|TEGNA INC filed this Form 10-Q on 11/08/2018|
Income Tax Expense
Income tax expense increased $2.3 million, or 20%, in the third quarter of 2018 compared to the same period in 2017. Income tax expense increased $7.1 million, or 13%, in the first nine months of 2018 compared to the same period in 2017. The increase was primarily due to increases in net income before tax, partially offset by a reduction in the federal corporate tax rate from 35% to 21% as a result of the enactment of Tax Cuts and Jobs Act (the Tax Act). Our reported effective income tax rate was 12.9% for the third quarter of 2018, compared to 18.4% for continuing operations for the third quarter of 2017. Our reported effective income tax rate was 20.5% for the first nine months of 2018, compared to 27.5% for the same period in 2017. The tax rates for the 2018 periods are lower than the comparable 2017 periods primarily due to the corporate tax rate reduction and adjusting the provisional tax impacts of the Tax Act recorded in 2017 upon the completion of the federal tax return in the third quarter of 2018, partially offset by the repeal of the domestic manufacturing deduction as well as an increase in state income taxes due to the acquisition of KFMB.
Income From Continuing Operations
Income from continuing operations was $92.8 million, or $0.43 per diluted share, in the third quarter of 2018 compared to $50.8 million or $0.23 per diluted share during the same period in 2017. For the first nine months of 2018, we reported net income from continuing operations of $240.5 million, or $1.11 per diluted share, compared to $144.7 million, or $0.66 per diluted share, for the same period in 2017. Both income from continuing operations and earnings per share were affected by the factors discussed above.
The weighted average number of diluted shares outstanding in the third quarter of 2018 and 2017 was 216.3 million and 218.1 million, respectively. The weighted average number of diluted shares outstanding in the first nine months of 2018 and 2017 was 216.6 million and 217.8 million, respectively.
Results from Operations - Non-GAAP Information
Presentation of Non-GAAP information
We use non-GAAP financial performance and liquidity measures to supplement the financial information presented on a GAAP basis. These non-GAAP financial measures should not be considered in isolation from, or as a substitute for, the related GAAP measures, nor should they be considered superior to the related GAAP measures, and should be read together with financial information presented on a GAAP basis. Also, our non-GAAP measures may not be comparable to similarly titled measures of other companies.
Management and our Board of Directors use the non-GAAP financial measures for purposes of evaluating business unit and consolidated company performance. Furthermore, the Leadership Development and Compensation Committee of our Board of Directors uses non-GAAP measures such as Adjusted EBITDA, non-GAAP net income, non-GAAP EPS, Adjusted revenues and free cash flow to evaluate management’s performance. Therefore, we believe that each of the non-GAAP measures presented provides useful information to investors and other stakeholders by allowing them to view our business through the eyes of management and our Board of Directors, facilitating comparisons of results across historical periods and focus on the underlying ongoing operating performance of our business. We discuss in this Form 10-Q non-GAAP financial performance measures that exclude from our reported GAAP results the impact of “special items” consisting of severance expense, items related to asset impairment and other (gains) charges, TEGNA Foundation donations, certain non-operating expenses (business acquisition, pension payment timing related charges, and integration costs), costs associated with the Cars.com spin-off transaction, and a net gain on equity method investment. In addition, we have income tax special items associated with tax impacts associated with the acquisition of KFMB; and deferred tax benefit adjustments related to adjusting provisional tax impacts of tax reform (enacted in December 2017) and a partial capital loss valuation allowance release, both resulting from completion of our 2017 federal income tax return in the third quarter.
We believe that such gains, expenses and charges are not indicative of normal, ongoing operations. Such items vary from period to period and are significantly impacted by the timing and nature of these events. Therefore, while we may incur or recognize these types of gains, expenses and charges in the future, we believe that removing these items for purposes of calculating the non-GAAP financial measures provides investors with a more focused presentation of our ongoing operating performance.
We discuss Adjusted EBITDA (with and without corporate expenses), non-GAAP financial performance measures that we believe offers a useful view of the overall operation of our businesses. We define Adjusted EBITDA as net income from continuing operations before (1) interest expense, (2) income taxes, (3) equity income (losses) in unconsolidated investments, net, (4) other non-operating items such as corporate transaction expenses (such as business acquisition and disposition costs) and investment income, (5) severance expense, (6) asset impairment and other (gains) charges, (7) impairment charges, (8) depreciation and (9) amortization. The most directly comparable GAAP financial measure to Adjusted EBITDA is Net income from continuing operations. Users should consider the limitations of using Adjusted EBITDA, including the fact that this measure does not provide a complete measure of our operating performance. Adjusted EBITDA is not intended to purport to be an alternative to net income as a measure of operating performance or to cash flows from operating activities as a measure of