UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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For the quarterly period ended September 30, 20172018

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. c

INDEX TO TEGNA INC.

September 30, 20172018 FORM 10-Q

 

Unaudited, in thousands of dollars

Unaudited, in thousands of dollars

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

NOTE 1 – Basis of presentationAccounting Policies

The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates. Significant estimates include, but are not limited to, evaluation of goodwill and other intangible assets for impairment, business combinations, fair value measurements, post-retirement benefit plans, income taxes including deferred taxes, and contingencies. The condensed consolidated financial statements include the accounts of subsidiaries we control and variable interest entities (VIEs) if we are the primary beneficiary. We eliminate all intercompany balances, transactions, and profits in consolidation. Investments in entities over which we have significant influence, but do not have control, are accounted for under the equity method. Our share of net earnings and losses from these ventures is included in “Equity income (loss) income in unconsolidated investments, net” in the Consolidated Statements of Income. In addition, certain reclassifications have been made to prior years’year’s consolidated Statements of Incomefinancial statements to conform to the current year’s presentation.presentation, specifically as it relates to our presentation of Investments and other assets in Note 3 of the condensed consolidated financial statements.

On May 31, 2017, we completed the spin-off of our digital automotive marketplace business, Cars.com. In addition, on July 31, 2017, we completed the sale of our majority ownership stake in CareerBuilder. Our digital marketing services (DMS) business is now reported within our Media business. As a result of these strategic actions, we have disposed of substantially all of our former Digital Segment business and have therefore classified its historical financial results as discontinued operations.operations in our Consolidated Statements of Income. See Note 12, “Discontinued Operations”,operations,” for further details regarding the spin-off of Cars.com and the sale of CareerBuilder and the impact of each transaction on our condensed consolidated financial statements.

We will adoptadopted the guidance beginning January 1, 2018 using the modified retrospective method. We began recognizing revenue under this new guidance in the first quarter of 2018 and did not restate prior years. We applied the standard to all contracts open as of January 1, 2018. The two permitted transition methods are the full retrospective method, in which case the guidance would be applied to eachcumulative prior reporting period presented and the cumulative effect of applying the guidance was $3.7 million which was recorded as a decrease to retained earnings upon adoption. This adjustment represents a deferral of revenue associated with certain performance obligations that were not fully completed as of the reporting date. In addition, with the adoption of the new guidance, we have determined that certain barter revenue and expense related to syndicated programming will no longer be recognized. The revenue and expense previously recognized for this type of barter transaction would have been approximately $0.5 million in the third quarter of 2018 and $1.5 million in the nine months ended 2018. Other than these two items, there were no other changes to the timing and amount of revenue recognition for our contracts.

In August 2016, the FASB issued new guidance which clarifies several specific cash flow classification issues. The objective of the new guidance is to reduce the existing diversity in practice in how these cash flows are presented in the Statement of Cash Flows. The guidance updated the classification in the Statement of Cash Flows in several areas. The most relevant updates for us are the following: 1) payments made for premiums, fees paid to lenders and other related third party costs when debt is repaid early will each be recognized at the earliest period shown; and the modified retrospective method, in which caseclassified as financing cash outflows (we have historically classified these types of cash payments as operating outflows), 2) contingent consideration payments made for acquisitions will be classified as either

operating, investing, or financing cash outflows depending on the cumulative effecttiming and nature of applyingthe payment, 3) cash receipts received due to the settlement of insurance claims will be classified as either operating or investing cash inflows, depending on the nature of the underlying loss, 4) proceeds received from trust owned life insurance policies will be classified as investing cash inflows (we have historically classified these types of cash receipts as operating inflows), and 5) distributions received from equity method investments will be classified as either operating or investing cash inflows, depending on the amount of cash received as compared to the amount of inception to date earnings recognized on the individual investment. We adopted the guidance would be recognized atretrospectively beginning in the datefirst quarter of initial application. We will adopt2018. As a result of adopting this guidance, we reclassified approximately $0.9 million of life insurance proceeds received in the guidance using the modified retrospective method.first nine months of 2017 from operating to investing inflows.

While we continueIn January 2016, the FASB issued new guidance that amended several elements surrounding the recognition and measurement of financial instruments. Most notably for our company, the new guidance requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation) to evaluate the full impact of the guidance, webe measured at fair value with changes in fair value recognized in net income. For equity investments that do not believe that it will have a material impact onreadily determinable prices, those investments may be recorded at cost less impairments, if any, plus or minus changes in observable prices for those investments. This new guidance requires us to adjust the value of our consolidated financial statements.cost method investments to account for any observable price changes in those investments. Cost method investments had previously been recorded at cost, less any impairments. We are in the process of evaluating the other requirements ofadopted the new standard, which may result in additional revenue related disclosures.

In November 2016, the FASB issued guidance on the presentation of restricted cash which requires that on the statement of cash flows, amounts generally described as restricted cash or restricted cash equivalents should be included within the beginning and ending balances of cash and cash equivalents. We adopted this guidance in the first quarter of 2018 on a retrospective basis. As a result, restricted cash amounts that have historically been included in prepaid expenses and other services revenue (which represents approximately 10%current assets and investments and other assets on our Consolidated Balance Sheets are now included with cash and cash equivalents on the Consolidated Statements of Cash Flows. We did not have any restricted cash as of September 30, 2018, however, these restricted cash balances totaled $29.2 million as of December 31, 2017, $29.6 million as of September 30, 2017 and $28.2 million as of December 31, 2016. Our restricted cash was used to pay deferred compensation and TEGNA Supplemental Retirement Plan (SERP) obligations. The adoption of this standard did not change our revenues).balance sheet presentation. See Note 10 for additional information about our restricted cash balances.

NOTE 2 – Goodwill and other intangible assets

Our retransmission agreementsconsent contracts and network affiliation agreements are amortized on a straight-line basis over their estimated useful lives. Other intangibles primarily include customer relationships and favorable lease agreements which are amortized on a straight-line basis over their useful lives. During

On February 15, 2018 we acquired a business consisting of assets in San Diego: KFMB-TV (the CBS affiliated station), KFMB-D2 (the CW station), and radio stations KFMB-AM and KFMB-FM (collectively KFMB). The purchase price was $328.4 million, which included a final working capital payment of $2.5 million that we made to the secondsellers in the third quarter of 2017,2018. The purchase price was paid in cash and funded through the use of available cash and borrowings under our revolving credit facility. In connection with this acquisition, we recorded a goodwill impairment charge within discontinued operationsindefinite lived intangible assets for FCC licenses of $192.2 million and amortizable intangible assets of $91.4 million, primarily related to retransmission consent contracts and network affiliation agreements. The amortizable assets will be amortized over a weighted average period of 10 years. We also recognized goodwill of $17.4 million as a result of the acquisition. We completed purchase accounting for the transaction in the third quarter of 2018, which resulted in an increase to our former CareerBuilder reporting unit. See Note 12 for further discussion.goodwill balance of $0.3 million in comparison with what we had previously disclosed.

On May 14, 2018, CareerBuilder sold its subsidiary, Economic Modeling LLC (also known as EMSI). As a result, we received a dividend of $9.9 million in connection with the ability to exercise significant influence but do not control, are accounted for under thesale commensurate with our equity method of accounting. Significant influence typically exists when we own between 20% and 50% of the voting interestsownership in a corporation, own more than a minimal investment in a limited liability company, or hold substantial management rights in the investee. Under this method of accounting, ourCareerBuilder. Our share of CareerBuilder’s gain on the net earnings or lossessale of the investeeEMSI was approximately $16.8 million which is included in non-operatingEquity income (loss) in unconsolidated investments, net, on our Consolidated Statements of Income. We evaluate our equity method investments for impairment whenever events or changes in circumstances indicate thatDuring the carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss equal to the excess of carrying value over fair value is recorded in earnings in the current period.Certain differences exist between our investment carrying value and the underlying equity of the investee companies, principally due to fair value measurement at the date of investment acquisition and due to impairment charges we recorded for certain investments. As part of the agreement to sell the majority of CareerBuilder, we retained an investment of approximately 17% (or approximately 12% on a fully-diluted basis) in the entity. Our ownership stake provides us with two seats on CareerBuilder’s board of directors and thus we concluded that we have significant influence over the entity and have classified our investment as an equity method investment. In the third quarter of 2017, we recorded $0.5 million of equity earnings from our CareerBuilder investment.

NOTE 4 – Income taxes

The service cost component of our pension expense is recorded within the operating expense line items Cost of revenue, Business units - Selling, general and administrative, and Corporate - General and administrative within the Consolidated Statements of Income. All other components of theour pension expense are included within the Other non-operating items line item of the Consolidated Statements of Income.

During the nine months ended September 30, 20172018 we made $11.1 million in cash contributions to the TRP. No additional contributions are expected for the remainder of 2018. We made $10.9 million in cash contributions to the TRP and plan to make additional contributions of $1.7 million to the TRP during the fourth quarter ofnine months ended September 30, 2017. We did not make any contributions to the TRP in 2016. During the nine months ended September 30, 20172018 and 2016,2017, we made benefit payments to participants of the SERP of $32.9 million and $7.2 million, respectively.

In the first and $4.2third quarters of 2018, we accelerated the recognition of previously deferred pension costs as a result of lump sum SERP payments made to certain former executives. The first and third quarter charges were $6.3 million respectively.and $1.2 million, respectively, and were reclassified from accumulated other comprehensive income (loss) into net periodic benefit cost.

NOTE 7 – Supplemental equity information

Our calculation of diluted earnings per share includes the impact of the assumed vesting of outstanding restricted stock units, 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 96,000189,000 and 142,000235,000 stock awards for the three and nine months ended September 30, 2017,2018, respectively; and 192,00096,000 and 292,000142,000 for the three and nine months ended September 30, 2016,2017, respectively, as their inclusion would be accretive to earnings per share.

We measure and record in the accompanying condensed consolidated financial statements certain assets and liabilities at fair value. 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.