Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
NXST > SEC Filings for NXST > Form 10-K on 3-Mar-2014All Recent SEC Filings

Show all filings for NEXSTAR BROADCASTING GROUP INC

Form 10-K for NEXSTAR BROADCASTING GROUP INC


3-Mar-2014

Annual Report


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

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

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

Executive Summary

2013 Highlights

Net revenue during 2013 increased by $123.7 million, or 32.7% compared to the same period in 2012. The increase in net revenue was primarily due to our December 2012 acquisition of 10 television stations and Inergize Digital Media ("Inergize") from Newport Television, LLC ("Newport") and 11 television stations acquired or contracted with to provide programming and sales services by the Company during 2013, partially offset by decreases due to 2013 being not a political or Olympic year.

During 2013, our Board of Directors declared quarterly dividends of $0.12 per share of Nexstar's outstanding common stock, or total dividend payments of $14.3 million.

2013 Acquisitions

Effective January 1, 2013, Mission acquired the assets of KLRT, the FOX affiliate and KASN, the CW affiliate, both in the Little Rock, Arkansas market, from Newport for $59.7 million, funded by $60.0 million term loan under Mission's senior secured credit facility.

Effective February 1, 2013, we acquired the assets of KGPE, the CBS affiliate in Fresno, California market and KGET, the NBC/CW affiliate, and KKEY-LP, the low powered Telemundo affiliate, both in the Bakersfield, California market, from Newport for $35.4 million in cash, funded by cash on hand.

Effective February 1, 2013, we entered into a definitive agreement to acquire the assets of KSEE, the NBC affiliate serving the Fresno, California market, and an unrelated network affiliation agreement from Granite Broadcasting Corporation for $26.5 million in cash. Upon signing the agreement, we made a payment of $20.0 million, funded by cash on hand, to acquire the station's assets excluding FCC license and certain transmission equipment. On April 17, 2013, we received approval from the FCC to purchase the remaining assets of KSEE. On May 31, 2013, we paid the remaining purchase price of $6.5 million to complete the acquisition.

On March 1, 2013, we and Mission acquired the assets of WFFF, the FOX affiliate, and WVNY, the ABC affiliate, both in the Burlington, Vermont market from Smith Media, LLC for a total consideration of $16.6 million in cash, funded by a combination of our and Mission's borrowings from the revolving credit facilities and cash on hand.


Signed Purchase Agreements

On April 24, 2013, we and Mission entered into a stock purchase agreement to acquire the stock of privately-held Communications Corporation of America ("CCA") and White Knight Broadcasting ("White Knight"), the owners of 19 television stations in 10 markets, for a total consideration of $270.0 million, subject to adjustments for working capital. A deposit of $27.0 million was paid upon signing the agreement which was funded by a combination of borrowings under our revolving credit facility and cash on hand. The acquisitions are projected to close in the second quarter of 2014 and the remaining purchase price is expected to be funded through cash generated from operations prior to closing, borrowings under the existing credit facilities and future credit market transactions.

On September 13, 2013, Mission entered into a definitive agreement to acquire 2 television stations in the Binghamton, New York market, from Stainless Broadcasting, L.P. ("Stainless"). Mission will acquire the assets of WCIZ and WBPN-LP for $15.3 million in cash, subject to adjustments for working capital. A deposit of $0.2 million was paid upon signing the agreement. The remaining purchase price is expected to be funded by Mission through borrowings under its existing credit facility and cash on hand. Mission projects the acquisition to close in the second quarter of 2014.

On September 16, 2013, we entered into definitive agreements to acquire 3 television stations in 3 markets from Citadel Communications, L.P. and its related entities ("Citadel"). We will acquire the assets of KCAU and WHBF and the outstanding equity of WOI for a total of $87.9 million in cash, subject to adjustments for working capital. Upon signing the purchase agreements, we paid a total of $44.8 million to acquire the assets excluding FCC licenses and real property interests of KCAU and WHBF and $21.0 million as an upfront payment to acquire the outstanding equity of WOI, funded by a combination of borrowings under our revolving credit facility and cash on hand. We began providing programming and sales services to these stations pursuant to time brokerage agreements effective September 16, 2013. We project the acquisitions to close in the first quarter of 2014 and expect to fund the $22.0 million remaining purchase price through borrowings under our existing credit facility and cash on hand.

On November 6, 2013, we entered into a stock purchase agreement to acquire the outstanding equity of privately-held Grant Company, Inc. ("Grant"), the owner of 7 television stations in 4 markets, for $87.5 million in cash, subject to adjustments for working capital. Simultaneous with this acquisition, we entered into a purchase agreement with Mission pursuant to which Mission will acquire one of Grant's television stations from us for $15.3 million and upon consummation, enter into local service agreements with us. A deposit of $8.5 million was paid upon signing the purchase agreement funded by our cash on hand. The remaining purchase price is expected to be funded through cash generated from operations prior to closing, borrowings under our and Mission's existing credit facilities and future credit market transactions. We project the acquisition to close in the second quarter of 2014.

On December 18, 2013, we and Mission entered into definitive agreements to acquire 6 television stations in 2 markets. We will acquire the outstanding equity of 5 stations for $33.5 million in cash, subject to adjustments for working capital, from Gray Television Group, Inc. ("Gray TV") and Mission will acquire the outstanding equity of one station from Excalibur Broadcasting, LLC ("Excalibur") for $4.0 million in cash, subject to adjustments for working capital. We and Mission project the acquisitions to close in the second quarter of 2014.


Debt Transactions

On January 3, 2013, Mission borrowed $60.0 million in term loans under its senior secured credit facility to fund the acquisition of the assets of KLRT and KASN from Newport.

On June 28, 2013, we and Mission entered into amendments to each of our senior secured credit facilities. The amendments provided commitments for incremental term loan facilities ("Term Loan A Facilities") available to us of $144.0 million and to Mission of $90.0 million, subject to reallocation of up to $18.0 million for the benefit of Rocky Creek Communications, Inc. ("Rocky Creek"), an independent third party, pursuant to the terms of the amended credit agreements. On June 28, 2013, we received initial proceeds of $50.0 million under our incremental term loan facility, which was used to repay outstanding revolving loans of $27.0 million in June 2013 and $22.0 million in July 2013.

On October 1, 2013, we issued $275.0 million of 6.875% Notes at 100.25%. The 6.875% Notes will mature on November 15, 2020 and interest is payable semiannually in arrears on May 15 and November 15 of each year. The notes have the same terms as, and are to be treated as a single class with our $250.0 million 6.875% Notes that were issued on November 9, 2012. Concurrently, we and Mission entered into amendments to each of our senior secured credit facilities. The amendments provided for incremental term loans ("Term Loan B-2") to us of $25.0 million and to Mission of $125.0 million and amended revolving credit facilities available to us of $75.0 million and to Mission of $30.0 million. On December 31, 2013, we and Mission began the scheduled quarterly repayments on the Term Loan B-2 of 0.25% of the aggregate principal. The remainder of the principal is due in full at maturity on October 1, 2020.

During September 2013, we repurchased $10.4 million of our 8.875% Senior Second Lien Notes ("8.875% Notes") at an average price of 108.2%, plus accrued and unpaid interest. On October 1, 2013, we and Mission repurchased $292.7 million of the outstanding principal balance of the 8.875% Notes at 108.875%, plus accrued and unpaid interest, in accordance with a tender offer dated September 17, 2013. The tender offer expired on October 15, 2013 and we and Mission repurchased the remaining principal balance of $21.9 million at a redemption price of 107.0%, plus accrued and unpaid interest, on November 16, 2013. These transactions resulted in a loss on extinguishment of debt of $34.3 million.

On December 9, 2013, we and Mission entered into amendments to each of our senior secured credit facilities. Under the terms of the amendments, we prepaid $5.0 million of the outstanding principal balance of our Term Loan B, issued in December 2012, and Mission received $5.0 million in Term Loan B-2. On the same date, we and Mission converted the $343.3 million total principal balance of Term Loan B into Term Loan B-2. The refinanced term loans allow favorable interest rates and extended debt maturity date for the Company.

Throughout 2013, we and Mission repaid the contractual maturities under each of our term loans, for a total of $3.0 million.

Overview of Operations

As of December 31, 2013, we owned, operated, programmed or provided sales and other services to 75 television stations and 18 digital multicast channels, including those owned by Mission, in 44 markets in the states of Illinois, Indiana, Maryland, Missouri, Montana, Tennessee, Texas, Pennsylvania, Louisiana, Arkansas, Alabama, New York, Florida, Wisconsin, Michigan, Utah, Vermont, California and Iowa. The stations are affiliates of ABC (19 stations), NBC (16 stations), FOX (14 stations), CBS (13 stations), The CW (6 stations and 2 digital multicast channels), MyNetworkTV (5 stations and 2 digital multicast channels), Telemundo (one station), Bounce TV (9 digital multicast channels), LiveWell (3 digital multicast channels), Me-TV (1 digital multicast channel), LATV (1 digital multicast channel) and one independent station. Through various local service agreements, Nexstar provided sales, programming and other services to 25 stations and 6 digital multicast channels owned and/or operated by independent third parties. See Note 2 to our Consolidated Financial Statements in this Form 10-K for a discussion of the local service agreements we have with Mission.


The following table summarizes the various local service agreements we had in effect as of December 31, 2013 with Mission:

Service Agreements          Mission Stations

TBA Only(1)        WFXP and KHMT
SSA & JSA(2)       KJTL, KJBO-LP, KLRT, KASN, KOLR,
                   KCIT, KCPN-LP, KAMC, KRBC, KSAN,
                   WUTR, WAWV, WYOU, KODE, WTVO,
                   KTVE, WTVW and WVNY

(1) We have a time brokerage agreement ("TBA") with each of these stations which allows us to program most of each station's broadcast time, sell each station's advertising time and retain the advertising revenue generated in exchange for monthly payments to Mission.

(2) We have both a shared services agreement ("SSA") and a joint sales agreement ("JSA") with each of these stations. Each SSA allows our station in the market to provide services including news production, technical maintenance and security, in exchange for our right to receive certain payments from Mission as described in the SSAs. Each JSA permits us to sell the station's advertising time and retain a percentage of the station's net advertising revenue, as described in the JSAs.

Our ability to receive cash from Mission is governed by these local service agreements. Under the local service agreements, we have received substantially all of Mission's available cash, after satisfaction of its operating costs and debt obligations. We anticipate we will continue to receive substantially all of Mission's available cash, after satisfaction of its operating costs and debt obligations.

We also guarantee all obligations incurred under Mission's senior secured credit facility. Similarly, Mission is a guarantor of our senior secured credit facility and senior unsecured notes. 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, for an amount equal to the greater of (1) seven times the station's cash flow, as defined in the option agreement, less the amount of its indebtedness as defined in the option agreement, or (2) the amount of its indebtedness. Additionally, on November 29, 2011, Mission's shareholders granted us an option to purchase any or all of Mission's stock, subject to FCC consent, for a price equal to the pro rata portion of the greater of (1) five times the stations' cash flow, as defined in the agreement, reduced by the amount of indebtedness, as defined in the agreement, or (2) $100,000. These option agreements expire on various dates between 2014 and 2023 and are freely exercisable or assignable without the consent of Mission or its shareholders. We expect these option agreements to be renewed upon expiration.

We do not own Mission or its television stations. However, we are deemed under U.S. GAAP to have a controlling financial interest in Mission because of (1) the local service agreements we have with the Mission stations, (2) our guarantee of the obligations incurred under Mission's senior secured credit facility, (3) our power over significant activities affecting Mission's economic performance, including budgeting for advertising revenue, advertising and hiring and firing of sales force personnel and (4) purchase options granted by Mission that permit us to acquire the assets and assume the liabilities of each Mission station, subject to FCC consent. In compliance with FCC regulations for both us and Mission, Mission maintains complete responsibility for and control over programming, finances and personnel for its stations.

The operating revenue of our stations is derived primarily from broadcast and website advertising revenue, which is affected by a number of factors, including the economic conditions of the markets in which we operate, the demographic makeup of those markets and the marketing strategy we employ in each market. Most advertising contracts are short-term and generally run for a few weeks. For the years ended December 31, 2013 and 2012, revenue generated from local broadcast advertising represented 70.1% and 71.4%, respectively, of our consolidated spot revenue (total of local and national broadcast advertising revenue, excluding political advertising revenue). The remaining broadcast advertising revenue represents inventory sold for national or political advertising. All national and political revenue is derived from advertisements placed through advertising agencies. The agencies receive a commission rate of 15.0% of the gross amount of advertising schedules placed by them. While the majority of local spot revenue is placed by local agencies, some advertisers place their schedules directly with the stations' local sales staff, thereby eliminating the agency commission. Each station also has an agreement with a national representative firm that provides for sales representation outside the particular station's market. Advertising schedules received through the national representative firm are for national or large regional accounts that advertise in several markets simultaneously. National commission rates vary within the industry and are governed by each station's agreement.


Another source of revenue for the Company that has been growing significantly in recent years relates to retransmission of our station signals by cable, satellite and other MVPDs. MVPDs generally pay for retransmission rights on a rate per subscriber basis. The growth of this revenue stream has primarily related to increases in the subscriber rates paid by MVPDs.

Most of our stations have a network affiliation agreement pursuant to which the network provides programming to the stations during specified time periods, including prime time. NBC and CBS compensate some of the stations for distributing the network's programming over the air and for allowing the network to keep a portion of advertising inventory during those time periods. The affiliation agreements with ABC, FOX, MyNetworkTV, The CW and Bounce TV do not provide for compensation. In recent years, in conjunction with the renewal of affiliation agreements with NBC, CBS, ABC and FOX, network compensation is being eliminated and many of the networks are now seeking cash payments from their affiliates.

Each station acquires licenses to broadcast programming in non-news and non-network time periods. The licenses are either purchased from a program distributor for cash and/or the program distributor is allowed to sell some of the advertising inventory as compensation to eliminate or reduce the cash cost for the license. The latter practice is referred to as barter broadcast rights. Barter broadcast rights are recorded at management's estimate of the value of the advertising time exchanged using historical advertising rates, which approximates the fair value of the program material received. The programming expense is recognized over the license period or period of usage, whichever ends earlier.

Our primary operating expenses consist of commissions on advertising revenue, employee compensation and benefits, newsgathering and programming costs. A large percentage of the costs involved in the operation of our stations and the stations we provide services to remains relatively fixed.

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. The Company's stations' advertising revenue is generally highest in the second and fourth quarters of each year, due in part to increases in consumer advertising in the spring and retail advertising in the period leading up to, and including, the holiday season. In addition, advertising revenue is generally higher during even-numbered years, when state, congressional and presidential elections occur and from advertising aired during the Olympic Games. As 2013 was not an election year or Olympic year, we are reporting less advertising revenue compared to 2012 on our legacy stations, which is consistent with our expectations.


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 (other than trade and barter)
and agency commissions as a percentage of total gross revenue for the years
ended December 31:

                                      2013                      2012                      2011
                               Amount          %         Amount          %         Amount          %
Local                         $ 265,376      51.0       $ 190,168      47.8       $ 181,569      57.3
National                        113,423      21.8          76,123      19.1          65,728      20.8
Political                         5,152       1.0          46,276      11.6           6,326       2.0
Retransmission compensation     101,119      19.4          60,933      15.4          37,393      11.8
Digital media revenue            30,846       5.9          18,363       4.6          16,224       5.1
Management fee                        -        -            1,961       0.6           6,189       2.0
Other                             4,280       0.9           3,708       0.9           3,294       1.0
Total gross revenue             520,196      100.0        397,532      100.0        316,723      100.0
Less: Agency commissions        (49,395 )    (9.5)        (40,820 )   (10.3)        (31,689 )   (10.0)
Net broadcast revenue           470,801      90.5         356,712      89.7         285,034      90.0
Trade and barter revenue         31,529                    21,920                    21,457
Net revenue                   $ 502,330                 $ 378,632                 $ 306,491

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:

                                 2013                      2012                      2011
                          Amount          %         Amount          %         Amount          %
Net revenue              $ 502,330      100.0      $ 378,632      100.0      $ 306,491      100.0
Operating expenses:
Corporate expenses          26,339       5.2          24,636       6.5          19,780       6.4
Station direct
operating expenses,
net of trade               139,807      27.8          84,743      22.4          73,829      24.1
Selling, general and
administrative
expenses                   124,594      24.8          92,899      24.5          85,387      27.9
Loss on asset
disposal, net                1,280       0.3             468       0.1             461       0.2
Trade and barter
expense                     30,730       6.1          20,841       5.5          21,270       6.9
Depreciation                33,578       6.7          23,555       6.2          21,845       7.1
Amortization of
intangible assets           30,148       6.0          22,994       6.1          25,979       8.5
Amortization of
broadcast rights,
excluding barter            12,613       2.5           8,591       2.3           9,947       3.2
Income from operations   $ 103,241                 $  99,905                 $  47,993


Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Revenue

Gross local advertising revenue was $265.4 million for the year ended December 31, 2013, compared to $190.2 million for the same period in 2012, an increase of $75.2 million, or 39.5%. Gross national advertising revenue was $113.4 million for the year ended December 31, 2013, compared to $76.1 million for the same period in 2012, an increase of $37.3 million, or 49.0%. The increase in local and national advertising revenue was primarily attributable to incremental revenue from the Company's newly acquired stations, net of station disposal, of $113.6 million. Our legacy stations' local and national advertising revenue declined by $1.1 million compared to 2012, which was inclusive of $5.5 million revenue from the Olympics on our NBC affiliate stations. Our largest advertiser category, automotive, represented 24.7% and 24.2% of our legacy stations' local and national advertising revenue for the year ended December 31, 2013 and 2012, respectively. Overall, this category increased by 1.6% for our legacy stations. The other categories representing our top five of our legacy stations were fast food/restaurants, which decreased 6.2%, furniture, which increased 1.0%, radio/TV/cable/newspaper, which increased 27.5% and paid programming, which decreased 12.0%.

Gross political advertising revenue was $5.2 million for the year ended December 31, 2013, compared to $46.3 million for the same period in 2012, a decrease of $41.1 million, or 88.9%, as expected, due to 2013 not being an election year.

Retransmission compensation was $101.1 million for the year ended December 31, 2013, compared to $60.9 million for the same period in 2012, an increase of $40.2 million, or 66.0%. The increase in retransmission compensation was primarily attributable to the $32.0 million incremental revenue from the Company's newly acquired stations, net of station disposal, and the result of contracts providing for higher rates per subscriber during the year on our legacy stations.

Digital media revenue, representing web-based and mobile advertising revenue generated at our stations and Inergize, was $30.8 million for the year ended December 31, 2013, compared to $18.4 million for the same period in 2012, an increase of $12.5 million or 68.0%. The increase was primarily attributable to the $11.6 million incremental revenue from our newly acquired stations and Inergize, net of station disposal, including nonrecurring customer contract termination fees of $5.5 million.

Operating Expenses

Corporate expenses, related to costs associated with the centralized management of our and Mission's stations, were $26.3 million for the year ended December 31, 2013, compared to $24.6 million for the same period in 2012, an increase of $1.7 million, or 6.9%. This was primarily due to an increase in legal and professional fees of $0.9 million associated with our and Mission's acquisitions of television stations and capital market activities and an increase in stock-based compensation expense of $0.7 million due to stock option grants during the third quarter of 2012.

Station direct operating expenses, consisting primarily of news, engineering, programming and selling, general and administrative expenses (net of trade expense) were $264.4 million for the year ended December 31, 2013, compared to $177.6 million for the same period in 2012, an increase of $86.8 million, or 48.8%. The increase was primarily due to expenses of the Company's newly acquired stations, net of station disposal, of $77.2 million and an increase in programming costs of our legacy stations of $9.6 million related to recently enacted network agreements. Networks now require additional compensation from broadcasters for the use of network programming. Network program fees have recently increased industry wide and will continue to increase over the next several years.

Amortization of broadcast rights, excluding barter was $12.6 million for the year ended December 31, 2013, compared to $8.6 million for the same period in 2012, an increase of $4.0 million, or 46.8%, of which $5.6 million is attributable to the Company's newly acquired stations, net of station disposal. This increase was partially offset by changes in the programming mix of our legacy stations.


Amortization of intangible assets was $30.1 million for the year ended December 31, 2013, compared to $23.0 million for the same period in 2012, an increase of $7.2 million, or 31.1%. The increase was primarily attributable to incremental amortization of intangible assets from the Company's newly acquired stations of $11.2 million and an additional $1.0 million amortization of intangible assets . . .

  Add NXST to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for NXST - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.