Nexstar Broadcasting Group, Inc. — FY 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. Although the request metadata references 2013 Q4, this filing is an annual report; the filing presents quarterly data separately. Financial results consolidate Nexstar and Mission, which Nexstar does not own, and include stations consolidated under variable-interest-entity accounting.
Business context
Nexstar operated, programmed, or provided services to 75 television stations and 18 digital multicast channels in 44 markets. Its primary revenue sources are local and national advertising, retransmission compensation from cable and satellite distributors, and digital media. A substantial portion of operations is organized through local service agreements and duopoly markets.
Key financial metrics
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Net revenue | $502.3 million | $378.6 million |
| Income from operations | $103.2 million | $99.9 million |
| Operating margin, approximate | 20.6% | 26.4% |
| Interest expense, net | $66.2 million | $51.6 million |
| Net income (loss) | ($1.8 million) | $182.5 million |
| Cash from operating activities | $27.3 million | $79.9 million |
| Capital expenditures, net of asset-sale proceeds | $18.7 million | $17.3 million |
| Cash and cash equivalents, year-end | $40.0 million | $69.0 million |
| Total debt, year-end | $1.071 billion | $857.6 million |
| Working capital, year-end | $117.2 million | $105.3 million |
Debt represented 101.3% of combined capitalization. The company reported $105 million of available revolving commitments and $184 million of unused Term Loan A commitments at year-end, subject to borrowing conditions and covenants. Nexstar stated it expected available cash, operating cash flow, and available borrowings to fund requirements for at least the next 12 months. The filing does not provide a clear EBITDA figure in the supplied text.
Material changes versus the prior comparable period
- Net revenue rose 32.7%, primarily from acquired stations and digital media operations. Revenue growth included $113.6 million of incremental local and national advertising from acquired stations, net of disposals.
- Retransmission compensation increased 66.0% to $101.1 million, reflecting acquisitions and higher rates under legacy-station agreements. Digital media revenue rose 68.0% to $30.8 million, including $5.5 million of nonrecurring customer contract termination fees.
- Political advertising fell to $5.2 million from $46.3 million because 2013 was not an election year. Management also cited the absence of Olympic-year revenue as a factor affecting legacy-station comparisons.
- Operating income increased modestly, but operating margin declined as station operating costs and other expenses grew faster than revenue. Newly acquired stations contributed $77.2 million of increased station direct operating expenses; legacy-station programming costs also rose.
- Operating cash flow decreased by $52.5 million. The filing attributes the decline principally to working-capital timing, the cash premium paid to retire debt, higher interest payments, and increased broadcast-rights payments.
- FY 2012 net income included a $151.4 million release of a deferred-tax valuation allowance and a $5.1 million after-tax gain on a station sale. FY 2013 instead included a $34.7 million loss on extinguishment of debt, including $34.3 million related to retiring the 8.875% notes. These items make the reported net-income comparison unrepresentative of underlying operating performance.
Debt, liquidity, outlook, and risks
- In 2013, Nexstar issued $275 million of 6.875% notes due 2020 and refinanced or expanded term-loan facilities. It repurchased and retired all outstanding 8.875% notes, paying premiums that contributed to the extinguishment loss. Variable-rate term loans were priced at approximately 2.4% to 3.75% at year-end; the filing estimates a 100-basis-point LIBOR increase would raise annual interest expense by about $1.7 million.
- Scheduled principal maturities were $6.9 million in 2014, with approximately $997.1 million due thereafter, principally in connection with debt maturing in 2020. The filing lists total contractual cash obligations of $1.569 billion, including interest, leases, broadcast rights, and executive contracts.
- Management provided no specific 2014 revenue or earnings forecast. It reported confidence in near-term liquidity and covenant compliance, while saying capital allocation would balance acquisitions, capital expenditures, and debt reduction.
- Pending acquisitions included CCA/White Knight for $270 million, Grant for $87.5 million, Gray TV and Excalibur stations for $37.5 million combined, Citadel stations for $87.9 million, and Stainless stations for $15.3 million. Most were projected to close in 2014, subject to FCC approval and other conditions; funding was expected from cash flow, credit facilities, and future credit-market transactions.
- The board raised the quarterly dividend from $0.12 to $0.15 per share beginning in 2014. Dividend payments remain subject to board discretion and debt restrictions.
- Principal risks include high leverage and debt-service demands; dependence on advertising and exposure to election-year cycles; retransmission-consent negotiations and renewals; network affiliation renewals and rising programming fees; FCC ownership and local-service-agreement rule changes; possible spectrum repacking costs; competition from digital and other media; and acquisition execution and financing risks.
- Nexstar reported $408.6 million of federal NOL carryforwards and $95.2 million of state NOL carryforwards. ABRY’s 2013 stock sale triggered a Section 382 limitation on Nexstar’s use of federal NOLs. Goodwill and intangible assets were $649.6 million, or 55.8% of combined assets; annual impairment testing found no impairment in 2013.
- Ordinary-course litigation was not expected by management to have a material adverse effect. Some FCC station-license renewal applications and third-party objections remained pending. Management and the auditor reported effective internal control over financial reporting; certain 2013 acquisitions and stations consolidated under VIE accounting were excluded from the control assessment.
Important facts for investors to verify
- Whether the pending station acquisitions closed as projected, and their final purchase prices, funding, and contribution to cash flow.
- Whether operating cash flow recovers from the 2013 decline, including the impact of receivables collection timing and acquisition-related costs.
- Debt balances, covenant headroom, refinancing needs, and sensitivity to variable interest rates after the 2013 financing transactions.
- The sustainability and economics of retransmission revenue, including agreement renewals and any network demands for a share of fees.
- The extent to which reported earnings and digital-media growth depended on tax items, debt-extinguishment costs, acquisitions, or the one-time $5.5 million contract termination fees.
- Use of NOLs under Section 382, the status of FCC license renewals and local-service-agreement rules, and any future impairment indicators for goodwill and other intangible assets.