# NEXSTAR MEDIA GROUP, INC. (NXST) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from NEXSTAR MEDIA GROUP, INC.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1142417/000095017022002187/nxst-20211231.htm
Accession: 0000950170-22-002187
Filing date: 2022-02-28
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/NXST/
All MD&A years: /company/NXST/mda/
Next year: /company/NXST/mda/fy2022/ (FY 2022)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related Notes included in Part IV, Item 15(a) of this Annual Report on Form 10-K.

As a result of our deemed controlling financial interests in the consolidated VIEs in accordance with U.S. GAAP, we consolidate the financial position, results of operations and cash flows of these VIEs as if they were wholly-owned entities. We believe this presentation is meaningful for understanding our financial performance. Refer to Note 2 to our Consolidated Financial Statements for a discussion of our determinations of VIE consolidation under the related authoritative guidance. The following discussion of our financial position and results of operations includes the consolidated VIEs’ financial position and results of operations.

Executive Summary

2021 Highlights

•
Net revenue during 2021 increased by $147.1 million, or 3.3%, compared to the same period in 2020. The increase was primarily due to (i) an increase in revenue from core advertising of our legacy stations of $141.0 million, primarily due to recovery from the effects of the COVID-19 pandemic and growth in new business, (ii) incremental revenue from the stations and digital businesses we acquired in 2021 and 2020 of $243.3 million, (iii) an increase in distribution revenue of our legacy stations of $222.0 million, and (iv) a net increase in digital revenue of our legacy stations and other digital businesses of $34.6 million. These increases were partially offset by a decrease in revenue from political advertising of our legacy stations of $462.3 million, as 2021 was not a nationwide election year, and a decrease in net revenue from station divestitures of $35.1 million.

•
During the year ended December 31, 2021, we received a total of $239.5 million in cash distributions from our 31.3% equity investment in TV Food Network.

•
During 2021, our Board of Directors declared and paid quarterly dividends of $0.70 per share of our outstanding common stock, or total dividend payments of $118.2 million.

•
During 2021, we repurchased a total of 3,575,568 shares of our Class A common stock for $536.7 million, funded by cash on hand.

•
During 2021, we deployed NEXTGEN TV (or ATSC 3.0), a new technology standard enabling us to provide high speed data transmission services and improve the speed, capacity and quality of our existing television transmissions, in 17 markets expanding our reach to approximately 29% of all U.S. households.

•
In 2021, in addition to its prime time national newscast (NewsNationPrime), NewsNation successfully launched additional programs, including Morning in America, Rush Hour, The Donlon Report, On Balance, Dan Abrams Live and Banfield. NewsNation currently airs 13 hours of original news programming per day reaching over 75 million U.S. television households.

•
On April 16, 2021, Nexstar Inc. (formerly Nexstar Broadcasting, Inc.), a wholly-owned subsidiary of Nexstar, filed a Certificate of Amendment with the Secretary of State of Delaware to change its name to Nexstar Media Inc.

2021 Acquisition of The Hill

•
On August 20, 2021, pursuant to a merger agreement, we acquired 100% of the outstanding equity of NCI for a total cash consideration of approximately $137.7 million, including working capital adjustments, funded by cash on hand. NCI is the owner of “The Hill,” an independent, political digital media platform. This acquisition marks a continuation of Nexstar’s content-first strategy, focused primarily on news, designed to further leverage and monetize its expansive digital reach.

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2021 Transactions with VIEs

•
During 2021, Nexstar acquired certain television stations owned by Mission and White Knight. Mission also acquired WNAC-TV, the Fox affiliate in the Providence, Rhode Island market, from Super Towers and the license assets of television station KGBT-TV serving the Harlingen-Weslaco-Brownsville-McAllen, Texas market from Sinclair, which Mission subsequently sold to Nexstar in 2021.

•
Effective June 30, 2021, as a result of a Supreme Court ruling, the FCC television JSA attribution rule was eliminated. On July 1, 2021, Mission entered into JSAs with Nexstar for Mission-owned stations KMSS, KPEJ, KLJB, KASY, KWBQ and KRWB. On July 1, 2021, Mission also granted Nexstar options to purchase stations KMSS, KPEJ and KLJB from Mission, subject to FCC consent.

2021 Debt Transactions

•
On June 3, 2021, Mission amended its senior secured credit facility. The amendment provides for a $300.0 million Term Loan B borrowing, issued at 99.50%, maturing on June 3, 2028 (“Term Loan B, due June 3, 2028”). The net proceeds from the Term Loan B, due June 2028 were used to pay down $268.0 million of Mission’s then outstanding loans under its revolving credit facility, pay fees to Nexstar under the shared services agreements between Nexstar and Mission and for Mission’s general corporate purposes. Concurrently with the closing of the Term Loan B, due June 3, 2028, Mission reallocated $255.0 million of its unused revolving credit facility to Nexstar.

•
During 2021, we prepaid a total of $280.0 million in principal balance under our Term Loan B due 2024, funded by cash on hand.

•
During 2021, we repaid scheduled principal maturities of $21.4 million under our Term Loan A due 2024.

•
In August 2021, we and Mission borrowed $20.0 million and $2.5 million, respectively, under our and Mission’s respective revolving credit facilities. In September 2021, we repaid in full our $20.0 million outstanding debt under our revolving credit facility, funded by cash on hand.

Update on COVID-19 Pandemic

The Company is leveraged, which makes it vulnerable to changes in general economic conditions. The Company’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 the Company’s control. For instance, uncertainties surrounding the business outlook caused by the COVID-19 pandemic. In March 2020, the World Health Organization declared COVID-19 a pandemic and the United States government declared a national emergency. The ongoing effect of the COVID-19 pandemic had an adverse impact on the Company’s financial results mostly in the first part of the second quarter in 2020. Since then, the Company’s business operations, financial results and cash flows have significantly improved. In 2021, the mass distribution of COVID-19 vaccines, the U.S. government’s stimulus programs, the reopening of states for business and consumer spending by an increasingly vaccinated public drove the continued U.S. economic recovery.

In 2021, the Company continued to be profitable and continued to generate positive cash flows from its operations. Its financial results in 2021 were also higher than the comparable prior year and its market capitalization continued to increase and exceed the carrying amount of its equity by a substantial amount. These favorable financial results are reflective of the economic recovery as well as the incremental operating results from the Company’s acquisitions in 2020 and 2021. Overall, the ongoing COVID-19 pandemic did not have a material impact on the Company’s liquidity. As of December 31, 2021, the Company was in compliance with the financial covenants contained in the amended credit agreements governing its senior secured credit facilities. The Company believes it has sufficient unrestricted cash on hand, positive working capital, and availability to access additional cash under its revolving credit facilities to meet its business operating requirements, its capital expenditures and to continue to service its debt for at least the next 12 months as of the filing date of this Annual Report on Form 10-K.

The extent to which the COVID-19 pandemic impacts the Company’s business, its results of operations and its financial condition will depend on future developments, which remain highly uncertain and cannot be reasonably predicted, including future surges and the severity of any resurgence of the virus, the length of time that the pandemic continues, current challenges to increase vaccination rates in the U.S. and continued disruptions to supply chains.

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The ARPA

On March 11, 2021, the American Rescue Plan Act of 2021 (“ARPA”) was signed into law. The ARPA includes changes to the employer funding requirements for single-employer pension plans and is designed to reduce the amounts of required contributions as a relief. The ARPA also includes multi-employer pension plan funding relief but had no significant impact on Nexstar. The two key aspects of the ARPA funding relief for single-employer plans are extended amortization of funding shortfalls and extended funding interest rate stabilization. The interest rate relief under ARPA eliminated the plans’ funding shortfalls for the 2020 and 2021 plan years and eliminated cash funding requirements for fiscal 2021. Under this relief, Nexstar currently expects no required contribution to its qualified pension benefit plans in 2022.

Overview of Operations

As of December 31, 2021, we owned, operated, programmed or provided sales and other services to 199 full power television stations and one AM radio station, including those owned by VIEs, in 116 markets in 39 states and the District of Columbia. The stations are affiliates of ABC, NBC, FOX, CBS, The CW, MNTV and other broadcast television networks. Through various local service agreements, we provided sales, programming and other services to 36 full power television stations owned by independent third parties, of which 35 full power television stations are VIEs that are consolidated into our financial statements. See Note 2 to our Consolidated Financial Statements in Part IV, Item 15(a) of this Annual Report on Form 10-K for a discussion of the local service agreements we have with these independent third parties. We also own NewsNation (formerly WGN America), a live daily national news and general entertainment cable network, two digital multicast networks and other multicast network services, various digital products, services and content, a 31.3% ownership stake in TV Food Network, and a portfolio of real estate assets.

On April 16, 2021, Nexstar Inc. (formerly Nexstar Broadcasting, Inc.), a wholly-owned subsidiary of Nexstar, filed a Certificate of Amendment with the Secretary of State of Delaware to change its name to Nexstar Media Inc.

The operating revenue of our stations and cable and multicast networks is derived substantially from broadcast and digital advertising revenue, which is affected by a number of factors, including the economic conditions of the markets in which we operate, the demographic makeup of those markets and the marketing strategy we employ in each market. Most advertising contracts are short-term and generally run for a few weeks. In 2021, we generated 37.9% of our net revenue from core advertising (local and national advertising revenue). Local advertising time is sold by each stations’ local sales staff via advertising agencies and directly to local businesses. All national and political revenue is derived from advertisements placed through advertising agencies. While the majority of local spot revenue is placed by local agencies, some advertisers place their schedules directly with the local sales force, thereby eliminating the agency commission. Our stations and cable network have various agreements with national representative firms which provides sales representation for national or large regional accounts that advertise in several markets simultaneously. National representative commission rates vary within the industry and are governed by each agreement.

Another source of revenue for the Company that has grown significantly in recent years is its distribution revenue which relates to retransmission of Company stations’ signals and the carriage of NewsNation by cable, satellite and other MVPDs and OVDs. For the year ended December 31, 2021, the Company’s distribution revenue represented 53.2% of total net revenue. MVPDs generally pay for retransmission rights on a rate per subscriber basis. The growth of this revenue stream was primarily due to increases in the subscriber rates paid by MVPDs resulting from contract renewals (retransmission consent and carriage agreements generally have a three-year term), scheduled annual escalation of rates per subscriber, and the establishment of distribution agreements with OVDs. Additionally, the rates per subscriber of acquired television stations are converted into our terms which are typically higher than those of other companies because we have been negotiating such agreements for a longer period of time and are, therefore, approximately one full negotiating cycle ahead of our competitors. Nexstar anticipates that retransmission fees will continue to increase until there is a more balanced relationship between viewers delivered and fees paid for delivery of such viewers.

Most of our stations have a network affiliation agreement pursuant to which the network provides programming to the station during specified time periods, including prime time, in exchange for affiliation fees paid to the networks, in most cases, and the right to sell a substantial majority of the advertising time during these broadcasts. Network affiliation fees have been increasing industry wide and we expect that they will continue to increase over the next several years.

Each station acquires licenses to broadcast programming in non-news and non-network time periods. The licenses are either purchased from a program distributor for cash and/or the program distributor is allowed to sell some of the advertising inventory as compensation to eliminate or reduce the cash cost for the license. The latter practice is referred to as barter broadcast rights.

Our primary operating expenses include employee salaries, commissions and benefits, newsgathering and programming costs. A large percentage of the costs involved in the operation of our stations and the stations we provide services to remains relatively fixed.

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We guarantee full payment of all obligations incurred under Mission’s senior secured credit facility in the event of its default. Mission is a guarantor of our senior secured credit facility, our 5.625% Notes due 2027 and our 4.75% Notes due 2028. In consideration of our guarantee of Mission’s senior secured credit facility, Mission has granted us purchase options 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 2022 and 2031) are freely exercisable or assignable by us without consent or approval by Mission or its shareholders. We expect these option agreements to be renewed upon expiration.

We do not own the consolidated VIEs or their television stations. However, we are deemed under U.S. GAAP to have controlling financial interests for financial reporting purposes in these entities because of (1) the local service agreements we have with their stations, (2) our guarantee of the obligations incurred under Mission’s senior secured credit facility, (3) our power over significant activities affecting the VIEs’ economic performance, including budgeting for advertising revenue, advertising sales and, in some cases, hiring and firing of sales force personnel and (4) purchase options granted by each consolidated VIE which permit us to acquire the assets and assume the liabilities of each of these VIEs’ stations, subject to FCC consent. In compliance with FCC regulations for all the parties, each of the consolidated VIEs maintains complete responsibility for and control over programming, finances and personnel for its stations.

Refer to Note 2 to our Consolidated Financial Statements in Part IV, Item 15(a) of this Annual Report on Form 10-K for additional information with respect to consolidated VIEs.

Regulatory Developments

As a television broadcaster, the Company is highly regulated, and its operations require that it retain or renew a variety of government approvals and comply with changing federal regulations. On April 1, 2021, the U.S. Supreme Court issued a decision that reversed a lower court of appeals ruling and upheld the FCC’s elimination of certain of its media ownership rules in the agency’s 2010/2014 quadrennial review of those rules. Among the regulations eliminated in 2021 as a result of the Supreme Court ruling were a rule providing that a television station licensee which sells more than 15 percent of the weekly advertising inventory of another television station in the same DMA under a JSA is deemed to have an attributable ownership interest in that station, and a requirement that at least eight independently owned television stations remain in a local television market for a party to acquire a second station in that market. While these restrictions are no longer in effect, the FCC’s 2018 quadrennial media ownership review is currently pending, and the agency could reinstitute these or other limitations in the 2018 review or any future reviews.

The FCC has repurposed a portion of the broadcast television spectrum for wireless broadband use. In an incentive auction which concluded in April 2017, certain television broadcasters accepted bids from the FCC to voluntarily relinquish their spectrum in exchange for consideration. Television stations that did not relinquish their spectrum were “repacked” into the frequency band still remaining for television broadcast use.

The Company has received payment for eleven television stations that accepted bids and have either moved to different channels or (in one case) discontinued operation. Seventy-four (74) full power stations owned by Nexstar and 17 full power stations owned by VIEs were assigned to new channels in the reduced post-auction television band. These stations have commenced operation on their new assigned channels and have ceased operating on their former channels. The Company is in the final stages of requesting and receiving reimbursements for the costs of repacking these stations, as the FCC is now closing out its process for such reimbursements. Seasonality

Advertising revenue is positively affected by national and regional political election campaigns and certain events such as the Olympic Games or the Super Bowl. Advertising revenue is generally highest in the second and fourth quarters of each year, due in part to increases in consumer advertising in the spring and retail advertising in the period leading up to, and including, the holiday season. In addition, advertising revenue is generally higher during even-numbered years, when state, congressional and presidential elections occur and from advertising aired during the Olympic Games. 2021 was not a nationwide election year, and the 2020 Summer Olympics were rescheduled and held in July 2021.

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Historical Performance

Revenue

The following table sets forth the amounts of the Company’s principal types of revenue (dollars in thousands) and each type of revenue as a percentage of total net revenue for the years ended December 31:

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["","","Amount","","","%","","","Amount","","","%","","","Amount","","","%"],["Core advertising (local and national)","","$","1,761,738","","","","37.9","","","$","1,571,072","","","","34.9","","","$","1,335,126","","","","43.9"],["Political advertising","","","45,199","","","","1.0","","","","507,564","","","","11.3","","","","51,889","","","","1.7"],["Distribution","","","2,472,894","","","","53.2","","","","2,152,622","","","","47.8","","","","1,368,881","","","","45.0"],["Digital","","","322,558","","","","6.9","","","","223,368","","","","4.9","","","","241,519","","","","8.0"],["Other","","","33,246","","","","0.7","","","","34,468","","","","0.8","","","","24,524","","","","0.8"],["Trade","","","12,736","","","","0.3","","","","12,175","","","","0.3","","","","17,385","","","","0.6"],["Total net revenue","","$","4,648,371","","","","100.0","","","$","4,501,269","","","","100.0","","","$","3,039,324","","","","100.0"]]
[[/GREPCENT_TABLE]]

Results of Operations

The following table sets forth a summary of the Company’s operations for the years ended December 31 (dollars in thousands), and each component of operating expense as a percentage of net revenue:

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["","","Amount","","","%","","","Amount","","","%","","","Amount","","","%"],["Net revenue","","$","4,648,371","","","","100.0","","","$","4,501,269","","","","100.0","","","$","3,039,324","","","","100.0"],["Operating expenses (income):"],["Corporate expenses","","","175,829","","","","3.8","","","","182,960","","","","4.1","","","","189,548","","","","6.2"],["Direct operating expenses, net of trade","","","1,849,502","","","","39.8","","","","1,708,124","","","","37.9","","","","1,331,248","","","","43.8"],["Selling, general and administrative expenses, excluding corporate","","","848,418","","","","18.3","","","","729,097","","","","16.2","","","","540,433","","","","17.8"],["Depreciation of property and equipment","","","166,565","","","","3.6","","","","147,688","","","","3.3","","","","123,375","","","","4.1"],["Amortization of intangible assets","","","300,912","","","","6.5","","","","279,710","","","","6.2","","","","200,317","","","","6.6"],["Amortization of broadcast rights","","","121,068","","","","2.5","","","","137,490","","","","3.0","","","","85,018","","","","2.7"],["Trade and barter expense","","","12,897","","","","0.3","","","","12,396","","","","0.3","","","","17,384","","","","0.6"],["Reimbursement from the FCC related to station repack","","","(19,735",")","","","(0.4",")","","","(57,261",")","","","(1.3",")","","","(70,356",")","","","(2.3",")"],["Change in the fair value of contingent consideration attributable to a past merger","","","(2,769",")","","","(0.1",")","","","3,933","","","","0.1","","","","-","","","","-"],["Gain on relinquishment of spectrum","","","","","","-","","","","(10,791",")","","","(0.2",")","","","-","","","","-"],["Goodwill and intangible assets impairment","","","-","","","","-","","","","-","","","","-","","","","63,317","","","","2.1"],["Assets held for sale impairment","","","23,046","","","","0.5","","","","-","","","","-","","","","-","","","","-"],["Gain on disposal of stations and business units, net","","","(2,755",")","","","(0.1",")","","","(7,473",")","","","(0.2",")","","","(96,091",")","","","(3.2",")"],["Total operating expenses","","","3,472,978","","","","","","","3,125,873","","","","","","","2,384,193"],["Income from operations","","$","1,175,393","","","","","","$","1,375,396","","","","","","$","655,131"]]
[[/GREPCENT_TABLE]]

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Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

The period-to-period comparability of our consolidated operating results is affected by acquisitions. For each quarter we present, our legacy stations include those stations that we owned or provided services to for the complete quarter in the current and prior years. For our annual and year to date presentations, we combine the legacy stations’ amounts presented in each quarter.

Revenue

Core advertising revenue was $1.762 billion for the year ended December 31, 2021 compared to $1.571 billion for the same period in 2020, an increase of $190.7 million, or 12.1%. The increase was primarily due to an increase in our legacy stations’ core advertising revenue of $141.0 million, as a result of recovery from the adverse effects of the COVID-19 pandemic and growth in new business. The television stations acquired in 2020 also increased our advertising revenue by $61.9 million, partially offset by a decrease in advertising revenue from station divestitures of $12.3 million. Our largest advertiser category, automotive, represented approximately 16% and 18% of our core advertising revenue for the years ended December 31, 2021 and 2020, respectively. Overall, including past results of our newly acquired stations, automotive revenues decreased by approximately 5% in 2021 compared to 2020, primarily due to the current shortage in supply of chips and semiconductors, partially offset by the recovery from the effects of the COVID-19 pandemic. The other categories representing our top five largest categories by revenue increased in 2021, led by attorneys and followed by medical/healthcare, gaming/sports betting and services. While we are encouraged by the positive trends we saw during 2021, to the extent that the pandemic continues to have a negative impact on the U.S. economy, our results will be affected.

Political advertising revenue was $45.2 million for the year ended December 31, 2021 compared to $507.6 million for the same period in 2020, a decrease of $462.4 million, as 2021 was not a nationwide election year.

Distribution revenue was $2.473 billion for the year ended December 31, 2021 compared to $2.153 billion for the same period in 2020, an increase of $320.3 million, or 14.9%. Our legacy stations’ revenue increased by $222.0 million primarily due to the combined effect of scheduled annual escalation of rates per subscriber and renewals of contracts providing for higher rates per subscriber. Additionally, our stations acquired in 2020 increased our revenue in 2021 by $113.5 million, partially offset by a decrease in revenue from our station divestitures of $15.3 million. We anticipate continued increase of retransmission fees until there is a more balanced relationship between viewers delivered and fees paid for delivery of such viewers.

Digital revenue, representing advertising revenue on our stations’ web and mobile sites and other internet-based revenue, was $322.6 million for the year ended December 31, 2021 compared to $223.4 million for the same period in 2020, an increase of $99.2 million, or 44.4%. This increase was primarily due to incremental revenue from the digital businesses and television stations we acquired in 2021 and 2020 of $70.3 million, and a net increase in revenue from our legacy stations and other digital businesses of $34.6 million.

Operating Expenses

Corporate expenses, related to costs associated with the centralized management of our stations, were $175.8 million for the year ended December 31, 2021 compared to $183.0 million for the same period in 2020, a decrease of $7.1 million, or 3.9%.

Station direct operating expenses, consisting primarily of news, engineering, programming and station selling, general and administrative expenses (net of trade expense) were $2.698 billion for the year ended December 31, 2021 compared to $2.437 billion for the same period in 2020, an increase of $260.7 million, or 10.7%. This increase was primarily due to expenses associated with our television stations and digital businesses we acquired in 2021 and 2020 of $177.8 million, partially offset by station divestitures of $22.6 million. In addition, our legacy stations’ programming costs increased by $56.3 million, primarily due to network affiliation renewals and annual increases in our network affiliation costs. Our legacy stations’ and business units’ other operating expenses increased by $50.1 million, primarily due to recovery from the COVID-19 pandemic, an increase in sales and promotional costs to drive revenue and an increase in NewsNation’s news related operating costs as it continues to shift its focus from syndicated programming to national newscast programs.

Depreciation of property and equipment was $166.6 million for the year ended December 31, 2021 compared to $147.7 million for the same period in 2020, an increase of $18.9 million, or 12.8%. The increase was primarily due to newly capitalized assets and incremental depreciation from business acquisitions.

Amortization of intangible assets was $300.9 million for the year ended December 31, 2021 compared to $279.7 million for the same period in 2020, an increase of $21.2 million, or 7.6%. This increase was primarily due to incremental amortization from business acquisitions.

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Amortization of broadcast rights was $121.1 million for the year ended December 31, 2021 compared to $137.5 million for the same period in 2020, a decrease of $16.4 million, or 11.9%. The decrease was primarily due to the reduction of NewsNation’s film rights costs by $17.5 million as it continues to shift its focus from syndicated programming to national news programs.

Certain of the Company’s stations were repacked in connection with the FCC’s process of repurposing a portion of the broadcast television spectrum for wireless broadband use. These stations have vacated their former channels and spent costs, mainly capital expenditures, to construct and license the necessary technical modifications to permanently operate on their newly assigned channels. Subject to fund limitations, the FCC reimburses television broadcasters, MVPDs and other parties for costs reasonably incurred due to the repack. In 2021 and 2020, the Company received $19.7 million and $57.3 million, respectively, in reimbursements from the FCC which it recognized as operating income. The Company is in the final stages of requesting and receiving reimbursements for the costs of repacking these stations, as the FCC is now closing out its process for such reimbursements.

In April 2020, we completed a station’s conversion to a VHF channel representing our final relinquishment of spectrum pursuant to the FCC’s incentive auction conducted in 2016-2017. Accordingly, the associated spectrum asset with a carrying amount of $67.2 million and liability to surrender spectrum of $78.0 million were derecognized, resulting in a non-cash gain on relinquishment of spectrum of $10.8 million.

In the fourth quarter of 2021, certain non-depreciable real estate property located in Chicago was classified as held for sale due to the expected consummation of a contract to sell within one year. As of December 31, 2021, the property’s previous carrying amount of $68.3 million was written down to its estimated fair value, less estimated cost to sell, of $45.3 million resulting in a $23.0 million impairment charge.

Income from equity method investments, net

Income from equity method investments, net was $124.6 million for the year ended December 31, 2021, compared to $70.2 million for the same period in 2020, an increase of $54.4 million, primarily attributable to higher equity in income from our investment in TV Food Network, net of the amortization of basis difference of $55.1 million.

Interest Expense, net

Interest expense, net was $282.7 million for the year ended December 31, 2021 compared to $335.3 million for the same period in 2020, a decrease of $52.7 million, or 15.7%. The decrease was primarily due to the combined effect of (i) a reduction in the outstanding balance of debt, (ii) reductions in LIBOR and (iii) a reduction in the Applicable Margin for the portion of certain interest rates that is based on the consolidated first lien net leverage ratio of the Company which was lower.

Loss on Extinguishment of Debt

Loss on extinguishment of debt was $3.2 million for the year ended December 31, 2021 compared to $50.7 million for the same period in 2020, a decrease of $47.5 million. In 2021, we made $280.0 million prepayments on our term loan B resulting in recognition of loss of $3.2 million. In 2020, we redeemed our $900.0 million 5.625% Notes due 2024 and prepaid $1.0 billion of our outstanding term loans. These transactions resulted in a premium paid on bond redemption of $25.3 million and write-off of unamortized debt discount/premiums and debt financing costs of $25.7 million associated with these extinguished debt obligations.

Pension and other postretirement plans credit, net

Pension and other postretirement plans credit, net was $80.9 million for the year ended December 31, 2021 compared to $46.0 million for the same period in 2020, an increase of $34.9 million, primarily attributable to an increase in expected return on pension plan assets and an estimated reduction in interest costs on projected benefit obligations, and a $12.5 million settlement gain from the purchase of an annuity contract related to certain participants of a qualified pension plan during the fourth quarter of 2021.

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Income Taxes

Income tax expense was $262.9 million for the year ended December 31, 2021 compared to an income tax expense of $296.5 million for the same period in 2020, a decrease of $33.6 million. The effective tax rates during the years ended December 31, 2021 and 2020 were 24.1% and 26.9%, respectively. The decrease in the effective rate was driven by an increased deduction for excess benefits related to stock-based compensation, a decrease in non-deductible goodwill on divestitures, and a release of certain federal and state reserves. The increase in excess benefits deduction resulted in a $19.6 million tax benefit or a decrease of 1.8% to the effective rate. The decrease in non-deductible goodwill resulted in a tax benefit of $8.3 million or a decrease of 0.8% to the effective tax rate. Additionally, the release of $13.3 million of certain federal and state reserves resulted in a 1.2% reduction to the effective rate. These decreases to the effective tax rate were offset by an increase in the valuation allowance of $18.9 million resulting in a 1.3% increase to the effective rate.

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

The period-to-period comparability of our consolidated operating results is affected by acquisitions. For each quarter we present, our legacy stations include those stations that we owned or provided services to for the complete quarter in the current and prior years. For our annual and year to date presentations, we combine the legacy stations’ amounts presented in each quarter.

Revenue

Core advertising revenue was $1.571 billion for the year ended December 31, 2020 compared to $1.335 billion for the same period in 2019, an increase of $236.0 million, or 17.5%. The increase was primarily due to our incremental revenue generated from the Tribune acquisition in September 2019 of $419.1 million and station acquisitions in 2020 of $24.7 million, partially offset by a decrease in revenue from station divestitures of $66.5 million. Our legacy stations’ core advertising revenue decreased by $141.3 million, primarily due to the business disruptions caused by COVID-19 and changes in the mix between our core and political advertising. Our largest advertiser category, automotive, represented approximately 18% and 22% of our local and national advertising revenue for each of the years ended December 31, 2020 and 2019, respectively. Overall, including past results of our newly acquired stations, revenues from our automotive category decreased by approximately 30% in 2020 compared to 2019. The other categories representing our top five were attorneys, medical/healthcare, radio/TV/cable/newspaper and home repair/manufacturing, which decreased in 2020, and insurance, which increased in 2020.

Political advertising revenue was $507.6 million for the year ended December 31, 2020 compared to $51.9 million for the same period in 2019, an increase of $455.7 million as 2020 was a federal election year. Of this increase, $147.4 million was attributable to the incremental revenue from the Tribune stations we acquired in 2019, $17.3 million was attributable to current year station acquisitions and $293.6 million was attributable to our legacy stations.

Distribution revenue was $2.153 billion for the year ended December 31, 2020 compared to $1.369 billion for the same period in 2019, an increase of $783.7 million, or 57.3%. The increase was primarily due to incremental revenue in 2020 generated from the Tribune acquisition in September 2019 of $571.3 million and station acquisitions of $47.0 million, partially offset by a decrease in revenue from station divestitures of $81.6 million. Our legacy stations’ revenue also increased by $247.1 million due to the combined effect of scheduled annual escalation of rates per subscriber, renewals of contracts providing for higher rates per subscriber (contracts generally have a three-year term), contributions from distribution agreements with OVDs and a net increase in revenue in 2020 resulting from the 2019 (July and August) temporary disruption of a distribution agreement with a certain customer, partially offset by temporary disruption of a certain customer in the month of December 2020. We anticipate continued increase in distribution revenue until there is a more balanced relationship between viewers delivered and fees paid for delivery of such viewers.

Digital revenue, representing advertising revenue on our stations’ web and mobile sites and revenue from our other digital operations, was $223.4 million for the year ended December 31, 2020 compared to $241.5 million for the same period in 2019, a decrease of $18.1 million, or 7.5%. Our digital revenue from our legacy stations and other digital businesses decreased by $29.5 million primarily due to the business disruption caused by COVID-19 and realigned digital business operations. These decreases were partially offset by incremental revenue from the Tribune acquisition in September 2019 of $10.8 million, net of a decrease in revenue from station divestitures.

49

Operating Expenses

Corporate expenses, related to costs associated with the centralized management of our stations, were $183.0 million for the year ended December 31, 2020 compared to $189.5 million for the same period in 2019, a decrease of $6.6 million, or 3.5%.

Station direct operating expenses, consisting primarily of news, engineering, programming and selling, general and administrative expenses (net of trade expense) were $2.437 billion for the year ended December 31, 2020 compared to $1.872 billion for the same period in 2019, an increase of $565.0 million, or 30.2%. This was primarily due to expenses associated with the Tribune stations and other businesses we acquired in 2019 of $511.1 million (including network and programming costs of $343.4 million), and expenses associated with our station acquisitions of $47.3 million. In addition, our legacy stations’ programming costs increased by $118.2 million, primarily due to network affiliation renewals and annual increases in our network affiliation costs. In 2020, we also recorded $19.9 million in provision for uncollectible amounts associated with transactions among entities for which we have or had variable interests. These increases were partially offset by a decrease in expense from our station divestitures of $84.3 million and a $60.3 million decrease in the operating expenses of our digital products due to lower revenue.

Depreciation of property and equipment was $147.7 million for the year ended December 31, 2020 compared to $123.4 million for the same period in 2019, an increase of $24.3 million, or 19.7%. The increase was primarily due to incremental depreciation from the Tribune stations we acquired in September 2019 of $29.4 million.

Amortization of intangible assets was $279.7 million for the year ended December 31, 2020 compared to $200.3 million for the same period in 2019, an increase of $79.4 million, or 39.6%. This was primarily due to increased amortization from the Tribune stations we acquired in September 2019 of $95.3 million, net of decreases in amortization from certain fully amortized assets and divested stations.

Amortization of broadcast rights was $137.5 million for the year ended December 31, 2020 compared to $85.0 million for the same period in 2019, an increase of $52.5 million, or 61.7%. The increase was primarily due to incremental amortization from the Tribune stations we acquired in 2019 of $54.0 million, net of decreases from station divestitures. This increase was partially offset by a reduction in amortization costs on our legacy stations due to renegotiation of certain film contracts which resulted in reduced distribution rates.

Certain of the Company’s stations, including certain Tribune stations, were repacked in connection with the FCC’s process of repurposing a portion of the broadcast television spectrum for wireless broadband use. These stations have vacated their former channels and spent costs, mainly capital expenditures, to construct and license the necessary technical modifications to permanently operate on their newly assigned channels. Subject to fund limitations, the FCC reimburses television broadcasters, MVPDs and other parties for costs reasonably incurred due to the repack. In 2020 and 2019, we received a total of $57.3 million and $70.4 million, respectively, in reimbursements from the FCC which we recognized as operating income.

In April 2020, we completed a station’s conversion to a VHF channel representing our final relinquishment of spectrum pursuant to the FCC’s incentive auction conducted in 2016-2017. Accordingly, the associated spectrum asset with a carrying amount of $67.2 million and liability to surrender spectrum of $78.0 million were derecognized, resulting in a non-cash gain on relinquishment of spectrum of $10.8 million. This gain was partially offset by a $3.9 million increase (expense) in the estimated fair value of contingent consideration liability related to a merger and spectrum auction.

In 2019, we recorded a $63.3 million goodwill and intangible assets impairment on our digital reporting unit due to deterioration in customer relationships, mainly driven by marketplace changes on select demand-side platform customers, that led to a long-term projected decrease in operating results.

In 2020, we sold two Fox affiliate television stations and our sports betting information website business for total proceeds of $362.8 million in cash. These disposals resulted in a total gain on sale of $7.1 million. In 2019, in connection with the Tribune merger, we sold the assets of 21 full power television stations in 16 markets, eight of which were previously owned by us and 13 of which were previously owned or operated by Tribune. We sold the Tribune stations for $1.008 billion in cash, including working capital adjustments, and we sold our stations for $358.6 million in cash, including working capital adjustments. These divestitures resulted in a net gain on disposal of $96.1 million.

50

Income from equity method investments, net

Income from equity method investments, net was $70.2 million for the year ended December 31, 2020 compared to $17.9 million for the same period in 2019, an increase of $52.1 million. This was primarily attributable to an increase in income on equity investment from our 31.3% investment in TV Food Network, less amortization of basis difference. For the year ended December 31, 2020, we recognized our full year’s share in equity income of TV Food Network compared to last year’s share from September 19, 2019, the date we acquired our 31.3% ownership stake in this investment, to December 31, 2019.

Interest Expense, net

Interest expense, net was $335.3 million for the year ended December 31, 2020 compared to $304.4 million for the same period in 2019, an increase of $30.9 million, or 10.2%, primarily due to the issuance of debt in September 2019 (term loans and $1.785 billion Notes due 2027) associated with the financing of our merger with Tribune. These increases were partially offset by decreases in interest expense primarily due to prepayments and scheduled repayments of term loans, a reduction in LIBOR funding costs on our senior secured loans and the refinancing of certain bonds in September 2020 for a lower interest rate (issuance of $1.0 billion 4.75% Notes due 2028 and redemption of $900 million 5.625% Notes due 2024).

Loss on Extinguishment of Debt

Loss on extinguishment of debt was $50.7 million for the year ended December 31, 2020 compared to $10.3 million for the same period in 2019, an increase of $40.4 million. In 2020, we made various prepayments of our outstanding term loans, redeemed our $900.0 million 5.625% Notes due 2024 and amended our and Mission’s credit agreements, resulting in a loss on extinguishment of debt of $50.7 million. In November 2019, we redeemed our $400.0 million 5.875% Notes due 2022 and our $275.0 million 6.125% Notes due 2022. We also made prepayments of our outstanding term loans during 2019. These 2019 transactions resulted in a total loss on extinguishment of debt of $10.3 million.

Pension and other postretirement plans credit, net

Pension and other postretirement plans credit, net was $46.0 million for the year ended December 31, 2020 compared to $15.6 million for the same period in 2019, an increase of $30.4 million, primarily attributable to an increase in expected return on pension plan assets partially offset by an increase in interest costs on projected benefit obligations.

Income Taxes

Income tax expense was $296.5 million for the year ended December 31, 2020 compared to an income tax expense of $137.0 million for the same period in 2019, an increase in income tax expense of $159.5 million. The effective tax rates during the years ended December 31, 2020 and 2019 were 26.9% and 36.8%, respectively.

The decrease to the effective tax rate was driven primarily by a consolidated VIE’s establishment of a valuation allowance on its deferred tax assets in 2019 and a decrease in non-deductible goodwill associated with divestitures and impairment loss incurred in 2019. In 2020, certain of our consolidated VIEs recorded a valuation allowance on deferred tax assets of $5.3 million, compared to the $19.9 million valuation allowance on deferred tax assets recorded in 2019, including a newly established valuation allowance of $18.1 million by a consolidated VIE. This resulted in a decrease to the effective tax rate of 4.9%. In 2020, the effective tax rate also decreased by 5.15% as a result of a decrease in the amount of non-deductible goodwill associated with divestitures and an impairment loss incurred in 2019.

51

Liquidity and Capital Resources

The Company is leveraged, which makes it vulnerable to changes in general economic conditions. The Company’s ability to meet future cash requirements depends on its ability to generate cash from its future operations, which is subject to general economic, financial, competitive, legislative, regulatory and other conditions, many of which are beyond the Company’s control. For instance, uncertainties surrounding the business outlook caused by the COVID-19 pandemic. In March 2020, the World Health Organization declared COVID-19 a pandemic and the United States government declared a national emergency. The ongoing effect of the COVID-19 pandemic had an adverse impact on the Company’s financial results mostly in the first part of the second quarter in 2020. Since then, the Company’s business operations, financial results and cash flows have significantly improved. In 2021, the mass distribution of COVID-19 vaccines, the U.S. government’s stimulus programs, the reopening of states for business and consumer spending by an increasingly vaccinated public drove the continued U.S. economic recovery.

In 2021, the Company continued to be profitable and continued to generate positive cash flows from its operations. Its financial results in 2021 were also higher than the comparable prior year and its market capitalization continued to increase and exceed the carrying amount of its equity by a substantial amount. These favorable financial results are reflective of the economic recovery as well as the incremental operating results from the Company’s acquisitions in 2020 and 2021. Overall, the ongoing COVID-19 pandemic did not have a material impact on the Company’s liquidity. As of December 31, 2021, the Company was in compliance with the financial covenants contained in the amended credit agreements governing its senior secured credit facilities. The Company believes it has sufficient unrestricted cash on hand, positive working capital and availability to access additional cash under its revolving credit facilities to meet its business operating requirements, its capital expenditures and to continue to service its debt for at least the next 12 months as of the filing date of this Annual Report on Form 10-K.

The extent to which the COVID-19 pandemic impacts the Company’s business, its results of operations and its financial condition will depend on future developments, which remain highly uncertain and cannot be reasonably predicted, including future surges and the severity of any resurgence of the virus, the length of time that the pandemic continues, current challenges to increase vaccination rates in the U.S. and continued disruptions to supply chains.

Cash Flow Summary

The following tables present the Company’s total operating, investing and financing activity cash flows for the three years ended December 31 (in thousands):

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["Net cash provided by operating activities","","$","1,214,843","","","$","1,254,170","","","$","417,467"],["Net cash used in investing activities(1)","","","(232,100",")","","","(39,750",")","","","(4,702,155",")"],["Net cash provided by (used in) financing activities","","","(945,558",")","","","(1,293,789",")","","","4,388,251"],["Net increase (decrease) in cash, cash equivalents and restricted cash","","$","37,185","","","$","(79,369",")","","$","103,563"],["Cash paid for interest","","$","273,201","","","$","324,347","","","$","250,663"],["Income taxes paid, net of refunds(2)","","$","319,851","","","$","351,715","","","$","315,051"]]
[[/GREPCENT_TABLE]]

(1)
In 2021, 2020 and 2019, the investing activities included total capital expenditures of $150.8 million, $217.0 million and $197.5 million, respectively, of which $10.0 million, $54.7 million and $79.3 million, respectively, were reimbursed from the FCC in connection with the station repack. In 2020 and 2019, $4.9 million and $7.2 million of such capital expenditures were also funded by the incentive auction proceeds received from the FCC in 2017.

(2)
Income taxes paid, net of refunds, includes (i) $82.7 million in tax payments during 2020 related to various sales of stations and cash consideration received to settle a litigation and (ii) $199.5 million in tax payments during 2019 related to various sales of stations.

[[GREPCENT_TABLE]]
[["","","As of December 31,"],["","","2021","","","2020"],["Cash, cash equivalents and restricted cash","","$","206,494","","","$","169,309"]]
[[/GREPCENT_TABLE]]

52

Cash Flows – Operating Activities

Net cash provided by operating activities decreased by $39.3 million during the year ended December 31, 2021 compared to the same period in 2020. This was primarily due to decrease in operating income (excluding non-cash transactions) of $136.3 million and uses of cash resulting from timing of accounts receivable collections of $102.5 million. These decreases were partially offset by lower interest payments of $51.1 million, timing of payments to our vendors of $46.8 million, collection of copyright royalty receivables of $35.0 million, lower payments for broadcast rights of $26.2 million, lower tax payments of $31.9 million and an increase in distribution from our equity investment in TV Food Network of $15.8 million.

Cash paid for interest decreased by $51.1 million during the year ended December 31, 2021 compared to the same period in 2020, primarily due to a reduction in outstanding principal debt balance due to prepayments and scheduled repayments of term loans and reductions in LIBOR and portion of certain interest rates that is based on the Company’s consolidated first lien net leverage ratio.

Net cash provided by operating activities increased by $836.7 million during the year ended December 31, 2020 compared to the same period in 2019. This was primarily attributable to an increase in operating income (excluding non-cash transactions) of $928.7 million, an increase in distributions from our equity investments, primarily in TV Food Network, of $208.4 million, and the collection of copyright royalty receivables of $13.9 million. These increases were partially offset by higher interest payments of $73.7 million, higher income tax payments of $36.7 million, an increase in payments for broadcast rights of $93.0 million, use of cash from timing of accounts receivable collections of $18.2 million, and use of cash from timing of payments made to our vendors of $99.8 million.

Cash paid for interest increased by $73.7 million during the year ended December 31, 2020 compared to the same period in 2019, primarily due to the issuance of debt in September 2019 (term loans and $1.785 billion Notes due 2027) associated with the financing of our merger with Tribune. These increases were partially offset by decreases in interest expense primarily due to prepayments and scheduled repayments of term loans, a reduction in LIBOR funding costs on our senior secured loans and the refinancing of certain bonds in September 2020 for a lower interest rate (issuance of $1.0 billion 4.75% Notes due 2028 and redemption of $900 million 5.625% Notes due 2024).

Cash Flows – Investing Activities

Net cash used in investing activities during the years ended December 31, 2021, 2020 and 2019 were $234.0 million, $39.8 million and $4.702 billion, respectively.

In 2021, we spent a total of $150.8 million in capital expenditures and $138.4 million to acquire television stations, a digital business and certain license assets. These decreases were partially offset by the proceeds from the sale of stations and business units and asset disposals of $20.1 million, reimbursements from the FCC related to station repack of $19.7 million and deposits received associated with the sale of real estate assets of $13.5 million.

In 2020, we acquired seven television stations, certain non-license assets, and a product recommendations company for total cash consideration payments of $386.4 million. Our capital expenditures for the year ended December 31, 2020 were $217.0 million, including $54.7 million related to station repack. We also made an equity investment in a live 24/7 streaming network business of $7.0 million. These uses of cash were partially offset by the proceeds from the disposal of two television stations and our sports betting information website business for $349.9 million and $12.9 million in cash, respectively, and reimbursements received from the FCC related to station repack of $57.3 million. We also received $98.0 million of cash proceeds from settlement of litigation between Sinclair and Tribune and Mission collected a loan receivable of $49.0 million from Marshall Broadcasting Group, Inc. (“Marshall”).

In September 2019, we completed our acquisition of Tribune for a total cash purchase price of $7.187 billion, less $1.306 billion of cash and restricted cash acquired. This was partially offset by the proceeds from the sale of 21 full power television stations in 16 markets for a total cash consideration of $1.353 billion which occurred concurrently with the Tribune acquisition. On November 29, 2019, Mission, a consolidated VIE, paid the outstanding principal balances of Marshall’s loans to third party bank lenders totaling $48.9 million. After making the payment, Mission became Marshall’s new lender. Marshall is a deconsolidated VIE due to its filing for bankruptcy protection in December 2019. As such, Marshall’s cash balance of $5.0 million was excluded from our consolidated financial statements.

During the year ended December 31, 2019, we spent $197.5 million in capital expenditures, including $79.3 million related to station repack and $7.2 million related to relinquishment of certain spectrum. These investing cash outflows were partially offset by the proceeds from reimbursements of spectrum repack amounting to $70.4 million, proceeds from asset disposals of $4.4 million and distribution from our equity investments of $2.2 million.

53

Cash Flows – Financing Activities

Net cash used in financing activities for the years ended December 31, 2021 and 2020 were $945.5 million and $1.294 billion, respectively. During the year ended December 31, 2019, net cash provided by financing activities was $4.388 billion.

In 2021, we prepaid a portion of the outstanding principal balance of our Term Loan B due 2024 of $280.0 million and made scheduled principal payments on our Term Loan A due 2024 of $21.4 million, paid dividends to our common stockholders of $118.2 million ($0.70 per share during each quarter), repurchased common shares of $536.8 million, paid cash for taxes in exchange for shares of common stock withheld of $10.9 million resulting from net share settlements of certain stock-based compensation, and paid finance lease and software obligations of $18.0 million. These outflows were partially offset by the proceeds from the exercise of stock options during the year amounting to $8.2 million. Mission also received $298.5 million (net of $1.5 million discount) from its new Term Loan B due 2028 and utilized $268.0 million to repay a portion of its revolving loans. We also borrowed $20.0 million under our revolving credit facilities which was repaid in full in 2021.

In 2020, the Company made payments on the outstanding principal balance of its term loans of $1.284 billion (including $980.0 million in Nexstar’s debt prepayments, Mission’s full repayment of its term loan B of $226.2 million and Shield Media, LLC's full repayment of its term loan A of $20.7 million). Also, we redeemed our $900.0 million 5.625% Notes due 2024 and paid a $25.1 million premium on such redemption. Additionally, we repurchased shares of our Class A common stock for a total price of $281.9 million, paid dividends to our common stockholders of $101.0 million ($0.56 per share during each quarter), paid deferred financing costs of $10.7 million associated with our new $1.0 billion 4.75% Notes due 2028, paid cash for taxes in exchange for shares of common stock withheld of $6.8 million resulting from net share settlements of certain stock-based compensation and paid finance lease and software obligations of $14.5 million. These decreases were offset by the proceeds from the issuance of our new $1.0 billion senior unsecured notes issued at par and from Mission’s drawing from its revolving credit facility of $327.0 million.

In 2019, we issued term loans, net of debt discount, of $3.711 billion, issued an initial $1.120 billion in 5.625% Notes due 2027 at par, and issued an additional $665.0 million in 5.625% Notes due 2027, plus a premium of $27.4 million. We incurred and paid total financing costs of $72.1 million for issuing these loans in 2019. The proceeds from the term loans and the initial 5.625% Notes due 2027 were used to partially fund our merger with Tribune in September 2019. The proceeds from the additional 5.625% Notes due 2027 were used to redeem in full our two senior unsecured notes with a total principal balance of $675.0 million, plus total premium of $10.1 million. The Company also made prepayments and scheduled principal payments of its existing term loans totaling $227.3 million, funded by cash on hand. In 2019, we paid dividends to our common stockholders of $82.8 million ($0.45 per share each quarter), repurchased our treasury shares for $45.1 million, made payments on our finance lease and capitalized software obligations of $9.2 million, paid taxes in exchange for shares of common stock withheld of $9.8 million and purchased a noncontrolling interest of $6.4 million. These outflows were partially offset by the proceeds from the exercise of stock options during the year amounting to $2.4 million.

Long-term debt

As of December 31, 2021, the Company had total outstanding debt of $7.415 billion, net of unamortized financing costs, discounts and premium, which represented 72.2% of the Company’s combined capitalization. The Company’s high level of debt requires that a substantial portion of cash flow be dedicated to pay principal and interest on debt, which reduces the funds available for working capital, capital expenditures, acquisitions and other general corporate purposes.

[[GREPCENT_TABLE]]
[["","","As of December 31,"],["","","2021","","","2020"],["Nexstar senior secured credit facility","","$","4,329,128","","","$","4,630,557"],["Mission senior secured credit facility","","","360,750","","","","327,000"],["5.625% Notes due 2027","","","1,785,000","","","","1,785,000"],["4.75% Notes due 2028","","","1,000,000","","","","1,000,000"],["","","","7,474,878","","","","7,742,557"],["Less: Unamortized financing costs, discounts and premium, net","","","(59,752",")","","","(74,554",")"],["Total outstanding debt","","$","7,415,126","","","$","7,668,003"],["Unused revolving loan commitments under senior secured credit facilities (1)","","$","363,202","","","$","95,662"]]
[[/GREPCENT_TABLE]]

______________________________________________

(1)
Based on the covenant calculations as of December 31, 2021, all of the $349.7 million and $13.5 million unused revolving loan commitments under the respective Nexstar and Mission senior secured credit facilities were available for borrowing.

54

We guarantee full payment of all obligations incurred under Mission’s senior secured credit facility in the event of its default. Mission is a guarantor of our senior secured credit facility, our 5.625% Notes due 2027 and our 4.75% Notes due 2028.

We make semiannual interest payments on the 5.625% Notes due 2027 on January 15 and July 15 of each year. We make semiannual interest payments on our 4.75% Notes due 2028 on May 1 and November 1 of each year. Interest payments on our and Mission’s senior secured credit facilities are generally paid every one to three months and are payable based on the type of interest rate selected.

The terms of our and Mission’s senior secured credit facilities, as well as the indentures governing our 5.625% Notes due 2027 and 4.75% Notes due 2028, limit, but do not prohibit us or Mission, from incurring substantial amounts of additional debt in the future.

The Company does not have any rating downgrade triggers that would accelerate the maturity dates of its debt. However, a downgrade in the Company’s credit rating could adversely affect its ability to renew the existing credit facilities, obtain access to new credit facilities or otherwise issue debt in the future and could increase the cost of such debt.

The Company’s ability to access funds under its senior secured credit facilities depends, in part, on its compliance with certain financial covenants. Any additional drawings under the senior secured credit facilities will reduce the Company’s future borrowing capacity and the amount of total unused revolving loan commitments. The ultimate outcome of the COVID-19 pandemic remains uncertain at this time and may significantly impact our future operating performance, liquidity and financial position. Any adverse impact of the COVID-19 pandemic may cause us to seek alternative sources of funding, including accessing capital markets, subject to market conditions. Such alternative sources of funding may not be available on commercially reasonable terms or at all.

Our credit agreement contains a covenant which requires us to comply with a maximum consolidated first lien net leverage ratio of 4.25 to 1.00. The financial covenant, which is formally calculated on a quarterly basis, is based on the Company’s combined results. The Mission amended credit agreement does not contain financial covenant ratio requirements but does provide for default in the event we do not comply with all covenants contained in our credit agreement. As of December 31, 2021, we were in compliance with our financial covenant. We believe the Company will be able to maintain compliance with all covenants contained in the credit agreements governing its senior secured facilities and the indentures governing Nexstar’s 5.625% Notes due 2027 and Nexstar’s 4.75% Notes due 2028 for a period of at least the next 12 months from December 31, 2021.

Off-Balance Sheet Arrangements

As of December 31, 2021, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or VIEs, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. All of our arrangements with our VIEs in which we are the primary beneficiary are on-balance sheet arrangements. Our variable interests in other entities are obtained through local service agreements, which have valid business purposes and transfer certain station activities from the station owners to us. We are, therefore, not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

As of December 31, 2021, we have outstanding standby letters of credit with various financial institutions amounting to $21.7 million, of which $18.2 million was in support of the worker’s compensation insurance program. The outstanding balance of standby letters of credit is deducted against our unused revolving loan commitment under our senior secured credit facility and would not be available for withdrawal.

55

Material Cash Requirements

The Company is a party to many contractual obligations involving commitments to make payments to third parties. Certain contractual obligations are recorded on the Consolidated Balance Sheet as of December 31, 2021, while others are considered future commitments. The following summarizes the Company’s contractual obligations as of December 31, 2021, and the effect such obligations are expected to have on the Company’s short-term and long-term liquidity and capital resource needs (in thousands):

[[GREPCENT_TABLE]]
[["","","","","","Payments Due by Period"],["","","Total","","","Less than 1 year","","","1 to 3 years","","","3 to 5 years","","","More than 5 years"],["Recorded contractual obligations:"],["Nexstar senior secured credit facility","","$","4,329,128","","","$","44,170","","","$","1,640,643","","","$","2,644,315","","","$","-"],["Mission senior secured credit facility","","","360,750","","","","3,000","","","","67,500","","","","6,000","","","","284,250"],["5.625% senior unsecured notes due 2027","","","1,785,000","","","","-","","","","-","","","","-","","","","1,785,000"],["4.75% senior unsecured notes due 2028","","","1,000,000","","","","-","","","","-","","","","-","","","","1,000,000"],["Operating lease obligations","","","352,710","","","","55,966","","","","103,492","","","","68,295","","","","124,957"],["Finance lease obligations","","","18,823","","","","1,803","","","","3,651","","","","3,865","","","","9,504"],["Broadcast rights current cash commitments(1)","","","155,450","","","","72,689","","","","68,239","","","","14,522","","","","-"],["Other(2)(3)","","","32,049","","","","30,473","","","","1,469","","","","107","","","","-"],["Unrecorded contractual obligations:"],["Network affiliation agreements","","","2,056,500","","","","1,104,986","","","","951,514","","","","-","","","","-"],["Cash interest on debt(4)","","","1,330,281","","","","259,509","","","","488,052","","","","430,561","","","","152,159"],["Executive employee contracts(5)","","","81,072","","","","45,876","","","","34,624","","","","572","","","","-"],["Broadcast rights future cash commitments(6)","","","67,183","","","","44,317","","","","18,431","","","","4,435","","","","-"],["Other","","","89,732","","","","50,265","","","","38,035","","","","1,432","","","","-"],["","","$","11,658,678","","","$","1,713,054","","","$","3,415,650","","","$","3,174,104","","","$","3,355,870"]]
[[/GREPCENT_TABLE]]

(1)
Future minimum payments for license agreements for which the license period has begun and liabilities have been recorded.

(2)
As of December 31, 2021, we had $33.6 million of unrecognized tax benefits, inclusive of interest and certain deduction benefits. This liability represents an estimate of tax positions that the Company has taken in its tax returns, which may ultimately not be sustained upon examination by the tax authorities. The resolution of these tax positions may not require cash settlement due to the existence of federal and state NOLs. As such, our contractual obligations table above excludes this liability.

(3)
As of December 31, 2021, we had $104.7 million and $27.2 million of funding obligations with respect to our pension benefit plans and other postretirement benefit plans, respectively, which are not included in the table above. See Note 10 to our Consolidated Financial Statements for further information regarding our funding obligations for these benefit plans.

(4)
Estimated interest payments due as if all debt outstanding as of December 31, 2021 remained outstanding until maturity, based on interest rates in effect at December 31, 2021.

(5)
Includes the employment contracts for all corporate executive employees and general managers of our stations and entities. We expect our contracts will be renewed or replaced with similar agreements upon their expiration. Amounts included in the table above assume that contracts are not terminated prior to their expiration.

(6)
Future minimum payments for license agreements for which the license period has not commenced and no liability has been recorded.

From January 1 to February 25, 2022, we repurchased 466,825 shares of our Class A common stock for $76.3 million, funded by cash on hand. As of the date of filing this Annual Report on Form 10-K, the remaining available amount under the share repurchase authorization was $561.9 million.

On January 27, 2022, our Board of Directors declared a quarterly dividend of $0.90 per share of our Class A common stock. The dividend is scheduled to be paid on February 28, 2022 to stockholders of record on February 11, 2022.

Issuer and Guarantor Summarized Financial Information

Nexstar Media Inc.’s (a wholly-owned subsidiary of Nexstar and herein referred to as the “Issuer”) 5.625% Notes due 2027 and 4.75% Notes due 2028 are fully and unconditionally guaranteed (the “Guarantees”), jointly and severally, by Nexstar Media Group, Inc. (“Parent”), Mission (a consolidated VIE) and certain of Nexstar Media Inc.’s restricted subsidiaries (collectively, the “Guarantors” and, together with the Issuer, the “Obligor Group”). The Guarantees are subject to release in limited circumstances upon the occurrence of certain customary conditions set forth in the indentures governing the 5.625% Notes due 2027 and the 4.75% Notes due 2028. The Issuer’s 5.625% Notes due 2027 and 4.75% Notes due 2028 are not registered with the SEC.

56

The following combined summarized financial information is presented for the Obligor Group after elimination of intercompany transactions between Parent, Issuer and Guarantors in the Obligor Group and amounts related to investments in any subsidiary that is a non-guarantor. This information is not intended to present the financial position or results of operations of the consolidated group of companies in accordance with U.S. GAAP.

Summarized Balance Sheet Information for the Obligor Group as of December 31 (in thousands):

[[GREPCENT_TABLE]]
[["","2021","","","2020"],["Current assets - external","$","1,407,643","","","$","1,205,580"],["Current assets - due from consolidated entities outside of Obligor Group","","37,185","","","","35,572"],["Total current assets","$","1,444,828","","","$","1,241,152"],["Noncurrent assets - external(1)","","10,479,451","","","","10,676,397"],["Noncurrent assets - due from consolidated entities outside of Obligor Group","","55,848","","","","53,292"],["Total noncurrent assets","$","10,535,299","","","$","10,729,689"],["Total current liabilities","$","783,816","","","$","727,557"],["Total noncurrent liabilities","$","9,610,229","","","$","10,123,544"],["Noncontrolling interests","$","6,488","","","$","6,951"]]
[[/GREPCENT_TABLE]]

(1)
Excludes Nexstar Media Inc.’s equity investments of $1.219 billion and $1.334 billion as of December 31, 2021 and 2020, respectively, in unconsolidated investees. These unconsolidated investees do not guarantee the 4.75% Notes due 2028 and 5.625% Notes due 2027. For additional information on equity investments, refer to Note 6 to our Consolidated Financial Statements.

Summarized Statements of Operations Information for the Obligor Group (in thousands):

[[GREPCENT_TABLE]]
[["","Year Ended"],["","December 31, 2021"],["Net revenue - external","$","4,631,063"],["Net revenue - from consolidated entities outside of Obligor Group","","16,338"],["Total net revenue","","4,647,401"],["Costs and expenses - external","","3,450,214"],["Costs and expenses - to consolidated entities outside of Obligor Group","","18,263"],["Total costs and expenses","","3,468,477"],["Income from operations","$","1,178,924"],["Net income","$","710,018"],["Net income attributable to Obligor Group","$","710,018"],["Income on equity method investments","$","124,580"]]
[[/GREPCENT_TABLE]]

57

Critical Accounting Policies and Estimates

Our Consolidated Financial Statements have been prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements and reported amounts of revenue and expenses during the period. On an ongoing basis, we evaluate our estimates, including those related to business acquisitions, goodwill and intangible assets, property and equipment, broadcast rights, distribution revenue, pension and postretirement benefit plans and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates.

For an overview of our significant accounting policies, we refer you to Note 2 to our Consolidated Financial Statements in Part IV, Item 15(a) of this Annual Report on Form 10-K. We believe the following critical accounting policies are those that are the most important to the presentation of our Consolidated Financial Statements, affect our more significant estimates and assumptions, and require the most subjective or complex judgments by management.

Consolidation of Variable Interest Entities

We regularly evaluate our local service agreements and other arrangements where we may have variable interests to determine whether we are the primary beneficiary of a VIE. Under U.S. GAAP, a company must consolidate an entity when it has a “controlling financial interest” resulting from ownership of a majority of the entity’s voting rights. Accounting rules expanded the definition of controlling financial interest to include factors other than equity ownership and voting rights.

In applying accounting and disclosure requirements, we must base our decision to consolidate an entity on quantitative and qualitative factors that indicate whether or not we have the power to direct the activities of the entity that most significantly affect its economic performance and whether or not we have the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. Our evaluation of the “power” and “economics” model must be an ongoing process and may alter as facts and circumstances change.

Mission and the other consolidated VIEs are included in our Consolidated Financial Statements because we are deemed to have controlling financial interests in these entities as VIEs for financial reporting purposes as a result of (1) local service agreements we have with the stations they own, (2) our guarantee of the obligations incurred under Mission’s senior secured credit facility, (3) our power over significant activities affecting these entities’ economic performance, including budgeting for advertising revenue, advertising sales and, in some cases, hiring and firing of sales force personnel and (4) purchase options granted by each consolidated VIE which permit Nexstar to acquire the assets and assume the liabilities of all of these VIEs’ stations at any time, subject to FCC consent. These purchase options are freely exercisable or assignable by Nexstar without consent or approval by the VIEs. These option agreements expire on various dates between 2022 and 2031. We expect to renew these option agreements upon expiration. Therefore, these VIEs are consolidated into these financial statements.

Valuation of Goodwill and Intangible Assets

Intangible assets represented $8.7 billion, or 65.4%, of our total assets as of December 31, 2021. Intangible assets consist primarily of goodwill, FCC licenses, network affiliation agreements, developed technology, brand value, and customer relationships arising from acquisitions.

The purchase prices of acquired businesses are allocated to the assets and liabilities acquired at estimated fair values at the date of acquisition using various valuation techniques, including discounted projected cash flows, the cost approach and other.

The estimated fair value of an FCC license acquired in a business combination is calculated using a discounted cash flow model referred to as the Greenfield Method. The Greenfield Method attempts to isolate the income that is attributable to the license alone. This approach is based upon modeling a hypothetical start-up station and building it up to a normalized operation that, by design, lacks an affiliation with a network (commonly known as an independent station), lacks inherent goodwill and whose other assets have essentially been added as part of the build-up process. The Greenfield Method assumes annual cash flows over a projection period model. Inputs to this model include, but are not limited to, (i) a four-year build-up period for a start-up station to reach a normalized state of operations, (ii) market long-term revenue growth rate over a projection period, (iii) estimated market revenue share for a typical market participant without a network affiliation, (iv) estimated profit margins based on industry data, (v) capital expenditures based on the size of market and the type of station being constructed, (vi) estimated tax rates in the appropriate jurisdiction, and (vii) an estimated discount rate using a weighted average cost of capital analysis. The Greenfield Method also includes an estimated terminal value by discounting an estimated annual cash flow with an estimated long-term growth rate.

58

The assumptions used in estimating the fair value of a network affiliation agreement acquired in a business combination are similar to those used in the valuation of an FCC license. The Greenfield Method is also utilized in this valuation except that the estimated market revenue share, estimated profit margins, capital expenditures and other assumptions reflect a market participant premium based on the programming of a network affiliate relative to an independent station. This approach would result in an estimated fair value of the collective FCC license and a network affiliation agreement.

Goodwill represents the excess of the purchase price of a business over the fair value of net assets acquired.

For purposes of goodwill impairment tests, the Company has one aggregated television stations reporting unit, because of the stations’ similar economic characteristics, one cable network reporting unit and two digital business reporting units. The Company’s impairment review for FCC licenses is performed at the television station market level.

We test our goodwill and FCC licenses in our fourth quarter each year, or more frequently whenever events or changes in circumstances indicate that such assets might be impaired. We first assess the qualitative factors to determine the likelihood of our goodwill and FCC licenses being impaired. Our qualitative impairment test includes, but is not limited to, assessing the changes in macroeconomic conditions, regulatory environment, industry and market conditions, and the financial performance versus budget of the reporting units, as well as any other events or circumstances specific to the reporting unit or the FCC licenses. If it is more likely than not that the fair value of a reporting unit or an FCC license is greater than its respective carrying amount, no further testing will be required. Otherwise, we will apply the quantitative impairment test method.

The quantitative impairment test for goodwill is performed by comparing the fair value of a reporting unit with its carrying amount. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The quantitative impairment test for FCC licenses consists of a market-by-market comparison of the carrying amounts of FCC licenses with their fair value, using the Greenfield Method of discounted cash flow analysis. An impairment is recorded when the carrying value of an FCC license exceeds its fair value.

We test our finite-lived intangible assets to be held and used whenever events or circumstances indicate that their carrying amount may not be recoverable, relying on certain factors including operating results, business plans, economic projections and anticipated future cash flows. The carrying value of a long-lived asset or asset group is considered impaired when the projected future undiscounted cash flows to be generated from the asset or asset group over its remaining life are less than its carrying value. The Company measures impairment based on the amount by which the carrying value exceeds the estimated fair value of the long-lived asset or asset group. The fair value is determined primarily by using the projected future cash flows discounted at a rate commensurate with the risk involved as well as market valuations.

In the fourth quarter of 2021, using the qualitative impairment test, the Company performed its annual impairment test on goodwill attributable to its aggregated television stations reporting unit, one cable network reporting unit and one digital business reporting unit. Based on the results of such qualitative impairment tests, the Company concluded that it was more likely than not that the fair value would sufficiently exceed the carrying amount. Thus, no impairment was recorded on these reporting units.

For one of the digital reporting units with a goodwill balance of $110.0 million, representing approximately 4% of the consolidated carrying amount, the Company elected to perform a quantitative impairment test due to actual and projected decreases in operating profit and cash flows. The Company’s assessment indicated that the reporting unit’s fair value exceeded the carrying amount by over 10%, and therefore no goodwill impairment was identified. Fair value was estimated using a combination of an income approach, which employs a discounted cash flow model, and market approaches, which consider net revenue multiples of comparable publicly traded businesses and recent market transactions.

In the fourth quarter of 2021, the Company also performed its annual impairment test on FCC licenses for each station market using the qualitative impairment test. The Company concluded that it was more likely than not that their fair values have exceeded the respective carrying amounts. Thus, no impairment was recorded.

We also performed qualitative tests to determine whether our finite-lived assets are recoverable. Based on our estimate of undiscounted future pre-tax cash flows expected to result from the use of these assets, we determined that the carrying amounts are recoverable as of December 31, 2021. No other events or circumstances were noted in 2021 that would indicate impairment.

Our quantitative goodwill impairment tests are sensitive to changes in key assumptions used in our analysis, such as expected future cash flows and market trends. If the assumptions used in our analysis are not realized, it is possible that an additional impairment charge may need to be recorded in the future. We cannot accurately predict the amount and timing of any impairment of goodwill or other intangible assets.

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While the COVID-19 pandemic did not have a material impact on overall aspects of our business during 2021, the Company will continue to actively monitor and evaluate its indefinite-lived intangible assets, long-lived assets and goodwill to determine if an impairment triggering event will occur in future periods. Any further adverse impact of COVID-19 or the general market conditions on the Company’s operating results could reasonably be expected to negatively impact the fair value of the Company’s indefinite-lived intangible assets and its reporting units as well as the recoverability of its long-lived assets and may result in future impairment charges which could be material.

Valuation of Investments

We account for investments in which we own at least 20% of an investee’s voting securities or we have significant influence over an investee under the equity method of accounting. We record equity method investments at cost. For investments acquired in a business combination, the cost is the estimated fair value allocated to the investment.

We evaluate our equity method investments for other-than temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

In each of the quarters of 2021, the Company evaluated its equity method investments for OTTI due to the events and circumstances surrounding the COVID-19 pandemic. Based on the results of the review, the Company determined that an impairment does not exist. The Company will continue to evaluate its equity method investments in future periods to determine if an OTTI has occurred.

Pension plans and other postretirement benefits

A determination of the liabilities and cost of Nexstar’s pension and other postretirement plans (“OPEB”) requires the use of assumptions. The actuarial assumptions used in the pension and postretirement reporting are reviewed annually with independent actuaries and are compared with external benchmarks, historical trends and Nexstar’s own experience to determine that its assumptions are reasonable. The assumptions used in developing the required estimates include the following key factors:

•
discount rates

•
expected return on plan assets

•
mortality rates

•
retirement rates

•
expected contributions

As of December 31, 2021, the effective discount rates used for determining pension benefit obligations were 2.69% to 2.70%. During 2021, the assumptions utilized in determining net periodic benefit credit on our pension plans were (i) 5.15% to 5.90% expected rate of return on plan assets and (ii) 2.16% to 2.29% effective discount rates. As of December 31, 2021, our pension plans’ benefit obligations was $2.257 billion. For the year ended December 31, 2021, our pension plans’ net periodic benefit credit was $68.3 million, excluding a $12.5 million settlement gain from the purchase of an annuity contract for certain participants of a qualified pension plan. As of December 31, 2021, a 1% change in the discount rates would have the following effects (in thousands):

[[GREPCENT_TABLE]]
[["","","1% Increase","","","1% Decrease"],["Projected impact on net periodic benefit credit","","$","15,932","","","$","(13,955",")"],["Projected impact on pension benefit obligations","","","(209,471",")","","","247,550"]]
[[/GREPCENT_TABLE]]

For additional information on our pension and OPEB, see Note 10 to our Consolidated Financial Statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K.

Distribution Revenue

We earn revenues from local cable providers, DBS services and other MVPDs and OVDs for the retransmission of our broadcasts and the carriage of NewsNation. These revenues are generally earned based on a price per subscriber of the distributor within the retransmission or carriage area. The distributors report their subscriber numbers to us generally on a 30- to 60-day lag, generally upon payment of the fees due to us. Prior to receiving the reports, we record revenue based on management’s estimate of the number of subscribers, utilizing historical levels and trends of subscribers for each distributor. Adjustments associated with the resolution of such estimates have, historically, been inconsequential.

60

Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities. A valuation allowance is applied against net deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. While we have considered future taxable income in assessing the need for a valuation allowance, in the event that we were to determine that we would not be able to realize all or part of our deferred tax assets in the future, an adjustment to the valuation allowance would be charged to income in the period such a determination was made.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities. The determination is based on the technical merits of the position and presumes that each uncertain tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information. The estimate of the Company's tax liabilities relating to uncertain tax positions requires management to assess uncertainties and to make judgements about the application of complex tax laws and regulations. We recognize interest and penalties relating to income taxes as components of income tax expense.

Recent Accounting Pronouncements

Refer to Note 2 of our Consolidated Financial Statements in Part IV, Item 15(a) of this Annual Report on Form 10-K for a discussion of recently issued accounting pronouncements, including our expected date of adoption and effects on results of operations and financial position.