Attached files
file | filename |
---|---|
EX-32.2 - TC NXST CERTIFICATION 32.1 - NEXSTAR MEDIA GROUP, INC. | tcnxstexhibit32_1.htm |
EX-31.2 - TC NXST CERTIFICATION 31.1 - NEXSTAR MEDIA GROUP, INC. | tcnxstexhibit31_1.htm |
EX-32.1 - PAS NXST CERTIFICATION 32.1 - NEXSTAR MEDIA GROUP, INC. | pasnxstexhibit32_1.htm |
EX-31.1 - PAS NXST CERTIFICATION 31.1 - NEXSTAR MEDIA GROUP, INC. | pasnxstexhibit31_1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
for
the quarterly period ended September 30, 2009
OR
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
for
the transition period from __________ to __________.
Commission
File Number: 000-50478
NEXSTAR
BROADCASTING GROUP, INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
23-3083125
|
(State
of Organization or Incorporation)
|
(IRS
Employer Identification No.)
|
5215
N. O’Connor Blvd., Suite 1400
Irving,
Texas 75039
|
(972)
373-8800
|
(Address
of Principal Executive Offices, including Zip Code)
|
(Registrant’s
Telephone Number, Including Area
Code)
|
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 it was required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes x
No ¨
Indicate
by checkmark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes ¨ No ¨
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (check one):
Large accelerated filer
|
¨
|
Accelerated filer
|
¨
|
Non-accelerated
filer
|
x (Do
not check if a smaller reporting company)
|
Smaller reporting company
|
¨
|
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
As of
October 31, 2009 the Registrant had outstanding:
15,018,839
shares of Class A Common Stock:
and
13,411,588 shares of Class B Common Stock
TABLE
OF CONTENTS
Page
|
||
PART I
|
FINANCIAL
INFORMATION
|
|
ITEM 1.
|
Financial
Statements (Unaudited)
|
|
Condensed
Consolidated Balance Sheets at September 30, 2009 and December 31,
2008
|
2
|
|
Condensed
Consolidated Statements of Operations for the three and nine months ended
September 30, 2009 and 2008
|
3
|
|
Condensed
Consolidated Statement of Changes in Stockholders’ Deficit for the nine
months ended September 30, 2009
|
4
|
|
Condensed
Consolidated Statements of Cash Flows for the nine months ended September
30, 2009 and 2008
|
5
|
|
Notes
to Condensed Consolidated Financial Statements
|
6
|
|
ITEM 2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
30
|
ITEM 3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
40
|
ITEM 4.
|
Controls
and Procedures
|
40
|
PART II
|
OTHER
INFORMATION
|
|
ITEM 1.
|
Legal
Proceedings
|
41
|
ITEM 1A.
|
Risk
Factors
|
41
|
ITEM 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
41
|
ITEM 3.
|
Defaults
Upon Senior Securities
|
41
|
ITEM 4.
|
Submission
of Matters to a Vote of Security Holders
|
41
|
ITEM 5.
|
Other
Information
|
41
|
ITEM 6.
|
Exhibits
|
41
|
EXHIBIT
INDEX
|
i
PART
I. FINANCIAL INFORMATION
ITEM 1.
|
Financial
Statements
|
NEXSTAR
BROADCASTING GROUP, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in
thousands, except share information)
September
30,
2009
|
December 31,
2008
|
|||||||
(Unaudited)
|
(Note
2)
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$
|
19,323
|
$
|
15,834
|
||||
Accounts
receivable, net of allowance for doubtful accounts of $797 and $832,
respectively
|
54,866
|
53,190
|
||||||
Current
portion of broadcast rights
|
19,341
|
14,273
|
||||||
Prepaid
expenses and other current assets
|
2,266
|
1,562
|
||||||
Deferred
tax asset
|
15
|
15
|
||||||
Total
current assets
|
95,811
|
84,874
|
||||||
Property
and equipment, net
|
146,152
|
135,878
|
||||||
Broadcast
rights
|
12,847
|
9,289
|
||||||
Goodwill
|
109,059
|
115,632
|
||||||
FCC
licenses
|
127,487
|
125,057
|
||||||
Other
intangible assets, net
|
132,149
|
149,851
|
||||||
Other
noncurrent assets
|
3,955
|
5,400
|
||||||
Deferred
tax asset
|
595
|
606
|
||||||
Total
assets
|
$
|
628,055
|
$
|
626,587
|
||||
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
||||||||
Current
liabilities:
|
||||||||
Current
portion of debt
|
$
|
3,485
|
$
|
3,485
|
||||
Current
portion of broadcast rights payable
|
19,716
|
14,745
|
||||||
Accounts
payable
|
8,418
|
9,433
|
||||||
Accrued
expenses
|
13,208
|
12,484
|
||||||
Taxes
payable
|
323
|
512
|
||||||
Interest
payable
|
4,275
|
8,591
|
||||||
Deferred
revenue
|
4,539
|
7,167
|
||||||
Other
liabilities
|
1,066
|
1,066
|
||||||
Total
current liabilities
|
55,030
|
57,483
|
||||||
Debt
|
672,070
|
658,632
|
||||||
Broadcast
rights payable
|
15,079
|
10,953
|
||||||
Deferred
tax liabilities
|
37,186
|
38,664
|
||||||
Deferred
revenue
|
2,349
|
1,802
|
||||||
Deferred
gain on sale of assets
|
4,604
|
4,931
|
||||||
Deferred
representation fee incentive
|
5,737
|
6,003
|
||||||
Other
liabilities
|
13,612
|
13,275
|
||||||
Total
liabilities
|
805,667
|
791,743
|
||||||
Commitments
and contingencies
|
||||||||
Stockholders’
deficit:
|
||||||||
Preferred
stock - $0.01 par value, authorized 200,000 shares; no shares issued and
outstanding at both September 30, 2009 and December 31,
2008
|
—
|
—
|
||||||
Common
stock:
|
||||||||
Class A
Common - $0.01 par value, authorized 100,000,000 shares; issued and
outstanding 15,018,839 and 15,013,839 at September 30, 2009 and
December 31, 2008, respectively
|
150
|
150
|
||||||
Class
B Common - $0.01 par value, authorized 20,000,000 shares; issued and
outstanding 13,411,588 at both September 30, 2009 and
December 31, 2008
|
134
|
134
|
||||||
Class
C Common - $0.01 par value, authorized 5,000,000 shares; no shares issued
and outstanding at both September 30, 2009 and December 31,
2008
|
—
|
—
|
||||||
Additional
paid-in capital
|
399,711
|
398,586
|
||||||
Accumulated
deficit
|
(577,607
|
)
|
(564,026
|
)
|
||||
Total
stockholders’ deficit
|
(177,612
|
)
|
(165,156
|
)
|
||||
Total
liabilities and stockholders’ deficit
|
$
|
628,055
|
$
|
626,587
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
2
NEXSTAR
BROADCASTING GROUP, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in
thousands, except per share amounts)
Three
Months Ended
September 30,
|
Nine
Months Ended
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
Net
revenue
|
$
|
60,399
|
$
|
70,275
|
$
|
178,019
|
$
|
204,605
|
||||||||
Operating
expenses:
|
||||||||||||||||
Direct
operating expenses (exclusive of depreciation and amortization shown
separately below)
|
18,726
|
19,410
|
56,867
|
58,189
|
||||||||||||
Selling,
general, and administrative expenses (exclusive of depreciation and
amortization shown separately below)
|
21,628
|
22,915
|
66,280
|
65,639
|
||||||||||||
Restructure
charge
|
—
|
—
|
670
|
—
|
||||||||||||
Non-cash
contract termination fees
|
—
|
—
|
191
|
7,167
|
||||||||||||
Impairment
of goodwill and intangible assets
|
16,164
|
48,537
|
16,164
|
48,537
|
||||||||||||
Amortization
of broadcast rights
|
8,770
|
5,252
|
19,495
|
15,393
|
||||||||||||
Amortization
of intangible assets
|
5,936
|
6,345
|
17,772
|
19,100
|
||||||||||||
Depreciation
|
5,413
|
5,229
|
16,003
|
15,650
|
||||||||||||
Gain
on asset exchange
|
(2,612
|
)
|
(487
|
)
|
(6,710
|
)
|
(4,079
|
)
|
||||||||
Loss
(gain) on asset disposal, net
|
7
|
(127
|
)
|
(2,813
|
)
|
(297
|
)
|
|||||||||
Total
operating expenses
|
74,032
|
107,074
|
183,919
|
225,299
|
||||||||||||
Loss
from operations
|
(13,633
|
)
|
(36,799
|
)
|
(5,900
|
)
|
(20,694
|
)
|
||||||||
Interest
expense, including amortization of debt financing costs
|
(8,668
|
)
|
(11,606
|
)
|
(27,433
|
)
|
(36,401
|
)
|
||||||||
Gain
on extinguishment of debt
|
—
|
—
|
18,567
|
—
|
||||||||||||
Interest
and other income
|
5
|
74
|
50
|
626
|
||||||||||||
Loss before
income taxes
|
(22,296
|
)
|
(48,331
|
)
|
(14,716
|
)
|
(56,469
|
)
|
||||||||
Income
tax benefit (expense)
|
3,905
|
3,003
|
1,135
|
(310
|
)
|
|||||||||||
Net
loss
|
$
|
(18,391
|
)
|
$
|
(45,328
|
)
|
$
|
(13,581
|
)
|
$
|
(56,779
|
)
|
||||
Net
loss per common share:
|
||||||||||||||||
Basic
and diluted
|
$
|
(0.65
|
)
|
$
|
(1.59
|
)
|
$
|
(0.48
|
)
|
$
|
(2.00
|
)
|
||||
Weighted
average number of common shares outstanding:
|
||||||||||||||||
Basic
and diluted
|
28,426
|
28,425
|
28,426
|
28,422
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
3
NEXSTAR
BROADCASTING GROUP, INC.
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
For
the Nine Months Ended September 30, 2009
(in
thousands, except share information)
Common
Stock
|
Additional
Paid-In
Capital
|
Accumulated
Deficit
|
Total
Stockholders’
Deficit
|
|||||||||||||||||||||||||||||||||
Class
A
|
Class
B
|
Class
C
|
||||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||
Balance
at January 1, 2009 (Note 2)
|
15,013,839
|
$
|
150
|
13,411,588
|
$
|
134
|
—
|
$
|
—
|
$
|
398,586
|
$
|
(564,026
|
)
|
$
|
(165,156
|
)
|
|||||||||||||||||||
Stock-based
compensation expense
|
—
|
—
|
—
|
—
|
—
|
—
|
1,112
|
—
|
1,112
|
|||||||||||||||||||||||||||
Issuance
of common shares related to exercise of stock options
|
5,000
|
—
|
—
|
—
|
—
|
—
|
13
|
—
|
13
|
|||||||||||||||||||||||||||
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(13,581
|
)
|
(13,581
|
)
|
|||||||||||||||||||||||||
Balance
at September 30, 2009 (unaudited)
|
15,018,839
|
$
|
150
|
13,411,588
|
$
|
134
|
—
|
$
|
—
|
$
|
399,711
|
$
|
(577,607
|
)
|
$
|
(177,612
|
)
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
4
NEXSTAR
BROADCASTING GROUP, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
thousands)
Nine
Months Ended
September 30,
|
||||||||
2009
|
2008
|
|||||||
(Unaudited)
|
||||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$
|
(13,581
|
)
|
$
|
(56,779
|
)
|
||
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
||||||||
Deferred
income taxes
|
(1,467
|
)
|
(105
|
)
|
||||
Provision
for bad debts
|
783
|
410
|
||||||
Depreciation
of property and equipment
|
16,003
|
15,650
|
||||||
Amortization
of intangible assets
|
17,772
|
19,100
|
||||||
Amortization
of debt financing costs
|
759
|
804
|
||||||
Amortization
of broadcast rights, excluding barter
|
10,578
|
6,701
|
||||||
Payments
for broadcast rights
|
(6,811
|
)
|
(6,128
|
)
|
||||
Payment-in-kind
interest on debt
|
3,816
|
1,050
|
||||||
Gain
on asset exchange
|
(6,710
|
)
|
(4,079
|
)
|
||||
Gain
on asset disposal, net
|
(2,813
|
)
|
(297
|
)
|
||||
Gain
on extinguishment of debt
|
(18,567
|
)
|
—
|
|||||
Deferred
gain recognition
|
(327
|
)
|
(328
|
)
|
||||
Amortization
of debt discount
|
4,728
|
3,810
|
||||||
Amortization
of deferred representation fee incentive
|
(457
|
)
|
(358
|
)
|
||||
Impairment
of goodwill and intangible assets
|
16,164
|
48,537
|
||||||
Stock-based
compensation expense
|
1,112
|
1,828
|
||||||
Non-cash
contract termination fee
|
191
|
7,167
|
||||||
Changes
in operating assets and liabilities, net of acquisitions:
|
||||||||
Accounts
receivable
|
(2,602
|
)
|
277
|
|||||
Prepaid
expenses and other current assets
|
(963
|
)
|
501
|
|||||
Taxes
receivable
|
—
|
351
|
||||||
Other
noncurrent assets
|
250
|
(727
|
)
|
|||||
Accounts
payable and accrued expenses
|
(1,775
|
)
|
532
|
|||||
Taxes
payable
|
(189
|
)
|
(112
|
)
|
||||
Interest
payable
|
(4,316
|
)
|
1,028
|
|||||
Deferred
revenue
|
(2,081
|
)
|
1,549
|
|||||
Other
noncurrent liabilities
|
337
|
344
|
||||||
Net
cash provided by operating activities
|
9,834
|
40,726
|
||||||
Cash
flows from investing activities:
|
||||||||
Additions
to property and equipment
|
(14,347
|
)
|
(18,119
|
)
|
||||
Proceeds
from sale of assets
|
97
|
—
|
||||||
Acquisition
of broadcast properties and related transaction costs
|
(20,756
|
)
|
(7,923
|
)
|
||||
Proceeds
from insurance on casualty loss
|
4,900
|
494
|
||||||
Net
cash used for investing activities
|
(30,106
|
)
|
(25,548
|
)
|
||||
Cash
flows from financing activities:
|
||||||||
Repayment
of long-term debt
|
(154,896
|
)
|
(104,794
|
)
|
||||
Proceeds
from revolver draws
|
54,000
|
50,000
|
||||||
Issuance
of senior subordinated PIK notes in debt exchange
|
142,321
|
—
|
||||||
Consideration
paid to bond holders for debt exchange
|
(17,677
|
)
|
—
|
|||||
Proceeds
from senior subordinated PIK notes
|
—
|
35,000
|
||||||
Proceeds
from issuance of common shares related to exercise of stock
options
|
13
|
38
|
Net
cash provided by (used for) financing activities
|
23,761
|
(19,756
|
)
|
|||||
Net
increase (decrease) in cash and cash equivalents
|
3,489
|
(4,578
|
)
|
|||||
Cash
and cash equivalents at beginning of period
|
15,834
|
16,226
|
||||||
Cash
and cash equivalents at end of period
|
$
|
19,323
|
$
|
11,648
|
||||
Supplemental
schedule of cash flow information:
|
||||||||
Cash
paid during the period for:
|
||||||||
Interest
|
$
|
22,228
|
$
|
29,440
|
||||
Income
taxes, net
|
$
|
523
|
$
|
178
|
||||
Non-cash
investing activities:
|
||||||||
Purchase
of software
|
$
|
—
|
$
|
4,976
|
||||
Acquisition
of equipment in accounts payable
|
$
|
1,257
|
$
|
1,975
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
5
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
|
Organization and Business
Operations
|
As of
September 30, 2009, Nexstar Broadcasting Group, Inc. (“Nexstar”) owned,
operated, programmed or provided sales and other services to 63 television
stations (inclusive of the digital multi-channels), which includes
affiliates of NBC, ABC, CBS, Fox, MyNetworkTV and The CW in markets
located in New York, Pennsylvania, Illinois, Indiana, Missouri, Texas,
Louisiana, Arkansas, Alabama, Utah, Massachusetts, Florida, Montana, Rhode
Island and Maryland. Through various local service agreements, Nexstar provided
sales, programming and other services to stations owned and/or operated by
independent third parties. Nexstar operates in one reportable television
broadcasting segment. The economic characteristics, services, production
process, customer type and distribution methods for Nexstar’s operations are
substantially similar and are therefore aggregated as a single reportable
segment.
Nexstar
is highly leveraged, which makes it vulnerable to changes in general economic
conditions. Nexstar’s ability to repay or refinance its debt will depend on,
among other things, financial, business, market, competitive and other
conditions, many of which are beyond Nexstar’s control.
Disruptions
in the capital and credit markets, as have been experienced during 2008 and
2009, could adversely affect our ability to draw on our bank revolving credit
facilities. Our access to funds under the revolving credit facilities is
dependent on the ability of the banks that are parties to the facilities to meet
their funding commitments. Those banks may not be able to meet their funding
commitments to us if they experience shortages of capital and liquidity or if
they experience excessive volumes of borrowing requests from us and other
borrowers within a short period of time.
Liquidity
and Management Plans
Our
senior secured credit facility agreement contains covenants which require us to
comply with certain financial ratios, including: (a) maximum total and
senior leverage ratios, (b) a minimum interest coverage ratio, and
(c) a minimum fixed charge coverage ratio. The covenants, which are
calculated on a quarterly basis, include the combined results of Nexstar
Broadcasting and Mission Broadcasting, Inc. (“Mission”). Mission’s senior
secured credit facility agreement does not contain financial covenant ratio
requirements; however it does include an event of default if Nexstar does not
comply with all covenants contained in its credit agreement. The senior
subordinated notes and senior discount notes contain restrictive covenants
customary for borrowing arrangements of this type. As of September 30, 2009, we
were in compliance with all indentures governing the publicly-held
notes. As of September 30, 2009, we were not in compliance with all
covenants contained in the credit agreements governing our senior secured credit
facility. On October 8, 2009, we amended our credit facility to
modify certain covenants. See Note 9 for a more complete discussion
of the credit facility amendment. The October 8, 2009 debt amendment
contained a limited waiver for the leverage ratios which cured the violation as
of September 30, 2009.
On
March 30, 2009, we closed an offer to exchange $143,600,000 of the 7%
senior subordinated notes due 2014 in exchange for $142,320,761 7% senior
subordinated PIK Notes due 2014 (the “PIK Notes”). Based on the financial
covenants in the senior secured credit facility, the PIK Notes are not included
in the debt amount used to calculate the total leverage ratio until January
2011. In addition to the debt exchange, we have undertaken certain actions as
part of our efforts to ensure we will be in compliance with our debt covenants
including 1) the elimination of corporate bonuses for 2008 and 2009, 2) the
consolidation of various back office processes in certain markets , 3) the
execution of a management services agreement whereby Nexstar operates seven
stations in exchange for a service fee , 4) the consummation of purchase
agreements on March 12, 2009 and May 1, 2009 to acquire all the assets of
KARZ and WCWJ, respectively, 5) the October 8, 2009 amendment to the senior
credit facility, which modified certain covenants and 6) obtaining the limited
waiver of the leverage ratios as of September 30, 2009, in conjunction with the
credit amendment.
Debt
Covenants
We
believe the consummation of the exchange offer along with the debt amendment and
other actions described above, will allow us to maintain compliance with all
covenants contained in the credit agreements governing our senior secured
facility and the indentures governing our publicly held notes for a period of at
least the next twelve months from September 30, 2009. However, no assurance can
be provided that our actions will be successful or that further adverse events
outside of our control may arise that would result in our inability to comply
with the debt covenants. In such event, we would consider a range of
transactions or strategies to address any such situation. For
example, we might decide to divest non-core assets, refinance our existing debt
or obtain additional equity financing. There is no assurance that any
such transactions, or any other transactions, or strategies we might consider,
could be consummated on terms satisfactory to us or at all.
6
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2.
|
Summary
of Significant Accounting Policies
|
Interim
Financial Statements
The
condensed consolidated financial statements as of September 30, 2009 and for the
three and nine months ended September 30, 2009 and 2008 are unaudited. However,
in the opinion of management, such financial statements include all adjustments
(consisting solely of normal recurring adjustments) necessary for the fair
statement of the financial information included herein in accordance with
accounting principles generally accepted in the United States of America (“U.S.
GAAP”) and pursuant to the rules and regulations of the Securities and Exchange
Commission (“SEC”). The preparation of the condensed consolidated financial
statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenue and expenses during the period.
Actual results could differ from those estimates. Results of operations for
interim periods are not necessarily indicative of results for the full year.
These condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and related notes included in
Nexstar’s Annual Report on Form 10-K for the fiscal year ended December 31,
2008. The balance sheet at December 31, 2008 has been derived from the
audited financial statements at that date, but does not include all of the
information and footnotes required by U.S. GAAP for complete financial
statements.
Basis
of Presentation
Certain
prior year amounts have been reclassified to conform to the current year
presentation. See Note 18 for reclassified amounts.
Principles
of Consolidation
The
condensed consolidated financial statements include the accounts of Nexstar and
its subsidiaries. Also included in the financial statements are the accounts of
independently-owned Mission Broadcasting, Inc. (“Mission”) (Nexstar and Mission
are collectively referred to as the “Company”) and may include certain other
entities where it is determined that the Company is the primary beneficiary of a
variable interest entity (“VIE”).
All
intercompany account balances and transactions have been eliminated in
consolidation.
Mission
Mission
is included in these condensed consolidated financial statements because Nexstar
is deemed to have a controlling financial interest in Mission for financial
reporting purposes as a result of (a) local service agreements Nexstar has
with the Mission stations, (b) Nexstar’s guarantee of the obligations
incurred under Mission’s senior credit facility and (c) purchase options
(which expire on various dates between 2011 and 2018) granted by Mission’s sole
shareholder which will permit Nexstar to acquire the assets and assume the
liabilities of each Mission station, subject to Federal Communications
Commission (“FCC”) consent. The Company expects these option agreements, if
unexercised, will be renewed upon expiration. As of September 30, 2009, the
assets of Mission consisted of current assets of $2.9 million (excluding
broadcast rights), broadcast rights of $5.9 million, FCC licenses of $20.7
million, goodwill of $18.7 million, other intangible assets of $26.8 million,
property and equipment of $29.0 million and other noncurrent assets of $0.5
million. Substantially all of Mission’s assets, except for its FCC licenses,
collateralize its secured debt obligation. See Note 18 for a presentation of
condensed consolidating financial information of the Company, which includes the
accounts of Mission.
Nexstar
has entered into local service agreements with Mission to provide sales and/or
operating services to the Mission stations. The following table summarizes the
various local service agreements Nexstar had in effect with Mission as of
September 30, 2009:
Service Agreement
|
Mission
Stations
|
TBA
Only(1)
|
WFXP
and KHMT
|
SSA & JSA (2)
|
KJTL,
KJBO-LP, KOLR, KCIT, KCPN-LP, KAMC, KRBC, KSAN, WUTR, WFXW, WYOU, KODE,
WTVO and KTVE
|
|
(1)
|
Nexstar
has a time brokerage agreement (“TBA”) with each of these stations which
allows Nexstar to program most of each station’s broadcast time, sell each
station’s advertising time and retain the advertising revenue generated in
exchange for monthly payments to
Mission.
|
(2)
|
Nexstar
has both a shared services agreement (“SSA”) and a joint sales agreement
(“JSA”) with each of these stations. Each SSA allows the Nexstar station
in the market to provide services including news production, technical
maintenance and security, in exchange for Nexstar’s right to receive
certain payments from Mission as described in the SSAs. Each JSA permits
Nexstar to sell and retain a percentage of the net revenue from the
station’s advertising time in return for monthly payments to Mission of
the remaining percentage of net revenue as described in the
JSAs.
|
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2.
|
Summary
of Significant Accounting
Policies—(Continued)
|
Nexstar
does not own Mission or Mission’s television stations; however, Nexstar is
deemed to have a controlling financial interest in them under U.S. GAAP while
complying with the FCC’s rules regarding ownership limits in television markets.
In order for both Nexstar and Mission to comply with FCC regulations, Mission
maintains complete responsibility for and control over programming, finances,
personnel and operations of its stations.
Variable
Interest Entities
The
Company may determine that a station is a VIE as a result of local service
agreements entered into with the owner-operator of stations in markets in which
the Company owns and operates a station. The term local service agreements
generally refers to a contract between two separately owned television stations
serving the same market, whereby the owner-operator of one station contracts
with the owner-operator of the other station to provide it with administrative,
sales and other services required for the operation of its station.
Nevertheless, the owner-operator of each station retains control and
responsibility for the operation of its station, including ultimate
responsibility over all programming broadcast on its station.
VIEs in
connection with local service agreements entered into with stations in markets
in which the Company owns and operates a station are discussed
below.
Nexstar
has determined that it has variable interests in WYZZ, the Fox affiliate in
Peoria, Illinois and WUHF, the Fox affiliate in Rochester, New York, each owned
by a subsidiary of Sinclair Broadcasting Group, Inc. (“Sinclair”), as a result
of outsourcing agreements it has entered into with Sinclair. Nexstar also has
determined that it has a variable interest in WHP, the CBS affiliate in
Harrisburg, Pennsylvania, which is owned by Newport Television License, LLC
(“Newport Television”), as a result of Nexstar becoming successor-in-interest to
a TBA entered into by a former owner of WLYH. Nexstar has evaluated its
arrangements with Sinclair and Newport Television and has determined that it is
not the primary beneficiary of the variable interests, and therefore, has not
consolidated these stations. Nexstar made payments to Sinclair under
the outsourcing agreements of $0.5 million and $0.8 million for the three months
ended September 30, 2009 and 2008, respectively and $1.7 million and $2.5
million for the nine months then ended.
Under the
outsourcing agreements with Sinclair, Nexstar pays for certain operating
expenses of WYZZ and WUHF, and therefore may have unlimited exposure to any
potential operating losses. Nexstar’s management believes that Nexstar’s minimum
exposure to loss under the Sinclair outsourcing agreements consists of the fees
paid to Sinclair. Additionally, Nexstar indemnifies the owners of WHP, WYZZ and
WUHF from and against all liability and claims arising out of or resulting from
its activities, acts or omissions in connection with the agreements. The maximum
potential amount of future payments Nexstar could be required to make for such
indemnification is undeterminable at this time.
Nexstar
entered into a management services agreement with Four Points Media Group
effective March 20, 2009. Four Points owns and operates seven
individual stations in four markets. Under this agreement, Nexstar
manages the stations for Four Points but does not have ultimate control over the
policies or operations of the stations. In return for managing the
stations, Nexstar receives a fixed annual management fee of $2.0 million per
year, as well as annual incentive compensation based on incremental broadcast
cash flow of the Four Points’ stations. Nexstar is also entitled to a
share of the equity profits if the stations are sold while the agreement is in
effect. The agreement provides for a minimum compensation of $10.0
million to Nexstar if the Four Points stations are sold during the initial three
year term of the agreement. Nexstar has concluded that this agreement
gives Nexstar a variable interest in Four Points. We have evaluated
the business arrangement with Four Points and concluded that Nexstar is not the
primary beneficiary of the variable interest and therefore, we do not
consolidate Four Points’ financial results into our own. Nexstar must
indemnify Four Points for any claim or liability that arises out of Nexstar’s
acts or omissions related to the agreement. For this reason,
the maximum exposure to loss as a result of our agreement with Four Points is
not determinable.
Stock-Based
Compensation
The
Company accounts for Nexstar’s stock-based employee compensation plans in
accordance with accounting rules, which require companies to expense the fair
value of employee stock options and other forms of stock-based employee
compensation in the financial statements over the period that an employee
provides service in exchange for the award. Under these rules, the Company
measures compensation cost related to stock options based on the grant-date fair
value of the award using the Black-Scholes option-pricing model and recognizes
it ratably, less estimated forfeitures, over the vesting term of the award. The
Company uses the Black-Scholes option-pricing model to estimate the grant-date
fair value of its employee stock options.
7
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2.
|
Summary
of Significant Accounting
Policies—(Continued)
|
The
Company recognized stock-based compensation expense of $0.4 million and $0.5
million for the three months ended September 30, 2009 and 2008, respectively,
and $1.1 million and $1.8 million for the nine months then ended, which was
included in selling, general and administrative expenses in the Company’s
condensed consolidated statements of operations. The Company does not currently
recognize a tax benefit resulting from stock-based compensation costs expensed
in the financial statements because the Company provides a valuation allowance
against the deferred tax asset resulting from this type of temporary difference
since it expects that it will not have sufficient future taxable income to
realize such benefit. Accordingly, stock-based compensation expense has had no
impact on income tax expense reported in the financial statements.
At
September 30, 2009, there was approximately $3.1 million of total unrecognized
compensation cost, net of estimated forfeitures, related to stock options that
is expected to be recognized over a weighted-average period of 2.9 years. There
were five thousand stock options exercised during the nine months ended
September 30, 2009 for a total intrinsic value and cash received of $5 thousand
and $13 thousand, respectively.
Broadcast
Rights
Broadcast
rights are stated at the lower of unamortized cost or net realizable value. When
projected future net revenue associated with a program is less than the current
carrying amount of the program broadcast rights, for example, due to reduced
demand for that program or time period or reduced rates during economic
slowdowns, the Company writes-down the unamortized cost of the broadcast rights
to equal the amount of projected future net revenue. Such reductions in
unamortized costs are included in amortization of broadcast rights in the
consolidated statement of operations. At acquisition, the value of
non-barter broadcast rights for WCWJ was $5.4 million. As a result of
programming schedule changes and the reduced demand for the time periods into
which the programs were moved, certain WCWJ programs incurred a write-down of
$2.1 million for the three months ended September 30, 2009. The
write-down across all stations for the three months and nine months ended
September 30, 2009 was $2.7 million and $3.0 million, respectively, and is
included in amortization of broadcast rights in the condensed consolidated
statements of operations.
Income
(loss) Per Share
Basic
income (loss) per share is computed by dividing the net income (loss) by the
weighted-average number of common shares outstanding during the period. Diluted
income (loss) per share is computed using the weighted-average number of common
shares and dilutive potential common shares outstanding during the period using
the treasury stock method. Potential common shares consist of stock options and
the unvested portion of restricted stock granted to employees. For the three
months and nine months ended September 30, 2009 and 2008, there was no
difference between basic and diluted net income (loss) per share since the
effect of potential common shares were anti-dilutive, and therefore excluded
from the computation of diluted net income (loss) per share.
The
following table summarizes information about anti-dilutive potential common
shares (not presented in thousands):
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(weighted-average
shares outstanding)
|
(weighted-average
shares outstanding)
|
|||||||||||||||
Stock
options excluded as the exercise price of the options was greater than the
average market price of the common stock
|
3,244,615
|
3,795,911
|
3,492,529
|
2,324,893
|
||||||||||||
In-the-money
stock options excluded as the Company had a net loss during the
period
|
144,596
|
23,111
|
14,863
|
1,735,033
|
Nonmonetary
Asset Exchanges
In
connection with a spectrum allocation exchange ordered by the FCC associated
with certain microwave link licenses that the Company holds for use by its
Stations within the 1.9 GHz band, Sprint Nextel Corporation (“Nextel”) is
required to replace certain existing analog equipment used by those microwave
facilities with comparable digital equipment. The Company has agreed to accept
the substitute equipment that Nextel has provided and will provide and in turn
must relinquish all of its analog equipment to Nextel. Neither party will have
any continuing involvement in the equipment transferred following the exchange.
We account for this arrangement as an exchange of assets in accordance with U.S.
GAAP requirements for exchanges of nonmonetary assets. Each item of
equipment the Company receives and has received under this arrangement is
recorded at its estimated fair market value and is depreciated over its
estimated useful life ranging from 5 to 15 years. Management’s determination of
the fair market value is derived from the most recent prices paid to
manufacturers and vendors for the specific equipment acquired. As equipment is
exchanged, the Company records a gain to the extent that the fair market value
of the equipment received exceeds the carrying amount of the equipment
relinquished.
8
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2.
|
Summary
of Significant Accounting
Policies—(Continued)
|
Recent
Accounting Pronouncements
In June
2009 the Financial Accounting Standards Board (“the FASB”) issued the FASB
Accounting Standards Codification™ (“the Codification”). The Codification is the
official single source of authoritative U.S. generally accepted accounting
principles (“GAAP”). All existing accounting standards are superseded. All other
accounting guidance not included in the Codification is considered
non-authoritative. The Codification also includes all relevant Securities and
Exchange Commission (“SEC”) guidance organized using the same topical structure
in separate sections within the Codification. The Codification is effective for
our September 30, 2009 financial statements. The Codification does not change
existing GAAP. The principal impact on our financial statements from the
Codification adoption is limited to disclosures as all references to
authoritative accounting literature are now referenced in accordance with the
Codification.
In June
2009, the FASB issued an amendment to the accounting and disclosure requirements
for the consolidation of VIE’s. This amendment requires an analysis
to determine whether a variable interest gives the entity a controlling
financial interest in a variable interest entity. The amendment requires an
ongoing reassessment and eliminates the quantitative approach previously
required for determining whether an entity is the primary beneficiary. This
amendment is effective for our fiscal year beginning January 1, 2010. We are
currently evaluating the impact of adopting this amendment on our consolidated
financial statements.
In June
2009, the FASB issued an amendment to the accounting and disclosure requirements
for transfers of financial assets. This amendment removes the concept
of a qualifying special-purpose entity. This amendment also clarifies the
requirements for isolation and limitations on portions of financial assets that
are eligible for sale accounting. The amendment is effective for our fiscal year
beginning January 1, 2010. We are currently evaluating the impact of adopting
this amendment on our consolidated financial statements.
In May
2009, the FASB issued a general standard of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. It requires disclosure of the date
through which an entity has evaluated subsequent events and the basis for
selecting that date, that is, whether that date represents the date the
financial statements were issued or were available to be issued. This standard
became effective for our second quarter ended June 30, 2009. For the
third quarter 2009, we have evaluated subsequent events through November 12,
2009, which is the date the financial statements were
issued.
In April
2009, the FASB issued a new accounting and disclosure requirement, which
increases the frequency of fair value disclosures from an annual to a quarterly
basis. The guidance relates to fair value disclosures for any financial
instruments that are not currently reflected on the balance sheet at fair value.
The new authoritative guidance is effective for interim and annual periods
ending after June 15, 2009. We adopted this guidance in the
second quarter of 2009, and it did not impact our financial position or results
of operations. It did, however, result in additional disclosures
related to the fair value of our debt. See Note 9 of these financial
statements.
In April
2009, the FASB issued guidance for estimating fair values when there is no
active market or where the price inputs being used represent distressed sales
and identifying circumstances that indicate a transaction is not orderly. This
guidance is effective for interim and annual reporting periods ending after
June 15, 2009. We adopted this guidance in the second quarter of 2009, and
it did not have any effect on the Company’s financial position or results of
operations.
In April
2008, the FASB issued guidance related to the determination of the useful life
of intangible assets. This guidance amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under the accounting and disclosure
requirements related to goodwill and other intangible assets. This new guidance
also provides additional disclosure requirements related to recognized
intangible assets. We adopted this guidance in January 2009 and it did not have
a material impact on our financial position or results of
operations.
In
January 2008, we adopted the FASB’s accounting and disclosure requirements
related to fair value measurements as they pertain to financial assets and
liabilities. The adoption did not have a material impact on our financial
position or results of operations. These new requirements established a
framework for measuring fair value, and enhanced the disclosures for fair value
measurements. This authoritative guidance applies when other accounting
pronouncements require or permit fair value measurements, but it does not
require new fair value measurements. In February 2008, the FASB issued a
one-year deferral for the application of this standard as it pertains to
non-financial assets and liabilities. We adopted this standard for non-financial
assets and liabilities in the first quarter of 2009. There were no material
effects on our financial statements upon adoption of this new accounting
pronouncement; however, this pronouncement could have a material impact in
future periods.
9
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2.
|
Summary
of Significant Accounting
Policies—(Continued)
|
In
December 2007, the FASB issued authoritative guidance related to business
combinations, as well as guidance for the accounting and reporting of
noncontrolling interests in consolidated financial statements. These
new standards significantly change the accounting for and reporting of business
combination transactions and noncontrolling (minority) interests in consolidated
financial statements. We adopted these standards on January 1, 2009. The
impact of adopting the standard related to business combinations will be
primarily limited to business combinations occurring on or after January 1,
2009. Adoption of the guidance related to noncontrolling interests in
consolidated financial statements had no impact on our financial position or
results of operations.
3.
|
Fair
Value Measurements
|
The
Company adopted authoritative guidance effective January 1, 2008 for
financial assets and financial liabilities measured on a recurring basis and
January 1, 2009 for non-financial assets and non-financial liabilities.
This guidance applies to all financial and non-financial assets and financial
and non-financial liabilities that are being measured and reported on a fair
value basis. There was no impact, upon adoption, to the consolidated financial
statements as it relates to financial and non-financial assets and financial and
non-financial liabilities. This guidance requires disclosure that establishes a
framework for measuring fair value and expands disclosure about fair value
measurements. Fair value measurement must be classified and disclosed in one of
the following three categories:
Level 1:
Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities;
Level 2:
Quoted prices in markets that are not active or inputs which are observable,
either directly or indirectly, for substantially the full term of the asset or
liability;
Level 3:
Prices or valuation techniques that require inputs that are both significant to
the fair value measurement and unobservable (i.e., supported by little or no
market activity).
The
Company invests in short-term interest bearing obligations with original
maturities less than 90 days, primarily money market funds. We do not enter into
investments for trading or speculative purposes. As of September 30, 2009 and
December 31, 2008, there were no investments in marketable
securities.
As of
September 30, 2009 and December 31, 2008, the Company had $10.9 million and
$12.0 million, respectively invested in a money market investment. These
investments are required to be measured at fair value on a recurring basis. The
Company has determined that the money market investment is defined as Level 1 in
the fair value hierarchy. As of September 30, 2009 and December 31, 2008,
the fair value of the money market investment was an asset of $10.9 million and
$12.0 million, respectively.
4.
|
Pending
Transaction with Mission
|
On
April 11, 2006, Nexstar and Mission filed an application with the FCC for
consent to assignment of the license of KFTA Channel 24 (Ft. Smith, Arkansas)
from Nexstar to Mission. Consideration for this transaction is set at $5.6
million. On August 28, 2006, Nexstar and Mission entered into a local
service agreement whereby (a) Mission pays Nexstar $5 thousand per month
for the right to broadcast Fox programming on KFTA during the Fox network
programming time periods and (b) Nexstar pays Mission $20 thousand per
month for the right to sell all advertising time on KFTA within the Fox network
programming time periods. Also in 2006, Mission entered into an affiliation
agreement with the Fox network which provides Fox programming to KFTA. The local
service agreement between Nexstar and Mission will terminate upon assignment of
KFTA’s FCC license from Nexstar to Mission. Upon completing the assignment of
KFTA’s license, Mission plans to enter into a JSA and SSA with Nexstar-owned
KNWA in Fort Smith-Fayetteville-Springdale-Rogers, Arkansas, whereby KNWA will
provide local news, sales and other non-programming services to KFTA. Nexstar’s
KNWA, licensed to Rogers, Arkansas, has renewed its affiliation agreement for
KNWA to continue as the NBC affiliate in Ft.
Smith-Fayetteville-Springdale-Rogers, Arkansas through 2014. In March 2008, the
FCC granted the application to assign the license for KFTA from Nexstar to
Mission. The grant contained conditions which Nexstar is currently
appealing.
10
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
5.
|
Acquisitions
|
On
January 28, 2009, Nexstar entered into an agreement to acquire the assets
of WCWJ, the CW affiliate serving the Jacksonville, Florida market, for $18.0
million (base) subject to working capital adjustments. Nexstar viewed this
acquisition as an opportunity to leverage our management expertise and increase
profitability of the station by overlaying our existing retransmission
compensation contracts and incorporating our cost reduction
strategies. The transaction closed on May 1,
2009. Cash available on hand was used to make a $1.0 million down
payment in February 2009 and the remaining $16.2 million was paid upon
closing. Transaction costs such as legal, accounting, valuation and
other professional services of $0.3 million were expensed as
incurred.
The
following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition.
Accounts
receivable
|
1,310
|
|||
Current
portion of broadcast rights
|
2,078
|
|||
Prepaids
and other current assets
|
28
|
|||
Property
and equipment
|
4,172
|
|||
Long-term
portion of broadcast rights
|
3,371
|
|||
FCC
license
|
8,561
|
|||
Goodwill
|
96
|
|||
Other
intangible assets
|
70
|
|||
Total
assets acquired
|
19,686
|
|||
Less:
current portion of broadcast rights payable
|
808
|
|||
Less:
accounts payable
|
177
|
|||
Less:
accrued expenses
|
50
|
|||
Less:
long-term portion of broadcast rights payable
|
1,495
|
|||
Net
assets acquired
|
$
|
17,156
|
Goodwill
of $0.1 million is expected to be deductible for tax purposes. The fair value
assigned to goodwill is attributable to future expense reductions utilizing
management’s leverage in programming and other station operating
costs.
WCWJ’s
revenue of $2.4 million and net loss of $1.6 million for the period July 1, 2009
to September 30, 2009 and revenue of $4.0 million and net loss of $1.6 million
for the period May 1, 2009 to September 30, 2009 have been included in the
accompanying condensed consolidated statement of operations for the three months
and nine months ended September 30, 2009.
On
October 6, 2008, Nexstar entered into a purchase agreement to acquire
substantially all of the assets of KARZ (formerly KWBF), the MyNetworkTV
affiliate serving the Little Rock, Arkansas market for $4.0 million. The
acquisition gives Nexstar an opportunity to further utilize existing
retransmission compensation contracts and also to achieve duopoly synergies
within the KARZ market. In accordance with the purchase agreement,
Nexstar made a down payment of $0.4 million in 2008. This acquisition closed on
March 12, 2009 and the remaining $3.6 million was paid from available cash
on hand. Transaction costs such as legal, accounting, valuation and
other professional services of $0.1 million were expensed as
incurred.
The
following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition.
Current
portion of broadcast rights
|
263
|
|||
Property
and equipment
|
878
|
|||
Long-term
portion of broadcast rights
|
379
|
|||
FCC
license
|
2,673
|
|||
Goodwill
|
335
|
|||
Total
assets acquired
|
4,528
|
|||
Less:
current portion of broadcast rights payable
|
262
|
|||
Less:
long-term portion of broadcast rights payable
|
266
|
|||
Net
assets acquired
|
$
|
4,000
|
Goodwill
of $0.3 million is expected to be deductible for tax purposes. The fair value
assigned to goodwill is attributable to the synergies achieved by adding KARZ to
our pre-existing station in the Little Rock market, KARK.
11
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
5.
|
Acquisitions—(Continued)
|
KARZ’s
revenue of $0.4 million and net income of $0.3 million for the period July 1,
2009 to September 30, 2009 and revenue of $1.1 million and net income of $1.0
million for the period February 1, 2009 to September 30, 2009 (post TBA) have
been included in the accompanying condensed consolidated statement of operations
for the three months and nine months ended September 30, 2009.
Unaudited
Pro Forma Information
The
following unaudited pro forma information has been presented as if the
acquisition of WCWJ and KARZ had occurred on January 1, 2008:
Three
Months Ended
September
30, 2009
|
Three
Months Ended
September
30, 2008
|
Nine
Months
Ended
September
30, 2009
|
Nine
Months
Ended
September
30, 2008
|
|||||||||||||
(in
thousands)
|
(in
thousands)
|
|||||||||||||||
Net
revenue
|
$
|
60,399
|
$
|
72,763
|
$
|
180,859
|
$
|
213,043
|
||||||||
Income
(loss) before income taxes
|
(22,296
|
)
|
(50,078
|
)
|
(14,690
|
)
|
(57,978
|
)
|
||||||||
Net
income (loss)
|
(18,391
|
)
|
(47,075
|
)
|
(13,555
|
)
|
(58,288
|
)
|
The above
selected unaudited pro forma information is presented for illustrative purposes
only and is not necessarily indicative of results of operations in future
periods or results that would have been achieved had the Company owned the
acquired stations during the specified period.
6.
|
Intangible
Assets and Goodwill
|
Intangible
assets subject to amortization consisted of the following:
Estimated
useful
life
|
September 30,
2009
|
December 31,
2008
|
||||||||||||||||||||||||||
Gross
|
Accumulated
Amortization
|
Net
|
Gross
|
Accumulated
Amortization
|
Net
|
|||||||||||||||||||||||
(years)
|
(in thousands)
|
(in thousands)
|
||||||||||||||||||||||||||
Network
affiliation agreements
|
15
|
$
|
344,662
|
$
|
(216,239
|
)
|
$
|
128,423
|
$
|
344,662
|
$
|
(199,159
|
)
|
$
|
145,503
|
|||||||||||||
Other
definite-lived intangible assets
|
1-15
|
13,455
|
(9,729
|
)
|
3,726
|
13,385
|
(9,037
|
)
|
4,348
|
|||||||||||||||||||
Total
intangible assets subject to amortization
|
$
|
358,117
|
$
|
(225,968
|
)
|
$
|
132,149
|
$
|
358,047
|
$
|
(208,196
|
)
|
$
|
149,851
|
We
recorded an impairment charge of $16.2 million during the third quarter of 2009
that included an impairment to the carrying values of FCC licenses of $8.8
million, related to 19 of our stations and an impairment to the carrying values
of goodwill of $7.4 million, related to four reporting units consisting of five
of our television stations. As required by the authoritative guidance
for goodwill and other intangible assets, we tested our FCC licenses and
goodwill for impairment at September 30, 2009, between the required annual
tests, because we believed events had occurred and circumstances changed that
would more likely than not reduce the fair value of our reporting units below
their carrying amounts and that our FCC licenses might be
impaired. These events and circumstances include the overall economic
recession and a continued decline in demand for advertising at several of our
stations.
The
impairment test for FCC licenses consists of a station-by-station comparison of
the carrying amount of FCC licenses with their fair value, using a discounted
cash flow analysis.
12
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
6.
|
Intangible
Assets and Goodwill—(Continued)
|
The
impairment test for goodwill utilizes a two-step fair value
approach. The first step of the goodwill impairment test is used to
identify potential impairment by comparing the fair value of the combined
stations in a market (“reporting unit”) to its carrying amount. The
fair value of a reporting unit is determined using a discounted cash flow
analysis. If the fair value of the reporting unit exceeds its
carrying amount, goodwill is not considered impaired. If the
carrying amount of the reporting unit exceeds its fair value, the second step of
the goodwill impairment test is performed to measure the amount of impairment
loss, if any. The second step of the goodwill impairment test
compares the implied fair value of the reporting unit’s goodwill with the
carrying amount of that goodwill. The implied fair value of goodwill
is determined by performing an assumed purchase price allocation, using the
reporting unit’s fair value (as determined in Step 1) as the purchase
price. If the carrying amount of goodwill exceeds the implied fair
value, an impairment loss is recognized in an amount equal to that
excess.
Determining
the fair value of our reporting units requires our management to make a number
of judgments about assumptions and estimates that are highly subjective and that
are based on unobservable inputs. The actual results may differ from
these assumptions and estimates; it is possible that such differences could have
a material impact on our financial statements. In addition to the
various inputs (i.e. market growth, operating profit margins, discount rates)
that we use to calculate the fair value of our FCC licenses and reporting units,
we evaluate the reasonableness of our assumptions by comparing the total fair
value of all our reporting units to our total market capitalization; and by
comparing the fair value of our reporting units or television stations, and FCC
licenses to recent television station sale transactions.
We used
an income approach to test our FCC licenses for impairments as of September 30,
2009 with the following assumptions: (a) a discount rate of 10.5%; (b) market
growth rates ranging from 0.0% to 8.5%; and (c) operating profit margins ranging
from 11.5% to 33.7%.
We used
the income approach to test goodwill for impairments as of September 30, 2009
with the following assumptions: (a) a discount rate of 10.5%; (b) market growth
rates ranging from 0.0% to 8.5%; and (c) operating profit margins ranging from
20.0% to 42.8%. These assumptions are based on: (a) the actual
historical performance of our stations; (b) management’s estimates of future
performance of our stations; and (c) the same market growth assumptions used in
the calculation of the fair value of our FCC licenses.
As
previously noted, we are required by authoritative guidance to test our
indefinite-lived intangible assets on an annual basis or whenever events or
changes in circumstances indicate that these assets might be
impaired. As a result, future economic trends could require us to
record further impairments in future periods.
Total
amortization expense from definite-lived intangibles was $5.9 million and $6.3
million for the three months ended September 30, 2009 and 2008, respectively and
$17.8 million and $19.1 million for the nine months then ended. The Company’s
estimate of amortization expense for definite-lived intangible assets as of
September 30, 2009 is approximately $23.7 million for each year for the years
2009 and 2010; $23.3 million for 2011; $23.0 million for 2012; and $17.4 million
for 2013.
The
aggregate carrying value of indefinite-lived intangible assets, consisting of
FCC licenses and goodwill, was $236.5 million and $240.7 million at September
30, 2009 and December 31, 2008, respectively. The Company expenses as
incurred, any costs to renew or extend its FCC licenses.
The
changes in the carrying amount of goodwill for the nine months and year ended
September 30, 2009 and December 31, 2008, respectively, are as
follows:
2009
|
2008
|
|||||||
(in
thousands)
|
||||||||
Goodwill
|
$
|
154,488
|
$
|
151,686
|
||||
Accumulated
impairment losses
|
(38,856
|
)
|
—
|
|||||
Balance
as of January 1
|
$
|
115,632
|
$
|
151,686
|
Acquisitions
|
431
|
2,802
|
||||||
Impairment
|
(7,360
|
)
|
(38,856
|
)
|
||||
Reclassification
of asset
|
356
|
—
|
Goodwill
|
$
|
155,275
|
$
|
154,488
|
||||
Accumulated
impairment losses
|
(46,216
|
)
|
(38,856
|
)
|
||||
Balance
as of September 30, 2009 and December 31, 2008,
respectively
|
$
|
109,059
|
$
|
115,632
|
13
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
6.
|
Intangible
Assets and Goodwill—(Continued)
|
The
changes in the carrying amount of FCC licenses for the nine months and year
ended September 30, 2009 and December 31, 2008, respectively are as
follows:
2009
|
2008
|
|||||||
(in
thousands)
|
||||||||
FCC
licenses
|
$
|
166,455
|
$
|
163,795
|
||||
Accumulated
impairment losses
|
(41,398
|
)
|
—
|
|||||
Balance
as of January 1
|
$
|
125,057
|
$
|
163,795
|
Acquisitions
|
11,234
|
2,660
|
||||||
Impairment
|
(8,804
|
)
|
(41,398
|
)
|
FCC
licenses
|
$
|
177,689
|
$
|
166,455
|
||||
Accumulated
impairment losses
|
(50,202
|
)
|
(41,398
|
)
|
||||
Balance
as of September 30, 2009 and December 31, 2008,
respectively
|
$
|
127,487
|
$
|
125,057
|
During
2009, the consummation of the acquisitions of KARZ and WCWJ increased goodwill
and FCC licenses by $0.4 million and $11.2 million,
respectively. During the nine months ended September 30, 2009 the
Company reclassified certain amounts that totaled $0.4 million representing
goodwill that was improperly classified as property and equipment when recording
the fair value of KTVE assets, which were acquired in 2008.
The fair
value measurements of our goodwill and FCC licenses are as follows using the
three-level fair value hierarchy established by authoritative accounting
guidance as of September 30, 2009:
Quoted
prices in active markets
(Level
1)
|
Significant
observable inputs
(Level
2)
|
Significant
unobservable inputs
(Level
3)
|
||||
(in
thousands)
|
||||||
Goodwill
|
$ | 109,059 | ||||
FCC
licenses
|
$ | 127,487 |
Determining
the fair value of our television stations requires our management to make a
number of judgments about assumptions and estimates that are highly subjective
and that are based on unobservable inputs or assumptions. The actual
results may differ from these assumptions and estimates; and it is possible that
such differences could have a material impact on our financial
statements.
7. Restructure
Charge
In
February 2009, Nexstar began regionalizing certain accounting and traffic
functions. As a result, approximately 93 employees were notified they would be
terminated at various points in time through the end of May 2009. These
employees were offered termination benefits that aggregated to $0.7 million. To
receive any of the termination payments, the employees had to remain employed
through their respective termination dates, as specified in the termination
agreement. The Company recognized these costs ratably over the period of time
between the notice of termination and the termination date. The
liability, which has been paid in full, was recorded in accrued expenses on the
Company’s balance sheet.
8.
|
Accrued
Expenses
|
Accrued
expenses consisted of the following:
September
30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
(in
thousands)
|
||||||||
Compensation
and related taxes
|
$
|
4,425
|
$
|
3,102
|
||||
Sales
commissions
|
1,559
|
1,550
|
||||||
Employee
benefits
|
946
|
947
|
||||||
Property
taxes
|
907
|
444
|
||||||
Other
accruals related to operating expenses
|
5,371
|
6,441
|
||||||
$
|
13,208
|
$
|
12,484
|
14
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
9.
|
Debt
|
Long-term
debt consisted of the following:
September
30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
(in
thousands)
|
||||||||
Term
loans
|
$
|
322,560
|
$
|
325,174
|
||||
Revolving
credit facilities
|
85,000
|
31,000
|
||||||
7%
senior subordinated notes due 2014, net of discount of $978 and
$1,708
|
46,932
|
190,778
|
||||||
7%
senior subordinated PIK notes due 2014, net of discount of
$12,712
|
129,965
|
—
|
||||||
11.375%
senior discount notes due 2013
|
49,981
|
77,820
|
||||||
Senior
subordinated PIK notes due 2014, net of discount of $104 and
$416
|
41,117
|
37,345
|
||||||
675,555
|
662,117
|
|||||||
Less:
current portion
|
(3,485
|
)
|
(3,485
|
)
|
||||
$
|
672,070
|
$
|
658,632
|
On
October 8, 2009, Nexstar amended its senior secured credit facility to modify
certain terms of the underlying credit agreement. The
modifications included, but are not limited to, changes to financial
covenants, including the Consolidated Total Leverage Ratio and Consolidated
Senior Leverage Ratio, a general tightening of the exceptions to the
negative covenants (principally by means of reducing the types and amounts
of permitted transactions) and an increase to the interest rates and fees
payable with respect to the borrowings under the amended credit
agreement.
The
Amended Nexstar Credit Agreement revises the calculation of leverage ratios to
exclude the netting of cash and cash equivalents against total
debt.
On an
annual basis following the delivery of Nexstar's Broadcasting, Inc.'s year end
financial statements, the Amended Nexstar Credit Agreement requires
mandatory prepayments of principal, as well as a permanent reduction in
revolving credit commitments, subject to a computation of excess cash
flow for the preceding fiscal year. The amended agreement also places additional
restrictions on the use of proceeds from asset sales, equity issuances, or debt
issuances (with the result that such proceeds, subject to certain exceptions, be
used for mandatory prepayments of principal and permanent reductions in
revolving credit commitments), and includes an anti-cash hoarding provision
which requires that the Company utilize unrestricted cash and cash equivalent
balances in excess of $15.0 million to repay principal amounts outstanding, but
not permanently reduce capacity, under the revolving credit
facility.
The
Amended Nexstar Credit Agreement also revised the interest rate
provisions. As amended, borrowings under the Facility may bear
interest at either (i) a Eurodollar Rate, which has been amended to include an
interest rate floor equal to 1% or (ii) a Base Rate, which, as
amended, is defined as the greater of (1) the sum of 1/2 of 1% plus
the Federal Funds Rate, (2) Bank of America, N.A.'s prime rate and (3) the sum
of (x) 1% plus (y) the Eurodollar Rate. The definition of applicable
margin was changed to eliminate the pricing grid and replace it with a fixed
rate. As amended, the applicable margin for Eurodollar loans is a
rate per annum equal to 4% and the applicable margin for Base Rate loans is a
rate per annum equal to 3%.
On
October 8, 2009, Mission also amended its credit facility and made changes to
its credit agreement that generally mirror the changes made to the Nexstar
credit agreement.
The
Amended Nexstar Credit Agreement expanded certain cross-default provisions such
that the breach of certain warranties, representations or covenants under the
Amended Mission Credit Agreement now constitute an event of default under the
Amended Nexstar Credit Agreement.
In
conjunction with the amendment to our credit agreement, $0.6 million related to
professional fees were recognized as administrative expense as
incurred.
The
Nexstar Senior Secured Credit Facility
The
Nexstar senior secured credit facility (the “Nexstar Facility”) consists of a
Term Loan B and a $82.5 million revolving loan. As of September 30, 2009 and
December 31, 2008, Nexstar had $156.8 million and $158.1 million,
respectively, outstanding under its Term Loan B and $78.0 million and $24.0
million, respectively, outstanding under its revolving loan.
15
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
9.
|
Debt—(Continued)
|
The Term
Loan B, which matures in October 2012, is payable in consecutive quarterly
installments amortized at 0.25% quarterly, with the remaining 93.25% due at
maturity. During the nine months ended September 30, 2009, repayments of
Nexstar’s Term Loan B totaled $1.3 million, all of which were scheduled
maturities. The revolving loan is not subject to incremental reduction and
matures in April 2012. During the nine months ended September 30, 2009,
borrowings from Nexstar’s revolving loan totaled $54.0 million.
The total
weighted-average interest rate of the Nexstar Facility was 2.16% and 3.35% at
September 30, 2009 and December 31, 2008, respectively. Interest is payable
periodically based on the type of interest rate selected. Additionally, Nexstar
is required to pay quarterly commitment fees on the unused portion of its
revolving loan commitment. Effective with the debt amendment, the
commitment fee is 0.75%.
The
Mission Senior Secured Credit Facility
The
Mission senior secured credit facility (the “Mission Facility”) consists of a
Term Loan B and a $15.0 million revolving loan. As of September 30, 2009 and
December 31, 2008, Mission had $165.8 million and $167.1 million,
respectively, outstanding under its Term Loan B and $7.0 million of borrowings
were outstanding under its revolving loan.
Terms of
the Mission Facility, including repayment, maturity and interest rates, are the
same as the terms of the Nexstar Facility described above. During the nine
months ended September 30, 2009, repayments of Mission’s Term Loan B totaled
$1.3 million, all of which were scheduled maturities. The total weighted
average interest rate of the Mission Facility was 2.02% and 3.19% at September
30, 2009 and December 31, 2008, respectively.
Unused
Commitments and Borrowing Availability
Nexstar
and Mission had $12.5 million of total unused revolving loan commitments under
their respective credit facilities, $0 of which was available for borrowing,
based on the covenant calculations as of September 30, 2009.
Exchange
of Senior Subordinated Notes for Senior Subordinated Payment-in-kind (“PIK”)
Notes
On
February 27, 2009, Nexstar Broadcasting, an indirect subsidiary of Nexstar,
announced the commencement of an offer to exchange up to $143,600,000 aggregate
principal amount of its outstanding $191,510,000 in aggregate principal amount
of 7% senior subordinated notes due 2014 (the “Old Notes”) in exchange for
(i) up to $142,320,761 in aggregate principal amount of Nexstar
Broadcasting’s 7% senior subordinated PIK Notes due 2014 (the “New Notes”), to
be guaranteed by each of the existing guarantors to the Old Notes and
(ii) cash. The total exchange price received by tendering holders of the
Old Notes in the exchange offer included an early participation payment of
$30.00 per $1,000 principal amount of Old Notes payable only to holders who
tendered their Old Notes at or before March 10, 2009, which is in addition
to the $93.10 per $1,000 principal amount of Old Notes payable to all holders
who validly tendered their Old Notes on March 26, 2009. The exchange closed
on March 30, 2009. The New Notes mature on January 15, 2014, unless earlier
redeemed or repurchased. The New Notes are general unsecured senior subordinated
obligations subordinated to all of Nexstar Broadcasting’s senior debt. Nexstar
Broadcasting will pay interest on the New Notes on January 15 and July 15 of
each year, commencing on July 15, 2009. Interest will be computed on the basis
of a 360-day year of twelve 30-day months. However, prior to January 15, 2011,
the interest on the New Notes will not be cash interest. From the date of
issuance through January 15, 2011, Nexstar Broadcasting will pay interest on the
New Notes entirely by issuing additional New Notes (the “PIK Interest”). PIK
Interest will accrue on the New Notes at a rate per annum equal to 0.5%,
calculated on a semi-annual bond equivalent basis. From and after January 15,
2011, all New Notes (including those received as PIK Interest) will accrue
interest in cash at a rate of 7% per annum, which interest will be payable
semi-annually in cash on each January 15 and July 15, commencing on July 15,
2011. As a result of the exchange offer and the subsequently accrued PIK
interest, Nexstar now has approximately $142.7 million in aggregate principal of
New Notes outstanding and approximately $47.9 million in aggregate principal
amount of Old Notes outstanding. Total cash consideration paid to tendering
bondholders was $17.7 million. The exchange transaction was accounted for as a
modification of existing debt. The Company incurred $2.9 million in fees
related to the transaction, including banking fees, legal fees and accounting
fees, which were charged to selling, general and administrative
expenses.
7%
Senior Subordinated Notes
On
January 15, 2009, Nexstar purchased approximately $1.0 million of its
outstanding 7% senior subordinated notes for $0.4 million, plus accrued interest
of $1 thousand.
16
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
9.
|
Debt—(Continued)
|
11.375%
Senior Discount Notes
On
various dates throughout January and February 2009, Nexstar purchased some of
the outstanding 11.375% senior discount notes issued by Nexstar Finance
Holdings, Inc. with a total face value of $27.8 million for $9.6 million, plus
accrued interest of $1.0 million. These transactions resulted in total gains of
$18.0 million.
Debt
Covenants
The
Nexstar Facility contains covenants which require the Company to comply with
certain financial covenant ratios, including (1) a maximum total combined
leverage ratio of Nexstar Broadcasting and Mission of 6.75 times the last twelve
months operating cash flow (as defined in the credit agreement) at September 30,
2009, (2) a maximum combined senior leverage ratio of Nexstar Broadcasting
and Mission of 5.50 times the last twelve months operating cash flow at
September 30, 2009, (3) a minimum combined interest coverage ratio of 1.50
to 1.00, and (4) a fixed charge coverage ratio of 1.15 to 1.00. The
covenants, which are formally calculated on a quarterly basis, are based on the
combined results of Nexstar Broadcasting and Mission. Mission’s bank credit
facility agreement does not contain financial covenant ratio requirements, but
does provide for default in the event Nexstar does not comply with all covenants
contained in its credit agreement. As of September 30, 2009, we were in
compliance with all indentures governing the publicly-held notes. As
of September 30, 2009, we were not in compliance with all covenants contained in
the credit agreement governing our senior secured credit facility. On
October 8, 2009, we amended our credit facility to modify certain
covenants. The October 8, 2009 debt amendment contained a limited
waiver for the leverage ratios which cured the violation as of September 30,
2009.
Collateralization
and Guarantees of Debt
The bank
credit facilities described above are collateralized by a security interest in
substantially all the combined assets, excluding FCC licenses, of Nexstar and
Mission. Nexstar and its subsidiaries guarantee full payment of all obligations
incurred under the Mission Facility in the event of Mission’s default.
Similarly, Mission is a guarantor of the Nexstar Facility and the senior
subordinated notes issued by Nexstar Broadcasting.
In
consideration of Nexstar’s guarantee of Mission’s senior credit facility, the
sole shareholder of Mission has granted Nexstar a purchase option to acquire the
assets and assume the liabilities of each Mission station, subject to FCC
consent. These option agreements (which expire on various dates between 2011 and
2018) are freely exercisable or assignable by Nexstar without consent or
approval by the sole shareholder of Mission. The Company expects these option
agreements, if unexercised, will be renewed upon expiration.
Fair
Value of Debt
The
aggregate carrying amounts and estimated fair value of Nexstar and Mission’s
debt were as follows:
September
30, 2009
|
December
31, 2008
|
|||||||||||||||
Carrying
Amount
|
Fair
Value
|
Carrying
Amount
|
Fair
Value
|
|||||||||||||
(in
thousands)
|
||||||||||||||||
Term
loans(1)
|
$
|
322,560
|
$
|
296,620
|
$
|
325,174
|
$
|
293,388
|
||||||||
Revolving
credit facilities(1)
|
$
|
85,000
|
$
|
78,645
|
$
|
31,000
|
$
|
27,829
|
||||||||
7%
senior subordinated notes(2)
|
$
|
46,932
|
$
|
21,650
|
$
|
190,778
|
$
|
78,219
|
||||||||
7%
senior subordinated PIK notes(3)
|
$
|
129,965
|
$
|
84,477
|
$
|
—
|
$
|
—
|
||||||||
Senior
discount notes(2)
|
$
|
49,981
|
$
|
20,897
|
$
|
77,820
|
$
|
26,264
|
||||||||
Senior
subordinated PIK notes(3)
|
$
|
41,117
|
$
|
19,788
|
$
|
37,345
|
$
|
16,805
|
(1)
|
The
fair value of bank credit facilities is computed based on recently amended
borrowing rates for Nexstar and Mission for bank loans with similar terms
and average maturities.
|
(2)
|
The
fair value of Nexstar’s 7% senior subordinated notes and 11.375% senior
discount notes is estimated based on actual trade prices reported to the
National Association of Securities Dealers,
Inc.
|
(3)
|
The
fair value of Nexstar’s 7% senior subordinated PIK notes and private
placement senior subordinated PIK notes is estimated based on pricing
obtained from significant holders of the
notes.
|
17
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
10.
|
Contract
Termination
|
On
March 31, 2008, Nexstar signed a ten year agreement for national sales
representation with two units of Katz Television Group, a subsidiary of Katz
Media Group (“Katz”), transferring 24 stations in 14 of its markets from Petry
Television Inc. (“Petry”) and Blair Television Inc. (“Blair”). Nexstar, Blair,
Petry and Katz entered into a termination and mutual release agreement under
which Blair agreed to release Nexstar from its future contractual obligations in
exchange for payments totaling $8.0 million. The payments will be paid by Katz
on behalf of Nexstar as an inducement for Nexstar to enter into the new
long-term contract with Katz. Nexstar recognized a $7.2 million charge
associated with terminating the contracts, which is reflected as a non-cash
contract termination fees in the accompanying condensed consolidated statement
of operations. The $7.2 million charge was calculated as the present value of
the future payments to be made by Katz. The liability established as a result of
the termination represents an incentive received from Katz that will be
accounted for as a termination obligation, and will be recognized as a non-cash
reduction to operating expenses over the term of the agreement with
Katz. Effective May 1, 2009 we signed another agreement to
transfer the remaining Nexstar stations to Katz and its related
companies. Moving these contracts resulted in Nexstar cancelling
multiple contracts with Blair. As a result, Blair has sued the
Company for additional termination fees. Katz has indemnified the
Company for all expenses related to the settlement and defense of this
lawsuit. Termination of these contracts resulted in a non-cash
contract termination fee of $191 thousand. The associated termination
incentive will be recognized as a reduction in operating expenses over the ten
year contract term. As of September 30, 2009, the current portion of
these deferred amounts of approximately $0.7 million was included in other
current liabilities and the long-term portion in the amount of approximately
$5.7 million was included in deferred representation fee incentive in the
accompanying condensed balance sheet. The Company recognized $0.2
million and $0.5 million of these incentives as a reduction of selling, general
and administrative expense for the three months and nine months ended September
30, 2009, respectively. For the three months and nine months ended
September 30, 2008, the Company recognized $0.2 million and $0.4 million,
respectively of these incentives.
11.
|
Other
Non-Current Liabilities
|
Other
non-current liabilities consist of the following:
September
30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
(in
thousands)
|
||||||||
Deferred
rent
|
$
|
7,573
|
$
|
7,222
|
||||
Software
agreement obligation
|
4,021
|
4,281
|
||||||
Other
|
2,018
|
1,772
|
||||||
$
|
13,612
|
$
|
13,275
|
12. Stock-Based
Compensation Plans
Nexstar’s
employee compensation plans (the “Equity Plans”) provide for the granting of
stock options, stock appreciation rights, restricted stock and performance
awards to directors, employees of Nexstar or consultants. A maximum of 4,500,000
shares of Nexstar’s Class A common stock can be issued under the Equity
Plans and as of September 30, 2009, a total of 608,000 shares were available for
future grant. Employee stock options are granted with an exercise price at least
equal to the fair market value of the underlying shares of common stock on the
date of the grant, vest over five years and expire ten years from the date of
grant.
13.
|
Gain
on Asset Exchange
|
In 2004,
the FCC approved a spectrum allocation exchange between Sprint Nextel
Corporation (“Nextel”) and certain public safety entities to eliminate
interference being caused to public safety radio licensees by Nextel’s
operations on certain frequencies. As part of this spectrum exchange, the FCC
granted Nextel the right to certain spectrum within the 1.9 GHz band that is
currently used by television broadcasters to carry their programming by
microwave link to their studio or transmitter sites. In order to utilize this
spectrum, Nextel is required to relocate spectrum used by broadcasters in the
1.9 GHz band to spectrum on different frequencies by, in part, replacing all
analog equipment associated with those microwave link facilities being used by
broadcasters with comparable digital equipment. The Company has agreed to accept
the substitute equipment that Nextel has provided and will provide and in turn
must relinquish all of its analog equipment back to Nextel. This transition
began on a market by market basis beginning in the second quarter of 2007. Each
piece of equipment the Company receives and has received under this arrangement
is recorded at its estimated fair market value and is depreciated over its
estimated useful life ranging from 5 to 15 years. Management’s determination of
the fair market value is derived from the most recent prices paid to
manufacturers and vendors for the specific equipment acquired. As equipment is
exchanged, the Company records a gain to the extent that the fair market value
of the equipment received exceeds the carrying amount of the equipment
relinquished. For the three months ended September 30, 2009 and 2008, the
Company recognized gains of $2.6 million and $0.5 million, respectively, and
$6.7 million and $4.1 million, respectively for the nine months then ended, from
the exchange of this equipment.
18
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
14.
|
Gain
on Casualty Loss
|
On
February 2, 2009, the building in Port Arthur, Texas suffered extensive fire
damage resulting in a total loss of the building. The operations previously
performed in this building had been moved to Little Rock, Arkansas prior to the
fire. The building was fully insured and the payout on the claim resulted in a
gain of $0.8 million.
On May 8,
2009, a transmission tower at KSNF collapsed, damaging a portion of the facility
and nearby property. The settlement of the claim resulted in a gain
of $2.2 million, which is included in loss (gain) on asset disposal,
net.
15.
|
Income
Taxes
|
The
Company’s benefit from income taxes is primarily the result of the impairment
charge which reduced the carrying value of goodwill and other indefinite-lived
assets for financial reporting purposes and decreased the deferred tax liability
position. The benefit is offset, in part, by a provision for income
tax that is primarily comprised of deferred income taxes created by an increase
in the deferred tax liabilities position during the year resulting from the
amortization of goodwill and other indefinite-lived intangible assets for income
tax purposes which are not amortized for financial reporting
purposes. These deferred tax liabilities do not reverse on a
scheduled basis and are not used to support the realization of deferred tax
assets. The Company’s deferred tax assets primarily result from
federal and state net operating loss carryforward (“NOL’s”). The
Company’s NOL’s are available to reduce future taxable income if utilized before
their expiration. The Company has provided a valuation allowance for
certain deferred tax assets as it believes they may not be realized through
future taxable earnings.
As of
January 1, 2009, the Company had gross unrecognized tax benefits of
approximately $3.7 million, which did not materially change as of September 30,
2009. If recognized, this amount would result in a favorable effect on the
Company’s effective tax rate excluding the impact on the Company’s valuation
allowance. As of September 30, 2009, the Company has not accrued interest on the
unrecognized tax benefits as an unfavorable outcome upon examination would not
result in a cash outlay but would reduce NOLs subject to a valuation allowance.
The Company does not expect the amount of unrecognized tax benefits to
significantly change in the next twelve months.
The
Company files income tax returns in the U.S. federal jurisdiction and various
state jurisdictions. The Company is subject to U.S. federal tax examinations for
years after 2004. Additionally, any NOLs that were generated in prior years and
will be utilized in the future may also be subject to examination by the
Internal Revenue Service. State jurisdictions that remain subject to examination
are not considered significant.
16.
|
FCC
Regulatory Matters
|
Television
broadcasting is subject to the jurisdiction of the FCC under the Communications
Act of 1934, as amended (the “Communications Act”). The Communications Act
prohibits the operation of television broadcasting stations except under a
license issued by the FCC, and empowers the FCC, among other things, to issue,
revoke, and modify broadcasting licenses, determine the location of television
stations, regulate the equipment used by television stations, adopt regulations
to carry out the provisions of the Communications Act and impose penalties for
the violation of such regulations. The FCC’s ongoing rule making proceedings
could have a significant future impact on the television industry and on the
operation of the Company’s stations and the stations it provides services to. In
addition, the U.S. Congress may act to amend the Communications Act in a manner
that could impact the Company’s stations, the stations it provides services to
and the television broadcast industry in general.
Some of
the more significant FCC regulatory matters impacting the Company’s operations
are discussed below.
Digital
Television (“DTV”) Conversion
On June
12, 2009 all full-power television broadcasters were required to cease operating
in an analog format and operate exclusively in digital (DTV)
format. All of Nexstar’s and Mission’s stations have completed the
transition to digital operations except for KQTV and KMID. KQTV
holds a construction permit issued by the FCC to build a higher-power DTV
facility by December 26, 2009, which permit may be further extended by the FCC
until construction of the facility is completed. Nexstar anticipates
completing construction of KQTV’s full-power DTV facility by November 15,
2009. Nexstar has completed construction of KMID’s full-power DTV
facility and is working with the FCC with respect to a grant of KMID’s
authorization.
DTV
conversion expenditures were $8.2 million and $13.5 million, for the nine months
ended September 30, 2009 and 2008, respectively. The Company will incur various
capital expenditures with respect to the completion of DTV facilities for KQTV
and KMID. The Company anticipates these expenditures will be funded through
available cash on hand and cash generated from operations.
19
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
16.
|
FCC
Regulatory Matters—(Continued)
|
Media
Ownership
In 2006,
the FCC initiated a rulemaking proceeding which provides for a comprehensive
review of all of its media ownership rules, as required by the Communications
Act. The Commission considered rules relating to ownership of two or more TV
stations in a market, ownership of local TV and radio stations by daily
newspapers in the same market, cross-ownership of local TV and radio stations,
and changes to how the national TV ownership limits are calculated. In February
2008, the FCC adopted modest changes to its newspaper broadcast cross-ownership
rule while retaining the rest of its ownership rules then currently in
effect. Multiple challenges to this proceeding were filed with the
U.S. Courts of Appeal. The court proceedings remain
pending. The FCC will be making a further review of its media
ownership rules in 2010.
The FCC
is required by statute to review its media ownership rules every four years and
to eliminate those rules it finds no longer serve the “public interest,
convenience and necessity”. During 2009, the FCC held a series of
hearings designed to evaluate possible changes to its rules. Sometime
during 2010, the FCC is expected to officially initiate the next
statutorily-mandated review of its media ownership rules and request public
comments thereon.
17.
|
Commitments
and Contingencies
|
Guarantee
of Mission Debt
Nexstar
and its subsidiaries guarantee full payment of all obligations incurred under
Mission’s senior secured credit facility agreement. In the event that Mission is
unable to repay amounts due under its credit facility, Nexstar will be obligated
to repay such amounts. The maximum potential amount of future payments that
Nexstar would be required to make under this guarantee would be generally
limited to the amount of borrowings outstanding under the Mission credit
facility. At September 30, 2009, Mission had $172.8 million outstanding under
its senior credit facility.
Indemnification
Obligations
In
connection with certain agreements that the Company enters into in the normal
course of its business, including local service agreements, business
acquisitions and borrowing arrangements, the Company enters into contractual
arrangements under which the Company agrees to indemnify the third party to such
arrangement from losses, claims and damages incurred by the indemnified party
for certain events as defined within the particular contract. Such
indemnification obligations may not be subject to maximum loss clauses and the
maximum potential amount of future payments the Company could be required to
make under these indemnification arrangements may be unlimited. Historically,
payments made related to these indemnifications have been immaterial and the
Company has not incurred significant costs to defend lawsuits or settle claims
related to these indemnification agreements.
Litigation
From time
to time, the Company is involved with claims that arise out of the normal course
of its business. In the opinion of management, any resulting liability with
respect to these claims would not have a material adverse effect on the
Company’s financial position or results of operations.
18.
|
Condensed
Consolidating Financial Information
|
The
following condensed consolidating financial information presents the financial
position, results of operations and cash flows of the Company, each of its 100%,
directly or indirectly, owned subsidiaries. This information is presented in
lieu of separate financial statements and other related disclosures pursuant to
Regulation S-X Rule 3-10 of the Securities Exchange Act of 1934, as amended,
“Financial Statements of Guarantors and Issuers of Guaranteed Securities
Registered or being Registered.”
The
Nexstar column presents the parent company’s financial information (not
including any subsidiaries). The Nexstar Holdings column presents its financial
information (not including any subsidiaries). The Nexstar Broadcasting column
presents the financial information of Nexstar Broadcasting. The Mission column
presents the financial information of Mission, an entity which Nexstar
Broadcasting is required to consolidate as a variable interest entity (see Note
2).
Prior
periods have been reclassified to conform to current presentation.
20
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
18.
|
Condensed
Consolidating Financial
Information—(Continued)
|
The
Company and its subsidiaries have the following notes outstanding:
|
1.
|
Nexstar
Holdings, which is a wholly-owned subsidiary of Nexstar, has 11.375%
senior discount notes (“11.375% Notes”) due in 2013. The 11.375% Notes are
fully and unconditionally guaranteed by Nexstar but not guaranteed by any
other entities.
|
|
2.
|
Nexstar
Broadcasting, Inc., which is a wholly-owned subsidiary of Nexstar
Holdings, has the following notes
outstanding:
|
|
(a)
|
7%
Senior Subordinated Notes (“7% Notes”) due 2014. The 7% Notes are fully
and unconditionally guaranteed by Nexstar and Mission. These notes are not
guaranteed by any other entities.
|
|
|
|
(b)
|
7%
Senior Subordinated PIK Notes due 2014 (“7% PIK Notes”). The 7% PIK Notes
are fully and unconditionally guaranteed by Nexstar and Mission. These
notes are not guaranteed by any other
entities.
|
|
|
|
(c)
|
Senior
Subordinated PIK Notes due 2014 (“Senior Subordinated PIK Notes”). The
Senior Subordinated PIK Notes currently bear interest at 12% subject to
increases over time. The Senior Subordinated PIK Notes are fully and
unconditionally guaranteed by Nexstar. The Senior Subordinated PIK Notes
are not guaranteed by Mission or any other
entity.
|
Neither
Mission nor Nexstar Broadcasting has any subsidiaries.
21
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
18. Condensed
Consolidating Financial Information—(Continued)
Balance
Sheet
September
30, 2009
(in
thousands)
Nexstar
|
Nexstar
Broadcasting
|
Mission
|
Nexstar
Holdings
|
Eliminations
|
Consolidated
Company
|
|||||||||||||||||||
ASSETS
|
||||||||||||||||||||||||
Current
assets:
|
||||||||||||||||||||||||
Cash
and cash equivalents
|
$
|
—
|
$
|
18,156
|
$
|
1,167
|
$
|
—
|
$
|
—
|
$
|
19,323
|
||||||||||||
Due
from Mission
|
—
|
13,430
|
—
|
—
|
(13,430
|
)
|
—
|
|||||||||||||||||
Other
current assets
|
—
|
71,126
|
5,362
|
—
|
—
|
76,488
|
||||||||||||||||||
Total
current assets
|
102,712
|
6,529
|
—
|
(13,430
|
)
|
95,811
|
||||||||||||||||||
Investments
in subsidiaries eliminated upon consolidation
|
(75,861
|
)
|
—
|
—
|
(19,072
|
)
|
94,933
|
—
|
||||||||||||||||
Amounts
due from parents eliminated upon consolidation
|
—
|
1,685
|
—
|
—
|
(1,685
|
)
|
—
|
|||||||||||||||||
Property
and equipment, net
|
—
|
117,160
|
28,992
|
—
|
—
|
146,152
|
||||||||||||||||||
Goodwill
|
—
|
90,330
|
18,729
|
—
|
—
|
109,059
|
||||||||||||||||||
FCC
licenses
|
—
|
106,789
|
20,698
|
—
|
—
|
127,487
|
||||||||||||||||||
Other
intangible assets, net
|
—
|
105,345
|
26,804
|
—
|
—
|
132,149
|
||||||||||||||||||
Other
noncurrent assets
|
—
|
13,791
|
2,753
|
853
|
—
|
17,397
|
||||||||||||||||||
Total
assets
|
$
|
(75,861
|
)
|
$
|
537,812
|
$
|
104,505
|
$
|
(18,219
|
)
|
$
|
79,818
|
$
|
628,055
|
||||||||||
LIABILITIES AND
STOCKHOLDERS’
EQUITY (DEFICIT)
|
||||||||||||||||||||||||
Current
liabilities:
|
||||||||||||||||||||||||
Current
portion of debt
|
$
|
—
|
$
|
1,758
|
$
|
1,727
|
$
|
—
|
$
|
—
|
$
|
3,485
|
||||||||||||
Due
to Nexstar Broadcasting
|
—
|
—
|
13,430
|
—
|
(13,430
|
)
|
—
|
|||||||||||||||||
Other
current liabilities
|
—
|
42,530
|
6,172
|
2,843
|
—
|
51,545
|
||||||||||||||||||
Total
current liabilities
|
—
|
44,288
|
21,329
|
2,843
|
(13,430
|
)
|
55,030
|
|||||||||||||||||
Debt
|
—
|
451,024
|
171,065
|
49,981
|
—
|
672,070
|
||||||||||||||||||
Amounts
due to subsidiary eliminated upon consolidation
|
(3,131
|
)
|
—
|
—
|
4,816
|
(1,685
|
)
|
—
|
||||||||||||||||
Other
noncurrent liabilities
|
(3
|
)
|
61,572
|
16,996
|
2
|
—
|
78,567
|
|||||||||||||||||
Total
liabilities
|
(3,134
|
)
|
556,884
|
209,390
|
57,642
|
(15,115
|
)
|
805,667
|
||||||||||||||||
Stockholders’
equity (deficit):
|
||||||||||||||||||||||||
Common
stock
|
284
|
—
|
—
|
—
|
—
|
284
|
||||||||||||||||||
Other
stockholders’ equity (deficit)
|
(73,011
|
)
|
(19,072
|
)
|
(104,885
|
)
|
(75,861
|
)
|
94,933
|
(177,896
|
)
|
|||||||||||||
Total
stockholders’ equity (deficit)
|
(72,727
|
)
|
(19,072
|
)
|
(104,885
|
)
|
(75,861
|
)
|
94,933
|
(177,612
|
)
|
|||||||||||||
Total
liabilities and stockholders’ equity (deficit)
|
$
|
(75,861
|
)
|
$
|
537,812
|
$
|
104,505
|
$
|
(18,219
|
)
|
$
|
79,818
|
$
|
628,055
|
22
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
18. Condensed
Consolidating Financial Information—(Continued)
BALANCE
SHEET
December 31,
2008
(in
thousands)
Nexstar
|
Nexstar
Broadcasting
|
Mission
|
Nexstar
Holdings
|
Eliminations
|
Consolidated
Company
|
|||||||||||||||||||
ASSETS
|
||||||||||||||||||||||||
Current
assets:
|
||||||||||||||||||||||||
Cash
and cash equivalents
|
$
|
—
|
$
|
14,408
|
$
|
1,426
|
$
|
—
|
$
|
—
|
$
|
15,834
|
||||||||||||
Due
from Mission
|
—
|
15,468
|
—
|
—
|
(15,468
|
)
|
—
|
|||||||||||||||||
Other
current assets
|
—
|
64,369
|
4,665
|
6
|
—
|
69,040
|
||||||||||||||||||
Total
current assets
|
—
|
94,245
|
6,091
|
6
|
(15,468
|
)
|
84,874
|
|||||||||||||||||
Investments
in subsidiaries eliminated upon consolidation
|
(65,164
|
)
|
—
|
—
|
15,528
|
49,636
|
—
|
|||||||||||||||||
Amounts
due from parents eliminated upon consolidation
|
—
|
(58
|
)
|
—
|
—
|
58
|
—
|
|||||||||||||||||
Property
and equipment, net
|
—
|
106,609
|
29,269
|
—
|
—
|
135,878
|
||||||||||||||||||
Goodwill
|
—
|
96,997
|
18,635
|
—
|
—
|
115,632
|
||||||||||||||||||
FCC
licenses
|
—
|
102,362
|
22,695
|
—
|
—
|
125,057
|
||||||||||||||||||
Other
intangible assets, net
|
—
|
119,186
|
30,665
|
—
|
—
|
149,851
|
||||||||||||||||||
Other
noncurrent assets
|
1
|
11,261
|
2,723
|
1,310
|
—
|
15,295
|
||||||||||||||||||
Total
assets
|
$
|
(65,163
|
)
|
$
|
530,602
|
$
|
110,078
|
$
|
16,844
|
$
|
34,226
|
$
|
626,587
|
|||||||||||
LIABILITIES AND
STOCKHOLDERS’
EQUITY (DEFICIT)
|
||||||||||||||||||||||||
Current
liabilities:
|
||||||||||||||||||||||||
Current
portion of debt
|
$
|
—
|
$
|
1,758
|
$
|
1,727
|
$
|
—
|
$
|
—
|
$
|
3,485
|
||||||||||||
Due
to Nexstar Broadcasting
|
—
|
—
|
15,468
|
—
|
(15,468
|
)
|
—
|
|||||||||||||||||
Other
current liabilities
|
—
|
44,621
|
7,037
|
2,212
|
128
|
53,998
|
||||||||||||||||||
Total
current liabilities
|
—
|
46,379
|
24,232
|
2,212
|
(15,340
|
)
|
57,483
|
|||||||||||||||||
Debt
|
—
|
408,452
|
172,360
|
77,820
|
—
|
658,632
|
||||||||||||||||||
Amounts
due to subsidiary eliminated upon consolidation
|
(2,006
|
)
|
—
|
—
|
1,973
|
33
|
—
|
|||||||||||||||||
Other
noncurrent liabilities
|
(3
|
)
|
60,243
|
15,513
|
3
|
(128
|
)
|
75,628
|
||||||||||||||||
Total
liabilities
|
(2,009
|
)
|
515,074
|
212,105
|
82,008
|
(15,435
|
)
|
791,743
|
||||||||||||||||
Stockholders’
equity (deficit):
|
||||||||||||||||||||||||
Common
stock
|
284
|
—
|
—
|
—
|
—
|
284
|
||||||||||||||||||
Other
stockholders’ equity (deficit)
|
(63,438
|
)
|
15,528
|
(102,027
|
)
|
(65,164
|
)
|
49,661
|
(165,440
|
)
|
||||||||||||||
Total
stockholders’ equity (deficit)
|
(63,154
|
)
|
15,528
|
(102,027
|
)
|
(65,164
|
)
|
49,661
|
(165,156
|
)
|
||||||||||||||
Total
liabilities and stockholders’ equity (deficit)
|
$
|
(65,163
|
)
|
$
|
530,602
|
$
|
110,078
|
$
|
16,844
|
$
|
34,226
|
$
|
626,587
|
23
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
18. Condensed
Consolidating Financial Information—(Continued)
Statement
of Operations
For
the Three Months Ended September 30, 2009
(in
thousands)
Nexstar
|
Nexstar
Broadcasting
|
Mission
|
Nexstar Holdings
|
Eliminations
|
Consolidated
Company
|
|||||||||||||||||||
Net
broadcast revenue (including trade and barter)
|
$ | — | $ | 58,265 | $ | 2,134 | $ | — | $ | — | $ | 60,399 | ||||||||||||
Revenue
between consolidated entities
|
— | 1,800 | 5,808 | — | (7,608 | ) | — | |||||||||||||||||
Net
revenue
|
— | 60,065 | 7,942 | — | (7,608 | ) | 60,399 | |||||||||||||||||
Operating
expenses:
|
||||||||||||||||||||||||
Direct
operating expenses (exclusive of depreciation and amortization shown
separately below)
|
— | 17,503 | 1,223 | — | — | 18,726 | ||||||||||||||||||
Selling,
general, and administrative expenses (exclusive of depreciation and
amortization shown separately below)
|
— | 20,799 | 822 | 7 | — | 21,628 | ||||||||||||||||||
Local
service agreement fees between consolidated entities
|
— | 5,808 | 1,800 | — | (7,608 | ) | — | |||||||||||||||||
Restructure
charge
|
— | — | — | — | — | — | ||||||||||||||||||
Non-cash
contract termination fees
|
— | — | — | — | — | — | ||||||||||||||||||
Impairment
of goodwill and intangible assets
|
— | 13,906 | 2,258 | — | — | 16,164 | ||||||||||||||||||
Amortization
of broadcast rights
|
— | 7,340 | 1,430 | — | — | 8,770 | ||||||||||||||||||
Amortization
of intangible assets
|
— | 4,649 | 1,287 | — | — | 5,936 | ||||||||||||||||||
Depreciation
|
— | 4,585 | 828 | — | — | 5,413 | ||||||||||||||||||
Gain
on asset exchange
|
— | (1,258 | ) | (1,354 | ) | — | — | (2,612 | ) | |||||||||||||||
(Gain)
loss on property and asset disposal, net
|
— | 16 | (9 | ) | — | — | 7 | |||||||||||||||||
Total
operating expenses
|
— | 73,348 | 8,285 | 7 | (7,608 | ) | 74,032 | |||||||||||||||||
Income
from operations
|
— | (13,283 | ) | (343 | ) | (7 | ) | — | (13,633 | ) | ||||||||||||||
Interest
expense, including amortization of debt financing costs
|
— | (6,135 | ) | (1,052 | ) | (1,481 | ) | — | (8,668 | ) | ||||||||||||||
Equity
in loss of subsidiaries
|
(16,948 | ) | — | — | (15,460 | ) | 32,408 | — | ||||||||||||||||
Other
income, net
|
— | 4 | 1 | — | — | 5 | ||||||||||||||||||
Income
(loss) before income taxes
|
(16,948 | ) | (19,414 | ) | (1,394 | ) | (16,948 | ) | 32,408 | (22,296 | ) | |||||||||||||
Income
tax expense
|
— | 3,955 | (50 | ) | — | — | 3,905 | |||||||||||||||||
Net
income (loss)
|
$ | (16,948 | ) | $ | (15,459 | ) | $ | (1,444 | ) | $ | (16,948 | ) | $ | 32,408 | $ | (18,391 | ) |
24
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
18. Condensed
Consolidating Financial Information—(Continued)
Statement
of Operations
For
the Three Months Ended September 30, 2008
(in
thousands)
Nexstar
|
Nexstar
Broadcasting
|
Mission
|
Nexstar Holdings | Eliminations |
Consolidated
Company
|
|||||||||||||||
Net
broadcast revenue (including trade and barter)
|
$
|
—
|
$
|
68,550
|
$
|
1,725
|
$
|
—
|
$
|
—
|
$
|
70,275
|
||||||||
Revenue
between consolidated entities
|
—
|
2,025
|
9,066
|
—
|
(11,091
|
)
|
—
|
|||||||||||||
Net
revenue
|
—
|
70,575
|
10,791
|
—
|
(11,091
|
)
|
70,275
|
|||||||||||||
Operating
expenses (income):
|
||||||||||||||||||||
Direct
operating expenses (exclusive of depreciation and amortization shown
separately below)
|
—
|
17,813
|
1,597
|
—
|
—
|
19,410
|
||||||||||||||
Selling,
general, and administrative expenses (exclusive of depreciation and
amortization shown separately below)
|
—
|
22,284
|
631
|
—
|
—
|
22,915
|
||||||||||||||
Local
service agreement fees between consolidated entities
|
—
|
9,066
|
2,025
|
—
|
(11,091
|
)
|
—
|
|||||||||||||
Non-cash
contract termination fees
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||
Impairment
of intangible assets
|
—
|
42,678
|
5,859
|
—
|
—
|
48,537
|
||||||||||||||
Amortization
of broadcast rights
|
—
|
3,922
|
1,330
|
—
|
—
|
5,252
|
||||||||||||||
Amortization
of intangible assets
|
—
|
4,994
|
1,351
|
—
|
—
|
6,345
|
||||||||||||||
Depreciation
|
—
|
4,421
|
808
|
—
|
—
|
5,229
|
||||||||||||||
Gain
on asset exchange
|
—
|
(487
|
)
|
—
|
—
|
—
|
(487
|
)
|
||||||||||||
(Gain)
loss on asset disposal, net
|
—
|
14
|
(141
|
)
|
—
|
—
|
(127
|
)
|
||||||||||||
Total
operating expenses
|
—
|
104,705
|
13,460
|
—
|
(11,091
|
)
|
107,074
|
|||||||||||||
Loss
from operations
|
—
|
(34,130
|
)
|
(2,669
|
)
|
—
|
—
|
(36,799
|
)
|
|||||||||||
Interest
expense, including amortization of debt financing costs
|
—
|
(7,151
|
)
|
(2,055
|
)
|
(2,400
|
)
|
—
|
(11,606
|
)
|
||||||||||
Equity
in loss of subsidiaries
|
(41,493
|
)
|
—
|
—
|
(39,093
|
)
|
80,586
|
—
|
||||||||||||
Other
income, net
|
—
|
70
|
4
|
—
|
—
|
74
|
||||||||||||||
Loss
before income taxes
|
(41,493
|
)
|
(41,211
|
)
|
(4,720
|
)
|
(41,493
|
)
|
80,586
|
(48,331
|
)
|
|||||||||
Income
tax benefit
|
—
|
2,118
|
885
|
—
|
—
|
3,003
|
||||||||||||||
Net
loss
|
$
|
(41,493
|
)
|
$
|
(39,093
|
)
|
$
|
(3,835
|
)
|
$
|
(41,493
|
)
|
$
|
80,586
|
$
|
(45,328
|
)
|
25
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
18. Condensed
Consolidating Financial Information—(Continued)
Statement
of Operations
For
the Nine Months Ended September 30, 2009
(in
thousands)
Nexstar
|
Nexstar
Broadcasting
|
Mission
|
Nexstar
Holdings
|
Eliminations
|
Consolidated
Company
|
|||||||||||||||||||
Net
broadcast revenue (including trade and barter)
|
$
|
—
|
$
|
171,711
|
$
|
6,308
|
$
|
—
|
$
|
—
|
$
|
178,019
|
||||||||||||
Revenue
between consolidated entities
|
—
|
5,625
|
18,036
|
—
|
(23,661
|
)
|
— | |||||||||||||||||
Net
revenue
|
—
|
177,336
|
24,344
|
—
|
(23,661
|
)
|
178,019
|
|||||||||||||||||
Operating
expenses:
|
||||||||||||||||||||||||
Direct
operating expenses (exclusive of depreciation and amortization shown
separately below)
|
—
|
52,503
|
4,364
|
—
|
—
|
56,867
|
||||||||||||||||||
Selling,
general, and administrative expenses (exclusive of depreciation and
amortization shown separately below)
|
—
|
64,109
|
2,164
|
7
|
—
|
66,280
|
||||||||||||||||||
Local
service agreement fees between consolidated entities
|
—
|
18,036
|
5,625
|
—
|
(23,661
|
)
|
—
|
|||||||||||||||||
Restructure
charge
|
—
|
670
|
—
|
—
|
—
|
670
|
||||||||||||||||||
Non-cash
contract termination fees
|
—
|
191
|
—
|
—
|
—
|
191
|
||||||||||||||||||
Impairment
of goodwill and intangible assets
|
—
|
13,906
|
2,258
|
—
|
—
|
16,164
|
||||||||||||||||||
Amortization
of broadcast rights
|
—
|
15,863
|
3,632
|
—
|
—
|
19,495
|
||||||||||||||||||
Amortization
of intangible assets
|
—
|
13,911
|
3,861
|
—
|
—
|
17,772
|
||||||||||||||||||
Depreciation
|
—
|
13,282
|
2,721
|
—
|
—
|
16,003
|
||||||||||||||||||
Gain
on asset exchange
|
—
|
(4,859
|
)
|
(1,851
|
)
|
—
|
—
|
(6,710
|
)
|
|||||||||||||||
(Gain)
loss on property and asset disposal, net
|
—
|
(2,806
|
)
|
(7
|
)
|
—
|
—
|
(2,813
|
)
|
|||||||||||||||
Total
operating expenses
|
—
|
184,806
|
22,767
|
7
|
(23,661
|
)
|
183,919
|
|||||||||||||||||
Income
(loss) from operations
|
—
|
(7,470
|
)
|
1,577
|
(7
|
)
|
—
|
(5,900
|
)
|
|||||||||||||||
Interest
expense, including amortization of debt financing costs
|
—
|
(18,993
|
)
|
(3,768
|
)
|
(4,672
|
)
|
—
|
(27,433
|
)
|
||||||||||||||
Gain
on extinguishment of debt
|
—
|
565
|
—
|
18,002
|
—
|
18,567
|
||||||||||||||||||
Equity
income (loss) of subsidiaries
|
(10,724
|
)
|
—
|
—
|
(24,047
|
)
|
34,771
|
—
|
||||||||||||||||
Other
income, net
|
—
|
46
|
4
|
—
|
—
|
50
|
||||||||||||||||||
Income
(loss) before income taxes
|
(10,724
|
)
|
(25,852
|
)
|
(2,187
|
)
|
(10,724
|
)
|
34,771
|
(14,716
|
)
|
|||||||||||||
Income
tax expense
|
—
|
1,806
|
(671
|
)
|
1,135
|
|||||||||||||||||||
Net
income (loss)
|
$
|
(10,724
|
)
|
$
|
(24,046
|
)
|
$
|
(2,858
|
)
|
$
|
(10,724
|
)
|
$
|
34,771
|
$
|
(13,581
|
)
|
26
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
18. Condensed
Consolidating Financial Information—(Continued)
Statement
of Operations
For
the Nine Months Ended September 30, 2008
(in
thousands)
Nexstar
|
Nexstar
Broadcasting
|
Mission
|
Nexstar Holdings | Eliminations |
Consolidated
Company
|
||||||||||||||
Net
broadcast revenue (including trade and barter)
|
$
|
—
|
$
|
199,716
|
$
|
4,889
|
$
|
—
|
$
|
—
|
$
|
204,605
|
|||||||
Revenue
between consolidated entities
|
—
|
6,065
|
25,619
|
—
|
(31,684
|
)
|
—
|
||||||||||||
Net
revenue
|
—
|
205,781
|
30,508
|
—
|
(31,684
|
)
|
204,605
|
||||||||||||
Operating
expenses (income):
|
|||||||||||||||||||
Direct
operating expenses (exclusive of depreciation and amortization shown
separately below)
|
—
|
53,485
|
4,704
|
—
|
—
|
58,189
|
|||||||||||||
Selling,
general, and administrative expenses (exclusive of depreciation and
amortization shown separately below)
|
1
|
63,739
|
1,899
|
—
|
—
|
65,639
|
|||||||||||||
Local
service agreement fees between consolidated entities
|
—
|
25,619
|
6,065
|
—
|
(31,684
|
)
|
—
|
||||||||||||
Non-cash
contract termination fees
|
—
|
7,167
|
—
|
—
|
—
|
7,167
|
|||||||||||||
Impairment
of intangible assets
|
—
|
42,678
|
5,859
|
—
|
—
|
48,537
|
|||||||||||||
Amortization
of broadcast rights
|
—
|
11,760
|
3,633
|
—
|
—
|
15,393
|
|||||||||||||
Amortization
of intangible assets
|
—
|
15,049
|
4,051
|
—
|
—
|
19,100
|
|||||||||||||
Depreciation
|
—
|
13,144
|
2,506
|
—
|
—
|
15,650
|
|||||||||||||
Gain
on asset exchange
|
—
|
(3,486
|
)
|
(593
|
)
|
—
|
—
|
(4,079
|
)
|
||||||||||
(Gain)
loss on asset disposal, net
|
—
|
94
|
(391
|
)
|
—
|
—
|
(297
|
)
|
|||||||||||
Total
operating expenses
|
1
|
229,249
|
27,733
|
—
|
(31,684
|
)
|
225,299
|
||||||||||||
Income
(loss) from operations
|
(1
|
)
|
(23,468
|
)
|
2,775
|
—
|
—
|
(20,694
|
)
|
||||||||||
Interest
expense, including amortization of debt financing costs
|
—
|
(20,958
|
)
|
(7,014
|
)
|
(8,429
|
)
|
—
|
(36,401
|
)
|
|||||||||
Equity
in loss of subsidiaries
|
(52,716
|
)
|
—
|
—
|
(44,287
|
)
|
97,003
|
—
|
|||||||||||
Other
income, net
|
—
|
577
|
49
|
—
|
—
|
626
|
|||||||||||||
Loss
before income taxes
|
(52,717
|
)
|
(43,849
|
)
|
(4,190
|
)
|
(52,716
|
)
|
97,003
|
(56,469
|
)
|
||||||||
Income
tax expense (benefit)
|
—
|
(438
|
)
|
128
|
—
|
—
|
(310
|
)
|
|||||||||||
Net
loss
|
$
|
(52,717
|
)
|
$
|
(44,287
|
)
|
$
|
(4,062
|
)
|
$
|
(52,716
|
)
|
$
|
97,003
|
$
|
(56,779
|
)
|
27
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
18. Condensed
Consolidating Financial Information—(Continued)
Statement
of Cash Flows
For
the Nine Months Ended September 30, 2009
(in
thousands)
Nexstar
|
Nexstar
Broadcasting
|
Mission
|
Nexstar Holdings
|
Eliminations
|
Consolidated
Company
|
|||||||||||||||||||
Cash
flows provided by (used for) operating activities
|
$ | — | $ | 8,908 | $ | 1,944 | $ | 9,561 | $ | (10,579 | ) | $ | 9,834 | |||||||||||
Cash
flows from investing activities:
|
||||||||||||||||||||||||
Additions
to property and equipment, net
|
— | (13,439 | ) | (908 | ) | — | — | (14,347 | ) | |||||||||||||||
Acquisition
of broadcast properties and related transaction costs
|
— | (20,756 | ) | — | — | — | (20,756 | ) | ||||||||||||||||
Other
investing activities
|
— | 4,997 | — | — | — | 4,997 | ||||||||||||||||||
Net
cash used for investing activities
|
— | (29,198 | ) | (908 | ) | — | — | (30,106 | ) | |||||||||||||||
Cash
flows from financing activities:
|
||||||||||||||||||||||||
Repayment
of long-term debt
|
— | (144,040 | ) | (1,295 | ) | (9,561 | ) | — | (154,896 | ) | ||||||||||||||
Proceeds
from revolver draws
|
— | 54,000 | — | — | — | 54,000 | ||||||||||||||||||
Consideration
paid to bondholders for debt exchange
|
— | (17,677 | ) | — | — | — | (17,677 | ) | ||||||||||||||||
Inter-company
dividends paid
|
— | (10,579 | ) | — | — | 10,579 | — | |||||||||||||||||
Issuance
of senior subordinated PIK notes in debt exchange
|
— | 142,321 | — | — | — | 142,321 | ||||||||||||||||||
Other
financing activities
|
— | 13 | — | — | — | 13 | ||||||||||||||||||
Net
cash provided by (used for) financing activities
|
— | 24,038 | (1,295 | ) | (9,561 | ) | 10,579 | 23,761 | ||||||||||||||||
Net
increase in cash and cash equivalents
|
— | 3,748 | (259 | ) | — | — | 3,489 | |||||||||||||||||
Cash
and cash equivalents at beginning of period
|
— | 14,408 | 1,426 | — | — | 15,834 | ||||||||||||||||||
Cash
and cash equivalents at end of period
|
$ | — | $ | 18,156 | $ | 1,167 | $ | — | $ | — | $ | 19,323 |
28
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
18. Condensed
Consolidating Financial Information—(Continued)
Statement
of Cash flows
For
the Nine Months Ended September 30, 2008
(in
thousands)
Nexstar
|
Nexstar
Broadcasting
|
Mission
|
Nexstar
Holdings
|
Eliminations |
Consolidated
Company
|
|||||||||||||||||||
Cash
flows provided by (used for) operating activities
|
$
|
—
|
$
|
35,961
|
$
|
4,765
|
$
|
52,180
|
$
|
(52,180
|
)
|
$
|
40,726
|
|||||||||||
Cash
flows from investing activities:
|
||||||||||||||||||||||||
Additions
to property and equipment, net
|
—
|
(12,888
|
)
|
(5,231
|
)
|
—
|
—
|
(18,119
|
)
|
|||||||||||||||
Acquisition
of broadcast properties and related transaction costs
|
—
|
—
|
(7,923
|
)
|
—
|
—
|
(7,923
|
)
|
||||||||||||||||
Other
investing activities
|
—
|
—
|
494
|
—
|
—
|
494
|
||||||||||||||||||
Net
cash used for investing activities
|
—
|
(12,888
|
)
|
(12,660
|
)
|
—
|
—
|
(25,548
|
)
|
|||||||||||||||
Cash
flows from financing activities:
|
||||||||||||||||||||||||
Repayment
of long-term debt
|
—
|
(51,319
|
)
|
(1,295
|
)
|
(52,180
|
)
|
—
|
(104,794
|
)
|
||||||||||||||
Proceeds
from revolver draws
|
—
|
50,000
|
—
|
—
|
—
|
50,000
|
||||||||||||||||||
Proceeds
from senior subordinated PIK Notes
|
—
|
35,000
|
—
|
—
|
—
|
35,000
|
||||||||||||||||||
Inter-company
dividends paid
|
—
|
(52,180
|
)
|
—
|
—
|
52,180
|
—
|
|||||||||||||||||
Other
financing activities
|
—
|
38
|
—
|
—
|
—
|
38
|
||||||||||||||||||
Net
cash provided by (used for) financing activities
|
—
|
(18,461
|
)
|
(1,295
|
)
|
(52,180
|
)
|
52,180
|
(19,756
|
)
|
||||||||||||||
Net
increase (decrease) in cash and cash equivalents
|
—
|
4,612
|
(9,190
|
)
|
—
|
—
|
(4,578
|
)
|
||||||||||||||||
Cash
and cash equivalents at beginning of period
|
—
|
6,310
|
9,916
|
—
|
—
|
16,226
|
||||||||||||||||||
Cash
and cash equivalents at end of period
|
$
|
—
|
$
|
10,922
|
$
|
726
|
$
|
—
|
$
|
—
|
$
|
11,648
|
29
ITEM 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The
following discussion and analysis should be read in conjunction with the
unaudited condensed consolidated balance sheet as of September 30, 2009,
unaudited condensed consolidated statements of operations for the three months
and nine months ended September 30, 2009 and 2008, unaudited condensed
statement of changes in stockholders’ deficit for the nine months ended
September 30, 2009, unaudited condensed consolidated statements of cash
flows for the nine months ended September 30, 2009 and 2008 and related
notes included elsewhere in this Quarterly Report on Form 10-Q and the financial
statements contained in our Annual Report on Form 10-K for the year ended
December 31, 2008.
As used
in the report, unless the context indicates otherwise, “Nexstar” refers to
Nexstar Broadcasting Group, Inc. and its consolidated subsidiaries Nexstar
Finance Holdings, Inc. and Nexstar Broadcasting, Inc., and “Mission” refers to
Mission Broadcasting, Inc. All references to “we,” “our,” and “us” refer to
Nexstar. All references to the “Company” refer to Nexstar and Mission
collectively.
As a
result of our controlling financial interest in Mission under accounting
principles generally accepted in the United States of America (“U.S. GAAP”) and
in order to present fairly our financial position, results of operations and
cash flows, we consolidate the financial position, results of operations and
cash flows of Mission as if it were a wholly-owned entity. We believe this
presentation is meaningful for understanding our financial performance. As
discussed in Note 2 to our condensed consolidated financial statements in Part
I, Item 1 of this Quarterly Report on Form 10-Q, we have considered the
authoritative guidance related to variable interest entities and have determined
that we are required to continue consolidating Mission’s financial position,
results of operations and cash flows. Therefore, the following discussion of our
financial condition and results of operations includes Mission’s financial
position and results of operations.
Executive
Summary
Third
Quarter 2009 Highlights
·
|
Net
revenue decreased 14.1% during the third quarter of 2009 compared to the
same period in 2008, primarily from decreases in national, local and
political revenue, partially offset by increases in retransmission
compensation. Total revenue from the retransmission consent agreements was
approximately $7.9 million for the three months ended September 30,
2009 (which included approximately $6.2 million of retransmission
compensation and approximately $1.7 million of advertising revenue
generated from the retransmission consent agreements), compared to $6.2
million for the three months ended September 30, 2008 (which included
approximately $3.9 million of retransmission compensation and
approximately $2.3 million of advertising revenue generated from the
retransmission consent agreements).
|
Overview
of Operations
We owned
and operated 34 television stations as of September 30, 2009. Through
various local service agreements, we programmed, provided sales or other
services to 25 additional television stations (exclusive of digital
multi-channels), including 16 television stations owned and operated by Mission
as of September 30, 2009. All of the stations we program or provide sales
and other services to, including Mission, are 100% owned by independent third
parties.
The
following table summarizes the various local service agreements we had in effect
as of September 30, 2009 with Mission:
Service
Agreements
|
Mission
Stations
|
TBA
Only(1)
|
WFXP
and KHMT
|
SSA & JSA(2)
|
KJTL,
KJBO-LP, KOLR, KCIT, KCPN-LP, KAMC, KRBC, KSAN, WUTR,
WFXW,
WYOU, KODE, WTVO and KTVE
|
(1)
|
We
have a time brokerage agreement (“TBA”) with each of these stations which
allows us to program most of each station’s broadcast time, sell each
station’s advertising time and retain the advertising revenue generated in
exchange for monthly payments to
Mission.
|
(2)
|
We
have both a shared services agreement (“SSA”) and a joint sales agreement
(“JSA”) with each of these stations. The SSA allows us to provide certain
services including news production, technical maintenance and security, in
exchange for our right to receive certain payments from Mission as
described in the SSAs. The JSA permits us to sell and retain a percentage
of the net revenue from the station’s advertising time in return for
monthly payments to Mission of the remaining percentage of net revenue as
described in the JSAs.
|
30
Our
ability to receive cash from Mission is governed by these agreements. The
arrangements under the local service agreements have had the effect of us
receiving substantially all of the available cash, after Mission’s payments of
operating costs and debt service, generated by the stations listed above. We
anticipate that, through these local service agreements, we will continue to
receive substantially all of the available cash, after Mission’s payments of
operating costs and debt service, generated by the stations listed
above.
We also
guarantee all obligations incurred under Mission’s senior secured credit
facility. Similarly, Mission is a guarantor of our senior secured credit
facility and the senior subordinated notes we have issued. In consideration of
our guarantee of Mission’s senior credit facility, the sole shareholder of
Mission has granted us a purchase option to acquire the assets and assume the
liabilities of each Mission station, subject to FCC consent, for consideration
equal to the greater of (1) seven times the station’s cash flow, as defined
in the option agreement, less the amount of its indebtedness as defined in the
option agreement, or (2) the amount of its indebtedness. These option
agreements (which expire on various dates between 2011 and 2018) are freely
exercisable or assignable by us without consent or approval by the sole
shareholder of Mission. We expect these option agreements to be renewed upon
expiration.
We do not
own Mission or Mission’s television stations. However, as a result of our
guarantee of the obligations incurred under Mission’s senior credit facility,
our arrangements under the local service agreements and purchase option
agreements with Mission, we are deemed under U.S. GAAP to have a controlling
financial interest in Mission while complying with the FCC’s rules regarding
ownership limits in television markets. In order for both us and Mission to
comply with FCC regulations, Mission maintains complete responsibility for and
control over programming, finances, personnel and operations of its
stations.
Seasonality
Advertising
revenue is positively affected by strong local economies, national and regional
political election campaigns, and certain events such as the Olympic Games or
the Super Bowl. The stations’ advertising revenue is generally highest in the
second and fourth quarters of each year, due in part to increases in consumer
advertising in the spring and retail advertising in the period leading up to,
and including, the holiday season. In addition, advertising revenue is generally
higher during even-numbered years resulting from political advertising and
advertising aired during the Olympic Games.
Industry
Trends
Our net
revenue decreased 13.0% to $178.0 million for the nine months ended
September 30, 2009, compared to $204.6 million for the nine months ended
September 30, 2008 primarily due to decreases in national and local
advertising which is attributable to the overall slowdown in the economy and in
particular, the automotive industry, year-over-year.
Political
advertising revenue was $2.3 million for the nine months ended
September 30, 2009, a significant decrease from the $13.4 million for the
nine months ended September 30, 2008. The demand for political advertising
is generally higher in even-numbered years, when congressional and presidential
elections occur, than in odd-numbered years when there are no federal elections
scheduled. Since 2009 is a non-election year, we expect significantly less
political advertising revenue to be reported in 2009 in relation to the amount
of political advertising reported in 2008.
Automotive-related
advertising, our largest advertising category, represented approximately 16% and
23% of our core local and national advertising revenue for the nine months ended
September 30, 2009 and 2008. Our automotive-related advertising decreased
approximately 40% for the nine months ended September 30, 2009 as compared
to the same period in 2008. Automotive-related advertising on a
quarter-to-quarter comparison to the prior year has followed a consistent
downward trend over the last three years. This trend is primarily due to the
current condition of the automotive industry and resulting decline in the demand
for advertising from this business category. A continued pattern of
deterioration in advertising revenue from this source could materially affect
our future results of operations.
Pending
Transaction
On
April 11, 2006, we and Mission filed an application with the FCC for
consent to assignment of the license of KFTA Channel 24 (Ft. Smith, Arkansas)
from us to Mission. Consideration for this transaction is set at $5.6 million.
On August 28, 2006, we and Mission entered into a local service agreement
whereby (a) Mission pays us $5 thousand per month for the right to
broadcast Fox programming on KFTA during the Fox network programming time
periods and (b) we pay Mission $20 thousand per month for the right to sell
all advertising time on KFTA within the Fox network programming time periods.
The local service agreement between us and Mission will terminate upon
assignment of KFTA’s FCC license from us to Mission. Upon completing the
assignment of KFTA’s license, Mission plans to enter into a JSA and SSA with our
station KNWA in Fort Smith-Fayetteville-Springdale-Rogers, Arkansas, whereby
KNWA will provide local news, sales and other non-programming services to KFTA.
In March 2008, the FCC granted the application to assign the license for KFTA
from Nexstar to Mission. The grant contained conditions which Nexstar is
currently appealing.
31
Historical
Performance
Revenue
The
following table sets forth the principal types of revenue earned by the
Company’s stations for the periods indicated and each type of revenue (other
than trade and barter) as a percentage of total gross revenue, as well as agency
commissions:
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
|||||||||||||||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||||||||||||
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||||||||||||||
(in
thousands, except percentages)
|
(in
thousands, except percentages)
|
|||||||||||||||||||||||||||||||
Local
|
$
|
37,316
|
60.0
|
$
|
42,394
|
56.9
|
$
|
113,412
|
61.8
|
$
|
129,999
|
60.2
|
||||||||||||||||||||
National
|
13,276
|
21.4
|
16,375
|
22.0
|
37,563
|
20.5
|
50,296
|
23.3
|
||||||||||||||||||||||||
Political
|
1,012
|
1.6
|
7,770
|
10.4
|
2,271
|
1.2
|
13,418
|
6.2
|
||||||||||||||||||||||||
Retransmission
compensation
|
6,244
|
10.0
|
3,854
|
5.2
|
17,884
|
9.8
|
10,461
|
4.8
|
||||||||||||||||||||||||
eMedia
revenue
|
2,970
|
4.8
|
2,730
|
3.7
|
8,291
|
4.5
|
7,342
|
3.4
|
||||||||||||||||||||||||
Network
compensation
|
516
|
0.8
|
850
|
1.1
|
1,607
|
0.9
|
2,615
|
1.2
|
||||||||||||||||||||||||
Other
|
889
|
1.4
|
533
|
0.7
|
2,326
|
1.3
|
1,635
|
0.9
|
||||||||||||||||||||||||
Total
gross revenue
|
62,223
|
100.0
|
74,506
|
100.0
|
183,354
|
100.0
|
215,766
|
100.0
|
||||||||||||||||||||||||
Less:
Agency commissions
|
6,506
|
10.5
|
8,530
|
11.4
|
19,002
|
10.4
|
24,544
|
11.4
|
||||||||||||||||||||||||
Net
broadcast revenue
|
55,717
|
89.5
|
65,976
|
88.6
|
164,352
|
89.6
|
191,222
|
88.6
|
||||||||||||||||||||||||
Trade
and barter revenue
|
4,682
|
4,299
|
13,667
|
13,383
|
||||||||||||||||||||||||||||
Net
revenue
|
$
|
60,399
|
$
|
70,275
|
$
|
178,019
|
$
|
204,605
|
Results
of Operations
The
following table sets forth a summary of the Company’s operations for the periods
indicated and their percentages of net revenue:
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
|||||||||||||||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||||||||||||
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||||||||||||||
(in
thousands, except percentages)
|
(in
thousands, except percentages)
|
|||||||||||||||||||||||||||||||
Net
revenue
|
$
|
60,399
|
100.0
|
$
|
70,275
|
100.0
|
$
|
178,019
|
100.0
|
$
|
204,605
|
100.0
|
||||||||||||||||||||
Operating
expenses:
|
||||||||||||||||||||||||||||||||
Corporate
expenses
|
4,031
|
6.7
|
4,222
|
6.0
|
14,499
|
8.1
|
11,033
|
5.4
|
||||||||||||||||||||||||
Station
direct operating expenses, net of trade
|
17,501
|
29.0
|
18,124
|
25.8
|
52,991
|
29.8
|
53,783
|
26.3
|
||||||||||||||||||||||||
Selling,
general and administrative expenses
|
17,597
|
29.1
|
18,693
|
26.6
|
51,781
|
29.1
|
54,606
|
26.7
|
||||||||||||||||||||||||
Restructure
charge
|
—
|
—
|
—
|
—
|
670
|
0.4
|
—
|
—
|
||||||||||||||||||||||||
Non-cash
contract termination fees
|
—
|
—
|
—
|
—
|
191
|
0.1
|
7,167
|
3.5
|
||||||||||||||||||||||||
Impairment
of goodwill and intangible assets
|
16,164
|
26.8
|
48,537
|
69.1
|
16,164
|
9.1
|
48,537
|
23.7
|
||||||||||||||||||||||||
Gain
on asset exchange
|
(2,612
|
)
|
(4.3
|
)
|
(487
|
)
|
(0.7
|
)
|
(6,710
|
)
|
(3.8
|
)
|
(4,079
|
)
|
(2.0
|
)
|
||||||||||||||||
(Gain)
loss on asset disposal, net
|
7
|
—
|
(127
|
)
|
(0.1
|
)
|
(2,813
|
)
|
(1.6
|
)
|
(297
|
)
|
(0.1
|
)
|
||||||||||||||||||
Trade
and barter expense
|
4,293
|
7.1
|
4,139
|
5.9
|
12,793
|
7.2
|
13,097
|
6.4
|
||||||||||||||||||||||||
Depreciation
and amortization
|
11,349
|
18.8
|
11,574
|
16.5
|
33,775
|
19.0
|
34,750
|
17.0
|
||||||||||||||||||||||||
Amortization
of broadcast rights, excluding barter
|
5,702
|
9.4
|
2,399
|
3.4
|
10,578
|
5.9
|
6,702
|
3.3
|
||||||||||||||||||||||||
Loss
from operations
|
$
|
(13,633
|
)
|
$
|
(36,799
|
)
|
$
|
(5,900
|
)
|
$
|
(20,694
|
)
|
32
Three
Months Ended September 30, 2009 Compared to Three Months Ended
September 30, 2008.
Revenue
Gross
local advertising revenue was $37.3 million for the three months ended
September 30, 2009, a decrease of $5.1 million or 12.0% when compared to
$42.4 million for the same period in 2008. Gross national advertising revenue
was $13.3 million for the three months ended September 30, 2009, compared
to $16.4 million for the same period in 2008, a decrease of $3.1 million, or
18.9%. Advertising revenue from Paid Programming, Automotive and Telecom
business categories decreased by approximately $0.7 million, $5.4 million and
$0.6 million, respectively during the third quarter of 2009 compared to the
prior year.
Gross
political advertising revenue was $1.0 million for the three months ended
September 30, 2009, compared to $7.8 million for the same period in 2008, a
decrease of $6.8 million, or 87.0%. The decrease in gross political revenue was
mainly attributed to the presidential and statewide primary elections and to
statewide and/or local races that occurred during the three months ended
September 30, 2008 as compared to nominal political advertising during the
three months ended September 30, 2009.
Retransmission
compensation was $6.2 million for the three months ended September 30,
2009, compared to $3.9 million for the same period in 2008, an increase of $2.3
million or 62.0%. The increase in retransmission compensation was primarily the
result of agreements with various cable companies being renegotiated at higher
rates in the fourth quarter of 2008.
eMedia
revenue, representing revenue generated from non-television web-based
advertising, was $3.0 million for the three months ended September 30,
2009, compared to $2.7 million for the three months ended September 30,
2008, an increase of $0.3 million or 8.8%. The increase in eMedia revenue is
attributable to the continued expansion of products offered in this
area.
Net
revenue for the three months ended September 30, 2009 decreased 14.1% to
$60.4 million compared to $70.3 million for the three months ended
September 30, 2008.
Operating
Expenses
Corporate
expenses, related to costs associated with the centralized management of
Nexstar’s and Mission’s stations, were $4.0 and $4.2 million for the three month
periods ended September 30, 2009 and 2008, respectively. The
decrease of $0.2 million is primarily attributable to a decrease in bonus
expense as a result of revenue underperformance.
Station
direct operating expenses, consisting primarily of news, engineering and
programming, net of trade, and selling, general and administrative expenses were
$35.1 million for the three months ended September 30, 2009, compared to
$36.8 million for the same period in 2008, a decrease of $1.7 million, or 4.7%.
This decrease is primarily attributed to: a) a decrease in utility expense of
approximately $0.4 million, caused by the conversion of stations from analog to
digital signal; b) a decrease of approximately $0.5 million in payroll related
costs, due to regionalizing certain functions; and c) a decrease of
approximately $0.4 million in national sales commissions related to a decrease
in national and political revenue.
Amortization
of broadcast rights, excluding barter, was $5.7 million for the three months
ended September 30, 2009, compared to $2.4 million for the same period in
2008. The increase is primarily due to net realizable write-downs of
$2.7 million as described more fully in Note 2.
Amortization
of intangible assets was $5.9 and $6.3 million for the three months ended
September 30, 2009 and 2008, respectively. The decrease in
amortization was primarily due to the reduction of the carrying value of network
affiliation agreements being amortized in 2009 as a result of impairments in the
second half of 2008 and one station changing networks at the beginning of 2009,
which resulted in a write-off of the network value in December
2008.
33
We
recorded an impairment charge of $16.2 million during the third quarter of 2009
that included an impairment to the carrying values of FCC licenses of $8.8
million, related to 19 of our television stations and an impairment to the
carrying values of goodwill of $7.4 million, related to four reporting units
consisting of five of our television stations. In the third quarter of 2008, we
recorded an impairment charge of $48.5 million that included an impairment to
the carrying values of FCC licenses of $19.7 million, related to 12 of our
television stations; an impairment to the carrying value of network affiliation
agreements of $1.0 million, related to three of our television stations; and an
impairment to the carrying values of goodwill of $27.8 million, related to five
reporting units consisting of six of our television stations. As
required by the authoritative guidance for goodwill and other intangible assets,
we tested our unamortized intangible assets for impairment at September 30,
2009, between the required annual tests, because we believed events had occurred
and circumstances changed that would more likely than not reduce the fair value
of our FCC licenses and goodwill below their carrying amounts. These events
include the overall economic recession and a continued decline in demand for
advertising at several of our stations. Further deterioration in the
advertising marketplaces in which Nexstar and Mission operate could lead to
additional impairment and reduction of the carrying value of the Company’s
goodwill and intangible assets, including FCC licenses and network affiliation
agreements. If such a condition were to occur, the resulting non-cash charge
could have a material adverse effect on Nexstar and Mission’s financial position
and results of operations.
Depreciation
of property and equipment was $5.4 million and $5.2 million for the three month
periods ended September 30, 2009 and 2008, respectively.
For the
three months ended September 30, 2009 and September 30, 2008, we
recognized a gain of $2.6 million and $0.5 million, respectively from the
exchange of equipment under an arrangement with Sprint Nextel
Corporation. This increase was due to more stations completing the
spectrum conversion process during the third quarter of 2009 compared to the
same period in 2008.
Loss
from Operations
Loss from
operations was $13.6 million for the three months ended September 30, 2009,
compared to a loss from operations of $36.8 million for the same period in 2008,
a decrease of $23.2 million, or 63.0%. The decrease in loss from operations was
primarily due to the difference of $32.4 million in the magnitude of the
impairment charge in the third quarter of 2009 versus third quarter 2008,
partially offset by the decrease in net revenue of $9.9 million.
Interest
Expense
Interest
expense, including amortization of debt financing costs, was $8.7 million for
the three months ended September 30, 2009, compared to $11.6 million for
the same period in 2008, a decrease of $2.9 million or 25.3%. The decrease in
interest expense was primarily attributed to lower average interest rates in the
third quarter of 2009 compared to the same period in 2008, as well as reductions
in the outstanding 11.375% notes, period-over-period.
Income
Taxes
Income
tax benefit was $3.9 million for the three months ended September 30, 2009,
compared to an income tax benefit of $3.0 million for the same period in 2008,
an increase in benefit of $0.9 million, or 30.0%. The increase in benefit was
primarily due to the deferred tax effect of the impairment charge of $16.2
million and $48.5 million for the three months ended September 2009 and 2008,
respectively related to goodwill and other indefinite-lived intangible
assets. Our provision for income taxes is primarily created by
changes in the deferred tax liabilities position during the year arising from
the amortizing of goodwill and other indefinite-lived intangible assets for
income tax purposes which are not amortized for financial reporting
purposes. The impairment charge reduced the book value and therefore
decreased the deferred tax liability position. No tax benefit was
recorded with respect to the losses for 2009 and 2008, as the utilization of
such losses is not likely to be realized in the foreseeable future.
Nine
Months Ended September 30, 2009 Compared to Nine Months Ended
September 30, 2008.
Revenue
Gross
local advertising revenue was $113.4 million for the nine months ended September
30, 2009 a decrease of $16.6 million or 12.8% when compared to $130.0 million
for the nine months ended September 30, 2008. Gross national
advertising revenue was $37.6 million for the nine months ended
September 30, 2009, compared to $50.3 million for the same period in 2008,
a decrease of $12.7 million, or 25.3%. Advertising revenue from Paid
Programming, Automotive, Fast Foods/Restaurants, Furniture and Telecom business
categories decreased by approximately $2.3 million, $17.0 million, $1.2 million,
$1.8 million and $1.6 million, respectively during the nine months ended
September 30, 2009 compared to the prior year.
34
Gross
political advertising revenue was $2.3 million for the nine months ended
September 30, 2009, compared to $13.4 million for the same period in 2008,
a decrease of $11.1 million, or 83.1%. The decrease in gross political revenue
was mainly attributed to presidential and statewide primary elections and to
statewide and/or local races that occurred during the nine months ended
September 30, 2008 as compared to nominal political advertising during the
nine months ended September 30, 2009.
Retransmission
compensation was $17.9 million for the nine months ended September 30,
2009, compared to $10.5 million for the same period in 2008, an increase of $7.4
million, or 71.0%. The increase in retransmission compensation was primarily the
result of agreements with various cable companies being renegotiated at higher
rates in the fourth quarter of 2008.
eMedia
revenue, representing revenue generated from non-television web-based
advertising, was $8.3 million for the nine months ended September 30, 2009,
compared to $7.3 million for the nine months ended September 30, 2008, an
increase of $1.0 million or 12.9%. The increase in eMedia revenue was a result
of the continued expansion of products offered in this area.
Net
revenue for the nine months ended September 30, 2009 decreased 13.0% to
$178.0 million compared to $204.6 million for the nine months ended
September 30, 2008.
Operating
Expenses
Corporate
expenses, related to costs associated with the centralized management of
Nexstar’s and Mission’s stations, were $14.5 million for the nine months ended
September 30, 2009, compared to $11.0 million for the nine months ended
September 30, 2008, an increase of $3.5 million, or 31.4%. The increase
during the nine months ended September 30, 2009 was primarily attributed to
$2.9 million in fees associated with the March 2009 7% notes exchange offer and
$0.6 million in professional fees associated with the recent amendment of our
senior secured credit facility.
Station
direct operating expenses, consisting primarily of news, engineering and
programming, net of trade, and selling, general and administrative expenses were
$104.8 million for the nine months ended September 30, 2009, compared to
$108.4 million for the same period in 2008, a decrease of $3.6 million, or 3.3%.
This decrease is primarily attributed to a decrease in national and local sales
commissions which resulted from decreases in national and local
revenue.
In
February 2009, Nexstar began regionalizing certain accounting and traffic
functions. As a result, approximately 93 employees were notified they would be
terminated at various points in time through the end of May 2009. These
employees were offered termination benefits that aggregated to $0.7 million. The
Company recognized these costs ratably over the period of time between the
notice of termination and the termination date. Nexstar estimates the
restructuring will save the Company approximately $2.2 million
annually. The Company incurred a $0.7 million charge during the nine
months ended September 30, 2009 related to these benefits.
In May
2009, the Company incurred a non-cash charge of $0.2 million related to the
termination of national sales representation agreements at certain
stations. The Company incurred a similar type of charge in March 2008
in the amount of $7.2 million related to a different group of
stations.
Amortization
of broadcast rights, excluding barter, was $10.6 million for the nine months
ended September 30, 2009, compared to $6.7 million for the same period in
2008. The increase is primarily due to net realizable write-downs of
$3.0 million as more fully described in Note 2. Additionally, the
2009 purchase of stations WCWJ and KARZ increased the monthly
amortization.
Amortization
of intangible assets was $17.8 and $19.1 million for the nine months ended
September 30, 2009 and 2008, respectively. The decrease in
amortization was primarily due to the reduction of the carrying value of network
affiliation agreements being amortized in 2009 as a result of impairments in the
second half of 2008 and one station changing networks at the beginning of
2009.
We
recorded an impairment charge of $16.2 million during the third quarter of 2009
that included an impairment to the carrying values of FCC licenses of $8.8
million, related to 19 of our stations and an impairment to the carrying values
of goodwill of $7.4 million, related to four reporting units consisting of five
of our television stations. In the third quarter of 2008, we recorded
an impairment charge of $48.5 million that included an impairment to the
carrying values of FCC licenses of $19.7 million, related to 12 of our
television stations; an impairment to the carrying value of network affiliation
agreements of $1.0 million, related to three of our television stations; and an
impairment to the carrying values of goodwill of $27.8 million, related to five
reporting units consisting of six of our television
stations. As required by the authoritative guidance for
goodwill and other intangible assets, we tested our FCC licenses and goodwill
for impairment at September 30, 2009, between the required annual tests, because
we believed events had occurred and circumstances changed that would more likely
than not reduce the fair value of our reporting units below their carrying
amounts and that our FCC licenses might be impaired. These events and
circumstances include the overall economic recession and a continued decline in
demand for advertising at several of our stations.
Depreciation
of property and equipment was $16.0 million and $15.7 million for the nine
months ended September 30, 2009, and 2008, respectively.
For the
nine months ended September 30, 2009, and September, 30 2008 respectively,
we recognized a gain of $6.7 million and $4.1 million from the exchange of
equipment under an arrangement with Sprint Nextel Corporation. The
increase was due to the number of stations completing spectrum conversions in
2009 compared to 2008.
The net
gain on asset disposal of $2.8 million for the nine months ended September 30,
2009 included a $2.2 million gain related to the KSNF tower insurance
claim.
Loss
from Operations
Loss from
operations was $5.9 million for the nine months ended September 30, 2009,
compared to a loss from operations of $20.7 million for the same period in 2008,
a decrease of $14.8 million, or 71.5%. The decrease in loss from operations was
primarily the result of the decrease of $32.4 million in the magnitude of the
impairment charge in the nine months ended September 30, 2009 compared to the
same period in 2008, as well as the decrease in non-cash contact termination
fees of $7.0 million combined with increased gains on asset exchange and
disposal of assets of $5.1 million, partially offset by the decrease in net
revenue of $26.6 million and the increase in amortization of broadcast rights of
$4.1 million, which included $3.0 million in write-downs of the net realizable
value of certain broadcast rights.
Interest
Expense
Interest
expense, including amortization of debt financing costs, was $27.4 million for
the nine months ended September 30, 2009, compared to $36.4 million for the
same period in 2008, a decrease of $9.0 million, or 24.6%. The decrease in
interest expense was primarily attributed to lower average interest rates in
2009 compared to 2008, as well as reductions in the outstanding 11.375% notes,
period-over-period.
Gain
on Extinguishment of Debt
In the
first quarter of 2009, the Company purchased $27.8 million of its 11.375% notes
and $1.0 million of its 7% notes for a total of $10.0 million, plus accrued
interest of $1.0 million. These transactions resulted in combined
gains of $18.6 million for the nine months ended September 30,
2009.
Income
Taxes
Income
tax benefit was $1.1 million for the nine months ended September 30, 2009,
compared to an expense of $0.3 million for the same period in 2008, a decrease
of $1.4 million, or 466.1%. The decrease in expense was primarily due to the
deferred tax effect of the impairment charge of $16.2 million in 2009 and $48.5
million in 2008 related to goodwill and other indefinite-lived intangible
assets. Our provision for income taxes is primarily created by changes in the
deferred tax liabilities position during the year arising from the amortizing of
goodwill and other indefinite-lived intangible assets for income tax purposes
which are not amortized for financial reporting purposes. The
impairment charge reduced the book value and therefore decreased the deferred
tax liability position. No tax benefit was recorded with respect to
the losses for 2009 and 2008, as the utilization of such losses is not likely to
be realized in the foreseeable future.
Liquidity
and Capital Resources
We and
Mission are highly leveraged, which makes the Company vulnerable to changes in
general economic conditions. Our and Mission’s ability to meet the future cash
requirements described below depends on our and Mission’s ability to generate
cash in the future, which is subject to general economic, financial,
competitive, legislative, regulatory and other conditions, many of which are
beyond our and Mission’s control. Based on current operations and anticipated
future growth, we believe that our and Mission’s available cash, anticipated
cash flow from operations and available borrowings under the Nexstar and Mission
senior credit facilities will be sufficient to fund working capital, capital
expenditure requirements, interest payments and scheduled debt principal
payments for at least the next twelve months. In order to meet future cash needs
we may, from time to time, borrow under credit facilities or issue other long-
or short-term debt or equity, if the market and the terms of our existing debt
arrangements permit, and Mission may, from time to time, borrow under its
available credit facility. We will continue to evaluate the best use of
Nexstar’s operating cash flow among its capital expenditures, acquisitions and
debt reduction.
35
Overview
The
following tables present summarized financial information management believes is
helpful in evaluating the Company’s liquidity and capital
resources:
Nine
Months Ended
September 30,
|
||||||||
2009
|
2008
|
|||||||
(in
thousands)
|
||||||||
Net
cash provided by operating activities
|
$
|
9,834
|
$
|
40,726
|
||||
Net
cash used for investing activities
|
(30,106
|
)
|
(25,548
|
)
|
||||
Net
cash provided by (used for) financing activities
|
23,761
|
(19,756
|
)
|
|||||
Net
increase (decrease) in cash and cash equivalents
|
$
|
3,489
|
$
|
(4,578
|
)
|
|||
Cash
paid for interest
|
$
|
22,228
|
$
|
29,440
|
||||
Cash
paid for income taxes, net
|
$
|
523
|
$
|
178
|
||||
September 30,
2009
|
December 31,
2008
|
|||||||
(in
thousands)
|
||||||||
Cash
and cash equivalents
|
$
|
19,323
|
$
|
15,834
|
||||
Long-term
debt including current portion
|
$
|
675,555
|
$
|
662,117
|
||||
Unused
commitments under senior credit facilities (1)
|
$
|
12,500
|
$
|
66,500
|
(1)
|
As
of September 30, 2009, there was $12.5 million of total unused revolving
loan commitments under the Nexstar and Mission credit
facilities. Based on covenant calculations, as of September 30,
2009, $0 was available for
borrowing.
|
Cash
Flows – Operating Activities
The
comparative net cash flows provided by operating activities decreased by $30.9
million during the nine months ended September 30, 2009 compared to the
same period in 2008. The decrease was primarily due to the overall reduction in
our net revenue.
Cash paid
for interest decreased by $7.2 million during the nine months ended
September 30, 2009 compared to the same period in 2008. The decrease was
primarily due to lower average interest rates on our variable rate bank debt in
2009 compared to 2008.
Nexstar
and its subsidiaries file a consolidated federal income tax return. Mission
files its own separate federal income tax return. Additionally, Nexstar and
Mission file their own state and local tax returns as are required. Due to our
and Mission’s recent history of net operating losses, we and Mission currently
do not pay any federal income taxes. These net operating losses may be carried
forward, subject to expiration and certain limitations, and used to reduce
taxable earnings in future years. Through the use of available loss
carryforwards, it is possible that we and Mission may not pay significant
amounts of federal income taxes in the foreseeable future.
Cash
Flows – Investing Activities
The
comparative net cash used for investing activities increased by $4.6 million
during the nine months ended September 30, 2009 compared to the same period
in 2008. The increase was primarily due to the increase in acquisitions of
stations, partially offset by a reduction in capital expenditures and an
increase in insurance proceeds for KBTV and KSNF.
Acquisition-related
payments for the nine months ended September 30, 2009 consisted of the
acquisitions of KARZ for $3.6 million and the acquisition of WCWJ for $17.2
million.
Capital
expenditures were $14.3 million for the nine months ended September 30,
2009, compared to $18.1 million for the nine months ended September 30,
2008. The decrease was primarily attributable to a significant portion of the
digital conversions occurring in 2008.
We
project that 2009 full-year capital expenditures will be approximately $17.0
million, which is expected to include approximately $8.5 million of digital
conversion expenditures. We expect to conclude our digital conversion
expenditures during 2009.
36
Cash
Flows – Financing Activities
The
comparative net cash from financing activities increased by $43.5 million during
the nine months ended September 30, 2009 compared to the same period in
2008, due primarily to an increase in net borrowings under the revolving credit
facility of $54.0 million partially offset by consideration of $17.7 million
paid to bondholders in the exchange of the 7% senior subordinated
notes.
During
the nine months ended September 30, 2009, there were $54.0 million of
revolving loan borrowings under our and Mission’s senior secured credit
facilities, compared to $50.0 million of borrowings and $50.0 million of
repayments under the revolving credit facility for the nine months ended
September 30, 2008.
During
the nine months ended September 30, 2009, there were $2.6 million of
repayments under our and Mission’s senior secured credit facilities, all
consisting of scheduled term loan maturities. Additionally, we purchased $27.9
million and $1.0 million (both face amounts) of our 11.375% notes and 7% notes,
respectively, for a total of $10.0 million.
Although
the Nexstar and Mission senior credit facilities allow for the payment of cash
dividends to common stockholders, we and Mission do not currently intend to
declare or pay a cash dividend.
Future
Sources of Financing and Debt Service Requirements
As of
September 30, 2009, Nexstar and Mission had total combined debt of $675.6
million, which represented 135.7% of Nexstar and Mission’s combined
capitalization. Our and Mission’s high level of debt requires that a substantial
portion of cash flow be dedicated to pay principal and interest on debt which
reduces the funds available for working capital, capital expenditures,
acquisitions and other general corporate purposes.
The
following table summarizes the approximate aggregate amount of principal
indebtedness scheduled to mature for the periods referenced as of
September 30, 2009:
Total
|
Remainder
of
2009
|
2010-2011
|
2012-2013
|
Thereafter
|
||||||||||||||||
(in
thousands)
|
||||||||||||||||||||
Nexstar
senior credit facility
|
$
|
234,768
|
$
|
439
|
$
|
3,516
|
$
|
230,813
|
$
|
—
|
||||||||||
Mission
senior credit facility
|
172,792
|
432
|
3,454
|
168,906
|
—
|
|||||||||||||||
Senior
subordinated PIK notes due 2014
|
42,628
|
—
|
—
|
—
|
42,628
|
|||||||||||||||
7%
senior subordinated notes due 2014
|
47,910
|
—
|
—
|
—
|
47,910
|
|||||||||||||||
7%
senior subordinated PIK notes due 2014
|
143,600
|
—
|
—
|
—
|
143,600
|
|||||||||||||||
11.375%
senior discount notes due 2013
|
49,981
|
—
|
—
|
49,981
|
—
|
|||||||||||||||
$
|
691,679
|
$
|
871
|
$
|
6,970
|
$
|
449,700
|
$
|
234,138
|
We make
semiannual interest payments on our 7% (non-PIK) Notes of on January 15th
and July 15th of each year. The 11.375% Notes began to accrue cash interest
on April 1, 2008. We make semiannual interest payments on our 11.375% Notes
on April 1st and October 1st. Our senior subordinated PIK notes due
2014 will begin paying cash interest in 2010 and our 7% senior subordinated PIK
notes due 2014 will begin paying cash interest in 2011. Interest payments on our
and Mission’s senior credit facilities are generally paid every one to three
months and are payable based on the type of interest rate selected.
The terms
of the Nexstar and Mission senior credit facilities, as well as the indentures
governing our publicly-held notes, limit, but do not prohibit us or Mission from
incurring substantial amounts of additional debt in the future.
We do not
have any rating downgrade triggers that would accelerate the maturity dates of
our debt. However, a downgrade in our credit rating could adversely affect our
ability to renew existing, or obtain access to new, credit facilities or
otherwise issue debt in the future and could increase the cost of such
facilities.
Debt
Covenants
Our
senior secured credit facility agreement contains covenants which require us to
comply with certain financial ratios, including: (a) maximum total and senior
leverage ratios, (b) a minimum interest coverage ratio, and (c) a minimum fixed
charge coverage ratio. The covenants, which are calculated on a quarterly basis,
include the combined results of Nexstar Broadcasting and Mission. Mission’s
senior secured credit facility agreement does not contain financial covenant
ratio requirements; however it does include an event of default if Nexstar does
not comply with all covenants contained in its credit agreement. The senior
subordinated notes and senior discount notes contain restrictive covenants
customary for borrowing arrangements of this type.
37
On
October 8, 2009, Nexstar amended its senior secured credit facility to modify
certain terms of the underlying credit agreement. The
modifications included, but are not limited to, changes to financial
covenants, including the Consolidated Total Leverage Ratio and Consolidated
Senior Leverage Ratio, a general tightening of the exceptions to the
negative covenants (principally by means of reducing the types and amounts
of permitted transactions) and an increase to the interest rates and fees
payable with respect to the borrowings under the amended credit
agreement. The following table compares the old and new
covenant requirements.
Prior
|
As
Amended
|
||
Consolidated
Total Leverage Ratio:
|
|||
July
1, 2009 through September 30, 2009
|
6.50
to 1.00
|
6.75
to 1.00
|
|
October
1, 2009 to December 31, 2009
|
6.50
to 1.00
|
8.75
to 1.00
|
|
January
1, 2010 through March 31, 2010
|
6.50
to 1.00
|
9.50
to 1.00
|
|
April
1, 2010 through June 30, 2010
|
6.50
to 1.00
|
10.25
to 1.00
|
|
July
1, 2010 through September 30, 2010
|
6.25
to 1.00
|
9.25
to 1.00
|
|
October
1, 2010 through and including March 31, 2011
|
6.25
to 1.00
|
7.75
to 1.00
|
|
April
1, 2011 and thereafter
|
6.00
to 1.00
|
6.00
to 1.00
|
|
Consolidated
Senior Leverage Ratio:
|
|||
July
1, 2009 through September 30, 2009
|
4.50
to 1.00
|
5.50
to 1.00
|
|
October
1, 2009 to December 31, 2009
|
4.50
to 1.00
|
7.00
to 1.00
|
|
January
1, 2010 through March 31, 2010
|
4.25
to 1.00
|
7.00
to 1.00
|
|
April
1, 2010 through June 30, 2010
|
4.25
to 1.00
|
7.50
to 1.00
|
|
July
1, 2010 through September 30, 2010
|
4.25
to 1.00
|
6.75
to 1.00
|
|
October
1, 2010 through and including March 31, 2011
|
4.25
to 1.00
|
5.50
to 1.00
|
|
April
1, 2011 and thereafter
|
4.00
to 1.00
|
4.00
to 1.00
|
The
Amended Nexstar Credit Agreement revises the calculation of Consolidated Total
Leverage Ratio to exclude the netting of cash and cash equivalents against total
debt.
On an
annual basis following the delivery of Nexstar's Broadcasting, Inc.'s year end
financial statements, the Amended Nexstar Credit Agreement requires
mandatory prepayments of principal, as well as a permanent reduction in
revolving credit commitments, subject to a computation of excess cash
flow for the preceding fiscal year. The amended agreement also places additional
restrictions on the use of proceeds from asset sales, equity issuances, or debt
issuances (with the result that such proceeds, subject to certain exceptions, be
used for mandatory prepayments of principal and permanent reductions in
revolving credit commitments), and includes an anti-cash hoarding provision
which requires that the Company utilize unrestricted cash and cash equivalent
balances in excess of $15.0 million to repay principal amounts outstanding, but
not permanently reduce capacity, under the revolving credit
facility.
The
Amended Nexstar Credit Agreement also revised the interest rate
provisions. As amended, borrowings under the Facility may bear
interest at either (i) a Eurodollar Rate, which has been amended to include an
interest rate floor equal to 1% or (ii) a Base Rate, which, as
amended, is defined as the greater of (1) the sum of 1/2 of 1% plus
the Federal Funds Rate, (2) Bank of America, N.A.'s prime rate and (3) the sum
of (x) 1% plus (y) the Eurodollar Rate. The definition of applicable
margin was changed to eliminate the pricing grid and replace it with a fixed
rate. As amended, the applicable margin for Eurodollar loans is a
rate per annum equal to 4% and the applicable margin for Base Rate loans is a
rate per annum equal to 3%.
On
October 8, 2009, Mission also amended its credit facility and made changes to
its credit agreement that generally mirror the changes made to the Nexstar
credit agreement.
The
Amended Nexstar Credit Agreement expanded certain cross-default provisions such
that the breach of certain warranties, representations or covenants under the
Amended Mission Credit Agreement now constitute an event of default under the
Amended Nexstar Credit Agreement.
As of
September 30, 2009, we were in compliance with all indentures governing the
publicly-held notes. As of September 30, 2009, we were not in
compliance with all covenants contained in the credit agreement governing our
senior secured credit facility. On October 8, 2009, we amended our
credit facility to modify certain covenants. See Note 9 for a more
complete discussion of the credit facility amendment. The October 8,
2009 debt amendment contained a limited waiver for the leverage ratios which
cured the violation as of September 30, 2009.
38
On March
30, 2009, we closed an offer to exchange $143,600,000 of the 7% senior
subordinated notes due 2014 in exchange for $142,320,761 7% senior subordinated
PIK Notes due 2014 (the “PIK Notes”). Based on the financial covenants in the
senior secured credit facility, the PIK Notes are not included in the debt
amount used to calculate the total leverage ratio until January 2011. In
addition to the debt exchange, we have undertaken certain actions as part of our
efforts to ensure we will be in compliance with our debt covenants including 1)
the elimination of corporate bonuses for 2008 and 2009, 2) the consolidation of
various back office processes in certain markets, 3) the execution of a
management services agreement whereby Nexstar operates seven stations in
exchange for a service fee, 4) the consummation of a purchase agreement on March
12, 2009 to acquire all the assets of KARZ and the consummation of a purchase
agreement on May 1, 2009 to acquire all the assets of WCWJ, 5) the October 8,
2009 amendment to the senior credit facility, which modified certain covenants
and 6) obtaining the limited waiver of the leverage ratios as of September 30,
2009, in conjunction with the credit amendments.
We
believe the consummation of the exchange offer along with the debt amendment and
other actions described above, will allow us to maintain compliance with all
covenants contained in the credit agreements governing our senior secured
facility and the indentures governing our publicly held notes for a period of at
least the next twelve months from September 30, 2009. However, no assurance can
be provided that our actions will be successful or that further adverse events
outside of our control may arise that would result in our inability to comply
with the debt covenants. In such event, we would consider a range of
transactions or strategies to address any such situation. For
example, we might decide to divest non-core assets, refinance our existing debt
or obtain additional equity financing. There is no assurance that any
such transactions, or any other transactions, or strategies we might consider,
could be consummated on terms satisfactory to us or at all.
Cash
Requirements for Digital Television (“DTV”) Conversion
On June
12, 2009 all full-power television broadcasters were required to cease operating
in an analog format and operate exclusively in digital (DTV)
format. All of Nexstar’s and Mission’s stations have completed the
transition to digital operations except for KQTV and KMID. KQTV
holds a construction permit issued by the FCC to build a higher-power DTV
facility by December 26, 2009, which permit may be further extended by the FCC
until construction of the facility is completed. Nexstar anticipates
completing construction of KQTV’s full-power DTV facility by November 15,
2009. Nexstar has completed construction of KMID’s full-power DTV
facilities and is working with the FCC with respect to a grant of KMID’s
authorization.
DTV
conversion expenditures were $8.2 million and $13.5 million, respectively, for
the nine months ended September 30, 2009 and 2008, respectively. The Company
will incur various capital expenditures with respect to the completion of DTV
facilities for KQTV and KMID. The Company anticipates these expenditures will be
funded through available cash on hand and cash generated from
operations.
No
Off-Balance Sheet Arrangements
At
September 30, 2009, we did not have any relationships with unconsolidated
entities or financial partnerships, such as entities often referred to as
structured finance or variable interest entities, which would have been
established for the purpose of facilitating off-balance sheet arrangements or
other contractually narrow or limited purposes. All of our arrangements with
Mission are on-balance sheet arrangements. We are, therefore, not materially
exposed to any financing, liquidity, market or credit risk that could arise if
we had engaged in such relationships.
Critical
Accounting Policies and Estimates
Our
condensed consolidated financial statements have been prepared in accordance
with U.S. GAAP which requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the condensed consolidated financial
statements and reported amounts of revenue and expenses during the period. On an
ongoing basis, we evaluate our estimates, including those related to goodwill
and intangible assets, bad debts, broadcast rights, trade and barter, income
taxes, commitments and contingencies. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from those
estimates. Results of operations for interim periods are not necessarily
indicative of results for the full year.
Information
with respect to our critical accounting policies which we believe could have the
most significant effect on our reported results and require subjective or
complex judgments by management is contained on pages 52 through 57 in Part II,
Item 7, Management’s Discussion and Analysis of Financial Condition and
Results of Operations, of our Annual Report on Form 10-K for the fiscal year
ended December 31, 2008. Management believes that as of September 30,
2009 there has been no material change to this information.
Recent
Accounting Pronouncements
Refer to
Note 2 of our condensed consolidated financial statements in Part I, Item 1
of this Quarterly Report on Form 10-Q for a discussion of recently issued
accounting pronouncements, including our expected date of adoption and effects
on results of operations and financial position.
Cautionary
Note Regarding Forward-Looking Statements
This
Quarterly Report on Form 10-Q contains “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934. All statements other
than statements of historical fact are “forward-looking statements” for purposes
of federal and state securities laws, including: any projections or expectations
of earnings, revenue, financial performance, liquidity and capital resources or
other financial items; any assumptions or projections about the television
broadcasting industry; any statements of our plans, strategies and objectives
for our future operations, performance, liquidity and capital resources or other
financial items; any statements concerning proposed new products, services or
developments; any statements regarding future economic conditions or
performance; any statements of belief; and any statements of assumptions
underlying any of the foregoing. Forward-looking statements may include the
words “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,”
“continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,”
“estimates” and other similar words.
Although
we believe that the expectations reflected in any of our forward-looking
statements are reasonable, actual results could differ from this projection or
assumption in any of our forward-looking statements. Our future financial
position and results of operations, as well as any forward-looking statements,
are subject to change and inherent risks and uncertainties, including those
described in our Annual Report on Form 10-K for the year ended December 31,
2008 and in our other filings with the Securities and Exchange Commission. The
forward-looking statements made in this Quarterly Report on Form 10-Q are made
only as of the date hereof, and we do not have or undertake any obligation to
update any forward-looking statements to reflect subsequent events or
circumstances unless otherwise required by law.
39
ITEM 3. Quantitative
and Qualitative Disclosures About Market Risk
Interest
Rate Risk
Our
exposure to market risk for changes in interest rates relates primarily to our
long-term debt obligations.
The term
loan borrowings at September 30, 2009 under the senior credit facilities
bear interest at a weighted average interest rate of 2.13%, which represented
the base rate, or LIBOR, plus the applicable margin, as defined. The revolving
loan borrowings at September 30, 2009 under the senior credit facilities
bear interest at a weighted average interest rate of 1.98%, which represented
the base rate, or LIBOR, plus the applicable margin, as defined. Interest is
payable in accordance with the credit agreements.
The
following table estimates the changes to cash flow from operations as of
September 30, 2009 if interest rates were to fluctuate by 100 or 50 basis
points, or BPS (where 100 basis points represents one percentage point), for a
twelve-month period:
Interest
rate
decrease
|
Interest
rate
increase
|
|||||||||||||||
100 BPS
|
50
BPS
|
50
BPS
|
100
BPS
|
|||||||||||||
(in
thousands)
|
||||||||||||||||
Senior
credit facilities
|
$
|
4,076
|
$
|
2,038
|
$
|
(2,038
|
)
|
$
|
(4,076
|
)
|
Our 7%
notes, our two senior subordinated PIK notes due 2014, and our 11.375% senior
discount notes due 2013 are fixed rate debt obligations and therefore do not
result in a change in our cash flow from operations. As of September 30,
2009, we have no financial instruments in place to hedge against changes in the
benchmark interest rates on this fixed rate debt.
Impact
of Inflation
We
believe that our results of operations are not affected by moderate changes in
the inflation rate.
ITEM 4. Controls
and Procedures
Evaluation
of Disclosure Controls and Procedures
Nexstar’s
management, with the participation of its President and Chief Executive Officer
along with its Chief Financial Officer, conducted an evaluation as of the end of
the period covered by this report of the effectiveness of the design and
operation of Nexstar’s disclosure controls and procedures as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934.
Based
upon that evaluation, Nexstar’s President and Chief Executive Officer and its
Chief Financial Officer concluded that as of the end of the period covered by
this report, Nexstar’s disclosure controls and procedures were effective in
ensuring that information required to be disclosed in the reports that it files
or submits under the Securities Exchange Act of 1934 (i) is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms and (ii) is accumulated and communicated to Nexstar’s
management, including its President and Chief Executive Officer and its Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
Changes
in Internal Control over Financial Reporting
During
the quarterly period as of the end of the period covered by this report, there
have been no changes in Nexstar’s internal control over financial reporting that
have materially affected, or are reasonably likely to materially affect, its
internal control over financial reporting.
40
PART
II. OTHER INFORMATION
ITEM 1.
|
Legal
Proceedings
|
From time
to time, Nexstar and Mission are involved in litigation that arises from the
ordinary operations of business, such as contractual or employment disputes or
other general actions. In the event of an adverse outcome of these proceedings,
Nexstar and Mission believe the resulting liabilities would not have a material
adverse effect on Nexstar’s and Mission’s financial condition or results of
operations.
ITEM 1A.
|
Risk
Factors
|
There are
no material changes from the risk factors previously disclosed in Part I,
Item 1A in our Annual Report on Form 10-K for the year ended
December 31, 2008.
ITEM 2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
None.
ITEM 3.
|
Defaults
Upon Senior Securities
|
None.
ITEM 4.
|
Submission
of Matters to a Vote of Security
Holders
|
None.
ITEM 5.
|
Other
Information
|
None.
ITEM 6.
|
Exhibits
|
Exhibit No.
|
Exhibit
Index
|
10.1
|
Second
Amendment to the Fourth Amended and Restated Credit Agreement dated
October 8, 2009, by and among Nexstar Broadcasting Group, Inc., Nexstar
Finance Holdings, Inc., Nexstar Broadcasting, Inc., Bank of America, N.A.,
Banc of America Securities LLC, UBS Securities LLC, Merrill Lynch, Pierce,
Fenner & Smith Incorporated and the several Banks parties
thereto. (Incorporated by reference to Exhibit 10.1 to Current
Report on Form 8-K (File No. 000-50478) filed by Nexstar Broadcasting
Group, Inc., on October 15, 2009)
|
31.1
|
Certification
of Perry A. Sook pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*
|
31.2
|
Certification
of Thomas E. Carter pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*
|
32.1
|
Certification
of Perry A. Sook pursuant to 18 U.S.C. ss. 1350.*
|
32.2
|
Certification
of Thomas E. Carter pursuant to 18 U.S.C. ss.
1350.*
|
*
|
Filed
herewith
|
41
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
NEXSTAR
BROADCASTING GROUP, INC.
|
||||
/S/ PERRY
A. SOOK
|
||||
By:
|
Perry
A. Sook
|
|||
Its:
|
President
and Chief Executive Officer
(Principal
Executive Officer)
|
|||
/s/ THOMAS
E. CARTER
|
||||
By:
|
Thomas
E. Carter
|
|||
Its:
|
Chief
Financial Officer
(Principal
Financial Officer)
|
Dated:
November 12,
2009
42