Quarterly Report — Form 10-Q — Sect. 13 / 15(d) – SEA’34 Filing Table of Contents
Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 707K
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16: EX-32.2 Certification -- §906 - SOA'02 HTML 22K
56: R1 Document and Entity Information HTML 41K
46: R2 Condensed Consolidated Balance Sheets HTML 168K
54: R3 Condensed Consolidated Balance Sheets HTML 46K
(Parenthetical)
58: R4 Condensed Consolidated Statements of Income HTML 86K
73: R5 Condensed Consolidated Statements of Comprehensive HTML 75K
Income
48: R6 Condensed Consolidated Statements of Cash Flows HTML 111K
53: R7 Basis of Presentation and Summary of Significant HTML 44K
Accounting Policies
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35: R9 Facility Consolidation and Asset Impairment HTML 26K
Charges
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66: R16 Fair Value Measurement HTML 80K
55: R17 Business Segment Information HTML 90K
57: R18 Earnings Per Share HTML 61K
62: R19 Commitments, Contingencies and Other Matters HTML 25K
78: R20 Subsequent Events HTML 25K
69: R21 Basis of Presentation and Summary of Significant HTML 36K
Accounting Policies (Policies)
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Accounting Policies (Tables)
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37: R29 Business Segment Information (Tables) HTML 85K
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Charges (Details Textual)
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51: R36 Goodwill and Other Intangible Assets (Details HTML 27K
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77: R38 Long-Term Debt - Additional Information (Details) HTML 78K
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(Details Textual)
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39: R44 Supplemental Equity Information (Details) HTML 65K
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34: R47 Supplemental Equity Information (Details 2) HTML 44K
24: R48 Fair Value Measurement (Details) HTML 43K
71: R49 Fair Value Measurement (Details Textual) HTML 45K
30: R50 Business Segment Information (Details) HTML 51K
68: R51 Earnings Per Share (Details) HTML 53K
33: R52 Earnings Per Share (Details Textual) HTML 24K
45: R53 Subsequent Events (Details) HTML 29K
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Registrant’s telephone number, including area code: (703) 854-7000.
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 ý
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 ý 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. See definitions of “large accelerated filer,”“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
ý
Accelerated Filer
¨
Non-Accelerated
Filer
¨
Smaller Reporting Company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ¨ No ý
The total number of shares of the registrant’s Common Stock, $1 par value outstanding as of June 28, 2015 was 226,471,846.
Accounts
payable and current portion of film contracts payable
$
227,706
$
281,784
Accrued expenses
502,710
564,628
Dividends
payable
45,504
45,309
Income taxes
38,068
11,267
Deferred income
233,274
217,094
Current
portion of long-term debt
7,854
7,854
Total current liabilities
1,055,116
1,127,936
Noncurrent liabilities
Income
taxes
57,762
56,578
Deferred income taxes
717,475
650,372
Long-term debt
4,453,202
4,488,028
Post-retirement
medical and life insurance liabilities
91,110
97,648
Pension liabilities
787,734
941,715
Other noncurrent liabilities
291,244
333,435
Total
noncurrent liabilities
6,398,527
6,567,776
Total liabilities (a)
7,453,643
7,695,712
Redeemable
noncontrolling interest
12,815
20,470
Commitments and contingent liabilities (See Note 13)
Equity
TEGNA
Inc. shareholders’ equity
Preferred stock of $1 par value per share, 2,000,000 shares authorized, none issued
—
—
Common stock of $1 par value per share, 800,000,000 shares authorized, 324,418,632 shares issued
324,419
324,419
Additional
paid-in capital
524,094
546,406
Retained earnings
8,740,291
8,602,369
Accumulated other comprehensive loss
(760,383
)
(778,769
)
8,828,421
8,694,425
Less
treasury stock, at cost (2015 - 97,946,786 shares; 2014 - 97,679,541 shares)
(5,461,276
)
(5,439,511
)
Total TEGNA Inc. shareholders’ equity
3,367,145
3,254,914
Noncontrolling
interests
260,166
234,359
Total equity
3,627,311
3,489,273
Total liabilities, redeemable noncontrolling interest and equity
$
11,093,769
$
11,205,455
The
accompanying notes are an integral part of these condensed consolidated financial statements.
(a) Our consolidated assets as of Jun. 28, 2015 include total assets of $57.6 million related to variable interest entities (VIEs) and our consolidated assets as of Dec. 28, 2014, include $60.0 million of such assets. These assets can only be used to settle the obligations of the VIEs. Consolidated liabilities as of Jun. 28, 2015 include total liabilities of $2.9 million related to VIEs and our consolidated liabilities as of Dec.
28, 2014 include $4.3 million of such liabilities. The VIEs’ creditors have no recourse to TEGNA regarding these liabilities. See further description in Note 1 - Summary of significant accounting policies.
NOTE 1 – Basis of presentation and summary of significant accounting policies
Basis of presentation: Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, 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 financial statements reflect all adjustments of a normal recurring nature necessary for a fair presentation of results for the interim periods presented.
On the first day of our fiscal third quarter,
we completed the spin-off of our publishing businesses. The publishing company has retained the name Gannett Co., Inc. and now trades on the New York Stock Exchange (NYSE) under the symbol GCI. TEGNA Inc. trades on the NYSE under the symbol TGNA. Second quarter and year-to-date results presented in the financial statements and footnotes are for the former consolidated Gannett Co., Inc. TEGNA will report publishing as a discontinued operation beginning in the third quarter of 2015.
Variable Interest Entities (VIE): A variable interest entity is an entity that lacks equity investors or whose equity investors lack a controlling interest in the entity through their equity investments. We consolidate VIEs when we are the primary beneficiary. In determining whether we are the primary beneficiary of a VIE for financial reporting purposes, we consider whether we have the power to direct the activities of the
VIE that most significantly impact the economic performance of the VIE and whether we are obligated to absorb losses or the right to receive returns that would significantly impact the VIE.
We have determined that the entities holding four of our television stations constitute VIEs. Accordingly, we evaluated the arrangements to determine whether we are considered the primary beneficiary, and, as a result of this evaluation, consolidated four stations in the Louisville, KY, Portland, OR, and Tucson, AZ, television markets since December 23, 2013.
The carrying amounts and classification of the assets and liabilities of the consolidated VIEs mentioned above and included in our consolidated balance sheets were as follows:
Recent accounting standards: In July 2015, the Financial Accounting Standards Board (FASB) delayed the effective date for Accounting Standards Update (ASU) 2014-09 Revenue from Contracts with Customers
(Topic 606). The core principle contemplated by ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. New disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required. We are required to adopt the standard in the first quarter of 2018 and retroactively apply it to our 2016 and 2017 financial results at the time of adoption. Under the new rules, we are permitted to adopt the new standard in 2017. We can also choose to apply the standard using either the full retrospective approach or a modified retrospective approach, which recognizes a cumulative catch up adjustment to the opening balance of retained earnings.
We are currently assessing the impact and timing of adopting this pronouncement, and the transition method we will use.
In April 2015, the FASB issued ASU 2015-03 Interest - Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs. Under the ASU, an entity presents their debt issuance cost on the balance sheet as a direct deduction from the carrying amount of their debt liability, similar to their debt discounts, rather than as an asset as has been done previously. Amortization of the cost is reported as interest expense. We are required to adopt ASU 2015-03 in the first quarter of 2016, with early adoption also being permitted. We are required to apply the new guidance on a retrospective basis, wherein the balance sheet of each period presented is adjusted to reflect the effects of applying the new guidance. At the end of the second quarter,
we had $48.6 million of debt issuance costs recorded as assets, which amount to less than 1% of our total assets.
7
NOTE 2 – Acquisitions and dispositions
On December 29, 2014, we sold Gannett Healthcare Group (GHG) to OnCourse Learning, an online education and training provider. GHG is a leading provider of continuing education, certification test preparation, online recruitment, digital media, publications and related services for nurses and other healthcare professionals in the United States.
In
March 2015, CareerBuilder increased its controlling interest in Economic Modeling Specialists Intl. (EMSI) by 11% from 74% to 85%. EMSI is an economic software firm that specializes in employment data and labor market analysis. EMSI collects and interprets large amounts of labor data, which is used in work force development and talent strategy.
In May 2015, Newsquest Media Group, a subsidiary of our former publishing businesses in the U.K, acquired Romanes Media Group, a local news publishing business operating in Scotland, Berkshire and Northern Ireland.
In June 2015, our former publishing business completed the acquisition of the remaining 59.36% interest in the Texas-New Mexico Newspapers Partnership that
it did not previously own from Digital First Media. The deal was completed through the assignment of our 19.49% interest in the California Newspapers Partnership and additional cash consideration. As a result, our former publishing business now owns 100% of the Texas-New Mexico Newspapers Partnership and no longer has any ownership interest in California Newspapers Partnership.
NOTE 3 – Facility consolidation and asset impairment charges
We evaluated the carrying values of property, plant and equipment at certain publishing and digital businesses as a result of our ongoing facility consolidation efforts. We revised the useful lives of certain assets to reflect the use of those assets over a shortened period as a result. In the
second quarter of 2015, we recognized related non-cash charges, the largest of which, $6.8 million, related to a digital business. Certain assets classified as held-for-sale according to Accounting Standards Codification (ASC) Topic 360 resulted in us recognizing non-cash charges in 2014 as we reduced the carrying values to equal the fair value less cost to dispose. The fair values were based on the estimated prices of similar assets. In 2015, we also recorded non-cash impairment charges to reduce the book value of goodwill and other intangible assets. The goodwill impairment and other intangible non-cash charges resulted from our application of the interim impairment testing provisions included within the goodwill subtopic ASC Topic 350. We are required to test goodwill and other indefinite lived assets for impairment annually. Our annual measurement date for testing is the first day of the fourth quarter. However, because
of softening business conditions at one of our smaller Publishing Segment reporting units in 2015 and two similar units in 2014, we accelerated our testing of those units. Our testing showed that the implied fair value of the goodwill was less than the recorded value. Therefore, we recognized a non-cash charge of $5.9 million in the first quarter of 2015 and $15.3 million in the second quarter of 2014 to reduce the carrying value of goodwill to the implied fair value.
We recorded pre-tax charges for facility consolidations and asset impairments of $20.8 million in the second quarter and $33.2 million for the year-to-date period in 2015. For 2014, we recorded $28.8 million pre-tax charges for the second
quarter and $43.6 million for the year-to-date period.
8
NOTE 4 – Goodwill and other intangible assets
The following table displays goodwill, indefinite-lived intangible assets, and amortizable intangible assets at June 28, 2015 and December 28, 2014:
Customer
relationships include subscriber lists and advertiser relationships while other intangibles primarily include retransmission agreements, network affiliations, internally developed technology, patents and amortizable trade names.
The following table summarizes the changes in our net goodwill balance through June 28, 2015:
On
October 1, 2014 we completed the acquisition of the remaining 73% that we did not previously own in Cars.com (formerly Classified Ventures, LLC). On May 26, 2015 our former publishing business acquired Romanes Media Group and on June 1, 2015 it completed the acquisition of the remaining 59.36% interest in the Texas-New Mexico Newspapers Partnership that it did not own from Digital First Media. The initial purchase price allocations are preliminary, based upon all information available to us at the present time and are subject to change.
Unsecured
floating rate term loan due quarterly through August 2018
$
107,400
$
123,200
VIE unsecured floating rate term loans due quarterly through December 2018
29,291
33,379
Unsecured
notes bearing fixed rate interest at 10% due June 2015
—
66,568
Unsecured notes bearing fixed rate interest at 6.375% due September 2015
250,000
250,000
Unsecured
notes bearing fixed rate interest at 10% due April 2016
193,429
193,429
Borrowings under revolving credit agreement expiring August 2018
685,000
640,000
Unsecured
notes bearing fixed rate interest at 7.125% due September 2018
250,000
250,000
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
4,480,120
4,521,576
Other (fair market value adjustments and discounts)
(19,064
)
(25,694
)
Total long-term debt
4,461,056
4,495,882
Less
current portion of long-term debt maturities of VIE loans
7,854
7,854
Long-term debt, net of current portion
$
4,453,202
$
4,488,028
For
the first six months of 2015, our long-term debt decreased by $34.8 million, primarily reflecting debt payments of $86.5 million partially offset by debt discount amortization and additional borrowing of $45.0 million from the revolving credit agreement. On June 28, 2015, we had unused borrowing capacity of $586.0 million under our revolving credit agreement.
On June 29, 2015, we entered into an agreement to amend and extend our existing revolving credit facility with one expiring on June 29,
2020 (the Amended and Restated Competitive Advance and Revolving Credit Agreement). Total commitments under the Amended and Restated Competitive Advance and Revolving Credit Agreement are $1.32 billion. The maximum total leverage ratio permitted by the new agreement is 5.0x through June 30, 2017, after which it is reduced to 4.75x through June 30, 2018 and then to 4.50x thereafter. Commitment fees on the revolving credit agreement are equal to 0.25% - 0.40% of the undrawn commitments, depending upon our leverage ratio, and are computed on the average daily undrawn balance
under the revolving credit agreement and paid each quarter. Under the Amended and Restated Competitive Advance and Revolving Credit Agreement, we may borrow at an applicable margin above the Eurodollar base rate (LIBOR loan) or the higher of the Prime Rate, the Federal Funds Effective Rate plus 0.50%, or the one month LIBOR rate plus 1.00% (ABR loan). The applicable margin is determined based on our leverage ratio but differs between LIBOR loans and ABR loans. For LIBOR based borrowing, the margin varies from 1.75% to 2.50%. For ABR-based borrowing, the margin will vary from 0.75% to 1.50%.
Shortly
after quarter end we also borrowed $200.0 million under a new five-year term loan. The interest rate on the term loan is equal to the same interest rates as borrowings under the Amended and Restated Competitive Advance and Revolving Credit Agreement. Both the revolving credit agreement and the term loan are guaranteed by a majority of our wholly-owned material domestic subsidiaries. These two transactions effectively increased our borrowing capacity by $214 million, for total unused borrowing capacity of $800 million as of June 29, 2015.
10
NOTE
6 – Retirement plans
We, along with our subsidiaries, have various retirement plans, including plans established under collective bargaining agreements. Our retirement plan costs include costs for qualified and nonqualified plans and are presented in the following table:
Expense
(credit) for company-sponsored retirement plans
$
745
$
(2,350
)
$
1,514
$
(3,618
)
For
the twenty-six weeks ended June 28, 2015, we contributed $112.0 million to our principal retirement plan and $5.8 million (£3.8 million) to the Newsquest Pension Scheme in the U.K. Included in the $112.0 million contribution to our principal retirement plan was a voluntary contribution of $100.0 million. TEGNA has no required contributions to any of its principal pension plans for the remainder of 2015.
NOTE 7 – Post-retirement benefits other than pension
We provide health care and life insurance benefits to certain retired employees who meet
age and service requirements. Most of our retirees contribute to the cost of these benefits, and retiree contributions are increased as actual benefit costs increase. The cost of providing retiree health care and life insurance benefits is actuarially determined. Our policy is to fund benefits as claims and premiums are paid. In March 2014, we adopted changes to the retiree medical plan that were effective July 1, 2014. Beginning on that date, we pay a stipend to certain Medicare-eligible retirees. As a result of this change, we remeasured the related post-retirement benefit obligation during the first quarter of 2014, and recorded a reduction to the liability of $33.9 million (with a corresponding adjustment to “Accumulated other comprehensive loss”). Post-retirement benefit costs for health care and life insurance are presented in the following table:
The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was approximately $24.1 million as of June 28, 2015 and $23.2 million as of December 28, 2014. The amount of accrued interest and penalties payable related to unrecognized tax benefits was $7.3 million as of June 28, 2015 and $6.9 million as of December 28, 2014.
It is reasonably possible that the amount of unrecognized benefits with respect to certain of our unrecognized tax positions
will significantly 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 $4.4 million within the next 12 months primarily due to lapses of statutes of limitations and settlement of ongoing audits in various jurisdictions.
11
NOTE 9 – Supplemental equity information
The following table summarizes equity account activity for the twenty-six week periods ended June
28, 2015 and June 29, 2014:
In August 2012, our CareerBuilder subsidiary acquired 74%
of Economic Modeling Specialists Intl. (EMSI), a software firm that specializes in employment data and labor market analytics. In March 2015, CareerBuilder purchased an additional 11% ownership interest in EMSI. Holders of the remaining 15% ownership interest in EMSI hold put rights that permit them to put their equity interest to CareerBuilder. Since redemption of EMSI noncontrolling interest is outside of our control, the balance is presented on the Condensed Consolidated Balance Sheets in the caption “Redeemable noncontrolling interest.”
12
The
following table summarizes the components of, and the changes in, “Accumulated other comprehensive loss” (net of tax and noncontrolling interests):
Accumulated other comprehensive loss components are included in computing net periodic
post-retirement costs (see Notes 6 and 7 for more detail). Reclassifications out of accumulated other comprehensive loss related to these post-retirement plans include the following:
We measure and record in the accompanying condensed consolidated financial statements certain assets and liabilities at fair value. ASC Topic 820, Fair Value Measurement, 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 June 28, 2015 and December 28, 2014:
Under
certain acquisition agreements, we have agreed to pay the sellers earn-outs based on the future financial performance of the businesses. Contingent consideration payable in the table above represents the estimated fair value of future earn-outs payable under such agreements. The fair value of the contingent payments was measured based on the present value of the consideration expected to be transferred using a discounted cash flow analysis. The discount rate is a significant unobservable input in such present value computations. Discount rates ranged between 15% and 24% depending on the risk associated with the cash flows. Changes to the fair value of earn-outs are reflected in “Selling, general and administrative expenses” on our Condensed Consolidated Statements of Income. For the twenty-six weeks ended June 28, 2015,
the contingent consideration decreased by $9.1 million as a result of payments and adjustments to fair value.
The fair value of our total long-term debt, based on the bid and ask quotes for the related debt (Level 2), totaled $4.61 billion at June 28, 2015 and $4.65 billion at December 28, 2014.
During the first quarter of 2015, a small Publishing Segment goodwill asset was impaired as the implied fair value of the goodwill was determined to be less than the recorded value. Implied fair value of the goodwill asset was zero. As a result, we recognized a non-cash goodwill impairment charge of $5.9
million to reduce the carrying value to the implied fair value.
During the second quarter of 2014, certain Publishing Segment goodwill assets were impaired as the implied fair value of the goodwill was less than the recorded value. Implied fair value of the goodwill assets totaled $6.2 million, and we recognized a goodwill impairment charge of $15.3 million to reduce the carrying value to the implied fair value.
14
NOTE 11 – Business segment information
Our
reportable segments based on our management and internal reporting structures are Broadcasting, Digital and Publishing. The Broadcasting Segment at the end of the second quarter includes our 46 owned and serviced television stations. The Digital Segment includes Cars.com, CareerBuilder, Shoplocal and PointRoll. The Publishing Segment principally includes local domestic publishing operations, Newsquest operations in the U.K. and the USA TODAY group.
Operating
Income (net of depreciation, amortization and facility consolidation and asset impairment charges):
Broadcasting
$
176,502
$
171,322
$
351,832
$
325,871
Digital
63,633
35,695
119,786
59,519
Publishing
47,249
53,239
65,554
96,227
Corporate
(19,018
)
(17,754
)
(37,878
)
(35,121
)
Total
$
268,366
$
242,502
$
499,294
$
446,496
Depreciation,
amortization and facility consolidation and asset impairment charges:
Broadcasting
$
21,825
$
20,621
$
43,086
$
47,815
Digital
37,808
9,603
70,635
17,891
Publishing
39,241
53,123
75,366
89,714
Corporate
4,193
4,749
7,934
10,003
Total
$
103,067
$
88,096
$
197,021
$
165,423
(a)
Includes quarter-to-date intersegment eliminations of $19 million for Digital and $5 million for Publishing, and year-to-date intersegment eliminations of $1 million for Broadcasting, $38 million for Digital, and $10 million for Publishing.
15
NOTE 12 – Earnings per share
Our earnings per share (basic and diluted) are presented below:
Weighted
average number of common shares outstanding - basic
226,538
226,132
226,814
226,681
Effect of dilutive securities:
Restricted
stock
2,349
2,814
2,308
2,763
Performance share units
2,208
2,212
1,951
1,725
Stock
options
825
948
854
1,018
Weighted average number of common shares outstanding - diluted
231,920
232,106
231,927
232,187
Net
income per share - basic
$
0.51
$
0.92
$
1.01
$
1.18
Net
income per share - diluted
$
0.50
$
0.90
$
0.99
$
1.15
The
diluted earnings per share amounts exclude the effects of approximately 2.2 million stock options outstanding for the second quarter and year-to-date of 2014, as their inclusion would be antidilutive.
NOTE 13 – 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. Management believes any liability that exists as a result of these matters is immaterial.
NOTE 14 –
Subsequent events
In August 2014, we announced our plan to separate into two independent, publicly traded companies: a broadcasting and digital company, which would operate under the name TEGNA, and a publishing company that would retain the name Gannett Co., Inc. On June 29, 2015, we completed the previously announced spin-off. Under the terms of the transaction, our shareholders retained their shares of TEGNA common stock, which now trades on the NYSE under the symbol “TGNA,” and also received one share of stock of the “new Gannett” publishing business for every two shares of our stock they owned on the record date of June 22, 2015. New Gannett shares trade on the NYSE under
the symbol GCI.
On July 15, 2015, we announced a binding definitive agreement for the sale of our corporate headquarters in McLean, Virginia to Tamares Tysons Corner LLC, an affiliate of Tamares, for a purchase price of $270 million. The purchaser has made a $27 million non-refundable deposit pursuant to the purchase agreement. The sale transaction is expected to close late in the third quarter or early in the fourth quarter, subject to the satisfaction of customary closing conditions.
16
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
On the first day of our fiscal third quarter, we completed the spin-off of our publishing businesses. The publishing company has retained the name Gannett Co., Inc. and now trades on the New York Stock Exchange under the symbol GCI. Our company was renamed TEGNA Inc., and our stock trades on the New York Stock Exchange under the symbol TGNA. Second quarter and year-to-date results presented in this discussion and the accompanying tables are for the former consolidated Gannett Co., Inc. TEGNA will report its former publishing business as a discontinued operation beginning in the third quarter of 2015.
Prior
to the spin, our operations consisted of three business segments: Broadcasting (television), Digital, and Publishing. Through our Broadcasting Segment, we own or service (through shared service agreements or similar arrangements) 46 television stations with affiliated digital platforms in 38 markets. These stations serve more than 35 million households and represent almost one-third of the U.S. population. Excluding owner-operators, we are the No. 1 NBC affiliate group, No. 1 CBS affiliate group, and the No. 4 ABC affiliate group. We are the largest independent station group of major network affiliates in the top 25 markets, with a uniquely diversified portfolio.
Our Digital Segment consists of Cars.com (formerly Classified Ventures, LLC), CareerBuilder, PointRoll and Shoplocal. Cars.com, which we acquired full ownership of on Oct. 1, 2014, is a leading destination for online
car shoppers. Cars.com allows consumers to search, compare and connect with sellers and dealers, and provides buyers with greater control over the shopping process. Cars.com hosts approximately four million vehicle listings and serves more than 20,000 customers that are primarily franchise and independent car dealers in all 50 states. CareerBuilder is the global leader in human capital solutions, helping companies to target, attract and retain talent. It provides unmatched reach from employers by offering the largest online career destination in the U.S. for job seekers and maintains the largest online recruitment sales presence in North America. CareerBuilder has made significant investments over the past few years to further its transformation into a global leader in the Human Resources software as a service business.
The spun-off Publishing Segment’s operations comprised 112 daily publications and digital platforms in the
U.S. and the U.K., more than 400 non-daily publications in the U.S., and more than 140 such titles in the U.K. The Publishing Segment’s 93 U.S. daily publications include USA TODAY, which is currently the nation’s number one newspaper in consolidated print and digital circulation. In the U.K., through the Newsquest group, the publishing business produced 19 daily paid-for publications and more than 140 weekly publications, magazines and trade publications. In the markets served by the Publishing business, it also operates desktop, smartphone and tablet products which are tightly integrated with the publishing operations. The publishing operations have strategic business relationships with many of our Digital Segment businesses, including CareerBuilder, Cars.com, PointRoll and Shoplocal. The Publishing Segment also includes commercial printing, newswire, marketing and data services operations.
Results
from Operations
The reportable segments, which were based on our management and internal reporting structures, are Broadcasting, Digital, and Publishing. The primary categories of Broadcasting Segment revenue are: 1) core advertising which includes local and national non-political advertising; 2) political advertising revenues which are cyclical with peaks occurring in even years (e.g., 2014 and 2012) and particularly in the second half of those years; 3) retransmission revenues representing fees paid by satellite and cable networks and telecommunications companies to carry our television signals on their network; 4) digital revenues which encompass digital marketing services and advertising on the stations’ website, tablet and mobile products; and 5) other revenues, which consist of payments by advertisers to
television stations for other services, such as production of programming from third parties and production of advertising material. We own and operate a number of stand-alone digital subsidiaries, which are included in our Digital Segment, including two digital leaders, Cars.com and CareerBuilder, as well as several other well-positioned online companies. CareerBuilder, the largest company in the Digital Segment, generates revenues both through its own sales force by providing talent and compensation intelligence, human resource related consulting services and recruitment solutions and through sales of employment advertising placed by affiliated media organizations. Cars.com generates revenues through subscription-based online automotive advertising packages targeting car dealerships and national advertisers through its own direct sales force as well as its affiliate sales channels.
We generated revenue within our Publishing Segment through advertising and subscriptions to our print and digital publications. Our advertising teams sell retail, classified and national advertising across multiple platforms including print, online, mobile and tablet as well as niche publications. Across both Broadcasting and Publishing Segments, we generated revenue by providing digital marketing products and services, ranging from search to social media to website development.
Our largest component of operating expense is payroll and benefits. Other significant operating expenses include the costs of locally produced content and purchased syndicated programming in the Broadcasting Segment, production (raw materials) and distribution costs within the Publishing Segment, and sales and marketing costs within the
Digital Segment.
17
Consolidated Summary
A consolidated summary of our results is presented below:
In thousands, except per share data
Second
Quarter
2015
% of Total
2014
% of Total
Change
Operating
revenues:
Broadcasting
$
417,429
27
%
$
398,258
27
%
5
%
Digital
338,147
22
%
194,381
13
%
74
%
Publishing
789,976
52
%
867,365
59
%
(9
%)
Intersegment
eliminations
(24,160
)
(2
%)
—
—
%
***
Total
operating revenues
$
1,521,392
100
%
$
1,460,004
100
%
4
%
Operating
expenses
$
1,253,026
$
1,217,502
3
%
Operating
income:
Broadcasting
$
176,502
66
%
$
171,322
71
%
3
%
Digital
63,633
24
%
35,695
15
%
78
%
Publishing
47,249
18
%
53,239
22
%
(11
%)
Corporate
(19,018
)
(7
%)
(17,754
)
(7
%)
7
%
Total
operating income
$
268,366
100
%
$
242,502
100
%
11
%
Non-operating
expense (income)
70,545
(89,410
)
***
Provision for income taxes
66,331
106,000
(37
%)
Net
income attributable to noncontrolling interests
15,623
17,445
(10
%)
Net income attributable
to TEGNA Inc.
$
115,867
$
208,467
(44
%)
Net
income per share:
Basic
$
0.51
$
0.92
(45
%)
Diluted
$
0.50
$
0.90
(44
%)
Weighted
average number of common shares outstanding:
Basic
226,538
226,132
—
%
Diluted
231,920
232,106
—
%
18
In
thousands, except per share data
Year-to-Date
2015
% of Total
2014
% of Total
Change
Operating
revenues:
Broadcasting
$
814,223
27
%
$
780,526
27
%
4
%
Digital
670,846
22
%
374,116
13
%
79
%
Publishing
1,558,164
52
%
1,709,428
60
%
(9
%)
Intersegment
eliminations
(49,076
)
(2
%)
—
—
%
***
Total
operating revenues
$
2,994,157
100
%
$
2,864,070
100
%
5
%
Operating
expenses
$
2,494,863
$
2,417,574
3
%
Operating
income:
Broadcasting
$
351,832
70
%
$
325,871
73
%
8
%
Digital
119,786
24
%
59,519
13
%
***
Publishing
65,554
13
%
96,227
22
%
(32
%)
Corporate
(37,878
)
(8
%)
(35,121
)
(8
%)
8
%
Total
operating income
$
499,294
100
%
$
446,496
100
%
12
%
Non-operating
expense (income)
113,466
(7,505
)
***
Provision for income taxes
126,854
158,500
(20
%)
Net
income attributable to noncontrolling interests
30,213
27,875
8
%
Net income attributable
to TEGNA Inc.
$
228,761
$
267,626
(15
%)
Net
income per share:
Basic
$
1.01
$
1.18
(14
%)
Diluted
$
0.99
$
1.15
(14
%)
Weighted
average number of common shares outstanding:
Basic
226,814
226,681
—
%
Diluted
231,927
232,187
—
%
Our
operating revenues were $1.52 billion in the second quarter of 2015, an increase of 4% from $1.46 billion in the same quarter last year. For the first six months, operating revenues increased 5% to $2.99 billion from $2.86 billion in 2014. The increases were driven by record results in the Digital Segment due to the acquisition of and organic growth at Cars.com as well as record results in the Broadcasting Segment due to substantially higher retransmission revenue and digital revenue which more than offset the absence of the incremental political advertising revenues of $14 million in the second quarter and $22 million in the year-to-date periods of 2014. The results for the second quarter of 2015
and the year-to-date periods include results for Cars.com. The prior year periods do not include results for Cars.com, impacting year-over-year comparisons. A separate discussion of pro forma information begins on page 29.
Operating expenses increased 3% for both the second quarter and the first six months of 2015, driven primarily by the acquisition of Cars.com in the Digital Segment and increased programming costs related to reverse network compensation in the Broadcasting Segment, partially offset by lower Publishing Segment expenses.
Non-operating expense increased from income of $89.4 million in the second quarter of 2014 and $7.5 million for the year-to-date period in 2014 to expense of $70.5 million
in the second quarter of 2015 and $113.5 million for the year-to-date period in 2015, primarily due to the absence of the $148.4 million gain on the sale of Apartments.com that occurred in the second quarter of last year. Equity income in unconsolidated investees decreased $153.9 million in the second quarter of 2014 to $2.6 million in the second quarter of 2015, and decreased $157.3 million to $7.7 million in the year-to-date period in 2015, primarily due to the same gain. Interest expense was $69.3 million in the second quarter and $140.1 million for the year-to-date period compared to $64.1 million in the second quarter of 2014 and $133.8 million for the year-to-date period in 2014, reflecting higher average debt outstanding due to the Classified Ventures acquisition in October 2014 partially offset by a lower average interest rate. The total average outstanding debt was $4.40 billion for the second quarter of 2015, compared
to $3.48 billion last year. The weighted average interest rate on total outstanding debt was 6.00% for the second quarter of 2015 compared to 6.88% last year. For the year-to-date period total average outstanding debt was $4.43 billion compared to $3.58 billion last year. The
19
weighted average interest rate on total outstanding debt was 6.02% year-to-date in 2015 compared to 6.96% in the same period last year.
Our reported effective income tax rate was 36.4% for the second quarter of 2015, compared to 33.7% for the second quarter of 2014. The tax rate for the second quarter in 2015 was higher than the comparable rate in 2014 primarily due to one-time tax charges incurred in
2015 for an internal legal entity restructuring that was a precursor to the spin-off of our publishing business. The reported effective income tax rate was 35.7% for the first six months of 2015 compared to 37.2% for the same period last year. The year-to-date 2014 rate was higher than the year-to-date 2015 rate primarily due to a $23.8 million tax charge recognized on the sale of KMOV-TV in St. Louis, MO in February 2014, partially offset by tax benefits from other year-to-date 2014 special items. A separate discussion of effective income tax rates excluding special items (non-GAAP basis) appears on page 29.
The weighted average number of diluted shares outstanding for the second quarter of 2015 decreased by 0.2 million shares from 2014. For the year-to-date period, the weighted average number of diluted shares outstanding in 2015 decreased by 0.3 million shares. These declines reflect shares repurchased in 2015, partially
offset by issuances of additional equity-based awards. See Part II, Item 2 for information on share repurchases.
Segment Results
The following is a discussion of our reported operating segment results for the second quarter and year-to-date period of 2015. Unless otherwise noted, all comparisons are to the comparable prior year period.
Broadcasting Segment Results
A summary of our Broadcasting Segment results is presented below:
In
thousands
Second Quarter
Year-to-Date
2015
2014
Change
2015
2014
Change
Operating
revenues
$
417,429
$
398,258
5
%
$
814,223
$
780,526
4
%
Operating
expenses:
Operating expenses, exclusive of depreciation
219,102
206,315
6
%
432,014
406,840
6
%
Depreciation
13,244
11,627
14
%
26,540
23,324
14
%
Amortization
5,876
5,885
—
%
11,474
11,626
(1
%)
Transformation
items
2,705
3,109
(13
%)
(7,637
)
12,865
***
Total
operating expenses
240,927
226,936
6
%
462,391
454,655
2
%
Operating
income
$
176,502
$
171,322
3
%
$
351,832
$
325,871
8
%
Broadcasting
Segment revenues are grouped into five categories: Core (Local and National), Political, Retransmission, Digital and Other. The following table summarizes the year-over-year changes in these select revenue categories.
In thousands
Second Quarter
Year-to-Date
2015
Percentage
change from 2014
2015
Percentage change from 2014
Core (Local
& National)
$
268,779
3
%
$
521,888
1
%
Political
2,746
(83
%)
4,800
(82
%)
Retransmission (a)
109,440
23
%
219,627
25
%
Digital
28,673
23
%
52,482
18
%
Other
7,791
(5
%)
15,426
8
%
Total
$
417,429
5
%
$
814,223
4
%
(a)
Reverse compensation to network affiliates is included as part of programming costs and therefore is excluded from this line.
Broadcasting Segment revenues in the second quarter of 2015 increased 5% to $417.4 million, a record for second quarter revenues. The increase was driven primarily by a substantial increase in retransmission revenue and continued growth in digital revenue, partly offset by the absence of $14 million in incremental politically related advertising that occurred in the second
20
quarter of 2014. Core advertising revenues, which consist of Local and National non-political advertising, increased 3%
to $268.8 million in the second quarter of 2015. This was primarily driven by stronger advertising revenues in the entertainment and home improvement categories across all television stations and partially offset by softness in the automotive and retail advertising categories. As anticipated, because of regular election cycle timing, political advertising revenues decreased 83% to $2.7 million compared to $16.6 million in the second quarter a year ago. Retransmission revenues increased 23% to $109.4 million in the quarter resulting from newly negotiated agreements at the end of last year as well as rate increases. Digital revenues increased 23% to $28.7
million in the second quarter of 2015 reflecting continued growth from digital marketing services products.
Year-to-date Broadcasting Segment revenues increased 4% to $814.2 million, a record high, driven primarily by substantially higher retransmission revenues and digital revenues as well as the acquisition of television stations, despite the absence of $22 million in incremental political advertising revenue that occurred in the same period last year.
Broadcasting Segment operating expenses for the second quarter of 2015 increased 6% to $240.9 million primarily due to higher reverse network fees and investments in our digital sales
initiatives, as well as broad-based sales force expansion and newly developed product offerings. Year-to-date, Broadcasting Segment operating expenses increased 2% supporting higher revenues. A separate discussion of operating expenses excluding special items (non-GAAP basis) can be found on page 27.
Digital Segment Results
The Digital Segment includes results for TEGNA’s stand-alone digital subsidiaries including Cars.com, CareerBuilder, PointRoll, and Shoplocal. Many of our other digital offerings are highly integrated within publishing or broadcasting offerings, and therefore the results of these integrated digital offerings are reported within the operating results of the Publishing
and Broadcasting Segments. The results for the second quarter of 2015 and the year-to-date period include results for Cars.com which was acquired Oct. 1, 2014. The prior year periods do not include results for Cars.com, impacting year-over-year comparisons.
A summary of our Digital Segment results is presented below:
In
thousands
Second Quarter
Year-to-Date
2015
2014
Change
2015
2014
Change
Operating
revenues
$
338,147
$
194,381
74
%
$
670,846
$
374,116
79
%
Operating
expenses:
Operating expenses, exclusive of depreciation
236,706
149,083
59
%
480,425
296,706
62
%
Depreciation
8,158
4,998
63
%
16,011
9,551
68
%
Amortization
22,801
4,605
***
45,601
8,340
***
Transformation
costs
6,849
—
***
9,023
—
***
Total
operating expenses
274,514
158,686
73
%
551,060
314,597
75
%
Operating
income
$
63,633
$
35,695
78
%
$
119,786
$
59,519
***
Digital
Segment operating revenues increased 74% to $338.1 million in the second quarter of 2015 compared to $194.4 million in 2014, primarily driven by the acquisition and ongoing strong organic growth of Cars.com. CareerBuilder revenues decreased 2% for the quarter, reflecting year-over-year declines in foreign exchange rates as well as the strategic decision to accelerate the reduction of transactional advertising and focus on more lucrative long-term recurring software deals. A separate discussion of pro forma information can be found on page 29.
For the year-to-date period, Digital Segment operating revenues increased 79% to $670.8 million compared to $374.1 million
last year, driven by the acquisition and strong organic growth of Cars.com. CareerBuilder revenues increased 1% driven by increased sales of digital software-as-a service products, partly offset by year-over-year declines in foreign exchange rates as well as the strategic shift in sales focus discussed above.
Digital Segment operating expenses increased 73% to $274.5 million in the second quarter of 2015 and increased 75% to $551.1 million for the year-to-date period, primarily due to the Cars.com acquisition, partly offset by lower CareerBuilder operating expenses. As a result of these factors, Digital Segment operating income increased 78% to $63.6 million
for the quarter and increased 101% to $119.8 million for the year-to-date period in 2015. A separate discussion of operating expenses excluding special items (non-GAAP basis) can be found on page 28.
21
Publishing Segment Results
A summary of our Publishing Segment results is presented below:
In
thousands
Second Quarter
Year-to-Date
2015
2014
Change
2015
2014
Change
Operating
revenues
$
789,976
$
867,365
(9
%)
$
1,558,164
$
1,709,428
(9
%)
Operating
expenses:
Operating expenses, exclusive of depreciation
703,486
761,003
(8
%)
1,417,244
1,523,487
(7
%)
Depreciation
24,102
23,476
3
%
48,695
46,736
4
%
Amortization
3,898
3,981
(2
%)
7,587
7,768
(2
%)
Facility
consolidation and asset impairment charges
11,241
25,666
(56
%)
19,084
35,210
(46
%)
Total
operating expenses
742,727
814,126
(9
%)
1,492,610
1,613,201
(7
%)
Operating
income
$
47,249
$
53,239
(11
%)
$
65,554
$
96,227
(32
%)
Publishing
Segment operating revenues are derived principally from advertising sales and circulation sales. Advertising revenues include those derived from advertising placed with print products as well as publishing related Internet desktop, smartphone and tablet applications. Circulation revenues are derived principally from distributing our publications on our digital platforms, from home delivery and from single copy sales of publications. Other publishing revenues are mainly from commercial printing.
The table below presents the main components of Publishing Segment revenues:
In
thousands
Second Quarter
Year-to-Date
2015
2014
Change
2015
2014
Change
Advertising
$
469,780
$
530,183
(11
%)
$
914,188
$
1,031,483
(11
%)
Circulation
267,679
277,851
(4
%)
540,913
559,927
(3
%)
All
other
52,517
59,331
(11
%)
103,063
118,018
(13
%)
Total
Publishing Segment revenues
$
789,976
$
867,365
(9
%)
$
1,558,164
$
1,709,428
(9
%)
The
table below presents the principal components of Publishing Segment advertising revenues. These amounts include advertising revenue from printed publications as well as online advertising revenue from desktop, smartphone and tablets affiliated with the publications.
In thousands
Second
Quarter
Year-to-Date
2015
2014
Change
2015
2014
Change
Retail
$
250,936
$
282,566
(11
%)
$
480,501
$
535,552
(10
%)
National
60,481
78,894
(23
%)
119,979
162,596
(26
%)
Classified
158,363
168,723
(6
%)
313,708
333,335
(6
%)
Total
Publishing Segment advertising revenues
$
469,780
$
530,183
(11
%)
$
914,188
$
1,031,483
(11
%)
22
The
table below presents the percentage change in 2015 compared to 2014 for each of the major advertising and classified revenue categories, presented as if the USA Weekend shutdown, Gannett Healthcare Group sale, Apartments.com sale, and the acquisition of the Texas-New Mexico Newspapers Partnership and the Romanes Media Group occurred at the beginning of 2014.
Second
Quarter
Year-to-Date
U.S. Publishing
Newsquest (in pounds)
Total Publishing Segment
U.S. Publishing
Newsquest
(in pounds)
Total Publishing Segment
Retail
(10
%)
(1
%)
(10
%)
(9
%)
(1
%)
(9
%)
National
(15
%)
(5
%)
(15
%)
(17
%)
(3
%)
(17
%)
Classified:
Automotive
(4
%)
(9
%)
(6
%)
(4
%)
(8
%)
(5
%)
Employment
(8
%)
(11
%)
(12
%)
(5
%)
(8
%)
(9
%)
Real
Estate
(10
%)
(14
%)
(15
%)
(6
%)
(12
%)
(12
%)
Legal
(3
%)
—
%
(3
%)
(5
%)
—
%
(5
%)
Other
(8
%)
(6
%)
(10
%)
(5
%)
(5
%)
(8
%)
Total
Classified
(7
%)
(10
%)
(10
%)
(5
%)
(8
%)
(8
%)
Total
Publishing Segment advertising revenues
(10
%)
(6
%)
(11
%)
(9
%)
(5
%)
(10
%)
Publishing
Segment operating expenses decreased 9% in the quarter to $742.7 million compared to $814.1 million last year. Publishing Segment operating income was $47.2 million in the quarter compared to $53.2 million last year, a decrease of 11%.
Corporate Expense
Corporate expense increased 7% to $19.0 million in the second quarter and increased 8% to $37.9 million for the first six months of 2015, mainly due to increased costs related to the separation of our publishing business that occurred on June 29, 2015. Although
we anticipate some of these costs to be recurring in nature, we have identified offsetting reductions which will be implemented over the balance of the year as we right-size our new footprint.
Results from Operations - Non-GAAP and Pro Forma 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, and should be read together with financial information presented on a GAAP basis.
We discuss in this report non-GAAP financial performance measures that exclude from our reported GAAP results
the impact of special items consisting of workforce restructuring charges, transformation costs, non-cash asset impairment charges, certain gains and expenses recognized in non-operating categories and certain charges to our income tax provision.
We believe that such expenses, charges and gains are not indicative of normal, ongoing operations and their inclusion in results makes for more difficult comparisons between years and with peer group companies. We also discuss Adjusted EBITDA, a non-GAAP financial performance measure that we believe offers a useful view of the overall operation of our businesses. Adjusted EBITDA is defined as net income attributable to TEGNA Inc. before (1) net income attributable to noncontrolling interests, (2) income taxes, (3) interest expense, (4) equity income, (5) other non-operating items, (6) workforce restructuring, (7) other transformation items, (8) asset impairment charges, (9) depreciation
and (10) amortization. When Adjusted EBITDA is discussed in reference to performance on a consolidated basis, the most directly comparable GAAP financial measure is Net income attributable to TEGNA Inc. We do not analyze non-operating items such as interest expense and income taxes on a segment level; therefore, the most directly comparable GAAP financial measure to Adjusted EBITDA when performance is discussed on a segment level is Operating income.
Workforce restructuring and transformation items primarily relate to incremental expenses we have incurred to consolidate or outsource production processes and centralize other functions primarily within the Publishing business. Workforce restructuring expenses include payroll and related benefit costs. Transformation items include incremental expenses incurred by us to execute on our transformation and growth plan and incremental expenses and gains associated with optimizing
our real
23
estate portfolio. Transformation items also include amortization of acquired advertising contracts. Asset impairment charges reflect non-cash charges to reduce the book value of certain intangible assets to their respective fair values, as our projections for the businesses underlying the related assets had declined.
In the first quarter of 2015, special items were recorded in other non-operating items primarily related to the pre-tax gain of $44 million related to the sale of the Gannett Healthcare Group, partly offset by costs related to the spin-off of our publishing operation. Other non-operating items for the first quarter of 2014
included special charges primarily related to the early retirement of our 9.375% notes due in 2017. The charges included a call premium paid as well as the write off of unamortized debt issuance costs and original issue discount. We also incurred expenses related to the consent solicitation relating to the Belo debentures we assumed as part of the Belo transaction. The income tax provision for the first quarter of 2014 reflects a charge related to the sale of our interest in television station KMOV‑TV in St. Louis, MO, in February 2014.
In the second quarter of 2015, special items were recorded in other non-operating items primarily related to costs related the spin-off of our publishing operation, partly offset by the gain related to the Texas-New Mexico Newspapers Partnership acquisition. In the second quarter of 2014, non-operating special items were recorded primarily related to the pre-tax gain of $148 million related
to the Classified Ventures sale of its Apartments.com business. This gain is reflected in the line equity income in unconsolidated investees, net.
We use non-GAAP financial performance measures for purposes of evaluating business unit and consolidated company performance. Therefore, we believe that each of the non-GAAP measures presented provides investors a view into the ongoing operation of our businesses through the eyes of our management and Board of Directors. This facilitates comparison of results across historical periods, and provides a focus on the underlying ongoing operating performance of our businesses. Many of our peer group companies present similar non-GAAP measures to better facilitate industry comparisons.
Discussion of special charges and credits affecting reported results
Our
results for 2015 included the following items we consider special and not indicative of our normal ongoing operations:
•
Costs associated with workforce restructuring;
•
Transformation items;
•
Non-cash asset impairment charges;
•
Other
non-operating gains related to the sale of Gannett Healthcare Group and the newspaper partnerships exchange and charges related to the spin-off of our Publishing business; and
•
Special tax charge primarily related to the restructuring of our legal entities in advance of the spin-off of our Publishing business.
Results for 2014 included the following special items:
•
Costs associated with workforce restructuring;
•
Transformation
costs;
•
Non-cash asset impairment charges;
•
Other non-operating charges;
•
Non-operating gain related to the sale of Apartments.com; and
•
A
tax charge related to the sale of our interest in KMOV-TV.
24
Consolidated Summary - Non-GAAP
The following is a discussion of our as adjusted non-GAAP financial results. All as adjusted (non-GAAP
basis) measures are labeled as such or “adjusted.”
Adjusted operating results were as follows:
In thousands, except share data
Second Quarter
Year-to-Date
2015
2014
Change
2015
2014
Change
Operating
revenues
$
1,521,392
$
1,460,004
4
%
$
2,994,157
$
2,864,070
5
%
Adjusted
operating expenses
1,215,243
1,165,810
4
%
2,444,263
2,343,117
4
%
Adjusted
operating income
$
306,149
$
294,194
4
%
$
549,894
$
520,953
6
%
Adjusted
net income attributable to TEGNA Inc.
$
150,165
$
154,649
(3
%)
$
262,930
$
263,073
—
%
Adjusted
diluted earnings per share
$
0.65
$
0.67
(3
%)
$
1.13
$
1.13
—
%
Operating
revenues increased 4% to $1.52 billion in the second quarter of 2015 and 5% to $2.99 billion for the year-to-date period. The increase in both periods were driven by record results in the Broadcasting Segment, partially offset by the absence of politically related advertising revenues that benefited the same periods last year, and record results in the Digital Segment, driven by the acquisition and strong organic growth of Cars.com.
Broadcasting Segment revenues increased 5% in the second quarter of 2015 and 4% year-to-date, reflecting substantially higher retransmission revenues and digital revenues, partly offset by the absence of political advertising
revenue in the quarter and year-to-date periods. Digital Segment revenues increased 74% for the second quarter and 79% for the year-to-date period, which was driven by the acquisition and strong organic growth of Cars.com. Publishing Segment revenues were down 9% in both, the second quarter of 2015 and year-to-date periods.
A summary of the impact of special items on our operating expenses is presented below:
In
thousands
Second Quarter
Year-to-Date
2015
2014
Change
2015
2014
Change
Operating
expenses (GAAP basis)
$
1,253,026
$
1,217,502
3
%
$
2,494,863
$
2,417,574
3
%
Remove
special items:
Workforce restructuring
(16,988
)
(22,917
)
(26
%)
(30,130
)
(26,382
)
14
%
Transformation
items
(16,277
)
(12,588
)
29
%
(10,012
)
(31,888
)
(69
%)
Asset
impairment charges
(4,518
)
(16,187
)
(72
%)
(10,458
)
(16,187
)
(35
%)
As
adjusted (non-GAAP basis)
$
1,215,243
$
1,165,810
4
%
$
2,444,263
$
2,343,117
4
%
Adjusted
operating expenses increased 4% for the quarter and year-to-date period, mainly due to the acquisition of Cars.com, partially offset by lower Publishing Segment expenses.
A summary of the impact of special items on operating income is presented below:
In thousands
Second
Quarter
Year-to-Date
2015
2014
Change
2015
2014
Change
Operating
income (GAAP basis)
$
268,366
$
242,502
11
%
$
499,294
$
446,496
12
%
Remove
special items:
Workforce restructuring
16,988
22,917
(26
%)
30,130
26,382
14
%
Transformation
items
16,277
12,588
29
%
10,012
31,888
(69
%)
Asset
impairment charges
4,518
16,187
(72
%)
10,458
16,187
(35
%)
As
adjusted (non-GAAP basis)
$
306,149
$
294,194
4
%
$
549,894
$
520,953
6
%
Adjusted
operating income increased 4% for the second quarter, reflecting higher Broadcasting and Digital Segment adjusted operating income, partially offset by lower Publishing Segment adjusted operating income. Adjusted Broadcasting
25
Segment operating income increased 1% to $179.2 million for the quarter reflecting substantially higher retransmission revenue, partially offset by the absence of $14 million in incremental politically related advertising that occurred in the second quarter last year. Adjusted Digital Segment operating income was $71.8 million for the quarter driven primarily by the
acquisition of and strong organic growth at Cars.com. Adjusted Publishing Segment operating income was $74.2 million for the quarter. On a year-to-date basis, adjusted operating income increased 6%, reflecting higher Broadcasting and Digital Segment adjusting operating income, partly offset by lower Publishing Segment adjusted operating income.
A summary of the impact of special items on non-operating income (expense), net income attributable to TEGNA Inc. and diluted earnings per share is presented below:
In
thousands, except share data
Second Quarter
Year-to-Date
2015
2014
Change
2015
2014
Change
Total
non-operating income (expense) (GAAP basis)
$
(70,545
)
$
89,410
***
$
(113,466
)
$
7,505
***
Remove
special items:
Non-operating items
6,512
(143,510
)
***
(19,168
)
(123,110
)
(84
%)
As
adjusted (non-GAAP basis)
$
(64,033
)
$
(54,100
)
18
%
$
(132,634
)
$
(115,605
)
15
%
Net
income attributable to TEGNA Inc. (GAAP basis)
$
115,867
$
208,467
(44
%)
$
228,761
$
267,626
(15
%)
Remove
special items (net of tax):
Workforce restructuring
10,966
14,317
(23
%)
19,365
16,582
17
%
Transformation
items
9,769
7,688
27
%
5,643
18,788
(70
%)
Asset
impairment charges
2,712
15,387
(82
%)
6,370
15,387
(59
%)
Non-operating
items
3,991
(91,210
)
***
(4,069
)
(79,110
)
(95
%)
Special
tax charge
6,860
—
***
6,860
23,800
(71
%)
As
adjusted (non-GAAP basis)
$
150,165
$
154,649
(3
%)
$
262,930
$
263,073
—
%
Diluted
earnings per share (GAAP basis)
$
0.50
$
0.90
(44
%)
$
0.99
$
1.15
(14
%)
Remove
special items (net of tax):
Workforce restructuring
0.05
0.06
(17
%)
0.08
0.07
14
%
Transformation
items
0.04
0.03
33
%
0.02
0.08
(75
%)
Asset
impairment charges
0.01
0.07
(86
%)
0.03
0.07
(57
%)
Non-operating
items
0.02
(0.39
)
***
(0.02
)
(0.34
)
(94
%)
Special
tax charges
0.03
—
***
0.03
0.10
(70
%)
As
adjusted (non-GAAP basis)
$
0.65
$
0.67
(3
%)
$
1.13
$
1.13
—
%
As
adjusted net income attributable to TEGNA Inc. and as adjusted diluted earnings per share each decreased 3% for the quarter and were flat for the year-to-date period. The decrease for the quarter was primarily due to a higher effective tax rate in the second quarter of 2015 compared to last year.
26
Reconciliations of Adjusted EBITDA to net income presented in accordance with GAAP on our Condensed Consolidated Statements of Income are presented below:
In
thousands
Second Quarter
Year-to-Date
2015
2014
Change
2015
2014
Change
Net
income attributable to TEGNA Inc. (GAAP basis)
$
115,867
$
208,467
(44
%)
$
228,761
$
267,626
(15
%)
Net
income attributable to noncontrolling interests
15,623
17,445
(10
%)
30,213
27,875
8
%
Provision
for income taxes
66,331
106,000
(37
%)
126,854
158,500
(20
%)
Interest
expense
69,341
64,148
8
%
140,100
133,796
5
%
Equity
income in unconsolidated investees, net
(2,638
)
(156,540
)
(98
%)
(7,696
)
(165,031
)
(95
%)
Other
non-operating items
3,842
2,982
29
%
(18,938
)
23,730
***
Operating
income (GAAP basis)
268,366
242,502
11
%
499,294
446,496
12
%
Workforce
restructuring
16,988
22,917
(26
%)
30,130
26,382
14
%
Transformation
items
16,277
12,588
29
%
10,012
31,888
(69
%)
Asset
impairment charges
4,518
16,187
(72
%)
10,458
16,187
(35
%)
Adjusted
operating income (non-GAAP basis)
306,149
294,194
4
%
549,894
520,953
6
%
Depreciation
49,697
44,850
11
%
99,180
89,614
11
%
Adjusted
amortization (non-GAAP basis)
32,575
14,471
***
64,662
27,734
***
Adjusted
EBITDA (non-GAAP basis)
$
388,421
$
353,515
10
%
$
713,736
$
638,301
12
%
Our
Adjusted EBITDA increased 10% to $388.4 million for the second quarter. The increase was driven by the acquisition of Cars.com and strong results in the Broadcasting Segment. On the same basis, our Adjusted EBITDA increased 12% to $713.7 million for the year-to-date period.
Broadcasting Segment - Non-GAAP
A summary of the impact of special items on the Broadcasting Segment is presented below:
Broadcasting
Segment operating income (GAAP basis)
$
176,502
$
171,322
3
%
$
351,832
$
325,871
8
%
Remove
special items:
Workforce Restructuring
—
2,220
***
348
2,220
(84
%)
Transformation
items
2,705
3,109
(13
%)
(7,637
)
12,865
***
As
adjusted (non-GAAP basis)
$
179,207
$
176,651
1
%
$
344,543
$
340,956
1
%
Adjusted
Broadcasting Segment operating expenses increased 7% for the second quarter reflecting higher reverse network compensation and investments in our digital sales initiatives. Adjusted operating income for the Broadcasting Segment was $179.2 million for the quarter, an increase of 1%.
On a year-to-date basis, adjusted Broadcasting Segment operating expenses increased 7% for the reasons mentioned above. Adjusted operating income for the Broadcasting Segment was $344.5 million, an increase of 1%.
27
Digital
Segment - Non-GAAP
A summary of the impact of special items on the Digital Segment is presented below:
In thousands
Second Quarter
Year-to-Date
2015
2014
Change
2015
2014
Change
Digital
Segment operating expenses (GAAP basis)
$
274,514
$
158,686
73
%
$
551,060
$
314,597
75
%
Remove
special items:
Workforce Restructuring
(1,318
)
—
***
(2,167
)
—
***
Transformation
items
(6,849
)
—
***
(9,023
)
—
***
As
adjusted (non-GAAP basis)
$
266,347
$
158,686
68
%
$
539,870
$
314,597
72
%
Digital
Segment operating income (GAAP basis)
$
63,633
$
35,695
78
%
$
119,786
$
59,519
***
Remove
special items:
Workforce Restructuring
1,318
—
***
2,167
—
***
Transformation
items
6,849
—
***
9,023
—
***
As
adjusted (non-GAAP basis)
$
71,800
$
35,695
***
$
130,976
$
59,519
***
Adjusted
Digital Segment operating expenses increased 68% for the second quarter due to the acquisition of Cars.com. Adjusted expenses on a pro forma basis decreased 4% for the second quarter reflecting lower traffic acquisition costs and favorable changes to affiliate agreements at Cars.com as well as cost efficiencies at CareerBuilder.
Adjusted operating income for the Digital Segment was $71.8 million for the second quarter, an increase of 101%. Adjusted operating income on a pro forma basis increased by 65% due to strong results at Cars.com.
On a year-to-date basis, adjusted Digital Segment operating expenses increased 72% due to the acquisition of Cars.com. Adjusted expenses on a pro forma basis decreased 2%. Adjusted operating income was $131.0
million for the first six months of 2015, an increase of 120% over the same comparable period last year. The increase was due to strong results at Cars.com and CareerBuilder.
Publishing Segment - Non-GAAP
A summary of the impact of special items on the Publishing Segment is presented below:
Publishing
Segment adjusted operating expenses decreased by 7% for the second quarter of 2015. Year-to-date, adjusted operating expenses decreased by 7%.
28
Adjusted operating income for the Publishing Segment was $74.2 million for the second quarter of 2015, a decrease of 26% compared to the same period last year. For the year-to-date period, adjusted operating income was $112.3 million, a decrease of 28%.
Provision for Income Taxes - Non-GAAP
A
summary of the impact of special items on our effective tax rate follows:
In thousands
Second Quarter
Year-to-Date
2015
2014
2015
2014
Income
before income taxes as reported
$
197,821
$
331,912
$
385,828
$
454,001
Net
income attributable to noncontrolling interests
(15,623
)
(17,445
)
(30,213
)
(27,875
)
TEGNA pretax income (GAAP basis)
182,198
314,467
355,615
426,126
Remove
special items:
Workforce restructuring
16,988
22,917
30,130
26,382
Transformation
items
16,277
12,588
10,012
31,888
Asset impairment charges
4,518
16,187
10,458
16,187
Non-operating
items
6,512
(143,510
)
(19,168
)
(123,110
)
As adjusted (non-GAAP basis)
$
226,493
$
222,649
$
387,047
$
377,473
Provision
for income taxes as reported (GAAP basis)
$
66,331
$
106,000
$
126,854
$
158,500
Remove
special items:
Workforce restructuring
6,022
8,600
10,765
9,800
Transformation
items
6,508
4,900
4,369
13,100
Asset impairment charges
1,806
800
4,088
800
Non-operating
items
2,521
(52,300
)
(15,099
)
(44,000
)
Special tax charge
(6,860
)
—
(6,860
)
(23,800
)
As
adjusted (non-GAAP basis)
$
76,328
$
68,000
$
124,117
$
114,400
Effective
tax rate (GAAP basis)
36.4
%
33.7
%
35.7
%
37.2
%
As adjusted effective tax rate (non-GAAP basis)
33.7
%
30.5
%
32.1
%
30.3
%
The
adjusted effective tax rate for the second quarter of 2015 was 33.7%, compared to the 30.5% adjusted effective tax rate for the comparable period last year. For the first six months, the adjusted effective tax rate was 32.1% in 2015 compared to 30.3% in the comparable period last year. The higher 2015 adjusted effective tax rates for both periods are due to larger benefits obtained in 2014 from releases of prior year tax reserves, favorable tax examination resolutions, and state statutory tax rate reductions, partially offset by a 2015 benefit from an accounting method change.
Presentation of Pro Forma Information
Pro forma information is presented on the basis as if the acquisition of Cars.com had
occurred on the first day of 2014. The pro forma financial information is based on historical results of operations, adjusted for the allocation of the purchase price and other acquisition accounting adjustments, and is not necessarily indicative of what our results would have been had we operated the business since the beginning of 2014. Pro forma adjustments for Cars.com reflect depreciation expense and amortization of intangibles related to the fair value adjustments of the assets acquired and the alignment of accounting policies for all acquisitions.
29
Reconciliations of Digital Segment revenues and expenses on an as reported basis to a pro forma basis for the second quarter and
year-to-date periods in 2014 are below:
In thousands
Second Quarter 2014
Year-to-Date 2014
As
reported
Pro Forma Adjustments (a)
Pro Forma
As reported
Pro Forma Adjustments (a)
Pro Forma
Digital
operating revenue
$
194,381
$
125,355
$
319,736
$
374,116
$
248,052
$
622,168
Digital
operating expenses
158,686
117,537
276,223
314,597
234,273
548,870
Digital
operating income
$
35,695
$
7,818
$
43,513
$
59,519
$
13,779
$
73,298
(a) The
pro forma adjustments include additions to revenue and expenses for the acquisition of Cars.com as if it had occurred on the first day of 2014. With the acquisition of Cars.com in the fourth quarter of 2014, we began reporting intersegment eliminations separately. In addition, prior quarter intersegment eliminations that were previously reported within the Digital Segment were adjusted on a pro forma basis to the new intersegment elimination line.
Digital Segment revenues on a pro forma basis increased 6% for the second quarter and 8% for the year-to-date period, driven mainly by strong organic growth at Cars.com. On a percentage basis, Cars.com revenues increased in the mid-twenties for the second quarter and year-to-date, primarily due to higher wholesale rates that Cars.com charges its affiliates, as well as an increase in average revenue per dealer and unit growth in Cars.com direct markets.
CareerBuilder revenues declined 2% for the second quarter and increased 1% for year-to-date. The decline in the quarter reflects year-over-year declines in foreign exchange rates as well as the strategic decision to reduce our dependency on transactional advertising, replaced by an emphasis on more lucrative, long-term software deals. On a pro forma basis, Digital Segment operating expenses decreased 4% for the second quarter of 2015 and 2% for year-to-date.
Certain Matters Affecting Future Operating Results
The following items will affect year-over-year comparisons for future results:
•
Spin-off of Publishing businesses
- On the first day of our third quarter, we completed the previously announced spin-off of our publishing businesses. We will report publishing as a discontinued operation beginning in the third quarter of 2015 and for the remainder of the year.
•
Recurring income tax rate - We anticipate a recurring tax rate on a standalone basis to be in the mid-30%’s, given the loss of U.K. statutory tax benefits resulting from the spin-off of our publishing businesses.
•
Broadcasting Segment revenues
- Broadcasting Segment revenues will be impacted by challenging year-over-year comparisons, due to the cyclical absence of record political revenues during the second half of this year. These revenues totaled $159 million in 2014, with $132 million generated in the second half of the year. Based on current trends, we expect the percentage decrease in total television revenues for the third quarter of 2015, compared to the same quarter in 2014, to be down in the low to mid-single digits as year-over-year comparisons in the third quarter of 2014 benefited from political advertising of $40 million.
•
Acquisition of remaining 73% interest in Classified Ventures LLC - On October 1,
2014, we acquired the remaining 73% interest in Classified Ventures, LLC, which owned Cars.com, for $1.8 billion. As a result, we expect a substantial increase in Digital Segment revenues and Adjusted EBITDA in the third quarter of 2015 compared to the third quarter of 2014, driven by the consolidation of Cars.com and the impact of new affiliate agreements.
•
CareerBuilder investment - CareerBuilder has accelerated its de-emphasis on transactional lower margin sourcing and screening businesses to focus on broader software as a service offerings which provide for higher margins and longer-term relationships with clients as valued partners. This transition will impact CareerBuilder growth rates over the balance of the
year and we intend to invest $10 - $15 million in additional sales and distribution resources in the second half.
•
2015 fiscal calendar - In connection with the spin-off of our publishing business, we plan to align our calendar with the Gregorian calendar by extending our fourth quarter four days to December 31, 2015. Our results in the fourth quarter, particularly for the Broadcasting Segment, will be impacted by the extra four days.
•
Sale of Gannett
Healthcare Group - On December 29, 2014, we sold Gannett Healthcare Group to OnCourse Learning, an online education and training provider. As a result, revenue comparisons between 2015 and 2014 will be impacted by the absence of approximately $29 million due to this sale.
30
Liquidity, Capital Resources and Cash Flows
Our cash generating capability and financial condition, together with our revolving credit agreement, are sufficient to fund our capital expenditures, interest, dividends, share repurchases, contributions to our pension plans, investments in strategic initiatives and
other operating requirements. Looking ahead, 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/or funds raised in the capital markets.
In February 2012, Gannett announced a new capital allocation plan, which aimed to return $1.3 billion to shareholders by 2015. This plan included increasing our dividend to its current level of $0.80 per share on an annual basis. A $300 million share repurchase program was also launched. On June 13, 2013, we announced that the existing share buyback program was replaced with a new $300 million authorization projected to be completed within the two year period following its announcement. We suspended share repurchases in mid-2014 in connection with our acquisition of Cars.com. The temporary suspension on repurchases
was lifted in February 2015 and for the first half of the year, we repurchased $75.1 million of stock. As of June 28, 2015, we had $73.8 million remaining under this authorization.
In connection with the spin-off of our Publishing businesses on the first day of the third quarter, we announced that we expect to return approximately $1.5 billion to shareholders by the end of 2018 through a regular cash dividend of $0.56 per share annually and a $750 million share repurchase program to be completed over a three-year period beginning June 29, 2015.
At the end of the second quarter, our total long-term debt was $4.45 billion. Cash and cash equivalents at the end of the second quarter totaled $219.1
million.
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 as noted in the section below titled “Certain Factors Affecting Forward-Looking Statements.”
Cash Flows
Our net cash flow from operating activities was $295.4 million for the first six months of 2015, compared to $354.9 million for the first six months of 2014. The decrease in net cash flow from operating activities was due to the relative absence of $64 million of political and Olympic revenue achieved in the first two quarters last year, a $63.2 million increase
in pension payments in 2015, the timing of certain reverse network compensation payments, payments related to previously accrued expenses for the shutdown of USA Weekend and routine working capital changes. The increase in pension payments in 2015 was primarily due to a voluntary contribution we made of $100.0 million to our principal retirement plan. TEGNA has no required contributions to any of its principal pension plans for the remainder of 2015.
Cash flows from investing activities totaled $0.4 million for the first six months of 2015, compared to cash flows of $45.8 million for the same period in 2014 or a difference of $45.4 million. The significant decrease in cash inflows was due primarily to $12.4 million received from investments in the first half of 2015 compared to $163.3 million for the same period in 2014, driven by
a $154.6 million cash distribution from Classified Ventures related to its sale of Apartments.com last year. This is partially offset by lower payments for acquisitions in the first half of 2015 compared to the same period in 2014. In the first half of 2015, we paid $37.3 million for acquisitions compared to $122.0 million in the first half of 2014.
Cash flows used for financing activities totaled $195.3 million for the first six months of 2015, compared to $439.6 million for the first six months of 2014. The decrease in cash flows used for financing activities was mainly due to lower debt payments made in 2015 compared to the same period in 2014. We paid $86.5 million in debt payments in the first half of 2015 compared to $267.9 million in the same period last year, which included the early repayment of the 9.375% notes due in 2017
with a then aggregate principal balance of $250 million.
Non-GAAP Liquidity Measure
Our free cash flow, a non-GAAP liquidity measure, was $156.2 million for the second quarter ended June 28, 2015 and $285.4 million for the first half of 2015. Free cash flow, which we reconcile to “net cash flow from operating activities,” is cash flow from operations reduced by “purchase of property, plant and equipment” as well as “payments for investments” and increased by “proceeds from investments” and voluntary pension contributions, net of related tax benefit. 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.
31
Reconciliations from “Net cash flow from operating activities” to “Free cash flow” follow:
In thousands
Second
Quarter
Year-to-Date
2015
2014
2015
2014
Net
cash flow from operating activities
$
149,944
$
188,937
$
295,408
$
354,939
Purchase
of property, plant and equipment
(35,900
)
(35,054
)
(55,021
)
(56,905
)
Voluntary pension employer contributions
100,000
—
100,000
—
Tax
benefit for voluntary pension employer contributions
(37,200
)
—
(37,200
)
—
Payments for investments
(25,168
)
(4,318
)
(30,168
)
(5,318
)
Proceeds
from investments
4,519
157,556
12,402
163,315
Free cash flow
$
156,195
$
307,121
$
285,421
$
456,031
Our
free cash flow in the first six months of 2015 is lower than the first six months in 2014 driven primarily by the cash distribution received last year from our investment in Classified Ventures.
Certain Factors Affecting Forward-Looking Statements
Certain statements in this Annual Report on Form 10-Q contain certain 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,” which speak only as of the date the statements
were made. 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. We are not responsible for updating or revising any forward-looking statements, whether the result of new information, future events or otherwise, except as required by law.
Potential risks and uncertainties which could adversely affect our results include, without limitation, the following factors: (a) changes in economic conditions in the U.S. and other markets we serve may depress demand for our products and services; (b) competition from alternative forms of media may impair our ability to grow or maintain revenue levels in core and new businesses; (c) the separation of our Publishing business from our Broadcasting and Digital businesses may not achieve some or all
of the anticipated benefits; (d) the value of our assets or operations may be diminished if our information technology systems fail to perform adequately or if we are the subject of a data breach or cyber attack; (e) volatility in the U.S. credit markets could significantly impact our ability to obtain new financing to fund our operations and strategic initiatives or to refinance our existing debt at reasonable rates as it matures; (f) volatility in global financial markets directly affects the value of our pension plan assets and liabilities; (g) changes in the regulatory environment could encumber or impede our efforts to improve operating results or the value of assets; (h) our strategic acquisitions, investments and partnerships could pose various risks, increase our leverage and may significantly impact our ability to expand our overall profitability; (i) the value of our existing intangible assets may become impaired, depending upon future operating results; and
(j) adverse results from litigation or governmental investigations can impact our business practices and operating results.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We believe that our market risk from financial instruments, such as accounts receivable, accounts payable and debt, is immaterial. At the end of the second quarter of 2015, we had $821.7 million in long-term floating rate obligations outstanding. While these 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 $4 million.
The fair value of our total long-term debt, based on bid and ask quotes for the related debt, totaled $4.61 billion
at June 28, 2015 and $4.65 billion at December 28, 2014.
Item 4. Controls and Procedures
Based on their evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective, as of June 28, 2015, 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 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.
32
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material developments with respect to our potential liability for environmental matters previously reported in our 2014 Annual Report on Form 10-K.
Item 1A. Risk Factors
There
have been no material changes from the risk factors described in the “Risk Factors” section previously reported in our 2014 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Period
(a) Total Number
of Shares Purchased
(b) Average Price Paid per Share
(c) Total Number of Shares Purchased as Part of Publicly Announced Program
(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
3/30/15
– 5/3/15
356,800
$
36.01
356,800
$
98,561,922
5/4/15
– 5/31/15
329,800
$
35.27
329,800
$
86,930,737
6/1/15
– 6/28/015
363,000
$
36.06
363,000
$
73,841,450
Total
Second Quarter 2015
1,049,600
$
35.79
1,049,600
$
73,841,450
On
June 11, 2013, our Board of Directors approved a new $300 million share repurchase program (replacing the 2012 $300 million program). This program was temporarily suspended in the third quarter of 2014 in support of the Cars.com acquisition. Share repurchases started again in the first quarter 2015 under this program.
In connection with the spin-off of our Publishing businesses on the first day of the third quarter, we announced that we expect to return approximately $1.5 billion to shareholders by the end of 2018 through a regular cash dividend of $0.56 per share annually and a $750 million share repurchase program to be completed over a three-year period beginning June 29, 2015.
On August 5, 2015, we determined that we will change our fiscal year from a 52/53 week period ending the last Sunday in December to a calendar year period by extending our 2015 fiscal year by four days to end on
December 31, 2015. We will report the additional four days as part of our 2015 fourth quarter results, consistent with SEC guidance for reporting a change of this nature. Beginning January 1, 2016, our quarterly results will be for the three month periods ending March 31, June 30, September 30 and December 31. We do not intend to restate historical results in connection with this change.
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.
Eighth Amendment, dated as of June 29, 2015, 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 by the Seventh Amendment thereto dated as of February 13, 2015, and the Sixth Amendment thereto dated September 24, 2013, 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, as set forth on Exhibit A to the Eighth Amendment.
Attached.
10-2
Separation
and Distribution Agreement, dated as of June 26, 2015, by and between TEGNA Inc. and Gannett Co., Inc., formerly known as Gannett SpinCo, Inc.
The following financial information from TEGNA Inc. Quarterly Report on Form 10-Q for the quarter ended June 28, 2015, formatted in XBRL includes: (i) Condensed Consolidated Balance Sheets at June 28, 2015 and December
28, 2014, (ii) Condensed Consolidated Statements of Income for the fiscal quarter and year-to-date periods ended June 28, 2015 and June 29, 2014, (iii) Condensed Consolidated Statements of Comprehensive Income for the fiscal quarter and year-to-date periods ended June 28, 2015 and June 29, 2014, (iv) Condensed Consolidated Cash Flow Statements for the fiscal year-to-date periods ended June 28, 2015 and June 29, 2014, and (v) the Notes to Condensed Consolidated Financial Statements.
Attached.
*
Asterisks identify management contracts and compensatory plans or arrangements.
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.
36
Dates Referenced Herein and Documents Incorporated by Reference