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EX-31.1 - EX-31.1 - NEXSTAR MEDIA GROUP, INC.nxst-ex311_8.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 March 31, 2016

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 May 2, 2016, the registrant had 30,677,804 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 March 31, 2016 and December 31, 2015

  

1

 

 

 

 

 

 

  

Condensed Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015

  

2

 

 

 

 

 

 

  

Condensed Consolidated Statement of Changes in Stockholders’ Equity for the three months ended March 31, 2016

  

3

 

 

 

 

 

 

  

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015

  

4

 

 

 

 

 

 

  

Notes to Condensed Consolidated Financial Statements

  

5

 

 

 

 

 

ITEM 2.

  

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

  

26

 

 

 

 

 

ITEM 3.

  

Quantitative and Qualitative Disclosures about Market Risk

  

35

 

 

 

 

 

ITEM 4.

  

Controls and Procedures

  

36

 

 

 

 

 

PART II

  

OTHER INFORMATION

  

 

 

 

 

 

 

ITEM 1.

  

Legal Proceedings

  

36

 

 

 

 

 

ITEM 1A.

  

Risk Factors

  

36

 

 

 

 

 

ITEM 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

  

36

 

 

 

 

 

ITEM 3.

  

Defaults Upon Senior Securities

  

36

 

 

 

 

 

ITEM 4.

  

Mine Safety Disclosures

  

36

 

 

 

 

 

ITEM 5.

  

Other Information

  

36

 

 

 

 

 

ITEM 6.

  

Exhibits

  

37

 

 

 

 


PART I. FINANCIAL INFORMATION

ITEM 1.

Financial Statements

NEXSTAR BROADCASTING GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share information, unaudited)  

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

12,821

 

 

$

43,416

 

Accounts receivable, net of allowance for doubtful accounts of $6,048 and $5,369, respectively

 

 

199,999

 

 

 

192,991

 

Broadcast rights

 

 

14,937

 

 

 

16,297

 

Prepaid expenses and other current assets

 

 

6,570

 

 

 

7,324

 

Total current assets

 

 

234,327

 

 

 

260,028

 

Property and equipment, net

 

 

287,655

 

 

 

266,583

 

Goodwill

 

 

459,924

 

 

 

451,662

 

FCC licenses

 

 

501,264

 

 

 

489,335

 

Other intangible assets, net

 

 

323,955

 

 

 

314,361

 

Other noncurrent assets, net

 

 

85,060

 

 

 

53,165

 

Total assets(1)

 

$

1,892,185

 

 

$

1,835,134

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of debt

 

$

24,265

 

 

$

22,139

 

Current portion of broadcast rights payable

 

 

15,824

 

 

 

17,510

 

Accounts payable

 

 

24,925

 

 

 

25,936

 

Accrued expenses

 

 

54,350

 

 

 

60,559

 

Interest payable

 

 

15,833

 

 

 

10,939

 

Other current liabilities

 

 

9,914

 

 

 

8,978

 

Total current liabilities

 

 

145,111

 

 

 

146,061

 

Debt

 

 

1,489,899

 

 

 

1,454,075

 

Deferred tax liabilities

 

 

94,525

 

 

 

101,764

 

Other noncurrent liabilities

 

 

45,100

 

 

 

46,861

 

Total liabilities(1)

 

 

1,774,635

 

 

 

1,748,761

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

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

  of March 31, 2016 and December 31, 2015

 

 

-

 

 

 

-

 

Class A Common stock - $0.01 par value, 100,000,000 shares authorized; 31,621,369 shares issued

  at each of March 31, 2016 and December 31, 2015 and 30,677,804 and 30,627,804 shares

  outstanding as of March 31, 2016 and December 31, 2015, respectively

 

 

316

 

 

 

316

 

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

  at each of March 31, 2016 and December 31, 2015

 

 

-

 

 

 

-

 

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

  outstanding at each of March 31, 2016 and December 31, 2015

 

 

-

 

 

 

-

 

Additional paid-in capital

 

 

402,544

 

 

 

396,224

 

Accumulated deficit

 

 

(246,393

)

 

 

(268,120

)

Treasury stock - at cost; 943,565 and 993,565 shares at March 31, 2016 and December 31, 2015,

  respectively

 

 

(45,063

)

 

 

(47,746

)

Total Nexstar Broadcasting Group, Inc. stockholders' equity

 

 

111,404

 

 

 

80,674

 

Noncontrolling interests in consolidated variable interest entities

 

 

6,146

 

 

 

5,699

 

Total stockholders' equity

 

 

117,550

 

 

 

86,373

 

Total liabilities and stockholders' equity

 

$

1,892,185

 

 

$

1,835,134

 

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

 

 

 

(1)

The consolidated total assets as of March 31, 2016 and December 31, 2015 include certain assets held by consolidated VIEs of $118.8 million and $119.9 million, respectively, which are not available to be used to settle the obligations of Nexstar. The consolidated total liabilities as of March 31, 2016 and December 31, 2015 include certain liabilities of consolidated VIEs of $39.7 million and $40.7 million, respectively, 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

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

Net revenue

 

$

255,658

 

 

$

201,735

 

Operating expenses:

 

 

 

 

 

 

 

 

Direct operating expenses, excluding depreciation and amortization

 

 

90,123

 

 

 

68,029

 

Selling, general, and administrative expenses, excluding depreciation and amortization

 

 

68,165

 

 

 

57,289

 

Amortization of broadcast rights

 

 

14,804

 

 

 

14,581

 

Amortization of intangible assets

 

 

12,079

 

 

 

13,060

 

Depreciation

 

 

12,558

 

 

 

10,872

 

Total operating expenses

 

 

197,729

 

 

 

163,831

 

Income from operations

 

 

57,929

 

 

 

37,904

 

Interest expense, net

 

 

(20,654

)

 

 

(19,293

)

Other expenses

 

 

(136

)

 

 

(118

)

Income before income taxes

 

 

37,139

 

 

 

18,493

 

Income tax expense

 

 

(14,865

)

 

 

(6,581

)

Net income

 

 

22,274

 

 

 

11,912

 

Net (income) loss attributable to noncontrolling interests

 

 

(547

)

 

 

995

 

Net income attributable to Nexstar Broadcasting Group, Inc.

 

$

21,727

 

 

$

12,907

 

Net income per common share attributable to Nexstar Broadcasting Group, Inc.:

 

 

 

 

 

 

 

 

Basic

 

$

0.71

 

 

$

0.41

 

Diluted

 

$

0.69

 

 

$

0.40

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

30,658

 

 

 

31,196

 

Diluted

 

 

31,538

 

 

 

32,256

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.24

 

 

$

0.19

 

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 Three Months Ended March 31, 2016

(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

 

 

Treasury Stock

 

 

variable

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Shares

 

 

Amount

 

 

interest entities

 

 

Equity

 

Balances as of December 31, 2015

 

 

-

 

 

$

-

 

 

 

31,621,369

 

 

$

316

 

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

$

396,224

 

 

$

(268,120

)

 

 

(993,565

)

 

$

(47,746

)

 

$

5,699

 

 

$

86,373

 

Stock-based compensation

  expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,134

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,134

 

Vesting of restricted stock units

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,683

)

 

 

-

 

 

 

50,000

 

 

 

2,683

 

 

 

-

 

 

 

-

 

Excess tax benefit from

  stock option exercises

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

13,224

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

13,224

 

Common stock dividends declared

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,355

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,355

)

Purchase of noncontrolling

  interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(100

)

 

 

(100

)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

21,727

 

 

 

-

 

 

 

-

 

 

 

547

 

 

 

22,274

 

Balances as of March 31, 2016

 

 

-

 

 

$

-

 

 

 

31,621,369

 

 

$

316

 

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

$

402,544

 

 

$

(246,393

)

 

 

(943,565

)

 

$

(45,063

)

 

$

6,146

 

 

$

117,550

 

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)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

22,274

 

 

$

11,912

 

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

 

 

 

 

 

 

 

 

Provision for bad debt

 

 

673

 

 

 

453

 

Amortization of broadcast rights, excluding barter

 

 

5,637

 

 

 

5,162

 

Depreciation of property and equipment

 

 

12,558

 

 

 

10,872

 

Amortization of intangible assets

 

 

12,079

 

 

 

13,060

 

(Gain) loss on asset disposal, net

 

 

(97

)

 

 

802

 

Amortization of debt financing costs and debt discounts

 

 

946

 

 

 

885

 

Stock-based compensation expense

 

 

3,134

 

 

 

2,858

 

Deferred income taxes

 

 

6,815

 

 

 

5,139

 

Payments for broadcast rights

 

 

(6,258

)

 

 

(5,271

)

Deferred gain recognition

 

 

(108

)

 

 

(109

)

Amortization of deferred representation fee incentive

 

 

(286

)

 

 

(264

)

Non-cash representation contract termination fee

 

 

-

 

 

 

1,516

 

Excess tax benefit from stock option exercises

 

 

(13,224

)

 

 

(1,686

)

Loss on change in the fair value of contingent consideration

 

 

404

 

 

 

-

 

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

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(6,877

)

 

 

934

 

Prepaid expenses and other current assets

 

 

883

 

 

 

1,452

 

Other noncurrent assets

 

 

81

 

 

 

56

 

Accounts payable and accrued expenses

 

 

(6,516

)

 

 

(5,781

)

Taxes payable

 

 

146

 

 

 

(4,478

)

Interest payable

 

 

4,894

 

 

 

12,011

 

Other noncurrent liabilities

 

 

1,273

 

 

 

103

 

Net cash provided by operating activities

 

 

38,431

 

 

 

49,626

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(7,741

)

 

 

(6,401

)

Deposits and payments for acquisitions, net of cash acquired

 

 

(103,971

)

 

 

(459,979

)

Proceeds from sale of a station

 

 

-

 

 

 

26,805

 

Proceeds from disposals of property and equipment

 

 

160

 

 

 

877

 

Net cash used in investing activities

 

 

(111,552

)

 

 

(438,698

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from long-term debt

 

 

58,000

 

 

 

411,950

 

Repayments of long-term debt

 

 

(20,897

)

 

 

(104,140

)

Payments for debt financing costs

 

 

-

 

 

 

(2,920

)

Proceeds from exercise of stock options

 

 

-

 

 

 

1,465

 

Excess tax benefit from stock option exercises

 

 

13,224

 

 

 

1,686

 

Common stock dividends paid

 

 

(7,355

)

 

 

(5,921

)

Purchase of noncontrolling interests

 

 

(100

)

 

 

-

 

Payments for capital lease obligations

 

 

(346

)

 

 

(376

)

Net cash provided by financing activities

 

 

42,526

 

 

 

301,744

 

Net decrease in cash and cash equivalents

 

 

(30,595

)

 

 

(87,328

)

Cash and cash equivalents at beginning of period

 

 

43,416

 

 

 

131,912

 

Cash and cash equivalents at end of period

 

$

12,821

 

 

$

44,584

 

Supplemental information:

 

 

 

 

 

 

 

 

Interest paid

 

$

14,813

 

 

$

6,397

 

Income taxes paid, net of refunds

 

$

5,978

 

 

$

5,925

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Accrued purchases of property and equipment

 

$

1,313

 

 

$

1,321

 

Noncash purchases of property and equipment

 

$

42

 

 

$

1,276

 

Accrued debt financing costs

 

$

-

 

 

$

127

 

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 March 31, 2016, Nexstar Broadcasting Group, Inc. and its wholly-owned subsidiaries (“Nexstar”) owned, operated, programmed or provided sales and other services to 104 full power television stations, including those owned by variable interest entities (“VIEs”), in 62 markets in the states of Alabama, Arizona, Arkansas, California, Colorado, Florida, Illinois, Indiana, Iowa, Louisiana, Maryland, Michigan, Missouri, Montana, Nevada, New York, North Dakota, Pennsylvania, Tennessee, Texas, Utah, Vermont, Virginia, West Virginia and Wisconsin. The stations are affiliates of ABC, NBC, FOX, CBS, The CW, MyNetworkTV and other broadcast television networks. Through various local service agreements, Nexstar provided sales, programming and other services to 30 full power television stations owned and/or operated by independent third parties.

 

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.

The following are assets of consolidated VIEs that are not available to settle the obligations of Nexstar and liabilities of consolidated VIEs for which their creditors do not have recourse to the general credit of Nexstar (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Current assets

 

$

3,573

 

 

$

2,910

 

Property and equipment, net

 

 

3,865

 

 

 

4,004

 

Goodwill

 

 

17,875

 

 

 

18,182

 

FCC licenses

 

 

73,561

 

 

 

74,312

 

Other intangible assets, net

 

 

19,670

 

 

 

20,112

 

Other noncurrent assets, net

 

 

227

 

 

 

389

 

Total assets

 

 

118,771

 

 

 

119,909

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

13,174

 

 

 

14,288

 

Noncurrent liabilities

 

 

26,534

 

 

 

26,427

 

Total liabilities

 

$

39,708

 

 

$

40,715

 

 

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.

5


Interim Financial Statements

The Condensed Consolidated Financial Statements as of March 31, 2016 and for the three months ended March 31, 2016 and 2015 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, 2015. The balance sheet as of December 31, 2015 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

Nexstar 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. As of January 1, 2016, the Company adopted ASU No. 2015-02, Consolidation (Topic 810) - Amendments to the Consolidation Analysis, which did not change the consolidation status of any of the Company’s VIEs.

Consolidated VIEs

Mission Broadcasting, Inc. (“Mission”), Marshall Broadcasting Group, Inc. (“Marshall”), White Knight Broadcasting (“White Knight”) 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, White Knight and Parker, hiring and firing of sales force personnel and (4) purchase options granted by Mission and White Knight which permit Nexstar to acquire the assets and assume the liabilities of each Mission or White Knight station, subject to Federal Communications Commission (“FCC”) consent.

The following table summarizes the various local service agreements Nexstar had in effect as of March 31, 2016 with Mission, Marshall, Parker and White Knight:

 

Service Agreements

 

Owner

 

Full Power Stations

TBA Only

 

Mission

 

WFXP and KHMT

 

 

Parker

 

KFQX

SSA & JSA

 

Mission

 

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

 

 

Marshall

 

KLJB, KPEJ and KMSS

 

 

White Knight

 

WVLA, KFXK, 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 operation of their stations.

6


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

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,045

 

 

$

6,137

 

Accounts receivable, net

 

 

20,089

 

 

 

16,400

 

Prepaid expenses and other current assets

 

 

2,867

 

 

 

3,460

 

Total current assets

 

 

25,001

 

 

 

25,997

 

Property and equipment, net

 

 

28,894

 

 

 

29,681

 

Goodwill

 

 

69,518

 

 

 

69,825

 

FCC licenses

 

 

73,561

 

 

 

74,312

 

Other intangible assets, net

 

 

56,606

 

 

 

58,053

 

Other noncurrent assets, net

 

 

20,874

 

 

 

22,572

 

Total assets

 

$

274,454

 

 

$

280,440

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of debt

 

$

7,435

 

 

$

6,985

 

Interest payable

 

 

28

 

 

 

28

 

Other current liabilities

 

 

13,174

 

 

 

14,288

 

Total current liabilities

 

 

20,637

 

 

 

21,301

 

Debt

 

 

274,220

 

 

 

276,131

 

Other noncurrent liabilities

 

 

26,534

 

 

 

26,427

 

Total liabilities

 

$

321,391

 

 

$

323,859

 

 

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.

In connection with a proposed acquisition of four full power television stations from West Virginia Media Holdings, LLC (“WVMH”), Nexstar began providing programming and sales services to WVMH stations effective December 1, 2015. Pursuant to the terms of the TBA with WVMH, Nexstar will pay an aggregate base fee of $7.5 million in equal monthly payments from the effective date through the final closing of the proposed acquisition which Nexstar projects to occur at the end of 2016. In the event that the proposed acquisition is not consummated for reasons beyond the control of Nexstar and WVMH, the TBA will terminate no later than June 30, 2017. See Note 3 for additional information.

Nexstar has determined that it has variable interests in WYZZ and the stations owned by WVMH. Nexstar has evaluated its arrangements with Cunningham and WVMH and has determined that it is not the primary beneficiary of the variable interests in these stations because it does not have the ultimate power to direct the activities that most significantly impact the stations’ economic performance, which we define as developing the annual operating budget, programming and oversight and control of sales management personnel. Therefore, Nexstar has not consolidated these stations under authoritative guidance related to the consolidation of VIEs. Under the local service agreements for WYZZ and stations owned by WVMH, 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 and WVMH agreements consists of the fees paid to Cunningham and WVMH. Additionally, Nexstar indemnifies the owners of WYZZ and WVMH from and against all liability and claims arising out of or resulting from its activities, acts or omissions in connection with the respective agreements. The maximum potential amount of future payments Nexstar could be required to make for such indemnification is undeterminable at this time.

As of March 31, 2016 and December 31, 2015, Nexstar had balances in accounts payable of $1.2 million and $0.8 million, respectively, for fees under these arrangements and had receivables for advertising aired on these stations of $5.2 million and $1.0 million, respectively. Fees incurred under these arrangements of $1.2 million and $0.1 million were included in direct operating expenses in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015, respectively.

7


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

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

Weighted average shares outstanding - basic

 

 

30,658

 

 

 

31,196

 

Dilutive effect of equity incentive plan instruments

 

 

880

 

 

 

1,060

 

Weighted average shares outstanding - diluted

 

 

31,538

 

 

 

32,256

 

The Company has outstanding stock options and unvested restricted stock units to acquire 920,000 and 1,043,000 weighted average shares of common stock for the three months ended March 31, 2016 and 2015, respectively, the effects of which were excluded from the calculation of diluted income per share, as their inclusion would have been anti-dilutive for the periods presented.

Income Taxes

The Company expects to be able to utilize the excess tax benefits related to stock option exercises that occurred in 2013 during the 2016 tax year.  This resulted in a recognition of $13.2 million of deferred tax assets through accumulated paid in capital during the three months ended March 31, 2016.

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 stockholders’ equity as previously reported.

 

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 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (ASU 2015-05). ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes software. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s service contracts. The Company has applied the change in accounting prospectively as of January 1, 2016. The change in accounting principle did not have a significant impact on the Company’s results of operations, cash flows or stockholders’ equity.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). The new guidance requires the recording of assets and liabilities arising from leases on the balance sheet accompanied by enhanced qualitative and quantitative disclosures in the notes to the financial statements.  The new guidance is expected to provide transparency of information and comparability among organizations. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of the provisions of the accounting standard update.

8


In March 2016, the FASB issued ASU No. 2016-07, Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting (ASU 2016-07). The purpose of the amendment eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments in ASU 2016-07 are effective for interim and annual reporting periods beginning after December 15, 2016. The Company does not expect the implementation of this standard to have a material impact on its financial position or results of operations.

In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (ASU 2016-08). The purpose of ASU 2016-08 is to clarify the implementation of guidance on principal versus agent considerations. The amendments in ASU 2016-08 are effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of the provisions of the accounting standard update.

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. The Company is currently evaluating the impact of the provisions of the accounting standard update.

9


3.  Acquisitions and Dispositions

 

WVMH

 

On November 16, 2015, Nexstar entered into a definitive agreement to acquire the assets of four CBS and NBC full power television stations from WVMH for $130.0 million in cash, subject to adjustments for working capital. The stations affiliated with CBS are WOWK in the Charleston-Huntington, West Virginia market, WTRF in the Wheeling, West Virginia-Steubenville, Ohio market and WVNS in the Bluefield-Beckley-Oak Hill, West Virginia market. WBOY in the Clarksburg-Weston, West Virginia market is affiliated with NBC. The acquisition will allow Nexstar entrance into these markets. Nexstar began providing programming and sales services to these stations pursuant to TBAs effective December 1, 2015 which will terminate upon completion of the acquisition. If the purchase cannot be completed for reasons beyond the control of Nexstar and the seller, the TBA will terminate no later than June 30, 2017. As discussed in Note 2, Nexstar is not the primary beneficiary of the variable interests in WVMH’s stations. Therefore, Nexstar has not consolidated these stations under authoritative guidance related to the consolidation of VIEs.

 

On January 4, 2016, Nexstar completed the first closing of the transaction and acquired the stations’ assets excluding certain transmission equipment, the FCC licenses and network affiliation agreements for $65.0 million, including a deposit paid upon signing the purchase agreement of $6.5 million, all funded through a combination of cash on hand and borrowings under Nexstar’s revolving credit facility (See Note 6).

 

Subject to final determination, which is expected to occur within twelve months of the acquisition date, the provisional fair values of the assets acquired and liabilities assumed in the first closing are as follows (in thousands):

 

Accounts receivable

 

$

438

 

Prepaid expenses and other current assets

 

 

114

 

Property and equipment

 

 

18,362

 

Other intangible assets

 

 

3,308

 

Total assets acquired at first closing

 

 

22,222

 

Less: Accounts payable and accrued expenses

 

 

(623

)

Less: Other noncurrent liabilities

 

 

(307

)

Net assets acquired at first closing

 

 

21,292

 

Deposit on second closing

 

 

43,672

 

Total paid at first closing

 

$

64,964

 

 

Other intangible assets are amortized over an estimated weighted average useful life of three years.

 

The proposed acquisition allows Nexstar to return the assets acquired in the first closing to WVMH if the second closing cannot be completed for reasons beyond the control of Nexstar and WVMH. Since not all assets needed to operate the stations were acquired in January 2016 and due to the possibility of termination of the TBA to utilize the remaining assets, the first closing does not represent an acquisition of a business. Thus, the excess of total payments in the first closing over the provisional fair values of the assets acquired and liabilities assumed was considered a deposit.

 

The remaining purchase price of $65.0 million is expected to be funded through cash generated from operations prior to the second closing and borrowings under Nexstar’s senior secured credit facility which is projected to occur at the end of 2016. The acquisition is subject to FCC approval and other customary conditions. Transaction costs relating to this proposed acquisition, including legal and professional fees of $0.1 million, were expensed as incurred during the three months ended March 31, 2016.

 

Reiten

 

On February 1, 2016, Nexstar completed the acquisition of the assets of four full power television stations from Reiten Television, Inc. (“Reiten”) for $44.0 million in cash, subject to adjustments for working capital, funded by a combination of cash on hand and borrowings under Nexstar’s revolving credit facility (See Note 6). The purchase price includes a $2.2 million deposit paid by Nexstar upon signing the purchase agreement in September 2015. The stations, all affiliated with CBS, are KXMC, KXMB, KXMA and KXMD in the Minot-Bismarck-Dickinson, North Dakota market. KXMB, KXMA and KXMD are satellite stations of KXMC. This acquisition allows Nexstar entrance into this market. Transaction costs relating to this acquisition, including legal and professional fees of $0.1 million, were expensed as incurred during the three months ended March 31, 2016.

 

10


Subject to final determination, which is expected to occur within twelve months of the acquisition date, the provisional fair values of the assets acquired and liabilities assumed in the acquisition are as follows (in thousands):

 

Broadcast rights

 

$

13

 

Property and equipment

 

 

8,175

 

FCC licenses

 

 

9,779

 

Network affiliation agreements

 

 

16,084

 

Other intangible assets

 

 

2,051

 

Goodwill

 

 

7,911

 

Total assets acquired

 

 

44,013

 

Less: Broadcast rights payable

 

 

(13

)

Less: Accrued expenses

 

 

(2

)

Net assets acquired

 

$

43,998

 

 

The fair value assigned to goodwill is attributable to future expense reductions utilizing management’s leverage in programming and other station operating costs. The goodwill and FCC licenses are deductible for tax purposes. The intangible assets related to the network affiliation agreements are amortized over 15 years. Other intangible assets are amortized over an estimated weighted average useful life of two and a half years.

 

The stations’ net revenue of $2.6 million and operating income of $0.4 million from the date of acquisition to March 31, 2016 have been included in the accompanying Condensed Consolidated Statements of Operations.

KCWI

On March 14, 2016, Nexstar completed the acquisition of the assets of KCWI, the CW affiliate in the Des Moines-Ames, Iowa market, from Pappas Telecasting of Iowa, LLC (“Pappas”) for $3.8 million. A deposit of $0.2 million was paid upon signing the purchase agreement in October 2014. No significant transaction costs relating to this acquisition were incurred during the three months ended March 31, 2016.

 

Subject to final determination, which is expected to occur within twelve months of the acquisition date, the provisional fair values of the assets acquired and liabilities assumed in the acquisition are as follows (in thousands):

 

Accounts receivable

 

$

367

 

Broadcast rights

 

 

1,740

 

Prepaid expenses and other current assets

 

 

15

 

Property and equipment

 

 

900

 

FCC licenses

 

 

2,150

 

Other intangible assets

 

 

230

 

Goodwill