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TGNA 2019-09-30

Part I. Financial Information Print

Item 1. Financial Statements Print

Note 1 - Accounting Policies Print

Note 2 - Acquisitions Print

Note 3 - Goodwill and Other Intangible Assets Print

Note 4 - Investments and Other Assets Print

Note 5 - Long-Term Debt Print

Note 6 - Retirement Plans Print

Note 7 - Leases Print

Note 8 - Accumulated Other Comprehensive Loss Print

Note 9 - Earnings per Share Print

Note 10 - Fair Value Measurement Print

Note 11 - Supplemental Cash Flow Information Print

Note 12 - Other Matters Print

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Print

Item 3. Quantitative and Qualitative Disclosures About Market Risk Print

Item 4. Controls and Procedures Print

Part II. Other Information Print

Item 1. Legal Proceedings Print

Item 1A. Risk Factors Print

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Print

Item 3. Defaults Upon Senior Securities Print

Item 4. Mine Safety Disclosures Print

Item 5. Other Information Print

Item 6. Exhibits Print

EX-4.1	tgna-20190930xex4x1.htm
EX-10.1	tgna-20190930xex10x1.htm
EX-31.1	tgna-20190930xex31x1.htm
EX-31.2	tgna-20190930xex31x2.htm
EX-32.1	tgna-20190930xex32x1.htm
EX-32.2	tgna-20190930xex32x2.htm

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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NOTE 1 – Accounting policies

Basis of presentation: Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial reporting, the instructions for Form 10-Q and Article 10 of the U.S. Securities and Exchange Commission (SEC) Regulation S-X. Accordingly, they do not include all information and footnotes which are normally included in the Form 10-K and annual report to shareholders. In our opinion, the condensed consolidated financial statements reflect all adjustments of a normal recurring nature necessary for a fair statement of the results for the interim periods presented. The condensed consolidated financial statements should be read in conjunction with our (or TEGNA’s) audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018.

The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates. Significant estimates include, but are not limited to, evaluation of goodwill and other intangible assets for impairment, business combinations, fair value measurements, post-retirement benefit plans, income taxes including deferred taxes, and contingencies. The condensed consolidated financial statements include the accounts of subsidiaries we control and variable interest entities (VIEs) if we are the primary beneficiary. We eliminate all intercompany balances, transactions, and profits in consolidation. Investments in entities over which we have significant influence, but do not have control, are accounted for under the equity method. Our share of net earnings and losses from these ventures is included in Equity (loss) income in unconsolidated investments, net in the Consolidated Statements of Income.

We operate one operating and reportable segment, which primarily consists of our 62 television stations operating in 51 markets, offering high-quality television programming and digital content. Our reportable segment determination is based on our management and internal reporting structure, the nature of products and services we offer, and the financial information that is evaluated regularly by our chief operating decision maker.

Accounting guidance adopted in 2019: In February 2016, the FASB issued new guidance related to leases which require lessees to recognize assets and liabilities on the balance sheet for leases with lease terms of more than 12 months. Consistent with previous GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily depends on its classification as a finance or operating lease. However, unlike previous GAAP–which requires only capital leases (renamed finance leases under the new guidance) to be recognized on the balance sheet–the new guidance requires both finance and operating leases to be recognized on the balance sheet. This update requires the lessee to recognize a lease liability equal to the present value of the lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term for all leases longer than 12 months.

We adopted the guidance on January 1, 2019. The FASB provided companies with the option to apply the requirements of the guidance in the period of adoption, with no restatement of prior periods. We utilized this adoption method. We also elected an accounting policy allowed by the guidance to not account for lease and non-lease components separately. Additionally, in adopting the guidance, we utilized the package of practical expedients permitted by the FASB, which among other things, allowed us to carry forward our historical lease classification. Lastly, as permitted by the guidance, we elected a policy to not record leases with an original lease term of twelve months or less on the balance sheet.

Adoption of the guidance resulted in recording of new right-of-use asset and lease liability balances of $73.8 million and $91.8 million, respectively, as of the adoption date. The difference between right-of-use lease asset and lease liability balances was primarily due to previously accrued rent expense relating to periods prior to January 1, 2019. The new guidance did not have a material impact on our Consolidated Statements of Income, Comprehensive Income, Cash Flows or Equity. See Note 7 for additional information.

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

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

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

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

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

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

Revenue earned by these sources in the third quarter and first nine months of 2019 and 2018 are shown below (amounts in thousands):

Copy History

	Quarter ended Sept. 30,								Nine months ended Sept. 30,
	2019				2018				2019				2018
Advertising & Marketing Services	$	297,333			$	264,852			$	851,304			$	829,638
Subscription	240,735				207,463				718,472				622,382
Political	8,131				60,410				14,064				93,725
Other	5,658				6,251				21,702				19,401
Total revenues	$	551,857			$	538,976			$	1,605,542			$	1,565,146

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NOTE 2 – Acquisitions

Nexstar Stations

On September 19, 2019 we completed our previously announced acquisition of 11 local television stations in eight markets, including eight Big Four affiliates, from Nexstar Media Group (the Nexstar Stations). These stations were divested by Nexstar Media Group in connection with its acquisition of Tribune Media Company. The television stations acquired are listed in the table below:

Market		Station		Affiliation
Hartford-New Haven, CT		WTIC/WCCT		FOX/CW
Harrisburg-Lancaster-Lebanon-York, PA		WPMT		FOX
Memphis, TN		WATN/WLMT		ABC/CW
Wilkes Barre-Scranton, PA		WNEP		ABC
Des Moines-Ames, IA		WOI/KCWI		ABC/CW
Huntsville-Decatur-Florence, AL		WZDX		FOX
Davenport, IA and Rock Island-Moline, IL		WQAD		ABC
Ft. Smith-Fayetteville-Springdale-Rogers, AR		KFSM		CBS

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

Dispatch Stations

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

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

Justice and Quest Multicast Networks

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

Cash paid for this acquisition was $77.2 million (which included $4.7 million for estimated working capital paid at closing), funded through available cash and borrowing under our revolving credit facility. As a result of acquiring the remaining ownership of the networks, we recognized a $7.3 million gain due to the write-up of our prior investment in the Justice Network and Quest multicast networks to its fair value at the time of the acquisition. This gain was recorded in Other non-operating items, net within the Consolidated Statement of Income.

Gray Stations

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

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

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

Copy History

		Nexstar Stations				Dispatch Stations				Justice & Quest				Gray Stations				Total
Cash		$	—			$	2,363			$	—			$	—			$	2,363
Accounts receivable		35,459				26,680				8,501				5,553				76,193
Prepaid and other current assets		4,760				6,165				6,987				988				18,900
Property and equipment		47,339				40,856				369				11,757				100,321
Goodwill		84,252				158,077				23,413				11,458				277,200
FCC licenses		415,225				298,974				—				53,378				767,577
Retransmission agreements		76,894				55,366				—				12,253				144,513
Network affiliation agreements		115,340				83,048				—				16,105				214,493
Right-of-use assets for operating leases		19,064				362				—				252				19,678
Other intangible assets		—				—				52,553				—				52,553
Other noncurrent assets		2,015				—				5,252				18				7,285
Total assets acquired		$	800,348			$	671,891			$	97,075			$	111,762			$	1,681,076
Accounts Payable		719				953				725				1				2,398
Accrued liabilities		10,086				8,917				3,973				1,606				24,582
Deferred income tax liability		—				108,132				(471		)		—				107,661
Operating lease liabilities - noncurrent		17,271				233				—				235				17,739
Other noncurrent liabilities		3,155				—				2,700				—				5,855
Total liabilities assumed		$	31,231			$	118,235			$	6,927			$	1,842			$	158,235
Net assets acquired		$	769,117			$	553,656			$	90,148			$	109,920			$	1,522,841
Less: cash acquired		$	—			$	(2,363	)		$	—			$	—			$	(2,363	)
Less: fair value of existing ownership		—				—				(12,995		)		—				(12,995		)
Cash paid for acquisitions		$	769,117			$	551,293			$	77,153			$	109,920			$	1,507,483

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

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

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

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

Copy History

	Quarter ended				Nine months ended