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 theNational 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 theNew 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; 21 -------------------------------------------------------------------------------- Table of Contents •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 endedJune 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 endedJune 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 toMSG 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 theNew York Knicks (the "Knicks") of the NBA; theNew York Rangers (the "Rangers"),New York Islanders (the "Islanders"),New Jersey Devils andBuffalo Sabres of the NHL; as well as significant coverage of theNew York Giants andBuffalo Bills of theNational Football League . The Company operates and reports financial information in one segment. OnSeptember 30, 2015 , the Company distributed to its stockholders all of the outstanding common stock of MSGS (the "Distribution"). OnApril 17, 2020 , MSGS distributed to its stockholders all of the outstanding common stock ofMSGE (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 endedDecember 31, 2020 as compared with the three and six months endedDecember 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 endedDecember 31, 2020 as compared with the six months endedDecember 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 endedJune 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. 22 -------------------------------------------------------------------------------- Table of Contents Results of Operations Due to the COVID-19 pandemic, inMarch 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 andOctober 2020 , respectively, which impacted each league's 2020-21 regular season. The NBA started its regular season onDecember 22, 2020 with a reduced schedule of 72 games, while the NHL regular season began onJanuary 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 endedJune 30, 2020 for additional details. Comparison of the Three Months EndedDecember 31, 2020 versus the Three Months EndedDecember 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 2020 2019 (Decrease) % of % of in Net Amount Revenues Amount Revenues Income Revenues$ 146,239 100 %$ 187,730 100 %$ (41,491) Direct operating expenses 57,033 39 % 84,065 45 % 27,032 Selling, general and administrative expenses 21,692 15 % 32,022 17 % 10,330 Depreciation and amortization 1,802 1 % 1,680 1 % (122) Operating income 65,712 45 % 69,963 37 % (4,251) Other income (expense): Interest income 488 NM 906 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) NM 52 (4,861) (3) % (12,050) (6) % 7,189 Income from operations before income taxes 60,851 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
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NM - Percentage is not meaningful Revenues Revenues for the three months endedDecember 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 smallConnecticut -based distributor as ofOctober 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 23 -------------------------------------------------------------------------------- Table of Contents 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 endedDecember 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 endedDecember 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 endedDecember 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 endedDecember 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 endedDecember 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 withU.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. 24 -------------------------------------------------------------------------------- Table of Contents The Company has presented the components that reconcile operating income, a GAAP measure, to adjusted operating income: Three Months Ended December 31, Increase (Decrease) in 2020 2019 Adjusted Operating Income Operating income$ 65,712 $ 69,963 $ (4,251) Share-based compensation 6,266 5,440 826 Depreciation and amortization 1,802 1,680 122 Adjusted operating income$ 73,780 $ 77,083 $ (3,303) Adjusted operating income for the three months endedDecember 31, 2020 decreased$3,303 , or 4%, to$73,780 as compared with the prior year period primarily due to (as discussed above) the decrease in revenues largely offset by the decrease in direct operating expenses and, to a lesser extent, the decrease in selling, general and administrative expenses (excluding share-based compensation expense). Comparison of the Six Months EndedDecember 31, 2020 versus the Six Months EndedDecember 31, 2019 The table below sets forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenues. Six Months Ended December 31, Increase 2020 2019 (Decrease) % of % of in Net Amount Revenues Amount Revenues Income Revenues$ 303,602 100 %$ 348,711 100 %$ (45,109) Direct operating expenses 122,105 40 % 152,725 44 % 30,620 Selling, general and administrative expenses 44,219 15 % 54,342 16 % 10,123 Depreciation and amortization 3,630 1 % 3,407 1 % (223) Operating income 133,648 44 % 138,237 40 % (4,589) Other income (expense): Interest income 965 NM 2,834 1 % (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) NM 103 (9,810) (3) % (21,195) (6) % 11,385 Income from operations before income taxes 123,838 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)
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NM - Percentage is not meaningful Revenues Revenues for the six months endedDecember 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 smallConnecticut -based distributor as ofOctober 1, 2020 ) and, to a lesser extent, unfavorable affiliate adjustments of$5,900 recorded in the current year period, primarily reflecting 25 -------------------------------------------------------------------------------- Table of Contents 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 endedDecember 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 endedDecember 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 endedDecember 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 endedDecember 31, 2020 decreased$10,387 , or 50%, to$10,362 as compared with the prior year period primarily due to lower average interest rates for the six months endedDecember 31, 2020 (1.7% as compared with 3.5% in the prior year period), slightly offset by a higher average principal balance under the Company's senior secured credit facilities (see "Liquidity and Capital Resources - Financing Agreements"). Income taxes See Note 15 to the consolidated financial statements included in "Part I - Item 1. Financial Statements" of this Quarterly Report on Form 10-Q for more information on income taxes. Adjusted operating income The Company has presented the components that reconcile operating income, a GAAP measure, to adjusted operating income: Six Months Ended December 31, Increase (Decrease) in 2020 2019 Adjusted Operating Income Operating income$ 133,648 $ 138,237 $ (4,589) Share-based compensation 10,893 10,099 794 Depreciation and amortization 3,630 3,407 223 Adjusted operating income$ 148,171 $ 151,743 $ (3,572) Adjusted operating income for the six months endedDecember 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). 26 -------------------------------------------------------------------------------- Table of Contents 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, datedSeptember 28, 2015 (the "Former Credit Agreement"), onOctober 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 ofDecember 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. OnDecember 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. OnAugust 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 ofDecember 31, 2020 , the Company had$145,864 of availability remaining under its stock repurchase authorization. Financing Agreements OnSeptember 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 ofMSGN L.P. ,Regional MSGN Holdings LLC , a direct subsidiary of the Company and the limited partner ofMSGN L.P. (collectively withMSGN Eden, LLC , the "Holdings Entities"), and certain subsidiaries ofMSGN L.P. entered into the Former Credit Agreement with a syndicate of lenders.MSGN L.P. , the Holdings Entities and certain subsidiaries ofMSGN L.P. amended and restated the Former Credit Agreement effectiveOctober 11, 2019 (the "Credit Agreement"). The Credit Agreement providesMSGN 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 throughDecember 31, 2020 under the Credit Agreement. The Term Loan Facility amortized quarterly in accordance with its terms. As ofDecember 31, 2020 , there was$1,072,500 outstanding under the Term Loan Facility, and no borrowings under the Revolving Credit Facility. As ofDecember 31, 2020 , theHoldings 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 endedJune 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. 27 -------------------------------------------------------------------------------- Table of Contents Cash Flow Discussion Operating Activities Net cash provided by operating activities for the six months endedDecember 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 endedDecember 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 endedDecember 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. 28 -------------------------------------------------------------------------------- Table of Contents 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 endedJune 30, 2020 .Goodwill The goodwill balance reported on the Company's consolidated balance sheet as ofDecember 31, 2020 is$424,508 .Goodwill is tested annually for impairment as ofAugust 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. 29
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