##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-Q



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



for the quarterly period ended September 30, 2003



| ̈ | 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)



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|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)



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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 Exchange Act Rule 12b-2).     Yes ̈No  x



As of September 30, 2003,
Mission Broadcasting, Inc. had one shareholder, David S. Smith. Mr. Smith owned 1,000 shares of common stock at September 30, 2003.



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##### Table of Contents

TABLE OF CONTENTS



|           |  |                                                                                                                                               |  | Page
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|PART I     |  | FINANCIAL INFORMATION                                                                                                                         |  |     
|           |  |                                                                                                                                              
|ITEM 1.    |  | Financial Statements (Unaudited)                                                                                                              |  |     
|           |  |                                                                                                                                              
|           |  | Balance Sheets - December 31, 2002 and September 30, 2003                                                                                     |  | 1   
|           |  |                                                                                                                                              
|           |  | Statements of Operations for the three months and nine months ended September 30, 2002 and 2003                                               |  | 2   
|           |  |                                                                                                                                              
|           |  | Statements of Changes in Shareholders Deficit for the year ended December 31, 2002 and for the nine months ended September 30, 2002 and 2003 |  | 3   
|           |  |                                                                                                                                              
|           |  | Statements of Cash Flows for the nine months ended September 30, 2002 and 2003                                                                |  | 4   
|           |  |                                                                                                                                              
|           |  | Notes to Financial Statements                                                                                                                 |  | 5   
|           |  |                                                                                                                                              
|ITEM 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                         |  | 15  
|           |  |                                                                                                                                              
|ITEM 3.    |  | Quantitative and Qualitative Disclosures about Market Risk                                                                                    |  | 22  
|           |  |                                                                                                                                              
|ITEM 4.    |  | Controls and Procedures                                                                                                                       |  | 23  
|           |  |                                                                                                                                              
|PART II    |  | OTHER INFORMATION                                                                                                                             |  |     
|           |  |                                                                                                                                              
|ITEM 1.    |  | Legal Proceedings                                                                                                                             |  | 24  
|           |  |                                                                                                                                              
|ITEM 2.    |  | Changes in Securities and Use of Proceeds                                                                                                     |  | 24  
|           |  |                                                                                                                                              
|ITEM 3.    |  | Defaults Upon Senior Securities                                                                                                               |  | 24  
|           |  |                                                                                                                                              
|ITEM 4.    |  | Submission of Matters to a Vote of Security Holders                                                                                           |  | 24  
|           |  |                                                                                                                                              
|ITEM 5.    |  | Other Information                                                                                                                             |  | 24  
|           |  |                                                                                                                                              
|ITEM 6.    |  | Exhibits and Reports on Form 8-K                                                                                                              |  | 24  
|           | 
|SIGNATURES |  | 25                                                                                                                                           





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##### Table of Contents

PART I. FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



MISSION BROADCASTING, INC.



BALANCE SHEETS



|                                                                                                                                         |  | December 31, 2002      |         |   | September 30, 2003 |  
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ------------------ | -
|                                                                                                                                         |  | (Unaudited)            |        
|                                                                                                                                         |  | (dollars in thousands) |        
|ASSETS                                                                                                                                   |  |                        |         |   |                    |  
|Current assets:                                                                                                                          |  |                        |         |   |                    |  
|Cash and cash equivalents                                                                                                                |  | $                      | 503     |   |                    | $
|Accounts receivable, net of allowance for doubtful accounts of $55 and $186, respectively                                                |  |                        | 2,690   |   |                    |  
|Current portion of broadcast rights                                                                                                      |  |                        | 1,799   |   |                    |  
|Prepaid expenses and other current assets                                                                                                |  |                        | 13      |   |                    |  
|Taxes receivable                                                                                                                         |  |                        | 62      |   |                    |  
|                                                                                                                                         |  |                        |         |   |                    |  
|Total current assets                                                                                                                     |  |                        | 5,067   |   |                    |  
|Property and equipment, net                                                                                                              |  |                        | 5,759   |   |                    |  
|Broadcast rights                                                                                                                         |  |                        | 1,715   |   |                    |  
|Other noncurrent assets                                                                                                                  |  |                        | 1,569   |   |                    |  
|Goodwill, net                                                                                                                            |  |                        | 8,046   |   |                    |  
|Intangible assets, net                                                                                                                   |  |                        | 26,764  |   |                    |  
|                                                                                                                                         |  |                        |         |   |                    |  
|Total assets                                                                                                                             |  | $                      | 48,920  |   |                    | $
|                                                                                                                                         |  |                        |         |   |                    |  
|LIABILITIES AND SHAREHOLDERS DEFICIT                                                                                                    |  |                        |         |   |                    |  
|Current liabilities:                                                                                                                     |  |                        |         |   |                    |  
|Current portion of debt                                                                                                                  |  | $                      |        |   |                    | $
|Current portion of broadcast rights payable                                                                                              |  |                        | 2,024   |   |                    |  
|Accounts payable                                                                                                                         |  |                        | 44      |   |                    |  
|Accrued expenses                                                                                                                         |  |                        | 407     |   |                    |  
|Interest payable                                                                                                                         |  |                        | 80      |   |                    |  
|Deferred revenue                                                                                                                         |  |                        | 25      |   |                    |  
|Due to Nexstar Finance, L.L.C.                                                                                                           |  |                        | 6,801   |   |                    |  
|                                                                                                                                         |  |                        |         |   |                    |  
|Total current liabilities                                                                                                                |  |                        | 9,381   |   |                    |  
|                                                                                                                                         |  |                       
|Debt                                                                                                                                     |  |                        | 55,143  |   |                    |  
|Broadcast rights payable                                                                                                                 |  |                        | 2,047   |   |                    |  
|Deferred tax liabilities                                                                                                                 |  |                        |        |   |                    |  
|                                                                                                                                         |  |                        |         |   |                    |  
|Total liabilities                                                                                                                        |  |                        | 66,571  |   |                    |  
|                                                                                                                                         |  |                        |         |   |                    |  
|Commitments and contingencies (Note 10)                                                                                                  |  |                        |         |   |                    |  
|Minority interest in consolidated entity                                                                                                 |  |                        |        |   |                    |  
|                                                                                                                                         |  |                        |         |   |                    |  
|Shareholders deficit:                                                                                                                   |  |                        |         |   |                    |  
|Common stock, $1.00 par value; 1,000 shares authorized, issued and outstanding at December 31, 2002 and September 30, 2003,
respectively |  |                        | 1       |   |                    |  
|Subscription receivable                                                                                                                  |  |                        | (1      | ) |                    |  
|Accumulated deficit                                                                                                                      |  |                        | (17,651 | ) |                    |  
|                                                                                                                                         |  |                        |         |   |                    |  
|Total shareholders deficit                                                                                                              |  |                        | (17,651 | ) |                    |  
|                                                                                                                                         |  |                        |         |   |                    |  
|Total liabilities and shareholders deficit                                                                                              |  | $                      | 48,920  |   |                    | $
|                                                                                                                                         |  |                        |         |   |                    |  



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



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##### Table of Contents

MISSION BROADCASTING, INC.



STATEMENTS OF OPERATIONS



|                                                                                                                  |  | Three Months Ended September 30, |       |   | Nine Months Ended September 30, |  
|----------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ----- | - | ------------------------------- | -
|                                                                                                                  |  | 2002                             |       |   | 2003                            |  
|                                                                                                                  |  | (Unaudited)                      |       |   | (Unaudited)                     |  
|                                                                                                                  |  | (dollars in thousands)           |       |   | (dollars in thousands)          |  
|Revenue (excluding trade and barter)                                                                              |  | $                                | 3,650 |   |                                 | $
|Less: commissions                                                                                                 |  |                                  | (533  | ) |                                 |  
|                                                                                                                  |  |                                  |       |   |                                 |  
|Net broadcast revenue (excluding trade and barter)                                                                |  |                                  | 3,117 |   |                                 |  
|Trade and barter revenue                                                                                          |  |                                  | 337   |   |                                 |  
|Revenue from Nexstar Finance, L.L.C.                                                                              |  |                                  | 423   |   |                                 |  
|                                                                                                                  |  |                                  |       |   |                                 |  
|Total net revenue                                                                                                 |  |                                  | 3,877 |   |                                 |  
|                                                                                                                  |  |                                  |       |   |                                 |  
|Operating expenses:                                                                                               |  |                                  |       |   |                                 |  
|Direct operating expenses (exclusive of depreciation and amortization shown separately below)                     |  |                                  | 424   |   |                                 |  
|Selling, general, and administrative expenses (exclusive of depreciation and amortization shown separately below) |  |                                  | 841   |   |                                 |  
|Selling, general and administrative expenses paid to Nexstar Finance, L.L.C.                                      |  |                                  | 1,232 |   |                                 |  
|Amortization of broadcast rights                                                                                  |  |                                  | 738   |   |                                 |  
|Amortization of intangible assets                                                                                 |  |                                  | 358   |   |                                 |  
|Depreciation                                                                                                      |  |                                  | 411   |   |                                 |  
|                                                                                                                  |  |                                  |       |   |                                 |  
|Total operating expenses                                                                                          |  |                                  | 4,004 |   |                                 |  
|                                                                                                                  |  |                                  |       |   |                                 |  
|Income (loss) from operations                                                                                     |  |                                  | (127  | ) |                                 |  
|Interest expense, including amortization of debt financing costs                                                  |  |                                  | (714  | ) |                                 |  
|Interest income                                                                                                   |  |                                  | 2     |   |                                 |  
|Other income (expenses), net                                                                                      |  |                                  |      |   |                                 |  
|                                                                                                                  |  |                                  |       |   |                                 |  
|Loss before income taxes and minority interest in consolidated entity                                             |  |                                  | (839  | ) |                                 |  
|Income tax benefit (expense)                                                                                      |  |                                  | 99    |   |                                 |  
|Minority interest in consolidated entity                                                                          |  |                                  |      |   |                                 |  
|                                                                                                                  |  |                                  |       |   |                                 |  
|Net loss                                                                                                          |  | $                                | (740  | ) |                                 | $
|                                                                                                                  |  |                                  |       |   |                                 |  



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



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##### Table of Contents

MISSION BROADCASTING, INC.



STATEMENTS OF CHANGES IN SHAREHOLDERS DEFICIT



|                                          |  | Common Stock |  | Subscription Receivable |   |                        | Accumulated Deficit |    |   | Total ShareholdersDeficit |  
|----------------------------------------- |  | ------------ |  | ----------------------- | - | ---------------------- | ------------------- | -- | - | -------------------------- | -
|                                          |  | Shares       |  | Par Value               |   |                        |                    
|                                          |  |              |  |                         |   | (dollars in thousands) |                    
|Balance at January 1, 2002 (Unaudited)    |  | 1,000        |  | $                       | 1 |                        | $                   | (1 | ) |                            | $
|Net loss                                  |  |             |  |                         |  |                        |                     |   |   |                            |  
|                                          |  |              |  |                         |   |                        |                     |    |   |                            |  
|Balance at September 30, 2002 (Unaudited) |  | 1,000        |  |                         | 1 |                        |                     | (1 | ) |                            |  
|Net income                                |  |             |  |                         |  |                        |                     |   |   |                            |  
|                                          |  |              |  |                         |   |                        |                     |    |   |                            |  
|Balance at December 31, 2002 (Unaudited)  |  | 1,000        |  |                         | 1 |                        |                     | (1 | ) |                            |  
|Net loss                                  |  |             |  |                         |  |                        |                     |   |   |                            |  
|                                          |  |              |  |                         |   |                        |                     |    |   |                            |  
|Balance at September 30, 2003 (Unaudited) |  | 1,000        |  | $                       | 1 |                        | $                   | (1 | ) |                            | $
|                                          |  |              |  |                         |   |                        |                     |    |   |                            |  



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



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##### Table of Contents

MISSION BROADCASTING, INC.



STATEMENTS OF CASH FLOWS



|                                                                                |  | Nine Months Ended September 30, |       
|------------------------------------------------------------------------------- |  | ------------------------------- | ------
|                                                                                |  | 2002                            |       
|                                                                                |  | (Unaudited)                     |       
|                                                                                |  | (dollars in thousands)          |       
|Cash flows from operating activities:                                           |  |                                 |       
|Net loss                                                                        |  | $                               | (1,731
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                                 |       
|Deferred income taxes                                                           |  |                                 |      
|Depreciation of property and equipment                                          |  |                                 | 1,037 
|Amortization of intangible assets                                               |  |                                 | 775   
|Amortization of debt financing costs                                            |  |                                 | 154   
|Amortization of broadcast rights, excluding barter                              |  |                                 | 953   
|Payments for broadcast rights                                                   |  |                                 | (670  
|Loss (gain) on asset disposal, net                                              |  |                                 | 3     
|Minority interest in consolidated entity                                        |  |                                 |      
|Changes in assets and liabilities, net of acquisitions:                         |  |                                 |       
|Decrease (increase) in accounts receivable                                      |  |                                 | (673  
|Increase in prepaid expenses and other current assets                           |  |                                 | (109  
|Increase in tax receivable                                                      |  |                                 | (37   
|Increase in other noncurrent assets                                             |  |                                 |      
|Decrease in taxes payable                                                       |  |                                 | (1    
|Increase in accounts payable and accrued expenses                               |  |                                 | 1,475 
|Increase (decrease) in interest payable                                         |  |                                 | (161  
|Increase in deferred revenue                                                    |  |                                 | 45    
|Increase (decrease) in due to Nexstar Finance, L.L.C.                           |  |                                 | (499  
|                                                                                |  |                                 |       
|Net cash provided by operating activities                                       |  |                                 | 561   
|                                                                                |  |                                 |       
|Cash flows from investing activities:                                           |  |                                 |       
|Additions to property and equipment, net                                        |  |                                 | (112  
|Proceeds from sale of assets                                                    |  |                                 |      
|Acquisition of broadcast properties and related transaction costs               |  |                                 | (8,092
|Down payment on acquisition of stations                                         |  |                                 |      
|                                                                                |  |                                 |       
|Net cash used for investing activities                                          |  |                                 | (8,204
|                                                                                |  |                                 |       
|Cash flows from financing activities:                                           |  |                                 |       
|Proceeds from debt issuance                                                     |  |                                 |      
|Repayment of loans                                                              |  |                                 |      
|Proceeds from revolver draws                                                    |  |                                 | 7,500 
|Payments for debt finance costs                                                 |  |                                 |      
|                                                                                |  |                                 |       
|Net cash provided by financing activities                                       |  |                                 | 7,500 
|                                                                                |  |                                 |       
|Net increase (decrease) in cash and cash equivalents                            |  |                                 | (143  
|Cash and cash equivalents at beginning of period                                |  |                                 | 584   
|                                                                                |  |                                 |       
|Cash and cash equivalents at end of period                                      |  | $                               | 441   
|                                                                                |  |                                 |       



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



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##### Table of Contents

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 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 the acquisition of the stations assets, which closed on September 30, 2002.



On December 13, 2002, Mission entered into a local marketing agreement with
LIN Television Corporation and two of its subsidiaries, the owners of KRBC, the NBC affiliate in Abilene-Sweetwater, Texas, and KSAN (formerly KACB), the NBC affiliate in San Angelo, Texas, pending the sale of the stations to Mission, and
simultaneously entered into a purchase agreement to acquire the stations. Operations under the local marketing agreement commenced on January 1, 2003 and terminated upon purchase of the stations. On June 13, 2003, Mission purchased 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, and paid the remaining $8.5 million upon the consummation of the acquisition on June 13, 2003, exclusive of transaction costs. On June 13, 2003, Mission entered into a shared services agreement (SSA) with a subsidiary of
Nexstar Finance, L.L.C. (Nexstar) whereby Nexstars station, KTAB, provides news production, technical maintenance and security to KRBC and KSAN in exchange for monthly payments to Nexstar.



On May 8, 2003, Mission entered into a purchase agreement and a TBA with
Bahakel Communications and certain of its subsidiaries, the current owner of WBAK, the Fox affiliate in Terre Haute, Indiana. Operations under the TBA commenced on May 9, 2003 and will terminate upon the purchase of the station. Following FCC
consent to the transaction, Mission will purchase substantially all of the assets of WBAK for $3.0 million. Pursuant to the terms of the purchase agreement, on May 9, 2003, 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 may provide certain services to WBAK, including news production, technical
maintenance and security in exchange for monthly payments from Mission. Mission also entered into a joint sales agreement, effective May 9, 2003, whereby Nexstar-owned WTWO purchases all of the advertising time on WBAK and retains the advertising
revenue in return for payments to Mission.



Mission has entered
into various service agreements with subsidiaries of Nexstar (See Note 4). WFXP has a grandfathered 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.
We anticipate that the payments required by the SSA with 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 also granted Nexstar the right to sell and receive the revenue from the advertising time on KJTL and KJBO-LP in return for monthly payments to Mission. WYOU, KODE, KRBC, KSAN and WBAK each have an
SSA with Nexstar, and WBAK has a JSA with Nexstar, all of which have terms substantially similar to the terms of the SSA and JSA, as applicable, that KJTL and KJBO-LP have with Nexstar, except that the payment terms for the WYOU, KRBC and KSAN SSAs
provide for payment of a flat monthly fee. In order for both Nexstar and Mission to continue to comply with Federal Communications Commission (FCC) regulations, Mission must maintain complete responsibility for and control over
programming, finances, personnel and operations of its stations.



In addition to providing certain services to Missions television stations, Nexstar is also the guarantor of Missions debt (See Note 6). Mission is a guarantor of the senior credit facilities entered into and the senior
subordinated notes issued by Nexstar (See Note 6 and Note 9).



The shareholder of Mission has granted to Nexstar a purchase option 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 or loss from operations, plus depreciation
and amortization (including amortization of broadcast rights), interest income, noncash trade and barter expenses, nonrecurring expenses (including time brokerage agreement fees), network compensation payments received or receivable and corporate
management fees, less payments for broadcast rights, noncash trade and barter revenue and network compensation revenue. These option agreements are freely exercisable or assignable by Nexstar without consent of or approval by Missions
shareholder.



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MISSION BROADCASTING, INC.



NOTES TO FINANCIAL STATEMENTS(Continued)



1. Organization and Business Operations  (Continued)



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 (U.S. GAAP) while complying with the FCCs rules regarding ownership limits in television
markets. The Company retains control over policies, programming, personnel, finances, advertisements and operations of its stations.



Television broadcasting is subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended (the Communications Act).
The Communications Act prohibits the operation of television broadcasting stations, except under a license issued by the FCC, and empowers the FCC, among other things, to issue, revoke, and modify broadcasting licenses, determine the location of
television stations, regulate the equipment used by television stations, adopt regulations to carry out the provisions of the Communications Act and impose penalties for the violation of such regulations.



The Company is highly leveraged and dependent on its relationships with
Nexstar. This makes the Company highly vulnerable to changes in general economic conditions. The Companys ability to repay or refinance its debt will depend on, among other things, financial, business, market, competitive and other conditions,
many of which are beyond the control of the Company. The Company believes that, taken together, its current cash balances, internally generated cash flow, availability under its credit facilities, and continuation of the various arrangements between
Mission and Nexstar should result in the Company having adequate cash resources to meet its debt service and other financial obligations for at least the next twelve months.



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 interests. Collectively, Mission owns and operates the following television stations: WYOU, WFXP, KODE, KJTL, KJBO-LP, KRBC and KSAN (formerly KACB). In addition, Mission provides most of the programming
for WBAK, pursuant to a TBA.



The financial statements as of
September 30, 2003 and for the three months and nine months ended September 30, 2002 and 2003 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 U.S. GAAP and pursuant to the rules and regulations of the Securities and Exchange Commission. The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and
expenses during the period. Actual results could differ from those estimates. Results of operations for interim periods are not necessarily indicative of results for the full year. The financial statements should be read in conjunction with the
financial statements and related notes included in the Companys Annual Report on Form 10-K for the year ended December 31, 2002. The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date, but
does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.



Certain prior year amounts have been reclassified to conform to the current year presentation, which have not impacted reported results. Unless otherwise
noted, all dollars are in thousands.



Trade Transactions



The Company trades certain advertising time for
various goods and services. These transactions are recorded at the estimated fair value of the goods or services received. Revenue from trade transactions is recognized when advertisements are broadcast and services or merchandise received are
charged to expense or capitalized when received or used. The Company recorded $0.1 million of trade revenue for both the three months ended September 30, 2003 and 2002, respectively, and $0.4 million and $0.3 million of trade revenue for the nine
months ended September 30, 2003 and 2002, respectively.



Broadcast Rights and Broadcast Rights Payable, Cash and Barter



Broadcast rights, primarily in the form of syndicated programs and feature movie packages, are initially recorded at the amount paid or payable to program suppliers for the limited right to broadcast the
suppliers programming and are recorded when the following



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##### Table of Contents

MISSION BROADCASTING, INC.



NOTES TO FINANCIAL STATEMENTS(Continued)



2. Summary of Significant Accounting Policies  (Continued)



criteria are met: 1) the cost of each program is known or reasonably determinable, 2) the
license period must have begun, 3) the program material has been accepted in accordance with the license agreement, and 4) the programming is available for use. Broadcast rights are stated at the lower of unamortized cost or net realizable value.
Amortization is computed using the straight-line method based on the license period or usage, whichever yields the greater expense. The current portion of broadcast rights represents those rights available for broadcast which will be amortized in
the succeeding year.



The Company barters advertising time for
certain program material. These transactions, except those involving exchange of advertising time for network programming, are recorded at managements estimate of the value of the advertising time exchanged, which approximates the fair value
of the program material received. The value of advertising time exchanged is estimated by applying average historical advertising rates for specific time periods. The Company recorded $0.3 million of barter revenue for both the three months ended
September 30, 2003 and 2002, respectively, and $0.9 million and $0.7 million of barter revenue for the nine months ended September 30, 2003 and 2002, respectively. The Company recorded $0.4 million and $0.3 million of trade and barter expense for
the three months ended September 30, 2003 and 2002, respectively, and $1.1 million and $0.9 million of trade and barter expense for the nine months ended September 30, 2003 and 2002, respectively.



Intangible Assets



Intangible assets include FCC licenses, network affiliation agreements, and
goodwill. On January 1, 2002, the Company adopted Statement of Financial Accounting Standards 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 July 1, 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.



As required by SFAS No. 142, the Company completed a transitional impairment test for goodwill and FCC licenses as of January 1, 2002. No impairment of goodwill or FCC licenses resulted from this test. As of September
30, 2003, the Company did not identify any events that triggered any impairment assessment.



An impairment assessment of goodwill and FCC licenses could be triggered by a significant reduction in operating results or cash flows at one or more of the Companys television stations, or a forecast of such
reductions, a significant adverse change in the advertising marketplaces in which the Companys television stations operate, or by adverse changes to FCC ownership rules, among others.



Long-Lived Assets



The Company periodically evaluates the net realizable value of long-lived
assets, including tangible and intangible assets, relying on a number of factors including operating results, business plans, economic projections and anticipated future cash flows. An impairment in the carrying value of an asset is recognized when
the expected future operating cash flow derived from the asset is less than its carrying value.



3. Acquisitions



The
Company made the acquisitions set forth below, which have been accounted for under the purchase method and, accordingly, the purchase price was allocated to assets acquired and liabilities assumed based on their estimated fair value on the
acquisition date. The financial statements include the operating results of the business from the date of acquisition.



KODE



On December 31, 2001, Mission entered into a TBA with GOCOM and simultaneously entered into a purchase agreement to acquire substantially all of the
assets of KODE for $14.0 million. Pursuant to the terms of the purchase 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, exclusive of transaction costs. KODE is the ABC-affiliated television station in Joplin, Missouri. The acquisition has been accounted for under the purchase method and, accordingly, the purchase price was allocated
to assets and liabilities acquired based on their estimated fair value on the acquisition date. The TBA was terminated upon the closing of the acquisition, and non-recurring TBA fees in the amount of $0.1 million and $0.3 million, respectively, are
included in the accompanying financial statements of the Company for the three months and nine months and ended September 30, 2002.



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MISSION BROADCASTING, INC.



NOTES TO FINANCIAL STATEMENTS(Continued)



3. Acquisitions  (Continued)



On April 1, 2002, Mission entered into an SSA with KSNF, a Nexstar-owned station in the Joplin, Missouri market. 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, excluding 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
|------------------------------------- |  | ---------------------
|                                      |  | (in millions)        
|Broadcast rights                      |  | $                    
|Property 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. The $0.7 million of goodwill is expected to be deductible for tax purposes.



KRBC and KSAN



On December 13, 2002, Mission entered into a purchase agreement and a local marketing agreement with LIN Television Corporation and two of its
subsidiaries, the owners of KRBC, the NBC affiliate in Abilene-Sweetwater, Texas, and KSAN (formerly KACB), the NBC affiliate in San Angelo, Texas. Operations under the local marketing agreement commenced on January 1, 2003 and terminated upon the
purchase of the stations. On June 13, 2003, Mission purchased 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, and paid the remaining $8.5 million upon the consummation of the acquisition on June 13, 2003, exclusive of transaction costs. The acquisition has been accounted
for under the purchase method and, accordingly, the purchase price was allocated to assets and liabilities acquired based on their estimated fair value on the acquisition date.



On June 13, 2003, Mission entered into an SSA with KTAB, a Nexstar-owned station in the Abilene-Sweetwater, Texas market,
whereby KTAB provides news production, technical maintenance and security for KRBC and KSAN. As a result of the SSA with KTAB, Mission should be able to reduce overhead costs associated with operations at KRBC and KSAN.



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



|                                      |  | At June 13, 2003
|------------------------------------- |  | ----------------
|                                      |  | (in millions)   
|Accounts receivable                   |  | $               
|Broadcast rights                      |  |                 
|Property and equipment                |  |                 
|Intangible assets                     |  |                 
|Goodwill, including transaction costs |  |                 
|                                      |  |                 
|Total assets acquired                 |  |                 
|Less: accounts payable                |  |                 
|Less: broadcast rights payable        |  |                 
|                                      |  |                 
|Net assets acquired                   |  | $               
|                                      |  |                 



Of the $4.0 million of
acquired intangible assets, $2.1 million was assigned to FCC licenses that are not subject to amortization and $1.7 million was assigned to network affiliation agreements (useful life of 15 years). The remaining $0.2 million of acquired intangible
assets have a useful life of approximately 1 year. Goodwill of $0.3 million is expected to be deductible for tax purposes.



8



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MISSION BROADCASTING, INC.



NOTES TO FINANCIAL STATEMENTS(Continued)



3. Acquisitions(Continued)



The selected unaudited pro forma information for the three months and nine months ended September 30, 2002 and 2003
determined as if the acquisitions, described above, had occurred on January 1, of each year is as follows:



|                                                   |  | Three Months Ended September 30, 2002 |       |   | Three Months Ended September 30, 2003 |  
|-------------------------------------------------- |  | ------------------------------------- | ----- | - | ------------------------------------- | -
|                                                   |  | As Reported                           |       |   | Pro Forma                             |  
|                                                   |  | (Unaudited)                           |       |   | (Unaudited)                           |  
|Net broadcast revenue (excluding trade and barter) |  | $                                     | 3,117 |   |                                       | $
|Total net revenue                                  |  |                                       | 3,877 |   |                                       |  
|Loss from operations                               |  |                                       | (127  | ) |                                       |  
|Net loss                                           |  | $                                     | (740  | ) |                                       | $



|                                                   |  | Nine Months Ended September 30, 2002 |        |   | Nine Months Ended September 30, 2003 |  
|-------------------------------------------------- |  | ------------------------------------ | ------ | - | ------------------------------------ | -
|                                                   |  | As Reported                          |        |   | Pro Forma                            |  
|                                                   |  | (Unaudited)                          |        |   | (Unaudited)                          |  
|Net broadcast revenue (excluding trade and barter) |  | $                                    | 8,912  |   |                                      | $
|Total net revenue                                  |  |                                      | 11,312 |   |                                      |  
|Income (loss) from operations                      |  |                                      | 483    |   |                                      |  
|Net loss                                           |  | $                                    | (1,731 | ) |                                      | $



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 stations been combined during
the specified periods.



4. Related Party Transactions



Time Brokerage Agreements, Shared Services Agreements, and Joint Sales
Agreements



Mission has agreements in place with
subsidiaries of Nexstar in seven markets: Erie, Pennsylvania; Wichita Falls, Texas-Lawton, Oklahoma; Wilkes Barre-Scranton, Pennsylvania; Joplin, Missouri-Pittsburg, Kansas; Abilene-Sweetwater, Texas; San Angelo, Texas and Terre Haute, Indiana.



| |  | In Erie, Pennsylvania, Mission and Nexstar are parties to an amended TBA dated as of April 1, 1996, which expires on August 16, 2006 and may be renewed for one term of five years
with 90 days notice. This agreement allows Nexstar to program most of WFXPs broadcast time, sell the stations advertising time and retain the advertising revenue, in return for monthly payments to Mission.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In Wichita Falls, Texas-Lawton, Oklahoma, Mission and Nexstar are parties to an SSA dated as of June 1, 1999, which has an initial term of ten years. Under this agreement, Mission
agreed with Nexstar to share the costs of certain services that Nexstars station, KFDX, and Missions stations, KJTL and KJBO-LP, individually incur. These shared services include news production, technical maintenance and security, among
other services, but do not include the services of senior management personnel, programming or sales. In consideration of certain services provided to KJTL and KJBO-LP by Nexstar personnel, Mission pays Nexstar a monthly service fee, calculated
based on the cash flow of KJTL and KJBO-LP.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In Wichita Falls, Texas-Lawton, Oklahoma, Mission and Nexstar are also parties to an agreement for the sale of commercial time dated as of June 1, 1999, which has an initial term of
ten years. Under this JSA, Nexstar sells the advertising time on KJTL and KJBO-LP and retains the advertising revenue, in return for payments to Mission of $0.1 million per month, which may be adjusted according to Missions expenses.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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MISSION BROADCASTING, INC.



NOTES TO FINANCIAL STATEMENTS(Continued)



4. Related Party Transactions(Continued)



| |  | In Wilkes Barre-Scranton, Pennsylvania, Mission and Nexstar are parties to an SSA dated as of January 5, 1998, which has an initial term of ten years. The terms of this agreement
are substantially similar to the terms of Missions SSA with Nexstar for KJTL and KJBO-LP and provides for the parties to share the costs of certain services that Nexstars station, WBRE, and Missions station, WYOU, otherwise would
separately incur. In consideration of the services provided by Nexstar personnel, Mission pays Nexstar a flat monthly fee.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Also in Wilkes Barre-Scranton, Pennsylvania, Mission and Nexstar have a joint sales agreement for the sale of commercial time for WYOU dated as of June 30, 2003, the term of which
will begin only at the later of (a) the 10thday after Nexstars written notice to us and (b) the satisfaction
of certain requirements, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, or HSR Act. The terms of this agreement are substantially similar to the terms of our joint sales agreements in Wichita Falls and Terre Haute.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | As described in Note 3, in Joplin, Missouri-Pittsburg, Kansas, 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 closing date of the acquisition was September 30, 2002.
The TBA was terminated upon the closing of the transaction.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In Joplin, Missouri, 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 Nexstar personnel, Mission pays Nexstar a monthly service fee calculated based on the cash flows of KODE.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Also in Joplin, Missouri-Pittsburg, Kansas, Mission and Nexstar have a joint sales agreement for the sale of commercial time for KODE dated as of June 30, 2003, the term of which
will begin only at the later of (a) the 10thday after Nexstars written notice to us and (b) the satisfaction
of certain requirements, if any, under the HSR act. The terms of this agreement are substantially similar to the terms of our joint sales agreements in Wichita Falls and Terre Haute.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | As described in Note 3, in Abilene-Sweetwater and San Angelo, Texas, Mission entered into a local marketing agreement dated December 13, 2002 with LIN Television Corporation, and
two of its subsidiaries, the owners of KRBC and KSAN (formerly KACB). Operations under the local marketing agreement commenced on January 1, 2003 and terminated upon the closing of the acquisition on June 13, 2003 (See Note 3).
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On June 13, 2003, Mission entered into an SSA with Nexstar, which has an initial term of ten years, whereby its station, KTAB, provides news production, technical maintenance and
security for KRBC and KSAN. In consideration for the services provided by Nexstar personnel, Mission pays Nexstar a flat monthly fee.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Also in Abilene-Sweetwater and San Angelo, Texas, Mission and Nexstar have a joint sales agreement for the sale of commercial time for KRBC and KSAN dated as of June 30, 2003, the
term of which will begin only at the later of (a) the 10thday after Nexstars written notice to us and (b) the
satisfaction of certain requirements, if any, under the HSR act. The terms of this agreement are substantially similar to the terms of our joint sales agreements in Wichita Falls and Terre Haute.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On May 8, 2003, Mission entered into a time brokerage agreement with Bahakel Communications and certain of its subsidiaries relating to WBAK and simultaneously entered into a
purchase agreement to acquire substantially all of the assets of WBAK, the Fox affiliate in Terre Haute, Indiana, for $3.0 million. Operations under the time brokerage agreement commenced on May 9, 2003 and will terminate upon the purchase of the
station. Pursuant to the terms of the purchase agreement, on May 9, 2003, Mission made a down payment of $1.5 million against the purchase price, which was funded from Missions senior credit facilities.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Mission entered into a shared services agreement with Nexstar, effective May 9, 2003, whereby Nexstar-owned WTWO may provide certain services to WBAK including news production,
technical maintenance and security in exchange for monthly payments from Mission. Mission also entered into a joint sales agreement, effective May 9, 2003, whereby Nexstar-owned WTWO purchases all of the advertising time on WBAK and retains the
advertising revenue in return for payments to Mission of $0.1 million per month, which may be adjusted according to Missions expenses. The initial term of these agreements is ten years. The acquisition is expected to close in the fourth
quarter of 2003, subject to FCC consent. Mission has evaluated its arrangement with Bahakel Communications under Financial Accounting Standards Board (FASB) Interpretation No. 46, Consolidation of Variable Interest Entities, an
interpretation of Accounting Research Bulletin No. 51 (FIN No. 46). Mission has determined that it is the primary beneficiary of WBAK and has therefore consolidated the financial position and results of operations of WBAK since May
9, 2003. Therefore, pursuant to FIN No. 46, Bahakels ownership is currently reflected as minority interest in these financial statements.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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MISSION BROADCASTING, INC.



NOTES TO FINANCIAL STATEMENTS(Continued)



4. Related Party Transactions(Continued)



Under these agreements, Mission is responsible for certain operating expenses of the respective stations (except for WBAK)
and therefore may have unlimited exposure to any potential operating losses. The Company will continue to operate the stations under the time brokerage, shared services and joint sales agreements until the termination of such agreements. The shared
services and joint sales agreements generally have a term of ten years. Termination of the time brokerage agreements typically occurs on consummation of the acquisitions of the stations. Mission indemnifies the owner of WBAK from and against all
liability and claims arising out of or resulting from Missions activities, acts or omissions in connection with the WBAK agreements. The maximum potential amount of future payments the Company could be required to make for such indemnification
is undeterminable at this time. Nexstar also indemnifies Mission for Nexstars activities pursuant to the various shared services and joint sales agreements.



Management Agreement



Mission, David S. Smith and Nancie J. Smith, the wife of David S. Smith, are parties to a management compensation agreement. Under this agreement,
Mission pays David S. Smith up to $0.2 million per year for certain management services and pays Nancie J. Smith by the hour for certain management services.



5. Intangible Assets and Goodwill



|                                                   |  | Estimated useful life (years) |  | December 31, 2002 |        |   | September 30, 2003 |  
|-------------------------------------------------- |  | ----------------------------- |  | ----------------- | ------ | - | ------------------ | -
|                                                   |  |                               |  | (Unaudited)       |        |   | (Unaudited)        |  
|Network affiliation agreements                     |  | 15                            |  | $                 | 16,396 |   |                    | $
|FCC licenses                                       |  | indefinite                    |  |                   | 12,606 |   |                    |  
|Debt financing costs                               |  | term of debt                  |  |                   | 1,477  |   |                    |  
|Other intangible assets                            |  | 1-15                          |  |                   | 2,542  |   |                    |  
|                                                   |  |                               |  |                   |        |   |                    |  
|                                                   |  |                               |  |                   | 33,021 |   |                    |  
|Less: accumulated amortization                     |  |                               |  |                   | (6,257 | ) |                    |  
|                                                   |  |                               |  |                   |        |   |                    |  
|Intangible assets, net of accumulated amortization |  |                               |  |                   | 26,764 |   |                    |  
|Goodwill                                           |  | indefinite                    |  |                   | 8,046  |   |                    |  
|                                                   |  |                               |  |                   |        |   |                    |  
|Intangible assets and goodwill, net                |  |                               |  | $                 | 34,810 |   |                    | $
|                                                   |  |                               |  |                   |        |   |                    |  



Total amortization
expense from definite-lived intangibles (excluding debt financing costs) for the year ended December 31, 2002 and nine months ended September 30, 2003 was $1.3 million and $1.7 million, respectively. 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 intangibles, excluding goodwill, at December 31, 2002 and September 30, 2003 was $10.7 million and $14.5 million, respectively. The use of an indefinite life for FCC licenses contemplates the Companys historical ability to
renew its 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.



6. Debt



Senior Secured Credit Facilities



On January 12, 2001, Mission entered into a credit agreement with a group of
commercial banks. The terms provided for the banks to provide 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. 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.



On February 13, 2003, Mission obtained new senior secured credit facilities (the Mission credit facilities). The Mission credit facilities
consist of a $55.0 million term loan and a $30.0 million revolver. Mission used the proceeds from the loans to refinance its existing senior secured credit facility, pay related debt financing costs and provide additional working capital. Financial
covenants under



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MISSION BROADCASTING, INC.



NOTES TO FINANCIAL STATEMENTS(Continued)



6. Debt(Continued)



the Mission credit facilities include a total consolidated leverage ratio of Mission and Nexstar of 7.25 times the last twelve months
operating cash flow (as defined in the credit agreement) through March 30, 2004 and a consolidated senior leverage ratio of 4.25 times the last twelve months operating cash through June 29, 2004. Covenants also include, without limitation, an
interest coverage ratio of 1.50 to 1.00 through June 29, 2004 and a fixed charge coverage ratio of 1.10 to 1.00 through September 29, 2004. The term loan amortizes 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 September 30, 2003, Mission had drawn $55.0 million on its term loan and $12.2 million under its revolver. Interest rates associated with the Mission credit
facilities are based, at the option of Mission, on (i) the higher of the prevailing prime rate or the Federal Funds Rate plus 0.50% plus an applicable margin or (ii) LIBOR plus an applicable margin, as defined in the credit agreement (ranging
from 3.87% to 4.38% at September 30, 2003). 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 on the unused portion of the Mission
revolver loan commitment based on the consolidated leverage ratio of Mission and Nexstar for that particular quarter. The Mission term loan is subject to scheduled mandatory repayments, and the Mission revolver is subject to scheduled mandatory
commitment reductions commencing in 2004. Also, Nexstar has entered into a guarantor agreement, whereby Nexstar guarantees full payment of any obligations outstanding in the event of Missions default.



The refinancing of the senior credit facility for Mission resulted in the
writeoff during the first quarter of 2003 of $1.1 million of certain debt financing costs capitalized at December 31, 2002. The amount is included in interest expense.



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 facilities approximates their carrying value.



Mission guarantees the senior credit facilities of Nexstar, which have a maximum commitment of $180.0 million. As of September 30, 2003, $130.0 million was outstanding under Nexstars senior credit facilities.



Debt Covenants



The bank debt agreement described above contains covenants which require the
Company to comply with certain financial ratios, capital expenditures, cash film payments and other limits. The Company was in compliance with all such covenants at September 30, 2003.



7. Common Stock



The Company is 100% owned by one shareholder, David S. Smith. As of December 31, 2002 and September 30, 2003, the Company has authorized, issued and
outstanding 1,000 shares of common stock with a $1.00 par value. 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.



8.
Income Taxes



The Companys income tax expense for
the nine months ended September 30, 2002 was $47 thousand, compared to the income tax expense for the nine months ended September 30, 2003 of $0.6 million. The Companys effective tax rate was 2.8% for the nine months ended September 30, 2002
as compared to the effective tax rate of 16.7% for the nine months ended September 30, 2003. The significant differences from the statutory rate and the effective tax rate for the nine months ended September 30, 2003 include an increase in the
valuation allowance and state taxes, net of the federal benefit.



9.
Guarantee



On March 16, 2001, Nexstar issued $160.0
million of 12.0% senior subordinated notes (the Notes). The Notes mature on April 1, 2008. The Notes are guaranteed by all of the domestic existing and future restricted subsidiaries of Nexstar and by Mission. The maximum amount of
potential liability is $160.0 million at September 30, 2003.



12



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MISSION BROADCASTING, INC.



NOTES TO FINANCIAL STATEMENTS(Continued)



10. Commitments and Contingencies



Digital Conversion



All of the Companys stations currently are operating in compliance with FCC regulations regarding broadcasting digital signals. The Company is
currently working with Bahakel Communications to initiate low power digital facilities for WBAK, which has at least until March 2004 to begin digital operations. The Companys purchase of WBAK is expected to close during the fourth quarter of
2003, pending FCC consent. We estimate the digital conversion will require an average additional capital expenditure of $0.7 million per station to modify the transmitter for full-power digital signal transmission. Expenditures for digital
conversion were $0.7 million for the nine months ended September 30, 2003.



Guarantor Arrangements



In November 2002, the FASB issued Interpretation No. 45 Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN No. 45). FIN No. 45
requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken by issuing the guarantee. FIN No. 45 also requires additional disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under certain guarantees it has issued. The accounting requirements for the initial recognition of guarantees are applicable on a prospective basis for guarantees issued or modified after December
31, 2002. The disclosure requirements are effective for all guarantees outstanding, regardless of when they were issued or modified, during the first quarter of fiscal 2003. The adoption of FIN No. 45 did not have a material effect on the
accompanying financial statements. The following is a summary of the Companys agreements that have been determined to be within the scope of FIN No. 45.



The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies,
holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is
unlimited. The Company believes the estimated fair value of these agreements is minimal. Accordingly, there are no liabilities recorded for these agreements as of December 31, 2002 and September 30, 2003.



In connection with most of the Companys acquisitions, the Company
enters into local service agreements for specified periods of time, usually six months or less, whereby the Company indemnifies the owner and operator of the television station, their employees, agents and contractors from liability, claims, and
damages arising from the Companys activities of operating the television station under such agreements. The maximum potential amount of future payments the Company could be required to make for such obligations is undeterminable at this time.
The Company has not incurred any costs to defend lawsuits or settle claims related to these indemnification agreements.



Litigation



From time to time, the Company is involved with claims that arise out of the normal course of its business. In the opinion of management, any resulting
liability with respect to these claims would not have a material adverse effect on the Companys financial position or results of operations.



11. Recently Issued Accounting Standards



On April 30, 2003, the FASB issued FASB statement No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities
(SFAS No. 149). SFAS No. 149 amends and clarifies the accounting guidance on (1) derivative instruments (including certain derivative instruments embedded in other contracts) and (2) hedging activities that fall within the scope of FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133). SFAS No. 149 amends SFAS No. 133 and certain other existing pronouncements, which will result in more consistent reporting of
contracts that are derivative in their entirety or that contain embedded derivatives that warrant separate accounting. SFAS No. 149 is effective (1) for contracts entered into or modified after June 30, 2003, with certain exceptions, and (2) for
hedging relationships designated after June 30, 2003. The guidance is to be applied prospectively.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity
(SFAS 150). This statement addresses financial accounting and reporting for financial instruments with characteristics of both liabilities and equity and is effective at the beginning of the first interim period beginning after June 12,
2003.



The adoption of these new standards by the Company did
not have a significant accounting impact.



13



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MISSION BROADCASTING, INC.



NOTES TO FINANCIAL STATEMENTS(Continued)



12. Subsequent Events



On September 12, 2003, Mission entered into purchase agreements with VHR Broadcasting, Inc. and its affiliates, or VHR, for
the purchase of television stations KOLR, KHMT and KAMC, and with Mission Broadcasting of Amarillo, Inc. for the purchase of television stations KCIT and KCPN. In the fourth quarter of 2003, it is expected that VHR will merge with and into two
affiliates of Mission of Amarillo, and then Mission of Amarillo and such affiliates will merge with and into Mission. These transactions require FCC consent, which is pending. Currently Quorum Broadcast Holdings, LLC (Quorum) provides
management, sales or other services to KOLR, KHMT, KAMC, KCIT and KCPN under local service agreements with VHR and Mission of Amarillo, as applicable, that are substantially similar to Nexstars local service agreements with us. On September
12, 2003, Nexstar Broadcasting Group, L.L.C. signed a definitive agreement to acquire all of the subsidiaries of Quorum. Upon the completion of the Quorum acquisition and the Mission mergers, Nexstar will become a party to these local service
agreements as successor to the Quorum subsidiaries, and Mission will become a party to such agreements as the successor to Mission of Amarillo and VHR. Mission will also enter into new option agreements with Nexstar for the purchase of these
stations.



Nexstar plans to issue $125.0 million of senior
subordinated notes (the New Notes) during the fourth quarter of 2003. The New Notes are expected to be guaranteed by all of the domestic existing and future subsidiaries of Nexstar and by Mission. The maximum amount of potential
liability of the New Notes is expected to be $125.0 million upon issuance.



Mission plans to amend its senior secured credit facilities during the fourth quarter of 2003. The new facilities are expected to consist of a $140.0 million term loan and a $30.0 million revolver. Mission anticipates
using the proceeds to refinance its existing senior secured credit facilities, pay for related debt financing costs and finance the acquisition of television stations KOLR, KAMC, KCIT, KCPN and KHMT. The amendments to the Mission senior secured
credit facilities are expected to result in the write off of approximately $0.9 million of debt financing costs during the fourth quarter of 2003.



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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 balance sheet as of September 30, 2003, unaudited statements of
operations and other unaudited financial statements for the three months and nine months ended September 30, 2002 and 2003 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, revenue, financial performance, liquidity and capital resources or other financial items; any assumptions or projections
about the television broadcasting industry; any statements of our plans, strategies and objectives for our future operations, performance, liquidity and capital resources or other financial items; any statements concerning proposed new products,
services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words
may, will, should, could, would, predicts, potential, continue, expects, anticipates, future, intends,
plans, believes, estimates and other similar words.



Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ from this projection or assumption in any of our forward-looking statements. Our
future financial position and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties, including those described in Missions Annual Report on Form 10-K for the year ended
December 31, 2002. The forward-looking statements 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.



We make references throughout our
Managements Discussion and Analysis of Financial Condition and Results of Operations to comparisons on a same station basis in order to provide a more meaningful comparison of annual growth from internal operations
which may be masked by growth from acquisitions. These comparisons refer to stations that we have owned at the beginning and end of a particular period. In particular, references to a comparison on a same station basis for the three months and nine
months ended September 30, 2003, versus the three months and nine months ended September 30, 2002 include the following stations: WYOU, WFXP, KJTL and KJBO-LP. As used in the report, unless the context indicates otherwise, Mission refers
to Mission Broadcasting, Inc., including Mission Broadcasting of Joplin, Inc. (Mission of Joplin) and Bastet Broadcasting, Inc. (Bastet) as if the merger had taken place on January 1, 2002; and all references to
we, our, and us refer to Mission.



Introduction



We own and operate the following
television stations: WYOU, WFXP, KODE, KJTL, KJBO-LP, KRBC and KSAN (formerly KACB). In addition, we program television station WBAK pursuant to a time brokerage agreement. We have various local service agreements with subsidiaries of Nexstar
Finance, L.L.C. (Nexstar), through which Nexstar provides various management, sales or other services to our television stations. In order for both Nexstar and us to continue to comply with FCC regulations, we must maintain complete
responsibility for and control over programming, finances, personnel and operations of our stations.



We have the following local service agreements with Nexstar:



| |  | WFXP has a time brokerage agreement (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 us.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | KJTL and KJBO-LP have a shared services agreement (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 us as described in the shared services agreement. Through a joint sales agreement (JSA), we have also 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. The arrangements under these agreements have had the effect of Nexstar receiving substantially all of the available cash, after payment of debt service
costs, generated by KJTL and KJBO-LP. We anticipate that we will continue to receive substantially all of the available cash, after payment of debt service costs, generated by KJTL and KJBO-LP under these agreements.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Each of WYOU, KODE, KRBC, KSAN and WBAK has an SSA with Nexstar, and WBAK has a JSA with Nexstar, which have terms substantially similar to the terms of the SSA and JSA with KJTL
and KJBO-LP, except that the payment terms under the SSAs for WYOU, KRBC and KSAN provide for payment of a flat monthly fee.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Each of WYOU, KODE, KRBC and KSAN has a JSA with Nexstar, the terms of which will begin only at the later of (a) the 10thday after Nexstars written notice to us and (b) the satisfaction of requirements, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of
1976. The terms of these JSAs are substantially similar to the terms of Nexstars JSAs with KJTL, KJBO-LP and WBAK.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



Our shareholder has granted to Nexstar a purchase option 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 as defined in the option agreement less the amount of its indebtedness as defined in the option agreement or (2) the amount of its indebtedness. These option agreements are freely exercisable or
assignable by Nexstar without consent or approval by our shareholder.



The operating revenue of WYOU, KODE, KRBC and KSAN is derived primarily from advertising revenue, which in turn depends 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 revenue of KJTL, KJBO-LP, WBAK and WFXP is derived primarily from Nexstars payments to us under the local service agreements. Our primary operating expenses consist of commissions on advertising revenue,
employee compensation and related benefits 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. Each of NBC, CBS and ABC compensates our affiliated stations for distributing the networks programming over the air and for allowing the network to keep a portion of advertising inventory
during those time periods. The affiliation agreements with Fox and UPN do not provide for compensation. Each station acquires licenses to broadcast programming in non-news and non-network time periods. The licenses are either purchased from a
program distributor for cash or the program distributor is allowed to sell some of the advertising 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 stations 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 revenue is 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 revenue, declines in advertising budgets, particularly in recessionary periods, adversely affect
the broadcast industry, and as a result may contribute to a decrease in the revenue of broadcast television stations.



Most advertising contracts are short-term and generally run for a few weeks. Excluding political revenue, 65.2% and 67.1% of our spot revenue for the nine
months ended September 30, 2002 and 2003, respectively, was generated from local advertising. 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 provides for representation outside the particular stations market. National commission rates vary within the industry and are governed by each stations agreement. All national and political revenue is derived
from advertisements placed by advertising agencies. The agencies receive a commission rate of 15.0% of 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.



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 as a result of political advertising and advertising
aired during the Olympic Games.



Acquisitions and Station Agreements



The acquisitions and local service agreements
described below, which were entered into by us during the fiscal year ended December 31, 2002 and the nine months ended September 30, 2003 affect the year-to-year comparability of the operating results discussed in this Quarterly Report on Form
10-Q:



| |  | On December 31, 2001, we entered into a TBA with GOCOM Broadcasting of Joplin, L.L.C. to provide certain programming to and to sell the advertising time of KODE, the ABC affiliate
in Joplin, Missouri. As provided by the TBA, the revenue and operating expenses, excluding depreciation and amortization, are included in our results of operations effective December 31, 2001. Simultaneously, we entered into a purchase agreement to
purchase substantially all of the stations assets for $14.0 million. The acquisition was closed on September 30, 2002.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  | On April 1, 2002, we entered into an SSA with a subsidiary of Nexstar pursuant to which Nexstar provides news production, technical maintenance and security for KODE, in exchange
for monthly fees paid to Nexstar.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On December 13, 2002, we entered into a purchase agreement and a local marketing agreement with LIN Television Corporation and two of its subsidiaries, the owners of KRBC, the NBC
affiliate in Abilene-Sweetwater, Texas and KSAN (formerly KACB), the NBC affiliate in San Angelo, Texas. Operations under the local marketing agreement commenced on January 1, 2003 and terminated upon the purchase of the stations. On June 13, 2003,
we purchased substantially all of the assets of the stations for $10.0 million. Pursuant to the terms of the purchase agreement, we made a down payment of $1.5 million against the purchase price in December 2002 and paid the remaining $8.5 million
upon the consummation of the acquisition on June 13, 2003, exclusive of transaction costs. On June 13, 2003 we entered into an SSA with KTAB, a Nexstar-owned station in the Abilene-Sweetwater, Texas, market, whereby KTAB provides news production,
technical maintenance and security for KRBC and KSAN.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On May 8, 2003, we entered into a purchase agreement and a TBA with Bahakel Communications and certain of its subsidiaries, the current owner of WBAK, the Fox affiliate in Terre
Haute, Indiana. Operations under the TBA commenced on May 9, 2003 and will terminate upon the purchase of the station. Following FCC consent to the transaction, we will purchase substantially all of the assets of WBAK for $3.0 million. Pursuant to
the terms of the purchase agreement, on May 9, 2003, we made a down payment of $1.5 million against the purchase price, which was funded from our senior credit facilities. Additionally, we entered into an SSA with Nexstar, effective May 9, 2003,
whereby Nexstar-owned WTWO may provide certain services to WBAK, including news production, technical maintenance and security in exchange for monthly payments from us. We also entered into a joint sales agreement, effective May 9, 2003, whereby
Nexstar-owned WTWO purchases all of the advertising time on WBAK and retains the advertising revenue in return for payments to us.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Recent Developments



On September 30, 2002, Bastet and Mission of Joplin 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 February 13, 2003, we obtained new senior secured credit facilities. The
facilities consist of a $55.0 million term loan and a $30.0 million revolver. We used the proceeds from the loans to refinance our existing senior secured credit facility, pay for related debt financing costs and provide additional working capital.
Financial covenants under the new senior secured credit facilities include a total consolidated leverage ratio of Nexstar and us of 7.25 times the last twelve months operating cash flow (as defined in the credit agreement) through March 30, 2004 and
a consolidated senior leverage ratio of 4.25 times the last twelve months operating cash flow (as defined in the credit agreement) through June 29, 2004. Covenants also include, without limitation, an interest coverage ratio of 1.50 to 1.00 through
June 29, 2004 and a fixed charge coverage ratio of 1.10 to 1.00 through September 29, 2004. The term loan amortizes 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.



On September 12, 2003,
Mission entered into purchase agreements with VHR Broadcasting, Inc. and its affiliates, or VHR, for the purchase of television stations KOLR, KHMT and KAMC, and with Mission Broadcasting of Amarillo, Inc. for the purchase of television stations
KCIT and KCPN. In the fourth quarter of 2003, it is expected that VHR will merge with and into two affiliates of Mission of Amarillo, and then Mission of Amarillo and such affiliates will merge with and into Mission. These transactions require FCC
consent, which is pending. Currently Quorum Broadcast Holdings, LLC (Quorum) provides management, sales or other services to KOLR, KHMT, KAMC, KCIT and KCPN under local service agreements with VHR and Mission of Amarillo, as applicable,
that are substantially similar to Nexstars local service agreements with us. On September 12, 2003, Nexstar Broadcasting Group, L.L.C. signed a definitive agreement to acquire all of the subsidiaries of Quorum. Upon the completion of the
Quorum acquisition and the Mission mergers, Nexstar will become a party to these local service agreements as successor to the Quorum subsidiaries, and Mission will become a party to such agreements as the successor to Mission of Amarillo and VHR.
Mission will also enter into new option agreements with Nexstar for the purchase of these stations.



Nexstar plans to issue $125.0 million of senior subordinated notes (the New Notes) during the fourth quarter of 2003. The New Notes are
expected to be guaranteed by all of the domestic existing and future subsidiaries of Nexstar and by Mission. The maximum amount of potential liability of the New Notes is expected to be $125.0 million upon issuance.



Mission plans to amend its senior secured credit facilities during the fourth
quarter of 2003. The new facilities are expected to consist of a $140.0 million term loan and a $30.0 million revolver. Mission anticipates using the proceeds to refinance its existing senior secured credit facilities, pay for related debt financing
costs and finance the acquisition of television stations KOLR, KAMC, KCIT, KCPN and KHMT. The amendments to the Mission senior secured credit facilities are expected to result in the write off of approximately $0.9 million of debt financing costs
during the fourth quarter of 2003.



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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, and revenue from Nexstar Finance, L.L.C.) 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,
|---------------------------------------------------- |  | -------------------------------- | ----- | -------------------------------
|                                                     |  | 2002                             |       | 2003                           
|                                                     |  | Amount                           |       | %                              
|                                                     |  | (dollars in thousands)           |       | (dollars in thousands)         
|Local                                                |  | $                                | 1,844 |                                
|National                                             |  |                                  | 1,031 |                                
|Political                                            |  |                                  | 528   |                                
|Network compensation                                 |  |                                  | 237   |                                
|Other                                                |  |                                  | 10    |                                
|                                                     |  |                                  |       |                                
|Total gross revenue                                  |  |                                  | 3,650 |                                
|Less: Agency and national representative commissions |  |                                  | 533   |                                
|                                                     |  |                                  |       |                                
|Net broadcast revenue                                |  |                                  | 3,117 |                                
|Trade and barter revenue                             |  |                                  | 337   |                                
|Revenue from Nexstar Finance, L.L.C.                 |  |                                  | 423   |                                
|                                                     |  |                                  |       |                                
|Total net revenue                                    |  | $                                | 3,877 |                                
|                                                     |  |                                  |       |                                



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,
|---------------------------------------------------------------------------- |  | -------------------------------- | ----- | -------------------------------
|                                                                             |  | 2002                             |       | 2003                           
|                                                                             |  | Amount                           |       |                                
|                                                                             |  | (dollars in thousands)           |       | (dollars in thousands)         
|Total net revenue                                                            |  | $                                | 3,877 |                                
|Operating expenses:                                                          |  |                                  |       |                                
|Direct operating expenses, net of trade                                      |  |                                  | 359   |                                
|Selling, general and administrative expenses                                 |  |                                  | 841   |                                
|Selling, general and administrative expenses paid to Nexstar Finance, L.L.C. |  |                                  | 1,232 |                                
|Trade and barter expense                                                     |  |                                  | 328   |                                
|Depreciation and amortization                                                |  |                                  | 769   |                                
|Amortization of broadcast rights, excluding barter                           |  |                                  | 475   |                                
|                                                                             |  |                                  |       |                                
|Income (loss) from operations                                                |  | $                                | (127  | )                              
|                                                                             |  |                                  |       |                                



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Three Months Ended September 30, 2003 Compared to Three Months Ended September 30, 2002.



Net broadcast revenue for the three months ended
September 30, 2003 was $3.9 million, an increase of $0.8 million, compared to $3.1 million for the three months ended September 30, 2002. Of this increase, $0.9 million was attributable to the stations acquired or for which a local service agreement
was entered into after January 1, 2002. On a same station basis, net broadcast revenue was $1.8 million for the three months ended September 30, 2003 as compared to $1.9 million for the same period in 2002.



Direct operating expenses, consisting primarily of news, engineering and
programming, and selling, general and administrative expenses, net of trade, for the three months ended September 30, 2003 were $3.4 million, an increase of $1.0 million, compared to $2.4 million for the three months ended September 30, 2002. This
increase was attributable to the stations acquired or for which a local service agreement was entered into after January 1, 2002. On a same station basis, direct operating expenses and selling, general and administrative expenses, net of trade, were
$1.5 million for both the three months ended September 30, 2003 and 2002, respectively.



Amortization of broadcast rights, excluding barter, for the three months ended September 30, 2003 was $0.4 million, relatively flat compared to $0.5 million for the three month period ended September 30, 2002.



Depreciation of property and equipment and amortization of
intangible assets for the three months ended September 30, 2003 was $1.1 million, an increase of $0.3 million, compared to $0.8 million for the three months ended September 30, 2002. The increase was attributable to the stations acquired after
January 1, 2002.



Loss from operations for the three months
ended September 30, 2003 was $0.3 million as compared to $0.1 million for the three months ended September 30, 2002. Of the $0.2 million increase in loss from operations, $0.4 million was attributable to stations acquired after January 1, 2002. On a
same station basis, income from operations was $18 thousand for the three months ended September 30, 2003 as compared to a loss from operations of $0.2 million for the same period in 2002.



Interest expense, including amortization of debt financing costs, for the
three months ended September 30, 2003 was $0.8 million, compared to $0.7 million for the three months ended September 30, 2002. The increase was due to an increase of debt to fund the acquisitions of KODE, KRBC and KSAN, partially offset by lower
cost of funds.



The minority interest of $0.2 million for the
three months ended September 30, 2003 relates to the recognition of $0.2 million of expenses due to the application of Financial Accounting Standards Board (FASB) Interpretation No. 46, Consolidation of Variable Interest Entities,
an interpretation of Accounting Research Bulletin No. 51 (FIN No. 46) as it pertains to the local service arrangement we have with WBAK (see Note 4 of the financial statements).



As a result of the factors discussed above, our net loss was $1.0 million for
the three months ended September 30, 2003, compared to $0.7 million for the same period in 2002, an increase in net loss of $0.3 million.



Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30, 2002.



Net broadcast revenue for the nine months ended September 30, 2003 was $11.2 million, an increase of $2.3 million, compared
to $8.9 million for the nine months ended September 30, 2002. Of this increase, $2.2 million was attributable to the stations acquired or for which a local service agreement was entered into after January 1, 2002. On a same station basis, net
broadcast revenue was $5.5 million for the nine months ended September 30, 2003 as compared to $5.4 million for the same period in 2002.



Direct operating expenses, consisting primarily of news, engineering and programming, and selling, general and administrative expenses, net of trade, for
the nine months ended September 30, 2003 were $9.7 million, an increase of $2.6 million, compared to $7.1 million for the nine months ended September 30, 2002. Of this increase, $2.9 million was attributable to the stations acquired or for which a
local service agreement was entered into after January 1, 2002, offset by $0.3 million of reductions in direct operating expenses at stations owned longer than one year. On a same station basis, direct operating expenses and selling, general and
administrative expenses, net of trade, were $4.4 million for the nine months ended September 30, 2003 as compared to $4.7 million for the same period in 2002, a decrease of $0.3 million, or 5.7%, which resulted primarily from the full impact of cost
reductions in the Joplin, Missouri market.



Amortization of
broadcast rights, excluding barter, was $1.0 million for both the nine months ended September 30, 2003 and 2002, respectively.



Depreciation of property and equipment and amortization of intangible assets for the nine months ended September 30, 2003 was $2.9 million, an increase of
$1.1 million, compared to $1.8 million for the nine months ended September 30, 2002. The increase was attributable to the stations acquired after January 1, 2002.



Loss from operations for the nine months ended September 30, 2003 was $0.6 million as compared to income from operations of
$0.5 million for the nine months ended September 30, 2002. Of the $1.1 million decline in income from operations, $1.7 million was attributable to stations acquired after January 1, 2002. On a same station basis, income from operations was $0.2
million for the nine months ended September 30, 2003 as compared to a loss from operations of $0.4 million for the same period in 2002.



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Interest expense, including amortization of debt financing costs, for the nine months ended September 30,
2003 was $3.3 million, compared to $2.2 million for the same period in 2002. The increase was due to the write-off during the first quarter of 2003 of $1.1 million of debt financing costs that resulted from the refinancing of the existing senior
credit facility and an increase in debt to fund the acquisitions of KODE, KRBC and KSAN, partially offset by lower cost of funds.



The minority interest of $0.3 million for the nine months ended September 30, 2003 relates to the recognition of $0.3 million of expenses due to the
application of FIN No. 46 as it pertains to the local service arrangement we have with WBAK (see Note 4 of the financial statements).



As a result of the factors discussed above, our net loss was $4.1 million for the nine months ended September 30, 2003, compared to $1.7 million for the
same period in 2002, an increase in net loss of $2.4 million.



Liquidity and
Capital Resources



As of September 30, 2003, cash and cash
equivalents were $1.1 million, compared to $0.4 million as of September 30, 2002. 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 flows provided by operating activities were $1.1 million
for the nine months ended September 30, 2003, compared to $0.6 million for the nine months ended September 30, 2002. The comparative increase in cash flows provided by operations of $0.5 million is primarily due to the timing of payments made or
received on operating assets and liabilities.



Cash flows used
for investing activities were $11.1 million for the nine months ended September 30, 2003, compared to $8.2 million for the nine months ended September 30, 2002. Cash flows used for investing activities for the nine months ended September 30, 2003
included the remaining $8.5 million payment for the acquisition of KRBC and KSAN, a down payment of $1.5 million against the purchase price of WBAK, and ongoing capital expenditures. We expect to pay the remaining $1.5 million purchase price for
WBAK during the fourth quarter of 2003. Cash flows used for investing activities for the nine months ended September 30, 2002 included the remaining $8.0 million payment for the acquisition of KODE and ongoing capital expenditures.



Cash flow provided by financing activities were $10.5 million for the nine
months ended September 30, 2003, compared to $7.5 million for the nine months ended September 30, 2002. The change in cash flows from financing activities for the nine months ended September 30, 2003 was primarily the result of (1) borrowings under
the senior credit facilities of $67.2 million, (2) the repayment of $55.1 million of previous borrowings as a result of the refinancing of the senior credit facility on February 13, 2003, and (3) the payment of debt financing costs of approximately
$1.5 million. The change in cash flows from financing activities for the nine months ended September 30, 2002 was the result of borrowings under the senior credit facilities of $7.5 million. As of September 30, 2003, there was approximately $17.9
million of unused commitments under the senior credit facilities, all of which could be drawn in compliance with the financial covenants under the senior credit facilities. We were in compliance with all covenants contained in the credit agreements
governing our senior credit facilities at September 30, 2003. Our credit agreement was refinanced in February 2003 as a result of our pending acquisitions. The terms of the amended credit facilities are described below.



Senior Secured Credit Facilities



On January 12, 2001, we entered into a credit agreement (the credit
facility) with a group of commercial banks. The terms provided for the banks to make revolving loans to us, not to exceed the aggregate commitment of $43.0 million. On November 14, 2001, the credit facility was amended to increase the
revolving facility to $58.0 million. The credit facility was amended again on September 30, 2002 in order to permit the merger of Bastet and Mission of Joplin into Mission.



On February 13, 2003, we obtained new senior secured credit facilities (the new credit facilities). The new
credit facilities consist of a $55.0 million term loan and a $30.0 million revolver. We used the proceeds from the loans to refinance our existing senior secured credit facility, pay related debt financing costs and provide additional working
capital. Financial covenants under the new credit facilities include a total consolidated leverage ratio of Nexstar and us of 7.25 times the last twelve months operating cash flow (as defined in the credit agreement) through March 30, 2004 and a
consolidated senior leverage ratio of 4.25 times the last twelve months operating cash flow through June 29, 2004. Covenants also include, without limitations, an interest coverage ratio of 1.50 to 1.00 through June 29, 2004 and a fixed charge
coverage ratio of 1.10 to 1.00 through September 29, 2004. The term loan amortizes 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 September 30, 2003, we had drawn $55.0 million on our term loan and $12.2 million under our revolver. Interest rates associated with the new credit facilities are based, at our option, on (i) the higher of the prevailing prime rate or the Federal
Funds Rate plus 0.50% plus an applicable margin or (ii) LIBOR plus an applicable margin, as defined in the credit agreement (ranging from 3.87% to 4.38% at September 30, 2003). Interest is fixed for a period ranging from one month to 12 months,
depending on availability of the interest basis selected, except if we select 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, we are required to pay quarterly commitment fees on the unused portion of the revolver loan commitment based on the consolidated leverage ratio of Nexstar and us for



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that particular quarter. The term loan is subject to scheduled mandatory repayments, and the revolver is subject to scheduled mandatory commitment reductions
commencing in 2004. Additionally, Nexstar has entered into a guarantor agreement, whereby Nexstar guarantees full payment of any obligations outstanding in the event of our default.



The refinancing of our senior credit facility resulted in the write-off during the first quarter of 2003 of $1.1 million of
certain debt financing costs capitalized at December 31, 2002.



Based on borrowing rates currently available to us for bank loans with similar terms and average maturities, the fair value of the credit facilities approximates their carrying value.



We guarantee the senior credit facilities of Nexstar, which have a maximum
commitment of $180.0 million. As of September 30, 2003, $130.0 million was outstanding under Nexstars senior credit facilities.



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. Based on current operations and anticipated future growth, we believe that, taken together, our current cash balances,
internally generated cash flow, availability under our credit facilities, and continuation of the various arrangements between us 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.



Debt
Covenants



The bank debt agreement contains covenants
which require us to comply with certain financial ratios, capital expenditures, cash film payments and other limits. We and Nexstar were in compliance with all such covenants at September 30, 2003.



Guarantor of Senior Subordinated Notes



We are 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 our and
Nexstars senior debt.



Nexstar plans to issue $125.0
million of New Notes during the fourth quarter of 2003. The New Notes are expected to be guaranteed by all of the domestic existing and future subsidiaries of Nexstar and by us. The New Notes are general unsecured senior subordinated obligations,
subordinated to all of our and Nexstars senior debt.



Digital Conversion



All of the
Companys stations currently are operating in compliance with FCC regulations regarding broadcasting digital signals. The Company is currently working with Bahakel Communications to initiate low power digital facilities for WBAK, which has at
least until March 2004 to begin digital operations. The Companys purchase of WBAK is expected to close during the fourth quarter of 2003, pending FCC consent. We estimate the digital conversion will require an average additional capital
expenditure of $0.7 million per station to modify the transmitter for full-power digital signal transmission. Expenditures for digital conversion were $0.7 million for the nine months ended September 30, 2003.



Contractual Obligations



The following summarized our contractual obligations at September 30, 2003, and the effect such obligations are expected to
have on our liquidity and cash flow in future periods:



|                                           |  | Total |         | 2003 |   | 2004 - 2005 |  | 2006 - 2007 |        | Thereafter
|------------------------------------------ |  | ----- | ------- | ---- | - | ----------- |  | ----------- | ------ | ----------
|Senior credit facilities                   |  | $     | 67,150  |      | $ |            |  | $           | 1,100  |           
|Cash interest on debt                      |  |       | 24,318  |      |   | 1,450       |  |             | 7,474  |           
|Broadcast rights current obligations       |  |       | 2,112   |      |   | 311         |  |             | 1,630  |           
|Broadcast rights future commitments        |  |       | 590     |      |   | 423         |  |             | 144    |           
|Capital commitments for digital television |  |       | 137     |      |   | 137         |  |             |       |           
|WBAK purchase price obligation             |  |       | 1,500   |      |   | 1,500       |  |             |       |           
|Operating lease obligations                |  |       | 7,283   |      |   | 107         |  |             | 750    |           
|                                           |  |       |         |      |   |             |  |             |        |           
|Total contractual cash obligations         |  | $     | 103,090 |      | $ | 3,928       |  | $           | 11,098 |           
|                                           |  |       |         |      |   |             |  |             |        |           



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We have a remaining commitment of $1.5 million relating to our purchase of WBAK that we expect to pay at
closing in the fourth quarter of 2003, pending FCC consent.



We
do not have any rating downgrade triggers that would accelerate the maturity dates of our debt. However, a downgrade in our credit rating could adversely affect our ability to renew existing, or obtain access to, new credit facilities in the future
and could increase the cost of such facilities.



Critical Accounting
Policies and Estimates



Claims and Legal Proceedings



In the normal course of business, we are party to
various claims and legal proceedings. We record a reserve for these matters when an adverse outcome is probable and we can reasonably estimate our potential liability. Although the ultimate outcome of these matters is currently not determinable, we
do not believe that the resolution of these matters in a manner adverse to our interests will have a material effect upon our financial condition, results of operations or cash flows for an interim or annual period.



Recently Issued Accounting Standards



On April 30, 2003, the FASB issued FASB statement No. 149, Amendment
of Statement 133 on Derivative Instruments and Hedging Activities (SFAS No. 149). SFAS No. 149 amends and clarifies the accounting guidance on (1) derivative instruments (including certain derivative instruments embedded in other
contracts) and (2) hedging activities that fall within the scope of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133). SFAS No. 149 amends SFAS No. 133 and certain other
existing pronouncements, which will result in more consistent reporting of contracts that are derivative in their entirety or that contain embedded derivatives that warrant separate accounting. SFAS No. 149 is effective (1) for contracts entered
into or modified after June 30, 2003, with certain exceptions, and (2) for hedging relationships designated after June 30, 2003. The guidance is to be applied prospectively.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity (SFAS 150). This statement addresses financial accounting and reporting for financial instruments with characteristics of both liabilities and equity and is effective at the beginning of the first interim
period beginning after June 12, 2003.



The adoption of these
new standards by us did not have a significant accounting impact.



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, 2003 under our senior secured credit
facilities bear interest at the base rate, or LIBOR, plus the applicable margin, as defined (ranging from 3.87% to 4.38% at September 30, 2003). Interest is payable in accordance with the credit agreements.



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 |       |        |   | Interest rate increase    
|------------------------ |  | ---------------------- | ----- | ------ | - | --------------------------
|                         |  | 100 BPS                |       | 50 BPS |   | No change to interest rate
|                         |  | (dollars in thousands)
|Senior credit facilities |  | $                      | 2,119 |        | $ | 2,455                     



Impact of
Inflation



We believe that our results of operations
are not significantly impacted by moderate changes in the inflation rate.



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ITEM 4. CONTROLS AND PROCEDURES



(a) Mission carried out an evaluation as of the end of the period covered by 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-15(d) 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) were effective in alerting him timely to material information relating to Mission required to be
included in Missions periodic SEC filings and (2) were 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 control over financial reporting identified in connection with the evaluation described in paragraph (a) above, that have materially affected or
are reasonably likely to materially affect, the Companys internal control over financial reporting.



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PART II



ITEM 1. LEGAL PROCEEDINGS



Not
applicable.



ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS



Not applicable.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



Not applicable.



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



Not applicable.



ITEM 5. OTHER INFORMATION



Not
applicable.



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



a. Exhibits



|ExhibitNo. |  | Exhibit                                                                                                                              
|---------- |  | -------------------------------------------------------------------------------------------------------------------------------------
|           | 
|31.1       |  | Certification of David S. Smith pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                           
|           | 
|32.1       |  | Certification of David S. Smith pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



b.
Reports on Form 8-K.



(1) Current Report of Form 8-K filed by
Mission Broadcasting, Inc. on July 11, 2003, disclosing the consummation of Missions acquisition of KRBC and KSAN.



(2) Current Report on Form 8-K/A filed by Mission Broadcasting, Inc. on September 5, 2003, amending the Current Report on Form 8-K filed by Mission
Broadcasting, Inc. on July 11, 2003, disclosing the consummation of Missions acquisition of KRBC and KSAN, to include financial statements for the businesses acquired and pro forma financial information.



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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.



MISSION BROADCASTING, INC./S/

DAVID S. SMITHBy:

David S. SmithIts:

President and Treasurer(Principal Executive Officer andPrincipal Financial and Accounting Officer)




Dated: November 14, 2003



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