NXST

Nexstar Media Group, Inc. 2009 10-K Summary

Business Context and Reporting Period

This Annual Report on Form 10-K covers the fiscal year ended December 31, 2009. Nexstar Broadcasting Group, Inc. (Nexstar) is a television broadcasting company focused on acquiring, developing, and operating stations in medium-sized U.S. markets (ranks 50–175). As of year-end, Nexstar owned and operated 34 stations and provided sales or other services to an additional 25 stations, including 16 owned by Mission Broadcasting, Inc. (Mission). Nexstar consolidates Mission's financial results due to a controlling financial interest established through local service agreements, debt guarantees, and purchase options.

Key Financial Metrics (Year Ended Dec 31, 2009)

Note: The company reported a net loss of $12.6 million in 2009, a significant improvement from the $78.1 million loss in 2008, primarily driven by reduced impairment charges.

Material Changes vs. Prior Period

• Revenue Decline: Net revenue decreased 11.6% to $252.0 million. This was driven by an 81.9% drop in political advertising revenue ($5.9 million vs. $32.9 million in 2008) due to the absence of a presidential election year, and a 10.6% decline in local and national advertising, largely attributed to a 33% drop in automotive advertising.
• Impairment Charges: Non-cash impairment charges totaled $16.2 million in 2009 (down from $82.4 million in 2008). This included $8.8 million for FCC licenses and $7.4 million for goodwill.
• Acquisitions: Nexstar acquired WCWJ (Jacksonville, FL) for $18.0 million and KARZ (Little Rock, AR) for $4.0 million. These acquisitions contributed to revenue but also increased amortization of broadcast rights.
• Debt Restructuring: The company exchanged $143.6 million of 7% senior subordinated notes for 7% senior subordinated PIK (Payment-in-Kind) notes to reduce cash interest obligations. Additionally, the senior credit facility was amended in October 2009 to modify leverage covenants and increase interest rates.

Guidance, Outlook, and Risks

Outlook: Management expects a significant increase in political advertising revenue in 2010 due to the upcoming election cycle. The Television Bureau of Advertising forecasts a 3.6% to 6.1% increase in U.S. television spot advertising revenue for 2010. Nexstar anticipates that available cash, operating cash flow, and borrowings under credit facilities will be sufficient to fund operations for at least the next twelve months.

Key Risks and Contingencies:

• High Leverage: Total debt of $670.4 million represented 135.7% of total capitalization. The company is subject to strict financial covenants, including leverage and interest coverage ratios. A covenant violation in Q3 2009 was cured by an amendment in October 2009.
• Asset Impairment: Approximately 58.5% of total assets consist of goodwill and intangible assets (FCC licenses). Further deterioration in advertising markets could trigger additional non-cash impairment charges.
• Regulatory Environment: The company faces risks related to FCC ownership rules, potential changes to media ownership regulations, and the requirement to maintain digital television operations (transition completed June 2009, though one station, KMID, awaits final authorization).
• Concentration of Ownership: ABRY Partners, LLC is the principal stockholder and can exercise controlling influence over corporate matters.

Investor Verification Checklist

• Covenant Compliance: Verify current compliance with the amended senior credit facility covenants, specifically the Consolidated Total Leverage Ratio and Senior Leverage Ratio.
• Debt Maturity Profile: Review the schedule of debt maturities, noting significant principal payments due in 2012 ($388.1 million) and 2014 ($234.1 million).
• Intangible Asset Valuation: Assess the assumptions used in the discounted cash flow models for FCC licenses and goodwill, particularly regarding market growth rates and operating profit margins.
• Political Revenue Volatility: Monitor the impact of the 2010 election cycle on Q2 and Q4 2010 revenue projections versus the low base in 2009.
• Mission Consolidation: Confirm the status of local service agreements and purchase options with Mission Broadcasting, Inc., which underpins the consolidation of Mission's assets and liabilities.