Company Quick10K Filing
Quick10K
TEGNA
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$16.44 216 $3,550
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-27 Quarter: 2015-09-27
10-Q 2015-06-28 Quarter: 2015-06-28
10-Q 2015-03-29 Quarter: 2015-03-29
10-K 2014-12-28 Annual: 2014-12-28
10-Q 2014-09-28 Quarter: 2014-09-28
10-Q 2014-06-29 Quarter: 2014-06-29
10-Q 2014-03-30 Quarter: 2014-03-30
10-K 2013-12-29 Annual: 2013-12-29
8-K 2019-03-20 Enter Agreement, Exhibits
8-K 2018-11-08 Earnings, Exhibits
8-K 2018-10-08 Accountant, Exhibits
8-K 2018-09-26 Officers
8-K 2018-09-04 Regulation FD
8-K 2018-08-07 Earnings, Exhibits
8-K 2018-07-24 Amend Bylaw, Exhibits
8-K 2018-06-21 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-04-26 Shareholder Vote
8-K 2018-02-22 Officers, Amend Bylaw, Regulation FD, Exhibits
8-K 2018-01-10 Officers, Exhibits
PTR PetroChina 118,070
AMD Advanced Micro Devices 30,210
PAYX Paychex 29,320
LOPE Grand Canyon Education 5,770
MDSO Medidata Solutions 4,890
PEI Pennsylvania Real Estate Investment Trust 441
RNGR Ranger Energy Services 126
GHSI Guardion Health Sciences 66
DMNM Dominion Minerals 0
BXNG Bang Holdings 0
TGNA 2018-12-31
Part I
Item 1.Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Note 1 - Description of Business, Basis of Presentation and Summary of Significant Accounting Policies
Note 2 - Acquisitions and Dispositions
Note 3 - Goodwill and Other Intangible Assets
Note 4 - Investments and Other Assets
Note 5 - Income Taxes
Note 6 - Long-Term Debt
Note 7 - Retirement Plans
Note 8 - Fair Value Measurement
Note 9 - Shareholders' Equity
Note 10 - Business Operations and Segment Information
Note 11 - Asset Impairment and Other (Gains) Charges
Note 12 - Supplemental Cash Flow Information
Note 13 - Other Matters
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Part IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
EX-10.4.11 tgna-ex10411_20181231x10k.htm
EX-10.5.3 tgna-ex1053_20181231x10k.htm
EX-10.7.18 tgna-ex10718_20181231x10k.htm
EX-10.7.25 tgna-ex10725_20181231x10k.htm
EX-10.27.2 tgna-ex10272_20181231x10k.htm
EX-10.28.2 tgna-ex10282_20181231x10k.htm
EX-21 tgna-ex21_20181231x10k.htm
EX-23 tgna-ex23_20181231x10k.htm
EX-31.1 tgna-ex311_20181231x10k.htm
EX-31.2 tgna-ex312_20181231x10k.htm
EX-32.1 tgna-ex321_20181231x10k.htm
EX-32.2 tgna-ex322_20181231x10k.htm

TEGNA Earnings 2018-12-31

TGNA 10K Annual Report

Balance SheetIncome StatementCash Flow

10-K 1 tgna-20181231x10k.htm 10-K Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
¨
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)
Registrant’s telephone number, including area code: (703) 873-6600
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange on Which Registered
Common Stock, par value $1.00 per share
 
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K (Check box if no delinquent filers). x
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, 2018, was $2,329,631,130. The registrant has no non-voting common equity.
As of January 31, 2019, 215,801,306 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 25, 2019, is incorporated by reference in Part III to the extent described therein.
 



INDEX TO TEGNA INC.
2018 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 - through empowering stories, impactful investigations and extensive marketing services. With 49 television stations and two radio stations in 41 U.S. markets, we are the largest owner of big four network affiliates in the top 25 markets, reaching approximately one-third of all television households nationwide. Each television station also has a robust digital presence across online, mobile and social platforms, reaching consumers whenever, wherever they are. Each month, we reach 50 million consumers on-air and approximately 35 million across our digital platforms. 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.

All of this is now delivered through a company with one singular focus; in 2017, we completed our transformation into a pure-play broadcast company. On May 31, 2017 we successfully completed the spin-off of Cars.com into a separate stand-alone public company and on July 31, 2017, we completed the sale of our controlling ownership interest in CareerBuilder. The completion of these strategic actions has reduced our debt and has further strengthened our balance sheet, providing us the ability to invest in our media businesses, capitalizing on opportunities for organic and acquisition-related growth. Our media operations generate strong and dependable cash flows and we are financially disciplined, which allows us to return additional value to shareholders through dividends and share repurchases. We are a leader in embracing change and driving innovation across our businesses, and we are well-positioned to benefit from the evolving regulatory environment.

Operating Structure

We have one operating and reportable segment which generated revenues of $2.2 billion in 2018. The primary sources of our revenues are: 1) advertising & marketing services revenues, which include local and national non-political 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. 2018, 2016) and particularly in the second half of those years; and 4) other services, such as production of programming from third parties and production of 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 independent advertising representatives, while local advertising time is sold by each station’s own 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.

Strategy
Our Board of Directors actively and regularly reviews, guides and oversees the development and implementation of our long-term strategic plan to create value for our stakeholders. The key elements of our strategy are as follows:

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 to make our content the consumers’ first choice, no matter the platform.


3


In 2018, 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 far more important than it was in the past, 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. Projects like “Verify,” which provides unbiased fact-checking on a variety of topics, developed before ‘fake news’ entered the common vernacular, was rolled out across all markets in 2017 and enhanced in 2018. “Verify” segments are platform agnostic and air on broadcast channels, are posted to social media channels and are shared across desktop, digital and mobile apps. Other impactful digital-first investigations such as “Selling Girls,” a six-part series produced by the award-winning investigative news teams from 11Alive in Atlanta and KHOU in Houston, focused on trafficking of American minor children. Initially launched across stations’ digital platforms, the series was localized, highlighting the direct impact of child sex trafficking in specific communities across the U.S.

We produce new, multi-platform, non-news programs, replacing the syndicated programs in these timeslots. 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 groundbreaking 30-minute live news and entertainment show produced out of KUSA in Denver is in its second year. “Daily Blast LIVE” is a first-of-its-kind format that is live in nearly all time zones across 50 markets, something unprecedented in TV syndication, and is also available on Facebook and YouTube. The content on “Daily Blast LIVE” is crowdsourced in real-time from viewers though social media. “Sister Circle,” a live daily talk show that targets African-American women - a large and traditionally underserved audience – is also in its second year. Produced by WATL in Atlanta, “Sister Circle” reaches approximately 60 percent of U.S. television households, distributed across 14 TEGNA markets and on TV One, a cable network offering a broad range of programming for a diverse audience of adult African-American 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 2018, this included initiatives focused on diversifying our web traffic sources, improving our digital workflows 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 2018, this included an aggressive strategy around improving our traffic via search engines like Google, growing our presence on YouTube, launching new email newsletter products in 18 markets and decreasing our dependency on traffic from social networks like Facebook. As a result of these efforts, our digital properties have seen improvements of +16% in Loyalty (Visits Per Visitor) and +115% in video views on YouTube during 2018. Since launching an initiative focused on search engine optimization in April 2018, referral traffic to our digital properties via search engines increased +60%.

Improving Digital Workflows: In 2018, we developed and began deployment of a new content management system across all of our markets. Our new platform integrates data into the story creation process, makes it easier to quickly publish videos and enables us to optimize our content for the wide variety of distribution platforms. Importantly, the new platform will also allow us to continually iterate on our capabilities as the digital ecosystem evolves, while reducing our ongoing operating expenses.

Industry-first innovators: Our culture of innovation led to several unique partnerships in 2018. We were the first local broadcaster to integrate Snapchat into our on-air broadcasts, which has provided an exclusive view into various news events, including a sit-in protest at Howard University where the media wasn’t allowed inside. We also partnered with Facebook to launch “An Imperfect Union”, a weekly show that we debuted ahead of the midterm elections to bring two people from opposing sides of an issue together for conversation and service in their communities.

Taking advantage of several hot political races happening in our markets in 2018, we partnered with Twitter to live stream political debates, including the Texas Debate between Ted Cruz and Beto O’Rourke, which was viewed by more than 500,000 people.

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 and satellite providers for carriage of our television stations. We also have retransmission agreements with major telecommunications companies.


4


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

We have several large 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, we have negotiated favorable agreements with economics with new OTT entrants that are as good or better than with traditional MVPDs, making us economically agnostic to consumer platform choices.

Improve the value we bring to advertisers. Through TMS, we continued to expand market share 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. We provide our clients with data-driven integrated marketing services, a holistic approach to put their advertising dollars to work in the channels that make the most sense for them, regardless of the platform. We serve our clients by providing deep consumer insights, unique creative solutions, and customization. To that end, in 2017 we rolled out a sophisticated pricing platform that marries disparate data sets and other advanced technologies to provide more optimal predictive pricing insights both for our salesforce and, ultimately, for our advertising clients. This software will also allow us to play a pivotal role as the industry shifts to more automated buying platforms.

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. Premion is a highly desirable buy for advertisers trying to reach 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’s non-political revenue in 2018 was $64.0 million compared to $30.0 million in 2017.

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 created 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 working to accelerate the automation of national spot advertising. In 2017, we teamed with several other broadcasters to create a set of Application Programming Interface’s (API’s) to enable software companies to more easily enter the market and work with the broader ecosystem. In 2019, we will continue to seek additional investment opportunities in this space.

Performance Marketing. We are a leading provider of digital marketing services for advertisers. We have continued to evolve our product offerings in 2018, 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.

ATSC 3.0. In 2017, the FCC began the process to issue rules that would give permission 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 IP 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 service enables encryption and content protection which will allow broadcasters for the first time to protect their signal and employ paywalls. In 2018, 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 continue rolling out ATSC 3.0 pending the completion of the new standard in coordination with upgrades related to our spectrum repack transition.

Capitalize on opportunities to grow inorganically. Our strong balance sheet and cash flow generation enables us to opportunistically grow the business through acquisitions. We believe that we are well-positioned to participate in a changing media landscape, as we have ample headroom under the existing ownership cap regulations (as discussed in “Regulation” section of Item 1) to pursue large vertical consolidations and other opportunities as we have done in the past. We also see future accretive in-market consolidation opportunities within our existing footprint, where we have single Big-4 affiliate stations in large markets.



5


On February 15, 2018, we acquired, for approximately $328.4 million in cash, assets in San Diego consisting of KFMB-TV (CBS affiliate station on its primary channel and a CW affiliate on multicast channel KFMB-D2) and radio broadcast stations KFMB-AM and KFMB-FM. Through this transaction, we added a strong market to our portfolio. San Diego is the 29th largest U.S. TV market with approximately 1 million households and the 17th largest radio market. KFMB-TV is the long-standing market leader in San Diego.

On January 2, 2019, we acquired, for approximately $108.9 million in cash, stations in Toledo, OH and Midland-Odessa, TX. WTOL, the CBS affiliate in Toledo and KWES, the NBC affiliate in Midland-Odessa are recognized as strong local media brands well-positioned in key markets that further enhance our portfolio of Big 4 affiliates. KWES further deepens our presence in the high-growth state of Texas where we now own 11 stations, covering 87 percent of television households in the state.

As a result of these transactions, we own or operate 49 television stations in 41 markets, covering approximately one-third of U.S. television households. We remain the largest NBC affiliate group, the second largest CBS affiliate group and the largest owner of Big 4 affiliates in the top 25 markets.

Competition

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.  We compete for audience share as part of an increasingly varied media landscape.  Our competitors in this space include other local television broadcasters (both network-affiliated and independent), cable networks, video-on-demand programming offered by MVPDs, and online video streaming services such as Netflix, Amazon Prime, and Hulu. 

The audience share captured by our broadcast stations positions us to compete against other advertising media for advertising revenues.  We compete for this 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. 

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.

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.

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. Under the revised FCC regulations that took effect on February 7, 2018, common ownership of two television stations in the same market is permitted so long as at least one of the commonly owned stations is

6


not among the top four rated stations in the market at the time of acquisition. Applications seeking FCC consent for a party to acquire control of two top four rated television stations in the same market will be considered on a case-by-case basis. Independent of the FCC’s ownership regulations, broadcast transactions separately are subject to compliance with applicable antitrust laws, with significant transactions typically subject to review by the Antitrust Division of the U.S. Department of Justice.

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. The FCC will continue to require the disclosure of JSAs and 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 provide services under a transition services agreement (which is similar to, but more limited than, the typical shared services agreement) and a JSA with a third party that owns a television station in Tucson, where we also own a television station. We also are party to an SSA under which our newly acquired television station in Toledo, WTOL, provides certain services (not including advertising sales) to another Toledo television station owned by a third party. We are not party to any JSAs other than the JSA in Tucson. 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.

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 have challenged the order in court. Those consolidated challenges are pending before the U.S. Court of Appeals for the Third Circuit.

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 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 48 television stations (excluding the stations we currently service under services arrangements) reach approximately 28.5% of U.S. television households when the UHF discount is applied and approximately 33.5% without the UHF discount.

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. If such changes were adopted, they 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.

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 will relinquish any spectrum rights as a result of the auction, and accordingly we will not receive any incentive auction proceeds. The FCC has, however, notified us that 13 of our stations will be repacked to new channels. In general, television stations moving channels may have smaller service areas and/or experience additional interference; however, based on our transition planning to date, we do not expect the repacking to have any material effect on the geographic areas or populations served by our repacked full-power stations’ over-the-air signals. 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. Some of our television translator stations have been or will be displaced as a result of the repacking, and thus are eligible under the additional repacking funds appropriation to seek reimbursement for costs incurred as a result of such displacement (subject to the translator locating an available alternative channel, which is not guaranteed).

The repacking process is scheduled to occur over a 39-month period, divided into ten phases. Our full power stations have been assigned to phases two through nine, and we expect to complete the repack project by the middle of 2020. To date, we have incurred approximately $17.6 million in capital expenditures for the spectrum repack project (of which $16.3 million was paid during 2018). We have received FCC reimbursements of approximately $7.4 million through December 31, 2018. The reimbursements were recorded as a contra operating expense within our asset impairment and other (gains) charges line item on our Consolidated Statement of Income and reported as an investing inflow on the Consolidated Statement of Cash Flows. In 2019, we expect to incur approximately $17.0 million in capital expenditures for the repack project. Each repacked full power commercial television station, including each of our 13 repacked stations, has been allocated a reimbursement amount equal to approximately 92.5% of the station’s estimated repacking costs, as verified by the FCC’s fund administrator. Although we expect the FCC to make additional allocations from the fund, it is not guaranteed that the FCC will approve all reimbursement requests necessary to completely reimburse each repacked station for all amounts incurred in connection with the repack. 

7



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.

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

At the end of 2018, we employed 5,336 full-time and part-time people, all of whom were located in the U.S. The following table summarizes our employee headcount at the end of 2018 and 2017.
 
2018

 
2017

Media
5,188

 
5,108

Corporate
148

 
175

Total
5,336

 
5,283


Approximately 11% of our employees in the U.S. are represented by labor unions. They are represented by 25 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 affects 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.

8


Environmental and Sustainability Initiatives

We are committed to managing our environmental impact responsibly and protecting the environment through our media programs and our charitable endeavors.

Our television stations regularly cover environmental and sustainability issues that affect their communities. In 2018, WWL in Louisiana produced a three-part series exploring the infamous "Cancer Alley" along the river parishes of southeast Louisiana. In addition to winning an Emmy, the series resulted in the St. Johns Parish Schools superintendent demanding a reduction in emissions at school facilities. The series also led to the Louisiana Department of Health to reconsider its position that the OSHA standard for chloroprene in the workplace was sufficient for area health impacts. KARE in Minneapolis, Minnesota investigated radon testing in local schools and uncovered that only 53 of 331 school districts reported to have tested classrooms for cancer-causing radon since 2012. As a result, Minnesota’s governor called the situation “disgraceful” and promised action. A new law to mandate testing in schools was recently introduced. WCNC in Charlotte, North Carolina reported on the fact that some Charlotte-Mecklenburg Schools had lead levels higher than 400 parts per billion, when the EPA requires action to be taken if lead amounts exceed 15 parts per billion. These results were hidden from parents and only shared internally. WCNC's series publicized exactly which drinking fountains and faucets at which schools had these high lead levels and questioned the school district about why it wasn’t sharing these results publicly. As a result, the district changed its policies and practices and began to send home test results and put the reports online. WHAS, in Louisville, Kentucky investigated a children’s soccer field that is on a toxic landfill that had been used for parking for special events, causing a potential risk to the kids. As a result of this reporting, the city of Louisville is reconsidering allowing future concerts and events to use the soccer fields for parking.

TEGNA’s efforts to reduce our carbon footprint continues at its corporate headquarters as paper storage is reduced by converting materials to a digital format. The shredding of these paper files is part of a recycling program through a local business. Smaller efforts like recycling copier waste toner cartridges, repurposing office supplies, and the strategic placement of recycling waste containers throughout office space all contribute to a conscientious effort toward responsibly managing our environmental impact. We continue to implement thoughtful strategies like LED studio lighting at WXIA Atlanta, KVUE Austin, “Daily Blast LIVE” in Denver, WFAA Dallas, KTHV Little Rock, KHOU Houston, WHAS Louisville, WMAZ Macon, KARE Minneapolis, KPNX Phoenix, and WUSA Washington, in addition to completions of HVAC upgrades in KVUE Austin, KTVB Boise, WZZM Grand Rapids, WVEC Norfolk, WCSH Portland, KXTV Sacramento, KFMB San Diego, and WTSP Tampa.

The TEGNA Foundation 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. In 2018, KFMB supported Kids’ Ocean Day, an environmental education program serving students from Title 1 schools by providing a series of classroom presentations on ocean conservation, culminating in a local beach cleanup. KXTV in Sacramento supported the Soil Born Farm Urban Agriculture Project, providing hands-on education in farming, nutrition and the environment.

Several initiatives have been undertaken this year to enhance the physical security at local TEGNA stations. This includes fence and building access improvements at WXIA Atlanta, improved access control and fencing at WTLV Jacksonville, and general building and safety and security updates at WTSP Tampa, KSDK St. Louis, WHAS Louisville, WBIR Knoxville, WFAA Dallas, and KBMT Beaumont. 























9


MARKETS WE SERVE

TELEVISION STATIONS AND AFFILIATED DIGITAL PLATFORM
State/District of Columbia
City
Station/web site
Channel/Network
Affiliation Agreement Expires in
Market TV
Households (1)
Founded
Arizona
Flagstaff
KNAZ-TV: 12news.com
Ch. 2/NBC
2021
1,864,420

1970
 
Phoenix
KPNX-TV: 12news.com
Ch. 12/NBC
2021
1,864,420

1953
 
Tucson
KMSB-TV: tucsonnewsnow.com
Ch. 11/FOX
2019
392,920

1967
 
 
KTTU-TV (2): tucsonnewsnow.com
Ch. 18/MNTV
2020
392,920

1984
Arkansas
Little Rock
KTHV-TV: thv11.com
Ch. 11/CBS
2019
527,090

1955
California
Sacramento
KXTV-TV: abc10.com
Ch. 10/ABC
2023
1,357,690

1955
 
San Diego
KFMB-TV (3): cbs8.com
Ch. 8/CBS
2020
987,760

1949
Colorado
Denver
KTVD-TV: my20denver.com
Ch. 20/MNTV
2020
1,585,270

1988
 
 
KUSA-TV: 9news.com
Ch. 9/NBC
2021
1,585,270

1952
District of Columbia
Washington
WUSA-TV: wusa9.com
Ch. 9/CBS
2019
2,482,480

1949
Florida
Jacksonville
WJXX-TV: firstcoastnews.com
Ch. 25/ABC
2023
681,330

1989
 
 
WTLV-TV: firstcoastnews.com
Ch. 12/NBC
2021
681,330

1957
 
Tampa-St. Petersburg
WTSP-TV: wtsp.com
Ch. 10/CBS
2019
1,875,420

1965
Georgia
Atlanta
WATL-TV: myatltv.com
Ch. 36/MNTV
2020
2,341,390

1954
 
 
WXIA-TV: 11alive.com
Ch. 11/NBC
2021
2,341,390

1948
 
Macon
WMAZ-TV: 13wmaz.com
Ch. 13/CBS
2019
224,180

1953
Idaho
Boise
KTVB-TV (4): ktvb.com
Ch. 7/NBC
2021
273,500

1953
Kentucky
Louisville
WHAS-TV: whas11.com
Ch. 11/ABC
2023
647,190

1950
Louisiana
New Orleans
WWL-TV: wwltv.com
Ch. 4/CBS
2019
624,020

1957
 
 
WUPL-TV (5): wupltv.com
Ch. 54/MNTV
2020
624,020

1955
Maine
Bangor
WLBZ-TV: wlbz2.com
Ch. 2/NBC
2021
124,190

1954
 
Portland
WCSH-TV: wcsh6.com
Ch. 6/NBC
2021
339,980

1953
Michigan
Grand Rapids
WZZM-TV: wzzm13.com
Ch. 13/ABC
2023
639,410

1962
Minnesota
Minneapolis-St. Paul
KARE-TV: kare11.com
Ch. 11/NBC
2021
1,713,310

1953
Missouri
St. Louis
KSDK-TV: ksdk.com
Ch. 5/NBC
2021
1,164,400

1947
New York
Buffalo
WGRZ-TV: wgrz.com
Ch. 2/NBC
2021
586,930

1954
North Carolina
Charlotte
WCNC-TV: wcnc.com
Ch. 36/NBC
2021
1,129,900

1967
 
Greensboro
WFMY-TV: wfmynews2.com
Ch. 2/CBS
2019
675,130

1949
Ohio
Cleveland
WKYC-TV: wkyc.com
Ch. 3/NBC
2021
1,399,470

1948
 
Toledo
WTOL-TV: wtol.com
Ch. 11/CBS
2020
401,510

1958
Oregon
Portland
KGW-TV (6): kgw.com
Ch. 8/NBC
2021
1,141,770

1956
South Carolina
Columbia
WLTX-TV: wltx.com
Ch. 19/CBS
2019
389,590

1953
Tennessee
Knoxville
WBIR-TV: wbir.com
Ch. 10/NBC
2021
512,160

1956
Texas
Abilene-Sweetwater
KXVA-TV: myfoxzone.com
Ch. 15/FOX
2019
104,440

2001
 
Austin
KVUE-TV: kvue.com
Ch. 24/ABC
2023
751,650

1971
 
Beaumont-Port Arthur
KBMT-TV: (7) 12newsnow.com
Ch. 12/ABC
2023
152,710

1961
 
Corpus Christi
KIII-TV: kiiitv.com
Ch. 3/ABC
2023
193,070

1964
 
Dallas/Ft. Worth
WFAA-TV: wfaa.com
Ch. 8/ABC
2023
2,622,070

1949
 
Houston
KHOU-TV: khou.com
Ch. 11/CBS
2019
2,423,360

1953
 
Midland-Odessa
KWES-TV: newswest9.com
Ch. 9/NBC
2021
150,430

1958
 
San Angelo
KIDY-TV: myfoxzone.com
Ch. 6/FOX
2019
52,790

1984
 
San Antonio
KENS-TV: kens5.com
Ch. 5/CBS
2019
923,990

1950
 
Tyler-Longview
KYTX-TV: cbs19.tv
Ch. 19/CBS
2019
232,180

2008
 
Waco-Temple-College Station
KCEN-TV: (8) kcentv.com
Ch. 9/NBC
2021
322,820

1953
Virginia
Hampton/Norfolk
WVEC-TV: 13newsnow.com
Ch. 13/ABC
2023
678,210

1953
Washington
Seattle/Tacoma
KING-TV: king5.com
Ch. 5/NBC
2021
1,854,810

1948
 
 
KONG-TV: king5.com
Ch. 16/IND
N/A
1,854,810

1997
 
Spokane
KREM-TV: krem.com
Ch. 2/CBS
2019
382,690

1954
 
 
KSKN-TV: spokanescw22.com
Ch. 22/CW
2021
382,690

1983
 
 
 
 
 
 
 
(1) Market TV households is number of television households in each market, according to 2018-2019 Nielsen figures.
(2) We service this station under service arrangements.
 
 
 
(3) KFMB also operates a sub-channel (CW channel), which is not counted, and 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 WBXN-CA, a Class A television station in New Orleans, LA.
 
 
 
(6) We also own KGWZ-LD, a low power television station in Portland, OR.
 
(7) We also own KBMT-LD and KJAC (D1) in Beaumont, TX.
(8) We also own KAGS-LP in Waco-Temple-Bryan, TX.

10


In addition to the above television station properties, we also have the following digital operations which support our television stations:
Premion: www.premionmedia.com Headquarters: New York, NY
TEGNA Marketing Solutions: www.TEGNAmarketingsolutions.com
 
INVESTMENTS
We have non-controlling ownership interests in the following companies:
4Info: www.4info.com
Captivate: www.captivate.com
CareerBuilder: www.careerbuilder.com
Hudson MX: www.hudsonmx.com
Independent Media: www.independentmediainc.com
Justice Network: www.justicenetworktv.com
Kin Community: www.kincommunity.com
MadHive: www.madhive.com
Pearl: www.pearltv.com 
Quest: www.questtv.com
SIGNA Venture Partners: www.signaventurepartners.com
ViewLift: www.viewlift.com
Topix: www.topix.com
Tubi TV: www.tubitv.com
Video Call Center: www.thevideocallcenter.com
Vizbee: www.vizbee.tv
Whistle Sports: www.whistlesports.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 contain certain forward-looking statements regarding business strategies, market potential, future financial performance and other matters. The words “believe,” “expect,” “estimate,” “could,” “should,” “intend,” “may,” “plan,” “seek,” “anticipate,” “project” and similar expressions, among others, generally identify “forward-looking statements”. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results and events to differ materially from those anticipated in the forward-looking statements.

Our actual financial results may be different from those projected due to the inherent nature of projections. Given these uncertainties, forward-looking statements should not be relied on in making investment decisions. The forward-looking 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.


11


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.

Changes in economic conditions in the U.S. markets we serve may depress demand for our products and services
 
We generate a significant portion of our revenues from the sale of advertising at our television stations. Expenditures by advertisers tend to be cyclical, reflecting overall economic conditions, as well as budgeting and buying patterns. As a result, 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 all key advertising revenue categories.

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 produces 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 both household audiences and advertisers. This competition may make it difficult for us to grow or maintain our advertising or subscription revenues.

We are impacted by advertising revenues, which, in turn, depend on a number of factors, some of which are cyclical and many of which are beyond our control

In 2018, 61% 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 may decrease. Our advertising revenues can also vary substantially from year to year, driven by the political election cycle (e.g., even years); the ability and willingness of candidates and political action committees to raise and spend funds on television and digital advertising; and the competitive nature of the elections impacting viewers within 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.

In addition, shifting viewer preferences, whether resulting from changing demand for the programming on our stations or increasing demand for content generated for consumption through other forms of media such as Netflix, Amazon Prime, HBO Go, or Disney+, 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

12


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. We maintain cyber risk insurance, but this insurance may be insufficient to cover all of our losses from any future 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 earliest expirations occur in the following years: NBC-2021, CBS-2019, ABC-2023, Fox-2019. 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 38% of our 2018 total revenues, and we expect subscription revenues to increase in 2019 and moving forward. During 2019, retransmission consent agreements covering approximately 50% of 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.

We operate as a single business segment which has more broadcast sector concentration. 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.

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. We cannot be assured that we will be able to compete successfully in the future 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.

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.

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 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. In addition, although the FCC voted in November 2017 to reduce restrictions on local broadcast

13


ownership, these regulatory changes could be overturned in pending court challenges or could be reversed 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 either the publishing businesses or Cars.com were determined to be a taxable transaction

In June 2015, we spun off our former publishing businesses, Gannett Co. Inc. (Gannett) and in May 2017 we completed our spin-off of Cars.com, collectively “the spin-offs”. In connection with each of the spin-offs, 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 businesses regarding the past and future conduct of the companies’ respective businesses 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 either of the spin-offs are 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 spin-off businesses after the separation. If either spin-off were 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.

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

At December 31, 2018, we had approximately $2.96 billion in debt and approximately $1.44 billion of undrawn additional borrowing capacity under our revolving credit facility that expires in 2023. This debt matures at various times during the years 2019-2027. 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.

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

Goodwill and other intangible assets were approximately $4.12 billion at December 31, 2018, representing approximately 78% of our total assets. These 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.

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 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 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.


14


ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our broadcast facilities are adequately equipped with the necessary television digital broadcasting equipment. We own or lease 55 transmitter facilities. All of our stations have converted to digital television operations in accordance with applicable FCC regulations. Our broadcasting facilities are adequate for present purposes. A listing of television station locations can be found on page 10.

Our digital businesses that support our broadcast operations lease their facilities. This includes facilities for executive offices, sales offices and data centers. Our facilities are adequate for present operations. We believe that suitable additional or alternative space, including those under lease options, will be available at commercially reasonable terms for future expansion. A listing of our digital businesses locations can be found on page 11.

In October 2015, we sold our corporate headquarters in McLean, VA for a purchase price of $270.0 million. After the sale, we leased a portion of the facility pursuant to a lease which ran through January 2019. In January 2019, we moved to our new corporate headquarters facility in Tysons, VA. Our new corporate headquarters lease expires in April 2031.

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 215.8 million outstanding shares of common stock are held by 5,940 shareholders of record as of January 31, 2019. 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 over the next three years. Under our current share repurchase program, we spent $5.8 million in 2018 to repurchase 0.5 million of our shares, at an average price per share of $10.71. Under the program, management has discretion to determine the dollar amount of shares to be repurchased and the timing of any repurchases in compliance with applicable law and regulation. No shares were repurchased during the fourth quarter of 2018. As of December 31, 2018, approximately $279.1 million remained under this authorization.

Comparison of shareholder return – 2014 to 2018

The following graph compares the performance of our common stock during the period December 29, 2013, to December 31, 2018, with the S&P 500 Index, and a peer group index we selected.

Our peer group includes CBS Corp., Discovery Communications Inc., E.W. Scripps Company, Graham Holdings Co., Gray Television Inc., Meredith Corp., Nexstar Media Group Inc., Scripps Networks Interactive (through March 6, 2018 when it was acquired by Discovery Communications), Sinclair Broadcast Group Inc., Tribune Media Company and Twenty-First Century Fox, Inc. (collectively, the “Peer Group”).

The S&P 500 Index includes 500 U.S. companies in the industrial, utilities and financial sectors and is weighted by market capitalization. The total returns of each peer group index also are weighted by market capitalization.


15


The graph depicts representative results of investing $100 in our common stock, the S&P 500 Index and the Peer Group index at closing on December 31, 2013. It assumes that dividends were reinvested monthly with respect to our common stock (including, as it relates to the Gannett spin-off, the aggregate value of the former publishing businesses as distributed to our shareholders, and, as it relates to the Cars.com spin-off, the aggregate value of the former digital automotive marketplace business as distributed to our shareholders), daily with respect to the S&P 500 Index and monthly with respect to each Peer Group company.

chart-b49c53b080ff5f53b7e.jpg
 
 
INDEXED RETURNS
 
 
Years Ending
 
2013
2014
2015
2016
2017
2018
TEGNA Inc.
100
$110.85
$119.89
$96.26
$111.2
$86.24
S&P 500 Index
100
$113.69
$115.26
$129.05
$157.22
$150.33
Peer Group
100
$98.01
$75.58
$85.45
$96.02
$112.74

ITEM 6. SELECTED FINANCIAL DATA

Selected financial data for the years 2014 through 2018 is contained under the heading “Selected Financial Data” on page 70 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.

16


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

Executive Summary

We are an innovative media company that serves the greater good of our communities. Our business includes 49 television stations operating in 41 markets, offering high-quality television programming and digital content. Each television station also has a robust digital presence across online, mobile and social platforms. Beyond integrated broadcast advertising products and services, we deliver results for advertisers through extensive solutions including our Over the Top (OTT) local advertising network, Premion; and our digital marketing services (DMS) business, a one-stop shop for local businesses to connect with consumers through digital marketing.

On May 31, 2017, we completed the spin-off of our digital automotive marketplace business, Cars.com. In addition, on July 31, 2017, we completed the sale of our majority ownership stake in CareerBuilder. Our digital marketing services (DMS) business is now reported within our Media business. As a result of these strategic actions, we have disposed of substantially all of our Digital Segment business and have therefore classified substantially all of its historical financial results as discontinued operations for all periods presented. We now operate one operating and reportable segment “Media.”

Our operating results are subject to seasonal fluctuations. Generally, the second and fourth quarters operating results are stronger than the first and third quarter. This is driven by the second quarter usually reflecting increased spring seasonal advertising, while the fourth quarter typically includes increased advertising related to the holiday season. In addition, our operating results are subject to significant fluctuations 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 further increases in political advertising in connection with the presidential election.
  
Consolidated Results from Operations

A consolidated summary of our results is presented below (in thousands).
 
2018
 
Change
 
2017
 
Change
 
2016
Revenues:
 
 
 
 
 
 
 
 
 
Media
$
2,207,282

 
16%
 
$
1,903,026

 
(5%)
 
$
1,994,120

Digital

 
****
 

 
****
 
9,968

Total
2,207,282

 
16%
 
1,903,026

 
(5%)
 
2,004,088

Operating expenses:
 
 
 
 
 
 
 
 
 
Cost of revenues, exclusive of depreciation
1,065,933

 
14%
 
933,718

 
17%
 
795,454

Business units - Selling, general and administrative expenses, exclusive of depreciation
315,320

 
10%
 
287,396

 
(13%)
 
331,028

Corporate - General and administrative expenses, exclusive of depreciation
52,467

 
(5%)
 
54,943

 
(6%)
 
58,692

Depreciation
55,949

 
2%
 
55,068

 
(1%)
 
55,369

Amortization of intangible assets
30,838

 
43%
 
21,570

 
(7%)
 
23,263

Asset impairment and other (gains) charges
(11,701
)
 
****
 
4,429

 
(86%)
 
32,130

Total
1,508,806

 
11%
 
1,357,124

 
5%
 
1,295,936

Operating income
698,476

 
28%
 
545,902

 
(23%)
 
708,152

Non-operating income (expense):
 
 
 
 
 
 
 
 
 
Equity income (loss) in unconsolidated investments, net
13,792

 
33%
 
10,402

 
****
 
(3,414
)
Interest expense
(192,065
)
 
(9%)
 
(210,284
)
 
(9%)
 
(231,995
)
Other non-operating expenses, net
(11,496
)
 
(67%)
 
(35,304
)
 
51%
 
(23,452
)
Total
(189,769
)
 
(19%)
 
(235,186
)
 
(9%)
 
(258,861
)
Income before income taxes
508,707

 
64%
 
310,716

 
(31%)
 
449,291

Provision (benefit) for income taxes
107,367

 
****
 
(137,246
)
 
****
 
140,171

Income from continuing operations
401,340

 
(10%)
 
447,962

 
45%
 
309,120

Earnings from continuing operations per share - basic
1.86

 
(11%)
 
2.08

 
45%
 
1.43

Earnings from continuing operations per share - diluted
$
1.85

 
(10%)
 
$
2.06

 
46%
 
$
1.41

**** Not meaningful
 

17


Revenues

Our Advertising and Marketing Services (AMS) category includes all sources of our traditional television advertising and digital revenues including Premion and other digital advertising and marketing revenues across our platforms. Our Subscription revenue category includes revenue earned from cable and satellite providers for the right to carry our signals and the distribution of TEGNA stations on OTT streaming services. The following table summarizes the year-over-year changes in our revenue categories (in thousands):
 
2018
 
Change
 
2017
 
Change
 
2016
Advertising & Marketing Services
$
1,106,754

 
(3%)
 
$
1,139,642

 
(8%)
 
$
1,237,735

Subscription
840,838

 
17%
 
718,750

 
24%
 
581,733

Political
233,613

 
****
 
23,258

 
(85%)
 
154,808

Other
26,077

 
22%
 
21,376

 
8%
 
19,844

Former Digital Business

 
****
 

 
(100%)
 
9,968

Total revenues
$
2,207,282

 
16%
 
$
1,903,026

 
(5%)
 
$
2,004,088

**** Not meaningful

Revenue increased $304.3 million, or 16%, in 2018 as compared to 2017. This net increase was primarily due to an increase in 2018 political revenue of $210.4 million, driven by the mid-term elections cycle. Also contributing to the net increase was subscription revenue which increased $122.1 million, or 17%, primarily due to annual rate increases under existing retransmission agreements and increases from OTT streaming service providers. These increases were partially offset by a decrease in AMS revenue of $32.9 million, or 3%, in 2018. Increases in AMS from Winter Olympic and Super Bowl advertising, the KFMB station acquisition, and digital advertising (primarily Premion) were offset by declines in digital marketing services (DMS) revenue (primarily due to conclusion of a transition service agreement with Gannett in June 2017) and a softening of demand and the impact of election year political displacement of traditional television advertising.

Revenue decreased $101.1 million, or 5%, in 2017 as compared to 2016. This net decrease was primarily driven by lower political revenue of $131.6 million, due to an expected decrease from 2016 politically related advertising spending. In addition, the decrease reflected a decline in AMS revenue of $98.1 million, or 8%, in 2017. This decline was primarily due to the absence of Olympic revenue in 2017 as compared to $57.3 million in 2016 and lower DMS revenue due to the conclusion of a transition services agreement with Gannett. Partially offsetting the overall AMS decline was an increase in digital revenue, including Premion revenue. Partially offsetting the overall decrease was an increase in subscription revenue of $137.0 million, or 24%, due to the renewal of certain retransmission agreements as well as annual rate increases under other existing retransmission agreements.

Costs of revenues, exclusive of depreciation

Cost of revenue increased $132.2 million, or 14%, in 2018 as compared to 2017. The increase was primarily due to a $63.3 million increase in programming costs (due to the growth in subscription revenues), a $43.5 million increase in digital expenses (primarily due to OTT inventory costs and investments made in the Premion business), and a $13.3 million increase from our KFMB station acquisition, production of original content (Daily Blast LIVE!, local news, and Sister Circle), and variable editorial costs tied to increased revenues (event coverage costs of Olympics and Super Bowl). These increases were partially offset by a decline in DMS costs of $9.3 million due to the conclusion of the transition services agreement with Gannett.

Cost of revenue increased $138.3 million, or 17%, in 2017 as compared to 2016. This increase was primarily due to an $175.9 million increase in reverse compensation related programming costs (primarily driven by 11 of our stations paying NBC reverse compensation payments for the first time in 2017). This increase was partially offset by a decline in DMS costs of $18.7 million driven by the termination of the transition service agreement with Gannett, the absence of $11.4 million of expense related to our 2016 voluntary early retirement program, and a $7.4 million decrease in Cofactor expenses due to its disposition in 2016.

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

Business unit selling, general, and administrative expenses increased $27.9 million, or 10%, in 2018 as compared to 2017. The increase was primarily driven by a $10.8 million increase due to higher selling costs related to incremental revenue from the mid-term elections, Olympics and Super Bowl. The remaining net $17.1 million increase was primarily due to the acquisition of KFMB and higher legal costs associated with the ongoing Department of Justice investigation - see Note 13 to the consolidated financial statements for further information.

Business unit selling, general, and administrative expenses decreased $43.6 million, or 13%, in 2017 as compared to 2016. The decrease was primarily the result of a $19.3 million decline in DMS selling and advertising expense related to the termination of the transition service agreement with Gannett and a reduction of $2.2 million in severance expense. Also contributing to the decline was the absence of $8.6 million of Cofactor expenses, due to its disposition in December 2016, and the absence of $4.0 million of expense related to our 2016 voluntary early retirement program.

18


Corporate - General and administrative expenses, exclusive of depreciation

Our corporate costs are separated from our business expenses and are recorded as general and administrative expenses in our Consolidated Statements of Income. These costs include activities that are not directly attributable or allocable to our media business operations. 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.

Corporate general and administrative expenses decreased $2.5 million, or 5%, in 2018 as compared to 2017. The decrease was primarily due to lower corporate expenses associated with operational efficiencies associated with right-sizing and stream-lining of the corporate function following the spin-off of Cars.com and the sale of our majority interest in CareerBuilder in 2017. These reductions were partially offset by $5.5 million in severance expense incurred in the third quarter of 2018 due to a reduction in force.

Corporate general and administrative expenses decreased $3.7 million, or 6%, in 2017 as compared to 2016. The decrease was primarily due to a reduction in severance expenses of $0.9 million incurred in 2017. The remaining difference is attributable to the right-sizing and stream-lining of the corporate function in connection with the strategic actions impacting our former Digital Segment.

Depreciation expense

Depreciation expense increased $0.9 million, or 2%, in 2018 as compared to 2017. The increase was due primarily to the assets acquired in the KFMB acquisition, partially offset by assets becoming fully depreciated.
    
Depreciation expense decreased $0.3 million, or 1%, in 2017 as compared to 2016. The decrease was primarily due to declines in the purchase of property and equipment, partially offset by additional depreciation related to a change in useful lives of certain broadcasting assets, including accelerated depreciation expense of $1.5 million in connection with the FCC channel repack process.

Amortization of intangible assets

Intangible asset amortization expense increased $9.3 million, or 43%, in 2018 as compared to 2017. The increase was primarily due to incremental amortization expense resulting from our acquisition of KFMB.

Intangible asset amortization expense decreased $1.7 million, or 7%, in 2017 as compared to 2016. The decrease was a result of certain intangible assets associated with previous acquisitions reaching the end of their useful lives.

Asset impairment and other (gains) charges

We had other net gains of $11.7 million in 2018 compared to charges of $4.4 million in 2017. The 2018 net gains primarily consist of $7.4 million of reimbursements received from the Federal Communications Commission related to the spectrum repack initiative. Also contributing was a $6.0 million gain recognized on the sale of real estate in Houston. The 2017 charges primarily consisted of $0.9 million in net expenses related to Hurricane Harvey (expenses of $26.9 million, net of insurance proceeds of $26.0 million), $1.4 million related to the consolidation of office space at our DMS business unit and corporate headquarters, and $2.2 million of non-cash impairment charges incurred by our broadcast station related to a building sale.

Asset impairment charges declined $27.7 million from charges of $32.1 million in 2016 to charges of $4.4 million in 2017. The 2017 charges primarily due to the factors discussed in the paragraph above. The 2016 charges were comprised of a goodwill impairment charge of $15.2 million (for our former Cofactor business), a $6.3 million impairment related to an internally produced programming asset, a $4.7 million impairment charge related to a long-lived-asset, and a $4.6 million lease related charge (for our former Cofactor business). 

Operating income

Operating income increased $152.6 million, or 28%, in 2018 as compared to 2017. The increase was driven by the changes in revenue and operating expenses described above. Our operating margins were 31.6% in 2018 compared to 28.7% in 2017, primarily driven by increases in political and subscription revenue in 2018.

Operating income decreased $162.3 million, or 23%, in 2017 as compared to 2016, primarily driven by the changes in revenue and operating expenses discussed above. Our operating margins were lower at 28.7% in 2017, compared to 35.3% in 2016, primarily driven by the increase in programming expenses and absence of $131.6 million of political revenue compared to 2016.


19


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. Payroll expenses have increased during 2018 primarily due to the acquisition of KFMB, but as a percentage of total operating expenses have decreased in 2018 primarily due to increases in programming expenses, which now make up a larger percentage of operating costs.
 
Percentage of total operating expenses
Expense Category
2018
 
2017
 
2016
Programming expenses
33.3%
 
32.4%
 
20.4%
Payroll expenses
29.8%
 
31.3%
 
34.6%

Non-operating income and expense

Equity income (loss): This income statement category reflects earnings or losses from our equity method investments. Equity income increased $3.4 million, or 33%, from $10.4 million in 2017 to $13.8 million in 2018. The 2018 income was primarily due to $14.2 million of equity earnings from our CareerBuilder investment, resulting from a one-time $17.9 million gain recorded in connection with our share of the gain on sale of its subsidiary, Economic Modeling, LLC (EMSI). The 2017 income was primarily due to a $17.5 million gain we recorded as a result of the sale of our Livestream investment. This income was partially offset by a $2.6 million impairment of an equity method investment.

Equity income (loss) fluctuated $13.8 million, from a loss of $3.4 million in 2016 to an income of $10.4 million in 2017. The fluctuation was primarily due to the $17.5 million gain we recorded as a result of the sale of our Livestream investment, partially offset by the $2.6 million impairment of an equity method investment recorded in 2017.

Interest expense: Interest expense decreased $18.2 million, or 9%, in 2018 as compared to 2017, primarily due to lower average outstanding total debt balance, partially offset by higher interest rates. The total average outstanding debt was $3.09 billion in 2018 compared to $3.59 billion in 2017. The decline in outstanding debt was partially offset by an increase in the weighted average interest rate on total outstanding debt which was 5.90% in 2018, compared to 5.57% in 2017.

Interest expense decreased $21.7 million, or 9%, in 2017 as compared to 2016, primarily due to lower average outstanding total debt balance, due to the $609.9 million mid-year paydown of our revolving credit facility and the accelerated repayment of $280.0 million of principal on unsecured notes due in October 2019. The total average outstanding debt was $3.59 billion in 2017 compared to $4.25 billion in 2016. The decline in outstanding debt was partially offset by an increase in the weighted average interest rate on total outstanding debt which was 5.57% in 2017, compared to 5.29% in 2016.

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 25 and in Note 6 to the consolidated financial statements.

Other non-operating expenses: Other non-operating expenses decreased $23.8 million, or 67%, from $35.3 million in 2017 to $11.5 million in 2018. The decrease is driven by lower business acquisition/disposition related transaction costs of $5.7 million and lower pension expense of $4.3 million (see Note 7 to the consolidated financial statements). In addition, in 2017 we incurred the following expenses that did not repeat in 2018; $6.6 million of costs incurred in connection with the early extinguishment of debt, a $5.8 million loss associated with the write-off of a note receivable from one of our former equity method investments, and a $3.9 million impairment of our stock investment in Gannett.

Other non-operating expenses increased $11.8 million from $23.5 million in 2016 to $35.3 million in 2017. The 2017 non-operating expenses primarily consisted of the components described above. The 2016 non-operating expenses primarily consisted of $21.0 million in costs associated with the spin-off of our Cars.com business unit.

Provision (benefit) for income taxes

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 Cuts and Jobs Act (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.  The 2018 effective tax rate increased compared to 2017 primarily due to the one-time deferred benefit recorded in 2017 in conjunction with the Tax Act.

We reported pre-tax income from continuing operations attributable to TEGNA of $310.7 million for 2017. The effective
tax rate on pre-tax income was -44.2% including a 71.2% or $221.1 million one-time deferred tax benefit recorded in conjunction with the Tax Act. We reported pre-tax income from continuing operations attributable to TEGNA of $449.3 million for 2016. The

20


effective tax rate on pre-tax income was 31.2%. The 2017 effective tax rate decreased as compared to 2016 primarily due to the recognition of the one-time deferred tax benefit recorded in conjunction with 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).
 
2018
 
Change
 
2017
 
Change
 
2016
Net income from continuing operations
$
401,340

 
(10%)
 
$
447,962

 
45%
 
$
309,120

Per basic share
1.86

 
(11%)
 
2.08

 
45%
 
1.43

Per diluted share
$
1.85

 
(10%)
 
$
2.06

 
46%
 
$
1.41


We reported net income from continuing operations of $401.3 million or $1.85 per diluted share for 2018 compared to $448.0 million or $2.06 per diluted share for 2017. Our 2017 earnings per share was benefited by approximately $1.02 as a result of one-time deferred tax benefit recorded in connection with the Tax Act (as discussed above).

Earnings per share also benefited from net decreases in diluted shares of approximately 0.9 million and 2.2 million in 2018 and 2017, respectively. The decreases in both years were due to share repurchases, which were partially offset by share issuances under our stock-based award programs.

Operating results non-GAAP information

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

Management and our Board of Directors use the non-GAAP financial measures for purposes of evaluating business unit and consolidated 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, Adjusted revenues and free cash flow to evaluate management’s performance. Therefore, we believe that each of the non-GAAP measures presented provides useful information to investors and other stakeholders by allowing them to view our business through the eyes of management and our Board of Directors, facilitating comparisons of results across historical periods and focus on the underlying ongoing operating performance of our business. We 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 severance expense, charges related to asset impairment and other (gains) charges, net gain on sale of equity method investments, gains/losses related to business disposals, costs associated with debt repayment, TEGNA Foundation donations, certain non-operating expenses (business acquisition, pension payment timing related charges, and transaction costs), and costs associated with the Cars.com spin-off transaction. In addition, we have income tax special items associated with tax impacts associated with the acquisition of KFMB; and deferred tax benefit adjustments related to adjusting provisional tax impacts of the Tax Act and a partial capital loss valuation allowance release, both resulting from completion of our 2017 federal income tax return in the third quarter.

We believe that such expenses, charges and gains are not indicative of normal, ongoing operations. Such items vary from period to period and are significantly impacted by the timing and nature of these events. 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 its businesses. We define Adjusted EBITDA as net income from continuing operations before (1) interest expense, (2) income taxes, (3) equity income (losses) in unconsolidated investments, net, (4) other non-operating expenses (income), (5) severance expense, (6) asset impairment and other (gains) charges, (7) impairment charges, (8) depreciation and (9) amortization. The most directly comparable GAAP financial measure to Adjusted EBITDA is Net income from continuing operations. 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 free 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.

21



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, (2) political revenues, and (3) revenues associated with a discontinued portion of our DMS business. 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 liquidity measure. Free cash flow is defined as “net cash flow from operating activities” as reported on the statement of cash flows reduced by “purchase of property and equipment” and increased by “reimbursement from spectrum repacking”. We believe that free cash flow is a useful measure for management and investors to evaluate the level of cash generated by operations and the ability of its operations to fund investments in new and existing businesses, return cash to shareholders under the company’s capital program, repay indebtedness, add to our cash balance, or use in other discretionary activities. We use free cash flow to monitor cash available for repayment of indebtedness and in discussions with the investment community. Like Adjusted EBITDA, free cash flow is not intended to be a measure of cash flow available for management’s discretionary use.

Discussion of special charges and credits affecting reported results: Our results for the year ended December 31, 2018, included the following items we consider “special items” and are not indicative of our normal ongoing operations:

Operating asset impairment and other net gains primarily consists of a gain recognized on the sale of real estate in Houston and gains due to reimbursements from the FCC for required spectrum repacking. These gains are partially offset by an early lease termination payment;

Severance charges which included payroll and related benefit costs due to restructuring at our DMS business and at our corporate headquarters;

Other non-operating items associated with business acquisition and integration costs, a charitable donation made to the TEGNA Foundation, and an impairment of a debt investment;

Pension payment timing related charges related to the acceleration of previously deferred pension costs as a result of lump sum SERP payments made to certain former executives;

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;

Tax provision impacts related to our acquisition of KFMB; and

Deferred tax benefits related to adjusting the provisional tax impacts of the Tax Act 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.

Results for the year ended December 31, 2017, included the following special items:

Severance charges which included payroll and related benefit costs;

Operating asset impairment related to damage caused by Hurricane Harvey and the consolidation of office space at our DMS business unit and corporate headquarters;

Gain on sale and an impairment of equity method investments;

Other non-operating expenses associated with costs of the spin-off of our Cars.com business unit, charitable donations made to the TEGNA Foundation, non-cash asset impairment charges associated with write off of a note receivable from an equity method investment; costs incurred in connection with the early extinguishment of debt; and

Special deferred tax benefits related to the Tax Act, deferred tax remeasurement attributable to the spin-off of our Cars.com business unit and a deferred tax adjustment related to a previously-disposed business.


22


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, 2018
 
GAAP
measure
 
Severance expense
 
Operating asset gains, net of impairments/charges
 
Pension payment timing related charges
 
Net gain on equity method investment
 
Other non-operating items
 
Special tax benefit
 
Non-GAAP measure
Corporate - General and administrative expenses, exclusive of depreciation
 
$
52,467

 
$
(5,481
)
 
$

 
$

 
$

 
$

 
$

 
$
46,986

Operating expenses
 
1,508,806

 
(7,287
)
 
11,701

 

 

 

 

 
1,513,220

Operating income
 
698,476

 
7,287

 
(11,701
)
 

 

 

 

 
694,062

Equity income in unconsolidated investments, net
 
13,792

 

 

 

 
(17,883
)
 

 

 
(4,091
)
Other non-operating (expenses) income
 
(11,496
)
 

 

 
7,498

 

 
19,406

 

 
15,408

Total non-operating expenses
 
(189,769
)
 

 

 
7,498

 
(17,883
)
 
19,406

 

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

 
7,287

 
(11,701
)
 
7,498

 
(17,883
)
 
19,406

 

 
513,314

Provision for income taxes
 
107,367

 
1,714

 
(1,379
)
 
1,909

 
(4,498
)
 
4,981

 
7,007

 
117,101

Net income from continuing operations
 
401,340

 
5,573

 
(10,322
)
 
5,589

 
(13,385
)
 
14,425

 
(7,007
)
 
396,213

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

 
$
0.03

 
$
(0.05
)
 
$
0.03

 
$
(0.06
)
 
$
0.07

 
$
(0.03
)
 
$
1.83

(a) - Per share amounts do not sum due to rounding.
 
 
 
 
 
 
 
 
 
 
 
 
 
Special Items
 
 
Year Ended Dec. 31, 2017
 
GAAP
measure
 
Severance expense
 
Operating asset impairments, net of gains
 
Net gain on equity method investment
 
Other non-operating items
 
Tax reform and other special tax benefits
 
Non-GAAP measure
Corporate - General and administrative expenses, exclusive of depreciation
 
$
54,943

 
$
(1,909
)
 
$

 
$

 
$

 
$

 
$
53,034

Operating expenses
 
1,357,124

 
(4,466
)
 
(4,429
)
 

 

 

 
1,348,229

Operating income
 
545,902

 
4,466

 
4,429

 

 

 

 
554,797

Equity income (loss) in unconsolidated investments, net
 
10,402

 

 

 
(14,877
)
 

 

 
(4,475
)
Other non-operating (expenses) income
 
(35,304
)
 

 

 

 
40,454

 

 
5,150

Total non-operating expenses
 
(235,186
)
 

 

 
(14,877
)
 
40,454

 

 
(209,609
)
Income before income taxes
 
310,716

 
4,466

 
4,429

 
(14,877
)
 
40,454

 

 
345,188

(Benefit) provision for income taxes
 
(137,246
)
 
1,719

 
1,649

 
720

 
9,827

 
233,174

 
109,843

Net income from continuing operations
 
447,962

 
2,747

 
2,780

 
(15,597
)
 
30,627

 
(233,174
)
 
235,345

Net income from continuing operations per share - diluted
 
$
2.06

 
$
0.01

 
$
0.01

 
$
(0.07
)
 
$
0.14

 
$
(1.07
)
 
$
1.08



23


Non-GAAP consolidated results

The following is a comparison of our as adjusted non-GAAP financial results between 2018 and 2017. 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).
 
2018
 
Change
 
2017
Adjusted operating expenses
$
1,513,220

 
12%
 
$
1,348,229

Adjusted operating income
694,062

 
25%
 
554,797

Adjusted equity (loss) in unconsolidated investments, net
(4,091
)
 
(9%)
 
(4,475
)
Adjusted other non-operating income
15,408

 
****
 
5,150

Adjusted total non-operating (expense)
(180,748
)
 
(14%)
 
(209,609
)
Adjusted income before income taxes
513,314

 
49%
 
345,188

Adjusted provision for income taxes
117,101

 
7%
 
109,843

Adjusted net income from continuing operations
396,213

 
68%
 
235,345

  Adjusted net income from continuing operations per share - diluted
$
1.83

 
69%
 
$
1.08

**** Not meaningful

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):
 
2018
 
Change
 
2017
 
 
 
 
 
 
Advertising & Marketing Services (a)
$
1,106,754

 
(3%)
 
$
1,139,642

Subscription
840,838

 
17%
 
718,750

Political
233,613

 
****
 
23,258

Other
26,077

 
22%
 
21,376

Total company revenues (GAAP basis)
$
2,207,282

 
16%
 
$
1,903,026

Factors impacting comparisons:
 
 
 
 
 
     Estimated incremental Olympic and Super Bowl
$
(24,000
)
 
****
 
$
(323
)
     Political
(233,613
)
 
****
 
(23,258
)
     Discontinued digital marketing services

 
(100%)
 
(16,673
)
Total company revenues (Non-GAAP basis)
$
1,949,669

 
5%
 
$
1,862,772

(a) Includes traditional advertising, digital advertising as well as revenue from our DMS business.

Excluding the impacts of incremental Olympic and Super Bowl revenue, Political advertising revenue, and the discontinued digital marketing transition services agreement, total company adjusted revenues on a comparable basis increased 5% in 2018. This is primarily attributable to increases in subscription revenue, partially offset by declines in AMS revenue as described in the Results from Operations section above.

24



Adjusted EBITDA - Non-GAAP

Reconciliations of Adjusted EBITDA (inclusive and exclusive of Corporate expenses) to net income from continuing operations presented in accordance with GAAP on our Consolidated Statements of Income is presented below (in thousands):
 
 
2018
 
Change
 
2017
Net income from continuing operations (GAAP basis)
$
401,340

 
(10%)
 
$
447,962

Provision (benefit) for income taxes
107,367

 
****
 
(137,246
)
Interest expense
192,065

 
(9%)
 
210,284

Equity income in unconsolidated investments, net
(13,792
)
 
33%
 
(10,402
)
Other non-operating expense
11,496

 
(67%)
 
35,304

Operating income (GAAP basis)
$
698,476

 
28%
 
$
545,902

Severance expense
7,287

 
63%
 
4,466

Asset impairment and other (gains) charges
(11,701
)
 
****
 
4,429

Adjusted operating income (Non-GAAP basis)
$
694,062

 
25%
 
$
554,797

Depreciation
55,949

 
2%
 
55,068

Amortization of intangible assets
30,838

 
43%
 
21,570

Adjusted EBITDA (Non-GAAP basis)
$
780,849

 
24%
 
$
631,435

Corporate - General and administrative expense, exclusive of depreciation (non-GAAP basis)
46,986

 
(11%)
 
53,034

Adjusted EBITDA, excluding Corporate (Non-GAAP basis)
$
827,835

 
21%
 
$
684,469

**** Not meaningful

Adjusted EBITDA margin was 38% (without corporate expense) and 35% including corporate. Our total Adjusted EBITDA increased $149.4 million or 24% in 2018 compared to 2017. The increase was driven by an increase in political, Olympic, and Super Bowl advertising and increases in subscription revenue, partially offset by higher programming costs and investments in Premion associated with its revenue growth.

Free cash flow reconciliation

Our free cash flow, a non-GAAP liquidity measure, was $469.4 million for the year ended December 31, 2018, compared to $312.5 million for the same period in 2017. Cash flows include the operations of our former publishing businesses (through its spin-off date of June 29, 2015), Cars.com (through its spin-off date of May 31, 2017), and CareerBuilder (through its date of sale on July 31, 2017). Our 2018 free cash flow was higher than 2017 due to the same factors affecting cash flow from operating activities summarized within “Liquidity and capital resources” discussed below.
We also present our free cash flow information in our “Selected Financial Data” table on page 70. Reconciliations from “Net cash flow from operating activities” to “Free cash flow” are presented below (in thousands):
 
2018
2017
2016
2015
2014
Net cash flow from operating activities
$
527,209

$
389,429

$
678,701

$
679,450

$
862,669

Purchase of property and equipment
(65,230
)
(76,886
)
(94,796
)
(118,767
)
(150,354
)
Reimbursement from spectrum repacking
7,400





Free cash flow
$
469,379

$
312,543

$
583,905

$
560,683

$
712,315


FINANCIAL POSITION

Liquidity and capital resources

Our cash generation capability and financial condition, together with our significant borrowing capacity under our revolving credit agreement, are sufficient to fund our capital expenditures, interest expense, dividends, share repurchases, investments in strategic initiatives and other operating requirements. Over the longer term, we expect to continue to fund debt maturities, acquisitions and investments through a combination of cash flows from operations, borrowings under our revolving credit agreement and funds raised in the capital markets.

Our operations have historically generated strong positive cash flow which, along with availability under our existing revolving credit facility, has provided adequate liquidity to meet our internal investment requirements, as well as acquisitions. On February 15, 2018, we acquired San Diego television and radio stations (KFMB) for $328.4 million which was financed with a

25


borrowing of $220.0 million under our revolving credit facility and cash on hand. In addition, on January 2, 2019, we acquired, for approximately $108.9 million in cash, television stations in Toledo, OH and Midland-Odessa, TX, which was funded using available cash and borrowings under our revolving credit facility.

Following the Cars.com spin-off on May 31, 2017, we announced that we would begin paying a regular quarterly cash dividend of $0.07 per share. We paid dividends totaling $60.3 million in 2018 and $90.2 million in 2017. We expect to continue paying comparable regular cash dividends in the future. The rate and frequency of future dividends will depend on future earnings, capital requirements and financial condition and other factors considered relevant by our Board of Directors. Further on June 21, 2018, we extended the term and our permitted total leverage ratio under our Amended and Restated Competitive Advance and Revolving Credit Agreement (see details of the amendment discussed in ‘Long-term debt’ section on page 27).

We have completed several strategic actions that have positioned us to continue to pursue strategic acquisition opportunities that may develop in our sector, and invest in new content and revenue initiatives. Our financial and operating performance, as well as our ability to generate sufficient cash flow to maintain compliance with credit facility covenants, are subject to certain risk factors; see Item 1A - Risk Factors for further discussion.

Our cash flows include the operations of Cars.com (through its spin-off date of May 31, 2017) and CareerBuilder (through its date of sale on July 31, 2017). The following table provides a summary of our cash flow information followed by a discussion of the key elements of our cash flows (in thousands):
 
2018
 
2017
 
2016
 
 
 
 
 
 
Cash, cash equivalents and restricted cash from continuing operations
$
128,041

 
$
44,076

 
$
58,566

Cash, cash equivalents and restricted cash from discontinued operations

 
61,041

 
103,104

     Balance at beginning of the year
128,041

 
105,117

 
161,670

Operating activities:
 
 
 
 

    Net income
405,665

 
215,046

 
487,999

    Non-cash adjustments
97,793

 
209,026

 
287,852

    Changes in working capital
47,799

 
(40,798
)
 
(61,327
)
    Changes in other assets and liabilities
(24,048
)
 
6,155

 
(35,823
)
Net cash flows from operating activities
527,209

 
389,429

 
678,701

Net cash (used for) provided by investing activities
(374,416
)
 
176,231

 
(272,821
)
Net cash used for financing activities
(144,972
)
 
(542,736
)
 
(462,433
)
Net change in cash, cash equivalents and restricted cash
7,821

 
22,924

 
(56,553
)
Cash, cash equivalents and restricted cash at end of year
$
135,862

 
$
128,041

 
$
105,117


Operating Activities

2018 compared to 2017: Cash flow from operating activities was $527.2 million in 2018, compared to $389.4 million in 2017. The increase in net cash flow from operating activities was primarily due to the $210.4 million increase in political revenue in 2018. As political advertisements are paid upfront, they provide an immediate benefit to operating cash flow as compared to non-political advertising which is billed and collected in arrears after the advertisement has been delivered. Also contributing to the increase was higher subscription revenue of approximately $122.1 million, and a decline in tax payments of $91.8 million, resulting primarily from lower tax rates following the enactment of the Tax Act.

These increases were partially offset by the absence of approximately $107.8 million of operating cash flow related to Cars.com and CareerBuilder which were spun-off and sold, respectively, during 2017, higher programming costs of approximately $63.3 million, a decline in AMS revenue of approximately $32.9 million, an increase of $24.4 million in pension payments and contributions in 2018, and the absence of spectrum channel share proceeds in 2018 as compared to an inflow of proceeds of $32.6 million in 2017.

2017 compared to 2016: Our net cash flow from operating activities was $389.4 million in 2017, compared to $678.7 million in 2016. The decrease was primarily due to higher programming costs of $175.9 million (primarily due to the NBC affiliation agreement), the decline in political revenue of $131.6 million, and the decline of approximately $230.9 million of operating cash flow from Cars.com and CareerBuilder. These decreases were partially offset by an increase in subscription revenue of $137.0 million and declines in tax payments of $51.6 million and interest payments of $25.0 million. Also partially offsetting the net operating cash flow decrease was a cash inflow received in 2017 of $32.6 million from a spectrum channel sharing agreement.

Investing Activities
 
2018 compared to 2017: Cash flow used for investing activities was $374.4 million in 2018, compared to cash provided by investing activities of $176.2 million in 2017. The cash used for investing activities in 2018 was primarily due to our acquisition of

26


KFMB for $328.4 million and purchases of property and equipment of $65.2 million. The cash provided by investing activities in 2017 was primarily a result of the sale of the majority of our ownership in CareerBuilder, which provided $198.3 million of proceeds, net of cash transferred. Additionally, we had cash inflow of $37.9 million from the sale of assets, primarily comprised of proceeds of $14.6 million from the sale of Gannett Co., Inc., common stock and $21.3 million from the sale of our investment in Livestream. Lastly, we received insurance proceeds of $16.5 million as reimbursement for damaged caused by hurricanes. These inflows were partially offset by purchases of property and equipment of $76.9 million in 2017.

2017 compared to 2016: Net cash provided by investing activities was $176.2 million in 2017 compared to cash used for investing activities of $272.8 million in 2016. The 2017 net cash inflow was caused by the factors described above. The 2016 net cash used for investing activities of $272.8 million was primarily comprised of $206.1 million paid for the acquisitions of businesses (net of cash acquired), including DealerRater, Aurico, and Workterra. DealerRater was part of the Cars.com spin-off and Aurico and Workterra were included in the sale of our majority ownership in CareerBuilder, both occurring in 2017. Also contributing to the net outflow was the purchase of property and equipment in the amount of $94.8 million. Partially offsetting these outflows was $40.0 million of inflow from the sale of investments, primarily consisting of non-operating investments.

Financing Activities

2018 compared to 2017: Cash flow used by financing activities was $145.0 million in 2018, compared to $542.7 million for the same period in 2017. The change was primarily due to debt activity and dividend payments. Activity on our revolving credit facility in 2018 resulted in a net inflow of $50.0 million, which includes an inflow of $220.0 million to partially fund our acquisition of KFMB, offset by repayments made subsequent to completion of the acquisition. With regards to 2017 debt activity, prior to the completion of the spin-off, Cars.com borrowed approximately $675.0 million under a revolving credit facility agreement, while incurring $6.2 million of debt issuance costs. The proceeds were used to make a one time tax-free cash distribution of $650.0 million from Cars.com to TEGNA. We used most of the cash received to pay down our then outstanding revolving credit balance of $609.9 million. Total net payments on the revolving credit facility in 2017 were $635.0 million. Additionally, in the fourth quarter of 2017 we early retired $280.0 million of outstanding debt that matures in October 2019.

Also contributing to the fluctuation were dividend payments which resulted in cash outflows of $60.3 million in 2018 as compared to $90.2 million in 2017 (due to reduced dividend per share amount following the Cars.com spin-off on May 31, 2017).

2017 compared to 2016: Net cash used for financing activities was $542.7 million in 2017 compared to $462.4 million 2016. The 2017 net outflow of cash for financing activities was primarily due to debt activity and dividends as discussed above. The 2016 net financing outflow of $462.4 million was primarily a result of stock repurchases of $161.9 million and dividend payments of $121.6 million. Additionally, we had a net debt outflow of $137.6 million primarily comprised of $310.0 million of borrowings which were partially offset by debt repayments of $447.6 million.

Long-term debt

As of December 31, 2018, our outstanding debt, net of unamortized discounts and deferred financing costs, was $2.94 billion and mainly is in the form of fixed rate notes. See “Note 6 Long-term debt” to our consolidated financial statements for a table summarizing the components of our long-term debt. Approximately $2.69 billion of our debt has a fixed interest rate (which represents approximately 90% of our total principal debt obligation) which minimizes our impact to potential future rising interest rates.

Our primary source of long-term debt is our revolving credit facility (the Amended and Restated Competitive Advance and Revolving Credit Agreement). Under the terms of the credit facility our permitted total leverage ratio is at 5.0x through June 30, 2019, reducing to 4.75x for the fiscal quarter ending September 30, 2019 through the end of the fiscal quarter ending June 30, 2020, and then reducing to 4.50x for the fiscal quarter ending September 30, 2020 and thereafter. Commitment fees on the revolving credit agreement are equal to 0.25% - 0.40% of the undrawn commitments, depending upon our leverage ratio, and are computed on the average daily undrawn balance under the revolving credit agreement and paid each quarter. Under the Amended and Restated Competitive Advance and Revolving Credit Agreement, we may borrow at an applicable margin above the Eurodollar base rate (LIBOR loan) or the higher of the Prime Rate, the Federal Funds Effective Rate plus 0.50%, or the one month LIBOR rate plus 1.00% (ABR loan). The applicable margin is determined based on our leverage ratio but differs between LIBOR loans and ABR loans. For LIBOR-based borrowing, the margin varies from 1.75% to 2.50%. For ABR-based borrowing, the margin will vary from 0.75% to 1.50%. Total commitments under the Amended and Restated Competitive Advance and Revolving Credit Agreement are $1.51 billion. As of December 31, 2018, we were in compliance with all covenants contained in our debt and credit agreements.

Below is a summary of our 2018 debt activity:
On February 15, 2018 we acquired the assets of KFMB-TV, the CBS affiliate in San Diego, KFMB-D2 (the CW station in San Diego), and radio stations KFMB-AM and KFMB-FM in San Diego. The transaction price was approximately $328.4 million in cash, $220.0 million of which we funded through borrowings under our revolving credit facility and the remainder through the use of available cash.


27


On June 21, 2018, we entered into an amendment of our Amended and Restated Competitive Advance and Revolving Credit Agreement. Under the amended terms, the $1.51 billion of revolving credit commitments and letter of credit commitments have been extended until June 21, 2023. The amendment also extended our permitted total leverage ratio to remain at 5.0x through June 30, 2019, reducing to 4.75x for the first quarter ending September 30, 2019 through the end of the fiscal quarter ending June 30, 2020, and then reducing to 4.5x for the fiscal quarter ending September 30, 2020 and thereafter.

As of December 31, 2018, we had unused borrowing capacity of $1.44 billion under our revolving credit facility. On January 2, 2019 we completed our acquisition of WTOL, the CBS affiliate in Toledo, OH, and KWES, the NBC affiliate in Midland-Odessa, TX from Gray Television, Inc. for $108.9 million in cash. The acquisition was funded through the use of available cash and borrowings under our revolving credit facility.

We also have an effective shelf registration statement on Form S-3 on file with the U.S. Securities and Exchange Commission under which an unspecified amount of securities may be issued, subject to a $7.0 billion limit established by the Board of Directors. Proceeds from the sale of such securities may be used for general corporate purposes, including capital expenditures, working capital, securities repurchase programs, repayment of debt and financing of acquisitions. We may also invest borrowed funds that are not required for other purposes in short-term marketable securities.

Our debt maturities may be repaid with cash flow from operating activities, accessing capital markets or a combination of both. The following schedule of annual maturities of the principal amount of total debt assumes we use available capacity under our revolving credit agreement to refinance unsecured floating rate term loans and fixed rate notes due in 2019, 2020, and 2021. Based on this refinancing assumption, all of the obligations due in 2019 and 2020, and a portion of those due in 2021, are reflected as maturities for 2023 (in thousands).
2019 (1)
$

2020 (1)

2021 (1)
55,000

2022

2023 (2)
2,140,000

Thereafter
765,000

Total
$
2,960,000


(1) Debt payments due in 2019, 2020 and 2021 are assumed to be repaid with funds from the revolving credit agreement, up to our maximum borrowing capacity. The revolving credit agreement expires in 2023. Excluding our ability to repay funds with the revolving credit agreement, contractual debt maturities are $420 million for 2019, $725 million in 2020, and $350 million in 2021.

(2) Assumes current revolving credit agreement borrowings comes due in 2023 and credit facility is not extended.


28


Contractual obligations and commitments

The following table summarizes the expected cash outflows resulting from financial contracts and commitments as of the end of 2018 (in thousands).
Contractual obligations
Payments due by period
 
Total

2019

2020-2021

2022-2023

Thereafter

Long-term debt (1)
$
2,960,000

$

$
55,000

$
2,140,000

$
765,000

Interest payments (2)
702,395

162,442

234,016

175,792

130,145

Operating leases (3)
127,177

10,443

21,618

21,183

73,933

Talent and employment contracts (4)
211,961

110,998

93,121

7,412

430

Purchase obligations (5)
113,295

72,637

39,282

1,376


Programming contracts (6)
1,257,922

480,379

522,551

254,682

310

Other noncurrent liabilities (7)
401,169

48,627

77,507

79,783

195,252

Total
$
5,773,919

$
885,526

$
1,043,095

$
2,680,228

$
1,165,070


(1)
Long-term debt includes scheduled principal payments only. We have contractual debt maturities of $420 million in 2019. See Note 6 to the consolidated financial statements for further information.

(2)
We have $50 million of outstanding borrowings under our revolving credit facility as of December 31, 2018. Interest on the senior notes is based on the stated cash coupon rate and excludes the amortization of debt issuance discount. The floating rate term loan interest rates are based on the actual rates as of December 31, 2018.

(3)
See Note 13 to the consolidated financial statements.

(4)
Our talent and employment contracts primarily secure our on-air talent and other personnel for our television stations through multi-year talent and employment agreements. We expect our contracts will be renewed or replaced with similar agreements upon their expiration. Amounts due under the contracts, assuming the contracts are not terminated prior to their expiration, are included in the contractual commitments table.

(5)
Includes purchase obligations pertaining to technology related capital projects, news and market data services, and other legally binding commitments. Amounts which we are liable for under purchase orders outstanding as of December 31, 2018 are reflected in the Consolidated Balance Sheets as accounts payable and accrued liabilities and are excluded from the table above.

(6)
Programming contracts include television station commitments to purchase programming to be produced in future years. This also includes amounts related to our network affiliation agreements. Network affiliation agreements may include variable fee components such as subscriber levels, which in have been estimated and reflected in the table above.

(7)
Other noncurrent liabilities consist of both unfunded and under-funded postretirement benefit plans. Unfunded plans include the TEGNA Supplemental Retirement Plan and the TEGNA Retiree Welfare Plan. Employer contributions, which equal the expected benefit payments, are reflected in the table above over the next ten-year period. Our under-funded pension plan is the TEGNA Retirement Plan (TRP). In 2019, we expect contributions to the TEGNA Retirement Plan and SERP of $3.8 million and $7.8 million, respectively. TRP contributions beyond the next fiscal year are excluded due to uncertainties regarding significant assumptions involved in estimating these contributions, such as interest rate levels as well as the amount and timing of invested asset returns.

Due to uncertainty with respect to the timing of future cash flows associated with unrecognized tax benefits at December 31, 2018, we are unable to make reasonably reliable estimates of the period of cash settlement. Therefore, approximately $12.8 million of unrecognized tax benefits have been excluded from the contractual obligations table above. See Note 5 to the consolidated financial statements for a further discussion of income taxes.

Off-Balance Sheet Arrangements

Off-balance sheet arrangements as defined by the Securities and Exchange Commission include the following four categories: obligations under certain guarantee contracts; retained or contingent interests in assets transferred to an unconsolidated entity or similar arrangements that serve as credit, liquidity or market risk support; obligations under certain derivative arrangements classified as equity; and obligations under material variable interests. As of December 31, 2018, we had no material off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.

Capital stock

On September 19, 2017, our Board of Directors authorized a new share repurchase program for up to $300.0 million over the next three years. As of December 31, 2018, we have $279.1 million remaining under this authorization. The table below summarizes our share repurchases during the past three years (in thousands).
 
Repurchases made in fiscal year
Stock repurchases
2018
 
2017
 
2016
Number of shares purchased
545

 
1,498

 
6,983

Dollar amount purchased
$
5,831

 
$
23,480

 
$
161,891



29


The shares may be repurchased at management’s discretion, either in the open market or in privately negotiated block transactions. Management’s decision to repurchase shares will depend on price and other corporate developments. Purchases may occur from time to time and no maximum purchase price has been set. Certain of the shares we previously acquired have been reissued in settlement of employee stock awards.

Our common stock outstanding at December 31, 2018, totaled 215,758,630 shares, compared with 214,930,653 shares at December 31, 2017.

Effects of inflation and changing prices and other matters

Our results of operations and financial condition have not been significantly affected by inflation. The effects of inflation and changing prices on our property and equipment and related depreciation expense have been reduced as a result of an ongoing capital expenditure program and the availability of replacement assets with improved technology and efficiency.

Critical accounting policies and the use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. We believe the following discussion addresses our most critical accounting policies, which are those that are important to the presentation of our financial condition and results of operations and require management’s most subjective and complex judgments. This commentary should be read in conjunction with our financial statements, selected financial data and the remainder of this Form 10-K.

Revenue Recognition: Revenue is recognized upon the transfer of control of promised services to our customers in an amount that reflects the consideration we expect to receive in exchange for those services. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. Amounts received from customers in advance of providing services to our customers are recorded as deferred revenue.
Our primary source of revenue is earned through the sale of advertising and marketing services (AMS). This revenue stream includes all sources of our traditional television and radio advertising, as well as digital revenues including Premion, our digital marketing services (DMS) business unit and other digital advertising across our platforms. Contracts within this revenue stream are short-term in nature (most often three months or less). Contracts generally consist of multiple deliverables, such as television commercials, or digital advertising solutions, that we have identified as individual performance obligations. Before performing under the contract we establish the transaction price with our customer based on the agreed upon rates for each performance obligation. There is no material variability in the transaction price during the term of the contract.
Revenue is recognized as we fulfill our performance obligations to our customers. For our AMS revenue stream, we measure the fulfillment of our performance obligations based on the airing of the individual television commercials or display of digital advertisements. This measure is most appropriate as it aligns our revenue recognition with the value we are providing to our customers. The price of each individual commercial and digital advertisement is negotiated with our customer and is determined based on multiple factors, including, but not limited to, the programming and day-part selected, supply of available inventory, our station’s viewership ratings and overall market conditions (e.g., timing of the year and strength of U.S. economy). Customers are billed monthly and payment is generally due 30 days after the date of invoice. Commission costs related to these contracts are expensed as incurred due to the short-term nature of the contracts.
We also earn subscription revenue from retransmission consent contracts with multichannel video programming distributors (e.g., cable and satellite providers) and over the top providers (companies that deliver video content to consumers over the Internet). Under these multi-year contracts, we have performance obligations to provide our customers with our stations’ signals, as well as our consent to retransmit those signals to their customers. Subscription revenue is recognized in accordance with the guidance for licensing intellectual property utilizing a usage based method. The amount of revenue earned is based on the number of subscribers to which our customers retransmit our signal, and the negotiated fee per subscriber included in our contract agreement. Our customers submit payments monthly, generally within 60-90 days after the month that service was provided. Our performance obligations are satisfied, and revenue is recognized, as we provide our consent for our customers to retransmit our signal. This measure toward satisfaction of our performance obligations and recognition of revenue is the most appropriate as it aligns our revenue recognition with the value that we are delivering to our customers through our retransmission consent.
We also generate revenue from the sale of political advertising. Contracts within this revenue stream are short-term in nature (typically weekly or monthly buys during political campaigns). Customers pre-pay these contracts and we therefore defer the associated revenue until the advertising has been delivered, at which time we have satisfied our performance obligations and recognize revenue. Commission costs related to these contracts are expensed as incurred due to the short-term nature of the contracts.
Our remaining revenue is comprised of various other services, primarily production services (for news content and commercials) and sublease rental income. Revenue is recognized as these various services are provided to our customers.

30


In instances where we sell services from more than one revenue stream to the same customer at the same time, we recognize one contract and allocate the transaction price to each deliverable element (e.g. performance obligation) based on the relative fair value of each element.

Goodwill: As of December 31, 2018, our goodwill balance was $2.6 billion and represented approximately 49% of our total assets. Goodwill represents the excess of acquisition cost over the fair value of assets acquired, including identifiable intangible assets, net of liabilities assumed. Goodwill is tested for impairment on an annual basis (first day of our fourth quarter) or between annual tests if events or changes in circumstances occurred that indicate the fair value of a reporting unit may be below its carrying amount.

Goodwill is tested for impairment at a level referred to as the reporting unit. A reporting unit is a business for which discrete financial information is available and segment management regularly reviews the operating results. The level at which we test goodwill for impairment requires us to determine whether the operations below the operating segment level constitute a reporting unit. We have determined that our one segment, Media, consists of a single reporting unit.

Before performing the annual goodwill impairment test quantitatively, we first have the option to perform a qualitative assessment to determine if the quantitative test must be completed. The qualitative assessment considers events and circumstances such as macroeconomic conditions, industry and market conditions, cost factors and overall financial performance, as well as company and specific reporting unit specifications. If after performing this assessment, we conclude it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we are required to perform the quantitative test. Otherwise, the quantitative test is not required. In 2018, we elected not to perform the optional qualitative assessment of goodwill and instead performed the quantitative impairment test.

When performing the quantitative test, we determine the fair value of the reporting unit and compare it to the carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds the fair value of the reporting unit, the reporting unit’s goodwill is impaired and we recognize an impairment loss equal to the difference between the reporting unit’s carrying amount and fair value.

We estimate the fair value of our one reporting unit based on a market-based valuation methodology, which is primarily based on our consolidated market capitalization plus a control premium. In the fourth quarter of 2018, we completed our annual goodwill impairment test for our reporting unit. The results of the test indicated that the estimated fair value of our reporting unit significantly exceeded the carrying value. For our reporting unit, the estimated value would need to decline by over 50% to fail the quantitative goodwill impairment test. We do not believe that the reporting unit is currently at risk of incurring a goodwill impairment in the foreseeable future.

Impairment assessment inherently involves management judgments regarding a number of assumptions described above. Fair value of the reporting unit also depends on the future strength of the economy in our principal media markets. New and developing competition as well as technological change could also adversely affect future fair value estimates. Due to the many variables inherent in the estimation of the reporting unit’s fair value and the relative size of our recorded goodwill, differences in assumptions could have a material effect on the estimated fair value of our reporting unit and could result in a goodwill impairment charge in a future period.

Indefinite Lived Intangibles: This asset grouping consists of FCC broadcast licenses related to our acquisitions of television stations. As of December 31, 2018, indefinite lived intangible assets were $1.38 billion and represented approximately 26% of our total assets.

Indefinite lived assets are not subject to amortization and, as a result, they are tested for impairment annually (on the first day of our fourth quarter), or more frequently if events or changes in circumstances suggest that the asset might be impaired. We have the option to first perform a qualitative assessment to determine if it is more likely than not that the fair value of the indefinite lived asset is more than its carrying amount. If that is the case, then we would not have to perform the quantitative analysis. The qualitative assessment considers events and circumstances such as macroeconomic conditions, industry and market conditions, cost factors and overall financial performance of the indefinite lived asset. In 2018, we elected not to perform the optional qualitative assessment; and instead, we performed the quantitative impairment test.

The fair value of each FCC broadcast license was determined using an income approach referred to as the Greenfield method. This method requires multiple assumptions relating to the future prospects of each individual television station including, but not limited to: (i) expected long-term market growth characteristics, (ii) station revenue shares within a market for a new entrant, (iii) future expected operating expenses, (iv) costs of capital and (v) appropriate discount rates. We performed a quantitative analysis on all of our FCC licenses on the impairment testing date and each fair value exceeded the carrying value by more than 40% with the exception of our recently acquired KFMB television and radio stations, which had clearances of 3% and 4%, respectively. Clearances for our KFMB stations are lower to due to recently recording the intangible assets at fair value upon our acquisition of KFMB in February 2018. Since their acquisition, the FCC licenses for the KFMB television and radio stations have increased in value, due to operating performance and market factors that have improved since acquisition. Based on our quantitative analysis performed, we concluded that no impairment existed. Future increases in discount rate assumptions could cause a decline in the fair value of our FCC licenses which may result in a future impairment charge. For example, a 50

31


basis point increase in the discount rate would cause the fair value of our FCC licenses (excluding the KFMB licenses) to exceed its carrying value by 30%. KFMB FCC licenses would be impaired by less than $10.0 million as a result of a 50 basis point increase in the discount rate.

Pension Liabilities: Certain employees participate in qualified and non-qualified defined benefit pension plans (see Note 7 to consolidated financial statements). Our principal defined benefit pension plan is the TEGNA Retirement Plan (TRP). We also sponsor the TEGNA Supplemental Retirement Plan (SERP) for certain employees. Substantially all participants in the TRP and SERP had their benefits frozen before 2009, and in December 2017, we froze all remaining accruing benefits for certain grandfathered SERP participants.

We recognize the net funded status of these postretirement benefit plans under GAAP as a liability on our Consolidated Balance Sheets. There is a corresponding non-cash adjustment to accumulated other comprehensive loss, net of tax benefits recorded as deferred tax assets, in stockholders’ equity. The GAAP funded status represents the difference between the fair value of each plan’s assets and the benefit obligation of the plan. The GAAP benefit obligation represents the present value of the estimated future benefits we currently expect to pay to plan participants based on past service.

The plan assets and benefit obligations are measured at December 31 of each year, or more frequently, upon the occurrence of certain events such as a plan amendment, settlement, or curtailment. The amounts we record are measured using actuarial valuations, which are dependent upon key assumptions such as discount rates, participant mortality rates and the expected long-term rate of return on plan assets. The assumptions we make affect both the calculation of the benefit obligations as of the measurement date and the calculation of net periodic pension expense in subsequent periods. When reassessing these assumptions we consider past and current market conditions and make judgments about future market trends. We also consider factors such as the timing and amounts of expected contributions to the plans and benefit payments to plan participants.

The most important assumptions include the discount rate applied to pension plan obligations and the expected long-term rate of return on plan assets related for the TRP (the SERP is an unfunded plan). The discount rate assumption is based on investment yields available at year-end on corporate bonds rated AA and above with a maturity to match the expected benefit payment stream. A decrease in discount rates would increase pension obligations.

We establish the expected long-term rate of return by developing a forward-looking, long-term return assumption for each pension fund asset class, taking into account factors such as the expected real return for the specific asset class and inflation. A single, long-term rate of return is then calculated as the weighted average of the target asset allocation percentages and the long-term return assumption for each asset class. We apply the expected long-term rate of return to the fair value of its pension assets in determining the dollar amount of its expected return. Changes in the expected long-term return on plan assets would increase or decrease pension plan expense. For 2018 we assumed a rate of 7.0% for our long-term expected return on pension assets used for our TRP plan. As an indication of the sensitivity of pension expense to the long-term rate of return assumption, a plus or minus 50 basis points change in the expected rate of return on pension assets (with all other assumptions held constant) would have decreased or increased estimated pension plan expense for 2018 by approximately $1.9 million. The effects of actual results differing from these assumptions are accumulated as unamortized gains and losses.

For the December 31, 2018 measurement, the assumption used for the discount rate was 4.35% for our principal retirement plan. As an indication of the sensitivity of pension liabilities to the discount rate assumption, a plus or minus 50 basis points change in the discount rate at the end of 2018 (with all other assumptions held constant) would have decreased or increased plan obligations by approximately $24.0 million. A 50 basis points change in the discount rate used to calculate 2018 expense would have changed total pension plan expense for 2018 by approximately $0.4 million.

Income Taxes: Our annual tax rate is based on our income, statutory tax rates, and tax planning opportunities available in the various jurisdictions in which we operate. Significant judgment is required in determining our annual tax expense and in evaluating our tax positions.

Tax law requires certain items to be included in our tax returns at different times than when the items are reflected in the financial statements. The annual tax expense reflected in the Consolidated Statements of Income is different than what is reported in our tax returns. Some of these differences are permanent (for example, expenses recorded for accounting purposes that are not deductible in the returns such as non-deductible goodwill) and some differences are temporary and reverse over time, such as depreciation expense. Temporary differences create deferred tax assets and liabilities. Deferred tax liabilities generally represent tax expense recognized in the financial statements for which payment has been deferred, or expense for which a deduction has been taken already in the tax return but the expense has not yet been recognized in the financial statements. Deferred tax assets generally represent items that can be used as a tax deduction or credit in tax returns in future years for which a benefit has already been recorded in the financial statements, as well as tax losses that can be carried over and used in future years. Valuation allowances are established when necessary to reduce deferred income tax assets to the amounts we believe are more likely than not to be recovered. In evaluating the amount of any such valuation allowance, we consider the existence of cumulative income or losses in recent years, the reversal of existing temporary differences, the existence of taxable income in prior carry back years, available tax planning strategies and estimates of future taxable income for each of our taxable jurisdictions. The latter two factors involve the exercise of significant judgment. As of December 31, 2018, deferred tax asset valuation allowances totaled $125.9 million, primarily related to federal and state capital losses, and state net

32


operating losses available for carry forward to future years. Although realization is not assured, we believe it is more likely than not that all other deferred tax assets for which no valuation allowances have been established will be realized. This conclusion is based on our history of cumulative income in recent years and review of historical and projected future taxable income.

We determine whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit is recorded in our financial statements. A tax position is measured as the portion of the tax benefit that is greater than 50% likely to be realized upon settlement with a taxing authority (that has full knowledge of all relevant information). We may be required to change our provision for income taxes when the ultimate treatment of certain items is challenged or agreed to by taxing authorities, when estimates used in determining valuation allowances on deferred tax assets significantly change, or when receipt of new information indicates the need for adjustment in valuation allowances. Future events, such as changes in tax laws, tax regulations, or interpretations of such laws or regulations, could have an impact on the provision for income tax and the effective tax rate. Any such changes could significantly affect the amounts reported in the consolidated financial statements in the year these changes occur.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the potential gain/loss arising from changes in market rates and prices, such as interest rates and changes in the market value of financial instruments. Our main exposure to market risk relates to interest rates. We have $275 million in floating interest rate obligations outstanding on December 31, 2018, and therefore are subject to changes in the amount of interest expense we might incur. A 50 basis point increase or decrease in the average interest rate for these obligations would result in an increase or decrease in annual interest expense of $1.4 million. Refer to Note 6 to the consolidated financial statements for information regarding the fair value of our long-term debt. With the sale of our controlling interest in CareerBuilder we no longer have a material market risk to changes in foreign exchange currency rates.

We believe that our market risk from financial instruments, such as accounts receivable, accounts payable and debt, is not material.



33


ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 


34


Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of TEGNA Inc.
Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of TEGNA Inc. (the Company) as of December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 1, 2019 expressed an unqualified opinion thereon.
Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company‘s auditor since 2005.

Tysons, Virginia
March 1, 2019


35


TEGNA Inc.
CONSOLIDATED BALANCE SHEETS
In thousands of dollars
 
Dec. 31,
 
2018
2017
Assets
 
 
Current assets
 
 
Cash and cash equivalents
$
135,862

$
98,801

Trade receivables, net of allowances of $3,090 and $3,266, respectively
425,404

406,852

Other receivables
20,967

32,442

Prepaid expenses and other current assets
17,737

61,070

Programming rights
35,252

37,758

Total current assets
635,222

636,923

Property and equipment
 
 
Land
68,540

62,885

Buildings and improvements
259,053

246,917

Equipment, furniture and fixtures
489,799

467,265

Construction in progress
40,778

5,535

Total
858,170

782,602

Less accumulated depreciation
(482,955
)
(447,262
)
Net property and equipment
375,215

335,340

Intangible and other assets (see Note 3)
 
 
Goodwill
2,596,863

2,579,417

Indefinite-lived and amortizable intangible assets, less accumulated amortization of $118,958 and $88,120, respectively
1,526,077

1,273,269

Investments and other assets
143,465

137,166

Total intangible and other assets
4,266,405

3,989,852

Total assets
$
5,276,842

$
4,962,115

 
 
 

36


TEGNA Inc.
CONSOLIDATED BALANCE SHEETS
In thousands of dollars, except par value and share amounts
 
 
Dec. 31,
 
2018
2017
Liabilities and equity
 
 
Current liabilities
 
 
Accounts payable
$
83,226

$
52,992

Accrued liabilities
 
 
Compensation
52,726

54,088

Interest
37,458

39,217

    Contracts payable for programming rights
112,059

105,040

Other
49,211

58,196

Dividends payable
15,154

15,173

Income taxes
19,383


Current portion of long-term debt

646

Total current liabilities
369,217

325,352

Income taxes
13,624

20,203

Deferred income taxes
396,847

382,310

Long-term debt
2,944,466

3,007,047

Pension liabilities
139,375

144,220

Other noncurrent liabilities
72,389

87,942

Total noncurrent liabilities
3,566,701

3,641,722

Total liabilities
3,935,918

3,967,074

 
 
 
Commitments and contingent liabilities (see Note 13)


 
 
 
Equity
 
 
TEGNA Inc. shareholders’ equity
 
 
Common stock of $1 par value per share, 800,000,000 shares authorized, 324,418,632 shares issued
324,419

324,419

Additional paid-in capital
301,352

382,127

Retained earnings
6,429,512

6,062,995

Accumulated other comprehensive loss
(136,511
)
(106,923
)
Less treasury stock at cost, 108,660,002 shares and 109,487,979 shares, respectively
(5,577,848
)
(5,667,577
)
Total equity
1,340,924

995,041

Total liabilities, redeemable noncontrolling interests and equity
$
5,276,842

$
4,962,115

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

37


TEGNA Inc.
CONSOLIDATED STATEMENTS OF INCOME
In thousands of dollars, except per share amounts
 
Dec. 31,
 
2018
2017
2016
Revenues:
 
 
 
Media
$
2,207,282

$
1,903,026

$
1,994,120

Digital


9,968

Total
2,207,282

1,903,026

2,004,088

Operating expenses:
 
 
 
Cost of revenues, exclusive of depreciation
1,065,933

933,718

795,454

Business units - Selling, general and administrative expenses, exclusive of depreciation
315,320

287,396

331,028

Corporate - General and administrative expenses, exclusive of depreciation
52,467

54,943

58,692

Depreciation
55,949

55,068

55,369

Amortization of intangible assets
30,838

21,570

23,263

Asset impairment and other (gains) charges (see Note 11)
(11,701
)
4,429

32,130

Total
1,508,806

1,357,124

1,295,936

Operating income
698,476

545,902

708,152

Non-operating income (expense):
 
 
 
Equity income (loss) in unconsolidated investments, net (see Note 4)
13,792

10,402

(3,414
)
Interest expense
(192,065
)
(210,284
)
(231,995
)
Other non-operating expenses, net
(11,496
)
(35,304
)
(23,452
)
Total
(189,769
)
(235,186
)
(258,861
)
Income before income taxes
508,707

310,716

449,291

Provision (benefit) for income taxes
107,367

(137,246
)
140,171

Income from continuing operations
401,340

447,962

309,120

Income (loss) from discontinued operations, net of tax
4,325

(232,916
)
178,879

Net income
405,665

215,046

487,999

Net loss (income) attributable to noncontrolling interests from discontinued operations

58,698

(51,302
)
Net income attributable to TEGNA Inc.
$
405,665

$
273,744

$
436,697

Earnings from continuing operations per share - basic
$
1.86

$
2.08

$
1.43

Earnings (loss) from discontinued operations per share - basic
0.02

(0.81
)
0.59

Net income per share - basic
$
1.88

$
1.27

$
2.02

Earnings from continuing operations per share - diluted
$
1.85

$
2.06

$
1.41

Earnings (loss) from discontinued operations per share - diluted
0.02

(0.80
)
0.58

Net income per share - diluted
$
1.87

$
1.26

$
1.99

Weighted average number of common shares outstanding:
 
 
 
Basic shares
216,184

215,587

216,358

Diluted shares
216,621