Business Context and Reporting Period
Company: Nexstar Broadcasting Group, Inc. (Nexstar)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2011
Business Overview: Nexstar is a television broadcasting and digital media company focused on medium-sized U.S. markets (ranks 50–175). As of December 31, 2011, the company owned, operated, or provided services to 55 television stations and 11 digital multi-cast channels across 32 markets. Nexstar consolidates the financial results of Mission Broadcasting, Inc. (Mission), a third-party owned entity, due to local service agreements and debt guarantees that grant Nexstar controlling financial interest under U.S. GAAP.
Key Financial Metrics (Year Ended Dec 31, 2011)
| Metric | 2011 Value | 2010 Value |
|---|---|---|
| Net Revenue | $306.5 million | $313.4 million |
| Income from Operations | $48.0 million | $67.5 million |
| Net Loss | $(11.9) million | $(1.8) million |
| Net Loss Per Share (Basic/Diluted) | $(0.42) | $(0.06) |
| Operating Cash Flow | $40.3 million | $59.3 million |
| Total Debt | $640.4 million | $643.1 million |
| Cash and Cash Equivalents | $7.5 million | $23.7 million |
| Working Capital | $39.6 million | $53.6 million |
Revenue Composition (2011): Local advertising (57.3%), National advertising (20.8%), Retransmission compensation (11.8%), eMedia (5.1%), Political (2.0%).
Material Changes vs. Prior Period
- Revenue Decline: Net revenue decreased 2.2% to $306.5 million. This was primarily driven by a $33.0 million decrease in political advertising revenue, as 2011 was not an election year compared to 2010. This decline was partially offset by revenue from new acquisitions and growth in eMedia and retransmission compensation.
- Acquisitions: Nexstar acquired WFRV and WJMN (Green Bay/Marquette) in July 2011 and WEHT (Evansville) in December 2011. Concurrently, Nexstar sold station WTVW to Mission for $6.7 million.
- Operating Expenses: Total operating expenses increased slightly, driven by $5.3 million in expenses from newly acquired stations and a $1.7 million increase in employee health care costs.
- Debt Reduction: The company repurchased approximately $77.6 million of outstanding notes (11.375% Notes, 7% Notes, and 7% PIK Notes) during 2011, resulting in a $1.2 million loss on extinguishment of debt.
Guidance, Outlook, Risks, and Contingencies
- Strategic Alternatives: In June 2011, the Board retained Moelis & Company to explore strategic alternatives to maximize stockholder value, including a potential sale of the company. No decision had been made as of the filing date.
- Debt Covenants: Nexstar is highly leveraged, with debt representing 140.1% of total capitalization. The company is subject to restrictive covenants regarding leverage ratios and fixed charge coverage. Management believes it will remain in compliance for the next 12 months.
- Regulatory Risks: Significant risks include potential FCC rule changes regarding media ownership (duopoly rules), retransmission consent negotiations, and spectrum reallocation for wireless broadband, which could impact operations and revenue.
- Network Affiliations: Several network affiliation agreements (NBC, CBS, FOX) are set to expire in 2012 and 2013. Failure to renew these on favorable terms could materially impact revenue.
- Intangible Assets: Goodwill and intangible assets comprise 56.4% of total assets. The company tests these annually for impairment; no impairment was recorded in 2011, but future declines in cash flows could trigger charges.
Investor Verification Checklist
- Debt Servicing Capacity: Verify the company's ability to meet significant debt maturities ($152 million due in 2014) and interest payments given the high leverage ratio and recent net losses.
- Political Revenue Volatility: Assess the impact of non-election years on revenue stability, as political advertising dropped from $39.3 million in 2010 to $6.3 million in 2011.
- Network Renewals: Monitor the renewal status of network affiliation agreements expiring in 2012 and 2013, as these are critical to programming costs and ratings.
- Strategic Process Outcome: Track the progress of the strategic alternatives review initiated in June 2011 to determine if a sale or other transaction materializes.
- Retransmission Consent: Evaluate the risk of FCC rule changes regarding retransmission consent negotiations, which could reduce a growing revenue stream (11.8% of total revenue).