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Acquisitions
9 Months Ended
Sep. 30, 2018
Business Combinations [Abstract]  
Acquisitions

3.  Acquisitions

LKQD

On January 16, 2018, Nexstar Digital LLC (“Nexstar Digital”), a wholly-owned subsidiary of Nexstar, acquired the outstanding equity of LKQD, a video advertising infrastructure company, for $97.0 million. In January 2018, $94.0 million of the purchase price was paid, funded by a combination of borrowing under Nexstar’s revolving credit facility (Note 7) and cash on hand. The remaining purchase price of $3.0 million (working capital adjustment) was paid to the former owners on April 27, 2018, funded by cash on hand.

The sellers are also entitled to receive up to $35.0 million in additional cash payments if a certain earnings target is achieved during the fiscal year 2019 and if certain employees have continued their employment with Nexstar Digital on the date of payment (the “Earnout Payments”). The Earnout Payments are considered compensation to employees for their services and will be incurred from the acquisition date through December 31, 2019. As of September 30, 2018, Nexstar Digital accrued $1.9 million, representing the portion of the estimated fair value of the Earnout Payments that is incurred. The estimated fair value of the Earnout Payments was determined by applying a weighted probability of potential outcomes to the maximum possible payout of $35.0 million. The calculation of these potential outcomes is dependent on past financial performance, management assumptions about future performance and industry trends and any changes to these assumptions could impact the final settlement. This fair value measurement is considered Level 3 as significant inputs are unobservable to the market.

The acquisition of LKQD broadens and diversifies Nexstar Digital’s portfolio with technologies that are complementary to its current offerings of digital solutions and services for media publishers, and multi-platform marketing solutions for local and national advertisers. Transaction costs relating to this acquisition, including legal and professional fees of $0.4 million, were expensed as incurred during the nine months ended September 30, 2018. No significant transaction costs were incurred during the three months ended September 30, 2018.

Subject to final determination, which is expected to occur within 12 months of the acquisition date, the provisional fair values of the assets acquired and liabilities assumed in the acquisition are as follows (in thousands):

 

Cash and cash equivalents

 

$

11,167

 

Accounts receivable

 

 

24,712

 

Prepaids

 

 

13

 

Property and equipment

 

 

210

 

Other intangible assets

 

 

45,320

 

Goodwill

 

 

42,094

 

Total assets acquired and consolidated

 

 

123,516

 

Less: Accounts payable and accrued expenses

 

 

(18,816

)

Less: Taxes payable

 

 

(1,065

)

Less: Deferred tax liabilities

 

 

(6,603

)

Net assets acquired and consolidated

 

$

97,032

 

 

The fair value assigned to goodwill is attributable to future expense reductions utilizing management’s leverage in operating costs. The goodwill and other intangible assets are not deductible for tax purposes. Other intangible assets are amortized over an estimated weighted average useful life of approximately three years.

 

During 2018, Nexstar Digital recorded measurement period adjustments including a decrease in accounts receivable of $1.2 million, resulting from changes in the estimate of collectability of accounts receivable. This adjustment increased goodwill by $1.0 million, along with other measurement period adjustments.

 

LKQD’s net revenue of $25.6 million and operating loss of $0.9 million from the date of acquisition to September 30, 2018 have been included in the accompanying Condensed Consolidated Statements of Operations.

 

WHDF

 

On July 15, 2018, Nexstar entered into a definitive agreement to acquire the assets of television station WHDF from Huntsville TV for $3.0 million in cash, including working capital adjustments. WHDF is a full power television station in the Huntsville, Alabama market and an affiliate of CW. Effective July 15, 2018, Nexstar began providing programming and sales services to the station pursuant to a TBA, which created a new duopoly for Nexstar. The TBA will terminate upon completion of the acquisition or if the acquisition cannot be completed for reasons beyond the control of Nexstar and the seller. No significant transaction costs were incurred related to this acquisition.

 

On July 15, 2018, Nexstar completed the first closing and acquired the station’s assets excluding certain transmission equipment, FCC licenses and network affiliation agreements for $2.3 million, funded by cash on hand. 

 

Subject to final determination, which is expected to occur within 12 months of the acquisition date, the provisional fair values of the assets acquired and liabilities assumed in the first closing are as follows (in thousands):

 

Prepaid expenses and other current assets

 

$

35

 

Property and equipment

 

 

570

 

Other intangible assets

 

 

246

 

Other noncurrent assets

 

 

26

 

Total assets acquired at first closing

 

 

877

 

Less: Accrued expenses

 

 

(30

)

Net assets acquired at first closing

 

 

847

 

Deposit on second closing

 

 

1,434

 

Total paid at first closing

 

$

2,281

 

 

Other intangible assets are amortized over an estimated weighted average useful life of three years.

 

Since not all assets needed to operate the station were acquired in July 2018, the first closing does not represent an acquisition of a business. Thus, the excess of total payments in the first closing over the provisional fair values of the assets acquired and liabilities assumed was considered a deposit for the second closing. As discussed in Note 2, Nexstar is not the primary beneficiary of its variable interests in WHDF. Therefore, as of September 30, 2018, the station’s remaining assets were not consolidated into Nexstar under authoritative guidance related to the consolidation of VIEs.

An insignificant amount of net revenue and operating income incurred by the station from July 15, 2018 to September 30, 2018 have been included in the accompanying Condensed Consolidated Statements of Operations.

 

The acquisition was approved by the FCC on October 17, 2018. Nexstar expects to complete the acquisition of the remaining assets of WHDF (second closing) and pay the remaining purchase price of $0.7 million in early November 2018.

 

KRBK

 

On August 1, 2018, Nexstar entered into a definitive agreement to acquire the assets of television station KRBK from KRBK, LLC for $17.6 million in cash, including working capital adjustments. KRBK is a full power television station in the Springfield, Missouri market and an affiliate of FOX. Effective August 1, 2018, Nexstar began providing programming and sales services to the station pursuant to a TBA, which created a new duopoly for Nexstar. The TBA will terminate upon completion of the acquisition. If the acquisition of KRBK cannot be completed for reasons beyond the control of Nexstar and the seller, the purchase agreement will terminate but the TBA will continue for an initial eight-year term and will automatically renew for three successive eight-year terms, unless a written non-renewal notice is provided by either party.

 

On August 1, 2018, Nexstar completed the first closing of the acquisition and acquired the station’s assets excluding certain transmission equipment, FCC licenses and network affiliation agreements for $15.1 million, funded by cash on hand. 

 

Subject to final determination, which is expected to occur within 12 months of the acquisition date, the provisional fair values of the assets acquired and liabilities assumed in the first closing are as follows (in thousands):

 

Accounts receivable

 

$

2,238

 

Broadcast rights

 

 

73

 

Property and equipment

 

 

758

 

Other intangible assets

 

 

119

 

Other noncurrent assets

 

 

87

 

Total assets acquired at first closing

 

 

3,275

 

Less: Accounts payable and accrued expenses

 

 

(1,281

)

Net assets acquired at first closing

 

 

1,994

 

Deposit on second closing

 

 

13,105

 

Total paid at first closing

 

$

15,099

 

 

Other intangible assets are amortized over an estimated weighted average useful life of one year.

 

Since not all assets needed to operate the station were acquired in August 2018, the first closing does not represent an acquisition of a business. Thus, the excess of total payments in the first closing over the provisional fair values of the assets acquired and liabilities assumed was considered a deposit for the second closing. As discussed in Note 2, Nexstar is the primary beneficiary of its variable interests in KRBK. Therefore, the station’s remaining assets as of August 1, 2018, and transactions thereafter, were consolidated into Nexstar under authoritative guidance related to the consolidation of VIEs.

 

Subject to final determination, which is expected to occur within 12 months of the acquisition date, the provisional fair values of the station’s remaining assets consolidated into Nexstar are as follows (in thousands):

 

Property and equipment

 

$

3,136

 

FCC licenses

 

 

4,401

 

Network affiliation agreements

 

 

5,719

 

Goodwill

 

 

2,317

 

Consolidated assets of a VIE

 

 

15,573

 

 

The fair value assigned to goodwill is attributable to future expense reductions utilizing management’s leverage in programming and other station operating costs. The goodwill and FCC licenses are deductible for tax purposes. The intangible assets related to the network affiliation agreements are amortized over 15 years. The consolidation of the remaining assets of KRBK resulted in a noncontrolling interest of $15.6 million, representing the estimated fair value attributable to the owner.

 

The station’s net revenue of $1.7 million and operating income of $0.8 million from August 1, 2018 to September 30, 2018 have been included in the accompanying Condensed Consolidated Statements of Operations. Transaction costs relating to the acquisition were not significant during the three and nine months ended September 30, 2018.

 

The acquisition was approved by the FCC on October 17, 2018. On November 1, 2018, Nexstar completed the acquisition of the remaining assets of KRBK. Nexstar paid the owners the remaining purchase price of $2.5 million, funded by cash on hand, and utilized its $13.1 million balance of deposit previously paid to the owners to acquire the noncontrolling interest of $15.6 million.