NXST

Nexstar Broadcasting Group, Inc. - Q1 2004 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2004. Nexstar Broadcasting Group, Inc. (Nexstar) owns and operates 27 television stations across the United States. The company also consolidates the financial results of Mission Broadcasting, Inc. (Mission) and certain other stations under Time Brokerage Agreements (TBA) and Shared Services Agreements (SSA) due to controlling financial interests under U.S. GAAP (FIN 46), despite not owning the equity of those specific entities. The filing reflects the impact of the December 2003 acquisition of Quorum Broadcast Holdings, LLC, which was accounted for as a merger of entities under common control.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total net revenue increased 14.8% to $54.2 million. This was driven by a 12.7% increase in local revenue and a significant 1,216% increase in political revenue ($3.4 million vs. $0.3 million) due to the 2004 presidential election cycle. Same-station net broadcast revenue increased 10.1%.
• Operating Expenses: Total operating expenses rose to $51.6 million from $46.7 million. Increases were attributed to acquisitions, higher amortization of intangible assets ($1.3 million increase), and merger-related expenses of $0.5 million.
• Debt Activity: Nexstar redeemed $37.0 million principal of 16% senior discount notes in January 2004, incurring a $6.8 million loss on extinguishment of debt (including a $5.9 million call premium). Revolver borrowings increased by $33.0 million during the quarter.
• Profitability: While the company reported a net loss, the loss attributable to common shareholders improved significantly from $(26.5) million to $(16.7) million, primarily due to the elimination of preferred interest accretion charges present in the prior year.

Outlook, Risks, and Unusual Items

• Acquisitions: Nexstar and Mission completed the acquisitions of WUTR (April 1, 2004) and WBAK (April 6, 2004). The acquisition of KPOM/KFAA is expected to close in Q3 2004 pending FCC consent.
• Liquidity: Management believes cash balances, operating cash flow, and credit facility availability ($37 million unused) are sufficient for the next 12 months. The company is highly leveraged and vulnerable to economic conditions.
• Digital Conversion: Stations are required to broadcast digital signals. While most stations are compliant or have extensions, KFAA has applied for an extension. Failure to comply could result in sanctions or loss of permits. Estimated additional capital expenditure for full-power conversion is $0.7 million per station.
• Legal Proceedings: A dispute exists regarding the sale of WTVW to GNS Media, which attempted to terminate the agreement prior to closing. Nexstar is pursuing a settlement.
• Interest Rate Risk: The company utilizes interest rate swaps to manage variable rate debt exposure. A 100 basis point increase in interest rates would increase annual cash interest payments by approximately $1.2 million.

Investor Verification Checklist

• Verify the status of the pending FCC approval for the KPOM/KFAA acquisition and the associated $7.0 million remaining purchase obligation.
• Confirm compliance with debt covenants, specifically the combined leverage ratio and interest coverage ratio, given the high debt load ($604.8 million).
• Monitor the resolution of the WTVW sale dispute with GNS Media and potential financial impact.
• Assess the sufficiency of cash flow to service debt and fund the estimated $9.5 million to $10.0 million in full-year capital expenditures.
• Review the timeline and costs associated with digital conversion compliance for stations with pending FCC extensions (e.g., KFAA).