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Acquisitions | 12 Months Ended
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Dec. 31, 2019
Business Combinations [Abstract] |
Acquisitions | Acquisitions The television stations acquired during 2019 are listed in the table below, and a summary of each acquisition follows:
Market | Station | Affiliation | Seller
Indianapolis, IN | WTHR | NBC | Dispatch Broadcast Group
Columbus, OH | WBNS | CBS | Dispatch Broadcast Group
Hartford-New Haven, CT | WTIC/WCCT | FOX/CW | Nexstar Media Group
Harrisburg-Lancaster-Lebanon-York, PA | WPMT | FOX | Nexstar Media Group
Memphis, TN | WATN/WLMT | ABC/CW | Nexstar Media Group
Wilkes Barre-Scranton, PA | WNEP | ABC | Nexstar Media Group
Des Moines-Ames, IA | WOI/KCWI | ABC/CW | Nexstar Media Group
Huntsville-Decatur-Florence, AL | WZDX | FOX | Nexstar Media Group
Davenport, IA and Rock Island-Moline, IL | WQAD | ABC | Nexstar Media Group
Ft. Smith-Fayetteville-Springdale-Rogers, AR | KFSM | CBS | Nexstar Media Group
Toledo, OH | WTOL | CBS | Gray Television
Midland-Odessa, TX | KWES | NBC | Gray Television
Nexstar Stations On September 19, 2019, we completed our acquisition of 11 local television stations in eight markets, including eight Big Four affiliates, from Nexstar Media Group (the Nexstar Stations). These stations were divested by Nexstar Media Group in connection with its acquisition of Tribune Media Company. The purchase price for the Nexstar Stations was approximately $769.1 million which includes a base purchase price of $740.0 million and an estimated working capital of $29.1 million. The transaction was structured as an asset purchase and financed through the use of a portion of the $1.1 billion of Senior Notes issued on September 13, 2019 and borrowing under our revolving credit facility. See Note 6 for further discussion of these Notes. The acquisition of the Nexstar Stations adds complementary markets to our existing portfolio of top network affiliates, including four affiliates in presidential election battleground states. Dispatch Stations On August 8, 2019, we completed the acquisition of Dispatch Broadcast Group’s two top-rated television stations and two radio stations (the Dispatch Stations). Through this acquisition we purchased WTHR, the NBC affiliate station in Indianapolis, IN, WBNS, the CBS affiliate in Columbus, OH and WBNS Radio (97.1 FM and 1460 AM) in Columbus, OH. The purchase price for the Dispatch Stations was approximately $560.5 million which consisted of a base purchase price of $535.0 million and working capital and cash acquired of $25.5 million. The transaction was structured as a stock purchase and financed through available cash and borrowing under our revolving credit facility. The acquisition of the Dispatch Stations expands our portfolio of top-rated big four affiliates in large markets. Justice and Quest Multicast Networks On June 18, 2019, we completed the acquisition of the remaining approximately 85% interest that we did not previously own in the multicast networks Justice Network and Quest from Cooper Media. Justice and Quest are two leading multicast networks that offer unique ad-supported programming. Justice Network’s content is focused on true-crime genre, while Quest features factual-entertainment programs such as science, history, and adventure-reality series. Cash paid for this acquisition was $77.1 million (which included $4.6 million for working capital), funded through available cash and borrowing under our revolving credit facility. As a result of acquiring the remaining ownership of the networks, we recognized a $7.3 million gain due to the write-up of our prior investment in the Justice Network and Quest multicast networks to its fair value as of the time of the acquisition. This gain was recorded in Other non-operating items, net within the Consolidated Statement of Income. Gray Stations On January 2, 2019, we completed our acquisition of WTOL, the CBS affiliate in Toledo, OH, and KWES, the NBC affiliate in Midland-Odessa, TX from Gray Television, Inc. for approximately $109.9 million in cash (which includes $4.9 million for estimated working capital paid at closing). The acquisition was funded through the use of available cash and borrowings under our revolving credit facility. WTOL and KWES further expand our station portfolio of top 4 affiliates. We refer to these four 2019 acquisitions collectively as the “Recent Acquisitions”. The following table summarizes the fair values of the assets acquired and liabilities assumed in connection with the Recent Acquisitions (in thousands):
|  | Nexstar Stations |  | Dispatch Stations |  | Justice & Quest |  | Gray Stations |  | Total
Cash |  | $ | — |  |  | $ | 2,363 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,363 |
Accounts receivable |  | 34,680 |  |  | 26,568 |  |  | 8,501 |  |  | 5,553 |  |  | 75,302 |
Prepaid expenses and other current assets |  | 3,926 |  |  | 6,092 |  |  | 6,987 |  |  | 987 |  |  | 17,992 |
Property and equipment |  | 40,821 |  |  | 40,418 |  |  | 361 |  |  | 11,757 |  |  | 93,357 |
Goodwill |  | 115,225 |  |  | 197,829 |  |  | 23,558 |  |  | 18,756 |  |  | 355,368 |
FCC licenses |  | 374,269 |  |  | 295,983 |  |  | — |  |  | 47,061 |  |  | 717,313 |
Network affiliation agreements |  | 123,919 |  |  | 60,767 |  |  | — |  |  | 14,420 |  |  | 199,106 |
Retransmission agreements |  | 83,413 |  |  | 38,569 |  |  | — |  |  | 12,957 |  |  | 134,939 |
Other intangible assets |  | — |  |  | — |  |  | 52,553 |  |  | — |  |  | 52,553 |
Right-of-use assets for operating leases |  | 22,715 |  |  | 362 |  |  | — |  |  | 251 |  |  | 23,328 |
Other noncurrent assets |  | 237 |  |  | — |  |  | 5,253 |  |  | 18 |  |  | 5,508 |
Total assets acquired |  | $ | 799,205 |  |  | $ | 668,951 |  |  | $ | 97,213 |  |  | $ | 111,760 |  |  | $ | 1,677,129 |
Accounts payable |  | 2,037 |  |  | 954 |  |  | 725 |  |  | 1 |  |  | 3,717 |
Accrued liabilities |  | 7,294 |  |  | 9,011 |  |  | 4,236 |  |  | 1,604 |  |  | 22,145 |
Deferred income tax liability |  | — |  |  | 98,287 |  |  | (471 | ) |  | — |  |  | 97,816 |
Operating lease liabilities - noncurrent |  | 20,346 |  |  | 226 |  |  | — |  |  | 235 |  |  | 20,807 |
Other noncurrent liabilities |  | 426 |  |  | — |  |  | 2,677 |  |  | — |  |  | 3,103 |
Total liabilities assumed |  | $ | 30,103 |  |  | $ | 108,478 |  |  | $ | 7,167 |  |  | $ | 1,840 |  |  | $ | 147,588 |
Net assets acquired |  | $ | 769,102 |  |  | $ | 560,473 |  |  | $ | 90,046 |  |  | $ | 109,920 |  |  | $ | 1,529,541 |
Less: cash acquired |  | $ | — |  |  | $ | (2,363 | ) |  | $ | — |  |  | $ | — |  |  | $ | (2,363 | )
Less: fair value of existing ownership |  | — |  |  | — |  |  | (12,995 | ) |  | — |  |  | (12,995 | )
Cash paid for acquisitions |  | $ | 769,102 |  |  | $ | 558,110 |  |  | $ | 77,051 |  |  | $ | 109,920 |  |  | $ | 1,514,183 |
We accounted for the each of the Recent Acquisitions as business combinations, which requires us to record the assets acquired and liabilities assumed at fair value. The amount by which the purchase price exceeds the fair value of the net assets acquired is recorded as goodwill. We have commenced the appraisals necessary to assess the fair values of the tangible and intangible assets acquired and liabilities assumed and the amount of goodwill to be recognized as of each of the acquisition dates. The amounts recorded for assets and liabilities presented above are preliminary in nature and are subject to adjustment as additional information is obtained about the facts and circumstances that existed as of the acquisition date. During the quarter ended December 31, 2019, we continued to obtain information related to the estimated fair values for certain tangible and intangible assets acquired, liabilities assumed and the amount of goodwill recognized for the Recent Acquisitions. As a result of this information obtained during the fourth quarter of 2019, the carrying amounts for certain FCC license, Network affiliation agreement and Retransmission agreement intangible assets were reduced by $50.3 million, $15.4 million and $9.6 million, while the carrying amount of Goodwill increased by $78.2 million. The final determination of the fair values of certain assets and liabilities will be completed within the measurement period of up to one year from the acquisition date permitted under GAAP. The primary areas which are being assessed relate to the fair value of intangible assets and income taxes. The fair values of the assets acquired and liabilities assumed were preliminarily determined using income (for identifiable intangible assets), market (for property) and cost (for equipment) valuation methodologies. The fair value measurements were estimated using significant inputs that are not observable in the market and thus represent a Level 3 measurement as defined in U.S. GAAP under the fair value hierarchy. See Note 9 for further discussion of Level 3 pricing. The income approach was primarily used to value the FCC license, network affiliation and retransmission agreement intangible assets. The income approach indicates value for an asset based on the present value of cash flow projected to be generated over the economic life of the asset being measured. Both the amount and the duration of the cash flows are considered from a market participant perspective. Determining the fair value of assets acquired and liabilities assumed requires the exercise of significant judgments, including the amount and timing of expected future cash flows, long-term growth rates and discount rates. The cash flows employed in the discounted cash flow analyses are based on our best estimate of future revenue, operating margins, earnings and cash flows after considering factors such as general market conditions, changes in working capital, long term industry trends and recent operating performance. We recorded definite-lived intangible assets of $386.6 million for the Recent Acquisitions, which related primarily to network affiliation agreements and retransmission agreements. Retransmission agreement intangible assets are amortized over periods of between five and six years while network affiliation agreements are amortized over 15 years. Other intangible assets primarily represent the fair value of distribution agreements held by Justice and Quest which will be amortized over a period of seven years. The weighted average amortization periods for each of the Recent Acquisitions are currently: Nexstar Stations 11.1 years, Dispatch Stations 11.2 years, Justice and Quest 6.8 years and Gray Stations 10.4 years. We have recorded a total of $355.4 million of goodwill for the Recent Acquisitions. Goodwill is calculated as the excess of the purchase price over the net fair value of the identifiable assets acquired and liabilities assumed, and represents the future economic benefits expected to arise from the acquisition that do not qualify for separate recognition, including assembled workforce, as well as future synergies that we expect to generate. The goodwill, the FCC licenses and other intangible assets recognized from the Nexstar Stations, Justice & Quest and Gray Stations transactions are expected to be substantially all deductible for tax purposes. Goodwill and all other intangible assets from the Dispatch Stations are not expected to be tax deductible. Our Consolidated Statement of Income for 2019 includes the results of the Recent Acquisitions since their respective acquisition dates as shown in the table below (in thousands):
| Year ended
| Dec. 31, 2019
Revenue | $ | 184,977 |
Operating Income | $ | 39,149 |
Acquisition-related costs (principally advisory fees) incurred in connection with the Recent Acquisitions in 2019 were $30.8 million which have been recorded in the Corporate - General and administrative expenses, line item within the Consolidated Statements of Income. Unaudited Supplemental Pro Forma Financial Information The following table sets forth certain pro forma financial information for 2019 and 2018 giving effect to the Recent Acquisitions as if they were all completed on January 1, 2018 (in thousands):
| Year ended Dec. 31,
| 2019 |  | 2018
Revenue | $ | 2,535,328 |  |  | $ | 2,634,651 |
Net income | $ | 283,293 |  |  | $ | 398,543 |
Information for the acquisitions has been presented on a consolidated basis as the information is not material individually for any of the acquisitions. The unaudited historical results have been adjusted for business combination accounting effects, including depreciation and amortization charges from acquired intangible assets, interest on the new debt and related tax effects. The pro forma results are not necessarily indicative of what our results would have been had we completed the acquisitions on January 1, 2018, nor are they reflective of our expected results of operations for any future periods. For example, revenues and net income amounts below do not include any adjustments for expected synergies. KFMB Stations acquired in 2018 On February 15, 2018, we acquired KFMB for $328.4 million in cash, which included a final working capital payment of $2.5 million that we made to the seller in the third quarter of 2018. The purchase price was paid in cash and funded through the use of available cash and borrowings under our revolving credit facility. In connection with this acquisition, we recorded indefinite-lived intangible assets for FCC licenses of $192.2 million and amortizable intangible assets of $91.4 million, primarily related to network affiliation agreement and retransmission consent contracts. The amortizable assets are being amortized over a weighted average period of 10 years. We also recognized goodwill of $17.4 million as a result of the acquisition, all of which is deductible for tax purposes.

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