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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

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 Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

 

545 E. John Carpenter Freeway, Suite 700, Irving, Texas

 

75062

(Address of Principal Executive Offices)

 

(Zip Code)

(972) 373-8800

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that it was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

 

Large accelerated filer

 

x

  

Accelerated filer

 

¨

 

 

 

 

 

 

Non-accelerated filer

 

¨  

  

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 August 3, 2015, the registrant had 31,616,244 shares of Class A Common Stock outstanding.

 

 

 


TABLE OF CONTENTS

 

 

 

  

 

  

Page

PART I

  

FINANCIAL INFORMATION

  

 

 

 

 

 

 

ITEM 1.

  

Financial Statements (Unaudited)

  

 

 

 

 

 

 

 

  

Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014

  

1

 

 

 

 

 

 

  

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014

  

2

 

 

 

 

 

 

  

Condensed Consolidated Statement of Changes in Stockholders’ Equity for the six months ended June 30, 2015

  

3

 

 

 

 

 

 

  

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014

  

4

 

 

 

 

 

 

  

Notes to Condensed Consolidated Financial Statements

  

5

 

 

 

 

 

ITEM 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

30

 

 

 

 

 

ITEM 3.

  

Quantitative and Qualitative Disclosures about Market Risk

  

40

 

 

 

 

 

ITEM 4.

  

Controls and Procedures

  

41

 

 

 

 

 

PART II

  

OTHER INFORMATION

  

 

 

 

 

 

 

ITEM 1.

  

Legal Proceedings

  

41

 

 

 

 

 

ITEM 1A.

  

Risk Factors

  

41

 

 

 

 

 

ITEM 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

  

41

 

 

 

 

 

ITEM 3.

  

Defaults Upon Senior Securities

  

41

 

 

 

 

 

ITEM 4.

  

Mine Safety Disclosures

  

41

 

 

 

 

 

ITEM 5.

  

Other Information

  

41

 

 

 

 

 

ITEM 6.

  

Exhibits

  

42

 

 

 

 


PART I. FINANCIAL INFORMATION

ITEM 1.

Financial Statements

NEXSTAR BROADCASTING GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share information, unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

26,891

 

 

$

131,912

 

Accounts receivable, net of allowance for doubtful accounts of $5,114 and $3,002, respectively

 

 

171,958

 

 

 

127,878

 

Deferred tax assets, net

 

 

50,160

 

 

 

41,737

 

Broadcast rights

 

 

14,367

 

 

 

10,873

 

Prepaid expenses and other current assets

 

 

3,535

 

 

 

5,264

 

Total current assets

 

 

266,911

 

 

 

317,664

 

Property and equipment, net

 

 

276,191

 

 

 

237,739

 

Goodwill

 

 

443,855

 

 

 

256,491

 

FCC licenses

 

 

489,698

 

 

 

322,040

 

Other intangible assets, net

 

 

332,450

 

 

 

194,129

 

Other noncurrent assets, net

 

 

56,598

 

 

 

134,162

 

Total assets (1)

 

$

1,865,703

 

 

$

1,462,225

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of debt

 

$

18,539

 

 

$

15,840

 

Current portion of broadcast rights payable

 

 

15,427

 

 

 

11,935

 

Accounts payable

 

 

22,487

 

 

 

17,231

 

Accrued expenses

 

 

38,417

 

 

 

36,807

 

Taxes payable

 

 

8,443

 

 

 

4,899

 

Interest payable

 

 

11,747

 

 

 

4,601

 

Other current liabilities

 

 

8,289

 

 

 

5,953

 

Total current liabilities

 

 

123,349

 

 

 

97,266

 

Debt

 

 

1,481,859

 

 

 

1,220,304

 

Deferred tax liabilities

 

 

118,260

 

 

 

44,224

 

Other noncurrent liabilities

 

 

45,991

 

 

 

43,894

 

Total liabilities (1)

 

 

1,769,459

 

 

 

1,405,688

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock - $0.01 par value, 200,000 shares authorized; none issued and outstanding

  at each of June 30, 2015 and December 31, 2014

 

 

-

 

 

 

-

 

Class A Common stock - $0.01 par value, 100,000,000 shares authorized; 31,616,244 and

  31,172,060 shares issued and outstanding at June 30, 2015 and December 31, 2014,

  respectively

 

 

316

 

 

 

312

 

Class B Common stock - $0.01 par value, 20,000,000 shares authorized; none issued and

  outstanding at each of June 30, 2015 and December 31, 2014

 

 

-

 

 

 

-

 

Class C Common stock - $0.01 par value, 5,000,000 shares authorized; none issued and

  outstanding at each of June 30, 2015 and December 31, 2014

 

 

-

 

 

 

-

 

Additional paid-in capital

 

 

402,920

 

 

 

398,029

 

Accumulated deficit

 

 

(312,576

)

 

 

(345,804

)

Total Nexstar Broadcasting Group, Inc. stockholders' equity

 

 

90,660

 

 

 

52,537

 

Noncontrolling interests in consolidated variable interest entities

 

 

5,584

 

 

 

4,000

 

Total stockholders' equity

 

 

96,244

 

 

 

56,537

 

Total liabilities and stockholders' equity

 

$

1,865,703

 

 

$

1,462,225

 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

 

 

 

(1)

The consolidated total assets as of June 30, 2015 and December 31, 2014 include certain assets held by consolidated VIEs of $121.3 million and $49.1 million, respectively, which are not available to be used to settle the obligations of Nexstar. The consolidated total liabilities as of June 30, 2015 and December 31, 2014 include certain liabilities of consolidated VIEs of $37.0 million and $17.9 million for which the creditors of the VIEs have no recourse to the general credit of Nexstar. See Note 2 for additional information.

1


NEXSTAR BROADCASTING GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share information, unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net revenue

 

$

221,322

 

 

$

146,930

 

 

$

424,713

 

 

$

280,763

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses, excluding depreciation and amortization

 

 

75,011

 

 

 

45,257

 

 

 

144,696

 

 

 

87,106

 

Selling, general, and administrative expenses, excluding depreciation

  and amortization

 

 

56,557

 

 

 

43,796

 

 

 

113,846

 

 

 

84,836

 

Amortization of broadcast rights

 

 

14,673

 

 

 

8,280

 

 

 

29,254

 

 

 

16,912

 

Amortization of intangible assets

 

 

11,237

 

 

 

6,112

 

 

 

24,297

 

 

 

12,305

 

Depreciation

 

 

11,302

 

 

 

8,543

 

 

 

22,174

 

 

 

16,962

 

Total operating expenses

 

 

168,780

 

 

 

111,988

 

 

 

334,267

 

 

 

218,121

 

Income from operations

 

 

52,542

 

 

 

34,942

 

 

 

90,446

 

 

 

62,642

 

Interest expense, net

 

 

(20,391

)

 

 

(15,339

)

 

 

(39,684

)

 

 

(30,509

)

Loss on extinguishment of debt

 

 

-

 

 

 

(71

)

 

 

-

 

 

 

(71

)

Other expenses

 

 

(150

)

 

 

(127

)

 

 

(268

)

 

 

(255

)

Income before income taxes

 

 

32,001

 

 

 

19,405

 

 

 

50,494

 

 

 

31,807

 

Income tax expense

 

 

(12,101

)

 

 

(8,461

)

 

 

(18,682

)

 

 

(13,510

)

Net income

 

 

19,900

 

 

 

10,944

 

 

 

31,812

 

 

 

18,297

 

Net loss attributable to noncontrolling interests

 

 

421

 

 

 

-

 

 

 

1,416

 

 

 

-

 

Net income attributable to Nexstar Broadcasting Group, Inc.

 

$

20,321

 

 

$

10,944

 

 

$

33,228

 

 

$

18,297

 

Net income per common share attributable to

  Nexstar Broadcasting Group, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.65

 

 

$

0.36

 

 

$

1.06

 

 

$

0.60

 

Diluted

 

$

0.63

 

 

$

0.34

 

 

$

1.03

 

 

$

0.57

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

31,325

 

 

 

30,641

 

 

 

31,260

 

 

 

30,622

 

Diluted

 

 

32,382

 

 

 

31,932

 

 

 

32,319

 

 

 

31,921

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.19

 

 

$

0.15

 

 

$

0.38

 

 

$

0.30

 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

 

 

 

2


NEXSTAR BROADCASTING GROUP, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Six Months Ended June 30, 2015

(in thousands, except share information, unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

interests in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

consolidated

 

 

Total

 

 

 

Preferred Stock

 

 

Class A

 

 

Class B

 

 

Class C

 

 

Paid-In

 

 

Accumulated

 

 

variable

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

interest entities

 

 

Equity

 

Balances as of December 31, 2014

 

 

-

 

 

$

-

 

 

 

31,172,060

 

 

$

312

 

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

$

398,029

 

 

$

(345,804

)

 

$

4,000

 

 

$

56,537

 

Stock-based compensation

  expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,662

 

 

 

-

 

 

 

-

 

 

 

5,662

 

Exercise of stock options

 

 

-

 

 

 

-

 

 

 

444,184

 

 

 

4

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,280

 

 

 

-

 

 

 

-

 

 

 

3,284

 

Excess tax benefit from stock

  option exercises

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,814

 

 

 

-

 

 

 

-

 

 

 

7,814

 

Common stock dividends

  declared

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(11,865

)

 

 

-

 

 

 

-

 

 

 

(11,865

)

Consolidation of a variable

  interest entity

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,900

 

 

 

2,900

 

Contribution from a

  noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

100

 

 

 

100

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

33,228

 

 

 

(1,416

)

 

 

31,812

 

Balances as of June 30, 2015

 

 

-

 

 

$

-

 

 

 

31,616,244

 

 

$

316

 

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

$

402,920

 

 

$

(312,576

)

 

$

5,584

 

 

$

96,244

 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

 

 

 

3


NEXSTAR BROADCASTING GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2015

 

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

31,812

 

 

$

18,297

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Provision for bad debt

 

 

1,320

 

 

 

1,626

 

Amortization of broadcast rights, excluding barter

 

 

10,357

 

 

 

5,731

 

Depreciation of property and equipment

 

 

22,174

 

 

 

16,962

 

Amortization of intangible assets

 

 

24,297

 

 

 

12,305

 

Loss on asset disposal, net

 

 

927

 

 

 

146

 

Amortization of debt financing costs

 

 

1,684

 

 

 

1,272

 

Amortization of debt discount (premium), net

 

 

132

 

 

 

79

 

Loss on extinguishment of debt

 

 

-

 

 

 

71

 

Stock-based compensation expense

 

 

5,662

 

 

 

3,556

 

Deferred income taxes

 

 

16,318

 

 

 

12,044

 

Payments for broadcast rights

 

 

(10,785

)

 

 

(6,078

)

Deferred gain recognition

 

 

(219

)

 

 

(218

)

Amortization of deferred representation fee incentive

 

 

(550

)

 

 

(410

)

Non-cash representation contract termination fee

 

 

1,516

 

 

 

-

 

Excess tax benefit from stock option exercises

 

 

(7,814

)

 

 

(4,734

)

Changes in operating assets and liabilities, net of acquisitions and dispositions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(7,214

)

 

 

3,625

 

Prepaid expenses and other current assets

 

 

2,449

 

 

 

(476

)

Other noncurrent assets

 

 

119

 

 

 

152

 

Accounts payable and accrued expenses

 

 

(3,848

)

 

 

9,673

 

Taxes payable

 

 

(15,099

)

 

 

(70

)

Interest payable

 

 

7,146

 

 

 

217

 

Other noncurrent liabilities

 

 

209

 

 

 

(350

)

Net cash provided by operating activities

 

 

80,593

 

 

 

73,420

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(13,373

)

 

 

(9,065

)

Payments for acquisitions, net of cash acquired

 

 

(459,691

)

 

 

(85,298

)

Proceeds from disposal of a station

 

 

26,805

 

 

 

-

 

Proceeds from disposals of property and equipment

 

 

2,139

 

 

 

33

 

Net cash used in investing activities

 

 

(444,120

)

 

 

(94,330

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from long-term debt

 

 

411,950

 

 

 

24,938

 

Repayments of long-term debt

 

 

(147,828

)

 

 

(7,763

)

Payments for debt financing costs

 

 

(3,225

)

 

 

(357

)

Contribution from a noncontrolling interest

 

 

100

 

 

 

-

 

Proceeds from exercise of stock options

 

 

3,284

 

 

 

1,284

 

Excess tax benefit from stock option exercises

 

 

7,814

 

 

 

4,734

 

Common stock dividends paid

 

 

(11,865

)

 

 

(9,180

)

Payments for capital lease obligations

 

 

(1,724

)

 

 

(661

)

Net cash provided by financing activities

 

 

258,506

 

 

 

12,995

 

Net decrease in cash and cash equivalents

 

 

(105,021

)

 

 

(7,915

)

Cash and cash equivalents at beginning of period

 

 

131,912

 

 

 

40,028

 

Cash and cash equivalents at end of period

 

$

26,891

 

 

$

32,113

 

Supplemental information:

 

 

 

 

 

 

 

 

Interest paid

 

$

30,721

 

 

$

28,939

 

Income taxes paid, net of refunds

 

$

17,642

 

 

$

1,441

 

Non-cash investing activities:

 

 

 

 

 

 

 

 

Accrued purchases of property and equipment

 

$

1,362

 

 

$

1,900

 

Noncash purchases of property and equipment

 

$

3,557

 

 

$

961

 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

 


4


NEXSTAR BROADCASTING GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Organization and Business Operations

As of June 30, 2015, Nexstar Broadcasting Group, Inc. and its wholly-owned subsidiaries (“Nexstar”) owned, operated, programmed or provided sales and other services to 107 television stations and 36 digital multicast channels, including those owned by variable interest entities (“VIEs”), in 58 markets in the states of Alabama, Arizona, Arkansas, California, Colorado, Florida, Illinois, Indiana, Iowa, Louisiana, Maryland, Michigan, Missouri, Montana, Nevada, New York, Pennsylvania, Tennessee, Texas, Utah, Vermont, Virginia and Wisconsin. The stations are affiliates of ABC (20 stations), NBC (20 stations), FOX (28 stations), CBS (17 stations), The CW (10 stations and 2 digital multicast channels), MyNetworkTV (10 stations and 4 digital multicast channels), Telemundo (one station and one digital multicast channel), RTV (one station), Bounce TV (9 digital multicast channels), Me-TV (9 digital multicast channels), Estrella (6 digital multicast channels), LATV (one digital multicast channel), This TV (one digital multicast channel), Weather Nation Utah (one digital multicast channel), Movies! (one digital multicast channel) and News/Weather (one digital multicast channel). Through various local service agreements, Nexstar provided sales, programming and other services to 31 stations and 6 digital multicast channels 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.

 

2.  Summary of Significant Accounting Policies

Principles of Consolidation

The Condensed Consolidated Financial Statements include the accounts of Nexstar and the accounts of independently-owned VIEs for which Nexstar is the primary beneficiary. Nexstar and the consolidated VIEs are collectively referred to as the “Company.” Noncontrolling interests represent the VIE owners’ share of the equity in the consolidated VIEs and are presented as a component separate from Nexstar Broadcasting Group, Inc. stockholders’ equity. All intercompany account balances and transactions have been eliminated in consolidation. Nexstar management evaluates each arrangement that may include variable interests and determines the need to consolidate an entity where it determines Nexstar is the primary beneficiary of a VIE in accordance with related authoritative literature and interpretive guidance. Effective January 1, 2015, Nexstar entered into local service agreements to provide programming and sales services to stations acquired from Communications Corporation of America (“CCA”) and sold to Marshall Broadcasting Group, Inc. (“Marshall”) and stations owned by White Knight Broadcasting (“White Knight”), which were considered to be VIEs and were consolidated as of that date.

Certain assets of consolidated VIEs are not available to settle the obligations of Nexstar and there are certain liabilities of consolidated VIEs for which the creditors of the VIEs do not have recourse to the general credit of Nexstar. In previous filings, the Company presented such amounts as separate captions in its Consolidated Balance Sheets. Beginning in the first quarter of 2015, the Company has elected to present these amounts in a combined footnote on the Consolidated Balance Sheets, with footnote disclosure of the related carrying amounts and classification, as follows (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

 

2015

 

 

2014

 

 

Current assets

 

$

2,767

 

 

$

12

 

(1)

Property and equipment, net

 

 

4,364

 

 

 

-

 

 

Goodwill

 

 

18,322

 

 

 

697

 

(1)

FCC licenses

 

 

74,312

 

 

 

46,727

 

 

Other intangible assets, net

 

 

20,984

 

 

 

1,695

 

(1)

Other noncurrent assets, net

 

 

559

 

 

 

-

 

 

Total assets

 

 

121,308

 

 

 

49,131

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

12,074

 

 

 

7,852

 

 

Noncurrent liabilities

 

 

24,974

 

 

 

10,018

 

 

Total liabilities

 

$

37,048

 

 

$

17,870

 

 

 

 

 

(1)

These balances relate to Parker Broadcasting of Colorado, LLC and were previously not presented separately on the Consolidated Balance Sheet. This correction is not considered material to the Consolidated Financial Statements as of December 31, 2014.

 

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Liquidity

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.

Interim Financial Statements

The Condensed Consolidated Financial Statements as of June 30, 2015 and for the three and six months ended June 30, 2015 and 2014 are unaudited. However, in the opinion of management, such financial statements include all adjustments (consisting solely of normal recurring adjustments) necessary for the fair statement of the financial information included herein in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The preparation of the Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. Results of operations for interim periods are not necessarily indicative of results for the full year. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related Notes included in Nexstar’s Annual Report on Form 10-K for the year ended December 31, 2014. The balance sheet as of December 31, 2014 has been derived from the audited financial statements as of that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

Variable Interest Entities

The Company may determine that an entity is a VIE as a result of local service agreements entered into with the owner-operator of an entity. The term local service agreement generally refers to a contract between two separately owned television stations serving the same market, whereby the owner-operator of one station contracts with the owner-operator of the other station to provide it with administrative, sales and other services required for the operation of its station. Nevertheless, the owner-operator of each station retains control and responsibility for the operation of its station, including ultimate responsibility over all programming broadcast on its station. A local service agreement can be (1) a time brokerage agreement (“TBA”) which allows Nexstar to program most of a station’s broadcast time, sell the station’s advertising time and retain the advertising revenue generated in exchange for monthly payments, based on the station’s monthly operating expenses, (2) a shared services agreement (“SSA”) which 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 as described in the SSA, or (3) a joint sales agreement (“JSA”) which permits Nexstar to sell certain of the station’s advertising time and retain a percentage of the related revenue, as described in the JSA.

Consolidated VIEs

Mission Broadcasting, Inc. (“Mission”), Marshall and Parker Broadcasting of Colorado, LLC (“Parker”) are consolidated by Nexstar because Nexstar is deemed under U.S. GAAP to have controlling financial interests in these entities for financial reporting purposes as a result of (1) local service agreements Nexstar has with the stations owned by these entities, (2) Nexstar’s guarantees of the obligations incurred under Mission’s and Marshall’s senior secured credit facilities (see Note 6), (3) Nexstar having power over significant activities affecting these entities’ economic performance, including budgeting for advertising revenue, certain advertising sales and, for Mission and Parker, hiring and firing of sales force personnel and (4) purchase options granted by Mission which permit Nexstar to acquire the assets and assume the liabilities of each Mission station, subject to Federal Communications Commission (“FCC”) consent.

Effective January 1, 2015, upon Nexstar’s acquisition of CCA, Nexstar assumed the contractual obligations under CCA’s local service agreements with White Knight, the owner of six television stations in the Baton Rouge, Louisiana, Shreveport, Louisiana and Tyler-Longview, Texas markets. Nexstar evaluated the business arrangements with White Knight and has determined that it has a variable interest in this entity. Nexstar has also determined that it is the primary beneficiary of the variable interest because it has the ultimate power to direct the activities that most significantly impact the economic performance of White Knight, including management advice and consultation in broadcast matters, the ability to sell certain advertising on the White Knight stations, the production of the White Knight stations’ news and other programming, and oversight and control of sales management personnel. Additionally, Nexstar assumed CCA’s options to acquire the assets and assume the liabilities of each White Knight station, subject to FCC consent. Simultaneous with Nexstar’s acquisition of CCA, Nexstar sold the assets of CCA stations KPEJ and KMSS to Marshall and, as discussed above, Nexstar is the primary beneficiary of Marshall. Therefore, Nexstar consolidated White Knight, KPEJ and KMSS as of January 1, 2015. See Note 3 for additional information with respect to these transactions.


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The following table summarizes the various local service agreements Nexstar had in effect as of June 30, 2015 with Mission, Marshall, Parker and White Knight:

 

Service Agreements

 

Owner

 

Stations

TBA Only

 

Mission

 

WFXP and KHMT

 

 

Parker

 

KFQX

SSA & JSA

 

Mission

 

KJTL, KJBO-LP, KLRT, KASN, KOLR, KCIT, KCPN-LP, KAMC, KRBC, KSAN, WUTR, WAWV, WYOU, KODE, WTVO, KTVE, WTVW and WVNY

 

 

Marshall

 

KLJB, KPEJ and KMSS

 

 

White Knight

 

WVLA, KZUP, KFXK, KFXL, KLPN, KSHV

Nexstar’s ability to receive cash from Mission, Marshall, Parker and White Knight is governed by the local service agreements. Under these agreements, Nexstar has received substantially all of the consolidated VIEs’ available cash, after satisfaction of operating costs and debt obligations. Nexstar anticipates it will continue to receive substantially all of the consolidated VIEs’ available cash, after satisfaction of operating costs and debt obligations. In compliance with FCC regulations for all the parties, Mission, Marshall, Parker and White Knight maintain complete responsibility for and control over programming, finances, personnel and operations of their stations.

The carrying amounts and classification of the assets and liabilities of the VIEs mentioned above which have been included in the Condensed Consolidated Balance Sheets were as follows (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,621

 

 

$

1,440

 

Accounts receivable, net

 

 

13,847

 

 

 

7,594

 

Deferred tax assets, net

 

 

9,730

 

 

 

9,389

 

Prepaid expenses and other current assets

 

 

3,508

 

 

 

2,657

 

Total current assets

 

 

29,706

 

 

 

21,080

 

Property and equipment, net

 

 

31,384

 

 

 

26,235

 

Goodwill

 

 

69,965

 

 

 

35,308

 

FCC licenses

 

 

74,312

 

 

 

46,727

 

Other intangible assets, net

 

 

60,935

 

 

 

30,333

 

Other noncurrent assets, net

 

 

19,791

 

 

 

64,858

 

Total assets

 

$

286,093

 

 

$

224,541

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of debt

 

$

5,986

 

 

$

5,137

 

Interest payable

 

 

28

 

 

 

28

 

Other current liabilities

 

 

12,076

 

 

 

7,852

 

Total current liabilities

 

 

18,090

 

 

 

13,017

 

Debt

 

 

282,445

 

 

 

289,161

 

Other noncurrent liabilities

 

 

24,974

 

 

 

10,018

 

Total liabilities

 

$

325,509

 

 

$

312,196

 

Non-Consolidated VIEs

Nexstar has an outsourcing agreement with Cunningham Broadcasting Corporation (“Cunningham”), which continues through December 31, 2017. Under the outsourcing agreement, Nexstar provides certain engineering, production, sales and administrative services for WYZZ, the FOX affiliate in the Peoria, Illinois market, through WMBD, the Nexstar television station in that market. During the term of the outsourcing agreement, Nexstar retains the broadcasting revenue and related expenses of WYZZ and is obligated to pay a monthly fee based on the combined operating cash flow of WMBD and WYZZ, as defined in the agreement.


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Nexstar has determined that it has a variable interest in WYZZ. Nexstar has evaluated its arrangements with Cunningham and has determined that it is not the primary beneficiary of the variable interest in WYZZ because it does not have the ultimate power to direct the activities that most significantly impact the economic performance of the station, including developing the annual operating budget, programming and oversight and control of sales management personnel. Therefore, Nexstar has not consolidated this station under authoritative guidance related to the consolidation of VIEs. Under the outsourcing agreement for WYZZ, Nexstar pays for certain operating expenses, and therefore may have unlimited exposure to any potential operating losses. Nexstar’s management believes that Nexstar’s minimum exposure to loss under the WYZZ outsourcing agreement consists of the fees paid to Cunningham. Additionally, Nexstar indemnifies the owner of WYZZ from and against all liability and claims arising out of or resulting from its activities, acts or omissions in connection with the agreement. The maximum potential amount of future payments Nexstar could be required to make for such indemnification is undeterminable at this time.

As of June 30, 2015 and December 31, 2014, Nexstar had balances in accounts payable of $0.2 million and $0.5 million, respectively, for fees under this arrangement and had receivables for advertising aired on these stations of $0.6 million and $0.7 million, respectively. Fees incurred under this arrangement of $0.2 million and $0.3 million for the three months ended June 30, 2015 and 2014, respectively, and $0.3 million and $0.6 million during each of the six months then ended, were included in direct operating expenses in the Condensed Consolidated Statements of Operations.

Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, broadcast rights, accounts payable, broadcast rights payable and accrued expenses approximate fair value due to their short-term nature. See Note 6 for fair value disclosures related to the Company’s debt.

Income Per Share

 

Basic income per share is computed by dividing the net income attributable to Nexstar by the weighted-average number of common shares outstanding during the period. Diluted income per share is computed using the weighted-average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares are calculated using the treasury stock method. They consist of stock options and restricted stock units outstanding during the period and reflect the potential dilution that could occur if common stock were issued upon exercise of stock options and vesting of restricted stock units. The following table shows the amounts used in computing the Company’s diluted shares (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Weighted average shares outstanding - basic

 

 

31,325

 

 

 

30,641

 

 

 

31,260

 

 

 

30,622

 

Dilutive effect of equity incentive plan instruments