10-Q 1 tmsgc09302018-10q.htm 10-Q Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q
________________________
(Mark One)
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
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: 1-36900
tmsgclogo0930201810q.jpg
(Exact name of registrant as specified in its charter) 
Delaware
 
47-3373056
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
_______________________ 
Two Penn Plaza
New York, NY 10121
(212) 465-6000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
_______________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ 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
þ
 
Accelerated filer
o
Non-accelerated filer
o
 
Smaller reporting company
o
 
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes þ No
Number of shares of common stock outstanding as of October 31, 2018:  
Class A Common Stock par value $0.01 per share
 —
19,222,045

Class B Common Stock par value $0.01 per share
 —
4,529,517






THE MADISON SQUARE GARDEN COMPANY
INDEX TO FORM 10-Q
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
 
 
September 30,
2018
 
June 30,
2018
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Current Assets:
 
 
 
 
Cash and cash equivalents
 
$
1,068,883

 
$
1,225,638

Restricted cash
 
32,330

 
30,982

Accounts receivable, net
 
123,821

 
100,725

Net related party receivables
 
1,602

 
567

Prepaid expenses
 
58,588

 
28,761

Other current assets
 
50,232

 
28,996

Total current assets
 
1,335,456

 
1,415,669

Investments and loans to nonconsolidated affiliates
 
265,525

 
209,951

Property and equipment, net of accumulated depreciation and amortization of $736,806 and $713,357 as of September 30, 2018 and June 30, 2018, respectively
 
1,269,685

 
1,253,671

Amortizable intangible assets, net
 
237,975

 
243,806

Indefinite-lived intangible assets
 
175,985

 
175,985

Goodwill
 
392,513

 
392,513

Other assets
 
51,150

 
44,578

Total assets
 
$
3,728,289

 
$
3,736,173

 
 
 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.

1



THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands, except per share data)

 
 
September 30,
2018
 
June 30,
2018
 
 
(Unaudited)
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
 
 
Current Liabilities:
 
 
 
 
Accounts payable
 
$
31,530

 
$
28,939

Net related party payables, current
 
2,921

 
13,675

Current portion of long-term debt, net of deferred financing costs
 
2,219

 
4,365

Accrued liabilities:
 
 
 
 
Employee related costs
 
68,994

 
123,992

Other accrued liabilities
 
178,854

 
180,272

Collections due to promoters
 
78,427

 
89,513

Deferred revenue
 
413,184

 
324,749

Total current liabilities
 
776,129

 
765,505

Related party payables, noncurrent
 
172

 

Long-term debt, net of deferred financing costs
 
100,882

 
101,335

Defined benefit and other postretirement obligations
 
38,639

 
49,240

Other employee related costs
 
52,072

 
53,501

Deferred tax liabilities, net
 
79,651

 
78,968

Other liabilities
 
55,076

 
56,905

Total liabilities
 
1,102,621

 
1,105,454

Commitments and contingencies (see Note 8)
 

 

Redeemable noncontrolling interests
 
75,912

 
76,684

The Madison Square Garden Company Stockholders’ Equity:
 
 
 
 
Class A Common stock, par value $0.01, 120,000 shares authorized; 19,222 and 19,136 shares outstanding as of September 30, 2018 and June 30, 2018, respectively
 
204

 
204

Class B Common stock, par value $0.01, 30,000 shares authorized; 4,530 shares outstanding as of September 30, 2018 and June 30, 2018
 
45

 
45

Preferred stock, par value $0.01, 15,000 shares authorized; none outstanding as of September 30, 2018 and June 30, 2018
 

 

Additional paid-in capital
 
2,795,544

 
2,817,873

Treasury stock, at cost, 1,226 and 1,312 shares as of September 30, 2018 and June 30, 2018, respectively
 
(208,975
)
 
(223,662
)
Accumulated deficit
 
(14,636
)
 
(11,059
)
Accumulated other comprehensive loss
 
(41,972
)
 
(46,918
)
Total The Madison Square Garden Company stockholders’ equity
 
2,530,210

 
2,536,483

Nonredeemable noncontrolling interests
 
19,546

 
17,552

Total equity
 
2,549,756

 
2,554,035

Total liabilities, redeemable noncontrolling interests and equity
 
$
3,728,289

 
$
3,736,173


See accompanying notes to consolidated financial statements.

2


THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
 
 
Three Months Ended
 
September 30,
 
2018
 
2017
Revenues (a)
 
$
218,135

 
$
245,215

 
 
 
 
 
Operating expenses:
 
 
 
 
Direct operating expenses (b)
 
123,909

 
123,480

Selling, general and administrative expenses (c)
 
115,321

 
105,684

Depreciation and amortization
 
29,690

 
30,546

Operating loss
 
(50,785
)
 
(14,495
)
Other income (expense):
 
 
 
 
Earnings in equity method investments
 
10,525

 
4,725

Interest income (d)
 
7,174

 
4,386

Interest expense
 
(4,033
)
 
(3,711
)
Miscellaneous income (expense)
 
3,767

 
(1,010
)
 
 
17,433

 
4,390

Loss from operations before income taxes
 
(33,352
)
 
(10,105
)
Income tax expense
 
(696
)
 
(762
)
Net loss
 
(34,048
)
 
(10,867
)
Less: Net income (loss) attributable to redeemable noncontrolling interests
 
(513
)
 
900

Less: Net loss attributable to nonredeemable noncontrolling interests
 
(1,323
)
 
(660
)
Net loss attributable to The Madison Square Garden Company’s stockholders
 
$
(32,212
)
 
$
(11,107
)
 
 
 
 
 
Basic and diluted loss per common share attributable to The Madison Square Garden Company’s stockholders
 
$
(1.36
)
 
$
(0.47
)
Weighted-average number of common shares outstanding:
 
 
 
 
Basic and diluted
 
23,708

 
23,567

_________________
(a) 
Includes revenues from related parties of $6,734 and $35,910 for the three months ended September 30, 2018 and 2017, respectively.
(b) 
Includes net charges from related parties of $164 and $146 for the three months ended September 30, 2018 and 2017, respectively.
(c) 
Includes net charges to related parties of $1,669 and $1,438 for the three months ended September 30, 2018 and 2017, respectively.
(d) 
Includes interest income from nonconsolidated affiliates of $1,153 and $1,163 for the three months ended September 30, 2018 and 2017, respectively.

See accompanying notes to consolidated financial statements.

3


THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
 
 
Three Months Ended
 
 
September 30,
 
 
2018
 
2017
Net loss
 
 
 
$
(34,048
)
 
 
 
$
(10,867
)
Other comprehensive income (loss), before income taxes:
 
 
 
 
 
 
 
 
Pension plans and postretirement plan:
 
 
 
 
 
 
 
 
Amounts reclassified from accumulated other comprehensive loss:
 
 
 
 
 
 
 
 
Amortization of actuarial loss included in net periodic benefit cost
 
$
328

 

 
$
340

 

Amortization of prior service credit included in net periodic benefit cost
 
(1
)
 
327

 
(12
)
 
328

Cumulative translation adjustments
 
 
 
(951
)
 
 
 

Net changes related to available-for-sale securities
 
 
 

 
 
 
(770
)
Other comprehensive loss
 
 
 
(624
)
 
 
 
(442
)
Comprehensive loss
 

 
(34,672
)
 
 
 
(11,309
)
Less: Comprehensive income (loss) attributable to redeemable noncontrolling interests
 
 
 
(513
)
 
 
 
900

Less: Comprehensive loss attributable to nonredeemable noncontrolling interests
 
 
 
(1,323
)
 
 
 
(660
)
Comprehensive loss attributable to The Madison Square Garden Company’s stockholders
 
 
 
$
(32,836
)
 
 
 
$
(11,549
)

See accompanying notes to consolidated financial statements.


4


THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
 
Three Months Ended
 
 
September 30,

 
2018
 
2017
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(34,048
)
 
$
(10,867
)
Adjustment to reconcile net loss to net cash used in operating activities:
 
 
 
 
Depreciation and amortization
 
29,690

 
30,546

Provision for deferred income taxes
 
683

 
757

Share-based compensation expense
 
10,189

 
12,904

Earnings in equity method investments
 
(10,525
)
 
(4,725
)
Purchase accounting adjustments associated with rent-related intangibles and deferred rent
 
954

 
1,191

Unrealized gain on equity investment with readily determinable fair value
 
(4,364
)
 

Other non-cash adjustments
 
606

 
419

Change in assets and liabilities, net of acquisitions:
 
 
 
 
Accounts receivable, net
 
(23,158
)
 
7,069

Net related party receivables
 
(1,035
)
 
(711
)
Prepaid expenses and other assets
 
(41,582
)
 
(14,258
)
Accounts payable
 
2,591

 
(4,381
)
Net related party payables
 
(10,582
)
 
(9,205
)
Accrued and other liabilities
 
(71,949
)
 
(119,476
)
Collections due to promoters
 
(11,086
)
 
(25,921
)
Deferred revenue
 
118,944

 
104,558

Net cash used in operating activities
 
(44,672
)
 
(32,100
)
Cash flows from investing activities:
 
 
 
 
Capital expenditures, net of acquisitions
 
(42,015
)
 
(19,539
)
Payments for acquisition of assets
 

 
(1,000
)
Payments for acquisition of businesses, net of cash acquired
 

 
(2,181
)
Investments and loans to nonconsolidated affiliates
 
(44,727
)
 
(2,300
)
Cash paid for notes receivable
 
(7,761
)
 
(1,500
)
Net cash used in investing activities
 
(94,503
)
 
(26,520
)
Cash flows from financing activities:
 
 
 
 
Repurchases of common stock
 

 
(3,761
)
Taxes paid in lieu of shares issued for equity-based compensation
 
(16,712
)
 
(10,873
)
Noncontrolling interest holders capital contribution
 
3,173

 

Distributions to noncontrolling interest holders
 
(259
)
 
(596
)
Loans from noncontrolling interest holders
 
408

 

Principal repayment on long-term debt
 
(3,242
)
 

Payments for financing costs
 

 
(62
)
Net cash used in financing activities
 
(16,632
)
 
(15,292
)
Effect of exchange rates on cash, cash equivalents and restricted cash
 
400

 

Net decrease in cash, cash equivalents and restricted cash
 
(155,407
)
 
(73,912
)
Cash, cash equivalents and restricted cash at beginning of period
 
1,256,620

 
1,272,114

Cash, cash equivalents and restricted cash at end of period
 
$
1,101,213

 
$
1,198,202

Non-cash investing and financing activities:
 
 
 
 
Investments and loans to nonconsolidated affiliates
 
$

 
$
14

Capital expenditures incurred but not yet paid
 
7,279

 
8,058

Purchase of property and equipment with tenant improvement allowance
 
1,313

 

Accrued earn-out liability and other contingencies
 

 
6,586

See accompanying notes to consolidated financial statements.

5


THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
(Unaudited)
(in thousands) 
 
 
Common
Stock
Issued
 
Additional
Paid-In
Capital
 
Treasury
Stock
 
Accumulated Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total The Madison Square Garden Company Stockholders Equity
 
Non -
redeemable
Noncontrolling
Interests
 
Total Equity
 
Redeemable
Noncontrolling
 Interests
Balance as of June 30, 2018
 
$
249

 
$
2,817,873

 
$
(223,662
)
 
$
(11,059
)
 
$
(46,918
)
 
$
2,536,483

 
$
17,552

 
$
2,554,035

 
$
76,684

Adoption of ASU No. 2016-01
 

 

 

 
(5,570
)
 
5,570

 

 

 

 

Adoption of ASC Topic 606
 

 

 

 
34,205

 

 
34,205

 

 
34,205

 

Net loss
 

 

 

 
(32,212
)
 

 
(32,212
)
 
(1,323
)
 
(33,535
)
 
(513
)
Other comprehensive loss
 

 

 

 

 
(624
)
 
(624
)
 

 
(624
)
 

Comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
(32,836
)
 
(1,323
)
 
(34,159
)
 
(513
)
Share-based compensation
 

 
10,189

 

 

 

 
10,189

 

 
10,189

 

Tax withholding associated with shares issued for equity-based compensation
 

 
(17,831
)
 

 

 

 
(17,831
)
 

 
(17,831
)
 

Common stock issued under stock incentive plans
 

 
(14,687
)
 
14,687

 

 

 

 

 

 

Distributions to noncontrolling interest holders
 

 

 

 

 

 

 

 

 
(259
)
Contribution of joint venture interests
 

 

 

 

 

 

 
3,317

 
3,317

 

Balance as of September 30, 2018
 
$
249

 
$
2,795,544

 
$
(208,975
)
 
$
(14,636
)
 
$
(41,972
)
 
$
2,530,210

 
$
19,546

 
$
2,549,756

 
$
75,912


See accompanying notes to consolidated financial statements.


6


THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS (Continued)
(Unaudited)
(in thousands) 
 
 
Common Stock Issued
 
Additional
Paid-In
Capital
 
Treasury
Stock
 
Accumulated Deficit
 
Accumulated
Other
Comprehensive Loss
 
Total The Madison Square Garden Company Stockholders Equity
 
Non -
redeemable
Noncontrolling
Interests
 
Total Equity
 
Redeemable
Noncontrolling
Interests
Balance as of June 30, 2017
 
$
249

 
$
2,832,516

 
$
(242,077
)
 
$
(148,410
)
 
$
(34,115
)
 
$
2,408,163

 
$
11,698

 
$
2,419,861

 
$
80,630

Change in accounting policy related to share-based forfeiture rates
 

 
2,403

 

 
(2,403
)
 

 

 

 

 

Net income (loss)
 

 

 

 
(11,107
)
 

 
(11,107
)
 
(660
)
 
(11,767
)
 
900

Other comprehensive loss
 

 

 

 

 
(442
)
 
(442
)
 

 
(442
)
 

Comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
(11,549
)
 
(660
)
 
(12,209
)
 
900

Share-based compensation
 

 
12,933

 

 

 

 
12,933

 

 
12,933

 

Tax withholding associated with shares issued for equity-based compensation
 

 
(10,873
)
 

 

 

 
(10,873
)
 

 
(10,873
)
 

Common stock issued under stock incentive plans
 

 
(10,389
)
 
10,389

 

 

 

 

 

 

Repurchases of common stock
 

 

 
(3,761
)
 

 

 
(3,761
)
 

 
(3,761
)
 

Distributions to noncontrolling interest holders
 

 

 

 

 

 

 
(596
)
 
(596
)
 

Noncontrolling interests from acquisitions
 

 

 

 

 

 

 
8,182

 
8,182

 

Balance as of September 30, 2017
 
$
249

 
$
2,826,590

 
$
(235,449
)
 
$
(161,920
)
 
$
(34,557
)
 
$
2,394,913

 
$
18,624

 
$
2,413,537

 
$
81,530


See accompanying notes to consolidated financial statements.

7


THE MADISON SQUARE GARDEN COMPANY
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
The Madison Square Garden Company (together with its subsidiaries, the “Company” or “Madison Square Garden”) is a live sports and entertainment business. The Company classifies its business interests into two reportable segments: MSG Entertainment and MSG Sports. MSG Entertainment includes live entertainment events such as concerts, family shows, performing arts and special events, which are presented or hosted in the Company’s diverse collection of venues along with live offerings through TAO Group Holdings LLC (“TAO Group”) and Boston Calling Events LLC (“BCE”). TAO Group is a hospitality group with globally-recognized entertainment dining and nightlife brands, including: TAO, Marquee, Lavo, Avenue, The Stanton Social, Beauty & Essex and Vandal. BCE produces New England’s premier live music festival, Boston Calling Music Festival. The MSG Entertainment segment also includes the Company’s original production — the Christmas Spectacular Starring the Radio City Rockettes (the “Christmas Spectacular”) and Obscura Digital (“Obscura”), a creative studio, which the Company acquired in November 2017.
MSG Sports includes the Company’s professional sports franchises: the New York Knicks (the “Knicks”) of the National Basketball Association (the “NBA”), the New York Rangers (the “Rangers”) of the National Hockey League (the “NHL”), the New York Liberty (the “Liberty”) of the Women’s National Basketball Association (the “WNBA”), the Hartford Wolf Pack of the American Hockey League (the “AHL”) and the Westchester Knicks of the NBA G League (the “NBAGL”). The professional sports franchises are collectively referred to herein as “the sports teams.” The MSG Sports segment also includes other live sporting events, including professional boxing, college basketball, college hockey, professional bull riding, mixed martial arts, esports, tennis and college wrestling, all of which the Company promotes, produces and/or presents. In addition, the MSG Sports segment includes Counter Logic Gaming (“CLG”), a premier North American esports organization, which the Company acquired in July 2017, and Knicks Gaming, the Company’s franchise that competes in the NBA 2K League. CLG and Knicks Gaming are collectively referred to herein as “the esports teams,” and together with the sports teams, “the teams.”
The Company conducts a significant portion of its operations at venues that it either owns or operates under long-term leases. The Company owns the Madison Square Garden Arena (“The Garden”) and The Hulu Theater at Madison Square Garden in New York City, the Forum in Inglewood, CA and The Chicago Theatre in Chicago. In addition, the Company leases Radio City Music Hall and the Beacon Theatre in New York City, and has a booking agreement with respect to the Wang Theatre in Boston. Additionally, TAO Group operates various restaurants, nightlife and hospitality venues under long-term leases and management contracts in New York, Las Vegas, Los Angeles, Chicago, Australia and Singapore.
The Company was incorporated on March 4, 2015 as an indirect, wholly-owned subsidiary of MSG Networks Inc. (“MSG Networks”), formerly known as The Madison Square Garden Company. On September 11, 2015, MSG Networksboard of directors approved the distribution of all the outstanding common stock of Madison Square Garden to MSG Networks’ stockholders (the “2015 Distribution”), which occurred on September 30, 2015. See Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2018 for more information regarding the 2015 Distribution to its common stockholders.
Basis of Presentation
The accompanying unaudited consolidated interim financial statements (referred to as the “Financial Statements” herein) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information, and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2018. The Financial Statements presented in this Quarterly Report on Form 10-Q are unaudited; however, in the opinion of management, the 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. The dependence of the MSG Entertainment segment on revenues from the Christmas Spectacular generally means it earns a disproportionate share of its revenues in the second quarter of the Company’s fiscal year. The dependence of the MSG Sports segment on revenues from its NBA and NHL sports teams generally means it earns a disproportionate share of its revenues in the second and third quarters of the Company’s fiscal year. This impact will be more significant as a result of the adoption of ASC Topic 606 (as defined below).

8



THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


Reclassifications
Certain reclassifications have been made in order to conform to the current period’s presentation. The reclassifications primarily relate to: (i) the presentation in the consolidated statement of cash flows for the prior year period in connection with the adoption of Accounting Standards Update (“ASU”) No. 2016-18, Statement of Cash Flows: Restricted Cash, (ii) the presentation of the non-service cost components of net periodic pension and postretirement benefit cost in the consolidated statement of operations for the prior year period in connection with the adoption of ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, (iii) segregation of amounts due to promoters from deferred revenue in connection with the adoption of Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (Topic 606) (referred to herein as “ASC Topic 606”), (iv) certain customer surcharges in revenues that were previously reported under miscellaneous income, and (v) an indefinite-lived intangible asset that was previously reported under other assets. See Note 2 for further details related to the adoption of ASU No. 2016-18, ASU No. 2017-07 and ASC Topic 606.
Note 2. Accounting Policies
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of The Madison Square Garden Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. In addition, the consolidated financial statements of the Company include the accounts from TAO Group, BCE and CLG, in which the Company has controlling voting interests. The Company’s consolidation criteria are based on authoritative accounting guidance for voting interest, controlling interest or variable interest entities. TAO Group, BCE and CLG are consolidated with the equity owned by other shareholders shown as redeemable or nonredeemable noncontrolling interests in the accompanying consolidated balance sheets, and the other shareholders’ portion of net earnings (loss) and other comprehensive income (loss) shown as net income (loss) or comprehensive income (loss) attributable to redeemable or nonredeemable noncontrolling interests in the accompanying consolidated statements of operations and consolidated statements of comprehensive income (loss), respectively. See Note 2 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2018 for more information regarding the classification of redeemable noncontrolling interests of TAO Group. In addition, TAO Group’s results are reported on a three-month lag basis and TAO Group reports on a fiscal year reflecting the retail-based calendar (containing 4-4-5 week calendar quarters). Accordingly, the Company’s results for the three months ended September 30, 2018 and 2017 include TAO Group’s operating results from April 2, 2018 to July 1, 2018 and March 27, 2017 to June 25, 2017, respectively.
Use of Estimates
The preparation of the accompanying 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 amounts of revenues and expenses. Such estimates include the valuation of accounts receivable, investments, goodwill, intangible assets, other long-lived assets, tax accruals and other liabilities. In addition, estimates are used in revenue recognition, revenue sharing expense (net of escrow), luxury tax, income tax, performance and share-based compensation, depreciation and amortization, litigation matters and other matters, as well as in the valuation of contingent consideration and noncontrolling interests resulting from business combination transactions. Management believes its use of estimates in the Financial Statements are reasonable.
Management evaluates its estimates on an ongoing basis using historical experience and other factors, including the general economic environment and actions it may take in the future. The Company adjusts such estimates when facts and circumstances dictate. However, these estimates may involve significant uncertainties and judgments and cannot be determined with precision. In addition, these estimates are based on management’s 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 could be material and would be reflected in the Company’s financial statements in future periods.

9



THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


Summary of Significant Accounting Policies
The following is an update to the Company’s Summary of Significant Accounting Policies disclosed in its Annual Report on Form 10-K for the year ended June 30, 2018:
Revenue Recognition
Amounts due to third-party promoters of $89,513, which were previously reported as Deferred revenue in the accompanying consolidated balance sheet as of June 30, 2018, are now reported as Collections due to promoters in the accompanying consolidated balance sheet. In addition, see Recently Adopted Accounting Pronouncements below for disclosure related to the transitional impact of adopting ASC Topic 606 and Note 3 for other disclosure required under ASC Topic 606.
Recently Issued Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition. Subsequently, the FASB issued various updates related to ASC Topic 606 including: (i) ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, (ii) ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue versus Net), (iii) ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, (iv) ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical Expedients, and (v) ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The Company adopted ASC Topic 606 in the first quarter of fiscal year 2019 using the modified retrospective method for those contracts with customers which were not completed as of July 1, 2018. Results for reporting periods beginning after July 1, 2018 are presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the historic accounting guidance under ASC Topic 605.

As a result of the adoption of ASC Topic 606, the Company now accounts for its performance obligations under suite license arrangements as a series and as a result, the related suite license fees for all years during the license term are aggregated for each license agreement and revenue is recognized proportionately when the underlying events at The Garden take place, as opposed to previously being recognized on a straight-line basis over the fiscal year under the prior standard.

In addition, the majority of the Company’s local media rights revenue is now recognized over the course of the teams’ regular seasons, which most accurately reflects the Company’s progress towards satisfaction of its performance obligations under such arrangements, as opposed to previously being recognized on a straight-line basis over the fiscal year under the prior standard.

The Company also enters into arrangements with multiple performance obligations, such as multi-year sponsorship agreements. To the extent these arrangements provide for performance obligations that are consistent over the multi-year contractual term, such performance obligations generally meet the definition of a series as provided for under the provisions of ASC Topic 606. As a result, the contractual fees for all years during the contract term are aggregated and the related revenue is recognized proportionately as the underlying performance obligations are satisfied. Sponsorship revenue was previously recognized by treating each year of the arrangement as a discrete contract year, and as such the stated contract price was recognized in each year.

10



THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


The adoption of ASC Topic 606 had the following impact on revenues, operating expenses and operating loss for the three months ended September 30, 2018:
 
 
For the Three Months Ended September 30, 2018 (a)
 
 
As Reported Under
ASC Topic 606
 
Changes due to
the adoption of
ASC Topic 606
 
Amounts without adoption
of ASC Topic 606
Revenues
 
$
218,135

 
$
40,298

 
$
258,433

 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
Direct operating expenses
 
123,909

 
4,781

 
128,690

Selling, general and administrative expenses
 
115,321

 

 
115,321

Depreciation and amortization
 
29,690

 

 
29,690

Operating loss
 
$
(50,785
)
 
$
35,517

 
$
(15,268
)
_________________
(a) 
See Note 17 for the impact of the adoption of ASC Topic 606 on the Company’s reportable segments results of operations.
In accordance with the new revenue standard disclosure requirements, the following tables summarize the impact of adopting ASC Topic 606 on the Company’s consolidated balance sheet as of July 1, 2018.
 
 
Consolidated Balance Sheet As of July 1, 2018
 
 
Amounts without
the adoption
of ASC Topic 606
 
Changes due to
the adoption of
ASC Topic 606
 
Adjusted under
ASC Topic 606
ASSETS
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
Other current assets
 
$
28,996

 
$
4,366

 
$
33,362

Total current assets
 
1,415,669

 
4,366

 
1,420,035

Total assets
 
$
3,736,173

 
$
4,366

 
$
3,740,539

 
 
 
 
 
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
 
 
Current Liabilities:
 
 
 
 
 
 
Employee related costs
 
$
123,992

 
$
79

 
$
124,071

Other accrued liabilities
 
180,272

 
562

 
180,834

Deferred revenue
 
324,749

 
(30,480
)
 
294,269

Total current liabilities
 
765,505

 
(29,839
)
 
735,666

Total liabilities
 
1,105,454

 
(29,839
)
 
1,075,615

The Madison Square Garden Company Stockholders’ Equity:
 
 
 
 
Retained Earnings (Accumulated deficit)
 
(11,059
)
 
34,205

 
23,146

Total The Madison Square Garden Company stockholders’ equity
 
2,536,483

 
34,205

 
2,570,688

Total equity
 
2,554,035

 
34,205

 
2,588,240

Total liabilities, redeemable noncontrolling interests and equity
 
$
3,736,173

 
$
4,366

 
$
3,740,539


11



THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This standard, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income and (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. In February 2018, the FASB issued ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which clarifies certain aspects of the guidance issued in ASU No. 2016-01. Among other things, the amendment clarifies that an entity that uses the measurement alternative for equity securities without readily determinable fair values can change its measurement approach to fair value. Once the election is made, the measurement approach is irrevocable and the entity is required to apply the selected approach to that security and all identical or similar investments of the same issuer. This change in accounting is expected to create greater volatility in the Company’s miscellaneous income in the future. The primary impact of the adoption of ASU No. 2016-01 and ASU No. 2018-03 relate to the Company’s available-for-sale equity investment and resulted in unrecognized gains and losses from such investment being reflected in the Company’s consolidated statements of operations beginning in fiscal year 2019. The Company adopted ASU No. 2016-01 and ASU No. 2018-03 in the first quarter of fiscal year 2019 and recorded a cumulative-effect adjustment to the balance sheet by reclassifying the balance of the Accumulated other comprehensive loss to Accumulated deficit of $5,570 including income tax expense effect of $3,104. See Note 6 and 9 for more information on the Company’s equity investment with readily determinable fair value in Townsquare Media, Inc. (“Townsquare”).
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230). ASU No. 2016-15 addresses eight specific cash flow issues and is intended to reduce diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The Company adopted this standard in the first quarter of fiscal year 2019 retrospectively. The adoption of this standard did not have an impact on the Company’s consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. ASU No. 2016-16 requires the recognition of income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The Company adopted this standard in the first quarter of fiscal year 2019 on a modified retrospective basis. The adoption of this standard did not have an impact on the Company’s consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash. The primary purpose of ASU No. 2016-18 is to reduce diversity in the classification and presentation of changes in restricted cash on the statement of cash flows. This standard requires that a statement of cash flows explains the change during the period in total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this standard in the first quarter of fiscal year 2019 retrospectively and it resulted in a decrease to cash flows used in operating activities of $255 for the three months ended September 30, 2017. See Note 5 for a reconciliation of the cash, cash equivalents and restricted cash reported in the Company’s consolidated balance sheets to the amounts as reported on the consolidated statements of cash flows.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business. The primary purpose of this ASU is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses, which will affect many areas of accounting, including acquisitions, disposals, goodwill, and consolidation. The Company adopted this standard in the first quarter of fiscal year 2019. The adoption of this standard did not have an impact on the Company’s consolidated financial statements.
In March 2017, the FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU No. 2017-07 requires employers to disaggregate the service cost component from the other components of net benefit cost and disclose by line item the amount of net benefit cost that is included in the statement of operations or capitalized in assets. The standard requires employers to report the service cost component in the same line item(s) as other compensation costs arising from services rendered by the pertinent employees during the period and to report other components of net benefit cost separately and outside the subtotal of operating income. The standard also allows only the service cost component to be eligible for capitalization. The guidance

12



THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


requires application on a retrospective basis for the presentation of the service cost component and the other components of net benefit cost in the statements of operations and on a prospective basis for the capitalization of the service cost component of net benefit cost in assets. The Company adopted this standard in the first quarter of fiscal year 2019 retrospectively and elected the practical expedient allowed by ASU No. 2017-07 to utilize amounts disclosed in the Company’s pension plans and other postretirement benefit plan (see Note 11) for the prior comparative period as the estimation basis for applying the retrospective presentation requirements. As a result, the Company recorded a prior period adjustment in the accompanying consolidated statements of operations for the three months ended September 30, 2017 to decrease Direct operating expenses and Selling, general and administrative expenses by $256 and $754, respectively, which was related to the non-service cost components of net periodic pension and postretirement benefit cost, with a corresponding adjustment in Miscellaneous income (expense) of $1,010. For the three months ended September 30, 2018, the non-service cost components of net periodic pension and postretirement benefit cost included under Miscellaneous income (expense) in the accompanying consolidated statements of operations was $1,077.
Recently Issued Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases in ASC Topic 840, Leases. ASU No. 2016-02, among other things, (i) requires lessees to account for leases as either finance leases or operating leases and generally requires all leases to be recorded on the balance sheet, including those leases classified as operating leases under previous accounting guidance, through the recognition of right-of-use assets and corresponding lease liabilities, and (ii) requires extensive qualitative and quantitative disclosures about leasing activities. The accounting applied by a lessor is largely unchanged from that applied under previous accounting guidance. In January 2018, the FASB issued ASU No. 2018-01, Leases (Topic 842) - Land Easement Practical Expedient for Transition to Topic 842, which provides a lessee or lessor the option to not assess at transition whether existing land easements, not currently accounted for as leases under the current lease guidance, should be treated as leases under the new standard. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842) Targeted improvements, which provides an additional (and optional) transition method whereby the new lease standard is applied at the adoption date and recognized as an adjustment to retained earnings. The effective date and transition requirements for ASU No. 2018-01, ASU No. 2018-10 and ASU No. 2018-11 are the same as ASU No. 2016-02. This standard, as amended, will be effective for the Company beginning in the first quarter of fiscal year 2020 and is required to be applied using the modified retrospective approach for all leases existing as of the effective date. Early adoption is permitted; however, the Company currently does not plan to adopt this standard early. The Company’s evaluation of the impact this standard will have on its consolidated financial statements is ongoing. Based on efforts to date, the adoption of the standard will result in the recognition of right of use assets and lease liabilities related to the Company’s operating leases.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses. ASU 2016-13 replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that will require the reflection of expected credit losses and will also require consideration of a broader range of reasonable and supportable information to determine credit loss estimates. For most financial instruments, the standard will require the use of a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses, which will generally result in the earlier recognition of credit losses on financial instruments. This standard will be effective for the Company beginning in the first quarter of fiscal year 2021, with early adoption permitted. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. ASU No. 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard will be effective for the Company beginning in the first quarter of fiscal year 2021 and is required to be applied prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of ASC Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. ASU No. 2018-07 specifies that ASC Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards. ASU No. 2018-07 also clarifies that ASC Topic 718 does not apply to

13



THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


share-based payments used to effectively provide (i) financing to the issuer or (ii) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC Topic 606. This standard will be effective for the Company beginning in the first quarter of fiscal year 2020, with early adoption permitted, but no earlier than the adoption of ASC Topic 606. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement as part of the FASB’s broader disclosure framework project. ASU No. 2018-13 removes, modifies and adds certain disclosures providing greater focus on requirements that clearly communicate the most important information to the users of the financial statements with respect to fair value measurements. The standard is effective for the Company beginning in the first quarter of fiscal year 2021, with early adoption permitted. Most of the disclosure requirements in ASU No. 2018-13 would need to be applied on a retrospective basis except for the guidance related to (i) unrealized gains and loss included in other comprehensive income, (ii) disclosure related to range and weighted average Level 3 unobservable inputs and (iii) narrative disclosure requirements on measurement uncertainty, which are required to be applied on a prospective basis. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans — General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. ASU No. 2018-14 removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and adds additional disclosures. The standard will be effective for the Company in the fourth quarter of fiscal year 2020, with early adoption permitted. The amendments in ASU No. 2018-14 are required to be applied retrospectively. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles — Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. ASU No. 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for the Company in the first quarter of fiscal year 2021, with early adoption permitted. Entities have the option to apply the guidance prospectively to all implementation costs incurred after the date of adoption or retrospectively. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
Note 3. Revenue Recognition
Contracts with Customers
All revenue recognized in the consolidated statements of operations is considered to be revenue from contracts with customers in accordance with ASC Topic 606. For the three months ended September 30, 2018, the Company did not have any impairment losses on receivables or contract assets arising from contracts with customers.
The Company recognizes revenue when, or as, performance obligations under the terms of a contract are satisfied, which generally occurs when, or as, control of promised goods or services are transferred to customers. Revenue is measured as the amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services (“transaction price”). To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the most likely amount to which the Company expects to be entitled. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and the determination of whether to include such estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information that is reasonably available. The Company accounts for taxes collected from customers and remitted to governmental authorities on a net basis and excludes these amounts from revenues.
Arrangements with Multiple Performance Obligations
The Company has arrangements with multiple performance obligations, such as multi-year sponsorship agreements which may derive revenues for each of the Company’s segments within a single arrangement. Payment terms for such arrangements can vary by contract, but payments are generally due in installments throughout the contractual term. The performance obligations included in each sponsorship agreement vary and may include various advertising benefits such as, but not limited to, signage at The Garden and the Company’s other venues, digital advertising, event or property specific advertising, as well as non-

14



THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


advertising benefits such as suite licenses and event tickets. To the extent the Company’s multi-year arrangements provide for performance obligations that are consistent over the multi-year contractual term, such performance obligations generally meet the definition of a series as provided for under the accounting guidance. If performance obligations are concluded to meet the definition of a series, the contractual fees for all years during the contract term are aggregated and the related revenue is recognized proportionately as the underlying performance obligations are satisfied.
The timing of revenue recognition for each performance obligation is dependent upon the facts and circumstances surrounding the Company’s satisfaction of its respective performance obligation. The Company allocates the transaction price for such arrangements to each performance obligation within the arrangement based on the estimated relative standalone selling price of the performance obligation. The Company’s process for determining its estimated standalone selling prices involves management’s judgment and considers multiple factors including company specific and market specific factors that may vary depending upon the unique facts and circumstances related to each performance obligation. Key factors considered by the Company in developing an estimated standalone selling price for its performance obligations include, but are not limited to, prices charged for similar performance obligations, the Company’s ongoing pricing strategy and policies, and consideration of pricing of similar performance obligations sold in other arrangements with multiple performance obligations.
The Company may incur costs such as commissions to obtain its multi-year sponsorship agreements. The Company assesses such costs for capitalization on a contract by contract basis. To the extent costs are capitalized, the Company estimates the useful life of the related contract asset which may be the underlying contract term or the estimated customer life depending on the facts and circumstances surrounding the contract. The contract asset is amortized over the estimated useful life.
Principal versus Agent Revenue Recognition
The Company reports revenue on a gross or net basis based on management’s assessment of whether the Company acts as a principal or agent in the transaction. The determination of whether the Company acts as a principal or an agent in a transaction is based on an evaluation of whether the Company controls the good or service before transfer to the customer. When the Company concludes that it controls the good or service before transfer to the customer, the Company is considered a principal in the transaction and records revenue on a gross basis. When the Company concludes that it does not control the good or service before transfer to the customer but arranges for another entity to provide the good or service, the Company acts as an agent and records revenue on a net basis in the amount it earns for its agency service.
In connection with the 2015 Distribution, the Company entered into an advertising sales representation agreement with MSG Networks. Pursuant to the agreement, the Company has the exclusive right and obligation to sell advertising on behalf of MSG Networks. The Company is entitled to and earns commission revenue as the advertisements are aired on MSG Networks. Since the Company acts as an agent, the Company recognizes the advertising commission revenue on a net basis.
The Company’s revenue recognition policies that summarize the nature, amount, timing and uncertainty associated with each of the Company’s revenue sources are discussed further in each respective segment discussion below.
MSG Entertainment
The Company’s MSG Entertainment segment earns event related revenues principally from the sale of tickets for events that the Company produces or promotes/co-promotes, and from venue license fees charged to third-party promoters for events held at the Company’s venues that MSG Entertainment does not produce or promote/co-promote. The Company’s performance obligations with respect to event-related revenues from the sale of tickets, venue license fees from third-party promoters, sponsorships, concessions and merchandise are satisfied at the point of sale or as the related event occurs.
MSG Entertainment’s revenues also include revenue from the license of The Garden’s suites. Suite license arrangements are generally multi-year fixed-fee arrangements that include annual fee increases. Payment terms for suite license arrangements can vary by contract, but payments are generally due in installments prior to each license year. The Company’s performance obligation under such arrangements is to provide the licensee with access to the suite when events occur at The Garden. The Company accounts for the performance obligation under these types of arrangements as a series and, as a result, the related suite license fees for all years during the license term are aggregated and revenue is recognized proportionately over the license period as the Company satisfies the related performance obligation. Progress toward satisfaction of the Company’s annual suite license performance obligations is measured as access to the suite is provided to the licensee for each event throughout the contractual term of the license.

15



THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


The Company’s MSG Entertainment segment also earns revenues from the sale of advertising in the form of venue signage and other forms of sponsorship, which are not related to any specific event. The Company’s performance obligations with respect to this advertising are satisfied as the related benefits are delivered over the term of the respective agreements.
Revenues from dining, nightlife and hospitality offerings through TAO Group are recognized when food, beverages and/or services are provided to the customer as that is the point in which the related performance obligation is satisfied. In addition, management fee revenues which are earned in accordance with specific venue management agreements are recorded over the period in which the management services are performed as such depicts the measure of progress toward satisfaction of the Company’s venue management performance obligations.
Amounts collected in advance of the Company’s satisfaction of its contractual performance obligations are recorded as a contract liability within deferred revenue and are recognized as the Company satisfies the related performance obligations. Amounts collected in advance of events for which the Company is not the promoter or co-promoter do not represent contract liabilities and are recorded as collections due to promoters on the balance sheet.
MSG Sports
The Knicks, Rangers and Liberty derive event-related revenues principally from ticket sales which are recognized as the related games occur. MSG Sports revenues also include revenue from the license of The Garden’s suites. Suite license arrangements are generally multi-year fixed fee arrangements that include annual fee increases. Payment terms for suite license arrangements can vary by contract, but payments are generally due in installments prior to each license year. The Company’s performance obligation under such arrangements is to provide the licensee with access to the suite when events occur at The Garden. The Company accounts for the performance obligation under these types of arrangements as a series and, as a result, the related suite license fees for all years during the license term are aggregated and revenue is recognized proportionately over the license period as the Company satisfies the related performance obligation. Progress toward satisfaction of the Company’s suite license performance obligations is measured as access to the suite is provided to the licensee for each event throughout the contractual term of the license.
In addition to event-related revenue, MSG Sports maintains local media rights arrangements which provide for the licensing of team-related programming to MSG Networks. MSG Sports, pursuant to the terms of the agreements, receives such rights fees in equal monthly installments throughout each license year. The transaction price under these arrangements is variable in nature as certain credit provisions exist to the extent that the teams’ games are unavailable for broadcast during an individual league season. The Company estimates the transaction price at the beginning of each fiscal year, which coincides with the annual contractual term. In estimating the transaction price, the Company considers the contractually agreed upon license fees as well as qualitative considerations with respect to the number of games expected to be available for broadcast by MSG Networks over the upcoming year. The resulting transaction price is allocated entirely to the rights provided for the related contract year and revenue is recognized using an output measure of progress toward satisfaction of the Company’s performance obligations within the contract year, as the underlying benefits are conveyed to the licensee.
The Company’s teams also derive revenue from the distribution of league-wide national and international television contracts and other league-wide revenue sources. The transaction price for each of these revenues is based upon the expected distribution values as communicated by the applicable league. The timing of revenue recognition is dependent on the nature of the underlying performance obligation, which is generally over time. Receipt of league-wide revenues generally occurs at the time of communication or according to a specified timeline.
MSG Sports also earns revenues from the sale of advertising in the form of venue signage and sponsorships, which are not related to any specific event. The Company’s performance obligations with respect to this advertising are satisfied as the related benefits are delivered over the term of the respective agreements.
The Company’s MSG Sports segment also derives revenue from live sporting events not related to the Company’s teams. The Company’s performance obligations with respect to event-related revenues from other live sporting events, including the sale of tickets, venue license fees earned in connection with other live sporting events that the Company does not produce or promote, sponsorships, concessions and merchandise are satisfied at the point of sale or as the related event occurs.
Amounts collected in advance of the Company’s satisfaction of its contractual performance obligations are recorded as a contract liability within deferred revenue and are recognized as the Company satisfies the related performance obligations. Amounts collected in advance of events for which the Company is not the promoter or co-promoter do not represent contract liabilities and are recorded as collections due to promoters on the balance sheet.

16



THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


Disaggregation of Revenue
The following table disaggregates the Company’s revenue by major source and reportable segment based upon the timing of transfer of goods or services to the customer for the three months ended September 30, 2018:
 
 
Three Months Ended September 30, 2018
 
 
MSG
Entertainment
 
MSG
Sports
 
Eliminations
 
Total
Event-related (a)
 
$
136,695

 
$
10,242

 
$

 
$
146,937

Sponsorship, signage and suite licenses
 
15,330

 
22,255

 
(170
)
 
37,415

League distributions
 

 
14,871

 

 
14,871

Local media rights fees from MSG Networks
 

 
5,972

 

 
5,972

Other (b)
 
10,928

 
2,012




12,940

Total revenues from contracts with customers
 
$
162,953

 
$
55,352

 
$
(170
)
 
$
218,135

_________________
(a) 
Consists of (i) TAO Group’s entertainment dining and nightlife offerings, (ii) ticket sales and other ticket-related revenues, (iii) venue license fees from third-party promoters and (iv) food, beverage and merchandise sales.
(b) 
Primarily consists of (i) managed venue revenues from TAO Group and (ii) revenues from Obscura.
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed receivables, contract assets and contract liabilities on the consolidated balance sheet. The following table provides information about contract balances from the Company’s contracts with customers as of September 30, 2018 and July 1, 2018.
 
 
September 30,
 
July 1,
 
 
2018
 
2018
Accounts receivable, net (a)
 
$
123,821

 
$
100,725

Contract assets, current (b)
 
5,215

 
4,366

Deferred revenue (c)
 
413,184

 
294,269

_________________
(a) 
Accounts receivable represent the Company’s unconditional rights to consideration under its contracts with customers.
(b) 
Contract assets, which are reported as Other current assets in the Company's consolidated balance sheets, primarily relate to the Company’s rights to consideration for goods or services transferred to the customer, for which the Company does not have an unconditional right to bill as of the reporting date. Contract assets are transferred to accounts receivable, net, once the Company’s right to consideration becomes unconditional.
(c) 
Deferred revenue primarily relates to the Company’s receipt of consideration from a customer in advance of the Company’s transfer of goods or services to that customer. Deferred revenue is reduced and the related revenue is recognized once the underlying goods or services are transferred to the customer.
Revenue recognized for the three months ended September 30, 2018 relating to the deferred revenue balance as of July 1, 2018 was $62,292.

17



THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


Transaction Price Allocated to the Remaining Performance Obligations
The following table depicts the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of September 30, 2018. In developing the estimated revenue, the Company applies the allowable practical expedient and does not disclose information about remaining performance obligations that have original expected durations of one year or less. Additionally, the Company has elected to exclude variable consideration from its disclosure related to the remaining performance obligations under its local media rights arrangements with MSG Networks.
Fiscal year 2019 (remainder)
 
$
196,460

Fiscal year 2020
 
195,134

Fiscal year 2021
 
159,741

Fiscal year 2022
 
119,485

Fiscal year 2023
 
67,278

Thereafter
 
135,216

 
 
$
873,314

Note 4. Team Personnel Transactions
Direct operating expenses in the accompanying consolidated statements of operations include net provisions for transactions relating to team personnel of the Company’s sports teams for net recoveries recorded in the current year period associated with prior year team personnel provisions recorded for waivers/contract terminations (“Team personnel transactions”). Team personnel transactions amounted to a net credit of $667 and a provision of $100 for the three months ended September 30, 2018 and 2017, respectively.
Note 5. Cash, Cash Equivalents and Restricted Cash
The following is a reconciliation of the totals of cash, cash equivalents and restricted cash on the consolidated balance sheets to the amounts as reported on the consolidated statements of cash flows:
 
 
As of
 
 
September 30,
2018
 
June 30,
2018
 
September 30,
2017
 
June 30,
2017
Captions on the consolidated balance sheets:
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
1,068,883

 
$
1,225,638

 
$
1,163,947

 
$
1,238,114

Restricted cash (a)
 
32,330

 
30,982

 
34,255

 
34,000

Cash, cash equivalents and restricted cash on the consolidated statements of cash flows
 
$
1,101,213

 
$
1,256,620

 
$
1,198,202

 
$
1,272,114

_________________
(a) 
See Note 2 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2018 for more information regarding the nature of restricted cash.

18



THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)



Note 6. Investments and Loans to Nonconsolidated Affiliates
The Company’s investments and loans to nonconsolidated affiliates which are accounted for under the equity method of accounting, equity investments without readily determinable fair values and cost method of accounting in accordance with ASC Topic 323, Investments - Equity Method and Joint Ventures, ASC Topic 321, Investments - Equity Securities and ASC Topic 325, Investments - Other, respectively, consisted of the following:
 
 
Ownership Percentage
 
Investment
 
Loan
 
Total
September 30, 2018
 
 
 
 
 
 
 
 
Equity method investments:
 
 
 
 
 
 
 
 
Azoff MSG Entertainment LLC (“AMSGE”) (a) (b) (c)
 
50
%
 
$
110,721

 
$
63,500

 
$
174,221

SACO Technologies Inc. (“SACO”)
 
30
%
 
41,927

 

 
41,927

Tribeca Enterprises LLC (“Tribeca Enterprises”) (b) (d)
 
50
%
 
9,983

 
19,875

 
29,858

Others
 


 
6,845

 

 
6,845

Equity investments without readily determinable fair values (e)
 
 
 
12,674

 

 
12,674

Total investments and loans to nonconsolidated affiliates
 
 
 
$
182,150

 
$
83,375

 
$
265,525

 
 
 
 
 
 
 
 
 
June 30, 2018
 
 
 
 
 
 
 
 
Equity method investments:
 
 
 
 
 
 
 
 
AMSGE
 
50
%
 
$
101,369

 
$
63,500

 
$
164,869

Tribeca Enterprises (d)
 
50
%
 
8,007

 
19,525

 
27,532

Others
 

 
6,977

 

 
6,977

Cost method investments (e)
 
 
 
10,573

 

 
10,573

Total investments and loans to nonconsolidated affiliates
 
 
 
$
126,926

 
$
83,025

 
$
209,951

_________________
(a) 
See Note 18 for discussion of the agreement between the Company and Azoff Music Management (“Azoff Music”), pursuant to which Azoff Music will acquire the Company’s investment in AMSGE.
(b) 
In connection with the Company’s investments in AMSGE and Tribeca Enterprises, the Company provides $100,000 and $17,500 revolving credit facilities to these entities, respectively. As of September 30, 2018, AMSGE had $63,500 outstanding balance under its revolving credit facility (see Note 18 for further details). Pursuant to the terms, the Tribeca Enterprises revolving credit facility will be terminated on June 30, 2021.
(c) 
See Note 8 for more information regarding a legal matter associated with AMSGE.
(d) 
Includes outstanding payments-in-kind (“PIK”) interest of $2,375 and $2,025 as of September 30, 2018 and June 30, 2018, respectively. PIK interest owed does not reduce the availability under the revolving credit facility. The $17,500 Tribeca Enterprises revolving credit facility was fully drawn as of September 30, 2018 and June 30, 2018.
(e) 
In accordance with the ASU No. 2016-01 and ASU No. 2018-03, that were adopted on July 1, 2018, the cost method accounting for equity investments was eliminated. Such investments are required to be presented at fair value. The Company has elected to account for its equity securities without readily determinable fair values that are carried at cost, adjusted for impairment and changes resulting from observable price fluctuations in orderly transactions for the identical or a similar investment of the same issuer (“Measurement Alternative”). The Company applies the Measurement Alternative, which is classified within Level III of the fair value hierarchy, on its equity investments without readily determinable fair values as of September 30, 2018 and July 1, 2018 and did not have adjustments identified.

19



THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


In July 2018, the Company acquired a 30% interest in SACO Technologies Inc. (“SACO”), a global provider of high-performance LED video lighting and media solutions for a total consideration of approximately $47,244. The Company plans to utilize SACO as a preferred display technology provider for MSG Sphere and benefit from agreed upon commercial terms. The total consideration consisted of a $42,444 payment at closing and a $4,800 deferred payment, which was made in October 2018. As of the acquisition date, the carrying amount of the investment was greater than the Company’s equity interest in the underlying net assets of SACO. As such, the Company allocated the difference to amortizable intangible assets of $25,350 and is amortizing these intangible assets on a straight-line basis over the expected useful lives ranging from 6 to 12 years.
Summarized Financial Information of Equity Method Investees
The following is summarized financial information for those individually significant equity method investments as required by the guidance in the SEC Regulation S-X Rule 4-08(g). The amounts shown below represent 100% of this equity method investment’s results of operations:
 
 
 
 
 
 
 
Three Months Ended
 
 
September 30,
Results of Operations
 
2018
 
2017
Revenues
 
$
41,032

 
$
45,545

Income from continuing operations (a)
 
22,832

 
7,561

Net income (a)
 
22,832

 
7,561

Net income attributable to controlling interest
 
19,960

 
5,311

_________________
(a) 
The amount for three months ended September 30, 2018 includes a one-time gain of $11,561 on the sale of investment recognized by the Companys investee.
Equity Investment with Readily Determinable Fair Value
In addition to the investments discussed above, the Company holds an investment of 3,208 shares of the common stock of Townsquare. Townsquare is a leading media, entertainment and digital marketing solutions company that is listed on the New York Stock Exchange (“NYSE”) under the symbol “TSQ.” In accordance with ASC Topic 321, Investments - Equity Securities, this investment is measured at readily determinable fair value and is reported under Other assets in the accompanying consolidated balance sheet as of September 30, 2018 and June 30, 2018. See Note 9 for more information on the fair value of the investment in Townsquare.
Note 7. Goodwill and Intangible Assets
The carrying amounts of goodwill, by reportable segment, as of September 30, 2018 and June 30, 2018 are as follows: 
 
 
 
MSG Entertainment
 
$
165,558

MSG Sports
 
226,955

 
 
$
392,513

During the first quarter of fiscal year 2019, the Company performed its annual impairment test of goodwill and determined that there were no impairments of goodwill identified for any of its reporting units as of the impairment test date.

20



THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


The Company’s indefinite-lived intangible assets as of September 30, 2018 and June 30, 2018 are as follows:
 
 
 
Sports franchises (MSG Sports segment)
 
$
110,564

Trademarks (MSG Entertainment segment)
 
62,421

Photographic related rights (MSG Sports segment)
 
3,000

 
 
$
175,985

During the first quarter of fiscal year 2019, the Company performed its annual impairment test of identifiable indefinite-lived intangible assets and determined that there were no impairments identified as of the impairment test date.
The Company’s intangible assets subject to amortization are as follows: 
September 30, 2018
 
Gross
 
Accumulated
Amortization
 
Net
Trade names
 
$
101,830

 
$
(8,091
)
 
$
93,739

Venue management contracts
 
79,000

 
(6,465
)
 
72,535

Favorable lease assets
 
54,253

 
(6,905
)
 
47,348

Season ticket holder relationships
 
50,032

 
(45,040
)
 
4,992

Non-compete agreements
 
11,400

 
(2,777
)
 
8,623

Festival rights
 
8,080

 
(1,213
)
 
6,867

Other intangibles
 
10,064

 
(6,193
)
 
3,871

 
 
$
314,659

 
$
(76,684
)
 
$
237,975

June 30, 2018
 
Gross
 
Accumulated
Amortization
 
Net
Trade names
 
$
101,830

 
$
(6,658
)
 
$
95,172

Venue management contracts
 
79,000

 
(5,324
)
 
73,676

Favorable lease assets
 
54,253

 
(5,686
)
 
48,567

Season ticket holder relationships
 
50,032

 
(44,206
)
 
5,826

Non-compete agreements
 
11,400

 
(2,266
)
 
9,134

Festival rights
 
8,080

 
(1,078
)
 
7,002

Other intangibles
 
10,064

 
(5,635
)
 
4,429

 
 
$
314,659

 
$
(70,853
)
 
$
243,806

Amortization expense for intangible assets, excluding the amortization of favorable lease assets of $1,219 for the three months ended September 30, 2018 and 2017, which is reported in rent expense, was $4,612 and $4,534 for the three months ended September 30, 2018 and 2017, respectively.
Note 8. 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, 2018, the Company’s commitments consist primarily of (i) the MSG Sports segment’s obligations under employment agreements that the Company has with its professional sports teams’ personnel that are generally guaranteed regardless of employee injury or termination, (ii) long-term noncancelable operating lease agreements primarily for Company venues, including TAO Group venues, and various corporate offices, and (iii) revolving credit facilities provided by the Company to AMSGE and Tribeca Enterprises (see Note 6 and Note 18). The Company did not have any material changes in its contractual obligations since the end of fiscal year 2018 other than activities in the ordinary course of business.

21



THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


In connection with the TAO Group and CLG acquisitions, the Company has accrued deferred and contingent consideration as part of the purchase price allocation. See Note 9 for further details of the amount recorded in the accompanying consolidated balance sheet as of September 30, 2018. In addition, see Note 11 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2018 regarding the principal repayments required under the TAO Group’s senior secured term loan facility.
Legal Matters
The Company owns 50% of AMSGE, which in turn owns a majority interest in Global Music Rights, LLC (“GMR”). GMR is primarily a performance rights organization, whose business includes obtaining the right to license the public performance rights of songs composed by leading songwriters. GMR engaged in negotiations with the Radio Music Licensing Committee (“RMLC”), which represents over ten thousand commercial radio stations. On November 18, 2016, RMLC filed a complaint against GMR in the United States District Court for the Eastern District of Pennsylvania alleging that GMR is violating Section 2 of the Sherman Antitrust Act and seeking an injunction, requiring, among other things, that GMR issue radio stations licenses for GMR’s repertory, upon request, at a rate set through a judicial rate-making procedure, that GMR offer “economically viable alternatives to blanket licenses,” and that GMR offer only licenses for songs which are fully controlled by GMR. GMR and RMLC agreed to an interim license arrangement through September 30, 2017, which has been extended through September 30, 2018. GMR has advised the Company that it believes that the RMLC Complaint is without merit and is vigorously defending itself. On January 20, 2017, GMR filed a motion to dismiss or to transfer venue, asserting that the Eastern District of Pennsylvania is not a proper venue for the matter, lacks personal jurisdiction of GMR and that in any event the complaint fails to state a claim. On December 6, 2016, GMR filed a complaint against RMLC in the United States District Court for the Central District of California, alleging that RMLC operates as an illegal cartel that unreasonably restrains trade in violation of Section 1 of the Sherman Antitrust Act and California state law, and seeking an injunction restraining RMLC and its co-conspirators from enforcing or establishing agreements that unreasonably restrict competition for public performance licenses. The judge in the Central District of California denied RMLC’s motion to dismiss GMR’s claim for lack of ripeness and, on the basis that the two cases involve similar facts, stayed the California action in order to assess the status of the Pennsylvania case. On July 21, 2017, RMLC filed a preliminary injunction motion in the United States District Court for the Eastern District of Pennsylvania to extend the duration of the interim licenses which GMR had granted to certain radio stations. The district court determined that the jurisdictional matter should be decided prior to addressing the motion for preliminary injunction and referred the jurisdictional questions to the Magistrate Judge in the United States District Court Eastern District of Pennsylvania. On November 29, 2017, the Magistrate Judge issued a report and recommendation that personal jurisdiction was not appropriate over GMR in the Eastern District of Pennsylvania and recommending the dismissal of RMLC’s action without prejudice. RMLC has filed objections to the Magistrate Judge’s report and recommendation. On May 3, 2018, GMR filed a motion to lift the stay in GMR’s California action on the basis that a continuation of the stay would cause undue prejudice to GMR. On May 14, 2018, RMLC opposed GMR’s motion to lift the stay and, on May 23, 2018, GMR filed a reply in support of its motion to lift the stay. On August 14, 2018, the court denied GMR’s motion to lift the stay.
The Company is a defendant in various other lawsuits. Although the outcome of these other lawsuits cannot be predicted with certainty (including the extent of available insurance, if any), management does not believe that resolution of these other lawsuits will have a material adverse effect on the Company.
Note 9. Fair Value Measurements
The following table presents the Company’s assets that are measured at fair value on a recurring basis, which include cash equivalents and an equity investment with readily determinable fair value: 
 
 
Fair Value Hierarchy
 
September 30,
2018
 
June 30,
2018
Assets:
 
 
 
 
 
 
Commercial Paper
 
I
 
$
147,636

 
$
147,098

Money market accounts
 
I
 
140,631

 
151,887

Time deposits
 
I
 
727,654

 
891,923

Equity investment with readily determinable fair value
 
I
 
25,120

 
20,756

Total assets measured at fair value
 
 
 
$
1,041,041

 
$
1,211,664


22



THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


All assets listed above 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 commercial paper, money market accounts and time deposits approximates fair value due to their short-term maturities.
The carrying value and fair value of the Company’s financial instruments reported in the accompanying consolidated balance sheets are as follows:
 
 
September 30, 2018
 
June 30, 2018
 
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Assets
 
 
 
 
 
 
 
 
Notes receivable, including interest accruals
 
$
11,901

 
$
11,901

 
$
4,116

 
$
4,116

Equity investment with readily determinable fair value (a)
 
25,120

 
25,120

 
20,756

 
20,756

Liabilities
 
 
 
 
 
 
 
 
Long-term debt, including current portion (b)
 
$
106,071

 
$
107,667

 
$
109,313

 
$
111,588

_________________
(a) 
Aggregate cost basis for the Company’s equity investment with readily determinable fair value in Townsquare, including transaction costs, was $23,222 as of September 30, 2018. The fair value of this investment is determined based on quoted market prices in an active market at the NYSE, which is classified within Level I of the fair value hierarchy. For the three months ended September 30, 2018, the Company recorded an unrealized gain related to this investment of $4,364 as a result of an increase in the market value and is reported in Miscellaneous income (expense) in the accompanying consolidated statement of operations.
(b) 
On January 31, 2017, TAO Group Intermediate Holdings LLC (“TAOIH”), TAO Group Operating LLC (“TAOG”) and certain of its subsidiaries entered into a $110,000 senior secured five-year term loan facility. The Company’s long-term debt is classified within Level II of the fair value hierarchy as it is valued using quoted indices of similar securities for which the inputs are readily observable.
Contingent Consideration Liabilities
In connection with the TAO Group and CLG acquisitions (see Note 3 and Note 10 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2018 for further details), the Company recorded certain deferred and contingent consideration liabilities at fair value as part of the preliminary purchase price allocation. As of September 30, 2018 and June 30, 2018, the fair value of deferred and contingent consideration liabilities in connection with the TAO Group and CLG acquisitions was $8,195.
Note 10. Credit Facilities

Knicks Revolving Credit Facility
On September 30, 2016, New York Knicks, LLC (“Knicks LLC”), a wholly owned subsidiary of the Company, entered into a credit agreement (the “Knicks Credit Agreement”) with a syndicate of lenders providing for a senior secured revolving credit facility of up to $200,000 with a term of five years (the “Knicks Revolving Credit Facility”) to fund working capital needs and for general corporate purposes. Amounts borrowed may be distributed to the Company except during an event of default.
The Knicks Revolving Credit Facility requires Knicks LLC to comply with a debt service ratio of 1.5:1.0 over a trailing four quarter period. As of September 30, 2018, Knicks LLC was in compliance with this financial covenant.
All borrowings under the Knicks Revolving Credit Facility are subject to the satisfaction of certain customary conditions. Borrowings bear interest at a floating rate, which at the option of Knicks LLC may be either (i) a base rate plus a margin ranging from 0.00% to 0.125% per annum or (ii) LIBOR plus a margin ranging from 1.00% to 1.125% per annum. Knicks LLC is required to pay a commitment fee ranging from 0.20% to 0.25% per annum in respect of the average daily unused commitments under the Knicks Revolving Credit Facility. The Knicks Revolving Credit Facility was undrawn as of September 30, 2018.

23



THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


All obligations under the Knicks Revolving Credit Facility are secured by a first lien security interest in certain of Knicks LLC’s assets, including, but not limited to, (i) the Knicks LLC’s membership rights in the NBA and (ii) revenues to be paid to the Knicks LLC by the NBA pursuant to certain U.S. national broadcast agreements.
Subject to customary notice and minimum amount conditions, Knicks LLC may voluntarily prepay outstanding loans under the Knicks Revolving Credit Facility at any time, in whole or in part, without premium or penalty (except for customary breakage costs with respect to Eurocurrency loans). Knicks LLC is required to make mandatory prepayments in certain circumstances, including without limitation if the maximum available amount under the Knicks Revolving Credit Facility is greater than 350% of qualified revenues.
In addition to the financial covenant described above, the Knicks Credit Agreement and the related security agreement contain certain customary representations and warranties, affirmative covenants and events of default. The Knicks Revolving Credit Facility contains certain restrictions on the ability of Knicks LLC to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the Knicks Revolving Credit Facility, including the following: (i) incurring additional indebtedness and contingent liabilities; (ii) creating liens on certain assets; (iii) making restricted payments during the continuance of an event of default under the Knicks Revolving Credit Facility; (iv) engaging in sale and leaseback transactions; (v) merging or consolidating; and (vi) taking certain actions that would invalidate the secured lenders’ liens on any Knicks LLC’s collateral.
Knicks Unsecured Credit Facility
On September 30, 2016, Knicks LLC entered into an unsecured revolving credit facility with a lender for an initial maximum credit amount of $15,000 and a 364-day term (the “Knicks Unsecured Credit Facility”). Knicks LLC renewed this facility with the lender on the same terms effective as of September 28, 2018. This facility was undrawn as of September 30, 2018.
Rangers Revolving Credit Facility
On January 25, 2017, New York Rangers, LLC (“Rangers LLC”), a wholly owned subsidiary of the Company, entered into a credit agreement (the “Rangers Credit Agreement”) with a syndicate of lenders providing for a senior secured revolving credit facility of up to $150,000 with a term of five years (the “Rangers Revolving Credit Facility”) to fund working capital needs and for general corporate purposes. Amounts borrowed may be distributed to the Company except during an event of default.
The Rangers Revolving Credit Facility requires Rangers LLC to comply with a debt service ratio of 1.5:1.0 over a trailing four quarter period. As of September 30, 2018, Rangers LLC was in compliance with this financial covenant. All borrowings under the Rangers Revolving Credit Facility are subject to the satisfaction of certain customary conditions.
Borrowings bear interest at a floating rate, which at the option of Rangers LLC may be either (i) a base rate plus a margin ranging from 0.125% to 0.50% per annum or (ii) LIBOR plus a margin ranging from 1.125% to 1.50% per annum. Rangers LLC is required to pay a commitment fee ranging from 0.375% to 0.625% per annum in respect of the average daily unused commitments under the Rangers Revolving Credit Facility. The Rangers Revolving Credit Facility was undrawn as of September 30, 2018.
All obligations under the Rangers Revolving Credit Facility are secured by a first lien security interest in certain of Rangers LLC’s assets, including, but not limited to, (i) Rangers LLC’s membership rights in the NHL, (ii) revenues to be paid to Rangers LLC by the NHL pursuant to certain U.S. and Canadian national broadcast agreements, and (iii) revenues to be paid to Rangers LLC pursuant to local media contracts.
Subject to customary notice and minimum amount conditions, Rangers LLC may voluntarily prepay outstanding loans under the Rangers Revolving Credit Facility at any time, in whole or in part, without premium or penalty (except for customary breakage costs with respect to Eurocurrency loans). Rangers LLC is required to make mandatory prepayments in certain circumstances, including without limitation if qualified revenues are less than 17% of the maximum available amount under the Rangers Revolving Credit Facility.
In addition to the financial covenant described above, the Rangers Credit Agreement and the related security agreement contain certain customary representations and warranties, affirmative covenants and events of default. The Rangers Revolving Credit Facility contains certain restrictions on the ability of Rangers LLC to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the Rangers Revolving Credit Facility, including the following: (i) incurring additional

24



THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


indebtedness and contingent liabilities; (ii) creating liens on certain assets; (iii) making restricted payments during the continuance of an event of default under the Rangers Revolving Credit Facility; (iv) engaging in sale and leaseback transactions; (v) merging or consolidating; and (vi) taking certain actions that would invalidate the secured lenders’ liens on any of Rangers LLC’s assets securing the obligations under the Rangers Revolving Credit Facility.
TAO Credit Facilities
On January 31, 2017, TAOIH, TAOG, and certain of its subsidiaries entered into a credit and guaranty agreement with a syndicate of lenders providing for a senior secured term loan facility of $110,000 with a term of five years (the “TAO Term Loan Facility”) to fund, in part, the acquisition of TAO Group and a senior secured revolving credit facility of up to $12,000 with a term of five years (the “TAO Revolving Credit Facility,” and together with the TAO Term Loan Facility, the “TAO Credit Facilities”) for working capital and general corporate purposes of TAOG. The TAO Credit Facilities were obtained without recourse to MSG or any of its affiliates (other than TAOIH and its subsidiaries).
The TAO Credit Facilities require TAOIH (i) to maintain, for the relevant TAO entities, a minimum consolidated liquidity of $5,000 at all times, (ii) to comply with a maximum total net leverage ratio of 4.00:1.00 initially and stepping down over time to 2.50:1.00 by the first quarter of calendar year 2021 and through the remainder of the term of the TAO Credit Facilities, and (iii) to comply with a minimum fixed charge coverage ratio of 1.50:1.00 initially and stepping down over time to 1.15:1.00 by the second quarter of calendar year 2021 and through the remainder of the term of the TAO Credit Facilities. TAOIH was in compliance with the financial covenants of the TAO Credit Facilities as of July 1, 2018 (the most recent date at which compliance was assessed under the TAO Credit Facilities). The TAO Revolving Credit Facility was undrawn as of September 30, 2018.
The TAO entities under the TAO Credit Facilities are also subject to certain limitations with respect to making capital expenditures based upon the total net leverage ratio and other factors. The restrictions on capital expenditures are subject to certain “carry-forward” provisions and other customary carve-outs.
All borrowings under the TAO Credit Facilities are subject to the satisfaction of certain customary conditions, including compliance with a maximum leverage multiple, accuracy of representations and warranties and absence of a default or event of default. Borrowings bear interest at a floating rate, which at the option of TAOG may be either (i) a base rate plus a margin ranging from 6.50% to 7.00% per annum or (ii) LIBOR plus a margin ranging from 7.50% to 8.00% per annum. TAOG is required to pay a commitment fee of 0.50% per annum in respect of the average daily unused commitments under the TAO Revolving Credit Facility. The interest rate on the TAO Credit Facilities as of July 1, 2018 was 10.125%. TAO Group made interest payments under the TAO Term Loan Facility of $2,759 and $2,545 for the thirteen weeks ended July 1, 2018 and June 25, 2017, respectively (the periods for which TAO Group’s operating results are recorded in the Company’s consolidated statements of operations for the three months ended September 30, 2018 and 2017).
All obligations under the TAO Credit Facilities are secured by a first lien security interest in substantially all of the applicable TAO entities’ assets, including, but not limited to, a pledge of all of the capital stock of substantially all of TAOIH’s wholly-owned domestic subsidiaries and 65% of the voting capital stock, and 100% of the non-voting capital stock, of each of its first-tier foreign subsidiaries.
Subject to customary notice and minimum amount conditions, TAOG may voluntarily prepay outstanding loans under the TAO Credit Facilities at any time, in whole or in part (subject to customary breakage costs with respect to LIBOR loans) with premiums due in respect of prepayments of the TAO Term Loan Facility or permanent reduction under the TAO Revolving Credit Facility, in each case, starting at 5.0% initially and stepping down to 0% after three years. Beginning March 31, 2018, TAOG is required to make scheduled amortization payments under the TAO Term Loan Facility in consecutive quarterly installments equal to $688 per quarter initially, stepping up over time to $4,125 per quarter by March 31, 2021 and through the final maturity date of the TAO Term Loan Facility with the final balance payable on such maturity date. TAOG is also required to make mandatory prepayments under the TAO Credit Facilities in certain circumstances, including, without limitation, 75% of excess cash flow, with a step-down to 50% when the total net leverage ratio is less than 2.00:1.00.
The TAO Credit Facilities contain certain restrictions on the ability of TAOG to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the TAO Credit Facilities, including, without limitation, the following: (i) incurring additional indebtedness; (ii) creating liens on assets; (iii) making distributions, dividends and other restricted

25



THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


payments; (iv) engaging in sale and leaseback transactions; (v) merging or consolidating; (vi) making investments; and (vii) prepaying certain indebtedness.
See Note 11 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2018 for more information regarding the Company’s debt maturities for the TAO Term Loan Facility.
Deferred Financing Costs
The following table summarizes the presentation of the TAO Term Loan Facility, and the related deferred financing costs in the accompanying consolidated balance sheets as of September 30, 2018 and June 30, 2018.
 
 
September 30, 2018
 
 
TAO Term Loan Facility
 
Deferred Financing Costs
 
Total
Current portion of long-term debt, net of deferred financing costs (a)
 
$
2,750

 
$
(939
)
 
$
1,811

Long-term debt, net of deferred financing costs
 
103,321

 
(2,439
)
 
100,882

Total
 
$
106,071

 
$
(3,378
)
 
$
102,693

 
 
 
 
 
 
 
 
 
June 30, 2018
 
 
TAO Term Loan Facility
 
Deferred Financing Costs
 
Total
Current portion of long-term debt, net of deferred financing costs
 
$
5,304

 
$
(939
)
 
$
4,365

Long-term debt, net of deferred financing costs
 
104,009

 
(2,674
)
 
101,335

Total
 
$
109,313

 
$
(3,613
)
 
$
105,700

_________________
(a) 
In addition to the TAO Term Loan Facility disclosed above, the Current portion of long-term debt, net of deferred financing costs in the accompanying consolidated balance sheet as of September 30, 2018 also includes $408 of short-term notes with respect to a loan received by BCE from its noncontrolling interest holder during the first quarter of fiscal year 2019.
The following table summarizes deferred financing costs, net of amortization, related to the Knicks Revolving Credit Facility, Rangers Revolving Credit Facility, and TAO Revolving Credit Facility as reported in the accompanying consolidated balance sheets as of September 30, 2018 and June 30, 2018.
 
 
September 30,
2018
 
June 30,
2018
Other current assets
 
$
778

 
$
778

Other assets
 
1,712

 
1,906

Note 11. Pension Plans and Other Postretirement Benefit Plan
See Note 12 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2018 for more information regarding the Company’s defined benefit pension plans (“Pension Plans”), postretirement benefit plan (“Postretirement Plan”), Madison Square Garden 401(k) Savings Plan and the MSG Sports & Entertainment, LLC Excess Savings Plan (collectively, the “Savings Plans”), and Madison Square Garden 401(k) Union Plan (the “Union Savings Plan”).

26



THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


Defined Benefit Pension Plans and Postretirement Benefit Plan
Components of net periodic benefit cost for the Pension Plans and Postretirement Plan recognized in direct operating expenses, selling, general and administrative expenses and miscellaneous income (expense) in the accompanying consolidated statements of operations for the three months ended September 30, 2018 and 2017 are as follows: 
 
 
 
 
 
 
 
 
 
 
 
Pension Plans
 
Postretirement Plan
 
 
Three Months Ended
 
Three Months Ended
 
 
September 30,
 
September 30,
 
 
2018
 
2017
 
2018
 
2017
Service cost
 
$
20

 
$
21

 
$
28

 
$
31

Interest cost (a)
 
1,473

 
1,239

 
58

 
39

Expected return on plan assets (a)
 
(781
)
 
(596
)
 

 

Recognized actuarial loss (a)
 
318

 
340

 
10

 

Amortization of unrecognized prior service credit (a)
 

 

 
(1
)
 
(12
)
Net periodic benefit cost
 
$
1,030

 
$
1,004

 
$
95

 
$
58

_________________
(a) 
Other components of net periodic benefit costs for the Pension Plans and Postretirement Plan, which were included in Miscellaneous income (expense) in the accompanying consolidated statements of operations, were $1,077 and $1,010 for the three months ended September 30, 2018 and 2017, respectively.

Defined Contribution Pension Plans
For the three months ended September 30, 2018 and 2017, expenses related to the Savings Plans and Union Savings Plan included in the accompanying consolidated statements of operations are as follows:
 
Savings Plans
 
Union Savings Plan
 
Three Months Ended
 
Three Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
 
$
2,300

 
$
2,223

 
$
22

 
$
25

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, 2018 for more information regarding the Company’s 2015 Employee Stock Plan (the “Employee Stock Plan”) and its 2015 Stock Plan for Non-Employee Directors.
For the three months ended September 30, 2018 and 2017, share-based compensation expense, which was recognized in the consolidated statements of operations as a component of direct operating expenses or selling, general and administrative expenses, was $10,189 and $12,904, respectively.


27



THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


Restricted Stock Units Award Activity
The following table summarizes activity related to holders of the Company’s restricted stock units and performance restricted stock units, collectively referred to as “RSUs,” for the three months ended September 30, 2018:
 
Number of
 
Weighted-Average
Fair Value 
Per Share at
Date of Grant
 
Nonperformance
Based Vesting
RSUs
 
Performance
Based Vesting
RSUs
 
Unvested award balance, June 30, 2018
212

 
271

 
$
192.41

Granted
73

 
105

 
$
304.32

Vested
(102
)
 
(41
)
 
$
180.89

Forfeited
(4
)
 
(4
)
 
$
193.46

Unvested award balance, September 30, 2018
179

 
331

 
$
234.79

The fair value of RSUs that vested and distributed during the three months ended September 30, 2018 was $44,040. Upon delivery, RSUs granted under the Employee Stock Plan were net share-settled to cover the required statutory tax withholding obligations. To fulfill the employees’ statutory minimum tax withholding obligations for the applicable income and other employment taxes, 58 of these RSUs, with an aggregate value of $17,831 were retained by the Company and the taxes paid are reflected as financing activity in the accompanying consolidated statement of cash flows for the three months ended September 30, 2018.
The fair value of RSUs that vested during the three months ended September 30, 2017 was $23,874. The weighted-average fair value per share at grant date of RSUs granted during the three months ended September 30, 2017 was $211.17.
Stock Options Award Activity
The following table summarizes activity related to a holder of the Company’s stock options for the three months ended September 30, 2018:
 
Number of
Time Vesting Options
 
Weighted-Average Exercise Price Per Share
 
Weighted-Average Remaining Contractual Term (In Years)
 
Aggregate Intrinsic Value
 
 
 
 
Balance as of June 30, 2018
94

 
$
210.13

 
 
 
$

Granted

 
$

 
 
 
 
Balance as of September 30, 2018
94

 
$
210.13

 
9.21

 
$
9,870

Exercisable as of September 30, 2018

 
$

 

 
$

Note 13. Stock Repurchase Program
On September 11, 2015, the Company’s board of directors authorized the repurchase of up to $525,000 of the Company’s Class A Common Stock once the shares of the Company’s Class A Common Stock began “regular way” trading on October 1, 2015. Under the authorization, shares of Class A Common Stock may be purchased from time to time 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 three months ended September 30, 2018, the Company did not engage in any share repurchase activities under its share repurchase program. As of September 30, 2018, the Company had $259,639 of availability remaining under its stock repurchase authorization.

28



THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


Note 14. Accumulated Other Comprehensive Loss
The following table details the components of accumulated other comprehensive loss:
 
Pension Plans and
Postretirement
Plan
 
Cumulative Translation Adjustments
 
Unrealized Gain (Loss) on Available-for-sale
Securities
 
Accumulated
Other
Comprehensive
Loss
Balance as of June 30, 2018
$
(40,846
)
 
$
(502
)
 
$
(5,570
)
 
$
(46,918
)
Reclassification of unrealized loss on available-for-sale securities (a)

 

 
5,570

 
5,570

Other comprehensive loss before reclassifications

 
(951
)