UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
DC 20549
 
 FORM
10-Q
 
 x
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 for
the quarterly period ended September 30, 2009
 
 OR
 
  ̈
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 for
the transition period from 
to .
 
 Commission
File Number: 333-62916-02
 
 MISSION
BROADCASTING, INC.
 (Exact
name of registrant as specified in its charter)
 
 Delaware
              51-0388022(State
      of Organization
                or
      Incorporation)
              (IRS
      Employer
                Identification
      No.)
 
 7650
      Chippewa Road, Suite 305
                Brecksville,
      Ohio 44141
              (440)
      526-2227(Address
      of Principal Executive Offices, including Zip Code)
              (Registrant’s
      Telephone Number, Including Area
Code)
 
 Indicate
by check mark whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that it was required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.    Yes  x    No   ̈
 
 Indicate
by checkmark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).    Yes   ̈    No   ̈
 
 Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (check one):
 
 Large accelerated filer
               ̈
              Accelerated filer
               ̈Non-accelerated
      filer
              x  (Do
      not check if a smaller reporting company)
              Smaller reporting company
               ̈
 
 Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).    Yes   ̈    No  x
 
 As of
September 30, 2009, Mission Broadcasting, Inc. had one shareholder, David
S. Smith. Mr. Smith held all 1,000 shares of the outstanding common stock
of Mission Broadcasting, Inc. at September 30, 2009. As of October 31,
2009, Mission Broadcasting, Inc. had 1,000 shares of outstanding common
stock.
  
  TABLE
OF CONTENTS
 
 PagePART I
              FINANCIAL
      INFORMATIONITEM
      1.
              Financial
      Statements (Unaudited)Condensed
      Balance Sheets at September 30, 2009 and December 31, 2008
              2Condensed
      Statements of Operations for the three and nine months ended September 30,
      2009 and 2008
              3Condensed
      Statement of Changes in Shareholder’s Deficit for the nine months ended
      September 30, 2009
              4Condensed
      Statements of Cash Flows for the nine months ended September 30, 2009 and
      2008
              5Notes
      to Condensed Financial Statements
              6ITEM
      2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              17ITEM
      3.
              Quantitative
      and Qualitative Disclosures about Market Risk
              26ITEM
      4.
              Controls
      and Procedures
              26PART
      II
              OTHER
      INFORMATIONITEM
      1.
              Legal
      Proceedings
              27ITEM 1A.
              Risk
      Factors
              27ITEM
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              27ITEM 3.
              Defaults
      Upon Senior Securities
              27ITEM 4.
              Submission
      of Matters to a Vote of Security Holders
              27ITEM
      5.
              Other
      Information
              27ITEM
      6.
              Exhibits
              27EXHIBIT
      INDEX
 
 
  i
  PART
I. FINANCIAL INFORMATION
 
 ITEM 1.
              Financial
      Statements
 MISSION
BROADCASTING, INC.
 CONDENSED
BALANCE SHEETS
 (in
thousands, except share information)
 
 September 30,
                2009
              
              
              December 31,
                2008(Unaudited)
              
              
              (Note
      2)ASSETSCurrent
      assets:Cash
      and cash equivalents
              
              $
              1,167
              
              
              $
              1,426Accounts
      receivable
              
              
              1,465
              
              
              
              1,017Current
      portion of broadcast rights
              
              
              3,598
              
              
              
              3,410Prepaid
      expenses and other current assets
              
              
              291
              
              
              
              230Deferred
      tax asset
              
              
              8
              
              
              
              8Total
      current assets
              
              
              6,529
              
              
              
              6,091Property
      and equipment, net
              
              
              28,992
              
              
              
              29,269Broadcast
      rights
              
              
              2,284
              
              
              
              2,215Goodwill
              
              
              18,729
              
              
              
              18,635FCC
      licenses
              
              
              20,698
              
              
              
              22,695Other
      intangible assets, net
              
              
              26,804
              
              
              
              30,665Other
      noncurrent assets
              
              
              131
              
              
              
              164Deferred
      tax asset
              
              
              338
              
              
              
              344Total
      assets
              
              $
              104,505
              
              
              $
              110,078LIABILITIES
      AND SHAREHOLDER’S DEFICITCurrent
      liabilities:Current
      portion of debt
              
              $
              1,727
              
              
              $
              1,727Current
      portion of broadcast rights payable
              
              
              4,025
              
              
              
              3,579Taxes
      payable
              
              
              42
              
              
              
              74Accounts
      payable
              
              
              188
              
              
              
              549Accrued
      expenses
              
              
              898
              
              
              
              945Interest
      payable
              
              
              10
              
              
              
              16Deferred
      revenue
              
              
              1,009
              
              
              
              1,874Due
      to Nexstar Broadcasting, Inc.
              
              
              13,430
              
              
              
              15,468Total
      current liabilities
              
              
              21,329
              
              
              
              24,232Debt
              
              
              171,065
              
              
              
              172,360Broadcast
      rights payable
              
              
              3,155
              
              
              
              2,926Deferred
      tax liabilities
              
              
              6,880
              
              
              
              6,263Deferred
      revenue
              
              
              825
              
              
              
              316Deferred
      gain on sale of assets
              
              
              1,780
              
              
              
              1,910Other
      liabilities
              
              
              4,356
              
              
              
              4,098Total
      liabilities
              
              
              209,390
              
              
              
              212,105Commitments
      and contingenciesShareholder’s
      deficit:Common
      stock, $1 par value; 1,000 shares authorized; 1,000 shares issued and
      outstanding at both September 30, 2009 and December 31,
      2008
              
              
              1
              
              
              
              1Subscription
      receivable
              
              
              (1
              )
              
              
              (1
              )Accumulated
      deficit
              
              
              (104,885
              )
              
              
              (102,027
              )Total
      shareholder’s deficit
              
              
              (104,885
              )
              
              
              (102,027
              )Total
      liabilities and shareholder’s deficit
              
              $
              104,505
              
              
              $
              110,078
 
 The
accompanying notes are an integral part of these condensed financial
statements.
 
  2
  MISSION
BROADCASTING, INC.
 
 CONDENSED
STATEMENTS OF OPERATIONS
 (in
thousands)
 
 Three
      Months Ended
                September 30,
              
              
              Nine
      Months Ended
                September 30,2009
              
              
              2008
              
              
              2009
              
              
              2008(Unaudited)
              
              
              (Unaudited)Net
      broadcast revenue
              
              $
              2,134
              
              
              $
              1,725
              
              
              $
              6,308
              
              
              $
              4,889Revenue
      from Nexstar Broadcasting, Inc.
              
              
              5,808
              
              
              
              9,066
              
              
              
              18,036
              
              
              
              25,619Net
      revenue
              
              
              7,942
              
              
              
              10,791
              
              
              
              24,344
              
              
              
              30,508Operating
      expenses:Direct
      operating expenses (exclusive of depreciation and amortization shown
      separately below)
              
              
              1,223
              
              
              
              1,597
              
              
              
              4,364
              
              
              
              4,704Selling,
      general, and administrative expenses (exclusive of depreciation and
      amortization shown separately below)
              
              
              822
              
              
              
              603
              
              
              
              2,164
              
              
              
              1,899Fees
      incurred pursuant to local service agreements with Nexstar Broadcasting,
      Inc.
              
              
              1,800
              
              
              
              2,025
              
              
              
              5,625
              
              
              
              6,065Impairment
      of goodwill and intangible assets
              
              
              2,258
              
              
              
              5,859
              
              
              
              2,258
              
              
              
              5,859Amortization
      of broadcast rights
              
              
              1,430
              
              
              
              1,330
              
              
              
              3,632
              
              
              
              3,633Amortization
      of intangible assets
              
              
              1,287
              
              
              
              1,351
              
              
              
              3,861
              
              
              
              4,051Depreciation
              
              
              828
              
              
              
              808
              
              
              
              2,721
              
              
              
              2,506Gain
      on asset exchange
              
              
              (1,354
              )
              
              
              —
              
              
              
              (1,851
              )
              
              
              (593
              )Gain
      on asset disposal, net
              
              
              (9
              )
              
              
              (141
              )
              
              
              (7
              )
              
              
              (391
              )Total
      operating expenses
              
              
              8,285
              
              
              
              13,432
              
              
              
              22,767
              
              
              
              27,733Income
      (loss) from operations
              
              
              (343
              )
              
              
              (2,641
              )
              
              
              1,577
              
              
              
              2,775Interest
      expense, including amortization of debt financing costs
              
              
              (1,052
              )
              
              
              (2,055
              )
              
              
              (3,768
              )
              
              
              (7,014
              )Interest
      income
              
              
              1
              
              
              
              4
              
              
              
              4
              
              
              
              49Loss
      before income taxes
              
              
              (1,394)
              
              
              
              (4,692
              )
              
              
              (2,187
              )
              
              
              (4,190
              )Income
      tax (expense) benefit
              
              
              (50
              )
              
              
              885
              
              
              
              (671
              )
              
              
              128Net
      loss
              
              $
              (1,444
              )
              
              $
              (3,807
              )
              
              $
              (2,858
              )
              
              $
              (4,062
              )
 
 The
accompanying notes are an integral part of these condensed financial
statements.
 
  3
  MISSION
BROADCASTING, INC.
 
 CONDENSED
STATEMENT OF CHANGES IN SHAREHOLDER’S DEFICIT
 For
the Nine Months Ended September 30, 2009
 (in
thousands, except share information)
 
 Common
      Stock
              
              
              Subscription
                Receivable
              
              
              Accumulated
                Deficit
              
              
              Total
                Shareholder’s
                DeficitShares
              
              
              Par ValueBalance
      at January 1, 2009 (Note 2)
              
              
              1,000
              
              
              $
              1
              
              
              $
              (1
              )
              
              $
              (102,027
              )
              
              $
              (102,027
              )Net
      loss
              
              
              ––
              
              
              
              ––
              
              
              
              ––
              
              
              
              (2,858
              )
              
              
              (2,858
              )Balance
      at September 30, 2009 (Unaudited)
              
              
              1,000
              
              
              $
              1
              
              
              $
              (1
              )
              
              $
              (104,885
              )
              
              $
              (104,885
              )
 
 The
accompanying notes are an integral part of these condensed financial
statements.
 
  4
  MISSION
BROADCASTING, INC.
 
 CONDENSED
STATEMENTS OF CASH FLOWS
 (in
thousands)
 
 Nine
      Months Ended
                September 30,2009
              
              
              2008(Unaudited)Cash
      flows from operating activities:Net
      loss
              
              $
              (2,858
              )
              
              $
              (4,062
              )Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Deferred
      income taxes
              
              
              623
              
              
              
              (189
              )Depreciation
      of property and equipment
              
              
              2,721
              
              
              
              2,506Amortization
      of intangible assets
              
              
              3,861
              
              
              
              4,051Amortization
      of debt financing costs
              
              
              33
              
              
              
              34Amortization
      of broadcast rights, excluding barter
              
              
              1,793
              
              
              
              1,771Payments
      for broadcast rights
              
              
              (1,375
              )
              
              
              (1,325
              )Impairment
      of goodwill and intangible assets
              
              
              2,258
              
              
              
              5,859Gain
      on asset exchange
              
              
              (1,851
              )
              
              
              (593
              )Gain
      on asset disposal, net
              
              
              (7
              )
              
              
              (391
              )Deferred
      gain recognition
              
              
              (130
              )
              
              
              (130
              )Changes
      in operating assets and liabilities net of acquisition:Accounts
      receivable
              
              
              (448
              )
              
              
              1,048Prepaid
      expenses and other current assets
              
              
              (61
              )
              
              
              (30
              )Taxes
      payable
              
              
              (32
              )
              
              
              (15
              )Accounts
      payable and accrued expenses
              
              
              (1,241
              )
              
              
              199Interest
      payable
              
              
              (6
              )
              
              
              (5
              )Deferred
      revenue
              
              
              (356
              )
              
              
              483Other
      noncurrent liabilities
              
              
              258
              
              
              
              173Due
      to Nexstar Broadcasting, Inc.
              
              
              (1,238
              )
              
              
              (4,619
              )Net
      cash provided by operating activities
              
              
              1,944
              
              
              
              4,765Cash
      flows from investing activities:Additions
      to property and equipment
              
              
              (908
              )
              
              
              (5,231
              )Acquisition
      of broadcast properties and related transaction costs
              
              
              —
              
              
              
              (7,923
              )Proceeds
      from insurance on casualty loss
              
              
              —
              
              
              
              494Net
      cash used for investing activities
              
              
              (908
              )
              
              
              (12,660
              )Cash
      flows used for financing activities:Repayment
      of long-term debt
              
              
              (1,295
              )
              
              
              (1,295
              )Net
      cash used for financing activities
              
              
              (1,295
              )
              
              
              (1,295
              )Net
      decrease in cash and cash equivalents
              
              
              (259
              )
              
              
              (9,190
              )Cash
      and cash equivalents at beginning of period
              
              
              1,426
              
              
              
              9,916Cash
      and cash equivalents at end of period
              
              $
              1,167
              
              
              $
              726Supplemental
      schedule of cash flow information:Cash
      paid during the period for:Interest
              
              $
              3,741
              
              
              $
              6,984Income
      taxes, net
              
              $
              80
              
              
              $
              75Non-cash
      investing activities:Acquisition
      of equipment in accounts payable
              
              $
              33
              
              
              $
              866
 
 The
accompanying notes are an integral part of these condensed financial
statements.
 
  5
  MISSION
BROADCASTING, INC.
 
 NOTES
TO CONDENSED FINANCIAL STATEMENTS
 
 1.
              Organization
      and Business Operations
 
 As of
September 30, 2009, Mission Broadcasting, Inc. (“Mission” or the “Company”)
owned and operated 16 television stations, all of which are affiliated with the
NBC, ABC, CBS, Fox or MyNetworkTV television networks, in markets located in New
York, Pennsylvania, Illinois, Indiana, Missouri, Texas, Louisiana, Arkansas and
Montana. The Company operates in one reportable television broadcasting segment.
Through local service agreements, Nexstar Broadcasting, Inc. (“Nexstar”)
provides sales and operating services to all of the Mission television stations
(see Note 4). As more fully described in Note 10, Mission’s sole shareholder has
granted Nexstar purchase options to acquire the assets and assume the
liabilities of each Mission station, subject to Federal Communications
Commission (“FCC”) consent.
 
 The
Company is highly 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 its control, as well as Nexstar
maintaining its pledge to continue the local service agreements with the
Company’s stations. Management believes that with Nexstar’s pledge to continue
the local service agreements through March 27, 2010, as described in a letter of
support dated March 27, 2009, our available cash, anticipated cash flow from
operations and available borrowings under our senior credit facility should be
sufficient to fund working capital, capital expenditure requirements, interest
payments and scheduled debt principal payments for at least the next twelve
months from September 30, 2009, enabling Mission to continue to operate as a
going concern.  If Mission fails to renew the letter of support from
Nexstar, then Mission will no longer continue to operate as a going
concern.
 
 On
October 8, 2009, Nexstar and Mission both amended their senior credit
facilities.  See Note 7 for a more complete discussion of the changes
to the credit facilities. Nexstar’s senior secured credit facility agreement
contains covenants which require them to comply with certain financial ratios,
including (a) maximum total and senior leverage ratios, (b) a minimum
interest coverage ratio, and (c) a minimum fixed charge coverage ratio. The
covenants, which are calculated on a quarterly basis, include the combined
results of Nexstar Broadcasting and us. Our senior secured credit facility
agreement does not contain financial covenant ratio requirements; however it
does include an event of default if Nexstar does not comply with all covenants
contained in its credit agreement. As of September 30, 2009, Nexstar was not in
compliance with all covenants contained in the credit agreements governing their
senior secured credit facility.  On October 8, 2009, Nexstar amended
their credit facility to modify certain covenants.  The October 8,
2009 debt amendment contained a limited waiver for the leverage ratios which
cured the violation as of September 30, 2009.
 
 On March
30, 2009, Nexstar closed an offer to exchange $143,600,000 of the 7% senior
subordinated notes due 2014 in exchange for $142,320,761 7% senior subordinated
PIK Notes due 2014 (the “PIK Notes”). Based on the financial covenants in the
Nexstar senior secured credit facility, the PIK Notes are not included in the
debt amount used to calculate the total leverage ratio until January 2011. In
addition to the debt exchange, Nexstar has undertaken certain actions as part of
their efforts to ensure they will be in compliance with their debt covenants
including 1) the elimination of corporate bonuses for 2008 and 2009, 2) the
consolidation of various back office processes in certain markets, 3) the
execution of a management services agreement whereby Nexstar operates four
stations in exchange for a service fee, 4) the consummation of purchase
agreements on March 12, 2009  and May 1, 2009 to acquire all the
assets of KARZ and WCWJ, respectively, 5) the October 8, 2009 amendment to their
senior credit facility, which modified certain covenants, and 6) obtaining the
limited waiver of leverage ratios as of September 30, 2009, in conjunction with
the credit amendment.
 
 Nexstar
believes the consummation of the exchange offer and the debt amendment along
with the actions described above, will allow Nexstar to maintain compliance
with all covenants contained in the credit agreements governing its senior
secured facility and the indentures governing its publicly held notes for a
period of at least the next twelve months from September 30, 2009. However, no
assurance can be provided that Nexstar's actions will be successful or that
further adverse events outside of Nexstar's control may arise that would
result in its inability to comply with the debt covenants.  In
such event, Nexstar would consider a range of transactions or strategies to
address any such situation.  For example, Nexstar might decide to
divest non-core assets, seek an amendment to its bank credit facility,
refinance its existing debt or obtain additional equity
financing.  There is no assurance that any such transactions, or any
other transactions, or strategies Nexstar might consider, could be
consummated on terms satisfactory to Nexstar or at all.
 
  6
  MISSION
BROADCASTING, INC.
 
 NOTES
TO CONDENSED FINANCIAL STATEMENTS—(Continued)
 
 2.
              Summary
      of Significant Accounting Policies
 
 Interim
Financial Statements
 
 The
condensed financial statements as of September 30, 2009, and for the three and
nine months ended September 30, 2009 and 2008 are unaudited. However, in the
opinion of management, such financial statements include all adjustments
(consisting solely of normal recurring adjustments) necessary for the fair
statement of the financial information included herein in accordance with
accounting principles generally accepted in the United States of America (“U.S.
GAAP”) and pursuant to the rules and regulations of the Securities and Exchange
Commission. The preparation of the condensed financial statements in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and reported
amounts of revenue and expenses during the period. Actual results could differ
from those estimates. Results of operations for interim periods are not
necessarily indicative of results for the full year. These financial statements
should be read in conjunction with the financial statements and related notes
included in the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2008. The balance sheet at December 31, 2008 has been
derived from the audited financial statements at that date, but does not include
all of the information and footnotes required by U.S. GAAP for complete
financial statements.
 
 Nonmonetary
Asset Exchanges
 
 In
connection with a spectrum allocation exchange ordered by the FCC associated
with certain microwave link licenses that the Company holds for use by its
stations within the 1.9 GHz band, Sprint Nextel Corporation (“Nextel”) is
required to replace certain existing analog equipment used by those microwave
facilities with comparable digital equipment. The Company has agreed to accept
the substitute equipment that Nextel has provided and will provide and in turn
must relinquish all of its analog equipment to Nextel. Neither party will have
any continuing involvement in the equipment transferred following the exchange.
We account for this arrangement as an exchange of assets in accordance with U.S.
GAAP requirements for exchanges of nonmonetary assets.  Each item of
equipment the Company receives and has received under this arrangement is
recorded at its estimated fair market value and is depreciated over its
estimated useful life ranging from 5 to 15 years. Management’s determination of
the fair market value is derived from the most recent prices paid to
manufacturers and vendors for the specific equipment acquired. As equipment is
exchanged, the Company records a gain to the extent that the fair market value
of the equipment received exceeds the carrying amount of the equipment
relinquished.
 
 Recent
Accounting Pronouncements
 
 In June
2009 the Financial Accounting Standards Board (“the FASB”) issued the FASB
Accounting Standards CodificationTM (“the Codification”). The Codification is the
official single source of authoritative U.S. generally accepted accounting
principles (“GAAP”). All existing accounting standards are superseded. All other
accounting guidance not included in the Codification is considered
non-authoritative. The Codification also includes all relevant Securities and
Exchange Commission (“SEC”) guidance organized using the same topical structure
in separate sections within the Codification. The Codification is effective for
our September 30, 2009 financial statements. The Codification does not change
existing GAAP. The principal impact on our financial statements from the
Codification adoption is limited to disclosures as all references to
authoritative accounting literature are now referenced in accordance with the
Codification.
 
 In June
2009, the FASB issued an amendment to the accounting and disclosure requirements
for the consolidation of VIE’s.  This amendment requires an analysis
to determine whether a variable interest gives the entity a controlling
financial interest in a variable interest entity. The amendment requires an
ongoing reassessment and eliminates the quantitative approach previously
required for determining whether an entity is the primary beneficiary. This
amendment is effective for our fiscal year beginning January 1, 2010. We are
currently evaluating the impact of adopting this amendment on our consolidated
financial statements.
 
 In June
2009, the FASB issued an amendment to the accounting and disclosure requirements
for transfers of financial assets.  This amendment removes the concept
of a qualifying special-purpose entity. This amendment also clarifies the
requirements for isolation and limitations on portions of financial assets that
are eligible for sale accounting. The amendment is effective for our fiscal year
beginning January 1, 2010. We are currently evaluating the impact of adopting
this amendment on our consolidated financial statements.
 
 In May
2009, the FASB issued a general standard of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. It requires disclosure of the date
through which an entity has evaluated subsequent events and the basis for
selecting that date, that is, whether that date represents the date the
financial statements were issued or were available to be issued. This
standard became effective for our second quarter ended June 30,
2009.  For the third quarter 2009, we have evaluated subsequent events
through November 12, 2009, which is the date the financial statements were
issued.
  7
  MISSION
BROADCASTING, INC.
 
 NOTES
TO CONDENSED FINANCIAL STATEMENTS—(Continued)
 
 2.
              Summary
      of Significant Accounting
Policies—(Continued)
 
 In April
2009, the FASB issued a new accounting and disclosure requirement, which
increases the frequency of fair value disclosures from an annual to a quarterly
basis. The guidance relates to fair value disclosures for any financial
instruments that are not currently reflected on the balance sheet at fair value.
The new authoritative guidance is effective for interim and annual periods
ending after June 15, 2009.  We adopted this guidance in the
second quarter of 2009, and it did not impact our financial position or results
of operations.  It did, however, result in additional disclosures
related to the fair value of our debt.  See Note 7 of these financial
statements.
 
 In April
2009, the FASB issued guidance for estimating fair values when there is no
active market or where the price inputs being used represent distressed sales
and identifying circumstances that indicate a transaction is not orderly. This
guidance is effective for interim and annual reporting periods ending after
June 15, 2009. We adopted this guidance in the second quarter of 2009, and
it did not have any effect on the Company’s financial position or results of
operations.
 
 In April
2008, the FASB issued guidance related to the determination of the useful life
of intangible assets. This guidance amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under the accounting and disclosure
requirements related to goodwill and other intangible assets. This new guidance
also provides additional disclosure requirements related to recognized
intangible assets. We adopted this guidance in January 2009 and it did not have
a material impact on our financial position or results of
operations.
 
 In
January 2008, we adopted the FASB’s accounting and disclosure requirements
related to fair value measurements as they pertain to financial assets and
liabilities. The adoption did not have a material impact on our financial
position or results of operations. These new requirements established a
framework for measuring fair value, and enhanced the disclosures for fair value
measurements. This authoritative guidance applies when other accounting
pronouncements require or permit fair value measurements, but it does not
require new fair value measurements. In February 2008, the FASB issued a
one-year deferral for the application of this standard as it pertains to
non-financial assets and liabilities. We adopted this standard for non-financial
assets and liabilities in the first quarter of 2009. There were no material
effects on our financial statements upon adoption of this new accounting
pronouncement; however, this pronouncement could have a material impact in
future periods.
 
 In
December 2007, the FASB issued authoritative guidance related to business
combinations, as well as guidance for the accounting and reporting of
noncontrolling interests in consolidated financial statements.  These
new standards significantly change the accounting for and reporting of business
combination transactions and noncontrolling (minority) interests in consolidated
financial statements. We adopted these standards on January 1, 2009. The
impact of adopting the standard related to business combinations will be
primarily limited to business combinations occurring on or after January 1,
2009. Adoption of the guidance related to noncontrolling interests in
consolidated financial statements had no impact on our financial position or
results of operations.
 
 3.
              Fair
      Value Measurements
 
 The
Company adopted authoritative guidance effective January 1, 2008 for
financial assets and financial liabilities measured on a recurring basis and
January 1, 2009 for non-financial assets and non-financial liabilities.
This guidance applies to all assets and liabilities that are being measured and
reported on a fair value basis. There was no impact upon adoption to the
consolidated financial statements as it relates to assets and liabilities. This
guidance requires disclosure that establishes a framework for measuring fair
value and expands disclosure about fair value measurements. Fair value
measurement must be classified and disclosed in one of the following three
categories:
 
 Level 1:
Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities;
 
 Level 2:
Quoted prices in markets that are not active, or inputs which are observable,
either directly or indirectly, for substantially the full term of the asset or
liability;
 
 Level 3:
Prices or valuation techniques that require inputs that are both significant to
the fair value measurement and unobservable (i.e., supported by little or no
market activity).
 
 The
Company invests in short term interest bearing obligations with original
maturities less than 90 days, primarily money market funds. Mission does not
enter into investments for trading or speculative purposes. As of September 30,
2009 and December 31, 2008, there were no investments in marketable
securities.
 
  8
  MISSION
BROADCASTING, INC.
 
 NOTES
TO CONDENSED FINANCIAL STATEMENTS—(Continued)
 
 3.
              Fair
      Value Measurements—(Continued)
 
 As of
both September 30, 2009 and December 31, 2008, the Company had $1 thousand
invested in a money market investment. These investments are required to be
measured at fair value on a recurring basis. The Company has determined that the
money market investment is defined as Level 1 in the fair value hierarchy. As of
both September 30, 2009 and December 31, 2008, the fair value of the money
market investment was an asset of $1 thousand.
 
 4.
              Local
      Service Agreements with Nexstar
 
 Mission
has entered into local service agreements with Nexstar to provide sales and
operating services to all of Mission’s stations. Under the terms of a shared
services agreement (“SSA”), the Nexstar station in the market provides certain
services including news production, technical maintenance and security, in
exchange for monthly payments from Mission to Nexstar. For each station that
Mission has entered into an SSA, it has also entered into a joint sales
agreement (“JSA”). Under the terms of the JSA, Nexstar sells the advertising
time of the Mission station and retains a percentage of the net revenue it
generates in return for monthly payments to Mission of the remaining percentage
of net revenue. Under the terms of a time brokerage agreement (“TBA”), Nexstar
programs most of the station’s broadcast time, sells the station’s advertising
time and retains the advertising revenue it generates in exchange for monthly
payments to Mission. JSA and TBA fees generated from Nexstar under the
agreements are reported as “Revenue from Nexstar Broadcasting, Inc.”, and SSA
fees incurred by Mission under the agreements are reported as “Fees incurred
pursuant to local service agreements with Nexstar Broadcasting, Inc.” in
accompanying condensed statements of operations.
 
 The
arrangements under the local service agreements each Mission station has entered
into with Nexstar have had the effect of Nexstar receiving substantially all of
the available cash, after Mission’s payment of operating costs and debt service,
generated by the Company’s stations. Mission anticipates that Nexstar will
continue to receive substantially all of Mission’s available cash, after
payments for operating costs and debt service, generated by its
stations.
 
 In order
for both Nexstar and Mission to comply with FCC regulations, Mission maintains
complete responsibility for and control over programming, finances, personnel
and operations of its stations.
 
  9
  The
following table summarizes the various local service agreements Mission-owned
stations had in effect with Nexstar as of September 30, 2009:
 
 Station
              Market
              Affiliation
              Type
      of
                Agreement
              Expiration
              Consideration
      received from or paid to NexstarMission-Owned:WFXP
              Erie,
      PA
              Fox
              TBA
              8/16/11
              Monthly
      payments received from Nexstar(1)KJTL
      and
              Wichita
      Falls, TX-Lawton, OK
              Fox
              SSA
              5/31/19
              $60
      thousand per month paid to NexstarKJBO-LP
              
              MyNetworkTV
              JSA
              5/31/19
              70%
      of the KJTL/KJBO-LP net revenue collected each month received from
      NexstarWYOU
              Wilkes
      Barre-Scranton, PA
              CBS
              SSA
              1/4/18
              $35
      thousand per month paid to NexstarJSA
              9/30/14
              70%
      of the WYOU net revenue collected each month received from
      NexstarKODE
              Joplin,
      MO-Pittsburg, KS
              ABC
              SSA
              3/31/12
              $75
      thousand per month paid to NexstarJSA
              9/30/14
              70%
      of the KODE net revenue collected each month received from
      NexstarKRBC
              Abilene-Sweetwater,
      TX
              NBC
              SSA
              6/12/13
              $25
      thousand per month paid to NexstarJSA
              6/30/14
              70%
      of the KRBC net revenue collected each month received from
      NexstarKSAN
              San
      Angelo, TX
              NBC
              SSA
              5/31/14
              $10
      thousand per month paid to NexstarJSA
              5/31/14
              70%
      of the KSAN net revenue collected each month received from
      NexstarWFXW
              Terre
      Haute, IN
              Fox
              SSA
              5/8/13
              $10
      thousand per month paid to NexstarJSA
              5/8/13
              70%
      of the WFXW net revenue collected each month received from
      NexstarKCIT
      and
              Amarillo,
      TX
              Fox
              SSA
              4/30/19
              $50
      thousand per month paid to NexstarKCPN-LP
              
              MyNetworkTV
              JSA
              4/30/19
              70%
      of the KCIT/KCPN-LP net revenue collected each month received from
      NexstarKHMT
              Billings,
      MT
              Fox
              TBA
              12/13/09
              Monthly
      payments received from Nexstar(1)KAMC
              Lubbock,
      TX
              ABC
              SSA
              2/15/19
              $75
      thousand per month paid to NexstarJSA
              2/15/19
              70%
      of the KAMC net revenue collected each month received from
      NexstarKOLR
              Springfield,
      MO
              CBS
              SSA
              2/15/19
              $150
      thousand per month paid to NexstarJSA
              2/15/19
              70%
      of the KOLR net revenue collected each month received from
      NexstarWUTR
              Utica,
      NY
              ABC
              SSA
              3/31/14
              $10
      thousand per month paid to NexstarJSA
              3/31/14
              70%
      of the WUTR net revenue collected each month received from
      NexstarWTVO
              Rockford,
      IL
              ABC
              SSA
              10/31/14
              $75
      thousand per month paid to NexstarJSA
              10/31/14
              70%
      of the WTVO net revenue collected each month received from
      NexstarKTVE
              Monroe,
      LA – El Dorado, AR
              NBC
              SSA
              1/16/18
              $20
      thousand per month paid to NexstarJSA
              1/16/18
              70%
      of the KTVE net revenue collected each month received from
      NexstarNexstar-owned:KFTA
              Ft.
      Smith-Fayetteville-Springdale-Rogers, AR
              Fox/NBC
              TBA
              (2)
              $5
      thousand per month paid to Nexstar
                $20
      thousand per month received from
Nexstar
 
 (1)
              Payments
      are variable based on station’s monthly operating
  expenses.
 (2)
              TBA
      will terminate upon the assignment of KFTA’s FCC license from
      Nexstar.
  10
  MISSION
BROADCASTING, INC.
 
 NOTES
TO CONDENSED FINANCIAL STATEMENTS—(Continued)
 
 4.
              Local
      Service Agreements with
Nexstar—(Continued)
 
 Under
these agreements, Mission is responsible for certain operating expenses of its
stations and therefore may have unlimited exposure to any potential operating
losses. Mission will continue to operate its stations under the SSAs and JSAs or
TBAs until the termination of such agreements. The SSAs and JSAs generally have
a term of ten years. Nexstar indemnifies Mission from Nexstar’s activities
pursuant to the local service agreement to which Nexstar is a
party.
 
 5.
              Pending
      Transaction with Nexstar
 
 On
April 11, 2006, Nexstar and Mission filed an application with the FCC for
consent to assignment of the license for KFTA Channel 24 (Ft. Smith, Arkansas)
from Nexstar to Mission. Consideration for this transaction is set at $5.6
million. On August 28, 2006, Mission and Nexstar entered into a local
service agreement (see Note 4) whereby Mission pays Nexstar for the right to
broadcast programming on KFTA and Nexstar pays Mission for the right to sell all
advertising time on KFTA within certain time periods. Also in 2006, Mission
entered into an affiliation agreement with the Fox network which provides Fox
programming to KFTA. Upon completing the assignment of KFTA’s license, the
Company plans to enter into JSA and SSA agreements with Nexstar-owned KNWA in
Fort Smith-Fayetteville-Springdale-Rogers, Arkansas, whereby KNWA will provide
local news, sales and other non-programming services to KFTA.
 
 In March
2008, the FCC granted the application to assign the license for KFTA from
Nexstar to Mission. The grant contained conditions which Nexstar is currently
appealing.
 
 6.
              Intangible
      Assets and Goodwill
 
 Intangible
assets subject to amortization consisted of the following:
 
 Estimated
                useful
      life
                (years)
              
              
              September
      30, 2009
              
              
              December 31,
      2008Gross
              
              
              Accumulated
                Amortization
              
              
              Net
              
              
              Gross
              
              
              Accumulated
                Amortization
              
              
              Net(in thousands)
              
              
              
              
              
              
              
              
              (in thousands)Network
      affiliation agreements
              
              
              15
              
              
              $
              66,443
              
              
              $
              (43,281
              )
              
              $
              23,162
              
              
              $
              66,443
              
              
              $
              (40,079
              )
              
              $
              26,364Other
      definite-lived intangible assets
              
              
              1-15
              
              
              
              13,117
              
              
              
              (9,475
              )
              
              
              3,642
              
              
              
              13,117
              
              
              
              (8,816
              )
              
              
              4,301Total
      intangible assets subject to amortization
              
              
              
              
              
              $
              79,560
              
              
              $
              (52,756
              )
              
              $
              26,804
              
              
              $
              79,560
              
              
              $
              (48,895
              )
              
              $
              30,665
 
 We
recorded an impairment charge of $2.3 million during the third quarter of 2009
that included an impairment to the carrying values of FCC licenses of $2.0
million, related to eight of our stations and an impairment to the carrying
values of goodwill of $0.3 million, related to one reporting unit consisting of
one of our television stations.  As required by the authoritative
guidance for goodwill and other intangible assets, we tested our FCC licenses
and goodwill for impairment at September 30, 2009, between the required annual
tests, because we believed events had occurred and circumstances changed that
would more likely than not reduce the fair value of our reporting units below
their carrying amounts and that our FCC licenses might be
impaired.  These events and circumstances include the overall economic
recession and a continued decline in demand for advertising at several of our
stations.
 
 The
impairment test for FCC licenses consists of a station-by-station comparison of
the carrying amount of FCC licenses with their fair value, using a discounted
cash flow analysis.
 
 The
impairment test for goodwill utilizes a two-step fair value
approach.  The first step of the goodwill impairment test is used to
identify potential impairment by comparing the fair value of the combined
stations in a market (“reporting unit”) to its carrying amount.  The
fair value of a reporting unit is determined using a discounted cash flow
analysis.  If the fair value of the reporting unit exceeds its
carrying amount, goodwill is not considered impaired.   If the
carrying amount of the reporting unit exceeds its fair value, the second step of
the goodwill impairment test is performed to measure the amount of impairment
loss, if any.  The second step of the goodwill impairment test
compares the implied fair value of the reporting unit’s goodwill with the
carrying amount of that goodwill.  The implied fair value of goodwill
is determined by performing an assumed purchase price allocation, using the
reporting unit’s fair value (as determined in Step 1) as the purchase
price.  If the carrying amount of goodwill exceeds the implied fair
value, an impairment loss is recognized in an amount equal to that
excess.
 
  11
  MISSION
BROADCASTING, INC.
 
 NOTES
TO CONDENSED FINANCIAL STATEMENTS—(Continued)
 
 6.
              Intangible
      Assets and Goodwill—(Continued)
 
 Determining
the fair value of our reporting units requires our management to make a number
of judgments about assumptions and estimates that are highly subjective and that
are based on unobservable inputs.  The actual results may differ from
these assumptions and estimates; it is possible that such differences could have
a material impact on our financial statements.  In addition to the
various inputs (i.e. market growth, operating profit margins, discount rates)
that we use to calculate the fair value of our FCC licenses and reporting units,
we evaluate the reasonableness of our assumptions by comparing the total fair
value of all our reporting units to our total market capitalization; and by
comparing the fair value of our reporting units or television stations, and FCC
licenses to recent television station sale transactions.
 
 We used
an income approach to test our FCC licenses for impairments as of September 30,
2009 with the following assumptions: (a) a discount rate of 10.5%; (b) market
growth rates ranging from 0.0% to 4.1%; and (c) operating profit margins ranging
from 11.5% to 24.3%.
 
 We used
the income approach to test goodwill for impairments as of September 30, 2009
with the following assumptions: (a) a discount rate of 10.5%; (b) market growth
rates ranging from 0.0% to 4.1%; and (c) operating profit margins ranging from
20.0% to 30.8%.  These assumptions are based on: (a) the actual
historical performance of our stations; (b) management’s estimates of future
performance of our stations; and (c) the same market growth assumptions used in
the calculation of the fair value of our FCC licenses.
 
 As
previously noted, we are required by authoritative guidance to test our
indefinite-lived intangible assets on an annual basis or whenever events or
changes in circumstances indicate that these assets might be
impaired.  As a result, future economic trends could require us to
record further impairments in future periods.
 
 
 Total
amortization expense from definite-lived intangibles was $1.3 million and $1.4
million for the three months ended September 30, 2009 and 2008, respectively and
$3.9 million and $4.1 million, respectively for the nine months then ended. The
Company’s estimate of annual amortization expense for definite-lived intangible
assets as of September 30, 2009 is approximately $5.2 million for the years 2009
through 2010; $5.1 million for the years 2011 through 2012; and $4.3 million for
2013..
 
 The
aggregate carrying value of indefinite-lived intangibles, consisting of FCC
licenses and goodwill, was $39.4 million and $41.3 million at September 30, 2009
and December 31, 2008, respectively. The Company expenses any costs to
renew its FCC licenses as incurred.
 
 The
changes in the carrying amount of goodwill for the nine months and year ended
September 30, 2009 and December 31, 2008, respectively, are as
follows:
 
 2009
              
              
              2008Goodwill
              
              $
              19,924
              
              
              $
              17,122Accumulated
      impairment losses
              
              
              (1,289
              )
              
              
              —Balance
      as of January 1
              
              $
              18,635
              
              
              $
              17,122
 
 Acquisitions
              
              
              —
              
              
              
              2,802Impairment
              
              
              (261
              )
              
              
              (1,289
              )Reclassification
      of asset
              
              
              355
              
              
              
              —
 
 Goodwill
              
              $
              20,279
              
              
              $
              19,924Accumulated
      impairment losses
              
              
              (1,550
              )
              
              
              (1,289
              )Balance
      as of September 30, 2009 and December 31, 2008,
    respectively
              
              $
              18,729
              
              
              $
              18,635
 
 During
the nine months ended September 30, 2009, the Company reclassified certain
amounts representing goodwill that were improperly classified as property and
equipment when recording the fair value of KTVE assets, which were acquired in
2008.
  12
  
 MISSION
BROADCASTING, INC.
 
 NOTES
TO CONDENSED FINANCIAL STATEMENTS—(Continued)
 
 6.
              Intangible
      Assets and Goodwill—(Continued)
 
 The
changes in the carrying amount of FCC licenses for the nine months and year
ended September 30, 2009 and December 31, 2008, respectively are as
follows:
 
 2009
              
              
              2008FCC
      licenses
              
              $
              31,395
              
              
              $
              28,736Accumulated
      impairment losses
              
              
              (8,700
              )
              
              
              —Balance
      as of January 1
              
              $
              22,695
              
              
              $
              28,736
 
 Acquisitions
              
              
              —
              
              
              
              2,659Impairment
              
              
              (1,997
              )
              
              
              (8,700
              )
 
 FCC
      licenses
              
              $
              31,395
              
              
              $
              31,395Accumulated
      impairment losses
              
              
              (10,697
              )
              
              
              (8,700
              )Balance
      as of September 30, 2009 and December 31, 2008,
    respectively
              
              $
              20,698
              
              
              $
              22,695
 
 The fair
value measurements of our goodwill and FCC licenses are as follows using the
three-level fair value hierarchy established by authoritative accounting
guidance as of September 30, 2009:
 
 Quoted
      prices in active markets
                (Level
      1)
              Significant
      observable inputs
                (Level
      2)
              
              Significant
      unobservable inputs (Level 3)Goodwill
              
              
              
              $
              18,729FCC
      licenses
              
              
              
              $
              20,698
 
 Determining
the fair value of our television stations requires our management to make a
number of judgments about assumptions and estimates that are highly subjective
and that are based on unobservable inputs or assumptions.  The actual
results may differ from these assumptions and estimates; and it is possible that
such differences could have a material impact on our financial
statements.
 
 7.
              Debt
 
 Long-term
debt consisted of the following:
 
 September
      30,
                2009
              
              
              December 31,
                2008(in
      thousands)Term
      loans
              
              $
              165,792
              
              
              $
              167,087Revolving
      credit facility
              
              
              7,000
              
              
              
              7,000172,792
              
              
              
              174,087Less:
      current portion
              
              
              (1,727
              )
              
              
              (1,727
              )$
              171,065
              
              
              $
              172,360
 
 On
October 8, 2009, Mission amended its senior secured credit
facility.  The amendment modifies certain terms of Mission Credit
Agreement, including, but not limited to a general tightening of the
exceptions to the negative covenants (principally by means of reducing
the types and amounts of permitted transactions) and an increase to the
interest rates and fees payable with respect to the borrowings under the Amended
Mission Credit Agreement.  The Amended Mission Credit Agreement also
incorporates, by reference to the Amended Nexstar Credit Agreement changes to
the financial covenants and applicable definitions.
 
 On an
annual basis following the delivery of Mission's year end financial statements,
the Amended Mission Credit Agreement requires mandatory prepayments of
principal, as well as a permanent reduction in revolving credit
commitments, subject to a computation of excess cash flow for the
preceding fiscal year, as more fully set forth in the Amended Mission Credit
Agreement. The Amended Mission Credit Agreement also places additional
restrictions on the use of proceeds from asset sales, equity issuances, or debt
issuances (with the result that such proceeds, subject to certain exceptions, be
used for mandatory prepayments of principal and permanent reductions in
revolving credit commitments), and includes an anti-cash hoarding provision
which requires that Mission utilize unrestricted cash and cash equivalent
balances in excess of $15 million to repay principal amounts outstanding, but
not permanently reduce capacity, under the revolving credit
facility.
  13
  MISSION
BROADCASTING, INC.
 
 NOTES
TO CONDENSED FINANCIAL STATEMENTS—(Continued)
 
 7.           Debt—(Continued)
 
 The
Amended Mission Credit Agreement also revised the interest rate
provisions.  As amended, borrowings under the Facility may bear
interest at either (i) a Eurodollar Rate, which has been amended to include an
interest rate floor equal to 1% or (ii) a Base Rate, which, as
amended,  is defined as the greater of (1) the sum of 1/2 of 1% plus
the Federal Funds Rate, (2) Bank of America, N.A.'s prime rate and (3) the sum
of (x) 1% plus (y) the Eurodollar Rate.  The definition of applicable
margin was changed to eliminate the pricing grid and replace it with a fixed
rate.  As amended, the applicable margin for Eurodollar loans is a
rate per annum equal to 4% and the applicable margin for Base Rate loans is a
rate per annum equal to 3%.
 
 In
conjunction with the amendment to our credit agreement, $0.1 million related to
professional fees were recognized as administrative expense as
incurred.
 
 Senior Secured
Credit Facility
 
 The
Mission senior secured credit facility (the “Mission Facility”) consists of a
Term Loan B and a $15.0 million revolving loan. As of September 30, 2009 and
December 31, 2008, Mission had $165.8 million and $167.1 million,
respectively, outstanding under its Term Loan B and $7.0 million of borrowings
were outstanding under its revolving loan.
 
 The Term
Loan B, which matures in October 2012, is payable in consecutive quarterly
installments amortized at 0.25% quarterly, with the remaining 93.25% due at
maturity. During the nine months ended September 30, 2009, repayments of
Mission’s Term Loan B totaled $1.3 million, all of which were scheduled
maturities. The revolving loan is not subject to incremental reduction and
matures in April 2012.
 
 The total
weighted-average interest rate of the Mission Facility was 2.02% and 3.20% at
September 30, 2009 and December 31, 2008, respectively. Interest is payable
periodically based on the type of interest rate selected. Additionally, Mission
is required to pay quarterly commitment fees on the unused portion of its
revolving loan commitment of 0.75%, effective with the debt
amendment.
 
 Unused
Commitments and Borrowing Availability
 
 As of
September 30, 2009, there were $8.0 million of unused commitments under the
Mission Facility. The total amount of borrowings available under the revolving
loan commitment of the Mission Facility is based on covenant calculations
contained in Nexstar’s credit agreement. As of September 30, 2009, $0 of total
unused commitments under the Mission Facility were available for
borrowing.
 
 Collateralization
and Guarantees of Debt
 
 Nexstar
Broadcasting Group, Inc. (Nexstar’s ultimate parent) and its subsidiaries
guarantee full payment of all obligations under the Mission Facility in the
event of its default. Similarly, Mission is a guarantor of Nexstar’s bank credit
facility, the 7% PIK senior subordinated notes and the 7% senior subordinated
notes issued by Nexstar. The bank credit facilities are collateralized by a
security interest in substantially all the combined assets, excluding FCC
licenses, of Nexstar and Mission.
 
 Debt
Covenants
 
 The
Mission Facility does not contain financial covenant ratio requirements, but
does provide for default in the event Nexstar does not comply with all covenants
contained in its credit agreement.  As of
September 30, 2009, Nexstar was not in compliance with all covenants
contained in the credit agreements governing their senior secured credit
facility.  On October 8, 2009, Nexstar amended their credit facility
to modify certain covenants.  The October 8, 2009 debt amendment
contained a limited waiver for the leverage ratios which cured the violation as
of September 30, 2009.
 Fair
Value of Debt
 
 The
aggregate carrying amounts and estimated fair value of Mission’s debt were as
follows:
 
 September
      30, 2009
              
              
              December
      31, 2008Carrying
                Amount
              
              
              Fair
                Value
              
              
              Carrying
                Amount
              
              
              Fair
                Value(in
      thousands)Term
      loans(1)
              
              $
              165,792
              
              
              $
              152,452
              
              
              $
              167,087
              
              
              $
              151,059Revolving
      credit facilities(1)
              
              $
              7,000
              
              
              $
              6,477
              
              
              $
              7,000
              
              
              $
              6,284
 
 (1)
              The
      fair value of bank credit facilities is computed based on recently amended
      borrowing rates for Mission for bank loans with similar terms and average
      maturities.
  14
  MISSION
BROADCASTING, INC.
 
 NOTES
TO CONDENSED FINANCIAL STATEMENTS—(Continued)
 
 8.
              Income
      Taxes
 
 The
Company’s provision/benefit for income taxes is primarily comprised of deferred
income taxes created by changes in the deferred tax liabilities position during
the year. These changes resulted from the amortization of goodwill and other
indefinite-lived intangible assets for income tax purposes which are not
amortized for financial reporting purposes as well as from adjustments made
during the third quarter 2009 and 2008 to the Company’s deferred tax liabilities
as a result of the impairment charges discussed in Note 6 . These deferred tax
liabilities do not reverse on a scheduled basis and are not used to support the
realization of deferred tax assets. The Company’s deferred tax assets primarily
result from federal and state net operating loss carryforwards (“NOLs”). The
Company’s NOLs are available to reduce future taxable income if utilized before
their expiration. The Company has provided a valuation allowance for certain
deferred tax assets as it believes they may not be realized through future
taxable earnings.
 
 At
January 1, 2009, the Company had gross unrecognized tax benefits of
approximately $3.7 million, which did not materially change as of September 30,
2009. If recognized, this amount would result in a favorable effect on the
Company’s effective tax rate excluding impact on the Company’s valuation
allowance. As of September 30, 2009, the Company has not accrued interest on the
unrecognized tax benefits since an unfavorable outcome upon examination would
not result in a cash outlay but would reduce NOLs subject to a valuation
allowance. The Company does not expect the amount of unrecognized tax benefits
to significantly change in the next twelve months.
 
 The
Company files income tax returns in the U.S. federal jurisdiction and various
state jurisdictions. The Company is subject to U.S. federal tax examinations for
years after 2004. Additionally, any NOLs that were generated in prior years and
that are utilized in the future may be subject to examination by the Internal
Revenue Service. State jurisdictions that remain subject to examination are not
considered significant.
 
 9.           Gain
on Asset Exchange
 
 In 2004,
the FCC approved a spectrum allocation exchange between Sprint Nextel
Corporation (“Nextel”) and certain public safety entities to eliminate
interference being caused to public safety radio licensees by Nextel’s
operations on certain frequencies. As part of this spectrum exchange, the FCC
granted Nextel the right to certain spectrum within the 1.9 GHz band that is
currently used by television broadcasters to carry their programming by
microwave link to their studio or transmitter sites. In order to utilize this
spectrum, Nextel is required to relocate spectrum used by broadcasters in the
1.9 GHz band to spectrum on different frequencies by, in part, replacing all
analog equipment associated with those microwave link facilities being used by
broadcasters with comparable digital equipment. The Company has agreed to accept
the substitute equipment that Nextel has provided and will provide and in turn
must relinquish all of its analog equipment back to Nextel. This transition
began on a market by market basis beginning in the second quarter of 2007. Each
piece of equipment the Company receives and has received under this arrangement
is recorded at its estimated fair market value and is depreciated over its
estimated useful life ranging from 5 to 15 years. Management’s determination of
the fair market value is derived from the most recent prices paid to
manufacturers and vendors for the specific equipment acquired. As equipment is
exchanged, the Company records a gain to the extent that the fair market value
of the equipment received exceeds the carrying amount of the equipment
relinquished. For the three months ended September 30, 2009 and 2008, the
Company recognized gains of $1.4 million and $0, respectively, and $1.9 million
and $0.6 million, respectively for the nine months then ended, from the exchange
of this equipment.
 
 10.
              FCC
      Regulatory Matters
 
 Television
broadcasting is subject to the jurisdiction of the FCC under the Communications
Act of 1934, as amended (the “Communications Act”). The Communications Act
prohibits the operation of television broadcasting stations except under a
license issued by the FCC, and empowers the FCC, among other things, to issue,
revoke, and modify broadcasting licenses, determine the location of television
stations, regulate the equipment used by television stations, adopt regulations
to carry out the provisions of the Communications Act and impose penalties for
the violation of such regulations. The FCC’s ongoing rule making proceedings
could have a significant future impact on the television industry and on the
operation of the Company’s stations and the stations it provides services to. In
addition, the U.S. Congress may act to amend the Communications Act in a manner
that could impact the Company’s stations, the stations it provides services to
and the television broadcast industry in general.
 
 Some of
the more significant FCC regulatory matters impacting the Company’s operations
are discussed below.
 
 Digital
Television (“DTV”) Conversion
 
 On June
12, 2009, all full-power television broadcasters were required to cease
operating in an analog format and operate exclusively in digital (DTV)
format.  All of Mission’s stations have completed the transition from
analog to digital and hold DTV authorizations issued by the
FCC.
  15
  MISSION
BROADCASTING, INC.
 
 NOTES
TO CONDENSED FINANCIAL STATEMENTS—(Continued)
 
 10.           FCC Regulatory
Matters—(Continued)
 
 DTV
conversion expenditures were $0.9 million and $4.5 million, for the nine months
ended September 30, 2009 and 2008, respectively.
 
 Media
Ownership
 
 In 2006,
the FCC initiated a rulemaking proceeding which provides for a comprehensive
review of all of its media ownership rules, as required by the Communications
Act. The Commission considered rules relating to ownership of two or more TV
stations in a market, ownership of local TV and radio stations by daily
newspapers in the same market, cross-ownership of local TV and radio stations,
and changes to how the national TV ownership limits are calculated. In February
2008, the FCC adopted modest changes to its newspaper broadcast cross-ownership
rule while retaining the rest of its ownership rules then currently in
effect.  Multiple challenges to this proceeding were filed with the
U.S. Courts of Appeal.  The court proceedings remain
pending.
 
 The FCC
is required by statute to review its media ownership rules every four years and
to eliminate those rules it finds no longer serve the “public interest,
convenience and necessity”.  During 2009, the FCC held a series of
hearings designed to evaluate possible changes to its rules.  Sometime
during 2010, the FCC is expected to officially initiate the next
statutorily-mandated review of its media ownership rules and request public
comments thereon.
 
 11.
              Commitments
      and Contingencies
 
 Guarantees
of Nexstar Debt
 
 Mission
is a guarantor of and has pledged substantially all its assets, excluding FCC
licenses, to guarantee Nexstar’s bank credit facility. Nexstar’s bank credit
facility, which matures in 2012, consists of a Term Loan B and a $82.5 million
revolving loan.
 
 Mission
is also a guarantor of the 7% senior subordinated notes (“7% Notes”) and 7% PIK
senior subordinated notes, both due 2014 issued by Nexstar. Both notes are
general unsecured senior subordinated obligations subordinated to all of
Mission’s senior debt.
 
 Mission
guarantees full payment of all obligations incurred under Nexstar’s bank credit
facility agreement and the 7% Notes. In the event that Nexstar is unable to
repay amounts due under these debt obligations, Mission will be obligated to
repay such amounts. The maximum potential amount of future payments that Mission
would be required to make under these guarantees would be generally limited to
the amount of borrowings outstanding under Nexstar’s bank credit facility, the
7% PIK senior subordinated notes and the 7% Notes. At September 30, 2009,
Nexstar had issued an aggregate principal amount of $46.9 million of the 7%
Notes, $130.0 million of the 7% PIK senior subordinated notes and had $234.8
million outstanding under its bank credit facility.
 
 Purchase
Options Granted to Nexstar
 
 In
consideration of Nexstar Broadcasting Group’s guarantee of the Mission Facility,
Mission’s sole shareholder has granted Nexstar purchase options to acquire the
assets and assume the liabilities of each Mission station, subject to FCC
consent, for consideration equal to the greater of (1) seven times the
station’s cash flow, as defined in the option agreement, less the amount of its
indebtedness as defined in the option agreements, or (2) the amount of its
indebtedness. Cash flow is defined as income or loss from operations, plus
depreciation and amortization (including amortization of broadcast rights),
interest income, non-cash trade and barter expenses, nonrecurring expenses
(including time brokerage agreement fees), network compensation payments
received or receivable and corporate management fees, less payments for
broadcast rights, non-cash trade and barter revenue and network compensation
revenue. These option agreements (which expire on various dates between 2011 and
2018) are freely exercisable or assignable by Nexstar without consent or
approval by Mission’s sole shareholder. The Company expects these option
agreements to be renewed upon expiration.
 
  Indemnification
Obligations
 
 In
connection with certain agreements that the Company enters into in the normal
course of its business, including local service agreements, business
acquisitions and borrowing arrangements, the Company enters into contractual
arrangements under which the Company agrees to indemnify the third party to such
arrangement from losses, claims and damages incurred by the indemnified party
for certain events as defined within the particular contract. Such
indemnification obligations may not be subject to maximum loss clauses and the
maximum potential amount of future payments the Company could be required to
make under these indemnification arrangements may be unlimited. Historically,
payments made related to these indemnifications have been immaterial and the
Company has not incurred significant costs to defend lawsuits or settle claims
related to these indemnification agreements.
 
 Litigation
 
 From time
to time, the Company is involved with claims that arise out of the normal course
of business. In the opinion of management, any resulting liability with respect
to these claims would not have a material adverse effect on the Company’s
financial position or results of operations.
  16
  
 ITEM 2.                      Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
 
 The
following discussion and analysis should be read in conjunction with the
unaudited condensed balance sheet as of September 30, 2009, unaudited
condensed statements of operations for the three and nine months ended
September 30, 2009 and 2008, unaudited condensed statement of changes in
shareholder’s deficit for the nine months ended September 30, 2009,
unaudited condensed statements of cash flows for the nine months ended
September 30, 2009 and 2008 and related notes included elsewhere in this
Quarterly Report on Form 10-Q and the financial statements contained in our
Annual Report on Form 10-K for the year ended December 31,
2008.
 
 Executive
Summary
 
 Overview
of Operations
 
 As of
September 30, 2009, we owned and operated 16 television stations. We have
local service agreements with certain television stations of Nexstar
Broadcasting, Inc. (“Nexstar”), through which Nexstar provides various
programming, sales or other services to our television stations. In order for
both Nexstar and us to comply with Federal Communications Commission (“FCC”)
regulations, we maintain complete responsibility for and control over
programming, finances, personnel and operations of our stations.
 
 The
following table summarizes the various local service agreements our stations had
in effect as of September 30, 2009 with Nexstar:
 
 Service Agreements
              StationsTBA
      Only(1)
              WFXP
      and KHMTSSA &
      JSA(2)
              KJTL,
      KJBO-LP, KOLR, KCIT, KCPN-LP, KAMC, KRBC, KSAN, WUTR, WFXW, WYOU, KODE,
      WTVO and KTVE
 
 (1)
              We
      have a time brokerage agreement (“TBA”) for each of these stations which
      allows Nexstar to program most of each station’s broadcast time, sell each
      station’s advertising time and retain the advertising revenue generated in
      exchange for monthly payments to
us.
 (2)
              We
      have both a shared services agreement (“SSA”) and a joint sales agreement
      (“JSA”) for each of these stations. The SSA allows the Nexstar station in
      the market to provide certain services including news production,
      technical maintenance and security, in exchange for Nexstar’s right to
      receive certain payments from us as described in the SSAs. The JSA permits
      Nexstar to sell and retain a percentage of the net revenue from the
      station’s advertising time in return for monthly payments to us of the
      remaining percentage of the net revenue, as described in the
      JSAs.
 
 The
arrangements under the local service agreements each Mission station has entered
into with Nexstar has had the effect of Nexstar receiving substantially all of
the available cash, after our payments of operating costs and debt service,
generated by our stations. We anticipate that Nexstar will continue to receive
substantially all of our available cash, after our payments for operating costs
and debt service, generated by our stations listed above. For more information
about our local service agreements with Nexstar, refer to Note 4 of our
condensed financial statements in Part I, Item 1 of this Quarterly Report
on Form 10-Q.
 
 Nexstar
Broadcasting Group, Inc. and its subsidiaries (“Nexstar Broadcasting Group”)
guarantee all obligations incurred under our senior credit facility. We are a
guarantor of the senior credit facility entered into by Nexstar and the 7%
senior subordinated notes issued by Nexstar. In consideration of Nexstar’s
guarantee of our senior credit facility, our sole shareholder has granted
Nexstar purchase options to acquire the assets and assume the liabilities of
each of our television stations, subject to FCC consent. These option agreements
(which expire on various dates between 2011 and 2018) are freely exercisable or
assignable by Nexstar without consent or approval by our sole shareholder. We
expect these option agreements to be renewed upon expiration.
 
  17
  
 Historical
Performance
 
 Revenue
 
 The
following table sets forth the principal types of revenue earned by our stations
for the periods indicated and each type of revenue (other than barter revenue
and revenue from Nexstar Broadcasting, Inc.) as a percentage of total gross
revenue:
 
 Three
      Months Ended September 30,
              
              
              Nine
      Months Ended September 30,2009
              
              
              2008
              
              
              2009
              
              
              2008Amount
              
              
              %
              
              
              Amount
              
              
              %
              
              
              Amount
              
              
              %
              
              
              Amount
              
              
              %(in
      thousands, except percentages)
              
              
              (in
      thousands, except percentages)Retransmission
      compensation
              
              $
              1,281
              
              
              
              82.6
              
              
              $
              821
              
              
              
              75.6
              
              
              $
              3,666
              
              
              
              82.0
              
              
              $
              2,186
              
              
              
              72.2Network
      compensation
              
              
              242
              
              
              
              15.6
              
              
              
              236
              
              
              
              21.7
              
              
              
              741
              
              
              
              16.6
              
              
              
              763
              
              
              
              25.2Other
              
              
              27
              
              
              
              1.8
              
              
              
              29
              
              
              
              2.7
              
              
              
              62
              
              
              
              1.4
              
              
              
              78
              
              
              
              2.6Net
      broadcast revenue before barter
              
              
              1,550
              
              
              
              100.0
              
              
              
              1,086
              
              
              
              100.0
              
              
              
              4,469
              
              
              
              100.0
              
              
              
              3,027
              
              
              
              100.0Barter
      revenue
              
              
              584
              
              
              
              
              
              
              
              639
              
              
              
              
              
              
              
              1,839
              
              
              
              
              
              
              
              1,862Revenue
      from Nexstar Broadcasting, Inc.
              
              
              5,808
              
              
              
              
              
              
              
              9,066
              
              
              
              
              
              
              
              18,036
              
              
              
              
              
              
              
              25,619Net
      revenue
              
              $
              7,942
              
              
              
              
              
              
              $
              10,791
              
              
              
              
              
              
              $
              24,344
              
              
              
              
              
              
              $
              30,508
 
 Results
of Operations
 
 The
following table sets forth a summary of our operations for the periods indicated
and their percentages of net revenue:
 
 Three
      Months Ended September 30,
              
              
              Nine
      Months Ended September 30,2009
              
              
              2008
              
              
              2009
              
              
              2008Amount
              
              
              %
              
              
              Amount
              
              
              %
              
              
              Amount
              
              
              %
              
              
              Amount
              
              
              %(in
      thousands, except percentages)
              
              
              (in
      thousands, except percentages)Net
      revenue
              
              $
              7,942
              
              
              
              100.0
              
              
              $
              10,791
              
              
              
              100.0
              
              
              $
              24,344
              
              
              
              100.0
              
              
              $
              30,508
              
              
              
              100.0Operating
      expenses:Corporate
      expenses
              
              
              408
              
              
              
              5.1
              
              
              
              254
              
              
              
              2.4
              
              
              
              960
              
              
              
              3.9
              
              
              
              710
              
              
              
              2.3Station
      direct operating expenses, net of trade
              
              
              1,223
              
              
              
              15.4
              
              
              
              1,597
              
              
              
              14.8
              
              
              
              4,364
              
              
              
              17.9
              
              
              
              4,704
              
              
              
              15.4Selling,
      general and administrative expenses
              
              
              414
              
              
              
              5.2
              
              
              
              349
              
              
              
              3.2
              
              
              
              1,204
              
              
              
              4.9
              
              
              
              1,189
              
              
              
              3.9Fees
      incurred pursuant to local service agreements with Nexstar Broadcasting,
      Inc.
              
              
              1,800
              
              
              
              22.7
              
              
              
              2,025
              
              
              
              18.8
              
              
              
              5,625
              
              
              
              23.1
              
              
              
              6,065
              
              
              
              19.9Gain
      on asset exchange
              
              
              (1,354
              )
              
              
              (17.0
              )
              
              
              —
              
              
              
              —
              
              
              
              (1,851
              )
              
              
              (7.6
              )
              
              
              (593
              )
              
              
              (1.9
              )Gain
      on asset disposal, net
              
              
              (9
              )
              
              
              (0.1
              )
              
              
              (141
              )
              
              
              (1.3
              )
              
              
              (7
              )
              
              
              —
              
              
              
              (391
              )
              
              
              (1.3
              )Barter
      expense
              
              
              584
              
              
              
              7.4
              
              
              
              639
              
              
              
              5.9
              
              
              
              1,839
              
              
              
              7.6
              
              
              
              1,862
              
              
              
              6.1Depreciation
      and amortization
              
              
              2,115
              
              
              
              26.6
              
              
              
              2,159
              
              
              
              20.0
              
              
              
              6,582
              
              
              
              27.0
              
              
              
              6,557
              
              
              
              21.5Impairment
      of goodwill and intangible assets
              
              
              2,258
              
              
              
              28.4
              
              
              
              5,859
              
              
              
              54.3
              
              
              
              2,258
              
              
              
              9.3
              
              
              
              5,859
              
              
              
              19.2Amortization
      of broadcast rights, excluding barter
              
              
              846
              
              
              
              10.7
              
              
              
              691
              
              
              
              6.4
              
              
              
              1,793
              
              
              
              7.4
              
              
              
              1,771
              
              
              
              5.8Income
      (loss) from operations
              
              $
              (343
              )
              
              
              
              
              
              $
              (2,641
              )
              
              
              
              
              
              $
              1,577
              
              
              
              
              
              
              $
              2,775
 
  18
  Three
Months Ended September 30, 2009 Compared to Three Months Ended
September 30, 2008.
 
 Revenue
 
 Net
revenue was $7.9 million for the three months ended September 30, 2009
compared to $10.8 million for the same period in 2008, a decrease of $2.9
million, or 26.4%. This decrease was primarily attributed to a decrease in
revenue from Nexstar, partially offset by an increase of retransmission
compensation, as discussed below.
 
 Revenue
from Nexstar was $5.8 million for the three months ended September 30,
2009, compared to $9.1 million for the same period in 2008, a decrease of $3.3
million, or 35.9%. The decrease was attributed to a decrease in revenue that
Nexstar generated from selling all of the advertising of our stations, which in
turn decreased the revenue we earned from Nexstar through JSA’s.
 
 Compensation
from retransmission consent and network affiliation agreements was $1.5 million
for the three months ended September 30, 2009, compared to $1.1 million for
the same period in 2008, an increase of $0.4 million, or 44.1%. The increase was
primarily due to renegotiated retransmission consent agreements starting in
January 2009.
 
 Operating
Expenses
 
 Corporate
expenses were $0.4 million for the three months ended September 30, 2009
compared to $0.3 million for the same period in 2008, an increase of $0.1
million or 60.6%.  Corporate expense relates to costs associated with
the centralized management of our stations.
 
 Station
direct operating expenses, consisting primarily of news, engineering and
programming, and selling, general and administrative expenses were $1.6 million
for the three months ended September 30, 2009, compared to $1.9 million for
the same period in 2008, a decrease of $0.3 million or 15.9%. The decrease was
primarily due to a reduction in network fees.
 
 Local
service agreement fees associated with Nexstar relate to services provided by
Nexstar in the production of newscasts, technical maintenance, promotional and
administrative support under the SSAs. SSA fees were $1.8 million, for the three
months ended September 30, 2009 compared to $2.0 million for the same
period in 2008, a decrease of $0.2 million or 11.1%. The decrease was a result
of the reduction in fees because of the elimination of the newscast in
Wilkes-Barre.
 
 Depreciation
of property and equipment was $0.8 million for each of the three months ended
September 30, 2009 and 2008.
 
 Amortization
of broadcast rights, excluding barter, was $0.8 million for the three months
ended September 30, 2009, compared to $0.7 million for the same period in
2008, an increase of $0.1 million or 22.4%.
 
 We
recorded an impairment charge of $2.3 million during the third quarter of 2009
that included an impairment to the carrying values of FCC licenses of $2.0
million, related to eight of our television stations and an impairment to the
carrying values of our goodwill of $0.3 million related to one of our television
stations.  In the third quarter of 2008, we recorded an impairment
charge of $5.9 million that included an impairment to the carrying values of FCC
licenses of $4.7 million, related to six of our television stations; an
impairment to the carrying value of network affiliation agreements of $1.0
million, related to two of our television stations; and an impairment to the
carrying values of our goodwill of $0.2 million, related to two of our
television stations.  As required by the authoritative guidance for
goodwill and other intangible assets, we tested our unamortized intangible
assets for impairment at September 30, 2009, between the required annual tests,
because we believed events had occurred and circumstances changed that would
more likely than not reduce the fair value of our FCC licenses and goodwill
below their carrying amounts.  These events included the overall
economic recession and the continued decline in advertising revenues at some of
our televisions stations.
 
 Further
deterioration in the advertising marketplaces in which Mission operates could
lead to additional impairment and reduction of the carrying value of the
Company’s goodwill and intangible assets, including FCC licenses and network
affiliation agreements.  If such a condition were to occur, the
resulting non-cash charge could have a material adverse effect on Mission’s
financial position and results of operations.
 
 Amortization
of intangible assets was $1.3 million for the three months ended
September 30, 2009  compared to $1.4 million for the same period
in 2008, a decrease of $0.1 million or 4.7%.
 
 For the
three months ended September 30, 2009 and 2008, we recognized gains of $1.4
million and $0 from the exchange of equipment under an arrangement with Sprint
Nextel Corporation. During the three months ended September 30, 2008, we
recognized a gain of $0.2 million related to an insurance recovery of a
casualty loss partially offset by a loss on disposal of assets of $0.1
million.
 
  19
  Loss
from Operations
 
 Loss from
operations was $0.3 million for the three months ended September 30, 2009,
compared to a loss from operations of $2.6 million for the same period of 2008,
a decrease of $2.3 million or 87.0%. The decrease in loss from operations
for the three months ended September 30, 2009 was primarily attributed to
the increase in the gain on asset exchange, the decrease in the amount of the
impairment of goodwill and intangible assets, partially offset by the decrease
in overall net revenue.
 
 Interest
Expense
 
 Interest
expense, including amortization of debt financing costs was $1.1 million for the
three months ended September 30, 2009, compared to $2.1 million for the
same period in 2008, a decrease of $1.0 million or 48.8%. The decreased amount
of interest expense was primarily attributed to lower average interest rates
during the current year period.
 
 Income
Taxes
 
 Income
tax expense was $50 thousand for the three months ended September 30, 2009,
compared to an income tax benefit of $0.9 million for the same period in 2008,
an increase in expense of $0.9 or 105.6%. The increase was primarily due to the
deferred tax effect of the impairment charge of $2.3 million and $4.9 million
for the three months ended September 30, 2009 and 2008, respectively, related to
goodwill and other indefinite-lived assets. Our provision/benefit for income
taxes is primarily created by changes in the deferred tax liabilities position
during the year arising from the amortizing of goodwill and other
indefinite-lived intangible assets for income tax purposes, which are not
amortized for financial reporting purposes as well as the adjustments made
during the third quarter 2009 and 2008 to the Company’s deferred tax liabilities
as a result of the impairment charge discussed above. No tax benefit was
recorded with respect to the losses for 2009 and 2008, as the utilization of
such losses is not likely to be realized in the foreseeable future.
 
 Nine
Months Ended September 30, 2009 Compared to Nine Months Ended
September 30, 2008.
 
 Revenue
 
 Net
revenue was $24.3 million for the nine months ended September 30, 2009
compared to $30.5 million for the same period in 2008, a decrease of $6.2
million, or 20.2%. This decrease was primarily attributed to a decrease in
revenue from Nexstar, partially offset by an increase in retransmission
compensation, as discussed below.
 
 Revenue
from Nexstar was $18.0 million for the nine months ended September 30,
2009, compared to $25.6 million for the same period in 2008, a decrease of $7.6
million, or 29.6%. The decrease was attributed to a decrease in revenue that
Nexstar generated from selling all of the advertising of our stations, which in
turn decreased the revenue we earned from Nexstar through JSA’s.
 
 Compensation
from retransmission consent and network affiliation agreements was $4.4 million
for the nine months ended September 30, 2009, compared to $2.9 million for
the same period in 2008, an increase of $1.5 million, or 49.4%. The increase was
primarily due to renegotiated retransmission consent agreements starting in
January 2009.
 
 Operating
Expenses
 
 Corporate
expenses were $1.0 million for the nine months ended September 30, 2009
compared to $0.7 million for the same period in 2008, an increase of $0.3
million or 35.2%. The increase was primarily due to an increase in professional
fees.  Corporate expense relates to costs associated with the
centralized management of our stations.
 
 Station
direct operating expenses, consisting primarily of news, engineering and
programming, and selling, general and administrative expenses were $5.6 million
for the nine months ended September 30, 2009, compared to $5.9 million for
the same period in 2008, a decrease of $0.3 million or 5.5%.  The
decrease was primarily due to a reduction in network fees.
 
 Local
service agreement fees associated with Nexstar relate to services provided by
Nexstar in the production of newscasts, technical maintenance, promotional and
administrative support under the SSAs. SSA fees were $5.6 million for the nine
months ended September 30, 2009 compared to $6.1 million for the same
period in 2008, a decrease of $0.5 million or 7.3%. The decrease was a result of
the reduction in fees caused by the elimination of the newscast in
Wilkes-Barre.
 
 Depreciation
of property and equipment was $2.7 million for the nine months ended
September 30, 2009 compared to $2.5 million for the same period in 2008, an
increase of $0.2 million or 8.6%.  The increase was primarily due to
DTV equipment being placed in service in 2009.
 
 Amortization
of broadcast rights, excluding barter was $1.8 million for each of the nine
months ended September 30, 2009 and 2008.
  20
  We recorded
an impairment charge of $2.3 million during the third quarter of 2009 that
included an impairment to the carrying values of FCC licenses of $2.0 million,
related to eight of our television stations and an impairment to the carrying
values of our goodwill of $0.3 million related to one of our television
stations.  In the third quarter of 2008, we recorded an impairment
charge of $5.9 million that included an impairment to the carrying values of FCC
licenses of $4.7 million, related to six of our television stations; an
impairment to the carrying value of network affiliation agreements of $1.0
million, related to two of our television stations; and an impairment to the
carrying values of our goodwill of $0.2 million, related to two of our
television stations.  As required by the authoritative guidance for
goodwill and other intangible assets, we tested our unamortized intangible
assets for impairment at September 30, 2009, between the required annual tests,
because we believed events had occurred and circumstances changed that would
more likely than not reduce the fair value of our FCC licenses and goodwill
below their carrying amounts.  These events included the overall
economic recession and the continued decline in advertising revenues at some of
our televisions stations.
 
 Further
deterioration in the advertising marketplaces in which Mission operates could
lead to additional impairment and reduction of the carrying value of the
Company’s goodwill and intangible assets, including FCC licenses and network
affiliation agreements.  If such a condition were to occur, the
resulting non-cash charge could have a material adverse effect on Mission’s
financial position and results of operations.
 
 Amortization
of intangible assets was $3.9 million for the nine months ended
September 30, 2009 compared to $4.1 million for the same period in 2008, a
decrease of $0.2 million or 4.7%.
 
 For the
nine months ended September 30, 2009 and 2008, we recognized gains of $1.9
million and $0.6 million from the exchange of equipment under an arrangement
with Sprint Nextel Corporation. During the nine months ended September 30, 2008,
we recognized a gain of $0.5 million related to an insurance recovery of a
casualty loss.
 
 Income
from Operations
 
 Income
from operations was $1.6 million for the nine months ended September 30,
2009, compared to $2.8 million for the same period of 2008, a decrease of $1.2
million or 43.2%. The decrease in income from operations for the nine months
ended September 30, 2009 was primarily attributed to the decrease in
overall net revenue, partially offset by the reduction in local service
agreement fees, the increase in the gain on asset exchange and the reduction in
the amount of the impairment of goodwill and intangible assets,
period-over-period.
 
 Interest
Expense
 
 Interest
expense, including amortization of debt financing costs, was $3.8 million for
the nine months ended September 30, 2009, compared to $7.0 million for the
same period in 2008, a decrease of $3.2 million or 46.3%. The decreased amount
of interest expense was primarily attributed to lower average interest rates
during the current year period.
 
 Income
Taxes
 
 Income
tax expense was $0.7 million for the nine months ended September 30, 2009,
compared to an income tax benefit of $0.1 million for the same period in 2008,
an increase in expense of $0.8 million or 624.2%. The increase was primarily due
to the deferred tax effect of the impairment charge of $2.3 million and $4.9
million for the three months ended September 30, 2009 and 2008, respectively,
related to goodwill and other indefinite-lived assets. Our provision/benefit for
income taxes is primarily created by changes in the deferred tax liabilities
position during the year arising from the amortizing of goodwill and other
indefinite-lived intangible assets for income tax purposes, which are not
amortized for financial reporting purposes as well as the adjustments made
during the third quarter 2009 and 2008 to the Company’s deferred tax liabilities
as a result of the impairment charge discussed above. No tax benefit was
recorded with respect to the losses for 2009 and 2008, as the utilization of
such losses is not likely to be realized in the foreseeable future.
 
  21
  Liquidity
and Capital Resources
 
 We are
highly leveraged, which makes us vulnerable to changes in general economic
conditions. Our ability to meet the future cash requirements described below
depends on our ability to generate cash in the future, which is subject to
general economic, financial, competitive, legislative, regulatory and other
conditions, many of which are beyond our control. Our ability to meet future
cash requirements is also dependent upon the local service agreements we have
entered into with Nexstar. Under our local service agreements, Nexstar sells our
advertising time and pays us a percentage of the amount collected. The payments
we receive from Nexstar are a significant component of our cash flows. On
March 27, 2009, Nexstar represented to us that it will continue the various
local service agreements under which it provides sales and other services to our
television stations thereby providing financial support to enable us to continue
to operate as a going concern. We believe that with Nexstar’s pledge to continue
the local service agreements, our available cash, anticipated cash flow from
operations and available borrowings under our senior credit facility should be
sufficient to fund working capital, capital expenditure requirements, interest
payments and scheduled debt principal payments for at least the next twelve
months from September 30, 2009. In order to meet future cash needs we may,
from time to time, borrow under our available credit facility. We will continue
to evaluate the best use of our operating cash flow among capital expenditures,
acquisitions and debt reduction.
 
 Overview
 
 The
following tables present summarized financial information management believes is
helpful in evaluating the Company’s liquidity and capital
resources:
 
 Nine
      Months Ended
                September 30,2009
              
              
              2008(in
      thousands)Net
      cash provided by operating activities
              
              $
              1,944
              
              
              $
              4,765Net
      cash used for investing activities
              
              
              (908
              )
              
              
              (12,660
              )Net
      cash used for financing activities
              
              
              (1,295
              )
              
              
              (1,295
              )Net
      decrease in cash and cash equivalents
              
              $
              (259
              )
              
              $
              (9,190
              )Cash
      paid for interest
              
              
              3,741
              
              
              
              6,984Cash
      paid for income taxes, net
              
              
              80
              
              
              
              75September 30,
                2009
              
              
              December 31,
                2008(in
      thousands)Cash
      and cash equivalents
              
              $
              1,167
              
              
              $
              1,426Long-term
      debt including current portion
              
              $
              172,792
              
              
              $
              174,087Unused
      commitments under senior credit facility(1)
              
              $
              8,000
              
              
              $
              8,000
 
 (1)
              As
      of September 30, 2009, $0 of total unused commitments under Mission’s
      credit facility were available for
borrowing.
 
 Cash
Flows – Operating Activities
 
 The
comparative net cash flows from operating activities decreased by $2.8 million
during the nine months ended September 30, 2009 compared to the same period
in 2008. The decrease was primarily due to the overall reduction in net revenue,
partially offset by changes in the timing of activity in amounts due to
Nexstar.
 
 Cash
paid for interest decreased by $3.2 million during the nine months ended
September 30, 2009 compared to the same period in 2008 due to lower average
interest rates under our senior credit facility,
period-over-period.
 
 Due to
our recent history of net operating losses, we currently do not pay any federal
income taxes but we are subject to certain state taxes. These net operating
losses may be carried forward, subject to expiration and certain limitations,
and used to reduce taxable earnings in future years. Through the use of
available loss carryforwards, it is possible that we may not pay significant
amounts of federal income taxes in the foreseeable future.
 
 Cash
Flows – Investing Activities
 
 The
comparative net cash flows used for investing activities decreased by $11.8
million during the nine months ended September 30, 2009 compared to the
same period in 2008. Cash flows from investing activities consisted of cash used
for capital additions and acquisition-related payments.
 
 Capital
expenditures were $0.9 million for the nine months ended September 30,
2009, compared to $5.2 million for the same period in 2008. The decrease was
primarily attributed to the conversion of more stations to DTV in
2008.
 
  22
  Cash
Flows – Financing Activities
 
 The
comparative net cash flows used for financing activities, consisting of
scheduled term loan maturities under our senior secured credit facility, were
$1.3 million for both the nine months ended September 30, 2009 and
2008.
 
 Although
our senior credit facility allows for the payment of cash dividends, we do not
currently intend to declare or pay a cash dividend.
 
 Future
Sources of Financing and Debt Service Requirements
 
 As of
September 30, 2009, we had debt of $172.8 million, which represented 254.5%
of our total capitalization. Our high level of debt requires that a substantial
portion of cash flow be dedicated to pay principal and interest on our debt
which reduces the funds available for working capital, capital expenditures,
acquisitions and other general corporate purposes.
 
 The total
amount of borrowings available to us under the revolving loan commitment of our
senior credit facility is based on covenant calculations contained in Nexstar’s
credit agreement. As of September 30, 2009, $0 of total unused commitments
under our senior credit facility were available for borrowing.
 
 The
following table summarizes the approximate aggregate amount of principal
indebtedness scheduled to mature for the periods referenced as of
September 30, 2009:
 
 Total
              
              
              Remainder
                of
      2009
              
              
              
              2010-2011
              
              
              
              2012-2013
              
              
              Thereafter(in
      thousands)Senior
      credit facility
              
              $
              172,792
              
              
              $
              432
              
              
              $
              3,454
              
              
              $
              168,906
              
              
              
              —
 
 Interest
payments on our senior credit facility are generally paid every one to three
months and are payable based on the type of interest rate selected.
 
 The terms
of our senior credit facility limit, but do not prohibit us from incurring
substantial amounts of additional debt in the future.
 
 We do not
have any rating downgrade triggers that would accelerate the maturity dates of
our debt. However, a downgrade in our credit rating could adversely affect our
ability to renew existing, or obtain access to new, credit facilities in the
future and could increase the cost of such facilities.
 
 Collateralization
and Guarantees of Debt
 
 Nexstar
Broadcasting Group, Inc. (Nexstar’s ultimate parent) and its subsidiaries
guarantee full payment of all obligations under our senior credit facility in
the event of our default. Similarly, we are a guarantor of Nexstar’s bank credit
facility and the senior subordinated notes issued by Nexstar. The senior credit
facilities are collateralized by a security interest in substantially all the
combined assets, excluding FCC licenses, of Nexstar and us. As of
September 30, 2009, Nexstar had a maximum commitment of $239.3 million
under its senior credit facility, of which $234.8 million of debt was
outstanding, and had issued an aggregate principal amount outstanding of $46.9
million of 7% senior subordinated notes and $130.0 million of 7% PIK senior
subordinated notes.
 
 Debt
Covenants
 
 Our
ability to continue as a going concern is dependent on Nexstar’s pledge to
continue the local services agreements described in a letter of support dated
March 27, 2009. Nexstar’s senior secured credit facility agreement contains
covenants which require them to comply with certain financial ratios, including
(a) maximum total and senior leverage ratios, (b) a minimum interest
coverage ratio, and (c) a minimum fixed charge coverage ratio. The
covenants, which are calculated on a quarterly basis, include the combined
results of Nexstar Broadcasting and us. Our senior secured credit facility
agreement does not contain financial covenant ratio requirements; however it
does include an event of default if Nexstar does not comply with all covenants
contained in its credit agreement. On October 8, 2009, Nexstar amended its
senior secured credit facility to modify certain terms of the underlying credit
agreement.  The modifications included, but are not limited to,
changes to financial covenants, including the Consolidated Total Leverage Ratio
and Consolidated Senior Leverage Ratio, a general tightening of the
exceptions to the negative covenants (principally by means of reducing
the types and amounts of permitted transactions) and an increase to the
interest rates and fees payable with respect to the borrowings under the amended
credit agreement.   The following table compares the old and new
covenant requirements.
  23
  
 Prior
              
              As
      AmendedConsolidated
      Total Leverage Ratio:July
      1, 2009 through September 30, 2009
              6.50
      to 1.00
              
              6.75
      to 1.00October
      1, 2009 to December 31, 2009
              6.50
      to 1.00
              
              8.75
      to 1.00January
      1, 2010 through March 31, 2010
              6.50
      to 1.00
              
              9.50
      to 1.00April
      1, 2010 through June 30, 2010
              6.50
      to 1.00
              
              10.25
      to 1.00July
      1, 2010 through September 30, 2010
              6.25
      to 1.00
              
              9.25
      to 1.00October
      1, 2010 through and including March 31, 2011
              6.25
      to 1.00
              
              7.75
      to 1.00April
      1, 2011 and thereafter
              6.00
      to 1.00
              
              6.00
      to 1.00Consolidated
      Senior Leverage Ratio:July
      1, 2009 through September 30, 2009
              4.50
      to 1.00
              
              5.50
      to 1.00October
      1, 2009 to December 31, 2009
              4.50
      to 1.00
              
              7.00
      to 1.00January
      1, 2010 through March 31, 2010
              4.25
      to 1.00
              
              7.00
      to 1.00April
      1, 2010 through June 30, 2010
              4.25
      to 1.00
              
              7.50
      to 1.00July
      1, 2010 through September 30, 2010
              4.25
      to 1.00
              
              6.75
      to 1.00October
      1, 2010 through and including March 31, 2011
              4.25
      to 1.00
              
              5.50
      to 1.00April
      1, 2011 and thereafter
              4.00
      to 1.00
              
              4.00
      to 1.00
 
 As of
September 30, 2009, Nexstar was in compliance with all indentures governing
their publicly-held notes.  As of September 30, 2009, Nexstar was not
in compliance with all covenants contained in the credit agreement governing
their senior secured credit facility.  The October 8, 2009 debt
amendment contained a limited waiver for the leverage ratios which cured the
violation as of September 30, 2009.
 .
 On March
30, 2009, Nexstar closed an offer to exchange $143,600,000 of the 7% senior
subordinated notes due 2014 in exchange for $142,320,761 7% senior subordinated
PIK Notes due 2014 (the “PIK Notes”). Based on the financial covenants in the
Nexstar senior secured credit facility, the PIK Notes are not included in the
debt amount used to calculate the total leverage ratio until January 2011. In
addition to the debt exchange, Nexstar has undertaken certain actions as part of
their efforts to ensure they will be in compliance with their debt covenants
including 1) the elimination of corporate bonuses for 2008 and 2009, 2) the
consolidation of various back office processes in certain markets, 3) the
execution of a management services agreement whereby Nexstar operates four
stations in exchange for a service fee, 4) the consummation of purchase
agreements on March 11, 2009 and May 1, 2009 to acquire all the assets of KARZ
and WCWJ, respectively, 5) the October 8, 2009 amendment to their senior credit
facility, which modified certain covenants, and 6) obtaining the limited waiver
of leverage ratios as of September 30, 2009, in conjunction with the credit
amendment.
 
 Nexstar
believes the consummation of the exchange offer and debt amendment along with
the actions described above, will allow Nexstar to maintain compliance with
all covenants contained in the credit agreements governing its senior
secured facility and the indentures governing its publicly held notes for a
period of at least the next twelve months from September 30, 2009. However, no
assurance can be provided that Nexstar's actions will be successful or that
further adverse events outside of Nexstar's control may arise that would
result in its inability to comply with the debt covenants.  In
such event, Nexstar would consider a range of transactions or strategies to
address any such situation.  For example, Nexstar might decide to
divest non-core assets, refinance its existing debt or obtain additional
equity financing.  There is no assurance that any such transactions,
or any other transactions, or strategies Nexstar might consider, could be
consummated on terms satisfactory to Nexstar or at all.
 
 Cash
Requirements for DTV Conversion
 
 On June
12, 2009, all full-power television broadcasters were required to cease
operating in an analog format and operate exclusively in digital (DTV)
format.  All of Mission’s stations have completed the transition from
analog to digital and hold DTV authorizations issued by the FCC.
 
 DTV
conversion expenditures were $0.9 million and $4.5 million for the nine months
ended September 30, 2009 and 2008, respectively.
 
 Cash
Requirements for Pending Transaction
 
 On
April 18, 2006, we and Nexstar announced that we had filed an application
with the FCC for consent to assignment of the license for KFTA Channel 24 (Ft.
Smith, Arkansas) from Nexstar to us. The FCC granted the application in March
2008 with certain restrictions. Mission and Nexstar are appealing the
restrictions. Consideration for this transaction is set at $5.6 million. We
intend to finance this transaction through cash on hand and borrowings under our
senior secured credit facility.
 
  24
  No
Off-Balance Sheet Arrangements
 
 At
September 30, 2009, we did not have any relationships with unconsolidated
entities or financial partnerships, such as entities often referred to as
structured finance or variable interest entities, which would have been
established for the purpose of facilitating off-balance sheet arrangements or
other contractually narrow or limited purposes. We are, therefore, not
materially exposed to any financing, liquidity, market or credit risk that could
arise if we had engaged in such relationships.
 
 Critical
Accounting Policies and Estimates
 
 Our
condensed financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”)
which require us to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the condensed financial statements and reported
amounts of revenue and expenses during the period. On an ongoing basis, we
evaluate our estimates, including those related to goodwill and intangible
assets, bad debts, broadcast rights, trade and barter, income taxes, commitments
and contingencies. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from those estimates. Results of operations for
interim periods are not necessarily indicative of results for the full
year.
 Information
with respect to our critical accounting policies which we believe could have the
most significant effect on our reported results and require subjective or
complex judgments by management is contained on pages 27 through 30 in Part II,
Item 7, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations”, of our Annual Report on Form 10-K for the fiscal year
ended December 31, 2008. Management believes that as of September 30,
2009 there has been no material change to this information.
 
 Recent
Accounting Pronouncements
 
 Refer to
Note 2 of our condensed financial statements in Part I, Item 1 of this
Quarterly Report on Form 10-Q for a discussion of our adoption of recently
issued accounting pronouncements, including our expected date of adoption and
effects on results of operations and financial position.
 
 Cautionary
Note Regarding Forward-Looking Statements
 
 This
Quarterly Report on Form 10-Q contains “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. All statements other than statements of
historical fact are “forward-looking statements” for purposes of federal and
state securities laws, including: any projections or expectations of earnings,
revenue, financial performance, liquidity and capital resources or other
financial items; any assumptions or projections about the television
broadcasting industry; any statements of our plans, strategies and objectives
for our future operations, performance, liquidity and capital resources or other
financial items; any statements concerning proposed new products, services or
developments; any statements regarding future economic conditions or
performance; any statements of belief; and any statements of assumptions
underlying any of the foregoing. Forward-looking statements may include the
words “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,”
“continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,”
“estimates” and other similar words.
 
 Although
we believe that the expectations reflected in any of our forward-looking
statements are reasonable, actual results could differ from this projection or
assumption in any of our forward-looking statements. Our future financial
position and results of operations, as well as any forward-looking statements,
are subject to change and inherent risks and uncertainties, including those
described in our Annual Report on Form 10-K for the year ended December 31,
2008 and in our other filings with the Securities and Exchange Commission. The
forward-looking statements made in this Quarterly Report on Form 10-Q are made
only as of the date hereof, and we do not have or undertake any obligation to
update any forward-looking statements to reflect subsequent events or
circumstances unless otherwise required by law.
 
 
  25
  ITEM 3.                         Quantitative
and Qualitative Disclosures About Market Risk
 
 Interest
Rate Risk
 
 Our
exposure to market risk for changes in interest rates relates primarily to our
long-term debt obligations.
 
 All term
loan borrowings at September 30, 2009 under our senior credit facility bear
interest at 2.03%, which represented the base rate, or LIBOR, plus the
applicable margin, as defined. All revolving loan borrowings at
September 30, 2009 under our senior credit facility bear interest at 1.78%,
which represented the base rate, or LIBOR, plus the applicable margin, as
defined. Interest is payable in accordance with the credit
agreement.
 
 The
following table estimates the changes to cash flow from operations as of
September 30, 2009 if interest rates were to fluctuate by 100 or 50 basis
points, or BPS (where 100 basis points represents one percentage point), for a
twelve-month period:
 
 Interest rate decrease
              
              
              Interest rate increase100 BPS
              
              
              50 BPS
              
              
              50 BPS
              
              
              100 BPS(in
      thousands)
              
              
              (in
      thousands)Senior
      credit facility
              
              $
              1,728
              
              
              $
              864
              
              
              $
              (864
              )
              
              $
              (1,728
              )
 
 Impact
of Inflation
 
 We
believe that our results of operations are not affected by moderate changes in
the inflation rate.
 
 
 ITEM 4.
              Controls
      and Procedures
 
 Evaluation
of Disclosure Controls and Procedures
 
 Mission’s
management, with the participation of Mission’s President and Treasurer (who is
Mission’s principal executive officer and principal financial and accounting
officer), conducted an evaluation as of the end of the period covered by this
report of the effectiveness of the design and operation of Mission’s disclosure
controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934.
 
 Based
upon that evaluation, Mission’s President and Treasurer concluded that as of the
end of the period covered by this report Mission’s disclosure controls and
procedures were effective in ensuring that information required to be disclosed
by Mission in the reports it files or submits under the Securities Exchange Act
of 1934 (i) is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms and (ii) is accumulated and
communicated to Mission’s management, including its President and Treasurer, as
appropriate to allow timely decisions regarding required
disclosure.
 
 Changes
in Internal Control over Financial Reporting
 
 During
the quarterly period as of the end of the period covered by this report, there
have been no changes in Mission’s internal control over financial reporting that
have materially affected, or are reasonably likely to materially affect, its
internal control over financial reporting.
 
  26
  PART
II. OTHER INFORMATION
 
 
 
 ITEM 1.                      Legal
Proceedings
 
 From time
to time, we are involved in litigation that arises from the ordinary operations
of business, such as contractual or employment disputes or other general
actions. In the event of an adverse outcome of these proceedings, we believe the
resulting liabilities would not have a material adverse effect on our financial
condition or results of operations.
 
 ITEM 1A.                   Risk
Factors
 
 There are
no material changes from the risk factors previously disclosed in Part I,
Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year
ended December 31, 2008.
 
 ITEM 2.                      Unregistered
Sales of Equity Securities and Use of Proceeds
 
 None.
 
 ITEM 3.                      Defaults
Upon Senior Securities
 
 None.
 
 ITEM 4.                      Submission
of Matters to a Vote of Security Holders
 
 None.
 
 ITEM 5.                      Other
Information
 
 None.
 
 ITEM 6.                      Exhibits
 Exhibit No.
                Exhibit
      Index10.1
                First
      Amendment to Third Amended and Restated Credit Agreement dated October 8,
      2009, among Mission Broadcasting, Inc., Bank of America, N.A., Banc of
      America Securities, UBS Securities LLC, Merrill Lynch, Pierce, Fenner
      & Smith Incorporated and the several banks parties
      thereto.*31.1
                Certification
      of David S. Smith pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.*32.1
                Certification
      of David S. Smith pursuant to 18 U.S.C. ss.
  1350.*
  *
              Filed
      herewith
 
 
  27
  
 SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
 
 MISSION
      BROADCASTING, INC./s/
      DAVID S. SMITHBy:
              David
      S. SmithIts:
              President
      and Treasurer(Principal
      Executive Officer and Principal Financial and Accounting
      Officer)
 
 Dated:
November 12,
2009
  28