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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-Q
_______________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-6961
___________________________
TEGNA INC.
(Exact name of registrant as specified in its charter)
___________________________
Delaware
 
16-0442930
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
   8350 Broad Street, Suite 2000,
Tysons,
Virginia
 
22102-5151
(Address of principal executive offices)
 
(Zip Code)
 
 
 
 
 
(703)
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
Common Stock
TGNA
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. 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). 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. (Check one):
Large accelerated filer
Accelerated filer
 
 
 
 
Non-accelerated filer
Smaller reporting company
 
 
 
 
 
 
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

The total number of shares of the registrant’s Common Stock, $1 par value, outstanding as of July 31, 2019 was 216,654,162.
 



INDEX TO TEGNA INC.
June 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)
 
June 30, 2019
 
Dec. 31, 2018
 
 
 
 
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
29,268

 
$
135,862

Accounts receivable, net of allowances of $4,076 and $3,090, respectively
455,124

 
425,404

Other receivables
16,859

 
20,967

Programming rights
17,574

 
35,252

Prepaid expenses and other current assets
17,699

 
17,737

Total current assets
536,524

 
635,222

Property and equipment
 
 
 
Cost
895,078

 
858,170

Less accumulated depreciation
(510,303
)
 
(482,955
)
Net property and equipment
384,775

 
375,215

Intangible and other assets
 
 
 
Goodwill
2,635,847

 
2,596,863

Indefinite-lived and amortizable intangible assets, less accumulated amortization
1,639,039

 
1,526,077

Right-of-use assets for operating leases
70,687

 

Investments and other assets
145,822

 
143,465

Total intangible and other assets
4,491,395

 
4,266,405

Total assets
$
5,412,694

 
$
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)
 
June 30, 2019
 
Dec. 31, 2018
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable
$
58,986

 
$
83,226

Accrued liabilities
 
 


   Compensation
37,424

 
52,726

   Interest
38,676

 
37,458

   Contracts payable for programming rights
83,033

 
112,059

   Other
43,261

 
49,211

Dividends payable
15,157

 
15,154

Income taxes payable

 
19,383

Total current liabilities
276,537

 
369,217

Noncurrent liabilities
 
 
 
Income taxes
12,846

 
13,624

Deferred income taxes payable
405,777

 
396,847

Long-term debt
2,953,569

 
2,944,466

Pension liabilities
131,794

 
139,375

Operating lease liabilities
83,222

 

Other noncurrent liabilities
69,207

 
72,389

Total noncurrent liabilities
3,656,415

 
3,566,701

Total liabilities
3,932,952

 
3,935,918

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

 
324,419

Additional paid-in capital
256,024

 
301,352

Retained earnings
6,553,149

 
6,429,512

Accumulated other comprehensive loss
(134,194
)
 
(136,511
)
Treasury stock at cost, 107,831,133 shares and 108,660,002 shares, respectively
(5,519,656
)
 
(5,577,848
)
Total equity
1,479,742

 
1,340,924

Total liabilities and equity
$
5,412,694

 
$
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 June 30,
 
Six months ended June 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Revenues
$
536,932

 
$
524,080

 
$
1,053,685

 
$
1,026,170

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Cost of revenues, exclusive of depreciation
285,293


264,294

 
566,604

 
522,787

Business units - Selling, general and administrative expenses, exclusive of depreciation
73,941


78,933

 
145,406

 
152,554

Corporate - General and administrative expenses, exclusive of depreciation
15,836

 
11,221

 
30,571

 
23,929

Depreciation
14,533


13,861

 
29,450

 
27,332

Amortization of intangible assets
8,823


7,962

 
17,512

 
14,744

Spectrum repacking reimbursements and other
(4,306
)

(6,326
)
 
(11,319
)
 
(6,326
)
Total
394,120

 
369,945

 
778,224

 
735,020

Operating income
142,812

 
154,135

 
275,461

 
291,150

 
 
 
 
 
 
 
 
Non-operating income (expense):
 
 
 
 
 
 
 
Equity (loss) income in unconsolidated investments, net
(615
)
 
15,547

 
11,413

 
14,309

Interest expense
(46,327
)
 
(49,104
)
 
(92,712
)
 
(96,829
)
Other non-operating items, net
8,964

 
(311
)
 
7,425

 
(12,791
)
Total
(37,978
)

(33,868
)
 
(73,874
)
 
(95,311
)
 
 
 
 
 
 
 
 
Income before income taxes
104,834

 
120,267

 
201,587

 
195,839

Provision for income taxes
24,879


27,755

 
47,653

 
48,140

Net income
$
79,955

 
$
92,512

 
$
153,934

 
$
147,699

 
 
 
 
 
 
 
 
Net income per share – basic
$
0.37

 
$
0.43

 
$
0.71

 
$
0.68

Net income per share – diluted
$
0.37

 
$
0.43

 
$
0.71

 
$
0.68

 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
Basic shares
217,089

 
216,342

 
216,900

 
216,309

Diluted shares
217,905

 
216,515

 
217,555

 
216,753

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 June 30,
 
Six months ended June 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Net income
$
79,955

 
$
92,512

 
$
153,934

 
$
147,699

Other comprehensive income, before tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(471
)
 
382

 
(457
)
 
582

Recognition of previously deferred post-retirement benefit plan costs
1,437

 
1,302

 
2,862

 
2,552

Pension lump-sum payment charge
686

 

 
686

 
6,300

Other comprehensive income, before tax
1,652

 
1,684

 
3,091

 
9,434

Income tax effect related to components of other comprehensive income
(414
)
 
(432
)
 
(774
)
 
(2,408
)
Other comprehensive income, net of tax
1,238

 
1,252

 
2,317

 
7,026

Comprehensive income
$
81,193

 
$
93,764

 
$
156,251

 
$
154,725

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
 
Six months ended June 30,
 
2019
 
2018
 
 
 
 
Cash flows from operating activities:
 
 
 
Net income
$
153,934


$
147,699

Adjustments to reconcile net income to net cash flow from operating activities:
 
 
 
Depreciation and amortization
46,962

 
42,076

Stock-based compensation
9,442

 
7,967

     Company stock 401(k) contribution
3,244

 

Gains on assets
(11,725
)
 
(7,406
)
Equity income from unconsolidated investments, net
(11,413
)
 
(14,309
)
Pension contributions, net of expense
(3,812
)

(31,158
)
Change in other assets and liabilities, net
(69,781
)
 
9,172

Net cash flow from operating activities
116,851

 
154,041

Cash flows from investing activities:
 
 
 
Purchase of property and equipment
(37,684
)
 
(20,864
)
Reimbursements from spectrum repacking
8,439

 
2,025

Payments for acquisitions of businesses, net of cash acquired
(185,926
)
 
(325,902
)
Payments for investments
(3,553
)
 
(4,479
)
Proceeds from investments
955

 
1,224

Proceeds from sale of assets
20,064

 
16,126

Net cash flow used for investing activities
(197,705
)
 
(331,870
)
Cash flows from financing activities:
 
 
 
Proceeds from borrowings under revolving credit facilities, net
55,000

 
186,000

Debt repayments
(50,000
)
 
(66,123
)
Payment of debt issuance costs

 
(5,269
)
Dividends paid
(30,294
)
 
(30,137
)
Repurchases of common stock

 
(5,831
)
Other, net
(446
)
 
(4,349
)
Net cash flow (used for) provided by financing activities
(25,740
)
 
74,291

(Decrease) in cash, cash equivalents and restricted cash
(106,594
)
 
(103,538
)
Balance of cash, cash equivalents and restricted cash, beginning of period
135,862

 
128,041

Balance of cash, cash equivalents and restricted cash, end of period
$
29,268

 
$
24,503

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 Mar. 31, 2019
$
324,419

$
262,823

$
6,488,352

$
(135,432
)
$
(5,534,911
)
$
1,405,251

Net Income
 
 
79,955

 
 
79,955

Other comprehensive income, net of tax
 
 
 
1,238

 
1,238

Total comprehensive income
 
 
 
 
 
81,193

Dividends declared: $0.07 per share
 
 
(15,158
)
 
 
(15,158
)
Company stock 401(k) contribution
 
(7,259
)
 
 
10,503

3,244

Stock-based awards activity
 
(4,861
)
 
 
4,752

(109
)
Stock-based compensation
 
5,008

 
 
 
5,008

Other activity
 
313

 
 
 
313

Balance at June 30, 2019
$
324,419

$
256,024

$
6,553,149

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

 
 
 
 
 
 
 
Balance at Mar. 31, 2018
$
324,419

$
303,926

$
6,124,209

$
(125,993
)
$
(5,589,925
)
$
1,036,636

Net Income
 
 
92,512

 
 
92,512

Other comprehensive income, net of tax
 
 
 
1,252

 
1,252

Total comprehensive income
 
 
 
 
 
93,764

Dividends declared: $0.07 per share
 
 
(15,027
)
 
 
(15,027
)
Treasury stock acquired
 
 
 
 
(5,831
)
(5,831
)
Stock-based awards activity
 
(5,013
)
 
 
7,229

2,216

Stock-based compensation
 
4,368

 
 
 
4,368

Other activity
 
785

 
 
 
785

Balance at June 30, 2018
$
324,419

$
304,066

$
6,201,694

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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

8



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

$
301,352

$
6,429,512

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

Net Income


153,934



153,934

Other comprehensive income, net of tax



2,317


2,317

Total comprehensive income
 
 
 
 
 
156,251

Dividends declared: $0.14 per share


(30,297
)


(30,297
)
Company stock 401(k) contribution
 
(7,259
)
 
 
10,503

3,244

Stock-based awards activity

(48,136
)


47,689

(447
)
Stock-based compensation

9,442




9,442

Other activity

625




625

Balance at June 30, 2019
$
324,419

$
256,024

$
6,553,149

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

 
 
 
 
 
 
 
Balance at Dec. 31, 2017
$
324,419

$
382,127

$
6,062,995

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

Net Income


147,699



147,699

Other comprehensive income, net of tax



7,026


7,026

Total comprehensive income
 
 
 
 
 
154,725

Cumulative effects of accounting changes


21,121

(24,844
)

(3,723
)
Dividends declared: $0.14 per share


(30,121
)


(30,121
)
Treasury stock acquired




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

(87,296
)


84,881

(2,415
)
Stock-based compensation

7,967




7,967

Other activity

1,268




1,268

Balance at June 30, 2018
$
324,419

$
304,066

$
6,201,694

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

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


9



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

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.

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. 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 49 television stations operating in 41 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.

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 $73.8 million and $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 6 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.

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 will have on our consolidated financial statements and related disclosures.

10




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.

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.

Revenue earned by these sources in the second quarter and first six months of 2019 and 2018 are shown below (amounts in thousands):
 
Quarter ended June 30,
 
Six months ended June 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Advertising & Marketing Services
$
289,569

 
$
281,847

 
$
553,971

 
$
564,786

Subscription
236,162

 
209,363

 
477,737

 
414,919

Political
3,229

 
25,709

 
5,933

 
33,315

Other
7,972

 
7,161

 
16,044

 
13,150

Total revenues
$
536,932

 
$
524,080

 
$
1,053,685

 
$
1,026,170


NOTE 2 – Goodwill and other intangible assets
The following table displays goodwill, indefinite-lived intangible assets, and amortizable intangible assets as of June 30, 2019 and December 31, 2018 (in thousands):
 
June 30, 2019
 
Dec. 31, 2018
 
Gross
 
Accumulated Amortization
 
Gross
 
Accumulated Amortization
 
 
 
 
 
 
 
 
Goodwill
$
2,635,847

 
$

 
$
2,596,863

 
$

 
 
 
 
 
 
 
 
Indefinite-lived intangibles:
 
 
 
 
 
 
 
Television and radio station FCC licenses
1,437,565

 

 
1,384,186

 

Amortizable intangible assets:
 
 
 
 
 
 
 
Retransmission agreements
133,847

 
(88,228
)
 
121,594

 
(79,274
)
Network affiliation agreements
126,494

 
(38,057
)
 
110,390

 
(30,802
)
Other
77,602

 
(10,184
)
 
28,865

 
(8,882
)
Total indefinite-lived and amortizable intangible assets
$
1,775,508

 
$
(136,469
)
 
$
1,645,035

 
$
(118,958
)



11



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, customer relationships and favorable lease agreements which are amortized on a straight-line basis over their useful lives.

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 estimated transaction price is $109.9 million, which includes a small pending final working capital adjustment of approximately $1.0 million. The initial purchase price of $108.9 million (which included $3.9 million for estimated working capital paid at closing) was funded through the use of available cash and borrowings 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. In connection with the purchase accounting performed for this acquisition, we recorded indefinite lived intangible assets for FCC licenses of $53.4 million and amortizable intangible assets of $28.4 million related to retransmission consent contracts and network affiliation agreements. The amortizable assets will be amortized over a weighted average period of 7 years. We also recognized goodwill of $11.5 million, all of which is deductible for tax purposes. The fair value of these assets are based on a preliminary valuation and, as such, our estimates and assumptions are subject to change as additional information is obtained about the facts and circumstances that existed as of the acquisition date. The primary area of purchase price allocation that is not yet finalized is related to the fair value of intangible assets and the working capital adjustment with the seller.

On June 18, 2019, we completed the acquisition of the remaining approximately 85% interest in the multicast networks Justice Network and Quest from Cooper Media that we did not previously own. 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.

The initial purchase price of $77.2 million (which included $4.7 million for estimated working capital paid at closing) was funded through the use of available cash and borrowings under our revolving credit facility. As a result of acquiring the remaining ownership of the networks, we recognized a $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.

In connection with our preliminary purchase accounting for the acquisition of the multicast networks, we recorded amortizable intangible assets of $44.1 million related to distribution agreements and $4.7 million for trade names. We also recognized goodwill of approximately $27.5 million, the majority of which is expected to be deductible for tax purposes. The fair values of these assets were based on a preliminary valuation, and as such, our estimates and assumptions are subject to change as additional information is obtained about the facts and circumstances that existed as of the acquisition date. The primary open area of purchase accounting is related to the fair value of intangible assets and determination of their useful lives.

NOTE 3 – Investments and other assets

Our investments and other assets consisted of the following as of June 30, 2019, and December 31, 2018 (in thousands):
 
June 30, 2019
 
Dec. 31, 2018
 
 
 
 
Cash value life insurance
$
51,879

 
$
50,452

Equity method investments
17,676

 
22,960

Other equity investments
27,239

 
24,497

Deferred debt issuance costs
8,008

 
9,350

Other long-term assets
41,020

 
36,206

Total
$
145,822

 
$
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 17% (or approximately 10% on a fully-diluted basis), which has an investment balance of $12.7 million and $12.4 million as of June 30, 2019 and December 31, 2018, respectively. Our ownership stake provides us with two seats on CareerBuilder’s board of directors and thus we concluded that we have significant influence over the entity.

In the first quarter of 2019, we sold our investment in Captivate, which had been accounted for as an equity method investment, for $16.2 million, which resulted in a pre-tax gain of $12.2 million (after-tax gain of $9.2 million). This gain was

12



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 $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. No other gains or losses were recorded on these investments in the first six months of 2019, nor were there any gains or losses recorded during the six months ended June 30, 2018.
NOTE 4 – Long-term debt
Our long-term debt is summarized below (in thousands):

June 30, 2019
 
Dec. 31, 2018
 
 
 
 
Unsecured floating rate term loan due quarterly through June 20201
$
40,000

 
$
60,000

Unsecured floating rate term loan due quarterly through September 20201
135,000

 
165,000

Borrowings under revolving credit agreement expiring June 2023
105,000

 
50,000

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

 
320,000

Unsecured notes bearing fixed rate interest at 5.125% due July 2020
600,000

 
600,000

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

 
350,000

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

 
650,000

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

 
325,000

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

 
200,000

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

 
240,000

Total principal long-term debt
2,965,000

 
2,960,000

Debt issuance costs
(12,820
)
 
(15,458
)
Unamortized premiums and discounts, net
1,389

 
(76
)
Total long-term debt
$
2,953,569

 
$
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 June 30, 2019 Condensed Consolidated Balance Sheet.


As discussed in Note 2, during the second quarter of 2019, we borrowed $71.0 million under the revolving credit facility to finance the majority of our purchase of the controlling interests in Justice Network LLC and Quest Network LLC.

As of June 30, 2019, we had unused borrowing capacity of $1.39 billion under our revolving credit facility.


13



NOTE 5 – 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 June 30, 2019, were $139.7 million, of which $7.9 million is recorded as a current obligation within accrued liabilities on the Condensed Consolidated Balance Sheet.

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 June 30,
 
Six months ended June 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Service cost-benefits earned during the period
$

 
$
6

 
$

 
$
6

Interest cost on benefit obligation
5,773

 
5,074

 
11,523

 
10,224

Expected return on plan assets
(6,585
)
 
(7,480
)
 
(13,160
)
 
(14,930
)
Amortization of prior service cost
20

 
34

 
45

 
84

Amortization of actuarial loss
1,541

 
1,293

 
3,041

 
2,543

Pension payment timing related charge
686

 

 
686

 
6,300

Expense for company-sponsored retirement plans
$
1,435

 
$
(1,073
)
 
$
2,135

 
$
4,227



Our TRP and SERP are frozen plans, and as such we no longer incur 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, 2019 and 2018 we made cash contributions of $0.9 million and $6.4 million to the TRP and benefit payments to participants of the SERP of $5.0 million and $28.8 million respectively. Based on actuarial projections, we expect to make additional cash payments of $6.0 million in 2019 on account of these benefit plans (comprised of payments of $3.0 million each to the TRP and SERP participants).

We incurred pension payment timing related charges of $0.7 million and $6.3 million in the first six 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 6 – 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 are analyzed to determine if a lease exists depending on whether there is 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 1 to 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 considered 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.


14



The following table presents lease related assets and liabilities on the Condensed Consolidated Balance Sheet as of June 30, 2019 (in thousands):
Assets
 
Right-of-use assets for operating leases
$
70,687

 


Liabilities

Operating lease liabilities (current)1
6,696

Operating lease liabilities (non-current)
83,222

Total operating lease liabilities
$
89,918



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

As of June 30, 2019, the weighted-average remaining lease term for our lease portfolio was 10.8 years and the weighted average discount rate used to calculate the present value of our lease liabilities was 5.4%.

For the six months ended June 30, 2019 and 2018, we recognized lease expense of $6.3 million and $8.8 million, respectively. Lease expense for the three months ended June 30, 2019 and 2018 were $3.0 million and $4.4 million, respectively. In addition, we made cash payments for operating leases of $2.4 million and $5.1 million during the three months and six months ended June 30, 2019, respectively, which are included in cash flows from operating activities on Statement of Cash Flows.

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 June 30, 2019 (in thousands):

Future Period
Cash Payments
 
 
Remaining in 2019
$
4,523

2020
10,866

2021
12,358

2022
11,574

2023
10,814

Thereafter
74,043

Total lease payments
124,178

Less: amount of lease payments representing interest
34,260

Present value of lease liabilities
$
89,918



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

15



NOTE 7 – Accumulated other comprehensive loss

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 Mar. 31, 2019
$
(135,824
)
 
$
392

 
$
(135,432
)
Other comprehensive income before reclassifications

 
(353
)
 
(353
)
Amounts reclassified from AOCL
1,591

 

 
1,591

Total other comprehensive income
1,591

 
(353
)
 
1,238

Balance at June 30, 2019
$
(134,233
)
 
$
39

 
$
(134,194
)
 
 
 
 
 
 
Balance at Mar. 31, 2018
$
(126,257
)
 
$
264

 
$
(125,993
)
Other comprehensive income before reclassifications

 
283

 
283

Amounts reclassified from AOCL
969

 

 
969

Total other comprehensive income
969

 
283

 
1,252

Balance at June 30, 2018
$
(125,288
)
 
$
547

 
$
(124,741
)
 
 
 
 
 
 
 
Retirement Plans
 
Foreign Currency Translation
 
Total
Six Months Ended:
 
 
 
 
 
Balance at Dec. 31, 2018
$
(136,893
)
 
$
382

 
$
(136,511
)
Other comprehensive income before reclassifications

 
(343
)
 
(343
)
Amounts reclassified from AOCL
2,660

 

 
2,660

Total other comprehensive income
2,660

 
(343
)
 
2,317

Balance at June 30, 2019
$
(134,233
)
 
$
39

 
$
(134,194
)
 
 
 
 
 
 
Balance at Dec. 31, 2017
$
(107,037
)
 
$
114

 
$
(106,923
)
Other comprehensive income before reclassifications

 
433

 
433

Amounts reclassified from AOCL
6,593

 

 
6,593

Other comprehensive income
6,593

 
433

 
7,026

Reclassification of stranded tax effects to retained earnings
(24,844
)
 

 
(24,844
)
Balance at June 30, 2018
$
(125,288
)
 
$
547

 
$
(124,741
)

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. Amounts reclassified out of AOCL are summarized below (in thousands):
 
Quarter ended June 30,
 
Six months ended June 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Amortization of prior service credit, net
$
(115
)
 
$
(101
)
 
$
(240
)
 
$
(201
)
Amortization of actuarial loss
1,552

 
1,403

 
3,102

 
2,753

Pension payment timing related charges
686

 

 
686

 
6,300

Total reclassifications, before tax
2,123

 
1,302

 
3,548

 
8,852

Income tax effect
(532
)
 
(333
)
 
(888
)
 
(2,259
)
Total reclassifications, net of tax
$
1,591

 
$
969

 
$
2,660

 
$
6,593



16



NOTE 8 – Earnings per share

Our earnings per share (basic and diluted) are presented below (in thousands, except per share amounts):
 
Quarter ended June 30,
 
Six months ended June 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Net income
$
79,955

 
$
92,512

 
$
153,934

 
$
147,699

 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding - basic
217,089

 
216,342

 
216,900

 
216,309

Effect of dilutive securities:
 
 
 
 
 
 
 
Restricted stock units
476

 
2

 
327