The following discussion and analysis should be read in conjunction with Item 6. "Selected Financial Data" and 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 withU.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 2020 Highlights
• Net revenue during 2020 increased by
the same period in 2019. The increase in net revenue was primarily due to the incremental revenue from the Tribune acquisition in 2019 of$1.163
billion and current year acquisitions of
legacy station distribution revenues and political advertising revenues
increased by
of increases in the subscriber rates and 2020 being a federal election
year. These increases were partially offset by a decrease in revenue from
core advertising of our legacy stations of
to business disruptions caused by COVID-19 and change in the mix between
core and political advertising, a decrease in net revenue from station
divestitures of
digital businesses and legacy stations of
the combined effect of business disruptions caused by COVID-19 and realigned digital business operations.
• During the year ended
million in cash distributions from our 31.3% equity investment in TV Food
Network.
• During 2020 our Board of Directors declared and paid quarterly dividends
of
payments of
• During 2020, we repurchased a total of 3,085,745 shares of our Class A
common stock for
31, 2020, the remaining available amount under the share repurchase authorization was$174.9 million . • OnOctober 1, 2020 ,Nexstar Broadcasting, Inc. , our wholly-owned
subsidiary, filed a Certificate of Amendment with the Secretary ofState of Delaware to change its name toNexstar Inc. In connection with this
change, effective on
subsidiaries,
surviving the merger as our single operating subsidiary. Accordingly, our
broadcasting, network and digital businesses are now operating under the
2020 Nexstar Acquisitions OnDecember 29, 2020 , we acquired 100.0% of the membership interests in BestReviews from TribPub and BR Holdco for$169.9 million in cash, funded by cash on hand. BestReviews engages in the business of testing, researching and reviewing consumer products. The acquisition of BestReviews diversifies our digital portfolio while presenting new revenue channels by leveraging our media content, national reach, and consumer digital usage across multiple platforms. OnSeptember 17, 2020 , we acquiredWDKY-TV , the Fox affiliate in theLexington, KY market, from Sinclair for$18.0 million in cash, funded by cash on hand. This acquisition allowed us entry into this market. OnMarch 2, 2020 , we acquired the Fox affiliate television station WJZY and the MNTV affiliate television station WMYT in theCharlotte, NC market from Fox for$45.3 million in cash. This acquisition allowed us entry into this market.
On
47
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2020 Mission Acquisitions
OnDecember 30, 2020 , Mission, our consolidated VIE, acquired the CW affiliate station WPIX inNew York, NY from Scripps. Mission funded the purchase price of$85.1 million in cash through a combination of borrowing from its revolving credit facility and cash on hand. Upon Mission's acquisition of WPIX, it entered into a TBA with us. Mission also granted us an option to purchase WPIX from Mission, subject toFCC consent. These transactions allowed the Company's entry into this market. OnNovember 23, 2020 , Mission acquired WXXA, the Fox affiliate in theAlbany, NY market, and WLAJ, theABC affiliate in theLansing, MI market, from Shield for$20.8 million in cash, funded through a combination of Mission's borrowing from its revolving credit facility and cash on hand. Effective onNovember 23, 2020 , Mission assumed the existing JSAs and SSAs between Shield and us for the stations. Mission also granted us options to purchase the stations from Mission, subject toFCC consent. Mission's purchase of these stations allowed its entry into these markets. Prior to Mission's acquisition, we were the primary beneficiary of these stations and consolidated their accounts into our financial statements. Under Mission's ownership, we remained the primary beneficiary and continued to consolidate these stations into our financial statements. OnNovember 16, 2020 , Mission acquired KASY, KWBQ and KRWB from Tamer for$1.8 million in cash, funded through a combination of Mission's borrowing from its revolving credit facility and cash on hand. KASY (an MNTV affiliate), KWBQ (a CW affiliate) and KRWB (a CW affiliate) are full power television stations serving theAlbuquerque, New Mexico market. Effective onNovember 16, 2020 , Mission assumed the existing SSA between Tamer and us for the stations. Mission also granted us an option to purchase the stations from Mission, subject toFCC consent. Mission's purchase of these stations allowed its entry into this market. Prior to Mission's acquisition, we were the primary beneficiary of these stations and consolidated their accounts into our financial statements. Under Mission's ownership, we remained the primary beneficiary and continued to consolidate these stations into our financial statements. OnSeptember 1, 2020 , Mission acquired television stations KMSS serving theShreveport, Louisiana market, KPEJ serving theOdessa, Texas market and KLJB serving the Quad Cities,Iowa /Illinois market fromMarshall . The purchase price for the acquisition was$53.2 million , of which$49.0 million was applied against Mission's existing loans receivable fromMarshall on a dollar-for-dollar basis and the remaining$4.2 million in cash was funded by cash on hand. At closing, Mission entered into new SSAs with us for the stations. This acquisition allowed Mission's entry into these markets.
2020 Nexstar Dispositions
OnMarch 2, 2020 , we completed the sale of Fox affiliate television station KCPQ and the MNTV affiliate television station KZJO in theSeattle, WA market, as well as Fox affiliate television stationWITI in theMilwaukee, WI market, to Fox for approximately$349.9 million in cash, resulting in a net gain of$4.7 million . Our proceeds from the sale of the stations were partially used to prepay a portion of our term loans.
On
See also Notes 3 and 9 to our Consolidated Financial Statements in Part IV, Item 15(a) of this Annual Report on Form 10-K for additional information on the above transactions. 48
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2020 Debt Transactions
• On
The amendments provided for an incremental senior secured revolving credit
facility in an aggregate capacity of
was initially allocated to us and
Mission. The incremental revolving credit facility is in addition to the unused revolving credit facilities under our and Mission's existing revolving credit facilities. • OnSeptember 3, 2020 , Mission drew upon$225.0 million under its
incremental revolving credit facility and used the proceeds to pay in full
the remaining outstanding principal balance under Mission's Term Loan B of
its incremental revolving credit facility to partially fund the acquisition
of television stations from Shield by paying in full the latter's
outstanding Term Loan A with a total principal amount of
• On
4.75% Notes due 2028 at par. The net proceeds from the issuance of the
4.75% Notes due 2028 was used to redeem in full our
Notes due 2024 at 102.813% of the principal amount, plus accrued interest
and fees and expenses. The remainder of the proceeds was used for general
corporate purposes.
• On
revolving credit facility to Mission which the latter drew upon on the same
date following the reallocation. On
proceeds of the loans to partially fund its acquisition of television
station WPIX. • In 2020, we prepaid a total of$980.0 million in principal balance under
our Term Loan A and Term Loan B, funded by cash on hand. The prepayments
resulted in a loss on debt extinguishment of$14.2 million .
• During the year ended
maturities of
its Term Loan B. Impact of COVID-19 Pandemic COVID-19 was first reported in late 2019 and has since dramatically impacted the global health and economic environment, including millions of confirmed cases, business slowdowns or shutdowns, government challenges and market volatility. InMarch 2020 , theWorld Health Organization characterized COVID-19 as a pandemic and the President ofthe United States declared the COVID-19 pandemic a national emergency. The virus continues to spread throughout theU.S. and the world and has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders and business limitations and shutdowns. While we are unable to accurately predict the full impact that COVID-19 will have on our future results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration, severity and containment measures, our compliance and the measures we have taken around the pandemic situation have impacted our day-to-day operations and disrupted our business and operations, as well as those of our key business partners, affiliates, vendors and other counterparties, and will continue to do so for an indefinite period of time. In response to COVID-19, we implemented remote working for many of our employees. Our work locations developed and implemented their own plans for staffing during the pandemic, with a focus on reducing headcounts within our facilities to reduce the risk for those employees whose job functions could not be performed remotely, and in compliance with applicable state and local safety requirements and protocols. Our leadership, crisis management and business resumption teams and local site leadership continue closely to monitor and address the developments, including the impact on our company, our employees, our customers, our suppliers and our communities. We considered and continue to consider guidance from theCenters for Disease Control , other health organizations, federal, state and local governmental authorities, and our customers, among others. We have taken, and continue to take, robust actions to help protect the health, safety and well-being of our employees, to support our suppliers and local communities, and to continue to serve our customers. 49
-------------------------------------------------------------------------------- The disruptions caused by COVID-19 had an adverse impact on our business and our financial results mostly in the first part of the second quarter of 2020. This was followed by a significant improvement in our financial results throughDecember 31, 2020 as certain areas throughoutthe United States permitted the re-opening of non-essential businesses, which has had a favorable impact to the macroeconomic environment and to the Company's revenue. The current year results were also higher than prior year primarily due to the increase in revenue from political advertising and contributions from the acquisition of Tribune inSeptember 2019 . Overall, the Company remained profitable in 2020 and the disruptions from COVID-19 did not have a material impact on its liquidity. There were also no material changes in our customer mix, including our advertisers, MVPDs and OVDs. As ofDecember 31, 2020 , our unrestricted cash on hand amounted to$152.7 million , a decrease from theDecember 31, 2019 level of$232.1 million as we allocated resources toward acquisition of businesses and leverage reduction, including debt prepayments, repurchases of our Class A common stock and dividends to stockholders. As ofDecember 31, 2020 , we had a positive working capital of$479.1 million , an increase from theDecember 31, 2019 levels of$404.2 million . We continue to generate operating cash flows and we believe we have sufficient unrestricted cash on hand and have the availability to access additional cash up to$92.7 million and$3.0 million under our and Mission's respective amended revolving credit facilities (with a maturity date ofOctober 2023 ) to meet our business operating requirements, our capital expenditures and to continue to service our debt for at least the next 12 months as of the filing date of this Annual Report on Form 10-K. The full extent of the impact of the COVID-19 pandemic on our future business operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity and impact of the COVID-19 pandemic, and any additional preventative and protective actions that theU.S. government, or the Company, may direct, which may result in an extended period of continued business disruption. Further financial impact cannot be reasonably estimated at this time but may continue to have a material impact on our business and results of operations and may also have a material impact on our financial condition and liquidity. We will continue to evaluate the nature and extent of the impact of COVID-19 on our business in future periods. The CARES Act OnMarch 27, 2020 , the CARES Act was signed into law. The CARES Act provides opportunities for additional liquidity, loan guarantees, and other government programs to support companies affected by the COVID-19 pandemic and their employees. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, deferral of contributions to qualified pension plans and other postretirement benefit plans, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. In particular, under the CARES Act, (i) for taxable years beginning before 2021, net operating loss carryforwards and carrybacks may offset 100% of taxable income, (ii) NOLs arising in 2018, 2019, and 2020 taxable years may be carried back to each of the preceding five years to generate a refund and (iii) for taxable years beginning in 2019 and 2020, the base for interest deductibility is increased from 30% to 50% of EBITDA. Under the CARES Act, we elected to defer$31.7 million of employer social security payments in two equal installments onDecember 31, 2021 and 2022. We elected not to defer any cash contribution requirements to our qualified pension plans under the CARES Act. We intend to continue to review and consider any available potential benefits under the CARES Act for which we qualify, including those described above. TheU.S. government or any other governmental authority that agrees to provide such aid under the CARES Act or any other crisis relief assistance may impose certain requirements on the recipients of the aid, including restrictions on executive officer compensation, dividends, prepayment of debt, limitations on debt and other similar restrictions that will apply for a period of time after the aid is repaid or redeemed in full.
Overview of Operations
As ofDecember 31, 2020 , we owned, operated, programmed or provided sales and other services to 198 full power television stations, including those owned by VIEs, in 116 markets in 39 states and theDistrict of Columbia . The stations are affiliates ofABC ,NBC ,FOX ,CBS , The CW, MNTV and other broadcast television networks. Through various local service agreements, we provided sales, programming and other services to 37 full power television stations owned by independent third parties, of which 36 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 WGN America, a national general entertainment cable network and the home of our national newscast NewsNation, digital 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. OnOctober 1, 2020 ,Nexstar Broadcasting, Inc. , our wholly-owned subsidiary, filed a Certificate of Amendment with the Secretary ofState of Delaware to change its name toNexstar Inc. In connection with this change, effective onNovember 1, 2020 , we merged our two primary operating subsidiaries,Nexstar Inc. andNexstar Digital, LLC , withNexstar Inc. surviving the merger as our single operating subsidiary. Accordingly, our broadcasting, network and digital businesses are now operating under theNexstar Inc. umbrella. 50 -------------------------------------------------------------------------------- The operating revenue of our stations is derived substantially from broadcast and website 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. For the years endedDecember 31, 2020 and 2019, revenue generated by our television stations from core local advertising represented approximately 69% and 72%, respectively, of our consolidated core advertising net revenue (total of core local and national advertising revenue, excluding political advertising revenue). The remaining core advertising revenue represents inventory sold for national or political advertising. 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 stations' local sales staff, thereby eliminating the agency commission. Each station also has an agreement with a national representative firm that provides for sales representation outside the particular station's market. Advertising schedules received through the national representative firm are 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 station's 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 WGN America (NewsNation and other entertainment programming) by cable, satellite and other MVPDs and OVDs. 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 newly 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. Currently, broadcasters deliver more than 30% of all television viewing audiences in a pay television household but are paid approximately 12-14% of the total cable programming fees.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. 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, except for three stations, Mission has granted us purchase options to acquire the assets and assume the liabilities of each Mission station, subject toFCC consent. These option agreements (which expire on various dates between 2021 and 2028) 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 underU.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 facilities, (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, exclusive of stations KMSS, KPEJ and KLJB, at any time, subject toFCC consent. In compliance withFCC 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 Notes 2 and 3 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 and acquisitions. 51
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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. In 2016, theFCC reinstated a previously adopted 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 is deemed to have an attributable ownership interest in that station. Parties to existing JSAs that were deemed attributable interests and did not comply with theFCC 's local television ownership rule were given untilSeptember 30, 2025 to come into compliance. InNovember 2017 , theFCC adopted an order on reconsideration that eliminated the rule. That elimination became effective onFebruary 7, 2018 . OnSeptember 23, 2019 , a federal court of appeals vacated theFCC 'sNovember 2017 order on reconsideration. The court later denied petitions for en banc rehearing; onNovember 29, 2019 its decision became effective; and onDecember 20, 2019 theFCC issued an order that formally reinstated the rule. OnApril 17, 2020 , theFCC and a group of media industry stakeholders (includingNexstar ) filed separate petitions for certiorari requesting that theU.S. Supreme Court review theSeptember 2019 appeals court decision. TheSupreme Court granted certiorari onOctober 2, 2020 . It held oral argument in the case onJanuary 19, 2021 , and a decision is expected later in 2021. If the Company is ultimately required to amend or terminate its existing JSAs, the Company could have a reduction in revenue and increased costs if it is unable to successfully implement alternative arrangements that are as beneficial as the existing JSAs. TheFCC has repurposed a portion of the broadcast television spectrum for wireless broadband use. In an incentive auction which concluded inApril 2017 , certain television broadcasters accepted bids from theFCC 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. InJuly 2017 , the Company received$478.6 million in gross proceeds from theFCC for eight stations that now share a channel with another station, one station that moved to a VHF channel in 2019, one station that moved to a VHF channel inApril 2020 and one that went off the air inNovember 2017 . The station that went off the air did not have a significant impact on our financial results because it was located in a remote rural area of the country and the Company has other stations which serve the same area. Sixty-one (61) full power stations owned byNexstar 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.Congress has allocated up to an industry-wide total of$2.75 billion to reimburse television broadcasters, MVPDs and other parties for costs reasonably incurred due to the repack. During the years endedDecember 31, 2020 , 2019 and 2018, the Company spent a total of$54.7 million ,$79.3 million and$26.8 million , respectively, in capital expenditures related to station repack which were recorded as assets under the property and equipment caption in the accompanying Consolidated Balance Sheets. During the years endedDecember 31, 2020 , 2019 and 2018, the Company received$57.3 million ,$70.4 million and$29.4 million , respectively, in reimbursements from theFCC related to these expenditures which were recorded as operating income in the accompanying Consolidated Statements of Operations and Comprehensive Income. As ofDecember 31, 2020 , approximately$23.7 million of estimated remaining costs in connection with the station repack are expected to be incurred by the Company, some or all of which will be reimbursable. If theFCC fails to fully reimburse the Company's repacking costs, the Company could have increased costs related to the repack.
Seasonality
Advertising revenue is positively affected by national and regional political election campaigns and certain events such as theOlympic Games or theSuper Bowl . Advertising revenue is generally highest in the second and fourth quarters of each year, due in part to increases in consumer advertising in the spring and retail advertising in the period leading up to, and including, the holiday season. In addition, advertising revenue is generally higher during even-numbered years, when state, congressional and presidential elections occur and from advertising aired during theOlympic Games . Fiscal year 2020 was a federal election year. The rescheduling of the 2020Summer Olympics to 2021, due to the COVID-19 pandemic, decreased our advertising revenue in 2020 but is expected to increase our advertising revenue in 2021 if theSummer Olympics occur as scheduled. 52
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Historical Performance
Revenue
The following table sets forth the amounts of the Company's principal types of revenue (dollars in thousands) and each type of revenue as a percentage of total net revenue for the years endedDecember 31 : 2020 2019 2018 Amount % Amount % Amount % Core advertising (local and national)$ 1,571,072 34.9$ 1,335,126 43.9$ 1,089,920 39.4 Political advertising 507,564 11.3 51,889 1.7 251,209 9.1 Distribution 2,152,622 47.8 1,368,881 45.0 1,121,081 40.5 Digital 223,368 4.9 241,519 8.0 261,159 9.4 Other 34,468 0.8 24,524 0.8 26,485 1.0 Trade 12,175 0.3 17,385 0.6 16,842 0.6 Total net revenue$ 4,501,269 100.0$ 3,039,324 100.0$ 2,766,696 100.0 Results of Operations The following table sets forth a summary of the Company's operations for the years endedDecember 31 (dollars in thousands), and each component of operating expense as a percentage of net revenue: 2020 2019 2018 Amount % Amount % Amount % Net revenue$ 4,501,269 100.0$ 3,039,324 100.0$ 2,766,696 100.0 Operating expenses (income): Corporate expenses 182,960 4.1 189,548 6.2 110,921 4.0 Direct operating expenses, net of trade 1,708,124 37.9 1,331,248 43.8 1,101,423 39.8 Selling, general and administrative expenses, excluding corporate 729,097 16.2 540,433 17.8 469,012 17.0 Depreciation 147,688 3.3 123,375 4.1 109,789 4.0 Amortization of intangible assets 279,710 6.2 200,317 6.6 149,406 5.4 Amortization of broadcast rights 137,490 3.0 85,018 2.7 61,342 2.2 Trade and barter expense 12,396 0.3 17,384 0.6 16,494 0.6 Reimbursement from theFCC related to station repack (57,261 ) (1.3 ) (70,356 ) (2.3 ) (29,381 ) (1.1 ) Change in the fair value of contingent consideration attributable to a merger 3,933 0.1 - - - - Gain on relinquishment of spectrum (10,791 ) (0.2 ) - - - -Goodwill and intangible assets impairment - - 63,317 2.1 19,911 0.7 Gain on disposal of stations, net (7,473 ) (0.2 ) (96,091 ) (3.2 ) - - Total operating expenses 3,125,873 2,384,193 2,008,917 Income from operations$ 1,375,396 $ 655,131 $ 757,779 53
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Year Ended
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 endedDecember 31, 2020 as 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 inSeptember 2019 of$419.1 million and current year station acquisitions 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, automobile, represented approximately 18% and 22% of our local and national advertising revenue for each of the years endedDecember 31, 2020 and 2019, respectively. Overall, including past results of our newly acquired stations, revenues from our automobile 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. The full extent of the impact of the COVID-19 pandemic on our business operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that theU.S. government, we, or our business partners, may direct, which may result in an extended period of continued business disruption. Further financial impact cannot be reasonably estimated at this time but may continue to have a material impact on our core advertising revenue and our overall results of operations. Additionally, the rescheduling of the summerOlympics to 2021, also due to the COVID-19 pandemic, decreased our advertising revenue in 2020 but is expected to increase our advertising revenue in 2021 if theSummer Olympics occur as scheduled. Political advertising revenue was$507.6 million for the year endedDecember 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 endedDecember 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 inSeptember 2019 of$571.3 million and current year 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 ofDecember 2020 . Broadcasters currently deliver more than 30% of all television viewing audiences in a pay television household but are paid approximately 12-14% of the total cable programming fees. 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 endedDecember 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 inSeptember 2019 of$10.8 million , net of a decrease in revenue from station divestitures.
Operating Expenses (Income)
Corporate expenses, related to costs associated with the centralized management
of our stations, were
54
-------------------------------------------------------------------------------- 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 endedDecember 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 current year 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 endedDecember 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 inSeptember 2019 of$29.4 million . Amortization of intangible assets was$279.7 million for the year endedDecember 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 inSeptember 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 endedDecember 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 theFCC 's process of repurposing a portion of the broadcast television spectrum for wireless broadband use. These stations have vacated their former channels by theFCC -prescribed deadline ofJuly 13, 2020 and are continuing to spend costs, mainly capital expenditures, to construct and license the necessary technical modifications to permanently operate on their newly assigned channels. Subject to fund limitations, theFCC 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 theFCC which we recognized as operating income. InApril 2020 , we completed a station's conversion to a VHF channel representing our final relinquishment of spectrum pursuant to theFCC '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 .
Income on equity investments, net
Income on equity investments, net was$70.2 million for the year endedDecember 31, 2020 , compared to$17.9 million for the same period in 2019, an increase of$52.1 million . This was primarily attributable to the increase in income on equity investment from our 31.3% investment in TV Food Network, less amortization of basis difference. For the year endedDecember 31, 2020 , we recognized our full year's share in equity income of TV Food Network compared to last year's share fromSeptember 19, 2019 , the date we acquired our 31.3% ownership stake in this investment, toDecember 31, 2019 . 55
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Interest Expense, net
Interest expense, net was$335.3 million for the year endedDecember 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 inSeptember 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, reduction in LIBOR funding costs on our senior secured loans and refinancing of certain bonds inSeptember 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 endedDecember 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 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 . InNovember 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 total loss on extinguishment of debt of$10.3 million .
Income Taxes
Income tax expense was$296.5 million for the year endedDecember 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 endedDecember 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 the 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 the decrease in the amount of non-deductible goodwill associated with divestitures and impairment loss incurred in 2019.
Year Ended
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$1.335 billion for the year endedDecember 31, 2019 as compared to$1.090 billion for the same period in 2018, an increase of$245.2 million , or 22.5%. The increase is primarily due to our incremental revenue from acquisitions, primarily resulting from our merger with Tribune of$275.0 million , partially offset by a decrease in revenue as a result of station divestitures of$14.6 million . Our legacy stations' core advertising revenue decreased by$15.1 million . Our largest advertiser category, automobile, represented approximately 22% and 23% of our local and national advertising revenue for each of the years endedDecember 31, 2019 and 2018, respectively. Overall, including past results of our newly acquired stations, revenues from our automobile category decreased by approximately 3% in 2019 compared to 2018. The other categories representing our top five were attorneys and home repair/manufacturing, which increased in 2019, and furniture and medical/healthcare, which decreased in 2019.
Political advertising revenue was
56 -------------------------------------------------------------------------------- Distribution revenue was$1.369 billion for the year endedDecember 31, 2019 , compared to$1.121 billion for the same period in 2018, an increase of$247.8 million , or 22.1%, primarily due to incremental revenue from our acquisitions, mainly Tribune, of$169.8 million , less decreases in revenue resulting from station divestitures of$18.5 million . Our legacy stations' revenue also increased by$96.5 million taking into account the combined effect of recent retransmission consent agreement renewals and scheduled annual rate increases per subscriber, contributions from distribution agreements with OVDs and the temporary disruption of distribution agreements with a customer fromJuly 2, 2019 toAugust 29, 2019 . Broadcasters currently deliver more than 30% of all television viewing audiences in a pay television household but are paid approximately 12-14% of the total cable programming fees. 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$241.5 million for the year endedDecember 31, 2019 , compared to$261.2 million for the same period in 2018, a decrease of$19.7 million or 7.5%. This was primarily due to a$49.7 million net decrease in revenue from our social media platform and the effects of marketplace changes which decreased select demand-side platform customer buying, partially offset by growth on our agency services. These decreases were partially offset by incremental revenue from acquisitions, primarily Tribune, of$19.5 million and an increase in revenue from our legacy stations of$12.2 million . Operating Expenses (Income) Corporate expenses, related to costs associated with the centralized management of our stations, were$189.5 million for the year endedDecember 31, 2019 , compared to$110.9 million for the same period in 2018, an increase of$78.6 million , or 70.9%. This was primarily attributable to an increase in legal and professional fees, severance, bonuses and other compensation costs of$69.5 million primarily associated with our acquisition of Tribune, and an increase in stock-based compensation related to new equity incentive awards of$6.1 million . Station direct operating expenses, consisting primarily of news, engineering, programming and selling, general and administrative expenses (net of trade expense) were$1.872 billion for the year endedDecember 31, 2019 , compared to$1.570 billion for the same period in 2018, an increase of$302.0 million , or 19.2%. The increase was primarily due to expenses of our newly acquired stations and entities, mainly Tribune, of$247.3 million (including network and programming costs of$157.0 million ), partially offset by a decrease of$18.0 million related to our station divestitures. Additionally, our legacy stations' programming costs increased by$96.6 million primarily due to network affiliation renewals and annual increases in our network affiliation costs. These increases were partially offset by an$18.6 million decrease in the operating expenses of our digital products due primarily to marketplace changes and challenges that led to lower revenue. Depreciation of property and equipment was$123.4 million for the year endedDecember 31, 2019 , compared to$109.8 million for the same period in 2018, an increase of$13.6 million , or 12.4%. This was primarily due to incremental depreciation related to assets acquired in the Tribune merger of$9.0 million and increased depreciation from related station repacking activities. Amortization of intangible assets was$200.3 million for the year endedDecember 31, 2019 , compared to$149.4 million for the same period in 2018, an increase of$50.9 million , or 34.1%. This was primarily due to increased amortization related to intangible assets acquired in the Tribune merger of$59.9 million , partially offset by decreases in amortization from certain fully amortized assets. Amortization of broadcast rights was$85.0 million for the year endedDecember 31, 2019 , compared to$61.3 million for the same period in 2018, an increase of$23.7 million , or 38.6%. This was primarily attributable to incremental amortization resulting from new broadcast rights acquired through the Tribune merger of$30.5 million . 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 theFCC 's process of repurposing a portion of the broadcast television spectrum for wireless broadband use. The Company's stations are currently spending costs, mainly capital expenditures, to construct and license the necessary technical modifications to operate on their newly assigned channels and to vacate their former channels no later thanJuly 13, 2020 . Subject to fund limitations, theFCC reimburses television broadcasters, MVPDs and other parties for costs reasonably incurred due to the repack. In 2019 and 2018, we received a total of$70.4 million and$29.4 million , respectively, in reimbursements from theFCC which we recognized as operating income. In the third quarter of 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 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
57
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Income on equity investments, net
In connection with our merger with Tribune completed onSeptember 19, 2019 , we acquired a 31.3% ownership stake in TV Food Network. From the date of acquisition toDecember 31, 2019 ,Nexstar recognized equity in income from this investment of$20.5 million , along with loss from other equity method investments of$2.6 million .
Interest Expense, net
Interest expense, net was$304.3 million for the year endedDecember 31, 2019 , compared to$221.0 million for the same period in 2018, an increase of$83.4 million , or 37.7%, primarily due to interest on new borrowings of$87.0 million and one time fees associated with the financing of our merger with Tribune of$26.6 million . These increases were partially offset by decreases in debt related interest expense of$23.7 million , primarily due to prepayments and scheduled repayments of term loans and redemption of bonds, and interest income we earned from an escrow deposit during the third quarter of 2019 of$4.9 million and a reduction in interest from our existing term loans due to principal prepayments and scheduled repayments.
Loss on Extinguishment of Debt
Loss on extinguishment of debt was$10.3 million for the year endedDecember 31, 2019 , compared to$12.1 million for the same period in 2018, a decrease of$1.8 million , or 15.0%. InNovember 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 transactions resulted in total loss on extinguishment of debt of$10.3 million . InOctober 2018 , the Company refinanced its then existing term loans and revolving loans. We also made various prepayments of outstanding term loans during 2018. These transactions resulted in a total loss on extinguishment of debt of$12.1 million .
Income Taxes
Income tax expense was$137.0 million for the year endedDecember 31, 2019 , compared to an income tax expense of$144.7 million for the same period in 2018, a decrease in income tax expense of$7.7 million . The effective tax rates during the years endedDecember 31, 2019 and 2018 were 36.8% and 27.1%, respectively. In 2019, we recognized the tax impact of the divested stations previously owned by us including an income tax expense of$10.3 million , or an increase to the effective tax rate of 2.8%, attributable to nondeductible goodwill written off as a result of the sale. We also recognized an impairment loss on our reporting unit's goodwill and intangible assets. The impairment loss related to goodwill is not deductible for purposes of calculating the tax provision resulting in an income tax expense of$8.9 million , or an increase to the effective tax rate of 2.4%. Valuation allowance increased by$19.9 million , or an increase to the effective tax rate of 5.3%, primarily due to the Company's belief, based upon consideration of positive and negative evidence, that certain deferred tax assets related to one of the VIEs were not likely to be realized. Other changes to the effective tax rates relate to the various permanent differences such as the tax impact of limitation on compensation deduction, the tax impact related to nondeductible meals and entertainment and the tax impact of excess benefits related stock-based compensation recognized in the income statement pursuant to ASU No. 2016-09 (adopted as ofJanuary 1, 2017 ). These transactions and events resulted in a total income tax expense effect of$6.18 million , or an increase to the effective tax rate of 1.64%. 58
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Liquidity and Capital Resources
We are leveraged, which makes us vulnerable to changes in general economic conditions. Our ability to meet the future cash requirements described below depends on its ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other conditions, many of which are beyond our control. Based on current operations and anticipated future growth, we believe that our available cash, anticipated cash flow from operations and available borrowings under the senior secured credit facilities will be sufficient to fund working capital, capital expenditure requirements, interest payments and scheduled debt principal payments for at least the next twelve months as of the filing date of this Annual Report on Form 10-K. In order to meet future cash needs we may, from time to time, borrow under our existing senior secured credit facilities or issue other long- or short-term debt or equity, if the market and the terms of its existing debt arrangements permit. We will continue to evaluate the best use of our operating cash flow among our capital expenditures, acquisitions and debt reduction. Overview The following tables present summarized financial information management believes is helpful in evaluating the Company's liquidity and capital resources (in thousands): Years Ended December 31, 2020 2019 2018
Net cash provided by operating activities
$ 736,867 Net cash used in investing activities(1) (39,750 ) (4,702,155 ) (175,514 ) Net cash provided by (used in) financing activities (1,293,789 ) 4,388,251 (531,890 ) Net increase (decrease) in cash, cash equivalents and restricted cash$ (79,369 ) $ 103,563 $ 29,463 Cash paid for interest$ 324,347 $ 250,663 $ 218,746 Income taxes paid, net of refunds(2)$ 351,715 $ 315,051 $ 90,717
(1) In 2020, the investing activities included total capital expenditures of
connection with the station repack and
incentive auction proceeds received from the
investing activities included total capital expenditures of
of which
station repack and
received from the
total capital expenditures of$106.2 million , of which$26.8 million was reimbursed from theFCC in connection with the station repack and$2.9 million was funded by the incentive auction proceeds received from theFCC in 2017. (2) Income taxes paid, net of refunds, includes (i)$82.7 million in tax payments during 2020 related to various sale of stations and cash
consideration received to settle a litigation and (ii)
payments during 2019 related to various sale of stations. As ofDecember 31, 2020
2019
Cash, cash equivalents and restricted cash$ 169,309 $
248,678
Long-term debt, including current portion 7,668,003
8,492,588
Unused revolving loan commitments under senior secured credit facilities (1) 95,662 142,662
(1) Based on the covenant calculations as of
million and$3.0 million unused revolving loan commitments under the respectiveNexstar and Mission senior secured credit facilities were available for borrowing. 59
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Cash Flows - Operating Activities
Net cash provided by operating activities increased by$836.7 million during the year endedDecember 31, 2020 compared to the same period in 2019. This was primarily attributable to an increase in net revenue (excluding trade) of$1.467 billion , 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 an increase in our corporate, direct operating and selling, general and administrative expenses (excluding non-cash transactions) of$538.4 million , an increase in cash paid for interest 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 endedDecember 31, 2020 compared to the same period in 2019, primarily due to the issuance of debt inSeptember 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, reduction in LIBOR funding costs on our senior secured loans and refinancing of certain bonds inSeptember 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). Net cash provided by operating activities decreased by$319.4 million during the year endedDecember 31, 2019 compared to the same period in 2018. This was primarily attributable to an increase in station and corporate operating expenses (excluding non-cash transactions) of$371.0 million , partially offset by an increase in net revenue (excluding trade) of$272.1 million , an increase in payments for tax liabilities of$224.3 million , primarily due to a nonrecurring tax payment of$199.5 million resulting from the sale of stations, an increase in payments for broadcast rights of$38.7 million , an increase in cash paid for interest of$31.9 million and a decrease in source of cash from timing of accounts receivable collections of$28.7 million . These were partially offset by a decrease in use of cash resulting from timing of payments to vendors of$127.6 million and an increase in distributions from our equity investments of$15.3 million . Cash paid for interest increased by$31.9 million during the year endedDecember 31, 2019 compared to the same period in 2018, primarily due to one-time fees incurred in 2019 amounting to$26.6 million associated with the financing of the Tribune merger.
Cash Flows - Investing Activities
Net cash used in investing activities during the years ended
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 endedDecember 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 theFCC related to station repack of$57.3 million . We also received$98.0 million of cash proceeds from settlement of a litigation between Sinclair and Tribune and Mission collected its loan receivable of$49.0 million fromMarshall . InSeptember 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. OnNovember 29, 2019 , Mission, a consolidated VIE, paid the outstanding principal balances ofMarshall's loans to third party bank lenders totaling$48.9 million . After making the payment, Mission becameMarshall's new lender.Marshall is a deconsolidated VIE due to its filing for bankruptcy protection inDecember 2019 . As such,Marshall's cash balance of$5.0 million was excluded from our consolidated financial statements. During the year endedDecember 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 . In 2018, we completed our acquisition ofLikqid Media Inc. ("LKQD") for a cash purchase price of$97.0 million , less$11.2 million of cash acquired, and the acquisitions of two new stations for$18.0 million . We also spent$106.2 million in capital expenditures. These transactions were partially offset by reimbursements from theFCC related to station repack of$29.4 million and proceeds from disposal of assets of$4.3 million . 60 -------------------------------------------------------------------------------- During the year endedDecember 31, 2018 , capital expenditures increased by$33.8 million compared to the same period in 2017, primarily due to increased spending of$26.8 million related to station repack and$2.9 million related to the relinquishment of certain spectrum. The capital expenditures related to station repack were reimbursed from theFCC and the capital expenditures related to relinquishment of certain spectrum were funded by the incentive auction proceeds received from theFCC in 2017.
Cash Flows - Financing Activities
Net cash used in financing activities for the year endedDecember 31, 2020 was$1.294 billion , compared to net cash provided by financing activities of$4.388 billion in the same period in 2019. During the year endedDecember 31, 2018 , net cash used in financing activities was$531.9 million . In 2020, we made payments on the outstanding principal balance of our term loans of$1,284 million (including$980.0 million inNexstar's debt prepayments, Mission's full repayment of its term loan B of$226.2 million and Mission's full repayment of Shield's term loan A of$20.7 million ). Also, we redeemed our$900.0 million 5.625% Notes due 2024 and paid$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 for 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 inSeptember 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 . We 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 . In 2018, we borrowed$44.0 million under our revolving credit facility to partially fund our acquisition of LKQD and received$6.0 million in proceeds from stock option exercises.Marshall also issued a$51.8 million term loan to refinance the outstanding principal balances under our previous term loan and revolving credit facility of$48.8 million and$3.0 million , respectively. Additionally,Marshall borrowed a$5.6 million revolving loan to partially repay its Term Loan A of$5.6 million . InOctober 2018 , we amended our credit agreements which decreased the interest rates and extended the maturity date on certain of its debt. In connection with this refinancing,Nexstar borrowed an additional$150.0 million under its Term Loan A, the proceeds of which were used to partially repay the outstanding principal balance underNexstar's Term Loan B of$150.0 million . These transactions were partially offset by repayments of outstanding obligations under our revolving credit facility of$44.0 million , repayments of outstanding principal balance under the Company's term loans of$401.6 million , purchases of treasury stock of$50.5 million , payments of dividends to our common stockholders of$68.6 million ($0.375 per share each quarter), payments for capital lease and capitalized software obligations of$8.8 million , cash payment for taxes in exchange for shares of common stock withheld of$4.9 million , payments to acquire the remaining assets of a station previously owned byKRBK, LLC of$2.5 million and payments for debt financing costs associated with the Company's debt refinancing of$1.1 million .
Future Sources of Financing and Debt Service Requirements
As ofDecember 31, 2020 , the Company had total debt of$7.668 billion , net of unamortized financing costs, discounts and premium, which represented 75.3% of the Company's combined capitalization. The Company's high level of debt requires that a substantial portion of cash flow be dedicated to pay principal and interest on debt, which reduces the funds available for working capital, capital expenditures, acquisitions and other general corporate purposes. 61 -------------------------------------------------------------------------------- The following table summarizes the approximate aggregate amount of principal indebtedness scheduled to mature for the periods referenced as ofDecember 31, 2020 (in thousands): Total 2021 2022-2023 2024-2025 ThereafterNexstar senior secured credit facility$ 4,630,557 $ 21,429 $ 597,070 $ 1,367,742 $ 2,644,316 Mission senior secured credit facility 327,000 - 327,000 - - 5.625% Notes due 2027 1,785,000 - - - 1,785,000 4.75% Notes due 2028 1,000,000 - - - 1,000,000$ 7,742,557 $ 21,429 $ 924,070 $ 1,367,742 $ 5,429,316 We make semiannual payments on the 5.625% Notes due 2027 onJanuary 15 andJuly 15 of each year. We make semiannual interest payments on our 4.75% Notes due 2028 onMay 1 andNovember 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 had$95.7 million of total unused revolving loan commitments under the senior secured credit facilities, all of which were available for borrowing, based on the covenant calculations as ofDecember 31, 2020 . The Company's ability to access funds under its senior secured credit facilities depends, in part, on our 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. As discussed above, the ultimate outcome of the COVID-19 pandemic is 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. During 2020, we repurchased a total of 3,085,745 shares of our Class A common stock for$281.8 million , funded by cash on hand. OnJanuary 27, 2021 , our Board of Directors approved a new share repurchase program authorizing us to repurchase up to$1.0 billion of our Class A common stock. The new$1.0 billion share repurchase program increased our existing share repurchase authorization, of which$174.9 million remained outstanding as ofDecember 31, 2020 . OnJanuary 27, 2021 , our Board of Directors declared a quarterly dividend of$0.70 per share of our Class A common stock. The dividend was paid onFebruary 26, 2021 to stockholders of record onFebruary 12, 2021 .
Debt Covenants
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 our 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 ofDecember 31, 2020 , we were in compliance with our financial covenant. We believeNexstar and Mission will be able to maintain compliance with all covenants contained in the credit agreements governing the senior secured facilities and the indentures governing our 5.625% Notes due 2027 and our 4.75% Notes due 2028 for a period of at least the next 12 months fromDecember 31, 2020 .
Off-Balance Sheet Arrangements
As ofDecember 31, 2020 , we did not have any relationships with unconsolidated entities or financial partnerships (except as described below), such as entities often referred to as structured finance or variable interest entities, 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 ofDecember 31, 2020 , we have outstanding standby letters of credit with various financial institutions amounting to$23.7 million , of which$20.3 million was assumed from the merger with Tribune primarily in support of the worker's compensation insurance program. The outstanding balance of standby letters of credit is deducted against our unused revolving loan commitment under senior secured credit facilities and would not be available for withdrawal. 62
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Contractual Obligations
The following summarizes the Company's contractual obligations as ofDecember 31, 2020 , and the effect such obligations are expected to have on the Company's liquidity and cash flow in future periods (in thousands): Total 2021 2022-2023 2024-2025 Thereafter Recorded contractual obligations:Nexstar senior secured credit facility$ 4,630,557 $ 21,429 $ 597,070 $ 1,367,742 $ 2,644,316 Mission senior secured credit facility 327,000 - 327,000 - - 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 350,464 47,181 93,067 70,878 139,338 Finance lease obligations 20,667 1,843 3,621 3,712 11,491 Broadcast rights current cash commitments(1) 201,977 105,522 83,528 12,927 - Other(2)(3) 46,996 14,789 31,674 533 - Unrecorded contractual obligations: Network affiliation agreements 2,636,307 1,143,735 1,481,348 11,224 - Cash interest on debt(4) 1,628,681 276,711 547,688 459,218 345,064 Executive employee contracts(5) 83,625 36,412 45,972 1,241 - Broadcast rights future cash commitments(6) 194,376 74,904 84,085 35,387 - Other 79,554 30,054 49,500 - -$ 12,985,204 $ 1,752,580 $ 3,344,553 $ 1,962,862 $ 5,925,209
(1) Future minimum payments for license agreements for which the license period
has begun and liabilities have been recorded.
(2) As of
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
obligations with respect to our pension benefit plans and other
postretirement benefit plans, respectively, which are not included in the
table above. See Note 11 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
2020 remained outstanding until maturity, based on interest rates in effect
at
(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 assumed 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. 63
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Summarized Financial Information
Nexstar Inc.'s (a wholly-owned subsidiary ofNexstar 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, byNexstar Media Group, Inc. ("Parent"), Mission (a consolidated VIE) and certain ofNexstar 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 theSEC . The following combined summarized financial information is presented for theObligor Group after elimination of intercompany transactions between Parent, Issuer and Guarantors in theObligor 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 withU.S. GAAP. InNovember 2020 , we merged our two primary operating subsidiaries,Nexstar Inc. andNexstar Digital, LLC , withNexstar Inc. surviving the merger as our single operating subsidiary. Prior to the merger,Nexstar Digital, LLC was not a guarantor of the notes. InNovember 2020 , Mission acquired television stations previously owned by Shield and Tamer. Prior to Mission's acquisition, the stations were not guarantors of the notes butNexstar was the primary beneficiary and has consolidated these business units sinceJanuary 2017 . Upon Mission's acquisition of the stations inNovember 2020 ,Nexstar remained to be the primary beneficiary and continued to consolidate the stations into its financial statements. The following combined summarized financial information is presented as if the accounts ofNexstar Digital LLC and the stations that Mission acquired from Shield and Tamer were part of theObligor Group as of the earliest period presented.
Summarized Balance Sheet Information (in thousands) - Summarized balance sheet
information as of
2020 2019 Current assets - external$ 1,205,580 $ 1,347,456 Current assets - due from consolidated entities outside of Obligor Group 35,572
45,952
Total current assets$ 1,241,152 $
1,393,408
Noncurrent assets - external(1) 10,676,397
10,971,539
Noncurrent assets - due from consolidated entities outside of Obligor Group 53,292 40,761 Total noncurrent assets$ 10,729,689 $ 11,012,300 Total current liabilities$ 727,557 $ 942,832 Total noncurrent liabilities$ 10,123,544 $ 10,973,364 Noncontrolling interests$ 6,951 $ 7,186
(1)
billion as of
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 7 to our Consolidated Financial Statements. Summarized Statements of Operations Information for theObligor Group (in thousands): Year Ended December 31, 2020 Net revenue - external $ 4,486,469 Net revenue - from consolidated entities outside of Obligor Group 17,198 Total net revenue 4,503,667 Costs and expenses - external 3,104,595 Costs and expenses - to consolidated entities outside of Obligor Group 19,493 Total costs and expenses 3,124,088 Income from operations $ 1,379,579 Net income $ 741,244 Net income attributable to Obligor Group $
741,244
Income on equity method investments $ 70,154 64
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Critical Accounting Policies and Estimates
Our Consolidated Financial Statements have been prepared in accordance withU.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 benefits 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. UnderU.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 permitNexstar to acquire the assets and assume the liabilities of all but three of these VIEs' stations at any time, subject toFCC consent. These purchase options are freely exercisable or assignable byNexstar without consent or approval by the VIEs. These option agreements expire on various dates between 2021 and 2028. We expect to renew these option agreements upon expiration. Therefore, these VIEs are consolidated into these financial statements.
Valuation of
Intangible assets represented$8.8 billion , or 65.9%, of our total assets as ofDecember 31, 2020 . 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 anFCC 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. 65
-------------------------------------------------------------------------------- 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 anFCC 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 collectiveFCC license and a network affiliation agreement.
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 one digital business reporting unit. The Company's impairment review forFCC licenses is performed at the television station market level. We test our goodwill andFCC licenses in our fourth quarter each year, or 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 andFCC 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 theFCC licenses. If it is more likely than not that the fair value of a reporting unit or anFCC 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 forFCC licenses consists of a market-by-market comparison of the carrying amounts ofFCC licenses with their fair value, using the Greenfield Method of discounted cash flow analysis. An impairment is recorded when the carrying value of anFCC license exceeds its fair value. We test our finite-lived intangible assets whenever events or circumstances indicate that their carrying amount may not be recoverable, relying on a number of factors including operating results, business plans, economic projections and anticipated future cash flows. Impairment in the carrying amount of a finite-lived intangible asset is recognized when the expected future operating cash flow derived from the operations to which the asset relates is less than its carrying value. In the fourth quarter of 2020, using the qualitative impairment test, the Company performed its annual impairment test on goodwill attributable to its aggregated television stations and concluded that it was more likely than not that the fair value would sufficiently exceed the carrying amount. As ofDecember 31, 2020 , the digital reporting unit's goodwill is attributable to BestReviews, a consumer product recommendations company we acquired onDecember 29, 2020 . As ofDecember 31, 2020 , our cable network reporting unit's goodwill balance was$400.0 million , representing approximately 13% of the consolidated carrying amount. We acquired this business inSeptember 2019 through our merger with Tribune. InSeptember 2020 , our cable network launched NewsNation, a national news program during prime time and currently expanding to provide news programs in other day parts. In the fourth quarter of 2020, management completed a quantitative impairment test of its cable network reporting unit goodwill. The results of this impairment test indicated that the reporting unit fair value exceeded the carrying amount by approximately 70%, and therefore no goodwill impairment was identified. The quantitative impairment test was performed using a combination of an income approach, which employs a discounted cash flow model, and market approaches, which considers earnings multiples of comparable publicly traded businesses and recent market transactions. In estimating the fair value using the income approach, the discounted cash flow model assuming an asset purchase was utilized. This method uses asset tax bases at fair value and results to a higher depreciation and amortization, lower income taxes on cash flows and ultimately increases the estimated fair value of the reporting unit. The significant assumptions in estimating fair value included: (i) annual revenue growth rates, (ii) operating profit margins, (iii) discount rate, (iv) selection of comparable public companies and related implied EBITDA multiples in such company's estimated enterprise values; (v) selection of comparable recent observable transactions for similar assets and the related implied EBITDA multiple; (vi) selection of recent comparable observable transactions for similar assets and the related implied value per subscriber. In the fourth quarter of 2020, the Company also performed its annual impairment test onFCC licenses for each station market using the qualitative impairment test. Except for nine station markets that indicated unfavorable trends, the Company concluded that it was more likely than not that their fair values have exceeded the respective carrying amounts. For the station markets that indicated unfavorable trends, management extended its procedures and performed a quantitative impairment test. As ofDecember 31, 2020 , theFCC licenses of these stations had a total balance of$172.8 million , representing approximately 6% of the consolidated carrying amount. Our quantitative impairment test of these assets indicated that each of their estimated fair values (Greenfield Method ) exceeded the respective carrying amounts and no such individualFCC license had carrying values that were material. Thus, no impairment was recorded. 66 -------------------------------------------------------------------------------- We also performed quantitative and 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 ofDecember 31, 2020 . No other events or circumstances were noted in 2020 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. Due to the continued impact of COVID-19 pandemic subsequent toDecember 31, 2020 , the Company will 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 2020, we evaluated our equity method investments for other-than-temporary impairment ("OTTI") due to the events and circumstances surrounding the COVID-19 pandemic. Based on the results of the review, we determined that no impairments existed that required further assessment. We may experience future declines in the fair value of our equity method investments, and we may determine an impairment loss will be required to be recognized in a future reporting period. Such determination will be based on the prevailing facts and circumstances, including those related to the reported results and financial statement disclosures of the investees as well as the general market conditions. We will continue to evaluate our equity method investments in future periods to determine if an OTTI has occurred.
Broadcast Rights Carrying Amount
We record cash broadcast rights contracts as an asset and a liability when the license period has begun, the cost of each program is known or reasonably determinable, we have accepted the program material, and the program is produced and available for broadcast. Cash broadcast rights are initially recorded at the contract cost and are amortized on a straight-line basis over the period the programming airs. The current portion of cash broadcast rights represents those rights available for broadcast which will be amortized in the succeeding year. Periodically, we evaluate the net realizable value, calculated using the average historical rates for the programs or the time periods the programming will air, of our cash broadcast rights and adjust amortization in that quarter for any deficiency calculated. As ofDecember 31, 2020 , the carrying amounts of our current cash broadcast rights were$50.2 million and our non-current cash broadcast rights were$57.2 million .
Pension plans and other postretirement benefits
A determination of the liabilities and cost of the Company's pension and other postretirement plans ("OPEB") requires the use of assumptions. The actuarial assumptions used in the Company's pension and postretirement reporting are reviewed annually with independent actuaries and are compared with external benchmarks, historical trends and the Company'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 67
-------------------------------------------------------------------------------- As ofDecember 31, 2020 , the effective discount rates used for determining pension benefit obligations range from 2.15% to 2.29%. During 2020, the assumptions utilized in determining net periodic benefit credit on our pension plans were (i) 5.45% to 5.75% expected rate of return on plan assets and (ii) 3.08% effective discount rates. As of and for the year endedDecember 31, 2020 , our pension plans' benefit obligations and related net period benefit credit was$2.553 billion and$45.9 million , respectively. As ofDecember 31, 2020 , a 1% change in the discount rates would have the following effects (in thousands): 1% Increase 1% Decrease
Projected impact on net periodic benefit credit
For additional information on our pension and OPEB, see Note 11 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 WGN America. These revenues are generally earned based on a price per subscriber of the distributor within the retransmission or the 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. 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. Section 382 of the Code generally imposes an annual limitation on the amount of NOLs that may be used to offset taxable income when a corporation has undergone significant changes in stock ownership. Ownership changes are evaluated as they occur and could limit the ability to use NOLs. The ability to use NOLs is also dependent upon the Company's ability to generate taxable income. The NOLs could expire prior to their use. To the extent the Company's use of NOLs is significantly limited, the Company's income could be subject to corporate income tax earlier than it would if it were not able to use NOLs, which could have a negative effect on the Company's financial results and operations. 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. 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. 68
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