UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

~~Washington~~WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~March~~June 3130, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 333-62916-02

MISSION BROADCASTING, INC.

(Exact Name of Registrant as Specified in ~~Its~~its Charter)

Delaware		51-0388022
(State of Incorporation or Organization)		(I.R.S. Employer Identification No.)
30400 Detroit Road, Suite 304, Westlake, Ohio		44145
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (440) 526-2227

~~(Registrant’s~~Former ~~Telephone~~name, ~~Number~~former address and former fiscal year, ~~Including~~if ~~Area~~changed ~~Code)~~since last report:

~~Indicate~~Securities byregistered ~~check~~pursuant ~~mark whether the registrant: (1) has filed all reports required~~ to ~~be filed by~~ Section ~~13 or 15~~12(db) 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 ☐ No ☒

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

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 the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Note: The registrant is a voluntary filer and is not subject to the filing requirements. However, the registrant 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.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☐ Emerging growth company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the ~~Registrant~~registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

~~Securities~~As ~~registered~~of ~~pursuant~~August to12, ~~Section~~2019, ~~12(b)~~the Registrant had 1,000 shares of ~~the~~common ~~Act:~~stock outstanding, held by two shareholders.

Title of each class Trading Symbol(s) Name of each exchange on which registered Not Applicable Not Applicable Not Applicable

As of May 9, 2019, the Registrant had 1,000 shares of common stock outstanding, held by two shareholders.

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION
ITEM 1.	Financial Statements (Unaudited)
	Condensed Balance Sheets as of March 31, 2019 and December 31, 2018	1
	Condensed Balance Sheets as of June 30, 2019 and December 31, 2018	1
	Condensed Statements of Operations for the three months ended March 31, 2019 and 2018	2
	Condensed Statements of Operations for the three and six months ended June 30, 2019 and 2018	2
	Condensed Statements of Changes in Shareholders' Deficit for the three months ended March 31, 2019 and 2018	3
	Condensed Statements of Changes in Shareholders' Deficit for the three and six months ended June 30, 2019 and 2018	3
	Condensed Statements of Cash Flows for the three months ended March 31, 2019 and 2018	4
	Condensed Statements of Cash Flows for the six months ended June 30, 2019 and 2018	4
	Notes to Condensed 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	2223
ITEM 4.	Controls and Procedures	2223
PART II	OTHER INFORMATION
ITEM 1.	Legal Proceedings	2324
ITEM 1A.	Risk Factors	2324
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2324
ITEM 3.	Defaults Upon Senior Securities	2324
ITEM 4.	Mine Safety Disclosures	2324
ITEM 5.	Other Information	2324
ITEM 6.	Exhibits	2324

PART I. FINANCIAL INFORMATION

ITEM 1.

Financial Statements

MISSION BROADCASTING, INC.

CONDENSED BALANCE SHEETS

(in thousands, except for share and per share information, unaudited)

	March 31,			December 31,
	June 30,			December 31,
	2019			2018
ASSETS
Current assets:
Cash and cash equivalents	$	58,~~583~~970		$	10,798
Accounts receivable, net of allowance for doubtful accounts of $236 and $222, respectively		15,448			12,857
Accounts receivable, net of allowance for doubtful accounts of $249 and $222, respectively		14,236			12,857
Due from Nexstar Broadcasting, Inc.		7769,~~158~~273			77,521
Prepaid expenses and other current assets		~~721~~621			1,130
Total current assets		9893,~~910~~100			102,306
Property and equipment, net		2022,~~700~~167			19,867
Goodwill		33,187			33,187
FCC licenses		43,102			43,102
Other intangible assets, net		1312,~~193~~702			13,712
Deferred tax assets, net		45,~~322~~342			3,485
Other noncurrent assets, net		76,~~021~~654			936
Total assets	$	~~220~~216,~~435~~254		$	216,595
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current portion of debt	$	2,285		$	2,285
Current portion of broadcast rights payable		~~300~~297			325
Accounts payable		1,~~392~~390			1,832
Interest payable		~~930~~829			152
Accrued capital expenditures		1,~~801~~823			1,251
Other accrued expenses		1,~~925~~892			1,992
Current operating lease liabilities		1,~~878~~925			721
Total current liabilities		10,~~511~~441			8,558
Debt		221,~~956~~560			222,354
Other noncurrent liabilities		1110,~~563~~842			6,820
Total liabilities		~~244~~242,~~030~~843			237,732
Commitments and contingencies (Note 10)
Shareholders' deficit:
Common stock - $1 par value, 1,000 shares authorized, issued and outstanding as of each of March 31, 2019 and December 31, 2018		1			1
Common stock - $1 par value, 1,000 shares authorized, issued and outstanding as of each of June 30, 2019 and December 31, 2018		1			1
Subscription receivable		(1	)		(1	)
Accumulated deficit		(2326,~~595~~589	)		(21,137	)
Total shareholders' deficit		(2326,~~595~~589	)		(21,137	)
Total liabilities and shareholders' deficit	$	~~220~~216,~~435~~254		$	216,595

The accompanying Notes are an integral part of these Condensed Financial Statements.

MISSION BROADCASTING, INC.

CONDENSED STATEMENTS OF OPERATIONS

(in thousands, unaudited)

	Three Months Ended						Six Months Ended
	March 31,
	June 30,						June 30,
	2019			2018			2019			2018
Net broadcast revenue	$	1918,~~407~~910		$	1617,~~102~~606		$	38,317		$	33,763
Revenue from Nexstar Broadcasting, Inc.		78,~~762~~262			89,~~483~~058			16,024			17,486
Net revenue		27,~~169~~172			2426,~~585~~664			54,341			51,249
Operating expenses (income):
Direct operating expenses, excluding depreciation and amortization		1211,~~036~~995			10,~~147~~013			24,031			20,160
Selling, general and administrative expenses, excluding depreciation and amortization		~~991~~998			1,~~216~~112			1,989			2,328
Fees incurred pursuant to local service agreements with Nexstar Broadcasting, Inc.		14,575			13,250			29,150			26,500
Amortization of broadcast rights		~~383~~369			~~412~~409			752			821
Amortization of intangible assets		~~519~~491			~~544~~540			1,010			1,084
Depreciation		~~608~~620			~~517~~504			1,228			1,021
Reimbursement from the FCC related to station repack		(~~1,536~~764	)		-(187	)		(2,300	)		(187	)
Total operating expenses		2728,~~576~~284			2625,~~086~~641			55,860			51,727
Income from operations		(407	)		(1,501	)
(Loss) Income from operations		(1,112	)		1,023			(1,519	)		(478	)
Interest expense		(2,~~886~~898	)		(2,~~611~~739	)		(5,784	)		(5,350	)
Loss before income taxes		(34,~~293~~010	)		(41,~~112~~716	)		(7,303	)		(5,828	)
Income tax benefit		~~835~~1,016			~~981~~425			1,851			1,406
Net loss	$	(2,~~458~~994	)	$	(31,~~131~~291	)	$	(5,452	)	$	(4,422	)

The accompanying Notes are an integral part of these Condensed Financial Statements.

MISSION BROADCASTING, INC.

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT

For the Three and Six Months Ended ~~March~~June 30, 2019 and 2018

(in thousands, except share information, unaudited)

											Total
	Common Stock				Subscription			Accumulated			Shareholders'
	Shares		Amount		Receivable			Deficit			Deficit
Balances as of December 31, 2018		1,000		1		(1	)		(21,137	)		(21,137	)
Balances as of March 31, 2019		1,000	$	1	$	(1	)	$	(23,595	)	$	(23,595	)
Net loss		-		-		-			(2,~~458~~994	)		(2,~~458~~994	)
Balances as of March 31, 2019		1,000		1		(1	)		(23,595	)		(23,595	)
Balances as of June 30, 2019		1,000	$	1	$	(1	)	$	(26,589	)	$	(26,589	)

Balances as of December 31, 2017	1,000		1		(1	)		(15,308	)		(15,308	)
Balances as of March 31, 2018	1,000	$	1	$	(1	)	$	(18,439	)	$	(18,439	)
Net income	-		-		-			(3,131	)		(3,131	)
Net loss	-		-		-			(1,291	)		(1,291	)
Balances as of March 31, 2018	1,000		1		(1	)		(18,439	)		(18,439	)
Balances as of June 30, 2018	1,000	$	1	$	(1	)	$	(19,730	)	$	(19,730	)

											Total
	Common Stock				Subscription			Accumulated			Shareholders'
	Shares		Amount		Receivable			Deficit			Deficit

Balances as of December 31, 2018		1,000	$	1	$	(1	)	$	(21,137	)	$	(21,137	)
Net loss		-		-		-			(5,452	)		(5,452	)
Balances as of June 30, 2019		1,000	$	1	$	(1	)	$	(26,589	)	$	(26,589	)

Balances as of December 31, 2017	1,000	$	1	$	(1	)	$	(15,308	)	$	(15,308	)
Net loss	-		-		-			(4,422	)		(4,422	)
Balances as of June 30, 2018	1,000	$	1	$	(1	)	$	(19,730	)	$	(19,730	)

The accompanying Notes are an integral part of these Condensed Financial Statements.

MISSION BROADCASTING, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

	Three Months Ended
	Six Months Ended
	March 31,
	June 30,
	2019			2018
Cash flows from operating activities:
Net loss	$	(25,~~458~~452	)	$	(34,~~131~~422	)
Adjustments to reconcile net loss to net cash used by operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Deferred income tax benefit		(~~837~~1,857	)		(1,~~006~~458	)
Provision for bad debt		1327			2448
Depreciation of property and equipment		~~608~~1,228			~~517~~1,021
Amortization of intangible assets		~~519~~1,010			~~544~~1,084
Amortization of debt financing costs and debt discount		~~176~~354			~~193~~386
Amortization of broadcast rights		~~383~~752			~~412~~821
Payments for broadcast rights		(~~391~~752	)		(~~422~~817	)
Other noncash credits, net		(50511	)		(4999	)
Spectrum repack reimbursements		(1,536	)		-
Spectrum repack reimbursements from the FCC		(2,300	)		(187	)
Changes in operating assets and liabilities, net of acquisitions:
Changes in operating assets and liabilities:
Accounts receivable		(21,~~604~~406	)		~~(116~~1,726	)
Prepaid expenses and other current assets		~~314~~404			~~142~~80
Other noncurrent assets		~~340~~91			(3	)
Accounts payable, accrued expenses and deferred rent		(129	)		(4,071	)
Accounts payable		(442	)		722
Other noncurrent liabilities		-			(14	)
Accrued expenses and other current liabilities		577			(8,221	)
Due from Nexstar Broadcasting, Inc.		363			2,920
Other noncurrent liabilities		-			(217	)
Net cash used in operating activities		(5,289	)		(4,060	)
Due from Nexstar Broadcasting, Inc.		8,248			8,051
Net cash used in operating activities		(29	)		(1,485	)
Cash flows from investing activities:
Purchases of property and equipment		(~~891~~2,956	)		(~~830~~512	)
Spectrum repack reimbursements		1,536			-
Spectrum repack reimbursements from the FCC		2,300			187
Net cash provided by (used in) investing activities		645			(830	)
Net cash used in investing activities		(656	)		(325	)
Cash flows from financing activities:
Repayments of long-term debt		(~~571~~1,143	)		(~~578~~1,157	)
Net cash used in financing activities		(~~571~~1,143	)		(~~578~~1,157	)
Net decrease in cash and cash equivalents		(51,~~215~~828	)		(52,~~468~~967	)
Cash and cash equivalents at beginning of period		10,798			9,524
Cash and cash equivalents at end of period	$	58,~~583~~970		$	46,~~056~~557
Supplemental information:
Interest paid	$	14,~~932~~752		$	24,~~306~~845
Income tax refund, net of taxes paid	$	(236	)	$	-
Income tax (refunded) paid, net	$	(226	)	$	105
Non-cash investing and financing activities
Right-of-use assets obtained in exchange for operating lease obligations(1)	$	6,450		$	-
Accrued purchases of property and equipment	$	1,823		$	1,126
Right-of-use assets obtained in exchange for operating lease obligations (1)	$	6,450		$	-

(1) Amounts for the three months ended March 31, 2019 pertains to the transition adjustment for the adoption of ASC 842.

The accompanying Notes are an integral part of these Condensed Financial Statements.

(1) The entire amount represents transition adjustment for the adoption of ASC 842.

MISSION BROADCASTING, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

1. Organization and Business Operations

As of ~~March~~June 3130, 2019, Mission Broadcasting, Inc. (“Mission” or the “Company”) owned and operated 19 full power television stations, affiliated with the NBC, ABC, CBS, FOX, The CW, ~~MNTV~~ and other broadcast television networks, in 18 markets located in the states of Arkansas, Colorado, Illinois, Indiana, Louisiana, Missouri, Montana, New York, Pennsylvania, Texas and Vermont. The Company operates in one reportable television broadcasting segment. Through local service agreements, Nexstar Broadcasting, Inc., a subsidiary of Nexstar Media Group, Inc. (collectively “Nexstar”), provides sales and operating services to all of the Mission television stations (see Note 3).

The Company is highly leveraged, which makes it vulnerable to changes in general economic conditions. The Company’s ability to repay or refinance its debt will depend on, among other things, financial, business, market, competitive and other conditions, many of which are beyond its control, as well as Nexstar maintaining its pledge to continue the local service agreements with the Company’s stations. Management believes that with Nexstar’s pledge to continue the local service agreements as described in a letter of support dated March 22, 2019, the Company’s available cash, anticipated cash flow from operations and available borrowings under its senior secured credit facility should be sufficient to fund working capital, capital expenditure requirements, interest payments and scheduled debt principal payments for at least the next 12 months from ~~May~~August 912, 2019, enabling Mission to continue to operate as a going concern.

Nexstar’s senior secured credit agreement contains a covenant which requires Nexstar to comply with a maximum consolidated first lien net leverage ratio of 4.25 to 1.00. The financial covenant, which is formally calculated on a quarterly basis, is based on the combined results of Nexstar and its variable interest entities, including Mission. Mission’s credit agreement does not contain financial covenant ratio requirements but does provide for default in the event Nexstar does not comply with all covenants contained in its credit agreement. As of ~~March~~June 3130, 2019, Nexstar has informed Mission that it was in compliance with all covenants contained in its credit agreement and the indentures governing its senior unsecured notes.

2. Summary of Significant Accounting Policies

Interim Financial Statements

The Condensed Financial Statements as of ~~March~~June 3130, 2019 and for the three and six months ended ~~March~~June 3130, 2019 and 2018 are unaudited. However, in the opinion of management, such financial statements include all adjustments (consisting solely of normal recurring adjustments) necessary for the fair statement of the financial information included herein in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). The preparation of the Condensed Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. Results of operations for interim periods are not necessarily indicative of results for the full year. These Condensed 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, 2018. The balance sheet as of December 31, 2018 has been derived from the audited Financial Statements as of that date but does not include all the information and footnotes required by U.S. GAAP for complete financial statements.

Leases

As discussed in the “Recent Accounting Pronouncements” Section below, the Company adopted ~~the~~Accounting ~~FASB~~Standards ~~issued~~Update (“ASU”) No. 2016-02, Leases (Topic 842) and all related amendments issued by the Financial Accounting Standards Board (“FASB”). Accounting Standards Codification (“ASC”) 842 establishes a comprehensive new lease accounting model that requires the recording of assets and liabilities arising from operating leases on the balance sheet accompanied by enhanced qualitative and quantitative disclosures in the notes to the financial statements. The standard was issued to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flow arising from leases.

The Company adopted this standard effective January 1, 2019 using the optional transition method. The most significant impact was the recognition of right-of-use (“ROU”) assets and lease liabilities for operating leases. Financial information for reporting periods beginning after January 1, 2019 is presented under ASC 842, while comparative financial information has not been adjusted and continues to be reported in accordance with the Company’s historical accounting policy for lease contracts prior to the adoption of ASC 842.

The Company has elected the ‘package of practical expedients’ permitted under the transition guidance within ASC 842, which permits the Company to carry forward the historical lease classification and not reassess whether any expired or existing contracts are or contain leases. In addition, the Company is not required to reassess initial direct costs for any existing leases. The Company did not elect the land easements and the use of hindsight practical expedients in determining the lease term for existing leases. ASC 842 also provides practical expedients for an entity’s ongoing accounting. The Company has elected the short-term lease recognition exemption for all leases that qualify. As a result, for those leases with a term of less than 12 months, it will not recognize ROU assets or lease liabilities. The vast majority of the Company’s television station leases are comprised of fixed lease payments, with a small percentage of television station lease payments that are tied to a rate or index which may be subject to variability. For these leases, the calculation of the present value of future minimum lease payments is the base rate as of the later of (i) when the television station was acquired by the Company, or (ii) the commencement date of the lease agreement. Certain real estate leases also include executory costs such as common area maintenance (non-lease component), as well as property insurance and property taxes (non-components). These are not significant and the Company historically excluded these executory costs from its future minimum lease payments under its historical policy prior to the adoption of ASC 842. As such, the executory costs were excluded from the calculation of ROU assets and lease liabilities associated with operating leases upon transition. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. The discount rate represents a risk-adjusted rate on a secured basis, and is the rate at which the Company would borrow funds to satisfy the scheduled lease liability payment streams commensurate with the lease term. On January 1, 2019, the discount rate used on existing leases at adoption was determined based on the remaining lease term using available data as of that date. 5

The Company has elected the “package of practical expedients” permitted under the transition guidance within ASC 842, which permits the Company to carry forward the historical lease classification and not reassess whether any expired or existing contracts are or contain leases. In addition, the Company is not required to reassess initial direct costs for any existing leases. The Company did not elect the land easements and the use of hindsight practical expedients in determining the lease term for existing leases. ASC 842 also provides practical expedients for an entity’s ongoing accounting. The Company has elected the short-term lease recognition exemption for all leases that qualify. As a result, for those leases with a term of less than 12 months, it will not recognize ROU assets or lease liabilities. The vast majority of the Company’s television station leases are comprised of fixed lease payments, with a small percentage of television station lease payments that are tied to a rate or index which may be subject to variability. For these leases, the calculation of the present value of future minimum lease payments is the base rate as of the later of (i) when the television station was acquired by the Company, or (ii) the commencement date of the lease agreement. Certain real estate leases also include executory costs such as common area maintenance (non-lease component), as well as property insurance and property taxes (non-components). These are not significant and the Company historically excluded these executory costs from its future minimum lease payments under its historical policy prior to the adoption of ASC 842. As such, the executory costs were excluded from the calculation of ROU assets and lease liabilities associated with operating leases upon transition. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. The discount rate represents a risk-adjusted rate on a secured basis, and is the rate at which the Company would borrow funds to satisfy the scheduled lease liability payment streams commensurate with the lease term. On January 1, 2019, the discount rate used on existing leases at adoption was determined based on the remaining lease term using available data as of that date.

The Company recognized operating lease ROU assets on its Condensed Balance Sheet as of January 1, 2019 of $6.5 million, inclusive of the present value of remaining future operating lease payments of $11.0 million and reclassifications of certain operating lease related assets and liabilities under the Company’s historical accounting policy prior to the adoption of ASC 842 such as deferred rent, short-term prepaid expenses and other accruals. These are summarized in the table below (in thousands). The adoption did not result in a cumulative impact on retained earnings as of January 1, 2019.

			ASC 842 Adoption Adjustments
			Present Value of Remaining		Reclassifications of Operating Lease Related Balance Sheet Items to Operating Lease Right-of-Use Assets
Impact on Condensed Balance Sheets	December 31, 2018		Operating Lease Payments as of January 1, 2019		Deferred Rent			Other			Total			January 1, 2019
Prepaid expenses and other current assets	$	1,130	$	-	$	-		$	(77	)	$	(77	)	$	1,053
Other intangible assets, net		13,712		-		-			-			-			13,712
Other noncurrent assets, net		936		10,957		(4,175	)		(332	)		6,450			7,386
Total Assets		216,595		10,957		(4,175	)		(409	)		6,373			222,968
Other current liabilities		8,558		1,802		(531	)		(198	)		1,073			9,631
Other noncurrent liabilities		6,820		9,155		(3,644	)		(211	)		5,300			12,120
Total Liabilities		237,732		10,957		(4,175	)		(409	)		6,373			244,105

After transition to ASC 842, the Company determines if an arrangement is a lease at inception. The ROU assets arising from operating leases are included in other noncurrent assets, current operating lease liabilities and other noncurrent liabilities in the accompanying Condensed Balance Sheets. Operating lease ROU assets and operating lease liabilities that are recognized after the adoption of ASC 842 are based on the present value of the future minimum lease payments over the lease term at the commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and executory costs (not significant). The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. When determining if a renewal option is reasonably certain of being exercised, the Company considers several factors, including but not limited to the significance of leasehold improvements incurred on the property, whether the asset is difficult to replace, or specific characteristics unique to the particular lease that would make it reasonably certain that the Company would exercise such option. In most cases, the Company has concluded that renewal and early termination options are not reasonably certain of being exercised by the Company (and thus not included in its ROU asset and lease liability) unless there is an economic, financial or business reason to do so. As most of the Company’s leases do not provide an implicit rate, the incremental borrowing rate was used based on the information available at the commencement date in determining the present value of future lease payments. The discount rate represents a risk-adjusted rate on a secured basis and is the rate at which the Company would borrow funds to satisfy the scheduled lease liability payment streams commensurate with the lease term. For new or renewed leases starting in 2019, the discount rate is determined using available data at lease commencement and based on the lease term including any reasonably certain renewal periods. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

~~After~~In ~~transition~~rare ~~to ASC 842~~circumstances, the Company ~~determines~~may ifenter aninto ~~arrangement~~finance isleases afor ~~lease~~specific atequipment ~~inception.~~or ~~The~~real ~~ROU~~estate ~~assets~~used ~~arising from operating leases are included~~ in ~~other~~its ~~noncurrent assets~~operations, ~~current operating lease liabilities and other noncurrent liabilities~~ in ~~the~~which ~~accompanying Condensed Balance Sheets. Operating lease ROU assets and operating lease liabilities that are recognized after~~ the ~~adoption of ASC 842 are based on the present value of the future minimum~~ lease ~~payments over the lease~~ term atis ~~the~~for commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and executory costs (not significant). The Company’s lease terms may include options to extend or terminate the ~~lease~~major ~~when~~part ~~it is reasonably certain that it will exercise that option. When determining if a renewal option is reasonably certain~~ of ~~being exercised,~~ the ~~Company~~remaining ~~considers~~economic ~~several~~life ~~factors, including but not limited to, the significance~~ of ~~leasehold improvements incurred on~~ the ~~property,~~underlying ~~whether the~~ asset ~~is difficult to replace,~~ or ~~specific characteristics unique to~~ the ~~particular~~present ~~lease~~value ~~that would make it reasonably certain that the Company would exercise such option. In most cases, the Company has concluded that renewal and early termination options are not reasonably certain~~ of ~~being exercised by~~ the ~~Company (and thus not included in its ROU asset and~~ lease ~~liability)~~payments ~~unless~~equals ~~there is an economic, financial~~ or ~~business~~exceeds ~~reason~~substantially toall ~~do so. As most~~ of the ~~Company’s~~estimated ~~leases~~fair ~~do not provide an implicit rate, the incremental borrowing rate was used based on the information available at commencement date in determining the present~~ value of ~~future~~the ~~lease~~underlying ~~payments~~asset. The ~~discount rate represents a risk-adjusted rate on a secured basis and is the rate at which the~~ Company ~~would~~will ~~borrow~~record ~~funds~~its tofinance ~~satisfy the scheduled lease liability payment streams commensurate with the lease term. For new or renewed~~ leases ~~starting~~within ~~in 2019~~property, ~~the~~plant ~~discount~~and ~~rate~~equipment, isother ~~determined~~current ~~using~~liabilities ~~available~~and ~~data~~other atnoncurrent ~~lease~~liabilities ~~commencement and based~~ on the ~~lease~~accompanying ~~term~~Condensed ~~including~~Balance ~~any reasonably certain renewal periods~~Sheets. ~~Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.~~

InSee ~~rare~~Note ~~circumstances,~~6 ~~the~~for ~~Company~~additional ~~may~~disclosures ~~enter~~on ~~into finance~~ leases ~~for~~as ~~specific equipment or real estate used in its operations, in which the lease term is for the major part~~ of ~~the~~June remaining economic life of the underlying asset or the present value of the lease payments equals or exceeds substantially all of the estimated fair value of the underlying asset. The Company records its finance leases within property30, ~~plant and equipment, other current liabilities and other noncurrent liabilities on the accompanying Condensed Balance Sheets~~2019.

See Note 6 for additional disclosures on leases as of and for the three months ended March 31, 2019.

Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, broadcast rights payable, accounts payable and accrued expenses approximate fair value due to their short-term nature. See Note 5 for fair value disclosures related to the Company’s debt.

Basis of Presentation

Certain prior year financial statement amounts have been reclassified to conform to the current year presentation. These reclassifications had no effect on net ~~income~~loss or shareholders’ deficit as previously reported.

Recent Accounting Pronouncements

New Accounting Standards Adopted

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The Company adopted this standard and all related amendments effective January 1, 2019 using the optional transition method. The standard had a material impact on the Company’s Condensed Balance Sheets but did not impact its operating results, cash flows or equity. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases. The adoption did not result in a cumulative impact on retained earnings as of January 1, 2019. See Leases above for the Company’s updated accounting policy and Note 6 for expanded disclosures.

New Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”).” The standard requires entities to estimate loss of financial assets measured at amortized cost, including trade receivables, debt securities and loans, using an expected credit loss model. The expected credit loss differs from the previous incurred losses model primarily in that the loss recognition threshold of “probable” has been eliminated and that expected loss should consider reasonable and supportable forecasts in addition to the previously considered past events and current conditions. Additionally, the guidance requires additional disclosures related to the further disaggregation of information related to the credit quality of financial assets by year of the asset’s origination for as many as five years. Entities must apply the standard provision as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting ASU 2016-13 on its financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) (“ASU 2018-13”), which modifies the disclosure requirements on fair value measurements. The amendments in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. The Company is currently evaluating the impact of adopting ASU 2018-13 on its financial statements.

3. Local Service Agreements with Nexstar

The Company has entered into local service agreements with Nexstar to provide sales and/or operating services to all of its stations. For the stations with a shared services agreement (“SSA”), the Nexstar station in the market provides certain services including news production, technical maintenance and security, in exchange for monthly payments to Nexstar. For each station with which the Company has entered into an SSA, it has also entered into a joint sales agreement (“JSA”), whereby Nexstar sells certain advertising time of the station and retains a percentage of the related revenue. For the stations with a time brokerage agreement (“TBA”), Nexstar programs most of the station’s broadcast time, sells the station’s advertising time and retains the advertising revenue it generates in exchange for monthly payments to Mission, based on the station’s monthly operating expenses. JSA and TBA fees generated from Nexstar under the agreements are reported as “Revenue from Nexstar Broadcasting, Inc.,” and SSA fees incurred by Mission under the agreements are reported as “Fees incurred pursuant to local service agreements with Nexstar Broadcasting, Inc.” in the accompanying Condensed Statements of Operations.

Under these agreements, Mission is responsible for certain operating expenses of its stations and therefore may have unlimited exposure to any potential operating losses. Mission will continue to operate its stations under the SSAs and JSAs or TBAs until the termination of such agreements. The local service agreements generally have a term of eight to ten years and have terms for renewal periods. Nexstar indemnifies Mission from Nexstar’s activities pursuant to the local service agreements.

Under the local service agreements, Nexstar receives substantially all of the Company’s available cash, after satisfaction of operating costs and debt obligations. The Company anticipates that Nexstar will continue to receive substantially all of its available cash, after satisfaction of operating costs and debt obligations. In compliance with Federal Communications Commission (“FCC”) regulations for both the Company and Nexstar, Mission maintains complete responsibility for and control over programming, finances, personnel and operations of its stations. Mission had the following local service agreements in effect with Nexstar as of ~~March~~June 3130, 2019:

Service Agreements		Full Power Stations
TBA Only		WFXP, KHMT and KFQX
SSA & JSA		KJTL, KLRT, KASN, KOLR, KCIT, KAMC, KRBC, KSAN, WUTR, WAWV, WYOU, KODE, WTVO, KTVE, WTVW and WVNY

4. Intangible Assets and Goodwill

Intangible assets subject to amortization consisted of the following (in thousands):

	Estimated		~~March~~June 3130, 2019							December 31, 2018
	useful life,				Accumulated							Accumulated
	in years		Gross		Amortization			Net		Gross		Amortization			Net
Network affiliation agreements		15	$	86,248	$	(7374,~~641~~100	)	$	12,~~607~~148	$	86,248	$	(73,153	)	$	13,095
Other definite-lived intangible assets	1-15			15,681		(15,~~095~~127	)		~~586~~554		15,681		(15,064	)		617
Other intangible assets			$	101,929	$	(8889,~~736~~227	)	$	1312,~~193~~702	$	101,929	$	(88,217	)	$	13,712

The following table presents the Company’s estimate of amortization expense for the remainder of 2019, each of the five succeeding years ended December 31 and thereafter for definite-lived intangible assets as of ~~March~~June 3130, 2019 (in thousands):

Remainder of 2019	$	~~1,400~~909
2020		1,518
2021		1,517
2022		1,517
2023		1,444
Thereafter		5,797
	$	1312,~~193~~702

The carrying amounts of goodwill and FCC licenses were as follows (in thousands):

	Goodwill							FCC Licenses
			Accumulated							Accumulated
	Gross		Impairment			Net		Gross		Impairment			Net
Balances as of December 31, 2018	$	34,737	$	(1,550	)	$	33,187	$	53,799	$	(10,697	)	$	43,102
Balances as of March 31, 2019	$	34,737	$	(1,550	)	$	33,187	$	53,799	$	(10,697	)	$	43,102
Balances as of June 30, 2019	$	34,737	$	(1,550	)	$	33,187	$	53,799	$	(10,697	)	$	43,102

Indefinite-lived intangible assets are not subject to amortization but are tested for impairment annually or whenever events or changes in circumstances indicate that such assets might be impaired. During the three and six months ended ~~March~~June 3130, 2019, the Company did not identify any events that would trigger an impairment assessment.

5. Debt

Long-term debt consisted of the following (in thousands):

	March 31,			December 31,
	June 30,			December 31,
	2019			2018
Term loans, net of financing costs and discount of $3,715 and $3,888, respectively	$	224,241		$	224,639
Term loans, net of financing costs and discount of $3,539 and $3,888, respectively	$	223,845		$	224,639
Less: current portion		(2,285	)		(2,285	)
	$	221,~~956~~560		$	222,354

2019 Transactions

Through ~~March~~June 3130, 2019, Mission repaid scheduled maturities of $01.61 million under its Term Loan B, funded by cash on hand.

Unused Commitments and Borrowing Availability

As of ~~March~~June 3130, 2019, the Company had a $3.0 million unused revolving loan commitment under its senior secured credit facility, all of which was available for borrowing, based on the covenant calculations. Pursuant to the terms of the Company’s and Nexstar’s credit agreements, the Company may reallocate any of its unused revolving loan commitment to Nexstar and Nexstar may also reallocate certain of its unused revolving loan commitment to the Company.

Collateralization and Guarantees of Debt

Nexstar guarantees full payment of all obligations under the Mission senior secured credit facility in the event of Mission’s default. Similarly, Mission is a guarantor of Nexstar’s senior secured credit facility, the $900.0 million 5.625% senior unsecured notes (the “5.625% Notes”) issued by Nexstar and the $275.0 million 6.125% senior unsecured notes (the “6.125% Notes”) issued by Nexstar. The senior secured credit facilities are collateralized by a security interest in substantially all the combined assets, excluding FCC licenses, of the Company and Nexstar.

The 5.625% Notes and the 6.125% Notes are general senior unsecured obligations subordinated to all of Mission’s senior secured debt. In the event that Nexstar is unable to repay amounts due under these debt obligations, the Company will be obligated to repay such amounts. The maximum potential amount of future payments that Mission would be required to make under these guarantees would be generally limited to the amount of borrowings outstanding under Nexstar’s senior secured credit facility, the 5.625% Notes, and the 6.125% Notes. As of ~~March~~June 3130, 2019, Nexstar had $~~888~~889.71 million of outstanding obligations under its 5.625% Notes, $273.67 million of outstanding obligations under its 6.125% Notes and a maximum commitment of $2.~~191~~084 billion under its senior secured credit facility, of which $1.~~213~~116 billion in Term Loan B and $~~815~~804.09 million in Term Loan A were outstanding.

Debt Covenants

The Mission term loan does not require financial covenant ratios but does provide for default in the event Nexstar does not comply with all covenants contained in its credit agreement. Nexstar was in compliance with its financial covenants as of ~~March~~June 3130, 2019.

Fair Value of Debt

The aggregate carrying amounts and estimated fair values of the Company’s debt were as follows (in thousands):

March 31, 2019

December 31, 2018

June 30, 2019

December 31, 2018

Carrying

Fair

Carrying

Fair

Amount

Value

Amount

Value

Term loans

~~224~~223,~~241~~845

~~224~~225,~~011~~314

224,639

220,450

The fair values of the term loans are computed based on borrowing rates currently available to Mission for bank loans with similar terms and average maturities. These fair value measurements are considered Level 3, as significant inputs to the fair value calculation are unobservable in the market.

6. Leases

The Company as a Lessee

The ~~company~~Company has operating leases for office space, tower facilities, antenna sites, studio and other real estate properties and equipment. The ~~company~~Company’s leases have remaining lease terms of ~~six~~3 months to 13 years, some of which may include options to extend the leases from five to 25 years, and some of which may include options to terminate the leases within one year. The depreciable life of assets and leasehold improvements ~~are~~is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. The components of lease expense during the three and six months ended June 30, 2019 include $0.4 million and $0.9 million, respectively, of operating lease cost, inclusive of immaterial short-term and variable lease costs, included in Direct operating expenses, excluding depreciation and amortization, in the accompanying Condensed Statements of Operations.

The following table summarizes the components of our lease right-of-use assets and liabilities at ~~March~~June 3130, 2019:

(In thousands)	Balance Sheet Classification	~~March~~June 3130, 2019
Operating Leases
Operating lease right-of-use assets, net	Other noncurrent assets, net	$	65,~~163~~872
Current lease liabilities	Current operating lease liabilities	$	1,~~878~~925
Noncurrent lease liabilities	Other noncurrent liabilities	$	8,~~680~~032

Other information related to leases as of ~~March~~June 3130, 2019 was as follows (in thousands, except lease term and discount rate):

Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	~~539~~1,274
Weighted Average Remaining Lease Term		8
Weighted Average Discount Rate		5.3	%

Future minimum lease payments under non-cancellable leases as of ~~March~~June 3130, 2019 were as follows (in thousands):

Remainder of 2019	$	1,~~818~~083
2020		2,434
2021		1,494
2022		890
2023		922
Thereafter		5,732
Total future minimum lease payments		1312,~~290~~555
Less imputed interest		(2,~~733~~599	)
Total	$	109,~~557~~956

The Company as a Lessor

The Company has various arrangements under which it is the lessor for the use of its tower space. These leases meet the criteria for operating lease classification, but the associated lease income is not material. As part of the adoption, the Company elected the practical expedient to combine lease and non-lease components in its lessor arrangements.

7. Revenue

Disaggregation of Revenues

The following table presents the disaggregation of our revenue for the three and six months ended ~~March~~June 3130, 2019 and ~~March 31,~~ 2018 (in thousands):

	Three Months Ended March 31,
	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Retransmission compensation	$	1918,~~104~~604	$	1517,~~904~~231	$	37,708	$	33,135
Other		~~303~~306		~~198~~375		609		628
Revenue from Nexstar		78,~~762~~262		89,~~483~~058		16,024		17,486
Net revenue	$	27,~~169~~172	$	2426,~~585~~664	$	54,341	$	51,249

Revenue from Nexstar is directly correlated to the advertising revenue earned at the Company’s stations and is positively affected by national and regional political campaigns, and certain events such as the Olympic Games or the Super Bowl. Company stations’ advertising revenue is generally highest in the second and fourth quarters of each year, due in part to increases in consumer advertising in the spring and retail advertising in the period leading up to, and including, the holiday season. In addition, advertising revenue is generally higher during even-numbered years when congressional and presidential elections occur, and advertising is aired during the Olympic Games.

The Company receives compensation from multichannel video programming distributors (“MVPDs”) and ~~OTTDs~~online video distributors (“OVDs”) in return for the consent to the retransmission of the signals of its television stations. Retransmission compensation is recognized at the point in time the broadcast signal is delivered to the distributors and is based on a price per subscriber.

8. Income Taxes

During the three months ended ~~March~~June 3130, 2019, wethe Company recognized an income tax benefit of $01.80 million on a pre-tax book loss of $34.30 million resulting in an effective tax rate of 25.43% as compared to an income tax benefit of $1.0.4 million on a pre-tax book loss of $4.1.7 million for the same period in 2018 resulting in an effective tax rate of 2324.98%. The increase in the effective tax rate between the two periods was primarily due to changes in the Texas Margin tax which resulted in a 1.411% increase in the effective tax rate between the two periods.

During the six months ended June 30, 2019, the Company recognized an income tax benefit of $1.9 million on a pre-tax book loss of $7.3 million resulting in an effective tax rate of 25.3% as compared to an income tax benefit of $1.4 million on a pre-tax book income of $5.8 million for the same period in 2018 resulting in an effective tax rate of 24.1%. The increase in the effective tax rate between the two periods was primarily due to changes in the Texas Margin tax, which resulted in a 1.11% increase in the effective tax rate between the two periods.

9. FCC Regulatory Matters

Television broadcasting is subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended (the “Communications Act”). The Communications Act prohibits the operation of television broadcasting stations except under a license issued by the FCC, and empowers the FCC, among other things, to issue, revoke and modify broadcasting licenses, determine the location of television stations, regulate the equipment used by television stations, adopt regulations to carry out the provisions of the Communications Act and impose penalties for the violation of such regulations. The FCC’s ongoing rule making proceedings could have a significant future impact on the television industry and on the operation of the Company’s stations. In addition, the U.S. Congress may act to amend the Communications Act or adopt other legislation in a manner that could impact the Company’s stations and the television broadcast industry in general.

The FCC has adopted rules with respect to the final conversion of existing low power and television translator stations to digital operations, which must be completed by July 2021.

Media Ownership

The FCC is required to review its media ownership rules every four years and to eliminate those rules it finds no longer serve the “public interest, convenience and necessity.”

In August 2016, the FCC adopted a Second Report and Order (the “2016 Ownership Order”) concluding the agency’s 2010 and 2014 quadrennial reviews. The 2016 Ownership Order (1) retained the then-existing local television ownership rule and radio/television cross-ownership rule with minor technical modifications, (2) extended the ban on common ownership of two top four television stations in a market to network affiliation swaps, (3) retained the then-existing ban on newspaper/broadcast cross-ownership in local markets while considering waivers and providing an exception for failed or failing entities, (4) retained the dual network rule, (5) made JSA relationships attributable interests and (6) defined a category of sharing agreements designated as SSAs between stations and required public disclosure of those SSAs (while not considering them attributable).

The 2016 Ownership Order reinstated a previously adopted rule that attributed another in-market station toward the local television ownership limits when one station owner sells more than 15% of the second station’s weekly advertising inventory under a JSA. Parties to JSAs entered into prior to March 31, 2014 were permitted to continue to operate under those JSAs until September 30, 2025.

Various parties filed petitions seeking reconsideration of various aspects of the 2016 Ownership Order. On November 16, 2017, the FCC adopted an order (the “Reconsideration Order”) addressing the petitions for reconsideration. The Reconsideration Order (1) eliminated the rules prohibiting newspaper/broadcast cross-ownership and limiting television/radio cross-ownership, (2) eliminated the requirement that eight or more independently-owned television stations remain in a local market for common ownership of two television stations in that market to be permissible, (3) retained the general prohibition on common ownership of two “top four” stations in a local market but provided for case-by-case review, (4) eliminated the television JSA attribution rule, and (5) retained the SSA definition and disclosure requirement for television stations. These rule modifications took effect on February 7, 2018, when the U.S. Court of Appeals for the Third Circuit denied a mandamus petition which had sought to stay their effectiveness. The Reconsideration Order remains subject to appeals before that court.

In December 2018, the FCC initiated its 2018 quadrennial review with the issuance of a Notice of Proposed Rulemaking. Among other things, the FCC seeks ~~comment~~comments on all aspects of the local television ownership ~~rule~~rules’s implementation and whether the current version of the rule remains necessary in the public interest. Comments and reply comments in the 2018 quadrennial review ~~are~~were ~~due~~filed in the second quarter of 2019.

The FCC’s media ownership rules limit the percentage of U.S. television households which a party may reach through its attributable interests in television stations to 39% on a nationwide basis. Historically, the FCC has counted the ownership of an ultra-high frequency (“UHF”) station as reaching only 50% of a market’s percentage of total national audience. On August 24, 2016, the FCC adopted a Report and Order abolishing this “UHF discount,” and that rule change became effective in October 2016. On April 20, 2017, the FCC adopted an order on reconsideration that reinstated the UHF discount, which became effective again on June 15, 2017. A federal court of appeals dismissed a petition for review of the discount’s reinstatement in July 2018. In December 2017, the FCC initiated a comprehensive rulemaking to evaluate the UHF discount together with the national ownership limit. Comments and reply comments were filed in 2018, and the proceeding remains open. Mission is in compliance with the 39% national cap limitation without the UHF discount and, therefore, with the UHF discount as well.

Spectrum

The FCC is in the process of repurposing a portion of the broadcast television spectrum for wireless broadband use. Pursuant to federal legislation enacted in 2012, the FCC conducted an incentive auction for the purpose of making additional spectrum available to meet future wireless broadband needs. Under the auction statute and rules, certain television broadcasters accepted bids from the FCC to voluntarily relinquish their spectrum in exchange for consideration, and certain wireless broadband providers and other entities submitted successful bids to acquire the relinquished television spectrum. Over the next several years, television stations that are not relinquishing their spectrum are being “repacked” into the frequency band still remaining for television broadcast use.

The incentive auction commenced on March 29, 2016 and officially concluded on April 13, 2017. None of the Company’s television stations accepted bids to relinquish their television channels. Seven of the Company’s stations have been assigned new channels in the reduced post-auction television band. These “repacked” stations are required to construct and license the necessary technical modifications to operate on their new assigned channels and will need to cease operating on their former channels, on a rolling schedule ending in July 2020. Congress has allocated up to an industry-wide total of $2.75 billion to reimburse television broadcasters, MVPDs and other parties for costs reasonably incurred due to the repack. This allocation includes $1.0 billion added to the TV Broadcaster Relocation Fund as part of the Consolidated Appropriations Act, 2018. Broadcasters and MVPDs have submitted estimates to the FCC of their reimbursable costs. As of February 6, 2019, these costs were approximately $1.9 billion and the FCC has indicated that it expects those costs to rise. During the three months ended March 31, 2019 and 2018, the Company spent a total of $0.8 million and $0.4 million, respectively, in capital expenditures related to station repack which were recorded as assets under the property and equipment caption in the accompanying Balance Sheets. During the three months ended March 31, 2019, the Company received $1.5 million in reimbursements from the FCC related to these expenditures which was recorded as operating income in the accompanying Condensed Statements of Operations. There were no reimbursements received related to station repack in 2018. The Company cannot determine if the FCC will be able to fully reimburse its repacking costs as this is dependent on certain factors, including the Company’s ability to incur repacking costs that are equal to or less than the FCC’s allocation of funds to the Company and whether the FCC will have available funds to reimburse the Company for additional repacking costs that it previously may not have anticipated. Whether the FCC will have available funds for additional reimbursements will also depend on the repacking costs that will be incurred by other broadcasters, MVPDs and other parties that are also seeking reimbursements.

The ~~reallocation~~incentive auction commenced on March 29, 2016 and officially concluded on April 13, 2017. None of the Company’s television ~~spectrum~~stations accepted bids to ~~broadband~~relinquish ~~use~~their ~~may~~television bechannels. Seven of the Company’s stations have been assigned new channels in the reduced post-auction television band. These “repacked” stations are required to construct and license the ~~detriment~~necessary technical modifications to operate on their new assigned channels, and must cease operating on their former channels, on a rolling schedule ending in July 2020. Congress has allocated up to an industry-wide total of $2.75 billion to reimburse television broadcasters, MVPDs and other parties for costs reasonably incurred due to the repack. This allocation includes $1.0 billion added to the TV Broadcaster Relocation Fund as part of the Consolidated Appropriations Act, 2018. Broadcasters and MVPDs have submitted estimates to the FCC of their reimbursable costs. As of February 6, 2019, these costs were approximately $1.9 billion, and the FCC has indicated that it expects those costs to rise. During the three and six months ended June 30, 2019, the Company’s ~~investment~~spent a total of $1.9 million and $2.7 million, respectively, in ~~digital~~capital ~~facilities~~expenditures related to station repack which were recorded as assets under the property and equipment caption in the accompanying Balance Sheets. During the three and six months ended June 30, ~~could~~2018, ~~require~~the ~~substantial~~Company ~~additional~~spent ~~investment~~a total of $0.8 million and $1.2 million, respectively, in capital expenditures related to ~~continue~~station ~~current~~repack ~~operations~~which were recorded as assets under the property and equipment caption in the accompanying Balance Sheets. During the three and six months ended June 30, 2019, the Company received $0.8 million and ~~may~~$2.3 ~~require~~million, ~~viewers~~respectively, in reimbursements from the FCC related to ~~invest~~these expenditures which were recorded as operating income in ~~additional~~the ~~equipment~~accompanying orCondensed ~~subscription~~Statements ~~services~~of Operations. During the three and six months ended June 30, 2018, the Company received $0.2 million in reimbursements from the FCC related to ~~continue~~these ~~receiving~~expenditures ~~broadcast~~which ~~television~~was ~~signals~~recorded as operating income in the accompanying Condensed Statements of Operations. The Company cannot ~~predict~~determine if the ~~impact~~FCC ofwill be able to fully reimburse its repacking costs as this is dependent on certain factors, including the ~~incentive~~Company’s ~~auction~~ability to incur repacking costs that are equal to or less than the FCC’s allocation of funds to the Company and ~~subsequent~~whether the FCC will have available funds to reimburse the Company for additional repacking costs that it previously may not have anticipated. Whether the FCC will have available funds for additional reimbursements will also depend on ~~its~~the ~~business~~repacking costs that will be incurred by other broadcasters, MVPDs, and other parties that are also seeking reimbursements.

The reallocation of television spectrum to broadband use may be to the detriment of the Company’s investment in digital facilities, could require substantial additional investment to continue current operations and may require viewers to invest in additional equipment or subscription services to continue receiving broadcast television signals. The Company cannot predict the impact of the incentive auction and subsequent repacking on its business.

Exclusivity/Retransmission Consent

On March 3, 2011, the FCC initiated a Notice of Proposed Rulemaking which among other things asked for comment on eliminating the network non-duplication and syndicated exclusivity protection rules, which may permit MVPDs to import out-of-market television stations in certain circumstances. In March 2014, the FCC adopted a further notice of proposed rulemaking which sought additional comment on the elimination or modification of the network non-duplication and syndicated exclusivity rules. The FCC’s possible elimination or modification of the network non-duplication and syndicated exclusivity protection rules may affect the Company’s ability to sustain its current level of retransmission consent revenues or grow such revenues in the future and could have an adverse effect on the Company’s business, financial condition and results of operations. The Company cannot predict the resolution of the FCC’s network non-duplication and syndicated exclusivity proposals, or the impact of these proposals if they are adopted.

On December 5, 2014, federal legislation directed the FCC to commence a rulemaking to “review its totality of the circumstances test for good faith [retransmission consent] negotiations.” The FCC commenced this proceeding in September 2015 and comments and reply comments were submitted. In July 2016, the then-Chairman of the FCC publicly announced that the agency would not adopt additional rules in this proceeding. However, the proceeding remains open.

Further, certain ~~online~~OVDs ~~video distributors and other over-the-top video distributors (“OTTDs”)~~ have begun streaming broadcast programming over the Internet. In June 2014, the U.S. Supreme Court held that an ~~OTTD~~OVD’s retransmissions of broadcast television signals without the consent of the broadcast station violate copyright holders’ exclusive right to perform their works publicly as provided under the Copyright Act. In December 2014, the FCC issued a Notice of Proposed Rulemaking proposing to interpret the term “MVPD” to encompass ~~OTTDs~~OVDs that make available for purchase multiple streams of video programming distributed at a prescheduled time and seeking comment on the effects of applying MVPD rules to such ~~OTTDs~~OVDs. Comments and reply comments were filed in 2015. Although the FCC has not classified ~~OTTDs~~OVDs as MVPDs to date, several ~~OTTDs~~OVDs have signed agreements for retransmission of local stations within their markets and others are actively seeking to negotiate such agreements.

10. Commitments and Contingencies

Guarantee of Nexstar Debt

Mission is a guarantor of and has pledged substantially all its assets, excluding FCC licenses, to guarantee Nexstar’s credit facility. Mission is also a guarantor of Nexstar’s 6.125% Notes and Nexstar’s 5.625% Notes.

The 6.125% Notes and the 5.625% Notes are general senior unsecured obligations subordinated to all of Mission’s senior secured debt. In the event that Nexstar is unable to repay amounts due under these debt obligations, Mission will be obligated to repay such amounts. The maximum potential amount of future payments that Mission would be required to make under these guarantees would be generally limited to the amount of borrowings outstanding under Nexstar’s senior secured credit facility, the 6.125% Notes and the 5.625% Notes. As of ~~March~~June 3130, 2019, Nexstar had $273.67 million outstanding obligations under its 6.125% Notes due on February 15, 2022, $~~888~~889.71 million outstanding obligations under its 5.625% Notes due on August 1, 2024, and a maximum commitment of $2.~~191~~084 billion under its senior secured credit facility, of which $1.~~213~~116 billion in Term Loan B and $~~815~~804.09 million in Term Loan A were outstanding. Nexstar also has a $163.4 million revolving loan commitment, of which no amount was outstanding as of ~~March~~June 3130, 2019. Nexstar’s Term Loan B matures on January 17, 2024. Nexstar’s Term Loan A and revolving loans mature on October 26, 2023.

On ~~April~~July 293, 2019, Nexstar ~~prepaid~~Escrow, Inc., a wholly owned indirect subsidiary of Nexstar (“Nexstar Escrow”), completed the sale and issuance of $301.0120 ~~million~~billion 5.625% Senior Unsecured Notes due 2027 (the “5.625% Notes due 2027”) at par. The proceeds of the ~~outstanding~~5.625% ~~principal~~Notes ~~balance~~due ~~under~~2027 was deposited in a segregated escrow account and, upon satisfaction of certain escrow condition, will be used by Nexstar to partially fund its ~~term~~merger ~~loans~~with Tribune Media Company (“Tribune”). Prior to the consummation of the Nexstar and Tribune merger, ~~funded~~the 5.625% Notes due 2027 will not be guaranteed, but will be secured by ~~cash~~a onfirst-priority ~~hand~~security interest in the escrow account and all deposits and investment property therein. Following satisfaction of the escrow conditions, the 5.625% Notes due 2027 will be senior unsecured obligations of Nexstar and will be guaranteed by Nexstar, Mission and certain of Nexstar’s and Mission’s future wholly-owned subsidiaries, subject to certain customary release provisions.

Purchase Options Granted to Nexstar

In consideration of the guarantee of Mission’s bank credit facility by Nexstar, Mission has granted Nexstar purchase options to acquire the assets and assume the liabilities of each Mission station, subject to FCC consent, for consideration equal to the greater of (1) seven times the station’s cash flow, as defined in the option agreement, less the amount of its indebtedness as defined in the option agreement, or (2) the amount of its indebtedness. Cash flow is defined as income or loss from operations, plus depreciation and amortization (including amortization of broadcast rights), interest income, non-cash trade and barter expenses, nonrecurring expenses (including time brokerage agreement fees), network compensation payments received or receivable and corporate management fees, less payments for broadcast rights, non-cash trade and barter revenue and network compensation revenue. Additionally, Mission’s shareholders have granted Nexstar an option to purchase any or all of the Company’s stock, subject to FCC consent, for a price equal to the pro rata portion of the greater of (1) five times the Mission stations’ cash flow, as defined in the agreement, reduced by the amount of indebtedness, as defined in the agreement, or (2) $100,000. These option agreements (which expire on various dates between 2021 and 2028) are freely exercisable or assignable by Nexstar without consent or approval by Mission or its shareholders. The Company expects these option agreements to be renewed upon expiration.

Indemnification Obligations

In connection with certain agreements that the Company enters into in the normal course of its business, including local service agreements, business acquisitions and borrowing arrangements, the Company enters into contractual arrangements under which the Company agrees to indemnify the other party to such arrangement from losses, claims and damages incurred by the indemnified party for certain events as defined within the particular contract. Such indemnification obligations may not be subject to maximum loss clauses and the maximum potential amount of future payments the Company could be required to make under these indemnification arrangements may be unlimited. Historically, payments made related to these indemnifications have been insignificant and the Company has not incurred significant costs to defend lawsuits or settle claims related to these indemnification agreements.

Litigation

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

ITEM 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our Condensed Financial Statements and related Notes included elsewhere in this Quarterly Report on Form 10-Q and the Financial Statements and related Notes contained in our Annual Report on Form 10-K for the year ended December 31, 2018. Throughout this discussion, all references to “Mission,” “we,” “our,” “us” and the “Company” refer to Mission Broadcasting, Inc.

Overview of Operations

As of ~~March~~June 3130, 2019, we owned and operated 19 full power television stations in 18 markets in the states of Arkansas, Colorado, Illinois, Indiana, Louisiana, Missouri, Montana, New York, Pennsylvania, Texas and Vermont. Our stations are affiliated with ABC, FOX, NBC, CBS, The CW, ~~MNTV~~ and other broadcast television networks. We have local service agreements with certain television stations owned by Nexstar, through which Nexstar provides various programming, sales ~~and~~or other services to our television stations. In compliance with FCC regulations for both Nexstar and us, we maintain complete responsibility for and control over programming, finances and personnel for our stations.

The following table summarizes the various local service agreements our stations had in effect as of ~~March~~June 3130, 2019 with Nexstar:

Service Agreements		Full Power Stations
TBA Only		WFXP, KHMT and KFQX
SSA & JSA		KJTL, KLRT, KASN, KOLR, KCIT, KAMC, KRBC, KSAN, WUTR, WAWV, WYOU, KODE, WTVO, KTVE, WTVW and WVNY

Under the local service agreements, Nexstar has received substantially all of our available cash, after satisfaction of operating costs and debt obligations. We anticipate that Nexstar will continue to receive substantially all of our available cash, after satisfaction of operating costs and debt obligations. For more information about our local service agreements with Nexstar, refer to Note 3 of our Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The operating revenue of our stations is derived primarily from revenues earned under our retransmission agreements with MVPDs and ~~OTTDs~~OVDs and broadcast advertising revenue sold and collected by Nexstar and paid to us under the JSAs. Broadcast advertising revenue is affected by a number of factors, including the economic conditions of the markets in which we operate, the demographic makeup of those markets and the marketing strategy employed in each market. 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. The stations’ advertising revenue is generally highest in the second and fourth quarters of each year, due in part to increases in consumer advertising in the spring and retail advertising in the period leading up to, and including, the holiday season. In addition, advertising revenue is generally higher during even-numbered years, when state, congressional and presidential elections occur and from advertising aired during the Olympic Games.

We earn revenues from distributors including local cable providers, ~~DBS~~direct broadcast satellite services and other MVPDs and ~~OTTDs~~OVDs for the retransmission of our broadcasts. These revenues are generally earned based on a price per subscriber of the distributor within the retransmission area. We have been successful at negotiating favorable pricing with distributors, as well as signing retransmission agreements with additional distributors, driving significant revenue gains over the last few years.

Most of our stations have network affiliation agreements pursuant to which the networks provide programming to the stations during specified time periods, including prime time, in exchange for network affiliation fees and the right to sell a portion of the advertising time during these broadcasts.

Our primary operating expenses include network affiliation costs, which can vary based on our broadcast programming and retransmission subscribers, and fixed monthly SSA fees paid to Nexstar for news production and technical and other services. To a lesser extent, our operating expenses include employee compensation and related benefits. A large percentage of the costs involved in the operation of our stations remains fixed.

Regulatory Developments

As a television broadcaster, wethe ~~are~~Company is highly regulated, and ~~our~~its operations require that weit ~~retain~~retains or ~~renew~~renews a variety of government approvals and ~~comply~~complies with changing federal regulations. In 2016, the FCC reinstated a previously adopted rule providing that a television station licensee which sells more than 15 percent of the weekly advertising inventory of another television station in the same ~~DMA~~Designated Market Area is deemed to have an attributable ownership interest in that station. Parties to existing JSAs that were deemed attributable interests and did not comply with the FCC’s local television ownership rule were given until September 30, 2025 to come into compliance. In November 2017, however, the FCC adopted anits ~~order~~Reconsideration onOrder ~~reconsideration~~ that eliminated the rule. That elimination became effective on February 7, 2018, although the ~~FCC’s~~Reconsideration ~~November~~Order ~~2017 order on reconsideration~~ remains the subject of pending court appeals. If wethe ~~are~~Company is ultimately required to amend or terminate ~~our~~its existing JSAs, wethe Company could have a reduction in revenue and increased costs if weit ~~are~~is unable to successfully implement alternative arrangements that are as beneficial as the existing JSAs.

The FCC is in the process of repurposing a portion of the broadcast television spectrum for wireless broadband use. In an incentive auction which concluded in April 2017, certain television broadcasters accepted bids from the FCC to voluntarily relinquish their spectrum in exchange for consideration. Television stations that are not relinquishing their spectrum are being “repacked” into the frequency band still remaining for television broadcast use. Seven ofstations ~~our~~owned ~~stations~~by the Company have been assigned to new channels in the reduced post-auction television band and are required to construct and license the necessary technical modifications to operate on their new assigned channels on a ~~rolling~~variable schedule ending in July 2020. Congress has allocated up to an industry-wide total of $2.75 billion to reimburse television broadcasters, MVPDs, and other parties for costs reasonably incurred due to the repack. The Company expects to incur costs between now and July 2020 in connection with the repack, some or all of which will be reimbursable. During the three and six months ended ~~March~~June 3130, 2019, the Company spent a total of $0.8 million and $2.7 million, respectively, in capital expenditures related to station repack which were recorded as assets under the property and equipment caption in the Condensed Balance Sheets. During the three and six months ended June 30, 2018, the Company spent a total of $0.84 million and $02.43 million, respectively, in capital expenditures related to station repack which were recorded as assets under the property and equipment caption in the accompanying Balance Sheets. During the three and six months ended ~~March~~June 3130, 2019, the Company received $10.58 million and $2.3 million, respectively, in reimbursements from the FCC related to these expenditures. ~~There~~which were norecorded ~~reimbursements~~as operating income in the accompanying Condensed Statements of Operations. During the three and six months ended June 30, 2018, the Company received $0.2 million in reimbursements from the FCC related to these expenditures which was recorded as operating income in the accompanying Condensed Statements of Operations. As of June 30, 2019, approximately $10.0 million of estimated remaining costs in connection with the station repack inare ~~2017~~expected to be incurred by the Company, some or all of which will be reimbursable. If the FCC fails to fully reimburse ~~our~~the Company’s repacking costs, wethe Company could have increased costs related to the repacking.

Historical Performance

Revenue

The following table sets forth the principal types of revenue earned by our stations (in thousands):

	Three Months Ended March 31,
	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Retransmission compensation	$	1918,~~104~~604	$	1517,~~904~~231	$	37,708	$	33,135
Other		~~303~~306		~~198~~375		609		628
Revenue from Nexstar		78,~~762~~262		89,~~483~~058		16,024		17,486
Net revenue	$	27,~~169~~172	$	2426,~~585~~664	$	54,341	$	51,249

Results of Operations

The following table sets forth a summary of our operations (dollars in thousands) and the components of operating expense as a percentage of net revenue:

	Three Months Ended March 31,
	Three Months Ended June 30,												Six Months Ended June 30,
	2019						2018						2019						2018
	Amount			%			Amount			%			Amount			%			Amount			%
Net revenue	$	27,~~169~~172			100.0		$	2426,~~585~~664			100.0			54,341			100.0			51,249			100.0
Operating expenses (income):
Corporate expenses		~~465~~418			1.75			~~505~~448			2.1.7			883			1.6			953			1.9
Station direct operating expenses		1211,~~036~~995			44.31			10,~~147~~013			4137.36			24,031			44.2			20,160			39.3
Selling, general and administrative expenses, excluding corporate		~~526~~580			12.91			~~711~~664			2.95			1,106			2.0			1,375			2.7
Fees incurred pursuant to local service agreements with Nexstar		14,575			53.6			13,250			5349.97			29,150			53.6			26,500			51.7
Depreciation		~~608~~620			2.23			~~517~~504			2.1.9			1,228			2.3			1,021			2.0
Amortization of intangible assets		~~519~~491			1.98			~~544~~540			2.20			1,010			1.9			1,084			2.1
Amortization of broadcast rights		~~383~~369			1.4			~~412~~409			1.75			752			-			821			1.6
Reimbursement from the FCC related to station repack		(~~1,536~~764	)		(52.78	)		-(187	)		-(0.7	)		(2,300	)		(4.2	)		(187	)		-
Total operating expenses		2728,~~576~~284						2625,~~086~~641						55,860						51,727
loss from operations	$	(407	)				$	(1,501	)
(Loss) Income from operations	$	(1,112	)				$	1,023					$	(1,519	)				$	(478	)

Three Months Ended ~~March~~June 3130, 2019 Compared to Three Months Ended ~~March~~June 3130, 2018

Revenue

Net revenue for the three months ended ~~March~~June 3130, 2019 increased by $20.65 million, or 101.59%, from the same period in 2018.

Revenue from Nexstar was $7.8.3 million for the three months ended ~~March~~June 3130, 2019, compared to $89.51 million for the same period in 2018, a decrease of $0.78 million, or 8.58%, as 2019 is not an election year. The revenue we earn from Nexstar through our JSAs is directly correlated to the advertising revenue earned at our stations.

Compensation from retransmission consent was $1918.16 million for the three months ended ~~March~~June 3130, 2019, compared to $1517.92 million for the same period in 2018, an increase of $31.24 million, or 208.10%. The increase was primarily due to scheduled annual escalation of rates per subscriber and the renewals of smaller contracts providing for higher rates per subscriber (contracts generally have a three-year term). Broadcasters currently deliver more than 30% of all television viewing audiences in a pay television household but are paid approximately 12-14% of the total basic cable programming fees. We anticipate continued increase of retransmission fees until there is a more balanced relationship between viewers delivered and fees paid for delivery of such viewers.

Operating Expenses

Corporate expenses, costs associated with the centralized management of our stations, were consistent at $0.54 million for the three months ended ~~March~~June 3130, 2019 and 2018.

Station direct operating expenses, consisting primarily of news, engineering and programming, and station selling, general and administrative expenses were $12.56 million for the three months ended ~~March~~June 3130, 2019, compared to $10.87 million for the same period in 2018, an increase of $1.79 million, or 1517.78%. The increase was primarily due to network affiliation renewals and annual increases in our network affiliation costs of $12.90 million.

Local service agreement fees associated with Nexstar relate to services provided by Nexstar in the production of newscasts, technical maintenance, promotional and administrative support under the SSAs. The local service agreement fees for the three months ended ~~March~~June 3130, 2019 were $14.6 million, compared to $13.3 million for the same period in 2018, or an increase of $1.3 million, due to scheduled annual escalation in the recurring SSA fees.

Depreciation of property and equipment was consistent at $0.6 million for the three months ended ~~March~~June 3130, 2019, compared to $0.5 million for the same period in 2018.

Amortization of intangible assets was consistent at $0.5 million for the three months ended ~~March~~June 3130, 2019 and 2018.

Interest Expense

Interest expense was $2.9 million for the three months ended ~~March~~June 3130, 2019, compared to $2.67 million for the same period in 2018, an increase of $0.32 million primarily due to an increasing trend in the London Interbank Offered Rate (“LIBOR”).

Income Taxes

During the three months ended ~~March~~June 3130, 2019, we recognized an income tax benefit of $01.80 million on a pre-tax book loss of $34.30 million resulting in an effective tax rate of 25.43% as compared to an income tax ~~expense~~benefit of $1.0.4 million on a pre-tax book ~~income~~loss of $4.1.7 million for the same period in 2018 resulting in an effective tax rate of 2324.98%. The increase in the effective tax rate between the two periods was primarily ~~due~~related to changes in the Texas Margin tax which resulted in a 1.41% increase in the effective tax rate between the two periods.

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Revenue

Net revenue for the six months ended June 30, 2019 decreased by $3.1 million, or 6.0%, from the same period in 2018.

Revenue from Nexstar was $16.0 million for the six months ended June 30, 2019, compared to $17.5 million for the same period in 2018, a decrease of $1.5 million, or 8.4%, as 2019 is not an election year. The revenue we earn from Nexstar through our JSAs is directly correlated to the advertising revenue earned at our stations.

Compensation from retransmission consent was $37.7 million for the six months ended June 30, 2019, compared to $33.1 million for the same period in 2018, an increase of $4.6 million, or 13.8%. The increase was primarily due to scheduled annual escalation of rates per subscriber and the renewals of smaller contracts providing for higher rates per subscriber (contracts generally have a three-year term). Broadcasters currently deliver more than 30% of all television viewing audiences in a pay television household but are paid approximately 12-14% of the total basic cable programming fees. We anticipate continued increase of retransmission fees until there is a more balanced relationship between viewers delivered and fees paid for delivery of such viewers.

Operating Expenses

Corporate expenses were $0.9 million for the six months ended June 30, 2019, compared to $1.0 million for the same period in 2018, a decrease of $0.1 million, or 7.3%.

Station direct operating expenses, consisting primarily of news, engineering and programming, and station selling, general and administrative expenses were $25.1 million for the six months ended June 30, 2019, compared to $21.6 million for the same period in 2018, an increase of $3.5 million, or 16.2%. The increase was primarily due to network affiliation renewals and annual increases in our network affiliation costs of $3.9 million.

Local service agreement fees associated with Nexstar relate to services provided by Nexstar in the production of newscasts, technical maintenance, promotional and administrative support under the SSAs. SSA fees were $29.2 million for the six months ended June 30, 2019, compared to $26.5 million for the same period in 2018, an increase of $2.7 million, due to scheduled annual escalation in the recurring SSA fees.

Depreciation of property and equipment was consistent at $1.2 million for the six months ended June 30, 2019, compared to $1.0 million in the same period in 2018.

Amortization of intangible assets was consistent at $1.0 million for the six months ended June 30, 2019, compared to $1.1 million in the same period in 2018.

Interest Expense

Interest expense was $5.8 million for the six months ended June 30, 2019, compared to $5.4 million for the same period in 2018, an increase of $0.4 million primarily due to an increasing trend in LIBOR.

Income Taxes

During the six months ended June 30, 2019, we recognized an income tax benefit of $1.9 million on a pre-tax book loss of $7.3 million resulting in an effective tax rate of 25.3% as compared to an income tax benefit of $1.4 million on a pre-tax book loss of $5.8 million for the same period in 2018 resulting in an effective tax rate of 24.1%. The increase in the effective tax rate between the two periods was primarily due to changes in the Texas Margin tax which resulted in a 1.1% increase in the effective tax rate between the two periods.

Liquidity and Capital Resources

We are highly leveraged, which makes us vulnerable to changes in general economic conditions. Our ability to meet the future cash requirements described below depends on our ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other conditions, many of which are beyond our control. Our ability to meet future cash requirements is also dependent upon the local service agreements we have entered into with Nexstar. Under our local service agreements, Nexstar sells our advertising time and pays us a percentage of the amount collected. The payments we receive from Nexstar are a significant component of our cash flows. On March 22, 2019, Nexstar represented to us that it will continue the various local service agreements under which it provides sales and other services to our television stations, thereby providing financial support to enable us to continue to operate as a going concern. We believe that with Nexstar’s pledge to continue the local service agreements, our available cash, anticipated cash flow from operations and available borrowings under our senior secured credit facility should be sufficient to fund working capital, capital expenditure requirements, interest payments and scheduled debt principal payments for at least the next 12 months from ~~May~~August 912, 2019. In order to meet future cash needs we may, from time to time, borrow under our existing senior secured credit facility. We will continue to evaluate the best use of our operating cash flow among capital expenditures and debt reduction.

Overview

The following tables present summarized financial information management believes is helpful in evaluating our liquidity and capital resources (in thousands):

	Three Months Ended March 31,
	Six Months Ended June 30,
	2019			2018
Net cash used in operating activities	$	(~~5,289~~29	)	$	(41,~~060~~485	)
Net cash provided by (used in) investing activities		645			(830	)
Net cash used in investing activities		(656	)		(325	)
Net cash used in financing activities		(~~571~~1,143	)		(~~578~~1,157	)
Net decrease in cash and cash equivalents	$	(51,~~215~~828	)	$	(52,~~468~~967	)
Cash paid for interest	$	14,~~932~~752		$	24,~~306~~845
Cash received from income tax refunds, net of cash paid for income taxes	$	(236	)	$	-
Cash (paid) received from income tax refunds, net of cash paid for income taxes	$	(226	)	$	105

	As of		As of
	March 31,		December 31,
	June 30, 2019		December 31, 2018
	2019		2018
Cash and cash equivalents	$	8,970	$	10,798
Cash and cash equivalents	$	5,583	$	10,798
Long-term debt including current portion		223,845		224,639
Long-term debt including current portion		224,241		224,639
Unused revolving loan commitments under senior secured credit facilities		3,000		3,000

Cash Flows – Operating Activities

Net cash flows used in operating activities were $~~5.3 million~~29 thousand during the ~~three~~six months ended ~~March~~June 3130, 2019, compared to net cash flows used in operating activities of $4.1.5 million for the same period in 2018. The ~~increase~~decrease of $1.246 million was primarily due to a ~~source~~$7.7 million decrease in the use of cash resulting from timing of ~~accounts~~payments ~~receivable~~to ~~collections of $5.1 million~~vendors, partially offset by a ~~$3.9~~source ~~million decrease in the use~~ of cash resulting from timing of ~~payments~~accounts toreceivable ~~vendors~~collections of $3.1 million.

Cash Flows – Investing Activities

Net cash flows ~~provided~~used byin investing activities were $0.67 million during the ~~three~~six months ended ~~March~~June 3130, 2019, compared to $0.83 million ~~used by investing activities~~ for the same period in 2018. ~~The~~During the six months ended June 30, 2019, we paid $3.0 million in capital expenditures, an increase of $12.5 million ~~was~~compared ~~due~~ to ~~reimbursements~~the ~~from~~same ~~the~~period ~~FCC~~in 2018, primarily related to station ~~repack~~repacking ~~of $1~~costs.5 ~~million.~~

Cash Flows – Financing Activities

Net cash flows used in financing activities during the ~~three~~six months ended ~~March~~June 3130, 2019 and 2018 were consistent at $01.61 million. We paid the scheduled principal maturities under our term loan of $01.61 million during each of the ~~three~~six months ended ~~March~~June 3130, 2019 and 2018.

Our senior secured credit facility restricts but does not prohibit the payment of cash dividends to our shareholders.

Future Sources of Financing and Debt Service Requirements

As of ~~March~~June 3130, 2019, we had total debt of $~~224~~223.28 million which represented ~~111~~113.85% of our total capitalization. Our high level of debt requires that a substantial portion of cash flow be dedicated to pay principal and interest on our debt, which reduces the funds available for working capital, capital expenditures, acquisitions and other general corporate purposes.

The total amount of borrowings available to us under our revolving credit facility is based on covenant calculations contained in Nexstar’s credit agreement. As of March 31, 2019, we have $3.0 million of unused revolving loan commitment under our senior secured credit facility. 20

The ~~following~~total ~~table~~amount ~~summarizes~~of ~~the~~borrowings ~~approximate~~available ~~aggregate~~to ~~amount~~us ofunder ~~principal~~our ~~indebtedness~~revolving ~~scheduled~~credit tofacility ~~mature~~is ~~for~~based ~~the~~on ~~periods~~covenant ~~referenced~~calculations ascontained in Nexstar’s credit agreement. As of ~~March~~June 3130, 2019, ~~(in~~we ~~thousands):~~have $3.0 million of unused revolving loan commitment under our senior secured credit facility.

		Total				2019				2020-2021				2022-2023				Thereafter
Senior secured credit facility		$	227,956			$	1,713			$	4,571			$	4,571			$	217,101

The following table summarizes the approximate aggregate amount of principal indebtedness scheduled to mature for the periods referenced as of June 30, 2019 (in thousands):

		Total				2019				2020-2021				2022-2023				Thereafter
Senior secured credit facility		$	227,384			$	1,142			$	4,570			$	4,570			$	217,102

Interest payments on our senior secured credit facility are generally paid every one to three months and are payable based on the type of interest rate selected.

The terms of our senior secured credit facility limit, but do not prohibit, us from incurring substantial amounts of additional debt in the future.

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

Collateralization and Guarantees of Debt

Nexstar guarantees full payment of all obligations under our senior secured credit facility in the event of our default. Similarly, we are a guarantor of Nexstar’s senior secured credit facility, the $900.0 million 5.625% Notes issued by Nexstar and the $275.0 million 6.125% Notes issued by Nexstar. The senior secured credit facilities are collateralized by a security interest in substantially all the combined assets, excluding FCC licenses, of Nexstar and us.

The 5.625% Notes and the 6.125% Notes are general senior unsecured obligations subordinated to all of our senior secured debt. In the event that Nexstar is unable to repay amounts due under these debt obligations, we will be obligated to repay such amounts. The maximum potential amount of future payments that we would be required to make under these guarantees would be generally limited to the amount of borrowings outstanding under Nexstar’s senior secured credit facility, the 5.625% Notes, and the 6.125% Notes. As of ~~March~~June 3130, 2019, Nexstar had $~~888~~889.71 million outstanding obligations under its 5.625% Notes, $273.67 million outstanding obligations under its 6.125% Notes and a maximum commitment of $2.~~191~~084 billion under its senior secured credit facility, of which $1.~~213~~116 billion in Term Loan B and $~~815~~804.09 million in Term Loan A were outstanding.

On ~~April~~July 293, 2019, Nexstar ~~prepaid~~Escrow completed the sale and issurance of $301.0120 ~~million~~billion 5.625% Notes due 2027 at par. The proceeds of the ~~outstanding~~5.625% ~~principal~~Notes ~~balance~~due ~~under~~2027 was deposited in a segregated escrow account and, upon satisfaction of certain escrow condition, will be used by Nexstar to partially fund its ~~term~~merger ~~loans~~with Tribune. Prior to the consummation of the Nexstar and Tribune merger, ~~funded~~the 5.625% Notes due 2027 will not be guaranteed, but will be secured by ~~cash~~a onfirst-priority ~~hand~~security interest in the escrow account and all deposits and investment property therein. Following satisfaction of the escrow conditions, the 5.625% Notes due 2027 will be senior unsecured obligations of Nexstar and will be guaranteed by Nexstar, Mission and certain of Nexstar’s and Mission’s future wholly-owned subsidiaries, subject to certain customary release provisions.

Debt Covenants

Our ability to continue as a going concern is dependent on Nexstar’s pledge to continue the local service agreements described in a letter of support dated March 22, 2019. Our senior secured credit facility agreement does not contain financial covenant ratio requirements; however, it does include an event of default if Nexstar does not comply with all covenants contained in its credit agreement. Nexstar’s senior secured credit facility agreement contains covenants which require Nexstar to comply with a maximum consolidated first lien net leverage ratio of 4.25 to 1.00. The covenants, which are calculated on a quarterly basis, include the combined results of Nexstar and us. The indentures governing Nexstar’s 5.625% Notes and 6.125% Notes contain restrictive covenants customary for borrowing arrangements of these types. As of ~~March~~June 3130, 2019, Nexstar informed us that it was in compliance with all covenants contained in the credit agreement governing its senior secured credit facility and the indentures governing its 5.625% Notes and 6.125% Notes.

No Off-Balance Sheet Arrangements

As of ~~March~~June 3130, 2019, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are, therefore, not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

2021

Critical Accounting Policies and Estimates

Our Condensed Financial Statements have been prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Condensed Financial Statements and reported amounts of revenue and expenses during the period. On an ongoing basis, we evaluate our estimates, including those related to goodwill and intangible assets, bad debts, broadcast rights, trade and barter, income taxes, commitments and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates. Results of operations for interim periods are not necessarily indicative of results for the full year.

Information with respect to our critical accounting policies which we believe could have the most significant effect on our reported results and require subjective or complex judgments by management is contained in our Annual Report on Form 10-K for the year ended December 31, 2018. Management believes that as of ~~March~~June 3130, 2019, there have been no material changes to this information.

Leases

As discussed in Note 2, the Company adopted the FASB issued ASU No. 2016-02, Leases (Topic 842) and all related amendments. ASC 842 establishes a comprehensive new lease accounting model that requires the recording of assets and liabilities arising from leases on the balance sheet accompanied by enhanced qualitative and quantitative disclosures in the notes to the financial statements. The Company adopted this standard effective January 1, 2019 using the optional transition method. As a result, financial information for reporting periods beginning after January 1, 2019 is presented under ASC 842, while comparative financial information has not been adjusted and continues to be reported in accordance with the Company’s historical accounting policy for revenue recognition prior to the adoption of ASC 842. The standard had a material impact on our Condensed Balance Sheets but did not impact our operating results, cash flows or equity. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases. Comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. See Note 2 to the Condensed Financial Statements in Part I, Item 1 of this Form 10-Q for the Company’s updated accounting policy on leases.

Recent Accounting Pronouncements

Refer to Note 2 of our Condensed Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of our adoption of recently issued accounting pronouncements, including our expected date of adoption and effects on results of operations and financial position.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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 a projection or assumption in any of our forward-looking statements. Our future financial position and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties, including those described in our Annual Report on Form 10-K for the year ended December 31, 2018 and in our other filings with the SEC. The forward-looking statements made in this Quarterly Report on Form 10-Q are made only as of the date hereof, and we do not have or undertake any obligation to update any forward-looking statements to reflect subsequent events or circumstances.

2122

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. The Company’s exposures to market risk did not change materially since December 31, 2018.

Our term loan borrowings under our senior secured credit facility bear interest at a rate of 4.7465% as of ~~March~~June 3130, 2019, and the interest rate on the revolving credit facility was 3.9990%, which represented the base rate, or LIBOR, plus the applicable margin, as defined. Interest is payable in accordance with the credit agreement.

If LIBOR were to increase by 100 basis points, or one percentage point, from its ~~March~~June 3130, 2019 level, our annual interest expense would increase and cash flow from operations would decrease by approximately $2.3 million, based on the outstanding balance of our credit facility as of ~~March~~June 3130, 2019. An increase of 50 basis points in LIBOR would increase our annual interest expense and decrease our cash flow from operations by approximately $1.1 million. A decrease of 100 or 50 basis points in LIBOR would decrease our annual interest expense and increase our cash flow from operations by approximately $2.3 million and $1.1 million, respectively. As of ~~March~~June 3130, 2019, we have no financial instruments in place to hedge against changes in the benchmark interest rates on our senior secured credit facility.

Impact of Inflation

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

ITEM 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Mission’s management, with the participation of Mission’s President and Treasurer (who is Mission’s principal executive officer and principal financial and accounting officer), conducted an evaluation as of the end of the period covered by this report of the effectiveness of the design and operation of Mission’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.

Based upon that evaluation, Mission’s President and Treasurer concluded that as of the end of the period covered by this report, Mission’s disclosure controls and procedures were effective, at a reasonable assurance level, to ensure that information required to be disclosed by Mission in the reports it files or submits under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to Mission’s management, including its President and Treasurer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

As of the quarter ended ~~March~~June 3130, 2019, there have been no changes in Mission’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

2223

PART II. OTHER INFORMATION

ITEM 1.

Legal Proceedings

From time to time, we are involved in litigation that arises from the ordinary operations of business, such as contractual or employment disputes or other general actions. In the event of an adverse outcome of these proceedings, we believe the resulting liabilities would not have a material adverse effect on our financial condition or results of operations.

ITEM 1A.

Risk Factors

There are no material changes from the risk factors previously disclosed in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3.

Defaults Upon Senior Securities

None.

ITEM 4.

Mine Safety Disclosures

None.

ITEM 5.

Other Information

None.

ITEM 6.

Exhibits

Exhibit No.		Description
10.3		KJTL Amendment to Agreement for Sale of Commercial Time between Nexstar Broadcasting, Inc. and Mission Broadcasting, Inc. (Incorporated by reference to Exhibit 10.3 to Current Report on Form 10-Q (File No. 000-50478) filed by Nexstar Media Group, Inc. on August 7, 2019).
10.4		KCIT Amendment to Agreement for Sale of Commercial Time between Nexstar Broadcasting, Inc. and Mission Broadcasting, Inc. (Incorporated by reference to Exhibit 10.4 to Current Report on Form 10-Q (File No. 000-50478) filed by Nexstar Media Group, Inc. on August 7, 2019).
31.1		Certification of Dennis Thatcher pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
32.1		Certification of Dennis Thatcher pursuant to 18 U.S.C. ss. 1350 *
101		The Company’s unaudited Financial Statements and related Notes for the quarter ended ~~March~~June 3130, 2019 from this Quarterly Report on Form 10-Q, formatted in iXBRL (Inline eXtensible Business Reporting Language) *

*	Filed herewith

2324

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/ Dennis Thatcher
	By:	Dennis Thatcher
	Its:	President and Treasurer
		(Principal Executive Officer and Principal Financial and Accounting Officer)

Dated: ~~May~~August 912, 2019

Filing Compare · MISSION BROADCASTING INC