Adjustments Made to Calculate
Post-Tax
Adjusted Earnings
Although Adjusted Earnings are calculated on a
pre-tax
basis, BGC also reports
post-tax
Adjusted Earnings. The Company defines
post-tax
Adjusted Earnings as
pre-tax
Adjusted Earnings reduced by the
non-GAAP
tax provision described below and Adjusted Earnings attributable to noncontrolling interest in subsidiaries.
The Company calculates its tax provision for
post-tax
Adjusted Earnings using an annual estimate similar to how it
accounts for its income tax provision under GAAP. To calculate the quarterly tax provision under GAAP, BGC estimates its full fiscal year GAAP income (loss) from continuing operations before income taxes and noncontrolling interests in subsidiaries
and the expected inclusions and deductions for income tax purposes, including expected grants of exchangeability to limited partnership units during the annual period. The resulting annualized tax rate is applied to BGCs quarterly GAAP income
(loss) from continuing operations before income taxes and noncontrolling interests in subsidiaries. At the end of the annual period, the Company updates its estimate to reflect the actual tax amounts owed for the period.
To determine the
non-GAAP
tax provision, BGC first adjusts
pre-tax
Adjusted
Earnings by recognizing any, and only, amounts for which a tax deduction applies under applicable law. The amounts include
non-cash
charges with respect to grants of exchangeability; certain charges related to
employee loan forgiveness; certain net operating loss carryforwards when taken for statutory purposes; certain charges related to tax goodwill amortization; and deductions with respect to charitable contributions. These adjustments may also reflect
timing and measurement differences, including treatment of employee loans, changes in the value of units between the dates of grants of exchangeability and the date of actual unit exchange, variations in the value of certain deferred tax assets and
liabilities and the different timing of permitted deductions for tax under GAAP and statutory tax requirements.
After application of these previously
described adjustments, the result is the Companys taxable income for its
pre-tax
Adjusted Earnings, to which BGC then applies the statutory tax rates to determine its
non-GAAP
tax provision. BGCs effective tax rate on
pre-tax
Adjusted Earnings is equal to the amount of its
non-GAAP
tax
provision divided by the amount of
pre-tax
Adjusted Earnings.
Generally, the most significant factor affecting
this
non-GAAP
tax provision is the amount of
non-cash
charges relating to the grants of exchangeability to limited partnership units. Because the
non-cash
charges relating to the grants of exchangeability are deductible in accordance with applicable tax laws, increases in exchangeability have the effect of lowering the Companys
non-GAAP
effective tax rate and thereby increasing its
post-tax
Adjusted Earnings.
Management uses
post-tax
Adjusted Earnings in part to help it evaluate, among other things, the overall performance of
the business, to make decisions with respect to the Companys operations, and to determine the amount of dividends payable to common stockholders and distributions payable to holders of limited partnership units.
BGC incurs income tax expenses based on the location, legal structure and jurisdictional taxing authorities of each of its subsidiaries. Certain of the
Companys entities are taxed as U.S. partnerships and are subject to the Unincorporated Business Tax (UBT) in New York City. Any U.S. federal and state income tax liability or benefit related to the partnership income or loss, with
the exception of UBT, rests with the unit holders rather than with the partnership entity. 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. Outside of the U.S., BGC operates principally through subsidiary corporations subject to local income taxes. For these reasons, taxes for Adjusted Earnings are expected to be presented to show the tax provision the
consolidated Company would expect to pay if 100 percent of earnings were taxed at global corporate rates.
Adjusted Earnings Attributable to
Noncontrolling Interest in Subsidiaries
Adjusted Earnings attributable to noncontrolling interest in subsidiaries is calculated based on the relevant
noncontrolling interest existing on the balance sheet date. Noncontrolling interest will reflect the
pro-rata
ownership of certain shares and/or units of BGC.
Calculations of
Post-Tax
Adjusted Earnings per Common Share
BGCs
Post-Tax
Adjusted Earnings per common share calculations assume either that:
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The fully diluted share count includes the shares related to any dilutive instruments, but excludes the
associated expense, net of tax, when the impact would be dilutive; or
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The fully diluted share count excludes the shares related to these instruments, but includes the associated
expense, net of tax.
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The share count for Adjusted Earnings excludes certain shares expected to be issued in future periods but not yet
eligible to receive dividends and/or distributions. Each quarter, the dividend payable to BGCs common stockholders, if any, is expected to be