BGC PARTNERS Item 2.02. Results of Operations and Financial Condition. OnApril 29, 2021 ,BGC Partners, Inc. (the "Registrant," "we," "us," "BGC Partners ," "BGC," or the "Company") issued a press release announcing its financial results for the quarter endedJune 30, 2021 . A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by reference herein. Except as indicated below, the information in this Item 2.02 and Exhibit 99.1 attached to this Current Report on Form 8-K are being furnished under Item 2.02 of Form 8-K. Such information shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, except as expressly set forth by specific reference in such filing and as set forth below. The press release contains non-GAAP financial measures that differ from the most directly comparable measures calculated and presented in accordance with Generally Accepted Accounting Principles inthe United States ("GAAP"). Non-GAAP financial measures used by the Company include "Adjusted Earnings before noncontrolling interests and taxes", which is used interchangeably with "pre-tax Adjusted Earnings"; "Post-tax Adjusted Earnings to fully diluted shareholders", which is used interchangeably with "post-tax Adjusted Earnings"; "Adjusted EBITDA"; and "Liquidity". The definitions of these terms are below. Adjusted Earnings Defined BGC uses non-GAAP financial measures, including "Adjusted Earnings before noncontrolling interests and taxes" and "Post-tax Adjusted Earnings to fully diluted shareholders", which are supplemental measures of operating results used by management to evaluate the financial performance of the Company and its consolidated subsidiaries. BGC believes that Adjusted Earnings best reflect the operating earnings generated by the Company on a consolidated basis and are the earnings which management considers when managing its business. As compared with "Income (loss) from operations before income taxes" and "Net income (loss) for fully diluted shares", both prepared in accordance with GAAP, Adjusted Earnings calculations primarily exclude certain non-cash items and other expenses that generally do not involve the receipt or outlay of cash by the Company and/or which do not dilute existing stockholders. In addition, Adjusted Earnings calculations exclude certain gains and charges that management believes do not best reflect the ordinary results of BGC. Adjusted Earnings is calculated by taking the most comparable GAAP measures and adjusting for certain items with respect to compensation expenses, non-compensation expenses, and other income, as discussed below. Calculations of Compensation Adjustments for Adjusted Earnings and Adjusted EBITDA Treatment of Equity-Based Compensation Line Item for Adjusted Earnings and Adjusted EBITDA The Company's Adjusted Earnings and Adjusted EBITDA measures exclude all GAAP charges included in the line item "Equity-based compensation and allocations of net income to limited partnership units and FPUs" (or "equity-based compensation" for purposes of defining the Company's non-GAAP results) as recorded on the Company's GAAP Consolidated Statements of Operations and GAAP Consolidated Statements of Cash Flows. These GAAP equity-based compensation charges reflect the following items: * Charges with respect to grants of exchangeability, which reflect the right of holders of limited partnership units with no capital accounts, such as LPUs and PSUs, to exchange these units into shares of common stock, or into partnership units with capital accounts, such as HDUs, as well as cash paid with respect to taxes withheld or expected to be owed by the unit holder upon such exchange. The withholding taxes related to the exchange of certain non-exchangeable units without a capital account into either common shares or units with a capital account may be funded by the redemption of preferred units such as PPSUs.
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* Charges with respect to preferred units. Any preferred units would not be included in
the Company's fully diluted share count because they cannot be made exchangeable into
shares of common stock and are entitled only to a fixed distribution. Preferred units
are granted in connection with the grant of certain limited partnership units that may
be granted exchangeability or redeemed in connection with the grant of shares of
common stock at ratios designed to cover any withholding taxes expected to be paid.
This is an alternative to the common practice among public companies of issuing the
gross amount of shares to employees, subject to cashless withholding of shares, to pay
applicable withholding taxes.
* GAAP equity-based compensation charges with respect to the grant of an offsetting amount of
common stock or partnership units with capital accounts in connection with the redemption of
non-exchangeable units, including PSUs and LPUs.
* Charges related to amortization of RSUs and limited partnership units.
* Charges related to grants of equity awards, including common stock or partnership
units with capital accounts.
* Allocations of net income to limited partnership units and FPUs. Such allocations
represent the pro-rata portion of post-tax GAAP earnings available to such unit
holders.
The amounts of certain quarterly equity-based compensation charges are based
upon the Company's estimate of such expected charges during the annual period,
as described further below under "Methodology for Calculating Adjusted Earnings
Taxes."
Virtually all of BGC's key executives and producers have equity or partnership
stakes in the Company and its subsidiaries and generally receive deferred equity
or limited partnership units as part of their compensation. A significant
percentage of BGC's fully diluted shares are owned by its executives, partners
and employees. The Company issues limited partnership units as well as other
forms of equity-based compensation, including grants of exchangeability into
shares of common stock, to provide liquidity to its employees, to align the
interests of its employees and management with those of common stockholders, to
help motivate and retain key employees, and to encourage a collaborative culture
that drives cross-selling and revenue growth.
All share equivalents that are part of the Company's equity-based compensation
program, including REUs, PSUs, LPUs, HDUs, and other units that may be made
exchangeable into common stock, as well as RSUs (which are recorded using the
treasury stock method), are included in the fully diluted share count when
issued or at the beginning of the subsequent quarter after the date of grant.
Generally, limited partnership units other than preferred units are expected to
be paid a pro-rata distribution based on BGC's calculation of Adjusted Earnings
per fully diluted share. However, out of an abundance of caution and in order to
strengthen the Company's balance sheet due the uncertain macroeconomic
conditions with respect to the COVID-19 pandemic, BGC Holdings, L.P. has reduced
its distributions of income from the operations of BGC's businesses to its
partners.
Compensation charges are also adjusted for certain other cash and non-cash
items, including those related to the amortization of GFI employee forgivable
loans granted prior to the closing of the January 11, 2016 back-end merger with
GFI.
Certain Other Compensation-Related Adjustments for Adjusted Earnings
BGC also excludes various other GAAP items that management views as not
reflective of the Company's underlying performance in a given period from its
calculation of Adjusted Earnings. These may include compensation-related items
with respect to cost-saving initiatives, such as severance charges incurred in
connection with headcount reductions as part of broad restructuring and/or cost
savings plans.
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Calculation of Non-Compensation Adjustments for Adjusted Earnings
Adjusted Earnings calculations may also exclude items such as:
* Non-cash GAAP charges related to the amortization of intangibles with respect to
acquisitions;
* Acquisition related costs;
* Certain rent charges;
* Non-cash GAAP asset impairment charges; and
* Various other GAAP items that management views as not reflective of the Company's underlying
performance in a given period, including non-compensation-related charges incurred as part
of broad restructuring and/or cost savings plans. Such GAAP items may include charges for
exiting leases and/or other long-term contracts as part of cost-saving initiatives, as well
as non-cash impairment charges related to assets, goodwill and/or intangibles created from
acquisitions.
Calculation of Adjustments for Other (income) losses for Adjusted Earnings
Adjusted Earnings calculations also exclude certain other non-cash,
non-dilutive, and/or non-economic items, which may, in some periods, include:
* Gains or losses on divestitures;
* Fair value adjustment of investments;
* Certain other GAAP items, including gains or losses related to BGC's investments
accounted for under the equity method; and
* Any unusual, one-time, non-ordinary, or non-recurring gains or losses.
Methodology for Calculating Adjusted Earnings Taxes
Although Adjusted Earnings are calculated on a pre-tax basis, BGC also reports
post-tax Adjusted Earnings to fully diluted shareholders. The Company defines
post-tax Adjusted Earnings to fully diluted shareholders as pre-tax Adjusted
Earnings reduced by the non-GAAP tax provision described below and net income
(loss) attributable to noncontrolling interest for Adjusted Earnings.
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 operations before income taxes and
noncontrolling interests in subsidiaries and the expected inclusions and
deductions for income tax purposes, including expected equity-based compensation
during the annual period. The resulting annualized tax rate is applied to BGC's
quarterly GAAP income (loss) from 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 charges with respect to equity-based
compensation; certain charges related to employee loan forgiveness; certain net
operating loss carryforwards when taken for statutory purposes; and certain
charges related to tax goodwill amortization. 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.
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After application of these adjustments, the result is the Company's taxable
income for its pre-tax Adjusted Earnings, to which BGC then applies the
statutory tax rates to determine its non-GAAP tax provision. BGC views the
effective tax rate on pre-tax Adjusted Earnings as 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 charges
relating to equity-based compensation. Because the charges relating to
equity-based compensation are deductible in accordance with applicable tax laws,
increases in such charges have the effect of lowering the Company's non-GAAP
effective tax rate and thereby increasing its post-tax Adjusted Earnings.
BGC incurs income tax expenses based on the location, legal structure and
jurisdictional taxing authorities of each of its subsidiaries. Certain of the
Company's 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 Company's consolidated financial statements include U.S.
federal, state, and local income taxes on the Company's allocable share of the
U.S. results of operations. Outside of the U.S. , BGC is expected to operate
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.
Calculations of Pre- and Post-Tax Adjusted Earnings per Share
BGC's pre- and post-tax Adjusted Earnings per share calculations assume either
that:
* 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
* The fully diluted share count excludes the shares related to these instruments, but
includes the associated expense, net of tax.
The share count for Adjusted Earnings excludes certain shares and share equivalents expected to be issued in future periods but not yet eligible to receive dividends and/or distributions. Each quarter, the dividend payable to BGC's stockholders, if any, is expected to be determined by the Company's Board of Directors with reference to a number of factors, including post-tax Adjusted Earnings per share. BGC may also pay a pro-rata distribution of net income to limited partnership units, as well as to Cantor for its noncontrolling interest. . . .
Item 9.01. Financial Statements and Exhibits. (d) Exhibits. The exhibit index set forth below is incorporated by reference in response to this Item 9.01.
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