nxstq11010q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
 
FORM 10-Q
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2010
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from             to             .
 
Commission File Number: 000-50478

 
NEXSTAR BROADCASTING GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)

 
 
 
Delaware
23-3083125
(State of Organization or Incorporation)
(I.R.S. Employer Identification No.)
   
5215 N. O’Connor Blvd., Suite 1400, Irving, Texas
75057
(Address of Principal Executive Offices)
(Zip Code)
(972) 373-8800
(Registrant’s Telephone Number, Including Area Code)

 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that it was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x     No  ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):
 
Large accelerated filer
¨
Accelerated filer
¨
       
Non-accelerated filer
x  
Smaller reporting company
¨
(Do not check if a smaller reporting company)
    
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
 
As of April 30, 2010 the registrant had outstanding:
 
15,018,839 shares of Class A Common Stock
and 13,411,588 shares of Class B Common Stock

 

 
 
 
 

TABLE OF CONTENTS
   
Page
PART I
FINANCIAL INFORMATION
  
     
ITEM 1.
Financial Statements (Unaudited)
     
 
Condensed Consolidated Balance Sheets at March 31, 2010 and December 31, 2009
 1
     
 
Condensed Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009
 2
     
 
Condensed Consolidated Statement of Changes in Stockholders’ Deficit for the three months ended March 31, 2010
 3
     
 
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009
 4
     
 
Notes to Condensed Consolidated Financial Statements
 5
     
ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 25
     
ITEM 3.
Quantitative and Qualitative Disclosures about Market Risk
 34
     
ITEM 4.
Controls and Procedures
 34
     
PART II
OTHER INFORMATION
  
     
ITEM 1.
Legal Proceedings
 35
     
ITEM 1A.
Risk Factors
 35
     
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 35
     
ITEM 3.
Defaults Upon Senior Securities
 35
     
ITEM 4.
Reserved
 35
     
ITEM 5.
Other Information
 35
     
ITEM 6.
Exhibits
 36
   
EXHIBIT INDEX
  
 

 
i
 
 

PART I. FINANCIAL INFORMATION
 
ITEM 1.
Financial Statements
 
NEXSTAR BROADCASTING GROUP, INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
(Unaudited)
 
   
March 31,
2010
    
December 31,
2009
  
ASSETS
            
Current assets:
            
Cash and cash equivalents
   $ 11,189     $ 12,752  
Accounts receivable, net of allowance for doubtful accounts of $985 and $844, respectively
     58,818       62,860  
Current portion of broadcast rights
     12,359       15,414  
Prepaid expenses and other current assets
     3,832       1,845  
Deferred tax asset
     15       15  
                 
Total current
     86,213       92,886  
                 
Property and equipment, net
     143,293       144,281  
Broadcast rights
     8,218       10,701  
Goodwill
     109,059       109,059  
FCC licenses
     127,487       127,487  
Other intangible assets, net
     120,284       126,216  
Other noncurrent assets
     7,880       8,605  
Deferred tax asset
     588       591  
                 
Total assets
   $ 603,022     $ 619,826  
LIABILITIES AND STOCKHOLDERS’ DEFICIT
                
                 
Current liabilities:
                
Current portion of debt
   $ 3,485     $ 7,085  
Current portion of broadcast rights payable
     13,320       16,447  
Accounts payable
     6,912       6,812  
Accrued expenses
     12,316       12,189  
Taxes payable
     556       363  
Interest payable
     6,251       4,625  
Deferred revenue
     6,964       7,424  
Other liabilities
     1,066       1,066  
                 
Total current liabilities
     50,870       56,011  
                 
Debt
     657,125       663,289  
Broadcast rights payable
     9,837       12,469  
Deferred tax liabilities
     39,885       38,433  
Deferred revenue
     1,811       1,999  
Deferred gain on sale of assets
     4,385       4,495  
Deferred representation fee incentive
     5,426       5,583  
Other liabilities
     13,334       13,810  
                 
Total liabilities
     782,673       796,089  
                 
Commitments and contingencies
                
                 
Stockholders’ deficit:
                
Preferred stock - $0.01 par value, authorized 200,000 shares; no shares issued and outstanding at both March 31, 2010 and December 31, 2009
     —       —  
Common Stock:
                
Class A Common - $0.01 par value, authorized 100,000,000 shares; issued and outstanding 15,018,839 at both March 31, 2010 and December 31, 2009
     150       150  
Class B Common - $0.01 par value, authorized 20,000,000 shares; issued and outstanding 13,411,588 at both March 31, 2010 and December 31, 2009
     134       134  
Class C Common - $0.01 par value, authorized 5,000,000 shares; none issued and outstanding at both March 31, 2010 and December 31, 2009
     —       —  
Additional paid-in capital
     400,378       400,093  
Accumulated deficit
     (580,313 )     (576,640 )
Total stockholders’ deficit
     (179,651 )     (176,263 )
                 
Total liabilities and stockholders’ deficit
   $ 603,022     $ 619,826  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 

 
1
 
 

NEXSTAR BROADCASTING GROUP, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
 
   
Three Months Ended
March 31,
  
   
2010
    
2009
  
   
(Unaudited)
  
Net revenue
   $ 68,626     $ 55,468  
                 
Operating expenses (income):
                
Direct operating expenses (exclusive of depreciation and amortization shown separately below)
     18,983       19,055  
Selling, general, and administrative expenses (exclusive of depreciation and amortization shown separately below)
     23,250       23,471  
Restructure charge
     —       356  
Amortization of broadcast rights
     5,311       5,060  
Amortization of intangible assets
     5,932       5,892  
Depreciation
     5,380       5,196  
Gain on asset exchange
     (30 )     (1,660 )
Gain on asset disposal, net
     (24 )     (591 )
                 
Total operating expenses
     58,802       56,779  
                 
Income (loss) from operations
     9,824       (1,311 )
Interest expense, including amortization of debt financing costs
     (11,964 )     (9,860 )
Gain on extinguishment of debt
     94       18,567  
Interest and other income
     1       35  
                 
Income (loss) before income taxes
     (2,045 )     7,431  
Income tax expense
     (1,628 )     (1,379 )
Net income (loss)
   $ (3,673 )   $ 6,052  
Net income (loss) per common share:
                
Basic and diluted
   $ (0.13 )   $ 0.21  
Weighted average number of common shares outstanding:
                
Basic and diluted
     28,430       28,425  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 

 
2
 
 

NEXSTAR BROADCASTING GROUP, INC.
 
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
For the Three Months Ended March 31, 2010
(in thousands, except share information)
 
   
Common Stock
                    
   
Class A
    
Class B
    
Class C
    
Additional
          
Total
  
   
Shares
    
Amount
    
Shares
    
Amount
    
Shares
    
Amount
    
Paid-In
Capital
    
Accumulated
Deficit
    
Stockholders’
Deficit
  
Balance at January 1, 2010 (unaudited)
     15,018,839     $ 150       13,411,588     $ 134       —     $ —     $ 400,093     $ (576,640 )   $ (176,263 )
Stock-based compensation expense
     —       —       —       —       —       —       285       —       285  
Net loss
     —       —       —       —       —       —       —       (3,673 )     (3,673 )
Balance at March 31, 2010 (unaudited)
     15,018,839     $ 150       13,411,588     $ 134       —      $ —     $ 400,378     $ (580,313 )   $ (179,651 )
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 

 
3
 
 

NEXSTAR BROADCASTING GROUP, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
   
Three Months Ended
March 31,
  
   
2010
    
2009
  
   
(Unaudited)
  
Cash flows from operating activities:
            
Net income (loss)
   $ (3,673 )   $ 6,052  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
                
Deferred income taxes
     1,455       1,229  
Provision for bad debts
     382       286  
Depreciation of property and equipment
     5,380       5,196  
Amortization of intangible assets
     5,932       5,892  
Amortization of debt financing costs
     724       256  
Amortization of broadcast rights, excluding barter
     2,363       2,095  
Payments for broadcast rights
     (2,558 )     (2,161 )
Payment-in-kind interest on debt
     380       1,129  
Gain on asset exchange
     (30 )     (1,660 )
Gain on asset disposal, net
     (24 )     (591 )
Gain on extinguishment of debt
     (94 )     (18,567 )
Deferred gain recognition
     (110 )     (109 )
Amortization of debt discount
     2,273       199  
Amortization of deferred representation fee incentive
     (157 )     (150 )
Stock-based compensation expense
     285       429  
Changes in operating assets and liabilities, net of acquisitions:
                
Accounts receivable
     3,660       4,122  
Prepaid expenses and other current assets
     (1,676 )     (624 )
Other noncurrent assets
     —       287  
Accounts payable and accrued expenses
     (807 )     (2,142 )
Taxes payable
     193       152  
Interest payable
     1,626       (4,899 )
Deferred revenue
     (648 )     (252 )
Other noncurrent liabilities
     (505 )     180  
                 
Net cash provided by (used for) operating activities
     14,371       (3,651 )
                 
Cash flows from investing activities:
                
Additions to property and equipment
     (3,793 )     (3,234 )
Proceeds from sale of assets
     —       9  
Down payment on acquisition of station
     —       (1,000 )
Acquisition of broadcast properties and related transaction costs
     —       (3,600 )
Proceeds from insurance on casualty loss
     177       270  
                 
Net cash used for investing activities
     (3,616 )     (7,555 )
                 
Cash flows from financing activities:
                
Repayment of long-term debt
     (12,318 )     (10,832 )
Proceeds from revolver draws
     —       36,000  
Consideration paid to bond holders for debt exchange
     —       (17,677 )
                 
Net cash (used in) provided by financing activities
     (12,318 )     7,491  
                 
Net decrease in cash and cash equivalents
     (1,563 )     (3,715 )
                 
Cash and cash equivalents at beginning of period
     12,752       15,834  
                 
Cash and cash equivalents at end of period
   $ 11,189     $ 12,119  
Supplemental schedule of cash flow information:
                
Cash paid during the period for:
                
Interest
   $ 6,909     $ 13,056  
                 
Income taxes, net
   $ (30 )   $ (2 )
                 
Non-cash activities:
                
Deferred debt finance costs
   $ 312     $ —  
                 
Acquisition of equipment
   $ 722     $ 3,837  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

 
4
 
 

 
NEXSTAR BROADCASTING GROUP, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1.
Organization and Business Operations
 
As of March 31, 2010, Nexstar Broadcasting Group, Inc. (“Nexstar”) owned, operated, programmed or provided sales and other services to 59 television stations, all of which were affiliated with the NBC, ABC, CBS, Fox, MyNetworkTV, The CW, This TV, RTN, Azteca America or Telemundo television networks, in markets located in New York, Pennsylvania, Illinois, Indiana, Missouri, Texas, Louisiana, Arkansas, Alabama, Utah, Florida, Montana, Rhode Island and Maryland. Through various local service agreements, Nexstar provided sales, programming and other services to stations owned and/or operated by independent third parties. Nexstar operates in one reportable television broadcasting segment. The economic characteristics, services, production process, customer type and distribution methods for Nexstar’s operations are substantially similar and are therefore aggregated as a single reportable segment.
 
Nexstar is highly leveraged, which makes it vulnerable to changes in general economic conditions. Nexstar’s ability to repay or refinance its debt will depend on, among other things, financial, business, market, competitive and other conditions, many of which are beyond Nexstar’s control.
 
Disruptions in the capital and credit markets, as have been experienced in recent years, could adversely affect our ability to draw on our bank revolving credit facilities. Our access to funds under the revolving credit facilities is dependent on the ability of the banks that are parties to the facilities to meet their funding commitments. Those banks may not be able to meet their funding commitments to us if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests from us and other borrowers within a short period of time.
 
Unless the context indicates otherwise, “Nexstar” refers to Nexstar Broadcasting Group, Inc. and its consolidated subsidiaries Nexstar Finance Holdings, Inc. ("Nexstar Holdings") and Nexstar Broadcasting, Inc. ("Nexstar Broadcasting"), and “Mission” refers to Mission Broadcasting, Inc. All references to “we,” “our,” and “us” refer to Nexstar. All references to the “Company” refer to Nexstar and Mission collectively.
 
Liquidity
 
Our senior secured credit facility agreement contains covenants which require us to comply with certain financial ratios, including: (a) maximum total and senior leverage ratios, (b) a minimum interest coverage ratio, and (c) a minimum fixed charge coverage ratio. The covenants, which are calculated on a quarterly basis, include the combined results of Nexstar Broadcasting and Mission. Mission’s senior secured credit facility agreement does not contain financial covenant ratio requirements; however it does include an event of default if Nexstar does not comply with all covenants contained in its credit agreement. The senior subordinated notes and senior discount notes contain restrictive covenants customary for borrowing arrangements of this type. As of March 31, 2010, we were in compliance with all covenants contained in the credit agreements governing our senior secured credit facility and the indentures governing the publicly-held notes.
 
In April, 2010, the Company completed the issuance and sale of $325 million aggregate principal amount of senior secured second lien notes due 2017 (the “Notes”). The Notes will mature on April 15, 2017. Interest on the Notes accrues at a rate of 8.875% per annum and is payable semiannually in arrears on April 15 and October 15 of each year, commencing on October 15, 2010.  The Company also refinanced its bank credit facilities, among other things, extending maturities, reducing the aggregate borrowing capacity under the new bank credit facilities, amending the financial covenants and providing additional flexibility thereunder. In addition, Nexstar Broadcasting completed the cash tender offer to retire $34,337,174 (representing 82.47% of the outstanding aggregate principal amount of Notes) of aggregate principal amount of Senior Subordinated PIK Notes due 2014 at 104.5% on April 30, 2010. In connection with this tender offer, substantially all restrictive covenants and certain event of default provisions were eliminated. See Note 16 for subsequent events related to these transactions.

 
5
 
 

 
NEXSTAR BROADCASTING GROUP, INC.
 
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
2.
Summary of Significant Accounting Policies
 
Interim Financial Statements
 
The condensed consolidated financial statements as of March 31, 2010 and for the three months ended March 31, 2010 and 2009 are unaudited. However, in the opinion of management, such financial statements include all adjustments (consisting solely of normal recurring adjustments) necessary for the fair statement of the financial information included herein in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. Results of operations for interim periods are not necessarily indicative of results for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in Nexstar’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009. The balance sheet at December 31, 2009 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
 
Basis of Presentation
 
Certain prior year amounts have been reclassified to conform to the current year presentation.
 
Principles of Consolidation
 
The condensed consolidated financial statements include the accounts of Nexstar and its subsidiaries. Also included in the financial statements are the accounts of independently-owned Mission and may include certain other entities where it is determined that the Company is the primary beneficiary of a variable interest entity (“VIE”) in accordance with interpretive guidance for the consolidation of variable interest entities.
 
All intercompany account balances and transactions have been eliminated in consolidation.
 
Mission
 
Mission is included in these condensed consolidated financial statements because Nexstar is deemed to have a controlling financial interest in Mission for financial reporting purposes as a result of (a) local service agreements Nexstar has with the Mission stations, (b) Nexstar’s guarantee of the obligations incurred under Mission’s senior secured credit facility, (c) Nexstar having power over significant activities affecting Mission’s economic performance, including budgeting, advertising and hiring and firing of sales force personnel and (d) purchase options (which expire on various dates between 2011 and 2018) granted by Mission’s sole shareholder which will permit Nexstar to acquire the assets and assume the liabilities of each Mission station, subject to Federal Communications Commission (“FCC”) consent.  The purchase options are freely exercisable or assignable by Nexstar without consent or approval by Mission's sole shareholder.  The Company expects these option agreements, if unexercised, will be renewed upon expiration. As of March 31, 2010, the assets of Mission consisted of current assets of $2.8 million (excluding broadcast rights), broadcast rights of $3.8 million, FCC licenses of $20.7 million, goodwill of $18.7 million, other intangible assets of $24.2 million, property and equipment of $27.9 million and other noncurrent assets of $2.0 million. Substantially all of Mission’s assets, except for its FCC licenses, collateralize its secured debt obligation. See Note 15 for a presentation of condensed consolidating financial information of the Company, which includes the accounts of Mission.

 
6
 
 

 
NEXSTAR BROADCASTING GROUP, INC.
 
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
2.
Summary of Significant Accounting Policies—(Continued)
 
Nexstar has entered into local service agreements with Mission to provide sales and/or operating services to the Mission stations. The following table summarizes the various local service agreements Nexstar had in effect with Mission as of March 31, 2010:
 
Service Agreements
Mission Stations
TBA Only(1)
WFXP and KHMT
   
SSA & JSA (2) 
KJTL, KJBO-LP, KOLR, KCIT, KCPN-LP, KAMC, KRBC, KSAN, WUTR, WFXW, WYOU, KODE, WTVO and KTVE
            
(1)
Nexstar has a time brokerage agreement (“TBA”) with each of these stations which allows Nexstar to program most of each station’s broadcast time, sell each station’s advertising time and retain the advertising revenue generated in exchange for monthly payments to Mission.
(2)
Nexstar has both a shared services agreement (“SSA”) and a joint sales agreement (“JSA”) with each of these stations. Each SSA allows the Nexstar station in the market to provide services including news production, technical maintenance and security, in exchange for Nexstar’s right to receive certain payments from Mission as described in the SSAs. Each JSA permits Nexstar to sell the station’s advertising time and retain a percentage of the net revenue from the station’s advertising time in return for monthly payments to Mission of the remaining percentage of net revenue as described in the JSAs.
 
Nexstar does not own Mission or Mission’s television stations; however, Nexstar is deemed to have a controlling financial interest in them under U.S. GAAP while complying with the FCC’s rules regarding ownership limits in television markets. In order for both Nexstar and Mission to comply with FCC regulations, Mission maintains complete responsibility for and control over programming, finances and personnel for its stations.
 
Variable Interest Entities
 
The Company may determine that a station is a VIE as a result of local service agreements entered into with the owner-operator of stations in markets in which the Company owns and operates a station. The term local service agreements generally refers to a contract between two separately owned television stations serving the same market, whereby the owner-operator of one station contracts with the owner-operator of the other station to provide it with administrative, sales and other services required for the operation of its station. Nevertheless, the owner-operator of each station retains control and responsibility for the operation of its station, including ultimate responsibility over all programming broadcast on its station.
 
VIEs in connection with local service agreements entered into with stations in markets in which the Company owns and operates a station are discussed below.
 
Nexstar has determined that it has variable interests in WYZZ, the Fox affiliate in Peoria, Illinois and WUHF, the Fox affiliate in Rochester, New York, each owned by a subsidiary of Sinclair Broadcasting Group, Inc. (“Sinclair”), as a result of outsourcing agreements it has entered into with Sinclair. Nexstar also has determined that it has a variable interest in WHP, the CBS affiliate in Harrisburg, Pennsylvania, which is owned by Newport Television License, LLC (“Newport”), as a result of Nexstar becoming successor-in-interest to a TBA entered into by a former owner of WLYH. Nexstar has evaluated its arrangements with Sinclair and Newport and has determined that it is not the primary beneficiary of the variable interests because we do not have the ultimate power to direct the activities that most significantly impact the economic performance of the stations including developing the annual operating budget, programming and oversight and control of sales management personnel.  Therefore Nexstar has not consolidated these stations under authoritative guidance related to the consolidation of variable interest entities.  Under the outsourcing agreements with Sinclair, Nexstar pays for certain operating expenses of WYZZ and WUHF, and therefore may have unlimited exposure to any potential operating losses. Nexstar’s management believes that Nexstar’s minimum exposure to loss under the Sinclair outsourcing agreements consists of the fees paid to Sinclair. Additionally, Nexstar indemnifies the owners of WHP, WYZZ and WUHF from and against all liability and claims arising out of or resulting from its activities, acts or omissions in connection with the agreements. The maximum potential amount of future payments Nexstar could be required to make for such indemnification is undeterminable at this time.  Nexstar made payments to Sinclair under the outsourcing agreements of $0.9 million and $0.4 million for the three months ended March 31, 2010 and 2009, respectively.  Nexstar has a balance payable to Sinclair for fees under these arrangements in the amount of $1.7 million as of March 31 2010, which is recorded as an accrued expense on Nexstar’s balance sheet.  We also have receivables in the amount of $2.1 million for advertising aired on these two stations

 
7
 
 

 
NEXSTAR BROADCASTING GROUP, INC.
 
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
2.
Summary of Significant Accounting Policies—(Continued)
 
Nexstar has also determined that it has a variable interest in Four Points Media Group Holdings, LLC (“Four Points”) due to a management services agreement between the two companies.  Four Points owns and operates seven individual stations in four markets.  Under this agreement, Nexstar manages the stations for Four Points but does not have ultimate control over the policies or operations of the stations.  We have evaluated the business arrangement with Four Points and concluded that Nexstar is not the primary beneficiary of the variable interest because we do not have the ultimate power to direct the activities that most significantly impact the economic performance of the stations including developing the annual operating budget, setting advertising rates, programming and oversight and control of employees responsible for carrying out business activities of the stations.  Therefore, we do not consolidate Four Points’ financial results into our own.  Nexstar has a receivable for management fees from Four Points in the amount of $0.9 million as of March 31, 2010, which is recorded in accounts receivable.  We also have a liability owed to Four Points for retransmission revenue we collect on their behalf in the amount of $20 thousand as of March 31, 2010, which is recorded as an accrued expense.  Nexstar must indemnify Four Points for any claim or liability that arises out of Nexstar’s acts or omissions related to the agreement.   For this reason, the maximum exposure to loss as a result of our agreement with Four Points is not determinable.
 
Stock-Based Compensation
 
The Company accounts for Nexstar’s stock-based employee compensation plans in accordance with authoritative guidance related to share-based payment, which requires companies to expense the fair value of employee stock options and other forms of stock-based employee compensation in the financial statements over the period that an employee provides service in exchange for the award. Under this guidance, the Company measures compensation cost related to stock options based on the grant-date fair value of the award using the Black-Scholes option-pricing model and recognizes it ratably, less estimated forfeitures, over the vesting term of the award.  
 
The Company recognized stock-based compensation expense of $0.3 million and $0.4 million for the three months ended March 31, 2010 and 2009, respectively, which was included in selling, general and administrative expenses in the Company’s condensed consolidated statements of operations. The Company does not currently recognize a tax benefit resulting from compensation costs expensed in the financial statements because the Company provides a valuation allowance against the deferred tax asset resulting from this type of temporary difference since it expects that it will not have sufficient future taxable income to realize such benefit. Accordingly, the accounting for share-based payments has had no impact on income tax expense reported in the financial statements.
 
At March 31, 2010, there was approximately $2.7 million of total unrecognized compensation cost, net of estimated forfeitures, related to stock options that is expected to be recognized over a weighted-average period of 2.8 years. There were no stock options exercised during the three months ended March 31, 2010.
 
Income (loss) Per Share
 
Basic income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted income (loss) per share is computed using the weighted-average number of common shares and dilutive potential common shares outstanding during the period using the treasury stock method. Potential common shares consist of stock options and the unvested portion of restricted stock granted to employees. For the three months ended March 31, 2010 and 2009, there was no difference between basic and diluted net income (loss) per share since the effect of potential common shares were anti-dilutive, and therefore excluded from the computation of diluted net income (loss) per share.

 
8
 
 

 
NEXSTAR BROADCASTING GROUP, INC.
 
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
2.
Summary of Significant Accounting Policies—(Continued)
 
The following table summarizes information about anti-dilutive potential common shares (not presented in thousands):
 
   
Three Months Ended
March 31,
  
   
2010
    
2009
  
   
(weighted-average shares
outstanding)
  
Stock options excluded as the exercise price of the options was greater than the average market price of the common stock
     2,556,089       3,715,000  
In-the-money stock options excluded as the Company had a net loss during the period
     393,580       —  
 
Recent Accounting Pronouncements
 
In January 2010, the FASB issued authoritative guidance which requires additional disclosures about transfers between Levels 1 and 2 of the fair value hierarchy and disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements.  This guidance was effective for the Company January 1, 2010, except for the Level 3 activity disclosures, which are effective for fiscal years beginning after December 15, 2010.  The adoption of this guidance, which is related to disclosure only, did not have a material impact on the Company’s financial position or results of operations.
 
In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for the consolidation of VIEs.  This amendment requires an analysis to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity. The amendment requires an ongoing reassessment and eliminates the quantitative approach previously required for determining whether an entity is the primary beneficiary. This amendment is effective for our fiscal year beginning January 1, 2010.  We adopted the amendment January 1, 2010 and it did not have any impact on the Company’s financial position or results of operations.
 
In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for transfers of financial assets.  This amendment removes the concept of a qualifying special-purpose entity. This amendment also clarifies the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting. The amendment is effective for our fiscal year beginning January 1, 2010.  We adopted the amendment January 1, 2010 and it did not have any impact on the Company’s financial position or results of operations.
 
3.
Fair Value Measurements
 
The Company adopted, effective January 1, 2008, the FASB’s accounting and disclosure requirements pertaining to fair value measurements for financial assets and financial liabilities measured on a recurring basis and January 1, 2009, we adopted this standard for non-financial assets and non-financial liabilities. The requirements apply to all financial and non-financial assets and financial and non-financial liabilities that are being measured and reported on a fair value basis. There was no impact for adoption of this standard to the unaudited condensed consolidated financial statements as it relates to financial position or results of operations. This standard requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. The standard requires fair value measurement be classified and disclosed in one of the following three categories:
 
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
 
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;
 
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
 
The Company invests in short-term interest bearing obligations with original maturities less than 90 days, primarily money market funds. We do not enter into investments for trading or speculative purposes. As of March 31, 2010 and December 31, 2009, there were no investments in marketable securities.

 
9
 
 

 
NEXSTAR BROADCASTING GROUP, INC.
 
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
3.
Fair Value Measurements—(Continued)
 
As of March 31, 2010 and December 31, 2009, the Company had $7.9 million and $7.4 million, respectively invested in a money market investment. These investments are required to be measured at fair value on a recurring basis. The Company has determined that the money market investment is defined as Level 1 in the fair value hierarchy. As of March 31, 2010 and December 31, 2009, the fair value of the money market investment was an asset of $7.9 million and $7.4 million, respectively.
 
4.
Pending Transaction with Mission
 
On April 11, 2006, Nexstar and Mission filed an application with the FCC for consent to assignment of the license of KFTA Channel 24 (Ft. Smith, Arkansas) from Nexstar to Mission. Consideration for this transaction wass set at $5.6 million. On August 28, 2006, Nexstar and Mission entered into a local service agreement whereby (a) Mission pays Nexstar $5 thousand per month for the right to broadcast Fox programming on KFTA during the Fox network programming time periods and (b) Nexstar pays Mission $20 thousand per month for the right to sell all advertising time on KFTA within the Fox network programming time periods. Also in 2006, Mission entered into an affiliation agreement with the Fox network which provides Fox programming to KFTA. The local service agreement between Nexstar and Mission will terminate upon assignment of KFTA’s FCC license from Nexstar to Mission. Upon completing the assignment of KFTA’s license, Mission planned to enter into a JSA and SSA with Nexstar-owned KNWA in Fort Smith-Fayetteville-Springdale-Rogers, Arkansas, whereby KNWA will provide local news, sales and other non-programming services to KFTA. Nexstar’s KNWA, licensed to Rogers, Arkansas, has renewed its affiliation agreement for KNWA to continue as the NBC affiliate in Ft. Smith-Fayetteville-Springdale-Rogers, Arkansas through 2014. In March 2008, the FCC granted the application to assign the license for KFTA from Nexstar to Mission. On March 9, 2010, Nexstar and Mission notified the FCC that the transaction would not be consummated.  The TBA terminated on May 1, 2010.
 
5.
Intangible Assets and Goodwill
 
Intangible assets subject to amortization consisted of the following:
 
         
March 31, 2010
    
December 31, 2009
  
   
Estimated
useful life
(years)
    
Gross
    
Accumulated
Amortization
    
Net
    
Gross
    
Accumulated
Amortization
    
Net
  
               
(in thousands)
                
(in thousands)
        
Network affiliation agreements
     15     $ 344,662     $ (227,652 )   $ 117,010     $ 344,662     $ (221,945 )   $ 122,717  
Other definite-lived intangible assets
     1-15       13,455       (10,181 )     3,274       13,455       (9,956 )     3,499  
Total intangible assets subject to amortization
           $ 358,117     $ (237,833 )   $ 120,284     $ 358,117     $ (231,901 )   $ 126,216  
 
Total amortization expense from definite-lived intangibles was $5.9 million for each of the three months ended March 31, 2010 and 2009. The Company’s estimate of amortization expense for definite-lived intangible assets as of March 31, 2010 is approximately $23.7 million for 2010; $23.3 million for 2011; $23.0 million for 2012; $17.4 million for 2013; and $10.4 million for 2014.
 
The aggregate carrying value of indefinite-lived intangible assets, consisting of FCC licenses and goodwill, was $236.5 million at both March 31, 2010 and December 31, 2009. The Company expenses as incurred, any costs to renew or extend its FCC licenses. Indefinite-lived intangible assets are not subject to amortization, but are tested for impairment annually or whenever events or changes in circumstances indicate that such assets might be impaired. As of March 31, 2010, the Company did not identify any events that would trigger an impairment assessment.

 
10
 
 

 
NEXSTAR BROADCASTING GROUP, INC.
 
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
5.
Intangible Assets and Goodwill—(Continued)
 
The changes in the carrying amount of goodwill for the three months and year ended March 31, 2010 and December 31, 2009, respectively are as follows: 

   
2010
    
2009
  
     
(in thousands)
  
Goodwill
  
$
155,275
    
$
154,488
  
Accumulated impairment losses
    
(46,216
)
    
(38,856
)
Balance as of January 1
  
$
109,059
    
$
115,632
  
 
Acquisitions
    
—
      
431
  
Impairment
    
—
      
(7,360
)
Reclassification of asset
    
—
      
356
  

Goodwill
  
$
155,275
    
$
155,275
  
Accumulated impairment losses
    
(46,216
)
    
(46,216
)
Balance as of March 31, 2010 and December 31, 2009
  
$
109,059
    
$
109,059
  
 
The changes in the carrying amount of FCC licenses for the three months and year ended March 31, 2010 and December 31, 2009, respectively are as follows:
 
   
2010
    
2009
  
     
(in thousands)
  
FCC licenses
  
$
177,689
    
$
166,455
  
Accumulated impairment losses
    
(50,202
)
    
(41,398
)
Balance as of January 1
  
$
127,487
    
$
125,057
  
 
Acquisitions
    
—
      
11,234
  
Impairment
    
—
      
(8,804
)
 
FCC licenses
  
$
177,689
    
$
177,689
  
Accumulated impairment losses
    
(50,202
)
    
(50,202
)
Balance as of March 31, 2010 and December 31, 2009
  
$
127,487
    
$
127,487
  
 
6.
Accrued Expenses
 
Accrued expenses consisted of the following:
   
March 31,
    
December 31,
  
   
2010
    
2009
  
   
(in thousands)
  
Compensation and related taxes
  
$
4,691
    
$
2,716
  
Sales commissions
    
1,335
      
1,338
  
Employee benefits
    
866
      
897
  
Property taxes
    
668
      
362
  
Other accruals related to operating expenses
    
4,756
      
6,876
  
   
$
12,316
    
$
12,189
  
 

 
11
 
 

 
NEXSTAR BROADCASTING GROUP, INC.
 
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
7.
Debt
 
Long-term debt consisted of the following:
   
March 31,
    
December 31,
  
   
2010
    
2009
  
   
(in thousands)
  
Term loans
  
$
318,288
    
$
321,689
  
Revolving credit facilities
    
68,975
      
77,000
  
7% senior subordinated notes due 2014, net of discount of $879 and $929 
    
47,031
      
46,981
  
7% senior subordinated PIK notes due 2014, net of discount of $8,336 and $10,559
    
134,698
      
132,296
  
11.375% senior discount notes due 2013
    
49,981
      
49,981
  
Senior subordinated PIK notes due 2014 
    
41,637
      
42,427
  
     
660,610
      
670,374
  
Less: current portion
    
(3,485
)
    
(7,085
)
   
$
657,125
    
$
663,289
  
 
The Nexstar Senior Secured Credit Facility
 
The Nexstar senior secured credit facility consists of a Term Loan B and an $82.5 million revolving loan. As of March 31, 2010 and December 31, 2009, Nexstar had $153.4 million and $156.3 million, respectively, outstanding under its Term Loan B and $62.0 million and $70.0 million, respectively, outstanding under its revolving loan.
 
The Term Loan B, which matures in October 2012, is payable in consecutive quarterly installments amortized at 0.25% quarterly, with the remaining 93.25% due at maturity. During the three months ended March 31, 2010, repayments of Nexstar’s Term Loan B totaled $3.0 million, which included $0.4 million of scheduled maturities and a mandatory excess cash flow payment of $2.6 million, as required under the terms of our credit facility. The revolving loan is not subject to incremental reduction and matures in April 2012. During the three months ended March 31, 2010, repayments of Nexstar’s revolving loan totaled $8.0 million, including a $1.0 million mandatory excess cash flow payment.
 
The total weighted-average interest rate of the Nexstar senior secured credit facility was 5.04% and 5.02% at March 31, 2010 and December 31, 2009, respectively. Interest is payable periodically based on the type of interest rate selected. Additionally, Nexstar is required to pay quarterly commitment fees on the unused portion of its revolving loan commitment of 0.75% per annum, based on the consolidated senior leverage ratio of Nexstar Broadcasting and Mission for that particular quarter.
 
See Note 16 for subsequent events related to the senior secured credit facility.
 
The Mission Senior Secured Credit Facility
 
The Mission senior secured credit facility consists of a Term Loan B and a $15.0 million revolving loan. As of March 31, 2010 and December 31, 2009, Mission had $164.9 million and $165.4 million, respectively, outstanding under its Term Loan B and $7.0 million of borrowings were outstanding under its revolving loan.
 
Terms of the Mission senior secured credit facility, including repayment, maturity and interest rates, are the same as the terms of the Nexstar senior secured credit facility described above. During the three months ended March 31, 2010, repayments of Mission’s Term Loan B totaled $ 0.4 million, all of which were scheduled maturities. The total weighted average interest rate of the Mission senior secured credit facility was 5.0% at both March 31, 2010 and December 31, 2009.
 
See Note 16 for subsequent events related to the senior secured credit facility.
 
Unused Commitments and Borrowing Availability
 
Nexstar and Mission had $27.5 million of total unused revolving loan commitments under their respective credit facilities, all of which was available for borrowing, based on the covenant calculations as of March 31, 2010.
 
Senior Subordinated PIK Notes
 
On March 31, 2010, Nexstar purchased approximately $1.0 million of its outstanding Senior Subordinated PIK Notes due 2014 for $0.9 million, plus accrued interest of $27 thousand.  This transaction resulted in a gain of $0.1 million.  See Note 16 for subsequent events related to these notes.

 
12
 
 

 
NEXSTAR BROADCASTING GROUP, INC.
 
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
7.
Debt—(Continued)
 
Debt Covenants
 
The Nexstar senior secured credit facility contains covenants which require the Company to comply with certain financial covenant ratios, including (1) a maximum total combined leverage ratio of Nexstar Broadcasting and Mission of 9.50 times the last twelve months operating cash flow (as defined in the credit agreement) at March 31, 2010, (2) a maximum combined senior leverage ratio of Nexstar Broadcasting and Mission of 7.00 times the last twelve months operating cash flow at March 31, 2010, (3) a minimum combined interest coverage ratio of 1.75 to 1.00, and (4) a fixed charge coverage ratio of 1.15 to 1.00. The covenants, which are formally calculated on a quarterly basis, are based on the combined results of Nexstar Broadcasting and Mission. Mission’s bank credit facility agreement does not contain financial covenant ratio requirements, but does provide for default in the event Nexstar does not comply with all covenants contained in its credit agreement. As of March 31, 2010, we are in compliance with all of our covenants.  See Note 16 for discussion of covenants under our amended senior secured credit facility.
 
Collateralization and Guarantees of Debt
 
The bank credit facilities described above are collateralized by a security interest in substantially all the combined assets, excluding FCC licenses, of Nexstar and Mission. Nexstar and its subsidiaries guarantee full payment of all obligations incurred under the Mission senior secured credit facility in the event of Mission’s default. Similarly, Mission is a guarantor of the Nexstar senior secured credit facility and the senior subordinated notes issued by Nexstar Broadcasting.
 
In consideration of Nexstar’s guarantee of Mission’s senior secured credit facility, the sole shareholder of Mission has granted Nexstar a purchase option to acquire the assets and assume the liabilities of each Mission station, subject to FCC consent. These option agreements (which expire on various dates between 2011 and 2018) are freely exercisable or assignable by Nexstar without consent or approval by the sole shareholder of Mission. The Company expects these option agreements, if unexercised, will be renewed upon expiration.
 
Fair Value of Debt
 
The aggregate carrying amounts and estimated fair value of Nexstar’s and Mission’s debt were as follows:
 
   
March 31, 2010
    
December 31, 2009
  
   
Carrying
Amount
    
Fair Value
    
Carrying
Amount
    
Fair Value
  
   
(in thousands)
  
Term loans(1)
  
$
318,288
    
$
313,416
    
$
321,689
    
$
301,254
  
Revolving credit facilities(1)
  
$
68,975
    
$
68,107
    
$
77,000
    
$
72,865
  
7% senior subordinated notes(2)
  
$
47,031
    
$
38,565
    
$
46,981
    
$
36,645
  
7% senior subordinated PIK notes(2)
  
$
134,698
    
$
110,452
    
$
132,296
    
$
103,191
  
11.375% senior discount notes(2)
  
$
49,981
    
$
43,983
    
$
49,981
    
$
41,734
  
Senior subordinated PIK notes(2)
  
$
41,637
    
$
30,811
    
$
42,427
    
$
28,214
  
            
(1)
The fair value of bank credit facilities is computed based on borrowing rates currently available to Nexstar and Mission for bank loans with similar terms and average maturities.  These fair value measurements are considered Level 3 (significant and unobservable), which represents 63% of total liabilities measured at fair value.
(2)
The fair value of Nexstar’s fixed rate debt is estimated based on bid prices obtained from an investment banking firm that regularly makes a market for these financial instruments.  These fair value measurements are considered Level 2 (significant and observable).

 
13
 
 

 
NEXSTAR BROADCASTING GROUP, INC.
 
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
8.
Contract Termination
 
On March 31, 2008, Nexstar signed a ten year agreement for national sales representation with two units of Katz Television Group, a subsidiary of Katz Media Group (“Katz”), transferring 24 stations in 14 of its markets from Petry Television Inc. (“Petry”) and Blair Television Inc. (“Blair”). Nexstar, Blair, Petry and Katz entered into a termination and mutual release agreement under which Blair agreed to release Nexstar from its future contractual obligations in exchange for payments totaling $8.0 million. The payments will be paid by Katz on behalf of Nexstar as an inducement for Nexstar to enter into the new long-term contract with Katz. Nexstar recognized a $7.2 million charge associated with terminating the contracts, which is reflected as a non-cash contract termination fees in the accompanying condensed consolidated statement of operations. The $7.2 million charge was calculated as the present value of the future payments to be made by Katz. The liability established as a result of the termination represents an incentive received from Katz that will be accounted for as a termination obligation, and will be recognized as a non-cash reduction to operating expenses over the term of the agreement with Katz. As of March 31, 2010, the current portion of this deferred amount of approximately $0.7 million was included in other current liabilities and the long-term portion in the amount of approximately $5.4 million was included in deferred representation fee incentive in the accompanying condensed balance sheet.  The Company recognized $0.2 million of these incentives as a reduction in selling, general, and administrative expense for each of the three months ended March 31, 2010 and 2009.
 
9.
Other Non-Current Liabilities
 
Other non-current liabilities consist of the following:
 
   
March 31,
    
December 31,
  
   
2010
    
2009
  
   
(in thousands)
  
Deferred rent
   $ 7,779     $ 7,679  
Software agreement obligation
     3,841       3,931  
Other
     1,714       2,200  
    $ 13,334     $ 13,810  
 
10.
Stock-Based Compensation Plans
 
Nexstar’s employee compensation plans (the “Equity Plans”) provide for the granting of stock options, stock appreciation rights, restricted stock and performance awards to directors, employees of Nexstar or consultants. A maximum of 4,500,000 shares of Nexstar’s Class A common stock can be issued under the Equity Plans and as of March 31, 2010, a total of 648,000 shares were available for future grant. Employee stock options are granted with an exercise price at least equal to the fair market value of the underlying shares of common stock on the date of the grant, vest over five years and expire ten years from the date of grant.
 
11.
Gain on Asset Exchange
 
In 2004, the FCC approved a spectrum allocation exchange between Sprint Nextel Corporation (“Nextel”) and public safety entities to eliminate interference being caused to public safety radio licensees by Nextel’s operations. As part of this spectrum exchange, the FCC granted Nextel the right to certain spectrum within the 1.9 GHz band that is currently used by television broadcasters. In order to utilize this spectrum, Nextel is required to relocate the broadcasters to new spectrum by replacing all analog equipment currently used by broadcasters with comparable digital equipment. The Company has agreed to accept the substitute equipment that Nextel will provide and in turn must relinquish its existing equipment back to Nextel. This transition began on a market by market basis beginning in the second quarter of 2007. The equipment the Company receives under this arrangement is recorded at their estimated fair market value and depreciated over estimated useful lives ranging from 5 to 15 years. Management’s determination of the fair market value is derived from the most recent prices paid to manufacturers and vendors for the specific equipment acquired. As equipment is exchanged, the Company records a gain to the extent that the fair market value of the equipment received exceeds the carrying amount of the equipment relinquished. For the three months ended March 31, 2010 and 2009, the Company recognized gains of $30 thousand and $1.7 million, respectively from the exchange of this equipment. As of March 31, 2010, the transaction is complete.

 
14
 
 

 
NEXSTAR BROADCASTING GROUP, INC.
 
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
12.
Income Taxes
 
The Company’s provision for income taxes is primarily comprised of deferred income taxes created by an increase in the deferred tax liabilities position during the year resulting from the amortization of goodwill and other indefinite-lived intangible assets for income tax purposes which are not amortized for financial reporting purposes. These deferred tax liabilities do not reverse on a scheduled basis and are not used to support the realization of deferred tax assets. The Company’s deferred tax assets primarily result from federal and state net operating loss carryforwards (“NOLs”). The Company’s NOLs are available to reduce future taxable income if utilized before their expiration. The Company has provided a valuation allowance for certain deferred tax assets as it believes they may not be realized through future taxable earnings.
 
As of January 1, 2010, the Company had gross unrecognized tax benefits of approximately $3.7 million, which did not materially change as of March 31, 2010. If recognized, this amount would result in a favorable effect on the Company’s effective tax rate excluding the impact on the Company’s valuation allowance. As of March 31, 2010, the Company has not accrued interest on the unrecognized tax benefits as an unfavorable outcome upon examination would not result in a cash outlay but would reduce NOLs subject to a valuation allowance. The Company does not expect the amount of unrecognized tax benefits to significantly change in the next twelve months.
 
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is subject to U.S. federal tax examinations for years after 2005. Additionally, any NOLs that were generated in prior years and will be utilized in the future may also be subject to examination by the Internal Revenue Service. State jurisdictions that remain subject to examination are not considered significant.
 
13.
FCC Regulatory Matters
 
Television broadcasting is subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended (the “Communications Act”). The Communications Act prohibits the operation of television broadcasting stations except under a license issued by the FCC, and empowers the FCC, among other things, to issue, revoke, and modify broadcasting licenses, determine the location of television stations, regulate the equipment used by television stations, adopt regulations to carry out the provisions of the Communications Act and impose penalties for the violation of such regulations. The FCC’s ongoing rule making proceedings could have a significant future impact on the television industry and on the operation of the Company’s stations and the stations it provides services to. In addition, the U.S. Congress may act to amend the Communications Act in a manner that could impact the Company’s stations, the stations it provides services to and the television broadcast industry in general.
 
Media Ownership
 
In 2006, the FCC initiated a rulemaking proceeding which provides for a comprehensive review of all of its media ownership rules, as required by the Communications Act. The Commission considered rules relating to ownership of two or more TV stations in a market, ownership of local TV and radio stations by daily newspapers in the same market, cross-ownership of local TV and radio stations, and changes to how the national TV ownership limits are calculated. In February 2008, the FCC adopted modest changes to its newspaper broadcast cross-ownership rule while retaining the rest of its ownership rules then currently in effect.  Multiple challenges to this proceeding were filed with the U.S. Courts of Appeal.  The court proceedings remain pending.
 
The FCC is required by statute to review its media ownership rules every four years and to eliminate those rules it finds no longer serve the “public interest, convenience and necessity”.  During 2009, the FCC held a series of hearings designed to evaluate possible changes to its rules.  Sometime during 2010, the FCC is expected to officially initiate the next statutorily-mandated review of its media ownership rules and request public comments thereon.
 
14.
Commitments and Contingencies
 
Guarantee of Mission Debt
 
Nexstar and its subsidiaries guarantee full payment of all obligations incurred under Mission’s senior secured credit facility agreement. In the event that Mission is unable to repay amounts due under its credit facility, Nexstar will be obligated to repay such amounts. The maximum potential amount of future payments that Nexstar would be required to make under this guarantee would be generally limited to the amount of borrowings outstanding under the Mission credit facility. At March 31, 2010, Mission had $171.9 million outstanding under its senior secured credit facility.

 
15
 
 

 
NEXSTAR BROADCASTING GROUP, INC.
 
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
14.
Commitments and Contingencies—(Continued)
 
Indemnification Obligations
 
In connection with certain agreements that the Company enters into in the normal course of its business, including local service agreements, business acquisitions and borrowing arrangements, the Company enters into contractual arrangements under which the Company agrees to indemnify the third party to such arrangement from losses, claims and damages incurred by the indemnified party for certain events as defined within the particular contract. Such indemnification obligations may not be subject to maximum loss clauses and the maximum potential amount of future payments the Company could be required to make under these indemnification arrangements may be unlimited. Historically, payments made related to these indemnifications have been immaterial and the Company has not incurred significant costs to defend lawsuits or settle claims related to these indemnification agreements.
 
Litigation
 
From time to time, the Company is involved with claims that arise out of the normal course of its business. In the opinion of management, any resulting liability with respect to these claims would not have a material adverse effect on the Company’s financial position or results of operations.
 
15.
Condensed Consolidating Financial Information
 
The following condensed consolidating financial information presents the financial position, results of operations and cash flows of the Company, each of its 100%, directly or indirectly, owned subsidiaries. This information is presented in lieu of separate financial statements and other related disclosures pursuant to Regulation S-X Rule 3-10 of the Securities Exchange Act of 1934, as amended, “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or being Registered.”
 
The Nexstar column presents the parent company’s financial information (not including any subsidiaries). The Nexstar Holdings column presents its financial information (not including any subsidiaries). The Nexstar Broadcasting column presents the financial information of Nexstar Broadcasting. The Mission column presents the financial information of Mission, an entity which Nexstar Broadcasting is required to consolidate as a variable interest entity (see Note 2).
 
The Company and its subsidiaries have the following notes outstanding:
 
1. Nexstar Holdings, which is a wholly-owned subsidiary of Nexstar, has 11.375% senior discount notes (“11.375% Notes”) due in 2013. The 11.375% Notes are fully and unconditionally guaranteed by Nexstar but not guaranteed by any other entities.
 
2. Nexstar Broadcasting, which is a wholly-owned subsidiary of Nexstar Holdings, has the following notes outstanding: 
 
(a) 7% Senior Subordinated Notes (“7% Notes”) due 2014. The 7% Notes are fully and unconditionally guaranteed by Nexstar and Mission. These notes are not guaranteed by any other entities.
 
(b) 7% Senior Subordinated PIK Notes due 2014 (“7% PIK Notes”). The 7% PIK Notes are fully and unconditionally guaranteed by Nexstar and Mission. These notes are not guaranteed by any other entities.
 
(c) Senior Subordinated PIK Notes due 2014 (“Senior Subordinated PIK Notes”). The Senior Subordinated PIK Notes currently bear interest at 13% subject to increases over time. The Senior Subordinated PIK Notes are fully and unconditionally guaranteed by Nexstar. The Senior Subordinated PIK Notes are not guaranteed by Mission or any other entity.
 
Neither Mission nor Nexstar Broadcasting has any subsidiaries.
 

 
16
 
 

 
NEXSTAR BROADCASTING GROUP, INC.
 
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
15.
Condensed Consolidating Financial Information—(Continued)

Balance Sheet
March 31, 2010
(in thousands)
 
   
Nexstar
    
Nexstar
Broadcasting
    
Mission
    
Nexstar
Holdings
    
Eliminations
    
Consolidated
Company
  
ASSETS
                                    
Current assets:
                                    
Cash and cash equivalents
   $ —     $ 10,132     $ 1,057     $ —     $ —     $ 11,189  
Due from Mission
     —       12,492       —       —       (12,492 )     —  
Other current assets
     —       70,919       4,105       —       —       75,024  
Total current assets
     —       93,543       5,162               (12,492 )     86,213  
Investments in subsidiaries eliminated upon consolidation
     (78,075 )     —       —       (18,324 )     96,399       —  
Amounts due from parents eliminated upon consolidation
     —       3,861       —       —       (3,861 )     —  
Property and equipment, net
     —       115,410       27,883       —       —       143,293  
Goodwill
     —       90,330       18,729       —       —       109,059  
FCC licenses
     —       106,789       20,698       —       —       127,487  
Other intangible assets, net
     —       96,054       24,230       —       —       120,284  
Other noncurrent assets
     —       12,631       3,321       734       —       16,686  
Total assets
   $ (78,075 )   $ 518,618     $ 100,023     $ (17,590 )   $ 80,046     $ 603,022  
LIABILITIES AND
STOCKHOLDERS’ EQUITY (DEFICIT)
                                                
Current liabilities:
                                                
Current portion of debt
   $ —     $ 1,758     $ 1,727     $ —     $ —     $ 3,485  
Due to Nexstar Broadcasting
     —       —       12,492       —       (12,492 )     —  
Other current liabilities
     175       39,967       4,400       2,843       —       47,385  
Total current liabilities
     175       41,725       18,619       2,843       (12,492 )     50,870  
Debt
     —       436,942       170,202       49,981       —       657,125  
Amounts due to subsidiary eliminated upon consolidation
     (3,798 )     —       —       7,659       (3,861 )     —  
Other noncurrent liabilities
     (3 )     58,275       16,404       2       —       74,678  
Total liabilities
     (3,626 )     536,942       205,225       60,485       (16,353 )     782,673  
Stockholders’ equity (deficit):
                                                
Common stock
     284       —       —       —       —       284  
Other stockholders’ equity (deficit)
     (74,733 )     (18,324 )     (105,202 )     (78,075 )     96,399       (179,935 )
Total stockholders’ equity (deficit)
     (74,449 )     (18,324 )     (105,202 )     (78,075 )     96,399       (179,651 )
Total liabilities and stockholders’ equity (deficit)
   $ (78,075 )   $ 518,618     $ 100,023     $ (17,590 )   $ 80,046     $ 603,022  
 

 
17
 
 

 
NEXSTAR BROADCASTING GROUP, INC.
 
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
15.
Condensed Consolidating Financial Information—(Continued)

BALANCE SHEET
December 31, 2009
(in thousands)
 
   
Nexstar
    
Nexstar
Broadcasting
    
Mission
    
Nexstar
Holdings
    
Eliminations
    
Consolidated
Company
  
ASSETS
                                    
Current assets:
                                    
Cash and cash equivalents
  
$
—
    
$
11,849
    
$
903
    
$
—
    
$
—
    
$
12,752
  
Due from Mission
    
—
      
13,370
      
—
      
—
      
(13,370
)
    
—
  
Other current assets
    
—
      
75,466
      
4,668
      
—
      
—
      
80,134
  
Total current assets
    
—
      
100,685
      
5,571
      
—
      
(13,370
)
    
92,886
  
Investments in subsidiaries eliminated upon consolidation
    
(75,125
)
    
—
      
—
      
(16,856
)
    
91,981
      
—
  
Amounts due from parents eliminated upon consolidation
    
—
      
4,146
      
—
      
—
      
(4,146
)
    
—
  
Property and equipment, net
    
—
      
115,671
      
28,610
      
—
      
—
      
144,281
  
Goodwill
    
—
      
90,330
      
18,729
      
—
      
—
      
109,059
  
FCC licenses
    
—
      
106,789
      
20,698
      
—
      
—
      
127,487
  
Other intangible assets, net
    
—
      
100,699
      
25,517
      
—
      
—
      
126,216
  
Other noncurrent assets
    
—
      
15,197
      
3,906
      
794
      
—
      
19,897
  
Total assets
  
$
(75,125
)
  
$
533,517
    
$
103,031
    
$
(16,062
)
  
$
74,465
    
$
619,826
  
LIABILITIES AND
STOCKHOLDERS’ EQUITY (DEFICIT)
                                                
Current liabilities:
                                                
Current portion of debt
  
$
—
    
$
5,358
    
$
1,727
    
$
—
    
$
—
    
$
7,085
  
Due to Nexstar Broadcasting
    
—
      
—
      
13,370
      
—
      
(13,370
)
    
—
  
Other current liabilities
    
—
      
42,331
      
5,174
      
1,421
      
—
      
48,926
  
Total current liabilities
    
—
      
47,689
      
20,271
      
1,421
      
(13,370
)
    
56,011
  
Debt
    
—
      
442,675
      
170,633
      
49,981
      
—
      
663,289
  
Amounts due to subsidiary eliminated upon consolidation
    
(3,513
)
    
—
      
—
      
7,659
      
(4,146
)
    
—
  
Other noncurrent liabilities
    
(3
)
    
60,009
      
16,781
      
2
      
—
      
76,789
  
Total liabilities
    
(3,516
)
    
550,373
      
207,685
      
59,063
      
(17,516
)
    
796,089
  
Stockholders’ equity (deficit):
                                                
Common stock
    
284
      
—
      
—
      
—
      
—
      
284
  
Other stockholders’ equity (deficit)
    
(71,893
)
    
(16,856
)
    
(104,654
)
    
(75,125
)
    
91,981
      
(176,547
)
Total stockholders’ equity (deficit)
    
(71,609
)
    
(16,856
)
    
(104,654
)
    
(75,125
)
    
91,981
      
(176,263
)
Total liabilities and stockholders’ equity (deficit)
  
$
(75,125
)
  
$
533,517
    
$
103,031
    
$
(16,062
)
  
$
74,465
    
$
619,826
  
 

 
18
 
 

 
NEXSTAR BROADCASTING GROUP, INC.
 
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
15.
Condensed Consolidating Financial Information—(Continued)

Statement of Operations
For the Three Months Ended March 31, 2010
(in thousands)
 
   
Nexstar
    
Nexstar
Broadcasting
    
Mission
    
Nexstar
Holdings
    
Eliminations
    
Consolidated
Company
  
Net broadcast revenue (including trade and barter) 
   $ —     $ 66,397     $ 2,229     $ —     $ —     $ 68,626  
Revenue between consolidated entities
     —       1,800       6,740       —       (8,540 )     —  
Net revenue
     —       68,197       8,969       —       (8,540 )     68,626  
Operating expenses:
                                                
Direct operating expenses (exclusive of depreciation and amortization shown separately below)
     —       17,537       1,446       —       —       18,983  
Selling, general, and administrative expenses (exclusive of depreciation and amortization shown separately below)
     175       22,473       602       —       —       23,250  
Local service agreement fees between consolidated entities
     —       6,740       1,800       —       (8,540 )     —  
Amortization of broadcast rights
     —       4,338       973       —       —       5,311  
Amortization of intangible assets
     —       4,645       1,287       —       —       5,932  
Depreciation
     —       4,649       731       —       —       5,380  
(Gain) loss on asset exchange
     —       (41 )     11       —       —       (30 )
(Gain) loss on property and asset disposal, net
     —       (45 )     21       —       —       (24 )
Total operating expenses
     175       60,296       6,871       —       (8,540 )     58,802  
Income (loss) from operations
     (175 )     7,901       2,098               —       9,824  
Interest expense, including amortization of debt financing costs
     —       (8,148 )     (2,335 )     (1,481 )     —       (11,964 )
Gain on extinguishment of debt
     —       94       —       —       —       94  
Equity in loss of subsidiaries
     (2,950 )     —       —       (1,469 )     4,419       —  
Other income, net
     —       1       —       —       —       1  
Loss before income taxes
     (3,125 )     (152 )     (237 )     (2,950 )     4,419       (2,045 )
Income tax (expense) benefit
     —