10-Q 1 nxst-10q_20150331.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x

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

For the quarterly period ended March 31, 2015

OR

¨

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

For the transition period from                     to                     .

Commission File Number: 000-50478

NEXSTAR BROADCASTING GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

 

23-3083125

(State of Incorporation or Organization)

 

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

 

 

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

 

75062

(Address of Principal Executive Offices)

 

(Zip Code)

(972) 373-8800

(Registrant’s Telephone Number, Including Area Code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

 

Large accelerated filer

 

x

  

Accelerated filer

 

¨

 

 

 

 

 

 

Non-accelerated filer

 

¨  

  

Smaller reporting company

 

¨

 

(Do not check if a smaller reporting company)

 

 

 

 

 

 

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No   x

As of May 4, 2015, the registrant had 31,291,608 shares of Class A Common Stock outstanding.

 

 

 


TABLE OF CONTENTS

 

 

 

  

 

  

Page

PART I

  

FINANCIAL INFORMATION

  

 

 

 

 

 

 

ITEM 1.

  

Financial Statements (Unaudited)

  

 

 

 

 

 

 

 

  

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

  

1

 

 

 

 

 

 

  

Condensed Consolidated Statements of Operations for the three months ended March 31, 2015 and 2014

  

2

 

 

 

 

 

 

  

Condensed Consolidated Statement of Changes in Stockholders’ Equity for the three months ended March 31, 2015

  

3

 

 

 

 

 

 

  

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014

  

4

 

 

 

 

 

 

  

Notes to Condensed Consolidated Financial Statements

  

5

 

 

 

 

 

ITEM 2.

  

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

  

28

 

 

 

 

 

ITEM 3.

  

Quantitative and Qualitative Disclosures about Market Risk

  

36

 

 

 

 

 

ITEM 4.

  

Controls and Procedures

  

37

 

 

 

 

 

PART II

  

OTHER INFORMATION

  

 

 

 

 

 

 

ITEM 1.

  

Legal Proceedings

  

37

 

 

 

 

 

ITEM 1A.

  

Risk Factors

  

37

 

 

 

 

 

ITEM 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

  

37

 

 

 

 

 

ITEM 3.

  

Defaults Upon Senior Securities

  

37

 

 

 

 

 

ITEM 4.

  

Mine Safety Disclosures

  

37

 

 

 

 

 

ITEM 5.

  

Other Information

  

37

 

 

 

 

 

ITEM 6.

  

Exhibits

  

38

 

 

 

 


PART I. FINANCIAL INFORMATION

ITEM 1.

Financial Statements

NEXSTAR BROADCASTING GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share information, unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2015

 

 

2014

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

44,584

 

 

$

131,912

 

Accounts receivable, net of allowance for doubtful accounts of $4,544 and $3,002, respectively

 

 

164,581

 

 

 

127,878

 

Deferred tax assets, net

 

 

49,926

 

 

 

41,737

 

Broadcast rights

 

 

16,855

 

 

 

10,873

 

Prepaid expenses and other current assets

 

 

5,692

 

 

 

5,264

 

Total current assets

 

 

281,638

 

 

 

317,664

 

Property and equipment, net

 

 

277,837

 

 

 

237,739

 

Goodwill

 

 

441,129

 

 

 

256,491

 

FCC licenses

 

 

489,698

 

 

 

322,040

 

Other intangible assets, net

 

 

347,660

 

 

 

194,129

 

Other noncurrent assets, net

 

 

65,189

 

 

 

134,162

 

Total assets (1)

 

$

1,903,151

 

 

$

1,462,225

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of debt

 

$

17,189

 

 

$

15,840

 

Current portion of broadcast rights payable

 

 

17,937

 

 

 

11,935

 

Accounts payable

 

 

20,335

 

 

 

17,231

 

Accrued expenses

 

 

38,096

 

 

 

36,807

 

Taxes payable

 

 

19,064

 

 

 

4,899

 

Interest payable

 

 

16,612

 

 

 

4,601

 

Other current liabilities

 

 

7,180

 

 

 

5,953

 

Total current liabilities

 

 

136,413

 

 

 

97,266

 

Debt

 

 

1,526,830

 

 

 

1,220,304

 

Deferred tax liabilities

 

 

117,198

 

 

 

44,224

 

Other noncurrent liabilities

 

 

51,273

 

 

 

43,894

 

Total liabilities (1)

 

 

1,831,714

 

 

 

1,405,688

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

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

  at each of March 31, 2015 and December 31, 2014

 

 

-

 

 

 

-

 

Class A Common stock - $0.01 par value, 100,000,000 shares authorized; 31,291,608 and

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

  respectively

 

 

313

 

 

 

312

 

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

  outstanding at each of March 31, 2015 and December 31, 2014

 

 

-

 

 

 

-

 

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

  outstanding at each of March 31, 2015 and December 31, 2014

 

 

-

 

 

 

-

 

Additional paid-in capital

 

 

398,116

 

 

 

398,029

 

Accumulated deficit

 

 

(332,897

)

 

 

(345,804

)

Total Nexstar Broadcasting Group, Inc. stockholders' equity

 

 

65,532

 

 

 

52,537

 

Noncontrolling interests in consolidated variable interest entities

 

 

5,905

 

 

 

4,000

 

Total stockholders' equity

 

 

71,437

 

 

 

56,537

 

Total liabilities and stockholders' equity

 

$

1,903,151

 

 

$

1,462,225

 

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

 

 

 

(1)

The consolidated total assets as of March 31, 2015 and December 31, 2014 include certain assets held by consolidated VIEs of $122.9 million and $49.1 million, respectively, which are not available to be used to settle the obligations of Nexstar. The consolidated total liabilities as of March 31, 2015 and December 31, 2014 include certain liabilities of consolidated VIEs of $38.5 million and $17.9 million for which the creditors of the VIEs have no recourse to the general credit of Nexstar. See Note 2 for additional information.

1


NEXSTAR BROADCASTING GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share information, unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2015

 

 

2014

 

Net revenue

 

$

203,391

 

 

$

133,833

 

Operating expenses:

 

 

 

 

 

 

 

 

Direct operating expenses, excluding depreciation and amortization

 

 

69,685

 

 

 

41,849

 

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

 

 

57,289

 

 

 

41,040

 

Amortization of broadcast rights

 

 

14,581

 

 

 

8,632

 

Amortization of intangible assets

 

 

13,060

 

 

 

6,193

 

Depreciation

 

 

10,872

 

 

 

8,419

 

Total operating expenses

 

 

165,487

 

 

 

106,133

 

Income from operations

 

 

37,904

 

 

 

27,700

 

Interest expense, net

 

 

(19,293

)

 

 

(15,170

)

Other expenses

 

 

(118

)

 

 

(128

)

Income before income taxes

 

 

18,493

 

 

 

12,402

 

Income tax expense

 

 

(6,581

)

 

 

(5,049

)

Net income

 

 

11,912

 

 

 

7,353

 

Net loss attributable to noncontrolling interests

 

 

995

 

 

 

-

 

Net income attributable to Nexstar Broadcasting Group, Inc.

 

$

12,907

 

 

$

7,353

 

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

 

 

 

 

 

 

 

 

Basic

 

$

0.41

 

 

$

0.24

 

Diluted

 

$

0.40

 

 

$

0.23

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

31,196

 

 

 

30,603

 

Diluted

 

 

32,256

 

 

 

31,909

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.19

 

 

$

0.15

 

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

 

 

 

2


NEXSTAR BROADCASTING GROUP, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Three Months Ended March 31, 2015

(in thousands, except share information, unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

interests in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

consolidated

 

 

Total

 

 

 

Preferred Stock

 

 

Class A

 

 

Class B

 

 

Class C

 

 

Paid-In

 

 

Accumulated

 

 

variable

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

interest entities

 

 

Equity

 

Balances as of December 31, 2014

 

 

-

 

 

$

-

 

 

 

31,172,060

 

 

$

312

 

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

$

398,029

 

 

$

(345,804

)

 

$

4,000

 

 

$

56,537

 

Stock-based compensation

  expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,858

 

 

 

-

 

 

 

-

 

 

 

2,858

 

Exercise of stock options

 

 

-

 

 

 

-

 

 

 

119,548

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,464

 

 

 

-

 

 

 

-

 

 

 

1,465

 

Excess tax benefit from stock

  option exercises

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,686

 

 

 

-

 

 

 

-

 

 

 

1,686

 

Common stock dividends

  declared

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,921

)

 

 

-

 

 

 

-

 

 

 

(5,921

)

Consolidation of a variable

  interest entity

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,900

 

 

 

2,900

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

12,907

 

 

 

(995

)

 

 

11,912

 

Balances as of March 31, 2015

 

 

-

 

 

$

-

 

 

 

31,291,608

 

 

$

313

 

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

$

398,116

 

 

$

(332,897

)

 

$

5,905

 

 

$

71,437

 

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

 

 

 

3


NEXSTAR BROADCASTING GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2015

 

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

11,912

 

 

$

7,353

 

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

 

 

 

 

 

 

 

 

Provision for bad debt

 

 

453

 

 

 

1,015

 

Amortization of broadcast rights, excluding barter

 

 

5,162

 

 

 

2,960

 

Depreciation of property and equipment

 

 

10,872

 

 

 

8,419

 

Amortization of intangible assets

 

 

13,060

 

 

 

6,193

 

Loss (gain) on asset disposal, net

 

 

802

 

 

 

(15

)

Amortization of debt financing costs

 

 

820

 

 

 

647

 

Amortization of debt discount (premium), net

 

 

65

 

 

 

43

 

Stock-based compensation expense

 

 

2,858

 

 

 

1,643

 

Deferred income taxes

 

 

5,139

 

 

 

4,496

 

Payments for broadcast rights

 

 

(5,271

)

 

 

(3,149

)

Deferred gain recognition

 

 

(109

)

 

 

(109

)

Amortization of deferred representation fee incentive

 

 

(264

)

 

 

(205

)

Non-cash representation contract termination fee

 

 

1,516

 

 

 

-

 

Excess tax benefit from stock option exercises

 

 

(1,686

)

 

 

(274

)

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

 

 

 

 

 

 

 

 

Accounts receivable

 

 

934

 

 

 

3,958

 

Prepaid expenses and other current assets

 

 

1,452

 

 

 

1,184

 

Other noncurrent assets

 

 

56

 

 

 

92

 

Accounts payable and accrued expenses

 

 

(5,781

)

 

 

1,528

 

Taxes payable

 

 

(4,478

)

 

 

141

 

Interest payable

 

 

12,011

 

 

 

8,932

 

Other noncurrent liabilities

 

 

103

 

 

 

(121

)

Net cash provided by operating activities

 

 

49,626

 

 

 

44,731

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(6,401

)

 

 

(3,983

)

Payments for acquisitions, net of cash acquired

 

 

(459,979

)

 

 

(22,057

)

Proceeds from disposal of a station

 

 

26,805

 

 

 

-

 

Proceeds from disposals of property and equipment

 

 

877

 

 

 

14

 

Net cash used in investing activities

 

 

(438,698

)

 

 

(26,026

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from long-term debt

 

 

411,950

 

 

 

-

 

Repayments of long-term debt

 

 

(104,140

)

 

 

(3,610

)

Payments for debt financing costs

 

 

(2,920

)

 

 

(77

)

Proceeds from exercise of stock options

 

 

1,465

 

 

 

107

 

Excess tax benefit from stock option exercises

 

 

1,686

 

 

 

274

 

Common stock dividends paid

 

 

(5,921

)

 

 

(4,588

)

Payments for capital lease obligations

 

 

(376

)

 

 

(259

)

Net cash provided by (used in) financing activities

 

 

301,744

 

 

 

(8,153

)

Net (decrease) increase in cash and cash equivalents

 

 

(87,328

)

 

 

10,552

 

Cash and cash equivalents at beginning of period

 

 

131,912

 

 

 

40,028

 

Cash and cash equivalents at end of period

 

$

44,584

 

 

$

50,580

 

Supplemental information:

 

 

 

 

 

 

 

 

Interest paid

 

$

6,397

 

 

$

5,547

 

Income taxes paid, net of refunds

 

$

5,925

 

 

$

47

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Accrued purchases of property and equipment

 

$

1,321

 

 

$

966

 

Noncash purchases of property and equipment

 

$

1,276

 

 

$

14

 

Accrued debt financing costs

 

$

127

 

 

$

-

 

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

 


4


NEXSTAR BROADCASTING GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Organization and Business Operations

As of March 31, 2015, Nexstar Broadcasting Group, Inc. and its wholly-owned subsidiaries (“Nexstar”) owned, operated, programmed or provided sales and other services to 107 television stations and 36 digital multicast channels, including those owned by variable interest entities (“VIEs”), in 58 markets in the states of Alabama, Arizona, Arkansas, California, Colorado, Florida, Illinois, Indiana, Iowa, Louisiana, Maryland, Michigan, Missouri, Montana, Nevada, New York, Pennsylvania, Tennessee, Texas, Utah, Vermont, Virginia and Wisconsin. The stations are affiliates of ABC (20 stations), NBC (20 stations), FOX (28 stations), CBS (17 stations), The CW (10 stations and 2 digital multicast channels), MyNetworkTV (10 stations and 4 digital multicast channels), Telemundo (one station and one digital multicast channel), RTV (one station), Bounce TV (9 digital multicast channels), Me-TV (9 digital multicast channels), Estrella (6 digital multicast channels), LATV (one digital multicast channel), This TV (one digital multicast channel), Weather Nation Utah (one digital multicast channel), Movies! (one digital multicast channel) and News/Weather (one digital multicast channel). Through various local service agreements, Nexstar provided sales, programming and other services to 31 stations and 6 digital multicast channels owned and/or operated by independent third parties. Nexstar operates in one reportable television broadcasting segment. The economic characteristics, services, production process, customer type and distribution methods for Nexstar’s operations are substantially similar and are therefore aggregated as a single reportable segment.

 

2.  Summary of Significant Accounting Policies

Principles of Consolidation

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

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

 

 

 

March 31,

 

 

December 31,

 

 

 

 

2015

 

 

2014

 

 

Current assets

 

$

3,196

 

 

$

12

 

(1)

Property and equipment, net

 

 

4,503

 

 

 

-

 

 

Goodwill

 

 

18,451

 

 

 

697

 

(1)

FCC licenses

 

 

74,312

 

 

 

46,727

 

 

Other intangible assets, net

 

 

21,419

 

 

 

1,695

 

(1)

Other noncurrent assets, net

 

 

974

 

 

 

-

 

 

Total assets

 

 

122,855

 

 

 

49,131

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

11,370

 

 

 

7,852

 

 

Noncurrent liabilities

 

 

27,132

 

 

 

10,018

 

 

Total liabilities

 

$

38,502

 

 

$

17,870

 

 

 

 

 

(1)

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

 

5


Liquidity

Nexstar is highly leveraged, which makes it vulnerable to changes in general economic conditions. Nexstar’s ability to repay or refinance its debt will depend on, among other things, financial, business, market, competitive and other conditions, many of which are beyond Nexstar’s control.

Interim Financial Statements

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

Variable Interest Entities

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

Consolidated VIEs

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

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


6


The following table summarizes the various local service agreements Nexstar had in effect as of March 31, 2015 with Mission, Marshall, Parker and White Knight:

 

Service Agreements

 

Owner

 

Mission Stations

TBA Only

 

Mission

 

WFXP and KHMT

 

 

Parker

 

KFQX

SSA & JSA

 

Mission

 

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

 

 

Marshall

 

KLJB, KPEJ and KMSS

 

 

White Knight

 

WVLA, KZUP, KFXK, KFXL, KLPN, KSHV

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

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

 

 

March 31,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,662

 

 

$

1,440

 

Accounts receivable, net

 

 

13,645

 

 

 

7,594

 

Deferred tax assets, net

 

 

9,474

 

 

 

9,389

 

Prepaid expenses and other current assets

 

 

3,709

 

 

 

2,657

 

Total current assets

 

 

32,490

 

 

 

21,080

 

Property and equipment, net

 

 

32,332

 

 

 

26,235

 

Goodwill

 

 

70,081

 

 

 

35,308

 

FCC licenses

 

 

74,312

 

 

 

46,727

 

Other intangible assets, net

 

 

62,368

 

 

 

30,333

 

Other noncurrent assets, net

 

 

24,561

 

 

 

64,858

 

Total assets

 

$

296,144

 

 

$

224,541

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of debt

 

$

5,561

 

 

$

5,137

 

Interest payable

 

 

28

 

 

 

28

 

Other current liabilities

 

 

11,372

 

 

 

7,852

 

Total current liabilities

 

 

16,961

 

 

 

13,017

 

Debt

 

 

284,053

 

 

 

289,161

 

Other noncurrent liabilities

 

 

27,133

 

 

 

10,018

 

Total liabilities

 

$

328,147

 

 

$

312,196

 

Non-Consolidated VIEs

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


7


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

As of March 31, 2015 and December 31, 2014, Nexstar had balances in accounts payable of $0.1 million and $0.5 million, respectively, for fees under this arrangement and had receivables for advertising aired on these stations of $0.5 million and $0.7 million, respectively. Fees incurred under this arrangement of $0.1 million and $0.3 million were included in direct operating expenses in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2015 and 2014, respectively.

Financial Instruments

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

Income Per Share

 

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2015

 

 

2014

 

Weighted average shares outstanding - basic

 

 

31,196

 

 

 

30,603

 

Dilutive effect of equity incentive plan instruments

 

 

1,060

 

 

 

1,306

 

Weighted average shares outstanding - diluted

 

 

32,256

 

 

 

31,909

 

Stock options and restricted stock units to acquire Class A common stock excluded from the computation of diluted earnings per share were comprised of a weighted average of 1,043,000 shares and 621,000 shares for the three months ended March 31, 2015 and 2014, respectively, because their impact would have been antidilutive.

Basis of Presentation

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

 


8


Recent Accounting Pronouncements

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which updates the accounting guidance on revenue recognition. This standard is intended to provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices and improve disclosure requirements. The standard is effective for interim and annual reporting periods beginning after December 15, 2016, with a proposed one year delay. Transition to the new guidance may be done using either a full or modified retrospective method. The Company is currently evaluating the impact of the provisions of the accounting standard update.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810) - Amendments to the Consolidation Analysis, to improve certain areas of consolidation guidance for reporting organizations (i.e., public, private and not-for-profit) that are required to evaluate whether to consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization structures (e.g., collateralized debt/loan obligations). All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments (1) eliminate the presumption that a general partner should consolidate a limited partnership, (2) eliminate the indefinite deferral of FASB Statement No. 167, thereby reducing the number of VIE consolidation models from four to two (including the limited partnership consolidation model), (3) clarify when fees paid to a decision maker should be a factor to include in the consolidation of VIEs, (4) amend the guidance for assessing how related party relationships affect VIE consolidation analysis and (5) exclude certain money market funds from the consolidation guidance. The amendments in this accounting standard are effective for public business entities for interim and annual periods beginning after December 15, 2015. Early adoption is permitted. The Company does not expect the implementation of this standard to have a material impact on its financial position or results of operations.

In April 2015, the FASB issued ASU No. 2015-03, Interest, Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The amendments in this accounting standard are effective for interim and annual periods ending after December 15, 2015, with early application permitted. The Company does not expect this guidance to have a significant impact on its financial statements, other than a change in the financial statement classification of debt issuance costs. As of March 31, 2015 and December 31, 2014, $19.1 million and $17.0 million, respectively, of net debt financing costs were included in other noncurrent assets in the Condensed Consolidated Balance Sheets. Under the new guidance, the carrying amount of debt financing costs would reduce the Company’s total debt.


9


 

3.  Acquisitions and Dispositions

CCA

Effective January 1, 2015, Nexstar completed the acquisition of the outstanding equity of privately-held CCA from SP ComCorp LLC (“SP ComCorp”), NexPoint Credit Strategies Fund (“NexPoint”) and Highland Floating Rate Opportunities Fund (“Highland”) and assumed CCA’s rights and obligations under its existing local service agreements with White Knight, for $278.3 million in cash, less a $0.2 million receivable from the sellers representing working capital adjustment. CCA and White Knight, collectively, owned 19 television stations in 10 markets.

A deposit of $27.0 million was paid to CCA in April 2013 upon signing the stock purchase agreement. Nexstar paid the $251.3 million remaining purchase price at closing funded by a combination of cash on hand, term loans borrowed in October 2014 and borrowings from its revolving credit facility in January 2015 (See Note 6). The transaction costs relating to this acquisition, including legal and professional fees of $0.4 million, were expensed as incurred during the three months ended March 31, 2015. Additionally, employment charges of $0.5 million were incurred and included in the Condensed Consolidated Statements of Operations.

Simultaneous with Nexstar’s acquisition of CCA, Nexstar sold the assets of CCA stations KPEJ and KMSS to Marshall for $43.3 million in cash, funded primarily by a $43.0 million deposit made in December 2014 arising from Marshall’s term loan. Nexstar also entered into local service agreements with Marshall to perform certain sales and other services for these stations. Additionally, Nexstar sold the assets of CCA station WEVV, the CBS and FOX affiliate serving the Evansville, Indiana market, to Bayou City Broadcasting Evansville, Inc. (“BCB”) for $26.8 million in cash, plus a $0.8 million cash sale of certain real estate properties previously owned by Nexstar (not acquired from CCA). Nexstar recognized a net loss on disposal of $0.5 million in connection with this transaction. There is no relationship between Nexstar and BCB or their respective stations after the sale.

 

The above transactions allow the Company entrance into 7 new markets and create duopolies in 6 markets. The stations impacted are as follows:

 

Market

 

Market Rank

 

Station

 

Affiliation

Nexstar:

 

 

 

 

 

 

Harlingen-Weslaco-Brownsville-McAllen, TX

 

86

 

KVEO

 

NBC/Estrella

Waco-Temple-Bryan, TX

 

87

 

KWKT

KYLE

 

FOX/MyNetworkTV/ Estrella

FOX/MyNetworkTV/ Estrella

El Paso, TX

 

91

 

KTSM

 

NBC/Estrella

Baton Rouge, LA

 

93

 

WGMB

WBRL

 

FOX

The CW

Tyler-Longview, TX

 

108

 

KETK

 

NBC/Estrella

Lafayette, LA

 

124

 

KADN

KLAF

 

FOX

MyNetworkTV

Alexandria, LA

 

179

 

WNTZ

 

FOX/MyNetworkTV

Marshall:

 

 

 

 

 

 

Shreveport, LA

 

83

 

KMSS

 

FOX

Odessa-Midland, TX

 

146

 

KPEJ

 

FOX/Estrella

White Knight:

 

 

 

 

 

 

Baton Rouge, LA

 

93

 

WVLA

KZUP

 

NBC

RTV

Tyler-Longview, TX

 

108

 

KFXK

KFXL

KLPN

 

FOX

FOX

MyNetworkTV

Shreveport, LA

 

83

 

KSHV

 

MyNetworkTV


10


As discussed in Note 2, Nexstar is the primary beneficiary of the variable interests in White Knight and Marshall and has consolidated White Knight and the stations Nexstar sold to Marshall, KPEJ and KMSS, into Nexstar’s Condensed Consolidated Financial Statements beginning January 1, 2015. Accordingly, all effects of the sale between Nexstar and Marshall have been eliminated in consolidation.

The consolidation of the assets and liabilities of White Knight into Nexstar resulted in a noncontrolling interest of $2.9 million, representing the fair value of interest held by the owners as of January 1, 2015, estimated by applying the income approach valuation technique.

The estimated fair values of the assets acquired and liabilities assumed in the CCA acquisition (net of the effects of the sale of WEVV to BCB), including the consolidation of the assets and liabilities of White Knight, KPEJ and KMSS, are as follows (in thousands):

 

Cash

 

$

1,847

 

Accounts receivable

 

 

19,624

 

Broadcast rights

 

 

10,233

 

Deferred tax assets

 

 

247

 

Prepaid expenses and other current assets

 

 

118

 

Property and equipment

 

 

25,647

 

FCC licenses

 

 

71,465

 

Network affiliation agreements

 

 

86,219

 

Other intangible assets

 

 

7,818

 

Goodwill

 

 

119,780

 

Other assets

 

 

59

 

Total assets acquired

 

 

343,057

 

Less:  Broadcast rights payable

 

 

(10,467

)

Less:  Accounts payable and accrued expenses

 

 

(4,685

)

Less: Taxes payable

 

 

(18,613

)

Less: Deferred tax liabilities

 

 

(55,454

)

Less:  Other noncurrent liabilities

 

 

(221

)

Less:  Noncontrolling interest in a consolidated VIE

 

 

(2,900

)

Net assets acquired

 

$

250,717

 

The fair value assigned to goodwill is attributable to future expense reductions utilizing management’s leverage in operating costs. The goodwill, FCC licenses and network affiliation agreements are not deductible for tax purposes. The intangible assets related to the network affiliation agreements are amortized over 15 years and other intangible assets are amortized over an estimated weighted average useful life of five years.

The acquired entities’ net revenue of $24.4 million and operating income of $4.7 million from the date of acquisition to March 31, 2015 have been included in the accompanying Condensed Consolidated Statements of Operations.

 


11


KASW

Effective January 29, 2015, Nexstar acquired the assets of KASW, the CW affiliate in the Phoenix, Arizona market from Meredith Corporation (“Meredith”) and SagamoreHill of Phoenix, LLC (“SagamoreHill”) for $71.3 million in cash, less a $0.5 million receivable from the sellers representing working capital adjustment. The acquisition allows Nexstar entrance into this market and the purchase price was funded through Nexstar’s $275.0 million 6.125% senior unsecured notes (“6.125% Notes”) and borrowings under Nexstar’s existing credit facility (See Note 6). No significant transaction costs were incurred in connection with this acquisition during the three months ended March 31, 2015.

The estimated fair values of the assets acquired and liabilities assumed in the acquisition are as follows (in thousands):

 

Accounts receivable

 

$

3,544

 

Broadcast rights

 

 

8,771

 

Prepaid expenses and other current assets

 

 

24

 

Property and equipment

 

 

987

 

FCC licenses

 

 

35,566

 

Other intangible assets

 

 

713

 

Goodwill

 

 

32,254

 

Total assets acquired

 

 

81,859

 

Less:  Broadcast rights payable

 

 

(10,291

)

Less:  Accounts payable and accrued expenses

 

 

(790

)

Net assets acquired

 

$

70,778

 

The fair value assigned to goodwill is attributable to future expense reductions utilizing management’s leverage in programming and other station operating costs. The goodwill and FCC licenses are deductible for tax purposes. The intangible assets related to the network affiliation agreements are amortized over 15 years. Other intangible assets are amortized over an estimated weighted average useful life of 1.5 years.

KASW’s net revenue of $3.5 million and operating income of $1.4 million from the date of acquisition to March 31, 2015 have been included in the accompanying Condensed Consolidated Statements of Operations.

Yashi

On February 2, 2015, Nexstar acquired the outstanding equity of Yashi, a local digital video advertising and targeted programmatic technology platform, for $33.4 million in cash, less a $0.4 million receivable from the sellers representing working capital adjustment. The acquisition is expected to broaden Nexstar’s digital media portfolio with technologies and offerings that are complementary to Nexstar’s digital businesses and multi-screen strategies. The purchase price was funded through Nexstar’s 6.125% Notes and borrowings under Nexstar’s existing credit facility (See Note 6). No significant transaction costs were incurred in connection with this acquisition during the three months ended March 31, 2015.

The estimated fair values of the assets acquired and liabilities assumed in the acquisition are as follows (in thousands):

 

Cash

 

$

1,472

 

Accounts receivable

 

 

8,449

 

Property and equipment

 

 

114

 

Software and other intangible assets

 

 

22,321

 

Goodwill

 

 

16,904

 

Other assets

 

 

15

 

Total assets acquired

 

 

49,275

 

Less:  Accounts payable and accrued expenses

 

 

(7,681

)

Less: Deferred tax liabilities

 

 

(8,588

)

Net assets acquired

 

$

33,006

 

The fair value assigned to goodwill is attributable to future expense reductions utilizing management’s leverage in operating costs. Goodwill and Software and other intangible assets are not deductible for tax purposes. Software and other intangible assets are amortized over an estimated weighted average useful life of four years.

Yashi’s net revenue of $5.8 million and operating income of $0.4 million from the date of acquisition to March 31, 2015 have been included in the accompanying Condensed Consolidated Statements of Operations.

12


KLAS

On February 13, 2015, Nexstar acquired the outstanding equity of KLAS, LLC, the owner of television station KLAS, the CBS affiliate serving the Las Vegas, Nevada market, from Landmark Television, LLC and Landmark Media Enterprises, LLC, for $150.4 million in cash, plus a $0.6 million payable to the sellers representing working capital adjustment. The acquisition allows Nexstar entrance into this market and the purchase price was funded through Nexstar’s 6.125% Notes and borrowings under Nexstar’s existing credit facility (See Note 6). Transaction costs relating to this acquisition, including legal and professional fees of $0.1 million, were expensed as incurred during the three months ended March 31, 2015.

The estimated fair values of the assets acquired and liabilities assumed in the acquisition are as follows (in thousands):

 

Cash

 

$

18