Entity information:
Income Taxes
For the periods prior to the Distribution, the Company did not file separate tax returns as the Company was included in the tax grouping of other MSG Networks entities within the respective entity’s tax jurisdiction. The income tax provision included in these periods has been calculated using the separate return basis, as if the Company filed a separate tax return.
Income tax expense (benefit) is comprised of the following components:
 
 
Years Ended June 30,
 
 
2017
 
2016
 
2015
Current expense:
 
 
 
 
 
 
Federal
 
$
—

 
$
—

 
$
—

State and other
 
—

 
—

 
—

 
 
—

 
—

 
—

Deferred expense (benefit):
 
 
 
 
 
 
Federal
 
(3,382
)
 
325

 
288

State and other
 
(1,022
)
 
(28
)
 
148

 
 
(4,404
)
 
297

 
436

Income tax expense (benefit)
 
$
(4,404
)
 
$
297

 
$
436


The income tax expense differs from the amount derived by applying the statutory federal rate to pre-tax income principally due to the effect of the following items:
 
 
Years Ended June 30,
 
 
2017
 
2016
 
2015
Federal tax benefit at statutory federal rate
 
$
(28,418
)
 
$
(26,948
)
 
$
(14,087
)
State income taxes, net of federal benefit
 
(6,716
)
 
(6,843
)
 
(3,334
)
Change in the estimated applicable corporate tax rate used to determine deferred taxes
 
672

 
(192
)
 
699

Nondeductible disability insurance premiums expense
 
1,983

 
1,806

 
1,349

Tax effect of pre-distribution earnings
 
—

 
519

 
—

Federal tax credits
 
(354
)
 
(426
)
 
(1,426
)
Gains in other comprehensive income
 
(6,477
)
 
—

 
—

Book income of consolidated partnership attributable to non-controlling interest
 
1,414

 
—

 
—

Tax effect of indefinite intangible amortization
 
1,329

 
—

 
—

Change in valuation allowance (a)
 
30,697

 
31,301

 
16,260

Nondeductible expenses and other
 
1,466

 
1,080

 
975

Income tax expense (benefit)
 
$
(4,404
)
 
$
297

 
$
436

_________________
(a) 
For the year ended June 30, 2016, the valuation allowance reflects an increase on the Company’s net deferred tax asset related to fiscal year 2016 activity from the time of the Distribution. As part of the Distribution, MSG Networks is responsible for paying taxes on approximately $348,000 of deferred revenue from ticket sales, sponsorship and suite rentals collected in advance related to the Company’s business. This initially created a deferred tax asset on which the Company recorded a full valuation allowance at the time of the Distribution as it was more likely than not that the deferred tax asset would not be realized.
The tax effects of temporary differences which give rise to significant portions of the deferred tax assets and liabilities at June 30, 2017 and 2016 are as follows:
 
June 30,
 
2017
 
2016
Deferred tax asset:
 
 
 
Net operating loss carryforwards
$
104,648

 
$
109,074

Tax credit carryforwards
706

 
426

Accrued employee benefits
84,809

 
92,799

Accrued expenses
25,672

 
32,605

Restricted stock and stock options
28,937

 
15,556

Deferred production costs
2,843

 
—

Other
8,774

 
9,263

Total deferred tax assets
$
256,389

 
$
259,723

Less valuation allowance
(218,639
)
 
(190,602
)
Net deferred tax assets
$
37,750

 
$
69,121

 
 
 
 
Deferred tax liabilities:
 
 
 
Intangible and other assets
$
(198,786
)
 
$
(199,308
)
Property and equipment
(17,162
)
 
(25,364
)
Deferred production costs
—

 
(4,898
)
Prepaid expenses
(7,782
)
 
(9,248
)
Investments
(10,456
)
 
(24,886
)
Total deferred tax liabilities
$
(234,186
)
 
$
(263,704
)
 
 
 
 
Net deferred tax liability
$
(196,436
)
 
$
(194,583
)

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company’s ability to realize its deferred tax assets depends upon the generation of sufficient future taxable income to allow for the utilization of its deductible temporary differences carryforwards. At this time, based on current facts and circumstances, management believes that it is not more likely than not that the Company will realize the benefit for its net deferred tax asset excluding the deferred tax liability on indefinite lived intangibles, and a valuation allowance has been recorded on the same.
Presenting the income tax expense and deferred taxes on a separate return basis results in the creation of net operating loss carryforwards reflected in the net deferred tax liability for the period beginning June 30, 2012 and ended June 30, 2015. For periods subsequent to the Distribution date, these net operating loss and tax credit carryforwards reflect amounts generated by the stand-alone Company beginning with the Distribution date. The federal and state income tax net operating loss carryforwards of $222,205 and $267,859, respectively will primarily expire in 2036. The expected benefit from these net operating loss carryforwards is recorded as a deferred tax asset of $104,648. At this time, based on current facts and circumstances, management believes that it is not more likely than not that the Company will realize the benefit for its federal and state net operating loss deferred tax asset, therefore a full valuation allowance has been recorded.
The operations of the Company were included in the consolidated federal income tax returns of MSG Networks for all periods prior to the Distribution date. Such inclusion results in utilization of losses each year to offset the taxable income of other members in MSG Networks’ federal consolidated group that are not included in these financial statements. Subsequent to the Distribution, any net operating losses generated by the Company are included as a deferred tax asset.
The Company does not have any recorded unrecognized tax benefit for uncertain tax positions as of June 30, 2017 and 2016.