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NXST Nexstar Media

Filed: 8 May 20, 5:20pm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2020

OR

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

For the transition period from                     to                     .

Commission File Number: 000-50478

NEXSTAR MEDIA GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

 

23-3083125

(State of Incorporation or Organization)

 

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

 

 

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

 

75062

(Address of Principal Executive Offices)

 

(Zip Code)

(972) 373-8800

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock

 

NXST

 

NASDAQ Global Select Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

  

  

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

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

As of May 6, 2020, the registrant had 45,262,874 shares of Class A Common Stock outstanding.

 


TABLE OF CONTENTS

 

 

 

  

 

  

Page

PART I

  

FINANCIAL INFORMATION

  

 

 

 

 

 

 

ITEM 1.

  

Financial Statements (Unaudited)

  

 

 

 

 

 

 

 

  

Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

  

1

 

 

 

 

 

 

  

Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019

  

2

 

 

 

 

 

 

  

Condensed Consolidated Statement of Changes in Stockholders’ Equity for the three months ended March 31, 2020 and 2019

  

3

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019

 

4

 

 

 

 

 

 

  

Notes to Condensed Consolidated Financial Statements

  

 

 

 

Note 1:  Organization and Business Operations

5

 

 

Note 2:  Summary of Significant Accounting Policies

5

 

 

Note 3:  Acquisitions and Dispositions

11

 

 

Note 4:  Intangible Assets and Goodwill

12

 

 

Note 5:  Assets Held for Sale

13

 

 

Note 6:  Investments

13

 

 

Note 7:  Accrued Expenses

14

 

 

Note 8:  Retirement and Post Retirement Plans

15

 

 

Note 9:  Debt

16

 

 

Note 10:  Leases

17

 

 

Note 11:  Fair Value Measurements

18

 

 

Note 12:  Common Stock

18

 

 

Note 13:  Income Taxes

19

 

 

Note 14:  FCC Regulatory Matters

19

 

 

Note 15:  Commitments and Contingencies

22

 

 

Note 16:  Segment Data

25

 

 

Note 17:  Condensed Consolidating Financial Information

26

 

 

Note 18:  Subsequent Events

32

 

 

 

 

 

ITEM 2.

  

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

  

33

 

 

 

 

 

ITEM 3.

  

Quantitative and Qualitative Disclosures About Market Risk

  

46

 

 

 

 

 

ITEM 4.

  

Controls and Procedures

  

46

 

 

 

 

 

PART II

  

OTHER INFORMATION

  

 

 

 

 

 

 

ITEM 1.

  

Legal Proceedings

  

47

 

 

 

 

 

ITEM 1A.

  

Risk Factors

  

47

 

 

 

 

 

ITEM 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

  

48

 

 

 

 

 

ITEM 3.

  

Defaults Upon Senior Securities

  

48

 

 

 

 

 

ITEM 4.

  

Mine Safety Disclosures

  

48

 

 

 

 

 

ITEM 5.

  

Other Information

  

48

 

 

 

 

 

ITEM 6.

  

Exhibits

  

49

 

 

 

 

 


PART I. FINANCIAL INFORMATION

ITEM 1.

Financial Statements

NEXSTAR MEDIA GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except for share and per share information, unaudited)

 

 

March 31,

 

 

December 31,

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

434,067

 

 

$

232,070

 

Restricted cash and cash equivalents

 

16,608

 

 

 

16,608

 

Accounts receivable, net of allowance for doubtful accounts of $22,175 and $17,205, respectively

 

888,738

 

 

 

883,921

 

Spectrum asset

 

67,171

 

 

 

67,171

 

Prepaid expenses and other current assets

 

107,706

 

 

 

151,997

 

Total current assets

 

1,514,290

 

 

 

1,351,767

 

Property and equipment, net

 

1,546,873

 

 

 

1,290,428

 

Goodwill

 

2,879,748

 

 

 

2,996,875

 

FCC licenses

 

2,832,457

 

 

 

2,921,465

 

Network affiliation agreements, net

 

2,330,436

 

 

 

2,532,266

 

Other intangible assets, net

 

705,757

 

 

 

727,354

 

Assets held for sale

 

4,524

 

 

 

240,524

 

Investments

 

1,322,195

 

 

 

1,477,353

 

Other noncurrent assets, net

 

439,157

 

 

 

451,705

 

Total assets(1)

$

13,575,437

 

 

$

13,989,737

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Current portion of debt

$

56,228

 

 

$

109,310

 

Accounts payable

 

138,952

 

 

 

157,366

 

Accrued expenses

 

533,805

 

 

 

541,803

 

Income tax payable

 

53,341

 

 

 

873

 

Liability to surrender spectrum asset

 

77,962

 

 

 

77,962

 

Other current liabilities

 

55,710

 

 

 

60,243

 

Total current liabilities

 

915,998

 

 

 

947,557

 

Debt

 

7,990,635

 

 

 

8,383,278

 

Deferred tax liabilities

 

1,696,611

 

 

 

1,710,664

 

Other noncurrent liabilities

 

856,134

 

 

 

894,745

 

Total liabilities(1)

 

11,459,378

 

 

 

11,936,244

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Preferred stock - $0.01 par value, 200,000 shares authorized; NaN issued and outstanding at each of March 31, 2020 and December 31, 2019

 

-

 

 

 

-

 

Class A Common stock - $0.01 par value, 100,000,000 shares authorized; 47,291,463 shares issued,

45,195,405 shares outstanding as of March 31, 2020 and 47,291,463 shares issued, 45,749,788 shares

  outstanding as of December 31, 2019

 

473

 

 

 

473

 

Class B Common stock - $0.01 par value, 20,000,000 shares authorized; NaN issued and outstanding

  at each of March 31, 2020 and December 31, 2019

 

-

 

 

 

-

 

Class C Common stock - $0.01 par value, 5,000,000 shares authorized; NaN issued and outstanding

at each of March 31, 2020 and December 31, 2019

 

-

 

 

 

-

 

Additional paid-in capital

 

1,333,717

 

 

 

1,353,729

 

Accumulated other comprehensive income

 

19,850

 

 

 

19,850

 

Retained earnings

 

910,063

 

 

 

778,833

 

Treasury stock - at cost; 2,096,058 and 1,541,675 shares as of March 31, 2020 and December 31, 2019, respectively

 

(170,957

)

 

 

(121,388

)

Total Nexstar Media Group, Inc. stockholders’ equity

 

2,093,146

 

 

 

2,031,497

 

Noncontrolling interests

 

22,913

 

 

 

21,996

 

Total stockholders’ equity

 

2,116,059

 

 

 

2,053,493

 

Total liabilities and stockholders’ equity

$

13,575,437

 

 

$

13,989,737

 

 

 

 

 

 

 

 

 

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

 

(1)

The consolidated total assets as of March 31, 2020 and December 31, 2019 include certain assets held by consolidated VIEs of $330.4 million and $332.6 million, respectively, which are not available to be used to settle the obligations of Nexstar. The consolidated total liabilities as of March 31, 2020 and December 31, 2019 include certain liabilities of consolidated VIEs of $57.2 million and $61.7 million, respectively, for which the creditors of the VIEs have no recourse to the general credit of Nexstar. See Note 2 for additional information.

 

1


NEXSTAR MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share information, unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Net revenue

 

$

1,091,822

 

 

$

626,647

 

Operating expenses (income):

 

 

 

 

 

 

 

 

Direct operating expenses, excluding depreciation and amortization

 

 

445,059

 

 

 

292,863

 

Selling, general and administrative expenses, excluding depreciation and amortization

 

 

218,384

 

 

 

142,360

 

Amortization of broadcast rights

 

 

37,208

 

 

 

14,362

 

Amortization of intangible assets

 

 

70,583

 

 

 

36,738

 

Depreciation

 

 

35,406

 

 

 

27,437

 

Reimbursement from the FCC related to station repack

 

 

(12,758

)

 

 

(14,187

)

Gain on disposal of stations and entities, net

 

 

(7,075

)

 

 

-

 

Total operating expenses

 

 

786,807

 

 

 

499,573

 

Income from operations

 

 

305,015

 

 

 

127,074

 

Income (loss) on equity investments, net

 

 

14,158

 

 

 

(491

)

Interest expense, net

 

 

(101,284

)

 

 

(52,957

)

Loss on extinguishment of debt

 

 

(7,477

)

 

 

(1,698

)

Pension and other postretirement plans credit, net

 

 

10,762

 

 

 

1,400

 

Other income (expenses), net

 

 

864

 

 

 

-

 

Income before income taxes

 

 

222,038

 

 

 

73,328

 

Income tax expense

 

 

(64,344

)

 

 

(16,441

)

Net income

 

 

157,694

 

 

 

56,887

 

Net income attributable to noncontrolling interests

 

 

(779

)

 

 

(1,995

)

Net income attributable to Nexstar Media Group, Inc.

 

$

156,915

 

 

$

54,892

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Basic

 

$

3.43

 

 

$

1.20

 

Diluted

 

$

3.30

 

 

$

1.15

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

45,702

 

 

 

45,785

 

Diluted

 

 

47,615

 

 

 

47,784

 

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

 

 

2


NEXSTAR MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Three Months Ended March 31, 2020 and 2019

(in thousands, except share information, unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

 

 

Paid-In

 

 

 

 

Retained

 

 

 

 

Comprehensive

 

 

 

 

Treasury Stock

 

 

 

 

Noncontrolling

 

 

 

 

Stockholders’

 

 

 

Shares

 

 

 

 

Amount

 

 

 

 

Capital

 

 

 

 

Earnings

 

 

 

 

(Loss) Income

 

 

 

 

Shares

 

 

 

 

Amount

 

 

 

 

interests

 

 

 

 

Equity

 

Balances as of December 31, 2019

 

 

47,291,463

 

 

 

 

$

473

 

 

 

 

$

1,353,729

 

 

 

 

$

778,833

 

 

 

 

$

19,850

 

 

 

 

 

(1,541,675

)

 

 

 

$

(121,388

)

 

 

 

$

21,996

 

 

 

 

$

2,053,493

 

Purchase of treasury stock

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

(950,000

)

 

 

 

 

(72,587

)

 

 

 

 

-

 

 

 

 

 

(72,587

)

Stock-based compensation expense

 

 

-

 

 

 

 

 

-

 

 

 

 

 

10,685

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

10,685

 

Vesting of restricted stock units and

  exercise of stock options

 

 

-

 

 

 

 

 

-

 

 

 

 

 

(29,316

)

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

395,617

 

 

 

 

 

23,018

 

 

 

 

 

-

 

 

 

 

 

(6,298

)

Dividends declared on common stock ($0.56 per share)

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

(25,676

)

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

(25,676

)

Contribution from a noncontrolling interest

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

138

 

 

 

 

 

138

 

Disposal of an entity

 

 

-

 

 

 

 

 

-

 

 

 

 

 

(1,381

)

 

 

 

 

(9

)

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

(1,390

)

Net income

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

156,915

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

779

 

 

 

 

 

157,694

 

Balances as of March 31, 2020

 

 

47,291,463

 

 

 

 

$

473

 

 

 

 

$

1,333,717

 

 

 

 

$

910,063

 

 

 

 

$

19,850

 

 

 

 

 

(2,096,058

)

 

 

 

$

(170,957

)

 

 

 

$

22,913

 

 

 

 

$

2,116,059

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances as of December 31, 2018

 

 

47,291,463

 

 

 

 

$

473

 

 

 

 

$

1,351,931

 

 

 

 

$

620,371

 

 

 

 

$

(14,316

)

 

 

 

 

(1,665,217

)

 

 

 

$

(105,685

)

 

 

 

$

16,210

 

 

 

 

$

1,868,984

 

Stock-based compensation expense

 

 

-

 

 

 

 

 

-

 

 

 

 

 

8,069

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

8,069

 

Vesting of restricted stock units and exercise of stock options

 

 

-

 

 

 

 

 

-

 

 

 

 

 

(27,388

)

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

390,125

 

 

 

 

 

19,539

 

 

 

 

 

-

 

 

 

 

 

(7,849

)

Dividends declared on common stock ($0.45 per share)

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

(20,581

)

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

(20,581

)

Purchase of noncontrolling interest from a consolidated variable interest entity

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

(6,500

)

 

 

 

 

(6,500

)

Net income

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

54,892

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

1,995

 

 

 

 

 

56,887

 

Balances as of March 31, 2019

 

 

47,291,463

 

 

 

 

$

473

 

 

 

 

$

1,332,612

 

 

 

 

$

654,682

 

 

 

 

$

(14,316

)

 

 

 

 

(1,275,092

)

 

 

 

$

(86,146

)

 

 

 

$

11,705

 

 

 

 

$

1,899,010

 

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

3


NEXSTAR MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

157,694

 

 

$

56,887

 

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

 

 

 

 

 

 

 

 

Amortization of intangible assets

 

 

70,583

 

 

 

36,738

 

Depreciation of property and equipment

 

 

35,406

 

 

 

27,437

 

Amortization of broadcast rights

 

 

37,208

 

 

 

14,362

 

Stock-based compensation expense

 

 

10,685

 

 

 

8,069

 

Provision for bad debt

 

 

1,818

 

 

 

2,545

 

Amortization of debt financing costs, debt discounts and premium

 

 

4,636

 

 

 

1,942

 

Loss on extinguishment of debt

 

 

7,477

 

 

 

1,698

 

Gain on asset disposal, net

 

 

(388

)

 

 

-

 

Deferred income taxes

 

 

(13,011

)

 

 

2,309

 

Gain on disposal of stations and entities, net

 

 

(7,075

)

 

 

(533

)

Spectrum repack reimbursements

 

 

(12,758

)

 

 

(14,187

)

Payments for broadcast rights

 

 

(51,783

)

 

 

(14,489

)

(Income) loss on equity investments, net

 

 

(14,158

)

 

 

491

 

Distribution from equity investments - return on capital

 

 

170,400

 

 

 

-

 

Other noncash operating activities, net

 

 

(230

)

 

 

(889

)

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

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(7,268

)

 

 

4,184

 

Prepaid expenses and other current assets

 

 

(1,834

)

 

 

(1,415

)

Other noncurrent assets

 

 

214

 

 

 

2,248

 

Accounts payable

 

 

(18,324

)

 

 

3,889

 

Accrued expenses and other current liabilities

 

 

(10,102

)

 

 

(15,818

)

Income tax payable

 

 

74,750

 

 

 

12,249

 

Other noncurrent liabilities

 

 

(18,822

)

 

 

(3,128

)

Net cash provided by operating activities

 

 

415,118

 

 

 

124,589

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(60,134

)

 

 

(28,579

)

Payments for acquisitions, net of cash acquired

 

 

(63,000

)

 

 

-

 

Proceeds from sale of stations and entities

 

 

362,804

 

 

 

-

 

Spectrum repack reimbursements from the FCC

 

 

12,758

 

 

 

14,187

 

Proceeds from disposals of property and equipment

 

 

430

 

 

 

588

 

Proceeds from resolution of acquired contingency

 

 

98,000

 

 

 

-

 

Other investing activities, net

 

 

171

 

 

 

51

 

Net cash provided by (used in) investing activities

 

 

351,029

 

 

 

(13,753

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayments of long-term debt

 

 

(457,328

)

 

 

(91,805

)

Payments for debt financing costs

 

 

(379

)

 

 

-

 

Common stock dividends paid

 

 

(25,676

)

 

 

(20,581

)

Cash paid for shares withheld for taxes

 

 

(6,483

)

 

 

(9,276

)

Purchase of noncontrolling interests

 

 

-

 

 

 

(6,393

)

Proceeds from exercise of stock options

 

 

368

 

 

 

1,427

 

Payments for capital lease and capitalized software obligations

 

 

(1,792

)

 

 

(732

)

Purchase of treasury stock

 

 

(72,587

)

 

 

-

 

Other financing activities, net

 

 

(273

)

 

 

-

 

Net cash used in financing activities

 

 

(564,150

)

 

 

(127,360

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

201,997

 

 

 

(16,524

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

248,678

 

 

 

145,115

 

Cash, cash equivalents and restricted cash at end of period

 

$

450,675

 

 

$

128,591

 

Supplemental information:

 

 

 

 

 

 

 

 

Interest paid

 

$

125,516

 

 

$

58,839

 

Income taxes paid, net of refunds

 

$

2,110

 

 

$

1,883

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Accrued purchases of property and equipment

 

$

28,024

 

 

$

27,796

 

Right-of-use assets obtained in exchange for operating lease obligations(1)

 

$

15,977

 

 

$

113,598

 

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

 

 

(1)

Amounts for the three months ended March 31, 2019 include the transition adjustment of $112.8 million for the adoption of ASC 842.

4


NEXSTAR MEDIA GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1:  Organization and Business Operations

Nexstar Media Group, Inc., together with its wholly owned subsidiaries (“Nexstar”), a Delaware corporation, is a television broadcasting and digital media company focused on the acquisition, development and operation of television stations and interactive community websites and digital media services. As of March 31, 2020, Nexstar owned, operated, programmed or provided sales and other services to 196 full power television stations, including those owned by consolidated variable interest entities (“VIEs”), and 1 AM radio station in 114 markets in 38 states and the District of Columbia. The stations are affiliates of ABC, NBC, FOX, CBS, The CW, MNTV, and other broadcast television networks. As of March 31, 2020, the stations reached approximately 39% of all U.S. television households (applying the Federal Communications Commission’s (“FCC”) ultra-high frequency (“UHF”) discount). Through various local service agreements, Nexstar provided sales, programming, and other services to 36 full power television stations owned by independent third parties. Nexstar also owns WGN America, a national general entertainment cable network, a 31.3% ownership stake in Television Food Network, G.P. (“TV Food Network”) and a portfolio of real estate assets.

 

Note 2:  Summary of Significant Accounting Policies

Principles of Consolidation

 

The Condensed Consolidated Financial Statements include the accounts of Nexstar and the accounts of independently-owned VIEs for which Nexstar is the primary beneficiary (See Note 2—Variable Interest Entities). Nexstar and the consolidated VIEs are collectively referred to as the “Company.” Noncontrolling interests represent the VIE owners’ share of the equity in the consolidated VIEs and are presented as a component separate from Nexstar Media Group, Inc. stockholders’ equity. All intercompany account balances and transactions have been eliminated in consolidation. Nexstar management evaluates each arrangement that may include variable interests and determines the need to consolidate an entity where it determines Nexstar is the primary beneficiary of a VIE in accordance with related authoritative literature and interpretive guidance.

 

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

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Current assets

 

$

9,421

 

 

$

9,837

 

Property and equipment, net

 

 

19,539

 

 

 

19,586

 

Goodwill

 

 

102,447

 

 

 

102,447

 

FCC licenses

 

 

138,482

 

 

 

138,482

 

Network affiliation agreements, net

 

 

54,174

 

 

 

55,378

 

Other intangible assets, net

 

 

-

 

 

 

22

 

Other noncurrent assets, net

 

 

6,376

 

 

 

6,818

 

Total assets

 

$

330,439

 

 

$

332,570

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

16,327

 

 

$

19,653

 

Noncurrent liabilities

 

 

40,859

 

 

 

42,012

 

Total liabilities

 

$

57,186

 

 

$

61,665

 

 

 


5


Liquidity

 

The Company is leveraged, which makes it vulnerable to changes in general economic conditions. The Company’s ability to repay or refinance its debt will depend on, among other things, financial, business, market, competitive and other conditions, many of which are beyond the Company’s control, for instance, uncertainties surrounding the business outlook caused by Coronavirus Disease 2019 (“COVID-19”). COVID-19 was declared a global pandemic by the World Health Organization on March 11, 2020 and the President of the United States declared the COVID-19 outbreak a national emergency on March 13, 2020.

 

The COVID-19 pandemic has not had a material adverse impact on the Company’s operations and liquidity as of March 31, 2020. As of this date, the Company’s unrestricted cash on hand amounted to $434.1 million and the Company had a positive working capital of $598.2 million, both increased from the December 31, 2019 levels of $232.1 million and $404.2 million, respectively. As of March 31, 2020, the Company was in compliance with its financial covenants contained in the amended credit agreements governing its senior secured credit facilities. The Company believes it has sufficient unrestricted cash on hand and has availability to access additional cash up to $139.7 million under its revolving credit facilities (with a maturity date of October 2023) to meet its business operating requirements, its capital expenditures and to continue to service its debt for at least the next 12 months as of the filing date of this Quarterly Report on Form 10-Q. The Company also believes its leverage is well positioned to withstand the current challenges as the nearest maturity of its outstanding debt will not occur until October 2023. The Company will continue to evaluate its liquidity, its best use of operating cash flow and the market conditions to determine if further steps are necessary.

 

Interim Financial Statements

The Condensed Consolidated Financial Statements as of March 31, 2020 and for the three months ended March 31, 2020 and 2019 are unaudited. However, in the opinion of management, such financial statements include all adjustments (consisting solely of normal recurring adjustments) necessary for the fair statement of the financial information included herein in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). The preparation of the Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the period. Results of operations for interim periods are not necessarily indicative of results for the full year. Estimates are used for, but were not limited to, allowance for doubtful accounts, valuation of assets acquired and liabilities assumed in business combinations, distribution revenue recognized, income taxes, the recoverability of goodwill, FCC licenses and other long-lived assets, the recoverability of investments, the recoverability of broadcast rights and the useful lives of property and equipment and intangible assets. Given the global economic climate and additional or unforeseen effects from the COVID-19 pandemic, these estimates are becoming more challenging, and actual results could differ materially from those estimates. While based on our current assessment of these estimates there was not a material impact to our Condensed Consolidated Financial Statements as of and for the quarter ended March 31, 2020, as additional information becomes available to us, our future assessment of these estimates, including our expectations at the time regarding the duration, scope and severity of the pandemic, as well as other factors, could materially and adversely impact our consolidated financial statements in future reporting periods. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related Notes included in Nexstar’s Annual Report on Form 10-K for the year ended December 31, 2019. The balance sheet as of December 31, 2019 has been derived from the audited financial statements as of that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

 

Variable Interest Entities

 

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

 


6


Consolidated VIEs

 

Nexstar consolidates entities in which Nexstar is deemed under U.S. GAAP to have controlling financial interests for financial reporting purposes as a result of (1) local service agreements Nexstar has with the stations owned by these entities, (2) Nexstar’s guarantees of the obligations incurred under certain VIEs’ senior secured credit facilities (see Note 9), (3) Nexstar having power over significant activities affecting these VIEs’ economic performance, including budgeting for advertising revenue, certain advertising sales and, in some cases, hiring and firing of sales force personnel and (4) purchase options granted by each such VIE which permit Nexstar to acquire the assets and assume the liabilities of each of these VIEs’ stations, subject to FCC consent.

 

The following table summarizes the various local service agreements Nexstar had in effect as of March 31, 2020 with its consolidated VIEs:

 

Service Agreements

 

Owner

 

Full Power Stations

TBA Only

 

Mission Broadcasting, Inc. ("Mission")

 

WFXP, KHMT and KFQX

LMA Only

 

WNAC, LLC

 

WNAC

 

 

54 Broadcasting, Inc. (“54 Broadcasting”)

 

KNVA

SSA & JSA

 

Mission

 

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

 

 

White Knight Broadcasting (“White Knight”)

 

WVLA, KFXK, KSHV

 

 

Shield Media, LLC (“Shield”)

 

WXXA and WLAJ

 

 

Vaughan Media, LLC (“Vaughan”)

 

WBDT, WYTV and KTKA

SSA Only

 

Tamer Media, LLC (“Tamer”)

 

KWBQ, KASY and KRWB

 

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

 

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

 

 

March 31, 2020

 

 

December 31, 2019

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,766

 

 

$

12,944

 

Accounts receivable, net

 

 

18,364

 

 

 

17,995

 

Prepaid expenses and other current assets

 

 

1,773

 

 

 

1,921

 

Total current assets

 

 

28,903

 

 

 

32,860

 

Property and equipment, net

 

 

42,147

 

 

 

42,308

 

Goodwill

 

 

135,634

 

 

 

135,634

 

FCC licenses

 

 

138,482

 

 

 

138,482

 

Network affiliation agreements, net

 

 

65,126

 

 

 

66,679

 

Other intangible assets, net

 

 

460

 

 

 

513

 

Other noncurrent assets, net

 

 

61,128

 

 

 

12,749

 

Total assets

 

$

471,880

 

 

$

429,225

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of debt

 

$

3,548

 

 

$

3,433

 

Interest payable

 

 

783

 

 

 

834

 

Other current liabilities

 

 

16,327

 

 

 

19,653

 

Total current liabilities

 

 

20,658

 

 

 

23,920

 

Debt

 

 

240,416

 

 

 

241,190

 

Other noncurrent liabilities

 

 

40,859

 

 

 

42,012

 

Total liabilities

 

$

301,933

 

 

$

307,122

 

 


7


Non-Consolidated VIEs

 

Nexstar has an outsourcing agreement with Cunningham Broadcasting Corporation (“Cunningham”), which continues through December 31, 2020. Under the outsourcing agreement, Nexstar provides certain engineering, production, sales and administrative services for WYZZ, the FOX affiliate in the Peoria, Illinois market, through WMBD, the Nexstar television station in that market. During the term of the outsourcing agreement, Nexstar retains the broadcasting revenue and related expenses of WYZZ and is obligated to pay a monthly fee to Cunningham based on the combined operating cash flow of WMBD and WYZZ, as defined in the agreement.

 

Nexstar has determined that it has a variable interest in WYZZ. Nexstar has evaluated its arrangements with Cunningham and has determined that it is not the primary beneficiary of the variable interest in this station because it does not have the ultimate power to direct the activities that most significantly impact the station’s economic performance, including developing the annual operating budget, programming and oversight and control of sales management personnel. Therefore, Nexstar has not consolidated WYZZ under authoritative guidance related to the consolidation of VIEs. Under the local service agreement for WYZZ, Nexstar pays for certain operating expenses, and therefore may have unlimited exposure to any potential operating losses. Nexstar’s management believes that Nexstar’s minimum exposure to loss under the WYZZ agreement consists of the fees paid to Cunningham. Additionally, Nexstar indemnifies the owners of Cunningham from and against all liability and claims arising out of or resulting from its activities, acts or omissions in connection with the agreement. The maximum potential amount of future payments Nexstar could be required to make for such indemnification is undeterminable at this time. There were no significant transactions arising from Nexstar’s outsourcing agreement with Cunningham.

 

On December 1, 2014, Nexstar met the accounting criteria for a controlling financial interest in Marshall Broadcasting Group, Inc. (“Marshall”) as a result of (i) local service agreements Nexstar had with the Marshall stations (JSAs and SSAs) as of this date, (ii) Nexstar’s guarantee of the obligations incurred under Marshall’s senior secured credit facility, and (iii) Nexstar having power over activities affecting Marshall’s significant economic performance, including management advice and consultation on broadcast matters, the ability to sell certain advertising on the Marshall station, and the production of the Marshall station’s news and other programming.  Thus, Nexstar consolidated Marshall and its stations beginning on this date. In December 2019, Marshall filed a voluntary petition for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of Texas. Effective on December 6, 2019, the bankruptcy court ordered the cancellation of certain executory contracts between Nexstar and Marshall, including the JSAs. As a result of Marshall’s filing for bankruptcy protection and the cancellation of the JSAs, Nexstar evaluated its remaining business arrangements with Marshall and determined that it still has a variable interest in the entity. The services under the SSAs are still active and Mission, a VIE that is consolidated by Nexstar, is a lender of Marshall. However, Nexstar also determined that it no longer had the power to direct the most significant economic activities of the entity and thus no longer meets the accounting criteria for a controlling financial interest in Marshall due to the bankruptcy court taking control of Marshall’s significant financial affairs.  Therefore, in accordance with the applicable accounting standards, Nexstar deconsolidated Marshall’s assets, liabilities and equity effective in December 2019. Accordingly, the operating results and cash flows of Marshall for the three months ended March 31, 2020 were excluded and the operating results and cash flows of Marshall for the three months ended March 31, 2019 were included in the accompanying Condensed Consolidated Statements of Operations and Consolidated Statements of Cash Flows. The assets and liabilities of Marshall as of March 31, 2020 and December 31, 2019 were excluded in the accompanying Condensed Consolidated Balance Sheets.

 

On March 30, 2020, Mission entered into an asset purchase agreement to acquire certain assets of the 3 television stations currently owned by Marshall: KMSS serving the Shreveport, Louisiana market, KPEJ serving the Odessa, Texas market and KLJB serving the Davenport, Iowa market. The purchase price for the acquisition is approximately $49.0 million, which will be applied against Marshall’s existing loans payable to Mission on a dollar-for-dollar basis. The purchase price is subject to customary adjustments. The transaction is subject to FCC and other customary approvals and is expected to close in 2020.

8


Income Per Share

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

 

 

Three Months Ended

 

 

March 31,

 

 

2020

 

 

2019

 

Weighted average shares outstanding - basic

 

45,702

 

 

 

45,785

 

Dilutive effect of equity incentive plan instruments

 

1,913

 

 

 

1,999

 

Weighted average shares outstanding - diluted

 

47,615

 

 

 

47,784

 

 

During the three months ended March 31, 2020, there were 0 stock options and restricted stock units that were anti-dilutive. For the three months ended March 31, 2019, stock options and restricted stock units to acquire a weighted average of 30,000 shares of Class A common stock were excluded from the computation of diluted earnings per share because their impact would have been anti-dilutive.

Basis of Presentation

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

 

Recent Accounting Pronouncements

 

New Accounting Standards Adopted

 

In April 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-04, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” which provided certain improvements to ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” As the Company has adopted ASU 2016-01 and ASU 2017-12, the improvements in ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, and the interim periods within those fiscal years. We adopted this guidance concurrent with our adoption of ASU 2016-13 effective January 1, 2020. The adoption of this standard did not have a material impact on our Condensed Consolidated Financial Statements and related disclosures and there was no cumulative-effect adjustment required.

 

In March 2019, the FASB issued ASU 2019-02, “Entertainment-Films-Other Assets-Film Costs (Subtopic 926-20) and Entertainment-Broadcasters-Intangibles-Goodwill and Other (Subtopic 920-350).” The standard requires production costs of episodic television series to be capitalized as incurred, which aligns the guidance with the accounting for production costs of films. The guidance also provides that capitalized costs associated with films and license agreements will be tested for impairment based on the lower of unamortized cost or fair value, as opposed to the existing guidance where the impairment test is based on estimated net realizable value, and also includes additional disclosure requirements. The standard should be applied prospectively. We adopted this standard effective January 1, 2020. The adoption of this standard did not have a material impact on our Condensed Consolidated Financial Statements and related disclosures.

 

In October 2018, the FASB issued ASU 2018-17, “Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities”. The standard provides guidance for determining whether a decision-making fee is a variable interest and requires reporting entities to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety (as currently required in GAAP). We adopted this standard effective January 1, 2020. The adoption of this standard did not have a material impact on our Condensed Consolidated Financial Statements and related disclosures.

 

9


In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820)”, which removes, modifies and adds to the disclosure requirements on fair value measurements in Topic 820. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. We adopted this standard effective January 1, 2020. The adoption of this standard did not have a material impact on our Condensed Consolidated Financial Statements and related disclosures.

 

In August 2018, the FASB issued ASU 2018-14, “Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20)”, which removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and adds additional disclosures. The standards are effective for fiscal years ending after December 15, 2020, and early adoption is permitted. The updated standard should be applied on a retrospective basis. We early adopted this standard effective January 1, 2020. The adoption of this standard did not have a material impact on our Condensed Consolidated Financial Statements and related disclosures.

 

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326)”, which requires measurement and recognition of expected credit losses for financial assets held. The standard is to be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the standard is effective. We adopted this standard effective January 1, 2020. The adoption of this standard did not have a material impact on our Condensed Consolidated Financial Statements and related disclosures and there was no cumulative-effect adjustment required.

 

New Accounting Standards Not Yet Adopted

 

In January 2020, FASB issued ASU 2020-01, “Investments—Equity securities (Topic 321)” (“ASU 2020-01”), which clarifies the interaction of the accounting for equity securities under Topic 321 and investments under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The amendments in ASU 2020-01 clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The amendments in ASU 2020-01 are effective for all entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the standard to have a material impact on its Condensed Consolidated Financial Statements.

 

In December 2019, the FASB issued ASU 2019-12, “Income taxes (Topic 740)—Simplifying the accounting for income taxes” (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 will be effective for interim and annual periods beginning after December 15, 2020 (January 1, 2021 for the Company). Early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2019-12 will have on its Condensed Consolidated Financial Statements upon its adoption effective January 1, 2020.

 


10


Note 3:  Acquisitions and Dispositions

 

2020 Acquisitions

 

On January 27, 2020, Nexstar and Sinclair Broadcast Group, Inc. (“Sinclair”) resolved the outstanding lawsuit between Tribune Media Company (“Tribune”) and Sinclair. Tribune was acquired by Nexstar on September 19, 2019 (the “Merger”). As part of the resolution, Nexstar acquired from Sinclair certain non-license assets associated with television station KGBT-TV in the Harlingen-Weslaco-Brownsville-McAllen, Texas market for $18.0 million in cash (see Note 15, “Commitment and Contingencies”, “Termination of Tribune and Sinclair Merger Agreement” for additional information with respect to this litigation resolution).

 

On March 2, 2020, Nexstar completed the acquisition of Fox affiliate television station WJZY and MyNetworkTV affiliate television station WMYT in the Charlotte, NC market from Fox Television Stations, LLC (“Fox”), a Delaware limited liability company, for $45.0 million in cash. This acquisition allowed Nexstar’s entrance into this market. Simultaneous with this acquisition, Nexstar sold certain of its television stations to Fox as described in more detail in “2020 Dispositions” below.

 

Subject to final determination, which is expected to occur within twelve months of the acquisition dates, the provisional fair values of the assets acquired and liabilities assumed associated with the acquisitions of KGBT, WJZY, and WMYT are as follows (in thousands):

 

Assets acquired

 

 

 

 

Broadcast rights

 

$

3,693

 

Property and equipment

 

 

20,380

 

FCC licenses

 

 

15,300

 

Network affiliation agreements

 

 

18,400

 

Goodwill

 

 

3,300

 

Other intangible assets

 

 

5,620

 

Total assets acquired

 

 

66,693

 

Less: Broadcast rights payable

 

 

(3,693

)

Total asset acquired

 

$

63,000

 

 

The fair value assigned to goodwill is attributable to future expense reductions utilizing management’s leverage in programming and other station operating costs. The goodwill and FCC licenses are deductible for tax purposes. The intangible assets related to the network affiliation agreements are amortized over 15 years. Other intangible assets are amortized over an estimated weighted average useful life of 3 years.

 

The stations’ combined net revenue of $7.7 million and operating income of $4.0 million from the respective stations’ acquisition dates to March 31, 2020 have been included in the accompanying Condensed Consolidated Statements of Operations. Transaction costs relating to these acquisitions were not significant during the three months ended March 31, 2020.

 

Pro forma information for these acquisitions has not been provided as the Company believes that the impact of the historical financials for financial reporting purposes, both individually and in aggregate, to the Company’s revenue, operating income, net income, and earnings per share is not material.

 

2020 Dispositions

 

On January 14, 2020, the Company sold its sports betting information website business to Star Enterprises Ltd., a subsidiary of Alto Holdings, Ltd. for a net consideration of $12.9 million (net of $2.4 million cash balance of this business that was transferred to the buyer upon sale). Nexstar recognized a $2.4 million gain on disposal of this business.

 

On March 2, 2020, Nexstar also completed the sale of Fox affiliate television station KCPQ and MyNetworkTV affiliate television station KZJO in the Seattle, WA market, as well as Fox affiliate television station WITI in the Milwaukee, WI market, to Fox for approximately $349.9 million in cash, including working capital adjustments. Nexstar recognized a $4.7 million net gain on disposal of these stations. The proceeds from the sale of the stations were partially used to prepay the Company’s term loans (see Note 9).

 

The net gain that resulted from the divestitures of stations and other business was recorded in the Gain on disposal of stations and entities, net in the accompanying Condensed Consolidated Statements of Operations.

11


Future Acquisitions

 

On January 27, 2020, Sinclair agreed to sell to Nexstar television station WDKY-TV in the Lexington, KY DMA, subject to FCC approval and other customary approvals (see Note 15, “Commitment and Contingencies”). The proposed acquisition by Nexstar of this station is projected to close in 2020.

 

On March 30, 2020, Mission, a VIE consolidated by Nexstar, entered into an asset purchase agreement to acquire certain assets of the three television stations currently owned by Marshall: KMSS serving the Shreveport, Louisiana market, KPEJ serving the Odessa, Texas market and KLJB serving the Davenport, Iowa market. The purchase price for the acquisition is approximately $49.0 million, which will be applied against Marshall’s existing loans payable to Mission on a dollar-for-dollar basis. The purchase price is subject to customary adjustments. The transaction is subject to FCC and other customary approvals and is expected to close in 2020.

 

Note 4:  Intangible Assets and Goodwill

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

 

 

 

Estimated

 

March 31, 2020

 

 

December 31, 2019

 

 

 

useful life,

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

in years

 

Gross

 

 

Amortization

 

 

Net

 

 

Gross

 

 

Amortization

 

 

Net

 

Network affiliation agreements

 

15

 

$

3,065,017

 

 

$

(734,581

)

 

$

2,330,436

 

 

$

3,223,906

 

 

$

(691,640

)

 

$

2,532,266

 

Other definite-lived intangible assets

 

1-20

 

 

960,962

 

 

 

(255,205

)

 

 

705,757

 

 

 

961,350

 

 

 

(233,996

)

 

 

727,354

 

Other intangible assets

 

 

 

$

4,025,979

 

 

$

(989,786

)

 

$

3,036,193

 

 

$

4,185,256

 

 

$

(925,636

)

 

$

3,259,620

 

The following table presents the Company’s estimate of amortization expense for the remainder of 2020, each of the five succeeding years ended December 31 and thereafter for definite-lived intangible assets as of March 31, 2020 (in thousands):

 

Remainder of 2020

 

$

203,168

 

2021

 

 

267,255

 

2022

 

 

320,563

 

2023

 

 

248,593

 

2024

 

 

247,930

 

Thereafter

 

 

1,748,684

 

 

 

$

3,036,193

 

 

The amounts recorded to goodwill and FCC licenses were as follows (in thousands):

 

 

 

Goodwill

 

 

FCC Licenses

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Gross

 

 

Impairment

 

 

Net

 

 

Gross

 

 

Impairment

 

 

Net

 

Balances as of December 31, 2019

 

$

3,129,169

 

 

$

(132,294

)

 

$

2,996,875

 

 

$

2,968,875

 

 

$

(47,410

)

 

$

2,921,465

 

Acquisitions (See Note 3)

 

 

3,300

 

 

 

-

 

 

 

3,300

 

 

 

15,300

 

 

 

-

 

 

 

15,300

 

Divestitures and Disposals (See Note 3)

 

 

(48,429

)

 

 

-

 

 

 

(48,429

)

 

 

(104,308

)

 

 

-

 

 

 

(104,308

)

Measurement period adjustments

  related to prior year acquisitions

 

 

(71,998

)

 

 

-

 

 

 

(71,998

)

 

 

-

 

 

 

-

 

 

 

-

 

Balances as of March 31, 2020

 

$

3,012,042

 

 

$

(132,294

)

 

$

2,879,748

 

 

$

2,879,867

 

 

$

(47,410

)

 

$

2,832,457

 

 

During the quarter ended March 31, 2020, Nexstar recorded a measurement period adjustment related to its acquisition of Tribune in September 2019. The measurement period adjustment is primarily attributable to a $98.0 million cash consideration received by Nexstar (asset acquired) to settle an existing lawsuit between Tribune and Sinclair on January 27, 2020. The settlement resulted to a recognition of an income tax payable of $25.0 million and a decrease in goodwill of $73.0 million. See Note 15:  Commitments and Contingencies—Termination of Tribune and Sinclair Merger Agreement for additional information.

 

The measurement period adjustments recognized during the three months ended March 31, 2020 had no impact on the Company’s Condensed Consolidated Statements of Operations in prior year or in the current year.

 


12


During the first quarter of 2020, the Company evaluated the changes in facts and circumstances and general market declines resulting from the COVID-19 pandemic, including their impact on its current operating results and whether an impairment triggering event has occurred on its indefinite-lived intangible assets, long-lived assets (including finite-lived intangible assets) and reporting units with goodwill. Based on the results of the evaluation, the Company concluded that, as of March 31, 2020, there were no impairment triggering events that occurred on these assets, mainly because as of this date, the Company’s market capitalization exceeded the carrying amount of its equity, its first quarter 2020 revenue substantially met management’s initial expectations at the beginning of fiscal year 2020, its first quarter 2020 operating performance exceeded management’s initial expectations at the beginning of fiscal 2020 and there are no material changes in its customers, including advertisers, multichannel video programming distributors and online video distributors. However, due to the continued impact of the COVID-19 pandemic subsequent to March 31, 2020, the Company will continue to evaluate its indefinite-lived intangible assets, long-lived assets and goodwill for impairment and further assess if an impairment triggering event has occurred. Any significant adverse changes in future periods to our operating results or to the general market conditions could reasonably be expected to negatively impact the fair value of the Company’s indefinite-lived intangible assets and its reporting units as well as the recoverability of its long-lived assets and may result in future impairment charges which could be material.

 

Note 5:  Assets Held for Sale

 

Assets held for sale in the Company’s Condensed Consolidated Balance Sheets consisted of the following (in thousands):

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Real estate

 

$

4,524

 

 

$

240,524

 

 

In January 2020, management deferred its planned disposition of certain non-depreciable real estate property located in Chicago with a carrying amount of $236.0 million. In December 2019, the asset was previously classified as held for sale. The decision to defer the sale effort was driven by current uncertainties in the local government’s policies around property taxes which could impact a potential buyer’s perception of the property’s fair market value. Because the property is land with no limited useful life, management believes that, as of March 31, 2020, the fair value exceeded its carrying value and there was no impairment. As a result of this development, the property no longer meets the criteria of classifying as held for sale. Thus, the Company reclassified this asset from held for sale to property, plant and equipment (held and used) in the accompanying Condensed Consolidated Balance Sheets as of March 31, 2020. The reclassification of the land property did not impact the Company’s results of operations during the quarter ended March 31, 2020.

 

Note 6:  Investments

 

Investments consisted of the following (in thousands):

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Equity method investments

 

$

1,316,466

 

 

$

1,471,866

 

Other equity investments

 

 

5,729

 

 

 

5,487

 

Total investments

 

$

1,322,195

 

 

$

1,477,353

 

 

Equity Method Investments

 

The Company’s equity method investments primarily included TV Food Network (in which Nexstar has an ownership stake of 31.3%) with a book value of $1.297 billion as of March 31, 2020. The Company received cash distributions from TV Food Network totaling $170.4 million during the quarter ended March 31, 2020.

 

TV Food Network owns and operates “The Food Network,” a 24-hour lifestyle cable television channel focusing on food and related topics. TV Food Network also owns and operates “The Cooking Channel,” a cable television channel primarily devoted to cooking instruction, food information and other related topics. TV Food Network’s programming is distributed by cable and satellite television systems.

 

The partnership agreement governing TV Food Network provides that the partnership shall, unless certain actions are taken by the partners, dissolve and commence winding up and liquidating TV Food Network upon the first to occur of certain enumerated liquidating events, one of which is a specified date of December 31, 2020. The Company would be entitled to its proportionate share of distributions to partners in the event of a liquidation, which the partnership agreement provides would occur as promptly as is consistent with obtaining fair market value for the assets of TV Food Network. The partnership agreement also provides that the partnership may be continued or reconstituted in certain circumstances.

 

13


At acquisition date, the Company measured its estimated share of the differences between the estimated fair values and carrying values (the “basis difference”) of the investees’ tangible assets and amortizable intangible assets had the fair value of the investments been allocated to the identifiable assets of the investees in accordance with ASC Topic 805 “Business Combinations.” Additionally, the Company measures its estimated share of the basis difference attributable to investees’ goodwill. In connection with the Merger, Nexstar estimated a total of $853.0 million for its share of the basis difference attributable to investees’ amortizable intangible assets. Nexstar also estimated a basis difference of $501.8 million attributable to investees’ goodwill.

 

The Company amortizes the basis differences attributable to tangible assets and intangible assets subject to amortization and records the amortization (the “amortization of basis difference”) as a reduction of income on equity investments, net in the unaudited Condensed Consolidated Statements of Operations. As of March 31, 2020, the remaining identifiable assets subject to amortization of basis difference, totaled $771.5 million and have a weighted average remaining useful life of approximately 7.7 years.

 

Income (loss) on equity investments, net reported in the Company’s unaudited Condensed Consolidated Statements of Operations consisted of the following (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Income on equity investments, net, before amortization of basis difference

 

$

51,097

 

 

$

(388

)

Amortization of basis difference

 

 

(36,939

)

 

 

(103

)

Income (loss) on equity investments, net

 

$

14,158

 

 

$

(491

)

 

Summarized financial information for TV Food Network is as follows (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31, 2020

 

Net revenue

 

$

320,347

 

Costs and expenses

 

 

158,635

 

Income from operations

 

 

161,713

 

Net income

 

 

165,428

 

Net income attributable to Nexstar Media Group, Inc.

 

 

51,769

 

 

During the first quarter of 2020, the Company evaluated its equity method investments for other-than-temporary impairment (“OTTI”) due to the events and circumstances surrounding the COVID-19 pandemic. Based on the results of the review, the Company determined that an OTTI had not occurred as of March 31, 2020. The Company may experience future declines in the fair value of its equity method investments, and it may determine an impairment loss will be required to be recognized in a future reporting period. Such determination will be based on the prevailing facts and circumstances, including those related to the reported results and financial statement disclosures of the investees as well as the general market conditions. The Company will continue to evaluate its equity method investments in the future periods to determine if an OTTI has occurred.

 

Other Equity Investments

 

Other equity investments are investments without readily determinable fair values. All of the Company’s other equity investments are ownership interests in private companies. These assets were recorded at cost, subject to periodic evaluation of the carrying values.

 

Note 7:  Accrued Expenses

Accrued expenses consisted of the following (in thousands):

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Compensation and related taxes

 

$

82,539

 

 

$

88,372

 

Broadcast rights payable

 

 

116,540

 

 

 

120,165

 

Network affiliation fees

 

 

144,753

 

 

 

62,901

 

Interest payable

 

 

45,289

 

 

 

88,600

 

Capital expenditures

 

 

27,819

 

 

 

25,410

 

Other

 

 

116,865

 

 

 

156,355

 

 

 

$

533,805

 

 

$

541,803

 

 

14


Note 8:  Retirement and Postretirement Plans

 

On January 17, 2017, Nexstar assumed Media General’s pension and postretirement plan obligations upon consummation of the merger of the entities. As a result, Nexstar has a funded, qualified non-contributory defined benefit retirement plan which covers certain employees and former employees. Additionally, there are non-contributory unfunded supplemental executive retirement and ERISA excess plans which supplement the coverage available to certain executives. All of these retirement plans are frozen. Nexstar also has a retiree medical savings account plan which reimburses eligible retired employees for certain medical expenses and an unfunded plan that provides certain health and life insurance benefits to retired employees who were hired prior to 1992.

 

On September 19, 2019, Nexstar assumed Tribune’s pension and postretirement obligations upon consummation of the merger of the entities. As a result, Nexstar has a qualified and non-contributory defined benefit retirement plan which covers certain of Tribune’s employees and former employees.  This retirement plan is frozen in terms of pay and service. Nexstar also assumed 3 defined benefit pension plans (2 of which are frozen with the third representing 2% of the total Tribune related projected benefit obligation) for Tribune’s other employees and former employees.  These three plans are not material individually or in aggregate.  Nexstar also provides postretirement health care and life insurance benefits to eligible employees (who retired prior to January 1, 2016) under a variety of plans.

 

The following table provides the components of net periodic benefit cost (credit) for the Company’s pension and other postretirement benefit plans (“OPEB”) (in thousands):

 

 

 

Media General

 

 

Tribune

 

 

 

Pension Benefits

 

 

OPEB

 

 

Pension Benefits

 

 

OPEB

 

 

 

Three Months Ended March 31,

 

 

Three Months Ended March 31,

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

Service cost

 

$

-

 

 

$

-

 

 

$

5

 

 

$

-

 

 

$

248

 

 

$

-

 

Interest cost

 

 

2,925

 

 

 

3,875

 

 

 

138

 

 

 

200

 

 

 

13,374

 

 

 

33

 

Expected return on plan assets

 

 

(4,925

)

 

 

(5,475

)

 

 

-

 

 

 

-

 

 

 

(22,341

)

 

 

-

 

Amortization of net loss

 

 

-

 

 

 

-

 

 

 

(13

)

 

 

-

 

 

 

-

 

 

 

-

 

Settlement gain recognized

 

 

-

 

 

 

-

 

 

 

43

 

 

 

-

 

 

 

-

 

 

 

-

 

Net periodic benefit cost (credit)

 

$

(2,000

)

 

$

(1,600

)

 

$

173

 

 

$

200

 

 

$

(8,719

)

 

$

33

 

 

For 2020, the Company expects to contribute $55.3 million to its qualified pension plans and $3.0 million to its other postretirement plans. During the three months ended March 31, 2020 and 2019, the Company contributed $5.7 million and $0 million, respectively, to its qualified pension plans.

 

The primary investment objective of the pension benefit plans is to build and ensure an adequate pool of assets to support the benefit obligations to participants, retirees and beneficiaries. To meet this objective, the pension benefit plans seek to earn a rate of return on assets greater than the liability discount rate, with a prudent level of risk and diversification. The current investment policy includes a strategy intended to maintain an adequate level of diversification, subject to normal portfolio risks. As a result of the general market downturn in the first quarter of 2020 resulting from the COVID-19 pandemic, as of March 31, 2020, the fair value of the pension plans’ assets has declined. While the Company continues to monitor the performance of the pension plans’ assets, the declines as of March 31, 2020 have not materially impacted the Company’s financial position or liquidity. To the extent that there is further material deterioration in plan assets, the Company’s pension benefit plans may require additional contributions and/or may negatively impact future pension credit or expense of the Company.

 


15


Note 9:  Debt

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

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Term loans

 

$

5,457,376

 

 

$

5,914,703

 

5.625% Senior unsecured notes due 2024

 

 

900,000

 

 

 

900,000

 

5.625% Senior unsecured notes due 2027

 

 

1,785,000

 

 

 

1,785,000

 

Total outstanding principal

 

 

8,142,376

 

 

 

8,599,703

 

Less: unamortized financing costs and discount - Term Loans

 

 

(92,590

)

 

 

(104,281

)

Less: unamortized financing costs and discount - 5.625% Notes due 2024

 

 

(9,478

)

 

 

(9,955

)

Less: unamortized financing costs and premium - 5.625% Notes due 2027

 

 

6,555

 

 

 

7,121

 

Total outstanding debt

 

 

8,046,863

 

 

 

8,492,588

 

Less:  current portion

 

 

(56,228

)

 

 

(109,310

)

Long-term debt, net of current portion

 

$

7,990,635

 

 

$

8,383,278

 

 

2020 Transactions

During the three months ended March 31, 2020, Nexstar prepaid a total of $230.0 million in principal balance under its term loans, funded by cash on hand. On March 9, 2020, Nexstar also made an additional principal prepayment of $200.0 million on its term loans pursuant to the mandatory prepayment requirement of the amended credit agreement of Nexstar Broadcasting, Inc. The mandatory prepayment resulted from the disposition of certain television station assets in the Seattle, WA and Milwaukee, WI markets to Fox (see Note 3, Acquisitions and Dispositions). The total prepayments of term loans resulted in a loss on extinguishment of debt of $7.5 million, representing write-offs of unamortized debt financing costs and discounts.

During the three months ended March 31, 2020, the Company also repaid scheduled maturities of $27.3 million of its term loans, funded by cash on hand.

Unused Commitments and Borrowing Availability

The Company had $139.7 million of total unused revolving loan commitments under the respective Nexstar and Mission senior secured credit facilities, all of which was available for borrowing, based on the covenant calculations as of March 31, 2020. The Company’s ability to access funds under its senior secured credit facilities depends, in part, on its compliance with certain financial covenants. As of March 31, 2020, the Company was in compliance with its financial covenants. 

Collateralization and Guarantees of Debt

The Company’s credit facilities described above are collateralized by a security interest in substantially all the combined assets, excluding FCC licenses and the other assets of consolidated VIEs unavailable to creditors of Nexstar (See Note 2). Nexstar guarantees full payment of all obligations incurred under the Mission and Shield senior secured credit facilities in the event of their default. Mission and Nexstar Digital LLC (“Nexstar Digital”), a wholly-owned subsidiary of Nexstar, are both guarantors of Nexstar’s senior secured credit facility. Mission is also a guarantor of Nexstar’s 5.625% Notes due 2024 and Nexstar’s 5.625% Notes due 2027. Nexstar Digital does not guarantee any of the notes. Shield is not a guarantor of any debt within the group.

In consideration of Nexstar’s guarantee of the Mission senior secured credit facility, Mission has granted Nexstar purchase options 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 2021 and 2028) 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 (senior secured credit facility) contains a covenant which requires Nexstar to comply with a maximum consolidated first lien net leverage ratio of 4.25 to 1.00. The financial covenant, which is formally calculated on a quarterly basis, is based on the combined results of the Company. The Mission and Shield amended credit agreements do not contain financial covenant ratio requirements but do provide for default in the event Nexstar does not comply with all covenants contained in its credit agreement. As of March 31, 2020, the Company was in compliance with its financial covenants.

16


Note 10:  Leases

The Company as a Lessee

 

The Company has operating and finance leases for office space, vehicles, tower facilities, antenna sites, studio and other real estate properties and equipment. The Company’s leases have remaining lease terms of one month to 94 years, some of which may include options to extend the leases from two to 99 years, and some of which may include options to terminate the leases within one year. The depreciable lives of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Lease contracts that the Company has executed but which have not yet commenced as of March 31, 2020 were not material and are excluded.

 

(In thousands)

 

Balance Sheet Classification

 

March 31, 2020

 

Operating leases

 

 

 

 

 

 

Operating lease right-of-use assets, net

 

Other noncurrent assets, net

 

$

230,386

 

   Current lease liabilities

 

Other current liabilities

 

$

34,119

 

   Noncurrent lease liabilities

 

Other noncurrent liabilities

 

$

181,954

 

 

 

 

 

 

 

 

Finance leases

 

 

 

 

 

 

Finance lease right-of-use assets, net of accumulated depreciation of $2,802

 

Property, plant and equipment, net

 

$

8,188

 

   Current lease liabilities

 

Other current liabilities

 

$

935

 

   Noncurrent lease liabilities

 

Other noncurrent liabilities

 

$

14,926

 

 

Operating lease expense for the three months ended March 31, 2020 and 2019 was $12.2 million and $5.5 million, respectively, inclusive of immaterial short-term and variable lease costs. During the three months ended March 31, 2020 and 2019, $6.2 million and $3.1 million, respectively, of operating lease cost are included in Direct operating expenses, excluding depreciation and amortization. During the three months ended March 31, 2020 and 2019, $6.0 million and $2.4 million, respectively, of operating lease cost are included in Selling, general and administrative expenses, excluding depreciation and amortization in the accompanying Condensed Consolidated Statements of Operations. The depreciation expense and interest expense associated with finance leases during the three months ended March 31, 2020 and 2019 were not material.

Other information related to leases as of March 31, 2020 was as follows (in thousands, except lease term and discount rate):

 

Supplemental Cash Flows Information

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

   Operating cash flows from operating leases

 

$

12,244

 

   Operating cash flows from finance leases

 

 

228

 

   Financing cash flows from finance leases

 

 

215

 

Weighted Average Remaining Lease Term

 

 

 

 

Operating leases

 

7.2 years

 

Finance leases

 

11.4 years

 

Weighted Average Discount Rate

 

 

 

 

Operating leases

 

 

5.2

%

Finance leases

 

 

5.7

%

Future minimum lease payments under non-cancellable leases as of March 31, 2020 were as follows (in millions):

 

 

 

Operating Leases

 

 

Finance Leases

 

Remainder of 2020

 

$

33,408

 

 

$

1,351

 

2021

 

 

40,967

 

 

 

1,843

 

2022

 

 

38,145

 

 

 

1,803

 

2023

 

 

34,874

 

 

 

1,818

 

2024

 

 

32,141

 

 

 

1,833

 

Thereafter

 

 

83,000

 

 

 

13,365

 

   Total future minimum lease payments

 

 

262,535

 

 

 

22,013

 

Less: imputed interest

 

 

(46,462

)

 

 

(6,152

)

Total

 

$

216,073

 

 

$

15,861

 

 


17


The Company as a Lessor

 

The Company has various arrangements for which it is the lessor for the use of its tower space. These leases meet the criteria for operating lease classification, but the associated lease income is not material. As part of the adoption, the Company elected the practical expedient to combine lease and non-lease components in its lessor arrangements.

 

Note 11:  Fair Value Measurements

 

The Company measures and records in its condensed consolidated financial statements certain assets and liabilities at fair value. ASC Topic 820 “Fair Value Measurement and Disclosures,” establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). This hierarchy consists of the following three levels:

 

Level 1 – Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market.

 

Level 2 – Assets and liabilities whose values are based on inputs other than those included in Level 1, including quoted market prices in markets that are not active; quoted prices of assets or liabilities with similar attributes in active markets; or valuation models whose inputs are observable or unobservable but corroborated by market data.

 

Level 3 – Assets and liabilities whose values are based on valuation models or pricing techniques that utilize unobservable inputs that are significant to the overall fair value measurement.

Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

The carrying values of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, broadcast rights, accounts payable, and accrued expenses approximate fair value due to their short term to maturity. Estimated fair values and carrying amounts of the Company’s financial instruments that are not measured at fair value on a recurring basis were as follows (in thousands):

 

 

 

March 31, 2020

 

 

December 31, 2019

 

 

 

Carrying

 

 

Fair

 

 

Carrying

 

 

Fair

 

 

 

Amount

 

 

Value

 

 

Amount

 

 

Value

 

Term loans(1)

 

$

5,364,786

 

 

$

4,891,926

 

 

$

5,810,422

 

 

$

5,915,451

 

5.625% Senior unsecured notes due 2024(2)

 

 

890,522

 

 

 

852,750

 

 

 

890,045

 

 

 

938,250

 

5.625% Senior unsecured notes due 2027(2)

 

 

1,791,555

 

 

 

1,664,513

 

 

 

1,792,121

 

 

 

1,883,175

 

 

(1) The fair value of senior secured credit facilities is computed based on borrowing rates currently available to the Company 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 the Company’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.

During the three months ended March 31, 2020, there were no events or changes in circumstance that triggered an impairment to the Company’s significant assets, including equity method investments, indefinite-lived intangible assets, long-lived assets and goodwill. See Notes 4 and 6 for additional information.

 

Note 12:  Common Stock

 

On April 26, 2018, Nexstar’s Board of Directors approved $200 million in Nexstar’s share repurchase authorization to repurchase its Class A common stock. During the quarter ended March 31, 2020, Nexstar repurchased a total of 950,000 shares of Class A common stock for $72.6 million, funded by cash on hand. As of March 31, 2020, the remaining available amount under the share repurchase authorization was $84.2 million, net of repurchases made since the authorization was approved by Nexstar’s Board of Directors, including the repurchases in the first quarter of 2020.

 

Share repurchases may be made from time to time in open market transactions, block trades or in private transactions. There is no minimum number of shares that Nexstar is required to repurchase and the repurchase program may be suspended or discontinued at any time without prior notice.

 

18


Note 13:  Income Taxes

 

Income tax expense was $64.3 million for the three months ended March 31, 2020 compared to $16.4 million for the same period in 2019. The effective tax rates were 29.0% and 22.4% for each of the respective periods. The increase in the effective tax rate between the two periods was primarily due to nondeductible goodwill written off as a result of divestitures and a decrease in the deduction for excess tax benefits. The Company recognized an income tax expense of $8.1 million attributable to nondeductible goodwill written off as a result of divestitures, or a 3.7% increase to the effective tax rate. Additionally, the Company recognized an income tax expense of $1.4 million resulting from a decrease in the deduction for excess tax benefits related to stock-based compensation, or a 4.4% increase to the effective tax rate.  

 

The Company calculates its year-to-date provision for income taxes by applying the estimated annual effective tax rate to year-to-date pre-tax income or loss and adjusts the provision for discrete tax items recorded in the period. Future changes in the forecasted annual income projections, including changes due to the impact of the COVID-19 pandemic, could result in significant adjustments to quarterly income tax expense in future periods.

 

Note 14:  FCC Regulatory Matters

 

Television broadcasting is subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended (the “Communications Act”). The Communications Act prohibits the operation of television broadcasting stations except under a license issued by the FCC, and empowers the FCC, among other things, to issue, revoke and modify broadcasting licenses, determine the location of television stations, regulate the equipment used by television stations, adopt regulations to carry out the provisions of the Communications Act and impose penalties for the violation of such regulations. The FCC’s ongoing rule making proceedings could have a significant future impact on the television industry and on the operation of the Company’s stations and the stations to which it provides services. In addition, the U.S. Congress may act to amend the Communications Act or adopt other legislation in a manner that could impact the Company’s stations, the stations to which it provides services and the television broadcast industry in general.

 

The FCC has adopted rules with respect to the final conversion of existing low power and television translator stations to digital operation, which must be completed by July 2021.

 

Media Ownership

 

The FCC is required to review its media ownership rules every four years and to eliminate those rules it finds no longer serve the “public interest, convenience and necessity.”

 

In August 2016, the FCC adopted a Second Report and Order (the “2016 Ownership Order”) concluding the agency’s 2010 and 2014 quadrennial reviews. The 2016 Ownership Order (1) retained the local television ownership rule and radio/television cross-ownership rule with minor technical modifications, (2) extended the ban on common ownership of two top-four television stations in a market to network affiliation swaps, (3) retained the ban on newspaper/broadcast cross-ownership in local markets while considering waivers and providing an exception for failed or failing entities, (4) retained the dual network rule, (5) made television JSA relationships attributable interests and (6) defined a category of sharing agreements designated as SSAs between commercial television stations and required public disclosure of those SSAs (while not considering them attributable).

 

The 2016 Ownership Order reinstated a previously adopted rule that attributed another in-market station toward the local television ownership limits when one station owner sells more than 15% of the second station’s weekly advertising inventory under a JSA. Parties to JSAs entered into prior to March 31, 2014 were permitted to continue to operate under those JSAs until September 30, 2025.

 

 


19


Nexstar and other parties filed petitions seeking reconsideration of various aspects of the 2016 Ownership Order. On November 16, 2017, the FCC adopted an order (the “Reconsideration Order”) addressing the petitions for reconsideration. The Reconsideration Order (1) eliminated the rules prohibiting newspaper/broadcast cross-ownership and limiting television/radio cross-ownership, (2) eliminated the requirement that eight or more independently-owned television stations remain in a local market for common ownership of two television stations in that market to be permissible (the “eight voices test”), (3) retained the general prohibition on common ownership of two “top four” stations in a local market but provided for case-by-case review, (4) eliminated the television JSA attribution rule, and (5) retained the SSA definition and disclosure requirement for television stations. These rule modifications took effect on February 7, 2018, when the U.S. Court of Appeals for the Third Circuit (the “Third Circuit”) denied a mandamus petition which had sought to stay their effectiveness. On September 23, 2019, however, the Third Circuit issued an opinion vacating the Reconsideration Order on the ground that the FCC had failed to adequately analyze the effect of the Reconsideration Order’s deregulatory rule changes on minority and woman ownership of broadcast stations. The Third Circuit later denied petitions for en banc rehearing and its decision took effect on November 29, 2019. On December 20, 2019, the FCC issued an order reinstating the local television ownership rule, the radio/television cross-ownership rule, the newspaper/broadcast cross-ownership rule and the television JSA attribution rule as they existed prior to the Reconsideration Order (including the 8 voices test with respect to local television ownership). On April 17, 2020, the FCC and a group of media industry stakeholders (including Nexstar) filed separate petitions for certiorari requesting that the U.S. Supreme Court review the Third Circuit’s decision.

 

In December 2018, the FCC initiated its 2018 quadrennial review with the issuance of a Notice of Proposed Rulemaking.  Among other things, the FCC seeks comment on all aspects of the local television ownership rule’s implementation and whether the current version of the rule remains necessary in the public interest. Comments and reply comments in the 2018 quadrennial review were filed in the second quarter of 2019.

 

The FCC’s media ownership rules limit the percentage of U.S. television households which a party may reach through its attributable interests in television stations to 39% on a nationwide basis. Historically, the FCC has counted the ownership of a UHF station as reaching only 50% of a market’s percentage of total national audience. On August 24, 2016, the FCC adopted a Report and Order abolishing this “UHF discount,” and that rule change became effective in October 2016.  On April 20, 2017, the FCC adopted an order on reconsideration that reinstated the UHF discount, which became effective again on June 15, 2017. A federal court of appeals dismissed a petition for review of the discount’s reinstatement in July 2018. In December 2017, the FCC initiated a comprehensive rulemaking to evaluate the UHF discount together with the national ownership limit. Comments and reply comments were filed in 2018, and the proceeding remains open. Nexstar is in compliance with the 39% national cap limitation as calculated employing the UHF discount.

 

Spectrum

 

The FCC is in the process of repurposing a portion of the broadcast television spectrum for wireless broadband use.  Pursuant to federal legislation enacted in 2012, the FCC conducted an incentive auction for the purpose of making additional spectrum available to meet future wireless broadband needs. Under the auction statute and rules, certain television broadcasters accepted bids from the FCC to voluntarily relinquish their spectrum in exchange for consideration, and certain wireless broadband providers and other entities submitted successful bids to acquire the relinquished television spectrum. Television stations that are not relinquishing their spectrum are being “repacked” into the frequency band still remaining for television broadcast use. The incentive auction commenced on March 29, 2016 and officially concluded on April 13, 2017. NaN of Nexstar’s stations and 1 station owned by Vaughan, a consolidated VIE, accepted bids to relinquish their spectrum. On July 21, 2017, the Company received $478.6 million of gross proceeds from the FCC related to the incentive auction. These were recorded as liability to surrender spectrum asset pending the relinquishment of spectrum assets or conversion from UHF to VHF. Of the 11 total stations that accepted bids, 1 station went off the air in November 2017. The associated spectrum asset and liability to surrender spectrum, both amounting to $34.6 million, were derecognized in the fourth quarter of 2017. The station that went off the air did not have a significant impact on the Company’s financial results because it was located in a remote rural area of the country and the Company has other stations which serve the same area. Of the remaining 10 stations, 8 have ceased broadcasting on their previous channels and implemented channel sharing agreements. As a result, the associated spectrum asset and liability to surrender spectrum, both amounting to $314.1 million, were derecognized in the second quarter of 2018. Of the two remaining stations, 1 moved to a VHF channel in 2019 and vacated its former channel. As such, the associated spectrum asset and liability to surrender spectrum, both amounting to $52.0 million, were derecognized in 2019. The remaining station will move to a VHF channel and must vacate its current channel by a date to be reset by the FCC as a result of the COVID-19 pandemic.

 

20


The majority of the Company’s television stations did not accept bids to relinquish their television channels.  Of those stations, 61 full power stations owned by Nexstar and 17 full power stations owned by VIEs were assigned to new channels in the reduced post-auction television band. These “repacked” stations are required to construct and license the necessary technical modifications to operate on their new assigned channels and must cease operating on their former channels on a rolling schedule ending in July 2020. This date may be extended by the FCC as a result of the COVID-19 pandemic. Congress has allocated up to an industry-wide total of $2.75 billion to reimburse television broadcasters, multichannel video programming distributors (“MVPDs”) and other parties for costs reasonably incurred due to the repack. This allocation includes $1 billion added to the TV Broadcaster Relocation Fund as part of the Consolidated Appropriations Act, 2018. This fund is not available to reimburse repacking costs for stations which are surrendering their spectrum and entering into channel sharing relationships. Broadcasters, MVPDs and other parties have submitted to the FCC estimates of their reimbursable costs, and, in many cases, subsequent requests for reimbursement of those costs. As of December 6, 2019, verified cost estimates were approximately $1.95 billion, with 79 percent of the repack complete and reimbursements still to be made to certain low power television and FM radio stations affected by the repack. During the three months ended March 31, 2020 and 2019, the Company spent a total of $16.9 million and $14.7 million, respectively, in capital expenditures related to station repack which were recorded as assets under the property and equipment caption in the accompanying Condensed Consolidated Balance Sheets. During the three months ended March 31, 2020 and 2019, the Company received $12.8 million and $14.2 million, respectively, in reimbursements from the FCC related to these expenditures which were recorded as operating income in the accompanying Condensed Consolidated Statements of Operations. The Company cannot determine if the FCC will be able to fully reimburse its repacking costs as this is dependent on certain factors, including the Company’s ability to incur repacking costs that are equal to or less than the FCC’s allocation of funds to the Company and whether the FCC will have available funds to reimburse the Company for additional repacking costs that it previously may not have anticipated. Whether the FCC will have available funds for additional reimbursements will also depend on the repacking costs that will be incurred by other broadcasters, MVPDs and other parties that are also seeking reimbursements.

 

The reallocation of television spectrum to broadband use may be to the detriment of the Company’s investment in digital facilities, could require substantial additional investment to continue current operations, and may require viewers to invest in additional equipment or subscription services to continue receiving broadcast television signals.  The Company cannot predict the impact of the incentive auction and subsequent repack on its business.

 

Exclusivity/Retransmission Consent

 

On March 3, 2011, the FCC initiated a Notice of Proposed Rulemaking which among other things 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 in certain circumstances. In March 2014, the FCC adopted a further notice of proposed rulemaking which sought additional comment on the elimination or modification of the network non-duplication and syndicated exclusivity rules.  The FCC’s possible elimination or modification of the network non-duplication and syndicated exclusivity protection rules may affect the Company’s ability to sustain its current level of retransmission consent revenues or grow such revenues in the future and could have an adverse effect on the Company’s business, financial condition and results of operations. The Company cannot predict the resolution of the FCC’s network non-duplication and syndicated exclusivity proposals or the impact of these proposals if they are adopted.

 

On December 5, 2014, federal legislation directed the FCC to commence a rulemaking to “review its totality of the circumstances test for good faith [retransmission consent] negotiations.” The FCC commenced this proceeding in September 2015 and comments and reply comments were submitted. In July 2016, the then-Chairman of the FCC publicly announced that the agency would not adopt additional rules in this proceeding. However, the proceeding remains open.

 

Further, online video distributors (“OVDs”) have begun streaming broadcast programming over the Internet. In September 2014, the U.S. Supreme Court held that an OVD’s retransmissions of broadcast television signals without the consent of the broadcast station violate copyright holders’ exclusive right to perform their works publicly as provided under the Copyright Act. In December 2014, the FCC issued a Notice of Proposed Rulemaking proposing to interpret the term “MVPD” to encompass OVDs that make available for purchase multiple streams of video programming distributed at a prescheduled time and seeking comment on the effects of applying MVPD rules to such OVDs. Comments and reply comments were filed in 2015. Although the FCC has not classified OVDs as MVPDs to date, several OVDs have signed agreements for retransmission of local stations within their markets and others are actively seeking to negotiate such agreements.

 


21


Note 15:  Commitments and Contingencies

Guarantees of Mission and Shield Debt

Nexstar and its subsidiaries guarantee full payment of all obligations incurred under the Mission and Shield senior secured credit facilities. In the event that Mission or Shield is unable to repay amounts due, Nexstar will be obligated to repay such amounts. The maximum potential amount of future payments that Nexstar would be required to make under these guarantees would be generally limited to the borrowings outstanding. As of March 31, 2020, Mission had a maximum commitment of $228.7 million under its senior secured credit facility, of which $225.7 million principal balance of debt was outstanding. As of the same date, Shield had also used all of its commitment and had outstanding principal debt obligations of $21.5 million. Based on the terms of the credit agreements, Mission’s outstanding debt is due January 2024, and Shield’s outstanding debt is due October 2023.

Indemnification Obligations

In connection with certain agreements that the Company enters into in the normal course of its business, including local service agreements, business acquisitions and borrowing arrangements, the Company enters into contractual arrangements under which the Company agrees to indemnify the third-party to such arrangement from losses, claims and damages incurred by the indemnified party for certain events as defined within the particular contract. Such indemnification obligations may not be subject to maximum loss clauses and the maximum potential amount of future payments the Company could be required to make under these indemnification arrangements may be unlimited. Historically, payments made related to these indemnifications have been insignificant and the Company has not incurred significant costs to defend lawsuits or settle claims related to these indemnification agreements.

Litigation

From time to time, the Company is involved 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, the Company believes the resulting liabilities would not have a material adverse effect on its financial condition or results of operations.

Local TV Advertising Antitrust LitigationOn March 16, 2018, a group of companies including Nexstar and Tribune (the “Defendants”) received a Civil Investigative Demand from the Antitrust Division of the DOJ regarding an investigation into the exchange of certain information related to the pacing of sales related to the same period in the prior year among broadcast stations in some DMAs in alleged violation of federal antitrust law. Without admitting any wrongdoing, some Defendants, including Tribune, entered into a proposed consent decree (referred to herein as the “consent decree”) with the DOJ on November 6, 2018. Without admitting any wrongdoing, Nexstar agreed to settle the matter with the DOJ on December 5, 2018. The consent decree was entered in final form by the U.S. District Court for the District of Columbia on May 22, 2019. The consent decree, which settles claims by the government of alleged violations of federal antitrust laws in connection with the alleged information sharing, does not include any financial penalty. Pursuant to the consent decree, Nexstar and Tribune agreed not to exchange certain non-public information with other stations operating in the same DMA except in certain cases, and to implement certain antitrust compliance measures and to monitor and report on compliance with the consent decree.

Starting in July 2018, a series of plaintiffs filed putative class action lawsuits against the Defendants and others alleging that they coordinated their pricing of television advertising, thereby harming a proposed class of all buyers of television advertising time from one or more of the Defendants since at least January 1, 2014. The plaintiff in each lawsuit seeks injunctive relief and money damages caused by the alleged antitrust violations. On October 9, 2018, these cases were consolidated in a multi-district litigation in the District Court for the Northern District of Illinois captioned In Re: Local TV Advertising Antitrust Litigation, No. 1:18-cv-06785 (“MDL Litigation”). On January 23, 2019, the Court in the MDL Litigation appointed plaintiffs’ lead and liaison counsel.  

The MDL Litigation is ongoing. The Plaintiffs’ Consolidated Complaint was filed on April 3, 2019; Defendants filed a Motion to Dismiss on September 5, 2019. Before the Court ruled on that motion, the Plaintiffs filed their Second Amended Consolidated Complaint on September 9, 2019. This complaint added additional defendants and allegations. The Defendants filed a Motion to Dismiss and Strike on October 8, 2019. That motion is currently pending. Nexstar and Tribune deny the allegations against them and will defend their advertising practices.


22


In connection with the Tribune Merger on September 19, 2019, Nexstar assumed contingencies from certain legal proceedings, as follows:

Tribune Chapter 11 Reorganization and Confirmation Order AppealsOn December 8, 2008 (the “Petition Date”), Tribune and 110 of its direct and indirect wholly-owned subsidiaries (collectively, the “Debtors”) filed voluntary petitions for relief under chapter 11 (“Chapter 11”) of title 11 of the United States Code (the “Bankruptcy Code”) in the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). On April 12, 2012, the Debtors, Oaktree Capital Management, L.P. (“Oaktree”), Angelo, Gordon & Co. L.P. (“AG”), the Official Committee of Unsecured Creditors (the “Creditors’ Committee”), and JPMorgan Chase Bank, N.A. (“JPMorgan” and, together with the Debtors, Oaktree, AG and the Creditors’ Committee, the “Plan Proponents”) filed the Fourth Amended Joint Plan of Reorganization for Tribune and its Subsidiaries with the Bankruptcy Court (as subsequently modified by the Plan Proponents, the “Plan”).

 

On July 23, 2012, the Bankruptcy Court issued an order confirming the Plan (the “Confirmation Order”). The Plan became effective and the Debtors emerged from Chapter 11 on December 31, 2012 (the “Effective Date”). The Bankruptcy Court has entered final decrees that have collectively closed 108 of the Debtors’ Chapter 11 cases. The remaining Debtors’ Chapter 11 proceedings continue to be jointly administered under the caption In re Tribune Media Company, et al., Case No. 08-13141.

 

Notices of appeal of the Bankruptcy Court’s order confirming the Plan (the “Confirmation Order”) were filed by (i) Aurelius Capital Management, LP, on behalf of its managed entities that were holders of the Predecessor’s senior notes and Exchangeable Subordinated Debentures due 2029 (“PHONES”); (ii) Law Debenture Trust Company of New York (n/k/a Delaware Trust Company) (“Delaware Trust Company”) and Deutsche Bank Trust Company Americas (“Deutsche Bank”), each successor trustees under the respective indentures for the Predecessor’s senior notes; (iii) Wilmington Trust Company, as successor indenture trustee for the PHONES; and (iv) EGI-TRB, L.L.C., a Delaware limited liability company wholly-owned by Sam Investment Trust (a trust established for the benefit of Samuel Zell and his family) (the “Zell Entity”). The appellants sought, among other relief, to overturn the Confirmation Order and certain prior orders of the Bankruptcy Court embodied in the Plan, including the settlement of certain claims and causes of action related to the Leveraged ESOP Transactions (as defined below) consummated by the Debtors, the Tribune employee stock ownership plan, the Zell Entity and Samuel Zell in 2007. Each of the Confirmation Order appeals has been dismissed or otherwise resolved by a final order, with the exception of the appeals of Delaware Trust Company and Deutsche Bank.  On July 30, 2018, the United States District Court for the District of Delaware (the “District Court”) entered an order affirming (i) the Bankruptcy Court’s judgment overruling Delaware Trust Company’s and Deutsche Bank’s objections to confirmation of the Plan and (ii) the Bankruptcy Court’s order confirming the Plan.  Delaware Trust Company and Deutsche Bank appealed the District Court’s order to the United States Court of Appeals for the Third Circuit (the “Third Circuit”) on August 27, 2018. That appeal remains pending before the Third Circuit. If the remaining appellants succeed on their appeals, Tribune’s financial condition may be adversely affected.

 

As of the Effective Date, approximately 7,400 proofs of claim had been filed against the Debtors. Amounts and payment terms for these claims, if applicable, were established in the Plan. The Plan requires Tribune to reserve cash in amounts sufficient to make certain additional payments that may become due and owing pursuant to the Plan subsequent to the Effective Date. As of March 31, 2020, restricted cash and cash equivalents held by Tribune to satisfy the remaining claim obligations were $16.6 million and are estimated to be sufficient to satisfy such obligations.

 

As of March 31, 2020, all but 347 proofs of claim against the Debtors had been withdrawn, expunged, settled or otherwise satisfied. The majority of the remaining proofs of claim were filed by certain of Tribune’s former directors and officers, asserting indemnity and other related claims against Tribune for claims brought against them in lawsuits arising from the cancellation of all issued and outstanding shares of Tribune common stock as of December 20, 2007 and with Tribune becoming wholly-owned by the Tribune Company employee stock ownership plan (the “Leveraged ESOP Transactions”). Those lawsuits are pending in multidistrict litigation (“MDL”) before the U.S. District Court for the Southern District of New York in proceedings captioned In re Tribune Co. Fraudulent Conveyance Litigation. Under the Plan, the indemnity claims of Tribune’s former directors and officers must be set off against any recovery by the litigation trust formed pursuant to the Plan (the “Litigation Trust”) against any of those directors and officers, and the Litigation Trust is authorized to object to the allowance of any such indemnity-type claims.

 

The Debtors are continuing to evaluate the remaining proofs of claim. The ultimate amounts to be paid in resolutions of the remaining proofs of claim, including indemnity claims, continue to be subject to uncertainty. If the aggregate allowed amount of the remaining claims exceeds the restricted cash and cash equivalents held for satisfying such claims, Tribune would be required to satisfy the allowed claims from its cash on hand from operations.

 

Reorganization Items, Net—Reorganization items, net are included in the “Other expenses, net” in the Company’s unaudited Condensed Consolidated Statements of Operations and primarily include professional advisory fees and other costs related to the resolution of unresolved claims.  Such amounts were not significant during the quarter ended March 31, 2020. The Company expects to continue to incur certain expenses pertaining to the Chapter 11 proceedings throughout 2020 and potentially in future periods.

 


23


Termination of Tribune and Sinclair Merger Agreement—On August 9, 2018, Tribune provided notification to Sinclair Broadcast Group, Inc. (“Sinclair”) that it terminated, effective immediately, the Agreement and Plan of Merger, dated May 8, 2017, with Sinclair, which provided for the acquisition by Sinclair of all of the outstanding shares of Tribune’s common stock. Additionally, on August 9, 2018, Tribune filed a complaint in the Delaware Court of Chancery against Sinclair, alleging that Sinclair willfully and materially breached its obligations under the merger agreement. The lawsuit sought damages for all losses incurred as a result of Sinclair’s breach of contract under the merger agreement.

 

On January 27, 2020, Nexstar and Sinclair agreed to settle the outstanding lawsuit between Tribune and Sinclair in connection with their terminated merger agreement. Tribune was acquired by Nexstar in September 2019. The companies will dismiss with prejudice the lawsuit pending in the Delaware Court of Chancery between Tribune and Sinclair concerning the terminated Tribune/Sinclair merger, and will release each other from any current and future claims relating to the terminated merger. Neither party has admitted any liability or wrongdoing in connection with the terminated merger. As such, both parties have settled the lawsuit to avoid the costs, distraction, and uncertainties of continued litigation. As part of the resolution, Sinclair has agreed to sell to Nexstar television station WDKY-TV in the Lexington, KY DMA, subject to FCC approval and other customary conditions. Sinclair has also sold to Nexstar certain non-license assets associated with television station KGBT-TV in the Harlingen-Weslaco-Brownsville-McAllen, Texas market for $18.0 million in cash. Nexstar and Sinclair have also modified an existing agreement regarding carriage of certain of Sinclair’s digital networks by stations acquired by Nexstar in connection with the Tribune acquisition. Finally, on January 28, 2020, Sinclair made a $98.0 million cash payment to Nexstar.

 

Chicago Cubs Transactions—On August 21, 2009, Tribune and Chicago Entertainment Ventures, LLC (formerly Chicago Baseball Holdings, LLC) (“CEV LLC”), and its subsidiaries (collectively, “New Cubs LLC”), among other parties, entered into an agreement (the “Cubs Formation Agreement”) governing the contribution of certain assets and liabilities related to the businesses of the Chicago Cubs Major League Baseball franchise then owned by Tribune and its subsidiaries to New Cubs LLC.  The transactions contemplated by the Cubs Formation Agreement and the related agreements thereto (the “Chicago Cubs Transactions”) closed on October 27, 2009. As a result of these transactions, Northside Entertainment Holdings LLC (f/k/a Ricketts Acquisition LLC) (“NEH”) owned 95% and Tribune owned 5% of the membership interests in CEV LLC. The fair market value of the contributed assets exceeded the tax basis and did not result in an immediate taxable gain as the transaction was structured to comply with the partnership provisions of the Internal Revenue Code (“IRC”) and related regulations.

 

On June 28, 2016, the IRS issued Tribune a Notice of Deficiency which presented the IRS’s position that the gain should have been included in Tribune’s 2009 taxable income. Accordingly, the IRS has proposed a $182.0 million tax and a $73.0 million gross valuation misstatement penalty. In addition, after-tax interest on the aforementioned proposed tax and penalty through March 31, 2020 would be approximately $107.0 million. During the third quarter of 2016, Tribune filed a petition in U.S. Tax Court to contest the IRS’s determination. A bench trial in the U.S. Tax Court took place between October 28, 2019 and November 8, 2019, and closing arguments took place on December 11, 2019. Briefing is ongoing, and an opinion on the merits is expected after briefing is complete. The U.S. Tax Court issued an opinion on January 6, 2020 holding that the IRS satisfied the procedural requirements for the imposition of the gross valuation misstatement penalty. Other aspects of this litigation remain in process.

 

On January 22, 2019, Tribune sold its 5% membership interest in CEV LLC and paid the federal and state taxes due on the deferred gain and the gain on sale of its ownership of CEV LLC through its regular tax reporting process. The sale of Tribune’s ownership interest in CEV LLC has no impact on Tribune’s ongoing dispute with the IRS. On September 19, 2019, Tribune became a wholly owned subsidiary of Nexstar pursuant to the Merger Agreement. Nexstar continues to disagree with the IRS’s position that the Chicago Cubs Transactions generated a taxable gain in 2009, the proposed penalty and the IRS’s calculation of the gain.  If the IRS prevails in its position, the gain on the Chicago Cubs Transactions would be deemed to be taxable in 2009. Nexstar estimates that the federal and state income taxes would be approximately $225.0 million before interest and penalties. Any tax, interest and penalty due will be offset by tax payments made relating to this transaction subsequent to 2009. Tribune made approximately $147.0 million of tax payments prior to its merger with Nexstar. In addition, if the IRS prevails with its position, under the tax rules for determining tax basis upon emergence from bankruptcy, the Company would be required to reduce its tax basis in certain assets. The reduction in tax basis would be required to reflect the reduction in the amount of the Company’s guarantee of the New Cubs partnership debt which was included in the reported tax basis previously determined upon emergence from bankruptcy. Tribune no longer owns any portion of CEV LLC. The Company has not recorded any tax reserves related to the Chicago Cubs Transactions.

 


24


Marshall Litigation— On April 3, 2019, Marshall filed a lawsuit against Nexstar in the Supreme Court of the State of New York (the “New York litigation”). The lawsuit initially asserted nine causes of action, five of which were subsequently dismissed by the Supreme Court (the Court’s order dismissing those five claims is currently on appeal), and one of which was withdrawn by Marshall. The remaining causes of action allege: (i) breach of the SSAs between Nexstar and Marshall; (ii) breach of the guaranty agreement between Nexstar and Marshall’s lenders; and (iii) conversion of certain retransmission fees collected by Nexstar on Marshall’s behalf. Marshall is seeking monetary and punitive damages, in addition to attorneys’ fees. Nexstar denies these allegations and intends to defend itself vigorouslyOn November 20, 2019, Nexstar filed counterclaims against Marshall and Pluria Marshall, in his individual capacity, alleging breach of the SSAs, unjust enrichment, and fraudulent conveyance. Nexstar seeks payment of the outstanding amount due under the SSAs as compensatory damages, punitive damages for the alleged fraudulent conveyances, and attorneys’ fees and costs. The parties have agreed to stay the New York litigation until June 15, 2020 and have agreed to stay the related appeal until July 24, 2020.

 

On March 31, 2020, Marshall filed a bankruptcy adversary proceeding against Nexstar in the Southern District of Texas. This lawsuit arises in the context of the MBG chapter 11 case and asserts many of the same causes of action that Marshall brought in the New York litigation, as well as turnover and fraudulent transfer claims. Marshall seeks monetary damages, punitive damages, and equitable relief, in addition to attorneys’ fees. Nexstar denies these allegations and intends to defend itself vigorously. Nexstar’s answer or motion to dismiss the adversary proceeding was filed on May 7, 2020.

Note 16:  Segment Data

 

The Company evaluates the performance of its operating segments based on net revenue and operating income. The Company’s broadcast segment includes (i) television stations and related community focused websites that Nexstar owns, operates, programs or provides sales and other services to in various markets across the United States, (ii) digital multicast network services, (iii) WGN America, a national general entertainment cable network, and (iv) WGN-AM, a Chicago radio station. The other activities of the Company include (i) corporate functions, (ii) the management of certain real estate assets, including revenues from leasing certain owned office and production facilities, (iii) digital businesses and (iv) eliminations.

 

Segment financial information is included in the following tables for the periods presented (in thousands):

 

Three Months Ended March 31, 2020

 

Broadcast

 

 

Other

 

 

Consolidated

 

Net revenue

 

$

1,074,016

 

 

$

17,806

 

 

$

1,091,822

 

Depreciation

 

 

29,775

 

 

 

5,631

 

 

 

35,406

 

Amortization of intangible assets

 

 

69,421

 

 

 

1,162

 

 

 

70,583

 

Income (loss) from operations

 

 

363,027

 

 

 

(58,012

)

 

 

305,015

 

 

Three Months Ended March 31, 2019

 

Broadcast

 

 

Other

 

 

Consolidated

 

Net revenue

 

$

599,183

 

 

$

27,464

 

 

$

626,647

 

Depreciation

 

 

23,627

 

 

 

3,810

 

 

 

27,437

 

Amortization of intangible assets

 

 

30,845

 

 

 

5,893

 

 

 

36,738

 

Income (loss) from operations

 

 

168,500

 

 

 

(41,426

)

 

 

127,074

 

 

As of March 31, 2020

 

Broadcast

 

 

Other

 

 

Consolidated

 

Goodwill

 

$

2,879,748

 

 

$

-

 

 

$

2,879,748

 

Assets

 

 

12,330,096

 

 

 

1,245,341

 

 

 

13,575,437

 

 

As of December 31, 2019

 

Broadcast

 

 

Other

 

 

Consolidated

 

Goodwill

 

$

2,996,875

 

 

$

-

 

 

$

2,996,875

 

Assets

 

 

12,918,966

 

 

 

1,070,771

 

 

 

13,989,737

 

The following tables present the disaggregation of the Company’s revenue for the periods presented (in thousands):

Three Months Ended March 31, 2020

 

Broadcast

 

 

Other

 

 

Consolidated

 

Core advertising (local and national)

 

$

417,379

 

 

$

-

 

 

$

417,379

 

Political advertising

 

 

55,341

 

 

 

-

 

 

 

55,341

 

Distribution revenue

 

 

549,716

 

 

 

-

 

 

 

549,716

 

Digital

 

 

40,326

 

 

 

16,114

 

 

 

56,440

 

Other

 

 

8,460

 

 

 

1,692

 

 

 

10,152

 

Trade revenue

 

 

2,794

 

 

 

-

 

 

 

2,794

 

Total revenue

 

$

1,074,016

 

 

$

17,806

 

 

$

1,091,822

 

 

25


Three Months Ended March 31, 2019

 

Broadcast

 

 

 

 

Other

 

 

Consolidated

 

Core advertising (local and national)

 

$

251,844

 

 

 

 

$

-

 

 

$

251,844

 

Political advertising

 

 

1,307

 

 

 

 

 

-

 

 

 

1,307

 

Distribution revenue

 

 

313,974

 

 

 

 

 

-

 

 

 

313,974

 

Digital

 

 

25,386

 

 

 

 

 

27,449

 

 

 

52,835

 

Other

 

 

3,849

 

 

 

 

 

15

 

 

 

3,864

 

Trade and barter revenue

 

 

2,823

 

 

 

 

 

-

 

 

 

2,823

 

Net revenue

 

$

599,183

 

 

 

 

$

27,464

 

 

$

626,647

 

 

The Company is a television broadcasting and digital media company focused on the acquisition, development and operation of television stations and interactive community websites and digital media services in medium-sized markets in the United States.

Advertising revenue (core, political and digital) is positively affected by national and regional political campaigns, and certain events such as the Olympic Games or the Super Bowl. Company 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 congressional and presidential elections occur, and advertising is aired during the Olympic Games.

The Company receives compensation from MVPDs and OVDs in return for the consent to the retransmission of the signals of its television stations. Retransmission compensation is recognized at the point in time the broadcast signal is delivered to the distributors and is based on a price per subscriber.

Note 17:  Condensed Consolidating Financial Information

 

The following condensed consolidating financial information presents the financial position, results of operations and cash flows of the Company, including its wholly-owned subsidiaries and its consolidated VIEs. This information is presented in lieu of separate financial statements and other related disclosures pursuant to Regulation S-X Rule 3-10 of the Securities Exchange Act of 1934, as amended, “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.”

 

The Nexstar column presents the parent company’s financial information, excluding consolidating entities. The Nexstar Broadcasting column presents the financial information of Nexstar Broadcasting, Inc. (“Nexstar Broadcasting”), a wholly-owned subsidiary of Nexstar and issuer of the 5.625% Notes due 2024 and the 5.625% Notes due 2027. The Mission column presents the financial information of Mission, an entity which Nexstar Broadcasting is required to consolidate as a VIE (See Note 2). The Non-Guarantors column presents the combined financial information of Nexstar Digital, a wholly-owned subsidiary of Nexstar, and other VIEs consolidated by Nexstar Broadcasting (See Note 2).

 

Nexstar Broadcasting’s outstanding 5.625% Notes due 2024 and 5.625% Notes due 2027 are fully and unconditionally guaranteed, jointly and severally, by Nexstar, Mission and certain of Nexstar Broadcasting’s restricted subsidiaries, subject to certain customary release provisions. These notes are not guaranteed by any other entities.

26


CONDENSED CONSOLIDATING BALANCE SHEET

As of March 31, 2020

(in thousands)

 

 

 

 

 

 

 

Nexstar

 

 

 

 

 

 

Non-

 

 

 

 

 

 

Consolidated

 

 

 

Nexstar

 

 

Broadcasting

 

 

Mission

 

 

Guarantors

 

 

Eliminations

 

 

Company

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

-

 

 

$

417,914

 

 

$

4,926

 

 

$

11,227

 

 

$

-

 

 

$

434,067

 

Restricted cash and cash equivalents

 

 

-

 

 

 

16,608

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

16,608

 

Accounts receivable

 

 

1,001

 

 

 

831,807

 

 

 

14,023

 

 

 

41,907

 

 

 

-

 

 

 

888,738

 

Amounts due from consolidated entities

 

 

-

 

 

 

158,181

 

 

 

13,774

 

 

 

-

 

 

 

(171,955

)

 

 

-

 

Spectrum asset

 

 

-

 

 

 

67,171

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

67,171

 

Other current assets

 

 

-

 

 

 

105,163

 

 

 

533

 

 

 

2,010

 

 

 

-

 

 

 

107,706

 

Total current assets

 

 

1,001

 

 

 

1,596,844

 

 

 

33,256

 

 

 

55,144

 

 

 

(171,955

)

 

 

1,514,290

 

Investments in subsidiaries

 

 

1,553,103

 

 

 

91,944

 

 

 

-

 

 

 

-

 

 

 

(1,645,047

)

 

 

-

 

Amounts due from consolidated entities

 

 

584,175

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(584,175

)

 

 

-

 

Property and equipment, net

 

 

-

 

 

 

1,503,788

 

 

 

22,608

 

 

 

20,552

 

 

 

(75

)

 

 

1,546,873

 

Goodwill

 

 

-

 

 

 

2,744,114

 

 

 

33,187

 

 

 

102,447

 

 

 

-

 

 

 

2,879,748

 

FCC licenses

 

 

-

 

 

 

2,693,975

 

 

 

43,102

 

 

 

95,380

 

 

 

-

 

 

 

2,832,457

 

Network affiliation agreements, net

 

 

-

 

 

 

2,265,310

 

 

 

10,952

 

 

 

54,174

 

 

 

-

 

 

 

2,330,436

 

Other intangible assets, net

 

 

-

 

 

 

703,560

 

 

 

460

 

 

 

1,737

 

 

 

-

 

 

 

705,757

 

Investments

 

 

-

 

 

 

1,322,195

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,322,195

 

Assets held for sale

 

 

-

 

 

 

4,524

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,524

 

Other noncurrent assets

 

 

1,687

 

 

 

374,009

 

 

 

54,752

 

 

 

19,601

 

 

 

(10,892

)

 

 

439,157

 

Total assets

 

$

2,139,966

 

 

$

13,300,263

 

 

$

198,317

 

 

$

349,035

 

 

$

(2,412,144

)

 

$

13,575,437

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of debt

 

$

-

 

 

$

52,680

 

 

$

2,285

 

 

$

1,263

 

 

$

-

 

 

$

56,228

 

Accounts payable

 

 

-

 

 

 

135,597

 

 

 

1,743

 

 

 

1,612

 

 

 

-

 

 

 

138,952

 

Amounts due to consolidated entities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

171,955

 

 

 

(171,955

)

 

 

-

 

Liability to surrender spectrum asset

 

 

-

 

 

 

77,962

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

77,962

 

Other current liabilities

 

 

1,001

 

 

 

607,933

 

 

 

7,103

 

 

 

26,819

 

 

 

-

 

 

 

642,856

 

Total current liabilities

 

 

1,001

 

 

 

874,172

 

 

 

11,131

 

 

 

201,649

 

 

 

(171,955

)

 

 

915,998

 

Debt

 

 

-

 

 

 

7,750,219

 

 

 

220,389

 

 

 

20,027

 

 

 

-

 

 

 

7,990,635

 

Amounts due to consolidated entities

 

 

-

 

 

 

376,384

 

 

 

-

 

 

 

208,001

 

 

 

(584,385

)

 

 

-

 

Deferred tax liabilities

 

 

-

 

 

 

1,684,955

 

 

 

11,787

 

 

 

10,761

 

 

 

(10,892

)

 

 

1,696,611

 

Other noncurrent liabilities

 

 

-

 

 

 

834,084

 

 

 

9,259

 

 

 

12,791

 

 

 

-

 

 

 

856,134

 

Total liabilities

 

 

1,001

 

 

 

11,519,814

 

 

 

252,566

 

 

 

453,229

 

 

 

(767,232

)

 

 

11,459,378

 

Total Nexstar Media Group, Inc.

  stockholders’ equity (deficit)

 

 

2,138,965

 

 

 

1,774,058

 

 

 

(54,249

)

 

 

(120,716

)

 

 

(1,644,912

)

 

 

2,093,146

 

Noncontrolling interests in consolidated

  variable interest entities

 

 

-

 

 

 

6,391

 

 

 

-

 

 

 

16,522

 

 

 

-

 

 

 

22,913

 

Total liabilities and stockholders’ equity (deficit)

 

$

2,139,966

 

 

$

13,300,263

 

 

$

198,317

 

 

$

349,035

 

 

$

(2,412,144

)

 

$

13,575,437

 

 

27


CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, 2019

(in thousands)

 

 

 

 

 

 

 

Nexstar

 

 

 

 

 

 

Non-

 

 

 

 

 

 

Consolidated

 

 

 

Nexstar

 

 

Broadcasting

 

 

Mission

 

 

Guarantors

 

 

Eliminations

 

 

Company

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

-

 

 

$

208,223

 

 

$

8,686

 

 

$

15,161

 

 

$

-

 

 

$

232,070

 

Restricted cash and cash equivalents

 

 

-

 

 

$

16,608

 

 

$

-

 

 

$

-

 

 

$

-

 

 

 

16,608

 

Accounts receivable

 

 

997

 

 

 

826,868

 

 

 

13,705

 

 

 

42,351

 

 

 

-

 

 

 

883,921

 

Amounts due from consolidated entities

 

 

-

 

 

 

156,112

 

 

 

15,232

 

 

 

-

 

 

 

(171,344

)

 

 

-

 

Spectrum asset

 

 

-

 

 

 

67,171

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

67,171

 

Other current assets

 

 

-

 

 

 

148,840

 

 

 

632

 

 

 

2,525

 

 

 

-

 

 

 

151,997

 

Total current assets

 

 

997

 

 

 

1,423,822

 

 

 

38,255

 

 

 

60,037

 

 

 

(171,344

)

 

 

1,351,767

 

Investments in subsidiaries

 

 

1,391,014

 

 

 

108,884

 

 

 

-

 

 

 

-

 

 

 

(1,499,898

)

 

 

-

 

Amounts due from consolidated entities

 

 

679,817

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(679,817

)

 

 

-

 

Property and equipment, net

 

 

-

 

 

 

1,246,263

 

 

 

22,722

 

 

 

21,518

 

 

 

(75

)

 

 

1,290,428

 

Goodwill

 

 

-

 

 

 

2,861,241

 

 

 

33,187

 

 

 

102,447

 

 

 

-

 

 

 

2,996,875

 

FCC licenses

 

 

-

 

 

 

2,782,983

 

 

 

43,102

 

 

 

95,380

 

 

 

-

 

 

 

2,921,465

 

Network affiliation agreements, net

 

 

-

 

 

 

2,465,587

 

 

 

11,301

 

 

 

55,378

 

 

 

-

 

 

 

2,532,266

 

Other intangible assets, net

 

 

-

 

 

 

724,247

 

 

 

491

 

 

 

2,616

 

 

 

-

 

 

 

727,354

 

Investments

 

 

-

 

 

 

1,477,353

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,477,353

 

Assets held for sale

 

 

-

 

 

 

240,524

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

240,524

 

Other noncurrent assets

 

 

55

 

 

 

382,785

 

 

 

55,257

 

 

 

25,347

 

 

 

(11,739

)

 

 

451,705

 

Total assets

 

$

2,071,883

 

 

$

13,713,689

 

 

$

204,315

 

 

$

362,723

 

 

$

(2,362,873

)

 

$

13,989,737

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of debt

 

$

-

 

 

$

105,877

 

 

$

2,285

 

 

$

1,148

 

 

$

-

 

 

$

109,310

 

Accounts payable

 

 

-

 

 

 

142,377

 

 

 

3,074

 

 

 

11,915

 

 

 

-

 

 

 

157,366

 

Amounts due to consolidated entities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

171,344

 

 

 

(171,344

)

 

 

-

 

Liability to surrender spectrum asset

 

 

-

 

 

 

77,962

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

77,962

 

Other current liabilities

 

 

392

 

 

 

565,943

 

 

 

6,901

 

 

 

29,683

 

 

 

-

 

 

 

602,919

 

Total current liabilities

 

 

392

 

 

 

892,159

 

 

 

12,260

 

 

 

214,090

 

 

 

(171,344

)

 

 

947,557

 

Debt

 

 

-

 

 

 

8,142,088

 

 

 

220,780

 

 

 

20,410

 

 

 

-

 

 

 

8,383,278

 

Amounts due to consolidated entities

 

 

-

 

 

 

476,414

 

 

 

-

 

 

 

203,613

 

 

 

(680,027

)

 

 

-

 

Deferred tax liabilities

 

 

-

 

 

 

1,699,774

 

 

 

11,753

 

 

 

10,876

 

 

 

(11,739

)

 

 

1,710,664

 

Other noncurrent liabilities

 

 

-

 

 

 

869,292

 

 

 

9,804

 

 

 

15,649

 

 

 

-

 

 

 

894,745

 

Total liabilities

 

 

392

 

 

 

12,079,727

 

 

 

254,597

 

 

 

464,638

 

 

 

(863,110

)

 

 

11,936,244

 

Total Nexstar Media Group, Inc.

  stockholders’ equity (deficit)

 

 

2,071,491

 

 

 

1,627,712

 

 

 

(50,282

)

 

 

(117,661

)

 

 

(1,499,763

)

 

 

2,031,497

 

Noncontrolling interests in consolidated

  variable interest entities

 

 

-

 

 

 

6,250

 

 

 

-

 

 

 

15,746

 

 

 

-

 

 

 

21,996

 

Total liabilities and stockholders’ equity (deficit)

 

$

2,071,883

 

 

$

13,713,689

 

 

$

204,315

 

 

$

362,723

 

 

$

(2,362,873

)

 

$

13,989,737

 

 

28


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Three Months Ended March 31, 2020

(in thousands)

 

 

 

 

 

 

 

Nexstar

 

 

 

 

 

 

Non-

 

 

 

 

 

 

Consolidated

 

 

 

Nexstar

 

 

Broadcasting

 

 

Mission

 

 

Guarantors

 

 

Eliminations

 

 

Company

 

Net broadcast revenue (including trade)

 

$

-

 

 

$

1,047,815

 

 

$

20,241

 

 

$

21,949

 

 

$

1,817

 

 

$

1,091,822

 

Revenue between consolidated entities

 

 

12,737

 

 

 

24,625

 

 

 

9,313

 

 

 

26,482

 

 

 

(73,157

)

 

 

-

 

Net revenue

 

 

12,737

 

 

 

1,072,440

 

 

 

29,554

 

 

 

48,431

 

 

 

(71,340

)

 

 

1,091,822

 

Operating expenses (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses, excluding

  depreciation and amortization

 

 

4

 

 

 

392,383

 

 

 

13,600

 

 

 

39,072

 

 

 

-

 

 

 

445,059

 

Selling, general, and administrative expenses,

  excluding depreciation and amortization

 

 

12,850

 

 

 

229,974

 

 

 

1,567

 

 

 

3,214

 

 

 

(29,221

)

 

 

218,384

 

Local service agreement fees between

  consolidated entities

 

 

-

 

 

 

19,311

 

 

 

16,033

 

 

 

6,775

 

 

 

(42,119

)

 

 

-

 

Amortization of broadcast rights

 

 

-

 

 

 

36,350

 

 

 

372

 

 

 

486

 

 

 

-

 

 

 

37,208

 

Amortization of intangible assets

 

 

-

 

 

 

67,815

 

 

 

381

 

 

 

2,387

 

 

 

-

 

 

 

70,583

 

Depreciation

 

 

-

 

 

 

33,800

 

 

 

636

 

 

 

970

 

 

 

-

 

 

 

35,406

 

Reimbursement from the FCC related to station repack

 

 

-

 

 

 

(10,547

)

 

 

(565

)

 

 

(1,646

)

 

 

-

 

 

 

(12,758

)

Gain on disposal of stations and entities, net

 

 

-

 

 

 

(7,075

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,075

)

Total operating expenses

 

 

12,854

 

 

 

762,011

 

 

 

32,024

 

 

 

51,258

 

 

 

(71,340

)

 

 

786,807

 

(Loss) income from operations

 

 

(117

)

 

 

310,429

 

 

 

(2,470

)

 

 

(2,827

)

 

 

-

 

 

 

305,015

 

Income (loss) from equity investment, net

 

 

-

 

 

 

14,166

 

 

 

-

 

 

 

(8

)

 

 

-

 

 

 

14,158

 

Interest expense, net

 

 

-

 

 

 

(99,620

)

 

 

(1,455

)

 

 

(209

)

 

 

-

 

 

 

(101,284

)

Loss on extinguishment of debt

 

 

-

 

 

 

(7,477

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,477

)

Pension and other postretirement plans credit, net

 

 

-

 

 

 

10,762

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

10,762

 

Other (expenses) income

 

 

(1,502

)

 

 

2,366

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

864

 

Equity in income of consolidated subsidiaries

 

 

162,086

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(162,086

)

 

 

-

 

Income (loss) before income taxes

 

 

160,467

 

 

 

230,626

 

 

 

(3,925

)

 

 

(3,044

)

 

 

(162,086

)

 

 

222,038

 

Income tax benefit (expense)

 

 

884

 

 

 

(65,953

)

 

 

(39

)

 

 

764

 

 

 

-

 

 

 

(64,344

)

Net income (loss)

 

 

161,351

 

 

 

164,673

 

 

 

(3,964

)

 

 

(2,280

)

 

 

(162,086

)

 

 

157,694

 

Net income attributable to noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(779

)

 

 

-

 

 

 

(779

)

Net income (loss) attributable to Nexstar

 

$

161,351

 

 

$

164,673

 

 

$

(3,964

)

 

$

(3,059

)

 

$

(162,086

)

 

$

156,915

 

 

29


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Three Months Ended March 31, 2019

(in thousands)

 

 

 

 

 

 

 

Nexstar

 

 

 

 

 

 

Non-

 

 

 

 

 

 

Consolidated

 

 

 

Nexstar

 

 

Broadcasting

 

 

Mission

 

 

Guarantors

 

 

Eliminations

 

 

Company

 

Net broadcast revenue (including trade)

 

$

-

 

 

$

567,780

 

 

$

19,407

 

 

$

39,460

 

 

$

-

 

 

$

626,647

 

Revenue between consolidated entities

 

 

8,418

 

 

 

22,233

 

 

 

7,762

 

 

 

17,717

 

 

 

(56,130

)

 

 

-

 

Net revenue

 

 

8,418

 

 

 

590,013

 

 

 

27,169

 

 

 

57,177

 

 

 

(56,130

)

 

 

626,647

 

Operating expenses (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses, excluding

   depreciation and amortization

 

 

-

 

 

 

240,195

 

 

 

12,036

 

 

 

42,499

 

 

 

(1,867

)

 

 

292,863

 

Selling, general, and administrative expenses,

  excluding depreciation and amortization

 

 

9,748

 

 

 

137,269

 

 

 

991

 

 

 

10,027

 

 

 

(15,675

)

 

 

142,360

 

Local service agreement fees between

   consolidated entities

 

 

-

 

 

 

16,354

 

 

 

14,575

 

 

 

7,659

 

 

 

(38,588

)

 

 

-

 

Amortization of broadcast rights

 

 

-

 

 

 

13,351

 

 

 

383

 

 

 

628

 

 

 

-

 

 

 

14,362

 

Amortization of intangible assets

 

 

-

 

 

 

28,663

 

 

 

519

 

 

 

7,556

 

 

 

-

 

 

 

36,738

 

Depreciation

 

 

-

 

 

 

25,227

 

 

 

608

 

 

 

1,602

 

 

 

-

 

 

 

27,437

 

Reimbursement from the FCC related to station repack

 

 

-

 

 

 

(9,685

)

 

 

(1,536

)

 

 

(2,966

)

 

 

-

 

 

 

(14,187

)

Total operating expenses

 

 

9,748

 

 

 

451,374

 

 

 

27,576

 

 

 

67,005

 

 

 

(56,130

)

 

 

499,573

 

(Loss) income from operations

 

 

(1,330

)

 

 

138,639

 

 

 

(407

)

 

 

(9,828

)

 

 

-

 

 

 

127,074

 

Loss from equity investment, net

 

 

-

 

 

 

(475

)

 

 

-

 

 

 

(16

)

 

 

-

 

 

 

(491

)

Interest expense, net

 

 

-

 

 

 

(49,208

)

 

 

(2,886

)

 

 

(863

)

 

 

-

 

 

 

(52,957

)

Loss on extinguishment of debt

 

 

-

 

 

 

(1,698

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,698

)

Pension and other postretirement plans credit, net

 

 

-

 

 

 

1,400

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,400

 

Equity in income of consolidated subsidiaries

 

 

60,758

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(60,758

)

 

 

-

 

Income (loss) before income taxes

 

 

59,428

 

 

 

88,658

 

 

 

(3,293

)

 

 

(10,707

)

 

 

(60,758

)

 

 

73,328

 

Income tax (expense) benefit

 

 

312

 

 

 

(19,822

)

 

 

835

 

 

 

2,234

 

 

 

-

 

 

 

(16,441

)

   Net income (loss)

 

 

59,740

 

 

 

68,836

 

 

 

(2,458

)

 

 

(8,473

)

 

 

(60,758

)

 

 

56,887

 

Net loss attributable to noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,995

)

 

 

-

 

 

 

(1,995

)

Net income (loss) attributable to Nexstar

 

$

59,740

 

 

$

68,836

 

 

$

(2,458

)

 

$

(10,468

)

 

$

(60,758

)

 

$

54,892

 

 

 

 

 

 


30


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Three Months Ended March 31, 2020

(in thousands)

 

 

 

 

 

 

 

Nexstar

 

 

 

 

 

 

Non-

 

 

 

 

 

 

Consolidated

 

 

 

Nexstar

 

 

Broadcasting

 

 

Mission

 

 

Guarantors

 

 

Eliminations

 

 

Company

 

Cash flows from operating activities

 

$

-

 

 

$

421,262

 

 

$

(3,124

)

 

$

(3,020

)

 

$

-

 

 

$

415,118

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments for acquisitions, net of cash acquired

 

 

-

 

 

 

(63,000

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(63,000

)

Proceeds from sale of stations

 

 

-

 

 

 

362,804

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

362,804

 

Purchases of property and equipment

 

 

-

 

 

 

(57,230

)

 

 

(630

)

 

 

(2,274

)

 

 

-

 

 

 

(60,134

)

Spectrum repack reimbursements from the FCC

 

 

-

 

 

 

10,547

 

 

 

565

 

 

 

1,646

 

 

 

-

 

 

 

12,758

 

Proceeds from disposals of property and equipment

 

 

-

 

 

 

430

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

430

 

Proceeds from resolution of acquired contingency

 

 

-

 

 

 

98,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

98,000

 

Other investing activities

 

 

-

 

 

 

171

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

171

 

Net cash provided by (used in) investing activities

 

 

-

 

 

 

351,722

 

 

 

(65

)

 

 

(628

)

 

 

-

 

 

 

351,029

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repayments of long-term debt

 

 

-

 

 

 

(456,470

)

 

 

(571

)

 

 

(287

)

 

 

-

 

 

 

(457,328

)

Payments for debt financing costs

 

 

-

 

 

 

(379

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(379

)

Common stock dividends paid

 

 

(25,676

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(25,676

)

Inter-company payments

 

 

104,378

 

 

 

(104,378

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Purchase of treasury stock

 

 

(72,587

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(72,587

)

Cash paid for shares withheld for taxes

 

 

(6,483

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,483

)

Payments for capital lease and capitalized software obligations

 

 

-

 

 

 

(1,792

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,792

)

Proceeds from exercise of stock options

 

 

368

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

368

 

Other financing activities

 

 

-

 

 

 

(274

)

 

 

-

 

 

 

1

 

 

 

-

 

 

 

(273

)

Net cash used in financing activities

 

 

-

 

 

 

(563,293

)

 

 

(571

)

 

 

(286

)

 

 

-

 

 

 

(564,150

)

Net increase (decrease) in cash,

  cash equivalents and restricted cash

 

 

-

 

 

 

209,691

 

 

 

(3,760

)

 

 

(3,934

)

 

 

-

 

 

 

201,997

 

Cash, cash equivalents and restricted

  cash at beginning of period

 

 

-

 

 

 

224,831

 

 

 

8,686

 

 

 

15,161

 

 

 

-

 

 

 

248,678

 

Cash, cash equivalents and restricted

  cash at end of period

 

$

-

 

 

$

434,522

 

 

$

4,926

 

 

$

11,227

 

 

$

-

 

 

$

450,675

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Three Months Ended March 31, 2019

(in thousands)

 

 

 

 

 

 

 

Nexstar

 

 

 

 

 

 

Non-

 

 

 

 

 

 

Consolidated

 

 

 

Nexstar

 

 

Broadcasting

 

 

Mission

 

 

Guarantors

 

 

Eliminations

 

 

Company

 

Cash flows from operating activities

 

$

-

 

 

$

124,410

 

 

$

(5,289

)

 

$

5,468

 

 

$

-

 

 

$

124,589

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

-

 

 

 

(24,586

)

 

 

(891

)

 

 

(3,102

)

 

 

-

 

 

 

(28,579

)

Spectrum repack reimbursements from the FCC

 

 

-

 

 

 

9,685

 

 

 

1,536

 

 

 

2,966

 

 

 

-

 

 

 

14,187

 

Other investing activities

 

 

-

 

 

 

639

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

639

 

Net cash used in investing activities

 

 

-

 

 

 

(14,262

)

 

 

645

 

 

 

(136

)

 

 

-

 

 

 

(13,753

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repayments of long-term debt

 

 

-

 

 

 

(90,370

)

 

 

(571

)

 

 

(864

)

 

 

-

 

 

 

(91,805

)

Common stock dividends paid

 

 

(20,581

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(20,581

)

Inter-company payments

 

 

28,430

 

 

 

(28,430

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Purchase of noncontrolling interest from a consolidated variable interest entity

 

 

-

 

 

 

(6,393

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,393

)

Other financing activities

 

 

(7,849

)

 

 

(711

)

 

 

-

 

 

 

(21

)

 

 

-

 

 

 

(8,581

)

Net cash used in

  financing activities

 

 

-

 

 

 

(125,904

)

 

 

(571

)

 

 

(885

)

 

 

-

 

 

 

(127,360

)

Net increase in cash,

  cash equivalents and restricted cash

 

 

-

 

 

 

(15,756

)

 

 

(5,215

)

 

 

4,447

 

 

 

-

 

 

 

(16,524

)

Cash, cash equivalents and restricted

  cash at beginning of period

 

 

-

 

 

 

105,665

 

 

 

10,798

 

 

 

28,652

 

 

 

-

 

 

 

145,115

 

Cash, cash equivalents and restricted

  cash at end of period

 

$

-

 

 

$

89,909

 

 

$

5,583

 

 

$

33,099

 

 

$

-

 

 

$

128,591

 

 

Note 18:  Subsequent Events

 

On May 1, 2020, Nexstar’s Board of Directors declared a quarterly cash dividend of $0.56 per share of its Class A common stock. The dividend is payable on May 29, 2020 to stockholders of record on May 15, 2020.

 

 

32


ITEM 2.

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

The following discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and related Notes included elsewhere in this Quarterly Report on Form 10-Q and the Consolidated Financial Statements and related Notes contained in our Annual Report on Form 10-K for the year ended December 31, 2019.

 

As used in this Quarterly Report on Form 10-Q and unless the context indicates otherwise, “Nexstar” refers to Nexstar Media Group, Inc. and its consolidated subsidiaries; “Nexstar Broadcasting” refers to Nexstar Broadcasting, Inc., our wholly-owned direct subsidiary; the “Company” refers to Nexstar and the variable interest entities required to be consolidated in our financial statements; and all references to “we,” “our,” “ours,” and “us” refer to Nexstar.

As a result of our deemed controlling financial interests in the consolidated VIEs in accordance with U.S. GAAP, we consolidate their financial position, results of operations and cash flows as if they were wholly-owned entities. We believe this presentation is meaningful for understanding our financial performance. Refer to Note 2 to our Condensed Consolidated Financial Statements for a discussion of our determinations of VIE consolidation under the related authoritative guidance. Therefore, the following discussion of our financial position and results of operations includes the consolidated VIEs’ financial position and results of operations.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including: the risks from the global COVID-19 pandemic, including, for example, expectations regarding the impact of COVID-19 on our businesses and our future financial performance; our ability to obtain financial and tax benefits from the recently-passed Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”); any projections or expectations of earnings, revenue, financial performance, liquidity and capital resources or other financial items; the impact of pending or future litigation; the effects of governmental regulation and future regulation on broadcasting; competition from others in our broadcast television markets; volatility in programming costs; any assumptions or projections about the television broadcasting industry; any statements of our plans, strategies and objectives for our future operations, performance, liquidity and capital resources or other financial items; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and other similar words. Although we believe that the expectations reflected in our forward-looking statements are reasonable, actual results could differ from a projection or assumption in any of our forward-looking statements. Our future financial position and results of operations, as well as any forward-looking statements, are subject to change and the inherent risks and uncertainties, including those described in our Annual Report on Form 10-K for the year ended December 31, 2019 and in our other filings with the Securities and Exchange Commission. The forward-looking statements made in this Quarterly Report on Form 10-Q are made only as of the date hereof, and we do not have or undertake any obligation to update any forward-looking statements to reflect subsequent events or circumstances.


33


Executive Summary

 

2020 Highlights

 

 

During the first quarter of 2020, net revenue increased by $465.2 million, or 74.2% compared to the same period in 2019. The increase was primarily due to the incremental revenue from acquisitions of $424.7 million, an increase in distribution revenue of $64.1 million of our legacy stations, and a net increase in revenue from television advertising of our legacy stations of $14.8 million, primarily due to the changes in the mix between our core and political advertising as 2020 is an election year. These increases were partially offset by a decrease in revenue resulting from station divestitures of $27.9 million and a $6.4 million net decrease in digital revenue of our legacy digital businesses and stations primarily due to the combined effect of a decline in revenue from our social media advertising platform, marketplace changes which decreased select demand-side platform customer buying and organic growth in our local customer buying trends (increase in local revenue from our stations’ web and mobile sites and from other internet-based revenue). Our deconsolidation of Marshall decreased the Company’s revenue by $4.4 million but also decreased the Company’s operating expenses by $4.9 million.

 

 

During the first quarter of 2020, we repurchased a total of 950,000 shares of our Class A common stock for $72.6 million, funded by cash on hand. As of March 31, 2020, the remaining available amount under our share repurchase authorization was $84.2 million.

 

 

During the first quarter of 2020, our Board of Directors declared cash dividends of $0.56 per share of our outstanding Class A common stock, or total dividend payments of $25.7 million.

 

 

On January 27, 2020, we and Sinclair resolved the outstanding lawsuit between Tribune and Sinclair in connection with their terminated merger agreement. We acquired Tribune through a merger on September 19, 2019. As part of the resolution, Sinclair has agreed to sell to us television station WDKY-TV in the Lexington, KY market, subject to FCC approval and other customary conditions. Sinclair has also sold to us certain non-license assets associated with television station KGBT-TV in the Harlingen-Weslaco-Brownsville-McAllen, Texas market for $18.0 million in cash. We and Sinclair have also modified an existing agreement regarding carriage of certain of Sinclair’s digital networks by certain stations that we own.  Finally, on January 28, 2020, Sinclair made a $98.0 million cash payment to us.

 

2020 Acquisitions

 

On January 27, 2020, we acquired certain non-license assets associated with television station KGBT-TV in the Harlingen-Weslaco-Brownsville-McAllen, Texas market from Sinclair for $18.0 million in cash. On March 2, 2020, we completed our acquisition of Fox affiliate television station WJZY and MyNetworkTV affiliate television station WMYT in the Charlotte, NC market from Fox for $45.0 million in cash. The acquisition from Fox allowed us entry into the Charlotte, NC market.  

 

2020 Dispositions

 

On January 14, 2020, the Company sold its sports betting information website business to Star Enterprises Ltd., a subsidiary of Alto Holdings, Ltd., for a net consideration of $12.9 million (net of $2.4 million cash balance of this business that was transferred to the buyer upon sale).

 

On March 2, 2020, Nexstar also completed the sale of Fox affiliate television station KCPQ and MyNetworkTV affiliate television station KZJO in the Seattle, WA market, as well as Fox affiliate television station WITI in the Milwaukee, WI market, to Fox for approximately $349.9 million in cash, including working capital adjustments. Our proceeds from the sale of the stations were partially used to prepay our term loans.

 


34


Future Acquisitions

 

On January 27, 2020, Sinclair agreed to sell us television station WDKY-TV in the Lexington, KY DMA, subject to FCC approval and other customary conditions. The proposed acquisition is projected to close in 2020.

 

On March 30, 2020, Mission, a VIE that we consolidate, entered into an asset purchase agreement to acquire certain assets of the three television stations currently owned by Marshall: KMSS serving the Shreveport, Louisiana market, KPEJ serving the Odessa, Texas market and KLJB serving the Davenport, Iowa market. The purchase price for the acquisition is approximately $49.0 million, which will be applied against Marshall’s existing loans payable to Mission on a dollar-for-dollar basis. The purchase price is subject to customary adjustments. The transaction is also subject to FCC and other customary approvals and is expected to close in 2020.

 

Debt Transactions

 

 

During the three months ended March 31, 2020, we prepaid a total of $230.0 million in principal balance under our term loans, funded by cash on hand. We also made an additional prepayment of $200.0 million in principal balance of term loans pursuant to the mandatory prepayment requirement of the amended credit agreement of Nexstar Broadcasting, Inc. The mandatory prepayment resulted from the disposition of certain television station assets in the Seattle, WA and Milwaukee, WI markets to Fox.

 

 

During the three months ended March 31, 2020, the Company repaid scheduled maturities of $27.3 million under its term loans.

 

Impact of COVID-19 Pandemic

 

In March 2020, the World Health Organization declared the outbreak of Coronavirus Disease (“COVID-19”) a pandemic and the President of the United States declared the COVID-19 pandemic a national emergency. The virus continues to spread throughout the U.S. and the world and has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. While we are unable to accurately predict the full impact that COVID-19 will have on our results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration, severity and impact of the pandemic and containment measures, our compliance with these measures has impacted our day-to-day operations and could disrupt our business and operations, as well as those of our key business partners, affiliates, vendors and other counterparties, for an indefinite period of time. To support the health and well-being of our employees, business partners and communities, a vast majority of our employees worked remotely since mid-March 2020 until the end of April 2020 when we partially resumed our normal onsite workplace setting, subject to continuous monitoring.

 

The disruptions caused by COVID-19 did not have a material impact on our financial results and liquidity for the first quarter of fiscal 2020. As of March 31, 2020, our net revenue substantially met our management’s initial expectations at the beginning of fiscal year 2020, our operating results exceeded our management’s initial expectations at the beginning of fiscal year 2020 and there are no material changes in our customers, including advertisers, multichannel video programming distributors and online video distributors. We continue to generate operating cash flows and we believe we have sufficient unrestricted cash on hand and have the availability to access additional cash up to $139.7 million under our revolving credit facilities (with a maturity date of October 2023) to meet our business operating requirements, our capital expenditures and to continue to service our debt for at least the next 12 months as of the filing date of this Quarterly Report on Form 10-Q. However, we currently estimate that overall revenue and operating results for the remainder of fiscal 2020 will be lower than initially anticipated at the beginning of fiscal 2020, despite that 2020 is an election year. The ultimate impact of the COVID-19 pandemic on our business operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity and impact of the COVID-19 pandemic, and any additional preventative and protective actions that the U.S. government, or the Company, may direct, which may result in an extended period of continued business disruption. Any resulting financial impact cannot be reasonably estimated at this time but may have a material impact on our business, financial condition, liquidity and results of operations. We will continue to evaluate the nature and extent of the impact of COVID-19 on our business in the future.

 


35


The CARES Act

 

On March 27, 2020, the CARES Act was signed into law. The CARES Act provides opportunities for additional liquidity, loan guarantees, and other government programs to support companies affected by the COVID-19 pandemic and their employees. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. In particular, under the CARES Act, (i) for taxable years beginning before 2021, net operating loss carryforwards and carrybacks may offset 100% of taxable income, (ii) NOLs arising in 2018, 2019, and 2020 taxable years may be carried back to each of the preceding five years to generate a refund and (iii) for taxable years beginning in 2019 and 2020, the base for interest deductibility is increased from 30% to 50% of EBITDA. We intend to continue to review and consider any available potential benefits under the CARES Act for which we qualify, including those described above. The U.S. government or any other governmental authority that agrees to provide such aid under the CARES Act or any other crisis relief assistance may impose certain requirements on the recipients of the aid, including restrictions on executive officer compensation, dividends, prepayment of debt, limitations on debt and other similar restrictions that will apply for a period of time after the aid is repaid or redeemed in full. The CARES Act is not expected to have a material impact on the Company’s Condensed Consolidated Financial Statements.

 


36


Overview of Operations

As of March 31, 2020, we owned, operated, programmed or provided sales and other services to 196 full power television stations, including those owned by VIEs, and one AM radio station in 114 markets in 38 states and the District of Columbia. The stations are affiliates of ABC, NBC, FOX, CBS, The CW, MNTV and other broadcast television networks. Through various local service agreements, we provided sales, programming and other services to 36 full power television stations owned by independent third parties, of which 32 full power television stations are VIEs that are consolidated into our financial statements. See Note 2—Variable Interest Entities to our unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for a discussion of the local service agreements we have with these independent third parties.

We guarantee full payment of all obligations incurred under Mission’s and Shield’s senior secured credit facilities in the event of their default. Mission is a guarantor of our senior secured credit facility, our 5.625% Notes due 2024 and our 5.625% Notes due 2027. Shield does not guarantee any debt within the group. In consideration of our guarantee of Mission’s senior secured credit facility, Mission has granted us purchase options 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 2021 and 2028) are freely exercisable or assignable by us without consent or approval by Mission or its shareholders. We expect these option agreements to be renewed upon expiration.

 

We do not own the consolidated VIEs or their television stations. However, we are deemed under U.S. GAAP to have controlling financial interests in these entities because of (1) the local service agreements Nexstar has with their stations, (2) our guarantees of the obligations incurred under Mission’s and Shield’s senior secured credit facilities, (3) our power over significant activities affecting these VIEs’ economic performance, including budgeting for advertising revenue, advertising sales and, in some cases, hiring and firing of sales force personnel and (4) purchase options granted by each such VIE which permit Nexstar to acquire the assets and assume the liabilities of each of these VIEs’ stations at any time, subject to FCC consent. In compliance with FCC regulations for all the parties, each of the consolidated VIEs maintains complete responsibility for and control over programming, finances and personnel for its stations.

In December 2019, Marshall, a VIE previously consolidated by us and the owner of three television stations, filed a voluntary petition for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of Texas. Effective on December 6, 2019, the bankruptcy court ordered the cancellation of certain contracts between us and Marshall, including the JSAs. As a result of these developments, we evaluated our business arrangements with Marshall and determined that we no longer have the power to direct the most significant economic activities of the entity and thus we no longer meet the accounting criteria for a controlling financial interest in the entity.  Thus, we deconsolidated Marshall’s assets, liabilities and equity effective in December 2019. The SSAs between us and Marshall are currently active.

On March 30, 2020, Mission (an entity that is currently the lender of Marshall) entered into an asset purchase agreement to acquire certain assets of the three television stations currently owned by Marshall: KMSS serving the Shreveport, Louisiana market, KPEJ serving the Odessa, Texas market and KLJB serving the Davenport, Iowa market. The purchase price for the acquisition is approximately $49.0 million, which will be applied against Marshall’s existing loans payable to Mission on a dollar-for-dollar basis. The purchase price is subject to customary adjustments. The transaction is also subject to FCC and other customary approvals and is expected to close in 2020.

See Note 2—Variable Interest Entities to our unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.

 


37


Regulatory Developments

As a television broadcaster, the Company is highly regulated, and its operations require that it retain or renew a variety of government approvals and comply with changing federal regulations. In 2016, the FCC reinstated a previously adopted rule providing that a television station licensee which sells more than 15 percent of the weekly advertising inventory of another television station in the same DMA is deemed to have an attributable ownership interest in that station.  Parties to existing JSAs that were deemed attributable interests and did not comply with the FCC’s local television ownership rule were given until September 30, 2025 to come into compliance. In November 2017, the FCC adopted an order on reconsideration that eliminated the rule. That elimination became effective on February 7, 2018. On September 23, 2019, a federal court of appeals vacated the FCC’s November 2017 order on reconsideration. The court later denied petitions for en banc rehearing; on November 29, 2019 its decision became effective; and on December 20, 2019 the FCC issued an order that formally reinstated the rule. The court’s decision has been appealed to the U.S. Supreme Court. If the Company is ultimately required to amend or terminate its existing JSAs, the Company could have a reduction in revenue and increased costs if it is unable to successfully implement alternative arrangements that are as beneficial as the existing JSAs.

The FCC is in the process of repurposing a portion of the broadcast television spectrum for wireless broadband use.  In an incentive auction which concluded in April 2017, certain television broadcasters accepted bids from the FCC to voluntarily relinquish their spectrum in exchange for consideration. Television stations that are not relinquishing their spectrum are being “repacked” into the frequency band still remaining for television broadcast use. In July 2017, the Company received $478.6 million in gross proceeds from the FCC for eight stations that now share a channel with another station, one station that moved to a VHF channel in 2019, one station that will move to a VHF channel at a date to be determined by the FCC as a result of the COVID-19 pandemic and one that went off the air in November 2017. The station that went off the air did not have a significant impact on our financial results because it was located in a remote rural area of the country and the Company has other stations which serve the same area.

Sixty one (61) full power stations owned by Nexstar and 17 full power stations owned by VIEs were assigned to new channels in the reduced post-auction television band and are required to construct and license the necessary technical modifications to operate on their new assigned channels on a rolling schedule ending in July 2020.  Congress has allocated up to an industry-wide total of $2.75 billion to reimburse television broadcasters, MVPDs and other parties for costs reasonably incurred due to the repack. During the three months ended March 31, 2020 and 2019, the Company spent a total of $16.9 million and $14.7 million, respectively, in capital expenditures related to station repack which were recorded as assets under the property and equipment caption in the accompanying Condensed Consolidated Balance Sheets. During the three months ended March 31, 2020 and 2019, the Company received $12.8 million and $14.2 million, respectively, in reimbursements from the FCC related to these expenditures which were recorded as operating income in the accompanying Condensed Consolidated Statements of Operations. As of March 31, 2020, approximately $75.6 million of estimated remaining costs in connection with the station repack are expected to be incurred by the Company, some or all of which will be reimbursable. If the FCC fails to fully reimburse the Company’s repacking costs, the Company could have increased costs related to the repack.

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. 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 when advertising airs during the Olympic Games. As 2020 is an election year, we generally expect an increase in political advertising revenue in 2020 compared to 2019. However, due to business disruptions caused by COVID-19, our revenue from political advertising may be less than we initially anticipated at the beginning of 2020 but the ultimate outcome is unknown at this time. Additionally, the rescheduling of the summer Olympics to 2021, also due to the COVID-19 pandemic situation, is expected to decrease our advertising revenue in 2020 but is expected to increase our advertising revenue in 2021.

38


Historical Performance

Revenue

The following table sets forth the amounts of the Company’s principal types of revenue (in thousands) and each type of revenue as a percentage of total net revenue:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

Core advertising

 

$

417,379

 

 

 

38.2

 

 

$

251,844

 

 

 

40.2

 

Political advertising

 

 

55,341

 

 

 

5.1

 

 

 

1,307

 

 

 

0.2

 

Distribution revenue

 

 

549,716

 

 

 

50.3

 

 

 

313,974

 

 

 

50.1

 

Digital

 

 

56,440

 

 

 

5.2

 

 

 

52,835

 

 

 

8.4

 

Other

 

 

10,152

 

 

 

0.9

 

 

 

3,864

 

 

 

0.6

 

Trade revenue

 

 

2,794

 

 

 

0.3

 

 

 

2,823

 

 

 

0.5

 

Total net revenue

 

$

1,091,822

 

 

 

100.0

 

 

$

626,647

 

 

 

100.0

 

 

Results of Operations

The following table sets forth a summary of the Company’s operations (in thousands) and each component of operating expense as a percentage of net revenue:

 

 

 

Three Months Ended March 31,

 

 

 

 

2020

 

 

2019

 

 

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

 

Net revenue

 

$

1,091,822

 

 

 

100.0

 

 

$

626,647

 

 

 

100.0

 

 

Operating expenses (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate expenses

 

 

53,474

 

 

 

4.9

 

 

 

30,765

 

 

 

4.9

 

 

Direct operating expenses,

  net of trade

 

 

441,781

 

 

 

40.5

 

 

 

289,432

 

 

 

46.2

 

 

Selling, general and administrative expenses, excluding corporate

 

 

164,910

 

 

 

15.1

 

 

 

111,595

 

 

 

17.8

 

 

Depreciation

 

 

35,406

 

 

 

3.2

 

 

 

27,437

 

 

 

4.4

 

 

Amortization of intangible assets

 

 

70,583

 

 

 

6.5

 

 

 

36,738

 

 

 

5.9

 

 

Amortization of broadcast rights

 

 

37,208

 

 

 

3.4

 

 

 

14,362

 

 

 

2.3

 

 

Trade expense

 

 

3,278

 

 

 

0.3

 

 

 

3,431

 

 

 

0.5

 

 

Reimbursement from the FCC related to station repack

 

 

(12,758

)

 

 

(1.2

)

 

 

(14,187

)

 

 

(2.3

)

 

Gain on disposal of stations and entities, net

 

 

(7,075

)

 

 

(0.6

)

 

 

-

 

 

 

-

 

 

Total operating expenses

 

 

786,807

 

 

 

 

 

 

 

499,573

 

 

 

 

 

 

Income from operations

 

$

305,015

 

 

 

 

 

 

$

127,074

 

 

 

 

 

 

39


Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

 

The period-to-period comparability of our consolidated operating results is affected by acquisitions. For each quarter we present, our legacy stations include those stations that we owned or provided services to for the complete quarter in the current and prior years. For our annual and year to date presentations, we combine the legacy stations’ amounts presented in each quarter.

 

Revenue

 

Core advertising revenue was $417.4 million for the three months ended March 31, 2020, compared to $251.9 million for the same period in 2019, an increase of $165.5 million, or 65.7%. The increase is primarily due to our incremental revenue from our 2019 Tribune acquisition of $192.8 million, partially offset by a decrease in revenue as a result of station divestitures of $9.8 million. Our legacy stations’ core advertising revenue decreased by $15.9 million, primarily due to changes in the mix between our core and political advertising and the business disruptions caused by COVID-19 in mid-March 2020 and the deconsolidation of Marshall resulted in a $1.6 million decrease in revenue. Our largest advertiser category, automobile, represented approximately 19% and 21% of our core advertising revenue for the three months ended March 31, 2020 and 2019, respectively. Overall, including past results of our newly acquired stations, automobile revenues decreased by approximately 2% during the quarter. The other categories representing our top five were attorneys, which increased in 2020, and medical/healthcare, furniture and fast food restaurants, which decreased in 2020. We currently estimate that overall core advertising revenue for the remainder of fiscal 2020 will be lower than initially anticipated at the beginning of fiscal 2020, primarily due to changes in the mix between our core and political advertising and the business disruptions caused by COVID-19. The ultimate impact of the COVID-19 pandemic on our business operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that the U.S. government, us, or our business partners, may direct, which may result in an extended period of continued business disruption. Any resulting financial impact cannot be reasonably estimated at this time but may have a material impact on our core advertising revenue and our overall results of operations. Additionally, the rescheduling of the summer Olympics to 2021, also due to the COVID-19 pandemic situation, is expected to decrease our advertising revenue in 2020 but is expected to increase our advertising revenue in 2021.

Political advertising revenue was $55.3 million for the three months ended March 31, 2020, compared to $1.3 million for the same period in 2019, an increase of $54.0 million, as 2020 is an election year. Of the $54.0 million increase, $23.4 million was attributable to the incremental revenue from our 2019 Tribune acquisition, and $30.7 million was attributable to our legacy stations. We generally expect an increase in political advertising revenue in 2020 compared to 2019. However, due to business disruptions caused by COVID-19, our revenue from political advertising may be less than we initially anticipated at the beginning of 2020, but the ultimate outcome is unknown at this time.

Distribution revenue was $549.7 million for the three months ended March 31, 2020, compared to $314.0 million for the same period in 2019, an increase of $235.7 million, or 75.1%. The increase is primarily due to our incremental revenue from our 2019 Tribune acquisition of $192.9 million, partially offset by a decrease in revenue as a result of station divestitures and deconsolidation of Marshall of $16.9 million and $4.4 million, respectively. Our legacy stations’ revenue increased by $64.1 million primarily due to the combined effect of scheduled annual escalation of rates per subscriber, renewals of contracts providing for higher rates per subscriber (contracts generally have a three-year term) and contributions from distribution agreements with OVDs. We anticipate continued increase of retransmission fees until there is a more balanced relationship between viewers delivered and fees paid for delivery of such viewers.

Digital media revenue, representing advertising revenue on our stations’ web and mobile sites and other internet-based revenue, was $56.4 million for the three months ended March 31, 2020, compared to $52.8 million for the same period in 2019, an increase of $3.6 million, or 6.8%. The increase is primarily due to the incremental revenue from the 2019 Tribune acquisition of $11.0 million, less a decrease in revenue from our station divestitures of $1.0 million, and an increase in revenue from our legacy stations of $4.9 million. Our digital businesses’ revenue decreased by $11.4 million due primarily to a decrease in our social media platform and our select demand-side platform, partially offset by growth in our agency services.

Operating Expenses

Corporate expenses, related to costs associated with the centralized management of our stations, were $53.5 million for the three months ended March 31, 2020, compared to $30.8 million for the same period in 2019, an increase of $22.7 million, or 73.8%. This was primarily attributable to an increase in payroll, bonuses and severance primarily associated with Tribune’s corporate expenses that wound down towards the end of the first quarter in 2020, an increase in stock-based compensation due to new equity incentives granted, and an increase in legal and professional fees primarily attributable to the ongoing litigation inherited from Tribune.


40


Station direct operating expenses, consisting primarily of news, engineering, programming and station selling, general and administrative expenses (net of trade expense) were $606.7 million for the three months ended March 31, 2020, compared to $401.0 million for the same period in 2019, an increase of $205.7 million, or 51.3%. The increase was primarily due to expenses associated with our 2019 Tribune acquisition of $208.4 million (including network and programming costs of $131.3 million), partially offset by the decrease in expenses from our station divestitures and the deconsolidation of Marshall of $16.0 million and $4.9 million, respectively. In addition, our legacy stations’ programming costs increased by $30.9 million, primarily due to network affiliation renewals and annual increases in our network affiliation costs. These increases were partially offset by a $5.7 million decrease in the operating expenses of our digital products due to lower revenue.

Depreciation of property and equipment was $35.4 million for the three months ended March 31, 2020, compared to $27.4 million for the same period in 2019, an increase of $8.0 million, or 29.0%, primarily due to incremental depreciation related to the 2019 Tribune acquisition and increased depreciation from newly capitalized assets related to station repacking activities, partially offset by station divestitures.

Amortization of intangible assets was $70.6 million for the three months ended March 31, 2020, compared to $36.7 million for the same period in 2019, an increase of $33.8 million, or 92.1%. This was primarily due to increased amortization related to intangible assets from 2019 Tribune acquisition, partially offset by decreases in amortization from certain fully amortized assets and divested stations.

Amortization of broadcast rights was $37.2 million for the three months ended March 31, 2020, compared to $14.4 million for the same period in 2019, an increase of $22.8 million, or 159.1%. The increase is primarily due to incremental amortization resulting from acquired broadcast rights in the 2019 Tribune acquisition less decreases from station divestitures. This increase was partially offset by a reduction in amortization costs on our legacy stations due to renegotiation of certain film contracts which resulted in reduced distribution rates.

Certain of the Company’s stations were assigned to new channels (“repack”) in connection with the FCC’s process of repurposing a portion of the broadcast television spectrum for wireless broadband use. The Company’s stations are currently spending costs, mainly capital expenditures, to construct and license the necessary technical modifications to operate on their newly assigned channels and to vacate their former channels no later than July 13, 2020. Subject to fund limitations, the FCC reimburses television broadcasters, MVPDs and other parties for costs reasonably incurred due to the repack. During the three months ended March 31, 2020 and 2019, we received a total of $12.8 million and $14.2 million, respectively, in reimbursements from the FCC which we recognized as operating income.

During the quarter ended March 31, 2020, we sold certain stations in two markets for $349.9 million, including working capital adjustments. We also sold our sports betting information website business for a net consideration of $12.9 million (net of $2.4 million cash balance of this business that was transferred to the buyer upon sale). These divestitures resulted in a net gain of $7.1 million.

Interest Expense, net

 

Interest expense, net was $101.3 million for the three months ended March 31, 2020, compared to $53.0 million for the same period in 2019, an increase of $48.3 million, or 91.3%. The increase is primarily due to interest incurred on term loans issued on September 19, 2019 and on 5.625% Senior Notes due 2027 issued July 3, 2019 which are both related to financing of Nexstar's acquisition of Tribune, partially offset primarily by decrease in interest expense in conjunction with Nexstar's redemption of 6.125% and 5.875% Senior Notes and decrease in interest expense on our legacy term loans due to combined effect of reduction in principal and London Inter-Bank Offered Rate (“LIBOR”).

Loss on Extinguishment of Debt

Loss on extinguishment of debt was $7.5 million for the three months ended March 31, 2020, compared to $1.7 million for the same period in 2019, an increase of $5.8 million, primarily due to the increase in prepayments on our term loans of $350.0 million in 2020 compared to the prior period. During the quarter ended March 31, 2020, we made prepayments of our term loans amounting to $430.0 million compared to prepayments of $80.0 million for the same period last year.

41


Income Taxes

 

Income tax expense was $64.3 million for the three months ended March 31, 2020 compared to $16.4 million for the same period in 2019. The effective tax rates were 29.0% and 22.4% for each of the respective periods. The increase in the effective tax rate between the two periods was primarily due to nondeductible goodwill written off as a result of divestitures and a decrease in the deduction for excess tax benefits. The Company recognized an income tax expense of $8.1 million attributable to nondeductible goodwill written off as a result of divestitures, or a 3.7% increase to the effective tax rate. Additionally, the Company recognized an income tax expense of $1.4 million resulting from a decrease in the deduction for excess tax benefits related to stock-based compensation, or a 4.4% increase to the effective tax rate.

 

The Company calculates its year-to-date provision for income taxes by applying the estimated annual effective tax rate to year-to-date pre-tax income or loss and adjusts the provision for discrete tax items recorded in the period. Future changes in the forecasted annual income projections, including changes due to the impact of the COVID-19 pandemic, could result in significant adjustments to quarterly income tax expense in future periods.

Liquidity and Capital Resources

 

The Company is leveraged, which makes it vulnerable to changes in general economic conditions. The Company’s ability to repay or refinance its debt will depend on, among other things, financial, business, market, competitive and other conditions, many of which are beyond the Company’s control, for instance, uncertainties surrounding the business outlook caused by COVID-19. COVID-19 was declared a global pandemic by the World Health Organization on March 11, 2020 and the President of the United States declared the COVID-19 outbreak a national emergency on March 13, 2020.

 

The COVID-19 pandemic has not had a material adverse impact on the Company’s operations and liquidity as of March 31, 2020. As of this date, the Company’s unrestricted cash on hand amounted to $434.1 million and the Company had a positive working capital of $598.2 million, both increased from the December 31, 2019 levels of $232.1 million and $404.2 million, respectively. As of March 31, 2020, the Company was in compliance with its financial covenants contained in the amended credit agreements governing its senior secured credit facilities. The Company believes it has sufficient unrestricted cash on hand and has availability to access additional cash up to $139.7 million under its revolving credit facilities (with a maturity date of October 2023) to meet its business operating requirements, its capital expenditures and to continue to service its debt for at least the next 12 months as of the filing date of this Quarterly Report on Form 10-Q. The Company also believes its leverage is well positioned to withstand the current challenges as the nearest maturity of its outstanding debt will not occur until October 2023. The Company will continue to evaluate its liquidity, its best use of operating cash flow and the market conditions to determine if further steps are necessary.

Overview

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

  

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Net cash provided by operating activities

 

$

415,118

 

 

$

124,589

 

Net cash provided by (used in) investing activities

 

 

351,029

 

 

 

(13,753

)

Net cash used in financing activities

 

 

(564,150

)

 

 

(127,360

)

Net increase in cash, cash equivalents and restricted cash

 

$

201,997

 

 

$

(16,524

)

Cash paid for interest

 

$

125,516

 

 

$

58,839

 

Income taxes paid, net of refunds

 

$

2,110

 

 

$

1,883

 

 

 

 

As of March 31,

 

 

As of December 31,

 

 

 

2020

 

 

2019

 

Cash, cash equivalents and restricted cash

 

$

450,675

 

 

$

248,678

 

Long-term debt, including current portion

 

 

8,046,863

 

 

 

8,492,588

 

Unused revolving loan commitments under senior secured credit facilities (1)

 

 

139,662

 

 

 

139,662

 

 

(1)

Based on covenant calculations as of March 31, 2020, all of the $139.7 million unused revolving loan commitments under the Company’s senior secured credit facilities were available for borrowing.

42


Cash Flows – Operating Activities

Net cash flows provided by operating activities increased by $290.5 million during the three months ended March 31, 2020, compared to the same period in 2019. This was primarily due to increases in revenue (excluding trade) of $465.2 million and a distribution from our equity investments at TV Food Network of $170.4 million. These increases were partially offset by an increase in our corporate, direct operating and selling, general and administrative expense (excluding non-cash transactions) of $226.5 million, an increase in cash paid for interest of $66.7 million, an increase in payments for broadcast rights of $37.3 million, a use of cash resulting from timing of payments to our vendors of $16.5 million and a decrease in the source of cash from timing of accounts receivable collections of $11.5 million.

Cash Flows – Investing Activities

Net cash flows provided by investing activities were $351.0 million during the three months ended March 31, 2020, compared to net cash flows used in investing activities of $13.8 million in the same period in 2019. In 2020, we sold two television stations and our sports betting information website business for $349.9 million and $12.9 million in cash, respectively. We also received $98.0 million of cash proceeds from settlement of litigation between Sinclair and Tribune, which we acquired in September 2019. These increases were reduced by the cash payment we made to acquire two television stations and certain non-license assets for a total cash consideration payment of $63.0 million. Our capital expenditures during the three months ended March 31, 2020 were $60.1 million, an increase of $31.6 million compared to the same period in 2019, primarily due to station repack activities which are reimbursable from the FCC.

Cash Flows – Financing Activities

Net cash flows used in financing activities increased by $436.8 million during the three months ended March 31, 2020, compared to the same period in 2019.

In 2020, we made payments on the outstanding principal balance of our term loans of $457.3 million (including $430.0 million in prepayments), paid dividends to our common stockholders of $25.7 million ($0.56 per share during the quarter), repurchased common shares of $72.6 million, paid cash for taxes in exchange for shares of common stock withheld of $6.5 million resulting from net share settlements of certain stock-based compensation, and paid for capital lease and software obligations of $1.8 million.

In 2019, we made payments on the outstanding principal balance of our term loans of $91.8 million, paid dividends to our common stockholders of $20.6 million ($0.45 per share each quarter), paid cash for taxes in exchange for shares of common stock withheld of $9.3 million resulting from net share settlements of certain stock-based compensation, completed our acquisition of the noncontrolling interest of KHII for a cash payment of $6.4 million, paid for capital lease and software obligations of $0.7 million and received proceeds from the exercise of stock options of $1.4 million.

Our senior secured credit facility may limit the amount of dividends we may pay to stockholders over the term of the agreement.

Future Sources of Financing and Debt Service Requirements

 

As of March 31, 2020, the Company had total combined debt of $8.0 billion, net of financing costs and discounts, which represented 79.4% of the Company’s combined capitalization. The Company’s high level of debt requires that a substantial portion of cash flow be dedicated to pay principal and interest on debt, which reduces the funds available for working capital, capital expenditures, acquisitions and other general corporate purposes.

 

The following table summarizes the principal indebtedness scheduled to mature for the periods referenced as of March 31, 2020 (in thousands):

 

 

Total

 

 

2020

 

 

2021-2022

 

 

2023-2024

 

 

Thereafter

 

Nexstar senior secured credit facility

 

$

5,210,181

 

 

$

36,399

 

 

$

203,021

 

 

$

2,079,125

 

 

$

2,891,636

 

Mission senior secured credit facility

 

 

225,670

 

 

 

1,714

 

 

 

4,571

 

 

 

219,385

 

 

 

-

 

Shield senior secured credit facility

 

 

21,525

 

 

 

862

 

 

 

3,903

 

 

 

16,760

 

 

 

-

 

5.625% senior unsecured notes due 2024

 

 

900,000

 

 

 

-

 

 

 

-

 

 

 

900,000

 

 

 

-

 

5.625% senior unsecured notes due 2027

 

 

1,785,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,785,000

 

 

 

$

8,142,376

 

 

$

38,975

 

 

$

211,495

 

 

$

3,215,270

 

 

$

4,676,636

 

 

We make semiannual interest payments on our 5.625% Notes due 2024 on February 1 and August 1 of each year. We make semiannual interest payments on the 5.625% Notes due 2027 on January 15 and July 15 of each year. Interest payments on our, Mission’s and Shield’s senior secured credit facilities are generally paid every one to three months and are payable based on the type of interest rate selected.

43


The terms of our, Mission’s and Shield’s senior secured credit facilities, as well as the indentures governing our 5.625% Notes due 2024 and 5.625% Notes due 2027, limit, but do not prohibit us, Mission or Shield, from incurring substantial amounts of additional debt in the future.

The Company does not have any rating downgrade triggers that would accelerate the maturity dates of its debt. However, a downgrade in the Company’s credit rating could adversely affect its ability to renew the existing credit facilities, obtain access to new credit facilities or otherwise issue debt in the future and could increase the cost of such debt.

The Company had $139.7 million of total unused revolving loan commitments under the senior secured credit facilities, all of which were available for borrowing, based on the covenant calculations as of March 31, 2020.  The Company’s ability to access funds under its senior secured credit facilities depends, in part, on our compliance with certain financial covenants. Any additional drawings under the senior secured credit facilities will reduce the Company’s future borrowing capacity and the amount of total unused revolving loan commitments. As discussed above, the ultimate outcome of the COVID-19 pandemic is uncertain at this time and may significantly impact our future operating performance, liquidity and financial position. Any adverse impact of the COVID-19 pandemic may cause us to seek alternative sources of funding, including accessing capital markets, subject to market conditions. Such alternative sources of funding may not be available on commercially reasonable terms or at all.

 

On March 30, 2020, Mission entered into an asset purchase agreement to acquire certain assets of the three television stations currently owned by Marshall: KMSS serving the Shreveport, Louisiana market, KPEJ serving the Odessa, Texas market and KLJB serving the Davenport, Iowa market. The purchase price for the acquisition is approximately $49.0 million, which will be applied against Marshall’s existing loans payable to Mission on a dollar-for-dollar basis. The purchase price is subject to customary adjustments. The transaction is subject to FCC and other customary approvals and is expected to close in 2020.

 

On April 26, 2018, our Board of Directors approved a $200 million increase in our share repurchase authorization to repurchase our Class A common stock. During the quarter ended March 31, 2020, we repurchased a total of 950,000 Class A common shares for $72.6 million. As of March 31, 2020, the remaining available amount under the share repurchase authorization was $84.2 million, net of repurchases made since the authorization was approved by Nexstar’s Board of Directors, including the repurchases in the first quarter of 2020.

 

On May 1, 2020, our Board of Directors declared a quarterly cash dividend of $0.56 per share of our Class A common stock. The dividend is payable on May 29, 2020 to stockholders of record on May 15, 2020.

Debt Covenants

Our credit agreement contains a covenant which requires us to comply with a maximum consolidated first lien net leverage ratio of 4.25 to 1.00. The financial covenant, which is formally calculated on a quarterly basis, is based on our combined results. The Mission and Shield amended credit agreements do not contain financial covenant ratio requirements but do provide for default in the event we do not comply with all covenants contained in our credit agreement. As of March 31, 2020, we were in compliance with our financial covenant. We believe Nexstar, Mission, and Shield will be able to maintain compliance with all covenants contained in the credit agreements governing their senior secured facilities and the indentures governing our 5.625% Notes due 2024 and 5.625% Notes due 2027 for a period of at least the next 12 months from March 31, 2020.

Off-Balance Sheet Arrangements

As of March 31, 2020, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or VIEs, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. All of our arrangements with our VIEs in which we are the primary beneficiary are on-balance sheet arrangements. Our variable interests in other entities are obtained through local service agreements, which have valid business purposes and transfer certain station activities from the station owners to us. We are, therefore, not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

 

As of March 31, 2020, we have outstanding standby letters of credit with various financial institutions amounting to $23.7 million, of which $20.3 million was assumed from the 2019 Tribune acquisition primarily in support of the worker’s compensation insurance program. The outstanding balance of standby letters of credit is deducted against our unused revolving loan commitment under our senior secured credit facility and would not be available for withdrawal.

44


Critical Accounting Policies and Estimates

Our Condensed Consolidated Financial Statements have been prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the Condensed Consolidated Financial Statements and reported amounts of revenue and expenses during the period. On an ongoing basis, we evaluate our estimates, including those related to business acquisitions, goodwill and intangible assets, property and equipment, broadcast rights, retransmission compensation, pension and postretirement benefits, and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, including the effects of the COVID-19 pandemic on our estimates and assumptions, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates.

 

Information with respect to the Company’s critical accounting policies which it believes could have the most significant effect on the Company’s reported results and require subjective or complex judgments by management is contained in our Annual Report on Form 10-K for the year ended December 31, 2019. Management believes that as of March 31, 2020, there has been no material change to this information.

Recent Accounting Pronouncements

Refer to Note 2 of our Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recently issued accounting pronouncements, including our expected date of adoption and effects on results of operations and financial position.

 


45


ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

The Company’s exposure to market risk for changes in interest rates relates primarily to its long-term debt obligations. The Company’s exposure to market risk did not change materially since December 31, 2019.

The term loan borrowings at March 31, 2020 under the Company’s senior secured credit facilities bear interest rates ranging from 2.99% to 3.74%, which represented the base rate, or the LIBOR plus the applicable margin, as defined. Interest is payable in accordance with the credit agreements.

If LIBOR were to increase by 100 basis points, or one percentage point, from its March 31, 2020 level, the Company’s annual interest expense would increase and cash flow from operations would decrease by approximately $54.6 million, based on the outstanding balances of the Company’s senior secured credit facilities as of March 31, 2020. An increase of 50 basis points in LIBOR would result in a $27.3 million increase in annual interest expense and decrease in cash flow from operations. If LIBOR were to decrease either by 100 basis points or 50 basis points, the Company’s annual interest would decrease and cash flow from operations would increase by $54.2 million and $27.3 million, respectively. Since the onset of the COVID-19 pandemic, LIBOR has dropped significantly, and may be more volatile in the future, which could potentially impact our total interest expense. Our 5.625% Notes due 2024 and 5.625% Notes due 2027 are fixed rate debt obligations and therefore are not exposed to market interest rate changes. As of March 31, 2020, the Company has no financial instruments in place to hedge against changes in the benchmark interest rates on its senior secured credit facilities.

Impact of Inflation

 

We believe that the Company’s results of operations are not affected by moderate changes in the inflation rate. However, the COVID-19 pandemic has created great uncertainty about the path of the economy and society in the years ahead. Recent supply and demand shocks and dramatic changes in fiscal policy may lead to higher levels of inflation in future periods.

 

ITEM 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Nexstar’s management, with the participation of its President and Chief Executive Officer along with its Chief Financial Officer, conducted an evaluation as of the end of the period covered by this report of the effectiveness of the design and operation of Nexstar’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.

Based upon that evaluation, Nexstar’s President and Chief Executive Officer and its Chief Financial Officer concluded that as of the end of the period covered by this report, Nexstar’s disclosure controls and procedures were effective, at a reasonable assurance level, to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to Nexstar’s management, including its President and Chief Executive Officer and its Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

As of the quarter ended March 31, 2020, there have been no changes in Nexstar’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting. Nexstar has not experienced any significant impact to its internal controls over financial reporting despite the fact that most of its employees are working remotely due to the COVID-19 pandemic. Nexstar is continually monitoring and assessing the COVID-19 situation on its internal controls to minimize the impact on their design and operating effectiveness.

 


46


PART II. OTHER INFORMATION

 

ITEM 1.

From time to time, the Company is 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, the Company believes the resulting liabilities would not have a material adverse effect on its financial condition or results of operations. See Part I, Item 1, Note 15, “Commitments and Contingencies” for detailed discussion of ongoing litigation.

 

ITEM  1A.

Risk Factors

The following risk factor is provided to supplement the risk factors previously disclosed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Risks Related to Our Operations

The recent COVID-19 pandemic and other future pandemic and epidemic outbreaks could negatively impact Nexstar’s businesses, financial condition, results of operations, strategies, plans and stock price.

The recent global outbreak of the Coronavirus Disease (“COVID-19”), which has been declared as a “pandemic” by the World Health Organization, and the various attempts to contain it have created significant volatility, uncertainty and economic disruption. The outbreak and any preventative or protective actions that we or our customers and business partners currently take or may have to take in the future in respect of COVID-19 could potentially impact our operations, financial condition, results of operations, strategies, plans and stock price and the operations of our customers, affiliates, advertisers, production facilities, and vendors. For instance, in response to federal and state government mandates, health care advisories and employee and vendor concerns, we have altered certain aspects of our operations. Our workforce has had to spend a significant amount of time working from home, which impacts their productivity. Other business partners have similarly had their operations altered or temporarily suspended, including those business partners that we use for our operations as well as development, production and post-production of content. Given the uncertainty relating to COVID-19, we may have to take additional actions in the future, which cannot be predicted. To the extent the resulting economic disruption is severe, we could also see reduction in advertising and retransmission activities, or some vendors and business partners may go out of business, resulting in either delay in content production and/or increased costs. Such delay or increased costs may cause us to temporarily have less new content available on our platforms in subsequent quarters, which could negatively impact consumer demand for and subscriber retention of our services and the number of paid advertisers. Temporary or permanent shutdowns in production could result in asset impairments or other charges and will change the timing and amount of cash outflows associated with production activity.

 

The full extent to which the COVID-19 pandemic and the various responses to it impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration, scope and impact of the pandemic; governmental, business and individual actions that have been and continue to be taken in response to the pandemic; the effect on our customers and customer demand for and ability to pay for our services; disruptions or restrictions on our employees’ ability to work and travel; interruptions or restrictions related to the provision of streaming services over the internet, including impacts on content delivery networks and streaming quality; and any stoppages, disruptions or increased costs associated with our development, production, post-production, marketing and distribution of original programming. If we need to access the capital markets, there can be no assurance that financing may be available on attractive terms, if at all. We will continue to actively monitor the issues raised by the COVID-19 pandemic and may take further actions that alter our business operations, including content production, as may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees, customers, business partners and stockholders. It is not clear what potential effects of any such alterations or modifications may have on our business, including the effects on our customers, suppliers or vendors, or on our financial results.

 

In addition to the potential direct impacts to our business, the global economy is likely to be significantly weakened as a result of the actions taken in response to COVID-19. To the extent that such a weakened global economy impacts consumers’ ability or willingness to pay for our services or vendors’ ability to provide services to us, especially those related to or that affecting our retransmission of content services and advertising, we could see our business and results of operation negatively impacted.

 

The potential effects of COVID-19 cannot be predicted in terms of duration, scope or impact and could intensify or otherwise affect many of our other risk factors that are contained in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 and in subsequent filings with the Securities and Exchange Commission. The potential effects of any future pandemic and epidemic outbreaks cannot be predicated and may negatively impact Nexstar’s businesses, financial condition, results of operations, strategies, plans and stock price.

47


ITEM  2.

Unregistered Sales of Equity Securities and Use of Proceeds

On April 26, 2018, Nexstar’s Board of Directors approved a $200 million increase in Nexstar’s share repurchase authorization to repurchase its Class A common stock. Share repurchases may be made from time to time in open market transactions, block trades or in private transactions. There is no minimum number of shares that the Company is required to repurchase and the repurchase program may be suspended or discontinued at any time without prior notice.

The following is a summary of Nexstar’s repurchases of its Class A common stock by month during the quarter ended March 31, 2020:

 

 

 

 

 

 

 

 

 

 

Total Number of Shares

 

 

Approximate Dollar Value

 

 

 

 

 

 

 

 

 

 

Purchased as Part of

 

 

of Shares That May Yet Be

 

 

Total Number

 

 

Average Price

 

 

Publicly Announced

 

 

Purchased Under the

 

 

of Shares Purchased

 

 

Paid per Share

 

 

Plans or Programs

 

 

Plans or Programs

 

March 4-5, 2020

 

130,000

 

 

$

107.43

 

 

 

130,000

 

 

 

142,803,460

 

March 6-20, 2020

 

820,000

 

 

$

71.47

 

 

 

820,000

 

 

 

84,201,742

 

 

 

950,000

 

 

$

76.39

 

 

 

950,000

 

 

 

 

 

As of March 31, 2020, we had a remaining balance of $84.2 million available under the April 2018 program.

 

ITEM 3.

Defaults Upon Senior Securities

None.

 

ITEM  4.

Mine Safety Disclosures

None.

 

ITEM 5.

Other Information

None.


48


ITEM  6.

Exhibits

 

Exhibit No.

 

Description

2.1

 

Asset Purchase Agreement, dated as of March 20, 2019, by and among Nexstar Media Group, Inc., Belo Holdings, Inc. and TEGNA Inc. (Incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K (File No. 000-50478) filed by Nexstar Media Group, Inc. on March 26, 2019).

2.2

 

Asset Purchase Agreement, dated as of March 20, 2019, by and among Nexstar Media Group, Inc., Scripps Media, Inc. and Scripps Broadcasting Holdings, LLC. (Incorporated by reference to Exhibit 2.2 to Current Report on Form 8-K (File No. 000-50478) filed by Nexstar Media Group, Inc. on March 26, 2019).

10.1

 

Amendment to Executive Employment Agreement, dated as of January 15, 2019 between Perry A. Sook and Nexstar Broadcasting, Inc. (Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K (File No. 000-50478) filed by Nexstar Media Group, Inc. on January 22, 2019).

10.87

 

Amendment, dated as of November 15, 2019, to November 29, 2011 Stock Option Agreement by and between Mission Broadcasting, Inc., Dennis Thatcher, Nancie J. Smith, and Nexstar Broadcasting, Inc.*

10.88

 

Nexstar Media Group, Inc.’s Restricted Stock Unit Agreement Form.*

31.1

 

Certification of Perry A. Sook pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2

 

Certification of Thomas E. Carter pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1

 

Certification of Perry A. Sook pursuant to 18 U.S.C. ss. 1350.*

32.2

 

Certification of Thomas E. Carter pursuant to 18 U.S.C. ss. 1350.*

101

 

The Company’s unaudited Condensed Consolidated Financial Statements and related Notes for the quarter ended March 31, 2020 from this Quarterly Report on Form 10-Q, formatted in iXBRL (Inline eXtensible Business Reporting Language).*

104

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

*

Filed herewith

49


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

NEXSTAR MEDIA GROUP, INC.

 

 

 

 

/S/ PERRY A. SOOK

By:

 

Perry A. Sook

Its:

 

President and Chief Executive Officer (Principal Executive Officer)

 

 

 

 

/S/ THOMAS E. CARTER

By:

 

Thomas E. Carter

Its:

 

Chief Financial Officer (Principal Accounting and Financial Officer)

Dated: May 8, 2020