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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 September 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.
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 October 31, 2019 was 216,903,652.
 



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

2



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

TEGNA Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands of dollars (Unaudited)
 
Sept. 30, 2019
 
Dec. 31, 2018
 
 
 
 
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
9,194

 
$
135,862

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

 
425,404

Other receivables
29,234

 
20,967

Syndicated programming rights
63,263

 
35,252

Prepaid expenses and other current assets
25,522

 
17,737

Total current assets
648,331

 
635,222

Property and equipment
 
 
 
Cost
986,263

 
858,170

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

 
375,215

Intangible and other assets
 
 
 
Goodwill
2,874,063

 
2,596,863

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

 
1,526,077

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

 

Investments and other assets
145,927

 
143,465

Total intangible and other assets
5,783,079

 
4,266,405

Total assets
$
6,902,237

 
$
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)
 
Sept. 30, 2019
 
Dec. 31, 2018
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable
$
63,097

 
$
83,226

Accrued liabilities
 
 


   Compensation
38,658

 
52,726

   Interest
56,570

 
37,458

   Contracts payable for programming rights
129,989

 
112,059

   Other
71,352

 
49,211

Dividends payable
15,173

 
15,154

Income taxes payable

 
19,383

Total current liabilities
374,839

 
369,217

Noncurrent liabilities
 
 
 
Income taxes
9,227

 
13,624

Deferred income tax liability
513,995

 
396,847

Long-term debt
4,180,938

 
2,944,466

Pension liabilities
128,517

 
139,375

Operating lease liabilities
101,348

 

Other noncurrent liabilities
71,677

 
72,389

Total noncurrent liabilities
5,005,702

 
3,566,701

Total liabilities
5,380,541

 
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
252,224

 
301,352

Retained earnings
6,586,321

 
6,429,512

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

 
1,340,924

Total liabilities and equity
$
6,902,237

 
$
5,276,842

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



4



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

 
$
538,976

 
$
1,605,542

 
$
1,565,146

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Cost of revenues1
306,474


271,156

 
873,078

 
793,943

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


76,639

 
223,845

 
229,193

Corporate - General and administrative expenses
29,792

 
17,593

 
60,363

 
41,522

Depreciation
15,381


14,262

 
44,831

 
41,594

Amortization of intangible assets
15,018


8,047

 
32,530

 
22,791

Spectrum repacking reimbursements and other
(80
)

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

 
384,692

 
1,223,248

 
1,119,712

Operating income
106,833

 
154,284

 
382,294

 
445,434

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

 
10,922

 
15,080

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

 
(13,005
)
Total
(53,408
)

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

 
106,615

 
255,012

 
302,454

Provision for income taxes
5,079


13,789

 
52,732

 
61,929

Net Income from continuing operations
48,346

 
92,826

 
202,280

 
240,525

Income from discontinued operations, net of tax

 
4,325

 

 
4,325

Net income
$
48,346

 
$
97,151

 
$
202,280

 
$
244,850

 
 
 
 
 
 
 
 
Earnings from continuing operations per share - basic
$
0.22

 
$
0.43

 
$
0.93

 
$
1.11

Earnings from discontinued operations per share - basic

 
0.02

 

 
0.02

Net income per share – basic
$
0.22

 
$
0.45

 
$
0.93

 
$
1.13

 
 
 
 
 
 
 
 
Earnings from continuing operations per share - diluted
$
0.22

 
$
0.43

 
$
0.93

 
$
1.11

Earnings from discontinued operations per share - diluted

 
0.02

 

 
0.02

Net income per share – diluted
$
0.22

 
$
0.45

 
$
0.93

 
$
1.13

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

 
216,015

 
217,040

 
216,210

Diluted shares
218,310

 
216,348

 
217,808

 
216,617

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

5



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

 
$
97,151

 
$
202,280

 
$
244,850

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

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

 
1,276

 
4,293

 
3,827

Pension lump-sum payment charges

 
1,198

 
686

 
7,498

Other comprehensive income, before tax
1,113

 
2,443

 
4,204

 
11,876

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

 
1,828

 
3,152

 
8,855

Comprehensive income
$
49,181

 
$
98,979

 
$
205,432

 
$
253,705

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

6



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


$
244,850

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

 
64,385

Stock-based compensation
13,887

 
12,292

     Company stock 401(k) contribution
6,486

 

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

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

Net cash flow from operating activities
214,585

 
332,660

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

 
5,057

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

 
1,224

Proceeds from sale of assets
21,733

 
16,335

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

 
72,000

Proceeds from issuance of Senior Notes
1,100,000

 

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

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

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

 
128,041

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

 
$
23,766

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

7



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

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

$
256,024

$
6,553,149

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

Net Income
 
 
48,346

 
 
48,346

Other comprehensive income, net of tax
 
 
 
835

 
835

Total comprehensive income
 
 
 
 
 
49,181

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

3,242

Stock-based awards activity
 
(763
)
 
 
711

(52
)
Stock-based compensation
 
4,445

 
 
 
4,445

Other activity
 
312

 
 
 
312

Balance at Sept. 30, 2019
$
324,419

$
252,224

$
6,586,321

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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2018
$
324,419

$
304,066

$
6,201,694

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

Net Income
 
 
97,151

 
 
97,151

Other comprehensive income, net of tax
 
 
 
1,828

 
1,828

Total comprehensive income
 
 
 
 
 
98,979

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

126

Stock-based compensation
 
4,325

 
 
 
4,325

Other activity
 
312

 
 
 
312

Balance at Sept. 30, 2018
$
324,419

$
306,078

$
6,283,775

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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

8



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

$
301,352

$
6,429,512

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

Net Income


202,280



202,280

Other comprehensive income, net of tax



3,152


3,152

Total comprehensive income
 
 
 
 
 
205,432

Dividends declared: $0.21 per share


(45,471
)


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

6,486

Stock-based awards activity

(48,899
)


48,400

(499
)
Stock-based compensation

13,887




13,887

Other activity

937




937

Balance at Sept. 30, 2019
$
324,419

$
252,224

$
6,586,321

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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at Dec. 31, 2017
$
324,419

$
382,127

$
6,062,995

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

Net Income


244,850



244,850

Other comprehensive income, net of tax



8,855


8,855

Total comprehensive income
 
 
 
 
 
253,705

Cumulative effects of accounting changes


21,121

(24,845
)

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


(45,191
)


(45,191
)
Treasury stock acquired




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

(89,921
)


87,632

(2,289
)
Stock-based compensation

12,292




12,292

Other activity

1,580

 


1,580

Balance at Sept. 30, 2018
$
324,419

$
306,078

$
6,283,775

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

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


9



TEGNA Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – 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 62 television stations operating in 51 markets, offering high-quality television programming and digital content. Our reportable segment determination is based on our management and internal reporting structure, the nature of products and services we offer, and the financial information that is evaluated regularly by our chief operating decision maker.

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 7 for additional information.

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


10



New accounting guidance not yet adopted: In June 2016, the FASB issued new guidance related to the measurement of credit losses on financial instruments. The new guidance changes the way credit losses on accounts receivable are estimated. Under current GAAP, credit losses on accounts receivable are recognized once it is probable that such losses will occur. Under the new guidance, we will be required to estimate credit losses based on the expected amount of future collections which may result in earlier recognition of doubtful accounts. The new guidance is effective for public companies beginning in the first quarter of 2020 and will be adopted using a modified retrospective approach. We are currently evaluating the effect this new guidance, specifically as it relates to our allowance for accounts receivable, which we don’t anticipate having a material impact on our consolidated financial statements and related disclosure as of the adoption date.

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

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

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

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

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

 
$
264,852

 
$
851,304

 
$
829,638

Subscription
240,735

 
207,463

 
718,472

 
622,382

Political
8,131

 
60,410

 
14,064

 
93,725

Other
5,658

 
6,251

 
21,702

 
19,401

Total revenues
$
551,857

 
$
538,976

 
$
1,605,542

 
$
1,565,146

















11



NOTE 2 – Acquisitions

Nexstar Stations

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


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

Dispatch Stations

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

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

Justice and Quest Multicast Networks

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

Cash paid for this acquisition was $77.2 million (which included $4.7 million for estimated working capital paid at closing), funded through available cash and borrowing under our revolving credit facility. 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.

Gray Stations

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

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



12



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

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

 
$
2,363

 
$


$

 
$
2,363

Accounts receivable
 
35,459

 
26,680

 
8,501


5,553

 
76,193

Prepaid and other current assets
 
4,760

 
6,165

 
6,987


988

 
18,900

Property and equipment
 
47,339

 
40,856

 
369


11,757

 
100,321

Goodwill
 
84,252

 
158,077

 
23,413


11,458

 
277,200

FCC licenses
 
415,225

 
298,974

 


53,378

 
767,577

Retransmission agreements
 
76,894

 
55,366

 

 
12,253

 
144,513

Network affiliation agreements
 
115,340

 
83,048

 

 
16,105

 
214,493

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

 
362

 

 
252

 
19,678

Other intangible assets
 

 

 
52,553



 
52,553

Other noncurrent assets
 
2,015

 

 
5,252


18

 
7,285

     Total assets acquired
 
$
800,348

 
$
671,891

 
$
97,075

 
$
111,762

 
$
1,681,076

Accounts Payable
 
719

 
953

 
725


1

 
2,398

Accrued liabilities
 
10,086

 
8,917

 
3,973


1,606

 
24,582

Deferred income tax liability
 

 
108,132

 
(471
)
 

 
107,661

Operating lease liabilities - noncurrent
 
17,271

 
233

 

 
235

 
17,739

Other noncurrent liabilities
 
3,155

 

 
2,700



 
5,855

     Total liabilities assumed
 
$
31,231

 
$
118,235

 
$
6,927

 
$
1,842

 
$
158,235

     Net assets acquired
 
$
769,117

 
$
553,656

 
$
90,148

 
$
109,920

 
$
1,522,841

 
 
 
 
 
 
 
 
 
 
 
Less: cash acquired
 
$

 
$
(2,363
)
 
$

 
$

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

 

 
(12,995
)
 

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

 
$
551,293

 
$
77,153

 
$
109,920

 
$
1,507,483



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

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

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


13



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

 
$
65,308

Operating Income
$
5,486

 
$
7,696



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

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

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

 
$
644,893


$
1,841,373


$
1,865,893

Net income
$
42,277

 
$
97,290


$
185,528


$
234,626



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

 
$

 
$
2,596,863

 
$

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

 

 
1,384,186

 

Amortizable intangible assets:
 
 
 
 
 
 
 
Retransmission agreements
266,106

 
(95,469
)
 
121,594

 
(79,274
)
Network affiliation agreements
324,883

 
(42,928
)
 
110,390

 
(30,802
)
Other
81,418

 
(13,091
)
 
28,865

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

 
$
(151,488
)
 
$
1,645,035

 
$
(118,958
)


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


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NOTE 4 – Investments and other assets

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

 
$
50,452

Equity method investments
12,233

 
22,960

Other equity investments
27,377

 
24,497

Deferred debt issuance costs
11,680

 
9,350

Other long-term assets
42,923

 
36,206

Total
$
145,927

 
$
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 $9.6 million and $12.4 million as of September 30, 2019 and December 31, 2018, respectively. Our ownership stake provides us with two seats on CareerBuilder’s board of directors. As a result, we concluded that we have significant influence over CareerBuilder and therefore account for our interest using the equity method of accounting.

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

Other equity investments: Represent investments in non-public businesses that do not have readily determinable pricing, and for which we do not have control or do not exert significant influence. These investments are recorded at cost less impairments, if any, plus or minus changes in observable prices for those investments. In the second quarter of 2019, we recognized a $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 nine months of 2019, nor were there any gains or losses recorded during the nine months ended September 30, 2018.

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