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Noncontrolling Interest
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(Exact
name of registrant as specified in its charter)
___________________________
iDelaware
i16-0442930
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
i8350 Broad Street, Suite 2000,
iTysons,
iVirginia
i22102-5151
(Address
of principal executive offices)
(Zip Code)
i(703)
i873-6600
(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
iCommon
Stock
iTGNA
iNew 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. iYes☒ 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). iYes☒ 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.
iLarge 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 ☐ No i☒
The total number of shares of the registrant’s Common Stock, $1 par value, outstanding as of July 31, 2022 was i223,110,797.
The
accompanying notes are an integral part of these condensed consolidated financial statements.
9
TEGNA Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – iAccounting
policies
iBasis 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, 2021.
iThe 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. We use the best information available in developing significant estimates inherent in our financial statements. Actual results could differ from these estimates, and these differences resulting from changes in facts and circumstances could be material. Significant estimates include, but are not limited to, evaluation of goodwill and other intangible assets for impairment, fair value measurements, post-retirement benefit plans, income taxes including deferred taxes, and contingencies.iThe condensed consolidated financial statements
include the accounts of subsidiaries we control. 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 in unconsolidated investments, net” in the Consolidated Statements of Income.
We operate iione/
operating and reportable segment, which primarily consists of our i64 television stations and itwo radio stations operating in i51
markets, providing 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.
iMerger Agreement: On February 22, 2022, we entered into an Agreement and Plan
of Merger (as amended, the Merger Agreement), with Teton Parent Corp., a newly formed Delaware corporation (Parent), Teton Merger Corp., a newly formed Delaware corporation and an indirect wholly owned subsidiary of Parent (Merger Sub), and solely for purposes of certain provisions specified therein, other subsidiaries of Parent, certain affiliates of Standard General L.P., a Delaware limited partnership (Standard General) and CMG Media Corporation, a Delaware corporation (CMG), and certain of its subsidiaries. Parent, Merger Sub, the other subsidiaries of Parent, those affiliates of Standard General, CMG and those subsidiaries
of CMG, are collectively, referred to as the “Parent Restructuring Entities.”
The Merger Agreement provides, among other things and subject to the terms and conditions set forth therein, that Merger Sub will be merged with and into TEGNA (the Merger), with TEGNA continuing as the surviving corporation and as an indirect wholly owned subsidiary of Parent. The Merger Agreement provides that each share of common stock, par value $i1.00 per share, TEGNA (the Common Stock) outstanding immediately
prior to the effective time of the Merger (the Effective Time), other than certain excluded shares, will at the Effective Time automatically be converted into the right to receive (i) $i24.00 per share of Common Stock in cash, without interest, plus (ii) additional amounts in cash, without interest, if the Merger does not close within a certain period of time after the date of the Merger Agreement. TEGNA shareholders will receive additional cash consideration in the form of a “ticking fee” of $i0.00167
per share per day (or $i0.05 per month) if the closing occurs between the 9- and 12-month anniversary of signing, increasing to $i0.0025
per share per day (or $i0.075 per month) if the closing occurs between the 12- and 13-month anniversary of signing, $i0.00333
per share per day (or $i0.10 per month) if the closing occurs between the 13- and 14-month anniversary of signing, and $i0.00417
per share per day (or $i0.125 per month) if the closing occurs on or after the 14-month anniversary of signing.
The Merger Agreement contains certain termination rights and provides that, upon termination of the Merger Agreement under certain specified circumstances, TEGNA will be required to pay Parent a termination fee of $i163.0
million, and Parent will be required to pay TEGNA a termination fee of either $i136.0 million or $i272.0 million.
TEGNA
has made customary representations, warranties and covenants in the Merger Agreement. If the Merger is consummated, the Common Stock will be delisted from the New York Stock Exchange and deregistered under the Securities Exchange Act of 1934.
On March 10, 2022, TEGNA, Parent, Merger Sub, and, solely for purposes of certain provisions specified therein, the other Parent Restructuring Entities, entered into an amendment to the Merger Agreement (the Amendment). The Amendment provides, among other things and subject to the terms and conditions set forth therein, that certain regulatory efforts covenants will apply with respect to certain station transfers from Parent or an affiliate of Parent to CMG or an affiliate of CMG that are contemplated to be consummated as of immediately following the Effective Time.
10
On
May 17, 2022 the stockholders of TEGNA voted to adopt the Merger Agreement.
The Merger is subject to the satisfaction of customary closing conditions, including receipt of applicable regulatory approvals, and is expected to close in the second half of 2022.
i
Accounting guidance adopted in 2022: We did not adopt any newaccounting
guidance in 2022 that had a material impact on our consolidated financial statements or disclosures.
New accounting guidance not yet adopted: There is currently no pending accounting guidance that we expect to have a material impact on our consolidated financial statements or disclosures.
iTrade
receivables and allowances for doubtful accounts: Trade receivables are recorded at invoiced amounts and generally do not bear interest. The allowance for doubtful accounts reflects our estimate of credit exposure, determined principally on the basis of our collection experience, aging of our receivables and any specific reserves needed for certain customers based on their credit risk. Our allowance also takes into account expected future trends which may impact our customers’ ability to pay, such as economic growth (or declines), unemployment and demand for our products and services. We monitor the credit quality of our customers and their ability to pay through the use of analytics and communication with individual customers. As of June 30, 2022, our allowance for doubtful accounts was $i5.6
million as compared to $i4.4 million as of December 31, 2021.
iRedeemable
Noncontrolling interest: Our Premion business operates an advertising network for over-the-top (OTT) streaming and connected television platforms. In March 2020, we sold a minority interest in Premion to an affiliate of Gray Television (Gray) and entered into a i3 year commercial reselling agreement with the affiliate. Gray’s investment allows it to sell its interest to Premion if there is a change in control of TEGNA or if the existing commercial agreement terminates. Since redemption of the minority ownership interest is outside our control, Gray’s equity interest is presented outside of the Equity
section on the Condensed Consolidated Balance Sheet in the caption “Redeemable noncontrolling interest.”
iTreasury Stock: We account for treasury stock under the cost method. When treasury stock is re-issued at a price higher than its cost, the difference is recorded as a component of additional paid-in-capital (APIC) in our Condensed Consolidated Balance Sheets. When treasury stock is re-issued at a price lower than its cost, the difference is recorded as a component of APIC to the extent that there are previously recorded
gains to offset the losses. If there are no treasury stock gains in APIC, the losses upon re-issuance of treasury stock are recorded as a reduction of retained earnings in our Condensed Consolidated Balance Sheets.
i
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) 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; 2) advertising & marketing services revenues, which include local and national non-political television advertising, digital marketing services (including Premion), advertising on the stations’ websites, tablet and mobile products, and OTT apps; 3) political advertising revenues, which are driven by even-year election cycles at the local and
national level (e.g. 2022, 2020 etc.) and particularly in the second half of those years; and 4) other services, such as production of programming, tower rentals and distribution of our local news content.
i
Revenue earned by these sources in the second quarter and first six months of 2022 and 2021 are shown below (amounts in thousands):
The following table displays goodwill, indefinite-lived intangible assets, and amortizable intangible
assets as of June 30, 2022 and December 31, 2021 (in thousands):
Television and radio station FCC broadcast licenses
i2,123,898
—
i2,123,898
—
Amortizable
intangible assets:
Retransmission agreements
i235,215
(i181,867)
i235,215
(i168,439)
Network
affiliation agreements
i309,503
(i109,430)
i309,503
(i97,195)
Other
i71,465
(i37,295)
i71,465
(i32,959)
Total
indefinite-lived and amortizable intangible assets
$
i2,740,081
$
(i328,592)
$
i2,740,081
$
(i298,593)
/
Our
retransmission agreements and network affiliation agreements are amortized on a straight-line basis over their estimated useful lives. Other intangibles primarily include distribution agreements from our multicast networks acquisition, which are also amortized on a straight-line basis over their useful lives.
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.
Available-for-sale debt security: We previously held a debt security investment issued by MadHive, Inc. (MadHive), that we classified as an available-for-sale investment. Available-for-sale debt securities are required to be carried at their fair value, with unrealized gains and losses (net of income taxes) that are considered
temporary in nature recorded in “Accumulated other comprehensive loss” on the Condensed Consolidated Balance Sheet. In the first quarter of 2022, we amended the terms of the debt security, which became effective on January 3, 2022, in parallel with an amendment and extension of our commercial agreements with MadHive. The amendments modified several items, including the conversion rights as well as the maturity date of the note. In exchange for the convertible debt modifications, we received favorable terms in our renewed commercial agreements with MadHive. As a result of these amendments, in the first quarter of 2022 we recognized a previously unrecognized gain of $i20.8 million.
The gain was recorded in “Other non-operating items, net” within our Consolidated Statement of Income. The debt matured in June 2022 at which time the principal balance of $i3.0 million plus accrued interest was paid to us. The $i3.0 million
principal balance was classified as “Proceeds from investments” within our Consolidated Statement of Cash Flow”. See Note 9 for additional information regarding our related party transactions with MadHive.
12
Other equity investments: Represents 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 first quarter of 2022, we recorded a $i2.5 million
impairment charge, in “Other non-operating items, net” within our Consolidated Statement of Income, due to the decline in the fair value of one of our investments.
Deferred debt issuance costs: These costs consist of amounts paid to lenders related to our revolving credit facility. Debt issuance costs paid for our term debt and unsecured notes are accounted for as a reduction in the debt obligation.
Long-term contract assets: These amounts primarily consist of a $i15.0 million
asset related to a long-term services agreement for IT security and a $i5.2 million asset representing the long-term portion of a contract asset that was recognized as a result of the $i20.8 million
gain discussed above related to favorable rates obtained on recent commercial agreements with Madhive. This gain resulted in a contract asset which was recognized in January 2022 and is being amortized over itwo years (through December 2023). See Note 9 for additional details.
NOTE 4 – iLong-term
debt
i
Our long-term debt is summarized below (in thousands):
Borrowings under revolving credit agreement expiring August 2024
$
i—
$
i166,000
Unsecured
notes bearing fixed rate interest at i4.75% due March 2026
i550,000
i550,000
Unsecured
notes bearing fixed rate interest at i7.75% due June 2027
i200,000
i200,000
Unsecured
notes bearing fixed rate interest at i7.25% due September 2027
i240,000
i240,000
Unsecured
notes bearing fixed rate interest at i4.625% due March 2028
i1,000,000
i1,000,000
Unsecured
notes bearing fixed rate interest at i5.00% due September 2029
i1,100,000
i1,100,000
Total
principal long-term debt
i3,090,000
i3,256,000
Debt
issuance costs
(i29,194)
(i31,378)
Unamortized
premiums
i6,802
i7,348
Total
long-term debt
$
i3,067,608
$
i3,231,970
/
As
of June 30, 2022, cash and cash equivalents totaled $i200.8 million and we had unused borrowing capacity of $i1.49
billion under our $i1.51 billion revolving credit facility, which expires in August 2024. We were in compliance with all covenants, including the leverage ratio (our one financial covenant) contained in our debt agreements and revolving credit facility. We believe, based on our current financial forecasts and trends, that we will remain compliant with all covenants for the foreseeable future.
NOTE
5 – iRetirement plans
We have various defined benefit retirement plans. Our principal defined benefit pension plan is the TEGNA Retirement Plan (TRP). The disclosure table below primarily 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 June 30, 2022, were $i60.8 million,
of which $i6.0 million is recorded as a current obligation within accrued liabilities on the Condensed Consolidated Balance Sheet.
i
Pension
costs (income), which primarily include costs for the qualified TRP and the non-qualified SERP, are presented in the following table (in thousands):
Expense
(income) from company-sponsored retirement plans
$
i475
$
(i3,435)
$
i850
$
(i6,910)
/
13
Benefits
no longer accrue for substantially all TRP and SERP participants as a result of amendments to the plans in 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 six months ended June 30, 2022 and 2021, we did iino/t
make any cash contributions to the TRP. We made benefit payments to participants of the SERP of $i1.9 million and $i1.8 million
during the six months ended June 30, 2022 and 2021, respectively. Based on actuarial projections and funding levels, we do not expect to make any cash payments to the TRP in 2022 (as none are required based on our current funding levels). We expect to make additional cash payments of $i3.6 million
to our SERP participants during the remainder of 2022.
NOTE 6 – iAccumulated 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):
Reclassifications
from AOCL to the Consolidated Statements of Income are comprised of recognition of a realized gain on an available-for-sale investment as well as pension and other post-retirement components. Pension and other post retirement reclassifications are related to the amortizations of prior service costs and actuarial losses. iAmounts reclassified out of AOCL are summarized below (in thousands):
Net
income attributable to the noncontrolling interest
(i371)
(i227)
(i424)
(i442)
Adjustment
of redeemable noncontrolling interest to redemption value
i36
(i76)
(i212)
(i148)
Earnings
available to common shareholders
$
ii131,605/
$
ii106,551/
$
ii265,591/
$
ii219,096/
Weighted
average number of common shares outstanding - basic
i223,675
i221,522
i223,197
i221,064
Effect
of dilutive securities:
Restricted stock units
i466
i718
i393
i564
Performance
shares
i348
i265
i277
i224
Stock
options
i—
i1
i—
i3
Weighted
average number of common shares outstanding - diluted
i224,489
i222,506
i223,867
i221,855
Earnings
per share - basic
$
i0.59
$
i0.48
$
i1.19
$
i0.99
Earnings
per share - diluted
$
i0.59
$
i0.48
$
i1.19
$
i0.99
/
Our
calculation of diluted earnings per share includes the dilutive effects for the assumed vesting of outstanding restricted stock units and performance shares.
NOTE 8 – iFair value measurement
We measure and record certain assets and liabilities at fair value in the accompanying condensed consolidated financial statements. 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 first quarter of 2022, we recorded a $i2.5 million
impairment charge, in “Other non-operating items, net” within our Consolidated Statement of Income, due to the decline in the fair value of one of our investments. The fair value was determined using a market approach which was based on significant inputs not observable in the market, and thus represented a Level 3 fair value measurement. We also hold other financial instruments, including cash and cash equivalents, receivables, accounts
15
payable and debt. The carrying amounts for cash and cash equivalents, receivables and accounts payable approximated their fair values. The fair value of our total debt, based on the bid and ask quotes for the related debt (Level 2), totaled $i3.00
billion at June 30, 2022, and $i3.40 billion at December 31, 2021.
NOTE 9 – iOther
matters
Litigation
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. We received a Civil Investigative Demand (CID) in connection with the DOJ’s investigation. On November 13 and December 13, 2018, the DOJ and iseven
other broadcasters settled a DOJ complaint alleging the exchange of competitively sensitive information in the broadcast television industry. In June 2019, we and ifour other broadcasters entered into a substantially identical agreement with DOJ, which was entered by the court on December 3, 2019. 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. The costs of compliance have not been material, nor do we expect future compliance costs 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 television 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 isixteen
of the original complaints, the amended complaint did not name TEGNA as a defendant. After TEGNA and ifour other broadcasters entered into consent decrees with the DOJ 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. On November 6, 2020, the court denied the motion to dismiss. On March 16, 2022, the plaintiffs filed a third amended complaint, which, among other things, added ShareBuilders, Inc., as a named defendant. All defendants except for ShareBuilders have filed their answers to the third amended complaint. ShareBuilders filed a motion to dismiss on April 15, 2022, which is currently pending resolution by the court. 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.
Litigation Relating to the Merger
As
of August 8, 2022, iseven lawsuits have been filed by purported TEGNA stockholders in connection with the Merger. The lawsuits have been filed against TEGNA and the current members of the Board of Directors of TEGNA (the Board of Directors). The complaints generally allege that the preliminary proxy statement filed by TEGNA with the SEC on March 25, 2022 in connection with the Merger contained alleged material misstatements and/or omissions in
violation of federal law. Plaintiffs in the complaints generally seek, among other things, to enjoin TEGNA from consummating the Merger, or in the alternative, rescission of the Merger and/or compensatory damages, as well as attorneys’ fees. As of August 8, 2022, all but ione of those lawsuits have been voluntarily dismissed.
In addition, as of August 8, 2022, ifour
demand letters have been sent to TEGNA in connection with the Merger. The demand letters were each sent on behalf of a purported TEGNA stockholder, and each alleges similar deficiencies in the definitive proxy statement filed by TEGNA with the SEC on April 13, 2022 in connection with the Merger (the “definitive proxy statement”) as those noted in the complaints referenced above.
We believe that the claims asserted in the complaints and letters described above are without merit and no additional disclosures were or are required under applicable law. However, to moot the unmeritorious disclosure claims, to avoid the risks of the actions described above delaying or adversely affecting the Merger and to minimize the costs, risks and uncertainties inherent in litigation, without admitting any liability or wrongdoing, TEGNA voluntarily made supplemental
disclosures to the
definitive proxy statement as described in the Form 8-K filed by TEGNA with the SEC on May 9, 2022. Additional lawsuits arising out of the Merger may also be filed in the future.
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.
16
Related Party Transactions
We
have an equity investment in MadHive which is a related party of TEGNA. In addition to our investment, we also have a commercial agreement with MadHive, under which MadHive supports our Premion business in acquiring over-the-top advertising inventory and delivering corresponding advertising impressions. In the second quarter and first six months of 2022, we incurred expenses of $i29.9 million and $i55.9 million,
respectively, as a result of the commercial agreement with MadHive. In the second quarter and first six months of 2021, we incurred expenses of $i18.5 millionand $i42.4 million,
respectively, as a result of the commercial agreement with MadHive. As of June 30, 2022, and December 31, 2021 we had accounts payable and accrued liabilities associated with the MadHive commercial agreements of $i9.0 million and $i8.9 million,
respectively.
In December 2021, we renewed our itwo existing commercial agreements with MadHive. Simultaneously with the commercial agreement renewals, we also amended the terms of our then outstanding available-for-sale convertible debt security that we held as discussed in Note 3. In exchange for the convertible debt modifications, we received favorable terms in our renewed commercial agreements. We estimated the fair value of our available-for-sale security at December
31, 2021 using a market fair value approach based on the cash we expect to receive upon maturity of the note and the estimated cash savings that the favorable contract terms will provide over the term of the commercial agreements. In January 2022, we recorded an intangible contract asset for $i20.8 million (equal to the estimated cash savings), and are amortizing this asset on a straight-line
basis over the noncancellable term of the commercial agreements of itwo years. This non-cash expense is recorded within “Cost of revenues,” within our Consolidated Statement of Income. The debt matured in June 2022 at which time the principal balance of $i3.0 million
plus accrued interest was paid to us.
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Company Overview
We are an innovative media company serving the greater good of our communities. Across platforms, we tell empowering stories, conduct impactful investigations and deliver innovative marketing services. With 64 television stations
and two 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. We also own leading multicast networks True Crime Network, Twist and Quest. Each television station also has a robust digital presence across online, mobile, connected television and social platforms, reaching consumers on all devices and platforms they use to consume news content. 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, digital 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) 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; 2) advertising & marketing services (AMS) revenues, which include local and national non-political television advertising, digital marketing services (including Premion), and advertising on the stations’ websites, tablet and mobile products and OTT apps; 3) political advertising revenues, which are driven by even year election cycles at the local and national level (e.g. 2022, 2020, etc.) and particularly in the second half of those years; and 4) other services, such as production of programming, tower rentals, and distribution of our local news content.
Merger
Agreement
On February 22, 2022, we entered into the Merger Agreement with Parent, Merger Sub, and solely for purposes of certain provisions specified therein, other subsidiaries of Parent, certain affiliates of Standard General and CMG, and certain of its subsidiaries. We currently expect the transaction, which is subject to regulatory approvals, and other customary closing conditions, to close in the second half of 2022. See Notes 1 and 9 to the condensed consolidated financial statements for further information about the Merger Agreement, the pending Merger and related matters.
We plan
to continue to pay our regular quarterly dividend of $0.095 per share through the closing of the Merger, which is the maximum rate and frequency permitted by the Merger Agreement. As a result of the pending transaction, we suspended share repurchases under our previously announced share repurchase program.
18
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 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, our operating results are subject to significant fluctuations across yearly periods (primarily driven by even-year election cycles). As such, in addition to one year ago comparisons, our management team and Board of Directors also review current period operating results compared to the same period two years ago (e.g., 2022 vs. 2020). We believe this comparison will also provide useful information to investors and therefore, have supplemented our prior year comparison of consolidated results to also include a comparison against the second quarter and six months ended June 30, 2020 results (through operating income).
Our
consolidated results of operations on a GAAP basis were as follows (in thousands, except per share amounts):
Business
units - Selling, general and administrative expenses
99,585
96,949
3
%
85,008
17
%
201,554
186,275
8
%
177,976
13
%
Corporate
- General and administrative expenses
13,612
23,183
(41
%)
28,312
(52
%)
34,932
40,053
(13
%)
50,026
(30
%)
Depreciation
15,534
15,838
(2
%)
16,711
(7
%)
30,839
31,734
(3
%)
33,611
(8
%)
Amortization
of intangible assets
14,999
15,773
(5
%)
17,248
(13
%)
29,999
31,533
(5
%)
33,464
(10
%)
Spectrum
repacking reimbursements and other, net
(105)
(1,475)
(93
%)
(116)
(9
%)
(163)
(2,898)
(94
%)
(7,631)
(98
%)
Total
operating expenses
$
563,860
$
547,386
3
%
$
502,530
12
%
$
1,128,846
$
1,078,507
5
%
$
1,012,181
12
%
Total
operating income
$
221,021
$
185,522
19
%
$
75,097
***
$
430,158
$
381,452
13
%
$
249,635
72
%
Non-operating
expenses
(45,051)
(47,682)
(6
%)
(48,917)
(8
%)
(75,163)
(95,166)
(21
%)
(116,132)
(35
%)
Provision
for income taxes
44,030
30,986
42
%
6,607
***
88,768
66,600
33
%
27,732
***
Net
income
131,940
106,854
23
%
19,573
***
266,227
219,686
21
%
105,771
***
Net
(income) loss attributable to redeemable noncontrolling interest
(371)
(227)
63
%
374
***
(424)
(442)
(4
%)
484
***
Net
income attributable to TEGNA Inc.
$
131,569
$
106,627
23
%
$
19,947
***
$
265,803
$
219,244
21
%
$
106,255
***
Earnings
per share - basic
$
0.59
$
0.48
23
%
$
0.09
***
$
1.19
$
0.99
20
%
$
0.48
***
Earnings
per share - diluted
$
0.59
$
0.48
23
%
$
0.09
***
$
1.19
$
0.99
20
%
$
0.48
***
***
Not meaningful
Revenues
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 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 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
19
holiday season. 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, state 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 in the even year of a two year election cycle, particularly in the fourth quarter of those years.
The following table summarizes the year-over-year changes in our revenue categories (in thousands):
Total revenues increased $52.0 million in the second quarter of 2022 and $99.0 million in the first six months of 2022 compared to the same periods in 2021. The net increases were primarily due to growth in political
revenue ($41.3 million second quarter, $49.8 million first six months) due to contested primaries and the run up to the mid-term elections which will occur in the fourth quarter. Also contributing to the increase was growth in subscription revenue ($14.0 million second quarter, $18.9 million first six months) primarily due to annual rate increases under existing agreements, partially offset by declines in subscribers. Lastly, AMS revenue was down $5.6 million in the second quarter due to softness in certain AMS advertising categories, primarily auto. However, for the first six months of 2022 AMS revenue was up $26.0 million reflecting increased demand for digital advertising (primarily Premion) in the first six months.
2022 vs. 2020
Total
revenues increased $207.3 million in the second quarter and $297.2 million in the first six months of 2022 compared to the same periods in 2020. The increases were primarily due to growth in AMS revenue ($106.2 million second quarter, $165.5 million first six months) reflecting higher demand for advertising (as second quarter of 2020 was significantly impacted by reduced demand due to the then onset of the COVID-19 pandemic). Also contributing was growth in subscription revenue ($65.6 million second quarter, $124.5 million first six months) primarily due to annual rate increases under existing and newly renegotiated retransmission agreements, partially offset by declines in subscribers. In addition, political revenue grew $33.3 million in the second quarter of 2022 and $3.9 million in the first six months of 2022 as compared to 2020.
Cost of revenues
2022
vs. 2021
Cost of revenues increased $23.1 million in the second quarter of 2022 and $39.9 million in the first six months of 2022 compared to the same periods in 2021. The increases were partially due to growth in programming costs ($11.0 million second quarter, $22.4 million first six months) driven by rate increases under existing affiliation agreements. Higher digital expenses ($9.9 million second quarter, $11.7 million first six months) driven by growth in Premion also contributed to the increases.
2022 vs. 2020
Cost of revenues increased $64.9 million in the second quarter of 2022 and $107.0 million in the first six months of 2022 compared to the same period in 2020. The increases were partially due to growth
in programming costs ($31.9 million second quarter, $63.9 million first six months) driven by rate increases under existing and newly renegotiated affiliation agreements and growth in subscription revenue (certain programming costs are linked to such revenues). Higher digital expenses ($22.8 million second quarter, $30.5 million first six months) driven by growth in Premion also contributed to the increase.
20
Business units - Selling, general and administrative expenses
2022 vs. 2021
Business unit selling, general and administrative expenses increased $2.6 million in the second quarter of 2022 and
$15.3 million in the first six months of 2022 compared to the same periods in 2021. The increases were primarily due to higher sales commissions and payroll costs (together, $3.4 million second quarter, $13.6 million first six months) driven by growth in digital revenue.
2022 vs. 2020
Business unit SG&A expenses increased $14.6 million in the second quarter of 2022 and $23.6 million in the first six months of 2022 compared to the same period in 2020. The increases were primarily due to higher sales commissions and payroll costs (together, $10.4 million second quarter, $18.2 million first six months) driven by growth in AMS revenue.
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.
2022 vs. 2021
Corporate general and administrative expenses decreased $9.6 million in the second quarter of 2022 and $5.1 million in the first six months of 2022 compared to the same periods in 2021. The decreases were primarily driven by the absence in 2022 of advisory fees incurred in 2021 related to activism defense ($12.0 million second quarter, $16.6 million first six months). The decreases were partially offset by increases in M&A-related
costs in 2022 ($4.2 million second quarter, $14.4 million first six months) which include costs incurred in support of the regulatory review of the Merger.
2022 vs. 2020
Corporate general and administrative expenses decreased $14.7 million in the second quarter of 2022 and $15.1 million in the first six months of 2022 compared to the same periods in 2020. The decreases were primarily due to the absence in 2022 of advisory fees incurred in 2020 related to activism defense ($15.4 million second quarter, $23.1 million first six months) and M&A due diligence costs ($4.6 million in the first six months). The decreases were partially offset by M&A-related costs in 2022 ($4.2 million second quarter, $14.4 million first six months) which include costs incurred in support of the regulatory review of the Merger.
Depreciation
2022 vs. 2021
Depreciation expense decreased by $0.3 million in the second quarter of 2022 and $0.9 million in the first six months of 2022 compared to the same period in 2021. The decreases were due to certain assets reaching the end of their assumed useful lives.
2022 vs. 2020
Depreciation expense decreased by $1.2 million in the second quarter of 2022 and $2.8 million in the first six months of 2022 compared to the same period in 2020. The decreases were due to certain assets reaching the end of their assumed useful lives.
Amortization of intangible assets
2022
vs. 2021
Amortization expense decreased $0.8 million in the second quarter of 2022 and $1.5 million in the first six months of 2022 compared to the same periods in 2021. The decreases were due to certain assets reaching the end of their assumed useful lives and therefore becoming fully amortized.
21
2022 vs. 2020
Amortization expense decreased $2.2 million in the second quarter of 2022 and $3.5 million in the first six months of 2022 compared to the same periods in 2020. The decreases were due to certain assets reaching the end of their assumed useful lives and therefore
becoming fully amortized.
Spectrum repacking reimbursements and other, net
2022 vs. 2021
Spectrum repacking reimbursements and other net gains were $0.1 million in the second quarter of 2022 compared to net gains of $1.5 million in the same period in 2021 and net gains of $0.2 million in the first six months of 2022 compared to $2.9 million in the same period in 2021. The 2022 activity is related to reimbursements received from the Federal Communications Commission (FCC) for required spectrum repacking. The 2021 activity is primarily related to reimbursements from spectrum repacking ($3.0 million second quarter, $4.4 million first six months), partially offset by a $1.5 million contract
termination fee which impacted both the second quarter and first six months of 2021.
2022 vs. 2020
Spectrum repacking reimbursements and other net gains were $0.1 million in the second quarter of 2022 compared to net gains of $0.1 million in the same period in 2020 and $0.2 million in the first six months of 2022 compared to $7.6 million in the same period in 2020. The 2022 activity consists of the item discussed above. The 2020 activity primarily consists of reimbursements received from the FCC for required spectrum repacking ($2.3 million second quarter, $9.8 million first six months), partially offset by $2.1 million impairment charge due to the retirement of a brand name which impacted both periods.
Operating income
2022
vs. 2021
Operating income increased $35.5 million in the second quarter of 2022 and $48.7 million in the first six months of 2022 compared to the same periods in 2021. The increase was driven by the changes in revenue and expenses discussed above, most notably the increase in political revenue.
2022 vs. 2020
Operating income increased $145.9 million in the second quarter of 2022 and $180.5 million in the first six months of 2022 compared to the same periods in 2020. The increase was driven by the changes in revenue and expenses discussed above, most notably the increases in AMS, political and subscription revenues as well as programming expense.
Non-operating (expense)
income
Non-operating expenses decreased $2.6 million in the second quarter of 2022 compared to the same period in 2021. This decrease was primarily due to a $3.7 million decrease in interest expense driven by lower average outstanding debt partially offset by higher average interest rate. Total average outstanding debt was $3.09 billion for the second quarter of 2022, compared to $3.51 billion in the same period of 2021. The weighted average interest rate on outstanding debt was 5.26% for the second quarter of 2022, compared to 5.07% in the same period of 2021.
In the first six months of 2022, non-operating expenses decreased $20.0 million compared to the same period in 2021. This decrease was primarily due to a $20.8 million gain recognized on our available for sale investment in MadHive (see Note 3 to the condensed
consolidated financial statements). Further, interest expense decreased $6.5 million driven by lower average outstanding debt partially offset by higher average interest rate. The average debt outstanding was $3.14 billion for the first six months of 2022, compared to $3.50 billion in the same period of 2021. The weighted average interest rate on outstanding debt was 5.25% for the first six months of 2022, compared to 5.10% in the same period of 2021.
Provision for income taxes
Income tax expense increased $13.0 million in the second quarter of 2022 compared to the same period in 2021. Income tax expense increased $22.2 million in the first six months of 2022 compared to the same period in 2021. The increases were primarily due to increases in net income before tax. Our effective income tax rate was 25.1% for the second
quarter of 2022, compared to 22.5% for the second quarter of 2021. The tax rate for the second quarter of 2022 is higher than the comparable rate in 2021 primarily due to state tax planning strategies implemented in 2021. Our effective income tax rate was 25.0% for the first six months of 2022, compared to 23.3% for the same period in 2021. The tax rate for the first six months of 2022 is higher than the comparable amount in 2021 primarily due to a valuation allowance recorded on a minority investment and nondeductible M&A-related transaction costs incurred.
22
Net income attributable to TEGNA Inc.
Net income attributable to TEGNA Inc. was $131.6 million, or $0.59
per diluted share, in the second quarter of 2022 compared to $106.6 million, or $0.48 per diluted share, during the same period in 2021. For the first six months of 2022, net income attributable to TEGNA Inc. was $265.8 million, or $1.19 per diluted share, compared to $219.2 million, or $0.99 per diluted share, for the same period in 2021. Both income and earnings per share were affected by the factors discussed above.
The weighted average number of diluted common shares outstanding in the second quarter of 2022 and 2021 were 224.5 million and 222.5 million, respectively. The weighted average number of diluted shares outstanding in the first six months of 2022 and 2021 was 223.9 million and 221.9 million, respectively.
23
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 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 and free cash flow to evaluate management’s performance. Therefore, we believe that each of the non-GAAP measures presented provides useful information to investors and other stakeholders by allowing them to view our business through the eyes of management and our Board of Directors, facilitating comparisons of results across historical periods and focus on the underlying ongoing operating performance of our business. We 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” which are described
in detail below in the section titled “Discussion of Special Charges and Credits Affecting Reported Results.” 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 attributable to TEGNA before (1) net income attributable to redeemable noncontrolling interest, (2) income taxes, (3) interest expense, (4) equity loss in unconsolidated investments, net, (5) other non-operating items, net, (6) M&A-related costs, (7) advisory fees related to activism defense, (8) spectrum repacking reimbursements and other, net, (9) depreciation and (10) 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 and equipment (and related depreciation expense). The most directly comparable GAAP financial measure to Adjusted EBITDA is Net income attributable
to TEGNA. 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 discuss free cash flow, a non-GAAP performance measure that the Board of Directors uses to review the performance of the business. Free cash flow is reviewed by the Board of Directors as
a percentage of revenue over a trailing two-year period (reflecting both an even and odd year reporting period given the political cyclicality of our business). The most directly comparable GAAP financial measure to free cash flow is Net income attributable to TEGNA. Free cash flow is 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) dividends received from equity method investments, (5) reimbursements from spectrum repacking and (6) proceeds from company-owned life insurance policies. 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.
24
Discussion
of Special Charges and Credits 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:
•Spectrum repacking reimbursements and other, net consisting of gains due to reimbursements from the FCC for required spectrum repacking;
•M&A-related costs;
•Other non-operating items consisting of a gain recognized on an available-for-sale investment and an impairment charge related to another
investment; and
•Tax expense associated with establishing a valuation allowance on a deferred tax asset related to an equity method investment.
•Spectrum repacking reimbursements and other, net consisting of gains due to reimbursements from the FCC for required spectrum repacking and a contract termination fee;
•Advisory fees related to activism defense; and
•Tax benefits as a result of state tax planning strategies
implemented during the second quarter of 2021.
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):
Equity
income (loss) in unconsolidated investments, net
(3,926)
—
—
—
(3,926)
Other non-operating items, net
1,854
—
—
—
1,854
Total
non-operating expenses
(95,166)
—
—
—
(95,166)
Income before income taxes
286,286
16,611
(2,898)
—
299,999
Provision
for income taxes
66,600
4,291
(741)
2,797
72,947
Net income attributable to TEGNA Inc.
219,244
12,320
(2,157)
(2,797)
226,610
Net
income per share-diluted (a)
$
0.99
$
0.06
$
(0.01)
$
(0.01)
$
1.02
(a)
Per share amounts do not sum due to rounding.
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):
In the second quarter of 2022 Adjusted EBITDA margin was 34% without corporate expense or 33% with corporate expense, compared to second quarter of 2021 Adjusted EBITDA margin of 33% without corporate expense or 31% with corporate expense. For the six months ended June 30, 2022, Adjusted EBITDA margin was 34% without corporate expense or 32% with corporate expense, compared to six months ended June 30, 2021 Adjusted EBITDA of 33% without corporate
expense or 31% with corporate
27
expense. These margin increases were primarily driven by the operational factors discussed above within the revenue and operating expense fluctuation explanation sections, most notably, the increase in political revenue due to the run up to the mid-term elections and subscription revenue from annual rate increases under existing and newly renegotiated retransmission agreements.
Free Cash Flow Reconciliation
Reconciliation from “Net income” to “Free cash flow” follow (in thousands):
Net income attributable to TEGNA Inc. (GAAP basis)
$
1,119,281
$
834,323
Plus: Provision for income taxes
350,810
262,662
Plus:
Interest expense
373,677
416,146
Plus: M&A-related costs
18,184
26,225
Plus: Depreciation
128,949
129,689
Plus: Amortization
127,236
131,815
Plus: Stock-based compensation
61,462
47,182
Plus:
Company stock 401(k) contribution
34,974
32,167
Plus: Syndicated programming amortization
142,664
139,793
Plus: Workforce restructuring expense
1,021
5,933
Plus: Advisory fees related to activism defense
16,611
45,778
Plus:
Cash dividend from equity investments for return on capital
8,240
9,093
Plus: Cash reimbursements from spectrum repacking
8,517
26,153
Plus: Net income attributable to redeemable noncontrolling interest
2,135
427
Plus: Reimbursement from Company-owned life insurance
policies
1,456
—
Plus (Less): Equity loss (income) in unconsolidated investments, net
14,299
(5,207)
Less: Spectrum repacking reimbursements and other, net
(4,794)
(6,869)
(Less) Plus: Other non-operating items, net
(6,481)
27,640
Less:
Syndicated programming payments
(148,229)
(145,058)
Less: Income tax payments, net of refunds
(343,503)
(230,749)
Less: Pension contributions
(10,140)
(24,158)
Less: Interest payments
(364,856)
(391,913)
Less:
Purchases of property and equipment
(107,361)
(123,792)
Free cash flow (non-GAAP basis)
$
1,424,152
$
1,207,280
Revenue
$
6,226,061
$
5,643,551
Free
cash flow as a % of Revenue
22.9
%
21.4
%
Our free cash flow, a non-GAAP performance measure, was $1.42 billion and $1.21 billion for the two-year periods ended June 30, 2022 and 2021, respectively. The increase in free cash flow is primarily due to increases in subscription and political revenues.
28
Liquidity,
Capital Resources and Cash Flows
Our operations have historically generated positive cash flow which, along with availability under our existing revolving credit facility and cash and cash equivalents on hand, have been sufficient to fund our capital expenditures, interest expense, dividends, investments in strategic initiatives (including acquisitions) and other operating requirements.
We paid dividends totaling $42.3 million in first six months of 2022 and $36.4 million in first six months of 2021. We expect to continue to pay our regular quarterly dividend of $0.095 per share through the closing of the Merger, which is the maximum rate and frequency permitted by the Merger Agreement.
As of June
30, 2022, we were in compliance with all covenants contained in our debt agreements and credit facility and our leverage ratio, calculated in accordance with our revolving credit agreement, was 2.64x, below the permitted leverage ratio of less than 5.0x. The leverage ratio is calculated using annualized adjusted EBITDA (as defined in the agreement) for the trailing eight quarters. We believe that we will remain compliant with all covenants for the foreseeable future.
As of June 30, 2022, our total debt was $3.07 billion, cash and cash equivalents totaled $200.8 million, and we had unused borrowing capacity of $1.49 billion under our revolving credit facility. Our debt consists of unsecured notes which have fixed interest rates.
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 2021 Annual Report on Form 10-K for further discussion. We expect our existing cash and cash equivalents, cash flow from our operations, and borrowing capacity under the revolving credit facility will be more than sufficient to satisfy our recurring contractual commitments, debt service obligations, capital expenditure requirements, and other working capital needs for the next twelve months and beyond.
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):
Balance of cash and cash equivalents beginning of the period
$
56,989
$
40,968
Operating
activities:
Net income
266,227
219,686
Depreciation, amortization and other non-cash adjustments
73,715
92,749
Pension contributions, net of income
(1,070)
(8,781)
Decrease
(increase) in trade receivables
25,263
(37,207)
Increase (decrease) in interest and taxes payable
9,615
(52,483)
Other, net
17,637
(17,471)
Cash flow from operating activities
391,387
196,493
Investing
activities:
Payments for acquisitions of businesses and other assets, net of cash acquired
—
(13,341)
All other investing activities
(23,819)
(20,911)
Cash flow used for investing activities
(23,819)
(34,252)
Cash
flow used for financing activities
(223,787)
(145,947)
Increase in cash and cash equivalents
143,781
16,294
Balance of cash and cash equivalents end of the period
$
200,770
$
57,262
29
Operating
activities -Cash flow from operating activities was $391.4 million for the six months ended June 30, 2022, compared to $196.5 million for the same period in 2021. Driving the increase in operating cash flow was a favorable change in accounts receivable of $62.5 million, primarily due to timing of cash payments related to AMS revenue and an increase in subscription revenue. Operating cash flow was also positively impacted by an increase in political revenue of $49.8 million in the first six months of 2022 as compared to 2021 (political revenue is paid upfront and provides an immediate benefit to cash flow from operating activities). Also contributing to the increase was a favorable change in accounts payable of $34.1 million in the first six months of 2022 as compared to the same period in 2021, due to timing of payments. Lastly, tax payments declined
$37.7 million due to the absence of elevated tax payments made in arrears in 2021 related to the strong political-driven record results achieved in fourth quarter of 2020.
Investing activities -Cash flow used for investing activities was $23.8 million for the six months ended June 30, 2022, compared to $34.3 million for the same period in 2021. The decrease of $10.5 million was primary due to $13.3 million being invested on an acquisition in 2021 and an absence of acquisitions in 2022. Also contributing to the decrease was a decrease in capital expenditures of $4.5 million.
Financing activities - Cash flow used for financing activities was $223.8 million for
the six months ended June 30, 2022, compared to $145.9 million for the same period in 2021. The change was primarily due to our revolving credit facility which had net repayments of $166.0 million in the first six months of 2022 as compared to net repayments of $99.0 million in the first six months of 2021.
Certain Factors Affecting Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q that do not describe historical facts may constitute forward-looking statements within the meaning of the “safe harbor” provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements are based on a number of assumptions about future events and are subject to various risks, uncertainties and other factors that may cause actual results to differ materially from the views, beliefs, projections and estimates expressed in such statements. These risks, uncertainties and other factors include, but are not limited to, those described within Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and our Quarterly Reports on Form 10-Q, including following: (1) the timing, receipt and terms and conditions of any required governmental or regulatory approvals of the proposed transaction and the related transactions involving the parties that could reduce the anticipated benefits of or cause the parties to abandon the proposed transaction, (2) risks related to the satisfaction of the conditions to closing the proposed transaction
(including the failure to obtain necessary regulatory approvals), and the related transactions involving the parties, in the anticipated timeframe or at all, (3) the risk that any announcements relating to the proposed transaction could have adverse effects on the market price of the Company’s common stock, (4) disruption from the proposed transaction could make it more difficult to maintain business and operational relationships, including retaining and hiring key personnel and maintaining relationships with the Company’s customers, vendors and others with whom it does business, (5) the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement entered into pursuant to the proposed transaction or of the transactions involving the parties, (6) risks
related to disruption of management’s attention from the Company’s ongoing business operations due to the proposed transaction, (7) significant transaction costs, (8) the risk of litigation and/or regulatory actions related to the proposed transaction or unfavorable results from currently pending litigation and proceedings or litigation and proceedings that could arise in the future, (9) other business effects, including the effects of industry, market, economic, political or regulatory conditions, (10) information technology system failures, data security breaches, data privacy compliance, network disruptions, and cybersecurity, malware or ransomware attacks, and (11) changes resulting from the COVID-19 pandemic (including the effect of COVID-19 on the Company’s revenues, particularly our non-political
advertising revenues), which could exacerbate any of the risks described above. Potential regulatory actions, changes in consumer behaviors and impacts on and modifications to our operations and business relating thereto and our ability to execute on our standalone plan can also cause actual results to differ materially. We are not responsible for updating the information contained in this Quarterly Report on Form 10-Q beyond the published date.
Readers are cautioned not to place undue reliance on forward-looking statements made by or on behalf of the Company. Each such statement speaks only as of the day it was made. We undertake no obligation to update or to revise any forward-looking statements. The factors described above cannot be controlled by our
Company. When used in this Quarterly Report on Form 10-Q, the words “believes,”“estimates,”“plans,”“expects,”“should,”“could,”“outlook,” and “anticipates” and similar expressions as they relate to our Company or management are intended to identify forward looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q may include, without limitation: statements about the potential benefits of the proposed acquisition, anticipated growth rates, the Company’s plans, objectives, expectations, and the anticipated timing of closing the proposed transaction.
30
Item
3. Quantitative and Qualitative Disclosures about Market Risk
For quantitative and qualitative disclosures about market risk, refer to the following section of our 2021 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, 2021.
As of June 30, 2022, approximately $3.09 billion of our debt has a fixed interest rate (which represents 100% of our total principal debt obligation). The fair value of our total debt, based on bid and ask quotes for the related debt, totaled $3.00 billion as of June 30, 2022 and $3.40 billion as of December
31, 2021.
Item 4. Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of June 30, 2022. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective, as of June 30, 2022, to ensure that information required to be disclosed in the reports that we file or submit under the Securities
Exchange Act of 1934 are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
There have been no material changes in our internal controls or in other factors during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 9 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 2021 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 2021 Annual Report on Form 10-K.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
In December 2020, our Board of Directors authorized the renewal of our share repurchase program for up to $300.0 million of our common stock over the next three years. No shares were repurchased during the six months ended June 30, 2022. As a result of the announcement of the Merger Agreement on February 22, 2022, we have suspended share repurchases under this program.
Inline 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.
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
*Asterisks identify management contracts and compensatory plans and arrangements.
32
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.
