PART I
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 DMAs.
As of December 31, 2013, we owned, operated, programmed or provided sales and other services to 75 television stations and 18 digital multicast channels, including those owned by Mission, in 44 markets in the states of Illinois, Indiana, Maryland, Missouri, Montana, Tennessee, Texas, Pennsylvania, Louisiana, Arkansas, Alabama, New York, Florida, Wisconsin, Michigan, Utah, Vermont, California and Iowa. In 25 of the 44 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 ABC (19 stations), NBC (16 stations), FOX (14 stations), CBS (13 stations), The CW (6 stations and 2 digital multicast channels), MyNetworkTV (5 stations and 2 digital multicast channels), Telemundo (one station), Bounce TV (9 digital multicast channels), LiveWell (3 digital multicast channels), Me-TV (1 digital multicast channel), LATV (1 digital multicast channel) and one independent station. The stations reach approximately 14.9 million viewers or 12.9% of all U.S. television households.
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.
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 545 E. John Carpenter Freeway, Suite 700, Irving, TX 75062. Our telephone number is (972) 373-8800 and our website is http://
www.nexstar.tv
.
Recent Acquisitions
On December 18, 2013, we and Mission entered into definitive agreements to acquire 6 television stations in 2 markets. Under the terms of the purchase agreements, we will acquire the outstanding equity of the following stations for $33.5 million in cash, subject to adjustments for working capital, along with their respective network affiliation agreements: WMBB (ABC) in the Panama City, Florida market, KREX (CBS) and KGJT (MyNetworkTV), both in the Grand Junction, Colorado market, KREG (CBS), in the Glenwood Springs, Colorado market and KREY (CBS), in the Montrose, Colorado market, from Gray Television Group, Inc. (“Gray TV”). Both KREG and KREY operate as satellite stations of KREX. Mission will acquire the outstanding equity of KFQX, the FOX affiliate, in the Grand Junction, Colorado market, for $4.0 million in cash, subject to adjustments for working capital, from Excalibur Broadcasting, LLC (“Excalibur”).
On November 6, 2013, we entered into a stock purchase agreement to acquire the outstanding equity of privately-held Grant Company, Inc. (“Grant”), the owner of 7 television stations in 4 markets, for $87.5 million in cash, subject to adjustments for working capital. The stations that we will acquire, along with their respective network affiliation agreements are WFXR (FOX) and WWCW (The CW), both in the Roanoke, Virginia market, WZDX (FOX), in the Huntsville, Alabama market, KGCW (the CW) and KLJB (FOX), both in the Quad Cities, Iowa market and WLAX (FOX) and WEUX (FOX), both in the LaCrosse, Wisconsin market. We paid a deposit of $8.5 million upon signing the stock purchase agreement funded by cash on hand. Simultaneous with this acquisition, we entered into a purchase agreement with Mission pursuant to which Mission will acquire KLJB from us for $15.3 million in cash.
On September 13, 2013, Mission entered into a definitive agreement to acquire WCIZ, the FOX affiliate, and WBPN-LP, the MyNetworkTV affiliate, both in the Binghamton, New York market, from Stainless Broadcasting, L.P. (“Stainless”), for $15.3 million in cash, subject to adjustments for working capital. A deposit of $0.2 million was paid upon signing the agreement.
On April 24, 2013, we and Mission entered into a stock purchase agreement to acquire the stock of privately-held Communications Corporation of America (“CCA”) and White Knight Broadcasting (“White Knight”), the owners of 19 television stations in 10 markets, for a total consideration of $270.0 million, subject to adjustments for working capital. Upon signing the agreement, we paid a deposit of $27.0 million. We have agreed to purchase all the outstanding equity of CCA and Mission has agreed to purchase all the outstanding equity of White Knight. We will acquire 10 television stations, Mission will acquire 7 television stations and Rocky Creek Communications, Inc. (“Rocky Creek”), an independent third party, will acquire 2 television stations, as follows:
Market
|
|
Market Rank
|
|
Station
|
|
Affiliation
|
Nexstar:
|
|
|
|
|
|
|
Harlingen-Weslaco-Brownsville-McAllen, TX
|
|
86
|
|
KVEO
|
|
NBC/Estrella
|
Waco-Temple-Bryan, TX
|
|
88
|
|
KWKT
|
|
FOX/MyNetworkTV /Estrella
|
|
|
|
|
KYLE
|
|
FOX/MyNetworkTV /Estrella
|
El Paso, TX
|
|
91
|
|
KTSM
|
|
NBC/Estrella
|
Baton Rouge, LA
|
|
94
|
|
WGMB
|
|
FOX
|
|
|
|
|
WBRL-CD
|
|
The CW
|
Tyler-Longview, TX
|
|
107
|
|
KETK
|
|
NBC/Estrella
|
Lafayette, LA
|
|
124
|
|
KADN
|
|
FOX
|
|
|
|
|
KLAF-LD
|
|
MyNetworkTV
|
Alexandria, LA
|
|
179
|
|
WNTZ
|
|
FOX/MyNetworkTV
|
|
|
|
|
|
|
|
Mission:
|
|
|
|
|
|
|
Shreveport, LA
|
|
83
|
|
KMSS
|
|
FOX
|
Baton Rouge, LA
|
|
94
|
|
WVLA
KZUP-CD
|
|
NBC
RTV
|
Tyler-Longview, TX
|
|
107
|
|
KFXK
KFXL-LD
KLPN-LD
|
|
FOX
FOX
MyNetworkTV
|
Odessa-Midland, TX
|
|
152
|
|
KPEJ
|
|
FOX/Estrella
|
|
|
|
|
|
|
|
Rocky Creek:
|
|
|
|
|
|
|
Shreveport, LA
|
|
83
|
|
KSHV
|
|
MyNetworkTV
|
Evansville, IN
|
|
104
|
|
WEVV
|
|
CBS/FOX/ MyNetworkTV
|
The above acquisitions are subject to FCC approval and other customary conditions and we and Mission are projecting them to close in the second quarter of 2014. The purchase prices of the above acquisitions are expected to be funded through cash generated from operations prior to closing, borrowings under the existing credit facilities and future credit market transactions.
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 77.0% 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, 2013 we earned approximately 28.0% of our advertising revenue from spots aired during local news programming. Currently, our stations and the stations we provide services to that produce local newscasts 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, 2013, revenue generated from local advertising represented 70.1% 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 Digital Media.
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 2013, with 65 million unique visitors, who utilized over 588 million page views. Also in 2013, our mobile platform accounted for 48.0% of our overall 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 77.0% of our net broadcast revenue for the year ended December 31, 2013 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.
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 ABC, NBC, CBS and FOX affiliated stations which represented approximately 24.9%, 24.8%, 24.3% and 15.1%, respectively, of our 2013 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 DMAs, 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 20 television stations that are owned and operated by Mission as of December 31, 2013. 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 2014 and 2023) 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.
The Stations
The following chart sets forth general information about the stations we owned, operated, programmed or provided sales and other services to as of December 31, 2013:
|
|
|
|
|
|
|
|
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
(14)
|
ABC
|
O&O
|
15
|
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)
|
48
|
|
Jacksonville, FL
|
WCWJ/
WCWJ-D-2
|
The CW/
Bounce TV
|
O&O
|
7
|
(5)
|
50
|
|
Memphis, TN
|
WATN
|
ABC
|
O&O
|
6
|
8/1/21
|
|
|
|
WLMT/
WLMT-D-2
|
The CW/
MyNetworkTV
|
O&O
|
|
(5)
|
54
|
|
Wilkes Barre-Scranton, PA
|
WBRE
|
NBC
|
O&O
|
7
|
(5)
|
|
|
|
WYOU
|
CBS
|
LSA
(7)
|
|
(5)
|
Market
Rank
(1)
|
|
Market
|
Station
|
Affiliation
|
Status
(2)
|
Commercial
Stations in
Market
(3)
|
FCC License
Expiration
Date
|
55
|
|
Fresno-Visalia, CA
|
KSEE/
KSEE-D-2
|
NBC/
LATV
|
O&O
|
10
|
12/1/14
|
|
|
|
KGPE
|
CBS
|
O&O
|
|
12/1/14
|
56
|
|
Little Rock-Pine Bluff, AR
|
KARK
|
NBC
|
O&O
|
7
|
(5)
|
|
|
|
KARZ/
KARZ-D-2
|
MyNetworkTV/
Bounce TV
|
O&O
|
|
(5)
|
|
|
|
KLRT
|
FOX
|
LSA
(7)
|
|
(5)
|
|
|
|
KASN
|
The CW
|
LSA
(7)
|
|
(5)
|
70
|
|
Green Bay-Appleton, WI
|
WFRV
|
CBS
|
O&O
|
6
|
(5)
|
72
|
|
Des Moines-Ames, IA
|
WOI/
WOI-D-2
(11)
|
ABC/
LiveWell
|
LSA
(11)
|
7
|
(5)
|
75
|
|
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
(16)
|
|
(16)
|
82
|
|
Shreveport, LA
|
KTAL
|
NBC
|
O&O
|
6
|
8/1/14
|
84
|
|
Champaign-Springfield-
|
WCIA
|
CBS
|
O&O
|
8
|
(5)
|
|
|
Decatur, IL
|
WCIX
|
MyNetworkTV
|
O&O
|
|
(5)
|
85
|
|
Syracuse, NY
|
WSYR/
WSYR-D-2
(12)
|
ABC/
Me-TV
|
O&O
|
6
|
6/1/15
|
98
|
|
Burlington-Plattsburgh, VT
|
WFFF
|
FOX
|
O&O
|
6
|
4/1/2015
|
|
|
|
WVNY
|
ABC
|
LSA
(7)
|
|
4/1/2015
|
100
|
|
Davenport-Rock Island-
Moline, IL
|
WHBF/
WHBF-D-2
(11)
|
CBS/
LiveWell
|
LSA
(11)
|
5
|
(5)
|
101
|
|
Ft. Smith-Fayetteville-
|
KFTA
|
FOX/NBC
|
O&O
|
6
|
(5)
|
|
|
Springdale-Rogers, AR
|
KNWA
|
NBC/FOX
|
O&O
|
|
(5)
|
103
|
|
Johnstown-Altoona, PA
|
WTAJ
|
CBS
|
O&O
|
4
|
(5)
|
104
|
|
Evansville, IN
|
WEHT
|
ABC
|
O&O
|
4
|
(5)
|
|
|
|
WTVW
(12)
|
The CW
(9)
|
LSA
(7)
|
|
(5)
|
109
|
|
Ft. Wayne, IND
|
WFFT
(12)
|
FOX
(10)
|
O&O
|
4
|
(5)
|
117
|
|
Peoria-Bloomington, IL
|
WMBD/
WMBD-D-2
|
CBS/
Bounce TV
|
O&O
|
5
|
(5)
|
|
|
|
WYZZ
|
FOX
|
LSA
(8)
|
|
(5)
|
127
|
|
Bakersfield, CA
|
KGET/
KGET-D-2
|
NBC/
The CW
|
O&O
|
4
|
12/1/14
|
|
|
|
KKEY-LP
|
Telemundo
|
O&O
|
|
12/1/14
|
130
|
|
Amarillo, TX
|
KAMR
|
NBC
|
O&O
|
6
|
(5)
|
|
|
|
KCIT
|
FOX
|
LSA
(7)
|
|
(5)
|
|
|
|
KCPN-LP
|
MyNetworkTV
|
LSA
(7)
|
|
(5)
|
136
|
|
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-
El Dorado, AR
|
KARD/
KARD-D-2
|
FOX/
Bounce TV
|
O&O
|
4
|
(5)
|
|
|
|
KTVE
|
NBC
|
LSA
(7)
|
|
(5)
|
Market
Rank
(1)
|
|
Market
|
Station
|
Affiliation
|
Status
(2)
|
Commercial
Stations in
Market
(3)
|
FCC License
Expiration
Date
|
143
|
|
Lubbock, TX
|
KLBK
|
CBS
|
O&O
|
5
|
(5)
|
|
|
|
KAMC/
KAMC-D-2
(15)
|
ABC/
Bounce TV
|
LSA
(7)
|
|
(5)
|
144
|
|
Wichita Falls, TX-
|
KFDX
|
NBC
|
O&O
|
4
|
(5)
|
|
|
Lawton, OK
|
KJTL/
KJTL-D-2
(15)
|
FOX/
Bounce TV
|
LSA
(7)
|
|
(5)
|
|
|
|
KJBO-LP
|
MyNetworkTV
|
LSA
(7)
|
|
(5)
|
147
|
|
Sioux City, IA
|
KCAU/
KCAU-D-2
(11)
|
ABC/
LiveWell
|
LSA
(11)
|
4
|
(5)
|
149
|
|
Erie, PA
|
WJET
|
ABC
|
O&O
|
4
|
(5)
|
|
|
|
WFXP
|
FOX
|
LSA
(7)
|
|
(5)
|
150
|
|
Odessa-Midland, TX
|
KMID
|
ABC
|
O&O
|
7
|
(5)
|
152
|
|
Joplin, MO-Pittsburg, KS
|
KSNF
|
NBC
|
O&O
|
4
|
(5)
|
|
|
|
KODE
|
ABC
|
LSA
(7)
|
|
(5)
|
155
|
|
Terre Haute, IN
|
WTWO
|
NBC
|
O&O
|
3
|
(5)
|
|
|
|
WAWV
|
ABC
|
LSA
(7)
|
|
(5)
|
159
|
|
Binghamton, NY
|
WBGH
|
NBC
|
O&O
|
3
|
6/1/15
|
|
|
|
WIVT
|
ABC
|
O&O
|
|
6/1/15
|
165
|
|
Abilene-Sweetwater, TX
|
KTAB
(13)
|
CBS
|
O&O
|
4
|
(5)
|
|
|
|
KRBC/
KRBC-D-2
(15)
|
NBC/
Bounce TV
|
LSA
(7)
|
|
(5)
|
168
|
|
Billings, MT
|
KSVI
|
ABC
|
O&O
|
5
|
(5)
|
|
|
|
KHMT
|
FOX
|
LSA
(7)
|
|
(5)
|
171
|
|
Utica, NY
|
WFXV
|
FOX
|
O&O
|
3
|
(5)
|
|
|
|
WPNY-LP
|
MyNetworkTV
|
O&O
|
|
(5)
|
|
|
|
WUTR
|
ABC
|
LSA
(7)
|
|
(5)
|
172
|
|
Dothan, AL
|
WDHN
|
ABC
|
O&O
|
3
|
(5)
|
174
|
|
Elmira, NY
|
WETM
|
NBC
|
O&O
|
3
|
6/1/15
|
176
|
|
Watertown, NY
|
WWTI/
WWTI-D-2
|
ABC/
The CW
|
O&O
|
2
|
6/1/15
|
177
|
|
Jackson, TN
|
WJKT
|
FOX
|
O&O
|
2
|
(5)
|
180
|
|
Marquette, MI
|
WJMN
|
CBS
|
O&O
|
6
|
(5)
|
198
|
|
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 2013 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 2013 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)
|
On November 22, 2013, Cunningham Broadcasting Corporation acquired the assets of WYZZ from Sinclair Broadcasting Group, Inc. and became the successor to the outsourcing agreement with Nexstar. Effective January 1, 2014, the outsourcing agreement for WYZZ was extended through December 31, 2017.
|
(9)
|
On January 31, 2013, WTVW became an affiliate of The CW.
|
(10)
|
On March 31, 2013, WFFT became an affiliate of FOX.
|
(11)
|
On September 16, 2013, Nexstar entered into definite agreements to acquire the stations which are projected to close during the first quarter of 2014. These stations are currently programmed by Nexstar pursuant to a time brokerage agreement. On January 1, 2014, the affiliation of WHBF-D-2 with LiveWell was terminated. The affiliation agreement of KCAU-D-2 and WOI-D-2 with LiveWell was extended to January 16, 2015.
|
(12)
|
On January 1, 2014, Nexstar’s two new digital multicast channels, WSYR-D-3 and WFFT-D-2, and Mission’s new digital multicast channel, WTVW-D-2, became affiliates of Bounce TV.
|
(13)
|
On January 27, 2014, KTAB launched a Telemundo digital multicast channel.
|
(14)
|
On January 6, 2014, Nextar’s new digital multicast channel, KTVX-D-2, became an affiliate of Me-TV.
|
(15)
|
The affiliations with Bounce TV ended on December 31, 2013 and the digital multicast channels are no longer utilized.
|
(16)
|
This station is owned by Sinclair Broadcasting Group, Inc. The outsourcing agreement for WUHF was not renewed and terminated on December 31, 2013.
|
Nexstar, Mission and Rocky Creek have also signed agreements to acquire 19 stations in 10 markets from CCA and White Knight, 7 stations in 4 markets from Grant, 6 stations in 2 markets from Gray TV and Excalibur and 2 stations from Stainless. Of these acquisitions, 16 stations are affiliated with FOX, 4 stations with NBC, 4 stations with CBS, 5 stations with MyNetworkTV, 3 stations with the CW, one station with ABC and one station with RTV. The Company is projecting the acquisitions to close in the second quarter of 2014. Refer to Recent Acquisitions for additional information.
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.
|
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, 2013 are affiliated with a network pursuant to an affiliation agreement, as described below:
|
|
|
|
Station
|
Market
|
Affiliation
|
Expiration
|
WHBF-D-2
(5)
|
Davenport-Rock Island-Moline, IL
|
LiveWell
|
January 2014
(5)
|
KSEE-D-2
|
Fresno-Visalia, CA
|
LATV
|
June 2014
|
WSYR-D-2
|
Syracuse, NY
|
Me-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
|
KGET
|
Bakersfield, CA
|
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
|
KCAU-D-2
(5)
|
Sioux City, IA
|
LiveWell
|
January 2015
|
WOI-D-2
(5)
|
Des Moines-Ames, IA
|
LiveWell
|
January 2015
|
WYOU
(1)
|
Wilkes Barre-Scranton, PA
|
CBS
|
June 2015
|
KSEE
|
Fresno-Visalia, CA
|
NBC
|
December 2015
|
WTVW
(1)(6)
|
Evansville, IN
|
The CW
|
December 2015
|
WTAJ
|
Johnstown-Altoona, PA
|
CBS
|
May 2016
|
KGPE
|
Fresno-Visalia, CA
|
CBS
|
June 2016
|
KCPN-LP
(1)
|
Amarillo, TX
|
MyNetworkTV
|
August 2016
|
KJBO-LP
(1)
|
Wichita Falls, TX-Lawton, OK
|
MyNetworkTV
|
August 2016
|
WTVO-D-2
(1)
|
Rockford, IL
|
MyNetworkTV
|
August 2016
|
KARZ
|
Little Rock-Pine Bluff, AR
|
MyNetworkTV
|
August 2016
|
WPNY-LP
|
Utica, NY
|
MyNetworkTV
|
August 2016
|
WCIX
|
Champaign-Springfield-Decatur, IL
|
MyNetworkTV
|
August 2016
|
WLMT-D-2
|
Memphis, TN
|
MyNetworkTV
|
September 2016
|
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
|
KASN
(1)
|
Little Rock-Pine Bluff, AR
|
The CW
|
September 2016
|
WWTI-D-2
|
Watertown, NY
|
The CW
|
September 2016
|
KGET-D-2
|
Bakersfield, CA
|
The CW
|
September 2016
|
KARD
|
Monroe, LA-El Dorado, AR
|
FOX
|
December 2016
|
KFTA
|
Ft. Smith-Fayetteville-Springdale-Rogers, AR
|
FOX
|
December 2016
|
WFFF
|
Burlington-Plattsburgh, VT
|
FOX
|
December 2016
|
WFFT
(6)
|
Ft. Wayne, IND
|
FOX
|
December 2016
|
WFXV
|
Utica, NY
|
FOX
|
December 2016
|
WJKT
|
Jackson, TN
|
FOX
|
December 2016
|
WQRF
|
Rockford, IL
|
FOX
|
December 2016
|
KCIT
(1)
|
Amarillo, TX
|
FOX
|
December 2016
|
WFXP
(1)
|
Erie, PA
|
FOX
|
December 2016
|
Station
|
Market
|
Affiliation
|
Expiration
|
|
KJTL
(1)
|
Wichita Falls, TX-Lawton, OK
|
FOX
|
December 2016
|
|
KHMT
(1)
|
Billings, MT
|
FOX
|
December 2016
|
|
KLRT
(1)
|
Little Rock-Pine Bluff, AR
|
FOX
|
December 2016
|
|
WCWJ-D-2
|
Jacksonville, FL
|
Bounce TV
|
August 2017
|
|
KARZ-D-2
|
Little Rock-Pine Bluff, AR
|
Bounce TV
|
August 2017
|
|
WROC-D-2
|
Rochester, NY
|
Bounce TV
|
August 2017
|
|
WMBD-D-2
|
Peoria-Bloomington, IL
|
Bounce TV
|
August 2017
|
|
WQRF-D-2
|
Rockford, IL
|
Bounce TV
|
August 2017
|
|
KARD-D-2
|
Monroe, LA-El Dorado, AR
|
Bounce TV
|
August 2017
|
|
KTVX
|
Salt Lake City, UT
|
ABC
|
December 2017
|
|
WATN
|
Memphis, TN
|
ABC
|
December 2017
|
|
WSYR
(6)
|
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
|
|
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
|
WVNY
(1)
|
Burlington-Plattsburgh, VT
|
ABC
|
December 2017
|
WOI
(5)
|
Des Moines-Ames, IA
|
ABC
|
December 2017
|
KCAU
(5)
|
Sioux City, IA
|
ABC
|
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
(7)
|
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
|
WHBF
(5)
|
Davenport-Rock Island-Moline, IL
|
CBS
|
December 2018
|
KKEY
|
Bakersfield, CA
|
Telemundo
|
December 2018
|
(1)
|
These stations are owned by Mission, which maintains the network affiliation agreements.
|
(2)
|
On November 22, 2013, Cunningham Broadcasting Corporation acquired the assets of WYZZ from Sinclair Broadcasting Group, Inc. and became the successor to the outsourcing agreement with Nexstar and the network affiliation agreement with FOX.
|
(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.
|
(5)
|
On September 16, 2013, Nexstar entered into definite agreements to acquire the stations which are projected to close during the first quarter of 2014. These stations are currently programmed by Nexstar pursuant to a time brokerage agreement. On January 1, 2014, the affiliation of WHBF-D-2 with LiveWell was terminated.
|
(6)
|
On January 1, 2014, Nexstar’s two new digital multicast channels, WSYR-D-3 and WFFT-D-2, and Mission’s new digital multicast channel, WTVW-D-2, became affiliates of Bounce TV.
|
(7)
|
On January 27, 2014, KTAB launched a Telemundo digital multicast channel.
|
Nexstar, Mission and Rocky Creek have also signed agreements to acquire 19 stations in 10 markets from CCA and White Knight, 7 stations in 4 markets from Grant, 6 stations in 2 markets from Gray TV and Excalibur and 2 stations from Stainless. Of these acquisitions, 16 stations are affiliated with FOX, 4 stations with NBC, 4 stations with CBS, 5 stations with MyNetworkTV, 3 stations with the CW, one station with ABC and one station with RTV. The Company is projecting the acquisitions to close in the second quarter of 2014. Refer to Recent Acquisitions for additional information.
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.
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 (but not all) 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, case precedent, 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.
Under the Communications Act, the term of a broadcast license is automatically extended during the pendency of the FCC’s processing of a timely renewal application.
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, the holder of a U.S. broadcast license may have no more than 20% non-U.S. ownership (by vote and by equity). The Communications Act prohibits more than 25% indirect foreign ownership or control of a licensee through a parent company if the FCC determines the public interest will be served by such restriction. The FCC has interpreted this provision of the Communications Act to require an affirmative public interest finding before indirect foreign ownership of a broadcast licensee may exceed 25%, and historically the FCC has made such an affirmative finding only in limited circumstances. In November 2013, the FCC clarified that it would entertain and authorize, on a case-by-case basis and upon a sufficient public interest showing, proposals to exceed the 25% indirect foreign ownership limit in broadcast licensees.
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. If a shareholder of Nexstar holds a voting stock interest of 5% or more (20% or more in the case of qualified investment companies, such as insurance companies and bank trust departments), we must report that shareholder, its parent entities, and attributable individuals and entities of both, as attributable interest holders in Nexstar.
Two of Nexstar’s directors also currently serve on the board of directors of Radio One, Inc., which owns and operates approximately 50 radio stations in 16 markets. The FCC considers the markets Radio One, Inc. participates in as attributable to Nexstar, due to this common director relationship.
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 that station pursuant to a time brokerage or local marketing agreement, if the programmer provides more than 15% 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 Bakersfield, Nexstar owns and operates KGET and KKEY-LP; 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, KKEY-LP, KJBO-LP and KCPN-LP.
The only markets in which we or Mission currently are permitted to own two stations under the duopoly rule are Fresno, California, 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 provide programming comprising less than 15% of the second station’s programming 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 and are considered grandfathered. 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. In September 2013, the FCC issued a Notice of Proposed Rulemaking to consider whether the UHF discount should be eliminated and/or whether a VHF discount should be implemented.
The stations that Nexstar owns have a combined national audience reach of 7.4% 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.
Two of Nexstar’s directors also currently serve on the board of directors of Radio One, Inc., which owns and operates approximately 50 radio stations in 16 markets. The FCC considers the markets Radio One, Inc. participates in as attributable to Nexstar, due to this common director relationship.
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 in the same market.
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 in this proceeding in 2014 or may defer some or all aspects of the proceeding until its next quadrennial review, which we anticipate will commence in 2014. We cannot predict what rules the FCC will adopt; however, the FCC may deem television JSAs or SSAs to be attributable ownership interests and require the termination of existing JSAs or SSAs within a specified period of time if the newly attributable JSAs or SSAs 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.
In addition, certain online video distributors and other over-the-top video distributors (“OTTDs”) have begun streaming broadcast programming over the Internet without the consent of the broadcast station. In two cases, a federal district court issued a preliminary injunction enjoining an OTTD from streaming broadcast programming because the court concluded that the OTTD was unlikely to demonstrate that it was eligible for the statutory copyright license that provides MVPDs with the copyrights to retransmit broadcast programming. In another case, a preliminary injunction against another entity providing access to broadcast programming over the Internet was denied. There, the federal district court concluded that the OTTD was likely to prevail in demonstrating that its operations are not a copyright violation. The U.S. Supreme Court has granted certiorari and will hear oral arguments with respect to the differing lower court interpretations in April 2014. In 2010, the FCC’s Media Bureau, in a program access proceeding, tentatively concluded that one OTTD had not shown that it was an MVPD for purposes of demonstrating eligibility for the program access rules, and in March 2012, the FCC, recognizing that the classification could also have implications under the retransmission consent requirements, issued a public notice seeking comment on, among other things, the proper interpretation of the term “MVPD” under FCC rules. We cannot predict the outcome of the pending litigation or of the FCC’s interpretive proceedings. However, if the courts determine that consent of the broadcast station or copyright owners is not required and/or if the FCC determines that an OTTD is not an MVPD, our business and results of operations could be materially and adversely affected.
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 serving our markets to carry the stations’ signals; however, we and Mission intend to enter into negotiations for new agreements with the majority of the MVPDs which carry our stations during the fourth quarter of 2014.
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:
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political advertising (its price and availability);
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sponsorship identification;
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contest and lottery advertising;
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obscene and indecent broadcasts;
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technical operations, including limits on radio frequency radiation;
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discrimination and equal employment opportunities;
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closed captioning and video description;
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children’s programming;
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program ratings guidelines; and
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network affiliation agreements.
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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 final 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, 2013, we and Mission had a total of 3,222 employees, comprised of 2,854 full-time and 368 part-time employees. As of December 31, 2013, 278 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, Inc., Attn: Investor Relations, 545 E. John Carpenter Freeway, Suite 700, Irving, TX 75062. 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.
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 simultaneously with, or in close proximity to, network programming broadcast on local television stations, including those we own or provide services to. 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.
The Company had history of net losses in prior years.
The Company had a net loss of $1.8 million in 2013 and $11.9 million in 2011. The Company 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, 2013, we and Mission had $1.1 billion of debt, which represented 101.3% 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;
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expose us to greater interest rate risk since the interest rate on borrowings under the senior secured credit facilities is variable;
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• limit our flexibility to plan for and react to changes in our business and our industry; and
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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.
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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 indenture governing our 6.875% Senior Unsecured Notes (“6.875% 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.
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 and the indenture governing the 6.875% Notes contains 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, our and Mission’s 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’s obligations under its senior secured credit facility 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 and Mission. The credit agreement governing Mission’s obligations under its senior secured credit facility does not contain financial covenant ratio requirements; however, it includes an event of default if Nexstar does not comply with all covenants contained in the credit agreement governing its senior secured credit facilities. The indenture governing the 6.875% Notes contains restrictive covenants customary for borrowing arrangements of this type.
We may not be able to generate sufficient cash flow to meet our debt service requirements.
Our ability to service our debt depends on our ability to generate the necessary cash flow. Generation of the necessary cash flow is partially subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control. We cannot assure you that our business will generate cash flow from operations, that future borrowings will be available to us under our current or any replacement credit facilities, or that we will be able to complete any necessary financings, in amounts sufficient to enable us to fund our operations or pay our debts and other obligations, or to fund our liquidity needs. If we are not able to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. Additional financing may not be available in sufficient amounts, at times or on terms acceptable to us, or at all. If we are unable to meet our debt service obligations our lenders may determine to stop making loans to us, and/or our lenders or other holders of our debt could accelerate and declare due all outstanding obligations due under the respective agreements, all of which could have a material adverse effect on us.
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 20 television stations as of December 31, 2013. Mission has also signed agreements to acquire 12 stations from various sellers subject to regulatory consent. 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 its 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.
Mission’s fourth amended and restated credit agreement with 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, provides for a first-lien credit facility (the “Mission Facilities”). As of December 31, 2013, the Mission Facilities consist of a $232.5 million term loan, unused incremental term loan facility of $90.0 million and a $30.0 million revolving credit facility. We guarantee all of the obligations incurred under the Mission Facilities, which were incurred primarily in connection with Mission’s station acquisitions.
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 the 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, Mission may decide to obtain and broadcast programming which, in our opinion, would prove unpopular and/or would 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, 2013, based on projected future income, approximately $148.5 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, 2013, we had NOLs of approximately $408.6 million for U.S. federal tax purposes and $95.2 million for state tax purposes. These NOLs expire at varying dates beginning 2018 through 2033. 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 ("Section 382"), 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, 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.
On May 7, 2013, ABRY sold the remainder of its common stock holdings in Nexstar and no longer holds an ownership interest in us. As a result of this sale, an ownership change has occurred resulting in a Section 382 limitation on the use of Nexstar’s NOLs. Additionally, any subsequent ownership changes in us or Mission could result in additional limitations.
The ability to use NOLs is also dependent upon our ability to generate taxable income. The NOLs could expire before we generate sufficient taxable income to use them. 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 operations. Changes in ownership are largely beyond our control and we can give no assurance that we will continue to have realizable NOLs.
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, 2013, 19 stations have primary affiliation agreements with ABC, 16 with NBC, 14 with FOX, 13 with CBS, 6 with The CW, 5 with MyNetworkTV, and 1 with Telemundo. Additionally, 18 of the stations have secondary affiliation agreements – 9 with Bounce TV, 3 with LiveWell, 2 with MyNetworkTV, 2 with The CW, 1 with Me-TV and 1 with LATV. Each of ABC, NBC and CBS 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.
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 to our audiences and more expensive to obtain. In addition, a loss of a specific network affiliation for a station may affect our retransmission consent payments resulting in us receiving less retransmission consent fees. 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 or a regulatory change in the current retransmission consent regulations 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 retransmit our stations’ signals to their subscribers in exchange for the payment of compensation to us from the system operators as consideration. Our retransmission consent agreements expire at various times with a large number of agreements set to expire during 2014. If we are unable to renegotiate these agreements on favorable terms, or at all, the failure to do so could have an adverse effect on our business, financial condition, and results of operations.
The television networks have taken the position that they, as the owners or licensees of programming we broadcast and provide for retransmission, are entitled to a portion of the compensation we receive under the retransmission consent agreements and are including provisions for these payments to them 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.
Further, certain online video distributors and other over-the-top video distributors (“OTTDs”) have begun streaming broadcast programming over the Internet without the consent of the broadcast station. In two cases, a federal district court issued a preliminary injunction enjoining an OTTD from streaming broadcast programming because the court concluded that the OTTD was unlikely to demonstrate that it was eligible for the statutory copyright license that provides MVPDs with the copyrights to retransmit broadcast programming. In another case, a preliminary injunction against another entity providing access to broadcast programming over the Internet was denied. There, the federal district court concluded that the OTTD was likely to prevail in demonstrating that its operations are not a copyright violation. The U.S. Supreme Court has granted certiorari and will hear oral arguments with respect to the differing lower court interpretations in April 2014. In 2010, the FCC’s Media Bureau, in a program access proceeding, tentatively concluded that one OTTD had not shown that it was an MVPD for purposes of demonstrating eligibility for the program access rules, and in March 2012, the FCC, recognizing that the classification could also have implications under the retransmission consent requirements, issued a public notice seeking comment on, among other things, the proper interpretation of the term “MVPD” under FCC rules. We cannot predict the outcome of the pending litigation or of the FCC’s interpretive proceedings. However, if the courts determine that consent of the broadcast station or copyright owners is not required and/or if the FCC determines that an OTTD is not an MVPD, our business and results of operations could be materially and adversely affected.
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. However, in an extreme case, the FCC may deny a station’s license renewal application, resulting in termination of the station’s authority to broadcast. Under the Communications Act, the term of a broadcast license is automatically extended during the pendency of the FCC’s processing of a timely renewal application.
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.
On December 31, 2013, an individual filed an informal objection with the FCC with respect to the application for renewal of the license of Nexstar station KSNF in Joplin, Missouri. This individual alleges that KSNF interrupted a network program with local programming sometime between 2007 and 2010. Nexstar has submitted an opposition to this objection to the FCC.
Nexstar and Mission filed renewal of license applications for their stations between June 2004 and April 2007. On June 1, 2012, the FCC’s renewal cycle for television stations reinitiated. Nexstar and Mission have filed further renewal applications for their stations in the current cycle and will file additional applications before the cycle closes on April 1, 2015. The majority of Nexstar’s and Mission’s renewal applications, including the WCIA, KOZL, KOLR and KSNF applications discussed above, remain pending with the FCC. 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. 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 have achieved much of our growth through acquisitions, including the acquisition of 8 stations and 2 digital multicast channels in 2013. 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 or other public interest detriment in a market, even if the proposed combination 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.
During the three years ended December 31, 2013, we acquired 16 stations, net of station disposals, and contracted to provide service to 6 additional stations. As of December 31, 2013, we have also signed various agreements to acquire or to provide service to 34 stations. We will continue to actively pursue additional acquisition opportunities. 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:
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•
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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;
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•
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an acquisition may increase our leverage and debt service requirements or may result in our assuming unexpected liabilities;
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•
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our management may be reassigned from overseeing existing operations by the need to integrate the acquired business;
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•
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we may experience difficulties integrating operations and systems, as well as company policies and cultures;
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• 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.
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 (“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 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 may deem TV JSAs or SSAs to be attributable ownership interests, may require the termination of existing JSAs or SSAs within a specified period of time if the newly attributable JSAs or SSAs do not comply with the local television ownership limits, and/or may decline to authorize JSAs or SSAs that are proposed in currently pending or future transactions. The FCC may take such actions independently, in connection with its pending 2010 quadrennial review, and/or in connection with its next quadrennial review (which we anticipate will commence in 2014). If the FCC adopts a JSA or SSA 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 more than 15% 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.
We are subject to foreign ownership limitations which limits foreign investments in us.
The Communications Act limits the extent of non-U.S. ownership of companies that own U.S. broadcast stations. Under this restriction, the holder of a U.S. broadcast license may have no more than 20% non-U.S. ownership (by vote and by equity). The Communications Act prohibits more than 25% indirect foreign ownership or control of a licensee through a parent company if the FCC determines the public interest will be served by such restriction, and the FCC has interpreted this provision to require an affirmative public interest showing before indirect foreign ownership of a broadcast licensee may exceed 25%. Therefore, certain investors may be prevented in investing in us if our foreign ownership is at or near the FCC limits.
The FCC’s multiple ownership rules 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 most 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.
Two of Nexstar’s directors also currently serve on the board of directors of Radio One, Inc., which owns and operates approximately 50 radio stations in 16 markets. Therefore, depending on the number of stations owned by Radio One, Inc. in a given market, we may not be able to purchase a television station in that market. The FCC considers the markets Radio One, Inc. participates in as attributable to Nexstar, due to this common director relationship.
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, 2013, $649.6 million, or 55.8%, 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 board of directors has declared a dividend policy for 2014 of total annual cash dividend with respect to shares of our Class A Common Stock of $0.60 per share in equal quarterly installments of $0.15 per share. 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, targeted future acquisitions, 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.
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 on our stations and community portal websites. Our ability to sell advertising time depends on numerous factors that may be beyond our control, including:
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•
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the health of the economy in the local markets where our stations are located and in the nation as a whole;
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• the popularity of our station and website programming;
• fluctuations in pricing for local and national advertising;
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•
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the activities of our competitors, including increased competition from other forms of advertising-based media, particularly newspapers, cable television, Internet and radio;
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• 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 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 expense is 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 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 or by local coverage of local disasters, such as tornados and hurricanes. 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 any preemption of 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 or local disaster. 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, video on demand, over-the-top distribution of programming, 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.
In addition, video compression techniques now in use with MVPDs 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.
The FCC may impose substantial fines, to a maximum of $325,000 per violation, on television broadcasters for the broadcast of indecent material in violation of the Communications Act and its rules. 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.
In June 2012, the Supreme Court decided a challenge to the FCC’s indecency enforcement without resolving the constitutionality of such enforcement, and the FCC thereafter requested public comment on the appropriate substance and scope of its indecency enforcement policy. The FCC has not yet issued any further decisions or rules in this area, and the courts remain free to review the FCC’s current policy or any modifications thereto. The outcomes of these proceedings could affect future FCC policies in this area, and could have a material adverse effect on our business.
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 forms 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 to standardize TV stations’ reporting of programming responsive to local needs and interests; 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.
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 thus 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 adopted 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 were filed in March 2013. A reallocation of television spectrum for wireless broadband use would 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
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Owned or
Leased
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Approximate Size
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Expiration of
Lease
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WBRE—Wilkes Barre-Scranton, PA
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Office-Studio
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100% Owned
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0.80 Acres
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—
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Office-Studio
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100% Owned
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49,556 Sq. Ft.
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—
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Office-Studio—Williamsport News Bureau
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Leased
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460 Sq. Ft.
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Month to Month
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Office-Studio—Stroudsburg News Bureau
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Leased
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320 Sq. Ft.
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7/31/16
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Office-Studio—Scranton News Bureau
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Leased
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1,627 Sq. Ft.
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11/30/16
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Tower/Transmitter Site—Williamsport
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33% Owned
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1.33 Acres
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—
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Tower/Transmitter Site—Sharp Mountain
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33% Owned
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0.23 Acres
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—
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Tower/Transmitter Site—Blue Mountain
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100% Owned
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0.998 Acres
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—
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Tower/Transmitter Site—Penobscot Mountain
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100% Owned
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20 Acres
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—
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Tower/Transmitter Site—Pimple Hill
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Leased
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400 Sq. Ft.
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Month to Month
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KARK/KARZ—Little Rock-Pine Bluff, AR
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Office-Studio
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Leased
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34,835 Sq. Ft.
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3/31/22
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Tower/Transmitter Site
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100% Owned
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40 Acres
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—
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Tower/Transmitter Site
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Leased
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1 Sq. Ft.
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4/30/16
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KTAL—Shreveport, LA
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Office-Studio
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100% Owned
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2 Acres
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—
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Office-Studio
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100% Owned
|
16,000 Sq. Ft.
|
—
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Equipment Building—Texarkana
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100% Owned
|
0.0808 Acres
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—
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Office-Studio—Texarkana
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Leased
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2,941 Sq. Ft.
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9/30/18
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Tower/Transmitter Site
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100% Owned
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109 Acres
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—
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Tower/Transmitter Site
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100% Owned
|
2,284 Sq. Ft.
|
—
|
|
|
|
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WROC—Rochester, NY
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|
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Office-Studio
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100% Owned
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3.9 Acres
|
—
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Office-Studio
|
100% Owned
|
48,864 Sq. Ft.
|
—
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Tower/Transmitter Site
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100% Owned
|
0.24 Acres
|
—
|
Tower/Transmitter Site
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100% Owned
|
2,400 Sq. Ft.
|
—
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Tower/Transmitter Site
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50% Owned
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1.90 Acres
|
—
|
|
|
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WCIA/WCIX—Champaign-Springfield-Decatur, IL
|
|
|
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Office-Studio
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100% Owned
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20,000 Sq. Ft.
|
—
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Office-Studio
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100% Owned
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1.5 Acres
|
—
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Office-Studio—Sales Bureau
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Leased
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1,600 Sq. Ft.
|
Month to Month
|
Office-Studio—News Bureau
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Leased
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350 Sq. Ft.
|
Month to Month
|
Office-Studio—Decatur News Bureau
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Leased
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300 Sq. Ft.
|
Month to Month
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Roof Top & Boiler Space—Danville Tower
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Leased
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20 Sq. Ft.
|
Month to Month
|
Tower/Transmitter Site—WCIA Tower
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100% Owned
|
38.06 Acres
|
—
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Tower/Transmitter Site—Springfield Tower
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100% Owned
|
2.0 Acres
|
—
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Tower/Transmitter Site—Dewitt Tower
|
100% Owned
|
1.0 Acres
|
—
|
|
|
|
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WMBD—Peoria-Bloomington, IL
|
|
|
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Office-Studio
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100% Owned
|
0.556 Acres
|
—
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Office-Studio
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100% Owned
|
18,360 Sq. Ft.
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—
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Building-Transmitter Site
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100% Owned
|
2,350 Sq. Ft.
|
—
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Building-Transmitter Site
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100% Owned
|
800 Sq. Ft.
|
—
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Tower/Transmitter Site
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100% Owned
|
34.93 Acres
|
—
|
Tower/Transmitter Site
|
100% Owned
|
1.0 Acres
|
—
|
|
|
|
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WTWO—Terre Haute, IN
|
|
|
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Office-Studio
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100% Owned
|
4.774 Acres
|
—
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Office-Studio—Tower/Transmitter Site
|
100% Owned
|
17,375 Sq. Ft.
|
—
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Station Metropolitan Area and Use
|
Owned or
Leased
|
Approximate Size
|
Expiration of
Lease
|
WJET—Erie, PA
|
|
|
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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
|
|
|
|
|
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.
|
7/31/16
|
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
|
Station Metropolitan Area and Use
|
Owned or
Leased
|
Approximate Size
|
Expiration of
Lease
|
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)
|
—
|
—
|
—
|
|
|
|
|
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.
|
6/30/18
|
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—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-Studio—Fayetteville
|
Leased
|
2,848 Sq. Ft.
|
9/30/22
|
Office—Rogers
|
Leased
|
1,612 Sq. Ft.
|
7/31/16
|
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.
|
2/28/16
|
Office-Dubois Bureau
|
Leased
|
315 Sq. Ft.
|
7/31/16
|
Tower/Transmitter Site
|
100% Owned
|
4,400 Sq. Ft.
|
—
|
Station Metropolitan Area and Use
|
Owned or
Leased
|
Approximate Size
|
Expiration of
Lease
|
WFRV/WJMN-Green Bay-Appleton, WI and Marquette, MI
|
|
|
|
Office-Studio
|
100% 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
|
100% Owned
|
8.8 Acres
|
—
|
Tower/Transmitter Site-Rapid River
|
100% 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
|
100% Owned
|
33,820 Sq. Ft.
|
—
|
Tower/Transmitter Site-Farnsworth Peak
|
25% Owned
|
6.0 Acres
|
—
|
Antenna/Microwave-Translator Sites-TSM
|
Leased
|
1.0 Acres
|
3/31/18
|
Antenna/Microwave-Nelson Peak
|
Leased
|
1.0 Acres
|
12/31/14
|
Communication Site-Beaver Dam Mountain
|
Leased
|
1.0 Acres
|
5/31/16
|
|
|
|
|
WETM–Elmira, NY
|
|
|
|
Office-Studio
|
100% Owned
|
1.4 Acres
|
—
|
Tower/Transmitter-Big Flats
|
100% Owned
|
35.4 Acres
|
—
|
Translator-Spafford, NY
|
100% Owned
|
1.2 Acres
|
—
|
Office-Corning, NY
|
Leased
|
550 Sq. Ft.
|
6/30/17
|
|
|
|
|
WIVT/WBGH–Binghamton, NY
|
|
|
|
Office-Studio/Transmitter
|
100% Owned
|
7.0 Acres
|
—
|
|
|
|
|
WATN/WLMT–Memphis, TN
|
|
|
|
Office-Studio-Memphis, TN
|
Leased
|
26,526 Sq. Ft.
|
5/31/28
|
Tower/Transmitter-Brunswick
|
Leased
|
1.0 Acres
|
3/31/17
|
Transmitter-Haywood
|
Leased
|
1.0 Acres
|
2/28/17
|
|
|
|
|
WJKT–Jackson, TN
|
|
|
|
Transmitter-Alamo
|
100% Owned
|
33.0 Acres
|
—
|
Office-Jackson
|
Leased
|
969 Sq. Ft.
|
7/31/15
|
|
|
|
|
WSYR–Syracuse, NY
|
|
|
|
Studio-Syracuse
|
100% Owned
|
6.5 Acres
|
—
|
Office-Dewitt
|
100% Owned
|
10,000 Sq. Ft.
|
—
|
Transmitter-Pompey
|
100% Owned
|
98.0 Acres
|
—
|
|
|
|
|
WWTI–Watertown, NY
|
|
|
|
Studio-Watertown
|
Leased
|
10,000 Sq. Ft.
|
6/30/20
|
Transmitter-Denmark
|
100% Owned
|
16.5 Acres
|
—
|
|
|
|
|
KSEE/KGPE–Fresno, CA
|
|
|
|
Office-Studio-McKinley Ave
|
100% Owned
|
32,000 Sq. Ft.
|
—
|
Office-Studio-McKinley Ave
|
100% Owned
|
2.68 Acres
|
—
|
Office-Studio-First St.
|
100% Owned
|
17,613 Sq. Ft.
|
—
|
Office-Studio-First St.
|
100% Owned
|
1.86 Acres
|
—
|
Tower/Transmitter Site-Bear Mtn
|
Leased
|
2,400 Sq. Ft.
|
12/31/53
|
Tower/Transmitter Site-Auberry
|
100% Owned
|
3.0 Acres
|
—
|
|
|
|
|
KGET/KKEY–Bakersfield, CA
|
|
|
|
Office-Studio
|
100% Owned
|
35,000 Sq. Ft.
|
—
|
Office-Studio
|
100% Owned
|
0.96 Acres
|
—
|
Tower/Transmitter Site
|
Leased
|
1,575 Sq. Ft.
|
12/31/18
|
Station Metropolitan Area and Use
|
Owned or
Leased
|
Approximate Size
|
Expiration of
Lease
|
WFFF–Burlington, VT-Plattsburgh, NY
|
|
|
|
Office-Studio
|
100% Owned
|
15,000 Sq. Ft.
|
—
|
Office-Studio
|
100% Owned
|
2.03 Acres
|
—
|
Tower/Transmitter Site
|
Leased
|
1.0 Acres
|
6/30/25
|
|
|
|
|
Corporate Office—Irving, TX
|
Leased
|
22,061 Sq. Ft.
|
12/31/24
|
GoLocal.Biz Office—St. George, UT
|
Leased
|
1,860 Sq. Ft.
|
Month to Month
|
Inergize Digital Media Office
|
Leased
|
8,469 Sq. Ft.
|
11/30/14
|
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.
|
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
|
Station Metropolitan Area and Use
|
Owned or
Leased
|
Approximate Size
|
Expiration of
Lease
|
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
|
|
|
|
|
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
|
|
|
|
|
KLRT/KASN-Little Rock-Pine Bluff, AR
|
|
|
|
Office-Studio (12)
|
—
|
—
|
—
|
Tower/Transmitter Site-Redfield
|
100% Owned
|
1,625 Sq. Ft.
|
—
|
Tower/Transmitter Site-Redfield
|
100% Owned
|
120 Acres
|
—
|
Tower/Transmitter Site-Pulaski
|
Leased
|
0.23 Acres
|
5/31/17
|
|
|
|
|
WVNY-Burlington, VT-Plattsburgh, NY
|
|
|
|
Office-Studio (13)
|
—
|
—
|
—
|
Tower/Transmitter Site (13)
|
—
|
—
|
—
|
|
|
|
|
Corporate Office-Westlake, OH
|
Leased
|
640 Sq. Ft.
|
11/30/14
|
(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.
|
(12)
|
The office space and studio used by KLRT/KASN are owned by KARK.
|
(13)
|
The office space, studio and tower used by WVNY are owned by WFFF.
|
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Business Operations
As of December 31, 2013, Nexstar Broadcasting Group, Inc. and its wholly-owned subsidiaries (“Nexstar”) owned, operated, programmed or provided sales and other services to 75 television stations and 18 digital multicast channels, including those owned by Mission Broadcasting, Inc. (“Mission”), in 44 markets in the states of Illinois, Indiana, Maryland, Missouri, Montana, Tennessee, Texas, Pennsylvania, Louisiana, Arkansas, Alabama, New York, Florida, Wisconsin, Michigan, Utah, Vermont, California and Iowa. The stations are affiliates of ABC (19 stations), NBC (16 stations), FOX (14 stations), CBS (13 stations), The CW (6 stations and 2 digital multicast channels), MyNetworkTV (5 stations and 2 digital multicast channels), Telemundo (one station), Bounce TV (9 digital multicast channels), LiveWell (3 digital multicast channels), Me-TV (1 digital multicast channel), LATV (1 digital multicast channel) and one independent station. The stations reach approximately 14.9 million viewers or 12.9% of all U.S. television households. Through various local service agreements, Nexstar provided sales, programming and other services to 25 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 Consolidated Financial Statements include the accounts of Nexstar and its subsidiaries. Also included in the Consolidated Financial Statements are the accounts of independently-owned variable interest entities (“VIEs”), Mission and certain stations owned by Citadel Communications, L.P. and its related entities (“Citadel”). Nexstar and the consolidated VIEs are collectively referred to as the “Company”. Where the assets of the consolidated VIEs are not available to be used to settle the obligations of Nexstar, they are presented as assets of the consolidated VIEs on the Consolidated Balance Sheets. Conversely, where the creditors of the consolidated VIEs do not have recourse to the general credit of Nexstar, the related liabilities are presented as liabilities of the consolidated VIEs on the Consolidated Balance Sheets. 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.
All intercompany account balances and transactions have been eliminated in consolidation.
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.
During 2013, the Company entered into amendments to its senior secured credit facilities that allowed incremental term loan facilities, increase in aggregate revolving credit facilities and refinancing of existing loans for favorable interest rates and extended debt maturity date. On October 1, 2013, Nexstar completed the sale and issuance of $275.0 million 6.875% Senior Unsecured Notes. The notes have the same terms as, and are to be treated as a single class with Nexstar’s $250.0 million 6.875% Senior Unsecured Notes that were issued on November 9, 2012 (both issuances are herein referred to as the “6.875% Notes”). The proceeds of $275.0 million 6.875% Notes together with the proceeds of incremental term loan facilities under the Company’s senior secured credit facilities were used to retire the $325.0 million 8.875% Senior Secured Second Lien Notes (“8.875% Notes”) and to partially fund the required deposits and payments for acquisitions. See Notes 3 and 7 for additional information with respect to the Company’s acquisitions and debt transactions, respectively.
As of December 31, 2013, the Company was in compliance with all covenants contained in the amended credit agreements governing its senior secured credit facilities and the indenture governing the 6.875% Notes. The Company expects to continue to be in compliance with all such covenants for at least the next twelve months from December 31, 2013.
Mission
Mission is included in these Consolidated Financial Statements because Nexstar is deemed under accounting principles generally accepted in the United States of America (“U.S. GAAP”) to have a controlling financial interest in Mission as a VIE for financial reporting purposes as a result of (1) local service agreements Nexstar has with the Mission stations, (2) Nexstar’s guarantee of the obligations incurred under Mission’s senior secured credit facility (see Note 7), (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 which permit Nexstar to acquire the assets and assume the liabilities of each Mission station, subject to Federal Communications Commission (“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 2014 and 2023) are freely exercisable or assignable by Nexstar without consent by Mission or its shareholders. The Company expects these option agreements, if unexercised, will be renewed upon expiration. Substantially all of Mission’s assets, except for its FCC licenses, collateralize its secured debt obligation. See Note 15 for a presentation of condensed consolidating financial information of the Company, which includes the accounts of Mission.
Nexstar has entered into local service agreements with Mission to provide sales and/or operating services to the Mission stations. The following table summarizes the various local service agreements Nexstar had in effect with Mission as of December 31, 2013:
|
|
TBA Only
(1)
|
WFXP and KHMT
|
SSA & JSA
(2)
|
KJTL, KJBO-LP, KLRT, KASN, KOLR, KCIT, KCPN-LP, KAMC, KRBC, KSAN, WUTR, WAWV, WYOU, KODE, WTVO, KTVE, WTVW, and WVNY
|
(1)
|
Nexstar has a time brokerage agreement (“TBA”) with each of these stations which allows Nexstar to program most of each station’s broadcast time, sell each station’s advertising time and retain the advertising revenue generated in exchange for monthly payments to Mission, based on the station’s monthly operating expenses.
|
(2)
|
Nexstar has both a shared services agreement (“SSA”) and a joint sales agreement (“JSA”) with each of these stations. Each SSA 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 from Mission as described in the SSAs. Each JSA permits Nexstar to sell the station’s advertising time and retain a percentage of the net revenue from the station’s advertising time in return for monthly payments to Mission of the remaining percentage of net revenue, as described in the JSAs.
|
Nexstar’s ability to receive cash from Mission is governed by these local service agreements. Under the local service agreements, Nexstar has received substantially all of Mission’s available cash, after satisfaction of operating costs and debt obligations. Nexstar anticipates it will continue to receive substantially all of Mission’s available cash, after satisfaction of operating costs and debt obligations. In compliance with FCC regulations for both Nexstar and Mission, Mission maintains complete responsibility for and control over programming, finances, personnel and operations of its stations.
Variable Interest Entities
The Company may determine that a station is a VIE as a result of local service agreements entered into with the owner-operator of the station. 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. In addition to those with Mission, Nexstar has VIEs in connection with local service agreements entered into with stations as discussed below.
In 2001, Nexstar entered into an outsourcing agreement with a subsidiary of Sinclair Broadcast Group, Inc. (“Sinclair”), the owner of WYZZ, the FOX affiliate in Peoria, Illinois. In 2005, Nexstar entered into an outsourcing agreement with a subsidiary of Sinclair, the owner of WUHF, the FOX affiliate in Rochester, New York. Under the outsourcing agreements, Nexstar provides certain engineering, production, sales and administrative services for WYZZ and WUHF through WMBD and WROC, the Nexstar television stations in the respective markets. During the term of the outsourcing agreements, Nexstar is obligated to pay Sinclair a monthly fee based on the combined operating cash flow of WMBD and WYZZ and of WROC and WUHF, as defined in the agreements, which both expired on December 31, 2013. On November 22, 2013, Cunningham Broadcasting Corporation (“Cunningham”) acquired the assets of WYZZ from Sinclair and became the successor to the outsourcing agreement with Nexstar. Effective January 1, 2014, Cunningham extended the outsourcing agreement for WYZZ through December 31, 2017. The outsourcing agreement with Sinclair for WUHF was not renewed and terminated on December 31, 2013.
In 2006, upon Nexstar’s acquisition of WLYH, the CW affiliate in Harrisburg, Pennsylvania, Nexstar became party to a TBA with Newport Television License, LLC (“Newport”). Under the TBA, Nexstar allows WHP, Newport’s CBS affiliate in Harrisburg, 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. The TBA expires in 2015. On December 1, 2012, Newport sold WHP to Sinclair and the TBA transferred to Sinclair.
Nexstar has determined that it has variable interests in WYZZ and WHP and had a variable interest in WUHF. Nexstar has evaluated its arrangements with Sinclair and Cunningham and has determined that it is not the primary beneficiary of the variable interests because it does not have the ultimate power to direct the activities that most significantly impact the economic performance of the stations including developing the annual operating budget, programming and oversight and control of sales management personnel. Therefore, Nexstar has not consolidated these stations under authoritative guidance related to the consolidation of VIEs. Under the outsourcing agreements for WYZZ and WUHF, Nexstar pays for certain operating expenses, and therefore may have unlimited exposure to any potential operating losses. Nexstar’s management believes that Nexstar’s minimum exposure to loss under the WYZZ and WUHF outsourcing agreements consists of the fees paid to Sinclair and to Cunningham. Additionally, Nexstar indemnifies the owners of WHP, WYZZ and WUHF from and against all liability and claims arising out of or resulting from its activities, acts or omissions in connection with the agreements. The maximum potential amount of future payments Nexstar could be required to make for such indemnification is undeterminable at this time. As of December 31, 2013 and 2012, Nexstar had a balance in accounts payable to Sinclair and Cunningham for fees under these arrangements of $1.8 million and $3.4 million, respectively, and had receivables for advertising aired on these two stations of $2.5 million and $2.7 million, respectively. Fees incurred under these arrangements of $5.3 million, $10.3 million and $5.6 million were included in direct operating expenses in the Consolidated Statements of Operations for the years ended December 31, 2013, 2012 and 2011, respectively. Nexstar received payments from Newport and Sinclair under the TBA of $50 thousand, which were included in the Consolidated Statements of Operations for each of the years ended December 31, 2013, 2012 and 2011.
Nexstar has also determined that it has variable interests in the stations included in the proposed acquisition from Citadel (See Note 3) as a result of TBAs effective September 16, 2013. Nexstar has evaluated its arrangements with these stations and determined that it is the primary beneficiary of the variable interests because it has the ultimate power to direct the activities that most significantly impact the economic performance of the stations including developing the annual operating budget, programming and oversight and control of sales management personnel. Therefore, Nexstar has consolidated these stations under authoritative guidance related to the consolidation of VIEs as of September 16, 2013.
Nexstar had a variable interest in Four Points Media Group Holdings, LLC (“Four Points”) due to a management services agreement between the two companies. Four Points owned and operated seven individual stations in four markets. Under this agreement, Nexstar managed the stations for Four Points but did not have ultimate control over the policies or operations of the stations. Nexstar had evaluated the business arrangement with Four Points and concluded that Nexstar was not the primary beneficiary of the variable interest because it did not have the ultimate power to direct the activities that most significantly impact the economic performance of the stations including developing the annual operating budget, setting advertising rates, programming and oversight and control of employees responsible for carrying out business activities of the stations. Therefore, Nexstar did not consolidate Four Points’ financial results. In September 2011, Four Points entered into a definitive agreement to sell their stations to Sinclair and Nexstar began transitioning duties to Sinclair. The sale closed on January 3, 2012, terminating the management services agreement, whereby Nexstar received a payment of $6.7 million, including the outstanding accounts receivable balance of $4.8 million and a contract termination fee of $1.9 million, recorded in net revenue in the year ended December 31, 2011. All amounts due from Four Points were received in 2012.
Nexstar also had a variable interest in a newly acquired station, KSEE, the NBC affiliate serving the Fresno, California market, as a result of the TBA with the station during the period February 1, 2013 to May 31, 2013. Nexstar had evaluated the business arrangement with KSEE and determined that it was the primary beneficiary of the variable interest because it had 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 consolidated KSEE as of February 1, 2013 under authoritative guidance related to the consolidation of VIEs. The acquisition of KSEE closed effective May 31, 2013. See Note 3 for additional information.
Basis of Presentation
Certain prior year financial statement amounts have been reclassified to conform to the current year presentation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and use assumptions that affect the reported amounts of assets and liabilities and the disclosure for contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The more significant estimates made by management include those relating to the allowance for doubtful accounts,
valuation of property and equipment, intangible assets and goodwill from business combinations,
retransmission revenue recognized, trade and barter transactions, income taxes, the recoverability of broadcast rights, the carrying amounts, recoverability and useful lives of tangible and intangible assets and the fair value of non-monetary asset exchanges. Actual results may vary from such estimates recorded.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of ninety days or less to be cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
The Company’s accounts receivable consists primarily of billings to its customers for advertising broadcast on its stations or placed on its websites or for retransmission consent from cable or satellite operators. Trade receivables normally have terms of 30 days and the Company has no interest provision for customer accounts that are past due. The Company maintains an allowance for estimated losses resulting from the inability of customers to make required payments. Management periodically evaluates the collectability of accounts receivable based on a combination of factors, including customer payment history, known customer circumstances, as well as the overall aging of customer balances and trends. In circumstances where management is aware of a specific customer’s inability to meet its financial obligations, an allowance is recorded to reduce their receivable amount to an amount estimated to be collectable.
Concentration of Credit Risk
Financial instruments which potentially expose the Company to a concentration of credit risk consist principally of cash and cash equivalents and accounts receivable. Cash deposits are maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits; however, the Company believes these deposits are maintained with financial institutions of reputable credit and are not subject to any unusual credit risk. A significant portion of the Company’s accounts receivable is due from local and national advertising agencies. The Company does not require collateral from its customers, but maintains reserves for potential credit losses. Management believes that the allowance for doubtful accounts is adequate, but if the financial condition of the Company’s customers were to deteriorate, additional allowances may be required. The Company has not experienced significant losses related to receivables from individual customers or by geographical area.
Revenue Recognition
The Company’s revenue is primarily derived from the sale of advertising. Total revenue includes cash and barter advertising revenue, retransmission compensation and other broadcast related revenues. Advertising revenue is recognized, net of agency commissions, in the period during which the advertisements are broadcast on its stations or delivered on its websites. Any amounts paid by customers but not earned by the balance sheet date are recorded in deferred revenue. Retransmission compensation is recognized based on the estimated number of subscribers over the contract period, based on historical levels and trends for individual providers.
The Company barters advertising time for certain program material. These transactions, except those involving exchange of advertising time for network programming, are recorded at management’s estimate of the fair value of the advertising time exchanged, which approximates the fair value of the program material received. The fair value of advertising time exchanged is estimated by applying average historical advertising rates for specific time periods. Revenue from barter transactions is recognized as the related advertisement spots are broadcast. Barter expense is recognized at the time program broadcast rights assets are used. The Company recorded $22.8 million, $13.8 million and $13.5 million of barter revenue and barter expense for the years ended December 31, 2013, 2012 and 2011, respectively. Barter expense is included in amortization of broadcast rights in the Company’s Consolidated Statements of Operations.
The Company trades certain advertising time for various goods and services. These transactions are recorded at the estimated fair value of the goods or services received. Revenue from trade transactions is recognized when the related advertisement spots are broadcast. The Company recorded $8.7 million, $8.1 million and $8.0 million of trade revenue for the years ended December 31, 2013, 2012 and 2011, respectively.
Trade expense is recognized when services or merchandise received are used. The Company recorded $7.9 million, $7.0 million and $7.8 million of trade expense for the years ended December 31, 2013, 2012 and 2011, respectively, which was included in direct operating expenses in the Company’s Consolidated Statements of Operations.
Broadcast Rights and Broadcast Rights Payable
The Company records rights to programs, primarily in the form of syndicated programs and feature movie packages obtained under license agreements for the limited right to broadcast the suppliers’ programming when the following criteria are met: (1) the cost of each program is known or reasonably determinable, (2) the license period has begun, (3) the program material has been accepted in accordance with the license agreement, and (4) the programming is available for use. Programs that have been produced prior to our contract period are considered available for broadcast, while programs that are produced throughout the contract are recorded and amortized as they are aired. Broadcast rights are initially recorded at the amount paid or payable to program suppliers; or, in the case of barter transactions, at management’s estimate of the fair value of the advertising time exchanged using historical advertising rates, which approximates the fair value of the program material received. Broadcast rights are stated at the lower of unamortized cost or net realizable value. The current portion of broadcast rights represents those rights available for broadcast which will be amortized in the succeeding year. Amortization of broadcast rights is computed using the straight-line method based on the license period or programming usage, whichever period yields the shorter life. Broadcast rights liabilities are reduced by monthly payments to program suppliers; or, in the case of barter transactions, are amortized over the life of the associated programming license contract as a component of trade and barter revenue. When projected future net revenue associated with a program is less than the current carrying amount of the program broadcast rights, for example, due to poor ratings, the Company records amortization of the broadcast rights such that they equal the amount of projected future net revenue. If the expected broadcast period is shortened or cancelled, the Company would be required to amortize the remaining value of the related broadcast rights on an accelerated basis.
Property and Equipment, Net
Property and equipment is stated at cost or estimated fair value at the date of acquisition. The cost and related accumulated depreciation applicable to assets sold or retired are removed from the accounts and the gain or loss on disposition is recognized. Major renewals and betterments are capitalized and ordinary repairs and maintenance are charged to expense in the period incurred. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets (see Note 4).
Intangible Assets, Net
Intangible assets consist primarily of goodwill, representing the excess of the purchase price of acquired businesses over the fair values of net assets acquired on the acquisition date, and broadcast licenses (“FCC licenses”) and network affiliation agreements, recorded at estimated fair value at the date of acquisition using a discounted cash flow method. The Company’s goodwill and FCC licenses are considered to be indefinite-lived intangible assets and are not amortized but are tested for impairment annually or whenever events or changes in circumstances indicate that such assets might be impaired. The use of an indefinite life for FCC licenses contemplates the Company’s historical ability to renew its licenses, that such renewals generally may be obtained indefinitely and at little cost and that the technology used in broadcasting is not expected to be replaced in the foreseeable future. Therefore, cash flows derived from the FCC licenses are expected to continue indefinitely. Network affiliation agreements are subject to amortization computed on a straight-line basis over the estimated useful life of 15 years. The 15 year life assumes affiliation contracts will be renewed upon expiration. Changes in the likelihood of renewal could require a change in the useful life of such assets and cause and acceleration of amortization. The Company evaluates the remaining lives of its network affiliations whenever changes occur in the likelihood of affiliation contract renewals, and at least on an annual basis.
The Company aggregates its stations by market (“reporting unit”) for purposes of goodwill and FCC license impairment testing because management views, manages and evaluates its stations on a market basis. The impairment test for FCC licenses consists of a market-by-market comparison of the carrying amount of FCC licenses with their fair value, using a discounted cash flow analysis. The impairment test for goodwill utilizes a two-step fair value approach. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of the reporting unit to its carrying amount. The fair value of a reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not considered impaired. If the carrying amount of the reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined by performing an assumed purchase price allocation, using the reporting unit fair value (as determined in Step 1) as the purchase price. If the carrying amount of goodwill exceeds the implied fair value, an impairment loss is recognized in an amount equal to that excess.
Determining the fair value of reporting units requires management to make a number of judgments about assumptions and estimates that are highly subjective and that are based on unobservable inputs. The actual results may differ from these assumptions and estimates; and it is possible that such differences could have a material impact on the Company’s Consolidated Financial Statements. In addition to the various inputs (i.e. market growth, operating profit margins, discount rates) used to calculate the fair value of FCC licenses and reporting units, the Company evaluates the reasonableness of its assumptions by comparing the total fair value of all its reporting units to its total market capitalization; and by comparing the fair values of its reporting units and FCC licenses to recent market television station sale transactions.
The Company tests network affiliation agreements for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable, relying on a number of factors including operating results, business plans, economic projections and anticipated future cash flows. An impairment in the carrying amount of a network affiliation agreement is recognized when the expected discounted future operating cash flow derived from the operation to which the asset relates is less than its carrying value. The impairment test for network affiliation agreements consists of a station-by-station comparison of the carrying amount of network affiliation agreements with their fair value, using a discounted cash flow analysis.
Debt Financing Costs
Debt financing costs represent direct costs incurred to obtain long-term financing and are amortized to interest expense over the term of the related debt. Previously capitalized debt financing costs are expensed and included in loss on extinguishment of debt if the Company determines that there has been a substantial modification of the related debt. As of December 31, 2013 and 2012, debt financing costs of $18.0 million and $15.6 million, respectively, were included in other noncurrent assets.
Comprehensive (Loss) Income
Comprehensive (loss) income includes net (loss) income and certain items that are excluded from net (loss) income and recorded as a separate component of stockholders’ (deficit) equity. During the years ended December 31, 2013, 2012 and 2011, the Company had no items of other comprehensive (loss) income and, therefore, comprehensive (loss) income does not differ from reported net (loss) income.
Advertising Expense
The cost of advertising is expensed as incurred. The Company incurred advertising costs in the amount of $2.6 million, $2.1 million and $1.9 million for the years ended December 31, 2013, 2012 and 2011, respectively, of which the majority was recognized in trade expense.
Financial Instruments
The Company utilizes the following categories to classify the valuation methodologies for fair values of financial assets and liabilities:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
The carrying amount of cash and cash equivalents, accounts receivable, broadcast rights payable, accounts payable and accrued expenses approximates fair value due to their short-term nature. See Note 7 for fair value disclosures related to the Company’s debt.
Stock-Based Compensation
Nexstar maintains stock-based employee compensation plans which are described more fully in Note 11. The Company calculates the grant-date fair value of employee stock options using the Black-Scholes model and recognizes this amount into selling, general and administrative expense over the vesting period of the options.
Income Taxes
The Company accounts for income taxes under the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities. A valuation allowance is applied against net deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Nexstar and its subsidiaries file a consolidated federal income tax return. Mission files its own separate federal income tax return.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities. The determination is based on the technical merits of the position and presumes that each uncertain tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information. The Company recognizes interest and penalties relating to income taxes within income tax expense.
(Loss) Income Per Share
Basic (loss) income per share is computed by dividing the net (loss) income by the weighted-average number of common shares outstanding during the period. Diluted (loss) 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 outstanding during the period and reflect the potential dilution that could occur if common shares were issued upon exercise of stock options. The following table shows the amounts used in computing the Company’s diluted shares during the years ended December 31, 2013, 2012 and 2011 (in thousands):
|
|
2013
|
|
2012
|
|
2011
|
Weighted average shares outstanding - basic
|
|
29,897
|
|
28,940
|
|
28,626
|
Effect of dilutive stock options
|
|
-
|
|
1,792
|
|
-
|
Weighted average shares outstanding - diluted
|
|
29,897
|
|
30,732
|
|
28,626
|
The Company has outstanding stock options to acquire 3,418,000, 379,000 and 3,777,000 weighted average shares of common stock for the years ended December 31, 2013, 2012 and 2011, respectively, the effects of which are excluded from the calculation of dilutive (loss) income per share, as their inclusion would have been anti-dilutive for the periods presented.
Recent Accounting Pronouncements
In July 2013, the FASB issued ASU No. 2013-11,
Income Taxes (Topic 740)
(“ASU 2013-11”) which provides guidance on financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The update is effective for years beginning after December 15, 2013. The Company does not expect the implementation of this standard to have a material impact on its financial position or results of operations.
3. Acquisitions and Dispositions
Gray TV/Excalibur
On December 18, 2013, Nexstar and Mission entered into definitive agreements to acquire 6 television stations in 2 markets. Under the terms of the purchase agreements, Nexstar will acquire the outstanding equity of the following stations for $33.5 million in cash, subject to adjustments for working capital, along with their respective network affiliation agreements: WMBB (ABC) in the Panama City, Florida market, KREX (CBS) and KGJT (MyNetworkTV), both in the Grand Junction, Colorado market, KREG (CBS), in the Glenwood Springs, Colorado market and KREY (CBS), in the Montrose, Colorado market, from Gray Television Group, Inc. (“Gray TV”). Both KREG and KREY operate as satellite stations of KREX. Mission will acquire the outstanding equity of KFQX, the FOX affiliate, in the Grand Junction, Colorado market, for $4.0 million in cash, subject to adjustments for working capital, from Excalibur Broadcasting, LLC (“Excalibur”). The acquisitions will allow the Company entrance into 2 new markets. The purchase price is expected to be funded through cash generated from operations prior to closing, borrowings under the existing credit facilities and future credit market transactions. The acquisitions are subject to FCC approval and other customary conditions and the Company is projecting them to close in the second quarter of 2014. No significant transaction costs were incurred in connection with these acquisitions during the year ended December 31, 2013.
Grant
On November 6, 2013, Nexstar entered into a stock purchase agreement to acquire the outstanding equity of privately-held Grant Company, Inc. (“Grant”), the owner of 7 television stations in 4 markets, for $87.5 million in cash, subject to adjustments for working capital. The stations to be acquired, along with their respective network affiliation agreements are WFXR (FOX) and WWCW (The CW), both in the Roanoke, Virginia market, WZDX (FOX), in the Huntsville, Alabama market, KGCW (the CW) and KLJB (FOX), both in the Quad Cities, Iowa market and WLAX (FOX) and WEUX (FOX), both in the LaCrosse, Wisconsin market. Simultaneous with this acquisition, Nexstar entered into a purchase agreement with Mission pursuant to which Mission will acquire KLJB from Nexstar for $15.3 million in cash and, upon consummation, enter into local service agreements with Nexstar. The acquisitions will allow the Company entrance into 3 new markets and a duopoly in one market. A deposit of $8.5 million was paid by Nexstar upon signing the stock purchase agreement funded by cash on hand. The remaining purchase price is expected to be funded through cash generated from operations prior to closing, borrowings under the existing credit facilities and future credit market transactions. The acquisitions are subject to FCC approval and other customary conditions and the Company is projecting them to close in the second quarter of 2014.
During the year ended December 31, 2013, Nexstar incurred acquisition related costs of $0.3 million, which primarily consisted of legal and professional fees. These costs are included in selling, general and administrative expenses in the accompanying Consolidated Statements of Operations.
Citadel
On September 16, 2013, Nexstar entered into definitive agreements to acquire 3 television stations in 3 markets along with the respective network affiliation agreements: WOI (ABC) in the Des Moines, Iowa market, WHBF (CBS) in the Rock Island, Illinois market and KCAU (ABC) in the Sioux City, Iowa market. Under the terms of the purchase agreements, Nexstar will acquire the assets of KCAU and WHBF and the outstanding equity of WOI for a total of $87.9 million in cash, subject to adjustments for working capital, from Citadel. These acquisitions will allow Nexstar entrance into 3 new markets. Nexstar made payments of $44.9 million to acquire the assets excluding FCC licenses and real property interests of KCAU and WHBF and $21.0 million as an upfront payment to acquire the outstanding equity of WOI, funded by a combination of borrowings under Nexstar’s revolving credit facility (See Note 7) and cash on hand. Nexstar began providing programming and sales services to these stations pursuant to TBAs effective September 16, 2013. The remaining purchase price of $22.0 million is expected to be funded by Nexstar through borrowings under its existing credit facility and cash on hand. As of December 31, 2013, this amount is included in the current liabilities of the Consolidated Balance Sheet. The acquisitions are subject to FCC approval and other customary conditions and Nexstar is projecting them to close in the first quarter of 2014.
During the year ended December 31, 2013, Nexstar incurred acquisition related costs of $0.4 million, which primarily consisted of legal and professional fees. These costs are included in selling, general and administrative expenses in the accompanying Consolidated Statements of Operations.
As discussed in Note 2, Nexstar is the primary beneficiary of its variable interests in KCAU, WHBF and WOI. Therefore, Nexstar consolidated these entities into its Consolidated Financial Statements beginning September 16, 2013. Nexstar is in the process of finalizing the allocation of purchase price to the fair values of assets and liabilities acquired and managed through TBAs. The preliminary estimated fair values of the assets acquired, FCC licenses and real property interests to be acquired and liabilities assumed in the acquisitions are as follows (in thousands):
Broadcast rights
|
|
$
|
269
|
|
Prepaid expenses and other current assets
|
|
|
252
|
|
Property and equipment
|
|
|
10,613
|
|
FCC licenses of consolidated VIEs
|
|
|
24,700
|
|
Network affiliation agreements
|
|
|
26,129
|
|
Other intangible assets
|
|
|
3,398
|
|
Goodwill
|
|
|
30,214
|
|
Other assets
|
|
|
1,807
|
|
Total assets acquired
|
|
|
97,382
|
|
Less: Broadcast rights payable
|
|
|
(269
|
)
|
Less: Accounts payable and accrued expenses
|
|
|
(397
|
)
|
Less: Deferred tax liabilities
|
|
|
(8,801
|
)
|
Net assets acquired
|
|
$
|
87,915
|
|
The estimated fair value assigned to goodwill is attributable to future expense reductions utilizing management’s leverage in programming and other station operating costs. The intangible asset related to the network affiliation agreements to be acquired will be amortized over 15 years. Other intangible assets are expected to be amortized over an estimated weighted average useful life of one year.
Nexstar expects KCAU/WHBF’s estimated fair value of goodwill and FCC licenses of $10.7 million and $14.7 million, respectively, to be deductible for tax purposes. WOI’s estimated fair value of goodwill, FCC license and network affiliation agreements of $19.5 million, $10.0 million and $11.0 million, respectively, will not be deductible for tax purposes until the station’s assets are disposed.
KCAU/WHBF/WOI’s net revenue of $6.9 million and net income of $0.8 million for the period September 16, 2013 to December 31, 2013 have been included in the accompanying Consolidated Statements of Operations.
Stainless
On September 13, 2013, Mission entered into a definitive agreement to acquire WCIZ, the FOX affiliate, and WBPN-LP, the MyNetworkTV affiliate, both in the Binghamton, New York market, from Stainless Broadcasting, L.P. (“Stainless”). The acquisition will allow Mission entrance into this market. Under the terms of the purchase agreement, Mission will acquire the assets of WICZ and WBPN-LP for $15.3 million in cash, subject to adjustments for working capital. A deposit of $0.2 million was paid upon signing the agreement. The remaining purchase price is expected to be funded by Mission through borrowings under its existing credit facility and cash on hand. The acquisition is subject to FCC approval and other customary conditions and Mission projects it to close in the second quarter of 2014. No significant transaction costs were incurred in connection with this acquisition during the year ended December 31, 2013.
CCA/White Knight
On April 24, 2013, Nexstar and Mission entered into a stock purchase agreement to acquire the stock of privately-held Communications Corporation of America (“CCA”) and White Knight Broadcasting (“White Knight”), the owners of 19 television stations in 10 markets, for a total consideration of $270.0 million, subject to adjustments for working capital. Pursuant to the stock purchase agreement, Nexstar has agreed to purchase all the outstanding equity of CCA and Mission has agreed to purchase all the outstanding equity of White Knight. Nexstar will acquire 10 television stations, Mission will acquire 7 television stations and Rocky Creek Communications, Inc. (“Rocky Creek”), an independent third party, will acquire 2 television stations. Nexstar will also enter into local service agreements with Mission and Rocky Creek. These acquisitions will allow the Company and Rocky Creek entrance into 7 new markets and operate duopolies in 4 markets. The stations to be acquired are as follows:
Market
|
|
Market Rank
|
|
Station
|
|
Affiliation
|
Nexstar:
|
|
|
|
|
|
|
Harlingen-Weslaco-Brownsville-McAllen, TX
|
|
86
|
|
KVEO
|
|
NBC/Estrella
|
Waco-Temple-Bryan, TX
|
|
88
|
|
KWKT
|
|
FOX/MyNetworkTV/ Estrella
|
|
|
|
|
KYLE
|
|
FOX/MyNetworkTV/ Estrella
|
El Paso, TX
|
|
91
|
|
KTSM
|
|
NBC/Estrella
|
Baton Rouge, LA
|
|
94
|
|
WGMB
|
|
FOX
|
|
|
|
|
WBRL-CD
|
|
The CW
|
Tyler-Longview, TX
|
|
107
|
|
KETK
|
|
NBC/Estrella
|
Lafayette, LA
|
|
124
|
|
KADN
|
|
FOX
|
|
|
|
|
KLAF-LD
|
|
MyNetworkTV
|
Alexandria, LA
|
|
179
|
|
WNTZ
|
|
FOX/MyNetworkTV
|
|
|
|
|
|
|
|
Mission:
|
|
|
|
|
|
|
Shreveport, LA
|
|
83
|
|
KMSS
|
|
FOX
|
Baton Rouge, LA
|
|
94
|
|
WVLA
KZUP-CD
|
|
NBC
RTV
|
Tyler-Longview, TX
|
|
107
|
|
KFXK
KFXL-LD
KLPN-LD
|
|
FOX
FOX
MyNetworkTV
|
Odessa-Midland, TX
|
|
152
|
|
KPEJ
|
|
FOX/Estrella
|
|
|
|
|
|
|
|
Rocky Creek:
|
|
|
|
|
|
|
Shreveport, LA
|
|
83
|
|
KSHV
|
|
MyNetworkTV
|
Evansville, IN
|
|
104
|
|
WEVV
|
|
CBS/FOX/ MyNetworkTV
|
A deposit of $27.0 million was paid upon signing the agreement funded by a combination of borrowings under Nexstar’s revolving credit facility (See Note 7) and cash on hand. The remaining purchase price is expected to be funded through cash generated from operations prior to closing, borrowings under the existing credit facilities and future credit market transactions. The acquisitions are subject to FCC approval and other customary conditions and the Company is projecting them to close in the second quarter of 2014.
During the year ended December 31, 2013, the Company incurred acquisition related costs of $0.8 million which primarily consisted of legal and professional fees. These costs are included in selling, general and administrative expenses in Nexstar’s Consolidated Statements of Operations.
WFFF/WVNY
On March 1, 2013, Nexstar and Mission acquired the assets of WFFF, the FOX affiliate, and WVNY, the ABC affiliate, both in the Burlington-Plattsburgh, Vermont market, from Smith Media, LLC (“Smith Media”) for $16.6 million in cash, funded by a combination of Nexstar’s and Mission’s borrowings from their revolving credit facilities (See Note 7) and cash on hand. The purchase price includes a $0.8 million deposit paid by Nexstar upon signing the purchase agreement in November 2012. This acquisition allows Nexstar and Mission entrance into this market. During the year ended December 31, 2013, the transaction costs relating to this acquisition, including legal and professional fees of $0.1 million were expensed as incurred.
The fair values of the assets acquired and liabilities assumed in the acquisition are as follows (in thousands):
Broadcast rights
|
|
$
|
1,030
|
|
Prepaid expenses and other current assets
|
|
|
150
|
|
Property and equipment
|
|
|
7,100
|
|
FCC licenses
|
|
|
2,797
|
|
FCC licenses of consolidated VIEs
|
|
|
2,797
|
|
Network affiliation agreements
|
|
|
2,119
|
|
Other intangible assets
|
|
|
439
|
|
Goodwill
|
|
|
1,787
|
|
Total assets acquired
|
|
|
18,219
|
|
Less: Broadcast rights payable
|
|
|
(1,145
|
)
|
Less: Deferred revenue
|
|
|
(19
|
)
|
Less: Accounts payable and accrued expenses
|
|
|
(504
|
)
|
Net assets acquired
|
|
$
|
16,551
|
|
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 asset related to the network affiliation agreements acquired is amortized over 15 years. Other intangible assets are amortized over an estimated weighted average useful life of 6 months.
WFFF/WVNY’s net revenue of $10.1 million and net income of $1.8 million for the period March 1, 2013 to December 31, 2013 have been included in the accompanying Consolidated Statements of Operations.
KGET/KKEY-LP/KGPE
Effective February 1, 2013, Nexstar acquired the assets of KGPE, the CBS affiliate, in the Fresno, California market, KGET, the NBC/The CW affiliate, and KKEY-LP, the low powered Telemundo affiliate, both in the Bakersfield, California market, from Newport for $35.4 million in cash, funded by cash on hand and includes a $3.5 million deposit paid by Nexstar upon signing the purchase agreement in November 2012. This acquisition allows Nexstar entrance into these markets. During the year ended December 31, 2013, the transaction costs relating to this acquisition, including legal and professional fees of $0.2 million were expensed as incurred.
The fair values of the assets acquired and liabilities assumed in the acquisition are as follows (in thousands):
Broadcast rights
|
|
$
|
72
|
|
Prepaid expenses and other current assets
|
|
|
351
|
|
Property and equipment
|
|
|
9,343
|
|
FCC licenses
|
|
|
14,318
|
|
Network affiliation agreements
|
|
|
9,307
|
|
Other intangible assets
|
|
|
1,310
|
|
Goodwill
|
|
|
1,077
|
|
Total assets acquired
|
|
|
35,778
|
|
Less: Broadcast rights payable
|
|
|
(72
|
)
|
Less: Deferred revenue
|
|
|
(57
|
)
|
Less: Accounts payable and accrued expenses
|
|
|
(196
|
)
|
Net assets acquired
|
|
$
|
35,453
|
|
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 asset related to the network affiliation agreements acquired is amortized over 15 years. Other intangible assets are amortized over an estimated weighted average useful life of 10 months.
KGET/KKEY-LP/KGPE’s net revenue of $25.0 million and net income of $0.3 million for the period February 1, 2013 to December 31, 2013 have been included in the accompanying Consolidated Statements of Operations.
KSEE
Effective February 1, 2013, Nexstar entered into a definitive agreement to acquire the assets of KSEE, the NBC affiliate serving the Fresno, California market, and an unrelated network affiliation agreement from Granite Broadcasting Corporation (“Granite”) for $26.5 million in cash. Pursuant to the asset purchase agreement, Nexstar made a payment of $20.0 million funded by cash on hand, to acquire the station’s assets excluding FCC license and certain transmission equipment. Nexstar also entered into a TBA for 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 FCC approval of the asset purchase. On April 17, 2013, Nexstar received approval from the FCC to purchase the remaining assets of KSEE. On May 31, 2013, Nexstar completed the acquisition of the FCC license and certain transmission equipment and paid the remaining purchase price of $6.5 million. Accordingly, the TBA was terminated as of this date. This acquisition allows Nexstar to operate a duopoly in this market. No significant transaction costs were incurred in connection with this acquisition during the year ended December 31, 2013.
The fair values of the assets acquired and liabilities assumed in the acquisition are as follows (in thousands):
Prepaid expenses and other current assets
|
|
$
|
140
|
|
Property and equipment
|
|
|
7,350
|
|
FCC licenses
|
|
|
7,385
|
|
Network affiliation agreements
|
|
|
7,870
|
|
Other intangible assets
|
|
|
107
|
|
Goodwill
|
|
|
3,838
|
|
Total assets acquired
|
|
|
26,690
|
|
Less: Accounts payable and accrued expenses
|
|
|
(194
|
)
|
Net assets acquired
|
|
$
|
26,496
|
|
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 asset related to the network affiliation agreements acquired is amortized over 15 years. Other intangible assets are amortized over an estimated weighted average useful life of 5 months.
KSEE’s net revenue of $6.6 million and net income of $4.7 million for the period February 1, 2013 to December 31, 2013 have been included in the accompanying Consolidated Statements of Operations.
KLRT/KASN
Effective January 1, 2013, Mission acquired the assets of KLRT, the FOX affiliate, and KASN, the CW affiliate, both in the Little Rock, Arkansas market, from Newport for $59.7 million in cash. Pursuant to the terms of the purchase agreement, Mission made an initial payment of $6.0 million against the purchase price on July 18, 2012. The remainder of the purchase price was funded by Mission through the proceeds of $60.0 million term loan under its senior secured credit facility (See Note 7). This acquisition allows Mission entrance into this market. The transaction costs relating to this acquisition, including legal and professional of $0.1 million, were expensed as incurred during the year ended December 31, 2012. No significant transaction costs were incurred in connection with this acquisition during the year ended December 31, 2013.
The fair values of the assets acquired and liabilities assumed in the acquisition are as follows (in thousands):
Broadcast rights
|
|
$
|
2,279
|
|
Prepaid expenses and other current assets
|
|
|
71
|
|
Property and equipment
|
|
|
11,153
|
|
FCC licenses of consolidated VIEs
|
|
|
16,827
|
|
Network affiliation agreements
|
|
|
17,002
|
|
Other intangible assets
|
|
|
2,511
|
|
Goodwill
|
|
|
12,727
|
|
Other assets
|
|
|
7
|
|
Total assets acquired
|
|
|
62,577
|
|
Less: Broadcast rights payable
|
|
|
(2,492
|
)
|
Less: Accounts payable and accrued expenses
|
|
|
(386
|
)
|
Net assets acquired
|
|
$
|
59,699
|
|
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 asset related to the network affiliation agreements acquired is amortized over 15 years. Other intangible assets are amortized over an estimated weighted average useful life of one year.
KLRT/KASN’s net revenue of $20.4 million and net income of $9.4 million during the year ended December 31, 2013 have been included in the accompanying Consolidated Statements of Operations.
Newport Acquisition
On December 1, 2012, Nexstar acquired the assets of 10 television stations listed below in 7 markets and Inergize Digital Media (“Inergize”), a digital media management entity that offers solutions for companies in building presence on the web and in the mobile arena, from Newport
(the “Newport Acquisition”)
for $225.0 million in cash, funded by Nexstar’s senior secured credit facility (See Note 7). The acquisition allows Nexstar entrance into these markets. The transaction costs relating to this acquisition, including legal, professional fees and travel, of $1.7 million, were expensed as incurred during the year ended December 31, 2012.
Market
|
|
Station
|
|
Primary
Affiliation
|
Salt Lake City, UT
|
|
KTVX
|
|
ABC
|
|
|
KUCW
|
CW
|
Memphis, TN
|
|
WPTY
|
|
ABC
|
|
|
WLMT
|
CW
|
Syracuse, NY
|
|
WSYR
|
|
ABC
|
Binghamton, NY
|
|
WBGH
|
|
NBC
|
|
|
WIVT
|
ABC
|
Elmira, NY
|
|
WETM
|
|
NBC
|
Jackson, TN
|
|
WJKT
|
|
FOX
|
Watertown, NY
|
|
WWTI
|
|
ABC
|
The fair values of the assets acquired and liabilities assumed in the acquisition are as follows (in thousands):
Broadcast rights
|
|
|
9,346
|
|
Prepaid expenses
|
|
|
728
|
|
Property and equipment
|
|
|
44,314
|
|
FCC licenses
|
|
|
80,838
|
|
Network affiliation agreements
|
|
|
52,817
|
|
Other intangibles
|
|
|
11,149
|
|
Goodwill
|
|
|
36,501
|
|
Other assets
|
|
|
1,015
|
|
Total assets acquired
|
|
|
236,708
|
|
Less: Broadcast rights payable
|
|
|
(10,274
|
)
|
Less: Accounts payable and accrued expenses
|
|
|
(1,204
|
)
|
Less: Deferred revenue
|
|
|
(216
|
)
|
Less: Other liabilities
|
|
|
(2
|
)
|
Net assets acquired
|
|
$
|
225,012
|
|
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 asset related to the network affiliation agreement acquired will be amortized over 15 years. Other intangible assets are amortized over an estimated weighted average useful life of approximately 1.5 years.
The Newport Acquisition’s revenue of $8.0 million and net income of $0.5 million for the period December 1, 2012 to December 31, 2012 have been included in the accompanying Consolidated Statements of Operations for 2012.
WFRV and WJMN
On July 1, 2011, Nexstar acquired the assets of WFRV and WJMN from an affiliate of Liberty Media Corporation for $21.5 million. This acquisition allows the Company entrance into these markets. The purchase consideration is comprised of $19.1 million of cash, borrowed under Nexstar’s senior secured credit facility, and the issuance of 334,292 unregistered shares of Nexstar Class A common stock, valued at $2.4 million. Transaction costs relating to this acquisition, including legal and professional fees and travel, of $0.1 million were expensed as incurred.
The fair values of the assets acquired and liabilities assumed in the acquisition are as follows (in thousands):
Broadcast rights
|
|
$
|
286
|
|
Prepaid tower lease
|
|
|
1,037
|
|
Property and equipment
|
|
|
9,525
|
|
FCC licenses
|
|
|
8,678
|
|
Network affiliation agreement
|
|
|
1,784
|
|
Other intangibles
|
|
|
159
|
|
Goodwill
|
|
|
439
|
|
Other assets
|
|
|
94
|
|
Total assets acquired
|
|
|
22,002
|
|
Less: Broadcast rights payable
|
|
|
(365
|
)
|
Less: Accrued expenses
|
|
|
(149
|
)
|
Net assets acquired
|
|
$
|
21,488
|
|
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 asset related to the network affiliation agreement acquired will be amortized over 15 years.
GoLocal.Biz
On July 14, 2011, Nexstar acquired the assets of Internet technology provider GoLocal.Biz for $1.0 million. GoLocal.Biz provides local business directory, coupon, movie and entertainment listings to all of Nexstar’s community portal websites and to other U.S. local market clients. No significant transaction costs were incurred in connection with this acquisition.
The fair values of the assets acquired and liabilities assumed in the acquisition are as follows (in thousands):
Accounts receivable
|
|
$
|
48
|
|
Property and equipment
|
|
|
16
|
|
Software and other intangible assets
|
|
|
750
|
|
Goodwill
|
|
|
186
|
|
Total assets acquired
|
|
$
|
1,000
|
|
The fair value assigned to goodwill is attributable to future revenue growth and expense reductions utilizing our large sales force and management’s experience in digital media. The goodwill is deductible for tax purposes. The intangible asset related to the software acquired will be amortized over five years.
WEHT and WTVW
On December 1, 2011, Nexstar acquired the assets of WEHT from Gilmore Broadcasting Corporation for $20.3 million in cash, funded with cash on hand and borrowings from its senior secured credit agreement. This acquisition expanded Nexstar’s presence in this market and created a new duopoly market for the Company. Transaction costs relating to this acquisition, including legal and professional fees and travel of $0.1 million were expensed as incurred.
In addition, on December 1, 2011, Nexstar sold the FCC license, the broadcast rights and related liabilities and certain equipment of WTVW to Mission for $6.7 million in cash and entered into local service agreements with Mission for WTVW, similar to Nexstar’s other local service arrangements with Mission. Mission funded the acquisition cost with borrowings from its senior secured credit agreement. As Mission is consolidated into the Company for financial reporting purposes as discussed in Note 2, Mission recorded the net assets acquired at historical book values, rather than at fair values. The acquisition of WTVW by Mission was deemed to be a change in the reporting entity of Mission, thus the historical results of Mission have been presented as if WTVW was owned and operated by Mission as of the earliest period presented. All effects of the sale between Nexstar and Mission have been eliminated in consolidation.
The fair values of the assets acquired and liabilities assumed in the WEHT acquisition are as follows (in thousands):
Accounts receivable, net
|
|
$
|
1,929
|
|
Broadcast rights
|
|
|
958
|
|
Property and equipment
|
|
|
7,907
|
|
FCC license
|
|
|
5,343
|
|
Network affiliation agreement
|
|
|
2,077
|
|
Other intangibles
|
|
|
234
|
|
Goodwill
|
|
|
2,891
|
|
Other assets
|
|
|
216
|
|
Total assets acquired
|
|
|
21,555
|
|
Less: Broadcast rights payable
|
|
|
(958
|
)
|
Less: Accounts payable and accrued expenses
|
|
|
(310
|
)
|
Net assets acquired
|
|
$
|
20,287
|
|
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 license are deductible for tax purposes. The intangible asset related to the network affiliation agreement acquired will be amortized over 15 years.
Unaudited Pro Forma Information
The Granite and Smith Media acquisitions are immaterial, both individually and in aggregate. The 2011 acquisitions are also immaterial, both individually and in aggregate. Therefore, pro forma information has not been provided for these acquisitions.
As discussed above, Nexstar and Mission acquired certain television stations from Newport during 2013 and 2012. As the stations were acquired from the same entity, the Company considered these acquisitions as a single transaction for purposes of assessing materiality and presenting pro forma information. Therefore, the following unaudited pro forma information has been presented as if the acquisitions of KGET/KKEY-LP/KGPE, KLRT/KASN and the Newport Acquisition had occurred on January 1, 2012, for the year ended December 31 (in thousands):
|
|
Unaudited
|
|
|
|
2013
|
|
|
2012
|
|
Net revenue
|
|
$
|
503,903
|
|
|
$
|
498,859
|
|
Income before income taxes
|
|
|
2,649
|
|
|
|
54,253
|
|
Net (loss) income
|
|
|
(671
|
)
|
|
|
188,079
|
|
Net (loss) income per common share - basic
|
|
|
(0.02
|
)
|
|
|
6.50
|
|
Net (loss) income per common share - diluted
|
|
|
(0.02
|
)
|
|
|
6.12
|
|
The above selected unaudited pro forma information is presented for illustrative purposes only and is not necessarily indicative of results of operations in future periods or results that would have been achieved had the Company owned the acquired stations during the specified periods.
Beaumont Station Sale
On December 1, 2012, Nexstar sold the net assets of KBTV, its FOX and Bounce TV affiliate in Beaumont-Port Arthur, Texas, 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. Nexstar recognized a $5.1 million gain on disposal of KBTV, net of $3.1 million income tax expense presented as discontinued operations. The operating results of KBTV, comprising net revenue of $4.1 million and $4.3 million and total operating expenses of $4.0 million and $4.5 million for the years ended December 31, 2012 and 2011, respectively, have not been presented as discontinued operations based on materiality for all periods presented.
4. Property and Equipment
Property and equipment consisted of the following, as of December 31 (dollars in thousands):
|
|
Estimated
|
|
|
|
|
|
|
|
useful life,
|
|
|
|
|
|
|
|
in years
|
|
2013
|
|
2012
|
|
Buildings and improvements
|
|
39
|
|
$
|
55,338
|
|
$
|
48,000
|
|
Land
|
|
N/A
|
|
|
14,479
|
|
|
11,557
|
|
Leasehold improvements
|
|
term of lease
|
|
|
4,396
|
|
|
1,821
|
|
Studio and transmission equipment
|
|
5-15
|
|
|
278,014
|
|
|
246,418
|
|
Office equipment and furniture
|
|
3-7
|
|
|
29,580
|
|
|
29,058
|
|
Vehicles
|
|
5
|
|
|
12,924
|
|
|
12,157
|
|
Construction in progress
|
|
N/A
|
|
|
9,416
|
|
|
7,364
|
|
|
|
|
|
|
404,147
|
|
|
356,375
|
|
Less: accumulated depreciation
|
|
|
|
|
(191,888
|
)
|
|
(176,213
|
)
|
Property and equipment, net
|
|
|
|
$
|
212,259
|
|
$
|
180,162
|
|
In 2001, an entity acquired by Nexstar sold certain of its telecommunications tower facilities for cash and then entered into noncancelable operating leases with the buyer for tower space. In connection with this transaction a $9.1 million gain on the sale was deferred and is being recognized over the lease term which expires in May 2021. The deferred gain as of December 31, 2013 and 2012 was $2.7 million and $3.2 million, respectively, including $1.2 million and $1.4 million, respectively, in other noncurrent liabilities of Mission and $0.4 million in current liabilities as of December 31, 2013 and 2012.
As of December 31, 2013 and 2012, included in net property and equipment is $2.9 million and $2.5 million, respectively, of costs related to the purchase of traffic software. The asset is being amortized over 10 years, based on the life of the contract. As of December 31, 2013 and 2012, the current portion of the liability associated with this contract of $1.1 million and $0.4 million, respectively, is included in other current liabilities and the long-term portion of $3.3 million and $2.8 million, respectively, is included in other non-current liabilities in the accompanying Consolidated Balance Sheets.
5. Intangible Assets and Goodwill
Intangible assets subject to amortization consisted of the following, as of December 31 (in thousands):
|
|
Estimated
|
|
2013
|
|
2012
|
|
|
|
useful life,
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
in years
|
|
Gross
|
|
Amortization
|
|
Net
|
|
Gross
|
|
Amortization
|
|
Net
|
|
Network affiliation agreements
|
|
15
|
|
|
$
|
441,811
|
|
|
$
|
(291,154
|
)
|
|
$
|
150,657
|
|
|
$
|
379,384
|
|
|
$
|
(268,921
|
)
|
|
$
|
110,463
|
|
Other definite-lived intangible assets
|
|
1-15
|
|
|
|
33,435
|
|
|
|
(21,557
|
)
|
|
|
11,878
|
|
|
|
25,670
|
|
|
|
(13,642
|
)
|
|
|
12,028
|
|
Other intangible assets
|
|
|
|
|
$
|
475,246
|
|
|
$
|
(312,711
|
)
|
|
$
|
162,535
|
|
|
$
|
405,054
|
|
|
$
|
(282,563
|
)
|
|
$
|
122,491
|
|
The estimated useful life of network affiliation agreements contemplates renewals of the underlying agreements based on Nexstar’s and Mission’s historical ability to renew such agreements without significant cost or modifications to the conditions from which the value of the affiliation was derived. These renewals can result in estimated useful lives of individual affiliations ranging from 12 to 20 years. Management has determined that 15 years is a reasonable estimate within the range of such estimated useful lives.
During 2013, certain customers terminated their web hosting and other services agreements with Nexstar. Nexstar acquired these contracts through purchase of the assets of Inergize in December 2012 and had a total fair value related to these acquired contracts of $1.4 million at acquisition date. Pursuant to the termination agreements, Nexstar received aggregate termination fees of $5.5 million, which was included in net revenue in its Consolidated Statements of Operations during the year ended December 31, 2013. As a result of the contract terminations, Nexstar recognized an additional $1.0 million amortization of intangible assets in the accompanying Consolidated Statement of Operations during the year ended December 31, 2013. As of December 31, 2013, the intangible assets associated with the terminated contracts are fully amortized.
No other events or circumstances were noted leading management to conclude that impairment testing should be performed on intangible assets subject to amortization.
The following table presents the Company’s estimate of amortization expense for each of the five succeeding fiscal years and thereafter for definite-lived intangibles assets as of December 31, 2013 (in thousands):
2014
|
|
$
|
21,988
|
|
2015
|
|
|
20,477
|
|
2016
|
|
|
15,471
|
|
2017
|
|
|
14,314
|
|
2018
|
|
|
11,920
|
|
Thereafter
|
|
|
78,365
|
|
|
|
$
|
162,535
|
|
The changes in the carrying amounts of goodwill and FCC licenses for the years ended December 31, 2013 and 2012 are as follows (in thousands):
|
|
Goodwill
|
|
|
FCC Licenses
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Gross
|
|
|
Impairment
|
|
|
Net
|
|
|
Gross
|
|
|
Impairment
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2011
|
|
$
|
158,791
|
|
|
$
|
(46,216
|
)
|
|
$
|
112,575
|
|
|
$
|
191,710
|
|
|
$
|
(50,202
|
)
|
|
$
|
141,508
|
|
Acquisitions
|
|
|
36,501
|
|
|
|
-
|
|
|
|
36,501
|
|
|
|
80,838
|
|
|
|
-
|
|
|
|
80,838
|
|
Disposal of KBTV
|
|
|
(892
|
)
|
|
|
225
|
|
|
|
(667
|
)
|
|
|
(2,931
|
)
|
|
|
781
|
|
|
|
(2,150
|
)
|
Balance as of December 31, 2012
|
|
$
|
194,400
|
|
|
$
|
(45,991
|
)
|
|
$
|
148,409
|
|
|
$
|
269,617
|
|
|
$
|
(49,421
|
)
|
|
$
|
220,196
|
|
Acquisitions
|
|
|
49,643
|
|
|
|
-
|
|
|
|
49,643
|
|
|
|
68,824
|
|
|
|
-
|
|
|
|
68,824
|
|
Balance as of December 31, 2013
|
|
$
|
244,043
|
|
|
$
|
(45,991
|
)
|
|
$
|
198,052
|
|
|
$
|
338,441
|
|
|
$
|
(49,421
|
)
|
|
$
|
289,020
|
|
As a result of the termination of certain web hosting services agreements during 2013 as discussed above, Nexstar assessed the recoverability of one of its reporting units as of September 30, 2013, between the required annual tests, by comparing its estimated fair value with its carrying amount. Based on the results of the step one analysis, management concluded that it was more likely than not that the fair value of the reporting unit exceeded its carrying amount. Therefore, no impairment of goodwill was indicated and Nexstar deemed it not necessary to perform the step two impairment test.
The Company’s annual impairment tests of goodwill and FCC licenses performed as of December 31, 2013 and 2012 resulted in no impairment charge being recognized.
6. Accrued Expenses
Accrued expenses consisted of the following, as of December 31 (in thousands):
|
|
2013
|
|
|
2012
|
|
Compensation and related taxes
|
|
$
|
9,744
|
|
|
$
|
7,282
|
|
Sales commissions
|
|
|
2,556
|
|
|
|
1,919
|
|
Employee benefits
|
|
|
1,354
|
|
|
|
1,147
|
|
Property taxes
|
|
|
649
|
|
|
|
653
|
|
Other
|
|
|
9,839
|
|
|
|
7,121
|
|
|
|
$
|
24,142
|
|
|
$
|
18,122
|
|
Long-term debt consisted of the following, as of December 31 (in thousands):
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Term loans, net of discount of $1,554 and $1,736, respectively
|
|
$
|
545,450
|
|
|
$
|
288,264
|
|
8.875% Senior secured second lien notes due 2017, net of discount of $0 and $5,622, respectively
|
|
|
-
|
|
|
|
319,378
|
|
6.875% Senior unsecured notes due 2020, including premium of $669 and $0, respectively
|
|
|
525,669
|
|
|
|
250,000
|
|
|
|
|
1,071,119
|
|
|
|
857,642
|
|
Less: current portion
|
|
|
(6,857
|
)
|
|
|
(2,175
|
)
|
|
|
$
|
1,064,262
|
|
|
$
|
855,467
|
|
The Nexstar Senior Secured Credit Facility
On June 28, 2013, Nexstar entered into an amendment to its senior secured credit facility. The amendment provided a commitment for an incremental term loan facility (the “Nexstar Term Loan A Facility”) of $144.0 million, subject to reallocation of up to $18.0 million for the benefit of Rocky Creek, pursuant to the terms of the amended credit agreement. On June 28, 2013, Nexstar received initial proceeds of $50.0 million under this term loan facility. The initial proceeds of Nexstar Term Loan A Facility, together with the $55.0 million net borrowings from its revolving credit facility during the first three quarters of 2013 were used to partially fund the required deposit to acquire the stock of CCA and White Knight, to fund the remaining purchase price in connection with Nexstar’s purchase of KSEE’s assets from Granite, to partially finance the acquisition of the assets of WFFF from Smith Media and to partially fund the payments made pursuant to the purchase agreements entered by Nexstar to acquire KCAU, WHBF and WOI from Citadel (See Note 3).
Nexstar recorded $0.9 million in legal, professional and underwriting fees related to the Nexstar Term Loan A Facility, which was capitalized as debt finance costs, included in other noncurrent assets, net on the Consolidated Balance Sheet as of December 31, 2013, and is being amortized over its term.
On October 1, 2013, Nexstar entered into an amendment to its senior secured credit facility. The amendment provided for an incremental term loan of $25.0 million (“Nexstar Term Loan B-2”) and an amended revolving credit facility of up to $75.0 million. Nexstar recorded $0.3 million in legal, professional and underwriting fees related to the Nexstar Term Loan B-2, which was capitalized as debt finance costs, included in other noncurrent assets, net on the Consolidated Balance Sheet as of December 31, 2013, and is being amortized over its term. Also, on October 31, 2013, Nexstar repaid its outstanding revolving loan of $55.0 million.
On December 9, 2013, Nexstar entered into an amendment to its senior secured credit facility. Under the terms of the amendment, Nexstar prepaid $5.0 million of the outstanding principal balance of its Term Loan B issued in December 2012 to a group of commercial banks. On the same date, Nexstar converted the remaining $239.8 million principal balance of the Term Loan B into Nexstar Term Loan B-2. The majority of the lenders from the Term Loan B participated in the Nexstar Term Loan B-2. Thus, this portion of the conversion was treated as a debt modification that is deemed not substantial and the unamortized debt finance costs and debt discount under the Term Loan B were continued to be amortized over the cash flows of Nexstar Term Loan B-2 for this portion of the loan. Legal, professional and underwriting fees in connection with the conversion of $0.8 million were expensed as incurred. Lenders holding $10.9 million of the Term Loan B elected not to participate in the Nexstar Term Loan B-2. Thus, this portion of the conversion was treated as a debt extinguishment and new issuance of debt. Nexstar recorded a loss on extinguishment of debt of $0.3 million, representing a partial write-off of previously capitalized debt financing costs and debt discount related to the extinguished loans.
As of December 31, 2013 and 2012, the Nexstar senior secured credit facility (the “Nexstar Facility”) had $314.1 million and $246.0 million term loans outstanding, respectively, and no amounts outstanding under its revolving credit facility as of each of the years then ended.
The Nexstar Term Loan B-2, which matures in October 2020, is payable in consecutive quarterly installments of 0.25%, with the remaining 93% due at maturity. The Nexstar Term Loan A Facility, which matures in June 2018, is payable by quarterly installments that increase over time from 5.0% to 10.0% beginning June 30, 2014. The remaining principal of 68% is due at maturity. During the years ended December 31, 2013 and 2012, Nexstar repaid scheduled maturities of $1.9 million and $0.8 million, respectively, of its term loans.
Interest rates are selected at Nexstar’s option and the applicable margin is adjusted quarterly as defined in Nexstar’s Fifth Amended and Restated Credit Agreement (the “Nexstar Credit Agreement”). As of December 31, 2013, the interest rate of Nexstar’s term loans was 2.4% on the Nexstar Term Loan A and 3.75% on the Nexstar Term Loan B-2. As of December 31, 2012, the interest rate of Nexstar’s term loan was 4.5%. The interest rate on Nexstar’s revolving credit facility was 2.4% and 4.6% as of December 31, 2013 and 2012, respectively. Interest is payable periodically based on the type of interest rate selected. Additionally, Nexstar is required to pay quarterly commitment fees on the unused portion of its revolving loan commitment and unused Term Loan A Facility of 0.5% per annum.
The Mission Senior Secured Credit Facility
On January 3, 2013, Mission borrowed $60.0 million in term loans under its senior secured credit facility to fund the acquisition of the assets of KLRT-TV and KASN from Newport (See Note 3).
On March 1, 2013, Mission borrowed $5.0 million from its revolving credit facility to partially finance the acquisition of WVNY from Smith Media (See Note 3). The revolving loan was repaid in July 2013.
On June 28, 2013, Mission entered into an amendment to its senior secured credit facility. The amendment provided a commitment for an incremental term loan facility (the “Mission Term Loan A Facility”) of $90.0 million, subject to reallocation of up to $18.0 million for the benefit of Rocky Creek, pursuant to the terms of the amended credit agreements. As of December 31, 2013, no amount was borrowed by Mission under this facility. Mission recorded $0.2 million in legal and professional fees related to the Mission Term Loan A Facility, which was capitalized as debt finance costs, included in other noncurrent assets, net on the Consolidated Balance Sheet as of December 31, 2013.
On October 1, 2013, Mission entered into an amendment to its senior secured credit facility. The amendment provided for an incremental term loan of $125.0 million (“Mission Term Loan B-2”) and an amended revolving credit facility of up to $30.0 million. Mission recorded $1.2 in legal, professional and underwriting fees related to the Mission Term Loan B-2, which was capitalized as debt finance costs, included in other noncurrent assets, net on the Consolidated Balance Sheet as of December 31, 2013, and is being amortized over its term.
On December 9, 2013, Mission entered into an amendment to its senior secured credit facility. Under the terms of the amendment, Mission received $5.0 million in Mission Term Loan B-2. On the same date, Mission converted the outstanding principal balance of its Term Loan B of $103.5 million, issued to a group of commercial banks in December 2012 and January 2013, into Mission Term Loan B-2. The majority of the lenders from the Term Loan B participated in the Mission Term Loan B-2. Thus, this portion of the conversion was treated as a debt modification that is deemed not substantial and the unamortized debt finance costs and debt discount under the Term Loan B were continued to be amortized over the cash flows of Mission Term Loan B-2 for this portion of the loan. Legal, professional and underwriting fees in connection with the conversion of $0.3 million were expensed as incurred. Lenders holding $5.0 million of the Term Loan B elected not to participate in the Mission Term Loan B-2. Thus, this portion of the conversion was treated as a debt extinguishment and new issuance of debt. Mission recorded a loss on extinguishment of debt of $0.1 million, representing a partial write-off of previously capitalized debt financing costs and debt discount related to the extinguished loans.
As of December 31, 2013 and 2012, the Mission senior secured credit facility (the “Mission Facility”) had $232.9 million and $44.0 million term loans outstanding, respectively, and no amounts outstanding under its revolving credit facility as of each of the years then ended.
The Mission Term Loan B-2, which matures in October 2020, is payable in consecutive quarterly installments of 0.25%, with the remaining 93% due at maturity. During the years ended December 31, 2013 and 2012, Mission repaid scheduled maturities of $1.1 million and $0.3 million, respectively, of its term loans.
Terms of the Mission Facility, including repayment, maturity and interest rates, are the same as the terms of the Nexstar Facility described above. Interest rates are selected at Mission’s option and the applicable margin is adjusted quarterly as defined in Mission’s Fourth Amended and Restated Credit Agreement (the “Mission Credit Agreement”). The interest rate of Mission’s term loan was 3.75% and 4.5% as of December 31, 2013 and 2012, respectively, and the interest rate on Mission’s revolving loans was 2.4% and 4.6% as of December 31, 2013 and 2012.
Unused Commitments and Borrowing Availability
The Company had $105.0 million of total unused revolving loan commitments under the respective Nexstar and Mission credit facilities, all of which was available for borrowing, based on the covenant calculations as of December 31, 2013. The Company also had $184.0 million of unused Term Loan A Facilities commitment under its amended senior secured credit facilities. The Company’s ability to access funds under the senior secured credit facilities depends, in part, on its compliance with certain financial covenants.
6.875% Senior Unsecured Notes
On November 9, 2012, Nexstar completed the issuance and sale of $250.0 million 6.875% Notes at par.
On October 1, 2013, Nexstar completed the sale and issuance of $275.0 million 6.875% Notes at 100.25%, plus accrued interest from May 15, 2013. The proceeds were used to repurchase substantially all of the 8.875% Notes (discussed below) and for related fees and expenses.
The 6.875% Notes will mature on November 15, 2020. Interest on the 6.875% Notes is payable semiannually in arrears on May 15 and November 15 of each year. The 6.875% Notes were issued pursuant to an Indenture, dated as of November 9, 2012, and a First Supplemental Indenture (together with the Indenture, the “6.875% Indenture”), dated as of October 1, 2013. The 6.875% Notes are senior unsecured obligations of Nexstar and are guaranteed by Mission and certain of the Company’s future 100% owned subsidiaries, subject to certain customary release provisions.
The 6.875% Notes are senior obligations of Nexstar and Mission but junior to the secured debt, Nexstar Facility and Mission Facility, to the extent of the value of the assets securing such debt.
Nexstar has the option to redeem all or a portion of the 6.875% Notes at any time prior to November 15, 2015 at a price specified in the 6.875% Indenture plus accrued and unpaid interest to the redemption date plus applicable premium as of the date of redemption. At any time before November 15, 2015, Nexstar may also redeem up to 35% of the aggregate principal amount of the notes at a redemption price of 106.875% plus accrued and unpaid interest, if any, to the redemption date, with the net cash proceeds from equity offerings. At any time on or after November 15, 2015, Nexstar may redeem 6.875% Notes, in whole or in part, at the redemption dates and redemption prices specified in the 6.875% Indenture.
Upon the occurrence of a change of control (as defined in the 6.875% Indenture), each holder of the 6.875% Notes may require Nexstar to repurchase all or a portion of the 6.875% Notes in cash at a price equal to 101.0% of the aggregate principal amount of the 6.875% Notes to be repurchased, plus accrued and unpaid interest, if any, thereon to the date of repurchase.
The 6.875% Indenture contains covenants that limit, among other things, Nexstar’s ability to (1) incur additional debt, (2) make certain restricted payments, (3) consummate specified asset sales, (4) enter into transactions with affiliates, (5) create liens, (6) pay dividends or make other distributions, (7) repurchase or redemption of capital, (8) merge or consolidate with another person and (9) enter new lines of business.
The 6.875% Indenture provides for customary events of default (subject in certain cases to customary grace and cure periods), which include nonpayment, breach of covenants in the 6.875% Indenture, payment defaults or acceleration of other indebtedness, a failure to pay certain judgments, certain events of bankruptcy and insolvency and any guarantee of the 6.875% Notes that ceases to be in full force and effect with certain exceptions specified in the 6.875% Indenture. Generally, if an event of default occurs, the Trustee or holders of at least 25% in principal amount of the then outstanding notes may declare the principal of and accrued but unpaid interest, including additional interest, on all the notes to be due and payable.
In 2013 and 2012, Nexstar recorded $3.5 million and $4.7 million, respectively, in legal and professional fees related to the issuance of 6.875% Notes, which were capitalized as debt finance costs, included in other noncurrent assets, net on the balance sheet, and are being amortized over the term of the 6.875% Notes.
8.875% Senior Secured Second Lien Notes
On April 19, 2010, Nexstar and Mission, as co-issuers, completed the issuance and sale of $325.0 million senior secured second lien notes due 2017 (the “8.875% Notes”). The 8.875% Notes will mature on April 15, 2017. Interest on the 8.875% Notes accrues at a rate of 8.875% per annum and is payable semiannually in arrears on April 15 and October 15 of each year.
The Company incurred $1.9 million in professional fees related to the transaction, which were capitalized as debt finance costs, included in other noncurrent assets, net on the balance sheet, and were being amortized over the term of the 8.875% Notes, and expensed upon repayment.
The 8.875% Notes were issued pursuant to an Indenture, dated as of April 19, 2010 (the “8.875% Indenture”). Nexstar’s and Mission’s obligations under the 8.875% Notes are jointly and severally, fully and unconditionally guaranteed by Nexstar and all of Nexstar’s and Mission’s future 100% owned domestic subsidiaries, subject to certain customary release provisions.
During September 2013, Nexstar repurchased $10.4 million of the 8.875% Notes at an average price of 108.2%, plus accrued and unpaid interest, funded by cash on hand. On October 1, 2013, Nexstar and Mission repurchased $292.7 million of the outstanding principal balance of the 8.875% Notes at 108.875%, plus accrued and unpaid interest, in accordance with a tender offer dated September 17, 2013. The repurchases were funded by a combination of the proceeds from the issuance of 6.875% Notes, the Mission Term Loan B-2 and cash on hand. The tender offer expired on October 15, 2013 and the Company repurchased the remaining $21.9 million outstanding principal balance of the 8.875% Notes at the redemption price of 107.0%, funded by cash on hand, on November 18, 2013. These transactions resulted in a loss on extinguishment of debt of $34.3 million.
Collateralization and Guarantees of Debt
The Credit Facilities described above are collateralized by a security interest in substantially all the combined assets, excluding FCC licenses, of Nexstar and Mission. Nexstar and its subsidiaries guarantee full payment of all obligations incurred under the Mission Facility in the event of Mission’s default. Similarly, Mission is a guarantor of the Nexstar Facility and the 6.875% Notes.
In consideration of Nexstar’s guarantee of the Mission Facility, Mission has granted Nexstar a purchase option to acquire the assets and assume the liabilities of each Mission station, subject to FCC consent. These option agreements (which expire on various dates between 2014 and 2023) are freely exercisable or assignable by Nexstar without consent or approval by Mission. The Company expects these option agreements to be renewed upon expiration.
Debt Covenants
The Nexstar Credit Agreement contains covenants which require the Company to comply with certain financial covenant ratios, including (1) a maximum consolidated total leverage ratio of Nexstar and Mission of 7.25 to 1.00 at December 31, 2013, (2) a maximum consolidated first lien indebtedness ratio of 4.0 to 1.00 at any time and (3) a minimum consolidated fixed charge coverage ratio of 1.20 to 1.00 at any time. The covenants, which are formally calculated on a quarterly basis, are based on the combined results of Nexstar and Mission. The Mission Credit Agreement does not contain financial covenant ratio requirements, but does provide for default in the event Nexstar does not comply with all covenants contained in its credit agreement. As of December 31, 2013, the Company was in compliance with all of its covenants.
Fair Value of Debt
The aggregate carrying amounts and estimated fair values of Nexstar’s and Mission’s debt were as follows, as of December 31 (in thousands):
|
2013
|
|
2012
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
Term loans
(1)
|
|
$
|
545,450
|
|
|
$
|
546,818
|
|
|
$
|
288,264
|
|
|
$
|
293,187
|
|
8.875% Senior secured second lien notes
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
319,378
|
|
|
|
359,125
|
|
6.875% Senior unsecured notes
(2)
|
|
|
525,669
|
|
|
|
561,750
|
|
|
|
250,000
|
|
|
|
258,750
|
|
____________________
|
|
(1)
|
The fair value of senior secured credit facilities is computed based on borrowing rates currently available to Nexstar and Mission for bank loans with similar terms and average maturities. These fair value measurements are considered Level 3, as significant inputs to the fair value calculation are unobservable in the market.
|
(2)
|
The fair value of Nexstar’s fixed rate debt is estimated based on bid prices obtained from an investment banking firm that regularly makes a market for these financial instruments. These fair value measurements are considered Level 2, as quoted market prices are available for low volume trading of these securities.
|
Debt Maturities
As of December 31, 2013, scheduled maturities of Nexstar’s and Mission’s debt for the years ended December 31 are summarized as follows (in thousands):
2014
|
|
$
|
6,857
|
|
2015
|
|
|
8,232
|
|
2016
|
|
|
9,608
|
|
2017
|
|
|
9,982
|
|
2018
|
|
|
40,233
|
|
Thereafter
|
|
|
997,092
|
|
|
|
$
|
1,072,004
|
|
8. Contract Termination
On March 31, 2008, Nexstar signed a ten year agreement for national sales representation with two units of Katz Television Group, a subsidiary of Katz Media Group (“Katz”), transferring 24 stations in 14 of its markets from Petry Television Inc. (“Petry”) and Blair Television Inc. (“Blair”). Nexstar, Blair, Petry and Katz entered into a termination and mutual release agreement under which Blair agreed to release Nexstar from its future contractual obligations in exchange for payments totaling $8.0 million. Katz is making the payments on behalf of Nexstar as an inducement for Nexstar to enter into the long-term contract with Katz. A liability of $7.2 million, representing the present value of the payments Katz is making to Blair, was recorded and is being recognized as a non-cash reduction to operating expenses over the term of the agreement with Katz. Effective May 1, 2009, Nexstar signed another agreement to transfer the remaining Nexstar stations to Katz and its related companies. Moving these contracts resulted in Nexstar cancelling multiple contracts with Blair. As a result, Blair sued the Company for additional termination fees. Katz indemnified the Company for all expenses related to the settlement and defense of this lawsuit. The lawsuit was settled effective May 7, 2010. Termination of these contracts resulted in an additional liability of $0.2 million, which is being recognized over the remaining contract term with Katz.
As of December 31, 2013 and 2012, $0.7 million of this liability was included in other current liabilities and $2.8 million and $3.6 million, respectively, was included in other noncurrent liabilities in the accompanying Consolidated Balance Sheets. The Company recognized $0.8 million of these incentives as a reduction of selling, general and administrative expense for each of the years ended December 31, 2013, 2012 and 2011, respectively.
9. Other Noncurrent Liabilities
Other noncurrent liabilities consist of the following, as of December 31 (in thousands):
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Broadcast rights payable
|
|
$
|
7,432
|
|
|
$
|
8,674
|
|
Deferred rent
|
|
|
5,062
|
|
|
|
4,446
|
|
Deferred representation fee incentive
|
|
|
2,756
|
|
|
|
3,576
|
|
Software agreement obligation
|
|
|
3,276
|
|
|
|
2,801
|
|
Deferred gain on sale of assets
|
|
|
1,523
|
|
|
|
1,760
|
|
Other
|
|
|
640
|
|
|
|
1,021
|
|
|
|
$
|
20,689
|
|
|
$
|
22,278
|
|
During the first quarter of 2013, the Company corrected its other noncurrent liabilities, other noncurrent liabilities of Mission and beginning accumulated deficit as of the earliest period being presented by an increase of $0.4 million, $0.3 million and $0.7 million, respectively, for an error in deferred rent from tower leases recorded during a 2003 acquisition. If this error had been corrected prior to the earliest period presented, net income would not have been significantly impacted for the years ended December 31, 2013, 2012 and 2011. Management evaluated this error considering both qualitative and quantitative factors and considered its impact in relation to the year ended December 31, 2013, when it was corrected, as well as the period in which it originated and concluded that the adjustment was not material to any previous annual or quarterly period.
10. Common Stock
The holders of Class A common stock are entitled to one vote per share and the holders of Class B common stock are entitled to 10 votes per share. Holders of Class A common stock and Class B common stock generally vote together as a single class on all matters submitted to a vote of the stockholders. Holders of Class C common stock have no voting rights.
The shares of Class B common stock and Class C common stock are convertible as follows: (i) holders of shares of Class B common stock or Class C common stock may elect at any time to convert their shares into an equal number of shares of Class A common stock; or (ii) the Class B common stock will automatically convert into Class A common stock on a one-for-one basis if the holder transfers to anyone other than a certain group of shareholders; or (iii) if Class B common stock represents less than 10.0% of the total common stock outstanding, all of the Class B common stock will automatically convert into Class A common stock on a one-for-one basis.
The common stockholders are entitled to receive cash dividends, subject to the rights of holders of any series of preferred stock, on an equal per share basis. The Nexstar Facility provides limits on the amounts of dividends the Company may pay to stockholders over the term of the Nexstar Credit Agreement.
Pursuant to the dividend policy Nexstar announced on November 26, 2012, the board of directors declared in 2013 a total annual cash dividend with respect to the outstanding shares of Class A and Class B common stock of $0.48 per share in equal quarterly installments.
In November and December 2012, Nexstar’s principal stockholder, ABRY Partners, LLC (“ABRY”), converted a total of 5,709,117 shares of Class B common stock then into an equal number of Class A common stock. The converted shares were sold in offerings that were completed on December 21, 2012. In February 2013, ABRY converted a total of 3,450,000 shares of Class B common stock into an equal number of Class A common stock, which was sold in an offering completed on February 12, 2013. In May 2013, Nexstar’s Class B common stockholders converted all of the 4,252,471 outstanding Class B common stock into an equal number of Class A common stock, of which 3,865,384 shares were held by ABRY. ABRY sold 3,500,000 shares of Nexstar’s Class A common stock in an offering that was completed on May 7, 2013. In addition, Nexstar repurchased and held in treasury the remaining 365,384 shares of Class A common stock from ABRY for a total of $8.4 million. As a result of these transactions, no Class B common stock is outstanding and ABRY no longer holds an ownership interest in Nexstar. During the year ended December 31, 2013, Nexstar utilized all of the 365,384 shares held in treasury in connection with stock option exercises.
11. Stock-Based Compensation Plans
Stock-Based Compensation Expense
The Company measures compensation cost related to stock options based on the grant-date fair value of the awards, calculated using the Black-Scholes option-pricing model. The fair value of the awards, less estimated forfeitures, is recognized ratably over their respective vesting periods. Nexstar granted 1,000,000 options during the year ended December 31, 2012. No options were granted during the years ended December 31, 2013 or 2011. The assumptions used in calculating the fair values of options granted during the year ended December 31, 2012 were as follows:
|
|
Expected volatility
|
88.4%
|
Risk-free interest rates
|
1.2%
|
Expected life
|
7 years
|
Dividend yields
|
None
|
Weighted-average grant date fair value per share
|
$7.37
|
The expected volatility assumptions used for stock option grants were based on Nexstar’s historical volatility rates over a period approximating the expected life of the options. The expected term assumption is calculated utilizing Nexstar’s historical exercise and post-vesting cancellation experience combined with expectations developed over outstanding options. The risk-free interest rates used are based on the daily U.S. Treasury yield curve rate in effect at the time of the grant having a period commensurate with the expected term assumption.
The Company recognized stock-based compensation expense of $2.1 million, $1.4 million and $1.2 million for the years ended December 31, 2013, 2012 and 2011, respectively. As of December 31, 2013, there was $5.1 million of total unrecognized compensation cost, net of estimated forfeitures, related to stock options, expected to be recognized over a weighted-average period of 2.6 years.
Stock-Based Compensation Plans
On September 26, 2012, Nexstar’s majority shareholders approved the 2012 Long-Term Equity Incentive Plan (the “2012 Plan”) which provides for the granting of stock options, stock appreciation rights, restricted stock and performance awards to directors, employees or consultants of Nexstar. Upon the effectiveness of the 2012 Plan, no new awards will be granted under the previous equity incentive plans. Under the 2012 Plan, a maximum of 1,500,000 shares can be issued plus unissued available shares from Nexstar’s previous equity incentive plans. As of December 31, 2013, a total of 1,158,000 shares were available for future grants under the 2012 Plan.
As of December 31, 2013, options to purchase 2,575,800 shares of Nexstar’s Class A common stock were outstanding under Nexstar’s equity incentive plans. Options are granted with an exercise price at least equal to the fair market value of the underlying shares of common stock on the date of the grant, vest over a range of four to five years and expire ten years from the date of grant. Except as otherwise determined by the compensation committee or with respect to the termination of a participant’s services in certain circumstances, including a change of control, no option may be exercised within six months of the date of the grant. Upon the employee’s termination, all nonvested options are forfeited immediately and any unexercised vested options are cancelled from 30 to 180 days following the termination date. Nexstar utilizes any available treasury stock or issues new shares of its Class A common stock when options are exercised.
The following table summarizes stock award activity and related information for all of Nexstar’s Equity Plans for the year ended December 31, 2013: