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, ~~2017~~2020



			¨☐			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)

_______________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock	MSGN	New York Stock Exchange

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



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



Large accelerated filer	☑	Accelerated filer☐	Non-accelerated filer ☐

Smaller reporting companyo

☐

Emerging growth companyo

☐

If an emerging growth company, indicate by check mark if the ~~registrant~~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~~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, 2018:~~

29, 2021:



Class A Common Stock par value $0.01 per share	—	~~61,696,629~~43,459,880
Class B Common Stock par value $0.01 per share	—	13,588,555

Table of Contents

MSG NETWORKS INC.

INDEX TO FORM 10-Q




	Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets as of December ~~31, 2017~~ 3 1 , 2020 (unaudited) and June 30, ~~2017~~2020		1

Consolidated Statements of Operations for the three and six months ended December 31, ~~2017~~2020 and ~~2016~~2019 (unaudited)		2

Consolidated Statements of Comprehensive Income for the three and six months ended December ~~31, 2017~~ 3 1 , 2020 and ~~2016~~2019 (unaudited)		3

Consolidated Statements of Cash Flows for the six months ended December ~~31, 2017~~ 3 1 , 2020 and ~~2016~~2019 (unaudited)		4

Consolidated Statements of Stockholders' Deficiency for the three and six months ended December ~~31, 2017~~3 1 , 2020 and ~~2016~~2019 (unaudited)		5

Notes to Consolidated Financial Statements (unaudited)		67

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		1821

Item 3. Quantitative and Qualitative Disclosures About Market Risk		2730

Item 4. Controls and Procedures		2730

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		2831

Item 6. Exhibits		2831

Signature		32

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

MSG NETWORKS INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)


	December 31, 2017			June 30, 2017				December 31, 2020		June 30, 2020
ASSETS	(unaudited)						ASSETS	(unaudited)
Current Assets:							Current Assets:
Cash and cash equivalents	$	201,915		$	141,087		Cash and cash equivalents	$	283,660	$	196,837
Accounts receivable, net	104,381			105,030			Accounts receivable, net	95,526		105,549
Net related party receivable	19,293			17,153
Related party receivables, net							Related party receivables, net	6,978		14,190
Prepaid income taxes	3,654			14,322			Prepaid income taxes	225		461
Prepaid expenses	5,452			6,468			Prepaid expenses	20,010		11,063
Other current assets	3,467			2,343			Other current assets	4,150		4,541
Total current assets	338,162			286,403			Total current assets	410,549		332,641
Property and equipment, net	9,447			11,828			Property and equipment, net	7,912		8,758
Amortizable intangible assets, net	38,933			40,663			Amortizable intangible assets, net	28,553		30,283
Goodwill	424,508			424,508			Goodwill	424,508		424,508
Operating lease right-of-use assets							Operating lease right-of-use assets	14,538		17,153
Other assets	40,714			41,642			Other assets	35,641		37,460
Total assets	$	851,764		$	805,044		Total assets	$	921,701	$	850,803

LIABILITIES AND STOCKHOLDERS' DEFICIENCY							LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:							Current Liabilities:
Accounts payable	$	1,398		$	1,241		Accounts payable	$	309	$	2,115
Net related party payable	805			2,963
Related party payables							Related party payables	2,203		1,472
Current portion of long-term debt	72,414			72,414			Current portion of long-term debt	48,234		37,229
Current portion of operating lease liabilities							Current portion of operating lease liabilities	5,405		5,492
Income taxes payable	7,400			11,483			Income taxes payable	2,438		641

Accrued liabilities:							Accrued liabilities:
Employee related costs	9,284			14,238			Employee related costs	10,159		14,187
Other accrued liabilities	13,927			10,050			Other accrued liabilities	7,716		10,116
Deferred revenue	3,370			5,071			Deferred revenue	2,172		2,753
Total current liabilities	108,598			117,460			Total current liabilities	78,636		74,005
Long-term debt, net of current portion	1,204,224			1,240,431			Long-term debt, net of current portion	1,019,660		1,043,780
Long-term operating lease liabilities							Long-term operating lease liabilities	11,037		13,780
Defined benefit and other postretirement obligations	29,051			29,979			Defined benefit and other postretirement obligations	25,208		25,860
Other employee related costs	3,966			3,930			Other employee related costs	5,470		5,149
Other liabilities	5,566			5,597			Other liabilities	1,498		1,536
Deferred tax liability	243,601			351,854			Deferred tax liability	248,064		239,542
Total liabilities	1,595,006			1,749,251			Total liabilities	1,389,573		1,403,652
Commitments and contingencies (see Note 7)
Commitments and contingencies (see Note 9)							Commitments and contingencies (see Note 9)	0		0
Stockholders' Deficiency:							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
Class A Common Stock, par value $0.01, 360,000 shares authorized; 43,460 and 43,122 shares outstanding as of December 31, 2020 and June 30, 2020, respectively							Class A Common Stock, par value $0.01, 360,000 shares authorized; 43,460 and 43,122 shares outstanding as of December 31, 2020 and June 30, 2020, respectively	643		643
Class B Common Stock, par value $0.01, 90,000 shares authorized; 13,589 shares outstanding as of December 31, 2020 and June 30, 2020							Class B Common Stock, par value $0.01, 90,000 shares authorized; 13,589 shares outstanding as of December 31, 2020 and June 30, 2020	136		136
Preferred stock, par value $0.01, 45,000 shares authorized; none outstanding	—			—			Preferred stock, par value $0.01, 45,000 shares authorized; none outstanding	0		0
Additional paid-in capital	349			6,909			Additional paid-in capital	14,166		12,731
Treasury stock, at cost, 2,563 and 2,762 shares as of December 31, 2017 and June 30, 2017, respectively	(184,449		)	(198,800		)
Treasury stock, at cost, 20,799 and 21,137 shares as of December 31, 2020 and June 30, 2020, respectively							Treasury stock, at cost, 20,799 and 21,137 shares as of December 31, 2020 and June 30, 2020, respectively	(450,053)		(457,363)
Accumulated deficit	(553,535		)	(746,539		)	Accumulated deficit	(24,738)		(100,792)
Accumulated other comprehensive loss	(6,386		)	(6,556		)	Accumulated other comprehensive loss	(8,026)		(8,204)
Total stockholders' deficiency	(743,242		)	(944,207		)	Total stockholders' deficiency	(467,872)		(552,849)

Total liabilities and stockholders' deficiency	$	851,764		$	805,044		Total liabilities and stockholders' deficiency	$	921,701	$	850,803

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
	December 31,				December 31,
	2020		2019		2020		2019
Revenues	$	146,239	$	187,730	$	303,602	$	348,711

Direct operating expenses (including related party expenses of $35,529 and $39,884 for the three months ended December 31, 2020 and 2019, respectively, and $76,160 and $78,887 for the six months ended December 31, 2020 and 2019, respectively)	57,033		84,065		122,105		152,725
Selling, general and administrative expenses (including related party expenses of $3,239 and $8,826 for the three months ended December 31, 2020 and 2019, respectively, and $7,248 and $12,017 for the six months ended December 31, 2020 and 2019, respectively)	21,692		32,022		44,219		54,342
Depreciation and amortization	1,802		1,680		3,630		3,407
Operating income	65,712		69,963		133,648		138,237
Other income (expense):
Interest income	488		906		965		2,834
Interest expense	(5,143)		(9,934)		(10,362)		(20,749)
Debt refinancing expense	0		(2,764)		0		(2,764)
Other components of net periodic benefit cost	(206)		(258)		(413)		(516)
	(4,861)		(12,050)		(9,810)		(21,195)
Income from operations before income taxes	60,851		57,913		123,838		117,042
Income tax expense	(19,328)		(17,949)		(47,304)		(34,011)


Net income	$	41,523	$	39,964	$	76,534	$	83,031
Earnings per share:


Basic	$	0.72	$	0.66	$	1.34	$	1.23


Diluted	$	0.72	$	0.66	$	1.33	$	1.22
Weighted-average number of common shares outstanding:
Basic	57,415		60,452		57,287		67,758
Diluted	57,721		60,825		57,550		68,144

Three Months Ended Six Months Ended
December 31, December 31,
2017 2016 2017 2016
Revenues $ 181,222
$ 175,646
$ 338,678
$ 329,224

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 2,423
2,580
4,874
5,158
Operating income 75,586
80,145
151,939
155,072
Other income (expense):
Interest income 999
649
1,877
1,276
Interest expense (10,242 ) (9,714 ) (20,885 ) (19,229 )
Other components of net periodic benefit cost (407 )
(346 ) (814 ) (766 )
(9,650 ) (9,411 ) (19,822 ) (18,719 )
Income from continuing operations before income taxes 65,936
70,734
132,117
136,353
Income tax benefit (expense) 89,632
(27,479 ) 64,608
(52,737 )
Income from continuing operations 155,568
43,255
196,725
83,616
Loss from discontinued operations, net of taxes —
—
—
(120 )
Net income $ 155,568
$ 43,255
$ 196,725
$ 83,496
Earnings per share:
Basic
Income from continuing operations $ 2.06
$ 0.58
$ 2.61
$ 1.11
Loss from discontinued operations —
—
—
—
Net income $ 2.06
$ 0.58
$ 2.61
$ 1.11
Diluted
Income from continuing operations $ 2.05
$ 0.57
$ 2.60
$ 1.11
Loss from discontinued operations —
—
—
—
Net income $ 2.05
$ 0.57
$ 2.60
$ 1.11
Weighted-average number of common shares outstanding:
Basic 75,458
75,215
75,371
75,159
Diluted 75,756
75,461
75,768
75,436

See accompanying notes to consolidated financial statements.

MSG NETWORKS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited) (in thousands)


	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2020		2019		2020		2019
Net income	$	41,523	$	39,964	$	76,534	$	83,031
Other comprehensive income (loss) before income taxes:
Pension plans and postretirement plan:	0		0		0		0
Amounts reclassified from accumulated other comprehensive loss:
Amortization of net actuarial loss included in net periodic benefit cost	126		134		252		268
Amortization of prior service credit included in net periodic benefit cost	0		(1)		0		(2)
Other comprehensive income before income taxes	126		133		252		266
Income tax expense related to items of other comprehensive income	(37)		(39)		(74)		(75)
Other comprehensive income	89		94		178		191
Comprehensive income	$	41,612	$	40,058	$	76,712	$	83,222

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,							2020		2019
	2017			2016
Cash flows from operating activities from continuing operations:
Cash flows from operating activities:							Cash flows from operating activities:
Net income	$	196,725		$	83,496		Net income	$	76,534	$	83,031
Loss from discontinued operations, net of taxes	—			120
Income from continuing operations	196,725			83,616
Adjustments to reconcile net income to net cash provided by operating activities from continuing operations:
Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	4,874			5,158			Depreciation and amortization	3,630		3,407
Amortization of deferred financing costs	1,501			1,502			Amortization of deferred financing costs	807		1,188
Debt refinancing expense							Debt refinancing expense	0		455
Share-based compensation expense	7,719			5,049			Share-based compensation expense	10,893		10,099
Provision for doubtful accounts	252			(162		)	Provision for doubtful accounts	(275)		(104)
Change in assets and liabilities:							Change in assets and liabilities:
Accounts receivable, net	773			1,014			Accounts receivable, net	7,475		969
Net related party receivable	(3,387		)	(246		)
Related party receivables, net							Related party receivables, net	7,318		(4,920)
Prepaid expenses and other assets	612			899			Prepaid expenses and other assets	(6,909)		(3,134)
Accounts payable	157			(1,055		)	Accounts payable	(308)		(338)
Net related party payable, including payable to MSG	(2,163		)	(2,289		)
Related party payables, including payable to MSGS and MSGE							Related party payables, including payable to MSGS and MSGE	731		220
Prepaid/payable for income taxes	6,585			13,362			Prepaid/payable for income taxes	2,033		(10,267)
Accrued and other liabilities	(1,600		)	(1,310		)	Accrued and other liabilities	(4,744)		(8,122)
Deferred revenue	(1,701		)	(2,566		)	Deferred revenue	(581)		641
Deferred income taxes	(108,375		)	(1,948		)	Deferred income taxes	8,650		896
Net cash provided by operating activities from continuing operations	101,972			101,024
Cash flows from investing activities from continuing operations:
Net cash provided by operating activities							Net cash provided by operating activities	105,254		74,021
Cash flows from investing activities:							Cash flows from investing activities:
Capital expenditures	(871		)	(2,242		)	Capital expenditures	(2,533)		(1,758)
Net cash used in investing activities from continuing operations	(871		)	(2,242		)
Cash flows from financing activities from continuing operations:
Principal repayments on Term Loan Facility (see Note 6)	(37,500		)	(30,000		)

Net cash used in investing activities							Net cash used in investing activities	(2,533)		(1,758)
Cash flows from financing activities:							Cash flows from financing activities:
Principal repayments on term loan facilities (see Note 7)							Principal repayments on term loan facilities (see Note 7)	(13,750)		(21,250)
Proceeds from senior secured credit facilities (see Note 7)							Proceeds from senior secured credit facilities (see Note 7)	0		100,000
Payments for financing costs							Payments for financing costs	0		(3,969)
Share repurchase costs							Share repurchase costs	0		(253,318)
Taxes paid in lieu of shares issued for share-based compensation	(2,773		)	(2,254		)	Taxes paid in lieu of shares issued for share-based compensation	(2,148)		(4,235)
Net cash used in financing activities from continuing operations	(40,273		)	(32,254		)
Net cash provided by continuing operations	60,828			66,528
Cash flows of discontinued operations:
Net cash used in operating activities	—			(953		)
Net cash used in investing activities	—			—
Net cash used in financing activities	—			—			Net cash used in financing activities	(15,898)		(182,772)
Net cash used in discontinued operations	—			(953		)
Net increase in cash and cash equivalents	60,828			65,575
Net increase (decrease) in cash and cash equivalents							Net increase (decrease) in cash and cash equivalents	86,823		(110,509)
Cash and cash equivalents at beginning of period	141,087			119,568			Cash and cash equivalents at beginning of period	196,837		226,423
Cash and cash equivalents at end of period	$	201,915		$	185,143		Cash and cash equivalents at end of period	$	283,660	$	115,914

See accompanying notes to consolidated financial statements.

MSG NETWORKS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2020 AND 2019

(Unaudited) (in thousands)


	Common Stock Issued		Additional Paid-In Capital		Treasury Stock		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total
Balance as of September 30, 2020	$	779	$	7,948	$	(450,053)	$	(66,261)	$	(8,115)	$	(515,702)
Net income	—		—		—		41,523		—		41,523
Other comprehensive income	—		—		—		—		89		89
Comprehensive income											41,612

Share-based compensation expense	—		6,266		—		—		—		6,266

Tax withholding associated with shares issued for share-based compensation	—		(48)		—		—		—		(48)

Balance as of December 31, 2020	$	779	$	14,166	$	(450,053)	$	(24,738)	$	(8,026)	$	(467,872)


	Common Stock Issued		Additional Paid-In Capital		Treasury Stock		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total
Balance as of September 30, 2019	$	779	$	0	$	(417,691)	$	(242,946)	$	(7,391)	$	(667,249)
Net income	—		—		—		39,964		—		39,964
Other comprehensive income	—		—		—		—		94		94
Comprehensive income											40,058
Share-based compensation expense	—		5,440		—		—		—		5,440
Repurchases of Class A Common Stock	—		—		115		—		—		115
Tax withholding associated with shares issued for share-based compensation	—		(1,376)		—		—		—		(1,376)
Shares issued upon distribution of Restricted Stock Units	—		(414)		414		—		—		—
Balance as of December 31, 2019	$	779	$	3,650	$	(417,162)	$	(202,982)	$	(7,297)	$	(623,012)

MSG NETWORKS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY (continued)

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2020 AND 2019

(Unaudited) (in thousands)

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		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total
Balance as of June 30, 2020	$	779	$	12,731	$	(457,363)	$	(100,792)	$	(8,204)	$	(552,849)
Net income	—		—		—		76,534		—		76,534
Other comprehensive income	—		—		—		—		178		178
Comprehensive income											76,712
Cumulative effect of adoption of ASU 2016-13, credit losses	—		—		—		(480)		—		(480)
Share-based compensation expense	—		10,893		—		—		—		10,893

Tax withholding associated with shares issued for share-based compensation	—		(2,148)		—		—		—		(2,148)
Shares issued upon distribution of Restricted Stock Units	—		(7,310)		7,310		—		—		—
Balance as of December 31, 2020	$	779	$	14,166	$	(450,053)	$	(24,738)	$	(8,026)	$	(467,872)


																			Common Stock Issued		Additional Paid-In Capital		Treasury Stock		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total
	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	)
Balance as of June 30, 2019																		Balance as of June 30, 2019	$	779	$	9,916	$	(179,561)	$	(282,414)	$	(7,488)	$	(458,768)
Net income	—		—			—			83,496			—			83,496			Net income	—		—		—		83,031		—		83,031
Other comprehensive income	—		—			—			—			153			153			Other comprehensive income	—		—		—		—		191		191
Comprehensive income															83,649			Comprehensive income											83,222
Exercise of stock options	—		(57		)	59			—			—			2
Share-based compensation expense	—		5,049			—			—			—			5,049			Share-based compensation expense	—		10,099		—		—		—		10,099
Repurchases of Class A Common Stock																		Repurchases of Class A Common Stock	—		—		(253,330)		—		—		(253,330)
Tax withholding associated with shares issued for share-based compensation	—		(1,793		)	(423		)	(55		)	—			(2,271		)	Tax withholding associated with shares issued for share-based compensation	—		(4,235)		—		—		—		(4,235)
Shares issued upon distribution of Restricted Stock Units	—		(86		)	10,448			(10,362		)	—			—			Shares issued upon distribution of Restricted Stock Units	—		(12,130)		15,729		(3,599)		—		—
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	)
Balance as of December 31, 2019																		Balance as of December 31, 2019	$	779	$	3,650	$	(417,162)	$	(202,982)	$	(7,297)	$	(623,012)

See accompanying notes to consolidated financial statements.

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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”), incorporated on July 29, 2009, owns and operates ~~two~~2 regional sports and entertainment networks, MSG Network and MSG+., collectively “MSG Networks.” MSG Networks feature a wide range of compelling sports content, including exclusive live local games and other programming of the New York Knicks (the “Knicks”) of the National Basketball Association (“NBA”); the New York Rangers (the “Rangers”), New York Islanders (the “Islanders”), New Jersey Devils (the “Devils”) and Buffalo Sabres of the National Hockey League (“NHL”); as well as significant coverage of the New York Giants and Buffalo Bills of the National Football League.

On September 30, 2015, the Company distributed to its stockholders all of the outstanding common stock of Madison Square Garden Sports Corp. (formerly, The Madison Square Garden ~~Company (“MSG”~~Company) (together with its subsidiaries, “MSGS”) (the “Distribution”). Following the Distribution, the Company no longer consolidates the financial results of MSG for purposes of its own financial 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~~1 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 Annual Report on Form 10-K for the year ended June 30, ~~2017~~.2020. The financial statements as of December 31, ~~2017~~2020 and for the three and six months ended December 31, ~~2017~~2020 and ~~2016~~2019 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.

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.

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 amount of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amount of revenues and expenses. Such estimates include the valuation of accounts receivable, investments, goodwill, ~~intangible assets,~~ other long-lived assets, pension and other postretirement benefit obligations and the related net periodic benefit cost, tax accruals, and other liabilities. In addition, estimates are used in revenue recognition, rights fees expense, income tax ~~benefit (expense),~~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~~factors. Due to the ~~general economic environment~~novel coronavirus (“COVID-19”) pandemic, in March 2020, the 2019-20 NHL and ~~actions it may take~~NBA seasons were suspended. The leagues resumed play several months later, with the Rangers and Islanders participating in the ~~future.~~NHL's return to play. The NHL and NBA subsequently completed their seasons in September and October 2020, respectively, which impacted each league’s 2020-21 regular season. The NBA started its regular season on December 22, 2020 with a reduced schedule of 72 games, while the NHL regular season began on January 13, 2021 and has been reduced to a 56-game schedule.

Our estimates have been prepared based on these facts, and we will continue to monitor updates made by the NBA and NHL with regards to league play and the impact on the Company’s use of estimates. The Company adjusts such estimates when facts and circumstances dictate. However, these estimates may involve significant uncertainties and judgments and cannot be

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(Continued)

determined with precision. In addition, these estimates are based on 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 control, including government and league actions taken to contain or mitigate the COVID-19 pandemic, could be material and would be reflected in the Company’s financial statements in future periods.

Recently Adopted Accounting Pronouncements

In ~~March 2017,~~June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. ~~2017-07,~~ ~~Compensation~~2016-13, Financial Instruments — ~~Retirement Benefits (Topic 715): Improving~~Credit Losses and the ~~Presentation~~subsequent ASUs that amended the application of ~~Net Periodic Pension Cost~~ASU No. 2016-13, which introduces a new impairment model for most financial assets and ~~Net Periodic Postretirement Benefit Cost. This~~certain other instruments, including accounts receivable. Under the new standard, ~~was early adopted by~~ the Company is required to use a forward looking “expected loss” model that has replaced the former “incurred loss” model, which generally will result in earlier recognition of allowances for losses. The Company adopted this standard on July 1, 2020 on a modified retrospective basis, recording $480, net of tax, as a cumulative effect adjustment to accumulated deficit.

In March 2019, the ~~first quarter~~FASB issued ASU No. 2019-02, Entertainment — Films — Other Assets — Film Costs (Subtopic 926-20) and Entertainment — Broadcasters — Intangibles — Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of ~~fiscal year 2018,~~Films and ~~was applied retrospectively.~~License Agreements for Program Materials, which amends Accounting Standards Codification (“ASC”) Subtopic 920-350 to align the accounting for production costs of an episodic television series with that for the costs of producing films. The Company adopted this standard on a prospective basis, effective July 1, 2020. The adoption of this standard ~~resulted in~~did not have a material impact on the ~~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 be included in the subtotal~~

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~~(Continued)~~

~~for operating income in the~~Company’s 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.financial statements.

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~~”~~) 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,~~2018, the FASB issued ASU No. ~~2015-14,~~ ~~Revenue from Contracts with Customers~~2018-14, Compensation — Retirement Benefits — Defined Benefit Plans — General (Topic ~~606)~~715-20): ~~Deferral of~~Disclosure Framework — Changes to the ~~Effective Date~~Disclosure Requirements for Defined Benefit Plans, which ~~defers~~removes, adds, or clarifies disclosure requirements relating to defined benefit plans to improve disclosure effectiveness. This standard will be effective for the ~~effective date~~Company beginning in the fourth quarter of ~~ASU No. 2014-09 for~~fiscal year 2021, with early adoption permitted. The standard is to be applied retroactively to 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 Consideration~~s~~, which provides clarification~~periods presented. The adoption of this standard is not expected to have a material impact on the ~~implementation guidance on principal versus agent considerations outlined in~~ ~~ASU~~ ~~No. 2014-09.~~ Company’s consolidated financial statements.

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,~~December 2019, the FASB issued ASU No. ~~2016-12,~~ R~~evenue from Contracts with Customers~~2019-12, Income Taxes (Topic ~~606)~~740): ~~Narrow-Scope Improvements~~Simplifying the Accounting for Income Taxes. This ASU eliminates certain exceptions to the general approach in ASC Topic 740 and ~~Practical Expedients, which clarifies assessing collectibility, noncash consideration, presentation~~includes methods of ~~sales taxes, completed contracts, and contract modifications at transition.~~simplification to the existing guidance. This standard will be effective for the Company beginning in the first quarter of fiscal year ~~2019, and the Company expects~~2022, with early adoption permitted. The standard is to ~~adopt~~be applied prospectively to all periods presented. The adoption of this standard ~~using~~is not expected to have a material impact on the ~~modified retrospective method. The Company has partially completed its assessment of the new standard to determine the impact it will have on its~~Company's consolidated financial ~~statements and related disclosures, and expects the remainder of its assessment to be completed by the end of fiscal year 2018.~~statements.

In ~~February 2016,~~March 2020, the FASB issued ASU No. ~~2016-02, Leases~~2020-04, Reference Rate Reform (Topic ~~842), which supersedes~~848): Facilitation of the ~~current~~Effects of Reference Rate Reform on Financial Reporting. This ASU,and the subsequent ASU that amended its application, provide temporary optional expedients and exceptions to the guidance ~~in ASC Topic 840,~~ ~~Leases. This ASU requires~~on contract modifications and hedge accounting to ease the ~~recognition~~financial reporting burdens of ~~lease assets~~the expected market transition from the London Interbank Offered Rate 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~~other interbank offered rates to ~~provide additional information about the nature of an organization’s leasing activities.~~ alternative reference rates. This standard ~~will~~was effective upon issuance, and may be ~~effective for the Company beginning in the first quarter of fiscal year 2020, with early adoption permitted, and the modified retrospective approach required.~~applied prospectively through December 31, 2022. The Company is currently evaluating the impact this standard will have on its consolidated financial ~~statements.~~ statements, if elected.

~~In August 2016,~~Note 3. Revenue and Accounts Receivable

The Company generates revenues principally from affiliation fees charged to cable, satellite, telephone and other platforms (“Distributors”) for the ~~FASB issued ASU No. 2016-15,~~ ~~Statement~~right to carry its networks, as well as from the sale of ~~Cash Flows (Topic 230): Classification~~advertising. The Company’s advertising revenue is largely derived from the sale of ~~Certain Cash Receipts~~inventory in its live professional sports programming, and ~~Cash Payments, which amends ASC Topic 230,~~ ~~Statement~~as such, a disproportionate share of ~~Cash Flows~~ ~~to eliminate~~this revenue has historically been earned in the ~~diversity in practice related~~Company’s second and third fiscal quarters. Due to the ~~classification of certain cash receipts~~COVID-19 pandemic, the NBA and ~~payments in~~NHL 2020-21 regular seasons were delayed and are scheduled to primarily occur during 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~~third and fourth quarters of fiscal year ~~2019,~~2021. The Company’s revenue recognition policies that describe the nature, amount, timing and uncertainty associated with ~~early adoption permitted and the retrospective approach required. The adoption~~each major source of ~~this guidance is not expected to have a material impact on the Company~~’~~s consolidated financial statements.~~revenue from contracts with customers are summarized below.

~~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 consolidated financial statements.~~

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Affiliation Fee Revenue

~~each reporting unit with a zero or a negative carrying amount of net assets. This standard will be effective~~Affiliation fee revenue is earned from Distributors for the right to carry the Company’s networks under contracts, commonly referred to as “affiliation agreements.” The Company’s performance obligation under its affiliation agreements is satisfied as the Company ~~beginning~~provides its programming over the term of the affiliation agreement.

Affiliation fee revenue constituted at least 90% of the Company’s consolidated revenues for the three and six months ended December 31, 2020. Substantially all of the Company’s affiliation agreements are sales-based and usage-based royalty arrangements, which are recognized as the sale or usage occurs. The transaction price is represented by affiliation fees that are generally based upon contractual rates applied to the number of the Distributor’s subscribers who receive or can receive the Company’s programming. Such subscriber information is generally not received until after the close of the reporting period, and in these cases, the ~~first quarter~~Company estimates the number of ~~fiscal~~subscribers. Historical adjustments to recorded estimates have not been material.

Advertising Revenue

The Company primarily earns advertising revenue through the sale of commercial time and other advertising inventory during its programming. In general, these advertising arrangements either do not exceed one year ~~2021,~~or are primarily multi-year media banks, the elements of which are agreed upon each year. Advertising revenue is recognized as advertising is aired. In certain advertising arrangements, the Company guarantees specified viewer ratings for its programming. In such cases, the promise to deliver the guaranteed viewer ratings by airing the advertising represents the Company’s performance obligation. A contract liability is recognized as deferred revenue to the extent any guaranteed viewer ratings are not met and the customer is expected to exercise any right for additional advertising time, and is subsequently recognized as revenue either when the Company provides the required additional advertising time, or additional performance requirements become remote, which may be at the time the guarantee obligation contractually expires.

Principal versus Agent Revenue Recognition

The Company has an advertising sales representation agreement with ~~early adoption permitted. The standard is~~Madison Square Garden Entertainment Corp. (together with its subsidiaries, “MSGE”) that provides for MSGE to ~~be applied prospectively. Based~~act as its advertising sales representative and includes the exclusive right and obligation to sell certain advertising availabilities on the Company’s ~~most recent annual goodwill impairment test completed in~~behalf for a commission (see Note 14). The Company reports advertising revenue on a gross basis as it is primarily responsible for the ~~first quarter~~fulfillment of ~~fiscal year 2018,~~advertising orders.

Noncash Consideration

The Company enters into nonmonetary transactions, primarily with its Distributors, that involve the ~~adoption~~exchange of ~~this guidance is not expected to have any initial impact on~~products or services, such as advertising and promotional benefits, for the Company’s ~~consolidated financial statements.~~

~~In May 2017,~~services. For arrangements that are subject to sales-based and usage-based royalty guidance, the ~~FASB issued ASU No. 2017-09,~~ ~~Compensation — Stock Compensation (Topic 718): Scope~~Company measures noncash consideration that it receives at fair value as the sale or usage occurs. For other arrangements, the Company measures the estimated fair value of ~~Modification Accounting, which provides guidance about which changes~~the noncash consideration that it receives at contract inception. If the Company cannot reasonably estimate the fair value of the noncash consideration, the Company measures the fair value of the consideration indirectly by reference to the ~~terms or conditions~~standalone selling price of ~~a share-based payment award require an entity~~the services promised to ~~apply modification accounting. An entity should account~~the customer in exchange for the ~~effects of a modification unless~~consideration.

Transaction Price Allocated to Future Performance Obligations

Substantially all of the ~~following characteristics~~Company’s affiliation agreements are licenses of functional intellectual property where revenue is derived from sales-based and usage-based royalty arrangements, and generally the Company’s advertising arrangements either do not exceed one year or are primarily multi-year media banks, the elements of which are agreed upon each year. For these types of arrangements, the Company applies a practical expedient that allows it to omit disclosure of the ~~modified award are~~aggregate amount of consideration the ~~same as~~Company expects to receive in exchange for transferring services to a customer (transaction price) that is allocated to performance obligations that have not yet been satisfied. As of December 31, 2020, the ~~original award immediately before~~aggregate amount of transaction price allocated to remaining performance obligations, other than for contracts that the ~~original award is modified: (i)~~Company has applied 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~~practical expedient, was $9,160, of which $8,066 will be ~~effective for~~recognized through fiscal year 2023 and $1,094 thereafter.

Contract Balances from Contracts with Customers

An account receivable is recorded when there is an unconditional right to consideration based on a contract with a customer. The Company’s payment terms generally do not exceed 60 days after revenue is earned. For certain types of contracts with customers, the Company ~~beginning~~may recognize revenue in advance of the ~~first quarter~~contractual right to invoice the customer, resulting in an

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(Continued)

amount recorded to contract assets. Once the Company has an unconditional right to consideration under these contracts, the contract assets are reclassified to accounts receivable.

When consideration is received from a customer prior to transferring services to the customer under the terms of a contract, a contract liability (deferred revenue) is recorded. Deferred revenue is recognized as revenue when, or as, control of the services is transferred to the customer and all revenue recognition criteria have been met.

The following table provides information about current contract balances from contracts with ~~early adoption permitted.~~customers:


	December 31, 2020		June 30, 2020
Accounts receivable (including advertising receivables, which are included in related party receivables, net)	$	105,673	$	124,325
Contract asset, short-term (included in other current assets)	$	102	$	0
Contract asset, long-term (included in other assets)	$	73	$	37
Deferred revenue, short-term	$	2,172	$	2,753
Deferred revenue, long-term (included in other liabilities)	$	0	$	69

Accounts receivable is presented net of an estimate for lifetime expected credit losses. The ~~standard is~~Company analyzes historical losses, economic conditions, receivables aging, customer specific risks, and other factors to ~~be applied prospectively~~estimate its allowance for credit losses. The Company’s allowance for credit losses was $1,825 and $1,418 as of December 31, 2020 and June 30, 2020, respectively.

The amount of revenue recognized during the six months ended December 31, 2020 related to ~~an award modified on or after the adoption date. The adoption~~deferred revenue (contract liability) recorded as of ~~this guidance is not expected to have a material impact on the Company’s consolidated financial statements.~~June 30, 2020 was $1,058.

Note 3.4. Computation of Earnings per Common Share

Basic earnings per common share (“EPS”) is based upon net income 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.

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


	Three Months Ended		Six Months Ended			Three Months Ended		Six Months Ended
	December 31,		December 31,			December 31,		December 31,
	2017	2016	2017	2016		2020	2019	2020	2019
Weighted-average number of shares for basic EPS	75,458	75,215	75,371	75,159	Weighted-average number of shares for basic EPS	57,415	60,452	57,287	67,758
Dilutive effect of shares issuable under share-based compensation plans	298	246	397	277	Dilutive effect of shares issuable under share-based compensation plans	306	373	263	386
Weighted-average number of shares for diluted EPS	75,756	75,461	75,768	75,436	Weighted-average number of shares for diluted EPS	57,721	60,825	57,550	68,144
Anti-dilutive shares	1,072	535	615	317	Anti-dilutive shares	3,228	2,981	3,088	2,602

Note 4.5. Goodwill and Amortizable Intangible Assets

During the first quarter of fiscal year ~~2018,~~2021, the Company performed its annual impairment test of ~~goodwill, and~~goodwill. As the Company’s 1 reporting unit had a negative carrying value of net assets, there was no0 impairment of goodwill identified.

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(Continued)

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


	December 31, 2017			June 30, 2017				December 31, 2020		June 30, 2020
Affiliate relationships	$	83,044		$	83,044		Affiliate relationships	$	83,044	$	83,044
Less accumulated amortization	(44,111		)	(42,381		)
Less: accumulated amortization							Less: accumulated amortization	(54,491)		(52,761)
	$	38,933		$	40,663			$	28,553	$	30,283

Affiliate relationships have an estimated useful life of 24 years. Amortization expense for intangible assets was $865 for the three months ended December 31, ~~2017~~2020 and ~~2016,~~2019, and $1,730 for the six months ended December 31, ~~2017~~2020 and ~~2016.~~2019.

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~~(Continued)~~

Note 5.6. Property and Equipment

As of December 31, ~~2017~~2020 and June 30, ~~2017,~~2020, property and equipment consisted of the following assets:


	December 31, 2017			June 30, 2017				December 31, 2020		June 30, 2020
Equipment	$	41,954		$	40,918		Equipment	$	29,867	$	28,902
Furniture and fixtures	1,695			1,695			Furniture and fixtures	1,764		1,726
Leasehold improvements	19,285			19,285			Leasehold improvements	18,617		18,585
Construction in progress	269			565			Construction in progress	296		277
	63,203			62,463				50,544		49,490
Less accumulated depreciation and amortization	(53,756		)	(50,635		)
Less: accumulated depreciation and amortization							Less: accumulated depreciation and amortization	(42,632)		(40,732)
	$	9,447		$	11,828			$	7,912	$	8,758

Depreciation and amortization expense on property and equipment was ~~$1,558~~$937 and ~~$1,715~~$815 for the three months ended December 31, ~~2017~~2020 and ~~2016,~~2019, respectively, and ~~$3,144~~$1,900 and ~~$3,428~~$1,677 for the six months ended December 31, ~~2017~~2020 and ~~2016,~~2019, respectively.

Note 6.7. Debt

Former Senior Secured Credit Facilities

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 agreement (the ~~“Credit~~“Former Credit Agreement”) with a syndicate of lenders. The Former Credit Agreement provided MSGN L.P. with senior secured credit facilities that consisted of: (a) an initial $1,550,000 term loan facility and (b) a $250,000 revolving credit facility.

Amended and Restated Senior Secured Credit Facilities

On October 11, 2019, MSGN L.P., the Holdings Entities and certain subsidiaries of MSGN L.P. amended and restated the Former Credit Agreement in its entirety (the “Credit Agreement”). The Credit Agreement provides MSGN L.P. with senior secured credit facilities (the “Senior Secured Credit Facilities”) consisting of: ~~(a)~~(i) an initial ~~$1,550,000~~$1,100,000 term loan facility (the “Term Loan Facility”) and ~~(b)~~(ii) 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~~Proceeds from the Term Loan Facility ~~was contributed~~were used by MSGN L.P. to ~~MSG immediately following~~repay outstanding indebtedness under the ~~closing of the Senior Secured~~Former Credit ~~Facilities.~~Agreement. Up to $35,000 of the Revolving Credit Facility is available for the issuance of letters of credit.

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)~~(i) 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%~~0.25% to 1.25% per annum (determined based on a total net leverage ratio) (the “Base Rate”), or ~~(b)~~(ii) a Eurodollar rate ~~(the “Eurodollar Rate”)~~ plus an additional rate ranging from ~~1.50%~~1.25% to 2.25% per annum (determined based on a total net 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. (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

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additional rate of 2.00% per annum. The Credit Agreement requires that MSGN L.P. pay a commitment fee ofranging from 0.225% to 0.30% (determined based on a total net leverage ratio) in respect of the average daily unused commitments under the Revolving Credit Facility. MSGN L.P. will also be required to pay customary letter of credit fees, as well as fronting fees, to banks that issue letters of ~~credit pursuant to the Revolving Credit Facility.~~credit.

The Credit Agreement generally requires the 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 October 1, 2016 until maturity,~~ subject, ~~in each case,~~at the option of MSGN L.P. to an upward adjustment to 6.00:1.00 during the continuance of certain events. In addition, ~~there is~~the Credit Agreement requires 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, ~~2017,~~2020, the Holdings Entities and MSGN L.P. and its restricted subsidiaries on a consolidated basis were in compliance with the applicable financial ~~covenants of the Credit Agreement.~~covenants. 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, ~~2017,~~2020, there ~~were no~~ were 0 letters of credit issued and outstanding under the Revolving Credit Facility, which provides full borrowing capacity of $250,000. ~~The~~

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

~~(Continued)~~

~~Company has made principal payments aggregating $266,250 through December 31, 2017.~~ The Term Loan Facility amortizes quarterly in accordance with its terms beginning March 31, 2020 through ~~June~~September 30, ~~2020~~2024 with a final maturity date on ~~September 28, 2020.~~October 11, 2024.

As of December 31, ~~2017,~~2020, the principal repayments required under the Term Loan Facility are as follows:

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


Remainder of fiscal year ending June 30, 2021	$	24,750
Fiscal year ending June 30, 2022	49,500
Fiscal year ending June 30, 2023	66,000
Fiscal year ending June 30, 2024	82,500
Fiscal year ending June 30, 2025	849,750
	$	1,072,500

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 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 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 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~~Term Loan Facility using the effective interest ~~method.~~ method over its five-year term.

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MSG NETWORKS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Continued)

The following table summarizes the presentation of the Term Loan Facility, and the related deferred financing costs, in the accompanying consolidated balance sheets as of December 31, ~~2017~~2020 and June 30, ~~2017:~~2020:


	Term Loan Facilities		Deferred Financing Costs		Net
December 31, 2020
Current portion of long-term debt	$	49,500	$	(1,266)	$	48,234
Long-term debt, net of current portion	1,023,000		(3,340)		1,019,660
Total	$	1,072,500	$	(4,606)	$	1,067,894
June 30, 2020
Current portion of long-term debt	$	38,500	$	(1,271)	$	37,229
Long-term debt, net of current portion	1,047,750		(3,970)		1,043,780
Total	$	1,086,250	$	(5,241)	$	1,081,009

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


	December 31, 2020		June 30, 2020
Other current assets	$	343	$	343
Other assets	951		1,123

Total amortization of deferred financing costs was $807 and $1,188 for the six months ended December 31, 2020 and 2019, respectively, and is included in interest expense in the accompanying consolidated statements of operations.

The Company made interest payments under the Credit Agreement and Former Credit Agreement of $9,584 and $19,405 during the six months ended December 31, 2020 and 2019, respectively.

Note 8. Leases

Term Loan Facility Deferred Financing Costs Total
December 31, 2017
Current portion of long-term debt $ 75,000
$ (2,586 ) $ 72,414
Long-term debt, net of current portion 1,208,750
(4,526 ) 1,204,224
Total $ 1,283,750
$ (7,112 ) $ 1,276,638
June 30, 2017
Current portion of long-term debt $ 75,000
$ (2,586 ) $ 72,414
Long-term debt, net of current portion 1,246,250
(5,819 ) 1,240,431
Total $ 1,321,250
$ (8,405 ) $ 1,312,845
The Company has various operating leases for office and studio space, as well as equipment, expiring at various dates through fiscal year 2025. The Company currently has 0 finance leases. Some leases include options to extend the lease term, generally at the Company’s discretion. The depreciable life of leasehold improvements are limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise.

The leases generally provide for fixed annual rentals plus certain other costs. Certain leases include variable payments based on the Company’s use of the respective assets. The Company’s lease agreements do not include any material residual value guarantees or material restrictive covenants. Since the Company’s leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate as of the lease commencement date to determine the present value of future lease payments. Upon the adoption of ASC Topic 842, Leases, the Company used the incremental borrowing rate on July 1, 2019 for all operating leases that commenced prior to that date.

Lease cost consists of the following:


	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2020		2019		2020		2019
Operating lease cost	$	1,381	$	1,372	$	2,779	$	2,744
Variable lease cost	44		728		44		781
Total lease cost	$	1,425	$	2,100	$	2,823	$	3,525

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MSG NETWORKS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Continued)

~~In addition,~~The following table summarizes the ~~Company has deferred financing costs~~weighted-average remaining lease term and discount rate for operating leases:


	December 31,
	2020		2019
Weighted-average discount rate for operating leases	3.33	%	3.29	%
Weighted-average remaining operating lease term in years	3.17		3.82

As of December 31, 2020, the maturities of the Company’s operating lease liabilities are as follows:


Remainder of fiscal year ending June 30, 2021	$	2,971
Fiscal year ending June 30, 2022	5,241
Fiscal year ending June 30, 2023	4,949
Fiscal year ending June 30, 2024	4,135
Fiscal year ending June 30, 2025	17
Total undiscounted operating lease payments	17,313
Less: imputed interest	871
Total operating lease liabilities	16,442
Less: current portion of operating lease liabilities	5,405
Non-current operating lease liabilities	$	11,037

Supplemental cash flow information related to ~~the Revolving Credit Facility recorded in the accompanying consolidated balance sheets as summarized in the following table:~~operating leases:


	Six Months Ended
	December 31,
	2020		2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	2,989	$	2,830
Cash paid for variable lease payments not included in measurement of operating lease liabilities	0		481
Total	$	2,989	$	3,311

December 31, 2017 June 30, 2017

Other current assets $ 417
$ 417
Other assets 730
938

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

Note 7.9. Commitments and Contingencies

Commitments

As more fully described in ~~Notes~~Note 9 ~~and 10~~ to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, ~~2017,~~2020, the Company’s contractual obligations not reflected on the consolidated balance ~~sheet~~sheets consist primarily of its obligations under media rights ~~agreements and, to a lesser extent, long-term noncancelable operating lease~~ agreements.

In addition, see Note 67 for the principal repayments required under the Company’s Term Loan Facility.

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 8.10. 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 when pricing the asset or liability. Unobservable inputs are inputs for which market data is not available and that are developed using the best information available about the assumptions that market participants would use when pricing the asset or liability.

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MSG NETWORKS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Continued)

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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~~MSG NETWORKS INC.~~

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

~~(Continued)~~

The following table presents for each of these hierarchy levels, the 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, 2017
December 31, 2020										December 31, 2020
Assets:										Assets:
Money market accounts		$	31,292	$	—	$	—	$	31,292	Money market accounts	$	164,130	$	0	$	0	$	164,130
Time deposits		170,623		—		—		170,623		Time deposits	105,822		0		0		105,822
Total assets measured at fair value		$	201,915	$	—	$	—	$	201,915	Total assets measured at fair value	$	269,952	$	0	$	0	$	269,952
June 30, 2017	��
June 30, 2020										June 30, 2020
Assets:										Assets:
Money market accounts		$	34,128	$	—	$	—	$	34,128	Money market accounts	$	129,609	$	0	$	0	$	129,609
Time deposits		106,482		—		—		106,482		Time deposits	65,713		0		0		65,713
Total assets measured at fair value		$	140,610	$	—	$	—	$	140,610	Total assets measured at fair value	$	195,322	$	0	$	0	$	195,322

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 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 long-term debt (see Note 6)7) was approximately ~~$1,277,000~~$1,061,775 as of December 31, ~~2017.~~2020. The 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.~~ observable, including activity in and the state of the capital markets.

Investment in Nonconsolidated Entity

The Company’s investment in a nonconsolidated entity, which is included in other assets in the accompanying consolidated balance sheets, does not have a readily determinable fair value. As such, the Company has elected to account for it at cost, which would be adjusted for impairment and changes resulting from observable price fluctuations in orderly transactions for an identical or a similar investment of the same issuer (referred to as the measurement alternative method). Investments accounted for under the measurement alternative method are classified within Level III of the fair value hierarchy. As of December 31, 2020, the carrying amount of the Company’s equity investment in the nonconsolidated entity was $2,000, and the Company did not identify any potential adjustments to the cost of its investment through December 31, 2020.

Note 9.11. Pension Plans and Other Postretirement Benefit Plan

As more fully described in Note 1312 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, ~~2017,~~2020, the Company sponsors (i) a non-contributory, qualified defined benefit pension plan covering certain of its union employees, (ii) an unfunded non-contributory, non-qualified frozen excess cash balance plan covering certain employees who participated in an underlying qualified 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 (collectively the ~~“MSG Networks~~“Pension Plans”). The Company also sponsors a contributory welfare plan which provides certain postretirement healthcare benefits to certain employees hired prior to January 1, 2001 (the “Postretirement Plan”).

~~Components of net periodic benefit cost for the MSG Networks Plans and Postretirement Plan are as follows:~~

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

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MSG NETWORKS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Continued)

Components of net periodic benefit cost for the three and six months ended December 31, 2020 and 2019 are as follows:


	Pension Plans				Postretirement Plan
	Three Months Ended				Three Months Ended
	December 31,				December 31,
	2020		2019		2020		2019
Service cost	$	101	$	121	$	9	$	13
Other components of net periodic benefit cost:
Interest cost	256		354		9		15
Expected return on plan assets	(185)		(244)		0		0
Recognized actuarial loss (a)	126		134		0		0
Amortization of unrecognized prior service credit (a)	0		0		0		(1)
Net periodic benefit cost	$	298	$	365	$	18	$	27

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

^{Pension Plans Postretirement Plan
Six Months Ended Six Months Ended
December 31, December 31,
2020 2019 2020 2019
Service cost $ 202 $ 242 $ 18 $ 26
Other components of net periodic benefit cost:
Interest cost 513 708 18 30
Expected return on plan assets (370) (488) 0 0
Recognized actuarial loss (a) 252 268 0 0
Amortization of unrecognized prior service credit (a) 0 0 0 (2)
Net periodic benefit cost $ 597 $ 730 $ 36 $ 54}

(a) Reflects amounts reclassified from accumulated other comprehensive loss to other components of net periodic benefit cost in the accompanying consolidated statements of operations.

In addition, as more fully described in Note 1312 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, ~~2017,~~2020, the Company sponsors the MSGN Holdings, L.P. Excess Savings Plan and participates in ~~the~~The Madison Square Garden ~~401(k) Savings Plan, formerly the MSG Holdings, L.P.~~ 401(k) Savings Plan, a multiple employer plan (together, the “Savings Plans”). The Madison Square Garden 401(k) Savings Plan was sponsored by MSGS until the Entertainment Distribution (as defined in Note 14), and thereafter by MSGE. Expenses related to the Savings Plans included in the accompanying consolidated statements of operations were ~~$246~~$215 and ~~$222~~$284 for the three months ended December 31, ~~2017~~2020 and ~~2016,~~2019, respectively, and ~~$459~~$430 and ~~$399~~$529 for the six months ended December 31, ~~2017~~2020 and ~~2016,~~2019, respectively.

Note ~~10.~~12. Share-based Compensation

See Note 1413 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, ~~2017~~2020 for more information regarding (i) the MSG Networks Inc. 2010 Employee Stock Plan, as amended (the “Employee Stock Plan”), and (ii) the MSG Networks Inc. 2010 Stock Plan ~~For~~for Non-Employee Directors ~~as amended~~ (the “Non-Employee Director Plan”), as ~~well as certain share-based payment awards granted prior to July 1, 2015.~~

amended.

Share-based compensation expense, presented within selling, general and administrative expenses and direct operating expenses, was ~~$4,798~~$6,266 and ~~$3,273~~$5,440 for the three months ended December 31, ~~2017~~2020 and ~~2016,~~2019, respectively, and ~~$7,719~~$10,893 and ~~$5,049~~$10,099 for the six months ended December 31, ~~2017~~2020 and ~~2016,~~2019, 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

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 2017, the Company granted 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 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 $5.63 per option.

1316

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MSG NETWORKS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Continued)

Non-Qualified Stock Options (“NQSOs”) Award Activity

The following ~~were the key assumptions used~~table summarizes activity relating to ~~calculate the fair value of this award:~~



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

~~The Company’s computation of expected term was calculated using the simplified method (the average~~holders of the ~~vesting period and option term) as prescribed~~Company’s NQSOs for the six months ended December 31, 2020:


	Number of		Weighted- Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term (In Years)	Aggregate Intrinsic Value
	Nonperformance Based Vesting NQSOs	Performance Based Vesting NQSOs
Balance as of June 30, 2020	1,833	1,834	$	18.88	5.17	$	0
Adjustment upon final determination of level of performance objective(a)	0	(2)	21.60
Balance as of December 31, 2020	1,833	1,832	$	18.88	4.66	$	467
Exercisable as of December 31, 2020	1,357	961	$	19.58	3.97	$	78

(a) Includes an adjustment of awards issued with respect to performance based NQSOs granted in ~~ASC Topic 718-10-S99. The Company’s computation~~fiscal year 2018 upon certification of ~~expected volatility was based on historical volatility~~the level of ~~its common stock.~~

achievement of the performance targets for such awards.

The aggregate intrinsic value is calculated for in-the-money ~~options~~NQSOs 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~~2020 and June 30, ~~2017,~~2020, as applicable.

Restricted Share Units Award Activity

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

2020:

Number of

Nonperformance
Based
Vesting
RSUs

Performance
Based
Vesting
RSUs

Weighted-Average
Fair Value Per Share
At Date of Grant
Unvested award balance as of June 30, 2017 544
597
$ 25.79
Granted 181
340
21.31
Vested (318 ) (132 ) 33.25
Forfeited (3 ) (2 ) 35.99
Unvested award balance as of December 31, 2017 404
803
21.04


	Number of
	Nonperformance Based Vesting RSUs	Performance Based Vesting RSUs	Weighted-Average Fair Value Per Share At Date of Grant
Unvested award balance as of June 30, 2020	595	870	$	20.01
Granted	851	720	10.44
Vested	(364)	(293)	19.54
Adjustment upon final determination of level of performance objective(a)	0	(1)	21.60
Unvested award balance as of December 31, 2020	1,082	1,296	$	13.81

(a) Includes an adjustment of awards issued with respect to performance based RSUs granted in fiscal year 2018 upon certification of the level of achievement of the performance targets for such awards.

Nonperformance based vesting RSUs granted under the Employee Stock Plan during the six months ended December 31, ~~2017 included 112 RSUs granted under the Employee Stock Plan that~~2020 are subject to ~~three-year~~three-year ratable vesting and 69 RSUs granted under the Non-Employee Director Plan ~~which vested upon~~vest on the 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~~2020 are subject to ~~three-year ratable vesting and 226 RSUs subject to three-year~~three-year cliff vesting. RSUs granted under the Employee Stock Plan and Non-Employee Director Plan will settle in shares of the Company’s Class A Common Stock (either from treasury or with newly issued shares), or, at the option of the Compensation Committee of the Board of Directors (the “Board”), in cash. RSUs granted under the Non-Employee Director Plan will settle on the first business day following the ninetieth day after ~~ninety days from~~ the date that the ~~director's~~director’s service on the Board ~~of Directors~~ ceases or, if earlier, upon the ~~director's~~director’s death.

The fair value of RSUs that vested during the six months ended December 31, ~~2017~~2020 was ~~$9,008.~~$6,826. 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 treasury shares. To fulfill the employees’ statutory ~~minimum~~ tax withholding obligations for the applicable income and other employment taxes, ~~182~~220 of these RSUs, with an aggregate value of ~~$3,649,~~

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MSG NETWORKS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Continued)

$2,148 were retained by the Company and the taxes paid during the six months ended December 31, ~~2017~~2020 are reflected as a financing activity in the accompanying consolidated statement of cash flows.

Note ~~11.~~13. Stock Repurchase Program

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. On August 29, 2019, the Board authorized a $300,000 increase to the stock repurchase authorization, which had $136,165 of availability remaining, bringing the total available repurchase authorization for Class A Common Stock to $436,165 as of that date. 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.

During the six months ended December 31, 2019, the Company repurchased 14,980 shares under a modified Dutch auction tender offer. The purchase price of these share repurchases, and the related fees, have been classified as Treasury stock in the accompanying consolidated balance sheets. There were 0 shares repurchased by the Company during the six months ended December 31, 2020.

As of December 31, ~~2017,~~2020, the Company had ~~$150,000~~$145,864 of availability remaining under its stock repurchase authorization.

~~Table of Contents~~

~~MSG NETWORKS INC.~~

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

~~(Continued)~~

Note ~~12.~~14. Related Party Transactions

As of December 31, ~~2017,~~2020, 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, the “Dolan Family Group”), collectively beneficially own all of the Company’s outstanding Class B common stock, par value $0.01 per share (“Class B Common Stock”) and own approximately ~~2.7%~~8.3% of the Company’s outstanding Class A Common ~~Stock.~~Stock (inclusive of options exercisable within 60 days of the date hereof). Such shares of the Company’s Class A Common Stock and Class B Common Stock, collectively, represent approximately ~~69.6%~~76.9% of the aggregate voting power of the Company’s outstanding common stock. ~~Members of the~~The Dolan ~~family are~~Family Group also ~~the controlling stockholders of MSG and~~controls AMC Networks Inc. (“AMC Networks”), MSGS and MSGE (the outstanding common stock of which was distributed by MSGS to its stockholders on April 17, 2020 (the “Entertainment Distribution”)).

~~On June 16, 2016, the~~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~~shares certain executive support costs, including office space, executive assistants, security and transportation costs for (i) the Company’s Executive Chairman with ~~MSG~~MSGS and (ii) the Company’s Vice Chairman with ~~MSG~~MSGS and AMC Networks.

~~In connection with~~ Following the Entertainment Distribution, the Company ~~entered into~~now also shares such costs with MSGE.

The Company and MSGE are also party to aircraft time sharing agreements, pursuant to which MSGE has agreed from time to time to make certain aircraft available to the Company for use on a “time sharing” basis. Prior to the Entertainment Distribution, the Company was party to such time sharing agreements with MSGS. Additionally, the Company, MSGS, AMC Networks, and following the Entertainment Distribution, MSGE, have agreed on an allocation of the costs of certain other aircraft, including helicopter, use by shared executives.

The Company has various agreements with ~~MSG,~~MSGS, including media rights agreements covering the Knicks and the Rangers games, and a tax disaffiliation agreement. As a result of the Entertainment Distribution, certain agreements which were previously between the Company and MSGS are, as of April 17, 2020, between the Company and MSGE, including an advertising sales representation agreement, a trademark license agreement, ~~a tax disaffiliation agreement, a transition services agreement (“TSA”),~~ and certain other ~~arrangements. The TSA expired on September 30, 2017. The Company entered into~~arrangements, including a ~~new~~ services agreement ~~(“Services~~(the “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~~

~~Rights fees~~

The 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. Rights fees included in the accompanying consolidated statements of operations for the three months ended December 31, 2017 and 2016 were $35,631 and $33,037, respectively, and $70,783 and $66,837 for the six months ended December 31, 2017 and 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 $1,543, respectively and $2,993 and $2,991 for the six months ended December 31, 2017 and 2016, respectively.

~~Commission~~

The Company’s advertising sales representation agreement with MSG, which has a term through June 30, 2022, provides for MSG to 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 advertising sales personnel were transferred to MSG in connection with the Distribution. The amounts charged to the Company for the three months ended December 31, 2017 and 2016 were $5,140 and $5,169, respectively, and $5,567 and $5,594 for the six months ended December 31, 2017 and 2016, respectively.

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~~MSG NETWORKS INC.~~

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

~~(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,~~which the Company outsources ~~(and prior to the expiration of the TSA, the Company outsourced)~~ certain business ~~functions to MSG. These~~functions. The services currently outsourced include information technology, 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~~audit, as well as certain executive support services described above. The Company provides certain services to MSGE pursuant to the Services Agreement. In connection with the Entertainment Distribution, the Company ~~for expenses associated~~entered into a services agreement with MSGS, pursuant to which MSGS provides the Company certain legal services previously provided by under the Services Agreement. The Services Agreement expired on June 30, 2020. In connection therewith, the Company entered into an interim agreement with MSGE, pursuant to which each party provides the other with the services on the same terms. The Company expects to enter into a new services agreement with MSGE which will be retroactive to July 1, 2020.

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

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MSG ~~executive office space~~NETWORKS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Continued)

Related Party Transactions

Rights Fees

The Company’s media rights agreements with MSGS, effective as of July 1, 2015, provide the Company with the exclusive media rights to Knicks and certain support costs, and for other related party transactions amounted to $2,496 and $2,022 for the three months ended December 31, 2017 and 2016, respectively and $4,822 and $4,309 for the six months ended December 31, 2017 and 2016, respectively.

~~Note 13. Income Taxes~~

~~On December 22, 2017 new tax legislation, commonly referred to as the Tax Cuts and Jobs Act, was enacted that significantly changed the existing U.S. tax laws, including a reduction~~Rangers games in their local markets. Rights fees included in the ~~corporate federal tax rate from 35% to 21% effective January 1, 2018. The Company is required to recognize the effect~~accompanying consolidated statements of tax law changes in the period of enactment even though certain key aspects of the new law became effective January 1, 2018. The Company's income tax provision for interim periods is comprised of the tax on ordinary income (loss) provided at the most recent estimated annual effective tax rate, adjusted for the tax effect of discrete items. The Company used a blended statutory federal rate of 28% (based upon the number of days for the fiscal year that it will be taxed at the former rate of 35% and the number of days it will be taxed at the new rate of 21%) to calculate its most recent estimated annual effective tax rate.

~~Income tax benefit attributable to continuing~~ operations for the three months ended December 31, ~~2017~~2020 and 2019 were $34,422 and $38,611, respectively, and $73,963 and $76,631 for the six months ended December 31, 2020 and 2019, respectively.

Origination, Master Control and Technical Services

AMC Networks provides certain origination, master control, and technical services to the Company. Amounts incurred by the Company for the three months ended December 31, 2020 and 2019 were $1,184 and $1,161, respectively, and $2,368 and $2,322 for the six months ended December 31, 2020 and 2019, respectively.

Commission

The Company’s advertising sales representation agreement, which has a term through June 30, 2022, provides for MSGE (MSGS prior to the Entertainment Distribution) to act as the Company’s advertising sales representative and includes the exclusive right and obligation to sell certain advertising availabilities on the Company’s behalf for a commission. The amounts incurred by the Company for the three months ended December 31, 2020 and 2019 were $624 and $6,088, respectively, and $1,819 and $6,424 for the six months ended December 31, 2020 and 2019, respectively.

General and Administrative Expenses

Amounts incurred by the Company for expenses associated with the Services Agreement and the services agreement with MSGS, net, amounted to $2,529 and $2,657 for the three months ended December 31, 2020 and 2019, respectively, and $5,142 and $5,314 for the six months ended December 31, 2020 and 2019, respectively.

Other Operating Expenses

The Company and its related parties enter into other transactions with each other in the ordinary course of ~~$89,632~~business. Net amounts incurred by the Company for other related party transactions amounted to $9 and $193 for the three months ended December 31, 2020 and 2019, respectively, and $116 and $213 for the six months ended December 31, 2020 and 2019, respectively.

Note 15. Income Taxes

Income tax expense for the three months ended December 31, 2020 of $19,328 differs from the income tax expense derived ~~from~~by applying the ~~blended~~ statutory federal rate of 21% to ~~pretax~~pre-tax income principally 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~~$5,906, and ~~other items~~tax expense related to nondeductible officers’ compensation of ~~$275.~~$919.

Income tax expense ~~attributable to continuing operations~~ for the three months ended December 31, ~~2016~~2019 of ~~$27,479~~$17,949 differs from the income tax expense derived by applying the statutory federal rate of 21% to pre-tax income principally due to the impact of state and local income taxes (net of federal benefit) of $4,988.

Income tax expense for the six months ended December 31, 2020 of $47,304 differs from the income tax expense derived from applying the statutory federal rate of 21% to ~~pretax~~pre-tax income principally due to the impact of state and local income taxes (net of federal benefit) of $11,851, the impact from a change in the estimated applicable tax rate used to determine deferred taxes of $6,912, tax expense related to nondeductible officers’ compensation of $1,505, and tax expense resulting from the vesting of certain share-based compensation awards of $944. The change in the estimated applicable tax rate used to determine deferred taxes was due to a change in state apportionment methodology in accordance with an amendment to a state regulation.

Income tax expense for the six months ended December 31, 2019 of $34,011 differs from the income tax expense derived from applying the statutory federal rate of 21% to pre-tax income due principally to the impact of state and local income taxes (net of federal benefit) of ~~$4,906 and tax return to book provision adjustments in connection with the filing of the Company’s state and local income tax returns of $414. These increases were~~$9,828, partially offset by ~~the impact of the~~excess tax ~~benefits~~benefit related to ~~the domestic production activities deduction~~share-based payment awards of ~~$2,069 and other items of $529.~~

Income tax benefit attributable to continuing operations for the 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 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 $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, tax return to book provision adjustments in connection with the filing of the Company’s federal, state and local income tax returns of $209 and other items of $430.

$1,590.

The Company made cash income tax payments (net) of ~~$37,196~~$36,621 and ~~$41,295~~$43,387 for the six months ended December 31, ~~2017~~2020 and ~~2016,~~2019, respectively.

During the third quarter of fiscal year 2017, the Internal Revenue Service concluded its fieldwork on the audit of the Company’s federal income tax returns 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.

1619

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MSG NETWORKS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Continued)

The Company was notified during the ~~third~~first quarter of fiscal year ~~2017~~2019 that the City of New York was commencing an examination of the Company’s New York City general corporate income tax returns ~~as filed~~ for the tax years ended December 31, ~~2013~~2015 and ~~2014.~~2016. The Company does not expect the examination, when finalized, to result in material changes to the tax ~~returns as filed.~~returns.

~~During~~The Company was notified during the fourth quarter of fiscal year ~~2017, the Company was notified~~2019 that the ~~City~~State of New ~~York was initiating a review~~Jersey initiated an examination of the Company’s ~~2014 and~~income tax returns for the tax years ended December 31, 2015 ~~Unincorporated Business Tax Returns.~~through December 31, 2017. The Company does not expect the examination, when finalized, to result in material changes to the tax ~~returns as filed.~~returns.

The Company was ~~also~~ notified during the ~~fourth~~second quarter of fiscal year ~~2017~~2021 that the State of New York ~~was commencing~~initiated an ~~examination~~audit of the Company’s ~~New York State~~ income tax ~~returns as filed~~return for the tax ~~years~~year ended ~~December 31, 2013 and 2014.~~June 30, 2019. The Company does not expect the examination, when finalized, to result in material changes to the tax ~~returns as filed.~~returns.

The federal and state statute of limitations are currently open on the Company’s ~~2013, 2014,~~tax returns for 2017 and 2015, respectively, and ~~2016 tax returns.~~forward.

Note ~~14.~~16. Concentrations of Risk

Accounts receivable, net on the accompanying consolidated balance sheets as of December 31, ~~2017~~2020 and June 30, ~~2017~~2020 include amounts due from the following individual ~~non-affiliated~~ customers, which accounted for the noted percentages of the gross balance:


	December 31, 2017		June 30, 2017			December 31, 2020		June 30, 2020
Customer A	26	%	26	%	Customer A	28	%	26	%
Customer B	25	%	25	%	Customer B	27	%	25	%
Customer C	23	%	22	%	Customer C	20	%	22	%
Customer D	14	%	14	%	Customer D	12	%	11	%

Revenues ~~from continuing operations~~ in the accompanying consolidated statements of operations for the three and six months ended December 31, ~~2017~~2020 and ~~2016~~2019 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,					Three Months Ended December 31,				Six Months Ended December 31,
	2017		2016		2017		2016			2020		2019		2020		2019
Customer 1	23	%	24	%	24	%	25	%	Customer 1	27	%	24	%	28	%	26	%
Customer 2	22	%	22	%	24	%	24	%	Customer 2	28	%	22	%	27	%	23	%
Customer 3	20	%	19	%	22	%	21	%	Customer 3	22	%	20	%	21	%	21	%
Customer 4	9	%	10	%	10	%	11	%	Customer 4	11	%	9	%	10	%	9	%

The accompanying consolidated balance sheets as of December 31, ~~2017~~2020 and June 30, ~~2017~~2020 include the following approximate amounts that are recorded in connection with the Company’s license agreement with the ~~New Jersey~~ Devils:


Reported in	December 31, 2020		June 30, 2020
Prepaid expenses	$	4,500	$	3,000
Other current assets	3,700		4,000
Other assets	32,200		34,000
	$	40,400	$	41,000

As of December 31, 2020, approximately 320 full-time and part-time employees, who represent approximately 63% of the Company’s workforce, are subject to collective bargaining agreements (“CBAs”). As of December 31, 2020, approximately 65% of the Company’s workforce that is subject to a CBA is covered by a CBA that has expired. In addition, as of December 31, 2020, approximately 28% of the Company’s workforce that is subject to a CBA is covered by a CBA that will expire during the next year.

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

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Item 2. 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, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of ~~1995. In this MD&A, there are statements concerning~~1995, including those regarding affiliate fee rebates and rights fee expense, and the ~~future operating~~timing and ~~financial performance~~number of games played as a result of the ~~Company, including a reduction in future cash taxes payable.~~novel coronavirus (“COVID-19”) pandemic and the government, league, and other actions relating thereto. 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 Distributors, or to do so on favorable terms, 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, or minimize declines in, subscriber levels;

•the impact of subscribers ~~downgrading their programming~~selecting Distributors’ packages ~~to levels~~ that do not include our ~~networks;~~networks or Distributors that do not carry our networks at all;

•the impact of the COVID-19 pandemic on our business, operations, and the markets and communities in which we and our Distributors, advertisers, viewers and teams operate, including actions of the National Basketball Association (“NBA”), National Hockey League (“NHL”), NBA and NHL players and any governmental authority or legislation relating to COVID-19, including with respect to the number and timing of games played;

•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 on-ice and on-court performance of the professional sports teams whose games we carry;

•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);~~transactions;

•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;~~laws, including with respect to the legalization of sports gaming;

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

•any NBA, NHL or other work stoppage due to COVID-19 or otherwise;

•our dependence on Madison Square Garden Sports Corp. (formerly, The Madison Square Garden Company) (together with its subsidiaries, “MSGS”), Madison Square Garden Entertainment Corp. (together with its subsidiaries, “MSGE”) and other third-party providers for the provision of certain services;

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

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•our substantial debt and high leverage;

•any reduction in our access to capital and credit 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;~~Distribution (as defined below); and

•the factors described under “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended June 30, ~~2017.~~2020.

~~We disclaim~~The Company disclaims 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 unaudited consolidated financial statements and 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, ~~2017~~2020 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 our operations are conducted.

The Company owns and operates two regional sports and entertainment networks, MSG Network and MSG+. collectively the “MSG Networks,” that feature a wide range of compelling sports content, including exclusive live local games and other programming of the New York Knicks (the “Knicks”) of the NBA; the New York Rangers (the “Rangers”), New York Islanders (the “Islanders”), New Jersey Devils and Buffalo Sabres of the NHL; as well as significant coverage of the New York Giants and Buffalo Bills of the National Football League. The Company operates and reports financial information in one segment.

On September 30, 2015, the Company distributed to its stockholders all of the outstanding common stock of ~~The Madison Square Garden Company (“MSG”)~~MSGS (the “Distribution”). ~~Following~~On April 17, 2020, MSGS distributed to its stockholders all of the ~~Distribution, the Company no longer consolidates the financial results~~outstanding common stock of MSG for purposes of its own financial 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.~~MSGE (the “Entertainment Distribution”).

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, ~~2017~~2020 as compared with the three and six months ended December 31, ~~2016.~~2019.

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, ~~2017~~2020 as compared with the six months ended December 31, ~~2016.~~2019.

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 annual impairment testing of goodwill performed during the first quarter of fiscal year ~~2018.~~2021. This section should be read together with our significant accounting policies, including our critical accounting policies, which are discussed in our Annual Report on Form 10-K for the year ended June 30, ~~2017~~2020 under “Item 7. ~~Management's~~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 included therein.

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Results of Operations

Due to the COVID-19 pandemic, in March 2020, the 2019-20 NHL and NBA seasons were suspended. The leagues resumed play several months later, with the Rangers and Islanders participating in the NHL's return to play. The NHL and NBA subsequently completed their seasons in September and October 2020, respectively, which impacted each league’s 2020-21 regular season. The NBA started its regular season on December 22, 2020 with a reduced schedule of 72 games, while the NHL regular season began on January 13, 2021 and has been reduced to a 56-game schedule. There can be no assurance that the NBA or NHL will be able to complete such regular season schedules. In the fiscal 2021 second quarter, the Company aired nine NBA telecasts as compared with 181 NBA and NHL telecasts in the prior year period.

The full extent of the impact of the COVID-19 pandemic on our business, operations and financial results will depend on numerous evolving factors that we cannot predict. See “Item 1A. Risk Factors— Our Operations and Operating Results Have Been, and Continue to be, Impacted by the COVID-19 Pandemic and Actions Taken in Response” in the Company’s Annual Report on Form 10-K for the year ended June 30, 2020 for additional details.

Comparison of the Three Months Ended December 31, ~~2017~~2020 versus the Three Months Ended December 31, ~~2016~~2019

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
	2017					2016									2020				2019
	Amount			% of Revenues		Amount			% of Revenues						Amount		% of Revenues		Amount		% of Revenues
Revenues	$	181,222		100	%	$	175,646		100	%	$	5,576		Revenues	$	146,239	100	%	$	187,730	100	%	$	(41,491)

Direct operating expenses	78,902			44	%	69,924			40	%	(8,978		)	Direct operating expenses	57,033		39	%	84,065		45	%	27,032
Selling, general and administrative expenses	24,311			13	%	22,997			13	%	(1,314		)	Selling, general and administrative expenses	21,692		15	%	32,022		17	%	10,330
Depreciation and amortization	2,423			1	%	2,580			1	%	157			Depreciation and amortization	1,802		1	%	1,680		1	%	(122)
Operating income	75,586			42	%	80,145			46	%	(4,559		)	Operating income	65,712		45	%	69,963		37	%	(4,251)
Other income (expense):														Other income (expense):
Interest income	999			1	%	649			NM		350			Interest income	488		NM		906		NM		(418)
Interest expense	(10,242		)	(6	)%	(9,714		)	(6	)%	(528		)	Interest expense	(5,143)		(4)	%	(9,934)		(5)	%	4,791
Debt refinancing expense														Debt refinancing expense	—		NM		(2,764)		(1)	%	2,764
Other components of net periodic benefit cost	(407		)	NM		(346		)	NM		(61		)	Other components of net periodic benefit cost	(206)		NM		(258)		NM		52
	(9,650		)	(5	)%	(9,411		)	(5	)%	(239		)		(4,861)		(3)	%	(12,050)		(6)	%	7,189
Income from operations before income taxes	65,936			36	%	70,734			40	%	(4,798		)	Income from operations before income taxes	60,851		42	%	57,913		31	%	2,938
Income tax benefit (expense)	89,632			49	%	(27,479		)	(16	)%	117,111
Income tax expense														Income tax expense	(19,328)		(13)	%	(17,949)		(10)	%	(1,379)
Net income	$	155,568		86	%	$	43,255		25	%	$	112,313		Net income	$	41,523	28	%	$	39,964	21	%	$	1,559

_________________

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 operationsRevenues

Revenues for the three months ended December 31, ~~2016.~~

~~Revenues~~

~~Revenues for the three months ended~~ ~~December 31, 2017~~ ~~increased $5,576,~~2020 decreased $41,491, or 3%22%, to ~~$181,222~~$146,239 as compared with the prior year period. The net ~~increase~~decrease was attributable to the following:

Increase in affiliation fee revenue $ 4,359
Increase in advertising revenue 749
Other net increases 468
$ 5,576


Decrease in affiliation fee revenue	$	(16,113)
Decrease in advertising revenue	(24,414)
Other net decreases	(964)
	$	(41,491)

The ~~increase~~decrease in affiliation fee revenue was primarily due to ~~higher affiliation rates,~~the impact of a decrease in subscribers of approximately 7.5% (excluding the impact of the previously disclosed non-renewal with a small Connecticut-based distributor as of October 1, 2020) and, to a lesser extent, unfavorable affiliate adjustments of $4,900 recorded in the current year quarter, primarily reflecting accruals for potential affiliate fee rebates, the absence of a $2,300 favorable affiliate adjustment recorded in the prior year quarter and the impact of the aforementioned non-renewal. This was partially offset by the impact of higher affiliation rates. As a ~~low single-digit percentage decrease~~result of

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the shortened 2020-21 NBA and NHL regular seasons, we currently expect to record accruals for potential affiliate fee rebates in ~~subscribers as compared with~~each of the ~~prior year period.~~next four quarters at a similar level to the amount we recorded this quarter.

Other net ~~decrease in deferred revenue related~~decreases were primarily due to ~~ratings guarantees, partially offset by other net advertising decreases.~~the delayed start of the 2020-21 NBA and NHL regular seasons.

Direct operating expenses

Direct operating expenses for the three months ended December 31, ~~2017 increased $8,978,~~2020 decreased $27,032, or ~~13%~~32%, to ~~$78,902~~$57,033 as compared with the prior year period due to ~~higher~~lower rights fees expense of ~~$7,021~~$18,719 and, to a lesser extent, ~~higher~~a decrease in other ~~programming-related cost increases~~programming and production-related costs of ~~$1,957.~~$8,313. The ~~increase~~decline 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~~NHL's shortened 56-game schedule for the 2020-21 regular season and, to a lesser extent, the impact of the delayed start of the 2020-21 NBA and NHL regular seasons, partially offset by the impact of annual contractual rate increases under the Company’s media rights agreements. The decrease in other programming and production-related costs primarily reflects the impact of the delayed start of the 2020-21 NBA and NHL regular seasons. We expect to have lower rights fees expense for fiscal year 2021, primarily as a ~~matter related to~~result of the ~~sale~~shortened 2020-21 NHL season, as compared with the level of ~~Fuse recorded in the prior year quarter.~~fees that would be expected if our teams were playing full seasons.

Selling, general and administrative expenses

Selling, general and administrative expenses for the three months ended December 31, ~~2017 increased $1,314,~~2020 decreased $10,330, or 6%32%, to ~~$24,311~~$21,692 as compared with the prior year period primarily due to ~~higher employee compensation~~lower advertising sales commissions and ~~related benefits (as a result of an increase in share-based compensation expense).~~advertising and marketing expenses.

Operating income

Operating income for the three months ended December 31, ~~2017~~2020 decreased ~~$4,559,~~$4,251, or 6%, to ~~$75,586~~$65,712 as compared with the prior year period primarily due to (as discussed above) ~~higher~~the decrease in revenues, largely offset by the decrease in direct operating expenses and, to a lesser extent, ~~higher~~the decrease in selling, general and administrative 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,~~2020 decreased $4,791, or 5%48%, to ~~$10,242~~$5,143 as compared with the prior year period primarily due to ~~higher~~lower 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~~2020 (1.6% as compared with 3.3% in 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~~prior year period) (see “Liquidity and Capital Resources — Financing Agreements”).

Income taxes

See Note 15 to the ~~reduction~~consolidated financial statements included in “Part I — Item 1. Financial Statements” 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~~this Quarterly Report 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 localForm 10-Q for more information on 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 tax return to book provision adjustments in connection with the filing of the 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.taxes.

Adjusted operating income

The Company evaluates performance based on several factors, of which the key financial measure is adjusted operating 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. Because it is based upon operating income, adjusted operating income also excludes interest expense (including cash interest expense) and other non-operating income and expense items. We believe that the exclusion of share-based compensation expense or benefit allows investors to better track the performance of the Company without regard to the settlement of an obligation that is not expected to be made in cash. We believe adjusted operating income is an appropriate measure for evaluating the operating performance of our Company. Adjusted operating income and similar measures with similar titles are common performance measures used by investors and analysts to analyze our performance. Internally, we use revenues and adjusted operating income measures as the most important indicators of our business performance, and evaluate management’s effectiveness with specific reference to these indicators. Adjusted operating income should be viewed as a supplement to and not a substitute for operating income, net income, cash flows from operating activities, and other measures of performance and/or liquidity presented in accordance with U.S. generally accepted accounting principles (“GAAP”). Since adjusted operating income is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies.

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


	Three Months Ended				Increase (Decrease) in AOI				Three Months Ended				Increase (Decrease) in Adjusted Operating Income
	December 31,								December 31,
	2017		2016						2020		2019
Operating income	$	75,586	$	80,145	$	(4,559	)	Operating income	$	65,712	$	69,963	$	(4,251)
Share-based compensation	4,798		3,273		1,525			Share-based compensation	6,266		5,440		826
Depreciation and amortization	2,423		2,580		(157		)	Depreciation and amortization	1,802		1,680		122
Adjusted operating income	$	82,807	$	85,998	$	(3,191	)	Adjusted operating income	$	73,780	$	77,083	$	(3,303)

Adjusted operating income for the three months ended December 31, ~~2017~~2020 decreased ~~$3,191,~~$3,303, or 4%, to ~~$82,807~~$73,780 as compared with the prior year period primarily due to (as discussed above) ~~higher~~the decrease in revenues largely offset by the decrease in direct operating expenses ~~partially offset by higher revenues.~~and, to a lesser extent, the decrease in selling, general and administrative expenses (excluding share-based compensation expense).

~~Results of Operations~~

Comparison of the Six Months Ended December 31, ~~2017~~2020 versus the Six Months Ended December 31, ~~2016~~2019

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
	2017					2016									2020				2019
	Amount			% of Revenues		Amount			% of Revenues						Amount		% of Revenues		Amount		% of Revenues
Revenues	$	338,678		100	%	$	329,224		100	%	$	9,454		Revenues	$	303,602	100	%	$	348,711	100	%	$	(45,109)

Direct operating expenses	141,993			42	%	130,699			40	%	(11,294		)	Direct operating expenses	122,105		40	%	152,725		44	%	30,620
Selling, general and administrative expenses	39,872			12	%	38,295			12	%	(1,577		)	Selling, general and administrative expenses	44,219		15	%	54,342		16	%	10,123
Depreciation and amortization	4,874			1	%	5,158			2	%	284			Depreciation and amortization	3,630		1	%	3,407		1	%	(223)
Operating income	151,939			45	%	155,072			47	%	(3,133		)	Operating income	133,648		44	%	138,237		40	%	(4,589)
Other income (expense):														Other income (expense):
Interest income	1,877			1	%	1,276			NM		601			Interest income	965		NM		2,834		1	%	(1,869)
Interest expense	(20,885		)	(6	)%	(19,229		)	(6	)%	(1,656		)	Interest expense	(10,362)		(3)	%	(20,749)		(6)	%	10,387
Debt refinancing expense														Debt refinancing expense	—		NM		(2,764)		(1)	%	2,764
Other components of net periodic benefit cost	(814		)	NM		(766		)	NM		(48		)	Other components of net periodic benefit cost	(413)		NM		(516)		NM		103
	(19,822		)	(6	)%	(18,719		)	(6	)%	(1,103		)		(9,810)		(3)	%	(21,195)		(6)	%	11,385
Income from continuing operations before income taxes	132,117			39	%	136,353			41	%	(4,236		)
Income tax benefit (expense)	64,608			19	%	(52,737		)	(16	)%	117,345
Income from continuing operations	196,725			58	%	83,616			25	%	113,109
Loss from discontinued operations, net of taxes	—			NM		(120		)	NM		120
Income from operations before income taxes														Income from operations before income taxes	123,838		41	%	117,042		34	%	6,796
Income tax expense														Income tax expense	(47,304)		(16)	%	(34,011)		(10)	%	(13,293)
Net income	$	196,725		58	%	$	83,496		25	%	$	113,229		Net income	$	76,534	25	%	$	83,031	24	%	$	(6,497)

_________________

NM – Percentage is not meaningful

~~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, 2016.

Revenues

Revenues for the six months ended December 31, ~~2017 increased $9,454,~~2020 decreased $45,109, or 3%13%, to ~~$338,678~~$303,602 as compared with the prior year period. The net ~~increase~~decrease was attributable to the following:

Increase in affiliation fee revenue $ 8,206
Increase in advertising revenue 613
Other net increases 635
$ 9,454


Decrease in affiliation fee revenue	$	(23,316)
Decrease in advertising revenue	(20,816)
Other net decreases	(977)
	$	(45,109)

The ~~increase~~decrease in affiliation fee revenue was primarily due to ~~higher affiliation rates,~~the impact of a decrease in subscribers of approximately 8.0% (excluding the impact of the previously disclosed non-renewal with a small Connecticut-based distributor as of October 1, 2020) and, to a lesser extent, unfavorable affiliate adjustments of $5,900 recorded in the current year period, primarily reflecting

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accruals for potential affiliate fee rebates, the absence of a net favorable affiliate adjustment of $1,700 recorded in the prior year period and the impact of the aforementioned non-renewal. This was partially offset by the impact of ~~a low single-digit percentage decrease in subscribers as compared with the prior year period.~~higher affiliation rates.

The ~~increase~~decrease in advertising revenue was primarily due to the delayed start of the 2020-21 NBA and NHL regular seasons, resulting in nine NBA telecasts in the fiscal 2021 second quarter compared with a ~~higher net decrease~~regular NBA and NHL telecast schedule in ~~deferred revenue related to ratings guarantees, partially~~the comparable prior year period, slightly offset by ~~other~~the Rangers' and Islanders' participation in the 2019-20 NHL return to play during the fiscal 2021 first quarter.

Other net ~~advertising decreases.~~

decreases were primarily due to the delayed start of the 2020-21 NBA and NHL regular seasons.

Direct operating expenses

Direct operating expenses for the six months ended December 31, ~~2017 increased $11,294,~~2020 decreased $30,620, or 9%20%, to ~~$141,993~~$122,105 as compared with the prior year period due to ~~higher~~lower rights fees expense of ~~$9,013~~$21,500 and, to a lesser extent, ~~higher~~a decrease in other ~~programming-related cost increases~~programming and production-related costs of ~~$2,281.~~$9,120. The ~~increase~~decline 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~~NHL's shortened 56-game schedule for the 2020-21 regular season and, to a lesser extent, the impact of the delayed start of the 2020-21 NBA and NHL regular seasons, and a ~~matter~~reduction in media rights fees related to the ~~sale~~2019-20 NHL season, partially offset by the impact of ~~Fuse recorded~~annual contractual rate increases under the Company’s media rights agreements. The decrease in other programming and production-related costs primarily reflects the ~~prior year period.~~impact of the delayed start of the 2020-21 NBA and NHL regular seasons.

Selling, general and administrative expenses

Selling, general and administrative expenses for the six months ended December 31, ~~2017 increased $1,577,~~2020 decreased $10,123, or 4%19%, to ~~$39,872~~$44,219 as compared with the prior year period primarily due to higher employee compensation and related benefits (as a result of an increase in share-based compensation expense) and, to a lesser extent, other net increases. These increases were partially offset by lower advertising and marketing ~~costs~~expenses and ~~to a lesser extent, professional fees.~~lower advertising sales commissions. The overall decrease also reflects the absence of $1,600 in expenses recorded in the prior year period that were not indicative of the Company's core expense base.

Operating income

Operating income for the six months ended December 31, ~~2017~~2020 decreased ~~$3,133,~~$4,589, or 2%3%, to ~~$151,939~~ $133,648 as compared with the prior year period primarily due to (as discussed above) ~~higher~~the decrease in revenues, largely offset by the decrease in direct operating expenses and, to a lesser extent, ~~higher~~the decrease in selling, general and administrative expenses (including share-based compensation expense)~~, partially offset by higher revenues.~~.

Interest expense

Interest expense for the six months ended December 31, ~~2017 increased $1,656,~~2020 decreased $10,387, or 9%50%, to ~~$20,885~~$10,362 as compared with the prior year period primarily due to ~~higher~~lower average interest rates in fiscal year 2018 (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 attributable to continuing operations~~ for the six months ended December 31, ~~2017 of $64,608 differs from~~2020 (1.7% as compared with 3.5% in the ~~income tax expense derived from applying~~prior year period), slightly offset by a higher average principal balance under the ~~blended statutory federal rate to pretax income due principally to a deferred income tax benefit of $106,446 related~~Company’s senior secured credit facilities (see “Liquidity and Capital Resources — Financing Agreements”).

Income taxes

See Note 15 to the ~~reduction~~consolidated financial statements included in “Part I — Item 1. Financial Statements” 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 localthis Quarterly Report on Form 10-Q for more information on 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.~~

Adjusted operating income

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


	Six Months Ended				Increase (Decrease) in AOI				Six Months Ended				Increase (Decrease) in Adjusted Operating Income
	December 31,								December 31,
	2017		2016						2020		2019
Operating income	$	151,939	$	155,072	$	(3,133	)	Operating income	$	133,648	$	138,237	$	(4,589)
Share-based compensation	7,719		5,049		2,670			Share-based compensation	10,893		10,099		794
Depreciation and amortization	4,874		5,158		(284		)	Depreciation and amortization	3,630		3,407		223
Adjusted operating income	$	164,532	$	165,279	$	(747	)	Adjusted operating income	$	148,171	$	151,743	$	(3,572)

Adjusted operating income for the six months ended December 31, ~~2017~~2020 decreased ~~$747~~$3,572, or 2%, to ~~$164,532~~$148,171 as compared with the prior year period primarily due to (as discussed above) ~~higher~~the decrease in revenues largely offset by the decrease in direct operating expenses ~~largely offset by higher revenues~~ and, to a lesser extent, ~~lower~~the decrease in selling, general and administrative expenses (excluding share-based compensation expense).

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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, 2017 (see~~facility. The Company amended and restated its prior credit agreement, dated September 28, 2015 (the “Former Credit Agreement”), on October 11, 2019 in its entirety. See “Financing Agreements — Senior Secured Credit 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.Agreements” below. Our principal uses of cash are expected to include working capital-related items, capital spending, taxes, debt service, and the repurchase of shares of the Company’s Class A common stock, par value $0.01 per share (“Class A Common Stock”). The Company’s use of its available liquidity will be based upon the ongoing review of the funding needs of the business, ~~the optimal~~its view of a favorable allocation of cash resources, and the timing of cash flow generation.

We believe we have sufficient liquidity, including ~~$201,915~~$283,660 in cash and cash equivalents, as of December 31, ~~2017,~~2020, 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 facility (see “Financing ~~Agreements —~~ ~~Senior Secured Credit Facilities~~”Agreements” below) ~~over~~during 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. In addition, the COVID-19 pandemic has caused disruption in the capital markets, which could make financing more difficult and/or expensive and we may not be able to obtain such financing on terms acceptable to us or at all.

On December 7, 2017, the Company’s Board of Directors (the “Board”) authorized the repurchase of up to $150,000 of the Company’s Class A Common Stock. On August 29, 2019, the Board authorized a $300,000 increase to the stock repurchase authorization, which had $136,165 of availability remaining, bringing the total available repurchase authorization for Class A Common Stock to $436,165 as of that date. 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,~~2020, the Company had ~~$150,000~~$145,864 of availability remaining under its stock repurchase authorization.

Financing Agreements

~~Senior Secured Credit Facilities~~

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

MSGN L.P., the Holdings Entities and certain subsidiaries of MSGN L.P. amended and restated the Former Credit Agreement effective October 11, 2019 (the “Credit Agreement”). The Credit Agreement provides MSGN L.P. with senior secured credit facilities ~~(the “Senior Secured Credit Facilities”)~~ consisting of: ~~(a)~~(i) an initial ~~$1,550,000~~$1,100,000 term loan facility (the “Term Loan Facility”) and ~~(b)~~(ii) a $250,000 revolving credit facility (the “Revolving Credit Facility”), each with a term of five years. ~~In connection~~

The Company has made principal repayments aggregating to $27,500 through December 31, 2020 under the Credit Agreement. The Term Loan Facility amortized quarterly in accordance with ~~the Distribution, $1,450,000~~its terms. As of ~~the proceeds from~~December 31, 2020, there was $1,072,500 outstanding under 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, 2017 and is available to fund working capital needs and other general corporate purposes of MSGN L.P. Up to $35,000 ofno borrowings under the Revolving Credit ~~Facility is available for the issuance of letters of credit.~~

The Credit Agreement generally requires the 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 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.Facility. As of December 31, ~~2017,~~2020, the 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, 2017, there were no letters of credit issued and outstanding under the Revolving Credit Facility, which provides full borrowing capacity of $250,000. The Company has made principal payments aggregating $266,250 through December 31, 2017. The Term Loan Facility amortizes quarterly in accordance with its terms through June 30, 2020 with a final maturity date on September 28, 2020.

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 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.

See Note 67 to the consolidated financial statements included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for more information on the Credit Agreement.

Contractual Obligations

In addition, see ~~Note 6~~Notes 7 and 8 to the consolidated financial statements included in “Part I — Item 1. Financial ~~Statements~~”Statements” of this Quarterly Report on Form 10-Q for the principal repayments required under the Company’s Term Loan ~~Facility.~~Facility and maturities of the Company's operating lease liabilities, respectively.

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Cash Flow Discussion

Operating Activities~~from continuing operations~~

Net cash provided by operating activities ~~from continuing operations~~ for the six months ended December 31, ~~2017~~2020 increased by ~~$948~~$31,233 to ~~$101,972~~$105,254 as compared with the prior year period. This increase was primarily due to the impact of certain working capital items and lower interest and income ~~taxes paid and, to a lesser extent, other net increases, partially~~tax payments as compared with the prior year period. This increase was slightly offset by lower operating income ~~from continuing operations before income taxes~~ as compared with the prior year period.

Investing Activities ~~from continuing operations~~

Net cash used in investing activities ~~from continuing operations~~ for the six months ended December 31, ~~2017 decreased~~2020 increased by ~~$1,371~~$775 to ~~$871~~$2,533 as compared with the prior year period due to ~~lower~~higher 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, ~~2017 increased~~2020 decreased by ~~$8,019~~$166,874 to ~~$40,273~~$15,898 as compared with the prior year ~~period~~period. This decrease is primarily due to ~~higher~~absence of repurchases of the Company’s Class A Common Stock made in the prior year period, and to a lesser extent, lower principal repayments on the Company's ~~Term Loan Facility.~~term loan facilities as compared with the prior year period. This decrease was partially offset by the absence of proceeds received in the prior year period from borrowings under the Company’s senior secured credit facilities.

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Recently Issued Accounting Pronouncements Not Yet Adopted and Critical Accounting Policies

Recently Issued Accounting Pronouncements Not Yet Adopted

~~In May 2014,~~See Note 2 to the ~~Financial Accounting Standards Board (“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~~”~~) 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 Consideration~~s~~, 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,~~ R~~evenue 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. This 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 the modified retrospective method. The Company has partially completed its assessment of the new standard to determine the impact it will have on its consolidated financial 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~~included 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~~ ~~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, and the modified retrospective 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~~“Part I — Item 1. Financial Statements” of this ~~guidance is~~Quarterly Report on Form 10-Q for information regarding recently issued accounting pronouncements not ~~expected to have a material impact on the Company~~’~~s consolidated financial statements.~~

~~In January 2017, the FASB issued ASU No. 2017-04,~~ ~~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, with early adoption permitted. The standard is to be applied prospectively. 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 not expected to have any initial impact on the 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.yet adopted.

Critical Accounting Policies

The following discussion has been included to provide the results of ~~our~~the Company’s annual impairment testing of goodwill performed during the first quarter of fiscal year ~~2018.~~2021. There have been no other material changes to the Company’s critical accounting policies from those set forth in our Annual Report on Form 10-K for the year ended June 30, 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~~.2020.

Goodwill

The goodwill balance reported on the Company’s consolidated balance sheet as of December 31, ~~2017~~2020 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. ~~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~~does not need to perform the ~~two-step~~quantitative goodwill impairment test for that reporting unit. If the Company cannot support such a conclusion or the Company does not elect to perform the qualitative assessment then the Company would perform the quantitative goodwill impairment test. The quantitative goodwill impairment test, used to identify both the existence of impairment and the amount of impairment loss, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

The Company has one reporting unit for evaluating goodwill impairment. During the first quarter of fiscal year ~~2018,~~2021, the Company performed its annual impairment test of ~~goodwill. The Company elected to perform~~goodwill by comparing the ~~qualitative assessment~~fair value of ~~impairment for~~its reporting unit with its carrying value. As 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~~reporting unit had a negative carrying ~~amount~~value of net ~~assets.~~

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

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

There were no material changes to the quantitative and qualitative disclosures ~~on this matter~~about market risk made in the Company’s Annual Report on Form 10-K for the year ended June 30, ~~2017.~~2020.

Item 4. Controls and Procedures

An evaluation was carried out under the supervision and 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) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that as of December 31, ~~2017~~2020 the Company’s disclosure controls and procedures were effective.

There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended December 31, ~~2017~~2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

Item 6. Exhibits

(a) Index to Exhibits


~~(a)~~	~~Index to Exhibits~~



EXHIBIT NO.						DESCRIPTION
~~31.1~~10.1						Employment Agreement dated as of December 18, 2020, between MSG Networks Inc. and Lawrence J. Burian (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 18, 2020).
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.~~Document — the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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.
104						The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2020, formatted in Inline XBRL and contained in Exhibit 101.

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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 ~~1st~~4th day of February, ~~2018.~~

2021.



MSG Networks Inc.

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



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



	Term Loan Facility		Deferred Financing Costs			Total
December 31, 2017
Current portion of long-term debt	$	75,000	$	(2,586	)	$	72,414
Long-term debt, net of current portion	1,208,750		(4,526		)	1,204,224
Total	$	1,283,750	$	(7,112	)	$	1,276,638
June 30, 2017
Current portion of long-term debt	$	75,000	$	(2,586	)	$	72,414
Long-term debt, net of current portion	1,246,250		(5,819		)	1,240,431
Total	$	1,321,250	$	(8,405	)	$	1,312,845



	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



Increase in affiliation fee revenue	$	4,359
Increase in advertising revenue	749
Other net increases	468
	$	5,576



Increase in affiliation fee revenue	$	8,206
Increase in advertising revenue	613
Other net increases	635
	$	9,454