NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
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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 the Companys financial service brands, including
BGC
®
, GFI
®
, Sunrise
TM
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 the Companys electronic brands including FENICS
®
, BGC Trader
, BGC Market
Data, Capitalab
®
and Lucera
®
, BGC Partners offers fully electronic brokerage, financial technology solutions, market data, post-trade
services and analytics related to financial instruments and markets.
Newmark Grubb Knight Frank (which may be referred to as
Newmark, or NGKF) is the Companys leading commercial real estate services business. Newmark offers commercial real estate tenants, owner-occupiers, investors and developers a wide range of services, including leasing
and corporate advisory, investment sales and real estate finance, consulting, appraisal and valuation, project management and property and facility 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 more than 100 offices globally in major markets including New York and London, as well as in Atlanta, Beijing, Bogotá, Boston, Buenos
Aires, Charlotte, Chicago, Copenhagen, Dallas, Denver, Dubai, Dublin, Geneva, Hong Kong, Houston, Istanbul, Johannesburg, Los Angeles, Madrid, Mexico City, Miami, Moscow, Nyon, Paris, Philadelphia, Rio de Janeiro, San Francisco, Santa Clara,
Santiago, São Paulo, Seoul, Shanghai, Singapore, Sydney, Tel Aviv, Tokyo, Toronto, and Washington, D.C.
Basis of
Presentation
The Companys 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 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.
139
During the year ended December 31, 2016, the Company changed the line item formerly known as
Market data and software solutions to Data, software and post-trade in the Companys consolidated statements of operations. Reclassifications have been made to previously reported amounts to conform to the current
presentation.
On November 4, 2016, the Company acquired from Cantor the 80% of the Lucera business (also known as LFI
Holdings, LLC or LFI) not already owned by the Company. Lucera is a technology infrastructure provider tailored to the financial sector headquartered in New York. This transaction has been determined to be a combination of entities
under common control that resulted in a change in the reporting entity. Accordingly, the financial results of the Company have been retrospectively adjusted to include the financial results of Lucera in the current and prior periods as if Lucera had
always been consolidated.
The following tables summarize the impact of the transaction to the Companys consolidated statement of
financial condition as of December 31, 2015 and to the Companys consolidated statements of operations for the years ended December 31, 2015 and 2014 (in thousands, except per share amounts):
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|
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|
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|
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December 31, 2015
|
|
|
|
As
Previously
Reported
|
|
|
Retrospective
Adjustments
|
|
|
As
Retrospectively
Adjusted
|
|
Total assets
|
|
$
|
3,991,454
|
|
|
$
|
(8,817
|
)
|
|
$
|
3,982,637
|
|
Total liabilities
|
|
|
2,691,739
|
|
|
|
1,819
|
|
|
|
2,693,558
|
|
Total equity
|
|
|
1,242,570
|
|
|
|
(10,636
|
)
|
|
|
1,231,934
|
|
Total liabilities, redeemable partnership interest, and equity
|
|
|
3,991,454
|
|
|
|
(8,817
|
)
|
|
|
3,982,637
|
|
|
|
|
|
|
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Year Ended December 31, 2015
|
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Year Ended December 31, 2014
|
|
|
|
As Previously
Reported
|
|
|
Retrospective
Adjustments
|
|
|
As
Retrospectively
Adjusted
|
|
|
As Previously
Reported
|
|
|
Retrospective
Adjustments
|
|
|
As
Retrospectively
Adjusted
|
|
Income (loss) from operations before income taxes
|
|
$
|
388,814
|
|
|
$
|
(8,203
|
)
|
|
$
|
380,611
|
|
|
$
|
(3,188
|
)
|
|
$
|
(10,574
|
)
|
|
$
|
(13,762
|
)
|
Consolidated net income (loss)
|
|
|
268,318
|
|
|
|
(8,203
|
)
|
|
|
260,115
|
|
|
|
(3,839
|
)
|
|
|
(10,574
|
)
|
|
|
(14,413
|
)
|
Net income (loss) attributable to noncontrolling interest in subsidiaries
|
|
|
141,530
|
|
|
|
(2,733
|
)
|
|
|
138,797
|
|
|
|
(7,974
|
)
|
|
|
(3,389
|
)
|
|
|
(11,363
|
)
|
Net income (loss) available to common stockholders
|
|
|
126,788
|
|
|
|
(5,470
|
)
|
|
|
121,318
|
|
|
|
4,135
|
|
|
|
(7,185
|
)
|
|
|
(3,050
|
)
|
Basic earnings (loss) per share
|
|
|
0.52
|
|
|
|
(0.02
|
)
|
|
|
0.50
|
|
|
|
0.02
|
|
|
|
(0.03
|
)
|
|
|
(0.01
|
)
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Diluted earnings (loss) per share
|
|
|
0.50
|
|
|
|
(0.02
|
)
|
|
|
0.48
|
|
|
|
0.02
|
|
|
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(0.03
|
)
|
|
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(0.01
|
)
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Additionally, the consolidated statements of comprehensive income (loss), consolidated statements of cash
flows and consolidated statements of changes in equity have been adjusted to reflect these retrospective adjustments.
The consolidated
financial statements contain all normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the consolidated statements of financial condition, the consolidated statements of operations, the
consolidated statements of comprehensive income (loss), the consolidated statements of cash flows and the consolidated statements of changes in equity of the Company for the periods presented.
Recently Adopted Accounting Pronouncements
In April 2014, the Financial Accounting Standards Board (FASB) issued ASU
No. 2014-08,
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which amends the requirements for reporting discontinued operations in ASC
205-20.
The ASU includes changes in the
criteria and required disclosures for disposals qualifying as discontinued operations, as well as additional required disclosures for disposals not considered discontinued operations. The amendments in this update were effective for the annual
period beginning on January 1, 2015 for the Company. The adoption of this FASB guidance did not have a material impact on the Companys consolidated financial statements.
140
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 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 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
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. This guidance was effective for the annual period ending after December 15, 2016. The adoption of this FASB guidance did not impact the Companys
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 overall impact that ASU
2014-09
will have on the Companys financial statements, as well as the method of adoption. The Company currently believes that the most
significant impact of this standard on its accounting will be in its Real Estate Services segment, where revenue recognition is currently deferred when future contingencies exist. Based on the Companys preliminary assessment, the adoption of
the new revenue recognition standard may accelerate the timing of revenue recognition where future contingencies exist. The Company is continuing to assess the impact the adoption of this guidance will have on its financial position, results of
operations and cash flows.
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 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. 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 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 January 1, 2017, and early adoption is permitted. The adoption of this FASB guidance will not have a material impact on the
Companys consolidated financial statements.
141
In June 2016, the FASB issued ASU
No. 2016-13,
Financial InstrumentsCredit Losses (Topic 326)Measurement of Credit Losses on Financial Instruments, which requires financial assets that are measured at amortized cost to be presented, net of an allowance for credit losses, at the
amount expected to be collected over their estimated life. Expected credit losses for newly recognized financial assets, as well as changes to credit losses during the period, are recognized in earnings. For certain purchased financial assets with
deterioration in credit quality since origination, the initial allowance for expected credit losses will be recorded as an increase to the purchase price. Expected credit losses, including losses on
off-balance-sheet
exposures such as lending commitments, will be measured based on historical experience, current conditions and forecasts that affect the collectability of the reported amount. The new
standard will become effective for the Company beginning January 1, 2020, under a modified retrospective approach, and early adoption is permitted. Management is currently evaluating the impact of the new guidance on the Companys
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 January 1, 2018 and will require adoption on a retrospective basis. The adoption of this FASB guidance will not have a material impact on the Companys consolidated financial statements.
In November 2016, the FASB issued ASU
No. 2016-18,
Statement of Cash Flows (Topic
230)Restricted Cash, which requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. The new
standard will become effective for the Company beginning January 1, 2018 and will require adoption on a retrospective basis. The adoption of this FASB guidance will not have a material impact on the Companys consolidated financial
statements.
In January 2017, the FASB issued ASU
No. 2017-04,
IntangiblesGoodwill and
Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment. Under the amendments in the new
ASU, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting units fair
value. The new standard will become effective for the Company beginning January 1, 2020 and will be applied on a prospective basis, and early adoption is permitted. The adoption of this FASB guidance is not expected to have a material impact on
the Companys consolidated financial statements.
2.
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Limited Partnership Interests in BGC Holdings
|
The Company is a holding company with no
direct operations and conducts substantially all of its operations through its operating subsidiaries. Virtually all of the Companys consolidated net assets and net income are those of consolidated variable interest entities. 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 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 consolidated statements of operations.
142
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
consolidated statements of operations. From time to time, the Company issues limited partnership units as part of the consideration for acquisitions.
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 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 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 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 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 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 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.
3.
|
Summary of Significant Accounting Policies
|
Use of Estimates:
The preparation of the Companys 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 these consolidated financial statements. Management believes that the estimates utilized in
preparing these consolidated financial statements are reasonable. Estimates, by their nature, are based on judgment and available information. Actual results could differ materially from the estimates included in the Companys consolidated
financial statements. Certain reclassifications have been made to previously reported amounts to conform to the current presentation.
143
Revenue Recognition:
BGC Partners derives its 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 from certain information products, fees for the provision of certain software solutions and other revenues.
Commissions:
BGC
Partners derives its commission revenue from securities, commodities and real estate brokerage transactions. Commission revenues from securities and commodities agency brokerage transactions, whereby the Company connects buyers and sellers in the
OTC and exchange markets and assists in the negotiation of the price and other material terms of transactions, are recognized on a trade-date basis along with related expenses. Commissions are recognized when earned. With respect to real estate
commissions, the existence of future contingencies, if any, results in the postponement of revenue recognition until the contingencies are satisfied.
Principal Transactions:
Principal transaction revenues are primarily derived from matched principal transactions, whereby the Company simultaneously agrees to buy
securities from one customer and sell them to another customer. A very limited number of trading businesses are allowed to enter into unmatched principal transactions to facilitate a customers execution needs for transactions initiated by such
customers. Revenues earned from principal transactions represent the spread between the buy and sell price of the brokered security, commodity or derivative. Principal transaction revenues and related expenses are recognized on a trade-date basis.
Positions held as part of a principal transaction are
marked-to-market
on a daily basis.
Real Estate Management Services:
Real estate management services revenues include property management, facilities management and project management. Management fees are
recognized at the time the related services have been performed, unless future contingencies exist. In addition, with regard to management and facility service contracts, the owner of the property will typically reimburse the Company for certain
expenses that are incurred on behalf of the owner, which are comprised primarily of
on-site
employee salaries and related benefit costs. The amounts that are to be reimbursed per the terms of the services
contract are recognized as revenue in the same period as the related expenses are incurred. In certain instances, the Company subcontracts property management services to independent property managers, in which case the Company passes a portion of
their property management fee on to the subcontractor, and the Company retains the balance. Accordingly, the Company records these fees net of the amounts paid to subcontractors.
Fees from Related Parties:
Fees from related parties consist of charges for back-office services provided to Cantor and its affiliates, including occupancy of office
space, utilization of fixed assets, accounting, operations, human resources and legal services and information technology. Revenues are recognized as earned on an accrual basis.
Data, Software and Post-trade:
Data revenues primarily consist of subscription fees and fees from customized
one-time
sales provided
to customers either directly or through third-party vendors. Data revenues are recognized ratably over the contract term, except for revenues derived from customized
one-time
sales, which are recognized as
services are rendered.
Through the Companys software solutions business, the Company receives fees for providing customized
software to broaden distribution capabilities and provide electronic solutions to financial market participants. Such fees are recognized as income ratably over the license period.
Other Revenues:
Other revenues are earned from various sources including litigation settlements and insurance recoveries.
Other Income (Losses), Net
Gain
(Loss) on Divestiture and Sale of Investments:
Gain (loss) on divestiture and sale of investments is comprised of gains or losses
recorded in connection with the divestiture of certain businesses or sale of investments (see Note 5Divestitures).
144
Gains (Losses) on Equity Method Investments:
Gains (losses) on equity method investments represent the Companys pro rata share of the net gains or losses on investments over which
the Company has significant influence but which it does not control.
Other Income (Loss):
Other income (loss) is comprised of gains or losses associated with the
earn-out
shares related to the
Nasdaq transaction and the movements related to the
mark-to-market
and/or hedges on marketable securities that are classified as trading securities (see Note
5Divestitures).
Segments:
The Company divides its business into segments in accordance with the accounting guidance for segment reporting. The Companys operations
consist of two reportable segments, Financial Services and Real Estate Services.
Cash and Cash Equivalents:
The Company considers all highly liquid investments with maturities of 90 days or less at the date of acquisition that are not segregated under
regulatory requirements, other than those used for trading purposes, to be cash equivalents. Cash and cash equivalents include money market funds, deposits with banks, certificates of deposit, commercial paper, and treasury securities.
Cash Segregated Under Regulatory Requirements:
Cash segregated under regulatory requirements represents funds received in connection with customer activities that the Company is obligated to
segregate or set aside to comply with regulations mandated by authorities such as the SEC and the Financial Industry Regulatory Authority in the U.S. (FINRA) and the Financial Conduct Authority (FCA) in the United Kingdom
(U.K.) that have been promulgated to protect customer assets.
Reverse Repurchase Agreements:
Securities purchased under agreements to resell (reverse repurchase agreements) are accounted for as collateralized financing
transactions and are recorded at the contractual amount for which the securities will be resold, including accrued interest. It is the policy of the Company to obtain possession of collateral with a market value equal to or in excess of the
principal amount loaned under reverse repurchase agreements. Collateral is valued daily and the Company may require counterparties to deposit additional collateral or return collateral pledged when appropriate.
Securities Owned:
Securities owned
primarily consist of unencumbered U.S. Treasury bills held for liquidity purposes. Securities owned are classified as trading and
marked-to-market
daily based on current
listed market prices (or, when applicable, broker quotes), with the resulting gains and losses included in operating income in the current period. Unrealized and realized gains and losses from securities owned are included as part of Principal
transactions in the Companys consolidated statements of operations.
Fair Value:
The FASB issued guidance that defines fair value as the price received to transfer an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date and further expands disclosures about such fair value measurements.
The
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 measurements Unadjusted quoted prices in active markets that are accessible at the measurement date for identical,
unrestricted assets or liabilities.
Level 2 measurements Quoted prices in markets that are not active or financial
instruments for which all significant inputs are observable, either directly or indirectly.
Level 3 measurements Prices or
valuations that require inputs that are both significant to the fair value measurement and unobservable.
145
A financial instruments level within the fair value hierarchy is based on the lowest level
of any input that is significant to the fair value measurement.
In determining fair value, the Company separates financial instruments
owned and financial instruments sold, but not yet purchased into two categories: cash instruments and derivative contracts.
Cash
Instruments Cash instruments are generally classified within Level 1 or Level 2. The types of instruments generally classified within Level 1 include most U.S. government securities, certain sovereign government obligations,
and active listed equities. The Company does not adjust the quoted price for such instruments. The types of instruments generally classified within Level 2 include agency securities, most investment-grade and high-yield corporate bonds, certain
sovereign government obligations, money market securities, and less liquid listed equities, state, municipal and provincial obligations.
Derivative Contracts 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 the closing price of the exchange-traded derivatives. 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.
See Note 13 Fair Value of Financial Assets and Liabilities, for more information on the fair
value of financial assets and liabilities.
Marketable Securities:
Marketable securities are comprised of securities held for investment purposes and are accounted for in accordance with FASB guidance,
Accounting for Certain Investments in Debt and Equity Securities. Certain of the Companys investment securities are classified as
available-for-sale
and
accordingly reported at fair value. Unrealized gains and losses on marketable securities classified as
available-for-sale
are included as part of Accumulated other
comprehensive income (loss) in the Companys consolidated statements of financial condition. When the fair value of an
available-for-sale
security is lower
than its cost, the Company evaluates the security to determine whether the impairment is considered other-than-temporary. If the impairment is considered other-than-temporary, the Company records an impairment charge in the
Companys consolidated statements of operations. Certain Marketable securities are classified as trading securities and accordingly are measured at fair value with any changes in fair value recognized currently in earnings and included in
Other income (loss) in the Companys consolidated statements of operations.
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 principal transactions for which the stated settlement dates have not yet been reached and principal transactions which have not settled as of their stated settlement dates, cash held at
clearing organizations and exchanges to facilitate settlement and clearance of matched principal transactions, and spreads on matched principal transactions that have not yet been remitted from/to clearing organizations and exchanges. Also included
are amounts related to open derivative contracts, which are generally executed on behalf of the Companys customers. A portion of the unsettled principal transactions and open derivative contracts that constitute receivables from and payables
to broker-dealers, clearing organizations, customers and related broker-dealers are with related parties (see Note 14 Related Party Transactions, for more information regarding these receivables and payables).
Accrued Commissions Receivable, Net:
The
Company has accrued commissions receivable from securities, commodities and real estate brokerage transactions. Accrued commissions receivable are presented net of allowance for doubtful accounts of approximately $16.3 million and
$21.5 million as of December 31, 2016 and 2015, respectively. The allowance is based on managements estimate and is reviewed periodically based on the facts and circumstances of each outstanding receivable.
Loans, Forgivable Loans, and Other Receivables from Employees and Partners, Net:
The Company has entered into various agreements with certain of its employees and partners whereby these individuals receive loans which may be
either wholly or in part repaid from the distribution earnings that the individual receives 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. The Company reviews the loan balances each reporting period for collectability. If the Company determines that the collectability of a portion of the loan balances is not expected, the Company
recognizes a reserve against the loan balances.
146
Fixed Assets, Net:
Fixed assets are carried at cost net of accumulated depreciation and amortization. Depreciation is calculated on a straight-line basis over the
estimated useful lives of the assets. Internal and external direct costs of developing applications and obtaining software for internal use are capitalized and amortized over three years on a straight-line basis. Computer equipment is depreciated
over three to five years. Leasehold improvements are depreciated over the shorter of their estimated economic useful lives or the remaining lease term. Routine repairs and maintenance are expensed as incurred. When fixed assets are retired or
otherwise disposed of, the related gain or loss is included in operating income. The Company has asset retirement obligations related to certain of its leasehold improvements, which it accounts for using the FASB guidance, Accounting for Asset
Retirement Obligations, which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. 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.
Investments:
The Companys
investments in which it has a significant influence but not a controlling interest and of which it is not the primary beneficiary are accounted for under the equity method. The Companys consolidated financial statements include the accounts of
the Company and its wholly-owned and majority-owned subsidiaries. The Companys policy is to consolidate all entities of which it owns more than 50% unless it does not have control over the entity. In accordance with FASB guidance,
Consolidation of Variable Interest Entities, the Company also consolidates any variable interest entities (VIEs) of which it is the primary beneficiary.
Long-Lived Assets:
The Company
periodically evaluates potential impairment of long-lived assets and amortizable intangibles, when a change in circumstances occurs, by applying the concepts of FASB guidance, Accounting for the Impairment or Disposal of Long-Lived Assets, and
assessing whether the unamortized carrying amount can be recovered over the remaining life through undiscounted future expected cash flows generated by the underlying assets. If the undiscounted future cash flows were less than the carrying value of
the asset, an impairment charge would be recorded. The impairment charge would be measured as the excess of the carrying value of the asset over the present value of estimated expected future cash flows using a discount rate commensurate with the
risks involved.
Goodwill and Other Intangible Assets, Net:
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 and other indefinite-lived intangible assets are not amortized, but instead are periodically tested for impairment. The Company reviews goodwill and other indefinite-lived intangible
assets 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, the Company first assesses 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. The Company performed impairment evaluations for the years ended
December 31, 2016, 2015 and 2014 and concluded that there was no impairment of its goodwill or indefinite-lived intangible assets.
Intangible assets with definite lives are amortized on a straight-line basis over their estimated useful lives. Definite-lived intangible
assets arising from business combinations include customer relationships, internally developed software, covenants not to compete and trademarks. Also included in the definite-lived intangible assets are purchased patents. The costs of acquired
patents are amortized over a period not to exceed the legal life or the remaining useful life of the patent, whichever is shorter, using the straight-line method.
Income Taxes:
The Company accounts 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 differences between the consolidated
financial statement carrying amounts of existing assets and liabilities and their respective tax basis. 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 2 Limited 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 the Companys consolidated financial statements. The
tax-related
assets,
liabilities, provisions or benefits included in the Companys 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, the Company provides for uncertain tax
147
positions based upon managements assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. The Company recognizes interest and
penalties related to income tax matters in Interest expense and Other expenses, respectively, in the Companys consolidated statements of operations.
The Company files income tax returns in the United States federal jurisdiction and various states, local and foreign jurisdictions. The
Company is currently open to examination by tax authorities for tax years beginning 2008 in United States federal, state and local jurisdictions and certain
non-U.S.
jurisdictions.
Equity-Based and Other Compensation:
The
Company accounts for equity-based compensation under the fair value recognition provisions of the FASB guidance. Equity-based compensation expense recognized during the period is based on the value of the portion of equity-based payment awards that
is ultimately expected to vest. The grant-date fair value of equity-based awards is amortized to expense ratably over the awards vesting periods. As equity-based compensation expense recognized in the Companys consolidated statements of
operations is based on awards ultimately expected to vest, it has been reviewed for estimated forfeitures. Further, 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.
Restricted Stock Units:
Restricted stock units (RSUs) provided to certain employees by the Company are accounted for as equity awards, and as per FASB
guidance, the Company is required to record an expense for the portion of the RSUs that is ultimately expected to vest. The grant-date fair value of RSUs is amortized to expense ratably over the awards vesting periods. The amortization is
reflected as
non-cash
equity-based compensation expense in the Companys consolidated statements of operations.
Restricted Stock:
Restricted stock provided to certain employees by the Company is accounted for as an equity award, and as per FASB guidance, the Company is
required to record an expense for the portion of the restricted stock that is ultimately expected to vest. The Company has granted restricted stock that is fully vested and 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. 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 the Companys consolidated statements of operations.
Limited Partnership Units:
Limited partnership units in BGC Holdings generally are held by employees and 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. 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 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, which requires that the Company record an expense for such awards based on the
change in value at each reporting period and include the expense in the Companys consolidated statements of operations as part of Compensation and employee benefits. The liability for limited partnership units with a
post-termination payout amount is included in Accrued compensation on the Companys consolidated statements of financial condition.
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, the Company recognizes an expense based on the fair value of the award on that date, which is included in Allocations
of net income and grants of exchangeability to limited partnership units and FPUs in the Companys consolidated statements of operations.
The Company has also awarded 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), which is deducted before the 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. Preferred Units may not be made exchangeable into the Companys
Class A common stock and are only entitled to the Preferred 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 grants of exchangeability to limited partnership units and FPUs in the Companys consolidated statements of operations.
148
Redeemable Partnership Interest:
Redeemable partnership interest represents limited partnership interests in BGC Holdings held by founding/working partners. See Note
2Limited Partnership Interests in BGC Holdings, for additional information related to the founding/working partner units.
Contingent
Class A Common Stock:
In connection with certain acquisitions, the Company has committed to issue shares of the Companys
Class A common stock upon the achievement of certain performance targets. The contingent shares meet the criteria for equity classification and are recorded at acquisition date fair value in the Companys consolidated statements of
financial condition. The amount attributable to the Company is classified as Contingent Class A Common Stock.
The
Company has also issued limited partnership units as part of purchase consideration. These units are accounted for as either equity or liability awards in accordance with FASB guidance. Units that are accounted for as equity awards and are
contingent upon the achievement of performance targets are classified as Contingent Class A Common Stock in the Companys consolidated statements of financial condition.
Noncontrolling Interest in Subsidiaries:
Noncontrolling interest in subsidiaries represents equity interests in consolidated subsidiaries that are not attributable to the Company, such
as Cantors limited partnership interest in BGC Holdings as well as the noncontrolling interest holders proportionate share of the profit or loss associated with joint ownership of the Companys administrative services company in the
U.K. (Tower Bridge) and the Companys Real Estate affiliate entities.
Foreign Currency Transactions:
Assets and liabilities denominated in
non-U.S.
currencies are translated at rates of exchange
prevailing on the date of the Companys consolidated statements of financial condition, and revenues and expenses are translated at average rates of exchange for the period. Gains or losses on remeasurement of the financial statements of a
non-U.S.
operation, when the functional currency is the U.S. dollar, are included in the Companys consolidated statements of operations as part of Other expenses. Gains or losses upon translation
of the financial statements of a
non-U.S.
operation, when the functional currency is other than the U.S. dollar, are included within Other comprehensive income (loss), net of tax in the
Companys consolidated statements of comprehensive income and as part of Accumulated other comprehensive income (loss) in the Companys consolidated statements of financial condition.
Derivative Financial Instruments:
Derivative contracts are instruments, such as futures, forwards, options or swaps contracts that derive their value from underlying assets,
indices, reference rates or a combination of these factors. Derivative instruments may be listed and traded on an exchange, or they may be privately negotiated contracts, which are often referred to as OTC derivatives. Derivatives may involve future
commitments to purchase or sell financial instruments or commodities, or to exchange currency or interest payment streams. The amounts exchanged are based on the specific terms of the contract with reference to specified rates, securities,
commodities, currencies or indices.
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 of offset exists under an enforceable netting agreement. Derivative contracts are recorded as part of receivables from or
payables to broker-dealers, clearing organizations, customers and related broker-dealers in the Companys consolidated statements of financial condition.
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
149
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 will pay $111.2 million in cash in connection with the closing of the
Back-End
Mergers ($89.9 million has been paid as of December 31, 2016). 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 consolidated statements of operations for
the years ended December 31, 2016 and December 31, 2015 included $544.5 million and $551.5 million, respectively, related to GFI from the date of acquisition.
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
|
|
|
|
|
|
|
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 names
|
|
|
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, 2014, and as if the Company owned 100% of GFI from the date of acquisition. The unaudited pro forma
150
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 year ended December 31, 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)
|
|
|
|
|
|
|
|
|
|
|
Year Ended,
|
|
|
|
2015
|
|
|
2014
|
|
Pro forma revenues
|
|
$
|
2,743.7
|
|
|
$
|
2,662.9
|
|
Pro forma consolidated net income (loss)
|
|
$
|
258.5
|
|
|
$
|
(133.8
|
)
|
Lucera
On November 4, 2016, the Company acquired from Cantor the 80% of the Lucera business (also known as LFI Holdings, LLC or
LFI) not already owned by the Company. This transaction has been determined to be a combination of entities under common control that resulted in a change in the reporting entity. Accordingly, the financial results of the Company
have been retrospectively adjusted to include the financial results of Lucera in the current and prior periods.
The assets and
liabilities of Lucera have been recorded in the Companys consolidated statements of financial condition at the sellers historical carrying value. The excess of the purchase price over Luceras net assets was accounted for as an
equity transaction for the year ended December 31, 2016 (the period in which the transaction occurred).
Other Acquisitions
During January 2015 to March 2015, the Company completed the acquisition of certain entities of Apartment Realty Advisors
(ARA) and its members. ARA is the nations largest privately held, full service investment brokerage network, focusing exclusively on the multi-housing industry.
During May 2015, the Company completed the acquisition of Computerized Facility Integration, LLC (CFI). CFI is a premier real
estate strategic consulting and systems integration firm that provides corporate real estate, facilities management, and enterprise asset management information consulting and technology solutions.
During July 2015, the Company completed the acquisition of Excess Space. Excess Space is a full service brokerage firm that focuses its
business model around surplus real estate disposition and lease restructuring for retailers.
In December 2015, the Company completed the
acquisition of Steffner Commercial Real Estate, LLC and Cincinnati Commercial Real Estate, Inc., each a full service commercial real estate advisory practice operating in the Memphis and Cincinnati regions, respectively.
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 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.
151
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 October 18, 2016, the Company announced that it had completed the acquisition of Newmark Grubb Mexico City. Newmark Grubb Mexico City
is a tenant advisory firm in the Mexico City area.
On December 14, 2016, the Company completed the acquisition of Walchle Lear
Multifamily Advisors (Walchle Lear). Walchle Lear is a Jacksonville, Florida based multifamily company specializing in investment sales.
On December 15, 2016, the Company completed the acquisition of the business of Sunrise Brokers Group (Sunrise Brokers).
Sunrise Brokers, based in London with offices in New York and Hong Kong, is an independent financial brokerage with a leading reputation in worldwide equity derivatives.
The total consideration for acquisitions during the year ended December 31, 2016 was approximately $139.0 million in total fair
value, comprised of cash and BGC Holdings limited partnership units, of which $28.1 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 $53.4 million.
The total consideration for acquisitions during the year ended
December 31, 2015, other than GFI, was approximately $143.6 million in total fair value, comprised of cash, shares of the Companys Class A common stock and BGC Holdings limited partnership units, of which $42.0 may be issued
contingent on certain targets being met through 2018. The excess of the consideration over the fair value of the net assets acquired has been recorded as goodwill of approximately $135.2 million.
During the year ended December 31, 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 consolidated statements of operations. These reductions were performance-based.
The results of
operations of the Companys acquisitions have been included in the Companys 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 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 consolidated statements of operations. KBLs operations prior to the completion of the transaction were included in the Companys 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
152
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
consolidated statements of operations within the Financial Services segment.
During the year ended December 31, 2016, the Company
sold 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 consolidated statements of operations.
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 number of 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
102,477
|
|
|
$
|
121,318
|
|
|
$
|
(3,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average shares of common stock outstanding
|
|
|
277,073
|
|
|
|
243,460
|
|
|
|
220,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
0.37
|
|
|
$
|
0.50
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 convertible notes, if applicable (see Note 18Notes Payable, Collateralized and Short-Term Borrowings), as
the numerator. The denominator is comprised of the Companys weighted-average number of 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Fully diluted (loss) earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
102,477
|
|
|
$
|
121,318
|
|
|
$
|
(3,050
|
)
|
Allocations of net income (loss) to limited partnership interests in BGC Holdings, net of
tax
|
|
|
51,921
|
|
|
|
32,220
|
|
|
|
|
|
Interest expense on convertible notes, net of tax
|
|
|
3,297
|
|
|
|
8,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) for fully diluted shares
|
|
$
|
157,695
|
|
|
$
|
161,596
|
|
|
$
|
(3,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock outstanding
|
|
|
277,073
|
|
|
|
243,460
|
|
|
|
220,697
|
|
Limited partnership interests in BGC Holdings
|
|
|
145,650
|
|
|
|
65,582
|
|
|
|
|
|
Convertible notes
|
|
|
8,598
|
|
|
|
23,034
|
|
|
|
|
|
RSUs (Treasury stock method)
|
|
|
452
|
|
|
|
741
|
|
|
|
|
|
Other
|
|
|
1,453
|
|
|
|
2,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully diluted weighted-average shares of common stock outstanding
|
|
|
433,226
|
|
|
|
335,387
|
|
|
|
220,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully diluted earnings (loss) per share
|
|
$
|
0.36
|
|
|
$
|
0.48
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153
For the years ended December 31, 2016, 2015 and 2014, respectively, approximately
1.2 million, 65.4 million and 152.1 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 year ended
December 31, 2016 included, on a weighted-average basis, 1.2 million other securities or other contracts to issue shares of common stock. Anti-dilutive securities for the year ended December 31, 2015 included, on a weighted-average
basis, 56.8 million limited partnership interest and 8.6 million other securities or other contracts to issue shares of common stock. These 8.6 million shares represented the weighted average of the 23.5 million shares that
were to be issued for the completion of the Companys acquisition of GFI.
Additionally, as of December 31, 2016, 2015 and 2014,
respectively, approximately 5.1 million, 6.6 million and 9.0 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.
7.
|
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 years
ended December 31, 2016 and 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Shares outstanding at beginning of period
|
|
|
219,063,365
|
|
|
|
185,108,316
|
|
Share issuances:
|
|
|
|
|
|
|
|
|
Exchanges of limited partnership
interests
1
|
|
|
8,705,906
|
|
|
|
9,445,664
|
|
Issuance of Class A common stock for general corporate purposes
|
|
|
1,648,000
|
|
|
|
|
|
Vesting of restricted stock units (RSUs)
|
|
|
637,719
|
|
|
|
825,996
|
|
Acquisitions
|
|
|
25,334,451
|
|
|
|
1,199,052
|
|
Conversion of 8.75% Convertible Notes to Class A common stock
|
|
|
|
|
|
|
24,042,599
|
|
Exercise of stock options
|
|
|
76,000
|
|
|
|
84,421
|
|
Other issuances of Class A common stock
|
|
|
287,442
|
|
|
|
44,730
|
|
Treasury stock repurchases
|
|
|
(10,823,942
|
)
|
|
|
(1,416,991
|
)
|
Forfeitures of restricted Class A common stock
|
|
|
(59,317
|
)
|
|
|
(270,422
|
)
|
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period
|
|
|
244,869,624
|
|
|
|
219,063,365
|
|
|
|
|
|
|
|
|
|
|
1
|
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.
|
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 years ended December 31, 2016 and 2015. As of
December 31, 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 December 31, 2016, the Company has sold 14,043,021 shares of Class A common stock under the November 2014 Sales Agreement. For additional information, see Note 14Related Party
Transactions.
154
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 December 31, 2016, the Company had approximately $129.7 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 year ended December 31, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
October 1, 2016December 31, 2016
|
|
|
2,515,655
|
|
|
|
9.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Redemptions
|
|
|
7,539,880
|
|
|
$
|
9.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases
2
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2016March 31, 2016
|
|
|
7,187,046
|
|
|
$
|
8.72
|
|
|
|
|
|
April 1, 2016June 30, 2016
|
|
|
797,189
|
|
|
|
9.04
|
|
|
|
|
|
July 1, 2016September 30, 2016
|
|
|
1,341,947
|
|
|
|
8.90
|
|
|
|
|
|
October 1, 2016December 31, 2016
|
|
|
1,497,760
|
|
|
|
9.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Repurchases
|
|
|
10,823,942
|
|
|
$
|
8.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Redemptions and Repurchases
|
|
|
18,363,822
|
|
|
$
|
8.96
|
|
|
$
|
129,741,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
During the year ended December 31, 2016, the Company redeemed approximately 7.2 million limited partnership units at an aggregate redemption price of
approximately $65.7 million for an average price of $9.09 per unit and approximately 319.2 thousand FPUs at an aggregate redemption price of approximately $2.8 million for an average price of $8.64 per unit. During the year ended
December 31, 2015, the Company redeemed approximately 7.5 million limited partnership units at an aggregate redemption price of approximately $66.3 million for an average price of $8.86 per unit and approximately 100.0 thousand
FPUs at an aggregate redemption price of approximately $0.8 million for an average price of $8.44 per unit.
|
2
|
During the year ended December 31, 2016, the Company repurchased approximately 10.8 million shares of its Class A common stock at an aggregate purchase
price of approximately $96.0 million for an average price of $8.88 per share. During the year ended December 31, 2015, the Company repurchased approximately 1.4 million shares of its Class A common stock at an aggregate purchase
price of approximately $12.1 million for an average price of $8.55 per share.
|
The table above represents the gross
unit redemptions and share repurchases of the Companys Class A common stock during the year ended December 31, 2016. Approximately 5.9 million of the 7.5 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 12.4 million reduction in the fully diluted share
count. This net reduction cost the Company approximately $110.5 million (or $8.90 per share/unit) during the year ended December 31, 2016. This reduction partially offset the overall growth in the fully diluted share count which resulted
from shares issued for equity-based compensation, front office hires, acquisitions and general corporate purposes.
Redeemable
Partnership Interest
The changes in the carrying amount of redeemable partnership interest for the year ended December 30,
2016 and 2015 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Balance at beginning of period
|
|
$
|
57,145
|
|
|
$
|
59,501
|
|
Consolidated net income allocated to FPUs
|
|
|
7,023
|
|
|
|
5,121
|
|
Earnings distributions
|
|
|
(7,482
|
)
|
|
|
(3,227
|
)
|
FPUs exchanged
|
|
|
(3,128
|
)
|
|
|
(1,933
|
)
|
FPUs redeemed
|
|
|
(980
|
)
|
|
|
(2,470
|
)
|
Other
|
|
|
(1
|
)
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
52,577
|
|
|
$
|
57,145
|
|
|
|
|
|
|
|
|
|
|
155
Securities owned primarily consist of unencumbered U.S. Treasury bills
held for liquidity purposes. Total Securities owned were $35.4 million as of December 31, 2016 and $32.4 million as of December 31, 2015. For additional information, see Note 13Fair Value of Financial Assets and
Liabilities.
9.
|
Collateralized Transactions
|
Reverse Repurchase Agreements
Securities purchased under agreements to resell (Reverse Repurchase Agreements) are accounted for as collateralized financing
transactions and are recorded at the contractual amount for which the securities will be resold, including accrued interest.
For Reverse
Repurchase Agreements, it is the Companys policy to obtain possession of collateral with a market value equal to or in excess of the principal amount loaned under Reverse Repurchase Agreements. Collateral is valued daily and the Company may
require counterparties to deposit additional collateral or return collateral pledged when appropriate.
As of December 31, 2016,
Cantor facilitated Reverse Repurchase Agreements on behalf of the Company, and consequently the Company had $54.7 million of Reverse Repurchase Agreements outstanding with Cantor.
As of December 31, 2016, the Company had received, as collateral, U.S. Treasury or other fixed income securities with a fair value of
$54.7 million, all of which pertained to overnight Reverse Repurchase Agreements that were transacted as part of the Companys cash management strategy.
As of December 31, 2015, the Company had no Reverse Repurchase Agreements.
Securities Loaned
As of December 31, 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 consolidated statements of financial condition.
10.
|
Marketable Securities
|
Marketable securities consist of the Companys ownership of
various investments. The investments had a fair value of $164.8 million and $650.4 million as of December 31, 2016 and December 31, 2015, respectively.
As of December 31, 2016 and December 31, 2015, the Company held Marketable securities classified as trading securities with a market
value of $154.8 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
consolidated statements of operations. During the years ended December 31, 2016, 2015 and 2014, the Company recognized a net gain (realized and unrealized) of $13.9 million, $31.4 million and $8.6 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 years ended December 31, 2016, 2015 and 2014, in connection with the Nasdaq
earn-out,
the Company recognized gains of $67.0 million, $52.9 million and $42.1 million, respectively, in
Other income (loss) in the Companys consolidated statements of operations.
As of December 31, 2016 and
December 31, 2015, the Company held Marketable securities classified as
available-for-sale
with a market value of $10.0 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 consolidated statements of comprehensive income (loss). During the
years ended December 31, 2016, 2015 and 2014, the Company recognized a gain of $0.7 million, $13.9 million and $19.1 million, respectively, related to these Marketable securities classified as
available-for-sale.
In addition, for the year ended December 31, 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 consolidated statements of operations.
156
During the year ended December 31, 2016, the Company purchased Marketable securities with a
market value of $53.0 million at the time of purchase and sold Marketable securities with a market value of $516.8 million at the time of sale. The majority (or $468.5 million) of the Marketable securities sold during the year ended
December 31, 2016 was related to the shares of ICE that the Company received for the sale of Trayport in December 2015.
11.
|
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
12Derivatives). As of December 31, 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):
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Receivables from broker-dealers, clearing organizations, customers and related
broker-dealers:
|
|
|
|
|
|
|
|
|
Contract values of fails to deliver
|
|
$
|
344,962
|
|
|
$
|
692,530
|
|
Receivables from clearing organizations
|
|
|
135,175
|
|
|
|
92,915
|
|
Other receivables from broker-dealers and customers
|
|
|
13,993
|
|
|
|
18,356
|
|
Net pending trades
|
|
|
|
|
|
|
6,544
|
|
Open derivative contracts
|
|
|
3,427
|
|
|
|
1,999
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
497,557
|
|
|
$
|
812,344
|
|
|
|
|
|
|
|
|
|
|
Payables to broker-dealers, clearing organizations, customers and related broker-dealers:
|
|
|
|
|
|
|
|
|
Contract values of fails to receive
|
|
$
|
301,873
|
|
|
$
|
660,365
|
|
Payables to clearing organizations
|
|
|
22,170
|
|
|
|
30,037
|
|
Other payables to broker-dealers and customers
|
|
|
19,581
|
|
|
|
23,287
|
|
Net pending trades
|
|
|
29,962
|
|
|
|
|
|
Open derivative contracts
|
|
|
1,566
|
|
|
|
1,134
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
375,152
|
|
|
$
|
714,823
|
|
|
|
|
|
|
|
|
|
|
A portion of these receivables and payables are with Cantor. See Note 14Related 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 December 31, 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.
157
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 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 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Derivative contract
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
Futures
|
|
$
|
|
|
|
$
|
512
|
|
|
$
|
39
|
|
|
$
|
44
|
|
Interest rate swaps
|
|
|
202
|
|
|
|
|
|
|
|
256
|
|
|
|
|
|
Foreign exchange swaps
|
|
|
2,946
|
|
|
|
977
|
|
|
|
883
|
|
|
|
375
|
|
Foreign exchange/commodities options
|
|
|
244
|
|
|
|
41
|
|
|
|
|
|
|
|
537
|
|
Forwards
|
|
|
35
|
|
|
|
36
|
|
|
|
821
|
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,427
|
|
|
$
|
1,566
|
|
|
$
|
1,999
|
|
|
$
|
1,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The notional amounts of these derivative contracts at December 31, 2016 and December 31, 2015 were
$12.1 billion and $10.9 billion, respectively. At December 31, 2016, the notional amounts primarily consisted of long futures and short futures of $5.8 billion each. As of December 31, 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 $3.5 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 14Related Party Transactions, for additional information related to these transactions.
The replacement cost of contracts in a gain position at December 31, 2016 was $3.4 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 consolidated statements of operations, and the change in fair value of equity options related to the Nasdaq and ICE hedges is included as part of Other income (loss) in the
Companys consolidated statements of operations. The table below summarizes gains and losses on derivative contracts for the years ended December 31, 2016, 2015 and 2014 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Derivative contract
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Futures
|
|
$
|
8,436
|
|
|
$
|
11,261
|
|
|
$
|
|
|
Interest rate swaps
|
|
|
3
|
|
|
|
(48
|
)
|
|
|
105
|
|
Foreign exchange swaps
|
|
|
987
|
|
|
|
(72
|
)
|
|
|
(264
|
)
|
Foreign exchange/commodities options
|
|
|
13,312
|
|
|
|
6,294
|
|
|
|
|
|
Forwards
|
|
|
152
|
|
|
|
508
|
|
|
|
|
|
Equity options
|
|
|
4,551
|
|
|
|
|
|
|
|
2,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss)
|
|
$
|
27,441
|
|
|
$
|
17,943
|
|
|
$
|
1,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As described in Note 18Notes 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 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
re-measured.
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
158
transactions within Additional
paid-in
capital in the Companys 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. The
expiration of the capped call transactions had no financial statement impact.
13.
|
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 December 31, 2016 and December 31, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value at December 31, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Netting and
Collateral
|
|
|
Total
|
|
Marketable securities
|
|
$
|
164,820
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
164,820
|
|
Government debt
|
|
|
35,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,190
|
|
Securities ownedEquities
|
|
|
167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167
|
|
Forwards
|
|
|
|
|
|
|
57
|
|
|
|
|
|
|
|
(22
|
)
|
|
|
35
|
|
Foreign exchange swaps
|
|
|
|
|
|
|
3,441
|
|
|
|
|
|
|
|
(495
|
)
|
|
|
2,946
|
|
Interest rate swaps
|
|
|
|
|
|
|
231
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
202
|
|
Foreign exchange/commodities options
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
200,421
|
|
|
$
|
3,729
|
|
|
$
|
|
|
|
$
|
(546
|
)
|
|
$
|
203,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities at Fair Value at December 31, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Netting and
Collateral
|
|
|
Total
|
|
Forwards
|
|
$
|
|
|
|
$
|
58
|
|
|
$
|
|
|
|
$
|
(22
|
)
|
|
$
|
36
|
|
Foreign exchange swaps
|
|
|
|
|
|
|
1,472
|
|
|
|
|
|
|
|
(495
|
)
|
|
|
977
|
|
Futures
|
|
|
|
|
|
|
512
|
|
|
|
|
|
|
|
|
|
|
|
512
|
|
Interest rate swaps
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
|
|
Foreign exchange/commodities options
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
Contingent consideration
|
|
|
|
|
|
|
|
|
|
|
55,614
|
|
|
|
|
|
|
|
55,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
41
|
|
|
$
|
2,071
|
|
|
$
|
55,614
|
|
|
$
|
(546
|
)
|
|
$
|
57,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 year
ended December 31, 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
December 31,
2016
|
|
|
Unrealized gains
(losses) for
Level 3
Assets /
Liabilities
Outstanding
at
December 31,
2016
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued and other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
65,043
|
|
|
$
|
13,751
|
|
|
$
|
195
|
|
|
$
|
23,573
|
|
|
$
|
(19,056
|
)
|
|
$
|
55,614
|
|
|
$
|
(3,320
|
)
|
(1)
|
Realized and unrealized gains (losses) are reported in Other expenses and Other income (loss), as applicable, in the Companys consolidated statements of operations.
|
Changes in Level 3 contingent consideration measured at fair value on a recurring basis for the year ended December 31, 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
December 31,
2015
|
|
|
Unrealized
gains (losses) for
Level 3
Assets /
Liabilities
Outstanding
at
December 31,
2015
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued and other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
56,299
|
|
|
$
|
74
|
|
|
$
|
225
|
|
|
$
|
22,834
|
|
|
$
|
(13,791
|
)
|
|
$
|
65,043
|
|
|
$
|
299
|
|
(1)
|
Realized and unrealized gains (losses) are reported in Other expenses and Other income (loss), as applicable, in the Companys consolidated statements of operations.
|
160
The following tables present information about the offsetting of derivative instruments and
collateralized transactions as of December 31, 2016 and December 31, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forwards
|
|
$
|
57
|
|
|
$
|
22
|
|
|
$
|
35
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
35
|
|
Foreign exchange swaps
|
|
|
3,441
|
|
|
|
495
|
|
|
|
2,946
|
|
|
|
|
|
|
|
|
|
|
|
2,946
|
|
Interest rate swaps
|
|
|
231
|
|
|
|
29
|
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
|
202
|
|
Foreign exchange /commodities options
|
|
|
244
|
|
|
|
|
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,973
|
|
|
$
|
546
|
|
|
$
|
3,427
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forwards
|
|
$
|
58
|
|
|
$
|
22
|
|
|
$
|
36
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
36
|
|
Foreign exchange swaps
|
|
|
1,472
|
|
|
|
495
|
|
|
|
977
|
|
|
|
|
|
|
|
|
|
|
|
977
|
|
Interest rate swaps
|
|
|
29
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures
|
|
|
512
|
|
|
|
|
|
|
|
512
|
|
|
|
|
|
|
|
|
|
|
|
512
|
|
Foreign exchange /commodities options
|
|
|
41
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,112
|
|
|
$
|
546
|
|
|
$
|
1,566
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain of the Companys foreign exchange swaps are with Cantor. See Note 14Related Party
Transactions, for additional information related to these transactions.
161
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of
December 31,
2016
|
|
|
Valuation Technique
|
|
|
Unobservable Inputs
|
|
|
Range
|
|
|
Weighted
Average
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued and other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
55,614
|
|
|
|
Present value of
expected payments
|
|
|
|
Discount rate
Probability of meeting earnout
|
|
|
|
3.3%-9.2
75%-100
|
%
%
|
|
|
6.3
96
|
%
% (1)
|
(1)
|
The probability of meeting the earnout targets as of December 31, 2016 was based on the acquired businesses projected future financial performance, including revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of
December 31,
2015
|
|
|
Valuation Technique
|
|
|
Unobservable Inputs
|
|
|
Range
|
|
|
Weighted
Average
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued and other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
65,043
|
|
|
|
Present value of
expected payments
|
|
|
|
Discount rate
Probability of meeting earnout
|
|
|
|
0.3%-11.0
15%-100
|
%
%
|
|
|
5.6
97
|
%
% (1)
|
(1)
|
The probability of meeting the earnout targets as of December 31, 2015 was based on the acquired businesses projected future financial performance, including revenues.
|
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 December 31, 2016 and December 31, 2015, the present value of expected payments related to the Companys contingent consideration was $55.6 million and
$65.0 million, respectively. The undiscounted value of the payments, assuming that all contingencies are met, would be $69.0 million and $76.1 million, respectively.
14.
|
Related Party Transactions
|
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 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 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 years ended December 31, 2016, 2015 and 2014, the Company recognized related party revenues of $24.2 million,
$25.3 million and $28.4 million, respectively, for the services provided to Cantor. These revenues are included as part of Fees from related parties in the Companys 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
162
Company. For the years ended December 31, 2016, 2015 and 2014, the Company was charged $52.1 million, $43.7 million and $34.3 million, respectively, for the services provided
by Cantor and its affiliates, of which $28.2 million, $25.6 million and $22.2 million, respectively, were to cover compensation to leased employees for the years ended December 31, 2016, 2015 and 2014. 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 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 consolidated statements of operations.
For the years ended December 31, 2016, 2015 and 2014, Cantors share of the net profit in Tower Bridge was $2.5 million,
$2.0 million and $2.5 million, respectively. Cantors noncontrolling interest is included as part of Noncontrolling interest in subsidiaries in the Companys 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 Lucera,
representing 10% of the issued and outstanding Class B Units of Lucera 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 Lucera 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 Lucera. At the closing, the Company made a payment of
$6.5 million to Lucera. As a result of the option exercise, the Company had a 20% ownership interest in Lucera.
On October 25,
2016, the Companys Board of Directors and Audit Committee authorized the purchase of 9,000 Class B Units of Lucera, representing all of the issued and outstanding Class B Units of Lucera 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 Lucera.
In the purchase agreement, Cantor agreed, subject to certain exceptions, not to solicit certain senior executives of Luceras business
and was granted the right to be a customer of Luceras 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 $4.8 million post-closing adjustment determined after closing based on netting Luceras expenses paid by Cantor after May 1, 2016 against accounts receivable owed to Lucera by Cantor for access to Luceras business from
May 1, 2016 through the closing date. The Company previously had a 20% ownership interest in Lucera and accounted for its investment using the equity method. The transaction has been accounted for as a transaction between entities under common
control.
During the years ended December 31, 2016, 2015 and 2014, respectively, Lucera had $2.9 million, $2.5 million and
$1.3 million in related party revenues from Cantor. These revenues are included in Data, software and post-trade in the Companys consolidated statements of operations. Also during the years ended December 31,
2016 and 2014, respectively, Cantor made capital contributions to Lucera of $15.0 million and $12.2 million. Cantor made no capital contributions to Lucera during the year ended December 31, 2015.
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 consolidated statements of operations. The costs
for these services were immaterial for the year ended December 31, 2016.
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 December 31, 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 years ended
December 31, 2016, 2015 and 2014, the Company recognized its share of foreign exchange gains of $4.2 million, losses of $496 thousand and gains of $934 thousand, respectively. These gains and losses are included as part of
Other expenses in the Companys consolidated statements of operations.
163
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 years ended December 31, 2016, 2015 and 2014, the Company recorded revenues from Cantor entities of $0.1 million, $0.3 million and $0.4 million, respectively, related to commissions paid to the Company
by Cantor. These revenues are included as part of Commissions in the Companys consolidated statements of operations.
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
December 31, 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 14,683,401 shares of Class A common stock owned by them as of December 31, 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 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 year ended December 31, 2016. The Company recorded interest expense related to the Cantor Loan of $0.8 million for the year ended December 31, 2015. The
Cantor Loan was repaid on December 31, 2015. As of December 31, 2016, there were no borrowings outstanding under this facility.
As part of the Companys cash management process, the Company may enter into
tri-party
reverse
repurchase agreements and other short-term investments, some of which may be with Cantor. As of December 31, 2016, Cantor facilitated reverse repurchase agreements on the Companys behalf, and consequently the Company had
$54.7 million of reverse repurchase agreements outstanding with Cantor. As of December 31, 2015, the Company had no reverse repurchase agreements.
164
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 provided
development services to Cantor in the year ended December 31, 2016 under this arrangement. The cost of development services provided to date is approximately $1.2 million.
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 year ended December 31, 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 consolidated statements of financial condition. As of December 30, 2016 and December 31,
2015, the Company had receivables from Freedom International Brokerage of $1.3 million and $4.1 million, respectively. As of December 31, 2016 and December 31, 2015, the Company had $3.0 million and $0.9 million,
respectively, in receivables from Cantor related to open derivative contracts. As of December 31, 2016 and December 31, 2015, the Company had $1.0 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 December 31, 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 December 31, 2016 and December 31, 2015, the aggregate balance of
employee loans, net of reserve, was $267.5 million and $158.2 million, respectively, and is included as Loans, forgivable loans and other receivables from employees and partners, net in the Companys consolidated
statements of financial condition. Compensation expense for the above-mentioned employee loans for the years ended December 31, 2016, 2015 and 2014 was $55.8 million, $86.7 million and $25.7 million, respectively. The
compensation expense related to these employee loans is included as part of Compensation and employee benefits in the Companys consolidated statements of operations.
Interest income on the above-mentioned employee loans for the years ended December 31, 2016, 2015 and 2014 was $5.8 million,
$3.9 million and $3.6 million, respectively. The interest income related to these employee loans is included as part of Interest income in the Companys 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% 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 recorded interest expense related to the 8.75% Convertible Notes of $3.8 million and $13.1 million for the years ended December 31, 2015 and 2014, respectively. See Note
18Notes 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
165
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 7Stock Transactions and Unit Redemptions, the Company has entered into the November 2014 Sales
Agreements with CF&Co, as the Companys sales agent. During the year ended December 31, 2016, the Company sold 7.6 million shares under its sales agreements with CF&Co for aggregate proceeds of $70.4 million, at a
weighted-average price of $9.28 per share. During the year ended December 31, 2015, the Company sold 6.9 million shares under its sales agreements with CF&Co for aggregate proceeds of $62.4 million, at a weighted-average price of
$9.07 per share. For the years ended December 31, 2016, 2015 and 2014, the Company was charged approximately $1.4 million, $1.2 million and $1.3 million, respectively, for services provided by CF&Co related to the
Companys sales agreements with CF&Co. These expenses are included as part of Professional and consulting fees in the Companys 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 the Companys 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 December 31, 2016, the Company had no Securities loaned
transactions with CF&Co. 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 consolidated statements of financial condition.
On December 9, 2014, the Company issued an aggregate of $300 million principal amount of 5.375% Senior Notes due in 2019 (the
5.375% Senior Notes). During the year ended December 31, 2014, the Company recorded $252 thousand in underwriting or advisory fees payable to CF&Co and $18 thousand to CastleOak Securities, L.P., a registered broker dealer
affiliate of Cantor, related to these Senior Notes. These fees were recorded as debt issuance costs and are amortized over the term of the notes.
On February 26, 2015, the Company completed the tender offer for GFI shares. In connection with the acquisition of GFI, during the year
ended December 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 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, purchased $15 million of such senior notes and still
holds such notes as of December 31, 2016.
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
166
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. During the years ended December 31, 2016 and
2015, the Company recorded fees of $125,000 and $188,542 with respect to these guarantees. The Company did not have any such fees for the year ended December 31, 2014. These fees were included in Fees to related parties in the
Companys consolidated statements of operations.
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 years ended December 31, 2016, 2015 and 2014.
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 $8.9 million, $2.0 million and $1.2 million for the years ended December 31, 2016, 2015 and 2014,
respectively. This revenue was recorded as part of Commissions in the Companys 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 $0.4 million and $0.3 million to CCRE for the years ended December 31, 2016 and 2015, respectively. There were no such payments for the year ended December 31, 2014.
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 July 21, 2014, the Company issued exchange rights with respect to, and Cantor purchased, an aggregate of 3,142,257 exchangeable
limited partnership units in BGC Holdings consisting of (i) 1,371,058 such units in connection with the redemption by BGC Holdings of an aggregate of 1,371,058
non-exchangeable
founding partner units from
former Cantor partners who were former founding partners of BGC Holdings, and (ii) 1,771,199 such units in connection with the grant of exchangeability to 1,771,199 units held by former Cantor partners who were former founding partners of BGC
Holdings. Such exchangeable limited partnership units were exchangeable by Cantor at any time on a
one-for-one
basis for shares of common stock of the Company. The
aggregate net purchase price paid by Cantor for such units was $10.6 million. Immediately after Cantors purchases of such exchangeable limited partnership units, also on July 21, 2014, the Company purchased from Cantor an aggregate
of 5 million units and shares, consisting of (i) all of such 3,142,257 units and (ii) 1,857,743 previously owned shares of the Companys Class A common stock, for $38.7 million based on the closing price per share of the
Class A common stock on the date of such purchases.
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.
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
167
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 548,259 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.
As of December 31, 2016, there were 650,364 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.
Transactions with Executive Officers and Directors
On January 21, 2014, the Compensation Committee authorized the acceleration of restrictions with respect to an aggregate of 1,254,723
shares of restricted Class A common stock held by the Companys executive officers as follows: Mr. Lutnick (the Companys Chief Executive Officer), 628,872 shares (Mr. Lutnick does not currently intend to sell any of these
shares); Mr. Lynn (the Companys President), 424,347 shares; Mr. Merkel (the Companys Executive Vice President, General Counsel and Secretary), 14,689 shares; Mr. Windeatt (the Companys Chief Operating Officer),
146,843 shares; and Mr. Sadler (the Companys former Chief Financial Officer), 39,972 shares. The Compensation Committee authorized the Company to repurchase any or all of such shares from the executive officers at a price of $6.51 per
share, which was the closing price of the Companys Class A common stock on January 21, 2014.
On February 5, 2014,
certain executive officers elected to sell, and we agreed to purchase, an aggregate of 636,841 shares of Class A common stock from such executive officers at a price of $6.51 per share as follows: Mr. Lynn, 424,347 shares; Mr. Merkel,
14,689 shares; Mr. Windeatt, 157,833 shares (of which 146,843 shares were previously restricted and an additional 10,990 freely tradable shares); and Mr. Sadler, 39,972 shares.
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 created a new class of partnership units (NPSUs).
On December 14, 2016, the Company entered into the Twelfth Amendment to the Agreement of Limited Partnership of the Partnership,
effective as of October 1, 2016 (the Twelfth Amendment), which was entered into to amend certain terms and conditions of the Partnerships N Units in order to provide flexibility to the Company and the Partnership in using such
N Units in connection with compensation arrangements and practices. The Twelfth Amendment provides for a minimum $5 million gross revenue requirement in a given quarter as a condition for an N Unit to be replaced by another type of Partnership
unit in accordance with the Partnership Agreement and the grant documentation. The Twelfth Amendment was approved by the Audit Committee of the Board of Directors of the Company.
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.
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 the Companys 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 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.
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
168
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 the Companys 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.
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 the Companys 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 November 11, 2016, Mr. Lutnick exercised an employee stock
option with respect to 800,000 shares of Class A common stock at an exercise price of $8.80 per share. The net exercise of the option resulted in 51,064 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
169
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 10, 2016, Mr. Dalton exercised a stock option with respect to 7,534 shares of Class A common stock at an exercise price of $8.87 per share.
Transactions with Relief Fund
During the year ended December 31, 2015, the Company made an interest-free loan to the Cantor Fitzgerald Relief Fund (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 consolidated statements of operations for the year ended December 31, 2015. As of December 31, 2016, the remaining liability associated with
this commitment was $30.7 million, which is included in Accounts payable, accrued and other liabilities in the Companys 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. On November 16, 2016, the Company purchased from the Relief Fund 166,238 shares of the Companys Class A common stock at a price of $9.74 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 years ended December 31, 2016 and 2015, the Company made $1.2 million and $1.3 million, respectively, in cash contributions to Aqua. These contributions are recorded as part of
Investments in the Companys 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 consolidated statements of financial condition.
Equity Method and Similar Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Percent
Ownership
1
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Advance Markets Holdings
|
|
|
42
|
%
|
|
$
|
11,051
|
|
|
$
|
10,584
|
|
Freedom International Brokerage
|
|
|
45
|
%
|
|
|
8,621
|
|
|
|
8,305
|
|
China Credit BGC Money Broking Company Limited
|
|
|
33
|
%
|
|
|
6,361
|
|
|
|
4,213
|
|
Qubed Derivatives
|
|
|
50
|
%
|
|
|
1,889
|
|
|
|
1,620
|
|
Other
|
|
|
|
|
|
|
2,922
|
|
|
|
2,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity method investments
|
|
|
|
|
|
$
|
30,844
|
|
|
$
|
27,164
|
|
Cost method investments
|
|
|
|
|
|
|
2,595
|
|
|
|
2,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
$
|
33,439
|
|
|
$
|
29,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Represents the Companys voting interest in the equity method investment as of December 31, 2016.
|
170
The Company recognized a gain of $3.5 million, a gain of $1.6 million and a loss of
$8.0 million related to its equity method investments for the years ended December 31, 2016, 2015 and 2014, respectively. The Companys share of the gains or losses is reflected in Gains (losses) on equity method
investments in the Companys consolidated statements of operations. The sale of KBL (see Note 5Divestitures) in May 2015 included equity method investments acquired as a result of the GFI transactions. 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 consolidated
statement of operations.
On December 23, 2014, ELX, which had previously been accounted for using the equity method, was
consolidated into the Companys financial statements.
On November 4, 2016, the Company acquired a controlling interest in
Lucera, which had previously been accounted for using the equity method. This transaction resulted in the consolidation of the entity in the Companys consolidated financial statements (see Note 14Related Party Transactions)
for more information.
Summarized condensed financial information for the Companys equity method investments is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
78,539
|
|
|
$
|
60,889
|
|
|
$
|
46,062
|
|
Total expenses
|
|
|
69,961
|
|
|
|
55,395
|
|
|
|
56,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income ( loss)
|
|
$
|
8,578
|
|
|
$
|
5,494
|
|
|
$
|
(10,335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Statements of financial condition:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
43,509
|
|
|
$
|
25,694
|
|
Fixed assets, net
|
|
|
3,000
|
|
|
|
3,023
|
|
Other assets
|
|
|
55,089
|
|
|
|
34,082
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
101,598
|
|
|
$
|
62,799
|
|
|
|
|
|
|
|
|
|
|
Payables to related parties
|
|
|
3,071
|
|
|
|
3,365
|
|
Other liabilities
|
|
|
65,011
|
|
|
|
31,655
|
|
Total equity and partners capital
|
|
|
33,516
|
|
|
|
27,779
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, equity and partners capital
|
|
$
|
101,598
|
|
|
$
|
62,799
|
|
|
|
|
|
|
|
|
|
|
See Note 14Related Party Transactions, for information regarding related party transactions
with unconsolidated entities included in the Companys 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 December 31, 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Investment
|
|
|
Maximum
Exposure to Loss
|
|
|
Investment
|
|
|
Maximum
Exposure to Loss
|
|
Variable interest entities
1
|
|
$
|
4,608
|
|
|
$
|
5,588
|
|
|
$
|
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 December 31, 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.
|
171
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 $6.8 million as of December 31, 2016, which primarily consisted of clearing margin. There were no material restrictions on the consolidated
VIEs assets. The consolidated VIE had total liabilities of $1.4 million as of December 31, 2016. The Companys exposure to economic loss on this VIE is approximately $3.5 million.
Cost Method Investments
The Company had previously acquired investments for which it did not have the ability to exert significant influence over operating and
financial policies. The investments are generally accounted for using the cost method of accounting in accordance with FASB guidance,
InvestmentsOther
. The carrying value of the cost method investments was $2.6 million as of
December 31, 2016 and December 31, 2015, and is included in Investments in the Companys consolidated statements of financial condition.
Fixed assets, net consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Computer and communications equipment
|
|
$
|
130,538
|
|
|
$
|
147,385
|
|
Software, including software development costs
|
|
|
130,397
|
|
|
|
140,997
|
|
Leasehold improvements and other fixed assets
|
|
|
154,602
|
|
|
|
137,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
415,537
|
|
|
|
426,177
|
|
Less: accumulated depreciation and amortization
|
|
|
(249,670
|
)
|
|
|
(278,672
|
)
|
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
$
|
165,867
|
|
|
$
|
147,505
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $29.0 million, $33.4 million and $30.5 million for the years ended
December 31, 2016, 2015 and 2014, respectively. Depreciation is included as part of Occupancy and equipment in the Companys consolidated statements of operations.
The Company has approximately $6.1 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 years ended December 31, 2016, 2015 and 2014, software development costs totaling
$25.0 million, $18.5 million and $12.7 million, respectively, were capitalized. Amortization of software development costs totaled $26.8 million, $22.9 million and $11.4 million for the years ended December 31,
2016, 2015 and 2014, respectively. Amortization of software development costs is included as part of Occupancy and equipment in the Companys consolidated statements of operations.
Impairment charges of $4.4 million, $19.1 million and $4.2 million were recorded for the years ended December 31, 2016,
2015 and 2014, respectively, related to the evaluation of capitalized software projects for future benefit and for fixed assets no longer in service. In connection with the acquisition of GFI, the Company evaluated the combined portfolios of
capitalized software projects and fixed assets and, as a result, identified certain redundancies and assets no longer in service which resulted in impairment charges. The impairment charges for the years ended December 31, 2016, 2015 and 2014
were related to the Financial Services segment. Impairment charges related to capitalized software and fixed assets are reflected in Occupancy and equipment in the Companys consolidated statements of operations.
172
17.
|
Goodwill and Other Intangible Assets, Net
|
The changes in the carrying amount of
goodwill by reportable segment for the year ended December 31, 2016 and 2015 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services
|
|
|
Real Estate Services
|
|
|
Total
|
|
Balance at December 31, 2014
|
|
$
|
134,898
|
|
|
$
|
257,672
|
|
|
$
|
392,570
|
|
Acquisitions
|
|
|
453,833
|
|
|
|
127,685
|
|
|
|
581,518
|
|
Divestitures
|
|
|
(163,300
|
)
|
|
|
|
|
|
|
(163,300
|
)
|
Measurement period adjustments
|
|
|
(2,658
|
)
|
|
|
7,480
|
|
|
|
4,822
|
|
Cumulative translation adjustment
|
|
|
(3,844
|
)
|
|
|
|
|
|
|
(3,844
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
$
|
418,929
|
|
|
$
|
392,837
|
|
|
$
|
811,766
|
|
Acquisitions
|
|
|
36,281
|
|
|
|
17,086
|
|
|
|
53,367
|
|
Measurement period adjustments
|
|
|
(3,803
|
)
|
|
|
2,732
|
|
|
|
(1,071
|
)
|
Cumulative translation adjustment
|
|
|
(372
|
)
|
|
|
|
|
|
|
(372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
451,035
|
|
|
|
412,655
|
|
|
$
|
863,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2016, the Company recognized additional goodwill of approximately
$36.3 million which was allocated to the Companys Financial Services segment, and $17.1 million which was allocated to the Companys Real Estate Services segment. See Note 4Acquisitions for more information.
During the year ended December 31, 2015, the Company completed the sale of its Trayport business, which is reflected in the
reductions of goodwill recorded at the Companys Financial Services segment. See Note 5Divestitures for more information.
During the year ended December 31, 2016, the Company recognized measurement period adjustments of approximately $(3.8) million relating
to Financial Services, and $2.7 million for Real Estate Services.
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. The Company completed its annual goodwill impairment testing during the fourth quarter of 2016, which did not result in any
goodwill impairment.
Other intangible assets consisted of the following (in thousands, except weighted-average remaining life):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Gross Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
|
Weighted-
Average
Remaining Life
(Years)
|
|
Definite life intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer-related
|
|
$
|
127,749
|
|
|
$
|
14,386
|
|
|
$
|
113,363
|
|
|
|
17.7
|
|
Technology
|
|
|
24,570
|
|
|
|
6,275
|
|
|
|
18,295
|
|
|
|
5.2
|
|
Noncompete agreements
|
|
|
16,478
|
|
|
|
7,597
|
|
|
|
8,881
|
|
|
|
2.7
|
|
Patents
|
|
|
10,300
|
|
|
|
8,432
|
|
|
|
1,868
|
|
|
|
1.7
|
|
All other
|
|
|
13,426
|
|
|
|
5,996
|
|
|
|
7,430
|
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total definite life intangible assets
|
|
|
192,523
|
|
|
|
42,686
|
|
|
|
149,837
|
|
|
|
14.4
|
|
Indefinite life intangible assets:
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
96,386
|
|
|
|
|
|
|
|
96,386
|
|
|
|
N/A
|
|
Horizon license
|
|
|
1,500
|
|
|
|
|
|
|
|
1,500
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total indefinite life intangible assets
|
|
|
97,886
|
|
|
|
|
|
|
|
97,886
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
290,409
|
|
|
$
|
42,686
|
|
|
$
|
247,723
|
|
|
|
14.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173
Intangible amortization expense was $20.1 million, $27.2 million and $4.2 million
for the years ended December 31, 2016, 2015 and 2014, respectively. Intangible amortization is included as part of Other expenses in the Companys consolidated statements of operations.
There were no impairment charges for the Companys definite and indefinite life intangibles for the years ended December 31, 2016,
2015 and 2014.
The estimated future amortization expense of definite life intangible assets as of December 31, 2016 is as follows
(in millions):
|
|
|
|
|
2017
|
|
$
|
19.6
|
|
2018
|
|
|
14.8
|
|
2019
|
|
|
13.3
|
|
2020
|
|
|
11.5
|
|
2021
|
|
|
10.4
|
|
2022 and thereafter
|
|
|
80.2
|
|
|
|
|
|
|
Total
|
|
$
|
149.8
|
|
|
|
|
|
|
18.
|
Notes Payable, Collateralized and Short-Term Borrowings
|
Notes payable, collateralized
and short-term borrowings consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
4.50% Convertible Notes
|
|
$
|
|
|
|
$
|
157,332
|
|
8.125% Senior Notes
|
|
|
109,271
|
|
|
|
109,147
|
|
5.375% Senior Notes
|
|
|
297,083
|
|
|
|
296,100
|
|
8.375% Senior Notes
|
|
|
246,988
|
|
|
|
255,300
|
|
5.125% Senior Notes
|
|
|
296,215
|
|
|
|
|
|
Collateralized borrowings
|
|
|
16,210
|
|
|
|
22,998
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
965,767
|
|
|
$
|
840,877
|
|
|
|
|
|
|
|
|
|
|
The Companys Convertible Notes and Senior Notes are recorded at amortized cost. As of December 31,
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Carrying Amount
|
|
|
Fair Value
|
|
|
Carrying Amount
|
|
|
Fair Value
|
|
4.50% Convertible Notes
|
|
$
|
|
|
|
$
|
|
|
|
$
|
157,332
|
|
|
$
|
173,700
|
|
8.125% Senior Notes
|
|
|
109,271
|
|
|
|
115,650
|
|
|
|
109,147
|
|
|
|
121,095
|
|
5.375% Senior Notes
|
|
|
297,083
|
|
|
|
312,000
|
|
|
|
296,100
|
|
|
|
309,750
|
|
8.375% Senior Notes
|
|
|
246,988
|
|
|
|
256,650
|
|
|
|
255,300
|
|
|
|
263,724
|
|
5.125% Senior Notes
|
|
|
296,215
|
|
|
|
309,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
949,557
|
|
|
$
|
993,600
|
|
|
$
|
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.
174
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 year ended December 31, 2016. The Company recorded
interest expense related to the 8.75% Convertible Notes of $3.8 million and $13.1 million for the years ended December 31, 2015 and 2014, respectively.
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 $6.5 million, $12.0 million and $11.9 million for the years ended December 31, 2016, 2015 and 2014, 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. The expiration of the capped call transactions had
no financial statement impact.
Below is a summary of the Companys Convertible Notes (in thousands, except share and per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
4.50% Convertible Notes
|
|
|
|
December 31,
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 year ended
|
|
|
For the year ended
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Coupon interest
|
|
$
|
3,880
|
|
|
$
|
7,200
|
|
|
$
|
|
|
|
$
|
3,828
|
|
Amortization of discount
|
|
|
2,666
|
|
|
|
4,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
$
|
6,546
|
|
|
$
|
12,005
|
|
|
$
|
|
|
|
$
|
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.
175
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 $9.3 million for each of the years ended December 31, 2016, 2015 and 2014.
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 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 $17.1 million, $17.1 million and $1.0 million for the years ended December 31, 2016, 2015 and 2014, respectively.
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 December 31, 2016 was $247.0 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 $20.1 million and $19.2 million for the years ended December 31, 2016 and 2015, respectively. The Company did not record any
interest expense for the year ended December 31, 2014.
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 $9.6 million for the year ended December 31, 2016. The Company did not record any interest expense related to the 5.125% Senior Notes for
the years ended December 31, 2015 or December 31, 2014.
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 December 31, 2016, the Company had $16.2 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 December 31, 2016 was $3.6 million. The Company recorded interest expense related to this secured loan arrangement of $0.8 million for
both the years ended December 31, 2016 and 2015. The Company did not record any interest expense for the year ended December 31, 2014.
176
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 year
ended December 31, 2015, the Company recorded interest expense related to the GFI Credit Agreement of $1.9 million.
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 Company recorded interest
expense related to the Cantor Loan of $0.8 million for the year ended December 31, 2015. The Cantor Loan was repaid on December 31, 2015.
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 December 31, 2016, there were no borrowings outstanding under either the
$150.0 million facility or the terminated $25.0 million facility. For the year ended December 31, 2016, the Company recorded interest expense related to the credit facility of $0.7 million.
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 December 31, 2016, the limit on the aggregate number of shares
authorized to be delivered allowed for the grant of future awards relating to 211.8 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, 2013
|
|
|
31,207,729
|
|
Granted
|
|
|
42,416,871
|
|
Redeemed/exchanged units
|
|
|
(19,193,901
|
)
|
Forfeited units
|
|
|
(868,709
|
)
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
53,561,990
|
|
Granted
|
|
|
38,169,581
|
|
Redeemed/exchanged units
|
|
|
(14,166,438
|
)
|
Forfeited units
|
|
|
(1,163,358
|
)
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
76,401,775
|
|
Granted
|
|
|
44,510,337
|
|
Redeemed/exchanged units
|
|
|
(13,318,041
|
)
|
Forfeited units
|
|
|
(3,029,415
|
)
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
104,564,656
|
|
|
|
|
|
|
177
During the years ended December 31, 2016, 2015 and 2014, the Company granted exchangeability
on 15.9 million, 26.9 million and 18.0 million limited partnership units for which the Company incurred
non-cash
compensation expense of $141.4 million, $231.4 million and
$126.5 million, respectively. The 2015 amounts include a conversion of 90% of outstanding REUs and RPUs in December 2015 totaling 11.8 million units and $114.0 million. This expense is included within Allocations of net income
and grant of exchangeability to limited partnership units and FPUs in the Companys consolidated statements of operations.
As
of December 31, 2016, 2015 and 2014, the number of limited partnership units exchangeable into shares of Class A common stock at the discretion of the unit holder was 13.9 million, 5.4 million and 2.0 million, respectively.
As of December 31, 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 $155.6 million and $30.4 million, respectively. As of December 31, 2016 and December 31, 2015, the aggregate estimated fair value of these limited partnership units was approximately $26.2 million and
$11.3 million, respectively. The number of outstanding limited partnership units with a post-termination
pay-out
as of December 31, 2016 and December 31, 2015 was approximately 17.0 million
and 3.3 million, respectively, of which approximately 11.2 million and 1.6 million were unvested. The liability for limited partnership units with a post-termination payout is included in Accrued compensation on the
Companys consolidated statements of financial condition.
Certain of the limited partnership units with a post-termination
pay-out
have been granted in connection with the Companys acquisitions. As of December 31, 2016 and December 31, 2015, the aggregate estimated fair value of these acquisition-related limited
partnership units was $20.3 million and $22.8 million, respectively. The liability for such acquisition-related limited partnership units is included in Accounts payable, accrued and other liabilities on the Companys
consolidated statements of financial condition.
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 expense related to these limited
partnership units of $17.9 million, $13.7 million and $6.5 million for the years ended December 31, 2016, 2015 and 2014, respectively. These are included in Compensation and employee benefits in the Companys
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 $51.5 million, $28.3 million and $10.1 million for the
years ended December 31, 2016, 2015 and 2014, respectively. This expense is included within Allocations of net income and grant of exchangeability to limited partnership units and FPUs in the Companys consolidated statements
of operations.
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, 2013
|
|
|
2,824,602
|
|
|
$
|
4.51
|
|
|
|
1.79
|
|
Granted
|
|
|
995,771
|
|
|
|
5.86
|
|
|
|
|
|
Delivered units
|
|
|
(1,288,758
|
)
|
|
|
5.11
|
|
|
|
|
|
Forfeited units
|
|
|
(390,683
|
)
|
|
|
4.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
2,140,932
|
|
|
$
|
4.70
|
|
|
|
1.74
|
|
Granted
|
|
|
691,831
|
|
|
|
8.06
|
|
|
|
|
|
Delivered units
|
|
|
(1,045,056
|
)
|
|
|
5.00
|
|
|
|
|
|
Forfeited units
|
|
|
(165,276
|
)
|
|
|
5.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
1,622,431
|
|
|
$
|
5.83
|
|
|
|
1.53
|
|
Granted
|
|
|
912,343
|
|
|
|
7.85
|
|
|
|
|
|
Delivered units
|
|
|
(865,483
|
)
|
|
|
5.92
|
|
|
|
|
|
Forfeited units
|
|
|
(121,889
|
)
|
|
|
7.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
1,547,402
|
|
|
$
|
6.86
|
|
|
|
1.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
178
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 years ended December 31, 2016 and 2015, the Company granted 0.9 million and 0.7 million, respectively, of RSUs with
aggregate estimated grant date fair values of approximately $7.2 million and $5.7 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 the years ended December 31, 2016 and 2015, the Company withheld shares valued at $2.1 million and
$0.6 million to pay taxes due at the time of vesting.
As of December 31, 2016 and December 31, 2015, the aggregate
estimated grant date fair value of outstanding RSUs was approximately $10.6 million and $9.5 million, respectively.
Compensation expense related to RSUs was approximately $6.0 million, $5.3 million and $4.6 million, respectively, for the years
ended December 31, 2016, 2015 and 2014. As of December 31, 2016, there was approximately $9.1 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 years ended December 31, 2016 and 2015, approximately 59 thousand shares and 270 thousand shares, respectively, were forfeited in connection with this clause. During the years ended December 31,
2016 and 2015, the Company released the restrictions with respect to approximately 5.5 million and 6.1 million of such shares, respectively. As of December 31, 2016, there were 12.1 million of such restricted shares outstanding.
During the year ended December 31, 2016, the Company granted approximately 0.4 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 year ended December 31, 2016, the Company recognized compensation expense of approximately $3.2 million related to the grant of these
restricted shares.
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 years ended December 31, 2016 and 2015 was $16.0 million and $23.1 million, respectively. As of December 31, 2016,
the total liability for the deferred cash compensation awards was $17.4 million, which is included in Accrued compensation on the Companys consolidated statements of financial condition. Total unrecognized compensation cost
related to deferred cash compensation, prior to the consideration of forfeitures, was approximately $16.2 million and is expected to be recognized over a weighted-average period of 0.70 years.
179
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, 2013
|
|
|
4,491,238
|
|
|
$
|
11.60
|
|
|
|
2.0
|
|
|
$
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited options
|
|
|
(2,307,000
|
)
|
|
|
13.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
2,184,238
|
|
|
$
|
9.66
|
|
|
|
2.3
|
|
|
$
|
569,979
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised options
|
|
|
(94,000
|
)
|
|
|
8.09
|
|
|
|
|
|
|
|
|
|
Forfeited options
|
|
|
(11,000
|
)
|
|
|
9.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
2,079,238
|
|
|
$
|
9.73
|
|
|
|
1.4
|
|
|
$
|
1,169,664
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised options
|
|
|
(1,057,534
|
)
|
|
|
9.32
|
|
|
|
|
|
|
|
|
|
Forfeited options
|
|
|
(14,619
|
)
|
|
|
9.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
1,007,085
|
|
|
$
|
10.82
|
|
|
|
1.0
|
|
|
$
|
|
|
Options exercisable at December 31, 2016
|
|
|
1,007,085
|
|
|
$
|
10.82
|
|
|
|
1.0
|
|
|
$
|
|
|
There were 1.1 million and 94 thousand stock options exercised during the years ended
December 31, 2016 and 2015, respectively. The Company did not grant any stock options during the years ended December 31, 2016 and 2015.
The Company did not record any compensation expense related to stock options for the years ended December 31, 2016, 2015 or 2014, as all
of these options had vested in prior years. As of December 31, 2016, all of the compensation expense related to stock options was fully recognized.
The following table provides further details relating to the Companys stock options outstanding at December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of Exercise Prices
|
|
Number
Outstanding
|
|
|
Weighted-Average
Exercise Price
|
|
|
Weighted-Average
Remaining
Contractual
Life (Years)
|
|
|
Number
Exercisable
|
|
|
Weighted-Average
Exercise
Price
|
|
$10.23$10.49
|
|
|
7,085
|
|
|
$
|
10.23
|
|
|
|
1.0
|
|
|
|
7,085
|
|
|
$
|
10.23
|
|
$10.50$10.82
|
|
|
1,000,000
|
|
|
|
10.82
|
|
|
|
1.0
|
|
|
|
1,000,000
|
|
|
|
10.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,007,085
|
|
|
$
|
10.82
|
|
|
|
1.0
|
|
|
|
1,007,085
|
|
|
$
|
10.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20.
|
Commitments, Contingencies and Guarantees
|
Contractual Obligations and Commitments
The following table summarizes certain of the Companys contractual obligations at December 31, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Less Than
1 Year
|
|
|
1-3
Years
|
|
|
3-5
Years
|
|
|
More Than
5 Years
|
|
Operating leases
1
|
|
$
|
530,033
|
|
|
$
|
62,500
|
|
|
$
|
115,016
|
|
|
$
|
90,085
|
|
|
$
|
262,432
|
|
Notes payable and collateralized
borrowings
2
|
|
|
968,871
|
|
|
|
7,111
|
|
|
|
549,260
|
|
|
|
300,000
|
|
|
|
112,500
|
|
Interest on notes payable
3
|
|
|
379,596
|
|
|
|
61,227
|
|
|
|
91,458
|
|
|
|
39,934
|
|
|
|
186,977
|
|
Other
4
|
|
|
30,695
|
|
|
|
8,000
|
|
|
|
16,000
|
|
|
|
6,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
1,909,195
|
|
|
$
|
138,838
|
|
|
$
|
771,734
|
|
|
$
|
436,714
|
|
|
$
|
561,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $3.7 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 December 31, 2016 was approximately $109.3 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 December 31, 2016 was approximately $297.1 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 December 31, 2016 was approximately $247.0 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 December 31, 2016 was approximately $296.2 million) and $16.2 million of collateralized borrowings due March 13, 2019. See Note 18 Notes Payable, Collateralized and
Short-Term Borrowings, for more information regarding these obligations, including timing of payments and compliance with debt covenants.
|
3
|
The $187.0 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 consolidated statements
of financial condition. The amount payable each year reflects an estimate of future Charity Day obligations.
|
180
The Company is obligated for minimum rental payments under various
non-cancelable
operating leases, principally for office space, expiring at various dates through 2030. Certain of the leases contain escalation clauses that require payment of additional rent to the extent of
increases in certain operating or other costs.
As of December 31, 2016, minimum lease payments under these arrangements are as
follows (in thousands):
|
|
|
|
|
|
|
Net Lease
Commitment
|
|
2017
|
|
$
|
62,500
|
|
2018
|
|
|
60,299
|
|
2019
|
|
|
54,717
|
|
2020
|
|
|
46,317
|
|
2021
|
|
|
43,768
|
|
2022 and thereafter
|
|
|
262,432
|
|
|
|
|
|
|
Total
|
|
$
|
530,033
|
|
|
|
|
|
|
The lease obligations shown above are presented net of payments to be received under a
non-cancelable
sublease. The total amount of sublease payments to be received is approximately $3.7 million over the life of the agreement.
In addition to the above obligations under
non-cancelable
operating leases, the Company is also
obligated to Cantor for rental payments under Cantors various
non-cancelable
leases with third parties, principally for office space and computer equipment, expiring at various dates through 2030.
Certain of these leases have renewal terms at the Companys option and/or escalation clauses (primarily based on the Consumer Price Index). Cantor allocates a portion of the rental payments to the Company based on square footage used.
The Company also allocates a portion of the rental payments for which it is obligated under
non-cancelable
operating leases to Cantor and its affiliates. These allocations are based on square footage used (see Note 14Related Party Transactions, for more information).
Rent expense for the years ended December 31, 2016, 2015 and 2014 was $72.5 million, $56.6 million and $58.6 million,
respectively. Rent expense is included as part of Occupancy and equipment in the Companys consolidated statements of operations.
In the event the Company anticipates incurring costs under any of its leases that exceed anticipated sublease revenues, it recognizes a loss
and records a liability for the present value of the excess lease obligations over the estimated sublease rental income. The liability for future lease payments associated with vacant space, net of anticipated sublease rental income, was
approximately $5.9 million, as of December 31, 2015, and is included as part of Accounts payable, accrued and other liabilities in the Companys consolidated statements of financial condition. There was no liability for
future lease payments associated with vacant space as of December 31, 2016. The lease liability takes into consideration various assumptions, including prevailing rental rates.
Contingent Payments Related to Acquisitions
During the year ended December 31, 2016, the Company completed acquisitions, whose purchase price included approximately 0.2 million
shares of the Companys Class A common stock (with an acquisition date fair value of approximately $1.6 million), 1.2 million limited partnership units (with an acquisition date fair value of approximately $8.0 million) and
$18.5 million in cash that may be issued contingent on certain targets being met through 2022.
During the year ended
December 31, 2015, the Company completed acquisitions, whose purchase price included approximately 0.5 million shares of the Companys Class A common stock (with an acquisition date fair value of approximately $4.1 million),
1.8 million limited partnership units (with an acquisition date fair value of approximately $15.2 million) and $22.8 million in cash that may be issued contingent on certain targets being met through 2018.
During the year ended December 31, 2014, the Company completed acquisitions, whose purchase price included approximately 2.0 million
shares of the Companys Class A common stock (with an acquisition date fair value of approximately $15.8 million), 4.9 million limited partnership units (with an acquisition date fair value of approximately $34.2 million) and
$34.0 million in cash that may be issued contingent on certain targets being met through 2018.
As of December 31, 2016, the
Company has issued 7.7 million shares of its Class A common stock, 4.5 million of its limited partnership units and $22.7 million in cash related to contingent payments.
As of December 31, 2016, 1.9 million shares of the Companys Class A common stock, 5.8 million limited partnership
units and $36.8 million in cash remain to be issued if the targets are met.
181
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, inter alia, 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. The Company is also involved, from time to time, in other reviews,
investigations and proceedings by governmental and self-regulatory agencies (both formal and informal) regarding the Companys business. Any such actions may result in judgments, settlements, fines, penalties, injunctions or other relief.
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 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 December 31, 2016, the Company was contingently liable for $1.6 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.
Insurance
The
Company is self-insured for health care claims, up to a stop-loss amount for eligible participating employees and qualified dependents in the United States, subject to deductibles and limitations. The Companys liability for claims incurred but
not reported is determined based on an estimate of the ultimate aggregate liability for claims incurred. The estimate is calculated from actual claim rates and adjusted periodically as necessary. The Company has accrued $0.8 million in health
care claims as of December 31, 2016. The Company does not expect the impact of the health care claims to have a material impact on its financial condition, results of operations or cash flows.
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 consolidated statements of financial condition for these
agreements.
182
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 December 31, 2016, no contingent liability has been recorded in
the Companys consolidated statements of financial condition for these indemnifications, as the potential for being required to make payments under these indemnifications is remote.
The Companys 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.
The provision for income
taxes consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
62,746
|
|
|
$
|
27,299
|
|
|
$
|
18,550
|
|
U.S. state and local
|
|
|
656
|
|
|
|
7,991
|
|
|
|
6,799
|
|
Foreign
|
|
|
26,644
|
|
|
|
22,249
|
|
|
|
(457
|
)
|
UBT
|
|
|
3,451
|
|
|
|
2,942
|
|
|
|
1,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,497
|
|
|
|
60,481
|
|
|
|
26,836
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
(44,562
|
)
|
|
|
76,539
|
|
|
|
(22,670
|
)
|
U.S. state and local
|
|
|
8,097
|
|
|
|
(25,118
|
)
|
|
|
(8,350
|
)
|
Foreign
|
|
|
4,694
|
|
|
|
10,549
|
|
|
|
7,360
|
|
UBT
|
|
|
(1,474
|
)
|
|
|
(1,955
|
)
|
|
|
(2,525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,245
|
)
|
|
|
60,015
|
|
|
|
(26,185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
60,252
|
|
|
$
|
120,496
|
|
|
$
|
651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had
pre-tax
income (loss) of $188.3 million,
$380.6 million and $(13.8) million for the years ended December 31, 2016, 2015 and 2014, respectively. The
pre-tax
income for the year ended December 31, 2015 was primarily related to the
sale of Trayport.
The Company had
pre-tax
income (loss) from domestic operations of
$13.7 million, $(128.2) million and $(39.1) million for the years ended December 31, 2016, 2015 and 2014, respectively. The Companys
pre-tax
loss from domestic operations in the year ended
December 31, 2015 was primarily related to the charges taken concurrently with the sale of Trayport. The Company had
pre-tax
income (loss) from foreign operations of $174.6 million,
$508.8 million and $25.3 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Differences between
the Companys actual income tax expense and the amount calculated utilizing the U.S. federal statutory rates were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Federal income tax expense at 35% statutory rate
|
|
$
|
65,891
|
|
|
$
|
133,214
|
|
|
$
|
(4,817
|
)
|
Non-controlling
interest
|
|
|
(8,958
|
)
|
|
|
15,660
|
|
|
|
10,877
|
|
Incremental impact of foreign taxes compared to federal tax rate
|
|
|
(19,851
|
)
|
|
|
(5,037
|
)
|
|
|
(6,284
|
)
|
Tax-exempt
income
|
|
|
(6,164
|
)
|
|
|
(163,929
|
)
|
|
|
|
|
Other permanent differences
|
|
|
7,018
|
|
|
|
7,665
|
|
|
|
7,588
|
|
U.S. state and local taxes, net of U.S. federal benefit
|
|
|
13,971
|
|
|
|
(3,993
|
)
|
|
|
(825
|
)
|
New York City UBT
|
|
|
1,646
|
|
|
|
(1,081
|
)
|
|
|
(378
|
)
|
Federal/state tax benefit of research and development credit
|
|
|
|
|
|
|
|
|
|
|
(500
|
)
|
Enacted rate change
|
|
|
1,912
|
|
|
|
3,511
|
|
|
|
(1,256
|
)
|
Uncertain tax positions
|
|
|
1,520
|
|
|
|
(6,425
|
)
|
|
|
(3,819
|
)
|
U.S. tax on foreign earnings, net of tax credits
|
|
|
|
|
|
|
137,122
|
|
|
|
|
|
U.S. valuation allowance
|
|
|
(1,269
|
)
|
|
|
(12,856
|
)
|
|
|
|
|
Other
|
|
|
4,536
|
|
|
|
16,645
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
60,252
|
|
|
$
|
120,496
|
|
|
$
|
651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
183
Cumulative undistributed earnings of foreign subsidiaries were approximately $434.3 million
as of December 31, 2016. Except for the cash proceeds from the sale of Trayport, it is our 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 that are not permanently reinvested, the accrued tax liability is $135.5 million, net of foreign tax credits. In addition, certain GFI Group net operating loss carryforwards are expected
to be utilized to reduce cash taxes.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the 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.
Significant components of the Companys deferred tax asset and liability consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax asset
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
59,025
|
|
|
$
|
72,458
|
|
Basis difference of investments
|
|
|
4,495
|
|
|
|
15,012
|
|
Deferred compensation
|
|
|
140,252
|
|
|
|
148,935
|
|
Other deferred and accrued expenses
|
|
|
36,849
|
|
|
|
28,908
|
|
Net operating loss and credit carry-forwards
|
|
|
84,214
|
|
|
|
134,877
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax asset
1
|
|
|
324,835
|
|
|
|
400,190
|
|
Valuation allowance
|
|
|
(38,553
|
)
|
|
|
(41,332
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax asset, net of valuation allowance
|
|
|
286,282
|
|
|
|
358,858
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability
|
|
|
|
|
|
|
|
|
Software capitalization
|
|
|
61,407
|
|
|
|
69,610
|
|
U.S. tax on foreign earnings
|
|
|
40,614
|
|
|
|
135,482
|
|
Other
|
|
|
|
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liability
1
|
|
|
102,021
|
|
|
|
205,400
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
184,261
|
|
|
$
|
153,458
|
|
|
|
|
|
|
|
|
|
|
1
|
Before netting within tax jurisdictions.
|
The Company has deferred tax assets associated with
net operating losses in U.S. Federal, U.S. state and local, and
non-U.S.
jurisdictions of $36.0 million, $7.3 million and $40.2 million, respectively. These losses will begin to expire in 2025,
2028 and 2017, respectively. The Companys deferred tax asset and liability are included in the Companys consolidated statements of financial condition as components of Other assets and Accounts payable, accrued and
other liabilities, respectively.
Pursuant to FASB guidance on Accounting for Uncertainty in Income Taxes, the Company provides for
uncertain tax positions as a component of income tax expense based upon managements assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities.
184
A reconciliation of the beginning to the ending amounts of gross unrecognized tax benefits for
the years ended December 31, 2016 and 2015 is as follows (in thousands):
|
|
|
|
|
Balance, December 31, 2014
|
|
$
|
|
|
Increases for prior year tax
positions
1
|
|
|
9,768
|
|
Decreases for prior year tax positions
|
|
|
|
|
Increases for current year tax positions
|
|
|
|
|
Decreases related to settlements with taxing authorities
|
|
|
(413
|
)
|
Decreases related to a lapse of applicable statute of limitations
|
|
|
(7,797
|
)
|
|
|
|
|
|
Balance, December 31, 2015
|
|
$
|
1,558
|
|
|
|
|
|
|
Increases for prior year tax positions
|
|
|
1,503
|
|
Decreases for prior year tax positions
|
|
|
|
|
Increases for current year tax positions
|
|
|
17
|
|
Decreases related to settlements with taxing authorities
|
|
|
|
|
Decreases related to a lapse of applicable statute of limitations
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
|
$
|
3,078
|
|
|
|
|
|
|
1
|
Includes $8.4 million assumed upon acquisition of GFI Group Inc.
|
As of December 31,
2016, the Companys unrecognized tax benefits, excluding related interest and penalties, were $3.1 million, of which $3.1 million, if recognized, would affect the effective tax rate. The Company is currently open to examination by
U.S. Federal, U.S. state and local, and
non-U.S.
tax authorities for tax years beginning 2008, 2008 and 2011, respectively. The Company does not believe that the amounts of unrecognized tax benefits will
materially change over the next 12 months.
The Company recognizes interest and penalties related to income taxes in Interest
expense and Other expenses, respectively, in the Companys consolidated statements of operations. As of December 31, 2016, the Company accrued $0.3 million for income
tax-related
interest and penalties of which $0.1 million was accrued during 2016.
22.
|
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 December 31, 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 December 31, 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 December 31, 2016, $543.8 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 $283.7 million.
23.
|
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.
185
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.
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 17Goodwill and Other Intangible Assets, Net, for goodwill by reportable segment.
Year ended December 31, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services
|
|
|
Real
Estate
Services
|
|
|
Corporate
Items
|
|
|
Total
|
|
Brokerage revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rates
|
|
$
|
468,798
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
468,798
|
|
Credit
|
|
|
291,760
|
|
|
|
|
|
|
|
|
|
|
|
291,760
|
|
Foreign exchange
|
|
|
303,310
|
|
|
|
|
|
|
|
|
|
|
|
303,310
|
|
Energy and commodities
|
|
|
222,876
|
|
|
|
|
|
|
|
|
|
|
|
222,876
|
|
Equities and other asset classes
|
|
|
174,985
|
|
|
|
|
|
|
|
|
|
|
|
174,985
|
|
Leasing and other services
|
|
|
|
|
|
|
513,812
|
|
|
|
|
|
|
|
513,812
|
|
Real estate capital markets
|
|
|
|
|
|
|
344,167
|
|
|
|
|
|
|
|
344,167
|
|
Real estate management services
|
|
|
|
|
|
|
196,801
|
|
|
|
|
|
|
|
196,801
|
|
Fees from related parties
|
|
|
|
|
|
|
|
|
|
|
24,200
|
|
|
|
24,200
|
|
Data, software and post-trade
|
|
|
54,309
|
|
|
|
|
|
|
|
|
|
|
|
54,309
|
|
Other revenues
|
|
|
4,596
|
|
|
|
168
|
|
|
|
570
|
|
|
|
5,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest
revenues
|
|
|
1,520,634
|
|
|
|
1,054,948
|
|
|
|
24,770
|
|
|
|
2,600,352
|
|
Interest income
|
|
|
2,601
|
|
|
|
3,374
|
|
|
|
6,296
|
|
|
|
12,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,523,235
|
|
|
|
1,058,322
|
|
|
|
31,066
|
|
|
|
2,612,623
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
57,637
|
|
|
|
57,637
|
|
Non-interest
expenses
|
|
|
1,275,397
|
|
|
|
931,939
|
|
|
|
267,556
|
|
|
|
2,474,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,275,397
|
|
|
|
931,939
|
|
|
|
325,193
|
|
|
|
2,532,529
|
|
Other income (losses), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on divestiture and sale of investments
|
|
|
|
|
|
|
|
|
|
|
7,044
|
|
|
|
7,044
|
|
Gains (losses) on equity investments
|
|
|
|
|
|
|
|
|
|
|
3,543
|
|
|
|
3,543
|
|
Other income (losses)
|
|
|
78,701
|
|
|
|
|
|
|
|
18,878
|
|
|
|
97,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (losses), net
|
|
|
78,701
|
|
|
|
|
|
|
|
29,465
|
|
|
|
108,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income taxes
|
|
$
|
326,539
|
|
|
$
|
126,383
|
|
|
$
|
(264,662
|
)
|
|
$
|
188,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186
Year ended December 31, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services
|
|
|
Real
Estate
Services
|
|
|
Corporate
Items
|
|
|
Total
|
|
Brokerage revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rates
|
|
$
|
471,239
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
471,239
|
|
Credit
|
|
|
271,601
|
|
|
|
|
|
|
|
|
|
|
|
271,601
|
|
Foreign exchange
|
|
|
324,774
|
|
|
|
|
|
|
|
|
|
|
|
324,774
|
|
Energy and commodities
|
|
|
196,190
|
|
|
|
|
|
|
|
|
|
|
|
196,190
|
|
Equities and other asset classes
|
|
|
172,320
|
|
|
|
|
|
|
|
|
|
|
|
172,320
|
|
Leasing and other services
|
|
|
|
|
|
|
539,727
|
|
|
|
|
|
|
|
539,727
|
|
Real estate capital markets
|
|
|
|
|
|
|
269,151
|
|
|
|
|
|
|
|
269,151
|
|
Real estate management services
|
|
|
|
|
|
|
187,118
|
|
|
|
|
|
|
|
187,118
|
|
Fees from related parties
|
|
|
108
|
|
|
|
|
|
|
|
25,240
|
|
|
|
25,348
|
|
Data, software and post-trade
|
|
|
102,371
|
|
|
|
|
|
|
|
|
|
|
|
102,371
|
|
Other revenues
|
|
|
8,174
|
|
|
|
1,270
|
|
|
|
513
|
|
|
|
9,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest
revenues
|
|
|
1,546,777
|
|
|
|
997,266
|
|
|
|
25,753
|
|
|
|
2,569,796
|
|
Interest income
|
|
|
1,382
|
|
|
|
1,184
|
|
|
|
8,077
|
|
|
|
10,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,548,159
|
|
|
|
998,450
|
|
|
|
33,830
|
|
|
|
2,580,439
|
|
|
|
|
|
|
Interest expense
|
|
|
661
|
|
|
|
12
|
|
|
|
68,686
|
|
|
|
69,359
|
|
Non-interest
expenses
|
|
|
1,330,648
|
|
|
|
868,652
|
|
|
|
451,281
|
|
|
|
2,650,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,331,309
|
|
|
|
868,664
|
|
|
|
519,967
|
|
|
|
2,719,940
|
|
Other income (losses), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on divestiture and sale of investments
|
|
|
|
|
|
|
|
|
|
|
394,347
|
|
|
|
394,347
|
|
Gains (losses) on equity investments
|
|
|
|
|
|
|
|
|
|
|
2,597
|
|
|
|
2,597
|
|
Other income (losses)
|
|
|
68,033
|
|
|
|
|
|
|
|
55,135
|
|
|
|
123,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (losses), net
|
|
|
68,033
|
|
|
|
|
|
|
|
452,079
|
|
|
|
520,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income taxes
|
|
$
|
284,883
|
|
|
$
|
129,786
|
|
|
$
|
(34,058
|
)
|
|
$
|
380,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2014 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services
|
|
|
Real
Estate
Services
|
|
|
Corporate
Items
|
|
|
Total
|
|
Brokerage revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rates
|
|
$
|
412,224
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
412,224
|
|
Credit
|
|
|
215,583
|
|
|
|
|
|
|
|
|
|
|
|
215,583
|
|
Foreign exchange
|
|
|
224,911
|
|
|
|
|
|
|
|
|
|
|
|
224,911
|
|
Energy and commodities
|
|
|
55,788
|
|
|
|
|
|
|
|
|
|
|
|
55,788
|
|
Equities and other asset classes
|
|
|
110,410
|
|
|
|
|
|
|
|
|
|
|
|
110,410
|
|
Leasing and other services
|
|
|
|
|
|
|
418,725
|
|
|
|
(948
|
)
|
|
|
417,777
|
|
Real estate capital markets
|
|
|
|
|
|
|
125,170
|
|
|
|
|
|
|
|
125,170
|
|
Real estate management services
|
|
|
|
|
|
|
163,227
|
|
|
|
|
|
|
|
163,227
|
|
Fees from related parties
|
|
|
120
|
|
|
|
|
|
|
|
28,259
|
|
|
|
28,379
|
|
Data, software and post-trade
|
|
|
11,565
|
|
|
|
|
|
|
|
|
|
|
|
11,565
|
|
Other revenues
|
|
|
14,142
|
|
|
|
1,134
|
|
|
|
1,956
|
|
|
|
17,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest
revenues
|
|
|
1,044,743
|
|
|
|
708,256
|
|
|
|
29,267
|
|
|
|
1,782,266
|
|
Interest income
|
|
|
1,688
|
|
|
|
537
|
|
|
|
5,088
|
|
|
|
7,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,046,431
|
|
|
|
708,793
|
|
|
|
34,355
|
|
|
|
1,789,579
|
|
Interest expense
|
|
|
3,197
|
|
|
|
32
|
|
|
|
34,716
|
|
|
|
37,945
|
|
Non-interest
expenses
|
|
|
873,952
|
|
|
|
639,625
|
|
|
|
293,277
|
|
|
|
1,806,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
877,149
|
|
|
|
639,657
|
|
|
|
327,993
|
|
|
|
1,844,799
|
|
Other income (losses), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on equity method investments
|
|
|
|
|
|
|
|
|
|
|
(7,969
|
)
|
|
|
(7,969
|
)
|
Other income (losses)
|
|
|
52,769
|
|
|
|
|
|
|
|
(3,342
|
)
|
|
|
49,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (losses), net
|
|
|
52,769
|
|
|
|
|
|
|
|
(11,311
|
)
|
|
|
41,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income taxes
|
|
$
|
222,051
|
|
|
$
|
69,136
|
|
|
$
|
(304,949
|
)
|
|
$
|
(13,762
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
187
Total assets by reportable segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
1
|
|
Financial
Services
|
|
|
Real Estate
Services
|
|
|
Total
|
|
At December 31, 2016
|
|
$
|
2,707,677
|
|
|
$
|
800,723
|
|
|
$
|
3,508,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2015
|
|
$
|
3,287,998
|
|
|
$
|
694,639
|
|
|
$
|
3,982,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 years ended December 31, 2016, 2015 and 2014, respectively, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,531,456
|
|
|
$
|
1,505,811
|
|
|
$
|
1,078,196
|
|
United Kingdom
|
|
|
620,100
|
|
|
|
634,336
|
|
|
|
393,259
|
|
Asia
|
|
|
214,133
|
|
|
|
217,895
|
|
|
|
154,480
|
|
France
|
|
|
92,154
|
|
|
|
85,905
|
|
|
|
81,662
|
|
Other Americas
|
|
|
54,382
|
|
|
|
54,421
|
|
|
|
39,589
|
|
Other Europe/MEA
|
|
|
100,398
|
|
|
|
82,071
|
|
|
|
42,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
2,612,623
|
|
|
$
|
2,580,439
|
|
|
$
|
1,789,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 December 31, 2016 and December 31,
2015, respectively, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,275,482
|
|
|
$
|
1,146,478
|
|
United Kingdom
|
|
|
229,555
|
|
|
|
164,322
|
|
Asia
|
|
|
23,154
|
|
|
|
28,368
|
|
France
|
|
|
5,540
|
|
|
|
6,964
|
|
Other Americas
|
|
|
22,246
|
|
|
|
16,135
|
|
Other Europe/MEA
|
|
|
4,952
|
|
|
|
7,073
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
1,560,929
|
|
|
$
|
1,369,340
|
|
|
|
|
|
|
|
|
|
|
24.
|
Supplemental Balance Sheet Information
|
The components of certain balance sheet accounts
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
$
|
28,279
|
|
|
$
|
33,244
|
|
Deferred tax asset
|
|
|
186,966
|
|
|
|
190,459
|
|
Rent and other deposits
|
|
|
18,132
|
|
|
|
18,654
|
|
Other taxes
|
|
|
15,747
|
|
|
|
13,796
|
|
Other
|
|
|
38,017
|
|
|
|
33,506
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
$
|
287,141
|
|
|
$
|
289,659
|
|
|
|
|
|
|
|
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Accounts payable, accrued and other liabilities:
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
$
|
341,381
|
|
|
$
|
304,825
|
|
Charitable contribution liability
|
|
|
30,695
|
|
|
|
55,450
|
|
Deferred tax liability
|
|
|
2,705
|
|
|
|
37,001
|
|
Taxes payable
|
|
|
202,924
|
|
|
|
185,040
|
|
Back-End
Merger liability
|
|
|
21,341
|
|
|
|
111,223
|
|
|
|
|
|
|
|
|
|
|
Total accounts payable, accrued and other liabilities
|
|
$
|
599,046
|
|
|
$
|
693,539
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter 2016 Dividend
On February 7, 2017, the Companys Board of Directors declared a quarterly cash dividend of $0.16 per share for the fourth quarter of
2016, payable on March 14, 2017 to Class A and Class B common stockholders of record as of February 28, 2017.
Controlled Equity Offering
Since December 31, 2016, the Company has sold, pursuant to the November 2014 Sales Agreement, 2.2 million shares of Class A common
stock related to redemptions and exchanges of limited partnership interests.
Acquisitions
On January 31, 2017, the Company completed the acquisition of Micromega Securities Proprietary Limited, which operates in the South
African fixed income, rates and foreign exchange markets.
On February 8, 2017, the Company announced that it has completed the
acquisition of the assets of Regency Capital Partners, a real estate capital advisory firm regarded for its specialized financing expertise, headquartered in San Francisco.
On February 28, 2017, the Company acquired Besso Insurance Group Limited (Besso), an independent Lloyds of London insurance
broker with a strong reputation across Property, Casualty, Marine, Aviation, Professional and Financial Risks and Reinsurance. Besso generated revenue of approximately £44 million in the financial year ended December 31, 2016. The
acquisition of Besso will be recorded in the Companys Financial Services segment.
Unit Redemptions and Share Repurchase
Program
The Companys 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, the Companys Audit Committee authorized such repurchases of stock or units from Cantor employees and partners. On
February 7, 2017, the Companys Board of Directors and Audit Committee increased the Companys share repurchase and unit redemption authorization to $300 million. From time to time, the Company may actively continue to repurchase
shares or redeem units.
Confidential Submission of Draft Registration Statement for Proposed Initial Public Offering
On February 9, 2017, the Company announced that it has confidentially submitted a draft registration statement on Form
S-1
with the SEC relating to the proposed initial public offering of the Class A common stock of a newly formed subsidiary that will hold the Companys Real Estate Services business, which operates as
Newmark Grubb Knight Frank or NGKF.
The number of Class A shares to be offered and the price range for the
proposed offering have not yet been determined. The initial public offering is part of the Companys plan to separate its Real Estate Services business into a separate public company. Following some period after the expected offering, the
Company may, subject to market and other conditions, distribute the shares that the Company will hold of the newly formed subsidiary pro rata to the Companys stockholders in a manner intended to qualify as
tax-free
for U.S. federal income tax purposes.
189