Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-K
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
for
the fiscal year ended December 31, 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)
|
Securities
Registered Pursuant to Section 12(b) of the Act:
Title
of Each Class
|
Name
of Each Exchange on Which Registered
|
Class A
Common Stock, $0.01 par value per share
|
The
Nasdaq Global Market
|
Securities
Registered Pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes ¨ No
x
Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes
¨ No
x
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 Website, 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
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
|
Smaller reporting company ¨
|
(Do not check if a 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
June 30, 2009, the aggregate market value of the voting and non-voting
common equity held by non-affiliates of the Registrant was
$8,170,355.
As of
March 2, 2010, the Registrant had outstanding:
15,018,839
shares of Class A Common Stock
and
13,411,588 shares of Class B Common Stock
Documents
Incorporated By Reference
Portions
of the Proxy Statement for the Registrant’s 2010 Annual Meeting of Stockholders
will be filed with the Commission within 120 days after the close of the
Registrant’s fiscal year and incorporated by reference in Part III.
TABLE
OF CONTENTS
Page
|
||
PART I
|
||
ITEM 1.
|
Business
|
2
|
ITEM 1A.
|
Risk
Factors
|
12
|
ITEM 1B.
|
Unresolved
Staff Comments
|
20
|
ITEM 2.
|
Properties
|
21
|
ITEM 3.
|
Legal
Proceedings
|
24
|
ITEM 4.
|
Reserved
|
24
|
PART II
|
||
ITEM 5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
25
|
ITEM 6.
|
Selected
Financial Data
|
27
|
ITEM 7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
28
|
ITEM 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
48
|
ITEM 8.
|
Consolidated
Financial Statements and Supplementary Data
|
48
|
ITEM 9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
48
|
ITEM 9A.
|
Controls
and Procedures
|
48
|
ITEM 9B.
|
Other
Information
|
49
|
PART III
|
||
ITEM 10.
|
Directors,
Executive Officers and Corporate Governance
|
50
|
ITEM 11.
|
Executive
Compensation
|
50
|
ITEM 12.
|
Security
Ownership of Certain Beneficial Owners and Management, and Related
Stockholder Matters
|
50
|
ITEM 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
50
|
ITEM 14.
|
Principal
Accountant Fees and Services
|
50
|
PART
IV
|
||
ITEM 15.
|
Exhibits
and Financial Statement Schedules
|
51
|
Index
to Consolidated Financial Statements
|
F-1
|
|
Index
to Exhibits
|
E-1
|
General
As used
in this Annual Report on Form 10-K and unless the context indicates otherwise,
“Nexstar” refers to Nexstar Broadcasting Group, Inc. and its consolidated
subsidiaries; “Nexstar Broadcasting” refers to Nexstar Broadcasting, Inc., our
indirect subsidiary; “Nexstar Finance Holdings” refers to Nexstar Finance
Holdings, Inc., our wholly-owned subsidiary; “Mission” refers to Mission
Broadcasting, Inc.; “ABRY” refers to Nexstar Broadcasting Group, Inc.’s
principal stockholder, ABRY Partners, LLC and its affiliated funds; and all
references to “we,” “our,” “ours,” and “us” refer to Nexstar.
Nexstar
has time brokerage agreements, shared services agreements and joint sales
agreements (which we generally refer to as local service agreements) relating to
the television stations owned by Mission, but does not own any of the equity
interests in Mission. For a description of the relationship between Nexstar and
Mission, see Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
In the
context of describing ownership of television stations in a particular market,
the term “duopoly” refers to owning or deriving the majority of the economic
benefit, through local service agreements, from two or more stations in a
particular market. For more information on how we derive economic benefit from a
duopoly, see Item 1. “Business.”
There are
210 generally recognized television markets, known as Designated Market Areas,
or DMAs, in the United States. DMAs are ranked in size according to various
factors based upon actual or potential audience. DMA rankings contained in this
Annual Report on Form 10-K are from Investing in Television Market
Report 2009 4th Edition, as published by BIA Financial Network,
Inc.
Reference
is made in this Annual Report on Form 10-K to the following
trademarks/tradenames which are owned by the third parties referenced in
parentheses: Seinfeld
(Columbia Tristar Television Distribution, a unit of Sony Pictures) and
Entertainment Tonight
(Paramount Distribution, a division of Viacom Inc.).
Cautionary
Note Regarding Forward-Looking Statements
This
Annual Report on Form 10-K 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 as amended. 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 a 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 discussed under
Item 1A. “Risk Factors” located elsewhere in this Annual Report on Form
10-K and in our other filings with the Securities and Exchange Commission
(“SEC”). The forward-looking statements made in this Annual Report on Form 10-K
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.
Available
Information
We file
annual, quarterly and current reports, proxy statements and other information
with the SEC. You may read and copy any reports, statements and other
information filed by us at the SEC’s Public Reference Room at 100 F Street,
N.E., Washington, D.C. 20549-0102. Please call (800) SEC-0330 for further
information on the Public Reference Room. The SEC maintains an Internet website
that contains reports, proxy and information statements and other information
regarding issuers, including us, that file electronically with the SEC. The
address for the SEC’s website is http://www.sec.gov.
We make
available, free of charge, through our investor relations website our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, statements of changes in beneficial ownership of securities, and amendments
to those reports and statements as soon as reasonably practicable after they are
filed with the SEC. The address for our website is http://www.nexstar.tv.
1
PART
I
Item 1. Business
Overview
We are a
television broadcasting company focused exclusively on the acquisition,
development and operation of television stations in medium-sized markets in the
United States, primarily markets that rank from 50 to 175 out of the 210
generally recognized television markets, as reported by A.C. Nielsen Company. As
of December 31, 2009, we owned and operated 34 stations, and provided sales
or other services to an additional 25 stations that are owned by Mission and
other entities. In 21 of the 34 markets that we serve, we own, operate, program
or provide sales and other services to more than one station. We refer to these
markets as duopoly markets. The stations that we own, operate, program or
provide sales and other services to are in markets located in New York,
Pennsylvania, Illinois, Indiana, Missouri, Texas, Louisiana, Arkansas, Alabama,
Utah, Florida, Montana, Rhode Island and Maryland. These stations are diverse in
their network affiliations: 47 have primary affiliation agreements with one of
the four major networks—15 with FOX, 12 with NBC, 9 with ABC and 11 with CBS.
Six of the remaining 12 stations have primary agreements with MyNetworkTV; four
stations have an agreement with The CW; one station has an agreement with This
TV and one station has an agreement with Azteca
America. Additionally, three of the stations have secondary network
affiliations that are broadcast over digital multicasts (DM’s) – one with
MyNetworkTV, one with RTN and one with Telemundo.
On
October 7, 2008, Nexstar Broadcasting, Inc. announced that it entered into
a definitive agreement to acquire the assets of KWBF the MyNetworkTV affiliate
serving the Little Rock, Arkansas market for $4.0 million from Equity
Broadcasting Corp. In February 2009, the station was re-launched under the call
letters KARZ-TV. Closing of the acquisition occurred on March 12,
2009.
As of
January 1, 2009, KBTV in Beaumont, Texas became a FOX affiliate. KBTV’s NBC
network affiliation expired on December 31, 2008.
On
January 28, 2009, Nexstar entered into a definitive agreement to acquire
the assets of WCWJ, the CW affiliate serving the Jacksonville, Florida market.
This transaction closed on May 1, 2009.
On
March 23, 2009 we announced entry into an agreement with Four Points Media
Group Holdings LLC (“Four Points”), owned by an affiliate of Cerberus Capital
Management, L.P., whereby Nexstar Broadcasting provides management services for
Four Points’ seven television stations located in four markets. Under the terms
of the agreement, Nexstar receives a fixed annual management fee of $2.0 million
per year, as well as annual incentive compensation based on increases of the
broadcast cash flow of Four Points’ stations. The agreement provides for minimum
compensation to Nexstar of $10.0 million if the Four Points stations are sold
during the initial three year term of the agreement. The agreement was effective
beginning March 20, 2009.
We
believe that medium-sized markets offer significant advantages over large-sized
markets, most of which result from a lower level of competition. First, because
there are fewer well-capitalized acquirers with a medium-market focus, we have
been successful in purchasing stations on more favorable terms than acquirers of
large market stations. Second, in the majority of our markets five or fewer
local commercial television stations exist. As a result, we achieve lower
programming costs than stations in larger markets because the supply of quality
programming exceeds the demand.
The
stations we own and operate or provide services to provide free over-the-air
programming to our markets’ television viewing audiences. This programming
includes (a) programs produced by networks with which the stations are
affiliated; (b) programs that the stations produce; and (c) first-run
and rerun syndicated programs that the stations acquire. Our primary source of
revenue is the sale of commercial air time to local and national
advertisers.
We seek
to grow our revenue and broadcast cash flow by increasing the audience and
revenue shares of the stations we own, operate, program or provide sales and
other services to. We strive to increase the audience share of the stations by
creating a strong local broadcasting presence based on highly rated local news,
local sports coverage and active community sponsorship. We seek to improve
revenue share by employing and supporting a high-quality local sales force that
leverages the stations’ strong local brand and community presence with local
advertisers. Additionally, we further improve broadcast cash flow by maintaining
strict control over operating and programming costs. The benefits achieved
through these initiatives are magnified in our duopoly markets by broadcasting
the programming of multiple networks, capitalizing on multiple sales forces and
achieving an increased level of operational efficiency. As a result of our
operational enhancements, we expect revenue from the stations we have acquired
or begun providing services to in the last four years to grow faster than that
of our more mature stations.
We
completed our initial public offering on November 28, 2003. Concurrent with
our offering, we completed a corporate reorganization whereby our predecessor,
Nexstar Broadcasting Group, L.L.C., and certain direct and indirect subsidiaries
of Nexstar Broadcasting Group, L.L.C. merged with and into us. Nexstar
Broadcasting Group, L.L.C. was organized as a limited liability company on
December 12, 1996 in the State of Delaware and commenced operations on
April 15, 1997.
Our
principal offices are at 5215 N. O’Connor Blvd., Suite 1400, Irving, TX 75039.
Our telephone number is (972) 373-8800 and our website is http://www.nexstar.tv.
2
Operating
Strategy
We seek
to generate revenue and broadcast cash flow growth through the following
strategies:
Develop Leading Local Franchises.
Each of the stations that we own, operate, program, or provide sales and
other services to creates a highly recognizable local brand, primarily through
the quality of local news programming and community presence. Based on
internally generated analysis, we believe that in approximately two-thirds of
our markets that feature local newscasts produced by Nexstar, we rank among the
top two stations in local news viewership. Strong local news typically generates
higher ratings among attractive demographic profiles and enhances audience
loyalty, which may result in higher ratings for programs both preceding and
following the news. High ratings and strong community identity make the stations
that we own, operate, program, or provide sales and other services to more
attractive to local advertisers. For the year ended December 31, 2009 we
earned approximately one-fourth of our advertising revenue from spots aired
during local news programming. As of December 31, 2009, our stations and
the stations we provide services to provided approximately 660 hours per week of
local news programming. Extensive local sports coverage and active sponsorship
of community events further differentiate us from our competitors and strengthen
our community relationships and our local advertising appeal.
Emphasize Local Sales. We
employ a high-quality local sales force in each of our markets to increase
revenue from local advertisers by capitalizing on our investment in local
programming and eMedia platform. We believe that local advertising is attractive
because our sales force is more effective with local advertisers, giving us a
greater ability to influence this revenue source. Additionally, local
advertising has historically been a more stable source of revenue than national
advertising for television broadcasters. For the year ended December 31,
2009, revenue generated from local advertising represented 74.1% of our
consolidated broadcast revenue (total of local and national advertising revenue,
excluding political advertising revenue). In most of our markets, we have
increased the size and quality of our local sales force. We also invest in our
sales efforts by implementing comprehensive training programs and employing a
sophisticated inventory tracking system to help maximize advertising rates and
the amount of inventory sold in each time period.
Operate Duopoly Markets.
Owning or providing services to more than one station in a market enables
us to broaden our audience share, enhance our revenue share and achieve
significant operating efficiencies. Duopoly markets broaden audience share by
providing programming from multiple networks with different targeted
demographics. These markets increase revenue share by capitalizing on multiple
sales forces. Additionally, we achieve significant operating efficiencies by
consolidating physical facilities, eliminating redundant management and
leveraging capital expenditures between stations. We derived approximately 76.7%
of our net broadcast revenue for the year ended December 31, 2009 from our
duopoly markets.
Maintain Strict Cost Controls.
We emphasize strict controls on operating and programming costs in order
to increase broadcast cash flow. We continually seek to identify and implement
cost savings at each of our stations and the stations we provide services to and
our overall size benefits each station with respect to negotiating favorable
terms with programming suppliers and other vendors. By leveraging our size and
corporate management expertise, we are able to achieve economies of scale by
providing programming, financial, sales and marketing support to our stations
and the stations we provide services to. Our and Mission’s cash
broadcast payments were 4.0%, 3.1%, 3.4%, 3.4% and 4.7% of net broadcast revenue
for the years ended December 31, 2009, 2008, 2007, 2006 and 2005,
respectively.
Capitalize on Diverse Network
Affiliations. We currently own, operate, program, or provide sales and
other services to a balanced portfolio of television stations with diverse
network affiliations, including NBC, CBS, ABC, and Fox affiliated stations which
represented approximately 30.3%, 26.8%, 13.9% and 25.6% respectively, of our
2009 net broadcast revenue. The networks provide these stations with quality
programming and numerous sporting events such as NBA basketball, Major League
baseball, NFL football, NCAA sports, PGA golf and the Olympic Games. Because
network programming and ratings change frequently, the diversity of our station
portfolio’s network affiliations reduces our reliance on the quality of
programming from a single network.
Attract and Retain High Quality
Management. We seek to attract and retain station general managers with
proven track records in larger television markets by providing equity incentives
not typically offered by other station operators in our markets. Our station
general managers have been granted stock options and have an average of over 20
years of experience in the television broadcasting industry.
3
Acquisition
Strategy
We
selectively pursue acquisitions of television stations primarily in markets
ranking from 50 to 175 out of the 210 generally recognized television markets,
where we believe we can improve revenue and cash flow through active management.
When considering an acquisition, we evaluate the target audience share, revenue
share, overall cost structure and proximity to our regional clusters.
Additionally, we seek to acquire or enter into local service agreements with
stations to create duopoly markets. The October 8, 2009 amendment to
our senior credit facility specifically restricts our ability to pursue our
acquisition strategy.
Relationship
with Mission
Through
various local service agreements with Mission, we currently provide sales,
programming and other services to 16 television stations that are owned and
operated by Mission. Mission is 100% owned by an independent third party. We do
not own Mission or any of its television stations. In order for both us and
Mission to comply with Federal Communications Commission (“FCC”) regulations,
Mission maintains complete responsibility for and control over programming,
finances, personnel and operations of its stations. However, 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 FCC consent, we are deemed under accounting principles
generally accepted in the United States of America (“U.S. GAAP”) to have a
controlling financial interest in Mission. As a result of our controlling
financial interest in Mission under 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 with us as
if Mission were a wholly-owned entity. We expect these option agreements to be
renewed upon expiration.
The
Stations
The
following chart sets forth general information about the stations we owned,
operated, programmed or provided sales and other services to as of
December 31, 2009:
Market
Rank(1)
|
Market
|
Station
|
Affiliation
|
Status(2)
|
Commercial
Stations
in Market(3)
|
FCC License
Expiration
Date
|
9
|
Washington,
DC/Hagerstown, MD(4)
|
WHAG
|
NBC
|
O&O
|
(4)
|
(5)
|
31
|
Salt
Lake City, UT
|
KUTV
|
CBS
|
MSA
|
8
|
10/1/14
|
KUSG
|
This
TV
|
MSA
|
10/1/14
|
|||
38
|
West
Palm Beach, FL
|
WTVX
|
The
CW/RTN
|
MSA
|
5
|
2/1/13
|
WTCN
|
MyNetworkTV
|
MSA
|
2/1/13
|
|||
WWHB
|
Azteca
America
|
MSA
|
2/1/13
|
|||
39
|
Harrisburg-Lancaster-Lebanon-York, PA
|
WLYH
|
The
CW
|
O&O(6)
|
5
|
(5)
|
47
|
Jacksonville,
FL
|
WCWJ
|
The
CW
|
O&O
|
6
|
2/1/13
|
48
|
Austin,
TX
|
KEYE
|
CBS/Telemundo
|
MSA
|
5
|
8/1/14
|
53
|
Providence,
RI
|
WLWC
|
The
CW
|
MSA
|
5
|
4/1/15
|
54
|
Wilkes
Barre-Scranton, PA
|
WBRE
|
NBC
|
O&O
|
7
|
(5)
|
WYOU
|
CBS
|
LSA
|
(5)
|
|||
56
|
Little
Rock-Pine Bluff, AR
|
KARK
|
NBC
|
O&O
|
7
|
(5)
|
KARZ
|
MyNetworkTV
|
O&O
|
6/1/13
|
|||
74
|
Springfield,
MO
|
KOLR
|
CBS
|
LSA
|
6
|
(5)
|
KSFX
|
Fox
|
O&O
|
(5)
|
|||
80
|
Rochester,
NY
|
WROC
|
CBS
|
O&O
|
4
|
(5)
|
WUHF
|
Fox
|
LSA
|
6/1/15
|
|||
82
|
Shreveport,
LA
|
KTAL
|
NBC
|
O&O
|
6
|
8/1/14
|
84
|
Champaign-Springfield-Decatur,
IL
|
WCIA
|
CBS
|
O&O
|
6
|
(5)
|
WCFN
|
MyNetworkTV
|
O&O
|
(5)
|
|||
100
|
Ft.
Smith-Fayetteville-
|
KFTA
|
Fox/NBC
|
O&O
|
6
|
6/1/13
|
Springdale-Rogers,
AR
|
KNWA
|
NBC
|
O&O
|
(5)
|
||
101
|
Johnstown-Altoona,
PA
|
WTAJ
|
CBS
|
O&O
|
6
|
(5)
|
102
|
Evansville,
IN
|
WTVW
|
Fox
|
O&O
|
5
|
(5)
|
107
|
Ft.
Wayne, IN
|
WFFT
|
Fox
|
O&O
|
4
|
(5)
|
116
|
Peoria-Bloomington,
IL
|
WMBD
|
CBS
|
O&O
|
5
|
(5)
|
WYZZ
|
Fox
|
LSA
|
12/1/13
|
|||
131
|
Amarillo,
TX
|
KAMR
|
NBC
|
O&O
|
5
|
(5)
|
KCIT
|
Fox
|
LSA
|
(5)
|
|||
KCPN-LP
|
MyNetworkTV
|
LSA
|
(5)
|
|||
134
|
Rockford,
IL
|
WQRF
|
Fox
|
O&O
|
4
|
(5)
|
WTVO
|
ABC/
MyNetworkTV
|
LSA
|
(5)
|
|||
138
|
Monroe,
LA-El Dorado, AR
|
KARD
|
Fox
|
O&O
|
6
|
(5)
|
KTVE
|
NBC
|
LSA
|
6/1/13
|
|||
141
|
Beaumont-Port
Arthur, TX
|
KBTV
|
Fox
|
O&O
|
4
|
(5)
|
143
|
Lubbock,
TX
|
KLBK
|
CBS
|
O&O
|
5
|
(5)
|
KAMC
|
ABC
|
LSA
|
(5)
|
|||
146
|
Erie,
PA
|
WJET
|
ABC
|
O&O
|
4
|
(5)
|
WFXP
|
Fox
|
LSA
|
(5)
|
|||
147
|
Joplin,
MO-Pittsburg, KS
|
KSNF
|
NBC
|
O&O
|
4
|
(5)
|
KODE
|
ABC
|
LSA
|
(5)
|
|||
149
|
Wichita
Falls, TX-Lawton, OK
|
KFDX
|
NBC
|
O&O
|
5
|
(5)
|
KJTL
|
Fox
|
LSA
|
(5)
|
|||
KJBO-LP
|
MyNetworkTV
|
LSA
|
(5)
|
|||
152
|
Terre
Haute, IN
|
WTWO
|
NBC
|
O&O
|
3
|
(5)
|
WFXW
|
Fox
|
LSA
|
(5)
|
|||
155
|
Odessa-Midland,
TX
|
KMID
|
ABC
|
O&O
|
5
|
(5)
|
165
|
Abilene-Sweetwater,
TX
|
KTAB
|
CBS
|
O&O
|
4
|
(5)
|
KRBC
|
NBC
|
LSA
|
(5)
|
|||
169
|
Billings,
MT
|
KSVI
|
ABC
|
O&O
|
4
|
(5)
|
KHMT
|
Fox
|
LSA
|
(5)
|
|||
170
|
Utica,
NY
|
WFXV
|
Fox
|
O&O
|
4
|
(5)
|
WPNY-LP
|
MyNetworkTV
|
O&O
|
(5)
|
|||
WUTR
|
ABC
|
LSA
|
(5)
|
|||
172
|
Dothan,
AL
|
WDHN
|
ABC
|
O&O
|
3
|
(5)
|
198
|
San
Angelo, TX
|
KSAN
|
NBC
|
LSA
|
4
|
(5)
|
KLST
|
CBS
|
O&O
|
(5)
|
|||
201
|
St.
Joseph, MO
|
KQTV
|
ABC
|
O&O
|
1
|
(5)
|
(1)
|
Market
rank refers to ranking the size of the Designated Market Area (“DMA”) in
which the station is located in relation to other DMAs. Source: Investing in Television Market
Report 2009 4th Edition, as published by BIA Financial Network,
Inc.
|
(2)
|
O&O
refers to stations that we own and operate. LSA, or local service
agreement, is the general term we use to refer to a contract under which
we provide services utilizing our employees to a station owned and
operated by an independent third party. Local service agreements include
time brokerage agreements, shared services agreements, joint sales
agreements and outsourcing agreements. MSA or management service
agreement, refers to a contract under which we provide management
oversight of a third party’s stations and employees. For
further information regarding the LSAs to which we are party, see Note 2
to our consolidated financial statements in Part IV, Item 15(a) of
this Annual Report on Form 10-K.
|
(3)
|
The
term “commercial station” means a television broadcast station and
excludes non-commercial stations, religious and Spanish-language stations,
cable program services or networks. Source: Investing in Television Market
Report 2009 4th Edition, as published by BIA Financial Network,
Inc.
|
(4)
|
Although
WHAG is located within the Washington, DC DMA, its signal does not reach
the entire Washington, DC metropolitan area. WHAG serves the Hagerstown,
MD sub-market within the DMA.
|
(5)
|
Application
for renewal of license timely was submitted to the FCC. Under the FCC’s
rules, a license expiration date automatically is extended pending review
of and action on the renewal application by the
FCC.
|
(6)
|
Although
Nexstar owns WLYH, this station is programmed by Newport Television
pursuant to a time brokerage
agreement.
|
4
Industry
Background
Commercial
television broadcasting began in the United States on a regular basis in the
1940s. Currently a limited number of channels are available for over-the-air
broadcasting in any one geographic area and a license to operate a television
station must be granted by the FCC. All television stations in the country are
grouped by A.C. Nielsen Company, a national audience measuring service, into 210
generally recognized television markets, known as designated market areas
(“DMAs”), that are ranked in size according to various metrics based upon actual
or potential audience. Each DMA is an exclusive geographic area consisting of
all counties in which the home-market commercial stations receive the greatest
percentage of total viewing hours. A.C. Nielsen periodically publishes data on
estimated audiences for the television stations in the DMA. The estimates are
expressed in terms of a “rating,” which is a station’s percentage of the total
potential audience in the market, or a “share,” which is the station’s
percentage of the audience actually watching television. A station’s rating in
the market can be a factor in determining advertising rates.
Most
television stations are affiliated with networks and receive a significant part
of their programming, including prime-time hours, from networks. Whether or not
a station is affiliated with one of the four major networks (NBC, ABC, CBS or
Fox) has a significant impact on the composition of the station’s revenue,
expenses and operations. Network programming, along with cash payments for some
NBC, ABC and CBS affiliates, is provided to the affiliate by the network in
exchange for the network’s retention of a substantial majority of the
advertising time during network programs. The network then sells this
advertising time and retains the revenue. The affiliate retains the revenue from
the remaining advertising time it sells during network programs and from
advertising time it sells during non-network programs.
Broadcast
television stations compete for advertising revenue primarily with other
commercial broadcast television stations and cable satellite television systems,
as well as with newspapers, radio stations and internet advertising serving the
same market. Non-commercial, religious and Spanish-language broadcasting
stations in many markets also compete with commercial stations for viewers. In
addition, the Internet and other leisure activities may draw viewers away from
commercial television stations.
The
television broadcast industry transitioned to an advanced digital television
(“DTV”) transmission system on June 12, 2009. DTV transmissions deliver improved
video and audio signals including high definition television and have
substantial multiplexing and data transmission capabilities. As of June 12,
2009, television broadcasters were required to cease analog broadcasting and
return one of their channels to the FCC.
Advertising
Sales
General
Television
station revenue is primarily derived from the sale of local and national
advertising. All network-affiliated stations are required to carry advertising
sold by their networks which reduces the amount of advertising time available
for sale by stations. Stations sell the remaining advertising to be inserted in
network programming and the advertising in non-network programming, retaining
all of the revenue received from these sales. A national syndicated program
distributor will often retain a portion of the available advertising time for
programming it supplies in exchange for no fees or reduced fees charged to
stations for such programming. These programming arrangements are referred to as
barter programming.
Advertisers
wishing to reach a national audience usually purchase time directly from the
networks, or advertise nationwide on a case-by-case basis. National advertisers
who wish to reach a particular region or local audience often buy advertising
time directly from local stations through national advertising sales
representative firms. Local businesses purchase advertising time directly from
the stations’ local sales staff.
Advertising
rates are based upon a number of factors, including:
|
•
|
a
program’s popularity among the viewers that an advertiser wishes to
target;
|
|
•
|
the
number of advertisers competing for the available
time;
|
|
•
|
the
size and the demographic composition of the market served by the
station;
|
|
•
|
the
availability of alternative advertising media in the market
area;
|
|
•
|
the
effectiveness of the station’s sales
forces;
|
|
•
|
development
of projects, features and programs that tie advertiser messages to
programming; and
|
|
•
|
the
level of spending commitment made by the
advertiser.
|
5
Advertising
rates are also determined by a station’s overall ability to attract viewers in
its market area, as well as the station’s ability to attract viewers among
particular demographic groups that an advertiser may be targeting. Advertising
revenue is positively affected by strong local economies. Conversely, declines
in advertising budgets of advertisers, particularly in recessionary periods,
adversely affect the broadcast industry and as a result may contribute to a
decrease in the revenue of broadcast television stations.
Seasonality
Advertising
revenue is positively affected by national and regional political election
campaigns, and certain events such as the Olympic Games or the Super Bowl.
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 due to advertising placed by candidates for political
offices and advertising aired during the Olympic Games.
Local
Sales
Local
advertising time is sold by each station’s local sales staff who call upon
advertising agencies and local businesses, which typically include car
dealerships, retail stores and restaurants. Compared to revenue from national
advertising accounts, revenue from local advertising is generally more stable
and more predictable. We seek to attract new advertisers to television and our
eMedia platform and to increase the amount of advertising time sold to existing
local advertisers by relying on experienced local sales forces with strong
community ties, producing news and other programming with local advertising
appeal and sponsoring or co-promoting local events and activities. We place a
strong emphasis on the experience of our local sales staff and maintain an
on-going training program for sales personnel.
National
Sales
National
advertising time is sold through national sales representative firms which call
upon advertising agencies, whose clients typically include automobile
manufacturers and dealer groups, telecommunications companies, fast food
franchisers, and national retailers (some of which may advertise
locally).
Network
Affiliations
Each
station that we own and operate, program or provide sales and other services to
as of December 31, 2009 is affiliated with a network pursuant to an
affiliation agreement, as described below:
Station
|
Market
|
Affiliation
|
Expiration
|
WTAJ
|
Johnstown-Altoona,
PA
|
CBS
|
May
2010
|
WTVW
|
Evansville, IN
|
Fox
|
June
2010
|
WQRF
|
Rockford,
IL
|
Fox
|
June
2010
|
KARD
|
Monroe, LA-El Dorado, AR
|
Fox
|
June
2010
|
KSFX
|
Springfield,
MO
|
Fox
|
June
2010
|
WFXV
|
Utica,
NY
|
Fox
|
June
2010
|
WFFT
|
Ft.
Wayne, IN
|
Fox
|
June
2010
|
KCIT(1)
|
Amarillo,
TX
|
Fox
|
June
2010
|
WFXP(1)
|
Erie,
PA
|
Fox
|
June
2010
|
KJTL(1)
|
Wichita
Falls, TX-Lawton, OK
|
Fox
|
June
2010
|
WFXW(1)
|
Terre
Haute, IN
|
Fox
|
June
2010
|
KHMT(1)
|
Billings,
MT
|
Fox
|
June
2010
|
KFTA
|
Ft.
Smith-Fayetteville-Springdale-Rogers, AR
|
Fox/NBC
|
June
2010
|
WTVX
– DM(1)
|
West
Palm Beach, FL
|
RTN
|
June
2010
|
KSAN(1)
|
San
Angelo, TX
|
NBC
|
December
2010
|
KRBC(1)
|
Abilene-Sweetwater,
TX
|
NBC
|
December
2010
|
WUTR(1)
|
Utica,
NY
|
ABC
|
December
2010
|
WDHN
|
Dothan,
AL
|
ABC
|
December
2010
|
WJET
|
Erie,
PA
|
ABC
|
December
2010
|
KSVI
|
Billings,
MT
|
ABC
|
December
2010
|
KMID
|
Odessa-Midland,
TX
|
ABC
|
December
2010
|
WTVO(1)
|
Rockford,
IL
|
ABC
|
December
2010
|
KAMC(1)
|
Lubbock,
TX
|
ABC
|
December
2010
|
KQTV
|
St.
Joseph, MO
|
ABC
|
December
2010
|
KARZ
|
Little
Rock-Pine Bluff, AR
|
MyNetworkTV
|
August
2011
|
WPNY-LP
|
Utica,
NY
|
MyNetworkTV
|
August
2011
|
WCFN
|
Champaign-Springfield-Decatur,
IL
|
MyNetworkTV
|
August
2011
|
KCPN-LP(1)
|
Amarillo,
TX
|
MyNetworkTV
|
August
2011
|
KJBO-LP(1)
|
Wichita
Falls, TX-Lawton, OK
|
MyNetworkTV
|
August
2011
|
WTVO
– DM(1)
|
Rockford,
IL
|
MyNetworkTV
|
August
2011
|
WCWJ
|
Jacksonville,
FL
|
The
CW
|
September
2011
|
WBRE
|
Wilkes
Barre-Scranton, PA
|
NBC
|
December
2011
|
WTWO
|
Terre
Haute, IN
|
NBC
|
December
2011
|
KFDX
|
Wichita
Falls, TX-Lawton, OK
|
NBC
|
December
2011
|
KSNF
|
Joplin,
MO-Pittsburg, KS
|
NBC
|
December
2011
|
KTVE(1)
|
Monroe,
LA—El Dorado, AR
|
NBC
|
December
2011
|
WUHF(1)
|
Rochester,
NY
|
Fox
|
March
2012
|
WYZZ(1)
|
Peoria-Bloomington,
IL
|
Fox
|
March
2012
|
KLST
|
San
Angelo, TX
|
CBS
|
August
2012
|
KTAB
|
Abilene-Sweetwater,
TX
|
CBS
|
December
2012
|
KODE(1)
|
Joplin,
MO-Pittsburg, KS
|
ABC
|
December
2012
|
KNWA
|
Ft.
Smith-Fayetteville-Springdale-Rogers, AR
|
NBC
|
January
2013
|
WROC
|
Rochester,
NY
|
CBS
|
January
2013
|
KOLR(1)
|
Springfield,
MO
|
CBS
|
June
2013
|
KLBK
|
Lubbock,
TX
|
CBS
|
July
2013
|
WCIA
|
Champaign-Springfield-Decatur,
IL
|
CBS
|
September
2013
|
WMBD
|
Peoria-Bloomington,
IL
|
CBS
|
September
2013
|
KBTV
|
Beaumont-Port
Arthur, TX
|
Fox
|
December
2013
|
KEYE
– DM(1)
|
Austin,
TX
|
Telemundo
|
October
2014
|
KAMR
|
Amarillo,
TX
|
NBC
|
December
2014
|
KTAL
|
Shreveport,
LA
|
NBC
|
December
2014
|
KARK
|
Little
Rock-Pine Bluff, AR
|
NBC
|
December
2014
|
WHAG
|
Washington,
DC/Hagerstown, MD(2)
|
NBC
|
December
2014
|
WYOU(1)
|
Wilkes
Barre-Scranton, PA
|
CBS
|
June
2015
|
WLYH(3)
|
Harrisburg-Lancaster-Lebanon-York,
PA
|
The
CW
|
September
2016
|
WTVX(1)
|
West
Palm Beach, FL
|
The
CW
|
August
2017
|
WLWC(1)
|
Providence,
RI
|
The
CW
|
August
2017
|
KEYE(1)
|
Austin,
TX
|
CBS
|
August
2017
|
KUTV(1)
|
Salt
Lake City, UT
|
CBS
|
August
2017
|
WTCN(1)
|
West
Palm Beach, FL
|
MyNetworkTV
|
August
2017
|
KUSG(1)
|
Salt
Lake City, UT
|
This
TV
|
August
2017
|
WWHB(1)
|
West
Palm Beach, FL
|
Azteca
America
|
August
2017
|
(1)
|
These
stations are owned by independent third parties. which maintain the
network affiliation agreements.
|
(2)
|
Although
WHAG is located within the Washington, DC DMA, its signal does not reach
the entire Washington, DC metropolitan area. WHAG serves the Hagerstown,
MD sub-market within the DMA.
|
(3)
|
Under
a time brokerage agreement, Nexstar allows Newport Television License,
LLC, Inc. to program most of WLYH’s broadcast time, sell its advertising
time and retain the advertising revenue generated in exchange for monthly
payments to Nexstar.
|
Each
affiliation agreement provides the affiliated station with the right to
broadcast all programs transmitted by the network with which it is affiliated.
In exchange, the network has the right to sell a substantial majority of the
advertising time during these broadcasts. In addition, some stations receive
compensation from the network based on the hours of network programming they
broadcast.
We expect
all of the network affiliation agreements listed above to be renewed upon
expiration.
6
Competition
Competition
in the television industry takes place on several levels: competition for
audience, competition for programming and competition for
advertising.
Audience. We compete for
audience share specifically on the basis of program popularity. The popularity
of a station’s programming has a direct effect on the adverting rates it can
charge its advertisers. A portion of the daily programming on the stations that
we own or provide services to is supplied by the network with which each station
is affiliated. In those periods, the stations are dependent upon the performance
of the network programs in attracting viewers. Stations program non-network time
periods with a combination of self-produced news, public affairs and other
entertainment programming, including movies and syndicated programs. The major
television networks have also begun to sell their programming directly to the
consumer via portable digital devices such as video iPods and cell phones which
presents an additional source of competition for television broadcaster audience
share. Other sources of competition for audience include home entertainment
systems, such as VCRs, DVDs and DVRs; video-on-demand and pay-per-view; the
Internet; and television game devices.
Although
the commercial television broadcast industry historically has been dominated by
the ABC, NBC, CBS and Fox television networks, other newer television networks
and the growth in popularity of subscription systems, such as local cable and
direct broadcast satellite (“DBS”) systems which air exclusive programming not
otherwise available in a market, have become significant competitors for the
over-the-air television audience.
Programming. Competition for
programming involves negotiating with national program distributors or
syndicators that sell first-run and rerun packages of programming. Stations
compete against in-market broadcast station operators for exclusive access to
off-network reruns (such as Seinfeld) and first-run
product (such as Entertainment
Tonight) in their respective markets. Cable systems generally do not
compete with local stations for programming, although various national cable
networks from time to time have acquired programs that would have otherwise been
offered to local television stations. Time Warner, Inc., General Electric
Company, Viacom Inc., The News Corporation Limited and the Walt Disney Company
each owns a television network and also owns or controls major production
studios, which are the primary source of programming for the networks. It is
uncertain whether in the future such programming, which is generally subject to
short-term agreements between the studios and the networks, will be moved to the
networks. Television broadcasters also compete for non-network programming
unique to the markets they serve. As such, stations strive to provide exclusive
news stories, unique features such as investigative reporting and coverage of
community events and to secure broadcast rights for regional and local sporting
events.
Advertising. Stations compete
for advertising revenue with other television stations in their respective
markets; and other advertising media such as newspapers, radio stations,
magazines, outdoor advertising, transit advertising, yellow page directories,
direct mail, local cable systems, DBS systems and the Internet. Competition
for advertising dollars in the broadcasting industry occurs primarily within
individual markets. Generally, a television broadcast station in a particular
market does not compete with stations in other market areas.
Additional Competitive
Factors. The broadcasting industry is continually faced with
technological change and innovation which increase the popularity of competing
entertainment and communications media. Further advances in technology may
increase competition for household audiences and advertisers. The increased use
of digital technology by cable systems and DBS, along with video compression
techniques, will reduce the bandwidth required for television signal
transmission. These technological developments are applicable to all video
delivery systems, including over-the-air broadcasting, and have the potential to
provide vastly expanded programming to highly targeted audiences. Reductions in
the cost of creating additional channel capacity could lower entry barriers for
new channels and encourage the development of increasingly specialized “niche”
programming. This ability to reach very narrowly defined audiences is expected
to alter the competitive dynamics for advertising expenditures. We are unable to
predict the effect that these or other technological changes will have on the
broadcast television industry or on the future results of our operations or the
operations of the stations we provide services to.
Federal
Regulation
Television
broadcasting is subject to the jurisdiction of the FCC under the Communications
Act of 1934, as amended (“the Communications Act”). The following is a brief
discussion of certain provisions of the Communications Act and the FCC’s
regulations and policies that affect the business operations of television
broadcast stations. Over the years, Congress and the FCC have added, amended and
deleted statutory and regulatory requirements to which station owners are
subject. Some of these changes have a minimal business impact whereas others may
significantly affect the business or operation of individual stations or the
broadcast industry as a whole. The following discussion summarizes some of the
statutory and regulatory rules and policies currently in effect. For more
information about the nature and extent of FCC regulation of television
broadcast stations you should refer to the Communications Act and the FCC’s
rules, public notices and policies.
7
License Grant and Renewal.
The Communications Act prohibits the operation of broadcast stations except
under licenses issued by the FCC. Television broadcast licenses are granted for
a maximum term of eight years and are subject to renewal upon application to the
FCC. The FCC is required to grant an application for license renewal if during
the preceding term the station served the public interest, the licensee did not
commit any serious violations of the Communications Act or the FCC’s rules, and
the licensee committed no other violations of the Communications Act or the
FCC’s rules which, taken together, would constitute a pattern of abuse. A
majority of renewal applications are routinely granted under this standard. If a
licensee fails to meet this standard the FCC may still grant renewal on terms
and conditions that it deems appropriate, including a monetary forfeiture or
renewal for a term less than the normal eight-year period.
After a
renewal application is filed, interested parties, including members of the
public, may file petitions to deny a renewal application, to which the
licensee/renewal applicant is entitled to respond. After reviewing the
pleadings, if the FCC determines that there is a substantial and material
question of fact whether grant of the renewal application would serve the public
interest, the FCC is required to hold a trial-type hearing on the issues
presented. If, after the hearing, the FCC determines that the renewal applicant
has met the renewal standard the FCC will grant the renewal application. If the
licensee/renewal applicant fails to meet the renewal standard or show that there
are mitigating factors entitling it to renewal subject to appropriate sanctions,
the FCC can deny the renewal application. In the vast majority of cases where a
petition to deny is filed against a renewal application, the FCC ultimately
grants the renewal without a hearing. No competing application for authority to
operate a station and replace the incumbent licensee may be filed against a
renewal application.
In
addition to considering rule violations in connection with a license renewal
application, the FCC may sanction a station licensee for failing to observe FCC
rules and policies during the license term, including the imposition of a
monetary forfeiture.
The
Communications Act prohibits the assignment or the transfer of control of a
broadcast license without prior FCC approval.
Ownership Restrictions. The
Communications Act limits the extent of non-U.S. ownership of companies that own
U.S. broadcast stations. Under this restriction, a U.S. broadcast company such
as ours may have no more than 25% non-U.S. ownership (by vote and by
equity).
The FCC
also has rules which establish limits on the ownership of broadcast stations.
These ownership limits apply to attributable interests in a station licensee
held by an individual, corporation, partnership or other entity. In the case of
corporations, officers, directors and voting stock interests of 5% or more (20%
or more in the case of qualified investment companies, such as insurance
companies and bank trust departments) are considered attributable interests. For
partnerships, all general partners and non-insulated limited partners are
attributable. Limited liability companies are treated the same as partnerships.
The FCC also considers attributable the holder of more than 33% of a licensee’s
total assets (defined as total debt plus total equity), if that person or entity
also provides over 15% of the station’s total weekly broadcast programming or
has an attributable interest in another media entity in the same market which is
subject to the FCC’s ownership rules, such as a radio or television station,
cable television system or daily newspaper.
Local Ownership (Duopoly
Rule). Under the current duopoly rule, a single entity is allowed to own
or have attributable interests in two television stations in a market if
(1) the two stations do not have overlapping service areas, or
(2) after the combination there are at least eight independently owned and
operating full-power television stations and one of the combining stations is
not ranked among the top four stations in the DMA. The duopoly rule allows the
FCC to consider waivers to permit the ownership of a second station only in
cases where the second station has failed or is failing or unbuilt.
Under the
duopoly rule, the FCC attributes toward the local television ownership limits
another in-market station when one station owner programs a second in-market
station pursuant to a time brokerage or local marketing agreement, if the
programmer provides more than 15% of the second station’s weekly broadcast
programming. However, local marketing agreements entered into prior to
November 5, 1996 are exempt attributable interests until the FCC determines
otherwise. This “grandfathered” period, when reviewed by the FCC, is subject to
possible extension or termination.
In
certain markets, we and Mission own and operate both full-power and low-power
television broadcast stations (in Utica, Nexstar owns and operates WFXV and
WPNY-LP; in Wichita Falls, Mission owns and operates KJTL and KJBO-LP; and in
Amarillo, Mission owns and operates KCIT and KCPN-LP). The FCC’s duopoly rules
and policies regarding ownership of television stations in the same market apply
only to full-power television stations and not low-power television stations
such as WPNY-LP, KJBO-LP and KCPN-LP.
8
The only
markets in which we currently are permitted to own two stations under the
duopoly rule are the Champaign-Springfield-Decatur, Illinois market and the
Little Rock-Pine Bluff, Arkansas market. However, we also are permitted to own
two stations in the Fort Smith-Fayetteville-Springdale-Rogers market pursuant to
a waiver under the FCC’s rules permitting common ownership of a “satellite”
television station in a market where a licensee also owns the “primary” station.
In all of the markets where we have entered into local service agreements,
except for two, we do not provide programming other than news (comprising less
than 15% of the second station’s programming) to the second station and,
therefore, we are not attributed with ownership of the second station. In the
two markets where we provide more programming to the second station—WFXP in
Erie, Pennsylvania and KHMT in Billings, Montana—the local marketing agreements
were entered into prior to November 5, 1996. Therefore, we may continue to
program these stations under the terms of these agreements until the rule is
changed.
National Ownership. There is
no nationwide limit on the number of television stations which a party may
own. However, the Communications Act and FCC’s rules limit the
percentage of U.S. television households which a party may reach through its
attributable interests in television stations to 39%. The stations
that Nexstar owns have a combined national audience reach of 8.8%.
Radio/Television Cross-Ownership
Rule (One-to-a-Market Rule). In markets with at least 20
independently owned media outlets, ownership of one television station and up to
seven radio stations, or two television stations (if allowed under the
television duopoly rule) and six radio stations is permitted. If the number of
independently owned media outlets is fewer than 20 but greater than or equal to
10, ownership of one television station (or two if allowed) and four radio
stations is permitted. In markets with fewer than 10 independent media voices,
ownership of one television station (or two if allowed) and one radio station is
permitted. In calculating the number of independent media voices in a market,
the FCC includes all radio and television stations, independently owned cable
systems (counted as one voice), and independently owned daily newspapers which
have circulation that exceeds 5% of the households in the market.
Local Television/Newspaper
Cross-Ownership Rule. Under this rule, a party is prohibited from
having an attributable interest in a television station and a daily newspaper
except in cases where the market at issue is one of the 20 largest DMAs, and
subject to other criteria and limitations.
As a
result of the FCC’s 2006 rulemaking proceeding, which provided a comprehensive
review of all of its media ownership rules, in February 2008, the FCC adopted
modest changes to its newspaper cross-ownership rule, while retaining the rest
of its rules as then currently in effect. Multiple challenges to this
proceeding were filed with the U.S. Court of Appeals, which remain
pending. 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.
Local Television/Cable
Cross-Ownership. There is no FCC rule prohibiting common ownership
of a cable television system and a television broadcast station in the same
area.
Cable “Must-Carry” or Retransmission
Consent Rights. Every three years television broadcasters are
required to make an election between “must-carry” or retransmission consent
rights in connection with the carriage of their signal on cable television
systems within their DMA. For a majority of our and Mission’s stations the most
recent election was made October 1, 2008, for the three-year period
beginning January 1, 2009.
If a
broadcaster chooses to exercise its must-carry rights, it may request cable
system carriage on its over-the-air channel or another channel on which it was
carried on the cable system as of a specified date. A cable system generally
must carry the station’s signal in compliance with the station’s carriage
request, and in a manner that makes the signal available to all cable
subscribers. However, must-carry rights are not absolute, and whether a cable
system is required to carry the station on its system, or in the specific manner
requested, depends on variables such as the location, size and number of
activated channels of the cable system and whether the station’s programming
duplicates, or substantially duplicates the programming of another station
carried on the cable system. If certain conditions are met, a cable system may
decline to carry a television station that has elected must-carry status,
although it is unusual for all the required conditions to exist.
If a
broadcaster chooses to exercise its retransmission consent rights, a cable
television system which is subject to that election may not carry the station’s
signal without the station’s consent. This generally requires the cable system
and television station operator to negotiate the terms under which the
broadcaster will consent to the cable system’s carriage of its station’s
signal.
We and
Mission have elected to exercise retransmission consent rights for all of our
stations where we have a legal right to do so. We and Mission have negotiated
retransmission consent agreements with substantially all of the cable systems
which carry the stations’ signals.
9
Direct-to-Home Satellite Services
and Carriage Rights. Direct broadcast satellite (“DBS”) providers
are permitted to carry local channels, including “significantly viewed”
out-of-market stations when local service is provided. Under certain
circumstances, DBS providers also are permitted to provide network service from
a station outside a local market for subscribers in the market who are
“unserved” by a local station affiliated with the same network. In addition, DBS
subscribers who were not receiving a digital signal as of December 8, 2004
may receive distant signals for digital television programming from their DBS
provider if they were receiving the local analog signal of a network affiliate
and the subscriber cannot receive a local digital signal of that
network-affiliated station over-the-air.
Satellite
carriers that provide any local-into-local service in a market must carry, upon
request, all stations in that market that have elected mandatory carriage, and
DBS operators are now carrying other local stations in local-into-local markets,
including some noncommercial, independent and foreign language stations.
However, satellite carriers are not required to carry duplicative network
signals from a local market unless the stations are licensed to different
communities in different states. Satellite carriers are required to carry all
local television stations in a contiguous manner on their channel line-up and
may not discriminate in their carriage of stations.
Commercial
television stations make elections between retransmission consent and must-carry
status for satellite services on the same schedule as cable elections, with the
most recent elections made by October 1, 2008 for the three year period
that began on January 1, 2009. DirecTV currently provides satellite
carriage of our and Mission’s stations in the Champaign-Springfield-Decatur,
Evansville, Ft. Smith-Fayetteville-Springdale-Rogers, Ft. Wayne, Jacksonville,
Johnstown-Altoona, Little Rock-Pine Bluff, Peoria-Bloomington, Rochester,
Rockford, Shreveport, Springfield and Wilkes Barre-Scranton markets. Dish
Network currently provides satellite carriage of our and Mission’s stations in
the Abilene-Sweetwater, Amarillo, Beaumont-Port Arthur, Billings,
Champaign-Springfield-Decatur, Dothan, Erie, Evansville, Fort Wayne, Ft.
Smith-Fayetteville-Springdale-Rogers, Hagerstown, Jacksonville,
Johnstown-Altoona, Joplin, MO-Pittsburg, KS, Little Rock-Pine Bluff, Lubbock,
Monroe, LA-El Dorado, AR, Odessa-Midland, Peoria-Bloomington, Rochester,
Rockford, San Angelo, Shreveport, Springfield, Terre Haute, Wichita Falls,
TX-Lawton, OK and Wilkes Barre-Scranton markets. We and Mission have long-term
carriage agreements with both DirecTV (expiring in 2011) and DISH Network
(formerly EchoStar) (expiring in 2011) that provide for the carriage of the
currently carried stations, as well as those subsequently added in new
local-to-local markets, or those added by acquisition or other
means.
Digital Television
(“DTV”). In February 2009, President Obama signed into law
legislation that established June 12, 2009 as the deadline for television
broadcasters to complete their transition to DTV-only operations and return
their analog spectrum to the FCC. The DTV transmission system delivers video and
audio signals of higher quality (including high definition television) than the
existing analog transmission system. DTV also has substantial capabilities for
multiplexing (the broadcast of several channels of programs concurrently) and
data transmission. The introduction of digital television requires consumers to
purchase new television sets that are capable of receiving and displaying the
DTV signals, or adapters to receive DTV signals and convert them to analog
signals for display on their existing receivers.
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.
As of December 31, 2009, all of Nexstar’s and Mission’s stations have completed
the transition to digital operations; however, Nexstar is working with the FCC
with respect to KMID’s authorization.
Television
station operators may use their DTV signals to provide ancillary services, such
as computer software distribution, Internet access, interactive materials,
e-commerce, paging services, audio signals, subscription video, or data
transmission services. To the extent a station provides such ancillary services
it is subject to the same regulations as are applicable to other analogous
services under the FCC’s rules and policies. Commercial television stations also
are required to pay the FCC 5% of the gross revenue derived from all ancillary
services provided over their DTV signals for which a station received a fee in
exchange for the service or received compensation from a third party in exchange
for transmission of material from that third party, not including commercial
advertisements used to support broadcasting.
10
Programming and
Operation. The Communications Act requires broadcasters to serve
“the public interest.” Television station licensees are required to present
programming that is responsive to community problems, needs and interests and to
maintain certain records demonstrating such responsiveness. The FCC may consider
complaints from viewers concerning programming when it evaluates a station’s
license renewal application, although viewer complaints also may be filed and
considered by the FCC at any time. Stations also must follow various rules
promulgated under the Communications Act that regulate, among other
things:
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political
advertising (its price and
availability);
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sponsorship
identification;
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contest
and lottery advertising;
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obscene
and indecent broadcasts;
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technical
operations, including limits on radio frequency
radiation;
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discrimination
and equal employment opportunities;
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closed
captioning;
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children’s
programming;
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program
ratings guidelines; and
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network
affiliation agreements.
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Employees
As of
December 31, 2009, we had a total of 2,114 employees, comprised of 1,970
full-time and 144 part-time or temporary employees. As of December 31,
2009, 165 of our employees were covered by collective bargaining agreements. We
believe that our employee relations are satisfactory, and we have not
experienced any work stoppages at any of our facilities. However, we cannot
assure you that our collective bargaining agreements will be renewed in the
future, or that we will not experience a prolonged labor dispute, which could
have a material adverse effect on our business, financial condition or results
of operations.
11
Item 1A. Risk
Factors
You
should carefully consider the following risk factors, which we believe are the
most significant risks related to our business, as well as the other information
contained in this document.
Risks
Related to Our Operations
The continued
economic slowdown in the United States and the national and world-wide financial
crisis may adversely affect our results of operations, cash flows and financial
condition. Among other things, these negative economic trends could adversely
affect demand for television advertising, reduce the availability, and increase
the cost, of short-term funds for liquidity requirements, and adversely affect
our ability to meet long-term commitments. In addition, general trends in the
television industry could adversely affect demand for television advertising as
consumers turn to alternative media, including the Internet, for entertainment.
The
continued economic slowdown in the United States is likely to adversely affect
our results of operations and cash flows by, among other things, reducing demand
for local and national television advertising and making it more difficult for
customers to pay their accounts. Moreover, television viewing among consumers
has been negatively impacted by the increasing availability of alternative
media, including the Internet. As a result, in recent years demand for
television advertising has been declining and demand for advertising in
alternative media has been increasing, and we expect this trend to
continue.
Our
ability to access funds under the Nexstar Senior Credit Facility (“Nexstar
Facility”) depends, in part, on our compliance with certain financial covenants
in the Nexstar Facility, including covenants based on EBITDA as defined in the
Nexstar Facility. If our EBITDA is not sufficient to ensure compliance with
these covenants, we might not be able to draw down funds under our revolving
credit facility or it might be considered an event of default under the Nexstar
Facility.
Disruptions
in the capital and credit markets, as have been experienced during 2009 and may
continue in 2010, 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.
Longer
term disruptions in the capital and credit markets as a result of uncertainty,
changing or increased regulation, reduced alternatives or failures of
significant financial institutions could adversely affect our access to
liquidity needed for our business. Any disruption could require us to take
measures to conserve cash until the markets stabilize or until alternative
credit arrangements or other funding for our business needs can be arranged.
Such measures could include deferring capital expenditures and other
discretionary uses of cash.
We and Mission
have a history of net losses.
We and
Mission had aggregate net losses of $12.6 million, $78.1 million and $19.8
million for the years ended December 31, 2009, 2008 and 2007, respectively.
We and Mission may not be able to achieve or maintain profitability.
Our substantial
debt could limit our ability to grow and compete.
As of
December 31, 2009, we and Mission had $670.4 million of debt, which represented
135.7% of our and Mission’s total combined capitalization. The companies’ high
level of debt could have important consequences to our business. For example, it
could:
• limit
our ability to borrow additional funds or obtain additional financing in the
future;
• limit
our ability to pursue acquisition opportunities;
• expose
us to greater interest rate risk since the interest rate on borrowings under the
senior credit facilities is variable;
• limit
our flexibility to plan for and react to changes in our business and our
industry; and
• impair
our ability to withstand a general downturn in our business and place us at a
disadvantage compared to our competitors that are less leveraged.
See
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Contractual Obligations” for disclosure of the approximate aggregate
amount of principal indebtedness scheduled to mature.
We and
Mission could also incur additional debt in the future. The terms of our and
Mission’s 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. To the extent we or Mission incur
additional debt we would become even more susceptible to the leverage-related
risks described above.
12
The agreements
governing our debt contain various covenants that limit our management’s
discretion in the operation of our business.
Our
senior credit facility and the indentures governing our publicly-held notes
contain various covenants that restrict our ability to, among other
things:
• incur
additional debt and issue preferred stock;
• pay
dividends and make other distributions;
• make
investments and other restricted payments;
• make
acquisitions;
• merge,
consolidate or transfer all or substantially all of our assets;
• enter
into sale and leaseback transactions;
• create
liens;
• sell
assets or stock of our subsidiaries; and
• enter
into transactions with affiliates.
In
addition, our senior credit facility requires us to maintain or meet certain
financial ratios, including consolidated leverage ratios and interest coverage
ratios. Future financing agreements may contain similar, or even more
restrictive, provisions and covenants. As a result of these restrictions and
covenants, our management’s ability to operate our business at its discretion is
limited, and we may be unable to compete effectively, pursue acquisitions or
take advantage of new business opportunities, any of which could harm our
business. Mission’s senior credit facility contains similar terms and
restrictions.
If we
fail to comply with the restrictions in present or future financing agreements,
a default may occur. A default could allow creditors to accelerate the related
debt as well as any other debt to which a cross-acceleration or cross-default
provision applies. A default could also allow creditors to foreclose on any
collateral securing such debt.
Our
senior 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 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
credit facility. On October 8, 2009, we amended our credit facility to
modify certain covenants. See Note 11 of our consolidated financial statements
in Part IV, Item 15(a) of this Annual Report on Form 10-K for a more complete
discussion of the credit facility amendment. The October 8, 2009 amendment
contained a limited waiver for the leverage ratios which cured the violation as
of September 30, 2009 contained in the credit agreement governing our
senior credit facility. As of December 31, 2009, we were in
compliance with all covenants contained in the credit agreements governing our
senior secured credit facility and the indentures governing the publicly-held
notes.
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 credit facility, the PIK Notes are not included in the
debt amount used to calculate the total leverage ratio until January
2011.
13
The industry-wide
mandatory conversion to digital television could have an adverse impact on our
business, as certain viewers that do not upgrade their technology to be able to
receive digital signals could no longer be able to view our programming.
Television
stations in the U.S. transitioned from analog to digital broadcasts and had to
phase-out analog broadcasting altogether by June 12, 2009. All of our and
Mission’s stations are broadcasting with digital only signals. TV viewers who
receive their signals over-the-air (instead of through multichannel video
program distributors, which we refer to as MVPDs, such as cable, satellite, or
fiber optic service) and who have older, analog-only television receivers, had
to obtain digital-to-analog converters (or new digital televisions) and perhaps
new antennas in order to continue watching television after June 12, 2009.
The federal government established a program to provide eligible TV viewers with
coupons to cover the expense of purchasing digital-to-analog converters (but not
new antennas). However, due to technological differences in the way digital as
compared to analog TV signals are received, it is possible that some viewers who
received adequate analog signals over-the-air are not able to receive usable
digital signals (even with digital-to-analog converters and new antennas) and,
therefore, are not able to watch some or all of the stations they have been
watching (unless they subscribe to an MVPD service).
Mission may make
decisions regarding the operation of its stations that could reduce the amount
of cash we receive under our local service agreements.
Mission
is 100% owned by an independent third party. Mission owns and operates 16
television stations as of December 31, 2009. We have entered into local service
agreements with Mission, pursuant to which we provide services to Mission’s
stations. In return for the services we provide, we receive substantially all of
the available cash, after payment of debt service costs, generated by Mission’s
stations. We also guarantee all of the obligations incurred under Mission’s
senior credit facility, which were incurred primarily in connection with
Mission’s acquisition of its stations. The sole shareholder of Mission has
granted to 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.
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 the programming, finances, personnel and operations of its
stations. As a result, Mission’s sole shareholder and officers can make
decisions with which we disagree and which could reduce the cash flow generated
by these stations and, as a consequence, the amounts we receive under our local
service agreements with Mission. For instance, we may disagree with Mission’s
programming decisions, which programming may prove unpopular and/or may generate
less advertising revenue. Furthermore, subject to Mission’s agreement with its
lenders, Mission’s sole shareholder could choose to pay himself a dividend.
The revenue
generated by stations we operate or provide services to could decline
substantially if they fail to maintain or renew their network affiliation
agreements on favorable terms, or at all.
Due to
the quality of the programming provided by the networks, stations that are
affiliated with a network generally have higher ratings than unaffiliated
independent stations in the same market. As a result, it is important for
stations to maintain their network affiliations. All of the stations that we
operate or provide services to have network affiliation agreements––12 stations
have primary affiliation agreements with NBC, 11 with CBS, 9 with ABC, 15 with
Fox, 6 with MyNetworkTV, 4 with The CW, 1 with This TV and 1 with Azteca
America. Additionally, three of the stations have secondary
affiliation agreements – one with MyNetworkTV, one with RTN and one with
Telemundo. Each of NBC, CBS, ABC, RTN, Telemundo, Azteca America and
This TV generally provides affiliated stations with up to 22 hours of prime time
programming per week, while each of Fox, MyNetworkTV and The CW provides
affiliated stations with up to 15 hours of prime time programming per week. In
return, affiliated stations broadcast the respective network’s commercials
during the network programming. Under the affiliation agreements with NBC, CBS
and ABC, some of the stations we operate or provide services to also receive
compensation from these networks.
All of
the network affiliation agreements of the stations that we own, operate, program
or provide sales and other services to are scheduled to expire at various times
beginning in May 2010 through August 2017.
Network
affiliation agreements are also subject to earlier termination by the networks
under limited circumstances. For more information regarding these network
affiliation agreements, see “Business—Network Affiliations.”
14
The loss of or
material reduction in retransmission consent revenues could have an adverse
effect on our business, financial condition, and results of operations.
Nexstar’s
retransmission consent agreements with cable operators, direct broadcast
satellite operators, and others permit the operators to carry our stations’
signals in exchange for the payment of compensation to us from the system
operators as consideration. The television networks have recently asserted to
their local television station affiliates the networks’ position that they, as
the owners or licensees of programming we broadcast and provide for
retransmission, are entitled to a portion of the compensation under the
retransmission consent agreements. Networks have proposed to include these
provisions in their network affiliation agreements. Inclusion of these or
similar provisions in our network affiliation agreements could materially reduce
this revenue source to Nexstar and could have an adverse effect on our business,
financial condition, and results of operations.
The FCC could
decide not to grant renewal of the FCC license of any of the stations we operate
or provide services to which would require that station to cease
operations.
Television
broadcast licenses are granted for a maximum term of eight years and are subject
to renewal upon application to the FCC. The FCC is required to grant an
application for license renewal if, during the preceding term, the station
served the public interest, the licensee did not commit any serious violations
of the Communications Act or the FCC’s rules, and the licensee committed no
other violations of the Communications Act or the FCC’s rules which, taken
together, would constitute a pattern of abuse. A majority of renewal
applications are routinely granted under this standard. If a licensee fails to
meet this standard the FCC may still grant renewal on terms and conditions that
it deems appropriate, including a monetary forfeiture or renewal for a term less
than the normal eight-year period.
On
October 26, 2005, the Director of the Central Illinois Chapter of the
Parents Television Council (“PTC”) submitted an informal objection to the
application for renewal of license for Nexstar’s station WCIA in Champaign,
Illinois, requesting the FCC withhold action on WCIA’s license renewal
application until the FCC acts on the PTC’s complaint regarding an allegedly
indecent broadcast on WCIA.
On
January 3, 2006, Cable America Corporation submitted a petition to deny the
applications for renewal of license for Nexstar’s station KSFX and Mission’s
station KOLR, both licensed to Springfield, Missouri. Cable America alleged that
Nexstar’s local service agreements with Mission give Nexstar improper control
over Mission’s operations. Nexstar and Mission submitted a joint opposition to
this petition to deny and Cable America submitted a reply. Cable America
subsequently requested that the FCC dismiss its petition. However, the petition
remains pending with the FCC.
Nexstar
and Mission began to submit renewal of license applications for their stations
beginning in June 2004. We and Mission expect the FCC to renew the licenses for
our stations in due course but cannot provide any assurances that the FCC will
do so.
The loss of the
services of our chief executive officer could disrupt management of our business
and impair the execution of our business strategies.
We
believe that our success depends upon our ability to retain the services of
Perry A. Sook, our founder and President and Chief Executive Officer.
Mr. Sook has been instrumental in determining our strategic direction and
focus. The loss of Mr. Sook’s services could adversely affect our ability
to manage effectively our overall operations and successfully execute current or
future business strategies.
Our growth may be
limited if we are unable to implement our acquisition strategy.
We intend
to continue our growth by selectively pursuing acquisitions of television
stations. The television broadcast industry is undergoing consolidation, which
may reduce the number of acquisition targets and increase the purchase price of
future acquisitions. Some of our competitors may have greater financial or
management resources with which to pursue acquisition targets. Therefore, even
if we are successful in identifying attractive acquisition targets, we may face
considerable competition and our acquisition strategy may not be successful. On
October 8, 2009, we amended our credit facility and the amendment also
specifically restricts our ability to pursue our acquisition strategy.
FCC rules
and policies may also make it more difficult for us to acquire additional
television stations. Television station acquisitions are subject to the approval
of the FCC and, potentially, other regulatory authorities. The need for FCC and
other regulatory approvals could restrict our ability to consummate future
transactions if, for example, the FCC or other government agencies believe that
a proposed transaction would result in excessive concentration in a market, even
if the proposed combinations may otherwise comply with FCC ownership
limitations.
15
Growing our
business through acquisitions involves risks and if we are unable to manage
effectively our growth, our operating results will suffer.
Since
January 1, 2003, we have more than doubled the number of stations that we
own, operate, program or provide sales and other services to, having acquired 20
stations and contracted to provide service to 17 additional stations. We will
continue to actively pursue additional acquisition opportunities. To manage
effectively our growth and address the increased reporting requirements and
administrative demands that will result from future acquisitions, we will need,
among other things, to continue to develop our financial and management controls
and management information systems. We will also need to continue to identify,
attract and retain highly skilled finance and management personnel. Failure to
do any of these tasks in an efficient and timely manner could seriously harm our
business.
There are
other risks associated with growing our business through acquisitions. For
example, with any past or future acquisition, there is the possibility
that:
• we
may not be able to successfully reduce costs, increase advertising revenue or
audience share or realize anticipated synergies and economies of scale with
respect to any acquired station;
• an
acquisition may increase our leverage and debt service requirements or may
result in our assuming unexpected liabilities;
• our
management may be reassigned from overseeing existing operations by the need to
integrate the acquired business;
• we
may experience difficulties integrating operations and systems, as well as
company policies and cultures;
• we
may fail to retain and assimilate employees of the acquired business;
and
• problems
may arise in entering new markets in which we have little or no experience.
The
occurrence of any of these events could have a material adverse effect on our
operating results, particularly during the period immediately following any
acquisition.
FCC actions may
restrict our ability to create duopolies under local service agreements, which
would harm our existing operations and impair our acquisition strategy.
In some
of our markets, we have created duopolies by entering into what we refer to as
local service agreements. While these agreements take varying forms, a typical
local service agreement is an agreement between two separately owned television
stations serving the same market, whereby the owner of one station provides
operational assistance to the other station, subject to ultimate editorial and
other controls being exercised by the latter station’s owner. By operating or
entering into local service agreements with more than one station in a market,
we (and the other station) achieve significant operational efficiencies. We also
broaden our audience reach and enhance our ability to capture more advertising
spending in a given market.
While all
of our existing local service agreements comply with FCC rules and policies, the
FCC may not continue to permit local service agreements as a means of creating
duopoly-type opportunities.
On
August 2, 2004, the FCC initiated a rule making proceeding to determine
whether to make TV joint sales agreements attributable under its ownership
rules. Comments and reply comments were filed in this proceeding in the fourth
quarter of 2004. The FCC has not yet issued a decision in this proceeding.
However, if the FCC adopts a joint sales agreement attribution rule for
television stations we will be required to comply with the rule.
The FCC may
decide to terminate “grandfathered” time brokerage agreements.
The FCC
attributes time brokerage agreements and local marketing agreements (“TBAs”) to
the programmer under its ownership limits if the programmer provides more than
15% of a station’s weekly broadcast programming. However, TBAs entered into
prior to November 5, 1996 are exempt attributable interests for
now.
The FCC
will review these “grandfathered” TBAs in the future. During this review, the
FCC may determine to terminate the “grandfathered” period and make all TBAs
fully attributable to the programmer. If the FCC does so, we and Mission will be
required to terminate the TBAs for stations WFXP and KHMT unless the FCC
simultaneously changes its duopoly rules to allow ownership of two stations in
the applicable markets.
16
The FCC may fail
to grant a construction permit for KMID’s digital facilities.
On
December 8, 2008, Nexstar submitted an application to modify KMID’s
construction permit to specify a new broadcast tower for KMID’s digital
operations. The FCC requested further information regarding this application,
which Nexstar submitted on September 8, 2009. The FCC has not yet granted
KMID’s digital authorization; however, the FCC has granted KMID a special
temporary authorization for the continued operation of KMID’s digital facilities
during the pendency of its review. We believe the FCC will likely grant KMID’s
digital authorization in the normal course. However, if the FCC ultimately
denies KMID’s amended application, Nexstar will be required to cease operating
KMID’s digital facilities.
The level of
foreign investments held by our principal stockholder, ABRY Partners, LLC and
its affiliated funds (“ABRY”), may limit additional foreign investments made in
us.
The
Communications Act limits the extent of non-U.S. ownership of companies that own
U.S. broadcast stations. Under this restriction, a U.S. broadcast company such
as ours may have no more than 25% non-U.S. ownership (by vote and by equity).
Because our majority shareholder, ABRY has a substantial level of foreign
investment, the amount of additional foreign investment that may be made in us
is limited to approximately 12% of our total outstanding equity.
The interest of
our principal stockholder, ABRY, in other media may limit our ability to acquire
television stations in particular markets, restricting our ability to execute
our acquisition strategy.
The
number of television stations we may acquire in any market is limited by FCC
rules and may vary depending upon whether the interests in other television
stations or other media properties of persons affiliated with us are
attributable under FCC rules. The broadcast or other media interest of our
officers, directors and stockholders with 5% or greater voting power are
generally attributable under the FCC’s rules, which may limit us from acquiring
or owning television stations in particular markets while those officers,
directors or stockholders are associated with us. In addition, the holder of
otherwise non-attributable equity and/or debt in a licensee in excess of 33% of
the total debt and equity of the licensee will be attributable where the holder
is either a major program supplier to that licensee or the holder has an
attributable interest in another broadcast station, cable system or daily
newspaper in the same market.
ABRY, our
principal stockholder, is one of the largest private firms specializing in media
and broadcasting investments. As a result of ABRY’s interest in us, we could be
prevented from acquiring broadcast companies in markets where ABRY has an
attributable interest in television stations or other media, which could impair
our ability to execute our acquisition strategy. Our certificate of
incorporation allows ABRY and its affiliates to identify, pursue and consummate
additional acquisitions of television stations or other broadcast-related
businesses that may be complementary to our business and therefore such
acquisitions opportunities may not be available to us.
We are controlled
by one principal stockholder, ABRY, and its interests may differ from your
interests.
As a
result of ABRY’s controlling interest in us, ABRY is able to exercise a
controlling influence over our business and affairs. ABRY is able to
unilaterally determine the outcome of any matter submitted to a vote of our
stockholders, including the election and removal of directors and the approval
of any merger, consolidation or sale of all or substantially all of our assets.
In addition, five of our directors are or were affiliated with ABRY. ABRY’s
interests may differ from the interests of other security holders and ABRY could
take actions or make decisions that are not in the best interests of our
security holders. Furthermore, this concentration of ownership by ABRY may have
the effect of impeding a merger, consolidation, takeover or other business
combination involving us or discouraging a potential acquirer from making a
tender offer for our shares.
Our certificate
of incorporation, bylaws, debt instruments and Delaware law contain
anti-takeover protections that may discourage or prevent a takeover of us, even
if an acquisition would be beneficial to our stockholders.
Provisions
of our certificate of incorporation and bylaws, as well as provisions of the
Delaware General Corporation Law, could delay or make it more difficult to
remove incumbent directors or for a third party to acquire us, even if a
takeover would benefit our stockholders. The provisions in our certificate of
incorporation and bylaws:
• authorize
the issuance of “blank check” preferred stock by our board of directors without
a stockholder vote;
• do
not permit cumulative voting in the election of directors, which would otherwise
allow less than a majority of stockholders to elect director candidates; and
• set
forth specific advance notice procedures for matters to be raised at stockholder
meetings.
The
Delaware General Corporation Law prohibits us from engaging in “business
combinations” with “interested shareholders” (with some exceptions) unless such
transaction is approved in a prescribed manner. The existence of this provision
could have an anti-takeover effect with respect to transactions not approved in
advance by the board of directors, including discouraging attempts that might
result in a premium over the market price for our common stock.
17
In
addition, a change in control would be an event of default under our senior
credit facility and trigger the rights of holders of our publicly-traded notes
to cause us to repurchase such notes. These events would add to the cost of an
acquisition, which could deter a third party from acquiring us.
We
and Mission have a material amount of goodwill and intangible assets, and
therefore we and Mission could suffer losses due to future asset impairment
charges.
As of
December 31, 2009, approximately $362.8 million, or 58.5%, of our and
Mission’s combined total assets consisted of goodwill and intangible assets,
including FCC licenses and network affiliation agreements. 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. We recorded an
impairment charge of $82.4 million during the year ended December 31, 2008
that included an impairment to the carrying value of FCC licenses of $41.4
million, related to 20 of our television stations; an impairment to the carrying
value of network affiliation agreements of $2.1 million related to 3 of our
television stations; and an impairment to the carrying values of goodwill of
$38.9 million, related to 10 reporting units consisting of 11 of our television
stations. We and Mission test goodwill and FCC licenses annually, and on an
interim date if factors or indicators become apparent that would require an
interim test of these assets, in accordance with accounting and disclosure
requirements for goodwill and other intangible assets. We and Mission test
network affiliation agreements whenever circumstances or indicators become
apparent the asset may not be recoverable through expected future cash flows.
The methods used to evaluate the impairment of Nexstar’s and Mission’s goodwill
and intangible assets would be affected by a significant reduction in operating
results or cash flows at one or more of Nexstar’s and Mission’s television
stations, or a forecast of such reductions, a significant adverse change in the
advertising marketplaces in which Nexstar’s and Mission’s television stations
operate, the loss of network affiliations, or by adverse changes to FCC
ownership rules, among others, which may be beyond our or Mission’s control. If
the carrying amount of goodwill and intangible assets is revised downward due to
impairment, such non-cash charge could materially affect Nexstar’s and Mission’s
financial position and results of operations.
Risks Related to
Our Industry
Nexstar’s
operating results are dependent on advertising revenue and as a result, Nexstar
may be more vulnerable to economic downturns and other factors beyond Nexstar’s
control than businesses not dependent on advertising.
Nexstar
derives revenue primarily from the sale of advertising time. Nexstar’s ability
to sell advertising time depends on numerous factors that may be beyond
Nexstar’s control, including:
• the
health of the economy in the local markets where our stations are located and in
the nation as a whole;
• the
popularity of our programming;
• fluctuations
in pricing for local and national advertising;
• the activities of our competitors, including
increased competition from other forms of advertising-based media, particularly
newspapers, cable television, Internet and radio;
• the
decreased demand for political advertising in non-election years;
and
• changes
in the makeup of the population in the areas where our stations are
located.
Because
businesses generally reduce their advertising budgets during economic recessions
or downturns, the reliance upon advertising revenue makes Nexstar’s operating
results particularly susceptible to prevailing economic conditions. Our
programming may not attract sufficient targeted viewership, and we may not
achieve favorable ratings. Our ratings depend partly upon unpredictable and
volatile factors beyond our control, such as viewer preferences, competing
programming and the availability of other entertainment activities. A shift in
viewer preferences could cause our programming not to gain popularity or to
decline in popularity, which could cause our advertising revenue to decline. In
addition, we and the programming providers upon which we rely may not be able to
anticipate, and effectively react to, shifts in viewer tastes and interests in
our markets.
Because a high
percentage of our operating expenses are fixed, a relatively small decrease in
advertising revenue could have a significant negative impact on our financial
results.
Our
business is characterized generally by high fixed costs, primarily for debt
service, broadcast rights and personnel. Other than commissions paid to our
sales staff and outside sales agencies, our expenses do not vary significantly
with the increase or decrease in advertising revenue. As a result, a relatively
small change in advertising prices could have a disproportionate effect on our
financial results. Accordingly, a minor shortfall in expected revenue could have
a significant negative impact on our financial results.
18
Preemption of
regularly scheduled programming by network news coverage may affect our revenue
and results of operations.
Nexstar
may experience a loss of advertising revenue and incur additional broadcasting
expenses due to preemption of our regularly scheduled programming by network
coverage of a major global news event such as a war or terrorist attack. As a
result, advertising may not be aired and the revenue for such advertising may be
lost unless the station is able to run the advertising at agreed-upon times in
the future. Advertisers may not agree to run such advertising in future time
periods, and space may not be available for such advertising. The duration of
such preemption of local programming cannot be predicted if it occurs. In
addition, our stations and the stations we provide services to may incur
additional expenses as a result of expanded news coverage of a war or terrorist
attack. The loss of revenue and increased expenses could negatively affect our
results of operations.
If we are unable
to respond to changes in technology and evolving industry trends, our television
businesses may not be able to compete effectively.
New
technologies could also adversely affect our television stations. Information
delivery and programming alternatives such as cable, direct satellite-to-home
services, pay-per-view, the Internet, telephone company services, mobile
devices, digital video recorders and home video and entertainment systems have
fractionalized television viewing audiences and expanded the numbers and types
of distribution channels for advertisers to access. Over the past decade, cable
television programming services, other emerging video distribution platforms and
the Internet have captured an increasing market share, while the aggregate
viewership of the major television networks has declined. In addition, the
expansion of cable and satellite television, the Internet and other
technological changes have increased, and may continue to increase, the
competitive demand for programming. Such increased demand, together with rising
production costs, may increase our programming costs or impair our ability to
acquire or develop desired programming.
In
addition, video compression techniques, now in use with direct broadcast
satellites, cable and wireless cable, are expected to permit greater numbers of
channels to be carried within existing bandwidth. These compression techniques
as well as other technological developments are applicable to all video delivery
systems, including over-the-air broadcasting, and have the potential to provide
vastly expanded programming to targeted audiences. Reduction in the cost of
creating additional channel capacity could lower entry barriers for new channels
and encourage the development of increasingly specialized niche programming,
resulting in more audience fractionalization. This ability to reach very
narrowly defined audiences may alter the competitive dynamics for advertising
expenditures. We are unable to predict the effect that these and other
technological changes will have on the television industry or on the future
results of our television businesses.
If direct
broadcast satellite companies do not carry the stations that we own and operate
or provide services to, we could lose audience share and revenue.
Direct
broadcast satellite television companies are permitted to transmit local
broadcast television signals to subscribers in local markets provided that they
offer to carry all local stations in that market. However, satellite providers
have limited satellite capacity to deliver local station signals in local
markets. Satellite providers, such as DirecTV and Dish Network, carry our and
Mission’s stations in only some of our markets and may choose not to carry local
stations in any of our other markets. DirecTV currently provides satellite
carriage of our and Mission’s stations in the Champaign-Springfield-Decatur,
Evansville, Ft. Smith-Fayetteville-Springdale-Rogers, Ft. Wayne, Jacksonville,
Johnstown-Altoona, Little Rock-Pine Bluff, Peoria-Bloomington, Rochester,
Rockford, Shreveport, Springfield and Wilkes Barre-Scranton markets. Dish
Network currently provides satellite carriage of our and Mission’s stations in
the Abilene-Sweetwater, Amarillo, Beaumont-Port Arthur, Billings,
Champaign-Springfield-Decatur, Dothan, Erie, Evansville, Fort Wayne, Ft.
Smith-Fayetteville-Springdale-Rogers, Hagerstown, Jacksonville,
Johnstown-Altoona, Joplin, MO-Pittsburg, KS, Little Rock-Pine Bluff, Lubbock,
Monroe, LA-El Dorado, AR, Odessa-Midland, Peoria-Bloomington, Rochester,
Rockford, San Angelo, Shreveport, Springfield, Terre Haute, Wichita Falls,
TX-Lawton, OK and Wilkes Barre-Scranton markets. In those markets in which the
satellite providers do not carry local station signals, subscribers to those
satellite services are unable to view local stations without making further
arrangements, such as installing antennas and switches. Furthermore, when direct
broadcast satellite companies do carry local television stations in a market,
they are permitted to charge subscribers extra for such service. Some
subscribers may choose not to pay extra to receive local television stations. In
the event subscribers to satellite services do not receive the stations that we
own and operate or provide services to, we could lose audience share which would
adversely affect our revenue and earnings.
19
The FCC can
sanction us for programming broadcast on our stations which it finds to be
indecent.
In 2004,
the FCC began to impose substantial fines on television broadcasters for the
broadcast of indecent material in violation of the Communications Act and its
rules. The FCC also revised its indecency review analysis to more strictly
prohibit the use of certain language on broadcast television. Because our and
Mission’s stations’ programming is in large part comprised of programming
provided by the networks with which the stations are affiliated, we and Mission
do not have full control over what is broadcast on our stations, and we and
Mission may be subject to the imposition of fines if the FCC finds such
programming to be indecent. Fines may be imposed on a television
broadcaster for an indecency violation to a maximum of $325 thousand per
violation.
Intense
competition in the television industry could limit our growth and impair our
ability to become profitable.
As a
television broadcasting company, we face a significant level of competition,
both directly and indirectly. Generally we compete for our audience against all
the other leisure activities in which one could choose to engage rather than
watch television. Specifically, stations we own or provide services to compete
for audience share, programming and advertising revenue with other television
stations in their respective markets and with other advertising media, including
newspapers, radio stations, cable television, DBS systems and the Internet.
The
entertainment and television industries are highly competitive and are
undergoing a period of consolidation. Many of our current and potential
competitors have greater financial, marketing, programming and broadcasting
resources than we do. The markets in which we operate are also in a constant
state of change arising from, among other things, technological improvements and
economic and regulatory developments. Technological innovation and the resulting
proliferation of television entertainment, such as cable television, wireless
cable, satellite-to-home distribution services, pay-per-view and home video and
entertainment systems, have fractionalized television viewing audiences and have
subjected free over-the-air television broadcast stations to increased
competition. We may not be able to compete effectively or adjust our business
plans to meet changing market conditions. We are unable to predict what form of
competition will develop in the future, the extent of the competition or its
possible effects on our businesses.
The FCC could
implement legislation and/or regulations that might have a significant impact on
the operations of the stations we own and the stations we provide services to or
the television broadcasting industry as a whole.
The FCC
has initiated proceedings to determine whether to make TV joint sales agreements
attributable interests under its ownership rules; to determine whether it should
establish formal rules under which broadcasters will be required to serve the
local public interest; and to determine whether to modify or eliminate certain
of its broadcast ownership rules, including the radio-television cross-ownership
rule and the newspaper-television cross-ownership rule. A change to any of these
rules may have significant impact on us and the stations we provide services to.
In
addition, the FCC may decide to initiate other new rule making proceedings on
its own or in response to requests from outside parties, any of which might have
such an impact. Congress also may act to amend the Communications Act in a
manner that could impact our stations and the stations we provide services to or
the television broadcast industry in general.
The
FCC may reallocate some portion of the spectrum available for use by television
broadcasters to wireless broadband use which alteration could substantially
impact our future operations and may reduce viewer access to our
programming.
The FCC
has initiated a proceeding to assess the availability of spectrum to meet future
wireless broadband needs pursuant to which the FCC is examining whether some
portion of the spectrum currently used for commercial broadcast television can
be made available for wireless broadband use. The FCC has proposed requiring
television stations to co-locate their antennas and/or reducing the amount of
spectrum allocated to each television station from 6 megahertz to 3 megahertz.
If the FCC determines to move forward with reducing the spectrum available to
television broadcasters for their use, it may render our investment in digital
facilities worthless and consequently reduce the useful lives of certain digital
equipment, could require substantial additional investment to continue our
operations, and may require viewers to invest in additional equipment or
subscription services to continue receiving broadcast television
signals.
Item 1B. Unresolved
Staff Comments
None
20
Item 2. Properties
Nexstar
owns and leases facilities in the following locations:
Station
Metropolitan Area and Use
|
Owned or
Leased
|
Square
Footage/Acreage
Approximate Size
|
Expiration
of
Lease
|
WBRE—Wilkes Barre-Scranton, PA
|
|||
Office-Studio
|
100% Owned
|
0.80
Acres
|
—
|
Office-Studio
|
100% Owned
|
49,556 Sq. Ft.
|
—
|
Office-Studio—Williamsport
News Bureau
|
Leased
|
460
Sq. Ft.
|
Month to Month
|
Office-Studio—Stroudsburg
News Bureau
|
Leased
|
320
Sq. Ft.
|
4/30/11
|
Office-Studio—Scranton
News Bureau
|
Leased
|
1,627
Sq. Ft.
|
11/30/11
|
Tower/Transmitter
Site—Williamsport
|
33% Owned
|
1.33
Acres
|
—
|
Tower/Transmitter
Site—Sharp Mountain
|
33% Owned
|
0.23
Acres
|
—
|
Tower/Transmitter
Site—Blue Mountain
|
100% Owned
|
0.998
Acres
|
—
|
Tower/Transmitter
Site—Penobscot Mountain
|
100% Owned
|
20
Acres
|
—
|
Tower/Transmitter
Site—Pimple Hill
|
Leased
|
400
Sq. Ft.
|
Month
to Month
|
KARK/KARZ—Little
Rock-Pine Bluff, AR
|
|||
Office-Studio
|
Leased
|
34,835
Sq. Ft.
|
3/31/22
|
Tower/Transmitter
Site
|
100% Owned
|
40
Acres
|
—
|
Tower/Transmitter
Site
|
Leased
|
1
Sq. Ft.
|
4/5/11
|
KTAL—Shreveport,
LA
|
|||
Office-Studio
|
100% Owned
|
2
Acres
|
—
|
Office-Studio
|
100% Owned
|
16,000
Sq. Ft.
|
—
|
Equipment
Building—Texarkana
|
100% Owned
|
0.0808
Acres
|
—
|
Office-Studio—Texarkana
|
Leased
|
2,941
Sq. Ft.
|
9/30/13
|
Tower/Transmitter
Site
|
100% Owned
|
109
Acres
|
—
|
Tower/Transmitter
Site
|
100% Owned
|
2,284
Sq. Ft.
|
—
|
WROC—Rochester,
NY
|
|||
Office-Studio
|
100% Owned
|
3.9
Acres
|
—
|
Office-Studio
|
100% Owned
|
48,864
Sq. Ft.
|
—
|
Tower/Transmitter
Site
|
100% Owned
|
0.24
Acres
|
—
|
Tower/Transmitter
Site
|
100% Owned
|
2,400
Sq. Ft.
|
—
|
Tower/Transmitter
Site
|
50% Owned
|
1.90
Acres
|
—
|
WCIA/WCFN—Champaign-Springfield-Decatur, IL
|
|||
Office-Studio
|
100% Owned
|
20,000
Sq. Ft.
|
—
|
Office-Studio
|
100% Owned
|
1.5
Acres
|
—
|
Office-Studio—Sales
Bureau
|
Leased
|
1,600
Sq. Ft.
|
1/31/12
|
Office-Studio—News
Bureau
|
Leased
|
350
Sq. Ft.
|
2/28/13
|
Office-Studio—Decatur
News Bureau
|
Leased
|
300
Sq. Ft.
|
5/31/10
|
Roof
Top & Boiler Space—Danville Tower
|
Leased
|
20
Sq. Ft.
|
11/30/10
|
Tower/Transmitter
Site—WCIA Tower
|
100% Owned
|
38.06
Acres
|
—
|
Tower/Transmitter
Site—Springfield Tower
|
100% Owned
|
2.0
Acres
|
—
|
Tower/Transmitter
Site—Dewitt Tower
|
100% Owned
|
1.0
Acres
|
—
|
WMBD—Peoria-Bloomington,
IL
|
|||
Office-Studio
|
100% Owned
|
0.556
Acres
|
—
|
Office-Studio
|
100% Owned
|
18,360
Sq. Ft.
|
—
|
Building-Transmitter
Site
|
100% Owned
|
2,350
Sq. Ft.
|
—
|
Building-Transmitter
Site
|
100% Owned
|
800
Sq. Ft.
|
—
|
Tower/Transmitter
Site
|
100% Owned
|
34.93
Acres
|
—
|
Tower/Transmitter
Site
|
100% Owned
|
1.0
Acres
|
—
|
KBTV—Beaumont-Port
Arthur, TX
|
|||
Office-Studio(6)
|
Leased
|
8,000
Sq. Ft.
|
1/31/13
|
Tower/Transmitter
Site
|
100% Owned
|
40
Acres
|
—
|
WTWO—Terre
Haute, IN
|
|||
Office-Studio
|
100% Owned
|
4.774
Acres
|
—
|
Office-Studio—Tower/Transmitter
Site
|
100% Owned
|
17,375
Sq. Ft.
|
—
|
WJET—Erie,
PA
|
|||
Tower/Transmitter
Site
|
100% Owned
|
2
Sq. Ft.
|
—
|
Office-Studio
|
100% Owned
|
9.87 Acres
|
—
|
Office-Studio
|
100% Owned
|
15,533
Sq. Ft.
|
—
|
21
Station
Metropolitan Area and Use
|
Owned
or
Leased
|
Square
Footage/Acreage
Approximate Size
|
Expiration
of
Lease
|
KFDX—Wichita
Falls, TX—Lawton, OK
|
|||
Office-Studio-Tower/Transmitter
Site
|
100% Owned
|
28.06 Acres
|
—
|
Office-Studio
|
100%
Owned
|
13,568 Sq. Ft.
|
—
|
KSNF—Joplin,
MO-Pittsburg, KS
|
|||
Office-Studio
|
100%
Owned
|
13.36
Acres
|
—
|
Office-Studio
|
100%
Owned
|
13,169
Sq. Ft.
|
—
|
Tower/Transmitter
Site
|
Leased
|
240
Sq. Ft.
|
Month to Month
|
KMID—Odessa-Midland,
TX
|
|||
Office-Studio
|
100%
Owned
|
1.127
Acres
|
—
|
Office-Studio
|
100%
Owned
|
14,000
Sq. Ft.
|
—
|
Tower/Transmitter
Site
|
100%
Owned
|
69.87
Acres
|
—
|
Tower/Transmitter
Site
|
100%
Owned
|
0.322
Acres
|
—
|
KTAB—Abilene-Sweetwater,
TX
|
|||
Office-Studio(1)
|
—
|
—
|
—
|
Tower/Transmitter
Site
|
100%
Owned
|
25.55
Acres
|
—
|
KQTV—St
Joseph, MO
|
|||
Office-Studio
|
100%
Owned
|
3
Acres
|
—
|
Office-Studio
|
100%
Owned
|
15,100
Sq. Ft.
|
—
|
Tower/Transmitter
Site
|
100%
Owned
|
9,360
Sq. Ft.
|
—
|
Offsite
Storage
|
Leased
|
130
Sq. Ft.
|
Month to Month
|
WDHN—Dothan,
AL
|
|||
Office-Studio-
Tower/Transmitter Site
|
100%
Owned
|
10
Acres
|
—
|
Office-Studio
|
100%
Owned
|
7,812
Sq. Ft.
|
—
|
KLST—San
Angelo, TX
|
|||
Office-Studio
|
100%
Owned
|
7.31
Acres
|
—
|
Tower/Transmitter
Site
|
100%
Owned
|
8
Acres
|
—
|
WHAG—Washington,
DC/Hagerstown, MD
|
|||
Office-Studio
|
Leased
|
11,000
Sq. Ft.
|
6/12/12
|
Sales
Office-Frederick
|
Leased
|
1,200
Sq. Ft.
|
8/10/10
|
Tower/Transmitter
Site
|
Leased
|
11.2
Acres
|
5/12/21
|
WTVW—Evansville,
IN
|
|||
Office-Studio
|
100%
Owned
|
1.834
Acres
|
––
|
Office-Studio
|
100%
Owned
|
14,280
Sq. Ft.
|
––
|
Tower/Transmitter
Site
|
Leased
|
16.36
Acres
|
5/12/21
|
KSFX—Springfield,
MO
|
|||
Office-Studio(2)
|
—
|
—
|
—
|
Tower/Transmitter
Site—Kimberling City
|
100%
Owned
|
.25
Acres
|
—
|
Tower/Transmitter
Site
|
Leased
|
0.5
Acres
|
5/12/21
|
WFFT—Fort
Wayne, IN
|
|||
Office-Studio
|
100%
Owned
|
21.84
Acres
|
—
|
Tower/Transmitter
Site
|
Leased
|
0.5
Acres
|
5/12/21
|
KAMR—Amarillo,
TX
|
|||
Office-Studio
|
100%
Owned
|
26,000
Sq. Ft.
|
—
|
Tower/Transmitter
Site
|
Leased
|
110.2
Acres
|
5/12/21
|
Translator
Site
|
Leased
|
0.5
Acres
|
Month
to Month
|
KARD—Monroe,
LA
|
|||
Office-Studio
|
100%
Owned
|
14,450
Sq. Ft.
|
—
|
Tower/Transmitter
Site
|
Leased
|
26
Acres
|
5/12/21
|
Tower/Transmitter
Site
|
Leased
|
80
Sq. Ft.
|
Month
to Month
|
KLBK—Lubbock,
TX
|
|||
Office-Studio
|
100%
Owned
|
11.5
Acres
|
—
|
Tower/Transmitter
Site
|
Leased
|
0.5
Acres
|
5/12/21
|
WFXV—Utica,
NY
|
|||
Office-Studio(3)
|
—
|
—
|
—
|
Tower/Transmitter
Site—Burlington Flats
|
100%
Owned
|
6.316
Acres
|
—
|
Tower/Transmitter
Site
|
Leased
|
160
Sq. Ft.
|
9/1/14
|
Tower/Transmitter
Site—Cassville
|
Leased
|
96
Sq. Ft.
|
1/12/10
|
WPNY–LP—Utica,
NY
|
|||
Office-Studio(4)
|
—
|
—
|
—
|
22
Station
Metropolitan Area and Use
|
Owned or
Leased
|
Square
Footage/Acreage
Approximate Size
|
Expiration
of Lease
|
KSVI—Billings,
MT
|
|||
Office-Studio
|
100% Owned
|
9,700 Sq. Ft.
|
—
|
Tower/Transmitter
Site
|
Leased
|
10
Acres
|
5/12/21
|
Tower/Transmitter
Site
|
Leased
|
75
Sq. Ft.
|
6/30/11
|
Tower/Transmitter
Site
|
Leased
|
75
Sq. Ft.
|
10/31/15
|
Tower/Transmitter
Site
|
Leased
|
75
Sq. Ft.
|
12/31/22
|
Tower/Transmitter
Site—Rapeljie
|
Leased
|
1
Acre
|
2/1/11
|
Tower/Transmitter
Site—Hardin
|
Leased
|
1
Acre
|
12/1/14
|
Tower/Transmitter
Site—Columbus
|
Leased
|
75
Sq. Ft.
|
6/1/10
|
Tower/Transmitter
Site—Sarpy
|
Leased
|
75
Sq. Ft.
|
Month
to Month
|
Tower/Transmitter
Site—Rosebud
|
Leased
|
1
Acre
|
Year
to Year
|
Tower/Transmitter
Site—Miles City
|
Leased
|
.25
Acre
|
3/23/11
|
Tower/Transmitter
Site—Sheridan, WY
|
Leased
|
56
Sq. Ft.
|
12/31/10
|
Tower/Transmitter
Site—McCullough Pks, WY
|
Leased
|
75
Sq. Ft.
|
Month to Month
|
WQRF—Rockford,
IL
|
|||
Office-Studio(5)
|
—
|
—
|
—
|
Tower/Transmitter
Site
|
Leased
|
2,000
Sq. Ft.
|
5/12/21
|
WCWJ—Jacksonville,
FL
|
|||
Office-Studio
|
100%
Owned
|
19,847
Sq. Ft.
|
—
|
Office-Studio
- Tower/Transmitter Site
|
100%
Owned
|
7.92
Acres
|
—
|
Building/Transmitter
Site
|
100%
Owned
|
200
Sq. Ft.
|
—
|
KFTA/KNWA—Fort
Smith-Fayetteville-Springdale-Rogers, AR
|
|||
Office
|
Leased
|
9,950
Sq. Ft.
|
Month
to Month
|
Office
|
Leased
|
900
Sq. Ft.
|
Month
to Month
|
Office-Studio
|
Leased
|
10,000 Sq. Ft.
|
7/31/14
|
Tower/Transmitter
Site
|
Leased
|
216
Sq. Ft.
|
Month
to Month
|
Tower/Transmitter
Site
|
Leased
|
936
Sq. Ft.
|
7/31/25
|
Tower/Transmitter
Site
|
100%
Owned
|
1.61
Acres
|
—
|
Tower/Transmitter
Site—Fort Smith
|
Leased
|
1,925
Sq. Ft.
|
9/1/11
|
Microwave
Relay Site
|
100%
Owned
|
166
Sq. Ft.
|
—
|
Microwave
Site
|
Leased
|
216
Sq. Ft.
|
Month
to Month
|
WTAJ–Altoona-Johnstown,
PA
|
|||
Office-Studio
|
Leased
|
22,367
Sq. Ft.
|
5/31/14
|
Office-Johnstown
|
Leased
|
672
Sq. Ft.
|
2/28/11
|
Office-State
College Bureau
|
Leased
|
7,200
Sq. Ft.
|
Month
to Month
|
Office-Dubois
Bureau
|
Leased
|
315
Sq. Ft.
|
9/30/10
|
Tower/Transmitter
Site
|
Owned
|
4,400
Sq. Ft.
|
—
|
Corporate
Office—Irving, TX
|
Leased
|
18,168
Sq. Ft.
|
12/31/13
|
Corporate
Office Offsite Storage—Dallas, TX
|
Leased
|
475
Sq. Ft.
|
Month
to Month
|
(1)
|
The
office space and studio used by KTAB are owned by
KRBC.
|
(2)
|
The
office space and studio used by KSFX are owned by
KOLR.
|
(3)
|
The
office space and studio used by WFXV are owned by
WUTR.
|
(4)
|
The
office space and studio used by WPNY-LP are owned by
WUTR.
|
(5)
|
The
office space and studio used by WQRF are owned by
WTVO.
|
(6)
|
This
office was destroyed by a fire in February
2009.
|
Mission
owns and leases facilities in the following locations:
WYOU—Wilkes Barre-Scranton, PA
|
|||
Office-Studio(1)
|
—
|
—
|
—
|
Tower/Transmitter
Site—Penobscot Mountain
|
100% Owned
|
120.33
Acres
|
—
|
Tower/Transmitter
Site—Bald Mountain
|
100% Owned
|
7.2
Acres
|
—
|
Tower/Transmitter
Site—Williamsport
|
33% Owned
|
1.35
Acres
|
—
|
Tower/Transmitter
Site—Sharp Mountain
|
33% Owned
|
0.23
Acres
|
—
|
Tower/Transmitter
Site—Stroudsburg
|
Leased
|
10,000 Sq. Ft.
|
Month to Month
|
WFXW—Terre
Haute, IN
|
|||
Office-Studio(2)
|
—
|
—
|
—
|
Tower/Transmitter
Site
|
100% Owned
|
1 Acre
|
—
|
WFXP—Erie,
PA
|
|||
Office-Studio(3)
|
—
|
—
|
—
|
Tower/Transmitter
Site(3)
|
—
|
—
|
—
|
KJTL—Wichita
Falls, TX—Lawton, OK
|
|||
Office-Studio(4)
|
—
|
—
|
—
|
Tower/Transmitter
Site
|
Leased
|
40
Acres
|
1/30/15
|
23
Station
Metropolitan Area and Use
|
Owned or
Leased
|
Square
Footage/Acreage
Approximate Size
|
Expiration
of
Lease
|
KJBO-LP—Wichita
Falls, TX-Lawton, OK
|
|||
Office-Studio(4)
|
—
|
—
|
—
|
Tower/Transmitter
Site
|
Leased
|
5
Acres
|
Year to Year
|
KODE—Joplin,
MO-Pittsburg, KS
|
|||
Office-Studio
|
100% Owned
|
2.74
Acres
|
—
|
Tower/Transmitter
Site
|
Leased
|
215
Sq. Ft.
|
5/1/27
|
KRBC—Abilene-Sweetwater,
TX
|
|||
Office-Studio
|
100% Owned
|
5.42
Acres
|
—
|
Office-Studio
|
100% Owned
|
19,312 Sq. Ft.
|
—
|
Tower/Transmitter
Site(9)
|
—
|
—
|
—
|
KTVE—Monroe,
LA/El Dorado, AR
|
|||
Office-Studio(10)
|
—
|
—
|
—
|
Tower/Transmitter
Site
|
Leased
|
2
Acres
|
4/30/32
|
Tower/Transmitter
Site—El Dorado
|
Leased
|
3
Acres
|
4/30/32
|
Tower/Transmitter
Site—Union Parrish
|
Leased
|
2.7
Acres
|
4/30/32
|
Tower/Transmitter
Site—Bolding
|
Leased
|
11.5
Acres
|
4/30/32
|
KSAN—San
Angelo, TX
|
|||
Office-Studio(5)
|
—
|
—
|
—
|
Tower/Transmitter
Site
|
Leased
|
10
Acres
|
5/15/15
|
KOLR—Springfield,
MO
|
|||
Office-Studio
|
100% Owned
|
30,000
Sq. Ft.
|
—
|
Office-Studio
|
100% Owned
|
7
Acres
|
—
|
Tower/Transmitter
Site
|
Leased
|
0.5
Acres
|
5/12/21
|
KCIT/KCPN-LP—Amarillo,
TX
|
|||
Office-Studio(6)
|
—
|
—
|
—
|
Tower/Transmitter
Site
|
Leased
|
100
Acres
|
5/12/21
|
Tower/Transmitter
Site—Parmer County, TX
|
Leased
|
80
Sq. Ft.
|
Month
to Month
|
Tower/Transmitter
Site—Guyman, OK
|
Leased
|
80
Sq. Ft.
|
Month
to Month
|
Tower/Transmitter
Site—Curry County, NM
|
Leased
|
6
Acres
|
Month
to Month
|
KAMC—Lubbock,
TX
|
|||
Office-Studio(7)
|
—
|
—
|
—
|
Tower/Transmitter
Site
|
Leased
|
40
Acres
|
5/12/21
|
Tower/Transmitter
Site
|
Leased
|
1,200
Sq. Ft.
|
Month to Month
|
KHMT—Billings,
MT
|
|||
Office-Studio(8)
|
—
|
—
|
—
|
Tower/Transmitter
Site
|
Leased
|
4
Acres
|
5/12/21
|
WUTR—Utica,
NY
|
|||
Office-Studio
|
100% Owned
|
12,100
Sq. Ft.
|
—
|
Tower/Transmitter
Site
|
100% Owned
|
21
Acres
|
—
|
WTVO—Rockford,
IL
|
|||
Office-Studio-Tower/Transmitter
Site
|
100%
Owned
|
20,000
Sq. Ft.
|
—
|
Corporate
Office-Brecksville, OH
|
Leased
|
540 Sq. Ft.
|
10/31/10
|
|
(1)
|
The
office space and studio used by WYOU are owned by
WBRE.
|
|
(2)
|
The
office space and studio used by WFXW are owned by
WTWO.
|
|
(3)
|
The
office space, studio and tower used by WFXP are owned by
WJET.
|
|
(4)
|
The
office space and studio used by KJTL and KJBO-LP are owned by
KFDX.
|
|
(5)
|
The
office space and studio used by KSAN are owned by
KLST.
|
|
(6)
|
The
office space and studio used by KCIT/KCPN-LP are owned by
KAMR.
|
|
(7)
|
The
office space and studio used by KAMC are owned by
KLBK.
|
|
(8)
|
The
office space and studio used by KHMT are owned by
KSVI.
|
|
(9)
|
The
tower/transmitter used by KRBC is owned by
KTAB.
|
(10)
|
The
office space and studio used by KTVE are owned by
KARD.
|
Item 3. 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 4. Reserved
24
PART
II
Item 5. Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Market
Prices; Record Holders and Dividends
Our
Class A Common Stock trades on The Nasdaq Global Market (“Nasdaq”) under
the symbol “NXST”.
The
following table sets forth the high and low sales prices for our Class A
Common Stock for the periods indicated, as reported by Nasdaq:
2009:
|
High
|
Low
|
||||||
1st
Quarter 2009
|
$ | 0.94 | $ | 0.53 | ||||
2nd
Quarter 2009
|
$ | 0.95 | $ | 0.64 | ||||
3rd
Quarter 2009
|
$ | 3.67 | $ | 0.59 | ||||
4th
Quarter 2009
|
$ | 4.07 | $ | 2.05 | ||||
2008:
|
High
|
Low
|
||||||
1st
Quarter 2008
|
$ | 8.94 | $ | 5.90 | ||||
2nd
Quarter 2008
|
$ | 6.50 | $ | 4.09 | ||||
3rd
Quarter 2008
|
$ | 3.92 | $ | 2.22 | ||||
4th
Quarter 2008
|
$ | 2.06 | $ | 0.50 |
The
following table summarizes the outstanding shares of common stock held by
shareholders of record as of March 2, 2010:
Type
|
Shares
Outstanding
|
Shareholders
of
Record
|
Common—Class
A
|
15,018,839
|
49(1)
|
Common—Class
B
|
13,411,588
|
3
|
(1)
|
The
majority of these shares are held in nominee names by brokers and other
institutions on behalf of approximately 1,000
shareholders.
|
We have
not paid and do not expect to pay any dividends or distribution on our common
stock for the foreseeable future. We currently expect to retain future earnings,
if any, for use in the operation and expansion of our business.
|
Securities
Authorized for Issuance Under Equity Compensation Plans as of
December 31, 2009
|
Plan
Category
|
Number
of
securities to be
issued
upon
exercise
of
outstanding
options
|
Weighted
average exercise
price
of
outstanding
options
|
Number of securities
remaining
available
for
future issuance
excluding
securities
reflected in column (a)
|
|||||||||
(a)
|
(b)
|
(c)
|
||||||||||
Equity
compensation plans approved by security holders
|
3,726,000 | $ | 7.36 | 707,000 | ||||||||
Equity
compensation plans not approved by security holders
|
— | — | — | |||||||||
Total
|
3,726,000 | $ | 7.36 | 707,000 |
For a
more detailed description of our option plans and grants, we refer you to Note
15 to the consolidated financial statements included in Part IV, Item 15(a)
of this Annual Report on Form 10-K.
25
Comparative
Stock Performance Graph
The
following graph compares the total return of our Class A Common Stock based
on closing prices for the period from December 31, 2004 through
December 31, 2009 with the total return of the NASDAQ Composite Index, our
peer index of pure play television companies used in 2008 and our peer index of
pure play television companies used in 2009. Our peer index used in
2009 consists of the following publicly traded companies: Gray
Television, Inc., LIN TV Corp. and Sinclair Broadcast Group, Inc. (the “Peer
Group 2009”). Our peer index used in 2008 consists of the following
publicly traded companies: ACME Communications, Inc., Gray Television, Inc., LIN
TV Corp., Sinclair Broadcast Group, Inc. and Young Broadcasting, Inc. (the “Peer
Group 2008”). We changed our peer index in 2009 to eliminate
companies that were no longer publicly traded (Granite Broadcasting Corporation
and Hearst Argyle Television, Inc.) and also the ones that were no longer traded
on a major stock exchange (ACME Communications, Inc. and Young Broadcasting,
Inc.). Hearst Argyle Television, Inc. , a constituent of our Peer
Group 2008 prior to 2009, is not included in our Peer Group 2008 for the year
ended December 31, 2009 as a result of its deregistration as a public company in
connection with its privatization in June 2009. Granite Broadcasting
Corporation, a constituent of our Peer Group 2008 prior to 2007, is not included
in our Peer Group 2008 for or subsequent to the year ended December 31, 2007 as
a result of its deregistration as a public company in connection with its
privatization in June 2007. The graph assumes the investment of $100
in our Class A Common Stock and in each of the indices on December 31,
2004. The performance shown is not necessarily indicative of future
performance.
12/31/04
|
12/31/05
|
12/31/06
|
12/31/07
|
12/31/08
|
12/31/09
|
|||||||||||||||||||
Nexstar
Broadcasting Group, Inc. (NXST)
|
$ | 100.00 | $ | 54.34 | $ | 50.43 | $ | 99.13 | $ | 5.54 | $ | 43.93 | ||||||||||||
NASDAQ
Composite Index
|
$ | 100.00 | $ | 102.20 | $ | 112.68 | $ | 124.57 | $ | 74.71 | $ | 108.56 | ||||||||||||
Peer
Group 2008
|
$ | 100.00 | $ | 80.01 | $ | 85.25 | $ | 77.62 | $ | 19.54 | $ | 34.13 | ||||||||||||
Peer
Group 2009
|
$ | 100.00 | $ | 74.78 | $ | 77.48 | $ | 76.34 | $ | 17.10 | $ | 31.68 |
26
Item 6. Selected
Financial Data
We have
derived the following consolidated statement of operations data for 2009, 2008,
and 2007 and consolidated balance sheet data as of December 31, 2009 and 2008
from our consolidated financial statements included herein. We have derived the
following consolidated statement of operations data for 2006 and 2005 and
consolidated balance sheet data as of December 31, 2007, 2006 and 2005 from our
2007 Form 10-K filed on March 11, 2008 and our 2006 Form 10-K filed on
March 14, 2007. This information should be read in conjunction with
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and our Consolidated Financial Statements and the related Notes to
Consolidated Financial Statements which are included herein.
Year ended
December 31,
|
||||||||||||||||||||
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
(in
thousands, except per share amounts)
|
||||||||||||||||||||
Statement
of Operations Data:
|
||||||||||||||||||||
Net
revenue
|
$ | 251,979 | $ | 284,919 | $ | 266,801 | $ | 265,169 | $ | 228,939 | ||||||||||
Operating
expenses (income):
|
||||||||||||||||||||
Direct operating expenses (exclusive
of depreciation and amortization shown separately below)
|
77,233 | 78,287 | 74,128 | 71,465 | 67,681 | |||||||||||||||
Selling, general and
administrative expenses (exclusive of depreciation and amortization
shown separately below)
|
89,525 | 90,468 | 86,773 | 85,293 | 75,863 | |||||||||||||||
Restructure
Charge
|
670 | — | — | — | — | |||||||||||||||
Non-cash
contract termination fees
|
191 | 7,167 | — | — | — | |||||||||||||||
Impairment
of goodwill(1)
|
7,360 | 38,856 | — | — | — | |||||||||||||||
Impairment
of other intangible assets(2)
|
8,804 | 43,539 | — | — | — | |||||||||||||||
Amortization
of broadcast rights
|
25,263 | 20,423 | 21,457 | 19,701 | 22,257 | |||||||||||||||
Depreciation
and amortization
|
45,385 | 49,153 | 45,880 | 42,221 | 43,244 | |||||||||||||||
Gain
on asset exchange
|
(8,093 | ) | (4,776 | ) | (1,962 | ) | — | — | ||||||||||||
Loss
on property held for sale
|
— | — | — | — | 616 | |||||||||||||||
Loss
(gain) on asset disposal, net
|
(2,560 | ) | (43 | ) | (17 | ) | 639 | 668 | ||||||||||||
Income
(loss) from operations
|
8,201 | (38,155 | ) | 40,542 | 45,850 | 18,610 | ||||||||||||||
Interest
expense
|
(39,236 | ) | (48,832 | ) | (55,040 | ) | (51,783 | ) | (47,260 | ) | ||||||||||
Gain
(loss) on extinguishment of debt
|
18,567 | 2,897 | — | — | (15,715 | ) | ||||||||||||||
Interest
income
|
51 | 713 | 532 | 760 | 213 | |||||||||||||||
Other
income, net
|
3 | 2 | — | — | 380 | |||||||||||||||
Loss
before income taxes
|
(12,414 | ) | (83,375 | ) | (13,966 | ) | (5,173 | ) | (43,772 | ) | ||||||||||
Income
tax benefit (expense).
|
(200 | ) | 5,316 | (5,807 | ) | (3,819 | ) | (4,958 | ) | |||||||||||
Net
loss
|
(12,614 | ) | $ | (78,059 | ) | $ | (19,773 | ) | $ | (8,992 | ) | $ | (48,730 | ) |
(1)
|
The
Company recognized impairment charges related to goodwill during the years
ended December 31, 2009 and 2008. See Footnote 8 under Item 8 of this
Form 10K for additional
information.
|
(2)
|
The
Company recognized impairment charges related to FCC licenses for the
years ended December 31, 2009 and 2008 and network affiliation agreements
for the year ended December 31, 2008. See Footnote 8 under Item
8 of this Form 10-K for additional
information.
|
27
Year ended
December 31,
|
||||||||||||||||||||
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
(in
thousands, except per share amounts)
|
||||||||||||||||||||
Basic
and diluted loss per share:
|
||||||||||||||||||||
Net
loss attributable to common shareholders
|
$ | (0.44 | ) | $ | (2.75 | ) | $ | (0.70 | ) | $ | (0.32 | ) | $ | (1.72 | ) | |||||
Weighted
average number of shares outstanding:
|
||||||||||||||||||||
Basic
and diluted
|
28,427 | 28,423 | 28,401 | 28,376 | 28,363 | |||||||||||||||
Balance
Sheet Data (end of period):
|
||||||||||||||||||||
Cash
and cash equivalents
|
$ | 12,752 | $ | 15,834 | $ | 16,226 | $ | 11,179 | $ | 13,487 | ||||||||||
Working
capital (deficit)
|
36,875 | 27,391 | (11,472 | ) | 21,872 | 26,144 | ||||||||||||||
Net
intangible assets and goodwill
|
362,762 | 390,540 | 494,092 | 519,450 | 494,231 | |||||||||||||||
Total
assets
|
619,826 | 626,587 | 708,702 | 724,709 | 680,081 | |||||||||||||||
Total
debt
|
670,374 | 662,117 | 681,176 | 681,135 | 646,505 | |||||||||||||||
Total
stockholders’ deficit
|
(176,263 | ) | (165,156 | ) | (89,390 | ) | (73,290 | ) | (66,025 | ) | ||||||||||
Cash
Flow Data:
|
||||||||||||||||||||
Net
cash provided by (used for):
|
||||||||||||||||||||
Operating
activities
|
$ | 22,993 | $ | 60,648 | $ | 36,987 | $ | 54,462 | $ | 14,350 | ||||||||||
Investing
activities
|
(35,590 | ) | (38,492 | ) | (18,608 | ) | (79,272 | ) | (26,358 | ) | ||||||||||
Financing
activities
|
9,515 | (22,548 | ) | (13,332 | ) | 22,502 | 6,990 | |||||||||||||
Other
Financial Data:
|
||||||||||||||||||||
Capital
expenditures, net of proceeds from asset sales
|
$ | 18,838 | $ | 30,687 | $ | 18,221 | $ | 23,751 | $ | 13,891 | ||||||||||
Cash
payments for broadcast rights
|
9,315 | 8,239 | 8,376 | 8,284 | 9,704 |
Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The
following discussion and analysis should be read in conjunction with
Item 6. “Selected Financial Data” and the consolidated financial statements
and related notes included in Part IV, Item 15(a) of this Annual Report on
Form 10-K.
As used
in this discussion, 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 consolidated financial statements in Part IV,
Item 15(a) of this Annual Report on Form 10-K, we have considered the
method of accounting as required by interpretive guidance for the consolidation
of 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 position and
results of operations includes Mission’s financial position and results of
operations.
28
Executive
Summary
|
2009
Highlights
|
·
|
Net
revenue decreased 11.6% during the year ended December 31, 2009
compared to the year ended December 31, 2008, primarily from the
decrease in political, local and national advertising revenue, partially
offset by an increase in retransmission compensation. Gross political
advertising revenue decreased $26.9 million or 81.9% for the year ended
December 31, 2009. The decrease was attributed to the presidential
and statewide and/or local races that occurred during 2008, compared to a
nominal amount of political advertising in
2009.
|
·
|
Gross
local and national advertising revenue on a combined basis decreased $25.2
million, or 10.6% during the year ended December 31, 2009 due in
large part to decrease in automotive-related advertising, our largest
advertising category.
|
·
|
eMedia
revenue increased by approximately $1.5 million or 14.8% to $11.7 million
for the year ended December 31, 2009 compared to $10.2 million for
the year ended December 31, 2008 as a result of expanding the
products offered in this area and increased marketing
efforts.
|
·
|
On
March 12, 2009, Nexstar closed on the acquisition of KARZ, the
MyNetworkTV affiliate serving Little Rock, Arkansas, for a purchase price
of $4.0 million. The purchase was for substantially all the assets of the
station including broadcast rights, property and equipment, FCC licenses
and goodwill and also included broadcast
liabilities.
|
·
|
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. The
transaction closed on May 1,
2009.
|
·
|
On
March 23, 2009 we announced entry into an agreement with Four Points
Media Group LLC (“Four Points”), owned by an affiliate of Cerberus Capital
Management, L.P., whereby Nexstar provides management services for Four
Points’ seven television stations located in four markets. Under the terms
of the agreement, Nexstar receives a fixed annual management fee of $2.0
million, as well as annual incentive compensation based on increases of
the broadcast cash flow of Four Points’ stations. The agreement provides
for minimum compensation to Nexstar of $10.0 million if the Four Points
stations are sold during the initial three-year term of the agreement. The
agreement was effective beginning March 20,
2009.
|
·
|
In
May 2009, we completed regionalizing certain accounting and traffic
functions as part of our efforts to reduce the Company’s overhead costs.
We estimate this initiative will save the Company $2.2 million
annually.
|
·
|
We
recorded an impairment charge of $16.2 million during the year ended
December 31, 2009 that included an impairment to the carrying value
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.
|
·
|
During
the year ended December 31, 2009, repayments totaling $21.5 million
were made on Nexstar’s and Mission’s debt outstanding, of which $9.6
million was paid to retire $27.8 million of Nexstar’s 11.375% senior
discount notes, $0.4 million was paid to retire $1.0 million of Nexstar’s
7% senior subordinated notes, $8.0 million were revolving loan repayments
and $3.5 million were scheduled term loan
maturities.
|
·
|
On
March 30, 2009, we completed the exchange of $143.6 million of 7%
senior subordinated notes, due 2014 for $142.3 million of 7% senior
subordinated payment-in-kind (“PIK”) notes, due
2014.
|
·
|
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, 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 October 8, 2009 debt amendment
contained a limited waiver for the leverage ratios which cured the
violation as of September 30,
2009.
|
29
|
Overview
of Operations
|
We owned
and operated 34 television stations as of December 31, 2009. Through
various local service agreements, we programmed or provided sales and other
services to 25 additional television stations, including 16 television stations
owned and operated by Mission as of December 31, 2009. All of the stations
that 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 December 31, 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 the sharing of
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 JSAs permit us to sell the station’s
advertising time 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.
|
Our
ability to receive cash from Mission is governed by these agreements. The
arrangements under the SSAs and JSAs have had the effect of us receiving
substantially all of the available cash, after debt service costs, generated by
the stations listed above. The arrangements under the TBAs have also had the
effect of us receiving substantially all of the available cash generated by the
TBA stations listed above. We anticipate that, through these local service
agreements, we will continue to receive substantially all of the available cash,
after payments for debt service costs, generated by the stations listed
above.
We also
guarantee the 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.
The
operating revenue of our stations is derived primarily from broadcast
advertising revenue, which is affected by a number of factors, including the
economic conditions of the markets in which we operate, the demographic makeup
of those markets and the marketing strategy we employ in each market. Most
advertising contracts are short-term and generally run for a few weeks. For the
years ended December 31, 2009 and 2008, revenue generated from local
advertising represented 74.1% and 72.2%, respectively, of our consolidated spot
revenue (total of local and national advertising revenue, excluding political
advertising revenue). The remaining advertising revenue represents inventory
sold for national or political advertising. All national and political revenue
is derived from advertisements placed through advertising agencies. The agencies
receive a commission rate of 15.0% of the gross amount of advertising schedules
placed by them. While the majority of local spot revenue is placed by local
agencies, some advertisers place their schedules directly with the stations’
local sales staff, thereby eliminating the agency commission. Each station also
has an agreement with a national representative firm that provides for sales
representation outside the particular station’s market. Advertising schedules
received through the national representative firm are for national or large
regional accounts that advertise in several markets simultaneously. National
commission rates vary within the industry and are governed by each station’s
agreement.
30
Each of
our stations and the stations we provide services to has a network affiliation
agreement pursuant to which the network provides programming to the station
during specified time periods, including prime time. Under the affiliation
agreements with NBC, CBS and ABC, some of our stations and the stations we
provide services to receive cash compensation for distributing the network’s
programming over the air and for allowing the network to keep a portion of
advertising inventory during those time periods. The affiliation agreements with
Fox, MyNetworkTV and The CW do not provide for compensation. In recent years, in
conjunction with the renewal of affiliation agreements with NBC, CBS and ABC,
the amount of network compensation has been declining from year to year. We
expect this trend to continue in the future. Therefore, revenue associated with
network compensation agreements is expected to decline in future years and may
be eliminated altogether at some point in time.
Each
station acquires licenses to broadcast programming in non-news and non-network
time periods. The licenses are either purchased from a program distributor for
cash and/or the program distributor is allowed to sell some of the advertising
inventory as compensation to eliminate or reduce the cash cost for the license.
The latter practice is referred to as barter broadcast rights. The station
records the estimated fair market value of the licenses, including any
advertising inventory given to the program distributor, as a broadcast right
asset and liability. Barter broadcast rights are recorded at management’s
estimate of the value of the advertising time exchanged using historical
advertising rates, which approximates the fair value of the program material
received. The assets are amortized as a component of amortization of broadcast
rights. Amortization is computed using the straight-line method based on the
license period or usage, whichever yields the greater expense. The cash
broadcast rights liabilities are reduced by monthly payments while the barter
liability is amortized over the life of the contract as barter
revenue.
Our
primary operating expenses consist of commissions on advertising revenue,
employee compensation and related benefits, newsgathering and programming costs.
A large percentage of the costs involved in the operation of our stations and
the stations we provide services to remains relatively fixed.
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. Because television broadcast stations rely on advertising
revenue, declines in advertising budgets, particularly in recessionary periods,
adversely affect the broadcast industry, and as a result may contribute to a
decrease in the revenue of broadcast television stations. 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 11.6% to $252.0 million for the year ended December 31,
2009 compared to $284.9 million for the year ended December 31, 2008
primarily due to a decrease in political, local and national advertising
revenue. Political advertising revenue was $5.9 million for the year ended
December 31, 2009, a significant decrease from the $32.9 million for the
year ended December 31, 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. During an election year, political advertising revenue makes up a
significant portion of the increase in revenue in that year. However, even
during an election year, political revenue is influenced by geography and the
competitiveness of the election races. Since 2010 is another election year, we
expect a significant increase in the political advertising revenue to be
reported in 2010 in relation to the amount of political advertising reported in
2009.
The
decrease in political revenue was accompanied by a decrease in local and
national advertising revenue of $25.2 million, or 10.6%. The decrease was
primarily due to a decrease in automotive-related advertising, our largest
advertising category, which represented approximately 17.0% and 22.7% of our
core local and national advertising revenue for the years ended
December 31, 2009 and 2008, respectively. Our automotive-related
advertising decreased approximately 33% for the year ended December 31,
2009 as compared to the same period in 2008. This trend has been primarily due
to the current condition of the automotive industry and resulting decline in the
demand for advertising from this business category.
The
Television Bureau of Advertising has forecasted U.S. television spot advertising
revenue (total of local and national advertising revenue, excluding political
advertising revenue) in 2010 to increase by approximately 3.6% to 6.1% compared
to 2009.
31
Station
Acquisitions
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 Little Rock 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.
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 (net of working capital
adjustment) was paid upon closing. Transaction costs such as legal,
accounting, valuation and other professional services of $0.3 million were
expensed as incurred.
Refinancing
of Long-Term Debt Obligations
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 pays interest on the New Notes on January 15 and July 15 of each
year, commencing on July 15, 2009. Interest is 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 pays interest on the New Notes
entirely by issuing additional New Notes (the “PIK Interest”). PIK Interest
accrues 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.
32
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:
Year Ended
December 31,
|
||||||||||||||||||||||||
2009
|
2008
|
2007
|
||||||||||||||||||||||
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||||||||
(in
thousands, except percentages)
|
||||||||||||||||||||||||
Local
|
$ | 157,429 | 60.6 | $ | 171,552 | 57.0 | $ | 175,508 | 62.9 | |||||||||||||||
National
|
55,052 | 21.2 | 66,122 | 22.0 | 74,256 | 26.6 | ||||||||||||||||||
Political
|
5,949 | 2.3 | 32,886 | 10.9 | 4,308 | 1.6 | ||||||||||||||||||
Retransmission
compensation(1)
|
24,252 | 9.3 | 14,393 | 4.8 | 11,810 | 4.2 | ||||||||||||||||||
eMedia
revenue
|
11,687 | 4.5 | 10,180 | 3.4 | 5,113 | 1.8 | ||||||||||||||||||
Network
compensation
|
2,136 | 0.8 | 3,523 | 1.1 | 4,364 | 1.6 | ||||||||||||||||||
Other
|
3,402 | 1.3 | 2,498 | 0.8 | 3,652 | 1.3 | ||||||||||||||||||
Total
gross revenue
|
259,907 | 100.0 | 301,154 | 100.0 | 279,011 | 100.0 | ||||||||||||||||||
Less:
Agency commissions
|
27,328 | 10.5 | 34,587 | 11.5 | 31,629 | 11.3 | ||||||||||||||||||
Net
broadcast revenue
|
232,579 | 89.5 | 266,567 | 88.5 | 247,382 | 88.7 | ||||||||||||||||||
Trade
and barter revenue
|
19,400 | 18,352 | 19,419 | |||||||||||||||||||||
Net
revenue
|
$ | 251,979 | $ | 284,919 | $ | 266,801 |
(1)
|
Retransmission
compensation consists of a per subscriber-based compensatory fee and
excludes advertising revenue generated from retransmission consent
agreements, which is included in gross local advertising
revenue.
|
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:
Year Ended
December 31,
|
||||||||||||||||||||||||
2009
|
2008
|
2007
|
||||||||||||||||||||||
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||||||||
(in
thousands, except percentages)
|
||||||||||||||||||||||||
Net
revenue
|
$ | 251,979 | 100.0 | $ | 284,919 | 100.0 | $ | 266,801 | 100.0 | |||||||||||||||
Operating
expenses (income):
|
||||||||||||||||||||||||
Corporate
expenses
|
18,561 | 7.4 | 15,473 | 5.4 | 13,348 | 5.0 | ||||||||||||||||||
Station
direct operating expenses, net of trade
|
70,549 | 28.0 | 72,056 | 25.3 | 68,112 | 25.5 | ||||||||||||||||||
Selling,
general and administrative expenses
|
70,964 | 28.2 | 74,995 | 26.3 | 73,425 | 27.5 | ||||||||||||||||||
Impairment
of goodwill
|
7,360 | 2.9 | 38,856 | 13.6 | — | — | ||||||||||||||||||
Impairment
of other intangible assets
|
8,804 | 3.5 | 43,539 | 15.3 | — | — | ||||||||||||||||||
Restructure
charge
|
670 | 0.3 | — | — | — | — | ||||||||||||||||||
Non-cash
contract termination fees
|
191 | 0.1 | 7,167 | 2.5 | — | — | ||||||||||||||||||
Gain
on asset exchange
|
(8,093 | ) | (3.2 | ) | (4,776 | ) | (1.7 | ) | (1,962 | ) | (0.7 | ) | ||||||||||||
Loss
(gain) on asset disposal, net
|
(2,560 | ) | (1.0 | ) | (43 | ) | — | (17 | ) | — | ||||||||||||||
Trade
and barter expense
|
18,699 | 7.4 | 17,936 | 6.3 | 18,423 | 6.9 | ||||||||||||||||||
Depreciation
and amortization
|
45,385 | 18.0 | 49,153 | 17.3 | 45,880 | 17.2 | ||||||||||||||||||
Amortization
of broadcast rights, excluding barter
|
13,248 | 5.3 | 8,718 | 3.1 | 9,050 | 3.4 | ||||||||||||||||||
Income
(loss) from operations
|
$ | 8,201 | $ | (38,155 | ) | $ | 40,542 |
33
Year
Ended December 31, 2009 Compared to Year Ended December 31,
2008
Revenue
Gross
local advertising revenue was $157.4 million for the year ended
December 31, 2009, compared to $171.6 million for the same period in 2008,
a decrease of $14.2 million, or 8.2%. Gross national advertising revenue was
$55.1 million for the year ended December 31, 2009, compared to $66.1
million for the same period in 2008, a decrease of $11.0 million, or 16.7%. The
combined net decrease in gross local and national advertising revenue of $25.2
million was largely the result of a $17.9 million decrease in automotive related
advertising, our largest advertising category. Also contributing to
the overall decrease in local and national advertising were decreases in the
following advertising categories: fast food and restaurants - $0.9
million; department stores and retail - $1.0 million; furniture - $1.9 million;
paid programming - $3.0 million; medical and healthcare - $1.5 million; and
telcom - $2.0 million. These decreases were partially offset by an
increase in the radio, cable and newspaper category of $2.5 million and also the
addition of stations KARZ and WCWJ in 2009, which contributed combined local and
national advertising revenue of $6.8 million.
Gross
political advertising revenue was $5.9 million for the year ended
December 31, 2009, compared to $32.9 million for the same period in 2008, a
decrease of $27.0 million, or 81.9%. The decrease in gross political revenue was
attributed to presidential, statewide and/or local races (primarily in
Pennsylvania, Indiana, Alabama, Missouri and Montana) that occurred during the
year ended December 31, 2008 as compared to nominal political advertising
during the year ended December 31, 2009.
Retransmission
compensation was $24.3 million for the year ended December 31, 2009,
compared to $14.4 million for the same period in 2008, an increase of $9.9
million, or 68.5%. The increase in retransmission compensation was primarily the
result of cable agreements being renegotiated at higher rates at the end of 2008
and also the addition of KARZ and WCWJ in 2009.
eMedia
revenue, representing revenue generated from non-television web-based
advertising, was $11.7 million for the year ended December 31, 2009,
compared to $10.2 million for the year ended December 31, 2008, an increase
of $1.5 million or 14.8%. The increase in new media revenue was a result of
offering new products in 2009, as well as the acquisition of WCWJ in May
2009.
Operating
Expenses
Corporate
expenses, related to costs associated with the centralized management of
Nexstar’s and Mission’s stations, were $18.6 million for the year ended
December 31, 2009, compared to $15.5 million for the year ended
December 31, 2008, an increase of $3.1 million, or 20.0%. The increase
during the year ended December 31, 2009 was primarily attributed to $2.9
million in fees associated with the March 2009 7% notes exchange offer and also
an increase in legal and professional fees associated with the October 2009
amendment of the 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
$141.5 million for the year ended December 31, 2009, compared to $147.1
million for the same period in 2008, a decrease of $5.6 million, or 3.8%. The
decrease in station direct operating expenses, net of trade and selling, general
and administrative expenses, is primarily attributed to decreases in national
and local sales commissions resulting from lower national and local revenue and
a reduction in payroll-related costs due to regionalizing certain accounting and
traffic functions in 2009 offset in part by the acquisition of
WCWJ.
Amortization
of broadcast rights, excluding barter, was $13.2 million for the year ended
December 31, 2009, compared to $8.7 million for the same period in 2008, an
increase of $4.5 million, or 52.0%. The increase was primarily due to
the addition of stations WCWJ and KARZ, which included combined write-downs of
$2.4 million.
Amortization
of intangible assets was $23.7 million for the year ended December 31,
2009, compared to $28.1 million for the same period in 2008, a decrease of $4.4
million, or 15.7%. The decrease was primarily related to the write-off of an
affiliation agreement in 2008 due to one of our stations changing network
affiliations in January of 2009 and also reductions in carrying values of
certain network affiliation agreements that were impaired in the second half of
2008.
Depreciation
of property and equipment was $21.7 million for the year ended December 31,
2009, compared to $21.0 million for the same period in 2008, an increase of $0.7
million, or 3.1%.
For the
years ended December 31, 2009 and 2008, we recognized a non-cash gain of
$8.1 million and $4.8 million, respectively from the exchange of equipment under
an arrangement with Sprint Nextel Corporation. The increase in this
gain was due to the higher number of stations completing spectrum conversions in
2009 compared to 2008.
34
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 2009
related to these benefits.
In 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 2008 in
the amount of $7.2 million related to a different group of
stations.
The net
gain on asset disposal of $2.6 million included gains of $2.3 million and $1.0
million related to the KSNF and KBTV casualty losses, respectively.
We
recorded an impairment charge of $16.2 million during 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 2008, we recorded total impairment charges of $82.4
million that included an impairment to the carrying values of FCC licenses of
$41.4 million, related to 22 of our television stations; an impairment to the
carrying value of network affiliation agreements of $2.1 million, related to
three of our television stations; and an impairment to the carrying values of
goodwill of $38.9 million, related to 10 reporting units consisting of 11 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. See Note 8 in the
Notes to Consolidated Financial Statements in Item 8 of this
document.
Income
from Operations
Income
from operations was $8.2 million for the year ended December 31, 2009,
compared to a loss of $38.2 million for the same period in 2008, an increase of
$46.4 million, or 121.5%. The increase was primarily the result of reductions
in: 1) impairment charges, 2) direct operating expenses, 3) amortization of
intangible assets and 4) non-cash contract termination fees, combined with
increases in gains recognized on asset exchanges and disposals, partially offset
by the decrease in net revenue and increases in corporate expenses and the
amortization of broadcast rights.
Interest
Expense
Interest
expense, including amortization of debt financing costs, was $39.2 million for
the year ended December 31, 2009, compared to $48.8 million for the same
period in 2008, a decrease of $9.6 million, or 19.7%. The decrease in interest
expense was primarily attributed to lower average interest rates for most of
2009 compared to 2008 combined with the $27.8 million reduction in the
outstanding 11.375% notes period-over-period. These decreases were
partially offset by the increase in the amount outstanding under the revolving
credit facility in 2009.
Gain
on Extinguishment of Debt
In 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 year ended December 31, 2009. On October 16,
2008, Nexstar purchased $5 million (face value) of the Company’s outstanding 7%
Notes. The cash paid was approximately $3.1 million which included approximately
$0.1 million of accrued interest. On October 28, 2008, Nexstar purchased
$2.5 million (face value) of the 7% Notes for approximately $1.5 million, which
included approximately $0.1 million of accrued interest. As a result of these
two transactions, Nexstar recognized a combined gain of $2.9 million in 2008.
This amount is net of a $0.1 million pro-rata write-off of debt financing costs
associated with the 7% Notes.
Income
Taxes
Income
tax expense was $0.2 million for the year ended December 31, 2009, compared
to a benefit of $5.3 million for the same period in 2008, an increase in expense
of $5.5 million. The increase was primarily due to the tax benefit recognized as
a result of the $80.3 million impairment charge in 2008 compared to the $16.2
million impairment charge in 2009 on indefinite-lived assets. Our provision for
income taxes is primarily created by an increase 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.
35
Year
Ended December 31, 2008 Compared to Year Ended December 31,
2007.
Revenue
Gross
local advertising revenue was $171.6 million for the year ended
December 31, 2008, compared to $175.5 million for the same period in 2007,
a decrease of $3.9 million, or 2.3%. Gross national advertising revenue was
$66.1 million for the year ended December 31, 2008, compared to $74.3
million for the same period in 2007, a decrease of $8.2 million, or 11.0%. The
combined net decrease in gross local and national advertising revenue of $12.1
million was primarily the result of a decrease in automotive related
advertising, our largest advertising category.
Gross
political advertising revenue was $32.9 million for the year ended
December 31, 2008, compared to $4.3 million for the same period in 2007, an
increase of $28.6 million, or 663.4%. The increase in gross political revenue
was attributed to presidential, statewide and/or local races (primarily in
Pennsylvania, Indiana, Alabama, Missouri and Montana) that occurred during the
year ended December 31, 2008 as compared to nominal political advertising
during the year ended December 31, 2007.
Retransmission
compensation was $14.4 million for the year ended December 31, 2008,
compared to $11.8 million for the same period in 2007, an increase of $2.6
million, or 22.0%. The increase in retransmission compensation was primarily the
result of (1) additional subscriber base for certain content distributors
in 2008 compared to 2007, (2) annual rate increases in 2008 for certain
retransmission consent agreements, (3) the addition of new markets under
retransmission consent agreements in 2008 and (4) renewal of various
multi-year contracts at higher rates with certain distributors.
eMedia
revenue, representing revenue generated from non-television web-based
advertising, was $10.2 million for the year ended December 31, 2008,
compared to $5.1 million for the year ended December 31, 2007. The increase
in new media revenue was a result of having all of our markets complete
implementation of this digital media platform initiative for all of 2008 as
compared to 2007, in which complete implementation did not take place until June
2007. Also contributing to the increase is the introduction of additional
products in this area.
Operating
Expenses
Corporate
expenses, related to costs associated with the centralized management of
Nexstar’s and Mission’s stations, were $15.5 million for the year ended
December 31, 2008, compared to $13.3 million for the year ended
December 31, 2007, an increase of $2.2 million, or 15.9%. The increase
during the year ended December 31, 2008 was primarily attributed to an
increase in legal and professional fees of $2.4 million.
Station
direct operating expenses, consisting primarily of news, engineering and
programming, net of trade, and selling, general and administrative expenses were
$147.1 million for the year ended December 31, 2008, compared to $141.5
million for the same period in 2007, an increase of $5.6 million, or 3.9%. The
increase in station direct operating expenses, net of trade and selling, general
and administrative expense, is primarily attributed to (1) the addition of
KTVE in 2008 and (2) payroll-related costs and commissions related to the
growth in eMedia revenue. These increases were partially offset by a reduction
in employee incentives.
Amortization
of broadcast rights, excluding barter, was $8.7 million for the year ended
December 31, 2008, compared to $9.1 million for the same period in 2007, a
decrease of $0.4 million, or 3.7%.
Amortization
of intangible assets was $28.1 million for the year ended December 31,
2008, compared to $25.7 million for the same period in 2007, an increase of $2.4
million, or 9.6%. The increase was primarily related to the acceleration of
amortization of our NBC Network affiliation agreement at KBTV due to the station
becoming a Fox affiliated station effective January 1, 2009.
Depreciation
of property and equipment was $21.0 million for the year ended December 31,
2008, compared to $20.2 million for the same period in 2007, an increase of $0.8
million, or 4.0%. The increase in depreciation was due to a corresponding
increase in property and equipment, including Mission’s acquisition of
KTVE.
For the
year ended December 31, 2008, we recognized a non-cash gain of $4.8 million
from the exchange of equipment under an arrangement we first transacted with
Sprint Nextel Corporation during the second quarter of 2007.
We
recognized a $7.2 million non-cash charge related to the termination of the
national sales representation contract.
We
recorded an impairment charge of $82.4 million during the year ended
December 31, 2008 that included an impairment to the carrying values of FCC
licenses of $41.4 million, related to 22 of our television stations; an
impairment to the carrying value of network affiliation agreements of $2.1
million, related to 3 of our television stations; and an impairment to the
carrying values of goodwill of $38.9 million, related to 10 reporting units
consisting of 11 of our television stations. See Note 8 in the Notes to
Consolidated Financial Statements in Item 8 of this document.
36
Income
from Operations
Loss from
operations was $38.2 million for the year ended December 31, 2008, compared
to income of $40.5 million for the same period in 2007, a decrease of $78.7
million, or 194.3%. The decrease was primarily the result of impairment charges
as required by authoritative guidance for goodwill and other intangible assets
partially offset by increases in net revenue.
Interest
Expense
Interest
expense, including amortization of debt financing costs, was $48.8 million for
the year ended December 31, 2008, compared to $55.0 million for the same
period in 2007, a decrease of $6.2 million, or 11.3%. The decrease in interest
expense was primarily attributed to lower average interest rates during the year
ended December 31, 2008 compared to the same period in 2007 combined with
the $46.9 million principal payment on our 11.375% senior discounted Notes on
April 1, 2008, a $5.3 million dollar repurchase of the 11.375% Notes in
September 2008 and a repurchase of $7.5 million of the 7% Notes in October
2008.
Gain
on Extinguishment of Debt
On
October 16, 2008, Nexstar purchased $5 million (face value) of the
Company’s outstanding 7% Notes. The cash paid was approximately $3.1 million
which included approximately $0.1 million of accrued interest. On
October 28, 2008, Nexstar purchased $2.5 million (face value) of the 7%
Notes for approximately $1.5 million, which included approximately $0.1 million
of accrued interest. As a result of these two transactions, Nexstar recognized a
combined gain of $2.9 million. This amount is net of a $0.1 million pro-rata
write-off of debt financing costs associated with the 7% Notes.
Income
Taxes
Income
tax benefit was $5.3 million for the year ended December 31, 2008, compared
to income tax expense of $5.8 million for the same period in 2007, a decrease of
$11.1 million. The decrease was primarily due to the tax benefit recognized as a
result of the impairment charge on indefinite-lived assets. Our provision for
income taxes is primarily created by an increase 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 2008 and 2007, 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.
37
Overview
The
following tables present summarized financial information management believes is
helpful in evaluating the Company’s liquidity and capital
resources:
Year Ended
December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
(in
thousands)
|
||||||||||||
Net
cash provided by operating activities
|
$ | 22,993 | $ | 60,648 | $ | 36,987 | ||||||
Net
cash used for investing activities
|
(35,590 | ) | (38,492 | ) | (18,608 | ) | ||||||
Net
cash provided by (used for) financing activities
|
9,515 | (22,548 | ) | (13,332 | ) | |||||||
Net
increase (decrease) in cash and cash equivalents
|
$ | (3,082 | ) | $ | (392 | ) | $ | 5,047 | ||||
Cash
paid for interest
|
$ | 29,215 | $ | 39,036 | $ | 40,575 | ||||||
Cash
paid for income taxes, net
|
$ | 523 | $ | 178 | $ | 51 |
December 31,
|
||||||||
2009
|
2008
|
|||||||
(in
thousands)
|
||||||||
Cash
and cash equivalents
|
$ | 12,752 | $ | 15,834 | ||||
Long-term
debt including current portion
|
$ | 670,374 | $ | 662,117 | ||||
Unused
commitments under senior secured credit facilities(1)
|
$ | 20,500 | $ | 66,500 |
(1)
|
Based
on covenant calculations, as of December 31, 2009, $20.5 million of
total unused revolving loan commitments under the Nexstar and Mission
credit facilities were available for
borrowing.
|
Cash
Flows—Operating Activities
The
comparative net cash flows provided by operating activities decreased by $37.7
million during the year ended December 31, 2009 compared to the same period
in 2008. The decrease was primarily due to our overall decrease in net revenue
of $32.9 million combined with a decrease of $12.7 million resulting from the
timing of collections of accounts receivable, partially offset by the decrease
in cash paid for interest of $9.8 million.
Cash paid
for interest decreased by $9.8 million during the year ended December 31,
2009 compared to the same period in 2008. The decrease was due to a decrease in
cash payments of interest on our and Mission’s bank debt combined with the
reduction in our 11.375% notes outstanding. Cash payments of interest on our and
Mission’s senior credit facilities were $11.5 million for the year ended
December 31, 2009, compared to $19.9 million for the year ended
December 31, 2008, a decrease of $8.4 million. The decrease was due to
lower average interest rates in 2009 compared to 2008, partially offset by the
increase in net borrowings under the revolving credit facility.
The
comparative net cash flows provided by operating activities increased by $23.7
million during the year ended December 31, 2008 compared to the same period in
2007. The increase was primarily due to (1) our increase in net revenue of
$18.1 million, partially offset by an increase in direct operating and general
and administrative expenses of $7.8 million, (2) an increase of $10.2
million resulting from the timing of collections for accounts receivable and
(3) an increase of $2.3 million related to timing of interest payments on
the 11.375% senior discount notes.
Cash paid
for interest decreased by $1.5 million during the year ended December 31,
2008 compared to the same period in 2007. The decrease was due to a decrease in
cash payments of interest on our and Mission’s bank debt. Cash payments of
interest on our and Mission’s senior credit facilities were $19.9 million for
the year ended December 31, 2008, compared to $26.6 million for the year
ended December 31, 2007, a decrease of $6.7 million. The decrease was due to
lower average interest rates incurred during the year ended December 31, 2008
compared to the same period in 2007 and a lower level of average debt
outstanding in 2008 on the respective credit facilities. The decrease in cash
interest paid on bank debt was partially offset by an increase in cash interest
paid on the 11.375% senior discount notes, which required cash payments
beginning in April 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.
38
Cash
Flows—Investing Activities
The
comparative net cash used for investing activities decreased by $2.9 million
during the year ended December 31, 2009 compared to the same period in
2008. The decrease was primarily due to decreases in purchases of property and
equipment and the insurance proceeds for KBTV and KSNF, partially offset by the
increase in acquisition-related payments.
The
comparative net cash used for investing activities increased by $19.9 million
during the year ended December 31, 2008 compared to the same period in
2007. The increase was primarily due to increases in purchases of property and
equipment and in acquisition-related payments.
Capital
expenditures were $19.0 million for the year ended December 31, 2009,
compared to $30.8 million for the year ended December 31, 2008. The
decrease was primarily attributable to more digital conversions occurring in
2008.
Capital
expenditures were $30.8 million for the year ended December 31, 2008,
compared to $18.5 million for the year ended December 31, 2007. The
increase was primarily attributable to digital conversion expenditures, which
were $23.3 million for the year ended December 31, 2008 compared to $8.6
million for the same period in 2007.
Cash used
for station acquisitions was $20.8 million for the year ended December 31,
2009, $8.3 million for the year ended December 31, 2008 and $0.4 million
for the year ended December 31, 2007.
Acquisition-related
payments for the year ended December 31, 2009 included $17.2 million
related to the acquisition of WCWJ and $3.6 million for the remaining payment on
KARZ.
Acquisition-related
payments for the year ended December 31, 2008 included $7.9 million related
to Mission’s acquisition of KTVE and $0.4 million for the down-payment on KARZ.
The $0.4 million of acquisition-related payments in 2007 were for the down
payment on the KTVE acquisition.
Cash
Flows—Financing Activities
The
comparative net cash from financing activities increased by $32.1 million during
the year ended December 31, 2009 compared to the same period in 2008,
primarily due to an increase in net borrowings under the revolving credit
facility of $43.0 million combined with a reduction in net payments on our
outstanding notes of $11.1 million, partially offset by consideration of $17.7
million paid to bondholders in the exchange of the 7% senior subordinated notes
and an increase in payments for debt finance costs of $5.1 million.
The
comparative net cash used for financing activities increased by $9.2 million
during the year ended December 31, 2008 compared to the same period in
2007, primarily due to the repayment of $56.8 million of senior subordinated
debt, partially offset by proceeds from the June 27, 2008 issuance of
senior subordinated payment in kind (PIK) notes of $35 million and also $13.0
million less in net payments on the revolving credit facility.
During 2009, 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.
On
April 1, 2008, Nexstar redeemed $46.9 million of its outstanding 11.375%
senior discount notes to ensure they are not “Applicable High Yield Discount
Obligations” within the meaning of Section 163(i)(1) of the Internal
Revenue Code of 1986. In September 2008, the Company repurchased $5.3 million of
the 11.375% notes at par as required by the terms of the senior subordinated PIK
notes purchase agreement. In October 2008, Nexstar voluntarily repurchased $7.5
million of the outstanding 7% senior subordinated notes for approximately $4.6
million.
During
the year ended December 31, 2009, there were $3.5 million of scheduled term
loan maturities, $8.0 million of revolving loan repayments and $54.0 million of
revolving loan borrowings under our and Mission’s senior secured credit
facilities.
During
the year ended December 31, 2008, there were $3.5 million of scheduled term
loan maturities, $50.0 million of revolving loan repayments and $53.0 million of
revolving loan borrowings under our and Mission’s senior secured credit
facilities.
During
the year ended December 31, 2007, there were $3.5 million of scheduled term
loan maturities, $18.0 million of revolving loan repayments and $8.0 million of
revolving loan borrowings under our and Mission’s senior secured credit
facilities.
Although
the Nexstar and Mission senior credit facilities now 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
December 31, 2009, Nexstar and Mission had total combined debt of $670.4
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
will reduce the funds available for working capital, capital expenditures,
acquisitions and other general corporate purposes.
39
The
following table summarizes the approximate aggregate amount of principal
indebtedness (undiscounted) scheduled to mature for the periods referenced as of
December 31, 2009:
Total
|
2010
|
2011-2012
|
2013-2014 |
Thereafter
|
||||||||||||||||
(in
thousands)
|
||||||||||||||||||||
Nexstar
senior credit facility
|
$ | 226,329 | $ | 5,358 | $ | 220,971 | $ | — | $ | — | ||||||||||
Mission
senior credit facility
|
172,360 | 1,727 | 170,633 | — | — | |||||||||||||||
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 | — | |||||||||||||||
$ | 682,808 | $ | 7,085 | $ | 391,604 | $ | 284,119 | $ | — |
We make
semiannual interest payments on our 7% Notes on January 15th and
July 15th of
each year. We make semiannual interest payments on our 11.375% Notes
April 1st and
October 1st of
each year. Our senior subordinated PIK notes due 2014 will begin paying cash
interest in July 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 of 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 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
December 31, 2009, we were in compliance with all covenants contained in
the credit agreements governing our senior secured credit facility and the
indentures governing the publicly-held notes.
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, 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 October 8, 2009 debt amendment contained a
limited waiver for the leverage ratios which cured the violation as of September
30, 2009. The following table compares the old and new covenant
requirements.
40
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.
In
conjunction with the amendment to our credit agreement and the related
collateralization of company-owned real estate, $1.7 million related to
professional and legal fees were recognized as administrative expense as
incurred. Additionally, Nexstar and Mission paid $5.4 million in bank
fees related to the debt amendment, which were capitalized and are being
amortized over the remaining term of the credit facility.
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.
We
believe the consummation of the debt amendment 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 December 31,
2009.
41
Cash
Expenditures 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.
As of December 31, 2009, all of Nexstar’s and Mission’s stations have completed
the transition to digital operations; however, Nexstar is working with the FCC
with respect to KMID’s authorization.
DTV
conversion expenditures were $8.4 million, $23.3 million and $8.6 million,
respectively, for the years ended December 31, 2009, 2008 and
2007.
No
Off-Balance Sheet Arrangements
At
December 31, 2009, 2008 and 2007, 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.
Contractual
Obligations
The
following summarizes Nexstar’s and Mission’s contractual obligations at
December 31, 2009, and the effect such obligations are expected to have on
the Company’s liquidity and cash flow in future periods:
Total
|
2010
|
2011-2012 | 2013-2014 |
Thereafter
|
||||||||||||||||
(dollars
in thousands)
|
||||||||||||||||||||
Nexstar
senior credit facility
|
$ | 226,329 | $ | 5,358 | $ | 220,971 | $ | — | $ | — | ||||||||||
Mission
senior credit facility
|
172,360 | 1,727 | 170,633 | — | — | |||||||||||||||
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 | — | |||||||||||||||
Cash
interest on debt
|
143,358 | 32,315 | 78,501 | 32,542 | — | |||||||||||||||
Broadcast
rights current cash commitments (1)
|
14,415 | 8,126 | 4,956 | 1,333 | — | |||||||||||||||
Broadcast
rights future cash commitments
|
9,374 | 1,875 | 6,776 | 682 | 41 | |||||||||||||||
Executive
employee contracts(2)
|
22,568 | 7,681 | 11,500 | 3,387 | — | |||||||||||||||
Operating
lease obligations
|
61,082 | 4,606 | 9,107 | 8,726 | 38,643 | |||||||||||||||
Total
contractual cash obligations
|
$ | 933,605 | $ | 61,688 | $ | 502,444 | $ | 330,789 | $ | 38,684 |
(1)
|
Excludes
broadcast rights barter payable commitments recorded on the financial
statements at December 31, 2009 in the amount of $14.4
million.
|
(2)
|
Includes
the employment contracts for all corporate executive employees and general
managers of our stations.
|
As
discussed in Note 18, “Income Taxes” of the Notes to the Consolidated Financial
Statements, we adopted interpretive guidance related to accounting for
uncertainty in income taxes as of January 1, 2007. At December 31,
2009, we had $3.7 million of unrecognized tax benefits. This liability
represents an estimate of tax positions that the corporation has taken in its
tax returns which may ultimately not be sustained upon examination by the tax
authorities. The resolution of these tax positions may not require cash
settlement due to the existence of net operating loss
carryforwards.
Critical
Accounting Policies and Estimates
Our
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 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.
For an
overview of our significant accounting policies, we refer you to Note 2 of our
consolidated financial statements in Part IV, Item 15(a) of this Annual
Report on Form 10-K. We believe the following critical accounting policies are
those that are the most important to the presentation of our consolidated
financial statements, affect our more significant estimates and assumptions, and
require the most subjective or complex judgments by management.
42
Consolidation
of Mission and Variable Interest Entities
Our
consolidated financial statements include the accounts of independently-owned
Mission and certain other entities when it has been determined that the Company
is the primary beneficiary of a variable interest entity (“VIE”). Under U.S.
GAAP, a company must consolidate an entity when it has a “controlling financial
interest” resulting from ownership of a majority of the entity’s voting rights.
Accounting rules expand the definition of controlling financial interest to
include factors other than equity ownership and voting rights.
In
applying accounting and disclosure requirements, we must base our decision to
consolidate an entity on quantitative and qualitative factors that indicate
whether or not we are absorbing a majority of the entity’s economic risks or
receiving a majority of the entity’s economic rewards. Our evaluation of the
“risks and rewards” model must be an ongoing process and may alter as facts and
circumstances change.
Mission
is included in our consolidated financial statements because we believe we have
a controlling financial interest in Mission as a result of local service
agreements we have with each of Mission’s stations, our guarantee of the
obligations incurred under Mission’s senior credit facility and purchase options
(which expire on various dates between 2011 and 2018) granted by Mission’s sole
shareholder which will permit us to acquire the assets and assume the
liabilities of each Mission station, subject to FCC consent. We expect these
option agreements to be renewed upon expiration.
In
addition, generally in connection with acquisitions, the Company enters into
time brokerage agreements (“TBA”) and begins programming and selling advertising
for a station before receiving FCC consent to the transfer of the station’s
ownership and broadcast license. We include a station programmed under a TBA in
our consolidated financial statements because we believe that we have a
controlling financial interest in the station as a result of the Company
assuming the credit risk of advertising revenue it sells on the station, its
obligation to pay for substantially all the station’s reasonable operating
expenses, as required under the TBA agreement, and in connection with our entry
into a purchase agreement, that the sale of the station and transfer of the
station’s broadcast license will occur within a reasonable period of
time.
Valuation
of Goodwill and Intangible Assets
Approximately
$362.8 million, or 58.5%, of our total assets as of December 31, 2009
consisted of intangible assets. Intangible assets principally include FCC
licenses, goodwill and network affiliation agreements. If the fair value of
these assets is less than the carrying value, we may be required to record an
impairment charge.
As
required by authoritative guidance, we test the impairment of our FCC licenses
annually or whenever events or changes in circumstances indicate that such
assets might be impaired. The impairment test consists of a comparison of the
fair value of FCC licenses with their carrying amount on a station-by-station
basis using a discounted cash flow valuation method, assuming a hypothetical
startup scenario.
Also as
required by authoritative guidance, we test the impairment of our goodwill
annually or whenever events or changes in circumstances indicate that goodwill
might be impaired. The first step of the goodwill impairment test compares the
fair value of the market (“reporting unit”) to its carrying amount, including
goodwill. We aggregate our stations by market for purposes of our
goodwill and license impairment testing and we believe that our markets are most
representative of our broadcast reporting units because we view, manage and
evaluate our stations on a market basis. The fair value of a
reporting unit is determined through the use of a discounted cash flow analysis.
The valuation assumptions used in the discounted cash flow model reflect
historical performance of the reporting unit and the prevailing values in the
markets for broadcasting properties. 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 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 the
first step described above) 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 but not more than the carrying value of
goodwill.
In
accordance with authoritative guidance for accounting for the impairment or
disposal of long-lived assets, the Company tests network affiliation agreements
whenever events or circumstances indicate that their carrying amount may not be
recoverable, relying on a number of factors including operating results,
business plans, economic projections and anticipated future cash flows. An
impairment in the carrying amount of a network affiliation agreement is
recognized when the expected future operating cash flow derived from the
operations to which the asset relates is less than its carrying
value.
43
We tested
our network affiliation, FCC licenses and goodwill for impairment as of
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 and network affiliation agreements might be impaired.
These events included the overall economic recession and the continued decline
in advertising revenues at some of our television stations. We recorded an
impairment charge of $16.2 million as a result of that test which 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.
We
completed our annual test for impairment of goodwill and FCC licenses as of
December 31, 2009 which resulted in no additional impairment
charge. The Company has four reporting units with a carrying value of
goodwill in the amount of $23.3 million that could be potentially at risk for
impairment. Our annual test for impairment indicated that the fair
value exceeded the carrying value of these reporting units by 20%.
We tested
our network affiliation, FCC licenses and goodwill for impairment as of
September 30, 2008, 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 and network affiliation agreements might be impaired.
These events included the decline in overall economic conditions and the
resulting decline in advertising revenues at some of our television stations. We
recorded an impairment charge of $48.5 million as a result of that test which
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 3 of our television
stations; and an impairment to the carrying values of goodwill of $27.8 million,
related to 5 reporting units consisting of 6 of our television
stations.
We
performed our annual test for impairment at December 31, 2008 and due to
the continued decline in overall economic conditions during the fourth quarter
of 2008 and the further decline in our forecasts for advertising revenues at
some stations, the Company recorded an additional $33.9 million in impairment
charges, for an annual total of $82.4 million. Of the additional $33.9 million
impairment charges, $21.7 million was for FCC licenses, related to 21 of our
television stations, $1.1 million was for network affiliation agreements related
to 2 television stations, and $11.1 million was for goodwill, related to 8
reporting units consisting of 10 of our television stations.
Further
deterioration in the advertising marketplaces in which Nexstar and Mission
operate could lead to further 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.
The
tables below illustrate how assumptions used in the fair value calculations
varied from period to period in 2009 and 2008. The increase in the discount rate
between third and fourth quarter 2008 reflects the volatility of stock prices of
public companies within the media sector along with the increase in the
corporate borrowing rate. The changes in the market growth rates and operating
profit margins reflect the general economic pressures impacting both the
national and a number of local economies, and specifically, national and local
advertising expenditures in the markets where our stations operate.
The
assumptions used in the valuation testing have certain subjective components
including anticipated future operating results and cash flows based on our own
internal business plans as well as future expectations about general economic
and local market conditions.
We based
the valuation of FCC licenses on the following basic assumptions:
September 30, 2009
|
December 31, 2008
|
September 30, 2008
|
|
Market
growth rates
|
0.0% to 8.5%
|
2.0% to 2.8%
|
2.0% to 2.8%
|
Operating
profit margins
|
11.5% to 33.7%
|
11.9% to 33.7%
|
12.1% to 34.1%
|
Discount
rate
|
10.5%
|
10.8%
|
9.5%
|
Tax
rate
|
35.2% to 40.6%
|
34.0% to 40.6%
|
34.0% to 40.6%
|
Capitalization
rate
|
7.5% to 8.5%
|
8.0% to 8.8%
|
6.8% to 7.5%
|
We based
the valuation of network affiliation agreements on the following basic
assumptions:
September 30, 2009
|
December 31, 2008
|
September 30, 2008
|
|
Market
growth rates
|
0.0% to 4.0%
|
2.0% to 2.8%
|
2.0% to 2.8%
|
Operating
profit margins
|
20.0% to 34.7%
|
20.0% to 42.1%
|
14.3% to 42.6%
|
Discount
rate
|
10.5%
|
10.8%
|
9.5%
|
Tax
rate
|
35.2% to 40.6%
|
34.0% to 40.6%
|
34.0% to 40.6%
|
Capitalization
rate
|
7.8% to 8.5%
|
8.0% to 8.8%
|
6.8% to 7.5%
|
44
We based
the valuation of goodwill on the following basic assumptions:
September 30, 2009
|
December 31, 2008
|
September 30, 2008
|
|
Market
growth rates
|
0.0% to 8.5%
|
2.0% to 2.8%
|
2.0% to 2.8%
|
Operating
profit margins
|
20.0% to 42.8%
|
20.0% to 42.1%
|
20.0% to 42.6%
|
Discount
rate
|
10.5%
|
10.8%
|
9.5%
|
Tax
rate
|
35.2% to 40.6%
|
34.0% to 40.6%
|
34.0% to 40.6%
|
Capitalization
rate
|
7.5% to 8.5%
|
8.0% to 8.8%
|
6.8% to 7.5%
|
The
assumptions utilized for our annual impairment assessment for FCC licenses and
goodwill as of December 31, 2009 were consistent with those utilized at
September 30, 2009.
Allowance
for Doubtful Accounts
We
maintain allowances for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. We evaluate the
collectability of our accounts receivable based on a combination of factors. In
circumstances where we are aware of a specific customer’s inability to meet its
financial obligations, we record a specific reserve to reduce the amounts
recorded to what we believe will be collected. If the financial condition of our
customers were to deteriorate, resulting in their inability to make payments,
additional allowances may be required. Allowance for doubtful accounts was $0.8
million at both December 31, 2009 and 2008.
Broadcast
Rights Carrying Amount
Broadcast
rights are stated at the lower of unamortized cost or net realizable value. Cash
broadcast rights are initially recorded at the amount paid or payable to program
distributors for the limited right to broadcast the distributors programming.
Barter broadcast rights are recorded at our estimate of the fair value of the
advertising time exchanged, which approximates the fair value of the programming
received. The fair value of the advertising time exchanged is estimated by
applying average historical rates for specific time periods. Amortization of
broadcast rights is computed using the straight-line method based on the license
period or programming usage, whichever period yields the shorter life. The
current portion of broadcast rights represents those rights available for
broadcast which will be amortized in the succeeding year. 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 poor ratings, we write-down
the unamortized cost of the broadcast rights to equal the amount of projected
future net revenue. If the expected broadcast period was shortened or cancelled
we would be required to write-off the remaining value of the related broadcast
rights to operations on an accelerated basis or possibly immediately. As of
December 31, 2009, the amounts of current broadcast rights and non-current
broadcast rights were $15.4 million and $10.7 million,
respectively.
Trade
and Barter Transactions
We trade
certain advertising time for various goods and services. These transactions are
recorded at the estimated fair value of the goods or services received. We
barter advertising time for certain program material. These transactions, except
those involving exchange of advertising time for network programming, are
recorded at management’s estimate of the fair value of the advertising time
exchanged, which approximates the fair value of the program material received.
The fair value of advertising time exchanged is estimated by applying average
historical advertising rates for specific time periods. We recorded barter
revenue of $12.0 million, $11.7 million and $12.4 million for the years ended
December 31, 2009, 2008 and 2007, respectively. Trade revenue of $7.4
million, $6.6 million and $7.0 million was recorded for the years ended
December 31, 2009, 2008 and 2007, respectively. We incurred trade and
barter expense of $18.7 million, $17.9 million and $18.4 million for the years
ended December 31, 2009, 2008 and 2007, respectively.
Income
Taxes
We
account for income taxes under the asset and liability method which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and tax basis
of assets and liabilities. A valuation allowance is applied against net deferred
tax assets if, based on the weight of available evidence, it is more likely than
not that some or all of the deferred tax assets will not be realized. While we
have considered future taxable income and feasible tax planning strategies in
assessing the need for a valuation allowance, in the event that we were to
determine that we would not be able to realize all or part of our deferred tax
assets in the future, an adjustment to the valuation allowance would be charged
to income in the period such a determination was made.
45
On
January 1, 2007, we adopted interpretive guidance related to income taxes,
which addresses the determination of whether tax benefits claimed or expected to
be claimed on a tax return should be recorded in the financial statements. Under
this guidance, we may recognize the tax benefit from an uncertain tax position
only if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities. The determination is based on the
technical merits of the position and presumes that each uncertain tax position
will be examined by the relevant taxing authority that has full knowledge of all
relevant information. For interest and penalties relating to income taxes we
recognize these items as components of income tax expense.
Stock
Option Expense Recognition
Effective
January 1, 2006, we adopted authoritative guidance related to share-based
payment, which requires all share-based payments to employees, including grants
of employee stock options, to be recognized in the financial statements based on
their fair value. We recognize the expense related to our stock options over the
period that the employee is required to provide services, and only to the extent
the awards vest. Therefore, we apply an estimated forfeiture rate assumption to
adjust compensation cost for the effect of those employees that are not expected
to complete the requisite service period and will forfeit nonvested options. We
base the forfeiture rate assumption on Nexstar’s historical experience of award
forfeitures, and as necessary, adjusted for certain events that are not expected
to recur during the expected term of the option.
We
determine the fair value of employee stock options at the date of grant using
the Black-Scholes option pricing model. Our valuation of employee stock options
relies on assumptions of factors we are required to input into the Black-Scholes
model. These assumptions are highly subjective and involve an estimate of future
uncertain events. The option pricing model requires us to input factors for
expected stock price volatility and the expected term until exercise of the
option award. Due to our limited history of publicly traded shares, we combine
our historical stock price data and volatilities of peer companies in the
television broadcasting industry when determining expected volatility. Based on
a lack of historical option exercise experience, we use the weighted-average of
the holding periods for all options granted to determine the expected term
assumption. Utilizing historical exercise and post-vesting cancellation
experience of Nexstar’s stock option awards, the expected term is the average
interval between the grant and exercise or post-vesting cancellation
dates.
Claims
and Loss Contingencies
In the
normal course of business, we are party to various claims and legal proceedings.
We record a liability for these matters when an adverse outcome is probable and
the amount of loss is reasonably estimated. We consider a combination of factors
when estimating probable losses, including judgments about potential actions by
counterparties.
Nonmonetary
Asset Exchanges
In
connection with a spectrum allocation exchange ordered by the FCC within the 1.9
GHz band, Sprint Nextel Corporation (“Nextel”) is required to replace certain
existing analog equipment with comparable digital equipment. The Company has
agreed to accept the substitute equipment that Nextel will provide and in turn
must relinquish its existing 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
accounting and disclosure requirements for exchanges of nonmonetary
assets.
These
transactions are recorded at the estimated fair market value of the equipment
received. We derive our estimate of fair market value from the most recent
prices paid to manufacturers and vendors for the specific equipment we acquire.
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.
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 was 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.
46
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. This standard became effective for our
second quarter ended June 30, 2009.
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.
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.
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.
47
Item 7A. 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.
All term
loan borrowings at December 31, 2009 under the senior credit facilities
bear interest at 5.0%, which represented the base rate, or LIBOR, plus the
applicable margin, as defined. Revolving loan borrowings at December 31,
2009 under Nexstar’s senior credit facility bear interest at 5.0% and 6.25%,
which represented the base rate, or LIBOR, plus the applicable margin, as
defined. All revolving loan borrowings at December 31, 2009 under Mission’s
senior credit facility bear interest at 5.0%, 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
December 31, 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)
|
(in
thousands)
|
|||||||||||||||
Senior
credit facilities
|
$ | 3,987 | $ | 1,993 | $ | (1,993 | ) | $ | (3,987 | ) |
Our 7%
Notes, 7% PIK Notes, Senior Subordinated PIK Notes and 11.375% Notes are fixed
rate debt obligations and therefore do not result in a change in our cash flow
from operations. As of December 31, 2009, we have no financial instruments
in place to hedge against changes in the benchmark interest rates on this fixed
rate debt.
The fair
value of long-term fixed interest rate debt is also subject to interest rate
risk. Generally, the fair value of fixed interest rate debt will increase as
interest rates fall and decrease as interest rates rise. The estimated fair
value of the Company’s total long-term debt at December 31, 2009 was
approximately $583.9 million, which was approximately $86.5 million less than
its carrying value. Fair values are determined from quoted market prices where
available or based on estimates made by investment banking firms.
Given the
interest rates that were in effect at December 31, 2008, as of that date,
we estimated that our cash flows from operations would have increased by
approximately $3.6 million and $1.8 million, respectively, for a 100 BPS and 50
BPS interest rate decrease, and decreased by approximately $1.8 million and $3.6
million, respectively, for a 50 BPS and 100 BPS interest rate increase. The
estimated fair value of the Company’s total long-term debt at December 31,
2008 was approximately $442.5 million, which was approximately $219.6 million
less than its carrying value.
Impact
of Inflation
We
believe that our results of operations are not affected by moderate changes in
the inflation rate.
Item 8. Consolidated
Financial Statements and Supplementary Data
Our
Financial Statements are filed with this report. The Financial Statements and
Supplementary Data are included in Part IV, Item 15(a) of this Annual
Report on Form 10-K.
Item 9. Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
Item 9A. 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.
48
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.
Management’s
Report on Internal Control over Financial Reporting
Nexstar’s
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934. Nexstar’s internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles.
Management
assessed the effectiveness of Nexstar’s internal control over financial
reporting as of December 31, 2009 based upon the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated
Framework. Based on management’s assessment, we have concluded that, as
of December 31, 2009, Nexstar’s internal control over financial reporting
was effective based on those criteria.
This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management’s report
in this annual report.
Item 9B. Other
Information
None.
49
PART
III
Item 10. Directors,
Executive Officers and Corporate Governance
Information
concerning directors that is required by this Item 10 will be set forth in
the Proxy Statement to be provided to stockholders in connection with our 2010
Annual Meeting of Stockholders (the “Proxy Statement”) under the headings
“Directors and Nominees for Directors” and “Section 16(a) Beneficial Ownership
Reporting Compliance,” which information is incorporated herein by
reference.
Item 11. Executive
Compensation
Information
required by this Item 11 will be set forth in the Proxy Statement under the
headings “Compensation of Executive Officers” and “Director Compensation,” which
information is incorporated herein by reference. Information specified in Items
402(k) and 402(l) of Regulation S-K and set forth in the Proxy Statement is
incorporated by reference.
Item 12. Security
Ownership of Certain Beneficial Owners and Management, and Related Stockholder
Matters
Information
required by this Item 12 will be set forth in the Proxy Statement under the
headings “Security Ownership of Certain Beneficial Owners and Management,” and
“Compensation of Executive Officers,” which information is incorporated herein
by reference.
Item 13. Certain
Relationships and Related Transactions, and Director
Independence
Information
required by this Item 13 will be set forth in the Proxy Statement under the
heading “Certain Relationships and Related Transactions,” which information is
incorporated herein by reference.
Item 14. Principal
Accountant Fees and Services
Information required by this
Item 14 will be set forth in the Proxy Statement under the heading
“Ratification of the Selection of Independent Registered Public Accounting
Firm,” which information is incorporated herein by reference.
50
PART
IV
Item 15. Exhibits
and Financial Statement Schedules
(a)
Documents filed as part of this report:
(1) Financial
Statements. The following financial statements of Nexstar
Broadcasting Group, Inc. have been included on pages F-1 through F-47 of
this Annual Report on Form 10-K:
|
•
|
See
the Index to Consolidated Financial Statements on page F-1 for a list of
financial statements filed with this
report.
|
The
audited financial statements of Mission Broadcasting, Inc. as of
December 31, 2009 and 2008 and for each of the three years in the period
ended December 31, 2009 as filed in Mission Broadcasting, Inc.’s Annual
Report on Form 10-K are incorporated by reference in this report.
(2) Financial Statement
Schedules. The schedule of Valuation and Qualifying Accounts appears
in Note 25 to the financial statements filed as part of this
report.
(3) Exhibits. The
exhibits filed in response to Item 601 of Regulation S-K are listed in the
Exhibit Index beginning on page E-1 of this Annual Report on Form
10-K.
51
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.
|
||
By:
|
/s/PERRY A. SOOK
|
|
Perry A. Sook | ||
Its:
|
President
and Chief Executive Officer
|
|
By:
|
/s/THOMAS E. CARTER
|
|
Thomas E. Carter | ||
Chief
Financial Officer
|
Dated:
March 15, 2010
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the
capacities indicated on March 15, 2010.
Name
|
Title
|
|
/s/PERRY A. SOOK
|
President,
Chief Executive Officer and Director
|
|
Perry
A. Sook
|
(Principal Executive
Officer)
|
|
/s/THOMAS E. CARTER
|
Chief
Financial Officer
|
|
Thomas
E. Carter
|
(Principal Financial and
Accounting Officer)
|
|
/s/JAY M. GROSSMAN
|
Director
|
|
Jay
M. Grossman
|
||
/s/ROYCE YUDKOFF
|
Director
|
|
Royce
Yudkoff
|
||
/s/TOMER YOSEF-OR
|
Director
|
|
Tomer
Yosef-Or
|
||
/s/ERIK BROOKS
|
Director
|
|
Erik
Brooks
|
||
/s/BRENT STONE
|
Director
|
|
Brent
Stone
|
||
/s/GEOFF ARMSTRONG
|
Director
|
|
Geoff
Armstrong
|
||
/s/I. MARTIN POMPADUR
|
Director
|
|
I.
Martin Pompadur
|
||
/s/MICHAEL DONOVAN
|
Director
|
|
Michael
Donovan
|
||
/s/LISBETH MCNABB
|
Director
|
|
Lisbeth
McNabb
|
52
NEXSTAR
BROADCASTING GROUP, INC.
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Report
of Independent Registered Public Accounting Firm
|
F-2
|
Consolidated
Balance Sheets at December 31, 2009 and 2008
|
F-3
|
Consolidated
Statements of Operations for the years ended December 31, 2009, 2008
and 2007
|
F-4
|
Consolidated
Statements of Changes in Stockholders’ Deficit for the years ended
December 31, 2009, 2008 and 2007
|
F-5
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2009, 2008
and 2007
|
F-6
|
Notes
to Consolidated Financial Statements
|
F-7
|
F-1
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Shareholders of Nexstar Broadcasting Group,
Inc:
In our
opinion, the consolidated financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Nexstar
Broadcasting Group, Inc. and its subsidiaries at December 31, 2009 and 2008, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2009 in conformity with accounting principles
generally accepted in the United States of America. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
As
discussed in Note 2 to the financial statements, the Company changed the manner
in which it accounts for uncertain tax positions in 2007.
/s/
PricewaterhouseCoopers, LLP
Dallas,
Texas
March 15,
2010
F-2
NEXSTAR
BROADCASTING GROUP, INC.
CONSOLIDATED
BALANCE SHEETS
December 31,
2009 and 2008
(in
thousands, except share information)
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 12,752 | $ | 15,834 | ||||
Accounts
receivable, net of allowance for doubtful accounts of $844 and $832,
respectively.
|
62,860 | 53,190 | ||||||
Current
portion of broadcast rights
|
15,414 | 14,273 | ||||||
Prepaid
expenses and other current assets
|
1,845 | 1,562 | ||||||
Deferred
tax asset
|
15 | 15 | ||||||
Total
current assets
|
92,886 | 84,874 | ||||||
Property
and equipment, net
|
144,281 | 135,878 | ||||||
Broadcast
rights
|
10,701 | 9,289 | ||||||
Goodwill
|
109,059 | 115,632 | ||||||
FCC
licenses
|
127,487 | 125,057 | ||||||
Other
intangible assets, net
|
126,216 | 149,851 | ||||||
Other
noncurrent assets
|
8,605 | 5,400 | ||||||
Deferred
tax asset
|
591 | 606 | ||||||
Total
assets
|
$ | 619,826 | $ | 626,587 | ||||
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
||||||||
Current
liabilities:
|
||||||||
Current
portion of debt
|
$ | 7,085 | $ | 3,485 | ||||
Current
portion of broadcast rights payable
|
16,447 | 14,745 | ||||||
Accounts
payable
|
6,812 | 9,433 | ||||||
Accrued
expenses
|
12,189 | 12,484 | ||||||
Taxes
payable
|
363 | 512 | ||||||
Interest
payable
|
4,625 | 8,591 | ||||||
Deferred
revenue
|
7,424 | 7,167 | ||||||
Other
liabilities
|
1,066 | 1,066 | ||||||
Total
current liabilities
|
56,011 | 57,483 | ||||||
Debt
|
663,289 | 658,632 | ||||||
Broadcast
rights payable
|
12,469 | 10,953 | ||||||
Deferred
tax liabilities
|
38,433 | 38,664 | ||||||
Deferred
revenue
|
1,999 | 1,802 | ||||||
Deferred
gain on sale of assets
|
4,495 | 4,931 | ||||||
Deferred
representation fee incentive
|
5,583 | 6,003 | ||||||
Other
liabilities
|
13,810 | 13,275 | ||||||
Total
liabilities
|
796,089 | 791,743 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders’
deficit:
|
||||||||
Preferred
stock—$0.01 par value, authorized 200,000 shares; no shares issued and
outstanding at December 31, 2009 and 2008,
respectively
|
— | — | ||||||
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 December 31, 2009 and 2008,
respectively
|
150 | 150 | ||||||
Class
B Common—$0.01 par value, authorized 20,000,000 shares; issued and
outstanding 13,411,588 at both December 31, 2009 and 2008,
respectively
|
134 | 134 | ||||||
Class
C Common—$0.01 par value, authorized 5,000,000 shares; none issued and
outstanding at December 31, 2009 and 2008,
respectively
|
— | — | ||||||
Additional
paid-in capital
|
400,093 | 398,586 | ||||||
Accumulated
deficit
|
(576,640 | ) | (564,026 | ) | ||||
Total
stockholders’ deficit
|
(176,263 | ) | (165,156 | ) | ||||
Total
liabilities and stockholders’ deficit
|
$ | 619,826 | $ | 626,587 |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-3
NEXSTAR
BROADCASTING GROUP, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
the Years Ended December 31, 2009, 2008 and 2007
(in
thousands, except per share amounts)
2009
|
2008
|
2007
|
||||||||||
Net
revenue
|
$ | 251,979 | $ | 284,919 | $ | 266,801 | ||||||
Operating
expenses (income):
|
||||||||||||
Direct
operating expenses (exclusive of depreciation and amortization shown
separately below)
|
77,233 | 78,287 | 74,128 | |||||||||
Selling,
general, and administrative expenses (exclusive of depreciation and
amortization shown separately below)
|
89,525 | 90,468 | 86,773 | |||||||||
Restructure
charge
|
670 | — | — | |||||||||
Non-cash
contract termination fees
|
191 | 7,167 | — | |||||||||
Impairment
of goodwill
|
7,360 | 38,856 | — | |||||||||
Impairment
of other intangible assets
|
8,804 | 43,539 | — | |||||||||
Amortization
of broadcast rights
|
25,263 | 20,423 | 21,457 | |||||||||
Amortization
of intangible assets
|
23,705 | 28,129 | 25,671 | |||||||||
Depreciation
|
21,680 | 21,024 | 20,209 | |||||||||
Gain
on asset exchange
|
(8,093 | ) | (4,776 | ) | (1,962 | ) | ||||||
Gain
on asset disposal, net
|
(2,560 | ) | (43 | ) | (17 | ) | ||||||
Total
operating expenses
|
243,778 | 323,074 | 226,259 | |||||||||
Income
(loss) from operations
|
8,201 | (38,155 | ) | 40,542 | ||||||||
Interest
expense, including amortization of debt financing costs and debt
discounts
|
(39,236 | ) | (48,832 | ) | (55,040 | ) | ||||||
Gain
on extinguishment of debt
|
18,567 | 2,897 | — | |||||||||
Interest
and other income
|
54 | 715 | 532 | |||||||||
Loss
before income taxes
|
(12,414 | ) | (83,375 | ) | (13,966 | ) | ||||||
Income
tax (expense) benefit
|
(200 | ) | 5,316 | (5,807 | ) | |||||||
Net
loss
|
$ | (12,614 | ) | $ | (78,059 | ) | $ | (19,773 | ) | |||
Net
loss per common share:
|
||||||||||||
Basic
and diluted
|
$ | (0.44 | ) | $ | (2.75 | ) | $ | (0.70 | ) | |||
Weighted
average number of common shares outstanding:
|
||||||||||||
Basic
and diluted
|
28,427 | 28,423 | 28,401 |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-4
NEXSTAR
BROADCASTING GROUP, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
For
the Years Ended December 31, 2009, 2008 and 2007
(in
thousands, except share information)
Common
Stock
|
||||||||||||||||||||||||||||||||||||
Class
A
|
Class
B
|
Class
C
|
||||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Additional
Paid-In
Capital
|
Accumulated
Deficit
|
Total
Stockholders’
Equity
(Deficit)
|
||||||||||||||||||||||||||||
Balance
at January 1, 2007
|
14,316,810 | $ | 143 | 13,411,588 | $ | 134 | 662,529 | $ | 7 | $ | 394,120 | $ | (467,694 | ) | $ | (73,290 | ) | |||||||||||||||||||
Adjustment
for the cumulative effect of adopting interpretive guidance related to
income taxes
|
— | — | — | — | — | — | — | 1,500 | 1,500 | |||||||||||||||||||||||||||
Stock
based compensation expense
|
— | — | — | — | — | — | 2,009 | — | 2,009 | |||||||||||||||||||||||||||
Issuance
of common shares related to exercise of stock options
|
24,000 | — | — | — | — | — | 153 | — | 153 | |||||||||||||||||||||||||||
Issuance
of common shares related to restricted stock award
|
2,500 | — | — | — | — | — | 11 | — | 11 | |||||||||||||||||||||||||||
Exchange
of Class C common shares for Class A common shares
|
662,529 | 7 | — | — | (662,529 | ) | (7 | ) | — | — | — | |||||||||||||||||||||||||
Net
loss
|
— | — | — | — | — | — | — | (19,773 | ) | (19,773 | ) | |||||||||||||||||||||||||
Balance
at December 31, 2007
|
15,005,839 | 150 | 13,411,588 | 134 | — | — | 396,293 | (485,967 | ) | (89,390 | ) | |||||||||||||||||||||||||
Stock
based compensation expense
|
— | — | — | — | — | — | 2,255 | — | 2,255 | |||||||||||||||||||||||||||
Issuance
of common shares related to exercise of stock options
|
8,000 | — | — | — | — | — | 38 | — | 38 | |||||||||||||||||||||||||||
Net
loss
|
— | — | — | — | — | — | — | (78,059 | ) | (78,059 | ) | |||||||||||||||||||||||||
Balance
at December 31, 2008
|
15,013,839 | 150 | 13,411,588 | 134 | — | — | 398,586 | (564,026 | ) | (165,156 | ) | |||||||||||||||||||||||||
Stock
based compensation expense
|
— | — | — | — | — | — | 1,494 | — | 1,494 | |||||||||||||||||||||||||||
Issuance
of common shares related to exercise of stock options
|
5,000 | — | — | — | — | — | 13 | — | 13 | |||||||||||||||||||||||||||
Net
loss
|
— | — | — | — | — | — | — | (12,614 | ) | (12,614 | ) | |||||||||||||||||||||||||
Balance
at December 31, 2009
|
15,018,839 | $ | 150 | 13,411,588 | $ | 134 | — | $ | — | $ | 400,093 | $ | (576,640 | ) | $ | (176,263 | ) |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-5
NEXSTAR
BROADCASTING GROUP, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the Years Ended December 31, 2009, 2008 and 2007
(in
thousands)
2009
|
2008
|
2007
|
||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
loss
|
$ | (12,614 | ) | $ | (78,059 | ) | $ | (19,773 | ) | |||
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
||||||||||||
Deferred
income taxes
|
(216 | ) | (5,877 | ) | 5,380 | |||||||
Provision
for bad debts
|
1,159 | 959 | 1,112 | |||||||||
Depreciation
of property and equipment
|
21,680 | 21,024 | 20,209 | |||||||||
Amortization
of intangible assets
|
23,705 | 28,129 | 25,671 | |||||||||
Amortization
of debt financing costs
|
1,483 | 1,099 | 1,067 | |||||||||
Amortization
of broadcast rights, excluding barter
|
13,248 | 8,718 | 9,050 | |||||||||
Impairment
of goodwill and intangible assets
|
16,164 | 82,395 | — | |||||||||
Amortization
of deferred representation fee incentive
|
(611 | ) | (442 | ) | — | |||||||
Payments
for broadcast rights
|
(9,315 | ) | (8,239 | ) | (8,376 | ) | ||||||
Gain
on asset disposal, net
|
(2,560 | ) | (43 | ) | (17 | ) | ||||||
Payment-in-kind
interest on debt
|
5,201 | 2,137 | — | |||||||||
Gain
on asset exchange
|
(8,093 | ) | (4,776 | ) | (1,962 | ) | ||||||
Gain
on extinguishment of debt
|
(18,567 | ) | (2,897 | ) | — | |||||||
Deferred
gain recognition
|
(436 | ) | (437 | ) | (436 | ) | ||||||
Amortization
of debt discount
|
7,033 | 3,983 | 13,526 | |||||||||
Stock-based
compensation expense including restricted stock award
|
1,494 | 2,255 | 2,020 | |||||||||
Non-cash
contract termination
|
191 | 7,167 | — | |||||||||
Changes
in operating assets and liabilities, net of acquisitions:
|
||||||||||||
Accounts
receivable
|
(10,420 | ) | 2,278 | (7,947 | ) | |||||||
Prepaid
expenses and other current assets
|
(542 | ) | 1,236 | (167 | ) | |||||||
Taxes
receivable
|
— | 351 | (104 | ) | ||||||||
Other
noncurrent assets
|
279 | (489 | ) | (546 | ) | |||||||
Accounts
payable and accrued expenses
|
(2,144 | ) | (2,739 | ) | (2,618 | ) | ||||||
Taxes
payable
|
(149 | ) | 34 | 478 | ||||||||
Interest
payable
|
(3,966 | ) | 2,092 | (158 | ) | |||||||
Deferred
revenue
|
454 | 304 | 114 | |||||||||
Other
noncurrent liabilities
|
535 | 485 | 464 | |||||||||
Net
cash provided by operating activities
|
22,993 | 60,648 | 36,987 | |||||||||
Cash
flows from investing activities:
|
||||||||||||
Additions
to property and equipment
|
(19,028 | ) | (30,793 | ) | (18,541 | ) | ||||||
Proceeds
from sale of assets
|
190 | 106 | 320 | |||||||||
Acquisition
of broadcast properties
|
(20,756 | ) | (7,923 | ) | — | |||||||
Down
payment on acquisition of station
|
— | (400 | ) | (387 | ) | |||||||
Proceeds
from insurance on casualty loss
|
4,004 | 518 | — | |||||||||
Net
cash used for investing activities
|
(35,590 | ) | (38,492 | ) | (18,608 | ) | ||||||
Cash
flows from financing activities:
|
||||||||||||
Repayment
of long-term debt
|
(21,446 | ) | (110,282 | ) | (21,485 | ) | ||||||
Proceeds
from long-term debt
|
54,000 | 53,000 | 8,000 | |||||||||
Consideration
paid to bondholders for debt exchange
|
(17,677 | ) | — | — | ||||||||
Proceeds
from issuance of common shares related to exercise of stock
options
|
13 | 38 | 153 | |||||||||
Payments
for debt financing costs
|
(5,375 | ) | (304 | ) | — | |||||||
Proceeds
from senior subordinated PIK notes
|
— | 35,000 | — | |||||||||
Net
cash provided by (used for) financing activities
|
9,515 | (22,548 | ) | (13,332 | ) | |||||||
Net
increase (decrease) in cash and cash equivalents
|
(3,082 | ) | (392 | ) | 5,047 | |||||||
Cash
and cash equivalents at beginning of year
|
15,834 | 16,226 | 11,179 | |||||||||
Cash
and cash equivalents at end of year
|
$ | 12,752 | $ | 15,834 | $ | 16,226 | ||||||
Supplemental
schedule of cash flow information:
|
||||||||||||
Cash
paid during the period for:
|
||||||||||||
Interest
|
$ | 29,215 | $ | 39,036 | $ | 40,575 | ||||||
Income
taxes, net
|
$ | 523 | $ | 178 | $ | 51 | ||||||
Non-cash
investing activities:
|
||||||||||||
Capitalization
of software
|
$ | — | $ | 4,976 | $ | — | ||||||
Acquisition
of equipment
|
$ | 793 | $ | 1,792 | $ | — |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-6
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Business Operations
As of
December 31, 2009, Nexstar Broadcasting Group, Inc. (“Nexstar”) owned,
operated, programmed or provided sales and other services to 59 television
stations, all of which were affiliated with the NBC, ABC, CBS, Fox, MyNetworkTV,
The CW, ThisTV, RTN, Azteca America or Telemundo television networks, in markets
located in New York, Pennsylvania, Illinois, Indiana, Missouri, Texas,
Louisiana, Arkansas, Alabama, Utah, Florida, Montana, Rhode Island and Maryland.
Through various local service agreements, Nexstar provided sales, programming
and other services to 25 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. 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 December 31, 2009, we were in compliance with all covenants contained
in the credit agreements governing our senior secured credit facility and the
indentures governing the publicly-held notes.
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 11 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.
We
believe the consummation of the debt amendment 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 December 31, 2009.
2.
Summary of Significant Accounting Policies
Principles
of Consolidation
The
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 when it is determined that the Company is the primary beneficiary of a
variable interest entity (“VIE”) in accordance with interpretive guidance for
the consolidation of variable interest entities.
All
intercompany account balances and transactions have been eliminated in
consolidation.
F-7
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2.
Summary of Significant Accounting Policies—(Continued)
Mission
Mission
is included in these 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 to be renewed upon expiration. As of
December 31, 2009, the assets of Mission consisted of current assets of
$2.6 million (excluding broadcast rights), broadcast rights of $4.8 million, FCC
licenses of $20.7 million, goodwill of $18.7 million, other intangible assets of
$25.5 million, property and equipment of $28.6 million and other noncurrent
assets of $2.1 million. Substantially all of Mission’s assets, except for its
FCC licenses, collateralize its secured debt obligation. See Note 21 for
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
December 31, 2009:
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)
|
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. The 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. The JSA permits
Nexstar to sell the station’s advertising time 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’s
ability to receive cash from Mission is governed by these agreements. The
arrangements under the SSAs and JSAs have had the effect of Nexstar receiving
substantially all of the available cash, after debt service costs, generated by
the stations listed above. The arrangements under the TBAs have also had the
effect of Nexstar receiving substantially all of the available cash generated by
the TBA stations listed above. Nexstar anticipates that, through these local
service agreements, it will continue to receive substantially all of the
available cash, after payments for debt service costs, generated by the stations
listed above.
Nexstar
also guarantees the obligations incurred under Mission’s senior secured credit
facility (see Note 11). Mission is a guarantor of Nexstar’s senior secured
credit facility and the senior subordinated notes issued by Nexstar (see Note
11). 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, 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 Nexstar
without consent or approval by the sole shareholder of Mission. The Company
expects these option agreements to be renewed upon expiration.
Nexstar
does not own Mission or Mission’s television stations; however, Nexstar is
deemed to have a controlling financial interest in them under accounting
principles generally accepted in the United States of America (“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.
F-8
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2.
Summary of Significant Accounting Policies—(Continued)
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. Local service agreement is a general
term used to refer 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 Broadcast Group, Inc. (“Sinclair”), as a result of
outsourcing agreements it has entered into with Sinclair. Nexstar has evaluated
its arrangements with Sinclair and has determined that it is not the primary
beneficiary of the variable interests, and therefore, has not consolidated these
stations under applicable accounting standards. 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 consist 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
also has determined that it had a variable interest in KTVE, the NBC affiliate
in El Dorado, Arkansas, during the time it was owned by Piedmont Television of
Monroe/El Dorado, LLC (“Piedmont’), as a result of a JSA and SSA entered into
with Piedmont. Nexstar’s JSA and SSA with Piedmont terminated upon
Mission’s acquisition of KTVE on January 16, 2008. Prior to the acquisition
date Nexstar did not consolidate KTVE as we determined that we were not the
primary beneficiary prior to that date.
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 Newport Television and has determined that it is not the
primary beneficiary of the variable interests, and therefore, has not
consolidated these stations.
Nexstar
entered into a management services agreement with Four Points Media Group
Holdings LLC (“Four Points”) 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.
Basis
of Presentation
Certain prior
year financial statement amounts have been reclassified to conform to the
current year presentation.
Local
Service Agreements
The
Company enters into local service agreements with stations generally in
connection with pending acquisitions subject to FCC approval or in markets in
which the Company owns and operates a station. Local service agreement is a
general term used to refer 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 the station. Local service
agreements include time brokerage agreements (“TBA”), shared service agreements
(“SSA”), joint sales agreements (“JSA”) and outsourcing
agreements.
F-9
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2.
Summary of Significant Accounting Policies—(Continued)
Under the
terms of a TBA, the Company makes specific periodic payments to the other
station’s owner-operator in exchange for the right to provide programming and
sell advertising on a portion of the other stations broadcast time. Under the
terms of an SSA, the Company’s station in the market bears the costs of certain
services and procurements performed on behalf of another station, in exchange
for the Company’s right to receive specific periodic payments. Under the terms
of a JSA, the Company makes specific periodic payments to the station’s
owner-operator in exchange for the right to sell advertising during a portion of
the station’s broadcast time. Under TBAs, the Company retains all of the
advertising revenue it generates, and under JSAs it retains a percentage of the
advertising revenue it generates. Under an outsourcing agreement, the Company’s
station provides or is provided various non-programming related services to or
by another station in exchange for payment from the owner-operator.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and use assumptions that affect the reported
amounts of assets and liabilities and the disclosure for contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. The more significant estimates
made by management include those relating to the allowance for doubtful
accounts, trade and barter transactions, income taxes, the recoverability of
broadcast rights, the carrying amounts, recoverability and useful lives of
intangible assets and the fair value of non-monetary asset exchanges. Actual
results may vary from estimates used.
Cash
and Cash Equivalents
The Company considers all highly liquid
investments purchased with an original maturity of ninety days or less to be
cash equivalents.
Accounts
Receivable and Allowance for Doubtful Accounts
The
Company’s accounts receivable consist primarily of billings to its customers for
advertising spots aired and also includes amounts billed for production and
other similar activities. Trade receivables normally have terms of 30 days and
the Company has no interest provision for customer accounts that are past due.
The Company maintains an allowance for estimated losses resulting from the
inability of customers to make required payments. Management evaluates the
collectability of accounts receivable based on a combination of factors. In
circumstances where management is aware of a specific customer’s inability to
meet its financial obligations, an allowance is recorded to reduce their
receivable amount to an amount estimated to be collected.
Concentration
of Credit Risk
Financial
instruments which potentially expose the Company to a concentration of credit
risk consist principally of cash and cash equivalents and accounts receivable.
Cash deposits are maintained with several financial institutions. Deposits held
with banks may exceed the amount of insurance provided on such deposits;
however, the Company believes these deposits are maintained with financial
institutions of reputable credit and are not subject to any unusual credit risk.
A significant portion of the Company’s accounts receivable are due from local
and national advertising agencies. The Company does not require collateral from
its customers, but maintains reserves for potential credit losses. Management
believes that the allowance for doubtful accounts is adequate, but if the
financial condition of the Company’s customers were to deteriorate, additional
allowances may be required. The Company has not experienced significant losses
related to receivables from individual customers or by geographical
area.
F-10
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2.
Summary of Significant Accounting Policies—(Continued)
Revenue
Recognition
The
Company’s revenue is primarily derived from the sale of television advertising.
Total revenue includes cash and barter advertising revenue, net of agency
commissions, retransmission compensation, network compensation and other
broadcast related revenues.
|
•
|
Advertising
revenue is recognized, net of agency commissions, in the period during
which the commercial is aired.
|
|
•
|
Retransmission
compensation is recognized based on the number of subscribers over the
contract period.
|
|
•
|
Other
revenues, which include web-based revenue, revenue from the production of
client advertising spots and other similar activities from time to time,
are recognized in the period during which the services are
provided.
|
|
•
|
Network
compensation is either recognized when the Company’s station broadcasts
specific network programming based upon a negotiated hourly-rate, or on a
straight-line basis based upon the total negotiated compensation to be
received by the Company over the term of the
agreement.
|
The
Company barters advertising time for certain program material. These
transactions, except those involving exchange of advertising time for network
programming, are recorded at management’s estimate of the fair value of the
advertising time exchanged, which approximates the fair value of the program
material received. The fair value of advertising time exchanged is estimated by
applying average historical advertising rates for specific time periods. Revenue
from barter transactions is recognized as the related advertisement spots are
broadcast. The Company recorded $12.0 million, $11.7 million and $12.4
million of barter revenue for the years ended December 31, 2009, 2008 and
2007 respectively.
Barter
expense is recognized at the time program broadcast rights assets are used. The
Company recorded $12.0 million, $11.7 million and $12.4 million of barter
expense for the years ended December 31, 2009, 2008 and 2007, respectively,
which was included in amortization of broadcast rights in the Company’s
consolidated statement of operations.
The
Company trades certain advertising time for various goods and services. These
transactions are recorded at the estimated fair value of the goods or services
received. Revenue from trade transactions is recognized when the related
advertisement spots are broadcast. The Company recorded $7.4 million, $6.6
million and $7.0 million of trade revenue for the years ended December 31,
2009, 2008 and 2007, respectively.
Trade
expense is recognized when services or merchandise received are used. The
Company recorded $6.7 million, $6.2 million and $6.0 million of trade expense
for the years ended December 31, 2009, 2008 and 2007, respectively, which
was included in direct operating expenses in the Company’s consolidated
statement of operations.
Broadcast
Rights and Broadcast Rights Payable
The
Company records rights to programs, primarily in the form of syndicated programs
and feature movie packages obtained under license agreements for the limited
right to broadcast the suppliers’ programming when the following criteria are
met: 1) the cost of each program is known or reasonably determinable, 2) the
license period has begun, 3) the program material has been accepted in
accordance with the license agreement, and 4) the programming is available for
use. Broadcast rights are initially recorded at the amount paid or payable to
program suppliers; or, in the case of barter transactions, at management’s
estimate of the fair value of the advertising time exchanged using historical
advertising rates, which approximates the fair value of the program material
received. Broadcast rights are stated at the lower of unamortized cost or net
realizable value. The current portion of broadcast rights represents those
rights available for broadcast which will be amortized in the succeeding year.
Amortization of broadcast rights is computed using the straight-line method
based on the license period or programming usage, whichever period yields the
shorter life. Broadcast rights liabilities are reduced by monthly payments to
program suppliers; or, in the case of barter transactions, are amortized over
the life of the associated programming license contract as a component of trade
and barter revenue. 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 poor ratings, the Company write-downs the unamortized cost of
the broadcast rights to equal the amount of projected future net revenue. If the
expected broadcast period was shortened or cancelled, the Company would be
required to write-off the remaining value of the related broadcast rights on an
accelerated basis or possibly immediately. Such reductions in unamortized costs
is included in amortization of broadcast rights in the consolidated statement of
operations.
F-11
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2.
Summary of Significant Accounting Policies—(Continued)
Property
and Equipment
Property
and equipment is stated at cost or estimated fair value at the date of
acquisition for trade transactions. The cost and related accumulated
depreciation applicable to assets sold or retired are removed from the accounts
and the gain or loss on disposition is recognized. Major renewals and
betterments are capitalized and ordinary repairs and maintenance are charged to
expense in the period incurred. Depreciation is computed on a straight-line
basis over the estimated useful lives of the assets ranging from 3 to 39 years
(see Note 7).
Network
Affiliation Agreements
Network
affiliation agreements are stated at estimated fair value at the date of
acquisition using a discounted cash flow method. Amortization is computed on a
straight-line basis over the estimated useful life of 15 years.
Each of
the Company’s stations has a network affiliation agreement pursuant to which the
broadcasting network provides programming to the station during specified time
periods, including prime time. Under the affiliation agreements with NBC, CBS
and ABC, some of the Company’s stations receive compensation for distributing
the network’s programming over the air and for allowing the network to keep a
portion of advertising inventory during those time periods. The affiliation
agreements with Fox, MyNetworkTV and The CW do not provide for
compensation.
Intangible
Assets
Intangible
assets consist primarily of goodwill, broadcast licenses (“FCC licenses”) and
network affiliation agreements that are stated at estimated fair value at the
date of acquisition using a discounted cash flow method. The Company’s goodwill
and FCC licenses are considered to be indefinite-lived intangible assets and are
not amortized but instead are tested for impairment annually or whenever events
or changes in circumstances indicate that such assets might be impaired. Network
affiliation agreements are subject to amortization computed on a straight-line
basis over the estimated useful life of 15 years.
As
required by authoritative guidance for goodwill and other intangible assets, we
test our FCC licenses and goodwill for impairment annually or whenever we
believe events have occurred and circumstances changed that would more likely
than not reduce the fair value of our reporting units below their carrying
amounts. 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. 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 station
(“reporting unit”) to its carrying amount. The fair value of a reporting unit is
determined using a discounted cash flows 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 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.
In
accordance with authoritative guidance for accounting for the impairment or
disposal of long-lived assets, the Company tests network affiliation agreements
whenever events or changes in circumstances indicate that their carrying amount
may not be recoverable, relying on a number of factors including operating
results, business plans, economic projections and anticipated future cash flows.
An impairment in the carrying amount of a network affiliation agreement is
recognized when the expected future operating cash flow derived from the
operation to which the asset relates is less than its carrying value. The
impairment test for network affiliation agreements consists of a
station-by-station comparison of the carrying amount of network affiliation
agreements with their fair value, using a discounted cash flow analysis. See
Note 8 for additional information.
Debt
Financing Costs
Debt
financing costs represent direct costs incurred to obtain long-term financing
and are amortized to interest expense over the term of the related debt.
Previously capitalized debt financing costs are expensed and included in loss on
extinguishment of debt if the Company determines that there has been a
substantial modification of the related debt. As of December 31, 2009 and
2008, debt financing costs of $8.4 million and $4.8 million, respectively, were
included in other noncurrent assets.
F-12
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2.
Summary of Significant Accounting Policies—(Continued)
Comprehensive
Income (Loss)
The
Company reports comprehensive income or loss and its components in accordance
with FASB accounting and disclosure requirements. Comprehensive loss includes,
in addition to net loss, items of other comprehensive income (loss) representing
certain changes in equity that are excluded from net loss and instead are
recorded as a separate component of stockholders’ equity (deficit). During the
years ended December 31, 2009, 2008 and 2007, the Company had no items of
other comprehensive income (loss) and, therefore, comprehensive income (loss)
does not differ from reported net loss.
Advertising
Expense
The cost
of advertising is expensed as incurred. The Company incurred advertising costs
in the amount of $1.9 million, $2.0 million and $1.9 million for the years ended
December 31, 2009, 2008 and 2007, respectively, which were included in
selling, general and administrative expenses in the Company’s consolidated
statement of operations.
Financial
Instruments
The
carrying amount of cash and cash equivalents, accounts receivable, broadcast
rights payable, accounts payable and accrued expenses approximates fair value
due to their short-term nature. The interest rates on the Company’s term loan
and revolving credit facilities are adjusted regularly to reflect current market
rates. See Note 11 for the fair value of the Company’s debt.
Stock-Based
Compensation
Nexstar
maintains stock-based employee compensation plans which are described more fully
in Note 15. On January 1, 2006, the Company adopted
authoritative guidance related to share-based payment, which requires companies
to expense the fair value of employee stock options and other forms of
stock-based employee compensation in the financial statements. This expense is
recognized in selling, general and administrative expense in the Company’s
consolidated statement of operations.
Income
Taxes
The
Company accounts for income taxes under the asset and liability method which
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the carrying amounts
and tax basis of assets and liabilities. A valuation allowance is applied
against net deferred tax assets if, based on the weight of available evidence,
it is more likely than not that some or all of the deferred tax assets will not
be realized. Nexstar and its subsidiaries file a consolidated federal income tax
return. Mission files its own separate federal income tax return.
On
January 1, 2007, the Company adopted interpretive guidance related to
income taxes that addresses the determination of whether tax benefits claimed or
expected to be claimed on a tax return should be recorded in the financial
statements. Under this guidance, the Company may recognize the tax benefit from
an uncertain tax position only if it is more likely than not that the tax
position will be sustained on examination by the taxing authorities. The
determination is based on the technical merits of the position and presumes that
each uncertain tax position will be examined by the relevant taxing authority
that has full knowledge of all relevant information. For interest and penalties
relating to income taxes the Company recognizes these items as components of
income tax expense.
Loss
Per Share
Basic
loss per share is computed by dividing the net loss by the weighted-average
number of common shares outstanding during the period. Diluted 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 years ended
December 31, 2009, 2008 and 2007 there was no difference between basic and
diluted net loss per share since the effect of potential common shares were
anti-dilutive due to the net losses, and therefore excluded from the computation
of diluted net loss per share.
F-13
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2.
Summary of Significant Accounting Policies—(Continued)
The
following table summarizes information about anti-dilutive potential common
shares (not presented in thousands):
Years Ended
December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
(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
|
3,415,940 | 3,646,712 | 1,075,247 | |||||||||
In-the-money
stock options excluded as the Company had a net loss during the
period
|
181,359 | 8,435 | 2,532,904 | |||||||||
Unvested
restricted stock
|
— | — | 151 |
Nonmonetary
Asset Exchanges
In 2004,
the FCC approved a spectrum allocation exchange between Spring Nextel
Corporation (“Nextel”) and public safety entities to eliminate interference
being caused to public safety radio licensees by Nextel’s operations. 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. In
order to utilize this spectrum, Nextel is required to relocate the broadcasters
to new spectrum by replacing all analog equipment currently used by broadcasters
with comparable digital equipment. The Company has agreed to accept the
substitute equipment that Nextel will provide and in turn must relinquish its
existing equipment back to Nextel. This transition began on a market by market
basis beginning in the second quarter of 2007. We account for this arrangement
as an exchange of assets in accordance with accounting and disclosure
requirements for exchanges of nonmonetary assets. The equipment the Company
receives under this arrangement is recorded at their estimated fair market value
and depreciated over estimated useful lives 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.
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 was 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. This standard became
effective for our second quarter ended June 30, 2009.
F-14
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2.
Summary of Significant Accounting Policies—(Continued)
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.
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.
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 effective January 1, 2008 the FASB’s accounting and
disclosure requirements pertaining to fair value measurements for financial
assets and financial liabilities measured on a recurring basis. These
requirements apply to all financial assets and financial liabilities that are
being measured and reported on a fair value basis. There was no impact for
adoption of this standard to the Consolidated Financial Statements as it relates
to financial assets and financial liabilities. The new standard requires
disclosure that establishes a framework for measuring fair value and expands
disclosure about fair value measurements. The standard requires fair value
measurement 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 December 31, 2009,
there were no investments in marketable securities.
F-15
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
3.
Fair Value Measurements—(Continued)
As of
December 31, 2009 and 2008, the Company had $7.4 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 December 31, 2009, the fair value of the money
market investment approximates its carrying value.
In
February 2008, the FASB deferred the effective date of the above standard to
January 1, 2009 for all nonfinancial assets and liabilities, except those
that are recognized or disclosed at fair value on a recurring basis (that is, at
least annually). The Company adopted this standard on January 1, 2009 and it did
not have a material impact on our financial position or results of
operations.
See Note
4 in these Notes to Consolidated Financial Statements for fair value disclosures
related to acquisitions, Note 8 in these Notes to Consolidated Financial
Statements for fair value disclosures related to goodwill and FCC licenses and
Note 11 in these Notes to Consolidated Financial Statements for fair value
disclosures related to the Company’s debt.
4.
Acquisitions
Purchase
Acquisitions
During
2009 and 2008, the Company consummated the acquisitions listed below. These
acquisitions have been accounted for using the purchase method of accounting
and, accordingly, the purchase price was allocated to assets acquired and
liabilities assumed based on their estimated fair value on the acquisition date.
The excess of the purchase price over the fair values assigned to the net assets
acquired was recorded as goodwill. The consolidated financial statements include
the operating results of each business from the date of
acquisition.
Station
|
Network
Affiliation
|
Market
|
Date Acquired
|
Acquired By
|
WCWJ
|
The
CW
|
Jacksonville,
Florida
|
May
1, 2009
|
Nexstar
|
KARZ
|
My
Network TV
|
Little
Rock-Pine Bluff, Arkansas
|
March
12, 2009
|
Nexstar
|
KTVE
|
NBC
|
Monroe,
Louisiana, El Dorado, Arkansas
|
January
16, 2008
|
Mission
|
WCWJ
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 (net of working capital
adjustment) 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.
(in
thousands)
|
||||
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
|
F-16
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
4.
Acquisitions—(Continued)
The
estimated fair values of the assets acquired and liabilities assumed are based
on recognized valuation techniques including the income approach for intangible
assets. 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 $6.5 million and net loss of $0.8 million for the period May 1, 2009
to December 31, 2009 have been included in the accompanying consolidated
statement of operations for 2009.
KARZ
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 Little Rock 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.
(in
thousands)
|
||||
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
|
The
estimated fair values of the assets acquired and liabilities assumed are based
on recognized valuation techniques including the income approach for intangible
assets. 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.
KARZ’s
revenue of $1.5 million and net income of $1.3 million for the period February
1, 2009 to December 31, 2009 (post TBA) have been included in the accompanying
consolidated statement of operations for 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:
Year
Ended
December
31, 2009
|
Year
Ended
December
31, 2008
|
|||||||
(in
thousands)
|
||||||||
Net
revenue
|
$
|
254,819
|
$
|
295,739
|
||||
Loss
before income taxes
|
(12,580
|
)
|
(84,717
|
)
|
||||
Net
loss
|
(12,780
|
)
|
(79,401
|
)
|
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.
F-17
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
4.
Acquisitions—(Continued)
KTVE
On
June 27, 2007, Mission entered into a purchase agreement with Piedmont
Television Holdings LLC to acquire substantially all the assets of KTVE, the NBC
affiliate serving the Monroe, Louisiana/El Dorado, Arkansas market. On
January 16, 2008, Mission completed the acquisition of KTVE for total
additional consideration of $8.3 million, inclusive of transaction costs of $0.5
million which is included in goodwill. Pursuant to the terms of the agreement,
Mission made a down payment of $0.4 million against the purchase price in June
2007 and paid the remaining $7.4 million, exclusive of transaction costs, on
January 16, 2008 from available cash on hand. Upon closing the purchase of
KTVE, Mission entered into a JSA and SSA with Nexstar-owned KARD, the Fox
affiliate in the market, whereby KARD provides local news, sales and other
non-programming services to KTVE.
The
following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition.
(in
thousands)
|
||||
Accounts
receivable
|
$ | 1,081 | ||
Current
portion of broadcast rights
|
408 | |||
Prepaid
expenses and other current assets
|
12 | |||
Property
and equipment
|
3,534 | |||
Intangible
assets
|
3,808 | |||
Goodwill
|
2,802 | |||
Total
assets acquired
|
11,645 | |||
Less:
current portion of broadcast rights payable
|
152 | |||
Less:
accounts payable
|
113 | |||
Less:
deferred gain on lease
|
2,216 | |||
Less:
accrued expenses and other liabilities
|
854 | |||
Net
assets acquired
|
$ | 8,310 |
Of the
$3.8 million of acquired intangible assets, $2.7 million was assigned to FCC
licenses that are not subject to amortization and $1.1 million was assigned to
network affiliation agreements (estimated useful life of 15 years). Subsequent
to the acquisition, the Company obtained additional information related to a
lease assumed in the acquisition which resulted in recording an increase to
goodwill and deferred liabilities of $2.2 million. Goodwill of $2.8 million is
expected to be deductible for tax purposes.
Unaudited
Pro Forma Information
The
following unaudited pro forma information has been presented as if the
acquisition of KTVE had occurred on January 1, 2007:
Year
Ended
December 31, 2008
|
Year
Ended
December 31, 2007
|
|||||||
(in thousands, except per share amounts)
|
||||||||
Net
revenue
|
$ | 285,169 | $ | 273,312 | ||||
Income
(loss) from operations
|
(38,149 | ) | 41,033 | |||||
Loss
before income taxes
|
(83,388 | ) | (13,931 | ) | ||||
Net
loss
|
(78,077 | ) | (19,850 | ) | ||||
Basic
and diluted net loss per share
|
(2.75 | ) | (0.70 | ) |
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 station during the specified period.
F-18
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
5.
Pending Transactions
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 was 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. On
March 11, 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. Nexstar’s KNWA Channel 51, 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.
6. Local
Service Agreements
The
Company enters into local service agreements with stations generally in
connection with pending acquisitions subject to FCC approval or in markets in
which the Company owns and operates a station. Local service agreement is a
general term used to refer 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.
The
various local service agreements entered into by the Company are discussed
below.
Local
Service Agreements with Mission
Nexstar
has entered into various local service agreements with each of Mission’s
stations.
Nexstar
has TBAs with two Mission stations. Under these agreements, Nexstar programs
most of each station’s broadcast time, sells each station’s advertising time and
retains the advertising revenue it generates in exchange for monthly payments,
as defined in the agreement, to Mission. The arrangements under the TBAs have
had the effect of Nexstar receiving substantially all of the available cash
generated by the Mission stations.
Nexstar
has SSAs and JSAs with the remaining Mission stations. Under the SSAs, the
Nexstar station in the market bears the costs of certain services and
procurements, in exchange for monthly payments from Mission, as defined in the
agreement. Under the JSAs, Nexstar sells each Mission station’s advertising time
and retains a percentage of the net revenue from the station’s advertising in
exchange for monthly payments to Mission of the remaining percentage of net
revenue, as defined in the agreement. The arrangements under these agreements
have had the effect of Nexstar receiving substantially all of the available
cash, after payment of debt service costs, generated by the Mission
stations.
On
August 28, 2006, Nexstar and Mission entered into a TBA 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. The
TBA arrangement between Nexstar and Mission will terminate upon Mission’s
assignment of KFTA’s FCC license from Nexstar. Upon completion of the assignment
of KFTA’s license, Mission plans to enter into JSA and SSA agreements with
Nexstar-owned KNWA whereby KNWA will provide local news, sales and other
non-programming services to KFTA.
The
impact of all the local service agreements between Nexstar and Mission is
eliminated in consolidation.
Other
Local Service Agreements
Local
service agreements entered into with other independent third parties which
impact the Company’s 2007, 2008 and 2009 consolidated financial statements are
discussed below.
F-19
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
6. Local
Service Agreements—(Continued)
As
successor to an agreement entered into by TSGH, former owner of WLYH, The CW
affiliate in Harrisburg-Lancaster-Lebanon-York, Pennsylvania, Nexstar has a TBA
with Newport Television. Under the TBA, Nexstar allows Newport Television to
program most of WLYH’s broadcast time, sell its advertising time and retain the
advertising revenue generated in exchange for monthly payments to Nexstar. The
TBA expires in 2015. This agreement became effective for Nexstar on
December 29, 2006 in conjunction with its acquisition of WTAJ and WLYH from
TSGH. Nexstar received payments from the owners of WLYH (Clear Channel TV Inc.
in 2007 and Newport Television in 2008 and 2009) under the TBA of $50 thousand
for the years ended December 31, 2009, 2008 and 2007.
As
successor to agreements entered into effective March 21, 2001 by Quorum
Broadcast Holdings, LLC, Nexstar had a JSA and SSA with Piedmont Television of
Monroe/El Dorado LLC (“Piedmont”), the licensee of KTVE, the NBC affiliate
television station in El Dorado, Arkansas. Under the JSA, Nexstar permitted
Piedmont to sell to advertisers all of the time available for commercial
advertisements on KARD, the Nexstar television station in the market. The JSA
also entitled Piedmont to all revenue attributable to commercial advertisements
it sells on KARD. During the term of the JSA, Piedmont was obligated to pay
Nexstar a monthly fee based on the combined operating cash flow of KTVE and
KARD, as defined in the agreement. Under the SSA, Nexstar and Piedmont shared
the costs of certain services and procurements, which they individually required
in connection with the ownership and operation of their respective station.
Nexstar received payments from Piedmont under the JSA agreement of $1.3 million
for the year ended December 31, 2007. The agreement between Piedmont and
Nexstar terminated on January 16, 2008.
In
conjunction with Mission’s acquisition of KTVE, the NBC affiliate in the Monroe,
Louisiana—El Dorado, Arkansas market, effective January 16, 2008, it
entered into a SSA and JSA with Nexstar. The terms of the SSA and JSA are
comparable to the terms of the SSAs and JSAs between Nexstar and Mission as
discussed in Note 2—”Mission.”
Effective
December 1, 2001, Nexstar entered into an outsourcing agreement with a
subsidiary of Sinclair Broadcast Group, Inc. (“Sinclair”), the licensee of WYZZ,
the Fox affiliate in Peoria, Illinois. Under the outsourcing agreement, Nexstar
provides certain non-programming related engineering, production, sales and
administrative services for WYZZ through WMBD, the Nexstar television station in
the market. During the term of the outsourcing agreement, Nexstar is obligated
to pay Sinclair a monthly fee based on the combined operating cash flow of WMBD
and WYZZ, as defined in the agreement, which expires December 31,
2013. Fees under the outsourcing agreement paid to Sinclair in the
amount of $0.7 million, $0.9 million and $0.9 million were included in the
consolidated statement of operations for the years ended December 31, 2009,
2008 and 2007, respectively.
Effective
September 1, 2005, Nexstar entered into an outsourcing agreement with a
subsidiary of Sinclair, the licensee of WUHF, the Fox affiliate in Rochester,
New York. Under the outsourcing agreement, Nexstar provides certain non
programming related engineering, production, sales and administrative services
for WUHF through WROC, the Nexstar television station in the market. During the
term of the outsourcing agreement, Nexstar is obligated to pay Sinclair a
monthly fee based on the combined operating cash flow of WROC and WUHF, as
defined in the agreement, which expires December 31, 2013. Fees under
the outsourcing agreement paid to Sinclair in the amount of $2.4 million, $3.1
million and $2.4 million were included in the consolidated statement of
operations for the years ended December 31, 2009, 2008 and 2007,
respectively.
F-20
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
7.
Property and Equipment
Property
and equipment consisted of the following:
Estimated
useful
life
(years)
|
2009
|
2008
|
||||||||||
(in
thousands)
|
||||||||||||
Buildings
and building improvements
|
39 | $ | 35,651 | $ | 34,401 | |||||||
Land
and land improvements
|
N/A-39 | 6,809 | 5,938 | |||||||||
Leasehold
improvements
|
term of lease
|
2,757 | 2,751 | |||||||||
Studio
and transmission equipment
|
5-15 | 197,728 | 175,923 | |||||||||
Office
equipment and furniture
|
3-7 | 23,972 | 24,079 | |||||||||
Vehicles
|
5 | 10,416 | 10,200 | |||||||||
Construction
in progress
|
N/A | 4,514 | 28,291 | |||||||||
281,847 | 281,583 | |||||||||||
Less:
accumulated depreciation
|
(137,566 | ) | (145,705 | ) | ||||||||
Property
and equipment, net of accumulated depreciation
|
$ | 144,281 | $ | 135,878 |
The
Company recorded depreciation expense in the amounts of $21.7 million, $21.0
million and $20.2 million for the years ended December 31, 2009, 2008 and
2007, respectively.
In
February 2006, President Bush signed into law legislation that established
February 17, 2009 as the deadline for television broadcasters to complete
their transition to digital transmission and return their analog spectrum to the
FCC. In February 2009, President Obama extended this deadline to June 12,
2009. As a result, the Company reassessed the estimated useful lives of its
analog transmission equipment and has accelerated the depreciation of certain
equipment affected by the digital conversion. Equipment having a net book value
of approximately $9.8 million as of February 1, 2006, which was previously
being depreciated over various remaining useful lives which extended from 2010
to 2020, was fully depreciated as of February 17, 2009. During
the years ended December 31, 2009, 2008 and 2007 the accelerated
depreciation of analog transmission equipment increased depreciation expense and
net loss by approximately $0.3 million ($0.01 per basic and diluted share), $2.3
million ($0.08 per basic and diluted share) and $2.3 million ($0.08 per basic
and diluted share), respectively.
On
May 11, 2001, an entity acquired by Nexstar sold certain of its
telecommunications tower facilities for cash and then entered into noncancelable
operating leases with the buyer for tower space. In 2001, in connection with
this transaction a $9.1 million gain on the sale was deferred and is being
recognized over the lease term which expires in May 2021. The deferred gain at
December 31, 2009 and 2008 was approximately $4.9 million and $5.4 million,
respectively ($0.4 million was included in current liabilities at
December 31, 2009 and 2008).
As of
December 31, 2009 and 2008, included in net property and equipment is
approximately $4.0 million and $4.6 million of costs related to the purchase of
software. The asset is being amortized over 10 years, based on the life of the
contract. As of December 31, 2009 and 2008, $0.3 million representing the
current portion of the remaining liability associated with this contract is
included in other current liabilities and $3.9 million and $4.3 million
representing the long-term portion of the remaining liability associated with
this contract is included in other non-current liabilities in the accompanying
consolidated balance sheet.
8.
Intangible Assets and Goodwill
Intangible
assets subject to amortization consisted of the following:
December
31,2009
|
December
31, 2009
|
|||||||||||||||||||||||||||
Estimated
useful
life (years)
|
Gross
|
Accumulated
Amortization
|
Net
|
Gross
|
Accumulated
Amortization
|
Net
|
||||||||||||||||||||||
Network
affiliation agreements
|
15 | $ | 344,662 | $ | (221,945 | ) | $ | 122,717 | $ | 344,662 | $ | (199,159 | ) | $ | 145,503 | |||||||||||||
Other
definite-lived intangible assets
|
1-15 | 13,455 | (9,956 | ) | 3,499 | 13,385 | (9,037 | ) | 4,348 | |||||||||||||||||||
Total intangible assets subject
to amortization
|
$ | 358,117 | $ | (231,901 | ) | $ | 126,216 | $ | 358,047 | $ | (208,196 | ) | $ | 149,851 |
F-21
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
8.
Intangible Assets and Goodwill—(Continued)
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.
We
completed our annual test for impairment of goodwill and FCC licenses as of
December 31, 2009 which resulted in no additional impairment
charge.
As
required by authoritative guidance for goodwill and other intangible assets and
authoritative guidance for accounting for the impairment or disposal of
long-lived assets, we tested our network affiliation agreements, FCC licenses
and goodwill for impairment at September 30, 2008, 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 and network affiliation agreements might be impaired.
These events included the decline in overall economic conditions and the
resulting decline in advertising revenues at some of our television stations. 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 3 of our television stations; and an
impairment to the carrying values of goodwill of $27.8 million, related to 5
reporting units consisting of 6 of our television stations.
We
performed our annual test for impairment at December 31, 2008 and due to
the continued decline in overall economic conditions during the fourth quarter
of 2008 and the further decline in our forecasts for advertising revenues at
some stations, the Company recorded an additional $33.9 million in impairment
charges in the fourth quarter 2008, for an annual total of $82.4 million. Of the
additional $33.9 million impairment charges, $21.7 million was for FCC licenses,
related to 21 of our television stations, $1.1 million was for network
affiliation agreements related to 2 television stations, and $11.1 million was
for goodwill, related to 8 reporting units consisting of 10 of our television
stations.
An
impairment in the carrying amount of a network affiliation agreement is
recognized when the expected future operating cash flow derived from the
operation to which the asset relates to is less than its carrying value. The
impairment charge for network affiliation agreements represents a
station-by-station comparison of the carrying amount of network affiliation
agreements with their fair value, using a discounted cash flow
analysis.
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 flows analysis.
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 market (“reporting unit”) to its carrying
amount. We aggregate our stations by market for purposes of our
goodwill and license impairment testing and we believe that our markets are most
representative of our broadcast reporting units because we view, manage and
evaluate our stations on a market basis. The fair value of a
reporting unit is determined using a discounted cash flows 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 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; and 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.
F-22
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
8.
Intangible Assets and Goodwill—(Continued)
As noted
above, we are required under 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, if the
current economic trends continue and the credit and capital markets continue to
be disrupted, it is possible that we may record further impairments in the
future.
The
estimated useful life of network affiliation agreements contemplates renewals of
the underlying agreements based on Nexstar’s and Mission’s historical ability to
renew such agreements without significant cost or modifications to the
conditions from which the value of the affiliation was derived. These renewals
can result in estimated useful lives of individual affiliations ranging from 12
to 20 years. Management has determined that 15 years is a reasonable estimate
within the range of such estimated useful lives.
Total
amortization expense from definite-lived intangibles for the years ended
December 31, 2009, 2008 and 2007 was $23.7 million, $28.1 million and $25.7
million, respectively.
The
following table presents the Company’s estimate of amortization expense for each
of the five succeeding fiscal years and thereafter for definite-lived
intangibles assets as of December 31, 2009 (in thousands):
Year
ending December 31,
|
||||
2010
|
$ | 23,682 | ||
2011
|
$ | 23,329 | ||
2012
|
$ | 23,003 | ||
2013
|
$ | 17,438 | ||
2014
|
$ | 10,390 | ||
Thereafter
|
$ | 28,374 |
The
aggregate carrying value of indefinite-lived intangible assets, consisting of
FCC licenses and goodwill, at December 31, 2009 and 2008 was $236.5 million
and $240.7 million, respectively. Indefinite-lived intangible assets are not
subject to amortization, but are tested for impairment annually or whenever
events or changes in circumstances indicate that such assets might be impaired.
The use of an indefinite life for FCC licenses contemplates the Company’s
historical ability to renew their licenses, that such renewals generally may be
obtained indefinitely and at little cost, and that the technology used in
broadcasting is not expected to be replaced in the foreseeable future.
Therefore, cash flows derived from the FCC licenses are expected to continue
indefinitely.
The
changes in the carrying amount of goodwill for the years ended December 31, 2009
and 2008, 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 December 31, 2009 and 2008
|
$
|
109,059
|
$
|
115,632
|
F-23
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
8.
Intangible Assets and Goodwill—(Continued)
The
changes in the carrying amount of FCC licenses for the years ended December 31,
2009 and 2008 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 December 31, 2009 and 2008
|
$
|
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 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 for the year ended December 31, 2009:
Quoted
prices in active markets (Level 1)
|
Significant
observable inputs
(Level
2)
|
Significant
unobservable inputs
(Level
3)
|
Total
gains (losses)
|
|||||||
(in
thousands)
|
||||||||||
Goodwill
|
$ | 109,059 | $ | (7,360 | ) | |||||
FCC
licenses
|
$ | 127,487 | $ | (8,804 | ) |
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.
9. 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.
F-24
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
10.
Accrued Expenses
Accrued
expenses consisted of the following:
December 31,
|
||||||||
2009
|
2008
|
|||||||
(in
thousands)
|
||||||||
Compensation
and related taxes
|
$ | 2,716 | $ | 3,102 | ||||
Sales
commissions
|
1,338 | 1,550 | ||||||
Employee
benefits
|
897 | 947 | ||||||
Property
taxes
|
362 | 444 | ||||||
Other
accruals related to operating expenses
|
6,876 | 6,441 | ||||||
$ | 12,189 | $ | 12,484 |
11.
Debt
Long-term
debt consisted of the following:
December 31,
|
||||||||
2009
|
2008
|
|||||||
(in
thousands)
|
||||||||
Term
loans
|
$ | 321,689 | $ | 325,174 | ||||
Revolving
credit facilities
|
77,000 | 31,000 | ||||||
7%
senior subordinated notes due 2014, net of discount of $929 and
$1,708
|
46,981 | 190,778 | ||||||
7%
senior subordinated PIK notes due 2014, net of discount of
$10,559
|
132,296 | — | ||||||
11.375%
senior discount notes due 2013
|
49,981 | 77,820 | ||||||
Senior
subordinated PIK notes due 2014, net of discount of $0 and
$416
|
42,427 | 37,345 | ||||||
670,374 | 662,117 | |||||||
Less:
current portion
|
(7,085 | ) | (3,485 | ) | ||||
$ | 663,289 | $ | 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.
F-25
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
11.
Debt—(Continued)
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 and the related
collateralization of company-owned real estate, $1.7 million related to
professional and legal fees were recognized as administrative expense as
incurred. Additionally, Nexstar and Mission paid $5.2 million in bank
fees related to the debt amendment, which were capitalized and are being
amortized over the remaining term of the credit facility.
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 December 31, 2009 and
2008, Nexstar had $156.3 million and $158.1 million, respectively, outstanding
under its Term Loan B and $70.0 million and $24.0 million, respectively
outstanding under its revolving loan at each of these dates.
The Term
Loan B matures in October 2012 and is payable in consecutive quarterly
installments amortized at 0.25% quarterly, with the remaining 93.25% due at
maturity. During the years ended December 31, 2009 and 2008, repayments of
Nexstar’s Term Loan B totaled $1.8 million per year, all of which were scheduled
maturities. The revolving loan is not subject to incremental reduction and
matures in April 2012. During the year ended December 31, 2009, repayments
of Nexstar’s revolving loan totaled $8.0 million and borrowings under Nexstar’s
revolving loan totaled $54.0 million. Nexstar Broadcasting is required to prepay
borrowings outstanding under the Nexstar Facility with certain net proceeds,
recoveries and excess cash flows as defined in the credit facility
agreement.
Interest
rates are selected at Nexstar Broadcasting’s option and the applicable margin is
adjusted quarterly as defined in the credit facility agreement. The total
weighted average interest rate of the Nexstar Facility was 5.02% and 3.35% at
December 31, 2009 and 2008, respectively. Interest is payable periodically
based on the type of interest rate selected. Additionally, Nexstar Broadcasting
is required to pay quarterly commitment fees on the unused portion of its
revolving loan commitment of 0.75% per annum, based on the consolidated
senior leverage ratio of Nexstar Broadcasting and Mission for that particular
quarter.
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 December 31, 2009 and
2008, Mission had $165.4 million and $167.1 million, respectively, outstanding
under its Term Loan B and $7.0 million outstanding under its revolving loan at
both dates.
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 years
ended December 31, 2009 and 2008, repayments of Mission’s Term Loan B
totaled $1.7 million for each year. Interest rates are selected at Mission’s
option and the applicable margin is adjusted quarterly as defined in the credit
facility agreement. The total weighted average interest rate of the Mission
Facility was 5.0% and 3.19% at December 31, 2009 and 2008,
respectively.
Unused
Commitments and Borrowing Availability
Based on
covenant calculations, as of December 31, 2009, the company had $20.5
million of total unused revolving loan commitments under the Nexstar and Mission
credit facilities, all of which was available for borrowing.
Senior
Subordinated Notes
On
December 30, 2003, Nexstar Broadcasting issued $125.0 million of 7% senior
subordinated notes (the “7% Notes”) at par. The 7% Notes mature on
January 15, 2014. Interest is payable every six months in arrears on
January 15 and July 15. The 7% Notes are guaranteed by all of the
domestic existing and future restricted subsidiaries of Nexstar Broadcasting and
by Mission. The 7% Notes are general unsecured senior subordinated obligations
subordinated to all of the Company’s senior secured credit facilities. The 7%
Notes are redeemable on or after January 15, 2009, at declining premiums.
The proceeds of the offering were used to finance an acquisition.
The 7%
Notes discussed above have been registered under the Securities Act of 1933 in
accordance with the terms of a registration rights agreement.
F-26
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
11.
Debt—(Continued)
On
April 1, 2005, Nexstar Broadcasting issued $75.0 million at a price of
98.01%. Proceeds obtained under the offering were net of a $1.1 million payment
provided to investors purchasing the notes which was included as a component of
the discount.
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. This transaction resulted in a gain of $0.6 million
for 2009. On October 16, 2008, Nexstar purchased $5.0 million
(face value) of the Company’s outstanding 7% Notes. The cash paid was
approximately $3.1 million which included approximately $0.1 million of accrued
interest. On October 28, 2008, Nexstar purchased $2.5 million (face value)
of the 7% Notes for approximately $1.5 million, which included approximately
$0.1 million of accrued interest. As a result of these two transactions, Nexstar
recognized a combined gain of $2.9 million in 2008. This amount is net of a $0.1
million pro-rata write-off of debt financing costs associated with the 7%
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 pays interest on the New Notes on January 15 and July 15 of each
year, commencing on July 15, 2009. Interest is 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 pays interest on the New Notes
entirely by issuing additional New Notes (the “PIK Interest”). PIK Interest
accrues 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 $142.9 million in aggregate principal of New Notes outstanding and
approximately $47.9 million in aggregate principal amount of Old Notes
outstanding. The effective interest rate on the Old and New Notes
approximates the stated interest rate. Total cash consideration paid
to tendering bondholders was $17.7 million. The exchange transaction was
accounted for as a modification of existing debt. In connection with
the issuance of the senior subordinated PIK notes, $142.3 million of the debt
exchange resulted in a non cash transaction in the statement of cash
flows. 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.
Senior
Subordinated PIK Notes
On
June 27, 2008, Nexstar Broadcasting, Inc. issued senior subordinated
payment-in-kind notes due 2014 (the “PIK Notes”) in aggregate principal amount
of $35.6 million at a purchase price equal to 98.25% or $35.0 million. The
transaction closed on June 30, 2008.
The PIK
Notes bear interest at the rate of: (a) 12% per annum from
June 30, 2008 to January 15, 2010, payable entirely during such period
by increasing the principal amount of the Notes by an amount equal to the amount
of interest then due (“Payment-in-Kind Interest”); (b) 13% per annum,
payable entirely in cash, from January 16, 2010 to July 15, 2010;
(c) 13.5% per annum, payable entirely in cash, from July 16, 2010
to January 15, 2011; (d) 14.0% per annum, payable entirely in
cash, from January 16, 2011 to July 15, 2011; (e) 14.5% per
annum, payable entirely in cash, from July 16, 2011 to January 15,
2012; and (f) 15% per annum, payable entirely in cash, thereafter. The
Notes shall bear interest on the increased principal amount thereof from and
after the applicable interest payment date on which a payment of payment-in-kind
interest is made. The effective interest rate on these Notes
approximates the stated interest rate. The Notes mature on January
15, 2014, unless earlier redeemed or repurchased. The PIK Notes are
general unsecured senior subordinated obligations subordinated to all of the
Company’s senior secured credit facilities.
In
December 2009, the Company filed a registration statement, effective December
31, 2009, that registered the senior subordinated PIK Notes under the Securities
Act of 1933 in accordance with the terms of a registration rights
agreement.
F-27
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
11.
Debt—(Continued)
Senior
Discount Notes
On
March 27, 2003, Nexstar Finance Holdings, Inc. (“Nexstar Finance
Holdings”), a wholly-owned subsidiary of Nexstar, issued $130.0 million
principal amount at maturity of 11.375% senior discount notes (the “11.375%
Notes”) at a price of 57.442%. The effective interest rate on the
11.375% Notes approximates the stated interest rate. The 11.375%
Notes mature on April 1, 2013. Each 11.375% Note will have an accreted
value at maturity of $1,000. The 11.375% Notes began accruing cash interest on
April 1, 2008 with payments due every six months in arrears on April 1
and October 1. On April 1, 2008, Nexstar redeemed a principal amount
of notes outstanding of $46.9 million sufficient to ensure that the 11.375%
Notes will not be “Applicable High Yield Discount Obligations” within the
meaning of Section 163(i)(1) of the Internal Revenue Code of 1986. In
September 2008, Nexstar repurchased $5.3 million of these notes at par, pursuant
to the purchase agreement pertaining to the senior subordinated PIK Notes. Debt
financing costs of $0.1 million were expensed in conjunction with the
repurchase. 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 in 2009. The 11.375% Notes are general
unsecured senior obligations effectively subordinated to the Nexstar Facility
and are structurally subordinated to the 7% Notes, 7% PIK Notes and senior
subordinated PIK Notes.
The
11.375% Notes discussed above have been registered under the Securities Act of
1933 in accordance with the terms of a registration rights
agreement.
Guarantee
of Subordinated and Discount Notes
On
September 29, 2004, Nexstar executed full and unconditional guarantees with
respect to the 7% Notes, each issued by Nexstar Broadcasting, an indirect
subsidiary of Nexstar, and the 11.375% Notes issued by Nexstar Finance Holdings,
a wholly-owned subsidiary of Nexstar. Mission is a guarantor of the senior
subordinated notes issued by Nexstar Broadcasting.
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 to be renewed upon expiration.
The
11.375% Notes are general unsecured senior obligations effectively subordinated
to the Nexstar facility and are structurally subordinated to the 7% Notes, 7%
PIK Notes and senior subordinated PIK Notes.
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 8.75 times the last twelve
months operating cash flow (as defined in the credit agreement) at December 31,
2009, (2) a maximum combined senior leverage ratio of Nexstar Broadcasting
and Mission of 7.00 times the last twelve months operating cash flow at December
31, 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. Although
the Nexstar and Mission senior credit facilities allow for payment of cash
dividends to common stockholders, Nexstar and Mission do not currently intend to
declare or pay a cash dividend. 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. The October 8, 2009 debt amendment
contained a limited waiver for the leverage ratios which cured the violation as
of September 30, 2009. As of December 31, 2009, we are in
compliance with all of our covenants.
F-28
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
11.
Debt—(Continued)
In order
to make further borrowings under the Nexstar Facility, Nexstar Broadcasting is
required to be in compliance with these and other covenants including the
requirement that there shall not have occurred any material adverse effect on
the operational business assets, properties, condition (financial or otherwise)
or prospects of the Company.
Fair
Value of Debt
The
aggregate carrying amounts and estimated fair value of Nexstar’s and Mission’s
debt were as follows:
December 31, 2009
|
December 31,
2008
|
|||||||||||||||
Carrying
Amount
|
Fair
Value
|
Carrying
Amount
|
Fair
Value
|
|||||||||||||
(in
thousands)
|
||||||||||||||||
Term
loans(1)
|
$ | 321,689 | $ | 301,254 | $ | 325,174 | $ | 293,388 | ||||||||
Revolving
credit facilities(1)
|
$ | 77,000 | $ | 72,865 | $ | 31,000 | $ | 27,829 | ||||||||
7%
Senior subordinated notes(2)
|
$ | 46,981 | $ | 36,645 | $ | 190,778 | $ | 78,219 | ||||||||
7%
senior subordinated PIK notes(2)
|
$ | 132,296 | $ | 103,191 | $ | — | $ | — | ||||||||
Senior
subordinated PIK notes(2)
|
$ | 42,427 | $ | 28,214 | $ | 37,345 | $ | 16,805 | ||||||||
Senior
discount notes(2)
|
$ | 49,981 | $ | 41,734 | $ | 77,820 | $ | 26,264 |
(1)
|
The
fair value of bank credit facilities is computed based on borrowing rates
currently available to Nexstar and Mission for bank loans with similar
terms and average maturities. These fair value measurements are
considered Level 3 (significant and
unobservable).
|
(2)
|
The
fair value of Nexstar’s fixed rate debt is estimated based on bid prices
obtained from an investment banking firm that regularly makes a market for
these financial instruments. These fair value measurements are
considered Level 2 (significant and
observable).
|
Debt
Maturities
At
December 31, 2009, scheduled maturities of Nexstar’s and Mission’s debt
(undiscounted) are summarized as follows (in thousands):
Year
ended December 31,
|
||||
2010
|
$ | 7,085 | ||
2011
|
3,485 | |||
2012
|
388,119 | |||
2013
|
49,981 | |||
2014
|
234,138 | |||
Thereafter
|
— | |||
$ | 682,808 |
12. 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 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.
F-29
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
12. Contract
Termination—(Continued)
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 December 31, 2009 and 2008, 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 $5.6 million and $6.0 million,
respectively was included in deferred representation fee incentive in the
accompanying condensed balance sheet. The Company recognized $0.8
million and $0.6 million of these incentives as a reduction of selling, general
and administrative expense for the years ended December 31, 2009 and 2008,
respectively.
13.
Other Noncurrent Liabilities
Other
noncurrent liabilities consist of the following:
December 31, 2009
|
December 31, 2008
|
|||||||
Deferred
rent
|
$ | 7,679 | $ | 7,222 | ||||
Software
agreement obligation
|
3,931 | 4,281 | ||||||
Other
|
2,200 | 1,772 | ||||||
$ | 13,810 | $ | 13,275 |
14.
Common Stock
In May
2007, Banc of America Capital Investors L.P. converted 662,529 non-voting shares
of Nexstar Class C common stock into an equivalent number of voting shares of
Nexstar Class A common stock.
The
holders of Class A common stock are entitled to one vote per share and the
holders of Class B common stock are entitled to 10 votes per share. Holders of
Class A common stock and Class B common stock generally vote together as a
single class on all matters submitted to a vote of the stockholders. Holders of
Class C common stock have no voting rights.
The
shares of Class B common stock and Class C common stock are convertible as
follows: (i) holders of shares of Class B common stock or Class C common
stock may elect at any time to convert their shares into an equal number of
shares of Class A common stock; or (ii) the Class B common stock will
automatically convert into Class A common stock on a one-for-one basis if
the holder transfers to anyone other than a certain group of shareholders; or
(iii) if Class B common stock represents less than 10.0% of the total
common stock outstanding, all of the Class B common stock will automatically
convert into Class A common stock on a one-for-one basis.
The
Common stockholders are entitled to receive cash dividends, subject to the
rights of holders of any series of Preferred Stock, on an equal per share
basis.
15. Stock-Based
Compensation Plans
Stock-Based
Compensation
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. At January 1, 2006, the aggregate value of the unvested portion
of previously issued stock options was approximately $6.1 million. Compensation
cost related to these stock options is being recognized as expense ratably over
the remaining vesting period of the awards which become fully-vested in
2010.
The
weighted-average assumptions used in the Black-Scholes calculation for option
grants during the years ended December 31, 2009, 2008 and 2007 were as
follows:
2009
|
2008
|
2007
|
||||||||||
Expected
volatility
|
82.27 | % | 54.25 | % | 48.06 | % | ||||||
Risk-free
interest rates
|
3.10 | % | 3.07 | % | 3.63 | % | ||||||
Expected
term
|
6.0 years
|
5.34 years
|
6.0 years
|
|||||||||
Dividend
yields
|
0 | % | 0 | % | 0 | % | ||||||
Fair
value per share of options granted
|
$ | 0.61 | $ | 2.35 | $ | 4.55 |
F-30
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
15. Stock-Based
Compensation Plans—(Continued)
The
expected volatility assumption used for stock option grants in 2009, 2008 and
2007 is based on a combination of the historical market prices of Nexstar’s
common stock and volatilities of peer companies in the television broadcasting
industry over the expected term of the granted option. The Company utilized peer
company data due to Nexstar’s limited history of publicly traded shares. During
the years ended December 31, 2009, 2008 and 2007, the expected term
assumption represents the weighted-average period of time that options granted
are expected to be outstanding, giving consideration to vesting periods and
historical exercise and post-vesting cancellation experience. Prior to adopting
the current accounting and disclosure requirements for share-based payments,
expected volatility was based solely on the historical market prices of
Nexstar’s common stock and expected term equaled the vesting period of the stock
option. The risk-free interest rates used are based on the daily U.S. Treasury
yield curve rate in effect at the time of the grant having a period commensurate
with the expected term assumption.
The
Company does not currently recognize a tax benefit resulting from 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.
Description
and Activity of Stock-Based Compensation Plans
Nexstar
has two stock-based employee compensation plans: the 2006 Long-Term Equity
Incentive Plan (the “2006 Plan”) and the 2003 Long-Term Equity Incentive Plan
(the “2003 Plan”) (collectively, the “Equity Plans”), which provide for the
granting of stock options, stock appreciation rights, restricted stock and
performance awards to directors, employees of Nexstar or consultants. Approved
by Nexstar’s shareholders on May 30, 2006, a maximum of 1,500,000 shares of
Nexstar’s Class A common stock can be issued under the 2006 Plan. Under the
2003 Plan, a maximum of 3,000,000 shares of Nexstar’s Class A common stock
can be issued. As of December 31, 2009, a total of 434,000 shares and
273,000 shares were available for future grant under the 2006 Plan and 2003
Plan, respectively.
As of
December 31, 2009, options to purchase 3,726,000 shares of Nexstar’s
Class A common stock were outstanding under the Equity Plans. 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. Except as otherwise determined by
the compensation committee or with respect to the termination of a participant’s
services in certain circumstances, including a change of control, no grant may
be exercised within six months of the date of the grant. Upon the employee’s
termination, all nonvested options are forfeited immediately and any unexercised
vested options are canceled from 30 to 180 days following the termination date.
Nexstar intends to issue new shares of its Class A common stock when
options are exercised.
During
2006, Nexstar granted 30,000 shares of restricted stock under the 2003 Plan.
This award vested monthly in increments of 2,500 shares and became fully vested
as of January 23, 2007. The fair value of the award totaled $140 thousand,
which was based on the market price of Nexstar’s common stock on the date of
grant, and was recognized as an expense ratably over the vesting period. Nexstar
recorded $11 thousand and $129 thousand of compensation expense for the years
ended December 31, 2007 and 2006, respectively, related to the restricted
stock, which was included in selling, general and administrative expenses in the
Company’s consolidated statement of operations.
F-31
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
15. Stock-Based
Compensation Plans—(Continued)
The
following table summarizes stock award activity and related information for all
of Nexstar’s Equity Plans for the year ended December 31, 2009 (not
presented in thousands):
Outstanding
Options
|
||||||||||||||||||||
Shares
Available
for
Grant
|
Shares
|
Weighted-
Average
Exercise
Price
|
Weighted-
Average
Remaining
Contractual
Term (Years)
|
Aggregate
Intrinsic
Value(2)
|
||||||||||||||||
Balance
at January 1, 2009
|
723,000 | 3,715,000 | $ | 8.13 | ||||||||||||||||
Options
granted
|
(585,000 | ) | 585,000 | $ | 0.85 | |||||||||||||||
Options
exercised
|
— | (5,000 | ) | $ | 2.58 | |||||||||||||||
Options
forfeited/cancelled
|
569,000 | (569,000 | ) | $ | 5.69 | |||||||||||||||
Balance
at December 31, 2009
|
707,000 | 3,726,000 | $ | 7.36 | 6.44 | $ | 1,824,050 | |||||||||||||
Exercisable
at December 31, 2009
|
2,396,991 | $ | 9.07 | 5.43 | $ | 3,660 | ||||||||||||||
Fully
vested and expected to vest at December 31, 2009
|
3,673,773 | $ | 7.41 | 6.42 | $ | 1,736,054 |
(1)
|
All
options granted during the year ended December 31, 2009 had an
exercise price equal to the grant-date market
price.
|
(2)
|
Aggregate
intrinsic value includes effects of estimated forfeitures and represents
the difference between the closing market price of Nexstar’s common stock
on the last day of the fiscal period, which was $4.05 on December 31,
2009, and the exercise price multiplied by the number of options
outstanding.
|
At
December 31, 2009, there was approximately $2.7 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 2.8
years.
The
following table summarizes information about options outstanding as of
December 31, 2009 (not presented in thousands):
Options
Outstanding
|
Options
Exercisable
|
|||||||||||||||||||||
Range
of
Exercise
Prices
|
Number
Outstanding
at
12/31/09
|
Weighted-
Average
Remaining
Contractual
Life
(Years)
|
Weighted-
Average
Exercise
Price
|
Number
Exercisable
at
12/31/09
|
Weighted-
Average
Exercise
Price
|
|||||||||||||||||
$ | 0.75 - $4.99 | 1,734,000 | 7.48 | $ | 3.39 | 808,000 | $ | 4.59 | ||||||||||||||
$ | 5.00 - $6.99 | 55,000 | 7.71 | $ | 5.38 | 18,000 | $ | 5.38 | ||||||||||||||
$ | 7.00 - $8.99 | 520,000 | 4.95 | $ | 8.62 | 520,000 | $ | 8.62 | ||||||||||||||
$ | 9.00 - $13.99 | 632,000 | 7.80 | $ | 9.17 | 272,000 | $ | 9.36 | ||||||||||||||
$ | 14.00 - $14.49 | 785,000 | 3.96 | $ | 14.01 | 778,991 | $ | 14.01 | ||||||||||||||
3,726,000 | 2,396,991 |
16. 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 years ended December 31, 2009, 2008 and 2007, the Company
recognized gains of $8.1 million, $4.8 million and $2.0 million, respectively
from the exchange of this equipment.
F-32
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
17. 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
net gain of $1.0 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 net
gain of $2.3 million, which is included in gain on asset disposal,
net. Of the insurance proceeds received, $0.5 million was related to
business interruption.
18. Income
Taxes
The
provision (benefit) for income taxes consisted of the following
components:
Years Ended
December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
(in
thousands)
|
||||||||||||
Current
tax expense (benefit):
|
||||||||||||
Federal
|
$ | — | $ | — | $ | (100 | ) | |||||
State
|
413 | 560 | 528 | |||||||||
413 | 560 | 428 | ||||||||||
Deferred
tax expense (benefit):
|
||||||||||||
Federal
|
(209 | ) | (5,327 | ) | 5,308 | |||||||
State
|
(4 | ) | (549 | ) | 71 | |||||||
(213 | ) | (5,876 | ) | 5,379 | ||||||||
Income
tax expense (benefit)
|
$ | 200 | $ | (5,316 | ) | $ | 5,807 |
The
provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate of 35% to loss from operations before income
taxes. The sources and tax effects of the differences were as
follows:
Years Ended
December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
(in
thousands)
|
||||||||||||
Tax
benefit at 35% statutory federal rate
|
$ | (4,345 | ) | $ | (29,181 | ) | $ | (4,888 | ) | |||
Change
in valuation allowance
|
3,873 | 13,915 | 10,684 | |||||||||
State
and local taxes, net of federal benefit
|
(482 | ) | (1,051 | ) | (86 | ) | ||||||
Adjustment
to tax reserve liability
|
— | — | (100 | ) | ||||||||
Nondeductible
goodwill impairment
|
262 | 10,794 | — | |||||||||
Other
permanent differences
|
892 | 207 | 197 | |||||||||
Income
tax expense (benefit)
|
$ | 200 | $ | (5,316 | ) | $ | 5,807 |
F-33
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
18. Income
Taxes—(Continued)
The
components of the net deferred tax liability were as follows:
December 31,
|
||||||||
2009
|
2008
|
|||||||
(in
thousands)
|
||||||||
Deferred
tax assets:
|
||||||||
Net
operating loss carryforwards
|
$ | 154,552 | $ | 150,188 | ||||
Other
intangible assets
|
5,961 | 8,575 | ||||||
Deferred
revenue
|
3,644 | 3,482 | ||||||
Deferred
gain on sale of assets
|
1,907 | 2,077 | ||||||
Other
|
11,503 | 10,205 | ||||||
Total
deferred tax assets
|
177,567 | 174,527 | ||||||
Valuation
allowance
|
(169,510 | ) | (166,783 | ) | ||||
Net
deferred tax assets
|
8,057 | 7,744 | ||||||
Deferred
tax liabilities:
|
||||||||
Property
and equipment
|
(7,451 | ) | (7,124 | ) | ||||
Goodwill
|
(11,830 | ) | (12,088 | ) | ||||
FCC
licenses
|
(26,603 | ) | (26,576 | ) | ||||
Total
deferred tax liabilities
|
(45,884 | ) | (45,788 | ) | ||||
Net
deferred tax liability
|
$ | (37,827 | ) | $ | (38,044 | ) |
The
provision for income tax 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. The provision was offset, in part, by the impact of the
impairment charge which reduced the carrying value of goodwill and other
indefinite-lived assets for financial reporting purposes and decreased the
related deferred tax liability. The 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 carryforwards (“NOLs”). The Company’s NOLs
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.
On
May 18, 2006, the State of Texas enacted legislation to change its existing
franchise tax from a tax based on taxable capital or earned surplus to a tax
based on modified gross revenue (“Margin Tax”). The former Texas franchise tax
structure remained in existence until the end of 2006. Beginning in 2007, the
Margin Tax imposes a 1% tax on revenues, less certain costs, as specified in the
legislation, generated from Texas activities. Additionally, the legislation
provides a temporary credit for Texas business loss carryovers existing through
2006 to be utilized as an offset to the Margin Tax. On June 15, 2007, the
Texas Governor signed legislation that provided various technical corrections to
the Texas Margin Tax. Based on the changes provided in this newly enacted tax
law, the Company adjusted its temporary credit for Texas business loss
carryovers to be utilized as an offset to the Margin Tax and a related deferred
tax asset during the second quarter of 2007. The effect of the revision made to
the temporary credit increased the Company’s deferred tax assets position
resulting in approximately a $0.5 million reduction in the deferred state income
tax provision for the year ended December 31, 2007.
F-34
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
18. Income
Taxes—(Continued)
As
discussed in Note 2, the Company adopted interpretive guidance related to
uncertainty surrounding tax benefits on January 1, 2007. A reconciliation
of the beginning and ending balances of the total amounts of gross unrecognized
tax benefits is as follows (in thousands):
Gross
unrecognized tax benefits at January 1, 2009
|
$ | 3,677 | ||
Increases
in tax positions from prior years
|
— | |||
Decreases
in tax positions from prior years
|
— | |||
Increases
in tax positions for current year
|
— | |||
Settlements
|
— | |||
Lapse
in statute of limitations
|
— | |||
Gross
unrecognized tax benefits at December 31, 2009
|
$ | 3,677 |
Interest
expense and penalties related to the Company’s uncertain tax positions would be
reflected as a component of income tax expense in the Company’s Consolidated
Statements of Operations. As of December 31, 2009 and 2008, the Company did
not accrue 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.
As of
December 31, 2009, the total gross unrecognized tax benefits were
approximately $3.7 million. If recognized, this amount would result in a
favorable effect on the Company’s effective tax rate excluding impact on the
Company’s valuation allowance position. 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 2005. 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.
The
valuation allowance increased for the years ended December 31, 2009 and 2008 by
$2.7 million and $14.6 million primarily related to the generation of current
year net operating losses, the benefit of which may not be
realized.
At
December 31, 2009, the Company has NOLs available of approximately $430.2
million which are available to reduce future taxable income if utilized before
their expiration. The federal NOLs begin to expire in 2009 through 2029 if not
utilized. Utilization of NOLs in the future may be limited if changes in the
Company’s ownership occurs.
F-35
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
19.
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
In
February 2009, President Obama signed into law legislation that established
June 12, 2009 as the deadline for television broadcasters to complete their
transition to DTV-only operations and return their analog spectrum to the FCC.
The DTV transmission system delivers video and audio signals of higher quality
(including high definition television) than the existing analog transmission
system. DTV also has substantial capabilities for multiplexing (the broadcast of
several channels of programs concurrently) and data transmission. The
introduction of digital television requires consumers to purchase new television
sets that are capable of receiving and displaying the DTV signals, or adapters
to receive DTV signals and convert them to analog signals for display on their
existing receivers.
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.
As of December 31, 2009, all of Nexstar’s and Mission’s stations have completed
the transition to digital operations; however, Nexstar is working with the FCC
with respect to KMID’s authorization.
DTV
conversion expenditures were $8.4 million, $23.3 million and $8.6 million,
respectively, for the years ended December 31, 2009, 2008 and
2007.
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.
F-36
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
20. Commitments
and Contingencies
Broadcast
Rights Commitments
Broadcast
rights acquired for cash under license agreements are recorded as an asset and a
corresponding liability at the inception of the license period. Future minimum
payments arising from unavailable future broadcast license commitments
outstanding are as follows at December 31, 2009 (in
thousands):
Year
ended December 31,
|
||||
2010
|
$ | 1,875 | ||
2011
|
4,596 | |||
2012
|
2,180 | |||
2013
|
414 | |||
2014
|
268 | |||
Thereafter
|
41 | |||
Future
minimum payments for unavailable cash broadcast rights
|
$ | 9,374 |
Unavailable
broadcast rights commitments represent obligations to acquire cash program
rights for which the license period has not commenced and, accordingly, for
which no asset or liability has been recorded.
Operating
Leases
The
Company leases office space, vehicles, towers, antennae sites, studio and other
operating equipment under noncancelable operating lease arrangements expiring
through April 2032. Charges to operations for such leases aggregated
approximately $6.2 million, $6.1 million and $5.4 million for the years ended
December 31, 2009, 2008 and 2007, respectively. Future minimum lease
payments under these operating leases are as follows at December 31, 2009
(in thousands):
Year
ended December 31,
|
||||
2010
|
$ | 4,606 | ||
2011
|
4,593 | |||
2012
|
4,514 | |||
2013
|
4,564 | |||
2014
|
4,162 | |||
Thereafter
|
38,643 | |||
$ | 61,082 |
Guarantee
of Mission Debt
Nexstar
and its subsidiaries guarantee full payment of all obligations incurred under
Misson’s senior 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
December 31, 2009, Mission had $172.4 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.
F-37
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
20. Commitments
and Contingencies—(Continued)
Collective
Bargaining Agreements
As of
December 31, 2009, certain technical, production and news employees at six
of the Company’s stations are covered by collective bargaining agreements. The
Company believes that employee relations are satisfactory and has not
experienced any work stoppages at any of its stations. However, there can be no
assurance that the collective bargaining agreements will be renewed in the
future or that the Company will not experience a prolonged labor dispute, which
could have a material adverse effect on its business, financial condition, or
results of operations.
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.
21.
Condensed Consolidating Financial Information
Senior
Discount Notes
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.
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.
F-38
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
21.
Condensed Consolidating Financial Information—(Continued)
BALANCE
SHEET
December 31,
2009
(in
thousands)
Nexstar
|
Nexstar
Broadcasting
|
Mission
|
Nexstar
Holdings
|
Eliminations
|
Consolidated
Company
|
|||||||||||||||||||
ASSETS
|
||||||||||||||||||||||||
Current
assets:
|
||||||||||||||||||||||||
Cash
and cash equivalents
|
$ | — | $ | 11,849 | $ | 903 | $ | — | $ | — | $ | 12,752 | ||||||||||||
Due
from Mission
|
— | 13,370 | — | — | (13,370 | ) | — | |||||||||||||||||
Other
current assets
|
— | 75,466 | 4,668 | — | — | 80,134 | ||||||||||||||||||
Total
current assets
|
— | 100,685 | 5,571 | — | (13,370 | ) | 92,886 | |||||||||||||||||
Investments
in subsidiaries eliminated upon consolidation
|
(75,125 | ) | — | — | (16,856 | ) | 91,981 | — | ||||||||||||||||
Amounts
due from parents eliminated upon consolidation
|
— | 4,146 | — | — | (4,146 | ) | — | |||||||||||||||||
Property
and equipment, net
|
— | 115,671 | 28,610 | — | — | 144,281 | ||||||||||||||||||
Goodwill
|
— | 90,330 | 18,729 | — | — | 109,059 | ||||||||||||||||||
FCC
licenses
|
— | 106,789 | 20,698 | — | — | 127,487 | ||||||||||||||||||
Other
intangible assets, net
|
— | 100,699 | 25,517 | — | — | 126,216 | ||||||||||||||||||
Other
noncurrent assets
|
— | 15,197 | 3,906 | 794 | — | 19,897 | ||||||||||||||||||
Total
assets
|
$ | (75,125 | ) | $ | 533,517 | $ | 103,031 | $ | (16,062 | ) | $ | 74,465 | $ | 619,826 | ||||||||||
LIABILITIES AND
STOCKHOLDERS’
EQUITY (DEFICIT)
|
||||||||||||||||||||||||
Current
liabilities:
|
||||||||||||||||||||||||
Current
portion of debt
|
$ | — | $ | 5,358 | $ | 1,727 | $ | — | $ | — | $ | 7,085 | ||||||||||||
Due
to Nexstar Broadcasting
|
— | — | 13,370 | — | (13,370 | ) | — | |||||||||||||||||
Other
current liabilities
|
— | 42,331 | 5,174 | 1,421 | — | 48,926 | ||||||||||||||||||
Total
current liabilities
|
— | 47,689 | 20,271 | 1,421 | (13,370 | ) | 56,011 | |||||||||||||||||
Debt
|
— | 442,675 | 170,633 | 49,981 | — | 663,289 | ||||||||||||||||||
Amounts
due to subsidiary eliminated upon consolidation
|
(3,513 | ) | — | — | 7,659 | (4,146 | ) | — | ||||||||||||||||
Other
noncurrent liabilities
|
(3 | ) | 60,009 | 16,781 | 2 | — | 76,789 | |||||||||||||||||
Total
liabilities
|
(3,516 | ) | 550,373 | 207,685 | 59,063 | (17,516 | ) | 796,089 | ||||||||||||||||
Stockholders’
equity (deficit):
|
||||||||||||||||||||||||
Common
stock
|
284 | — | — | — | — | 284 | ||||||||||||||||||
Other
stockholders’ equity (deficit)
|
(71,893 | ) | (16,856 | ) | (104,654 | ) | (75,125 | ) | 91,981 | (176,547 | ) | |||||||||||||
Total
stockholders’ equity (deficit)
|
(71,609 | ) | (16,856 | ) | (104,654 | ) | (75,125 | ) | 91,981 | (176,263 | ) | |||||||||||||
Total liabilities and stockholders’
equity (deficit)
|
$ | (75,125 | ) | $ | 533,517 | $ | 103,031 | $ | (16,062 | ) | $ | 74,465 | $ | 619,826 |
F-39
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
21.
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
|
(65,139 | ) | — | — | 15,553 | 49,586 | — | |||||||||||||||||
Amounts
due from parents eliminated upon consolidation
|
— | (33 | ) | — | — | 33 | — | |||||||||||||||||
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
|
$ | (65,138 | ) | $ | 530,627 | $ | 110,078 | $ | 16,869 | $ | 34,151 | $ | 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)
|
(63,413 | ) | 15,553 | (102,027 | ) | (65,139 | ) | 49,586 | (165,440 | ) | ||||||||||||||
Total
stockholders’ equity (deficit)
|
(63,129 | ) | 15,553 | (102,027 | ) | (65,139 | ) | 49,586 | (165,156 | ) | ||||||||||||||
Total liabilities and stockholders’
equity (deficit)
|
$ | (65,138 | ) | $ | 530,627 | $ | 110,078 | $ | 16,869 | $ | 34,151 | $ | 626,587 |
F-40
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
21.
Condensed Consolidating Financial Information—(Continued)
STATEMENT
OF OPERATIONS
For
the Year Ended December 31, 2009
(in
thousands)
Nexstar
|
Nexstar
Broadcasting
|
Mission
|
Nexstar
Holdings
|
Eliminations
|
Consolidated
Company
|
|||||||||||||||||||
Net
broadcast revenue (including trade and barter)
|
$ | — | $ | 243,591 | $ | 8,388 | $ | — | $ | — | $ | 251,979 | ||||||||||||
Revenue
between consolidated entities
|
— | 7,425 | 25,435 | — | (32,860 | ) | — | |||||||||||||||||
Net
revenue
|
— | 251,016 | 33,823 | — | (32,860 | ) | 251,979 | |||||||||||||||||
Operating
expenses:
|
||||||||||||||||||||||||
Direct
operating expenses (exclusive of depreciation and amortization shown
separately below)
|
— | 71,423 | 5,810 | — | — | 77,233 | ||||||||||||||||||
Selling,
general, and administrative expenses (exclusive of depreciation and
amortization shown separately below)
|
— | 86,728 | 2,790 | 7 | — | 89,525 | ||||||||||||||||||
Local
service agreement fees between consolidated entities
|
— | 25,435 | 7,425 | — | (32,860 | ) | — | |||||||||||||||||
Restructure
charge
|
— | 670 | — | — | — | 670 | ||||||||||||||||||
Non-cash
contract termination fee
|
— | 191 | — | — | — | 191 | ||||||||||||||||||
Impairment
of goodwill and intangible assets
|
— | 13,906 | 2,258 | — | — | 16,164 | ||||||||||||||||||
Amortization
of broadcast rights
|
— | 20,582 | 4,681 | — | — | 25,263 | ||||||||||||||||||
Amortization
of intangible assets
|
— | 18,557 | 5,148 | — | — | 23,705 | ||||||||||||||||||
Depreciation
|
— | 18,022 | 3,658 | — | — | 21,680 | ||||||||||||||||||
Gain
on asset exchange
|
(5,708 | ) | (2,385 | ) | — | — | (8,093 | ) | ||||||||||||||||
(Gain)
loss on property and asset disposal, net
|
— | (2,588 | ) | 28 | — | — | (2,560 | ) | ||||||||||||||||
Total
operating expenses
|
— | 247,218 | 29,413 | 7 | (32,860 | ) | 243,778 | |||||||||||||||||
Income
(loss) from operations
|
— | 3,798 | 4,410 | (7 | ) | — | 8,201 | |||||||||||||||||
Interest
expense, including amortization of debt financing costs
|
— | (27,027 | ) | (6,056 | ) | (6,153 | ) | — | (39,236 | ) | ||||||||||||||
Gain
on extinguishment of debt
|
— | 565 | — | 18,002 | — | 18,567 | ||||||||||||||||||
Equity
in loss of subsidiaries
|
(9,987 | ) | — | — | (21,829 | ) | 31,816 | — | ||||||||||||||||
Other
income, net
|
— | 49 | 5 | — | — | 54 | ||||||||||||||||||
Loss
before income taxes
|
(9,987 | ) | (22,615 | ) | (1,641 | ) | (9,987 | ) | 31,816 | (12,414 | ) | |||||||||||||
Income
tax (expense) benefit
|
— | 786 | (986 | ) | — | — | (200 | ) | ||||||||||||||||
Net
(loss) income
|
$ | (9,987 | ) | $ | (21,829 | ) | $ | (2,627 | ) | $ | (9,987 | ) | $ | 31,816 | $ | (12,614 | ) |
F-41
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
21.
Condensed Consolidating Financial Information—(Continued)
STATEMENT
OF OPERATIONS
For
the Year Ended December 31, 2008
(in
thousands)
Nexstar
|
Nexstar
Broadcasting
|
Mission
|
Nexstar
Holdings
|
Eliminations
|
Consolidated
Company
|
|||||||||||||||||||
Net
broadcast revenue (including trade and barter)
|
$ | — | $ | 278,284 | $ | 6,635 | $ | — | $ | — | $ | 284,919 | ||||||||||||
Revenue
between consolidated entities
|
— | 8,090 | 35,283 | — | (43,373 | ) | — | |||||||||||||||||
Net
revenue
|
— | 286,374 | 41,918 | — | (43,373 | ) | 284,919 | |||||||||||||||||
Operating
expenses:
|
||||||||||||||||||||||||
Direct
operating expenses (exclusive of depreciation and amortization shown
separately below)
|
— | 71,882 | 6,405 | — | — | 78,287 | ||||||||||||||||||
Selling,
general, and administrative expenses (exclusive of depreciation and
amortization shown separately below)
|
1 | 87,872 | 2,595 | — | — | 90,468 | ||||||||||||||||||
Local
service agreement fees between consolidated entities
|
— | 35,283 | 8,090 | — | (43,373 | ) | — | |||||||||||||||||
Non-cash
contract termination fee
|
— | 7,167 | — | — | — | 7,167 | ||||||||||||||||||
Impairment
of goodwill and intangible assets
|
70,957 | 11,438 | — | — | 82,395 | |||||||||||||||||||
Amortization
of broadcast rights
|
— | 15,694 | 4,729 | — | — | 20,423 | ||||||||||||||||||
Amortization
of intangible assets
|
— | 22,726 | 5,403 | — | — | 28,129 | ||||||||||||||||||
Depreciation
|
— | 17,687 | 3,337 | — | — | 21,024 | ||||||||||||||||||
(Gain)
loss on asset exchange
|
(3,907 | ) | (869 | ) | — | — | (4,776 | ) | ||||||||||||||||
(Gain)
loss on property and asset disposal, net
|
— | 253 | (352 | ) | 56 | — | (43 | ) | ||||||||||||||||
Total
operating expenses
|
1 | 325,614 | 40,776 | 56 | (43,373 | ) | 323,074 | |||||||||||||||||
Income
(loss) from operations
|
(1 | ) | (39,240 | ) | 1,142 | (56 | ) | — | (38,155 | ) | ||||||||||||||
Interest
expense, including amortization of debt financing costs
|
— | (28,641 | ) | (9,472 | ) | (10,719 | ) | — | (48,832 | ) | ||||||||||||||
Gain
on extinguishment of debt
|
— | 2,897 | — | — | — | 2,897 | ||||||||||||||||||
Equity
in loss of subsidiaries
|
(70,518 | ) | — | — | (59,743 | ) | 130,261 | — | ||||||||||||||||
Other
income, net
|
— | 662 | 53 | — | — | 715 | ||||||||||||||||||
Loss
before income taxes
|
(70,519 | ) | (64,322 | ) | (8,277 | ) | (70,518 | ) | 130,261 | (83,375 | ) | |||||||||||||
Income
tax (expense) benefit
|
— | 4,579 | 737 | — | — | 5,316 | ||||||||||||||||||
Net
(loss) income
|
$ | (70,519 | ) | $ | (59,743 | ) | $ | (7,540 | ) | $ | (70,518 | ) | $ | 130,261 | $ | (78,059 | ) |
F-42
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
21.
Condensed Consolidating Financial Information—(Continued)
STATEMENT
OF OPERATIONS
For
the Year Ended December 31, 2007
(in
thousands)
Nexstar
|
Nexstar
Broadcasting
|
Mission
|
Nexstar
Holdings
|
Eliminations
|
Consolidated
Company
|
|||||||||||||||||||
Net
broadcast revenue (including trade and barter)
|
$ | — | $ | 260,075 | $ | 6,726 | $ | — | $ | — | $ | 266,801 | ||||||||||||
Revenue
between consolidated entities
|
— | 7,860 | 30,556 | — | (38,416 | ) | — | |||||||||||||||||
Net
revenue
|
— | 267,935 | 37,282 | — | (38,416 | ) | 266,801 | |||||||||||||||||
Operating
expenses (income):
|
||||||||||||||||||||||||
Direct
operating expenses (exclusive of depreciation and amortization shown
separately below)
|
— | 68,980 | 5,148 | — | — | 74,128 | ||||||||||||||||||
Selling,
general, and administrative expenses (exclusive of depreciation and
amortization shown separately below)
|
(105 | ) | 84,598 | 2,280 | — | — | 86,773 | |||||||||||||||||
Local
service agreement fees between consolidated entities
|
— | 30,556 | 7,860 | — | (38,416 | ) | — | |||||||||||||||||
Amortization
of broadcast rights
|
— | 17,188 | 4,269 | — | — | 21,457 | ||||||||||||||||||
Amortization
of intangible assets
|
— | 20,309 | 5,362 | — | — | 25,671 | ||||||||||||||||||
Depreciation
|
— | 16,983 | 3,241 | — | (15 | ) | 20,209 | |||||||||||||||||
Gain
on asset exchange
|
— | (1,645 | ) | (317 | ) | — | — | (1,962 | ) | |||||||||||||||
Loss
(gain) on asset disposal, net
|
— | (109 | ) | 92 | — | — | (17 | ) | ||||||||||||||||
Total operating expenses
(income)
|
(105 | ) | 236,860 | 27,935 | — | (38,431 | ) | 226,259 | ||||||||||||||||
Income
from operations
|
105 | 31,075 | 9,347 | — | 15 | 40,542 | ||||||||||||||||||
Interest
expense, including amortization of debt financing costs
|
— | (29,099 | ) | (12,344 | ) | (13,597 | ) | — | (55,040 | ) | ||||||||||||||
Equity
in loss of subsidiaries
|
(15,853 | ) | — | — | (2,256 | ) | 18,109 | — | ||||||||||||||||
Other
income, net
|
— | 440 | 92 | — | — | 532 | ||||||||||||||||||
Income
(loss) before income taxes
|
(15,748 | ) | 2,416 | (2,905 | ) | (15,853 | ) | 18,124 | (13,966 | ) | ||||||||||||||
Income
tax expense
|
— | (4,672 | ) | (1,135 | ) | — | — | (5,807 | ) | |||||||||||||||
Net
(loss) income
|
$ | (15,748 | ) | $ | (2,256 | ) | $ | (4,040 | ) | $ | (15,853 | ) | $ | 18,124 | $ | (19,773 | ) |
F-43
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
21.
Condensed Consolidating Financial Information—(Continued)
STATEMENT
OF CASH FLOWS
For
the Year Ended December 31, 2009
(in
thousands)
Nexstar
|
Nexstar
Broadcasting
|
Mission
|
Nexstar
Holdings
|
Eliminations
|
Consolidated
Company
|
|||||||||||||||||||
Cash
flows provided by (used for) operating activities
|
$ | — | $ | 19,815 | $ | 4,196 | $ | 9,561 | $ | (10,579 | ) | $ | 22,993 | |||||||||||
Cash
flows from investing activities:
|
||||||||||||||||||||||||
Additions
to property and equipment
|
— | (17,857 | ) | (1,171 | ) | — | — | (19,028 | ) | |||||||||||||||
Acquisition
of broadcast properties and related transaction costs
|
— | (20,756 | ) | — | — | — | (20,756 | ) | ||||||||||||||||
Other
investing activities
|
— | 4,194 | — | — | — | 4,194 | ||||||||||||||||||
Net
cash used for investing activities
|
— | (34,419 | ) | (1,171 | ) | — | — | (35,590 | ) | |||||||||||||||
Cash
flows from financing activities:
|
||||||||||||||||||||||||
Repayment
of long-term debt
|
— | (10,158 | ) | (1,727 | ) | (9,561 | ) | — | (21,446 | ) | ||||||||||||||
Proceeds
from revolver draws
|
— | 54,000 | — | — | — | 54,000 | ||||||||||||||||||
Consideration
paid to bondholders for debt exchange
|
— | (17,677 | ) | — | — | — | (17,677 | ) | ||||||||||||||||
Payments
for debt financing costs
|
— | (3,554 | ) | (1,821 | ) | — | — | (5,375 | ) | |||||||||||||||
Inter-company
dividends paid
|
— | (10,579 | ) | — | — | 10,579 | — | |||||||||||||||||
Other
financing activities
|
— | 13 | — | — | — | 13 | ||||||||||||||||||
Net
cash provided by (used for) financing activities
|
— | 12,045 | (3,548 | ) | (9,561 | ) | 10,579 | 9,515 | ||||||||||||||||
Net
decrease in cash and cash equivalents
|
— | (2,559 | ) | (523 | ) | — | — | (3,082 | ) | |||||||||||||||
Cash
and cash equivalents at beginning of year
|
— | 14,408 | 1,426 | — | — | 15,834 | ||||||||||||||||||
Cash
and cash equivalents at end of year
|
$ | — | $ | 11,849 | $ | 903 | $ | — | $ | — | $ | 12,752 |
F-44
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
21.
Condensed Consolidating Financial Information—(Continued)
STATEMENT
OF CASH FLOWS
For
the Year Ended December 31, 2008
(in
thousands)
Nexstar
|
Nexstar
Broadcasting
|
Mission
|
Nexstar
Holdings
|
Eliminations
|
Consolidated
Company
|
|||||||||||||||||||
Cash
flows provided by operating activities
|
$ | — | $ | 56,563 | $ | 8,768 | $ | 52,180 | $ | (56,864 | ) | $ | 60,648 | |||||||||||
Cash
flows from investing activities:
|
||||||||||||||||||||||||
Additions
to property and equipment
|
— | (22,607 | ) | (8,186 | ) | — | — | (30,793 | ) | |||||||||||||||
Acquisition
of broadcast properties and related transaction costs
|
— | — | (7,923 | ) | — | — | (7,923 | ) | ||||||||||||||||
Down
payment on acquisition of stations
|
(400 | ) | (400 | ) | ||||||||||||||||||||
Other
investing activities
|
— | 46 | 578 | — | — | 624 | ||||||||||||||||||
Net
cash used for investing activities
|
— | (22,961 | ) | (15,531 | ) | — | — | (38,492 | ) | |||||||||||||||
Cash
flows from financing activities:
|
||||||||||||||||||||||||
Proceeds
from debt issuance
|
— | 35,000 | — | — | — | 35,000 | ||||||||||||||||||
Repayment
of long-term debt
|
— | (56,375 | ) | (1,727 | ) | (52,180 | ) | — | (110,282 | ) | ||||||||||||||
Proceeds
from revolver draws
|
— | 53,000 | — | — | — | 53,000 | ||||||||||||||||||
Payments
for debt financing costs
|
— | (304 | ) | — | — | — | (304 | ) | ||||||||||||||||
Inter-company
dividends paid
|
— | (56,864 | ) | — | — | 56,864 | — | |||||||||||||||||
Other
financing activities
|
— | 38 | — | — | — | 38 | ||||||||||||||||||
Net
cash provided by (used for) financing activities
|
— | (25,505 | ) | (1,727 | ) | (52,180 | ) | 56,864 | (22,548 | ) | ||||||||||||||
Net
increase (decrease) in cash and cash equivalents
|
— | 8,098 | (8,490 | ) | — | — | (392 | ) | ||||||||||||||||
Cash
and cash equivalents at beginning of year
|
— | 6,310 | 9,916 | — | — | 16,226 | ||||||||||||||||||
Cash
and cash equivalents at end of year
|
$ | — | $ | 14,408 | $ | 1,426 | $ | — | $ | — | $ | 15,834 |
F-45
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
21.
Condensed Consolidating Financial Information—(Continued)
STATEMENT
OF CASH FLOWS
For
the Year Ended December 31, 2007
(in
thousands)
Nexstar
|
Nexstar
Broadcasting
|
Mission
|
Nexstar
Holdings
|
Eliminations
|
Consolidated
Company
|
|||||||||||||||||||
Cash
flows provided by (used for) operating activities
|
$ | (153 | ) | $ | 33,232 | $ | 3,908 | $ | — | $ | — | $ | 36,987 | |||||||||||
Cash
flows from investing activities:
|
||||||||||||||||||||||||
Additions
to property and equipment, net
|
— | (16,080 | ) | (2,461 | ) | — | — | (18,541 | ) | |||||||||||||||
Down
payment on acquisition of stations
|
— | — | (387 | ) | — | — | (387 | ) | ||||||||||||||||
Other
investing activities
|
— | 314 | 6 | — | — | 320 | ||||||||||||||||||
Net
cash used for investing activities
|
— | (15,766 | ) | (2,842 | ) | — | — | (18,608 | ) | |||||||||||||||
Cash
flows from financing activities:
|
||||||||||||||||||||||||
Repayment
of long-term debt
|
— | (19,758 | ) | (1,727 | ) | — | — | (21,485 | ) | |||||||||||||||
Proceeds
from revolver draws
|
— | 1,000 | 7,000 | — | — | 8,000 | ||||||||||||||||||
Other
financing activities
|
153 | — | — | — | — | 153 | ||||||||||||||||||
Net
cash provided by (used
for) financing activities
|
153 | (18,758 | ) | 5,273 | — | — | (13,332 | ) | ||||||||||||||||
Net
increase (decrease) in cash and cash equivalents
|
— | (1,292 | ) | 6,339 | — | — | 5,047 | |||||||||||||||||
Cash
and cash equivalents at beginning of period
|
— | 7,602 | 3,577 | — | — | 11,179 | ||||||||||||||||||
Cash
and cash equivalents at end of period
|
$ | — | $ | 6,310 | $ | 9,916 | $ | — | $ | — | $ | 16,226 |
22. Employee
Benefits
Nexstar
and Mission have established retirement savings plans under Section 401(k)
of the Internal Revenue Code (the “Plans”). The Plans cover substantially all
employees of Nexstar and Mission who meet minimum age and service requirements,
and allow participants to defer a portion of their annual compensation on a
pre-tax basis. Employer contributions to the Plans may be made at the discretion
of Nexstar and Mission. In 2009 and 2008, neither Nexstar or Mission made
contributions to the Plans. Nexstar recorded contributions of $0.6 million for
the year ended December 31, 2007. Mission recorded contributions of $17
thousand year ended December 31, 2007.
Under a
collective bargaining agreement, the Company contributes three percent
(3%) of the gross monthly payroll of certain covered employees toward their
pension benefits. Employees must have completed 90 days of service to be
eligible for the contribution. The Company’s pension benefit contribution
totaled $26 thousand, $20 thousand and $25 thousand for the years ended
December 31, 2009, 2008 and 2007, respectively.
23. Related
Party Transactions
Pursuant
to a management services agreement, Mission paid compensation to its sole
shareholder in the amount of $0.4 million, $0.3 million and $0.4 million for the
years ended December 31, 2009, 2008 and 2007, respectively, which was
included in selling, general and administrative expenses in the Company’s
consolidated statement of operations.
F-46
NEXSTAR
BROADCASTING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
24.
Unaudited Quarterly Data
Quarter
Ended
|
||||||||||||||||
March 31,
2009
|
June 30,
2009
|
September 30,
2009(3)
|
December 31,
2009
|
|||||||||||||
(in
thousands, except per share amounts)
|
||||||||||||||||
Net
revenue
|
$ | 55,468 | $ | 62,152 | $ | 60,399 | $ | 73,960 | ||||||||
Income
(loss) from operations
|
(1,311 | ) | 9,044 | (13,633 | ) | 14,101 | ||||||||||
Income
(loss) before income taxes
|
7,431 | 149 | (22,296 | ) | 2,302 | |||||||||||
Net
income (loss)
|
6,052 | (1,242 | ) | (18,391 | ) | 967 | ||||||||||
Basic
and diluted net income (loss) per share
|
$ | 0.21 | $ | (0.04 | ) | $ | (0.65 | ) | $ | 0.03 | ||||||
Basic
and diluted weighted average shares outstanding
|
28,425 | 28,425 | 28,426 | 28,430 |
Quarter
Ended
|
||||||||||||||||
March 31,
2008
|
June 30,
2008
|
September 30,
2008(1)
|
December 31,
2008(2)
|
|||||||||||||
(in
thousands, except per share amounts)
|
||||||||||||||||
Net
revenue
|
$ | 63,712 | $ | 70,618 | $ | 70,275 | $ | 80,314 | ||||||||
Income
(loss) from operations
|
(61 | ) | 16,166 | (36,799 | ) | (17,461 | ) | |||||||||
Income
(loss) before income taxes
|
(13,649 | ) | 5,511 | (48,331 | ) | (26,906 | ) | |||||||||
Net
income (loss)
|
(15,328 | ) | 3,877 | (45,328 | ) | (21,280 | ) | |||||||||
Basic
and diluted net income (loss) per share
|
$ | (0.54 | ) | $ | 0.14 | $ | (1.59 | ) | $ | (0.75 | ) | |||||
Basic
and diluted weighted average shares outstanding
|
28,418 | 28,422 | 28,425 | 28,425 |
(1)
|
The
Company recognized impairment charges to goodwill, FCC licenses and
network affiliation agreements of $ 27.8 million, $19.7 million and $1.0
million, respectively, in the third quarter of 2008. See Footnote 8 for
additional information.
|
(2)
|
The
Company recognized impairment charges to goodwill, FCC licenses and
network affiliation agreements of $11.1 million, $21.7 million and $1.1
million, respectively, in the fourth quarter of 2008. See Footnote 8 for
additional information.
|
(3)
|
The
Company recognized impairment charges to goodwill and FCC licenses of $7.4
million and $8.8 million, respectively, in the third quarter of
2009. See Footnote 8 for additional
information.
|
25. Valuation and Qualifying
Accounts
Allowance
for Doubtful Accounts Rollforward
Balance at
Beginning
of
Period
|
Additions
Charged to
Costs
and
Expenses
|
Deductions(1)
|
Balance at
End
of
Period
|
|||||||||||||
Year
ended December 31, 2007
|
$ | 1,061 | $ | 1,112 | $ | (965 | ) | $ | 1,208 | |||||||
Year
ended December 31, 2008
|
1,208 | 959 | (1,335 | ) | 832 | |||||||||||
Year
ended December 31, 2009
|
832 | 1,159 | (1,147 | ) | 844 |
(1)
|
Uncollectible
accounts written off, net of
recoveries.
|
Valuation
Allowance for Deferred Tax Assets Rollforward
Balance
at
Beginning
of
Period
|
Additions
Charged to
Costs
and
Expenses(1)
|
Additions
Charged to
Other
Accounts
|
Deductions(2)
|
Balance
at
End
of
Period
|
||||||||||||||||
Year
ended December 31, 2007
|
$ | 154,509 | $ | 10,684 | $ | — | $ | (13,045 | ) | $ | 152,148 | |||||||||
Year
ended December 31, 2008
|
152,148 | 13,915 | 720 | — | 166,783 | |||||||||||||||
Year
ended December 31, 2009
|
166,783 | 3,874 | — | (1,147 | ) | 169,510 |
(1)
|
Increase
in valuation allowance related to the generation of net operating losses
and other deferred tax assets.
|
(2)
|
Decrease
in valuation allowance associated with adjustments to certain deferred tax
assets and their related
allowance.
|
F-47
Exhibit No.
|
Exhibit Index
|
|
3.1
|
Amended
and Restated Certificate of Incorporation of Nexstar Broadcasting Group,
Inc. (Incorporated by reference to Exhibit 3.1 to Annual Report on Form
10-K for the year ended December 31, 2003 (File No. 000-50478) filed
by Nexstar Broadcasting Group, Inc.)
|
|
3.2
|
Amended
and Restated By-Laws of Nexstar Broadcasting Group, Inc. (Incorporated by
reference to Exhibit 3.2 to Annual Report on Form 10-K for the year ended
December 31, 2003 (File No. 000-50478) filed by Nexstar
Broadcasting Group, Inc.)
|
|
4.1
|
Specimen
Class A Common Stock Certificate. (Incorporated by reference to Exhibit
4.1 to Registration Statement on Form S-1 (File No. 333-86994) filed by
Nexstar Broadcasting Group, Inc.)
|
|
4.2
|
Form
of Stockholders Agreement among Nexstar Broadcasting Group, Inc., ABRY
Broadcast Partners II, L.P., ABRY Broadcast Partners III, L.P., Perry A.
Sook and the other stockholders named therein. (Incorporated by reference
to Exhibit 4.2 to Registration Statement on Form S-1
(File No. 333-86994) filed by Nexstar Broadcasting Group,
Inc.)
|
|
4.3
|
Indenture,
among Nexstar Finance Holdings, L.L.C., Nexstar Finance Holdings, Inc.,
Mission Broadcasting, Inc. and The Bank of New York, dated as of
March 27, 2003. (Incorporated by reference to Exhibit 4.4 to
Quarterly Report on Form 10-Q for the period ended March 31, 2003
(File No. 333-68964) filed by Nexstar Finance Holdings, L.L.C. and Nexstar
Finance Holdings, Inc.)
|
|
4.4
|
Indenture,
among Nexstar Broadcasting, Inc., the guarantors defined therein and The
Bank of New York, dated as of December 30, 2003. (Incorporated by
reference to Exhibit 10.91 to the Annual Report on Form 10-K for the year
ended December 31, 2003 (File No. 000-50478) filed by Nexstar
Broadcasting Group, Inc.)
|
|
4.5
|
Supplemental
Indenture, dated as of April 1, 2005, among Nexstar Broadcasting,
Inc., Nexstar Broadcasting Group, Inc., Mission Broadcasting, Inc., and
The Bank of New York, as Trustee. (Incorporated by reference to Exhibit
99.4 to the Current Report on Form 8-K (File No. 000-50478) filed by
Nexstar Broadcasting Group, Inc. on April 6, 2005)
|
|
4.6
|
Indenture
dated as of June 30, 2008, by and between Nexstar Broadcasting, Inc.
and The Bank of New York, as Trustee. (Incorporated by reference to
Exhibit 4.1 to Current Report on Form 8-K (File No. 000-50478)
filed by Nexstar Broadcasting Group, Inc. on July 7,
2008)
|
|
4.7
|
First
Supplemental Indenture, dated as of June 30, 2008, by and among
Nexstar Broadcasting, Inc., Nexstar Broadcasting Group, Inc., as
Guarantor, and The Bank of New York, as Trustee. (Incorporated by
reference to Exhibit 4.2 to Current Report on Form 8-K (File No.
000-50478) filed by Nexstar Broadcasting Group, Inc. on July 7,
2008)
|
|
4.8
|
Indenture,
dated as of March 30, 2009, among Nexstar Broadcasting, Inc., Mission
Broadcasting, Inc., as guarantor, and The Bank of New York Mellon, as
Trustee. (Incorporated by reference to Exhibit 4.1 to Current
Report on Form 8-K (File No. 000-50478) filed by Nexstar Broadcasting
Group, Inc. on April 3, 2009)
|
|
4.9
|
First
Supplemental Indenture, dated as of March 30, 2009, among Nexstar
Broadcasting, Inc., Mission Broadcasting, Inc., as guarantor, and Nexstar
Broadcasting Group, Inc., as parent guarantor, and The Bank of New York
Mellon, as Trustee. (Incorporated by reference to Exhibit 4.2
to Current Report on Form 8-K (File No. 000-50478) filed by Nexstar
Broadcasting Group, Inc. on April 3, 2009)
|
|
10.1
|
Executive
Employment Agreement, dated as of January 5, 1998, by and between
Perry A. Sook and Nexstar Broadcasting Group, Inc., as amended on
January 5, 1999. (Incorporated by reference to Exhibit 10.11 to
Registration Statement on Form S-4 (File No. 333-62916) filed by Nexstar
Finance, L.L.C. and Nexstar Finance, Inc.)#
|
|
10.2
|
Amendment
to Employment Agreement, dated as of May 10, 2001, by and between
Perry A. Sook and Nexstar Broadcasting Group, Inc. (Incorporated by
reference to Exhibit 10.12 to Registration Statement on Form S-4 (File No.
333-62916) filed by Nexstar Finance, L.L.C. and Nexstar Finance,
Inc.)#
|
|
10.3
|
Executive
Employment Agreement, dated as of January 5, 1998, by and between
Shirley Green and Nexstar Broadcasting Group, Inc., as amended on
December 31, 1999. (Incorporated by reference to Exhibit 10.16 to
Registration Statement on Form S-4 (File No. 333-62916) filed by Nexstar
Finance, L.L.C. and Nexstar Finance, Inc.)#
|
|
10.4
|
Second
Addendum to Employment Agreement, dated as of February 6, 2002, by
and between Shirley Green and Nexstar Broadcasting Group, Inc.
(Incorporated by reference to Exhibit 10.20 to Annual Report on Form 10-K
for the year ended December 31, 2001 (File No. 333-68964) filed by
Nexstar Finance Holdings, L.L.C. and Nexstar Finance Holdings,
Inc.)#
|
|
10.5
|
Executive
Employment Agreement, dated as of December 31, 1999, by and between
Richard Stolpe and Nexstar Broadcasting Group, Inc. (Incorporated by
reference to Exhibit 10.19 to Registration Statement on Form S-4 (File No.
333-62916) filed by Nexstar Finance, L.L.C. and Nexstar Finance,
Inc.)#
|
E-1
10.6
|
Purchase
and Sale Agreement, dated as of December 31, 2001, by and among
Mission Broadcasting of Joplin, Inc., GOCOM Broadcasting of Joplin, LLC
and GOCOM of Joplin License Sub, LLC. (Incorporated by reference to
Exhibit 10.24 to Annual Report on Form 10-K for the year ended
December 31, 2001 (File No. 333-68964) filed by Nexstar Finance
Holdings, L.L.C. and Nexstar Finance Holdings, Inc.)
|
|
10.7
|
Time
Brokerage Agreement, dated as of December 31, 2001, by and between
GOCOM of Joplin License Sub, LLC and Mission Broadcasting of Joplin, Inc.
(Incorporated by reference to
Exhibit
10.25 to Annual Report on Form 10-K for the year ended December 31,
2001 (File
No.
333-68964) filed by Nexstar Finance Holdings, L.L.C. and Nexstar Finance
Holdings, Inc.)
|
|
10.8
|
Outsourcing
Agreement, dated as of December 1, 2001, by and among WYZZ, Inc.,
WYZZ License, Inc. and Nexstar Broadcasting of Peoria, L.L.C.
(Incorporated by reference to Exhibit 10.26 to Annual Report on Form 10-K
for the year ended December 31, 2001 (File No. 333-68964) filed by
Nexstar Finance Holdings, L.L.C. and Nexstar Finance Holdings,
Inc.)
|
|
10.9
|
Option
Agreement, dated as of June 1, 1999, among Mission Broadcasting of
Wichita Falls, Inc., David Smith and Nexstar Broadcasting of Wichita
Falls, L.P. (Incorporated by reference to
Exhibit
10.42 to Amendment No. 2 to Registration Statement on Form S-1 (File No.
333-86994) filed by Nexstar Broadcasting Group, Inc.)
|
|
10.10
|
Shared
Services Agreement, dated as of June 1, 1999, among Mission
Broadcasting of Wichita Falls, Inc., David Smith and Nexstar Broadcasting
of Wichita Falls, L.P. (Incorporated by reference to Exhibit 10.43 to
Amendment No. 2 to Registration Statement on Form S-1 (File No. 333-86994)
filed by Nexstar Broadcasting Group, Inc.)
|
|
10.11
|
Agreement
of the Sale of Commercial Time, dated as of June 1, 1999, among
Mission Broadcasting of Wichita Falls, Inc., David Smith and Nexstar
Broadcasting of Wichita Falls, L.P. (Incorporated by reference to Exhibit
10.44 to Amendment No. 2 to Registration Statement on Form S-1
(File
No.
333-86994) filed by Nexstar Broadcasting Group, Inc.)
|
|
10.12
|
Option
Agreement, dated as of May 19, 1998, among Bastet Broadcasting, Inc.,
David Smith and Nexstar Broadcasting of Northeastern Pennsylvania, L.P.
(Incorporated by reference to Exhibit 10.45 to Amendment No. 2 to
Registration Statement on Form S-1 (File No. 333-86994) filed by Nexstar
Broadcasting Group, Inc.)
|
|
10.13
|
Shared
Services Agreement, dated as of January 5, 1998, between Nexstar
Broadcasting Group, L.P. and Bastet Broadcasting, Inc. (Incorporated by
reference to Exhibit 10.46 to Amendment No. 2 to Registration Statement on
Form S-1 (File No. 333-86994) filed by Nexstar Broadcasting Group,
Inc.)
|
|
10.14
|
Option
Agreement, dated as of November 30, 1998, among Bastet Broadcasting,
Inc., David Smith and Nexstar Broadcasting Group, L.L.C. (Incorporated by
reference to Exhibit 10.47 to Amendment No. 2 to Registration Statement on
Form S-1 (File No. 333-86994) filed by Nexstar Broadcasting Group,
Inc.)
|
|
10.15
|
Time
Brokerage Agreement, dated as of April 1, 1996, by and between SJL
Communications, L.P. and NV Acquisitions Co. (Incorporated by reference to
Exhibit 10.48 to Amendment No. 2 to Registration Statement on Form S-1
(File No. 333-86994) filed by Nexstar Broadcasting Group,
Inc.)
|
|
10.16
|
Amendment,
dated as of July 31, 1998, to Time Brokerage Agreement, dated as of
April 1, 1996, between SJL Communications, L.P. and NV Acquisitions
Co. (Incorporated by reference to
Exhibit
10.49 to Amendment No. 2 to Registration Statement on Form S-1 (File No.
333-86994) filed by Nexstar Broadcasting Group, Inc.)
|
|
10.17
|
Option
Agreement, dated as of April 1, 2002, by and between Mission
Broadcasting of Joplin, Inc. and Nexstar Broadcasting of Joplin, L.L.C.
(Incorporated by reference to Exhibit 10.50 to Amendment No. 2 to
Registration Statement on Form S-1 (File No. 333-86994) filed by Nexstar
Broadcasting Group, Inc.)
|
|
10.18
|
Shared
Services Agreement, dated as of April 1, 2002, by and between Mission
Broadcasting of Joplin, Inc. and Nexstar Broadcasting of Joplin, L.L.C.
(Incorporated by reference to Exhibit 10.51 to Amendment No. 2 to
Registration Statement on Form S-1 (File No. 333-86994) filed by Nexstar
Broadcasting Group, Inc.)
|
|
E-2
10.19
|
Amendment
to Option Agreements, dated as of October 18, 2002, among Mission
Broadcasting, Inc., David Smith, Nexstar Broadcasting of Northeastern
Pennsylvania, L.L.C., Nexstar Broadcasting Group, L.L.C., Nexstar
Broadcasting of Wichita Falls, L.L.C., and Nexstar Broadcasting of Joplin,
L.L.C. (Incorporated by reference to Exhibit 10.54 to Amendment No. 2 to
Registration Statement on Form S-1 (File No. 333-86994) filed by Nexstar
Broadcasting Group, Inc.)
|
|
10.20
|
Modifications
to Employment Agreement, dated as of September 26, 2002, by and
between Perry A. Sook and Nexstar Broadcasting Group, Inc. (Incorporated
by reference to Exhibit 10.55 to Amendment No. 2 to Registration Statement
on Form S-1 (File No. 333-86994) filed by Nexstar Broadcasting Group,
Inc.)#
|
|
10.21
|
Asset
Purchase Agreement, dated as of December 13, 2002, by and among LIN
Television Corporation, TVL Broadcasting of Abilene, Inc., Abilene
Broadcasting, L.L.C. and Mission Broadcasting, Inc. (Incorporated by
reference to Exhibit 10.47 to Annual Report on Form 10-K for the year
ended December 31, 2002 (File No. 333-62916) filed by Nexstar
Finance, L.L.C. and Nexstar Finance, Inc.)
|
|
10.22
|
Local
Marketing Agreement, dated as of December 13, 2002, by and among LIN
Television Corporation, TVL Broadcasting of Abilene, Inc., Abilene
Broadcasting, L.L.C. and Mission Broadcasting, Inc. (Incorporated by
reference to Exhibit 10.48 to Annual Report on Form 10-K for the year
ended December 31, 2002 (File No. 333-62916) filed by Nexstar
Finance, L.L.C. and Nexstar Finance, Inc.)
|
|
10.23
|
Stock
Purchase Agreement, dated as of December 30, 2002, by and among
Nexstar Broadcasting Group, L.L.C., Nexstar Broadcasting of Little Rock,
L.L.C., Nexstar Broadcasting of Dothan, L.L.C., Morris Network, Inc.,
United Broadcasting Corporation, KARK-TV, Inc. and Morris Network of
Alabama, Inc. (Incorporated by reference to Exhibit 10.49 to Annual Report
on Form 10-K for the year ended December 31, 2002 (File No.
333-62916) filed by Nexstar Finance, L.L.C. and Nexstar Finance,
Inc.)
|
|
10.24
|
Time
Brokerage Agreement, dated as of December 30, 2002, by and between
KARK-TV, Inc. and Nexstar Broadcasting of Little Rock, L.L.C.
(Incorporated by reference to Exhibit 10.50 to Annual Report on Form 10-K
for the year ended December 31, 2002 (File No. 333-62916) filed by
Nexstar Finance, L.L.C. and Nexstar Finance, Inc.)
|
|
10.25
|
Time
Brokerage Agreement, dated as of December 30, 2002, by and between
Morris Network of Alabama, Inc. and Nexstar Broadcasting of Dothan, L.L.C.
(Incorporated by reference to
Exhibit
10.51 to Annual Report on Form 10-K for the year ended December 31,
2002 (File
No.
333-62916) filed by Nexstar Finance, L.L.C. and Nexstar Finance,
Inc.)
|
|
10.26
|
Shared
Services Agreement, dated as of June 13, 2003, by and between Mission
Broadcasting, Inc. and Nexstar Broadcasting of Abilene, L.L.C.
(Incorporated by reference to Exhibit 10.63 to Registration Statement on
Form S-1 (File No. 333-86994) filed by Nexstar Broadcasting Group,
Inc.)
|
|
10.27
|
Option
Agreement, dated as of June 13, 2003, among Mission Broadcasting,
Inc., David Smith and Nexstar Broadcasting of Abilene, L.L.C.
(Incorporated by reference to Exhibit 10.64 to Registration Statement on
Form S-1 (File No. 333-86994) filed by Nexstar Broadcasting Group,
Inc.)
|
|
10.28
|
Shared
Services Agreement, dated as of May 9, 2003, by and between Mission
Broadcasting, Inc. and Nexstar Broadcasting of the Midwest, Inc.
(Incorporated by reference to Exhibit 10.1 to Quarterly Report on Form
10-Q for the period ended June 30, 2003 (File No. 333-62916-02) filed
by Mission Broadcasting, Inc.)
|
|
10.29
|
Agreement
for the Sale of Commercial Time, dated as of May 9, 2003, by and
between Mission Broadcasting, Inc. and Nexstar Broadcasting of the
Midwest, Inc. (Incorporated by reference to Exhibit 10.2 to Quarterly
Report on Form 10-Q for the period ended June 30, 2003 (File No.
333-62916-02) filed by Mission Broadcasting, Inc.)
|
|
10.30
|
Option
Agreement, dated as of May 9, 2003, among Mission Broadcasting, Inc.,
David Smith and Nexstar Broadcasting of the Midwest, Inc. (Incorporated by
reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the period
ended June 30, 2003 (File No. 333-62916-02) filed by Mission
Broadcasting, Inc.)
|
|
10.31
|
Executive
Employment Agreement, dated as of September 11, 2000, by and between
Timothy Busch and Nexstar Broadcasting of Rochester, L.L.C. (Incorporated
by reference to Exhibit 10.68 to Registration Statement on Form S-1 (File
No. 333-86994) filed by Nexstar Broadcasting
Group, Inc.)#
|
|
10.32
|
Addendum
to Employment Agreement, dated as of August 14, 2002, by and between
Timothy Busch and Nexstar Broadcasting Group, Inc. (Incorporated by
reference to Exhibit 10.69 to Registration Statement on Form S-1 (File No.
333-86994) filed by Nexstar Broadcasting Group, Inc.)#
|
|
10.33
|
Executive
Employment Agreement, dated as of May 1, 2003, by and between Brian
Jones and Nexstar Broadcasting Group, L.L.C. (Incorporated by reference to
Exhibit 10.70 to Registration Statement on Form S-1 (File No. 333-86994)
filed by Nexstar Broadcasting Group,
Inc.)#
|
E-3
10.34
|
Addendum
to Employment Agreement, dated as of May 12, 2003, by and between
Timothy C. Busch and Nexstar Broadcasting Group, Inc. (Incorporated by
reference to Exhibit 10.76 to Registration Statement on Form S-1 (File No.
333-86994) filed by Nexstar Broadcasting Group, Inc.)#
|
|
10.35
|
Addendum
to Employment Agreement, dated as of August 28, 2003, by and between
Timothy C. Busch and Nexstar Broadcasting Group, Inc. (Incorporated by
reference to Exhibit 10.77 to Registration Statement on Form S-1 (File No.
333-86994) filed by Nexstar Broadcasting
Group, Inc.)#
|
|
10.36
|
Addendum
to Employment Agreement, dated as of August 28, 2003, by and between
Brian Jones and Nexstar Broadcasting Group, Inc. (Incorporated by
reference to Exhibit 10.78 to Registration Statement on Form S-1 (File No.
333-86994) filed by Nexstar Broadcasting Group, Inc.)#
|
|
10.37
|
Limited
Consent, Waiver and Seventh Amendment to Credit Agreement, dated as of
September 5, 2003, among Quorum Broadcasting Company, Inc., Quorum
Broadcasting Company, LLC, VHR Broadcasting, Inc., Mission Broadcasting of
Amarillo, Inc., Quorum Broadcast Holdings, LLC, Quorum Broadcast Holdings,
Inc., the Lenders parties thereto and Bank of America, N.A. (Incorporated
by reference to Exhibit 10.81 to Registration Statement on Form S-1 (File
No. 333-86994) filed by Nexstar Broadcasting Group,
Inc.)
|
|
10.38
|
Amendment
No. 1 to the Reorganization Agreement, dated as of November 3, 2003,
by and between Nexstar Broadcasting Group, L.L.C. and Quorum Broadcast
Holdings, LLC. (Incorporated by reference to Exhibit 10.2 to Quarterly
Report on Form 10-Q for the period ended September 30, 2003 (File No.
333-62916) filed by Nexstar Finance, L.L.C. and Nexstar Finance,
Inc.)
|
|
10.39
|
Purchase
and Sale Agreement, dated as of October 13, 2003, by and between
Nexstar Finance, L.L.C. and J.D.G. Television, Inc. (Incorporated by
reference to Exhibit 10.3 to Quarterly Report on
Form
10-Q for the period ended September 30, 2003 (File No. 333-62916)
filed by Nexstar Finance, L.L.C. and Nexstar Finance,
Inc.)
|
|
10.40
|
Time
Brokerage Agreement, dated as of October 13, 2003, by and between
Nexstar Finance, L.L.C. and J.D.G. Television, Inc. (Incorporated by
reference to Exhibit 10.4 to Quarterly Report on
Form
10-Q for the period ended September 30, 2003 (File No. 333-62916)
filed by Nexstar Finance, L.L.C. and Nexstar Finance,
Inc.)
|
|
10.41
|
Addendum
to Employment Agreement, dated as of August 28, 2003, by and between
Richard Stolpe and Nexstar Broadcasting Group, Inc. (Incorporated by
reference to Exhibit 10.87 to Registration Statement on Form S-1 (File No.
333-86994) filed by Nexstar Broadcasting Group, Inc.)#
|
|
10.42
|
Addendum
to Employment Agreement, dated as of August 25, 2003, by and between
Perry A. Sook and Nexstar Broadcasting Group, Inc. (Incorporated by
reference to Exhibit 10.20 to Registration Statement on Form S-1 (File No.
333-86994) filed by Nexstar Broadcasting Group, Inc.)#
|
|
10.43
|
Addendum
to Employment Agreement, dated as of August 28, 2003, by and between
Shirley Green and Nexstar Broadcasting Group, Inc. (Incorporated by
reference to Exhibit 10.27 to Registration Statement on Form S-1 (File No.
333-86994) filed by Nexstar Broadcasting Group, Inc.)#
|
|
10.44
|
First
Restated Security Agreement, dated as of December 30, 2003 by Nexstar
Broadcasting Group, Inc., Nexstar Finance Holdings, Inc. and Nexstar
Broadcasting, Inc. in favor of Bank of America, N.A., as collateral agent.
(Incorporated by reference to Exhibit 10.87 to the Annual Report
on
Form
10-K for the year ended December 31, 2003 (File No. 000-50478) filed
by Nexstar Broadcasting Group, Inc.)
|
|
10.45
|
First
Restated Pledge and Security Agreement, dated as of December 30,
2003, by Nexstar Broadcasting Group, Inc., Nexstar Finance Holdings, Inc.
and Nexstar Broadcasting, Inc. in favor of Bank of America, N.A., as
collateral agent. (Incorporated by reference to Exhibit 10.88 to the
Annual Report on Form 10-K for the year ended December 31, 2003 (File
No. 000-50478) filed by Nexstar Broadcasting Group,
Inc.)
|
E-4
10.46
|
First
Restated Guaranty, dated as of December 30, 2003, executed by Nexstar
Broadcasting Group, Inc. and Nexstar Finance Holdings, Inc. for Nexstar
Broadcasting, Inc.’s Guaranteed Obligations in favor of the guaranteed
parties defined therein. (Incorporated by reference to Exhibit 10.89 to
the Annual Report on Form 10-K for the year ended December 31, 2003
(File No. 000-50478) filed by Nexstar Broadcasting Group,
Inc.)
|
|
10.47
|
First
Restated Guaranty, dated as of December 30, 2003, executed by Nexstar
Broadcasting Group, Inc., Nexstar Finance Holdings, Inc. and Nexstar
Broadcasting, Inc. for Mission Broadcasting, Inc.’s Guaranteed Obligations
in favor of the guaranteed parties defined therein. (Incorporated by
reference to Exhibit 10.90 to the Annual Report on Form 10-K for the year
ended December 31, 2003 (File No. 000-50478) filed by
Nexstar Broadcasting Group, Inc.)
|
|
10.48
|
Amendment
to Agreement for Sale of Commercial Time, dated December 30, 2003, by
and between Nexstar Broadcasting, Inc. and Mission Broadcasting, Inc.
(KAMC-KLBK). (Incorporated by reference to Exhibit 10.91 to Amendment No.
1 to Registration Statement on Form S-4 (File No. 333-114963)
filed by Nexstar Broadcasting, Inc.)
|
|
10.49
|
Amendment
to Shared Services Agreement, dated December 30, 2003, by and between
Nexstar Broadcasting, Inc. and Mission Broadcasting, Inc. (KAMC-KLBK).
(Incorporated by reference to Exhibit 10.92 to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-114963) filed by Nexstar
Broadcasting, Inc.)
|
|
10.50
|
Amendment
to Agreement for Sale of Commercial Time, dated December 30, 2003, by
and between Nexstar Broadcasting, Inc. and Mission Broadcasting, Inc.
(KOLR-KSFX). (Incorporated by reference to Exhibit 10.93 to Amendment No.
1 to Registration Statement on Form S-4 (File No. 333-114963)
filed by Nexstar Broadcasting, Inc.)
|
|
10.51
|
Amendment
to Shared Services Agreement, dated December 30, 2003, by and between
Nexstar Broadcasting, Inc. and Mission Broadcasting, Inc. (KOLR-KSFX).
(Incorporated by reference to Exhibit 10.94 to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-114963) filed by Nexstar
Broadcasting, Inc.)
|
|
10.52
|
Amendment
to Agreement for Sale of Commercial Time, dated January 1, 2004, by
and between Nexstar Broadcasting, Inc. and Mission Broadcasting, Inc.
(KCIT-KAMR). (Incorporated by reference to Exhibit 10.95 to Amendment No.
1 to Registration Statement on Form S-4 (File No. 333-114963)
filed by Nexstar Broadcasting, Inc.)
|
|
10.53
|
Amendment
to Shared Services Agreement, dated January 1, 2004, by and between
Nexstar Broadcasting, Inc. and Mission Broadcasting, Inc. (KCIT-KAMR).
(Incorporated by reference to Exhibit 10.96 to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-114963) filed by Nexstar
Broadcasting, Inc.)
|
|
10.54
|
Amendment
to Agreement for Sale of Commercial Time, dated January 13, 2004, by
and between Nexstar Broadcasting, Inc. and Mission Broadcasting, Inc.
(WFXW-WTWO). (Incorporated by reference to Exhibit 10.97 to Amendment No.
1 to Registration Statement on Form S-4 (File No. 333-114963)
filed by Nexstar Broadcasting, Inc.)
|
|
10.55
|
Amendment
to Shared Services Agreement, dated January 13, 2004, by and between
Nexstar Broadcasting, Inc. and Mission Broadcasting, Inc. (WFXW-WTWO).
(Incorporated by reference to Exhibit 10.98 to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-114963) filed by Nexstar
Broadcasting, Inc.)
|
|
10.56
|
Agreement
for Sale of Commercial Time, dated April 1, 2004, by and between
Nexstar Broadcasting, Inc. and Mission Broadcasting, Inc. (WUTR-WFXV).
(Incorporated by reference to Exhibit 10.99 to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-114963) filed by Nexstar
Broadcasting, Inc.)
|
|
10.57
|
Shared
Services Agreement, dated April 1, 2004, by and between Nexstar
Broadcasting, Inc. and Mission Broadcasting, Inc. (WUTR-WFXV).
(Incorporated by reference to Exhibit 10.100 to Amendment No. 1 to
Registration Statement on Form S-4 (File No. 333-114963) filed by Nexstar
Broadcasting, Inc.)
|
|
10.58
|
Amendment
to Agreement for Sale of Commercial Time, dated January 1, 2004, by
and between Nexstar Broadcasting, Inc. (as successor to Nexstar
Broadcasting of Wichita Falls, L.P.) and Mission Broadcasting, Inc. (f/k/a
Mission Broadcasting of Wichita Falls, Inc.) (KJBO-KFDX). (Incorporated by
reference to Exhibit 10.101 to Amendment No. 1 to Registration Statement
on Form S-4 (File No. 333-114963) filed by Nexstar Broadcasting,
Inc.)
|
|
10.59
|
Amendment
to Shared Services Agreement, dated January 1, 2004, by and between
Nexstar Broadcasting, Inc. (as successor to Nexstar Broadcasting of
Wichita Falls, L.P.) and Mission Broadcasting, Inc. (f/k/a Mission
Broadcasting of Wichita Falls, Inc.) (KJBO-KFDX). (Incorporated by
reference to Exhibit 10.102 to Amendment No. 1 to Registration Statement
on Form S-4 (File No. 333-114963) filed by Nexstar Broadcasting,
Inc.)
|
|
E-5
10.60
|
Purchase
Agreement, dated May 21, 2004, by and between Nexstar Broadcasting,
Inc. and Jewell Television Corporation. (Incorporated by reference to
Exhibit 10.3 to the Quarterly Report on Form 10-Q for the period ended
June 30, 2004 (File No. 333-62916-01) filed by Nexstar Broadcasting,
Inc.)
|
|
10.61
|
Time
Brokerage Agreement, dated May 21, 2004, by and between Nexstar
Broadcasting, Inc. and Jewell Television Corporation. (Incorporated by
reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q for the
period ended June 30, 2004 (File No. 333-62916-01) filed by Nexstar
Broadcasting, Inc.)
|
|
10.62
|
Guarantee
issued by Nexstar Broadcasting Group, Inc. with respect to 7% Senior
Subordinated Notes due 2014. (Incorporated by reference to Exhibit 99.1 to
Current Report on Form 8-K (File No. 000-50478) filed by Nexstar
Broadcasting Group, Inc. on October 1, 2004)
|
|
10.63
|
Guarantee
issued by Nexstar Broadcasting Group, Inc. with respect to 12% Senior
Subordinated Notes due 2008. (Incorporated by reference to Exhibit 99.2 to
Current Report on Form 8-K (File No. 000-50478) filed by Nexstar
Broadcasting Group, Inc. on October 1, 2004)
|
|
10.64
|
Guarantee
issued by Nexstar Broadcasting Group, Inc. with respect to 11.375% Senior
Discount Notes due 2013. (Incorporated by reference to Exhibit 99.3 to
Current Report on Form 8-K (File No. 000-50478) filed by Nexstar
Broadcasting Group, Inc. on October 1, 2004)
|
|
10.65
|
Fourth
Amended and Restated Credit Agreement, dated as of April 1, 2005,
among Nexstar Broadcasting, Inc., Nexstar Broadcasting Group, Inc.,
certain of its subsidiaries from time to time parties to the Credit
Agreement, the several banks and other financial institutions or entities
from time to time parties thereto, Bank of America, N.A., as the
Administrative Agent for the Lenders, and UBS Securities LLC and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as Co-Syndication Agents.
(Incorporated by reference to Exhibit 99.1 to the Current Report on Form
8-K (File No. 000-50478) filed by Nexstar Broadcasting Group, Inc. on
April 6, 2005)
|
|
10.66
|
First
Amendment and Confirmation (Guarantee Agreement), dated as of
April 1, 2005, by and among Nexstar Broadcasting Group, Inc. and
Nexstar Finance Holdings, Inc. as Guarantors and Bank of America, N.A. as
Collateral Agent, on behalf of the Majority Lenders (as defined therein).
(Incorporated by reference to Exhibit 99.2 to the Current Report on Form
8-K (File No. 000-50478) filed by Nexstar Broadcasting Group, Inc. on
April 6, 2005)
|
|
10.67
|
Nexstar
First Amendment and Confirmation Agreement to Nexstar Guaranty of Mission
Obligations, dated April 1, 2005, by and among Nexstar Broadcasting
Group, Inc., Nexstar Finance Holdings, Inc. and Nexstar Broadcasting, Inc.
(Incorporated by reference to Exhibit 99.3 to the Current Report on Form
8-K (File No. 000-50478) filed by Nexstar Broadcasting Group, Inc. on
April 6, 2005)
|
|
10.68
|
Guarantee,
dated as of April 1, 2005, of Nexstar Broadcasting Group, Inc.
executed pursuant to the Indenture, dated as of December 30, 2003,
among Nexstar Broadcasting, Inc., Mission Broadcasting, Inc. and The Bank
of New York, as Trustee, as amended and supplemented by the Supplemental
Indenture (as defined therein). (Incorporated by reference to Exhibit 99.5
to the Current Report on Form 8-K (File No. 000-50478) filed by Nexstar
Broadcasting Group, Inc. on April 6, 2005)
|
|
10.69
|
Third
Amended and Restated Credit Agreement, dated as of April 1, 2005,
among Mission Broadcasting, Inc., the several banks and other financial
institutions or entities from time to time parties thereto, Bank of
America, N.A., as the Administrative Agent for the Lenders, and UBS
Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated,
as Co-Syndication Agents. (Incorporated by reference to Exhibit 99.1 to
the Current Report on Form 8-K (File No. 333-62916-02) filed by Mission
Broadcasting, Inc. on April 7, 2005)
|
|
10.70
|
First
Amendment and Confirmation Agreement to Mission Guarantee of Nexstar
Obligations, dated as of April 1, 2005, by and among Mission
Broadcasting, Inc. as Guarantor and Bank of America, N.A. as Collateral
Agent, on behalf of the Majority Lenders (as defined therein).
(Incorporated by reference to Exhibit 99.2 to the Current Report on Form
8-K (File No. 333-62916-02) filed by Mission Broadcasting, Inc. on
April 7, 2005)
|
|
10.71
|
Confirmation
Agreement for the Smith Pledge Agreement, dated as of April 1, 2005,
by David S. Smith and Bank of America, N.A. as Collateral Agent.
(Incorporated by reference to Exhibit 99.3 to the Current Report on Form
8-K (File No. 333-62916-02) filed by Mission Broadcasting, Inc. on
April 7, 2005)
|
|
10.72
|
First
Amendment, dated as of October 20, 2005, to the Fourth Amended and
Restated Credit Agreement, among Nexstar Broadcasting Group, Inc., Nexstar
Finance Holdings, Inc., Nexstar Broadcasting, Inc., Bank of America, N.A.
(as Administrative Agent), UBS Securities LLC and Merrill Lynch, Pierce,
Fenner & Smith Incorporated (as Co-Syndication Agents) and several
Lenders named therein. (Incorporated by reference to Exhibit 10.121 to the
Annual Report on Form 10-K for the year ended December 31, 2005 (File
No. 000-50478) filed by Nexstar Broadcasting Group, Inc. on March 16,
2006)
|
E-6
10.73
|
Purchase
Agreement, dated as of June 7, 2006 (entered into by Nexstar
Broadcasting Group, Inc. on July 26, 2006), by and between Nexstar
Broadcasting Group, Inc. and Television Station Group Holdings, LLC.
(Incorporated by reference to Exhibit 1.1 to the Quarterly Report on Form
10-Q for the period ended September 30, 2006 (File No. 000-50478)
filed by Nexstar Broadcasting Group, Inc. on November 8,
2006)
|
|
10.74
|
Asset
Purchase Agreement, dated as of June 27, 2007 (entered into by
Mission Broadcasting, Inc. on June 27, 2007), by, between and among
Mission Broadcasting, Inc. and Piedmont Television Holdings LLC, Piedmont
Television Communications LLC, Piedmont Television of Monroe/El Dorado LLC
and Piedmont Television of Monroe/El Dorado License LLC. (Incorporated by
reference to Exhibit 2.1 to the Quarterly Report on Form 10-Q for the
period ended June 30, 2007 (File No. 000-50478) filed by
Nexstar Broadcasting Group, Inc. on August 8,
2007)
|
|
10.75
|
Addendum
to Employment Agreement, dated as of July 2, 2007, by and between
Perry A. Sook and Nexstar Broadcasting Group, Inc. (Incorporated by
reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the
period ended June 30, 2007 (File No. 000-50478) filed by Nexstar
Broadcasting Group, Inc. on August 8, 2007)#
|
|
10.76
|
Executive
Employment Agreement between Timothy Busch and Nexstar Broadcasting Group,
Inc. (Incorporated by reference to Exhibit 10.1 to Quarterly Report on
Form 10-Q (File No. 000-50478) filed by Nexstar Broadcasting Group, Inc.
on August 12, 2008)#
|
|
10.77
|
Executive
Employment Agreement between Brian Jones and Nexstar Broadcasting Group,
Inc. (Incorporated by reference to Exhibit 10.2 to Quarterly Report on
Form 10-Q (File No. 000-50478) filed by Nexstar Broadcasting Group, Inc.
on August 12, 2008)#
|
|
10.78
|
Purchase
Agreement, dated June 27, 2008, by and among Nexstar Broadcasting,
Inc., Nexstar Broadcasting Group, Inc. and certain initial purchasers
named therein. (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 July 3, 2008)
|
|
10.79
|
Guarantee,
dated as of June 30, 2008, of Nexstar Broadcasting Group, Inc.
executed pursuant to the Indenture dated as of June 30, 2008 by and
between Nexstar Broadcasting, Inc. and The Bank of New York, as amended
and supplemented by the Supplemental Indenture referred to above.
(Incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K
(File No. 000-50478) filed by Nexstar Broadcasting Group, Inc. on
July 7, 2008)
|
|
10.80
|
Addendum
to Executive Employment Agreement between Perry A. Sook and Nexstar
Broadcasting Group, Inc. (Incorporated by reference to Exhibit
10.93 to Annual Report on Form 10-K (File No. 000-50478) filed by Nexstar
Broadcasting Group, Inc. on March 31, 2009)#
|
|
10.81
|
Guarantee,
dated as of March 30, 2009, of Nexstar Broadcasting Group, Inc. executed
pursuant to the Indenture, dated as of March 30, 2009, among Nexstar
Broadcasting, Inc., Mission Broadcasting, Inc., as guarantor, and The Bank
of New York Mellon, as Trustee, as amended and supplemented by the First
Supplemental Indenture referenced above (included as part of Exhibit
4.2). (Incorporated by reference to Exhibit 4.3 to Current
Report on Form 8-K (File No. 000-50478) filed by Nexstar Broadcasting
Group, Inc. on April 3, 2009)
|
|
10.82
|
Registration
Rights Agreement, dated March 30, 2009, by and among Nexstar Broadcasting,
Inc., Mission Broadcasting, Inc. and Nexstar Broadcasting Group, Inc. and
UBS Securities LLC for the benefit of holders of PIK
Notes. (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 April 3, 2009)
|
|
10.83
|
Executive
Employment Agreement, dated as of July 13, 2009, by and between Thomas E.
Carter and Nexstar Broadcasting Group, Inc. (Incorporated by
reference to Exhibit 10.1 to Quarterly Report on Form 10-Q (File No.
000-50478) filed by Nexstar Broadcasting Group, Inc. on August 12,
2009)#
|
|
10.84
|
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)
|
|
14.1
|
Nexstar
Broadcasting Group, Inc. Code of Ethics. (Incorporated by reference to
Exhibit 14.1 to the Annual Report on Form 10-K for the year ended
December 31, 2003 (File No. 000-50478) filed by Nexstar Broadcasting
Group, Inc.)
|
|
21.1
|
Subsidiaries
of the registrant.*
|
|
23.1
|
Consent
issued by PricewaterhouseCoopers LLP on March 15,
2010.*
|
|
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.*
|
#
|
Management
contract or compensatory plan or
arrangement
|
*
|
Filed
herewith
|
E-7