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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact Name of Registrant as Specified in Its Charter)
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(State of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
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(Address of Principal Executive Offices) |
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(Zip Code) |
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(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
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).
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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
As of August 4, 2022, the registrant had
TABLE OF CONTENTS
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PART I |
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FINANCIAL INFORMATION |
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ITEM 1. |
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Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 |
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Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2022 and 2021 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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ITEM 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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ITEM 3. |
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42 |
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ITEM 4. |
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42 |
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PART II |
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OTHER INFORMATION |
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ITEM 1. |
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43 |
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ITEM 1A. |
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43 |
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ITEM 2. |
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43 |
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ITEM 3. |
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43 |
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ITEM 4. |
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43 |
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ITEM 5. |
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43 |
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ITEM 6. |
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44 |
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
NEXSTAR MEDIA GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except for share and per share information, unaudited)
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June 30, |
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December 31, |
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2022 |
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2021 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ |
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$ |
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Restricted cash and cash equivalents |
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Accounts receivable, net of allowance for doubtful accounts of $ |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Goodwill |
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FCC licenses |
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Network affiliation agreements, net |
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Other intangible assets, net |
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Investments |
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Assets held for sale, net |
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Other noncurrent assets, net |
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Total assets(1) |
$ |
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$ |
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LIABILITIES AND STOCKHOLDERSʼ EQUITY |
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Current liabilities: |
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Current portion of debt |
$ |
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$ |
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Accounts payable |
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Broadcast rights payable |
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Accrued expenses |
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Operating lease liabilities |
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Other current liabilities |
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Total current liabilities |
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Debt |
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Deferred tax liabilities |
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Other noncurrent liabilities |
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Total liabilities(1) |
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Stockholdersʼ equity: |
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Preferred stock - $ |
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Common stock - $ |
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Additional paid-in capital |
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Accumulated other comprehensive income |
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Retained earnings |
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Treasury stock - at cost; |
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Total Nexstar Media Group, Inc. stockholdersʼ equity |
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Noncontrolling interests |
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Total stockholdersʼ equity |
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Total liabilities and stockholdersʼ equity |
$ |
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$ |
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The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
3
NEXSTAR MEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share information, unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Net revenue |
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$ |
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$ |
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$ |
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$ |
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Operating expenses (income): |
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Direct operating expenses, excluding depreciation and amortization |
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Selling, general and administrative expenses, excluding depreciation and amortization |
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Amortization of broadcast rights |
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Amortization of intangible assets |
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Depreciation of property and equipment |
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Reimbursement from the FCC related to station repack |
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Other |
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Total operating expenses |
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Income from operations |
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Income from equity method investments, net |
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Interest expense, net |
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Pension and other postretirement plans credit, net |
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Other (expenses) income, net |
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Income before income taxes |
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Income tax expense |
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Net income |
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Net loss attributable to noncontrolling interests |
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Net income attributable to Nexstar Media Group, Inc. |
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$ |
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$ |
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$ |
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$ |
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Net income per common share attributable to Nexstar Media Group, Inc.: |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted average number of common shares outstanding: |
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Basic |
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Diluted |
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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 June 30, 2022 and 2021
(in millions, except for share and per share information, unaudited)
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Accumulated |
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Additional |
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Other |
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Total |
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Common Stock |
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Paid-In |
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Retained |
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Comprehensive |
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Treasury Stock |
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Noncontrolling |
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Stockholdersʼ |
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Shares |
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Amount |
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Capital |
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Earnings |
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Income |
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Shares |
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Amount |
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interests |
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Equity |
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Balances as of March 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Purchase of treasury stock |
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- |
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- |
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- |
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- |
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- |
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( |
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- |
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Stock-based compensation expense |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Vesting of restricted stock units and exercise of stock options |
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- |
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- |
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( |
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- |
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- |
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- |
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Dividends declared on common stock ($ |
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- |
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- |
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- |
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( |
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- |
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- |
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- |
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- |
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( |
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Distribution to a noncontrolling interest |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
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( |
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Net income (loss) |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
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Balances as of June 30, 2022 |
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$ |
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$ |
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$ |
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$ |
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( |
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$ |
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$ |
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$ |
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Balances as of March 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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( |
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$ |
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$ |
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$ |
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Purchase of treasury stock |
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- |
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- |
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- |
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- |
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- |
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( |
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( |
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- |
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( |
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Stock-based compensation expense |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Vesting of restricted stock units and exercise of stock options |
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- |
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- |
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( |
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- |
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- |
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- |
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( |
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Dividends declared on common stock ($ |
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- |
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- |
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- |
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( |
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- |
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- |
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- |
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- |
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( |
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Change in reporting entity resulting from common control transactions |
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- |
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- |
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( |
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- |
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- |
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- |
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( |
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( |
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Other |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Net income (loss) |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
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Balances as of June 30, 2021 |
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$ |
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$ |
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$ |
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$ |
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( |
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$ |
( |
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$ |
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$ |
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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 Six Months Ended June 30, 2022 and 2021
(in millions, except for share and per share information, unaudited)
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Accumulated |
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Additional |
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Other |
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Total |
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Common Stock |
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Paid-In |
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Retained |
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Comprehensive |
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Treasury Stock |
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Noncontrolling |
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Stockholdersʼ |
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Shares |
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Amount |
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Capital |
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Earnings |
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Income |
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Shares |
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Amount |
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interests |
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Equity |
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Balances as of December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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( |
) |
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$ |
( |
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$ |
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$ |
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|||||||
Purchase of treasury stock |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
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- |
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( |
) |
Stock-based compensation expense |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Vesting of restricted stock units and exercise of stock options |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
|
( |
) |
||
Dividends declared on common stock ($ |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Distribution to a noncontrolling interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Other |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Net income (loss) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
|
||
Balances as of June 30, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Balances as of December 31, 2020 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||
Purchase of treasury stock |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Stock-based compensation expense |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Vesting of restricted stock units and exercise of stock options |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
|
( |
) |
||
Dividends declared on common stock ($ |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Change in reporting entity resulting from common control transactions |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||
Other |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Net income (loss) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
|
||
Balances as of June 30, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||
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 millions, unaudited)
|
|
Six Months Ended June 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
||
Amortization of intangible assets |
|
|
|
|
|
|
||
Amortization of broadcast rights |
|
|
|
|
|
|
||
Depreciation of property and equipment |
|
|
|
|
|
|
||
Stock-based compensation expense |
|
|
|
|
|
|
||
Amortization of debt financing costs, debt discounts and premium |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
( |
) |
|
|
|
|
Gain on disposal of assets |
|
|
- |
|
|
|
( |
) |
Spectrum repack reimbursements |
|
|
( |
) |
|
|
( |
) |
Payments for broadcast rights |
|
|
( |
) |
|
|
( |
) |
Income from equity method investments, net |
|
|
( |
) |
|
|
( |
) |
Unrealized loss (gain) on equity investments measured at fair value |
|
|
|
|
|
( |
) |
|
Distribution from equity method investments - return on capital |
|
|
|
|
|
|
||
Changes in operating assets and liabilities, net of acquisitions and dispositions: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
|
|
|
|
||
Accounts payable |
|
|
( |
) |
|
|
( |
) |
Income tax payable |
|
|
( |
) |
|
|
( |
) |
Other noncurrent liabilities |
|
|
( |
) |
|
|
( |
) |
Other |
|
|
|
|
|
( |
) |
|
Net cash provided by operating activities |
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
|
||
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale of real estate and other assets |
|
|
|
|
|
|
||
Payments for acquisitions |
|
|
- |
|
|
|
( |
) |
Spectrum repack reimbursements |
|
|
|
|
|
|
||
Other investing activities, net |
|
|
|
|
|
|
||
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Proceeds from debt issuance, net of debt discounts |
|
|
|
|
|
|
||
Repayments of long-term debt |
|
|
( |
) |
|
|
( |
) |
Purchase of treasury stock |
|
|
( |
) |
|
|
( |
) |
Common stock dividends paid |
|
|
( |
) |
|
|
( |
) |
Payments for capitalized software obligations |
|
|
( |
) |
|
|
( |
) |
Cash paid for shares withheld for taxes |
|
|
( |
) |
|
|
( |
) |
Proceeds from exercise of stock options |
|
|
|
|
|
|
||
Payments for contingent consideration in connection with a past acquisition |
|
|
( |
) |
|
|
- |
|
Distribution to a noncontrolling interest |
|
|
( |
) |
|
|
- |
|
Other financing activities, net |
|
|
( |
) |
|
|
( |
) |
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Net increase in cash, cash equivalents and restricted cash |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
Supplemental information: |
|
|
|
|
|
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
Income taxes paid, net of refunds |
|
$ |
|
|
$ |
|
||
Non-cash investing and financing activities: |
|
|
|
|
|
|
||
Accrued and noncash purchases of property and equipment |
|
$ |
|
|
$ |
|
||
Right-of-use assets obtained in exchange for operating lease obligations |
|
$ |
|
|
$ |
|
||
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 under authoritative guidance related to the consolidation of VIEs; and all references to “we,” “our,” “ours,” and “us” refer to Nexstar.
Nexstar is a leading diversified media company with television broadcasting, television network and digital media assets operating in the United States. As of June 30, 2022, we owned, operated, programmed or provided sales and other services to
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. In 2022 and in 2021, the Company continued to recover from the ongoing effects of the COVID-19 pandemic since its adverse impact in 2020. During the three and six months ended June 30, 2022, 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 prior year, primarily due to increases in political advertising revenue and distribution revenue. Nexstar’s market capitalization also continued to increase and exceed the carrying amount of its equity by a substantial amount. Overall, the ongoing COVID-19 pandemic did not have a material impact on the Company’s liquidity. 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. In June 2022, Nexstar and Mission Broadcasting, Inc. (“Mission”), an independently owned VIE consolidated by Nexstar, amended each of their senior secured credit facilities to refinance certain of Nexstar’s outstanding term loans and Nexstar’s and Mission’s revolving credit facilities with new facilities extending the maturity dates to June 2027 (see Note 7).
The extent to which the COVID-19 pandemic impacts the Company’s business, results of operations, cash flows and financial condition will depend on future developments, which remain highly uncertain and cannot reasonably be predicted, including future surges in incidences of COVID-19 and the severity of any such resurgence, the rate and efficacy of vaccinations against COVID-19, the length of time that the COVID-19 pandemic continues, how fast economies will fully recover after the COVID-19 pandemic has passed, and the length of time needed to improve global disruptions and delays in the supply chain.
As of June 30, 2022, the Company was in compliance with the financial covenants contained in the amended credit agreements governing its senior secured credit facilities.
8
Interim Financial Statements
The Condensed Consolidated Financial Statements as of June 30, 2022 and for the three and six months ended June 30, 2022 and 2021 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 June 30, 2022, 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, 2021. The balance sheet as of December 31, 2021 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, 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 (i) 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, (ii) a shared services agreement (“SSA”) which allows Nexstar to provide services to a station including news production, technical maintenance and security, in exchange for Nexstar’s right to receive certain payments as described in the SSA, or (iii) a joint sales agreement (“JSA”) which permits Nexstar to sell certain of a 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 (i) local service agreements Nexstar has with the stations owned by these entities, (ii) Nexstar’s guarantee of the obligations incurred under Mission Broadcasting, Inc.’s (“Mission”) senior secured credit facility (see Note 7), (iii) Nexstar having power over significant activities affecting these VIEs’ economic performance, including budgeting for advertising revenue, certain advertising sales and hiring and firing of sales force personnel and (iv) 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.
9
The following table summarizes the various local service agreements Nexstar had in effect as of June 30, 2022 with its consolidated VIEs:
Owner |
|
Service Agreements |
|
Full Power Stations |
Mission |
|
TBA |
|
WFXP, KHMT and KFQX |
|
|
SSA & JSA |
|
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 |
|
WNAC and WPIX |
White Knight Broadcasting (“White Knight”) |
|
SSA & JSA |
|
WVLA and KFXK |
Vaughan Media, LLC (“Vaughan”) |
|
SSA & JSA |
|
WBDT, WYTV and KTKA |
|
|
LMA |
|
KNVA |
Nexstar’s ability to receive cash from the 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.
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 millions):
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Current assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Accounts receivable, net |
|
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
Property and equipment, net |
|
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
|
||
FCC licenses |
|
|
|
|
|
|
||
Network affiliation agreements and other intangible assets, net |
|
|
|
|
|
|
||
Other noncurrent assets, net |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Current portion of debt |
|
$ |
|
|
$ |
|
||
Other current liabilities |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
Debt |
|
|
|
|
|
|
||
Deferred tax liabilities |
|
|
|
|
|
|
||
Other noncurrent liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
$ |
|
|
$ |
|
||
10
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 millions):
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Current assets |
|
$ |
|
|
$ |
|
||
Property and equipment, net |
|
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
|
||
FCC licenses |
|
|
|
|
|
|
||
Network affiliation agreements, net |
|
|
|
|
|
|
||
Other noncurrent assets, net |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Current liabilities |
|
$ |
|
|
$ |
|
||
Noncurrent liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
$ |
|
|
$ |
|
||
Non-Consolidated VIE
Nexstar has an outsourcing agreement with Cunningham Broadcasting Corporation (“Cunningham”) which continues through December 31, 2023. Under the outsourcing agreement, Nexstar provides certain engineering, production, sales and administrative services for WYZZ, the FOX affiliate in the Peoria, Illinois market, through WMBD, the Nexstar television station in that market. During the term of the outsourcing agreement, Nexstar retains the broadcasting revenue and related expenses of WYZZ and is obligated to pay a monthly fee to Cunningham based on the combined operating cash flow of WMBD and WYZZ, as defined in the agreement.
Nexstar has determined that it has a variable interest in WYZZ. Nexstar has evaluated its arrangement 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 its activities, acts or omissions in connection with the agreement. The maximum potential amount of future payments Nexstar could be required to make for such indemnification is undeterminable at this time. There were no significant transactions arising from Nexstar’s outsourcing agreement with Cunningham. Cunningham does not guarantee Nexstar’s debt.
Income Per Share
Basic income per share is computed by dividing the net income by the weighted-average number of common shares outstanding during the period. Diluted income per share is computed using the weighted-average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares are calculated using the treasury stock method. They consist of stock options and restricted stock units outstanding during the period and reflect the potential dilution that could occur if common shares were issued upon exercise of stock options and vesting of restricted stock units. The following table shows the amounts used in computing Nexstar’s diluted shares (in millions):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Weighted average shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of equity incentive plan instruments |
|
|
|
|
|
|
|
|
|
|
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|
||||
Weighted average shares outstanding - diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
During the three and six months ended June 30, 2022 and 2021, there were
11
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.
Assets Held for Sale, Net
On June 1, 2022, Nexstar completed the sale of a real estate asset located in Chicago for gross cash proceeds of $
Recent Accounting Pronouncements
New Accounting Standards Adopted
In July 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-05, “Leases (Topic 842): Lessors—Certain leases with variable payments” (“ASU 2021-05”). 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
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope” (“ASU 2021-01”). Together, these accounting updates provide optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 provides, among other things, guidance that modifications of contracts within the scope of Topic 470, Debt, should be accounted for by prospectively adjusting the effective interest rate; modifications of contracts within the scope of Topic 842, Leases, should be accounted for as a continuation of the existing contract; and changes in the critical terms of hedging relationships caused by reference rate reform should not result in the de-designation of the instrument, provided certain criteria are met. ASU 2021-01 clarifies the scope and application of ASU 2020-04 and among other things, permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows. In June 2022, the Company applied the optional expedients provided by these accounting updates for contract modifications to the amendment of its senior credit facilities (see Note 7). The adoption of these accounting updates did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
New Accounting Standards Not Yet Adopted
In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”). The amendments in this ASU require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. This ASU also provides certain practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts in a business combination. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company will evaluate the potential impacts ASU 2021-08 may have on its Condensed Consolidated Financial Statements upon its adoption on effective date as it relates to future acquisitions.
12
Note 3: Intangible Assets and Goodwill
Intangible assets subject to amortization consisted of the following (dollars in millions):
|
|
Estimated |
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||||||||||
|
|
useful life, |
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
||||||
|
|
in years |
|
Gross |
|
|
Amortization |
|
|
Net |
|
|
Gross |
|
|
Amortization |
|
|
Net |
|
||||||
Network affiliation agreements |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Other definite-lived intangible assets |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Other intangible assets |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
The following table presents the Company’s estimate of amortization expense for the remainder of 2022, each of the five succeeding years ended December 31 and thereafter for definite-lived intangible assets as of June 30, 2022 (in millions):
Remainder of 2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
The amounts recorded to goodwill and FCC licenses were as follows (in millions):
|
|
Goodwill |
|
|
FCC Licenses |
|
||||||||||||||||||
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
||||||
|
|
Gross |
|
|
Impairment |
|
|
Net |
|
|
Gross |
|
|
Impairment |
|
|
Net |
|
||||||
Balances as of December 31, 2021 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Balances as of June 30, 2022 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
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 six months ended June 30, 2022, the Company did not identify events that would trigger impairment assessments.
Note 4: Investments
The Company’s investments and their book value balances consisted of the following (in millions):
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Equity method investments |
|
$ |
|
|
$ |
|
||
Other equity investments |
|
|
|
|
|
|
||
Total investments |
|
$ |
|
|
$ |
|
||
Equity Method Investments
During the three and six months ended June 30, 2022, 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 six months ended June 30, 2022 and 2021, the income from equity method investments, net reported in the Company’s unaudited Condensed Consolidated Statements of Operations consisted of the following (in millions):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Income from equity method investments, net, before amortization of basis difference |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Amortization of basis difference |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income from equity method investments, net |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
13
At acquisition date, the Company measured its estimated share of the differences between the estimated fair values and carrying values (the “basis difference”) of the investees’ tangible assets and amortizable intangible assets had the fair value of the investments been allocated to the identifiable assets of the investees in accordance with ASC Topic 805, “Business Combinations.” Additionally, the Company 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
TV Food Network owns and operates “The Food Network,” a 24-hour lifestyle cable television channel focusing on food and related topics. TV Food Network also owns and operates “The Cooking Channel,” a cable television channel primarily devoted to cooking instruction, food information and other related topics. TV Food Network’s programming is distributed by cable and satellite television systems and via WBD’s streaming platform, Discovery+.
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 WBD 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 June 30, 2022, Nexstar’s investment in TV Food Network had a book value of $
As of June 30, 2022, Nexstar had a remaining share in amortizable basis difference of $
During the three months ended June 30, 2022, the Company received cash distributions from TV Food Network of $
During the six months ended June 30, 2022, the Company received cash distributions from TV Food Network of $
Summarized financial information for TV Food Network is as follows (in millions):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income from operations |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income attributable to Nexstar Media Group, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
||||
During the three and six months ended June 30, 2022, there were no events or changes in circumstance that triggered the Company for an evaluation of its equity method investments for other-than-temporary impairment.
14
Note 5: Accrued Expenses
Accrued expenses consisted of the following (in millions):
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Compensation and related taxes |
|
$ |
|
|
$ |
|
||
Interest payable |
|
|
|
|
|
|
||
Network affiliation fees |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Note 6: Retirement and Postretirement Plans
Nexstar has various funded, qualified non-contributory defined benefit retirement plans which cover certain employees and former employees. All of these retirement plans are frozen in terms of pay and service, except for a small plan representing approximately
The following tables provide the components of net periodic benefit cost (credit) for Nexstar’s pension and other postretirement benefit plans (“OPEB”) (in millions):
|
|
Pension Benefit Plans |
|
|
OPEB |
|
||||||||||
|
|
Three Months Ended June 30, |
|
|
Three Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Service cost |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
||
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||
Amortization of prior service costs |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
Amortization of net loss |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|||
Net periodic benefit cost (credit) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
|
|
Pension Benefit Plans |
|
|
OPEB |
|
||||||||||
|
|
Six Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Service cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|||
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
Amortization of prior service costs |
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
||
Amortization of net loss |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net periodic benefit cost (credit) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
During the three and six months ended June 30, 2022, Nexstar did
15
Note 7: Debt
Long-term debt consisted of the following (dollars in millions):
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Nexstar |
|
|
|
|
|
|
||
Term Loan A, due |
|
$ |
- |
|
|
$ |
|
|
Term Loan A, due |
|
|
- |
|
|
|
|
|
Term Loan A, due |
|
|
|
|
|
- |
|
|
Term Loan B, due |
|
|
- |
|
|
|
|
|
Term Loan B, due |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Mission |
|
|
|
|
|
|
||
Term Loan B, due |
|
|
|
|
|
|
||
Revolving loans, due |
|
|
|
|
|
- |
|
|
Revolving loans, due |
|
|
- |
|
|
|
|
|
Total outstanding principal |
|
|
|
|
|
|
||
Less: unamortized financing costs and discount - Nexstar Term Loan A due 2023 |
|
|
- |
|
|
|
( |
) |
Less: unamortized financing costs and discount - Nexstar Term Loan A due 2024 |
|
|
- |
|
|
|
( |
) |
Less: unamortized financing costs and discount - Nexstar Term Loan A due 2027 |
|
|
( |
) |
|
|
- |
|
Less: unamortized financing costs and discount - Nexstar Term Loan B due 2024 |
|
|
- |
|
|
|
( |
) |
Less: unamortized financing costs and discount - Nexstar Term Loan B due 2026 |
|
|
( |
) |
|
|
( |
) |
Add: unamortized premium, net of financing costs - Nexstar 5.625% Notes due 2027 |
|
|
|
|
|
|
||
Less: unamortized financing costs and discount - Nexstar 4.75% Notes due 2028 |
|
|
( |
) |
|
|
( |
) |
Less: unamortized financing costs and discount - Mission Term Loan B due 2028 |
|
|
( |
) |
|
|
( |
) |
Total outstanding debt |
|
|
|
|
|
|
||
Less: current portion |
|
|
( |
) |
|
|
( |
) |
Long-term debt, net of current portion |
|
$ |
|
|
$ |
|
||
2022 Transactions
On June 21, 2022, Nexstar and Mission, an independently owned VIE consolidated by Nexstar, amended their respective credit agreements (also herein referred to as senior secured credit facilities). The Nexstar amendment provides for a new $
As discussed in Note 2, the Company adopted ASU 2020-04 and ASU 2021-01 effective June 30, 2022. The 2022 Nexstar Term Loan A Facility, the 2022 Nexstar Revolving Credit Facility and the 2022 Mission Revolving Credit Facility (collectively, the “New Facilities” and each, a “New Facility”), each has a
16
As of June 30, 2022, the interest rates were:
In addition, during the six months ended June 30, 2022, Nexstar prepaid a total of $
Unused Commitments and Borrowing Availability
The Company had $
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
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 2022 and 2031, 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
Note 8: Leases
The Company as a Lessee
The Company has operating and finance leases for office space, tower facilities, antenna sites, studios and other real estate properties and equipment. The Company’s leases have remaining terms ranging from
Supplemental balance sheet information related to operating leases was as follows (in millions, except lease term and discount rate):
17
|
|
Balance Sheet Classification |
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
|
Other noncurrent assets, net |
|
$ |
|
|
$ |
|
|||
|
Operating lease liabilities |
|
$ |
|
|
$ |
|
|||
|
Other noncurrent liabilities |
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
||
Weighted Average Remaining Lease Term of Operating leases |
|
|
|
|
|
|
||||
Weighted Average Discount Rate of Operating leases |
|
|
|
|
% |
|
|
% |
||
Operating lease expense for the three months ended June 30, 2022 was $
Operating lease expense for the six months ended June 30, 2022 was $
Cash paid for operating leases included in the operating cash flows was $
Future minimum lease payments under non-cancellable leases as of June 30, 2022 were as follows (in millions):
|
|
Operating Leases |
|
|
Remainder of 2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total future minimum lease payments |
|
|
|
|
Less: imputed interest |
|
|
( |
) |
Total |
|
$ |
|
|
Note 9: 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:
18
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.
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
||||
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
||||
Nexstar |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Term Loan A due 2023(1) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
||
Term Loan A due 2024(1) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Term Loan A due 2027(1) |
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
||
Term Loan B due 2024(1) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Term Loan B due 2026(1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mission |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Term Loan B due 2028(1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revolving loans due 2027(1) |
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
||
Revolving loans due 2023(1) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
(1)
(2)
During the three and six months ended June 30, 2022, 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.
Note 10: Common Stock
On January 27, 2021, Nexstar’s Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $
Share repurchases may be made from time to time in open market transactions, block trades or 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.
On
On June 13, 2022, Nexstar’s shareholders approved certain amendments to Nexstar’s Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) to eliminate Nexstar’s Class B common stock, par value $
19
Note 11: Income Taxes
Income tax expense was $
Income tax expense was $
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 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 12: 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
FCC rules limit the Company’s ownership of television stations in local markets and nationally and govern certain local service agreements between Nexstar and third parties. In general, FCC rules prohibit Nexstar from owning
The FCC is required to review its media ownership rules every four years and to eliminate those rules it finds no longer “necessary in the public interest as a result of competition.” The FCC’s two most recent quadrennial reviews—those for 2010 and 2014—were eventually consolidated into a single proceeding that involved extensive litigation, an agency reconsideration and multiple court appeals, culminating in an April 1, 2021 decision by the U.S. Supreme Court which upheld the FCC’s elimination or relaxation of several rules. The 2018 quadrennial review, which the FCC commenced in December 2018, remains pending, and the FCC has solicited and received comments to update the record of that proceeding in the wake of the Supreme Court’s decision. Additionally, the FCC has an open proceeding to review the national television station ownership limit and has not yet opened its 2022 quadrennial review proceeding. Thus, the media ownership rules are subject to change as a result of current and future quadrennial reviews and in other proceedings.
20
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.
In 2017, the Company received payment for eleven television stations that accepted bids and either moved to different channels or (in one case) discontinued operations. Seventy-four (
Retransmission Consent
Broadcasters may obtain carriage of their stations’ signals on cable, satellite and other multichannel video programming distributors (“MVPDs”) through either mandatory carriage or through “retransmission consent.” Every three years, all stations must formally elect either mandatory carriage or retransmission consent. The next election must be made by October 1, 2023 and will be effective January 1, 2024. Must-carry elections require that the MVPD carry one station programming stream and related data in the station’s local market. However, MVPDs may decline a must-carry election in certain circumstances. MVPDs do not pay a fee to stations that elect mandatory carriage.
A broadcaster that elects retransmission consent waives its mandatory carriage rights, and the broadcaster and the MVPD must negotiate for carriage of the station’s signal. Negotiated terms may include channel position, service tier carriage, carriage of multiple program streams, compensation and other consideration. If a broadcaster elects to negotiate retransmission terms, it is possible that the broadcaster and the MVPD will not reach agreement and that the MVPD will not carry the station’s signal.
FCC rules and federal statutory law require retransmission consent negotiations to be conducted in “good faith.” It is a violation of the duty to negotiate in good faith for a television broadcast station to negotiate retransmission consent jointly with another station in the same market if the stations are not commonly owned. Accordingly, the VIEs with which we have sharing agreements must separately negotiate their retransmission consent agreements with MVPDs for stations in markets where we also own a station.
MVPD operators have actively sought to change the regulations under which retransmission consent is negotiated before both the U.S. Congress and the FCC in order to increase their bargaining leverage with television stations. There are still-open FCC proceedings to review the “totality of the circumstances” test for good faith retransmission consent negotiations, and to eliminate or modify the FCC’s non-duplication and syndicated exclusivity rules (which could permit MVPDs to import out-of-market television stations in certain circumstances).
Certain online video distributors (“OVDs”) have successfully or unsuccessfully sought to stream broadcast programming over the internet. In 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. 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.
21
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 June 30, 2022, Mission had a maximum commitment of $
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 Department of Justice (“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
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.
22
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
As of June 30, 2022, all but
The ultimate amounts to be paid in resolutions of the remaining proofs of claim 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.
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
On June 28, 2016, the Internal Revenue Service (“IRS”) issued Tribune a Notice of Deficiency which presented the IRS’s position that the gain with respect to the Chicago Cubs Transactions should have been included in Tribune’s 2009 taxable income. Accordingly, the IRS proposed a $
On September 19, 2019, Tribune became a wholly owned subsidiary of Nexstar following Nexstar’s merger with Tribune. Nexstar disagrees with the IRS’s position that the Chicago Cubs Transactions generated taxable gains in 2009, the proposed penalty and the IRS’s calculation of the taxable gains. 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 $
23
A bench trial in the U.S. Tax Court took place between October 28, 2019 and November 8, 2019, and closing arguments took place on December 11, 2019. The Tax Court issued a separate 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 was resolved by the Tax Court.
On October 26, 2021, the Tax Court issued an opinion related to the Chicago Cubs Transactions, which held that Tribune’s structure was, in substantial part, in compliance with partnership provisions of the Code 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 the Company. While the Tax Court has issued its opinion, it has not held further proceedings on the penalty issue and has not entered a final decision that starts the time in which either party may appeal the ruling to the Court of Appeals.
As of June 30, 2022, Nexstar believes the tax impact of applying the Tax Court opinion is not material to the Company’s accounting for uncertain tax positions or to its Consolidated Financial Statements. Although management believes its estimates and judgments are reasonable, the timing and ultimate resolution are unpredictable and could materially change.
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 federal income tax audits for taxable years 2014 and 2015. In the third quarter of 2020, the IRS completed its audits of the acquired Tribune entities, and with the exception of Tribune, all other entity audits have been resolved and closed. For Tribune, 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 Nexstar is contesting the adjustments through the IRS administrative appeal procedures. If the IRS prevails with its position and after taking into account the impact of the Tax Court opinion, Nexstar would be required to reduce its tax basis in certain assets resulting in a $
Note 14: Segment Data
The Company’s reportable 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 news and general entertainment cable network, (iii)
Segment financial information is included in the following tables for the periods presented (in millions):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
Net revenue |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Broadcast |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
24
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
Operating income (loss) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Broadcast segment profit |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Corporate (unallocated) and other |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Payments for broadcast rights, net of amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Reimbursement from the FCC related to station repack |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Miscellaneous, net |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Income from operations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Assets |
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Broadcast(1) |
|
$ |
|
|
$ |
|
||
Corporate (unallocated) and other |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Goodwill |
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Broadcast |
|
$ |
|
|
$ |
|
||
Other |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
(1)
The following tables present the disaggregation of the Company’s revenue for the periods presented (in millions):
Three Months Ended June 30, 2022 |
|
Broadcast |
|
|
Other |
|
|
Consolidated |
|
|||
Core advertising |
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Political advertising |
|
|
|
|
|
- |
|
|
|
|
||
Distribution |
|
|
|
|
|
- |
|
|
|
|
||
Digital |
|
|
|
|
|
|
|
|
|
|||
Other |
|
|
|
|
|
|
|
|
|
|||
Total net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Six Months Ended June 30, 2022 |
|
Broadcast |
|
|
Other |
|
|
Consolidated |
|
|||
Core advertising (local and national) |
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Political advertising |
|
|
|
|
|
- |
|
|
|
|
||
Distribution |
|
|
|
|
|
|
|
|
|
|||
Digital |
|
|
|
|
|
|
|
|
|
|||
Other |
|
|
|
|
|
|
|
|
|
|||
Total net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Three Months Ended June 30, 2021 |
|
Broadcast |
|
|
Other |
|
|
Consolidated |
|
|||
Core advertising |
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Political advertising |
|
|
|
|
|
- |
|
|
|
|
||
Distribution |
|
|
|
|
|
- |
|
|
|
|
||
Digital |
|
|
|
|
|
|
|
|
|
|||
Other |
|
|
|
|
|
|
|
|
|
|||
Total net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|||
25
Six Months Ended June 30, 2021 |
|
Broadcast |
|
|
Other |
|
|
Consolidated |
|
|||
Core advertising (local and national) |
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Political advertising |
|
|
|
|
|
- |
|
|
$ |
|
||
Distribution |
|
|
|
|
|
- |
|
|
$ |
|
||
Digital |
|
|
|
|
|
|
|
$ |
|
|||
Other |
|
|
|
|
|
|
|
$ |
|
|||
Total net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The Company primarily derives its revenues from television and digital advertising and from distribution of its stations’ signals and networks. During the three and six months ended June 30, 2022, revenues from these sources for
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 15: Subsequent Events
On
On July 27, 2022, Nexstar’s Board of Directors approved a new share repurchase program authorizing the Company to repurchase up to $
26
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, 2021.
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 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 (“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 2019 (“COVID-19”) pandemic, including, for example, expectations regarding the impact of COVID-19 on our businesses and our future financial performance; the conflict involving Russia and Ukraine affecting economic and global financial markets and exacerbating ongoing economic challenges; any projections or expectations of earnings, revenue, financial performance, liquidity and capital resources or other financial items; 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, 2021 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.
27
Executive Summary
2022 Highlights
Debt Transactions
28
Overview of Operations
As of June 30, 2022, we owned, operated, programmed or provided sales and other services to 199 full power television stations and one AM radio station, including those owned by VIEs, in 116 markets in 39 states and the District of Columbia. The stations are affiliates of ABC, NBC, FOX, CBS, The CW, MyNetworkTV (“MNTV”) and other broadcast television networks. Through various local service agreements, we provided sales, programming and other services to 36 full power television stations owned by independent third parties, of which 35 full power television stations are VIEs that are consolidated into our financial statements.
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 2031) 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 (i) the local service agreements we have with their stations, (ii) our guarantee of the obligations incurred under Mission’s senior secured credit facility, (iii) our power over significant activities affecting the consolidated VIEs’ economic performance, including budgeting for advertising revenue, advertising sales and hiring and firing of sales force personnel and (iv) 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.
29
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. On April 1, 2021, the U.S. Supreme Court issued a decision that reversed a lower court of appeals ruling and upheld the FCC’s elimination of certain of its media ownership rules in the agency’s 2010/2014 quadrennial review of those rules. Among the regulations eliminated in 2021 as a result of the Supreme Court ruling was a 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 market under a JSA is deemed to have an attributable ownership interest in that station, as well as a requirement that at least eight independently owned television stations remain in a local television market for a party to acquire a second station in that market. While these restrictions are no longer in effect, the FCC’s 2018 quadrennial media ownership review is currently pending and the 2022 quadrennial review has not yet commenced. An FCC proceeding is also pending to review the current national limit on television station ownership. The FCC could reinstitute its earlier restrictions or impose other limitations in these or any future reviews.
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. The Company has received payment for eleven television stations that accepted bids and either moved to different channels or (in one case) discontinued operations. 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. The Company is in the final stages of requesting and receiving reimbursements for the costs of repacking these stations, as the FCC is now closing out its process for such reimbursements.
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 congressional and presidential elections occur and from advertising aired during the Olympic Games. As 2022 is a mid-term election year, we expect an increase in political advertising revenue to be reported in 2022 compared to 2021.
Historical Performance
Revenue
The following table sets forth the amounts of the Company’s principal types of revenue and each type of revenue as a percentage of total net revenue (dollars in millions):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||||||||||||||||||
|
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
||||||||
Core advertising |
|
$ |
413.0 |
|
|
|
33.2 |
|
|
$ |
423.5 |
|
|
|
37.5 |
|
|
$ |
841.1 |
|
|
|
34.3 |
|
|
$ |
835.2 |
|
|
|
37.2 |
|
Political advertising |
|
|
86.7 |
|
|
|
7.0 |
|
|
|
8.5 |
|
|
|
0.8 |
|
|
|
110.4 |
|
|
|
4.5 |
|
|
|
13.9 |
|
|
|
0.6 |
|
Distribution |
|
|
646.1 |
|
|
|
51.9 |
|
|
|
617.0 |
|
|
|
54.5 |
|
|
|
1,314.0 |
|
|
|
53.5 |
|
|
|
1,238.2 |
|
|
|
55.1 |
|
Digital |
|
|
88.2 |
|
|
|
7.1 |
|
|
|
73.4 |
|
|
|
6.5 |
|
|
|
166.9 |
|
|
|
6.8 |
|
|
|
139.8 |
|
|
|
6.2 |
|
Other |
|
|
11.1 |
|
|
|
0.8 |
|
|
|
9.2 |
|
|
|
0.7 |
|
|
|
22.8 |
|
|
|
0.9 |
|
|
|
18.4 |
|
|
|
0.9 |
|
Total net revenue |
|
$ |
1,245.1 |
|
|
|
100.0 |
|
|
$ |
1,131.6 |
|
|
|
100.0 |
|
|
$ |
2,455.2 |
|
|
|
100.0 |
|
|
$ |
2,245.5 |
|
|
|
100.0 |
|
30
Results of Operations
The following table sets forth a summary of the Company’s operations and each component of operating expense as a percentage of net revenue (dollars in millions):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||||||||||||||||||
|
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
||||||||
Net revenue |
|
$ |
1,245.1 |
|
|
|
100.0 |
|
|
$ |
1,131.6 |
|
|
|
100.0 |
|
|
$ |
2,455.2 |
|
|
|
100.0 |
|
|
$ |
2,245.5 |
|
|
|
100.0 |
|
Operating expenses (income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Corporate expenses |
|
|
50.3 |
|
|
|
4.0 |
|
|
|
42.0 |
|
|
|
3.7 |
|
|
|
96.7 |
|
|
|
3.9 |
|
|
|
85.4 |
|
|
|
3.8 |
|
Direct operating expenses |
|
|
501.6 |
|
|
|
40.3 |
|
|
|
462.4 |
|
|
|
40.8 |
|
|
|
991.6 |
|
|
|
40.4 |
|
|
|
911.7 |
|
|
|
40.6 |
|
Selling, general and administrative expenses, excluding corporate |
|
|
216.3 |
|
|
|
17.4 |
|
|
|
200.5 |
|
|
|
17.7 |
|
|
|
417.7 |
|
|
|
17.0 |
|
|
|
400.5 |
|
|
|
17.8 |
|
Amortization of broadcast rights |
|
|
27.4 |
|
|
|
2.1 |
|
|
|
31.6 |
|
|
|
2.9 |
|
|
|
55.2 |
|
|
|
2.3 |
|
|
|
62.5 |
|
|
|
2.8 |
|
Amortization of intangible assets |
|
|
77.4 |
|
|
|
6.2 |
|
|
|
73.8 |
|
|
|
6.5 |
|
|
|
155.1 |
|
|
|
6.3 |
|
|
|
147.5 |
|
|
|
6.6 |
|
Depreciation of property and equipment |
|
|
39.3 |
|
|
|
3.2 |
|
|
|
39.9 |
|
|
|
3.5 |
|
|
|
78.4 |
|
|
|
3.2 |
|
|
|
79.4 |
|
|
|
3.5 |
|
Reimbursement from the FCC related to station repack |
|
|
(0.6 |
) |
|
|
- |
|
|
|
(6.9 |
) |
|
|
(0.6 |
) |
|
|
(2.3 |
) |
|
|
(0.1 |
) |
|
|
(12.3 |
) |
|
|
(0.5 |
) |
Other |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2.4 |
) |
|
|
(0.1 |
) |
Total operating expenses |
|
|
911.7 |
|
|
|
|
|
|
843.3 |
|
|
|
|
|
|
1,792.4 |
|
|
|
|
|
|
1,672.3 |
|
|
|
|
||||
Income from operations |
|
$ |
333.4 |
|
|
|
|
|
$ |
288.3 |
|
|
|
|
|
$ |
662.8 |
|
|
|
|
|
$ |
573.2 |
|
|
|
|
||||
31
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
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 $413.0 million for the three months ended June 30, 2022, compared to $423.5 million for the same period in 2021, a decrease of $10.5 million, or 2.5%. Key categories responsible for the decline were insurance, automotive, direct response, government services, and packaged goods, partially offset by increases in entertainment, home repair/manufacturing, carpet/floor covering, air conditioning/heating and fast food/restaurants. Automotive, our largest advertiser category, represented approximately 14% and 15% of our core advertising revenue for the three months ended June 30, 2022 and 2021, respectively. Overall, automotive advertising revenues decreased by approximately 9% during the quarter compared to 2021, primarily due to the current shortage in supply of chips and semiconductors which impacted the availability of automobiles for sale and the need by automotive dealers to advertise. 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 $86.7 million for the three months ended June 30, 2022, compared to $8.5 million for the same period in 2021, an increase of $78.2 million, as 2022 is a mid-term election year.
Distribution revenue was $646.1 million for the three months ended June 30, 2022, compared to $617.0 million for the same period in 2021, an increase of $29.1 million, or 4.7%. The increase was reflective of scheduled annual escalation of rates per subscriber and renewals of contracts in 2021 providing for higher rates per subscriber, partially offset by MVPD subscriber attrition. 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 $88.2 million for the three months ended June 30, 2022, compared to $73.4 million for the same period in 2021, an increase of $14.8 million, or 20.2%. The increase was primarily due to incremental revenue from a digital business we acquired in 2021 of $9.1 million and a net increase in revenue from our stations and other digital businesses of $5.7 million.
Operating Expenses
Corporate expenses, related to costs associated with the centralized management of our stations, were $50.3 million for the three months ended June 30, 2022, compared to $42.0 million for the same period in 2021, an increase of $8.3 million (no significant change).
Station direct operating expenses, consisting primarily of news, engineering, programming and station selling, general and administrative expenses, were $717.9 million for the three months ended June 30, 2022, compared to $662.9 million for the same period in 2021, an increase of $55.0 million, or 8.3%, primarily due to (i) an increase in other operating expenses of $43.0 million, due to continued recovery from the COVID-19 pandemic, an increase in sales and promotional costs to drive revenue and an increase in NewsNation’s news related operating costs as it continues to shift its focus from syndicated programming to national newscast programs, (ii) incremental operating expenses associated with our digital business acquisition in 2021 of $7.0 million, and (iii) an increase in station programming costs of $5.0 million, due to network affiliation renewals and annual increases in network affiliation costs.
The following operating expenses did not significantly change during the three months ended June 30, 2022, compared to the same period in 2021:
32
Income from Equity Method Investments, net
Income from equity method investments, net was $35.9 million for the three months ended June 30, 2022, compared to $27.1 million for the same period in 2021, an increase of $8.8 million primarily due to a decrease in the amortization of basis difference associated with our investment in TV Food Network of $19.4 million, partially offset by lower equity in income from this investment of $11.0 million. For additional information on basis difference in our investment in TV Food Network, refer to Note 4 to our Condensed Consolidated Financial Statements.
Interest Expense, net
Interest expense, net was $75.4 million for the three months ended June 30, 2022, compared to $70.1 million for the same period in 2021, an increase of $5.3 million (no significant change).
Pension and Oher Postretirement Plans Credit, net
Pension and other postretirement plans credit, net was $10.8 million for the three months ended June 30, 2022, compared to $17.6 million for the same period in 2021, a decrease of $6.8 million (no significant change).
Income Taxes
Income tax expense was $71.6 million for the three months ended June 30, 2022 compared to $70.7 million for the same period in 2021. The effective tax rates were 24.0% and 26.2% for each of the respective periods. A common control transaction in 2021 increased tax expense by $2.7 million resulting in a 1.0% decrease to the effective tax rate between the two periods. Additionally, changes in the valuation allowance resulted in an incremental income tax benefit of $3.1 million, or a 1.1% decrease to the effective tax rate in 2022.
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.
33
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
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 $841.1 million for the six months ended June 30, 2022, compared to $835.2 million for the same period in 2021, an increase of $5.9 million, or 0.7%. Key categories driving the increase were entertainment, travel, telecom, home repair/manufacturing, air conditioning/heating partially offset by decreases in by automotive, direct response, insurance, packaged goods and government services. Automotive, our largest advertiser category, represented approximately 14% and 17% of our core advertising revenue for the six months ended June 30, 2022 and 2021, respectively. Overall, automotive advertising revenues decreased by approximately 17% during the quarter compared to 2021, primarily due to the current shortage in supply of chips and semiconductors which impacted the availability of automobiles for sale and the need by automotive dealers to advertise. While we are encouraged by the positive trends we saw during the six months ended June 30, 2022, 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 $110.4 million for the six months ended June 30, 2022, compared to $13.9 million for the same period in 2021, an increase of $96.5 million, as 2022 is a mid-term election year.
Distribution revenue was $1,314.0 million for the six months ended June 30, 2022, compared to $1,238.2 million for the same period in 2021, an increase of $75.8 million, or 6.1%. The increase was reflective of scheduled annual escalation of rates per subscriber and renewals of contracts in 2021 providing for higher rates per subscriber, partially offset by MVPD subscriber attrition. 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 $166.9 million for the six months ended June 30, 2022, compared to $139.8 million for the same period in 2021, an increase of $27.1 million, or 19.4%. The increase was primarily due to incremental revenue from a digital business we acquired in 2021 of $17.9 million and a net increase in revenue from our stations and other digital businesses of $9.2 million.
Operating Expenses
Corporate expenses, related to costs associated with the centralized management of our stations, were $96.7 million for the six months ended June 30, 2022, compared to $85.4 million for the same period in 2021, an increase of $11.3 million primarily due to an increase in stock-based compensation of $4.2 million related to new equity incentive awards.
Station direct operating expenses, consisting primarily of news, engineering, programming and station selling, general and administrative expenses, were $1,409.3 million for the six months ended June 30, 2022, compared to $1,312.2 million for the same period in 2021, an increase of $97.1 million, or 7.4%, primarily due to (i) an increase in other operating expenses of $65.6 million, due to continued recovery from the COVID-19 pandemic, an increase in sales and promotional costs to drive revenue and an increase in NewsNation’s news related operating costs as it continues to shift its focus from syndicated programming to national newscast programs, (ii) an increase in station programming costs of $16.9 million, due to network affiliation renewals and annual increases in network affiliation costs, and (iii) incremental operating expenses associated with our digital business acquisition in 2021 of $14.6 million.
The following operating expenses did not significantly change during the six months ended June 30, 2022, compared to the same period in 2021:
34
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 spent 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. In the six months ended June 30, 2022 and 2021, the Company received $2.3 million and $12.3 million, respectively, in reimbursements from the FCC which it recognized as operating income. The Company is in the final stages of requesting and receiving reimbursements for the costs of repacking these stations, as the FCC is now closing out its process for such reimbursements.
Income from Equity Method Investments, net
Income from equity method investments, net was $73.6 million for the six months ended June 30, 2022, compared to $56.9 million for the same period in 2021, an increase of $16.7 million primarily due to a decrease in the amortization of basis difference associated with our investment in TV Food Network of $38.8 million, partially offset by lower equity in income from this investment of $22.5 million. For additional information on basis difference in our investment in TV Food Network, refer to Note 4 to our Condensed Consolidated Financial Statements.
Interest Expense, net
Interest expense, net was $144.6 million for the six months ended June 30, 2022, compared to $142.2 million for the same period in 2021, an increase of $2.4 million (no significant change).
Pension and Oher Postretirement Plans Credit, net
Pension and other postretirement plans credit, net was $21.7 million for the six months ended June 30, 2022, compared to $35.3 million for the same period in 2021, a decrease of $13.6 million primarily due to lower estimated expected return on plan assets of $10.6 million and higher estimated interest cost of $3.4 million.
Income Taxes
Income tax expense was $124.1 million for the six months ended June 30, 2022 compared to $130.4 million for the same period in 2021. The effective tax rates were 20.6% and 24.6% for each of the respective periods. In 2022, the income tax benefit attributable to excess benefit on stock options and restricted stock units increased by $22.6 million, or a 3.6% decrease to the effective tax rate. Changes in the valuation allowance also increased the income tax benefit in 2022 by $7.1 million, or a 1.3% decrease to the effective tax rate. Additionally, certain state contingency reserves were reduced by $6.5 million in 2021 resulting in an increase of 1.2% to the effective rate between the two 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.
35
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. In 2022 and in 2021, the Company continued to recover from the ongoing effects of the COVID-19 pandemic since its adverse impact in 2020. During the three and six months ended June 30, 2022, 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, primarily due to increases in political advertising revenue and distribution revenue. Nexstar’s market capitalization also continued to increase and exceed the carrying amount of its equity by a substantial amount. Overall, the ongoing COVID-19 pandemic did not have a material impact on the Company’s liquidity. 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. In June 2022, Nexstar and Mission amended each of their senior secured credit facilities and refinanced certain of Nexstar’s outstanding term loans and Nexstar's and Mission's revolving credit facilities with new facilities extending the maturity dates to June 2027.
The extent to which the COVID-19 pandemic impacts the Company’s business, results of operations, cash flows and financial condition will depend on future developments, which remain highly uncertain and cannot reasonably be predicted, including future surges in incidences of COVID-19 and the severity of any such resurgence, the rate and efficacy of vaccinations against COVID-19, the length of time that the COVID-19 pandemic continues, how fast economies will fully recover after the COVID-19 pandemic has passed, and the length of time needed to improve global disruptions and delays in the supply chain.
As of June 30, 2022, the Company was in compliance with the financial covenants contained in the amended credit agreements governing its senior secured credit facilities.
Cash Flow Summary
The following tables present summarized financial information management believes is helpful in evaluating the Company’s liquidity and capital resources (in millions):
|
|
Six Months Ended June 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Net cash provided by operating activities |
|
$ |
809.0 |
|
|
$ |
595.6 |
|
Net cash used in investing activities |
|
|
(14.8 |
) |
|
|
(43.1 |
) |
Net cash used in financing activities |
|
|
(708.7 |
) |
|
|
(391.9 |
) |
Net increase in cash, cash equivalents and restricted cash |
|
$ |
85.5 |
|
|
$ |
160.6 |
|
Cash paid for interest |
|
$ |
144.3 |
|
|
$ |
141.1 |
|
Income taxes paid, net of refunds |
|
$ |
178.3 |
|
|
$ |
172.8 |
|
|
|
As of June 30, |
|
|
As of December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Cash, cash equivalents and restricted cash |
|
$ |
292.0 |
|
|
$ |
206.5 |
|
36
Cash Flows – Operating Activities
Net cash flows provided by operating activities increased by $213.4 million during the six months ended June 30, 2022, compared to the same period in 2021. This was primarily due to an increase in operating income (excluding non-cash transactions) of $119.8 million, source of cash resulting from timing of accounts receivable collections of $54.9 million, an increase in distribution from our equity investment in TV Food Network of $16.7 million, and lower payments for broadcast rights of $26.2 million. These increases were partially offset by timing of payments to our vendors of $2.5 million.
Cash Flows – Investing Activities
Net cash flows used in investing activities were $14.8 million and $43.1 million during the six months ended June 30, 2022 and 2021, respectively.
In 2022, we spent a total of $63.0 million in capital expenditures, partially offset by the proceeds from sale of a real estate of $44.8 million.
In 2021, we spent a total of $66.9 million in capital expenditures and $8.4 million to acquire a television station and certain license assets. The decreases were partially offset by the proceeds from the sale of stations and entities and asset disposals of $16.7 million and reimbursements from the FCC related to station repack of $12.3 million.
37
Cash Flows – Financing Activities
Net cash flows used in financing activities were $708.7 million and $391.9 million during the six months ended June 30, 2022 and 2021, respectively.
In 2022, we received $2,420.2 million (net of capitalized lenders’ fees of $4.8 million) from our new Term Loan A due 2027 and utilized $2,414.3 million to repay our existing Term Loan A due 2023, Term Loan A due 2024, Term Loan B due 2024 and a portion of Term Loan B due 2026. We prepaid a portion of the outstanding principal balance of our Term Loan B due 2024 of $175.0 million and made scheduled principal payments on Company term loans of $22.0 million, paid dividends to our common stockholders of $73.4 million ($0.90 per share per quarter), repurchased common shares of $406.1 million, paid cash for taxes in exchange for shares of common stock withheld of $12.5 million resulting from net share settlements of certain stock-based compensation, paid contingent consideration in connection with a past acquisition of $13.9 million, paid for software obligations of $9.1 million and made distribution to a noncontrolling interest of $6.5 million. These outflows were partially offset by the proceeds from the exercise of stock options during the year amounting to $6.4 million. Mission also drew $61.5 million from its 2022 Mission Revolving Credit Facility and utilized the proceeds to repay all of its outstanding borrowings under its existing 2018 revolving loan of $61.5 million.
In 2021, we prepaid a portion of the outstanding principal balance of our Term Loan B due 2024 of $75.0 million and made scheduled principal payments on our Term Loan A due 2024 of $10.7 million, paid dividends to our common stockholders of $60.2 million ($0.70 per share during each quarter), repurchased common shares of $258.9 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 finance lease and software obligations of $9.6 million. Mission also received a $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.
Subsequent Financing Activities
On July 27, 2022, Nexstar’s Board of Directors declared a quarterly cash dividend of $0.90 per share of its common stock. The dividend is payable on August 25, 2022 to stockholders of record on August 11, 2022.
On July 27, 2022, Nexstar’s Board of Directors approved a new share repurchase program authorizing the Company to repurchase up to $1.5 billion of its common stock. From July 1, 2022 to August 4, 2022, we repurchased 645,844 shares of our common stock for $110.2 million, funded by cash on hand. As of the date of filing this Quarterly Report on Form 10-Q, the total remaining available amount under the existing and new share repurchase authorization was $1.622 billion.
Our senior secured credit facility may limit the amount of dividends we may pay to stockholders over the term of the agreement.
Long-term debt
As of June 30, 2022, the Company had total outstanding debt of $7.234 billion, net of unamortized financing costs, discounts and premium, which represented 71.6% 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.
|
|
As of June 30, |
|
|
As of December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Nexstar senior secured credit facility |
|
$ |
4,144.3 |
|
|
$ |
4,329.1 |
|
Mission senior secured credit facility |
|
|
359.3 |
|
|
|
360.8 |
|
5.625% Notes due 2027 |
|
|
1,785.0 |
|
|
|
1,785.0 |
|
4.75% Notes due 2028 |
|
|
1,000.0 |
|
|
|
1,000.0 |
|
|
|
|
7,288.6 |
|
|
|
7,474.9 |
|
Less: Unamortized financing costs, discounts and premium, net |
|
|
(54.6 |
) |
|
|
(59.8 |
) |
Total outstanding debt |
|
$ |
7,234.0 |
|
|
$ |
7,415.1 |
|
|
|
|
|
|
|
|
||
Unused revolving loan commitments under senior secured credit facilities (1) |
|
$ |
543.3 |
|
|
$ |
363.2 |
|
38
The following table summarizes the principal indebtedness scheduled to mature for the periods referenced as of June 30, 2022 (in millions):
|
|
Total |
|
|
Less than 1 year |
|
|
1 to 3 years |
|
|
3 to 5 years |
|
|
More than 5 years |
|
|||||
Nexstar senior secured credit facility |
|
$ |
4,144.3 |
|
|
$ |
121.3 |
|
|
$ |
242.5 |
|
|
$ |
3,780.5 |
|
|
$ |
- |
|
Mission senior secured credit facility |
|
|
359.3 |
|
|
|
3.0 |
|
|
|
6.0 |
|
|
|
67.5 |
|
|
|
282.8 |
|
5.625% Notes due 2027 |
|
|
1,785.0 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,785.0 |
|
4.75% Notes due 2028 |
|
|
1,000.0 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,000.0 |
|
|
|
$ |
7,288.6 |
|
|
$ |
124.3 |
|
|
$ |
248.5 |
|
|
$ |
3,848.0 |
|
|
$ |
3,067.8 |
|
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.
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’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.
Debt Covenants
Our credit agreement contains a covenant which requires us to comply with a maximum consolidated first lien net leverage ratio of 4.25 to 1.00. The financial covenant, which is formally calculated on a quarterly basis, is based on 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 June 30, 2022, 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 June 30, 2022.
Off-Balance Sheet Arrangements
As of June 30, 2022, 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.
39
As of June 30, 2022, we had outstanding standby letters of credit with various financial institutions amounting to $20.2 million, of which $16.7 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.
Issuer and Guarantor Summarized Financial Information
Nexstar Media Inc.’s (a wholly-owned subsidiary of Nexstar Media Group, Inc. (“Parent”) 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 Parent, Mission (a consolidated VIE) and certain of the Issuer’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 for the Obligor Group (in millions):
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Current assets - external |
$ |
1,450.0 |
|
|
$ |
1,407.6 |
|
Current assets - due from consolidated entities outside of Obligor Group |
|
36.3 |
|
|
|
37.2 |
|
Total current assets |
$ |
1,486.3 |
|
|
$ |
1,444.8 |
|
Noncurrent assets - external(1) |
|
10,245.8 |
|
|
|
10,479.5 |
|
Noncurrent assets - due from consolidated entities outside of Obligor Group |
|
55.9 |
|
|
|
55.8 |
|
Total noncurrent assets |
$ |
10,301.7 |
|
|
$ |
10,535.3 |
|
Total current liabilities |
$ |
742.7 |
|
|
$ |
783.8 |
|
Total noncurrent liabilities |
$ |
9,291.3 |
|
|
$ |
9,610.2 |
|
Noncontrolling interests |
$ |
- |
|
|
$ |
6.5 |
|
Summarized Statements of Operations Information for the Obligor Group (in millions):
|
Six Months Ended |
|
|
|
June 30, 2022 |
|
|
Net revenue - external |
$ |
2,446.6 |
|
Net revenue - from consolidated entities outside of Obligor Group |
|
8.1 |
|
Total net revenue |
|
2,454.7 |
|
Costs and expenses - external |
|
1,780.6 |
|
Costs and expenses - to consolidated entities outside of Obligor Group |
|
9.8 |
|
Total costs and expenses |
|
1,790.4 |
|
Income from operations |
$ |
664.3 |
|
Net income |
$ |
405.4 |
|
Net income attributable to Obligor Group |
$ |
405.4 |
|
Income from equity method investments, net |
$ |
73.6 |
|
40
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, 2021. Management believes that as of June 30, 2022, 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.
41
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, 2021.
The term loan borrowings at June 30, 2022 under the Company’s senior secured credit facilities bear interest rates ranging from 3.19% to 4.29%, which represented (i) the base rate, the SOFR or the US LIBOR plus (ii) the applicable margin, as defined. Interest is payable in accordance with the credit agreements.
Based on the outstanding balances of the Company’s senior secured credit facilities (term loans and revolving loans) as of June 30, 2022, an increase in each of SOFR and US LIBOR by 100 basis points would increase our annual interest expense and decrease our cash flow from operations by $45.0 million (excluding tax effects). A decrease in each of SOFR and US LIBOR by 100 basis points would decrease our annual interest expense and increase our cash flow from operations by $45.0 million (excluding tax effects). 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 June 30, 2022, the Company has no financial instruments in place to hedge against changes in the benchmark interest rates on its senior secured credit facilities.
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 June 30, 2022, 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.
42
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
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 13, “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, 2021 filed with the SEC on February 28, 2022.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
On January 27, 2021, Nexstar’s Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $1.0 billion of its common stock, of which $638.2 million remained available as of December 31, 2021. During the six months ended June 30, 2022, Nexstar repurchased a total of 2.4 million shares of its common stock for $406.1 million, funded by cash on hand. As of June 30, 2022, the remaining available amount under the share repurchase authorization was $232.2 million.
The following is a summary of Nexstar’s repurchases of its common stock by month during the quarter ended June 30, 2022 (in millions, except for share and per share information):
|
|
|
|
|
|
|
|
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 |
|
||||
April 5 - 27, 2022 |
|
|
370,619 |
|
|
$ |
175.36 |
|
|
|
370,619 |
|
|
$ |
415.1 |
|
May 17 - 31, 2022 |
|
|
411,902 |
|
|
$ |
169.79 |
|
|
|
411,902 |
|
|
|
345.2 |
|
June 1 - 30, 2022 |
|
|
672,091 |
|
|
$ |
168.19 |
|
|
|
672,091 |
|
|
|
232.2 |
|
|
|
|
1,454,612 |
|
|
$ |
170.47 |
|
|
|
1,454,612 |
|
|
|
|
|
On July 27, 2022, Nexstar’s Board of Directors approved a new share repurchase program authorizing the Company to repurchase up to $1.5 billion of its common stock. From July 1, 2022 to August 4, 2022, we repurchased 645,844 shares of our common stock for $110.2 million, funded by cash on hand. As of the date of filing this Quarterly Report on Form 10-Q, the total remaining available amount under the existing and new share repurchase authorization was $1.622 billion.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
None.
ITEM 5. Other Information
None.
43
ITEM 6. Exhibits
Exhibit No. |
|
Description |
3.1 |
|
|
10.1 |
|
|
10.2 |
|
|
10.3 |
|
|
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.INS |
|
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* Filed herewith
44
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: August 5, 2022
45
