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Published: 2021-11-03 14:21:49 ET
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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 September 30, 2021  

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 November 2, 2021, the registrant had 40,891,235 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 September 30, 2021 and December 31, 2020

  

3

 

 

 

 

 

 

  

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020

  

4

 

 

 

 

 

 

  

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020

  

5

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020

 

7

 

 

 

 

 

 

  

Notes to Unaudited Condensed Consolidated Financial Statements

  

 

 

 

Note 1:  Organization and Business Operations

8

 

 

Note 2:  Summary of Significant Accounting Policies

8

 

 

Note 3:  Acquisitions and Dispositions

14

 

 

Note 4:  Intangible Assets and Goodwill

16

 

 

Note 5:  Investments

17

 

 

Note 6:  Accrued Expenses

18

 

 

Note 7:  Retirement and Post Retirement Plans

18

 

 

Note 8:  Debt

20

 

 

Note 9:  Leases

21

 

 

Note 10:  Fair Value Measurements

22

 

 

Note 11:  Common Stock

23

 

 

Note 12:  Income Taxes

24

 

 

Note 13:  FCC Regulatory Matters

24

 

 

Note 14:  Commitments and Contingencies

27

 

 

Note 15:  Segment Data

29

 

 

Note 16:  Subsequent Events

31

 

 

 

 

 

ITEM 2.

  

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

  

32

 

 

 

 

 

ITEM 3.

  

Quantitative and Qualitative Disclosures About Market Risk

  

47

 

 

 

 

 

ITEM 4.

  

Controls and Procedures

  

47

 

 

 

 

 

PART II

  

OTHER INFORMATION

  

 

 

 

 

 

 

ITEM 1.

  

Legal Proceedings

  

48

 

 

 

 

 

ITEM 1A.

  

Risk Factors

  

48

 

 

 

 

 

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)

 

 

September 30,

 

 

December 31,

 

 

2021

 

 

2020

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

193,831

 

 

$

152,701

 

Restricted cash and cash equivalents

 

16,608

 

 

 

16,608

 

Accounts receivable, net of allowance for doubtful accounts of $18,907 and $34,922, respectively

 

923,005

 

 

 

904,801

 

Prepaid expenses and other current assets

 

178,104

 

 

 

135,872

 

Total current assets

 

1,311,548

 

 

 

1,209,982

 

Property and equipment, net

 

1,585,703

 

 

 

1,604,881

 

Goodwill

 

3,051,892

 

 

 

2,984,008

 

FCC licenses

 

2,909,951

 

 

 

2,909,704

 

Network affiliation agreements, net

 

2,107,732

 

 

 

2,250,283

 

Other intangible assets, net

 

683,581

 

 

 

688,918

 

Investments

 

1,188,759

 

 

 

1,333,778

 

Other noncurrent assets, net

 

443,828

 

 

 

422,722

 

Total assets(1)

$

13,282,994

 

 

$

13,404,276

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Current portion of debt

$

40,715

 

 

$

21,429

 

Accounts payable

 

186,633

 

 

 

218,418

 

Broadcast rights payable

 

77,586

 

 

 

105,557

 

Accrued expenses

 

311,830

 

 

 

307,192

 

Operating lease liabilities

 

42,592

 

 

 

35,850

 

Other current liabilities

 

51,662

 

 

 

42,442

 

Total current liabilities

 

711,018

 

 

 

730,888

 

Debt

 

7,505,654

 

 

 

7,646,574

 

Deferred tax liabilities

 

1,695,466

 

 

 

1,674,008

 

Other noncurrent liabilities

 

737,432

 

 

 

815,930

 

Total liabilities(1)

 

10,649,570

 

 

 

10,867,400

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Preferred stock - $0.01 par value, 200,000 shares authorized; none issued and outstanding at each of September 30, 2021 and December 31, 2020

 

-

 

 

 

-

 

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

41,218,239 shares outstanding as of September 30, 2021 and 47,291,463 shares issued, 43,256,828 shares

  outstanding as of December 31, 2020

 

473

 

 

 

473

 

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

  at each of September 30, 2021 and December 31, 2020

 

-

 

 

 

-

 

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

at each of September 30, 2021 and December 31, 2020

 

-

 

 

 

-

 

Additional paid-in capital

 

1,335,370

 

 

 

1,362,510

 

Accumulated other comprehensive income

 

34,510

 

 

 

34,510

 

Retained earnings

 

1,964,018

 

 

 

1,488,031

 

Treasury stock - at cost; 6,073,224 and 4,034,635 shares as of September 30, 2021 and December 31, 2020, respectively

 

(715,630

)

 

 

(367,132

)

Total Nexstar Media Group, Inc. stockholders' equity

 

2,618,741

 

 

 

2,518,392

 

Noncontrolling interests

 

14,683

 

 

 

18,484

 

Total stockholders' equity

 

2,633,424

 

 

 

2,536,876

 

Total liabilities and stockholders' equity

$

13,282,994

 

 

$

13,404,276

 

 

 

 

 

 

 

 

 

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

 

(1)

The condensed consolidated total assets as of September 30, 2021 and December 31, 2020 include certain assets held by consolidated VIEs of $320.3 million and $323.2 million, respectively, which are not available to be used to settle the obligations of Nexstar. The condensed consolidated total liabilities as of September 30, 2021 and December 31, 2020 include certain liabilities of consolidated VIEs of $166.2 million and $142.6 million, respectively, for which the creditors of the VIEs have no recourse to the general credit of Nexstar. See Note 2 for additional information.

3

 

NEXSTAR MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share information, unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net revenue

 

$

1,157,012

 

 

$

1,118,203

 

 

$

3,402,533

 

 

$

3,124,658

 

Operating expenses (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses, excluding depreciation and amortization

 

 

480,056

 

 

 

423,091

 

 

 

1,391,773

 

 

 

1,284,789

 

Selling, general and administrative expenses, excluding depreciation and amortization

 

 

258,194

 

 

 

226,544

 

 

 

744,141

 

 

 

638,171

 

Amortization of broadcast rights

 

 

29,884

 

 

 

31,968

 

 

 

92,418

 

 

 

104,916

 

Amortization of intangible assets

 

 

75,730

 

 

 

69,265

 

 

 

223,229

 

 

 

209,360

 

Depreciation of property and equipment

 

 

41,354

 

 

 

36,611

 

 

 

120,726

 

 

 

107,787

 

Reimbursement from the FCC related to station repack

 

 

(5,585

)

 

 

(12,873

)

 

 

(17,926

)

 

 

(51,347

)

Gain on disposal of stations and business units, net

 

 

-

 

 

 

-

 

 

 

(2,455

)

 

 

(7,025

)

Change in the estimated fair value of contingent consideration attributable to a past merger

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,933

 

Gain on relinquishment of spectrum

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(10,791

)

Total operating expenses

 

 

879,633

 

 

 

774,606

 

 

 

2,551,906

 

 

 

2,279,793

 

Income from operations

 

 

277,379

 

 

 

343,597

 

 

 

850,627

 

 

 

844,865

 

Income from equity method investments, net

 

 

20,783

 

 

 

15,861

 

 

 

77,707

 

 

 

41,351

 

Interest expense, net

 

 

(70,377

)

 

 

(77,265

)

 

 

(212,557

)

 

 

(260,800

)

Loss on extinguishment of debt

 

 

(856

)

 

 

(37,371

)

 

 

(1,908

)

 

 

(44,848

)

Pension and other postretirement plans credit, net

 

 

17,657

 

 

 

10,761

 

 

 

52,972

 

 

 

32,285

 

Unrealized (loss) gain on an equity investment measured at fair value

 

 

(2,162

)

 

 

-

 

 

 

5,695

 

 

 

-

 

Loss on write-off of an equity investment

 

 

(7,000

)

 

 

-

 

 

 

(7,000

)

 

 

-

 

Other expenses, net

 

 

(414

)

 

 

(1,093

)

 

 

(1,090

)

 

 

(778

)

Income before income taxes

 

 

235,010

 

 

 

254,490

 

 

 

764,446

 

 

 

612,075

 

Income tax expense

 

 

(65,853

)

 

 

(65,177

)

 

 

(196,338

)

 

 

(166,927

)

Net income

 

 

169,157

 

 

 

189,313

 

 

 

568,108

 

 

 

445,148

 

Net loss attributable to noncontrolling interests

 

 

407

 

 

 

1,371

 

 

 

2,467

 

 

 

2,046

 

Net income attributable to Nexstar Media Group, Inc.

 

$

169,564

 

 

$

190,684

 

 

$

570,575

 

 

$

447,194

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

4.07

 

 

$

4.24

 

 

$

13.42

 

 

$

9.87

 

Diluted

 

$

3.90

 

 

$

4.08

 

 

$

12.84

 

 

$

9.50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

41,676

 

 

 

44,979

 

 

 

42,520

 

 

 

45,313

 

Diluted

 

 

43,476

 

 

 

46,737

 

 

 

44,422

 

 

 

47,064

 

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

 

 

4

 

 

NEXSTAR MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

For the Three Months Ended September 30, 2021 and 2020

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

 

 

Paid-In

 

 

 

 

Retained

 

 

 

 

Comprehensive

 

 

 

 

Treasury Stock

 

 

 

 

Noncontrolling

 

 

Stockholders'

 

 

 

Shares

 

 

 

 

Amount

 

 

 

 

Capital

 

 

 

 

Earnings

 

 

 

 

Income

 

 

 

 

Shares

 

 

 

 

Amount

 

 

 

 

interests

 

 

Equity

 

Balances as of June 30, 2021

 

 

47,291,463

 

 

 

 

$

473

 

 

 

 

$

1,327,205

 

 

 

 

$

1,823,706

 

 

 

 

$

34,510

 

 

 

 

 

(5,135,854

)

 

 

 

$

(575,724

)

 

 

 

$

15,090

 

 

$

2,625,260

 

Purchase of treasury stock

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

(980,770

)

 

 

 

 

(144,349

)

 

 

 

 

-

 

 

 

(144,349

)

Stock-based compensation expense

 

 

-

 

 

 

 

 

-

 

 

 

 

 

12,302

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

12,302

 

Vesting of restricted stock units and exercise of stock options

 

 

-

 

 

 

 

 

-

 

 

 

 

 

(4,137

)

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

43,400

 

 

 

 

 

4,443

 

 

 

 

 

-

 

 

 

306

 

Dividends declared on common stock ($0.70 per share)

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

(29,252

)

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

(29,252

)

Net income (loss)

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

169,564

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

(407

)

 

 

169,157

 

Balances as of September 30, 2021

 

 

47,291,463

 

 

 

 

$

473

 

 

 

 

$

1,335,370

 

 

 

 

$

1,964,018

 

 

 

 

$

34,510

 

 

 

 

 

(6,073,224

)

 

 

 

$

(715,630

)

 

 

 

$

14,683

 

 

$

2,633,424

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances as of June 30, 2020

 

 

47,291,463

 

 

 

 

$

473

 

 

 

 

$

1,340,526

 

 

 

 

$

984,316

 

 

 

 

$

19,850

 

 

 

 

 

(2,004,823

)

 

 

 

$

(164,847

)

 

 

 

$

21,459

 

 

$

2,201,777

 

Purchase of treasury stock

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

(1,300,000

)

 

 

 

 

(125,013

)

 

 

 

 

-

 

 

 

(125,013

)

Stock-based compensation expense

 

 

-

 

 

 

 

 

-

 

 

 

 

 

12,483

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

12,483

 

Vesting of restricted stock units and exercise of stock options

 

 

-

 

 

 

 

 

-

 

 

 

 

 

(1,637

)

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

48,375

 

 

 

 

 

3,155

 

 

 

 

 

-

 

 

 

1,518

 

Dividends declared on common stock ($0.56 per share)

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

(25,362

)

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

(25,362

)

Net income (loss)

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

190,684

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

(1,371

)

 

 

189,313

 

Balances as of September 30, 2020

 

 

47,291,463

 

 

 

 

$

473

 

 

 

 

$

1,351,372

 

 

 

 

$

1,149,638

 

 

 

 

$

19,850

 

 

 

 

 

(3,256,448

)

 

 

 

$

(286,705

)

 

 

 

$

20,088

 

 

$

2,254,716

 

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

 


5

 

 

NEXSTAR MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

For the Nine Months Ended September 30, 2021 and 2020

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

Comprehensive

 

 

Treasury Stock

 

 

Noncontrolling

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Income

 

 

Shares

 

 

Amount

 

 

interests

 

 

Equity

 

Balances as of December 31, 2020

 

 

47,291,463

 

 

$

473

 

 

$

1,362,510

 

 

 

1,488,031

 

 

 

34,510

 

 

 

(4,034,635

)

 

 

(367,132

)

 

 

18,484

 

 

 

2,536,876

 

Purchase of treasury stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,715,462

)

 

 

(403,224

)

 

 

-

 

 

 

(403,224

)

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

34,323

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

34,323

 

Vesting of restricted stock units and exercise of stock options

 

 

-

 

 

 

-

 

 

 

(61,917

)

 

 

-

 

 

 

-

 

 

 

676,873

 

 

 

54,726

 

 

 

-

 

 

 

(7,191

)

Dividends declared on common stock ($2.10 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(89,497

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(89,497

)

Contribution from a noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

451

 

 

 

451

 

Change in reporting entity resulting from common control transactions (Note 3)

 

 

-

 

 

 

-

 

 

 

454

 

 

 

(5,091

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,785

)

 

 

(6,422

)

Net income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

570,575

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,467

)

 

 

568,108

 

Balances as of September 30, 2021

 

 

47,291,463

 

 

$

473

 

 

$

1,335,370

 

 

$

1,964,018

 

 

$

34,510

 

 

 

(6,073,224

)

 

$

(715,630

)

 

$

14,683

 

 

$

2,633,424

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,250,000

)

 

 

(197,600

)

 

 

 

 

 

 

(197,600

)

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

35,917

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

35,917

 

Vesting of restricted stock units and exercise of stock options

 

 

-

 

 

 

-

 

 

 

(36,893

)

 

 

-

 

 

 

-

 

 

 

535,227

 

 

 

32,283

 

 

 

-

 

 

 

(4,610

)

Dividends declared on common stock ($1.68 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(76,380

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(76,380

)

Contribution from a noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

138

 

 

 

138

 

Disposal of an entity

 

 

-

 

 

 

-

 

 

 

(1,381

)

 

 

(9

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,390

)

Net income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

447,194

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,046

)

 

 

445,148

 

Balances as of September 30, 2020

 

 

47,291,463

 

 

$

473

 

 

$

1,351,372

 

 

$

1,149,638

 

 

$

19,850

 

 

 

(3,256,448

)

 

$

(286,705

)

 

$

20,088

 

 

$

2,254,716

 

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

 


 

6

 

 

NEXSTAR MEDIA GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

568,108

 

 

$

445,148

 

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

 

 

 

 

 

 

 

 

Amortization of intangible assets

 

 

223,229

 

 

 

209,360

 

Amortization of broadcast rights

 

 

92,418

 

 

 

104,916

 

Depreciation of property and equipment

 

 

120,726

 

 

 

107,787

 

Stock-based compensation expense

 

 

34,323

 

 

 

35,917

 

Provision for bad debt

 

 

4,440

 

 

 

24,735

 

Amortization of debt financing costs, debt discounts and premium

 

 

11,203

 

 

 

13,316

 

Loss on extinguishment of debt

 

 

1,908

 

 

 

44,848

 

Deferred income taxes

 

 

5,989

 

 

 

(20,940

)

Gain on disposal of assets

 

 

(8,795

)

 

 

(770

)

Gain on relinquishment of spectrum

 

 

-

 

 

 

(10,791

)

Gain on disposal of stations and business units, net

 

 

(2,455

)

 

 

(7,025

)

Change in the estimated fair value of contingent consideration attributable to a past merger

 

 

-

 

 

 

3,933

 

Spectrum repack reimbursements

 

 

(17,926

)

 

 

(51,347

)

Payments for broadcast rights

 

 

(133,042

)

 

 

(147,214

)

Income from equity method investments, net

 

 

(77,707

)

 

 

(41,351

)

Unrealized gain on an equity investment measured at fair value

 

 

(5,695

)

 

 

-

 

Loss on write-off of an equity investment

 

 

7,000

 

 

 

-

 

Distribution from equity method investments - return on capital

 

 

222,389

 

 

 

206,997

 

Other operating activities, net

 

 

213

 

 

 

(1,834

)

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

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(15,227

)

 

 

93,368

 

Prepaid expenses and other current assets

 

 

4,776

 

 

 

10,000

 

Other noncurrent assets

 

 

540

 

 

 

11,874

 

Accounts payable

 

 

(32,547

)

 

 

(95

)

Accrued expenses and other current liabilities

 

 

(6,364

)

 

 

(97,587

)

Income tax payable

 

 

(49,823

)

 

 

(15,021

)

Other noncurrent liabilities

 

 

(66,027

)

 

 

(40,736

)

Net cash provided by operating activities

 

 

881,654

 

 

 

877,488

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(104,977

)

 

 

(170,150

)

Payments for acquisitions, net of cash acquired

 

 

(138,783

)

 

 

(132,284

)

Proceeds from sale of stations and business units

 

 

2,514

 

 

 

362,803

 

Deposits received associated with the sale of real estate assets

 

 

10,000

 

 

 

-

 

Proceeds from resolution of acquired contingency

 

 

-

 

 

 

98,000

 

Spectrum repack reimbursements

 

 

17,926

 

 

 

51,347

 

Proceeds from disposal of assets

 

 

16,591

 

 

 

1,029

 

Collection of investment in a loan receivable

 

 

2,500

 

 

 

49,014

 

Other investing activities, net

 

 

437

 

 

 

603

 

Net cash (used in) provided by investing activities

 

 

(193,792

)

 

 

260,362

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from debt issuance, net of debt discounts

 

 

321,000

 

 

 

1,225,000

 

Repayments of long-term debt

 

 

(454,072

)

 

 

(1,857,838

)

Premium paid on debt extinguishment

 

 

-

 

 

 

(25,317

)

Payments for debt financing costs

 

 

(952

)

 

 

(10,741

)

Purchase of treasury stock

 

 

(403,224

)

 

 

(197,600

)

Common stock dividends paid

 

 

(89,497

)

 

 

(76,380

)

Payments for finance lease and capitalized software obligations

 

 

(13,247

)

 

 

(12,664

)

Cash paid for shares withheld for taxes

 

 

(10,884

)

 

 

(6,784

)

Proceeds from exercise of stock options

 

 

3,693

 

 

 

2,174

 

Other financing activities, net

 

 

451

 

 

 

138

 

Net cash used in financing activities

 

 

(646,732

)

 

 

(960,012

)

Net increase in cash, cash equivalents and restricted cash

 

 

41,130

 

 

 

177,838

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

169,309

 

 

 

248,678

 

Cash, cash equivalents and restricted cash at end of period

 

$

210,439

 

 

$

426,516

 

Supplemental information:

 

 

 

 

 

 

 

 

Interest paid

 

$

220,311

 

 

$

290,250

 

Income taxes paid, net of refunds

 

$

247,399

 

 

$

201,979

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Accrued purchases of property and equipment

 

$

8,865

 

 

$

14,186

 

Noncash purchases of property and equipment

 

$

-

 

 

$

20,342

 

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

 

$

41,650

 

 

$

22,886

 

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

 

7

 

 

NEXSTAR MEDIA GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1:  Organization and Business Operations

 

As used in this Quarterly Report on Form 10-Q, “Nexstar” refers to Nexstar Media Group, Inc., a Delaware corporation, and its consolidated wholly owned subsidiary, Nexstar Media Inc. (formerly known as Nexstar Inc. and Nexstar Broadcasting, Inc.), a Delaware corporation; the “Company” refers to Nexstar and the variable interest entities (“VIEs”) required to be consolidated in our financial statements due to our deemed controlling financial interests in those entities under authoritative guidance related to the consolidation of VIEs; and all references to “we,” “our,” “ours,” and “us” refer to Nexstar.

 

On April 16, 2021, Nexstar Inc. filed a Certificate of Amendment with the Secretary of State of Delaware to change its name to Nexstar Media Inc.

 

Nexstar is a television broadcasting and digital media company focused on the acquisition, development and operation of television stations, interactive community websites and digital media services. As of September 30, 2021, we owned, operated, programmed or provided sales and other services to 199 full power television stations, including those owned by VIEs, and one AM radio station in 116 markets in 39 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 September 30, 2021, the stations reached approximately 39% of all U.S. television households (after applying the Federal Communications Commission’s (“FCC”) ultra-high frequency (“UHF”) discount). Through various local service agreements, we provide sales, programming, and other services to 36 television stations owned by consolidated VIEs and one television station owned by an unconsolidated VIE. Nexstar also owns NewsNation (formerly WGN America), a live daily national newscast and general entertainment cable network, two owned and operated digital multicast networks and other multicast network services, various digital products, services and content, 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 VIEs for which we are the primary beneficiary (See “Variable Interest Entities” section below). Noncontrolling interests represent the VIE owners’ share of the equity in the consolidated VIEs and are presented as a component separate from Nexstar’s 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.

 

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 the Coronavirus Disease 2019 (“COVID-19”) pandemic. In March 2020, the World Health Organization declared COVID-19 a pandemic and the United States government declared a national emergency. The ongoing effect of the COVID-19 pandemic had an adverse impact on the Company’s financial results mostly in the first part of the second quarter in 2020. Since then, the Company’s business operations, financial results and cash flows have significantly improved. In 2021, the mass distribution of COVID-19 vaccines, the U.S. government’s stimulus programs, the reopening of states for business and consumer spending by an increasingly vaccinated public drove the continued U.S. economic recovery during the first three quarters of 2021.

 

During the three and nine months ended September 30, 2021, the Company continued to be profitable and continued to generate positive cash flows from its operations. Its current year to date financial results were also higher than the comparable prior year and its market capitalization continued to increase and exceed the carrying amount of its equity by a substantial amount. These favorable financial results are reflective of the economic recovery to date and the incremental operating results from the Company’s acquisitions in 2020. Overall, the ongoing COVID-19 pandemic did not have a material impact on the Company’s liquidity. As of September 30, 2021, the Company was in compliance with the financial covenants contained in the amended credit agreements governing its senior secured credit facilities. The Company believes it has sufficient unrestricted cash on hand, positive working capital, and availability to access additional cash under its revolving credit facilities 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.

 

8

 

 

The extent to which the COVID-19 pandemic impacts the Company’s business, its results of operations and its financial condition will depend on future developments, which remain highly uncertain and cannot be reasonably predicted, including future surges of the virus and the length of time that the pandemic continues, current challenges to increase vaccination rates in the U.S. and disruptions to supply chains.

 

Interim Financial Statements

 

The Condensed Consolidated Financial Statements as of September 30, 2021 and for the three and nine months ended September 30, 2021 and 2020 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 are 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 long-lived assets, the recoverability of investments, the recoverability of broadcast rights and the useful lives of property and equipment and intangible assets. As of September 30, 2021, the Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or revision of the carrying value of its assets or liabilities. However, these estimates and judgments may change as new events occur and additional information is obtained, which may result in changes being recognized in the Company’s consolidated financial statements in future periods. While the Company considered the effects of COVID-19 in its estimates and assumptions, due to the current level of uncertainty over the economic and operational impacts of COVID-19 on its business, there may be other judgments and assumptions that were not currently considered. Such judgments and assumptions could result in a meaningful impact on the Company’s consolidated financial statements in future periods. Actual results could differ from those estimates and any such differences may have a material impact on the Company’s condensed consolidated financial statements.

 

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, 2020. The balance sheet as of December 31, 2020 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

 

Nexstar 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 of 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.

 

Consolidated VIEs

 

Nexstar consolidates entities in which it 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 guarantee of the obligations incurred under Mission Broadcasting, Inc.’s (“Mission”) senior secured credit facility (see Note 8), (3) Nexstar having 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 consolidated VIE which permit Nexstar to acquire the assets and assume the liabilities of these VIEs’ stations, subject to FCC consent.

 

On July 1, 2021, Mission granted Nexstar options to purchase stations KMSS, KPEJ and KLJB from Mission, subject to FCC consent.

 

9

 

 

The following table summarizes the various local service agreements Nexstar had in effect as of September 30, 2021 with its consolidated VIEs:

 

Owner

 

Service Agreements

 

Full Power Stations

Mission

 

TBA

SSA & JSA(1)(2)

 

WFXP, KHMT, KFQX and WPIX

KJTL, KLRT, KASN, KOLR, KCIT, KAMC, KRBC, KSAN, WUTR, WAWV, WYOU, KODE, WTVO, KTVE, WTVW, WVNY, WXXA, WLAJ, KMSS, KPEJ, KLJB, KASY, KWBQ and KRWB

 

 

LMA(3)

 

WNAC

White Knight Broadcasting (“White Knight”)

 

SSA & JSA

 

WVLA, KFXK and KSHV

Vaughan Media, LLC (“Vaughan”)

 

SSA & JSA

 

WBDT, WYTV and KTKA

 

 

LMA

 

KNVA

 

 

(1)

On July 1, 2021, Mission entered into JSAs with Nexstar for stations KMSS, KPEJ, KLJB, KASY, KWBQ and KRWB in addition to the existing SSAs with these stations. Prior to entering these JSAs, Nexstar provided services to these stations under SSAs only.

 

(2)

On May 24, 2021, Mission acquired the license assets of television station KGBT-TV serving the Harlingen-Weslaco-Brownsville-McAllen, Texas market from Sinclair Broadcast Group, Inc. (“Sinclair”) for a nominal price. Upon closing of the acquisition, Mission entered into a new SSA with Nexstar for the station. Mission also granted Nexstar an option to purchase the station from Mission, subject to FCC consent. On July 1, 2021, Mission entered into a new JSA with Nexstar for this station in addition to the SSA. On September 15, 2021, Nexstar acquired KGBT-TV’s license assets from Mission for the same price Mission paid Sinclair (See Note 3). Effective September 15, 2021, KGBT-TV is no longer a VIE and the JSA and SSA between Nexstar and Mission for the station were terminated.

 

(3)

On June 17, 2021, Mission acquired WNAC-TV, the Fox affiliate full power television station serving the Providence, Rhode Island market, from Super Towers, Inc. (“Super Towers”) (See Note 3). Upon closing of the acquisition, Mission assumed the existing LMA with Nexstar for the acquired station. Mission also granted Nexstar an option to purchase the station from Mission, subject to FCC consent.

 

Nexstar became the primary beneficiary of WNAC-TV under its previous owner, Super Towers, and has consolidated this station into Nexstar’s financial statements since January 2017. Upon Mission’s acquisition of WNAC-TV in June 2021, Nexstar continued to be the primary beneficiary and maintained its deemed controlling financial interest in the station for financial reporting purposes under authoritative guidance related to the consolidation of VIEs. Nexstar became the primary beneficiary of KGBT-TV upon Mission’s acquisition of the station from Sinclair on May 24, 2021 until Nexstar acquired the station from Mission on September 15, 2021. As Nexstar is the primary beneficiary of the operations of WNAC-TV and KGBT-TV, Mission’s purchase of WNAC-TV from Super Towers and Nexstar’s purchase of KGBT-TV from Mission were deemed to be common control transactions. Therefore, Mission recorded the net assets of WNAC-TV it acquired from Super Towers and Nexstar recorded the net assets of KGBT-TV it acquired from Mission at historical book values, rather than at estimated fair values. For financial reporting purposes, Nexstar continued to include both stations’ net assets and financial results at historical values for all periods presented in the accompanying Condensed Consolidated Financial Statements. The net assets of WNAC-TV have also been included as if they were owned by Mission as of the earliest period presented. Mission is a guarantor of Nexstar’s debt.

 

On October 1, 2021, Nexstar acquired certain television stations from Mission and White Knight. See Note 16 for discussion of subsequent events.

 

Nexstar’s ability to receive cash from Mission and the other consolidated 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.

 

 

 

10

 

 

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):

 

 

September 30, 2021

 

 

December 31, 2020

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,300

 

 

$

9,066

 

Accounts receivable, net

 

 

21,737

 

 

 

19,800

 

Prepaid expenses and other current assets

 

 

11,679

 

 

 

6,726

 

Total current assets

 

 

37,716

 

 

 

35,592

 

Property and equipment, net

 

 

61,599

 

 

 

61,938

 

Goodwill

 

 

152,058

 

 

 

153,704

 

FCC licenses

 

 

203,967

 

 

 

204,720

 

Network affiliation agreements, net

 

 

86,961

 

 

 

93,466

 

Other intangible assets, net

 

 

353

 

 

 

748

 

Other noncurrent assets, net

 

 

93,930

 

 

 

78,580

 

Total assets

 

$

636,584

 

 

$

628,748

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of debt

 

$

3,000

 

 

$

-

 

Other current liabilities

 

 

33,466

 

 

 

30,830

 

Total current liabilities

 

 

36,466

 

 

 

30,830

 

Debt

 

 

356,155

 

 

 

327,000

 

Deferred tax liabilities

 

 

33,422

 

 

 

29,433

 

Other noncurrent liabilities

 

 

100,059

 

 

 

82,821

 

Total liabilities

 

$

526,102

 

 

$

470,084

 

 

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):

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Current assets

 

$

5,182

 

 

$

4,402

 

Property and equipment, net

 

 

15,439

 

 

 

16,137

 

Goodwill

 

 

63,795

 

 

 

63,795

 

FCC licenses

 

 

203,967

 

 

 

204,720

 

Network affiliation agreements, net

 

 

29,250

 

 

 

31,571

 

Other noncurrent assets, net

 

 

2,664

 

 

 

2,568

 

Total assets

 

$

320,297

 

 

$

323,193

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

32,725

 

 

$

30,335

 

Noncurrent liabilities

 

 

133,481

 

 

 

112,254

 

Total liabilities

 

$

166,206

 

 

$

142,589

 

 

Non-Consolidated VIE

 

Nexstar has an outsourcing agreement with Cunningham Broadcasting Corporation (“Cunningham”), which continues through December 31, 2021. 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.

 

11

 

 

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 outsourcing agreement for WYZZ, Nexstar pays for certain operating expenses and therefore may have unlimited exposure to any potential operating losses. Nexstar’s management believes that Nexstar’s minimum exposure to loss under the WYZZ 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 Nexstar’s 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. Cunningham does not guarantee Nexstar’s debt.

Income Per Share

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Weighted average shares outstanding - basic

 

 

41,676

 

 

 

44,979

 

 

 

42,520

 

 

 

45,313

 

Dilutive effect of equity incentive plan instruments

 

 

1,800

 

 

 

1,758

 

 

 

1,902

 

 

 

1,751

 

Weighted average shares outstanding - diluted

 

 

43,476

 

 

 

46,737

 

 

 

44,422

 

 

 

47,064

 

 

During the three and nine months ended September 30, 2021, there were no stock options and restricted stock units that were anti-dilutive.

 

During the three and nine months ended September 30, 2020, stock options and restricted stock units to acquire a weighted average of 85,000 shares and 157,000 shares, respectively, 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

 

On May 21, 2020, the SEC issued Final Rule Release No. 33-10786, “Amendments to Financial Disclosures about Acquired and Disposed Businesses” (“SEC Rule 33-10786”), which amends the disclosure requirements applicable to acquisitions and dispositions of businesses to improve the financial information provided to investors, facilitate more timely access to capital, and reduce the complexity and costs to prepare disclosure. SEC Rule 33-10786, among other things, (i) amends the tests used to determine significance and expands the use of proforma financial information; (ii) revises the proforma information requirements; (iii) reduces the maximum number of years for which financial statements under Regulation S-X are required to two years; (iv) permits abbreviated financial statements for certain acquisitions; (v) modifies the disclosure requirements relating to the aggregate effect of acquisitions for which financial statements are not required; and (vi) conforms the significance threshold and tests on both disposed and acquired businesses. The Company adopted SEC Rule 33-10876 effective January 1, 2021. The adoption did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

 

12

 

 

In January 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. The Company adopted ASU 2020-01 effective January 1, 2021. The adoption did not have a material impact on the Company’s 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. The Company adopted this standard effective January 1, 2021. The adoption of this standard did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

 

New Accounting Standards Not Yet Adopted

 

In July 2021, the FASB issued ASU No. 2021-05, Leases (Topic 842): Lessors—Certain leases with variable payments. Under the ASU, a lessor would classify a lease with variable lease payments that do not depend on an index or rate as an operating lease at lease commencement if the lease would have been classified as a sales-type lease or direct financing lease under Accounting Standards Codification (“ASC”) 842 classification criteria and the lessor would have otherwise recognized a day one loss. The ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the standard to have a material impact on its Consolidated Financial Statements upon its adoption effective on January 1, 2022.

 

On November 19, 2020, the SEC issued Final Rule Release 33-10890, “Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information” (“SEC Rule 33-10890”), which amends certain sections of Regulation S-K to modernize, simplify, and enhance Management’s Discussion and Analysis (“MD&A”), streamline supplementary financial information and eliminate the requirement to provide certain selected financial data. Key changes include: (i) enhancement and clarification of the disclosure requirements for liquidity and capital resources; (ii) elimination of five years of Selected Financial Data; (iii) replacement of the current requirement for two years of quarterly tabular disclosure only when there are material retrospective changes; (iv) codification of prior SEC guidance on critical accounting estimates; (v) elimination of tabular disclosure of contractual obligations; and (vi) confirming amendments for foreign private issuers. SEC Rule 33-10890 was effective on February 10, 2021. Registrants are required to comply with the new rules beginning with the first fiscal year ending on or after August 9, 2021. Registrants may early adopt the amended rules at any time after the effective date (on an item-by-item basis), as long as they provide disclosure responsive to an amended item in its entirety. The Company is currently assessing the potential impacts the adoption of SEC Rule 33-10890 may have on its Annual Reports on Form 10-K upon its adoption.

 

In March 2020, FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848)” (“ASU 2020-04”), which provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as the London Interbank Offered Rate ("LIBOR"). The amendments in ASU 2020-04 apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The amendments in ASU 2020-04 are effective through December 31, 2022. The Company is currently assessing the potential impacts the adoption of ASU 2020-04 may have on its Condensed Consolidated Financial Statements upon its adoption.

 


13

 

 

Note 3:  Acquisitions and Dispositions

 

2021 Acquisition of The Hill

 

On August 20, 2021, pursuant to a merger agreement, Nexstar acquired 100% of the outstanding equity of News Communications, Inc. (“NCI”), a then Nevada corporation, for a total cash consideration of approximately $137.5 million, including preliminary working capital adjustments, funded by cash on hand. NCI is the owner of “The Hill,” an independent, political digital media platform. On August 27, 2021, NCI received approval for its conversion from a Nevada corporation to a Delaware corporation. This acquisition marks a continuation of Nexstar’s content-first strategy, focused primarily on news, designed to further leverage and monetize its expansive digital reach.

 

Subject to final determination, which is expected to occur within twelve months of the acquisition date, the provisional fair values of the assets acquired and liabilities assumed are as follows (in thousands):

 

Assets acquired

 

 

 

 

Cash and cash equivalents

 

$

7,113

 

Accounts receivable, net

 

 

8,167

 

Prepaid expenses and other current assets

 

 

483

 

Property and equipment

 

 

726

 

Goodwill

 

 

69,291

 

Other intangible assets

 

 

67,930

 

Other noncurrent assets

 

 

4,055

 

Total assets acquired

 

 

157,765

 

Accounts payable

 

 

(1,180

)

Accrued expenses

 

 

(2,410

)

Other current liabilities

 

 

(1,094

)

Deferred tax liabilities

 

 

(13,032

)

Other noncurrent liabilities

 

 

(2,561

)

Total assets acquired

 

$

137,488

 

 

The fair value assigned to goodwill is attributable to operating expense reductions and revenue synergies. The carryover tax bases in goodwill, other intangible assets and property and equipment are deductible for tax purposes but are not significant. Other intangible assets are amortized over an estimated weighted average useful life of 6.7 years.

 

The net revenue, operating income and transaction costs from the acquisition date to September 30, 2021 have been included in the accompanying Condensed Consolidated Statements of Operations but were not significant.

 

2021 Common Control Transactions

 

On June 17, 2021, Mission acquired WNAC-TV, the Fox affiliate in the Providence, Rhode Island market, from Super Towers for $6.5 million in cash. Upon closing of the acquisition, Mission assumed the existing LMA with Nexstar for the acquired station. Mission also granted Nexstar an option to purchase the station from Mission, subject to FCC consent.

 

On May 24, 2021, Mission acquired the license assets of television station KGBT-TV serving the Harlingen-Weslaco-Brownsville-McAllen, Texas market from Sinclair for a nominal price. Upon closing of the acquisition, Mission entered into a SSA with Nexstar for the station. Mission also granted Nexstar an option to purchase the station, subject to FCC consent. On July 1, 2021, Mission entered into a JSA with Nexstar for this station in addition to the SSA. On September 15, 2021, Nexstar acquired the license assets of KGBT-TV from Mission for the same price Mission paid Sinclair. Effective September 15, 2021, KGBT-TV is no longer a VIE and the JSA and SSA between Nexstar and Mission for the station were terminated.

 

As Nexstar is the primary beneficiary of the operations of WNAC-TV and KGBT-TV, Mission’s purchase of WNAC-TV from Super Towers and Nexstar’s purchase of KGBT-TV from Mission were deemed common control transactions in accordance with FASB ASC 805-50, “Business Combinations—Common Control Transactions.” Therefore, Mission recorded the net assets of WNAC-TV it acquired from Super Towers and Nexstar recorded the net assets of KGBT-TV it acquired from Mission at historical book values, rather than at estimated fair values. The excess of purchase price over carrying values of net assets was accounted for as a reduction to retained earnings. For financial reporting purposes, Nexstar continued to include both stations’ net assets and financial results at historical values for all periods presented in the accompanying Condensed Consolidated Financial Statements. The net assets of the stations have also been presented as if they were owned by Mission, a guarantor of Nexstar’s debt, as of the earliest period presented (see Note 2).

14

 

 

2020 Acquisitions

 

On January 27, 2020, Nexstar acquired from Sinclair certain non-license assets associated with KGBT-TV for $17.9 million in cash funded by cash on hand.

 

On March 2, 2020, Nexstar acquired the Fox affiliate television station WJZY and the MNTV affiliate television station WMYT in the Charlotte, NC market from Fox Television Stations, LLC (“Fox”), a Delaware limited liability company, for $45.3 million in cash. This acquisition allowed Nexstar’s entry into this market. Concurrently with this acquisition, Nexstar sold certain of its television stations to Fox as described in more detail in “2020 Dispositions” below.

 

On March 30, 2020, Mission entered into an asset purchase agreement to acquire certain assets of three television stations owned by Marshall Broadcasting Group, Inc. (“Marshall”): KMSS serving the Shreveport, Louisiana market, KPEJ serving the Odessa, Texas market and KLJB serving the Quad Cities, Iowa/Illinois market. On April 1, 2020, the acquisition was approved by the U.S. Bankruptcy Court for the Southern District of Texas. On September 1, 2020, Mission completed this acquisition which allowed it entrance into these markets. The purchase price for the acquisition was $53.2 million, of which $49.0 million was applied against Mission’s existing loans receivable from Marshall on a dollar-for-dollar basis and the remaining $4.2 million in cash was funded by cash on hand. On September 1, 2020, Mission also entered into SSAs with Nexstar for these stations.

          

On September 17, 2020, Nexstar completed the acquisition of WDKY-TV, the Fox affiliate in the Lexington, KY market, from

Sinclair for $18.0 million in cash, funded by cash on hand. This acquisition allowed Nexstar entrance into this market. Based on the

preliminary purchase price allocation, the provisional fair values of identifiable net assets acquired were $37.0 million which led to a

bargain purchase gain of $19.0 million. The bargain purchase gain was recognized as a result of Sinclair’s sale of the station to Nexstar as part of a January 27, 2020 resolution of litigation between Tribune Media Company (“Tribune”), a subsidiary of Nexstar and Sinclair.

 

The fair values of the assets acquired and liabilities assumed associated with the above acquisitions are as follows (in thousands):

 

Assets acquired

 

 

 

 

Cash

 

$

2,099

 

Accounts receivable, net

 

 

3,918

 

Prepaid expenses and other current assets

 

 

375

 

Property and equipment

 

 

25,896

 

FCC licenses

 

 

39,217

 

Network affiliation agreements

 

 

71,739

 

Goodwill

 

 

7,643

 

Broadcast rights assets

 

 

5,099

 

Other intangible assets

 

 

6,693

 

Other noncurrent assets

 

 

1,973

 

Total assets acquired

 

 

164,652

 

Less: Broadcast rights payable

 

 

(5,203

)

Accrued expenses and other current liabilities

 

 

(4,207

)

Operating lease liabilities

 

 

(1,879

)

Bargain purchase gain

 

 

(18,980

)

Total asset acquired

 

$

134,383

 

 

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 10 years.

 

The stations’ combined net revenue of $47.2 million and operating income of $17.9 million from the respective acquisition dates to September 30, 2020 have been included in the accompanying Condensed Consolidated Statements of Operations. Transaction costs related to these acquisitions, including legal and professional fees, were $1.7 million and $4.3 million during the three and nine months ended September 30, 2020, respectively.

 

15

 

 

Pro forma information for these acquisitions in 2021 and 2020 has not been provided given that these acquisitions are not significant pursuant to Rule 1-02 of Regulation S-K and that the Company believes that the impact of the historical financials for financial reporting purposes, both individually and in aggregate, on the Company’s revenue, operating income, net income, and earnings per share is not material.

 

2020 Dispositions

 

On January 14, 2020, Nexstar 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 completed the sale of Fox affiliate television station KCPQ and MNTV 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. The proceeds from the sale of the stations were partially used to prepay a portion of Nexstar’s term loans (see Note 8).

 

Nexstar recognized a $7.0 million net gain from disposal of these stations and business. The net gain that resulted from these divestitures was recorded in the Gain on disposal of stations and business units, net in the accompanying Condensed Consolidated Statements of Operations for the nine months ended September 30, 2020.

 

Note 4:  Intangible Assets and Goodwill

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

 

 

 

Estimated

 

September 30, 2021

 

 

December 31, 2020

 

 

 

useful life,

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

in years

 

Gross

 

 

Amortization

 

 

Net

 

 

Gross

 

 

Amortization

 

 

Net

 

Network affiliation agreements

 

15

 

$

3,125,147

 

 

$

(1,017,415

)

 

$

2,107,732

 

 

$

3,125,320

 

 

$

(875,037

)

 

$

2,250,283

 

Other definite-lived intangible assets

 

1-20

 

 

1,041,573

 

 

 

(357,992

)

 

 

683,581

 

 

 

1,012,797

 

 

 

(323,879

)

 

 

688,918

 

Other intangible assets

 

 

 

$

4,166,720

 

 

$

(1,375,407

)

 

$

2,791,313

 

 

$

4,138,117

 

 

$

(1,198,916

)

 

$

2,939,201

 

During the nine months ended September 30, 2021, the Company recorded immaterial measurement period adjustments related to acquisitions completed in 2020.

The following table presents the Company’s estimate of amortization expense for the remainder of 2021, each of the five succeeding years ended December 31 and thereafter for definite-lived intangible assets as of September 30, 2021 (in thousands):

 

Remainder of 2021

 

$

76,519

 

2022

 

 

296,198

 

2023

 

 

292,563

 

2024

 

 

291,229

 

2025

 

 

286,971

 

2026

 

 

262,438

 

Thereafter

 

 

1,285,395

 

 

 

$

2,791,313

 

 

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, 2020

 

$

3,116,302

 

 

$

(132,294

)

 

$

2,984,008

 

 

$

2,957,114

 

 

$

(47,410

)

 

$

2,909,704

 

Current year acquisitions

 

 

69,291

 

 

 

-

 

 

 

69,291

 

 

 

1,000

 

 

 

-

 

 

 

1,000

 

Current year divestitures

 

 

(42,475

)

 

 

42,475

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Measurement period adjustments

 

 

(1,407

)

 

 

-

 

 

 

(1,407

)

 

 

(753

)

 

 

-

 

 

 

(753

)

Balances as of September 30, 2021

 

$

3,141,711

 

 

$

(89,819

)

 

$

3,051,892

 

 

$

2,957,361

 

 

$

(47,410

)

 

$

2,909,951

 

 

In January 2021, Nexstar sold certain of its digital businesses’ assets for a nominal price. As such, the gross amount of goodwill of $42.5 million and related accumulated impairment for the same amount were written off. The resulting gain from this disposition was not material.

16

 

 

Indefinite-lived intangible assets are not subject to amortization but are tested for impairment annually or whenever events or changes in circumstances indicate that such assets might be impaired. During the three and nine months ended September 30, 2021, the Company did not identify events that would trigger impairment assessments.

 

Note 5:  Investments

 

The Company’s investments and their book value balances consisted of the following (in thousands):

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Equity method investments

 

$

1,178,001

 

 

$

1,321,715

 

Other equity investments

 

 

10,758

 

 

 

12,063

 

Total investments

 

$

1,188,759

 

 

$

1,333,778

 

 

Equity Method Investments

 

During the three and nine months ended September 30, 2021, the Company received cash distributions from its equity method investments, primarily from its investment in TV Food Network, as discussed below.

 

During the three and nine months ended September 30, 2021 and 2020, the income from equity method investments, net reported in the Company’s unaudited Condensed Consolidated Statements of Operations consisted of the following (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

2020

 

Income from equity method investments, net, before amortization of basis difference

 

$

55,134

 

 

$

52,801

 

 

$

185,937

 

$

152,170

 

Amortization of basis difference

 

 

(34,351

)

 

 

(36,940

)

 

 

(108,230

)

 

(110,819

)

Income from equity method investments, net

 

$

20,783

 

 

$

15,861

 

 

$

77,707

 

$

41,351

 

 

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 measured its estimated share of the basis difference attributable to investees’ goodwill. The Company amortizes its share of the basis differences attributable to tangible assets and intangible long-lived assets of investees, including TV Food Network, and records the amortization (the “amortization of basis difference”) as a reduction of income from equity method investments, net in the accompanying Condensed Consolidated Statements of Operations. The Company’s share in these basis differences and related amortization is primarily attributable to its investment in TV Food Network (discussed in more detail below).

 

Investment in TV Food Network

 

Nexstar acquired its 31.3% equity investment in TV Food Network through its acquisition of Tribune on September 19, 2019. Nexstar’s partner in TV Food Network is Discovery, Inc. (“Discovery”), which owns a 68.7% interest in TV Food Network and operates the network on behalf of the partnership.

 

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, 2022. Nexstar intends to renew its partnership agreement with Discovery for TV Food Network before expiration. In the event of a liquidation, Nexstar would be entitled to its proportionate share of distributions to partners, 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.

 

As of September 30, 2021, Nexstar’s investment in TV Food Network had a book value of $1.160 billion, compared to $1.302 billion as of December 31, 2020.

 

As of September 30, 2021, Nexstar had a remaining share in amortizable basis difference of $553.5 million related to its investment in TV Food Network. This amortizable basis difference had a weighted average useful life of approximately 5 years as of this date. As of December 31, 2020, Nexstar had a remaining share in amortizable basis difference of $661.3 million related to its investment in TV Food Network. During 2021, there was no change in Nexstar’s share in the basis difference related to the investee’s goodwill.

17

 

 

During the three months ended September 30, 2021, the Company received cash distributions from TV Food Network of $15.0 million, recognized income on equity of this investment of $55.8 million, and recorded amortization of basis difference (expense) related to this investment of $34.2 million.

 

During the nine months ended September 30, 2021, the Company received cash distributions from TV Food Network of $222.4 million, recognized income on equity of this investment of $188.3 million, and recorded amortization of basis difference (expense) related to this investment of $107.8 million.

 

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

2020

 

Net revenue

 

$

310,223

 

 

$

306,390

 

 

$

979,984

 

$

933,929

 

Costs and expenses

 

 

132,415

 

 

 

137,156

 

 

 

384,044

 

 

448,760

 

Income from operations

 

 

177,808

 

 

 

169,233

 

 

 

595,941

 

 

485,169

 

Net income

 

 

178,411

 

 

 

170,543

 

 

 

601,651

 

 

491,957

 

Net income attributable to Nexstar Media Group, Inc.

 

 

55,832

 

 

 

53,370

 

 

 

188,281

 

 

153,953

 

 

There were no significant other-than-temporary impairment during the three and nine months ended September 30, 2021.

 

Note 6:  Accrued Expenses

Accrued expenses consisted of the following (in thousands):

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Compensation and related taxes

 

$

94,036

 

 

$

104,133

 

Interest payable

 

 

48,928

 

 

 

67,885

 

Network affiliation fees

 

 

61,114

 

 

 

34,948

 

Other

 

 

107,752

 

 

 

100,226

 

 

 

$

311,830

 

 

$

307,192

 

 

Note 7:  Retirement and Postretirement Plans

 

On January 17, 2017, Nexstar assumed Media General, Inc.’s (“Media General”) 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 qualified and non-contributory defined benefit retirement plans which cover certain of Tribune’s employees and former employees. These retirement plans are frozen in terms of pay and service, except for a small plan representing 2% of the total Tribune projected benefit obligations. 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.

 

18

 

 

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

 

 

 

Media General

 

 

Tribune

 

 

 

Pension Benefit Plans

OPEB

 

 

Pension Benefit Plans

 

 

OPEB

 

 

 

Three Months Ended

 

 

Three Months Ended

 

 

Three Months Ended

 

 

Three Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Service cost

 

$

-

 

 

$

-

 

 

$

3

 

 

$

5

 

 

$

307

 

 

$

248

 

 

$

-

 

 

$

-

 

Interest cost

 

 

1,850

 

 

 

2,925

 

 

 

80

 

 

 

138

 

 

 

8,061

 

 

 

13,374

 

 

 

12

 

 

 

33

 

Expected return on plan assets

 

 

(4,450

)

 

 

(4,925

)

 

 

-

 

 

 

-

 

 

 

(23,578

)

 

 

(22,341

)

 

 

-

 

 

 

-

 

Amortization of prior service costs

 

 

275

 

 

 

-

 

 

 

(13

)

 

 

(13

)

 

 

42

 

 

 

-

 

 

 

-

 

 

 

-

 

Amortization of net loss

 

 

-

 

 

 

-

 

 

 

103

 

 

 

43

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net periodic benefit cost (credit)

 

$

(2,325

)

 

$

(2,000

)

 

$

173

 

 

$

173

 

 

$

(15,168

)

 

$

(8,719

)

 

$

12

 

 

$

33

 

 

 

 

Media General

 

 

Tribune

 

 

 

Pension Benefit Plans

OPEB

 

 

Pension Benefit Plans

 

 

OPEB

 

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Service cost

 

$

-

 

 

$

-

 

 

$

8

 

 

$

15

 

 

$

920

 

 

$

744

 

 

$

-

 

 

$

-

 

Interest cost

 

 

5,550

 

 

 

8,775

 

 

 

240

 

 

 

413

 

 

 

24,183

 

 

 

40,122

 

 

 

36

 

 

 

99

 

Expected return on plan assets

 

 

(13,350

)

 

 

(14,775

)

 

 

-

 

 

 

-

 

 

 

(70,734

)

 

 

(67,023

)

 

 

-

 

 

 

-

 

Amortization of prior service costs

 

 

825

 

 

 

-

 

 

 

(38

)

 

 

(38

)

 

 

126

 

 

 

-

 

 

 

-

 

 

 

-

 

Amortization of net loss

 

 

-

 

 

 

-

 

 

 

308

 

 

 

128

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net periodic benefit cost (credit)

 

$

(6,975

)

 

$

(6,000

)

 

$

518

 

 

$

518

 

 

$

(45,505

)

 

$

(26,157

)

 

$

36

 

 

$

99

 

 

On March 11, 2021, the American Rescue Plan Act of 2021 (“ARPA”) was signed into law. The ARPA includes changes to the employer funding requirements for single-employer pension plans and is designed to reduce the amounts of required contributions as a relief. The ARPA also includes multi-employer pension plan funding relief but had no significant impact on us. The two key aspects of the ARPA funding relief for single-employer plans are (i) the extended amortization and “fresh start” of funding shortfalls and (ii) the extended funding interest rate stabilization. Nexstar has no funding shortfalls to amortize but utilized the extended funding interest rate stabilization on its pension benefit plans. This relief increased Nexstar’s funding target attainment to above 100%. As such, Nexstar is currently not required to make contributions to its qualified pension benefit plans in 2021.

 

During the nine months ended September 30, 2020, the Company contributed $5.7 million 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. While the Company continues to monitor the performance of the pension plans’ assets, the fluctuations resulting from the COVID-19 pandemic have not materially impacted the Company’s financial position or liquidity. To the extent that there is any 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.

 

On October 29, 2021, Nexstar completed the purchase of an annuity contract for certain participants of one of the Tribune defined benefit pension plans. See Note 16 for discussion of subsequent events.

 

19

 

 

Note 8:  Debt

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

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Nexstar

 

 

 

 

 

 

 

 

     Term Loan A, due October 26, 2023

 

$

485,400

 

 

$

485,400

 

     Team Loan A, due September 19, 2024

 

 

609,778

 

 

 

625,850

 

     Term Loan B, due January 17, 2024

 

 

724,992

 

 

 

874,992

 

     Term Loan B, due September 18, 2026

 

 

2,644,316

 

 

 

2,644,315

 

     5.625% Notes, due July 15, 2027

 

 

1,785,000

 

 

 

1,785,000

 

     4.75% Notes, due November 1, 2028

 

 

1,000,000

 

 

 

1,000,000

 

Mission

 

 

 

 

 

 

 

 

     Term Loan B, due June 3, 2028

 

 

300,000

 

 

 

-

 

     Revolving loans, due October 26, 2023

 

 

61,500

 

 

 

327,000

 

     Total outstanding principal

 

 

7,610,986

 

 

 

7,742,557

 

Less: unamortized financing costs and discount - Nexstar Term Loan A due 2023

 

 

(1,184

)

 

 

(1,584

)

Less: unamortized financing costs and discount - Nexstar Term Loan A due 2024

 

 

(5,579

)

 

 

(7,102

)

Less: unamortized financing costs and discount - Nexstar Term Loan B due 2024

 

 

(7,715

)

 

 

(12,136

)

Less: unamortized financing costs and discount - Nexstar Term Loan B due 2026

 

 

(44,851

)

 

 

(50,644

)

Add: unamortized premium, net of financing costs - Nexstar 5.625% Notes due 2027

 

 

5,414

 

 

 

5,997

 

Less: unamortized financing costs and discount - Nexstar 4.75% Notes due 2028

 

 

(8,357

)

 

 

(9,085

)

Less: unamortized financing costs and discount - Mission Term Loan B due 2028

 

 

(2,345

)

 

 

-

 

     Total outstanding debt

 

 

7,546,369

 

 

 

7,668,003

 

Less:  current portion

 

 

(40,715

)

 

 

(21,429

)

     Long-term debt, net of current portion

 

$

7,505,654

 

 

$

7,646,574

 

 

2021 Transactions

On June 3, 2021, Mission, a VIE consolidated by Nexstar, amended its senior secured credit facility. The amendment provides for a $300.0 million Term Loan B borrowing, issued at 99.50%, maturing on June 3, 2028 (“Term Loan B, due June 3, 2028”), with quarterly principal installment payments of $750 thousand beginning on October 1, 2021 through April 1, 2028, with the remaining principal balance of $279.8 million payable on the maturity date. The Term Loan B, due June 3, 2028 bears interest at the LIBOR rate of 2.50%, with a 0.00% LIBOR floor, and includes six months of 101 soft call protection. The net proceeds from the Term Loan B, due June 2028 were used to pay down $268.0 million of Mission’s outstanding loans under its existing revolving credit facilities, pay fees to Nexstar under the SSAs between Nexstar and Mission and for Mission’s general corporate purposes. Concurrently with the closing of Mission’s Term Loan B, due June 3, 2028, Mission reallocated $255.0 million of its unused revolving credit facility to Nexstar.

In August 2021, Nexstar and Mission borrowed $20.0 million and $2.5 million under each of their respective revolving credit facilities. In September 2021, Nexstar repaid in full the $20.0 million outstanding debt under its revolving credit facility, funded by cash on hand.

During the nine months ended September 30, 2021, Nexstar prepaid a total of $150.0 million in principal balance under its Term Loan B due 2024, funded by cash on hand, and the Company also repaid scheduled principal maturities of $16.1 million of its Term Loan A due 2024, funded by cash on hand.

Unused Commitments and Borrowing Availability

The Company had $349.7 million and $13.5 million of unused revolving loan commitments under the respective Nexstar and Mission senior secured credit facilities, all of which were available for borrowing, based on the covenant calculations as of September 30, 2021. 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 September 30, 2021, the Company was in compliance with its financial covenants. 

20

 

 

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 senior secured credit facility in the event of its default. Mission is a guarantor of Nexstar’s senior secured credit facility, Nexstar’s 5.625% Notes due 2027 and Nexstar’s 4.750% Notes due 2028.

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 2029, 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 amended credit agreement does not contain financial covenant ratio requirements but does provide for default in the event Nexstar does not comply with all covenants contained in its credit agreement. As of September 30, 2021, Nexstar was in compliance with its financial covenants.

 

Note 9:  Leases

The Company as a Lessee

 

The Company has operating and finance leases for office space, vehicles, tower facilities, antenna sites, studios and other real estate properties and equipment. The Company’s leases have remaining lease terms of two monthsto 93 years, some of which may include options to extend the leases from three months 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 September 30, 2021 were not material.

 

Supplemental balance sheet information related to leases was as follows (in thousands, except lease term and discount rate):

 

 

 

Balance Sheet Classification

 

September 30, 2021

 

 

December 31, 2020

 

Operating leases

 

 

 

 

 

 

 

 

 

 

Operating lease right-of-use assets, net

 

Other noncurrent assets, net

 

$

296,281

 

 

$

282,834

 

   Current lease liabilities

 

Other current liabilities

 

$

42,592

 

 

$

35,850

 

   Noncurrent lease liabilities

 

Other noncurrent liabilities

 

$

245,588

 

 

$

234,208

 

 

 

 

 

 

 

 

 

 

 

 

Finance leases

 

 

 

 

 

 

 

 

 

 

Finance lease right-of-use assets, net of accumulated depreciation of $3,891 as of September 30, 2021 and $3,349 as of December 31, 2020

 

Property, plant and equipment, net

 

$

7,099

 

 

$

7,641

 

   Current lease liabilities

 

Other current liabilities

 

$

1,002

 

 

$

1,003

 

   Noncurrent lease liabilities

 

Other noncurrent liabilities

 

$

13,411

 

 

$

14,172

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Remaining Lease Term

 

 

 

 

 

 

 

 

 

 

Operating leases

 

 

 

8.3 years

 

 

8.7 years

 

Finance leases

 

 

 

10.0 years

 

 

10.7 years

 

Weighted Average Discount Rate

 

 

 

 

 

 

 

 

 

 

Operating leases

 

 

 

 

5.1

%

 

 

5.4

%

Finance leases

 

 

 

 

5.7

%

 

 

5.7

%

 

21

 

 

Operating lease expense for the three months ended September 30, 2021 was $14.5 million, of which $6.9 million and $7.6 million were included in Direct operating and Selling, general and administrative expenses, respectively, excluding depreciation and amortization, in the accompanying Condensed Consolidated Statements of Operations. Operating lease expense for the three months ended September 30, 2020 was $11.6 million, of which $6.0 million and $5.6 million were included in Direct operating and Selling, general and administrative expenses, respectively, excluding depreciation and amortization, in the accompanying Condensed Consolidated Statements of Operations.

 

Operating lease expense for the nine months ended September 30, 2021 was $42.2 million, of which $20.1 million and $22.1 million were included in Direct operating and Selling, general and administrative expenses, respectively, excluding depreciation and amortization, in the accompanying Condensed Consolidated Statements of Operations. Operating lease expense for the nine months ended September 30, 2020 was $35.6 million, of which $18.3 million and $17.3 million were included in Direct operating and Selling, general and administrative expenses, respectively, excluding depreciation and amortization, in the accompanying Condensed Consolidated Statements of Operations.

 

Supplemental cash flow information related to leases was as follows (in thousands):

 

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

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

 

 

 

 

 

 

 

 

   Operating cash flows from operating leases

 

$

37,335

 

 

$

35,455

 

   Operating cash flows from finance leases

 

 

636

 

 

 

676

 

   Financing cash flows from finance leases

 

 

758

 

 

 

652

 

Future minimum lease payments under non-cancellable leases as of September 30, 2021 were as follows (in thousands):

 

 

 

Operating Leases

 

 

Finance Leases

 

Remainder of 2021

 

$

14,220

 

 

$

450

 

2022

 

 

55,391

 

 

 

1,803

 

2023

 

 

53,015

 

 

 

1,818

 

2024

 

 

49,293

 

 

 

1,833

 

2025

 

 

36,834

 

 

 

1,879

 

Thereafter

 

 

154,797

 

 

 

11,479

 

   Total future minimum lease payments

 

 

363,550

 

 

 

19,262

 

Less: imputed interest

 

 

(75,370

)

 

 

(4,849

)

Total

 

$

288,180

 

 

$

14,413

 

 

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 such, the Company has applied the practical expedient to combine lease and non-lease components in its arrangements as lessor.

 

Note 10:  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.

22

 

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, accounts payable, and accrued expenses approximate fair value due to their short-term nature. Fair value of certain equity investments is based on quoted market price as of the balance sheet date. 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):

 

 

 

September 30, 2021

 

 

December 31, 2020

 

 

 

Carrying

 

 

Fair

 

 

Carrying

 

 

Fair

 

 

 

Amount

 

 

Value

 

 

Amount

 

 

Value

 

Nexstar

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Term Loan A due 2023(1)

 

$

484,216

 

 

$

483,529

 

 

$

483,816

 

 

$

480,373

 

     Team Loan A due 2024(1)

 

 

604,199

 

 

 

607,704

 

 

 

618,748

 

 

 

619,619

 

     Term Loan B due 2024(1)

 

 

717,277

 

 

 

724,025

 

 

 

862,856

 

 

 

865,311

 

     Term Loan B due 2026(1)

 

 

2,599,465

 

 

 

2,640,633

 

 

 

2,593,671

 

 

 

2,601,619

 

     5.625% Notes due 2027(2)

 

 

1,790,414

 

 

 

1,892,600

 

 

 

1,790,997

 

 

 

1,912,181

 

     4.75% Notes due 2028(2)

 

 

991,643

 

 

 

1,034,400

 

 

 

990,915

 

 

 

1,040,000

 

Mission

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Term Loan B due 2028(1)

 

 

297,655

 

 

 

300,608

 

 

 

-

 

 

 

-

 

     Revolving loans due 2023(1)

 

 

61,500

 

 

 

61,193

 

 

 

327,000

 

 

 

323,517

 

 

(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 and nine months ended September 30, 2021, 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 5 for additional information.

 

Note 11:  Common Stock

 

On September 1, 2020, Nexstar’s Board of Directors approved a $300 million increase in Nexstar’s share repurchase authorization to repurchase its Class A common stock. On January 27, 2021, Nexstar’s Board of Directors also approved a new share repurchase program authorizing the Company to repurchase up to an additional $1.0 billion of its Class A common stock, increasing the Company’s share repurchase authorization to a total capacity of $1.175 billion when combined with the remaining available amount under its prior authorization and before reduction for any repurchases in 2021. During the nine months ended September 30, 2021, Nexstar repurchased a total of 2.7 million shares of its Class A common stock for $403.2 million, funded by cash on hand. As of September 30, 2021, the remaining available amount under the share repurchase authorization was $771.8 million.

 

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.

 


23

 

 

Note 12:  Income Taxes

 

Income tax expense was $65.9 million for the three months ended September 30, 2021 compared to $65.2 million for the same period in 2020. The effective tax rates were 28.0% and 25.6% for each of the respective periods.

 

Income tax expense was $196.3 million for the nine months ended September 30, 2021, compared to $166.9 million for the same period in 2020. The effective tax rates were 25.7% and 27.3% for each of the respective periods. In 2020, Nexstar recorded an income tax expense of $8.1 million attributable to nondeductible goodwill written off as a result of station divestitures in 2020, or a 1.3% decrease to the effective tax rate in 2021. Additionally, certain state contingency reserves decreased as a result of audit settlements. This resulted in a decrease in income tax expense of $7.4 million in 2021, or a 1.0% decrease to the effective tax rate in 2021. These decreases were offset by a provision to return adjustment resulting in a 0.7% increase.

 

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 ongoing impact of the COVID-19 pandemic, could result in significant adjustments to quarterly income tax expense in future periods.

 

The Company also considered the ongoing impact of COVID-19 on its ability to realize deferred tax assets in the future and determined that such conditions did not change its overall valuation allowance positions.

 

Note 13:  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.

 

Media Ownership

 

The FCC is required to review its media ownership rules every four years and to eliminate those rules it finds are no longer “necessary in the public interest as a result of competition.”

 

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.

 

 

24

 

 

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. On September 23, 2019, however, the U.S. Court of Appeals for the Third Circuit (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. 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 eight 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. The Supreme Court granted certiorari on October 2, 2020 and on April 1, 2021, it reversed the Third Circuit’s decision. Effective June 30, 2021, as a result of the Supreme Court’s ruling, (1) the radio/television cross-ownership rule, the newspaper/broadcast cross-ownership rule and the television JSA attribution rule have been eliminated, (2) the eight voices test has been eliminated from the local television ownership rule, and (3) the “top four” prohibition of the local television ownership rule remains but is subject to case-by-case review.

 

In December 2018, the FCC initiated its 2018 quadrennial review with the issuance of a Notice of Proposed Rulemaking, seeking comment among other things 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. On June 4, 2021, the FCC issued a public notice soliciting further comment to update the record in the 2018 quadrennial review. Comments and reply comments in response to this public notice were filed in September and October 2021.

 

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. 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 has repurposed a portion of the broadcast television spectrum for wireless broadband use. Pursuant to federal legislation enacted in 2012, the FCC conducted an incentive auction in 2016-2017 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 did not relinquish their spectrum were “repacked” into the frequency band still remaining for television broadcast use. Ten of Nexstar’s stations and one 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 assets pending the relinquishment of spectrum assets or conversion from UHF to VHF. In 2017, one station that accepted a bid went off the air and the associated spectrum asset and liability to surrender spectrum, both amounting to $34.6 million, were derecognized. In 2018, eight stations that accepted bids ceased broadcasting on their previous channels and implemented channel sharing agreements. As such, the associated spectrum asset and liability to surrender spectrum, both amounting to $314.1 million, were derecognized. In 2019, one station that accepted a bid moved to a VHF channel and vacated its former channel. The associated spectrum asset and liability to surrender spectrum, both amounting to $52.0 million, were derecognized. The remaining station that accepted a bid moved to a VHF channel in April 2020 and vacated its former channel. As such, the associated spectrum asset of $67.2 million and liability to surrender spectrum of $78.0 million were derecognized, resulting in a non-cash gain on relinquishment of spectrum of $10.8 million.

 

25

 

 

The majority of the Company’s television stations did not accept bids to relinquish their television channels. Of those stations, 74 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 “repack” stations have commenced operation on their new assigned channels and have ceased operating on their former channels. 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. These funds are not available to reimburse repacking costs for stations which surrendered their spectrum in exchange for consideration and entered into channel sharing relationships. Broadcasters, MVPDs and other parties have submitted to the FCC estimates of their reimbursable costs, followed by subsequent requests for reimbursement of those costs. As of August 3, 2021, verified cost estimates were over $2.231 billion, with additional reimbursements still to be made to repack stations as well as certain low power television and FM radio stations affected by the repack. The FCC has reported that all repack stations have ceased operating on their former channel assignments. This includes all repack stations owned by Nexstar and its VIEs. During the three and nine months ended September 30, 2021, the Company spent a total of $1.6 million and $7.0 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 and nine months ended September 30, 2020, the Company spent a total of $19.4 million and $49.3 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 and nine months ended September 30, 2021, the Company received $5.6 million and $17.9 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. During the three and nine months ended September 30, 2020, the Company received $12.9 million and $51.3 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.

 

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. These proceedings remain open. 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, certain online video distributors (“OVDs”) have successfully or unsuccessfully sought to stream 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 federal copyright law. 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, and the proceeding remains open. 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.

 


26

 

 

Note 14:  Commitments and Contingencies

 

Guarantee of Mission Debt

 

Nexstar and its subsidiaries guarantee full payment of all obligations incurred under the Mission senior secured credit facility. In the event that Mission 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 this guarantee would be generally limited to the outstanding principal amounts. As of September 30, 2021, Mission had a maximum commitment of $375.0 million under its amended credit agreement, of which $361.5 million principal balance of debt was outstanding.

 

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 Litigation— On 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. The Court denied that motion on November 6, 2020. The parties are in the discovery phase of litigation. The Court has not yet set a trial date. Nexstar and Tribune deny the allegations against them and will defend their advertising practices.

 

27

 

 

In connection with Nexstar’s acquisition of Tribune on September 19, 2019, Nexstar assumed contingencies from certain legal proceedings, as follows:

 

Tribune Chapter 11 Reorganization and Confirmation Order Appeals— On December 8, 2008, 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 in the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). On July 23, 2012, the Bankruptcy Court issued an order confirming the Fourth Amended Joint Plan of Reorganization for Tribune and its Subsidiaries (as such plan was subsequently modified by its proponents, the “Plan”). 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 all of the Debtors’ Chapter 11 cases except for Tribune’s Chapter 11 case which continues to be administered under the caption In re Tribune Media Company, et al., Case No. 08-13141.

 

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 September 30, 2021, 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 September 30, 2021, all but 141 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 and certain professionals formerly retained by Tribune, 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 Tribune thereafter becoming wholly-owned by the Tribune Company employee stock ownership plan. Those lawsuits were brought 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. On August 20, 2021, the United States Court of Appeals for the Second Circuit issued an opinion affirming the New York District Court’s dismissal of certain of the claims alleged in those lawsuits and reversing the New York District Court’s dismissal of others of those claims. The claims that were not dismissed are now once again pending before the New York District Court.

 

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 Consolidated Statements of Operations and Comprehensive Income and primarily include professional advisory fees and other costs related to the resolution of unresolved claims. Such amounts were not significant during the three and nine months ended September 30, 2021 and 2020. The Company expects to continue to incur certain expenses pertaining to the Chapter 11 proceedings throughout 2021 and potentially in future periods.

 

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 Internal Revenue Service (“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 September 30, 2021 would be approximately $132.0 million. During the third quarter of 2016, Tribune filed a petition in the U.S. Tax Court (the “Tax Court”) to contest the IRS’s determination. A bench trial in the Tax Court took place between October 28, 2019 and November 8, 2019, and closing arguments took place on December 11, 2019. The 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. The judge deferred any litigation of the penalty until the tax issue has been resolved by the Tax Court.

 

 

28

 

 

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 Nexstar’s merger with Tribune. 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.

 

On October 26, 2021, the Tax Court issued an Opinion on the Chicago Cubs Transactions matter. See Note 16 for discussion of subsequent events.

 

Revenue Agent’s Report on Tribune’s 2014 to 2015 Federal Income Tax Audits— Prior to Nexstar’s merger with Tribune in September 2019, Tribune and a few of its subsidiaries were undergoing separate 2014–2015 federal income tax audits. In the third quarter of 2020, the IRS completed its audits of the acquired Tribune entities, and with the exception of Tribune Media Company, all other entity audits have been resolved and closed. For Tribune Media Company, the IRS issued a Revenue Agent's Report which disallows the reporting of certain assets and liabilities related to Tribune’s emergence from Chapter 11 bankruptcy on December 31, 2012. Nexstar disagrees with the IRS’s proposed adjustments to the tax basis of certain assets and the related taxable income impact, and is contesting the adjustments through the IRS administrative appeal procedures. If the IRS prevails with its position, Nexstar would be required to reduce its tax basis in certain assets resulting in a $40.0 million increase in its federal and state taxes payable and a $140.0 million increase in deferred income tax liability as of September 30, 2021. In accordance with ASC Topic 740, the Company has appropriately reflected $11.0 million for certain contested issues in its liability for unrecognized tax benefits.

 

Note 15:  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) NewsNation, a live daily national newscast and general entertainment cable network, (iii) two owned and operated digital multicast networks and other multicast network services, 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 September 30, 2021

 

Broadcast

 

 

Other

 

 

Consolidated

 

Net revenue

 

$

1,129,523

 

 

$

27,489

 

 

$

1,157,012

 

Depreciation of property and equipment

 

 

36,707

 

 

 

4,647

 

 

 

41,354

 

Amortization of intangible assets

 

 

72,204

 

 

 

3,526

 

 

 

75,730

 

Income (loss) from operations

 

 

329,331

 

 

 

(51,952

)

 

 

277,379

 

 

Nine Months Ended September 30, 2021

 

Broadcast

 

 

Other

 

 

Consolidated

 

Net revenue

 

$

3,330,189

 

 

$

72,344

 

 

$

3,402,533

 

Depreciation of property and equipment

 

 

106,037

 

 

 

14,689

 

 

 

120,726

 

Amortization of intangible assets

 

 

215,290

 

 

 

7,939

 

 

 

223,229

 

Income (loss) from operations

 

 

981,466

 

 

 

(130,839

)

 

 

850,627

 

 

Three Months Ended September 30, 2020

 

Broadcast

 

 

Other

 

 

Consolidated

 

Net revenue

 

$

1,094,804

 

 

$

23,399

 

 

$

1,118,203

 

Depreciation of property and equipment

 

 

31,096

 

 

 

5,515

 

 

 

36,611

 

Amortization of intangible assets

 

 

68,591

 

 

 

674

 

 

 

69,265

 

Income (loss) from operations

 

 

377,172

 

 

 

(33,575

)

 

 

343,597

 

29

 

 

 

Nine Months Ended September 30, 2020

 

Broadcast

 

 

Other

 

 

Consolidated

 

Net revenue

 

$

3,060,279

 

 

$

64,379

 

 

$

3,124,658

 

Depreciation of property and equipment

 

 

91,187

 

 

 

16,600

 

 

 

107,787

 

Amortization of intangible assets

 

 

206,617

 

 

 

2,743

 

 

 

209,360

 

Income (loss) from operations

 

 

958,592

 

 

 

(113,727

)

 

 

844,865

 

 

As of September 30, 2021

 

Broadcast

 

 

Other

 

 

Consolidated

 

Goodwill

 

$

2,872,628

 

 

$

179,264

 

 

$

3,051,892

 

Assets(1)

 

 

12,037,434

 

 

 

1,245,560

 

 

 

13,282,994

 

 

As of December 31, 2020

 

Broadcast

 

 

Other

 

 

Consolidated

 

Goodwill

 

$

2,874,274

 

 

$

109,734

 

 

$

2,984,008

 

Assets(1)

 

 

12,352,509

 

 

 

1,051,767

 

 

 

13,404,276

 

 

 

(1) While the Company's investment in TV Food Network ($1.160 billion at September 30, 2021 and $1.302 billion at December 31, 2020) has not been allocated to a Company reporting unit or operating segment, such asset has been included in the Company's disclosure of Broadcast segment assets given the similar nature of the investment to that segment. For additional information on equity investments, see Note 5.

 

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

 

Three Months Ended September 30, 2021

 

Broadcast

 

 

 

 

Other

 

 

Consolidated

 

Core advertising (local and national)

 

$

432,696

 

 

 

 

$

-

 

 

$

432,696

 

Political advertising

 

 

12,387

 

 

 

 

 

-

 

 

 

12,387

 

Distribution

 

 

618,786

 

 

 

 

 

69

 

 

 

618,855

 

Digital

 

 

55,516

 

 

 

 

 

25,560

 

 

 

81,076

 

Other

 

 

7,080

 

 

 

 

 

1,860

 

 

 

8,940

 

Trade

 

 

3,058

 

 

 

 

 

-

 

 

 

3,058

 

Total net revenue

 

$

1,129,523

 

 

 

 

$

27,489

 

 

$

1,157,012

 

 

Nine Months Ended September 30, 2021

 

Broadcast

 

 

Other

 

 

Consolidated

 

Core advertising (local and national)

 

$

1,267,868

 

 

$

-

 

 

$

1,267,868

 

Political advertising

 

 

26,306

 

 

 

-

 

 

 

26,306

 

Distribution

 

 

1,856,970

 

 

 

69

 

 

 

1,857,039

 

Digital

 

 

153,899

 

 

 

66,988

 

 

 

220,887

 

Other

 

 

18,197

 

 

 

5,287

 

 

 

23,484

 

Trade

 

 

6,949

 

 

 

-

 

 

 

6,949

 

Total net revenue

 

$

3,330,189

 

 

$

72,344

 

 

$

3,402,533

 

 

Three Months Ended September 30, 2020

 

Broadcast

 

 

 

 

Other

 

 

Consolidated

 

Core advertising (local and national)

 

$

381,929

 

 

 

 

$

-

 

 

$

381,929

 

Political advertising

 

 

132,387

 

 

 

 

 

-

 

 

 

132,387

 

Distribution

 

 

538,271

 

 

 

 

 

105

 

 

 

538,376

 

Digital

 

 

33,488

 

 

 

 

 

21,743

 

 

 

55,231

 

Other

 

 

6,609

 

 

 

 

 

1,551

 

 

 

8,160

 

Trade

 

 

2,120

 

 

 

 

 

-

 

 

 

2,120

 

Total net revenue

 

$

1,094,804

 

 

 

 

$

23,399

 

 

$

1,118,203

 

 

Nine Months Ended September 30, 2020

 

Broadcast

 

 

 

 

Other

 

 

Consolidated

 

Core advertising (local and national)

 

$

1,097,509

 

 

 

 

$

39

 

 

$

1,097,548

 

Political advertising

 

 

209,294

 

 

 

 

 

-

 

 

 

209,294

 

Distribution

 

 

1,622,639

 

 

 

 

 

1,997

 

 

 

1,624,636

 

Digital

 

 

100,949

 

 

 

 

 

57,383

 

 

 

158,332

 

Other

 

 

22,015

 

 

 

 

 

4,960

 

 

 

26,975

 

Trade

 

 

7,873

 

 

 

 

 

-

 

 

 

7,873

 

Total net revenue

 

$

3,060,279

 

 

 

 

$

64,379

 

 

$

3,124,658

 

30

 

 

 

The Company primarily derives its revenues from television and digital advertising and from distribution of its stations’ signals and networks. During the three and nine months ended September 30, 2021, revenues from these sources for two of the Company's customers exceeded 10%. Each of these customers represents approximately 12% and 13% of the Company’s consolidated net revenues during the three and nine months ended September 30, 2021. During the three and nine months ended September 30, 2020, revenues from these sources for three of the Company's customers exceeded 10%. Each of these customers represents approximately 11%, 11% and 10% of the Company’s consolidated net revenues during the three months ended September 30, 2020, and 12%, 12% and 11% of the Company’s consolidated net revenues during the nine months ended September 30, 2020.

 

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 and the carriage of NewsNation. Distribution revenue is recognized at the point in time the broadcast signal is delivered to the distributors and is based on a price per subscriber.

 

Note 16:  Subsequent Events

 

On October 1, 2021, Nexstar acquired KJBO-LP, a low power television station in the Wichita Falls, Texas market, and KCPN-LP, a low power television station in the Amarillo, Texas market, from Mission. On the same date, Nexstar also acquired KSHV, a full power television station in the Shreveport, Louisiana market and KTPN-LD, a low power television station in the Tyler-Longview, Texas market, from White Knight. As of September 30, 2021, these stations were consolidated into Nexstar’s financial statements as VIEs (see Note 2). The purchase prices Nexstar paid for each of these acquisitions are nominal.

 

On October 26, 2021, the Tax Court issued an Opinion related to the Chicago Cubs Transactions as further described in Note 14, which held that Tribune’s structure was, in substantial part, in compliance with partnership provisions of the IRC and, as a result, did not trigger the entire 2009 taxable gain proposed by the IRS. The Company is currently evaluating the potential for appeal to the Court of Appeals for the holdings within the Opinion which are unfavorable to Tribune. While the Tax Court has issued its Opinion, it has not yet held further proceedings on the penalty issue and has not yet entered a final decision that starts the time in which either party may appeal the ruling to the Court of Appeals. The Company is currently evaluating the Court’s Opinion and the related impact, if any, to the condensed consolidated financial statements.

 

On October 27, 2021, Nexstar’s Board of Directors declared a quarterly cash dividend of $0.70 per share of its Class A common stock. The dividend is payable on November 29, 2021 to stockholders of record on November 12, 2021.

 

On October 29, 2021, Nexstar prepaid $30.0 million of the outstanding principal balance under its Term Loan B due 2024, funded by cash on hand.

 

On October 29, 2021, Nexstar completed the purchase of an annuity contract for certain participants of one of the Tribune defined benefit pension plans. Pursuant to this agreement, $116.9 million of funds from the pension plan assets were transferred to an insurance company, along with the irrevocable transfer of pension plan obligations estimated at $117.5 million assumed by the same insurance company.

 

From October 1, 2021 to November 2, 2021, we repurchased 332,004 shares of our Class A common stock for $50.4 million, funded by cash on hand. As of the date of filing this Quarterly Report on Form 10-Q, the remaining available amount under the share repurchase authorization was $721.4 million.


31

 

 

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, 2020.

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; the “Company” refers to Nexstar and the variable interest entities (“VIE”) 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 accounting principles generally accepted in the United States of America (“U.S. GAAP”), we consolidate their financial position, results of operations and cash flows as if they were wholly-owned entities (See Note 2 to our Condensed Consolidated Financial Statements for VIE discussion). We believe this presentation is meaningful for understanding our financial performance. 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 and uncertainties related to the global Coronavirus Disease (“COVID-19”) pandemic, including, for example, expectations regarding the impact of COVID-19 on our businesses and our future financial performance; 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, 2020 and in our other filings with the United States Securities and Exchange Commission (“SEC”). 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.


32

 

 

Executive Summary

 

2021 Highlights

 

 

•

During the third quarter of 2021, net revenue increased by $38.8 million, or 3.5%, compared to the same period in 2020. The increase was primarily due to (i) an increase in revenue from core advertising of our legacy stations of $34.5 million, primarily due to recovery from the effects of the COVID-19 pandemic and, to a lesser extent, advertising revenue generated in 2021 by our NBC affiliate stations from the Summer Olympics, offset by a decline in advertising from the automotive sector, (ii) incremental revenue from the stations and digital businesses we acquired in 2021 and 2020 of $57.7 million, (iii) an increase in distribution revenue of our legacy stations of $53.4 million, and (iv) a net increase in digital revenue of our legacy stations and other digital businesses of $11.4 million. These increases were partially offset by a decrease in revenue from political advertising of legacy stations of $119.3 million, as 2021 is not an election year.

 

 

•

During the three and nine months ended September 30, 2021, we repurchased a total of 980,770 shares and 2,715,462 shares, respectively, of our Class A common stock for $144.3 million and $403.2 million, respectively, funded by cash on hand. From October 1, 2021 to November 2, 2021, we repurchased an additional 332,004 shares of our Class A common stock for $50.4 million, funded by cash on hand. As of the filing of this Quarterly Report on Form 10-Q, the remaining available amount under the share repurchase authorization was $721.4 million.

 

 

•

During the three and nine months ended September 30, 2021, we received a total of $15.0 million and $222.4 million, respectively, in cash distribution from our 31.3% equity method investment in TV Food Network.

 

 

•

For each of the first three quarters of 2021, our Board of Directors declared and paid cash dividends of $0.70 per share of our outstanding Class A common stock, or total dividend payments of $89.5 million.

 

 

•

On April 16, 2021, Nexstar Inc. (formerly Nexstar Broadcasting, Inc.), a wholly-owned subsidiary of Nexstar, filed a Certificate of Amendment with the Secretary of State of Delaware to change its name to Nexstar Media Inc.

 

2021 Acquisition of The Hill

 

 

•

On August 20, 2021, pursuant to a merger agreement, we acquired 100% of the outstanding equity of News Communications, Inc. (“NCI”), a then Delaware corporation, for a total cash consideration of approximately $137.5 million, including preliminary working capital adjustments, funded by cash on hand. NCI is the owner of “The Hill,” an independent, political digital media platform. This acquisition marks a continuation of Nexstar’s content-first strategy, focused primarily on news, designed to further leverage and monetize its expansive digital reach. See Note 3 to our unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for additional information.

 

2021 Transactions with VIEs

 

 

•

Effective June 30, 2021, as a result of a Supreme Court ruling, the Federal Communications Commission’s (“FCC”) television JSA attribution rule has been eliminated. On July 1, 2021, Mission Broadcasting, Inc. (“Mission”) entered into JSAs with Nexstar for Mission-owned stations KMSS, KPEJ, KLJB, KASY, KWBQ and KRWB. On July 1, 2021, Mission also granted Nexstar options to purchase stations KMSS, KPEJ and KLJB from Mission, subject to FCC consent.

 

 

•

During the third quarter of 2021 and October 2021, Nexstar acquired certain television stations owned by Mission and White Knight Broadcasting. See Notes 2, 3 and 16 to our unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for additional information on these transactions.

 

Debt Transactions

 

 

•

During the nine months ended September 30, 2021, we prepaid a total of $150.0 million in principal balance under our Term Loan B due 2024, funded by cash on hand.

 

 

•

During the nine months ended September 30, 2021, we repaid scheduled principal maturities of $16.1 million under our Term Loan A due 2024.

 


33

 

 

 

•

On June 3, 2021, Mission amended its senior secured credit facility. The amendment provides for a $300.0 million Term Loan B borrowing, issued at 99.50%, maturing on June 3, 2028 (“Term Loan B, due June 3, 2028”). The net proceeds from the Term Loan B, due June 2028 were used to pay down $268.0 million of Mission’s then outstanding loans under its revolving credit facilities, pay fees to Nexstar under the shared services agreements between Nexstar and Mission and for Mission’s general corporate purposes. Concurrently with the closing of the Term Loan B, due June 3, 2028, Mission reallocated $255.0 million of its unused revolving credit facility to Nexstar.

 

 

•

In August 2021, we and Mission borrowed $20.0 million and $2.5 million under our and Mission’s respective revolving credit facilities. In September 2021, we repaid in full our $20.0 million outstanding debt under our revolving credit facility, funded by cash on hand.

 

 

•

On October 29, 2021, Nexstar prepaid $30.0 million of the outstanding principal balance under its Term Loan B due 2024, funded by cash on hand.

 

Update on COVID-19 Pandemic

 

In March 2020, the World Health Organization declared COVID-19 a pandemic and the United States government declared a national emergency. The ongoing effect of the COVID-19 pandemic had an adverse impact on the Company’s financial results mostly in the first part of the second quarter in 2020. Since then, the Company’s business operations, financial results and cash flows have significantly improved. In 2021, the mass distribution of COVID-19 vaccines, the U.S. government’s stimulus programs, the reopening of states for business and consumer spending by an increasingly vaccinated public drove the continued U.S. economic recovery during the first three quarters of 2021. The extent to which the COVID-19 pandemic impacts the Company’s business, its results of operations and its financial condition will depend on future developments, which remain highly uncertain and cannot be reasonably predicted, including future surges of the virus and the length of time that the pandemic continues, current challenges to increase vaccination rates in the U.S. and disruptions to supply chains.

 

The CARES Act/ARPA

 

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“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, deferral of contributions to qualified pension plans and other postretirement benefit plans, 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. Under the CARES Act, we elected to defer employer social security tax in 2020 totaling $31.7 million, which will be paid in two equal installments on December 31, 2021 and December 31, 2022.

 

On March 11, 2021, the American Rescue Plan Act of 2021 (“ARPA”) was signed into law. The ARPA includes changes to the employer funding requirements for single-employer pension plans and is designed to reduce the amounts of required contributions as a relief. The ARPA also includes multi-employer pension plan funding relief but had no significant impact on Nexstar. The two key aspects of the ARPA funding relief for single-employer plans are extended amortization and “fresh start” of funding shortfalls and extended funding interest rate stabilization. Nexstar has no funding shortfalls but utilized the extended funding interest rate stabilization on its pension benefit plans. This relief increased Nexstar’s funding target attainment and currently requires no cash contribution to its qualified pension benefit plans in 2021.

 


34

 

 

Overview of Operations

As of September 30, 2021, we owned, operated, programmed or provided sales and other services to 199 full power television stations, including those owned by VIEs, and one AM radio station in 116 markets in 39 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 37 full power television stations owned by independent third parties, of which 36 full power television stations are VIEs that are consolidated into our financial statements.

On April 16, 2021, Nexstar Inc. (formerly Nexstar Broadcasting, Inc.), a wholly-owned subsidiary of Nexstar, filed a Certificate of Amendment with the Secretary of State of Delaware to change its name to Nexstar Media Inc.

We guarantee full payment of all obligations incurred under Mission’s senior secured credit facility in the event of its default. Mission is a guarantor of our senior secured credit facility, our 5.625% Notes due 2027 and our 4.75% Notes due 2028. 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 2022 and 2029) 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 for financial reporting purposes in these entities because of (1) the local service agreements we have with their stations, (2) our guarantee of the obligations incurred under Mission’s senior secured credit facility, (3) our power over significant activities affecting the 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 consolidated VIE which permit us 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.

See Note 2, “Variable Interest Entities” to our unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for additional information on VIEs, including a discussion of the local service agreements we have with these independent third parties.

 

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 television JSA attribution 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, and on December 20, 2019 the FCC issued an order that formally reinstated the rule. 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 September 2019 appeals court decision. On April 1, 2021 the Supreme Court reversed the appeals court decision. As a result of the Supreme Court ruling, the television JSA attribution rule has been rescinded effective June 30, 2021. 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 has repurposed 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 did not relinquish their spectrum were “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 have shared a channel with another station since 2018, one station that moved to a VHF channel in 2019, one station that moved to a VHF channel in 2020 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.

 


35

 

 

Seventy-four (74) 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 stations have commenced operation on their new assigned channels and have ceased operating on their former channels. 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 and nine months ended September 30, 2021, the Company spent a total of $1.6 million and $7.0 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 and nine months ended September 30, 2020, the Company spent a total of $19.4 million and $49.3 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 and nine months ended September 30, 2021, the Company received $5.6 million and $17.9 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. During the three and nine months ended September 30, 2020, the Company received $12.9 million and $51.3 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.

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 from advertising aired during the Olympic Games. As 2021 is not an election year, we expect a decrease in political advertising revenue to be reported in 2021 compared to 2020. However, the 2020 Summer Olympics rescheduled to July 2021 increased the advertising revenue of our NBC affiliate stations in the third quarter of 2021.


36

 

 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

Core advertising

 

$

432,696

 

 

 

37.4

 

 

$

381,929

 

 

 

34.1

 

 

$

1,267,868

 

 

 

37.3

 

 

$

1,097,548

 

 

 

35.1

 

Political advertising

 

 

12,387

 

 

 

1.1

 

 

 

132,387

 

 

 

11.8

 

 

 

26,306

 

 

 

0.8

 

 

 

209,294

 

 

 

6.7

 

Distribution revenue

 

 

618,855

 

 

 

53.5

 

 

 

538,376

 

 

 

48.1

 

 

 

1,857,039

 

 

 

54.6

 

 

 

1,624,636

 

 

 

52.0

 

Digital

 

 

81,076

 

 

 

7.0

 

 

 

55,231

 

 

 

4.9

 

 

 

220,887

 

 

 

6.5

 

 

 

158,332

 

 

 

5.1

 

Other

 

 

8,940

 

 

 

0.7

 

 

 

8,160

 

 

 

0.9

 

 

 

23,484

 

 

 

0.6

 

 

 

26,975

 

 

 

0.8

 

Trade revenue

 

 

3,058

 

 

 

0.3

 

 

 

2,120

 

 

 

0.2

 

 

 

6,949

 

 

 

0.2

 

 

 

7,873

 

 

 

0.3

 

Total net revenue

 

$

1,157,012

 

 

 

100.0

 

 

$

1,118,203

 

 

 

100.0

 

 

$

3,402,533

 

 

 

100.0

 

 

$

3,124,658

 

 

 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

Net revenue

 

$

1,157,012

 

 

 

100.0

 

 

$

1,118,203

 

 

 

100.0

 

 

$

3,402,533

 

 

 

100.0

 

 

$

3,124,658

 

 

 

100.0

 

Operating expenses (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate expenses

 

 

46,836

 

 

 

4.0

 

 

 

39,699

 

 

 

3.6

 

 

 

132,259

 

 

 

3.9

 

 

 

128,572

 

 

 

4.1

 

Direct operating expenses, net of trade

 

 

476,778

 

 

 

41.2

 

 

 

420,929

 

 

 

37.6

 

 

 

1,384,190

 

 

 

40.7

 

 

 

1,276,452

 

 

 

40.9

 

Selling, general and administrative expenses, excluding corporate

 

 

211,358

 

 

 

18.3

 

 

 

186,845

 

 

 

16.7

 

 

 

611,882

 

 

 

18.0

 

 

 

509,599

 

 

 

16.3

 

Depreciation of property and equipment

 

 

41,354

 

 

 

3.6

 

 

 

36,611

 

 

 

3.3

 

 

 

120,726

 

 

 

3.5

 

 

 

107,787

 

 

 

3.4

 

Amortization of intangible assets

 

 

75,730

 

 

 

6.5

 

 

 

69,265

 

 

 

6.2

 

 

 

223,229

 

 

 

6.6

 

 

 

209,360

 

 

 

6.7

 

Amortization of broadcast rights

 

 

29,884

 

 

 

2.6

 

 

 

31,968

 

 

 

2.9

 

 

 

92,418

 

 

 

2.6

 

 

 

104,916

 

 

 

3.3

 

Trade expense

 

 

3,278

 

 

 

0.3

 

 

 

2,162

 

 

 

0.2

 

 

 

7,583

 

 

 

0.2

 

 

 

8,337

 

 

 

0.3

 

Reimbursement from the FCC related to station repack

 

 

(5,585

)

 

 

(0.5

)

 

 

(12,873

)

 

 

(1.2

)

 

 

(17,926

)

 

 

(0.5

)

 

 

(51,347

)

 

 

(1.6

)

Change in the estimated fair value of contingent consideration attributable to a merger

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,933

 

 

 

0.1

 

Gain on relinquishment of spectrum

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(10,791

)

 

 

(0.3

)

Gain on disposal of stations and business units, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,455

)

 

 

(0.1

)

 

 

(7,025

)

 

 

(0.2

)

Total operating expenses

 

 

879,633

 

 

 

 

 

 

 

774,606

 

 

 

 

 

 

 

2,551,906

 

 

 

 

 

 

 

2,279,793

 

 

 

 

 

Income from operations

 

$

277,379

 

 

 

 

 

 

$

343,597

 

 

 

 

 

 

$

850,627

 

 

 

 

 

 

$

844,865

 

 

 

 

 

37

 

 

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020  

 

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 $432.7 million for the three months ended September 30, 2021, compared to $381.9 million for the same period in 2020, an increase of $50.8 million, or 13.3%. The increase was primarily due to an increase in our legacy stations’ core advertising revenue of $34.5 million, primarily due to recovery from the effects of the COVID-19 pandemic and, to a lesser extent, advertising revenue generated in 2021 by our NBC affiliate stations from the Summer Olympics, offset by a decline in advertising from the automotive sector. The television stations we acquired in 2020 also increased our advertising revenue by $16.3 million. Our largest advertiser category, automobile, represented approximately 14% and 19% of our core advertising revenue for the three months ended September 30, 2021 and 2020, respectively. Overall, including past results of our newly acquired stations, automobile revenues decreased by approximately 12% during the quarter, primarily as a result of the current shortage in supply of chips and semiconductors. The other categories representing our top five increased in 2021, led by gaming/sports betting, and followed by home repair/manufacturing, medical/healthcare and attorneys. While we are encouraged by the positive trends we saw during the nine months ended September 30, 2021, to the extent that the pandemic continues to have a negative impact on the U.S. economy, our results will be affected.

Political advertising revenue was $12.4 million for the three months ended September 30, 2021, compared to $132.4 million for the same period in 2020, a decrease of $120.0 million, as 2021 is not a nationwide election year.

Distribution revenue was $618.9 million for the three months ended September 30, 2021, compared to $538.4 million for the same period in 2020, an increase of $80.5 million, or 14.9%. Our legacy stations’ revenue increased by $53.4 million primarily due to the combined effect of scheduled annual escalation of rates per subscriber and renewals of contracts providing for higher rates per subscriber (contracts generally have a three-year term). Additionally, our stations acquired in 2020 increased our revenue in 2021 by $27.0 million. 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 $81.1 million for the three months ended September 30, 2021, compared to $55.2 million for the same period in 2020, an increase of $25.8 million, or 46.8%. The increase was primarily due to incremental revenue from the digital business and television stations we acquired in 2020 and 2021 of $15.8 million and a net increase in revenue from our legacy stations and other digital businesses of $11.5 million.

Operating Expenses

Corporate expenses, related to costs associated with the centralized management of our stations, were $46.8 million for the three months ended September 30, 2021, compared to $39.7 million for the same period in 2020, an increase of $7.1 million.

Station direct operating expenses, consisting primarily of news, engineering, programming and station selling, general and administrative expenses (net of trade expense), were $688.1 million for the three months ended September 30, 2021, compared to $607.8 million for the same period in 2020, an increase of $80.4 million, or 13.2%. The increase was primarily due to expenses associated with our television stations and digital business we acquired in 2021 and 2020 of $53.6 million. In addition, our legacy stations’ programming costs increased by $16.3 million, primarily due to network affiliation renewals and annual increases in our network affiliation costs. Our legacy stations’ and other business units’ other operating expenses increased by $12.7 million, primarily due to recovery from COVID-19 and an increase in sales and promotional costs to drive revenue.

Depreciation of property and equipment was $41.4 million for the three months ended September 30, 2021, compared to $36.6 million for the same period in 2020, an increase of $4.7 million.

Amortization of intangible assets was $75.7 million for the three months ended September 30, 2021, compared to $69.3 million for the same period in 2020, an increase of $6.5 million.

Amortization of broadcast rights was $29.9 million for the three months ended September 30, 2021, compared to $32.0 million for the same period in 2020, a decrease of $2.1 million.


38

 

 

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. These stations have vacated their former channels and are continuing to spend costs, mainly capital expenditures, to construct and license the necessary technical modifications to permanently operate on their newly assigned channels. 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 September 30, 2021 and 2020, we received a total of $5.6 million and $12.9 million, respectively, in reimbursements from the FCC which we recognized as operating income.

Income from equity method investments, net

Income from equity method investments, net was $20.8 million for the three months ended September 30, 2021, compared to $15.9 million for the same period in 2020, an increase of $4.9 million.

Interest Expense, net

 

Interest expense, net was $70.4 million for the three months ended September 30, 2021, compared to $77.3 million for the same period in 2020, a decrease of $6.9 million, or 8.9%. The decrease was due primarily to the combined effect of reductions in outstanding balance of debt and London Inter-Bank Offered Rate ("LIBOR") as of September 30, 2021 compared to the same period in 2020.

 

Loss on Extinguishment of Debt

 

Loss on extinguishment of debt was $0.9 million for the three months ended September 30, 2021, compared to $37.4 million for the same period in 2020, a decrease of $36.5 million. In 2020, we redeemed our $900.0 million 5.625% Notes due 2024 and prepaid a portion of our outstanding term loans. These transactions resulted in a premium on bond redemption of $25.3 million and write-off of unamortized debt discount/premiums and debt financing costs of $12.1 million associated with these extinguished debt obligations.

Pension and other postretirement plans credit, net

Pension and other postretirement plans credit, net was $17.7 million for the three months ended September 30, 2021, compared to $10.8 million for the same period in 2020, an increase of $6.9 million.

 

Unrealized loss on an equity investment measured at fair value

 

During the three months ended September 30, 2021, we recognized a $2.2 million unrealized loss on a certain equity investment that has a readily determinable fair value.

Loss on write-off of an equity investment

 

During the three months ended September 30, 2021, we recorded a $7.0 million non-cash pre-tax impairment on an equity investment that is deemed to have no remaining estimated value.

Income Taxes

 

Income tax expense was $65.9 million for the three months ended September 30, 2021 compared to $65.2 million for the same period in 2020. The effective tax rates were 28.0% and 25.6% for each of the respective periods.

 

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.

 


39

 

 

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

 

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 $1,267.9 million for the nine months ended September 30, 2021, compared to $1,097.5 million for the same period in 2020, an increase of $170.3 million, or 15.5%. The increase was primarily due to an increase in our legacy stations’ core advertising revenue of $134.3 million, primarily due to recovery from the adverse effects of the COVID-19 pandemic and, to a lesser extent, advertising revenue generated in 2021 by our NBC affiliate stations from the Summer Olympics. The television stations acquired in 2020 also increased our advertising revenue by $48.3 million, partially offset by a decrease in revenue from station divestitures of $12.3 million. Our largest advertiser category, automobile, represented approximately 16% and 17% of our core advertising revenue for each of the nine months ended September 30, 2021 and 2020, respectively. Overall, including past results of our newly acquired stations, automobile revenues increased by approximately 6.4% in 2021, primarily due to recovery from the effects of the COVID-19 pandemic, partially offset by the current shortage in supply of chips and semiconductors. The other categories representing our top five also increased in 2021, led by gaming/sports betting, and followed by home repair/manufacturing, medical/healthcare and attorneys. While we are encouraged by the positive trends we saw during the nine months ended September 30, 2021, to the extent that the pandemic continues to have a negative impact on the U.S. economy, our results will be affected.

Political advertising revenue was $26.3 million for the nine months ended September 30, 2021, compared to $209.3 million for the same period in 2020, a decrease of $183.0 million, as 2021 is not a nationwide election year.

 

Distribution revenue was $1,857.0 million for the nine months ended September 30, 2021, compared to $1,624.6 million for the same period in 2020, an increase of $232.4 million, or 14.3%. Our legacy stations’ revenue increased by $155.0 million primarily due to the combined effect of scheduled annual escalation of rates per subscriber and renewals of contracts providing for higher rates per subscriber (contracts generally have a three-year term). Additionally, our stations acquired in 2020 increased our revenue in 2021 by $92.7 million, partially offset by a decrease in revenue from our station divestitures of $15.3 million. 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 revenue, representing advertising revenue on our stations’ web and mobile sites and other internet-based revenue, was $220.9 million for the nine months ended September 30, 2021, compared to $158.3 million for the same period in 2020, an increase of $62.6 million, or 39.5%. The increase was primarily due to incremental revenue from the digital business and television stations we acquired in 2021 and 2020 of $39.5 million and a net increase in revenue from our legacy stations and other digital businesses of $27.2 million.

 

Operating Expenses

 

Corporate expenses, related to costs associated with the centralized management of our stations, were $132.3 million for the nine months ended September 30, 2021, compared to $128.6 million for the same period in 2020, an increase of $3.7 million.

Station direct operating expenses, consisting primarily of news, engineering, programming and station selling, general and administrative expenses (net of trade expense), were $1,996.1 million for the nine months ended September 30, 2021 compared to $1,786.1 million for the same period in 2020, an increase of $210.0 million, or 11.8%. The increase was primarily due to expenses associated with our television stations and digital business we acquired in 2021 and 2020 of $136.4 million, partially offset by station divestitures of $21.3 million. In addition, our legacy stations’ programming costs increased by $45.3 million, primarily due to network affiliation renewals and annual increases in our network affiliation costs. Our legacy stations’ and business units’ other operating expenses increased by $50.6 million, primarily due to recovery from the COVID-19 pandemic and an increase in sales and promotional costs to drive revenue.

 

Depreciation of property and equipment was $120.7 million for the nine months ended September 30, 2021, compared to $107.8 million for the same period in 2020, an increase of $12.9 million. The increase was primarily due to incremental depreciation from the stations and business we acquired in 2020 and depreciation from the newly capitalized assets related to station repacking activities, partially offset by a decrease in depreciation from fully depreciated assets.

 

Amortization of intangible assets was $223.2 million for the nine months ended September 30, 2021, compared to $209.4 million for the same period in 2020, an increase of $13.9 million. The increase was primarily due to incremental amortization from stations and other businesses we acquired in 2020 and current year station acquisitions, less decreases in amortization from certain fully amortized assets.


40

 

 

Amortization of broadcast rights was $92.4 million for the nine months ended September 30, 2021, compared to $104.9 million for the same period in 2020, a decrease of $12.5 million, or 11.9%. The decrease was primarily due to the reduction of NewsNation’s film rights costs by $13.3 million as it continues to shift its focus from syndicated programming to national newscast programs.

 

Certain of the Company’s stations were repacked in connection with the FCC’s process of repurposing a portion of the broadcast television spectrum for wireless broadband use. These stations have vacated their former channels and are continuing to spend costs, mainly capital expenditures, to construct and license the necessary technical modifications to permanently operate on their newly assigned channels. Subject to fund limitations, the FCC reimburses television broadcasters, MVPDs and other parties for costs reasonably incurred due to the repack. During the nine months ended September 30, 2021 and 2020, the Company received $17.9 million and $51.3 million, respectively, in reimbursements from the FCC which it recognized as operating income.

 

In April 2020, we completed a station’s conversion to a VHF channel completing our final relinquishment of spectrum pursuant to the FCC’s incentive auction conducted in 2016-2017. Accordingly, the associated spectrum asset with a carrying amount of $67.2 million and liability to surrender spectrum of $78.0 million were derecognized, resulting in a non-cash gain on relinquishment of spectrum of $10.8 million. This gain was partially offset by a $3.9 million increase (expense) in the estimated fair value of contingent consideration liability related to a merger and spectrum auction.  

Income from equity method investments, net

Income from equity method investments, net was $77.7 million for the nine months ended September 30, 2021, compared to $41.4 million for the same period in 2020, an increase of $36.4 million, primarily attributable to higher equity in income from our investment in TV Food Network, net of the amortization of basis difference of $36.9 million.

 

Loss on Extinguishment of Debt

 

Loss on extinguishment of debt was $1.9 million for the nine months ended September 30, 2021, compared to $44.8 million for the same period in 2020, a decrease of $42.9 million. In 2020, we redeemed our $900.0 million 5.625% Notes due 2024 and prepaid a portion of our outstanding term loans. These transactions resulted in a premium on bond redemption of $25.3 million and write-off of unamortized debt discount/premiums and debt financing costs of $19.6 million associated with these extinguished debt obligations.

Pension and other postretirement plans credit, net

Pension and other postretirement plans credit, net was $53.0 million for the nine months ended September 30, 2021, compared to $32.3 million for the same period in 2020, an increase of $20.7 million, primarily attributable to an increase in expected return on pension plan assets and an estimated reduction in interest costs on projected benefit obligations.

 

Unrealized gain on an equity investment measured at fair value

 

In 2021, we recognized a $5.7 million unrealized gain on a certain equity investment that has a readily determinable fair value.

Loss on write-off of an equity investment

 

During the nine months ended September 30, 2021, we recorded a $7.0 million non-cash pre-tax impairment on an equity investment that is deemed to have no remaining estimated value.

 

Interest Expense, net

 

Interest expense, net was $212.6 million for the nine months ended September 30, 2021, compared to $260.8 million for the same period in 2020, a decrease of $48.2 million, or 18.5%. The decrease was due primarily to the combined effect of reductions in outstanding balance of debt and LIBOR as of September 30, 2021 compared to the same period in 2020.

 

Income Taxes

 

Income tax expense was $196.3 million for the nine months ended September 30, 2021 compared to $166.9 million for the same period in 2020. The effective tax rates were 25.7% and 27.3% for each of the respective periods. In 2020, Nexstar recorded an income tax expense of $8.1 million attributable to nondeductible goodwill written off as a result of station divestitures in 2020, or a 1.3% decrease to the effective tax rate in 2021. Additionally, certain state contingency reserves decreased as a result of audit settlements. This resulted in a decrease to income tax expense of $7.4 million in 2021, or a 1.0% decrease to the effective tax rate in 2021. These decreases were offset by a provision to return adjustment resulting in a 0.7% increase.

 


41

 

 

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 the COVID-19 pandemic. In March 2020, the World Health Organization declared COVID-19 a pandemic and the United States government declared a national emergency. The ongoing effect of the COVID-19 pandemic had an adverse impact on the Company’s financial results mostly in the first part of the second quarter in 2020. Since then, the Company’s business operations, financial results and cash flows have significantly improved. In 2021, the mass distribution of COVID-19 vaccines, the U.S. government’s stimulus programs, the reopening of states for business and consumer spending by an increasingly vaccinated public drove the continued U.S. economic recovery during the first three quarters of 2021. The extent to which the COVID-19 pandemic impacts the Company’s business, its results of operations and its financial condition will depend on future developments, which remain highly uncertain and cannot be reasonably predicted, including future surges of the virus and the length of time that the pandemic continues, current challenges to increase vaccination rates in the U.S. and disruptions to supply chains.

 

During the three and nine months ended September 30, 2021, the Company continued to be profitable and continued to generate positive cash flows from its operations. Its current year to date financial results were also higher than the comparable prior year and its market capitalization continued to increase and exceed the carrying amount of its equity by a substantial amount. These favorable financial results are reflective of the economic recovery to date and the incremental operating results from the Company’s acquisitions in 2020. Overall, the ongoing COVID-19 pandemic did not have a material impact on the Company’s liquidity. As of September 30, 2021, the Company was in compliance with the financial covenants contained in the amended credit agreements governing its senior secured credit facilities. The Company believes it has sufficient unrestricted cash on hand, positive working capital, and availability to access additional cash under its revolving credit facilities 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.

 

Overview

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

  

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

Net cash provided by operating activities

 

$

881,654

 

 

$

877,488

 

Net cash (used in) provided by investing activities(1)

 

 

(193,792

)

 

 

260,362

 

Net cash used in financing activities

 

 

(646,732

)

 

 

(960,012

)

Net increase in cash, cash equivalents and restricted cash

 

$

41,130

 

 

$

177,838

 

Cash paid for interest

 

$

220,311

 

 

$

290,250

 

Income taxes paid, net of refunds

 

$

247,399

 

 

$

201,979

 

 

 

 

As of September 30,

 

 

As of December 31,

 

 

 

2021

 

 

2020

 

Cash, cash equivalents and restricted cash

 

$

210,439

 

 

$

169,309

 

Long-term debt, including current portion

 

 

7,546,369

 

 

 

7,668,003

 

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

 

 

363,202

 

 

 

95,662

 

 

(1)

Based on covenant calculations as of September 30, 2021, all of the $349.7 million and $13.5 million unused revolving loan commitments under the respective Nexstar and Mission senior secured credit facilities were available for borrowing.

42

 

Cash Flows – Operating Activities

Net cash flows provided by operating activities increased by $4.2 million during the nine months ended September 30, 2021, compared to the same period in 2020. This was primarily due to an increase in our revenue (excluding trade) of $278.8 million, source of cash due to lower interest payments of $69.9 million, timing of payments to our vendors of $20.2 million, lower payments for broadcast rights of $14.2 million, and an increase in distribution from our equity investment in TV Food Network of $15.4 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 $239.7 million, uses of cash resulting from timing of accounts receivable collections of $108.6 million and higher tax payments of $45.4 million.

Cash Flows – Investing Activities

Net cash flows used in investing activities were $193.8 million during the nine months ended September 30, 2021, compared to net cash flows provided by investing activities of $260.4 million for the same period in 2020.

In 2021, we spent a total of $105.0 million in capital expenditures and $138.8 million to acquire television station, digital business and certain license assets. These decreases were partially offset by the proceeds from the sale of stations and business units and asset disposals of $19.1 million, reimbursements from the FCC related to station repack of $17.9 million and deposits received associated with the sale of real estate assets of $10.0 million.

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 in cash proceeds from settlement of litigation between Sinclair and Tribune. These increases were reduced by the cash payment the company made to acquire a total of six television stations and certain non-license assets for a total cash consideration payment of $132.3 million. Our capital expenditures during the nine months ended September 30, 2020 were $170.2 million, including $51.3 million related to station repack activities which are reimbursable from the FCC.

Cash Flows – Financing Activities

Net cash flows used in financing activities were $646.7 million and $960.0 million during the nine months ended September 30, 2021 and 2020, respectively.

In 2021, we prepaid a portion of the outstanding principal balance of our Term Loan B due 2024 of $150.0 million and made scheduled principal payments on our Term Loan A due 2024 of $16.1 million, paid dividends to our common stockholders of $89.5 million ($0.70 per share during each quarter), repurchased common shares of $403.2 million, paid cash for taxes in exchange for shares of common stock withheld of $10.9 million resulting from net share settlements of certain stock-based compensation, and paid for finance lease and software obligations of $13.2 million. Mission also received $298.5 million (net of $1.5 million discount) from its new Term Loan B due 2028 and utilized $268.0 million to repay a portion of its revolving loans. We also borrowed $20.0 million under our revolving credit facilities which was repaid in full during the quarter.

In 2020, we made payments on the outstanding principal balance of our term loans of $957.8 million (including $680.0 million in Nexstar’s debt prepayments and Mission’s full repayment of its term loan B of $224.5 million), redeemed our $900.0 million unsecured senior notes and paid $25.3 million premium on such redemption, paid dividends to our common stockholders of $76.4 million ($0.56 per share during each quarter), paid deferred financing costs of $10.7 million associated with our new $1.0 billion senior unsecured notes, repurchased common shares of $197.6 million, paid cash for taxes in exchange for shares of common stock withheld of $6.8 million resulting from net share settlements of certain stock-based compensation, and paid for finance lease and software obligations of $12.7 million. These decreases were offset by the proceeds from the issuance of our new $1.0 billion senior unsecured notes issued at par and from Mission’s drawing from the revolving credit facilities of $225.0 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 September 30, 2021, the Company had total combined debt of $7.546 billion, net of financing costs and discounts, which represented 74.2% 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.

 


43

 

 

The following table summarizes the principal indebtedness scheduled to mature for the periods referenced as of September 30, 2021 (in thousands):

 

 

 

Total

 

 

Remainder of 2021

 

 

2022-2023

 

 

2024-2025

 

 

Thereafter

 

Nexstar senior secured credit facility

 

$

4,464,486

 

 

$

5,358

 

 

$

597,070

 

 

$

1,217,742

 

 

$

2,644,316

 

Mission senior secured credit facility

 

 

361,500

 

 

 

750

 

 

 

67,500

 

 

 

6,000

 

 

 

287,250

 

5.625% Notes due 2027

 

 

1,785,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,785,000

 

4.75% Notes due 2028

 

 

1,000,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,000,000

 

 

 

$

7,610,986

 

 

$

6,108

 

 

$

664,570

 

 

$

1,223,742

 

 

$

5,716,566

 

 

We make semiannual interest payments on the 5.625% Notes due 2027 on January 15 and July 15 of each year. We make semiannual interest payments on our 4.75% Notes due 2028 on May 1 and November 1 of each year. Interest payments on our and Mission’s senior secured credit facilities are generally paid every one to three months and are payable based on the type of interest rate selected.

 

The terms of our and Mission’s senior secured credit facilities, as well as the indentures governing our 5.625% Notes due 2027 and 4.75% Notes due 2028, limit, but do not prohibit us or Mission, 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 $349.7 million and $13.5 million of total unused revolving loan commitments under the respective Nexstar and Mission senior secured credit facilities, all of which were available for borrowing, based on the covenant calculations as of September 30, 2021. 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 remains 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.

 

As of September 30, 2021, the remaining available amount under Nexstar’s share repurchase authorization was $771.8 million. From October 1, 2021 to November 2, 2021, we repurchased 332,004 shares of our Class A common stock for $50.4 million, funded by cash on hand. As of the date of filing this Quarterly Report on Form 10-Q, the remaining available amount under the share repurchase authorization was $721.4 million.

 

On October 1, 2021, we acquired KJBO-LP, a low power television station in the Wichita Falls, Texas market, and KCPN-LP, a low power television station in the Amarillo, Texas market, from Mission. On the same date, we also acquired KSHV, a full power television station in the Shreveport, Louisiana market and KTPN-LD, a low power television station in the Tyler-Longview, Texas market, from White Knight. As of September 30, 2021, these stations are consolidated into our financial statements as VIEs (see Note 2). The purchase prices we paid for each of these acquisitions are nominal.

 

On October 27, 2021, Nexstar’s Board of Directors declared a quarterly cash dividend of $0.70 per share of its Class A common stock. The dividend is payable on November 29, 2021 to stockholders of record on November 12, 2021.

 

On October 29, 2021, Nexstar completed the purchase of an annuity contract for certain participants of one of the Tribune defined benefit pension plans. Pursuant to this agreement, $116.9 million of funds from the pension plan assets were transferred to an insurance company, along with the irrevocable transfer of pension plan obligations estimated at $117.5 million assumed by the same insurance company.

Debt Covenants

Our amended 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 the Company’s combined results. The Mission amended credit agreement does not contain financial covenant ratio requirements but does provide for default in the event we do not comply with all covenants contained in our credit agreement. As of September 30, 2021, we were in compliance with our financial covenant. We believe Nexstar and Mission 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 2027 and 4.75% Notes due 2028 for a period of at least the next 12 months from September 30, 2021.


44

 

 

Off-Balance Sheet Arrangements

As of September 30, 2021, 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 September 30, 2021, we had outstanding standby letters of credit with various financial institutions amounting to $21.7 million, of which $18.2 million was in support of certain worker’s compensation insurance programs. 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.

Summarized Financial Information

 

Nexstar Media Inc.’s (a wholly-owned subsidiary of Nexstar and herein referred to as the “Issuer”) 5.625% Notes due 2027 and 4.75% Notes due 2028 are fully and unconditionally guaranteed (the “Guarantees”), jointly and severally, by Nexstar Media Group, Inc. (“Parent”), Mission (a consolidated VIE) and certain of Nexstar Media Inc.’s restricted subsidiaries (collectively, the “Guarantors” and, together with the Issuer, the “Obligor Group”). The Guarantees are subject to release in limited circumstances upon the occurrence of certain customary conditions set forth in the indentures governing the 5.625% Notes due 2027 and the 4.75% Notes due 2028. The Issuer’s 5.625% Notes due 2027 and 4.75% Notes due 2028 are not registered with the SEC.

 

The following combined summarized financial information is presented for the Obligor Group after elimination of intercompany transactions between Parent, Issuer and Guarantors in the Obligor Group and amounts related to investments in any subsidiary that is a non-guarantor. This information is not intended to present the financial position or results of operations of the consolidated group of companies in accordance with U.S. GAAP.

 

Summarized Balance Sheet Information (in thousands) – Summarized balance sheet information as of September 30, 2021 and December 31, 2020 of the Obligor Group is as follows:

 

 

September 30, 2021

 

 

December 31, 2020

 

Current assets - external

$

1,306,367

 

 

$

1,205,580

 

Current assets - due from consolidated entities outside of Obligor Group

 

35,536

 

 

 

35,572

 

     Total current assets

$

1,341,903

 

 

$

1,241,152

 

Noncurrent assets - external(1) (2)

 

10,618,741

 

 

 

10,693,651

 

Noncurrent assets - due from consolidated entities outside of Obligor Group

 

53,292

 

 

 

53,292

 

     Total noncurrent assets(2)

$

10,672,033

 

 

$

10,746,943

 

Total current liabilities

$

707,295

 

 

$

727,557

 

Total noncurrent liabilities

$

9,925,751

 

 

$

10,123,544

 

Noncontrolling interests

$

7,407

 

 

$

6,951

 

 

 

(1)

Excludes Issuer’s equity investments of $1.189 billion and $1.334 billion as of September 30, 2021 and December 31, 2020, respectively, in unconsolidated investees. These unconsolidated investees do not guarantee the 4.75% Notes due 2028 and 5.625% Notes due 2027. For additional information on equity investments, refer to Note 5 to our Condensed Consolidated Financial Statements.

 

(2)

As discussed in Notes 2 and 3 to our Condensed Consolidated Financial Statements, Mission acquired television station WNAC from Super Towers, Inc. Because Nexstar is the primary beneficiary of both Mission and station WNAC, Mission’s purchase of this station was deemed a common control transaction. For financial reporting purposes, the assets of station WNAC have been presented as if it was part of the Obligor Group as of the earliest period presented. As such, the noncurrent assets and total noncurrent assets of the Obligor Group as of December 31, 2020 increased by WNAC’s FCC license of $17.3 million.

 


45

 

 

Summarized Statements of Operations Information for the Obligor Group (in thousands):

 

 

Nine Months Ended

 

 

September 30, 2021

 

Net revenue - external

$

3,389,194

 

Net revenue - from consolidated entities outside of Obligor Group

 

12,320

 

     Total net revenue

 

3,401,514

 

Costs and expenses - external

 

2,535,032

 

Costs and expenses - to consolidated entities outside of Obligor Group

 

13,129

 

     Total costs and expenses

 

2,548,161

 

Income from operations

$

853,353

 

Net income

$

492,693

 

Net income attributable to Obligor Group

$

492,693

 

Income from equity method investments, net

$

77,707

 

 

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 and the potential spread of COVID-19 variants 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, 2020. Management believes that as of September 30, 2021, 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.

 


46

 

 

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, 2020.

The term loan borrowings at September 30, 2021 under the Company’s senior secured credit facilities bear interest rates ranging from 1.58% to 2.58%, 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 September 30, 2021 level, the Company’s annual interest expense would increase and cash flow from operations would decrease by approximately $48.3 million, based on the outstanding balances of the Company’s senior secured credit facilities as of September 30, 2021. An increase of 50 basis points in LIBOR would result in a $24.1 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 $3.9 million. 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 2027 and 4.75% Notes due 2028 are fixed rate debt obligations and therefore are not exposed to market interest rate changes. As of September 30, 2021, 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 significantly affected by the changes in the inflation rate. However, the disruption in supply chains caused by the COVID-19 pandemic 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 Chairman 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 Chairman 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 Chairman 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 September 30, 2021, 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.

 


47

 

 

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 14, “Commitments and Contingencies” for detailed discussion of ongoing litigation.

 

ITEM  1A.

Risk Factors

There have been no material changes to the risk factors that were previously disclosed in Item 1A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 1, 2021.

 

ITEM  2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

On September 1, 2020, Nexstar’s Board of Directors approved a $300 million increase in Nexstar’s share repurchase authorization to repurchase its Class A common stock. On January 27, 2021, Nexstar’s Board of Directors also approved a new share repurchase program authorizing the Company to repurchase up to an additional $1.0 billion of its Class A common stock, increasing the Company’s share repurchase authorization to a total capacity of $1.175 billion when combined with the remaining available amount under its prior authorization and before reduction for any repurchases in 2021. During the nine months ended September 30, 2021, Nexstar repurchased a total of 2.7 million shares of its Class A common stock for $403.2 million, funded by cash on hand. As of September 30, 2021, the remaining available amount under the share repurchase authorization was $771.8 million.

 

The following is a summary of Nexstar’s repurchases of its Class A common stock by month during the quarter ended September 30, 2021:

 

 

 

 

 

 

 

 

 

 

 

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

 

July 1 - 30, 2021

 

 

343,270

 

 

$

145.46

 

 

 

343,270

 

 

$

866,161,698

 

August 2 - 31, 2021

 

 

306,500

 

 

$

146.89

 

 

 

306,500

 

 

 

821,139,591

 

September 1 - 30, 2021

 

 

331,000

 

 

$

149.17

 

 

 

331,000

 

 

 

771,765,171

 

 

 

 

980,770

 

 

$

147.16

 

 

 

980,770

 

 

 

 

 

 

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

31.1

 

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

31.2

 

Certification of Lee Ann Gliha 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 Lee Ann Gliha pursuant to 18 U.S.C. ss. 1350.*

101

 

The Company’s unaudited Condensed Consolidated Financial Statements and related Notes for the quarter ended September 30, 2021 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:

 

Chairman and Chief Executive Officer (Principal Executive Officer)

 

 

 

 

/S/ LEE ANN GLIHA

By:

 

Lee Ann Gliha

Its:

 

Chief Financial Officer (Principal Accounting and Financial Officer)

Dated: November 3, 2021