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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-Q



|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ---------------------------------------------------------------------------------------

for the fiscal quarter ended September 30, 2002



| ̈ |  | 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



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MISSION
BROADCASTING, INC.

(Exact name of registrant as specified in its charter)



|Delaware                                                     |  | 51-0388022                                          
|------------------------------------------------------------ |  | ----------------------------------------------------
|(State of Organization or Incorporation)                     |  | (IRS Employer Identification No.)                   
|                                                            
|409 Lackawanna Avenue Scranton, PA 18503                     |  | (570) 961-2222                                      
|(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 check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ̈No  x



As of September 30, 2002, Mission Broadcasting, Inc. had one shareholder, David S. Smith. Mr. Smith had 1,000 shares of common stock
outstanding.



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TABLE OF CONTENTS



|              |  |                                                                                                                                               |  | Page
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|PART I        |  |                                                                                                                                              
|ITEM 1.       |  | Financial Statements (Unaudited)                                                                                                              |  |    
|              |  | Balance SheetsDecember 31, 2001 and September 30, 2002                                                                                       |  | 1   
|              |  | Statements of Operations for the three months and nine months ended September 30, 2001 and 2002                                               |  | 2   
|              |  | Statements of Changes in Shareholders Deficit for the year ended December 31, 2001 and for the nine months ended September 30, 2001 and 2002 |  | 3   
|              |  | Statements of Cash Flows for the nine months ended September 30, 2001 and 2002                                                                |  | 4   
|              |  | Notes to Financial Statements                                                                                                                 |  | 5   
|ITEM 2.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                         |  | 12  
|ITEM 3.       |  | Quantitative and Qualitative Disclosures about Market Risk                                                                                    |  | 18  
|ITEM 4.       |  | Controls and Procedures                                                                                                                       |  | 19  
|             
|PART II       |  |                                                                                                                                              
|ITEM 1.       |  | Legal Proceedings                                                                                                                             |  | 20  
|ITEM 2.       |  | Changes in Securities and Use of Proceeds                                                                                                     |  | 20  
|ITEM 3.       |  | Defaults Upon Senior Securities                                                                                                               |  | 20  
|ITEM 4.       |  | Submission of Matters to a Vote of Security Holders                                                                                           |  | 20  
|ITEM 5.       |  | Other Information                                                                                                                             |  | 20  
|ITEM 6.       |  | Exhibits and Reports on Form 8-K                                                                                                              |  | 20  
|             
|SIGNATURES    |  | 21                                                                                                                                           
|             
|CERTIFICATION |  | 22                                                                                                                                           



1



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MISSION BROADCASTING, INC.



BALANCE SHEETS



|                                                                                                                                                          |  | December 31, 2001      |         |   | September 30, 2002 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ------------------ | -
|                                                                                                                                                          |  | (Unaudited)            |         |   | (Unaudited)        |  
|                                                                                                                                                          |  | (dollars in thousands) |        
|Assets                                                                                                                                                    |  |                        |         |   |                    |  
|Current assets:                                                                                                                                           |  |                        |         |   |                    |  
|Cash and cash equivalents                                                                                                                                 |  | $                      | 584     |   |                    | $
|Accounts receivable, net of allowance for doubtful accounts of $54 and $58,
respectively                                                                  |  |                        | 1,726   |   |                    |  
|Current portion of broadcast rights                                                                                                                       |  |                        | 1,486   |   |                    |  
|Prepaid expenses and other current assets                                                                                                                 |  |                        | 20      |   |                    |  
|Taxes receivable                                                                                                                                          |  |                        |       |   |                    |  
|                                                                                                                                                          |  |                        |         |   |                    |  
|Total current assets                                                                                                                                      |  |                        | 3,816   |   |                    |  
|Property and equipment, net                                                                                                                               |  |                        | 4,034   |   |                    |  
|Broadcast rights                                                                                                                                          |  |                        | 996     |   |                    |  
|Other noncurrent assets                                                                                                                                   |  |                        | 6,015   |   |                    |  
|Goodwill, net                                                                                                                                             |  |                        | 7,383   |   |                    |  
|Intangible assets, net                                                                                                                                    |  |                        | 17,326  |   |                    |  
|                                                                                                                                                          |  |                        |         |   |                    |  
|Total assets                                                                                                                                              |  | $                      | 39,570  |   |                    | $
|                                                                                                                                                          |  |                        |         |   |                    |  
|Liabilities and shareholders deficit                                                                                                                     |  |                        |         |   |                    |  
|Current liabilities:                                                                                                                                      |  |                        |         |   |                    |  
|Current portion of broadcast rights payable                                                                                                               |  | $                      | 1,477   |   |                    | $
|Accounts payable                                                                                                                                          |  |                        | 67      |   |                    |  
|Accrued expenses                                                                                                                                          |  |                        | 192     |   |                    |  
|Taxes payable                                                                                                                                             |  |                        | 1       |   |                    |  
|Interest payable                                                                                                                                          |  |                        | 262     |   |                    |  
|Due to Nexstar Finance, L.L.C.                                                                                                                            |  |                        | 6,214   |   |                    |  
|Current portion of capital lease obligations                                                                                                              |  |                        |       |   |                    |  
|Deferred revenue                                                                                                                                          |  |                        | 25      |   |                    |  
|                                                                                                                                                          |  |                        |         |   |                    |  
|Total current liabilities                                                                                                                                 |  |                        | 8,238   |   |                    |  
|Debt                                                                                                                                                      |  |                        | 46,143  |   |                    |  
|Broadcast rights payable                                                                                                                                  |  |                        | 1,115   |   |                    |  
|                                                                                                                                                          |  |                        |         |   |                    |  
|Total liabilities                                                                                                                                         |  |                        | 55,496  |   |                    |  
|                                                                                                                                                         
|Commitments and contingencies (Note 10)                                                                                                                   |  |                        |         |   |                    |  
|                                                                                                                                                         
|Shareholders deficit:                                                                                                                                    |  |                        |         |   |                    |  
|Common stock, $1 dollar par value; 1,000 shares authorized; 1,000 shares issued and
outstanding at December 31, 2001 and September 30, 2002, respectively |  |                        | 1       |   |                    |  
|Subscription receivable                                                                                                                                   |  |                        | (1      | ) |                    |  
|Accumulated deficit                                                                                                                                       |  |                        | (15,926 | ) |                    |  
|                                                                                                                                                          |  |                        |         |   |                    |  
|Total shareholders deficit                                                                                                                               |  |                        | (15,926 | ) |                    |  
|                                                                                                                                                          |  |                        |         |   |                    |  
|Total liabilities and shareholders deficit                                                                                                               |  | $                      | 39,570  |   |                    | $
|                                                                                                                                                          |  |                        |         |   |                    |  



The
accompanying notes are an integral part of these financial statements.



1



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MISSION BROADCASTING, INC.



STATEMENTS OF OPERATIONS



|                                                                                                                 |  | Three Months Ended September 30, |        |   | Nine Months Ended September 30, |  
|---------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------ | - | ------------------------------- | -
|                                                                                                                 |  | 2001                             |        |   | 2002                            |  
|                                                                                                                 |  | (Unaudited)                      |        |   | (Unaudited)                     |  
|                                                                                                                 |  | (dollars in thousands)           |        |   | (dollars in thousands)          |  
|                                                                                                                
|Broadcast revenue (excluding trade and barter)                                                                   |  | $                                | 1,772  |   |                                 | $
|Less: commissions                                                                                                |  |                                  | (267   | ) |                                 |  
|                                                                                                                 |  |                                  |        |   |                                 |  
|Net broadcast revenue (excluding trade and barter)                                                               |  |                                  | 1,505  |   |                                 |  
|Trade and barter revenue                                                                                         |  |                                  | 307    |   |                                 |  
|Revenue from Nexstar Finance, L.L.C.                                                                             |  |                                  | 472    |   |                                 |  
|                                                                                                                 |  |                                  |        |   |                                 |  
|Total net revenue                                                                                                |  |                                  | 2,284  |   |                                 |  
|                                                                                                                 |  |                                  |        |   |                                 |  
|Operating expenses:                                                                                              |  |                                  |        |   |                                 |  
|Direct operating expenses (exclusive of depreciation and amortization shown separately
below)                    |  |                                  | 223    |   |                                 |  
|Selling, general and administrative expenses (exclusive of depreciation and amortization
shown separately below) |  |                                  | 429    |   |                                 |  
|Selling, general and administrative expense paid toNexstar Finance,
L.L.C.                                       |  |                                  | 998    |   |                                 |  
|Amortization of broadcast rights                                                                                 |  |                                  | 459    |   |                                 |  
|Amortization of intangible assets                                                                                |  |                                  | 432    |   |                                 |  
|Depreciation                                                                                                     |  |                                  | 328    |   |                                 |  
|                                                                                                                 |  |                                  |        |   |                                 |  
|Total operating expenses                                                                                         |  |                                  | 2,869  |   |                                 |  
|                                                                                                                 |  |                                  |        |   |                                 |  
|Loss (income) from operations                                                                                    |  |                                  | (585   | ) |                                 |  
|Interest expense, including amortization of debt financing costs                                                 |  |                                  | (760   | ) |                                 |  
|Interest income                                                                                                  |  |                                  | 3      |   |                                 |  
|Other expense, net                                                                                               |  |                                  |      |   |                                 |  
|                                                                                                                 |  |                                  |        |   |                                 |  
|Loss before income taxes                                                                                         |  |                                  | (1,342 | ) |                                 |  
|Income tax (expense) benefit                                                                                     |  |                                  | (2     | ) |                                 |  
|                                                                                                                 |  |                                  |        |   |                                 |  
|Net loss                                                                                                         |  | $                                | (1,344 | ) |                                 | $
|                                                                                                                 |  |                                  |        |   |                                 |  



The
accompanying notes are an integral part of these financial statements.



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MISSION BROADCASTING, INC.



STATEMENTS OF CHANGES IN SHAREHOLDERS DEFICIT



|                                          |  | Common Stock |  | Subscription Receivable |   |  | Accumulated Deficit |    |                        | Total Shareholders Deficit |  
|----------------------------------------- |  | ------------ |  | ----------------------- | - |  | ------------------- | -- | ---------------------- | --------------------------- | -
|                                          |  | Shares       |  | Par Value               |   |  |                    
|                                          |  |              |  |                         |   |  |                     |    | (dollars in thousands) |                             |  
|Balance at December 31, 2000 (Unaudited)  |  | 1,000        |  | $                       | 1 |  | $                   | (1 | )                      |                             |  
|Net loss                                  |  |             |  |                         |  |  |                     |   |                        |                             |  
|                                          |  |              |  |                         |   |  |                     |    |                        |                             |  
|Balance at September 30, 2001 (Unaudited) |  | 1,000        |  |                         | 1 |  |                     | (1 | )                      |                             |  
|Net loss                                  |  |             |  |                         |  |  |                     |   |                        |                             |  
|                                          |  |              |  |                         |   |  |                     |    |                        |                             |  
|Balance at December 31, 2001 (Unaudited)  |  | 1,000        |  |                         | 1 |  |                     | (1 | )                      |                             |  
|Net loss                                  |  |             |  |                         |  |  |                     |   |                        |                             |  
|                                          |  |              |  |                         |   |  |                     |    |                        |                             |  
|Balance at September 30, 2002 (Unaudited) |  | 1,000        |  | $                       | 1 |  | $                   | (1 | )                      |                             | $
|                                          |  |              |  |                         |   |  |                     |    |                        |                             |  



The
accompanying notes are an integral part of these financial statements.



3



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MISSION
BROADCASTING, INC.



STATEMENTS OF CASH FLOWS



|                                                                                |  | Nine Months Ended September 30, |        
|------------------------------------------------------------------------------- |  | ------------------------------- | -------
|                                                                                |  | 2001                            |        
|                                                                                |  | (Unaudited)                     |        
|                                                                                |  | (dollars in thousands)          |        
|Cash flows from operating activities:                                           |  |                                 |        
|Net loss                                                                        |  | $                               | (4,894)
|Adjustments to reconcile net loss to net cash provided by operating
activities: |  |                                 |        
|Depreciation of property and equipment                                          |  |                                 | 997    
|Amortization of intangible assets                                               |  |                                 | 1,297  
|Amortization of debt financing costs                                            |  |                                 | 641    
|Amortization of broadcast rights, excluding barter                              |  |                                 | 656    
|Payments for broadcast rights                                                   |  |                                 | (802   
|Loss on disposal of assets                                                      |  |                                 | 329    
|Changes in assets and liabilities:                                              |  |                                 |        
|Decrease (increase) in accounts receivable                                      |  |                                 | 180    
|(Increase) decrease in prepaid expenses and other current assets                |  |                                 | (9     
|(Decrease) increase in accounts payable and accrued expenses                    |  |                                 | (301   
|Increase (decrease) in interest payable                                         |  |                                 | 64     
|Increase (decrease) in current taxes payable and receivable, net                |  |                                 | 7      
|Increase in deferred revenue                                                    |  |                                 | 30     
|Increase (decrease) in amounts due to Nexstar Finance, L.L.C.                   |  |                                 | 2,633  
|                                                                                |  |                                 |        
|Net cash provided by operating activities                                       |  |                                 | 828    
|                                                                                |  |                                 |        
|Cash flows from investing activities:                                           |  |                                 |        
|Additions to property and equipment                                             |  |                                 | (333   
|Acquisition of broadcast properties and related transaction costs               |  |                                 |       
|                                                                                |  |                                 |        
|Net cash used for investing activities                                          |  |                                 | (333   
|                                                                                |  |                                 |        
|Cash flows from financing activities:                                           |  |                                 |        
|Proceeds from debt issuance                                                     |  |                                 | 80,285 
|Repayment of loans                                                              |  |                                 | (79,210
|Proceeds from revolver draws                                                    |  |                                 |       
|Payments for debt financing costs                                               |  |                                 | (1,775 
|                                                                                |  |                                 |        
|Net cash (used for) provided by financing activities                            |  |                                 | (700   
|                                                                                |  |                                 |        
|Net decrease in cash and cash equivalents                                       |  |                                 | (205   
|Cash and cash equivalents at beginning of year                                  |  |                                 | 220    
|                                                                                |  |                                 |        
|Cash and cash equivalents at end of period                                      |  | $                               | 15     
|                                                                                |  |                                 |        



The
accompanying notes are an integral part of these financial statements.





4



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MISSION BROADCASTING, INC.



NOTES TO FINANCIAL STATEMENTS



1.    Organization and Business Operations



Mission Broadcasting, Inc. (Mission or the Company) formerly known as Mission Broadcasting of Wichita Falls, Inc. (Mission of Wichita Falls) completed a merger with
Bastet Broadcasting, Inc. (Bastet) and Mission Broadcasting of Joplin, Inc. (Mission of Joplin), a wholly owned subsidiary of Mission of Wichita Falls, on September 30, 2002. Bastet and Mission of Wichita Falls were separate
entities, 100% owned by the same party at the beginning of fiscal year 2002. Bastet was formed in 1997 to own and operate television stations in small- and medium-sized markets across the United States. Bastet completed its first acquisition in
January 1998, with the purchase of WYOU, the CBS affiliate in Wilkes Barre-Scranton, Pennsylvania. Bastet subsequently purchased WFXP, the Fox affiliate in Erie, Pennsylvania, in November 1998. Mission of Wichita Falls was incorporated in 1998, and
commenced operations on June 1, 1999, with its acquisition of KJTL, a Fox affiliated station, and KJBO-LP, a UPN affiliated station, both in Wichita Falls, Texas. In December 2001, Mission of Joplin entered into a Time Brokerage Agreement
(TBA) with GOCOM Broadcasting of Joplin, L.L.C. (GOCOM) to provide certain programming to and to sell the advertising time of KODE, the ABC affiliate in Joplin, Missouri, pending Missions acquisition of the
stations assets, which closed on September 30, 2002. The purchase price for the assets was $14.0 million and was financed under the Companys senior credit facility.



Mission has entered into various service agreements with subsidiaries of Nexstar Finance, L.L.C.
(Nexstar). WFXP has a TBA with Nexstar, which allows Nexstar to program most of the stations broadcast time, sell the stations advertising time and retain the advertising revenue generated by WFXP in exchange for monthly
payments to Mission. KJTL and KJBO-LP have an SSA with Nexstar, which allows the sharing of services including news production, technical maintenance and security, in exchange for Nexstars right to receive certain payments from Mission as
described in the SSA. These payments have the effect of Nexstar receiving substantially all of the available cash, after payment of debt service costs, generated by KJTL and KJBO-LP. The Company anticipates that the payments required by the SSA for
KJTL and KJBO-LP will continue to have the effect of Nexstar receiving substantially all of the available cash, after payment of debt service costs, generated by KJTL and KJBO-LP. Through a Joint Sales Agreement (JSA), Mission has
granted Nexstar the right to sell and receive the revenue from the advertising time on KJTL and KJBO-LP in return for Nexstars monthly payments to Mission. WYOU and KODE each have SSAs with Nexstar, which have terms substantially similar to
the terms of the SSA with KJTL and KJBO-LP. In order for both Nexstar and Mission to continue to comply with FCC regulations, Mission must maintain complete responsibility for and control over programming, finances, personnel and operations of our
stations.



In addition to providing certain
services to Missions television stations, Nexstar is also the guarantor of Missions debt (Note 7). Mission is a guarantor of the senior credit facilities entered into and the senior subordinated notes issued by Nexstar (Note 7 and 10).



The owner of Mission has granted to Nexstar
purchase options on each Mission television station to acquire the assets and liabilities of each station for consideration equal to the greater of (i) seven times the stations broadcast cash flow less the amount of its indebtedness, as
defined in the option agreement or (ii) its indebtedness. Broadcast cash flow is defined as income (loss) from operations, plus depreciation and amortization (including amortization of broadcast rights), interest income, non-cash trade and barter
expenses, non-recurring expenses (including time brokerage agreement fees), network compensation payment 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 are freely exercisable or assignable by Nexstar without consent or approval by Missions shareholder.



As a result of the service arrangements, the debt guarantees and the option agreements, Nexstar is deemed to have a controlling financial
interest in the Company under U.S. generally accepted accounting principles (US GAAP) while complying with the FCCs rules regarding ownership limits in television markets. The Company retains ultimate control over each station.
Such control includes, but is not limited to, retaining control over policies, programming, advertisements and operations of the stations.



5



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MISSION BROADCASTING, INC.



NOTES TO FINANCIAL STATEMENTS(Continued)





2.    Summary of Significant Accounting Policies



Basis of Presentation



The merger of Bastet and Mission of Joplin into Mission has been accounted for as a combination of entities under common control in a manner similar to a pooling of interest. Collectively, Mission owns
and operates the following television stations: WYOU, WFXP, KODE, KJTL and KJBO-LP.



The financial statements as of September 30, 2002 and for the three and nine months ended September 30, 2002 and 2001 are unaudited. However, in the opinion of management, such statements include all
adjustments (consisting solely of normal recurring adjustments) necessary for the fair statement of the financial information included herein in accordance with US GAAP and pursuant to the rules and regulations of the Securities and Exchange
Commission. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and
reported amounts of revenues 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. The financial statements should be
read in conjunction with the consolidated financial statements and related notes included in the Companys Annual Report on Form 10-K for the year ended December 31, 2001. The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date, but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.



Certain prior period amounts have been reclassified to conform to current period presentation which resulted
in no changes to reported results from operations.



Goodwill and Other Intangible Assets



Intangible assets include network affiliation agreements and goodwill. On January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets (SFAS No. 142). SFAS No. 142 requires companies to cease amortizing certain intangible assets including goodwill and FCC licenses. The amortization of existing goodwill and FCC licenses resulting from acquisitions completed
prior to June 30, 2001 ceased on December 31, 2001. Any goodwill and FCC licenses resulting from acquisitions completed after June 30, 2001 were not and will not be amortized. SFAS No. 142 established a new method of testing goodwill and FCC
licenses for impairment on an annual basis or on an interim basis if an event occurs or circumstances change which would reduce the fair value of a reporting unit below its carrying value.



SFAS No. 142 requires that goodwill be tested for impairment using a two-step process. The first step is to
identify a potential impairment by comparing the fair value of a station with its carrying amount and, in transition, this step must be measured as of the beginning of the fiscal year. However, a company has six months from the date of adoption to
complete the first step. The second step of the goodwill impairment test measures the amount of the impairment loss (measured as of the beginning of the year of adoption), if any, and must be completed by the end of the Companys fiscal year.
The Company completed the first step of the impairment test during the quarter ended June 30, 2002 using the discounted cash flow method to estimate the fair value of the Companys stations. The valuation assumptions used in the discounted cash
flow model reflected anticipated future operating results and cash flow based on our business plan. As a result of this test, the Company did not identify any stations that required additional testing for impairment of goodwill. During the year
ended December 31, 2001, the Company incurred goodwill amortization expense of $0.4 million.



FCC licenses have been tested for impairment using a one-step process, which compares the fair value to the carrying amount of the asset on a station by station basis as of January 1, 2002. The fair
value of each station was determined using the discounted cash flow valuation method that excludes network compensation payments, assuming a hypothetical startup whose only asset is the FCC license. The test resulted in no impairment being
identified.



6



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The following
table presents certain financial information assuming that amortization expense associated with goodwill and FCC licenses was excluded for all periods presented:



|                                                           |  | Three Months Ended September 30, |        |   | Nine Months Ended September 30, |  
|---------------------------------------------------------- |  | -------------------------------- | ------ | - | ------------------------------- | -
|                                                           |  | 2001                             |        |   | 2002                            |  
|                                                           |  | (Unaudited)                      |       
|                                                           |  | (dollars in thousands)           |       
|Net loss                                                   |  | $                                | (1,344 | ) |                                 | $
|Add:                                                       |  |                                  |        |   |                                 |  
|Goodwill amortization, net of tax                          |  |                                  | 96     |   |                                 |  
|Indefinite-lived intangible asset amortization, net of tax |  |                                  | 138    |   |                                 |  
|                                                           |  |                                  |        |   |                                 |  
|Net lossas adjusted                                       |  | $                                | (1,110 | ) |                                 | $
|                                                           |  |                                  |        |   |                                 |  



Long-lived Assets



On January 1, 2002, the Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and the accounting and reporting provisions relating to the disposal of a segment of a business described in Accounting Principles Board Opinion No. 30. The adoption did not have a
material impact on the Companys financial statements.





7



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MISSION BROADCASTING, INC.



NOTES TO FINANCIAL STATEMENTS(Continued)





3.    Acquisition



On December 31, 2001, Mission entered into a TBA with GOCOM and simultaneously entered into a purchase and sale agreement to acquire substantially all of the assets of KODE. Pursuant to terms of the purchase and sale agreement,
Mission made a down payment of $6.0 million against the purchase price on December 31, 2001 and paid the remaining $8.0 million upon the consummation of the acquisition on September 30, 2002. As a result of the TBA, effective December 31, 2001, the
revenue and expenses associated with the operations of KODE (exclusive of depreciation and amortization expense) are included in the



8



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MISSION BROADCASTING, INC.



NOTES TO FINANCIAL STATEMENTS(Continued)



financial statements of Mission. The TBA was terminated upon the closing of the acquisition and the TBA fees were terminated upon such
closing date. TBA fees in the amount of $0.3 million are included in the financial statements of Mission.



Mission entered into an SSA with KSNF, a Nexstar-owned station in Joplin, Missouri, on April 1, 2002. As a result of the SSA with KSNF and
the purchase of KODE, Mission was able to reduce overhead costs associated with operations at KODE. Based on the expectation of the cost reductions through the SSA, Mission purchased KODE for an amount which resulted in the recognition of $0.4
million of goodwill, exclusive of transaction costs.



The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition. Mission obtained third-party valuations of certain acquired intangible assets.



|                                      |  | At September 30, 2002
|------------------------------------- |  | ---------------------
|                                      |  | (dollars in millions)
|Broadcast rights                      |  | $                    
|Property, plant and equipment         |  |                      
|Intangible assets                     |  |                      
|Goodwill, including transaction costs |  |                      
|                                      |  |                      
|Total assets acquired                 |  |                      
|Less: Broadcast rights payable        |  |                      
|                                      |  |                      
|Net assets acquired                   |  | $                    
|                                      |  |                      



Of the
$10.9 million of acquired intangible assets, $4.3 million was assigned to FCC licenses that are not subject to amortization and $5.5 million was assigned to network affiliation agreements (useful life of 15 years). The remaining $1.1 million of
acquired intangible assets have a useful life of approximately 1 year. Goodwill of $0.7 million is expected to be deductible for tax purposes.



The selected unaudited pro forma consolidated information for the three and nine months ended September 30, 2001 and 2002, determined
as if the KODE acquisition, described above, had occurred on January 1 of each period, is as follows:



|                                                   |  | Three Months Ended     |       
|-------------------------------------------------- |  | ---------------------- | ------
|                                                   |  | September 30, 2001     |       
|                                                   |  | As reported            |       
|                                                   |  | (Unaudited)            |       
|                                                   |  | (dollars in thousands) |       
|Net broadcast revenue (excluding trade and barter) |  | $                      | 1,505 
|Total net revenue                                  |  |                        | 2,284 
|Loss from operations                               |  |                        | (585  
|Net loss                                           |  | $                      | (1,344
|                                                   |  |                        |       



|                                                   |  | Nine Months Ended      |       
|-------------------------------------------------- |  | ---------------------- | ------
|                                                   |  | September 30, 2001     |       
|                                                   |  | As reported            |       
|                                                   |  | (Unaudited)            |       
|                                                   |  | (dollars in thousands) |       
|Net broadcast revenue (excluding trade and barter) |  | $                      | 4,815 
|Total net revenue                                  |  |                        | 7,325 
|Income (loss) from operations                      |  |                        | (1,517
|Net loss                                           |  | $                      | (4,894
|                                                   |  |                        |       



The
selected unaudited pro forma information is presented for illustrative purposes only and is not necessarily indicative of results of operations in future periods or results that would have been achieved had the Company and the acquired company been
combined during the specified periods.



4.    Related Party Transactions



Management Agreement



The Company is a party to a management agreement with its shareholder, David S. Smith. The Company recognized $0.1 million in expense for each of the nine month periods ended September 30, 2001 and
2002.



The Company also has various agreements in
place with Nexstar for management, sales and other services. The impact of those various agreements is noted on the face of the financial statements.



9



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MISSION BROADCASTING, INC.



NOTES TO FINANCIAL STATEMENTS(Continued)





5.    Time Brokerage Agreement



The KODE Agreement



As described in Note 3, Mission and GOCOM were parties to a TBA dated December 31, 2001, whereby Mission provided services for KODE. This agreement allowed Mission to program most of KODEs
broadcast time, sell the stations advertising time and retain advertising revenue in return for a monthly fee paid to GOCOM. The FCC approved Missions purchase of KODE from GOCOM and the closing date of the acquisition was September 30,
2002. The TBA was terminated upon the closing the transaction. Effective April 1, 2002, Mission entered into an SSA with Nexstar which has an initial term of ten years, whereby Nexstars station KSNF provides certain services to KODE. In
consideration for certain services provided to KODE by KSNF personnel, Mission pays Nexstar a monthly service fee calculated based on the cash flows of KODE.



6.    Intangible Assets and Goodwill



|                                                   |  | Estimated useful life (years) |  | December 31, 2001 |        |   | September 30, 2002 |  
|-------------------------------------------------- |  | ----------------------------- |  | ----------------- | ------ | - | ------------------ | -
|                                                   |  |                               |  | (Unaudited)       |        |   | (Unaudited)        |  
|                                                   |  | (dollars in thousands)        | 
|Network affiliation agreements                     |  | 15                            |  | $                 | 10,844 |   |                    | $
|FCC licenses                                       |  | indefinite                    |  |                   | 8,280  |   |                    |  
|Debt financing costs                               |  | term of debt                  |  |                   | 1,473  |   |                    |  
|Other intangible assets                            |  | 1-15                          |  |                   | 1,470  |   |                    |  
|                                                   |  |                               |  |                   |        |   |                    |  
|                                                   |  |                               |  |                   | 22,067 |   |                    |  
|Less: accumulated amortization                     |  |                               |  |                   | (4,741 | ) |                    |  
|                                                   |  |                               |  |                   |        |   |                    |  
|Intangible assets, net of accumulated amortization |  |                               |  | $                 | 17,326 |   |                    | $
|                                                   |  |                               |  |                   |        |   |                    |  
|Goodwill, net                                      |  | indefinite                    |  |                   | 7,383  |   |                    |  
|                                                   |  |                               |  |                   |        |   |                    |  
|Intangible assets and goodwill                     |  |                               |  | $                 | 24,709 |   |                    | $
|                                                   |  |                               |  |                   |        |   |                    |  



Total
amortization expense from definitive-lived intangible assets (excluding debt financing costs) for each of the years ended December 31, 2001 and nine months ended September 30, 2002 was $0.8 million. The estimated useful life of network affiliations
contemplates renewals of the underlying agreements based on the Companys historical ability to renew such agreements without significant cost or modifications to the conditions from which the value of the affiliation was derived. These
renewals can result in estimated useful lives of individual affiliations ranging from 12 to 20 years. Management has determined that 15 years is a reasonable estimate within the range of such estimated useful lives. The carrying value of
indefinite-lived intangible assets, excluding goodwill, at December 31, 2001 and September 30, 2002 was $6.4 million and $10.7 million, respectively. The use of an indefinite life for FCC licenses contemplates the Companys historical ability
to renew their licenses, that such renewals generally may be obtained indefinitely and at little cost, and that the technology used in broadcasting is not expected to be replaced in the foreseeable future. Therefore, cash flows derived from the FCC
licenses are expected to continue indefinitely. The following table presents the Companys estimate of amortization expense for each of the five succeeding fiscal years for definite-lived intangible assets, including debt financing costs,
recorded as of December 31, 2001 (dollars in thousands).



|Year ending December 31, |  |  
|------------------------ |  | -
|2002                     |  | $
|2003                     |  |  
|2004                     |  |  
|2005                     |  |  
|2006                     |  |  



10



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MISSION BROADCASTING, INC.



NOTES TO FINANCIAL STATEMENTS(Continued)





7.    Debt



Long-term debt consists of the following:



|                          |  | December 31, 2001      |        | September 30, 2002
|------------------------- |  | ---------------------- | ------ | ------------------
|                          |  | (Unaudited)            |        | (Unaudited)       
|                          |  | (dollars in thousands)
|Revolving credit facility |  | $                      | 46,143 |                   



The Mission Senior Secured Credit Facility



On January 12, 2001, Mission entered into a credit agreement (the Mission credit facility) with a group of commercial banks. The terms provided for the banks to make revolving loans to Mission, not to exceed the
aggregate commitment of $43.0 million. On November 14, 2001, the Mission credit facility was amended to increase the revolving facility to $58.0 million and to include Mission Broadcasting of Joplin, Inc. as a borrower. The Mission credit facility
was amended again on September 30, 2002 in order to permit the merger of Bastet and Mission of Joplin into Mission. Nexstar has entered into a guarantor agreement whereby Nexstar guarantees full payment of any obligations outstanding in the event of
Missions default. Interest rates associated with the Mission credit facility are based, at the option of Mission, on the prevailing prime rate plus an applicable margin or the LIBOR rate plus an applicable margin, as defined (ranging from
5.29% to 5.32% at September 30, 2002). Interest is fixed for a period ranging from one month to 12 months, depending on availability of the interest basis selected, except if Mission selects a prime-based loan, in which case the interest rate
will fluctuate during the period as the prime rate fluctuates. Interest is payable periodically based on the type of interest rate selected. In addition, Mission is required to pay quarterly commitment fees based on the leverage ratio of Mission and
Nexstar on a consolidated basis for that particular quarter on the unused portion of the Mission credit facility loan commitment. The Mission credit facility is due and payable on the maturity date, January 12, 2007.



Based on borrowing rates currently available to the Company
for bank loans with similar terms and average maturities, the fair value of the Companys credit facility approximates carrying value.



Mission guarantees the senior credit facilities of Nexstar, which have a maximum commitment of $149.0 million. As of September 30,
2002, $81.7 million was outstanding under Nexstars senior credit facilities. Nexstar and Mission were in compliance with all covenants at September 30, 2002.



Debt Financing Costs



In conjunction with the refinancing of the credit facility during 2001, the Company expensed
$0.5 million, related to certain debt financing costs. The amount, net of tax effect, is included in interest expense pursuant to the adoption of SFAS No. 145.



8.    Common Stock



The Company is 100% owned and controlled by one shareholder, David S. Smith. As of September 30, 2002,
the Company has authorized 1,000 shares of common stock. There are 1,000 shares of stock issued and outstanding with a $1 dollar par value per share. Each share of common stock is entitled to one vote. The holders of common stock are also entitled
to receive dividends when and if declared by the Board of Directors, subject to the preferential right of holders of then outstanding preferred stock.



9.    Income Taxes



The Company incurred income tax expense of $47 thousand for the nine months ended September 30, 2002 and $7 thousand expense for the
nine months ended September 30, 2001. The Companys effective tax rate



11



---

MISSION BROADCASTING, INC.



NOTES TO FINANCIAL STATEMENTS(Continued)



benefit was less than 3% for the nine months ended September 30, 2002, and negligible for the nine months ended September 30, 2001.



10.    Commitments and Contingencies



From time to time, the Company is involved
with claims that arise out of the normal course of business. In the opinion of management, the ultimate liability with respect to these claims will not have a material adverse effect on the financial statements of the Company.



Guarantor of Senior Subordinated Notes



The Company is a guarantor of
Nexstars $160.0 million 12.0% Senior Subordinated Notes (the Notes). The Notes mature on April 1, 2008. Interest is payable every six months in arrears on April 1 and October 1. The Notes are general unsecured senior subordinated
obligations, subordinated to all of the Companys and Nexstars senior debt.



11.    Recently Issued Accounting Standards



In July 2001, the FASB issued SFAS No. 141, Business Combinations, which prospectively prohibits the pooling of interest method of accounting for business combinations initiated after June 30, 2001.



In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS No. 145), which is effective for fiscal years beginning after May 15, 2002. SFAS No. 145 rescinds SFAS No. 4
and SFAS No. 64, which addressed the accounting for gains and losses from extinguishment of debt. SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be
accounted for in the same manner as sale-leaseback transactions. SFAS No. 145 also makes technical corrections to certain existing pronouncements that are not substantive in nature. Mission adopted SFAS No. 145 for the year ended December 31, 2002
and as a result has reclassified $0.5 million of extraordinary loss from refinancing of credit facility to interest expense for the year ended December 31, 2001.



12.    Subsequent Events



On December 13, 2002, Mission entered into a local marketing agreement with a subsidiary of LIN Television
Corporation, the current owner of KRBC and KACB which are located in Abilene and San Angelo, Texas, pending the sale of the stations to Mission. The local marketing agreement commenced on January 1, 2003. Following FCC consent to the transaction,
Mission will purchase substantially all of the assets of the stations for $10.0 million. Pursuant to the terms of the purchase agreement, Mission made a down payment of $1.5 million against the purchase price in December 2002, which has been
included in noncurrent assets as of December 31, 2002.



On February 13, 2003, Mission and Nexstar obtained new senior credit facilities. The facilities consist of a $185.0 million term loan (Nexstar $130.0 million and Mission $55.0 million)
and an $80.0 million revolver (Nexstar $50.0 million and Mission $30.0 million). Mission used the proceeds from its facility to refinance its existing senior credit facility, pay related debt financing costs and provide additional working capital.
Financial covenants under the new senior credit facilities include a consolidated total leverage ratio of 7.25 times the last twelve months operating cash flow (as defined in the credit agreement) through March 30, 2004, a consolidated senior
leverage ratio of 4.25 times the last twelve months operating cash through June 29, 2004 and a consolidated fixed charge coverage ratio of 1.10 to 1.00 through September 29, 2004. The term loans amortize at 1% annually in years 2004 through 2009,
with the remaining 94% due in 2010. The outstanding principal amount on the revolving loans mature on December 31, 2009. As of May 9, 2003, Mission had drawn $3.1 million on its revolver. The refinancing of the existing senior credit facility
resulted in a write-off for Mission, during the first quarter of 2003, of $1.1 million of debt financing costs that were capitalized at December 31, 2002.



On May 8, 2003, Mission entered into a TBA with Bahakel Communications relating to WBAK and simultaneously entered into a purchase and
sale agreement to acquire substantially all of the assets of WBAK, the Fox affiliate in Terre Haute, Indiana for $3.0 million. The TBA commenced on May 9, 2003. Pursuant to the terms of the TBA, Mission made a down payment of $1.5 million against
the purchase price, which was funded from Missions senior credit facilities. Additionally, Mission entered into an SSA with Nexstar, effective May 9, 2003, whereby Nexstar-owned WTWO will provide certain services to WBAK including production,
technical maintenance and security, among other services. Mission also entered into a JSA, effective May 9, 2003, whereby Nexstar-owned WTWO will purchase all the advertising time on WBAK and retain the advertising revenue in return for payments to
Mission of $100.0 thousand per month, subject to adjustment to assure that each payment equals Missions actual operating costs plus $10.0 thousand per month.



12



---

Item 2.    Managements Discussion and Analysis of Financial Condition and Results of Operations



Forward-looking and Cautionary Statements



The following discussion and analysis should be read in conjunction with the unaudited financial statements for the three months and the
nine months ended September 30, 2002 and 2001 and related notes included elsewhere in this Quarterly Report on Form 10-Q. 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, revenues, 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; 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, estimate, intend, continue, believe, expect or anticipate
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 condition and results of
operations, as well as any forward-looking statements are subject to change and inherent risks and uncertainties discussed elsewhere in the Quarterly Report on Form 10-Q 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 publicly update any forward-looking statements to reflect subsequent events or circumstances
unless otherwise required by law.



Introduction



Mission owns and operates the
following television stations: WYOU, WFXP, KODE, KJTL and KJBO-LP. Mission has various local service agreements with subsidiaries of Nexstar, through which Nexstar provides various management, sales or other services to our television stations. In
order for both Nexstar and Mission to continue to comply with FCC regulations, Mission must maintain complete responsibility for and control over programming, finances, personnel and operations of our stations.



Mission has the following local service agreements with
subsidiaries of Nexstar:



| | · |  | WXFP has a time brokerage agreement with Nexstar, which allows Nexstar to program most of the stations broadcast time, sell the stations advertising time
and retain the advertising revenue generated by WFXP in exchange for monthly payments to Mission;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | KJTL and KJBO-LP have a shared services agreement with Nexstar, which allows the sharing of services, including news production, technical maintenance and security.
Through a joint sales agreement, Mission has granted Nexstar the rights to sell and receive the revenue from the advertising time on KJTL and KJBO-LP in return for monthly payments to us; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Each of WYOU and KODE has a shared service agreement with Nexstar, which has terms substantially similar to the terms of the shared services agreement with KJTL and
KJBO-LP.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



13



---



In addition to
providing certain services to our television stations, Nexstar also guarantees our debt. Similarly, we are a guarantor of the senior credit facilities entered into and the Senior Subordinated Notes issued by Nexstar.



The owner of Mission has granted to Nexstar purchase options
on each Mission television station to acquire the assets and liabilities of each station for consideration equal to the greater of (1) seven times the stations broadcast cash flow less the amount of its indebtedness as defined in the option
agreement or (2) the amount of its indebtedness. Theses option agreements are freely exercisable or assignable by Nexstar without consent or approval by the owner of Mission.



The operating revenue of our stations is derived primarily from advertising revenue, except for WFXP and
KJTL, whose revenue are derived from payments from Nexstar. Our advertising revenues depend on the economic conditions of the markets in which we operate, the demographic makeup of those markets and the marketing strategy we employ in each market.
The primary operating expenses consist of commissions on revenues, employee compensation and related benefits, newsgathering and programming costs. A large percentage of the costs involved in the operation of our stations remain relatively fixed.



Each of our stations has a network affiliation
agreement pursuant to which the network provides programming to the station during specified time periods, including prime time. ABC and CBS compensate our affiliated stations for distributing the networks product over the air and for keeping
a portion of advertising inventory during those time periods. Each station acquires licenses to broadcast programming in non-news time periods during the remainder of the day. The licenses are either purchased from a program distributor for cash
and/or the program distributor is allowed to retain some of the inventory as compensation to eliminate or reduce the cash cost for the license. The latter is referred to as barter broadcast rights. The station records the estimated fair market value
of the licenses, including any advertising inventory given to the program distributor as a broadcast right asset and liability. The assets are amortized as a component of amortization of broadcast rights. Amortization is computed using the
straight-line method based on the license period or usage, whichever is greater. The cash broadcast rights liabilities are reduced by monthly payments while the barter liability is amortized over the life of the contract as a component of trade and
barter revenue.



Advertising rates are based upon
(1) a programs popularity among the viewers that an advertiser wishes to target, (2) the number of advertisers competing for the available time, (3) the size and the demographic composition of the market served by the station, (4) the
availability of alternative advertising media in the market area and (5) the effectiveness of the stations sales force. Advertising rates are also determined by a stations overall ability to attract viewers in its market area, as well as
the stations ability to attract viewers among particular demographic groups that an advertiser may be targeting. Advertising revenues are positively affected by strong local economies, national and regional political election campaigns, and
certain events such as the Olympic Games or the Super Bowl. Because television broadcast stations rely on advertising revenues, declines in advertising budgets, particularly in recessionary periods, adversely affect the broadcast industry, and as a
result may contribute to a decrease in the revenues of broadcast television stations.



Most advertising contracts are short-term and generally run for a few weeks. Excluding political revenue, 65.2% and 51.1% of our spot revenue for the nine months ended September 30, 2002 and September
30, 2001, respectively, was generated from local advertising, which is sold by the stations sales staff. The remainder of our advertising revenue represents inventory sold for national or political advertising. Each station has an agreement
with a national representative firm that normally provides for representation outside the particular stations market. National commission rates vary within the industry but are governed by each stations agreement. All national and
political revenue is placed by advertising agencies. The agencies receive a commission rate of 15.0% for the gross amount of advertising schedules placed by them. While the majority of local spot revenue is placed by local agencies, some advertisers
place their schedules directly with the local sales staff, thereby eliminating the agency commission.



14



---

The advertising revenue of our stations is generally highest in the second and fourth
quarters of each year, due in part to increases in consumer advertising in the spring and retail advertising in the period leading up to, and including, the holiday season. In addition, advertising revenue is generally higher during even numbered
years resulting from political advertising and advertising aired during the Olympic Games.



Recent Developments



Acquisitions and Station Agreements



On April 1, 2002, Mission entered into an SSA with a subsidiary of Nexstar to provide news production, technical maintenance and security for KODE, in exchange for monthly fees paid to Nexstar.



Mission entered into an SSA with KSNF, a
Nexstar-owned station in Joplin, Missouri, on April 1, 2002. As a result of the SSA with KSNF and the purchase of KODE, Mission was able to reduce overhead costs associated with operations at KODE. Based on the expectation of the cost reductions
through the SSA, Mission purchased KODE for an amount which resulted in the recognition of $0.4 million of goodwill. Mission obtained third-party valuations of certain acquired intangible assets.



On September 30, 2002, Bastet and Mission Broadcasting of
Joplin, Inc., a wholly owned subsidiary of Mission, merged into Mission with Mission as the surviving corporation. The reorganization has been accounted for as a combination of entities under common control in a manner similar to a pooling of
interests and, accordingly, the financial statements for all periods have been restated to reflect the exchange of shareholders interest.



On September 30, 2002, Mission acquired substantially all of the assets of KODE, the ABC-affiliated television station in Joplin,
Missouri, from GOCOM. Mission made a downpayment of $6.0 million against the purchase price on December 31, 2001 and paid the remaining $8.0 million upon the consummation of the acquisition on September 30, 2002, exclusive of transaction costs.



Historical Performance



Revenue



The following table sets forth the principal types of revenue
received by our stations for the periods indicated and each type of revenue (other than trade and barter) as a percentage of total gross revenue, as well as agency and national sales representative commissions:



|                                                     |  | Three Months Ended September 30,  |       | Nine Months Ended September 30,  
|---------------------------------------------------- |  | --------------------------------- | ----- | ---------------------------------
|                                                     |  | 2001                              |       | 2002                             
|                                                     |  | Amount                            |       | %                                
|                                                     |  | (Unaudited)(dollars in thousands) |       | (Unaudited)(dollars in thousands)
|Local                                                |  | $                                 | 777   |                                  
|National                                             |  |                                   | 861   |                                  
|Political                                            |  |                                   | 9     |                                  
|Network compensation                                 |  |                                   | 106   |                                  
|Other                                                |  |                                   | 19    |                                  
|                                                     |  |                                   |       |                                  
|Total gross revenue                                  |  |                                   | 1,772 |                                  
|Less: Agency and national representative commissions |  |                                   | 267   |                                  
|                                                     |  |                                   |       |                                  
|Net revenue                                          |  |                                   | 1,505 |                                  
|Trade and barter revenue                             |  |                                   | 307   |                                  
|Revenue from Nexstar Finance, L.L.C.                 |  |                                   | 472   |                                  
|                                                     |  |                                   |       |                                  
|Total net revenue                                    |  | $                                 | 2,284 |                                  
|                                                     |  |                                   |       |                                  



15



---



Results
of Operations



The following table sets
forth a summary of our operations for the periods indicated and their percentages of total net revenue:



|                                                                             |  | Three Months Ended September 30,   |       | Nine Months Ended September 30,   
|---------------------------------------------------------------------------- |  | ---------------------------------- | ----- | ----------------------------------
|                                                                             |  | 2001                               |       | 2002                              
|                                                                             |  | Amount                             |       |                                   
|                                                                             |  | (Unaudited) (dollars in thousands) |       | (Unaudited) (dollars in thousands)
|Total net revenue                                                            |  | $                                  | 2,284 |                                   
|Operating expenses:                                                          |  |                                    |       |                                   
|Direct operating expense, net of trade                                       |  |                                    | 176   |                                   
|Selling, general and administrative expense                                  |  |                                    | 429   |                                   
|Selling, general and administrative expenses paid to Nexstar Finance,
L.L.C. |  |                                    | 998   |                                   
|Trade and barter expense                                                     |  |                                    | 317   |                                   
|Depreciation and amortization                                                |  |                                    | 760   |                                   
|Amortization of broadcast rights, excluding barter                           |  |                                    | 189   |                                   
|                                                                             |  |                                    |       |                                   
|(Loss) income from operations                                                |  | $                                  | (585  | )                                 
|                                                                             |  |                                    |       |                                   



Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001



Net broadcast revenue for the three months ended September 30, 2002 was $3.1 million, an increase of $1.6 million, compared to $1.5
million for the three months ended September 30, 2001. Of this increase, $1.2 million was attributable to the net broadcast revenue generated by KODE under the time brokerage agreement.



Direct operating expenses and selling, general and administrative expenses, net of trade, for the three
months ended September 30, 2002 were $2.4 million, an increase of $0.8 million, compared to $1.6 million for the three months ended September 30, 2001. The increase in expenses was primarily attributable to the addition of station KODE, and
additional fees paid.



Amortization of broadcast
rights, excluding barter, for the three months ended September 30, 2002 was $0.5 million, compared to $0.2 million for the three month period ended September 30, 2001. Depreciation of property and equipment and amortization of intangible assets was
$0.8 million for the three months ended September 30, 2002, consistent with $0.8 million for the comparable period in 2001. Depreciation expense was up $0.1 million in 2002 due to a higher depreciable asset base of $1.8 million after the acquisition
of KODE. Amortization of intangible assets was down approximately $0.1 million as compared to the three months ended September 31, 2001 as the Company ceased amortization of indefinite-lived assets in 2002, including goodwill.



Loss from operations for the three months ended September 30,
2002 was $0.2 million as compared to loss from operations of $0.6 million for the three months ended September 30, 2001, a decrease in net loss of $0.4 million. The decrease in loss was primarily attributable to higher net revenues.



Interest expense, including amortization of debt financing
costs, for the three months ended September 30, 2002 was $0.7 million, compared to $0.8 million for the same period in 2001, a decrease of $0.1 million. The decrease was due to lower costs of funds.



As a result of the factors discussed above, our net loss was
$0.7 million for the three months ended September 30, 2002, compared to a net loss of $1.3 million for the same period in 2001, a decrease in net loss of $0.8 million.



Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30, 2001



Net broadcast revenue for the nine
months ended September 30, 2002 was $8.9 million, an increase of $4.1 million, compared to $4.8 million for the nine months ended September 30, 2001. Of this increase, $3.5 million was attributed to the net broadcast revenue generated by KODE under
the time brokerage agreement.



16



---



Direct
operating expenses and selling, general and administrative expenses, net of trade, for the nine months ended September 30, 2002 were $7.1 million, compared to $5.0 million in the same period in 2001, an increase of $2.1 million. The increase in
expenses was primarily attributable to the addition of station KODE and additional fees paid to Nexstar under the SSA.



Amortization of broadcast rights, excluding barter, for the nine months ended September 30, 2002 was $1.0 million, compared to $0.7
million for the nine months ended September 30, 2001, an increase of $0.3 million. Depreciation of property and equipment was $1.0 million for the nine months ended September 30, 2002, consistent with the same period in 2001. Amortization of
intangible assets was $0.8 million for the nine months ended 2002, as compared to $1.3 million for the nine months ended 2001. The decline in amortization expense was attributable to the Company ceasing amortization of indefinite-lived assets in
2002, including goodwill.



Income from operations
for the nine months ended September 30, 2002 was $0.4 million as compared to a loss of $1.5 million for the nine months ended September 30, 2001, an improvement of $1.9 million. Most of the increase in income from operations was due to the increase
in net revenues.



Interest expense, including
amortization of debt financing costs, for the nine months ended September 30, 2002 was $2.2 million, compared to $3.1 million for the same period in 2001. The decrease was due to a lower cost of funds and in January 2001, we wrote off $0.5 million
in debt financing costs, net of tax effect, as a result of refinancing our credit facility, with the $0.5 million included in 2001 interest expense.



As a result of the factors discussed above, our net loss was $1.7 million for the nine months ended September 30, 2002 compared to $4.9
million for the same period in 2001, a decrease in net loss of $3.2 million.



Liquidity and Capital Resources



As of September 30, 2002, cash and cash equivalents were $441 thousand compared to $15 thousand as of September 30, 2001.



Our primary sources of liquidity are cash flows from operating activities, including the timing of our payments to Nexstar, and the senior
credit facilities. Cash provided by operating activities were $0.6 million for the nine months ended September 30, 2002, compared to cash provided by operating activities of $0.8 million for the nine months ended September 30, 2001.



Cash used for investing activities was $8.2 million for the
nine months ended September 30, 2002, as compared to $0.3 million for the nine months ended September 30, 2001. Cash used for investing activities for the nine months ended September 30, 2002 was associated primarily with the purchase of KODE. Cash
used for investing activities for the nine months ended September 30, 2001 consisted of capital expenditures.



Cash provided by financing activities was $7.5 million for the nine months ended September 30, 2002, compared to cash used of $0.7 million
for the nine months ended September 30, 2001. The change in cash flows from financing activities for the nine months ended September 30, 2002 was the result of borrowings under the new senior credit facility of $7.5 million, primarily related to the
acquisition of KODE.



We are highly leveraged,
which makes us vulnerable to changes in general economic conditions. Our ability to repay or refinance our debt will depend on, among other things, financial, business, market, competitive and other conditions, many of which are beyond our control.
We believe that, taken together, our current cash balances, internally generated cash flow, availability under our credit facility, and continuation of the various service arrangements between Mission and Nexstar, should result in our having
adequate cash resources to meet our debt service and other financial obligations for at least the next twelve months.



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Senior
Credit Facility



On January 12, 2001,
Mission entered into a credit agreement (the Mission credit facility) with a group of commercial banks. The terms provided for the banks to make revolving loans to Mission, not to exceed the aggregate commitment of $43.0 million. On
November 14, 2001, the Mission credit facility was amended to increase the revolving facility to $58.0 million and add Mission Broadcasting of Joplin, Inc. as a borrower. The Mission credit facility was amended again on September 30, 2002 in order
to permit the merger of Bastet Broadcasting, Inc. and Mission Broadcasting of Joplin, Inc. into Mission. Nexstar has entered into a guarantor agreement whereby Nexstar guarantees full payment of any obligations outstanding in the event of
Missions default. Interest rates associated with the Mission credit facility are based, at the option of Mission, on the prevailing prime rate plus an applicable margin or the LIBOR rate plus an applicable margin, as defined (4.92% at December
31, 2002). Interest is fixed for a period ranging from one month to 12 months, depending on availability of the interest basis selected, except if Mission selects a prime-based loan, in which case the interest rate will fluctuate during the period
as the prime rate fluctuates. Interest is payable periodically based on the type of interest rate selected. In addition, Mission is required to pay quarterly commitment fees based on the leverage ratio of Mission and Nexstar on a consolidated basis
for that particular quarter on the unused portion of the Mission credit facility loan commitment.



We guarantee the senior credit facilities of Nexstar and Nexstar guarantees our debt. As of September 30, 2002, $81.7 million was
outstanding on the Nexstar facilities, with a maximum commitment of $149.0 million. Mission and Nexstar were in compliance with their covenants at September 30, 2002.



Guarantor of Senior Subordinated Notes



We are a guarantor of Nexstars $160.0 million 12%
Senior Subordinated Notes (the Notes). The Notes mature on April 1, 2008. Interest is payable every six months in arrears on April 1 and October 1. The Notes are general unsecured senior subordinated obligations, subordinated to all of
our and Nexstars senior debt.



Digital Conversion



FCC regulations required us to commence digital operations by May 1, 2002, in addition to continuing our analog operations, unless an extension of time was granted. We received an extension of time to begin digital operations for
stations KJTL and KODE stations until July, 2003. WYOU began digital operations in November 2002 and WFXP was not required to request an extension of time because the FCC has not yet issued a construction permit for WFXPs DTV operations. We
estimate the digital conversion will require an average initial capital investment of $0.2 million per station for low-power transmission of digital signal programming and an average additional capital expenditure of $0.7 million per station for
full-power transmission modifications. There were no expenditures for digital conversion for the nine months ended September 30, 2002. We anticipate that digital expenditures will be funded through available cash on hand and cash generated from
operations.



Off-Balance Sheet Arrangements



At September 30, 2002 and 2001, we did
not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose 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.



Recently Issued Accounting Standards



In July 2001, the FASB issued SFAS No. 141, Business
Combinations (SFAS No. 141), and SFAS No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). SFAS No. 141 prospectively prohibits the pooling of interest method of accounting for business combinations
initiated after June 30, 2001. SFAS No. 142



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requires companies to cease amortizing certain intangible assets including goodwill and FCC licenses. The amortization of existing goodwill
and FCC licenses resulting from acquisitions completed prior to June 30, 2001 ceased on December 31, 2001. Any goodwill and FCC licenses resulting from acquisitions completed after June 30, 2001 were not and will not be amortized. SFAS No. 142 also
establishes a new method of testing goodwill and FCC licenses for impairment on an annual basis or on an interim basis if an event occurs or circumstances change which would reduce the fair value of a reporting unit below its carrying value. The
test resulted in no impairment being identified.



In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS No. 145), which is effective for fiscal years
beginning after May 15, 2002. SFAS No. 145 rescinds SFAS No. 4 and SFAS No. 64, which addressed the accounting for gains and losses from extinguishment of debt. SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications that have
economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. SFAS No. 145 also makes technical corrections to certain existing pronouncements that are not substantive in nature. Mission
adopted SFAS No. 145 for the year ended December 31, 2002 and as a result has reclassified $0.5 million of extraordinary loss from refinancing of credit facility to interest expense for the year ended December 31, 2001.



Subsequent Events



On December 13, 2002, Mission entered into a local marketing
agreement with a subsidiary of LIN Television Corporation, the current owner of KRBC and KACB which are located in Abilene and San Angelo, Texas, pending the sale of the stations to Mission. The local marketing agreement commenced on January 1,
2003. Following FCC consent to the transaction, Mission will purchase substantially all of the assets of the stations for $10.0 million. Pursuant to the terms of the purchase agreement, Mission made a down payment of $1.5 million against the
purchase price in December 2002, which has been included in noncurrent assets as of December 31, 2002.



On February 13, 2003, Mission and Nexstar obtained new senior credit facilities. The facilities consist of a $185.0 million term loan (Nexstar $130.0
million and Mission $55.0 million) and an $80.0 million revolver (Nexstar $50.0 million and Mission $30.0 million). Mission used the proceeds from its facility to refinance its existing senior credit facility, pay related debt financing costs and
provide additional working capital. Financial covenants under the new senior credit facilities include a consolidated total leverage ratio of 7.25 times the last twelve months operating cash flow (as defined in the credit agreement) through March
30, 2004, a consolidated senior leverage ratio of 4.25 times the last twelve months operating cash through June 29, 2004 and a consolidated fixed charge coverage ratio of 1.10 to 1.00 through September 29, 2004. The term loans amortize at 1%
annually in years 2004 through 2009, with the remaining 94% due in 2010. The outstanding principal amount on the revolving loans mature on December 31, 2009. As of May 9, 2003, Mission had drawn $3.1 million on its revolver. The refinancing of the
existing senior credit facility resulted in a write-off for Mission, during the first quarter of 2003, of $1.1 million of debt financing costs that were capitalized at December 31, 2002.



On May 8, 2003, Mission entered into a TBA with Bahakel Communications relating to WBAK and simultaneously
entered into a purchase and sale agreement to acquire substantially all of the assets of WBAK, the Fox affiliate in Terre Haute, Indiana for $3.0 million. The TBA commenced on May 9, 2003. Pursuant to the terms of the TBA, Mission made a down
payment of $1.5 million against the purchase price, which was funded from Missions senior credit facilities. Additionally, Mission entered into an SSA with Nexstar, effective May 9, 2003, whereby Nexstar-owned WTWO will provide certain
services to WBAK including production, technical maintenance and security, among other services. Mission also entered into a JSA, effective May 9, 2003, whereby Nexstar-owned WTWO will purchase all the advertising time on WBAK and retain the
advertising revenue in return for payments to Mission of $100.0 thousand per month, subject to adjustment to assure that each payment equals Missions actual operating costs plus $10.0 thousand per month.



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 borrowings at September 30, 2002 under our senior secured
credit facility bear interest at the base rate, or LIBOR, plus the applicable margin, as defined (ranging from 5.29% to 5.32% at September 30, 2002). Interest is payable in accordance with the credit agreements.



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The following
table estimates the changes to cash flow from operations if interests rates were to fluctuate by 100 or 50 basis points, or bps (where 100 basis points represents one percentage point), in a twelve-month period:



|                       |  | Interest rate decrease |       | No change to interest rate |   | Interest rate increase
|---------------------- |  | ---------------------- | ----- | -------------------------- | - | ----------------------
|                       |  | 100 BPS                |       | 50 BPS                     |   |                       
|                       |  | (dollars in thousands)
|Senior credit facility |  | $                      | 2,381 |                            | $ | 2,650                 



Impact of Inflation



We believe that our results of operations are not dependent upon moderate changes in the inflation rate.



Item 4.    Controls And Procedures



(a)  Mission carried out an evaluation within 90 days prior to this report, under the supervision and with the participation of Missions management, including Missions
President and Treasurer (who is Missions principal executive officer and principal financial and accounting officer), of the effectiveness of the design and operation of Missions disclosure controls and procedures pursuant to Exchange
Act Rule 13a-14 under the Securities Exchange Act of 1934. Based upon that evaluation, Missions President and Treasurer concluded that Missions disclosure controls and procedures (1) are effective in timely alerting them to material
information relating to Mission required to be included in Missions periodic SEC filings and (2) are adequate to ensure that information required to be disclosed by Mission in the reports filed or submitted by Mission under the Securities
Exchange Act of 1934 is recorded, processed and summarized and reported within the time periods specified in the SECs rules and forms.



(b)  There have been no significant changes in Missions internal controls or in other factors which could significantly
affect internal controls subsequent to the date Mission carried out its evaluation.





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PART II



Item 1.    Legal Proceedings



None.



Item 2.    Changes in Securities and Use of Proceeds



None.



Item 3.    Defaults Upon Senior Securities



None.



Item 4.    Submission of Matters to a Vote of Securityholders



None.



Item 5.    Other Information



None.



Item 6.    Exhibits and Reports on Form 8-K



(a)  Exhibits



|Exhibit No. |  | Exhibit Index                                                                                                                                                                                                                                                                                                                                                                                                                               
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1        |  | Fifth Amendment to Credit Agreement and Limited Consent, dated as of September 30, 2002, among Bastet Broadcasting,
Inc., Mission Broadcasting of Wichita Falls, Inc., Mission Broadcasting of Joplin, Inc., the several banks named therein and Bank of America, N. A. (Incorporated by reference to Exhibit 10.37 to Amendment No. 2 to Registration Statement on Form S-1
(File No. 333-86994) filed by Nexstar Broadcasting Group, Inc.)
|           
|99.1        |  | Certification of David S. Smith pursuant to 18 U.S.C. § 1350.                                                                                                                                                                                                                                                                                                                                                                               



(b)  Reports on Form 8-K



None.



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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.





|May 28, 2003 |  | MISSION BROADCASTING, INC.                                                                                         
|------------ |  | -------------------------------------------------------------------------------------------------------------------
|By:          |  | /S/    DAVID S. SMITH                                                                                              
|             |  | David S. Smith President and Treasurer (Principal Executive
Officer and Principal Financial and Accounting Officer)





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I, David S. Smith, President and Treasurer (Principal Executive Officer and Principal Financial and Accounting Officer) of Mission Broadcasting, Inc., certify that:



1.    I have reviewed this quarterly report on Form 10-Q of Mission Broadcasting, Inc.;



2.    Based on my knowledge,
this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this quarterly report;



3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this quarterly report;



4.    I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and I have:



(a)  Designed such
disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly
report is being prepared;



(b)  Evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and



(c)  Presented in this quarterly
report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;



5.    I have disclosed, based on my most recent evaluation, to the registrants auditors and the audit committee
of the registrants board of directors (or persons performing the equivalent function):



(a)  All significant deficiencies in the design or operation of internal controls which could adversely affect
the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and



(b)  Any fraud, whether or not
material, that involves management or other employees who have a significant role in the registrants internal controls; and



6.    I have indicated in this quarterly report whether or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



Date: May 28, 2003



|By: |  | /S/    DAVID S.
SMITH                                                                                              
|--- |  | -------------------------------------------------------------------------------------------------------------------
|    |  | David S. Smith President and Treasurer (Principal Executive
Officer and Principal Financial and Accounting Officer)



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