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MSGN MSG Networks

Filed: 4 Feb 21, 8:26am

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2020
OR
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to
Commission File Number: 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 classTrading Symbol(s)Name of each exchange on which registered
Class A Common StockMSGN New York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer 
Smaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Number of shares of common stock outstanding as of January 29, 2021:
Class A Common Stock par value $0.01 per share —43,459,880
Class B Common Stock par value $0.01 per share —13,588,555




MSG NETWORKS INC.
INDEX TO FORM 10-Q
 


PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
MSG NETWORKS INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
December 31,
2020
June 30,
2020
ASSETS(unaudited)
Current Assets:
Cash and cash equivalents$283,660 $196,837 
Accounts receivable, net95,526 105,549 
Related party receivables, net6,978 14,190 
Prepaid income taxes225 461 
Prepaid expenses20,010 11,063 
Other current assets4,150 4,541 
Total current assets410,549 332,641 
Property and equipment, net7,912 8,758 
Amortizable intangible assets, net28,553 30,283 
Goodwill424,508 424,508 
Operating lease right-of-use assets14,538 17,153 
Other assets35,641 37,460 
Total assets$921,701 $850,803 
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable$309 $2,115 
Related party payables2,203 1,472 
Current portion of long-term debt48,234 37,229 
Current portion of operating lease liabilities5,405 5,492 
Income taxes payable2,438 641 
Accrued liabilities:
Employee related costs10,159 14,187 
Other accrued liabilities7,716 10,116 
Deferred revenue2,172 2,753 
Total current liabilities78,636 74,005 
Long-term debt, net of current portion1,019,660 1,043,780 
Long-term operating lease liabilities11,037 13,780 
Defined benefit and other postretirement obligations25,208 25,860 
Other employee related costs5,470 5,149 
Other liabilities1,498 1,536 
Deferred tax liability248,064 239,542 
Total liabilities1,389,573 1,403,652 
Commitments and contingencies (see Note 9)00
Stockholders' Deficiency:
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, 2020136 136 
Preferred stock, par value $0.01, 45,000 shares authorized; none outstanding
Additional paid-in capital14,166 12,731 
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(24,738)(100,792)
Accumulated other comprehensive loss(8,026)(8,204)
Total stockholders' deficiency(467,872)(552,849)
Total liabilities and stockholders' deficiency$921,701 $850,803 

See accompanying notes to consolidated financial statements.
1


MSG NETWORKS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (in thousands, except per share data)
 
 Three Months EndedSix Months Ended
December 31,December 31,
2020201920202019
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 amortization1,802 1,680 3,630 3,407 
Operating income65,712 69,963 133,648 138,237 
Other income (expense):
Interest income488 906 965 2,834 
Interest expense(5,143)(9,934)(10,362)(20,749)
Debt refinancing expense(2,764)(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 taxes60,851 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:
Basic57,415 60,452 57,287 67,758 
Diluted57,721 60,825 57,550 68,144 



See accompanying notes to consolidated financial statements.


2



MSG NETWORKS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited) (in thousands)
Three Months EndedSix Months Ended
December 31,December 31,
2020201920202019
Net income$41,523 $39,964 $76,534 $83,031 
Other comprehensive income (loss) before income taxes:
Pension plans and postretirement plan:0000
Amounts reclassified from accumulated other comprehensive loss:
Amortization of net actuarial loss included in net periodic benefit cost126 134 252 268 
Amortization of prior service credit included in net periodic benefit cost(1)(2)
Other comprehensive income before income taxes126 133 252 266 
Income tax expense related to items of other comprehensive income(37)(39)(74)(75)
Other comprehensive income89 94 178 191 
Comprehensive income$41,612 $40,058 $76,712 $83,222 


See accompanying notes to consolidated financial statements.

3


MSG NETWORKS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (in thousands)
Six Months Ended
December 31,
20202019
Cash flows from operating activities:
Net income$76,534 $83,031 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization3,630 3,407 
Amortization of deferred financing costs807 1,188 
Debt refinancing expense455 
Share-based compensation expense10,893 10,099 
Provision for doubtful accounts(275)(104)
Change in assets and liabilities:
Accounts receivable, net7,475 969 
Related party receivables, net7,318 (4,920)
Prepaid expenses and other assets(6,909)(3,134)
Accounts payable(308)(338)
Related party payables, including payable to MSGS and MSGE731 220 
Prepaid/payable for income taxes2,033 (10,267)
Accrued and other liabilities(4,744)(8,122)
Deferred revenue(581)641 
Deferred income taxes8,650 896 
Net cash provided by operating activities105,254 74,021 
Cash flows from investing activities:
Capital expenditures(2,533)(1,758)
Net cash used in investing activities(2,533)(1,758)
Cash flows from financing activities:
Principal repayments on term loan facilities (see Note 7)(13,750)(21,250)
Proceeds from senior secured credit facilities (see Note 7)100,000 
Payments for financing costs(3,969)
Share repurchase costs(253,318)
Taxes paid in lieu of shares issued for share-based compensation(2,148)(4,235)
Net cash used in financing activities(15,898)(182,772)
Net increase (decrease) in cash and cash equivalents86,823 (110,509)
Cash and cash equivalents at beginning of period196,837 226,423 
Cash and cash equivalents at end of period$283,660 $115,914 


See accompanying notes to consolidated financial statements.
4



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 DeficitAccumulated
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 income41,612 
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 DeficitAccumulated
Other
Comprehensive
Loss
Total
Balance as of September 30, 2019$779 $$(417,691)$(242,946)$(7,391)$(667,249)
Net income— — — 39,964 — 39,964 
Other comprehensive income— — — — 94 94 
Comprehensive income40,058 
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)

























5



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 DeficitAccumulated
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 income76,712 
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 DeficitAccumulated
Other
Comprehensive
Loss
Total
Balance as of June 30, 2019$779 $9,916 $(179,561)$(282,414)$(7,488)$(458,768)
Net income— — — 83,031 — 83,031 
Other comprehensive income— — — — 191 191 
Comprehensive income83,222 
Share-based compensation expense— 10,099 — — — 10,099 
Repurchases of Class A Common Stock— — (253,330)— — (253,330)
Tax withholding associated with shares issued for share-based compensation— (4,235)— — — (4,235)
Shares issued upon distribution of Restricted Stock Units— (12,130)15,729 (3,599)— — 
Balance as of December 31, 2019$779 $3,650 $(417,162)$(202,982)$(7,297)$(623,012)


See accompanying notes to consolidated financial statements.
6

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 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) (together with its subsidiaries, “MSGS”) (the “Distribution”).
The Company operates and reports financial information in 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, 2020. The financial statements as of December 31, 2020 and for the three and six months ended December 31, 2020 and 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, 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 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. Due to the novel coronavirus (“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.
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
7

MSG NETWORKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(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 June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments — Credit Losses and the subsequent ASUs that amended the application of ASU No. 2016-13, which introduces a new impairment model for most financial assets and certain other instruments, including accounts receivable. Under the new standard, 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 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 Films and 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 did not have a material impact on the Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued ASU No. 2018-14, Compensation — Retirement Benefits — Defined Benefit Plans — General (Topic 715-20): Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans, which removes, adds, or clarifies disclosure requirements relating to defined benefit plans to improve disclosure effectiveness. This standard will be effective for the Company beginning in the fourth quarter of fiscal year 2021, with early adoption permitted. The standard is to be applied retroactively to all periods presented. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU eliminates certain exceptions to the general approach in ASC Topic 740 and includes methods of simplification to the existing guidance. This standard will be effective for the Company beginning in the first quarter of fiscal year 2022, with early adoption permitted. The standard is to be applied prospectively to all periods presented. The adoption of this standard is not expected to have a material impact on the Company's consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the 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 on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate and other interbank offered rates to alternative reference rates. This standard was effective upon issuance, and may be applied prospectively through December 31, 2022. The Company is currently evaluating the impact this standard will have on its consolidated financial statements, if elected.
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 right to carry its networks, as well as from the sale of advertising. The Company’s advertising revenue is largely derived from the sale of inventory in its live professional sports programming, and as such, a disproportionate share of this revenue has historically been earned in the Company’s second and third fiscal quarters. Due to the COVID-19 pandemic, the NBA and NHL 2020-21 regular seasons were delayed and are scheduled to primarily occur during the third and fourth quarters of fiscal year 2021. The Company’s revenue recognition policies that describe the nature, amount, timing and uncertainty associated with each major source of revenue from contracts with customers are summarized below.


8

MSG NETWORKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Affiliation Fee Revenue
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 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 Company estimates the number of 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 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 Madison Square Garden Entertainment Corp. (together with its subsidiaries, “MSGE”) that provides for MSGE to act as its advertising sales representative and includes the exclusive right and obligation to sell certain advertising availabilities on the Company’s behalf for a commission (see Note 14). The Company reports advertising revenue on a gross basis as it is primarily responsible for the fulfillment of advertising orders.
Noncash Consideration
The Company enters into nonmonetary transactions, primarily with its Distributors, that involve the exchange of products or services, such as advertising and promotional benefits, for the Company’s services. For arrangements that are subject to sales-based and usage-based royalty guidance, the 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 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 standalone selling price of the services promised to the customer in exchange for the consideration.
Transaction Price Allocated to Future Performance Obligations
Substantially all of the 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 aggregate amount of consideration the 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 aggregate amount of transaction price allocated to remaining performance obligations, other than for contracts that the Company has applied the practical expedient, was $9,160, of which $8,066 will be 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 may recognize revenue in advance of the contractual right to invoice the customer, resulting in an
9

MSG NETWORKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(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 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 $
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)$$69 
Accounts receivable is presented net of an estimate for lifetime expected credit losses. The Company analyzes historical losses, economic conditions, receivables aging, customer specific risks, and other factors to 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 deferred revenue (contract liability) recorded as of June 30, 2020 was $1,058.
Note 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 EndedSix Months Ended
December 31,December 31,
2020201920202019
Weighted-average number of shares for basic EPS57,415 60,452 57,287 67,758 
Dilutive effect of shares issuable under share-based compensation plans306 373 263 386 
Weighted-average number of shares for diluted EPS57,721 60,825 57,550 68,144 
Anti-dilutive shares3,228 2,981 3,088 2,602 
Note 5. Goodwill and Amortizable Intangible Assets
During the first quarter of fiscal year 2021, the Company performed its annual impairment test of goodwill. As the Company’s 1 reporting unit had a negative carrying value of net assets, there was 0 impairment of goodwill identified.
10

MSG NETWORKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
The Company’s intangible assets subject to amortization are as follows: 
December 31,
2020
June 30,
2020
Affiliate relationships$83,044 $83,044 
Less: accumulated amortization(54,491)(52,761)
$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, 2020 and 2019, and $1,730 for the six months ended December 31, 2020 and 2019.
Note 6. Property and Equipment
As of December 31, 2020 and June 30, 2020, property and equipment consisted of the following assets: 
December 31,
2020
June 30,
2020
Equipment$29,867 $28,902 
Furniture and fixtures1,764 1,726 
Leasehold improvements18,617 18,585 
Construction in progress296 277 
50,544 49,490 
Less: accumulated depreciation and amortization(42,632)(40,732)
$7,912 $8,758 
Depreciation and amortization expense on property and equipment was $937 and $815 for the three months ended December 31, 2020 and 2019, respectively, and $1,900 and $1,677 for the six months ended December 31, 2020 and 2019, respectively.
Note 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, 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 “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: (i) an initial $1,100,000 term loan facility (the “Term Loan Facility”) and (ii) a $250,000 revolving credit facility (the “Revolving Credit Facility”), each with a term of five years. Proceeds from the Term Loan Facility were used by MSGN L.P. to repay outstanding indebtedness under the Former Credit 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 (i) a base rate plus an additional rate ranging from 0.25% to 1.25% per annum (determined based on a total net leverage ratio) (the “Base Rate”), or (ii) a Eurodollar rate plus an additional rate ranging from 1.25% to 2.25% per annum (determined based on a total net leverage ratio) (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
11

MSG NETWORKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
additional rate of 2.00% per annum. The Credit Agreement requires that MSGN L.P. pay a commitment fee ranging 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.
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 5.50:1.00, subject, at the option of MSGN L.P. to an upward adjustment to 6.00:1.00 during the continuance of certain events. In addition, 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, 2020, the Holdings Entities and MSGN L.P. and its restricted subsidiaries on a consolidated basis were in compliance with the applicable financial 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, 2020, there were 0 letters of credit issued and outstanding under the Revolving Credit Facility, which provides full borrowing capacity of $250,000.
The Term Loan Facility amortizes quarterly in accordance with its terms beginning March 31, 2020 through September 30, 2024 with a final maturity date on October 11, 2024.
As of December 31, 2020, the principal repayments required under the Term Loan Facility are as follows:
Remainder of fiscal year ending June 30, 2021$24,750 
Fiscal year ending June 30, 202249,500 
Fiscal year ending June 30, 202366,000 
Fiscal year ending June 30, 202482,500 
Fiscal year ending June 30, 2025849,750 
$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 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 deferred financing costs of the Term Loan Facility using the effective interest method over its five-year term.


12

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, 2020 and June 30, 2020:
Term Loan FacilitiesDeferred Financing CostsNet
December 31, 2020
Current portion of long-term debt$49,500 $(1,266)$48,234 
Long-term debt, net of current portion1,023,000 (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 portion1,047,750 (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 assets951 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
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 EndedSix Months Ended
December 31,December 31,
2020201920202019
Operating lease cost$1,381 $1,372 $2,779 $2,744 
Variable lease cost44 728 44 781 
Total lease cost$1,425 $2,100 $2,823 $3,525 
13

MSG NETWORKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)

The following table summarizes the weighted-average remaining lease term and discount rate for operating leases:
December 31,
20202019
Weighted-average discount rate for operating leases3.33 %3.29 %
Weighted-average remaining operating lease term in years3.173.82
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, 20225,241 
Fiscal year ending June 30, 20234,949 
Fiscal year ending June 30, 20244,135 
Fiscal year ending June 30, 202517 
Total undiscounted operating lease payments17,313 
Less: imputed interest871 
Total operating lease liabilities16,442 
Less: current portion of operating lease liabilities5,405 
Non-current operating lease liabilities$11,037 
Supplemental cash flow information related to operating leases:
Six Months Ended
December 31,
20202019
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 liabilities481
Total$2,989 $3,311 
Note 9. Commitments and Contingencies
Commitments
As more fully described in Note 9 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2020, the Company’s contractual obligations not reflected on the consolidated balance sheets consist primarily of its obligations under media rights agreements.
In addition, see Note 7 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 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.


14

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.
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 ILevel IILevel IIITotal
December 31, 2020
Assets:
Money market accounts$164,130 $$$164,130 
Time deposits105,822 105,822 
Total assets measured at fair value$269,952 $$$269,952 
June 30, 2020
Assets:
Money market accounts$129,609 $$$129,609 
Time deposits65,713 65,713 
Total assets measured at fair value$195,322 $$$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 7) was approximately $1,061,775 as of December 31, 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, 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 11. Pension Plans and Other Postretirement Benefit Plan
As more fully described in Note 12 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 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 “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”).


15

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 PlansPostretirement Plan
Three Months EndedThree Months Ended
December 31,December 31,
2020201920202019
Service cost$101 $121 $$13 
Other components of net periodic benefit cost:
Interest cost256 354 15 
Expected return on plan assets(185)(244)
Recognized actuarial loss (a)
126 134 
Amortization of unrecognized prior service credit (a)
(1)
Net periodic benefit cost$298 $365 $18 $27 

Pension PlansPostretirement Plan
Six Months EndedSix Months Ended
December 31,December 31,
2020201920202019
Service cost$202 $242 $18 $26 
Other components of net periodic benefit cost:
Interest cost513 708 18 30 
Expected return on plan assets(370)(488)
Recognized actuarial loss (a)
252 268 
Amortization of unrecognized prior service credit (a)
(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 12 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2020, the Company sponsors the MSGN Holdings, L.P. Excess Savings Plan and participates in The Madison Square Garden 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 $215 and $284 for the three months ended December 31, 2020 and 2019, respectively, and $430 and $529 for the six months ended December 31, 2020 and 2019, respectively.
Note 12. Share-based Compensation
See Note 13 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 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 Non-Employee Directors (the “Non-Employee Director Plan”), as amended.
Share-based compensation expense, presented within selling, general and administrative expenses and direct operating expenses, was $6,266 and $5,440 for the three months ended December 31, 2020 and 2019, respectively, and $10,893 and $10,099 for the six months ended December 31, 2020 and 2019, respectively.
16

MSG NETWORKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Non-Qualified Stock Options (“NQSOs”) Award Activity
The following table summarizes activity relating to holders of the Company’s NQSOs for the six months ended December 31, 2020:
Number ofWeighted-
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, 20201,833 1,834 $18.88 5.17$
Adjustment upon final determination of level of performance objective(a)
(2)21.60 
Balance as of December 31, 20201,833 1,832 $18.88 4.66$467 
Exercisable as of December 31, 20201,357 961 $19.58 3.97$78 
(a) Includes an adjustment of awards issued with respect to performance based NQSOs granted in fiscal year 2018 upon certification of the level of achievement of the performance targets for such awards.
The aggregate intrinsic value is calculated for in-the-money 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, 2020 and June 30, 2020, as applicable.
Restricted Share Units Award Activity
The following table summarizes activity relating to holders of the Company’s RSUs for the six months ended December 31, 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, 2020595 870 $20.01 
Granted851 720 10.44 
Vested(364)(293)19.54 
Adjustment upon final determination of level of performance objective(a)
(1)21.60 
Unvested award balance as of December 31, 20201,082 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, 2020 are subject to three-year ratable vesting and RSUs granted under the Non-Employee Director Plan vest on the date of grant. Performance based vesting RSUs granted under the Employee Stock Plan during the six months ended December 31, 2020 are subject to three-year cliff vesting. RSUs granted under the Employee Stock Plan and Non-Employee Director Plan will settle in shares of the Company’s 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 the date that the director’s service on the Board ceases or, if earlier, upon the director’s death.
The fair value of RSUs that vested during the six months ended December 31, 2020 was $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 tax withholding obligations for the applicable income and other employment taxes, 220 of these RSUs, with an aggregate value of
17

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, 2020 are reflected as a financing activity in the accompanying consolidated statement of cash flows.
Note 13. Stock Repurchase Program
On December 7, 2017, 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.
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, 2020, the Company had $145,864 of availability remaining under its stock repurchase authorization.
Note 14. Related Party Transactions
As of December 31, 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 8.3% of the Company’s outstanding Class A Common 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 76.9% of the aggregate voting power of the Company’s outstanding common stock. The Dolan Family Group also 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”)).
The Company shares certain executive support costs, including office space, executive assistants, security and transportation costs for (i) the Company’s Executive Chairman with MSGS and (ii) the Company’s Vice Chairman with MSGS and AMC Networks. Following the Entertainment Distribution, the Company 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 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, and certain other arrangements, including a services agreement (the “Services Agreement”) pursuant to which the Company outsources certain business 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, 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 entered into a services agreement with MSGS, pursuant to which MSGS provides the Company certain legal services previously provided 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.
18

MSG 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 Rangers games in their local markets. Rights fees included in the accompanying consolidated statements of operations for the three months ended December 31, 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 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 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 $5,906, and tax expense related to nondeductible officers’ compensation of $919.
Income tax expense for the three months ended December 31, 2019 of $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 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 $9,828, partially offset by excess tax benefit related to share-based payment awards of $1,590.
The Company made cash income tax payments (net) of $36,621 and $43,387 for the six months ended December 31, 2020 and 2019, respectively.
19

MSG NETWORKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
The Company was notified during the first quarter of fiscal year 2019 that the City of New York was commencing an examination of the Company’s New York City general corporate income tax returns for the tax years ended December 31, 2015 and 2016. The Company does not expect the examination, when finalized, to result in material changes to the tax returns.
The Company was notified during the fourth quarter of fiscal year 2019 that the State of New Jersey initiated an examination of the Company’s income tax returns for the tax years ended December 31, 2015 through December 31, 2017. The Company does not expect the examination, when finalized, to result in material changes to the tax returns.
The Company was notified during the second quarter of fiscal year 2021 that the State of New York initiated an audit of the Company’s income tax return for the tax year ended June 30, 2019. The Company does not expect the examination, when finalized, to result in material changes to the tax returns.
The federal and state statute of limitations are currently open on the Company’s tax returns for 2017 and 2015, respectively, and forward.
Note 16. Concentrations of Risk
Accounts receivable, net on the accompanying consolidated balance sheets as of December 31, 2020 and June 30, 2020 include amounts due from the following individual customers, which accounted for the noted percentages of the gross balance:
December 31,
2020
June 30,
2020
Customer A28 %26 %
Customer B27 %25 %
Customer C20 %22 %
Customer D12 %11 %
Revenues in the accompanying consolidated statements of operations for the three and six months ended December 31, 2020 and 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,
2020201920202019
Customer 127 %24 %28 %26 %
Customer 228 %22 %27 %23 %
Customer 322 %20 %21 %21 %
Customer 411 %%10 %%
The accompanying consolidated balance sheets as of December 31, 2020 and June 30, 2020 include the following approximate amounts that are recorded in connection with the Company’s license agreement with the Devils:
Reported inDecember 31,
2020
June 30,
2020
Prepaid expenses$4,500 $3,000 
Other current assets3,700 4,000 
Other assets32,200 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.
20

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, including those regarding affiliate fee rebates and rights fee expense, and the timing and number of games played as a result of the 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 selecting Distributors’ packages that do not include our 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;
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, 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 tax-free treatment of the 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, 2020.
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, 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 MSGS (the “Distribution”). On April 17, 2020, MSGS distributed to its stockholders all of the outstanding common stock of 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, 2020 as compared with the three and six months ended December 31, 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, 2020 as compared with the six months ended December 31, 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 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, 2020 under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recently Issued Accounting Pronouncements Not Yet Adopted and Critical Accounting Policies — Critical Accounting Policies” and in the notes to the consolidated financial statements 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, 2020 versus the Three Months Ended December 31, 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
20202019
Amount% of
Revenues
Amount% of
Revenues
Revenues$146,239 100 %$187,730 100 %$(41,491)
Direct operating expenses57,033 39 %84,065 45 %27,032 
Selling, general and administrative expenses21,692 15 %32,022 17 %10,330 
Depreciation and amortization1,802 %1,680 %(122)
Operating income65,712 45 %69,963 37 %(4,251)
Other income (expense):
Interest income488 NM906 NM(418)
Interest expense(5,143)(4)%(9,934)(5)%4,791 
Debt refinancing expense— NM(2,764)(1)%2,764 
Other components of net periodic benefit cost(206)NM(258)NM52 
(4,861)(3)%(12,050)(6)%7,189 
Income from operations before income taxes60,851 42 %57,913 31 %2,938 
Income tax expense(19,328)(13)%(17,949)(10)%(1,379)
Net income$41,523 28 %$39,964 21 %$1,559 
_________________ 
NM – Percentage is not meaningful
Revenues
Revenues for the three months ended December 31, 2020 decreased $41,491, or 22%, to $146,239 as compared with the prior year period. The net decrease was attributable to the following:
Decrease in affiliation fee revenue$(16,113)
Decrease in advertising revenue(24,414)
Other net decreases(964)
$(41,491)
The decrease in affiliation fee revenue was primarily due to 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 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 each of the next four quarters at a similar level to the amount we recorded this quarter.
The 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 regular NBA and NHL telecast schedule in the prior year period.
Other net 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 three months ended December 31, 2020 decreased $27,032, or 32%, to $57,033 as compared with the prior year period due to lower rights fees expense of $18,719 and, to a lesser extent, a decrease in other programming and production-related costs of $8,313. The decline in rights fees expense was primarily due to the impact of the 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 result of the shortened 2020-21 NHL season, as compared with the level of 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, 2020 decreased $10,330, or 32%, to $21,692 as compared with the prior year period primarily due to lower advertising sales commissions and advertising and marketing expenses.
Operating income
Operating income for the three months ended December 31, 2020 decreased $4,251, or 6%, to $65,712 as compared with the prior year period primarily due to (as discussed above) the decrease in revenues, largely offset by the decrease in direct operating expenses and, to a lesser extent, the decrease in selling, general and administrative expenses (including share-based compensation expense).
Interest expense
Interest expense for the three months ended December 31, 2020 decreased $4,791, or 48%, to $5,143 as compared with the prior year period primarily due to lower average interest rates for the three months ended December 31, 2020 (1.6% as compared with 3.3% in the prior year period) (see “Liquidity and Capital Resources — Financing Agreements”).
Income taxes
See Note 15 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 income 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 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 operating income, a GAAP measure, to adjusted operating income:

Three Months EndedIncrease (Decrease) in
Adjusted Operating Income
December 31,
20202019
Operating income$65,712 $69,963 $(4,251)
Share-based compensation6,266 5,440 826 
Depreciation and amortization1,802 1,680 122 
Adjusted operating income$73,780 $77,083 $(3,303)
Adjusted operating income for the three months ended December 31, 2020 decreased $3,303, or 4%, to $73,780 as compared with the prior year period primarily due to (as discussed above) the decrease in revenues largely offset by the decrease in direct operating expenses and, to a lesser extent, the decrease in selling, general and administrative expenses (excluding share-based compensation expense).
Comparison of the Six Months Ended December 31, 2020 versus the Six Months Ended December 31, 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
20202019
Amount% of
Revenues
Amount% of
Revenues
Revenues$303,602 100 %$348,711 100 %$(45,109)
Direct operating expenses122,105 40 %152,725 44 %30,620 
Selling, general and administrative expenses44,219 15 %54,342 16 %10,123 
Depreciation and amortization3,630 %3,407 %(223)
Operating income133,648 44 %138,237 40 %(4,589)
Other income (expense):
Interest income965 NM2,834 %(1,869)
Interest expense(10,362)(3)%(20,749)(6)%10,387 
Debt refinancing expense— NM(2,764)(1)%2,764 
Other components of net periodic benefit cost(413)NM(516)NM103 
(9,810)(3)%(21,195)(6)%11,385 
Income from operations before income taxes123,838 41 %117,042 34 %6,796 
Income tax expense(47,304)(16)%(34,011)(10)%(13,293)
Net income$76,534 25 %$83,031 24 %$(6,497)
_________________ 
NM – Percentage is not meaningful
Revenues
Revenues for the six months ended December 31, 2020 decreased $45,109, or 13%, to $303,602 as compared with the prior year period. The net decrease was attributable to the following:
Decrease in affiliation fee revenue$(23,316)
Decrease in advertising revenue(20,816)
Other net decreases(977)
$(45,109)
The decrease in affiliation fee revenue was primarily due to 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 higher affiliation rates.
The 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 regular NBA and NHL telecast schedule in the comparable prior year period, slightly offset by the Rangers' and Islanders' participation in the 2019-20 NHL return to play during the fiscal 2021 first quarter.
Other net 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, 2020 decreased $30,620, or 20%, to $122,105 as compared with the prior year period due to lower rights fees expense of $21,500 and, to a lesser extent, a decrease in other programming and production-related costs of $9,120. The decline in rights fees expense was primarily due to the impact of the 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 reduction in media rights fees related to the 2019-20 NHL season, 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.
Selling, general and administrative expenses
Selling, general and administrative expenses for the six months ended December 31, 2020 decreased $10,123, or 19%, to $44,219 as compared with the prior year period primarily due to lower advertising and marketing expenses and 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, 2020 decreased $4,589, or 3%, to $133,648 as compared with the prior year period primarily due to (as discussed above) the decrease in revenues, largely offset by the decrease in direct operating expenses and, to a lesser extent, the decrease in selling, general and administrative expenses (including share-based compensation expense).
Interest expense
Interest expense for the six months ended December 31, 2020 decreased $10,387, or 50%, to $10,362 as compared with the prior year period primarily due to lower average interest rates for the six months ended December 31, 2020 (1.7% as compared with 3.5% in the prior year period), slightly offset by a higher average principal balance under the Company’s senior secured credit facilities (see “Liquidity and Capital Resources — Financing Agreements”).
Income taxes
See Note 15 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 income taxes.
Adjusted operating income
The Company has presented the components that reconcile operating income, a GAAP measure, to adjusted operating income:
Six Months EndedIncrease (Decrease) in
Adjusted Operating Income
December 31,
20202019
Operating income$133,648 $138,237 $(4,589)
Share-based compensation10,893 10,099 794 
Depreciation and amortization3,630 3,407 223 
Adjusted operating income$148,171 $151,743 $(3,572)
Adjusted operating income for the six months ended December 31, 2020 decreased $3,572, or 2%, to $148,171 as compared with the prior year period primarily due to (as discussed above) the decrease in revenues largely offset by the decrease in direct operating expenses and, to a lesser extent, 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 revolving credit 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” 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, its view of a favorable allocation of cash resources, and the timing of cash flow generation.
We believe we have sufficient liquidity, including $283,660 in cash and cash equivalents, as of December 31, 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” below) 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, 2020, the Company had $145,864 of availability remaining under its stock repurchase authorization.
Financing Agreements
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, 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 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 consisting of: (i) an initial $1,100,000 term loan facility (the “Term Loan Facility”) and (ii) a $250,000 revolving credit facility (the “Revolving Credit Facility”), each with a term of five years.
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 its terms. As of December 31, 2020, there was $1,072,500 outstanding under the Term Loan Facility, and no borrowings under the Revolving Credit Facility. As of December 31, 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.
See Note 7 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
As more fully described in Note 9 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2020, the Company’s contractual obligations not reflected on the consolidated balance sheets consist primarily of its obligations under media rights agreements.
In addition, see Notes 7 and 8 to the consolidated financial statements included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for the principal repayments required under the Company’s Term Loan Facility and maturities of the Company's operating lease liabilities, respectively.
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Cash Flow Discussion
Operating Activities
Net cash provided by operating activities for the six months ended December 31, 2020 increased by $31,233 to $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 tax payments as compared with the prior year period. This increase was slightly offset by lower operating income as compared with the prior year period.
Investing Activities
Net cash used in investing activities for the six months ended December 31, 2020 increased by $775 to $2,533 as compared with the prior year period due to higher capital expenditures in the current year period.
Financing Activities
Net cash used in financing activities for the six months ended December 31, 2020 decreased by $166,874 to $15,898 as compared with the prior year period. This decrease is primarily due to 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 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
See Note 2 to the consolidated financial statements included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for information regarding recently issued accounting pronouncements not yet adopted.
Critical Accounting Policies
The following discussion has been included to provide the results of the Company’s annual impairment testing of goodwill performed during the first quarter of fiscal year 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, 2020.
Goodwill
The goodwill balance reported on the Company’s consolidated balance sheet as of December 31, 2020 is $424,508. Goodwill is tested annually for impairment as of August 31st and at any time upon the occurrence of certain events or substantive changes in circumstances. 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 does not need to perform the 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 2021, the Company performed its annual impairment test of goodwill by comparing the fair value of its reporting unit with its carrying value. As the Company’s reporting unit had a negative carrying value of net 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 about market risk made in the Company’s Annual Report on Form 10-K for the year ended June 30, 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, 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, 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
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.
Item 6. Exhibits
(a) Index to Exhibits
EXHIBIT
NO.
DESCRIPTION
10.1
31.1
31.2
32.1
32.2
101.INSXBRL Instance Document — the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema.
101.CALXBRL Taxonomy Extension Calculation Linkbase.
101.DEFXBRL Taxonomy Extension Definition Linkbase.
101.LABXBRL Taxonomy Extension Label Linkbase.
101.PREXBRL Taxonomy Extension Presentation Linkbase.
104The 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 4th day of February, 2021.
MSG Networks Inc.
By:    
/S/    BRET RICHTER
Name:Bret Richter
Title:Executive Vice President,
Chief Financial Officer and Treasurer

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