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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2018

OR

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

For the transition period from                     to                     .

Commission File Number: 333-62916-02

MISSION BROADCASTING, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

 

51-0388022

(State of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

30400 Detroit Road, Suite 304, Westlake, Ohio

 

44145

(Address of Principal Executive Offices)

 

(Zip Code)

(440) 526-2227

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that it was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      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                    

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of November 9, 2018, 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 September 30, 2018 and December 31, 2017

  

1

 

 

 

 

 

 

  

Condensed Statements of Operations for the three and nine months ended September 30, 2018 and 2017

  

2

 

 

 

 

 

 

 

Condensed Statements of Changes in Shareholders' Deficit for the three and nine months ended September 30, 2018 and 2017

 

3

 

 

 

 

 

 

  

Condensed Statements of Cash Flows for the nine months ended September 30, 2018 and 2017

  

4

 

 

 

 

 

 

  

Notes to Condensed Financial Statements

  

5

 

 

 

 

 

ITEM 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

16

 

 

 

 

 

ITEM 3.

  

Quantitative and Qualitative Disclosures about Market Risk

  

24

 

 

 

 

 

ITEM 4.

  

Controls and Procedures

  

24

 

 

 

 

 

PART II

  

OTHER INFORMATION

  

 

 

 

 

 

 

ITEM 1.

  

Legal Proceedings

  

25

 

 

 

 

 

ITEM 1A.

  

Risk Factors

  

25

 

 

 

 

 

ITEM 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

  

25

 

 

 

 

 

ITEM 3.

  

Defaults Upon Senior Securities

  

25

 

 

 

 

 

ITEM 4.

  

Mine Safety Disclosures

  

25

 

 

 

 

 

ITEM 5.

  

Other Information

  

25

 

 

 

 

 

ITEM 6.

  

Exhibits

  

25

 

 

 

 

 


PART I. FINANCIAL INFORMATION

 

ITEM 1.

Financial Statements

MISSION BROADCASTING, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share information, unaudited)

 

 

September 30,

 

 

December 31,

 

 

2018

 

 

2017

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

5,137

 

 

$

9,524

 

Accounts receivable, net of allowance for doubtful accounts of $198 and $128, respectively

 

14,985

 

 

 

14,717

 

Due from Nexstar Broadcasting, Inc.

 

81,549

 

 

 

92,923

 

Prepaid expenses and other current assets

 

1,311

 

 

 

2,070

 

Total current assets

 

102,982

 

 

 

119,234

 

Property and equipment, net

 

19,619

 

 

 

18,454

 

Goodwill

 

33,187

 

 

 

33,187

 

FCC licenses

 

43,102

 

 

 

43,102

 

Other intangible assets, net

 

14,235

 

 

 

15,841

 

Deferred tax assets, net

 

3,193

 

 

 

1,508

 

Other noncurrent assets, net

 

1,043

 

 

 

1,137

 

Total assets

$

217,361

 

 

$

232,463

 

LIABILITIES AND SHAREHOLDERS' DEFICIT

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Current portion of debt

$

2,314

 

 

$

2,314

 

Current portion of broadcast rights payable

 

302

 

 

 

986

 

Accounts payable

 

37

 

 

 

1,090

 

Accrued expenses

 

5,257

 

 

 

10,851

 

Interest payable

 

795

 

 

 

771

 

Deferred rent

 

710

 

 

 

702

 

Total current liabilities

 

9,415

 

 

 

16,714

 

Debt

 

222,271

 

 

 

223,428

 

Other noncurrent liabilities

 

7,084

 

 

 

7,626

 

Total liabilities

 

238,770

 

 

 

247,768

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

Shareholders' deficit:

 

 

 

 

 

 

 

Common stock - $1 par value, 1,000 shares authorized, issued and outstanding as of each of

September 30, 2018 and December 31, 2017

 

1

 

 

 

1

 

Subscription receivable

 

(1

)

 

 

(1

)

Accumulated deficit

 

(21,409

)

 

 

(15,305

)

Total shareholders' deficit

 

(21,409

)

 

 

(15,305

)

Total liabilities and shareholders' deficit

$

217,361

 

 

$

232,463

 

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

 

 

 

1


MISSION BROADCASTING, INC.

CONDENSED STATEMENTS OF OPERATIONS

(in thousands, unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

September 30,

 

 

September 30,

 

 

 

 

2018

 

 

2017

 

 

2018

 

 

 

 

2017

 

 

Net broadcast revenue

 

$

17,838

 

 

$

18,715

 

 

$

51,601

 

 

 

 

$

54,178

 

 

Revenue from Nexstar Broadcasting, Inc.

 

 

10,018

 

 

 

8,499

 

 

 

27,504

 

 

 

 

 

26,687

 

 

Net revenue

 

 

27,856

 

 

 

27,214

 

 

 

79,105

 

 

 

 

 

80,865

 

 

Operating expenses (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses, excluding depreciation and amortization

 

 

10,426

 

 

 

8,867

 

 

 

30,586

 

 

 

 

 

26,761

 

 

Selling, general and administrative expenses, excluding depreciation and amortization

 

 

1,108

 

 

 

1,267

 

 

 

3,436

 

 

 

 

 

3,102

 

 

Fees incurred pursuant to local service agreements with Nexstar Broadcasting, Inc.

 

 

14,575

 

 

 

13,250

 

 

 

41,075

 

 

 

 

 

22,250

 

 

Amortization of broadcast rights

 

 

383

 

 

 

1,405

 

 

 

1,204

 

 

 

 

 

4,217

 

 

Amortization of intangible assets

 

 

522

 

 

 

605

 

 

 

1,606

 

 

 

 

 

1,849

 

 

Depreciation

 

 

508

 

 

 

591

 

 

 

1,529

 

 

 

 

 

1,766

 

 

Reimbursement from the FCC related to station repack

 

 

(580

)

 

 

-

 

 

 

(767

)

 

 

 

 

-

 

 

Total operating expenses

 

 

26,942

 

 

 

25,985

 

 

 

78,669

 

 

 

 

 

59,945

 

 

Income from operations

 

 

914

 

 

 

1,229

 

 

 

436

 

 

 

 

 

20,920

 

 

Interest expense

 

 

(2,864

)

 

 

(2,524

)

 

 

(8,214

)

 

 

 

 

(7,730

)

 

Loss on extinguishment of debt

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

(2,133

)

 

(Loss) income before income taxes

 

 

(1,950

)

 

 

(1,295

)

 

 

(7,778

)

 

 

 

 

11,057

 

 

Income tax benefit (expense)

 

 

268

 

 

 

448

 

 

 

1,674

 

 

 

 

 

(4,350

)

 

Net (loss) income

 

$

(1,682

)

 

$

(847

)

 

$

(6,104

)

 

 

 

$

6,707

 

 

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

 

 

 

2


MISSION BROADCASTING, INC.

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT

For the Three and Nine Months Ended September 30, 2018 and 2017

(in thousands, except share information, unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Subscription

 

 

Accumulated

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Receivable

 

 

Deficit

 

 

Deficit

 

Balances as of June 30, 2018

 

 

1,000

 

 

 

1

 

 

 

(1

)

 

 

(19,727

)

 

 

(19,727

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,682

)

 

 

(1,682

)

Balances as of September 30, 2018

 

 

1,000

 

 

 

1

 

 

 

(1

)

 

 

(21,409

)

 

 

(21,409

)

 

Balances as of June 30, 2017

 

 

1,000

 

 

 

1

 

 

 

(1

)

 

 

(13,390

)

 

 

(13,390

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(847

)

 

 

(847

)

Balances as of September 30, 2017

 

 

1,000

 

 

 

1

 

 

 

(1

)

 

 

(14,237

)

 

 

(14,237

)

 

 

Balances as of December 31, 2017

 

 

1,000

 

 

 

1

 

 

 

(1

)

 

 

(15,305

)

 

 

(15,305

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,104

)

 

 

(6,104

)

Balances as of September 30, 2018

 

 

1,000

 

 

 

1

 

 

 

(1

)

 

 

(21,409

)

 

 

(21,409

)

 

Balances as of December 31, 2016

 

 

1,000

 

 

 

1

 

 

 

(1

)

 

 

(20,944

)

 

 

(20,944

)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,707

 

 

 

6,707

 

Balances as of September 30, 2017

 

 

1,000

 

 

 

1

 

 

 

(1

)

 

 

(14,237

)

 

 

(14,237

)

 

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


3


MISSION BROADCASTING, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(6,104

)

 

$

6,707

 

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Deferred income tax (benefit) expense

 

 

(1,685

)

 

 

3,811

 

Provision for bad debt

 

 

72

 

 

 

64

 

Depreciation of property and equipment

 

 

1,529

 

 

 

1,766

 

Amortization of intangible assets

 

 

1,606

 

 

 

1,849

 

Amortization of debt financing costs and debt discount

 

 

587

 

 

 

554

 

Amortization of broadcast rights, excluding barter

 

 

1,204

 

 

 

1,204

 

Payments for broadcast rights

 

 

(1,202

)

 

 

(1,209

)

Loss on asset disposal

 

 

-

 

 

 

87

 

Deferred gain recognition

 

 

(149

)

 

 

(149

)

Loss on extinguishment of debt

 

 

-

 

 

 

2,133

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(340

)

 

 

(2,047

)

Prepaid expenses and other current assets

 

 

92

 

 

 

(1,000

)

Other noncurrent assets

 

 

(28

)

 

 

(2

)

Accounts payable, accrued expenses and deferred rent

 

 

(7,932

)

 

 

4,591

 

Other noncurrent liabilities

 

 

(320

)

 

 

(247

)

Due from Nexstar Broadcasting, Inc.

 

 

11,374

 

 

 

(16,845

)

Net cash (used in) provided by operating activities

 

 

(1,296

)

 

 

1,267

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,356

)

 

 

(315

)

Payment for acquisition

 

 

-

 

 

 

(800

)

Net cash used in investing activities

 

 

(1,356

)

 

 

(1,115

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

 

-

 

 

 

230,608

 

Repayments of long-term debt

 

 

(1,735

)

 

 

(226,471

)

Payments for debt financing costs

 

 

-

 

 

 

(3,804

)

Net cash (used in) provided by financing activities

 

 

(1,735

)

 

 

333

 

Net (decrease) increase in cash and cash equivalents

 

 

(4,387

)

 

 

485

 

Cash and cash equivalents at beginning of period

 

 

9,524

 

 

 

6,474

 

Cash and cash equivalents at end of period

 

$

5,137

 

 

$

6,959

 

 

 

 

 

 

 

 

 

 

Non-cash investing activities:

 

 

 

 

 

 

 

 

Accrued purchases of property and equipment

 

$

2,045

 

 

$

-

 

Supplemental information:

 

 

 

 

 

 

 

 

Interest paid

 

$

7,508

 

 

$

7,453

 

Income taxes paid, net of refunds

 

$

105

 

 

$

1,306

 

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

 

 

4


MISSION BROADCASTING, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

 

1.  Organization and Business Operations

As of September 30, 2018, Mission Broadcasting, Inc. (“Mission” or the “Company”) owned and operated 19 full power television stations, affiliated with the NBC, ABC, CBS, FOX and The CW 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 23, 2018, 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 November 8, 2018, 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 September 30, 2018, 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 September 30, 2018 and for the three and nine months ended September 30, 2018 and 2017 are unaudited. However, in the opinion of management, such financial statements include all adjustments (consisting solely of normal recurring adjustments) necessary for the fair statement of the financial information included herein in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “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, 2017. The balance sheet as of December 31, 2017 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.

Revenue Recognition

As discussed in Recent Accounting Pronouncements below, the Company adopted the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) and all related amendments. ASC 606 establishes a comprehensive new revenue recognition model designed to depict the transfer of goods or services to a customer in an amount that reflects the consideration the entity expects to be entitled to receive in exchange for those goods or services and requires significantly enhanced revenue disclosures. The Company adopted this standard effective January 1, 2018 using the modified retrospective method as applied to customer contracts that were not completed as of January 1, 2018. As a result, financial information for reporting periods beginning on or after January 1, 2018 is presented under ASC 606, 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 606.

5


The Company’s revenue is primarily derived from the sale of advertising by Nexstar under joint sales agreements (“JSAs”), and the compensation received from multichannel video programming distributors (“MVPDs”) in its markets in return for the Company’s consent to the retransmission of the signals of its television stations. Total revenue includes revenue from Nexstar, retransmission compensation, and other broadcast related revenues. The Company determines whether gross or net presentation is appropriate based on its relationship in the applicable transaction with its ultimate customer. Any amounts paid by customers but not earned as of the balance sheet date are recorded as a contract liability (deferred revenue). The lag between billing the customers and when the payment is due is not significant.

Revenue from Nexstar is directly correlated to the advertising revenue earned at the Company’s stations and is recognized, for the amount the Company is entitled to receive, when the television advertising spots are sold by Nexstar and the advertisements are broadcast on Mission stations or delivered on Mission’s television station websites. Television advertising contracts are short-term in nature.

The Company’s retransmission consent agreements with MVPDs generally have a three-year term and provide revenue based on a monthly amount the Company is entitled to receive per subscriber. Under ASC 606, these revenues are considered arising from the licensing of functional intellectual property. As such, the Company applied the exception for sales- or usage-based royalty for the accounting of variable consideration and recognizes revenues (retransmission compensation) at the point in time the broadcast signal is delivered to the MVPDs. The MVPDs report their subscriber numbers to the Company on a 30- to 60-day lag, which coincides with their payment of the fees due to the Company. Prior to receiving the report from the MVPDs, the Company records revenue based on estimated subscribers and the monthly amount the Company is entitled to receive per subscriber. The impact of the lag in the number of subscribers is not significant.

The above revenue recognition policies are consistent with the Company’s historical accounting policies prior to the adoption of ASC 606.

Effective on January 1, 2018, the Company no longer recognizes barter revenue (and the related barter expense) resulting from the exchange of advertising time for certain program material. During the three months ended September 30, 2017, barter revenue (and the related barter expense) was $1.0 million. During the nine months ended September 30, 2017, barter revenue (and the related barter expense) was $3.0 million. The barter expense was included in amortization of broadcast rights in the accompanying Condensed Statement of Operations. As of December 31, 2017, the current barter assets (and the related current barter liabilities) were $0.6 million, and the noncurrent barter assets (and the related noncurrent barter liabilities) were $0.5 million. On January 1, 2018, the Company recorded an adjustment to remove the offsetting balances of barter assets and barter liabilities.

Under the Company’s historical accounting policy prior to the adoption of ASC 606, barter revenue (and the related barter expense) would have been $1.0 million and $2.8 million during the three and nine months ended September 30, 2018, respectively. In addition, the current barter assets (and the related current barter liabilities) would have been $0.5 million, and the noncurrent barter assets (and the related noncurrent barter liabilities) would have been $0.3 million as of September 30, 2018.

The Company elected to utilize the practical expedient around costs incurred to obtain contracts due to their short-term nature. Additionally, the incremental benefit from efforts in acquiring these contracts is considered not significant. Thus, the Company continued to expense sales commissions when incurred.

The Company did not disclose the value of unsatisfied performance obligations on its contracts with customers because they are either (i) contracts with an original expected term of one year or less, or (ii) contracts for which the sales- or usage-based royalty exception was applied.

See Note 7 for additional disclosures on revenue from contracts with customers. 

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 6 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 or shareholders’ deficit as previously reported.

6


Recent Accounting Pronouncements

 

New Accounting Standards Adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The Company adopted this standard and all related amendments effective January 1, 2018 using the modified retrospective method as applied to customer contracts that were not completed as of January 1, 2018. Upon adoption of this standard, the cumulative adjustment to the Company’s accumulated deficit as of January 1, 2018 for the cumulative effect of initially applying the new standard is not material.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) (“ASU 2016-15”). The amendments in ASU 2016-15 address eight specific cash flow issues and apply to all entities that are required to present a statement of cash flows under FASB Accounting Standards Codification 230, Statement of Cash Flows. The amendments in ASU 2016-15 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company has applied the change in accounting as of January 1, 2018. The adoption of ASU 2016-15 did not impact the Company's Financial Statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 provides clarification on the definition of a business and adds guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. To be considered a business under the new guidance, it must include an input and a substantive process that together significantly contribute to the ability to create output. The amendment removes the evaluation of whether a market participant could replace missing elements. The amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and will be applied prospectively. The Company has applied this change in accounting as of January 1, 2018. The adoption of ASU 2017-01 did not impact the Company's Financial Statements.

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. This final rule is effective on November 5, 2018. The Company has applied the new SEC disclosure requirements in its financial statements on a retrospective basis.

New Accounting Standards Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). This new guidance 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. ASU 2016-02 is expected to provide transparency of information and comparability among organizations. In January 2018, the FASB issued ASU No. 2018-01 to address the accounting treatment of land easements within the context of ASU No. 2016-02. ASU 2018-01 provides an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current leases guidance in Topic 840. In July 2018, the FASB issued ASU Nos. 2018-10 and 2018-11 which provide (i) narrow amendments to clarify how to apply certain aspects of the new lease standard, (ii) an additional optional transition method to recognize a cumulative-effect adjustment to the opening retained earnings in the period of adoption, (iii) a practical expedient to not separate nonlease components from the associated lease component if certain conditions are met, and (iv) lessors with a practical expedient for separating components of a contract. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company will adopt ASU 2016–02 as of January 1, 2019 using the optional transition method and will apply certain practical expedients offered in the guidance, such as those that state that the Company need not reassess whether expired or existing contracts contain leases, reevaluate the classification of expired or existing leases, or reassess initial direct costs for existing leases. Management has substantially completed the process of identifying existing lease contracts and is currently performing detailed evaluations of the leases under the new accounting requirements. The Company believes the most significant changes to the financial statements relate to the recognition of right–of–use assets and offsetting lease liabilities in the balance sheet for operating leases. The actual impact on the balance sheet will be contingent upon the Company's population of operating leases at adoption however, management does not expect the standard to have a material impact on cash flows or results of operations.

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

7


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.

 

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting ASU 2018-15 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 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 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 September 30, 2018:

 

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

 

 

September 30, 2018

 

 

December 31, 2017

 

 

 

useful life,

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

in years

 

 

Gross

 

 

Amortization

 

 

Net

 

 

Gross

 

 

Amortization

 

 

Net

 

Network affiliation agreements

 

 

15

 

 

$

86,248

 

 

$

(72,662

)

 

$

13,586

 

 

$

86,248

 

 

$

(71,150

)

 

$

15,098

 

Other definite-lived intangible assets

 

1-15

 

 

 

15,681

 

 

 

(15,032

)

 

 

649

 

 

 

15,681

 

 

 

(14,938

)

 

 

743

 

Other intangible assets

 

 

 

 

 

$

101,929

 

 

$

(87,694

)

 

$

14,235

 

 

$

101,929

 

 

$

(86,088

)

 

$

15,841

 

 

8


The following table presents the Company’s estimate of amortization expense for the remainder of 2018, each of the five succeeding years ended December 31 and thereafter for definite-lived intangible assets as of September 30, 2018 (in thousands):

 

Remainder of 2018

 

$

524

 

2019

 

 

1,919

 

2020

 

 

1,518

 

2021

 

 

1,517

 

2022

 

 

1,517

 

2023

 

 

1,443

 

Thereafter

 

 

5,797

 

 

 

$

14,235

 

 

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, 2017

 

$

34,737

 

 

$

(1,550

)

 

$

33,187

 

 

$

53,799

 

 

$

(10,697

)

 

$

43,102

 

Balances as of September 30, 2018

 

$

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 nine months ended September 30, 2018, the Company did not identify any events that would trigger an impairment assessment.

 

 

5.  Accrued Expenses

Accrued expenses consisted of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Network affiliation fees

 

$

1,495

 

 

$

8,823

 

Accrued capital expenditures

 

 

2,045

 

 

 

-

 

Other

 

 

1,717

 

 

 

2,028

 

 

 

$

5,257

 

 

$

10,851

 

 

6.  Debt

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

 

 

 

September 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Term loans, net of financing costs and discount of $4,521 and $5,099, respectively

 

$

224,585

 

 

$

225,742

 

Less: current portion

 

 

(2,314

)

 

 

(2,314

)

 

 

$

222,271

 

 

$

223,428

 

 

2018 Transactions

Through September 30, 2018, Mission repaid scheduled maturities of $1.7 million under its Term Loan B, funded by cash on hand.

On October 26, 2018, Mission and Nexstar completed refinancings of certain of their senior secured credit facilities, including Mission’s Term Loan B and revolving credit facilities. See Note 10 for additional information.

9


Unused Commitments and Borrowing Availability

As of September 30, 2018, 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 September 30, 2018, Nexstar had $887.8 million of outstanding obligations under its 5.625% Notes, $273.3 million of outstanding obligations under its 6.125% Notes and a maximum commitment of $2.444 billion under its senior secured credit facility, of which $1.596 billion in Term Loan B and $684.7 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 September 30, 2018.

Fair Value of Debt

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

 

 

 

September 30, 2018

 

 

December 31, 2017

 

 

 

Carrying

 

 

Fair

 

 

Carrying

 

 

Fair

 

 

 

Amount

 

 

Value

 

 

Amount

 

 

Value

 

Term loans

 

$

224,585

 

 

$

230,044

 

 

$

225,742

 

 

$

231,580

 

 

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.

 

10


7. Revenue

As discussed in Note 2, the Company adopted the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) and all related amendments. ASC 606 establishes a comprehensive new revenue recognition model designed to depict the transfer of goods or services to a customer in an amount that reflects the consideration the entity expects to be entitled to receive in exchange for those goods or services and requires significantly enhanced revenue disclosures. The Company adopted this standard effective January 1, 2018 using the modified retrospective method as applied to customer contracts that were not completed as of January 1, 2018. As a result, financial information for reporting periods beginning after January 1, 2018 is presented under ASC 606, 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 606. Upon adoption of this standard, the cumulative adjustment to the Company’s accumulated deficit as of January 1, 2018 for the cumulative effect of initially applying the new standard was not material. Comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The following are additional disclosures about the Company’s revenue under ASC 606.

Contract Balance

Contract balances typically arise when a difference in timing between the transfer of control to the customer and receipt of consideration occurs. As of each of September 30, 2018 and January 1, 2018, the Company had no contract balances.

Disaggregation of Revenues

The following table presents the disaggregation of our revenue for the three and nine months ended September 30, 2018 under ASC 606. Comparative 2017 revenues are presented in accordance with the Company’s historical accounting standard prior to the adoption of ASC 606 (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Retransmission compensation

 

$

17,838

 

 

$

17,492

 

 

$

50,973

 

 

$

50,646

 

Other

 

 

-

 

 

 

218

 

 

 

628

 

 

 

519

 

Barter revenue

 

 

-

 

 

 

1,005

 

 

 

-

 

 

 

3,013

 

Revenue from Nexstar

 

 

10,018

 

 

 

8,499

 

 

 

27,504

 

 

 

26,687

 

Net revenue

 

$

27,856

 

 

$

27,214

 

 

$

79,105

 

 

$

80,865

 

 

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 MVPDs 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 MVPDs and is based on a price per subscriber.

Beginning in 2018, the Company no longer recognizes barter revenue (and the related barter expense) resulting from the exchange of advertising time for certain program material.

 

11


8. Income Taxes

 

During the three months ended September 30, 2018, we recognized an income tax benefit of $0.3 million on a pre-tax book loss of $2.0 million resulting in an effective tax rate of 13.7% as compared to an income tax benefit of $0.4 million on pre-tax book loss of $1.3 million for the same period in 2017 resulting in an effective tax rate of 34.6%. The decrease in the effective tax rate between the two periods was primarily due to the Tax Act, which reduced the federal corporate income tax rate from 35% to 21%, or a 14.0% decrease, and the limitation of tax benefits allowed to be recognized during an interim period reduced the total tax benefit recognized by $0.3 million, or a 13.0% decrease. These decreases were partially offset by changes in the Texas Margin tax which resulted in a $0.1 million tax benefit, or a 4.9% increase in the