Additionally, Adjusted Earnings calculations exclude certain unusual,
one-time
or
non-recurring
items, if any. These items are excluded from Adjusted Earnings because the Company views excluding such items as a better reflection of the
ongoing, ordinary operations of Newmark. Newmarks definition of Adjusted Earnings also excludes certain gains and charges with respect to acquisitions, dispositions, or resolutions of litigation. Management believes that excluding such gains
and charges also best reflects the ongoing operating performance of Newmark.
Adjustments Made to Calculate
Post-Tax
Adjusted Earnings
Because Adjusted Earnings are calculated on a
pre-tax
basis, Newmark also intends to report
post-tax
Adjusted Earnings to fully diluted stockholders. Newmark defines
post-tax
Adjusted Earnings to fully diluted stockholders as
pre-tax
Adjusted Earnings reduced by the
non-GAAP
tax provision described below.
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, Newmark 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 grants of exchangeability to limited partnership units during the annual period. The resulting annualized tax rate is applied to Newmarks 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, Newmark 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, 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.
After application of these previously described adjustments, the result is the
Companys taxable income for Newmarks
pre-tax
Adjusted Earnings, to which the Company then applies the statutory tax rates. This amount is the Companys
non-GAAP
tax provision. Newmark views the effective tax rate on
pre-tax
Adjusted Earnings as equal to the amount of Newmarks
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 Newmarks
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.
Newmark 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 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., Newmark 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 Company would expect to pay if 100 percent of earnings were taxed at global corporate rates.
Calculations
of
Pre-Tax
and
Post-Tax
Adjusted Earnings per Share
Newmarks
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 interest 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
interest expense, net of tax.
|