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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
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, par value $1.00 per share
TGNA
The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes  x    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes  ¨    No  x
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  x    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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  x    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
x
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 Act).     Yes      No  x
The aggregate market value of the voting common equity held by non-affiliates of the registrant based on the closing sales price of the registrant’s Common Stock as reported on The New York Stock Exchange on June 30, 2019, was $3,270,838,563. The registrant has no non-voting common equity.
As of January 31, 2020, 217,815,465 shares of the registrant’s Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement relating to the registrant’s Annual Meeting of Shareholders to be held on April 30, 2020, is incorporated by reference in Part III to the extent described therein.
 



INDEX TO TEGNA INC.
2019 FORM 10-K
 
Item No.
 
Page
 
 
 
 
 
1.
 
 
 
1A.
 
 
 
1B.
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
 
 
 
 
 
 
 
5.
 
 
 
6.
 
 
 
7.
 
 
 
7A.
 
 
 
8.
 
 
 
9.
 
 
 
9A.
 
 
 
9B.
 
 
 
 
 
 
 
 
10.
 
 
 
11.
 
 
 
12.
 
 
 
13.
 
 
 
14.
 
 
 
 
 
 
 
 
15.
 
 
 
16.

2


PART I

ITEM 1.BUSINESS

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

Over the past several years, we have transformed our company to become a pure-play broadcasting company, adding approximately 40 stations in attractive markets and divesting non-core assets. During 2019 alone, we completed four strategic acquisitions for a total purchase price of $1.5 billion which enhanced our geographic diversity and bolstered our portfolio of Big Four stations while positioning our company to take full advantage of emerging viewing trends. As a result of this strategic evolution, we have increased revenue and cash flow, reduced economic cyclicality, delivered value for shareholders, and continue to be well-positioned to benefit from additional industry consolidation.

We now operate one of the largest U.S. broadcasting groups and a leading local news and media content provider in the markets we serve. Through the combination of our growing subscription and political revenues and our successful acquisition track record, we are generating substantial free cash flow and shareholder value.

Operating Structure

We have one operating and reportable segment which generated revenues of $2.3 billion in 2019. 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 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.

The advertising revenues generated by a station’s local news programs make up a significant part of its total advertising revenues. Advertising pricing is influenced by demand for advertising time. This demand is influenced by a variety of factors, including the size and demographics of the local populations, the concentration of businesses, local economic conditions, and the popularity or ratings of the station’s programming. Almost all national advertising is placed through our centralized internal national sales advertising representatives, while local advertising time is sold by each station’s own local sales force.

Our portfolio of “Big 4” NBC, CBS, ABC and FOX stations operate under long-term network affiliation agreements. Generally, a network provides programs to its affiliated television stations and the network sells commercial advertising for certain of the available advertising spots within the network programs, while our television stations sell the remaining available commercial advertising spots. Our television stations also produce local programming such as news, sports, and entertainment.

Broadcast affiliates and their network partners continue to have the broadest appeal in terms of household viewership, viewing time and audience reach. The overall reach of events such as the Olympics and NFL Football, along with our extensive local news and non-news programming, continues to surpass the reach in viewership of individual cable channels. Our ratings and reach are driven by the quality of programs we and our network partners produce and by the strong local connections we have to our communities, which gives us a unique position among the numerous program choices viewers have, regardless of platform.


3


As illustrated in the table below, our business continues to evolve toward growing stable and profitable revenue streams. As a result of growing importance of even-year political advertising on our results, management increasingly looks at revenue trends over two-year periods. High margin-subscription and political revenues account for approximately half of our total two-year revenue, a trend that began in 2019, and are expected to comprise a larger percentage on a rolling two-year cycle thereafter.

 
Combined Two Year Period
 
 
 
2018 - 2019
 
 
2017 - 2018
 
 
 
 
 
 
 
 
 
Advertising & Marketing Services
52
%
 
 
55
%
 
 
Subscription
41
%
}
47%
38
%
}
44%
Political
6
%
6
%
Other
1
%
 
 
1
%
 
 
Total revenues
100
%
 
 
100
%
 
 

Strategy
Our highly qualified Board of Directors is actively engaged and regularly reviews, guides and oversees the development and implementation of our long-term strategic plan. Our Board of Directors and management team are committed to executing on the following five-pillar strategy designed to create shareholder value.

1.Continue to be a best-in-class operator;
2.Aggressive yet disciplined pursuit of accretive M&A opportunities;
3.Pursuing growth opportunities through innovation and adjacent businesses;
4.Maintaining a strong balance sheet; and
5.Commitment to free cash flow generation and a balanced capital allocation process.

1. Continue to be a best-in-class operator:

Grow subscription revenue. Subscription revenue has steadily increased in the last several years, better reflecting the value of the content that our business provides. Pursuant to Federal Communications Commission (FCC) rules, every three years a local television station must elect to either (1) require cable and/or direct broadcast satellite operators to carry the station’s signal or (2) require such cable and satellite operators to negotiate retransmission consent agreements to secure carriage. At present, we have retransmission consent agreements with almost all cable operators, telecommunications and satellite providers in our television stations’ markets for carriage of those stations. During 2019, we renewed our multi-year distribution agreements with several major cable providers starting a significant repricing cycle. We repriced approximately 50% of our paid subscribers in the fourth quarter of 2019 and expect to reprice an additional 35% during 2020. These renewed agreements provide additional predictability into the expected future growth of our subscription revenues.

Our scale and strength in local content have contributed to our ability to grow our subscription revenue beyond traditional multichannel video programming distributors (MVPDs) into the growing OTT space. Moving our content onto OTT platforms allows us to reach an additional demographic of newer viewers that consume content online rather than via traditional television platforms, enabling us to expand our subscription revenues and deliver advertising products to a broader viewing audience.

We have OTT distribution deals with major network partners and streaming services such as Hulu, YouTube TV and Direct TV Now, permitting them to carry our stations’ content. Because our stations serve large markets that are pivotal to the success of companies offering platforms in the OTT space, our distribution agreements with these partners and streaming services contain financial terms similar to those in our more traditional distribution agreements with cable and satellite operators, making us economically agnostic to consumer platform choices.

Affiliation agreements. During 2019, we also successfully executed multi-year renewals of our principal affiliation agreements with CBS (extended through 2022), ABC (extended through 2023), and Fox (extended through 2022). Today, TEGNA is the largest independent owner of NBC affiliated stations and second largest owner of CBS affiliated stations.

2020 Political cycle. As a result of our 2019 acquisitions (discussed below), we have strategically expanded our portfolio to include additional key political markets and are primed to benefit from expected record political advertising in 2020. Our broadcasting assets, paired with Premion, offer political campaigns the ability to reach voters across the country, not just in our TEGNA television markets.

Improve the value we bring to advertisers. We provide our clients with data-driven integrated marketing services, using a holistic approach that puts their advertising dollars to work in the channels that make the most sense for them, regardless of the platform. During 2019, we continued to expand market share in our marketing services business through our sales transformation efforts, including innovations like our centralized 360-degree marketing services agency, our centralized pricing platform, and a well-trained, solutions-oriented salesforce.

4


Cost initiatives. We have implemented several significant cost-reduction initiatives and are in the process of implementing additional such initiatives. These efforts include implementation of shared service support centers for all back-office support functions, completion of the company-wide financial systems consolidation in the second quarter 2020, and automation of sales support processes as well as other key traffic monitoring functions.  In addition, during 2019, through TEGNA Marketing Solutions, we created an integrated in-house national sales force, which embraces automation for the more commoditized side of our business and creating a capability for our national clients. We are also pursuing new technology initiatives that make television advertising easier to buy and are using data analytics to provide insights on consumer traffic and purchasing decisions to advertisers.

2. Aggressive yet disciplined pursuit of accretive M&A opportunities:

Our strong balance sheet and cash flow generation enables us to opportunistically grow the business through accretive acquisitions. Since 2013, we have acquired approximately 40 stations and transformed into a pure-play broadcast company with a robust portfolio. During 2019, we identified and executed on significant M&A opportunities with clear and achievable synergies, closing on four important acquisitions encompassing 15 television stations, two radio stations and two multicast networks (which are summarized below). We now own 62 television stations in 51 markets with a concentration of Big Four stations in large, demographically growing markets, and an emphasis on important political markets.

The television stations acquired during 2019 are listed in the table below, and a summary of each acquisition follows:
Market
Station
Affiliation
Seller
Indianapolis, IN
WTHR
NBC
Dispatch Broadcast Group
Columbus, OH
WBNS
CBS
Dispatch Broadcast Group
Hartford-New Haven, CT
WTIC/WCCT
FOX/CW
Nexstar Media Group
Harrisburg-Lancaster-Lebanon-York, PA
WPMT
FOX
Nexstar Media Group
Memphis, TN
WATN/WLMT
ABC/CW
Nexstar Media Group
Wilkes Barre-Scranton, PA
WNEP
ABC
Nexstar Media Group
Des Moines-Ames, IA
WOI/KCWI
ABC/CW
Nexstar Media Group
Huntsville-Decatur-Florence, AL
WZDX
FOX
Nexstar Media Group
Davenport, IA and Rock Island-Moline, IL
WQAD
ABC
Nexstar Media Group
Ft. Smith-Fayetteville-Springdale-Rogers, AR
KFSM
CBS
Nexstar Media Group
Toledo, OH
WTOL
CBS
Gray Television
Midland-Odessa, TX
KWES
NBC
Gray Television

Nexstar Stations. On September 19, 2019, we completed our 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 estimated purchase price for the Nexstar Stations was $769.1 million comprised of a base purchase price of $740.0 million and estimated working capital of $29.1 million. 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 our acquisition of Dispatch Broadcast Group’s #1 rated stations in Indianapolis, Indiana (NBC affiliate WTHR) and Columbus, Ohio (CBS affiliate WBNS). We also acquired WBNS radio (1460 AM and 97.1 FM), the leader in sports radio in Central Ohio (collectively the Dispatch Stations). The purchase price for the Dispatch Stations was $560.5 million comprised of a base purchase price of $535.0 million and working capital and cash acquired of $25.5 million. The acquisition of the Dispatch Stations helps to expand our portfolio of 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 $77.1 million (which included $4.6 million for working capital paid at closing).

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. (collectively the Gray Stations). The final purchase price was $109.9 million, which includes working capital of $4.9 million. 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”.

5


3. Pursuing growth opportunities through innovation and adjacent businesses:

Continue to innovate in our content offerings to our consumers. Our trusted, local content is the driver of our success across all distribution channels and is a key ingredient that powers our current and future revenues. Our scale has allowed us to invest in comprehensive content and digital innovation initiatives. Our focus on data-driven editorial processes, new storytelling formats, and unique visual presentations across all our platforms are helping us to advance our goal of making our content the consumers’ first choice, no matter the platform.

In 2019, we continued significant efforts to embrace change, transform our content and connect with audiences in unique and powerful ways. Our culture encourages and embraces bold thinking and ideas from across the company. We are creating unique, live and original content in news and non-news time periods to meet changing viewer habits. In an on-demand OTT world, live, locally-relevant content is becoming increasingly important, and we are acting on that trend. We have continued to make wholesale transformations of our local news operations. We have invested in true digital-first newsrooms, leveraging analytics to better serve audiences and clients on-air and via mobile devices.

We are recognized nationally for our innovation in reinventing local journalism in the digital age. Over the past year, we have conducted digital-first investigations that shined a light on important issues, holding the powerful accountable and helping drive change and results for those without a voice. For example, KING 5 in Seattle won a prestigious Peabody award for their 2018 multipart “Back of the Class” investigative series, which exposed Washington State’s tragic failures in meeting the needs of special education students. KING 5 continued their reporting into 2019, including highlighting how physically restraining and isolating special education students in closet-like rooms can lead to severe trauma and violate civil rights. Thanks to KING 5’s reporting shedding light on this critical issue, in 2019 the Washington legislature increased special education funding by $155 million.

Our most innovative ideas frequently come from our employees who take active part in generating new ideas and pilots through a recurring, structured process. This has resulted in the creation of new digital-first episodic investigations; multiplatform news fact-checking segments like “Verify”; unique local news programs; and the launch in 2019 of an in-house digital production and distribution studio, VAULT Studios. VAULT Studios leverages our stations’ robust archives of investigative stories and has quickly gained a reputation as a premier podcast studio for fans of true crime. Several VAULT Studios productions have been among the top 10 true crime podcasts on the Apple Podcasts app in 2019.

We produce daily live, multi-platform syndicated programs. These programs are produced at our local stations, reducing cost while allowing us to quickly respond to local needs and tastes in content. “Daily Blast LIVE,” a 30-minute live news and entertainment show produced out of KUSA in Denver, is now in its third year. It continues to achieve strong year-over-year audience ratings growth with distribution that now spans 65 markets, including 16 of the top 25, and 20 non-TEGNA markets. “Sister Circle,” a live daily talk show for African American women, is also in its third year. The show is produced at WXIA in Atlanta and reaches approximately 60% of U.S. television households through its distribution across 16 TEGNA markets and on TV One and Cleo Network, two cable networks that offer a broad range of programming for a diverse audience of adult viewers.

Increase engagement across all platforms. As the consumption of content on digital platforms increases, we have continued to make investments in developing new ways of connecting with local audiences and enhancing our digital capabilities. In 2019, this included initiatives focused on diversifying our web traffic sources, improving our digital workflow, redesigning stations’ mobile apps and deploying industry-first innovations across our newsrooms.

Diversifying Audience Traffic Sources: Platforms control an increasing amount of consumer attention, and we have placed an emphasis on diversifying our digital traffic sources and building direct relationships with our audience. In 2019, this included launching new mobile applications for our stations, improving our traffic via search engines and increasing monetizable video views across platforms. As a result of these efforts, our digital properties have seen improvements in 2019 of +42% in Visitors and +63% in video views compared to the prior year.

Improving Digital Workflows: In 2018, we developed and began deployment of a new content management system (CMS) across all of our markets. In 2019, the new CMS was fully deployed, allowing stations to integrate data into the story creation process, making it easier and faster to publish videos and enabling us to optimize our content for the wide variety of distribution platforms. Importantly, the new platform also allows us to continually iterate on our capabilities as the digital ecosystem evolves, while reducing our ongoing operating expenses.

Late in 2016, we launched the industry’s first OTT local advertising network, Premion, a one-stop-shop that allows local, regional and national customers to place advertising on long-form programs across a broad array of services such as streaming devices, smart TVs and web browsers. Now in its third year of operations, Premion is a highly desirable buy for advertisers trying to reach so-called cord cutters and is helping us expand our revenue base and giving us access to new markets. Our large, local salesforce is leveraging relationships with local and regional advertisers to sell Premion inventory. Premion continues to deliver strong revenue growth achieving double digit growth rates, with revenue of more than $100 million in 2019.


6


On February 26, 2020, we announced a new strategic partnership with Gray Television (Gray) in which Gray will acquire a minority ownership interest in Premion. As part of this new partnership, Gray will serve as a reseller of Premion’s services across all of Gray’s 93 television markets.

Invest in new growth initiatives. We are further diversifying our revenue base by investing in new business models that leverage our strong assets and scale.

Intelligent Ad Automation. Premion has been our first investment in intelligent ad automation. Premion has partnered with MadHive (one of our strategic equity investments) to create a technology platform to aggregate inventory from OTT providers and then resell the inventory to local and regional advertisers leveraging our salesforce.

In addition to Premion, we are a member of the Television Interfaces Practices (TIP) consortium of broadcasters driving standardization and interconnectivity of the automation of national spot advertising. Our centralized pricing resources are enabling stations to more effectively price their advertising inventory to maximize share. New attribution technologies are enabling our advertisers to better understand the impact their advertising has on consumer traffic and purchasing. The creation in 2019 of a new, integrated in-house national salesforce has evolved the way we serve our national customers and enables us to expand those relationships.

Performance Marketing. We are a leading provider of digital marketing services for advertisers. We continued to evolve our product offerings in 2019, improving profitability by focusing our resources on our largest, most important clients. We have expanded our investments in attribution across linear television and OTT, more effectively demonstrating the value all our advertising products bring to our clients.

NextGen TV (ATSC 3.0). In 2017, the FCC began the process of issuing rules that would permit television stations to broadcast in the new ATSC 3.0 broadcast transmissions standard, which will allow broadcasters to enhance their existing transmission services with a new standardized system that will allow us to compete directly with Internet protocols. This new standard will allow us to support higher 4K high dynamic range resolution, higher frame rate, mobile, second screen experiences, 3D audio, virtual reality, advanced advertising and other exciting enhancements to the viewing experience. The technology enables encryption and content protection that will allow broadcasters for the first time to protect their signal and employ paywalls. During 2018 and 2019, we worked with other broadcasters as part of the Pearl consortium’s ongoing pilot testing of the new standard in Phoenix, Arizona. We expect to participate in the NextGen TV transition in multiple TEGNA markets in 2020.

4. Maintaining a strong balance sheet:

Our balance sheet combined with our strong, accelerating and dependable cash flows provide us the ability to pursue the path that offers the most attractive return on capital at any given point in time. We have a broad set of capital deployment opportunities, including retiring debt to create additional future flexibility; investing in original, relevant and engaging content; investing in growth businesses like Premion; and pursuing value accretive acquisition-related growth.

For example, during 2019 and in January 2020 we completed significant strategic financing actions that have positioned us to continue to pursue strategic acquisition opportunities that may develop in our sector, invest in new content and revenue initiatives, and grow revenue in fiscal year 2020. First, on August 15, 2019, we entered into an amendment of our Amended and Restated Competitive Advance and Revolving Credit Agreement that extended the letter of credit commitments until August 15, 2024 and increased our permitted total leverage ratios. In addition, on September 13, 2019 and January 9, 2020, we completed two $1 billion debt refinancings, taking advantage of low rates to reduce future interest expense including approximately $10 million in 2020, and improve our financial flexibility.

We will continue to review all opportunities in a disciplined manner, both strategically and financially. In the near-term, our priorities continue to be maintaining a strong balance sheet, enabling organic growth, acquiring attractively priced strategic assets and returning capital to shareholders in the form of dividends.

5. Commitment to free cash flow generation and a balanced capital allocation process:

Our operations have historically generated strong cash flow which, along with availability under our existing $1.5 billion revolving credit facility, are sufficient to fund our capital expenditures, interest expense, dividends, investments in new products and initiatives, as well as to fund acquisitions, including the Recent Acquisitions discussed above. 

Our ability to generate operating cash flow and the recent completion of the two debt refinancings have enabled us to continue to de-lever following the Recent Acquisitions while continuing to pay a quarterly dividend of $0.07 per share. We plan to de-lever to approximately 4.0x of Adjusted EBITDA (see definition of this non-GAAP financial metric in Item 7) by year-end 2020, enabling TEGNA to continue to play a key role as an industry consolidator in the years ahead.

In addition, we have effectively deployed capital through divestitures, which help fund our growth. Our Board and management team continually assess the financial productivity of assets within our portfolio in the context of our strategy and

7


operations. As a result, we have realized proceeds of approximately $300 million from the sale of non-core assets since 2017. These proceeds, together with cash distributions received from investments, have helped to provide a funding source for both strategic acquisitions and investments in organic growth drivers such as Premion.

Total shareholder return

As a result of executing on our five-pillar strategy, we have generated total shareholder return of 23.6% over the last two years. The below table shows total TEGNA shareholder return from January 1, 2018 (the beginning of our first full year as a pure-play broadcasting company) through December 31, 2019, compared to our Peer Group and S&P 500 Index.
https://cdn.kscope.io/7166cd48f2a06bb6448e4f06f3209053-chart-0aaaf0b905f397f5047.jpg
 
Note: The Peer Group is defined as E.W. Scripps Company, Gray Television Inc., Meredith Corp., Nexstar Media Group, Inc., and Sinclair Broadcast Group, Inc.
 
 
 
INDEXED RETURNS
 
 
 
 
 
Periods Ending
 
 
 
Company Name / Index
Jan18
Mar18
Jun18
Sep18
Dec18
Mar19
Jun19
Sep19
Dec19
TEGNA Inc.
100
$81.34
$78.00
$86.49
$79.04
$103.02
$111.18
$114.52
$123.64
S&P 500 Index
100
$99.24
$102.65
$110.56
$95.62
$108.67
$113.34
$115.27
$125.72
Peer Group
100
$82.14
$87.77
$91.22
$87.08
$116.70
$117.86
$103.04
$106.29

Competition

The proliferation of high-speed broadband to the home and phone has significantly increased competition in the video marketplace in the last decade. Today, mobile broadband covers 99% of the U.S., and approximately 87% of Americans own devices that can access mobile broadband with numbers continuing to grow. Fixed, wired broadband to the home is now estimated at 82%, and also growing.
With the rise of 4G and unlimited data plans, every screen or mobile phone is now television. These video consumption patterns are no longer restricted to younger consumers. With the onset of ubiquitous high-speed Internet service, there’s been an explosion of platforms and applications with video advertising capabilities that consumers have adopted. These include large players like YouTube and Facebook, and a long tail of mobile applications and services that consumers value with more being added every week.

Our company strives to capture as large a viewing audience as possible for each of our broadcast stations, as the number of viewers who watch our stations in each Designated Market Area (DMA) has a direct impact on our ability to maximize both of our major revenue streams: advertising revenue and retransmission consent fees. 

8



As noted above, we compete for audience share as part of an increasingly varied and competitive media landscape. We compete for advertising revenue with other platforms for television advertising media, including other broadcast stations and cable providers. We also compete against both traditional and new forms of media that offer paid advertising, including radio, newspapers, magazines, direct mail, online video, and social media.  Major competitors in this space include cable providers Comcast and Charter, as well as Internet platforms Google, Facebook, and YouTube. Advertisements on these digital platforms look like traditional television ads and compete with over-the-air broadcast ads in the local ad market.

With respect to retransmission consent fees, we compete to capture a share of the total amount MVPDs are willing to pay for the rights to distribute linear TV content to their subscribers. The larger our audience share, the more appealing our programming is to the MVPDs and the more they will be willing to pay for the right to distribute it. We compete for this revenue against other broadcast stations and cable networks.

The advertising industry is dynamic and rapidly evolving. Through their websites, our stations compete in the local electronic media space, which includes the Internet or Internet-enabled devices, handheld wireless devices such as mobile phones and tablets, social media platforms, digital spectrum opportunities and OTT video services. In this space, we compete for audience and advertising revenue against other local media companies, Internet advertising giants such as Google and Facebook, as well as the fragmented landscape of digital ad agencies. The technology that enables consumers to receive news and information continues to evolve as does our digital strategy.

Regulation

Our television stations are operated under the authority of the FCC, the Communications Act of 1934, as amended (Communications Act), and the rules and policies of the FCC (FCC regulations). As a result, our television stations are subject to a variety of obligations, such as restrictions on the broadcast of material deemed “indecent” or “profane,” requirements to provide or pass through closed captioning for most programming, rules requiring the public disclosure of certain information about our stations’ operations, and the obligation to offer programming responsive to the needs and interests of our stations’ communities. The FCC may alter or add to these requirements, and any such changes may affect the performance of our business. Certain significant elements of the FCC’s current regulatory framework for broadcast television are described in further detail below.

Licensing. Television broadcast licenses generally are granted for eight-year periods. They are renewable upon application to the FCC and usually are renewed except in rare cases in which a petition to deny, a complaint or an adverse finding as to the licensee’s qualifications results in loss of the license. We believe that our stations operate in substantial compliance with the Communications Act and FCC regulations.

Local Broadcast Ownership Restriction. FCC regulations limit the concentration of broadcasting control and regulate network and local programming practices. In November 2017, the FCC adopted an order altering its regulations governing media ownership, generally making these regulations less restrictive. For example, the order eliminated the newspaper/broadcast cross-ownership rule, which generally prohibited an entity from holding an ownership interest in a daily print newspaper and a full-power broadcast station within the same market, and the television/radio cross-ownership rule, which imposed a number of limits on the ability to own television and radio stations in the same market. The revised rules also made common ownership of two television stations in the same market permissible in more markets so long as at least one of the commonly owned stations is not among the top four rated stations in the market at the time of acquisition, and provided for case-by-case consideration of transactions that would result in new or continued common ownership of two top four rated stations in a market. The FCC’s November 2017 ownership order also eliminated a rule making certain joint advertising sales agreements (JSAs) attributable in calculating compliance with the ownership limits. TEGNA is not currently party to any JSAs.

Various parties - including cable operators and other advocates for more stringent broadcast ownership restrictions - generally opposed the changes adopted in the FCC’s November 2017 order and challenged the order in court. The U.S. Court of Appeals for the Third Circuit vacated and remanded the FCC’s November 2017 order effective as of November 29, 2019, thus reinstating as of that date the FCC’s broadcast ownership rules in effect immediately prior to the November 2017 order. The FCC may appeal the Third Circuit’s decision to the U.S. Supreme Court and/or may adopt revised ownership rules in a new order issued as part of the periodic review the FCC is required by statute to undertake of those rules every four years.

The FCC requires the disclosure of shared services agreements (SSAs) in stations’ online public inspection files, though these agreements generally are not deemed to be attributable ownership interests. The FCC defines SSAs broadly to include a wide range of agreements between separately owned stations, including news sharing agreements and other agreements involving “station-related services.” We are party to an SSA under which our television station in Toledo, WTOL, provides certain services (not including advertising sales) to another Toledo television station owned by a third party. We are party to several other agreements involving the limited sharing of certain equipment and resources; some of these agreements may qualify as SSAs subject to disclosure.

National Broadcast Ownership Restrictions. The Communications Act includes a national ownership cap for broadcast television stations that prohibits any one person or entity from having, in the aggregate, market reach of more than 39% of all

9


U.S. television households. FCC regulations permit stations to discount the market reach of stations that broadcast on UHF channels by 50% (the UHF discount). In December 2017, the FCC issued a Notice of Proposed Rulemaking seeking comments on whether it can or should modify or eliminate the national ownership cap and/or the UHF discount. Our 62 television stations reach approximately 32% of U.S. television households when the UHF discount is applied and approximately 39.0% without the UHF discount.

Retransmission Consent. As permitted by the Communications Act and FCC rules, we require cable and satellite operators to negotiate retransmission consent agreements to retransmit our stations’ signals. Under the applicable statutory provisions and FCC rules, such negotiations must be conducted in “good faith.” FCC rules also provide stations with certain protections against cable and satellite operators importing duplicating network or syndicated programming broadcast by distant stations. Pay-TV interests and other parties continue to advocate for the FCC to alter or eliminate various aspects of the rules governing retransmission consent negotiations and stations’ exclusivity rights. In addition, some pay-TV operators recently have invested in or otherwise coordinated with an online service called Locast, which asserts that it may lawfully retransmit broadcast television signals over the Internet within the applicable stations’ Nielsen DMAs - without the originating stations’ consent - under a federal Copyright Act provision that permits nonprofit organizations to retransmit broadcast television signals under certain limited circumstances. A lawsuit filed July 31, 2019, by the Big Four television networks, among others, alleges that Locast’s service does not qualify for the claimed exemption and therefore constitutes copyright infringement. That lawsuit is pending in the U.S. District Court for the Southern District of New York. If changes to the retransmission consent and/or exclusivity rules were adopted, and/or if services such as Locast were determined to be lawful, such developments could give cable and satellite operators leverage against broadcasters in retransmission consent negotiations and, as a result, adversely impact our revenue from retransmission and advertising.

Post-Incentive Auction Repacking. In April 2017, the FCC announced the completion of a voluntary incentive auction to reallocate certain spectrum currently occupied by television broadcast stations to mobile wireless broadband services, along with a related “repacking” of the television spectrum for remaining television stations. None of our stations relinquished any spectrum rights as a result of the auction. Seventeen of our stations (which includes four of our recently acquired stations) have been or will be repacked to new channels.

To date, the repacking has not had any material effect on the geographic areas or populations served by our repacked full-power stations’ over-the-air signals, and we do not expect our remaining stations undergoing repacking to experience any such effect. If the repacking did have such an effect, our television stations moving channels could have smaller service areas and/or experience additional interference. The legislation authorizing the incentive auction and repacking established a $1.75 billion fund for reimbursement of costs incurred by stations required to change channels in the repacking. Subsequent legislation enacted on March 23, 2018, appropriated an additional $1 billion for the repacking fund, of which up to $750 million may be made available to repacked full power and Class A television stations and multichannel video programming distributors. Other funds are earmarked to assist affected low power television stations, television translator stations, and FM radio stations, as well for consumer education efforts.

The repacking process is scheduled to occur over a 39-month period, divided into ten phases ending mid-year 2020. Our full power stations have been assigned to phases two through nine, and a majority of our capital expenditures in connection with the repack occurred in 2018 and 2019. To date, we have incurred approximately $35.6 million in capital expenditures for the spectrum repack project (of which $18.0 million was paid during 2019). We have received FCC reimbursements of approximately $24.4 million through December 31, 2019.

NextGen TV (ATSC 3.0). In November 2017, the FCC adopted an order authorizing broadcast television stations to voluntarily transition to a new technical standard, called Next Generation TV or ATSC 3.0. The new standard makes possible a variety of benefits for both broadcasters and viewers, including better sound and picture quality, hyper-localized programming including news and weather, enhanced emergency alerts, improved mobile reception, the use of targeted advertising, and more efficient use of spectrum, potentially allowing for more multicast streams to be aired on the same 6 megahertz channel. However, ATSC 3.0 is not backwards compatible with existing television equipment. To ensure continued service to all viewers, the FCC’s order authorizing ATSC 3.0 operations requires full-power television stations that transition to the new standard to continue broadcasting a signal in the existing DTV standard until the FCC phases out the requirement in a future order. The content of this simulcast signal must be substantially similar to the programming aired on the ATSC 3.0 channel for a period of at least five years. Transitioning a station to ATSC 3.0 is voluntary under current FCC rules and may require significant expenditures. We expect to continue rolling out the new standard pending the standard’s completion and in coordination with upgrades related to our spectrum repack transition. To the extent we roll ATSC 3.0 service out to our stations, there can be no guarantee that such service would earn sufficient additional revenues to offset the related expenditures.


10


General Company Information

Our company was founded by Frank E. Gannett and associates in 1906 and was incorporated in 1923. We listed shares publicly for the first time in 1967 and reincorporated in Delaware in 1972. In June 2015, we completed the spin-off of our former publishing businesses, and our company was renamed TEGNA. In addition, in May 2017, we completed the spin-off of our digital automotive business, Cars.com, and in July 2017, we completed the sale of our controlling ownership interest in CareerBuilder, completing our transformation into a pure-play broadcast company. Our headquarters is located at 8350 Broad Street, Suite 2000, Tysons, VA, 22102. Our telephone number is (703) 873-6600 and our website home page is www.tegna.com. We make our website content available for information purposes only. It should not be relied upon for investment purposes, nor is it incorporated by reference into this Annual Report on Form 10-K (Form 10-K).

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements for our annual stockholders’ meetings and amendments to those reports are available free of charge on our investor website, under “Investor Relations” at www.tegna.com as soon as reasonably practical after we electronically file the material with, or furnish it to, the Securities and Exchange Commission (SEC). In addition, copies of our annual reports will be made available, free of charge, upon written request. The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding SEC registrants, including TEGNA Inc.

Employees

As of December 31, 2019, we employed 6,883 full-time and part-time people, all of whom were located in the U.S. The following table summarizes our employee headcount as of the end of 2019 and 2018.
 
2019

 
2018

Media (1)
6,763

 
5,188

Corporate
120

 
148

Total
6,883

 
5,336

(1) Increase in 2019 is principally due to the Recent Acquisitions, new national sales organization and growth at our Premion business unit.
       
Approximately 10% of our employees are represented by labor unions. They are represented by 27 local bargaining units, most of which are affiliated with one of four international unions under collective bargaining agreements. These agreements conform generally with the pattern of labor agreements in the broadcasting industry. We do not engage in industry-wide or company-wide bargaining.

Environmental Regulatory Matters

We are subject to various laws and government regulations concerning environmental matters and employee safety and health. U.S. federal environmental legislation that pertains to us include the Toxic Substances Control Act, the Resource Conservation and Recovery Act, the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act and the Comprehensive Environmental Response, Compensation and Liability Act (also known as Superfund). We are also regulated by the Occupational Safety and Health Administration (OSHA) concerning employee safety and health matters. The Environmental Protection Agency (EPA), OSHA and other federal agencies have the authority to write regulations that have an effect on our operations.

In addition to these federal regulations, various states have authority under the federal statutes mentioned above. Many state and local governments have adopted environmental and employee safety and health laws and regulations, some of which are similar to federal requirements. State and federal authorities may seek fines and penalties for violating these laws and regulations. We believe that we have complied with such proceedings and orders at our stations without any materially adverse effect on our Consolidated Balance Sheet, Consolidated Statements of Income or Consolidated Statement of Cash Flows.

Corporate Responsibility and Sustainability

TEGNA is committed to embedding sustainability throughout our business. We are driven by our strongly held purpose to make a difference in our work, our company and our communities. Our culture is defined by our values of inclusion, integrity, innovation, impact and results. We are focused on advancing progress in the areas of environmental sustainability, social impact, diversity and inclusion and corporate governance practices in order to strengthen communities, and protect and enhance TEGNA’s long-term value.

Our Board’s Public Policy and Regulation Committee guides the Company’s corporate social responsibility and sustainability efforts, and reviews and reports on these efforts on a periodic basis to our Board. For more information, read our most recent Social Responsibility Highlights Report, which can be found at www.tegna.com/corporate-social-responsibility.

11


Environmental Commitment

We are committed to managing our environmental impact responsibly and protecting the environment through our business practices. We have numerous sustainability practices in place, including energy efficiency programs, reducing our carbon footprint, green building projects and waste reduction. TEGNA’s new headquarters building, completed in 2019, features easy access to public transportation, bike racks, and electric vehicle charging ports. The interior design seeks to reduce energy consumption through features like automated shade and lighting controls for daylight harvesting, occupancy sensors and zoned HVAC, among others.

The TEGNA Foundation, the charitable foundation sponsored by TEGNA Inc., supports nonprofit activities in communities where we do business and contributes to a variety of charitable causes through its Community Grant Program. Community grants are identified locally by TEGNA stations and include support for community sustainability efforts.

We undertook several initiatives in 2019 to enhance the physical security at local TEGNA stations. This includes building access improvements at KARE in Minneapolis and KFMB in San Diego, and access control and fencing at KUSA in Denver, and general building and safety and security updates at KING/KONG in Seattle, KTVB in Boise, WCSH in Portland ME, KPNX in Phoenix, KGW in Portland, WKYC in Cleveland, WMAZ in Macon, and WWL in New Orleans.

Social Impact

TEGNA stations and our journalists take seriously their responsibility to be defenders of the First Amendment and strive to make an impact by being agents of positive change in the markets we serve. TEGNA’s Principles of Ethical Journalism define the behavior that all employees who gather, report, produce and distribute news and information on any platform must adhere to. Our core principles of Truth, Independence, Public Interest, Fair Play, and Integrity form the foundation for all news content produced by TEGNA stations. Reporting by our stations exposes wrongdoing, helps change laws and brings communities together in times of crisis, such as severe weather and natural disasters. In 2019, TEGNA won more national journalism awards than any local broadcaster as a result of our innovative approach to content, impactful investigations and commitment to the communities we serve.

In 2019, TEGNA stations raised more than $100 million in support of diverse local causes that address specific needs in communities. TEGNA Foundation Community Grants totaling $1.5 million were made to address local needs identified by stations. Grants are distributed within the United Nations Sustainable Development Goal framework, with the majority of grants supporting four major categories: Good Health and Well Being, Quality Education, Zero Hunger, and No Poverty. TEGNA also made grants to broadcast industry organizations to support press freedom, journalism ethics, and training for the next generation of diverse journalists. TEGNA employees give back to their local communities by volunteering for and donating to their favorite causes. In 2019, TEGNA Foundation approved more than $500,000 in employee matching gifts. TEGNA employees also take part in mentoring our nation’s veterans through our relationship with American Corporate Partners (ACP), helping veterans transition out of the military and guiding them as they reenter the private sector. TEGNA is committed to building a fully inclusive culture and equity in talent hiring and management decisions. Women comprise 42% of the Board and 47% of our workforce. In addition, 17% of our Board and 25% of our workforce is racially and ethnically diverse. In 2019, and for the third consecutive year, TEGNA was named as a Best Place to Work for LGBTQ Equality by the Human Rights Campaign. In recognition of our strong commitment to inclusive practices both internally and in marketing campaigns, we received a 2019 Microsoft Advertising Agency Award for Inclusive Culture & Marketing. In 2019, minority and women-owned businesses were awarded 13% of TEGNA’s spending on outside products and services (excluding programming spend and based on analysis of the top 100 vendors).

Corporate Governance

Our Board and management have instituted strong corporate governance practices to ensure that we operate in ways that support the long-term interests of our shareholders. Important corporate governance practices we follow include:

All of our directors are elected annually;
Eleven of our twelve directors are independent;
We have a robust shareholder engagement program;
We separate the positions of Chairman and CEO and have an independent Chairman;
We maintain an ongoing board refreshment process, which has resulted in our adding six independent directors during the past five years and the transition of the chairman role during 2018;
Approximately 94.5% of the votes cast at last year’s annual meeting were in favor of the Company’s Say on Pay proposal.
Our directors and senior executives are subject to stock ownership guidelines;
We do not have a shareholder rights plan (poison pill) in place;
Our Board has adopted a proxy access by-law provision; and
Mergers and other business combinations involving the Company generally may be approved by a simple majority vote.

Additional information regarding our corporate governance practices is included in our Principles of Corporate Governance posted on the Corporate Governance page under the “Investors” menu of our website at www.tegna.com.

12


MARKETS WE SERVE
TELEVISION STATIONS AND AFFILIATED DIGITAL PLATFORM
State/District of Columbia
City
Station/web site
Channel (1)/Network
Affiliation Agreement Expires in
Market TV
Households (2)
Founded
Alabama
Huntsville
WZDX(TV): rocketcitynow.com
Ch. 54/FOX
2022
351,610

1985
Arizona
Flagstaff
KNAZ-TV: 12news.com
Ch. 2/NBC
2021
1,879,780

1970
 
Mesa
KPNX(TV): 12news.com
Ch. 12/NBC
2021
1,879,780

1953
 
Tucson
KMSB(TV): tucsonnewsnow.com
Ch. 11/FOX
2022
421,820

1967
 
 
KTTU(TV): tucsonnewsnow.com
Ch. 18/MNTV
2020
421,820

1984
Arkansas
Fort Smith
KFSM-TV: 5newsonline.com
Ch. 5/CBS
2022
265,520

1956
 
Little Rock
KTHV(TV): thv11.com
Ch. 11/CBS
2022
472,560

1955
California
Sacramento
KXTV(TV): abc10.com
Ch. 10/ABC
2023
1,317,500

1955
 
San Diego
KFMB-TV (3): cbs8.com
Ch. 8/CBS
2020
981,650

1949
Colorado
Denver
KTVD(TV): my20denver.com
Ch. 20/MNTV
2020
1,532,320

1988
 
 
KUSA(TV): 9news.com
Ch. 9/NBC
2021
1,532,320

1952
Connecticut
Hartford
WTIC-TV: fox61.com
Ch. 61/FOX
2022
885,890

1984
 
Waterbury
WCCT-TV: yourcwtv.com/partners/hartford
Ch. 20/CW
2021
885,890

1953
District of Columbia
Washington
WUSA(TV): wusa9.com
Ch. 9/CBS
2022
2,351,930

1949
Florida
Jacksonville
WJXX(TV): firstcoastnews.com
Ch. 25/ABC
2023
690,400

1989
 
 
WTLV(TV): firstcoastnews.com
Ch. 12/NBC
2021
690,400

1957
 
Tampa-St. Petersburg
WTSP(TV): wtsp.com
Ch. 10/CBS
2022
1,800,600

1965
Georgia
Atlanta
WATL(TV): 11alive.com
Ch. 36/MNTV
2020
2,269,270

1954
 
 
WXIA-TV: 11alive.com
Ch. 11/NBC
2021
2,269,270

1948
 
Macon
WMAZ-TV: 13wmaz.com
Ch. 13/CBS
2022
211,110

1953
Idaho
Boise
KTVB(TV) (4): ktvb.com
Ch. 7/NBC
2021
261,140

1953
Illinois
Moline
WQAD-TV: wqad.com
Ch. 8/ABC
2023
259,590

1963
Indiana
Indianapolis
WTHR(TV) (5): wthr.com
Ch. 13/NBC
2022
1,053,830

1957
Iowa
Ames
WOI-DT: weareiowa.com
Ch. 5/ABC
2022
393,470

1950
 
Ames
KCWI-TV: weareiowa.com
Ch. 23/CW
2021
393,470

1999
Kentucky
Louisville
WHAS-TV: whas11.com
Ch. 11/ABC
2023
636,150

1950
Louisiana
New Orleans
WWL-TV: wwltv.com
Ch. 4/CBS
2022
615,480

1957
 
 
WUPL(TV) (6): wwltv.com/mytv
Ch. 54/MNTV
2020
615,480

1955
Maine
Bangor
WLBZ(TV): newscentermaine.com
Ch. 2/NBC
2021
111,070

1954
 
Portland
WCSH(TV): newscentermaine.com
Ch. 6/NBC
2021
349,470

1953
Michigan
Grand Rapids
WZZM(TV): wzzm13.com
Ch. 13/ABC
2023
653,100

1962
Minnesota
Minneapolis-St. Paul
KARE(TV): kare11.com
Ch. 11/NBC
2021
1,697,370

1953
Missouri
St. Louis
KSDK(TV): ksdk.com
Ch. 5/NBC
2021
1,099,590

1947
New York
Buffalo
WGRZ(TV): wgrz.com
Ch. 2/NBC
2021
576,710

1954
North Carolina
Charlotte
WCNC-TV: wcnc.com
Ch. 36/NBC
2021
1,125,970

1967
 
Greensboro
WFMY-TV: wfmynews2.com
Ch. 2/CBS
2022
635,580

1949
Ohio
Cleveland
WKYC-TV: wkyc.com
Ch. 3/NBC
2021
1,366,110

1948
 
Columbus
WBNS-TV (7): 10tv.com
Ch. 10/CBS
2022
877,490

1949
 
Toledo
WTOL(TV): wtol.com
Ch. 11/CBS
2020
347,480

1958
Oregon
Portland
KGW(TV) (8): kgw.com
Ch. 8/NBC
2021
1,112,500

1956
Pennsylvania
Scranton
WNEP-TV: wnep.com
Ch. 16/ABC
2023
497,830

1954
 
York
WPMT(TV): fox43.com
Ch. 43/FOX
2022
641,660

1952
South Carolina
Columbia
WLTX(TV): wltx.com
Ch. 19/CBS
2022
365,850

1953
Tennessee
Knoxville
WBIR-TV: wbir.com
Ch. 10/NBC
2021
491,810

1956
 
Memphis
WATN-TV: localmemphis.com
Ch. 24/ABC
2022
580,600

1978
 
 
WLMT(TV): localmemphis.com
Ch. 30/CW
2021
580,600

1983
Texas
Abilene
KXVA(TV): myfoxzone.com
Ch. 15/FOX
2022
100,790

2001
 
Austin
KVUE(TV): kvue.com
Ch. 24/ABC
2023
736,770

1971
 
Beaumont
KBMT(TV) (9): 12newsnow.com
Ch. 12/ABC
2023
143,130

1961
 
Corpus Christi
KIII-TV: kiiitv.com
Ch. 3/ABC
2023
188,210

1964
 
Dallas
WFAA(TV): wfaa.com
Ch. 8/ABC
2023
2,563,320

1949
 
Houston
KHOU(TV): khou.com
Ch. 11/CBS
2022
2,330,180

1953
 
Odessa
KWES-TV: newswest9.com
Ch. 9/NBC
2021
141,600

1958
 
San Angelo
KIDY(TV): myfoxzone.com
Ch. 6/FOX
2022
50,220

1984
 
San Antonio
KENS(TV): kens5.com
Ch. 5/CBS
2022
916,970

1950
 
Tyler-Longview
KYTX(TV): cbs19.tv
Ch. 19/CBS
2022
223,590

2008
 
Temple
KCEN-TV (10): kcentv.com
Ch. 9/NBC
2021
333,300

1953
Virginia
Hampton/Norfolk
WVEC(TV): 13newsnow.com
Ch. 13/ABC
2023
684,310

1953

13


TELEVISION STATIONS AND AFFILIATED DIGITAL PLATFORM
 
 
 
 
(Continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
State/District of Columbia
City
Station/web site
Channel (1)/Network
Affiliation Agreement Expires in
Market TV
Households (2)
Founded
Washington
Seattle/Tacoma
KING-TV: king5.com
Ch. 5/NBC
2021
1,764,680

1948
 
 
KONG(TV): king5.com
Ch. 16/IND
N/A
1,764,680

1997
 
Spokane
KREM(TV): krem.com
Ch. 2/CBS
2022
381,590

1954
 
 
KSKN(TV): spokanescw22.com
Ch. 22/CW
2021
381,590

1983
 
 
 
 
 
 
 
(1) Channel refers to the viewer-facing “virtual” channel associated with the station’s brand, which may differ from the radiofrequency channel on which the station transmits.
(2) Market TV households is number of television households in each market, according to 2019-2020 Nielsen figures.
 
 
 
(3) KFMB also operates a sub-channel (CW channel), which is not counted. We also own two radio stations, KFMB-AM (760), and KFMB-FM (100.7).
(4) We also own KTFT-LD (NBC), a low power television station in Twin Falls, ID.
 
 
 
(5) We also own WALV-CD, a Class A television station in Indianapolis, IN.
 
 
 
(6) We also own WBXN-CD, a Class A television station in New Orleans, LA.
 
(7) We also own two radio stations, WBNS(AM) (1460), and WBNS-FM (97.1).
(8) We also own KGWZ-LD, a low power television station in Portland, OR.
(9) KBMT also operates a subchannel (KJAC/NBC), which is not counted. We also own KUIL-LD, a low power station in Beaumont, TX.
(10) We also own KAGS-LP, a low power television station in Bryan, TX.
In addition to the above television station properties, we also have the following digital and multicast network operations which support our television stations:
Premion: www.premion.com Headquarters: New York, NY
TEGNA Marketing Solutions: www.TEGNAmarketingsolutions.com
Justice Network and Quest multicast networks: www.justicenetworktv.com and www.questtv.com
 
INVESTMENTS
We have non-controlling ownership interests in the following companies:
Bustle Digital Group: www.bustle.com
CareerBuilder: www.careerbuilder.com
Hudson MX: www.hudsonmx.com
Kin Community: www.kincommunity.com
MadHive: www.madhive.com
Pearl: www.pearltv.com 
SIGNIA Venture Partners: www.signiaventurepartners.com
ViewLift: www.viewlift.com
Tubi TV: www.tubitv.com
Video Call Center: www.thevcc.tv
Vizbee: www.vizbee.tv
Whistle Sports: www.teamwhistle.com
 
TEGNA ON THE NET: News and information about us is available on our web site, www.TEGNA.com. In addition to news and other information about us, we provide access through this site to our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after we file or furnish them electronically to the Securities and Exchange Commission (SEC). Certifications by our Chief Executive Officer and Chief Financial Officer are included as exhibits to our SEC reports (including to this Form 10-K). We also provide access on this web site to our Principles of Corporate Governance, the charters of our Audit, Leadership Development and Compensation, Nominating and Governance, and Public Policy and Regulation Committees and other important governance documents and policies, including our Ethics and Inside Trading Policies. Copies of all of these corporate governance documents are available to any shareholder upon written request made to our Secretary at the headquarters address. We will disclose on this web site changes to, or waivers of, our corporate ethics policy.

 
 

Certain factors affecting forward-looking statements

Certain statements in this Annual Report on Form 10-K that do not describe historical facts may constitute forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995, including statements with respect to the expected financial results of the company. The words “believe,” “expect,” “estimate,” “could,” “should,” “intend,” “may,” “plan,” “seek,” “anticipate,” “project” and similar expressions, among others, generally identify forward-looking statements. Any forward-looking statements contained herein are based on our management’s current beliefs and expectations, but are subject to a number of risks, uncertainties and changes in circumstances, which may cause the company’s actual results or actions to differ materially from what is expressed or implied by these statements. Such statements include, but are not limited to: our confidence in the future performance of the company; our ability to execute on our capital allocation, growth and diversification strategies, including potential mergers and acquisitions; the realization of expected regulatory changes and our ability to monetize new content and grow subscriber revenue. Economic, competitive, governmental, technological and other factors and risks that may affect our operations or financial results expressed in this Annual Report are discussed in Item “1A. Risk Factors”.

14



Given these uncertainties, forward-looking statements should not be relied on in making investment decisions. The forward-looking statements contained in this Form 10-K speak only as of the date of its filing. Except where required by applicable law, we expressly disclaim a duty to provide updates to forward-looking statements after the date of this Form 10-K to reflect subsequent events, changed circumstances, changes in expectations, or the estimates and assumptions associated with them. The forward-looking statements in this Form 10-K are intended to be subject to the safe harbor protection provided by the federal securities laws.

ITEM 1A. RISK FACTORS

An investment in our common stock involves risks and uncertainties and investors should consider carefully the following risk factors before investing in our securities. We seek to identify, manage and mitigate risks to our business, but risk and uncertainty cannot be eliminated or necessarily predicted. The risks described below may not be the only risks we face. Additional risks that we do not yet perceive or that we currently believe are immaterial may adversely affect our business and the trading price of our securities.

We are impacted by demand for advertising, which, in turn, depends on a number of factors, some of which are cyclical and many of which are beyond our control
 
In 2019, 55% of our revenues were derived from television spot and digital advertising. Demand for advertising is highly dependent upon the strength of the U.S. economy, both in the markets our stations serve and in the nation as a whole. During an economic downturn, demand for advertising often decreases. Consequently, our operating results depend on the relative strength of the economy in our principal television markets as well as the strength or weakness of regional and national economic factors. A decline in economic conditions in the U.S. could have a significant adverse impact on our businesses and could significantly impact our television spot and digital advertising revenues.

Our advertising revenues can also vary substantially from year to year, driven by the political election cycle (i.e., even years); the ability and willingness of candidates and political action committees to raise and spend funds on television and digital advertising; and the competitiveness of the election races in our stations’ markets. Advertising revenues will also vary based on the coverage of major sporting events (e.g., Olympics and Super Bowl) due to our high concentration of NBC stations.

Competition from alternative forms of media may impair our ability to grow or maintain revenue levels in traditional and new businesses

Advertising and marketing services produce the majority of our revenues, with our stations’ affiliated desktop, mobile and tablet advertising revenues, as well as our OTT product offerings being important components. Technology, particularly new video formats, streaming and downloading capabilities via the Internet, video-on-demand, personal video recorders and other devices and technologies used in the entertainment industry continues to evolve rapidly, leading to alternative methods for the delivery and storage of digital content. These technological advancements have driven changes in consumer behavior and have empowered consumers to seek more control over when, where and how they consume news and entertainment, including through so-called “cutting the cord” and other consumption strategies.

These innovations may affect our ability to generate television audience, which may make our television stations less attractive to advertisers. For example, increasing demand for content generated for consumption through other forms of media such as Amazon Prime, Disney+, HBO Go, Hulu, or Netflix, could cause our advertising revenues to decline as a result of changes to the ratings of our programming, which may materially negatively affect our business and results of operations.
 
The value of our assets or operations may be diminished if our information technology systems fail to perform adequately

Our information technology systems are critically important to operating our business efficiently and effectively. We rely on our information technology systems to manage our business data, communications, news and advertising content, digital products, order entry, fulfillment and other business processes. The failure of our information technology systems to perform as we anticipate could disrupt our business and could result in transaction errors, processing inefficiencies, broadcasting disruptions, and loss of sales and customers, causing our business and results to be impacted.

Our efforts to minimize the likelihood and impact of adverse cybersecurity incidents and to protect our technology and confidential information may not be successful and our business could be negatively affected 

Our information technology systems are critically important to operating our business efficiently and effectively. We rely on our information technology systems to manage our business data, communications, news and advertising content, digital products, order entry, fulfillment and other business processes. As such, we are exposed to various cybersecurity threats, including but not limited to, threats to our information technology infrastructure, and unauthorized attempts to gain access to our confidential information, including third parties which receive our confidential information for business purposes. We take measures to minimize the risk of a cyber-attack including utilization of multi-factor authentication, deployment of firewalls, virtual private networks for mobile connections and conducting regular training of our employees related to protecting sensitive information and recognizing “phishing” attacks. These measures, however, may not be sufficient in preventing or the timely

15


detection of breaches or cyber-attacks due to the evolving nature and ever-increasing abilities of cyber-attacks. Depending on the severity of the breach or cyber-attack, such events could result in business interruptions, disclosure of nonpublic information, loss of sales and customers, misstated financial data, liabilities for stolen assets or information, diversion of our management’s attention, transaction errors, processing inefficiencies, increased cybersecurity protection costs, litigation, and financial consequences, any or all of which could adversely affect our business operations and reputation. In addition, cybersecurity breaches could subject us to civil liability to customers and other third parties as well as fines and penalties imposed by governmental or regulatory authorities which could be substantial. We maintain cyber risk insurance, but this insurance may be insufficient to cover all of our losses from breaches of our systems.

As has historically been the case in the broadcast sector, loss of, or changes in, affiliation agreements or retransmission consent agreements could adversely affect operating results for our stations

Most of our stations are covered by our network affiliation agreements with the major broadcast television networks (ABC, CBS, NBC, and Fox). These television networks produce and distribute programming in exchange for each of our stations’ commitment to air the programming at specified times and for other consideration such as commercial announcement time during the programming. The cost of network affiliation agreements represents a significant portion of our television operating expenses.

Each of our affiliation agreements has a stated expiration date. With respect to the major broadcast networks, our principal expirations occur in the following years: NBC-early 2021, CBS-2022, Fox-2022, ABC-2023. If renewed, our network affiliation agreements may be renewed on terms that are less favorable to us. The non-renewal or termination of any of our network affiliation agreements would prevent us from being able to carry programming of the affiliate network. This loss of programming would require us to obtain replacement programming, which may involve higher costs and/or which may not be as attractive to our audiences, resulting in reduced revenues.

In recent years, the networks have streamed their programming on the Internet and other distribution platforms, in some cases live or within a short period of the original network programming broadcast on local television stations, including those we own. An increase in the availability of network programming on alternative platforms that either bypass or provide less favorable terms to local stations - such as cable channels, the Internet and other distribution vehicles - may dilute the exclusivity and value of network programming originally broadcast by the local stations and could adversely affect the business, financial condition and results of operations of our stations.

Our retransmission consent agreements with major cable, satellite and telecommunications service providers permit them to retransmit our stations’ signals to their subscribers in exchange for the payment of compensation to us (which we classify as subscription revenues). This source of revenue represented approximately 44% of our 2019 total revenues, and we expect the contribution of subscription revenues to increase in 2020 and to continue to increase in the foreseeable future periods. During 2019, retransmission consent agreements covering approximately 50% of our subscribers were renewed. During 2020, retransmission consent agreements covering approximately 35% or our subscribers expire. If we are unable to negotiate and renew these agreements on favorable terms, or at all, the failure to do so could have an adverse effect on our ability to increase our subscription revenues, negatively impacting our business, financial condition, and results of operations.

We operate our business in a single broadcast segment, which increases our exposure to the changes and highly competitive environment of the broadcast industry

Broadcast companies operate in a highly competitive environment and compete for audiences, advertising and marketing services revenue and quality programing. Lower audience share, declines in advertising and marketing services spending, and increased programming costs would adversely affect our business, financial condition and results of operations. There can be no assurance that we will be able to compete successfully against existing, new or potential competitors, or that competition and consolidation in the media marketplace will not have a material adverse effect on our business, financial condition or results of operations.

In addition, the FCC and Congress are contemplating several new laws and changes to existing media ownership and other broadcast-related regulations, regarding a wide range of matters (including permitting companies to own more stations in a single market, as well as owning more stations nationwide). Changes to FCC rules may lead to additional opportunities as well as increased uncertainty in the industry.

Changing regulations may also impair or reduce our leverage in negotiating affiliation or retransmission agreements, adversely affecting our revenues, or result in increased costs, reduced valuations for certain broadcasting properties or other impacts, all of which may adversely impact our future profitability. All of our television stations are required to hold television broadcasting licenses from the FCC; when granted, these licenses are generally granted for a period of eight years. Under certain circumstances, the FCC is not required to renew any license and could decline to renew future license applications.


16


Changes in the regulatory environment could increase our costs or limit our opportunities for growth

Our television stations are subject to various obligations and restrictions under the Communications Act of 1934 as amended (the “Communications Act”), and FCC regulations. These requirements may be affected by legislation, FCC actions, or court decisions, and any such changes may affect the performance of our business, such as by imposing new obligations or by limiting our television stations’ exclusivity or retransmission consent rights. For instance, although the FCC voted in November 2017 to reduce restrictions on local broadcast ownership, the U.S. Court of Appeals for the Third Circuit vacated and remanded these changes effective as of November 29, 2019. These regulatory changes could be restored by further appeals or could be affected in the future by Congress or the FCC. If broadcast ownership rules become more restrictive, our opportunities to grow our broadcast business through acquisitions or other strategic transactions could be impaired.

There could be significant liability if the spin-off of Cars.com was determined to be a taxable transaction

In May 2017 we completed our spin-off of Cars.com, which we refer to as the ”spin-off”. In connection with the spin-off, we received an opinion from outside tax counsel to the effect that the requirements for tax-free treatment under Section 355 of the Internal Revenue Code were satisfied. The opinion relies on certain facts, assumptions, representations and undertakings from TEGNA and the spun-off business regarding the past and future conduct of the company’s business and other matters. If any of these facts, assumptions, representations or undertakings is incorrect or not satisfied, TEGNA and its stockholders may not be able to rely on the opinion of tax counsel and could be subject to significant tax liabilities.

Notwithstanding the opinion of tax counsel, the Internal Revenue Service could determine on audit that the spin-off is taxable if it determines that any of these facts, assumptions, representations or undertakings were incorrect or have been violated or if it disagrees with the conclusions in the opinion, or for other reasons, including as a result of certain significant changes in the share ownership of TEGNA or the spun-off business after the separation. If the spin-off was determined to be taxable for U.S. federal income tax purposes, TEGNA and its stockholders that are subject to U.S. federal income tax could incur significant U.S. federal income tax liabilities.

Our proxy contest with Standard General L.P. has caused and could continue to cause us to incur significant costs, divert management’s attention and resources, and have an adverse effect on our business

Activist shareholders, like Standard General, may from time to time engage in proxy solicitations, advance shareholder  proposals or otherwise attempt to affect changes or acquire control over us. Responding to these actions can be costly and time-consuming, divert the attention of our Board and management from the management of our operations and the pursuit of our business strategies, particularly if such activist shareholders advocate actions that are not supported by other shareholders, our board or management. In 2019, we incurred advisory fees of $6.1 million related to the pending proxy contest with Standard General, and have incurred additional costs in the first quarter of 2020. In addition to the incurred costs, perceived uncertainties as to our future direction may result in the loss of potential business opportunities, damage to our reputation and may make it more difficult to attract and retain qualified directors, personnel and business partners. These actions could also cause our stock price to experience periods of volatility.
Our strategic acquisitions, investments and partnerships could pose various risks, increase our leverage and may significantly impact our ability to expand our overall profitability

Acquisitions involve inherent risks, such as increasing leverage and debt service requirements and combining company cultures and facilities, which could have a material adverse effect on our results of operations or cash flow and could strain our human resources. We may be unable to successfully complete acquisitions, implement effective cost controls, achieve expected synergies or increase revenues as a result of an acquisition. Acquisitions may result in us assuming unexpected liabilities and in management diverting its attention from the operation of our business. Acquisitions may result in us having greater exposure to the industry risks of the businesses underlying the acquisition. Strategic investments and partnerships with other companies expose us to the risk that we may be unable to control the operations of our investee or partnership, which could decrease the amount of benefits we realize from a particular relationship. We are exposed to the risk that our partners in strategic investments and infrastructure may encounter financial difficulties which could disrupt investee or partnership activities, or impair assets acquired, which would adversely affect future reported results of operations and shareholders’ equity. The failure to obtain regulatory approvals or required consents of broadcast television networks or other third parties may prevent us from completing or realizing the anticipated benefits of acquisitions. Furthermore, acquisitions may subject us to new or different regulations which could have an adverse effect on our operations.

Volatility in the U.S. credit markets could significantly impact our ability to obtain new financing to fund our operations and strategic initiatives or to refinance our existing debt at reasonable rates and terms as it matures

As of December 31, 2019, we had approximately $4.2 billion in debt and approximately $594.8 million of undrawn additional borrowing capacity under our revolving credit facility that expires in 2024. This debt matures at various times during the years 2020-2029. While our cash flow is expected to be sufficient to pay amounts when due, if our operating results deteriorate significantly, we may not be able to pay amounts when due and a portion of these maturities may need to be refinanced. Access to the capital markets for longer-term financing is generally unpredictable and volatile credit markets could make it harder for us to obtain debt financings.

17


The value of our existing intangible assets may become impaired, depending upon future operating results

Goodwill and other intangible assets were approximately $5.51 billion as of December 31, 2019, representing approximately 79% of our total assets. Goodwill and indefinite-lived intangible assets are subject to annual impairment testing and more frequent testing upon the occurrence of certain events or significant changes in circumstance that indicate all or a portion of their carrying values may no longer be recoverable in which case a non-cash charge to earnings may be necessary. We may subsequently experience market pressures which could cause future cash flows to decline below our current expectations, or volatile equity markets could negatively impact market factors used in the impairment analysis, including earnings multiples, discount rates, and long-term growth rates. Any future evaluations requiring an asset impairment charge for goodwill or other intangible assets would adversely affect future reported results of operations and shareholders’ equity, although such charges would not affect our cash flow.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The types of properties required to support our television stations include offices, studios, sales offices, tower and transmitter sites. All of our stations have converted to digital television operations in accordance with applicable FCC regulations. A listing of television station locations can be found on page 13.

Our digital businesses that support our broadcast operations lease their facilities. This includes facilities for executive offices, sales offices and data centers. A listing of our digital businesses locations can be found on page 14.

In January 2019, we moved to our new corporate headquarters facility located in Tysons, VA. Our new corporate headquarters lease expires in April 2031.

We believe all of our owned and leased facilities are in satisfactory condition, are well maintained, and are adequate for current use.

ITEM 3. LEGAL PROCEEDINGS

Information regarding legal proceedings may be found in Note 13 of the Notes to consolidated financial statements.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our approximately 217.8 million outstanding shares of common stock are held by 6,452 shareholders of record as of January 31, 2020. Our shares are traded on the New York Stock Exchange (NYSE) with the symbol TGNA.

Purchases of Equity Securities

On September 19, 2017, our Board of Directors authorized a new share repurchase program for up to $300.0 million of our common stock over three years. During 2019, no shares were repurchased and as of December 31, 2019, approximately $279.1 million remained under this program. As a result of our Recent Acquisitions, we have suspended share repurchases under this program.

ITEM 6. SELECTED FINANCIAL DATA

Selected financial data for the years 2015 through 2019 is contained under the heading “Selected Financial Data” on page 78 and is derived from our audited financial statements for those years.

The information contained in the “Selected Financial Data” is not necessarily indicative of the results of operations to be expected for future years, and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 and the consolidated financial statements and related notes thereto included in Item 8 of this Form 10-K.

18


ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

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

We have one operating and reportable segment. The primary sources of our revenues are: 1) advertising & marketing services (AMS) 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.

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

As discussed above in “Business Overview” section of Item 1, during 2019 we acquired multiple local television stations and two multicast networks in four different business acquisitions for an aggregate purchase price of approximately $1.5 billion. The four acquisitions are collectively referred to as the “Recent Acquisitions” in the results of operations discussion that follows. The inclusion of the operating results from these Recent Acquisitions for the periods subsequent to their acquisition impacts the year-to-year comparability of our consolidated operating results in 2019.


19


Consolidated Results from Operations

The following discussion is a comparison of our consolidated results on a GAAP basis. The year-to-year comparison of financial results is not necessarily indicative of future results. In addition, see the section on page 23 titled ‘Operating results non GAAP information’ for additional tables presenting information which supplements our financial information provided on a GAAP basis.

For a comparative discussion of our results of operations for the years ended December 31, 2018 and December 31, 2017, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 1, 2019.

A consolidated summary of our results is presented below (in thousands).
 
2019
 
Change
 
2018
 
Change
 
2017
 
 
 
 
 
 
 
 
 
 
Revenues:
$
2,299,497

 
4%
 
$
2,207,282

 
16%
 
$
1,903,026

 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
Cost of revenues
1,228,237

 
15%
 
1,065,933

 
14%
 
933,718

Business units - Selling, general and administrative expenses
326,804

 
4%
 
315,320

 
10%
 
287,396

Corporate - General and administrative expenses
80,144

 
53%
(1)
52,467

 
(5%)
 
54,943

Depreciation
60,525

 
8%
 
55,949

 
2%
 
55,068

Amortization of intangible assets
50,104

 
62%
 
30,838

 
43%
 
21,570

Spectrum repacking reimbursements and other, net
(5,335
)
 
(54%)
 
(11,701
)
 
***
 
4,429

Total
1,740,479

 
15%
 
1,508,806

 
11%
 
1,357,124

Operating income
559,018

 
(20%)
 
698,476

 
28%
 
545,902

Non-operating income (expense):
 
 
 
 
 
 
 
 
 
Equity income in unconsolidated investments, net
10,149

 
(26%)
 
13,792

 
33%
 
10,402

Interest expense
(205,470
)
 
7%
 
(192,065
)
 
(9%)
 
(210,284
)
Other non-operating items, net
11,960

 
***
 
(11,496
)
 
(67%)
 
(35,304
)
Total
(183,361
)
 
(3%)
 
(189,769
)
 
(19%)
 
(235,186
)
Income before income taxes
375,657

 
(26%)
 
508,707

 
64%
 
310,716

Provision (benefit) for income taxes
89,422

 
(17%)
 
107,367

 
***
 
(137,246
)
Income from continuing operations
286,235

 
(29%)
 
401,340

 
(10%)
 
447,962

Earnings from continuing operations per share - basic
1.32

 
(29%)
 
1.86

 
(11%)
 
2.08

Earnings from continuing operations per share - diluted
$
1.31

 
(29%)
 
$
1.85

 
(10%)
 
$
2.06

*** Not meaningful
(1) This increase in corporate expense was driven by acquisition-related costs totaling $30.7 million in 2019 due to the Recent Acquisitions (principally advisory fees). In addition, our 2019 Corporate expense includes $6.1 million of advisory fees related to activism defense. Excluding these advisory fees, corporate expenses were down approximately $9.1 million. See the section on page 23 titled Operating results non-GAAP information’ for additional tables and information regarding our Corporate expense on a non-GAAP basis.

Revenues

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 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. The following table summarizes the year-over-year changes in our revenue categories (in thousands):
 
2019
 
Change
 
2018
 
Change
 
2017
Advertising & Marketing Services
$
1,226,607

 
11%
 
$
1,106,754

 
(3%)
 
$
1,139,642

Subscription
1,005,030

 
20%
 
840,838

 
17%
 
718,750

Political
38,478

 
(84%)
 
233,613

 
***
 
23,258

Other
29,382

 
13%
 
26,077

 
22%
 
21,376

Total revenues
$
2,299,497

 
4%
 
$
2,207,282

 
16%
 
$
1,903,026

*** Not meaningful


20


Total revenues increased $92.2 million in 2019 as compared to 2018. Our Recent Acquisitions contributed total revenues of $185.0 million in 2019. Excluding Recent Acquisitions, total revenues decreased $92.8 million. This decrease was primarily due to a $200.4 million reduction in political advertising, reflecting significantly fewer elections compared to 2018. This decrease was partially offset by an increase in subscription revenue of $96.6 million, primarily due to annual rate increases under existing retransmission agreements and an increase in AMS revenue of $8.6 million (due to higher digital revenue).

Cost of revenues

Cost of revenues increased $162.3 million in 2019 as compared to 2018. Our Recent Acquisitions added cost of revenues of $95.0 million. Excluding our Recent Acquisitions, cost of revenues increased $67.3 million. This increase was primarily due to a $61.1 million increase in programming costs, due to the growth in subscription revenues (certain programming cost are linked to such revenues), and higher severance expense of $3.7 million incurred in 2019 as compared to 2018. Partially offsetting this increase was a reduction of $8.6 million of digital costs as a result of the fourth quarter 2018 reduction in force and rebranding of our digital business unit (which resulted in lower third party digital platform costs in 2019, see Note 13 to the consolidated financial statements for further details).

Business units - Selling, general and administrative expenses

Business unit selling, general, and administrative expenses increased $11.5 million in 2019 as compared to 2018. Our Recent Acquisitions added business unit selling, general and administrative (SG&A) expenses of $25.7 million. Excluding the Recent Acquisitions, SG&A expenses decreased $14.2 million. The decrease was primarily the result of an $11.1 million reduction of professional and legal costs (due to the settlement of the Department of Justice Antitrust Division matter in June 2019, see Note 13 to the consolidated financial statements for further details).

Corporate - General and administrative expenses

Our corporate costs are separated from our business expenses and are recorded as general and administrative expenses in our Consolidated Statement of Income. This category primarily consists of broad corporate management functions including Legal, Human Resources, and Finance, as well as activities and costs not directly attributable to the operations of our media business. In addition, beginning in 2019, we now record acquisition-related costs within our Corporate operating expense. Prior to 2019, such costs were recorded in other non-operating items, net.

Corporate general and administrative expenses increased $27.7 million in 2019 as compared to 2018. The increase was primarily due to $30.7 million in acquisition-related costs (principally advisory fees) associated with the Recent Acquisitions. Also contributing to the increase was $6.1 million of advisory fees related to activism defense. Excluding these professional fees, corporate expenses were down approximately $9.1 million, primarily due to a decline in severance expense of $5.3 million in 2019 as compared to 2018 as well as the full-year impact of certain cost-saving initiatives implemented in 2018.

Depreciation

Depreciation expense increased $4.6 million in 2019 as compared to 2018. Our Recent Acquisitions added $5.8 million. Excluding the impact of Recent Acquisitions, there was a $1.2 million decline in our depreciation expense.

Amortization of intangible assets

Intangible asset amortization expense increased $19.3 million in 2019 as compared to 2018. The increase was due to our Recent Acquisitions.

Spectrum repacking reimbursements and other, net

We had other net gains of $5.3 million in 2019 compared to net gains of $11.7 million in 2018. The 2019 net gains consisted of gains of $17.0 million of reimbursements received from the Federal Communications Commission for required spectrum repacking and a gain of $2.9 million as a result of the sale of certain real estate. These gains were partially offset by a $5.5 million in contract termination charge and incremental transition costs related to bringing our national sales organization in-house and $9.1 million of non-cash charges to reduce the value of certain assets classified as held-for-sale. The 2018 net gains primarily consisted of $7.4 million of spectrum repack reimbursements and a $6.0 million gain recognized on the sale of real estate in Houston.

Operating income

Operating income decreased $139.5 million in 2019 as compared to 2018. Our Recent Acquisitions added $39.1 million in operating income. Excluding the impact of Recent Acquisitions, operating income decreased $178.6 million which was driven by the changes in revenue and operating expenses described above. Our operating margins were 24.3% in 2019 compared to 31.6% in 2018, primarily reflecting the typical decline of high-margin political advertising revenue in odd calendar years ($195.1 million lower).

21



Programming and payroll expense trends

Programming and payroll expenses are the two largest elements of our operating expenses, and are summarized below, expressed as a percentage of total operating expenses. Programming expenses as a percentage of total operating expenses have increased due to an increase in reverse compensation payments to our network affiliation partners associated with higher subscription revenues (certain affiliation partners are compensated based on a percentage of subscription revenues). Payroll expenses have increased during 2019 primarily due to our Recent Acquisitions, but as a percentage of total operating expenses have decreased in 2019 primarily due to increases in programming expenses, which make up a larger percentage of operating costs.
 
Percentage of total operating expenses
Expense Category
2019
 
2018
 
2017
Programming expenses
35.5%
 
33.3%
 
32.4%
Payroll expenses
28.6%
 
29.8%
 
31.3%

Non-operating income and expense

Equity income: This income statement category reflects earnings or losses from our equity method investments. Equity income decreased $3.6 million from $13.8 million in 2018 to $10.1 million in 2019. The 2019 income was primarily due to a gain of $12.2 million recognized in connection with the sale of investment in Captivate. The 2018 income was primarily due to $14.2 million of equity earnings from our CareerBuilder investment, resulting from a $17.9 million gain recorded in connection with our share of the gain on sale of its subsidiary, Economic Modeling, LLC.

Interest expense: Interest expense increased $13.4 million in 2019 as compared to 2018, primarily due to a higher average outstanding total debt balance, partially offset by lower interest rates. The total average outstanding debt was $3.37 billion in 2019 compared to $3.09 billion in 2018. The impact of the increase in outstanding debt was partially offset by a decrease in the weighted average interest rate on total outstanding debt, which was 5.85% in 2019 compared to 5.90% in 2018.

A further discussion of our borrowing and related interest cost is presented in the “Liquidity and capital resources” section of this report beginning on page 29 and in Note 6 to the consolidated financial statements.

Other non-operating items, net: Other non-operating items decreased $23.5 million from a net expense of $11.5 million in 2018 to a net income of $12.0 million in 2019. This decrease was primarily due to the absence of $15.4 million acquisition-related costs which were classified as non-operating in 2018. Beginning in 2019, such cost are now classified as a corporate operating cost. In addition, we recognized a $7.3 million gain in the second quarter of 2019 due to the write-up of our prior investment in the Justice and Quest multicast networks at the time of our acquisition.

Provision for income taxes

We reported pre-tax income from continuing operations attributable to TEGNA of $375.7 million for 2019. The effective tax rate on pre-tax income was 23.8%. The 2019 effective tax rate increased compared to 21.1% in 2018 primarily due to a 2019 valuation allowance recorded on a minority investment, higher nondeductible transaction costs incurred in 2019, and the 2018 effective tax rate included benefits from finalizing provisional amounts related to the Tax Cuts and Jobs Act (Tax Act). Partially offsetting the increase were higher tax benefits from the release of uncertain tax positions in 2019. The release of uncertain tax positions in 2019 was primarily related to the lapse of certain federal and state statutes of limitation as well as various state audit settlements.

We reported pre-tax income from continuing operations attributable to TEGNA of $508.7 million for 2018. The effective tax rate on pre-tax income was 21.1%. The 2018 effective tax rate reflects the 21.0% U.S. federal statutory that was effective January 1, 2018 as a result of the Tax Act enacted in December 2017. The tax expense for state taxes was partially offset by a tax benefit from finalizing provisional amounts recorded in 2017 from the Tax Act. 

Further information concerning income tax matters is contained in Note 5 of the consolidated financial statements.

Net income from continuing operations

Net income from continuing operations and related per share amounts are presented in the table below (in thousands, except per share amounts).
 
2019
 
Change
 
2018
 
Change
 
2017
Net income from continuing operations
$
286,235

 
(29%)
 
$
401,340

 
(10%)
 
$
447,962

Per basic share
$
1.32

 
(29%)
 
$
1.86

 
(11%)
 
$
2.08

Per diluted share
$
1.31

 
(29%)
 
$
1.85

 
(10%)
 
$
2.06


Our 2019 earnings per share was lower than 2018, primarily due to the $195.1 million reduction in political advertising, reflecting significantly fewer elections compared to 2018.

22


Operating results non-GAAP information

Presentation of non-GAAP information: We use non-GAAP financial performance to supplement the financial information presented on a GAAP basis. These non-GAAP financial measures should not be considered in isolation from, or as a substitute for, the related GAAP measures, nor should they be considered superior to the related GAAP measures, and should be read together with financial information presented on a GAAP basis. Also, our non-GAAP measures may not be comparable to similarly titled measures of other companies.

Management and our Board of Directors use the non-GAAP financial measures for purposes of evaluating company performance. Furthermore, the Leadership Development and Compensation Committee of our Board of Directors uses non-GAAP measures such as Adjusted EBITDA, non-GAAP net income, non-GAAP EPS, free cash flow and Adjusted revenues to evaluate management’s performance. Therefore, we believe that each of the non-GAAP measures presented provides useful information to investors and other stakeholders by allowing them to view our business through the eyes of management and our Board of Directors, facilitating comparisons of results across historical periods and focus on the underlying ongoing operating performance of our business. We also believe these non-GAAP measures are frequently used by investors, securities analysts and other interested parties in their evaluation of our business and other companies in the broadcast industry.

We discuss in this Form 10-K non-GAAP financial performance measures that exclude from our reported GAAP results the impact of “special items” consisting of spectrum repacking reimbursements and other, net, gains on sale of equity method investments, acquisition-related costs, advisory fees related to activism defense, severance costs, gains on equity method investments and certain non-operating expenses (TEGNA foundation donation and pension payment timing related charges). In addition, we have income tax special items associated with the tax impacts related to the Recent Acquisitions (including the 2018 acquisition of KFMB), adjustments related to previously-disposed businesses, and adjustments related to provisional tax impacts of tax reform.

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, charges and gains in the future, we believe that removing these items for purposes of calculating the non-GAAP financial measures provides investors with a more focused presentation of our ongoing operating performance.

We discuss Adjusted EBITDA (with and without corporate expenses), a non-GAAP financial performance measure that we believe offers a useful view of the overall operation of our businesses. We define Adjusted EBITDA as net income before (1) interest expense, (2) income taxes, (3) equity income in unconsolidated investments, net, (4) other non-operating items, net, (5) severance expense, (6) acquisition-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. Users should consider the limitations of using Adjusted EBITDA, including the fact that this measure does not provide a complete measure of our operating performance. Adjusted EBITDA is not intended to purport to be an alternate to net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. In particular, Adjusted EBITDA is not intended to be a measure of cash flow available for management’s discretionary expenditures, as this measure does not consider certain cash requirements, such as working capital needs, capital expenditures, contractual commitments, interest payments, tax payments and other debt service requirements.

We also consider adjusted revenues to be an important non-GAAP financial measure. Our adjusted revenue is calculated by taking total company revenues on a GAAP basis and adjusting it to exclude (1) estimated incremental Olympic and Super Bowl revenue and (2) political revenues. These adjustments are made to our reported revenue on a GAAP basis in order to evaluate and assess our core operations on a comparable basis, and it represents the ongoing operations of our media business.
  
We also discuss free cash flow, a non-GAAP performance measure. Beginning in the first quarter of 2019 we began using a new methodology to compute free cash flow. The change in methodology was determined to be preferable as it better reflects how the Board of Directors reviews the performance of the business and it more closely aligns to how other companies in the broadcast industry calculate this non-GAAP performance metric. The most directly comparable GAAP financial measure to free cash flow is Net income from continuing operations. Free cash flow is calculated as non-GAAP Adjusted EBITDA (as defined above), further adjusted by adding back (1) stock-based compensation, (2) non-cash 401(k) company match, (3) syndicated programming amortization, (4) pension reimbursements, (5) dividends received from equity method investments and (6) reimbursements from spectrum repacking. This is further adjusted by deducting payments made for (1) syndicated programming, (2) pension, (3) interest, (4) taxes (net of refunds) and (5) purchases of property and equipment. Like Adjusted EBITDA, free cash flow is not intended to be a measure of cash flow available for management’s discretionary use.

As described in “Forward Looking Financial Information” below, we provided guidance ranges for non-GAAP Corporate expenses and Free Cash Flow as a percentage of Revenue (FCF as % Revenue). We also provided Adjusted EBITDA margin

23


guidance. We are not able to reconcile non-GAAP Corporate expenses, or in the case of Adjusted EBITDA margin and FCF as % Revenue, their key inputs of Adjusted EBITDA or Free Cash Flow to their comparable GAAP financial measures without unreasonable efforts because certain information necessary to calculate such measures on a GAAP basis is unavailable, dependent on future events outside of our control and cannot be predicted. Examples of such information include (1) government reimbursement for spectrum repacking, the amount and timing of which are uncertain (2) share based compensation, which is impacted by future share price movement in our stock price and also dependent on future hiring and attrition (3) expenses related to acquisitions and dispositions, the timing and volume of which cannot be predicted. In addition, we believe such reconciliations could imply a degree of precision that might be confusing or misleading to investors. The actual effect of the reconciling items that we may exclude from these non-GAAP expense numbers, when determined, may be significant to the calculation of the comparable GAAP measures.

Discussion of special charges and credits affecting reported results: Our results during 2019 and 2018 included the following items we consider “special items” that while at times recurring, can vary significantly from period to period:

Results for the year ended December 31, 2019:

Severance expense which include payroll and related benefit costs at our stations and corporate headquarters;
Acquisition-related costs which primarily includes advisory fees associated with business acquisitions;
Advisory fees related to activism defense;
Spectrum repacking reimbursements and other, net is comprised of gains due to reimbursements from the FCC for required spectrum repacking, non-cash charges to reduce the value of certain assets classified as held-for-sale, gains recognized on the sale of real estate, and a contract termination and incremental transition costs related to bringing our national sales organization in-house;
Gains recognized in our equity income in unconsolidated investments as a result of the sale of two investments;
Other non-operating items primarily relates to a gain for the remeasurement of our previously held ownership in Justice Network and Quest to fair value, a charitable donation made to the TEGNA Foundation, costs incurred in connection with the early extinguishment of debt, and a gain due to an observable price increase in an equity investment; and
Realization of discrete tax benefits related to one of the Recent Acquisitions and a previously-disposed business.

Results for the year ended December 31, 2018:

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


24


Below are 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 (in thousands, except per share amounts):
 
 
 
 
Special Items
 
 
Year Ended Dec. 31, 2019
 
GAAP
measure
 
Severance expense
 
Acquisition-related costs
 
Advisor fees related to activism defense
 
Spectrum repacking reimbursements and other
 
Gains on equity method investments
 
Other non-operating items
 
Special tax items
 
Non-GAAP measure
Cost of revenues
 
$
1,228,237

 
$
(4,651
)
 
$

 
$

 
$

 
$

 
$

 
$

 
$
1,223,586

Business units - Selling, general and administrative expenses
 
326,804

 
(1,490
)
 

 

 

 

 

 

 
325,314

Corporate - General and administrative expenses
 
80,144

 
(223
)
 
(30,756
)
 
(6,080
)
 

 

 

 

 
43,085

Spectrum repacking reimbursements and other, net
 
(5,335
)
 

 

 

 
5,335

 

 

 

 

Operating expenses
 
1,740,479

 
(6,364
)
 
(30,756
)
 
(6,080
)
 
5,335

 

 

 

 
1,702,614

Operating income
 
559,018

 
6,364

 
30,756

 
6,080

 
(5,335
)
 

 

 

 
596,883

Equity income (loss) in unconsolidated investments, net
 
10,149

 

 

 

 

 
(13,126
)
 

 

 
(2,977
)
Other non-operating items, net
 
11,960

 

 

 

 

 

 
(8,891
)
 

 
3,069

Total non-operating expenses
 
(183,361
)
 

 

 

 

 
(13,126
)
 
(8,891
)
 

 
(205,378
)
Income before income taxes
 
375,657

 
6,364

 
30,756

 
6,080

 
(5,335
)
 
(13,126
)
 
(8,891
)
 

 
391,505

Provision for income taxes
 
89,422

 
1,596

 
6,249

 
1,472

 
(1,311
)
 
(3,169
)
 
(2,230
)
 
(568
)
 
91,461

Net income from continuing operations
 
286,235

 
4,768

 
24,507

 
4,608

 
(4,024
)
 
(9,957
)
 
(6,661
)
 
568

 
300,044

Net income from continuing operations per share - diluted (a)
 
$
1.31

 
$
0.02

 
$
0.11

 
$
0.02

 
$
(0.02
)
 
$
(0.05
)
 
$
(0.03
)
 
$

 
$
1.38

(a) Per share amounts do not sum due to rounding.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Special Items
 
 
Year Ended Dec. 31, 2018
 
GAAP
measure
 
Severance expense
 
Spectrum repacking reimbursements and other
 
Gain on equity method investment
 
Other non-operating items
 
Pension payment timing related charges
 
Special tax benefits
 
Non-GAAP measure
Cost of revenues
 
$
1,065,933

 
$
(931
)
 
$

 
$

 
$

 
$

 
$

 
$
1,065,002

Business units - Selling, general and administrative expenses
 
315,320

 
(875
)
 

 

 

 

 

 
314,445

Corporate - General and administrative expenses
 
52,467

 
(5,481
)
 

 

 

 

 

 
46,986

Spectrum repacking reimbursements and other, net
 
(11,701
)
 

 
11,701

 

 

 

 

 

Operating expenses
 
1,508,806

 
(7,287
)
 
11,701

 

 

 

 

 
1,513,220

Operating income
 
698,476

 
7,287

 
(11,701
)
 

 

 

 

 
694,062

Equity income (loss) in unconsolidated investments, net
 
13,792

 

 

 
(17,883
)
 

 

 

 
(4,091
)
Other non-operating items, net
 
(11,496
)
 

 

 

 
19,406

 
7,498

 

 
15,408

Total non-operating expenses
 
(189,769
)
 

 

 
(17,883
)
 
19,406

 
7,498

 

 
(180,748
)
Income before income taxes
 
508,707

 
7,287

 
(11,701
)
 
(17,883
)
 
19,406

 
7,498

 

 
513,314

Provision for income taxes
 
107,367

 
1,714

 
(1,379
)
 
(4,498
)
 
4,981

 
1,909

 
7,007

 
117,101

Net income from continuing operations
 
401,340

 
5,573

 
(10,322
)
 
(13,385
)
 
14,425

 
5,589

 
(7,007
)
 
396,213

Net income from continuing operations per share - diluted (a)
 
$
1.85

 
$
0.03

 
$
(0.05
)
 
$
(0.06
)
 
$
0.07

 
$
0.03

 
$
(0.03
)
 
$
1.83

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


25


Non-GAAP consolidated results

The following is a comparison of our as adjusted non-GAAP financial results between 2019 and 2018. Changes between the periods are driven by the same factors summarized above in the “Results of Operations” section within Management’s Discussion and Analysis of Financial Condition and Results of Operations (in thousands, except per share amounts).
 
2019
 
Change
 
2018
Adjusted operating expenses
$
1,702,614

 
13%
 
$
1,513,220

Adjusted operating income
596,883

 
(14%)
 
694,062

Adjusted equity (loss) in unconsolidated investments, net
(2,977
)
 
(27%)
 
(4,091
)
Adjusted other non-operating income
3,069

 
(80%)
 
15,408

Adjusted total non-operating (expense)
(205,378
)
 
14%
 
(180,748
)
Adjusted income before income taxes
391,505

 
(24%)
 
513,314

Adjusted provision for income taxes
91,461

 
(22%)
 
117,101

Adjusted net income from continuing operations
300,044

 
(24%)
 
396,213

  Adjusted net income from continuing operations per share - diluted
$
1.38

 
(25%)
 
$
1.83


Adjusted Revenues

Reconciliations of adjusted revenues to our revenues presented in accordance with GAAP on our Consolidated Statements of Income are presented below (in thousands):
 
2019
 
Change
 
2018