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Commitments, Contingencies and Guarantees | 12 Months Ended
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Dec. 31, 2019
Commitments And Contingencies Disclosure [Abstract] |
Commitments, Contingencies and Guarantees |
20. | Commitments, Contingencies and Guarantees
Contractual Obligations and Commitments The following table summarizes certain of the Company’s contractual obligations at December 31, 2019 (in thousands):
|  | Total |  |  | Less Than 1 Year |  |  | 1-3 Years |  |  | 3-5 Years |  |  | More Than 5 Years |
Long-term debt and collateralized borrowings1 |  | $ | 1,153,696 |  |  | $ | 84,499 |  |  | $ | 315,946 |  |  | $ | 753,251 |  |  | $ | — |
Operating leases2 |  |  | 258,254 |  |  |  | 30,035 |  |  |  | 57,044 |  |  |  | 44,921 |  |  |  | 126,254 |
Interest on long-term debt and collateralized borrowings3 |  |  | 167,263 |  |  |  | 55,967 |  |  |  | 77,980 |  |  |  | 33,316 |  |  |  | — |
Short-term borrowings4 |  |  | 4,962 |  |  |  | 4,962 |  |  |  | — |  |  |  | — |  |  |  | — |
Interest on Short-term borrowings |  |  | 186 |  |  |  | 186 |  |  |  | — |  |  |  | — |  |  |  | — |
One-time transition tax5 |  |  | 19,431 |  |  |  | 1,266 |  |  |  | 2,533 |  |  |  | 6,384 |  |  |  | 9,248 |
Other6 |  |  | 3,999 |  |  |  | 3,999 |  |  |  | — |  |  |  | — |  |  |  | — |
Total contractual obligations |  | $ | 1,607,791 |  |  | $ | 180,914 |  |  | $ | 453,503 |  |  | $ | 837,872 |  |  | $ | 135,502 |
1 | Long-term debt and collateralized borrowings reflects long-term borrowings of $300.0 million of the 5.125% Senior Notes (the $300.0 million represents the principal amount of the debt; the carrying value of the 5.125% Senior Notes as of December 31, 2019 was approximately $298.7 million), $450.0 million of the 5.375% Senior Notes due 2023 (the $450.0 million represents the principal amount of the debt; the carrying value of the 5.375% Senior Notes as of December 31, 2019 was $445.2 million), $300.0 million of the 3.750% Senior Notes (the $300.0 million represents the principal amount of the debt; the carrying value of the 3.750% Senior Notes as of December 31, 2019 was approximately $296.1 million), $70.0 million of borrowings under the committed unsecured senior Revolving Credit Agreement due February 26, 2021 (the $70.0 million represents the principal amount of the debt; the carrying value of the committed unsecured senior Revolving Credit Agreement as of December 31, 2019 was approximately $68.9 million), $11.7 million of collateralized borrowings due May 31, 2021, $13.2 million of collateralized borrowings due April 8, 2023, and $8.8 million of collateralized borrowings due April 19, 2023. See Note 18—“Notes Payable, Other and Short-term Borrowings” for more information regarding these obligations, including timing of payments and compliance with debt covenants.
2 | Operating leases are related to rental payments under various non-cancelable leases, principally for office space, net of sublease payments to be received. The total amount of sublease payments to be received is approximately $0.1 million over the life of the agreement.
3 | Interest on long-term debt and collateralized borrowings also includes interest on the undrawn portion of the committed unsecured senior Revolving Credit Agreement which was calculated through the maturity date of the facility, which is February 26, 2021. As of December 31, 2019, the undrawn portion of the committed unsecured Revolving Credit Agreement was $280.0 million.
4 | Short-term borrowings reflects approximately $5.0 million (BRL 20.0 million) of borrowing under the Company’s committed unsecured loan agreement. See Note 18—“Notes Payable, Other and Short-term Borrowings” for more information regarding this obligation.
5 | The Company completed the calculation of the one-time transition tax on the deemed repatriation of foreign subsidiaries’ earnings pursuant to the Tax Act and previously recorded a net cumulative tax expense of $25.0 million, net of foreign tax credits, with an election to pay the taxes over eight years with 40% to be paid in equal installments over the first five years and the remaining 60% to be paid in installments of 15%, 20% and 25% in years six, seven and eight, respectively. The cumulative remaining balance as of December 31, 2019 is $19.4 million.
6 | Other contractual obligations reflect commitments to make charitable contributions, which are recorded as part of “Accounts payable, accrued and other liabilities” in the Company’s consolidated statements of financial condition. The amount payable each year reflects an estimate of future Charity Day obligations.
The Company is obligated for minimum rental payments under various non-cancelable operating leases, principally for office space, expiring at various dates through 2039. 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, 2019, minimum lease payments under these arrangements are as follows (in thousands):
|  | Net Lease Commitment |
2020 |  | $ | 30,035 |
2021 |  |  | 27,839 |
2022 |  |  | 29,205 |
2023 |  |  | 24,926 |
2024 |  |  | 19,995 |
2025 and thereafter |  |  | 126,254 |
Total |  | $ | 258,254 |
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 $0.1 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 Cantor’s various non-cancelable leases with third parties, principally for office space and computer equipment, expiring at various dates through 2039. Certain of these leases have renewal terms at the Company’s 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 14—“Related Party Transactions,” for more information). Rent expense for the years ended December 31, 2019, 2018 and 2017 was $56.0 million, $44.3 million and $46.5 million, respectively. Rent expense is included as part of “Occupancy and equipment” in the Company’s 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. There was no liability for future lease payments associated with vacant space as of December 31, 2019, 2018 and 2017. Contingent Payments Related to Acquisitions Since 2016, the Company has completed acquisitions whose purchase price included an aggregate of approximately 2.2 million shares of the Company’s Class A common stock (with an acquisition date fair value of approximately $9.2 million), 0.1 million LPUs (with an acquisition date fair value of approximately $0.2 million), 0.2 million RSUs (with an acquisition date fair value of approximately $1.2 million) and $34.3 million in cash that may be issued contingent on certain targets being met through 2022. The Company did not issue any contingent shares of Class A common stock, LPUs, RSUs or cash for acquisitions during the year ended December 31, 2019. During the year ended December 31, 2018, the Company completed acquisitions, whose purchase price included approximately 0.2 million RSUs (with an acquisition date fair value of approximately $1.2 million), and $16.8 million in cash that may be issued or paid contingent on certain targets being met through 2022. During the year ended December 31, 2019, the contingent cash consideration increased by approximately $4.6 million to $21.4 million in cash that may be paid due to an increase in probability of payout. The Company did not issue any contingent LPUs for acquisitions during the year ended December 31, 2018. During the year ended December 31, 2017, the Company completed acquisitions, whose purchase price included approximately 0.4 million shares of the Company’s Class A common stock (with an acquisition date fair value of approximately $3.5 million) and $3.9 million in cash that may be issued or paid contingent on certain targets being met through 2021. The Company did not issue any contingent LPUs for acquisitions during the year ended December 31, 2017. As of December 31, 2019, the Company has issued 0.3 million shares of its Class A common stock and paid $14.6 million in cash related to contingent payments for acquisitions completed since 2016. As of December 31, 2019, 1.9 million shares of the Company’s Class A common stock and 0.2 million RSUs remain to be issued, and $24.1 million in cash remains to be paid, net of forfeitures and other adjustments, if the targets are met. The Company’s contingent considerations are classified as Level 3 liabilities. See Note 13—“Fair Value of Financial Assets and Liabilities,” for additional information. 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 Company’s businesses, which may result in regulatory, civil and criminal judgments, settlements, fines, penalties, injunctions, enhanced oversight, remediation, 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 Company’s businesses. Any such actions may result in regulatory, civil or criminal judgments, settlements, fines, penalties, injunctions, enhanced oversight, remediation, or other relief. In September 2019, the Company settled investigations conducted jointly by the CFTC and the NYAG. The CFTC and NYAG alleged that, in 2014 and 2015, certain emerging markets foreign exchange options (EFX options) brokers in the U.S. misrepresented that certain prices posted to their electronic platform were immediately executable when in fact they were not and that such brokers had communicated that transactions had been matched when they had not. The Company has paid an aggregate of $25.0 million in connection with the settlements and agreed to a monitor for two years to assess regulatory compliance. The NYAG settlements include a non-prosecution agreement, and there was no criminal penalty from either agency. Legal reserves are established in accordance with U.S. GAAP 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 accruals 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 Company’s financial condition, results of operations, or cash flows. 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, 2019 and 2018, the Company was contingently liable for $2.3 million and $1.0 million, respectively, under these letters of credit. Risk and Uncertainties The Company generates revenues by providing financial intermediary and brokerage activities 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 markets. Additionally, financing is sensitive to interest rate fluctuations, which could have an impact on the Company’s 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 Company’s 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 $1.8 million and $6.1 million in health care claims as of December 31, 2019 and 2018, respectively. The Company does not expect 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 Company’s 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 Company’s consolidated statements of financial condition for these agreements. Indemnifications In connection with the sale of eSpeed, the Company has indemnified Nasdaq for amounts over a defined threshold against damages arising from breaches of representations, warranties and covenants. In addition, in connection with the acquisition of GFI, the Company has indemnified the directors and officers of GFI. As of December 31, 2019, no contingent liability has been recorded in the Company’s consolidated statements of financial condition for these indemnifications, as the potential for being required to make payments under these indemnifications is remote.

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