10-K 1 nxst201210k.htm NEXSTAR BROADCASTING 2012 10K nxst201210k.htm

 
                                                                                                             
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

 
 
FORM 10-K

x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2012
   
 
OR
   
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
for the transition period from              to             .

Commission File Number: 000-50478

 
 
NEXSTAR BROADCASTING GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
23-3083125
(State of Organization or Incorporation)
(I.R.S. Employer Identification No.)
   
5215 N. O’Connor Blvd., Suite 1400, Irving, Texas
75039
(Address of Principal Executive Offices)
(Zip Code)
 
(972) 373-8800
(Registrant’s Telephone Number, Including Area Code)

 
 
 
Securities Registered Pursuant to Section 12(b) of the Act:
 
Title of each class
Name of each exchange on which registered
Class A Common Stock, $0.01 par value per share
NASDAQ Global Market
 
Securities Registered Pursuant to Section 12(g) of the Act: None
 
 
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ¨  No x
 
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ¨  No x
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that it was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No ¨
 
Indicate by checkmark whether the Registrant has submitted electronically and posted on its corporate 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):
 
Large accelerated filer  ¨
Accelerated filer  x
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 June 30, 2012, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant was $76,762,291.
 
As of March 8, 2013, the Registrant had 25,164,248 shares of Class A Common Stock outstanding and 4,252,471 shares of Class B Common Stock outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the Proxy Statement for the Registrant’s 2013 Annual Meeting of Stockholders will be filed with the Commission within 120 days after the close of the Registrant’s fiscal year and incorporated by reference in Part III of this Annual Report on Form 10-K.
 

 
 

 

TABLE OF CONTENTS
 
   
Page
 
PART I
   
     
ITEM 1.
Business
        2
     
ITEM 1A.
Risk Factors
        15
     
ITEM 1B.
Unresolved Staff Comments
        23
     
ITEM 2.
Properties
        23
     
ITEM 3.
Legal Proceedings
        29
     
ITEM 4.
Mine Safety Disclosures
        29
     
PART II
   
     
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
        30
     
ITEM 6.
Selected Financial Data
        32
     
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
        33
     
ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk
        49
     
ITEM 8.
Consolidated Financial Statements and Supplementary Data
        49
     
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
        50
     
ITEM 9A.
Controls and Procedures
        50
     
ITEM 9B.
Other Information
        50
     
PART III
   
     
ITEM 10.
Directors, Executive Officers and Corporate Governance
        51
     
ITEM 11.
Executive Compensation
        51
     
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters
        51
     
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
        51
     
ITEM 14.
Principal Accountant Fees and Services
        51
     
PART IV
   
     
ITEM 15.
Exhibits and Financial Statement Schedules
        51
   
Index to Consolidated Financial Statements
        F-1
   
Index to Exhibits
        E-1

 
 

 

General
 
Nexstar Broadcasting, Inc. has time brokerage agreements, shared services agreements and joint sales agreements (which we generally refer to as local service agreements) relating to the television stations owned by Mission Broadcasting, Inc., but does not own any of the equity interests in Mission Broadcasting, Inc. For a description of the relationship between Nexstar Broadcasting Group, Inc. and Mission Broadcasting, Inc., see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The information in this Annual Report on Form 10-K includes information related to Nexstar Broadcasting Group, Inc. and its consolidated subsidiaries. It also includes information related to Mission Broadcasting, Inc. In accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and as discussed in Note 2 to our Consolidated Financial Statements, the financial results of Mission Broadcasting, Inc. are consolidated into the Consolidated Financial Statements contained herein.

As used in this Annual Report on Form 10-K and unless the context indicates otherwise, “Nexstar” refers to Nexstar Broadcasting Group, Inc. and its consolidated subsidiaries; “Nexstar Broadcasting” refers to Nexstar Broadcasting, Inc., our wholly-owned indirect subsidiary; “Nexstar Finance Holdings” refers to Nexstar Finance Holdings, Inc., our wholly-owned direct subsidiary; “Mission” refers to Mission Broadcasting, Inc.; the “Company” refers to Nexstar and Mission collectively; “ABRY” refers to Nexstar’s principal stockholder, ABRY Partners, LLC and its affiliated funds; and all references to “we,” “our,” “ours,” and “us” refer to Nexstar.

In the context of describing ownership of television stations in a particular market, the term “duopoly” refers to owning or deriving the majority of the economic benefit, through ownership or local service agreements, from two or more stations in a particular market. For more information on how we derive economic benefit from a duopoly, see Item 1, “Business.”

There are 210 generally recognized television markets, known as Designated Market Areas, or DMAs, in the United States. DMAs are ranked in size according to various factors based upon actual or potential audience. DMA rankings contained in this Annual Report on Form 10-K are from Investing in Television Market Report 2012 4th Edition, as published by BIA Financial Network, Inc.

Reference is made in this Annual Report on Form 10-K to the following trademarks/tradenames which are owned by the third parties referenced in parentheses: Two and a Half Men (Warner Bros. Domestic Television) and Entertainment Tonight (CBS Television Distribution).

Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended (“Exchange Act”). All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including: any projections or expectations of earnings, revenue, financial performance, liquidity and capital resources or other financial items; any assumptions or projections about the television broadcasting industry, any statements of our plans, strategies and objectives for our future operations, performance, liquidity and capital resources or other financial items; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and other similar words.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ from a projection or assumption in any of our forward-looking statements. Our future financial position and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties discussed under Item 1A. “Risk Factors” located elsewhere in this Annual Report on Form 10-K and in our other filings with the Securities and Exchange Commission (“SEC”). The forward-looking statements made in this Annual Report on Form 10-K are made only as of the date hereof, and we do not have or undertake any obligation to update any forward-looking statements to reflect subsequent events or circumstances unless otherwise required by law.


 
1

 

PART I

Item 1.
Business

Overview
 
We are a television broadcasting and digital media company focused exclusively on the acquisition, development and operation of television stations and interactive community websites in medium-sized markets in the United States, primarily markets that rank from 35 to 150 out of the 210 generally recognized television markets, as reported by A.C. Nielsen Company.
 
As of December 31, 2012, we owned, operated, programmed or provided sales and other services to 64 television stations and 14 digital multi-cast channels, including those owned by Mission, in 38 markets in the states of Illinois, Indiana, Maryland, Missouri, Montana, Tennessee, Texas, Pennsylvania, Louisiana, Arkansas, Alabama, New York, Florida, Wisconsin, Michigan and Utah. In 23 of the 38 markets that we serve, we own, operate, program or provide sales and other services to more than one station. We refer to these markets as duopoly markets. The stations we serve are affiliates of NBC (14 stations), CBS (11 stations), ABC (16 stations), FOX (11 stations), MyNetworkTV (5 stations and 2 digital multi-cast channels), The CW (4 stations and one digital multi-cast channel), Bounce TV (9 digital multi-cast channels) and Me-TV (2 digital multi-cast channels) and three of our stations are independent. The stations reach approximately 12.7 million viewers or 11.1% of all U.S. television households.

Effective January 1, 2013, Mission acquired the assets of KLRT-TV, the FOX affiliate, and KASN, the CW affiliate, both in the Little Rock, Arkansas market, from Newport Television, LLC (“Newport”) for a total purchase price of $60.0 million, subject to working capital adjustment. Pursuant to the terms of the purchase agreement, Mission made an initial payment of $6.0 million on July 18, 2012 to acquire the assets of KLRT-TV and KASN. Mission paid the remaining $54.0 million on January 3, 2013 funded by the $60.0 million proceeds of Mission’s additional term loan under its senior secured credit facility.

On February 1, 2013, Nexstar entered into a definitive agreement to acquire the assets of KSEE, the NBC affiliate serving the Fresno, California market, from Granite Broadcasting Corporation (“Granite”) for a total purchase price of $26.5 million, subject to adjustments for working capital acquired. Nexstar made a deposit of $20.0 million, funded by existing cash on hand, for the acquisition of the station’s non-FCC license assets pursuant to the purchase agreement. Nexstar also entered into a time brokerage agreement (“TBA”) with KSEE, effective February 1, 2013, to program most of KSEE’s broadcast time, sell its advertising time and retain the advertising revenue generated during the pendency of the application for FCC consent. The acquisition is subject to FCC approval and other customary conditions and Nexstar expects the transaction to close in the second quarter of 2013.

Effective February 1, 2013, Nexstar acquired the assets of KGPE, the CBS affiliate in the Fresno, California market, and KGET, the NBC/CW affiliate, and KKEY-LP, the low powered Telemundo affiliate, both in the Bakersfield, California market, from Newport for a total purchase price of $35.4 million, subject to working capital adjustment.  Pursuant to the terms of the purchase agreement, Nexstar made an initial payment of $3.5 million on November 1, 2012 to acquire the assets of KGPE, KGET and KKEY-LP.  Nexstar paid the remaining $31.9 million on February 15, 2013 funded by cash on hand.

On March 1, 2013, Nexstar and Mission acquired the assets of WFFF, the FOX affiliate, and WVNY, the ABC affiliate, both in the Burlington, Vermont market, from Smith Media, LLC (“Smith Media”) for a total purchase price of $16.9 million, subject to working capital adjustment.  Pursuant to the terms of the purchase agreement, Nexstar made an initial payment of $0.8 million on November 2, 2012 to acquire the assets of WFFF and WVNY. Nexstar and Mission paid the remaining $16.1 million on March 1, 2013 funded by a combination of Nexstar’s and Mission’s revolving credit facilities and cash on hand.

We believe that medium-sized markets offer significant advantages over large-sized markets, most of which result from a lower level of competition. First, because there are fewer well-capitalized acquirers with a medium-market focus, we have been successful in purchasing stations on more favorable terms than acquirers of large market stations. Second, in the majority of our markets only four to six local commercial television stations exist. As a result, we achieve lower programming costs than stations in larger markets because the supply of quality programming exceeds the demand.

The stations we own and operate or provide services to provide free over-the-air programming to our markets’ television viewing audiences. This programming includes (a) programs produced by networks with which the stations are affiliated; (b) programs that the stations produce; and (c) first-run and rerun syndicated programs that the stations acquire. Our primary source of revenue is the sale of commercial air time to local and national advertisers.

 
2

 


We seek to grow our revenue and broadcast cash flow by increasing the audience and revenue shares of the stations we own, operate, program or provide sales and other services to, as well as through our growing portfolio of Internet-based products and services. We strive to increase the audience share of the stations by creating a strong local broadcasting presence based on highly rated local news, local sports coverage and active community sponsorship. We seek to improve revenue share by employing and supporting a high-quality local sales force that leverages the stations’ strong local brands and community presence with local advertisers. We further improve broadcast cash flow by maintaining strict control over operating and programming costs. The benefits achieved through these initiatives are magnified in our duopoly markets by broadcasting the programming of multiple networks, capitalizing on multiple sales forces and achieving an increased level of operational efficiency. As a result of our operational enhancements, we expect revenue from the stations we have acquired or begun providing services to in the last four years to grow faster than that of our more mature stations.
 
Our principal offices are at 5215 North O’Connor Blvd., Suite 1400, Irving, TX 75039. Our telephone number is (972) 373-8800 and our website is http://www.nexstar.tv.

Operating Strategy
 
We seek to generate revenue and broadcast cash flow growth through the following strategies:
 
Develop Leading Local Franchises. Each of the stations that we own, operate, program, or provide sales and other services to creates a highly recognizable local brand, primarily through the quality of local news programming and community presence. Based on internally generated analysis, we believe that in over 71% of our markets in which we produce local newscasts, we rank among the top two stations in local news viewership. Strong local news typically generates higher ratings among attractive demographic profiles and enhances audience loyalty, which may result in higher ratings for programs both preceding and following the news. High ratings and strong community identity make the stations that we own, operate, program, or provide sales and other services to more attractive to local advertisers. For the year ended December 31, 2012 we earned approximately 28% of our advertising revenue from spots aired during local news programming. Currently, our stations and the stations we provide services to provide between 15 to 25 hours per week of local news programming. Extensive local sports coverage and active sponsorship of community events further differentiate us from our competitors and strengthen our community relationships and our local advertising appeal.
 
Emphasize Local Sales. We employ a high-quality local sales force in each of our markets to increase revenue from local advertisers by capitalizing on our investment in local programming. We believe that local advertising is attractive because our sales force is more effective with local advertisers, giving us a greater ability to influence this revenue source. Additionally, local advertising has historically been a more stable source of revenue than national advertising for television broadcasters. For the year ended December 31, 2012, revenue generated from local advertising represented 71.4% of our consolidated spot revenue (total of local and national advertising revenue, excluding political advertising revenue). In most of our markets, we have increased the size and quality of our local sales force. We also invest in our sales efforts by implementing comprehensive training programs and employing a sophisticated inventory tracking system to help maximize advertising rates and the amount of inventory sold in each time period.

Invest in eMedia. We are focused on new technologies and growing our portfolio of Internet products and services. Our websites provide access to our local news and information, as well as community centric business and services. We delivered a record audience across all of our web sites in 2012, with 33 million unique visitors, who utilized over 333 million page views. Also in 2012, usage of our mobile platform grew exponentially, accounting for over 60% of our page views by year end. We also launched redesigned web sites, ready for the emerging touch oriented platforms. We are committed to serving our local markets by providing local content to both online and mobile users wherever and whenever they want.
 
Operate Duopoly Markets. Owning or providing services to more than one station in a given market enables us to broaden our audience share, enhance our revenue share and achieve significant operating efficiencies. Duopoly markets broaden audience share by providing programming from multiple networks with different targeted demographics. These markets increase revenue share by capitalizing on multiple sales forces. Additionally, we achieve significant operating efficiencies by consolidating physical facilities, eliminating redundant management and leveraging capital expenditures between stations. We derived approximately 67.1% of our net broadcast revenue for the year ended December 31, 2012 from our duopoly markets.
 
 
Maintain Strict Cost Controls. We emphasize strict controls on operating and programming costs in order to increase broadcast cash flow. We continually seek to identify and implement cost savings at each of our stations and the stations we provide services to and our overall size benefits each station with respect to negotiating favorable terms with programming suppliers and other vendors. By leveraging our size and corporate management expertise, we are able to achieve economies of scale by providing programming, financial, sales and marketing support to our stations and the stations we provide services to.

 
3

 


Capitalize on Diverse Network Affiliations. We currently own, operate, program, or provide sales and other services to a balanced portfolio of television stations with diverse network affiliations, including NBC, CBS, FOX and ABC affiliated stations which represented approximately 30.2%, 34.3%, 14.4%, and 20.6%, respectively, of our 2012 net broadcast revenue. The networks provide these stations with quality programming and numerous sporting events such as NBA basketball, Major League baseball, NFL football, NCAA sports, PGA golf and the Olympic Games. Because network programming and ratings change frequently, the diversity of our station portfolio’s network affiliations reduces our reliance on the quality of programming from a single network.
 
Attract and Retain High Quality Management. We seek to attract and retain station general managers with proven track records in larger television markets by providing equity incentives not typically offered by other station operators in our markets. Most of our station general managers have been granted stock options and have an average of over 20 years of experience in the television broadcasting industry.
 
Acquisition Strategy
 
We selectively pursue acquisitions of television stations primarily in markets ranking from 35 to 150 out of the 210 generally recognized television markets, where we believe we can improve revenue and cash flow through active management. When considering an acquisition, we evaluate the target audience share, revenue share, overall cost structure and proximity to our regional clusters. Additionally, we seek to acquire or enter into local service agreements with stations to create duopoly markets.
 
Relationship with Mission
 
Through various local service agreements with Mission, we provide sales, programming and other services to 17 television stations that are owned and operated by Mission as of December 31, 2012. Effective January 1, 2013, we also entered into local service agreements to provide sales, programming and other services to Mission’s newly acquired stations, KLRT-TV, the fox affiliate, and KASN, the CW affiliate, both in the Little Rock, Arkansas market. Mission is 100% owned by independent third parties. We do not own Mission or any of its television stations. In compliance with Federal Communications Commission (“FCC”) regulations for both us and Mission, Mission maintains complete responsibility for and control over programming, finances, personnel and operations of its stations. However, we are deemed under U.S. GAAP to have a controlling financial interest in Mission because of (1) the local service agreements Nexstar has with the Mission stations, (2) Nexstar’s guarantee of the obligations incurred under Mission’s senior secured credit facility, (3) Nexstar having power over significant activities affecting Mission’s economic performance, including budgeting for advertising revenue, advertising sales and hiring and firing of sales force personnel and (4) purchase options granted by Mission that permit Nexstar to acquire the assets and assume the liabilities of each Mission station, subject to FCC consent. The purchase options are freely exercisable or assignable by Nexstar without consent or approval by Mission 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. Additionally, on November 29, 2011, Mission’s shareholders granted Nexstar an option to purchase any or all of Mission’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 2013 and 2022) are freely exercisable or assignable by Nexstar without consent by Mission or its shareholders. Therefore, Mission is consolidated into these financial statements. We expect our option agreements with Mission to be renewed upon expiration.
 

 
4

 


The Stations
 
The following chart sets forth general information about the stations we owned, operated, programmed or provided sales and other services as of December 31, 2012:
 
                 
Market
Rank (1)
 
Market
 
Station
Affiliation
Status (2)
Commercial
Stations in
Market (3)
FCC License
Expiration
Date
8
 
Washington, DC/
Hagerstown, MD
 
WHAG
NBC
O&O
(4)
(5)
33
 
Salt Lake City, UT
 
KTVX/KTVX-D-2
ABC/Me-TV
O&O
14
10/1/14
       
KUCW
The CW
O&O
 
10/1/14
43
 
Harrisburg-Lancaster-
Lebanon-York, PA
 
WLYH
The CW
O&O (6)
6
(5)
49
 
Memphis, TN
 
WPTY
ABC
O&O
6
8/1/13
       
WLMT/WLMT-D-2
The CW/MyNetworkTV
O&O
 
8/1/13
50
 
Jacksonville, FL
 
WCWJ/WCWJ-D-2
The CW/Bounce TV
O&O
7
2/1/13
54
 
Wilkes Barre-Scranton, PA
 
WBRE
NBC
O&O
7
(5)
       
WYOU
CBS
LSA (7)
 
(5)
56
 
Little Rock-Pine Bluff, AR
 
KARK
NBC
O&O
9
(5)
       
KARZ/KARZ-D-2
MyNetworkTV/Bounce TV
O&O
 
6/1/13
69
 
Green Bay-Appleton, WI
 
WFRV
CBS
O&O
6
12/1/13
74
 
Springfield, MO
 
KOLR
CBS
LSA (7)
5
(5)
       
KOZL
Independent
O&O
 
(5)
78
 
Rochester, NY
 
WROC/WROC-D-2
CBS/Bounce TV
O&O
4
(5)
       
WUHF
FOX
LSA (8)
 
6/1/15
82
 
Shreveport, LA
 
KTAL
NBC
O&O
6
8/1/14
83
 
Champaign-Springfield-
 
WCIA
CBS
O&O
6
(5)
   
Decatur, IL
 
WCIX
MyNetworkTV
O&O
 
(5)
84
 
Syracuse, NY
 
WSYR/WSYR-D-2
ABC/Me-TV
O&O
6
6/1/15
101
 
Ft. Smith-Fayetteville-
 
KFTA
FOX/NBC
O&O
4
6/1/13
   
Springdale-Rogers, AR
 
KNWA
NBC/FOX
O&O
 
(5)
102
 
Johnstown-Altoona, PA
 
WTAJ
CBS
O&O
4
(5)
104
 
Evansville, IN
 
WEHT
ABC
O&O
4
(5)
       
WTVW
Independent (9)
LSA (7)
 
8/1/13
109
 
Ft. Wayne, IND
 
WFFT
Independent (10)
O&O
4
(5)
116
 
Peoria-Bloomington, IL
 
WMBD/WMBD-D-2
CBS/Bounce TV
O&O
5
(5)
       
WYZZ
FOX
LSA (8)
 
12/1/13
130
 
Amarillo, TX
 
KAMR
NBC
O&O
6
(5)
       
KCIT
FOX
LSA (7)
 
(5)
       
KCPN-LP
MyNetworkTV
LSA (7)
 
(5)
134
 
Rockford, IL
 
WQRF/WQRF-D-2
FOX/Bounce TV
O&O
4
(5)
       
WTVO/WTVO-D-2
ABC/MyNetworkTV
LSA (7)
 
(5)
137
 
Monroe, LA-
 
KARD/KARD-D-2
FOX/Bounce TV
O&O
4
(5)
   
El Dorado, AR
 
KTVE
NBC
LSA (7)
 
6/1/13
142
 
Wichita Falls, TX-
 
KFDX
NBC
O&O
4
(5)
   
Lawton, OK
 
KJTL/KJTL-D-2
FOX/Bounce TV
LSA (7)
 
(5)
       
KJBO-LP
MyNetworkTV
LSA (7)
 
(5)
143
 
Lubbock, TX
 
KLBK
CBS
O&O
5
(5)
       
KAMC/KAMC-D-2
ABC/Bounce TV
LSA (7)
 
(5)
146
 
Erie, PA
 
WJET
ABC
O&O
4
(5)
       
WFXP
FOX
LSA (7)
 
(5)
149
 
Joplin, MO-Pittsburg, KS
 
KSNF
NBC
O&O
4
(5)
       
KODE
ABC
LSA (7)
 
(5)
151
 
Odessa-Midland, TX
 
KMID
ABC
O&O
6
(5)
154
 
Terre Haute, IN
 
WTWO
NBC
O&O
3
(5)
       
WAWV
ABC
LSA (7)
 
(5)

 
5

 


Market
Rank (1)
 
 
Market
 
 
 
Station
 
 
Affiliation
 
 
Status (2)
 
 
Commercial
Stations in
Market (3)
 
 
FCC License
Expiration
Date
 
 
157
 
Binghamton, NY
 
WBGH
NBC
O&O
4
6/1/15
       
WIVT
ABC
O&O
 
6/1/15
164
 
Abilene-Sweetwater, TX
 
KTAB
CBS
O&O
4
(5)
       
KRBC/KRBC-D-2
NBC/Bounce TV
LSA (7)
 
(5)
168
 
Billings, MT
 
KSVI
ABC
O&O
5
(5)
       
KHMT
FOX
LSA (7)
 
(5)
169
 
Dothan, AL
 
WDHN
ABC
O&O
3
(5)
172
 
Utica, NY
 
WFXV
FOX
O&O
3
(5)
       
WPNY-LP
MyNetworkTV
O&O
 
(5)
       
WUTR
ABC
LSA (7)
 
(5)
174
 
Elmira, NY
 
WETM
NBC
O&O
3
6/1/15
176
 
Jackson, TN
 
WJKT
FOX
O&O
2
8/1/13
177
 
Watertown, NY
 
WWTI/WWTI-D-2
ABC/The CW
O&O
3
6/1/15
180
 
Marquette, MI
 
WJMN
CBS
O&O
6
10/1/13
197
 
San Angelo, TX
 
KSAN
NBC
LSA (7)
3
(5)
       
KLST
CBS
O&O
 
(5)
200
 
St. Joseph, MO
 
KQTV
ABC
O&O
1
(5)
                 
(1)
Market rank refers to ranking the size of the Designated Market Area (“DMA”) in which the station is located in relation to other DMAs. Source: Investing in Television Market Report 2012 4th Edition, as published by BIA Financial Network, Inc.
(2)
O&O refers to stations that we own and operate. LSA, or local service agreement, is the general term we use to refer to a contract under which we provide services utilizing our employees to a station owned and operated by independent third parties. Local service agreements include time brokerage agreements, shared services agreements, joint sales agreements and outsourcing agreements. For further information regarding the LSAs to which we are party, see Note 2 to our Consolidated Financial Statements in Part IV, Item 15 of this Annual Report on Form 10-K.
(3)
The term “commercial station” means a television broadcast station and excludes non-commercial stations and religious stations, cable program services or networks. Source: Investing in Television Market Report 2012 4th Edition, as published by BIA Financial Network, Inc.
(4)
Although WHAG is located within the Washington, DC DMA, its signal does not reach the entire Washington, DC metropolitan area. WHAG serves the Hagerstown, MD sub-market within the DMA.
(5)
Application for renewal of license was submitted timely to the FCC. Under the FCC’s rules, a license expiration date automatically is extended pending review of and action on the renewal application by the FCC.
(6)
Although Nexstar owns WLYH, this station is programmed by Sinclair Broadcast Group, Inc. pursuant to a time brokerage agreement.
(7)
These stations are owned by Mission.
(8)
These stations are owned by Sinclair Broadcast Group, Inc.
(9)
On January 31, 2013, WTVW became an affiliate of The CW
(10)
On March 31, 2013, WFFT became an affiliate of FOX

Effective January 1, 2013, Mission acquired the assets of KLRT-TV, the FOX affiliate, and KASN, the CW affiliate, both in the Little Rock, Arkansas market, from Newport.

On February 1, 2013, Nexstar entered into a definitive agreement to acquire the assets of KSEE, the NBC affiliate serving the Fresno, California market, from Granite. Nexstar also entered into a TBA with KSEE, effective February 1, 2013, to program most of KSEE’s broadcast time, sell its advertising time and retain the advertising revenue generated during the pendency of the application for FCC consent. The acquisition is subject to FCC approval and other customary conditions and Nexstar expects the acquisition to close in the second quarter of 2013.

Effective February 1, 2013, Nexstar acquired the assets of KGPE, the CBS affiliate in the Fresno, California market, and KGET, the NBC/CW affiliate, and KKEY-LP, the low powered Telemundo affiliate, both in the Bakersfield, California market, from Newport.

On March 1, 2013, Nexstar and Mission acquired the assets of WFFF, the FOX affiliate, and WVNY, the ABC affiliate, both in the Burlington, Vermont market, from Smith Media.
 

 
6

 


Industry Background
 
Commercial television broadcasting began in the United States on a regular basis in the 1940s. Currently a limited number of channels are available for over-the-air broadcasting in any one geographic area and a license to operate a television station must be granted by the FCC. All television stations in the country are grouped by A.C. Nielsen Company, a national audience measuring service, into 210 generally recognized television markets, known as designated market areas (“DMAs”) that are ranked in size according to various metrics based upon actual or potential audience. Each DMA is an exclusive geographic area consisting of all counties in which the home-market commercial stations receive the greatest percentage of total viewing hours. A.C. Nielsen periodically publishes data on estimated audiences for the television stations in the DMA. The estimates are expressed in terms of a “rating,” which is a station’s percentage of the total potential audience in the market, or a “share,” which is the station’s percentage of the audience actually watching television. A station’s rating in the market can be a factor in determining advertising rates.
 
Most television stations are affiliated with networks and receive a significant part of their programming, including prime-time hours, from networks. Whether or not a station is affiliated with one of the four major networks (NBC, CBS, FOX or ABC) has a significant impact on the composition of the station’s revenue, expenses and operations. Network programming is provided to the affiliate by the network in exchange for the network’s retention of a substantial majority of the advertising time during network programs. The network then sells this advertising time and retains the revenue. The affiliate retains the revenue from the remaining advertising time it sells during network programs and from advertising time it sells during non-network programs.
 
Broadcast television stations compete for advertising revenue primarily with other commercial broadcast television stations, cable and satellite television systems, the Internet and, to a lesser extent, with newspapers and radio stations serving the same market. Non-commercial, religious and Spanish-language broadcasting stations in many markets also compete with commercial stations for viewers. In addition, the Internet and other leisure activities may draw viewers away from commercial television stations.
 
Advertising Sales
 
General
 
Television station revenue is primarily derived from the sale of local and national advertising. All network-affiliated stations are required to carry advertising sold by their networks which reduces the amount of advertising time available for sale by stations. Our stations sell the remaining advertising to be inserted in network programming and the advertising in non-network programming, retaining all of the revenue received from these sales. A national syndicated program distributor will often retain a portion of the available advertising time for programming it supplies in exchange for no fees or reduced fees charged to stations for such programming. These programming arrangements are referred to as barter programming.
 
Advertisers wishing to reach a national audience usually purchase time directly from the networks or advertise nationwide on a case-by-case basis. National advertisers who wish to reach a particular region or local audience often buy advertising time directly from local stations through national advertising sales representative firms. Local businesses purchase advertising time directly from the station’s local sales staff.
 
Advertising rates are based upon a number of factors, including:
 
 
a program’s popularity among the viewers that an advertiser wishes to target;
 
 
the number of advertisers competing for the available time;
 
 
the size and the demographic composition of the market served by the station;
 
 
the availability of alternative advertising media in the market;
 
 
the effectiveness of the station’s sales force;
 
 
development of projects, features and programs that tie advertiser messages to programming; and
 
 
the level of spending commitment made by the advertiser.

 
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Advertising rates are also determined by a station’s overall ability to attract viewers in its market area, as well as the station’s ability to attract viewers among particular demographic groups that an advertiser may be targeting. Advertising revenue is positively affected by strong local economies. Conversely, declines in advertising budgets of advertisers, particularly in recessionary periods, adversely affect the broadcast industry and, as a result, may contribute to a decrease in the revenue of broadcast television stations.
 
Seasonality
 
Advertising revenue is positively affected by national and regional political election campaigns, and certain events such as the Olympic Games or the Super Bowl. Stations’ advertising revenue is generally highest in the second and fourth quarters of each year, due in part to increases in consumer advertising in the spring and retail advertising in the period leading up to, and including, the holiday season. In addition, advertising revenue is generally higher during even-numbered years when state, congressional and presidential elections occur and advertising is aired during the Olympic Games.
 
Local Sales
 
Local advertising time is sold by each station’s local sales staff who call upon advertising agencies and local businesses, which typically include car dealerships, retail stores and restaurants. Compared to revenue from national advertising accounts, revenue from local advertising is generally more stable and more predictable. We seek to attract new advertisers to our television stations and websites and to increase the amount of advertising time sold to existing local advertisers by relying on experienced local sales forces with strong community ties, producing news and other programming with local advertising appeal and sponsoring or co-promoting local events and activities. We place a strong emphasis on the experience of our local sales staff and maintain an on-going training program for sales personnel.
 
National Sales
 
National advertising time is sold through national sales representative firms which call upon advertising agencies, whose clients typically include automobile manufacturers and dealer groups, telecommunications companies, fast food franchisers, and national retailers (some of which may advertise locally).
 
Network Affiliations
 
Most of the stations that we own and operate, program or provide sales and other services to as of December 31, 2012 are affiliated with a network pursuant to an affiliation agreement, as described below:
 
 
 
 
 
Station
Market
Affiliation
Expiration
WJKT
Jackson, TN
FOX
December 2013
WQRF
Rockford, IL
FOX
December 2013
KARD
Monroe, LA-El Dorado, AR
FOX
December 2013
WFXV
Utica, NY
FOX
December 2013
KFTA
Ft. Smith-Fayetteville-Springdale-Rogers, AR
FOX
December 2013
KCIT (1)
Amarillo, TX
FOX
December 2013
WFXP (1)
Erie, PA
FOX
December 2013
KJTL (1)
Wichita Falls, TX-Lawton, OK
FOX
December 2013
KHMT (1)
Billings, MT
FOX
December 2013
KTVX-D-2
Salt Lake City, UT
Me-TV
July 2014
WSYR-D-2
Syracuse, NY
Me-TV
July 2014
KARZ
Little Rock-Pine Bluff, AR
MyNetworkTV
August 2014
WPNY-LP
Utica, NY
MyNetworkTV
August 2014
WCIX
Champaign-Springfield-Decatur, IL
MyNetworkTV
August 2014
KCPN-LP (1)
Amarillo, TX
MyNetworkTV
August 2014
KJBO-LP (1)
Wichita Falls, TX-Lawton, OK
MyNetworkTV
August 2014
WTVO-D-2 (1)
Rockford, IL
MyNetworkTV
August 2014
WLMT-D-2
Memphis, TN
MyNet
September 2014
WCWJ-D-2
Jacksonville, FL
Bounce TV
September 2014
KARZ-D-2
Little Rock-Pine Bluff, AR
Bounce TV
September 2014
WROC-D-2
Rochester, NY
Bounce TV
September 2014
WMBD-D-2
Peoria-Bloomington, IL
Bounce TV
September 2014
WQRF-D-2
Rockford, IL
Bounce TV
September 2014
KARD-D-2
Monroe, LA-El Dorado, AR
Bounce TV
September 2014
KJTL-D-2 (1)
Wichita Falls, TX-Lawton, OK
Bounce TV
September 2014

 
8

 


Station
Market
Affiliation
Expiration
KAMC-D-2 (1)
Lubbock, TX
Bounce TV
September 2014
KRBC-D-2 (1)
Abilene-Sweetwater, TX
Bounce TV
September 2014
WBGH-CA
Binghamton, NY
NBC
December 2014
WETM
Elmira, NY
NBC
December 2014
KAMR
Amarillo, TX
NBC
December 2014
KTAL
Shreveport, LA
NBC
December 2014
KARK
Little Rock-Pine Bluff, AR
NBC
December 2014
WHAG
Washington, DC/Hagerstown, MD(3)
NBC
December 2014
WBRE
Wilkes Barre-Scranton, PA
NBC
December 2014
WTWO
Terre Haute, IN
NBC
December 2014
KFDX
Wichita Falls, TX-Lawton, OK
NBC
December 2014
KSNF
Joplin, MO-Pittsburg, KS
NBC
December 2014
KTVE (1)
Monroe, LA—El Dorado, AR
NBC
December 2014
KSAN (1)
San Angelo, TX
NBC
December 2014
KRBC (1)
Abilene-Sweetwater, TX
NBC
December 2014
KNWA
Ft. Smith-Fayetteville-Springdale-Rogers, AR
NBC
December 2014
WTAJ
Johnstown-Altoona, PA
CBS
May 2016
WYOU (1)
Wilkes Barre-Scranton, PA
CBS
June 2015
WCWJ
Jacksonville, FL
The CW
September 2016
WLYH (4)
Harrisburg-Lancaster-Lebanon-York, PA
The CW
September 2016
KUCW
Salt Lake City, UT
The CW
September 2016
WLMT
Memphis, TN
The CW
September 2016
WWTI
Watertown, NY
The CW
September 2016
KTVX
Salt Lake City, UT
ABC
December 2017
WPTY
Memphis, TN
ABC
December 2017
WSYR
Syracuse, NY
ABC
December 2017
WIVT
Binghamton, NY
ABC
December 2017
WWTI
Watertown, NY
ABC
December 2017
WDHN
Dothan, AL
ABC
December 2017
WJET
Erie, PA
ABC
December 2017
KSVI
Billings, MT
ABC
December 2017
KMID
Odessa-Midland, TX
ABC
December 2017
KQTV
St. Joseph, MO
ABC
December 2017
WAWV (1)
Terre Haute, IN
ABC
December 2017
WUTR (1)
Utica, NY
ABC
December 2017
WTVO (1)
Rockford, IL
ABC
December 2017
KAMC (1)
Lubbock, TX
ABC
December 2017
KODE (1)
Joplin, MO-Pittsburg, KS
ABC
December 2017
WEHT
Evansville, Indiana
ABC
December 2017
WUHF (2)
Rochester, NY
FOX
December 2017
WYZZ (2)
Peoria-Bloomington, IL
FOX
December 2017
WFRV
Green Bay-Appleton, WI
CBS
December 2018
WJMN
Marquette, MI
CBS
December 2018
KLST
San Angelo, TX
CBS
December 2018
KTAB
Abilene-Sweetwater, TX
CBS
December 2018
WROC
Rochester, NY
CBS
December 2018
KOLR (1)
Springfield, MO
CBS
December 2018
KLBK
Lubbock, TX
CBS
December 2018
WCIA
Champaign-Springfield-Decatur, IL
CBS
December 2018
WMBD
Peoria-Bloomington, IL
CBS
December 2018
                 
(1)
These stations are owned by Mission, which maintains the network affiliation agreements.
(2)
These stations are owned by Sinclair Broadcast Group, Inc., which maintains the network affiliation agreements.
(3)
Although WHAG is located within the Washington, DC DMA, its signal does not reach the entire Washington, DC metropolitan area. WHAG serves the Hagerstown, MD sub-market within the DMA.
(4)
Under a time brokerage agreement, Nexstar allows Sinclair Broadcast Group, Inc. to program most of WLYH’s broadcast time, sell its advertising time and retain the advertising revenue generated in exchange for monthly payments to Nexstar.

 
9

 


Effective January 1, 2013, Mission acquired the assets of KLRT-TV, the FOX affiliate, and KASN, the CW affiliate, both in the Little Rock, Arkansas market, from Newport.

On February 1, 2013, Nexstar entered into a definitive agreement to acquire the assets of KSEE, the NBC affiliate serving the Fresno, California market, from Granite. Nexstar also entered into a TBA with KSEE, effective February 1, 2013, to program most of KSEE’s broadcast time, sell its advertising time and retain the advertising revenue generated during the pendency of the application for FCC consent. The acquisition is subject to FCC approval and other customary conditions and Nexstar expects the acquisition to close in the second quarter of 2013

Effective February 1, 2013, Nexstar acquired the assets of KGPE, the CBS affiliate in the Fresno, California market, and KGET, the NBC/CW affiliate, and KKEY-LP, the low powered Telemundo affiliate, both in the Bakersfield, California market, from Newport.

On March 1, 2013, Nexstar and Mission acquired the assets of WFFF, the FOX affiliate, and WVNY, the ABC affiliate, both in the Burlington, Vermont market, from Smith Media.

Each affiliation agreement provides the affiliated station with the right to broadcast all programs transmitted by the network with which it is affiliated. In exchange, the network has the right to sell a substantial majority of the advertising time during these broadcasts. We expect the network affiliation agreements listed above to be renewed upon expiration.

Competition
 
Competition in the television industry takes place on several levels: competition for audience, competition for programming and competition for advertising.
 
Audience. We compete for audience share specifically on the basis of program popularity. The popularity of a station’s programming has a direct effect on the advertising rates it can charge its advertisers. A portion of the daily programming on the stations that we own or provide services to is supplied by the network with which each station is affiliated. In those periods, the stations are dependent upon the performance of the network programs in attracting viewers. Stations program non-network time periods with a combination of self-produced news, public affairs and other entertainment programming, including movies and syndicated programs. The major television networks have also begun to sell their programming directly to the consumer via portable digital devices such as tablets and cell phones, which presents an additional source of competition for television broadcaster audience share. Other sources of competition for audience include home entertainment systems (such as VCRs, DVDs and DVRs), video-on-demand and pay-per-view, the Internet (including network distribution of programming through websites) and gaming devices.
 
Although the commercial television broadcast industry historically has been dominated by the ABC, NBC, CBS and FOX television networks, other newer television networks and the growth in popularity of subscription systems, such as local cable and direct broadcast satellite (“DBS”) systems which air exclusive programming not otherwise available in a market, have become significant competitors for the over-the-air television audience.
 
Programming. Competition for programming involves negotiating with national program distributors or syndicators that sell first-run and rerun packages of programming. Stations compete against in-market broadcast station operators for exclusive access to off-network reruns (such as Two and a Half Men) and first-run product (such as Entertainment Tonight) in their respective markets. Cable systems generally do not compete with local stations for programming, although various national cable networks from time to time have acquired programs that would have otherwise been offered to local television stations. Time Warner, Inc., Comcast Corporation, Viacom Inc., The News Corporation Limited and the Walt Disney Company each owns a television network and also owns or controls major production studios, which are the primary source of programming for the networks. It is uncertain whether in the future such programming, which is generally subject to short-term agreements between the studios and the networks, will be moved to the networks. Television broadcasters also compete for non-network programming unique to the markets they serve. As such, stations strive to provide exclusive news stories and unique features such as investigative reporting and coverage of community events and to secure broadcast rights for regional and local sporting events.
 
Advertising. Stations compete for advertising revenue with other television stations in their respective markets and other advertising media such as newspapers, radio stations, magazines, outdoor advertising, transit advertising, yellow page directories, direct mail, local cable systems, DBS systems and the Internet. Competition for advertising dollars in the broadcasting industry occurs primarily within individual markets. Generally, a television broadcast station in a particular market does not compete with stations in other market areas.
 

 
10

 


The broadcasting industry is continually faced with technological change and innovation which increase the popularity of competing entertainment and communications media. Further advances in technology may increase competition for household audiences and advertisers. The increased use of digital technology by cable systems and DBS, along with video compression techniques, will reduce the bandwidth required for television signal transmission. These technological developments are applicable to all video delivery systems, including over-the-air broadcasting, and have the potential to provide vastly expanded programming to highly targeted audiences. Reductions in the cost of creating additional channel capacity could lower entry barriers for new channels and encourage the development of increasingly specialized “niche” programming. This ability to reach very narrowly defined audiences is expected to alter the competitive dynamics for advertising expenditures. We are unable to predict the effect that these or other technological changes will have on the broadcast television industry or on the future results of our operations or the operations of the stations to which we provide services.

Federal Regulation
 
Television broadcasting is subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended (“the Communications Act”). The following is a brief discussion of certain provisions of the Communications Act and the FCC’s regulations and policies that affect the business operations of television broadcast stations. Over the years, Congress and the FCC have added, amended and deleted statutory and regulatory requirements to which station owners are subject. Some of these changes have a minimal business impact whereas others may significantly affect the business or operation of individual stations or the broadcast industry as a whole. For more information about the nature and extent of FCC regulation of television broadcast stations, you should refer to the Communications Act and the FCC’s rules, public notices and policies.

License Grant and Renewal. The Communications Act prohibits the operation of broadcast stations except under licenses issued by the FCC. Television broadcast licenses are granted for a maximum term of eight years and are subject to renewal upon application to the FCC. The FCC is required to grant an application for license renewal if during the preceding term the station served the public interest, the licensee did not commit any serious violations of the Communications Act or the FCC’s rules, and the licensee committed no other violations of the Communications Act or the FCC’s rules which, taken together, would constitute a pattern of abuse. A majority of renewal applications are routinely granted under this standard. If a licensee fails to meet this standard the FCC may still grant renewal on terms and conditions that it deems appropriate, including a monetary forfeiture or renewal for a term less than the normal eight-year period.
 
After a renewal application is filed, interested parties, including members of the public, may file petitions to deny the application, to which the licensee/renewal applicant is entitled to respond. After reviewing the pleadings, if the FCC determines that there is a substantial and material question of fact whether grant of the renewal application would serve the public interest, the FCC is required to hold a trial-type hearing on the issues presented. If, after the hearing, the FCC determines that the renewal applicant has met the renewal standard, the FCC will grant the renewal application. If the licensee/renewal applicant fails to meet the renewal standard or show that there are mitigating factors entitling it to renewal subject to appropriate sanctions, the FCC can deny the renewal application. In the vast majority of cases where a petition to deny is filed against a renewal application, the FCC ultimately grants the renewal without a hearing. No competing application for authority to operate a station and replace the incumbent licensee may be filed against a renewal application.
 
In addition to considering rule violations in connection with a license renewal application, the FCC may sanction a station licensee for failing to observe FCC rules and policies during the license term, including the imposition of a monetary forfeiture.
 
Station Transfer. The Communications Act prohibits the assignment or the transfer of control of a broadcast license without prior FCC approval.
 
Ownership Restrictions. The Communications Act limits the extent of non-U.S. ownership of companies that own U.S. broadcast stations. Under this restriction, a U.S. broadcast company such as ours may have no more than 20% (in the case of a license entity) or 25% (in the case of a parent entity) non-U.S. ownership (by vote and by equity).
 
The FCC also has rules which establish limits on the ownership of broadcast stations. These ownership limits apply to attributable interests in a station licensee held by an individual, corporation, partnership or other entity. In the case of corporations, officers, directors and voting stock interests of 5% or more (20% or more in the case of qualified investment companies, such as insurance companies and bank trust departments) are considered attributable interests. For partnerships, all general partners and non-insulated limited partners are attributable. Limited liability companies are treated the same as partnerships. The FCC also considers attributable the holder of more than 33% of a licensee’s total assets (defined as total debt plus total equity), if that person or entity also provides over 15% of the station’s total weekly broadcast programming or has an attributable interest in another media entity in the same market which is subject to the FCC’s ownership rules, such as a radio or television station or daily newspaper.

 
11

 

Local Television Ownership (Duopoly Rule). Under the current local television ownership, or “duopoly,” rule, a single entity is allowed to own or have attributable interests in two television stations in a market if (1) the two stations do not have overlapping service areas, or (2) after the combination there are at least eight independently owned and operating full-power television stations in the DMA with overlapping service contours and one of the combining stations is not ranked among the top four stations in the DMA. The duopoly rule allows the FCC to consider waivers to permit the ownership of a second station only in cases where the second station has failed or is failing or unbuilt.
 
Under the duopoly rule, the FCC attributes toward the local television ownership limits another in-market station when one station owner programs a second in-market station pursuant to a time brokerage or local marketing agreement, if the programmer provides 15% or more of the second station’s weekly broadcast programming. However, local marketing agreements entered into prior to November 5, 1996 are exempt attributable interests until the FCC determines otherwise. This “grandfathering,” when reviewed by the FCC, is subject to possible extension or termination.
 
In certain markets, we and Mission own and operate both full-power and low-power television broadcast stations (in Utica, Nexstar owns and operates WFXV and WPNY-LP; in Binghamton, Nexstar owns and operates WIVT and WBGH-CA; in Wichita Falls, Mission owns and operates KJTL and KJBO-LP; and in Amarillo, Mission owns and operates KCIT and KCPN-LP). The FCC’s duopoly rules and policies regarding ownership of television stations in the same market apply only to full-power television stations and not low-power television stations such as WPNY-LP, WBGH-CA, KJBO-LP and KCPN-LP.

The only markets in which we currently are permitted to own two stations under the duopoly rule are Salt Lake City, Utah, Memphis, Tennessee, Champaign-Springfield-Decatur, Illinois and Little Rock-Pine Bluff, Arkansas. However, we also are permitted to own two stations in the Fort Smith-Fayetteville-Springdale-Rogers, Arkansas market pursuant to a waiver under the FCC’s rules permitting common ownership of a “satellite” television station in a market where a licensee also owns the “primary” station. In all of the markets where we have entered into local service agreements, except for two, we do not provide programming other than news (comprising less than 15% of the second station’s programming) to the second station and, therefore, we are not attributed with ownership of the second station. In the two markets where we provide more programming to the second station—WFXP in Erie, Pennsylvania and KHMT in Billings, Montana—the local marketing agreements were entered into prior to November 5, 1996. Therefore, we may continue to program these stations under the terms of these agreements until the FCC determines otherwise.
 
National Television Ownership. There is no nationwide limit on the number of television stations which a party may own. However, the FCC’s rules limit the percentage of U.S. television households which a party may reach through its attributable interests in television stations. This rule provides that when calculating a party’s nationwide aggregate audience coverage, the ownership of a UHF station is counted as 50% of a market’s percentage of total national audience. In 2004, Congress determined that one party may have an attributable interest in television stations which reach, in the aggregate, 39% of all U.S. television households; and the FCC thereafter modified its corresponding rule. The FCC currently is considering whether this act has any impact on the FCC’s authority to examine and modify the UHF discount.
 
The stations that Nexstar owns have a combined national audience reach of 6.2% of television households with the UHF discount.

Radio/Television Cross-Ownership Rule (One-to-a-Market Rule). In markets with at least 20 independently owned media “voices,” ownership of one television station and up to seven radio stations, or two television stations (if allowed under the television duopoly rule) and six radio stations is permitted. If the number of independently owned media “voices” is fewer than 20 but greater than or equal to 10, ownership of one television station (or two if allowed) and four radio stations is permitted. In markets with fewer than 10 independent media “voices,” ownership of one television station (or two if allowed) and one radio station is permitted. In calculating the number of independent media “voices” in a market, the FCC includes all radio and television stations, independently owned cable systems (counted as one voice), and independently owned daily newspapers which have circulation that exceeds 5% of the households in the market. In all cases, the television and radio components of the combination must also comply, respectively, with the local television ownership rule and the local radio ownership rule.
 
Local Television/Newspaper Cross-Ownership Rule. Under this rule, a party is prohibited from having an attributable interest in a television station and a daily newspaper.
 

 
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The FCC is required to review its media ownership rules every four years to eliminate those rules it finds no longer serve the “public interest, convenience and necessity.” During 2009, the FCC held a series of hearings designed to evaluate possible changes to its rules. In May 2010, the FCC formally initiated its 2010 review of its media ownership rules with the issuance of a Notice of Inquiry (NOI). In December 2011, the FCC issued a Notice of Proposed Rulemaking (NPRM) seeking comment on specific proposed changes to its ownership rules. Among the specific changes proposed in the NPRM are (1) elimination of the contour overlap provision of the local television ownership rule (making the rule entirely DMA-based), (2) elimination of the radio/television cross-ownership rule and (3) modest relaxation of the newspaper/broadcast cross-ownership rule. The NPRM also seeks comment on shared services agreements (SSAs) and other joint operating arrangements between television stations, and whether such agreements should be considered attributable. Initial comments on the NPRM were filed on March 5, 2012, and reply comments were filed in April 2012. The FCC may act on this proceeding in 2013. We cannot predict what rules the FCC will adopt; however, the FCC may deem television JSAs to be attributable ownership interests and require the termination of existing JSAs within a specified period of time if the newly attributable JSAs do not comply with the local television ownership limits.
 
Local Television/Cable Cross-Ownership. There is no FCC rule prohibiting common ownership of a cable television system and a television broadcast station in the same area.
 
Cable and Satellite Carriage of Local Television Signals. Broadcasters may obtain carriage of their stations’ signals on cable, satellite and other multichannel video programming distributors (“MVPDs”) through either mandatory carriage or through “retransmission consent.”  Every three years all stations must formally elect either mandatory carriage (“must-carry” for cable distributors and “carry one-carry all” for satellite television providers) or retransmission consent. The next election must be made by October 1, 2014, and will be effective January 1, 2015. Must-carry elections require that the MVPD carry one station programming stream and related data in the station’s local market. However, MVPDs may decline a must-carry election in certain circumstances. MVPDs do not pay a fee to stations that elect mandatory carriage.

A broadcaster that elects retransmission consent waives its mandatory carriage rights, and the broadcaster and the MVPD must negotiate in good faith for carriage of the station’s signal. Negotiated terms may include channel position, service tier carriage, carriage of multiple program streams, compensation and other consideration. If a broadcaster elects to negotiate retransmission terms, it is possible that the broadcaster and the MVPD will not reach agreement and that the MVPD will not carry the station’s signal.

MVPD operators are actively seeking to change the regulations under which retransmission consent is negotiated before both the U.S. Congress and the FCC in order to increase their bargaining leverage with television stations. 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 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 has 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.

The FCC’s rules also govern which local television signals a satellite subscriber may receive. Congress and the FCC have also imposed certain requirements relating to satellite distribution of local television signals to “unserved” households that do not receive a useable signal from a local network-affiliated station and to cable and satellite carriage of out-of-market signals.

We and Mission elected to exercise retransmission consent rights for all of our stations where we have a legal right to do so. We and Mission have negotiated retransmission consent agreements with the majority of the MVPDs which carry the stations’ signals.
 

 
13

 


Programming and Operation. The Communications Act requires broadcasters to serve “the public interest.” Since the late 1970s, the FCC gradually has relaxed or eliminated many of the more formalized procedures it had developed to promote the broadcast of certain types of programming responsive to the needs of a station’s community of license. However, television station licensees are still required to present programming that is responsive to community problems, needs and interests and to maintain certain records demonstrating such responsiveness. The FCC may consider complaints from viewers concerning programming when it evaluates a station’s license renewal application, although viewer complaints also may be filed and considered by the FCC at any time. Stations also must follow various rules promulgated under the Communications Act that regulate, among other things:
 
 
political advertising (its price and availability);
 
 
sponsorship identification;
 
 
contest and lottery advertising;
 
 
obscene and indecent broadcasts;
 
 
technical operations, including limits on radio frequency radiation;
 
 
discrimination and equal employment opportunities;
 
 
closed captioning and video description;
 
 
children’s programming;
 
 
program ratings guidelines; and
 
 
network affiliation agreements.

Technical Regulation. FCC rules govern the technical operating parameters of television stations, including permissible operating channel, power and antenna height and interference protections between stations. Under various FCC rules and procedures, full power television stations completed the transition from analog to digital television (DTV) broadcasting in June 2009. The FCC has adopted rules with respect to the conversion of existing low power and television translator stations to digital operation, establishing a September 1, 2015 deadline by which low power and television translator stations must cease analog operation.
 
Employees
 
As of December 31, 2012, we had a total of 2,411 employees, comprised of 2,099 full-time and 312 part-time employees. As of December 31, 2012, 157 of our employees were covered by collective bargaining agreements. We believe that our employee relations are satisfactory, and we have not experienced any work stoppages at any of our facilities. However, we cannot assure you that our collective bargaining agreements will be renewed in the future, or that we will not experience a prolonged labor dispute, which could have a material adverse effect on our business, financial condition or results of operations.

Legal Proceedings

From time to time, we are involved in litigation that arises from the ordinary operations of business, such as contractual or employment disputes or other general actions. In the event of an adverse outcome of these proceedings, we believe the resulting liabilities would not have a material adverse effect on our financial condition or results of operations.

Available Information

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports, statements and other information filed by us at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549-0102. Please call (800) SEC-0330 for further information on the Public Reference Room. The SEC maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers, including us, that file electronically with the SEC. The address for the SEC’s website is http://www.sec.gov. Due to the availability of our filings on the SEC website, we do not currently make available our filings on our Internet website. Upon request, we will provide copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, and any other filings with the SEC. Requests can be sent to Nexstar Broadcasting Group, Attn: Investor Relations, 5215 N. O’Connor Blvd., Suite 1400, Irving, TX 75039. Additional information about us, our stations and the stations we program or provide services to can be found on our website at www.nexstar.tv. We do not incorporate the information contained on or accessible through our corporate web site into this Annual Report on Form 10-K.

 
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Item 1A.                      Risk Factors

You should carefully consider the following risk factors, which we believe are the most significant risks related to our business, as well as the other information contained in this document.

Risks Related to Our Operations

General trends in the television industry could adversely affect demand for television advertising as consumers flock to alternative media, including the Internet, for entertainment.  

Television viewing among consumers has been negatively impacted by the increasing availability of alternative media, including the Internet. As a result, in recent years demand for television advertising has been declining and demand for advertising in alternative media has been increasing, and we expect this trend to continue.

The networks may stream their programming on the Internet and other distribution platforms in close proximity to network programming broadcast on local television stations, including those we own, and recently some networks have begun streaming special events and sports programming on the Internet simultaneously with the broadcast on local stations. These and other practices by the networks dilute the exclusivity and value of network programming originally broadcast by the local stations and may adversely affect the business, financial condition and results of operations of our stations.
 
 
We and Mission had history of net losses in prior years.  

We and Mission had aggregate net losses of $11.9 million and $1.8 million for the years ended December 31, 2011 and 2010, respectively. We and Mission may not be able to achieve or maintain profitability in future years. 

Our substantial debt could limit our ability to grow and compete.  

As of December 31, 2012, we and Mission had $857.6 million of debt, which represented 99.7% of our and Mission’s total combined capitalization. The companies’ high level of debt could have important consequences to our business. For example, it could:

 
•    limit our ability to borrow additional funds or obtain additional financing in the future;
 
•    limit our ability to pursue acquisition opportunities;
 
 
expose us to greater interest rate risk since the interest rate on borrowings under the senior credit facilities is variable;  
 
•    limit our flexibility to plan for and react to changes in our business and our industry; and
 
 
impair our ability to withstand a general downturn in our business and place us at a disadvantage compared to our competitors that are less leveraged.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations” for disclosure of the approximate aggregate amount of principal indebtedness scheduled to mature.

We and Mission could also incur additional debt in the future. The terms of our and Mission’s senior secured credit facilities, as well as the indentures governing our publicly-held notes, limit, but do not prohibit us or Mission from incurring substantial amounts of additional debt. To the extent we or Mission incur additional debt we would become even more susceptible to the leverage-related risks described above.


 
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The agreements governing the Company’s debt contain various covenants that limit management’s discretion in the operation of our business.

The senior secured credit facilities, the indenture governing the 6.875% Senior Unsecured Notes (“6.875% Notes”) and the indenture governing the 8.875% Senior Secured Second Lien Notes (“8.875% Notes”) contain various covenants that restrict our ability to, among other things:

  •   incur additional debt and issue preferred stock;
  •   pay dividends and make other distributions;
  •   make investments and other restricted payments;
  •   make acquisitions;
  •   merge, consolidate or transfer all or substantially all of our assets;
  •   enter into sale and leaseback transactions;
  •   create liens;
  •   sell assets or stock of our subsidiaries; and
  •   enter into transactions with affiliates.

    In addition, the senior secured credit facilities require us to maintain or meet certain financial ratios, including maximum total and first-lien leverage ratios and a minimum fixed charge coverage ratio. Future financing agreements may contain similar, or even more restrictive, provisions and covenants. As a result of these restrictions and covenants, management’s ability to operate our business at its discretion is limited, and we may be unable to compete effectively, pursue acquisitions or take advantage of new business opportunities, any of which could harm our business.

If we fail to comply with the restrictions in present or future financing agreements, a default may occur. A default could allow creditors to accelerate the related debt as well as any other debt to which a cross-acceleration or cross-default provision applies. A default could also allow creditors to foreclose on any collateral securing such debt.

The credit agreement governing Nexstar Broadcasting’s obligations under the senior secured credit facilities contains covenants that require us to comply with certain financial ratios, including maximum total and first-lien ratios and a minimum fixed charge coverage ratio. The covenants, which are calculated on a quarterly basis, include the combined results of Nexstar Broadcasting and Mission. The credit agreement governing Mission’s obligations under the senior secured credit facilities does not contain financial covenant ratio requirements; however, it includes an event of default if Nexstar Broadcasting does not comply with all covenants contained in the credit agreement governing the senior secured credit facilities. The indentures governing the 6.875% Notes and the 8.875% Notes contain restrictive covenants customary for debt of their respective types.

Mission may make decisions regarding the operation of its stations that could reduce the amount of cash we receive under our local service agreements.  

Mission is 100% owned by independent third parties. Mission owns and operates 17 television stations as of December 31, 2012. Effective January 1, 2013, Mission acquired the assets of KLRT-TV, the FOX affiliate, and KASN, the CW affiliate, both in the Little Rock, Arkansas market, from Newport. We have entered into local service agreements with Mission, pursuant to which we provide services to Mission’s stations. In return for the services we provide, we receive substantially all of Mission’s available cash, after satisfaction of operating costs and debt obligations. We also guarantee all of the obligations incurred under Mission’s senior secured credit facility, which were incurred primarily in connection with Mission’s acquisition of its stations.  

On December 3, 2012, Mission entered into the fourth amended and restated credit agreement among it, Bank of America, N.A., as administrative agent and collateral agent, UBS Securities LLC, as syndication agent, joint lead arranger and joint book manager, RBC Capital Markets, as documentation agent, joint lead arranger and joint book manager, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arranger and joint book manager, and a syndicate of other lenders, which provides for a first-lien credit facility (the “Mission Facilities”). The Mission Facilities consist of a term loan and a $35.0 million revolving credit facility. Nexstar and Nexstar Broadcasting guarantee all of the obligations incurred under the Mission Facilities, which were incurred primarily in connection with Mission’s acquisition of its stations.

Mission has granted to us 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 (i) 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 (ii) the amount of its indebtedness. Additionally, Mission’s shareholders have granted Nexstar an option to purchase any or all of Mission’s stock, subject to FCC consent, for a price equal to the pro rata portion of the greater of (i) five times the stations’ cash flow, as defined in the option agreement, reduced by the amount of indebtedness, as defined in the option agreement, or (ii) $100,000.

We do not own Mission or its television stations. However, we are deemed under U.S. GAAP to have a controlling financial interest in Mission because of (1) the local service agreements Nexstar has with the Mission stations, (2) Nexstar’s guarantee of the obligations incurred under Mission facilities, (3) Nexstar having power over significant activities affecting Mission’s economic performance, including budgeting for advertising revenue, advertising sales and hiring and firing of sales force personnel and (4) purchase options granted by Mission that permit Nexstar to acquire the assets and assume the liabilities of each Mission station, subject to FCC consent.

In compliance with FCC regulations for both us and Mission, Mission maintains complete responsibility for and control over programming, finances and personnel for its stations. As a result, Mission’s board of directors and officers can make decisions with which we disagree and which could reduce the cash flow generated by these stations and, as a consequence, the amounts we receive under our local service agreements with Mission. For instance, we may disagree with Mission’s programming decisions, which programming may prove unpopular and/or may generate less advertising revenue. Furthermore, subject to Mission’s agreement with its lenders, Mission’s board of directors, comprised solely of shareholders, could choose to pay themselves a dividend.  

The recording of deferred tax asset valuation allowances in the future or the impact of tax law changes on such deferred tax assets could affect our operating results.  

We and Mission currently have significant net deferred tax assets resulting from tax credit carryforwards, net operating losses and other deductible temporary differences that are available to reduce taxable income in future periods. Based on our assessment of our deferred tax assets, we determined that as of December 31, 2012, based on projected future income, approximately $142.9 million of our deferred tax assets will more likely than not be realized in the future, and no valuation allowance is currently required for this portion of our deferred tax assets. Should we determine in the future that these assets will not be realized we and Mission will be required to record a valuation allowance in connection with these deferred tax assets and our operating results would be adversely affected in the period such determination is made. In addition, tax law changes could negatively impact our deferred tax assets.

Our ability to use net operating loss carry-forwards (“NOLs”) to reduce future tax payments may be limited if taxable income does not reach sufficient levels or there is a change in ownership of Nexstar.

At December 31, 2012, we had NOLs of approximately $349.5 million for U.S. federal tax purposes and $76.6 million for state tax purposes. These NOLs expire at varying dates through 2031. To the extent available, we intend to use these NOLs to reduce the corporate income tax liability associated with our operations. Section 382 of the Internal Revenue Code of 1986, as amended, generally imposes an annual limitation on the amount of NOLs that may be used to offset taxable income when a corporation has undergone significant changes in stock ownership. In general, an ownership change, as defined by Section 382 of the Internal Revenue Code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups, which are generally outside of our control. While our analysis shows that recent public offerings by ABRY, our largest stockholder, have not resulted in ownership changes that would limit our ability to use these NOLs, any subsequent ownership changes could result in such a limitation. In addition, the ability to use NOLs will be dependent on our ability to generate taxable income. The NOLs could expire before we generate sufficient taxable income. To the extent our use of NOLs is significantly limited, our income could be subject to corporate income tax earlier than it would if we were able to use NOLs, which could have a negative effect on our financial results and results of operations.

The revenue generated by stations we operate or provide services to could decline substantially if they fail to maintain or renew their network affiliation agreements on favorable terms, or at all.  

Due to the quality of the programming provided by the networks, stations that are affiliated with a network generally have higher ratings than unaffiliated independent stations in the same market. As a result, it is important for stations to maintain their network affiliations. Most of the stations that we operate or provide services to have network affiliation agreements, as of December 31, 2012 –14 stations have primary affiliation agreements with NBC, 11 with CBS, 16 with ABC, 11 with FOX, 5 with MyNetworkTV, and 4 with The CW. Additionally, 14 of the stations have secondary affiliation agreements – 2 with MyNetworkTV, 1 with The CW, 2 with Me-TV and 9 with Bounce TV. Each of NBC, CBS and ABC generally provides affiliated stations with up to 22 hours of prime time programming per week, while each of FOX, MyNetworkTV and The CW provides affiliated stations with up to 15 hours of prime time programming per week. In return, affiliated stations broadcast the respective network’s commercials during the network programming.


 
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All of the network affiliation agreements of the stations that we own, operate, program or provide sales and other services to are scheduled to expire at various times through December 2018. In order to renew certain of our affiliation agreements we may be required to make cash payments to the network and to accept other material modifications of existing affiliation agreements. If any of our stations cease to maintain affiliation agreements with networks for any reason, we would need to find alternative sources of programming, which may be less attractive and more expensive. Further, some of our network affiliation agreements are subject to earlier termination by the networks under specified circumstances.

For more information regarding these network affiliation agreements, see “Business—Network Affiliations.”  

The loss of or material reduction in retransmission consent revenues could have an adverse effect on our business, financial condition, and results of operations.  

Nexstar’s retransmission consent agreements with cable operators, DBS systems, and others permit the operators to carry our stations’ signals in exchange for the payment of compensation to us from the system operators as consideration. The television networks have recently asserted to their local television station affiliates the networks’ position that they, as the owners or licensees of programming we broadcast and provide for retransmission, are entitled to a portion of the compensation under the retransmission consent agreements and are including these provisions in their network affiliation agreements. In addition, our affiliation agreements with some broadcast networks include certain terms that may affect our ability to allow MVPDs to retransmit network programming, and in some cases, we may lose the right to grant retransmission consent to such providers. Inclusion of these or similar provisions in our network affiliation agreements could materially reduce this revenue source to Nexstar and could have an adverse effect on our business, financial condition, and results of operations.

In addition, system operators are actively seeking to change the regulations under which retransmission consent is negotiated before both the U.S. Congress and the FCC in order to increase their bargaining leverage with television stations. On March 3, 2011, the FCC initiated a Notice of Proposed Rulemaking to reexamine its rules (1) governing the requirements for good faith negotiations between MVPDs and broadcasters, including implementing a prohibition on one station negotiating retransmission consent terms for another station under a local service agreement; (2) for providing advance notice to consumers in the event of dispute; and (3) 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. If the FCC prohibits joint negotiations or modifies the network non-duplication and syndicated exclusivity protection rules, such changes could materially reduce this revenue source and could have an adverse effect on our business, financial condition and results of operations.

The FCC could decide not to grant renewal of the FCC license of any of the stations we operate or provide services to which would require that station to cease operations. 

Television broadcast licenses are granted for a maximum term of eight years and are subject to renewal upon application to the FCC. The FCC is required to grant an application for license renewal if, during the preceding term, the station served the public interest, the licensee did not commit any serious violations of the Communications Act or the FCC’s rules, and the licensee committed no other violations of the Communications Act or the FCC’s rules which, taken together, would constitute a pattern of abuse. A majority of renewal applications are routinely granted under this standard. If a licensee fails to meet this standard the FCC may still grant renewal on terms and conditions that it deems appropriate, including a monetary forfeiture or renewal for a term less than the normal eight-year period.

On October 26, 2005, the Director of the Central Illinois Chapter of the Parents Television Council (“PTC”) submitted an informal objection to the application for renewal of license for Nexstar’s station WCIA in Champaign, Illinois, requesting the FCC withhold action on WCIA’s license renewal application until the FCC acts on the PTC’s complaint regarding an allegedly indecent broadcast on WCIA.

On January 3, 2006, Cable America Corporation submitted a petition to deny the applications for renewal of license for Nexstar’s station KOZL and Mission’s station KOLR, both licensed to Springfield, Missouri. Cable America alleged that Nexstar’s local service agreements with Mission give Nexstar improper control over Mission’s operations. Nexstar and Mission submitted a joint opposition to this petition to deny and Cable America submitted a reply. Cable America subsequently requested that the FCC dismiss its petition. However, the petition remains pending with the FCC.

Nexstar and Mission filed renewal of license applications for their stations between June 2004 and April 2007. The majority of these applications, including the WCIA, KOZL and KOLR applications discussed above remain pending with the FCC. Once a renewal application is timely filed, a station may continue to operate under its license even if its expiration date has passed. We and Mission expect the FCC to renew the licenses for our stations in due course but cannot provide any assurances that the FCC will do so.

 
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On June 1, 2012, the FCC’s renewal cycle for television stations reinitiated. Nexstar Broadcasting and Mission are required to submit new renewal of license applications for the stations between June 1, 2012 and April 1, 2015. Third parties are permitted to submit objections to these applications.

The loss of the services of our chief executive officer could disrupt management of our business and impair the execution of our business strategies. 

We believe that our success depends upon our ability to retain the services of Perry A. Sook, our founder and President and Chief Executive Officer. Mr. Sook has been instrumental in determining our strategic direction and focus. The loss of Mr. Sook’s services could adversely affect our ability to manage effectively our overall operations and successfully execute current or future business strategies. 

Our growth may be limited if we are unable to implement our acquisition strategy.  

We intend to continue our growth by selectively pursuing acquisitions of television stations. The television broadcast industry is undergoing consolidation, which may reduce the number of acquisition targets and increase the purchase price of future acquisitions. Some of our competitors may have greater financial or management resources with which to pursue acquisition targets. Therefore, even if we are successful in identifying attractive acquisition targets, we may face considerable competition and our acquisition strategy may not be successful.

FCC rules and policies may also make it more difficult for us to acquire additional television stations. Television station acquisitions are subject to the approval of the FCC and, potentially, other regulatory authorities. FCC rules limit the number of television stations a company may own and define the types of local service agreements that “count” as ownership by the party providing the services. . Those rules are subject to change. The need for FCC and other regulatory approvals could restrict our ability to consummate future transactions if, for example, the FCC or other government agencies believe that a proposed transaction would result in excessive concentration in a market, even if the proposed combinations may otherwise comply with FCC ownership limitations. 

Growing our business through acquisitions involves risks and if we are unable to manage effectively our growth, our operating results will suffer. 

Since January 1, 2003, we have more than doubled the number of stations that we own, operate, program or provide sales and other services to, having acquired over 30 stations and contracted to provide service to approximately 15 additional stations as of February 6, 2013. We will continue to actively pursue additional acquisition opportunities, such as the recent acquisitions from Newport, Smith Media and Granite. To manage effectively our growth and address the increased reporting requirements and administrative demands that will result from future acquisitions, we will need, among other things, to continue to develop our financial and management controls and management information systems. We will also need to continue to identify, attract and retain highly skilled finance and management personnel. Failure to do any of these tasks in an efficient and timely manner could seriously harm our business. 

There are other risks associated with growing our business through acquisitions. For example, with any past or future acquisition, there is the possibility that: 

 
we may not be able to successfully reduce costs, increase advertising revenue or audience share or realize anticipated synergies and economies of scale with respect to any acquired station; 
 
 
an acquisition may increase our leverage and debt service requirements or may result in our assuming unexpected liabilities; 
 
 
our management may be reassigned from overseeing existing operations by the need to integrate the acquired business; 
 
•    we may experience difficulties integrating operations and systems, as well as company policies and cultures;
 
•    we may fail to retain and assimilate employees of the acquired business; and
 
•    problems may arise in entering new markets in which we have little or no experience. 

The occurrence of any of these events could have a material adverse effect on our operating results, particularly during the period immediately following any acquisition.  


 
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FCC actions may restrict our ability to create duopolies under local service agreements, which would harm our existing operations and impair our acquisition strategy.  

In some of our markets, we have created duopolies by entering into what we refer to as local service agreements. While these agreements take varying forms, a typical local service agreement is an agreement between two separately owned television stations serving the same market, whereby the owner of one station provides operational assistance to the other station, subject to ultimate editorial and other controls being exercised by the latter station’s owner. By operating or entering into local service agreements with more than one station in a market, we (and the other station) achieve significant operational efficiencies. We also broaden our audience reach and enhance our ability to capture more advertising spending in a given market.

While all of our existing local service agreements comply with current FCC rules and policies, the FCC may not continue to permit local service agreements as a means of creating duopoly-type opportunities. 

On August 2, 2004, the FCC initiated a rule making proceeding to determine whether to make TV joint sales agreements (“JSAs”) attributable under its ownership rules. Comments and reply comments were filed in this proceeding in the fourth quarter of 2004. The FCC has not yet issued a decision in this proceeding.

The FCC is required to review its media ownership rules every four years and eliminate those rules it finds no longer serve the “public interest, convenience and necessity.” During 2009, the FCC held a series of hearings designed to evaluate possible changes to its rules. In May 2010, the FCC formally initiated its 2010 review of its media ownership rules with the issuance of a Notice of Inquiry (“NOI”). In December 2011, the FCC issued a Notice of Proposed Rulemaking seeking comment on specific proposed changes to its ownership rules. Among the specific changes proposed in the NPRM are (1) elimination of the contour overlap provision of the local television ownership rule (making the rule entirely DMA-based), (2) elimination of the radio/television cross-ownership rule and (3) modest relaxation of the newspaper/broadcast cross-ownership rule. The NPRM also sought comment on shared services agreements (“SSAs”) and other joint operating arrangements between television stations, and whether such agreements should be considered attributable. Initial comments on the NPRM were filed on March 5, 2012, and reply comments were filed in April 2012. We cannot predict what rules the FCC will adopt or when they will be adopted. However, the FCC might act on these proceedings in 2013 and may deem TV JSAs to be attributable ownership interests and require the termination of existing JSAs within a specified period of time if the newly attributable JSAs do not comply with the local television ownership limits. If the FCC adopts a JSA attribution rule, or any other new or modified rule affecting the ownership of or local service agreements between television stations, we will be required to comply with such rules.

The FCC may decide to terminate “grandfathered” time brokerage agreements.  

The FCC attributes time brokerage agreements and local marketing agreements (“TBAs”) to the programmer under its ownership limits if the programmer provides 15% or more of a station’s weekly broadcast programming. However, TBAs entered into prior to November 5, 1996 are exempt attributable interests for now.

The FCC will review these “grandfathered” TBAs in the future. During this review, the FCC may determine to terminate the “grandfathered” period and make all TBAs fully attributable to the programmer. If the FCC does so, we and Mission will be required to terminate the TBAs for stations WFXP and KHMT unless the FCC simultaneously changes its duopoly rules to allow ownership of two stations in the applicable markets.

The level of foreign investments held by our principal stockholder, ABRY, may limit additional foreign investments made in us.  

The Communications Act limits the extent of non-U.S. ownership of companies that own U.S. broadcast stations. Under this restriction, a U.S. broadcast company such as ours may have no more than 20% (in the case of a licensed entity) or 25%  (in the case of a parent company) non-U.S. ownership (by vote and by equity). Because our majority shareholder, ABRY, has a substantial level of foreign investment, the amount of additional foreign investment that may be made in us is limited to approximately 15% of our total outstanding equity.
 

 
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The interest of our principal stockholder, ABRY, in other media may limit our ability to acquire television stations in particular markets, restricting our ability to execute our acquisition strategy.  

The number of television stations we may acquire in any market is limited by FCC rules and may vary depending upon whether the interests in other television stations or other media properties of persons affiliated with us are attributable under FCC rules. The broadcast or other media interests of our officers, directors and stockholders with 5% or greater voting power are attributable under the FCC’s rules, which may limit us from acquiring or owning television stations in particular markets while those officers, directors or stockholders are associated with us. In addition, the holder of otherwise non-attributable equity and/or debt in a licensee in excess of 33% of the total debt and equity of the licensee will be attributable where the holder is either a major program supplier to that licensee or the holder has an attributable interest in another broadcast station or daily newspaper in the same market.  

ABRY, our principal stockholder, is one of the largest private firms specializing in media and broadcasting investments. As a result of ABRY’s interest in us, we could be prevented from acquiring broadcast companies in markets where ABRY has an attributable interest in television stations or other media, which could impair our ability to execute our acquisition strategy. Our certificate of incorporation allows ABRY and its affiliates to identify, pursue and consummate additional acquisitions of television stations or other broadcast-related businesses that may be complementary to our business and therefore such acquisition opportunities may not be available to us.

We are controlled by one principal stockholder, ABRY, and its interests may differ from your interests.  

As a result of ABRY’s controlling interest in us, ABRY is able to exercise a controlling influence over our business and affairs. ABRY is able to unilaterally determine the outcome of any matter submitted to a vote of our stockholders, including the election and removal of directors and the approval of any merger, consolidation or sale of all or substantially all of our assets. In addition, five of our directors are affiliated with ABRY. ABRY’s interests may differ from the interests of other security holders and ABRY could take actions or make decisions that are not in the best interests of our security holders. Furthermore, this concentration of ownership by ABRY may have the effect of impeding a merger, consolidation, takeover or other business combination involving us or discouraging a potential acquirer from making a tender offer for our shares.

We and Mission have a material amount of goodwill and intangible assets, and therefore we and Mission could suffer losses due to future asset impairment charges.

As of December 31, 2012, $491.1 million, or 51.9%, of our and Mission’s combined total assets consisted of goodwill and intangible assets, including FCC licenses and network affiliation agreements. We and Mission test goodwill and FCC licenses annually, and on an interim date if factors or indicators become apparent that would require an interim test of these assets, in accordance with accounting and disclosure requirements for goodwill and other intangible assets. We and Mission test network affiliation agreements whenever circumstances or indicators become apparent the asset may not be recoverable through expected future cash flows. The methods used to evaluate the impairment of Nexstar’s and Mission’s goodwill and intangible assets would be affected by a significant reduction in operating results or cash flows at one or more of Nexstar’s and Mission’s television stations, or a forecast of such reductions, a significant adverse change in the advertising marketplaces in which Nexstar’s and Mission’s television stations operate, the loss of network affiliations, or by adverse changes to FCC ownership rules, among others, which may be beyond our or Mission’s control. If the carrying amount of goodwill and intangible assets is revised downward due to impairment, such non-cash charge could materially affect Nexstar’s and Mission’s financial position and results of operations.

There can be no assurances concerning continuing dividend payments and any decrease or suspension of the dividend could cause our stock price to decline.

Our common stockholders are only entitled to receive the dividends declared by our board of directors. Our new dividend policy, announced on November 26, 2012, authorized us to declare a total annual cash dividend with respect to shares of our Class A common stock and Class B common stock of $0.48 per share in equal quarterly installments of $0.12 per share. On January 24, 2013, our board of directors declared a quarterly cash dividend of $0.12 per share which was paid on March 1, 2013 to shareholders of record as of the close of business on February 15, 2013. We expect to continue to pay quarterly cash dividends at the rate set forth in our current dividend policy. However, future cash dividends, if any, will be at the discretion of our board of directors and can be changed or discontinued at any time. Dividend determinations (including the amount of the cash dividend, the record date and date of payment) will depend upon, among other things, our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors as our board of directors may deem relevant. In addition, the senior secured credit facilities and the indentures governing our existing notes limit our ability to pay dividends. Given these considerations, our board of directors may increase or decrease the amount of the dividend at any time and may also decide to suspend or discontinue the payment of cash dividends in the future.

 
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Risks Related to Our Industry  

Our operating results are dependent on advertising revenue and as a result, we may be more vulnerable to economic downturns and other factors beyond our control than businesses not dependent on advertising.  

We derive revenue primarily from the sale of advertising time. Our ability to sell advertising time depends on numerous factors that may be beyond our control, including:
 
 
•       the health of the economy in the local markets where our stations are located and in the nation as a whole;  
 
•       the popularity of our programming;
 
•       fluctuations in pricing for local and national advertising;
 
•        the activities of our competitors, including increased competition from other forms of advertising-based media, particularly newspapers, cable television, Internet and radio;
 
•       the decreased demand for political advertising in non-election years; and
 
•       changes in the makeup of the population in the areas where our stations are located.

Because businesses generally reduce their advertising budgets during economic recessions or downturns, the reliance upon advertising revenue makes our operating results particularly susceptible to prevailing economic conditions. Our programming may not attract sufficient targeted viewership, and we may not achieve favorable ratings. Our ratings depend partly upon unpredictable and volatile factors beyond our control, such as viewer preferences, competing programming and the availability of other entertainment activities. A shift in viewer preferences could cause our programming not to gain popularity or to decline in popularity, which could cause our advertising revenue to decline. In addition, we and the programming providers upon which we rely may not be able to anticipate, and effectively react to, shifts in viewer tastes and interests in our markets.
  
Because a high percentage of our operating expenses are fixed, a relatively small decrease in advertising revenue could have a significant negative impact on our financial results. 

Our business is characterized generally by high fixed costs, primarily for debt service, broadcast rights and personnel. Other than commissions paid to our sales staff and outside sales agencies, our expenses do not vary significantly with the increase or decrease in advertising revenue. As a result, a relatively small change in advertising prices could have a disproportionate effect on our financial results. Accordingly, a minor shortfall in expected revenue could have a significant negative impact on our financial results.

Preemption of regularly scheduled programming by network news coverage may affect our revenue and results of operations.  

Nexstar may experience a loss of advertising revenue and incur additional broadcasting expenses due to preemption of our regularly scheduled programming by network coverage of a major global news event such as a war or terrorist attack. As a result, advertising may not be aired and the revenue for such advertising may be lost unless the station is able to run the advertising at agreed-upon times in the future. Advertisers may not agree to run such advertising in future time periods, and space may not be available for such advertising. The duration of such preemption of local programming cannot be predicted if it occurs. In addition, our stations and the stations we provide services to may incur additional expenses as a result of expanded news coverage of a war or terrorist attack. The loss of revenue and increased expenses could negatively affect our results of operations.

If we are unable to respond to changes in technology and evolving industry trends, our television businesses may not be able to compete effectively. 

New technologies could also adversely affect our television stations. Information delivery and programming alternatives such as cable, direct satellite-to-home services, pay-per-view, the Internet, telephone company services, mobile devices, digital video recorders and home video and entertainment systems have fractionalized television viewing audiences and expanded the numbers and types of distribution channels for advertisers to access. Over the past decade, cable television programming services, other emerging video distribution platforms and the Internet have captured an increasing market share, while the aggregate viewership of the major television networks has declined. In addition, the expansion of cable and satellite television, the Internet and other technological changes have increased, and may continue to increase, the competitive demand for programming. Such increased demand, together with rising production costs, may increase our programming costs or impair our ability to acquire or develop desired programming.

 
21

 


In addition, video compression techniques, now in use with DBS systems, cable and wireless cable are expected to permit greater numbers of channels to be carried within existing bandwidth. These compression techniques as well as other technological developments are applicable to all video delivery systems, including over-the-air broadcasting, and have the potential to provide vastly expanded programming to targeted audiences. Reduction in the cost of creating additional channel capacity could lower entry barriers for new channels and encourage the development of increasingly specialized niche programming, resulting in more audience fractionalization. This ability to reach very narrowly defined audiences may alter the competitive dynamics for advertising expenditures. We are unable to predict the effect that these and other technological changes will have on the television industry or our results of operations.

The FCC can sanction us for programming broadcast on our stations which it finds to be indecent.  

In 2004, the FCC began to impose substantial fines on television broadcasters for the broadcast of indecent material in violation of the Communications Act and its rules. The FCC also revised its indecency review analysis to more strictly prohibit the use of certain language on broadcast television. In one of several judicial appeals of FCC enforcement actions, a Federal court in July 2010 held the FCC’s indecency standards to be unconstitutionally vague under the First Amendment. The U.S. Supreme Court agreed to review that decision and in June 2012, issued a narrow decision setting aside FCC orders citing FOX and ABC for indecency violations, finding that the FCC failed to provide adequate prior notice that the sanctioned materials could be found actionably indecent. The U.S. Supreme Court did not otherwise address whether the FCC’s current indecency policy is consistent with the First Amendment. Because our and Mission’s stations’ programming is in large part comprised of programming provided by the networks with which the stations are affiliated, we and Mission do not have full control over what is broadcast on our stations, and we and Mission may be subject to the imposition of fines if the FCC finds such programming to be indecent. Fines may be imposed on a television broadcaster for an indecency violation to a maximum of $325,000 per violation.

Intense competition in the television industry could limit our growth and profitability.  

As a television broadcasting company, we face a significant level of competition, both directly and indirectly. Generally we compete for our audience against all the other leisure activities in which one could choose to engage rather than watch television. Specifically, stations we own or provide services to compete for audience share, programming and advertising revenue with other television stations in their respective markets and with other advertising media, including newspapers, radio stations, cable television, DBS systems and the Internet.  

The entertainment and television industries are highly competitive and are undergoing a period of consolidation. Many of our current and potential competitors have greater financial, marketing, programming and broadcasting resources than we do. The markets in which we operate are also in a constant state of change arising from, among other things, technological improvements and economic and regulatory developments. Technological innovation and the resulting proliferation of television entertainment, such as cable television, wireless cable, satellite-to-home distribution services, pay-per-view, home video and entertainment systems and Internet and mobile distribution of video programming have fractionalized television viewing audiences and have subjected free over-the-air television broadcast stations to increased competition. We may not be able to compete effectively or adjust our business plans to meet changing market conditions. We are unable to predict what form of competition will develop in the future, the extent of the competition or its possible effects on our business.

The FCC could implement regulations or Congress could adopt legislation that might have a significant impact on the operations of the stations we own and the stations we provide services to or the television broadcasting industry as a whole.  

The FCC has initiated proceedings to determine whether to make TV joint sales agreements and shared services agreements attributable interests under its ownership rules; to determine whether it should establish more detailed criteria and additional recordkeeping and reporting obligations with respect to broadcasters’ requirements to serve the local public interest; and to determine whether to modify or eliminate certain of its broadcast ownership rules, including the radio-television cross-ownership rule and the newspaper-television cross-ownership rule, and whether to modify its retransmission consent rules. Changes to any of these rules may have significant impact on us and the stations to which we provide services.

In addition, the FCC has sought comment on whether there are alternatives to the use of DMAs to define local markets such that certain viewers whose current DMAs straddle multiple states would be provided with more in-state broadcast programming. If the FCC determines to modify the use of existing DMAs to determine a station’s local market, such change might materially alter current station operations and could have an adverse effect on our business, financial condition and results of operations.

 
22

 


The FCC also may decide to initiate other new rule making proceedings on its own or in response to requests from outside parties, any of which might have such an impact. Congress also may act to amend the Communications Act in a manner that could impact our stations and the stations we provide services to or the television broadcast industry in general.  

The FCC may reallocate some portion of the spectrum available for use by television broadcasters to wireless broadband use which alteration could substantially impact our future operations and may reduce viewer access to our programming.

The FCC has initiated various proceedings to assess the availability of spectrum to meet future wireless broadband needs. The FCC’s March 2010 “National Broadband Plan” recommends the reallocation of 120 megahertz of the spectrum currently used for broadcast television for wireless broadband use. The FCC has so far adopted rules permitting television stations to share a single 6 megahertz channel and requested comment on proposals that include, among other things, whether to add new frequency allocations in the television bands for licensed fixed and mobile wireless uses and whether to implement technical rule modifications to improve the viability of certain channels that are underutilized by digital television stations. In February 2012, the U.S. Congress adopted legislation authorizing the FCC to conduct an incentive auction whereby television broadcasters could voluntarily relinquish all or part of their spectrum in exchange for consideration. On September 28, 2012, the FCC issued a Notice of Proposed Rule Making seeking public comment on the design of the incentive auction and various technical issues related to the reallocation of television spectrum for mobile broadband use. Comments on the notice were filed in January 2013, and reply comments are due in March 2013. A reallocation of television spectrum for wireless broadband use would likely involve a “repacking” of the television broadcast band, which would require some 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 our investment in digital facilities, could require substantial additional investment to continue our current operations, and may require viewers to invest in additional equipment or subscription services to continue receiving broadcast television signals. We cannot predict the timing or results of television spectrum reallocation efforts or their impact to our business.

Item 1B.                      Unresolved Staff Comments

None.

Item 2.                                Properties
 
Nexstar owns and leases facilities in the following locations:
 
       
Station Metropolitan Area and Use
Owned or
Leased
Approximate Size
Expiration of
Lease
WBRE—Wilkes Barre-Scranton, PA
     
Office-Studio
100% Owned
0.80 Acres
Office-Studio
100% Owned
49,556 Sq. Ft.
Office-Studio—Williamsport News Bureau
Leased
460 Sq. Ft.
Month to Month
Office-Studio—Stroudsburg News Bureau
Leased
320 Sq. Ft.
4/30/13
Office-Studio—Scranton News Bureau
Leased
1,627 Sq. Ft.
11/30/13
Tower/Transmitter Site—Williamsport
33% Owned
1.33 Acres
Tower/Transmitter Site—Sharp Mountain
33% Owned
0.23 Acres
Tower/Transmitter Site—Blue Mountain
100% Owned
0.998 Acres
Tower/Transmitter Site—Penobscot Mountain
100% Owned
20 Acres
Tower/Transmitter Site—Pimple Hill
Leased
400 Sq. Ft.
Month to Month
       
KARK/KARZ—Little Rock-Pine Bluff, AR
     
Office-Studio
Leased
34,835 Sq. Ft.
3/31/22
Tower/Transmitter Site
100% Owned
40 Acres
Tower/Transmitter Site
Leased
1 Sq. Ft.
4/30/16
       

 
23

 
 
 
 
Station Metropolitan Area and Use
Owned or
Leased
Approximate Size
Expiration of
Lease
KTAL—Shreveport, LA
     
Office-Studio
100% Owned
2 Acres
Office-Studio
100% Owned
16,000 Sq. Ft.
Equipment Building—Texarkana
100% Owned
0.0808 Acres
Office-Studio—Texarkana
Leased
2,941 Sq. Ft.
9/30/13
Tower/Transmitter Site
100% Owned
109 Acres
Tower/Transmitter Site
100% Owned
2,284 Sq. Ft.
       
WROC—Rochester, NY
     
Office-Studio
100% Owned
3.9 Acres
Office-Studio
100% Owned
48,864 Sq. Ft.
Tower/Transmitter Site
100% Owned
0.24 Acres
Tower/Transmitter Site
100% Owned
2,400 Sq. Ft.
Tower/Transmitter Site
50% Owned
1.90 Acres
       
WCIA/WCIX—Champaign-Springfield-Decatur, IL
     
Office-Studio
100% Owned
20,000 Sq. Ft.
Office-Studio
100% Owned
1.5 Acres
Office-Studio—Sales Bureau
Leased
1,600 Sq. Ft.
Month to Month
Office-Studio—News Bureau
Leased
350 Sq. Ft.
Month to Month
Office-Studio—Decatur News Bureau
Leased
300 Sq. Ft.
Month to Month
Roof Top & Boiler Space—Danville Tower
Leased
20 Sq. Ft.
Month to Month
Tower/Transmitter Site—WCIA Tower
100% Owned
38.06 Acres
Tower/Transmitter Site—Springfield Tower
100% Owned
2.0 Acres
Tower/Transmitter Site—Dewitt Tower
100% Owned
1.0 Acres
       
WMBD—Peoria-Bloomington, IL
     
Office-Studio
100% Owned
0.556 Acres
Office-Studio
100% Owned
18,360 Sq. Ft.
Building-Transmitter Site
100% Owned
2,350 Sq. Ft.
Building-Transmitter Site
100% Owned
800 Sq. Ft.
Tower/Transmitter Site
100% Owned
34.93 Acres
Tower/Transmitter Site
100% Owned
1.0 Acres
       
WTWO—Terre Haute, IN
     
Office-Studio
100% Owned
4.774 Acres
Office-Studio—Tower/Transmitter Site
100% Owned
17,375 Sq. Ft.
       
WJET—Erie, PA
     
Tower/Transmitter Site
100% Owned
2 Sq. Ft.
Office-Studio
100% Owned
9.87 Acres
Office-Studio
100% Owned
15,533 Sq. Ft.
       
KFDX—Wichita Falls, TX—Lawton, OK
     
Office-Studio-Tower/Transmitter Site
100% Owned
28.06 Acres
Office-Studio
100% Owned
13,568 Sq. Ft.
       
KSNF—Joplin, MO-Pittsburg, KS
     
Office-Studio
100% Owned
13.36 Acres
Office-Studio
100% Owned
13,169 Sq. Ft.
Tower/Transmitter Site
Leased
900 Sq. Ft.
7/31/15
       
KMID—Odessa-Midland, TX
     
Office-Studio
100% Owned
1.127 Acres
Office-Studio
100% Owned
14,000 Sq. Ft.
Tower/Transmitter Site
100% Owned
69.87 Acres
Tower/Transmitter Site
100% Owned
0.322 Acres
Tower/Transmitter Site
Leased
.29 Acres
12/1/23

 
24

 

 

 
Station Metropolitan Area and Use
 Owned or
Leased
 Approximate Size
 Expiration of
Lease
KTAB—Abilene-Sweetwater, TX
     
Office-Studio (1)
Tower/Transmitter Site
100% Owned
25.55 Acres
       
KQTV—St Joseph, MO
     
Office-Studio
100% Owned
3 Acres
Office-Studio
100% Owned
15,100 Sq. Ft.
Tower/Transmitter Site
100% Owned
9,360 Sq. Ft.
Offsite Storage
Leased
130 Sq. Ft.
Month to Month
       
WDHN—Dothan, AL
     
Office-Studio—Tower/Transmitter Site
100% Owned
10 Acres
Office-Studio
100% Owned
7,812 Sq. Ft.
       
KLST—San Angelo, TX
     
Office-Studio
100% Owned
7.31 Acres
Tower/Transmitter Site
100% Owned
8 Acres
       
WHAG—Washington, DC/Hagerstown, MD
     
Office-Studio
Leased
12,000 Sq. Ft.
6/30/15
Sales Office-Frederick
Leased
885 Sq. Ft.
3/31/16
Office-Studio—Berryville News Bureau
Leased
700 Sq. Ft.
7/31/13
Tower/Transmitter Site
Leased
11.2 Acres
5/12/21
       
WEHT—Evansville, IN
     
Office-Studio-Evanvsille, IN
100% Owned
1.834 Acres
––
Office-Studio-Evansville, IN
100% Owned
14,280 Sq. Ft.
––
Office-Studio-Henderson, KY
100% Owned
10.22 Acres
––
Tower/Transmitter Site
Leased
144 Sq. Ft.
2/28/14
Tower/Transmitter Site
Leased
144 Sq. Ft.
5/31/14
       
KOZL—Springfield, MO
     
Office-Studio (2)
Tower/Transmitter Site—Kimberling City
100% Owned
.25 Acres
Tower/Transmitter Site
Leased
0.5 Acres
5/12/21
       
WFFT—Fort Wayne, IN
     
Office-Studio
100% Owned
21.84 Acres
Tower/Transmitter Site
Leased
0.5 Acres
5/12/21
       
KAMR—Amarillo, TX
     
Office-Studio
100% Owned
26,000 Sq. Ft.
Tower/Transmitter Site
Leased
110.2 Acres
5/12/21
Translator Site
Leased
0.5 Acres
Month to Month
       
KARD—Monroe, LA
     
Office-Studio
100% Owned
14,450 Sq. Ft.
Tower/Transmitter Site
Leased
26 Acres
5/12/21
Tower/Transmitter Site
Leased
80 Sq. Ft.
Month to Month
       
KLBK—Lubbock, TX
     
Office-Studio
100% Owned
11.5 Acres
Tower/Transmitter Site
Leased
0.5 Acres
5/12/21
       
WFXV—Utica, NY
     
Office-Studio (3)
Tower/Transmitter Site—Burlington Flats
100% Owned
6.316 Acres
       
WPNY–LP—Utica, NY
     
Office-Studio (4)

 
25

 


Station Metropolitan Area and Use
Owned or
Leased
Approximate Size
Expiration of
Lease
KSVI—Billings, MT
     
Office-Studio
100% Owned
9,700 Sq. Ft.
Tower/Transmitter Site
Leased
10 Acres
5/12/21
Tower/Transmitter Site
Leased
75 Sq. Ft.
12/31/13
Tower/Transmitter Site—Coburn Road
Leased
75 Sq. Ft.
10/31/15
Tower/Transmitter Site
Leased
75 Sq. Ft.
12/31/22
Tower/Transmitter Site—Hardin
Leased
1 Acre
12/31/13
Tower/Transmitter Site—Columbus
Leased
75 Sq. Ft.
5/31/24
Tower/Transmitter Site—Sarpy
Leased
75 Sq. Ft.
Month to Month
Tower/Transmitter Site—Rosebud
Leased
1 Acre
Year to Year
Tower/Transmitter Site—Miles City
Leased
.25 Acre
3/23/15
Tower/Transmitter Site—McCullough Pks, WY
Leased
75 Sq. Ft.
Month to Month
       
WCWJ—Jacksonville, FL
     
Office-Studio
100% Owned
19,847 Sq. Ft.
Office-Studio—Tower Transmitter Site
100% Owned
7.92 Acres
Building-Transmitter Site
100% Owned
200 Sq. Ft.
       
WQRF—Rockford, IL
     
Office-Studio (5)
—  
Tower/Transmitter Site
Leased
2,000 Sq. Ft.
5/12/21
       
KFTA/KNWA—Fort Smith-Fayetteville-Springdale-Rogers, AR
     
Office—Fayetteville
Leased
2,848 Sq. Ft.
4/30/15
Office—Rogers
Leased
1,612 Sq. Ft.
7/31/13
Office-Studio—Fayetteville
Leased
6,512 Sq. Ft.
3/31/15
Tower/Transmitter Site
Leased
216 Sq. Ft.
Month to Month
Tower/Transmitter Site
Leased
3.7 Acres
7/31/15
Tower/Transmitter Site
100% Owned
1.61 Acres
Microwave Relay Site
100% Owned
166 Sq. Ft.
Microwave Site
Leased
216 Sq. Ft.
Month to Month
       
WTAJ–Altoona-Johnstown, PA
     
Office-Studio
Leased
22,367 Sq. Ft.
5/31/14
Office-Johnstown
Leased
672 Sq. Ft.
2/28/14
Office-State College Bureau
Leased
2,915 Sq. Ft.
2/28/13
Office-Dubois Bureau
Leased
315 Sq. Ft.
7/31/13
Tower/Transmitter Site
Owned
4,400 Sq. Ft.
       
WFRV/WJMN-Green Bay-Appleton, WI and Marquette, MI
     
Office-Studio
Owned
19,200 Sq. Ft.
Office-Veridea
Leased
125 Sq. Ft.
6/30/17
Office-Little Chute
Leased
125 Sq. Ft.
5/31/17
Tower/Transmitter Site-De Pere
Owned
8.8 Acres
Tower/Transmitter Site-Rapid River
Owned
1.0 Acres
Tower/Transmitter Site-Paper Valley
Leased
4 Sq. Ft.
Month to Month
Tower/Transmitter Site-Oshkosh Museum
Leased
4 Sq. Ft.
Month to Month
       
KTVX/KUCW–Salt Lake City, UT
     
Office-Studio
Owned
33,820 Sq. Ft.
Tower/Transmitter Site-Farnsworth Peak
Owned
6.0 Acres
Antennam/Microwave-Ensign Peak
Leased
1.0 Acres
12/31/2013
Antennam/Microwave-Nelso Peak
Leased
1.0 Acres
3/31/2013
Communication Site-Beaver Dam Mountain
Leased
1.0 Acres
5/31/2016
       

 
26

 


Station Metropolitan Area and Use
Owned or
Leased
Approximate Size Expiration of Lease
WETM–Elmira, NY
     
Office-Studio
Owned
1.4 Acres
Tower/Transmitter-Big Flats
Owned
35.4 Acres
Translator-Spafford, NY
Owned
1.2 Acres
Office-Corning, NY
Leased
550 Sq. Ft.
6/30/17
       
WIVT/WBGH–Binghamton, NY
     
Office-Studio/Transmitter
Owned
7.0 Acres
       
WPTY/WLMT–Memphis, TN
     
Office-Studio-Memphis, TN
Owned
2.7 Acres
Tower/Transmitter-Brunswick
Leased
1.0 Acres
3/31/2017
Doppler-Barkett
Leased
1.0 Acres
4/30/2013
Transmitter-Haywood
Leased
1.0 Acres
2/28/2017
       
WJKT–Jackson, TN
     
Microwave Relay-Stanton
Leased
1.0 Acres
4/30/2013
Transmitter-Alamo
Owned
33.0 Acres
Office-Jackson
Leased
969 Sq. Ft.
7/31/2015
       
WSYR–Syracuse, NY
     
Studio-Syracuse
Owned
6.5 Acres
Office-Dewitt
Owned
10,000 Sq. Ft.
Transmitter-Pompey
Owned
98.0 Acres
       
WWTI–Watertown, NY
     
Studio-Watertown
Leased
10,000 Sq. Ft.
6/30/2020
Transmitter-Denmark
Owned
16.5 Acres
       
Corporate Office—Irving, TX
Leased
18,168 Sq. Ft.
12/31/13
GoLocal.Biz Office—St. George, UT
Leased
1,860 Sq. Ft.
Month to Month
Inergize Digital Media Office
     
Office
Leased
8,469 Sq. Ft.
5/31/13
Corporate Office Offsite Storage—Dallas, TX
Leased
475 Sq. Ft.
Month to Month
 
 

(1)
The office space and studio used by KTAB are owned by KRBC.
(2)
The office space and studio used by KOZL are owned by KOLR.
(3)
The office space and studio used by WFXV are owned by WUTR.
(4)
The office space and studio used by WPNY-LP are owned by WUTR.
(5)
The office space and studio used by WQRF are owned by WTVO.


 
27

 


Mission owns and leases facilities in the following locations:

Station Metropolitan Area and Use
Owned or
Leased
Approximate Size
Expiration of
Lease
WYOU—Wilkes Barre-Scranton, PA
     
Office-Studio (1)
Tower/Transmitter Site—Penobscot Mountain
100% Owned
120.33 Acres
Tower/Transmitter Site—Bald Mountain
100% Owned
7.2 Acres
Tower/Transmitter Site—Williamsport
33% Owned
1.35 Acres
Tower/Transmitter Site—Sharp Mountain
33% Owned
0.23 Acres
Tower/Transmitter Site—Stroudsburg
Leased
10,000 Sq. Ft.
Month to Month
       
WAWV—Terre Haute, IN
     
Office-Studio (2)
—  
Tower/Transmitter Site
100% Owned
1 Acre
       
WFXP—Erie, PA
     
Office-Studio (3)
—  
Tower/Transmitter Site (3)
—  
       
KJTL/KJBO-LP—Wichita Falls, TX—Lawton, OK
     
Office-Studio (4)
—  
Tower/Transmitter Site
Leased
40 Acres
1/30/15
Tower/Transmitter Site
Leased
5 Acres
Year to Year
       
KODE—Joplin, MO-Pittsburg, KS
     
Office-Studio
100% Owned
2.74 Acres
Tower/Transmitter Site
Leased
215 Sq. Ft.
4/30/27
       
KRBC—Abilene-Sweetwater, TX
     
Office-Studio
100% Owned
5.42 Acres
Office-Studio
100% Owned
19,312 Sq. Ft.
Tower/Transmitter Site (9)
—  
       
KTVE—Monroe, LA/El Dorado, AR
     
Office-Studio (10)
—  
Tower/Transmitter Site
Leased
2 Acres
4/30/32
Tower/Transmitter Site—El Dorado
Leased
3 Acres
4/30/32
Tower/Transmitter Site—Bolding
Leased
11.5 Acres
4/30/32
       
KSAN—San Angelo, TX
     
Office-Studio (5)
—  
Tower/Transmitter Site
Leased
10 Acres
5/15/15
       
KOLR—Springfield, MO
     
Office-Studio
100% Owned
30,000 Sq. Ft.
Office-Studio
100% Owned
7 Acres
Tower/Transmitter Site
Leased
0.5 Acres
5/12/21
       
KCIT/KCPN-LP—Amarillo, TX
     
Office-Studio (6)
—  
Tower/Transmitter Site
Leased
100 Acres
5/12/21
Tower/Transmitter Site—Parmer County, TX
Leased
80 Sq. Ft.
Month to Month
Tower/Transmitter Site—Guyman, OK
Leased
80 Sq. Ft.
Month to Month
Tower/Transmitter Site—Curry County, NM
Leased
6 Acres
Month to Month
       
KAMC—Lubbock, TX
     
Office-Studio (7)
—  
Tower/Transmitter Site
Leased
40 Acres
5/12/21
Tower/Transmitter Site
Leased
1,200 Sq. Ft.
Month to Month
       

 
28

 


Station Metropolitan Area and Use
Owned or
Leased
Approximate Size
Expiration of
Lease
KHMT—Billings, MT
     
Office-Studio (8)
—  
Tower/Transmitter Site
Leased
 4 Acres
5/12/21
       
WUTR—Utica, NY
     
Office-Studio
100% Owned
12,100 Sq. Ft.
Tower/Transmitter Site
100% Owned
21 Acres
Tower/Transmitter Site—Mohawk
Leased
48 Sq. Ft.
Month to Month
       
WTVO—Rockford, IL
     
Office-Studio-Tower/Transmitter Site
100% Owned
20,000 Sq. Ft.
       
WTVW-Evansville, IN
     
Office-Studio (11)
—  
Tower/Transmitter Site
Leased
16.36 Acres
5/12/21
       
Corporate Office-Westlake, OH
Leased
640 Sq. Ft.
12/31/13
 
 

(1)
The office space and studio used by WYOU are owned by WBRE.
(2)
The office space and studio used by WAWV are owned by WTWO.
(3)
The office space, studio and tower used by WFXP are owned by WJET.
(4)
The office space and studio used by KJTL and KJBO-LP are owned by KFDX.
(5)
The office space and studio used by KSAN are owned by KLST.
(6)
The office space and studio used by KCIT/KCPN-LP are owned by KAMR.
(7)
The office space and studio used by KAMC are owned by KLBK.
(8)
The office space and studio used by KHMT are owned by KSVI.
(9)
The tower/transmitter used by KRBC is owned by KTAB.
(10)
The office space and studio used by KTVE are owned by KARD.
(11)
The office space and studio used by WTVW are owned by WEHT.

Item 3.                      Legal Proceedings

From time to time, Nexstar and Mission are involved in litigation that arises from the ordinary course of business, such as contractual or employment disputes or other general actions. In the event of an adverse outcome of these legal proceedings, Nexstar and Mission believe the resulting liabilities would not have a material adverse effect on Nexstar’s or Mission’s financial condition, results of operations or cash flows.

Item 4.                      Mine Safety Disclosures

None.


 
29

 


PART II

Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 
Market Prices; Record Holders and Dividends

Our Class A Common Stock trades on The NASDAQ Global Market (“NASDAQ”) under the symbol “NXST.”

The following were the high and low sales prices of our Class A Common Stock for the periods indicated, as reported by NASDAQ:

 
High
 
 
Low
 
 
1st Quarter 2011
$ 8.69
$      4.59
2nd Quarter 2011
$ 9.26
$      6.40
3rd Quarter 2011
$10.28
$      5.53
4th Quarter 2011
$ 9.60
$      6.33
1st Quarter 2012
$ 8.92
$      7.89
2nd Quarter 2012
$ 8.40
$      6.09
3rd Quarter 2012
$11.32
$      6.00
4th Quarter 2012
$12.97
$      8.99

We had the following shares outstanding of common stock held by stockholders of record as of March 8, 2013:

 
Shares
Outstanding
 
 
Stockholders
of Record
 
 
Common—Class A
25,164,248
41(1)
Common—Class B
4,252,471
3
 
 

(1)
The majority of these shares are held in nominee names by brokers and other institutions on behalf of approximately 3,000 stockholders.

Our senior secured credit facilities restrict us from paying dividends to stockholders over the term of the agreement. On November 26, 2012, our board of directors approved a new dividend policy pursuant to which the board of directors intends to declare a total annual cash dividend with respect to the Nexstar’s outstanding shares of Class A and Class B common stock of $0.48 per share in equal quarterly installments. On January 24, 2013, our board of directors declared a quarterly dividend of $0.12 per share of its Class A and Class B common stock. The first dividend payment was made on March 1, 2013 for a total of $3.5 million to shareholders of record on February 15, 2013.

 
Securities Authorized for Issuance Under Equity Compensation Plans as of December 31, 2012
 
Plan Category
 
 
 
Number of
securities to be
issued upon
exercise of
outstanding
options
 
 
   
Weighted
average exercise
price of
outstanding
options
 
 
   
Number of securities
remaining available
for future issuance
excluding securities
reflected in column (a)
 
 
 
   
(a)
   
(b)
   
(c)
 
Equity compensation plans approved by security holders
    4,169,000     $ 5.55       1,149,000  
Equity compensation plans not approved by security holders
    —              —   
Total
    4,169,000     $ 5.55       1,149,000  

For a more detailed description of our option plans and grants, we refer you to Note 11 to the Consolidated Financial Statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K.

 
30

 

Comparative Stock Performance Graph

The following graph compares the total return of our Class A Common Stock based on closing prices for the period from December 31, 2007 through December 31, 2012 with the total return of the NASDAQ Composite Index and our peer index of pure play television companies. Our peer index consists of the following publicly traded companies:  Gray Television, Inc., LIN TV Corp. and Sinclair Broadcast Group, Inc. (the “Peer Group”). The graph assumes the investment of $100 in our Class A Common Stock and in both of the indices on December 31, 2007. The performance shown is not necessarily indicative of future performance.
 

 

 
 
12/31/07
 
 
12/31/08
 
 
12/31/09
 
 
12/31/10
 
 
12/31/11
 
 
12/31/12
 
 
Nexstar Broadcasting Group, Inc. (NXST)
$100.00
$5.59
$44.32
$65.55
$85.8
$115.91
NASDAQ Composite Index
$100.00
$60.02
$87.25
$103.09
$102.28
$120.42
Peer Group
$100.00
$23.12
$44.18
$74.67
$90.88
$125.38
 

 
31

 

Item 6.                      Selected Financial Data

We derived the following statements of operations and cash flows data for the years ended December 31, 2012, 2011 and 2010 and balance sheet data as of December 31, 2012 and 2011 from our Consolidated Financial Statements included herein. We derived the following statements of operations and cash flows data for the years ended December 31, 2009 and 2008 and balance sheet data as of December 31, 2010, 2009 and 2008 from our Consolidated Financial Statements included in our Annual Reports on Form 10-K for the years ended December 31, 2010 and 2009, respectively. This information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and related Notes included herein. Amounts below are presented in thousands, except per share amounts.

   
2012
   
2011
   
2010
   
2009
   
2008
 
Statements of Operations Data, for the years ended December 31:
                             
Net revenue
  $ 378,632     $ 306,491     $ 313,350     $ 251,979     $ 284,919  
Operating expenses (income):
                                       
Corporate expenses
    24,636       19,780       19,890       18,561       15,473  
Station direct operating expenses, net of trade
    84,743       73,829       70,674       70,549       72,056  
Selling, general and administrative expenses, excluding depreciation and amortization
    92,899       85,387       81,001       70,964       74,995  
Restructure Charge
    -       -       -       670       -  
Non-cash contract termination fees
    -       -       -       191       7,167  
Impairment of goodwill (1) 
    -       -       -       7,360       38,856  
Impairment of other intangible assets (1) 
    -       -       -       8,804       43,539  
Amortization of broadcast rights, excluding barter
    8,591       9,947       9,527       13,248       8,718  
Trade and barter expense
    20,841       21,270       19,602       18,699       17,936  
Depreciation and amortization
    46,549       47,824       44,844       45,385       49,153  
Gain on asset exchange
    -       -       (30 )     (8,093 )     (4,776 )
Loss (gain) on asset disposal, net (2) 
    468       461       294       (2,560 )     (43 )
Income (loss) from operations
    99,905       47,993       67,548       8,201       (38,155 )
Interest expense
    (51,559 )     (53,004 )     (54,266 )     (39,182 )     (48,117 )
(Loss) gain on extinguishment of debt
    (3,272 )     (1,155 )     (8,356 )     18,567       2,897  
Income (loss) from continuing operations before income tax expense(3) 
    45,074       (6,166 )     4,926       (12,414 )     (83,375 )
Income tax benefit (expense)(4) 
    132,279       (5,725 )     (6,741 )     (200 )     5,316  
Income (loss) from continuing operations
    177,353       (11,891 )     (1,815 )     (12,614 )     (78,059 )
Gain on disposal of station, net of income tax expense
    5,139       -       -       -       -  
Net income (loss)
  $ 182,492     $ (11,891 )   $ (1,815 )   $ (12,614 )   $ (78,059 )
Net income (loss) per common share:
                                       
Basic
  $ 6.31     $ (0.42 )   $ (0.06 )   $ (0.44 )   $ (2.75 )
Diluted
  $ 5.94     $ (0.42 )   $ (0.06 )   $ (0.44 )   $ (2.75 )
Weighted average common shares outstanding:
                                       
Basic
    28,940       28,626       28,434       28,427       28,423  
Diluted
    30,732       28,626       28,434       28,427       28,423  
 

(1)
The Company recognized impairment charges on goodwill and FCC licenses during the years ended December 31, 2009 and 2008 and on network affiliation agreements for the year ended December 31, 2008.
 
(2)
The Company recognized a $5.1 million gain on disposal of KBTV, net of $3.1 million income tax expense, during the year ended December 31, 2012.
 
(3)
Due to the accretive acquisitions in 2011 and the acquisition from Newport in 2012, the Company generated pre-tax income from continuing operations during the year ended December 31, 2012.
 
(4)
In the fourth quarter of 2012, the Company decreased its valuation allowance by $151.4 million.
 

 
 
32

 


   
2012
   
2011
   
2010
   
2009
   
2008
 
Balance Sheet data, as of December 31:
                             
Cash and cash equivalents
  $ 68,999     $ 7,546     $ 23,658     $ 12,752     $ 15,834  
Working capital
    105,323       39,619       53,622       36,875       27,391  
Net intangible assets and goodwill
    491,096       335,602       339,040       362,762       390,540  
Total assets (1) 
    945,815       580,959       586,374       606,530       615,173  
Total debt
    857,642       640,361       643,100       670,374       662,117  
Total stockholders’ equity (deficit)
    2,954       (183,404 )     (175,165 )     (176,263 )     (165,156 )
Statements of Cash Flows data, for the years ended December 31:
                                       
Net cash provided by (used in):
                                       
Operating activities
  $ 79,888     $ 40,340     $ 59,268     $ 22,993     $ 60,648  
Investing activities
    (238,617 )     (54,579 )     (13,340 )     (35,590 )     (38,492 )
Financing activities
    220,182       (1,873 )     (35,022 )     9,515       (22,548 )
Capital expenditures, net of proceeds
                                       
from asset sales
    17,250       13,316       13,799       18,838       30,687  
Cash payments for broadcast rights
    9,169       10,149       9,870       9,315       8,239  
 

(1)
The Company revised its total assets as of December 31, 2011, 2010, 2009 and 2008 by a reduction of $14.1 million, $16.2 million, $13.3 million, $11.4 million, respectively, due to the change in accounting for broadcast rights. See Note 2 of the Consolidated Financial Statements for additional information.
 

Item 7.                      Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with Item 6. “Selected Financial Data” and our Consolidated Financial Statements and related Notes included in Part IV, Item 15(a) of this Annual Report on Form 10-K.

As a result of our deemed controlling financial interest in Mission, in accordance with U.S. GAAP, we consolidate the financial position, results of operations and cash flows of Mission as if it were a wholly-owned entity. We believe this presentation is meaningful for understanding our financial performance. Refer to Note 2 to our Consolidated Financial Statements for a discussion of our determination that we are required to consolidate Mission’s financial position, results of operations and cash flows under the authoritative guidance for variable interest entities. Therefore, the following discussion of our financial position and results of operations includes Mission’s financial position and results of operations.
 
Executive Summary

2012 Highlights

 
Net revenue increased 23.5% during 2012 compared to 2011. The increase in net revenue was primarily due to our July and December 2011 acquisitions of WFRV and WEHT, respectively, our December 2012 acquisition of ten television stations and Inergize Digital Media from Newport and increases in political advertising and retransmission compensation, which were partially offset by the discontinuance of management fee revenue from our terminated management services agreement with Four Points Media Group, LLC as well as termination of certain station affiliation agreements. The 2012 and 2011 acquired stations contributed a total of approximately $38.6 million to our net revenue for the year ended December 31, 2012.

 
On December 1, 2012, we acquired the assets of ten television stations in seven markets and Inergize Digital Media, a digital media management entity that offers solutions for companies in building presence on the web and in the mobile arena, from Newport for $225.5 million in cash, exclusive of working capital adjustment, funded by our senior secured credit facility.

 
On December 1, 2012, we and Mission entered into amendments to each of our senior secured credit facilities with a group of commercial banks which replaced the Company’s previous credit facilities. The new senior secured credit facilities consist of a $246.0 million term loan and a $65.0 million revolving credit facility for us and a $104.0 million term loan and $35.0 million revolving credit facility for Mission. We and Mission used the proceeds of these loans to finance acquisitions as well as for Mission to repay $38.1 million debt outstanding under its previous Term Loan B, plus accrued interest.


 
33

 


 
On December 1, 2012, we sold the net assets of KBTV, our FOX and Bounce TV affiliate in Beaumont-Port Arthur, TX, to Deerfield Media (Port Arthur), Inc. and San Antonio Television, LLC for $13.9 million, net of $0.1 million working capital sold. Proceeds of the sale were used to repay debt obligations and for general corporate purposes. We recognized a $5.1 million gain on disposal of KBTV, net of $3.1 million of income tax expense.

 
On November 26, 2012, we announced a new dividend policy pursuant to which our board of directors intends to declare a total annual cash dividend with respect to our outstanding shares of Class A common stock and Class B common stock of $0.48 per share in equal quarterly installments of $0.12 per share. On January 24, 2013, our board of directors declared a quarterly dividend of $0.12 per share of our Class A and Class B common stock. The first dividend payment was made on March 1, 2013 for a total of $3.5 million to our shareholders of record on February 15, 2013.

 
On November 9, 2012, we completed the sale and issuance of our $250.0 million 6.875% Senior Notes due 2020 (the “6.875 Notes”) at par. The proceeds of the 6.875% Notes were used to retire the 7% Notes and the 7% PIK Notes, repay the amounts outstanding under our previous senior secured credit facility and for related fees and expenses. The 6.875% Notes are our senior unsecured obligations and are guaranteed by Mission.

 
On November 9, 2012, we retired our previous senior secured credit facility, repaying the outstanding principal balances of $108.9 million of Term Loan B and $23.0 million of revolving loans, plus accrued interest. During October and November of 2012, Mission repaid the principal amounts outstanding of its revolving credit facility of $10.0 million plus accrued interest. These transactions resulted in a loss on extinguishment of debt of $1.7 million.

 
On November 9, 2012, we redeemed $3.8 million and $110.7 million of our 7% senior subordinated notes due 2014 (“7% Notes”) and 7% senior subordinated PIK notes due 2014 (“7% PIK Notes”), respectively, for $1,003 per each $1,000 of outstanding principal, plus accrued and unpaid interest in accordance with the tender offer dated October 24, 2012. The tender offer expired on November 21, 2012 and we redeemed the remaining $0.1 million and $1.9 million outstanding principal balance of the 7% Notes and 7% PIK Notes, respectively, at the redemption price of 100.0%. These transactions resulted in a loss on extinguishment of debt of $1.0 million.

 
On November 2, 2012, we and Mission entered into definitive agreements to acquire the assets of WFFF, the FOX affiliate, and WVNY, the ABC affiliate, both in the Burlington, Vermont, from Smith Media for a total purchase price of $16.9 million, subject to working capital adjustment. We made an initial payment of $0.8 million pursuant to the terms of the purchase agreement. We and Mission completed the acquisition and paid the remaining $16.1 million on February 15, 2013, funded by a combination of the Company’s borrowings from revolving credit facilities and cash on hand.

 
On November 1, 2012, we entered into a definitive agreement and made an initial payment of $3.5 million to acquire the assets of KGPE, the CBS affiliate in the Fresno, California market, and KGET, the NBC/CW affiliate, and KKEY-LP, the low powered Telemundo affiliate, both in the Bakersfield, California market, from Newport for a total purchase price of $35.4 million, subject to working capital adjustment. We completed the acquisition and paid the remaining $31.9 million on February 15, 2013 funded by existing cash on hand.

 
On July 18, 2012, Mission entered into a definitive agreement and made an initial payment of $6.0 million to acquire the assets of KLRT, the FOX affiliate, and KASN, the CW affiliate, both in the Little Rock, Arkansas market, from Newport for a total of purchase price $60.0 million, subject to working capital adjustment.  Mission completed the acquisition on January 1, 2013 and paid the remaining $54.0 million on January 3, 2013 funded by the proceeds of Mission’s senior secured credit facility.

 
On May 11, 2012, we redeemed $34.0 million of our outstanding 7% Notes at 100%. As a result of the redemption, we recorded $0.5 million of loss on extinguishment of debt related to this transaction. We funded the redemption from cash on hand and borrowings under our revolving credit facility.

 
Throughout 2012, we and Mission repaid the contractual maturities under each of our previous Term Loan B, for a total of $1.1 million.

 
During 2012, we and Mission repaid $24.3 million, net, of our revolving loan borrowings under our senior secured credit facilities.

 
34

 

Overview of Operations

We owned and operated 45 television stations and 10 digital multi-cast channels as of December 31, 2012. Through various local service agreements, we programmed or provided sales and other services to 19 additional television stations and four digital multicast channels, including 17 television stations and four digital multicast