NEXSTAR MEDIA GROUP, INC. (NXST) FY 2023 MD&A

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

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

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

Executive Summary

2023 Highlights

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Net revenue was $4.9 billion for the year ended December 31, 2023.

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Returned approximately $796 million of capital to shareholders through repurchases of common stock of $605 million and dividends of $191 million, funded by cash on hand.

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Reduced our debt by $125 million, funded by cash on hand.

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Reached multi-year distribution agreements for all agreements up for renewal in 2023.

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Renewed and extended multi-year affiliation agreements with Fox Network and MyNetwork.

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Launched The CW affiliations for three of its stations in the top 15 television markets, including WPHL-TV in Philadelphia (DMA #4), KRON-TV in San Francisco (DMA #10), and WTTA-TV in Tampa (DMA #12).

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Acquired several exclusive sports programming licenses at the CW including exhibition rights to the WWE NXT beginning in October 2024 through September 2029, broadcast rights to the NASCAR Xfinity Series beginning in 2025 through the 2031 racing season and broadcast rights to 50 Atlantic Coast Conference (ACC) college football and basketball games beginning in 2023 through the 2027 season.

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Expanded and extended CW network affiliation agreements with Hearst Television, Sinclair, Inc., and Gray Television, Inc.

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Expanded news programming at NewsNation, America’s fastest growing cable news network in primetime, to 24 hours per weekday of national news, analysis, and talk.

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Created a new advertising sales structure and to implement Nexstar’s new data and technology-driven, multi-platform strategy and accelerate the monetization of the Company’s platforms.

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Acquired certain assets of WSNN-LD, an MNTV-affiliated low power television station serving the Tampa, Florida market and KUSI-TV, an independent full power television station serving the San Diego, CA market, for a combined total purchase price of $38 million in cash.

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Filed the certificate of its amended and restated certificate of incorporation to reflect the amendments to its certificate of incorporation approved by its shareholders at the 2023 annual meeting, to, among other things, declassify its Board of Directors beginning at the 2024 annual meeting.

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Overview of Operations

As of January 2024, we owned, operated, programmed or provided sales and other services to 201 full power television stations and one AM radio station, including those owned by VIEs, in 117 markets in 40 states and the District of Columbia. The stations are affiliates of ABC, NBC, FOX, CBS, The CW, MNTV and other broadcast television networks.

Through various local service agreements, we provided sales, programming and other services to 37 full power television stations owned by independent third parties, of which 35 full power television stations are VIEs that are consolidated into our financial statements. See Note 2 to our Consolidated Financial Statements included 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 do not own the consolidated VIEs or their television stations. However, we are deemed under U.S. GAAP to have controlling financial interests for financial reporting purposes in these entities because of (i) the local service agreements we have with their stations, (ii) our (excluding The CW) guarantee of the obligations incurred under Mission’s senior secured credit facility, (iii) 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 (iv) purchase options granted by each consolidated VIE which permit us to acquire the assets and assume the liabilities of each of these VIEs’ stations, subject to FCC consent. In compliance with FCC regulations for all the parties, each of the consolidated VIEs maintains complete responsibility for and control over programming, finances and personnel for its stations.

We also own a 75.0% ownership interest in The CW, the fifth major broadcast network in the U.S., NewsNation, a national cable news network, two digital multicast networks, Antenna TV and Rewind TV, multicast network services provided to third parties, and a 31.3% ownership stake in TV Food Network. Our digital assets include 140 local websites, 278 mobile applications, 25 connected television applications, and six FAST channels representing products of our local television stations, The CW, NewsNation, The Hill, and BestReviews and a suite of advertising solutions.

The largest portion of operating revenue of our Company is derived from distribution revenue, which relates to retransmission of Company stations’ signals and the carriage of our cable and broadcast networks by cable, satellite and other MVPDs and OVDs and, in the case of The CW, its local affiliates. For the year ended December 31, 2023, the Company’s distribution revenue represented 55.3% of total net revenue. Distributors generally pay for retransmission rights of local stations and for carriage of our networks on a per subscriber basis. Distribution revenue is affected positively or negatively by the rate of growth or decline of subscribers and the growth in the per subscriber fee due to contract renegotiations or annual escalators in existing contracts. 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. We also generate distribution revenues from the affiliation fees that CW’s third-party local station affiliates pay to the network and from programmers who lease the use of our spectrum in selected local markets to air their content on our multicast streams.

We also generate revenue from core television advertising and digital advertising. For the year ended December 31, 2023, the Company generated 33.7% of its net revenue from core advertising and 8.0% from digital advertising. Advertisers typically pay for advertising on our television and digital assets based on the number of impressions our programming or digital content delivers. As a result, our core television and digital advertising is affected by a number of factors, including the size and demographics of the audience viewing our programming and digital content, economic conditions, demand for advertising and our sales effort. Digital advertising that is not directly sold to advertisers through our in-house and third party sales teams, is sold via programmatic exchanges. In addition, we generate digital advertising revenue from the sale of advertising on third party sites and other local and national services.

In even years, we generate a substantial amount of revenue from political advertising. For the years ended December 31, 2023 and 2022, the Company generated 1.3% and 9.7%, respectively, of our net revenue from political advertising. Political advertising is affected by the number of competitive races there are and the extent to which the Company’s stations are located in the relevant competitive markets, the amount of funds raised by candidates, PACs and others, the availability and pricing of television advertising inventory and the availability of alternative media. Because of the scale of Nexstar, we typically have a presence in the substantial majority of markets with competitive political races. All national revenue is derived from advertisements placed through advertising agencies.

Our primary operating expenses include programming, newsgathering, production and promotion, employee salaries and benefits, sales commissions, digital cost of goods sold and content creation costs, and other administrative and corporate expenses. Programming costs are primarily related to fees paid to networks with which ours and our partners’ stations are affiliated and license fees for original and sports programming, in the case of The CW, and syndicated programming in the case of the stations and our networks. A large percentage of the costs involved in our operations is relatively fixed.

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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. On April 1, 2021, the U.S. Supreme Court issued a decision that reversed a lower court of appeals ruling and upheld the FCC’s elimination or modification of certain of its media ownership rules in the agency’s 2010/2014 quadrennial review of those rules. Among the regulations eliminated in 2021 as a result of the Supreme Court ruling was a rule providing that a television station licensee which sells more than 15 percent of the weekly advertising inventory of another television station in the same market under a JSA is deemed to have an attributable ownership interest in that station, as well as a requirement that at least eight independently owned television stations remain in a local television market for a party to acquire a second station in that market. While these restrictions are no longer in effect, the FCC’s 2022 quadrennial media ownership review and an FCC proceeding to review the current national limit on television ownership are currently pending. The FCC could reinstitute its earlier restrictions or impose other limitations in these or any future reviews.

Seasonality

Advertising revenue is positively affected by a strong economy. Conversely, declines in advertising budgets of advertisers, particularly in recessionary periods, adversely affect the broadcast industry and, as a result, may contribute to a decrease in our advertising revenue. In even-numbered years we generate substantial advertising revenue from the political advertising we sell to candidates, political action committees and political parties. Advertising revenue is also positively affected by certain events such as the Olympic Games or the Super Bowl. Advertising revenue is generally highest in the second and fourth quarters of each year, due in part to increases in consumer advertising in the spring and retail advertising in the period leading up to, and including, the holiday season.

Historical Performance

Revenue

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

Results of Operations

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

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Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

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

Revenue

Core advertising revenue was $1.66 billion for the year ended December 31, 2023 compared to $1.72 billion for the same period in 2022, a decrease of $58 million, or 3.4%. Excluding the $63 million of incremental core advertising revenue from our acquisition of The CW (acquired on September 30, 2022), core advertising revenue decreased by 7.0% primarily due to a weaker advertising market and the absence of first quarter advertising revenue from the Olympics on our NBC affiliate stations, partially offset by an increase in advertising revenue during the first quarter from the Super Bowl aired on FOX, where we have more FOX-affiliated stations versus NBC-affiliated stations in the prior year.

Political advertising revenue was $66 million for the year ended December 31, 2023 compared to $506 million for the same period in 2022, a decrease of $440 million, as 2023 is not an election year.

Distribution revenue was $2.73 billion for the year ended December 31, 2023 compared to $2.57 billion for the same period in 2022, an increase of $156 million, or 6.1%. Excluding the $53 million of incremental distribution revenue from our acquisition of The CW and the combined effect of the temporary disruption of a large MVPD for 76 days in the third quarter of 2023 and the impact of the removal of partner stations from certain MVPDs related to continued negotiation (5.6% decrease in revenue), distribution revenue increased by 9.6% primarily due to renewals of contracts in 2022 providing for higher rates per subscriber and scheduled annual escalation of rates per subscriber, partially offset by continued MVPD subscriber attrition. We anticipate continued increase of retransmission fees until there is a more balanced relationship between viewers delivered and fees paid for delivery of such viewers. In January 2024, our partner stations have successfully renewed one of the distribution agreements and have been restored on the MVPD’s service.

Digital revenue, representing advertising revenue on our stations’ web and mobile sites and other internet-based revenue, was $395 million for the year ended December 31, 2023 compared to $365 million for the same period in 2022, an increase of $30 million, or 8.2%, primarily due to incremental revenue from our acquisition of The CW (acquired on September 30, 2022) of $32 million.

Operating Expenses

Direct operating expenses, consisting primarily of programming, news, and technical expenses, and selling, general and administrative expenses were $3.06 billion for the year ended December 31, 2023 compared to $2.91 billion for the same period in 2022, an increase of $147 million, or 5.1%. Excluding the incremental $74 million of operating expenses from our acquisition of The CW, direct operating and selling, general and administrative expenses increased by 2.6% primarily due to an increase in station programming costs from network affiliation renewals and annual increases in network affiliation costs, increased news programming at NewsNation and our local stations as well as increased digital sales and administrative expenses, partially offset by a decrease in commission incurred from national representation due to a decrease in political advertising revenue.

Corporate expenses, related to costs associated with the centralized management of our stations, were $193 million for the year ended December 31, 2023 compared to $198 million for the same period in 2022, a decrease of $5 million, or 2.5% (no significant change).

Depreciation and amortization expense was $941 million for the year ended December 31, 2023 compared to $662 million for the same period in 2022, an increase of $279 million, or 42.1%. Depreciation and amortization expense consists of the following:

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Amortization of broadcast rights was $453 million for the year ended December 31, 2023 compared to $193 million for the same period in 2022, an increase of $260 million, or 134.7%, primarily due to incremental programming expenses from our acquisition of The CW (acquired on September 30, 2022) of $286 million, partially offset by a reduction in the television stations’ broadcast rights costs of $26 million.

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Amortization of intangible assets was $311 million for the year ended December 31, 2023 compared to $309 million for the same period in 2022, an increase of $2 million, or 0.6% (no significant change).

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Depreciation of property and equipment was $176 million for the year ended December 31, 2023 compared to $160 million for the same period in 2022, an increase of $16 million, or 10.0%. The increase was primarily due to newly capitalized assets.

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In 2023 and 2022, we recorded $35 million and $96 million, respectively, of goodwill and intangible assets impairment on our product review and recommendation platform reporting unit. The Company’s assessment indicated that the reporting unit’s carrying amount exceeded its fair value, and therefore an impairment loss was identified and recorded in the fourth quarter of 2023 and 2022, respectively. As of December 31, 2023, this reporting unit has no remaining goodwill balance.

In 2022 certain real estate properties located in Chicago were sold and written down to their estimated fair value, less cost to sell, resulting in the Company’s recognition of impairment charges of $37 million in the fourth quarter of 2022.

Income from equity method investments, net

Income from equity method investments, net was $104 million for the year ended December 31, 2023, compared to $153 million for the same period in 2022, a decrease of $49 million. Our largest equity method investment is TV Food Network in which we own a 31.3% interest. We record our equity in TV Food Network’s net income, less our share in the amortization of basis difference related to the investment, as income from equity method investments. In 2023, TV Food Network’s net income decreased by $159 million resulting to our share in its income to decrease by $50 million. TV Food Network’s lower net income was primarily due to a decrease in its advertising revenue driven by a weaker advertising market. There was no significant change to our share in the amortization of basis difference associated with our investment in TV Food Network. For additional information on our investment in TV Food Network, including the accounting for basis difference, refer to Note 6 to our Consolidated Financial Statements.

Interest Expense, net

Interest expense, net was $447 million for the year ended December 31, 2023 compared to $337 million for the same period in 2022, an increase of $110 million, or 32.6%, primarily due to increases in interest rates in the Company’s outstanding loans under its senior secured credit facilities, partially offset by decreases in interest expense from debt repayments and lower interest rates obtained in connection with the refinancing of certain of our term loans in June 2022. Interest rates on outstanding loans under the Company’s senior secured credit facilities ranged from 6.85% to 7.85% as of December 31, 2023, compared to interest rates ranging from 5.86% to 6.89% as of December 31, 2022. These interest rates were a mixture of Secured Overnight Financing Rate (“SOFR”) plus Credit Spread Adjustment (“CSA”) used to account for the difference between SOFR and London Interbank Offered Rate (“LIBOR”), plus applicable margin in 2023 compared to a mixture of SOFR plus CSA plus applicable margin and U.S. LIBOR plus applicable margin in 2022.

Pension and other postretirement plans credit, net

Pension and other postretirement plans credit, net was $36 million for the year ended December 31, 2023 compared to $43 million for the same period in 2022, a decrease of $7 million (no significant change).

Income Taxes

Income tax expense was $131 million for the year ended December 31, 2023 compared to an income tax expense of $274 million for the same period in 2022, a decrease of $143 million. The effective tax rates during the years ended December 31, 2023 and 2022 were 32.7% and 22.5%, respectively. Nexstar reported permanent differences, including an adjustment for losses related to the minority interest in The CW, resulting in an incremental income tax expense of $44 million or 7.2% increase to the effective tax rate. Also, changes in the valuation allowance resulted in an incremental income tax expense of $15 million, or a 2.9% increase to the effective tax rate in 2023.

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Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

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

Revenue

Core advertising revenue was $1.72 billion for the year ended December 31, 2022 compared to $1.76 billion for the same period in 2021, a decrease of $44 million, or 2.5%, primarily due to a weaker national advertising market, the absence of third quarter advertising revenue from the Olympics on our NBC affiliate stations and changes in the mix between our core and political advertising revenues of $70 million, partially offset by incremental revenue from our acquisition of The CW of $27 million.

Political advertising revenue was $506 million for the year ended December 31, 2022 compared to $45 million for the same period in 2021, an increase of $461 million, as 2022 was a mid-term election year.

Distribution revenue was $2.57 billion for the year ended December 31, 2022 compared to $2.47 billion for the same period in 2021, an increase of $98 million, or 4.0%. The increase was primarily due to scheduled annual escalation of rates per subscriber, renewals of contracts in 2021 providing for higher rates per subscriber and incremental revenue from our acquisition of The CW of $17 million, partially offset by continued MVPD subscriber attrition, a few periods during the negotiation of new contracts with our MVPD partners where our partners’ stations were not available and a settlement of a dispute in connection with a new contract with one of our distributors. We anticipate continued increase of retransmission fees until there is a more balanced relationship between viewers delivered and fees paid for delivery of such viewers.

Digital revenue, representing advertising revenue on our stations’ web and mobile sites and other internet-based revenue, was $365 million for the year ended December 31, 2022 compared to $322 million for the same period in 2021, an increase of $43 million, or 13.0%, primarily due to growth in our television stations digital advertising and services revenue, incremental revenue from our acquisitions of The CW in September 2022 of $17 million and a digital business we acquired in the third quarter of 2021 of $22 million, offset by weakness in the national digital advertising market and ecommerce.

Operating Expenses

Direct operating expenses, consisting primarily of news, engineering and programming, and selling, general and administrative expenses were $2.91 billion for the year ended December 31, 2022 compared to $2.71 billion for the same period in 2021, an increase of $197 million, or 7.3%. This was primarily due to an increase in cost related to incremental operating expenses from our acquisitions of The CW in September 2022 of $70 million and a digital business we acquired in the third quarter of 2021 of $16 million, an increase in variable costs associated with the increase in net revenue, an increase in station programming costs due to network affiliation renewals and annual increases in network affiliation costs, and increased promotion costs, partially offset by a reversal of an accrual in connection with a settlement of a dispute in connection with a new contract with one of our distributors and some administrative savings, primarily related to healthcare.

Corporate expenses, related to costs associated with the centralized management of our stations, were $198 million for the year ended December 31, 2022 compared to $176 million for the same period in 2021, an increase of $22 million, or 12.9%, primarily due to an increase in stock-based compensation of $15 million.

Depreciation and amortization expense was $662 million for the year ended December 31, 2022 compared to $589 million for the same period in 2021, an increase of $73 million, or 12.5%. Depreciation and amortization expense consists of the following:

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Amortization of broadcast rights was $193 million for the year ended December 31, 2022 compared to $121 million for the same period in 2021, an increase of $72 million, or 59.3%. The increase was primarily due to incremental amortization from our acquisition of The CW of $90 million, partially offset by a reduction in NewsNation’s costs of $9 million as it continues to shift its focus from syndicated programming to national news programs.

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Amortization of intangible assets was $309 million for the year ended December 31, 2022 compared to $301 million for the same period in 2021, an increase of $8 million, or 2.8% (no significant change).

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Depreciation of property and equipment was $160 million for the year ended December 31, 2022 compared to $167 million for the same period in 2021, a decrease of $7 million, or 4.0% (no significant change).

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In the fourth quarter of 2022, we recorded a $96 million goodwill and intangible assets impairment on our product review and recommendation platform reporting unit. The Company’s assessment indicated that the reporting unit’s carrying amount exceeded its fair value, and therefore an impairment loss was identified.

In 2022 and 2021, certain real estate properties located in Chicago were classified as held for sale. Due to designations as held for sale assets, the properties’ carrying amounts were written down to their estimated fair value, less estimated cost to sell, resulting in the Company’s recognition of impairment charges of $37 million and $23 million in the fourth quarter of 2022 and 2021, respectively.

Gain on bargain purchase

Gain on bargain purchase of $56 million for the year ended December 31, 2022 pertains to our acquisition of The CW, representing the excess of the fair value of the net assets acquired over the $0 purchase consideration and the fair value of noncontrolling interests. For additional information on this acquisition, see Note 3, “Acquisitions and Dispositions” to our Consolidated Financial Statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K.

Income from equity method investments, net

Income from equity method investments, net was $153 million for the year ended December 31, 2022, compared to $125 million for the same period in 2021, an increase of $28 million. Our largest equity method investment is TV Food Network in which we own a 31.3% interest. We record our equity in TV Food Network’s net income, less our share in the amortization of basis difference related to the investment, as income from equity method investments. In 2022, certain components of such basis difference reached the end of the estimated amortization life resulting to a decrease in our share in the amortization of $55 million (increase in income). This was partially offset by a decrease in our share in TV Food Network’s net income of $27 million. For additional information on our investment in TV Food Network, including the accounting for basis difference, refer to Note 6 to our Consolidated Financial Statements.

Interest Expense, net

Interest expense, net was $337 million for the year ended December 31, 2022 compared to $283 million for the same period in 2021, an increase of $54 million, or 19.1%, primarily due to increases in interest rates in the Company’s outstanding loans under its senior secured credit facilities, partially offset by decreases in interest expense from debt repayments and lower interest rates obtained in connection with the refinancing of certain of our term loans in June 2022. Interest rates on outstanding loans under the Company’s senior secured credit facilities ranged from 5.86% to 6.89% as of December 31, 2022, compared to interest rates ranging from 1.60% to 2.60% as of December 31, 2021. These interest rates were a mixture of SOFR plus CSA used to account for the difference between SOFR and LIBOR, plus applicable margin and U.S. LIBOR plus applicable margin in 2022 compared to U.S. LIBOR plus applicable margin only in 2021.

Pension and other postretirement plans credit, net

Pension and other postretirement plans credit, net was $43 million for the year ended December 31, 2022 compared to $81 million for the same period in 2021, a decrease of $38 million, primarily due to lower estimated expected return on plan assets of $19 million, higher estimated interest cost of $7 million and a $13 million settlement gain from the purchase of an annuity contract related to certain participants of a qualified pension plan during the fourth quarter of 2021.

Income Taxes

Income tax expense was $274 million for the year ended December 31, 2022 compared to an income tax expense of $263 million for the same period in 2021, an increase of $11 million. The effective tax rates during the years ended December 31, 2022 and 2021 were 22.5% and 24.1%, respectively. The decrease in the effective tax rate is primarily related to changes in the valuation allowance resulting in an incremental income tax benefit of $24 million, or a 2.1% decrease to the effective tax rate in 2022. The gain on bargain purchase arising from the acquisition of The CW resulted in a 1.1% decrease to the effective tax rate.

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Liquidity and Capital Resources

The Company is leveraged, which makes it vulnerable to changes in general economic conditions. The Company’s ability to repay or refinance its debt will depend on, among other things, financial, business, market, competitive and other conditions, many of which are beyond the Company’s control. The Company’s primary sources of liquidity include cash on hand, borrowing capacity under its revolving credit facilities (with a maturity date of June 2027) and cash generated from operations. The Company believes these sources of liquidity are sufficient to meet its business operating requirements, its capital expenditures and to continue to service its debt for at least the next 12 months as of the filing date of this Annual Report on Form 10-K. As of December 31, 2023, the Company was in compliance with the financial covenants contained in the amended credit agreements governing its senior secured credit facilities.

Any future adverse economic conditions, including those resulting from heightened and sustained inflation and higher interest rates, could adversely affect the Company’s future operating results, cash flows and financial condition.

Cash Flow Summary

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

(1)
In 2023, 2022 and 2021, the investing activities included total capital expenditures of $149 million, $157 million and $151 million, respectively, of which none, $1 million and $10 million, respectively, were reimbursed from the FCC in connection with the station repack.

(2)
In 2022, income taxes paid, net of refunds, includes $48 million in tax payments related to various sales of real estate properties.

Cash Flows—Operating Activities

Net cash provided by operating activities decreased by $404 million during the year ended December 31, 2023 compared to the same period in 2022. This was primarily due to a decrease in operating income (excluding non-cash transactions) of $417 million, an increase in payments for broadcast rights of $173 million, higher interest payments of $107 million and timing of accounts receivable collections of $42 million. These decreases were partially offset by sources of cash resulting from timing of payments to our vendors of $110 million, lower income tax payments of $201 million and an increase in distribution from our equity investment in TV Food Network of $20 million. The increase in payments for broadcast rights was due to incremental payments from our acquisition of The CW (acquired on September 30, 2022) of $211 million, partially offset by a decrease in payments for our syndicated programming of $38 million. The increase in interest payments was primarily due to higher interest rates, partially offset by decreases in interest expense from debt repayments and lower interest rates obtained in connection with the refinancing of certain of our term loans in June 2022.

Net cash provided by operating activities increased by $188 million during the year ended December 31, 2022 compared to the same period in 2021. This was primarily due to an increase in operating income (excluding non-cash transactions) of $357 million, sources of cash resulting from timing of accounts receivable collections of $108 million, and an increase in distributions from our equity investment in TV Food Network of $10 million. These increases were partially offset by an increase in payments for broadcast rights of $77 million, use of cash from timing of payments to our vendors of $107 million, higher interest payments of $57 million, higher tax payments of $50 million and other items. The increase in payments for broadcast rights was due to incremental payments from our acquisition of The CW of $119 million, partially offset by a decrease in payments for our syndicated programming of $42 million.

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Cash paid for interest increased primarily due to increases in the effective interest rates in the Company’s outstanding floating rate loans under its senior secured credit facilities due to the increase in SOFR and LIBOR, partially offset by decreases in interest expense from debt repayments and lower interest rates obtained in connection with the refinancing of certain of our term loans in June 2022. The increase in tax payments was primarily due to the sale of certain real estate properties in 2022 resulting in tax payments of $48 million.

Cash Flows—Investing Activities

Net cash used in investing activities was $173 million and $232 million during the years ended December 31, 2023 and 2021, respectively. Net cash provided by investing activities during the year ended December 31, 2022 was $125 million.

In 2023, we spent a total of $149 million in capital expenditures and $38 million in the acquisitions of KUSI-TV and WSNN-LD, partially offset by a deposit received associated with a proposed sale of a real estate asset of $10 million.

In 2022, we received proceeds from the sale of certain real estate properties of $241 million, received a deposit associated with a proposed sale of real estate property of $10 million and recorded cash acquired from The CW acquisition of $29 million, partially offset by capital expenditures of $157 million.

In 2021, we spent a total of $151 million in capital expenditures and $138 million to acquire television stations, a digital business and certain license assets. These decreases were partially offset by the proceeds from the sale of stations and business units and asset disposals of $20 million, reimbursements from the FCC related to station repack of $20 million and deposits received associated with the sale of real estate assets of $13 million.

Cash Flows—Financing Activities

Net cash used in financing activities for the years ended December 31, 2023, 2022 and 2021 was $899 million, $1,515 million and $945 million, respectively.

In 2023, the Company repaid scheduled principal maturities of $125 million of our term loans, paid dividends to our common stockholders of $191 million ($1.35 per share per quarter), repurchased common shares of $605 million, paid cash for taxes in exchange for shares of common stock withheld of $24 million resulting from net share settlements of certain stock-based compensation, and paid for capitalized software of $19 million. These outflows were partially offset by a contribution from noncontrolling interests amounting to $62 million. We also borrowed $20 million under our revolving credit facilities which was repaid in full in 2023.

In 2022, we received $2,420 million of proceeds (net of capitalized lenders’ fees of $5 million) from the issuance of a Term Loan A, due June 2027 and used $2,414 million to repay our then outstanding Term Loan A, due October 2023, Term Loan A, due September 2024, Term Loan B, due January 2024 and a portion of Term Loan B, due September 2026. We prepaid a portion of the outstanding principal balance of our Term Loan B of $333 million, made scheduled principal payments on term loans of $84 million, repurchased and cancelled $71 million of our senior unsecured notes all funded by cash on hand, paid dividends to our common stockholders of $142 million ($0.90 per share per quarter), repurchased common shares of $881 million, paid for software obligations of $16 million, paid contingent consideration in connection with a past acquisition of $14 million, and paid cash for taxes in exchange for shares of common stock withheld of $13 million resulting from net share settlements of certain stock-based compensation. These decreases were partially offset by contribution from noncontrolling interests of $30 million. Mission also drew $62 million under its 2022 revolving credit facility and utilized the proceeds to repay all of its $62 million of outstanding borrowings under its then outstanding 2018 revolving loan.

In 2021, we prepaid a portion of the outstanding principal balance of our Term Loan B, due January 2024 of $280 million and made scheduled principal payments on our Term Loan A, due September 2024 of $21 million, paid dividends to our common stockholders of $118 million ($0.70 per share during each quarter), repurchased common shares of $537 million, paid cash for taxes in exchange for shares of common stock withheld of $11 million resulting from net share settlements of certain stock-based compensation, and paid finance lease and software obligations of $18 million. These outflows were partially offset by the proceeds from the exercise of stock options during the year amounting to $8 million. Mission also received $299 million (net of $2 million discount) from its new Term Loan B, due June 2028 and utilized $268 million to repay a portion of its revolving loans. We also borrowed $20 million under our revolving credit facilities which was repaid in full in 2021.

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Material Cash Requirements

The Company is a party to many contractual obligations involving commitments to make payments to third parties. Certain contractual obligations are recorded on the Consolidated Balance Sheet as of December 31, 2023, while others are considered future commitments. The following summarizes the Company’s contractual obligations as of December 31, 2023, and the effect such obligations are expected to have on the Company’s short-term and long-term liquidity and capital resource needs (in millions):

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

(2)
As of December 31, 2023, we had $30 million of unrecognized tax benefits, inclusive of interest and certain deduction benefits. This liability represents an estimate of tax positions that the Company has taken in its tax returns, which may ultimately not be sustained upon examination by the tax authorities. The resolution of these tax positions may not require cash settlement due to the existence of federal and state NOLs. As such, our contractual obligations table above excludes this liability.

(3)
As of December 31, 2023, we had $212 million and $21 million of funding obligations with respect to our pension benefit plans and other postretirement benefit plans, respectively, which are not included in the table above. See Note 10 to our Consolidated Financial Statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K for further information regarding our funding obligations for these benefit plans.

(4)
Future minimum payments for network affiliation agreements during the contract period. Excludes network affiliation agreements between the Company’s stations and The CW as the related fees are eliminated in consolidation.

(5)
Estimated interest payments due as if all debt outstanding as of December 31, 2023 remained outstanding until maturity, based on interest rates in effect at December 31, 2023.

(6)
Includes the employment contracts for all corporate executive employees and general managers of our stations and entities. We expect our contracts will be renewed or replaced with similar agreements upon their expiration. Amounts included in the table above assume that contracts are not terminated prior to their expiration.

(7)
Future minimum payments for license agreements for which the license period has not commenced and no liability has been recorded.

In January 2024, we entered into a multi-year time brokerage agreement with KAZT, L.L.C., the owner of television station KAZT-TV in Phoenix, Arizona, and acquired the station’s non-license assets.

From January 1 to February 27, 2024, we repurchased 190,297 shares of our common stock for $32 million, funded by cash on hand. As of the date of filing this Annual Report on Form 10-K, the remaining available amount under the share repurchase authorization was $620 million.

On January 26, 2024, our board of directors approved a 25% increase in the quarterly cash dividend to $1.69 per share of our common stock beginning with the dividend declared for the first quarter of 2024. The dividend was paid on February 23, 2024 to stockholders of record on February 9, 2024.

In February 2024, we received $40 million in cash in connection with Broadcast Music Inc.’s sale to New Mountain Capital.

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Long-term debt

As of December 31, 2023, the Company had total outstanding debt of $6.8 billion, net of unamortized financing costs, discounts and premium, which represented 74.8% 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.

(1)
Based on the covenant calculations as of December 31, 2023, all of the $530 million (net of outstanding standby letters of credit of $20 million) and $14 million unused revolving loan commitments under the respective Nexstar and Mission senior secured credit facilities were available for borrowing.

We (excluding The CW) 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 July 2027 and our 4.75% Notes, due November 2028. In consideration of our guarantee of Mission’s senior secured credit facility, Mission has granted us purchase options to acquire the assets and assume the liabilities of each Mission station, subject to FCC consent. These option agreements (which expire on various dates between 2024 and 2033) 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 make semiannual interest payments on the 5.625% Notes, due July 2027 on January 15 and July 15 of each year. We make semiannual interest payments on our 4.75% Notes, due November 2028 on May 1 and November 1 of each year. Interest payments on our and Mission’s senior secured credit facilities are generally paid every one to three months and are payable based on the type of interest rate selected.

The terms of our and Mission’s senior secured credit facilities, as well as the indentures governing our 5.625% Notes, due July 2027 and 4.75% Notes, due November 2028, limit, but do not prohibit us or Mission from incurring substantial amounts of additional debt in the future. Our senior secured credit facilities and the indentures governing our existing notes may limit the amount of dividends we may pay to stockholders and share repurchases we may make over the term of the agreement.

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

The Company’s ability to access funds under its senior secured credit facilities depends, in part, on its compliance with certain financial covenants. Any additional drawings under the senior secured credit facilities will reduce the Company’s future borrowing capacity and the amount of total unused revolving loan commitments. Any future adverse economic conditions, including those resulting from heightened and sustained inflation and higher interest rates, could adversely affect our future operating results and cash flows and may cause us to seek alternative sources of funding, including accessing capital markets, subject to market conditions. Such alternative sources of funding may not be available on commercially reasonable terms or at all.

Our credit agreement contains a covenant which requires us to comply with a maximum consolidated first lien net leverage ratio of 4.25 to 1.00. The financial covenant, which is formally calculated on a quarterly basis, is based on the Company’s combined results. The Mission amended credit agreement does not contain financial covenant ratio requirements but does provide for default in the event we do not comply with all covenants contained in our credit agreement. As of December 31, 2023, we were in compliance with our financial covenants. We believe the Company will be able to maintain compliance with all covenants contained in the credit agreements governing its senior secured facilities and the indentures governing Nexstar’s 5.625% Notes, due July 2027 and Nexstar’s 4.75% Notes, due November 2028 for a period of at least the next 12 months as of the filing date of this Annual Report on Form 10-K.

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Off-Balance Sheet Arrangements

As of December 31, 2023, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or VIEs, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. All of our arrangements with our VIEs in which we are the primary beneficiary are on-balance sheet arrangements. Our variable interests in other entities are obtained through local service agreements, which have valid business purposes and transfer certain station activities from the station owners to us. We are, therefore, not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

As of December 31, 2023, we have outstanding standby letters of credit with various financial institutions amounting to $20 million. The outstanding balance of standby letters of credit is deducted against our unused revolving loan commitment under our senior secured credit facility and would not be available for withdrawal.

Issuer and Guarantor Summarized Financial Information

Nexstar Media Inc. (the “Issuer”) is the issuer of 5.625% Notes, due July 2027 and 4.75% Notes, due November 2028. These notes are fully and unconditionally guaranteed, jointly and severally, by Nexstar Media Group, Inc. (“Parent”), Mission (a consolidated VIE) and the Subsidiary Guarantors (as defined below). The Issuer, Subsidiary Guarantors, Parent and Mission are collectively referred to as the “Obligor Group” for the 5.625% Notes, due July 2027 and 4.75% Notes, due November 2028. “Subsidiary Guarantors” refers to certain of the Issuer’s restricted subsidiaries (excluding The CW) that guarantee these notes. The guarantees of the notes 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 July 2027 and the 4.75% Notes, due November 2028. The 5.625% Notes, due July 2027 and 4.75% Notes, due November 2028 are not registered with the SEC.

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

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

(1)
Excludes the assets and liabilities of The CW as it is not a guarantor of the 4.75% Notes, due November 2028 and 5.625% Notes, due July 2027. On September 30, 2022, Nexstar acquired a 75.0% ownership interest in The CW (see Note 3, “Acquisitions” to our Consolidated Financial Statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K for additional information).

(2)
Excludes Issuer’s equity investments of $958 million and $1,119 million as of December 31, 2023 and 2022, respectively, in unconsolidated investees. These unconsolidated investees do not guarantee the 4.75% Notes, due November 2028 and 5.625% Notes, due July 2027. For additional information on equity investments, refer to Note 6 to our Consolidated Financial Statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K for additional information.

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

Critical Accounting Estimates

Our Consolidated Financial Statements have been prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses and related disclosures. On an ongoing basis, we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from those estimates, and any such differences could be material to our Consolidated Financial Statements.

For a summary 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 estimates are those that are the most important to the presentation of our Consolidated Financial Statements, affect our more significant estimates and assumptions, and require the most subjective or complex judgments by management.

Consolidation of Variable Interest Entities

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

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

Mission and the other consolidated VIEs are included in our Consolidated Financial Statements because we are deemed to have controlling financial interests in these entities as VIEs for financial reporting purposes as a result of (i) local service agreements we have with the stations they own, (ii) Nexstar’s (excluding The CW) guarantee of the obligations incurred under Mission’s senior secured credit facility, (iii) 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 (iv) purchase options granted by each consolidated VIE which permit Nexstar to acquire the assets and assume the liabilities of all of these VIEs’ stations at any time, subject to FCC consent. These purchase options are freely exercisable or assignable by Nexstar without consent or approval by the VIEs. These option agreements expire on various dates between 2024 and 2033. We expect to renew these option agreements upon expiration. Therefore, these VIEs are consolidated into these financial statements.

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Valuation of Goodwill and Intangible Assets

Intangible assets represented $8.0 billion, or 66.2%, of our total assets as of December 31, 2023. Intangible assets consist primarily of goodwill, indefinite-lived intangible assets (such as FCC licenses), and definite-lived intangible assets (such as network affiliation agreements).

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 replacement cost approach and other income, market or cost approaches.

The estimated fair value of an FCC license acquired in a business combination is calculated using a discounted projected 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) television 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.

The assumptions used in estimating the fair value of a network affiliation agreement acquired in a business combination are similar to those used in the valuation of an FCC license. The Greenfield Method is also utilized in the valuation of network affiliation agreements 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 collective fair value of the FCC license and a network affiliation agreement. The excess of the estimated fair value in this model over the estimated value of an FCC license of an independent station under the Greenfield Method represents the estimated fair value of a network affiliation agreement.

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

Subsequent to acquisition, goodwill and FCC licenses are tested for impairment in the fourth quarter each year, or more frequently whenever events or changes in circumstances indicate that such assets might be impaired. For purposes of goodwill impairment tests, the Company has one aggregated television stations reporting unit, because of the stations’ similar economic characteristics, one cable network reporting unit and two digital business reporting units. The Company’s impairment review for FCC licenses is performed at the television station market level.

The Company first assesses the qualitative factors to determine the likelihood of goodwill and FCC licenses being impaired. The qualitative impairment test includes, but is not limited to, assessing the changes in macroeconomic conditions, regulatory environment, industry and market conditions, and the financial performance versus budget of the reporting units, as well as any other events or circumstances specific to the reporting unit or the FCC licenses. If it is more likely than not that the fair value of a reporting unit or an FCC license is greater than its respective carrying amount, no further testing will be required. Otherwise, the quantitative impairment test method is applied.

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

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

In the fourth quarter of 2023, using the qualitative impairment test, the Company performed its annual impairment assessment on goodwill attributable to its aggregated television stations reporting unit. Based on the results of such qualitative impairment tests, the Company concluded that it was more likely than not that the reporting unit’s fair value would sufficiently exceed the related carrying amount.

With respect to goodwill allocated to the cable network reporting unit and the two digital reporting units, the Company elected to perform quantitative impairment tests due to recent performance and uncertain economic conditions.

The Company’s assessment indicated that the cable network reporting unit’s fair value exceeded the related carrying amount by approximately 14%, therefore no impairment was recorded. Goodwill allocated to this reporting unit was $400 million as of December 31, 2023. The fair value estimate is management’s estimate based on a valuation report prepared by a third-party valuation firm who used a combination of an income approach, which employs a discounted cash flow model, and a market approach, which consider earnings multiples of comparable publicly traded businesses and comparable market transactions. The income approach was based on a five-year projection model which included assumptions regarding continued growth of viewership at a declining rate of growth over time and monetization thereof, continued growth in distribution revenues and annual increases in operating expenses. The income approach utilized the Company’s income tax rate, a 10% discount rate based on an analysis of comparable companies and a modest terminal growth rate typical of mature cable network businesses. The market approach market based the valuation on earnings multiples of comparable publicly traded businesses with cable networks and comparable cable network transactions. The likelihood of a material impairment is mitigated by the maturity of the network and its significant contractual distribution revenue.

With respect to digital reporting units, the Company’s assessment indicated that one of the digital reporting units exceeded the carrying amount by 2.5%, and therefore no goodwill impairment was identified. Goodwill associated with this reporting was $69 million as of December 31, 2023. The fair value estimate is management’s estimate based on a valuation report prepared by a third-party valuation firm who used a combination of an income approach, which employs a discounted cash flow model, and market approach. The income approach was based on a three-year projection model which included assumptions regarding the recovery of the business from a low in 2023 due to market and other factors to a full recovery to 2022 levels between year 2 and year 3 and then growth thereafter. The income approach utilized the Company’s income tax rate, a 11.5% discount rate based on an analysis of comparable companies and a modest terminal growth rate typical of mature digital businesses. The market approach based the valuation on earnings multiples of comparable publicly traded digital media businesses and market net revenue multiples of comparable digital media transactions. The likelihood of a material impairment is mitigated by the amount of goodwill recorded.

In the second digital reporting unit, the Company identified a goodwill impairment of $19 million (and $16 million impairment on definite-lived intangible assets) and a goodwill impairment of $91 million (and $5 million impairment on definite-lived intangible assets) during the fourth quarter of each calendar years 2023 and 2022. As of December 31, 2023, this second digital reporting unit has no remaining goodwill and no material long-lived intangible assets balance.

Our quantitative goodwill impairment tests are sensitive to changes in key assumptions used in our analysis. In our income approach models, if our projections of revenue growth rates and margins are not realized, if market factors outside of our control, such as increases in discount rates, occur, or if management’s expectations or plans change, including changes to a reporting unit’s long-term operating plans, the Company’s goodwill and other key assets could be impaired in the future. With respect to net revenue and earnings multiples, the key uncertainties are determining the reporting unit’s comparable public companies, comparable transactions and the selection of the market multiples.

The Company performed its annual impairment assessment on FCC licenses for each television station market using the qualitative impairment test. Except for three station markets that indicated unfavorable trends, the Company concluded that it was more likely than not that their fair values exceeded the respective carrying amounts. For the stations that indicated unfavorable trends, management extended its procedures and performed a quantitative impairment test. As of December 31, 2023, the FCC licenses of these stations had a total balance of $64 million, none of such individual FCC licenses had carrying value that were material. The Company’s quantitative impairment test of these assets indicated that each of their estimated fair values (Greenfield Method) exceeded the respective carrying amounts. Thus, no impairment was recorded.

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The Company also evaluated its definite-lived intangible assets and other long-lived assets whether events or changes in circumstances indicate that such assets may be impaired. Based on our estimate of undiscounted future pre-tax cash flows expected to result from the use and eventual disposition of these assets, the Company determined that the carrying amounts are recoverable other than the long-lived intangible assets of a digital reporting unit for which an impairment was recognized (discussed above). No other events or circumstances were noted in 2023 that would indicate impairment.

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 2023, the Company evaluated its equity method investments for OTTI and none was identified. The Company will continue to evaluate its equity method investments for OTTI in future periods.

Pension plans and other postretirement benefits

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

•
discount rates

•
expected return on plan assets

•
mortality rates

•
retirement rates

•
expected contributions

As of December 31, 2023, the effective discount rates used for determining pension benefit obligations were 4.78% to 4.79%. During 2023, the assumptions utilized in determining net periodic benefit credit on our pension plans were (i) 5.53% to 6.38% expected rate of return on plan assets and (ii) 4.98% to 4.99% effective discount rates. As of December 31, 2023, our pension plans’ benefit obligations were $1.7 billion. For the year ended December 31, 2023, our pension plans’ net periodic benefit credit was $36 million. As of December 31, 2023, a 1% change in the discount rates would have the following effects (in millions):

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

Distribution Revenue

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

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Income Taxes

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

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

Recent Accounting Pronouncements

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