NXST

Business Context and Reporting Period

Company: Nexstar Broadcasting Group, Inc. (Nexstar)
Filing Type: Form 10-Q (Unaudited)
Period Ended: September 30, 2007
Operations: Nexstar owns, operates, or provides services to 49 television stations across the U.S., all affiliated with major networks. The company consolidates Mission Broadcasting, Inc. (Mission) as a Variable Interest Entity (VIE) due to local service agreements and debt guarantees, though Nexstar does not legally own Mission's stations. Nexstar operates in a single reportable segment: television broadcasting.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net revenue increased 1.4% in Q3 2007 and 3.9% for the nine-month period compared to 2006. Growth was driven by the inclusion of newly acquired station WTAJ (approx. $8.4M impact for nine months), increased retransmission compensation, and new media revenue.
• Political Advertising Decline: Political revenue dropped significantly due to 2007 being a non-election year. For the nine months ended Sep 30, 2007, political revenue was $2.5 million compared to $10.3 million in the same period in 2006.
• Operating Expenses: Operating expenses increased due to the inclusion of WTAJ costs, higher payroll (merit increases and new web department), and increased healthcare claims. Depreciation and amortization also rose due to the new station.
• Net Loss Expansion: Despite revenue growth, the net loss widened to $17.2 million for the nine months (vs. $13.6 million in 2006) primarily due to higher interest expense ($41.3M vs. $38.3M) and increased income tax expense related to deferred tax liabilities.
• Cash Flow: Net cash provided by operating activities decreased by $10.4 million year-over-year, attributed to timing differences in accounts payable/receivable and deferred revenue.

Guidance, Outlook, Risks, and Unusual Items

• Strategic Review: On May 17, 2007, the Board engaged Goldman Sachs to review strategic alternatives, including a potential sale. Discussions were suspended on August 3, 2007, due to difficult financing market conditions.
• Pending Acquisition: Mission entered an agreement to acquire KTVE (NBC affiliate) for $7.7 million, with a $0.4 million down payment made. Closing is expected in Q4 2007 subject to FCC consent.
• DTV Conversion: The company is transitioning to digital broadcasting. Expenditures were $6.8 million for the nine months ended Sep 30, 2007. Remaining stations require an estimated $1.5 million per station for full-power conversion, funded by cash flow and credit facilities.
• Debt and Liquidity: The company is highly leveraged with total debt of $679.5 million. It has $68.5 million in unused revolving credit commitments. A significant principal payment of approx. $46.9 million on senior discount notes is due April 1, 2008.
• Unusual Items: Recognized a $1.5 million gain on asset exchange with Sprint Nextel related to spectrum allocation equipment swaps.
• Risks: Vulnerability to economic conditions due to high leverage; potential FCC regulatory changes; and the outcome of pending petitions to deny license renewals filed by Equity Broadcasting Corporation.

Investor Verification Checklist

• Debt Covenants: Verify continued compliance with leverage and coverage ratios given the high debt load and interest expense.
• DTV Capital Requirements: Confirm the funding plan for the remaining $37.5 million+ estimated capital expenditure for full-power DTV conversion.
• Strategic Alternatives: Monitor the status of the suspended sale process and potential impact on liquidity or operations.
• Political Revenue Volatility: Assess the impact of non-election years on revenue stability and future guidance.
• FCC Regulatory Status: Track the resolution of Equity Broadcasting's petitions to deny regarding KFTA and KNWA licenses.
• KTVE Acquisition: Confirm the closing of the KTVE acquisition and the associated financing terms.