, related to these limited partnership units of $13.4 million and $11.1 million for the nine months ended September 30, 2016 and 2015, respectively. These are included in Compensation and employee
benefits in the Companys unaudited condensed consolidated statements of operations.
Certain limited partnership units
generally receive quarterly allocations of net income, which are cash distributed on a quarterly basis and generally contingent upon services being provided by the unit holders. The allocation of income to limited partnership units and FPUs was
$24.4 million and $16.3 million for the three months ended September 30, 2016 and 2015, respectively. The allocation of income to limited partnership units and FPUs was $40.0 million and $17.4 million for the nine months ended September 30, 2016 and
2015, respectively.
Restricted Stock Units
A summary of the activity associated with RSUs is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock Units
|
|
|
Weighted-Average
Grant
Date Fair
Value
|
|
|
Weighted-Average
Remaining
Contractual
Term (Years)
|
|
Balance at December 31, 2015
|
|
|
1,622,431
|
|
|
$
|
5.83
|
|
|
|
1.53
|
|
Granted units
|
|
|
785,484
|
|
|
|
7.90
|
|
|
|
|
|
Delivered units
|
|
|
(810,408
|
)
|
|
|
5.82
|
|
|
|
|
|
Forfeited units
|
|
|
(72,136
|
)
|
|
|
7.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2016
|
|
|
1,525,371
|
|
|
$
|
6.85
|
|
|
|
1.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of RSUs awarded to employees and directors is determined on the date of grant based on the
market value of Class A common stock (adjusted if appropriate based upon the awards eligibility to receive dividends), and is recognized, net of the effect of estimated forfeitures, ratably over the vesting period. The Company uses historical
data, including historical forfeitures and turnover rates, to estimate expected forfeiture rates for both employee and director RSUs. Each RSU is settled in one share of Class A common stock upon completion of the vesting period.
During the nine months ended September 30, 2016 and 2015, the Company granted 0.8 million and 0.6 million, respectively, of RSUs with
aggregate estimated grant date fair values of approximately $6.2 million and $4.9 million, respectively, to employees and directors. These RSUs were awarded in lieu of cash compensation for salaries, commissions and/or discretionary or guaranteed
bonuses. RSUs granted to these individuals generally vest over a two- to four-year period.
For RSUs that vested during both the nine
months ended September 30, 2016 and 2015, the Company withheld shares valued at $1.3 million to pay taxes due at the time of vesting.
As
of September 30, 2016 and December 31, 2015, the aggregate estimated grant date fair value of outstanding RSUs was approximately $10.4 million and $9.5 million, respectively.
Compensation expense related to RSUs was approximately $1.2 million and $1.1 million for the three months ended September 30, 2016 and
2015, respectively. Compensation expense related to RSUs was approximately $4.0 million and $3.8 million, respectively, for the nine months ended September 30, 2016 and 2015. As of September 30, 2016, there was approximately $10.4 million
of total unrecognized compensation expense related to unvested RSUs.
Restricted Stock
The Company has granted restricted shares under its Equity Plan. Such restricted shares are generally saleable by partners in five to ten
years. Partners who agree to extend the length of their employment agreements and/or other contractual modifications sought by the Company are expected to be able to sell their restricted shares over a shorter time period. Transferability of the
shares of restricted stock is not subject to continued employment or service with the Company or any affiliate or subsidiary of the Company; however, transferability is subject to compliance with BGC Partners and its affiliates customary
noncompete obligations. During the nine months ended September 30, 2016 and 2015, approximately 59 thousand shares and 44 thousand shares, respectively, were forfeited in connection with this clause. During the nine months ended September 30, 2016
and 2015, the Company released the restrictions with respect to approximately 4.4 million and 2.4 million of such shares, respectively. As of September 30, 2016, there were 14.7 million of such restricted shares outstanding.
During the three months ended September 30, 2016, the Company granted approximately 0.2 million restricted shares of the Companys Class
A common stock. In connection with those grants, an equivalent number of limited partnership units were surrendered. Such restricted shares are saleable ratably over a period of four years. Transferability of the shares is subject to compliance
with BGC Partners and its affiliates customary noncompete obligations. For the three months ended September 30, 2016, the Company recognized compensation expense of approximately $1.6 million related to the grant of these restricted
shares.
42
Deferred Cash Compensation
As part of the acquisition of GFI, the Company now maintains a Deferred Cash Award Program which was adopted by GFI on February 12, 2013, and
provides for the grant of deferred cash incentive compensation to eligible employees. The Company may pay certain bonuses in the form of deferred cash compensation awards, which generally vest over a future service period. In addition, prior to the
completion of the tender offer, GFIs outstanding RSUs were converted into the right to receive an amount in cash equal to $6.10 per unit, with such cash payable on and subject to the terms and conditions of the original vesting schedule of
each RSU. The total compensation expense recognized in relation to the deferred cash compensation awards for the three months ended September 30, 2016 and 2015 was $3.5 million and $6.3 million, respectively. The total compensation expense
recognized in relation to the deferred cash compensation awards for the nine months ended September 30, 2016 and 2015 was $13.3 million and $17.6 million, respectively. As of September 30, 2016, the total liability for the deferred cash compensation
awards was $16.7 million, which is included in Accrued compensation on the Companys unaudited condensed consolidated statements of financial condition. Total unrecognized compensation cost related to deferred cash compensation,
prior to the consideration of forfeitures, was approximately $18.5 million and is expected to be recognized over a weighted-average period of 0.92 years.
Stock Options
A
summary of the activity associated with stock options is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Weighted-Average
Exercise Price
|
|
|
Weighted-Average
Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic Value
|
|
Balance at December 31, 2015
|
|
|
2,079,238
|
|
|
$
|
9.73
|
|
|
|
1.4
|
|
|
$
|
1,169,664
|
|
Granted options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised options
|
|
|
(250,000
|
)
|
|
|
8.42
|
|
|
|
|
|
|
|
|
|
Forfeited options
|
|
|
(14,619
|
)
|
|
|
9.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2016
|
|
|
1,814,619
|
|
|
$
|
9.92
|
|
|
|
0.8
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at September 30, 2016
|
|
|
1,814,619
|
|
|
$
|
9.92
|
|
|
|
0.8
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were 250 thousand and 84 thousand stock options exercised during the nine months ended September 30,
2016 and 2015, respectively. The Company did not grant any stock options during the nine months ended September 30, 2016 and 2015.
The
Company did not record any compensation expense related to stock options for the three or nine months ended September 30, 2016 or 2015, as all of these options had vested in prior years. As of September 30, 2016, all of the compensation expense
related to stock options was fully recognized.
19.
|
Commitments, Contingencies and Guarantees
|
Contingencies
In the ordinary course of business, various legal actions are brought and are pending against the Company and its subsidiaries in the U.S. and
internationally. In some of these actions, substantial amounts are claimed. The Company is also involved, from time to time, in reviews, examinations, investigations and proceedings by governmental and self-regulatory agencies (both formal and
informal) regarding the Companys businesses, which may result in judgments, settlements, fines, penalties, injunctions or other relief. The following generally does not include matters that the Company has pending against other parties which,
if successful, would result in awards in favor of the Company or its subsidiaries.
Employment, Competitor-Related and Other
Litigation
From time to time, the Company and its subsidiaries are involved in litigation, claims and arbitrations in the U.S. and
internationally, relating to various employment matters, including with respect to termination of employment, hiring of employees currently or previously employed by competitors, terms and conditions of employment and other matters. In light of the
competitive nature of the brokerage industry, litigation, claims and arbitration between competitors regarding employee hiring are not uncommon.
43
Legal reserves are established in accordance with FASB guidance on Accounting for Contingencies,
when a material legal liability is both probable and reasonably estimable. Once established, reserves are adjusted when there is more information available or when an event occurs requiring a change. The outcome of such items cannot be determined
with certainty. The Company is unable to estimate a possible loss or range of loss in connection with specific matters beyond its current accrual and any other amounts disclosed. Management believes that, based on currently available information,
the final outcome of these current pending matters will not have a material adverse effect on the Companys unaudited condensed consolidated financial statements and disclosures taken as a whole.
Letter of Credit Agreements
The Company has irrevocable uncollateralized letters of credit with various banks, where the beneficiaries are clearing organizations through
which it transacted, that are used in lieu of margin and deposits with those clearing organizations. As of September 30, 2016, the Company was contingently liable for $1.4 million under these letters of credit.
Risk and Uncertainties
The Company generates revenues by providing financial intermediary, securities trading and brokerage activities, and commercial real estate
services to institutional customers and by executing and, in some cases, clearing transactions for institutional counterparties. Revenues for these services are transaction-based. As a result, revenues could vary based on the transaction volume of
global financial and real estate markets. Additionally, financing is sensitive to interest rate fluctuations, which could have an impact on the Companys overall profitability.
Guarantees
The
Company provides guarantees to securities clearinghouses and exchanges which meet the definition of a guarantee under FASB interpretations. Under these standard securities clearinghouse and exchange membership agreements, members are required to
guarantee, collectively, the performance of other members and, accordingly, if another member becomes unable to satisfy its obligations to the clearinghouse or exchange, all other members would be required to meet the shortfall. In the opinion of
management, the Companys liability under these agreements is not quantifiable and could exceed the cash and securities it has posted as collateral. However, the potential of being required to make payments under these arrangements is remote.
Accordingly, no contingent liability has been recorded in the Companys unaudited condensed consolidated statements of financial condition for these agreements.
Indemnifications
In connection with the sale of eSpeed, the Company has indemnified Nasdaq for amounts over a defined threshold against damages arising from
breaches of representations, warranties and covenants. In addition, in connection with the acquisition of GFI, the Company has indemnified the directors and officers of GFI. As of September 30, 2016, no contingent liability has been recorded in the
Companys unaudited condensed consolidated statements of financial condition for these indemnifications, as the potential for being required to make payments under these indemnifications is remote.
The Companys unaudited condensed consolidated financial statements
include U.S. federal, state and local income taxes on the Companys allocable share of the U.S. results of operations, as well as taxes payable to jurisdictions outside the U.S. In addition, certain of the Companys entities are taxed as
U.S. partnerships and are subject to the Unincorporated Business Tax (UBT) in New York City. Therefore, the tax liability or benefit related to the partnership income or loss, except for UBT, rests with the partners (see Note
2Limited Partnership Interests in BGC Holdings for discussion of partnership interests), rather than the partnership entity. Income taxes are accounted for using the asset and liability method, as prescribed in FASB guidance on
Accounting for Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the unaudited condensed consolidated financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded against deferred tax assets if it is deemed more likely than not that
those assets will not be realized.
As of September 30, 2016, the Company had $422.7 million of undistributed foreign pre-tax earnings,
which excludes the cash proceeds from the sale of Trayport. Except for the cash proceeds from the sale of Trayport, it is the Companys intention to permanently reinvest these undistributed foreign pre-tax earnings in the Companys foreign
operations. It is not practicable to determine the amount of additional tax that may be payable in the event these earnings are repatriated due to the fluctuation of the relative ownership percentages of the foreign subsidiaries between the
Company and BGC Holdings, L.P. For the cash proceeds which are not permanently reinvested, the accrued tax liability is $135.5 million, net of foreign tax credits. In addition, certain GFI net operating loss carryforwards are expected to
be utilized to reduce cash taxes. Taking these items together, we therefore expect to pay effective cash taxes of no more than $64 million related to the Trayport transaction.
44
Pursuant to FASB guidance on Accounting for Uncertainty in Income Taxes, the Company provides for
uncertain tax positions based upon managements assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. As of September 30, 2016, the Company had $1.6 million of unrecognized tax
benefits, all of which would affect the Companys effective tax rate if recognized. As of December 31, 2015, the Companys unrecognized tax benefits, excluding related interest and penalties, were $1.6 million, all of which, if recognized,
would affect the effective tax rate. The Company recognizes interest and penalties related to income tax matters in Interest expense and Other expenses, respectively, in the Companys unaudited condensed consolidated
statements of operations. As of September 30, 2016, the Company had approximately $0.2 million of accrued interest related to uncertain tax positions. As of December 31, 2015, there were $0.2 million of accrued interest and penalties related to
uncertain tax positions.
21.
|
Regulatory Requirements
|
Many of the Companys businesses are subject to regulatory
restrictions and minimum capital requirements. These regulatory restrictions and capital requirements may restrict the Companys ability to withdraw capital from its subsidiaries.
Certain U.S. subsidiaries of the Company are registered as U.S. broker-dealers or Futures Commissions Merchants subject to Rule 15c3-1 of the
SEC and Rule 1.17 of the Commodity Futures Trading Commission, which specify uniform minimum net capital requirements, as defined, for their registrants, and also require a significant part of the registrants assets be kept in relatively
liquid form. As of September 30, 2016, the Companys U.S. subsidiaries had net capital in excess of their minimum capital requirements.
Certain European subsidiaries of the Company are regulated by the Financial Conduct Authority (the FCA) and must maintain
financial resources (as defined by the FCA) in excess of the total financial resources requirement of the FCA. As of September 30, 2016, the European subsidiaries had financial resources in excess of their requirements.
Certain other subsidiaries of the Company are subject to regulatory and other requirements of the jurisdictions in which they operate.
In addition, the Companys Swap Execution Facilities (SEFs), BGC Derivative Markets and GFI Swaps Exchange, are required to
maintain financial resources to cover operating costs for at least one year, keeping at least enough cash or highly liquid securities to cover six months operating costs.
The regulatory requirements referred to above may restrict the Companys ability to withdraw capital from its regulated subsidiaries. As
of September 30, 2016, $544.2 million of net assets were held by regulated subsidiaries. These subsidiaries had aggregate regulatory net capital, as defined, in excess of the aggregate regulatory requirements, as defined, of $284.3 million.
22.
|
Segment and Geographic Information
|
Segment Information
The Companys business segments are determined based on the products and services provided and reflect the manner in which financial
information is evaluated by management. The Companys operations consist of two reportable segments, Financial Services and Real Estate Services.
The Companys Financial Services segment specializes in the brokerage of a broad range of products, including fixed income (rates and
credit), foreign exchange, equities, energy and commodities, and futures. It also provides a wide range of services, including trade execution, broker-dealer services, clearing, trade compression, post trade, information, and other back-office
services to a broad range of financial and non-financial institutions. The Companys Real Estate Services segment offers commercial real estate tenants, owners, investors and developers a wide range of services, including leasing and corporate
advisory, investment sales and real estate finance, consulting, project and development management, and property and facilities management.
The Company evaluates the performance and reviews the results of the segments based on each segments Income (loss) from operations
before income taxes.
The amounts shown below for the Financial Services and Real Estate Services
segments reflect the amounts that are used by management to allocate resources and assess performance, which is based on each segments Income (loss) from operations before income taxes. In addition to the two business segments, the
tables below include a Corporate Items category. Corporate revenues include fees from related parties and interest income. Corporate expenses include non-cash compensation expenses (such as the grant of exchangeability to limited
partnership units; redemption/exchange of partnership units, issuance of restricted shares and a reserve on compensation-related partnership loans; and allocations of net income to limited partnership units and FPUs), as well as unallocated
expenses, such as certain professional and consulting fees, executive compensation and interest expense, which are managed separately at the corporate level. Corporate other income (losses), net includes gains that are not considered part of the
Companys ordinary, ongoing business, such as the realized gain related to the GFI shares owned by the Company prior to the completion of the tender offer to acquire GFI on February 26, 2015, the gain related to the disposition of the equity
interests in the entities that make up the Trayport business, the mark-to-market on ICE common shares and any related hedging transactions when applicable, and the adjustment of future earn-out payments.
45
Certain financial information for the Companys segments is presented below. Certain
reclassifications have been made to previously reported amounts to conform to the current presentation. See Note 16Goodwill and Other Intangible Assets, Net, for goodwill by reportable segment.
Three months ended September 30, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services
|
|
|
Real
Estate
Services
|
|
|
Corporate
Items
|
|
|
Total
|
|
Brokerage revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rates
|
|
$
|
112,384
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
112,384
|
|
Credit
|
|
|
67,221
|
|
|
|
|
|
|
|
|
|
|
|
67,221
|
|
Foreign exchange
|
|
|
73,191
|
|
|
|
|
|
|
|
|
|
|
|
73,191
|
|
Energy and commodities
|
|
|
47,061
|
|
|
|
|
|
|
|
|
|
|
|
47,061
|
|
Equities and other asset classes
|
|
|
39,076
|
|
|
|
|
|
|
|
|
|
|
|
39,076
|
|
Leasing and other services
|
|
|
|
|
|
|
139,109
|
|
|
|
|
|
|
|
139,109
|
|
Real estate capital markets
|
|
|
|
|
|
|
94,555
|
|
|
|
|
|
|
|
94,555
|
|
Real estate management services
|
|
|
|
|
|
|
49,373
|
|
|
|
|
|
|
|
49,373
|
|
Fees from related parties
|
|
|
|
|
|
|
|
|
|
|
6,126
|
|
|
|
6,126
|
|
Data, software and post-trade
|
|
|
11,834
|
|
|
|
|
|
|
|
|
|
|
|
11,834
|
|
Other revenues
|
|
|
632
|
|
|
|
13
|
|
|
|
138
|
|
|
|
783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest revenues
|
|
|
351,399
|
|
|
|
283,050
|
|
|
|
6,264
|
|
|
|
640,713
|
|
Interest income
|
|
|
742
|
|
|
|
932
|
|
|
|
1,118
|
|
|
|
2,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
352,141
|
|
|
|
283,982
|
|
|
|
7,382
|
|
|
|
643,505
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
15,383
|
|
|
|
15,383
|
|
Non-interest expenses
|
|
|
290,989
|
|
|
|
246,366
|
|
|
|
85,618
|
|
|
|
622,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
290,989
|
|
|
|
246,366
|
|
|
|
101,001
|
|
|
|
638,356
|
|
Other income (losses), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on divestiture and sale of investments
|
|
|
|
|
|
|
|
|
|
|
7,044
|
|
|
|
7,044
|
|
Gains (losses) on equity investments
|
|
|
|
|
|
|
|
|
|
|
683
|
|
|
|
683
|
|
Other income (losses)
|
|
|
69,893
|
|
|
|
|
|
|
|
21,760
|
|
|
|
91,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (losses), net
|
|
|
69,893
|
|
|
|
|
|
|
|
29,487
|
|
|
|
99,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income taxes
|
|
$
|
131,045
|
|
|
$
|
37,616
|
|
|
$
|
(64,132
|
)
|
|
$
|
104,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services
|
|
|
Real
Estate
Services
|
|
|
Corporate
Items
|
|
|
Total
|
|
Brokerage revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rates
|
|
$
|
113,630
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
113,630
|
|
Credit
|
|
|
67,515
|
|
|
|
|
|
|
|
|
|
|
|
67,515
|
|
Foreign exchange
|
|
|
87,999
|
|
|
|
|
|
|
|
|
|
|
|
87,999
|
|
Energy and commodities
|
|
|
54,879
|
|
|
|
|
|
|
|
|
|
|
|
54,879
|
|
Equities and other asset classes
|
|
|
46,314
|
|
|
|
|
|
|
|
|
|
|
|
46,314
|
|
Leasing and other services
|
|
|
|
|
|
|
143,680
|
|
|
|
|
|
|
|
143,680
|
|
Real estate capital markets
|
|
|
|
|
|
|
81,088
|
|
|
|
|
|
|
|
81,088
|
|
Real estate management services
|
|
|
|
|
|
|
48,867
|
|
|
|
|
|
|
|
48,867
|
|
Fees from related parties
|
|
|
|
|
|
|
|
|
|
|
6,609
|
|
|
|
6,609
|
|
Data, software and post-trade
|
|
|
29,124
|
|
|
|
|
|
|
|
|
|
|
|
29,124
|
|
Other revenues
|
|
|
3,812
|
|
|
|
345
|
|
|
|
46
|
|
|
|
4,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest revenues
|
|
|
403,273
|
|
|
|
273,980
|
|
|
|
6,655
|
|
|
|
683,908
|
|
Interest income
|
|
|
83
|
|
|
|
|
|
|
|
1,304
|
|
|
|
1,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
403,356
|
|
|
|
273,980
|
|
|
|
7,959
|
|
|
|
685,295
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
16,944
|
|
|
|
16,944
|
|
Non-interest expenses
|
|
|
344,869
|
|
|
|
233,202
|
|
|
|
70,445
|
|
|
|
648,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
344,869
|
|
|
|
233,202
|
|
|
|
87,389
|
|
|
|
665,460
|
|
Other income (losses), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on divestiture and sale of investments
|
|
|
|
|
|
|
|
|
|
|
2,717
|
|
|
|
2,717
|
|
Gains (losses) on equity investments
|
|
|
|
|
|
|
|
|
|
|
1,042
|
|
|
|
1,042
|
|
Other income (losses)
|
|
|
57,366
|
|
|
|
|
|
|
|
2,362
|
|
|
|
59,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (losses), net
|
|
|
57,366
|
|
|
|
|
|
|
|
6,121
|
|
|
|
63,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income taxes
|
|
$
|
115,853
|
|
|
$
|
40,778
|
|
|
$
|
(73,309
|
)
|
|
$
|
83,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
Nine months ended September 30, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services
|
|
|
Real
Estate
Services
|
|
|
Corporate
Items
|
|
|
Total
|
|
Brokerage revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rates
|
|
$
|
352,681
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
352,681
|
|
Credit
|
|
|
229,466
|
|
|
|
|
|
|
|
|
|
|
|
229,466
|
|
Foreign exchange
|
|
|
232,494
|
|
|
|
|
|
|
|
|
|
|
|
232,494
|
|
Energy and commodities
|
|
|
168,765
|
|
|
|
|
|
|
|
|
|
|
|
168,765
|
|
Equities and other asset classes
|
|
|
133,035
|
|
|
|
|
|
|
|
|
|
|
|
133,035
|
|
Leasing and other services
|
|
|
|
|
|
|
369,291
|
|
|
|
|
|
|
|
369,291
|
|
Real estate capital markets
|
|
|
|
|
|
|
239,427
|
|
|
|
|
|
|
|
239,427
|
|
Real estate management services
|
|
|
|
|
|
|
140,960
|
|
|
|
|
|
|
|
140,960
|
|
Fees from related parties
|
|
|
|
|
|
|
|
|
|
|
18,061
|
|
|
|
18,061
|
|
Data, software and post-trade
|
|
|
36,599
|
|
|
|
|
|
|
|
|
|
|
|
36,599
|
|
Other revenues
|
|
|
4,128
|
|
|
|
89
|
|
|
|
553
|
|
|
|
4,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest revenues
|
|
|
1,157,168
|
|
|
|
749,767
|
|
|
|
18,614
|
|
|
|
1,925,549
|
|
Interest income
|
|
|
1,892
|
|
|
|
2,457
|
|
|
|
4,603
|
|
|
|
8,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,159,060
|
|
|
|
752,224
|
|
|
|
23,217
|
|
|
|
1,934,501
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
43,465
|
|
|
|
43,465
|
|
Non-interest expenses
|
|
|
969,092
|
|
|
|
673,972
|
|
|
|
198,734
|
|
|
|
1,841,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
969,092
|
|
|
|
673,972
|
|
|
|
242,199
|
|
|
|
1,885,263
|
|
Other income (losses), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on divestiture and sale of investments
|
|
|
|
|
|
|
|
|
|
|
7,044
|
|
|
|
7,044
|
|
Gains (losses) on equity investments
|
|
|
|
|
|
|
|
|
|
|
1,741
|
|
|
|
1,741
|
|
Other income (losses)
|
|
|
79,539
|
|
|
|
|
|
|
|
19,209
|
|
|
|
98,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (losses), net
|
|
|
79,539
|
|
|
|
|
|
|
|
27,994
|
|
|
|
107,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income taxes
|
|
$
|
269,507
|
|
|
$
|
78,252
|
|
|
$
|
(190,988
|
)
|
|
$
|
156,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
Nine months ended September 30, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services
|
|
|
Real
Estate
Services
|
|
|
Corporate
Items
|
|
|
Total
|
|
Brokerage revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rates
|
|
$
|
363,179
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
363,179
|
|
Credit
|
|
|
208,202
|
|
|
|
|
|
|
|
|
|
|
|
208,202
|
|
Foreign exchange
|
|
|
249,607
|
|
|
|
|
|
|
|
|
|
|
|
249,607
|
|
Energy and commodities
|
|
|
139,129
|
|
|
|
|
|
|
|
|
|
|
|
139,129
|
|
Equities and other asset classes
|
|
|
129,726
|
|
|
|
|
|
|
|
|
|
|
|
129,726
|
|
Leasing and other services
|
|
|
|
|
|
|
377,464
|
|
|
|
|
|
|
|
377,464
|
|
Real estate capital markets
|
|
|
|
|
|
|
196,008
|
|
|
|
|
|
|
|
196,008
|
|
Real estate management services
|
|
|
|
|
|
|
135,997
|
|
|
|
|
|
|
|
135,997
|
|
Fees from related parties
|
|
|
108
|
|
|
|
|
|
|
|
19,202
|
|
|
|
19,310
|
|
Data, software and post-trade
|
|
|
68,344
|
|
|
|
|
|
|
|
|
|
|
|
68,344
|
|
Other revenues
|
|
|
7,329
|
|
|
|
984
|
|
|
|
461
|
|
|
|
8,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest revenues
|
|
|
1,165,624
|
|
|
|
710,453
|
|
|
|
19,663
|
|
|
|
1,895,740
|
|
|
|
|
|
|
Interest income
|
|
|
806
|
|
|
|
613
|
|
|
|
4,834
|
|
|
|
6,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,166,430
|
|
|
|
711,066
|
|
|
|
24,497
|
|
|
|
1,901,993
|
|
Interest expense
|
|
|
657
|
|
|
|
12
|
|
|
|
50,616
|
|
|
|
51,285
|
|
Non-interest expenses
|
|
|
988,302
|
|
|
|
627,005
|
|
|
|
196,853
|
|
|
|
1,812,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
988,959
|
|
|
|
627,017
|
|
|
|
247,469
|
|
|
|
1,863,445
|
|
Other income (losses), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on divestiture and sale of investments
|
|
|
|
|
|
|
|
|
|
|
3,396
|
|
|
|
3,396
|
|
Gains (losses) on equity investments
|
|
|
|
|
|
|
|
|
|
|
2,678
|
|
|
|
2,678
|
|
Other income (losses)
|
|
|
58,202
|
|
|
|
|
|
|
|
34,057
|
|
|
|
92,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (losses), net
|
|
|
58,202
|
|
|
|
|
|
|
|
40,131
|
|
|
|
98,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income taxes
|
|
$
|
235,673
|
|
|
$
|
84,049
|
|
|
$
|
(182,841
|
)
|
|
$
|
136,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets by reportable segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
1
|
|
Financial
Services
|
|
|
Real Estate
Services
|
|
|
Total
|
|
At September 30, 2016
|
|
$
|
4,032,295
|
|
|
$
|
779,614
|
|
|
$
|
4,811,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2015
|
|
$
|
3,296,815
|
|
|
$
|
694,639
|
|
|
$
|
3,991,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Corporate assets have been fully allocated to the Companys business segments.
|
Geographic Information
The Company offers products and services in the U.S., U.K., Asia (including Australia), France, Other Americas, Other Europe, and the Middle
East and Africa region (defined as the MEA region). Information regarding revenues for the three months and nine months ended September 30, 2016 and 2015, respectively, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
396,861
|
|
|
$
|
403,355
|
|
|
$
|
1,125,770
|
|
|
$
|
1,088,440
|
|
United Kingdom
|
|
|
138,090
|
|
|
|
166,817
|
|
|
|
463,361
|
|
|
|
480,591
|
|
Asia
|
|
|
51,289
|
|
|
|
58,234
|
|
|
|
160,744
|
|
|
|
165,541
|
|
France
|
|
|
19,857
|
|
|
|
22,583
|
|
|
|
70,695
|
|
|
|
66,107
|
|
Other Americas
|
|
|
12,255
|
|
|
|
14,421
|
|
|
|
41,618
|
|
|
|
41,150
|
|
Other Europe/MEA
|
|
|
25,153
|
|
|
|
19,885
|
|
|
|
72,313
|
|
|
|
60,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
643,505
|
|
|
$
|
685,295
|
|
|
$
|
1,934,501
|
|
|
$
|
1,901,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
Information regarding long-lived assets (defined as loans, forgivable loans and other receivables
from employees and partners, net; fixed assets, net; certain other investments; goodwill; other intangible assets, net of accumulated amortization; and rent and other deposits) in the geographic areas as of September 30, 2016 and December 31, 2015,
respectively, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,243,162
|
|
|
$
|
1,145,876
|
|
United Kingdom
|
|
|
174,624
|
|
|
|
164,970
|
|
Asia
|
|
|
28,575
|
|
|
|
28,368
|
|
France
|
|
|
6,188
|
|
|
|
6,964
|
|
Other Americas
|
|
|
18,819
|
|
|
|
16,135
|
|
Other Europe/MEA
|
|
|
5,585
|
|
|
|
6,277
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
1,476,953
|
|
|
$
|
1,368,590
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2016 Dividend
On October 25, 2016, the Companys Board of Directors declared a quarterly cash dividend of $0.16 per share for the third quarter of 2016,
payable on December 8, 2016 to Class A and Class B common stockholders of record as of November 23, 2016.
Controlled Equity
Offering
Since September 30, 2016, the Company has sold, pursuant to the November 2014 Sales Agreement, 242 thousand shares of
Class A common stock related to redemptions and exchanges of limited partnership interests.
Newmark Grubb Mexico City Acquisition
On October 18, 2016, the Company announced that it has completed the acquisition of Newmark Grubb Mexico City. Newmark Grubb
Mexico City is a tenant advisory firm in the Mexico City area. Mexico City represents the worlds twelfth largest metropolitan area by population. The acquisition of Newmark Grubb Mexico City will be recorded in the Companys Real Estate
Services segment.
LFI Acquisition
On October 25, 2016, the Companys Board of Directors and Audit Committee authorized the purchase of 9,000 Class B Units of LFI
Holdings, LLC (LFI), a subsidiary of Cantor, representing all of the issued and outstanding Class B Units of LFI not already owned by the Company. On November 4, 2016, the Company completed this transaction. As a result of this
transaction, the Company owns 100% of the ownership interests in LFI. LFI, a technology infrastructure provider tailored to the financial sector, is a limited liability company headquartered in New York.
In the purchase agreement, Cantor agreed, subject to certain exceptions, not to solicit certain senior executives of LFIs business and
was granted the right to be a customer of LFIs businesses on the best terms made available to any other customer. The aggregate purchase price paid by the Company to Cantor consisted of approximately $24.2 million in cash plus a post-closing
adjustment to be determined after closing based on netting LFIs expenses paid by Cantor after May 1, 2016 against accounts receivable owed to LFI by Cantor for access to LFIs business from May 1, 2016 through the closing date. The
Company previously had a 20% ownership interest in LFI and accounted for its investment using the equity method. The transaction will be accounted for as a transaction between entities under common control.
Cantor Purchase of Limited Partnership Interests from BGC Holdings
On November 7, 2016, the Company issued exchange rights with respect to, and Cantor purchased, in transactions exempt from registration
pursuant to Section 4(a)(2) of the Securities Act, an aggregate of 624,762 exchangeable limited partnership units in BGC Holdings, as follows: In connection with the redemption by BGC Holdings of an aggregate of 141,523 non-exchangeable founding
partner units from founding partners of BGC Holdings for an aggregate consideration of $560,190, Cantor purchased 141,523 exchangeable limited partnership units from BGC Holdings for an aggregate of $560,190. In addition, pursuant to the Sixth
Amendment, on November 7, 2016, Cantor purchased 483,239 exchangeable limited partnership units from BGC Holdings for an aggregate consideration of $1,796,367 in connection with the grant of exchangeability and exchange for 483,239 founding
partner units. Subsequent to these transactions, there were 541,739 FPUs remaining which BGC Holdings had the right to redeem or exchange and with respect to which Cantor had the right to purchase an equivalent number of Cantor units.
49
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following discussion of BGC Partners, Inc.s financial condition and results of operations should be read together with BGC Partners,
Inc.s unaudited condensed consolidated financial statements and notes to those statements, as well as the risk factors and cautionary statements relating to forward-looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), included in our Annual Report on Form 10-K for the year ended December 31, 2015, in subsequent
Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K,
and in this report. When used herein, the terms BGC Partners, BGC, the Company, we,
us and our refer to BGC Partners, Inc., including consolidated subsidiaries.
This discussion summarizes the
significant factors affecting our results of operations and financial condition during the three and nine months ended September 30, 2016 and 2015. This discussion is provided to increase the understanding of, and should be read in conjunction with,
our unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this report.
OVERVIEW AND BUSINESS ENVIRONMENT
We are a leading global brokerage company servicing the financial and real estate markets through our Financial Services and Real
Estate Services businesses. Through our brands, including BGC
®
, GFI
®
and R.P.
Martin
TM
, among others, our Financial Services business specializes in the brokerage of a broad range of products, including fixed income (rates and credit), foreign exchange, equities, energy and
commodities, and futures. Our Financial Services business also provides a wide range of services, including trade execution, broker-dealer services, clearing, trade compression, post trade, information, and other back-office services to a broad
range of financial and non-financial institutions. Our integrated platform is designed to provide flexibility to customers with regard to price discovery, execution and processing of transactions, and enables them to use voice, hybrid, or in many
markets, fully electronic brokerage services in connection with transactions executed either over-the-counter (OTC) or through an exchange. Through our brands including FENICS
®
,
BGC Trader
TM
, BGC Market Data and Capitalab
®
, we offer fully electronic brokerage, financial technology solutions, market data, post-trade
services and analytics related to select financial instruments and markets.
We entered into the commercial real estate business in
October 2011 with the acquisition of Newmark & Company Real Estate, Inc. (Newmark), a leading U.S. commercial real estate brokerage and advisory firm primarily serving corporate and institutional clients. Newmark was founded in 1929
in New York City. In 2000, Newmark embarked upon a national expansion and in 2006 entered into an agreement with London-based Knight Frank to operate jointly in the Americas as Newmark Knight Frank. In the second quarter of 2012, we
completed the acquisition of substantially all of the assets of Grubb & Ellis Company and its direct and indirect subsidiaries (Grubb & Ellis). Grubb & Ellis was formed in 1958 and built a full-service national commercial
real estate platform of property management, facilities management and brokerage services. Grubb & Ellis was integrated with Newmark Knight Frank to form the resulting brand, Newmark Grubb Knight Frank (NGKF
TM
). NGKF is a full-service commercial real estate platform that comprises our Real Estate Services segment. Under brand names including Newmark Grubb Knight Frank
TM
, Newmark Cornish & Carey
TM
, ARA
®
, Computerized Facility Integration
TM
, Landauer
®
Valuation & Advisory, and Excess Space Retail Services, Inc
®
, we
offer commercial real estate tenants, owners, investors and developers a wide range of services, including leasing and corporate advisory, investment sales, and real estate finance, consulting, project and development management, and property and
facilities management.
Our customers include many of the worlds largest banks, broker-dealers, investment banks, trading firms,
hedge funds, governments, corporations, property owners, real estate developers and investment firms. We have offices in dozens of major markets, including New York and London, as well as in Atlanta, Beijing, Boston, Charlotte, Chicago, Copenhagen,
Dallas, Denver, Dubai, Geneva, Hong Kong, Houston, Istanbul, Johannesburg, Los Angeles, Mexico City, Miami, Moscow, Nyon, Paris, Philadelphia, Rio de Janeiro, San Francisco, Santa Clara, São Paulo, Seoul, Shanghai, Singapore, Sydney, Tokyo,
Toronto, and Washington, D.C., and over 50 other offices.
We remain confident in our future growth prospects as we continue to increase
the scale and depth of our Financial Services and Real Estate Services platforms and continue to seek market-driven opportunities to expand our business in numerous financial asset classes and other products and services. This was exemplified by our
acquisition of GFI Group, Inc. (GFI). Beginning in the first quarter of 2015, BGC began consolidating the results of GFI, which continues to operate as a separately branded division of BGC. On January 12, 2016, we completed the merger
with GFI by acquiring 100% of GFIs outstanding shares (see Acquisition of GFI Group, Inc.). Over the last twelve months, we also completed the purchase of Steffner Commercial Real Estate (which operates as Newmark Grubb
Memphis), Cincinnati Commercial Real Estate (CCR), Rudesill-Pera Multifamily, The CRE Group, Inc. (CRE Group), Perimeter Markets, Inc., certain assets of the John Buck Company, LLC and Buck Management Group LLC, Continental
Realty Ltd and Newmark Grubb Mexico City. By adding these leading companies to our platform, we have greatly broadened the scope and depth of services we can provide to our clients across our consolidated business. We have continued to make key
hires around the world and integrate our recent acquisitions onto our global platform. We expect these additions to increase our revenues and earnings per share going forward. These investments underscore BGCs ongoing commitment to make
accretive acquisitions and profitable hires.
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Acquisition of GFI Group, Inc.
GFI is a leading intermediary and provider of trading technologies and support services to the global OTC and listed markets. GFI serves
institutional clients in operating electronic and hybrid markets for cash and derivative products across multiple asset classes. On February 26, 2015, we successfully completed our tender offer to acquire shares of common stock, par value
$0.01 per share, of GFI for $6.10 per share in cash and accepted for purchase 54.3 million shares tendered to us pursuant to the offer. The tendered shares, together with the 17.1 million shares already owned by us, represented
approximately 56% of the then-outstanding shares of GFI. We issued payment for the tendered shares on March 4, 2015 in the aggregate amount of $331.1 million. On April 28, 2015, we purchased from GFI approximately 43.0 million new
shares at that dates closing price of $5.81 per share, for an aggregate purchase price of $250 million. The purchase price was paid to GFI in the form of a note due on June 19, 2018 that bore an interest rate of LIBOR plus 200 basis
points. The new shares and the note are eliminated in consolidation. Following the issuance of the new shares, we owned approximately 67% of GFIs outstanding common stock, which gave us control over the timing and process for the completion of
a back-end merger (the Back-End Mergers) pursuant to the tender offer agreement.
On January 12, 2016, we completed our
acquisition (the JPI Merger) of Jersey Partners, Inc. (JPI). The JPI Merger occurred pursuant to a merger agreement, dated as of December 22, 2015. Shortly following the completion of the JPI Merger, a subsidiary of BGC
merged with and into GFI pursuant to a short-form merger under Delaware law, with GFI continuing as the surviving entity. The Back-End Mergers allowed BGC to acquire the remaining approximately 33% of the outstanding shares of GFI common stock that
BGC did not already own. Following the closing of the Back-End Mergers, BGC and its affiliates now own 100% of the outstanding shares of GFIs common stock.
In total, approximately 23.5 million shares of BGC Class A common stock and $111.2 million in cash were issued or paid with respect to the
closing of the Back-End Mergers, inclusive of adjustments. The total purchase consideration for all shares of GFI purchased by BGC was approximately $750 million, net of the $250.0 million note previously issued to GFI by BGC, which is
eliminated in consolidation. This figure excludes the $29.0 million gain recorded in the first quarter of 2015 with respect to the appreciation of the 17.1 million shares of GFI held by BGC prior to the successful completion of the tender
offer. The excess of total consideration over the fair value of the total net assets acquired, of approximately $450.0 million, has been recorded to goodwill and was allocated to our Financial Services segment.
We believe the combination of BGC and GFI creates a strong and diversified Financial Services business, well positioned to capture future
growth opportunities. Through this combination, we expect to deliver substantial benefits to customers of the combined company, and we expect to become the largest and most profitable wholesale financial brokerage company. We also believe this is a
highly complementary combination, which has resulted, and will continue to result, in meaningful economies of scale. While the front-office operations will remain separately branded divisions, the back office, technology, and infrastructure of these
two companies are being integrated in a smart and deliberate way.
On July 10, 2015, the Company guaranteed the obligations of GFI under
the 8.375% Senior Notes; as a consequence of guaranteeing GFIs debt, we have substantially improved the credit rating of GFIs bonds and lowered future interest payments. We have also been able to free up capital set aside for regulatory
and clearing purposes, allowing us to use our balance sheet more efficiently. As the integration of BGC and GFI continues, we expect to generate increased productivity per broker and to continue converting voice and hybrid broking to more profitable
fully electronic trading on our FENICS platform, all of which should lead to increased revenues, profitability and cash flows. In addition, we expect our results to further improve as we invest the net proceeds from the $650 million Trayport sale
(see Trayport Transaction).
Trayport Transaction
On December 11, 2015, we completed the sale (the Trayport Transaction) of all of the equity interests in the entities that make up
the Trayport business to Intercontinental Exchange, Inc. (ICE). The Trayport business was GFIs electronic European energy software, trading, and market data business. The Trayport Transaction occurred pursuant to a Stock
Purchase Agreement, dated as of November 15, 2015. At the closing, we received 2,527,658 shares of ICE common stock issued with respect to the $650 million purchase price, which was adjusted at closing. Through September 30, 2016, we have sold
more than 95% of our shares of ICE common stock. Trayport, prior to its sale, had generated gross revenues of approximately $80 million over the twelve months ended September 30, 2015. BGC expects to pay effective cash taxes of no more than $64
million related to the Trayport sale price, or an expected rate of less than 10%.
Nasdaq Transaction
On June 28, 2013, we completed the sale (the Nasdaq Transaction) of certain assets to Nasdaq, Inc. (Nasdaq,
formerly known as NASDAQ OMX Group, Inc.), which purchased certain assets and assumed certain liabilities from us and our affiliates, including the eSpeed brand name and various assets comprising the fully electronic portion of our
benchmark on-the-run U.S. Treasury brokerage, market data and co-location service businesses (eSpeed), for cash consideration of $750 million paid at closing, plus an earn-out of up to
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14,883,705 shares of Nasdaq common stock to be paid ratably in each of the fifteen years following the closing in which the consolidated gross revenue of Nasdaq is equal to or greater than $25
million. Through September 30, 2016, we have received 3,968,988 shares of Nasdaq common stock in accordance with the agreement. The contingent future issuances of Nasdaq common stock are also subject to acceleration upon the occurrence of certain
events.
As a result of the sale of eSpeed, we only sold our on-the-run benchmark 2-, 3-, 5-, 7-, 10-, and 30-year fully electronic trading
platform for U.S. Treasury Notes and Bonds. We continue to offer voice brokerage for on-the-run U.S. Treasuries, as well as across various other products in rates, credit, FX, market data and software solutions. As we continue to focus our efforts
on converting voice and hybrid desks to electronic execution, our e-businesses, excluding Trayport and revenues from inter-company data, software, and post-trade services, have continued to grow their revenues and generated $203.3 million of net
revenues during the most recent trailing twelve-month period ended September 30, 2016, up 21.4% from a year ago. These fully electronic revenues are more than double those of eSpeed, which generated $48.6 million in revenues for the six months,
ended June 30, 2013 and was sold in the second quarter of 2013 for $1.2 billion (based on the value of Nasdaq stock at the time the deal was announced).
For the purposes of this document and subsequent Securities and Exchange Commission (SEC) filings, all of our fully electronic
businesses are referred to as FENICS. These offerings include Financial Services segment fully electronic brokerage products, as well as offerings in market data, software solutions, and post-trade services across both BGC and GFI.
FENICS results do not include the results of Trayport, either before or after the completed sale to ICE. Going forward, we expect these businesses to become an even more valuable part of BGC as they continue to grow faster than, and be substantially
larger than, eSpeed ever was for us.
Financial Services:
The financial intermediary sector has been a competitive area that grew over the first half of the past decade due to several factors. One
factor was the increasing use of derivatives to manage risk or to take advantage of the anticipated direction of a market by allowing users to protect gains and/or guard against losses in the price of underlying assets without having to buy or sell
the underlying assets. Derivatives are often used to mitigate the risks associated with interest rates, equity ownership, changes in the value of foreign currency, credit defaults by corporate and sovereign debtors and changes in the prices of
commodity products. For the period from 1998 through 2007, demand from financial institutions, financial services intermediaries and large corporations had increased volumes in the wholesale derivatives market, thereby increasing the business
opportunity for financial intermediaries.
Another key factor in the growth of the financial intermediary sector during the same timeframe
was the increase in the number of new financial products. As market participants and their customers strive to mitigate risk, new types of equity and fixed income securities, futures, options and other financial instruments have been developed. Most
of these new securities and derivatives were not immediately ready for more liquid and standardized electronic markets, and generally increased the need for trading and required broker-assisted execution.
In recent years, our Financial Services businesses have faced more challenging market conditions. Accommodative monetary policies by several
major central banks including the Federal Reserve, Bank of England, Bank of Japan and the European Central Bank have resulted in historically low levels of volatility and interest rates across many of the financial markets in which we operate. The
global credit markets have also faced structural issues such as increased bank capital requirements under Basel III. Consequently, these factors have contributed to lower trading volumes in our rates and credit asset classes across most geographies
in which we operate.
On June 23, 2016, the U.K. held a referendum regarding continued membership in the European Union (the
EU). The exit from the EU is commonly referred to as the Brexit. The Brexit vote passed by 51.9% to 48.1%. The referendum was non-binding. However, the newly installed Prime Minister of the U.K. has indicated that she
intends to follow through on the wishes of the voters and that negotiations will commence under Article 50 of the Lisbon Treaty in March 2017 to determine the future terms of the U.K.s relationship with the EU, including the terms of trade,
also known as passporting rights between the U.K. and the EU. The effects of the Brexit will depend on any agreements the U.K. makes to retain access to EU markets including for financial services either during a
transitional period or more permanently.
The announcement of the Brexit contributed to short-term volatility in most of the global
financial markets in which we broker, and also led to currency exchange rate fluctuations that resulted in significant weakening of the British pound against most major foreign currencies. Although we generate a significant amount of revenue in the
U.K., most of it is denominated in other currencies. However, a majority of our U.K. expenses are denominated in pounds. As a result, we expect the decrease in the value of the pound to have a minimal effect on our consolidated earnings.
Since the negotiations for completing the Brexit have not yet commenced, and could take up to two years once initiated, we anticipate higher
than average global financial market volatility to occur periodically for the foreseeable future, all else equal. Historically, elevated volatility has often led to increased volumes in the Financial Services markets in which we broker, which could
be beneficial for that segment.
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Regulators in the U.S. have finalized most of the new rules across a range of financial
marketplaces, including OTC derivatives, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Many of these rules became effective in prior years, while ongoing phase-ins are anticipated over
coming years. Legislators and regulators in Europe and the Asia-Pacific region have crafted similar rules, some of which have already been implemented, specifically those falling under the Markets in Financial Instruments Directive II (MiFID
II), while others are expected to be implemented in the future.
These OTC-related regulations and proposed rules call for, among
other actions, additional pre- and post-trade market transparency, heightened collateral and capital standards, the transacting of certain derivatives using authorized venues, central clearing of most standardized derivatives, specific business
conduct standards and the delivery of transaction data to newly designated trade repositories for public dissemination.
BGC Derivative
Markets and GFI Swaps Exchange, our subsidiaries, began operating as Swap Execution Facilities (SEFs) on October 2, 2013. Both BGC Derivative Markets and GFI Swaps Exchange received permanent registration approval from the Commodity
Future Trading Commission (the CFTC) as SEFs on January 22, 2016. Mandatory Dodd-Frank Act compliant execution on SEFs by eligible U.S. persons commenced in February 2014 for made available to trade products, and a wide
range of other rules relating to the execution and clearing of derivative products have been finalized with implementation periods in 2016 and beyond. We also maintain our ownership stake in ELX, a CFTC-approved designated contract market
(DCM).
We believe that our relative competitive position is strong in this evolving landscape, and that we will gain market
share. This is not only because the new rules require OTC market execution venues to maintain robust front-end and back-office IT capabilities and to make large and ongoing technology investments, but also because recent revisions to the execution
methodology rules will allow elements of voice brokerage to flourish. We are a leader in both the breadth and scale of our hybrid and fully electronic trading capabilities, and we expect to outperform our competitors in such an environment.
In recent years, there has been significant consolidation among the interdealer-brokers and wholesale brokers with which we compete. In
addition to our 2015 acquisition of GFI, Tullett Prebon plc (Tullett) and ICAP plc (ICAP) announced in November 2015 an agreement whereby Tullett would purchase the vast majority of ICAPs global hybrid/voice broking, as
well as portions of its information businesses. Following the completion of their proposed deal, ICAP expects to change its corporate name to NEX Group plc (NEX), while Tullett plans to change its name to TP-ICAP
plc. We expect to continue to compete with the remaining electronic markets, post-trade and information businesses of NEX through the various offerings on our FENICS platform. We will also continue to compete with TP-ICAP across various
voice/hybrid brokerage marketplaces. There has also been significant consolidation among smaller non-public wholesale brokers, including our acquisitions of R.P. Martin, Heat Energy Group, Remate Lince, and our recently announced agreement to
acquire Sunrise Brokers Group. We view the recent consolidation in the industry favorably, as we expect it to provide additional operating leverage to our Financial Services businesses in the future.
Growth Drivers
As
a wholesale intermediary, our business is driven primarily by overall industry volumes in the markets in which we broker, the size and productivity of our front-office headcount (including brokers, salespeople, managers and other front-office
personnel), regulatory issues and the percentage of our revenues we are able to execute by fully electronic means.
Below is a brief
analysis of the market and industry volumes for some of our financial services products including our overall hybrid and fully electronic trading activities.
Overall Market Volumes and Volatility
Volume is driven by a number of items, including the level of issuance for financial instruments, the price volatility of financial
instruments, macro-economic conditions, the creation and adoption of new products, the regulatory environment, and the introduction and adoption of new trading technologies. Historically, increased price volatility has typically increased the demand
for hedging instruments, including many of the cash and derivative products that we broker.
Rates volumes in particular are influenced by
market volumes and volatility. Historically low and negative interest rates across the globe have significantly reduced the overall trading appetite for rates products. The ECB and Bank of Japan are among a number of central banks that have cut key
interest rates to below zero, while many sovereign bonds continue to trade at negative yields. According to Fitch, there was approximately $10.9 trillion of sovereign debt with negative yields as of September 12, 2016, down from $11.7 trillion at
the end of the second quarter of 2016. This represents approximately twenty-eight percent of the $38 trillion in total investment-grade sovereign debt outstanding at September 12, 2016, according to Fitch. The U.K.s referendum vote to
exit the European Union drove historically low yields even lower during the third quarter of 2016, as a subsequent flight to high quality and deeply liquid asset classes ensued. Rates volumes have been tempered industry-wide by this historic period
of exceptionally low interest rates, which has driven many traditional investor classes to other investible asset classes, in search of higher yields.
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Also weighing on yields and rates volumes are global central bank quantitative easing programs.
The programs depress rates volumes because they entail the central banks buying government securities or other securities in the open market particularly longer-dated instruments in an effort to promote increased lending and liquidity
and bring down long-term interest rates. When central banks hold these instruments, they tend not to trade or hedge, thus lowering rates volumes across cash and derivatives markets industry-wide. Despite the conclusion of its quantitative easing
program in the fourth quarter of 2014, the U.S. Federal Reserve still had approximately $3.7 trillion worth of long-dated U.S. Treasury and Federal Agency securities as of September 30, 2016, compared with $1.7 trillion at the beginning of 2011 and
zero prior to September 2008. Additionally, the U.S. Federal Reserve has continued to roll over its existing positions and it is expected to keep its balance sheet at elevated levels for the foreseeable future. Other major central banks have also
greatly increased the amount of longer-dated debt on their balance sheets over the past few years and have indicated that they may continue to do so until economic conditions allow for a tapering or an unwinding of their quantitative easing
programs.
In addition, the G-20 central banks have agreed to implement the Basel III accord. Basel III was drafted with the intention of
making banks more stable in the wake of the financial crisis. The accord, which will continue to be phased in over the coming years, will force most large banks in G-20 nations to hold approximately three times as much Tier 1 capital as is required
under the previous set of rules. These capital rules make it more expensive for banks to hold non-sovereign debt assets on their balance sheets, and as a result, analysts say that banks have reduced or will reduce their trading activity in corporate
and asset-backed fixed income securities as well as in various other OTC cash and derivative instruments. We believe that this has further reduced overall industry volumes in many of the products we broker, particularly in credit.
On September 1, 2016, the U.S. and Japan implemented Phase I of the Basel Committees edict for initial margin and variation
margins to be exchanged bilaterally between participants transacting in non-centrally cleared derivatives. Phase I adversely impacted trading activity at our large sell-side institutional clients during the third quarter of 2016 as they
worked through arranging documentation to support the exchange of margins with each other. Some clients remain unable to deal with major counterparties. In addition, uncertainty around compliance globally has affected derivatives pricing. Although
regulators in Europe, Hong Kong, Singapore and Australia previously announced delays to the Phase I implementation date, most uncleared bilateral rates, FX and credit derivatives trading with U.S. counterparties has necessarily included
initial margin, resulting in a general widening of bid-offer spreads with subsequent reduced turnover. While there has been some substitution with trades in nearly similar products being submitted for central clearing so as to be out of scope for
the new rule, these transactions did not replace the withdrawn volumes. The first tranche of this rule application in the EU will occur in the middle of the first quarter of 2017, and similar disruption may occur as the aftermath may be spread
across a wider set of participants. Phases II and III, which cover midsize and smaller institutions, are expected to be implemented over the next four years.
During the three months ended September 30, 2016, industry volumes were generally mixed to down year-over-year for the OTC and listed products
we broker in rates, credit, FX, equities, energy and commodities. For example, volumes were generally mixed within energy and commodities and U.S. and European interest rate futures, while volumes were generally down within, FX, equities and
credit. Below is an expanded discussion of the volume and growth drivers of our various financial services brokerage product categories.
Rates Volumes and Volatility
Our rates business is influenced by a number of factors, including global sovereign issuances, secondary trading and the hedging of these
sovereign debt instruments. While the amount of global sovereign debt outstanding remains high by historical standards, the level of secondary trading and related hedging activity remains muted. For example, according to Trax, total European fixed
income volumes were down 1% during the third quarter of 2016 as compared with a year earlier. In addition, according to Bloomberg and the Federal Reserve Bank of New York, the average daily volume of various U.S. Treasuries, excluding Treasury
bills, among primary dealers was down 5% during the third quarter of 2016 as compared with a year earlier. Additionally, interest rate volumes were flat at Eurex, up 14% for ICE, and up by 2% at the CME Group Inc. (CME), all according to
Credit Suisse Research. In comparison, our overall rates revenues were $112.4 million, down by approximately 1% from a year earlier.
Our
rates revenues, like the revenues for most of our Financial Services products, are not totally dependent on market volumes and therefore do not always fluctuate consistently with industry metrics. This is largely because our voice, hybrid, and fully
electronic desks in rates often have volume discounts built into their price structure, which results in our rates revenues being less volatile than the overall industry volumes.
Overall, analysts and economists expect the absolute level of sovereign debt outstanding to remain at elevated levels for the foreseeable
future as governments finance their future deficits and roll over their sizable existing debt. For example, the Organization for Economic Cooperation and Development (the OECD), which includes almost all of the advanced and developed
economies of the world, reported that general government debt as a percentage of GDP is estimated to remain at 72% for the entire OECD in 2017. This would represent a slight increase from 71% in 2015, but up considerably from the 39% figure in 2007.
Meanwhile, economists expect that the effects of various forms of quantitative easing will continue to negatively impact financial markets, as economic growth remains weak in most OECD countries. As a result, we expect long-term tailwinds in our
rates business from continuing high levels of government debt, but continued near-term headwinds due to the current low interest rate environment and continued accommodative monetary policy of many major central banks.
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Foreign Exchange Volumes and Volatility
Global FX volumes were generally down during the third quarter of 2016, as the third quarter was impacted by decreased market volatility due to
increased uncertainty around global macro events, including upcoming Brexit negotiations. Thus, spot FX at Thomson Reuters was down 17% during the quarter, overall FX volumes were down 14% for EBS, while FX futures at CME were down 10%. In
comparison, our overall FX revenues decreased by 17% to $73.2 million, primarily related to the challenging market conditions described above.
Credit Volumes
The cash portion of our credit business is impacted by the level of global corporate bond issuance, while both the cash and credit derivatives
sides of this business are impacted by sovereign and corporate issuance. The global credit derivative market turnover has declined over the last few years due to the introduction of rules and regulations around the clearing of credit derivatives in
the U.S. and elsewhere, along with non-uniform regulation across different geographies. In addition, many of our large bank customers continue to reduce their inventory of bonds and other credit products in order to comply with Basel III and
other international financial regulations. During the third quarter, primary dealer average daily volume for corporate bonds was up by 12% according to Bloomberg and the Federal Reserve Bank of New York, although dealer inventory of such bonds was
down 14%. As of September 30, 2016, total gross and net notional credit derivatives outstanding as reported by the International Swaps and Derivatives Association a reflection of the OTC derivatives market were down by 14% and 8%,
respectively, from a year earlier. In comparison, our overall credit revenues were flat at $67.2 million, while our fully electronic credit revenues were up over 17%, driven largely by increased trading volumes, organic growth, and conversion of
voice/hybrid volumes to electronic.
Energy and Commodities
Energy and commodities volumes were generally up during the third quarter of 2016, driven by the increased volatility exhibited in global oil
and other physical commodity prices. Energy and commodities futures average daily volumes during the quarter were up 3% and 8% year-over-year at ICE and CME, respectively. BGCs energy and commodities revenues were down 14% to $47.1 million.
Our commodities revenues declined largely due to lower global volumes across shipping and certain commodities markets.
Equities and
Other Asset Classes
Global equity volumes were generally down during the third quarter of 2016. According to Credit Suisse
Research, the average daily volumes of U.S. and European shares were down 11% and 21%, respectively. Additionally, equity derivatives average daily volumes were down 17% as compared to the third quarter of 2015. Our overall revenues from
equities and other asset classes decreased by 16% to $39.1 million.
Fully Electronic Trading (FENICS) and Hybrid Trading
Historically, technology-based product growth has led to higher margins and greater profits over time for exchanges and wholesale
financial intermediaries alike, even if overall company revenues remain consistent. This is largely because fewer employees are needed to process the same volume of trades as trading becomes more automated. Over time, electronification of
exchange-traded and OTC markets has also generally led to volumes increasing somewhat faster than commissions decline, and thus often to an overall increase in revenues. We have been a pioneer in creating and encouraging hybrid and fully electronic
trading, and we continually work with our customers to expand such trading across more asset classes and geographies.
Outside of U.S.
Treasuries and spot FX, the banks and broker-dealers that dominate the OTC markets had generally been hesitant in adopting electronically traded products. However, in recent years, hybrid and fully electronic wholesale OTC markets for products,
including CDS indices, FX options, non-U.S. sovereign bonds, corporate bonds, and interest rate derivatives, have been created as banks and broker-dealers have become more open to electronically traded products and as firms like BGC have invested in
the kinds of technology favored by our customers. Recently enacted and pending regulation in Asia, Europe and the U.S. regarding banking, capital markets, and OTC derivatives has accelerated the adoption of fully electronic trading, and we expect to
benefit from the rules and regulations surrounding OTC derivatives. Our understanding is that the rules that have been adopted or are being finalized will continue to allow for trading through a variety of means, including voice, and we believe
the net impact of these rules and additional bank capital requirements will encourage the growth of fully electronic trading for a number of products we broker. We also believe that new clients, beyond our large bank customer base, will primarily
transact electronically across our FENICS platform.
The combination of more market acceptance of hybrid and fully electronic trading and
our competitive advantage in terms of technology and experience has contributed to our strong gains in electronically traded products. We continue to invest in hybrid and fully electronic technology broadly across our financial services product
categories. FENICS has exhibited significant growth that we believe has outpaced the financial technology and wholesale brokerage industry as a whole. We expect this trend to continue as we convert more of our voice and hybrid brokerage into fully
electronic brokerage across our FENICS platform.
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FENICS revenues, excluding Trayport, decreased by 1% to $47.4 million for the quarter, as
compared with $48.1 million for the three months ended September 30, 2015. The decrease in overall FENICS revenues for the period was primarily driven by lower FX volumes. Revenues were lower largely due to the implementation of initial uncleared
derivative margin requirements in the United States, which caused a decline in revenues during the last eight business days of August. We offer electronically traded products on a significant portion of our Financial Services segments hundreds
of brokerage desks. The revenues, profits, and growth of these products have been significantly higher than those of eSpeed, which we sold in the second quarter of 2013 for over $1.2 billion. We expect the proportion of desks offering electronically
traded products to continue to increase as we invest in technology to drive electronic trading over our platform. Over time, we expect the growth of FENICS to further improve this segments profitability and market share.
Real Estate Services:
Our discussion of
financial results for Newmark Grubb Knight Frank, NGKF, or Real Estate Services reflects only those businesses owned by us and does not include the results for Knight Frank or for the independently owned offices
that use some variation of the NGKF name in their branding or marketing.
Our Real Estate Services segment continued to show solid growth
and generated approximately 44% of our revenues for the three months ended September 30, 2016. Real Estate brokerage revenues were $233.7 million, up 4% year-over-year, which included growth in real estate capital markets of 17%, partially offset by
decreased leasing and other services revenue of 3%. The growth across our capital markets business was driven by strong double-digit organic growth, while the decreases in our leasing and other services business reflected lower market volumes. Our
Real Estate management services and other revenues were up by 2%, and overall NGKF revenues improved by 4%. Although U.S. industry-wide activity across commercial leasing and capital markets was down in the third quarter according to NGKF Research,
we believe that NGKF continued to gain market share.
We continued to invest in the segment by adding dozens of high profile and talented
brokers and other revenue-generating professionals. Historically, newly hired commercial real estate brokers tend to achieve dramatically higher productivity in their second and third years with the Company, although we incur related expenses
immediately. This is largely why NGKFs pre-tax earnings were down for the segment in the quarter. As our newly-hired brokers increase their production, we expect NGKFs revenue and earnings growth to improve, thus demonstrating our
operating leverage.
Over time, we expect the overall profitability of our Real Estate Services business to increase as we develop its
size and scale. However, the pre-tax margins in the segment are also impacted by the mix of revenues generated by NGKF. For example, real estate capital markets, which includes sales, commercial mortgage broking, and other real estate-related
financial services, generally has larger transactions that occur with less frequency and more seasonality when compared with leasing advisory. However, real estate capital markets tend to have significantly higher pre-tax margins than NGKF as a
whole. Leasing advisory revenues are generally more predictable than revenues from real estate capital markets, while pre-tax earnings margins tend to be more similar to those of the segment as a whole. Property and facilities management, which
together are called real estate management services, generally have the most predictable and steady revenues, but with pre-tax earnings margins below those for NGKF as a whole. When management services clients agree to give us exclusive
rights to provide real estate services for their facilities or properties, it is for an extended period of time, which provides us with stable and foreseeable sources of revenues.
Growth Drivers
The key drivers of revenue growth for U.S. commercial real estate services companies include the overall health of the U.S. economy, including
gross domestic product and employment trends in the U.S., which drives demand for various types of commercial leases and purchases, the institutional ownership of commercial real estate as an investible asset class, and the ability to attract and
retain talent to our real estate services platform. In addition, in real estate sales, also known as real estate capital markets, growth is driven by the availability of credit to purchasers of and investors in commercial real estate.
Economic Growth in the U.S.
The U.S. economy expanded by a seasonally adjusted annualized rate of 2.9% during the third quarter of 2016, which was above the 2.6% growth
that had been expected, according to a Bloomberg survey of economists. This growth compares with an increase of 1.4% and 2.0% during the second quarter of 2016 and the third quarter of 2015, respectively. The consensus is for U.S. GDP to expand by
1.5% in 2016 and 2.1% in 2017, according to the same Bloomberg survey of economists. This moderate pace of growth should help keep interest rates and inflation low by historical standards.
The Bureau of Labor Statistics reported that employers added a monthly average of 192 thousand net new payroll jobs during the third quarter,
which was consistent with the prior year period. U.S. employers added 156 thousand jobs in September of 2016, versus the trailing twelve month average of 204 thousand. Despite the return to pre-recession unemployment rates (5% as of September 2016),
the number of long-term unemployed and the labor force participation rate (the latter of which is near a 38-year low) remain disappointing for many economists, but these indicators are less important to commercial real estate than job creation.
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The 10-year Treasury yield ended the third quarter at 1.59%, down over 44 basis points from the
year-earlier date, and only 24 basis points off its recent all-time low in July 2012. 10-year Treasury yields have remained well below their 50-year average of approximately 6.5%, in large part due to market expectations that the Federal Open Market
Committee (FOMC) will only moderately raise the federal funds rate over the next few years. Interest rates are also low due to even lower or negative benchmark government interest rates in much of the rest of developed world, which makes
U.S. government bonds relatively more attractive.
The combination of moderate economic growth and low interest rates that has been in
place since the recession ended has been a powerful stimulus for commercial real estate, delivering steady absorption of excess space and strong investor demand for the yields available through both direct ownership of assets and publicly traded
funds. Steady economic growth and low interest rates helped push vacancy rates down for the office, apartment, retail and industrial markets. Construction activity, though it is ramping up, remains low compared with prior expansion cycles and low
relative to demand and absorption, which means that property leasing markets continue to tighten. The exception to this trend is apartments, where construction activity has caught up with demand in some markets and submarkets. Asking rental rates
posted moderate gains across all property types during the third quarter of 2016. The following trends drove the commercial real estate market during the third quarter of 2016:
|
|
|
Sustained U.S. employment growth and rising home values have fueled the economy and generated demand for commercial real estate space across all major sectors;
|
|
|
|
Technology, professional and business services and healthcare continued to power demand for office space, although technology occupiers have turned more cautious, causing a slowdown in some formerly high-flying markets
such as San Francisco. Languishing oil prices continued to pose a challenge for Houston and other energy-dependent markets. Sublease space leveled off during the third quarter, although it rose in Houston and also Silicon Valley, due to technology
sector layoffs. However, overall sublease inventories remained low by historic standards;
|
|
|
|
E-commerce and supply-chain optimization created tenant and owner-user demand for warehouses and distribution centers;
|
|
|
|
Apartment rents benefited from sustained job growth, and underlying demographic trends towards urban living among two key age groups: millennials and baby boomers; and
|
|
|
|
Continued corporate employment growth, combined with increased leisure travel generated demand for hotel room-nights.
|
Offsetting these trends, at least in short term, is the uncertainty many global real estate investors have expressed following the recent
passing of the referendum calling for the UK to exit the European Union. While the volatility this is expected to generate will help our Financial Services business, it may have caused some real estate capital markets investors to sit on the
sidelines for now. In the medium to longer term, we believe that firms focused more on the U.S. market, like NGKF, could benefit if investors shift more of their attention away from Europe to North America.
Market Statistics
The U.S commercial property market continues to display strength, despite slight declines in commercial property prices, as measured by the
Commercial Property Price Index, reported by Moodys Real Capital Analytics (RCA). U.S. commercial real estate sales volumes decreased year-over-year for only the second time since 2009, as reported by RCA. U.S. commercial real
estate activity and prices were adversely impacted during the quarter primarily related to tightening credit conditions, particularly in CMBS and agency lending, as well as tightening capitalization rates. However, spreads of U.S. commercial real
estate capitalization rates over 10-year U.S. Treasuries were 437 basis points on average over the third quarter of 2016, well above the pre-recession low of 165 basis points and the trailing 10-year average spread of 348 basis points. If the U.S.
economy continues to expand at the moderate pace envisioned by many economists, we would expect this to fuel the continued expansion of demand for commercial real estate. The spread between local 10-year benchmark government bonds and U.S. cap
rates was even wider with respect to major countries including Japan, Canada, Germany, the U.K. and France during the third quarter of 2016. This should continue to make U.S. commercial real estate a relatively attractive investment for non-U.S.
investors.
According to CoStars Value-Weighted U.S. Composite Index, average prices were up by 2.9% in September compared to a year
earlier. During the quarter, the dollar volume of significant property sales totaled $114.8 billion in the U.S., down by 2.0% from the year ago period according to RCA. In comparison, our real estate capital markets revenue increased by 17%
year-over-year, primarily due to organic growth.
Although overall industry metrics are not necessarily as correlated to our revenues in
Real Estate Services as they are in Financial Services, they do provide some indication of the general direction of the business. According to NGKF Research, the combined average vacancy rate for office, industrial, and retail properties ended the
third quarter of 2016 at 7.4%, down from 7.9% a year earlier, marking twenty-six consecutive quarters of improving average vacancy rates. Rents for all property types in the U.S. continued to improve modestly. According to NGKF Research, leasing
activity during the third quarter of 2016 was down slightly from the year ago period, likely a result of lower corporate earnings in the past several quarters. In comparison, revenues from our leasing and other services business decreased by 3.0%.
57
REGULATORY ENVIRONMENT
See Regulation in Part I, Item 1 of our Annual Report on Form 10-K for information related to our regulatory environment.
LIQUIDITY
See Liquidity and
Capital Resources herein for information related to our liquidity and capital resources.
HIRING AND ACQUISITIONS
A key driver of our revenue is front-office headcount. We believe that our strong technology platform and unique partnership structure have
enabled us to use both acquisitions and recruiting to profitably increase our front-office staff at a faster rate than our largest competitors since our formation in 2004.
We have invested significantly to capitalize on the current business environment through acquisitions, technology spending and the hiring of
new brokers, salespeople, managers and other front-office personnel. The business climate for these acquisitions has been competitive, and it is expected that these conditions will persist for the foreseeable future. We have been able to attract
businesses and brokers, salespeople, managers and other front-office personnel to our platform as we believe they recognize that we have the scale, technology, experience and expertise to succeed in the current business environment.
As of September 30, 2016, our front-office headcount was down slightly year-over-year at 3,800 brokers, salespeople, managers and other
front-office personnel. For the quarter ended September 30, 2016, average revenue generated per front-office employee decreased by 3% from a year ago to approximately $154 thousand. Average revenue per front-office employee was adversely impacted by
recent front-office hires and acquisitions, particularly in our Real Estate Services business. Our average revenue per front-office employee has historically declined year-over-year for the period immediately following significant headcount
increases, and the additional brokers and salespeople generally achieve significantly higher productivity levels in their second or third year with the Company.
The laws and regulations passed or proposed on both sides of the Atlantic concerning OTC trading seem likely to favor increased use of
technology by all market participants, and are likely to accelerate the adoption of both hybrid and fully electronic trading. We believe these developments will favor the larger inter-dealer brokers over smaller, non-public inter-dealer brokers, as
the smaller ones generally do not have the financial resources to invest the necessary amounts in technology. We believe this will lead to further consolidation across the wholesale financial brokerage industry, and thus further allow us to
profitably grow our front-office headcount.
Since 2015, our Financial Services acquisitions have included GFI and Perimeter Markets Inc.
(Perimeter Markets). In July 2016, we also announced that we have entered into an agreement to acquire the businesses of Sunrise Brokers Group (Sunrise Brokers).
On February 26, 2015, we announced the successful completion of our tender offer for the majority of GFIs outstanding common shares. GFI
is a leading intermediary in the global OTC and Listed markets, offering an array of sophisticated trading technologies and products. GFI generated more than $880 million in revenues in 2014, including revenues from its Trayport and Kyte businesses,
which have since been sold. The acquisition of GFI represented the largest acquisition in our history. On January 12, 2016, we completed the merger with GFI by acquiring the remaining shares of GFI. This combination dramatically increases the scale
and scope of the Company and the combined company is now the largest interdealer-broker and wholesale financial broker in the industry.
On
December 11, 2015, we completed the sale of all of the equity interests in the entities that make up the Trayport business to ICE. At the closing, we received 2,527,658 shares of ICE common stock issued with respect to the $650 million purchase
price, which was adjusted at closing. In 2015, we also completed the sale of all the equity interests of The Kyte Group Limited (which primarily included the Companys clearing business) and Kyte Broking Limited.
On July 19, 2016, we announced that we have entered into an agreement to acquire the businesses of Sunrise Brokers, an independent financial
brokerage with a leading reputation in worldwide equity derivatives. Based in London, and with offices in New York and Hong Kong, Sunrise was voted overall Number One Equity Products Broker of the Year by Risk Magazine for the past nine
years, and the top broker in Equity Exotic Derivatives for 13 years running. Sunrise has approximately 135 brokers, generated approximately $90 million in revenues in 2015, and has grown its revenues and profits for each of the last
three years.
On September 23, 2016, we completed the acquisition of Perimeter Markets, an independent provider of electronic fixed income
and futures trading in Canada, through its CBID platforms.
Since 2015, our Real Estate Services acquisitions have included
Computerized Facilities Integration (CFI), Excess Space, Steffner Commercial Real Estate, CCR, Rudesill-Pera Multifamily, LLC, CRE Group, certain assets of the John Buck Company, LLC and Buck Management Group LLC, Continental Realty and
Newmark Grubb Mexico City.
On May 20, 2015, we completed the acquisition of CFI, a premier real estate strategic consulting and systems
integration firm that manages over three billion square feet globally for Fortune 500 companies, owner-occupiers, government agencies, healthcare and higher education clients. CFI provides corporate real estate, facilities management, and enterprise
asset management information consulting and
58
technology solutions that yield hundreds of millions of dollars in cost savings for its client base on an annual basis. The acquisition is expected to complement and drive future growth
opportunities within NGKFs management services business and within CFIs extensive client base.
On July 1, 2015, we completed
the acquisition of Excess Space. Excess Space is a premier consulting and advisory firm dedicated to real estate disposition and lease restructuring for retailers throughout the U.S. and Canada. It advises some of the nations leading
supermarkets, department stores, banks, drug stores and restaurants. Since its establishment in 1992, Excess Space has generated an estimated $4 billion in cost savings for clients. We are confident that the acquisition of Excess Space will
enhance our business, strengthen the services within our global retail platform, and bring value to our clients.
On December 11, 2015, we
completed the acquisition of Steffner Commercial Real Estate, which operates as Newmark Grubb Memphis, a full-service commercial real estate advisory practice in the metropolitan Memphis, Tennessee region. This acquisition represented the
cornerstone in our plan to grow our presence across the Mid-South region, which includes Alabama, Arkansas, Kentucky, Louisiana, Mississippi, and Tennessee.
On December 28, 2015, we completed the acquisition of CCR, which is headquartered in Cincinnati, Ohio. CCR has a deep and successful track
record in office, industrial and retail leasing and investment sales, representing a diversified client base that ranges from top Fortune 500 companies and institutions to privately owned firms. The acquisition bolsters our presence in the Midwest
and will help drive growth opportunities for the firms existing Midwest operations.
On February 26, 2016, we completed the
acquisition of Rudesill-Pera Multifamily, LLC (Memphis Multifamily). Memphis Multifamily is a multifamily brokerage firm operating in Memphis and the Mid-South Region.
On June 17, 2016, we completed the acquisition of CRE Group. CRE Group is a San Francisco Bay Area-based real estate services provider
focused on project management, construction management and Leadership in Energy and Environmental Design (LEED) consulting.
On September 13, 2016, we acquired several management agreement contracts from the John Buck Company, LLC and Buck Management Group, LLC,
which are expected to contribute to our commercial real estate leasing brokerage revenues.
On September 30, 2016 we completed our
acquisition of Continental Realty LTD., (Continental Realty). Continental Realty is one of the largest commercial realty brokerage operations in Central Ohio. The firm has developed a team of real estate professionals with expertise in
all aspects of commercial brokerage including office, industrial, retail, and land and investment sales.
On October 18, 2016, we
announced that we have completed our acquisition of Newmark Grubb Mexico City. Newmark Grubb Mexico City is known as one of the premier tenant advisory firms in the Mexico City area. Mexico City represents the worlds twelfth largest
metropolitan area by population.
FINANCIAL HIGHLIGHTS
For the three months ended September 30, 2016, we had income (loss) from operations before income taxes of $104.5 million compared to income
(loss) from operations before income taxes of $83.3 million in the year earlier period. Our results include the results of GFI beginning on February 27, 2015. Total revenues for the quarter ended September 30, 2016 decreased approximately $41.8
million to $643.5 million, largely due to the December 2015 sale of Trayport, which generated $18.9 million of net revenues in the third quarter of 2015, as well as lower global volumes across foreign exchange, cash equities, equity derivatives,
shipping and certain commodities markets. The implementation of initial uncleared derivative margin requirements in the United States caused a $14 million year-over-year decline in revenues during the last eight business days of August. The Company
also reduced the number of less productive brokers and salespeople in Financial Services by more than 140 year-over-year, reducing revenues but increasing profitability. In addition, BGC increased the percentage of revenues from its
higher-margin FENICS platform. Total expenses decreased approximately $27.1 million to $638.4 million, due to a $15.0 million decrease in non-compensation expenses, as well as a $12.1 million decrease in compensation expenses. Our ongoing
improvement in profitability was driven by business integration synergies and the growth of our high-margin fully electronic FENICS business. We expect our revenues and earnings to grow over time as we continue to invest our $840.5 million of
liquidity and to reap the benefits from our recent acquisitions and front-office hires.
We expect to increase productivity per broker and
to continue converting voice and hybrid broking to higher margin fully electronic trading, all of which should lead to increased revenues and profitability. By freeing up capital set aside for regulatory and clearing purposes in connection with the
GFI integration, we will also be able to use our balance sheet more efficiently.
Our Real Estate Services business overall revenues
grew by approximately 3.7%. This improvement was led by an almost entirely organic 16.6% increase in revenues from real estate capital markets brokerage. According to NGKF research, quarterly industry-wide U.S. leasing activity was down by over 5%
year-over-year and U.S. investment sales declined by 2%. We therefore continued to grow faster than the overall market. As we make accretive acquisitions and profitable hires, we expect to sustain our outperformance.
59
We believe that BGCs assets and businesses are worth considerably more than what is
reflected in our current share price. Based on recent equity multiples, we think that the market is undervaluing both NGKF and FENICS. We also believe that our stock price does not accurately reflect the more than $705 million of additional Nasdaq
shares (based on the October 26, 2016 closing price) we anticipate receiving over time, which are not reflected on our balance sheet. As we have previously stated, we are actively working on ways to unlock substantial value for our investors. We
also expect our earnings to continue to grow as we increase the profitability of GFI, add revenues from our highly profitable fully electronic products, and benefit from the strength of our Real Estate Services business. We anticipate having
substantial resources with which to pay dividends, repurchase shares and/or units, profitably hire, and make accretive acquisitions, all while maintaining or improving our investment grade rating.
60
RESULTS OF OPERATIONS
The following table sets forth our unaudited condensed consolidated statements of operations data expressed as a percentage of total revenues
for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
Actual
Results
|
|
|
Percentage
of Total
Revenues
|
|
|
Actual
Results
|
|
|
Percentage
of Total
Revenues
|
|
|
Actual
Results
|
|
|
Percentage
of Total
Revenues
|
|
|
Actual
Results
|
|
|
Percentage
of Total
Revenues
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions
|
|
$
|
496,265
|
|
|
|
77.1
|
%
|
|
$
|
521,264
|
|
|
|
76.0
|
%
|
|
$
|
1,469,940
|
|
|
|
76.0
|
%
|
|
$
|
1,424,357
|
|
|
|
74.9
|
%
|
Principal transactions
|
|
|
76,332
|
|
|
|
11.9
|
|
|
|
73,841
|
|
|
|
10.8
|
|
|
|
255,219
|
|
|
|
13.2
|
|
|
|
238,958
|
|
|
|
12.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total brokerage revenues
|
|
|
572,597
|
|
|
|
89.0
|
|
|
|
595,105
|
|
|
|
86.8
|
|
|
|
1,725,159
|
|
|
|
89.2
|
|
|
|
1,663,315
|
|
|
|
87.5
|
|
Real estate management services
|
|
|
49,373
|
|
|
|
7.7
|
|
|
|
48,867
|
|
|
|
7.1
|
|
|
|
140,960
|
|
|
|
7.3
|
|
|
|
135,997
|
|
|
|
7.2
|
|
Fees from related parties
|
|
|
6,126
|
|
|
|
1.0
|
|
|
|
6,609
|
|
|
|
1.0
|
|
|
|
18,061
|
|
|
|
0.9
|
|
|
|
19,310
|
|
|
|
1.0
|
|
Data, software and post-trade
|
|
|
11,834
|
|
|
|
1.8
|
|
|
|
29,124
|
|
|
|
4.2
|
|
|
|
36,599
|
|
|
|
1.9
|
|
|
|
68,344
|
|
|
|
3.6
|
|
Interest income
|
|
|
2,792
|
|
|
|
0.4
|
|
|
|
1,387
|
|
|
|
0.2
|
|
|
|
8,952
|
|
|
|
0.5
|
|
|
|
6,253
|
|
|
|
0.3
|
|
Other revenues
|
|
|
783
|
|
|
|
0.1
|
|
|
|
4,203
|
|
|
|
0.7
|
|
|
|
4,770
|
|
|
|
0.2
|
|
|
|
8,774
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
643,505
|
|
|
|
100.0
|
|
|
|
685,295
|
|
|
|
100.0
|
|
|
|
1,934,501
|
|
|
|
100.0
|
|
|
|
1,901,993
|
|
|
|
100.0
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and employee benefits
|
|
|
415,697
|
|
|
|
64.6
|
|
|
|
435,932
|
|
|
|
63.6
|
|
|
|
1,243,501
|
|
|
|
64.3
|
|
|
|
1,213,803
|
|
|
|
63.8
|
|
Allocation of net income and grant of exchangeability to limited partnership units and
FPUs
|
|
|
58,771
|
|
|
|
9.1
|
|
|
|
50,667
|
|
|
|
7.4
|
|
|
|
132,670
|
|
|
|
6.8
|
|
|
|
113,921
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation and employee benefits
|
|
|
474,468
|
|
|
|
73.7
|
|
|
|
486,599
|
|
|
|
71.0
|
|
|
|
1,376,171
|
|
|
|
71.1
|
|
|
|
1,327,724
|
|
|
|
69.8
|
|
Occupancy and equipment
|
|
|
46,513
|
|
|
|
7.2
|
|
|
|
51,300
|
|
|
|
7.5
|
|
|
|
146,026
|
|
|
|
7.5
|
|
|
|
157,373
|
|
|
|
8.3
|
|
Fees to related parties
|
|
|
5,060
|
|
|
|
0.8
|
|
|
|
4,876
|
|
|
|
0.7
|
|
|
|
14,803
|
|
|
|
0.8
|
|
|
|
13,564
|
|
|
|
0.7
|
|
Professional and consulting fees
|
|
|
15,549
|
|
|
|
2.4
|
|
|
|
15,201
|
|
|
|
2.2
|
|
|
|
45,160
|
|
|
|
2.3
|
|
|
|
53,702
|
|
|
|
2.8
|
|
Communications
|
|
|
30,568
|
|
|
|
4.8
|
|
|
|
31,503
|
|
|
|
4.6
|
|
|
|
92,076
|
|
|
|
4.8
|
|
|
|
88,550
|
|
|
|
4.7
|
|
Selling and promotion
|
|
|
22,613
|
|
|
|
3.5
|
|
|
|
23,370
|
|
|
|
3.4
|
|
|
|
73,725
|
|
|
|
3.8
|
|
|
|
70,609
|
|
|
|
3.7
|
|
Commissions and floor brokerage
|
|
|
8,493
|
|
|
|
1.3
|
|
|
|
8,865
|
|
|
|
1.3
|
|
|
|
27,633
|
|
|
|
1.4
|
|
|
|
25,616
|
|
|
|
1.4
|
|
Interest expense
|
|
|
15,383
|
|
|
|
2.4
|
|
|
|
16,944
|
|
|
|
2.5
|
|
|
|
43,465
|
|
|
|
2.2
|
|
|
|
51,285
|
|
|
|
2.7
|
|
Other expenses
|
|
|
19,709
|
|
|
|
3.1
|
|
|
|
26,802
|
|
|
|
3.9
|
|
|
|
66,204
|
|
|
|
3.6
|
|
|
|
75,022
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
638,356
|
|
|
|
99.2
|
|
|
|
665,460
|
|
|
|
97.1
|
|
|
|
1,885,263
|
|
|
|
97.5
|
|
|
|
1,863,445
|
|
|
|
98.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (losses), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on divestiture and sale of investments
|
|
|
7,044
|
|
|
|
1.1
|
|
|
|
2,717
|
|
|
|
0.4
|
|
|
|
7,044
|
|
|
|
0.4
|
|
|
|
3,396
|
|
|
|
0.2
|
|
Gains (losses) on equity method investments
|
|
|
683
|
|
|
|
0.1
|
|
|
|
1,042
|
|
|
|
0.2
|
|
|
|
1,741
|
|
|
|
0.1
|
|
|
|
2,678
|
|
|
|
0.1
|
|
Other income (loss)
|
|
|
91,653
|
|
|
|
14.2
|
|
|
|
59,728
|
|
|
|
8.7
|
|
|
|
98,748
|
|
|
|
5.1
|
|
|
|
92,259
|
|
|
|
4.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (losses), net
|
|
|
99,380
|
|
|
|
15.4
|
|
|
|
63,487
|
|
|
|
9.3
|
|
|
|
107,533
|
|
|
|
5.6
|
|
|
|
98,333
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income taxes
|
|
|
104,529
|
|
|
|
16.2
|
|
|
|
83,322
|
|
|
|
12.2
|
|
|
|
156,771
|
|
|
|
8.1
|
|
|
|
136,881
|
|
|
|
7.2
|
|
Provision (benefit) for income taxes
|
|
|
30,263
|
|
|
|
4.7
|
|
|
|
28,737
|
|
|
|
4.2
|
|
|
|
45,651
|
|
|
|
2.4
|
|
|
|
41,055
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss)
|
|
|
74,266
|
|
|
|
11.5
|
|
|
|
54,585
|
|
|
|
8.0
|
|
|
|
111,120
|
|
|
|
5.7
|
|
|
|
95,826
|
|
|
|
5.0
|
|
Less: Net income (loss) attributable to noncontrolling interest in subsidiaries
|
|
|
13,384
|
|
|
|
2.0
|
|
|
|
16,214
|
|
|
|
2.4
|
|
|
|
20,854
|
|
|
|
1.0
|
|
|
|
34,053
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
60,882
|
|
|
|
9.5
|
%
|
|
$
|
38,371
|
|
|
|
5.6
|
%
|
|
$
|
90,266
|
|
|
|
4.7
|
%
|
|
$
|
61,773
|
|
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
Three Months Ended September 30, 2016 Compared to Three Months Ended September 30, 2015
Revenues
Brokerage Revenues
Total
brokerage revenues decreased by $22.5 million, or 3.8%, to $572.6 million for the three months ended September 30, 2016 as compared to the three months ended September 30, 2015. Commission revenues decreased by $25.0 million, or 4.8%, to $496.3
million for the three months ended September 30, 2016 as compared to the three months ended September 30, 2015. Principal transactions revenues increased by $2.5 million, or 3.4%, to $76.3 million for the three months ended September 30, 2016 as
compared to the three months ended September 30, 2015.
The decrease in brokerage revenues was primarily driven by the lower global
volumes across foreign exchange, cash equities, equity derivatives, shipping, and certain commodities markets, partially offset by an increase in revenue from high-margin real estate capital markets brokerage. Industry-wide inter-dealer voice,
hybrid, and fully electronic brokerage revenues were also negatively impacted by a temporary but large decline in market activity in the quarter due to the implementation of new U.S. over-the-counter margin requirements for certain uncleared
derivatives. The implementation of initial uncleared derivative margin requirements in the United States caused a $14 million year-over-year decline in revenues during the last eight business days of August. Additionally, the Company reduced the
number of less productive brokers and salespeople in Financial Services by more than 140 as compared to last year, reducing revenues but increasing profitability.
Our rates revenues decreased by $1.2 million, or 1.1%, to $112.4 million in the three months ended September 30, 2016. The decrease in rates
revenues was primarily due to industry-wide declines in wholesale market activity.
Our credit revenues decreased by $0.3 million, or
0.4%, to $67.2 million in the three months ended September 30, 2016. This decrease was mainly due to lower global volumes.
Our FX
revenues decreased by $14.8 million, or 16.8%, to $73.2 million for the three months ended September 30, 2016. This decrease was primarily driven by lower global volumes.
Our brokerage revenues from energy and commodities decreased by $7.8 million, or 14.2%, to $47.1 million for the three months ended September
30, 2016. This decrease was primarily driven by lower volumes, particularly in Europe.
Our brokerage revenues from equities and other
asset classes decreased by $7.2 million, or 15.6%, to $39.1 million for the three months ended September 30, 2016. This decrease was primarily driven by lower volumes, particularly in the U.S.
Total Real Estate brokerage revenues increased by $8.9 million, or 4.0%, to $233.7 million for the three months ended September 30, 2016 as
compared to the three months ended September 30, 2015. This increase was primarily driven by capital markets.
Leasing and other services
revenues decreased by $4.6 million, or 3.2%, to $139.1 million for the three months ended September 30, 2016 as compared to the prior year period. This decrease was primarily driven by lower volumes. According to NGKF Research, leasing activity
during the third quarter of 2016 was down in the third quarter from the year ago period.
Real estate capital markets revenues increased
by $13.5 million, or 16.6%, to $94.6 million for the three months ended September 30, 2016 as compared to the prior year period. This increase was primarily driven by acquisitions and organic growth as recent new hires increased their productivity.
Real Estate Management Services
Real estate management services revenue increased by $0.5 million, or 1.0%, to $49.4 million for the three months ended September 30, 2016.
62
Fees from Related Parties
Fees from related parties decreased by $0.5 million, or 7.3%, to $6.1 million for the three months ended September 30, 2016 as compared to
the three months ended September 30, 2015.
Data, Software and Post-Trade
Data, software and post-trade revenues decreased by $17.3 million, or 59.4%, to $11.8 million for the three months ended September 30, 2016 as
compared to the three months ended September 30, 2015. The decrease was primarily driven by the sale of Trayport, which generated $18.9 million of net revenues in the third quarter of 2015.
Interest Income
Interest
income increased by $1.4 million, or 101.3%, to $2.8 million for the three months ended September 30, 2016 as compared to the three months ended September 30, 2015. This increase was primarily due to an increase in interest income from employee
loans.
Other Revenues
Other revenues decreased by $3.4 million, or 81.4%, to $0.8 million for the three months ended September 30, 2016 as compared to the three
months ended September 30, 2015. The decrease was primarily due to decreases in dividend income and underwriting fees.
Expenses
Compensation and Employee Benefits
Compensation and employee benefits expense decreased by $20.2 million, or 4.6%, to $415.7 million for the three months ended September 30, 2016
as compared to the three months ended September 30, 2015. The main drivers of this decrease were cost savings associated with the GFI synergies and lower levels of brokerage revenues within our Financial Services segment.
Allocations of Net Income and Grant of Exchangeability to Limited Partnership Units and FPUs
Allocations of net income and grant of exchangeability to limited partnership units and FPUs increased by $8.1 million, or 16.0%, to $58.8
million for the three months ended September 30, 2016 as compared to the three months ended September 30, 2015. This increase was primarily driven by an increase in allocations of net income to limited partnership units during the three months ended
September 30, 2016 as compared to the three months ended September 30, 2015.
Occupancy and Equipment
Occupancy and equipment expense decreased by $4.8 million, or 9.3%, to $46.5 million for the three months ended September 30, 2016 as compared
to the three months ended September 30, 2015. This decrease was primarily driven by decreases in rent, occupancy, maintenance contracts and depreciation expenses in our Financial Services segment.
Fees to Related Parties
Fees to related parties increased by $0.2 million, or 3.8%, to $5.1 million for the three months ended September 30, 2016 as compared to
the three months ended September 30, 2015. Fees to related parties are allocations paid to Cantor for administrative and support services.
Professional and Consulting Fees
Professional and consulting fees increased by $0.3 million, or 2.3%, to $15.5 million for the three months ended September 30, 2016 as compared
to the three months ended September 30, 2015.
Communications
Communications expense decreased by $0.9 million, or 3.0%, to $30.6 million for the three months ended September 30, 2016 as compared to the
three months ended September 30, 2015. As a percentage of total revenues, communications remained relatively unchanged across the two periods.
Selling and Promotion
Selling and promotion expense decreased by $0.8 million, or 3.2%, to $22.6 million for the three months ended September 30, 2016 as compared to
the three months ended September 30, 2015. As a percentage of total revenues, selling and promotion remained relatively unchanged across the two periods.
63
Commissions and Floor Brokerage
Commissions and floor brokerage expense decreased by $0.4 million, or 4.2%, to $8.5 million for the three months ended September 30, 2016 as
compared to the three months ended September 30, 2015.
Interest Expense
Interest expense decreased by $1.6 million, or 9.2%, to $15.4 million for the three months ended September 30, 2016 as compared to the three
months ended September 30, 2015. The decrease was primarily driven by lower interest rates on the 8.375% Senior Notes due to the improved credit rating following the BGC Guarantee, as well as a decrease in interest expense due to the maturity
of 4.50% Convertible Senior Notes, partially offset by the interest expense on the 5.125% Senior Notes issued on May 27, 2016.
Other
Expenses
Other expenses decreased by $7.1 million, or 26.5%, to $19.7 million for the three months ended September 30, 2016 as
compared to the three months ended September 30, 2015, primarily related to decreases in legal settlement and litigation expenses, as well as decreases in amortization expense on intangible assets.
Other Income (Losses), net
Gain (Loss) on Divestiture and Sale of Investments
We had a gain on divestiture of $7.0 million in the three months ended September 30, 2016, as a result of the sale of cost method
investments. For the three months ended September 30, 2015, there was a gain on divestiture of $2.7 million related to the sale of marketable securities.
Gains (Losses) on Equity Method Investments
Gains (losses) on equity method investments decreased by $0.4 million, or 34.5%, to a gain of $0.7 million, for the three months ended
September 30, 2016 as compared to a gain of $1.0 million for the three months ended September 30, 2015. Gains (losses) on equity method investments represent our pro rata share of the net gains or losses on investments over which we have significant
influence but which we do not control.
Other Income (Loss)
Other income (loss) increased by $31.9 million, or 53.5%, to $91.7 million for the three months ended September 30, 2016 as compared to the
three months ended September 30, 2015. Other income (loss) for the three months ended September 30, 2016 was primarily related to the recognition of the Nasdaq transaction earn-out and the related mark-to-market and/or hedging associated with Nasdaq
shares, as well as the recognition of $18.3 million of other income related to an adjustment of future earn-out payments that will no longer be required.
Provision (Benefit) for Income Taxes
Provision (benefit) for income taxes increased by $1.5 million, or 5.3%, to $30.3 million for the three months ended September 30, 2016 as
compared to the three months ended September 30, 2015. This increase was primarily driven by an increase in pre-tax earnings as well as the change in the geographic mix of earnings for the period. In general, our consolidated effective tax rate can
vary from period to period depending on, among other factors, the geographic and business mix of our earnings.
Net Income (Loss)
Attributable to Noncontrolling Interest in Subsidiaries
Net income (loss) attributable to noncontrolling interest in subsidiaries
decreased by $2.8 million, or 17.5%, to $13.4 million, for the three months ended September 30, 2016 as compared to the three months ended September 30, 2015.
Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015
The results of operations of GFI and the Companys other acquisitions have been included in the Companys unaudited condensed
consolidated financial statements subsequent to their respective dates of acquisition. GFI was acquired on February 26, 2015, and accordingly several of the revenue and expense items below were impacted because of the inclusion of the
operations of GFI for the entire nine months ended September 30, 2016 compared to only seven months of operations during the nine months ended September 30, 2015.
64
Revenues
Brokerage Revenues
Total
brokerage revenues increased by $61.8 million, or 3.7%, to $1,725.2 million for the nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015. Commission revenues increased by $45.6 million, or 3.2%, to $1,469.9
million for the nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015. Principal transactions revenues increased by $16.3 million, or 6.8%, to $255.2 million for the nine months ended September 30, 2016 as
compared to the nine months ended September 30, 2015.
The increase in brokerage revenues was primarily driven by the addition of GFI, the
ongoing success of NGKF, led by an almost entirely organic 22.2% increase in revenue from high-margin real estate capital markets brokerage, and by the strong growth of our high-margin FENICS fully electronic business.
Our rates revenues decreased by $10.5 million, or 2.9%, to $352.7 million in the nine months ended September 30, 2016. The decrease in rates
revenues of $10.5 million was primarily due to industry-wide declines in wholesale market activity.
Our credit revenues increased by
$21.3 million, or 10.2%, to $229.5 million in the nine months ended September 30, 2016. This increase was mainly due to our acquisition of GFI.
Our FX revenues decreased by $17.1 million, or 6.9%, to $232.5 million for the nine months ended September 30, 2016. This decrease was
primarily driven by lower volumes, particularly in the U.S. and Europe.
Our brokerage revenues from energy and commodities increased by
$29.6 million, or 21.3%, to $168.8 million for the nine months ended September 30, 2016. This increase was primarily driven by our acquisition of GFI.
Our brokerage revenues from equities and other asset classes increased by $3.3 million, or 2.6%, to $133.0 million for the nine months ended
September 30, 2016. This increase was primarily driven by our acquisition of GFI.
Total Real Estate brokerage revenues increased by $35.2
million, or 6.1%, to $608.7 million for the nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015. This increase was primarily driven by organic growth, new hires and acquisitions, as well as by improving
broker productivity.
Leasing and other services revenues decreased by $8.2 million, or 2.2%, to $369.3 million for the nine months ended
September 30, 2016 as compared to the prior year period. This decrease was primarily driven by lower volumes.
Real estate capital markets
revenues increased by $43.4 million, or 22.2%, to $239.4 million for the nine months ended September 30, 2016 as compared to the prior year period. This increase was primarily driven by increases in market share due to acquisitions, organic growth
as well as new hires.
Real Estate Management Services
Real estate management services revenue increased by $5.0 million, or 3.6%, to $141.0 million for the nine months ended September 30, 2016.
This increase was primarily driven by our acquisitions of CFI and the CRE Group and organic growth.
Fees from Related Parties
Fees from related parties decreased by $1.2 million, or 6.5%, to $18.1 million for the nine months ended September 30, 2016 as compared to the
nine months ended September 30, 2015.
Data, Software and Post-Trade
Data, software and post-trade revenues decreased by $31.7 million, or 46.4%, to $36.6 million for the nine months ended September 30, 2016 as
compared to the nine months ended September 30, 2015. The decrease was primarily driven by the sale of Trayport in December 2015, which generated $42.8 million of net revenues in the nine months ended September 30, 2015.
Interest Income
Interest
income increased by $2.7 million, or 43.2%, to $9.0 million for the nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015. This increase was primarily due to an increase in interest income from employee loans.
Other Revenues
Other revenues decreased by $4.0 million, or 45.6%, to $4.8 million for the nine months ended September 30, 2016 as compared to the nine months
ended September 30, 2015. The decrease was primarily due to decreases in dividend income and underwriting fees.
65
Expenses
Compensation and Employee Benefits
Compensation and employee benefits expense increased by $29.7 million, or 2.4%, to $1,243.5 million for the nine months ended September 30,
2016 as compared to the nine months ended September 30, 2015. The main driver of this increase was the increased level of brokerage revenues related to investments in our Real Estate Services business.
Allocations of Net Income and Grant of Exchangeability to Limited Partnership Units and FPUs
Allocations of net income and grant of exchangeability to limited partnership units and FPUs increased by $18.7 million, or 16.5%, to $132.7
million for the nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015.
Occupancy and Equipment
Occupancy and equipment expense decreased by $11.3 million, or 7.2%, to $146.0 million for the nine months ended September 30, 2016 as
compared to the nine months ended September 30, 2015. This decrease was primarily driven by fixed-asset impairment charges that had been recognized in the nine months ended September 30, 2015, partially offset by acquisitions in our Real Estate
Services segment.
Fees to Related Parties
Fees to related parties increased by $1.2 million, or 9.1%, to $14.8 million for the nine months ended September 30, 2016 as compared to the
nine months ended September 30, 2015. Fees to related parties are allocations paid to Cantor for administrative and support services.
Professional and Consulting Fees
Professional and consulting fees decreased by $8.5 million, or 15.9%, to $45.2 million for the nine months ended September 30, 2016 as compared
to the nine months ended September 30, 2015. The higher expense in the nine months ended September 30, 2015 was due to costs incurred related to the GFI acquisition.
Communications
Communications expense increased by $3.5 million, or 4.0%, to $92.1 million for the nine months ended September 30, 2016 as compared to the
nine months ended September 30, 2015. This increase was primarily driven by the acquisition of GFI. As a percentage of total revenues, communications remained relatively unchanged across the two periods.
Selling and Promotion
Selling and promotion expense increased by $3.1 million, or 4.4%, to $73.7 million for the nine months ended September 30, 2016 as compared to
the nine months ended September 30, 2015. The increase was primarily due to greater advertising and marketing expenses in our Real Estate Services segment. As a percentage of total revenues, selling and promotion remained relatively unchanged across
the two periods.
Commissions and Floor Brokerage
Commissions and floor brokerage expense increased by $2.0 million, or 7.9%, to $27.6 million for the nine months ended September 30, 2016 as
compared to the nine months ended September 30, 2015, primarily due to the acquisition of GFI.
Interest Expense
Interest expense decreased by $7.8 million, or 15.2%, to $43.5 million for the nine months ended September 30, 2016 as compared to the nine
months ended September 30, 2015. The decrease was primarily driven by the maturity of the 8.75% Convertible Senior Notes on April 15, 2015 and lower interest rates on the 8.375% Senior Notes due to the improved rating from rating agencies.
Other Expenses
Other
expenses decreased by $8.8 million, or 11.8%, to $66.2 million for the nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015, primarily related to decreases in amortization expense on intangible assets.
66
Other Income (Losses), net
Gain (Loss) on Divestiture and Sale of Investments
We had a gain on divestiture of $7.0 million in the nine months ended September 30, 2016, as a result of the sale of cost method investments.
For the nine months ended September 30, 2015, there was a gain on divestiture of $3.4 million, primarily related to the sale of marketable securities, as well as the sale of KBL, which was completed in May 2015, and KGL, which was completed in March
2015.
Gains (Losses) on Equity Method Investments
Gains (losses) on equity method investments decreased by $0.9 million, or 35.0%, to $1.7 million for the nine months ended September 30, 2016
as compared to the nine months ended September 30, 2015. Gains (losses) on equity method investments represent our pro rata share of the net gains or losses on investments over which we have significant influence but which we do not control.
Other Income (Loss)
Other income (loss) increased by $6.5 million, or 7.0%, to $98.7 million for the nine months ended September 30, 2016 as compared to the nine
months ended September 30, 2015. Other income (loss) for the nine months ended September 30, 2016 was primarily related to a $67.0 million gain in connection with the Nasdaq earn-out, as well as a gain of $18.3 million related to an adjustment of
future earn-out payments that will no longer be required and a gain of $12.8 million related to the mark-to-market on marketable securities classified as trading securities and any related hedging transactions. Other income (loss) for the nine
months ended September 30, 2015 was primarily related to a $52.9 million gain in connection with the Nasdaq earn-out, as well as a $29.0 million gain with respect to appreciation on the 17.1 million shares of GFI common stock held by the Company
prior to the successful completion of our tender offer in 2015, and a gain of $5.3 million related to the mark-to-market on marketable securities classified as trading securities and any related hedging transactions.
Provision (Benefit) for Income Taxes
Provision (benefit) for income taxes increased by $4.6 million, or 11.2%, to $45.7 million for the nine months ended September 30, 2016 as
compared to the nine months ended September 30, 2015. This increase was primarily driven by an increase in pre-tax earnings, as well as the change in the geographic mix of earnings for the period. In general, our consolidated effective tax rate can
vary from period to period depending on, among other factors, the geographic and business mix of our earnings.
Net Income (Loss)
Attributable to Noncontrolling Interest in Subsidiaries
Net income (loss) attributable to noncontrolling interest in subsidiaries
decreased by $13.2 million, or 38.8%, to $20.9 million for the nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015. This decrease was due to the decrease in allocation of net income to Cantor units in the
nine months ended September 30, 2016. Also contributing to this decrease was the decrease in allocation of GFI income to noncontrolling interests due to the closing of Back-End Mergers on January 12, 2016.
Business Segment Financial Results
The business segments are determined based on the products and services provided and reflect the manner in which financial information is
evaluated by management. We evaluate the performance and review the results of the segments based on each segments Income (loss) from operations before income taxes.
Certain financial information for our segments is presented below. The amounts shown below for the Financial Services and Real Estate Services
segments reflect the amounts that are used by management to allocate resources and assess performance, which is based on each segments Income (loss) from operations before income taxes. In addition to the two business segments, the
tables below include a Corporate Items category. Corporate revenues include fees from related parties and interest income. Corporate expenses include non-cash compensation expenses (such as the grant of exchangeability to limited
partnership units, redemption/exchange of partnership units, issuance of restricted shares and allocations of net income to founding/working partner units and limited partnership units), as well as unallocated expenses, such as certain professional
and consulting fees, executive compensation and interest expense, which are managed separately at the corporate level. Corporate other income (losses), net includes gains that are not considered part of the Companys ordinary, ongoing business,
such as the realized gain related to the GFI shares owned by the Company prior to the completion of the tender offer to acquire GFI on February 26, 2015, the gain related to the disposition of the equity interests in the entities that make up the
Trayport business, the mark-to-market on ICE common shares and any related hedging transactions when applicable, and the adjustment of future earn-out payments.
67
Three months ended September 30, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services
|
|
|
Real Estate
Services
|
|
|
Corporate
Items
|
|
|
Total
|
|
Total revenues
|
|
$
|
352,141
|
|
|
$
|
283,982
|
|
|
$
|
7,382
|
|
|
$
|
643,505
|
|
Total expenses
|
|
|
290,989
|
|
|
|
246,366
|
|
|
|
101,001
|
|
|
|
638,356
|
|
Total other income (losses), net
|
|
|
69,893
|
|
|
|
|
|
|
|
29,487
|
|
|
|
99,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income taxes
|
|
$
|
131,045
|
|
|
$
|
37,616
|
|
|
$
|
(64,132
|
)
|
|
$
|
104,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services
|
|
|
Real Estate
Services
|
|
|
Corporate
Items
|
|
|
Total
|
|
Total revenues
|
|
$
|
403,356
|
|
|
$
|
273,980
|
|
|
$
|
7,959
|
|
|
$
|
685,295
|
|
Total expenses
|
|
|
344,869
|
|
|
|
233,202
|
|
|
|
87,389
|
|
|
|
665,460
|
|
Total other income (losses), net
|
|
|
57,366
|
|
|
|
|
|
|
|
6,121
|
|
|
|
63,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income taxes
|
|
$
|
115,853
|
|
|
$
|
40,778
|
|
|
$
|
(73,309
|
)
|
|
$
|
83,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Results for the Three Months Ended September 30, 2016 Compared to Three Months Ended September
30, 2015
Revenues
|
|
|
Revenues for Financial Services decreased approximately $51.2 million, or 12.7%, to $352.1 million for the three months ended September 30, 2016 from $403.4 million for the three months ended September 30, 2015. The
decrease in revenues for our Financial Services segment was primarily due to a decrease in data, software and post-trade revenues due to the sale of Trayport as well as a decrease in brokerage revenues in foreign exchange, energy and commodities and
equities and other asset classes. The implementation of initial uncleared derivative margin requirements in the United States caused a $14 million year-over-year decline in revenues during the last eight business days of August. Additionally, the
Company reduced the number of less productive brokers and salespeople in Financial Services by more than 140 as compared to last year, reducing revenues but increasing profitability.
|
|
|
|
Revenues for Real Estate Services increased approximately $10.0 million, or 3.7%, to $284.0 million for the three months ended September 30, 2016 from $274.0 million for the three months ended September 30, 2015, led by
an almost entirely organic 16.6% increase in revenue from high margin real estate capital markets brokerage as recent new hires increased their productivity. The increase in revenues for our Real Estate Services segment was primarily due to organic
growth, new hires and acquisitions.
|
Expenses
|
|
|
Total expenses for Financial Services decreased approximately $53.9 million, or 15.6%, to $291.0 million for the three months ended September 30, 2016 from $344.9 million for the three months ended September 30, 2015.
The decrease in expenses for our Financial Services segment was primarily due to continued cost savings related to GFI synergies, as well as lower compensation expense resulting from lower brokerage revenues.
|
|
|
|
Total expenses for Real Estate Services increased approximately $13.2 million, or 5.6%, to $246.4 million for the three months ended September 30, 2016 from $233.2 million for the three months ended September 30, 2015.
The increase in expenses for our Real Estate Services segment was primarily due to increased compensation associated with acquisitions and new hires.
|
|
|
|
Total expenses for the Corporate Items category increased approximately $13.6 million, or 15.6%, to $101.0 million for the three months ended September 30, 2016 from $87.4 million for the three months ended September
30, 2015. This was primarily due to higher allocations of net income to limited partnership units and FPUs, as well as charges related to additional reserves on employee loans in the three months ended September 30, 2016.
|
Other income (losses), net
|
|
|
Other income (losses), net, for Financial Services increased approximately $12.5 million, or 21.8%, to a gain of $69.9 million for the three months ended September 30, 2016 from a gain of $57.4 million for the three
months ended September 30, 2015. The increase in other income (losses), net, for our Financial Services segment was primarily due to the recognition of the earn-out on the Nasdaq transaction and the mark-to-market movements and/or hedging on the
Nasdaq earn-out shares.
|
|
|
|
Other income (losses), net, for the Corporate Items category increased approximately $23.4 million, or 381.7%, to a gain of $29.5 million for the three months ended September 30, 2016 from a gain of $6.1 million for the
three months ended September 30, 2015, primarily due to the recognition of $18.3 million of other income related to an adjustment of future earn-out payments that will no longer be required, as well as the recognition of a $7.0 million gain on the
sale of certain cost method investments.
|
68
Income (loss) from operations before income taxes
|
|
|
Income (loss) from operations before income taxes for Financial Services increased approximately $15.2 million, or 13.1%, to $131.0 million for the three months ended September 30, 2016 compared to the three months
ended September 30, 2015.
|
|
|
|
Income (loss) from operations before income taxes for Real Estate Services decreased $3.2 million, or 7.8%, to $37.6 million for the three months ended September 30, 2016 from $40.8 million for the three months ended
September 30, 2015, largely due to costs associated with investments in the business.
|
Nine months ended September 30,
2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services
|
|
|
Real Estate
Services
|
|
|
Corporate
Items
|
|
|
Total
|
|
Total revenues
|
|
$
|
1,159,060
|
|
|
$
|
752,224
|
|
|
$
|
23,217
|
|
|
$
|
1,934,501
|
|
Total expenses
|
|
|
969,092
|
|
|
|
673,972
|
|
|
|
242,199
|
|
|
|
1,885,263
|
|
Total other income (losses), net
|
|
|
79,539
|
|
|
|
|
|
|
|
27,994
|
|
|
|
107,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income taxes
|
|
$
|
269,507
|
|
|
$
|
78,252
|
|
|
$
|
(190,988
|
)
|
|
$
|
156,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services
|
|
|
Real Estate
Services
|
|
|
Corporate
Items
|
|
|
Total
|
|
Total revenues
|
|
$
|
1,166,430
|
|
|
$
|
711,066
|
|
|
$
|
24,497
|
|
|
$
|
1,901,993
|
|
Total expenses
|
|
|
988,959
|
|
|
|
627,017
|
|
|
|
247,469
|
|
|
|
1,863,445
|
|
Total other income (losses), net
|
|
|
58,202
|
|
|
|
|
|
|
|
40,131
|
|
|
|
98,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income taxes
|
|
$
|
235,673
|
|
|
$
|
84,049
|
|
|
$
|
(182,841
|
)
|
|
$
|
136,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Results for the Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30,
2015
Revenues
|
|
|
Revenues for Financial Services decreased approximately $7.4 million, or 0.6%, to $1,159.1 million for the nine months ended September 30, 2016 from $1,166.4 million for the nine months ended September 30, 2015. The
decrease in revenues for our Financial Services segment was primarily due to the sale of Trayport, as well as a reduction in brokerage revenues from foreign exchange and rates, partially offset by an increase in brokerage revenues from energy and
commodities, credit and equity and other asset classes. Trayport generated $42.8 million in revenues for the nine months ended September 30, 2015. The implementation of initial uncleared derivative margin requirements in the United States caused a
$14 million year-over-year decline in revenues during the last eight business days of August. Additionally, the Company reduced the number of less productive brokers and salespeople in Financial Services by more than 140 as compared to last year,
reducing revenues but increasing profitability.
|
|
|
|
Revenues for Real Estate Services increased approximately $41.2 million, or 5.8%, to $752.2 million for the nine months ended September 30, 2016 from $711.1 million for the nine months ended September 30, 2015. The
increase in revenues for our Real Estate Services segment was primarily due to organic growth, new hires and acquisitions.
|
Expenses
|
|
|
Total expenses for Financial Services decreased approximately $19.9 million, or 2.0%, to $969.1 million for the nine months ended September 30, 2016 from $989.0 million for the nine months ended September 30, 2015. The
decrease in expenses for our Financial Services segment was primarily due to cost synergies related to the GFI acquisition.
|
|
|
|
Total expenses for Real Estate Services increased approximately $47.0 million, or 7.5%, to $674.0 million for the nine months ended September 30, 2016 from $627.0 million for the nine months ended September 30, 2015.
The increase in expenses for our Real Estate Services segment was primarily due to increased compensation associated with new hires and acquisitions.
|
|
|
|
Total expenses for the Corporate Items category decreased approximately $5.3 million, or 2.1%, to $242.2 million for the nine months ended September 30, 2016 from $247.5 million for the nine months ended September 30,
2015.
|
69
Other income (losses), net
|
|
|
Other income (losses), net, for Financial Services increased approximately $21.3 million, or 36.7%, to a gain of $79.5 million for the nine months ended September 30, 2016 from a gain of $58.2 million for the nine
months ended September 30, 2015. The increase in other income (losses), net, for our Financial Services segment was primarily due to the recognition of the Nasdaq earn-out and the mark-to-market movements and/or hedging on the Nasdaq earn-out
shares.
|
|
|
|
Other income (losses), net, for the Corporate Items category decreased approximately $12.1 million, or 30.2%, to a gain of $28.0 million for the nine months ended September 30, 2016 from a gain of $40.1 million for the
nine months ended September 30, 2015. The decrease in other income (losses), net, for the Corporate Items category was primarily due to a $29.0 million gain during the nine months ended September 30, 2015 with respect to appreciation on 17.1
million shares of GFI common stock held by the Company prior to the successful completion of our tender offer, partially offset by an $18.3 million gain related to an adjustment of future earn-out payments that will no longer be required, a $7.0
million gain related to the sale of a non-core Financial Services asset during the nine months ended September 30, 2016, and a $4.8 million gain on the mark-to-market on shares of ICE in the nine months ended September 30, 2016.
|
Income (loss) from operations before income taxes
|
|
|
Income (loss) from operations before income taxes for Financial Services increased approximately $33.8 million, or 14.4%, to $269.5 million for the nine months ended September 30, 2016 from $235.7 million for the nine
months ended September 30, 2015. The increase in income from operations before income taxes for our Financial Services segment was primarily due to our acquisition of GFI and associated synergies as well as growth in FENICS.
|
|
|
|
Income (loss) from operations before income taxes for Real Estate Services decreased $5.8 million, or 6.9%, to $78.3 million for the nine months ended September 30, 2016 from $84.0 million for the nine months ended
September 30, 2015 primarily due to investments in the business.
|
70
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth our unaudited quarterly results of operations for the indicated periods (in thousands). Results of any period
are not necessarily indicative of results for a full year and may, in certain periods, be affected by seasonal fluctuations in our business. Certain reclassifications have been made to prior period amounts to conform to the current periods
presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
1
|
|
|
June 30,
2016
|
|
|
March 31,
2016
|
|
|
December 31,
2015
2
|
|
|
September 30,
2015
1
|
|
|
June 30,
2015
|
|
|
March 31,
2015
3
|
|
|
December 31,
2014
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions
|
|
$
|
496,265
|
|
|
$
|
498,588
|
|
|
$
|
475,087
|
|
|
$
|
507,503
|
|
|
$
|
521,264
|
|
|
$
|
487,810
|
|
|
$
|
415,283
|
|
|
$
|
381,182
|
|
Principal transactions
|
|
|
76,332
|
|
|
|
86,448
|
|
|
|
92,439
|
|
|
|
74,184
|
|
|
|
73,841
|
|
|
|
95,349
|
|
|
|
69,768
|
|
|
|
50,366
|
|
Real estate management services
|
|
|
49,373
|
|
|
|
45,529
|
|
|
|
46,058
|
|
|
|
51,121
|
|
|
|
48,867
|
|
|
|
46,528
|
|
|
|
40,602
|
|
|
|
43,929
|
|
Fees from related parties
|
|
|
6,126
|
|
|
|
4,865
|
|
|
|
7,070
|
|
|
|
6,038
|
|
|
|
6,609
|
|
|
|
6,095
|
|
|
|
6,606
|
|
|
|
6,631
|
|
Data, software and post-trade
|
|
|
11,834
|
|
|
|
12,448
|
|
|
|
12,317
|
|
|
|
29,025
|
|
|
|
29,124
|
|
|
|
27,693
|
|
|
|
11,527
|
|
|
|
2,578
|
|
Interest income
|
|
|
2,792
|
|
|
|
3,777
|
|
|
|
2,383
|
|
|
|
4,390
|
|
|
|
1,387
|
|
|
|
3,161
|
|
|
|
1,705
|
|
|
|
1,673
|
|
Other revenues
|
|
|
783
|
|
|
|
305
|
|
|
|
3,682
|
|
|
|
1,183
|
|
|
|
4,203
|
|
|
|
2,495
|
|
|
|
2,076
|
|
|
|
2,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
643,505
|
|
|
|
651,960
|
|
|
|
639,036
|
|
|
|
673,444
|
|
|
|
685,295
|
|
|
|
669,131
|
|
|
|
547,567
|
|
|
|
489,283
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and employee benefits
|
|
|
415,697
|
|
|
|
418,621
|
|
|
|
409,183
|
|
|
|
478,032
|
|
|
|
435,932
|
|
|
|
431,287
|
|
|
|
346,584
|
|
|
|
310,816
|
|
Allocations of net income and grants of exchangeability to limited partnership units and
FPUs
|
|
|
58,771
|
|
|
|
40,975
|
|
|
|
32,924
|
|
|
|
145,718
|
|
|
|
50,667
|
|
|
|
26,200
|
|
|
|
37,054
|
|
|
|
30,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation and employee benefits
|
|
|
474,468
|
|
|
|
459,596
|
|
|
|
442,107
|
|
|
|
623,750
|
|
|
|
486,599
|
|
|
|
457,487
|
|
|
|
383,638
|
|
|
|
341,208
|
|
Occupancy and equipment
|
|
|
46,513
|
|
|
|
49,511
|
|
|
|
50,002
|
|
|
|
54,344
|
|
|
|
51,300
|
|
|
|
63,108
|
|
|
|
42,965
|
|
|
|
35,238
|
|
Fees to related parties
|
|
|
5,060
|
|
|
|
3,534
|
|
|
|
6,209
|
|
|
|
4,479
|
|
|
|
4,876
|
|
|
|
4,121
|
|
|
|
4,567
|
|
|
|
5,516
|
|
Professional and consulting fees
|
|
|
15,549
|
|
|
|
14,201
|
|
|
|
15,410
|
|
|
|
12,187
|
|
|
|
15,201
|
|
|
|
15,220
|
|
|
|
23,281
|
|
|
|
20,013
|
|
Communications
|
|
|
30,568
|
|
|
|
30,600
|
|
|
|
30,908
|
|
|
|
30,631
|
|
|
|
31,503
|
|
|
|
32,110
|
|
|
|
24,937
|
|
|
|
20,636
|
|
Selling and promotion
|
|
|
22,613
|
|
|
|
25,514
|
|
|
|
25,598
|
|
|
|
26,592
|
|
|
|
23,370
|
|
|
|
26,763
|
|
|
|
20,476
|
|
|
|
18,727
|
|
Commissions and floor brokerage
|
|
|
8,493
|
|
|
|
10,097
|
|
|
|
9,043
|
|
|
|
9,478
|
|
|
|
8,865
|
|
|
|
10,473
|
|
|
|
6,278
|
|
|
|
4,762
|
|
Interest expense
|
|
|
15,383
|
|
|
|
14,624
|
|
|
|
13,458
|
|
|
|
18,074
|
|
|
|
16,944
|
|
|
|
18,439
|
|
|
|
15,902
|
|
|
|
10,183
|
|
Other expenses
|
|
|
19,709
|
|
|
|
23,684
|
|
|
|
22,811
|
|
|
|
63,021
|
|
|
|
26,802
|
|
|
|
27,179
|
|
|
|
21,041
|
|
|
|
93,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
638,356
|
|
|
|
631,361
|
|
|
|
615,546
|
|
|
|
842,556
|
|
|
|
665,460
|
|
|
|
654,900
|
|
|
|
543,085
|
|
|
|
550,242
|
|
Other income (losses), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on divestiture and sale of investments
|
|
|
7,044
|
|
|
|
|
|
|
|
|
|
|
|
390,951
|
|
|
|
2,717
|
|
|
|
894
|
|
|
|
(215
|
)
|
|
|
|
|
Gains (losses) on equity method investments
|
|
|
683
|
|
|
|
500
|
|
|
|
558
|
|
|
|
(815
|
)
|
|
|
1,042
|
|
|
|
833
|
|
|
|
803
|
|
|
|
(2,418
|
)
|
Other income (loss)
|
|
|
91,653
|
|
|
|
10,012
|
|
|
|
(2,917
|
)
|
|
|
30,909
|
|
|
|
59,728
|
|
|
|
1,331
|
|
|
|
31,200
|
|
|
|
4,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (losses), net
|
|
|
99,380
|
|
|
|
10,512
|
|
|
|
(2,359
|
)
|
|
|
421,045
|
|
|
|
63,487
|
|
|
|
3,058
|
|
|
|
31,788
|
|
|
|
1,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income taxes
|
|
|
104,529
|
|
|
|
31,111
|
|
|
|
21,131
|
|
|
|
251,933
|
|
|
|
83,322
|
|
|
|
17,289
|
|
|
|
36,270
|
|
|
|
(59,286
|
)
|
Provision (benefit) for income taxes
|
|
|
30,263
|
|
|
|
10,548
|
|
|
|
4,840
|
|
|
|
79,441
|
|
|
|
28,737
|
|
|
|
2,272
|
|
|
|
10,046
|
|
|
|
(22,501
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss)
|
|
|
74,266
|
|
|
|
20,563
|
|
|
|
16,291
|
|
|
|
172,492
|
|
|
|
54,585
|
|
|
|
15,017
|
|
|
|
26,224
|
|
|
|
(36,785
|
)
|
Less: Net income (loss) attributable to noncontrolling interest in subsidiaries
|
|
|
13,384
|
|
|
|
4,838
|
|
|
|
2,632
|
|
|
|
107,477
|
|
|
|
16,214
|
|
|
|
5,670
|
|
|
|
12,169
|
|
|
|
(18,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
60,882
|
|
|
$
|
15,725
|
|
|
$
|
13,659
|
|
|
$
|
65,015
|
|
|
$
|
38,371
|
|
|
$
|
9,347
|
|
|
$
|
14,055
|
|
|
$
|
(18,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Amounts include the gains related to the earn-out associated with the Nasdaq Transaction recorded in Other income (losses).
|
2
|
Amounts include gains related to the Companys sale of all of the equity interests in the entities that made up the Trayport business to ICE on December 11,
2015.
|
3
|
Amounts include the recognition of the cumulative realized gain of $29.0 million on the 17.1 million shares of GFI common stock owned by us prior to the tender offer.
|
71
The table below details our brokerage revenues by product category for the indicated periods (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
|
June 30,
2016
|
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
|
September 30,
2015
|
|
|
June 30,
2015
|
|
|
March 31,
2015
|
|
|
December 31,
2014
|
|
Brokerage revenue by product:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rates
|
|
$
|
112,384
|
|
|
$
|
120,678
|
|
|
$
|
119,619
|
|
|
$
|
108,060
|
|
|
$
|
113,630
|
|
|
$
|
126,798
|
|
|
$
|
122,751
|
|
|
$
|
91,797
|
|
Credit
|
|
|
67,221
|
|
|
|
77,330
|
|
|
|
84,915
|
|
|
|
63,399
|
|
|
|
67,515
|
|
|
|
73,814
|
|
|
|
66,873
|
|
|
|
46,649
|
|
Foreign exchange
|
|
|
73,191
|
|
|
|
76,835
|
|
|
|
82,468
|
|
|
|
75,167
|
|
|
|
87,999
|
|
|
|
85,976
|
|
|
|
75,632
|
|
|
|
59,457
|
|
Energy and commodities
|
|
|
47,061
|
|
|
|
57,306
|
|
|
|
64,398
|
|
|
|
57,061
|
|
|
|
54,879
|
|
|
|
54,843
|
|
|
|
29,407
|
|
|
|
15,785
|
|
Equities and other asset classes
|
|
|
39,076
|
|
|
|
45,593
|
|
|
|
48,366
|
|
|
|
42,594
|
|
|
|
46,314
|
|
|
|
50,329
|
|
|
|
33,083
|
|
|
|
28,033
|
|
Leasing and other services
|
|
|
139,109
|
|
|
|
124,555
|
|
|
|
105,627
|
|
|
|
162,263
|
|
|
|
143,680
|
|
|
|
130,221
|
|
|
|
103,563
|
|
|
|
135,725
|
|
Real estate capital markets
|
|
|
94,555
|
|
|
|
82,739
|
|
|
|
62,133
|
|
|
|
73,143
|
|
|
|
81,088
|
|
|
|
61,178
|
|
|
|
53,742
|
|
|
|
54,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total brokerage revenues
|
|
$
|
572,597
|
|
|
$
|
585,036
|
|
|
$
|
567,526
|
|
|
$
|
581,687
|
|
|
$
|
595,105
|
|
|
$
|
583,159
|
|
|
$
|
485,051
|
|
|
$
|
431,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage revenue by product (percentage):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rates
|
|
|
19.6
|
%
|
|
|
20.6
|
%
|
|
|
21.1
|
%
|
|
|
18.6
|
%
|
|
|
19.1
|
%
|
|
|
21.7
|
%
|
|
|
25.3
|
%
|
|
|
21.3
|
%
|
Credit
|
|
|
11.7
|
|
|
|
13.2
|
|
|
|
15.0
|
|
|
|
10.9
|
|
|
|
11.4
|
|
|
|
12.7
|
|
|
|
13.8
|
|
|
|
10.8
|
|
Foreign exchange
|
|
|
12.8
|
|
|
|
13.1
|
|
|
|
14.5
|
|
|
|
12.9
|
|
|
|
14.8
|
|
|
|
14.7
|
|
|
|
15.6
|
|
|
|
13.8
|
|
Energy and commodities
|
|
|
8.2
|
|
|
|
9.8
|
|
|
|
11.3
|
|
|
|
9.8
|
|
|
|
9.2
|
|
|
|
9.4
|
|
|
|
6.1
|
|
|
|
3.7
|
|
Equities and other asset classes
|
|
|
6.9
|
|
|
|
7.9
|
|
|
|
8.5
|
|
|
|
7.3
|
|
|
|
7.8
|
|
|
|
8.7
|
|
|
|
6.8
|
|
|
|
6.4
|
|
Leasing and other services
|
|
|
24.3
|
|
|
|
21.3
|
|
|
|
18.6
|
|
|
|
27.9
|
|
|
|
24.1
|
|
|
|
22.3
|
|
|
|
21.3
|
|
|
|
31.5
|
|
Real estate capital markets
|
|
|
16.5
|
|
|
|
14.1
|
|
|
|
11.0
|
|
|
|
12.6
|
|
|
|
13.6
|
|
|
|
10.5
|
|
|
|
11.1
|
|
|
|
12.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total brokerage revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage revenue by type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
233,664
|
|
|
$
|
207,294
|
|
|
$
|
167,760
|
|
|
$
|
235,406
|
|
|
$
|
224,768
|
|
|
$
|
191,399
|
|
|
$
|
157,305
|
|
|
$
|
189,827
|
|
Financial Services voice/hybrid
|
|
|
303,364
|
|
|
|
336,658
|
|
|
|
357,071
|
|
|
|
312,076
|
|
|
|
332,430
|
|
|
|
350,944
|
|
|
|
292,377
|
|
|
|
216,413
|
|
Financial Services fully electronic
|
|
|
35,569
|
|
|
|
41,084
|
|
|
|
42,695
|
|
|
|
34,205
|
|
|
|
37,907
|
|
|
|
40,816
|
|
|
|
35,369
|
|
|
|
25,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total brokerage revenues
|
|
$
|
572,597
|
|
|
$
|
585,036
|
|
|
$
|
567,526
|
|
|
$
|
581,687
|
|
|
$
|
595,105
|
|
|
$
|
583,159
|
|
|
$
|
485,051
|
|
|
$
|
431,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage revenue by type (percentage):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
40.8
|
%
|
|
|
35.4
|
%
|
|
|
29.6
|
%
|
|
|
40.5
|
%
|
|
|
37.8
|
%
|
|
|
32.8
|
%
|
|
|
32.4
|
%
|
|
|
44.0
|
%
|
Financial Services voice/hybrid
|
|
|
53.0
|
|
|
|
57.5
|
|
|
|
62.9
|
|
|
|
53.6
|
|
|
|
55.8
|
|
|
|
60.2
|
|
|
|
60.3
|
|
|
|
50.1
|
|
Financial Services fully electronic
|
|
|
6.2
|
|
|
|
7.1
|
|
|
|
7.5
|
|
|
|
5.9
|
|
|
|
6.4
|
|
|
|
7.0
|
|
|
|
7.3
|
|
|
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total brokerage revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIQUIDITY AND CAPITAL RESOURCES
Balance Sheet
Our balance sheet and business model are not capital intensive. Our assets consist largely of cash, securities
owned, marketable securities, collateralized and uncollateralized short-dated receivables and less liquid assets needed to support our business. Longer-term capital (equity and notes payable) is held to support the less liquid assets and potential
capital intensive opportunities. Total assets at September 30, 2016 were $4.8 billion, an increase of 20.6% as compared to December 31, 2015. The increase in total assets was driven primarily by increases in receivables from broker-dealers, clearing
organizations, customers and related broker-dealers, as well as increases in securities owned, partially offset by decreases in marketable securities. We maintain a significant portion of our assets in cash and marketable securities, with our
liquidity (which we define as cash and cash equivalents, marketable securities and securities owned) at September 30, 2016 of $840.5 million. See Liquidity Analysis below for a further discussion of our liquidity. Our securities owned
increased to $212.1 million at September 30, 2016, compared to $32.4 million at December 31, 2015, as we purchased Treasury securities for liquidity purposes. Our marketable securities decreased to $179.9 million at September 30,
2016, compared to $650.4 million at December 31, 2015, primarily as the result of the sale of ICE shares; the sale of ICE shares did not impact our overall liquidity.
On June 23, 2015, the Audit Committee of the Company authorized management to enter into a revolving credit facility with Cantor of up to $150
million in aggregate principal amount pursuant to which Cantor or BGC would be entitled to borrow funds from each other from time to time. The outstanding balances would bear interest at the higher of the borrowers or the lenders
short-term borrowing rate then in effect, plus 1%. There were no borrowings outstanding under the facility as of September 30, 2016.
As part of our cash management process, we may enter into tri-party reverse repurchase agreements and other short-term investments, some of
which may be with Cantor. As of September 30, 2016, we had no reverse repurchase agreements outstanding with Cantor or anyone else.
Additionally, in August 2013, the Audit Committee authorized us to invest up to $350 million in an asset-backed commercial paper program for
which certain Cantor entities serve as placement agent and referral agent. The program issues short-term notes to money market investors and is expected to be used from time to time as a liquidity management vehicle. The notes are backed by assets
of highly rated banks. We are entitled to invest in the program so long as the program meets investment policy guidelines, including policies relating to ratings. Cantor will earn a spread between the rate it receives from the short-term note issuer
and the rate it pays to us on any investments in this program. This spread will be no greater than the spread earned by Cantor for placement of any other commercial paper note in the program. As of September 30, 2016, we had no investments in the
program.
72
Funding
Our funding base consists of longer-term capital (equity and notes payable), shorter-term liabilities and accruals that are a natural outgrowth
of specific assets and/or our business model, such as matched fails and accrued compensation. We have limited need for short-term unsecured funding in our regulated entities for their brokerage business. Contingent liquidity needs are largely
limited to potential cash collateral that may be needed to meet clearing bank, clearinghouse, and exchange margins and/or to fund fails. Capital expenditures tend to be cash neutral and approximately in line with depreciation. Current cash balances
significantly exceed our unsecured letters of credit and our unsecured bank borrowings. We believe that cash in and available to our largest regulated entities, inclusive of financing provided by clearing banks, is adequate for potential cash
demands of normal operations, such as margin or fail financing. We expect our operating activities going forward to generate adequate cash flows to fund normal operations, including any dividends paid pursuant to our dividend policy. However, we
believe that there are a significant number of capital intensive opportunities for us to maximize our growth and strategic position, including, among other things, acquisitions, strategic alliances and joint ventures potentially involving all types
and combinations of equity, debt and acquisition alternatives. As a result, we may need to raise additional funds to:
|
|
|
increase the regulatory net capital necessary to support operations;
|
|
|
|
support continued growth in our businesses;
|
|
|
|
effect acquisitions, strategic alliances and joint ventures;
|
|
|
|
develop new or enhanced products, services and markets; and
|
|
|
|
respond to competitive pressures.
|
Acquisitions and financial reporting obligations related
thereto may impact our ability to access capital markets on a timely basis and may necessitate greater short-term borrowings in the interim. This may impact our credit rating or the interest rates on our debt. We may need to access short-term
capital sources to meet business needs from time to time, including, but not limited to, conducting operations; hiring or retaining brokers, salespeople, managers and other front-office personnel; financing acquisitions; and providing liquidity,
including in situations where we may not be able to access the capital markets in a timely manner when desired by us. Accordingly, we cannot guarantee that we will be able to obtain additional financing when needed on terms that are acceptable to
us, if at all.
On June 28, 2013, upon completion of the Nasdaq Transaction, we received cash consideration of $750 million paid at
closing, plus an earn-out of up to 14,883,705 shares of Nasdaq common stock to be paid ratably in each of the fifteen years following the closing. As a result of the earn-out, we expect to receive over $705 million in additional Nasdaq stock over
time (stock value based on the October 26, 2016 closing price), which is not reflected on our balance sheet.
On January 12, 2016, we
completed our acquisition (the JPI Merger) of Jersey Partners, Inc. (JPI). The JPI Merger occurred pursuant to a merger agreement (the Merger Agreement), dated as of December 22, 2015. Shortly following the
completion of the JPI Merger, a subsidiary of BGC merged with and into GFI pursuant to a short-form merger under Delaware law, with GFI continuing as the surviving entity. The Back-End Mergers allowed BGC to acquire the remaining approximately 33%
of the outstanding shares of GFI common stock that BGC did not already own. Following the closing of the Back-End Mergers, BGC and its affiliates now own 100% of the outstanding shares of GFIs common stock. In total, approximately 23.5
million shares of our Class A common stock and $111.2 million in cash were issued or paid with respect to the closing of the Back-End Mergers, inclusive of adjustments.
As of September 30, 2016, our liquidity, which we define as cash and cash equivalents, marketable securities and securities owned, was
approximately $840.5 million. This does not include the over $705 million in additional Nasdaq stock (stock value based on the October 26, 2016 closing price) that we expect to receive over time. Thus, we anticipate having approximately $1.5 billion
available to us to drive substantial returns for our investors. We expect to use our considerable financial resources to repay debt, profitably hire, make accretive acquisitions, pay dividends, and/or repurchase shares and units of BGC, all
while maintaining or improving our investment grade rating.
Notes Payable, Collateralized Borrowings and Short-Term Borrowings
8.75% Convertible Notes
On April 1, 2010, BGC Holdings issued an aggregate of $150.0 million principal amount of the 8.75% Convertible Notes due 2015 (the 8.75%
Convertible Notes) to Cantor. We used the proceeds of the 8.75% Convertible Notes to repay at maturity $150.0 million aggregate principal amount of senior notes.
On April 13, 2015, the 8.75% Convertible Notes were fully converted into approximately 24.0 million shares of Class A common stock. On June
15, 2015, we filed a resale registration statement on Form S-3 pursuant to which 24,042,599 shares of our Class A common stock may be sold from time to time by Cantor or by certain of its pledgees, donees, distributees, counterparties, transferees
or other
73
successors in interest of the shares, including banks or other financial institutions which may enter into stock pledge, stock loan or other financing transactions with Cantor or its affiliates,
as well as by their respective pledgees, donees, distributees, counterparties, transferees or other successors in interest.
4.50%
Convertible Notes
On July 29, 2011, we issued an aggregate of $160.0 million principal amount of 4.50% Convertible Notes due 2016 (the
4.50% Convertible Notes). The 4.50% Convertible Notes were offered and sold solely to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The net proceeds from this offering were approximately $144.2 million
after deducting the initial purchasers discounts and commissions, estimated offering expenses and the cost of the capped call transactions. We used the net proceeds from the offering for general corporate purposes, including financing
acquisitions.
The 4.50% Convertible Notes were our general senior unsecured obligations. The 4.50% Convertible Notes paid interest
semi-annually at a rate of 4.50% per annum and were priced at par. As of September 30, 2016, the 4.50% Convertible Notes were convertible, at the holders option, at a conversion rate of 101.6260 shares of Class A common stock per $1,000
principal amount of notes, subject to adjustment in certain circumstances. On July 13, 2016, certain holders of the 4.50% Convertible Notes converted $68,000 in principal amount of notes, and, upon conversion, the Company delivered 6,909 shares of
its Class A common stock to such holders. On July 15, 2016, the Company repaid the remaining approximately $159.9 million principal amount of its 4.50% Convertible Notes that matured on July 15, 2016.
In connection with the offering of the 4.50% Convertible Notes, we entered into capped call transactions, which were expected to reduce the
potential dilution of our Class A common stock upon any conversion of 4.50% Convertible Notes in the event that the market value per share of our Class A common stock, as measured under the terms of the capped call transactions, was greater than the
strike price of the capped call transactions. The capped call transactions expired unexercised on July 13, 2016.
8.125% Senior Notes
On June 26, 2012, we issued an aggregate of $112.5 million principal amount of 8.125% Senior Notes due 2042 (the 8.125% Senior
Notes). The 8.125% Senior Notes are our senior unsecured obligations. The 8.125% Senior Notes may be redeemed for cash, in whole or in part, on or after June 26, 2017, at our option, at any time and from time to time, until maturity at a
redemption price equal to 100% of the principal amount to be redeemed, plus accrued but unpaid interest on the principal amount being redeemed to, but not including, the redemption date. The 8.125% Senior Notes are listed on the New York Stock
Exchange under the symbol BGCA. We used the proceeds to repay short-term borrowings under our unsecured revolving credit facility and for general corporate purposes, including acquisitions. The initial carrying value of the 8.125% Senior
Notes was $108.7 million, net of debt issuance costs of $3.8 million. Cantor Fitzgerald & Co. (CF&Co), an affiliate of us, served as one of the underwriters in this transaction and was paid an underwriting fee of approximately
$0.2 million.
5.375% Senior Notes
On December 9, 2014, the Company issued an aggregate of $300.0 million principal amount of 5.375% Senior Notes due 2019 (the 5.375%
Senior Notes). The 5.375% Senior Notes are general senior unsecured obligations of the Company. These 5.375% Senior Notes bear interest at a rate of 5.375% per year, payable in cash on June 9 and December 9 of each year, commencing
June 9, 2015. The interest rate payable on the notes will be subject to adjustments from time to time based on the debt rating assigned by specified rating agencies to the notes, as set forth in the Indenture. The 5.375% Senior Notes will mature on
December 9, 2019. The Company may redeem some or all of the notes at any time or from time to time for cash at certain make-whole redemption prices (as set forth in the indenture). If a Change of Control Triggering Event
(as defined in the indenture) occurs, holders may require the Company to purchase all or a portion of their notes for cash at a price equal to 101% of the principal amount of the notes to be purchased plus any accrued and unpaid interest to, but
excluding, the purchase date. The initial carrying value of the 5.375% Senior Notes was $295.1 million, net of the discount and debt issuance costs of $4.9 million.
8.375% Senior Notes
As part of the GFI acquisition, the Company assumed $240.0 million in aggregate principal amount of 8.375%
Senior Notes due July 2018 (the 8.375% Senior Notes). The carrying value of these notes as of September 30, 2016 was $249.1 million. Interest on these notes is payable, semi-annually in arrears on the 19th of January and July. Due to the
cumulative effect of downgrades to the credit rating of GFIs 8.375% Senior Notes, the 8.375% Senior Notes were previously subjected to 200 basis points penalty interest. On April 28, 2015, a subsidiary of the Company purchased from GFI
approximately 43.0 million newly issued shares of GFIs common stock. This increased BGCs ownership to approximately 67% of GFIs outstanding common stock and gave us the ability to control the timing and process with respect to a
full merger, which as discussed in Note 1Organization and Basis of Presentation to our unaudited condensed consolidated financial statements, was completed on January 12, 2016. Also on July 10, 2015, we guaranteed the
obligations of GFI under these 8.375% Senior Notes. These actions resulted in upgrades of the credit ratings of the 8.375% Senior Notes by Moodys Investors Service, Fitch Ratings Inc. and Standard & Poors, which reduced the penalty
interest to 25 basis points effective July 19, 2015. On November 4, 2015, GFI, BGC and the Trustee entered into the First Supplemental Indenture supplementing the Indenture and incorporating BGCs guarantee of the Notes (the First
Supplemental Indenture). On January 13, 2016, Moodys Investors Service further upgraded the credit rating on the 8.375% Senior Notes, eliminating the penalty interest.
74
On January 12, 2016, BGC Partners, Inc. entered into a second supplemental indenture, dated as of
January 12, 2016 (the Second Supplemental Indenture), among GFI, BGC and The Bank of New York Mellon Trust Company, N.A., as trustee (the Trustee), supplementing the indenture, dated as of July 19, 2011, as supplemented by
the First Supplemental Indenture thereto, dated as of November 4, 2015 (the Indenture), among GFI, BGC and the Trustee, which governs the 8.375% Senior Notes, issued by GFI and fully and unconditionally guaranteed by BGC. The Second
Supplemental Indenture modifies the reporting covenant in the Indenture to provide that, for so long as BGC (or another publicly reporting company controlling GFI) guarantees the 8.375% Senior Notes, the reports that BGC (or such other publicly
reporting company controlling GFI) files with the SEC will be furnished to the Trustee in lieu of any GFI SEC reports. The amendments contained in the Second Supplemental Indenture became operative on January 12, 2016, upon GFIs payment of the
consent fee described therein. The final amount of the consent fee was approximately $8.00 per $1,000 principal amount. As a result, effective January 15, 2016, GFI ceased filing annual, quarterly and other reports with the SEC.
5.125% Senior Notes
On
May 27, 2016, the Company issued an aggregate of $300.0 million principal amount of 5.125% Senior Notes due 2021 (the 5.125% Senior Notes). The 5.125% Senior Notes are general senior unsecured obligations of the Company. These 5.125%
Senior Notes bear interest at a rate of 5.125% per year, payable in cash on May 27 and November 27 of each year, commencing November 27, 2016. The 5.125% Senior Notes will mature on May 27, 2021. The Company may redeem some or all of the
notes at any time or from time to time for cash at certain make-whole redemption prices (as set forth in the indenture). If a Change of Control Triggering Event (as defined in the indenture) occurs, holders may require the
Company to purchase all or a portion of their notes for cash at a price equal to 101% of the principal amount of the notes to be purchased plus any accrued and unpaid interest to, but excluding, the purchase date. Cantor Fitzgerald Securities,
our affiliate, purchased $15 million of such senior notes. The initial carrying value of the 5.125% Senior Notes was $295.8 million, net of the discount and debt issuance costs of $4.2 million.
Collateralized Borrowings
On March 13, 2015, the Company entered into a secured loan arrangement of $28.2 million under which it pledged certain fixed assets as security
for a loan. This arrangement incurs interest at a fixed rate of 3.70% and matures on March 13, 2019. As of September 30, 2016, the Company had $17.9 million outstanding related to this secured loan arrangement, which includes $0.2 million of
deferred financing costs. The value of the fixed assets pledged as of September 30, 2016 was $5.2 million.
Credit Agreements
As part of the GFI acquisition, we assumed a credit agreement as amended (the GFI Credit Agreement) with Bank of America, N.A. and
certain other lenders, which provided for maximum revolving loans of up to $75.0 million. We repaid the amount outstanding on October 2, 2015, prior to the sale of our Trayport division.
On October 1, 2015, we entered into a previously authorized $150.0 million revolving credit facility (the Facility) with Cantor
and borrowed $100.0 million under such facility (the Cantor Loan). The Cantor Loan bears interest at the rate of LIBOR plus 3.25% and may be adjusted based on Cantors short-term borrowing rate then in effect, plus 1%. The
Facility has a maturity date of August 10, 2017. The Cantor Loan was repaid on December 31, 2015.
On December 24, 2015, we entered
into a committed unsecured credit agreement with Bank of America, N.A. The credit agreement provided for maximum revolving loans of $25.0 million through March 24, 2016. The interest rate on this facility was LIBOR plus 200 basis points.
On February 25, 2016, we entered into a committed unsecured credit agreement with Bank of America, N.A., as administrative agent, and a
syndicate of lenders. Several of our domestic non-regulated subsidiaries are parties to the credit agreement as guarantors. The credit agreement provides for revolving loans of $150.0 million, with the option to increase the aggregate loans to
$200.0 million. The maturity date of the facility is February 25, 2018. Borrowings under this facility bear interest at either LIBOR or a defined base rate plus an additional margin which ranges from 50 basis points to 250 basis points depending on
our debt rating as determined by S&P and Fitch and whether such loan is a LIBOR loan or a base rate loan. Contemporaneously with the closing of this credit agreement, the $25.0 million unsecured credit agreement entered into on December 24, 2015
with Bank of America, N.A. was terminated. As of September 30, 2016, there were no borrowings outstanding under either this $150.0 million facility or the terminated $25.0 million facility.
We may raise additional funds from time to time through equity or debt financing, including public and private sales of debt securities, to
finance our business, operations and possible acquisitions.
75
CREDIT RATINGS
Our public long-term credit ratings and associated outlooks are as follows:
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Rating
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|
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Outlook
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|
Fitch Ratings Inc.
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|
|
BBB-
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|
|
|
Stable
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|
Standard & Poors
|
|
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BBB-
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|
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Stable
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|
Credit ratings and associated outlooks are influenced by a number of factors, including but not limited to:
operating environment, earnings and profitability trends, the prudence of funding and liquidity management practices, balance sheet size/composition and resulting leverage, cash flow coverage of interest, composition and size of the capital base,
available liquidity, outstanding borrowing levels and the firms competitive position in the industry. A credit rating and/or the associated outlook can be revised upward or downward at any time by a rating agency if such rating agency decides
that circumstances warrant such a change. Any reduction in our credit ratings and/or the associated outlook could adversely affect the availability of debt financing on terms acceptable to us, as well as the cost and other terms upon which we are
able to obtain any such financing. In addition, credit ratings and associated outlooks may be important to customers or counterparties when we compete in certain markets and when we seek to engage in certain transactions. In connection with certain
agreements, we may be required to provide additional collateral in the event of a credit ratings downgrade.
LIQUIDITY ANALYSIS
We consider our liquidity to be comprised of the sum of Cash and cash equivalents plus Marketable securities, which have not been financed, and
Securities owned. The discussion below describes the key components of our liquidity analysis, including earnings, dividends and distributions, net investing and funding activities, including repurchases and redemptions of Class A common stock and
partnership units, security settlements, changes in securities held and marketable securities, and changes in our working capital.
We
consider the following in analyzing changes in our liquidity.
Our liquidity analysis includes a comparison of our consolidated net income
(loss) adjusted for certain non-cash items (e.g., grants of exchangeability) as presented on the cash flow statement. Dividends and distributions are payments made to our holders of common shares and limited partnership interests and are related to
earnings from prior periods. These timing differences will impact our cash flows in a given period.
Our investing and funding activities
represent a combination of our capital raising activities, including short-term borrowings and repayments, issuances of shares under our controlled equity offerings (net), Class A common stock repurchases and partnership unit redemptions, purchases
and sales of securities, dispositions, and other investments (e.g. acquisitions, forgivable loans to new brokers and capital expendituresall net of depreciation and amortization).
Our securities settlement activities primarily represent deposits with clearing organizations. In addition, when advantageous, we may elect to
facilitate the settlement of matched principal transactions by funding failed trades, which results in a temporary secured use of cash and is economically beneficial to us.
Other changes in working capital represent changes primarily in receivables and payables and accrued liabilities that impact our liquidity.
Changes in Securities owned and Marketable securities may result from additional cash investments or sales, which will be offset by a
corresponding change in Cash and cash equivalents and accordingly will not result in a change in our liquidity. Conversely, changes in the market value of such securities and the receipt of the Nasdaq earn-out in the form of additional Nasdaq shares
are reflected in our earnings or other comprehensive income (loss) and will result in changes in our liquidity.
As of September 30, 2016,
the Company had $448.5 million of Cash and cash equivalents, and included in this amount was $284.4 million of Cash and cash equivalents held by foreign subsidiaries. With the exception of the cash proceeds from the sale of Trayport, it is our
intention to permanently reinvest undistributed foreign pre-tax earnings in the Companys foreign operations. It is not practicable to determine the amount of additional tax that may be payable in the event these earnings are repatriated
due to the fluctuation of the relative ownership percentages of the foreign subsidiaries between the Company and BGC Holdings, L.P. For these proceeds which are not permanently reinvested, the accrued tax liability is $135.5 million, net of foreign
tax credits. In addition, certain GFI net operating loss carryforwards are expected to be utilized to reduce cash taxes. Taking these items together, we therefore expect to pay effective cash taxes of no more than $64 million related to
the Trayport sale price, or an expected rate of less than 10%.
76
Discussion of the nine months ended September 30, 2016
The table below presents our Liquidity Analysis as of September 30, 2016 and December 31, 2015:
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September 30,
2016
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|
December 31,
2015
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(in millions)
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|
|
|
|
|
|
Cash and cash equivalents
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|
$
|
448.5
|
|
|
$
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461.2
|
|
Securities owned
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|
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212.1
|
|
|
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32.4
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|
Marketable securities
1
|
|
|
179.9
|
|
|
|
532.5
|
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|
|
|
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|
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Total
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$
|
840.5
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|
|
$
|
1,026.1
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|
|
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|
|
|
|
|
|
1
|
As of December 31, 2015, $117.9 million of Marketable securities on our balance sheet had been lent in a Securities loaned transaction and therefore are not included
in this Liquidity Analysis.
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The $185.6 million decrease in our liquidity position from $1,026.1 million as of December 31,
2015 to $840.5 million as of September 30, 2016 was primarily related to repayment of $159.9 million used to retire BGCs 4.50% Convertible Senior Notes; $111.2 million used with respect to the GFI back-end merger and related transactions; the
redemption and/or repurchase of 10.0 million shares and /or units, net, at a cost to BGC of $87.8 million; ordinary changes in working capital; and cash paid with respect to various acquisitions. The Company also continued to invest significant
amounts with regard to new front-office hires in Real Estate Services. These items were partially offset by net proceeds from BGCs offering of $300 million aggregate principal amount of 5.125% Senior Notes due May 27, 2021.
Discussion of the nine months ended September 30, 2015
The table below presents our Liquidity Analysis as of September 30, 2015 and December 31, 2014:
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September 30,
2015
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December 31,
2014
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(in millions)
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|
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Cash and cash equivalents
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|
$
|
424.4
|
|
|
$
|
648.3
|
|
Securities owned
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|
|
34.5
|
|
|
|
32.5
|
|
Marketable securities
1
|
|
|
55.0
|
|
|
|
144.7
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|
|
|
|
|
|
|
|
|
|
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Total
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$
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513.9
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|
|
$
|
825.5
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|
|
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|
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|
|
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1
|
As of September 30, 2015, $54.7 million of Marketable securities on our balance sheet had been lent in a Securities loaned transaction and therefore are not included
in this Liquidity Analysis.
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The $311.6 million decrease in our liquidity position from $825.5 million to $513.9 million as
of September 30, 2015 was primarily driven by the purchase of a controlling interest in GFI, as well as to acquire ARA, CFI and Excess Space, the redemption of and/or repurchase of shares and units, and the legal settlement with Tullet Prebon plc.
CLEARING CAPITAL
In November 2008,
we entered into a clearing capital agreement with Cantor to clear U.S. Treasury and U.S. government agency securities transactions on our behalf. Pursuant to the terms of this agreement, so long as Cantor is providing clearing services to us, Cantor
shall be entitled to request from us, and we shall post as soon as practicable, cash or other property acceptable to Cantor in the amount reasonably requested by Cantor under the clearing capital agreement. Cantor had not requested any cash or other
property from us as collateral as of September 30, 2016.
REGULATORY REQUIREMENTS
Our liquidity and available cash resources are restricted by regulatory requirements of our Financial Services operating subsidiaries. Many of
these regulators, including U.S. and non-U.S. government agencies and self-regulatory organizations, as well as state securities commissions in the U.S., are empowered to conduct administrative proceedings that can result in censure, fine, the
issuance of cease-and-desist orders or the suspension or expulsion of a broker-dealer. In addition, self-regulatory organizations, such as the Financial Industry Regulatory Authority (FINRA) and the National Futures Association
(NFA), along with statutory bodies such as the Financial Conduct Authority (FCA), the SEC, and the CFTC require strict compliance with their rules and regulations. The requirements imposed by regulators are designed to ensure
the integrity of the financial markets and to protect customers and other third parties who deal with broker-dealers and are not designed to specifically protect stockholders. These regulations often serve to limit our activities, including through
net capital, customer protection and market conduct requirements.
The FCA is the relevant statutory regulator in the United Kingdom. The
FCA was established in 2013 and superseded the former regulatory agency, the FSA. The FCAs objectives are to protect customers, maintain the stability of the financial services industry and promote competition between financial services
providers. It has broad rule-making, investigative and enforcement powers derived from the Financial Services and Markets Act 2000 and subsequent and derivative legislation and regulations.
77
In addition, the majority of our other foreign subsidiaries are subject to similar regulation by
the relevant authorities in the countries in which they do business. Additionally, certain other of our foreign subsidiaries are required to maintain non-U.S. net capital requirements. In Hong Kong, BGC Securities (Hong Kong), LLC and GFI (HK)
Securities LLC are regulated by the Securities and Futures Commission. BGC Capital Markets (Hong Kong), Limited and GFI (HK) Brokers Ltd are regulated by The Hong Kong Monetary Authority. All are subject to Hong Kong net capital requirements. In
France, Aurel BGC and BGC France Holdings; in Australia, BGC Partners (Australia) Pty Limited, BGC (Securities) and GFI Australia Pty Ltd.; in Japan, BGC Shoken Kaisha Limiteds Japanese branch; in Singapore, BGC Partners (Singapore) Limited,
BGC Securities (Singapore) Ltd and GFI Group PTE Ltd; in Korea, BGC Capital Markets & Foreign Exchange Broker (Korea) Limited and GFI Korea Money Brokerage Limited; and in Turkey, BGC Partners Menkul Degerler AS, all have net capital
requirements imposed upon them by local regulators. In addition, the LCH (LIFFE/LME) clearing organization, of which BGC LP is a member, also imposes minimum capital requirements. In Latin America, BGC Liquidez Distribuidora De Titulos E Valores
Mobiliarios Ltda. (Brazil) has net capital requirements imposed upon it by local regulators.
In addition, these subsidiaries may be
prohibited from repaying the borrowings of their parents or affiliates, paying cash dividends, making loans to their parent or affiliates or otherwise entering into transactions, in each case, that result in a significant reduction in their
regulatory capital position without prior notification or approval from their principal regulator. See Note 21Regulatory Requirements, to our unaudited condensed consolidated financial statements for further details on our
regulatory requirements.
As of September 30, 2016, $544.2 million of net assets were held by regulated subsidiaries. As of
September 30, 2016, these subsidiaries had aggregate regulatory net capital, as defined, in excess of the aggregate regulatory requirements, as defined, of $284.3 million.
In April 2013, our Board of Directors and Audit Committee authorized management to enter into indemnification agreements with Cantor and its
affiliates with respect to the provision of any guarantees provided by Cantor and its affiliates from time to time as required by regulators. These services may be provided from time to time at a reasonable and customary fee.
BGC Derivative Markets and GFI Swaps Exchange, our subsidiaries, began operating as SEFs on October 2, 2013. Both BGC Derivative Markets
and GFI Swaps Exchange received permanent registration approval from the CFTC as SEFs on January 22, 2016. Mandatory Dodd-Frank Act compliant execution on SEFs by eligible U.S. persons commenced in February 2014 for made available to
trade products, and a wide range of other rules relating to the execution and clearing of derivative products have been finalized with implementation periods in 2016 and beyond. We also maintain our ownership stake in ELX, a CFTC-approved DCM.
Much of BGCs global derivatives volumes continue to be executed by non-U.S. based clients outside the U.S. and subject to local
prudential regulations. As such, we also continue to operate five Multilateral Trading Facilities (MTFs) in accordance with EU directives as licensed by the FCA.
The final draft of the Markets in Financial Instruments Directive II (MiFID II) was published by the European Securities and
Markets Authority (ESMA) in September 2015, and implementation is now expected to commence in January 2018. MiFID II will have a particularly significant impact in a number of key areas, including corporate governance, transaction
reporting, pre- and post-trade transparency, technology synchronization, best execution and investor protection. MiFID II will also introduce a new regulated execution venue category known as the Organized Trading Facility, and there is currently
expected to be a joint equivalence assessment by EU and non-EU jurisdictions for granting mutual access to each others domestic marketplaces. In addition, the June 23, 2016 U.K. referendum vote to leave the European Union and recent
announcement that the UK Government will trigger Article 50 of the Lisbon Treaty (thereby setting in motion the timetable for the U.K. to leave the E.U.) may impact future market structure and MiFID II rulemaking and implementation due to potential
changes in mutual passporting between the U.K. and EU Member States.
See Regulation in Part I, Item 1 of our Annual Report on
Form 10-K for additional information related to our regulatory environment.
EQUITY
Class A Common Stock
On June 22, 2016, at our Annual Meeting of Stockholders of the Company, the stockholders approved an amendment to the BGC Partners, Inc.
amended and restated certificate of incorporation to increase the number of authorized shares of Class A common stock from 500 million shares to 750 million shares.
78
Changes in shares of the Companys Class A common stock outstanding for the three and nine
months ended September 30, 2016 and 2015 were as follows:
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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2016
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2015
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2016
|
|
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2015
|
|
Shares outstanding at beginning of period
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|
|
241,292,033
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|
|
|
213,656,458
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|
|
|
219,063,365
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|
|
|
185,108,316
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|
Share issuances:
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|
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Exchanges of limited partnership
interests
1
|
|
|
2,947,876
|
|
|
|
2,393,879
|
|
|
|
6,269,630
|
|
|
|
6,356,624
|
|
Issuance of Class A common stock for general corporate purposes
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|
|
|
|
|
|
|
|
|
|
1,648,000
|
|
|
|
|
|
Vesting of restricted stock units (RSUs)
|
|
|
81,873
|
|
|
|
85,698
|
|
|
|
569,344
|
|
|
|
734,445
|
|
Acquisitions
|
|
|
125,111
|
|
|
|
|
|
|
|
24,854,144
|
|
|
|
757,287
|
|
Conversion of 8.75% Convertible Notes to Class A common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,042,599
|
|
Other issuances of Class A common stock
|
|
|
250,219
|
|
|
|
56,637
|
|
|
|
292,524
|
|
|
|
109,605
|
|
Treasury stock repurchases
|
|
|
(1,341,947
|
)
|
|
|
(100,000
|
)
|
|
|
(9,326,182
|
)
|
|
|
(841,081
|
)
|
Forfeitures of restricted Class A common stock
|
|
|
(43,657
|
)
|
|
|
(43,624
|
)
|
|
|
(59,317
|
)
|
|
|
(218,747
|
)
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
Shares outstanding at end of period
|
|
|
243,311,508
|
|
|
|
216,049,048
|
|
|
|
243,311,508
|
|
|
|
216,049,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
The issuances related to exchanges of limited partnership interests did not impact the fully diluted number of shares and units outstanding.
|
Class B Common Stock
On June 22, 2016, at our Annual Meeting of Stockholders of the Company, the stockholders approved an amendment to the BGC Partners, Inc.
amended and restated certificate of incorporation to increase the number of authorized shares of Class B common stock from 100 million shares to 150 million shares and to provide that Class B common stock shall be issued only to certain affiliated
entities or related persons.
The Company did not issue any shares of Class B common stock during the three and nine months ended
September 30, 2016 and 2015. As of September 30, 2016 and 2015, there were 34,848,107 shares of the Companys Class B common stock outstanding.
Unit Redemptions and Share Repurchase Program
Our Board of Directors and Audit Committee have authorized repurchases of our Class A common stock and redemptions of BGC Holdings limited
partnership interests or other equity interests in our subsidiaries. In February 2014, our Audit Committee authorized such repurchases of stock or units from Cantor employees and partners. On October 27, 2015, our Board of Directors and Audit
Committee increased the Companys share repurchase and unit redemption authorization to $300 million, which may include purchases from Cantor, its partners or employees or other affiliated persons or entities. From time to time, we may actively
continue to repurchase shares or redeem units.
On February 23, 2016, we purchased from Cantor 5,000,000 shares of our Class A common
stock at a price of $8.72 per share, the closing price on the date of the transaction. The transaction was included in our stock repurchase authorization. The transaction was approved by the Audit Committee of the Board of Directors. On
February 23, 2016, we purchased from The Cantor Fitzgerald Relief Fund 970,639 shares of our Class A common stock at a price of $8.72 per share, the closing price on the date of the transaction.
79
The table below represents unit redemption and share repurchase activity for the three and nine
months ended September 30, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Total Number of
Units Redeemed or
Shares Repurchased
|
|
|
Average
Price Paid
per Unit
or Share
|
|
|
Approximate Dollar
Value
of Units and Shares
That May Yet Be
Redeemed/Purchased
Under the Plan
|
|
Redemptions
1,2
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2016March 31, 2016
|
|
|
775,791
|
|
|
$
|
8.59
|
|
|
|
|
|
April 1, 2016June 30, 2016
|
|
|
1,804,365
|
|
|
|
8.91
|
|
|
|
|
|
July 1, 2016September 30, 2016
|
|
|
2,444,069
|
|
|
|
8.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Redemptions
|
|
|
5,024,225
|
|
|
$
|
8.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases
3,4
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2016March 31, 2016
|
|
|
7,187,046
|
|
|
|
8.72
|
|
|
|
|
|
April 1, 2016June 30, 2016
|
|
|
797,189
|
|
|
|
9.04
|
|
|
|
|
|
July 1, 2016July 31, 2016
|
|
|
52,877
|
|
|
|
8.78
|
|
|
|
|
|
August 1, 2016August 31, 2016
|
|
|
94,003
|
|
|
|
8.81
|
|
|
|
|
|
September 1, 2016September 30, 2016
|
|
|
1,195,067
|
|
|
|
8.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Repurchases
|
|
|
9,326,182
|
|
|
$
|
8.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Redemptions and Repurchases
|
|
|
14,350,407
|
|
|
$
|
8.80
|
|
|
$
|
168,103,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
During the three months ended September 30, 2016, the Company redeemed approximately 2.3 million limited partnership units at an aggregate redemption price of
approximately $20.6 million for an average price of $8.90 per unit and approximately 132.7 thousand FPUs at an aggregate redemption price of approximately $1.2 million for an average price of $8.81 per unit. During the three months ended September
30, 2015, the Company redeemed approximately 1.5 million limited partnership units at an aggregate redemption price of approximately $13.6 million for an average price of $9.03 per unit and approximately 54.9 thousand FPUs at an aggregate redemption
price of approximately $294.4 thousand for an average price of $5.36 per unit.
|
2
|
During the nine months ended September 30, 2016, the Company redeemed approximately 4.8 million limited partnership units at an aggregate redemption price of
approximately $42.2 million for an average price of $8.87 per unit and approximately 272.9 thousand FPUs at an aggregate redemption price of approximately $2.3 million for an average price of $8.48 per unit. During the nine months ended September
30, 2015, the Company redeemed approximately 4.8 million limited partnership units at an aggregate redemption price of approximately $42.0 million for an average price of $8.82 per unit and approximately 82.5 thousand FPUs at an aggregate redemption
price of approximately $510.2 thousand for an average price of $6.18 per unit.
|
3
|
During the three months ended September 30, 2016, the Company repurchased approximately 1.3 million shares of its Class A common stock at an aggregate purchase price
of approximately $11.9 million for an average price of $8.90 per share. During the three months ended September 30, 2015, the Company repurchased approximately 100 thousand shares of its Class A common stock at an aggregate purchase price of
approximately $900.9 thousand for an average price of $9.01 per share.
|
4
|
During the nine months ended September 30, 2016, the Company repurchased approximately 9.3 million shares of its Class A common stock at an aggregate purchase price
of approximately $81.7 million for an average price of $8.77 per share. During the nine months ended September 30, 2015, the Company repurchased approximately 0.8 million shares of its Class A common stock at an aggregate purchase price of
approximately $6.8 million for an average price of $8.07 per share.
|
The table above represents the gross unit redemptions
and share repurchases of our Class A common stock during the nine months ended September 30, 2016. Approximately 4.3 million of the 5.0 million units above were redeemed using cash from our CEO program, and therefore did not impact the fully diluted
number of shares and units outstanding or our liquidity position. The remaining redemptions along with the Class A common stock repurchases resulted in a 10.0 million reduction in the fully diluted share count. This net reduction cost the Company
approximately $87.8 million (or $8.76 per share/unit) during the nine months ended September 30, 2016. This reduction partially offset the overall growth in the fully diluted share count which resulted from shares issued for general corporate
purposes, acquisitions, equity-based compensation and front-office hires.
The fully diluted weighted-average share count for the three
months ended September 30, 2016 was as follows (in thousands):
|
|
|
|
|
|
|
Three Months Ended
September 30, 2016
|
|
Common stock outstanding
1
|
|
|
278,601
|
|
Limited partnership interests in BGC Holdings
|
|
|
147,222
|
|
Convertible Notes
|
|
|
2,121
|
|
RSUs (Treasury stock method)
|
|
|
423
|
|
Other
|
|
|
1,394
|
|
|
|
|
|
|
Total
2
|
|
|
429,761
|
|
|
|
|
|
|
1
|
Common stock consisted of Class A shares, Class B shares and contingent shares for which all necessary conditions have been satisfied except for the passage of
time. For the quarter ended September 30, 2016, the weighted-average number of Class A shares was 243.8 million and Class B shares was 34.8 million.
|
2
|
For the quarter ended September 30, 2016, approximately 1.0 million potentially dilutive securities were not included in the computation of fully diluted earnings per share because their effect would have been
anti-dilutive. Anti-dilutive securities for the quarter ended September 30, 2016 included, on a weighted-average basis, approximately 1.0 million stock options. Also as of September 30, 2016, approximately 3.9 million shares of contingent Class
A common stock and limited partnership units were excluded from fully diluted EPS computations because the conditions for issuance had not been met by the end of the period.
|
In November 2013, we entered into the Ninth Amendment to the Agreement of Limited Partnership of the Partnership, which created new preferred
partnership units that may not be made exchangeable into our Class A common stock and are only entitled to a distribution each quarter at a rate of either 0.6875% (which is 2.75% per calendar year) or such other amount as set forth in the award
documentation, and accordingly they will not be included in the fully diluted share count. Going forward, we intend to continue to reduce our overall rate of fully diluted share count growth by utilizing these new preferred partnership units.
80
Similarly, in May 2014 we entered into the Tenth Amendment to the Agreement of Limited
Partnership of BGC Holdings. Pursuant to this amendment, NPSUs may not be made exchangeable into shares of the Companys Class A common stock and will not be allocated any items of profit or loss.
On November 4, 2015, partners of BGC Holdings approved the Eleventh Amendment to the Agreement of Limited Partnership of BGC Holdings (the
Eleventh Amendment) effective as of October 1, 2015. In order to facilitate partner compensation and for other corporate purposes, the Eleventh Amendment created five new classes of non-distributing partnership units (collectively with
the NPSUs, N Units). These new N Units carry the same name as the underlying unit with the insertion of an additional N to designate them as the N Unit type and are designated as NREUs, NPREUs, NLPUs, NPLPUs and NPPSUs. The N
Units are not entitled to participate in partnership distributions, will not be allocated any items of profit or loss and may not be made exchangeable into shares of the Companys Class A common stock. The Eleventh Amendment was approved by the
Audit Committee of the Board of Directors and by the full Board of Directors.
Subject to the approval of the Compensation Committee or
its designee, certain N Units may be converted into the underlying unit type (i.e. an NREU will be converted into an REU) and will then participate in Partnership distributions, subject to terms and conditions determined by the general partner of
BGC Holdings in its sole discretion, including that the recipient continue to provide substantial services to the Company and comply with his or her partnership obligations. Such N Units are not included in the fully diluted share count.
On June 5, 2015, we entered into an agreement with Cantor providing Cantor, CF Group Management, Inc. (CFGM) and other Cantor
affiliates entitled to hold Class B common stock the right to exchange from time to time, on a one-to-one basis, subject to adjustment, up to an aggregate of 34,649,693 shares of Class A common stock now owned or subsequently acquired by such Cantor
entities for up to an aggregate of 34,649,693 shares of Class B common stock. Such shares of Class B common stock, which currently can be acquired upon the exchange of exchangeable limited partnership units owned in BGC Holdings, are already
included in our fully diluted share count and will not increase Cantors current maximum potential voting power in the common equity. The exchange agreement will enable the Cantor entities to acquire the same number of shares of Class B common
stock that they are already entitled to acquire without having to exchange its exchangeable limited partnership units in BGC Holdings. Our Audit Committee and full Board of Directors determined that it was in the best interests of us and our
stockholders to approve the exchange agreement because it will help ensure that Cantor retains its exchangeable limited partnership units in BGC Holdings, which is the same partnership in which our partner employees participate, thus continuing to
align the interests of Cantor with those of the partner employees.
Under the exchange agreement, Cantor and CFGM have the right to
exchange the 14,850,946 shares of Class A common stock owned by them as of September 30, 2016 (including the remaining shares of Class A common stock held by Cantor from the exchange of convertible notes for 24,042,599 shares of Class A common stock
on April 13, 2015) for the same number of shares of Class B common stock. Cantor would also have the right to exchange any shares of Class A common stock subsequently acquired by it for shares of Class B common stock, up to 34,649,693 shares of
Class B common stock.
We and Cantor have agreed that any shares of Class B common stock issued in connection with the exchange agreement
would be deducted from the aggregate number of shares of Class B common stock that may be issued to the Cantor entities upon exchange of exchangeable limited partnership units in BGC Holdings. Accordingly, the Cantor entities will not be entitled to
receive any more shares of Class B Stock under this agreement than they were previously eligible to receive upon exchange of exchangeable limited partnership units.
Stock Option Exercises
We issued 17,403 shares of our Class A common stock related to the exercise of stock options during the nine months ended September 30, 2016.
We issued 74,421 shares of our Class A common stock related to the exercise of stock options during the nine months ended September 30, 2015.
Registration Statements
We currently have in place an effective equity shelf Registration Statement on Form S-3 (the Form S-3 Registration Statement) with
respect to the issuance and sale of up to 20 million shares of our Class A common stock from time to time on a delayed or continuous basis. On November 20, 2014, we entered into a controlled equity offering sales agreement with CF&Co (the
November 2014 Sales Agreement), pursuant to which we may offer and sell up to an aggregate of 20 million shares of our Class A common stock. Shares of our Class A common stock sold under our controlled equity offering sales agreement are
used primarily for redemptions and exchanges of limited partnership interests in BGC Holdings. CF&Co is a wholly-owned subsidiary of Cantor and an affiliate of us. Under the November 2014 Sales Agreement, we have agreed to pay CF&Co 2% of
the gross proceeds from the sale of shares.
As of September 30,
2016, we have issued and sold an aggregate of 12.4 million shares of Class A common stock under the Form S-3 Registration Statement pursuant to the November 2014 Sales Agreement, with 7.6 million shares of Class A common stock remaining to be sold
under this agreement. We intend to use the net proceeds of any shares of Class A common stock sold for general corporate purposes, including potential acquisitions, redemptions of limited partnership units and founding/working partner units in BGC
Holdings and repurchases of shares of Class A common stock from partners, executive officers and other employees of ours or our subsidiaries and
81
of Cantor and its affiliates. Certain of such partners will be expected to use the proceeds from such sales to repay outstanding loans issued by, or credit enhanced by, Cantor or BGC Holdings. In
addition to general corporate purposes, these sales along with our share buy-back authorization are designed as a planning device in order to facilitate the redemption process. Going forward, we may redeem units and reduce our fully diluted share
count under our repurchase authorization or later sell Class A shares under this agreement.
Further, we have an effective registration
statement on Form S-4 (the Form S-4 Registration Statement), with respect to the offer and sale of up to 20 million shares of Class A common stock from time to time in connection with business combination transactions, including
acquisitions of other businesses, assets, properties or securities. As of September 30, 2016, we have issued an aggregate of 9.1 million shares of Class A common stock under the Form S-4 Registration Statement, all in connection with
acquisitions in the real estate brokerage industry. We also have an effective shelf Registration Statement on Form S-3 pursuant to which we can offer and sell up to 10 million shares of our Class A common stock under the BGC Partners, Inc. Dividend
Reinvestment and Stock Purchase Plan. As of September 30, 2016, we have issued approximately 270.5 thousand shares of our Class A common stock under the Dividend Reinvestment and Stock Purchase Plan.
On June 15, 2015, we filed a resale registration statement on Form S-3 with respect to 24,042,599 shares of our Class A common stock that
Cantor received on April 13, 2015 in the conversion of the 8.75% Convertible Notes. These shares may be sold from time to time by Cantor or by certain of its pledgees, donees, distributees, counterparties, transferees or other successors in interest
of the shares, including banks or other financial institutions which may enter into stock pledge, stock loan or other financing transactions with Cantor or its affiliates, as well as by their respective pledgees, donees, distributees,
counterparties, transferees or other successors in interest.
Our Compensation Committee may grant stock options, stock appreciation
rights, deferred stock such as RSUs, bonus stock, performance awards, dividend equivalents and other equity-based awards, including to provide exchange rights for shares of our Class A common stock upon exchange of limited partnership units and
founding/working partner units. On June 22, 2016, at our Annual Meeting of Stockholders, our stockholders approved our Seventh Amended and Restated Long Term Incentive Plan (the Equity Plan) to increase from 350 million to 400 million
the aggregate number of shares of our Class A common stock that may be delivered or cash-settled pursuant to awards granted during the life of the Equity Plan. As of September 30, 2016, the limit on the aggregate number of shares authorized to be
delivered allowed for the grant of future awards relating to 217.5 million shares.
On October 9, 2015, we filed a registration statement
on Form S-3 pursuant to which CF&Co may make offers and sales of our 8.125% Senior Notes and 5.375% Senior Notes in connection with ongoing market-making transactions which may occur from time to time. Such market-making transactions in these
securities may occur in the open market or may be privately negotiated at prevailing market prices at a time of resale or at related or negotiated prices. Neither CF&Co, nor any other of our affiliates, has any obligation to make a market in our
securities, and CF&Co or any such other affiliate may discontinue market-making activities at any time without notice.
On January 12,
2016, we filed a registration statement on Form S-3 with respect to the 23,481,192 shares of our Class A common stock that we issued to the stockholders of JPI in the Back-End Mergers on January 12, 2016. These shares may be offered and sold from
time to time by the JPI stockholders for their own account or by certain pledgees, donees, transferees, or other successors in interest of the shares, including banks or other financial institutions which may enter into stock pledge or other
financing transactions with the JPI stockholders.
CONTINGENT PAYMENTS RELATED TO ACQUISITIONS
Since 2012, the Company has completed acquisitions, whose purchase price included an aggregate of approximately 9.6 million shares of the
Companys Class A common stock (with an acquisition date fair value of approximately $54.4 million), 10.0 million limited partnership units (with an acquisition date fair value of approximately $64.0 million) and $64.0 million in cash that may
be issued contingent on certain targets being met through 2022.
As of September 30, 2016, the Company has issued 7.5 million shares of
its Class A common stock, 4.4 million limited partnership units and $16.0 million in cash related to such contingent payments.
PURCHASE OF LIMITED
PARTNERSHIP INTERESTS
Cantor has the right to purchase limited partnership interests (Cantor units) from BGC Holdings upon redemption
of non-exchangeable founding/working partner units redeemed by BGC Holdings upon termination or bankruptcy of the founding/working partner. In addition, pursuant to the Sixth Amendment to the BGC Holdings Limited Partnership Agreement (the
Sixth Amendment), where either current, terminating, or terminated partners are permitted by the Company to exchange any portion of their FPUs and Cantor consents to such exchangeability, the Company shall offer to Cantor the opportunity
for Cantor to purchase the same number of new exchangeable limited partnership interests (Cantor units) in BGC Holdings at the price that Cantor would have paid for the FPUs had the Company redeemed them. Any such Cantor units purchased by Cantor
are currently exchangeable for up to 34,649,693 shares of Class B common stock or, at Cantors election or if there are no such additional shares of Class B common stock, shares of Class A common stock, in each case on a one-for-one basis
(subject to customary anti-dilution adjustments).
82
On November 4, 2015, the Company issued exchange rights with respect to, and Cantor purchased, in
transactions exempt from registration pursuant to Section 4(a)(2) of the Securities Act, an aggregate of 1,775,481 exchangeable limited partnership units in BGC Holdings, as follows: In connection with the redemption by BGC Holdings of an
aggregate of 588,356 non-exchangeable founding partner units from founding partners of BGC Holdings for an aggregate consideration of $2,296,801, Cantor purchased 554,196 exchangeable limited partnership units from BGC Holdings for an aggregate of
$2,115,306 (after offset of a founding partners $46,289 debt due to Cantor). In addition, pursuant to the Sixth Amendment, on November 4, 2015, Cantor purchased 1,221,285 exchangeable limited partnership units from BGC Holdings for an
aggregate consideration of $4,457,436 in connection with the grant of exchangeability and exchange of 1,221,285 founding partner units. Exchangeable limited partnership units held by Cantor are exchangeable by Cantor at any time on a
one-for-one basis (subject to adjustment) for shares of Class A common stock of the Company.
As of September 30, 2016, there were
1,166,503 founding/working partner units remaining in which BGC Holdings had the right to redeem or exchange and Cantor had the right to purchase an equivalent number of Cantor units.
GUARANTEE AGREEMENT FROM CF&CO
Under
rules adopted by the CFTC, all foreign introducing brokers engaging in transactions with U.S. persons are required to register with the NFA and either meet financial reporting and net capital requirements on an individual basis or obtain a guarantee
agreement from a registered Futures Commission Merchant. Our European-based brokers engage from time to time in interest rate swap transactions with U.S.-based counterparties, and therefore we are subject to the CFTC requirements. CF&Co has
entered into guarantees on our behalf (and on behalf of GFI), and we are required to indemnify CF&Co for the amounts, if any, paid by CF&Co on our behalf pursuant to this arrangement.
EQUITY METHOD INVESTMENTS
On June 3,
2014, the Companys Board of Directors and Audit Committee authorized the purchase of 1,000 Class B Units of LFI Holdings, LLC (LFI), a subsidiary of Cantor, representing 10% of the issued and outstanding Class B Units of LFI after
giving effect to the transaction. On the same day, the Company completed the acquisition for $6.5 million and was granted an option to purchase an additional 1,000 Class B Units of LFI for an additional $6.5 million. On August 5, 2015, the Board of
Directors and Audit Committee authorized the Companys exercise of the option to purchase additional Class B units of LFI in order to represent an ownership interest of 20% of LFI. On January 15, 2016, the Company closed on the exercise of its
option to acquire additional Class B Units of LFI Holdings, LLC. At the closing, the Company made a payment of $6.5 million to LFI. As a result of the option exercise, the Company had a 20% ownership interest in LFI.
On October 25, 2016, the Companys Board of Directors and Audit Committee authorized the purchase of 9,000 Class B Units of LFI Holdings,
LLC (LFI), a subsidiary of Cantor, representing all of the issued and outstanding Class B Units of LFI not already owned by the Company. On November 4, 2016, the Company completed this transaction. As a result of this transaction, the
Company owns 100% of the ownership interests in LFI. LFI, a technology infrastructure provider tailored to the financial sector, is a limited liability company headquartered in New York.
In the purchase agreement, Cantor agreed, subject to certain exceptions, not to solicit certain senior executives of LFIs business and
was granted the right to be a customer of LFIs businesses on the best terms made available to any other customer. The aggregate purchase price paid by the Company to Cantor consisted of approximately $24.2 million in cash plus a post-closing
adjustment to be determined after closing based on netting LFIs expenses paid by Cantor after May 1, 2016 against accounts receivable owed to LFI by Cantor for access to LFIs business from May 1, 2016 through the closing date. The
Company previously had a 20% ownership interest in LFI and accounted for its investment using the equity method. The transaction will be accounted for as a transaction between entities under common control.
The Company was authorized to enter into loans, investments or other credit support arrangements for Aqua (see Note 13
Related Party Transactions, to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q); such arrangements are proportionally and on the same terms as similar arrangements between
Aqua and Cantor. On October 27, 2015, the Companys Board of Directors and Audit Committee increased the authorized amount by an additional $4.0 million. The Company has been further authorized to provide counterparty or similar guarantees
on behalf of Aqua from time to time, provided that liability for any such guarantees, as well as similar guarantees provided by Cantor, would be shared proportionally with Cantor.
STOCK TRANSACTIONS EXECUTIVE OFFICERS
In July 2016, the Audit Committee authorized the purchase by Mr. Lutnicks retirement plan of up to $350,000 in Class A common stock
at the closing price on the date of purchase. 36,405 shares of Class A common stock were purchased by the plan on August 16, 2016, at $8.77 per share, the closing price on the date of purchase.
83
UNIT REDEMPTIONS AND EXCHANGESEXECUTIVE OFFICERS
During 2013, our executive officers participated in the Global Partnership Restructuring Program. In connection with the program, Messrs. Lynn,
Windeatt and Sadler received an aggregate of 283,206 newly-issued BGC Holdings limited partnership units (equivalent to 9.75% of their non-exchangeable units that were redeemed in the above transactions). Upon any sale or other transfer by such
executive officers of shares of restricted stock, a proportional number of these units will be redeemed for zero by BGC Holdings. These units are not expected to be made exchangeable into shares of Class A common stock. In connection with the sale
of certain shares of restricted stock, an aggregate of 91,703 of such units held by Messrs. Lynn, Windeatt and Sadler were redeemed for zero on February 5, 2014, 6,377 of such units were redeemed for zero on December 5, 2014, 87,410 of such units
were redeemed for zero on January 30, 2015, 69,408 of such units were redeemed for zero on February 24, 2016, and 3,152 of such units were redeemed for zero on September 30, 2016.
EXECUTIVE COMPENSATION AND SHARE REPURCHASES FROM EXECUTIVE OFFICERS
On January 1, 2015, (i) 1,000,000 of Mr. Lutnicks NPSUs converted into 550,000 PSUs and 450,000 PPSUs, with respect to which Mr. Lutnick
was offered the right to exchange 239,739 PSUs and 196,150 PPSUs for shares and cash, which he waived at that time under our policy, and (ii) 142,857 of Mr. Merkels NPSUs converted into 78,571 PSUs and 64,286 PPSUs, of which 5,607 PSUs and
4,588 PPSUs were made exchangeable and repurchased by the Company at the average price of shares of Class A common stock sold under our controlled equity offering less 2%, or $91,558.
On January 30, 2015, the Compensation Committee granted 4,000,000 NPSUs to Mr. Lutnick and 1,000,000 NPSUs to Mr. Lynn. These awards convert
25% per year on January 1 of each year beginning January 1, 2016 such that 1,000,000 of Mr. Lutnicks NPSUs and 250,000 of Mr. Lynns NPSUs may be converted into an equivalent number of non-exchangeable PSUs/PPSUs for Mr. Lutnick and
non-exchangeable LPUs/PLPUs for Mr. Lynn on each conversion date, subject to the approval of the Compensation Committee for all such conversions beginning in 2016. The grant of exchange rights with respect to such PSUs/PPSUs and LPUs/PLPUs will be
determined in accordance with the Companys practices when determining discretionary bonuses or awards, and any grants of exchangeability shall be subject to the approval of the Compensation Committee. Upon the signing of any agreement that
would result in a Change in Control (as defined in the Amended and Restated Change in Control Agreement entered into by Mr. Lutnick and the applicable Deed of Adherence entered into by Mr. Lynn), (1) any unvested NPSUs held by Mr.
Lutnick or Mr. Lynn shall convert in full and automatically be converted into exchangeable PSUs/PPSUs or LPUs/PLPUs (i.e., such PSUs and LPUs shall be exchangeable for shares of Class A common stock and PPSUs and PLPUs shall be exchangeable for
cash), and (2) any non-exchangeable PSUs/PPSUs held by Mr. Lutnick and non-exchangeable LPUs/PLPUs held by Mr. Lynn shall become immediately exchangeable, which exchangeability may be exercised in connection with such Change in Control,
except that, with respect to (1) and (2), 9.75% of Mr. Lynns LPUs/PLPUs shall be deemed to be redeemed for zero in proportion to such exchanges of LPUs/PLPUs in accordance with the customary LPU/PLPU structure.
On January 30, 2015, the Compensation Committee approved the acceleration of the lapse of restrictions on transferability with respect to
an aggregate of 598,904 shares of restricted stock held by our executive officers as follows: Mr. Lynn, 455,733 shares; Mr. Merkel, 16,354 shares; Mr. Windeatt, 95,148 shares; and Mr. Sadler, 31,669 shares. On
January 30, 2015, these executives sold these shares to the Company at $7.83 per share. In connection with such sales, an aggregate of 87,410 of LPUs were redeemed for zero as follows: Mr. Lynn, 68,381 units; Mr. Windeatt, 14,277
units; and Mr. Sadler 4,752 units.
On July 27, 2015, the Compensation Committee granted exchange rights with respect to 8,536 PSUs
and 6,983 PPSUs that were issued pursuant to converted NPSUs that were awarded to Mr. Merkel in May 2014. On October 29, 2015, the Company repurchased (i) the 8,536 PSUs at a price of $8.34 per share, the closing price of the Class A common
stock on the date the Compensation Committee approved the transaction, and (ii) the 6,983 PPSUs at a price of $9.15 per share, the closing price of the Class A common stock on December 31, 2014.
On February 24, 2016, the Compensation Committee granted 1,500,000 NPSUs to Mr. Lutnick, 2,000,000 NPSUs to Mr. Lynn, 1,000,000
NPSUs to Mr. Merkel and 75,000 NPSUs to Mr. Windeatt. Conversion of NPSUs into PSUs/PPSUs for Messrs. Lutnick and Merkel and into LPUs/PLPUs for Messrs. Lynn and Windeatt may be (i) 25% per year with respect to NPSUs granted in 2016; (ii)
25% of the previously awarded NPSUs currently held by Messrs. Lutnick and Lynn based upon the original issuance date (the first 25% having already been converted); and (iii) 25% per year of the current balance of NPSUs previously awarded to Mr.
Merkel, provided that, with respect to all of the foregoing, such future conversions are subject to the approval of the Compensation Committee each year. The grant of exchange rights with respect to such PSUs/PPSUs and LPUs/PLPUs will be
determined in accordance with the Companys practices when determining discretionary bonuses or awards, and any grants of exchangeability shall be subject to the approval of the Compensation Committee.
On February 24, 2016, the Compensation Committee granted 750,000 non-exchangeable PSUs and 291,667 PPSUs (which may not be made
exchangeable) to Mr. Lutnick; 621,429 non-exchangeable LPUs and 241,667 PLPUs (which may not be made exchangeable) to Mr. Lynn; 114,583 non-exchangeable PSUs and 93,750 PPSUs (which may not be made exchangeable) to Mr. Merkel; 105,188
non-exchangeable LPUs and 40,906 non-exchangeable PLPUs (which may not be made exchangeable) to Mr. Windeatt; and 55,688 non-exchangeable LPUs and 21,656 non-exchangeable PLPUs (which may not be made exchangeable) to Mr. Sadler.
84
On February 24, 2016, the Compensation Committee approved the acceleration of the lapse of
restrictions on transferability with respect to 612,958 shares of restricted stock held by our executive officers as follows: Mr. Lynn, 431,782 shares; Mr. Merkel, 150,382 shares; and Mr. Sadler, 30,794 shares. On February 24, 2016, Messrs.
Lynn and Sadler sold these shares to the Company at $8.40 per share, and Mr. Merkel sold 120,000 of such shares to the Company at $8.40 per share. In connection with such transaction, 64,787 of Mr. Lynns and 4,621 of Mr. Sadlers
partnership units were redeemed for zero.
In February 2016, the Company granted exchange rights and/or released transfer restrictions
with respect to 2,127,648 rights available to Mr. Lutnick with respect to some of his non-exchangeable limited partnership units (which amount included the lapse of restrictions with respect to 235,357 shares of restricted stock held by him),
which were all of such rights available to him at such time. Mr. Lutnick has not transferred or exchanged such shares or units as of the date hereof.
On March 9, 2016, Mr. Lutnick exercised an employee stock option with respect to 250,000 shares of Class A common stock at an exercise price
of $8.42 per share. The net exercise of the option resulted in 17,403 shares of the Companys Class A common stock being issued to Mr. Lutnick.
On April 4, 2016, Mr. McMurray commenced his employment with the Company as our Chief Financial Officer, and he executed a deed of adherence
as a member of our U.K. Partnership, which we refer to as the McMurray Deed. Under the McMurray Deed, Mr. McMurrays membership in the U.K. Partnership is terminable on six-months notice. Pursuant to the McMurray Deed, he
is entitled to receive a base draw of £325,000 ($464,444 as of April 4, 2016). He is also entitled to an upfront payment of up to £100,000 ($142,905 as of April 4, 2016) in cash, which is subject to repayment under certain circumstances.
Mr. McMurray will also be entitled to receive a bonus allocation of the U.K. Partnerships profits payable in April 2017, absent his earlier termination for cause or resignation, in the amount of £425,000 ($607,346 as of April 4, 2016),
which will be payable in the form of cash, non-cash (e.g., partnership units) or a combination thereof. Mr. McMurray will be eligible for a discretionary profit allocation, subject to the satisfactory achievement by Mr. McMurray of such performance
goals as may be established by the Companys Compensation Committee. Pursuant to the McMurray Deed, Mr. McMurray may (i) not compete with the U.K. Partnership or any affiliates or solicit clients or counterparties of the U.K. Partnership or any
affiliate for 12 months after his termination, and (ii) not solicit members or employees of the U.K. Partnership or any affiliate to leave their employment with, or to discontinue the supply of their services to, the U.K. Partnership or any
affiliate for 24 months after his termination.
On April 27, 2016, Mr. McMurray entered into an agreement with the Company providing for
four future awards of partnership units in BGC Holdings L.P. having an aggregate notional value of £500,000 ($758,800 on April 27, 2016). Units having a notional value of £83,333 ($126,541 on April 27, 2016) will be granted on each of
January 1, 2017, 2018 and 2019, and units having a notional value of £250,000 ($379,625 on April 27, 2016) will be granted on January 1, 2020, in each case in accordance with customary grant documentation, subject to applicable termination and
other provisions of the U.K Partnership Agreement, and adjustments set forth in the applicable agreement. All such units will be immediately exchangeable into the Companys Class A common stock on the date of grant and cash may be paid by the
Company in lieu of the grant of such units. The number of units granted will be determined based on the closing price of the Companys Class A common stock on the trading day prior to each of the foregoing grant dates.
On September 30, 2016, Mr. Merkel elected to sell, and the Company agreed to purchase, an aggregate of 16,634 shares of the Companys
Class A common stock at a price of $8.75 per share, the closing price of the Companys Class A common stock on such date. On September 30, 2016, certain trusts for the benefit of Mr. Merkels immediate family, of which Mr. Merkels
spouse is the sole trustee of each trust and Mr. Merkel has the power to remove and replace such trustee, elected to sell, and the Company agreed to purchase, an aggregate of 4,131 shares of the Companys Class A common stock on the same terms.
These transactions were included in the Companys stock repurchase authorization and authorized by the Audit Committee of the Board of Directors.
On November 7, 2016, the Compensation Committee agreed to grant 200,000 non-exchangeable PSUs/PPSUs in replacement of 200,000 NPSUs previously
granted to Mr. Merkel (which, upon replacement, shall no longer exist) on or about each of the following dates, provided that BGC Partners, Inc., inclusive of its affiliates thereof, earns, in aggregate, at least $25 million in gross revenues in the
calendar quarter in which the PSUs/PPSUs are to be granted: (i) December 1, 2016 and (ii) each March 31 of 2017 through 2020 (for an aggregate total of 1 million non-exchangeable PSUs/PPSUs). In connection with the foregoing, Mr. Merkel agreed to
surrender a total of 1,714,286 previously granted NPSUs.
Each grant of PSUs/PPSUs also is subject to Mr. Merkels continued
employment and compliance with the BGC Holdings, L.P. partnership agreement (the Holdings Agreement) as of the applicable grant date. The number of PSUs and PPSUs issuable on each grant date shall be determined by reference to the
then-applicable practices for U.S.-based partners when determining the proportionality of PSUs/PPSUs (currently 55% in PSUs and 45% in PPSUs). The determination price of the PPSUs upon grant shall be the closing price of Companys Class A
common stock on the applicable grant dates. In addition to the foregoing grants of PSUs/PPSUs in replacement of NPSUs, the Compensation Committee granted: (i) effective November 7, 2016, exchange rights with respect to 110,000 of Mr.
Merkels previously issued non-exchangeable PSUs and 90,000 of Mr. Merkels previously issued non-exchangeable PPSUs and (ii) effective on or about each February 28 of 2017 through 2020, exchange rights for 200,000 of Mr. Merkels
then non-exchangeable PSU/PPSUs (the proportion of PSUs to PPSUs shall be in accordance with their issuance), subject to Mr. Merkels continued employment and compliance with the Holdings Agreement as of the applicable exchangeability date (for
an aggregate total of 1 million exchangeable PSUs/PPSUs).
85
The Compensation Committee has further agreed to repurchase (i) the 110,000 exchangeable PSUs for
an aggregate price of $952,600, based upon the closing price of BGC Partners, Inc. Class A common stock (BGC Stock) on November 7, 2016, which was $8.66, and (ii) the 90,000 exchangeable PPSUs for an aggregate price of $773,599 based on
the average determination price for such PPSUs at the time of grant, which was $8.59554 per Unit. The total payment to Mr. Merkel with respect to the foregoing purchase is $1,726,199, less applicable taxes and withholdings.
All of the foregoing also is subject to the Company meeting its applicable 162(m) targets.
MARKET SUMMARY
The following table
provides certain volume and transaction count information for the quarterly periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
|
June 30,
2016
|
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
|
September 30,
2015
|
|
Notional Volume (in billions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fully electronic volume
|
|
$
|
4,234
|
|
|
$
|
4,781
|
|
|
$
|
4,944
|
|
|
$
|
4,301
|
|
|
$
|
4,659
|
|
Total hybrid volume
1
|
|
|
53,225
|
|
|
|
52,869
|
|
|
|
48,700
|
|
|
|
47,012
|
|
|
|
47,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fully electronic and hybrid volume
|
|
$
|
57,459
|
|
|
$
|
57,650
|
|
|
$
|
53,644
|
|
|
$
|
51,313
|
|
|
$
|
52,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction Count (in thousands, except for days)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fully electronic transactions
|
|
|
2,390
|
|
|
|
2,629
|
|
|
|
2,905
|
|
|
|
2,652
|
|
|
|
2,914
|
|
Total hybrid transactions
|
|
|
1,065
|
|
|
|
1,074
|
|
|
|
1,012
|
|
|
|
843
|
|
|
|
885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total transactions
|
|
|
3,455
|
|
|
|
3,703
|
|
|
|
3,917
|
|
|
|
3,495
|
|
|
|
3,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading days
|
|
|
64
|
|
|
|
64
|
|
|
|
61
|
|
|
|
64
|
|
|
|
64
|
|
1
|
Hybrid is defined as transactions involving some element of electronic trading but executed by BGCs brokers, exclusive of voice-only transactions.
|
86
Fully electronic volume, including new products, was $4.2 trillion for the three months ended
September 30, 2016, compared to $4.7 trillion for the three months ended September 30, 2015. Our hybrid volume for the three months ended September 30, 2016 was $53.2 trillion, compared to $47.7 trillion for the three months ended September 30,
2015.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table summarizes certain of our contractual obligations at September 30, 2016 (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Less Than 1
Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
More Than
5 Years
|
|
Operating leases
1
|
|
$
|
548,239
|
|
|
$
|
71,576
|
|
|
$
|
120,775
|
|
|
$
|
91,706
|
|
|
$
|
264,182
|
|
Notes payable and collateralized
borrowings
2
|
|
|
970,607
|
|
|
|
7,045
|
|
|
|
251,062
|
|
|
|
600,000
|
|
|
|
112,500
|
|
Interest on notes payable
3
|
|
|
394,943
|
|
|
|
61,292
|
|
|
|
97,520
|
|
|
|
46,869
|
|
|
|
189,262
|
|
Other
4
|
|
|
37,904
|
|
|
|
8,000
|
|
|
|
16,000
|
|
|
|
13,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
1,951,693
|
|
|
$
|
147,913
|
|
|
$
|
485,357
|
|
|
$
|
752,479
|
|
|
$
|
565,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Operating leases are related to rental payments under various non-cancelable leases, principally for office space, net of sublease payments to be received. The total
amount of sublease payments to be received is approximately $0.2 million over the life of the agreement.
|
2
|
Notes payable and collateralized borrowings reflects the issuance of $112.5 million of the 8.125% Senior Notes due June 26, 2042 (the $112.5 million represents
the principal amount of the debt; the carrying value of the 8.125% Senior Notes as of September 30, 2016 was approximately $109.2 million), $300.0 million of the 5.375% Senior Notes due December 9, 2019 (the $300.0 million represents the principal
amount of the debt; the carrying value of the 5.375% Senior Notes as of September 30, 2016 was approximately $296.8 million), $240.0 million of the 8.375% Senior Notes due July 19, 2018 (the $240.0 million represents the principal amount of the
debt; the carrying value of the 8.375% Senior Notes as of September 30, 2016 was approximately $249.1 million), $300.0 million of the 5.125% Senior Notes due on May 27, 2021 (the $300.0 million represents the principal amount of the debt; the
carrying value of the 5.125% Senior Notes as of September 30, 2016 was approximately $296.0 million) and $17.9 million of collateralized borrowings due March 13, 2019. See Note 17 Notes Payable, Collateralized and Short-Term
Borrowings, for more information regarding these obligations, including timing of payments and compliance with debt covenants.
|
3
|
The $189.3 million of interest on notes payable that are due in more than five years represents interest on the 8.125% Senior Notes. The 8.125% Senior Notes may be
redeemed for cash, in whole or in part, on or after June 26, 2017, at the Companys option, which may impact the actual interest paid.
|
4
|
Other contractual obligations reflect commitments to make charitable contributions, which are recorded as part of Accounts payable, accrued and other
liabilities in the Companys unaudited condensed consolidated statements of financial condition. The amount payable each year reflects an estimate of future Charity Day obligations.
|
OFF-BALANCE SHEET ARRANGEMENTS
In the
ordinary course of business, we enter into arrangements with unconsolidated entities, including variable interest entities. See Note 14Investments to our unaudited condensed consolidated financial statements for additional
information related to our investments in unconsolidated entities.
CRITICAL ACCOUNTING POLICIES
The preparation of our unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of the assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities in our unaudited condensed consolidated financial statements. We believe that of our
significant accounting policies (see Note 3Summary of Significant Accounting Policies to our consolidated financial statements in Part II, Item 8 of our Annual Report on Form 10-K), the following policies involve a higher
degree of judgment and complexity.
Revenue Recognition
We derive our revenues primarily through commissions from brokerage services; the spread between the buy and sell prices on matched principal
transactions; revenues from real estate management services; fees from related parties; fees for the provision of certain data, software and post-trade services; and other revenues.
We recognize revenue when four basic criteria have been met:
|
|
|
Existence of persuasive evidence that an arrangement exists;
|
|
|
|
Delivery has occurred or services have been rendered;
|
|
|
|
The sellers price to the buyer is fixed and determinable; and
|
|
|
|
Collectability is reasonably assured.
|
87
The judgments involved in revenue recognition include determining the appropriate time to
recognize revenue. In particular within our Real Estate Services segment, we evaluate our transactions to determine whether contingencies exist that may impact the timing of revenue recognition.
Equity-Based and Other Compensation
Discretionary Bonus: A portion of our compensation and employee benefits expense is comprised of discretionary bonuses, which may be paid in
cash, equity, partnership awards or a combination thereof. We accrue expense in a period based on revenues in that period and on the expected combination of cash, equity and partnership units. Given the assumptions used in estimating discretionary
bonuses, actual results may differ.
Restricted Stock Units: We account for equity-based compensation under the fair value recognition
provisions of the Financial Accounting Standards Board (FASB) guidance. Restricted stock units (RSUs) provided to certain employees are accounted for as equity awards, and as per FASB guidance, we are required to record an
expense for the portion of the RSUs that is ultimately expected to vest. FASB guidance requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Because significant assumptions are used in estimating employee turnover and associated forfeiture rates, actual results may differ from our estimates under different assumptions or conditions.
The fair value of RSU awards to employees is determined on the date of grant, based on the market value of our Class A common stock.
Generally, RSUs granted by us as employee compensation do not receive dividend equivalents; as such, we adjust the fair value of the RSUs for the present value of expected forgone dividends, which requires us to include an estimate of expected
dividends as a valuation input. This grant-date fair value is amortized to expense ratably over the awards vesting periods. For RSUs with graded vesting features, we have made an accounting policy election to recognize compensation cost on a
straight-line basis. The amortization is reflected as non-cash equity-based compensation expense in our unaudited condensed consolidated statements of operations.
Restricted Stock: Restricted stock provided to certain employees is accounted for as an equity award, and as per FASB guidance, we are
required to record an expense for the portion of the restricted stock that is ultimately expected to vest. We have granted restricted stock that is not subject to continued employment or service; however, transferability is subject to compliance
with our and our affiliates customary noncompete obligations. Such shares of restricted stock are generally saleable by partners in five to ten years. Because the restricted stock is not subject to continued employment or service, the
grant-date fair value of the restricted stock is expensed on the date of grant. The expense is reflected as non-cash equity-based compensation expense in our unaudited condensed consolidated statements of operations.
Limited Partnership Units: Limited partnership units in BGC Holdings are generally held by employees. Generally, such units receive quarterly
allocations of net income, which are cash distributed on a quarterly basis and generally contingent upon services being provided by the unit holders. Our Preferred Units are not entitled to participate in partnership distributions other than with
respect to a distribution at a rate of either 0.6875% (which is 2.75% per calendar year) or such other amount as set forth in the award documentation. As prescribed in FASB guidance, the quarterly allocations of net income to such limited
partnership units are reflected as a component of compensation expense under Allocation of net income and grants of exchangeability to limited partnership units and FPUs in our unaudited condensed consolidated statements of operations.
Certain of these limited partnership units entitle the holders to receive post-termination payments equal to the notional amount in four
equal yearly installments after the holders termination. These limited partnership units are accounted for as post-termination liability awards under FASB guidance. Accordingly, we recognize a liability for these units on our unaudited
condensed consolidated statements of financial condition as part of Accrued compensation for the amortized portion of the post-termination payment amount, based on the current fair value of the expected future cash payout. We amortize
the post-termination payment amount, less an expected forfeiture rate, over the vesting period, and record an expense for such awards based on the change in value at each reporting period in our unaudited condensed consolidated statements of
operations as part of Compensation and employee benefits.
Certain limited partnership units are granted exchangeability into
Class A common stock on a one-for-one basis (subject to adjustment). At the time exchangeability is granted, we recognize an expense based on the fair value of the award on that date, which is included in Allocation of net income and grants of
exchangeability to limited partnership units and FPUs in our unaudited condensed consolidated statements of operations. During the three months ended September 30, 2016 and 2015, we incurred compensation expense of $34.3 million and $34.4
million, respectively, related to the grant of exchangeability on partnership units. During the nine months ended September 30, 2016 and 2015, we incurred compensation expense of $92.7 million and $96.6 million, respectively, related to the grant of
exchangeability on partnership units.
Employee Loans: We have entered into various agreements with certain of our employees and partners
whereby these individuals receive loans that may be either wholly or in part repaid from distributions that the individuals receive on some or all of their limited partnership interests or may be forgiven over a period of time. Cash advance
distribution loans are documented in formal agreements and are repayable in timeframes outlined in the underlying agreements. We intend for these advances to be repaid in full from the future distributions on existing and future awards granted. The
distributions are treated as compensation expense when made and the proceeds are used to repay the loan. The forgivable portion of any loans is recognized as compensation expense in our unaudited condensed
88
consolidated statements of operations over the life of the loan. We review the loan balances each reporting period for collectability. If we determine that the collectability of a portion of the
loan balances is not expected, we recognize a reserve against the loan balances. Actual collectability of loan balances may differ from our estimates.
As of September 30, 2016 and December 31, 2015, the aggregate balance of employee loans, net of reserve, was $254.0 million and $158.2
million, respectively, and is included as Loans, forgivable loans and other receivables from employees and partners, net in our unaudited condensed consolidated statements of financial condition. Compensation expense for the
above-mentioned employee loans for the three months ended September 30, 2016 and 2015 was $23.7 million and $11.1 million, respectively. Compensation expense for the above-mentioned employee loans for the nine months ended September 30, 2016 and
2015 was $44.7 million and $30.9 million, respectively. The compensation expense related to these loans was included as part of Compensation and employee benefits in our unaudited condensed consolidated statements of operations.
Goodwill
Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination. As prescribed
in FASB guidance, Goodwill and Other Intangible Assets, goodwill is not amortized, but instead is periodically tested for impairment. We review goodwill for impairment on an annual basis during the fourth quarter of each fiscal year or whenever an
event occurs or circumstances change that could reduce the fair value of a reporting unit below its carrying amount.
When reviewing
goodwill for impairment, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the results of the qualitative assessment are not conclusive,
or if we choose to bypass the qualitative assessment, we perform a goodwill impairment analysis using a two-step process.
The first step
involves comparing each reporting units estimated fair value with its carrying value, including goodwill. To estimate the fair value of the reporting units, we use a discounted cash flow model and data regarding market comparables. The
valuation process requires significant judgment and involves the use of significant estimates and assumptions. These assumptions include cash flow projections, estimated cost of capital and the selection of peer companies and relevant multiples.
Because significant assumptions and estimates are used in projecting future cash flows, choosing peer companies and selecting relevant multiples, actual results may differ from our estimates under different assumptions or conditions. If the
estimated fair value of a reporting unit exceeds its carrying value, goodwill is deemed not to be impaired. If the carrying value exceeds estimated fair value, there is an indication of potential impairment and the second step is performed to
measure the amount of potential impairment.
The second step of the process involves the calculation of an implied fair value of goodwill
for each reporting unit for which step one indicated a potential impairment may exist. The implied fair value of goodwill is determined by measuring the excess of the estimated fair value of the reporting unit as calculated in step one, over the
estimated fair values of the individual assets, liabilities and identified intangibles. Events such as economic weakness, significant declines in operating results of reporting units, or significant changes to critical inputs of the goodwill
impairment test (e.g., estimates of cash flows or cost of capital) could cause the estimated fair value of our reporting units to decline, which could result in an impairment of goodwill in the future.
Income Taxes
We
account for income taxes using the asset and liability method as prescribed in FASB guidance on Accounting for Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to basis differences between
the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Certain of our entities are taxed as U.S. partnerships and are subject to the Unincorporated Business Tax (UBT) in
the City of New York. Therefore, the tax liability or benefit related to the partnership income or loss except for UBT rests with the partners (see Note 2Limited Partnership Interests in BGC Holdings for a discussion of partnership
interests), rather than the partnership entity. As such, the partners tax liability or benefit is not reflected in our unaudited condensed consolidated financial statements. The tax-related assets, liabilities, provisions or benefits included
in our unaudited condensed consolidated financial statements also reflect the results of the entities that are taxed as corporations, either in the U.S. or in foreign jurisdictions. Pursuant to FASB guidance on Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement on Accounting for Income Taxes, we provide for uncertain tax positions based upon managements assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax
authorities. Management is required to determine whether a tax position is more likely than not to be sustained upon examination by tax authorities, including resolution of any related appeals or litigation processes, based on the technical merits
of the position. Because significant assumptions are used in determining whether a tax benefit is more likely than not to be sustained upon examination by tax authorities, actual results may differ from our estimates under different assumptions or
conditions. We recognize interest and penalties related to income tax matters in Interest expense and Other expenses, respectively, in our unaudited condensed consolidated statement of operations.
A valuation allowance is recorded against deferred tax assets if it is deemed more likely than not that those assets will not be realized. In
assessing the need for a valuation allowance, we consider all available evidence, including past operating results, the existence of cumulative losses in the most recent fiscal years, estimates of future taxable income and the feasibility of tax
planning strategies.
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The measurement of current and deferred income tax assets and liabilities is based on provisions
of enacted tax laws and involves uncertainties in the application of tax regulations in the U.S. and other tax jurisdictions. Because our interpretation of complex tax law may impact the measurement of current and deferred income taxes, actual
results may differ from these estimates under different assumptions regarding the application of tax law.
See Note 3Summary
of Significant Accounting Policies, to our unaudited condensed consolidated financial statements in Part II, Item 8 of our Annual Report on Form 10-K for additional information regarding our significant accounting policies.
RECENT ACCOUNTING PRONOUNCEMENTS
See
Note 1Organization and Basis of Presentation, to our consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information regarding recent accounting pronouncements.
OUR ORGANIZATIONAL STRUCTURE
Stock Ownership
As of September 30, 2016, there were 243,311,508 shares of our Class A common stock outstanding, of which 14,850,946 shares were held by Cantor
and CFGM, Cantors managing general partner. Each share of Class A common stock is entitled to one vote on matters submitted to a vote of our stockholders.
In addition, as of September 30, 2016, Cantor and CFGM held 34,848,107 shares of our Class B common stock (which represents all of the
outstanding shares of our Class B common stock), representing, together with our Class A common stock held by Cantor and CFGM, approximately 61.4% of our voting power on such date. Each share of Class B common stock is generally entitled to the same
rights as a share of Class A common stock, except that, on matters submitted to a vote of our stockholders, each share of Class B common stock is entitled to ten votes. The Class B common stock generally votes together with the Class A common stock
on all matters submitted to a vote of our stockholders.
Through September 30, 2016, Cantor has distributed to its current and former
partners an aggregate of 20,785,974 shares of Class A common stock, consisting of (i) 19,333,660 shares to satisfy certain of Cantors deferred stock distribution obligations provided to such partners on April 1, 2008 (the April 2008
distribution rights shares), and (ii) 1,452,314 shares to satisfy certain of Cantors deferred stock distribution obligations provided to such partners on February 14, 2012 in connection with Cantors payment of previous quarterly
partnership distributions (the February 2012 distribution rights shares). As of September 30, 2016, Cantor is still obligated to distribute to its current and former partners an aggregate of 15,820,997 shares of Class A common stock,
consisting of 14,038,084 April 2008 distribution rights shares and 1,782,913 February 2012 distribution rights shares.
From time to time,
we may actively continue to repurchase shares of our Class A common stock, including from Cantor, our executive officers, other employees, partners and others.
Partnership Structure
We are a holding
company, and our business is operated through two operating partnerships, BGC U.S., which holds our U.S. businesses, and BGC Global, which holds our non-U.S. businesses. The limited partnership interests of the two operating partnerships are held by
us and BGC Holdings, and the limited partnership interests of BGC Holdings are currently held by limited partnership unit holders, founding partners, and Cantor. We hold the BGC Holdings general partnership interest and the BGC Holdings special
voting limited partnership interest, which entitle us to remove and appoint the general partner of BGC Holdings, and serve as the general partner of BGC Holdings, which entitles us to control BGC Holdings. BGC Holdings, in turn, holds the BGC U.S.
general partnership interest and the BGC U.S. special voting limited partnership interest, which entitle the holder thereof to remove and appoint the general partner of BGC U.S., and the BGC Global general partnership interest and the BGC Global
special voting limited partnership interest, which entitle the holder thereof to remove and appoint the general partner of BGC Global, and serves as the general partner of BGC U.S. and BGC Global, all of which entitle BGC Holdings (and thereby us)
to control each of BGC U.S. and BGC Global. BGC Holdings holds its BGC Global general partnership interest through a company incorporated in the Cayman Islands, BGC Global Holdings GP Limited.
As of September 30, 2016, we held directly and indirectly, through wholly owned subsidiaries, BGC U.S. limited partnership interests and BGC
Global limited partnership interests consisting of 278,159,615 units and 278,159,615 units, representing approximately 66.2% and 66.2% of the outstanding BGC U.S. limited partnership interests and BGC Global limited partnership interests,
respectively. As of that date, BGC Holdings held BGC U.S. limited partnership interests and BGC Global limited partnership interests consisting of 142,128,987 units and 142,128,987 units, representing approximately 33.8% and 33.8% of the outstanding
BGC U.S. limited partnership interests and BGC Global limited partnership interests, respectively.
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Limited partnership unit holders, founding partners, and Cantor directly hold BGC Holdings
limited partnership interests. Since BGC Holdings in turn holds BGC U.S. limited partnership interests and BGC Global limited partnership interests, limited partnership unit holders, founding partners, and Cantor indirectly have interests in BGC
U.S. limited partnership interests and BGC Global limited partnership interests.
As of September 30, 2016, excluding Preferred Units and
NPSUs described below, outstanding BGC Holdings partnership interests included 77,105,951 limited partnership units, 14,464,622 founding partner units and 50,558,414 Cantor units.
We may in the future effect additional redemptions of BGC Holdings limited partnership units and founding partner units for shares of our
Class A common stock. We may also continue our earlier partnership restructuring programs, whereby we redeemed or repurchased certain limited partnership units and founding partner units in exchange for new units, grants of exchangeability for Class
A common stock or cash and, in many cases, obtained modifications or extensions of partners employment arrangements. We also generally expect to continue to grant exchange rights with respect to outstanding non-exchangeable limited partnership
units and founding partner units, and to repurchase BGC Holdings partnership interests from time to time, including from Cantor, our executive officers, and other employees and partners, unrelated to our partnership restructuring programs.
Cantor units are currently exchangeable with us for up to 34,649,693 shares of our Class B common stock (or, at Cantors option or if
there are no such additional shares of our Class B common stock, our Class A common stock) on a one-for-one basis (subject to customary anti-dilution adjustments). Upon certain circumstances, Cantor may have the right to acquire additional Cantor
units in connection with the redemption of or grant of exchangeability to certain non-exchangeable founding partner units owned by persons who were previously Cantor partners prior to the separation. On November 4, 2015, the Company issued exchange
rights with respect to, and Cantor purchased, in transactions exempt from registration pursuant to Section 4(a)(2) of the Securities Act, an aggregate of 1,775,481 exchangeable limited partnership units in BGC Holdings, as follows: In connection
with the redemption by BGC Holdings of an aggregate of 588,356 non-exchangeable founding partner units from founding partners of BGC Holdings for an aggregate consideration of $2,296,801, Cantor purchased 554,196 exchangeable limited partnership
units from BGC Holdings for an aggregate of $2,115,306 (after offset of a founding partners $46,289 debt due to Cantor). In addition, pursuant to the Sixth Amendment, on November 4, 2015, Cantor purchased 1,221,285 exchangeable limited
partnership units from BGC Holdings for an aggregate consideration of $4,457,436 in connection with the grant of exchangeability and exchange of 1,221,285 founding partner units. Exchangeable limited partnership units held by Cantor are exchangeable
by Cantor at any time on a one-for-one basis (subject to adjustment) for shares of Class A common stock of the Company.
As of September
30, 2016, there were 1,166,503 founding partner units with respect to which Cantor had the right to acquire an equivalent number of Cantor units.
On November 6, 2013, partners of BGC Holdings approved the Ninth Amendment to the Agreement of Limited Partnership of the Partnership (the
Ninth Amendment) effective as of July 1, 2013.
In order to facilitate partner compensation and for other corporate purposes,
the Ninth Amendment created new preferred partnership units (Preferred Units), which are working partner units that may be awarded to holders of, or contemporaneous with the grant of, PSUs, PSIs, PSEs, LPUs, APSUs, APSIs, APSEs, REUs,
RPUs, AREUs, and ARPUs. These new Preferred Units carry the same name as the underlying unit, with the insertion of an additional P to designate them as Preferred Units.
Such Preferred Units may not be made exchangeable into our Class A common stock and accordingly are not included in the fully diluted share
count. Each quarter, the net profits of BGC Holdings are allocated to such Units at a rate of either 0.6875% (which is 2.75% per calendar year) of the allocation amount assigned to them based on their award price, or such other amount as set forth
in the award documentation (the Preferred Distribution), before calculation and distribution of the quarterly Partnership distribution for the remaining Partnership units. The Preferred Units are not entitled to participate in
Partnership distributions other than with respect to the Preferred Distribution. As of September 30, 2016, there were 15,344,386 such units granted and outstanding. The Ninth Amendment was approved by the Audit Committee of the Board of Directors
and by the full Board.
On May 9, 2014, partners of BGC Holdings approved the Tenth Amendment to the Agreement of Limited Partnership of
BGC Holdings effective as of May 9, 2014. In order to facilitate partner compensation and for other corporate purposes, the Tenth Amendment created a new class of partnership units (NPSUs), which are working partner units. For more information, see
Note 13Related Party Transactions to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
On June 5, 2015, the Company entered into an agreement with Cantor providing Cantor, CF Group Management, Inc. (CFGM) and other
Cantor affiliates entitled to hold Class B common stock the right to exchange from time to time, on a one-to-one basis, subject to adjustment, up to an aggregate of 34,649,693 shares of Class A common stock now owned or subsequently acquired by such
Cantor entities for up to an aggregate of 34,649,693 shares of Class B common stock. Such shares of Class B common stock, which currently can
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be acquired upon the exchange of exchangeable limited partnership units owned in BGC Holdings, are already included in the Companys fully diluted share count and will not increase
Cantors current maximum potential voting power in the common equity. The exchange agreement will enable the Cantor entities to acquire the same number of shares of Class B common stock that they are already entitled to acquire without having
to exchange their exchangeable limited partnership units in BGC Holdings. The Companys Audit Committee and full Board of Directors determined that it was in the best interests of the Company and its stockholders to approve the exchange
agreement because it will help ensure that Cantor retains its exchangeable limited partnership units in BGC Holdings, which is the same partnership in which the Companys partner employees participate, thus continuing to align the interests of
Cantor with those of the partner employees.
Under the exchange agreement, Cantor and CFGM have the right to exchange 14,850,946 shares of
Class A common stock owned by them as of September 30, 2016 (including the remaining shares of Class A common stock held by Cantor from the exchange of convertible notes for 24,042,599 shares of Class A common stock on April 13, 2015) for the same
number of shares of Class B common stock. Cantor would also have the right to exchange any shares of Class A common stock subsequently acquired by it for shares of Class B common stock, up to 34,649,693 shares of Class B common stock.
The Company and Cantor have agreed that any shares of Class B common stock issued in connection with the exchange agreement would be deducted
from the aggregate number of shares of Class B common stock that may be issued to the Cantor entities upon exchange of exchangeable limited partnership units in BGC Holdings. Accordingly, the Cantor entities will not be entitled to receive any more
shares of Class B common stock under this agreement than they were previously eligible to receive upon exchange of exchangeable limited partnership units.
On November 4, 2015, partners of BGC Holdings approved the Eleventh Amendment to the Agreement of Limited Partnership of BGC Holdings (the
Eleventh Amendment) effective as of October 1, 2015. In order to facilitate partner compensation and for other corporate purposes, the Eleventh Amendment created five new classes of non-distributing partnership units. These new N Units
carry the same name as the underlying unit with the insertion of an additional N to designate them as the N Unit type and are designated as NREUs, NPREUs, NLPUs, NPLPUs and NPPSUs. The N Units are not entitled to participate in
partnership distributions, will not be allocated any items of profit or loss and may not be made exchangeable into shares of the Companys Class A common stock. Subject to the approval of the Compensation Committee or its designee, certain
N Units may be converted into the underlying unit type (i.e. an NREU will be converted into an REU) and will then participate in partnership distributions, subject to terms and conditions determined by the general partner of BGC Holdings in its
sole discretion, including that the recipient continue to provide substantial services to the Company and comply with his or her partnership obligations. The Eleventh Amendment was approved by the Audit Committee of the Board of Directors and
by the full Board of Directors.
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The following diagram illustrates our organizational structure as of September 30, 2016. The
diagram does not reflect the various subsidiaries of BGC, BGC U.S., BGC Global, BGC Holdings or Cantor, or the noncontrolling interests in our consolidated subsidiaries other than Cantors units in BGC Holdings.*
*
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Shares of our Class B common stock are convertible into shares of our Class A common stock at any time in the discretion of the holder on a one-for-one basis. Accordingly, if Cantor converted all of its Class B common
stock into Class A common stock, Cantor would hold 17.9% of the voting power, and the public stockholders would hold 82.1% of the voting power (and Cantors indirect economic interests in BGC U.S. and BGC Global would remain unchanged). For
purposes of the diagram, Cantors percentage ownership also includes CFGMs percentage ownership. The diagram does not reflect certain Class A common stock and BGC Holdings partnership units as follows: (a) any shares of Class A common
stock that may become issuable upon the conversion or exchange of any convertible or exchangeable debt securities that may in the future be sold under our shelf Registration Statement on Form S-3 (Registration No. 333-180331); (b) 15,344,386
Preferred Units granted and outstanding to BGC Holdings partners (see Partnership Structure herein); and (c) 15,277,854 N Units granted and outstanding to BGC Holdings partners.
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The diagram reflects Class A common stock and BGC Holdings partnership unit activity from January
1, 2016 through September 30, 2016 as follows: (a) 23,481,192 shares of Class A common stock issued on January 12, 2016 to the stockholders of JPI in the Back-End Mergers, which shares have been registered for resale pursuant to our shelf
Registration Statement on Form S-3 (Registration No. 333-208967); (b) an aggregate of 22,846,858 limited partnership units granted by BGC Holdings; (c) 9,326,182 shares of Class A common stock repurchased by us, which includes 5,000,000 shares of
Class A common stock that we repurchased from Cantor on February 23, 2016 and 970,639 shares of Class A common stock that Cantor donated to The Cantor Fitzgerald Relief Fund on February 23, 2016, and that we repurchased from The Cantor Fitzgerald
Relief Fund on February 23, 2016; (d) 5,963,783 shares of Class A common stock sold by us under the November 2014 sales agreement pursuant to our Registration Statement on Form S-3 (Registration No. 333-200415), but not the 7,580,194 shares
remaining for sale by us under such sales agreement; (e) 1,810,049 forfeited limited partnership units; (f) 1,372,952 shares issued by us under our acquisition shelf Registration Statement on Form S-4 (Registration No. 333-169232), but not the
10,878,992 shares remaining available for issuance by us under such Registration Statement; (g) 708,442 limited partnership and founding partner units redeemed or repurchased by us for cash; (h) 569,344 shares of Class A common stock issued for
vested restricted stock units; (i) 193,519 shares of restricted Class A common stock issued upon conversion of 193,519 limited partnership interests; (j) 93,892 shares sold by selling stockholders under our resale shelf Registration Statement on
Form S-3 (Registration No. 333-175034), but not the 1,184,587 shares remaining available for sale by selling stockholders under such Registration Statement; (k) 59,317 forfeited shares of restricted Class A common stock; (l) 38,288 shares issued by
us under our Dividend Reinvestment and Stock Purchase Plan shelf Registration Statement on Form S-3 (Registration No. 333-173109), but not the 9,729,504 shares remaining available for issuance by us under shelf Registration Statement on Form S-3
(Registration No. 333-196999); (m) 36,405 shares of Class A common stock purchased by Mr. Lutnicks retirement plan; and (n) 4,219 shares sold by selling stockholders under our resale shelf Registration Statement on Form S-3 (Registration No.
333-167953), but not the 170,978 shares remaining available for sale by selling stockholders under such Registration Statement.