4q2010 earnings presentation final 2-17-11s1.q4cdn.com/.../2011/4q2010_earnings_presentation.pdf ·...
TRANSCRIPT
4Q2010 Earnings Presentation4Q2010 Earnings Presentation
Notes & DisclaimersDiscussion of Forward-Looking Statements by BGC Partners Information in this document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward looking statements include statements about the g goutlook and prospects for the Company and for its industry as well as statements about its future financial and operating performance. Such statements are based upon current expectations that involve risks and uncertainties. Actual results, performance or achievements could differ materially from those contemplated, expressed or implied because of a number of risks and uncertainties that include, but are not limited to, the risks and uncertainties identified in BGC Partners’ filings with the U.S. Securities and Exchange Commission. The Company believes that all forward-looking statements are based upon reasonable assumptions when made. However, BGC Partners cautions that it is impossible to
di l l h ff f i k i i h f i i d l d h di l predict actual results or outcomes or the effects of risks, uncertainties or other factors on anticipated results or outcomes and that accordingly you should not place undue reliance on these statements. Forward-looking statements speak only as of the date when made and the Company undertakes no obligation to update these statements in light of subsequent events or developments. Please refer to the complete disclaimer with respect to forward looking statements and the risk factors set forth in BGC Partners’ public filings which are incorporated into this document by reference.
Note Regarding Financial Tables and Metrics An excel file with the Company’s quarterly financial results and metrics from full year 2008 through the fourth quarter of 2010 is accessible at the “Investor Relations” section of http://www.bgcpartners.com. It is also available directly at http://www.bgcpartners.com/ir-news.
Distributable EarningsThis presentation should be read in conjunction with BGC’s most recent financial results press release. Unless otherwise stated, throughout this presentation we refer to our results only on a distributable earnings basis. For a complete description of this term and how, when and why management uses it, see the final page of this presentation. For both this description and a reconciliation to GAAP, see the sections of BGC’s most recent financial results press release entitled “Distributable Earnings,” “Distributable Earnings Results Compared with GAAP Results”, and “Reconciliation of GAAP Income to Distributable Earnings”, which are incorporated by reference, and available in the “Investor Relations” section of our website at http://www bgcpartners comsection of our website at http://www.bgcpartners.com.
2
Select 4Q2010 Results Compared to 4Q2009
Revenues were up 7.6% to $322.5 million versus $299.8 million
Pre tax earnings were up 97 4% to $45 4 million versus $23 0 million Pre-tax earnings were up 97.4% to $45.4 million versus $23.0 million
Pre-tax earnings per share were up 72.7% to $0.19
Post-tax earnings were up 168.1% to $39.8 million versus $14.8 million Post tax earnings were up 168.1% to $39.8 million versus $14.8 million
Post-tax earnings per fully diluted share were up 142.9% to $0.17
The pre-tax earnings margin improved to 14.1% of revenues from 7.7% while the p g g ppost-tax earnings margin improved to 12.3% from 5.0%
BGC Partners’ Board of Directors declared a quarterly cash dividend of $0.14 per share payable on March 11 2011 to Class A and Class B common stockholders of share payable on March 11, 2011 to Class A and Class B common stockholders of record as of February 25, 2011. This is an increase of 133.3% year-over-year.
3
1Q2011 Outlook Compared with 1Q2010
Revenues of between $355 million and $370 million, up approximately 2% -6% $348 9 illiversus $348.9 million
Pre-tax distributable earnings of approximately $57 million to $63 million, up 27% -40% versus $44.8 million40% versus $44.8 million
Post-tax distributable earnings of approximately $48 million to $54 million, up 26% - 40% versus $38.1 million
The Company anticipates its effective tax rate for distributable earnings to be approximately 15 percent for the first quarter and full year 2011
4
4Q2010 Global Revenue Breakdown
C i
Toronto London
Copenhagen
ParisNyon
Istanbul
Moscow
New YorkChicago
Mexico City
Istanbul
Beijing Seoul Tokyo
Hong Kong
Sarasota
4Q2010 Revenues
Dubai
Aspen
West Palm Beach
Garden City
EMEAAmericas
27 5%
APAC15.7%
Singapore
Johannesburg
São PauloRio de Janeiro
4Q2010 Revenues
EMEA56.8%
27.5%Sydney
Johannesburg
Americas Revenue up 10.5% y-o-yAsia Pacific Revenue up 4.5% y-o-yEurope Middle East & Africa Revenue up 7 1% y o y
5
Europe, Middle East & Africa Revenue up 7.1% y-o-y
Note: Based on Distributable Earnings. Totals may not sum due to rounding. See the second to last page of this presentation for average exchange rates for the period.
Full Year 2010 Global Revenue Breakdown
C i
Toronto London
Copenhagen
ParisNyon
Istanbul
Moscow
New YorkChicago
Mexico City
Istanbul
Beijing Seoul Tokyo
Hong Kong
Sarasota
FY2010 Revenues
Dubai
Aspen
West Palm Beach
Garden City
Americas31 0%
APAC15.0%
Singapore
Johannesburg
São PauloRio de Janeiro
FY2010 Revenues
EMEA54.0%
31.0% Sydney
Johannesburg
Americas Revenue up 36.9% y-o-yAsia Pacific Revenue up 19.9% y-o-yE ro e Middle East & Africa Re en e 2 7% o
6
Note: Based on Distributable Earnings. Total may not sum due to rounding. See the second to last page of this presentation for average exchange rates for the period.
Europe, Middle East & Africa Revenue up 2.7% y-o-y
4Q2010 Revenue Breakdown by Product
Equities and Market data & software
Fees from related
parties, interestOther Asset
Classes 13.5%
software2.3%
parties, interest & other income
5.4%
Revenues related to fully
Rates 42.1%
Foreign Exchange
14.9%
Revenues related to fully electronic trading* = 10.0% of total DE revenues in 4Q2010 vs. 9.2% in 4Q2009
Credit 21 8%21.8%
Up 16.1% y-o-y
7
* This includes fees captured in both the “total brokerage revenues” and “ fees from related party” line items related to fully electronic trading. Note: percentages may not sum to 100% due to rounding.
Full Year 2010 Revenue Breakdown by Product
Equities and Market data & software
Fees from related
parties, interest
Foreign
Other Asset Classes 13.3%
software2.0%
parties, interest & other income
6.0%
Revenues related to fully
Rates 41.7%
gExchange
13.8%
Revenues related to fully electronic trading* = 9.4% of total DE revenues in FY2010 vs. 8.2% in FY2009
Credit 23 3%23.3%
Up 30.7% y-o-y
8
* This includes fees captured in both the “total brokerage revenues” and “ fees from related party” line items related to fully electronic trading. Note: percentages may not sum to 100% due to rounding.
Brokerage Overview: Rates% of 4Q2010 Total Distributable Earnings % of 4Q2010 Total Distributable Earnings
• Interest rate derivatives• US Treasuries• Global Government Bonds
% of 4Q2010 Total Distributable Earnings Revenue
% of 4Q2010 Total Distributable Earnings RevenueExample of ProductsExample of Products
Rates42.1%
Global Government Bonds• Agencies• Futures• Dollar derivatives• Repurchase agreementsp g• Non-deliverable swaps• Interest rate swaps & options
Rates Revenue Growth Rates Revenue Growth DriversDrivers
$500
$600$483.2
$556.2
s)
• Voice & fully electronic cash rates business grew due to continuing strong fixed income issuance globally
• Global activity aided by heightened global levels
$0
$100
$200
$300
$400
$125.9 $135.9
(USD
mill
ions• Global activity aided by heightened global levels
of interest rate volatility
• BGC’s continued investment in its Rates franchise
9
$0FY 2009 FY 2010 Q4 2009 Q4 2010
Treasury Quarterly Net Borrowing
Record US Treasury Issuance = Continued Tailwind
$500
$600
Short Term Bills Start Rolling
Over to Longer Dated
$300
$400 Total Estimate
Over 10 year TIPS
5-10 year TIPS
Over 10 years
5-10 years
$100
$200
Borr
owin
g ($
in b
illio
ns) 2-under 5 years
Bills
($100)
$0
I-2005 II III IV I-2006 II III IV I-2007 II III IV I-2008 II III IV I-2009 II III IV I -2010 II III IV I -2011 II
Estimate
($300)
($200)
BGC generally trades 2-year or longer dated UST securities
10
Source: US Department of the Treasury. Data for Q2 2011 is the projected estimate for net borrowing. Treasury Fiscal Year ends September 30th.
7820,000
US Federal Debt Balance Should Keep Growing…
74
7618,000
s)
Projections
70
72
14,000
16,000 Percent olions
of d
olla
rs
66
6812,000
, of GD
PD
ebt
(in
bill
62
64
66
8,000
10,000
628,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Debt Held by the Public Debt Held by the Public as a % of GDP
11
Source: Congressional Budget Office, “The Budget and Economic Outlook: Fiscal Years 2011 to 2021,” January 2011.
8%85%
…As Should EU Deficits and Gross Debt
6%
7%
8%
80%
85%
4%
5%
70%
75% Percent of Gen
t of
GD
P
2%
3%
60%
65%
GD
PPe
rce
0%
1%
55%
60%
2008 2009 2010 2011 2012
Even as deficits begin to stabilize as a percentage of GDP, gross debt continues to riseA i l d fi i i di i b h b d d h i l d i d di d i i
Debt (lef t axis) Def icit (right axis)
Estimates
As national deficits rise, trading in both bonds and their related interest rate and credit derivatives increases
12
Source: European Commission. “European Economic Forecast-Autumn 2010,” published 11/29/10.
Brokerage Overview: Credit
• Credit derivatives
% of 4Q2010 Total Distributable Earnings Revenue
% of 4Q2010 Total Distributable Earnings RevenueExample of ProductsExample of Products
Credit21.8%
• Asset-backed securities
• Convertibles
• Corporate bonds
Hi h i ld b d• High yield bonds
• Emerging market bonds
Credit Revenue GrowthCredit Revenue GrowthDriversDrivers
$500
• Primarily lower industry-wide corporate bond and credit derivative activity
$100
$200
$300
$400 $331.4$311.0
$70.4 $70.3
(USD
mill
ions
)• Partially offset by a significant increase in revenues from fully electronic credit trading
• Strong y-o-y growth in sovereign CDS $0
FY 2009 FY 2010 Q4 2009 Q4 2010
13
Strong y o y growth in sovereign CDS activity
Sovereign CDS Activity Remains Strong
5 Year sovereign CDS spreads remained elevated in Q4
5 Year Sovereign CDS Spreadsg p
Sovereign risk has significantly increased over the last
decade
14
Source: Top Left: The Economist Magazine, The World in 2011 Special Edition.Bottom Right Bloomberg, 1/20/10 – 1/20/11.
Brokerage Overview: Foreign Exchange % f 4Q2010 T t l Di t ib t bl E i % f 4Q2010 T t l Di t ib t bl E i
FX
• Foreign exchange options• G-10• Emer in markets
% of 4Q2010 Total Distributable Earnings Revenue
% of 4Q2010 Total Distributable Earnings RevenueExample of ProductsExample of Products
14.9%• Emerging markets• Cross currencies• Exotic options• Spot FX
E i k FX i• Emerging market FX options• Exotic FX options• Non-deliverable forwards
Foreign Exchange Revenue GrowthForeign Exchange Revenue GrowthDriversDrivers
$175$183.8
g gg g
• Continuing rebound in global volumes particularly as credit issues continue to ease for customers of
$50
$75
$100
$125
$150 $136.5
$38.5 $48.0
(USD
mill
ions
)BGC’s Emerging Markets desks
• Growth in BGC’s market share
• Also driven by significant y-o-y growth in revenues from BGC’s fully
15
$0
$25
$
FY 2009 FY 2010 Q4 2009 Q4 2010
growth in revenues from BGC s fully electronic foreign exchange business
BGC Compares Favorably to Overall FX Industry
October 2010 Y-O-Y OTC
20%
15%14%
BGC 4Q2010 FX Revenues up 25% Y-O-Y
30%
25%23%
Central Bank FX Average Daily Volume Growth
10%
10%
(Gro
wth
)
20%
23%
14%wth
)
10% 7%(AD
V G
row
0%CME FX Futures
ICAP Spot FX Reuters Spot FX
0%UK Singapore US Canada
4Q2010 Y-O-Y Industry FX Volumes Growth
16
Left Graph: Source: ICAP, CME, Reuters websites. CME FX Futures growth based on total volume, ICAP Spot FX and Reuters Spot FX based on average daily volume. Right Graph: Central Bank FX average daily volume growth is calculated based on the sum of “Traditional FX” defined as spot, forwards, and FX swaps and “FX Derivatives” defined as currency swaps and FX options. FX Sources: New York Fed FX Committee, Canadian FX Committee, Singapore FX Market Committee, UK FX Joint Standing Committee. All Growth Percentages Based on Average Daily volumes in USD.
Brokerage Overview: Equities & Other Asset Classes
Equities &
% of 4Q2010 Total Distributable Earnings Revenue
% of 4Q2010 Total Distributable Earnings RevenueExample of ProductsExample of Products
• Equity derivatives qOther13.5%
• Cash Equities
• Index futures
• Commodities
Equities & Other Asset Classes Revenue GrowthEquities & Other Asset Classes Revenue Growth
• Energy derivatives
• Other derivatives and futures
DriversDrivers qq
$125$150$175$200
$122.5
$177.6
ons)
• Strong growth globally from the Company’s increased investment in equity related products
$0$25$50$75
$100$125
$38.7$43.5
(USD
mill
ioq y p
• The addition of assets from Mint
• Growth from BGC’s energy and commodities desks
17
FY 2009 FY 2010 Q4 2009 Q4 2010
FY 2010 Y-O-Y GrowthFY 2010 Y-O-Y Growth
“Equities and Other” Desks Outperform Overall Market
45%55%
65%
45%
25%
35%
45%
owth
)
8% 7%11%
15%
-15%5%
15%
25%
(Gro
15%
-15%
-5% OCC US Equity
Options Volumes
Eurex Equity Derivatives
Volumes (includes OTC)
CME Energy Volumes(includes
OTC)
ICE OTC Energy
Revenues
BGC’s “Equities and Other” Revenues
Total US EquitiesVolume (Tapes
A+B+C)-25%
Note: Cash equities growth percentages based on average daily shares traded for US exchanges. Equity Derivatives based on equity option
A+B+C)
18
average daily volume from OCC, for ICE growth percentages are based on average daily commissions, and for CME growth is based onaverage daily volume. For Eurex , growth is based on average daily total equity derivatives volume which includes single name and index. Sources: erdesk.com for US equities volumes, OCC for US Equity option volumes, Credit Suisse research for Eurex volumes, company press releases for CME volumes and ICE energy revenues.
BGC Front Office Employee Growth
$1,200
Front Office Productivity (in thousands)Front Office Productivity (in thousands)Front Office HeadcountFront Office Headcount
$800
$1,000
$799.5 $784.7
1,553 1,551 1,612 1,721 1,705
1 000
1,500
2,000
Em
ploy
ees)
$400
$600
($ t
hous
ands
)0
500
1,000
(Fro
nt O
ffice
$0
$200
$400
$188.2 $180.2
4Q 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010$0
2009 2010 4Q2009 4Q2010
Historically, the Company’s average revenue per front office employee has declined for the periods following significant headcount increases. BGC Partners’ new front office employees generally achieve higher productivity levels in their second year with the Company
19
Note: Front office productivity is calculated as “total brokerage revenue,” “market data and software sales revenue,” and the portion of “ fees from related party” line items related to fully electronic trading divided by average front office headcount for the relevant period.
BGC Fully Electronic Growth
$40$15
Fully Electronic Revenues (in millions)*Fully Electronic Revenues (in millions)*Fully Electronic Volumes (in trillions)Fully Electronic Volumes (in trillions)
$30
$35
$27.7
$31.3 $31.6$30.3
$32.2
$11.6$11.9
$10.7
$11.8
$20
$25
($ m
illio
ns)
$10$8.9
($ t
rilli
ons)
$15
$
$104Q2009 1Q2010 2Q2010 3Q2010 4Q2010
$54Q2009 1Q2010 2Q2010 3Q2010 4Q2010
Over time, higher fully electronic revenues has = improved margins
20
* This includes fees captured in both the “total brokerage revenues” and “ fees from related party” line items related to fully electronic trading.
BGC Partners Compensation Ratio
$644 9 $719.6 $713.3
65.5%
57.7% 58.2% 60.9%56.2% 60%
70%
$600
$700
$800
$560.0
$644.9 $719.6 $713.3 $749.8
30%
40%
50%
$400
$500
$600
mill
ions
)
10%
20%
30%
$100
$200
$300 ($
0%$0
$
2006 2007 2008 2009 2010
Compensation and Employee Benefits Compensation and Employee Benefits as % of Total Revenue
Compensation ratio was 53.8% in 4Q2010 vs. 61.5% in 4Q2009
21
Operating Leverage / Fixed Expense Base
36%
46%
40%
50%
11% 10% 14%
30%29%31%
20%
30%
6% 10%
(10%)
0%
10%
(11%)(20%)
FY2006 FY 2007 FY 2008 FY 2009 FY2010Pre-tax distributable earnings as % of Total Revenue Non-comp Expenses as a % of Total Revenue
Non-comp expenses were 32.1% of distributable earnings revenues in 4Q2010 versus 30.8% in 4Q2009 Pre-tax distributable earnings margin was 14.1% in 4Q2010 vs. 7.7% in 4Q2009 Post-tax distributable earnings margin was 11.7% in 4Q2010 vs. 5.0% in 4Q2009
22
Note: FY 2006 based on GAAP pre-tax margin.
BGC Revenue Trend (millions)
$375
$400
$349$355
$370Outlook
Up 2% - 6% y-o-y
$325
$350
$322
$349
ns)
$300
$3 5$300
($ m
illio
n
$250
$275
$200
$225
$200Q4 2009 Q4 2010 Q1 2010 Q1 2011 low Q1 2011 high
23
Distributable Earnings Growth
Pre-tax Distributable Earnings GrowthPre-tax Distributable Earnings Growth Post-tax Distributable Earnings GrowthPost-tax Distributable Earnings Growth
Up 26% - 40% y-o-yUp 27% - 40% y-o-y
$45
$50
$55
$60
$39.8 $38 1
$48.0
$54.0
$55
$60
$65
$70
$57.0$63.0
Outlook Outlook
p y y
$25
$30
$35
$40
$39.8 $38.1
($ m
illio
ns)
$35
$40
$45
$50 $45.4 $44.8
$ m
illio
ns)
$10
$15
$20
$25
$14.8
(
$10
$15
$20
$25
$30 $23.0
($
$0
$5
4Q09 4Q10 1Q10 1Q11 Low
1Q11 High
$0
$5
$10
4Q09 4Q10 1Q10 1Q11 Low
1Q11 High
24
Fourth quarter pre-tax & post-tax distributable earnings per fully diluted share were up 73% and 143% y-o-y, respectively
150
Strong Monthly Revenue Performance ($MM)
9496
10199
10398 100 98
110
102 104102 101
104
118 118126
100
125
2007 Revenue
2008 Revenue
83 82
89
7581
89
81
75
2008 Revenue
buta
ble
($M
M)
150
50
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
hly
Dis
trib
Rev
enue
s
January 2011 Revenue = 123, up 4% y-o-y
100
85
10196 95
10398
111 110
101
88
118
108
122
113119
105
97
107
122
115 115
93100
125
2009 Revenue
2010 Revenue
GC
Mon
tE
arni
ngs
R
8582
50
75
BG E
50Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
25
Note: January 2011 revenue number is preliminary.
BGC Economic Ownership as of 12/31/2010
Employees,
Public29%
p oyees,Executives, & Directors
37%
29%
CantorCantor34%
26
Note: Employee ownership figure attributes all PSIs, PSUs, RSUs, REUs, BGC units and distribution rights to founding partners & employees and includes all A shares owned by executives and directors. Cantor ownership includes all Cantor A and B shares as well as all Cantor exchangeable units and distribution rights to Cantor partners. Public ownership includes all A shares not owned by insiders. The above chart excludes shares related to convertible debt.
Tax Equivalent Yield AnalysisTAX ASSUMPTIONS BGCP STOCK ASSUMPTIONS
Q lifi d O di
Annual Dividend
BGCP Price Pre Tax YieldQualified Ordinary Dividend Price Pre-Tax Yield
Federal 15.0% 35.0% 0.56$ 8.77$ 6.4%New York State 9.0% 9.0%New York City 3.9% 3.9%Net itemized deduction -4.5% -4.5%ff 23 3% 43 3%effective rate 23.3% 43.3%
Scenario 1: 10 % is non-taxable XYZ Corporation = pays qualified dividend, 100% taxableS i 2 18 " " ABC F d di ib i bl di i
NON-TAXABLE PERCENTAGE OF BGCP DIVIDEND ASSUMPTIONS
ASSUMPTIONS ABOUT ALTERNATIVE INVESTMENTS
Scenario 2: 18 " " ABC Fund = pays distribution taxable as ordinary income Scenario 3: 40 " "Scenario 4: 80 " "Scenario 5: 100 " "
BGCP VERSUS ALTERNATE INVESTMENTS
BGC Pre-tax Yield
BGC After-
Tax Yield
Required Pre-Tax
Yield "XYZ"
Required Pre-Tax
Yield "ABC"tax Yield Tax Yield XYZ ABC
10 6.2% 4.9% 6.4% 8.7%18 6.2% 5.2% 6.7% 9.1%40 6.2% 5.4% 7.0% 9.4%
80 6.2% 5.9% 7.7% 10.5%100 6 2% 6 2% 8 1% 11 0%
% BGC Dividend
Non-Taxable
27
100 6.2% 6.2% 8.1% 11.0%
BGC Pre tax Yield BGC After Tax Yield Required Pre Tax Yield "XYZ" Required Pre Tax Yield "ABC"
Tax Equivalent Yield Analysis (Continued)
10.5%11.0%
11.0%
12.0%
BGC Pre-tax Yield BGC After-Tax Yield Required Pre-Tax Yield XYZ Required Pre-Tax Yield ABC
18% = Actual expected non-taxable percentage for 2010
7 7%8.1%
8.7%9.1%
9.4%
8 0%
9.0%
10.0%
6.2% 6.2% 6.2% 6.2% 6.2%
5 4%
5.9%6.2%6.4%
6.7%7.0%
7.7%
6.0%
7.0%
8.0%
4.9%5.2% 5.4%
4.0%
5.0%
3.0%
10 18 40 80 100
% BGC Dividend Non-Taxable
28
Average Exchange Rates
Averageg
FY 2010 FY 2009 4Q2010 4Q2009 Jan. 2011 Jan. 2010
US Dollar 1 1 1 1 1 1
British Pound 1.546 1.566 1.582 1.633 1.577 1.615
Euro 1.328 1.395 1.360 1.477 1.336 1.426
Hong Kong Dollar 0.129 0.129 0.129 0.129 0.129 0.129
Singapore Dollar 0.734 0.689 0.768 0.717 0.777 0.715Singapore Dollar 0.734 0.689 0.768 0.717 0.777 0.715
Japanese Yen* 87.750 93.580 82.520 89.810 82.510 91.290
29
Source: Oanda.com. *Inverted.
Distributable EarningsBGC Partners uses non-GAAP financial measures including "Revenues for distributable earnings," "pre-tax distributable earnings" and "post-tax distributable earnings," which are supplemental measures of operating performance that are used by management to evaluate the financial performance of the Company and its subsidiaries. BGC Partners believes that distributable earnings best reflects the operating earnings generated by the Company on a consolidated basis and are the earnings which management considers believes that distributable earnings best reflects the operating earnings generated by the Company on a consolidated basis and are the earnings which management considers available for distribution to BGC Partners, Inc. and its common stockholders, as well as to holders of BGC Holdings partnership units during any period. As compared with "income (loss) from operations before income taxes," "net income (loss) for fully diluted shares," and "fully diluted earnings (loss) per share," all prepared in accordance with GAAP, distributable earnings calculations primarily exclude certain non-cash compensation and other expenses which generally do not involve the receipt or outlay of cash by the Company, which do not dilute existing stockholders, and which do not have economic consequences, as described below. Revenues for distributable earnings are defined as GAAP revenues excluding the impact of BGC Partners, Inc.'s non-cash earnings or losses related to its equity investments, such as in Aqua Securities, L.P. and ELX Futures, L.P., and its holding company general partner, ELX Futures Holdings LLC. Pre-tax distributable earnings are defined as GAAP income (loss) from operations before i l di i h i il h dil i d i i h N h k b d i i h f REU income taxes excluding items that are primarily non-cash, non-dilutive, and non-economic items, such as: Non-cash stock-based equity compensation charges for REUs granted or issued prior to the merger of BGC Partners, Inc. with and into eSpeed, as well as post-merger non-cash, non-dilutive equity-based compensation related to partnership unit exchange or conversion. Allocations of net income to founding/working partner and other units, including REUs, RPUs, PSUs and PSIs. Non-cash asset impairment charges, if any. Acquisition-related costs not capitalized under GAAP. Distributable earnings calculations also exclude charges related to purchases, cancellations or redemptions of partnership interests and certain one-time or non-recurring items, if any. Since distributable earnings are calculated on a pre-tax basis, management intends to also report "post-tax distributable earnings" and "post-tax distributable earnings per fully diluted share“: "Post-tax distributable earnings" are defined as pre-tax distributable earnings adjusted to assume that all pre-tax distributable earnings were taxed at the same effective rate. "Post-tax distributable earnings per fully diluted share" are defined as post-tax distributable earnings divided by the weighted-average number of fully diluted shares for the period. In the event that there is a GAAP loss but positive distributable earnings, the distributable earnings per share calculation will include all fully diluted shares that would be excluded under GAAP to avoid anti-dilution, but will exclude quarterly interest expense, net of tax, associated with the convertible notes. Each quarter, the dividend to common stockholders is expected to be determined by the Company’s Board of Directors with reference to post-tax distributable earnings per share. In addition to the Company’s quarterly dividend to common stockholders, BGC Partners expects to pay a pro rata distribution of net income to BGC Holdings founding/working partner and other units, including REUs, RPUs, PSUs and PSIs, and to Cantor for its noncontrolling interest. The amount of all of these payments is expected to be determined using the above definition of pre-tax distributable earnings per share. Most employees who are holders of RSUs are granted pro-rata payments equivalent to the amount of dividends paid to common stockholders. Under GAAP, dividend equivalents p y g p p y q p , qon RSUs are required to be taken as a compensation charge in the period paid. However, to the extent that they represent cash payments made from the prior period's distributable earnings, they do not dilute existing stockholders and are therefore excluded from the calculation of distributable earnings. Distributable earnings is not meant to be an exact measure of cash generated by operations and available for distribution, nor should it be considered in isolation or as an alternative to cash flow from operations or income (loss) for fully diluted shares. The Company views distributable earnings as a metric that is not necessarily indicative of liquidity or the cash available to fund its operations. Pre- and post-tax distributable earnings are not intended to replace the Company’s presentation of GAAP financial results. However, management believes that they help provide investors with a clearer understanding of BGC Partners’ financial performance and offer useful information to both management and investors regarding certain financial and business trends related to the Company’s financial condition and results of operations Management believes that distributable earnings and the GAAP certain financial and business trends related to the Company s financial condition and results of operations. Management believes that distributable earnings and the GAAP measures of financial performance should be considered together. Management does not anticipate providing an outlook for GAAP revenues, “income (loss) from operations before income taxes”, “net income (loss) for fully diluted shares,” and “fully diluted earnings (loss) per share”, because the items previously identified as excluded from pre-tax distributable earnings and post-tax distributable earnings are difficult to forecast. Management will instead provide its outlook only as it relates to revenues for distributable earnings, pre-tax distributable earnings and post-tax distributable earnings. For both this description and a reconciliation to GAAP, see the sections of BGC’s most recent financial results press release titled “Distributable Earnings” and “Reconciliation of GAAP Income To Distributable Earnings”, which are incorporated by reference, and available in the “Investor Relations” section of our website at http://www.bgcpartners.com.
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