The following table displays goodwill, indefinite-lived intangible assets, and amortizable intangible assets as of September 30, 20172023 and December 31, 20162022 (in thousands):
NOTE 87 – Earnings per share
Our earnings per share (basic and diluted) are presented below (in thousands, of dollars, except per share amounts): |
| | | | | | | | | | | | | | | |
| Quarter ended Sept. 30, | | Nine months ended Sept. 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | |
Net income from continuing operations | $ | 50,754 |
| | $ | 76,737 |
| | $ | 144,682 |
| | $ | 211,615 |
|
(Loss) income from discontinued operations, net of tax | (10,803 | ) | | 56,698 |
| | (233,261 | ) | | 132,141 |
|
Net loss (income) attributable to noncontrolling interests from discontinued operations | 2,806 |
| | (14,752 | ) | | 58,698 |
| | (40,178 | ) |
Net income (loss) attributable to TEGNA Inc. | $ | 42,757 |
| | $ | 118,683 |
| | $ | (29,881 | ) | | $ | 303,578 |
|
| | | | | | | |
Weighted average number of common shares outstanding - basic | 215,863 |
| | 214,813 |
| | 215,558 |
| | 216,865 |
|
Effect of dilutive securities: | | | | |
|
| |
|
|
Restricted stock units | 828 |
| | 1,630 |
| | 880 |
| | 1,662 |
|
Performance share units | 721 |
| | 775 |
| | 674 |
| | 1,049 |
|
Stock options | 683 |
| | 881 |
| | 715 |
| | 935 |
|
Weighted average number of common shares outstanding - diluted | 218,095 |
| | 218,099 |
| | 217,827 |
| | 220,511 |
|
| | | | | | | |
Earnings from continuing operations per share - basic | $ | 0.24 |
| | $ | 0.36 |
| | $ | 0.67 |
| | $ | 0.98 |
|
(Loss) earnings from discontinued operations per share - basic | (0.04 | ) | | 0.19 |
| | (0.81 | ) | | 0.42 |
|
Net income (loss) per share - basic | $ | 0.20 |
| | $ | 0.55 |
| | $ | (0.14 | ) | | $ | 1.40 |
|
| | | | | | | |
Earnings from continuing operations per share - diluted | $ | 0.23 |
| | $ | 0.35 |
| | $ | 0.66 |
| | $ | 0.96 |
|
(Loss) earnings from discontinued operations per share - diluted | (0.04 | ) | | 0.19 |
| | (0.80 | ) | | 0.42 |
|
Net income (loss) per share - diluted | $ | 0.19 |
| | $ | 0.54 |
| | $ | (0.14 | ) | | $ | 1.38 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended Sept. 30, | | Nine months ended Sept. 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | |
Net Income | $ | 96,254 | | | $ | 146,157 | | | $ | 400,351 | | | $ | 412,384 | |
Net (income) loss attributable to the noncontrolling interest | (71) | | | (92) | | | 240 | | | (516) | |
Adjustment of redeemable noncontrolling interest to redemption value | (282) | | | (235) | | | (1,281) | | | (447) | |
Earnings available to common shareholders | $ | 95,901 | | | $ | 145,830 | | | $ | 399,310 | | | $ | 411,421 | |
| | | | | | | |
Weighted average number of common shares outstanding - basic | 200,779 | | | 223,968 | | | 214,297 | | | 223,456 | |
Effect of dilutive securities: | | | | | | | |
Restricted stock units | 261 | | | 621 | | | 170 | | | 469 | |
Performance shares | 178 | | | 332 | | | 124 | | | 296 | |
| | | | | | | |
Weighted average number of common shares outstanding - diluted | 201,218 | | | 224,921 | | | 214,591 | | | 224,221 | |
| | | | | | | |
Earnings per share - basic | $ | 0.48 | | | $ | 0.65 | | | $ | 1.86 | | | $ | 1.84 | |
Earnings per share - diluted | $ | 0.48 | | | $ | 0.65 | | | $ | 1.86 | | | $ | 1.83 | |
Our calculation of diluted earnings per share includes the impact ofdilutive effects for the assumed vesting of outstanding restricted stock units and performance share units, and the exercise of outstanding stock options based on the treasury stock method when dilutive. The diluted earnings per share amounts exclude the effects of approximately 96,000 and 142,000 stock awards for the three and nine months ended September 30, 2017, respectively; and 192,000 and 292,000 for the three and nine months ended September 30, 2016, respectively, as their inclusion would be accretive to earnings per share.
shares.
NOTE 98 – Fair value measurement
We measure and record certain assets and liabilities at fair value in the accompanying condensed consolidated financial statements certain assets and liabilities at fair value.statements. U.S. GAAP establishes a hierarchy for those instruments measured at fair value that distinguishes between market data (observable inputs) and our own assumptions (unobservable inputs). The hierarchy consists of three levels:
Level 1 - Quoted market prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than Level 1 inputs that are either directly or indirectly observable; and
Level 3 - Unobservable inputs developed using our own estimates and assumptions, which reflect those that a market participant would use.
In the third quarter of 2023, we recognized a gain of $25.8 million as a result of the sale of a portion of our MadHive investment. The following table summarizesgain was recorded in “Other non-operating items, net” within our assets and liabilities measured atConsolidated Statement of Income. The fair value was based on an offer price, which was settled in cash, in an inactive market (which is classified as Level 2 in the accompanying Condensed Consolidated Balance Sheets as of September 30, 2017, and December 31, 2016 (in thousands):fair value hierarchy). |
| | | | | | | | | | | | | | | |
| Fair Value Measurements as of Sept. 30, 2017 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | |
Available for sale investment | — |
| | — |
| | — |
| | — |
|
Total | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | | | | | | |
Deferred compensation investments valued using net asset value as a practical expedient: | | |
Interest in registered investment companies | | | | | | | $ | 14,921 |
|
Fixed income fund | | | | | | | 13,672 |
|
Total investments at fair value | | | | | | | $ | 28,593 |
|
|
| | | | | | | | | | | | | | | |
| Fair Value Measurements as of Dec. 31, 2016 (recast) |
| Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | |
Available for sale investment | 16,744 |
| | — |
| | — |
| | 16,744 |
|
Total | $ | 16,744 |
| | $ | — |
| | $ | — |
| | $ | 16,744 |
|
| | | | | | | |
Deferred compensation investments valued using net asset value as a practical expedient: | | |
Interest in registered investment companies | | | | | | | $ | 10,140 |
|
Fixed income fund | | | | | | | 13,575 |
|
Total investments at fair value | | | | | | | $ | 40,459 |
|
Available for sale investment: Our investment previously consisted of shares of common stock of Gannett Co., Inc., which had been classified as a Level 1 asset as the shares are listed on the New York Stock Exchange. DuringIn the second quarter of 20172023, we recordedrecognized an OTTI lossimpairment charge of $3.4 million, in the non-operating items line item of the“Asset impairment and other” within our Consolidated Statement of Income, andrelated to certain programming assets. The fair value was determined based on a projection of the estimated revenues less projected direct costs associated with the programming (which is classified as Level 3 in the thirdfair value hierarchy).
In the first quarter of 20172022, we sold the investmentrecorded a $2.5 million impairment charge, in its entirety.
Interest in registered investment companies: These investments include one fund which invests in intermediate-term investment grade bonds and a fund which invests in equities listed predominantly on European and Asian exchanges. Funds are valued using the net asset values as quoted through publicly available pricing sources and investments are redeemable on request.
Fixed income fund investment: Valued using the net asset value provided monthly by the fund company and shares are generally redeemable on request. There are no unfunded commitments to these investments as“Other non-operating items, net” within our Consolidated Statement of September 30, 2017.
In additionIncome, due to the financial instruments listeddecline in the table above, wefair value of one of our investments. The fair value was determined using a market approach which was based on significant inputs not observable in the market, and thus represented a Level 3 fair value measurement.
We also hold other financial instruments, including cash and cash equivalents, receivables, accounts payable and debt. The carrying amounts for cash and cash equivalents, receivables and accounts payable approximated their fair values. The fair value of our total debt, based on the bid and ask quotes for the related debt (Level 2), totaled $3.49 $2.74 billion at September 30, 2017,2023, and $4.19$2.95 billion at December 31, 2016.2022.
The sale
NOTE 9 – Share repurchase programs
In December 2020, our Board of Directors authorized the renewal of our share repurchase program for up to $300 million of our common stock over three years. No purchases occurred under this program from its inception to June 30, 2023. In the third quarter of 2023, 1.7 million shares were repurchased under this program at an average share price of $15.96 for an aggregate cost of $27.9 million.
On June 2, 2023, we entered into an accelerated share repurchase (ASR) program with JPMorgan Chase Bank, National Association (JPMorgan). Under the terms of the majorityASR, we repurchased $300 million in TEGNA common shares from JPMorgan, with an initial delivery of our ownership in CareerBuilder resulted in a $342.9approximately 15.2 million pre-tax loss recorded within discontinued operations (see Note 12).shares received on June 6, 2023, representing 80% ($240 million) of the value of the ASR contract. The loss includes a goodwill impairment chargeASR program was completed during the third quarter of $332.9 million.2023 at which time JPMorgan delivered an additional 3.1 million shares to us. The valuation used in
the Step 1 goodwill impairment testfinal share settlement was based on the enterprise value determined inaverage daily volume-weighted average price of TEGNA shares during the purchase agreement (which representsterm of the ASR program, less a Level 3 input indiscount, less the fair value hierarchy).previously delivered 15.2 million shares.
During
NOTE 10 – Other matters
Litigation
Antitrust matters
In the third quarter of 2017,2018, certain national media outlets reported the existence of a fewconfidential investigation by the United States Department of ourJustice Antitrust Division (DOJ) into the local television advertising sales practices of station owners. We received a Civil Investigative Demand (CID) in connection with the DOJ’s investigation. On November 13 and December 13, 2018, the DOJ and seven other broadcasters settled a DOJ complaint alleging the exchange of certain competitively sensitive information in the broadcast television industry. In June 2019, we and four other broadcasters entered into a substantially identical agreement with DOJ, which was entered by the court on December 3, 2019. The settlement contains no finding of wrongdoing or liability and carries no penalty. It prohibits us and the other settling entities from sharing certain confidential business information as alleged by the DOJ, or using such information pertaining to other broadcasters, except under limited circumstances. The settlement also requires the settling parties to make certain enhancements to their antitrust compliance programs, to continue to cooperate with the DOJ’s investigation, and to permit DOJ to verify compliance. The costs of compliance have not been material, nor do we expect future compliance costs to be material.
Since the national media reports, numerous putative class action lawsuits were filed against owners of television stations (the Advertising Cases) in different jurisdictions. Plaintiffs are a class consisting of all persons and entities in the United States who paid for all or a portion of advertisement time on local television provided by the defendants. The Advertising Cases assert antitrust and other claims and seek monetary damages, attorneys’ fees, costs and interest, as well as injunctions against the allegedly wrongful conduct.
These cases were impacted by hurricanes Harvey and Irma.consolidated into a single proceeding in the United States District Court for the Northern District of Illinois, captioned In particular, Hurricane Harvey caused major damage to our Houston television station (KHOU), andre: Local TV Advertising Antitrust Litigation on October 3, 2018. At the court’s direction, plaintiffs filed an amended complaint on April 3, 2019, that superseded the original complaints. Although we were named as a result, we recognized $10.2 milliondefendant in non-cash charges, writing off destroyed equipmentsixteen of the original complaints, the amended complaint did not name TEGNA as a defendant. After TEGNA and recording an impairmentfour other broadcasters entered into the consent decrees with the DOJ in June 2019, the plaintiffs sought leave from the court to further amend the complaint to add TEGNA and the other settling broadcasters to the valueproceeding. The court granted the plaintiffs’ motion, and the plaintiffs filed the second amended complaint on September 9, 2019. On October 8, 2019, the defendants jointly filed a motion to dismiss the matter. On November 6, 2020, the court denied the motion to dismiss. On March 16, 2022, the plaintiffs filed a third amended complaint, which, among other things, added ShareBuilders, Inc., as a named defendant. ShareBuilders filed a motion to dismiss on April 15, 2022, which was granted by the court without prejudice on August 29, 2022. TEGNA has filed its answer to the third amended complaint denying any violation of law and asserting various affirmative defenses.
On May 26, 2023, plaintiffs moved for preliminary approval of settlements with four co-defendants – CBS Corp (n/k/a Paramount Global), Fox Corp., certain Cox entities (including Cox Media Group, LLC, Cox Enterprises, Inc., CMG Media Corporation and Cox Reps, Inc.) and ShareBuilders, Inc. Although ShareBuilders prevailed on its motion to dismiss the case, as noted above, because the court had dismissed the claims without prejudice ShareBuilders entered into a zero dollar settlement with the plaintiffs in order to ensure that the plaintiffs do not re-file the claims in the future. In exchange for a release of plaintiffs’ claims against them, the settling defendants, among other things, collectively agreed to pay $48 million, while expressly denying any liability or wrongdoing. The Court is in the process of reviewing the proposed settlements to determine whether they are fair to the proposed settlement class, the settling defendants, and the non-settling defendants. A hearing on final approval of the building (fair valuesettlements is currently scheduled for December 7, 2023.
Discovery in the Advertising Cases is ongoing. We believe that the claims asserted in the Advertising Cases are without merit and intend to defend vigorously against them.
Claims related to the Merger
In 2022, seven lawsuits were filed by purported TEGNA stockholders against TEGNA and the members of the building was determined using a market based valuation). TEGNA Board of Directors, generally alleging that the preliminary proxy statement filed by TEGNA with the SEC on March 25, 2022 in connection with the Merger contained alleged material misstatements and/or omissions in violation of federal law. Plaintiffs generally sought, among other things, to enjoin TEGNA from consummating the Merger, or in the alternative, rescission of the Merger and/or compensatory damages, as well as attorneys’ fees. As of November 7, 2023, all seven of the lawsuits have been voluntarily dismissed.
In addition, we incurred $8.4 millionas of November 7, 2023, TEGNA received four demand letters from purported TEGNA shareholders in cash expenses relatedconnection with TEGNA’s filing of a definitive proxy statement with the SEC on April 13, 2022 relating to repairing the studio and office and providing for additional staffing and operational needsMerger (the “definitive proxy statement”). Each letter alleged deficiencies in the definitive proxy statement that were similar to keep the station operating during and immediately following these weather emergencies. Partially offsetting these expenses, we received initial insurance proceeds of $11.0 million ($5.0 million was received as of September 30, 2017 and $6.0 million was receiveddeficiencies alleged in October 2017). The net expense impact from the hurricane of $7.6 million has been recorded in asset impairment and facility consolidation charges on our Consolidated Statements of Income.complaints referenced above.
We also recorded a non-cash impairment charge of $5.8 millionbelieve that the claims asserted in the second quarterletters described above are without merit and are moot in light of 2017 associatedTEGNA’s termination of the Merger agreement. Moreover, although we believe that no additional disclosures were or are required under applicable law, TEGNA, without admitting any liability or wrongdoing, voluntarily made supplemental disclosures to the definitive proxy statement as described in the Form 8-K filed by TEGNA with the write-offSEC on May 9, 2022. Notwithstanding TEGNA’s termination of a note receivable from onethe Merger Agreement, additional lawsuits arising out of our equity method investments (see Note 3).
NOTE 10 – Business segment information
Our reportable segment determination is based on our management and internal reporting structure, the nature of products and services offered by the segments, and the financial information that is evaluated regularly by our chief operating decision maker.
Immediately following the spin-off of Cars.com and the sale of our majority stake in CareerBuilder, we began classifying our operations as one operating and reportable segment, Media, which consists of our 46 television stations operating in 38 markets, offering high-quality television programming and digital content. Also now includedMerger could also be filed in the Media Segment is our DMS business which was previously reported in our Digital Segment.future.
As a result of classifying the former Digital Segment’s historical financial results as discontinued operations there is no remaining activity in 2017 as shown in the tables below. The 2016 activity shown below for our Digital Segment relates to our former Cofactor business which did not meet the criteria for discontinued operation reporting when the business was sold in December 2016. The historical periods below have also been updated to restate the historical results of our DMS business within our Media business.
Segment operating results are summarized as follows (in thousands): |
| | | | | | | | | | | | | | | |
| Quarter ended Sept. 30, | | Nine months ended Sept. 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| | | (recast) | | | | (recast) |
Revenues: | | | | | | | |
Media | $ | 464,264 |
| | $ | 517,021 |
| | $ | 1,412,703 |
| | $ | 1,449,202 |
|
Digital | — |
| | 2,596 |
| | — |
| | 8,031 |
|
Total | $ | 464,264 |
| | $ | 519,617 |
| | $ | 1,412,703 |
| | $ | 1,457,233 |
|
| | | | | | | |
Operating Income (net of depreciation, amortization, asset impairment and facility consolidation charges): | | | | | | | |
Media (a) | $ | 130,338 |
| | $ | 219,766 |
| | $ | 433,629 |
| | $ | 568,163 |
|
Digital | — |
| | (17,832 | ) | | — |
| | (23,300 | ) |
Corporate (a) | (13,477 | ) | | (16,083 | ) | | (43,577 | ) | | (46,974 | ) |
Total | $ | 116,861 |
| | $ | 185,851 |
| | $ | 390,052 |
| | $ | 497,889 |
|
| | | | | | | |
Depreciation, amortization, asset impairment and facility consolidation charges: | | | | | | | |
Media | $ | 27,538 |
| | $ | 18,583 |
| | $ | 67,864 |
| | $ | 59,735 |
|
Digital | — |
| | 15,565 |
| | — |
| | 16,297 |
|
Corporate | 596 |
| | 57 |
| | 1,115 |
| | 3,109 |
|
Total | $ | 28,134 |
| | $ | 34,205 |
| | $ | 68,979 |
| | $ | 79,141 |
|
| | | | | | | |
(a) In the first quarter of 2017, we adopted new accounting guidance that changed the classification of certain components of net periodic pension and other post-retirement benefit expense (post-retirement benefit expense). The service cost component of the post-retirement benefit expense will continue to be presented as an operating expense while all other components of post-retirement benefit expense will be presented as non-operating expense. The prior year period was adjusted to reflect the effects of applying the new guidance. This resulted in an increase to operating income in third quarter of 2017 and 2016 of $1.7 million and $1.8 million and for the nine months ended September 30, 2017 and 2016 of $4.9 million and $5.8 million, respectively. Net income, earnings per share, and retained earnings were not impacted by the new standard. |
NOTE 11 – Other litigation matters
Commitments, contingencies and other matters
We, along with a number of our subsidiaries, also are defendants in other judicial and administrative proceedings involving matters incidental to our business. We do not believe that any material liability will be imposed as a result of theseany of the foregoing matters.
Voluntary Retirement ProgramRelated Party Transactions
During the first quarter of 2016, we initiated a Voluntary Retirement Program (VRP) at our Media Segment. Under the VRP, Media employees meeting certain eligibility requirements were offered buyout paymentsWe have an equity investment in exchange for voluntarily retiring. Eligible non-union employees had until April 7, 2016, to retire under the plan. In 2016, based on acceptances received, we recorded $16.0 million of severance expense. Upon separation, employees accepting the VRP received salary continuation payments primarily based on years of service, the majority ofMadHive, Inc. (MadHive) which occurred evenly over the 12-month period following separation date. As of September 30, 2017, we had less than $0.4 million of VRP buyout obligation remaining.
FCC Broadcast Spectrum Program
Congress authorized the Federal Communications Commission (FCC) to conduct a voluntary incentive auction to reallocate certain spectrum currently occupied by television broadcast stations to mobile wireless broadband services, along withis a related “repacking”party of TEGNA. We also have commercial agreements with MadHive, under which MadHive supports our Premion business in acquiring over-the-top advertising inventory and delivering corresponding advertising impressions. In the television spectrum for remaining television stations. The repacking requires that certain television stations move to different channels,third quarter and some stations will have smaller service areas and/or experience additional interference. Congress announced the resultsfirst nine months of the auction, including a list2023, we incurred expenses of the stations to be repacked, in April 2017. None of our stations will relinquish any spectrum rights $22.7 million and $71.8 million, respectively, as a result of the auction,commercial agreements with MadHive. In the third quarter and accordinglyfirst nine months of 2022, we will not receive any incentive auction proceeds. The FCC has, however, notified us that 13incurred expenses of our stations will be repacked to new channels. The repacking process is scheduled to occur over$30.4 million and $86.3 million, respectively, as a 39-month period, divided into ten phases. Our stations have been assigned to phases two through nine,result of the commercial agreements with MadHive. As of September 30, 2023, and a majority of our capital expenditures in connectionDecember 31, 2022 we had accounts payable and accrued liabilities associated with the repack will occur in 2018MadHive commercial agreements of $6.6 million and 2019.$10.0 million, respectively.
We are eligible to seek reimbursement for costs associatedIn December 2021, we renewed our commercial agreements with implementing changes to our facilities required by the repack. 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. The FCC has reported that the aggregate cost estimated by repacked stations to complete the repack will be almost $1.9 billion. In October 2017, the FCC announced that it had made an approximately $1 billion allocation from the fund to repacked stations to allow those stations to begin to be reimbursed for expenses incurred in connectionMadHive. Simultaneously with the construction of facilities on reassigned channels. This allocation represents approximately 52% of the total estimated demand for repack funds. Althoughcommercial agreement renewals, we expect the FCC to make additional allocations from the fund, it is not clear at this time whether the FCC ultimately will receive from Congress the additional funds necessary to completely reimburse each repacked station for all amounts incurred in connection with the repack. Beyond the potential for not being reimbursed for all amounts we incur, it is still too early to predict the ultimate impact of the incentive auction and repacking upon our business.
As noted above, while we did not sell any of our spectrum in the auction, we did enter into a channel share agreement with another broadcaster that sold spectrum in the auction. Pursuant toalso amended the terms of our channel share agreementthen-outstanding available-for-sale convertible debt security investment. In exchange for the convertible debt modifications, we received $32.6favorable terms in our renewed commercial agreements. We estimated the fair value of our available-for-sale security at December 31, 2021 using a market fair value approach based on the cash we expected to receive upon maturity of the note and the estimated cash savings that the favorable contract terms would provide over the term of the commercial agreements. In January 2022, we recorded an intangible contract asset for $20.8 million in(equal to the estimated cash proceeds during the third quarter of 2017. These proceeds were deferredsavings), and will be amortizedare amortizing this asset on a straight-line basis as other revenue over a 20 year period.the noncancellable term of the commercial agreements of two years. This non-cash expense is recorded within “Cost of revenues,” within our Consolidated Statement of Income. The $32.6debt matured in June 2022 at which time the principal balance of $3.0 million cash proceeds were reflected as cash flow from operating activities on our Condensed Consolidated Statements of Cash Flow.plus accrued interest was paid to us.
NOTE 12 – Discontinued operations
Cars.com spin-off
On May 31, 2017, we completed the previously announced spin-off of Cars.com creating two publicly traded companies: TEGNA, an innovative media company with the largest broadcast group among major network affiliates in the top 25 markets; and Cars.com, a leading digital automotive marketplace. The spin-off was effected through a pro rata distribution of all outstanding common shares of Cars.com to TEGNA stockholders of record at the close of business on May 18, 2017 (the “Record Date”). Stockholders retained their TEGNA shares and received one share of Cars.com for every three shares of TEGNA stock they owned on the Record Date. Cars.com began “regular way” trading on the New York Stock Exchange on June 1, 2017 under the symbol “CARS”. In connection with the Cars.com spin-off, we received a one time tax-free cash distribution from Cars.com of $650.0 million. In the second quarter of 2017,2023, we used $609.9 millionfurther extended the terms of the tax-free distribution proceeds to fully pay down outstanding revolving credit agreement borrowings. In October 2017, we used the remainder of the proceeds to pay down a portion of the outstanding principal on unsecured notes due in October 2019 (see Note 5).
Separation Agreement
We entered into a separationour commercial agreement with Cars.com which sets forth, among other things, the identified assets transferred, the liabilities assumed and the contracts assigned to each of TEGNA and Cars.com as part of the separation and the conditions related to the distribution of Cars.com outstanding stock to TEGNA stockholders.
Transition Services Agreement
We entered into a transition services agreement with Cars.com prior to the distribution pursuant to which we and our subsidiaries will provide certain services to Cars.com onMadHive for an interim and transitional basis, not to exceed 24 months. The services to be provided include certain tax, human resource and risk management consulting services, and certain other short term services to complete a limited number of ongoing analysis projects. The agreed upon charges for such services are generally intended to allow us to recover all costs and expenses of providing such services, and such charges are not expected to be material to either us or Cars.com.
The transition services agreement will terminate on the expiration of the term of the last service provided under it, with a minimum service period of 60 days and a maximum service period of 24 months, with most services expected to last for less than the maximum service period following the distribution date. Cars.com generally can terminate a particular service prior to the scheduled expiration date, subject generally to the minimum service period and a minimum notice period of 45 days.
Tax Matters Agreement
Prior to the distribution, we entered into a tax matters agreement that governs the parties’ respective rights, responsibilities and obligations with respect to taxes (including taxes arising in the ordinary course of business and taxes, if any, incurred as a result of any failure of the distribution and certain related transactions to qualify as tax-free for U.S. federal income tax purposes), tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and assistance and cooperation in respect of tax matters.
Employee Matters Agreement
We entered into an employee matters agreement with Cars.com prior to the distribution to allocate liabilities and responsibilities relating to employment matters, employee compensation and benefit plans and programs and other related matters. The employee matters agreement governs certain compensation and employee benefit obligations with respect to the current and former employees and non-employee directors of each company.
The employee matters agreement provides that, unless otherwise specified, Cars.com will be responsible for liabilities associated with employees who will be employed by Cars.com following the spin-off and former employees whose last employment was with the Cars.com businesses, and we will be responsible for all other current and former TEGNA employees. Cars.com will retain sponsorship of 401(k) retirement plans, deferred compensation plans and other incentive plans maintained for the exclusive benefit of Cars.com employees as well as various welfare plans applicable to the Cars.com employees.
CareerBuilder Sale
On July 31, 2017, we sold our majority ownership interest in CareerBuilder to an investor group led by investment funds managed by affiliates of Apollo Global Management, LLC, a leading global alternative investment manager, and the Ontario Teachers’ Pension Plan Board. Our share of the pre-tax net cash proceeds from the sale was $198.3 million. These net proceeds were used in October 2017 to pay down existing debt (see Note 5). Additionally, during the third quarter of 2017 and prior to the closing of the sale, CareerBuilder issued a final dividend to its selling shareholders, of which $25.8 million was retained by TEGNA. As part of the agreement, we remain an ongoing partner in CareerBuilder, reducing our 53% controlling interest to approximately 17% interest (or approximately 12% on a fully-diluted basis) andadditional two seats on CareerBuilder’s 10 person board. As a result, subsequent to the sale, CareerBuilder is no longer consolidated within our reported operating results. Our remaining ownership interest will be accounted for as an equity method investment. Subsequent to the date of sale we recorded $0.5 million of equity earnings during the remainder of the third quarter of 2017 from our remaining interest in CareerBuilder.
Financial Statement Presentation of Digital Segment
As a result of the Cars.com and CareerBuilder transactions described above, the operating results and financial position of our former Digital Segment have been included in discontinued operations in the Condensed Consolidated Balance Sheet and Consolidated Statements of Income for all applicable periods presented. The results of discontinued operations for the nine months ended September 2017 include a $342.9 million pre-tax loss related to the sale of CareerBuilder (after noncontrolling interest, $271.7 million of the pre-tax loss is attributable to TEGNA). The pre-tax loss includes a goodwill impairment charge of $332.9 million and costs to sell the business of $10.9 million. Fair value used for the pre-tax loss was based on the enterprise value of CareerBuilder as determined in the definitive purchase agreement.
The carrying value of the assets and liabilities of our former Digital Segment’s discontinued operations as ofyears, through December 31, 2016 were as follows (in thousands):2025.
|
| | | |
| |
| Dec. 31, 2016 |
| |
ASSETS | |
Cash and cash equivalents | $ | 61,041 |
|
Accounts receivable, net | 214,171 |
|
Property and equipment, net | 74,695 |
|
Goodwill | 1,488,112 |
|
Other Intangibles, net | 1,718,592 |
|
Other assets | 71,193 |
|
Total assets | $ | 3,627,804 |
|
| |
LIABILITIES | |
Accounts payable | $ | 166,853 |
|
Deferred revenue | 110,071 |
|
Deferred tax liability | 280,264 |
|
Other liabilities | 66,969 |
|
Total liabilities | $ | 624,157 |
|
The financial results of discontinued operations in the third quarter and the nine months ended September 30, 2017 and 2016 are presented as a loss (income) from discontinued operations, net of tax, on our Consolidated Statements of Income. The following table presents the financial results of discontinued operations (in thousands):
|
| | | | | | | | | | | | | | | |
| Quarter ended Sept. 30, | | Nine months ended Sept. 30, |
| 2017 (1) | | 2016 | | 2017 (1) | | 2016 (2) |
| | | | | | | |
Operating revenues | $ | 54,874 |
| | $ | 340,649 |
| | $ | 647,021 |
| | $ | 999,929 |
|
| | | | | | | |
Cost of revenue and SG&A expenses | 60,301 |
| | 228,152 |
| | 522,287 |
| | 708,815 |
|
Depreciation | — |
| | 9,421 |
| | 19,569 |
| | 24,843 |
|
Amortization | — |
| | 23,385 |
| | 40,300 |
| | 68,159 |
|
Loss on sale of CareerBuilder | (1,872 | ) | | — |
| | 342,900 |
| | — |
|
Total operating expenses | 58,429 |
| | 260,958 |
| | 925,056 |
| | 801,817 |
|
| | | | | | | |
Total operating (loss) income | (3,555 | ) | | 79,691 |
| | (278,035 | ) | | 198,112 |
|
| | | | | | | |
Non-operating income (expense) | 647 |
| | (3,304 | ) | | (1,078 | ) | | (8,989 | ) |
| | | | | | | |
(Loss) income from discontinued operations, before income taxes | (2,908 | ) | | 76,387 |
| | (279,113 | ) | | 189,123 |
|
Provision for income taxes | (7,895 | ) | | (19,689 | ) | | 45,852 |
| | (56,982 | ) |
(Loss) income from discontinued operations, net of tax | $ | (10,803 | ) | | $ | 56,698 |
| | $ | (233,261 | ) | | $ | 132,141 |
|
| | | | | | | |
(1) The quarter and nine months ended September 30, 2017 include CareerBuilder’s operations through the date of sale on July 31, 2017. Cars.com operations are included in the nine months ended September 30, 2017 through the date of spin-off on May 31, 2017. |
(2) The nine months ended September 30, 2016 include approximately $7.5 million of net loss from discontinued operations related to the operations of our former Sightline business through the date of sale on March 18, 2016. |
In our Consolidated Statements of Cash Flows, the cash flows from discontinued operations are not separately classified. As such, major categories of discontinued operation cash flows for the nine months ended September 30, 2017 and 2016 are presented below (in thousands):
|
| | | | | | | |
| Nine months ended Sept. 30, |
| 2017 (1) | | 2016 |
| | | |
Depreciation | $ | 19,569 |
| | $ | 24,843 |
|
Amortization | 40,300 |
| | 68,159 |
|
Capital expenditures | 37,441 |
| | 38,825 |
|
Payments for acquisitions, net of cash acquired | $ | — |
| | $ | 196,750 |
|
| | | |
(1) The nine months ended September 30, 2017 includes Cars.com through the spin-off date of May 31, 2017 and CareerBuilder’s operations through the date of sale on July 31, 2017. |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Company Overview
We are an innovative media company that servesserving the greater good of our communities. Across platforms, we tell empowering stories, conduct impactful investigations and deliver innovative marketing services. With 4664 television stations and two radio stations in 3851 U.S. markets, we are the largest owner of top four network affiliates in the top 25 markets among independent station groups, reaching approximately one-third39% of all U.S. television households nationwide.households. We also own leading multicast networks True Crime Network, Twist and Quest. Each television station also has a robust digital presence across online, mobile, connected television and social platforms, reaching consumers whenever, whereveron all devices and platforms they are. Each month, we reach 50 million adults on-air and 35 million across our digital platforms.use to consume news content. We have been consistently honored with the industry’s top awards, including Edward R. Murrow, George Polk, Alfred I. DuPont and Emmy Awards. WeThrough TEGNA Marketing Solutions (TMS), our integrated sales and back-end fulfillment operations, we deliver results for advertisers through unparalleledacross television, digital and innovative solutionsover-the-top (OTT) platforms, including Premion, our Over the Top (“OTT”) localOTT advertising network, Premion, centralized marketing resource, Hatch; and our digital marketing services (DMS) business, a one-stop shop for local businesses to connect with consumers through digital marketing. Across platforms, we tell empowering stories, conduct impactful investigations and deliver innovative marketing solutions. network.
We continue to make innovative programming a priority and invest in local news and other special programming to ensure we stay connected to our audiences and empower them throughout the day. For example, we recently launched VERIFY news, a fact-checking segment across platforms, and HeartThreads, a new national digital content vertical. Additionally, in September 2017 we premiered our TEGNA-owned daily live syndicated program “Daily Blast LIVE,” which airs on 36 TEGNA stations and nationally on Facebook and YouTube. Also in September, we launched a daily talk show, “Sister Circle,” produced out of WATL in Atlanta, which airs in 12 TEGNA markets and nationally live on TV One, reaching 60% of U.S. television households. Finally, our KXTV station in Sacramento partnered with Cheddar network to launch “Cheddar Local,” which provides KXTV with local business and technology segments relevant to the Sacramento community.
After completing the strategic actions discussed below, we now have one operating and reportable segment. The primary sources of our revenues are: 1) 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; 2) advertising & marketing services (AMS) revenues, which include local and national non-political television advertising, as well as DMSdigital marketing services (including Premion), and advertising on the stations’ websites, and tablet and mobile products; 2)products and OTT apps; 3) political advertising revenues, which are driven by electionseven year election cycles at the local and peak in even yearsnational level (e.g. 2016, 2014)2024, 2022, etc.) and particularly in the second half of those years; 3) subscription revenues, representing fees primarily paid by satellite and cable operators and telecommunications companies to carry our television signals on their systems and OTT revenues; and 4) other services, such as production of programming, tower rentals, and distribution of our local news content.
Terminated Merger Agreement
On February 22, 2022, we entered into the Merger Agreement with Parent, Merger Sub, and solely for purposes of certain provisions specified therein, other subsidiaries of Parent, certain affiliates of Standard General and CMG, and certain of its subsidiaries.
On May 22, 2023, after a protracted regulatory review, we terminated the Merger Agreement in accordance with its terms. Under the terms of the Merger Agreement, Parent was required to pay us a $136.0 million fee as a result of this termination. In lieu of cash payment for the termination fee, we agreed to accept from Parent 8.6 million shares of the Company’s common stock, which Parent transferred to the Company on June 1, 2023.
Consolidated Results from Operations
The following discussion is a comparison of our consolidated results on a GAAP basis. The year-to-year comparison of financial results is not necessarily indicative of future results. In addition, see the section titled “Results from Operations - Non-GAAP Information” for additional tables presenting information that supplements our financial information provided on a GAAP basis.
Our operating results are subject to significant fluctuations across yearly periods (primarily driven by even-year political election cycles). As such, in addition to prior year comparisons, our management team and Board of Directors also review current period operating results compared to the same periods two years ago (e.g., 2023 vs. 2021). We believe these additional comparisons provide useful information to investors and therefore have supplemented our prior year comparison of consolidated results to also include a comparison against the third partiesquarter and productionnine months ended September 30, 2021 results (through operating income).
In recent years, our business has evolved toward generating more recurring and highly profitable revenue streams, driven by the increased contribution of political and subscription revenue streams as a percentage of our total revenue. Such revenues have been a majority of our overall revenue the past few years and we expect this to continue.
Our consolidated results of operations on a GAAP basis were as follows (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended Sept. 30, | | Nine months ended Sept. 30, |
| 2023 | | 2022 | | Change from 2022 | | 2021 | | Change from 2021 | | 2023 | | 2022 | | Change from 2022 | | 2021 | | Change from 2021 |
| | | | | | | | | | | | | | | | | | | |
Revenues | $ | 713,243 | | | $ | 803,111 | | | (11 | %) | | $ | 756,487 | | | (6 | %) | | $ | 2,185,076 | | | $ | 2,362,115 | | | (7 | %) | | $ | 2,216,446 | | | (1 | %) |
| | | | | | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | | | | | |
Cost of revenues | 438,260 | | | 428,891 | | | 2 | % | | 399,751 | | | 10 | % | | 1,295,720 | | | 1,260,576 | | | 3 | % | | 1,191,561 | | | 9 | % |
Business units - Selling, general and administrative expenses | 98,394 | | | 98,582 | | | 0 | % | | 100,425 | | | (2 | %) | | 294,734 | | | 300,136 | | | (2 | %) | | 286,700 | | | 3 | % |
Corporate - General and administrative expenses | 13,552 | | | 13,367 | | | 1 | % | | 11,891 | | | 14 | % | | 52,158 | | | 48,299 | | | 8 | % | | 51,944 | | | 0 | % |
Depreciation | 15,083 | | | 15,219 | | | (1 | %) | | 16,792 | | | (10 | %) | | 45,119 | | | 46,058 | | | (2 | %) | | 48,526 | | | (7 | %) |
Amortization of intangible assets | 13,297 | | | 14,953 | | | (11 | %) | | 15,774 | | | (16 | %) | | 40,175 | | | 44,952 | | | (11 | %) | | 47,307 | | | (15 | %) |
Asset impairment and other | — | | | (159) | | | *** | | 504 | | | *** | | 3,359 | | | (322) | | | *** | | (2,394) | | | *** |
Merger termination fee | — | | | — | | | *** | | — | | | *** | | (136,000) | | | — | | | *** | | — | | | *** |
Total operating expenses | $ | 578,586 | | | $ | 570,853 | | | 1 | % | | $ | 545,137 | | | 6 | % | | $ | 1,595,265 | | | $ | 1,699,699 | | | (6 | %) | | $ | 1,623,644 | | | (2 | %) |
| | | | | | | | | | | | | | | | | | | |
Total operating income | $ | 134,657 | | | $ | 232,258 | | | (42 | %) | | $ | 211,350 | | | (36 | %) | | $ | 589,811 | | | $ | 662,416 | | | (11 | %) | | $ | 592,802 | | | (1 | %) |
| | | | | | | | | | | | | | | | | | | |
Non-operating expenses | (10,602) | | | (42,274) | | | (75 | %) | | (45,781) | | | (77 | %) | | (85,633) | | | (117,437) | | | (27 | %) | | (140,947) | | | (39 | %) |
Provision for income taxes | 27,801 | | | 43,827 | | | (37 | %) | | 36,870 | | | (25 | %) | | 103,827 | | | 132,595 | | | (22 | %) | | 103,470 | | | — | % |
Net income | 96,254 | | | 146,157 | | | (34 | %) | | 128,699 | | | (25 | %) | | 400,351 | | | 412,384 | | | (3 | %) | | 348,385 | | | 15 | % |
Net (income) loss attributable to redeemable noncontrolling interest | (71) | | | (92) | | | (23 | %) | | (419) | | | (83 | %) | | 240 | | | (516) | | | *** | | (861) | | | *** |
Net income attributable to TEGNA Inc. | $ | 96,183 | | | $ | 146,065 | | | (34 | %) | | $ | 128,280 | | | (25 | %) | | $ | 400,591 | | | $ | 411,868 | | | (3 | %) | | $ | 347,524 | | | 15 | % |
| | | | | | | | | | | | | | | | | | | |
Earnings per share - basic | $ | 0.48 | | | $ | 0.65 | | | (26 | %) | | $ | 0.58 | | | (17 | %) | | $ | 1.86 | | | $ | 1.84 | | | 1 | % | | $ | 1.57 | | | 18 | % |
Earnings per share - diluted | $ | 0.48 | | | $ | 0.65 | | | (26 | %) | | $ | 0.58 | | | (17 | %) | | $ | 1.86 | | | $ | 1.83 | | | 2 | % | | $ | 1.56 | | | 19 | % |
| | | | | | | | | | | | | | | |
*** Not meaningful | | | | |
Revenues
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. Our AMS category includes all sources of our traditional television advertising material.and digital revenues, including Premion and other digital advertising and marketing revenues across our platforms.
Our revenues and operating results are subject to seasonal fluctuations. Generally, our second and fourth quarter revenues and operating results are stronger than those we report for the first and third quarter. This is driven by the second quarter reflecting increased spring seasonal advertising, while the fourth quarter typically includes increased advertising related to the holiday season. In addition, our revenue and operating results are subject to significant fluctuations across yearly periods resulting from political advertising. In even numbered years, political spending is usually significantly higher than in odd numbered years due to advertising for the local, state and national elections. Additionally, every four years, we typically experience even greater increases in political advertising in connection with the presidential election. The strong demand for advertising from political advertisers in these even years can result in the significant use of our available inventory (leading to a “crowd out” effect), which can diminish our AMS revenue in the even year of a two-year election cycle, particularly in the fourth quarter of those years.
The following table summarizes the year-over-year changes in our revenue categories (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended Sept. 30, | | Nine months ended Sept. 30, |
| 2023 | | 2022 | | Change from 2022 | | 2021 | | Change from 2021 | | 2023 | | 2022 | | Change from 2022 | | 2021 | | Change from 2021 |
| | | | | | | | | | | | | | | | | | | |
Subscription | $ | 377,891 | | | $ | 377,368 | | | — | % | | $ | 368,672 | | | 3 | % | | $ | 1,188,297 | | | $ | 1,158,101 | | | 3 | % | | $ | 1,130,490 | | | 5 | % |
Advertising & Marketing Services | 312,413 | | | 320,764 | | | (3) | % | | 364,234 | | | (14) | % | | 937,984 | | | 1,010,490 | | | (7) | % | | 1,027,957 | | | (9) | % |
Political | 11,643 | | | 92,904 | | | (87) | % | | 15,010 | | | (22) | % | | 22,925 | | | 161,727 | | | (86) | % | | 34,019 | | | (33) | % |
Other | 11,296 | | | 12,075 | | | (6) | % | | 8,571 | | | 32 | % | | 35,870 | | | 31,797 | | | 13 | % | | 23,980 | | | 50 | % |
Total revenues | $ | 713,243 | | | $ | 803,111 | | | (11) | % | | $ | 756,487 | | | (6 | %) | | $ | 2,185,076 | | | $ | 2,362,115 | | | (7) | % | | $ | 2,216,446 | | | (1) | % |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
2023 vs. 2022
Total revenues decreased $89.9 million in the third quarter of 2023 and $177.0 million in the first nine months of 2023 compared to the same periods in 2022. The net decreases were primarily due to decreases in political revenue ($81.3 million third quarter, $138.8 million first nine months) due to the absence in 2023 of the mid-term election cycle that occurred in 2022. Additionally, AMS revenue was down ($8.4 million third quarter, $72.5 million first nine months), reflecting softer demand for advertising due to macroeconomic headwinds as well as the loss of a large national account in our Premion business. The first nine months were also impacted by the Winter Olympics and Super Bowl airing last year on NBC, our largest network affiliate partner. Partially offsetting these decreases was an increase in subscription revenue ($0.5 million third quarter, $30.2 million first nine months) primarily due to annual rate increases under existing and newly renegotiated retransmission agreements, partially offset by declines in subscribers.
2023 vs. 2021
Total revenues decreased $43.2 million in the third quarter of 2023 and $31.4 million in the first nine months of 2023 compared to the same periods in 2021. The net decreases were primarily due to decreases in AMS revenue ($51.8 million third quarter, $90.0 million first nine months) reflecting softer demand for advertising, particularly national, caused by macroeconomic headwinds. Partially offsetting these declines were increases in subscription revenue ($9.2 million third quarter, $57.8 million first nine months) mainly due to annual rate increases under existing and newly renegotiated retransmission agreements, partially offset by declines in subscribers.
Cost of revenues
2023 vs. 2022
Cost of revenues increased $9.4 million in the third quarter of 2023 and $35.1 million in the first nine months of 2023 compared to the same periods in 2022. The increases were primarily due to growth in programming costs ($11.5 million third quarter, $39.8 million first nine months) driven by rate increases under existing and newly renegotiated affiliation agreements.
2023 vs. 2021
Cost of revenues increased $38.5 million in the third quarter of 2023 and $104.2 million in the first nine months of 2023 compared to the same periods in 2021. The increases were primarily due to growth in programming costs ($23.3 million third quarter, $74.1 million first nine months) driven by rate increases under existing and newly renegotiated affiliation agreements. Higher digital expenses ($10.8 million third quarter, $15.6 million first nine months) also contributed to the increase.
Business units - Selling, general and administrative expenses
2023 vs. 2022
Business unit selling, general and administrative expenses decreased $0.2 million in the third quarter of 2023 and $5.4 million in the first nine months of 2023 compared to the same period in 2022. The decreases were primarily due to decreases in sales compensation driven by a decline in advertising revenue and due to a lower stock-based compensation expense.
2023 vs. 2021
Business unit SG&A expenses decreased $2.0 million in the third quarter of 2023 and increased $8.0 million in the first nine months of 2023 compared to the same periods in 2021. The third quarter decrease was due in part to a decrease in selling related costs due to the decline in AMS, partially offset by the absence of bad debt expense reversal that occurred in 2021. The increase in the first nine months of 2023 was due in part to an absence of bad debt expense reversal that occurred in 2021 that did not recur in 2023 as well as an increase in sales related payroll and benefit costs.
Corporate - General and administrative expenses
Our corporate costs are separated from our business expenses and are recorded as general and administrative expenses in our Consolidated Income Statement. These costs include activities that are not directly attributable or allocable to our media business operations.Statement of Income. This category primarily consists of broad corporate management functions including legal, human resources,Legal, Human Resources, and finance,Finance, as well as activities and costs not directly attributable to the operations of our media business.
Strategic Actions2023 vs. 2022
On May 31, 2017, we completed the previously announced spin-off of Cars.com. The spin-off was achieved through a pro rata distribution of all outstanding common shares of Cars.com to TEGNA stockholders of record at the close of business on May 18, 2017 (the “Record Date”). Stockholders retained their TEGNA sharesCorporate general and received one share of Cars.com for every three shares of TEGNA stock they owned on the Record Date. Cars.com began “regular way” trading on the New York Stock Exchange on June 1, 2017 under the symbol “CARS”. In connection with the Cars.com spin-off we received a one time cash distribution from Cars.com of $650.0 million.
On July 31, 2017, we completed the sale of our majority ownership interest in CareerBuilder to an investor group led by investments funds managed by affiliates of Apollo Global Management, LLC, a leading global alternative investment manager,
and the Ontario Teachers’ Pension Plan Board. Our share of the pre-tax net cash proceeds from the sale was $198.3 million. These net proceeds were used in October 2017 to pay down existing debt (see Note 5). Additionally, prior to the sale, CareerBuilder issued a final dividend to its selling shareholders, $25.8administrative expenses increased $0.2 million of which was retained by TEGNA.
As part of the sale agreement, we remain an ongoing partner in CareerBuilder, reducing our 53% controlling interest to approximately 17% equity interest (or approximately 12% on a fully-diluted basis) and two seats on CareerBuilder’s 10 member board. As a result, CareerBuilder is no longer consolidated within our reported operating results. Our remaining ownership interest is accounted for as an equity method investment.
Consolidated Results from Operations
The following discussion is a period-to-period comparison of our consolidated results from continuing operations on a GAAP basis. On May 31, 2017, we completed the spin-off of Cars.com and on July 31, 2017, we completed the sale of our majority ownership interest in CareerBuilder. Results for Cars.com and CareerBuilder are now reflected as Discontinued Operations in our Consolidated Statements of Income for all applicable periods presented. As a result, we will report one segment going forward which will include the results for Media and a remaining DMS contract that was previously reported in the Digital Segment. The historical financial results also include our former Cofactor business through the date of its sale in December 2016.
The period-to-period comparison of financial results is not necessarily indicative of future results. In addition, see the section on page 26 titled ‘Results from Operations - Non-GAAP Information’ for additional tables presenting information which supplements our financial information provided on a GAAP basis. Our consolidated results of continuing operations on a GAAP basis were as follows (in thousands, except per share amounts):
|
| | | | | | | | | | | | | | | | | | | | | |
| Quarter ended Sept. 30, | | Nine months ended Sept. 30, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
| | | (recast) | | | | | | (recast) | | |
Revenues | $ | 464,264 |
| | $ | 519,617 |
| | (11 | %) | | $ | 1,412,703 |
| | $ | 1,457,233 |
| | (3 | %) |
| | | | | | | | | | | |
Operating expenses: | | | | |
|
| | | | | | |
Cost of revenues, exclusive of depreciation | 235,474 |
| | 200,495 |
| | 17 | % | | 696,565 |
| | 590,058 |
| | 18 | % |
Business units - selling, general and administrative expenses, exclusive of depreciation | 70,914 |
| | 83,039 |
| | (15 | %) | | 214,645 |
| | 246,280 |
| | (13 | %) |
Corporate - General and administrative expenses, exclusive of depreciation | 12,881 |
| | 16,027 |
| | (20 | %) | | 42,462 |
| | 43,865 |
| | (3 | %) |
Depreciation | 15,186 |
| | 13,212 |
| | 15 | % | | 41,721 |
| | 42,653 |
| | (2 | %) |
Amortization of intangible assets | 5,395 |
| | 5,775 |
| | (7 | %) | | 16,172 |
| | 17,542 |
| | (8 | %) |
Asset impairment and facility consolidation charges | 7,553 |
| | 15,218 |
| | (50 | %) | | 11,086 |
| | 18,946 |
| | (41 | %) |
Total operating expenses | $ | 347,403 |
| | $ | 333,766 |
| | 4 | % | | $ | 1,022,651 |
| | $ | 959,344 |
| | 7 | % |
| | | | | | | | | | | |
Total operating income | $ | 116,861 |
|
| $ | 185,851 |
| | (37 | %) | | $ | 390,052 |
| | $ | 497,889 |
| | (22 | %) |
| | | | | | | | | | | |
Non-operating expense | (54,660 | ) | | (70,673 | ) | | (23 | %) | | (190,515 | ) | | (194,236 | ) | | (2 | %) |
Provision for income taxes | 11,447 |
| | 38,441 |
| | (70 | %) | | 54,855 |
| | 92,038 |
| | (40 | %) |
Net income from continuing operations | $ | 50,754 |
| | $ | 76,737 |
| | (34 | %) | | $ | 144,682 |
| | $ | 211,615 |
| | (32 | %) |
| | | | | | | | | | | |
Earnings from continuing operations per share - basic | $ | 0.24 |
| | $ | 0.36 |
| | (33 | %) | | $ | 0.67 |
| | $ | 0.98 |
| | (32 | %) |
Earnings from continuing operations per share - diluted | $ | 0.23 |
| | $ | 0.35 |
| | (34 | %) | | $ | 0.66 |
| | $ | 0.96 |
| | (31 | %) |
Revenues
During the second quarter of 2017, we changed the way we present certain revenues, which we now call Advertising and Marketing Services (AMS), to better reflect our sales transformation strategy that focuses on customer needs versus specific products. This category includes all sources of our traditional and digital revenues including Premion, DMS and other digital advertising and marketing revenues across our platforms.
Also, the “Retransmission” revenue category was renamed “Subscription” to better reflect changes in that revenue stream, including the distribution of TEGNA stations on OTT streaming services.
As a result of these changes, revenues are grouped into the following categories: Advertising & Marketing Services, Political, Subscription, Other, and our former business unit Cofactor (sold in December 2016).
The following table summarizes the year-over-year changes in these select revenue categories (in thousands): |
| | | | | | | | | | | | | | | | | | | | | |
| Quarter ended Sept. 30, | | Nine months ended Sept. 30, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Advertising & Marketing Services (a) | $ | 277,817 |
| | $ | 330,589 |
| | (16 | %) | | $ | 843,175 |
| | $ | 934,977 |
| | (10 | %) |
Political | 3,783 |
| | 38,060 |
| | (90 | %) | | 13,387 |
| | 64,050 |
| | (79 | %) |
Subscription | 177,692 |
| | 143,676 |
| | 24 | % | | 540,344 |
| | 436,292 |
| | 24 | % |
Other | 4,972 |
| | 4,696 |
| | 6 | % | | 15,797 |
| | 13,883 |
| | 14 | % |
Cofactor | — |
| | 2,596 |
| | *** |
| | — |
| | 8,031 |
| | *** |
|
Total | $ | 464,264 |
| | $ | 519,617 |
| | (11 | %) | | $ | 1,412,703 |
| | $ | 1,457,233 |
| | (3 | %) |
| | | | | | | | | | | |
(a) Includes traditional television advertising, digital advertising as well as revenue from our DMS business. |
Revenues decreased $55.4 million, or 11%, in the third quarter of 2017 compared to the same period in 2016. This net decrease was primarily due to a decline in AMS revenue of $52.82023 and $3.9 million or 16%, in the third quarter of 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. Political revenue was down by $34.3 million, due to an expected decrease reflecting the absence of 2016 politically related advertising spending. Partially offsetting these decreases was an increase in subscription revenue of $34.0 million, or 24%, due to the recent renewal of certain retransmission agreements as well as annual rate increases under other existing retransmission agreements.
In the first nine months of 2017, operating revenue decreased $44.5 million, or 3%, compared to the same period in 2016. The net decrease was due to a net decline in AMS revenue of $91.8 million, or 10%, for the first nine months of 2017. The third quarter decline in AMS revenue, described above, drove most of the year-to-date decline. In addition we had lower Super Bowl revenue due to the shift in coverage from our larger CBS station footprint to smaller FOX station footprint (which impacted 2017 results by $9.1 million). These AMS declines were partially offset by an increase in digital revenue, including our Premion revenue. Additionally, political revenue was down $50.7 million for the nine months ended September 30, 2017 due to an expected decrease reflecting the absence of 2016 Presidential election year political spending. Partially offsetting these decreases was an increase in subscription revenue of $104.1 million, or 24%, in the first nine months of 2017 due to the recent renewal of certain retransmission agreements as well as annual rate increases under other existing retransmission agreements.
Cost of Revenues
Cost of revenues increased $35.0 million, or 17%, in the third quarter of 20172023 compared to the same periodperiods in 2016.2022. The increase for the third quarter was primarily due to a $42.6 milliondriven by employee retention costs following the termination of the Merger. The increase for the first nine months was primarily driven by an increase in programmingM&A-related costs (primarilyincurred in connection with the now terminated Merger and employee retention costs following the termination of the Merger. Partially offsetting these increases was a decrease in stock-based compensation expense driven by 11 of our NBC stations paying reverse compensation payments for first time in 2017). This increase was partially offset by a decline in DMS costs of $7.4 million driven by the conclusion of the transition service agreement with Gannett.our stock price.
In the first nine months of 2017, cost of revenues increased $106.5 million, or 18%, compared to the same period in 2016. The increase was primarily due to a $135.1 million increase in programming costs (primarily driven by 11 of our NBC stations paying reverse compensation payments for first time in 2017). This increase was partially offset by the absence of $10.8 million of expenses associated with our 2016 voluntary retirement program and a decline in DMS costs of $11.8 million associated with the conclusion of the transition service agreement with Gannett.2023 vs. 2021
Business Units - Selling, General and Administrative Expenses
Business unit selling, general and administrative expenses decreased $12.1 million, or 15%, in the third quarter of 2017 compared to the same period in 2016. The decrease was primarily the result of a $6.0 million decline in DMS selling and advertising expense related to the transition service agreement conclusion. Also contributing to the decline was the absence of $2.6 million of Cofactor expenses, due to its disposition in December 2016.
In the first nine months of 2017, business unit selling, general and administrative expenses decreased $31.6 million, or 13%, compared to the same period in 2016. This decrease was due to a $14.7 million decline in DMS selling and advertising expenses, the absence of $6.5 million of expenses associated with Cofactor, and the absence of $4.0 million of expenses associated with our 2016 voluntary retirement program. These decreases were partially offset by $1.6 million of severance expenses for broadcast employees in 2017.
Corporate General and Administrative Expenses
Corporate general and administrative expenses decreased $3.1increased $1.7 million or 20%, in the third quarter of 2017 compared to the same period in 2016. The decrease was primarily due to the absence of $1.62023 and $0.2 million of severance expenses from the third quarter of 2016, as well as the continued right sizing of the corporate function in connection with the strategic actions impacting our former Digital Segment.
During the first nine months of 2017, corporate general and administrative expenses decreased $1.4 million, or 3%, compared to the same period in 2016. This change was primarily due to the absence of $1.6 million of severance expenses from the third quarter of 2016, partially offset by severance expense incurred in the first nine months of 2017 of approximately $1.1 million. The remaining difference is attributable to the continued right sizing of the corporate function in connection with the strategic actions impacting our former Digital Segment.
Depreciation Expense
Depreciation expense increased $2.0 million, or 15%, in the third quarter of 2017 compared to the same period in 2016. The increase was primarily due to $1.4 million of additional depreciation related to a change in useful lives of certain broadcasting assets in connection with the FCC channel reassignment process.
In the first nine months of 2017, depreciation expense decreased $0.9 million, or 2%, as compared to the same period in 2016. The decrease was primarily due to recent declines in the purchase of property and equipment, offset by accelerated depreciation related to a change in useful lives of certain broadcasting assets.
Amortization Expense
Amortization expense decreased by $0.4 million and $1.4 million in the third quarter and first nine months of 2017, respectively,2023 compared to the same periods in 2016.2021. The decreases were a result of certain assets associated with previous acquisitions reaching the end of their useful lives.
Asset Impairment and Facility Consolidation Charges
Asset impairment and facility consolidation charges were $7.6 million in the third quarter of 2017 compared to $15.2 million in the third quarter of 2016. In the third quarter of 2017, a few television stations were impacted by hurricanes Harvey and Irma. In particular, Hurricane Harvey caused significant damage to our Houston television station (KHOU); as a result, we recognized $10.2 million in non-cash charges, writing off destroyed equipment and recording an impairment to the value of the building. In addition, we incurred $8.4 million in cash expenses related to repairing the studio and office and providing for additional staffing and operational needs to keep the stations operating during and immediately following these weather emergencies. Partially offsetting these expenses, we received initial insurance proceeds of $11.0 million ($5.0 million was received as of September 30, 2017 and $6.0 million was received in October 2017). The net expense impact from the hurricane of $7.6 million has been recorded in asset impairment and facility consolidation charges. The 2016 charge relates to a goodwill impairment at Cofactor.
During the first nine months of 2017, asset impairment and facility consolidation charges were $11.1 million, compared to $18.9 million in the same period in 2016. The 2017 charges primarily consisted of net $7.6 million in expenses related to Hurricane Harvey, $1.4 million related to the consolidation of office space at corporate headquarters and at our DMS business unit, and $2.2 million of non-cash impairment charges incurred by our broadcast stations. The 2016 charges were comprised of the third quarter goodwill impairment charge of $15.2 million at Cofactor and a $3.7 million impairment charge related to a long-lived-asset.
Operating Income
Our operating income decreased $69.0 million, or 37%, in the third quarter of 2017 and $107.8 million, or 22%, in the first nine months of 2017, compared to the same periods in 2016. The decreases were driven by the changes in revenue and expenses discussed above. As a result, our consolidated operating margins were 25% in the third quarter of 2017 and 28% in the first nine months of 2017, compared to 36% in the third quarter of 2016 and 34% in the first nine months of 2016.
Non-Operating Income (Expense)
Non-operating expense decreased $16.0 million, or 23%, in the third quarter of 2017 compared to the same period in 2016. The decrease was primarily due to a reduction in transaction costs of $10.9 million primarily associated with costs incurred in the prior year period related to the Cars.com spin-off. Also contributing to the decrease was a decline in interest expense of $5.7 million driven by lower average debt outstanding, due to the pay down of the drawn amounts on the revolving line of credit. The total average outstanding debt was $3.38 billion for the third quarter of 2017, compared to $4.31 billion in the same period of 2016. The weighted average interest rate on total outstanding debt was 5.75% for the third quarter of 2017, compared to 5.21% in the same period of 2016.
During the first nine months of 2017, non-operating expenses decreased $3.7 million, or 2%, compared to the same period in 2016. The decrease was primarily due to lower interest expense of $13.3 million, partially offset by increased costs associated with the strategic actions of $3.4 million (primarily the Cars.com spin-off) and a $5.8 million loss associated with the write-off of a note receivable from one of our equity method investments. The lower interest expense was due to lower average debt outstanding. The total average outstanding debt was $3.75 billion during the first nine months of 2017, compared to $4.28 billion in the same period of 2016. The weighted average interest rate on total outstanding debt was 5.51% for the first nine months of 2017, compared to 5.32% in the same period of 2016.
Income Tax Expense
Income tax expense decreased $27 million, or 70%, in the third quarter of 2017 as compared to the same period in 2016, and decreased $37.2 million, or 40%, in the first nine months of 2017 compared to the same period in 2016. The decrease in Income tax expense is primarily due to a decline in net income before tax, as well as a favorable deferred tax adjustment related to a previously-disposed business. Our reported effective income tax rate was 18.4% in the third quarter of 2017, compared to 33.4% for continuing operations for the third quarter of 2016. The reported effective income tax rate was 27.5% for the first nine months of 2017, compared to 30.3% for the same period in 2016. The tax ratesincreases for the third quarter and first nine months were primarily driven by the same factors discussed above. These increases were partially offset by the absence of 2017 are lower thanadvisory fees related to activism defense incurred in 2021 and a decline in stock-based compensation expense driven by a decline in our stock price.
Depreciation
2023 vs. 2022
Depreciation expense decreased by $0.1 million in the comparable 2016 ratesthird quarter of 2023 and $0.9 million in the first nine months of 2023 compared to the same periods in 2022. The decrease was due to certain assets reaching the end of their assumed useful lives.
2023 vs. 2021
Depreciation expense decreased by $1.7 million in the third quarter of 2023 and $3.4 million in the first nine months of 2023 compared to the same periods in 2021. The decrease was due to certain assets reaching the end of their assumed useful lives.
Amortization of intangible assets
2023 vs. 2022
Amortization expense decreased $1.7 million in the third quarter of 2023 and $4.8 million in the first nine months of 2023 compared to the same periods in 2022. The decrease was due to certain assets reaching the end of their assumed useful lives and therefore becoming fully amortized.
2023 vs. 2021
Amortization expense decreased $2.5 million in the third quarter of 2023 and $7.1 million in the first nine months of 2023 compared to the same periods in 2021. The decreases were due to certain assets reaching the end of their assumed useful lives and therefore becoming fully amortized.
Asset impairment and other
2023 vs. 2022
No asset impairment and other expense was recorded in the third quarter of 2023 and $3.4 million was recorded in the first nine months of 2023 compared to gains of $0.2 million in the third quarter of 2022 and gains of $0.3 million in the first nine months of 2022. The 2023 activity was due to a $3.4 million impairment charge recognized on programming assets in the second quarter of 2023. The 2022 activity was related to reimbursements received from the Federal Communications Commission (FCC) for required spectrum repacking.
2023 vs. 2021
No asset impairment and other expense was recorded in the third quarter of 2023 and $3.4 million was recorded in the first nine months of 2023 compared to net loss of $0.5 million in the third quarter of 2021 and net gains of $2.4 million in the first nine months of 2021. The 2023 activity was due to a $3.4 million impairment charge recognized on programming assets in the second quarter of 2023. The 2021 activity was primarily related to reimbursements from spectrum repacking ($0.6 million third quarter, $5.0 million first nine months), partially offset by a $1.5 million contract termination fee which was incurred in the second quarter of 2021. Additionally, in the third quarter of 2021 there was a $1.1 million write off of certain assets which impacted both the quarter and nine month period comparisons.
Merger termination fee
In the second quarter of 2023, we terminated the Merger Agreement. Per the terms of the Merger Agreement, Parent was required to pay TEGNA a fee of $136.0 million as a result of this termination, which was satisfied in TEGNA common stock and recorded as a reduction in operating expense.
Operating income
2023 vs. 2022
Operating income decreased $97.6 million in the third quarter of 2023 and $72.6 million in the first nine months of 2023 compared to the same periods in 2022. The decreases were driven by the declines in AMS and political revenues and an increase in programming costs. The nine month decline was partially offset by the $136.0 million Merger termination fee received in the second quarter of 2023.
2023 vs. 2021
Operating income decreased $76.7 million in the third quarter of 2023 and $3.0 million in the first nine months of 2023 compared to the same periods in 2021. The decreases were driven by the same factors discussed above, with the nine month comparison partially offset by the $136.0 million Merger termination fee received in the second quarter of 2023.
Non-operating (expense) income
Non-operating (expense) decreased $31.7 million in the third quarter of 2023 compared to the same period in 2022. The decrease was primarily due to a $25.8 million gain recognized on the reductionsale of a portion of our MadHive investment in the third quarter of 2023 and a $5.8 million increase in interest income, primarily from interest earned on short-term time-deposit and money market investments.
Non-operating (expense) decreased $31.8 million in the first nine months of 2023 compared to the same period in 2022. The decrease was primarily due to a $25.8 million gain recognized on the sale of a portion of our MadHive investment in the third quarter of 2023 and a $21.3 million increase in interest income, primarily from interest earned on short-term time-deposit and money market investments. Partially offsetting this decrease was the absence of a $20.8 million gain related to the modification of our previously held MadHive debt investment.
Provision for income taxes
Income tax expense decreased $16.0 million in the third quarter of 2023 compared to the same period in 2022. The decrease was primarily due to a decrease in net income before tax. Income tax expense decreased $28.8 million in the first nine months of 2023 compared to the same period in 2022. The decrease in the first nine months was primarily due to a decrease in net income before tax and a lower effective income tax rate. Our effective income tax rate was 22.4% for the deferredthird quarter of 2023, compared to 23.1% for the third quarter of 2022. The tax adjustment mentioned above.rate for the third quarter of 2023 is lower than the comparable rate in 2022 primarily due to nondeductible transaction costs recorded in 2022. Our effective income tax rate was 20.6% for the first nine months of 2023, compared to 24.4% for the same period in 2022. The tax rate for the first nine months of 2023 is lower than the comparable rate in 2022 primarily due to the deduction of previously capitalized transaction costs resulting from the termination of the Merger Agreement and a portion of the Merger termination fee being treated as non-taxable. The effective income tax rate for the first nine months of 2022 was also unfavorably impacted by a valuation allowance recorded on minority investments and nondeductible transaction costs. Partially offsetting these unfavorable impacts were tax benefits realized in 2022 from the utilization of capital loss carryforwards in connection with certain transactions and the release of the associated valuation allowance.
Income from continuing operationsNet income attributable to TEGNA Inc.
Income from continuing operationsNet income attributable to TEGNA Inc. was $50.8$96.2 million, or $0.23$0.48 per diluted share, in the third quarter of 20172023 compared to $76.7$146.1 million, or $0.35$0.65 per diluted share, during the same period in 2016.2022. For the first nine months of 2017, we reported2023, net income from continuing operations of $144.7attributable to TEGNA Inc. was $400.6 million, or $0.66$1.86 per diluted share, compared to $211.6$411.9 million, or $0.96$1.83 per diluted share, forduring the same period in 2016.2022. Both income from continuing operations and earnings per share were affected by the factors discussed above.
The weighted average number of diluted common shares outstanding in the both the third quarter of 20172023 and 2016 was 218.1 million.2022 were 201.2 million and 224.9 million, respectively. The weighted average number of diluted shares outstanding in the first nine months quarter of 2017 decreased by 2.72023 and 2022 was 214.6 million and 224.2 million, respectively. The decline in the number of diluted shares outstanding was primarily due to the receipt of 8.6 million shares to 217.8satisfy the merger termination fee and the repurchase of 18.3 million from 220.5 millionshares under the accelerated share repurchase program commenced in the same periodJune 2023, which was completed in 2016.August 2023.
Results from Operations - 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 ExecutiveLeadership Development and Compensation Committee of our Board of Directors uses non-GAAP measures such as Adjusted EBITDA, non-GAAP net income, non-GAAP EPS 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 also believe these non-GAAP measures are frequently used by investors, securities analysts and other interested parties in their evaluation of our business and other companies in the broadcast industry.
We discuss in this Form 10-Q non-GAAP financial performance measures that exclude from our reported GAAP results the impact of “special items” consistingwhich are described in detail below in the section titled “Discussion of severance expense, charges related to asset impairmentSpecial Charges and facility consolidations, costs associated with the Cars.com spin-off transaction, and certain tax benefits associated with the Cars.com spin-off and sale of CareerBuilder.Credits Affecting Reported Results.” We believe that such expenses charges and gains are not indicative of normal, ongoing operations. SuchWhile these items should not be disregarded in evaluation of our earnings performance, it is useful to exclude such items when analyzing current results and trends compared to other periods as these items can vary significantly from period to period and are significantly impacted by the timing and nature of these events.depending on specific underlying transactions or events that may occur. Therefore, while we may incur or recognize these types of expenses, charges and gains in the future, we believe that removing these items for purposes of calculating the non-GAAP financial measures provides investors with a more focused presentation of our ongoing operating performance.
We discuss Adjusted EBITDA (with and without corporate expenses), a non-GAAP financial performance measure that we believe offers a useful view of the overall operation of our businesses. We define Adjusted EBITDA as net income from continuing operationsattributable to TEGNA before (1) net loss (income) attributable to redeemable noncontrolling interest, expense, (2) income taxes, (3) interest expense, (4) equity income (losses)loss in unconsolidated investments, net, (4)(5) other non-operating items, net, (6) the Merger termination fee, (7) M&A-related costs, (8) asset impairment and other, (9) employee retention costs, (10) depreciation and (11) amortization of intangible assets. We believe these adjustments facilitate company-to-company operating performance comparisons by removing potential differences caused by variations unrelated to operating performance, such as spin-off transaction expensescapital structures (interest expense), income taxes, and investment income, (5) severance expense, (6) facility consolidation charges, (7) impairment charges, (8)the age and book appreciation of property and equipment (and related depreciation and (9) amortization.expense). The most directly comparable GAAP financial measure to Adjusted EBITDA is Net income from continuing operations.attributable to TEGNA. 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 alternativealternate 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.
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, (3) revenues from a previously sold business (Cofactor), and (4) 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 broadcast business.
We also discuss free cash flow, a non-GAAP liquidity measure.performance measure that the Board of Directors uses to review the performance of the business. Free cash flow is definedreviewed by the Board of Directors as “net cash flow from operating activities” as reported ona percentage of revenue over a trailing two-year period (reflecting both an even and odd year reporting period given the statementpolitical cyclicality of cash flows reduced by “purchase of property and equipment”our business). We believe thatThe most directly comparable GAAP financial measure to free cash flow is a useful measure for management and investorsNet income attributable 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 freeTEGNA. Free cash flow to monitor cash availableis calculated as non-GAAP Adjusted EBITDA (as defined above), further adjusted by adding back (1) stock-based compensation, (2) non-cash 401(k) company match, (3) syndicated programming amortization, (4) dividends received from equity method investments, (5) reimbursements from spectrum repacking and (6) proceeds from company-owned life insurance policies. This is further adjusted by deducting payments made for repayment(1) syndicated programming, (2) pension, (3) interest, (4) taxes (net of indebtednessrefunds) and in discussions with the investment community.(5) purchases of property and equipment. Like Adjusted EBITDA, free cash flow is not intended to be a measure of cash flow available for management’s discretionary use.
Discussion of special chargesSpecial Charges and credits affecting reported resultsCredits Affecting Reported Results
Our results for the quarter and first nine months ended September 30, 2017 included the following items we consider “special items” andthat, while at times recurring, are not indicative of our normal ongoing operations:and can vary significantly from period to period:
Operating asset impairmentQuarter and facility consolidation charges related to damage caused by Hurricane Harvey and the consolidation of office space at corporate headquarters and at our DMS business unit;
Other non-operating items 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;
A special tax benefit related to 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; and
Severance charges which included payroll and related benefit costs.
Our results for the quarter and first nine months ended September 30, 2016 included2023:
•M&A-related costs;
•Retention costs, including stock-based compensation (SBC) and cash payments to certain employees to ensure their continued service to the Company following special items:the termination of the merger agreement with Standard General;
Severance charges primarily•Merger termination fee;
•Asset impairment and other consisting of programming asset impairments;
•Other non-operating item consisting of a gain recognized on the partial sale of one of our equity investments; and
•Tax benefits associated with previously disallowed transaction costs and the release of a valuation allowance on a deferred tax asset related to an equity method investment.
Quarter and nine months ended September 30, 2022:
•Asset impairment and other consisting of gains due to reimbursements from the FCC for required spectrum repacking;
•M&A-related costs;
•Other non-operating items consisting of a voluntary retirement program at our broadcast stations (which includes payrollgain recognized on an available-for-sale investment and an impairment charge related benefit costs);to another investment; and
Non-cash asset impairment charges•Tax expense, net, associated with goodwill,establishing a valuation allowance on a deferred tax asset related to an operating asset, and equity method investments; andinvestment.
Non-operating costs associated with the spin-off of our Cars.com business unit and acquisition-related costs.
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 statementsConsolidated Statements of incomeIncome follow (in thousands, except per share amounts):
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| | | | Special Items | | | | | | | | |
Quarter ended Sept. 30, 2023 | | GAAP measure | | Retention costs - SBC | | Retention costs - Cash | | Other non-operating item | | Special tax item | | Non-GAAP measure | | | | | | |
| | | | | | | | | | | | | | | | | | |
Cost of revenues | | $ | 438,260 | | | $ | (751) | | | $ | — | | | $ | — | | | $ | — | | | $ | 437,509 | | | | | | | |
Business units - Selling, general and administrative expenses | | 98,394 | | | (501) | | | (639) | | | — | | | — | | | 97,254 | | | | | | | |
Corporate - General and administrative expenses | | 13,552 | | | (440) | | | (553) | | | — | | | — | | | 12,559 | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Operating expenses | | 578,586 | | | (1,692) | | | (1,192) | | | — | | | — | | | 575,702 | | | | | | | |
Operating income | | 134,657 | | | 1,692 | | | 1,192 | | | — | | | — | | | 137,541 | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Other non-operating items, net | | 33,072 | | | — | | | — | | | (25,809) | | | — | | | 7,263 | | | | | | | |
Total non-operating expenses | | (10,602) | | | — | | | — | | | (25,809) | | | — | | | (36,411) | | | | | | | |
Income before income taxes | | 124,055 | | | 1,692 | | | 1,192 | | | (25,809) | | | — | | | 101,130 | | | | | | | |
Provision for income taxes | | 27,801 | | | 237 | | | 152 | | | (6,604) | | | 1,516 | | | 23,102 | | | | | | | |
Net income attributable to TEGNA Inc. | | 96,183 | | | 1,455 | | | 1,040 | | | (19,205) | | | (1,516) | | | 77,957 | | | | | | | |
Earnings per share - diluted | | $ | 0.48 | | | $ | 0.01 | | | $ | 0.01 | | | $ | (0.10) | | | $ | (0.01) | | | $ | 0.39 | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | Special Items | | | | | | | | | | |
Quarter ended Sept. 30, 2022 | | GAAP measure | | M&A-related costs | | Asset impairment and other | | Special tax item | | Non-GAAP measure | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Corporate - General and administrative expenses | | $ | 13,367 | | | $ | (3,701) | | | $ | — | | | $ | — | | | $ | 9,666 | | | | | | | | | |
Asset impairment and other | | (159) | | | — | | | 159 | | | — | | | — | | | | | | | | | |
Operating expenses | | 570,853 | | | (3,701) | | | 159 | | | — | | | 567,311 | | | | | | | | | |
Operating income | | 232,258 | | | 3,701 | | | (159) | | | — | | | 235,800 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Income before income taxes | | 189,984 | | | 3,701 | | | (159) | | | — | | | 193,526 | | | | | | | | | |
Provision for income taxes | | 43,827 | | | 47 | | | (37) | | | 2,588 | | | 46,425 | | | | | | | | | |
Net income attributable to TEGNA Inc. | | 146,065 | | | 3,654 | | | (122) | | | (2,588) | | | 147,009 | | | | | | | | | |
Earnings per share - diluted (a) | | $ | 0.65 | | | $ | 0.02 | | | $ | — | | | $ | (0.01) | | | $ | 0.65 | | | | | | | | | |
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(a) Per share amounts do not sum due to rounding. | | | | | | | | | | | | |
| | | | Special Items | |
Nine months ended Sept. 30, 2023 | | Nine months ended Sept. 30, 2023 | | GAAP measure | | M&A-related costs | | Retention costs - SBC | | Retention costs - Cash | | Merger termination fee | | Asset impairment and other | | Other non-operating item | | Special tax item | | Non-GAAP measure |
| Cost of revenues | | Cost of revenues | | $ | 1,295,720 | | | $ | — | | | $ | (751) | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,294,969 | |
Business units - Selling, general and administrative expenses | | Business units - Selling, general and administrative expenses | | 294,734 | | | — | | | (501) | | | (639) | | | — | | | — | | | — | | | — | | | 293,594 | |
Corporate - General and administrative expenses | | Corporate - General and administrative expenses | | 52,158 | | | (19,848) | | | (440) | | | (553) | | | — | | | — | | | — | | | — | | | 31,317 | |
Asset impairment and other | | Asset impairment and other | | 3,359 | | | — | | | — | | | — | | | — | | | (3,359) | | | — | | | — | | | — | |
Merger termination fee | | Merger termination fee | | (136,000) | | | — | | | — | | | — | | | 136,000 | | | — | | | — | | | — | | | — | |
Operating expenses | | Operating expenses | | 1,595,265 | | | (19,848) | | | (1,692) | | | (1,192) | | | 136,000 | | | (3,359) | | | — | | | — | | | 1,705,174 | |
Operating income | | Operating income | | 589,811 | | | 19,848 | | | 1,692 | | | 1,192 | | | (136,000) | | | 3,359 | | | — | | | — | | | 479,902 | |
| Other non-operating items, net | | Other non-operating items, net | | 44,264 | | | — | | | — | | | — | | | — | | | — | | | (25,809) | | | — | | | 18,455 | |
Total non-operating expenses | | Total non-operating expenses | | (85,633) | | | — | | | — | | | — | | | — | | | — | | | (25,809) | | | — | | | (111,442) | |
Income before income taxes | | Income before income taxes | | 504,178 | | | 19,848 | | | 1,692 | | | 1,192 | | | (136,000) | | | 3,359 | | | (25,809) | | | — | | | 368,460 | |
Provision for income taxes | | Provision for income taxes | | 103,827 | | | 4,552 | | | 237 | | | 152 | | | (24,504) | | | 860 | | | (6,604) | | | 7,959 | | | 86,479 | |
Net income attributable to TEGNA Inc. | | Net income attributable to TEGNA Inc. | | 400,591 | | | 15,296 | | | 1,455 | | | 1,040 | | | (111,496) | | | 2,499 | | | (19,205) | | | (7,959) | | | 282,221 | |
Net income per share-diluted (a) | | Net income per share-diluted (a) | | $ | 1.86 | | | $ | 0.07 | | | $ | 0.01 | | | $ | — | | | $ | (0.52) | | | $ | 0.01 | | | $ | (0.09) | | | $ | (0.04) | | | $ | 1.31 | |
| (a) Per share amounts do not sum due to rounding. | | (a) Per share amounts do not sum due to rounding. | |
| | | | Special Items | |
Nine months ended Sept. 30, 2022 | | Nine months ended Sept. 30, 2022 | | GAAP measure | | M&A-related costs | | Asset impairment and other | | Other non-operating items | | Special tax items | | Non-GAAP measure | |
| | | | | | Special Items | | | |
Quarter ended September 30, 2017 | | GAAP measure | | Operating asset impairment and facility consolidation | | Other non-operating items | | Tax benefits | | Non-GAAP measure | |
| | | | | | | | | | | |
Corporate - General and administrative expenses | | Corporate - General and administrative expenses | | $ | 48,299 | | | $ | (18,147) | | | $ | — | | | $ | — | | | $ | — | | | $ | 30,152 | | |
Asset impairment and other | | Asset impairment and other | | (322) | | | — | | | 322 | | | — | | | — | | | — | | |
Operating expenses | | $ | 347,403 |
| | $ | (7,553 | ) | | $ | — |
| | $ | — |
| | $ | 339,850 |
| Operating expenses | | 1,699,699 | | | (18,147) | | | 322 | | | — | | | — | | | 1,681,874 | | |
Operating income | | 116,861 |
| | 7,553 |
| | — |
| | — |
| | 124,414 |
| Operating income | | 662,416 | | | 18,147 | | | (322) | | | — | | | — | | | 680,241 | | |
Other non-operating items | | (3,671 | ) | | — |
| | 2,688 |
| | — |
| | (983 | ) | |
Total non-operating expense | | (54,660 | ) | | — |
| | 2,688 |
| | — |
| | (51,972 | ) | |
| Other non-operating items, net | | Other non-operating items, net | | 16,764 | | | — | | | — | | | (18,308) | | | — | | | (1,544) | | |
Total non-operating expenses | | Total non-operating expenses | | (117,437) | | | — | | | — | | | (18,308) | | | — | | | (135,745) | | |
Income before income taxes | | 62,201 |
| | 7,553 |
| | 2,688 |
| | — |
| | 72,442 |
| Income before income taxes | | 544,979 | | | 18,147 | | | (322) | | | (18,308) | | | — | | | 544,496 | | |
Provision for income taxes | | 11,447 |
| | 2,780 |
| | 629 |
| | 8,086 |
| | 22,942 |
| Provision for income taxes | | 132,595 | | | 85 | | | (78) | | | 168 | | | (4,529) | | | 128,241 | | |
Income from continuing operations | | 50,754 |
| | 4,773 |
| | 2,059 |
| | (8,086 | ) | | 49,500 |
| |
Earnings from continuing operations per share - diluted (a) | | $ | 0.23 |
| | $ | 0.02 |
| | $ | 0.01 |
| | $ | (0.04 | ) | | $ | 0.23 |
| |
(a) Per share amounts do not sum due to rounding. | | | | | | | | | | | |
Net income attributable to TEGNA Inc. | | Net income attributable to TEGNA Inc. | | 411,868 | | | 18,062 | | | (244) | | | (18,476) | | | 4,529 | | | 415,739 | | |
Net income per share-diluted | | Net income per share-diluted | | $ | 1.83 | | | $ | 0.08 | | | $ | — | | | $ | (0.08) | | | $ | 0.02 | | | $ | 1.85 | | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | Special Items | | |
Quarter ended September 30, 2016 | | GAAP measure | | Severance expense | | Operating asset impairment and facility consolidation | | Other non-operating items | | Non-GAAP measure |
| | | | | | | | | | |
Operating expenses | | $ | 333,766 |
| | $ | (2,870 | ) | | $ | (15,218 | ) | | $ | — |
| | $ | 315,678 |
|
Operating income | | 185,851 |
| | 2,870 |
| | 15,218 |
| | — |
| | 203,939 |
|
Other non-operating items | | (11,874 | ) | | — |
| | — |
| | 13,161 |
| | 1,287 |
|
Total non-operating expense | | (70,673 | ) | | — |
| | — |
| | 13,161 |
| | (57,512 | ) |
Income before income taxes | | 115,178 |
| | 2,870 |
| | 15,218 |
| | 13,161 |
| | 146,427 |
|
Provision for income taxes | | 38,441 |
| | 1,112 |
| | 5,900 |
| | 3,515 |
| | 48,968 |
|
Income from continuing operations | | 76,737 |
| | 1,758 |
| | 9,318 |
| | 9,646 |
| | 97,459 |
|
Earnings from continuing operations per share - diluted (a) | | $ | 0.35 |
| | $ | 0.01 |
| | $ | 0.04 |
| | $ | 0.04 |
| | $ | 0.45 |
|
(a) Per share amounts do not sum due to rounding.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Special Items | | |
Nine Months Ended September 30, 2017 | | GAAP measure | | Severance expense | | Operating asset impairment | | Other non-operating items | | Tax benefits | | Non-GAAP measure |
| | | | | | | | | | | | |
Operating expenses | | $ | 1,022,651 |
| | $ | (3,053 | ) | | $ | (11,086 | ) | | $ | — |
| | $ | — |
| | $ | 1,008,512 |
|
Operating income | | 390,052 |
| | 3,053 |
| | 11,086 |
| | — |
| | — |
| | 404,191 |
|
Other non-operating items | | (26,853 | ) | | — |
| | — |
| | 31,991 |
| | — |
| | 5,138 |
|
Total non-operating expense | | (190,515 | ) | | — |
| | — |
| | 31,991 |
| | — |
| | (158,524 | ) |
Income before income taxes | | 199,537 |
| | 3,053 |
| | 11,086 |
| | 31,991 |
| | — |
| | 245,667 |
|
Provision for income taxes | | 54,855 |
| | 1,174 |
| | 4,104 |
| | 6,921 |
| | 11,724 |
| | 78,778 |
|
Income from continuing operations | | 144,682 |
| | 1,879 |
| | 6,982 |
| | 25,070 |
| | (11,724 | ) | | 166,889 |
|
Earnings from continuing operations per share - diluted | | $ | 0.66 |
| | $ | 0.01 |
| | $ | 0.03 |
| | $ | 0.12 |
| | $ | (0.05 | ) | | $ | 0.77 |
|
| | | | | | | | | | | | |
| | | | Special Items | | |
Nine Months Ended September 30, 2016 | | GAAP measure | | Severance expense | | Operating asset impairment | | Equity investment impairment | | Other non-operating items | | Non-GAAP measure |
| | | | | | | | | | | | |
Operating expenses | | $ | 959,344 |
| | $ | (20,118 | ) | | $ | (18,946 | ) | | $ | — |
| | $ | — |
| | $ | 920,280 |
|
Operating income | | 497,889 |
| | 20,118 |
| | 18,946 |
| | — |
| | — |
| | 536,953 |
|
Equity (loss) income in unconsolidated charges | | (2,763 | ) | | — |
| | — |
| | 1,869 |
| | — |
| | (894 | ) |
Other non-operating items | | (16,029 | ) | | — |
| | — |
| | — |
| | 16,324 |
| | 295 |
|
Total non-operating expense | | (194,236 | ) | | — |
| | — |
| | 1,869 |
| | 16,324 |
| | (176,043 | ) |
Income before income taxes | | 303,653 |
| | 20,118 |
| | 18,946 |
| | 1,869 |
| | 16,324 |
| | 360,910 |
|
Provision for income taxes | | 92,038 |
| | 7,799 |
| | 7,345 |
| | 725 |
| | 4,583 |
| | 112,490 |
|
Income from continuing operations | | 211,615 |
| | 12,319 |
| | 11,601 |
| | 1,144 |
| | 11,741 |
| | 248,420 |
|
Earnings from continuing operations per share - diluted | | $ | 0.96 |
| | $ | 0.06 |
| | $ | 0.05 |
| | $ | 0.01 |
| | $ | 0.05 |
| | $ | 1.13 |
|
| | | | | | | | | | | | |
Adjusted RevenuesEBITDA - Non-GAAP
Reconciliations of adjusted revenuesAdjusted EBITDA to our revenuesnet income presented in accordance with GAAP on our Consolidated Statements of Income are presented below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended Sept. 30, | | Nine months ended Sept. 30, |
| 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
| | | | | | | | | | | |
Net income attributable to TEGNA Inc. (GAAP basis) | $ | 96,183 | | | $ | 146,065 | | | (34 | %) | | $ | 400,591 | | | $ | 411,868 | | | (3 | %) |
Plus (Less): Net income (loss) attributable to redeemable noncontrolling interest | 71 | | | 92 | | | (23 | %) | | (240) | | | 516 | | | *** |
Plus: Provision for income taxes | 27,801 | | | 43,827 | | | (37 | %) | | 103,827 | | | 132,595 | | | (22 | %) |
Plus: Interest expense | 43,418 | | | 43,406 | | | — | % | | 129,121 | | | 129,976 | | | (1 | %) |
Plus: Equity loss in unconsolidated investments, net | 256 | | | 178 | | | 44 | % | | 776 | | | 4,225 | | | (82 | %) |
(Less): Other non-operating items, net | (33,072) | | | (1,310) | | | *** | | (44,264) | | | (16,764) | | | *** |
Operating income (GAAP basis) | 134,657 | | | 232,258 | | | (42 | %) | | 589,811 | | | 662,416 | | | (11 | %) |
| | | | | | | | | | | |
Plus: M&A-related costs | — | | | 3,701 | | | *** | | 19,848 | | | 18,147 | | | 9 | % |
| | | | | | | | | | | |
Plus: Retention costs - SBC | 1,692 | | | — | | | *** | | 1,692 | | | — | | | *** |
Plus: Retention costs - Cash | 1,192 | | | — | | | *** | | 1,192 | | | — | | | *** |
(Less) Plus: Asset impairment and other | — | | | (159) | | | *** | | 3,359 | | | (322) | | | *** |
Less: Merger termination fee | — | | | — | | | *** | | (136,000) | | | — | | | *** |
Adjusted operating income (non-GAAP basis) | 137,541 | | | 235,800 | | | (42 | %) | | 479,902 | | | 680,241 | | | (29 | %) |
Plus: Depreciation | 15,083 | | | 15,219 | | | (1 | %) | | 45,119 | | | 46,058 | | | (2 | %) |
Plus: Amortization of intangible assets | 13,297 | | | 14,953 | | | (11 | %) | | 40,175 | | | 44,952 | | | (11 | %) |
Adjusted EBITDA (non-GAAP basis) | 165,921 | | | 265,972 | | | (38 | %) | | 565,196 | | | 771,251 | | | (27 | %) |
Corporate - General and administrative expense (non-GAAP basis) | 12,559 | | | 9,666 | | | 30 | % | | 31,317 | | | 30,152 | | | 4 | % |
Adjusted EBITDA, excluding Corporate (non-GAAP basis) | $ | 178,480 | | | $ | 275,638 | | | (35 | %) | | $ | 596,513 | | | $ | 801,403 | | | (26 | %) |
| | | | | | | | | | | |
*** Not meaningful | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| Quarter ended Sept. 30, | | Nine months ended Sept. 30, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
| | | | | | | | | | | |
Advertising & Marketing Services (a) | $ | 277,817 |
| | $ | 330,589 |
| | (16.0 | %) | | $ | 843,175 |
| | $ | 934,977 |
| | (9.8 | %) |
Political | 3,783 |
| | 38,060 |
| | (90.1 | %) | | 13,386 |
| | 64,050 |
| | (79.1 | %) |
Subscription | 177,692 |
| | 143,676 |
| | 23.7 | % | | 540,345 |
| | 436,292 |
| | 23.8 | % |
Other | 4,972 |
| | 4,696 |
| | 5.9 | % | | 15,797 |
| | 13,883 |
| | 13.8 | % |
Cofactor | — |
| | 2,596 |
| | *** |
| | — |
| | 8,031 |
| | *** |
|
Total company revenues (GAAP basis) | $ | 464,264 |
| | $ | 519,617 |
| | (10.7 | %) | | $ | 1,412,703 |
| | $ | 1,457,233 |
| | (3.1 | %) |
Factors impacting comparisons: | | | | | | | | | | | |
Estimated incremental Olympic and Super Bowl | $ | — |
| | $ | (28,300 | ) | | *** |
| | $ | — |
| | $ | (37,210 | ) | | *** |
|
Political | (3,783 | ) | | (38,060 | ) | | (90.1 | %) | | (13,386 | ) | | (64,050 | ) | | (79.1 | %) |
CoFactor (sold in December 2016) | — |
| | (2,596 | ) | | *** |
| | — |
| | (8,031 | ) | | *** |
|
Discontinued digital marketing services | — |
| | (13,893 | ) | | *** |
| | (16,673 | ) | | (40,509 | ) | | (58.8 | %) |
Total company adjusted revenues | $ | 460,481 |
| | $ | 436,768 |
| | 5.4 | % | | $ | 1,382,644 |
| | $ | 1,307,433 |
| | 5.8 | % |
| | | | | | | | | | | |
(a) Includes traditional advertising, digital advertising as well as revenue from our DMS businesses. |
Excluding the impacts of Political revenue, impacts from the discontinued DMS transition services agreement, the absence of Cofactor revenue, and estimated prior year incremental Olympic and Super Bowl revenue, total company adjusted revenues on a comparable basis increased five percent in the third quarter and six percent in the first nine months of 2017 compared to the same periods in 2016.
Adjusted EBITDA - Non-GAAP
Reconciliations of Adjusted EBITDA to net income from continuing operations attributable to TEGNA Inc. presented in accordance with GAAP on our Consolidated Statements of Income are presented below (in thousands): |
| | | | | | | | | | | | | | | | | | | | | |
| Quarter ended Sept. 30, | | Nine months ended Sept. 30, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
| | | | | | | | | | | |
Net income from continuing operations (GAAP basis) | $ | 50,754 |
| | $ | 76,737 |
| | (34 | %) | | $ | 144,682 |
| | $ | 211,615 |
| | (32 | %) |
Provision for income taxes | 11,447 |
| | 38,441 |
| | (70 | %) | | 54,855 |
| | 92,038 |
| | (40 | %) |
Interest expense | 51,855 |
| | 57,601 |
| | (10 | %) | | 162,113 |
| | 175,444 |
| | (8 | %) |
Equity loss in unconsolidated investments, net | (866 | ) | | 1,198 |
| | *** |
| | 1,549 |
| | 2,763 |
| | (44 | %) |
Other non-operating items | 3,671 |
| | 11,874 |
| | (69 | %) | | 26,853 |
| | 16,029 |
| | 68 | % |
Operating income (GAAP basis) | 116,861 |
| | 185,851 |
| | (37 | %) | | 390,052 |
| | 497,889 |
| | (22 | %) |
Severance expense | — |
| | 2,870 |
| | *** |
| | 3,053 |
| | 20,118 |
| | (85 | %) |
Asset impairment and facility consolidation charges | 7,553 |
| | 15,218 |
| | (50 | %) | | 11,086 |
| | 18,946 |
| | (41 | %) |
Adjusted operating income (non-GAAP basis) | 124,414 |
| | 203,939 |
| | (39 | %) | | 404,191 |
| | 536,953 |
| | (25 | %) |
Depreciation | 15,186 |
| | 13,212 |
| | 15 | % | | 41,721 |
| | 42,653 |
| | (2 | %) |
Amortization of intangible assets | 5,395 |
| | 5,775 |
| | (7 | %) | | 16,172 |
| | 17,542 |
| | (8 | %) |
Adjusted EBITDA (non-GAAP basis) | 144,995 |
| | 222,926 |
| | (35 | %) | | 462,084 |
| | 597,148 |
| | (23 | %) |
Corporate - General and administrative expense, exclusive of depreciation (non-GAAP basis) | 12,881 |
| | 14,470 |
| | (11 | %) | | 41,402 |
| | 42,308 |
| | (2 | %) |
Adjusted EBITDA, excluding Corporate (non-GAAP basis) | $ | 157,876 |
| | $ | 237,396 |
| | (33 | %) | | $ | 503,486 |
| | $ | 639,456 |
| | (21 | %) |
Third quarter 2017 adjusted EBITDA margin was 34% without corporate or 31% with corporate. Our total Adjusted EBITDA decreased $77.9 millionor35% inIn the third quarter of 20172023 Adjusted EBITDA margin was 25% without corporate expense or 23% with corporate expense, compared to 2016 and decreased $135.1 millionthird quarter of 2022 Adjusted EBITDA margin of 34% without corporate expense or 23% for33% with corporate expense. For the first nine months ended September 30, 2023, Adjusted EBITDA margin was 27% without corporate expense or 26% with corporate expense, compared to nine months ended September 30, 2022 Adjusted EBITDA of 2017 from the prior year comparable period. The decrease was34% without corporate expense or 33% with corporate expense. These margin decreases were primarily driven by higher programming costs (due to 11 of our NBC stations which began making reverse compensation payments for the first time),operational factors discussed above within the absence of Olympic revenue and operating expense fluctuation explanation sections, most notably, the decrease in 2017AMS and the expected decline in political revenue in 2017.
Certain Matters Affecting Future Operating Results
The following items will affect year-over-year comparisons for 2017 results:
Revenues - In the fourth quarter of 2017 revenue will be impacted primarily due to the absence of $82 million in net political revenues compared to the fourth quarter of 2016, and the absence of $16 million of DMS revenue due to the conclusion of a transition services agreement with Gannett.
Based on current trends, we expect total company revenues on a GAAP basis compared to the prior year quarter to be down in the high-single to low double-digits. Adjusting to remove political revenue and revenue related to the terminated transition services agreement, we expect our fourth quarter adjusted company revenues to be up in the high single-digit to low double-digits year-over-year.
Programming Costs - Beginning in January 2017, 11 of our NBC stations began making reverse compensation payments for the first time. As such, 2017 is an unusual year as there will be an unfavorable gap between the increase in subscription revenue we earn from multichannel video programming distributors (MVPD), compared to the increase in fees we will pay our affiliates. At the end of 2016, we renegotiated several new subscriptions agreements with major MVPD carriers, andexpenses.
Free Cash Flow Reconciliation
Free cash flow as a result, we have reducedpercentage of revenue is computed over a trailing two-year period (reflecting both an even and odd year reporting period given the political cyclicality of our net retransmission gap in 2017business).
Reconciliation from “Net income” to approximately $31 million to $34 million. Further, we expect our strategic initiatives launched in 2016 (including Premion, centralized pricing initiatives,“Free cash flow” follow (in thousands):
| | | | | | | | | | | |
| Two-year period ended Sept. 30, |
| 2023 | | 2022 |
| | | |
Net income attributable to TEGNA Inc. (GAAP basis) | $ | 1,160,491 | | $ | 1,133,127 |
Plus: Provision for income taxes | 338,208 | | 352,670 |
Plus: Interest expense | 349,222 | | 365,187 |
Plus: M&A-related costs | 44,103 | | 21,885 |
Plus: Depreciation | 122,629 | | 128,082 |
Plus: Amortization of intangible assets | 115,761 | | 125,076 |
Plus: Stock-based compensation | 54,262 | | 62,868 |
Plus: Company stock 401(k) contribution | 36,378 | | 34,932 |
Plus: Syndicated programming amortization | 132,137 | | 142,980 |
| | | |
Plus: Advisory fees related to activism defense | — | | 16,611 |
Plus: Cash dividend from equity investments for return on capital | 3,344 | | 6,035 |
Plus: Cash reimbursements from spectrum repacking | 236 | | 5,774 |
Plus: Net income attributable to redeemable noncontrolling interest | 870 | | 2,176 |
Plus: Reimbursement from Company-owned life insurance policies | 1,895 | | 1,456 |
Plus: Retention costs, cash portion | 1,192 | | — |
Plus (Less): Equity loss (income) in unconsolidated investments, net | 9,246 | | 11,948 |
Plus (Less): Asset impairment and other | 3,123 | | (2,051) |
(Less) Plus: Other non-operating items, net | (68,180) | | (6,830) |
Less: Merger termination fee | (136,000) | | — |
Less: Syndicated programming payments | (127,545) | | (146,021) |
Less: Income tax payments, net of refunds | (304,860) | | (348,387) |
Less: Pension contributions | (9,599) | | (10,250) |
Less: Interest payments | (338,436) | | (364,287) |
Less: Purchases of property and equipment | (104,292) | | (113,519) |
Free cash flow (non-GAAP basis) | $ | 1,284,185 | | $ | 1,419,462 |
| | | |
Revenue | $ | 6,238,968 | | $ | 6,290,783 |
Free cash flow as a % of Revenue | 20.6 | % | | 22.6 | % |
| | | |
Our free cash flow, a non-GAAP performance measure, was $1.28 billion and Hatch) will more than offset the remaining net retransmission gap in 2017.
Income Taxes - After the spin-off of Cars.com and disposition of CareerBuilder, the recurring effective income tax rate for 2018 is anticipated to be approximately 35%. This estimated effective income tax rate is higher than that$1.42 billion for the third quartertwo-year periods ended September 30, 2023 and the first nine months of 2017 due to tax benefits associated with the spin-off of Cars.com and other non-recurring items realized in 2017.2022, respectively.
Liquidity, Capital Resources and Cash Flows
Our strongoperations have historically generated positive cash generation capability and financial condition, togetherflow that, along with our significant borrowing capacityavailability under our existing revolving credit agreement, arefacility and cash and cash equivalents on hand, has been sufficient to fund our capital expenditures, interest payments, dividends, share repurchases, investments in strategic initiatives and other operating requirements. Over
We paid dividends totaling $63.1 million and $63.5 million in the longerfirst nine months of 2023 and 2022, respectively. In the second quarter of 2023 we announced a 20% increase to our quarterly dividend from 9.5 to 11.375 cents per share. We paid the previously declared regular quarterly dividend of 9.5 cents per share on July 3, 2023, to stockholders of record as of the close of business on June 9, 2023, and paid the increased dividend of 11.375 cents per share on October 2, 2023 to stockholders of record as of the close of business on September 8, 2023. We expect the increased dividend to be in effect in future regular quarterly dividend payments, subject to the Board of Directors’ declaration.
The now-terminated Merger Agreement did not permit us to increase the dividend or to repurchase our common stock between its signing date and the presumptive close date. As a result of these two restrictions, our cash balance increased to $683.2 million by the end of March 2023. In the second quarter of 2023, we employed $300 million of cash when we launched an accelerated share repurchase (ASR) program under which we repurchased $300 million in TEGNA common shares from JPMorgan Chase Bank, National Association (JPMorgan). Under the ASR, the Company made an initial payment to JPMorgan of $300 million and received an initial delivery of approximately 15.2 million shares on June 6, 2023, representing 80% ($240 million) of the value of the ASR contract. The ASR program was completed during the third quarter of 2023, at which time JPMorgan delivered an additional 3.1 million shares to us. This final share settlement was based on the average daily volume-weighted average price of TEGNA shares during the term of the ASR program, less a discount, less the previously delivered 15.2 million shares.
On August 3, 2023, TEGNA announced an additional ASR program with a value of $325 million, which is expected to commence in the fourth quarter of 2023. Similar to the initial ASR program, we expect to continuereceive an initial delivery of shares equal to fund debt maturities, acquisitions80% of the value of the program, with the final number of shares received to be based on the average daily volume-weighted average price of TEGNA shares during the term of the ASR, less a discount and subject to customary adjustments pursuant to the terms of the ASR.
In September 2023, following completion of the first ASR program, we repurchased 1.7 million additional shares of our common stock via open market transactions under the $300 million share repurchase program that was authorized by the Board of Directors in December 2020. The total value of these purchases was $27.9 million. The existing share repurchase authorization expires on December 31, 2023.
In addition to the above share repurchase initiatives, during 2023 we deployed surplus cash in time deposit and money market investments through a combination of cash flows from operations, borrowings underwith several financial institutions.
Under our revolving credit agreement and funds raised in the capital markets. As we summarize below, during 2017facility we have completed several strategic actions that have positioned usthe ability to be able to pursue strategic acquisition opportunities that may develop in our sector, invest in new content and revenue initiatives, and grow revenue in fiscal year 2018.
draw loans based on two different interest rate indices, one of which was previously based on the London Interbank Offered Rate (LIBOR). During the second quarter we completed our spin-off of Cars.com which resulted in a one-time tax-free cash distribution of $650.0 million to TEGNA. We used $609.9 million of the tax-free distribution proceeds to fully pay down our then outstanding revolving credit agreement borrowings.
On July 31, 2017, we sold our majority ownership interest in CareerBuilder. Our share of the pre-tax net cash proceeds from the sale was $198.3 million, net of cash transferred of $36.6 million. Additionally, prior to the sale, CareerBuilder issued a final dividend to its selling shareholders, of which $25.8 million was retained by TEGNA. On October 16 2017, we used the net proceeds from the CareerBuilder sale, the remaining cash distribution proceeds from Cars.com of $40.1 million, and cash on hand to early retire $280.0 million of principal of unsecured notes due in October 2019.
On August 1, 2017,2023, we amended our Amendedrevolving credit facility to replace the LIBOR-based interest rate index, which was phased out, with a Secured Overnight Financing Rate (SOFR) based interest rate index. The transition from LIBOR to SOFR did not have a material impact on the Company.
As of September 30, 2023, we were in compliance with all covenants contained in our debt agreements and Restated Competitive Advance and Revolving Credit Agreement. Under the amended terms, our maximum totalcredit facility. Our leverage ratio, will remain at 5.0x through June 30, 2018, after which, as amended, it will be reduced to 4.75x through June 2019 and then to 4.5x until the expirationcalculated in accordance with our revolving credit agreement, was 2.58x, below the maximum permitted leverage ratio of4.50x. The leverage ratio is calculated using annualized adjusted EBITDA (as defined in the credit agreement on June 29, 2020. Lastly, onagreement) for the trailing eight quarters. We expect to remain compliant with all covenants for the foreseeable future.
As of September 19, 2017, we announced that our Board of Directors authorized a new share repurchase program for up to $300 million of our common stock over the next three years.
At the end of the third quarter of 2017,30, 2023, our total debt was $3.32$3.07 billion and, cash and cash equivalents totaled $383.4 million. As of September 30, 2017,$553.0 million, and we had unused borrowing capacity of $1.5$1.49 billion under our revolving credit facility. We intend to continue to invest in organic and strategic growth opportunities and also intend to maintain the financial flexibility to pursue strategic acquisitions when appropriate. Our debt consists of unsecured notes which have fixed interest rates.
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 the Part II. Other Information,factors. See Item 1A. Risk“Risk Factors, discussion below.” in our 2022 Annual Report on Form 10-K for further discussion. We expect our existing cash and cash equivalents, cash flow from our operations, and borrowing capacity under the revolving credit facility will be more than sufficient to fund the $325 million ASR scheduled for the fourth quarter and to satisfy our recurring contractual commitments, debt service obligations, capital expenditure requirements, and other working capital needs for the next twelve months and beyond.
Cash Flows
The following table provides a summary of our cash flow information followed by a discussion of the key elements of our cash flow (in thousands):
| | | | | | | | | | | |
| Nine months ended Sept. 30, |
| 2023 | | 2022 |
| | | |
Balance of cash and cash equivalents beginning of the period | $ | 551,681 | | | $ | 56,989 | |
| | | |
Operating activities: | | | |
Net income | 400,351 | | | 412,384 | |
Depreciation, amortization and other non-cash adjustments | 89,814 | | | 114,895 | |
Merger termination fee | (136,000) | | | — | |
Pension expense, net of employer contributions | 3,982 | | | (1,697) | |
Decrease in trade receivables | 50,207 | | | 51,986 | |
Decrease in interest and taxes payable | (29,601) | | | (23,104) | |
All other operating activities | 30,086 | | | 46,241 | |
Cash flow from operating activities | 408,839 | | | 600,705 | |
| | | |
Investing activities: | | | |
Purchase of property and equipment | (29,301) | | | (35,527) | |
All other investing activities | 26,206 | | | (535) | |
Cash flow used for investing activities | (3,095) | | | (36,062) | |
| | | |
Financing activities: | | | |
Payment under revolving credit facilities, net | — | | | (166,000) | |
Dividends paid | (63,078) | | | (63,533) | |
Repurchase of common stock | (327,914) | | | — | |
All other financing activities | (13,403) | | | (15,458) | |
Cash flow used for financing activities | (404,395) | | | (244,991) | |
Increase in cash and cash equivalents | 1,349 | | | 319,652 | |
Balance of cash and cash equivalents end of the period | $ | 553,030 | | | $ | 376,641 | |
|
| | | | | | | |
| Nine months ended Sept. 30, |
| 2017 | | 2016 |
| | | |
Cash and cash equivalents from continuing operations, beginning of period | $ | 15,879 |
| | $ | 26,096 |
|
Cash and cash equivalents from discontinued operations, beginning of period | 61,041 |
| | 103,104 |
|
Balance of cash and cash equivalents, beginning of the period | 76,920 |
| | 129,200 |
|
| | | |
Operating activities: | | | |
Net (loss) income | (88,579 | ) | | 343,756 |
|
Loss on write down of CareerBuilder | 342,900 |
| | — |
|
Depreciation, amortization and other non-cash adjustments | 153,242 |
| | 197,025 |
|
Pension (contributions), net of expense | (12,547 | ) | | 2,135 |
|
Spectrum channel share agreement proceeds | 32,588 |
| | — |
|
Other, net | (76,421 | ) | | (88,153 | ) |
Net cash flows from operating activities | 351,183 |
| | 454,763 |
|
Net cash from (used for) investing activities | 152,499 |
| | (273,309 | ) |
Net cash used for financing activities | (197,248 | ) | | (203,325 | ) |
Increase (decrease) in cash and cash equivalents | 306,434 |
| | (21,871 | ) |
| | | |
Cash and cash equivalents from continuing operations, end of period | 383,354 |
| | 19,185 |
|
Cash and cash equivalents from discontinued operations, end of period | — |
| | 88,144 |
|
Balance of cash and cash equivalents, end of the period | $ | 383,354 |
| | $ | 107,329 |
|
Operating Activities activities -Cash flow from operating activities was $351.2$408.8 million for the nine months ended September 30, 2023, compared to $600.7 million for the same period in 2022. Net income was impacted in 2023 by the one time merger termination fee of $136 million that was settled in the second quarter of 2023. The merger termination fee was satisfied in the form of TEGNA common stock and therefore did not impact cash flows. The decrease in operating cash flow of $191.9 million was driven by a $177.0 million decline in revenue and a $39.8 million increase in programming costs, partially offset by a $23.0 million decrease in taxes paid in the first nine months of 2023 as compared to 2022 primarily due to a decline in income before taxes.
Investing activities -Cash flow used for investing activities was $3.1 million for the nine months ended September 30, 2017,2023, compared to $454.8$36.1 million for the same period in 2022. The decrease of $33.0 million in net cash used for investing activities was primarily driven by an increase of $24.2 million in proceeds from investments, primarily due to the sale of a portion of our investment in MadHive in the third quarter of 2023.
Financing activities - Cash flow used for financing activities was $404.4 million for the nine months ended September 30, 2016. The decrease in net cash flow from operating activities was primarily due to higher programming costs of $135.1 million (primarily due to the NBC affiliation agreement), the decline in political revenue of $50.7 million, and the absence of operating cash flow Cars.com and CareerBuilder following their spin-off and sale, respectively. These decreases were partially offset by declines in tax payments of $40.6 million and interest payments of $19.8 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 -Cash flow from investing activities totaled $152.5 million for the nine months ended September 30, 2017,2023, compared to cash used for investing activities of $273.3$245.0 million for the same period 2016.in 2022. The 2017 net cash inflow 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 $15.1 million from the sale of assets, primarily comprised of proceeds of $14.6 million from the sale of Gannett Co., Inc., common stock. These inflows were partially offset by purchases of property and equipment of $63.8 million in 2017.
The 2016 net cash used for investing activities of $273.3 million was primarily comprised of $196.8 million paid for the acquisitions of businesses (net of cash acquired) and purchase of property and equipment in the amount of $68.6 million.
Financing Activities - Cash used for financing activities totaled $197.2 million for the nine months ended September 30, 2017, compared to $203.3 million net outflow for the same period in 2016. The 2017 net outflow of cash for financing activitieschange was primarily due to debt activity and dividends. With regardsour payment to 2017 debt activity, priorJPMorgan of $300 million pursuant to the completionASR program in which we received a total of 18.3 million shares 2023. Also contributing to the spin-off, Cars.com borrowed approximately $675.0change was our repurchase of 1.7 million under aadditional shares for $27.9 million in the third quarter of 2023. Lastly, our 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. Totalhad no net payments on the revolving credit facilityrepayments in the first nine months of 2017 were $635.0 million. We used an additional $99.2 million2023 as compared to pay down other existing debt. Additionally, in 2017 we made dividend payments of $75.1 million, paid a final dividend to the noncontrolling owners of CareerBuilder of $23.0 million, and transferred $20.1 million to Cars.com in connection with the spin-off.
The 2016 net financing outflow of $203.3 million was primarily a result of stock repurchases of $150.9 million and dividend payments of $91.6 million. These outflows were partially offset by a net debt inflow of $58.7 million primarily comprised of $310.0 million of borrowings which were partially offset by debt repayments of $249.6 million.
Non-GAAP Liquidity Measure
Our free cash flow, a non-GAAP liquidity measure, was $287.3$166.0 million forin the first nine months of 2017 compared to $386.2 million2022.
Goodwill
Goodwill is tested for impairment annually on October 1st, or more frequently if events or changes in circumstances occurred that indicate the same period in 2016. Our free cash flow for the first nine monthsfair value of 2017 was lower than the first nine monthsa reporting unit may be below its carrying amount. The goodwill impairment test consists of 2016 becausea comparison of the same factors affecting cash flow from operating activities discussed above. Free cash flow, whichfair value of a reporting unit to the Company’s carrying value, including goodwill. One method we reconcileuse to “Net cash flow from operating activities,” is cash flow from operating activities reduced by “Purchaseestimate the fair value of property and equipment.” We believe that free cash flowour one reporting unit is a useful measure for managementmarket-based valuation methodology, which is based on our consolidated market capitalization plus a control premium. Given the general decline in our stock price (with increases and investorsdecreases throughout the year) from a high of $21.84 on February 24, 2023 to evaluatea low of $14.51 on September 26, 2023, we have continued to monitor our valuation throughout the levelyear and as of cash generatedSeptember 30, 2023 our reporting unit’s fair value exceeds its carrying value by operations andmore than 20%. The decline in our stock price has caused our headroom to narrow considerably, putting our goodwill at risk of a future impairment charge if fair value of the ability of our operationsreporting unit continues to fund investments in new and existing businesses, return cash to shareholders under our capital program, repay indebtedness or to use in other discretionary activities.decline.
Reconciliations from “Net cash flow from operating activities” to “Free cash flow” follow (in thousands):
|
| | | | | | | | | | | |
| | | | | Nine months ended September 30, |
| | | | | 2017 | | 2016 |
| | | | | | | |
Net cash flow from operating activities | | | | | $ | 351,183 |
| | $ | 454,763 |
|
Purchase of property and equipment | | | | | (63,846 | ) | | (68,577 | ) |
Free cash flow |
| |
| | $ | 287,337 |
| | $ | 386,186 |
|
Certain Factors Affecting Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q containthat do not describe historical facts may constitute forward-looking statements regarding business strategies, market potential, future financial performancewithin the meaning of the “safe harbor” provisions of Section 27A of the Securities Act of 1933, as amended, and other matters. TheSection 21E of the Securities Exchange Act of 1934, as amended. When used in the communication, the words “believe,“believes,” “expect,“estimates,” “estimate,“plans,” “expects,” “should,” “could,” “should,“outlook,” “intend,” “may,” “plan,” “seek,” “anticipate,” “project”and “anticipates” and similar expressions among others, generallyas they relate to the Company or its management financial results are intended to identify “forward-looking statements”. These forward-looking statements. Forward-looking statements in this communication may include, without limitation, statements regarding anticipated growth rates and the Company’s plans, objectives and expectations. Forward-looking statements are based on a number of assumptions about future events and are subject to certainvarious risks, uncertainties and uncertaintiesother factors that couldmay cause actual results and events to differ materially from those anticipatedthe views, beliefs, projections and estimates expressed in such statements, many of which are outside the Company’s control. These risks, uncertainties and other factors include, but are not limited to, risks and uncertainties related to: changes in the forward-looking statements,market price of the Company’s shares, general market conditions; constraints, volatility, or disruptions in the capital markets; the possibility that the Company’s share repurchases, including those described under Item 1A. “Risk Factors”through ASR programs, may not enhance long-term stockholder value; the possibility that share repurchases could increase the volatility of the price of the Company’s common stock; legal proceedings, judgments or settlements; the response of customers, suppliers and business partners to the Company’s plans, operations and business as a standalone company; the Company’s ability to re-price or renew subscribers; potential regulatory actions; changes in consumer behaviors and impacts on and modifications to TEGNA’s operations and business relating thereto; other business effects, including the effects of industry, market, economic, political or regulatory conditions; information technology system failures, data security breaches, data privacy compliance, network disruptions, and cybersecurity, malware or ransomware attacks; and economic, competitive, governmental, technological and other factors and risks that may affect the Company’s operations or financial results, which are discussed in our 2016 Annual Report on Form 10-K.
Our actual financial results may be different from those projected dueReaders are cautioned not to the inherent nature of projections. Given these uncertainties,place undue reliance on forward-looking statements should not be reliedmade by or on in making investment decisions. The forward-looking statements contained in this Form 10-Q speakbehalf of the Company. Each such statement speaks only as of the date of its filing. Except where required by applicable law, we expressly disclaim a dutyday it was made. We undertake no obligation to provide updatesupdate or to revise any forward-looking statements after the date of this Form 10-Q 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-Q are intended to be subject to the safe harbor protection provided by the federal securities laws.statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For quantitative and qualitative disclosures about market risk, refer to the following section of our 20162022 Annual Report on Form 10-K: “Item 7A. Quantitative and Qualitative Disclosures about Market Risk.” Our exposureexposures to market risk has been reducedhave not changed materially since December 31, 2016, due to the sale of our majority ownership in CareerBuilder, which has decreased our exposure to changes in foreign exchange rates related to CareerBuilder’s international operations.2022.
As of September 30, 2017,2023, we did not have any floating interest obligations outstanding and had $379.2 millionunused borrowing capacity of $1.49 billion under our $1.51 billion revolving credit facility, which expires in long-term floatingAugust 2024. During the second quarter of 2023, we amended our revolving credit facility to replace the LIBOR-based interest rate obligations outstanding. These obligations fluctuateindex, which was phased out, with marketa Secured Overnight Financing Rate (SOFR) based interest rates. By way of comparison,rate index. The transition from LIBOR to SOFR did not have a 50 basis points increase or decreasematerial impact on the Company. Any amounts borrowed under the revolving credit facility in the average interest ratefuture are subject to a variable rate. Refer to Note 8 to the condensed consolidated financial statements for these obligations would result in a change in annualized interest expense of approximately $1.9 million. Theinformation regarding the fair value of our total debt, based on bid and ask quotes for the related debt, totaled $3.49 billion as of September 30, 2017, and $4.19 billion as of December 31, 2016.long-term debt.
Item 4. Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the Company’sCompany’s disclosure controls and procedures as of September 30, 2017.2023. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective, as of September 30, 2017,2023, to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
There have been no material changes in our internal controls or in other factors during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Other than ordinary, routine litigation incidentalSee Note 10 to the condensed consolidated financial statements for information regarding our business, neither we nor any of our subsidiaries currently is party to any material pending legal proceeding.proceedings.
Item 1A. Risk Factors
While we attempt to identify, manage and mitigate risks and uncertainties associated with our business, some level of risk and uncertainty will always be present. “Item 1A. Risk Factors” of our 20162022 Annual Report on Form 10-K describes the risks and uncertainties that we believe may have the potential to materially affect our business, results of operations, financial condition, cash flows, projected results and future prospects. The information below describesOther than those risk factors related to the now terminated merger, we do not believe that there have been any material changes from the risk factors previously disclosed in our 20162022 Annual Report on Form 10-K, and should be read in conjunction with the exception of the below risk factorsfactor related to the repurchasing of our common stock.
We may not realize the anticipated benefits of our share repurchase programs and information described therein.any failure to repurchase our common stock after we have announced our intention to do so may negatively impact our stock price.
On June 2, 2023, we entered into an accelerated share repurchase (ASR) program under which we repurchased $300 million of our common stock. On August 3, 2023, we announced we expect to enter into a second ASR program in the fourth quarter under which we will repurchase $325 million of our common stock. Both of these ASR agreements are in addition to the $300 million share repurchase program authorized by our Board of Directors in December 2020.
The spin-offtiming and amount of any repurchases under the $325 million ASR will depend on factors such as the stock price, economic and market conditions, and corporate and regulatory requirements. Any failure to repurchase shares after we have announced our intention to do so may negatively impact our reputation, investor confidence and the price of our Cars.com businesscommon stock.
The existence of an ASR program could cause the price of the Company’s common stock to be higher than it otherwise would be and salecould potentially reduce the market liquidity for our stock. Although an ASR program is intended to enhance long-term stockholder value, there is no assurance it will do so because the market price of our majority ownership interest in CareerBuilder has reducedcommon stock may decline below the sizelevels at which we repurchased shares and diversification of our business, which in turn increases our exposure toshort-term stock price fluctuations could reduce the changes and highly competitive environmenteffectiveness of the broadcast industry.program.
We now operate as a single business segment which is more exposedRepurchasing common stock will reduce the amount of cash we have available to the increased competition and changing regulatory environment within the broadcast industry. Broadcast companies operatefund capital expenditures, interest payments, dividends, share repurchases, investments in a highly competitive environment and compete for audiences, advertising & marketing services revenue and quality programing. Lower audience share, declines in advertising & marketing services revenue and increased programming costs would adversely affect our business, financial condition and results of operations.
In addition, the Federal Communications Commission (FCC) and Congress are contemplating several new laws and changes to existing media ownershipstrategic initiatives and other broadcast-related regulations, regarding a wide rangeoperating requirements and we may fail to realize the anticipated benefits 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 and 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.these share repurchase programs.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
OnIssuer Purchases of Equity Securities
The following table presents stock repurchases by the Company during the three-month period ended September 19, 2017,30, 2023 (in thousands, except per share amount):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Period Ended | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs | |
| | | | | | | | | |
July 1, 2023 - July 31, 2023 | | — | | | $ | — | | | — | | | $ | 360,000 | | 1 |
August 1, 2023 - August 31, 20232 | | 3,091 | | | $ | 16.42 | | | 3,091 | | | $ | 300,000 | | |
September 1, 2023 - September 30, 20233 | | 1,749 | | | $ | 15.96 | | | 1,749 | | | $ | 272,086 | | 4 |
Total Third Quarter 2023 | | 4,840 | | | | | 4,840 | | | | |
(1) Represents as of the beginning of the third quarter of 2023 (i) $300 million remaining under the share repurchase program authorized by our Board of Directors in December 2020 described in footnote 3 below, and (ii) $60 million remaining under the ASR program, which was settled in the third quarter of 2023, described in footnote 2 below.
(2) In the second quarter of 2023 we announced thatentered into an ASR agreement with JPMorgan Chase Bank, National Association (JPMorgan) to repurchase TEGNA common stock with an aggregate value of $300 million. Under the terms of the ASR, we paid JPMorgan $300 million and received an initial delivery of approximately 15.2 million shares in the second quarter of 2023, representing approximately 80% ($240 million) of the value of the ASR. The ASR program was completed during August of 2023, at which time JPMorgan delivered an additional 3.1 million shares to us. This final share settlement was based on the average daily volume-weighted average price of TEGNA shares during the term of the ASR program of $16.42, which was net of a discount, less the previously delivered 15.2 million shares.
(3) In December 2020, our Board of Directors authorized a newthe renewal of our share repurchase program for up to $300.0$300 million of our common stock over the next three years. DuringThe shares may be repurchased at management’s discretion, either on the third quarteropen market or in privately negotiated block transactions. Management’s decision to repurchase shares will depend on price, blackout periods and other corporate developments. Purchases may occur from time to time and no maximum purchase price has been set. No purchases occurred under this program from its inception through June 30, 2023. In September of 2017, no2023, we repurchased 1.7 million shares were repurchased.under this program at an aggregate cost of $27.9 million.
(4) Represents the amount remaining under the share repurchase program described in footnote 3 above.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Rule 10b5-1 Trading Plans
On August 30, 2023, David T. Lougee, President and Chief Executive Officer, entered into a Rule 10b5-1 trading arrangement (as defined in Item 408 of Regulation S-K of the Exchange Act) with the intent of selling up to 425,000 shares of the Company’s common stock for estate planning and diversification purposes. The plan expires upon the earlier of November 29, 2024, or the completion of all authorized transactions under the plan. Sales made by Mr. Lougee under the plan would represent his first sales of the Company’s stock since becoming President and CEO in 2017. If all 425,000 shares are sold during the plan period, Mr. Lougee will still hold shares of the Company’s common stock in excess of three times the Company’s CEO minimum ownership guideline.
The adoption of this trading plan occurred during an open insider trading window and is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Securities Exchange Act of 1934, as amended.
Item 6. Exhibits
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| | | | | | | |
Exhibit Number | | Description | | Location |
| | | | |
3-1 | | Third |
3-1 | | | | |
| | | | |
3-1-1 | | Amendment to Third Restated Certificate of Incorporation of TEGNA Inc. | | |
| | | | |
3-1-23-2 | | Amendment to Third Restated Certificate of Incorporation of TEGNA Inc. | | |
| | | | |
3-2 | | By-laws, as amended through December 8, 2015. | | |
| | | | |
10-1 | | Tenth Amendment, dated as |
| | |
10-2 | | |
| | |
10-3 | | Transition Agreement, dated as of December 13, 2004August 2, 2023, between Victoria D. Harker and effective as of January 5, 2005, as amended and restated as ofTEGNA Inc. (incorporated by reference to Exhibit 10-1 to TEGNA Inc.’s Form 8-K filed on August 5, 2013, and as further amended, among TEGNA Inc., JPMorgan Chase Bank, N.A., as administrative agent, and the several banks and other financial institutions from time to time parties thereto. | | |
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31-1 | | | | |
| | | | |
31-2 | | | | |
| | | | |
32-1 | | | | |
| | | | |
32-2 | | | | |
| | | | |
101101.INS | | The following financial information from TEGNA Inc. Quarterly Report on Form 10-Q forInline XBRL Instance Document - the quarter ended September 30, 2017, formattedinstance document does not appear in the Interactive Data File because its XBRL includes: (i) Condensed Consolidated Balance Sheets at September 30, 2017tags are embedded within the Inline XBRL document.
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| | |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document. |
| | |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF | | Inline XBRL Taxonomy Extension Definition Document. |
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101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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104 | | Cover Page Interactive Data File (formatted as Inline XBRL and December 31, 2016, (ii) Consolidated Statements of Income for the quarter and year-to-date periods ended September 30, 2017 and September 30, 2016, (iii) Consolidated Statements of Comprehensive Income for the quarter and year-to-date periods ended September 30, 2017 and September 30, 2016, (iv) Condensed Consolidated Cash Flow Statements for the year-to-date periods ended September 30, 2017 and September 30, 2016, and (v) the notes to unaudited condensed consolidated financial statements.
contained in Exhibit 101). |
| | |
We agree to furnish to the Commission, upon request, a copy of each agreement with respect to long-term debt not filed herewith in reliance upon the exemption from filing applicable to any series of debt representing less than 10% of our total consolidated assets.
* Asterisks identify management contracts and compensatory plans and arrangements.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | | |
Date: November 8, 20177, 2023 | TEGNA INC. |
| |
| /s/ Clifton A. McClelland III |
| Clifton A. McClelland III |
| Senior Vice President and Controller |
| (on behalf of Registrant and as ChiefPrincipal Accounting Officer) |