TEGNA INC - Quarter Report: 2021 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-Q
_______________________
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
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.) | |||||||||||||
| 8350 Broad Street, Suite 2000, | Tysons, | Virginia | 22102-5151 | |||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||
| (703) | 873-6600 | |||||||||||||
| (Registrant’s telephone number, including area code) | ||||||||||||||
| Securities registered pursuant to Section 12(b) of the Act: | ||||||||
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
| Common Stock | TGNA | New York Stock Exchange | ||||||
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | ||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||
Emerging growth company | ☐ | ||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒
The total number of shares of the registrant’s Common Stock, $1 par value, outstanding as of April 30, 2021 was 220,773,150.
INDEX TO TEGNA INC.
March 31, 2021 FORM 10-Q
| Item No. | Page | |||||||
| PART I. FINANCIAL INFORMATION | ||||||||
| 1. | Financial Statements | |||||||
| 2. | ||||||||
| 3. | ||||||||
| 4. | ||||||||
| PART II. OTHER INFORMATION | ||||||||
| 1. | ||||||||
| 1A. | ||||||||
| 2. | ||||||||
| 3. | ||||||||
| 4. | ||||||||
| 5. | ||||||||
| 6. | ||||||||
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TEGNA Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands of dollars (Unaudited)
| Mar. 31, 2021 | Dec. 31, 2020 | ||||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 12,853 | $ | 40,968 | |||||||
Accounts receivable, net of allowances of $7,188 and $7,035, respectively | 613,896 | 550,755 | |||||||||
| Other receivables | 11,653 | 14,031 | |||||||||
| Syndicated programming rights | 32,283 | 47,331 | |||||||||
| Prepaid expenses and other current assets | 22,276 | 19,509 | |||||||||
| Total current assets | 692,961 | 672,594 | |||||||||
| Property and equipment | |||||||||||
| Cost | 1,039,632 | 1,026,459 | |||||||||
| Less accumulated depreciation | (570,087) | (556,100) | |||||||||
| Net property and equipment | 469,545 | 470,359 | |||||||||
| Intangible and other assets | |||||||||||
| Goodwill | 2,981,587 | 2,968,693 | |||||||||
Indefinite-lived and amortizable intangible assets, less accumulated amortization of $251,342 and $235,582, respectively | 2,488,740 | 2,503,644 | |||||||||
| Right-of-use assets for operating leases | 95,759 | 97,190 | |||||||||
| Investments and other assets | 129,217 | 136,219 | |||||||||
| Total intangible and other assets | 5,695,303 | 5,705,746 | |||||||||
| Total assets | $ | 6,857,809 | $ | 6,848,699 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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TEGNA Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands of dollars, except par value and share amounts (Unaudited)
| Mar. 31, 2021 | Dec. 31, 2020 | ||||||||||
| LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable | $ | 42,972 | $ | 58,049 | |||||||
| Accrued liabilities | |||||||||||
| Compensation | 35,153 | 46,213 | |||||||||
| Interest | 15,920 | 47,249 | |||||||||
| Contracts payable for programming rights | 100,442 | 130,522 | |||||||||
| Other | 79,901 | 78,219 | |||||||||
| Dividends payable | 21,030 | — | |||||||||
| Income taxes payable | 93,823 | 63,923 | |||||||||
| Total current liabilities | 389,241 | 424,175 | |||||||||
| Noncurrent liabilities | |||||||||||
| Income taxes | 9,109 | 7,303 | |||||||||
| Deferred income tax liability | 533,280 | 530,240 | |||||||||
| Long-term debt | 3,517,092 | 3,553,220 | |||||||||
| Pension liabilities | 80,273 | 85,908 | |||||||||
| Operating lease liabilities | 97,432 | 99,337 | |||||||||
| Other noncurrent liabilities | 76,824 | 75,488 | |||||||||
| Total noncurrent liabilities | 4,314,010 | 4,351,496 | |||||||||
| Total liabilities | 4,703,251 | 4,775,671 | |||||||||
| Commitments and contingent liabilities (see Note 9) | |||||||||||
| Redeemable noncontrolling interest (see Note 1) | 15,220 | 14,933 | |||||||||
| Shareholders’ equity | |||||||||||
Common stock of $1 par value per share, 800,000,000 shares authorized, 324,418,632 shares issued | 324,419 | 324,419 | |||||||||
| Additional paid-in capital | 27,596 | 113,267 | |||||||||
| Retained earnings | 7,151,716 | 7,075,640 | |||||||||
| Accumulated other comprehensive loss | (119,798) | (121,076) | |||||||||
Less treasury stock at cost, 103,728,046 shares and 104,918,360 shares, respectively | (5,244,595) | (5,334,155) | |||||||||
| Total equity | 2,139,338 | 2,058,095 | |||||||||
| Total liabilities, redeemable noncontrolling interest and equity | $ | 6,857,809 | $ | 6,848,699 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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TEGNA Inc.
CONSOLIDATED STATEMENTS OF INCOME
Unaudited, in thousands of dollars, except per share amounts
| Quarter ended Mar. 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Revenues | $ | 727,051 | $ | 684,189 | |||||||
| Operating expenses: | |||||||||||
Cost of revenues1 | 394,692 | 369,368 | |||||||||
Business units - Selling, general and administrative expenses | 89,326 | 92,968 | |||||||||
Corporate - General and administrative expenses | 16,870 | 21,714 | |||||||||
Depreciation | 15,896 | 16,900 | |||||||||
Amortization of intangible assets | 15,760 | 16,216 | |||||||||
Spectrum repacking reimbursements and other, net | (1,423) | (7,515) | |||||||||
| Total | 531,121 | 509,651 | |||||||||
| Operating income | 195,930 | 174,538 | |||||||||
| Non-operating income (expense): | |||||||||||
| Equity (loss) income in unconsolidated investments, net | (1,329) | 9,015 | |||||||||
Interest expense | (46,485) | (56,960) | |||||||||
| Other non-operating items, net | 330 | (19,270) | |||||||||
| Total | (47,484) | (67,215) | |||||||||
| Income before income taxes | 148,446 | 107,323 | |||||||||
| Provision for income taxes | 35,614 | 21,125 | |||||||||
Net Income | 112,832 | 86,198 | |||||||||
| Net (income) loss attributable to redeemable noncontrolling interest | (215) | 110 | |||||||||
| Net income attributable to TEGNA Inc. | $ | 112,617 | $ | 86,308 | |||||||
| Net income per share: | |||||||||||
| Basic | $ | 0.51 | $ | 0.40 | |||||||
| Diluted | $ | 0.51 | $ | 0.39 | |||||||
| Weighted average number of common shares outstanding: | |||||||||||
| Basic shares | 220,602 | 218,277 | |||||||||
| Diluted shares | 221,198 | 218,863 | |||||||||
1 Cost of revenues exclude charges for depreciation and amortization expense, which are shown separately above. | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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TEGNA Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited, in thousands of dollars
| Quarter ended Mar. 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Net income | $ | 112,832 | $ | 86,198 | |||||||
| Other comprehensive income, before tax: | |||||||||||
| Foreign currency translation adjustments | 496 | 402 | |||||||||
| Recognition of previously deferred post-retirement benefit plan costs | 1,225 | 1,498 | |||||||||
| Other comprehensive income, before tax | 1,721 | 1,900 | |||||||||
| Income tax effect related to components of other comprehensive income | (443) | (478) | |||||||||
| Other comprehensive income, net of tax | 1,278 | 1,422 | |||||||||
| Comprehensive income | 114,110 | 87,620 | |||||||||
| Comprehensive (income) loss attributable to redeemable noncontrolling interest | (215) | 110 | |||||||||
| Comprehensive income attributable to TEGNA Inc. | $ | 113,895 | $ | 87,730 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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TEGNA Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited, in thousands of dollars
| Three months ended Mar. 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 112,832 | $ | 86,198 | |||||||
| Adjustments to reconcile net income to net cash flow from operating activities: | |||||||||||
| Depreciation and amortization | 31,656 | 33,116 | |||||||||
| Stock-based compensation | 8,761 | (757) | |||||||||
| Company stock 401(k) contribution | 5,304 | 5,138 | |||||||||
| Equity loss (income) from unconsolidated investments, net | 1,329 | (9,015) | |||||||||
| Pension contributions, net of income | (4,410) | (3,642) | |||||||||
| Change in other assets and liabilities, net of acquisitions: | |||||||||||
| (Increase) decrease in trade receivables | (63,120) | 38,131 | |||||||||
| (Decrease) increase in accounts payable | (15,077) | 3,633 | |||||||||
| Increase in interest and taxes payable | 4,320 | 8,775 | |||||||||
| Increase in deferred revenue | 923 | 270 | |||||||||
| Change in other assets and liabilities, net | (24,447) | 15,517 | |||||||||
| Net cash flow from operating activities | 58,071 | 177,364 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchase of property and equipment | (13,185) | (13,264) | |||||||||
| Reimbursements from spectrum repacking | 1,423 | 7,515 | |||||||||
| Payments for acquisitions of businesses and other assets, net of cash acquired | (13,341) | (15,000) | |||||||||
| Purchases of investments | (157) | (509) | |||||||||
| Proceeds from investments | 2,022 | 695 | |||||||||
| Proceeds from sale of assets and businesses | 7 | 5,000 | |||||||||
| Net cash flow used for investing activities | (23,231) | (15,563) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Payments under revolving credit facilities, net | (37,000) | (118,000) | |||||||||
| Proceeds from borrowings | — | 1,000,000 | |||||||||
| Debt repayments | — | (985,000) | |||||||||
| Payments for debt issuance costs and early redemption fee | — | (27,603) | |||||||||
| Proceeds from sale of minority ownership interest in Premion | — | 14,000 | |||||||||
| Dividends paid | (15,439) | (30,470) | |||||||||
Other, net | (10,516) | (9,073) | |||||||||
| Net cash flow used for financing activities | (62,955) | (156,146) | |||||||||
| (Decrease) increase in cash | (28,115) | 5,655 | |||||||||
| Balance of cash, beginning of period | 40,968 | 29,404 | |||||||||
| Balance of cash, end of period | $ | 12,853 | $ | 35,059 | |||||||
| Supplemental cash flow information: | |||||||||||
| Cash (received) paid for income taxes, net of refunds | $ | (33) | $ | 793 | |||||||
| Cash paid for interest | $ | 76,045 | $ | 66,240 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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TEGNA Inc.
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTEREST
Unaudited, in thousands of dollars, except per share data
| Quarters Ended: | Redeemable noncontrolling interest | Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive loss | Treasury stock | Total Equity | ||||||||||||||||||||||
| Balance at Dec 31, 2020 | $ | 14,933 | $ | 324,419 | $ | 113,267 | $ | 7,075,640 | $ | (121,076) | $ | (5,334,155) | $ | 2,058,095 | |||||||||||||||
| Net income | 215 | — | — | 112,617 | — | — | 112,617 | ||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | 1,278 | — | 1,278 | ||||||||||||||||||||||
| Total comprehensive income | 113,895 | ||||||||||||||||||||||||||||
Dividends declared: $0.165 per share | — | — | — | (36,469) | — | — | (36,469) | ||||||||||||||||||||||
| Company stock 401(k) contribution | — | — | (16,254) | — | — | 21,558 | 5,304 | ||||||||||||||||||||||
| Stock-based awards activity | — | — | (78,518) | — | — | 68,002 | (10,516) | ||||||||||||||||||||||
| Stock-based compensation | — | — | 8,761 | — | — | — | 8,761 | ||||||||||||||||||||||
| Adjustment of redeemable noncontrolling interest to redemption value | 72 | — | — | (72) | — | — | (72) | ||||||||||||||||||||||
| Other activity | — | — | 340 | — | — | — | 340 | ||||||||||||||||||||||
| Balance at Mar. 31, 2021 | $ | 15,220 | $ | 324,419 | $ | 27,596 | $ | 7,151,716 | $ | (119,798) | $ | (5,244,595) | $ | 2,139,338 | |||||||||||||||
| Redeemable noncontrolling interest | Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive loss | Treasury stock | Total | |||||||||||||||||||||||
| Balance at Dec 31, 2019 | $ | — | $ | 324,419 | $ | 247,497 | $ | 6,655,088 | $ | (142,597) | $ | (5,494,030) | $ | 1,590,377 | |||||||||||||||
| Net income (loss) | (110) | — | — | 86,308 | — | — | 86,308 | ||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | 1,422 | — | 1,422 | ||||||||||||||||||||||
| Total comprehensive income | (110) | 87,730 | |||||||||||||||||||||||||||
Dividends declared: $0.07 per share | — | — | — | (15,282) | — | — | (15,282) | ||||||||||||||||||||||
| Company stock 401(k) contribution | — | — | (17,831) | — | — | 22,969 | 5,138 | ||||||||||||||||||||||
| Stock-based awards activity | — | — | (77,129) | — | — | 68,056 | (9,073) | ||||||||||||||||||||||
| Stock-based compensation | — | — | (757) | — | — | — | (757) | ||||||||||||||||||||||
| Sale of minority ownership interest in Premion | 14,000 | — | — | — | — | — | — | ||||||||||||||||||||||
| Adjustment of redeemable noncontrolling interest to redemption value | 203 | — | — | (203) | — | — | (203) | ||||||||||||||||||||||
| Other activity | — | — | 326 | — | — | — | 326 | ||||||||||||||||||||||
| Balance at Mar. 31, 2020 | $ | 14,093 | $ | 324,419 | $ | 152,106 | $ | 6,725,911 | $ | (141,175) | $ | (5,403,005) | $ | 1,658,256 | |||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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TEGNA Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – Accounting policies
Basis of presentation: Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial reporting, the instructions for Form 10-Q and Article 10 of the U.S. Securities and Exchange Commission (SEC) Regulation S-X. Accordingly, they do not include all information and footnotes which are normally included in the Form 10-K and annual report to shareholders. In our opinion, the condensed consolidated financial statements reflect all adjustments of a normal recurring nature necessary for a fair statement of the results for the interim periods presented. The condensed consolidated financial statements should be read in conjunction with our (or TEGNA’s) audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.
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. During fiscal year 2020 and continuing into 2021, the world has been, and continues to be, impacted by the novel coronavirus (COVID-19) pandemic. The impact of COVID-19 and the extent of its adverse impact on our financial and operating results will be dictated by the length of time that the pandemic continues to affect our advertising customers.
We use the best information available in developing significant estimates inherent in our financial statements, including potential impacts from the COVID-19 pandemic. Actual results could differ from these estimates, and these differences resulting from changes in facts and circumstances could be material. 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. We eliminate all intercompany balances, transactions, and profits in consolidation. Investments in entities over which we have significant influence, but do not have control, are accounted for under the equity method. Our share of net earnings and losses from these ventures is included in “Equity (loss) income in unconsolidated investments, net” in the Consolidated Statements of Income.
We operate one operating and reportable segment, which primarily consists of our 64 television stations and two radio stations operating in 51 markets, providing high-quality television programming and digital content. Our reportable segment determination is based on our management and internal reporting structure, the nature of products and services we offer, and the financial information that is evaluated regularly by our chief operating decision maker.
Accounting guidance adopted in 2021: We did not adopt any accounting guidance in 2021 that had a material impact on our consolidated financial statements or disclosures.
New accounting guidance not yet adopted: There is currently no pending accounting guidance that we expect to have a material impact on our consolidated financial statements or disclosures.
Trade receivables and allowances for doubtful accounts: Trade receivables are recorded at invoiced amounts and generally do not bear interest. The allowance for doubtful accounts reflects our estimate of credit exposure, determined principally on the basis of our collection experience, aging of our receivables and any specific reserves needed for certain customers based on their credit risk. Our allowance also takes into account expected future trends which may impact our customers’ ability to pay, such as economic growth, unemployment and demand for our products and services, including the impacts of the COVID-19 pandemic on these trends. We monitor the credit quality of our customers and their ability to pay through the use of analytics and communication with individual customers. As of March 31, 2021, our allowance for doubtful accounts was $7.2 million as compared to $7.0 million as of December 31, 2020.
Redeemable Noncontrolling interest: Our Premion business operates an advertising network for over-the-top (OTT) streaming and connected television platforms. In March 2020, we sold a minority interest in Premion to an affiliate of Gray Television (Gray) and entered into a 3 year commercial reselling agreement with the affiliate. Gray’s investment allows it to sell its interest to Premion if there is a change in control of TEGNA or if the existing commercial agreement terminates. Since redemption of the minority ownership interest is outside our control, Gray’s equity interest is presented outside of the Equity section on the Condensed Consolidated Balance Sheet in the caption “Redeemable noncontrolling interest.”
Revenue recognition: Revenue is recognized upon the transfer of control of promised services to our customers in an amount that reflects the consideration we expect to receive in exchange for those services. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. Amounts received from customers in advance of providing services to our customers are recorded as deferred revenue.
The primary sources of our revenues are: 1) 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 revenues, which include local and national non-political television advertising,
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digital marketing services (including Premion), and advertising on the stations’ websites, tablet and mobile products, and OTT apps; 3) political advertising revenues, which are driven by even year election cycles at the local and national level (e.g. 2020, 2018) and particularly in the second half of those years; and 4) other services, such as production of programming and advertising material.
Revenue earned by these sources in the first three months of 2021 and 2020 are shown below (amounts in thousands):
| Quarter ended Mar. 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Subscription | $ | 386,737 | $ | 332,802 | |||||||
| Advertising & Marketing Services | 322,834 | 295,153 | |||||||||
| Political | 9,428 | 47,387 | |||||||||
| Other | 8,052 | 8,847 | |||||||||
| Total revenues | $ | 727,051 | $ | 684,189 | |||||||
NOTE 2 – Goodwill and other intangible assets
The following table displays goodwill, indefinite-lived intangible assets, and amortizable intangible assets as of March 31, 2021 and December 31, 2020 (in thousands):
| Mar. 31, 2021 | Dec. 31, 2020 | ||||||||||||||||||||||
| Gross | Accumulated Amortization | Gross | Accumulated Amortization | ||||||||||||||||||||
| Goodwill | $ | 2,981,587 | $ | — | $ | 2,968,693 | $ | — | |||||||||||||||
| Indefinite-lived intangibles: | |||||||||||||||||||||||
| Television and radio station FCC broadcast licenses | 2,123,898 | — | 2,123,898 | — | |||||||||||||||||||
| Amortizable intangible assets: | |||||||||||||||||||||||
| Retransmission agreements | 235,215 | (146,306) | 235,215 | (138,928) | |||||||||||||||||||
| Network affiliation agreements | 309,503 | (78,820) | 309,503 | (72,694) | |||||||||||||||||||
| Other | 71,466 | (26,216) | 70,610 | (23,960) | |||||||||||||||||||
| Total indefinite-lived and amortizable intangible assets | $ | 2,740,082 | $ | (251,342) | $ | 2,739,226 | $ | (235,582) | |||||||||||||||
Our retransmission agreements and network affiliation agreements are amortized on a straight-line basis over their estimated useful lives. Other intangibles primarily include distribution agreements from our multicast networks acquisition, which are also amortized on a straight-line basis over their useful lives.
On January 27, 2021, we acquired Locked On Podcast Network LLC for $13.3 million cash, which consisted of a base purchase price of $13.8 million and a working capital adjustment of $0.5 million. Locked On produces daily podcasts for every team across the four major professional sports leagues, as well as major college sports teams. In connection with this acquisition, we recorded initial values for goodwill and a tradename of $12.9 million and $0.9 million, respectively. These amounts are based on preliminary valuations, and therefore, these assets are subject to change as additional information is obtained about the facts and circumstances that existed as of the acquisition date. The goodwill is calculated as the excess of the purchase price over the net fair value of the identifiable assets acquired and liabilities assumed, and represents the future economic benefits expected to arise from the acquisition that do not qualify for separate recognition, including assembled workforce, as well as future synergies that we expect to generate. The goodwill recognized is expected to be tax deductible for tax purposes.
Interim impairment assessment
We review our goodwill and intangible assets for impairment at least annually and also when events or changes in circumstances occur that indicate the fair value may be below its carrying amount. As discussed in our 2020 Form 10-K, after completing our annual impairment test in the fourth quarter of 2020, we had one television station FCC license and one radio station FCC license, with a combined carrying value of $67.2 million and individual impairment headroom of less than 5%. Therefore, these two FCC licenses are at a heightened risk of future impairment. During the first quarter, and considering the
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negative effects COVID-19 has had and may continue to have on our AMS revenue and operating cash flows, we assessed whether it was more likely than not that either of these FCC licenses was impaired.
In performing these assessments, we analyzed the significant inputs used in the fair value determination of these FCC license assets. This included reviewing the trends in actual and forecasted advertising revenues and changes in the discount rate, both of which impact the fair value of these licenses. Based on the analysis performed, we concluded that neither of these FCC licenses was more likely than not impaired as of March 31, 2021. However, a sustained economic decline, including one resulting from the COVID-19 pandemic, could result in future non-cash impairment charges of our FCC licenses, and any related impairment could have a material adverse impact on our results of operations.
NOTE 3 – Investments and other assets
Our investments and other assets consisted of the following as of March 31, 2021, and December 31, 2020 (in thousands):
| Mar. 31, 2021 | Dec. 31, 2020 | ||||||||||
| Cash value life insurance | $ | 53,143 | $ | 52,883 | |||||||
| Equity method investments | 30,331 | 32,067 | |||||||||
| Other equity investments | 16,729 | 20,271 | |||||||||
| Deferred debt issuance costs | 8,497 | 9,378 | |||||||||
| Other long-term assets | 20,517 | 21,620 | |||||||||
| Total | $ | 129,217 | $ | 136,219 | |||||||
Cash value life insurance: We are the beneficiary of life insurance policies on the lives of certain employees/retirees, which are recorded at their cash surrender value as determined by the insurance carrier. These policies are utilized as a partial funding source for deferred compensation and other non-qualified employee retirement plans. Gains and losses on these investments are included in “Other non-operating items, net” within our Consolidated Statement of Income and were not material for all periods presented.
Other equity investments: Represents investments in non-public businesses that do not have readily determinable pricing, and for which we do not have control or do not exert significant influence. These investments are recorded at cost less impairments, if any, plus or minus changes in observable prices for those investments. In the first quarter of 2021, we recorded a $1.9 million impairment charge, in “Other non-operating items, net” within our Consolidated Statement of Income, due to the decline in the fair value of one of our investments. No gains or losses were recorded on these investments in the first three months of 2020.
Deferred debt issuance costs: These costs consist of amounts paid to lenders related to our revolving credit facility. Debt issuance costs paid for our term debt and unsecured notes are accounted for as a reduction in the debt obligation.
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NOTE 4 – Long-term debt
Our long-term debt is summarized below (in thousands):
| Mar. 31, 2021 | Dec. 31, 2020 | ||||||||||
| Borrowings under revolving credit agreement expiring August 2024 | $ | 318,000 | $ | 355,000 | |||||||
Unsecured notes bearing fixed rate interest at 5.500% due September 2024 | 137,000 | 137,000 | |||||||||
Unsecured notes bearing fixed rate interest at 4.750% due March 2026 | 550,000 | 550,000 | |||||||||
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 | |||||||||
Unsecured notes bearing fixed rate interest at 4.625% due March 2028 | 1,000,000 | 1,000,000 | |||||||||
Unsecured notes bearing fixed rate interest at 5.00% due September 2029 | 1,100,000 | 1,100,000 | |||||||||
| Total principal long-term debt | 3,545,000 | 3,582,000 | |||||||||
| Debt issuance costs | (35,507) | (36,595) | |||||||||
| Unamortized premiums and discounts, net | 7,599 | 7,815 | |||||||||
| Total long-term debt | $ | 3,517,092 | $ | 3,553,220 | |||||||
As of March 31, 2021, cash and cash equivalents totaled $12.9 million and we had unused borrowing capacity of $1.17 billion under our $1.51 billion revolving credit facility (which expires August 2024). We were in compliance with all covenants, including the leverage ratio (our one financial covenant) contained in our debt agreements and revolving credit facility. We believe, based on our current financial forecasts and trends, that we will remain compliant with all covenants for the foreseeable future.
NOTE 5 – Retirement plans
We have various defined benefit retirement plans. Our principal defined benefit pension plan is the TEGNA Retirement Plan (TRP). The disclosure table below includes the pension expenses of the TRP and the TEGNA Supplemental Retirement Plan (SERP). The total net pension obligations, including both current and non-current liabilities, as of March 31, 2021, were $88.0 million, of which $7.7 million is recorded as a current obligation within accrued liabilities on the Condensed Consolidated Balance Sheet.
Pension costs (income), which primarily include costs for the qualified TRP and the non-qualified SERP, are presented in the following table (in thousands):
| Quarter ended Mar. 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Service cost-benefits earned during the period | $ | — | $ | 2 | |||||||
| Interest cost on benefit obligation | 3,950 | 4,858 | |||||||||
| Expected return on plan assets | (8,650) | (7,750) | |||||||||
| Amortization of prior service cost | 25 | (42) | |||||||||
| Amortization of actuarial loss | 1,200 | 1,600 | |||||||||
| Income from company-sponsored retirement plans | $ | (3,475) | $ | (1,332) | |||||||
Benefits no longer accrue for substantially all TRP and SERP participants as a result of amendments to the plans in the past years and as such we no longer incur a significant amount of the service cost component of pension expense. All other components of our pension expense presented above are included within the “Other non-operating items, net” line item of the Consolidated Statements of Income.
During the three months ended March 31, 2021 and 2020, we did not make any cash contributions to the TRP. We made benefit payments to participants of the SERP of $0.9 million and $2.3 million, during three months ended March 31, 2021 and 2020, respectively. Based on actuarial projections and funding levels, we do not expect to make any cash payments to the TRP in 2021. We expect to make additional cash payments of $6.8 million to our SERP participants in 2021.
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NOTE 6 – Accumulated other comprehensive loss
The following table summarizes the components of, and the changes in, Accumulated Other Comprehensive Loss (AOCL), net of tax (in thousands):
| Retirement Plans | Foreign Currency Translation | Total | |||||||||||||||
| Quarters Ended: | |||||||||||||||||
| Balance at Dec. 30, 2020 | $ | (120,979) | $ | (97) | $ | (121,076) | |||||||||||
| Other comprehensive loss before reclassifications | — | 369 | 369 | ||||||||||||||
| Amounts reclassified from AOCL | 909 | — | 909 | ||||||||||||||
| Total other comprehensive income | 909 | 369 | 1,278 | ||||||||||||||
| Balance at Mar. 31, 2021 | $ | (120,070) | $ | 272 | $ | (119,798) | |||||||||||
| Balance at Dec. 31, 2019 | $ | (142,398) | $ | (199) | $ | (142,597) | |||||||||||
| Other comprehensive loss before reclassifications | — | 301 | 301 | ||||||||||||||
| Amounts reclassified from AOCL | 1,121 | — | 1,121 | ||||||||||||||
| Total other comprehensive income | 1,121 | 301 | 1,422 | ||||||||||||||
| Balance at Mar. 31, 2020 | $ | (141,277) | $ | 102 | $ | (141,175) | |||||||||||
Reclassifications from AOCL to the Consolidated Statements of Income are comprised of pension and other post-retirement components. Pension and other post retirement reclassifications are related to the amortization of prior service costs, and amortization of actuarial losses. Amounts reclassified out of AOCL are summarized below (in thousands):
| Quarter ended Mar. 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Amortization of prior service cost (credit), net | $ | 25 | $ | (110) | |||||||
| Amortization of actuarial loss | 1,200 | 1,608 | |||||||||
| Total reclassifications, before tax | 1,225 | 1,498 | |||||||||
| Income tax effect | (316) | (377) | |||||||||
| Total reclassifications, net of tax | $ | 909 | $ | 1,121 | |||||||
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NOTE 7 – Earnings per share
Our earnings per share (basic and diluted) are presented below (in thousands, except per share amounts):
| Quarter ended Mar. 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Net Income | $ | 112,832 | $ | 86,198 | |||||||
| Net (income) loss attributable to the noncontrolling interest | (215) | 110 | |||||||||
| Adjustment of redeemable noncontrolling interest to redemption value | (72) | (203) | |||||||||
| Earnings available to common shareholders | $ | 112,545 | $ | 86,105 | |||||||
Weighted average number of common shares outstanding - basic | 220,602 | 218,277 | |||||||||
| Effect of dilutive securities: | |||||||||||
| Restricted stock units | 410 | 284 | |||||||||
| Performance shares | 182 | 298 | |||||||||
| Stock options | 4 | 4 | |||||||||
| Weighted average number of common shares outstanding - diluted | 221,198 | 218,863 | |||||||||
| Net income per share - basic | $ | 0.51 | $ | 0.40 | |||||||
| Net income per share - diluted | $ | 0.51 | $ | 0.39 | |||||||
Our calculation of diluted earnings per share includes the dilutive effects for the assumed vesting of outstanding restricted stock units and performance shares.
NOTE 8 – Fair value measurement
We measure and record certain assets and liabilities at fair value in the accompanying condensed consolidated financial 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 first quarter of 2021, we recorded a $1.9 million impairment charge, in “Other non-operating items, net” within our Consolidated Statement of Income, due to the decline in the fair value apparent from an observable price decline of one of our investments (Level 2). We additionally 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 $3.72 billion at March 31, 2021, and $3.79 billion at December 31, 2020.
NOTE 9 – Other matters
Litigation
In the third quarter of 2018, certain national media outlets reported the existence of a confidential investigation by the United States Department of Justice 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 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, 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. We do not expect the costs of compliance to be material.
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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 have been consolidated into a single proceeding in the United States District Court for the Northern District of Illinois, captioned Clay, Massey & Associates, P.C. v. Gray Television, Inc. et. al., filed on July 30, 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 defendant in sixteen of the original complaints, the amended complaint did not name TEGNA as a defendant. After TEGNA and four other broadcasters entered into 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 proceeding. 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. We deny any violation of law, believe that the claims asserted in the Advertising Cases are without merit, and intend to defend ourselves vigorously against them.
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 any of the foregoing matters.
FCC Broadcast Spectrum Program
In April 2017, the FCC announced the completion of a voluntary incentive auction to reallocate certain spectrum then occupied by television broadcast stations to mobile wireless broadband services, along with a related “repacking” of the television spectrum for remaining television stations. None of our stations relinquished any spectrum rights as a result of the auction. By the end of 2020, all of our impacted stations had completed their repacking transitions to their new channels.
Throughout the repacking project the FCC has been reimbursing us for the costs we have incurred to change channels in the repacking on a lagged basis. During the first quarter of 2021, we received $1.4 million of reimbursements, which were recorded as a contra operating expense within our “Spectrum repacking reimbursements and other, net” line item on our Consolidated Statement of Income and reported as an investing inflow on the Consolidated Statement of Cash Flows. We expect to receive reimbursements for the remaining $3.0 million of our repacking spend upon completion of the FCC’s reimbursement review process.
Related Party Transactions
We have an equity and debt investment in MadHive, Inc. (MadHive) which is a related party of TEGNA. In addition to our investment, we also have a commercial agreement with MadHive where they support our Premion business in acquiring and delivering over-the-top ad impressions. In the first quarter of 2021 and 2020, we incurred expenses of $23.9 million and $10.5 million, respectively, as a result of the commercial agreement with MadHive. As of March 31, 2021 and December 31, 2020 we had accounts payable and accrued liabilities associated with the commercial agreement of $6.6 million and $13.5 million, respectively.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Company Overview
We are an innovative media company that serves the greater good of our communities. Across platforms, we tell empowering stories, conduct impactful investigations and deliver innovative marketing services. With 64 television stations and two radio stations in 51 U.S. markets, we are the largest owner of top four network affiliates in the top 25 markets among independent station groups, reaching approximately 39% of U.S. television households. We also own leading multicast networks True Crime Network and Quest. Each television station also has a robust digital presence across online, mobile, connected television and social platforms, reaching consumers on all devices and platforms they 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. Through TEGNA Marketing Solutions (TMS), our integrated sales and back-end fulfillment operations, we deliver results for advertisers across television, digital and over-the-top (OTT) platforms, including Premion, our OTT advertising network.
We 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, digital marketing services (including Premion), and advertising on the stations’ websites, tablet and mobile products and OTT apps; 3) political advertising revenues, which are driven by even year election cycles at the local and national level (e.g. 2020, 2018) and particularly in the second half of those years; and 4) other services, such as production of programming and advertising material.
As illustrated in the table below, our business continues to evolve toward growing recurring and highly profitable revenue streams, driven by the increasing concentration of both political and subscription revenue streams. As a result of the growing importance of even-year political advertising on our results, management increasingly looks at revenue trends over two-year periods. High margin-subscription and political revenues account for approximately half of our total two-year revenue, a trend that began in 2019, and are expected to comprise an increasingly larger percentage on a rolling two-year cycle thereafter.
| Two Years Ending March 31, | ||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||
| Advertising & Marketing Services | 45 | % | 50 | % | ||||||||||||||||
| Subscription | 45 | % | } | 54% | 42 | % | } | 49% | ||||||||||||
| Political | 9 | % | 7 | % | ||||||||||||||||
| Other | 1 | % | 1 | % | ||||||||||||||||
| Total revenues | 100 | % | 100 | % | ||||||||||||||||
COVID-19 Update
During fiscal year 2020 and continuing into 2021, the world has been, and continues to be, impacted by the novel coronavirus (COVID-19) pandemic. The COVID-19 pandemic has brought unprecedented challenges and widespread economic and social change throughout the United States. The U.S. economy continued on a path to recovery during the first quarter of 2021 with millions of Americans receiving COVID-19 vaccines and states/municipalities increasingly reopening. In addition, the U.S. federal government continued to enact policies to provide fiscal stimulus to the economy and relief to those affected by the pandemic, with the most recent stimulus expected to bolster household finances as well as those of small businesses, states and municipalities. Our AMS revenues were most negatively impacted by the pandemic, but we have continued to experience quarterly sequential improvements since the height of the pandemic in the second quarter of 2020.
The roll out of vaccines together with lower COVID-19 case counts are encouraging. That said, the impact of COVID-19 and the extent of its adverse impact on our financial and operating results will be dictated by the length of time that the pandemic continues to affect our advertising customers. This will depend on future pandemic-related developments, including the duration of the pandemic, any potential subsequent waves of COVID-19 virus, the effectiveness, distribution and acceptance of COVID-19 vaccines, and related U.S. government actions to prevent and manage the virus spread, all of which are uncertain and cannot be predicted. While we use the best information available in developing significant estimates included in our financial statements, the effects of the pandemic on our operations may not be fully realized, or reflected in our financial results, until future periods. As such, actual results could differ from our estimates, and these differences resulting from changes in facts and circumstances could be material.
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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 which supplements our financial information provided on a GAAP basis.
As discussed above, our operating results are subject to significant fluctuations across yearly periods (primarily driven by even-year election cycles). As such, in addition to one year ago comparisons, our management team and Board of Directors also review current period operating results compared to the annual period two years ago (e.g., 2021 vs. 2019). We believe this comparison will also provide useful information to investors, and therefore, we have supplemented our prior year comparison of consolidated results to also include a comparison against the first quarter of 2019 results (through operating income).
During 2019, we acquired multiple local television stations and multicast networks. Specifically, we acquired the Gray stations (January 2, 2019), Justice (recently rebranded as True Crime Network) and Quest multicast networks (June 18, 2019), the Dispatch stations (August 8, 2019) and the Nexstar stations (September 19, 2019). The multicast networks, Dispatch stations, and Nexstar stations are collectively referred to as the “2019 Acquisitions” in the discussion that follows. These 2019 Acquisitions did not contribute to the periods prior to their acquisition in our financial statements which impacts the current quarter to prior two year period comparability of our consolidated operating results. The Gray stations do not impact the 2021 to 2019 comparability.
Our consolidated results of operations on a GAAP basis were as follows (in thousands, except per share amounts):
| Quarter ended Mar. 31, | |||||||||||||||||||||||||||||
| 2021 | 2020 | Change from 2020 | 2019 | Change from 2019 | |||||||||||||||||||||||||
| Revenues | $ | 727,051 | $ | 684,189 | 6 | % | $ | 516,753 | 41 | % | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||
| Cost of revenues | 394,692 | 369,368 | 7 | % | 281,311 | 40 | % | ||||||||||||||||||||||
| Business units - Selling, general and administrative expenses | 89,326 | 92,968 | (4 | %) | 71,465 | 25 | % | ||||||||||||||||||||||
| Corporate - General and administrative expenses | 16,870 | 21,714 | (22 | %) | 14,735 | 14 | % | ||||||||||||||||||||||
| Depreciation | 15,896 | 16,900 | (6 | %) | 14,917 | 7 | % | ||||||||||||||||||||||
| Amortization of intangible assets | 15,760 | 16,216 | (3 | %) | 8,689 | 81 | % | ||||||||||||||||||||||
| Spectrum repacking reimbursements and other, net | (1,423) | (7,515) | (81 | %) | (7,013) | (80 | %) | ||||||||||||||||||||||
| Total operating expenses | $ | 531,121 | $ | 509,651 | 4 | % | $ | 384,104 | 38 | % | |||||||||||||||||||
| Total operating income | $ | 195,930 | $ | 174,538 | 12 | % | $ | 132,649 | 48 | % | |||||||||||||||||||
| Non-operating expenses | (47,484) | (67,215) | (29 | %) | (35,896) | 32 | % | ||||||||||||||||||||||
| Provision for income taxes | 35,614 | 21,125 | 69 | % | 22,774 | 56 | % | ||||||||||||||||||||||
| Net income | 112,832 | 86,198 | 31 | % | 73,979 | 53 | % | ||||||||||||||||||||||
| Net (income) loss attributable to redeemable noncontrolling interest | (215) | 110 | *** | — | *** | ||||||||||||||||||||||||
| Net income attributable to TEGNA Inc. | $ | 112,617 | $ | 86,308 | 30 | % | $ | 73,979 | 52 | % | |||||||||||||||||||
| Net income per share - basic | $ | 0.51 | $ | 0.40 | 28 | % | $ | 0.34 | 50 | % | |||||||||||||||||||
| Net income per share - diluted | $ | 0.51 | $ | 0.39 | 31 | % | $ | 0.34 | 50 | % | |||||||||||||||||||
| *** 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 and digital revenues including Premion and other digital advertising and marketing revenues across our platforms.
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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 Mar. 31, | |||||||||||||||||||||||||||||
| 2021 | 2020 | Change from 2020 | 2019 | Change from 2019 | |||||||||||||||||||||||||
| Subscription | $ | 386,737 | $ | 332,802 | 16 | % | $ | 241,575 | 60 | % | |||||||||||||||||||
| Advertising & Marketing Services | 322,834 | 295,153 | 9 | % | 264,402 | 22 | % | ||||||||||||||||||||||
| Political | 9,428 | 47,387 | (80) | % | 2,704 | *** | |||||||||||||||||||||||
| Other | 8,052 | 8,847 | (9) | % | 8,072 | — | % | ||||||||||||||||||||||
| Total revenues | $ | 727,051 | $ | 684,189 | 6 | % | $ | 516,753 | 41 | % | |||||||||||||||||||
| *** Not meaningful | |||||||||||||||||||||||||||||
2021 vs. 2020
Total revenues increased $42.9 million in the first quarter of 2021 compared to the same period in 2020. The net increase was primarily due to a $53.9 million increase in subscription revenue, primarily due to annual rate increases under existing and newly renegotiated retransmission agreements. In addition, AMS revenue increased $27.7 million, reflecting an increased demand for advertising, and incremental revenue from the Super Bowl (which aired in 2021 on CBS and therefore reached more than 30% of TEGNA’s households, as compared to 2020 when the game aired on Fox, which reaches fewer than 6% of TEGNA’s households). These increases were partially offset by a decrease in political revenue of $38.0 million, following a presidential election year.
2021 vs. 2019
Total revenues increased $210.3 million in the first quarter of 2021 compared to the same period in 2019. Our 2019 Acquisitions contributed total revenues of $111.4 million in the first quarter of 2021. Excluding the 2019 Acquisitions, total revenues increased $98.9 million. This increase was primarily from a $89.3 million increase in subscription revenue, primarily due to annual rate increases under existing and newly renegotiated retransmission agreements and a $6.4 million increase in political advertising.
Cost of Revenues
2021 vs. 2020
Cost of revenues increased $25.3 million in the first quarter of 2021 compared to the same period in 2020. The increase was primarily due to a $20.6 million increase in programming costs driven by rate increases under existing and newly renegotiated affiliation agreements and growth in subscription revenues (certain programming costs are linked to such revenues).
2021 vs. 2019
Cost of revenues increased $113.4 million in the first quarter of 2021 compared to the same period in 2019. Our 2019 Acquisitions added cost of revenues of $58.6 million in the first quarter of 2021. Excluding the 2019 Acquisitions, cost of revenues increased $54.8 million. The increase was primarily due to a $45.3 million increase in programming costs and an increase in digital expenses of $5.7 million driven by growth in Premion.
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Business Units - Selling, General and Administrative Expenses
2021 vs. 2020
Business unit selling, general and administrative expenses (SG&A) decreased $3.6 million in the first quarter of 2021 compared to the same period in 2020. The decrease was primarily due to a $3.0 million reduction in bad debt expense, attributed to improved collection trends as a result of continued recovery in the economy.
2021 vs. 2019
Business unit SG&A expenses increased $17.9 million in the first quarter of 2021 compared to the same period in 2019. Our 2019 Acquisitions added business unit SG&A expenses of $12.4 million in the first quarter of 2021. Excluding the 2019 Acquisitions, SG&A expenses increased $5.5 million. This increase was primarily due to a $1.8 million increase in professional fees and a $1.2 million increase in stock based compensation expense (driven by higher stock price).
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 Statement of Income. This category primarily consists of broad corporate management functions including Legal, Human Resources, and Finance, as well as activities and costs not directly attributable to the operations of our media business.
2021 vs. 2020
Corporate general and administrative expenses decreased $4.8 million in the first quarter of 2021 compared to the same period in 2020. The decrease was primarily driven by the absence in 2021 of $4.6 million of M&A due diligence costs and a decrease of $3.0 million of advisory fees related to activism defense. Partially offsetting this was a $2.4 million increase in stock-based compensation expense (driven by higher stock price).
2021 vs. 2019
Corporate general and administrative expenses increased $2.1 million in the first quarter of 2021 compared to the same period in 2019. The increase was primarily due to $4.6 million of advisory fees related to activism defense and a $0.9 million increase in stock-based compensation expense. These increases were partially offset by the absence of $3.9 million in acquisition-related costs (principally advisory fees) due to the reduction in acquisition activity in 2021.
Depreciation Expense
2021 vs. 2020
Depreciation expense decreased by $1.0 million in the first quarter of 2021 compared to the same period in 2020. The decrease was due to a decline in capital expenditures following the onset of COVID-19, resulting in less depreciation in the first quarter of 2021.
2021 vs. 2019
Depreciation expense increased by $1.0 million in the first quarter of 2021 compared to the same period in 2019. Our 2019 Acquisitions added depreciation expense of $3.0 million. Excluding the impact of the 2019 Acquisitions, depreciation expense decreased $2.0 million primarily due to certain assets reaching the end of their assumed useful lives.
Amortization Expense
2021 vs. 2020
Amortization expense decreased $0.5 million in the first quarter of 2021 compared to the same period in 2020. The decrease was due to certain assets reaching the end of their assumed useful lives, therefore, becoming fully amortized.
2021 vs. 2019
Amortization expense increased $7.1 million in the first quarter of 2021 compared to the same period in 2019. Our 2019 Acquisitions added amortization expense of $9.7 million. Excluding the impact of the 2019 Acquisitions, amortization expense decreased $2.6 million due to certain assets reaching the end of their assumed useful lives.
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Spectrum Repacking Reimbursements and Other, net
2021 vs. 2020
Spectrum repacking reimbursements and other net gains were $1.4 million in the first quarter of 2021 compared to net gains of $7.5 million in the same period in 2020. The 2021 activity is related to $1.4 million of reimbursements received from the Federal Communications Commission (FCC) for required spectrum repacking, compared to $7.5 million of reimbursements received in the first quarter of 2020.
2021 vs. 2019
Spectrum repacking reimbursements and other net gains were $1.4 million in the first quarter of 2021 compared to net gains of $7.0 million in the same period in 2019. The 2021 activity consists of $1.4 million of reimbursements received from the FCC for required spectrum repacking. The 2019 activity reflects $4.1 million of gains due to reimbursements received from the FCC and a $2.9 million gain as a result of the sale of certain real estate.
Operating Income
2021 vs. 2020
Our operating income increased $21.4 million in the first quarter of 2021 compared to the same period in 2020. The increase was driven by the changes in revenue and expenses discussed above, most notably the increase in subscription and AMS revenues.
2021 vs. 2019
Our operating income increased $63.3 million in the first quarter of 2021 compared to the same period in 2019. Results from our 2019 Acquisitions added operating income of $27.7 million in the first quarter of 2021. Excluding the 2019 Acquisitions, operating income increased $35.6 million. The increase was driven by the changes in revenue and expenses discussed above, most notably the increase of subscription revenue.
Non-Operating Expenses
Non-operating expenses decreased $19.7 million in the first quarter of 2021 compared to the same period in 2020. This decrease was partially due to the absence of a $13.8 million call premium related to the repayment of our 2023 Senior Notes and acceleration of $7.9 million of previously deferred financing fees associated with the 2023 and 2020 Senior notes that occurred in the first quarter of 2020 due to their early repayment. Additionally, interest expense decreased by $10.5 million driven by a lower average outstanding debt and lower average interest rate due to the refinancings undertaken in 2019 and 2020. Total average outstanding debt was $3.50 billion for the first quarter of 2021, compared to $4.19 billion in the same period of 2020. The weighted average interest rate on total outstanding debt was 5.08% for the first quarter of 2021, compared to 5.27% in the same period of 2020. Partially offsetting this decline was the absence of $12.1 million gain related to our share of CareerBuilder’s gain on the sale of its employment screening business recognized in the first quarter of 2020.
Income Tax Expense
Income tax expense increased $14.5 million in the first quarter of 2021 compared to the same period in 2020. The increase was primarily due to an increase in net income before tax. Our effective income tax rate was 24.0% for the first quarter of 2021, compared to 19.7% for the first quarter of 2020. The tax rate for the first quarter of 2021 is higher than the comparable amount in 2020 primarily due to 2020 tax benefits from the utilization of capital loss carryforwards in connection with certain disposition transactions and the release of the associated valuation allowance.
Net Income attributable to TEGNA Inc.
Net income attributable to TEGNA Inc. was $112.6 million, or $0.51 per diluted share, in the first quarter of 2021 compared to $86.3 million, or $0.39 per diluted share, during the same period in 2020. Both income and earnings per share were affected by the factors discussed above, most notably, an increase in subscription revenue from annual rate increases under existing and newly renegotiated retransmission agreements and an increase of AMS revenue due to increased advertising demand as a result of improving economic conditions.
The weighted average number of diluted common shares outstanding in the first quarter of 2021 and 2020 were 221.2 million and 218.9 million, respectively.
20
Results from Operations - Non-GAAP Information
Presentation of Non-GAAP information
We use non-GAAP financial performance 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 non-GAAP financial measures for purposes of evaluating company performance. Furthermore, the Leadership Development and Compensation Committee of our Board of Directors uses non-GAAP measures such as Adjusted EBITDA, non-GAAP net income, non-GAAP EPS 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” which are described in detail below in the section titled “Discussion of Special Charges Affecting Reported Results.” We believe that such expenses and gains are not indicative of normal, ongoing operations. While these items may be recurring in nature and 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 depending on specific underlying transactions or events that may occur. Therefore, while we may incur or recognize these types of expenses 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 attributable to TEGNA before (1) net (income) loss attributable to redeemable noncontrolling interest, (2) income taxes, (3) interest expense, (4) equity (loss) income in unconsolidated investments, net, (5) other non-operating items, net, (6) M&A due diligence costs, (7) advisory fees related to activism defense, (8) spectrum repacking reimbursements and other, net, (9) depreciation and (10) amortization. We believe these adjustments facilitate company-to-company operating performance comparisons by removing potential differences caused by variations unrelated to operating performance, such as capital structures (interest expense), income taxes, and the age and book appreciation of property and equipment (and related depreciation expense). The most directly comparable GAAP financial measure to Adjusted EBITDA is Net income 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 alternate to net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. In particular, Adjusted EBITDA is not intended to be a measure of 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 discuss free cash flow, a non-GAAP performance measure that the Board of Directors uses to review the performance of the business. The most directly comparable GAAP financial measure to free cash flow is Net income attributable to TEGNA. Free cash flow is 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) pension reimbursements, (5) dividends received from equity method investments and (6) reimbursements from spectrum repacking. This is further adjusted by deducting payments made for (1) syndicated programming, (2) pension, (3) interest, (4) taxes (net of refunds) and (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.
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Discussion of Special Charges Affecting Reported Results
Our results included the following items we consider “special items” that while at times recurring, can vary significantly from period to period:
Quarter ended March 31, 2021:
•Spectrum repacking reimbursements and other, net consisting of gains due to reimbursements from the FCC for
required spectrum repacking; and
•Advisory fees related to activism defense.
Quarter ended March 31, 2020:
•Spectrum repacking reimbursements and other, net primarily consisting of gains due to reimbursements from the FCC for
required spectrum repacking;
•Advisory fees related to activism defense;
•M&A due diligence costs we incurred to assist prospective buyers of our company with their due diligence;
•A gain recognized in our equity income in unconsolidated investments, related to our share of CareerBuilder’s gain on the
sale of its employment screening business;
•Other non-operating items primarily related to costs incurred in connection with the early extinguishment of debt; and
•Deferred tax benefits related to partial capital loss valuation allowance release.
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Reconciliations of certain line items impacted by special items to the most directly comparable financial measure calculated and presented in accordance with GAAP on our Consolidated Statements of Income follow (in thousands, except per share amounts):
| Special Items | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Quarter ended March 31, 2021 | GAAP measure | Advisory fees related to activism defense | Spectrum repacking reimbursements and other | Non-GAAP measure | ||||||||||||||||||||||||||||||||||||||||||||||
| Corporate - General and administrative expenses | $ | 16,870 | $ | (4,599) | $ | — | $ | 12,271 | ||||||||||||||||||||||||||||||||||||||||||
| Spectrum repacking reimbursements and other, net | (1,423) | — | 1,423 | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses | 531,121 | (4,599) | 1,423 | 527,945 | ||||||||||||||||||||||||||||||||||||||||||||||
| Operating income | 195,930 | 4,599 | (1,423) | 199,106 | ||||||||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | 148,446 | 4,599 | (1,423) | 151,622 | ||||||||||||||||||||||||||||||||||||||||||||||
| Provision for income taxes | 35,614 | 1,180 | (367) | 36,427 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to TEGNA Inc. | 112,617 | 3,419 | (1,056) | 114,980 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net income per share-diluted | $ | 0.51 | $ | 0.02 | $ | (0.01) | $ | 0.52 | ||||||||||||||||||||||||||||||||||||||||||
| Special Items | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Quarter ended March 31, 2020 | GAAP measure | M&A due diligence costs | Advisory fees related to activism defense | Spectrum repacking reimbursements and other | Gain on equity method investment | Other non-operating items | Special tax items | Non-GAAP measure | ||||||||||||||||||||||||||||||||||||||||||
| Corporate - General and administrative expenses | $ | 21,714 | $ | (4,588) | $ | (7,639) | $ | — | $ | — | $ | — | $ | — | $ | 9,487 | ||||||||||||||||||||||||||||||||||
| Spectrum repacking reimbursements and other, net | (7,515) | — | — | 7,515 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Operating expenses | 509,651 | (4,588) | (7,639) | 7,515 | — | — | — | 504,939 | ||||||||||||||||||||||||||||||||||||||||||
| Operating income | 174,538 | 4,588 | 7,639 | (7,515) | — | — | — | 179,250 | ||||||||||||||||||||||||||||||||||||||||||
| Equity (loss) in unconsolidated investments, net | 9,015 | — | — | — | (12,071) | — | — | (3,056) | ||||||||||||||||||||||||||||||||||||||||||
| Other non-operating items, net | (19,270) | — | — | — | — | 21,744 | — | 2,474 | ||||||||||||||||||||||||||||||||||||||||||
| Total non-operating expenses | (67,215) | — | — | — | (12,071) | 21,744 | — | (57,542) | ||||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | 107,323 | 4,588 | 7,639 | (7,515) | (12,071) | 21,744 | — | 121,708 | ||||||||||||||||||||||||||||||||||||||||||
| Provision for income taxes | 21,125 | 1,151 | 1,919 | (1,990) | (3,033) | 5,463 | 3,944 | 28,579 | ||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to TEGNA Inc. | 86,308 | 3,437 | 5,720 | (5,525) | (9,038) | 16,281 | (3,944) | 93,239 | ||||||||||||||||||||||||||||||||||||||||||
Net income per share-diluted (a) | $ | 0.39 | $ | 0.02 | $ | 0.03 | $ | (0.03) | $ | (0.04) | $ | 0.07 | $ | (0.02) | $ | 0.43 | ||||||||||||||||||||||||||||||||||
(a) Per share amounts do not sum due to rounding | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Adjusted EBITDA - Non-GAAP
Reconciliations of Adjusted EBITDA to net income presented in accordance with GAAP on our Consolidated Statements of Income are presented below (in thousands):
| Quarter ended Mar. 31, | |||||||||||||||||
| 2021 | 2020 | Change | |||||||||||||||
| Net income attributable to TEGNA Inc. (GAAP basis) | $ | 112,617 | $ | 86,308 | 30 | % | |||||||||||
| Plus (Less): Net income (loss) attributable to redeemable noncontrolling interest | 215 | (110) | *** | ||||||||||||||
| Plus: Provision for income taxes | 35,614 | 21,125 | 69 | % | |||||||||||||
| Plus: Interest expense | 46,485 | 56,960 | (18 | %) | |||||||||||||
| Plus (Less): Equity loss (income) in unconsolidated investments, net | 1,329 | (9,015) | *** | ||||||||||||||
| (Less) Plus: Other non-operating items, net | (330) | 19,270 | *** | ||||||||||||||
| Operating income (GAAP basis) | 195,930 | 174,538 | 12 | % | |||||||||||||
| Plus: M&A due diligence costs | — | 4,588 | *** | ||||||||||||||
| Plus: Advisory fees related to activism defense | 4,599 | 7,639 | (40 | %) | |||||||||||||
| Less: Spectrum repacking reimbursements and other, net | (1,423) | (7,515) | (81 | %) | |||||||||||||
| Adjusted operating income (non-GAAP basis) | 199,106 | 179,250 | 11 | % | |||||||||||||
| Plus: Depreciation | 15,896 | 16,900 | (6 | %) | |||||||||||||
| Plus: Amortization of intangible assets | 15,760 | 16,216 | (3 | %) | |||||||||||||
| Adjusted EBITDA (non-GAAP basis) | 230,762 | 212,366 | 9 | % | |||||||||||||
| Corporate - General and administrative expense (non-GAAP basis) | 12,271 | 9,487 | 29 | % | |||||||||||||
| Adjusted EBITDA, excluding Corporate (non-GAAP basis) | $ | 243,033 | $ | 221,853 | 10 | % | |||||||||||
| *** Not meaningful | |||||||||||||||||
In the first quarter of 2021 Adjusted EBITDA margin was 33% without corporate expense or 32% with corporate expense, compared to first quarter of 2020 Adjusted EBITDA margin of 32% without corporate expense or 31% with corporate expense. Our total Adjusted EBITDA increased $18.4 million in the first quarter of 2021 compared to 2020. This increase was primarily driven by the operational factors discussed above within the revenue and operating expense fluctuation explanation sections, most notably, the increase in subscription revenue from annual rate increases under existing and newly renegotiated retransmission agreements and increase in AMS revenue.
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Free Cash Flow Reconciliation
Our free cash flow, a non-GAAP performance measure, was $158.7 million in the first quarter of 2021 compared to $142.2 million for the same period in 2020.
Reconciliations from “Net income” to “Free cash flow” follow (in thousands):
| Three months ended Mar. 31, | |||||||||||||||||
| 2021 | 2020 | Change | |||||||||||||||
| Net income attributable to TEGNA Inc. (GAAP basis) | $ | 112,617 | $ | 86,308 | 30 | % | |||||||||||
| Plus: Provision for income taxes | 35,614 | 21,125 | 69 | % | |||||||||||||
| Plus: Interest expense | 46,485 | 56,960 | (18 | %) | |||||||||||||
| Plus: M&A due diligence costs | — | 4,588 | *** | ||||||||||||||
| Plus: Depreciation | 15,896 | 16,900 | (6 | %) | |||||||||||||
| Plus: Amortization | 15,760 | 16,216 | (3 | %) | |||||||||||||
| Plus: Stock-based compensation | 8,761 | (757) | *** | ||||||||||||||
| Plus: Company stock 401(k) contribution | 5,304 | 5,138 | 3 | % | |||||||||||||
| Plus: Syndicated programming amortization | 16,977 | 18,175 | (7 | %) | |||||||||||||
| Plus: Advisory fees related to activism defense | 4,599 | 7,639 | (40 | %) | |||||||||||||
| Plus: Cash dividend from equity investments for return on capital | 1,357 | 208 | *** | ||||||||||||||
| Plus: Cash reimbursements from spectrum repacking | 1,423 | 7,515 | (81 | %) | |||||||||||||
| Plus: Other non-operating items, net | (330) | 19,270 | *** | ||||||||||||||
| Plus (Less): Net income (loss) attributable to redeemable noncontrolling interest | 215 | (110) | *** | ||||||||||||||
| Plus (Less): Income tax receipts (payments) | 33 | (793) | *** | ||||||||||||||
| Plus (Less): Equity loss (income) in unconsolidated investments, net | 1,329 | (9,015) | *** | ||||||||||||||
| Less: Spectrum repacking reimbursements and other, net | (1,423) | (7,515) | (81 | %) | |||||||||||||
| Less: Syndicated programming payments | (15,721) | (17,865) | (12 | %) | |||||||||||||
| Less: Pension contributions | (935) | (2,309) | (60 | %) | |||||||||||||
| Less: Interest payments | (76,045) | (66,240) | 15 | % | |||||||||||||
| Less: Purchases of property and equipment | (13,185) | (13,264) | (1 | %) | |||||||||||||
| Free cash flow (non-GAAP basis) | $ | 158,731 | $ | 142,174 | 12 | % | |||||||||||
| *** Not meaningful | |||||||||||||||||
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Liquidity, Capital Resources and Cash Flows
Our operations have historically generated strong positive cash flow which, along with availability under our existing revolving credit facility and cash and cash equivalents on hand, have been sufficient to fund our capital expenditures, interest expense, dividends, investments in strategic initiatives (including acquisitions) and other operating requirements.
The COVID-19 pandemic has had far-reaching material adverse impacts on many aspects of our operations, directly and indirectly, including our employees, consumer behavior, distribution of our content, our vendors, and the overall market. The full impact of the COVID-19 pandemic, particularly with regard to the broader advertising industry, remains uncertain and continues to evolve. However, during the first quarter of 2021, the U.S. economy continued on a path towards recovery with millions of Americans receiving COVID-19 vaccines and states and municipalities increasingly reopening. In addition, the U.S. federal government continued to enact policies to provide fiscal stimulus to the economy and relief to those affected by the pandemic, with the most recent stimulus expected to bolster household finances as well as those of small businesses, states and municipalities.
The roll out of vaccines together with lower COVID-19 case counts are encouraging. The improving conditions around the pandemic, coupled with strategic actions we’ve taken over the past couple years with our 2020 and 2019 debt refinancings and reduction of discretionary spending has helped strengthened our financial position. On March 29, 2021, we announced that our Board of Directors approved a dividend increase of ten cents per share on an annual basis, to $0.38 per common share (approximately 2.0% dividend yield as of March 31, 2021), which represents an approximately 36% increase above the prior dividend. The increase of the dividend demonstrates the Board’s and management’s confidence in our business and continued focus on making prudent, disciplined decisions intended to drive near and long-term shareholder value. Our capital allocation decisions focus on optimizing investments in organic and inorganic growth opportunities, paying down debt, issuing dividends, and repurchasing shares.
As of March 31, 2021, we were in compliance with all covenants contained in our debt agreements and credit facility and our leverage ratio, calculated in accordance with our revolving credit agreement and term loan agreements, was 3.77x, well below the permitted leverage ratio of less than 5.5x. The leverage ratio is calculated using annualized adjusted EBITDA (as defined in the agreement) for the trailing eight quarters. We believe that we will remain compliant with all covenants for the foreseeable future.
We often present a different leverage ratio in our investor communications than the one required to be computed by our revolving covenant agreement. The ratio disclosed in our investor communications, which is regularly reviewed by our management and our board of directors, was 3.82x as of March 31, 2021. The primary difference between this computation and the leverage ratio calculated in accordance with our revolving credit agreement is the definition of adjusted EBITDA in the revolving credit agreement version requires additional adjustments to add back non-cash compensation and contractual synergy benefits during periods in the trailing eight quarters that preceded a particular acquisition.
As of March 31, 2021, our total debt was $3.52 billion, cash and cash equivalents totaled $12.9 million, and we had unused borrowing capacity of $1.17 billion under our revolving credit facility. Approximately $3.23 billion, or 91%, of our debt has a fixed interest rate.
Our financial and operating performance, as well as our ability to generate sufficient cash flow to maintain compliance with credit facility covenants, are subject to certain risk factors. See Item 1A. “Risk Factors,” in our 2020 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 satisfy our debt service obligations, capital expenditure requirements, and working capital needs for the next twelve months.
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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):
| Three months ended Mar. 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Balance of cash and cash equivalents beginning of the period | $ | 40,968 | $ | 29,404 | |||||||
| Operating activities: | |||||||||||
| Net income | 112,832 | 86,198 | |||||||||
| Depreciation, amortization and other non-cash adjustments | 47,050 | 28,482 | |||||||||
| Pension contributions, net of income | (4,410) | (3,642) | |||||||||
| Decrease (increase) in trade receivables | (63,120) | 38,131 | |||||||||
| Increase in interest and taxes payable | 4,320 | 8,775 | |||||||||
| Other, net | (38,601) | 19,420 | |||||||||
| Cash flow from operating activities | 58,071 | 177,364 | |||||||||
| Investing activities: | |||||||||||
| Payments for acquisitions of businesses and other assets, net of cash acquired | (13,341) | (15,000) | |||||||||
| All other investing activities | (9,890) | (563) | |||||||||
| Cash flow used for investing activities | (23,231) | (15,563) | |||||||||
| Cash flow used for financing activities | (62,955) | (156,146) | |||||||||
| (Decrease) increase in cash and cash equivalents | (28,115) | 5,655 | |||||||||
| Balance of cash and cash equivalents end of the period | $ | 12,853 | $ | 35,059 | |||||||
Operating Activities - Cash flow from operating activities was $58.1 million for the three months ended March 31, 2021, compared to $177.4 million for the same period in 2020. Driving the decrease was a change in accounts receivable of $101.3 million primarily due year over year increases in AMS and subscription revenue of $27.7 million and $53.9 million, respectively, and a change in accounts payable of $18.7 million.
Investing Activities - Cash flow used for investing activities was $23.2 million for the three months ended March 31, 2021, compared to $15.6 million for the same period in 2020. The increase was primarily due to a $6.1 million decline in spectrum repack reimbursements. Also contributing to the decline was a $5.0 million decrease in proceeds from the sale of assets and business.
Financing Activities - Cash flow used for financing activities was $63.0 million for the three months ended March 31, 2021, compared to $156.1 million for the same period in 2020. The change was primarily due to debt activity in 2020. Specifically, in January 2020 we issued $1.0 billion of unsecured notes, the proceeds of which were used to early redeem $650.0 million of unsecured notes due in October 2023 and $310.0 million due in July 2020. We incurred combined debt issuance and early redemption fees of $27.6 million related to these actions. Additionally, we paid down $37.0 million on our revolving credit facility early in the first quarter of 2021 as compared to $118.0 million in the first quarter of 2020.
Certain Factors Affecting Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q contain forward-looking statements regarding business strategies, market potential, future financial performance and other matters, which include, but are not limited to the adverse impacts caused by the COVID-19 pandemic and its effect on our revenues, particularly our non-political advertising revenues. The words “believe,” “expect,” “estimate,” “could,” “should,” “intend,” “may,” “plan,” “seek,” “anticipate,” “project” and similar expressions, among others, generally identify “forward-looking statements”. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results and events to differ materially from those anticipated in the forward-looking statements, including those described within Item 1A. “Risk Factors” in our 2020 Annual Report on Form 10-K.
27
Our actual financial results may be different from those projected due to the inherent nature of projections. Given these uncertainties, forward-looking statements should not be relied on in making investment decisions. The forward-looking statements contained in this Form 10-Q speak only as of the date of its filing. Except where required by applicable law, we expressly disclaim a duty to provide updates to forward-looking statements after the date of this Form 10-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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For quantitative and qualitative disclosures about market risk, refer to the following section of our 2020 Annual Report on Form 10-K: “Item 7A. Quantitative and Qualitative Disclosures about Market Risk.” Our exposures to market risk have not changed materially since December 31, 2020.
As of March 31, 2021, approximately $3.23 billion of our debt has a fixed interest rate (which represents approximately 91%, of our total principal debt obligation). Our remaining debt obligation of $318 million has floating interest rates. These obligations fluctuate with market interest rates. By way of comparison, a 50 basis points increase or decrease in the average interest rate for these obligations would result in a change in annual interest expense of approximately $1.6 million. The fair value of our total debt, based on bid and ask quotes for the related debt, totaled $3.72 billion as of March 31, 2021 and $3.79 billion as of December 31, 2020.
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’s disclosure controls and procedures as of March 31, 2021. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective, as of March 31, 2021, 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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 9 to the condensed consolidated financial statements for information regarding our legal 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 2020 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. We do not believe that there have been any material changes from the risk
factors previously disclosed in our 2020 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In December 2020, our Board of Directors authorized the renewal of our share repurchase program for up to $300.0 million of our common stock over the next three years. The shares may be repurchased at management’s discretion, either on the open market or in privately negotiated block transactions. Management’s decision to repurchase shares will depend on price and other corporate developments. Purchases may occur from time to time and no maximum purchase price has been set. In the first quarter of 2021, no shares were repurchased.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
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Item 6. Exhibits
| Exhibit Number | Description | |||||||
| 3-1 | ||||||||
| 3-1-1 | ||||||||
| 3-1-2 | ||||||||
| 3-2 | ||||||||
| 10-1 | ||||||||
| 10-2 | ||||||||
| 31-1 | ||||||||
| 31-2 | ||||||||
| 32-1 | ||||||||
| 32-2 | ||||||||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Document. | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |||||||
* Asterisks identify management contracts and compensatory plans and arrangements.
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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.
| Date: May 10, 2021 | TEGNA, INC. | ||||
| /s/ Clifton A. McClelland III | |||||
| Clifton A. McClelland III | |||||
| Senior Vice President and Controller | |||||
| (on behalf of Registrant and as Principal Accounting Officer) | |||||
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