UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________

FORM 10-Q

________________________

(Mark One)



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

For the quarterly period ended December 31, ~~2016~~2017



	¨	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: 1-34434

________________________

MSG Networks Inc.

(Exact name of registrant as specified in its charter)



Delaware		27-0624498
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

_______________________

11 Pennsylvania Plaza

New York, NY 10001

(212) 465-6400

(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)

_______________________

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate ~~Web site,~~Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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



Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o(Do not check if a smaller reporting company)



Smaller reporting company o		Emerging growth company o

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. o

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

Number of shares of common stock outstanding as of January 31, ~~2017:~~2018:



Class A Common Stock par value $0.01 per share	—	~~61,483,687~~61,696,629
Class B Common Stock par value $0.01 per share	—	13,588,555

MSG NETWORKS INC.

INDEX TO FORM 10-Q




	Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets as of December 31, ~~2016~~2017 (unaudited) and June 30, ~~2016~~2017	1

Consolidated Statements of Operations for the three and six months ended December 31, ~~2016~~2017 and ~~2015~~2016 (unaudited)	2

Consolidated Statements of Comprehensive Income ~~(Loss)~~ for the three and six months ended December 31, ~~2016~~2017 and ~~2015~~2016 (unaudited)	3

Consolidated Statements of Cash Flows for the six months ended December 31, ~~2016~~2017 and ~~2015~~2016 (unaudited)	4

Consolidated Statements of Stockholders' ~~Equity (Deficiency)~~Deficiency for the six months ended December 31, ~~2016~~2017 and ~~2015~~2016 (unaudited)	5

Notes to Consolidated Financial Statements (unaudited)	6

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	2018

Item 3. Quantitative and Qualitative Disclosures About Market Risk	2927

Item 4. Controls and Procedures	2927

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	3028

Item 6. Exhibits	3028

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

MSG NETWORKS INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)


	December 31, 2016			June 30, 2016			December 31, 2017			June 30, 2017
ASSETS	(unaudited)						(unaudited)
Current Assets:
Cash and cash equivalents	$	185,143		$	119,568		$	201,915		$	141,087
Accounts receivable, net	100,576			101,427			104,381			105,030
Net related party receivable	15,738			15,492			19,293			17,153
Prepaid income taxes	15,340			28,384			3,654			14,322
Prepaid expenses	13,013			13,188			5,452			6,468
Other current assets	2,590			3,053			3,467			2,343
Total current assets	332,400			281,112			338,162			286,403
Property and equipment, net	12,613			14,154			9,447			11,828
Amortizable intangible assets, net	42,393			44,123			38,933			40,663
Goodwill	424,508			424,508			424,508			424,508
Other assets	42,175			42,645			40,714			41,642
Total assets	$	854,089		$	806,542		$	851,764		$	805,044
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable	$	988		$	2,043		$	1,398		$	1,241
Net related party payable	3,740			4,302			805			2,963
Current portion of long-term debt	72,414			64,914			72,414			72,414
Income taxes payable	8,982			8,662			7,400			11,483
Accrued liabilities:
Employee related costs	9,702			10,340			9,284			14,238
Other accrued liabilities	15,744			15,991			13,927			10,050
Deferred revenue	3,577			6,143			3,370			5,071
Total current liabilities	115,147			112,395			108,598			117,460
Long-term debt, net of current portion	1,376,638			1,412,845			1,204,224			1,240,431
Defined benefit and other postretirement obligations	30,917			31,827			29,051			29,979
Other employee related costs	4,870			5,550			3,966			3,930
Related party payable	—			1,710
Other liabilities	5,482			5,612			5,566			5,597
Deferred tax liability	354,722			356,561			243,601			351,854
Total liabilities	1,887,776			1,926,500			1,595,006			1,749,251
Commitments and contingencies (see Note 8)
Stockholders' Deficiency
Class A Common stock, par value $0.01, 360,000 shares authorized; 61,484 and 61,354 shares outstanding as of December 31, 2016 and June 30, 2016, respectively	643			643
Class B Common stock, par value $0.01, 90,000 shares authorized; 13,589 shares outstanding as of December 31, 2016 and June 30, 2016	136			136
Commitments and contingencies (see Note 7)
Stockholders' Deficiency:
Class A Common stock, par value $0.01, 360,000 shares authorized; 61,696 and 61,497 shares outstanding as of December 31, 2017 and June 30, 2017, respectively							643			643
Class B Common stock, par value $0.01, 90,000 shares authorized; 13,589 shares outstanding as of December 31, 2017 and June 30, 2017							136			136
Preferred stock, par value $0.01, 45,000 shares authorized; none outstanding	—			—			—			—
Additional paid-in capital	3,113			—			349			6,909
Treasury stock, at cost, 2,776 and 2,905 shares as of December 31, 2016 and June 30, 2016, respectively	(197,712		)	(207,796		)
Treasury stock, at cost, 2,563 and 2,762 shares as of December 31, 2017 and June 30, 2017, respectively							(184,449		)	(198,800		)
Accumulated deficit	(832,431		)	(905,352		)	(553,535		)	(746,539		)
Accumulated other comprehensive loss	(7,436		)	(7,589		)	(6,386		)	(6,556		)
Total stockholders' deficiency	(1,033,687		)	(1,119,958		)	(743,242		)	(944,207		)

Total liabilities and stockholders' deficiency	$	854,089		$	806,542		$	851,764		$	805,044

See accompanying notes to consolidated financial statements.

MSG NETWORKS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited) (in thousands, except per share data)


	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	December 31,						December 31,						December 31,						December 31,
	2016			2015			2016			2015			2017			2016			2017			2016
Revenues (including related party revenues of $0 and $41,673 for the three months ended December 31, 2016 and 2015, respectively, and $0 and $82,122 for the six months ended December 31, 2016 and 2015, respectively)	$	175,646		$	169,931		$	329,224		$	318,078
Revenues													$	181,222		$	175,646		$	338,678		$	329,224

Direct operating expenses (including related party expenses of $34,905 and $34,619 for the three months ended December 31, 2016 and 2015, respectively, and $70,169 and $68,273 for the six months ended December 31, 2016 and 2015, respectively)	70,076			71,547			131,010			131,649
Selling, general and administrative expenses (including related party expenses of $6,866 and $10,420 for the three months ended December 31, 2016 and 2015, respectively, and $9,562 and $11,327 for the six months ended December 31, 2016 and 2015, respectively)	23,191			22,370			38,750			63,488
Direct operating expenses (including related party expenses of $37,332 and $34,905 for the three months ended December 31, 2017 and 2016, respectively, and $74,013 and $70,169 for the six months ended December 31, 2017 and 2016, respectively)													78,902			69,924			141,993			130,699
Selling, general and administrative expenses (including related party expenses of $7,429 and $6,866 for the three months ended December 31, 2017 and 2016, respectively, and $10,152 and $9,562 for the six months ended December 31, 2017 and 2016, respectively)													24,311			22,997			39,872			38,295
Depreciation and amortization	2,580			3,091			5,158			7,770			2,423			2,580			4,874			5,158
Operating income	79,799			72,923			154,306			115,171			75,586			80,145			151,939			155,072
Other income (expense):
Interest income	649			548			1,276			1,084			999			649			1,877			1,276
Interest expense	(9,714		)	(9,712		)	(19,229		)	(11,569		)	(10,242		)	(9,714		)	(20,885		)	(19,229		)
Other components of net periodic benefit cost													(407		)	(346		)	(814		)	(766		)
	(9,065		)	(9,164		)	(17,953		)	(10,485		)	(9,650		)	(9,411		)	(19,822		)	(18,719		)
Income from continuing operations before income taxes	70,734			63,759			136,353			104,686			65,936			70,734			132,117			136,353
Income tax expense	(27,479		)	(29,709		)	(52,737		)	(29,305		)
Income tax benefit (expense)													89,632			(27,479		)	64,608			(52,737		)
Income from continuing operations	43,255			34,050			83,616			75,381			155,568			43,255			196,725			83,616
Loss from discontinued operations, net of taxes	—			(137		)	(120		)	(161,154		)	—			—			—			(120		)
Net income (loss)	$	43,255		$	33,913		$	83,496		$	(85,773	)
Earnings (loss) per share:
Net income													$	155,568		$	43,255		$	196,725		$	83,496
Earnings per share:
Basic
Income from continuing operations	$	0.58		$	0.45		$	1.11		$	1.00		$	2.06		$	0.58		$	2.61		$	1.11
Loss from discontinued operations	—			—			—			(2.14		)	—			—			—			—
Net income (loss)	$	0.58		$	0.45		$	1.11		$	(1.14	)
Net income													$	2.06		$	0.58		$	2.61		$	1.11
Diluted
Income from continuing operations	$	0.57		$	0.45		$	1.11		$	1.00		$	2.05		$	0.57		$	2.60		$	1.11
Loss from discontinued operations	—			—			—			(2.13		)	—			—			—			—
Net income (loss)	$	0.57		$	0.45		$	1.11		$	(1.13	)
Net income													$	2.05		$	0.57		$	2.60		$	1.11
Weighted-average number of common shares outstanding:
Basic	75,215			74,959			75,159			75,240			75,458			75,215			75,371			75,159
Diluted	75,461			75,373			75,436			75,639			75,756			75,461			75,768			75,436

See accompanying notes to consolidated financial statements.

MSG NETWORKS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

(Unaudited) (in thousands)

Three Months Ended Six Months Ended
December 31, December 31,
2016 2015 2016 2015
Net income (loss) $ 43,255
$ 33,913
$ 83,496
$ (85,773 )
Other comprehensive income (loss), before income taxes:
Pension plans and postretirement plan:
Net unamortized losses arising during the period $ —
$ —
$ —
$ (602 )
Amounts reclassified from accumulated other comprehensive loss:
Amortization of net actuarial loss included in net periodic benefit cost 175
125
350
501
Amortization of net prior service credit included in net periodic benefit cost (6 ) (11 ) (12 ) (28 )
Settlement gain (74 ) —
(74 ) —
Other comprehensive income (loss) before income taxes 95
114
264
(129 )
Income tax expense related to items of other comprehensive income (loss) (40 ) (47 ) (111 ) (527 )
Other comprehensive income (loss)
55
67
153
(656 )
Comprehensive income (loss)
$ 43,310
$ 33,980
$ 83,649
$ (86,429 )



	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2017			2016			2017			2016
Net income	$	155,568		$	43,255		$	196,725		$	83,496
Other comprehensive income (loss) before income taxes:
Pension plans and postretirement plan:
Amounts reclassified from accumulated other comprehensive loss:
Amortization of net actuarial loss included in net periodic benefit cost	149			175			298			350
Amortization of net prior service credit included in net periodic benefit cost	(3		)	(6		)	(6		)	(12		)
Settlement gain	—			(74		)	—			(74		)
Other comprehensive income before income taxes	146			95			292			264
Income tax expense related to items of other comprehensive income	(61		)	(40		)	(122		)	(111		)
Other comprehensive income	85			55			170			153
Comprehensive income	$	155,653		$	43,310		$	196,895		$	83,649

See accompanying notes to consolidated financial statements.

MSG NETWORKS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (in thousands)


	Six Months Ended						Six Months Ended
	December 31,						December 31,
	2016			2015			2017			2016
Cash flows from operating activities from continuing operations:
Net income (loss)	$	83,496		$	(85,773	)
Net income							$	196,725		$	83,496
Loss from discontinued operations, net of taxes	120			161,154			—			120
Income from continuing operations	83,616			75,381			196,725			83,616
Adjustments to reconcile net income to net cash provided by operating activities from continuing operations:
Depreciation and amortization	5,158			7,770			4,874			5,158
Amortization of deferred financing costs	1,502			1,732			1,501			1,502
Share-based compensation expense	5,049			6,899			7,719			5,049
Excess tax benefit on share-based awards	—			(4,420		)
Provision for doubtful accounts	(162		)	430			252			(162		)
Change in assets and liabilities:
Accounts receivable, net	1,014			(560		)	773			1,014
Net related party receivable	(246		)	(15,829		)	(3,387		)	(246		)
Prepaid expenses and other assets	899			12,235			612			899
Accounts payable	(1,055		)	(9,401		)	157			(1,055		)
Net related party payable, including payable to MSG	(2,289		)	24,455			(2,163		)	(2,289		)
Prepaid/payable for income taxes	13,362			38,190			6,585			13,362
Accrued and other liabilities	(1,310		)	(10,649		)	(1,600		)	(1,310		)
Deferred revenue	(2,566		)	3,106			(1,701		)	(2,566		)
Deferred income taxes	(1,948		)	(10,479		)	(108,375		)	(1,948		)
Net cash provided by operating activities from continuing operations	101,024			118,860			101,972			101,024
Cash flows from investing activities from continuing operations:
Capital expenditures	(2,242		)	(1,950		)	(871		)	(2,242		)
Net cash used in investing activities from continuing operations	(2,242		)	(1,950		)	(871		)	(2,242		)
Cash flows from financing activities from continuing operations:
Proceeds from Term Loan Facility (see Note 7)	—			1,550,000
Principal repayments on Term Loan Facility (see Note 7)	(30,000		)	—
Cash distributed with MSG	—			(1,467,093		)
Payments for financing costs	—			(9,860		)
Proceeds from stock option exercises	—			98
Repurchases of common stock	—			(100,027		)
Taxes paid in lieu of shares issued for equity-based compensation	(2,254		)	(11,114		)
Excess tax benefit on share-based awards	—			4,420
Principal repayments on Term Loan Facility (see Note 6)							(37,500		)	(30,000		)
Taxes paid in lieu of shares issued for share-based compensation							(2,773		)	(2,254		)
Net cash used in financing activities from continuing operations	(32,254		)	(33,576		)	(40,273		)	(32,254		)
Net cash provided by continuing operations	66,528			83,334			60,828			66,528

Cash flows of discontinued operations:
Net cash provided by (used in) operating activities	(953		)	4,224
Net cash used in operating activities							—			(953		)
Net cash used in investing activities	—			(68,410		)	—			—
Net cash used in financing activities	—			—			—			—
Net cash used in discontinued operations	(953		)	(64,186		)	—			(953		)
Net increase in cash and cash equivalents	65,575			19,148			60,828			65,575
Cash and cash equivalents at beginning of period, including cash in both continuing operations and discontinued operations	119,568			218,685
Cash and cash equivalents at beginning of period							141,087			119,568
Cash and cash equivalents at end of period	$	185,143		$	237,833		$	201,915		$	185,143

See accompanying notes to consolidated financial statements.

MSG NETWORKS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' ~~EQUITY (DEFICIENCY)~~DEFICIENCY

(Unaudited) (in thousands)

Common
Stock
Issued

Additional
Paid-In
Capital

Treasury
Stock
Accumulated Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance as of June 30, 2016 $ 779
$ —
$ (207,796 ) $ (905,352 ) $ (7,589 ) $ (1,119,958 )
Net income —
—
—
83,496
—
83,496
Other comprehensive income —
—
—
—
153
153
Comprehensive income 83,649
Exercise of stock options —
(57 ) 59
—
—
2
Share-based compensation —
5,049
—
—
—
5,049
Tax withholding associated with shares issued for equity-based compensation —
(1,793 ) (423 ) (55 ) —
(2,271 )
Shares issued upon distribution of Restricted Stock Units —
(86 ) 10,448
(10,362 ) —
—
Adjustments related to the transfer of certain liabilities as a result of the Distribution —
—
—
(158 ) —
(158 )
Balance as of December 31, 2016 $ 779
$ 3,113
$ (197,712 ) $ (832,431 ) $ (7,436 ) $ (1,033,687 )



	Common Stock Issued		Additional Paid-In Capital			Treasury Stock			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
Balance as of June 30, 2017	$	779	$	6,909		$	(198,800	)	$	(746,539	)	$	(6,556	)	$	(944,207	)
Net income	—		—			—			196,725			—			196,725
Other comprehensive income	—		—			—			—			170			170
Comprehensive income															196,895
Share-based compensation expense	—		7,719			—			—			—			7,719
Tax withholding associated with shares issued for share-based compensation	—		(3,649		)	—			—			—			(3,649		)
Shares issued upon distribution of Restricted Stock Units	—		(10,630		)	14,351			(3,721		)	—			—
Balance as of December 31, 2017	$	779	$	349		$	(184,449	)	$	(553,535	)	$	(6,386	)	$	(743,242	)

Common
Stock
Issued

Additional
Paid-In
Capital

Treasury
Stock

Retained Earnings (Accumulated Deficit)

Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance as of June 30, 2015 $ 779
$ 1,084,002
$ (143,250 ) $ 807,563
$ (25,572 ) $ 1,723,522
Net loss —
—
—
(85,773 ) —
(85,773 )
Other comprehensive loss —
—
—
—
(656 ) (656 )
Comprehensive loss (86,429 )
Exercise of stock options —
(4,633 ) 5,390
—
—
757
Share-based compensation —
7,753
—
—
—
7,753
Tax withholding associated with shares issued for equity-based compensation —
(11,114 ) —
—
—
(11,114 )
Excess tax benefit on share-based
awards
—
8,586
—
(4,166 ) —
4,420
Repurchases of common stock —
—
(100,027 ) —
—
(100,027 )
Shares issued upon distribution of Restricted Stock Units —
(16,626 ) 20,075
(3,449 ) —
—
Distribution of The Madison Square Garden Company —
(1,067,968 ) —
(1,705,189 ) 20,406
(2,752,751 )
Balance as of December 31, 2015 $ 779
$ —
$ (217,812 ) $ (991,014 ) $ (5,822 ) $ (1,213,869 )



	Common Stock Issued		Additional Paid-In Capital			Treasury Stock			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
Balance as of June 30, 2016	$	779	$	—		$	(207,796	)	$	(905,352	)	$	(7,589	)	$	(1,119,958	)
Net income	—		—			—			83,496			—			83,496
Other comprehensive income	—		—			—			—			153			153
Comprehensive income															83,649
Exercise of stock options	—		(57		)	59			—			—			2
Share-based compensation expense	—		5,049			—			—			—			5,049
Tax withholding associated with shares issued for share-based compensation	—		(1,793		)	(423		)	(55		)	—			(2,271		)
Shares issued upon distribution of Restricted Stock Units	—		(86		)	10,448			(10,362		)	—			—
Adjustments related to the transfer of certain liabilities as a result of the Distribution	—		—			—			(158		)	—			(158		)
Balance as of December 31, 2016	$	779	$	3,113		$	(197,712	)	$	(832,431	)	$	(7,436	)	$	(1,033,687	)

See accompanying notes to consolidated financial statements.

MSG NETWORKS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

All amounts included in the following Notes to Consolidated Financial Statements are presented in thousands, except per share data or as otherwise noted.

Note 1. Description of Business and Basis of Presentation

Description of Business

MSG Networks Inc. (together with its subsidiaries, the “Company”) owns and operates two regional sports and entertainment networks, MSG Network ~~("MSGN")~~ and MSG+~~, collectively the “MSG Networks.”~~.

The Company was incorporated on July 29, 2009 as an indirect, wholly-owned subsidiary of Cablevision Systems Corporation (“Cablevision”). On February 9, 2010, Cablevision spun off the Company and the Company thereby acquired the subsidiaries of Cablevision that owned, directly and indirectly, all of the partnership interests in MSGN Holdings, L.P., formerly MSG Holdings L.P. (“MSGN L.P.”). MSGN L.P. was the indirect, wholly-owned subsidiary of Cablevision through which Cablevision held the Madison Square Garden businesses. MSGN L.P. is now a wholly-owned subsidiary of the Company, through which the Company conducts substantially all of its operations.

On September 30, 2015, ~~(the “Distribution Date”),~~ the Company distributed to its stockholders all of the outstanding common stock of The Madison Square Garden Company ~~(formerly MSG Spinco, Inc., and referred to herein as “MSG”~~(“MSG”) (the “Distribution”). MSG owns, directly or indirectly, the sports and entertainment businesses previously owned and operated by the Company's sports and entertainment segments, owns, leases or operates the arenas and other venues previously owned, leased or operated by the Company and owns the joint venture interests previously owned by the Company. In the Distribution, each holder of the Company’s Class A common stock, par value $0.01 per share, ("Class A Common Stock"), of record as of the close of business, New York City time, on September 21, 2015 (the “Record Date”), received one share of MSG Class A common stock, par value $0.01 per share, for every three shares of the Company’s Class A Common Stock held on the Record Date. Each record holder of the Company’s Class B common stock, par value $0.01 per share, ("Class B Common Stock") received one share of MSG Class B common stock, par value $0.01 per share, for every three shares of the Company's Class B Common Stock held on the Record Date. Following the Distribution, the Company no longer consolidates the financial results of MSG for purposes of its own financial reporting and the historical financial results of MSG have been reflected in the Company's consolidated financial statements as discontinued operations for all periods presented through the Distribution Date.

~~After giving effect~~reporting. Certain transaction costs related to the Distribution are classified in the consolidated statement of operations for the six months ended December 31, 2016 as discontinued operations.

The Company operates and reports financial information in one segment. Substantially all revenues and assets of the Company are attributed to or located in the United States and are primarily concentrated in the New York City metropolitan area.

Unaudited Interim Financial Statements

The accompanying interim consolidated unaudited financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and the instructions to Rule 10-01 of Regulation S-X, and should be read in conjunction with the ~~Company's~~Company’s Annual Report on Form 10-K for the year ended June 30, ~~2016~~2017. The financial statements as of December 31, ~~2016~~2017 and for the three and six months ended December 31, ~~2016~~2017 and ~~2015~~2016 presented in this Quarterly Report on Form 10-Q are unaudited; however, in the opinion of management such financial statements reflect all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented. The results of operations for the periods presented are not necessarily indicative of the results that might be expected for future interim periods or for the full year.

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~(Continued)~~

Note 2. Accounting Policies

Principles of Consolidation

The consolidated financial statements of the Company include the accounts of MSG Networks Inc. and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. ~~See Note~~ 3 ~~for a discussion of media rights prior to the Distribution Date recognized as revenues by MSG from the licensing of team-related programming to the Company.~~

Use of Estimates

The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the ~~amounts~~amount of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported ~~amounts~~amount of revenues and expenses. Such estimates include the valuation of accounts receivable, goodwill, intangible assets, other long-lived assets, tax accruals, and other liabilities. In addition, estimates are used in revenue recognition, income tax ~~expense,~~benefit (expense), performance and share-based compensation, depreciation and amortization, litigation matters, and other matters. Management believes its use of estimates in the consolidated financial statements to be reasonable.

Management evaluates its estimates on an ongoing basis using historical experience and other factors, including the general economic environment and actions it may take in the future. The Company adjusts such estimates when facts and circumstances dictate. However, these estimates may involve significant uncertainties and judgments and cannot be determined with precision. In addition, these estimates are based on ~~management's~~management’s best judgment at a point in time and as such, these estimates may ultimately differ from actual results. Changes in estimates resulting from weakness in the economic environment or other factors beyond the ~~Company's~~Company’s control could be material and would be reflected in the ~~Company's~~Company’s financial statements in future periods.

Recently Adopted Accounting Pronouncements

In ~~April 2015,~~March 2017, the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) issued Accounting Standards Update ~~("ASU"~~(“ASU”) No. ~~2015-05,~~2017-07, ~~Intangibles-Goodwill~~Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and ~~Other-Internal-Use Software (Subtopic 350-40):Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement~~Net Periodic Postretirement Benefit Cost, which provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract and expense the cost as the services are received. This standard was adopted by the Company in the first quarter of fiscal year 2017 and will be applied prospectively ~~to all arrangements entered into or materially modified after the effective date.~~ ~~There was no impact to the financial statements as a result of this adoption.~~

~~In March 2016, the FASB issued ASU No. 2016-09,~~ ~~Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which changes several aspects of accounting for share-based payment transactions.~~. This standard was early adopted by the Company in the first quarter of fiscal year ~~2017.~~2018, and was applied retrospectively. The adoption of this standard resulted ~~in: (i) all excess tax benefits and tax deficiencies being recognized~~ in the ~~income statement, rather than additional paid-in capital, on a prospective basis (ii) excess tax benefits or tax deficiencies~~non-service cost components of net periodic benefit cost to be presented separately from the service cost component, and the non-service cost components to no longer ~~being classified on~~be included in the Consolidated Statement of Cash Flows as a financing activity, on a prospective basis (as such prior period amounts have not been adjusted) and (iii) the Company’s election to account for forfeitures as they occur, rather than estimate expected forfeitures over the course of a vesting period, on a modified retrospective basis. There was no material impact to the financial statements as a result of this adoption.subtotal

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for operating income in the consolidated statements of operations. The presentation of the service cost component of net periodic benefit cost remains unchanged within selling, general and administrative expenses and direct operating expenses in the consolidated statements of operations. As this standard was applied retrospectively, the Company reclassified $346 and $766 of net periodic benefit cost from selling, general and administrative expenses and direct operating expenses to a separate line item within other income (expense) in the accompanying consolidated statements of operations for the three and six months ended December 31, 2016, respectively.

Recently Issued Accounting Pronouncements Not Yet Adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in FASB Accounting Standards Codification ~~("ASC"~~(“ASC”) Topic 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of ASU No. 2014-09 for all entities by one year. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which provides clarification on the implementation guidance on principal versus agent considerations outlined in ASU No. 2014-09. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which finalized amendments to identifying performance obligations and accounting for licenses of intellectual property. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which clarifies assessing collectibility, noncash consideration, presentation of sales taxes, completed contracts, and contract modifications at transition. Early adoption is permitted and the Company can early adopt ASU No. 2014-09 and the related updates beginning in the first quarter of fiscal year 2018. If the Company does not apply the early adoption provision, ASU No. 2014-09This standard will be effective for the Company beginning in the first quarter of fiscal year 2019, and the Company expects to adopt this standard using ~~one of two~~the modified retrospective ~~application methods.~~method. The Company ~~is currently evaluating~~has partially completed its assessment of the new standard to determine the impact ~~this standard~~it will have on its consolidated financial ~~statements.~~statements and related disclosures, and expects the remainder of its assessment to be completed by the end of fiscal year 2018.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes the current guidance in ASC Topic 840, Leases. This ASU requires the recognition of lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. The amended guidance also requires additional quantitative and qualitative disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases in order to provide additional information about the nature of an organization’s leasing activities. This standard will be effective for the Company beginning in the first quarter of fiscal year 2020, with early adoption ~~permitted. This standard will be adopted using a~~permitted, and the modified retrospective ~~approach.~~approach required. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which amends ASC Topic 230,Statement of Cash Flows to eliminate the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows by adding or clarifying guidance on eight specific cash flow issues. This standard will be effective for the Company beginning in the first quarter of fiscal year 2019, with early adoption permitted and the retrospective approach required. The adoption of this guidance is not expected to have a material impact on the ~~Company's~~Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses, which will effect various areas of accounting including, but not limited to, goodwill and consolidation. This standard will be effective for the Company beginning in the first quarter of fiscal year 2019, with early adoption permitted. The standard is to be applied prospectively. The adoption of this guidance is not expected to have a material impact on the ~~Company's~~Company’s consolidated financial statements.

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(Continued)

each reporting unit with a zero or a negative carrying amount of net assets. This standard will be effective for the Company beginning in the first quarter of fiscal year ~~2021. Early~~2021, with early adoption ~~is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.~~permitted. The standard is to be applied prospectively. ~~The Company~~Based on the Company’s most recent annual goodwill impairment test completed in the first quarter of fiscal year 2018, the adoption of this guidance is ~~currently evaluating~~not expected to have any initial impact on the ~~impact this standard will have on its~~Company’s consolidated financial statements.

~~Table~~In May 2017, the FASB issued ASU No. 2017-09, Compensation — Stock Compensation (Topic 718): Scope of ~~Contents~~

~~MSG NETWORKS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~(Continued)~~

~~Note 3. Discontinued Operations~~

Modification AccountingAs, which provides guidance about which changes to the terms or conditions of a ~~result~~share-based payment award require an entity to apply modification accounting. An entity should account for the effects of a modification unless all of the ~~Distribution, the results~~following characteristics of the ~~Company’s MSG operations through~~modified award are the ~~Distribution Date,~~same as ~~well~~the original award immediately before the original award is modified: (i) the award’s fair value, (ii) the award’s vesting condition, and (iii) the award’s classification as ~~transaction costs related to~~an equity or liability instrument. This standard will be effective for the ~~Distribution, have been classified~~Company beginning in the first quarter of fiscal year 2019, with early adoption permitted. The standard is to be applied prospectively to an award modified on or after the adoption date. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated statements of operations as discontinued operations for all periods presented. No gain or loss was recognized in connection with the Distribution. Operating results of discontinued operations for the three and six months ended December 31, 2016 and 2015 are summarized below:financial statements.

Three Months Ended Six Months Ended
December 31, December 31,
2016 2015 2016 2015
Revenues ^(a)
$ —
$ —
$ —
$ 150,381
Direct operating expenses —
—
—
71,320
Selling, general and administrative expenses —
137
120
57,824
Depreciation and amortization —
—
—
23,772
Operating loss —
(137 ) (120 ) (2,535 )
Equity in earnings of equity-method investments —
—
—
2,679
Interest income —
—
—
635
Interest expense —
—
—
(540 )
Income (loss) from discontinued operations before income taxes —
(137 ) (120 ) 239
Income tax expense —
—
—
(161,393 )
Loss from discontinued operations, net of taxes $ —
$ (137 ) $ (120 ) $ (161,154 )

~~(a)~~

~~Includes rights fees for New York Knicks (~~“~~Knicks~~”~~) and New York Rangers (~~“~~Rangers~~”) programming prior to the Distribution Date, which were previously eliminated in consolidation. However, the pre-Distribution Date amounts are presented as revenues in the loss from discontinued operations line with the offsetting expense in direct operating expenses, within continuing operations, in the accompanying consolidated statement of operations for the six months ended December 31, 2015.

Prior to the Distribution, the Company's collections for ticket sales, sponsorships and suite rentals in advance were recorded as deferred revenue and were recognized as revenues when earned for both accounting and tax purposes. In connection with the reorganization transactions related to the Distribution, the tax recognition on most of these deferred revenues was accelerated to the date of the reorganization. The impact of the acceleration of such deferred revenue is reflected in income tax expense of discontinued operations for the six months ended December 31, 2015.

~~The net impact of the Distribution to the Company's stockholders' equity (deficiency) includes cash distributed with MSG of $1,467,093.~~

Note 4.3. Computation of Earnings ~~(Loss)~~ per Common Share

Basic earnings ~~(loss)~~ per common share (“EPS”) is based upon net income ~~(loss)~~ available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the effect of the assumed vesting of restricted stock units (“RSUs”) and exercise of stock options only in the periods in which such effect would have been dilutive.

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~(Continued)~~

The following table presents a reconciliation of the weighted-average number of shares used in the calculations of basic and diluted ~~EPS.~~EPS:


	Three Months Ended		Six Months Ended		Three Months Ended		Six Months Ended
	December 31,		December 31,		December 31,		December 31,
	2016	2015	2016	2015	2017	2016	2017	2016
Weighted-average number of shares for basic EPS	75,215	74,959	75,159	75,240	75,458	75,215	75,371	75,159
Dilutive effect of shares issuable under share-based compensation plans	246	414	277	399	298	246	397	277
Weighted-average number of shares for diluted EPS	75,461	75,373	75,436	75,639	75,756	75,461	75,768	75,436
Anti-dilutive shares	535	—	317	—	1,072	535	615	317

Note 5.4. Goodwill and Intangible Assets

During the first quarter of fiscal year ~~2017,~~2018, the Company performed its annual impairment test of goodwill, and there was no impairment of goodwill identified.

The ~~Company's~~Company’s intangible assets subject to amortization are as follows:


	December 31, 2016			June 30, 2016			December 31, 2017			June 30, 2017
Affiliate relationships	$	83,044		$	83,044		$	83,044		$	83,044
Less accumulated amortization	(40,651		)	(38,921		)	(44,111		)	(42,381		)
	$	42,393		$	44,123		$	38,933		$	40,663

Affiliate relationships have an estimated useful life of 24 years. Amortization expense for intangible assets ~~for continuing operations~~ was $865 for the three months ended December 31, 2017 and 2016, and ~~2015, respectively, and~~ $1,730 for the six months ended December 31, ~~2016~~2017 and ~~2015, respectively.~~2016.

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(Continued)

Note 6.5. Property and Equipment

As of December 31, ~~2016~~2017 and June 30, ~~2016,~~2017, property and equipment consisted of the following assets:


	December 31, 2016			June 30, 2016			December 31, 2017			June 30, 2017
Equipment	$	46,893		$	44,508		$	41,954		$	40,918
Furniture and fixtures	1,746			1,744			1,695			1,695
Leasehold improvements	19,566			19,561			19,285			19,285
Construction in progress	423			966			269			565
	68,628			66,779			63,203			62,463
Less accumulated depreciation and amortization	(56,015		)	(52,625		)	(53,756		)	(50,635		)
	$	12,613		$	14,154		$	9,447		$	11,828

Depreciation and amortization expense on property and equipment was ~~$1,715~~$1,558 and ~~$2,226~~$1,715 for the three months ended December 31, ~~2016~~2017 and ~~2015,~~2016, respectively, and ~~$3,428~~$3,144 and ~~$6,040~~$3,428 for the six months ended December 31, 2017 and 2016, and 2015, respectively, which for the fiscal 2016 first quarter included depreciation expense on certain corporate property and equipment that was transferred to MSG in connection with the Distribution, but which did not qualify for discontinued operations reporting.respectively.

Note 76. Debt

On September 28, 2015, MSGN Holdings L.P. (“MSGN L.P.”), an indirect wholly-owned subsidiary of the Company through which the Company conducts substantially all of its operations, and MSGN Eden, LLC, an indirect subsidiary of the Company and the general partner of MSGN L.P., Regional MSGN Holdings LLC, a direct subsidiary of the Company and the limited partner of MSGN L.P. (collectively with MSGN Eden, LLC, the “Holdings Entities”), and certain subsidiaries of MSGN L.P. entered into a credit

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~~(Continued)~~

agreement (the “Credit Agreement”) with a syndicate of lenders.

Subject to the satisfaction of certain conditions and limitations, the Credit Agreement allows for the addition of incremental term and/or revolving loan commitments and incremental term and/or revolving loans. Borrowings under the Credit Agreement bear interest at a floating rate, which at the option of MSGN L.P. may be either (a) base rate, representing the higher of: (i) the New York Fed Bank Rate plus 0.50%; (ii) the U.S. Prime Rate; or (iii) the one-month London Interbank Offered Rate, or LIBOR, plus 1.00% (the “Base Rate”), plus an additional rate ranging from 0.50% to 1.25% per annum (determined based on a total leverage ratio), or (b) a Eurodollar rate (the “Eurodollar Rate”) plus an additional rate ranging from 1.50% to 2.25% per annum (determined based on a total leverage ratio), provided that for the period until the delivery of the compliance certificate for the period ending March 31, 2016, the additional rate used in calculating both floating rates was (i) 1.00% per annum for borrowings bearing interest at the Base Rate, and (ii) 2.00% per annum for borrowings bearing interest at the Eurodollar Rate. Upon a payment default in respect of principal, interest or other amounts due and payable under the Credit Agreement or related loan documents, default interest will accrue on all overdue amounts at an additional rate of 2.00% per annum. The Credit Agreement requires that MSGN L.P. pay a commitment fee of 0.30% in respect of the average daily unused commitments, as well as fronting fees, to banks that issue letters of credit pursuant to the Revolving Credit Facility.

The Credit Agreement generally requires the ~~Holding~~Holdings Entities and MSGN L.P. and its restricted subsidiaries on a consolidated basis to comply with a maximum total leverage ratio of 6.00:1.00 from the closing date until September 30, 2016 and a maximum total leverage ratio of 5.50:1.00 from ~~and after~~ October 1, 2016 until maturity, subject, in each case, to upward adjustment during the continuance of certain events. In addition, there is a minimum interest coverage ratio of 2.00:1.00 for the Holdings Entities and MSGN L.P. and its restricted subsidiaries on a consolidated basis. As of December 31, ~~2016,~~2017, the ~~Holding~~Holdings Entities and MSGN L.P. and its restricted subsidiaries on a consolidated basis were in compliance with the financial covenants of the Credit Agreement. All borrowings under the Credit Agreement are subject to the satisfaction of customary conditions, including absence of a default and accuracy of representations and warranties. As of December 31, ~~2016,~~2017, there were no letters of credit issued and outstanding under the Revolving Credit Facility, which provides full borrowing capacity of $250,000. The

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Company has made principal payments aggregating ~~$91,250~~$266,250 through December 31, ~~2016, which reduced the principal amount of the initial Term Loan Facility for subsequent amortization.~~2017. The Term Loan Facility amortizes quarterly in accordance with its terms ~~from December 31, 2016~~ through June 30, 2020 with a final maturity date on September 28, 2020.

As of December 31, ~~2016,~~2017, the principal repayments required under the Term Loan Facility are as follows:


Remainder of fiscal year ending June 30, 2017	$	37,500
Fiscal year ending June 30, 2018	75,000
Remainder of fiscal year ending June 30, 2018			$	37,500
Fiscal year ending June 30, 2019	75,000		75,000
Fiscal year ending June 30, 2020	114,375		114,375
Fiscal year ending June 30, 2021	1,156,875		1,056,875
	$	1,458,750	$	1,283,750

All obligations under the Credit Agreement are guaranteed by the Holdings Entities and MSGN L.P.’s existing and future direct and indirect domestic subsidiaries that are not designated as excluded subsidiaries or unrestricted subsidiaries (the “Subsidiary Guarantors,” and together with the Holdings Entities, the “Guarantors”). All obligations under the Credit Agreement, including the guarantees of those obligations, are secured by certain ~~of the~~ assets of MSGN L.P. and each Guarantor (collectively, “Collateral”), including, but not limited to, a pledge of the equity interests in MSGN L.P. held directly by the Holdings Entities and the equity interests in each Subsidiary Guarantor held directly or indirectly by MSGN L.P. Subject to customary notice and minimum amount conditions, MSGN L.P. may voluntarily prepay outstanding loans under the Credit Agreement at any time, in whole or in part, without premium or penalty (except for customary breakage costs with respect to Eurodollar loans). MSGN

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L.P. is required to make mandatory prepayments in certain circumstances, including without limitation from the net cash proceeds of certain sales of assets (including Collateral) or casualty insurance and/or condemnation recoveries (subject to certain reinvestment, repair or replacement rights) and the incurrence of certain indebtedness, subject to certain exceptions.

In addition to the financial covenants discussed above, the Credit Agreement and the related security agreement contain certain customary representations and warranties, affirmative covenants, and events of default. The Credit Agreement contains certain restrictions on the ability of the ~~Holding~~Holdings Entities and MSGN L.P. and its restricted subsidiaries to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the Credit Agreement, including the following: (i) incurring additional indebtedness and contingent liabilities; (ii) creating liens on certain assets; (iii) making investments, loans or advances in or to other persons; (iv) paying dividends and distributions or repurchasing capital stock; (v) changing their lines of business; (vi) engaging in certain transactions with affiliates; (vii) amending specified material agreements; (viii) merging or consolidating; (ix) making certain dispositions; and (x) entering into agreements that restrict the granting of liens. The Holdings Entities are also subject to customary passive holding company covenants.

The Company is amortizing its deferred financing costs on a straight-line basis over the five-year term of the Senior Secured Credit Facilities which approximates the effective interest method. The following table summarizes the presentation of the Term Loan Facility and the related deferred financing costs in the accompanying consolidated balance ~~sheet~~sheets as of December 31, ~~2016~~2017 and June 30, ~~2016:~~2017:


	Term Loan Facility		Deferred Financing Costs			Total		Term Loan Facility		Deferred Financing Costs			Total
December 31, 2016
December 31, 2017
Current portion of long-term debt	$	75,000	$	(2,586	)	$	72,414	$	75,000	$	(2,586	)	$	72,414
Long-term debt, net of current portion	1,383,750		(7,112		)	1,376,638		1,208,750		(4,526		)	1,204,224
Total	$	1,458,750	$	(9,698	)	$	1,449,052	$	1,283,750	$	(7,112	)	$	1,276,638
June 30, 2016
June 30, 2017
Current portion of long-term debt	$	67,500	$	(2,586	)	$	64,914	$	75,000	$	(2,586	)	$	72,414
Long-term debt, net of current portion	1,421,250		(8,405		)	1,412,845		1,246,250		(5,819		)	1,240,431
Total	$	1,488,750	$	(10,991	)	$	1,477,759	$	1,321,250	$	(8,405	)	$	1,312,845

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(Continued)

In addition, the Company has deferred financing costs related to the Revolving Credit Facility recorded in the accompanying consolidated balance sheets as summarized in the following table:


	December 31, 2016		June 30, 2016		December 31, 2017		June 30, 2017
	December 31, 2016		June 30, 2016		December 31, 2017		June 30, 2017
Other current assets	$	417	$	417	$	417	$	417
Other assets	1,147		1,356		730		938

The Company made interest payments under the Credit Agreement of ~~$17,625~~$19,180 and ~~$9,118~~$17,625 during the six months ended December 31, ~~2016~~2017 and ~~2015,~~2016, respectively.

Note 8.7. Commitments and Contingencies

Commitments

As more fully described in Notes 9 and 10 to the consolidated financial statements included in the ~~Company's~~Company’s Annual Report on Form 10-K for the year ended June 30, ~~2016,~~2017, the ~~Company's~~Company’s contractual obligations not reflected on the balance sheet consist primarily of its obligations under media rights agreements and, to a lesser extent, long-term noncancelable operating lease agreements.

In addition, see Note 76 for the principal repayments required under the ~~Company's~~Company’s Term Loan Facility.

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~~(Continued)~~

Legal Matters

The Company is a defendant in various lawsuits. Although the outcome of these matters cannot be predicted with certainty, management does not believe that resolution of these lawsuits will have a material adverse effect on the Company.

Note 9.8. Fair Value Measurements

The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs are developed using market data, such as publicly available information about actual events or transactions, and reflect the assumptions that market participants would use inwhen pricing anthe asset or ~~liability based on~~liability. Unobservable inputs are inputs for which market data ~~obtained from independent sources while unobservable inputs reflect a reporting entity's~~is not available and that are developed using the best information available about the assumptions that market participants would use when pricing ~~based upon their own market assumptions.~~the asset or liability. The fair value hierarchy consists of the following three levels:

Level I — Quoted prices for identical instruments in active markets.

Level II — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level III — Instruments whose significant value drivers are unobservable.

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The following table presents for each of these hierarchy levels, the ~~Company's~~Company’s assets that are measured at fair value on a recurring basis, which include cash equivalents:


	Level I		Level II		Level III		Total			Level I		Level II		Level III		Total
December 31, 2016
December 31, 2017
Assets:
Money market accounts	$	45,014	$	—	$	—	$	45,014		$	31,292	$	—	$	—	$	31,292
Time deposits	135,173		—		—		135,173			170,623		—		—		170,623
Total assets measured at fair value	$	180,187	$	—	$	—	$	180,187		$	201,915	$	—	$	—	$	201,915
June 30, 2016
June 30, 2017									��
Assets:
Money market accounts	$	68,591	$	—	$	—	$	68,591		$	34,128	$	—	$	—	$	34,128
Time deposits	50,977		—		—		50,977			106,482		—		—		106,482
Total assets measured at fair value	$	119,568	$	—	$	—	$	119,568		$	140,610	$	—	$	—	$	140,610

Money market accounts and time deposits are classified within Level I of the fair value hierarchy as they are valued using observable inputs that reflect quoted prices for identical assets in active markets. The carrying amount of the ~~Company's~~Company’s money market accounts and time deposits approximates fair value due to their short-term maturities.

Other Financial Instruments

The fair value of the ~~Company's~~Company’s long-term debt (see Note 7)6) was approximately ~~$1,451,456~~$1,277,000 as of December 31, ~~2016.~~2017. The ~~Company's~~Company’s long-term debt is classified within Level II of the fair value hierarchy as it is valued using quoted prices of such securities for which fair value can be derived from inputs that are readily observable.

Note 109. Pension Plans and Other Postretirement Benefit Plan

~~Prior~~

As more fully described in Note 13 to the ~~Distribution,~~consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2017, the Company ~~sponsored a non-contributory qualified cash balance retirement plan covering its non-union employees (the “MSG Cash Balance Pension Plan”) and~~sponsors (i) a non-contributory, qualified defined benefit pension plan covering certain of its union employees, (the “MSG Union Plan”). Since March 1, 2011, the MSG Cash Balance Pension Plan has also included the assets and liabilities of a frozen (as of December 31, 2007) non-contributory qualified defined pension plan covering non-union employees hired prior to January 1, 2001. The MSG Cash Balance Pension Plan was amended to freeze participation and future benefit accruals effective December 31, 2015. Existing account balances under the MSG Cash Balance Pension Plan will continue to be credited with monthly interest in accordance with the terms of the plan. The MSG Cash Balance Pension Plan and MSG Union Plan are collectively referred to as the “MSG Pension Plans.”

~~The Company currently sponsors (i) a non-contributory qualified defined benefit pension plan covering certain of its union~~

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~~MSG NETWORKS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~(Continued)~~

~~employees (the “Union Plan”),~~ (ii) an unfunded non-contributory, non-qualified frozen excess cash balance plan covering certain employees, ~~who participated in the MSG Cash Balance Pension Plan (the "Excess Cash Balance Plan"),~~ and (iii) an unfunded non-contributory, non-qualified frozen defined benefit pension plan for the benefit of certain employees who participated in an underlying qualified plan ~~which was merged into the MSG Cash Balance Pension Plan on March 1, 2011 (the “Excess Plan”). The Union Plan, Excess Cash Balance Plan and Excess Plan are collectively referred to as~~(collectively the “MSG Networks ~~Plans.”~~

As of December 31, 2015, the Excess Cash Balance Plan was amended to freeze participation and future benefit accruals. Therefore, after December 31, 2015, no employee of the Company who was not already a participant may become a participant in the plan and no further annual pay credits will be made for any future year. Existing account balances under the plan will continue to be credited with monthly interest in accordance with the terms of the plan. As of December 31, 2007, the Excess Plan was amended to freeze all benefits earned through December 31, 2007 and to eliminate the ability of participants to earn benefits for future service under this plan. Benefits payable to retirees under the Union Plan are based upon years of service and participants’ compensation.

Plans”). The Company also sponsors a contributory welfare plan which provides certain postretirement healthcare benefits to certain employees hired prior to January 1, 2001 ~~who are eligible to commence receipt of early or normal Retirement Plan benefits under the MSG Cash Balance Pension Plan and their dependents, as well as certain union employees (“Postretirement~~(the “Postretirement Plan”).

As of the Distribution Date, the Company and MSG entered into an employee matters agreement (the “Employee Matters Agreement”) which determined each company’s obligations after the Distribution with regard to historic liabilities under the Company’s former pension and postretirement plans. Under the Employee Matters Agreement, the assets and liabilities of the MSG Pension Plans have been transferred to MSG. In addition, the following have been transferred to MSG: liabilities related to (i) current MSG employees who are active participants in the Excess Plan and/or the Excess Cash Balance Plan, (ii) current MSG employees who are eligible for participation in the Postretirement Plan, and (iii) former MSG employees who are retired participants in the Postretirement Plan. The Company has retained liabilities related to (i) its current employees and former employees of the Company or MSG who are active participants in the Excess Plan and/or the Excess Cash Balance Plan, (ii) its current employees who are eligible for participation in the Postretirement Plan, (iii) its former employees who are retired participants in the Postretirement Plan, and (iv) the Union Plan.

Components of net periodic benefit cost for the MSG Networks Plans ~~MSG Pension Plans~~ and Postretirement Plan recognized in direct operating expenses, selling, general and administrative expenses and loss from discontinued operations in the accompanying consolidated statements of operations for the three and six months ended December 31, 2016 and 2015 are as follows:


	Pension Plans						Postretirement Plan						Pension Plans						Postretirement Plan
	Three Months Ended						Three Months Ended						Three Months Ended						Three Months Ended
	December 31,						December 31,						December 31,						December 31,
	2016			2015			2016			2015			2017			2016			2017			2016
Service cost	$	133		$	121		$	18		$	18		$	128		$	133		$	17		$	18
Interest cost	332			438			25			32			358			332			30			25
Expected return on plan assets	(106		)	(110		)	—			—			(127		)	(106		)	—			—
Recognized actuarial loss ^(a)	175			125			—			—			149			175			—			—
Amortization of unrecognized prior service credit ^(a)	—			—			(6		)	(11		)	—			—			(3		)	(6		)
Settlement gain ^(a)	(74		)	—			—			—			—			(74		)	—			—
Net periodic benefit cost	$	460		$	574		$	37		$	39		$	508		$	460		$	44		$	37

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(Continued)


	Pension Plans						Postretirement Plan						Pension Plans						Postretirement Plan
	Six Months Ended						Six Months Ended						Six Months Ended						Six Months Ended
	December 31,						December 31,						December 31,						December 31,
	2016			2015			2016			2015			2017			2016			2017			2016
Service cost	$	266		$	1,742		$	36		$	68		$	256		$	266		$	34		$	36
Interest cost	664			2,563			50			123			716			664			60			50
Expected return on plan assets	(212		)	(960		)	—			—			(254		)	(212		)	—			—
Recognized actuarial loss ^(a)	350			501			—			—			298			350			—			—
Amortization of unrecognized prior service cost (credit) ^(a)	—			14			(12		)	(42		)
Amortization of unrecognized prior service credit ^(a)													—			—			(6		)	(12		)
Settlement gain ^(a)	(74		)	—			—			—			—			(74		)	—			—
Net periodic benefit cost	$	994		$	3,860		$	74		$	149		$	1,016		$	994		$	88		$	74

^(a) Reflects amounts reclassified from accumulated other comprehensive ~~loss.~~

~~Amounts presented in the table above include~~loss to other components of net periodic benefit cost ~~related to continuing operations and discontinued operations as noted~~ in the ~~following table:~~ accompanying consolidated statements of operations.

Three Months Ended Six Months Ended
December 31, December 31,
2016 2015 2016 2015
Continuing operations $ 497
$ 613
$ 1,068
$ 2,046
Discontinued operations —
—
—
1,963
Total Net Periodic Benefit Cost $ 497
$ 613
$ 1,068
$ 4,009

In addition, ~~prior~~as more fully described in Note 13 to the ~~Distribution,~~consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2017, the Company ~~sponsored~~sponsors the MSGN Holdings, L.P. Excess Savings Plan and participates in the Madison Square Garden 401(k) Savings Plan, formerly the MSG Holdings, L.P. 401(k) Savings Plan, (the "MSG Savings Plan") and the MSG Holdings, L.P. Excess Savings Plan ("Excess Savings Plan"). As a result of the Distribution, the MSG Savings Plan was amended to (i) transfer sponsorship of the plan to MSG, and (ii) become a multiple employer plan ~~in which both MSG and~~(together, the Company will continue to participate. Pursuant to the Employee Matters Agreement, liabilities relating to current MSG employees who were active participants in the Company's Excess Savings Plan have been transferred to MSG. The Excess Savings Plan has been renamed the MSGN Holdings, L.P. Excess Savings Plan (together with the MSG Savings Plan, the "Savings Plans"“Savings Plans”). Expenses related to the Savings Plans included in the accompanying consolidated statements of operations were $246 and $222 for the three months ended December 31, 2017 and 2016, respectively, and $459 and $399 for the six months ended December 31, 2017 and 2016, ~~and 2015 are as follows:~~

Three Months Ended Six Months Ended
December 31, December 31,
2016 2015 2016 2015
Continuing operations $ 222
$ —
$ 399
$ 334
Discontinued operations —
—
—
652
Total Savings Plan Expense $ 222
$ —
$ 399
$ 986

respectively.

Note ~~11.~~10. Share-based Compensation

See Note 14 to the consolidated financial statements included in the ~~Company's~~Company’s Annual Report on Form 10-K for the year ended June 30, ~~2016~~2017 for more information regarding (i) the ~~Company's~~MSG Networks Inc. 2010 Employee Stock Plan, as amended (the ~~"Employee~~“Employee Stock ~~Plan"~~Plan”), and (ii) the MSG Networks Inc. 2010 Stock Plan For Non-Employee Directors, as amended (the ~~"Non-Employee~~“Non-Employee Director ~~Plan"~~Plan”), as well as certain share-based payment awards granted prior to July 1, 2015. On December 15, 2016, the Company’s stockholders amended the Employee Stock Plan to increase the shares available for issuance thereunder by 5,500 and to extend the expiration date by one year to December 15, 2026.

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~~MSG NETWORKS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~(Continued)~~

Share-based compensation expense, presented within selling, general and administrative expenses and direct operating expenses, was ~~$3,273~~$4,798 and ~~$2,652~~$3,273 for the three months ended December 31, ~~2016~~2017 and ~~2015,~~2016, respectively, and ~~$5,049~~$7,719 and ~~$6,899 for the~~ ~~six months ended~~ ~~December 31, 2016 and 2015, respectively. Share-based compensation expense for discontinued operations was $808~~$5,049 for the six months ended December 31, ~~2015.~~2017 and 2016, respectively.

Stock Options Award Activity

The following table summarizes activity relating to holders of the Company’s stock options for the six months ended December 31, 2017:



	Number of		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (In Years)	Aggregate Intrinsic Value
	Nonperformance Based Vesting Options	Performance Based Vesting Options	Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (In Years)	Aggregate Intrinsic Value
Balance as of June 30, 2017	535	534	$	17.81	6.71	$	4,960
Granted	426	427	21.60
Balance as of December 31, 2017	961	961	$	19.49	6.19	$	2,608
Exercisable as of December 31, 2017	178	—	$	17.81	6.21	$	435

In September ~~2016,~~2017, the Company granted ~~1,069~~853 stock options, of which 50% are subject to three-year ratable vesting and the remaining 50% are subject to three-year cliff vesting and the achievement of certain Company performance criteria. These options have an expiration period of 7.5 years. The ~~exercise price of these options is $17.81.~~

~~The~~ Company calculated the fair value of these options on the date of grant using the Black-Scholes option pricing model, which resulted in a grant date fair value of ~~$4.49~~$5.63 per option.

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MSG NETWORKS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Continued)

The following were the key assumptions used to calculate the fair value of this award:



Risk-free interest rate	~~1.24~~1.76	%
Expected term	5.25 years
Expected volatility	~~25.1~~24.79	%

The ~~Company's~~Company’s computation of expected term was calculated using the simplified method (the average of the vesting period and option term) as prescribed in ASC Topic 718-10-S99. The ~~Company's~~Company’s computation of expected volatility was based on historical volatility of its common stock.

The aggregate intrinsic value is calculated for in-the-money options as the difference between (i) the exercise price of the underlying award and (ii) the quoted price of the Company’s Class A common stock, par value $0.01 per share (“Class A Common Stock”) at December 31, 2017 and June 30, 2017, as applicable.

Restricted Share Units Award Activity

The following table summarizes activity relating to holders (including Company and MSG employees) of the ~~Company's~~Company’s RSUs for the six months ended December 31, ~~2016:~~2017:


	Number of						Number of
	Nonperformance Based Vesting RSUs		Performance Based Vesting RSUs		Weighted-Average Fair Value Per Share At Date of Grant		Nonperformance Based Vesting RSUs		Performance Based Vesting RSUs		Weighted-Average Fair Value Per Share At Date of Grant
Unvested award balance, June 30, 2016	321		431		$	38.57
Unvested award balance as of June 30, 2017							544		597		$	25.79
Granted	442		262		19.27		181		340		21.31
Vested	(195	)	(103	)	38.27		(318	)	(132	)	33.25
Forfeited	(29	)	(14	)	35.57		(3	)	(2	)	35.99
Unvested award balance, December 31, 2016	539		576		$	26.56
Unvested award balance as of December 31, 2017							404		803		21.04

~~The~~Nonperformance based vesting RSUs granted during the six months ended December 31, ~~2016~~2017 included ~~476~~112 RSUs granted under the Employee Stock Plan that are subject to three-year ratable vesting ~~169 RSUs subject to three-year cliff vesting,~~ and 5969 RSUs granted under the Non-Employee Director Plan which vested upon date of grant. Performance based vesting RSUs granted under the Employee Stock Plan during the six months ended December 31, 2017 included 114 RSUs that are subject to three-year ratable vesting and 226 RSUs subject to three-year cliff vesting. RSUs granted under the Employee Stock Plan and Non-Employee Director Plan will settle in shares of the ~~Company's~~Company’s Class A Common Stock (either from treasury or with newly issued shares), or, at the option of the Compensation Committee, in cash. ~~RSU's~~RSUs granted under the Non-Employee Director Plan will settle on the first business day after ninety days from the date the director's service on the Board of Directors ceases or, if earlier, upon the director's death.

The fair value of RSUs that vested during the six months ended December 31, ~~2016~~2017 was ~~$5,601.~~$9,008. Upon delivery, RSUs granted under the Employee Stock Plan were net share-settled to cover the required statutory tax withholding obligations and the remaining number of shares were issued from the ~~Company's~~Company’s treasury shares. To fulfill the ~~employees'~~employees’ statutory minimum tax withholding obligations for the applicable income and other employment taxes, ~~125~~182 of these RSUs, with an aggregate value of ~~$2,271,~~$3,649, were retained by the Company and the taxes paid during the six months ended December 31, 2017 are reflected as a financing activity in the accompanying consolidated statement of cash ~~flows for~~flows.

Note 11. Stock Repurchase Program

On December 7, 2017, the ~~six months ended~~Company’s Board of Directors authorized the repurchase of up to $150,000 of the Company’s Class A Common Stock. Under the authorization, shares of Class A Common Stock may be purchased from time to time in open market or private transactions, block trades or such other manner as the Company may determine, in accordance with applicable insider trading and other securities laws and regulations. The timing and amount of purchases will depend on market conditions and other factors. As of December 31, ~~2016.~~2017, the Company had $150,000 of availability remaining under its stock repurchase authorization.

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(Continued)

Note 12. Related Party Transactions

As of December 31, ~~2016,~~2017, members of the Dolan family group, for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, including trusts for the benefit of the Dolan family group, collectively beneficially own all of the ~~Company's~~Company’s outstanding Class B common stock, par value $0.01 per share (“Class B Common ~~Stock~~Stock”) and own approximately ~~2.4%~~2.7% of the ~~Company's~~Company’s outstanding Class A Common Stock. Such shares of the ~~Company's~~Company’s Class A Common Stock and Class B Common Stock, collectively, represent approximately 69.6% of the aggregate voting power of the ~~Company's~~Company’s outstanding common stock. Members of the Dolan family are also the controlling stockholders of MSG and AMC Networks Inc. ("(“AMC ~~Networks"~~Networks”).

On June 16, 2016, the Company entered into an arrangement with the Dolan Family Office, LLC (“DFO”), MSG, and AMC Networks providing for the sharing of certain expenses associated with executive office space which is available to Charles F. Dolan (a director of the Company and MSG, and the Executive Chairman and a director of AMC Networks), James L. Dolan (the Executive Chairman and a director of the Company, the Executive Chairman, Chief Executive Officer, and a director of MSG, and a director of AMC Networks), and the DFO, which is controlled by Charles F. Dolan.

Beginning in June 2016, the Company agreed to share certain executive support costs, including office space, executive assistants, security and transportation costs for (i) the ~~Company's~~Company’s Executive Chairman with MSG and (ii) ~~for~~ the ~~Company's~~Company’s Vice Chairman with MSG and AMC Networks.

In connection with the Distribution, the Company entered into various agreements with MSG, including media rights agreements covering Knicks and Rangers games, an advertising sales representation agreement, a trademark license agreement, a tax disaffiliation agreement, a transition services agreement ~~("TSA"~~(“TSA”), and certain other arrangements. The TSA expired on September 30, 2017. The Company entered into a new services agreement (“Services Agreement”) effective July 1, 2017, which provides for each party to furnish substantially the same services, as well as the executive support services described above, in exchange for service fees.

The Company has entered into various agreements with AMC Networks with respect to a number of ongoing commercial relationships.

Related party transactions ~~included incontinuing operations~~

Rights fees

The ~~Company's~~Company’s media rights agreements with the Knicks and the Rangers, effective as of July 1, 2015, provide the Company with exclusive media rights to team games in their local markets. Prior to the Distribution, these rights fees were eliminated in consolidation; however the amounts recorded prior to the Distribution are presented as revenues in the loss from discontinued operations line with the offsetting expense in direct operating expenses within continuing operations in the accompanying consolidated statement of operations. Rights fees included in the accompanying consolidated statements of operations for the three months ended December 31, 2017 and 2016 were $35,631 and ~~2015 were~~ $33,037, ~~and $32,800,~~ respectively, and ~~$66,837~~$70,783 and ~~$65,300~~$66,837 for the six months ended December 31, ~~2016~~2017 and ~~2015,~~2016, respectively.

Origination, master control and technical services

AMC Networks provides certain origination, master control, and technical services to the Company. Amounts charged to the Company for the three months ended December 31, 2017 and 2016 were $1,494 and ~~2015 were~~ $1,543, ~~and $1,459,~~ respectively and ~~$2,991~~$2,993 and ~~$2,876~~$2,991 for the six months ended December 31, ~~2016~~2017 and ~~2015,~~2016, respectively.

Commission

The ~~Company entered into an~~Company’s advertising sales representation agreement with MSG, which has a ~~seven year~~ term ~~pursuant~~through June 30, 2022, provides for MSG to ~~which MSG has~~act as our advertising sales representative and includes the exclusive right and obligation to sell certain advertising availabilities on our behalf for a commission. All of the ~~Company's~~Company’s advertising sales personnel were transferred to MSG in connection with the Distribution. The ~~amount~~amounts charged to the Company for the three months ended December 31, 2017 and 2016 were $5,140 and ~~2015 was~~ $5,169, ~~and $5,498,~~ respectively, and $5,567 and $5,594 for the six months ended December 31, ~~2016~~2017 and ~~2015 was $5,594 and $5,498,~~2016, respectively.

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(Continued)

Other operating expenses

The Company and its related parties enter into transactions with each other in the ordinary course of business. In addition, pursuant to the Services Agreement, the Company outsources (and prior to the expiration of the TSA, the Company ~~began outsourcing to MSG~~outsourced) certain business functions ~~that were previously performed by internal resources.~~to MSG. These services currently include information technology, ~~accounting,~~ accounts payable, payroll, tax, certain legal functions, human resources, insurance and risk management, investor relations, corporate communications, benefit plan administration and reporting, and internal audit. Net amounts charged to the Company ~~pursuant to the TSA,~~ for expenses associated with services provided by MSG, executive office space and certain support costs, and for other related party transactions amounted to ~~$2,022~~$2,496 and ~~$1,765~~$2,022 for the three months ended December 31, ~~2016~~2017 and ~~2015,~~2016, respectively and ~~$4,309~~$4,822 and ~~$557~~$4,309 for the six months ended December 31, ~~2016~~2017 and ~~2015,~~2016, respectively.

~~Related party transactions with Cablevision Systems Corporation~~

~~Prior~~Note 13. Income Taxes

On December 22, 2017 new tax legislation, commonly referred to ~~June 21, 2016, members~~as the Tax Cuts and Jobs Act, was enacted that significantly changed the existing U.S. tax laws, including a reduction in the corporate federal tax rate from 35% to 21% effective January 1, 2018. The Company is required to recognize the effect of tax law changes in the period of enactment even though certain key aspects of the Dolan family were also the controlling stockholders of Cablevision Systems Corporation ("Cablevision"). On June 21, 2016, Cablevision was acquired by a subsidiary of Altice N.V. and a change in control occurred which resulted in membersnew law became effective January 1, 2018. The Company's income tax provision for interim periods is comprised of the ~~Dolan family no longer being controlling stockholders~~tax on ordinary income (loss) provided at the most recent estimated annual effective tax rate, adjusted for the tax effect of ~~Cablevision (now known as Altice USA). Accordingly, Altice USA is not~~discrete items. The Company used a ~~related party~~blended statutory federal rate of 28% (based upon the ~~Company. Revenues (primarily from~~number of days for the ~~distribution~~fiscal year that it will be taxed at the former rate of ~~programming networks~~35% and the number of days it will be taxed at the new rate of 21%) to ~~subsidiaries of Cablevision) and operating expenses that relate~~calculate its most recent estimated annual effective tax rate.

Income tax benefit attributable to ~~Cablevision prior to its sale, included in~~ continuing ~~operations in the accompanying consolidated statements of~~ operations for the three months ended December 31, ~~2015 were $41,669 and $3,517, respectively, and for~~2017 of $89,632 differs from the ~~six months ended December 31, 2015 were $81,447 and $5,369, respectively.~~

~~Related party transactions~~income tax expense derived from applying the blended statutory federal rate to pretax income due principally to a deferred income tax benefit of $106,446 related to the reduction of the Company’s net deferred tax liabilities based upon the new federal rate. Other decreases included ~~in discontinued operations~~

~~Related party transactions included in loss from discontinued operations~~the impact of the change in the ~~accompanying consolidated statement~~federal rate on current year to date operations of ~~operations for~~$4,609, the ~~three months ended December 31, 2015 include operating expenses charged~~impact of the tax benefits related to the domestic production activities deduction of $1,130, state rate changes of $1,062, and tax return to book provision adjustments in connection with the filing of the Company’s federal, state and local income tax returns of $676. These decreases were partially offset by ~~related parties~~the impact of ~~$137. Related party transactions included in loss from discontinued operations in the accompanying consolidated statement~~state and local income taxes (net of ~~operations for the six months ended December 31, 2015, include the following: (i) revenues from related parties~~federal benefit) of ~~$33,559, (ii) operating expenses charged by related parties~~$5,514 and other items of ~~$964, (iii) interest income from nonconsolidated affiliates of $635, and (iv) equity in earnings of equity-method investments of $2,679.~~

~~Note 13. Income Taxes~~$275.

Income tax expense attributable to continuing operations for the three months ended December 31, 2016 of $27,479 differs from the income tax expense derived from applying the statutory federal rate to pretax income due principally to the impact of state and local income taxes (net of federal benefit) of $4,906 and a tax return to book provision ~~adjustment~~adjustments in connection with the filing of the ~~Company's~~Company’s state and local income tax returns of $414. These increases were partially offset by the impact of the tax benefits related to the domestic production activities deduction of $2,069 and other items of $529.

Income tax ~~expense~~benefit attributable to continuing operations for the ~~three~~six months ended December 31, ~~2015~~2017 of ~~$29,709~~$64,608 differs from the income tax expense derived from applying the blended statutory federal rate to pretax income due principally to a deferred income tax benefit of $106,446 related to the reduction of the Company’s net deferred tax liabilities based upon the new federal rate. Other decreases included the impact of the tax benefits related to the domestic production activities deduction of $3,033, state rate changes of $1,062, tax return to book provision adjustments in connection with the filing of the Company’s federal, state and local income tax returns of $676, and other items of $493. These decreases were partially offset by the impact of state and local income taxes (net of federal benefit) of $4,933 and an increase in state tax rates used to value deferred taxes resulting from the filing of the Company's state and local income tax returns of $4,489. These increases were partially offset by the tax benefits related to the domestic production activities deduction of $1,715 and other items of $313.$10,030.

Income tax expense attributable to continuing operations for the six months ended December 31, 2016 of $52,737 differs from the income tax expense derived from applying the statutory federal rate to pretax income due principally to the impact of state and local income taxes (net of federal benefit) of $9,594. These increases were partially offset by the impact of the tax benefits related to the domestic production activities deduction of $3,942, a tax return to book provision ~~adjustment~~adjustments in connection with the filing of the ~~Company's~~Company’s federal, state and local income tax returns of $209 and other items of $430.

~~Income~~

The Company made cash income tax ~~expense attributable to continuing operations~~payments (net) of $37,196 and $41,295 for the six months ended December 31, ~~2015~~2017 and 2016, respectively.

During the third quarter of ~~$29,305 differs from~~fiscal year 2017, the ~~income tax expense derived from applying~~Internal Revenue Service concluded its fieldwork on the statutory federal rate to pretax income due principally to a reduction in state tax rates used to value deferred taxes resulting from the Distribution of $16,941 and the tax benefits related to the domestic production activities deduction of $2,764. These decreases were partially offset by an increase in state tax rates used to value deferred taxes resulting from the filingaudit of the Company’s ~~state and local~~federal income tax returns ~~of $4,489, state and local income taxes (net of federal benefit) of $7,731 and other items of $151.~~

as filed for the tax year ended December 31, 2013. The Company does not expect the audit to result in material changes to the tax returns as filed.

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(Continued)

~~During the six months ended December 31, 2016 and 2015, income taxes paid by the~~The Company ~~were $41,295 and $193, respectively.~~

~~During~~was notified during the third quarter of fiscal year ~~2015,~~2017 that the ~~Internal Revenue Service notified~~City of New York was commencing an examination of the ~~Company of its intent to review the federal~~Company’s New York City income tax returns as filed for the tax ~~year~~years ended December 31, ~~2013. Fieldwork is ongoing.~~2013 and 2014. The Company does not expect the examination, when finalized, to result in material changes to the tax returns as filed.

During the fourth quarter of fiscal year 2017, the Company was notified that the City of New York was initiating a review of the Company’s 2014 and 2015 Unincorporated Business Tax Returns. The Company does not expect the examination, when finalized, to result in material changes to the tax returns as filed.

The Company was also notified during the fourth quarter of fiscal year 2017 that the State of New York was commencing an examination of the Company’s New York State income tax returns as filed for the tax years ended December 31, 2013 and 2014. The Company does not expect the examination, when finalized, to result in material changes to the tax returns as filed.

The federal and state statute of limitations are currently open on the Company’s 2013, 2014, 2015 and 2016 tax returns.

Note 14. ~~Concentration~~Concentrations of Risk

Accounts receivable, net on the accompanying consolidated balance sheets as of December 31, ~~2016~~2017 and June 30, ~~2016~~2017 include amounts due from the following individual non-affiliated customers, which accounted for the noted percentages of the gross balance:


	December 31, 2016		June 30, 2016		December 31, 2017		June 30, 2017
Customer A	26	%	26	%	26	%	26	%
Customer B	26	%	25	%	25	%	25	%
Customer C	22	%	22	%	23	%	22	%
Customer D	15	%	14	%	14	%	14	%

Revenues from continuing operations in the accompanying consolidated statements of operations for the three and six months ended December 31, ~~2016~~2017 and ~~2015~~2016 include amounts from the following individual customers, which accounted for the noted percentages of the total:

Three Months Ended December 31, Six Months Ended December 31,
2016 2015 2016 2015
Customer A 24 % 25 % 25 % 26 %
Customer B 22 % 22 % 24 % 23 %
Customer C 19 % 19 % 21 % 20 %
Customer D 10 % 10 % 11 % 11 %



	Three Months Ended December 31,				Six Months Ended December 31,
	2017		2016		2017		2016
Customer 1	23	%	24	%	24	%	25	%
Customer 2	22	%	22	%	24	%	24	%
Customer 3	20	%	19	%	22	%	21	%
Customer 4	9	%	10	%	10	%	11	%

The accompanying consolidated balance sheets as of December 31, ~~2016~~2017 and June 30, ~~2016~~2017 include the following approximate amounts that are recorded in connection with the ~~Company's~~Company’s license agreement with the New Jersey Devils:


Reported in	December 31, 2016		June 30, 2016		December 31, 2017		June 30, 2017
Prepaid expenses	$	3,000	$	1,000	$	3,000	$	3,000
Other current assets	2,000		2,000		2,000		2,000
Other assets	41,000		41,000		40,000		41,000
	$	46,000	$	44,000	$	45,000	$	46,000

Item 2. ~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, ~~may contain~~contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In this MD&A, there are statements concerning the future operating and financial performance of the Company, including a reduction in future cash taxes payable. Words such as “expects,” “anticipates,” “believes,” “estimates,” “may,” “will,” “should,” “could,” “potential,” “continue,” “intends,” “plans,” and similar words and terms used in the discussion of future operating and financial performance and plans identify forward-looking statements. Investors are cautioned that such forward-looking statements are not guarantees of future performance, results or events and involve risks and uncertainties and that actual results or developments may differ materially from the forward-looking statements as a result of various factors. Factors that may cause such differences to occur include, but are not limited to:

the demand for our programming among cable, satellite, telephone and other platforms (“Distributors”) and the subscribers thereto, and our ability to enter into and renew affiliation agreements with ~~our~~ Distributors, as well as the impact of consolidation among Distributors;

the level of our revenues, which depends in part on the popularity and competitiveness of the sports teams whose games are broadcast on our networks and the popularity of other content aired on our networks;

the ability of our Distributors to maintain subscriber levels;

the impact of subscribers downgrading their programming packages to levels that do not include our networks;

the security of our program signal and electronic data;

general economic conditions especially in the New York City metropolitan area where we conduct the majority of our operations;

the demand for advertising and sponsorship arrangements and viewer ratings for our networks;

competition, for example, from other regional sports networks;

the relocation or insolvency of professional sports teams with which we have a media rights agreement;

our ability to maintain, obtain or produce content, together with the cost of such content;

our ability to renew or replace our media rights agreements with professional sports teams;

the acquisition or disposition of assets and/or the impact of, and our ability to successfully pursue, acquisitions or other strategic transactions, and the operating and financial performance thereof (including those that we do not control);

the costs associated with, and the outcome of, litigation and other proceedings to the extent uninsured;

the impact of governmental regulations or laws and changes in such regulations or laws;

the impact of sports league rules, ~~league~~ regulations and/or ~~league~~ agreements and changes thereto;

cybersecurity and similar risks which could result in the disclosure of confidential information, disruption of our business or damage to our brands and reputation;

our substantial debt and high leverage;

~~reduced~~any reduction in our access to capital markets or significant increases in costs to borrow;

financial community perceptions of our business, operations, financial condition and the industry in which we operate;

the impact of the Tax Cuts and Jobs Act on our income tax benefit (expense) and deferred tax liabilities;

the tax-free treatment of the Distribution; and

the factors described under ~~"Risk Factors"~~“Item 1A. Risk Factors” in the ~~Company's~~Company’s Annual Report on Form 10-K for the year ended June 30, ~~2016.~~2017.

We disclaim any obligation to update or revise the forward-looking statements contained herein, except as otherwise required by applicable federal securities laws.

All dollar amounts included in the following MD&A are presented in thousands, except as otherwise noted.

Introduction

MD&A is provided as a supplement to, and should be read in conjunction with, the ~~Company's~~ unaudited consolidated financial statements and ~~accompanying~~ notes thereto included in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the year ended June 30, ~~2016~~2017 to help provide an understanding of our financial condition, changes in financial condition and results of operations. Unless the context otherwise requires, all references to “we,” “us,” “our,” or the “Company” refer collectively to MSG Networks Inc., a holding company, and its direct and indirect subsidiaries through which substantially all of ~~its~~our operations are conducted. The Company owns and operates two regional sports and entertainment networks, MSG Network ~~("MSGN")~~ and MSG+~~, collectively the “MSG Networks.”~~.

The Company operates and reports financial information in one segment.

This MD&A is organized as follows:

Results of Operations. This section provides an analysis of our unaudited consolidated results of operations for the three and six months ended December 31, ~~2016~~2017 as compared with the three and six months ended December 31, ~~2015.~~2016.

Liquidity and Capital Resources. This section provides a discussion of our financial condition and liquidity, as well as an analysis of our cash flows for the six months ended December 31, ~~2016~~2017 as compared with the six months ended December 31, ~~2015, as well as certain contractual obligations.~~2016.

Recently Issued Accounting Pronouncements Not Yet Adopted and Critical Accounting Policies. This section discusses recently issued accounting pronouncements not yet adopted, as well as the results of the ~~Company's~~Company’s annual impairment testing of goodwill performed during the first quarter of fiscal year ~~2017.~~2018. This section should be read together with our critical accounting policies, which are discussed in our Annual Report on Form 10-K for the year ended June 30, ~~2016~~2017 under “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Recently Issued Accounting Pronouncements Not Yet Adopted and Critical Accounting Policies — Critical Accounting Policies” and in the notes to the consolidated financial statements ~~of the Company~~ included therein.

Results of Operations

Comparison of the Three Months Ended December 31, ~~2016~~2017 versus the Three Months Ended December 31, ~~2015~~2016

~~Consolidated Results of Operations~~

The table below sets forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenues.


	Three Months Ended December 31,										Increase (Decrease) in Net Income			Three Months Ended December 31,										Increase (Decrease) in Net Income
	2016					2015								2017					2016
	Amount			% of Revenues		Amount			% of Revenues					Amount			% of Revenues		Amount			% of Revenues
Revenues	$	175,646		100	%	$	169,931		100	%	$	5,715		$	181,222		100	%	$	175,646		100	%	$	5,576

Direct operating expenses	70,076			40	%	71,547			42	%	1,471			78,902			44	%	69,924			40	%	(8,978		)
Selling, general and administrative expenses	23,191			13	%	22,370			13	%	(821		)	24,311			13	%	22,997			13	%	(1,314		)
Depreciation and amortization	2,580			1	%	3,091			2	%	511			2,423			1	%	2,580			1	%	157
Operating income	79,799			45	%	72,923			43	%	6,876			75,586			42	%	80,145			46	%	(4,559		)
Other income (expense):
Interest expense, net	(9,065		)	(5	)%	(9,164		)	(5	)%	99
Income from continuing operations before income taxes	70,734			40	%	63,759			38	%	6,975
Income tax expense	(27,479		)	(16	)%	(29,709		)	(17	)%	2,230
Income from continuing operations	43,255			25	%	34,050			20	%	9,205
Loss from discontinued operations, net of taxes	—			NM		(137		)	NM		137
Interest income														999			1	%	649			NM		350
Interest expense														(10,242		)	(6	)%	(9,714		)	(6	)%	(528		)
Other components of net periodic benefit cost														(407		)	NM		(346		)	NM		(61		)
														(9,650		)	(5	)%	(9,411		)	(5	)%	(239		)
Income from operations before income taxes														65,936			36	%	70,734			40	%	(4,798		)
Income tax benefit (expense)														89,632			49	%	(27,479		)	(16	)%	117,111
Net income	$	43,255		25	%	$	33,913		20	%	$	9,342		$	155,568		86	%	$	43,255		25	%	$	112,313

_________________

NM – Percentage is not meaningful

In the first quarter of fiscal year 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. See Note 2 to the consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for more information. As this standard was applied retrospectively, the Company reclassified $346 of net periodic benefit cost from selling, general and administrative expenses and direct operating expenses to a separate line item within other income (expense) in the accompanying consolidated statement of operations for the three months ended December 31, 2016.

Revenues

Revenues for the three months ended December 31, ~~2016~~2017 increased ~~$5,715,~~$5,576, or 3%, to ~~$175,646~~$181,222 as compared with the prior year period. The net increase was attributable to the following:


Increase in affiliation fee revenue	$	4,376	$	4,359
Increase in advertising revenue	1,327		749
Other net increases	12		468
	$	5,715	$	5,576

The increase in affiliation fee revenue was primarily due to higher affiliation rates, partially offset by the impact of a low single-digit percentage decrease in subscribers as compared with the prior year period.

The increase in advertising revenue was primarily due to a higher ~~recognition of~~net decrease in deferred revenue related to ratings guarantees, partially offset by other net advertising ~~decreases as compared with the prior year period.~~decreases.

Direct operating expenses

Direct operating expenses for the three months ended December 31, ~~2016 decreased $1,471,~~2017 increased $8,978, or 2%13%, to ~~$70,076~~$78,902 as compared with the prior year period due to higher rights fees expense of $7,021 and, to a lesser extent, higher other programming-related cost increases of $1,957. The increase in rights fees expense primarily reflects annual contractual rate increases and a step-up in expense related to the renewal of a rights agreement with the Buffalo Sabres, as well as additional league fees related to streaming

rights and a shift in the timing of the recognition of certain other rights fees expense. The increase in other programming-related costs was primarily due to the absence of the positive impact of the finalization of a matter related to the sale of Fuse ~~partially offset by an increase~~recorded in ~~rights fees expense.~~the prior year quarter.

Selling, general and administrative expenses

Selling, general and administrative expenses for the three months ended December 31, ~~2016~~2017 increased ~~$821,~~$1,314, or 4%6%, to ~~$23,191~~$24,311 as compared with the prior year period primarily due to higher employee compensation and related benefits ~~partially offset by lower marketing costs, commissions and other net decreases.~~

~~Depreciation and amortization~~

~~Depreciation and amortization for the three months ended December 31, 2016 decreased $511, or 17%, to $2,580 as compared with the prior year period primarily due to the impact~~(as a result of ~~certain property and equipment being fully depreciated during fiscal 2016.~~an increase in share-based compensation expense).

Operating income

Operating income for the three months ended December 31, ~~2016 increased $6,876,~~2017 decreased $4,559, or 9%6%, to ~~$79,799~~$75,586 as compared with the prior year period primarily due to (as discussed above) higher ~~revenues~~direct operating expenses and, to a lesser extent, ~~lower direct operating expenses and depreciation and amortization, partially offset by~~ higher selling, general and administrative ~~expenses.~~expenses (including share-based compensation expense), partially offset by higher revenues.

Interest expense

Interest expense for the three months ended December 31, 2017 increased $528, or 5%, to $10,242 as compared with the prior year period primarily due to higher average interest rates in the fiscal year 2018 second quarter (2.8% as compared with 2.3%), partially offset by a lower average principal balance under the Company’s term loan facility (see “Financing Agreements — Senior Secured Credit Facilities”).

Income taxes

Income tax benefit for the three months ended December 31, 2017 of $89,632 differs from the income tax expense ~~attributable~~derived from applying the blended statutory federal rate to ~~continuing~~pretax income due principally to a deferred income tax benefit of $106,446 related to the reduction of the Company’s net deferred tax liabilities based upon the new federal rate. Other decreases included the impact of the change in the federal rate on current year to date operations of $4,609, the impact of the tax benefits related to the domestic production activities deduction of $1,130, state rate changes of $1,062, and tax return to book provision adjustments in connection with the filing of the Company’s federal, state and local income tax returns of $676. These decreases were partially offset by the impact of state and local income taxes (net of federal benefit) of $5,514 and other items of $275.

Income tax expense for the three months ended December 31, 2016 of $27,479 differs from the income tax expense derived from applying the statutory federal rate to pretax income due principally to the impact of state and local income taxes (net of federal benefit) of $4,906 and a tax return to book provision ~~adjustment~~adjustments in connection with the filing of the ~~Company's~~Company’s state and local income tax returns of $414. These increases were partially offset by the impact of the tax benefits related to the domestic production activities deduction of $2,069 and other items of $529.

Income tax expense attributable to continuing operations for the three months ended December 31, 2015 of $29,709 differs from the income tax expense derived from applying the statutory federal rate to pretax income due principally to the impact of state and local income taxes (net of federal benefit) of $4,933 and an increase in state tax rates used to value deferred taxes resulting from the filing of the Company's state and local income tax returns of $4,489. These increases were partially offset by the tax benefits related to the domestic production activities deduction of $1,715 and other items of $313.

Adjusted operating income

The Company evaluates performance based on several factors, of which the key financial measure is adjusted operating income (which we formerly referred to as adjusted operating cash flow). Although the Company has renamed this non-GAAP measure, the components of adjusted operating income are identical to the components of adjusted operating cash flow.income. Adjusted operating income is defined as operating income (loss) before (i) depreciation, amortization and impairments of property and equipment and intangible assets, (ii) share-based compensation expense or benefit, (iii) restructuring charges or credits and (iv) gains or losses on sales or dispositions of businesses. The Company has presented the components that reconcile adjusted operating income to operating income, a GAAP ~~measure.~~measure:


	Three Months Ended				Increase (Decrease) in AOI			Three Months Ended				Increase (Decrease) in AOI
	December 31,							December 31,
	2016		2015					2017		2016
Operating income	$	79,799	$	72,923	$	6,876		$	75,586	$	80,145	$	(4,559	)
Share-based compensation	3,273		2,652		621			4,798		3,273		1,525
Depreciation and amortization	2,580		3,091		(511		)	2,423		2,580		(157		)
Adjusted operating income	$	85,652	$	78,666	$	6,986		$	82,807	$	85,998	$	(3,191	)

Adjusted operating income for the three months ended December 31, ~~2016 increased $6,986,~~2017 decreased $3,191, or 9%4%, to ~~$85,652~~$82,807 as compared with the prior year period primarily due to (as discussed above) higher ~~revenues and, to a lesser extent, lower~~ direct operating expenses, partially offset by higher ~~selling, general and administrative expenses.~~revenues.

Results of Operations

Comparison of the Six Months Ended December 31, ~~2016~~2017 versus the Six Months Ended December 31, ~~2015~~

~~Consolidated Results of Operations~~2016

The table below sets forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenues.


	Six Months Ended December 31,										Increase (Decrease) in Net Income			Six Months Ended December 31,										Increase (Decrease) in Net Income
	2016					2015								2017					2016
	Amount			% of Revenues		Amount			% of Revenues					Amount			% of Revenues		Amount			% of Revenues
Revenues	$	329,224		100	%	$	318,078		100	%	$	11,146		$	338,678		100	%	$	329,224		100	%	$	9,454

Direct operating expenses	131,010			40	%	131,649			41	%	639			141,993			42	%	130,699			40	%	(11,294		)
Selling, general and administrative expenses	38,750			12	%	63,488			20	%	24,738			39,872			12	%	38,295			12	%	(1,577		)
Depreciation and amortization	5,158			2	%	7,770			2	%	2,612			4,874			1	%	5,158			2	%	284
Operating income	154,306			47	%	115,171			36	%	39,135			151,939			45	%	155,072			47	%	(3,133		)
Other income (expense):
Interest expense, net	(17,953		)	(5	)%	(10,485		)	(3	)%	(7,468		)
Interest income														1,877			1	%	1,276			NM		601
Interest expense														(20,885		)	(6	)%	(19,229		)	(6	)%	(1,656		)
Other components of net periodic benefit cost														(814		)	NM		(766		)	NM		(48		)
														(19,822		)	(6	)%	(18,719		)	(6	)%	(1,103		)
Income from continuing operations before income taxes	136,353			41	%	104,686			33	%	31,667			132,117			39	%	136,353			41	%	(4,236		)
Income tax expense	(52,737		)	(16	)%	(29,305		)	(9	)%	(23,432		)
Income tax benefit (expense)														64,608			19	%	(52,737		)	(16	)%	117,345
Income from continuing operations	83,616			25	%	75,381			24	%	8,235			196,725			58	%	83,616			25	%	113,109
Loss from discontinued operations, net of taxes	(120		)	NM		(161,154		)	(51	)%	161,034			—			NM		(120		)	NM		120
Net income (loss)	$	83,496		25	%	$	(85,773	)	(27	)%	$	169,269
Net income														$	196,725		58	%	$	83,496		25	%	$	113,229

_________________

NM – Percentage is not meaningful

~~For~~In the first quarter of fiscal year 2018, the Company adopted ASU No. 2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. See Note 2 to the consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for more information. As this standard was applied retrospectively, the Company reclassified $766 of net periodic benefit cost from selling, general and administrative expenses and direct operating expenses to a separate line item within other income (expense) in the accompanying consolidated statement of operations for the six months ended December 31, 2015, the reported financial results of the Company reflect the fiscal 2016 first quarter results of the sports and entertainment businesses of MSG as discontinued operations. In addition, results from continuing operations for the first quarter of fiscal year 2016 include certain corporate overhead expenses that the Company did not incur during the six months ending December 31, 2016 and does not expect to incur in future periods, but which did not meet the criteria for inclusion in discontinued operations.2016.

Revenues

Revenues for the six months ended December 31, ~~2016~~2017 increased ~~$11,146,~~$9,454, or 4%3%, to ~~$329,224~~$338,678 as compared with the prior year period. The net increase was attributable to the following:


Increase in affiliation fee revenue	$	10,105		$	8,206
Increase in advertising revenue	1,573			613
Other net decreases	(532		)
Other net increases				635
	$	11,146		$	9,454

Direct operating expenses

Direct operating expenses for the six months ended December 31, ~~2016 decreased $639~~2017 increased $11,294, or 9%, to ~~$131,010~~$141,993 as compared with the prior year period due to higher rights fees expense of $9,013 and, to a lesser extent, higher other programming-related cost increases of $2,281. The increase in rights fees expense primarily reflects annual contractual rate increases and a step-up in expense related to the renewal of a rights agreement with the Buffalo Sabres, as well as additional league fees related to streaming rights and a shift in the timing of the recognition of certain other rights fees expense. The increase in other programming-related costs was primarily due to the absence of the positive impact of the finalization of a matter related to the sale of Fuse ~~and other programming-related cost decreases, totaling to $2,333, partially offset by an increase~~recorded in ~~rights fees expense of $1,694.~~

the prior year period.

Selling, general and administrative expenses

Selling, general and administrative expenses for the six months ended December 31, ~~2016 decreased $24,738,~~2017 increased $1,577, or ~~39%~~4%, to ~~$38,750~~$39,872 as compared with the prior year period primarily due to the absence of certain corporate overhead expenses included in the results of the prior year period. As noted above, the fiscal 2016 first quarter results included certain corporate expenses that the Company did not incur during the six months ending December 31, 2016 and does not expect to incur in future periods. Partially offsetting this decrease are corporate costs which were incurred during fiscal 2017 by MSG Networks Inc. as a standalone public company, including higher employee compensation and related ~~benefits.~~

~~Depreciation~~benefits (as a result of an increase in share-based compensation expense) and, ~~amortization~~

~~Depreciation~~to a lesser extent, other net increases. These increases were partially offset by lower advertising and ~~amortization for the six months ended December 31, 2016 decreased $2,612, or 34%,~~marketing costs and, to $5,158 as compared with the prior year period primarily due to the absence of depreciation expense included in the fiscal 2016 first quarter results on certain corporate property and equipment that was transferred to MSG in connection with the Distribution, but which did not meet the criteria for inclusion in discontinued operations, as well as the impact of certain property and equipment being fully depreciated during fiscal 2016.a lesser extent, professional fees.

Operating income

Operating income for the six months ended December 31, ~~2016 increased $39,135,~~2017 decreased $3,133, or ~~34%~~2%, to ~~$154,306~~$151,939 as compared with the prior year period primarily due to (as discussed above) ~~lower selling, general and administrative~~higher direct operating expenses and, to a lesser extent, higher ~~revenues, lower depreciation~~selling, general and ~~amortization and lower direct operating expenses.~~administrative expenses (including share-based compensation expense), partially offset by higher revenues.

Interest expense ~~net~~

~~Net interest~~Interest expense for the six months ended December 31, ~~2016~~2017 increased ~~$7,468~~$1,656, or 9%, to ~~$17,953~~$20,885 as compared with the prior year period primarily due to higher average interest ~~expense incurred~~rates in fiscal year 2018 (2.8% as compared with 2.3%), partially offset by a lower average principal balance under the ~~Company's~~Company’s term loan facility (see “Financing Agreements — Senior Secured Credit ~~Facilities, which were entered into on September 28, 2015, and accordingly did not begin~~Facilities”).

Income taxes

Income tax benefit attributable to ~~accrue interest until that date. Partially offsetting this increase is~~continuing operations for the ~~absence~~six months ended December 31, 2017 of $64,608 differs from the income tax expense derived from applying the blended statutory federal rate to pretax income due principally to a deferred income tax benefit of $106,446 related to the reduction of the ~~write-off of a portion~~Company’s net deferred tax liabilities based upon the new federal rate. Other decreases included the impact of the ~~deferred financing costs associated~~tax benefits related to the domestic production activities deduction of $3,033, state rate changes of $1,062, tax return to book provision adjustments in connection with the ~~Company's former credit facility recorded in~~filing of the ~~prior year period.~~Company’s federal, state and local income tax returns of $676, and other items of $493. These decreases were partially offset by the impact of state and local income taxes (net of federal benefit) of $10,030.

~~Income taxes~~

Income tax expense attributable to continuing operations for the six months ended December 31, 2015 of $29,305 differs from the income tax expense derived from applying the statutory federal rate to pretax income due principally to a reduction in state tax rates used to value deferred taxes resulting from the Distribution of $16,941 and the tax benefits related to the domestic production activities deduction of $2,764. These decreases were partially offset by an increase in state tax rates used to value deferred taxes resulting from the filing of the Company’s state and local income tax returns of $4,489, state and local income taxes (net of federal benefit) of $7,731 and other items of $151.

Adjusted operating income

The Company has presented the components that reconcile adjusted operating income to operating income, a GAAP ~~measure.~~measure:


	Six Months Ended				Increase (Decrease) in AOI			Six Months Ended				Increase (Decrease) in AOI
	December 31,							December 31,
	2016		2015					2017		2016
Operating income	$	154,306	$	115,171	$	39,135		$	151,939	$	155,072	$	(3,133	)
Share-based compensation	5,049		6,899		(1,850		)	7,719		5,049		2,670
Depreciation and amortization	5,158		7,770		(2,612		)	4,874		5,158		(284		)
Adjusted operating income	$	164,513	$	129,840	$	34,673		$	164,532	$	165,279	$	(747	)

Adjusted operating income for the six months ended December 31, ~~2016 increased $34,673, or 27%,~~2017 decreased $747 to ~~$164,513~~$164,532 as compared with the prior year period primarily due to (as discussed above) higher direct operating expenses, largely offset by higher revenues and, to a lesser extent, lower selling, general and administrative expenses ~~and, to a lesser extent, higher revenues and lower direct operating expenses.~~

(excluding share-based compensation expense).

Liquidity and Capital Resources

Overview

Our primary sources of liquidity are cash and cash equivalents, cash flows from the operations of our business and available borrowing capacity under our $250,000 revolving credit facility with a syndicate of lenders which was undrawn as of December 31, ~~2016~~2017 (see “~~Financing~~“Financing Agreements -— Senior Secured Credit ~~Facilities~~”Facilities” below). In addition, the Company expects that the recently enacted federal tax reform legislation will result in at least a 20% reduction of its future cash taxes payable on income from continuing operations before income taxes, as compared to amounts that would have otherwise been payable under the prior law. Our principal uses of cash are expected to include working capital-related items, capital spending, taxes, debt service and ~~debt service.~~repurchase of shares of the Company’s Class A common stock, par value $0.01 per share (“Class A Common Stock”). The ~~Company's~~Company’s use of its available liquidity will be based upon the ongoing review of the funding needs of the business, the optimal allocation of cash resources, and the timing of cash flow generation.

We believe we have sufficient liquidity, including ~~approximately $185,000~~$201,915 in cash and cash equivalents, as of December 31, ~~2016,~~2017, as well as the available borrowing capacity under our revolving credit facility and our anticipated operating cash flows, to fund our business operations, repurchase shares of the Company’s Class A Common Stock and service our outstanding term loan (see “~~Financing~~“Financing Agreements -— Senior Secured Credit Facilities” below) over the next twelve months. However, potential subscriber reductions of our Distributors, changes in the demand for our programming, advertising revenue declines, our ability to maintain or obtain content, and other factors could adversely impact our business and results of operations, which might require that we seek alternative sources of funding through the capital and credit markets that may or may not be available to us.

On December 7, 2017, the Company’s Board of Directors authorized the repurchase of up to $150,000 of the Company’s Class A Common Stock. Under the authorization, shares of Class A Common Stock may be purchased from time to time in open market or private transactions, block trades or such other manner as the Company may determine, in accordance with applicable insider trading and other securities laws and regulations. The timing and amount of purchases will depend on market conditions and other factors. As of December 31, 2017, the Company had $150,000 of availability remaining under its stock repurchase authorization.

Financing Agreements

Senior Secured Credit Facilities

The Credit Agreement provides MSGN L.P. with senior secured credit facilities (the “Senior Secured Credit Facilities”) consisting of: (a) an initial $1,550,000 term loan facility (the “Term Loan Facility”) and (b) a $250,000 revolving credit facility (the “Revolving Credit Facility”), each with a term of five years. In connection with the Distribution, $1,450,000 of the proceeds from the Term Loan Facility was contributed to MSG immediately following the closing of the Senior Secured Credit Facilities. The remainder of the proceeds from the Term Loan Facility were used by MSGN L.P. to pay for certain fees and expenses associated with the Distribution and the Senior Secured Credit Facilities and the balance was designated for use to fund working capital needs and other general corporate purposes of MSGN L.P. The Revolving Credit Facility was undrawn as of December 31, ~~2016~~2017 and is available to fund working capital needs and other general corporate purposes of MSGN L.P. Up to $35,000 of the Revolving Credit Facility is available for the issuance of letters of credit.

(ix) making certain dispositions; and (x) entering into agreements that restrict the granting of liens. The Holdings Entities are also subject to customary passive holding company covenants.

See Note 76 to the consolidated financial statements included in ~~"Part~~“Part I -— Item 1. Financial ~~Statements"~~Statements” of this Quarterly Report on Form 10-Q for more information on the Credit Agreement.

Contractual Obligations

In addition, see Note 76 to the consolidated financial statements included in ~~"Part~~“Part I -— Item 1. Financial Statements"” of this Quarterly Report on Form 10-Q for the principal repayments required under the ~~Company's~~Company’s Term Loan Facility.

Cash Flow Discussion

Operating Activities from continuing operations

Net cash provided by operating activities from continuing operations for the six months ended December 31, ~~2016 decreased~~2017 increased by ~~$17,836~~$948 to ~~$101,024~~$101,972 as compared with the prior year period. This ~~decrease is~~increase was primarily ~~driven by an increase in~~due to lower income taxes paid and, to a lesser extent, ~~an unfavorable working capital adjustment as compared with the prior year period. These declines were~~other net increases, partially offset by ~~an increase in~~lower income from continuing operations before income taxes as compared with the prior year period. The unfavorable working capital adjustment primarily represents the absence of a prior period positive working capital contribution relating to the timing of the fiscal 2016 rights payments to MSG under the Knicks and Rangers media rights agreements which was partially offset by other items, including the timing of certain receipts.

Investing Activities from continuing operations

Net cash used in investing activities from continuing operations for the six months ended December 31, ~~2016 increased~~2017 decreased by ~~$292~~$1,371 to ~~$2,242~~$871 as compared with the prior year period due to ~~higher~~lower capital expenditures in the current year period.

Financing Activities from continuing operations

Net cash used in financing activities from continuing operations for the six months ended December 31, ~~2016 decreased~~2017 increased by ~~$1,322~~$8,019 to ~~$32,254~~$40,273 as compared with the prior year period primarily due to higher principal repayments on the cash distributed with MSG in connection with the Distribution and, to a lesser extent, the impact of cash used in the prior year period for repurchases of the Company’s Class A Common Stock under a share repurchase program which was terminated effective as of the Distribution Date and other net decreases. These decreases in net cash used in financing activities from continuing operations were largely offset by the proceeds from theCompany's Term Loan ~~Facility received in the prior year period and principal payments on our Term Loan Facility during the current year period.~~Facility.

Recently Issued Accounting Pronouncements Not Yet Adopted and Critical Accounting Policies

Recently Issued Accounting Pronouncements Not Yet Adopted

In May 2014, the Financial Accounting Standards Board ("(~~FASB"~~“FASB”) issued ~~Accounting Standards Update ("ASU")~~ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in FASB Accounting Standards Codification ~~("ASC"~~(“ASC”) Topic 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of ASU No. 2014-09 for all entities by one year. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which provides clarification on the implementation guidance on principal versus agent considerations outlined in ASU No. 2014-09. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which finalized amendments to identifying performance obligations and accounting for licenses of intellectual property. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which clarifies assessing collectibility, noncash consideration, presentation of sales taxes, completed contracts, and contract modifications at transition. Early adoption is permitted and the Company can early adopt ASU No. 2014-09 and the related updates beginning in the first quarter of fiscal year 2018. If the Company does not apply the early adoption provision, ASU No. 2014-09This standard will be effective for the Company beginning in the first quarter of fiscal year 2019, and the Company expects to adopt this standard using ~~one of two~~the modified retrospective ~~application methods.~~method. The Company ~~is currently evaluating~~has partially completed its assessment of the new standard to determine the impact ~~this standard~~it will have on its consolidated financial ~~statements.~~statements and related disclosures, and expects the remainder of its assessment to be completed by the end of fiscal year 2018.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes the current guidance in ASC Topic 840, Leases. This ASU requires the recognition of lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous ~~GAAP.~~generally accepted accounting principles in the United States. The amended guidance also requires additional quantitative and qualitative disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases in order to provide additional information about the nature of an organization’s leasing activities. This standard will be effective for the Company beginning in the first quarter of fiscal year 2020, with early adoption ~~permitted. This standard will be adopted using a~~permitted, and the modified retrospective ~~approach.~~approach required. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, ~~Intangibles-Goodwill~~Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the measurement of goodwill impairment by eliminating the requirement of performing a hypothetical purchase price allocation. Instead, impairment will be measured using the difference between the carrying amount and fair value of the reporting unit. The amended guidance also eliminates the requirement for any reporting unit with a zero or a negative carrying amount to perform a qualitative assessment and will require disclosure of the amount of goodwill allocated to each reporting unit with a zero or a negative carrying amount of net assets. This standard will be effective for the Company beginning in the first quarter of fiscal year ~~2021. Early~~2021, with early adoption ~~is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.~~permitted. The standard is to be applied prospectively. ~~The Company~~Based on the Company’s most recent annual goodwill impairment test completed in the first quarter of fiscal year 2018, the adoption of this guidance is ~~currently evaluating~~not expected to have any initial impact on the ~~impact this standard will have on its~~Company’s consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation — Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity should account for the effects of a modification unless all of the following characteristics of the modified award are the same as the original award immediately before the original award is modified: (i) the award’s fair value, (ii) the award’s vesting condition, and (iii) the award’s classification as an equity or liability instrument. This standard will be effective for the Company beginning in the first quarter of fiscal year 2019, with early adoption permitted. The standard is to be applied prospectively to an award modified on or after the adoption date. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

Critical Accounting Policies

The following discussion has been included to provide the results of our annual impairment testing of goodwill performed during the first quarter of fiscal year ~~2017.~~2018. There have been no material changes to the ~~Company's~~Company’s critical accounting policies from those set forth in our Annual Report on Form 10-K for the year ended June 30, ~~2016.~~2017. See “Recently Adopted Accounting Pronouncements” in Note 2 to the consolidated financial statements included in “Part I - Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for a discussion on the Company’s adoption of ASU 2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.

Goodwill

The goodwill balance reported on the ~~Company's~~Company’s balance sheet as of December 31, ~~2016~~2017 is $424,508. Goodwill is tested annually for impairment as of August 31^st and at any time upon the occurrence of certain events or substantive changes in circumstances. ~~After giving effect to the Distribution, the~~The Company has one reporting unit for evaluating goodwill impairment. The Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. If the Company can support the conclusion that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company would not need to perform the two-step impairment test for that reporting unit.

During the first quarter of fiscal year ~~2017,~~2018, the Company performed its annual impairment test of goodwill. The Company elected to perform the qualitative assessment of ~~impairment.~~impairment for the Company’s goodwill. This assessment considered factors such as:

Macroeconomic conditions;

Industry and market considerations;

Cost factors;

Overall financial performance;

Other relevant company-specific factors such as changes in management, strategy or customers; and

Relevant specific events such as changes in the carrying amount of net assets.

Based on this impairment test, there was no impairment of goodwill identified.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There were no material changes to the disclosures on this matter made in the ~~Company's~~Company’s Annual Report on Form 10-K for the year ended June 30, ~~2016.~~2017.

Item 4. Controls and Procedures

~~The Company’s principal executive officer~~An evaluation was carried out under the supervision and ~~principal financial officer have performed an evaluation~~with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) orand 15d-15(e) ofunder the Securities Exchange Act of 1934 ~~as amended (“Exchange~~(the “Exchange Act”)) as of the end of the period covered by this report. Based onupon that evaluation, the ~~principal executive officer~~Company’s Chief Executive Officer and ~~principal financial officer~~Chief Financial Officer concluded that as of December 31, 2017 the Company’s disclosure controls and procedures were ~~effective as of December 31, 2016.~~effective.

~~In addition,~~There were no changes in the Company’s internal control over financial reporting (as defined in ~~Rule 13a-15 or 15d-15 of~~Rules 13a-15(f) and 15d-15(f) under the Exchange Act) ~~occurred~~ during the quarter ended December 31, ~~2016~~2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

Item 6. Exhibits


(a)	Index to Exhibits



EXHIBIT NO.		DESCRIPTION
~~10.1~~		~~Employment Agreement, dated September 16, 2016 between James L. Dolan and MSG Networks Inc.~~
31.1		Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification by the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification by the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document.
101.SCH		XBRL Taxonomy Extension Schema.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase.
101.DEF		XBRL Taxonomy Extension Definition Linkbase.
101.LAB		XBRL Taxonomy Extension Label Linkbase.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the ~~2nd~~1st day of February, ~~2017.~~2018.



MSG Networks Inc.

By:	/S/ BRET RICHTER
	Name:	Bret Richter
	Title:	Executive Vice President,
		Chief Financial Officer and Treasurer

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