Quarterly Report — Form 10-Q — Sect. 13 / 15(d) – SEA’34 Filing Table of Contents
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14: R2 Condensed Consolidated Balance Sheets HTML 140K
15: R3 Condensed Consolidated Balance Sheets HTML 30K
(Parenthetical)
16: R4 Consolidated Statements of Income HTML 114K
17: R5 Consolidated Statements of Comprehensive Income HTML 53K
18: R6 Condensed Consolidated Statements of Cash Flows HTML 108K
19: R7 Condensed Consolidated Statements of Cash Flows HTML 20K
(Parenthetical)
20: R8 Basis of Presentation HTML 36K
21: R9 Goodwill and Other Intangible Assets HTML 50K
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23: R11 Income Taxes HTML 22K
24: R12 Long-Term Debt HTML 51K
25: R13 Retirement Plans HTML 48K
26: R14 Supplemental Equity Information HTML 188K
27: R15 Earnings Per Share HTML 82K
28: R16 Fair Value Measurement HTML 73K
29: R17 Business Segment Information HTML 75K
30: R18 Other Matters HTML 28K
31: R19 Discontinued Operations HTML 106K
32: R20 Basis of Presentation (Policies) HTML 43K
33: R21 Goodwill and Other Intangible Assets (Tables) HTML 47K
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Assets and Goodwill (Details)
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Investments and Other Assets (Details)
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Rollforward (Details)
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Other Comprehensive Loss (Details)
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Reclassifications out of Accumulated Other
Comprehensive Loss (Details)
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57: R45 Fair Value Measurement (Details) HTML 43K
58: R46 Fair Value Measurement - Narrative (Details) HTML 53K
59: R47 Business Segment Information (Details) HTML 36K
60: R48 Business Segment Information - Narrative (Details) HTML 32K
61: R49 Other Matters - Narrative (Details) HTML 50K
62: R50 Discontinued Operations - Narrative (Details) HTML 87K
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Disclosures (Details)
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(Details)
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Registrant’s telephone number, including area code: (703) 873-6600.
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer
x
Accelerated filer
¨
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
Smaller reporting company
¨
Emerging
growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. c
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ¨ No x
The
total number of shares of the registrant’s Common Stock, $1 par value, outstanding as of September 30, 2017 was 215,205,823.
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation and amortization
117,762
153,197
Stock-based
compensation
14,189
13,216
Loss on sale of CareerBuilder
342,900
—
Other losses on sales of assets and impairment charges
19,803
24,082
Equity
losses in unconsolidated investments, net
1,488
6,530
Pension (contributions), net of expense
(12,547
)
2,135
Spectrum channel share
agreement proceeds
32,588
—
Change in other assets and liabilities, net
(76,421
)
(88,153
)
Net cash flow from operating activities
351,183
454,763
Cash
flows from investing activities:
Purchase of property and equipment
(63,846
)
(68,577
)
Payments for acquisitions of businesses, net of cash acquired
—
(196,751
)
Payments
for investments
(2,778
)
(19,132
)
Proceeds from sale of CareerBuilder, net of $36,581 cash transferred
198,342
—
Proceeds from investments
15,122
10,127
Proceeds
from sale of assets
5,659
1,024
Net cash flow from (used for) investing activities
152,499
(273,309
)
Cash flows from financing activities:
(Payments)
proceeds of borrowings under revolving credit facilities, net
(635,000
)
10,000
Proceeds from Cars.com borrowings
675,000
—
Proceeds
from other borrowings
—
300,000
Debt repayments
(99,185
)
(249,592
)
Payments of debt issuance costs
(6,208
)
(1,684
)
Dividends
paid
(75,109
)
(91,627
)
Repurchases of common stock
(8,453
)
(150,917
)
Distributions to noncontrolling membership interests
(22,980
)
—
Cash
transferred to the Cars.com business
(20,133
)
—
Other, net
(5,180
)
(19,505
)
Net cash flow used for financing activities
(197,248
)
(203,325
)
Increase
(decrease) in cash and cash equivalents
306,434
(21,871
)
Cash and cash equivalents from continuing operations, beginning of period
15,879
26,096
Cash
and cash equivalents from discontinued operations, beginning of period
61,041
103,104
Balance of cash and cash equivalents, beginning of period
76,920
129,200
Cash
and cash equivalents from continuing operations, end of period
383,354
19,185
Cash and cash equivalents from discontinued operations, end of period
—
88,144
Balance
of cash and cash equivalents, end of period
$
383,354
$
107,329
Supplemental cash flow information:
Cash
paid for income taxes, net of refunds
$
104,422
$
145,052
Cash paid for interest
$
133,752
$
153,510
The
accompanying notes are an integral part of these condensed consolidated financial statements.
7
TEGNA Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – Basis of presentation
Basis of presentation: Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial reporting, the
instructions for Form 10-Q and Article 10 of the U.S. Securities and Exchange Commission (SEC) Regulation S-X. Accordingly, they do not include all information and footnotes which are normally included in the Form 10-K and annual report to shareholders. In our opinion, the condensed consolidated financial statements reflect all adjustments of a normal recurring nature necessary for a fair presentation of results for the interim periods presented. The condensed consolidated financial statements should be read in conjunction with our (or “TEGNA’s”) audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016.
The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported in the
condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates. Significant estimates include, but are not limited to, evaluation of goodwill and other intangible assets for impairment, fair value measurements, post-retirement benefit plans, income taxes including deferred taxes, and contingencies. The condensed consolidated financial statements include the accounts of subsidiaries we control and variable interest entities (VIEs) if we are the primary beneficiary. We eliminate all intercompany balances, transactions, and profits in consolidation. Investments in entities over which we have significant influence, but do not have control, are accounted for under the equity method. Our share of net earnings and losses from these ventures is included in “Equity (loss) income in unconsolidated investments, net” in the Consolidated
Statements of Income. In addition, certain reclassifications have been made to prior years’ consolidated Statements of Income to conform to the current year’s presentation.
On May 31, 2017, we completed the spin-off of our digital automotive marketplace business, Cars.com. In addition, on July 31, 2017, we completed the sale of our majority ownership stake in CareerBuilder. Our digital marketing services (DMS) business is now reported within our Media business. As a result of these strategic actions, we have disposed of substantially all of our Digital Segment business and have therefore classified its historical financial results as discontinued operations. See Note 12, “Discontinued Operations”, for further details regarding the spin-off of Cars.com and the sale of CareerBuilder
and the impact of each transaction on our condensed consolidated financial statements.
Accounting guidance adopted in 2017: In March 2017, the Financial Accounting Standards Board (FASB) issued new guidance that changes the presentation of net periodic pension and other post-retirement benefit costs (post-retirement benefit costs) in the Consolidated Statements of Income. Under this new guidance, the service cost component of the post-retirement benefit expense will continue to be presented as an operating expense while all other components of post-retirement benefit expense will be presented as non-operating expense. Previously, all components of post-retirement benefit expense were presented as operating expense in the Consolidated Statements of Income. The FASB permitted early adoption of this guidance, and we elected to early adopt in the first quarter
of 2017. We believe the new guidance provides enhanced financial reporting by limiting operating expense classification to the service cost component of post-retirement benefit expense. Service cost is the component of the expense that relates to services provided by employees in the current period and thus better reflects the current continuing operating costs. Changes to the classification of Consolidated Statements of Income amounts resulting from the new guidance were made on a retrospective basis, wherein each period presented was adjusted to reflect the effects of applying the new guidance. We utilized amounts previously disclosed in our retirement plan footnote to retrospectively apply the guidance. As a result of adopting this guidance, operating expenses in the third quarter and for the first nine months of 2017 were lower by $1.7 million and $4.9 million, respectively,
while non-operating expenses were higher by the same amounts. In 2016, operating expenses in the third quarter and first nine months were reduced by $1.8 million and $5.8 million, respectively, with corresponding increases in non-operating expenses as a result of adopting this new guidance. Net income, earnings per share, and retained earnings were not impacted by the new guidance.
In January 2017, the FASB issued guidance that eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the goodwill impairment test) to measure a goodwill impairment charge. Instead, companies will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on Step 1 of the impairment test). The
FASB permitted early adoption of this guidance, and we elected to early adopt in the second quarter of 2017 in connection with the calculation of CareerBuilder’s goodwill impairment charge, discussed in Note 12.
New accounting pronouncements not yet adopted: In May 2014, the FASB issued new guidance related to revenue recognition. Under the new guidance, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the guidance requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
We
will adopt the guidance beginning January 1, 2018. The two permitted transition methods are the full retrospective method, in which case the guidance would be applied to each prior reporting period presented and the cumulative effect of applying the guidance would be recognized at the earliest period shown; and the modified retrospective method, in which case
8
the cumulative effect of applying the guidance would be recognized at the date of initial application. We will adopt the guidance using the modified retrospective method.
While we continue to evaluate the full impact of the guidance, we do not believe that
it will have a material impact on our consolidated financial statements. We are in the process of evaluating the other requirements of the new standard, which may result in additional revenue related disclosures.
Based on our evaluation performed to date, we believe that 90% of our revenues will not be materially impacted by the new guidance. Specifically, our television spot advertising contracts, which comprised approximately 60% of 2016 revenue are short-term in nature with transaction price consideration agreed upon in advance. We expect revenue will continue to be recognized when commercials are aired. Further, we expect that subscription revenue earned under retransmission agreements will be
recognized under the licensing of intellectual property guidance in the standard, which will not have a material change to our current revenue recognition. Subscription revenue comprised approximately 30% of 2016 revenue. We continue to evaluate the impact to our online digital and other services revenue (which represents approximately 10% of our revenues).
In February 2016, the FASB issued new guidance related to leases which will require lessees to recognize assets and liabilities on the balance sheet for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current
GAAP—which requires only capital leases to be recognized on the balance sheet—the new guidance will require both types of leases to be recognized on the balance sheet. The new guidance is effective for us beginning in the first quarter of 2019 and will be adopted using a modified retrospective approach. We are currently evaluating the effect it is expected to have on our consolidated financial statements and related disclosures.
In June 2016, the FASB issued new guidance related to the measurement of credit losses on financial instruments. The new guidance changes the way credit losses on accounts receivable are estimated. Under current GAAP, credit losses on accounts receivable are recognized once it is probable that such losses will occur. Under the new guidance, we will be required to estimate credit losses based on the expected amount of future collections which may result
in earlier recognition of allowance for doubtful accounts. The new guidance is effective for public companies beginning in the first quarter of 2020 and will be adopted using a modified retrospective approach. We are currently evaluating the effect this new guidance will have on our consolidated financial statements and related disclosures.
In August 2016, the FASB issued new guidance which clarifies several specific cash flow classification issues. The objective of the new guidance is to reduce the existing diversity in practice in how these cash flows are presented in the statement of cash flows. The standard is effective for us beginning in the first quarter of 2018 and early adoption is permitted. One classification change we will make when we adopt the standard relates to payments made for premiums, fees paid to lenders and other related third party costs when debt is repaid early. Under the new guidance these payments
will be classified as financing cash outflows (we have historically classified these types of cash payments as operating outflows).
NOTE 2 – Goodwill and other intangible assets
The following table displays goodwill, indefinite-lived intangible assets, and amortizable intangible assets as of September 30, 2017 and December 31, 2016 (in thousands):
Total
indefinite-lived and amortizable intangible assets
$
1,361,389
$
(82,722
)
$
1,361,389
$
(66,550
)
Our
retransmission agreements and network affiliation agreements are amortized on a straight-line basis over their estimated useful lives. Other intangibles primarily include customer relationships which are amortized on a straight-line basis over their useful lives. During the second quarter of 2017, we recorded a goodwill impairment charge within discontinued operations related to our former CareerBuilder reporting unit. See Note 12 for further discussion.
Deferred
compensation investments: Employee compensation-related investments consist of debt and equity securities which are classified as trading securities and fund our deferred compensation plan liabilities.
Equity method investments: Investments over which we have the ability to exercise significant influence but do not control, are accounted for under the equity method of accounting. Significant influence typically exists when we own between 20% and 50% of the voting interests in a corporation, own more than a minimal investment in a limited liability company, or hold substantial management rights in the investee. Under this method of accounting, our share of the net earnings or losses of the investee is included in non-operating income on our Consolidated Statements of Income. We evaluate
our equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss equal to the excess of carrying value over fair value is recorded in earnings in the current period. Certain differences exist between our investment carrying value and the underlying equity of the investee companies, principally due to fair value measurement at the date of investment acquisition and due to impairment charges we recorded for certain investments. As part of the agreement to sell the majority of CareerBuilder, we retained an investment of approximately 17% (or approximately 12% on a fully-diluted basis) in the entity. Our ownership stake provides us with
two seats on CareerBuilder’s board of directors and thus we concluded that we have significant influence over the entity and have classified our investment as an equity method investment. In the third quarter of 2017, we recorded $0.5 million of equity earnings from our CareerBuilder investment.
On October 18, 2017, we closed on the sale of our equity investment in Livestream, a business specializing in live video streaming. Our share of the sale proceeds was $21.4 million.
Available for sale investment: Our investment in Gannett Co., Inc., common stock, was sold in its entirety during the third quarter of 2017. Proceeds
from the sale were $14.6 million and for the three months and nine months ended September 30, 2017 we recorded losses of $0.4 million and $3.9 million, respectively. These losses are reflected in the Other non-operating items, in the accompanying Consolidated Statements of Income.
Other long term assets: During the second quarter of 2017, we recognized a $5.8 million loss associated with a write-off of a note receivable from one of our equity method investments. This loss is reflected in Other non-operating items, in the accompanying Consolidated Statements of Income. The loss was a result of a decision made during the second
quarter of 2017 by the investee’s board of directors to discontinue the business, and the investee not having sufficient funds to repay the full note at that time.
Cost method investments: The carrying value of cost method investments was $15.3 million as of September 30, 2017 and $14.8 million as of December 31, 2016, and is included within other long term assets in the table above.
NOTE 4 – Income taxes
The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate
was approximately $9.7 million as of September 30, 2017, and $10.8 million as of December 31, 2016. The amount of accrued interest and penalties payable related to unrecognized tax benefits was $1.2 million as of September 30, 2017, and $1.5 million as of December 31, 2016.
It is reasonably possible that the amount of unrecognized benefits with respect to certain of our unrecognized tax positions will increase or decrease within the next 12 months. These changes may be the result of settlement of ongoing audits, lapses of statutes of limitations or
other regulatory developments. At this time, we estimate the amount of gross unrecognized tax positions may be reduced by up to approximately $3.5 million within the next 12 months primarily due to lapses of statutes of limitations and settlement of ongoing audits in various jurisdictions.
10
NOTE 5 – Long-term debt
Our long-term debt is summarized below (in thousands):
Unsecured floating rate term loan due quarterly through August 2018
$
28,400
$
52,100
VIE
unsecured floating rate term loans due quarterly through December 2018
808
1,292
Unsecured floating rate term loan due quarterly through June 2020
110,000
140,000
Unsecured
floating rate term loan due quarterly through September 2020
240,000
285,000
Borrowings under revolving credit agreement expiring June 2020
—
635,000
Unsecured
notes bearing fixed rate interest at 5.125% due October 2019
600,000
600,000
Unsecured notes bearing fixed rate interest at 5.125% due July 2020
600,000
600,000
Unsecured
notes bearing fixed rate interest at 4.875% due September 2021
350,000
350,000
Unsecured notes bearing fixed rate interest at 6.375% due October 2023
650,000
650,000
Unsecured
notes bearing fixed rate interest at 5.50% due September 2024
325,000
325,000
Unsecured notes bearing fixed rate interest at 7.75% due June 2027
200,000
200,000
Unsecured
notes bearing fixed rate interest at 7.25% due September 2027
240,000
240,000
Total principal long-term debt
3,344,208
4,078,392
Debt
issuance costs
(23,462
)
(27,615
)
Other (fair market value adjustments and discounts)
(4,934
)
(7,382
)
Total long-term debt
3,315,812
4,043,395
Less
current portion of long-term debt maturities
280,646
646
Long-term debt, net of current portion
$
3,035,166
$
4,042,749
In
connection with and prior to the completion of the spin-off, Cars.com borrowed an aggregate principal amount of approximately $675.0 million under a revolving credit facility agreement. The proceeds were used to make a tax-free distribution of $650.0 million from Cars.com to TEGNA. In the second quarter of 2017, TEGNA used $609.9 million of the tax-free distribution proceeds to fully pay down our then-outstanding revolving credit agreement borrowings plus accrued interest. As of September 30, 2017, we had an unused borrowing capacity of $1.5 billion under our revolving credit facility.
As a result of the sale of our majority ownership stake in CareerBuilder
we received cash proceeds of $198.3 million, net of cash transferred of $36.6 million. Additionally, during the third quarter of 2017 and prior to the closing of the sale, CareerBuilder issued a final cash dividend to its selling shareholders, of which $25.8 million was retained by TEGNA.
On October 16, 2017, we used the net proceeds from the CareerBuilder sale, as well as the remaining cash distribution from Cars.com and other cash on hand to retire $280.0 million of principal of our unsecured notes due in October 2019 on an accelerated basis. This principal amount was classified as current debt at the end of the third quarter of 2017 due to our
intention to retire it in October 2017.
On August 1, 2017, we amended our Amended and Restated Competitive Advance and Revolving Credit Agreement. Under the amended terms, our maximum total leverage ratio will remain at 5.0x through June 30, 2018, after which, as amended, it will be reduced to 4.75x through June 2019 and then to 4.5x until the expiration date of the credit agreement on June 29, 2020.
11
NOTE
6 – Retirement plans
Our principal defined benefit pension plan is the TEGNA Retirement Plan (TRP). The disclosure table below includes the pension expenses of the TRP and the TEGNA Supplemental Retirement Plan (SERP). The total net pension obligations, both current and non-current liabilities, as of September 30, 2017, were $199.0 million ($31.0 million is recorded as a current obligation within accrued liabilities on the Condensed Consolidated Balance Sheet).
Our pension costs, which include costs for the qualified TRP plan and the nonqualified SERP plan, are presented in the following table (in thousands):
The
service cost component of our pension expense is recorded within the operating expense line items Cost of revenue, Business units - Selling, general and administrative, and Corporate - General and administrative within the Consolidated Statements of Income. All other components of the pension expense are included within the Other non-operating items line item of the Consolidated Statements of Income.
During the nine months ended September 30, 2017 we made $10.9 million in cash contributions to the TRP, and plan to make additional contributions of $1.7 million to the TRP during the fourth quarter of 2017. We did not make any contributions to the TRP in 2016. During the nine months ended September
30, 2017 and 2016, we made benefit payments to participants of the SERP of $7.2 million and $4.2 million, respectively.
12
NOTE 7 – Supplemental equity information
The following table summarizes equity account activity for the nine months ended September 30, 2017 and 2016 (in thousands):
The
following table summarizes the components of, and the changes in, Accumulated Other Comprehensive Loss (AOCL), net of tax and noncontrolling interests (in thousands):
(1)
Our entire foreign currency translation adjustment is related to our CareerBuilder investment. As a result of deconsolidating the investment due to the sale of our majority ownership, we reclassified the translation adjustment from AOCL to the Consolidated Statement of Income as of the date of sale, July 31, 2017. Due to the noncontrolling stake that we retained in CareerBuilder, we will continue to record our ownership share of foreign currently translation adjustments through our equity method investment.
14
Reclassifications
from AOCL to the Statement of Income are comprised of pension and other post-retirement components and a loss on our available for sale investment. Pension and other post retirement reclassifications are related to the amortization of prior service costs and amortization of actuarial losses. The loss on our available for sale investments represents an other than temporary impairment (OTTI) recognized on our investment in shares of common stock of Gannett Co., Inc. in the second quarter of 2017. The OTTI loss represents the amount of loss previously recorded to AOCL which was recognized as a non-operating expense on the Consolidated Statement of Income due to the fact that we did not expect the investment to fully recover the losses prior to our sale of it. We sold the entirety of our investment in Gannett Co., Inc. common stock in the third quarter of 2017. Amounts reclassified out of AOCL are summarized below (in thousands):
(Loss)
income from discontinued operations, net of tax
(10,803
)
56,698
(233,261
)
132,141
Net loss (income) attributable to noncontrolling interests from discontinued
operations
2,806
(14,752
)
58,698
(40,178
)
Net income (loss) attributable to TEGNA Inc.
$
42,757
$
118,683
$
(29,881
)
$
303,578
Weighted
average number of common shares outstanding - basic
215,863
214,813
215,558
216,865
Effect of dilutive securities:
Restricted
stock units
828
1,630
880
1,662
Performance share units
721
775
674
1,049
Stock
options
683
881
715
935
Weighted average number of common shares outstanding - diluted
218,095
218,099
217,827
220,511
Earnings
from continuing operations per share - basic
$
0.24
$
0.36
$
0.67
$
0.98
(Loss)
earnings from discontinued operations per share - basic
(0.04
)
0.19
(0.81
)
0.42
Net income (loss) per share - basic
$
0.20
$
0.55
$
(0.14
)
$
1.40
Earnings
from continuing operations per share - diluted
$
0.23
$
0.35
$
0.66
$
0.96
(Loss)
earnings from discontinued operations per share - diluted
(0.04
)
0.19
(0.80
)
0.42
Net income (loss) per share - diluted
$
0.19
$
0.54
$
(0.14
)
$
1.38
Our
calculation of diluted earnings per share includes the impact of the assumed vesting of outstanding restricted stock units, performance share units, and the exercise of outstanding stock options based on the treasury stock method when dilutive. The diluted earnings per share amounts exclude the effects of approximately 96,000 and 142,000 stock awards for the three and nine months ended September 30, 2017, respectively; and 192,000 and 292,000 for the three and nine months ended September 30, 2016, respectively, as their inclusion would be accretive to earnings per share.
15
NOTE
9 – Fair value measurement
We measure and record in the accompanying condensed consolidated financial statements certain assets and liabilities at fair value. U.S. GAAP establishes a hierarchy for those instruments measured at fair value that distinguishes between market data (observable inputs) and our own assumptions (unobservable inputs). The hierarchy consists of three levels:
Level 1 - Quoted market prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than Level 1 inputs that are either directly or indirectly observable; and
Level 3 - Unobservable inputs developed using
our own estimates and assumptions, which reflect those that a market participant would use.
The following table summarizes our assets and liabilities measured at fair value in the accompanying Condensed Consolidated Balance Sheets as of September 30, 2017, and December 31, 2016 (in thousands):
Deferred
compensation investments valued using net asset value as a practical expedient:
Interest in registered investment companies
$
14,921
Fixed
income fund
13,672
Total investments at fair value
$
28,593
Fair
Value Measurements as of Dec. 31, 2016 (recast)
Level 1
Level 2
Level 3
Total
Available
for sale investment
16,744
—
—
16,744
Total
$
16,744
$
—
$
—
$
16,744
Deferred
compensation investments valued using net asset value as a practical expedient:
Interest in registered investment companies
$
10,140
Fixed
income fund
13,575
Total investments at fair value
$
40,459
Available
for sale investment: Our investment previously consisted of shares of common stock of Gannett Co., Inc., which had been classified as a Level 1 asset as the shares are listed on the New York Stock Exchange. During the second quarter of 2017 we recorded an OTTI loss in the non-operating items line item of the Consolidated Statement of Income, and in the third quarter of 2017 we sold the investment in its entirety.
Interest in registered investment companies: These investments include one fund which invests in intermediate-term investment grade bonds and a fund which invests in equities listed predominantly on European and Asian exchanges. Funds are valued using the net asset values as quoted through publicly available pricing sources and investments are redeemable on request.
Fixed
income fund investment: Valued using the net asset value provided monthly by the fund company and shares are generally redeemable on request. There are no unfunded commitments to these investments as of September 30, 2017.
In addition to the financial instruments listed in the table above, we hold other financial instruments, including cash and cash equivalents, receivables, accounts payable and debt. The carrying amounts for cash and cash equivalents, receivables and accounts payable approximated their fair values. The fair value of our total debt, based on the bid and ask quotes for the related debt (Level 2), totaled $3.49 billion at September 30, 2017, and $4.19 billion
at December 31, 2016.
The sale of the majority of our ownership in CareerBuilder resulted in a $342.9 million pre-tax loss recorded within discontinued operations (see Note 12). The loss includes a goodwill impairment charge of $332.9 million. The valuation used in
16
the Step 1 goodwill impairment test was based on the enterprise value determined in the purchase agreement (which represents a Level 3 input in the fair value hierarchy).
During
the third quarter of 2017, a few of our television stations were impacted by hurricanes Harvey and Irma. In particular, Hurricane Harvey caused major damage to our Houston television station (KHOU), and as a result, we recognized $10.2 million in non-cash charges, writing off destroyed equipment and recording an impairment to the value of the building (fair value of the building was determined using a market based valuation). In addition, we incurred $8.4 million in cash expenses related to repairing the studio and office and providing for additional staffing and operational needs to keep the station operating during and immediately following these weather emergencies. Partially offsetting these expenses, we received initial insurance proceeds of $11.0 million ($5.0 million was received
as of September 30, 2017 and $6.0 million was received in October 2017). The net expense impact from the hurricane of $7.6 million has been recorded in asset impairment and facility consolidation charges on our Consolidated Statements of Income.
We also recorded a non-cash impairment charge of $5.8 million in the second quarter of 2017 associated with the write-off of a note receivable from one of our equity method investments (see Note 3).
17
NOTE
10 – Business segment information
Our reportable segment determination is based on our management and internal reporting structure, the nature of products and services offered by the segments, and the financial information that is evaluated regularly by our chief operating decision maker.
Immediately following the spin-off of Cars.com and the sale of our majority stake in CareerBuilder, we began classifying our operations as one operating and reportable segment, Media, which consists of our 46 television stations operating in 38 markets, offering high-quality television programming and digital content. Also now included in the Media Segment is our DMS business which was previously reported in
our Digital Segment.
As a result of classifying the former Digital Segment’s historical financial results as discontinued operations there is no remaining activity in 2017 as shown in the tables below. The 2016 activity shown below for our Digital Segment relates to our former Cofactor business which did not meet the criteria for discontinued operation reporting when the business was sold in December 2016. The historical periods below have also been updated to restate the historical results of our DMS business within our Media business.
Segment operating results are summarized as follows (in thousands):
Operating
Income (net of depreciation, amortization, asset impairment and facility consolidation charges):
Media (a)
$
130,338
$
219,766
$
433,629
$
568,163
Digital
—
(17,832
)
—
(23,300
)
Corporate
(a)
(13,477
)
(16,083
)
(43,577
)
(46,974
)
Total
$
116,861
$
185,851
$
390,052
$
497,889
Depreciation,
amortization, asset impairment and facility consolidation charges:
Media
$
27,538
$
18,583
$
67,864
$
59,735
Digital
—
15,565
—
16,297
Corporate
596
57
1,115
3,109
Total
$
28,134
$
34,205
$
68,979
$
79,141
(a)
In the first quarter of 2017, we adopted new accounting guidance that changed the classification of certain components of net periodic pension and other post-retirement benefit expense (post-retirement benefit expense). The service cost component of the post-retirement benefit expense will continue to be presented as an operating expense while all other components of post-retirement benefit expense will be presented as non-operating expense. The prior year period was adjusted to reflect the effects of applying the new guidance. This resulted in an increase to operating income in third quarter of 2017 and 2016 of $1.7 million and $1.8 million and for the nine months ended September 30, 2017 and 2016 of $4.9 million and $5.8 million, respectively. Net income, earnings per share, and retained earnings were not impacted by the new standard.
18
NOTE
11 – Other matters
Commitments, contingencies and other matters
We, along with a number of our subsidiaries, are defendants in judicial and administrative proceedings involving matters incidental to our business. We do not believe that any material liability will be imposed as a result of these matters.
Voluntary Retirement Program
During the first quarter of 2016, we initiated a Voluntary Retirement Program (VRP) at our Media Segment. Under the VRP, Media employees meeting certain eligibility requirements were offered
buyout payments in exchange for voluntarily retiring. Eligible non-union employees had until April 7, 2016, to retire under the plan. In 2016, based on acceptances received, we recorded $16.0 million of severance expense. Upon separation, employees accepting the VRP received salary continuation payments primarily based on years of service, the majority of which occurred evenly over the 12-month period following separation date. As of September 30, 2017, we had less than $0.4 million of VRP buyout obligation remaining.
FCC Broadcast Spectrum Program
Congress authorized the Federal Communications Commission
(FCC) to conduct a voluntary incentive auction to reallocate certain spectrum currently occupied by television broadcast stations to mobile wireless broadband services, along with a related “repacking” of the television spectrum for remaining television stations. The repacking requires that certain television stations move to different channels, and some stations will have smaller service areas and/or experience additional interference. Congress announced the results of the auction, including a list of the stations to be repacked, in April 2017. None of our stations will relinquish any spectrum rights as a result of the auction, and accordingly we will not receive any incentive auction proceeds. The FCC has, however, notified us that 13 of our stations will be repacked to new channels. The repacking process is scheduled to occur over a 39-month period, divided into ten
phases. Our stations have been assigned to phases two through nine, and a majority of our capital expenditures in connection with the repack will occur in 2018 and 2019.
We are eligible to seek reimbursement for costs associated with implementing changes to our facilities required by the repack. The legislation authorizing the incentive auction and repacking established a $1.75 billion fund for reimbursement of costs incurred by stations required to change channels in the repacking. The FCC has reported that the aggregate cost estimated by repacked stations to complete the repack will be almost $1.9 billion. In October 2017, the FCC announced that it had made an approximately $1 billion allocation from the fund to repacked stations to allow
those stations to begin to be reimbursed for expenses incurred in connection with the construction of facilities on reassigned channels. This allocation represents approximately 52% of the total estimated demand for repack funds. Although we expect the FCC to make additional allocations from the fund, it is not clear at this time whether the FCC ultimately will receive from Congress the additional funds necessary to completely reimburse each repacked station for all amounts incurred in connection with the repack. Beyond the potential for not being reimbursed for all amounts we incur, it is still too early to predict the ultimate impact of the incentive auction and repacking upon our business.
As noted above, while we did not sell any of our spectrum in the auction, we did enter into a channel share agreement with another broadcaster
that sold spectrum in the auction. Pursuant to the terms of our channel share agreement we received $32.6 million in cash proceeds during the third quarter of 2017. These proceeds were deferred and will be amortized on a straight-line basis as other revenue over a 20 year period. The $32.6 million cash proceeds were reflected as cash flow from operating activities on our Condensed Consolidated Statements of Cash Flow.
NOTE 12 – Discontinued operations
Cars.com spin-off
On May 31,
2017, we completed the previously announced spin-off of Cars.com creating two publicly traded companies: TEGNA, an innovative media company with the largest broadcast group among major network affiliates in the top 25 markets; and Cars.com, a leading digital automotive marketplace. The spin-off was effected through a pro rata distribution of all outstanding common shares of Cars.com to TEGNA stockholders of record at the close of business on May 18, 2017 (the “Record Date”). Stockholders retained their TEGNA shares and received one share of Cars.com for every three shares of TEGNA stock they owned on the Record Date. Cars.com began “regular way” trading on the New York Stock Exchange on June 1, 2017 under the symbol “CARS”. In connection with the Cars.com
spin-off, we received a one time tax-free cash distribution from Cars.com of $650.0 million. In the second quarter of 2017, we used $609.9 million of the tax-free distribution proceeds to fully pay down outstanding revolving credit agreement borrowings. In October 2017, we used the remainder of the proceeds to pay down a portion of the outstanding principal on unsecured notes due in October 2019 (see Note 5).
19
Separation Agreement
We entered into a separation agreement with Cars.com which sets forth, among other things, the
identified assets transferred, the liabilities assumed and the contracts assigned to each of TEGNA and Cars.com as part of the separation and the conditions related to the distribution of Cars.com outstanding stock to TEGNA stockholders.
Transition Services Agreement
We entered into a transition services agreement with Cars.com prior to the distribution pursuant to which we and our subsidiaries will provide certain services to Cars.com on an interim and transitional basis, not to exceed 24 months. The services to be provided include certain tax, human resource and
risk management consulting services, and certain other short term services to complete a limited number of ongoing analysis projects. The agreed upon charges for such services are generally intended to allow us to recover all costs and expenses of providing such services, and such charges are not expected to be material to either us or Cars.com.
The transition services agreement will terminate on the expiration of the term of the last service provided under it, with a minimum service period of 60 days and a maximum service period of 24 months, with most services expected to last for less than the maximum service period following the distribution date. Cars.com generally can terminate a particular service prior to the scheduled expiration date, subject generally to the minimum service period
and a minimum notice period of 45 days.
Tax Matters Agreement
Prior to the distribution, we entered into a tax matters agreement that governs the parties’ respective rights, responsibilities and obligations with respect to taxes (including taxes arising in the ordinary course of business and taxes, if any, incurred as a result of any failure of the distribution and certain related transactions to qualify as tax-free for U.S. federal income tax purposes), tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and assistance and cooperation in respect of tax matters.
Employee Matters Agreement
We
entered into an employee matters agreement with Cars.com prior to the distribution to allocate liabilities and responsibilities relating to employment matters, employee compensation and benefit plans and programs and other related matters. The employee matters agreement governs certain compensation and employee benefit obligations with respect to the current and former employees and non-employee directors of each company.
The employee matters agreement provides that, unless otherwise specified, Cars.com will be responsible for liabilities associated with employees who will be employed by Cars.com following the spin-off and former employees whose last employment was with the Cars.com businesses, and we will be responsible for all other current and former TEGNA employees. Cars.com will retain sponsorship of 401(k) retirement plans, deferred compensation plans and other incentive
plans maintained for the exclusive benefit of Cars.com employees as well as various welfare plans applicable to the Cars.com employees.
CareerBuilder Sale
On July 31, 2017, we sold our majority ownership interest in CareerBuilder to an investor group led by investment funds managed by affiliates of Apollo Global Management, LLC, a leading global alternative investment manager, and the Ontario Teachers’ Pension Plan Board. Our share of the pre-tax net cash proceeds from the sale was $198.3 million. These net proceeds were used in October 2017 to pay down existing debt (see Note 5). Additionally, during the third quarter of 2017 and prior to the closing of the sale, CareerBuilder issued a final
dividend to its selling shareholders, of which $25.8 million was retained by TEGNA. As part of the agreement, we remain an ongoing partner in CareerBuilder, reducing our 53% controlling interest to approximately 17% interest (or approximately 12% on a fully-diluted basis) and two seats on CareerBuilder’s 10 person board. As a result, subsequent to the sale, CareerBuilder is no longer consolidated within our reported operating results. Our remaining ownership interest will be accounted for as an equity method investment. Subsequent to the date of sale we recorded $0.5 million of equity earnings during the remainder of the third quarter of 2017 from our
remaining interest in CareerBuilder.
Financial Statement Presentation of Digital Segment
As a result of the Cars.com and CareerBuilder transactions described above, the operating results and financial position of our former Digital Segment have been included in discontinued operations in the Condensed Consolidated Balance Sheet and Consolidated Statements of Income for all applicable periods presented. The results of discontinued operations for the nine months ended September 2017 include a $342.9 million pre-tax loss related to the sale of CareerBuilder (after noncontrolling interest, $271.7 million of the pre-tax loss is attributable to TEGNA). The pre-tax loss includes a goodwill impairment
charge of $332.9 million and costs to sell the business of $10.9 million. Fair value used for the pre-tax loss was based on the enterprise value of CareerBuilder as determined in the definitive purchase agreement.
20
The carrying value of the assets and liabilities of our former Digital Segment’s discontinued operations as of December 31, 2016 were as follows (in thousands):
The financial results of discontinued operations in the third quarter and the nine months ended September 30, 2017 and 2016 are presented as a loss (income) from discontinued operations, net of tax, on our Consolidated Statements of Income. The following table presents the financial results of discontinued operations (in thousands):
(Loss)
income from discontinued operations, before income taxes
(2,908
)
76,387
(279,113
)
189,123
Provision for income taxes
(7,895
)
(19,689
)
45,852
(56,982
)
(Loss)
income from discontinued operations, net of tax
$
(10,803
)
$
56,698
$
(233,261
)
$
132,141
(1)
The quarter and nine months ended September 30, 2017 include CareerBuilder’s operations through the date of sale on July 31, 2017. Cars.com operations are included in the nine months ended September 30, 2017 through the date of spin-off on May 31, 2017.
(2) The nine months ended September 30, 2016 include approximately $7.5 million of net loss from discontinued operations related to the operations of our former Sightline business through the date of sale on March 18, 2016.
21
In
our Consolidated Statements of Cash Flows, the cash flows from discontinued operations are not separately classified. As such, major categories of discontinued operation cash flows for the nine months ended September 30, 2017 and 2016 are presented below (in thousands):
(1)
The nine months ended September 30, 2017 includes Cars.com through the spin-off date of May 31, 2017 and CareerBuilder’s operations through the date of sale on July 31, 2017.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Company Overview
We are an innovative media company that serves the greater good of our communities. With
46 television stations in 38 markets, we are the largest owner of top four network affiliates in the top 25 markets, reaching approximately one-third of all television households nationwide. Each television station also has a robust digital presence across online, mobile and social platforms, reaching consumers whenever, wherever they are. Each month, we reach 50 million adults on-air and 35 million across our digital platforms. We have been consistently honored with the industry’s top awards, including Edward R. Murrow, George Polk, Alfred I. DuPont and Emmy Awards. We deliver results for advertisers through unparalleled and innovative solutions including our Over the Top (“OTT”) local advertising network, Premion, centralized marketing resource, Hatch; and our digital marketing services (DMS) business, a one-stop shop for local businesses to connect with consumers through digital marketing. Across platforms, we tell empowering stories, conduct impactful investigations
and deliver innovative marketing solutions.
We continue to make innovative programming a priority and invest in local news and other special programming to ensure we stay connected to our audiences and empower them throughout the day. For example, we recently launched VERIFY news, a fact-checking segment across platforms, and HeartThreads, a new national digital content vertical. Additionally, in September 2017 we premiered our TEGNA-owned daily live syndicated program “Daily Blast LIVE,” which airs on 36 TEGNA stations and nationally on Facebook and YouTube. Also in September, we launched a daily talk show, “Sister Circle,” produced out of WATL in Atlanta, which airs in 12 TEGNA markets and nationally live on TV One, reaching 60% of U.S. television households. Finally, our KXTV station in Sacramento partnered with Cheddar network to launch “Cheddar Local,”
which provides KXTV with local business and technology segments relevant to the Sacramento community.
After completing the strategic actions discussed below, we now have one operating and reportable segment. The primary sources of our revenues are: 1) advertising & marketing services revenues, which include local and national non-political advertising as well as DMS (including Premion), and advertising on the stations’ websites and tablet and mobile products; 2) political advertising revenues, which are driven by elections and peak in even years (e.g. 2016, 2014) and particularly in the second half of those years; 3) subscription revenues, representing fees primarily paid by satellite and cable operators and telecommunications companies to carry our television
signals on their systems and OTT revenues; and 4) other services, such as production of programming from third parties and production of advertising material.
Our corporate costs are separated from our business expenses and are recorded as general and administrative expenses in our Consolidated Income Statement. These costs include activities that are not directly attributable or allocable to our media business operations. This category primarily consists of broad corporate management functions including legal, human resources, and finance, as well as activities and costs not directly attributable to the operations of our media business.
Strategic Actions
On May 31,
2017, we completed the previously announced spin-off of Cars.com. The spin-off was achieved through a pro rata distribution of all outstanding common shares of Cars.com to TEGNA stockholders of record at the close of business on May 18, 2017 (the “Record Date”). Stockholders retained their TEGNA shares and received one share of Cars.com for every three shares of TEGNA stock they owned on the Record Date. Cars.com began “regular way” trading on the New York Stock Exchange on June 1, 2017 under the symbol “CARS”. In connection with the Cars.com spin-off we received a one time cash distribution from Cars.com of $650.0 million.
On July 31, 2017, we completed the sale of our majority ownership interest in CareerBuilder
to an investor group led by investments funds managed by affiliates of Apollo Global Management, LLC, a leading global alternative investment manager,
22
and the Ontario Teachers’ Pension Plan Board. Our share of the pre-tax net cash proceeds from the sale was $198.3 million. These net proceeds were used in October 2017 to pay down existing debt (see Note 5). Additionally, prior to the sale, CareerBuilder issued a final dividend to its selling shareholders, $25.8 million of which was retained by TEGNA.
As part of the sale agreement, we remain an ongoing partner in CareerBuilder, reducing our 53% controlling interest to
approximately 17% equity interest (or approximately 12% on a fully-diluted basis) and two seats on CareerBuilder’s 10 member board. As a result, CareerBuilder is no longer consolidated within our reported operating results. Our remaining ownership interest is accounted for as an equity method investment.
Consolidated Results from Operations
The following discussion is a period-to-period comparison of our consolidated results from continuing operations on a GAAP basis. On May 31, 2017, we completed the spin-off of Cars.com and on July
31, 2017, we completed the sale of our majority ownership interest in CareerBuilder. Results for Cars.com and CareerBuilder are now reflected as Discontinued Operations in our Consolidated Statements of Income for all applicable periods presented. As a result, we will report one segment going forward which will include the results for Media and a remaining DMS contract that was previously reported in the Digital Segment. The historical financial results also include our former Cofactor business through the date of its sale in December 2016.
The period-to-period comparison of financial results is not necessarily indicative of future results. In addition, see the section on page 26 titled ‘Results from Operations - Non-GAAP Information’ for additional tables presenting information which
supplements our financial information provided on a GAAP basis. Our consolidated results of continuing operations on a GAAP basis were as follows (in thousands, except per share amounts):
Business
units - selling, general and administrative expenses, exclusive of depreciation
70,914
83,039
(15
%)
214,645
246,280
(13
%)
Corporate
- General and administrative expenses, exclusive of depreciation
12,881
16,027
(20
%)
42,462
43,865
(3
%)
Depreciation
15,186
13,212
15
%
41,721
42,653
(2
%)
Amortization
of intangible assets
5,395
5,775
(7
%)
16,172
17,542
(8
%)
Asset
impairment and facility consolidation charges
7,553
15,218
(50
%)
11,086
18,946
(41
%)
Total
operating expenses
$
347,403
$
333,766
4
%
$
1,022,651
$
959,344
7
%
Total
operating income
$
116,861
$
185,851
(37
%)
$
390,052
$
497,889
(22
%)
Non-operating
expense
(54,660
)
(70,673
)
(23
%)
(190,515
)
(194,236
)
(2
%)
Provision
for income taxes
11,447
38,441
(70
%)
54,855
92,038
(40
%)
Net
income from continuing operations
$
50,754
$
76,737
(34
%)
$
144,682
$
211,615
(32
%)
Earnings
from continuing operations per share - basic
$
0.24
$
0.36
(33
%)
$
0.67
$
0.98
(32
%)
Earnings
from continuing operations per share - diluted
$
0.23
$
0.35
(34
%)
$
0.66
$
0.96
(31
%)
Revenues
During
the second quarter of 2017, we changed the way we present certain revenues, which we now call Advertising and Marketing Services (AMS), to better reflect our sales transformation strategy that focuses on customer needs versus specific products. This category includes all sources of our traditional and digital revenues including Premion, DMS and other digital advertising and marketing revenues across our platforms.
Also, the “Retransmission” revenue category was renamed “Subscription” to better reflect changes in that revenue stream, including the distribution of TEGNA stations on OTT streaming services.
23
As a result of these changes, revenues are
grouped into the following categories: Advertising & Marketing Services, Political, Subscription, Other, and our former business unit Cofactor (sold in December 2016).
The following table summarizes the year-over-year changes in these select revenue categories (in thousands):
(a)
Includes traditional television advertising, digital advertising as well as revenue from our DMS business.
Revenues decreased $55.4 million, or 11%, in the third quarter of 2017 compared to the same period in 2016. This net decrease was primarily due to a decline in AMS revenue of $52.8 million, or 16%, in the third quarter of 2017. This decline was primarily due to the absence of Olympic revenue in 2017 as compared to $57.3 million in 2016 and lower DMS revenue due to the conclusion of a transition services agreement with Gannett. Partially offsetting the overall AMS decline was an increase in digital revenue, including Premion revenue. Political revenue was down by $34.3 million, due to an expected decrease reflecting the absence of 2016 politically related advertising spending. Partially offsetting these decreases was an increase in subscription
revenue of $34.0 million, or 24%, due to the recent renewal of certain retransmission agreements as well as annual rate increases under other existing retransmission agreements.
In the first nine months of 2017, operating revenue decreased $44.5 million, or 3%, compared to the same period in 2016. The net decrease was due to a net decline in AMS revenue of $91.8 million, or 10%, for the first nine months of 2017. The third quarter decline in AMS revenue, described above, drove most of the year-to-date decline. In addition we had lower Super Bowl revenue due to the shift in coverage from our larger CBS station footprint to smaller FOX station footprint (which impacted 2017 results by $9.1 million). These AMS declines were partially offset by an increase in digital revenue, including our Premion revenue. Additionally, political revenue was down $50.7 million for the nine months
ended September 30, 2017 due to an expected decrease reflecting the absence of 2016 Presidential election year political spending. Partially offsetting these decreases was an increase in subscription revenue of $104.1 million, or 24%, in the first nine months of 2017 due to the recent renewal of certain retransmission agreements as well as annual rate increases under other existing retransmission agreements.
Cost of Revenues
Cost of revenues increased $35.0 million, or 17%, in the third quarter of 2017 compared to the same period in 2016. The increase was primarily due to a $42.6 million increase in programming costs (primarily driven by 11 of our NBC stations paying reverse compensation payments for first time in 2017). This increase
was partially offset by a decline in DMS costs of $7.4 million driven by the conclusion of the transition service agreement with Gannett.
In the first nine months of 2017, cost of revenues increased $106.5 million, or 18%, compared to the same period in 2016. The increase was primarily due to a $135.1 million increase in programming costs (primarily driven by 11 of our NBC stations paying reverse compensation payments for first time in 2017). This increase was partially offset by the absence of $10.8 million of expenses associated with our 2016 voluntary retirement program and a decline in DMS costs of $11.8 million associated with the conclusion of the transition service agreement with Gannett.
Business Units - Selling, General and Administrative Expenses
Business
unit selling, general and administrative expenses decreased $12.1 million, or 15%, in the third quarter of 2017 compared to the same period in 2016. The decrease was primarily the result of a $6.0 million decline in DMS selling and advertising expense related to the transition service agreement conclusion. Also contributing to the decline was the absence of $2.6 million of Cofactor expenses, due to its disposition in December 2016.
In the first nine months of 2017, business unit selling, general and administrative expenses decreased $31.6 million, or 13%, compared to the same period in 2016. This decrease was due to a $14.7 million decline in DMS selling and advertising expenses, the absence of $6.5 million of expenses associated with Cofactor, and the absence of $4.0 million of expenses associated with our 2016 voluntary retirement program. These decreases were partially offset
by $1.6 million of severance expenses for broadcast employees in 2017.
24
Corporate General and Administrative Expenses
Corporate general and administrative expenses decreased $3.1 million, or 20%, in the third quarter of 2017 compared to the same period in 2016. The decrease was primarily due to the absence of $1.6 million of severance expenses from the third quarter of 2016, as well as the continued right sizing of the corporate function in connection with the strategic actions impacting our former Digital Segment.
During
the first nine months of 2017, corporate general and administrative expenses decreased $1.4 million, or 3%, compared to the same period in 2016. This change was primarily due to the absence of $1.6 million of severance expenses from the third quarter of 2016, partially offset by severance expense incurred in the first nine months of 2017 of approximately $1.1 million. The remaining difference is attributable to the continued right sizing of the corporate function in connection with the strategic actions impacting our former Digital Segment.
Depreciation Expense
Depreciation expense increased $2.0 million, or 15%, in the third quarter of 2017 compared to the same period in 2016. The increase was primarily due to $1.4 million of additional depreciation related to a change in useful lives
of certain broadcasting assets in connection with the FCC channel reassignment process.
In the first nine months of 2017, depreciation expense decreased $0.9 million, or 2%, as compared to the same period in 2016. The decrease was primarily due to recent declines in the purchase of property and equipment, offset by accelerated depreciation related to a change in useful lives of certain broadcasting assets.
Amortization Expense
Amortization expense decreased by $0.4 million and $1.4 million in the third quarter and first nine months of 2017, respectively, compared to the same periods in 2016. The decreases were a result of certain assets associated with previous acquisitions reaching the end of
their useful lives.
Asset Impairment and Facility Consolidation Charges
Asset impairment and facility consolidation charges were $7.6 million in the third quarter of 2017 compared to $15.2 million in the third quarter of 2016. In the third quarter of 2017, a few television stations were impacted by hurricanes Harvey and Irma. In particular, Hurricane Harvey caused significant damage to our Houston television station (KHOU); as a result, we recognized $10.2 million in non-cash charges, writing off destroyed equipment and recording an impairment to the value of the building. In addition, we incurred $8.4 million in cash expenses related to repairing the studio and office and providing for additional staffing and operational needs to keep the stations operating during and immediately following
these weather emergencies. Partially offsetting these expenses, we received initial insurance proceeds of $11.0 million ($5.0 million was received as of September 30, 2017 and $6.0 million was received in October 2017). The net expense impact from the hurricane of $7.6 million has been recorded in asset impairment and facility consolidation charges. The 2016 charge relates to a goodwill impairment at Cofactor.
During the first nine months of 2017, asset impairment and facility consolidation charges were $11.1 million, compared to $18.9 million in the same period in 2016. The 2017 charges primarily consisted of net $7.6 million in expenses related to Hurricane Harvey, $1.4 million related to the consolidation of office space at corporate headquarters and at our DMS business unit, and $2.2 million of non-cash impairment charges
incurred by our broadcast stations. The 2016 charges were comprised of the third quarter goodwill impairment charge of $15.2 million at Cofactor and a $3.7 million impairment charge related to a long-lived-asset.
Operating Income
Our operating income decreased $69.0 million, or 37%, in the third quarter of 2017 and $107.8 million, or 22%, in the first nine months of 2017, compared to the same periods in 2016. The decreases were driven by the changes in revenue and expenses discussed above. As a result, our consolidated operating margins were 25% in the third quarter of 2017 and 28% in the first nine months of 2017, compared to 36% in the third quarter of 2016 and 34% in the first nine months of 2016.
Non-Operating
Income (Expense)
Non-operating expense decreased $16.0 million, or 23%, in the third quarter of 2017 compared to the same period in 2016. The decrease was primarily due to a reduction in transaction costs of $10.9 million primarily associated with costs incurred in the prior year period related to the Cars.com spin-off. Also contributing to the decrease was a decline in interest expense of $5.7 million driven by lower average debt outstanding, due to the pay down of the drawn amounts on the revolving line of credit. The total average outstanding debt was $3.38 billion for the third quarter of 2017, compared to $4.31 billion in the same period of 2016. The weighted average interest rate on total outstanding debt was 5.75% for the third quarter of 2017, compared to 5.21% in the same period of 2016.
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During
the first nine months of 2017, non-operating expenses decreased $3.7 million, or 2%, compared to the same period in 2016. The decrease was primarily due to lower interest expense of $13.3 million, partially offset by increased costs associated with the strategic actions of $3.4 million (primarily the Cars.com spin-off) and a $5.8 million loss associated with the write-off of a note receivable from one of our equity method investments. The lower interest expense was due to lower average debt outstanding. The total average outstanding debt was $3.75 billion during the first nine months of 2017, compared to $4.28 billion in the same period of 2016. The weighted average interest rate on total outstanding debt was 5.51% for the first nine months of 2017, compared to 5.32% in the same period of 2016.
Income Tax Expense
Income
tax expense decreased $27 million, or 70%, in the third quarter of 2017 as compared to the same period in 2016, and decreased $37.2 million, or 40%, in the first nine months of 2017 compared to the same period in 2016. The decrease in Income tax expense is primarily due to a decline in net income before tax, as well as a favorable deferred tax adjustment related to a previously-disposed business. Our reported effective income tax rate was 18.4% in the third quarter of 2017, compared to 33.4% for continuing operations for the third quarter of 2016. The reported effective income tax rate was 27.5% for the first nine months of 2017, compared to 30.3% for the same period in 2016. The tax rates for the third quarter and first nine months of 2017 are lower than the comparable 2016 rates primarily due to the reduction in net income before tax and the deferred tax adjustment mentioned above.
Income from continuing operations
Income from continuing operations was $50.8 million, or $0.23 per diluted share, in the third quarter of 2017 compared to $76.7 million or $0.35 per diluted share during the same period in 2016. For the first nine months of 2017, we reported net income from continuing operations of $144.7 million, or $0.66 per diluted share, compared to $211.6 million, or $0.96 per diluted share, for the same period in 2016. 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 both the third quarter of 2017 and 2016 was 218.1 million. The weighted average number of diluted shares outstanding in the first nine months quarter of 2017 decreased by 2.7
million shares to 217.8 million from 220.5 million in the same period in 2016.
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 Executive Compensation Committee of our Board of Directors uses non-GAAP measures such as Adjusted EBITDA, non-GAAP net income, non-GAAP EPS 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, charges related to asset impairment and facility consolidations, costs associated
with the Cars.com spin-off transaction, and certain tax benefits associated with the Cars.com spin-off and sale of CareerBuilder. We believe that such expenses, charges and gains 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 expenses, charges and gains 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), a non-GAAP financial performance measure 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 spin-off transaction expenses and investment income, (5) severance expense, (6) facility consolidation 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
26
flows from operating activities as a measure
of liquidity. In particular, Adjusted EBITDA is not intended to be a measure of free cash flow available for management’s discretionary expenditures, as this measure does not consider certain cash requirements, such as working capital needs, capital expenditures, contractual commitments, interest payments, tax payments and other debt service requirements.
We also consider adjusted revenues to be an important non-GAAP financial measure. Our adjusted revenue is calculated by taking total company revenues on a GAAP basis and adjusting it to exclude (1) estimated incremental Olympic and Super Bowl revenue, (2) Political revenues, (3) revenues from a previously sold business (Cofactor), and (4) revenues associated with a discontinued portion of our DMS business. These adjustments are made to our reported revenue on a GAAP basis in order to evaluate and assess our core operations on
a comparable basis, and it represents the ongoing operations of our broadcast business.
We also discuss free cash flow, a non-GAAP liquidity measure. Free cash flow is defined as “net cash flow from operating activities” as reported on the statement of cash flows reduced by “purchase of property and equipment”. We believe that free cash flow is a useful measure for management and investors to evaluate the level of cash generated by operations and the ability of its operations to fund investments in new and existing businesses, return cash to shareholders under the company’s capital program, repay indebtedness, add to our cash balance, or use in other discretionary activities. We use free cash flow to monitor cash available for repayment of indebtedness and in discussions with the
investment community. Like Adjusted EBITDA, free cash flow is not intended to be a measure of cash flow available for management’s discretionary use.
Discussion of special charges and credits affecting reported results
Our results for the quarter and first nine months ended September 30, 2017 included the following items we consider “special items” and are not indicative of our normal ongoing operations:
•
Operating asset impairment and facility consolidation charges related to
damage caused by Hurricane Harvey and the consolidation of office space at corporate headquarters and at our DMS business unit;
•
Other non-operating items associated with costs of the spin-off of our Cars.com business unit, charitable donations made to the TEGNA Foundation, non-cash asset impairment charges associated with write off of a note receivable from an equity method investment;
•
A special tax benefit related to deferred tax remeasurement attributable to the spin-off of our Cars.com business unit and a deferred
tax adjustment related to a previously-disposed business; and
•
Severance charges which included payroll and related benefit costs.
Our results for the quarter and first nine months ended September 30, 2016 included the following special items:
•
Severance charges primarily related to a voluntary retirement program at our broadcast stations (which includes payroll and related benefit costs);
•
Non-cash
asset impairment charges associated with goodwill, an operating asset, and equity method investments; and
•
Non-operating costs associated with the spin-off of our Cars.com business unit and acquisition-related costs.
Reconciliations of certain line items impacted by special items to the most directly comparable financial measure calculated and presented in accordance with GAAP on our consolidated statements of income follow (in thousands, except per share amounts):
Earnings
from continuing operations per share - diluted
$
0.96
$
0.06
$
0.05
$
0.01
$
0.05
$
1.13
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Adjusted
Revenues
Reconciliations of adjusted revenues to our revenues presented in accordance with GAAP on our Consolidated Statements of Income are presented below (in thousands):
(a)
Includes traditional advertising, digital advertising as well as revenue from our DMS businesses.
Excluding the impacts of Political revenue, impacts from the discontinued DMS transition services agreement, the absence of Cofactor revenue, and estimated prior year incremental Olympic and Super Bowl revenue, total company adjusted revenues on a comparable basis increased five percent in the third quarter and six percent in the first nine months of 2017 compared to the same periods in 2016.
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Adjusted EBITDA - Non-GAAP
Reconciliations of Adjusted
EBITDA to net income from continuing operations attributable to TEGNA Inc. presented in accordance with GAAP on our Consolidated Statements of Income are presented below (in thousands):
Third
quarter 2017 adjusted EBITDA margin was 34% without corporate or 31% with corporate. Our total Adjusted EBITDA decreased $77.9 million or 35% in the third quarter of 2017 compared to 2016 and decreased $135.1 million or 23% for the first nine months of 2017 from the prior year comparable period. The decrease was primarily driven by higher programming costs (due to 11 of our NBC stations which began making reverse compensation payments for the first time), the absence of Olympic revenue in 2017 and the expected decline in political revenue in 2017.
Certain Matters Affecting Future Operating Results
The following items will
affect year-over-year comparisons for 2017 results:
•
Revenues - In the fourth quarter of 2017 revenue will be impacted primarily due to the absence of $82 million in net political revenues compared to the fourth quarter of 2016, and the absence of $16 million of DMS revenue due to the conclusion of a transition services agreement with Gannett.
Based on current trends, we expect total company revenues on a GAAP basis compared to the prior year quarter to be down in the high-single to low double-digits. Adjusting to remove political revenue and revenue related to the terminated transition
services agreement, we expect our fourth quarter adjusted company revenues to be up in the high single-digit to low double-digits year-over-year.
•
Programming Costs - Beginning in January 2017, 11 of our NBC stations began making reverse compensation payments for the first time. As such, 2017 is an unusual year as there will be an unfavorable gap between the increase in subscription revenue we earn from multichannel video programming distributors (MVPD), compared to the increase in fees we will pay our affiliates. At the end of 2016, we renegotiated several new subscriptions agreements with major MVPD carriers, and as a result, we have reduced our net retransmission gap in 2017 to approximately
$31 million to $34 million. Further, we expect our strategic initiatives launched in 2016 (including Premion, centralized pricing initiatives, and Hatch) will more than offset the remaining net retransmission gap in 2017.
•
Income Taxes - After the spin-off of Cars.com and disposition of CareerBuilder, the recurring effective income tax rate for 2018 is anticipated to be approximately 35%. This estimated effective income tax rate is higher than that for the third quarter and the first nine months of 2017 due to tax benefits associated with the spin-off of Cars.com and other non-recurring items realized in 2017.
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Liquidity,
Capital Resources and Cash Flows
Our strong cash generation capability and financial condition, together with our significant borrowing capacity under our revolving credit agreement, are sufficient to fund our capital expenditures, interest, dividends, share repurchases, investments in strategic initiatives and other operating requirements. Over the longer term, we expect to continue to fund debt maturities, acquisitions and investments through a combination of cash flows from operations, borrowings under our revolving credit agreement and funds raised in the capital markets. As we summarize below, during 2017 we have completed several strategic actions that have positioned us to be able to pursue strategic acquisition opportunities that may develop in our sector, invest in new content and revenue initiatives, and grow revenue in fiscal year 2018.
During
the second quarter we completed our spin-off of Cars.com which resulted in a one-time tax-free cash distribution of $650.0 million to TEGNA. We used $609.9 million of the tax-free distribution proceeds to fully pay down our then outstanding revolving credit agreement borrowings.
On July 31, 2017, we sold our majority ownership interest in CareerBuilder. Our share of the pre-tax net cash proceeds from the sale was $198.3 million, net of cash transferred of $36.6 million. Additionally, prior to the sale, CareerBuilder issued a final dividend to its selling shareholders, of which $25.8 million was retained by TEGNA. On October 16 2017, we used the net proceeds from the CareerBuilder sale, the remaining cash distribution proceeds from Cars.com of $40.1 million, and cash on hand to early retire $280.0 million of principal of unsecured
notes due in October 2019.
On August 1, 2017, we amended our Amended and Restated Competitive Advance and Revolving Credit Agreement. Under the amended terms, our maximum total leverage ratio will remain at 5.0x through June 30, 2018, after which, as amended, it will be reduced to 4.75x through June 2019 and then to 4.5x until the expiration of the credit agreement on June 29, 2020. Lastly, on September 19, 2017, we announced that our Board of Directors authorized a new share repurchase program for up to $300 million of our common stock over the next three years.
At the end of the third
quarter of 2017, our total debt was $3.32 billion and cash and cash equivalents totaled $383.4 million. As of September 30, 2017, we had unused borrowing capacity of $1.5 billion under our revolving credit facility. We intend to continue to invest in organic and strategic growth opportunities and also intend to maintain the financial flexibility to pursue strategic acquisitions when appropriate. Our financial and operating performance, as well as our ability to generate sufficient cash flow to maintain compliance with credit facility covenants, are subject to certain risk factors; see the Part II. Other Information, Item 1A. Risk Factors discussion below.
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Cash
Flows
The following table provides a summary of our cash flow information followed by a discussion of the key elements of our cash flow (in thousands):
Cash
and cash equivalents from continuing operations, beginning of period
$
15,879
$
26,096
Cash and cash equivalents from discontinued operations, beginning of period
61,041
103,104
Balance
of cash and cash equivalents, beginning of the period
76,920
129,200
Operating activities:
Net
(loss) income
(88,579
)
343,756
Loss on write down of CareerBuilder
342,900
—
Depreciation, amortization and other non-cash adjustments
153,242
197,025
Pension
(contributions), net of expense
(12,547
)
2,135
Spectrum channel share agreement proceeds
32,588
—
Other, net
(76,421
)
(88,153
)
Net
cash flows from operating activities
351,183
454,763
Net cash from (used for) investing activities
152,499
(273,309
)
Net cash used for financing
activities
(197,248
)
(203,325
)
Increase (decrease) in cash and cash equivalents
306,434
(21,871
)
Cash
and cash equivalents from continuing operations, end of period
383,354
19,185
Cash and cash equivalents from discontinued operations, end of period
—
88,144
Balance
of cash and cash equivalents, end of the period
$
383,354
$
107,329
Operating Activities - Cash flow from operating activities was $351.2 million for the nine months ended September
30, 2017, compared to $454.8 million for the nine months ended September 30, 2016. The decrease in net cash flow from operating activities was primarily due to higher programming costs of $135.1 million (primarily due to the NBC affiliation agreement), the decline in political revenue of $50.7 million, and the absence of operating cash flow Cars.com and CareerBuilder following their spin-off and sale, respectively. These decreases were partially offset by declines in tax payments of $40.6 million and interest payments of $19.8 million. Also partially offsetting the net operating cash flow decrease was a cash inflow received in 2017 of $32.6 million from a spectrum channel sharing agreement.
Investing Activities - Cash flow from investing activities totaled
$152.5 million for the nine months ended September 30, 2017, compared to cash used for investing activities of $273.3 million for the same period 2016. The 2017 net cash inflow was primarily a result of the sale of the majority of our ownership in CareerBuilder, which provided $198.3 million of proceeds, net of cash transferred. Additionally, we had cash inflow of $15.1 million from the sale of assets, primarily comprised of proceeds of $14.6 million from the sale of Gannett Co., Inc., common stock. These inflows were partially offset by purchases of property and equipment of $63.8 million in 2017.
The 2016 net cash used for investing activities of $273.3 million was primarily comprised of $196.8 million paid for the acquisitions of businesses (net of cash acquired) and purchase of property and equipment in the amount of $68.6
million.
Financing Activities - Cash used for financing activities totaled $197.2 million for the nine months ended September 30, 2017, compared to $203.3 million net outflow for the same period in 2016. The 2017 net outflow of cash for financing activities was primarily due to debt activity and dividends. With regards to 2017 debt activity, prior to the completion of the spin-off, Cars.com borrowed approximately $675.0 million under a revolving credit facility agreement, while incurring $6.2 million of debt issuance costs. The proceeds were used to make a one time tax-free cash distribution of $650.0 million from Cars.com to TEGNA. We used most of the cash received to pay down our then outstanding revolving credit balance of $609.9 million. Total net payments on the revolving credit facility in the first
nine months of 2017 were $635.0 million. We used an additional $99.2 million to pay down other existing debt. Additionally, in 2017 we made dividend payments of $75.1 million, paid a final dividend to the noncontrolling owners of CareerBuilder of $23.0 million, and transferred $20.1 million to Cars.com in connection with the spin-off.
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The 2016 net financing outflow of $203.3 million was primarily a result of stock repurchases of $150.9 million and dividend payments of $91.6 million. These outflows were partially offset by a net debt inflow of $58.7 million primarily comprised of $310.0 million of borrowings which were partially offset by debt repayments of $249.6 million.
Non-GAAP
Liquidity Measure
Our free cash flow, a non-GAAP liquidity measure, was $287.3 million for the first nine months of 2017 compared to $386.2 million for the same period in 2016. Our free cash flow for the first nine months of 2017 was lower than the first nine months of 2016 because of the same factors affecting cash flow from operating activities discussed above. Free cash flow, which we reconcile to “Net cash flow from operating activities,” is cash flow from operating activities reduced by “Purchase of property and equipment.” We believe that free cash flow is a useful measure for management and investors to evaluate the level of cash generated by operations and the ability of our operations to fund investments in new and existing businesses, return cash to shareholders
under our capital program, repay indebtedness or to use in other discretionary activities.
Reconciliations from “Net cash flow from operating activities” to “Free cash flow” follow (in thousands):
Certain Factors Affecting Forward-Looking Statements
Certain
statements in this Quarterly Report on Form 10-Q contain forward-looking statements regarding business strategies, market potential, future financial performance and other matters. The words “believe,”“expect,”“estimate,”“could,”“should,”“intend,”“may,”“plan,”“seek,”“anticipate,”“project” and similar expressions, among others, generally identify “forward-looking statements”. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results and events to differ materially from those anticipated in the forward-looking statements, including those described under Item 1A. “Risk Factors” in our 2016 Annual Report on Form 10-K.
Our actual financial results may be different from those projected due to the inherent nature of projections.
Given these uncertainties, forward-looking statements should not be relied on in making investment decisions. The forward-looking statements contained in this Form 10-Q speak only as of the date of its filing. Except where required by applicable law, we expressly disclaim a duty to provide updates to forward-looking statements after the date of this Form 10-Q to reflect subsequent events, changed circumstances, changes in expectations, or the estimates and assumptions associated with them. The forward-looking statements in this Form 10-Q are intended to be subject to the safe harbor protection provided by the federal securities laws.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For quantitative and qualitative disclosures about market risk,
refer to the following section of our 2016 Annual Report on Form 10-K: “Item 7A. Quantitative and Qualitative Disclosures about Market Risk.” Our exposure to market risk has been reduced since December 31, 2016, due to the sale of our majority ownership in CareerBuilder, which has decreased our exposure to changes in foreign exchange rates related to CareerBuilder’s international operations.
As of September 30, 2017, we had $379.2 million in long-term floating rate obligations outstanding. These obligations fluctuate with market interest rates. By way of comparison, a 50 basis points increase or decrease in the average interest rate for these obligations would result in a change in annualized interest expense of approximately $1.9 million. The fair value of our total debt,
based on bid and ask quotes for the related debt, totaled $3.49 billion as of September 30, 2017, and $4.19 billion as of December 31, 2016.
33
Item 4. Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the Company’s
disclosure controls and procedures as of September 30, 2017. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective, as of September 30, 2017, to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
There have been no material changes in our internal controls or in other factors during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART
II. OTHER INFORMATION
Item 1. Legal Proceedings
Other than ordinary, routine litigation incidental to our business, neither we nor any of our subsidiaries currently is party to any material pending legal proceeding.
Item 1A. Risk Factors
While we attempt to identify, manage and mitigate risks and uncertainties associated with our business, some level of risk and uncertainty will always be present. “Item 1A. Risk Factors” of our 2016 Annual Report on Form 10-K
describes the risks and uncertainties that we believe may have the potential to materially affect our business, results of operations, financial condition, cash flows, projected results and future prospects. The information below describes material changes from the risk factors disclosed in our 2016 Form 10-K and should be read in conjunction with the risk factors and information described therein.
The spin-off of our Cars.com business and sale of our majority ownership interest in CareerBuilder has reduced the size and diversification of our business, which in turn increases our exposure to the changes and highly competitive environment of the broadcast industry.
We now operate as a single business segment which is more exposed to the increased competition and changing regulatory environment
within the broadcast industry. Broadcast companies operate in a highly competitive environment and compete for audiences, advertising & marketing services revenue and quality programing. Lower audience share, declines in advertising & marketing services revenue and increased programming costs would adversely affect our business, financial condition and results of operations.
In addition, the Federal Communications Commission (FCC) and Congress are contemplating several new laws and changes to existing media ownership and other broadcast-related regulations, regarding a wide range of matters (including permitting companies to own more stations in a single market, as well as owning more stations nationwide). Changes to FCC rules may lead to additional opportunities and increased uncertainty in the industry. We cannot be assured that we will be able to compete successfully in the future
against existing, new or potential competitors, or that competition and consolidation in the media marketplace will not have a material adverse effect on our business, financial condition or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On September 19, 2017, we announced that our Board of Directors authorized a new share repurchase program for up to $300.0 million of our common stock over the next three years. During the third quarter of 2017, no shares were repurchased.
Tenth
Amendment, dated as of August 1, 2017, to the Amended and Restated Competitive Advance and Revolving Credit Agreement, dated as of December 13, 2004 and effective as of January 5, 2005, as amended and restated as of August 5, 2013, and as further amended, among TEGNA Inc., JPMorgan Chase Bank, N.A., as administrative agent, and the several banks and other financial institutions from time to time parties thereto.
The
following financial information from TEGNA Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in XBRL includes: (i) Condensed Consolidated Balance Sheets at September 30, 2017 and December 31, 2016, (ii) Consolidated Statements of Income for the quarter and year-to-date periods ended September 30, 2017 and September 30, 2016, (iii) Consolidated Statements of Comprehensive Income for the quarter and year-to-date periods ended September 30, 2017 and September 30, 2016, (iv) Condensed Consolidated Cash Flow Statements for the year-to-date periods ended September
30, 2017 and September 30, 2016, and (v) the notes to unaudited condensed consolidated financial statements.
We agree to furnish to the Commission, upon request, a copy of each agreement with respect to long-term debt not filed herewith in reliance upon the exemption from filing applicable to any series of debt representing less than 10% of our total consolidated assets.
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SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
