Edgar Filing: NEXSTAR BROADCASTING GROUP INC

nxst2013q3.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 September 30, 2013

	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 Incorporation or Organization)	(I.R.S. Employer Identification No.)

5215 N. O’Connor Blvd., Suite 1400, Irving, Texas	75039
(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 x 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	x

Non-accelerated filer	¨	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 November 4, 2013, the registrant had 30,406,495 shares of Class A Common Stock and no shares of Class B Common Stock outstanding.

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION

ITEM 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012	1

	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2012	2

	Condensed Consolidated Statement of Changes in Stockholders’ Equity for the nine months ended September 30, 2013	3

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012	4

	Notes to Condensed Consolidated Financial Statements	5

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	42

ITEM 4.	Controls and Procedures	43

PART II	OTHER INFORMATION

ITEM 1.	Legal Proceedings	43

ITEM 1A.	Risk Factors	43

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

ITEM 3.	Defaults Upon Senior Securities	44

ITEM 4.	Mine Safety Disclosures	44

ITEM 5.	Other Information	44

ITEM 6.	Exhibits	45

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

NEXSTAR BROADCASTING GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share information, unaudited)
	September 30,			December 31,
	2013			2012
ASSETS
Current assets:
Cash and cash equivalents	$	24,619		$	68,999
Accounts receivable, net of allowance for doubtful accounts of $2,556 and $1,965, respectively		102,064			74,553
Current portion of broadcast rights		7,911			8,477
Deferred tax assets, net		8,861			8,861
Prepaid expenses and other current assets		5,862			2,436
Total current assets		149,317			163,326
Property and equipment, net		219,263			180,162
Goodwill		188,108			148,409
FCC licenses		247,837			198,257
FCC licenses of Mission		41,563			21,939
Other intangible assets, net		170,048			122,491
Deferred tax assets, net		72,773			72,090
Other noncurrent assets, net		59,079			39,141
Total assets	$	1,147,988		$	945,815
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt	$	4,750		$	2,175
Current portion of broadcast rights payable		7,002			9,094
Accounts payable		13,140			12,324
Accrued expenses		23,215			18,122
Taxes payable		288			983
Interest payable		19,479			8,703
Amounts payable to sellers for acquisition of stations		22,000			-
Other liabilities of Mission		4,755			3,195
Other liabilities		4,321			3,407
Total current liabilities		98,950			58,003
Debt		1,006,749			855,467
Other liabilities of Mission		8,627			7,828
Other liabilities		22,304			22,278
Total liabilities		1,136,630			943,576
Commitments and contingencies
Stockholders' equity:
Preferred stock - $0.01 par value, 200,000 shares authorized; none issued and outstanding at each of September 30, 2013 and December 31, 2012		-			-
Class A Common stock - $0.01 par value, 100,000,000 shares authorized; 30,406,495 and 21,677,248 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively		304			217
Class B Common stock - $0.01 par value, 20,000,000 shares authorized; none issued and outstanding at September 30, 2013 and 7,702,471 shares issued and outstanding at December 31, 2012		-			77
Class C Common stock - $0.01 par value, 5,000,000 shares authorized; none issued and outstanding at each of September 30, 2013 and December 31, 2012		-			-
Additional paid-in capital		408,956			410,514
Accumulated deficit		(397,902	)		(408,569	)
Total stockholders' equity		11,358			2,239
Total liabilities and stockholders' equity	$	1,147,988		$	945,815

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

NEXSTAR BROADCASTING GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share information, unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012

Net revenue	$	125,792		$	89,952		$	364,208		$	262,458
Operating expenses:
Direct operating expenses, excluding depreciation and amortization		37,270			21,950			107,835			65,930
Selling, general, and administrative expenses, excluding depreciation and amortization		37,587			27,506			110,652			81,746
Amortization of broadcast rights		9,188			5,563			26,867			16,303
Amortization of intangible assets		7,996			5,480			22,900			16,595
Depreciation		8,598			5,896			24,791			17,359
Total operating expenses		100,639			66,395			293,045			197,933
Income from operations		25,153			23,557			71,163			64,525
Interest expense, net		(16,900	)		(12,438	)		(50,352	)		(37,921	)
Loss on extinguishment of debt		(1,048	)		-			(1,048	)		(497	)
Other expense		(84	)		-			(252	)		-
Income before income taxes		7,121			11,119			19,511			26,107
Income tax expense		(3,526	)		(1,558	)		(8,844	)		(4,712	)
Net income	$	3,595		$	9,561		$	10,667		$	21,395
Net income per common share:
Basic	$	0.12		$	0.33		$	0.36		$	0.74
Diluted	$	0.11		$	0.31		$	0.34		$	0.70
Weighted average number of common shares outstanding:
Basic		30,048			28,960			29,706			28,881
Diluted		31,509			30,703			31,297			30,561

Dividends paid per common share	$	0.12		$	-		$	0.36		$	-

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

NEXSTAR BROADCASTING GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 2013
(in thousands, except share information, unaudited)


				Common Stock									Additional							Total
	Preferred Stock			Class A			Class B			Class C			Paid-In		Treasury Stock			Accumulated		Stockholders'
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Capital		Shares	Amount		Deficit		Equity
Balances as of December 31, 2012	-	$	-	21,677,248	$	217	7,702,471	$	77	-	$	-	$	410,514	-	$	-	$	(408,569)	$	2,239
Stock-based compensation expense	-		-	-		-	-		-	-		-		1,580	-		-		-		1,580
Conversion of Class B common stock to Class A common stock	-		-	7,702,471		77	(7,702,471)		(77)	-		-		-	-		-		-		-
Purchase of treasury stock	-		-	-		-	-		-	-		-		-	(365,384)		(8,422)		-		(8,422)
Exercise of stock options	-		-	1,026,776		10	-		-	-		-		(2,270)	365,384		8,422		-		6,162
Excess tax benefit from stock option exercises	-		-	-		-	-		-	-		-		9,786	-		-		-		9,786
Common stock dividends paid	-		-	-		-	-		-	-		-		(10,654)	-		-		-		(10,654)
Net income	-		-	-		-	-		-	-		-		-	-		-		10,667		10,667
Balances as of September 30, 2013	-	$	-	30,406,495	$	304	-	$	-	-	$	-	$	408,956	-	$	-	$	(397,902)	$	11,358

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

NEXSTAR BROADCASTING GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

	Nine Months Ended
	September 30,
	2013			2012
Cash flows from operating activities:
Net income	$	10,667		$	21,395
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for bad debts and allowances		1,320			1,448
Amortization of broadcast rights, excluding barter		9,545			6,489
Depreciation of property and equipment		24,791			17,359
Amortization of intangible assets		22,900			16,595
Loss (gain) on asset disposal, net		35			(25	)
Amortization of debt financing costs		1,582			1,238
Amortization of debt discount		1,001			1,016
Loss on extinguishment of debt		1,048			497
Stock-based compensation expense		1,580			725
Deferred income taxes		9,103			4,307
Payments for broadcast rights		(11,031	)		(6,681	)
Deferred gain recognition		(327	)		(327	)
Amortization of deferred representation fee incentive		(615	)		(564	)
Issue discount paid upon debt extinguishment		(262	)		(1,190	)
Premium on debt extinguishment		(853	)		-
Excess tax benefit from stock option exercises		(9,786	)		-
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		(28,409	)		2,385
Prepaid expenses and other current assets		(2,969	)		(679	)
Other noncurrent assets		43			97
Accounts payable and accrued expenses		3,969			(286	)
Interest payable		10,776			4,114
Deferred revenue		203			1,051
Other liabilities of Mission		584			174
Other noncurrent liabilities		833			(409	)
Net cash provided by operating activities		45,728			68,729
Cash flows from investing activities:
Purchases of property and equipment		(16,907	)		(11,024	)
Deposits and payments for acquisitions		(220,830	)		(28,554	)
Proceeds from disposals of property and equipment		51			39
Net cash used in investing activities		(237,686	)		(39,539	)
Cash flows from financing activities:
Repayments of long-term debt		(70,913	)		(95,735	)
Payments for debt financing costs		(2,218	)		(251	)
Proceeds from long-term debt		223,875			70,500
Purchase of treasury stock		(8,422	)		-
Proceeds from exercise of stock options		6,162			1,007
Excess tax benefit from stock option exercises		9,786			-
Common stock dividends paid		(10,654	)		-
Payments for capital lease obligations		(38	)		(21	)
Net cash provided by (used in) financing activities		147,578			(24,500	)
Net (decrease) increase in cash and cash equivalents		(44,380	)		4,690
Cash and cash equivalents at beginning of period		68,999			7,546
Cash and cash equivalents at end of period	$	24,619		$	12,236
Supplemental information:
Interest paid	$	36,901		$	32,693
Income taxes paid, net	$	2,143		$	522
Non-cash investing and financing activities:
Accrued purchases of property and equipment	$	2,057		$	1,547
Noncash purchases of property and equipment	$	2,689		$	421
Accrued debt financing costs	$	849		$	259
Amounts payable to sellers for acquisition of stations	$	22,000		$	-

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

NEXSTAR BROADCASTING GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Business Operations

As of September 30, 2013, Nexstar Broadcasting Group, Inc. and its wholly-owned subsidiaries (“Nexstar”) owned, operated, programmed or provided sales and other services to 75 television stations and 19 digital multicast channels, including those owned by Mission Broadcasting, Inc. (“Mission”), in 44 markets in the states of Illinois, Indiana, Maryland, Missouri, Montana, Tennessee, Texas, Pennsylvania, Louisiana, Arkansas, Alabama, New York, Florida, Wisconsin, Michigan, Utah, Vermont, California and Iowa. The stations are affiliates of NBC (16 stations), CBS (13 stations), ABC (19 stations), FOX (14 stations), MyNetworkTV (5 stations and 2 digital multicast channels), The CW (6 stations and 2 digital multicast channels), Bounce TV (9 digital multicast channels), Me-TV (2 digital multicast channels), Telemundo (one station), LATV (one digital multicast channel), LiveWell (3 digital multicast channels) and one independent station. Through various local service agreements, Nexstar provided sales, programming and other services to 25 stations and 7 digital multicast channels 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.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The Condensed Consolidated Financial Statements include the accounts of Nexstar. Also included in the Condensed Consolidated Financial Statements are the accounts of the independently-owned variable interest entity (“VIE”), Mission (Nexstar and Mission are collectively referred to as the “Company”). Where the assets of Mission are not available to be used to settle the obligations of Nexstar, they are presented as the assets of Mission on the Condensed Consolidated Balance Sheets. Conversely, where the creditors of Mission do not have recourse to the general credit of Nexstar, the related liabilities are presented as the liabilities of Mission on the Condensed Consolidated Balance Sheets. Nexstar management evaluates each arrangement that may include variable interests and determines the need to consolidate an entity where it determines Nexstar is the primary beneficiary of a VIE in accordance with related authoritative literature and interpretive guidance.

All intercompany account balances and transactions have been eliminated in consolidation.

Liquidity

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.

Interim Financial Statements

The Condensed Consolidated Financial Statements as of September 30, 2013 and for the three and nine months ended September 30, 2013 and 2012 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 year ended December 31, 2012. The balance sheet as of December 31, 2012 has been derived from the audited financial statements as of that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

Mission

Mission is included in these Consolidated Financial Statements because Nexstar is deemed under U.S. GAAP to have a controlling financial interest in Mission as a VIE for financial reporting purposes as a result of (1) local service agreements Nexstar has with the Mission stations, (2) Nexstar’s guarantee of the obligations incurred under Mission’s senior secured credit facility (see Note 6), (3) Nexstar having power over significant activities affecting Mission’s economic performance, including budgeting for advertising revenue, advertising sales and hiring and firing of sales force personnel and (4) purchase options granted by Mission which 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 for consideration equal to the greater of (1) seven times the station’s cash flow, as defined in the option agreement, less the amount of its indebtedness, as defined in the option agreement, or (2) the amount of its indebtedness. Additionally, Nexstar has an option to purchase any or all of Mission’s stock, subject to FCC consent, for a price equal to the pro rata portion of the greater of (1) five times the stations’ cash flow, as defined in the agreement, reduced by the amount of indebtedness, as defined in the agreement, or (2) $100,000. These option agreements (which expire on various dates between 2013 and 2023) are freely exercisable or assignable by Nexstar without consent or approval by Mission or its shareholders. The Company expects these option agreements to be renewed upon expiration. As of September 30, 2013, the assets of Mission consisted of current assets of $9.6 million (excluding broadcast rights and amounts due from Nexstar), broadcast rights of $3.4 million, FCC licenses of $41.6 million, goodwill of $32.5 million, other intangible assets of $25.3 million, property and equipment of $27.7 million, noncurrent deferred tax assets, net of $28.8 million and other noncurrent assets of $3.5 million. Substantially all of Mission’s assets, except for its FCC licenses, collateralize its secured debt obligation. See Note 12 for a presentation of condensed consolidating financial information of the Company, which includes the accounts of Mission.

Nexstar has entered into local service agreements with Mission to provide sales and operating services to the Mission stations. The following table summarizes the various local service agreements Nexstar had in effect with Mission as of September 30, 2013:

Service Agreements		Mission Stations
TBA Only(1)		WFXP and KHMT

SSA & JSA(2)		KJTL, KJBO-LP, KLRT-TV, KASN, KOLR, KCIT, KCPN-LP, KAMC, KRBC, KSAN, WUTR, WAWV, WYOU, KODE, WTVO, KTVE, WTVW and WVNY

(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’s ability to receive cash from Mission is governed by these local service agreements. Under the local service agreements, Nexstar has received substantially all of Mission’s available cash, after satisfaction of operating costs and debt obligations. Nexstar anticipates it will continue to receive substantially all of Mission’s available cash, after satisfaction of operating costs and debt obligations. In compliance with FCC regulations for both Nexstar and Mission, Mission maintains complete responsibility for and control over programming, finances, personnel and operations of its stations with SSA and JSA agreements.

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 the station. The term local service agreements generally refers to a contract between 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. In addition to those with Mission, Nexstar has VIEs in connection with local service agreements entered into with stations as 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 Broadcast 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 also owned by Sinclair, 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 has determined that it is not the primary beneficiary of the variable interests because it does 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 $1.1 million and $1.5 million for the three months ended September 30, 2013 and 2012, respectively, and $3.5 million and $4.0 million for the nine months then ended. Nexstar has a balance due to Sinclair for fees under these arrangements in the amount of $1.1 million and $3.4 million as of September 30, 2013 and December 31, 2012, respectively. Nexstar also has receivables in the amount of $2.2 million and $2.7 million as of September 30, 2013 and December 31, 2012, respectively, for advertising aired on these three stations.

Nexstar had a variable interest in a newly acquired station, KSEE, the NBC affiliate serving the Fresno, California market, as a result of the TBA with the station during the period February 1, 2013 to May 31, 2013. Nexstar had evaluated the business arrangement with KSEE and determined that it was the primary beneficiary of the variable interest because it had the ultimate power to direct the activities that most significantly impact the economic performance of the station including developing the annual operating budget, programming and oversight and control of sales management personnel. Therefore, Nexstar consolidated KSEE as of February 1, 2013 under authoritative guidance related to the consolidation of variable interest entities. See Note 3 for additional information.

Nexstar also determined that it has variable interests in the stations included in the proposed acquisition from Citadel Communications, L.P. and its related entities (“Citadel”) (See Note 3) as a result of TBAs effective September 16, 2013. Nexstar has evaluated its arrangements with these stations and determined that it is the primary beneficiary of the variable interests because it has 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 consolidated these stations under authoritative guidance related to the consolidation of variable interest entities as of September 16, 2013.

Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, broadcast rights payable, accounts payable and accrued expenses approximate fair value due to their short-term nature. See Note 6 for fair value disclosures related to the Company’s debt.

Income Per Share

Basic income per share is computed by dividing the net income by the weighted-average number of common shares outstanding during the period. Diluted income per share is computed using the weighted-average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares are calculated using the treasury stock method. They consist of stock options outstanding during the period and reflect the potential dilution that could occur if common stock were issued upon exercise of stock options. The following table shows the amounts used in computing the Company’s diluted shares (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2013		2012		2013		2012
Weighted average shares outstanding - basic		30,048		28,960		29,706		28,881
Effect of dilutive stock options		1,461		1,743		1,591		1,680
Weighted average shares outstanding - diluted		31,509		30,703		31,297		30,561

No stock options were excluded from the computation of dilutive earnings per share for the three and nine months ended September 30, 2013. Stock options to purchase 308,000 shares and 173,000 shares of Class A common stock were excluded from the computation of diluted earnings per share for the three and nine months ended September 30, 2012, respectively, because their impact would have been antidilutive.

Basis of Presentation

Certain prior year financial statement amounts have been reclassified to conform to the current year presentation. These reclassifications had no effect on net income or stockholders’ equity as previously reported.

Recent Accounting Pronouncements

In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740) (“ASU 2013-11”) which provides guidance on financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The update is effective for years beginning after December 15, 2013. The Company does not expect the implementation of this standard to have a material impact on its financial position or results of operations.

In February 2013, the FASB issued ASU No. 2013-04, Liabilities (Topic 405) (“ASU 2013-04”). ASU 2013-04 provides guidance on measurement of fixed obligations resulting from joint and several liability arrangements as the sum of the amount a reporting entity agreed to pay on the basis of its arrangements among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. ASU 2013-04 also requires disclosure of the nature and amount of the obligation as well as other information. The update is effective for years beginning after December 15, 2013. The Company does not expect the implementation of this standard to have a material impact on its financial position or results of operations.

3.	Acquisitions

Citadel

On September 16, 2013, Nexstar entered into definitive agreements to acquire three television stations in three markets as follows:

Market	Market Rank		Station	Affiliation
Des Moines, IA		72	WOI	ABC
Rock Island, IL		99	WHBF	CBS
Sioux City, IA		147	KCAU	ABC

Under the terms of the purchase agreements, Nexstar will acquire the assets of KCAU and WHBF and the outstanding equity of WOI for a total of $87.9 million in cash, subject to adjustments for working capital, from Citadel. These acquisitions will allow Nexstar entrance into three new markets. Nexstar made payments of $44.8 million to acquire the assets excluding FCC licenses and real property interests of KCAU and WHBF and $21.0 million as an upfront payment to acquire the outstanding equity of WOI, funded by a combination of borrowings under Nexstar’s revolving credit facility (See Note 6) and cash on hand. Nexstar began providing programming and sales services to these stations pursuant to TBAs effective September 16, 2013. The remaining purchase price of $22.0 million is expected to be funded by Nexstar through borrowings under its existing credit facility and cash on hand. As of September 30, 2013, this amount is included in the current liabilities of the Condensed Consolidated Balance Sheet. The acquisitions are subject to FCC approval and other customary conditions and Nexstar is projecting them to close in the first quarter of 2014.

During each of the three and nine months ended September 30, 2013, Nexstar incurred acquisition related costs of $0.3 million, which primarily consisted of legal and professional fees. These costs are included in selling, general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations.

As discussed in Note 2, Nexstar is the primary beneficiary of its variable interests in KCAU, WHBF and WOI. Therefore, Nexstar consolidated these entities into its Condensed Consolidated Financial Statements beginning September 16, 2013. Nexstar is in the process of finalizing the allocation of purchase price to the fair values of assets and liabilities acquired and managed through TBAs. The preliminary estimated fair values of the assets acquired, FCC licenses and real property interests to be acquired and liabilities assumed in the acquisitions are as follows (in thousands):

Broadcast rights	$	269
Prepaid expenses and other current assets		254
Property and equipment		12,710
FCC licenses		25,080
Network affiliation agreements		26,500
Other intangible assets		3,292
Goodwill		20,270
Other assets		226
Total assets acquired		88,601
Less: Broadcast rights payable		(269	)
Less: Accounts payable and accrued expenses		(467	)
Net assets acquired	$	87,865

The fair value assigned to goodwill is attributable to future expense reductions utilizing management’s leverage in programming and other station operating costs. Nexstar expects the goodwill and FCC licenses to be deductible for tax purposes. The intangible asset related to the network affiliation agreements to be acquired will be amortized over 15 years. Other intangible assets are expected to be amortized over an estimated weighted average useful life of 11 months.

KCAU/WHBF/WOI’s net revenue of $0.9 million and breakeven from operations for the period September 16, 2013 to September 30, 2013 have been included in the accompanying Condensed Consolidated Statements of Operations.

Stainless

On September 13, 2013, Mission entered into a definitive agreement to acquire WICZ and WBPN-LP, both in the Binghamton, New York market, from Stainless Broadcasting, L.P. (“Stainless”). The acquisition will allow Mission entrance into this market. Under the terms of the purchase agreement, Mission will acquire the assets of WICZ and WBPN-LP for $15.3 million in cash, subject to adjustments for working capital to be acquired. A deposit of $0.2 million was paid upon signing the agreement. The remaining purchase price is expected to be funded by Mission through borrowings under its existing credit facility and cash on hand. The acquisition is subject to FCC approval and other customary conditions and Mission projects it to close in the first quarter of 2014.

CCA/White Knight

On April 24, 2013, Nexstar and Mission entered into a stock purchase agreement (“Stock Purchase Agreement”) to acquire the stock of privately-held Communications Corporation of America (“CCA”) and White Knight Broadcasting (“White Knight”), the owners of 19 television stations in 10 markets, for a total consideration of $270.0 million, subject to adjustments for working capital to be acquired. Pursuant to the Stock Purchase Agreement, Nexstar has agreed to purchase all the outstanding equity of CCA and Mission has agreed to purchase all the outstanding equity of White Knight. Nexstar will acquire 10 television stations, Mission will acquire 7 television stations and Rocky Creek Communications, Inc. (“Rocky Creek”), an independent third party, will acquire 2 television stations. Nexstar will also enter into local service agreements with Mission and Rocky Creek. These acquisitions will allow the Company and Rocky Creek entrance into seven new markets and operate duopolies in four markets. The stations to be acquired are as follows:

Market	Market Rank		Station	Affiliation
Nexstar:
Harlingen-Weslaco-Brownsville-McAllen, TX		86	KVEO	NBC/Estrella
Waco-Temple-Bryan, TX		88	KWKT KYLE	FOX/MNTV/Estrella FOX/MNTV/Estrella
El Paso, TX		91	KTSM	NBC/Estrella
Baton Rouge, LA		94	WGMB WBRL-CD	FOX The CW
Tyler-Longview, TX		107	KETK	NBC/Estrella
Lafayette, LA		124	KADN KLAF-LD	FOX MNTV
Alexandria, LA		179	WNTZ	FOX/MNTV

Mission:
Shreveport, LA		83	KMSS	FOX
Baton Rouge, LA		94	WVLA KZUP-CD	NBC RTV
Tyler-Longview, TX		107	KFXK KFXL-LD KLPN-LD	FOX FOX MNTV
Odessa-Midland, TX		152	KPEJ	FOX/Estrella

Rocky Creek:
Shreveport, LA		83	KSHV	MNTV
Evansville, IN		104	WEVV	CBS/FOX/MNTV

A deposit of $27.0 million was paid upon signing the agreement funded by a combination of borrowings under Nexstar’s revolving credit facility (See Note 6) and cash on hand. The remaining purchase price is expected to be funded through cash generated from operations prior to closing, borrowings under the existing credit facilities and future credit market transactions. The acquisitions are subject to FCC approval and other customary conditions and the Company is projecting them to close in the fourth quarter of 2013 or the first quarter of 2014.

During the three and nine months ended September 30, 2013, the Company incurred acquisition related costs of $0.2 million and $0.8 million, respectively, which primarily consisted of legal and professional fees. These costs are included in selling, general and administrative expenses in Nexstar’s Condensed Consolidated Statements of Operations.

During the nine months ended September 30, 2013, the Company completed the acquisitions listed below. These acquisitions have been accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to assets acquired and liabilities assumed based on their estimated fair value on the acquisition date. The excess of the purchase price over the fair values assigned to the net assets acquired was recorded as goodwill.

Station	Network Affiliation	Market	Date Acquired	Acquired By
KLRT-TV	Fox	Little Rock-Pine Bluff, Arkansas	January 1, 2013	Mission
KASN	The CW	Little Rock-Pine Bluff, Arkansas	January 1, 2013	Mission
KGET	NBC/The CW	Bakersfield, California	February 1, 2013	Nexstar
KKEY-LP	Telemundo	Bakersfield, California	February 1, 2013	Nexstar
KGPE	CBS	Fresno-Visalia, California	February 1, 2013	Nexstar
KSEE	NBC/LATV	Fresno-Visalia, California	February 1, 2013	Nexstar
WFFF	FOX	Burlington-Plattsburgh, Vermont	March 1, 2013	Nexstar
WVNY	ABC	Burlington-Plattsburgh, Vermont	March 1, 2013	Mission

KLRT-TV/KASN

Effective January 1, 2013, Mission acquired the assets of KLRT-TV and KASN from Newport Television LLC (“Newport”) for $59.7 million in cash. Pursuant to the terms of the purchase agreement, Mission made an initial payment of $6.0 million against the purchase price on July 18, 2012. The remainder of the purchase price was funded by Mission through the proceeds of $60.0 million term loan under its senior secured credit facility (See Note 6). This acquisition allows Mission entrance into this market. No significant transaction costs were incurred in connection with this acquisition during the nine months ended September 30, 2013.

The estimated fair values of the assets acquired and liabilities assumed in the acquisition are as follows (in thousands):

Broadcast rights	$	2,279
Prepaid expenses and other current assets		71
Property and equipment		11,153
FCC licenses of Mission		16,827
Network affiliation agreements		17,002
Other intangible assets		2,511
Goodwill		12,727
Other assets		7
Total assets acquired		62,577
Less: Broadcast rights payable		(2,492	)
Less: Accounts payable and accrued expenses		(386	)
Net assets acquired	$	59,699

The fair value assigned to goodwill is attributable to future expense reductions utilizing management’s leverage in programming and other station operating costs. The goodwill and FCC licenses are deductible for tax purposes. The intangible asset related to the network affiliation agreements acquired is amortized over 15 years. Other intangible assets are amortized over an estimated weighted average useful life of one year.

KLRT-TV/KASN’s net revenue of $5.6 million and net income of $2.7 million for the three months ended September 30, 2013 and net revenue of $15.5 million and net income of $7.0 million during the nine months ended September 30, 2013 have been included in the accompanying Condensed Consolidated Statements of Operations.

KGET/KKEY-LP/KGPE

Effective February 1, 2013, Nexstar acquired the assets of KGET, KKEY-LP and KGPE from Newport for $35.4 million in cash, funded by cash on hand and includes a $3.5 million deposit paid by Nexstar upon signing the purchase agreement in November 2012. This acquisition allows Nexstar entrance into these markets. The transaction costs relating to this acquisition, including legal and professional fees of $0.2 million were expensed as incurred.

The estimated fair values of the assets acquired and liabilities assumed in the acquisition are as follows (in thousands):

Broadcast rights	$	72
Prepaid expenses and other current assets		351
Property and equipment		9,343
FCC licenses		14,318
Network affiliation agreements		9,307
Other intangible assets		1,310
Goodwill		1,077
Total assets acquired		35,778
Less: Broadcast rights payable		(72	)
Less: Deferred revenue		(57	)
Less: Accounts payable and accrued expenses		(196	)
Net assets acquired	$	35,453

KGET/KKEY-LP/KGPE’s net revenue of $6.8 million and net income of $0.2 million for the three months ended September 30, 2013 and net revenue of $18.0 million and net income of $0.2 million for the period February 1, 2013 to September 30, 2013 have been included in the accompanying Condensed Consolidated Statements of Operations.

KSEE

Effective February 1, 2013, Nexstar entered into a definitive agreement to acquire the assets of KSEE and an unrelated network affiliation agreement from Granite Broadcasting Corporation (“Granite”) for $26.5 million in cash. Pursuant to the asset purchase agreement, Nexstar made a payment of $20.0 million funded by cash on hand, to acquire the station’s assets excluding FCC license and certain transmission equipment. Nexstar also entered into a TBA for KSEE, effective February 1, 2013, to program most of KSEE’s broadcast time, sell its advertising time and retain the advertising revenue generated during the pendency of the FCC approval of the asset purchase. On April 17, 2013, Nexstar received approval from the FCC to purchase the remaining assets of KSEE. On May 31, 2013, Nexstar completed the acquisition of the FCC license and certain transmission equipment and paid the remaining purchase price of $6.5 million. Accordingly, the TBA was terminated as of this date. This acquisition allows Nexstar to operate a duopoly in this market. No significant transaction costs were incurred in connection with this acquisition during the nine months ended September 30, 2013.

The estimated fair values of the assets acquired and liabilities assumed in the acquisition are as follows (in thousands):

Prepaid expenses and other current assets	$	140
Property and equipment		7,350
FCC licenses		7,385
Network affiliation agreements		7,870
Other intangible assets		107
Goodwill		3,838
Total assets acquired		26,690
Less: Accounts payable and accrued expenses		(194	)
Net assets acquired	$	26,496

KSEE’s net revenue of $1.7 million and net income of $1.3 million for the three months ended September 30, 2013 and net revenue of $4.6 million and net income of $3.4 million for the period February 1, 2013 to September 30, 2013 have been included in the accompanying Condensed Consolidated Statements of Operations.

WFFF/WVNY

On March 1, 2013, Nexstar and Mission acquired the assets of WFFF and WVNY from Smith Media, LLC (“Smith Media”) for a total consideration of $16.6 million in cash, funded by a combination of Nexstar’s and Mission’s $10.0 million total borrowings from their revolving credit facilities (See Note 6) and cash on hand. The purchase price includes a $0.8 million deposit paid by Nexstar upon signing the purchase agreement in November 2012. This acquisition allows Nexstar and Mission entrance into this market. The transaction costs relating to this acquisition, including legal and professional fees of $0.1 million were expensed as incurred.

The estimated fair values of the assets acquired and liabilities assumed in the acquisition are as follows (in thousands):

Broadcast rights	$	1,030
Prepaid expenses and other current assets		150
Property and equipment		7,100
FCC licenses		2,797
FCC licenses of Mission		2,797
Network affiliation agreements		2,119
Other intangible assets		439
Goodwill		1,787
Total assets acquired		18,219
Less: Broadcast rights payable		(1,145	)
Less: Deferred revenue		(19	)
Less: Accounts payable and accrued expenses		(504	)
Net assets acquired	$	16,551

WFFF/WVNY’s net revenue of $2.7 million and net income of $0.3 million for the three months ended September 30, 2013 and net revenue of $6.8 million and net income of $1.0 million for the period March 1, 2013 to September 30, 2013 have been included in the accompanying Condensed Consolidated Statements of Operations.

Unaudited Pro Forma Information

The Granite and Smith Media acquisitions are immaterial, both individually and in aggregate, therefore pro forma information has not been provided for these acquisitions.

On December 1, 2012, Nexstar acquired the assets of ten television stations and Inergize Digital Media (“Inergize”) from Newport for $225.5 million in cash (the “2012 Newport Acquisition”). As discussed above, Nexstar and Mission acquired certain television stations from Newport during the nine months ended September 30, 2013 (the “2013 Newport Acquisitions”). As the stations were acquired from the same entity, the Company considered these acquisitions as a single transaction for purposes of assessing materiality and presenting pro forma information. Therefore, the following unaudited pro forma information has been presented as if the 2012 Newport Acquisition and the 2013 Newport Acquisitions had occurred on January 1, 2012, for the three and nine months ended 2013 (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2013		2012		2013		2012
Net revenue	$	125,792	$	120,481	$	365,781	$	354,281
Income before income taxes		7,667		12,913		21,378		27,071
Net income		3,902		10,295		11,753		19,179
Net income per common share - basic		0.13		0.36		0.40		0.66
Net income per common share - diluted		0.12		0.34		0.38		0.63

The above selected unaudited pro forma information is presented for illustrative purposes only and is not necessarily indicative of results of operations in future periods or results that would have been achieved had the Company owned the acquired stations during the specified periods.

4.	Intangible Assets and Goodwill

Intangible assets subject to amortization consisted of the following (in thousands):

	Estimated		September 30, 2013										December 31, 2012
	useful life,					Accumulated										Accumulated
	in years		Gross			Amortization				Net			Gross			Amortization				Net
Network affiliation agreements		15		$	442,182		$	(285,939	)		$	156,243		$	379,384		$	(268,921	)		$	110,463
Other definite-lived intangible assets		1-15			33,329			(19,524	)			13,805			25,670			(13,642	)			12,028
Other intangible assets				$	475,511		$	(305,463	)		$	170,048		$	405,054		$	(282,563	)		$	122,491

During 2013, certain customers terminated their web hosting and other services agreements with Nexstar. Nexstar acquired these contracts through purchase of the assets of Inergize in December 2012 and had a total fair value related to these acquired contracts of $1.4 million at acquisition date. Pursuant to the termination agreements, Nexstar received an aggregate termination fee of $5.5 million, which was included in net revenue in its Condensed Consolidated Statements of Operations during the nine months ended September 30, 2013. As a result of the contract terminations, Nexstar recognized an additional $1.0 million amortization of intangible assets in the accompanying Condensed Consolidated Statements of Operations during the three and nine months ended September 30, 2013. As of September 30, 2013, the intangible assets associated with the terminated contracts are fully amortized.

The following table presents the Company’s estimate of amortization expense for the remainder of 2013, each of the five succeeding years ended December 31 and thereafter for definite-lived intangible assets as of September 30, 2013 (in thousands):

Remainder of 2013	$	8,407
2014		22,940
2015		21,865
2016		16,526
2017		15,736
2018		13,677
Thereafter		70,897
	$	170,048

The amounts recorded to goodwill and FCC licenses were as follows (in thousands):

	Goodwill										FCC Licenses
				Accumulated										Accumulated
	Gross			Impairment				Net			Gross			Impairment				Net
Balance as of December 31, 2012		$	194,400		$	(45,991	)		$	148,409		$	269,617		$	(49,421	)		$	220,196
Acquisitions (See Note 3)			39,699			-				39,699			69,204			-				69,204
Balance as of September 30, 2013		$	234,099		$	(45,991	)		$	188,108		$	338,821		$	(49,421	)		$	289,400

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 a result of the termination of certain web hosting and other services agreements, Nexstar assessed the recoverability of one of its reporting units as of September 30, 2013 by comparing its estimated fair value with its carrying amount. Based on the results of the step one analysis, it is more likely than not that the fair value of the reporting unit exceeds its carrying amount. Therefore, no impairment of goodwill is indicated and Nexstar deemed it not necessary to perform the step two impairment test. We did not identify any other events that would trigger impairment assessment.

5.	Accrued Expenses

Accrued expenses consisted of the following (in thousands):

	September 30,		December 31,
	2013		2012
Compensation and related taxes	$	7,773	$	7,282
Sales commissions		2,124		1,919
Employee benefits		1,447		1,147
Property taxes		1,317		653
Other accruals related to operating expenses		10,554		7,121
	$	23,215	$	18,122

Debt

Long-term debt consisted of the following (in thousands):

	September 30,			December 31,
	2013			2012
Term loans, net of discount of $1,686 and $1,736, respectively	$	396,564		$	288,264
Revolving loans		55,000			-
8.875% Senior secured second lien notes due 2017, net of discount of $4,640 and $5,622, respectively		309,935			319,378
6.875% Senior unsecured notes due 2020		250,000			250,000
		1,011,499			857,642
Less: current portion		(4,750	)		(2,175	)
	$	1,006,749		$	855,467

2013 Transactions

During the nine months ended September 30, 2013, the Company borrowed a net amount of $55.0 million revolving loans under its senior secured credit facilities. In June and September 2013, Nexstar and Mission each paid the contractual maturities under their senior secured credit facilities, for a total payment of $1.8 million.

On January 3, 2013, Mission borrowed $60.0 million in term loans under its senior secured credit facility to fund the acquisition of the assets of KLRT-TV and KASN from Newport (See Note 3).

On June 28, 2013, Nexstar and Mission entered into amendments to each of their senior secured credit facilities. The amendments provided commitments for incremental term loan facilities (“Term Loan A Facilities”) available to Nexstar of $144.0 million and to Mission of $90.0 million, subject to reallocation of up to $18.0 million for the benefit of Rocky Creek, pursuant to the terms of the amended credit agreements. On June 28, 2013, Nexstar received initial proceeds of $50.0 million under its incremental term loan facility. The initial proceeds under Nexstar’s Term Loan A Facility, together with the Company’s net borrowings from its revolving credit facilities during the nine months ended September 30, 2013 were used to partially fund the required deposit to acquire the stock of CCA and White Knight, to fund the remaining purchase price in relation to Nexstar’s purchase of KSEE’s assets, to partially finance the acquisition of the assets of WFFF and WVNY from Smith Media and to partially fund the payments made pursuant to the purchase agreements entered by Nexstar to acquire KCAU, WHBF and WOI (See Note 3 for additional information on station acquisitions).

Nexstar and Mission recorded $0.9 million and $0.2 million, respectively, in legal, professional and underwriting fees related to the Term Loan A Facilities, which were capitalized as debt finance costs, included in other noncurrent assets, net on the Condensed Consolidated Balance Sheet as of September 30, 2013, and are being amortized over their terms.

During September 2013, Nexstar repurchased $10.4 million of the 8.875% Senior Secured Second Lien Notes (“8.875% Notes”) at an average price of 108.2%, plus accrued and unpaid interest, funded by cash on hand. The repurchases resulted in a loss on extinguishment of debt of $1.0 million.

On October 1, 2013, Nexstar completed the sale and issuance of $275.0 million 6.875% Senior Unsecured Notes (the “Additional 6.875% Notes”) at 100.25%, plus accrued interest from May 15, 2013. The Additional 6.875% Notes will mature on November 15, 2020 and interest is payable semiannually in arrears on May 15 and November 15 of each year. The Additional 6.875% Notes are guaranteed by Nexstar Broadcasting, Inc., a wholly-owned, indirect subsidiary of Nexstar, (“Nexstar Broadcasting”) and Mission and certain of the Company’s future 100% owned subsidiaries, subject to certain customary release provisions. The Additional 6.875% Notes have the same terms as, and are to be treated as a single class with Nexstar’s $250.0 million 6.875% Senior Unsecured Notes that were issued on November 9, 2012 (the “6.875% Notes”).

On October 1, 2013, Nexstar and Mission entered into amendments to each of their senior secured credit facilities. The amendments provided for incremental term loan facilities (“Term Loan B-2 Facilities”) to Nexstar of $25.0 million and to Mission of $125.0 million and amended revolving credit facilities available to Nexstar of $75.0 million and to Mission of $30.0 million. The principal amounts under the Term Loan B-2 Facilities are reduced by quarterly payments of 0.25% beginning December 31, 2013. The remainder of the principal is due in full at maturity on October 1, 2020.

The Company expects to use the net proceeds from the Additional 6.875% Notes and Term Loan B-2 Facilities to repurchase the outstanding principal balance of the 8.875% Notes, to partially fund the Company’s acquisition of five television stations in four markets from Citadel and Stainless (See Note 3), to pay for related fees and expenses and for general corporate purposes. On October 1, 2013, Nexstar and Mission repurchased $292.7 million of the outstanding principal balance of the 8.875% Notes at 108.875%, plus accrued and unpaid interest, in accordance with a tender offer dated September 17, 2013. The repurchase resulted in a loss on extinguishment of debt of $31.3 million. The tender offer expired on October 15, 2013 and the Company issued a notice of redemption to the holders of the remaining principal balance of $21.9 million at a redemption price as defined in the indenture, plus accrued and unpaid interest, to redeem such outstanding amount on November 16, 2013.

Nexstar and Mission recorded $0.8 million and $0.1 million, respectively, in legal, professional and underwriting fees related to the Additional 6.875% Notes and Term Loan B-2 Facilities, which were capitalized as debt finance costs, included in other noncurrent assets, net on the Condensed Consolidated Balance Sheet as of September 30, 2013.

Unused Commitments and Borrowing Availability

The Company had $45.0 million of total unused revolving loan commitments under its senior secured credit facilities, all of which was available for borrowing, based on the covenant calculations as of September 30, 2013. The Company also had $184.0 million of unused Term Loan A Facilities commitment under its amended senior secured credit facilities, all of which was available for borrowing as of September 30, 2013, upon the close of the CCA and White Knight acquisitions. The Company’s ability to access funds under its senior secured credit facilities depends, in part, on its compliance with certain financial covenants.

Debt Covenants

The Nexstar senior secured credit facility agreement contains covenants which require the Company to comply with certain financial covenant ratios, including (1) a maximum consolidated total leverage ratio of Nexstar Broadcasting, a wholly-owned, indirect subsidiary of Nexstar, and Mission of 7.25 to 1.00 at September 30, 2013, (2) a maximum consolidated first lien indebtedness ratio of 3.50 to 1.00 at any time and (3) a minimum consolidated fixed charge coverage ratio of 1.20 to 1.00 at any time. The covenants, which are formally calculated on a quarterly basis, are based on the combined results of Nexstar Broadcasting and Mission. Mission’s senior secured credit agreement does not contain financial covenant ratio requirements, but includes default provisions in the event Nexstar does not comply with all covenants contained in its senior secured credit facility agreement. As of September 30, 2013, the Company was in compliance with all of its covenants.

Collateralization and Guarantees of Debt

Nexstar and Mission’s senior secured credit facilities are collateralized by a security interest in substantially all the combined assets, excluding FCC licenses, of Nexstar and Mission. Nexstar 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 unsecured notes issued by Nexstar.

Fair Value of Debt

The aggregate carrying amounts and estimated fair values of the Company’s debt were as follows (in thousands):

	September 30, 2013				December 31, 2012
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Term loans(1)	$	396,564	$	392,527	$	288,264	$	293,187
Revolving loans(1)		55,000		56,714		-		-
8.875% Senior secured second lien notes(2)		309,935		342,462		319,378		359,125
6.875% Senior unsecured notes(2)		250,000		255,470		250,000		258,750

_________________________

(1)

The fair value of senior secured 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, as significant inputs to the fair value calculation are unobservable in the market.

(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, as quoted market prices are available for low volume trading of these securities.

7.	Common Stock

In February 2013, Nexstar’s principal stockholder, ABRY Partners, LLC (“ABRY”) converted a total of 3,450,000 shares of Class B common stock into an equal number of Class A common stock, which was sold in an offering completed on February 12, 2013. In May 2013, Nexstar’s Class B common stockholders converted all of the 4,252,471 outstanding Class B common stock into an equal number of Class A common stock, of which 3,865,384 shares were held by ABRY. ABRY sold 3,500,000 shares of its Class A common stock holding in an offering that was completed on May 7, 2013. In addition, Nexstar repurchased and held in treasury the remaining 365,384 shares of Class A common stock from ABRY for a total of $8.4 million. As a result of these transactions, no Class B common stock is outstanding and ABRY no longer holds an ownership interest in Nexstar. During the quarter ended June 30, 2013, Nexstar utilized all of the 365,384 shares held in treasury in connection with stock option exercises.

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. Katz is making the payments on behalf of Nexstar as an inducement for Nexstar to enter into the long-term contract with Katz. A liability of $7.2 million, representing the present value of the payments Katz is making to Blair, was recorded and is being recognized as a non-cash reduction to operating expenses over the term of the agreement with Katz. Effective May 1, 2009, Nexstar signed another agreement to transfer the remaining Nexstar stations to Katz and its related companies. Moving these contracts resulted in Nexstar cancelling multiple contracts with Blair. As a result, Blair sued the Company for additional termination fees. Katz indemnified the Company for all expenses related to the settlement and defense of this lawsuit. The lawsuit was settled effective May 7, 2010. Termination of these contracts resulted in an additional liability of $0.2 million, which is being recognized over the remaining contract term with Katz.

As of September 30, 2013, $0.7 million of this liability was included in other current liabilities and $3.0 million was included in other noncurrent liabilities in the accompanying Condensed Consolidated 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 September 30, 2013 and 2012 and $0.6 million for each of the nine months then ended.

9.	Income Taxes

The Company’s effective tax rate for the nine months ended September 30, 2013 was 45.3%, which consists of federal and state income taxes. Prior to the fourth quarter of 2012, a valuation allowance was recorded against deferred tax assets for net operating loss carryforwards (“NOLs”) and other deferred tax assets, and the Company’s provision for income taxes was primarily comprised of deferred income taxes resulting from the amortization of goodwill and other indefinite-lived intangible assets for income tax purposes which are not amortized for financial reporting purposes. In the fourth quarter of 2012, the Company released the full amount of its valuation allowance against deferred tax assets for NOLs and other deferred tax assets.

The Company’s deferred tax assets primarily result from federal and state NOLs. The Company’s NOLs are available to reduce future taxable income if utilized before their expiration. Section 382 of the Internal Revenue Code of 1986, as amended, generally imposes an annual limitation on the amount of NOLs that may be used to offset taxable income when a corporation has undergone significant changes in stock ownership. Ownership changes are evaluated as they occur and could limit the ability to use NOLs. On May 7, 2013, ABRY sold 3,865,384 shares of common stock and it no longer has any ownership interest in Nexstar. As a result of this sale, an ownership change occurred resulting in a Section 382 limitation on the use of Nexstar’s NOLs. The sale of common stock by ABRY is not expected to impact Mission. The Company expects to be able to utilize its existing NOLs prior to their expiration. Nexstar’s estimated annual Section 382 limitation following the ownership change is $53.0 million for 2013, $91.0 million for each of 2014-2017, $50.0 million for 2018 and $21.0 million annually thereafter.

In addition, any subsequent ownership changes could result in additional limitations. The ability to use NOLs is also dependent upon the Company’s ability to generate taxable income. The NOLs could expire before the Company generates sufficient taxable income. To the extent the Company’s use of NOLs is significantly limited, the Company’s income could be subject to corporate income tax earlier than it would if it were able to use NOLs, which could have a negative effect on the Company’s financial results and operations. Changes in ownership are largely beyond the Company’s control and the Company can give no assurance that it will continue to have realizable NOLs.

10.	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 to which it provides services. In addition, the U.S. Congress may act to amend the Communications Act or adopt other legislation in a manner that could impact the Company’s stations, the stations to which it provides services and the television broadcast industry in general.

The FCC has adopted rules with respect to the final conversion of existing low power and television translator stations to digital operations. The FCC has established a September 1, 2015 deadline by which low power and television translator stations must cease analog operations, and low power and television translator stations operating on channels 52-69 were required to cease operation on those channels by December 31, 2011. The Company has transitioned its television translator operations on channels 52-69 to digital operations and will transition its remaining low power and television translator stations to digital operations prior to September 1, 2015.

Media Ownership

In 2006, the FCC initiated a rulemaking proceeding to review all of its media ownership rules, as required by the Communications Act. The FCC 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. On July 7, 2011, the U.S. Court of Appeals for the Third Circuit vacated the FCC’s changes to its newspaper/broadcast cross-ownership rule while upholding the FCC’s retention of its other media ownership rules. In June 2012, the Supreme Court denied various petitions for Supreme Court review of the Third Circuit’s decision.

The FCC is required 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. In May 2010, the FCC formally initiated its 2010 review of its media ownership rules with the issuance of a Notice of Inquiry (NOI). In December 2011, the FCC issued a Notice of Proposed Rulemaking (NPRM) seeking comment on specific proposed changes to its ownership rules. Among the specific changes proposed in the NPRM are (1) elimination of the contour overlap provision of the local television ownership rule (making the rule entirely DMA-based), (2) elimination of the radio/television cross-ownership rule, and (3) modest relaxation of the newspaper/broadcast cross-ownership rule. The NPRM also sought comment on shared services agreements (SSAs) and other joint operating arrangements between television stations, and whether such agreements should be considered attributable. Comments and reply comments on the NPRM were filed in March and April 2012. In September 2013, the FCC commenced a rulemaking proceeding to consider whether to eliminate the “UHF discount” that is currently used to calculate compliance with the national television ownership limit. The Company cannot predict what rules the FCC will adopt in these proceedings or when they will be adopted.

Spectrum

The FCC has initiated various proceedings to assess the availability of spectrum to meet future wireless broadband needs. The FCC’s March 2010 “National Broadband Plan” recommends the reallocation of 120 megahertz of the spectrum currently used for broadcast television for wireless broadband use. The FCC has thus far adopted rules permitting television stations to share a single 6 megahertz channel and requested comment on proposals that include, among other things, whether to add new frequency allocations in the television bands for licensed fixed and mobile wireless uses and whether to implement technical rule modifications to improve the viability of certain channels that are underutilized by digital television stations. In February 2012, Congress adopted legislation authorizing the FCC to conduct an incentive auction whereby television broadcasters could voluntarily relinquish all or part of their spectrum in exchange for consideration. On September 28, 2012, the FCC adopted a Notice of Proposed Rule Making seeking public comment on the design of the incentive auction and various technical issues related to the reallocation of television spectrum for mobile broadband use. Comments on the notice were filed in January 2013, and reply comments were filed in March 2013. A reallocation of television spectrum for wireless broadband use would involve a “repacking” of the television broadcast band, which would require some television stations to change channel or otherwise modify their technical facilities. Future steps to reallocate television spectrum to broadband use may be to the detriment of the Company’s investment in digital facilities, could require substantial additional investment to continue current operations, and may require viewers to invest in additional equipment or subscription services to continue receiving broadcast television signals. The Company cannot predict the timing or results of television spectrum reallocation efforts or their impact to its business.

Retransmission Consent

On March 3, 2011, the FCC initiated a Notice of Proposed Rulemaking to reexamine its rules (i) governing the requirements for good faith negotiations between multichannel video program distributors (MVPDs) and broadcasters, including implementing a prohibition on one station negotiating retransmission consent terms for another station under a local service agreement; (ii) for providing advance notice to consumers in the event of dispute; and (iii) to extend certain cable-only obligations to all MVPDs. The FCC has also asked for comment on eliminating the network non-duplication and syndicated exclusivity protection rules, which may permit MVPDs to import out-of-market television stations during a retransmission consent dispute. If the FCC prohibits joint negotiations or modifies the network non-duplication and syndicated exclusivity protection rules, such changes likely would affect the Company’s ability to sustain its current level of retransmission consent revenues or grow such revenues in the future and could have an adverse effect on the Company’s business, financial condition and results of operations. The Company cannot predict the resolution of the proposals or their impact to its business.

11.	Commitments and Contingencies

Operating Leases

During the first quarter of 2013, the Company corrected its other noncurrent liabilities, other noncurrent liabilities of Mission and beginning accumulated deficit as of the earliest period being presented by an increase of $0.4 million, $0.3 million and $0.7 million, respectively, for an error in deferred rent from tower leases recorded during a 2003 acquisition. If this error had been corrected prior to the earliest period presented, net income would not have been significantly impacted for the three and nine months ended September 30, 2013 and 2012. Management evaluated this error considering both qualitative and quantitative factors and considered its impact in relation to the three and nine months ended September 30, 2013, when it was corrected, as well as the period in which it originated and believes that the adjustment was not material to any previous annual or quarterly period.

Guarantee of Mission Debt

Nexstar guarantee full payment of all obligations incurred under Mission’s senior secured credit facility. In the event that Mission is unable to repay amounts due, 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. As of September 30, 2013, Mission had a maximum commitment of $228.5 million under its senior secured credit facility, of which $103.5 million of debt was outstanding.

Indemnification Obligations

In connection with certain agreements into which the Company enters 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 other 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, results of operations or cash flows.

12.	Condensed Consolidating Financial Information

The following condensed consolidating financial information presents the financial position, results of operations and cash flows of Nexstar and its consolidated VIE. 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). Nexstar owns, directly and indirectly, 100% of two subsidiaries, Nexstar Finance Holdings, Inc. (“Nexstar Holdings”) and Nexstar Broadcasting. The Nexstar Holdings column presents its financial information (not including any subsidiaries). The Nexstar Broadcasting column presents its financial information (not including the results of Mission). The Mission column presents the financial information of Mission, an entity which Nexstar Broadcasting is required to consolidate as a VIE (see Note 2). Neither Mission nor Nexstar Broadcasting has any subsidiaries.

Nexstar Broadcasting has the following notes outstanding (See Note 6):

(a)

6.875% Notes. The 6.875% Notes are issued by Nexstar Broadcasting and fully and unconditionally guaranteed by Nexstar and Mission, subject to certain customary release provisions. These notes are not guaranteed by any other entities.

(b)

8.875% Notes. The 8.875% Notes are co-issued by Nexstar Broadcasting and Mission, jointly and severally, and fully and unconditionally guaranteed by Nexstar and all of Nexstar Broadcasting’s and Mission’s future 100% owned domestic subsidiaries, subject to certain customary release provisions. The net proceeds to Mission and Nexstar from the sale of the 8.875% Notes in 2010 were $316.8 million, net of $8.2 million original issuance discount. Mission received $131.9 million of the net proceeds and $184.9 million was received by Nexstar Broadcasting. As the obligations under the 8.875% Notes are joint and several to Nexstar Broadcasting and Mission, each entity reflects the full amount of the 8.875% Notes and related accrued interest in their separate financial statements. Further, the portions of the net proceeds and related accrued interest attributable to the respective co-issuers are reflected as a reduction to equity (due from affiliate) in their separate financial statements given the contractual relationships between the entities.

CONDENSED CONSOLIDATING BALANCE SHEET
As of September 30, 2013
(in thousands)

			Nexstar				Nexstar					Consolidated
	Nexstar		Broadcasting		Mission		Holdings		Eliminations			Company
ASSETS
Current assets:
Cash and cash equivalents	$	-	$	22,577	$	2,042	$	-	$	-		$	24,619
Due from Nexstar Broadcasting		-		-		14,233		-		(14,233	)		-
Other current assets		-		115,620		9,078		-		-			124,698
Total current assets		-		138,197		25,353		-		(14,233	)		149,317
Amounts due from subsidiary eliminated upon consolidation		12,395		-		-		-		(12,395	)		-
Amounts due from parents eliminated upon consolidation		-		2,845		-		-		(2,845	)		-
Property and equipment, net		-		191,515		27,748		-		-			219,263
Goodwill		-		155,619		32,489		-		-			188,108
FCC licenses		-		247,837		41,563		-		-			289,400
Other intangible assets, net		-		144,733		25,315		-		-			170,048
Other noncurrent assets		-		97,726		34,126		-		-			131,852
Total assets	$	12,395	$	978,472	$	186,594	$	-	$	(29,473	)	$	1,147,988

LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Current portion of debt	$	-		$	3,710		$	1,040		$	-		$	-		$	4,750
Due to Mission		-			14,233			-			-			(14,233	)		-
Other current liabilities		-			89,431			17,564			-			(12,795	)		94,200
Total current liabilities		-			107,374			18,604			-			(27,028	)		98,950
Debt		-			904,777			411,907			-			(309,935	)		1,006,749
Deficiencies in subsidiaries eliminated upon consolidation		71,226			-			-			55,984			(127,210	)		-
Amounts due to subsidiary eliminated upon consolidation		-			-			-			15,240			(15,240	)		-
Other noncurrent liabilities		(3	)		22,305			8,627			2			-			30,931
Total liabilities		71,223			1,034,456			439,138			71,226			(479,413	)		1,136,630
Stockholders' equity (deficit):
Common stock		304			-			-			-			-			304
Other stockholders' equity (deficit)		(59,132	)		(55,984	)		(252,544	)		(71,226	)		449,940			11,054
Total stockholders' equity (deficit)		(58,828	)		(55,984	)		(252,544	)		(71,226	)		449,940			11,358
Total liabilities and
stockholders' equity (deficit)	$	12,395		$	978,472		$	186,594		$	-		$	(29,473	)	$	1,147,988

CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2012
(in thousands)

			Nexstar				Nexstar					Consolidated
	Nexstar		Broadcasting		Mission		Holdings		Eliminations			Company
ASSETS
Current assets:
Cash and cash equivalents	$	-	$	68,681	$	318	$	-	$	-		$	68,999
Due from Nexstar Broadcasting		-		-		512		-		(512	)		-
Other current assets		-		88,700		5,627		-		-			94,327
Total current assets		-		157,381		6,457		-		(512	)		163,326
Amounts due from subsidiary eliminated upon consolidation		13,943		-		-		-		(13,943	)		-
Amounts due from parents eliminated upon consolidation		-		1,297		-		-		(1,297	)		-
Property and equipment, net		-		158,644		21,518		-		-			180,162
Goodwill		-		129,679		18,730		-		-			148,409
FCC licenses		-		198,257		21,939		-		-			220,196
Other intangible assets, net		-		112,296		10,195		-		-			122,491
Other noncurrent assets		-		70,689		40,542		-		-			111,231
Total assets	$	13,943	$	828,243	$	119,381	$	-	$	(15,752	)	$	945,815

LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Current portion of debt	$	-		$	1,845		$	330		$	-		$	-		$	2,175
Due to Mission		-			512			-			-			(512	)		-
Other current liabilities		-			52,372			9,463			-			(6,007	)		55,828
Total current liabilities		-			54,729			9,793			-			(6,519	)		58,003
Debt		-			812,315			362,531			-			(319,379	)		855,467
Deficiencies in subsidiaries eliminated upon consolidation		76,322			-			-			61,080			(137,402	)		-
Amounts due to subsidiary eliminated upon consolidation		-			-			-			15,240			(15,240	)		-
Other noncurrent liabilities		(3	)		22,279			7,828			2			-			30,106
Total liabilities		76,319			889,323			380,152			76,322			(478,540	)		943,576
Stockholders' equity (deficit):
Common stock		294			-			-			-			-			294
Other stockholders' equity (deficit)		(62,670	)		(61,080	)		(260,771	)		(76,322	)		462,788			1,945
Total stockholders' equity (deficit)		(62,376	)		(61,080	)		(260,771	)		(76,322	)		462,788			2,239
Total liabilities and
stockholders' equity (deficit)	$	13,943		$	828,243		$	119,381		$	-		$	(15,752	)	$	945,815

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended September 30, 2013
(in thousands)

			Nexstar				Nexstar					Consolidated
	Nexstar		Broadcasting		Mission		Holdings		Eliminations			Company
Net broadcast revenue (including trade and barter)	$	-	$	118,214	$	7,578	$	-	$	-		$	125,792
Revenue between consolidated entities		-		2,445		9,581		-		(12,026	)		-
Net revenue		-		120,659		17,159		-		(12,026	)		125,792
Operating expenses: