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EX-32.1 - EX-32.1 - MISSION BROADCASTING INCmbcc-ex321_6.htm
EX-31.1 - EX-31.1 - MISSION BROADCASTING INCmbcc-ex311_7.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x

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

For the quarterly period ended 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: 333-62916-02

MISSION BROADCASTING, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

 

51-0388022

(State of Incorporation or Organization)

 

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

 

 

30400 Detroit Road, Suite 304, Westlake, Ohio

 

44145

(Address of Principal Executive Offices)

 

(Zip Code)

(440) 526-2227

(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

 

¨

  

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 August 10, 2015, the Registrant had 1,000 shares of common stock outstanding, held by two shareholders.

 

 

 


TABLE OF CONTENTS

 

 

 

  

 

  

Page

PART I

  

FINANCIAL INFORMATION

  

 

 

 

 

 

 

ITEM 1.

  

Financial Statements (Unaudited)

  

 

 

 

 

 

 

 

  

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

  

1

 

 

 

 

 

 

  

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

  

2

 

 

 

 

 

 

  

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

  

3

 

 

 

 

 

 

  

Notes to Condensed Financial Statements

  

4

 

 

 

 

 

ITEM 2.

  

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

  

12

 

 

 

 

 

ITEM 3.

  

Quantitative and Qualitative Disclosures about Market Risk

  

19

 

 

 

 

 

ITEM 4.

  

Controls and Procedures

  

20

 

 

 

 

 

PART II

  

OTHER INFORMATION

  

 

 

 

 

 

 

ITEM 1.

  

Legal Proceedings

  

21

 

 

 

 

 

ITEM 1A.

  

Risk Factors

  

21

 

 

 

 

 

ITEM 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

  

21

 

 

 

 

 

ITEM 3.

  

Defaults Upon Senior Securities

  

21

 

 

 

 

 

ITEM 4.

  

Mine Safety Disclosures

  

21

 

 

 

 

 

ITEM 5.

  

Other Information

  

21

 

 

 

 

 

ITEM 6.

  

Exhibits

  

21

 

 

 

 


PART I. FINANCIAL INFORMATION

 

ITEM 1.

Financial Statements

MISSION BROADCASTING, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share information, unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

886

 

 

$

880

 

Accounts receivable, net of allowance for doubtful accounts of $111 and $90, respectively

 

 

8,463

 

 

 

6,895

 

Due from Nexstar Broadcasting, Inc.

 

 

40,020

 

 

 

29,867

 

Deferred tax assets, net

 

 

9,675

 

 

 

9,351

 

Prepaid expenses and other current assets

 

 

1,229

 

 

 

1,726

 

Total current assets

 

 

60,273

 

 

 

48,719

 

Property and equipment, net

 

 

22,990

 

 

 

24,166

 

Goodwill

 

 

32,489

 

 

 

32,489

 

FCC licenses

 

 

41,563

 

 

 

41,563

 

Other intangible assets, net

 

 

20,103

 

 

 

21,310

 

Deferred tax assets, net

 

 

9,244

 

 

 

14,956

 

Other noncurrent assets, net

 

 

7,567

 

 

 

8,862

 

Total assets

 

$

194,229

 

 

$

192,065

 

LIABILITIES AND SHAREHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of debt

 

$

2,086

 

 

$

1,837

 

Current portion of broadcast rights payable

 

 

838

 

 

 

1,413

 

Accounts payable

 

 

837

 

 

 

907

 

Accrued expenses

 

 

5,064

 

 

 

3,987

 

Other current liabilities

 

 

485

 

 

 

406

 

Total current liabilities

 

 

9,310

 

 

 

8,550

 

Debt

 

 

226,719

 

 

 

233,357

 

Other liabilities

 

 

7,454

 

 

 

8,667

 

Total liabilities

 

 

243,483

 

 

 

250,574

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Shareholders' deficit:

 

 

 

 

 

 

 

 

Common stock - $1 par value, 1,000 shares authorized, issued and outstanding as of

  each of June 30, 2015 and December 31, 2014

 

 

1

 

 

 

1

 

Subscription receivable

 

 

(1

)

 

 

(1

)

Accumulated deficit

 

 

(49,254

)

 

 

(58,509

)

Total shareholders' deficit

 

 

(49,254

)

 

 

(58,509

)

Total liabilities and shareholders' deficit

 

$

194,229

 

 

$

192,065

 

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

 

 

 

1


MISSION BROADCASTING, INC.

CONDENSED STATEMENTS OF OPERATIONS

(in thousands, unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net broadcast revenue

 

$

12,238

 

 

$

8,749

 

 

$

24,348

 

 

$

17,629

 

Revenue from Nexstar Broadcasting, Inc.

 

 

9,353

 

 

 

9,808

 

 

 

17,907

 

 

 

19,456

 

Net revenue

 

 

21,591

 

 

 

18,557

 

 

 

42,255

 

 

 

37,085

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses, excluding depreciation and amortization

 

 

5,468

 

 

 

4,256

 

 

 

10,656

 

 

 

8,622

 

Selling, general, and administrative expenses, excluding depreciation

  and amortization

 

 

800

 

 

 

783

 

 

 

1,662

 

 

 

1,606

 

Fees incurred pursuant to local service agreements with

  Nexstar Broadcasting, Inc.

 

 

2,445

 

 

 

2,445

 

 

 

4,890

 

 

 

4,890

 

Amortization of broadcast rights

 

 

1,376

 

 

 

1,401

 

 

 

2,844

 

 

 

2,891

 

Amortization of intangible assets

 

 

597

 

 

 

710

 

 

 

1,207

 

 

 

1,483

 

Depreciation

 

 

610

 

 

 

723

 

 

 

1,212

 

 

 

1,456

 

Total operating expenses

 

 

11,296

 

 

 

10,318

 

 

 

22,471

 

 

 

20,948

 

Income from operations

 

 

10,295

 

 

 

8,239

 

 

 

19,784

 

 

 

16,137

 

Interest expense

 

 

(2,322

)

 

 

(2,523

)

 

 

(4,638

)

 

 

(5,016

)

Loss on extinguishment of debt

 

 

-

 

 

 

(21

)

 

 

-

 

 

 

(21

)

Income before income taxes

 

 

7,973

 

 

 

5,695

 

 

 

15,146

 

 

 

11,100

 

Income tax expense

 

 

(3,070

)

 

 

(2,217

)

 

 

(5,891

)

 

 

(4,318

)

Net income

 

$

4,903

 

 

$

3,478

 

 

$

9,255

 

 

$

6,782

 

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

 

 

 

2


MISSION BROADCASTING, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2015

 

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

9,255

 

 

$

6,782

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

 

 

 

Deferred income taxes

 

 

5,388

 

 

 

4,036

 

Provision for bad debt

 

 

21

 

 

 

29

 

Depreciation of property and equipment

 

 

1,212

 

 

 

1,456

 

Amortization of intangible assets

 

 

1,207

 

 

 

1,483

 

Amortization of debt financing costs

 

 

241

 

 

 

282

 

Amortization of broadcast rights, excluding barter

 

 

844

 

 

 

835

 

Payments for broadcast rights

 

 

(888

)

 

 

(846

)

Deferred gain recognition

 

 

(100

)

 

 

(123

)

Amortization of debt discount

 

 

29

 

 

 

31

 

Loss on extinguishment of debt

 

 

-

 

 

 

21

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,589

)

 

 

(1,148

)

Prepaid expenses and other current assets

 

 

(39

)

 

 

(56

)

Other noncurrent assets

 

 

(19

)

 

 

(23

)

Accounts payable and accrued expenses

 

 

975

 

 

 

957

 

Other noncurrent liabilities

 

 

(66

)

 

 

(69

)

Due to/due from Nexstar Broadcasting, Inc.

 

 

(10,153

)

 

 

(9,283

)

Net cash provided by operating activities

 

 

6,318

 

 

 

4,364

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(36

)

 

 

(115

)

Deposit (refund) for acquisitions

 

 

150

 

 

 

(3,200

)

Net cash provided by (used in) investing activities

 

 

114

 

 

 

(3,315

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayments of long-term debt

 

 

(6,418

)

 

 

(1,914

)

Payments for debt financing costs

 

 

(8

)

 

 

(129

)

Net cash used in financing activities

 

 

(6,426

)

 

 

(2,043

)

Net increase (decrease) in cash and cash equivalents

 

 

6

 

 

 

(994

)

Cash and cash equivalents at beginning of period

 

 

880

 

 

 

3,716

 

Cash and cash equivalents at end of period

 

$

886

 

 

$

2,722

 

 

 

 

 

 

 

 

 

 

Supplemental information:

 

 

 

 

 

 

 

 

Interest paid

 

$

4,366

 

 

$

4,703

 

Income taxes paid, net of refunds

 

$

557

 

 

$

425

 

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

 

 

 

3


MISSION BROADCASTING, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

 

1. Organization and Business Operations

As of June 30, 2015, Mission Broadcasting, Inc. (“Mission” or the “Company”) owned and operated 20 television stations and 2 digital multicast channels, affiliated with the NBC, ABC, FOX, CBS, MyNetworkTV, The CW or Bounce TV television networks, in markets located in New York, Pennsylvania, Illinois, Indiana, Missouri, Louisiana, Texas, Vermont, Arkansas and Montana. The Company operates in one reportable television broadcasting segment. Through local service agreements, Nexstar Broadcasting, Inc. (“Nexstar”) provides sales and operating services to all of the Mission television stations (see Note 3).

The Company is highly leveraged, which makes it vulnerable to changes in general economic conditions. The Company’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 its control, as well as Nexstar maintaining its pledge to continue the local service agreements with the Company’s stations. Management believes that with Nexstar’s pledge to continue the local service agreements as described in a letter of support dated March 16, 2015, the Company’s available cash, anticipated cash flow from operations and available borrowings under its senior secured credit facility should be sufficient to fund working capital, capital expenditure requirements, interest payments and scheduled debt principal payments for at least the next twelve months from June 30, 2015, enabling Mission to continue to operate as a going concern.

Nexstar’s senior secured credit facility agreement contains covenants which require Nexstar to comply with certain financial ratios, including (a) a maximum consolidated total net leverage ratio, (b) a maximum consolidated first lien net leverage ratio, and (c) a minimum consolidated fixed charge coverage ratio. The covenants, which are calculated on a quarterly basis, include the combined results of Nexstar and Mission. The Company’s senior secured credit facility agreement does not contain financial covenant ratio requirements; however, it does include default provisions in the event Nexstar does not comply with all covenants contained in its credit agreement. As of June 30, 2015, Nexstar has informed Mission that it was in compliance with all covenants contained in its credit agreement and the indentures governing its senior unsecured notes.

 

2.  Summary of Significant Accounting Policies

Interim Financial Statements

The Condensed 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 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 Financial Statements should be read in conjunction with the Financial Statements and related Notes included in the Company’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.

Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, broadcast rights payable, accounts payable and accrued expenses approximate fair value due to their short-term nature. See Note 5 for fair value disclosures related to the Company’s debt.

Basis of Presentation

Certain prior year financial statement amounts have been reclassified to conform to the current year presentation. These reclassifications had no effect on net income or shareholders’ deficit as previously reported.


4


Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which updates the accounting guidance on revenue recognition. This standard is intended to provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices and improve disclosure requirements. The standard is effective for interim and annual reporting periods beginning after December 15, 2017. Transition to the new guidance may be done using either a full or modified retrospective method. The Company is currently evaluating the impact of the provisions of the accounting standard update.

In April 2015, the FASB issued ASU No. 2015-03, Interest, Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The amendments in this accounting standard are effective for interim and annual periods ending after December 15, 2015, with early application permitted. The Company does not expect this guidance to have a significant impact on its financial statements, other than a change in the financial statement classification of debt issuance costs on term loans. As of June 30, 2015 and December 31, 2014, $2.6 million and $2.8 million, respectively, of net debt financing costs related to these loans were included in other noncurrent assets in the Condensed Balance Sheets, but under the new guidance, would reduce the Company’s debt.

 

3.  Local Service Agreements with Nexstar

The Company has entered into local service agreements with Nexstar to provide sales and/or operating services to all of its stations. For the stations with a shared services agreement (“SSA”), the Nexstar station in the market provides certain services including news production, technical maintenance and security, in exchange for monthly payments to Nexstar. For each station with which the Company has entered into an SSA, it has also entered into a joint sales agreement (“JSA”), whereby Nexstar sells certain advertising time of the station and retains a percentage of the related revenue. For the stations with a time brokerage agreement (“TBA”), Nexstar programs most of the station’s broadcast time, sells the station’s advertising time and retains the advertising revenue it generates in exchange for monthly payments to Mission, based on the station’s monthly operating expenses. JSA and TBA fees generated from Nexstar under the agreements are reported as “Revenue from Nexstar Broadcasting, Inc.,” and SSA fees incurred by Mission under the agreements are reported as “Fees incurred pursuant to local service agreements with Nexstar Broadcasting, Inc.” in the accompanying Condensed Statements of Operations.

Under these agreements, Mission is responsible for certain operating expenses of its stations and therefore may have unlimited exposure to any potential operating losses. Mission will continue to operate its stations under the SSAs and JSAs or TBAs until the termination of such agreements. The local service agreements generally have a term of eight to ten years. Nexstar indemnifies Mission from Nexstar’s activities pursuant to the local service agreements to which Nexstar is a party.

 


5


Under the local service agreements, Nexstar receives substantially all of the Company’s available cash, after satisfaction of operating costs and debt obligations. The Company anticipates that Nexstar will continue to receive substantially all of its available cash, after satisfaction of operating costs and debt obligations. In compliance with FCC regulations for both the Company and Nexstar, Mission maintains complete responsibility for and control over programming, finances, personnel and operations of its stations. Mission had the following local service agreements in effect with Nexstar as of June 30, 2015:

 

Station

 

Market

 

Type of Agreement

 

Expiration

 

Consideration from Nexstar

WFXP

 

Erie, PA

 

TBA

 

8/16/16

 

Monthly payments received from Nexstar

KHMT

 

Billings, MT

 

TBA

 

12/13/17

 

Monthly payments received from Nexstar

KJTL/KJBO-LP

 

Wichita Falls, TX-Lawton, OK

 

SSA

JSA

 

5/31/19

5/31/19

 

$60 thousand per month paid to Nexstar

70% of net revenue received from Nexstar

WYOU

 

Wilkes Barre-Scranton, PA

 

SSA

JSA

 

1/4/2018

9/30/24

 

$35 thousand per month paid to Nexstar

70% of net revenue received from Nexstar

KODE

 

Joplin, MO-Pittsburg, KS

 

SSA

JSA

 

3/31/22

9/30/24

 

$75 thousand per month paid to Nexstar

70% of net revenue received from Nexstar

KRBC

 

Abilene-Sweetwater, TX

 

SSA

JSA

 

6/12/23

6/30/23

 

$25 thousand per month paid to Nexstar

70% of net revenue received from Nexstar

KSAN

 

San Angelo, TX

 

SSA

JSA

 

5/31/24

5/31/24

 

$10 thousand per month paid to Nexstar

70% of net revenue received from Nexstar

WAWV

 

Terre Haute, IN

 

SSA

JSA

 

5/8/23

5/8/23

 

$10 thousand per month paid to Nexstar

70% of net revenue received from Nexstar

KCIT/KCPN-LP

 

Amarillo, TX

 

SSA

JSA

 

4/30/19

4/30/19

 

$50 thousand per month paid to Nexstar

70% of net revenue received from Nexstar

KAMC

 

Lubbock, TX

 

SSA

JSA

 

2/15/19

2/15/19

 

$75 thousand per month paid to Nexstar

70% of net revenue received from Nexstar

KOLR

 

Springfield, MO

 

SSA

JSA

 

2/15/19

2/15/19

 

$150 thousand per month paid to Nexstar

70% of net revenue received from Nexstar

WUTR

 

Utica, NY

 

SSA

JSA

 

3/31/24

3/31/24

 

$10 thousand per month paid to Nexstar

70% of net revenue received from Nexstar

WTVO

 

Rockford, IL

 

SSA

JSA

 

10/31/24

10/31/24

 

$75 thousand per month paid to Nexstar

70% of net revenue received from Nexstar

KTVE

 

Monroe, LA-El Dorado, AR

 

SSA

JSA

 

1/16/18

1/16/18

 

$20 thousand per month paid to Nexstar

70% of net revenue received from Nexstar

WTVW

 

Evansville, IN

 

SSA

JSA

 

11/30/19

11/30/19

 

$50 thousand per month paid to Nexstar

70% of net revenue received from Nexstar

KLRT/KASN

 

Little Rock-Pine Bluff, AR

 

SSA

JSA

 

1/1/21

1/1/21

 

$150 thousand per month paid to Nexstar

70% of net revenue received from Nexstar

WVNY

 

Burlington-Plattsburgh, VT

 

SSA

JSA

 

3/1/21

3/1/21

 

$20 thousand per month paid to Nexstar

70% of net revenue received from Nexstar

 

4.  Intangible Assets and Goodwill

Intangible assets subject to amortization consisted of the following (in thousands):

 

 

 

Estimated

 

 

June 30, 2015

 

 

December 31, 2014

 

 

 

useful life,

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

in years

 

 

Gross

 

 

Amortization

 

 

Net

 

 

Gross

 

 

Amortization

 

 

Net

 

Network affiliation agreements

 

 

15

 

 

$

84,505

 

 

$

(65,432

)

 

$

19,073

 

 

$

84,505

 

 

$

(64,419

)

 

$

20,086

 

Other definite-lived

  intangible assets

 

1-15

 

 

 

15,661

 

 

 

(14,631

)

 

 

1,030

 

 

 

15,661

 

 

 

(14,437

)

 

 

1,224

 

Other intangible assets

 

 

 

 

 

$

100,166

 

 

$

(80,063

)

 

$

20,103

 

 

$

100,166

 

 

$

(78,856

)

 

$

21,310

 

 

6


The following table presents the Company’s estimate of amortization expense for the remainder of 2015, each of the five succeeding years ended December 31 and thereafter for definite-lived intangible assets as of June 30, 2015 (in thousands):

 

Remainder of 2015

 

$

1,266

 

2016

 

 

2,533

 

2017

 

 

2,409

 

2018

 

 

2,118

 

2019

 

 

1,908

 

2020

 

 

1,512

 

Thereafter

 

 

8,357

 

 

 

$

20,103

 

 

The carrying amounts of goodwill and FCC licenses were as follows (in thousands):

 

 

 

Goodwill

 

 

FCC Licenses

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Gross

 

 

Impairment

 

 

Net

 

 

Gross

 

 

Impairment

 

 

Net

 

Balances as of December 31, 2014

 

$

34,039

 

 

$

(1,550

)

 

$

32,489

 

 

$

52,260

 

 

$

(10,697

)

 

$

41,563

 

Balances as of June 30, 2015

 

 

34,039

 

 

 

(1,550

)

 

 

32,489

 

 

 

52,260

 

 

 

(10,697

)

 

 

41,563

 

 

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. As of June 30, 2015, the Company did not identify any events that would trigger an impairment assessment.

 

5.  Debt

Long-term debt consisted of the following (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Term loans, net of discount of $340 and $370, respectively

 

$

228,805

 

 

$

229,694

 

Revolving loans

 

 

-

 

 

 

5,500

 

 

 

 

228,805

 

 

 

235,194

 

Less: current portion

 

 

(2,086

)

 

 

(1,837

)

 

 

$

226,719

 

 

$

233,357

 

 

2015 Transactions

In January 2015, the Company repaid the $5.5 million outstanding principal under its revolving credit facility. Through June 2015, the Company repaid the scheduled maturities under its term loans of $0.9 million.

On July 7, 2015, Nexstar created Enterprise Technology LLC, a wholly-owned Delaware limited liability company ("Digital LLC"). Simultaneous with the creation of this new entity, certain assets and liabilities related to the digital media business owned by Nexstar were contributed to Digital LLC. On July 7, 2015, Mission and Nexstar entered into amendments to each of their senior secured credit facilities in order to permit Nexstar's contribution of assets and liabilities to Digital LLC. The amendments, among other things, permit Nexstar to use the proceeds of borrowings under its revolving credit facility to fund the working capital and other general corporate requirements of Digital LLC and each of its direct and indirect subsidiaries. The amendments also required the inclusion of Digital LLC and each of its direct and indirect subsidiaries in the calculation of Nexstar's financial covenants and other financial ratios and results pursuant to its amended credit agreement. Additionally, Digital LLC and each of its direct and indirect subsidiaries agreed to guarantee all borrowings of Mission and Nexstar under each of their senior secured credit facilities.

Unused Commitments and Borrowing Availability

As of June 30, 2015, the Company had $8.0 million unused revolving loan commitment under its amended senior secured credit facility, all of which was available for borrowing, based on the covenant calculations. Pursuant to the terms of the Company’s and Nexstar’s amended credit agreements, the Company may reallocate any of its unused revolving loan commitment to Nexstar and Nexstar may also reallocate certain of its unused revolving loan commitment to the Company.

7


Collateralization and Guarantees of Debt

Nexstar Broadcasting Group, Inc. (Nexstar’s ultimate parent) and its subsidiaries guarantee full payment of all obligations under the Mission senior secured credit facility in the event of Mission’s default. Similarly, Mission is a guarantor of Nexstar’s senior secured credit facility, the $525.0 million 6.875% senior unsecured notes (the “6.875% Notes”) and the $275.0 million 6.125% senior unsecured notes (the “6.125% Notes”) issued by Nexstar. The senior secured credit facilities are collateralized by a security interest in substantially all the combined assets, excluding FCC licenses, of Nexstar and Mission.

Debt Covenants

The Mission senior secured credit facility agreement does not contain financial covenant ratio requirements, but includes default provisions in the event Nexstar does not comply with all covenants contained in its credit agreement. Nexstar has informed Mission that it was in compliance with its debt covenants as of June 30, 2015.

Fair Value of Debt

The aggregate carrying amounts and estimated fair values of the Company’s debt were as follows (in thousands):

 

 

 

June 30, 2015

 

 

December 31, 2014

 

 

 

Carrying

 

 

Fair

 

 

Carrying

 

 

Fair

 

 

 

Amount

 

 

Value

 

 

Amount

 

 

Value

 

Term loans

 

$

228,805

 

 

$

228,509

 

 

$

229,694

 

 

$

227,195

 

Revolving loans

 

 

-

 

 

 

-

 

 

 

5,500

 

 

 

5,386

 

The fair values of the term loans and the revolving loans are computed based on borrowing rates currently available to Mission for bank loans with similar terms and average maturities. These fair value measurements are considered Level 3, as significant inputs to the fair value calculation are unobservable in the market.

 

6.  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. In addition, the U.S. Congress may act to amend the Communications Act or adopt other legislation in a manner that could impact the Company’s stations and the television broadcast industry in general.

The FCC has adopted rules with respect to the final conversion of existing low power and television translator stations to digital operations. The FCC initially established a September 1, 2015 deadline by which low power and television translator stations must cease analog operations, but it recently has suspended that deadline pending action in an ongoing rulemaking proceeding.

Media Ownership

The FCC is required 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.”

In March 2014, the FCC initiated its 2014 quadrennial review with the adoption of a Further Notice of Proposed Rulemaking (“FNPRM”). The FNPRM incorporates the record of the uncompleted 2010 quadrennial review proceeding and solicits comment on proposed changes to the media ownership rules. Among the proposals in the FNPRM are (1) retention of the current local television ownership rule (but with modifications to certain service contour definitions to conform to digital television broadcasting), (2) elimination of the radio/television cross-ownership rule, (3) elimination of the newspaper/radio cross-ownership rule, and (4) retention of the newspaper/television cross-ownership rule, while considering waivers of that rule in certain circumstances. The FNPRM also proposes to define a category of sharing agreements designated as SSAs between television stations, and to require television stations to disclose those SSAs. Comments and reply comments on the FNPRM were filed in the third quarter of 2014.

Concurrently with its adoption of the FNPRM, the FCC also adopted a rule making television JSAs attributable to the seller of advertising time in certain circumstances. Under this rule, where a party owns a full-power television station in a market and sells more than 15% of the weekly advertising time for another, non-owned station in the same market under a JSA, that party is deemed to have an attributable interest in the latter station for purposes of the local television ownership rule. Parties to newly attributable JSAs

8


that do not comply with the local television ownership rule were given two years to modify or terminate their JSAs to come into compliance. Congressional legislation signed into law in late 2014 extended this compliance period for an additional six months, and the compliance deadline is now December 19, 2016. Although the FCC has indicated that it will consider waivers of the new JSA attribution rule, the FCC thus far has not granted any such waiver and has provided little guidance on what factors must be present for a waiver to be granted. Various parties, including Nexstar, have appealed this new rule to the U.S. Court of Appeals for the D.C. Circuit. Mission has intervened in this proceeding. If the Company is required to amend or terminate its existing JSAs with Nexstar, it could have a reduction in revenue and increased costs if it is unable to successfully implement alternative arrangements that are as beneficial as the existing JSAs.

 

Also in March 2014, the FCC’s Media Bureau issued a public notice announcing “processing guidelines” for certain pending and future applications for FCC approval of television acquisitions. The public notice indicates that the FCC will “closely scrutinize” applications which propose a JSA, SSA or local marketing agreement (“LMA”) between television stations, combined with an option, a similar “contingent interest,” or a loan guarantee. These new processing guidelines have impacted the Company’s pending and previously announced acquisitions and may affect the Company’s acquisition of additional stations in the future.

In September 2013, the FCC commenced a rulemaking proceeding to consider whether to eliminate the “UHF discount” that is currently used to calculate compliance with the national television ownership limit.

Spectrum

 

The FCC is seeking to make additional spectrum available to meet future wireless broadband needs. In February 2012, the U.S. Congress adopted legislation authorizing the FCC to conduct an incentive auction whereby television broadcasters could voluntarily relinquish their spectrum in exchange for consideration. In June 2014, the FCC released a Report and Order in which it adopted a framework for the auction.  Various court appeals of this Report and Order were denied in June 2015.  In December 2014, the FCC released a public notice proposing certain procedures that the FCC will follow in the incentive auction and the subsequent “repacking” of broadcast television spectrum.  Comments on this public notice were filed in the first quarter of 2015, and the FCC has announced its intention to adopt procedures for the incentive auction in August 2015. The FCC has decided or is considering additional issues related to the incentive auction, including still-outstanding technical issues, in other proceedings. The FCC has stated its intention to conduct the incentive auction in the first quarter of 2016. The reallocation of television spectrum for wireless broadband use will require many television stations to change channel or otherwise modify their technical facilities. Future steps to reallocate television spectrum to broadband use may be to the detriment of the Company’s investment in digital facilities, could require substantial additional investment to continue current operations, and may require viewers to invest in additional equipment or subscription services to continue receiving broadcast television signals. The Company cannot predict the timing or results of television spectrum reallocation efforts or their impact to its business.

Retransmission Consent

 

On March 3, 2011, the FCC initiated a Notice of Proposed Rulemaking to reexamine its rules (i) governing the requirements for good faith negotiations between multichannel video program distributors (“MVPDs”) and broadcasters, including implementing a prohibition on one station negotiating retransmission consent terms for another station under a local service agreement; (ii) for providing advance notice to consumers in the event of dispute; and (iii) to extend certain cable-only obligations to all MVPDs. The FCC also asked for comment on eliminating the network non-duplication and syndicated exclusivity protection rules, which may permit MVPDs to import out-of-market television stations during a retransmission consent dispute.

 

In March 2014, the FCC adopted a rule that prohibits joint retransmission consent negotiation between television stations in the same market which are not commonly owned and which are ranked among the top four stations in the market in terms of audience share.  On December 5, 2014, federal legislation extended the joint negotiation prohibition to all non-commonly owned television stations in a market. This new rule and legislation require the Company to negotiate retransmission consent agreements for certain of its stations separately from Nexstar. The December 2014 legislation also directed the FCC to commence a rulemaking to “review its totality of the circumstances test for good faith [retransmission consent] negotiations.”  The FCC has not yet commenced this proceeding, and the Company cannot predict its outcome.

 


9


Concurrently with its adoption of the prohibition on certain joint retransmission consent negotiation, the FCC also adopted a further notice of proposed rulemaking which seeks comment on the elimination or modification of the network non-duplication and syndicated exclusivity rules. The FCC’s prohibition on certain joint retransmission consent negotiations and its possible elimination or modification of the network non-duplication and syndicated exclusivity protection rules may affect the Company’s ability to sustain its current level of retransmission consent revenues or grow such revenues in the future and could have an adverse effect on the Company’s business, financial condition and results of operations. The Company cannot predict the resolution of the FCC’s network non-duplication and syndicated exclusivity proposals, or the impact of these proposals or the FCC’s new prohibition on certain joint negotiations, on its business.

 

Further, certain online video distributors and other over-the-top video distributors (“OTTDs”) have begun streaming broadcast programming over the Internet. In June 2014, the U.S. Supreme Court held that an OTTD’s retransmissions of broadcast television programs without the consent of the broadcast station violate the copyright holders’ exclusive right to perform their works publicly as provided under the Copyright Act. In December 2014, the FCC issued a Notice of Proposed Rulemaking proposing to interpret the term “MVPD” to encompass OTTDs that make available for purchase multiple streams of video programming distributed at a prescheduled time, and seeking comment on the effects of applying MVPD rules to such OTTDs. Comments and reply comments were filed in the first and second quarters of 2015 and we cannot predict the outcome of the proceeding. However, if the FCC ultimately determines that an OTTD is not an MVPD, or declines to apply certain rules governing MVPDs to OTTDs, our business and results of operations could be materially and adversely affected.

 

7.  Commitments and Contingencies

Guarantee of Nexstar Debt

Mission is a guarantor of and has pledged substantially all its assets, excluding FCC licenses, to guarantee Nexstar’s credit facility. Mission is also a guarantor of Nexstar’s 6.875% Notes.

On January 29, 2015, Nexstar completed the issuance and sale of $275.0 million 6.125% Notes at par. The 6.125% Notes will mature on February 15, 2022. Mission is a guarantor of the 6.125% Notes subject to certain customary release provisions.

The 6.875% Notes and the 6.125% Notes are general senior unsecured obligations subordinated to all of Mission’s senior secured debt. In the event that Nexstar is unable to repay amounts due under these debt obligations, Mission will be obligated to repay such amounts. The maximum potential amount of future payments that Mission would be required to make under these guarantees would be generally limited to the amount of borrowings outstanding under Nexstar’s senior secured credit facility, the 6.875% Notes and the 6.125% Notes. As of June 30, 2015, Nexstar had $525.0 million outstanding obligations under its 6.875% Notes due on November 15, 2020, had $275.0 million outstanding obligations under its 6.125% Notes and had a maximum commitment of $506.4 million under its senior secured credit facility, of which $259.0 million in Term Loan B-2 and $152.4 million in Term Loan A were outstanding.

Nexstar’s Term Loan B-2 is payable in consecutive quarterly installments of 0.25% of the aggregate principal, adjusted for any prepayments, with the remainder due in full at maturity on October 1, 2020. Nexstar’s Term Loan A is payable in quarterly installments that increase over time from 5.0% to 10.0% of the aggregate principal, adjusted for any prepayments, with the remainder due in full at maturity on June 28, 2018.

On July 7, 2015, Mission and Nexstar entered into amendments to each of their senior secured credit facilities. See Note 5 for additional information.


10


Purchase Options Granted to Nexstar

In consideration of the guarantee of Mission’s bank credit facility by Nexstar Broadcasting Group, Inc. and its subsidiaries, Mission has granted Nexstar purchase options 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. Cash flow is defined as income or loss from operations, plus depreciation and amortization (including amortization of broadcast rights), interest income, non-cash trade and barter expenses, nonrecurring expenses (including time brokerage agreement fees), network compensation payments received or receivable and corporate management fees, less payments for broadcast rights, non-cash trade and barter revenue and network compensation revenue. Additionally, Mission’s shareholders have granted Nexstar an option to purchase any or all of the Company’s stock, subject to FCC consent, for a price equal to the pro rata portion of the greater of (1) five times the stations’ cash flow, as defined in the agreement, reduced by the amount of indebtedness, as defined in the agreement, or (2) $100,000. These option agreements (which expire on various dates between 2017 and 2024) are freely exercisable or assignable by Nexstar without consent or approval by Mission or its shareholders. The Company expects these option agreements to be renewed upon expiration.

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 other 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 insignificant and the Company has not incurred significant costs to defend lawsuits or settle claims related to these indemnification agreements.

Litigation

From time to time, the Company is involved with claims that arise out of the normal course of 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.

 

 

 

 

 

11


ITEM 2.

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

The following discussion and analysis should be read in conjunction with our Condensed Financial Statements and related Notes included elsewhere in this Quarterly Report on Form 10-Q and the Financial Statements and related Notes contained in our Annual Report on Form 10-K for the year ended December 31, 2014. Throughout this discussion, all references to “Mission”, “we”, “our”, “us” and the “Company” refer to Mission Broadcasting, Inc.

Overview of Operations

As of June 30, 2015, we owned and operated 20 television stations and 2 digital multicast channels. We have local service agreements with certain television stations owned by Nexstar, through which Nexstar provides various programming, sales or other services to our television stations. In compliance with FCC regulations for both Nexstar and us, we maintain complete responsibility for and control over programming, finances, personnel and operations for our stations.

The following table summarizes the various local service agreements our stations had in effect as of June 30, 2015 with Nexstar:

 

Service Agreements

 

Stations

TBA Only

 

WFXP and KHMT

SSA & JSA

 

KJTL, KJBO-LP, KLRT, KASN, KOLR, KCIT, KCPN-LP, KAMC, KRBC, KSAN, WUTR, WAWV,

WYOU, KODE, WTVO, KTVE, WTVW and WVNY

Under the local service agreements, Nexstar receives substantially all of our available cash, after satisfaction of operating costs and debt obligations. We anticipate that Nexstar will continue to receive substantially all of our available cash, after satisfaction of operating costs and debt obligations. For more information about our local service agreements with Nexstar, refer to Note 3 of our Condensed Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The operating revenue of our stations is derived primarily from broadcast advertising revenue sold and collected by Nexstar and paid to us under the JSAs. Broadcast advertising revenue 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 employed in each market. 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, when state, congressional and presidential elections occur and from advertising aired during the Olympic Games. 2015 is not an election year or an Olympic year.

We earn revenues from local cable providers, direct broadcast satellite services and other MVPDs for the retransmission of our broadcasts. These revenues are generally earned based on a price per subscriber of the MVPD within the retransmission area. We have been successful at negotiating favorable pricing with MVPDs, as well as signing retransmission agreements with additional MVPDs, driving significant revenue gains over the last few years.

Most of our stations have a network affiliation agreement pursuant to which the network provides programming to the stations during specified time periods, including prime time, in exchange for network affiliation fees and the right to sell a portion of the advertising time during these broadcasts.

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 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 using the straight-line method over the license period or period of usage, whichever ends earlier. The cash broadcast rights liabilities are reduced by monthly payments while the barter liability is amortized over the same amortization period as the asset as barter revenue.

 

 

12


 

Our primary operating expense consists of fixed monthly SSA fees paid to Nexstar for news production and technical and other services. To a lesser extent, our operating expenses include employee compensation and related benefits. A large percentage of the costs involved in the operation of our stations remains fixed.

Regulatory Developments

As a television broadcaster, we are highly regulated and our operations require that we retain or renew a variety of government approvals and comply with changing federal regulations. Effective June 19, 2014, the FCC modified its television ownership rules such that a television licensee that sells more than 15 percent of the weekly advertising inventory of another television station in the same Designated Market Area is deemed to have an attributable ownership interest in that station. Parties to existing JSAs that are deemed attributable interests and do not comply with the FCC’s local television ownership rule have until December 19, 2016 to come into compliance. Although the FCC has indicated that it will consider waivers of the new JSA attribution rule, the FCC thus far has not granted any such waiver and has provided little guidance on what factors must be present for a waiver to be granted. The Company expects to incur additional costs in complying with this new rule. We do not expect the new rules to impact our JSA revenue in 2015; however, we may begin to be negatively impacted by the new JSA attribution rule in 2016. If we are unable to obtain waivers from the FCC and are required to amend or terminate our existing agreements, we could have a reduction in revenue and increased costs if we are unable to successfully implement alternative arrangements that are as beneficial as the existing JSAs. Various parties, including Nexstar, have appealed this new rule to the U.S. Court of Appeals for the D.C. Circuit. We have intervened in this proceeding.

Also in March 2014, the FCC’s Media Bureau issued a public notice announcing “processing guidelines” for certain pending and future applications for FCC approval of television acquisitions. The public notice indicates that the FCC will “closely scrutinize” applications which propose a JSA, SSA or LMA between television stations, combined with an option, a similar “contingent interest,” or a loan guarantee. The U.S. Court of Appeals for the D.C. Circuit has dismissed an appeal of the processing guidelines. These new processing guidelines have impacted our previously announced acquisitions and may affect future station acquisitions.

Also in March 2014, the FCC amended its rules governing retransmission consent negotiations. The amended rule initially prohibited two non-commonly owned stations ranked in the top four in viewership in a market from negotiating jointly with MVPDs. On December 5, 2014, legislation was enacted which extended the joint negotiation prohibition to all non-commonly owned television stations in a market. Historically, we have negotiated retransmission consent agreements jointly with Nexstar. We are now required to separately negotiate our future retransmission consent agreements with MVPDs for certain of our stations. We cannot predict at this time the impact this amended rule will have on future negotiations with MVPDs and the impact, if any, it will have on our revenues and expenses.

Historical Performance

Revenue

The following table sets forth the principal types of revenue earned by our stations (in thousands):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Retransmission compensation

 

$

11,122

 

 

$

7,612

 

 

$

22,042

 

 

$

15,313

 

Other

 

 

145

 

 

 

132

 

 

 

306

 

 

 

260

 

Barter revenue

 

 

971

 

 

 

1,005

 

 

 

2,000

 

 

 

2,056

 

Revenue from Nexstar

 

 

9,353

 

 

 

9,808

 

 

 

17,907

 

 

 

19,456

 

Net revenue

 

$

21,591

 

 

$

18,557

 

 

$

42,255

 

 

$

37,085

 

13


Results of Operations

The following table sets forth a summary of our operations (in thousands) and the components of operating expense as a percentage of net revenue:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

Net revenue

 

$

21,591

 

 

 

100.0

 

 

$

18,557

 

 

 

100.0

 

 

$

42,255

 

 

 

100.0

 

 

$

37,085

 

 

 

100.0

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate expenses

 

 

273

 

 

 

1.3

 

 

 

253

 

 

 

1.4

 

 

 

607

 

 

 

1.4

 

 

 

575

 

 

 

1.6

 

Station direct operating expenses

 

 

5,468

 

 

 

25.3

 

 

 

4,256

 

 

 

22.9

 

 

 

10,656

 

 

 

25.2

 

 

 

8,622

 

 

 

23.2

 

Station selling, general and

  administrative expenses

 

 

527

 

 

 

2.4

 

 

 

530

 

 

 

2.9

 

 

 

1,055

 

 

 

2.5

 

 

 

1,031

 

 

 

2.8

 

Fees incurred pursuant to

  local service agreements

  with Nexstar

 

 

2,445

 

 

 

11.3

 

 

 

2,445

 

 

 

13.2

 

 

 

4,890

 

 

 

11.6

 

 

 

4,890

 

 

 

13.2

 

Barter expense

 

 

971

 

 

 

4.5

 

 

 

1,005

 

 

 

5.4

 

 

 

2,000

 

 

 

4.7

 

 

 

2,056

 

 

 

5.5

 

Depreciation

 

 

610

 

 

 

2.8

 

 

 

723

 

 

 

3.9

 

 

 

1,212

 

 

 

2.9

 

 

 

1,456

 

 

 

3.9

 

Amortization of intangible assets

 

 

597

 

 

 

2.8

 

 

 

710

 

 

 

3.8

 

 

 

1,207

 

 

 

2.9

 

 

 

1,483

 

 

 

4.0

 

Amortization of broadcast rights,

  excluding barter

 

 

405

 

 

 

1.9

 

 

 

396

 

 

 

2.1

 

 

 

844

 

 

 

2.0

 

 

 

835

 

 

 

2.3

 

Income from operations

 

$

10,295

 

 

 

 

 

 

$

8,239

 

 

 

 

 

 

$

19,784

 

 

 

 

 

 

$

16,137

 

 

 

 

 

 


14


Three Months Ended June 30, 2015 Compared to Three Months Ended June 30, 2014

Revenue

Net revenue for the three months ended June 30, 2015 increased by $3.0 million, or 16.3%, from the same period in 2014. This increase was primarily attributed to compensation from retransmission consent.

Revenue from Nexstar was $9.4 million for the three months ended June 30, 2015, compared to $9.8 million for the same period in 2014, a decrease of $0.5 million, or 4.6%, primarily due to 2015 not being an election year or an Olympic year. The revenue we earn from Nexstar through our JSAs is directly correlated to the advertising revenue earned at our stations.

Compensation from retransmission consent was $11.1 million for the three months ended June 30, 2015, compared to $7.6 million for the same period in 2014, an increase of $3.5 million, or 46.1%. The increase was primarily due to retransmission consent providing for higher rates per subscriber during the quarter.

Operating Expenses

Corporate expenses were consistent at $0.3 million for each of the three months ended June 30, 2015 and 2014. Corporate expense relates to costs associated with the centralized management of our stations.

Station direct operating expenses, consisting primarily of news, engineering and programming, and station selling, general and administrative expenses were $6.0 million for the three months ended June 30, 2015, compared to $4.8 million for the same period in 2014, an increase of $1.2 million, or 25.3%. The increase was primarily due to an increase in programming costs of $1.2 million primarily related to recently enacted network affiliation agreements. Network affiliation fees have been increasing industry wide and will continue to increase over the next several years.

Local service agreement fees associated with Nexstar relate to services provided by Nexstar in the production of newscasts, technical maintenance, promotional and administrative support under the SSAs. SSA fees were consistent at $2.4 million for each of the three months ended June 30, 2015 and 2014.

Depreciation of property and equipment was $0.6 million for the three months ended June 30, 2015, compared to $0.7 million for the same period in 2014, a decrease of $0.1 million, or 15.6%. This was primarily attributable to decreases in depreciation from certain of our fully depreciated property and equipment.

Amortization of intangible assets was $0.6 million for the three months ended June 30, 2015, compared to $0.7 million for the same period in 2014, a decrease of $0.1 million, or 15.9%. This was primarily attributable to decreases in amortization of other intangible assets from certain fully amortized assets.

Interest Expense

Interest expense was $2.3 million for the three months ended June 30, 2015, compared to $2.5 million for the same period in 2014, a decrease of $0.2 million, or 8.0%. This decrease was primarily attributable to a decrease in commitment fees on unused term loan commitment as a result of our re-allocation of such commitment to Nexstar in October 2014. Additionally, interest expense on our outstanding term loans decreased due to repayments of principal.

Income Taxes

Income tax expense was $3.1 million for the three months ended June 30, 2015 and $2.2 million for the same period in 2014, an increase of $0.9 million, or 38.5%. The effective tax rates for the three months ended June 30, 2015 and 2014 were 38.5% and 38.9%, respectively.


15


Six Months Ended June 30, 2015 Compared to Six Months Ended June 30, 2014

Revenue

Net revenue for the six months ended June 30, 2015 increased by $5.2 million, or 13.9%, from the same period in 2014. This increase was primarily attributed to compensation from retransmission consent.

Revenue from Nexstar was $17.9 million for the six months ended June 30, 2015, compared to $19.5 million for the same period in 2014, a decrease of $1.5 million, or 8.0%, primarily due to 2015 not being an election year or an Olympic year. The revenue we earn from Nexstar through our JSAs is directly correlated to the advertising revenue earned at our stations.

Compensation from retransmission consent was $22.0 million for the six months ended June 30, 2015, compared to $15.3 million for the same period in 2014, an increase of $6.7 million, or 43.9%. The increase was primarily due to retransmission consent providing for higher rates per subscriber during the period.

Operating Expenses

Corporate expenses were consistent at $0.6 million for each of the six months ended June 30, 2015 and 2014. Corporate expense relates to costs associated with the centralized management of our stations.

Station direct operating expenses, consisting primarily of news, engineering and programming, and station selling, general and administrative expenses were $11.7 million for the six months ended June 30, 2015, compared to $9.7 million for the same period in 2014, an increase of $2.1 million, or 21.3%. The increase was primarily due to an increase in programming costs of $2.0 million primarily related to recently enacted network affiliation agreements. Network affiliation fees have been increasing industry wide and will continue to increase over the next several years.

Local service agreement fees associated with Nexstar relate to services provided by Nexstar in the production of newscasts, technical maintenance, promotional and administrative support under the SSAs. SSA fees were consistent at $4.9 million for each of the six months ended June 30, 2015 and 2014.

Depreciation of property and equipment was $1.2 million for the six months ended June 30, 2015, compared to $1.5 million for the same period in 2014, a decrease of $0.2 million, or 16.8%. This was primarily attributable to decreases in depreciation from certain of our fully depreciated property and equipment.

Amortization of intangible assets was $1.2 million for the six months ended June 30, 2015, compared to $1.5 million for the same period in 2014, a decrease of $0.3 million, or 18.6%. This was primarily attributable to decreases in amortization of other intangible assets from certain fully amortized assets.

Interest Expense

Interest expense was $4.6 million for the six months ended June 30, 2015, compared to $5.0 million for the same period in 2014, a decrease of $0.4 million, or 7.5%. This decrease was primarily attributable to a decrease in commitment fees on unused term loan commitment as a result of our re-allocation of such commitment to Nexstar in October 2014. Additionally, interest expense on our outstanding term loans decreased due to repayments of principal.

Income Taxes

Income tax expense was $5.9 million for the six months ended June 30, 2015 and $4.3 million for the same period in 2014, an increase of $1.6 million, or 36.4%. The effective tax rates for each of the six months ended June 30, 2015 and 2014 were 38.9%.

 

 


16


Liquidity and Capital Resources

We are highly leveraged, which makes us vulnerable to changes in general economic conditions. Our ability to meet the future cash requirements described below depends on our 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 control. Our ability to meet future cash requirements is also dependent upon the local service agreements we have entered into with Nexstar. Under our local service agreements, Nexstar sells our advertising time and pays us a percentage of the amount collected. The payments we receive from Nexstar are a significant component of our cash flows. On March 16, 2015, Nexstar represented to us that it will continue the various local service agreements under which it provides sales and other services to our television stations, thereby providing financial support to enable us to continue to operate as a going concern. We believe that with Nexstar’s pledge to continue the local service agreements, our available cash, anticipated cash flow from operations and available borrowings under our senior secured credit facility should be sufficient to fund working capital, capital expenditure requirements, interest payments and scheduled debt principal payments for at least the next twelve months from June 30, 2015. In order to meet future cash needs we may, from time to time, borrow under our existing senior secured credit facility. We will continue to evaluate the best use of our operating cash flow among capital expenditures and debt reduction.

Overview

The following tables present summarized financial information management believes is helpful in evaluating our liquidity and capital resources (in thousands):

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2015

 

 

2014

 

Net cash provided by operating activities

 

$

6,318

 

 

$

4,364

 

Net cash provided by (used in) investing activities

 

 

114

 

 

 

(3,315

)

Net cash used in by financing activities

 

 

(6,426

)

 

 

(2,043

)

Net increase (decrease) in cash and cash equivalents

 

$

6

 

 

$

(994

)

Cash paid for interest

 

$

4,366

 

 

$

4,703

 

Cash paid for income taxes, net of refunds

 

$

557

 

 

$

425

 

 

 

 

As of

 

 

As of

 

 

 

June 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Cash and cash equivalents

 

$

886

 

 

$

880

 

Long-term debt including current portion

 

 

228,805

 

 

 

235,194

 

Unused revolving loan commitments under senior secured credit facilities

 

 

8,000