false--06-30Q320200001795250P3M137715000The Tao Senior Credit Agreement requires Intermediate Holdings to comply with a maximum total leverage ratio of 4.00:1.00 and a maximum senior leverage ratio of 3.00:1.00 from the closing date until December 31, 2021 and a maximum total leverage ratio of 3.50:1.00 and a maximum senior leverage ratio of 2.50:1.00 from and after December 31, 2021. In addition, there is a minimum fixed charge coverage ratio of 1.25:1.00 for TAOIH.Borrowings under the Tao Senior Credit Agreement bear interest at a floating rate, which at the option of the Senior Borrower may be either (a) a base rate plus an additional rate ranging from 1.50% to 2.50% per annum (determined based on a total leverage ratio) (the “Base Rate”), or (b) a Eurocurrency rate plus an additional rate ranging from 2.50% to 3.50% per annum (determined based on a total leverage ratio) (the “Eurocurrency Rate”)P5YP5Ythe Company entered into a Membership Interest Purchase Agreement (the “MIPA”) with CAPSS LLC pursuant to which the Company agreed to sell the Forum in Inglewood to CAPSS LLC and settle related litigation for cash consideration in the amount of $400,000, subject to regulatory and other customary closing conditions. 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Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q
________________________
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to
Commission File Number: 001-39245
msgelogo10qcover.jpg
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
(Exact name of registrant as specified in its charter) 
Delaware
 
84-3755666
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
Two Penn Plaza
New York
,
NY
 
10121
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code: (212) 465-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common Stock
MSGE
New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☐ Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
Non-accelerated filer
 
Smaller reporting company
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Number of shares of common stock outstanding as of April 30, 2020:
Class A Common Stock par value $0.01 per share
 —
19,489,793

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




Table of Contents



MADISON SQUARE GARDEN ENTERTAINMENT CORP.
INDEX TO FORM 10-Q
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 1A. Risk Factors
 
 





Table of Contents



PART I – FINANCIAL INFORMATION
Item 1. Financial Statements

MADISON SQUARE GARDEN ENTERTAINMENT CORP.
COMBINED BALANCE SHEETS
(in thousands)
 
 
March 31,
2020
 
June 30,
2019
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Current Assets:
 
 
 
 
Cash and cash equivalents
 
$
1,003,893

 
$
1,082,055

Restricted cash
 
17,955

 
10,010

Short-term investments
 
331,019

 
108,416

Accounts receivable, net
 
105,212

 
81,044

Net related party receivables
 
2,288

 
1,722

Prepaid expenses
 
39,255

 
24,067

Other current assets
 
40,581

 
39,430

Assets held for sale
 
109,155

 

Total current assets
 
1,649,358

 
1,346,744

Investments and loans to nonconsolidated affiliates
 
61,998

 
84,560

Property and equipment, net of accumulated depreciation and amortization
 
1,540,786

 
1,349,122

Right-of-use lease assets
 
234,760

 

Amortizable intangible assets, net
 
155,948

 
214,391

Indefinite-lived intangible assets
 
64,881

 
65,421

Goodwill
 
81,996

 
165,558

Other assets
 
37,438

 
89,963

Total assets
 
$
3,827,165

 
$
3,315,759

 
 
 
 
 
 
 
 
 
 
See accompanying notes to combined financial statements.

1


Table of Contents

MADISON SQUARE GARDEN ENTERTAINMENT CORP.
COMBINED BALANCE SHEETS (Continued)
(in thousands)

 
 
March 31,
2020
 
June 30,
2019
 
 
(Unaudited)
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND DIVISIONAL EQUITY
Current Liabilities:
 
 
 
 
Accounts payable
 
$
18,766

 
$
23,974

Net related party payables, current
 
31,728

 
18,911

Current portion of long-term debt, net of deferred financing costs
 
4,792

 
6,042

Accrued liabilities:
 
 
 
 
Employee related costs
 
70,418

 
82,411

Other accrued liabilities
 
117,207

 
88,614

Operating lease liabilities, current
 
54,506

 

Collections due to promoters
 
49,421

 
67,212

Deferred revenue
 
206,045

 
186,883

Liabilities held for sale
 
72,811

 

Total current liabilities
 
625,694

 
474,047

Related party payables, noncurrent
 

 
172

Long-term debt, net of deferred financing costs
 
29,962

 
48,556

Operating lease liabilities, noncurrent
 
191,762

 

Defined benefit and other postretirement obligations
 
32,359

 
41,318

Other employee related costs
 
17,570

 
15,703

Deferred tax liabilities, net
 
13,131

 
22,973

Other liabilities
 
77,770

 
59,525

Total liabilities
 
988,248

 
662,294

Commitments and contingencies (see Note 10)
 

 

Redeemable noncontrolling interests
 
23,000

 
67,627

Company Divisional Equity:
 
 
 
 
Madison Square Garden Sports Corp. Investment
 
2,851,522

 
2,618,971

Accumulated other comprehensive loss
 
(52,607
)
 
(46,923
)
Total Company divisional equity
 
2,798,915

 
2,572,048

Nonredeemable noncontrolling interests
 
17,002

 
13,790

Total divisional equity
 
2,815,917

 
2,585,838

Total liabilities, redeemable noncontrolling interests and divisional equity
 
$
3,827,165

 
$
3,315,759


See accompanying notes to combined financial statements.

2


Table of Contents




MADISON SQUARE GARDEN ENTERTAINMENT CORP.
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
 
 
Three Months Ended
 
Nine Months Ended
 
March 31,
 
March 31,
 
2020
 
2019
 
2020
 
2019
Revenues (a)
 
$
199,861

 
$
250,018

 
$
767,038

 
$
832,384

Operating expenses:
 
 
 
 
 
 
 
 
Direct operating expenses (b)
 
132,809

 
158,710

 
472,582

 
507,249

Selling, general and administrative expenses (c)
 
84,186

 
83,159

 
257,970

 
231,038

Depreciation and amortization
 
26,196

 
26,768

 
80,271

 
81,606

Impairment for intangibles, long-lived assets, and goodwill
 
102,211

 

 
102,211

 

Operating income (loss)
 
(145,541
)
 
(18,619
)
 
(145,996
)
 
12,491

Other income (expense):
 
 
 
 
 
 
 
 
Earnings (loss) in equity method investments
 
(1,096
)
 
(2,881
)
 
(3,739
)
 
17,131

Interest income (d)
 
3,659

 
7,987

 
17,242

 
22,020

Interest expense
 
(605
)
 
(3,247
)
 
(1,854
)
 
(10,076
)
Miscellaneous income (expense), net (e)
 
(17,381
)
 
4,613

 
(2,893
)
 
(4,118
)
 
 
(15,423
)
 
6,472

 
8,756

 
24,957

Income (loss) from operations before income taxes
 
(160,964
)
 
(12,147
)
 
(137,240
)
 
37,448

Income tax benefit (expense)
 
10,126

 
(469
)
 
8,686

 
(1,253
)
Net income (loss)
 
(150,838
)
 
(12,616
)
 
(128,554
)
 
36,195

Less: Net loss attributable to redeemable noncontrolling interests
 
(22,447
)
 
(7
)
 
(23,851
)
 
(3,662
)
Less: Net income (loss) attributable to nonredeemable noncontrolling interests
 
195

 
(680
)
 
38

 
(3,121
)
Net income (loss) attributable to the Company
 
$
(128,586
)
 
$
(11,929
)
 
$
(104,741
)
 
$
42,978

Basic and diluted earnings (loss) per common share attributable to the Company (f)
 
$
(5.36
)
 
$
(0.50
)
 
$
(4.37
)
 
$
1.79

_________________
(a) 
Includes revenues from related parties of $6,333 and $7,906 for the three months ended March 31, 2020 and 2019, respectively, and $13,792 and $15,762 for the nine months ended March 31, 2020 and 2019, respectively.
(b) 
Includes net charges from related parties of $13,743 and $31,479 for the three months ended March 31, 2020 and 2019, respectively, and $54,149 and $74,975 for the nine months ended March 31, 2020 and 2019, respectively.
(c) 
Includes net charges to related parties of $(32,074) and $(30,293) for the three months ended March 31, 2020 and 2019, respectively, and $(97,832) and $(84,956) for the nine months ended March 31, 2020 and 2019, respectively.
(d) 
Includes interest income from nonconsolidated affiliates of $2,334 for the nine months ended March 31, 2019.
(e) 
Miscellaneous expense, net includes charges to related parties of $(67) and $(183) for the three months ended March 31, 2020 and 2019, respectively, and $(178) and $(548) for the nine months ended March 31, 2020 and 2019, respectively.
(f) 
On April 17, 2020 (the “Entertainment Distribution Date”), 23,992 common shares were distributed to Madison Square Garden Sports Corp. (formerly known as The Madison Square Garden Company) stockholders as of April 13, 2020. This share amount is being utilized for the calculation of basic and diluted earnings (loss) per share for both the three and nine months ended March 31, 2020 and 2019 because Madison Square Garden Entertainment Corp. was a wholly-owned subsidiary of Madison Square Garden Sports Corp. prior to the Entertainment Distribution Date.
See accompanying notes to combined financial statements.

3


Table of Contents



MADISON SQUARE GARDEN ENTERTAINMENT CORP.
COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
 
 
Three Months Ended
 
Nine Months Ended
 
 
March 31,
 
March 31,
 
 
2020
 
2019
 
2020
 
2019
Net income (loss)
 
 
 
$
(150,838
)
 
 
 
$
(12,616
)
 
 
 
$
(128,554
)
 
 
 
$
36,195

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
 
$
342

 
 
 
$
328

 
 
 
$
1,027

 

 
$
984

 

Settlement loss recognized
 
67

 
 
 

 
 
 
67

 
 
 

 
 
Amortization of prior service credit included in net periodic benefit cost
 

 
409

 
(1
)
 
327

 

 
1,094

 
(4
)
 
980

Cumulative translation adjustments
 
 
 
(19,946
)
 
 
 
6,383

 
 
 
(6,778
)
 
 
 
3,181

Other comprehensive income (loss)
 
 
 
(19,537
)
 
 
 
6,710

 
 
 
(5,684
)
 
 
 
4,161

Comprehensive income (loss)
 
 
 
(170,375
)
 
 
 
(5,906
)
 

 
(134,238
)
 
 
 
40,356

Less: Comprehensive loss attributable to redeemable noncontrolling interests
 
 
 
(22,447
)
 
 
 
(7
)
 
 
 
(23,851
)
 
 
 
(3,662
)
Less: Comprehensive income (loss) attributable to nonredeemable noncontrolling interests
 
 
 
195

 
 
 
(680
)
 
 
 
38

 
 
 
(3,121
)
Comprehensive income (loss) attributable to the Company
 
 
 
$
(148,123
)
 
 
 
$
(5,219
)
 
 
 
$
(110,425
)
 
 
 
$
47,139


See accompanying notes to combined financial statements.


4


Table of Contents



MADISON SQUARE GARDEN ENTERTAINMENT CORP.
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
 
Nine Months Ended
 
 
March 31,

 
2020
 
2019
Cash flows from operating activities:
 
 
 
 
Net income (loss)
 
$
(128,554
)
 
$
36,195

Adjustment to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
80,271

 
81,606

Impairment of intangibles, long-lived assets and goodwill
 
102,211

 

Provision (benefits) from deferred income taxes
 
(9,842
)
 
794

Share-based compensation expense
 
29,294

 
27,929

Loss (earnings) in equity method investments
 
3,739

 
(17,131
)
Purchase accounting adjustments associated with leases
 
4,458

 
3,197

Unrealized loss on equity investment with readily determinable fair value
 
2,471

 
2,405

Provision for doubtful accounts
 
6,954

 
765

Other non-cash adjustments
 
(1,488
)
 
2,569

Change in assets and liabilities:
 
 
 
 
Accounts receivable, net
 
(31,413
)
 
(70,436
)
Net related party receivables
 
(566
)
 
(885
)
Prepaid expenses and other assets
 
(32,231
)
 
(38,937
)
Accounts payable
 
3,327

 
(4,589
)
Net related party payables
 
12,645

 
18,693

Accrued and other liabilities
 
46,519

 
(2,359
)
Collections due to promoters
 
15,924

 
(16,953
)
Deferred revenue
 
34,193

 
22,103

Operating lease right-of-use assets and lease liabilities
 
(961
)
 

Net cash provided by operating activities
 
$
136,951

 
$
44,966

Cash flows from investing activities:
 
 
 
 
Capital expenditures
 
$
(326,596
)
 
$
(114,313
)
Proceeds from insurance recoveries
 
476

 

Purchase of short-term investments
 
(405,935
)
 
(112,735
)
Proceeds from maturity of short-term investment
 
176,661

 

Investments and loans to nonconsolidated affiliates
 
(75
)
 
(51,807
)
Proceeds from sale of nonconsolidated affiliate
 
18,000

 
125,000

Loan repayment received from subordinated debt
 
58,735

 
4,765

Cash received (paid) for notes receivable
 
750

 
(7,761
)
Net cash used in investing activities
 
$
(477,984
)
 
$
(156,851
)
 
 
 
 
 
 
 
 
 
 
See accompanying notes to combined financial statements.

5


Table of Contents

MADISON SQUARE GARDEN ENTERTAINMENT CORP.
COMBINED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(in thousands)


 
 
Nine Months Ended
 
 
March 31,

 
2020
 
2019
Cash flows from financing activities:
 
 
 
 
Noncontrolling interest holders’ capital contribution
 
$
4,000

 
$
5,560

Distributions to noncontrolling interest holders
 
(535
)
 
(1,263
)
Loans from noncontrolling interest holders
 

 
606

Repayment of revolving credit facility
 
(15,000
)
 

Principal repayment on long-term debt
 
(5,000
)
 
(3,929
)
Net transfers from Madison Square Garden Sports Corp. and its subsidiaries
 
283,435

 
31,604

Net cash provided by financing activities
 
$
266,900

 
$
32,578

Effect of exchange rates on cash, cash equivalents and restricted cash
 
3,916

 
6,440

Net decrease in cash, cash equivalents and restricted cash
 
(70,217
)
 
(72,867
)
Cash, cash equivalents and restricted cash at beginning of period
 
1,092,065

 
1,232,356

Cash, cash equivalents and restricted cash at end of period
 
$
1,021,848

 
$
1,159,489

Non-cash investing and financing activities:
 
 
 
 
Non-cash acquisition of additional redeemable noncontrolling interests
 
$
37,715

 
$

Capital expenditures incurred but not yet paid
 
$
75,656

 
$
17,515

Tenant improvement paid by landlord
 
$
195

 
$
13,715

Share-based compensation capitalized in property and equipment
 
$
3,790

 
$
1,926


See accompanying notes to combined financial statements.


6


Table of Contents



MADISON SQUARE GARDEN ENTERTAINMENT CORP.
COMBINED STATEMENTS OF DIVISIONAL EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
(Unaudited)
(in thousands) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2020
 
 
Madison Square Garden Sports Corp. Investment
 
Accumulated
Other
Comprehensive
Loss
 
Total Company Divisional Equity
 
Non -
redeemable
Noncontrolling
Interests
 
Total Divisional Equity
 
Redeemable
Noncontrolling
 Interests
Balance as of December 31, 2019
 
$
2,638,955

 
$
(33,070
)
 
$
2,605,885

 
$
16,807

 
$
2,622,692

 
$
66,223

Net income (loss)
 
(128,586
)
 

 
(128,586
)
 
195

 
(128,391
)
 
(22,447
)
Other comprehensive loss
 

 
(19,537
)
 
(19,537
)
 

 
(19,537
)
 

Comprehensive income (loss)
 

 

 
(148,123
)
 
195

 
(147,928
)
 
(22,447
)
Net increase in Madison Square Garden Sports Corp. Investment
 
320,377

 

 
320,377

 

 
320,377

 

Noncontrolling interests non-cash acquisition
 
37,715

 

 
37,715

 

 
37,715

 
(37,715
)
Redeemable noncontrolling interest adjustment to redemption fair value
 
(16,939
)
 

 
(16,939
)
 

 
(16,939
)
 
16,939

Balance as of March 31, 2020
 
$
2,851,522

 
$
(52,607
)
 
$
2,798,915

 
$
17,002

 
$
2,815,917

 
$
23,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2019
 
 
Madison Square Garden Sports Corp. Investment
 
Accumulated
Other
Comprehensive Loss
 
Total Company Divisional Equity
 
Non -
redeemable
Noncontrolling
Interests
 
Total Divisional Equity
 
Redeemable
Noncontrolling
Interests
Balance as of December 31, 2018
 
$
2,616,196

 
$
(43,897
)
 
$
2,572,299

 
$
14,308

 
$
2,586,607

 
$
72,770

Net loss
 
(11,929
)
 

 
(11,929
)
 
(680
)
 
(12,609
)
 
(7
)
Other comprehensive income
 

 
6,710

 
6,710

 

 
6,710

 

Comprehensive loss
 

 

 
(5,219
)
 
(680
)
 
(5,899
)
 
(7
)
Net increase in Madison Square Garden Sports Corp. Investment
 
53,299

 

 
53,299

 

 
53,299

 

Contribution from noncontrolling interest holders
 

 

 

 
3,156

 
3,156

 

Distributions to noncontrolling interest holders
 

 

 

 

 

 
(1,004
)
Balance as of March 31, 2019
 
$
2,657,566

 
$
(37,187
)
 
$
2,620,379

 
$
16,784

 
$
2,637,163

 
$
71,759

 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to combined financial statements.

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MADISON SQUARE GARDEN ENTERTAINMENT CORP.
COMBINED STATEMENTS OF DIVISIONAL EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
(Continued)
(Unaudited) (in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended March 31, 2020
 
 
Madison Square Garden Sports Corp. Investment
 
Accumulated
Other
Comprehensive Loss
 
Total Company Divisional Equity
 
Non -
redeemable
Noncontrolling
Interests
 
Total Divisional Equity
 
Redeemable
Noncontrolling
Interests
Balance as of June 30, 2019
 
$
2,618,971

 
$
(46,923
)
 
$
2,572,048

 
$
13,790

 
$
2,585,838

 
$
67,627

Net income (loss)
 
(104,741
)
 

 
(104,741
)
 
38

 
(104,703
)
 
(23,851
)
Other comprehensive loss
 

 
(5,684
)
 
(5,684
)
 

 
(5,684
)
 

Comprehensive income (loss)
 

 

 
(110,425
)
 
38

 
(110,387
)
 
(23,851
)
Net increase in Madison Square Garden Sports Corp. Investment
 
316,516

 

 
316,516

 

 
316,516

 

Contributions from noncontrolling interest holders
 

 

 

 
3,709

 
3,709

 

Distributions to noncontrolling interest holders
 

 

 

 
(535
)
 
(535
)
 

Noncontrolling interest non-cash acquisition
 
37,715

 

 
37,715

 

 
37,715

 
(37,715
)
Redeemable noncontrolling interest adjustment to redemption fair value
 
(16,939
)
 

 
(16,939
)
 

 
(16,939
)
 
16,939

Balance as of March 31, 2020
 
$
2,851,522

 
$
(52,607
)
 
$
2,798,915

 
$
17,002

 
$
2,815,917

 
$
23,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended March 31, 2019
 
 
Madison Square Garden Sports Corp. Investment
 
Accumulated
Other
Comprehensive Loss
 
Total Company Divisional Equity
 
Non -
redeemable
Noncontrolling
Interests
 
Total Divisional Equity
 
Redeemable
Noncontrolling
Interests
Balance as of June 30, 2018
 
$
2,525,031

 
$
(46,918
)
 
$
2,478,113

 
$
11,505

 
$
2,489,618

 
$
76,684

Adoption of ASU No. 2016-01
 
(5,570
)
 
5,570

 

 
 
 

 
 
Adoption of ASC Topic 606
 
33,669

 

 
33,669

 

 
33,669

 

Net income (loss)
 
42,978

 

 
42,978

 
(3,121
)
 
39,857

 
(3,662
)
Other comprehensive income
 

 
4,161

 
4,161

 

 
4,161

 

Comprehensive income (loss)
 

 

 
47,139

 
(3,121
)
 
44,018

 
(3,662
)
Net increase in Madison Square Garden Sports Corp. Investment
 
61,458

 

 
61,458

 

 
61,458

 

Contributions from noncontrolling interest holders
 

 

 

 
8,400

 
8,400

 

Distributions to noncontrolling interest holders
 

 

 

 

 

 
(1,263
)
Balance as of March 31, 2019
 
$
2,657,566

 
$
(37,187
)
 
$
2,620,379

 
$
16,784

 
$
2,637,163

 
$
71,759

 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to combined financial statements.


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MADISON SQUARE GARDEN ENTERTAINMENT CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
All amounts included in the following notes to combined financial statements (unaudited) are presented in thousands, except per share data or as otherwise noted.
Note 1Description of Business and Basis of Presentation
Spin-off Transaction
On April 17, 2020 (the “Entertainment Distribution Date”), Madison Square Garden Sports Corp. (formerly The Madison Square Garden Company) distributed all of the outstanding common stock of Madison Square Garden Entertainment Corp. (formerly MSG Entertainment Spinco, Inc.) (the “Company”) to its stockholders (the “Entertainment Distribution”). The Company owns, directly or indirectly, the entertainment business previously owned and operated by Madison Square Garden Sports Corp. through its MSG Entertainment business segment and the sports booking business previously owned and operated by Madison Square Garden Sports Corp. through its MSG Sports business segment. In the Entertainment Distribution, stockholders of Madison Square Garden Sports Corp. received (a) one share of the Company’s Class A common stock, par value $0.01 per share, for every share of Madison Square Garden Sports Corp. Class A common stock, par value $0.01 per share, held of record as of the close of business, New York City time, on April 13, 2020 (the “Record Date”), and (b) one share of the Company’s Class B common stock, par value $0.01 per share, for every share of Madison Square Garden Sports Corp. Class B common stock, par value $0.01 per share, held of record as of the close of business, New York City time, on the Record Date.
Description of Business
The Company is a leader in live experiences comprised of iconic venues; marquee entertainment content; popular dining and nightlife offerings; and a premier music festival. Utilizing the Company’s powerful brands and live entertainment expertise, the Company delivers unique experiences that set the standard for excellence and innovation while forging deep connections with diverse and passionate audiences. The Company’s portfolio of venues includes: Madison Square Garden (“The Garden”), Hulu Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theatre, and The Chicago Theatre. For all periods presented, the Company’s venues also included the Forum in Inglewood, CA, which was sold on May 1, 2020 (see Note 3 for further details). In addition, the Company is constructing a state-of-the-art venue, MSG Sphere, in Las Vegas and plans to build a second MSG Sphere in London. The Company also includes the original production, the Christmas Spectacular Starring the Radio City Rockettes (“Christmas Spectacular”), as well as Boston Calling Events, LLC (“BCE”), the entertainment production company that owns and operates the Boston Calling Music Festival, and TAO Group Holdings LLC (“Tao Group Hospitality”) a hospitality group with globally-recognized entertainment dining and nightlife brands.
As of March 31, 2020, the Company operated and reported its financial information as one segment. In making this determination, the Company (i) determined its Chief Operating Decision Maker (“CODM”), (ii) identified and analyzed potential business components, (iii) identified its operating segments, and (iv) determined whether there were multiple operating segments requiring presentation as reportable segments. The Company’s decision to report as one segment was based upon the following:
i)its internal organizational structure;
ii)the manner in which its operations were managed; and
iii)
the criteria used by the Company’s Executive Chairman and Chief Executive Officer, its CODM, to evaluate segment performance.
As part of the analysis in determining that the Company operated as one segment as of March 31, 2020, the Company reviewed the financial information provided to its CODM. While the Company’s CODM reviewed total company operating results to assess overall performance and allocate resources, discrete financial information at the business component level was not provided to the CODM on a disaggregated basis. Therefore, through March 31, 2020, the Company presented its financial information as one segment. Following the Entertainment Distribution on April 17, 2020, the Company will have two segments (the Entertainment business and the Tao Group Hospitality business) as a result of certain changes in the financial information that is provided to its CODM. This change in reportable segments will be presented in the Company’s Annual Report on Form 10-K for the fiscal year ending June 30, 2020 to be filed with the U.S. Securities and Exchange Commission (the “SEC”).
A significant majority of the Company’s revenues and assets are attributed to or located in the United States and are primarily concentrated in the New York City metropolitan area.

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MADISON SQUARE GARDEN ENTERTAINMENT CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


Basis of Presentation
The combined financial statements of the Company (the “combined financial statements”) were prepared on a stand-alone basis derived from the consolidated financial statements and accounting records of Madison Square Garden Sports Corp. These financial statements reflect the combined historical results of operations, financial position and cash flows of the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) and SEC Staff Accounting Bulletin Topic 1-B, Allocation of Expenses and Related Disclosure in Financial Statements of Subsidiaries, Divisions or Lesser Business Components of Another Entity, and Article 10 of Regulation S-X of the SEC for interim financial information. References to GAAP issued by the Financial Accounting Standards Board (“FASB”) in these footnotes are to the FASB Accounting Standards Codification, also referred to as the “Codification” or “ASC.”
Historically, separate financial statements have not been prepared for the Company and it has not operated as a stand-alone business from Madison Square Garden Sports Corp. The combined financial statements include certain assets and liabilities that have historically been held by Madison Square Garden Sports Corp. or by other Madison Square Garden Sports Corp. subsidiaries but are specifically identifiable or otherwise attributable to the Company. All significant intercompany transactions between Madison Square Garden Sports Corp. and the Company have been included as components of the Madison Square Garden Sports Corp. investment in the combined financial statements, as they are to be considered effectively settled upon effectiveness of the Entertainment Distribution. The combined financial statements are presented as if the Company’s businesses had been combined for all periods presented. The assets and liabilities in the combined financial statements have been reflected on a historical cost basis, as immediately prior to the Entertainment Distribution all of the assets and liabilities presented were wholly-owned by Madison Square Garden Sports Corp. and were transferred to the Company at a carry-over basis.
The combined statements of operations include allocations for certain support functions that were provided on a centralized basis and not historically recorded at the business unit level by Madison Square Garden Sports Corp., such as expenses related to executive management, finance, legal, human resources, government affairs, information technology, and venue operations, among others. As part of the Entertainment Distribution, certain corporate and operational support functions were transferred to the Company and therefore, charges were reflected in order to properly burden all business units comprising Madison Square Garden Sports Corp.’s historical operations. These expenses have been allocated to Madison Square Garden Sports Corp. on the basis of direct usage when identifiable, with the remainder allocated on a pro-rata basis of combined revenues, headcount or other measures of the Company or Madison Square Garden Sports Corp., which are recorded as a reduction of either direct operating expenses or selling, general and administrative expense. In addition, certain of the Company’s contracts with its customers for suite license, sponsorship and venue signage arrangements contain performance obligations that are fulfilled by both the Company and Madison Square Garden Sports Corp. Revenue sharing expenses attributable to Madison Square Garden Sports Corp. have primarily been recorded on the basis of specific identification where possible, with the remainder allocated proportionately as a component of direct operating expenses within the combined statements of operations. See Note 3 to the Company’s audited combined financial statements and notes thereto for the year ended June 30, 2019 included in the Company’s Information Statement, dated April 6, 2020 (the “Information Statement”), filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on April 7, 2020 for more information regarding the Company’s policy for recognition of suites, sponsorship and venue signage revenues.
Management believes the assumptions underlying the combined financial statements, including the assumptions regarding allocating general corporate expenses, are reasonable. Nevertheless, the combined financial statements may not include all of the actual expenses that would have been incurred by the Company and may not reflect its combined results of operations, financial position and cash flows had it been a stand-alone company during the periods presented. Actual costs that would have been incurred if the Company had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure. The Company is unable to quantify the amounts that it would have recorded during the historical periods on a stand-alone basis as it is not practicable to do so. See Note 17 for more information regarding allocations of certain costs from the Company to Madison Square Garden Sports Corp.
Madison Square Garden Sports Corp. uses a centralized approach to cash management and financing of operations. Cash is managed centrally with net earnings reinvested and working capital requirements met from existing liquid funds. The Company and Madison Square Garden Sports Corp.’s cash was available for use and was regularly “swept” historically. Most of the cash and cash equivalents held at the corporate level by Madison Square Garden Sports Corp. were attributed to the Company for each of the periods presented, as such, cash was held in accounts legally owned by the Company. Therefore, such amounts were attributed to the combined balance sheets for each period presented. Transfers of cash both to and from Madison Square Garden

10


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MADISON SQUARE GARDEN ENTERTAINMENT CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


Sports Corp. are included as components of the Madison Square Garden Sports Corp. investment in the accompanying combined statements of divisional equity and redeemable noncontrolling interests.
Madison Square Garden Sports Corp.’s net investment in the Company has been presented as a component of divisional equity in the combined financial statements. Distributions made by Madison Square Garden Sports Corp. to the Company or to Madison Square Garden Sports Corp. from the Company are recorded as transfers to and from Madison Square Garden Sports Corp., and the net amount is presented on the combined statements of cash flows as “Net transfers to/from Madison Square Garden Sports Corp. and Madison Square Garden Sports Corp.’s subsidiaries.”
Unaudited Interim Financial Statements
The accompanying interim combined financial statements have been prepared in accordance with GAAP for interim financial information and the instruction of Rule 10-01 of Regulation S-X, and should be read in conjunction with the Company’s audited combined financial statements and notes thereto for the year ended June 30, 2019 included in the Company’s Information Statement. The combined financial statements as of March 31, 2020 and for the three and nine months ended March 31, 2020 and 2019 presented herein 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 Company’s dependence on revenues from the Christmas Spectacular generally means it earns a disproportionate share of its revenues in the second quarter of the its fiscal year.
Impact of COVID-19
The Company’s operations and operating results have been, and continue to be, materially impacted by the COVID-19 pandemic and actions taken in response by the government and certain professional sports leagues. As of the date of this Quarterly Report on Form 10-Q, virtually all of the Company’s business operations have been suspended and it is not clear when those operations will resume. As a result of government mandated assembly limitations and closures, no events are currently permitted to be held at The Garden, Hulu Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theatre or The Chicago Theatre, and virtually all events at our venues are postponed or cancelled through June. The 2020 Boston Calling music festival, which had been slated for Memorial Day weekend, has also been cancelled. Additionally, public officials have imposed mandates limiting restaurants and bars to only take-out and delivery service and requiring that nightlife venues close in the cities in which Tao Group Hospitality operates. As a result, virtually all Tao Group Hospitality venues in and outside the United States are closed, which has resulted in the business being materially impacted.
Additionally, as a result of operating disruptions due to COVID-19, the Company’s projected cash flows were directly impacted. This disruption along with the deteriorating macroeconomic conditions and industry/market considerations, were considered a “triggering event” for the Tao Group Hospitality reporting unit, which required the Company to assess the carrying value of Tao Group Hospitality’s intangible assets, long-lived assets and goodwill, in that order in accordance with ASC Subtopic 350-30, for impairment. Based on this evaluation, the Company recorded a non-cash goodwill impairment charge of $80,698 during the three and nine months ended March 31, 2020 associated with one venue within the Tao Group Hospitality reporting unit. In addition, during the three and nine months ended March 31, 2020, the Company recorded non-cash impairment charges associated with one venue within Tao Group Hospitality of $11,573, $6,399 and $3,541, for right-of-use assets, property and equipment assets, and a tradename, respectively. Due to the COVID-19-related shutdown of its venues, TAO Group Hospitality began a review of its lease contracts and could decide to close certain venues (which may later reopen elsewhere) if the landlords are unwilling to make appropriate concessions, which could result in additional charges related to the venue’s long-lived assets.
There was no triggering event identified by the Company for the Entertainment reporting unit as of March 31, 2020. However, the duration and impact of the COVID-19 pandemic may result in additional future impairment charges that management will evaluate as facts and circumstances evolve over time. Refer to Note 9 for further detail.
Note 2. Accounting Policies