10-Q 1 tgna-20150628x10q.htm 10-Q TGNA-2015.06.28-10Q


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-Q
_______________________
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-6961
___________________________
TEGNA INC.
(Exact name of registrant as specified in its charter)
___________________________
Delaware
 
16-0442930
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
7950 Jones Branch Drive, McLean, Virginia
 
22107-0150
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (703) 854-7000.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
ý
Accelerated Filer
¨
 
 
 
 
Non-Accelerated Filer
¨
Smaller Reporting Company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ¨ No ý
The total number of shares of the registrant’s Common Stock, $1 par value outstanding as of June 28, 2015 was 226,471,846.
 




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS
TEGNA Inc. and Subsidiaries
In thousands, except share data
 
Jun. 28, 2015
 
Dec. 28, 2014
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
219,088

 
$
118,484

Trade receivables, less allowance for doubtful accounts (2015 - $20,722; 2014 - $16,498)
858,038

 
912,004

Other receivables
36,212

 
72,763

Inventories
37,993

 
38,861

Deferred income taxes
167,950

 
158,648

Assets held for sale
211,479

 
69,998

Prepaid expenses and other current assets
85,637

 
109,707

Total current assets
1,616,397

 
1,480,465

Property, plant and equipment
 
 
 
Cost
3,595,275

 
3,901,869

Less accumulated depreciation
(2,219,824
)
 
(2,292,654
)
Net property, plant and equipment
1,375,451

 
1,609,215

Intangible and other assets
 
 
 
Goodwill
4,525,618

 
4,499,927

Indefinite-lived and amortizable intangible assets, less accumulated amortization
3,219,719

 
3,239,593

Deferred income taxes
58,741

 
63,647

Investments and other assets
297,843

 
312,608

Total intangible and other assets
8,101,921

 
8,115,775

Total assets (a)
$
11,093,769

 
$
11,205,455

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

2



CONDENSED CONSOLIDATED BALANCE SHEETS
TEGNA Inc. and Subsidiaries
In thousands, except share data
 
Jun. 28, 2015
 
Dec. 28, 2014
 
(Unaudited)
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable and current portion of film contracts payable
$
227,706

 
$
281,784

Accrued expenses
502,710

 
564,628

Dividends payable
45,504

 
45,309

Income taxes
38,068

 
11,267

Deferred income
233,274

 
217,094

Current portion of long-term debt
7,854

 
7,854

Total current liabilities
1,055,116

 
1,127,936

Noncurrent liabilities
 
 
 
Income taxes
57,762

 
56,578

Deferred income taxes
717,475

 
650,372

Long-term debt
4,453,202

 
4,488,028

Post-retirement medical and life insurance liabilities
91,110

 
97,648

Pension liabilities
787,734

 
941,715

Other noncurrent liabilities
291,244

 
333,435

Total noncurrent liabilities
6,398,527

 
6,567,776

Total liabilities (a)
7,453,643

 
7,695,712

 
 
 
 
Redeemable noncontrolling interest
12,815

 
20,470

 
 
 
 
Commitments and contingent liabilities (See Note 13)


 


 
 
 
 
Equity
 
 
 
TEGNA Inc. shareholders’ equity
 
 
 
Preferred stock of $1 par value per share, 2,000,000 shares authorized, none issued

 

Common stock of $1 par value per share, 800,000,000 shares authorized, 324,418,632 shares issued
324,419

 
324,419

Additional paid-in capital
524,094

 
546,406

Retained earnings
8,740,291

 
8,602,369

Accumulated other comprehensive loss
(760,383
)
 
(778,769
)
 
8,828,421

 
8,694,425

Less treasury stock, at cost (2015 - 97,946,786 shares; 2014 - 97,679,541 shares)
(5,461,276
)
 
(5,439,511
)
Total TEGNA Inc. shareholders’ equity
3,367,145

 
3,254,914

Noncontrolling interests
260,166

 
234,359

Total equity
3,627,311

 
3,489,273

Total liabilities, redeemable noncontrolling interest and equity
$
11,093,769

 
$
11,205,455

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

(a) Our consolidated assets as of Jun. 28, 2015 include total assets of $57.6 million related to variable interest entities (VIEs) and our consolidated assets as of Dec. 28, 2014, include $60.0 million of such assets. These assets can only be used to settle the obligations of the VIEs. Consolidated liabilities as of Jun. 28, 2015 include total liabilities of $2.9 million related to VIEs and our consolidated liabilities as of Dec. 28, 2014 include $4.3 million of such liabilities. The VIEs’ creditors have no recourse to TEGNA regarding these liabilities. See further description in Note 1 - Summary of significant accounting policies.

3



CONDENSED CONSOLIDATED STATEMENTS OF INCOME
TEGNA Inc. and Subsidiaries
Unaudited, in thousands, except share data

 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
Jun. 28, 2015
 
Jun. 29, 2014
 
Jun. 28, 2015
 
Jun. 29, 2014
 
 
 
 
 
 
 
 
Operating Revenues
$
1,521,392

 
$
1,460,004

 
$
2,994,157

 
$
2,864,070

 
 
 
 
 
 
 
 
Operating Expenses:
 
 
 
 
 
 
 
Cost of sales and operating expenses, exclusive of depreciation
710,865

 
775,627

 
1,411,504

 
1,543,159

Selling, general and administrative expenses, exclusive of depreciation
439,094

 
353,779

 
886,338

 
708,992

Depreciation
49,697

 
44,850

 
99,180

 
89,614

Amortization of intangible assets
32,575

 
14,471

 
64,662

 
32,214

Facility consolidation and asset impairment charges
20,795

 
28,775

 
33,179

 
43,595

Total
1,253,026

 
1,217,502

 
2,494,863

 
2,417,574

Operating income
268,366

 
242,502

 
499,294

 
446,496

 
 
 
 
 
 
 
 
Non-operating (expense) income:
 
 
 
 
 
 
 
Equity income in unconsolidated investees, net
2,638

 
156,540

 
7,696

 
165,031

Interest expense
(69,341
)
 
(64,148
)
 
(140,100
)
 
(133,796
)
Other non-operating items
(3,842
)
 
(2,982
)
 
18,938

 
(23,730
)
Total
(70,545
)
 
89,410

 
(113,466
)
 
7,505

 
 
 
 
 
 
 
 
Income before income taxes
197,821

 
331,912

 
385,828

 
454,001

Provision for income taxes
66,331

 
106,000

 
126,854

 
158,500

Net income
131,490

 
225,912

 
258,974

 
295,501

Net income attributable to noncontrolling interests
(15,623
)
 
(17,445
)
 
(30,213
)
 
(27,875
)
Net income attributable to TEGNA Inc.
$
115,867

 
$
208,467

 
$
228,761

 
$
267,626

 
 
 
 
 
 
 
 
Net income per share – basic
$
0.51

 
$
0.92

 
$
1.01

 
$
1.18

Net income per share – diluted
$
0.50

 
$
0.90

 
$
0.99

 
$
1.15

Dividends declared per share
$
0.20

 
$
0.20

 
$
0.40

 
$
0.40

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


4



CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
TEGNA Inc. and Subsidiaries
Unaudited, in thousands

 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
Jun. 28, 2015
 
Jun. 29, 2014
 
Jun. 28, 2015
 
Jun. 29, 2014
 
 
 
 
 
 
 
 
Net income
$
131,490

 
$
225,912

 
$
258,974

 
$
295,501

Redeemable noncontrolling interest (income not available to shareholders)
(52
)
 
(1,395
)
 
(1,285
)
 
(1,850
)
Other comprehensive income (loss), before tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
32,703

 
12,809

 
394

 
17,462

Pension and other post-retirement benefit items:
 
 
 
 
 
 
 
Amortization of prior service credit, net
(618
)
 
(1,215
)
 
(1,236
)
 
(1,700
)
Amortization of actuarial loss
15,713

 
11,798

 
31,408

 
23,233

Remeasurement of post-retirement benefits liability

 

 

 
33,907

Other
(22,936
)
 
(9,297
)
 
(4,397
)
 
(15,413
)
Pension and other post-retirement benefit items
(7,841
)
 
1,286

 
25,775

 
40,027

Other

 
819

 

 
1,061

Other comprehensive income, before tax
24,862

 
14,914

 
26,169

 
58,550

Income tax effect related to components of other comprehensive income
(847
)
 
(5,441
)
 
(9,988
)
 
(21,976
)
Other comprehensive income, net of tax
24,015

 
9,473

 
16,181

 
36,574

Comprehensive income
155,453

 
233,990

 
273,870

 
330,225

Comprehensive income attributable to noncontrolling interests, net of tax
(18,932
)
 
(16,869
)
 
(26,723
)
 
(27,086
)
Comprehensive income attributable to TEGNA Inc.
$
136,521

 
$
217,121

 
$
247,147

 
$
303,139

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

5



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
TEGNA Inc. and Subsidiaries
Unaudited, in thousands

 
Twenty-six Weeks Ended
 
Jun. 28, 2015
 
Jun. 29, 2014
 
 
 
 
Cash flows from operating activities:
 
 
 
Net income
$
258,974

 
$
295,501

Adjustments to reconcile net income to net cash flow from operating activities:
 
 
 
Depreciation and amortization
163,842

 
121,828

Facility consolidation and asset impairment charges
33,179

 
43,595

Pension contributions, net of pension expense
(122,512
)
 
(64,179
)
Equity income in unconsolidated investees, net
(7,696
)
 
(165,031
)
Stock-based compensation – equity awards
11,875

 
17,208

Change in other assets and liabilities, net
(42,254
)
 
106,017

Net cash flow from operating activities
295,408

 
354,939

Cash flows from investing activities:
 
 
 
Purchase of property, plant and equipment
(55,021
)
 
(56,905
)
Payments for acquisitions, net of cash acquired
(37,292
)
 
(121,956
)
Payments for investments
(30,168
)
 
(5,318
)
Proceeds from investments
12,402

 
163,315

Proceeds from sale of certain assets
110,524

 
66,617

Net cash flow from investing activities
445

 
45,753

Cash flows from financing activities:
 
 
 
Proceeds from borrowings under revolving credit agreements
45,000

 

Payments of unsecured floating rate term loans
(19,888
)
 
(17,925
)
Payments of unsecured fixed rate notes
(66,568
)
 
(250,000
)
Dividends paid
(90,790
)
 
(90,848
)
Cost of common shares repurchased
(75,090
)
 
(75,815
)
Proceeds from issuance of common stock upon settlement of stock awards
22,150

 
10,362

Distribution to noncontrolling interests
(1,233
)
 
(877
)
Deferred payments for acquisitions
(8,896
)
 
(14,481
)
Net cash used for financing activities
(195,315
)
 
(439,584
)
Effect of currency exchange rate change on cash
66

 
355

Increase (decrease) in cash and cash equivalents
100,604

 
(38,537
)
Balance of cash and cash equivalents at beginning of period
118,484

 
469,203

Balance of cash and cash equivalents at end of period
$
219,088

 
$
430,666

 
 
 
 
Supplemental cash flow information:
 
 
 
Cash paid for taxes, net of refunds
$
37,286

 
$
45,284

Cash paid for interest
$
134,580

 
$
122,989

Non-cash investing and financing activities:
 
 
 
Payment for acquisition
$
(34,403
)
 
$

Assets held for sale proceeds
$

 
$
381,882

Capital expenditures
$

 
$
(6,565
)


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

6



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 28, 2015
NOTE 1 – Basis of presentation and summary of significant accounting policies
Basis of presentation: Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and footnotes which are normally included in the Form 10-K and annual report to shareholders. In our opinion, the financial statements reflect all adjustments of a normal recurring nature necessary for a fair presentation of results for the interim periods presented.
On the first day of our fiscal third quarter, we completed the spin-off of our publishing businesses. The publishing company has retained the name Gannett Co., Inc. and now trades on the New York Stock Exchange (NYSE) under the symbol GCI. TEGNA Inc. trades on the NYSE under the symbol TGNA. Second quarter and year-to-date results presented in the financial statements and footnotes are for the former consolidated Gannett Co., Inc. TEGNA will report publishing as a discontinued operation beginning in the third quarter of 2015.
Variable Interest Entities (VIE): A variable interest entity is an entity that lacks equity investors or whose equity investors lack a controlling interest in the entity through their equity investments. We consolidate VIEs when we are the primary beneficiary. In determining whether we are the primary beneficiary of a VIE for financial reporting purposes, we consider whether we have the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and whether we are obligated to absorb losses or the right to receive returns that would significantly impact the VIE.
We have determined that the entities holding four of our television stations constitute VIEs. Accordingly, we evaluated the arrangements to determine whether we are considered the primary beneficiary, and, as a result of this evaluation, consolidated four stations in the Louisville, KY, Portland, OR, and Tucson, AZ, television markets since December 23, 2013.
The carrying amounts and classification of the assets and liabilities of the consolidated VIEs mentioned above and included in our consolidated balance sheets were as follows:
In thousands
Jun. 28, 2015

Dec. 28, 2014




Current assets
$
18,857


$
20,541

Plant, property and equipment, net
9,711


10,084

Intangible and other assets
28,989


29,412

Total assets
$
57,557


$
60,037

 
 
 
 
Current liabilities
$
10,342


$
11,635

Noncurrent liabilities
21,850


26,028

Total liabilities
$
32,192


$
37,663


Recent accounting standards: In July 2015, the Financial Accounting Standards Board (FASB) delayed the effective date for Accounting Standards Update (ASU) 2014-09 Revenue from Contracts with Customers (Topic 606). The core principle contemplated by ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. New disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required. We are required to adopt the standard in the first quarter of 2018 and retroactively apply it to our 2016 and 2017 financial results at the time of adoption. Under the new rules, we are permitted to adopt the new standard in 2017. We can also choose to apply the standard using either the full retrospective approach or a modified retrospective approach, which recognizes a cumulative catch up adjustment to the opening balance of retained earnings. We are currently assessing the impact and timing of adopting this pronouncement, and the transition method we will use.
In April 2015, the FASB issued ASU 2015-03 Interest - Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs. Under the ASU, an entity presents their debt issuance cost on the balance sheet as a direct deduction from the carrying amount of their debt liability, similar to their debt discounts, rather than as an asset as has been done previously. Amortization of the cost is reported as interest expense. We are required to adopt ASU 2015-03 in the first quarter of 2016, with early adoption also being permitted. We are required to apply the new guidance on a retrospective basis, wherein the balance sheet of each period presented is adjusted to reflect the effects of applying the new guidance. At the end of the second quarter, we had $48.6 million of debt issuance costs recorded as assets, which amount to less than 1% of our total assets.

7



NOTE 2 – Acquisitions and dispositions
On December 29, 2014, we sold Gannett Healthcare Group (GHG) to OnCourse Learning, an online education and training provider. GHG is a leading provider of continuing education, certification test preparation, online recruitment, digital media, publications and related services for nurses and other healthcare professionals in the United States.
In March 2015, CareerBuilder increased its controlling interest in Economic Modeling Specialists Intl. (EMSI) by 11% from 74% to 85%. EMSI is an economic software firm that specializes in employment data and labor market analysis. EMSI collects and interprets large amounts of labor data, which is used in work force development and talent strategy.
In May 2015, Newsquest Media Group, a subsidiary of our former publishing businesses in the U.K, acquired Romanes Media Group, a local news publishing business operating in Scotland, Berkshire and Northern Ireland.
In June 2015, our former publishing business completed the acquisition of the remaining 59.36% interest in the Texas-New Mexico Newspapers Partnership that it did not previously own from Digital First Media. The deal was completed through the assignment of our 19.49% interest in the California Newspapers Partnership and additional cash consideration. As a result, our former publishing business now owns 100% of the Texas-New Mexico Newspapers Partnership and no longer has any ownership interest in California Newspapers Partnership.
NOTE 3 – Facility consolidation and asset impairment charges
We evaluated the carrying values of property, plant and equipment at certain publishing and digital businesses as a result of our ongoing facility consolidation efforts. We revised the useful lives of certain assets to reflect the use of those assets over a shortened period as a result. In the second quarter of 2015, we recognized related non-cash charges, the largest of which, $6.8 million, related to a digital business. Certain assets classified as held-for-sale according to Accounting Standards Codification (ASC) Topic 360 resulted in us recognizing non-cash charges in 2014 as we reduced the carrying values to equal the fair value less cost to dispose. The fair values were based on the estimated prices of similar assets. In 2015, we also recorded non-cash impairment charges to reduce the book value of goodwill and other intangible assets. The goodwill impairment and other intangible non-cash charges resulted from our application of the interim impairment testing provisions included within the goodwill subtopic ASC Topic 350. We are required to test goodwill and other indefinite lived assets for impairment annually. Our annual measurement date for testing is the first day of the fourth quarter. However, because of softening business conditions at one of our smaller Publishing Segment reporting units in 2015 and two similar units in 2014, we accelerated our testing of those units. Our testing showed that the implied fair value of the goodwill was less than the recorded value. Therefore, we recognized a non-cash charge of $5.9 million in the first quarter of 2015 and $15.3 million in the second quarter of 2014 to reduce the carrying value of goodwill to the implied fair value.
We recorded pre-tax charges for facility consolidations and asset impairments of $20.8 million in the second quarter and $33.2 million for the year-to-date period in 2015. For 2014, we recorded $28.8 million pre-tax charges for the second quarter and $43.6 million for the year-to-date period.

8



NOTE 4 – Goodwill and other intangible assets
The following table displays goodwill, indefinite-lived intangible assets, and amortizable intangible assets at June 28, 2015 and December 28, 2014:
In thousands
Jun. 28, 2015
 
Dec. 28, 2014
 
Gross
 
Accumulated Amortization
 
Gross
 
Accumulated Amortization
 
 
 
 
 
 
 
 
Goodwill
$
4,525,618

 
$

 
$
4,499,927

 
$

Indefinite-lived intangibles:
 
 
 
 
 
 
 
Television station FCC licenses
1,191,950

 

 
1,191,950

 

Mastheads and trade names
975,708

 

 
951,776

 

Amortizable intangible assets:
 
 
 
 
 
 
 
Customer relationships
1,100,567

 
256,326

 
1,078,738

 
212,438

Other
279,377

 
71,557

 
282,856

 
53,289

Customer relationships include subscriber lists and advertiser relationships while other intangibles primarily include retransmission agreements, network affiliations, internally developed technology, patents and amortizable trade names.
The following table summarizes the changes in our net goodwill balance through June 28, 2015:
In thousands
Broadcasting
 
Digital
 
Publishing
 
Total
 
 
 
 
 
 
 
 
Balance at Dec. 28, 2014:
 
 
 
 
 
 
 
Goodwill
$
2,578,601

 
$
1,488,139

 
$
7,662,543

 
$
11,729,283

Accumulated impairment losses

 
(151,970
)
 
(7,077,386
)
 
(7,229,356
)
Net balance at Dec. 28, 2014
2,578,601

 
1,336,169

 
585,157

 
4,499,927

Activity during the period:
 
 
 
 
 
 
 
Acquisitions and adjustments
817

 
2,248

 
32,731

 
35,796

Impairment

 

 
(5,940
)
 
(5,940
)
Foreign currency exchange rate changes

 
(6,367
)
 
2,202

 
(4,165
)
Total
817

 
(4,119
)
 
28,993

 
25,691

Balance at Jun. 28, 2015:
 
 
 
 
 
 
 
Goodwill
2,579,418

 
1,484,020

 
7,721,831

 
11,785,269

Accumulated impairment losses

 
(151,970
)
 
(7,107,681
)
 
(7,259,651
)
Net balance at Jun. 28, 2015
$
2,579,418

 
$
1,332,050

 
$
614,150

 
$
4,525,618

On October 1, 2014 we completed the acquisition of the remaining 73% that we did not previously own in Cars.com (formerly Classified Ventures, LLC). On May 26, 2015 our former publishing business acquired Romanes Media Group and on June 1, 2015 it completed the acquisition of the remaining 59.36% interest in the Texas-New Mexico Newspapers Partnership that it did not own from Digital First Media. The initial purchase price allocations are preliminary, based upon all information available to us at the present time and are subject to change.

9



NOTE 5 – Long-term debt
Our long-term debt is summarized below:
In thousands
Jun. 28, 2015
 
Dec. 28, 2014
 
 
 
 
Unsecured floating rate term loan due quarterly through August 2018
$
107,400

 
$
123,200

VIE unsecured floating rate term loans due quarterly through December 2018
29,291

 
33,379

Unsecured notes bearing fixed rate interest at 10% due June 2015

 
66,568

Unsecured notes bearing fixed rate interest at 6.375% due September 2015
250,000

 
250,000

Unsecured notes bearing fixed rate interest at 10% due April 2016
193,429

 
193,429

Borrowings under revolving credit agreement expiring August 2018
685,000

 
640,000

Unsecured notes bearing fixed rate interest at 7.125% due September 2018
250,000

 
250,000

Unsecured notes bearing fixed rate interest at 5.125% due October 2019
600,000

 
600,000

Unsecured notes bearing fixed rate interest at 5.125% due July 2020
600,000

 
600,000

Unsecured notes bearing fixed rate interest at 4.875% due September 2021
350,000

 
350,000

Unsecured notes bearing fixed rate interest at 6.375% due October 2023
650,000

 
650,000

Unsecured notes bearing fixed rate interest at 5.50% due September 2024
325,000

 
325,000

Unsecured notes bearing fixed rate interest at 7.75% due June 2027
200,000

 
200,000

Unsecured notes bearing fixed rate interest at 7.25% due September 2027
240,000

 
240,000

Total principal long-term debt
4,480,120

 
4,521,576

Other (fair market value adjustments and discounts)
(19,064
)
 
(25,694
)
Total long-term debt
4,461,056

 
4,495,882

Less current portion of long-term debt maturities of VIE loans
7,854

 
7,854

Long-term debt, net of current portion
$
4,453,202

 
$
4,488,028

For the first six months of 2015, our long-term debt decreased by $34.8 million, primarily reflecting debt payments of $86.5 million partially offset by debt discount amortization and additional borrowing of $45.0 million from the revolving credit agreement. On June 28, 2015, we had unused borrowing capacity of $586.0 million under our revolving credit agreement.

On June 29, 2015, we entered into an agreement to amend and extend our existing revolving credit facility with one expiring on June 29, 2020 (the Amended and Restated Competitive Advance and Revolving Credit Agreement).  Total commitments under the Amended and Restated Competitive Advance and Revolving Credit Agreement are $1.32 billion. The maximum total leverage ratio permitted by the new agreement is 5.0x through June 30, 2017, after which it is reduced to 4.75x through June 30, 2018 and then to 4.50x thereafter. Commitment fees on the revolving credit agreement are equal to 0.25% - 0.40% of the undrawn commitments, depending upon our leverage ratio, and are computed on the average daily undrawn balance under the revolving credit agreement and paid each quarter. Under the Amended and Restated Competitive Advance and Revolving Credit Agreement, we may borrow at an applicable margin above the Eurodollar base rate (LIBOR loan) or the higher of the Prime Rate, the Federal Funds Effective Rate plus 0.50%, or the one month LIBOR rate plus 1.00% (ABR loan). The applicable margin is determined based on our leverage ratio but differs between LIBOR loans and ABR loans. For LIBOR based borrowing, the margin varies from 1.75% to 2.50%. For ABR-based borrowing, the margin will vary from 0.75% to 1.50%.

Shortly after quarter end we also borrowed $200.0 million under a new five-year term loan. The interest rate on the term loan is equal to the same interest rates as borrowings under the Amended and Restated Competitive Advance and Revolving Credit Agreement. Both the revolving credit agreement and the term loan are guaranteed by a majority of our wholly-owned material domestic subsidiaries. These two transactions effectively increased our borrowing capacity by $214 million, for total unused borrowing capacity of $800 million as of June 29, 2015.


10



NOTE 6 – Retirement plans
We, along with our subsidiaries, have various retirement plans, including plans established under collective bargaining agreements. Our retirement plan costs include costs for qualified and nonqualified plans and are presented in the following table:
In thousands
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
Jun. 28, 2015
 
Jun. 29, 2014
 
Jun. 28, 2015
 
Jun. 29, 2014
 
 
 
 
 
 
 
 
Service cost-benefits earned during the period
$
1,340

 
$
877

 
$
2,674

 
$
2,708

Interest cost on benefit obligation
38,462

 
42,372

 
76,789

 
84,738

Expected return on plan assets
(56,252
)
 
(59,174
)
 
(112,321
)
 
(117,748
)
Amortization of prior service cost
1,882

 
1,901

 
3,764

 
3,783

Amortization of actuarial loss
15,313

 
11,674

 
30,608

 
22,901

Expense (credit) for company-sponsored retirement plans
$
745

 
$
(2,350
)
 
$
1,514

 
$
(3,618
)
For the twenty-six weeks ended June 28, 2015, we contributed $112.0 million to our principal retirement plan and $5.8 million (£3.8 million) to the Newsquest Pension Scheme in the U.K. Included in the $112.0 million contribution to our principal retirement plan was a voluntary contribution of $100.0 million. TEGNA has no required contributions to any of its principal pension plans for the remainder of 2015.
NOTE 7 – Post-retirement benefits other than pension
We provide health care and life insurance benefits to certain retired employees who meet age and service requirements. Most of our retirees contribute to the cost of these benefits, and retiree contributions are increased as actual benefit costs increase. The cost of providing retiree health care and life insurance benefits is actuarially determined. Our policy is to fund benefits as claims and premiums are paid. In March 2014, we adopted changes to the retiree medical plan that were effective July 1, 2014. Beginning on that date, we pay a stipend to certain Medicare-eligible retirees. As a result of this change, we remeasured the related post-retirement benefit obligation during the first quarter of 2014, and recorded a reduction to the liability of $33.9 million (with a corresponding adjustment to “Accumulated other comprehensive loss”). Post-retirement benefit costs for health care and life insurance are presented in the following table:
In thousands
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
Jun. 28, 2015
 
Jun. 29, 2014
 
Jun. 28, 2015
 
Jun. 29, 2014
 
 
 
 
 
 
 
 
Service cost-benefits earned during the period
$
106

 
$
68

 
$
212

 
$
186

Interest cost on net benefit obligation
993

 
1,030

 
1,986

 
2,515

Amortization of prior service credit
(2,500
)
 
(3,116
)
 
(5,000
)
 
(5,483
)
Amortization of actuarial loss
400

 
124

 
800

 
332

Net periodic post-retirement benefit credit
$
(1,001
)
 
$
(1,894
)
 
$
(2,002
)
 
$
(2,450
)
NOTE 8 – Income taxes
The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was approximately $24.1 million as of June 28, 2015 and $23.2 million as of December 28, 2014. The amount of accrued interest and penalties payable related to unrecognized tax benefits was $7.3 million as of June 28, 2015 and $6.9 million as of December 28, 2014.
It is reasonably possible that the amount of unrecognized benefits with respect to certain of our unrecognized tax positions will significantly increase or decrease within the next 12 months. These changes may be the result of settlement of ongoing audits, lapses of statutes of limitations or other regulatory developments. At this time, we estimate the amount of gross unrecognized tax positions may be reduced by up to approximately $4.4 million within the next 12 months primarily due to lapses of statutes of limitations and settlement of ongoing audits in various jurisdictions.

11



NOTE 9 – Supplemental equity information
The following table summarizes equity account activity for the twenty-six week periods ended June 28, 2015 and June 29, 2014:
In thousands
TEGNA Inc. Shareholders’ Equity
 
Noncontrolling Interests
 
Total Equity
 
 
 
 
 
 
Balance at Dec. 28, 2014
$
3,254,914

 
$
234,359

 
$
3,489,273

Comprehensive income:
 
 
 
 
 
Net income
228,761

 
30,213

 
258,974

Redeemable noncontrolling interest (income not available to shareholders)

 
(1,285
)
 
(1,285
)
Other comprehensive loss
18,386

 
(2,205
)
 
16,181

Total comprehensive income
247,147

 
26,723

 
273,870

Dividends declared
(90,840
)
 

 
(90,840
)
Stock-based compensation
11,875

 

 
11,875

Treasury shares acquired
(75,090
)
 

 
(75,090
)
Other activity
19,139

 
(916
)
 
18,223

Balance at Jun. 28, 2015
$
3,367,145

 
$
260,166

 
$
3,627,311

 
 
 
 
 
 
Balance at Dec. 29, 2013
$
2,693,098

 
$
201,695

 
$
2,894,793

Comprehensive income:
 
 
 
 
 
Net income
267,626

 
27,875

 
295,501

Redeemable noncontrolling interest (income not available to shareholders)

 
(1,850
)
 
(1,850
)
Other comprehensive income
35,513

 
1,061

 
36,574

Total comprehensive income
303,139

 
27,086

 
330,225

Dividends declared
(90,495
)
 

 
(90,495
)
Stock-based compensation
17,208

 

 
17,208

Treasury shares acquired
(75,815
)
 

 
(75,815
)
Other activity
10,976

 
(2,311
)
 
8,665

Balance at Jun. 29, 2014
$
2,858,111

 
$
226,470

 
$
3,084,581

In August 2012, our CareerBuilder subsidiary acquired 74% of Economic Modeling Specialists Intl. (EMSI), a software firm that specializes in employment data and labor market analytics. In March 2015, CareerBuilder purchased an additional 11% ownership interest in EMSI. Holders of the remaining 15% ownership interest in EMSI hold put rights that permit them to put their equity interest to CareerBuilder. Since redemption of EMSI noncontrolling interest is outside of our control, the balance is presented on the Condensed Consolidated Balance Sheets in the caption “Redeemable noncontrolling interest.”

12



The following table summarizes the components of, and the changes in, “Accumulated other comprehensive loss” (net of tax and noncontrolling interests):
In thousands
Retirement Plans
 
Foreign Currency Translation



Total
 
 
 
 
 
 
Thirteen Weeks:
 
 
 
 
 
Balance at Mar. 29, 2015
$
(1,145,406
)
 
$
364,369

 
$
(781,037
)
Other comprehensive income (loss) before reclassifications
(18,349
)
 
29,343

 
10,994

Amounts reclassified from accumulated other comprehensive income
9,660

 

 
9,660

Other comprehensive income (loss)
(8,689
)
 
29,343

 
20,654

Balance at Jun. 28, 2015
$
(1,154,095
)
 
$
393,712

 
$
(760,383
)
 
 
 
 
 
 
Balance at Mar. 30, 2014
$
(899,026
)
 
$
431,830

 
$
(467,196
)
Other comprehensive income (loss) before reclassifications
(11,042
)
 
12,808

 
1,766

Amounts reclassified from accumulated other comprehensive income
6,888

 

 
6,888

Other comprehensive income (loss)
(4,154
)
 
12,808

 
8,654

Balance at Jun. 29, 2014
$
(903,180
)
 
$
444,638

 
$
(458,542
)
 
 
 
 
 
 
Twenty-six Weeks:
 
 
 
 
 
Balance at Dec. 28, 2014
$
(1,169,882
)
 
$
391,113

 
$
(778,769
)
Other comprehensive income (loss) before reclassifications
(3,518
)
 
2,599

 
(919
)
Amounts reclassified from accumulated other comprehensive income
19,305

 

 
19,305

Other comprehensive income
15,787

 
2,599

 
18,386

Balance at Jun. 28, 2015
$
(1,154,095
)
 
$
393,712

 
$
(760,383
)
 
 
 
 
 
 
Balance at Dec. 29, 2013
$
(921,232
)
 
$
427,177

 
$
(494,055
)
Other comprehensive income before reclassifications
4,062

 
17,461

 
21,523

Amounts reclassified from accumulated other comprehensive income
13,990

 

 
13,990

Other comprehensive income
18,052

 
17,461

 
35,513

Balance at Jun. 29, 2014
$
(903,180
)
 
$
444,638

 
$
(458,542
)
Accumulated other comprehensive loss components are included in computing net periodic post-retirement costs (see Notes 6 and 7 for more detail). Reclassifications out of accumulated other comprehensive loss related to these post-retirement plans include the following:
In thousands
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
Jun. 28, 2015
 
Jun. 29, 2014
 
Jun. 28, 2015
 
Jun. 29, 2014
 
 
 
 
 
 
 
 
Amortization of prior service credit
$
(618
)
 
$
(1,215
)
 
$
(1,236
)
 
$
(1,700
)
Amortization of actuarial loss
15,713

 
11,798

 
31,408

 
23,233

Total reclassifications, before tax
15,095

 
10,583

 
30,172

 
21,533

Income tax effect
(5,435
)
 
(3,695
)
 
(10,867
)
 
(7,543
)
Total reclassifications, net of tax
$
9,660

 
$
6,888

 
$
19,305

 
$
13,990


13



NOTE 10 – Fair value measurement
We measure and record in the accompanying condensed consolidated financial statements certain assets and liabilities at fair value.  ASC Topic 820, Fair Value Measurement, 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.
The following table summarizes our assets and liabilities measured at fair value in the accompanying Condensed Consolidated Balance Sheets as of June 28, 2015 and December 28, 2014:
In thousands
Fair Value Measurements as of Jun. 28, 2015
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
 
 
 
 
 
Employee compensation related investments
$
63,234

 
$

 
$

 
$
63,234

Sundry investments
37,351

 

 

 
37,351

Total assets
$
100,585

 
$

 
$

 
$
100,585

 
 
 
 
 
 
 
 
Contingent consideration payable
$

 
$

 
$
786

 
$
786

Total liabilities
$

 
$

 
$
786

 
$
786


In thousands
Fair Value Measurements as of Dec. 28, 2014
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
 
 
 
 
 
Employee compensation related investments
$
41,017

 
$

 
$

 
$
41,017

Sundry investments
36,641

 

 

 
36,641

Total assets
$
77,658

 
$

 
$

 
$
77,658

 
 
 
 
 
 
 
 
Contingent consideration payable
$

 
$

 
$
9,912

 
$
9,912

Total liabilities
$

 
$

 
$
9,912

 
$
9,912

Under certain acquisition agreements, we have agreed to pay the sellers earn-outs based on the future financial performance of the businesses. Contingent consideration payable in the table above represents the estimated fair value of future earn-outs payable under such agreements. The fair value of the contingent payments was measured based on the present value of the consideration expected to be transferred using a discounted cash flow analysis. The discount rate is a significant unobservable input in such present value computations. Discount rates ranged between 15% and 24% depending on the risk associated with the cash flows. Changes to the fair value of earn-outs are reflected in “Selling, general and administrative expenses” on our Condensed Consolidated Statements of Income. For the twenty-six weeks ended June 28, 2015, the contingent consideration decreased by $9.1 million as a result of payments and adjustments to fair value.
The fair value of our total long-term debt, based on the bid and ask quotes for the related debt (Level 2), totaled $4.61 billion at June 28, 2015 and $4.65 billion at December 28, 2014.
During the first quarter of 2015, a small Publishing Segment goodwill asset was impaired as the implied fair value of the goodwill was determined to be less than the recorded value. Implied fair value of the goodwill asset was zero. As a result, we recognized a non-cash goodwill impairment charge of $5.9 million to reduce the carrying value to the implied fair value.
During the second quarter of 2014, certain Publishing Segment goodwill assets were impaired as the implied fair value of the goodwill was less than the recorded value. Implied fair value of the goodwill assets totaled $6.2 million, and we recognized a goodwill impairment charge of $15.3 million to reduce the carrying value to the implied fair value.



14



NOTE 11 – Business segment information
Our reportable segments based on our management and internal reporting structures are Broadcasting, Digital and Publishing. The Broadcasting Segment at the end of the second quarter includes our 46 owned and serviced television stations. The Digital Segment includes Cars.com, CareerBuilder, Shoplocal and PointRoll. The Publishing Segment principally includes local domestic publishing operations, Newsquest operations in the U.K. and the USA TODAY group.
In thousands
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
Jun. 28, 2015
 
Jun. 29, 2014
 
Jun. 28, 2015
 
Jun. 29, 2014
 
 
 
 
 
 
 
 
Net Operating Revenues:
 
 
 
 
 
 
 
Broadcasting
$
417,429

 
$
398,258

 
$
814,223

 
$
780,526

Digital
338,147

 
194,381

 
670,846

 
374,116

Publishing
789,976

 
867,365

 
1,558,164

 
1,709,428

Intersegment eliminations (a)
(24,160
)
 

 
(49,076
)
 

Total
$
1,521,392

 
$
1,460,004

 
$
2,994,157

 
$
2,864,070

 
 
 
 
 
 
 
 
Operating Income (net of depreciation, amortization and facility consolidation and asset impairment charges):
 
 
 
 
 
 
 
Broadcasting
$
176,502

 
$
171,322

 
$
351,832

 
$
325,871

Digital
63,633

 
35,695

 
119,786

 
59,519

Publishing
47,249

 
53,239

 
65,554

 
96,227

Corporate
(19,018
)
 
(17,754
)
 
(37,878
)
 
(35,121
)
Total
$
268,366

 
$
242,502

 
$
499,294

 
$
446,496

 
 
 
 
 
 
 
 
Depreciation, amortization and facility consolidation and asset impairment charges:
 
 
 
 
 
 
 
Broadcasting
$
21,825

 
$
20,621

 
$
43,086

 
$
47,815

Digital
37,808

 
9,603

 
70,635

 
17,891

Publishing
39,241

 
53,123

 
75,366

 
89,714

Corporate
4,193

 
4,749

 
7,934

 
10,003

Total
$
103,067

 
$
88,096

 
$
197,021

 
$
165,423

(a) Includes quarter-to-date intersegment eliminations of $19 million for Digital and $5 million for Publishing, and year-to-date intersegment eliminations of $1 million for Broadcasting, $38 million for Digital, and $10 million for Publishing.

15



NOTE 12 – Earnings per share
Our earnings per share (basic and diluted) are presented below:
In thousands, except per share data
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
Jun. 28, 2015
 
Jun. 29, 2014
 
Jun. 28, 2015
 
Jun. 29, 2014
 
 
 
 
 
 
 
 
Net income attributable to TEGNA Inc.
$
115,867

 
$
208,467

 
$
228,761

 
$
267,626

 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding - basic
226,538

 
226,132

 
226,814

 
226,681

Effect of dilutive securities:
 
 
 
 
 
 
 
Restricted stock
2,349

 
2,814

 
2,308

 
2,763

Performance share units
2,208

 
2,212

 
1,951

 
1,725

Stock options
825

 
948

 
854

 
1,018

Weighted average number of common shares outstanding - diluted
231,920

 
232,106

 
231,927

 
232,187

 
 
 
 
 
 
 
 
Net income per share - basic
$
0.51

 
$
0.92

 
$
1.01

 
$
1.18

Net income per share - diluted
$
0.50

 
$
0.90

 
$
0.99

 
$
1.15

The diluted earnings per share amounts exclude the effects of approximately 2.2 million stock options outstanding for the second quarter and year-to-date of 2014, as their inclusion would be antidilutive.
NOTE 13 Commitments, contingencies and other matters
We, along with a number of our subsidiaries, are defendants in judicial and administrative proceedings involving matters incidental to our business. Management believes any liability that exists as a result of these matters is immaterial.
NOTE 14 Subsequent events
In August 2014, we announced our plan to separate into two independent, publicly traded companies: a broadcasting and digital company, which would operate under the name TEGNA, and a publishing company that would retain the name Gannett Co., Inc. On June 29, 2015, we completed the previously announced spin-off. Under the terms of the transaction, our shareholders retained their shares of TEGNA common stock, which now trades on the NYSE under the symbol “TGNA,” and also received one share of stock of the “new Gannett” publishing business for every two shares of our stock they owned on the record date of June 22, 2015. New Gannett shares trade on the NYSE under the symbol GCI.
On July 15, 2015, we announced a binding definitive agreement for the sale of our corporate headquarters in McLean, Virginia to Tamares Tysons Corner LLC, an affiliate of Tamares, for a purchase price of $270 million. The purchaser has made a $27 million non-refundable deposit pursuant to the purchase agreement. The sale transaction is expected to close late in the third quarter or early in the fourth quarter, subject to the satisfaction of customary closing conditions.


16



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
On the first day of our fiscal third quarter, we completed the spin-off of our publishing businesses. The publishing company has retained the name Gannett Co., Inc. and now trades on the New York Stock Exchange under the symbol GCI. Our company was renamed TEGNA Inc., and our stock trades on the New York Stock Exchange under the symbol TGNA. Second quarter and year-to-date results presented in this discussion and the accompanying tables are for the former consolidated Gannett Co., Inc. TEGNA will report its former publishing business as a discontinued operation beginning in the third quarter of 2015.
Prior to the spin, our operations consisted of three business segments: Broadcasting (television), Digital, and Publishing. Through our Broadcasting Segment, we own or service (through shared service agreements or similar arrangements) 46 television stations with affiliated digital platforms in 38 markets. These stations serve more than 35 million households and represent almost one-third of the U.S. population. Excluding owner-operators, we are the No. 1 NBC affiliate group, No. 1 CBS affiliate group, and the No. 4 ABC affiliate group. We are the largest independent station group of major network affiliates in the top 25 markets, with a uniquely diversified portfolio.
Our Digital Segment consists of Cars.com (formerly Classified Ventures, LLC), CareerBuilder, PointRoll and Shoplocal. Cars.com, which we acquired full ownership of on Oct. 1, 2014, is a leading destination for online car shoppers. Cars.com allows consumers to search, compare and connect with sellers and dealers, and provides buyers with greater control over the shopping process. Cars.com hosts approximately four million vehicle listings and serves more than 20,000 customers that are primarily franchise and independent car dealers in all 50 states. CareerBuilder is the global leader in human capital solutions, helping companies to target, attract and retain talent. It provides unmatched reach from employers by offering the largest online career destination in the U.S. for job seekers and maintains the largest online recruitment sales presence in North America. CareerBuilder has made significant investments over the past few years to further its transformation into a global leader in the Human Resources software as a service business.
The spun-off Publishing Segment’s operations comprised 112 daily publications and digital platforms in the U.S. and the U.K., more than 400 non-daily publications in the U.S., and more than 140 such titles in the U.K. The Publishing Segment’s 93 U.S. daily publications include USA TODAY, which is currently the nation’s number one newspaper in consolidated print and digital circulation. In the U.K., through the Newsquest group, the publishing business produced 19 daily paid-for publications and more than 140 weekly publications, magazines and trade publications. In the markets served by the Publishing business, it also operates desktop, smartphone and tablet products which are tightly integrated with the publishing operations. The publishing operations have strategic business relationships with many of our Digital Segment businesses, including CareerBuilder, Cars.com, PointRoll and Shoplocal. The Publishing Segment also includes commercial printing, newswire, marketing and data services operations.
Results from Operations
The reportable segments, which were based on our management and internal reporting structures, are Broadcasting, Digital, and Publishing. The primary categories of Broadcasting Segment revenue are: 1) core advertising which includes local and national non-political advertising; 2) political advertising revenues which are cyclical with peaks occurring in even years (e.g., 2014 and 2012) and particularly in the second half of those years; 3) retransmission revenues representing fees paid by satellite and cable networks and telecommunications companies to carry our television signals on their network; 4) digital revenues which encompass digital marketing services and advertising on the stations’ website, tablet and mobile products; and 5) other revenues, which consist of payments by advertisers to television stations for other services, such as production of programming from third parties and production of advertising material. We own and operate a number of stand-alone digital subsidiaries, which are included in our Digital Segment, including two digital leaders, Cars.com and CareerBuilder, as well as several other well-positioned online companies. CareerBuilder, the largest company in the Digital Segment, generates revenues both through its own sales force by providing talent and compensation intelligence, human resource related consulting services and recruitment solutions and through sales of employment advertising placed by affiliated media organizations. Cars.com generates revenues through subscription-based online automotive advertising packages targeting car dealerships and national advertisers through its own direct sales force as well as its affiliate sales channels. We generated revenue within our Publishing Segment through advertising and subscriptions to our print and digital publications. Our advertising teams sell retail, classified and national advertising across multiple platforms including print, online, mobile and tablet as well as niche publications. Across both Broadcasting and Publishing Segments, we generated revenue by providing digital marketing products and services, ranging from search to social media to website development.
Our largest component of operating expense is payroll and benefits. Other significant operating expenses include the costs of locally produced content and purchased syndicated programming in the Broadcasting Segment, production (raw materials) and distribution costs within the Publishing Segment, and sales and marketing costs within the Digital Segment.

17



Consolidated Summary
A consolidated summary of our results is presented below:
In thousands, except per share data
Second Quarter
 
2015
 
% of Total
 
2014
 
% of Total
 
Change
 
 
 
 
 
 
 
 
 
 
Operating revenues:
 
 
 
 
 
 
 
 
 
Broadcasting
$
417,429

 
27
%
 
$
398,258

 
27
%
 
5
%
Digital
338,147

 
22
%
 
194,381

 
13
%
 
74
%
Publishing
789,976

 
52
%
 
867,365

 
59
%
 
(9
%)
Intersegment eliminations
(24,160
)
 
(2
%)
 

 
%
 
***

Total operating revenues
$
1,521,392

 
100
%
 
$
1,460,004

 
100
%
 
4
%
 
 
 
 
 
 
 
 
 
 
Operating expenses
$
1,253,026

 
 
 
$
1,217,502

 
 
 
3
%
 
 
 
 
 
 
 
 
 
 
Operating income:
 
 
 
 
 
 
 
 


Broadcasting
$
176,502

 
66
%
 
$
171,322

 
71
%
 
3
%
Digital
63,633

 
24
%
 
35,695

 
15
%
 
78
%
Publishing
47,249

 
18
%
 
53,239

 
22
%
 
(11
%)
Corporate
(19,018
)
 
(7
%)
 
(17,754
)
 
(7
%)
 
7
%
Total operating income
$
268,366

 
100
%
 
$
242,502

 
100
%
 
11
%
Non-operating expense (income)
70,545

 
 
 
(89,410
)
 
 
 
***

Provision for income taxes
66,331

 
 
 
106,000

 
 
 
(37
%)
Net income attributable to noncontrolling interests
15,623

 
 
 
17,445

 
 
 
(10
%)
Net income attributable to TEGNA Inc.
$
115,867

 
 
 
$
208,467

 
 
 
(44
%)
 
 
 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.51

 
 
 
$
0.92

 
 
 
(45
%)
Diluted
$
0.50

 
 
 
$
0.90

 
 
 
(44
%)
Weighted average number of common shares outstanding:
Basic
226,538

 
 
 
226,132

 
 
 
%
Diluted
231,920

 
 
 
232,106

 
 
 
%

18



In thousands, except per share data
Year-to-Date
 
2015
 
% of Total
 
2014
 
% of Total
 
Change
 
 
 
 
 
 
 
 
 
 
Operating revenues:
 
 
 
 
 
 
 
 
 
Broadcasting
$
814,223

 
27
%
 
$
780,526

 
27
%
 
4
%
Digital
670,846

 
22
%
 
374,116

 
13
%
 
79
%
Publishing
1,558,164

 
52
%
 
1,709,428

 
60
%
 
(9
%)
Intersegment eliminations
(49,076
)
 
(2
%)
 

 
%
 
***

Total operating revenues
$
2,994,157

 
100
%
 
$
2,864,070

 
100
%
 
5
%
 
 
 
 
 
 
 
 
 
 
Operating expenses
$
2,494,863

 
 
 
$
2,417,574

 
 
 
3
%
 
 
 
 
 
 
 
 
 
 
Operating income:
 
 
 
 
 
 
 
 
 
Broadcasting
$
351,832

 
70
%
 
$
325,871

 
73
%
 
8
%
Digital
119,786

 
24
%
 
59,519

 
13
%
 
***

Publishing
65,554

 
13
%
 
96,227

 
22
%
 
(32
%)
Corporate
(37,878
)
 
(8
%)
 
(35,121
)
 
(8
%)
 
8
%
Total operating income
$
499,294

 
100
%
 
$
446,496

 
100
%
 
12
%
Non-operating expense (income)
113,466

 
 
 
(7,505
)
 
 
 
***

Provision for income taxes
126,854

 
 
 
158,500

 
 
 
(20
%)
Net income attributable to noncontrolling interests
30,213

 
 
 
27,875

 
 
 
8
%
Net income attributable to TEGNA Inc.
$
228,761

 
 
 
$
267,626

 
 
 
(15
%)
 
 
 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
 
 
Basic
$
1.01

 
 
 
$
1.18

 
 
 
(14
%)
Diluted
$
0.99

 
 
 
$
1.15

 
 
 
(14
%)
Weighted average number of common shares outstanding:
Basic
226,814

 
 
 
226,681

 
 
 
%
Diluted
231,927

 
 
 
232,187

 
 
 
%

Our operating revenues were $1.52 billion in the second quarter of 2015, an increase of 4% from $1.46 billion in the same quarter last year. For the first six months, operating revenues increased 5% to $2.99 billion from $2.86 billion in 2014. The increases were driven by record results in the Digital Segment due to the acquisition of and organic growth at Cars.com as well as record results in the Broadcasting Segment due to substantially higher retransmission revenue and digital revenue which more than offset the absence of the incremental political advertising revenues of $14 million in the second quarter and $22 million in the year-to-date periods of 2014. The results for the second quarter of 2015 and the year-to-date periods include results for Cars.com. The prior year periods do not include results for Cars.com, impacting year-over-year comparisons. A separate discussion of pro forma information begins on page 29.
Operating expenses increased 3% for both the second quarter and the first six months of 2015, driven primarily by the acquisition of Cars.com in the Digital Segment and increased programming costs related to reverse network compensation in the Broadcasting Segment, partially offset by lower Publishing Segment expenses.
Non-operating expense increased from income of $89.4 million in the second quarter of 2014 and $7.5 million for the year-to-date period in 2014 to expense of $70.5 million in the second quarter of 2015 and $113.5 million for the year-to-date period in 2015, primarily due to the absence of the $148.4 million gain on the sale of Apartments.com that occurred in the second quarter of last year. Equity income in unconsolidated investees decreased $153.9 million in the second quarter of 2014 to $2.6 million in the second quarter of 2015, and decreased $157.3 million to $7.7 million in the year-to-date period in 2015, primarily due to the same gain. Interest expense was $69.3 million in the second quarter and $140.1 million for the year-to-date period compared to $64.1 million in the second quarter of 2014 and $133.8 million for the year-to-date period in 2014, reflecting higher average debt outstanding due to the Classified Ventures acquisition in October 2014 partially offset by a lower average interest rate. The total average outstanding debt was $4.40 billion for the second quarter of 2015, compared to $3.48 billion last year. The weighted average interest rate on total outstanding debt was 6.00% for the second quarter of 2015 compared to 6.88% last year. For the year-to-date period total average outstanding debt was $4.43 billion compared to $3.58 billion last year. The

19



weighted average interest rate on total outstanding debt was 6.02% year-to-date in 2015 compared to 6.96% in the same period last year.
Our reported effective income tax rate was 36.4% for the second quarter of 2015, compared to 33.7% for the second quarter of 2014. The tax rate for the second quarter in 2015 was higher than the comparable rate in 2014 primarily due to one-time tax charges incurred in 2015 for an internal legal entity restructuring that was a precursor to the spin-off of our publishing business. The reported effective income tax rate was 35.7% for the first six months of 2015 compared to 37.2% for the same period last year. The year-to-date 2014 rate was higher than the year-to-date 2015 rate primarily due to a $23.8 million tax charge recognized on the sale of KMOV-TV in St. Louis, MO in February 2014, partially offset by tax benefits from other year-to-date 2014 special items. A separate discussion of effective income tax rates excluding special items (non-GAAP basis) appears on page 29.
The weighted average number of diluted shares outstanding for the second quarter of 2015 decreased by 0.2 million shares from 2014. For the year-to-date period, the weighted average number of diluted shares outstanding in 2015 decreased by 0.3 million shares. These declines reflect shares repurchased in 2015, partially offset by issuances of additional equity-based awards. See Part II, Item 2 for information on share repurchases.
Segment Results
The following is a discussion of our reported operating segment results for the second quarter and year-to-date period of 2015. Unless otherwise noted, all comparisons are to the comparable prior year period.
Broadcasting Segment Results
A summary of our Broadcasting Segment results is presented below:
In thousands
Second Quarter
 
Year-to-Date
 
2015
 
2014
 
Change
 
2015
 
2014
 
Change
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenues
$
417,429

 
$
398,258

 
5
%
 
$
814,223

 
$
780,526

 
4
%
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Operating expenses, exclusive of depreciation
219,102

 
206,315

 
6
%
 
432,014

 
406,840

 
6
%
Depreciation
13,244

 
11,627

 
14
%
 
26,540

 
23,324

 
14
%
Amortization
5,876

 
5,885

 
%
 
11,474

 
11,626

 
(1
%)
Transformation items
2,705

 
3,109

 
(13
%)
 
(7,637
)
 
12,865

 
***

Total operating expenses
240,927

 
226,936

 
6
%
 
462,391

 
454,655

 
2
%
Operating income
$
176,502

 
$
171,322

 
3
%
 
$
351,832

 
$
325,871

 
8
%
Broadcasting Segment revenues are grouped into five categories: Core (Local and National), Political, Retransmission, Digital and Other. The following table summarizes the year-over-year changes in these select revenue categories.
In thousands
Second Quarter
 
Year-to-Date
 
2015
 
Percentage change from 2014
 
2015
 
Percentage change from 2014
 
 
 
 
 
 
 
 
Core (Local & National)
$
268,779

 
3
%
 
$
521,888

 
1
%
Political
2,746

 
(83
%)
 
4,800

 
(82
%)
Retransmission (a)
109,440

 
23
%
 
219,627

 
25
%
Digital
28,673

 
23
%
 
52,482

 
18
%
Other
7,791

 
(5
%)
 
15,426

 
8
%
Total
$
417,429

 
5
%
 
$
814,223

 
4
%
 
 
 
 
 
 
 
 
(a) Reverse compensation to network affiliates is included as part of programming costs and therefore is excluded from this line.
Broadcasting Segment revenues in the second quarter of 2015 increased 5% to $417.4 million, a record for second quarter revenues. The increase was driven primarily by a substantial increase in retransmission revenue and continued growth in digital revenue, partly offset by the absence of $14 million in incremental politically related advertising that occurred in the second

20



quarter of 2014. Core advertising revenues, which consist of Local and National non-political advertising, increased 3% to $268.8 million in the second quarter of 2015. This was primarily driven by stronger advertising revenues in the entertainment and home improvement categories across all television stations and partially offset by softness in the automotive and retail advertising categories. As anticipated, because of regular election cycle timing, political advertising revenues decreased 83% to $2.7 million compared to $16.6 million in the second quarter a year ago. Retransmission revenues increased 23% to $109.4 million in the quarter resulting from newly negotiated agreements at the end of last year as well as rate increases. Digital revenues increased 23% to $28.7 million in the second quarter of 2015 reflecting continued growth from digital marketing services products.
Year-to-date Broadcasting Segment revenues increased 4% to $814.2 million, a record high, driven primarily by substantially higher retransmission revenues and digital revenues as well as the acquisition of television stations, despite the absence of $22 million in incremental political advertising revenue that occurred in the same period last year.
Broadcasting Segment operating expenses for the second quarter of 2015 increased 6% to $240.9 million primarily due to higher reverse network fees and investments in our digital sales initiatives, as well as broad-based sales force expansion and newly developed product offerings. Year-to-date, Broadcasting Segment operating expenses increased 2% supporting higher revenues. A separate discussion of operating expenses excluding special items (non-GAAP basis) can be found on page 27.
Digital Segment Results
The Digital Segment includes results for TEGNA’s stand-alone digital subsidiaries including Cars.com, CareerBuilder, PointRoll, and Shoplocal. Many of our other digital offerings are highly integrated within publishing or broadcasting offerings, and therefore the results of these integrated digital offerings are reported within the operating results of the Publishing and Broadcasting Segments. The results for the second quarter of 2015 and the year-to-date period include results for Cars.com which was acquired Oct. 1, 2014. The prior year periods do not include results for Cars.com, impacting year-over-year comparisons.
A summary of our Digital Segment results is presented below:
In thousands
Second Quarter
 
Year-to-Date
 
2015
 
2014
 
Change
 
2015
 
2014
 
Change
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenues
$
338,147

 
$
194,381

 
74
%
 
$