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Tegna Inc – ‘10-Q’ for 9/30/19

On:  Thursday, 11/7/19, at 4:06pm ET   ·   For:  9/30/19   ·   Accession #:  39899-19-42   ·   File #:  1-06961

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  As Of               Filer                 Filing    For·On·As Docs:Size

11/07/19  Tegna Inc                         10-Q        9/30/19   73:9.5M

Quarterly Report   —   Form 10-Q   —   Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML   1.23M 
 2: EX-4.1      Instrument Defining the Rights of Security Holders  HTML    221K 
 3: EX-10.1     Material Contract                                   HTML    535K 
 4: EX-31.1     Certification -- §302 - SOA'02                      HTML     28K 
 5: EX-31.2     Certification -- §302 - SOA'02                      HTML     28K 
 6: EX-32.1     Certification -- §906 - SOA'02                      HTML     22K 
 7: EX-32.2     Certification -- §906 - SOA'02                      HTML     22K 
16: R1          Cover Page                                          HTML     74K 
56: R2          Condensed Consolidated Balance Sheets               HTML    141K 
64: R3          Condensed Consolidated Balance Sheets               HTML     33K 
                (Parenthetical)                                                  
40: R4          Consolidated Statements of Income                   HTML    125K 
13: R5          Consolidated Statements of Comprehensive Income     HTML     49K 
53: R6          Condensed Consolidated Statements of Cash Flows     HTML     96K 
61: R7          Consolidated Statements of Equity Consolidated      HTML     69K 
                Statements of Equity                                             
39: R8          Consolidated Statements of Equity Consolidated      HTML     23K 
                Statements of Equity (Parenthetical)                             
18: R9          Accounting policies                                 HTML     57K 
69: R10         Acquisitions                                        HTML    152K 
50: R11         Goodwill and other intangible assets                HTML     52K 
22: R12         Investments and other assets                        HTML     38K 
29: R13         Long-term debt                                      HTML     56K 
70: R14         Retirement plans                                    HTML     52K 
51: R15         Leases                                              HTML     44K 
23: R16         Accumulated other comprehensive loss                HTML    107K 
31: R17         Earnings per share                                  HTML     79K 
71: R18         Fair value measurement                              HTML     29K 
49: R19         Supplemental cash flow information                  HTML     46K 
20: R20         Other matters                                       HTML     37K 
43: R21         Accounting policies (Policies)                      HTML     45K 
65: R22         Accounting policies (Tables)                        HTML     43K 
57: R23         Acquisitions (Tables)                               HTML    143K 
21: R24         Goodwill and other intangible assets (Tables)       HTML     51K 
44: R25         Investments and other assets (Tables)               HTML     33K 
66: R26         Long-term debt (Tables)                             HTML     53K 
58: R27         Retirement plans (Tables)                           HTML     50K 
19: R28         Leases (Tables)                                     HTML     38K 
45: R29         Accumulated other comprehensive loss (Tables)       HTML    108K 
34: R30         Earnings per share (Tables)                         HTML     78K 
25: R31         Supplemental cash flow information (Tables)         HTML     44K 
48: R32         Accounting policies - Narrative (Details)           HTML     33K 
68: R33         Accounting policies - Revenue (Details)             HTML     33K 
33: R34         Acquisitions - Narrative (Details)                  HTML     85K 
24: R35         Acquisitions - Summary of Estimated Preliminary     HTML    163K 
                Fair Values of Assets Acquired and Liabilities                   
                Assumed (Details)                                                
47: R36         Acquisitions - Statement of Income for Recent       HTML     26K 
                Acquisitions (Details)                                           
67: R37         Acquisitions - Schedule of Unaudited Pro Forma      HTML     26K 
                Financial Information (Details)                                  
32: R38         Goodwill and other intangible assets - Intangible   HTML     46K 
                Assets and Goodwill (Details)                                    
26: R39         Investments and other assets - Components of        HTML     35K 
                Investments and Other Assets (Details)                           
42: R40         Investments and other assets - Narrative (Details)  HTML     44K 
15: R41         Long-term debt - Schedule of Long-Term Debt         HTML     66K 
                (Details)                                                        
55: R42         Long-term debt - Narrative (Details)                HTML     64K 
63: R43         Long-term debt - Schedule of Total Leverage Ratios  HTML     32K 
                (Details)                                                        
41: R44         Retirement plans - Narrative (Details)              HTML     43K 
14: R45         Retirement plans - Benefit Costs (Details)          HTML     41K 
54: R46         Leases - Narrative (Details)                        HTML     57K 
62: R47         Leases - Lease Related Assets and Liabilities       HTML     31K 
                (Details)                                                        
38: R48         Leases - Future Rent Payments (Details)             HTML     40K 
17: R49         Accumulated other comprehensive loss - Accumulated  HTML     51K 
                Other Comprehensive Loss (Details)                               
27: R50         Accumulated other comprehensive loss -              HTML     39K 
                Reclassifications out of Accumulated Other                       
                Comprehensive Loss (Details)                                     
35: R51         Earnings per share - Schedule of Earnings Per       HTML     87K 
                Share (Details)                                                  
73: R52         Earnings per share - Narrative (Details)            HTML     23K 
52: R53         Fair value measurement (Details)                    HTML     38K 
28: R54         Supplemental cash flow information (Details)        HTML     53K 
36: R55         Other matters (Details)                             HTML     64K 
59: R9999       Uncategorized Items - tgna-20190930x10q.htm         HTML     23K 
60: XML         IDEA XML File -- Filing Summary                      XML    123K 
72: XML         XBRL Instance -- tgna-20190930x10q_htm               XML   1.97M 
30: EXCEL       IDEA Workbook of Financial Reports                  XLSX     76K 
 9: EX-101.CAL  XBRL Calculations -- tgna-20190930_cal               XML    237K 
10: EX-101.DEF  XBRL Definitions -- tgna-20190930_def                XML    455K 
11: EX-101.LAB  XBRL Labels -- tgna-20190930_lab                     XML   1.39M 
12: EX-101.PRE  XBRL Presentations -- tgna-20190930_pre              XML    792K 
 8: EX-101.SCH  XBRL Schema -- tgna-20190930                         XSD    146K 
46: JSON        XBRL Instance as JSON Data -- MetaLinks              310±   449K 
37: ZIP         XBRL Zipped Folder -- 0000039899-19-000042-xbrl      Zip    378K 


‘10-Q’   —   Quarterly Report
Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018
"Consolidated Statements of Income for the Quarters and Nine Months Ended September 30, 2019 and 2018
"Consolidated Statements of Comprehensive Income for the Quarters and Nine Months Ended September 30, 2019 and 2018
"Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018
"Consolidated Statements of Equity for the Quarters and Nine Months Ended September 30, 2019 and 2018
"Notes to Condensed Consolidated Financial Statements
"Management's Discussion and Analysis of Financial Condition and Results of Operations
"Quantitative and Qualitative Disclosures about Market Risk
"Controls and Procedures
"Legal Proceedings
"Risk Factors
"Unregistered Sales of Equity Securities and Use of Proceeds
"Defaults Upon Senior Securities
"Mine Safety Disclosures
"Other Information
"Exhibits
"Signature

This is an HTML Document rendered as filed.  [ Alternative Formats ]



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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM  i 10-Q
_______________________
 i QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended  i September 30, 2019
OR
 i TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number  i 1-6961
___________________________
 i TEGNA INC.
(Exact name of registrant as specified in its charter)
___________________________
 i Delaware
 
 i 16-0442930
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
 i    8350 Broad Street, Suite 2000,
 i Tysons,
 i Virginia
 
 i 22102-5151
(Address of principal executive offices)
 
(Zip Code)
 
 
 
 
 
 i (703)
 i 873-6600
 
 
(Registrant’s telephone number, including area code)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
Title of each class
Trading Symbol
Name of each exchange on which registered
 i Common Stock
 i TGNA
 i New York Stock Exchange
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.  i Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  i Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
 i Large accelerated filer
Accelerated filer
 
 
 
 
Non-accelerated filer
Smaller reporting company
 i 
 
 
 
 
 
 
Emerging growth company
 i 

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes  i  No

The total number of shares of the registrant’s Common Stock, $1 par value, outstanding as of October 31, 2019 was  i 216,903,652.
 



INDEX TO TEGNA INC.
September 30, 2019 FORM 10-Q
 
Item No.
 
Page
 
PART I. FINANCIAL INFORMATION
 
 
 
 
1.
Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
1.
 
 
 
1A.
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
 
 
5.
 
 
 
6.
 
 
 

2



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

TEGNA Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands of dollars (Unaudited)
 
 
 
 
 
 
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
 i 9,194

 
$
 i 135,862

Accounts receivable, net of allowances of $5,269 and $3,090, respectively
 i 521,118

 
 i 425,404

Other receivables
 i 29,234

 
 i 20,967

Syndicated programming rights
 i 63,263

 
 i 35,252

Prepaid expenses and other current assets
 i 25,522

 
 i 17,737

Total current assets
 i 648,331

 
 i 635,222

Property and equipment
 
 
 
Cost
 i 986,263

 
 i 858,170

Less accumulated depreciation
( i 515,436
)
 
( i 482,955
)
Net property and equipment
 i 470,827

 
 i 375,215

Intangible and other assets
 
 
 
Goodwill
 i 2,874,063

 
 i 2,596,863

Indefinite-lived and amortizable intangible assets, less accumulated amortization
 i 2,672,683

 
 i 1,526,077

Right-of-use assets for operating leases
 i 90,406

 
 i 

Investments and other assets
 i 145,927

 
 i 143,465

Total intangible and other assets
 i 5,783,079

 
 i 4,266,405

Total assets
$
 i 6,902,237

 
$
 i 5,276,842

The accompanying notes are an integral part of these condensed consolidated financial statements.

3



TEGNA Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands of dollars, except par value and share amounts (Unaudited)
 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable
$
 i 63,097

 
$
 i 83,226

Accrued liabilities
 
 


   Compensation
 i 38,658

 
 i 52,726

   Interest
 i 56,570

 
 i 37,458

   Contracts payable for programming rights
 i 129,989

 
 i 112,059

   Other
 i 71,352

 
 i 49,211

Dividends payable
 i 15,173

 
 i 15,154

Income taxes payable
 i 

 
 i 19,383

Total current liabilities
 i 374,839

 
 i 369,217

Noncurrent liabilities
 
 
 
Income taxes
 i 9,227

 
 i 13,624

Deferred income tax liability
 i 513,995

 
 i 396,847

Long-term debt
 i 4,180,938

 
 i 2,944,466

Pension liabilities
 i 128,517

 
 i 139,375

Operating lease liabilities
 i 101,348

 
 i 

Other noncurrent liabilities
 i 71,677

 
 i 72,389

Total noncurrent liabilities
 i 5,005,702

 
 i 3,566,701

Total liabilities
 i 5,380,541

 
 i 3,935,918

 
 
 
 
Shareholders’ equity
 
 
 
Common stock of $1 par value per share, 800,000,000 shares authorized, 324,418,632 shares issued
 i 324,419

 
 i 324,419

Additional paid-in capital
 i 252,224

 
 i 301,352

Retained earnings
 i 6,586,321

 
 i 6,429,512

Accumulated other comprehensive loss
( i 133,359
)
 
( i 136,511
)
Treasury stock at cost, 107,603,811 shares and 108,660,002 shares, respectively
( i 5,507,909
)
 
( i 5,577,848
)
Total equity
 i 1,521,696

 
 i 1,340,924

Total liabilities and equity
$
 i 6,902,237

 
$
 i 5,276,842

The accompanying notes are an integral part of these condensed consolidated financial statements.



4



TEGNA Inc.
CONSOLIDATED STATEMENTS OF INCOME
Unaudited, in thousands of dollars, except per share amounts
 
Quarter ended Sept. 30,
 
Nine months ended Sept. 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Revenues
$
 i 551,857

 
$
 i 538,976

 
$
 i 1,605,542

 
$
 i 1,565,146

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Cost of revenues1
 i 306,474


 i 271,156

 
 i 873,078

 
 i 793,943

Business units - Selling, general and administrative expenses
 i 78,439


 i 76,639

 
 i 223,845

 
 i 229,193

Corporate - General and administrative expenses
 i 29,792

 
 i 17,593

 
 i 60,363

 
 i 41,522

Depreciation
 i 15,381


 i 14,262

 
 i 44,831

 
 i 41,594

Amortization of intangible assets
 i 15,018


 i 8,047

 
 i 32,530

 
 i 22,791

Spectrum repacking reimbursements and other
( i 80
)

( i 3,005
)
 
( i 11,399
)
 
( i 9,331
)
Total
 i 445,024

 
 i 384,692

 
 i 1,223,248

 
 i 1,119,712

Operating income
 i 106,833

 
 i 154,284

 
 i 382,294

 
 i 445,434

 
 
 
 
 
 
 
 
Non-operating income (expense):
 
 
 
 
 
 
 
Equity (loss) income in unconsolidated investments, net
( i 491
)
 
 i 771

 
 i 10,922

 
 i 15,080

Interest expense
( i 52,454
)
 
( i 48,226
)
 
( i 145,166
)
 
( i 145,055
)
Other non-operating items, net
( i 463
)
 
( i 214
)
 
 i 6,962

 
( i 13,005
)
Total
( i 53,408
)

( i 47,669
)
 
( i 127,282
)
 
( i 142,980
)
 
 
 
 
 
 
 
 
Income before income taxes
 i 53,425

 
 i 106,615

 
 i 255,012

 
 i 302,454

Provision for income taxes
 i 5,079


 i 13,789

 
 i 52,732

 
 i 61,929

Net Income from continuing operations
 i 48,346

 
 i 92,826

 
 i 202,280

 
 i 240,525

Income from discontinued operations, net of tax
 i 

 
 i 4,325

 
 i 

 
 i 4,325

Net income
$
 i 48,346

 
$
 i 97,151

 
$
 i 202,280

 
$
 i 244,850

 
 
 
 
 
 
 
 
Earnings from continuing operations per share - basic
$
 i 0.22

 
$
 i 0.43

 
$
 i 0.93

 
$
 i 1.11

Earnings from discontinued operations per share - basic
 i 

 
 i 0.02

 
 i 

 
 i 0.02

Net income per share – basic
$
 i 0.22

 
$
 i 0.45

 
$
 i 0.93

 
$
 i 1.13

 
 
 
 
 
 
 
 
Earnings from continuing operations per share - diluted
$
 i 0.22

 
$
 i 0.43

 
$
 i 0.93

 
$
 i 1.11

Earnings from discontinued operations per share - diluted
 i 

 
 i 0.02

 
 i 

 
 i 0.02

Net income per share – diluted
$
 i 0.22

 
$
 i 0.45

 
$
 i 0.93

 
$
 i 1.13

 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
Basic shares
 i 217,315

 
 i 216,015

 
 i 217,040

 
 i 216,210

Diluted shares
 i 218,310

 
 i 216,348

 
 i 217,808

 
 i 216,617

 
 
 
 
 
 
 
 
1 Cost of revenues exclude charges for depreciation and amortization expense, which are shown separately above.
The accompanying notes are an integral part of these condensed consolidated financial statements.

5



TEGNA Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited, in thousands of dollars
 
Quarter ended Sept. 30,
 
Nine months ended Sept. 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Net income
$
 i 48,346

 
$
 i 97,151

 
$
 i 202,280

 
$
 i 244,850

Other comprehensive income, before tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
( i 318
)
 
( i 31
)
 
( i 775
)
 
 i 551

Recognition of previously deferred post-retirement benefit plan costs
 i 1,431

 
 i 1,276

 
 i 4,293

 
 i 3,827

Pension lump-sum payment charges
 i 

 
 i 1,198

 
 i 686

 
 i 7,498

Other comprehensive income, before tax
 i 1,113

 
 i 2,443

 
 i 4,204

 
 i 11,876

Income tax effect related to components of other comprehensive income
( i 278
)
 
( i 615
)
 
( i 1,052
)
 
( i 3,021
)
Other comprehensive income, net of tax
 i 835

 
 i 1,828

 
 i 3,152

 
 i 8,855

Comprehensive income
$
 i 49,181

 
$
 i 98,979

 
$
 i 205,432

 
$
 i 253,705

The accompanying notes are an integral part of these condensed consolidated financial statements.

6



TEGNA Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited, in thousands of dollars
 
Nine months ended Sept. 30,
 
2019
 
2018
 
 
 
 
Cash flows from operating activities:
 
 
 
Net income
$
 i 202,280


$
 i 244,850

Adjustments to reconcile net income to net cash flow from operating activities:
 
 
 
Depreciation and amortization
 i 77,361

 
 i 64,385

Stock-based compensation
 i 13,887

 
 i 12,292

     Company stock 401(k) contribution
 i 6,486

 
 i 

Gains on assets
( i 11,728
)
 
( i 6,991
)
Equity income from unconsolidated investments, net
( i 10,922
)
 
( i 15,080
)
Pension contributions, net of expense
( i 5,543
)

( i 39,932
)
Change in other assets and liabilities, net of acquisitions
( i 57,236
)
 
 i 73,136

Net cash flow from operating activities
 i 214,585

 
 i 332,660

Cash flows from investing activities:
 
 
 
Purchase of property and equipment
( i 51,231
)
 
( i 35,281
)
Reimbursements from spectrum repacking
 i 13,975

 
 i 5,057

Payments for acquisitions of businesses, net of cash acquired
( i 1,507,483
)
 
( i 328,433
)
Payments for investments
( i 4,041
)
 
( i 11,309
)
Proceeds from investments
 i 4,020

 
 i 1,224

Proceeds from sale of assets
 i 21,733

 
 i 16,335

Net cash flow used for investing activities
( i 1,523,027
)
 
( i 352,407
)
Cash flows from financing activities:
 
 
 
Proceeds from borrowings under revolving credit facilities, net
 i 223,000

 
 i 72,000

Proceeds from issuance of Senior Notes
 i 1,100,000

 
 i 

Debt repayments
( i 75,000
)
 
( i 95,985
)
Payment of debt issuance costs
( i 20,276
)
 
( i 5,269
)
Dividends paid
( i 45,451
)
 
( i 45,219
)
Repurchases of common stock
 i 

 
( i 5,831
)
Other, net
( i 499
)
 
( i 4,224
)
Net cash flow provided by (used for) financing activities
 i 1,181,774

 
( i 84,528
)
Decrease in cash, cash equivalents and restricted cash
( i 126,668
)
 
( i 104,275
)
Balance of cash, cash equivalents and restricted cash, beginning of period
 i 135,862

 
 i 128,041

Balance of cash, cash equivalents and restricted cash, end of period
$
 i 9,194

 
$
 i 23,766

The accompanying notes are an integral part of these condensed consolidated financial statements.

7



TEGNA Inc.
CONSOLIDATED STATEMENTS OF EQUITY
Unaudited, in thousands of dollars, except per share data

Quarters Ended:
Common
stock
Additional
paid-in
capital
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Treasury
stock
Total
Balance at June 30, 2019
$
 i 324,419

$
 i 256,024

$
 i 6,553,149

$
( i 134,194
)
$
( i 5,519,656
)
$
 i 1,479,742

Net Income
 
 
 i 48,346

 
 
 i 48,346

Other comprehensive income, net of tax
 
 
 
 i 835

 
 i 835

Total comprehensive income
 
 
 
 
 
 i 49,181

Dividends declared: $0.07 per share
 
 
( i 15,174
)
 
 
( i 15,174
)
Company stock 401(k) contribution
 
( i 7,794
)
 
 
 i 11,036

 i 3,242

Stock-based awards activity
 
( i 763
)
 
 
 i 711

( i 52
)
Stock-based compensation
 
 i 4,445

 
 
 
 i 4,445

Other activity
 
 i 312

 
 
 
 i 312

Balance at Sept. 30, 2019
$
 i 324,419

$
 i 252,224

$
 i 6,586,321

$
( i 133,359
)
$
( i 5,507,909
)
$
 i 1,521,696

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2018
$
 i 324,419

$
 i 304,066

$
 i 6,201,694

$
( i 124,741
)
$
( i 5,588,527
)
$
 i 1,116,911

Net Income
 
 
 i 97,151

 
 
 i 97,151

Other comprehensive income, net of tax
 
 
 
 i 1,828

 
 i 1,828

Total comprehensive income
 
 
 
 
 
 i 98,979

Dividends declared: $0.07 per share
 
 
( i 15,070
)
 
 
( i 15,070
)
Stock-based awards activity
 
( i 2,625
)
 
 
 i 2,751

 i 126

Stock-based compensation
 
 i 4,325

 
 
 
 i 4,325

Other activity
 
 i 312

 
 
 
 i 312

Balance at Sept. 30, 2018
$
 i 324,419

$
 i 306,078

$
 i 6,283,775

$
( i 122,913
)
$
( i 5,585,776
)
$
 i 1,205,583

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

8



TEGNA Inc.
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF EQUITY
 
 
 
 
Unaudited, in thousands of dollars, except per share data
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended:
Common
stock
Additional
paid-in
capital
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Treasury
stock
Total
Balance at Dec. 31, 2018
$
 i 324,419

$
 i 301,352

$
 i 6,429,512

$
( i 136,511
)
$
( i 5,577,848
)
$
 i 1,340,924

Net Income


 i 202,280



 i 202,280

Other comprehensive income, net of tax



 i 3,152


 i 3,152

Total comprehensive income
 
 
 
 
 
 i 205,432

Dividends declared: $0.21 per share


( i 45,471
)


( i 45,471
)
Company stock 401(k) contribution
 
( i 15,053
)
 
 
 i 21,539

 i 6,486

Stock-based awards activity

( i 48,899
)


 i 48,400

( i 499
)
Stock-based compensation

 i 13,887




 i 13,887

Other activity

 i 937




 i 937

Balance at Sept. 30, 2019
$
 i 324,419

$
 i 252,224

$
 i 6,586,321

$
( i 133,359
)
$
( i 5,507,909
)
$
 i 1,521,696

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at Dec. 31, 2017
$
 i 324,419

$
 i 382,127

$
 i 6,062,995

$
( i 106,923
)
$
( i 5,667,577
)
$
 i 995,041

Net Income


 i 244,850



 i 244,850

Other comprehensive income, net of tax



 i 8,855


 i 8,855

Total comprehensive income
 
 
 
 
 
 i 253,705

Cumulative effects of accounting changes


 i 21,121

( i 24,845
)

( i 3,724
)
Dividends declared: $0.21 per share


( i 45,191
)


( i 45,191
)
Treasury stock acquired




( i 5,831
)
( i 5,831
)
Stock-based awards activity

( i 89,921
)


 i 87,632

( i 2,289
)
Stock-based compensation

 i 12,292




 i 12,292

Other activity

 i 1,580

 


 i 1,580

Balance at Sept. 30, 2018
$
 i 324,419

$
 i 306,078

$
 i 6,283,775

$
( i 122,913
)
$
( i 5,585,776
)
$
 i 1,205,583

The accompanying notes are an integral part of these condensed consolidated financial statements.


9



TEGNA Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 –  i Accounting policies
 i 

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 statement of the 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, 2018.

 i 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, business combinations, fair value measurements, post-retirement benefit plans, income taxes including deferred taxes, and contingencies.  i 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.

We operate one operating and reportable segment, which primarily consists of our  i 62 television stations operating in  i 51 markets, offering high-quality television programming and digital content. Our reportable segment determination is based on our management and internal reporting structure, the nature of products and services we offer, and the financial information that is evaluated regularly by our chief operating decision maker.

 i 
Accounting guidance adopted in 2019: In February 2016, the FASB issued new guidance related to leases which require lessees to recognize assets and liabilities on the balance sheet for leases with lease terms of more than 12 months. Consistent with previous GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily depends on its classification as a finance or operating lease. However, unlike previous GAAP–which requires only capital leases (renamed finance leases under the new guidance) to be recognized on the balance sheet–the new guidance requires both finance and operating leases to be recognized on the balance sheet. This update requires the lessee to recognize a lease liability equal to the present value of the lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term for all leases longer than 12 months.

We adopted the guidance on January 1, 2019. The FASB provided companies with the option to apply the requirements of the guidance in the period of adoption, with no restatement of prior periods. We utilized this adoption method. We also elected an accounting policy allowed by the guidance to not account for lease and non-lease components separately. Additionally, in adopting the guidance, we utilized the package of practical expedients permitted by the FASB, which among other things, allowed us to carry forward our historical lease classification. Lastly, as permitted by the guidance, we elected a policy to not record leases with an original lease term of twelve months or less on the balance sheet.

Adoption of the guidance resulted in recording of new right-of-use asset and lease liability balances of $ i 73.8 million and $ i 91.8 million, respectively, as of the adoption date. The difference between right-of-use lease asset and lease liability balances was primarily due to previously accrued rent expense relating to periods prior to January 1, 2019. The new guidance did not have a material impact on our Consolidated Statements of Income, Comprehensive Income, Cash Flows or Equity. See Note 7 for additional information.

In August 2018, the FASB issued new guidance on the accounting for implementation costs incurred in cloud computing arrangements that are service contracts. The new guidance requires a customer in a hosting arrangement that is a service contract to follow the internal-use software guidance to determine which implementation costs to capitalize as an asset related to the service contract. The guidance can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We adopted the new guidance on a prospective basis beginning in the second quarter of 2019. There was no material impact to our condensed consolidated financial statements as a result of adopting this guidance.

 / 

10



New accounting guidance not yet adopted: 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 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, specifically as it relates to our allowance for accounts receivable, which we don’t anticipate having a material impact on our consolidated financial statements and related disclosure as of the adoption date.

In August 2018, the FASB issued new guidance that changes disclosures related to defined benefit pension and other postretirement benefit plans. The guidance removes disclosures that are no longer economically relevant, clarifies certain existing disclosure requirements and adds some new disclosures. The most relevant elimination for us is the annual disclosure of the amount of gain/loss and prior service cost/credit amortization expected in the following year. Additions most relevant to us include disclosing narrative explanations of the drivers for significant changes in plan obligations or assets, and disclosure for cost of living adjustments for certain participants of our TEGNA retirement plan. We plan to adopt the new guidance beginning in 2020 and it will be applied on a retrospective basis.

In March 2019, the FASB issued new guidance related to the accounting for episodic television series. The most significant aspect of this new guidance that is applicable to us relates to the level at which our capitalized programming assets are monitored for impairment. Under the new guidance these assets will be monitored at the film group level which is the lowest level at which independently identifiable cash flows are identifiable. We plan to adopt the new guidance beginning in the first quarter of 2020 and it will be adopted prospectively. We do not expect this guidance to have a material impact on our consolidated financial statements and related disclosures as of the adoption date.

Revenue recognition: Revenue is recognized upon the transfer of control of promised services to our customers in an amount that reflects the consideration we expect to receive in exchange for those services. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. Amounts received from customers in advance of providing services to our customers are recorded as deferred revenue.

The primary sources of our revenues are: 1) advertising & marketing services revenues, which include local and national non-political television advertising, digital marketing services (including Premion), and advertising on the stations’ websites and tablet and mobile products; 2) subscription revenues, reflecting fees paid by satellite, cable, OTT (companies that deliver video content to consumers over the Internet) and telecommunications providers to carry our television signals on their systems; 3) political advertising revenues, which are driven by even year election cycles at the local and national level (e.g. 2020, 2018) and particularly in the second half of those years; and 4) other services, such as production of programming and advertising material.

 i 
Revenue earned by these sources in the third quarter and first nine months of 2019 and 2018 are shown below (amounts in thousands):
 
Quarter ended Sept. 30,
 
Nine months ended Sept. 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Advertising & Marketing Services
$
 i 297,333

 
$
 i 264,852

 
$
 i 851,304

 
$
 i 829,638

Subscription
 i 240,735

 
 i 207,463

 
 i 718,472

 
 i 622,382

Political
 i 8,131

 
 i 60,410

 
 i 14,064

 
 i 93,725

Other
 i 5,658

 
 i 6,251

 
 i 21,702

 
 i 19,401

Total revenues
$
 i 551,857

 
$
 i 538,976

 
$
 i 1,605,542

 
$
 i 1,565,146


 / 















11



NOTE 2 –  i Acquisitions

Nexstar Stations

On September 19, 2019 we completed our previously announced acquisition of  i 11 local television stations in eight markets, including  i eight Big Four affiliates, from Nexstar Media Group (the Nexstar Stations). These stations were divested by Nexstar Media Group in connection with its acquisition of Tribune Media Company.  i The television stations acquired are listed in the table below:
Market
 
Station
 
Affiliation
Hartford-New Haven, CT
 
WTIC/WCCT
 
FOX/CW
Harrisburg-Lancaster-Lebanon-York, PA
 
WPMT
 
FOX
Memphis, TN
 
WATN/WLMT
 
ABC/CW
Wilkes Barre-Scranton, PA
 
WNEP
 
ABC
Des Moines-Ames, IA
 
WOI/KCWI
 
ABC/CW
Huntsville-Decatur-Florence, AL
 
WZDX
 
FOX
Davenport, IA and Rock Island-Moline, IL
 
WQAD
 
ABC
Ft. Smith-Fayetteville-Springdale-Rogers, AR
 
KFSM
 
CBS


The estimated purchase price for the Nexstar Stations is approximately $ i 769.1 million which includes a base purchase price of $ i 740.0 million and estimated working capital of $ i 29.1 million. The transaction was structured as an asset purchase and financed through the use of a portion of the $ i 1.1 billion of Senior Notes issued on September 13, 2019 and borrowing under our revolving credit facility (see Note 5). The acquisition of the Nexstar Stations adds complementary markets to our existing portfolio of top network affiliates, including  i four affiliates in presidential election battleground states.

Dispatch Stations

On August 8, 2019 we completed the previously announced acquisition of Dispatch Broadcast Group’s  i two top-rated television stations and  i two radio stations (the Dispatch Stations). Through this acquisition we purchased WTHR, the NBC affiliate station in Indianapolis, IN, WBNS, the CBS affiliate in Columbus, OH and WBNS Radio (97.1 FM and 1460 AM) in Columbus, OH.

The estimated purchase price for the Dispatch Stations is approximately $ i 553.7 million which consists of a base purchase price of $ i 535.0 million and estimated working capital and cash acquired of $ i 18.7 million. The transaction was structured as a stock purchase and financed through available cash and borrowing under our revolving credit facility. The acquisition of the Dispatch Stations expands our portfolio of top-rated big four affiliates in large markets.

Justice and Quest Multicast Networks

On June 18, 2019, we completed the acquisition of the remaining approximately  i 85% interest that we did not previously own in the multicast networks Justice Network and Quest from Cooper Media. Justice and Quest are two leading multicast networks that offer unique ad-supported programming. Justice Network’s content is focused on true-crime genre, while Quest features factual-entertainment programs such as science, history, and adventure-reality series.

Cash paid for this acquisition was $ i 77.2 million (which included $ i 4.7 million for estimated working capital paid at closing), funded through available cash and borrowing under our revolving credit facility. As a result of acquiring the remaining ownership of the networks, we recognized a $ i 7.3 million gain due to the write-up of our prior investment in the Justice Network and Quest multicast networks to its fair value at the time of the acquisition. This gain was recorded in Other non-operating items, net within the Consolidated Statement of Income.

Gray Stations

On January 2, 2019, we completed our acquisition of WTOL, the CBS affiliate in Toledo, OH, and KWES, the NBC affiliate in Midland-Odessa, TX from Gray Television, Inc (the Gray Stations). The final purchase price was approximately $ i 109.9 million, which includes working capital of approximately $ i 4.9 million which was funded through the use of available cash and borrowing under our revolving credit facility. WTOL and KWES are strong local media brands in key markets, and they further expand our station portfolio of top 4 affiliates.

We refer to these four acquisitions collectively as the “Recent Acquisitions”.



12



 i 
The following table summarizes the estimated preliminary fair values of the assets acquired and liabilities assumed in connection with the Recent Acquisitions (in thousands):

 
 
Nexstar Stations
 
Dispatch Stations
 
Justice & Quest
 
Gray Stations
 
Total
Cash
 
$
 i 

 
$
 i 2,363

 
$
 i 


$
 i 

 
$
 i 2,363

Accounts receivable
 
 i 35,459

 
 i 26,680

 
 i 8,501


 i 5,553

 
 i 76,193

Prepaid and other current assets
 
 i 4,760

 
 i 6,165

 
 i 6,987


 i 988

 
 i 18,900

Property and equipment
 
 i 47,339

 
 i 40,856

 
 i 369


 i 11,757

 
 i 100,321

Goodwill
 
 i 84,252

 
 i 158,077

 
 i 23,413


 i 11,458

 
 i 277,200

FCC licenses
 
 i 415,225

 
 i 298,974

 
 i 


 i 53,378

 
 i 767,577

Retransmission agreements
 
 i 76,894

 
 i 55,366

 
 i 

 
 i 12,253

 
 i 144,513

Network affiliation agreements
 
 i 115,340

 
 i 83,048

 
 i 

 
 i 16,105

 
 i 214,493

Right-of-use assets for operating leases
 
 i 19,064

 
 i 362

 
 i 

 
 i 252

 
 i 19,678

Other intangible assets
 
 i 

 
 i 

 
 i 52,553


 i 

 
 i 52,553

Other noncurrent assets
 
 i 2,015

 
 i 

 
 i 5,252


 i 18

 
 i 7,285

     Total assets acquired
 
$
 i 800,348

 
$
 i 671,891

 
$
 i 97,075

 
$
 i 111,762

 
$
 i 1,681,076

Accounts Payable
 
 i 719

 
 i 953

 
 i 725


 i 1

 
 i 2,398

Accrued liabilities
 
 i 10,086

 
 i 8,917

 
 i 3,973


 i 1,606

 
 i 24,582

Deferred income tax liability
 
 i 

 
 i 108,132

 
( i 471
)
 
 i 

 
 i 107,661

Operating lease liabilities - noncurrent
 
 i 17,271

 
 i 233

 
 i 

 
 i 235

 
 i 17,739

Other noncurrent liabilities
 
 i 3,155

 
 i 

 
 i 2,700


 i 

 
 i 5,855

     Total liabilities assumed
 
$
 i 31,231

 
$
 i 118,235

 
$
 i 6,927

 
$
 i 1,842

 
$
 i 158,235

     Net assets acquired
 
$
 i 769,117

 
$
 i 553,656

 
$
 i 90,148

 
$
 i 109,920

 
$
 i 1,522,841

 
 
 
 
 
 
 
 
 
 
 
Less: cash acquired
 
$
 i 

 
$
( i 2,363
)
 
$
 i 

 
$
 i 

 
$
( i 2,363
)
Less: fair value of existing ownership
 
 i 

 
 i 

 
( i 12,995
)
 
 i 

 
( i 12,995
)
Cash paid for acquisitions
 
$
 i 769,117

 
$
 i 551,293

 
$
 i 77,153

 
$
 i 109,920

 
$
 i 1,507,483


 / 

The fair value of the assets and liabilities identified in the table above are based on preliminary valuations. As such, our estimates are subject to change as additional information is obtained about the facts and circumstances that existed as of the acquisition dates. The purchase price allocation of each acquisition remains under evaluation as of the end of the third quarter of 2019. The primary areas which are being assessed relate to the fair value of intangible assets and working capital adjustments with some of the respective sellers.

Retransmission agreement intangible assets are amortized over periods of between five and  i six years while network affiliation agreements are amortized over  i 15 years. Other intangible assets primarily represent the fair value of distribution agreements held by Justice and Quest which will be amortized over a period of  i seven years. The weighted average amortization periods for each of the Recent Acquisitions are currently estimated to be: Nexstar Stations ( i 10.8 years), Dispatch Stations ( i 10.8 years), Justice and Quest ( i 6.9 years) and Gray Stations ( i 11.1 years).

Goodwill is calculated as the excess of the purchase price over the net fair value of the assets acquired and liabilities assumed, and represents the future economic benefits expected to arise from the acquisition that do not qualify for separate recognition, including assembled workforce, as well as future synergies that we expect to generate. The goodwill, the FCC licenses and other intangible assets recognized from the Nexstar Stations, Justice & Quest and Gray Stations transactions are expected to be substantially all deductible for tax purposes. Goodwill and all other intangible assets from the Dispatch Stations are not expected to be tax deductible.


13



 i 
Our Consolidated Statements of Income for the quarter and nine months ended September 30, 2019 include the results of the Recent Acquisitions since their respective acquisition dates as shown in the table below (in thousands):
 
Quarter ended
 
Nine months ended
 
 
Revenue
$
 i 45,867

 
$
 i 65,308

Operating Income
$
 i 5,486

 
$
 i 7,696


 / 

Acquisition-related costs incurred in connection with the Recent Acquisitions for the quarter and nine months ended September 30, 2019 were $ i 20.0 million and $ i 29.1 million, respectively, which have been recorded in the Corporate - General and administrative expenses, line item within the Consolidated Statements of Income.

Unaudited Supplemental Pro Forma Financial Information
 
The following table sets forth certain pro forma financial information for the quarter and nine-months ended September 30, 2019 and 2018 giving effect to the Recent Acquisitions as if they were all completed on January 1, 2018 (in thousands):

 
Quarter ended Sept. 30,
 
Nine months ended Sept. 30,
 
2019
 
2018
 
2019
 
2018
Revenue
$
 i 605,908

 
$
 i 644,893


$
 i 1,841,373


$
 i 1,865,893

Net income
$
 i 42,277

 
$
 i 97,290


$
 i 185,528


$
 i 234,626



Information for the acquisitions has been presented on a consolidated basis as the information is not material individually for any of the acquisitions. The unaudited historical results have been adjusted for business combination accounting effects, including depreciation and amortization charges from acquired intangible assets, interest on the new debt and related tax effects. The pro forma results are not necessarily indicative of what our results would have been had we completed the acquisitions on January 1, 2018, nor are they reflective of our expected results of operations for any future periods. For example, revenues and net income amounts below do not include any adjustments for expected synergies.
NOTE 3 –  i Goodwill and other intangible assets
 i 
The following table displays goodwill, indefinite-lived intangible assets, and amortizable intangible assets as of September 30, 2019 and December 31, 2018 (in thousands):
 
 
 
Gross
 
Accumulated Amortization
 
Gross
 
Accumulated Amortization
 
 
 
 
 
 
 
 
Goodwill
$
 i 2,874,063

 
$
 i 

 
$
 i 2,596,863

 
$
 i 

 
 
 
 
 
 
 
 
Indefinite-lived intangibles:
 
 
 
 
 
 
 
Television and radio station FCC licenses
 i 2,151,764

 

 
 i 1,384,186

 

Amortizable intangible assets:
 
 
 
 
 
 
 
Retransmission agreements
 i 266,106

 
( i 95,469
)
 
 i 121,594

 
( i 79,274
)
Network affiliation agreements
 i 324,883

 
( i 42,928
)
 
 i 110,390

 
( i 30,802
)
Other
 i 81,418

 
( i 13,091
)
 
 i 28,865

 
( i 8,882
)
Total indefinite-lived and amortizable intangible assets
$
 i 2,824,171

 
$
( i 151,488
)
 
$
 i 1,645,035

 
$
( i 118,958
)


 / 
Our retransmission consent contracts and network affiliation agreements are amortized on a straight-line basis over their estimated useful lives. Other intangibles primarily include distribution agreements from our Justice & Quest acquisition, customer relationships and favorable lease agreements which are also amortized on a straight-line basis over their useful lives. Increases in goodwill, indefinite-lived and amortizable intangible assets are a result of the Recent Acquisitions discussed in Note 2 and are preliminary as we continue to review underlying assumptions and valuation methodologies utilized to calculate their respective fair values. 


14



NOTE 4 –  i Investments and other assets
 i 

Our investments and other assets consisted of the following as of September 30, 2019, and December 31, 2018 (in thousands):
 
 
 
 
 
 
Cash value life insurance
$
 i 51,714

 
$
 i 50,452

Equity method investments
 i 12,233

 
 i 22,960

Other equity investments
 i 27,377

 
 i 24,497

Deferred debt issuance costs
 i 11,680

 
 i 9,350

Other long-term assets
 i 42,923

 
 i 36,206

Total
$
 i 145,927

 
$
 i 143,465


 / 

Cash value life insurance: We are the beneficiary of life insurance policies on the lives of certain employees/retirees, which are recorded at their cash surrender value as determined by the insurance carrier. These policies are utilized as a partial funding source for deferred compensation and other non-qualified employee retirement plans. Gains and losses on these investments are included in Other non-operating items, net within our Consolidated Statement of Income and were not material for all periods presented.

Equity method investments: We hold several strategic equity method investments. Our largest equity method investment is our ownership in CareerBuilder, of which we own approximately  i 17% (or approximately  i 10% on a fully-diluted basis), which has an investment balance of $ i 9.6 million and $ i 12.4 million as of September 30, 2019 and December 31, 2018, respectively. Our ownership stake provides us with two seats on CareerBuilder’s board of directors. As a result, we concluded that we have significant influence over CareerBuilder and therefore account for our interest using the equity method of accounting.

In the first quarter of 2019, we sold our investment in Captivate, which had been accounted for as an equity method investment, for $ i 16.2 million, which resulted in a pre-tax gain of $ i 12.2 million (after-tax gain of $ i 9.2 million). This gain was recorded in Equity (loss) income in unconsolidated investments, net within the Consolidated Statement of Income and Statement of Cash Flows.

Other equity investments: Represent investments in non-public businesses that do not have readily determinable pricing, and for which we do not have control or do not exert significant influence. These investments are recorded at cost less impairments, if any, plus or minus changes in observable prices for those investments. In the second quarter of 2019, we recognized a $ i 1.6 million gain due to one of these investments having an observable price increase. This gain was recorded in the Other non-operating items, net line item in our Consolidated Statements of Income.  i No other gains or losses were recorded on these investments in the first nine months of 2019, nor were there any gains or losses recorded during the nine months ended September 30, 2018.

15



NOTE 5 –  i Long-term debt
 i 
Our long-term debt is summarized below (in thousands):

 
 
 
 
 
Unsecured floating rate term loan due quarterly through June 20201
$
 i 30,000

 
$
 i 60,000

Unsecured floating rate term loan due quarterly through September 20201
 i 120,000

 
 i 165,000

Unsecured notes bearing fixed rate interest at 5.125% due October 20191
 i 320,000

 
 i 320,000

Unsecured notes bearing fixed rate interest at 5.125% due July 20201
 i 600,000

 
 i 600,000

Unsecured notes bearing fixed rate interest at 4.875% due September 2021
 i 350,000

 
 i 350,000

Unsecured notes bearing fixed rate interest at 6.375% due October 2023
 i 650,000

 
 i 650,000

Borrowings under revolving credit agreement expiring August 2024
 i 273,000

 
 i 50,000

Unsecured notes bearing fixed rate interest at 5.50% due September 2024
 i 325,000

 
 i 325,000

Unsecured notes bearing fixed rate interest at 7.75% due June 2027
 i 200,000

 
 i 200,000

Unsecured notes bearing fixed rate interest at 7.25% due September 2027
 i 240,000

 
 i 240,000

Unsecured notes bearing fixed rate interest at 5.00% due September 2029
 i 1,100,000

 
 i 

Total principal long-term debt
 i 4,208,000

 
 i 2,960,000

Debt issuance costs
( i 29,204
)
 
( i 15,458
)
Unamortized premiums and discounts, net
 i 2,142

 
( i 76
)
Total long-term debt
$
 i 4,180,938

 
$
 i 2,944,466

 
 
 
 
1 We have the intent and ability to refinance the principal payments due within the next 12 months on a long-term basis through our revolving credit facility. As such, all debt presented in the table above is classified as long-term on our September 30, 2019 Condensed Consolidated Balance Sheet.

 / 

On August 15, 2019, we entered into an amendment of our Amended and Restated Competitive Advance and Revolving Credit Agreement. Under the amended terms, the $ i 1.51 billion of revolving credit commitments and letter of credit commitments
have been extended until August 15, 2024.  i The amendment also increased our permitted total leverage ratio as follows:

Period
Leverage Ratio
5.50 to 1.00
5.25 to 1.00
5.00 to 1.00
4.75 to 1.00
October 1, 2022 and thereafter
4.50 to 1.00


The amendment also increases the amount of unrestricted cash that we are allowed to offset debt by in our leverage ratio calculation to $ i 500.0 million.

On September 13, 2019, we completed a private placement offering of $ i 1.1 billion aggregate principal amount of unsecured notes bearing an interest rate of  i 5.00% which are due in September 2029. The net proceeds were used to finance the acquisition of the Nexstar Stations and to pay down borrowing under the revolving credit agreement.

As of September 30, 2019, we had unused borrowing capacity of $ i 1.22 billion under our revolving credit facility.

On October 15, 2019 we repaid the remaining $ i 320.0 million of our unsecured notes bearing fixed rate interest at  i 5.125% which had become due. Additionally, on October 18, 2019 we repaid $ i 290.0 million of our $ i 600.0 million unsecured notes bearing fixed interest at  i 5.125% which are due in July 2020. Both repayments were made by utilizing our revolving credit facility, which had an unused borrowing capacity of $ i 618.2 million following these repayments.



16



NOTE 6 –  i 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, including both current and non-current liabilities, as of September 30, 2019, were $ i 136.4 million, of which $ i 7.9 million is recorded as a current obligation within accrued liabilities on the Condensed Consolidated Balance Sheet.

 i 
Pension costs, which primarily include costs for the qualified TRP and the non-qualified SERP, are presented in the following table (in thousands):
 
Quarter ended Sept. 30,
 
Nine months ended Sept. 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Service cost-benefits earned during the period
$
 i 2

 
$
 i 3

 
$
 i 6

 
$
 i 9

Interest cost on benefit obligation
 i 5,761

 
 i 5,721

 
 i 17,284

 
 i 15,945

Expected return on plan assets
( i 6,580
)
 
( i 8,218
)
 
( i 19,740
)
 
( i 23,148
)
Amortization of prior service cost
 i 23

 
 i 42

 
 i 68

 
 i 126

Amortization of actuarial loss
 i 1,521

 
 i 1,271

 
 i 4,562

 
 i 3,814

Pension payment timing related charge
 i 

 
 i 1,198

 
 i 686

 
 i 7,498

Expense for company-sponsored retirement plans
$
 i 727

 
$
 i 17

 
$
 i 2,866

 
$
 i 4,244


 / 

Benefits no longer accrue for substantially all TRP and SERP participants as a result of amendments to the plans in the past years and as such we no longer incur a significant amount of the service cost component of pension expense. All other components of our pension expense presented above are included within the Other non-operating items, net line item of the Consolidated Statements of Income.

During the nine months ended September 30, 2019 and 2018, we made cash contributions of $ i 2.4 million and $ i 11.1 million to the TRP and benefit payments to participants of the SERP of $ i 6.0 million and $ i 32.9 million, respectively. Based on actuarial projections, we expect to make additional cash payments of $ i 3.6 million in fourth quarter of 2019 on account of these benefit plans (comprised of payments of $ i 1.5 million to the TRP and $ i 2.1 million SERP participants).

We incurred pension payment timing related charges of $ i 0.7 million and $ i 7.5 million in the first nine months of 2019 and 2018, respectively, as a result of lump sum SERP payments made to certain former employees. These charges were reclassified from accumulated other comprehensive loss into net periodic benefit cost.

NOTE 7 –  i Leases
We adopted the FASB’s new lease accounting guidance on January 1, 2019. We determine if an arrangement contains a lease at the agreement’s inception. As permitted under the lease accounting standards adoption guidance, arrangements prior to the adoption date retained their previous determination as to whether or not an arrangement contained a lease. Arrangements entered into subsequent to the adoption date of the new guidance have been analyzed to determine if a lease exists depending on whether there was an identified underlying asset that we control.
Our portfolio of leases primarily consists of leases for the use of corporate offices, station facilities, equipment and for antenna/transmitter sites. Our lease portfolio consists entirely of operating leases, with most of our leases having remaining terms ranging  i 1 to  i 15 years. Operating lease balances are included in our right-of-use assets for operating leases, other accrued liabilities and operating lease liabilities on our Condensed Consolidated Balance Sheet.
Lease liabilities are calculated as of the lease commencement date based on the present value of lease payments to be made over the term of the lease. Our lease agreements often contain lease and non-lease components (e.g., common-area maintenance or other executory costs). We include the non-lease payments in the calculation of our lease liabilities to the extent they are either fixed or included within the fixed base rental payments. Some of our leases include variable lease components (e.g., rent increases based on the consumer price index) and variable non-lease components, which are expensed as they are incurred. Such variable costs are not material. As our lease agreements do not include an implicit interest rate, we use our incremental borrowing rate in determining the present value of future payments, which is determined using our credit rating and information available as of the lease commencement date.
The operating lease right-of-use assets as of the lease commencement date are calculated based on the amount of the operating lease liability, less any lease incentives. Some of our lease agreements include options to renew for additional terms or provide us with the ability terminate the lease early. In determining the term of the lease, we consider whether or not we are reasonably certain to exercise these options. Lease expense for fixed lease payments is recognized on a straight-line basis over the lease term.


17



 i 
The following table presents lease related assets and liabilities on the Condensed Consolidated Balance Sheet as of September 30, 2019 (in thousands):
Assets
 
Right-of-use assets for operating leases
$
 i 90,406

 


Liabilities

Operating lease liabilities (current)1
 i 9,174

Operating lease liabilities (non-current)
 i 101,348

Total operating lease liabilities
$
 i 110,522



(1) Current operating lease liabilities are included within the other accrued liabilities line item of the Condensed Consolidated Balance Sheet.

 / 
As of September 30, 2019, the weighted-average remaining lease term for our lease portfolio was  i 10.5 years and the weighted average discount rate used to calculate the present value of our lease liabilities was  i 5.4%.

For the nine months ended September 30, 2019 and 2018, we recognized lease expense of $ i 9.6 million and $ i 13.7 million, respectively. Lease expense for the three months ended September 30, 2019 and 2018 were $ i 3.3 million and $ i 4.9 million, respectively. In addition, we made cash payments for operating leases of $ i 2.5 million and $ i 7.6 million during the three and nine months ended September 30, 2019, respectively, which are included in cash flows from operating activities on Statement of Cash Flows.

 i 
The table below reconciles future lease payments for each of the next five years and remaining years thereafter, in aggregate, to the lease liabilities recorded on the Condensed Consolidated Balance Sheet as of September 30, 2019 (in thousands):

Future Period
Cash Payments
 
 
Remaining in 2019
$
 i 3,424

2020
 i 15,194

2021
 i 16,570

2022
 i 15,575

2023
 i 14,411

Thereafter
 i 88,759

Total lease payments
 i 153,933

Less: amount of lease payments representing interest
 i 43,411

Present value of lease liabilities
$
 i 110,522



 / 
As of December 31, 2018, operating lease commitments under lessee arrangements were $ i 10.4 million, $ i 9.9 million, $ i 11.7 million, $ i 10.9 million, and $ i 10.3 million for the years 2019 through 2023, respectively, and $ i 73.9 million thereafter.


18



NOTE 8 –  i Accumulated other comprehensive loss
 i 

The following table summarizes the components of, and the changes in, Accumulated Other Comprehensive Loss (AOCL), net of tax (in thousands):
 
Retirement Plans
 
Foreign Currency Translation
 
Total
Quarters Ended:
 
 
 
 
 
Balance at June 30, 2019
$
( i 134,233
)
 
$
 i 39

 
$
( i 134,194
)
Other comprehensive income before reclassifications
 i 

 
( i 238
)
 
( i 238
)
Amounts reclassified from AOCL
 i 1,073

 
 i 

 
 i 1,073

Total other comprehensive income
 i 1,073

 
( i 238
)
 
 i 835

Balance at Sept. 30, 2019
$
( i 133,160
)
 
$
( i 199
)
 
$
( i 133,359
)
 
 
 
 
 
 
Balance at June 30, 2018
$
( i 125,288
)
 
$
 i 547

 
$
( i 124,741
)
Other comprehensive income before reclassifications
 i 

 
( i 23
)
 
( i 23
)
Amounts reclassified from AOCL
 i 1,851

 
 i 

 
 i 1,851

Total other comprehensive income
 i 1,851

 
( i 23
)
 
 i 1,828

Balance at Sept. 30, 2018
$
( i 123,437
)
 
$
 i 524

 
$
( i 122,913
)
 
 
 
 
 
 
 
Retirement Plans
 
Foreign Currency Translation
 
Total
Nine Months Ended:
 
 
 
 
 
Balance at Dec. 31, 2018
$
( i 136,893
)
 
$
 i 382

 
$
( i 136,511
)
Other comprehensive income before reclassifications
 i 

 
( i 581
)
 
( i 581
)
Amounts reclassified from AOCL
 i 3,733

 
 i 

 
 i 3,733

Total other comprehensive income
 i 3,733

 
( i 581
)
 
 i 3,152

Balance at Sept. 30, 2019
$
( i 133,160
)
 
$
( i 199
)
 
$
( i 133,359
)
 
 
 
 
 
 
Balance at Dec. 31, 2017
$
( i 107,037
)
 
$
 i 114

 
$
( i 106,923
)
Other comprehensive income before reclassifications
 i 

 
 i 410

 
 i 410

Amounts reclassified from AOCL
 i 8,445

 
 i 

 
 i 8,445

Other comprehensive income
 i 8,445

 
 i 410

 
 i 8,855

Reclassification of stranded tax effects to retained earnings
( i 24,845
)
 
 i 

 
( i 24,845
)
Balance at Sept. 30, 2018
$
( i 123,437
)
 
$
 i 524

 
$
( i 122,913
)

 / 
Reclassifications from AOCL to the Consolidated Statements of Income are comprised of pension and other post-retirement components. Pension and other post retirement reclassifications are related to the amortization of prior service costs, amortization of actuarial losses, and pension payment timing related charges related to our SERP plan.  i Amounts reclassified out of AOCL are summarized below (in thousands):
 
Quarter ended Sept. 30,
 
Nine months ended Sept. 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Amortization of prior service credit, net
$
( i 120
)
 
$
( i 101
)
 
$
( i 360
)
 
$
( i 302
)
Amortization of actuarial loss
 i 1,551

 
 i 1,376

 
 i 4,653

 
 i 4,129

Pension payment timing related charges
 i 

 
 i 1,198

 
 i 686

 
 i 7,498

Total reclassifications, before tax
 i 1,431

 
 i 2,473

 
 i 4,979

 
 i 11,325

Income tax effect
( i 358
)
 
( i 622
)
 
( i 1,246
)
 
( i 2,880
)
Total reclassifications, net of tax
$
 i 1,073

 
$
 i 1,851

 
$
 i 3,733

 
$
 i 8,445




19



NOTE 9 –  i Earnings per share
 i 

Our earnings per share (basic and diluted) are presented below (in thousands, except per share amounts):
 
Quarter ended Sept. 30,
 
Nine months ended Sept. 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Net income from continuing operations
$
 i 48,346

 
$
 i 92,826

 
$
 i 202,280

 
$
 i 240,525

Income from discontinued operations, net of tax
 i 

 
 i 4,325

 
 i 

 
 i 4,325

Net income
$
 i 48,346

 
$
 i 97,151

 
$
 i 202,280

 
$
 i 244,850

 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding - basic
 i 217,315

 
 i 216,015

 
 i 217,040

 
 i 216,210

Effect of dilutive securities:
 
 
 
 
 
 
 
Restricted stock units
 i 607

 
 i 167

 
 i 420

 
 i 116

Performance share units
 i 364

 
 i 

 
 i 312

 
 i 72

Stock options
 i 24

 
 i 166

 
 i 36

 
 i 219

Weighted average number of common shares outstanding - diluted
 i 218,310

 
 i 216,348

 
 i 217,808

 
 i 216,617

 
 
 
 
 
 
 
 
Earnings from continuing operations per share - basic
$
 i 0.22

 
$
 i 0.43

 
$
 i 0.93

 
$
 i 1.11

Earnings from discontinued operations per share - basic
 i 

 
 i 0.02

 
 i 

 
 i 0.02

Net income per share - basic
$
 i 0.22

 
$
 i 0.45

 
$
 i 0.93

 
$
 i 1.13

 
 
 
 
 
 
 
 
Earnings from continuing operations per share - diluted
$
 i 0.22

 
$
 i 0.43

 
$
 i 0.93

 
$
 i 1.11

Earnings from discontinued operations per share - diluted
 i 

 
 i 0.02

 
 i 

 
 i 0.02

Net income per share - diluted
$
 i 0.22

 
$
 i 0.45

 
$
 i 0.93

 
$
 i 1.13


 / 

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  i 12,000 and  i 28,000 stock awards for the three and nine months ended September 30, 2019, respectively, and  i 189,000 and  i 235,000 for the three and nine months ended September 30, 2018, respectively, as their inclusion would be accretive to earnings per share.

NOTE 10 –  i 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.

In the second quarter of 2019, we recognized a $ i 1.6 million gain on one of our investments due to an observable price increase, which represents a Level 2 input (see Note 4 for further discussion). This gain was recorded in the Other non-operating items, net line item in our Consolidated Statements of Income.  i No other gains or losses were recorded on our investments due to observable price changes in 2019, or during the nine months ended September 30, 2018.

Prior to the closing of our acquisition in the multicast networks Justice Network and Quest we held an approximately  i 15% ownership interest. Upon completion of the step acquisition, we recognized a gain of $ i 7.3 million in Other non-operating items, net within the Consolidated Statement of Income, for the remeasurement of our previously held ownership interest to fair value, which was $ i 8.0 million. The fair value was determined using an income approach which was based on significant inputs not observable in the market, and thus represented a Level 3 fair value measurement.
We additionally 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

20



fair value of our total debt, based on the bid and ask quotes for the related debt (Level 2), totaled $ i 4.32 billion at September 30, 2019, and $ i 2.96 billion at December 31, 2018.

NOTE 11 –  i Supplemental cash flow information

The following table provides a reconciliation of cash and cash equivalents, as reported on our Condensed Consolidated Balance Sheets, to cash, cash equivalents, and restricted cash, as reported on our Condensed Consolidated Statement of Cash Flows (in thousands):
 
 
 
 
Cash and cash equivalents
$
 i 9,194

 
$
 i 135,862

 
$
 i 23,766

 
$
 i 98,801

Restricted cash equivalents included in:
 
 
 
 
 
 
 
Prepaid expenses and other current assets
 i 

 
 i 

 
 i 

 
 i 29,240

Cash, cash equivalents and restricted cash
$
 i 9,194

 
$
 i 135,862

 
$
 i 23,766

 
$
 i 128,041



Our restricted cash equivalents consisted of highly liquid investments that were held within a rabbi trust and were used to pay our deferred compensation and SERP obligations.

 i 
The following table provides additional information about cash flows related to income taxes and interest (in thousands):
 
Nine months ended Sept. 30,
 
2019
 
2018
Supplemental cash flow information:
 
 
 
Cash paid for income taxes, net of refunds
$
 i 73,457

 
$
 i 51,325

Cash paid for interest
$
 i 117,913

 
$
 i 121,616



 / 
The timing of tax payments reflects the federal income tax payment due dates (no payments made in the first quarter; two payments made in the second quarter; and one payment will be made in each of the third and fourth quarter). The 2019 amount is primarily comprised of net tax payments of $ i 17.7 million made during third quarter and $ i 56.2 million of net payments made in the second quarter. In 2018, we made net tax payments of $ i 14.3 million during third quarter and $ i 39.8 million of net payments in the second quarter.

NOTE 12 –  i Other matters

Commitments, contingencies and other matters

In the third quarter of 2018, certain national media outlets reported the existence of a confidential investigation by the United States Department of Justice Antitrust Division (DOJ) into the local television advertising sales practices of station owners. On November 13 and December 13, 2018, DOJ and  i seven broadcasters settled a DOJ complaint alleging the exchange of competitively sensitive information in the broadcast television industry. On June 17, 2019, we and  i four other broadcasters entered into a substantially identical agreement with DOJ. The settlement contains no finding of wrongdoing or liability and carries no penalty. It prohibits us and the other settling entities from sharing certain confidential business information, or using such information pertaining to other broadcasters, except under limited circumstances. The settlement also requires the settling parties to make certain enhancements to their antitrust compliance programs; to continue to cooperate with the DOJ’s investigation and to permit DOJ to verify compliance. We do not expect the costs of compliance to be material.
  
Since the national media reports, numerous putative class action lawsuits were filed against owners of television stations (the Advertising Cases) in different jurisdictions. Plaintiffs are a class consisting of all persons and entities in the United States who paid for all or a portion of advertisement time on local TV provided by the defendants. The Advertising Cases assert antitrust and other claims and seek monetary damages, attorneys’ fees, costs and interest, as well as injunctions against the allegedly wrongful conduct.

These cases have been consolidated into a single proceeding in the United States District Court for the Northern District of Illinois, captioned Clay, Massey & Associates, P.C. v. Gray Television, Inc. et. al., filed on July 30, 2018. At the court’s direction, plaintiffs filed an amended complaint on April 3, 2019, that superseded the original complaints. Although we were named as a defendant in sixteen of the original complaints, the amended complaint did not name TEGNA as a defendant. After TEGNA and four other broadcasters entered into consent decrees with the Department of Justice in June 2019, the plaintiffs sought leave from the court to further amend the complaint to add TEGNA and the other settling broadcasters to the proceeding.  The court granted the plaintiffs’ motion, and the plaintiffs filed the second amended complaint on September 9, 2019.  On October 8, 2019, the defendants jointly filed a motion to dismiss the matter.  We deny any violation of law, believe that the claims asserted in the Advertising Cases are without merit, and intend to defend ourselves vigorously against them.

21





We, along with a number of our subsidiaries, also are defendants in other 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 any of the foregoing matters.

FCC Broadcast Spectrum Program

In April 2017, the FCC announced the completion of 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 FCC has notified us that  i 17 (which includes four of our recently acquired stations) of our existing stations will be repacked to new channels.
    
Based on our transition planning to date, we do not expect the repacking to have any material effect on the geographic areas or populations served by our repacked full-power stations’ over-the-air signals. If the repacking did have such an effect, our television stations moving channels could have smaller service areas and/or experience additional interference.

The legislation authorizing the incentive auction and repacking established a $ i 1.75 billion fund for reimbursement of costs incurred by stations required to change channels in the repacking. Subsequent legislation enacted on March 23, 2018, appropriated an additional $ i 1 billion for the repacking fund, of which up to $ i 750 million may be made available to repacked full power and Class A television stations and multichannel video programming distributors. Other funds are earmarked to assist affected low power television stations, television translator stations, and FM radio stations, as well as for consumer education efforts.

The repacking process is scheduled to occur over a  i 39-month period, divided into  i ten phases, ending mid-year 2020. Our full power stations have been assigned to phases two through nine, and a majority of our remaining capital expenditures in connection with the repack will occur in 2019. To date, we have incurred approximately $ i 27.8 million in capital expenditures for the spectrum repack project (of which $ i 10.2 million was paid during the first nine months of 2019). We have received FCC reimbursements of approximately $ i 21.4 million through September 30, 2019. The reimbursements were recorded as a contra operating expense within our Spectrum repacking reimbursements and other line item on our Consolidated Statement of Income and reported as an investing inflow on the Consolidated Statement of Cash Flows.

Each repacked full power commercial television station, including each of our  i 17 repacked stations, has been allocated a reimbursement amount equal to approximately  i 92.5% of the station’s estimated repacking costs, as verified by the FCC’s fund administrator. Although we expect the FCC to make additional allocations from the fund, it is not guaranteed that the FCC will approve all reimbursement requests necessary to completely reimburse each repacked station for all amounts incurred in connection with the repack.

Related Party Transactions

We have an equity and debt investment in MadHive, Inc. (MadHive) which is a related party of TEGNA. In addition to our investment, we also have a commercial agreement with MadHive where they support our Premion business in acquiring and delivering over-the-top ad impressions. In the third quarter and first nine months of 2019, we incurred expenses of $ i 5.8 million and $ i 21.6 million, respectively, as a result of the commercial agreement with MadHive. In the third quarter and first nine months of 2018, we incurred $ i 1.6 million of expenses under the commercial agreement. As of September 30, 2019 and December 31, 2018 we had accounts payable and accrued liabilities associated with the commercial agreement of $ i 2.8 million and $ i 1.6 million, respectively.

Reduction in Force Programs

In 2018, we initiated reduction in force programs at our corporate headquarters and our Digital Marketing Services (DMS) business unit, which resulted in a total severance charge of $ i 7.3 million which was recorded within the Cost of Revenues, Business Units - Selling and Administrative, and Corporate - General and Administrative Costs within the Consolidated Statement of Income in the third quarter of 2018. The corporate headquarters reductions were part of our ongoing consolidations of our corporate structure following our strategic transformation into a pure play broadcast company. The reduction in force at our DMS unit is a result of a rebranding of our service offerings and unification of our sales strategy to better serve our customers. A majority of the employees impacted by these reductions will receive lump sum severance payments. As of the end of the third quarter of 2019, we have a remaining accrual of approximately $ i 2.8 million related to these actions, substantially all of which will be paid throughout the remainder of the year.







22



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. Across platforms, we tell empowering stories, conduct impactful investigations and deliver innovative marketing services. With 62 television stations and four radio stations in 51 U.S. markets, we are the largest owner of top four network affiliates in the top 25 markets among independent station groups, reaching approximately 39% of U.S. television households. Each television station also has a robust digital presence across online, mobile and social platforms, reaching consumers whenever, wherever they are. We have been consistently honored with the industry’s top awards, including Edward R. Murrow, George Polk, Alfred I. DuPont and Emmy Awards. Through TEGNA Marketing Solutions (TMS), our integrated sales and back-end fulfillment operations, we deliver results for advertisers across television, email, social, and Over the Top (OTT) platforms, including Premion, our OTT advertising network.

We 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 television advertising, digital marketing services (including Premion), and advertising on the stations’ websites and tablet and mobile products; 2) subscription revenues, reflecting fees paid by satellite, cable, OTT (companies that deliver video content to consumers over the Internet) and telecommunications providers to carry our television signals on their systems; 3) political advertising revenues, which are driven by even year election cycles at the local and national level (e.g. 2020, 2018) and particularly in the second half of those years; and 4) other services, such as production of programming and advertising material.

As illustrated in the table below, our business continues to evolve toward growing stable and profitable revenue streams. As a result of growing importance of even-year political advertising on our results, management increasingly looks at revenue trends over two-year periods. We expect high margin subscription and political revenues will account for approximately half of our total two-year revenue beginning in 2019/2020, and a larger percentage on a rolling two-year cycle thereafter.

 
Two Years Ending September 30,
 
 
 
2019
 
 
2018
 
 
 
 
 
 
 
 
 
Advertising & Marketing Services
53
%
 
 
57
%
 
 
Subscription
40
%
}
46%
37
%
}
42%
Political
6
%
5
%
Other
1
%
 
 
1
%
 
 
Total revenues
100
%
 
 
100
%
 
 

Our balance sheet combined with these strong, accelerating and dependable cash flows provide us the ability to pursue the path that offers the most attractive return on capital at any given point in time. We have a broad set of capital deployment opportunities, including retiring debt to create additional future flexibility; investing in original, relevant and engaging content; investing in growth businesses like our OTT advertising service Premion; and pursuing value accretive acquisition-related growth. We will continue to review all opportunities in a disciplined manner, both strategically and financially. In the near-term, our priorities continue to be maintaining a strong balance sheet, enabling organic growth, acquiring attractively priced strategic assets and returning capital to shareholders in the form of dividends.

On September 19, 2019 we completed our previously announced acquisition of 11 local television stations in eight markets, including eight Big Four affiliates, from Nexstar Media Group (the Nexstar Stations). These stations were divested by Nexstar Media Group in connection with its acquisition of Tribune Media Company. The television stations acquired through this acquisition are listed in the table below:
Market
 
Station
 
Affiliation
Hartford-New Haven, CT
 
WTIC/WCCT
 
FOX/CW
Harrisburg-Lancaster-Lebanon-York, PA
 
WPMT
 
FOX
Memphis, TN
 
WATN/WLMT
 
ABC/CW
Wilkes Barre-Scranton, PA
 
WNEP
 
ABC
Des Moines-Ames, IA
 
WOI/KCWI
 
ABC/CW
Huntsville-Decatur-Florence, AL
 
WZDX
 
FOX
Davenport, IA and Rock Island-Moline, IL
 
WQAD
 
ABC
Ft. Smith-Fayetteville-Springdale-Rogers, AR
 
KFSM
 
CBS

23




The estimated purchase price for the Nexstar Stations is approximately $769.1 million which includes a base purchase price of $740.0 million and estimated working capital of $29.1 million. The transaction was financed through the use of a portion of the $1.1 billion of Senior Notes issued on September 13, 2019 and borrowing under our revolving credit facility. The acquisition of the Nexstar Stations adds complementary markets to our existing portfolio of top network affiliates, including four affiliates in presidential election battleground states.

On August 8, 2019, we completed our previously announced acquisition of Dispatch Broadcast Group’s #1 rated stations in Indianapolis, Indiana (NBC affiliate WTHR) and Columbus, Ohio (CBS affiliate WBNS). We also acquired WBNS radio (1460 AM and 97.1 FM), the leader in sports radio in Central Ohio (collectively the Dispatch Stations). The estimated purchase price for the Dispatch Stations is $553.7 million which consists of a base purchase price of $535.0 million and estimated working capital and cash acquired of $18.7 million. The acquisition of the Dispatch Stations helps to expand our portfolio of big four affiliates in top markets. The transaction was financed through available cash and borrowing under our revolving credit facility.
On June 18, 2019, we completed the acquisition of the remaining approximately 85% interest that we did not previously own in the multicast networks Justice Network and Quest from Cooper Media. Justice and Quest are two leading multicast networks that offer unique ad-supported programming. Justice Network’s content is focused on true-crime genre, while Quest features factual-entertainment programs such as science, history, and adventure-reality series. Cash paid for this acquisition was $77.2 million (which included $4.7 million for estimated working capital paid at closing), funded through available cash and borrowing under our revolving credit facility.

On January 2, 2019, we completed our acquisition of WTOL, the CBS affiliate in Toledo, OH, and KWES, the NBC affiliate in
Midland-Odessa, TX from Gray Television, Inc. (collectively the Gray Stations). The final purchase price was $109.9 million, which includes working capital of approximately $4.9 million. The transaction was funded through available cash and borrowing under our revolving credit facility. WTOL and KWES are strong local media brands in key markets, and they further expand our station portfolio of top 4 affiliates.

We refer to these four acquisitions collectively as the “Recent Acquisitions”.

Consolidated Results from Operations

The following discussion is a comparison of our consolidated results on a GAAP basis. The year-to-year comparison of financial results is not necessarily indicative of future results. In addition, see the section on page 28 titled ‘Results from Operations - Non-GAAP Information’ for additional tables presenting information which supplements our financial information provided on a GAAP basis.
As discussed above, during 2019 we acquired multiple local television stations and multicast networks. These stations and multicast networks are collectively referred to as the “Recent Acquisitions” in the discussion that follows. The inclusion of the operating results from these Recent Acquisitions for the periods subsequent to their acquisition impacts the year-to-year comparability of our consolidated operating results and most significantly in the third quarter of 2019.


24



Our consolidated results of operations on a GAAP basis were as follows (in thousands, except per share amounts):
 
Quarter ended Sept. 30,
 
Nine months ended Sept. 30,
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
551,857

 
$
538,976

 
2
%
 
$
1,605,542

 
$
1,565,146

 
3
%
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 


 
 
 
 
 
 
Cost of revenues
306,474

 
271,156

 
13
%
 
873,078

 
793,943

 
10
%
Business units - Selling, general and administrative expenses
78,439

 
76,639

 
2
%
 
223,845

 
229,193

 
(2
%)
Corporate - General and administrative expenses
29,792

 
17,593

 
69
%
 
60,363

 
41,522

 
45
%
Depreciation
15,381

 
14,262

 
8
%
 
44,831

 
41,594

 
8
%
Amortization of intangible assets
15,018

 
8,047

 
87
%
 
32,530

 
22,791

 
43
%
Spectrum repacking reimbursements and other
(80
)
 
(3,005
)
 
(97
%)
 
(11,399
)
 
(9,331
)
 
22
%
Total operating expenses
$
445,024

 
$
384,692

 
16
%
 
$
1,223,248

 
$
1,119,712

 
9
%
 
 
 
 
 
 
 
 
 
 
 
 
Total operating income
$
106,833

 
$
154,284

 
(31
%)
 
$
382,294

 
$
445,434

 
(14
%)
 
 
 
 
 
 
 
 
 
 
 
 
Non-operating expenses
(53,408
)
 
(47,669
)
 
12
%
 
(127,282
)
 
(142,980
)
 
(11
%)
Provision for income taxes
5,079

 
13,789

 
(63
%)
 
52,732

 
61,929

 
(15
%)
Net income from continuing operations
$
48,346

 
$
92,826

 
(48
%)
 
$
202,280

 
$
240,525

 
(16
%)
 
 
 
 
 
 
 
 
 
 
 
 
Earnings from continuing operations per share - basic
$
0.22

 
$
0.43

 
(49
%)
 
$
0.93

 
$
1.11

 
(16
%)
Earnings from continuing operations per share - diluted
$
0.22

 
$
0.43

 
(49
%)
 
$
0.93

 
$
1.11

 
(16
%)
 
 
 
 
 
 
 
 
 
Revenues

Our Advertising and Marketing Services (AMS) category includes all sources of our traditional television advertising and digital revenues including Premion and other digital advertising and marketing revenues across our platforms. Our Subscription revenue category includes revenue earned from cable and satellite providers for the right to carry our signals and the distribution of TEGNA stations on OTT streaming services.

Our revenues and operating results are subject to seasonal fluctuations. Generally, our second and fourth quarter revenues and operating results are stronger than those we report for the first and third quarter. This is driven by the second quarter reflecting increased spring seasonal advertising, while the fourth quarter typically includes increased advertising related to the holiday season. In even years, our advertising revenue benefits significantly from the Olympics when carried on NBC, our largest network affiliation. To a lesser extent, the Super Bowl can influence our advertising results, the degree to which depending on which network broadcast’s the event. In addition, our revenue and operating results are subject to significant fluctuations across yearly periods resulting from political advertising. In even numbered years, political spending is usually significantly higher than in odd numbered years due to advertising for the local and national elections. Additionally, every four years, we typically experience even greater increases in political advertising in connection with the presidential election. The strong demand for advertising from political advertisers in these even years can result in the significant use of our available inventory (leading to a “crowd out” effect), which can diminish our AMS revenue from our non-political advertising customers in the even year of a two year election cycle, particularly in the fourth quarter of those years.

25



The following table summarizes the year-over-year changes in our revenue categories (in thousands):
 
Quarter ended Sept. 30,
 
Nine months ended Sept. 30,
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
 
 
 
 
 
 
 
 
 
 
 
 
Advertising & Marketing Services
$
297,333

 
$
264,852

 
12
%
 
$
851,304

 
$
829,638

 
3
%
Subscription
240,735

 
207,463

 
16
%
 
718,472

 
622,382

 
15
%
Political
8,131

 
60,410

 
(87
%)
 
14,064

 
93,725

 
(85
%)
Other
5,658

 
6,251

 
(9
%)
 
21,702

 
19,401

 
12
%
Total revenues
$
551,857

 
$
538,976

 
2
%
 
$
1,605,542

 
$
1,565,146

 
3
%

Total revenues increased $12.9 million in the third quarter of 2019 compared to the same period in 2018. Our Recent Acquisitions contributed total revenues of $45.9 million in the third quarter of 2019. Excluding Recent Acquisitions, total revenues decreased $33.0 million. This decrease was primarily due to a $53.1 million reduction in political advertising, reflecting significantly fewer elections compared to 2018. This decrease was partially offset by an increase in subscription revenue of $19.1 million, primarily due to annual rate increases under existing retransmission agreements.

In the first nine months of 2019, revenues increased $40.4 million compared to the same period in 2018. Our Recent Acquisitions contributed total revenues of $65.3 million in the first nine months of 2019. Excluding our Recent Acquisitions, total revenues decreased $24.9 million. This decrease was primarily due to lower political revenue, which decreased $80.5 million. Also contributing to the overall revenue decrease was a decrease in AMS revenue of $21.1 million, primarily due to the absence of Winter Olympic and lower Super Bowl advertising. We estimate the incremental sports combined for approximately $16.0 million of added revenue in 2018. This decrease was partially offset by increased subscription revenue of $74.7 million in the first nine months of 2019 primarily due to annual rate increases under existing retransmission agreements.

Cost of Revenues

Cost of revenues increased $35.3 million in the third quarter of 2019 compared to the same period in 2018. Our Recent Acquisitions added cost of revenues of $24.7 million in the third quarter of 2019. Excluding Recent Acquisitions, cost of revenues increased $10.6 million. The increase was primarily due to a $14.0 million increase in programming costs, due to the growth in subscription revenues. Partially offsetting this increase was a reduction of $6.3 million of digital costs as a result of the reduction in force and rebranding of our digital business unit during the fourth quarter of 2018 (see Note 12).

In the first nine months of 2019, cost of revenues increased $79.1 million compared to the same period in 2018. Our Recent Acquisitions added cost of revenues of $35.8 million in the first nine months of 2019. Excluding Recent Acquisitions, cost of revenues increased $43.3 million. This increase was primarily due to a $46.3 million increase in programming costs, due to the growth in subscription revenues. Partially offsetting this increase was a reduction of $9.6 million of digital costs for the same reason noted above.

Business Units - Selling, General and Administrative Expenses

Business unit selling, general and administrative (SG&A) expenses increased $1.8 million in the third quarter of 2019 compared to the same period in 2018. Our Recent Acquisitions added business unit SG&A expenses of $6.8 million in the third quarter of 2019. Excluding Recent Acquisitions, SG&A expenses decreased $5.0 million. The decrease was primarily due to $2.4 million of lower severance, legal, and professional costs.

In the first nine months of 2019, business unit SG&A expenses decreased $5.3 million compared to the same period in 2018. Our Recent Acquisitions added business unit SG&A expenses of $9.8 million. Excluding the Recent Acquisitions, SG&A expenses decreased $15.1 million. The decrease was primarily the result of a $8.4 million net decrease mostly driven by the decrease of legal and professional costs.

Corporate General and Administrative Expenses

Our corporate costs are separated from our business expenses and are recorded as general and administrative expenses in our Consolidated Statement of Income. 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. In addition, beginning in the first quarter of 2019, we now record acquisition-related costs within our Corporate operating expense due to their recurring nature. Prior to the first quarter of 2019, such costs were recorded as other non-operating expense.


26



Corporate general and administrative expenses increased $12.2 million in the third quarter of 2019 compared to the same period in 2018. The increase was primarily driven by $20.0 million of acquisition-related costs associated with the Recent Acquisitions and strategic initiatives. Partially offsetting this increase was the absence of $5.5 million of severance expense incurred in third quarter of 2018.

In the first nine months of 2019, corporate general and administrative expenses increased $18.8 million compared to the same period in 2018. The increase was primarily due to $29.1 million in acquisition-related costs associated with Recent Acquisitions and strategic initiatives. Partially offsetting this increase was the absence of $5.3 million of severance expense incurred in third quarter of 2018.

Depreciation Expense

Depreciation expense increased by $1.1 million in the third quarter of 2019 compared to the same period in 2018. Our Recent Acquisitions added depreciation expense of $1.6 million. Excluding the impact of Recent Acquisitions, there was no material change in our depreciation expense.

In the first nine months of 2019, depreciation expense increased $3.2 million compared to the same period in 2018. Our Recent Acquisitions added depreciation expense of $2.6 million. Excluding the impact of Recent Acquisitions, there was no material change in our depreciation expense.

Amortization Expense

Amortization expense increased $7.0 million in the third quarter of 2019 compared to the same period in 2018. Our Recent Acquisitions added amortization expense of $7.3 million. Excluding the impact of Recent Acquisitions, there was no material change in our amortization expense.

In the first nine months of 2019, amortization expense increased $9.7 million as compared to the same periods in 2018. Our Recent Acquisitions added amortization expense of $9.4 million. Excluding the impact of Recent Acquisitions, there was no material change in our amortization expense in either period.

See Note 2 to the condensed consolidated financial statements for more information regarding our preliminary purchase accounting for the Recent Acquisitions.

Spectrum Repacking Reimbursements and Other

Spectrum repacking reimbursements and other was immaterial in the third quarter of 2019 compared to $3.0 million in the same period in 2018. The 2019 activity consists of $5.5 million of reimbursements received from the Federal Communications Commission (FCC) for required spectrum repacking. This gain was offset by a one-time contract termination and incremental transition costs of $5.5 million related to bringing our national sales organization in-house. The 2018 activity reflects reimbursements received from the FCC for required spectrum repacking.

In the first nine months of 2019, we recognized net gains of $11.4 million, compared to $9.3 million recognized in the same period in 2018. The 2019 net gains primarily consist of $14.0 million of reimbursements received from the FCC for required spectrum repacking and a gain of $2.9 million as a result of the sale of certain real estate. These gains were partially offset by $5.5 million in one-time contract termination and incremental transition costs discussed above. The 2018 net gains primarily consist of a gain recognized on the sale of real estate in Houston and gains due to reimbursements received from the FCC for required spectrum repacking.

Operating Income

Our operating income decreased $47.5 million in the third quarter of 2019 compared to the same period in 2018. Results from our Recent Acquisitions added operating income of $5.5 million in the third quarter of 2019. Excluding the 2019 acquisitions, operating income decreased $53.0 million in the third quarter of 2019 compared to the same period in 2018. The decrease was driven by the changes in revenue and expenses discussed above, most notably the decline of high margin political advertising.

Our operating income decreased $63.1 million in the first nine months of 2019 compared to the same period in 2018. Our Recent Acquisitions added operating income of $7.7 million in the first nine months of 2019. Excluding the Recent Acquisitions, total operating income decreased $70.8 million in the first nine months compared to the same period. The decrease was driven by the changes in revenue and expenses discussed above, most notably the decline of high margin political advertising, as well as the absence of Winter Olympic and lower Super Bowl advertising.


27



Non-Operating Expenses

Non-operating expenses increased $5.7 million in the third quarter of 2019 compared to the same period in 2018. This increase was primarily due to a $4.2 million increase in interest expense that was driven by higher average outstanding debt (driven by Recent Acquisitions). Total average outstanding debt was $3.38 billion for the third quarter of 2019, compared to $3.08 billion in the same period of 2018. The weighted average interest rate on total outstanding debt was 5.91% for the third quarter of 2019, compared to 5.89% in the same period of 2018.

In the first nine months of 2019, non-operating expenses decreased $15.7 million compared to the same period in
2018. This decrease was primarily due to the absence of $13.2 million acquisition-related costs which were classified as non-operating in 2018 but are now classified as a corporate operating cost, and a $7.3 million gain recognized as a result of a gain from the acquisition of Justice and Quest multicast networks recognized in the second quarter of 2019. Partially offsetting this decrease was a decrease in equity income of $4.2 million. Interest expense was approximately $145.0 million in each period. The average debt outstanding was $3.08 billion for the first nine months of 2019, compared to $3.13 billion in the same period of 2018. The weighted average interest rate on total outstanding debt was 6.00% for the first nine months of 2019, compared to 5.87% in the same period of 2018.

Income Tax Expense

Income tax expense decreased $8.7 million in the third quarter of 2019 compared to the same period in 2018 and decreased $9.2 million in the first nine months of 2019 compared to the same period in 2018. The decreases were primarily due to decreases in net income before tax. Our effective income tax rate was 9.5% for the third quarter of 2019, compared to 12.9% for the third quarter of 2018. The tax rate for the third quarter of 2019 is lower than the comparable rate in 2018 primarily as a result of the release of certain tax reserves due to a state audit settlement and the expiration of a statute of limitations. In addition, we realized discrete tax benefits related to one of the Recent Acquisitions and a previously-disposed business. Our effective income tax rate was 20.7% for the first nine months of 2019, which is comparable to the effective tax rate of 20.5% for the same period of 2018.

Net Income

Income from continuing operations was $48.3 million, or $0.22 per diluted share, in the third quarter of 2019 compared to $92.8 million, or $0.43 per diluted share, during the same period in 2018. For the first nine months of 2019, we reported net income from continuing operations of $202.3 million, or $0.93 per diluted share, compared to $240.5 million, or $1.11 per diluted share, for the same period in 2018. Both income and earnings per share were affected by the factors discussed above.

The weighted average number of diluted common shares outstanding in the third quarter of 2019 and 2018 was 218.3 million and 216.3 million, respectively. The weighted average number of diluted shares outstanding in the first nine months of 2019 and 2018 was 217.8 million and 216.6 million, respectively.
Results from Operations - Non-GAAP Information

Presentation of Non-GAAP information

We use non-GAAP financial performance 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 company performance. Furthermore, the Leadership Development and Compensation Committee of our Board of Directors uses non-GAAP measures such as Adjusted EBITDA, non-GAAP net income, non-GAAP EPS, free cash flow and Adjusted revenues 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 also believe these non-GAAP measures are frequently used by investors, securities analysts and other interested parties in their evaluation of our business and other companies in the broadcast industry.

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 spectrum repacking reimbursements and other, gains on sale of equity method investments, acquisition-related costs, severance costs and certain non-operating expenses (TEGNA foundation donation and pension payment timing related charges). In addition, we have income tax special items associated with the tax impacts related to the Recent Acquisitions (including the 2018 acquisition of KFMB), adjustments related to previously-disposed businesses, and adjustments related to provisional tax impacts of tax reform.

28



We believe that such expenses and gains are not indicative of normal, ongoing operations. While these items may be recurring in nature and should not be disregarded in evaluation of our earnings performance, it is useful to exclude such items when analyzing current results and trends compared to other periods as these items can vary significantly from period to period depending on specific underlying transactions or events that may occur. Therefore, while we may incur or recognize these types of expenses 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 before (1) interest expense, (2) income taxes, (3) equity income (loss) in unconsolidated investments, net, (4) other non-operating items, net, (5) severance expense, (6) acquisition-related costs, (7) spectrum repacking reimbursements and other, (8) depreciation and (9) amortization. We believe these adjustments facilitate company-to-company operating performance comparisons by removing potential differences caused by variations unrelated to operating performance, such as capital structures (interest expense), income taxes, and the age and book appreciation of property/equipment (and related depreciation expense). The most directly comparable GAAP financial measure to Adjusted EBITDA is Net income. 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 alternate to net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. In particular, Adjusted EBITDA is not intended to be a measure of 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 and (2) political revenues. 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 media business.

We also discuss free cash flow, a non-GAAP performance measure. Beginning in the first quarter of 2019 we began using a new methodology to compute free cash flow. The change in methodology was determined to be preferable as it better reflects how the Board of Directors reviews the performance of the business and it more closely aligns to how other companies in the broadcast industry calculate this non-GAAP performance metric. The most directly comparable GAAP financial measure to free cash flow is Net income from continuing operations. Free cash flow is now calculated as non-GAAP Adjusted EBITDA (as defined above), further adjusted by adding back (1) stock-based compensation, (2) non-cash 401(k) company match, (3) syndicated programming amortization, (4) pension reimbursements, (5) dividends received from equity method investments and (6) reimbursements from spectrum repacking. This is further adjusted by deducting payments made for (1) syndicated programming, (2) pension, (3) interest, (4) taxes (net of refunds) and (5) purchases of property and equipment. Like Adjusted EBITDA, free cash flow is not intended to be a measure of cash flow available for management’s discretionary use.


29



Discussion of Special Charges Affecting Reported Results

Our results included the following items we consider “special items” that while at times recurring, can vary significantly from period to period:

Quarter and first nine months ended September 30, 2019:

Severance expense which include payroll and related benefit costs at our stations and corporate headquarters;
Acquisition-related costs associated with business acquisitions;
Spectrum repacking reimbursements and other consisting of a gain recognized on the sale of real estate, gains due to reimbursements from the FCC for required spectrum repacking, and a one-time contract termination and incremental transition costs related to bringing our national sales organization in-house;
Gains recognized in our equity income in unconsolidated investments as a result of the sale of two investments;
Other non-operating item related to gains from equity method investments and a charitable donation made to the TEGNA Foundation; and
Realization of discrete tax benefits related to one of the Recent Acquisitions and a previously-disposed business.

Quarter and first nine months ended September 30, 2018:

Severance expense which include payroll and related benefit costs due to restructuring at our DMS business and at our corporate headquarters;
Spectrum repacking reimbursements and other primarily consists of a gain recognized on the sale of real estate in Houston and gains due to reimbursements from the FCC for required spectrum repacking. These gains are partially offset by an early lease termination payment;
Other non-operating items associated with business acquisition-related costs, a deferred tax provision impact related
to our acquisition of KFMB, and a charitable donation made to the TEGNA Foundation;
Pension lump-sum payment charge as a result of payments that were made to certain SERP plan participants in early 2018;
A gain recognized in our equity income in unconsolidated investments, related to our share of CareerBuilder’s gain on the
sale of their EMSI business; and
Deferred tax benefits related to adjusting the provisional tax impacts of tax reform (enacted in December 2017) and a partial capital loss valuation allowance release, both resulting from the completion of our 2017 federal income tax return in the third quarter of 2018.

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):
 
 
 
 
Special Items
 
 
 
 
 
 
 
 
Quarter ended September 30, 2019
 
GAAP
measure
 
Acquisition-related costs
 
Spectrum repacking reimbursements and other
 
Special tax benefits
 
Non-GAAP measure
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate - General and administrative expenses
 
$
29,792

 
$
(19,973
)
 
$

 
$

 
$
9,819

 


 
 
 


Spectrum repacking reimbursements and other
 
(80
)
 

 
80

 

 

 


 
 
 


Operating expenses
 
445,024

 
(19,973
)
 
80

 

 
425,131

 


 
 
 


Operating income
 
106,833

 
19,973

 
(80
)
 

 
126,726

 


 
 
 


Total non-operating expense
 
(53,408
)
 

 

 

 
(53,408
)
 


 
 
 


Income before income taxes
 
53,425

 
19,973

 
(80
)
 

 
73,318

 


 
 
 


Provision for income taxes
 
5,079

 
3,889

 
(3
)
 
5,992

 
14,957

 


 
 
 


Net income from continuing operations
 
48,346

 
16,084

 
(77
)
 
(5,992
)
 
58,361

 


 
 
 


Net income from continuing operations per share-diluted (a)
 
$
0.22

 
$
0.07

 
$

 
$
(0.03
)
 
$
0.27

 
 
 
 
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) Per share amounts do not sum due to rounding.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

30



 
 
 
 
Special Items
 
 
 
 
 
 
Quarter ended September 30, 2018
 
GAAP
measure
 
Severance expense
 
Spectrum repacking reimbursements and other
 
Pension payment timing related charge
 
Special tax benefits
 
Non-GAAP measure
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenues
 
$
306,474

 
$
(931
)
 
$

 
$

 
$

 
$
305,543

 
 
 
 
Business units - Selling, general and administrative expenses
 
78,439

 
(875
)
 

 

 

 
77,564

 
 
 
 
Corporate - General and administrative expenses
 
17,593

 
(5,481
)
 

 

 

 
12,112

 
 
 
 
Spectrum repacking reimbursements and other
 
(3,005
)
 

 
3,005

 

 

 

 
 
 

Operating expenses
 
384,692

 
(7,287
)
 
3,005

 

 

 
380,410

 
 
 

Operating income
 
154,284

 
7,287

 
(3,005
)
 

 

 
158,566

 
 
 

Other non-operating items, net
 
(214
)
 

 

 
1,198

 

 
984

 
 
 

Total non-operating expense
 
(47,669
)
 

 

 
1,198

 

 
(46,471
)
 
 
 

Income before income taxes
 
106,615

 
7,287

 
(3,005
)
 
1,198

 

 
112,095

 
 
 

Provision for income taxes
 
13,789

 
1,714

 
(800
)
 
301

 
9,657

 
24,661

 
 
 

Net income from continuing operations
 
92,826

 
5,573

 
(2,205
)
 
897

 
(9,657
)
 
87,434

 
 
 

Net income from continuing operations per share-diluted (a)
 
$
0.43

 
$
0.03

 
$
(0.01
)
 
$

 
$
(0.04
)
 
$
0.40

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) Per share amounts do not sum due to rounding.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Special Items
 
 
Nine months ended September 30, 2019
 
GAAP
measure
 
Severance expense
 
Acquisition-related costs
 
Spectrum repacking reimbursements and other
 
Gains on equity method investments
 
Other non-operating items
 
Special tax benefits
 
Non-GAAP measure
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenues
 
$
873,078

 
$
(875
)
 
$

 
$

 
$

 
$

 
$

 
$
872,203

Business units - Selling, general and administrative expenses
 
223,845

 
(376
)
 

 

 

 

 

 
223,469

Corporate - General and administrative expenses
 
60,363

 
(201
)
 
(29,092
)
 

 

 

 

 
31,070

Spectrum repacking reimbursements and other
 
(11,399
)
 

 

 
11,399

 

 

 

 

Operating expenses
 
1,223,248

 
(1,452
)
 
(29,092
)
 
11,399

 

 

 

 
1,204,103

Operating income
 
382,294

 
1,452

 
29,092

 
(11,399
)
 

 

 

 
401,439

Equity income in unconsolidated investments, net
 
10,922

 

 

 

 
(13,126
)
 

 

 
(2,204
)
Other non-operating items, net
 
6,962

 

 

 

 

 
(6,285
)
 

 
677

Total non-operating expense
 
(127,282
)
 

 

 

 
(13,126
)
 
(6,285
)
 

 
(146,693
)
Income before income taxes
 
255,012

 
1,452

 
29,092

 
(11,399
)
 
(13,126
)
 
(6,285
)
 

 
254,746

Provision for income taxes
 
52,732

 
359

 
5,931

 
(2,850
)
 
(3,169
)
 
(1,574
)
 
5,992

 
57,421

Net income from continuing operations
 
202,280

 
1,093

 
23,161

 
(8,549
)
 
(9,957
)
 
(4,711
)
 
(5,992
)
 
197,325

Net income from continuing operations per share-diluted
 
$
0.93

 
$
0.01

 
$
0.11

 
$
(0.04
)
 
$
(0.05
)
 
$
(0.02
)
 
$
(0.03
)
 
$
0.91

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

31



 
 
 
 
Special Items
 
 
Nine months ended September 30, 2018
 
GAAP
measure
 
Severance expense
 
Spectrum repacking reimbursements and other
 
Gain on equity method investment
 
Other non-operating items
 
Pension payment timing related charges
 
Special tax benefits
 
Non-GAAP measure
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenues
 
$
873,078

 
$
(931
)
 
$

 
$

 
$

 
$

 
$

 
$
872,147

Business units - Selling, general and administrative expenses
 
223,845

 
(875
)
 

 

 

 

 

 
222,970

Corporate - General and administrative expenses
 
41,522

 
(5,481
)
 

 

 

 

 

 
36,041

Spectrum repacking reimbursements and other
 
(9,331
)
 

 
9,331

 

 

 

 

 

Operating expenses
 
1,119,712

 
(7,287
)
 
9,331

 

 

 

 

 
1,121,756

Operating income
 
445,434

 
7,287

 
(9,331
)
 

 

 

 

 
443,390

Equity income (loss) in unconsolidated investments, net
 
15,080

 

 

 
(16,758
)
 

 

 
 
 
(1,678
)
Other non-operating items
 
(13,005
)
 

 

 

 
15,184

 
7,498

 
 
 
9,677

Total non-operating expense
 
(142,980
)
 

 

 
(16,758
)
 
15,184

 
7,498

 

 
(137,056
)
Income before income taxes
 
302,454

 
7,287

 
(9,331
)
 
(16,758
)
 
15,184

 
7,498

 

 
306,334

Provision for income taxes
 
61,929

 
1,714

 
(798
)
 
(4,216
)
 
2,178

 
1,909

 
7,007

 
69,723

Net income from continuing operations
 
240,525

 
5,573

 
(8,533
)
 
(12,542
)
 
13,006

 
5,589

 
(7,007
)
 
236,611

Net income from continuing operations per share-diluted (a)
 
$
1.11

 
$
0.03

 
$
(0.04
)
 
$
(0.06
)
 
$
0.06

 
$
0.03

 
$
(0.03
)
 
$
1.09

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) Per share amounts do not sum due to rounding.
 
 
 
 
 
 
 
 
 
 
 
 

32



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):
 
Quarter ended Sept. 30,
 
Nine months ended Sept. 30,
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
 
 
 
 
 
 
 
 
 
 
 
 
Advertising & Marketing Services
$
297,333

 
$
264,852

 
12
%
 
$
851,304

 
$
829,638

 
3
%
Subscription
240,735

 
207,463

 
16
%
 
718,472

 
622,382

 
15
%
Political
8,131

 
60,410

 
(87
%)
 
14,064

 
93,725

 
(85
%)
Other
5,658

 
6,251

 
(9
%)
 
21,702

 
19,401

 
12
%
Total revenues (GAAP basis)
$
551,857

 
$
538,976

 
2
%
 
$
1,605,542

 
$
1,565,146

 
3
%
Factors impacting comparisons:
 
 
 
 
 
 
 
 
 
 
 
Estimated net incremental Olympic and Super Bowl
$

 
$

 
***

 
$
(8,000
)
 
$
(24,000
)
 
(67
%)
     Political
(8,131
)
 
(60,410
)
 
(87
%)
 
(14,064
)
 
(93,725
)
 
(85
%)
Total company adjusted revenues (non-GAAP basis)
$
543,726

 
$
478,566

 
14
%
 
$
1,583,478

 
$
1,447,421

 
9
%
 
 
 
 
 
 
 
 
 
 
 
 
*** Not meaningful
 
 
 
 
 
 
 
 
 
 
 

Excluding the impacts of estimated net incremental Olympic and Super Bowl and Political advertising revenue, total company adjusted revenues on a comparable basis increased $65.2 million in the third quarter 2019 and $136.1 million in the first nine months of 2019 compared to the same periods in 2018. This increase was primarily attributable to the Recent Acquisitions and increases in subscription revenue.

Adjusted EBITDA - Non-GAAP

Reconciliations of Adjusted EBITDA to net income presented in accordance with GAAP on our Consolidated Statements of Income are presented below (in thousands):
 
Quarter ended Sept. 30,
 
Nine months ended Sept. 30,
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
 
 
 
 
 
 
 
 
 
 
 
 
Net income from continuing operations (GAAP basis)
$
48,346

 
$
92,826

 
(48
%)
 
$
202,280

 
$
240,525

 
(16
%)
Plus: Provision for income taxes
5,079

 
13,789

 
(63
%)
 
52,732

 
61,929

 
(15
%)
Plus: Interest expense
52,454

 
48,226

 
9
%
 
145,166

 
145,055

 
%
Plus (Less): Equity loss (income) in unconsolidated investments, net
491

 
(771
)
 
***

 
(10,922
)
 
(15,080
)
 
(28
%)
Plus: Other non-operating items, net
463

 
214

 
***

 
(6,962
)
 
13,005

 
***

Operating income (GAAP basis)
106,833

 
154,284

 
(31
%)
 
382,294

 
445,434

 
(14
%)
Plus: Severance expense

 
7,287

 
***

 
1,452

 
7,287

 
(80
%)
Plus: Acquisition-related costs
19,973

 

 
***

 
29,092

 

 
***

Less: Spectrum repacking reimbursements and other
(80
)
 
(3,005
)
 
(97
%)
 
(11,399
)
 
(9,331
)
 
22
%
Adjusted operating income (non-GAAP basis)
126,726

 
158,566

 
(20
%)
 
401,439

 
443,390

 
(9
%)
Plus: Depreciation
15,381

 
14,262

 
8
%
 
44,831

 
41,594

 
8
%
Plus: Amortization of intangible assets
15,018

 
8,047

 
87
%
 
32,530

 
22,791

 
43
%
Adjusted EBITDA (non-GAAP basis)
157,125

 
180,875

 
(13
%)
 
478,800

 
507,775

 
(6
%)
Corporate - General and administrative expense (non-GAAP basis)
9,819

 
12,112

 
(19
%)
 
31,070

 
36,041

 
(14
%)
Adjusted EBITDA, excluding Corporate (non-GAAP basis)
$
166,944

 
$
192,987

 
(13
%)
 
$
509,870

 
$
543,816

 
(6
%)
 
 
 
 
 
 
 
 
 
 
 
 
*** Not meaningful
 
 
 
 
 
 
 
 
 
 
 


33



In the third quarter of 2019 Adjusted EBITDA margin was 30% without corporate expense or 28% with corporate expense. For the nine months ended September 30, 2019, Adjusted EBITDA margin was 32% without corporate expense or 30% with corporate expense.
 
Our total Adjusted EBITDA decreased $23.8 million in the third quarter of 2019 compared to 2018. Our Recent Acquisitions added Adjusted EBITDA of $14.4 million. Excluding Recent Acquisitions, Adjusted EBITDA was lower by $38.2 million. This decrease was primarily driven by the operational factors discussed above within the revenue and operating expense fluctuation explanation sections, most notably, the expected decline of political revenue.

For the first nine months of 2019, Adjusted EBITDA decreased $29.0 million primarily due to the same factors affecting the third quarter. Our Recent Acquisitions added Adjusted EBITDA of $19.7 million. Excluding Recent Acquisitions, Adjusted EBITDA was lower by $48.7 million. This decrease was primarily driven by the operational factors discussed above within the revenue and operating expense fluctuation explanation sections. most notably, the expected decline of political revenue and absence of revenue associated with the Winter Olympics.

Free Cash Flow Reconciliation

Our free cash flow, a non-GAAP performance measure, was $265.4 million in the first nine months of 2019 compared to $313.0 million for the same period in 2018.

Reconciliations from “Net income” to “Free cash flow” follow (in thousands):
 
Nine months ended Sept. 30,
 
2019
 
2018
 
Change
 
 
 
 
 
 
Net income from continuing operations (GAAP basis)
$
202,280

 
$
240,525

 
(16
%)
Plus: Provision for income taxes
52,732

 
61,929

 
(15
%)
Plus: Interest expense
145,166

 
145,055

 
%
Plus: Acquisition-related costs
29,092

 

 
***

Plus: Depreciation
44,831

 
41,594

 
8
%
Plus: Amortization
32,530

 
22,791

 
43
%
Plus: Stock-based compensation
13,887

 
12,292

 
13
%
Plus: Company stock 401(k) contribution
6,486

 

 
***

Plus: Syndicated programming amortization
42,510

 
40,235

 
6
%
Plus: Pension reimbursements

 
29,240

 
***

Plus: Severance expense
1,452

 
7,287

 
(80
%)
Plus: Cash dividend from equity investments for return on capital
751

 
11,295

 
(93
%)
Plus: Cash reimbursements from spectrum repacking
13,975

 
5,057

 
***

(Less) Plus: Other non-operating items, net
(6,962
)
 
13,005

 
***

Less: Tax payments, net of refunds
(73,457
)
 
(51,325
)
 
43
%
Less: Spectrum repacking reimbursements and other
(11,399
)
 
(9,331
)
 
22
%
Less: Equity income in unconsolidated investments, net
(10,922
)
 
(15,080
)
 
(28
%)
Less: Syndicated programming payments
(40,038
)
 
(40,523
)
 
(1
%)
Less: Pension contributions
(8,407
)
 
(44,175
)
 
(81
%)
Less: Interest payments
(117,913
)
 
(121,616
)
 
(3
%)
Less: Purchases of property and equipment
(51,231
)
 
(35,281
)
 
45
%
Free cash flow (non-GAAP basis)
$
265,363

 
$
312,974

 
(15
%)
 
 
 
 
 
 
*** Not meaningful
 
 
 
 
 

Liquidity, Capital Resources and Cash Flows

Our 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 expense, dividends, investments in strategic initiatives (including acquisitions) 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, borrowing under our revolving credit agreement and funds raised in the capital markets.

34




As of September 30, 2019, our total debt was $4.18 billion, cash and cash equivalents totaled $9.2 million, and we had unused borrowing capacity of $1.22 billion under our revolving credit facility. As of September 30, 2019, approximately $3.79 billion, or 90%, of our debt has a fixed interest rate.

Our operations have historically generated strong positive cash flow which, along with availability under our existing revolving credit facility and the ability to raise funds in capital markets, provides adequate liquidity to invest in organic and strategic growth opportunities, as well as acquisitions such as our Recent Acquisitions of the Gray Stations, Justice/Quest multicast networks, Dispatch Stations and Nexstar Stations. 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 Item 1A. “Risk Factors” in our 2018 Annual Report on Form 10-K for further discussion.

On August 15, 2019, we entered into an amendment of our Amended and Restated Competitive Advance and Revolving Credit Agreement. Under the amended terms, the $1.51 billion of revolving credit commitments and letter of credit commitments
have been extended until August 15, 2024. The amendment increased our permitted total leverage ratio as follows:

Period
Leverage Ratio
5.50 to 1.00
5.25 to 1.00
5.00 to 1.00
4.75 to 1.00
October 1, 2022 and thereafter
4.50 to 1.00

The amendment also increases the amount of unrestricted cash that we are allowed to offset debt by in our leverage ratio calculation to $500.0 million. 

On September 13, 2019, we completed a private placement offering of $1.1 billion aggregate principal amount of unsecured notes bearing an interest rate of 5.00% which are due in September 2029. The net proceeds of $1.08 billion were used to finance the acquisition of the Nexstar Stations and to pay down borrowing under the revolving credit agreement.

On October 15, 2019 we repaid the remaining $320.0 million of our unsecured notes bearing fixed rate interest at 5.125% which had become due. Additionally, on October 18, 2019 we repaid $290.0 million of our $600.0 million unsecured notes bearing fixed interest at 5.125% which are due in July 2020. Both repayments were made by utilizing our revolving credit facility, which had an unused borrowing capacity of $615.0 million following these repayments.

On September 19, 2017, we announced that our Board of Directors authorized a share repurchase program for up to $300 million of our common stock over three years. During the first nine month of 2019, given acquisition investment opportunities, no shares were repurchased and as of September 30, 2019, approximately $279.1 million remained under this program. As a result of our Recent Acquisitions, we have suspended share repurchases under this program.


35



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):
 
Nine months ended Sept. 30,
 
2019
 
2018
 
 
 
 
Balance of cash, cash equivalents and restricted cash beginning of the period
$
135,862

 
$
128,041

 
 
 
 
Operating activities:
 
 
 
    Net income
202,280

 
244,850

    Depreciation, amortization and other non-cash adjustments
75,084

 
54,606

    Pension contributions, net of expense
(5,543
)
 
(39,932
)
    Other, net
(57,236
)
 
73,136

Cash flow from operating activities
214,585

 
332,660

Investing activities:
 
 
 
Payments for acquisitions of businesses, net of cash acquired
(1,507,483
)
 
(328,433
)
All other investing activities
(15,544
)
 
(23,974
)
Cash flow used for investing activities
(1,523,027
)
 
(352,407
)
 
 
 
 
Cash flow provided by (used for) financing activities
1,181,774

 
(84,528
)
Decrease in cash, cash equivalents and restricted cash
(126,668
)
 
(104,275
)
 
 
 
 
Balance of cash, cash equivalents and restricted cash end of the period
$
9,194

 
$
23,766


Operating Activities - Cash flow from operating activities was $214.6 million for the nine months ended September 30, 2019, compared to $332.7 million for the same period in 2018. The $118.1 million net decrease in cash flow from operating activities was primarily due to a decrease in political revenue, for which customers pre-pay, the absence of the Olympics in 2018 and lower Super Bowl related revenue, and a decline in certain payables and accruals (due to refunds paid to certain Premion customers and the payment of legal fees related to the DOJ matter described in Note 12 of the condensed consolidated financial statements). Also contributing to the decline was an increase in tax payments of $22.1 million. These amounts were partially offset by a decline in pension payments of $35.6 million.

Investing Activities - Cash flow used for investing activities was $1.52 billion for the nine months ended September 30, 2019, compared to $352.4 million for the same period 2018. The increase of $1,170.6 million was primarily due an increase in the amount of cash used for Recent Acquisitions. In 2019, we used $1,507.5 million for the acquisition of Gray Stations, Justice/Quest multicast networks, Dispatch and Nexstar stations as compared to the 2018 acquisition of KFMB for $328.4 million.

Financing Activities - Cash flow provided by financing activities was $1.18 billion for the nine months ended September 30, 2019, compared to cash flow used for financing activities of $84.5 million for the same period in 2018. The change was primarily due to the issuance of $1.1 billion of Senior Notes in 2019 and the activity on our revolving credit facility. In the first nine months of 2019 we had net borrowings of $223.0 million on the revolver as compared to the same period in 2018 when we had net borrowings of $72.0 million. The borrowings in 2019 were primarily used to finance the Recent Acquisitions while the 2018 borrowings were primarily used to finance the acquisition of KFMB.
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 2018 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

36



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 2018 Annual Report on Form 10-K: “Item 7A. Quantitative and Qualitative Disclosures about Market Risk.” Our exposures to market risk have not changed materially since December 31, 2018.

As of September 30, 2019, approximately $3.79 billion of our debt has a fixed interest rate (which represents approximately 90% of our total principal debt obligation). Our remaining debt obligation of $423 million has floating interest rates. 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 annual interest expense of approximately $2.1 million. The fair value of our total debt, based on bid and ask quotes for the related debt, totaled $4.32 billion as of September 30, 2019 and $2.96 billion as of December 31, 2018.

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 Companys disclosure controls and procedures as of September 30, 2019. 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, 2019, 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.

On September 19, 2019 we completed our acquisition from Nexstar Media Group of 11 local television stations in eight markets (the Nexstar Stations). In addition, on August 8, 2019 we completed our acquisition of Dispatch Broadcast Group’s two top-rated television stations and two radio stations (the Dispatch Stations). On June 18, 2019, we completed the acquisition of the remaining approximately 85% interest that we did not previously own in the multicast networks Justice Network and Quest (the Justice and Quest Networks) from Cooper Media. See Note 2 to the condensed consolidated financial statements for additional information on these three acquisitions. On a combined basis, the Nexstar Stations, Dispatch Stations and Justice and Quest Networks constitute approximately 23% of the Company’s total assets, 3% of total liabilities, and less than 7% of revenues for the three and nine months ended September 30, 2019.

We are in the process of evaluating the existing controls and procedures of these acquired businesses and integrating the acquired businesses into our system of internal control over financial reporting. In accordance with SEC Staff guidance permitting a company to exclude an acquired business from management’s assessment of the effectiveness of internal control over financial reporting for the year in which the acquisition is completed, we have excluded from the above assessment of the Company’s disclosure controls and procedures the disclosure controls and procedures of these acquired businesses that are subsumed by internal control over financial reporting.

Other than the implementation of controls at the acquired Nexstar and Dispatch Stations and Justice and Quest Networks businesses, 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.



37



PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 12 to the condensed consolidated financial statements for information regarding our legal proceedings.

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 2018 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. We do not believe that there have been any material changes from the risk factors previously disclosed in our 2018 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On September 19, 2017, we announced that our Board of Directors authorized a share repurchase program for up to $300.0 million of our common stock over three years. During the third quarter of 2019, no shares were repurchased and as of September 30, 2019, approximately $279.1 million remained under this program. As a result of our Recent Acquisitions, we have suspended share repurchases under this program.

Item 3. Defaults Upon Senior Securities

None.
Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

38



Item 6. Exhibits
Exhibit Number
 
Description
 
Location
 
 
 
 
 
3-1
 
Third Restated Certificate of Incorporation of TEGNA Inc.
 
 
 
 
 
 
3-1-1
 
Amendment to Third Restated Certificate of Incorporation of TEGNA Inc.
 
 
 
 
 
 
3-1-2
 
Amendment to Third Restated Certificate of Incorporation of TEGNA Inc.
 
 
 
 
 
 
3-2
 
By-laws, as amended through July 24, 2018.
 
 
 
 
 
 
4-1
 
Thirteenth Supplemental Indenture, dated as of September 13, 2019, between TEGNA Inc. and U.S. Bank National Association, as Trustee.
 
 
 
 
 
 
10-1
 
Twelfth Amendment, dated as of August 15, 2019, to the Amended and Restated Competitive Advance and Revolving Credit Agreement, dated as of December 13, 2004 and effective as of January 5, 2015, as amended and restated as of August 5, 2013, as further amended as of June 29, 2015, as further amended as of August 1, 2017, and as further amended as of June 21, 2018, 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.
 
 
 
 
 
 
31-1
 
Rule 13a-14(a) Certification of CEO.
 
 
 
 
 
 
31-2
 
Rule 13a-14(a) Certification of CFO.
 
 
 
 
 
 
32-1
 
Section 1350 Certification of CEO.
 
 
 
 
 
 
32-2
 
Section 1350 Certification of CFO.
 
 
 
 
 
 
101.INS
 
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
 
Attached.
 
 
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document.
 
Attached.
 
 
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
 
Attached.
 
 
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Document.
 
Attached.
 
 
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.
 
Attached.
 
 
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.
 
Attached.
 
 
 
 
 
104
 
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
 
Attached.
 
 
 
 
 

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.

* Asterisks identify management contracts and compensatory plans or arrangements.





39



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.

TEGNA INC.
 
 
 
 
 
Senior Vice President and Controller
 
(on behalf of Registrant and as Chief Accounting Officer)


40

Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing    Date    Other Filings
8/15/24
10/1/22
9/30/22
10/1/21
9/30/21
4/1/21
3/31/21
10/1/20
9/30/20
Filed on:11/7/198-K
10/31/19
10/18/19
10/15/19
10/8/19
For Period end:9/30/19SC 13D
9/19/198-K
9/13/198-K
9/9/198-K
8/15/198-K
8/8/19
7/1/19
6/30/1910-Q
6/18/19
6/17/19
4/3/19
1/2/19
1/1/193
12/31/1810-K,  11-K,  4
12/13/18
9/30/1810-Q
7/30/18
7/24/188-K,  8-K/A
6/30/1810-Q
6/21/188-K
3/23/18
1/1/18
12/31/1710-K,  11-K,  4
9/19/178-K
8/1/178-K
6/29/153,  4,  8-K
1/5/154
8/5/13
12/13/044,  8-K
 List all Filings 


7 Subsequent Filings that Reference this Filing

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 2/29/24  TEGNA Inc.                        10-K       12/31/23  100:11M
 5/01/23  TEGNA Inc.                        10-K/A     12/31/22   12:2.4M
 2/27/23  TEGNA Inc.                        10-K       12/31/22   94:11M
 5/02/22  TEGNA Inc.                        10-K/A     12/31/21   14:2.6M                                   Donnelley … Solutions/FA
 3/01/22  TEGNA Inc.                        10-K       12/31/21   96:11M
 4/30/21  TEGNA Inc.                        S-3ASR      4/30/21    5:382K                                   Donnelley … Solutions/FA
 3/01/21  TEGNA Inc.                        10-K       12/31/20   99:13M
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Filing Submission 0000039899-19-000042   –   Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

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