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EX-32.2 - EXHIBIT 32.2 CERTIFICATION BY THE CFO PURSUANT TO SECTION 906 - Madison Square Garden Cotmsgcexhibit3221231201510q.htm
EX-31.1 - EXHIBIT 31.1 CERTIFICATION BY THE CEO PURSUANT TO SECTION 302 - Madison Square Garden Cotmsgcexhibit3111231201510q.htm
EX-31.2 - EXHIBIT 31.2 CERTIFICATION BY THE CFO PURSUANT TO SECTION 302 - Madison Square Garden Cotmsgcexhibit3121231201510q.htm
EX-32.1 - EXHIBIT 32.1 CERTIFICATION BY THE CEO PURSUANT TO SECTION 906 - Madison Square Garden Cotmsgcexhibit3211231201510q.htm

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 December 31, 2015
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
(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. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
Number of shares of common stock outstanding as of January 29, 2016:  
Class A Common Stock par value $0.01 per share
 —
20,094,109
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 AND COMBINED BALANCE SHEETS
(in thousands, except per share data)
 
 
December 31,
2015
 
June 30,
2015
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Current Assets:
 
 
 
 
Cash and cash equivalents
 
$
1,558,897

 
$
14,211

Restricted cash
 
20,653

 
12,590

Accounts receivable, net
 
74,602

 
51,734

Net related party receivables, current
 
25,192

 
327

Prepaid expenses
 
38,381

 
23,879

Loan receivable from MSG Networks
 

 
30,836

Other current assets
 
22,443

 
35,058

Total current assets
 
1,740,168

 
168,635

Net related party receivables, noncurrent
 
1,652

 

Investments and loans to nonconsolidated affiliates
 
265,137

 
249,394

Property and equipment, net
 
1,193,695

 
1,188,693

Amortizable intangible assets, net
 
18,855

 
22,324

Indefinite-lived intangible assets
 
166,850

 
166,850

Goodwill
 
277,166

 
277,166

Other assets
 
82,580

 
75,880

Total assets
 
$
3,746,103

 
$
2,148,942

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
Current Liabilities:
 
 
 
 
Accounts payable
 
$
21,965

 
$
3,307

Net related party payables
 
17,246

 
1,588

Accrued liabilities:
 
 
 
 
Employee related costs
 
63,325

 
95,997

Other accrued liabilities
 
130,312

 
121,509

Deferred revenue
 
385,245

 
311,317

Total current liabilities
 
618,093

 
533,718

Defined benefit and other postretirement obligations
 
56,804

 
80,900

Other employee related costs
 
39,281

 
53,337

Deferred tax liabilities, net
 
194,338

 
206,944

Other liabilities
 
49,133

 
50,768

Total liabilities
 
957,649

 
925,667

Commitments and contingencies (see Note 8)
 

 

Stockholders’ Equity:
 
 
 
 
Class A Common stock, par value $0.01, 120,000 shares authorized; 20,333 shares outstanding as of
December 31, 2015
 
204

 

Class B Common stock, par value $0.01, 30,000 shares authorized; 4,530 shares outstanding as of December 31,
2015
 
45

 

Preferred stock, par value $0.01, 15,000 shares authorized; none outstanding as of December 31, 2015
 

 

Additional paid-in capital
 
2,794,837

 

Treasury stock, at cost, 115 shares as of December 31, 2015
 
(15,716
)
 

Retained earnings
 
43,488

 

MSG Networks investment
 

 
1,263,490

Accumulated other comprehensive loss
 
(34,404
)
 
(40,215
)
Total stockholders’ equity
 
2,788,454

 
1,223,275

Total liabilities and stockholders’ equity
 
$
3,746,103

 
$
2,148,942


See accompanying notes to consolidated and combined financial statements.

1


THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)


 
 
Three Months Ended
 
Six Months Ended
 
December 31,
 
December 31,
 
2015
 
2014
 
2015
 
2014
Revenues (a)
 
$
410,838

 
$
396,814

 
$
561,219

 
$
515,730

 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
Direct operating expenses (b)
 
249,632

 
268,870

 
320,982

 
336,906

Selling, general and administrative expenses (c)
 
86,262

 
63,001

 
144,630

 
114,402

Depreciation and amortization
 
25,905

 
25,024

 
51,145

 
59,563

Operating income
 
49,039

 
39,919

 
44,462

 
4,859

Other income (expense):
 
 
 
 
 
 
 
 
Equity in earnings (loss) of equity-method investments
 
(2,475
)
 
(30,151
)
 
204

 
(32,755
)
Interest income (d)
 
1,448

 
715

 
2,405

 
1,448

Interest expense
 
(514
)
 
(619
)
 
(1,054
)
 
(1,275
)
Miscellaneous income (expense)
 
(4,080
)
 
(5
)
 
(4,080
)
 
75

 
 
(5,621
)
 
(30,060
)
 
(2,525
)
 
(32,507
)
Income (loss) from operations before income taxes
 
43,418

 
9,859

 
41,937

 
(27,648
)
Income tax benefit (expense)
 
70

 
(223
)
 
(52
)
 
(446
)
Net income (loss)
 
$
43,488

 
$
9,636

 
$
41,885

 
$
(28,094
)
Basic earnings (loss) per common share
 
$
1.74

 
$
0.39

 
$
1.68

 
$
(1.13
)
Diluted earnings (loss) per common share
 
$
1.74

 
$
0.39

 
$
1.67

 
$
(1.13
)
Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
24,971

 
24,928

 
24,949

 
24,928

Diluted
 
25,055

 
24,928

 
25,031

 
24,928

_________________
(a)
Include revenues from related parties of $41,321 and $21,677, for the three months ended December 31, 2015 and 2014, respectively, and $74,880 and $42,379 for the six months ended December 31, 2015 and 2014, respectively.
(b)
Include net charges from (to) related parties of $1,036 and $828 for the three months ended December 31, 2015 and 2014, respectively, and $(35) and $503 for the six months ended December 31, 2015 and 2014, respectively.
(c)
Include net charges to related parties of $(562) and $(14,333) for the three months ended December 31, 2015 and 2014, respectively and $(30,134) and $(27,002) for the six months ended December 31, 2015 and 2014, respectively.
(d)
Includes interest income from MSG Networks of $284 for the three months ended December 31, 2014, and $307 and $568 of interest income from MSG Networks for the six months ended December 31, 2015 and 2014, respectively. In addition, interest income includes interest income from nonconsolidated affiliates of $671 and $426 for the three months ended December 31, 2015 and 2014, respectively, and $1,306 and $875 for the six months ended December 31, 2015 and 2014, respectively.

See accompanying notes to consolidated and combined financial statements.



2


THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
 
Three Months Ended
 
Six Months Ended
 
December 31,
 
December 31,
 
2015
 
2014
 
2015
 
2014
Net income (loss)
 
 
$
43,488

 
 
 
$
9,636

 
 
 
$
41,885

 
 
 
$
(28,094
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pension plans and postretirement plan:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net unamortized losses arising during the period
$

 
 
 
$

 
 
 
$
(602
)
 
 
 
$

 
 
Amounts reclassified from accumulated other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of net actuarial loss included in net periodic benefit cost
255

 
 
 
519

 
 
 
554

 

 
1,037

 

Amortization of net prior service credit included in net periodic benefit cost
(20
)
 
$
235

 
(28
)
 
$
491

 
(37
)
 
$
(85
)
 
(57
)
 
$
980

Other comprehensive income (loss)
 
 
235

 
 
 
491

 

 
(85
)
 
 
 
980

Comprehensive income (loss)
 
 
$
43,723

 
 
 
$
10,127

 

 
$
41,800

 
 
 
$
(27,114
)
See accompanying notes to consolidated and combined financial statements.


3


THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
 
Six Months Ended
 
 
December 31,
 
 
2015
 
2014
Cash flows from operating activities:
 
 
 
 
Net income (loss)
 
$
41,885

 
$
(28,094
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
51,145

 
59,563

Share-based compensation expense
 
10,259

 
7,087

Equity in (earnings) loss of equity-method investments
 
(204
)
 
32,755

Impairment of cost-method investment
 
4,080

 

Provision for doubtful accounts
 
62

 
6

Change in assets and liabilities:
 
 
 
 
Accounts receivable, net
 
(23,688
)
 
4,916

Net related party receivables
 
(27,176
)
 
(697
)
Prepaid expenses and other assets
 
(29,640
)
 
(35,829
)
Accounts payable
 
17,126

 
5,817

Net related party payables
 
15,658

 
98

Accrued and other liabilities
 
(10,545
)
 
(45,381
)
Deferred revenue
 
63,266

 
34,314

Deferred income taxes
 
54

 
446

Net cash provided by operating activities
 
112,282

 
35,001

Cash flows from investing activities:
 
 
 
 
Capital expenditures
 
(59,681
)
 
(38,334
)
Investments and loans to nonconsolidated affiliates
 
(18,492
)
 
(7,947
)
Capital distribution from equity-method investments
 
1,043

 

Net cash used in investing activities
 
(77,130
)
 
(46,281
)
Cash flows from financing activities:
 
 
 
 
Net transfers from MSG Networks and MSG Networks’ subsidiaries
 
1,525,241

 
23,194

Repurchases of common stock
 
(15,716
)
 

Proceeds from stock option exercises
 
57

 

Taxes paid in lieu of shares issued for equity-based compensation
 
(48
)
 

Net cash provided by financing activities
 
1,509,534

 
23,194

Net increase in cash and cash equivalents
 
1,544,686

 
11,914

Cash and cash equivalents at beginning of period
 
14,211

 
6,143

Cash and cash equivalents at end of period
 
$
1,558,897

 
$
18,057

Non-cash investing and financing activities:
 
 
 
 
Investments and loans to nonconsolidated affiliates
 
$
2,052

 
$
24,000

Capital expenditures incurred but not yet paid
 
1,617

 
12,959

Non-cash transfers resulting from the Distribution, net
 
2,500

 


See accompanying notes to consolidated and combined financial statements.

4


THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(in thousands)
 
 
 
Common
Stock
Issued
 
MSG Networks Investment
 
Additional
Paid-In
Capital
 
Treasury
Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Balance as of June 30, 2015
 
$

 
$
1,263,490

 
$

 
$

 
$

 
$
(40,215
)
 
$
1,223,275

Net income (loss)
 

 
(1,603
)
 

 

 
43,488

 

 
41,885

Other comprehensive loss
 

 

 

 

 

 
(85
)
 
(85
)
Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
41,800

Exercise of stock options
 

 

 
57

 

 

 

 
57

Share-based compensation
 

 

 
7,208

 

 

 

 
7,208

Tax withholding associated with shares issued for equity-based compensation
 

 

 
(48
)
 

 

 

 
(48
)
Repurchases of common stock
 

 

 

 
(15,716
)
 

 

 
(15,716
)
Net increase in MSG Networks Investment
 

 
1,525,982

 

 

 

 

 
1,525,982

Conversion of MSG Networks Investment
 
249

 
(2,787,869
)
 
2,787,620

 

 

 

 

Adjustment related to the transfer of Pension Plans and Postretirement Plan liabilities as a result of the Distribution
 

 

 

 

 

 
5,896

 
5,896

Balance as of December 31, 2015
 
$
249

 
$

 
$
2,794,837

 
$
(15,716
)
 
$
43,488

 
$
(34,404
)
 
$
2,788,454

 
 
 
MSG Networks Investment
 
Accumulated
Other
Comprehensive
 Income (Loss)
 
Total
Balance as of June 30, 2014
 
$
1,227,218

 
$
(36,015
)
 
$
1,191,203

Net loss
 
(28,094
)
 

 
(28,094
)
Other comprehensive income
 

 
980

 
980

Comprehensive loss
 
 
 
 
 
(27,114
)
Net increase in MSG Networks Investment
 
54,973

 

 
54,973

Balance as of December 31, 2014
 
$
1,254,097

 
$
(35,035
)
 
$
1,219,062

See accompanying notes to consolidated and combined financial statements.



5


THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
All amounts included in the following Notes to Consolidated and Combined Financial Statements are presented in thousands, except per share data or as otherwise noted.
Note 1. Description of Business and Basis of Presentation
The Distribution
The Madison Square Garden Company (together with its subsidiaries, the “Company” or “Madison Square Garden”), formerly named MSG Spinco, Inc., was incorporated on March 4, 2015 as an indirect, wholly-owned subsidiary of MSG Networks Inc. (“MSG Networks” or “Former Parent”), formerly known as The Madison Square Garden Company. On September 11, 2015, MSG Networks’ board of directors approved the distribution of all the outstanding common stock of Madison Square Garden to MSG Networks shareholders (the “Distribution”), which occurred on September 30, 2015. Each holder of record of MSG Networks Class A Common Stock as of close of business on September 21, 2015 (the “Record Date”) received one share of Madison Square Garden Class A Common Stock for every three shares of MSG Networks Class A Common Stock held. Each holder of record of MSG Networks Class B Common Stock as of the Record Date received one share of Madison Square Garden Class B Common Stock for every three shares of MSG Networks Class B Common Stock held.
Description of Business
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 presents or hosts live entertainment events, such as concerts, family shows, performing arts and special events, in the Company’s diverse collection of venues. MSG Entertainment also creates, produces and/or presents live productions, including the Radio City Christmas Spectacular and the Rockettes New York Spectacular, both starring the Rockettes, that are performed in the Company's venues. MSG Sports owns and operates the following 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”), which is the primary player development team for the Rangers, and the Westchester Knicks, an NBA Development League (the “NBADL”) team. MSG Sports also promotes, produces and/or presents a broad array of other live sporting events outside of its teams' events.
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 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.
Basis of Presentation
The accompanying unaudited consolidated and combined 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 audited combined financial statements and notes thereto for the year ended June 30, 2015 included in Amendment No. 6 to the Company’s Registration Statement on Form 10 filed with the SEC on September 11, 2015. 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 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. The dependence of the MSG Entertainment segment on revenues from the Radio City Christmas Spectacular generally means it earns a disproportionate share of its revenues in the second quarter of the Company’s fiscal year.
The financial information disclosed as of December 31, 2015 and for the three months ended December 31, 2015 is presented on a consolidated basis, as the Company became a standalone public company on September 30, 2015. The Company’s combined financial statements as of June 30, 2015 and for the three and six months ended December 31, 2014, as well as the financial information for the three months ended September 30, 2015 that is included in the results of operations for the six months ended December 31, 2015, were prepared on a standalone basis derived from the consolidated financial statements and accounting records of Former Parent and are presented as carve-out financial statements as the Company was not a standalone

6



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


public company prior to the Distribution. These combined financial statements reflect the combined historical results of operations, financial position and cash flows of Former Parent’s sports and entertainment businesses, as well as its venues and joint ventures (“combined financial statements”), in accordance with 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. 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 “ASC.”
Historically, separate financial statements were not prepared for the Company as it had not operated as a separate, standalone business from MSG Networks. The combined financial statements include certain assets and liabilities that were historically held by MSG Networks or by other MSG Networks’ subsidiaries but were specifically identifiable or otherwise attributable to the Company. All significant intercompany transactions between MSG Networks and the Company have been included as components of MSG Networks investment in the combined financial statements as they were considered effectively settled on the Distribution date. The assets and liabilities in the combined financial statements have been reflected on a historical cost basis, as immediately prior to the Distribution all of the assets and liabilities presented were wholly-owned by MSG Networks and were transferred to the Company at carry-over basis.
The combined statement of operations for the three months ended September 30, 2015 that is included in the results of operations for the six months ended December 31, 2015 and the combined statements of operations for the three and six months ended December 31, 2014 include allocations for certain support functions that were provided on a centralized basis by MSG Networks and not historically recorded at the business unit level, such as expenses related to finance, human resources, information technology, and facilities, among others. These expenses were allocated on the basis of direct usage when identifiable, with the remainder allocated on a pro-rata basis of combined revenues, headcount or other measures. Management believes the assumptions underlying the combined financial statements, including the assumptions regarding allocating general corporate expenses, are reasonable. Nevertheless, the combined financial statements do not include all of the actual expenses that would have been incurred by the Company and do not reflect its combined results of operations, financial position and cash flows had it been a separate, standalone public company during the periods presented on a combined basis. Actual costs that would have been incurred if the Company had been a separate, standalone public company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.
After the Distribution, the Company has been providing certain of these services to MSG Networks through a transition services agreement (“TSA”). As part of the Distribution, certain employees providing support functions were transferred to the Company.
MSG Networks historically used a centralized approach to cash management and financing of operations, with net earnings reinvested and working capital requirements met from existing liquid funds. The Company’s cash was available for use and was regularly “swept” by MSG Networks at its discretion. Accordingly, the cash and cash equivalents held by MSG Networks at the corporate level were not attributed to the Company in the combined balance sheet as of June 30, 2015. Additionally, cash held in accounts legally owned by the Company was attributed to the combined balance sheet as of June 30, 2015. Transfers of cash both to and from MSG Networks are included as components of MSG Networks investment on the consolidated and combined statements of stockholders’ equity. In connection with the Distribution, the Company received $1,467,093 of cash from MSG Networks.
MSG Networks’ net investment in the Company has been presented as a component of stockholders' equity in the Financial Statements. Distributions made by MSG Networks to the Company or to MSG Networks from the Company are recorded as transfers to and from MSG Networks and the net amount is presented on the consolidated and combined statements of cash flows as “Net transfers from MSG Networks and MSG Networks’ subsidiaries.” As of the Distribution date, MSG Networks’ net investment in the Company was contributed to Former Parent’s stockholders through the distribution of all the common stock of the Company. The par value of the Company’s stock was recorded as a component of common stock, with the remaining balance recorded as additional paid-in capital in the consolidated balance sheet on the Distribution date.
For purposes of the combined financial statements, income tax expense has been recorded as if the Company filed tax returns on a standalone basis separate from Former Parent. This separate return methodology applies to accounting guidance for income taxes in the combined financial statements as if the Company was a standalone public company for the periods prior to the Distribution. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of the Company’s actual tax balances prior to or subsequent to the Distribution. Prior to the Distribution, the Company's operating results were

7



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


included in Former Parent’s consolidated U.S. federal and state income tax returns. Pursuant to rules promulgated by the Internal Revenue Service and various state taxing authorities, the Company expects to file its initial U.S. income tax return for the period from October 1, 2015 through June 30, 2016. The calculation of the Company’s income taxes involves considerable judgment and use of both estimates and allocations.
Note 2. Accounting Policies
Principles of Consolidation and Combination
For the periods prior to the Distribution, the financial statements include certain assets and liabilities that were historically held at Former Parent’s corporate level but were specifically identifiable or otherwise attributable to the Company. All intercompany transactions between the Company and Former Parent have been included in the combined financial statements as components of MSG Networks investment. All significant intracompany transactions and accounts within the Company's consolidated and combined financial statements have been eliminated. Expenses related to corporate allocations prior to the Distribution were considered to be effectively settled in the combined financial statements at the time the transaction was recorded, with the offset recorded against MSG Networks investment.
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 amounts 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 expense, income tax expense, performance and share-based compensation, depreciation and amortization, litigation matters and other matters. Management believes its use of estimates in the Financial Statements to be 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.
Summary of Significant Accounting Policies
The following is an update to the Company’s Summary of Significant Accounting Policies disclosed in Amendment No. 6 to the Company’s Registration Statement on Form 10 filed with the SEC on September 11, 2015:
Earnings (Loss) Per Common Share
Basic earnings (loss) per common share (“EPS”) is based upon net income (loss) available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the effect of the assumed vesting of restricted stock units and exercise of stock options (see Note 11) only in the periods in which such effect would have been dilutive. For the period when net loss is reported, the computation of diluted loss per share equals the basic loss per common share calculation since common stock equivalents were antidilutive due to losses from continuing operations.
Income Taxes
For the periods after the Distribution, the Company's provision for income taxes is based on current period income, changes in deferred tax assets and liabilities and changes in estimates with regard to uncertain tax positions. Deferred tax assets are subject to an ongoing assessment of realizability. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company's ability to realize its deferred tax assets depends upon the generation of sufficient future taxable income to allow for the realization of its deductible temporary differences. If such estimates and related assumptions change in the future, the Company may be required to record valuation allowances against its deferred tax assets, resulting in additional income tax expense in the Company's consolidated statements of operations. Interest and penalties, if any, associated with uncertain tax positions are included in income tax expense.

8



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


The Company accounts for investment tax credits using the “flow-through” method, under which the tax benefit generated from an investment tax credit is recorded in the period the credit is generated.
Restricted Cash
Restricted cash includes cash required to be withheld from player salaries and deposited in an escrow account which is in the name of the Company pursuant to the NHL collective bargaining agreement ("CBA"). The escrow account will be distributed subsequent to the end of the season to the players and NHL teams based on the provisions of the NHL CBA. In addition, the Company’s restricted cash also includes deposits used as collateral for securing letters of credit. The carrying amount of restricted cash approximates fair value due to the short-term maturity of these instruments. Changes in restricted cash are reflected in cash flows from either operating or investing activities, depending on the circumstances to which the changes in the underlying restricted cash relate.
Recently Adopted Accounting Pronouncement
In November 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which eliminates the current requirement for companies to present deferred tax liabilities and assets as current and non-current in a classified balance sheet. Instead, companies will be required to classify all deferred tax assets and liabilities as non-current. This guidance is effective for annual and interim periods beginning after December 15, 2016, and early adoption is permitted. The Company early-adopted this ASU on a prospective basis on the consolidated balance sheet as of December 31, 2015 and applicable prior periods were not retrospectively adjusted.
Recently Issued Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in FASB ASC Topic 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of ASU No. 2014-09 for all entities by one year. Early adoption is permitted and the Company can early adopt ASU No. 2014-09 beginning in the first quarter of fiscal year 2018. If the Company does not apply the early adoption provision, ASU No. 2014-09 will be effective for the Company beginning in the first quarter of fiscal year 2019 using one of two retrospective application methods. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which changes the analysis to be performed in determining whether certain types of legal entities should be consolidated. Specifically, it (1) modifies the assessment of whether limited partnerships are variable interest entities (VIEs) or voting interest entities, (2) eliminates the presumption that a limited partnership should be consolidated by its general partner, (3) removes certain conditions for the evaluation of whether a fee paid to a decision maker constitutes a variable interest, and (4) modifies the evaluation concerning the impact of related parties in the determination of the primary beneficiary of a VIE. This standard will be effective for the Company beginning in the first quarter of fiscal year 2017 using one of two retrospective application methods. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-05, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, which provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract and expense the cost as the services are received. This standard will be effective for the Company beginning in the first quarter of fiscal year 2017. Early adoption is permitted. This standard may be adopted retrospectively or prospectively to arrangements entered into, or materially modified, after the effective date. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and

9



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


Measurement of Financial Assets and Financial Liabilities. The standard addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is not permitted with the exception of certain provisions related to the presentation of other comprehensive income. This standard will be effective for the Company beginning in the first quarter of fiscal year 2019. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
Note 3. Computation of Earnings (Loss) per Common Share
Following the Distribution, the Company had 24,928 common shares outstanding on September 30, 2015. This amount has been utilized to calculate earnings (loss) per share for the periods prior to the Distribution as no Madison Square Garden common stock or equity-based awards were outstanding prior to September 30, 2015. The dilutive effect of the Company’s share-based compensation awards issued in connection with the Distribution is included in the computation of diluted earnings per share in the periods subsequent to the Distribution, when applicable. The following table presents a reconciliation of weighted-average shares used in the calculations of basic and diluted EPS. 
 
 
Three Months Ended
 
Six Months Ended
 
 
December 31,
 
December 31,
 
 
2015
 
2014
 
2015
 
2014
Weighted-average shares for basic EPS
 
24,971

 
24,928

 
24,949

 
24,928

Dilutive effect of shares issuable under share-based compensation plans
 
84

 

 
82

 

Weighted-average shares for diluted EPS
 
25,055

 
24,928

 
25,031

 
24,928

  Anti-dilutive shares
 
4

 

 
2

 

Note 4. Team Personnel Transactions
Direct operating expenses in the accompanying combined statements of operations for the three and six months ended December 31, 2014 include net provisions for transactions relating to players and certain other team personnel on the Company’s sports teams for waivers/contract termination costs of $4,291 and $4,675, respectively.


10



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


Note 5. Investments and Loans to Nonconsolidated Affiliates
The Company’s investments and loans to nonconsolidated affiliates consisted of the following:
 
 
Ownership Percentage
 
Investment
 
Loan (d)
 
Total
December 31, 2015
 
 
 
 
 
 
 
 
Azoff MSG Entertainment LLC (“Azoff-MSG”) (a)
 
50
%
 
$
116,992

 
$
84,000

 
$
200,992

Brooklyn Bowl Las Vegas, LLC (“BBLV”) (a)
 
(b) 

 

 
2,662

 
2,662

Tribeca Enterprises LLC (“Tribeca Enterprises”) (a)
 
50
%
 
19,849

 
6,000

 
25,849

Fuse Media (a)
 
15
%
 
22,568

 

 
22,568

Other (c)
 
 
 
11,389

 
1,677

 
13,066

Total investments and loans to nonconsolidated affiliates
 
 
 
$
170,798

 
$
94,339

 
$
265,137

 
 
 
 
 
 
 
 
 
June 30, 2015
 
 
 
 
 
 
 
 
Azoff-MSG (a)
 
50
%
 
$
118,717

 
$
75,000

 
$
193,717

BBLV (a)
 
(b) 

 

 
2,662

 
2,662

Tribeca Enterprises (a)
 
50
%
 
16,791

 
4,000

 
20,791

Fuse Media (a)
 
15
%
 
23,509

 

 
23,509

Other (a)
 
 
 
8,715

 

 
8,715

Total investments and loans to nonconsolidated affiliates
 
 
 
$
167,732

 
$
81,662

 
$
249,394

_________________
(a) 
Denotes that such investment is accounted for under the equity-method of accounting.
(b) 
The Company is entitled to receive back its capital, which was 74% of BBLV's total capital as of December 31, 2015 and June 30, 2015, plus a preferred return, after which the Company would own a 20% interest in BBLV.
(c) 
Investment amount includes equity-method investments of $7,719 and cost-method investments of $3,670.
(d) 
Represents outstanding loan balance, inclusive of amounts due to the Company for interest of $62 as of December 31, 2015 and June 30, 2015.
As a result of certain legal and regulatory actions against one of the Company’s cost-method investments, the Company evaluated whether or not an other-than-temporary impairment of this cost-method investment had occurred as of December 31, 2015. This evaluation resulted in the Company recording a pre-tax non-cash impairment charge of $4,080 to partially write down the carrying value of its cost-method investment, which is reflected in miscellaneous income (expense) in the accompanying consolidated and combined statements of operations for the three and six months ended December 31, 2015.
The following is summarized financial information for the Company’s individually significant equity-method investments, presented in aggregate, as required by the guidance in SEC Regulation S-X Rule 10-01(b)(1). The amounts shown below represent 100% of these equity-method investments’ results of operations.
 
 
Three Months Ended
 
Six Months Ended
 
 
December 31,
 
December 31,
 
 
2015
 
2014
 
2015
 
2014
Results of Operations
 
 
 
 
 
 
 
 
Revenues
 
$
69,579

 
$
27,964

 
$
148,510

 
$
52,076

Loss from continuing operations
 
(4,457
)
 
(8,392
)
 
(3,615
)
 
(11,197
)
Net loss
 
(4,457
)
 
(8,392
)
 
(3,615
)
 
(11,197
)

11



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


Note 6. Goodwill and Intangible Assets
The carrying amounts of goodwill, by reportable segment, as of December 31, 2015 and June 30, 2015 are as follows: 
MSG Entertainment
$
58,979

MSG Sports
218,187

 
$
277,166

During the first quarter of fiscal year 2016, the Company performed its annual impairment test of goodwill and determined that there were no impairments of goodwill identified for any of its reportable segments.
The Company’s indefinite-lived intangible assets as of December 31, 2015 and June 30, 2015 are as follows:
Sports franchises (MSG Sports segment)
 
$
101,429

Trademarks (MSG Entertainment segment)
 
62,421

Photographic related rights (MSG Sports segment)
 
3,000

 
 
$
166,850

During the first quarter of fiscal year 2016, the Company performed its annual impairment test of identifiable indefinite-lived intangible assets and determined that there were no impairments identified.
The Company’s intangible assets subject to amortization are as follows: 
December 31, 2015
 
Gross
 
Accumulated
Amortization
 
Net
Season ticket holder relationships
 
$
73,124

 
$
(56,549
)
 
$
16,575

Suite holder relationships
 
15,394

 
(15,038
)
 
356

Other intangibles
 
4,217

 
(2,293
)
 
1,924

 
 
$
92,735

 
$
(73,880
)
 
$
18,855

June 30, 2015
 
Gross
 
Accumulated
Amortization
 
Net
Season ticket holder relationships
 
$
73,124

 
$
(53,919
)
 
$
19,205

Suite holder relationships
 
15,394

 
(14,339
)
 
1,055

Other intangibles
 
4,217

 
(2,153
)
 
2,064

 
 
$
92,735

 
$
(70,411
)
 
$
22,324

Amortization expense for intangible assets was $1,734 for each of the three months ended December 31, 2015 and 2014. Amortization expense for intangible assets was $3,469 for each of the six months ended December 31, 2015 and 2014.


12



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


Note 7. Property and Equipment
As of December 31, 2015 and June 30, 2015, property and equipment consisted of the following assets: 
 
 
December 31,
2015
 
June 30,
2015
Land
 
$
91,678

 
$
91,678

Buildings
 
1,106,887

 
1,098,191

Equipment
 
273,722

 
264,054

Aircraft
 
38,084

 

Furniture and fixtures
 
49,725

 
49,400

Leasehold improvements
 
131,039

 
130,620

Construction in progress
 
5,843

 
10,455

 
 
1,696,978

 
1,644,398

Less accumulated depreciation and amortization
 
(503,283
)
 
(455,705
)
 
 
$
1,193,695

 
$
1,188,693

Depreciation and amortization expense on property and equipment was $24,171 and $23,290 for the three months ended December 31, 2015 and 2014, respectively. Depreciation and amortization expense on property and equipment was $47,676 and $56,094 for the six months ended December 31, 2015 and 2014, respectively.
During the first quarter of fiscal year 2015, the estimated useful life of the Company’s professional sports teams’ plane was changed as a result of a transition by the teams to a new travel program. As a result of this change, the Company recorded accelerated depreciation on the plane of approximately $8,400 for the six months ended December 31, 2014. Subsequently, during the fourth quarter of fiscal year 2015, the Company sold the sports teams’ plane. During the six months ended December 31, 2015, the Company purchased a new aircraft for $38,084, inclusive of transaction costs.
Note 8. Commitments and Contingencies
Commitments
As more fully described in Notes 8 and 9 to the annual combined financial statements included in Amendment No. 6 to the Company’s Registration Statement on Form 10 filed with the SEC on September 11, 2015, 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 entertainment venues and office and storage space, and (iii) revolving credit facilities provided by the Company to Azoff-MSG and Tribeca Enterprises (see Note 5).
Legal Matters
The Company is a defendant in various lawsuits. Although the outcome of these matters cannot be predicted with certainty, management does not believe that resolution of these lawsuits will have a material adverse effect on the Company.
Note 9. Fair Value Measurements
The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions. The fair value hierarchy consists of the following three levels:
 
Level I — Quoted prices for identical instruments in active markets.
Level II — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level III — Instruments whose significant value drivers are unobservable.

13



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


The following table presents for each of these hierarchy levels, the Company’s assets that are measured at fair value on a recurring basis, which include cash equivalent and restricted cash: 
 
 
Level I
 
Level II
 
Level III
 
Total
December 31, 2015
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Money market accounts
 
$
359,569

 
$

 
$

 
$
359,569

Time deposits
 
1,197,652

 

 

 
1,197,652

Total assets measured at fair value
 
$
1,557,221

 
$

 
$

 
$
1,557,221

June 30, 2015
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Money market accounts
 
$

 
$

 
$

 
$

Time deposits
 
12,513

 

 

 
12,513

Total assets measured at fair value
 
$
12,513

 
$

 
$

 
$
12,513

Money market accounts and time deposits are classified within Level 1 of the fair value hierarchy as they are valued using observable inputs that reflect quoted prices for identical assets in active markets. The carrying amount of the Company's money market accounts and time deposits approximates fair value due to their short-term maturities.
Note 10. Pension Plans and Other Postretirement Benefit Plan
Pension Plans and Other Postretirement Benefit Plan — Pre-Distribution
Prior to the Distribution, MSG Networks sponsored a non-contributory, qualified cash balance retirement plan covering its non-union employees (the “Cash Balance Pension Plan”) and an unfunded non-contributory, non-qualified excess cash balance plan covering certain employees who participate in the underlying qualified plan (collectively, the “Cash Balance Plans”). Since March 1, 2011, the Cash Balance Pension Plan has also included the assets and liabilities of a frozen (as of December 31, 2007) non-contributory qualified defined benefit pension plan covering non-union employees hired prior to January 1, 2001. These plans had participants from each of MSG Networks’ historical businesses (Media, Sports and Entertainment) as well as corporate employees.
Also, MSG Networks historically sponsored an unfunded non-contributory, non-qualified defined benefit pension plan for the benefit of certain employees who participate in an underlying qualified plan which was merged into the Cash Balance Pension Plan on March 1, 2011 (the “Excess Plan”). As of December 31, 2007, the Excess Plan was amended to freeze all benefits earned through December 31, 2007 and to eliminate the ability of participants to earn benefits for future service under these plans.
The Cash Balance Plans have been amended to freeze participation and future benefit accruals effective December 31, 2015 for all employees. Therefore, after December 31, 2015, no employee of the Company who was not already a participant may become a participant in the plans and no further annual pay credits will be made for any future year. Existing account balances under the plans will continue to be credited with monthly interest in accordance with the terms of the plans.
In addition, MSG Networks sponsored a non-contributory, qualified defined benefit pension plan covering certain of its union employees (the “Union Plan”). Benefits payable to retirees under the Union Plan are based upon years of service and this plan is specific to employees of the businesses constituting Madison Square Garden.
The Cash Balance Plans, Union Plan, and Excess Plan are collectively referred to as the “Pension Plans.”
MSG Networks also sponsored a contributory welfare plan which provides certain postretirement healthcare benefits to certain employees hired prior to January 1, 2001 who are eligible to commence receipt of early or normal benefits under the Cash Balance Pension Plan and their dependents, as well as certain union employees (“Postretirement Plan”).
For purposes of the combined financial statements issued prior to the Distribution, it was determined that the Company was to be treated as the obligor for the Pension Plans’ and Postretirement Plan’s liabilities. Therefore, the combined financial statements reflect the full impact of such plans on both the combined statements of operations for the three months ended

14



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


September 30, 2015 and for the three and six months ended December 31, 2014, respectively, and the combined balance sheet as of June 30, 2015. The pension expense related to employees of MSG Networks participating in any of these plans during these periods was reflected as a contributory charge from the Company to MSG Networks, resulting in a decrease to the expense recognized in the combined statements of operations.
Pension Plans and Other Postretirement Benefit Plan — Post-Distribution
As of the Distribution date, the Company and MSG Networks entered into an employee matters agreement (the “Employee Matters Agreement”) which determined each company’s obligations after the Distribution with regard to liabilities historically under the former MSG Networks’ pension and postretirement plans. Under the Employee Matters Agreement, the Company assumed or retained certain of the Pension Plans and the Postretirement Plan previously sponsored by MSG Networks, as discussed in further detail in Amendment 6 to the Company’s Registration Statement on Form 10 filed on September 11, 2015. The Company’s consolidated balance sheet as of September 30, 2015 reflects such plans’ assets and liabilities.
Components of net periodic benefit cost for the Pension Plans and Postretirement Plan recognized in direct operating expenses and selling, general and administrative expenses in the accompanying consolidated and combined statements of operations for the three and six months ended December 31, 2015 and 2014 are as follows: 
 
 
Pension Plans
 
Postretirement Plan
 
 
Three Months Ended
 
Three Months Ended
 
 
December 31,
 
December 31,
 
 
2015
 
2014
 
2015
 
2014
Service cost
 
$
1,502

 
$
1,626

 
$
32

 
$
61

Interest cost
 
1,680

 
1,806

 
58

 
93

Expected return on plan assets
 
(740
)
 
(807
)
 

 

Recognized actuarial loss (a)
 
255

 
513

 

 
6

Amortization of unrecognized prior service cost (credit) (a)
 

 
7

 
(20
)
 
(35
)
Net periodic benefit cost
 
$
2,697

 
$
3,145

 
$
70

 
$
125

 
 
Pension Plans
 
Postretirement Plan
 
 
Six Months Ended
 
Six Months Ended
 
 
December 31,
 
December 31,
 
 
2015
 
2014
 
2015
 
2014
Service cost
 
$
3,014

 
$
3,252

 
$
82

 
$
122

Interest cost
 
3,609

 
3,613

 
149

 
186

Expected return on plan assets
 
(1,480
)
 
(1,614
)
 

 

Recognized actuarial loss (a)
 
554

 
1,025

 

 
12

Amortization of unrecognized prior service cost (credit) (a)
 
14

 
13

 
(51
)
 
(70
)
Net periodic benefit cost
 
$
5,711

 
$
6,289

 
$
180

 
$
250

________________

(a) Reflects amounts reclassified from accumulated other comprehensive loss.
For the three months ended December 31, 2014, the net periodic benefit cost for the Pension Plans reported in the table above includes $521 of expenses related to MSG Networks employees, representing the contributory charge from the Company to MSG Networks for participation in the Pension Plans. In addition, for the three months ended December 31, 2014, the Company allocated to MSG Networks $213 of net periodic benefit cost for the Pension Plans related to corporate employees not specifically identified to either the Company or MSG Networks. For the six months ended December 31, 2015 and 2014, the net periodic benefit cost for the Pension Plans reported in the table above includes $485 and $1,040, respectively, of expenses related to MSG Networks employees, representing the contributory charge from the Company to MSG Networks for

15



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


participation in the Pension Plans. In addition, for the six months ended December 31, 2015 and 2014, the Company allocated to MSG Networks $229 and $424, respectively, of net periodic benefit cost for the Pension Plans related to corporate employees not specifically identified to either the Company or MSG Networks.
For the three months ended December 31, 2014, the net periodic benefit cost for the Postretirement Plan reported in the table above includes $29 of expenses related to MSG Networks employees, representing the contributory charge from the Company to MSG Networks for participation in the Postretirement Plan. In addition, for the three months ended December 31, 2014, the Company allocated to MSG Networks $6 of net periodic benefit cost for the Postretirement Plan related to corporate employees not specifically identified to either the Company or MSG Networks. For the six months ended December 31, 2015 and 2014, the net periodic benefit cost for the Postretirement Plan reported in the table above includes $18 and $58, respectively, of expenses related to MSG Networks employees, representing the contributory charge from the Company to MSG Networks for participation in the Postretirement Plan. In addition, for the six months ended December 31, 2015 and 2014, the Company allocated to MSG Networks $11 and $11, respectively, of net periodic benefit cost for the Postretirement Plan related to corporate employees not specifically identified to either the Company or MSG Networks.
In addition, prior to the Distribution, MSG Networks sponsored the MSG Holdings, L.P. 401(k) Savings Plan and the MSG Holdings, L.P. Excess Savings Plan (collectively, the “Savings Plans”). In connection with the Distribution, the MSG Holdings, L.P. 401(k) Savings Plan was converted into a multiple employer plan and, pursuant to the Employee Matters Agreement, the Company became the sponsor and a contributing employer to this plan. For the three months ended December 31, 2015 and 2014, expenses related to the Savings Plans, excluding expenses related to MSG Networks employees, included in the accompanying consolidated and combined statements of operations were $868 and $848, respectively. These amounts include $97 of expenses related to the Company’s corporate employees which were allocated to MSG Networks during the three months ended December 31, 2014. For the six months ended December 31, 2015 and 2014, expenses related to the Savings Plans, excluding expenses related to MSG Networks employees, included in the accompanying consolidated and combined statements of operations were $1,700 and $1,610, respectively. These amounts include $89 and $170 of expenses related to the Company’s corporate employees which were allocated to MSG Networks for the six months ended December 31, 2015 and 2014, respectively.
In addition, prior to the Distribution, MSG Networks sponsored the MSG Holdings, L.P. 401(k) Union Plan (the “Union Savings Plan”). In connection with the Distribution, the Union Savings Plan was converted into a multiple employer plan and, pursuant to the Employee Matters Agreement, the Company became the sponsor and a contributing employer to this plan. For the three months ended December 31, 2015 and 2014, expenses related to the Union Savings Plan included in the accompanying consolidated and combined statements of operations were $27 and $112, respectively. For the six months ended December 31, 2015 and 2014, expenses related to the Union Savings Plan included in the accompanying consolidated and combined statements of operations were $45 and $124, respectively.
Note 11. Share-based Compensation
In connection with the Distribution, the Company adopted its 2015 Employee Stock Plan (the “Employee Stock Plan”) and its 2015 Stock Plan for Non-Employee Directors (the “Non-Employee Director Plan”).
Under the Employee Stock Plan, the Company is authorized to grant incentive stock options, non-qualified stock options, restricted shares, restricted stock units, stock appreciation rights and other equity-based awards. The Company may grant awards for up to 2,650 shares of Madison Square Garden Class A Common Stock (subject to certain adjustments). Options and stock appreciation rights under the Employee Stock Plan must be granted with an exercise price of not less than the fair market value of a share of Madison Square Garden Class A Common Stock on the date of grant and must expire no later than 10 years from the date of grant (or up to one additional year in the case of the death of a holder). The terms and conditions of awards granted under the Employee Stock Plan, including vesting and exercisability, are determined by the Compensation Committee of the Board of Directors (“Compensation Committee”) and may include terms or conditions based upon performance criteria.
Under the Non-Employee Director Plan, the Company is authorized to grant non-qualified stock options, restricted stock units, restricted shares, stock appreciation rights and other equity-based awards. The Company may grant awards for up to 160 shares of Madison Square Garden Class A Common Stock (subject to certain adjustments). Options under the Non-Employee Director Plan must be granted with an exercise price of not less than the fair market value of a share of the Company’s Class A Common Stock on the date of grant and must expire no later than 10 years from the date of grant (or up to one additional year in the case of the death of a holder). The terms and conditions of awards granted under the Non-Employee Director Plan,

16



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


including vesting and exercisability, are determined by the Compensation Committee. Unless otherwise provided in an applicable award agreement, options granted under this plan will be fully vested and exercisable, and restricted stock units granted under this plan will be fully vested, upon the date of grant.

Treatment After the Distribution of Share-based Payment Awards Initially Granted Under MSG Networks Equity Award Programs
Prior to the Distribution certain Company employees and non-employee directors, as well as employees and non-employee directors of MSG Networks (some of whom are employees or directors of the Company) participated in MSG Networks’ equity award programs (“MSG Networks Stock Plans”). In connection with the Distribution, each holder of MSG Networks stock options at the Distribution date received Company stock options based on the one for three distribution ratio (i.e., one share of the Company’s Class A Common Stock for every three shares of MSG Networks Class A Common Stock). The existing exercise price was allocated between the existing MSG Networks options and the Company’s new options based upon the ten-day volume-weighted average prices of the MSG Networks Class A Common Stock and the Company’s Class A Common Stock, taking into account the one for three distribution ratio. As a result of this adjustment, 25.64% of the pre-Distribution exercise price of options was allocated to the MSG Networks options and 74.36% was allocated to the new Company options. The options with respect to the Company’s Class A Common Stock were issued under the Employee Stock Plan or the Non-Employee Director Plan, as applicable.
In connection with the Distribution, one restricted stock unit of the Company (“MSG RSUs”) was issued in respect of every three MSG Networks’ restricted stock units (“Networks RSUs”) that were granted to employees prior to July 1, 2015 and were outstanding as of the Distribution date.
In addition, all Networks RSUs and MSG Networks performance restricted stock units ("Networks PSUs") granted to the Company’s employees during the three months ended September 30, 2015 and outstanding as of the Distribution date were converted into MSG RSUs and Company performance restricted stock units (“MSG PSUs”), respectively. Further, all Networks RSUs and Networks PSUs granted during the three months ended September 30, 2015 to employees that were employed by both MSG Networks and the Company following the Distribution were converted such that 70% of the value of such grants became MSG RSUs and MSG PSUs, respectively. All conversions described in this paragraph were calculated based upon the ten-day volume-weighted average price of the Company’s Class A Common Stock through October 14, 2015. The MSG RSUs and MSG PSUs with respect to the Company’s Class A Common Stock were issued under the Employee Stock Plan.
Further, in connection with the Distribution, one share of the Company’s Class A Common Stock was issued in respect of every three Networks RSUs outstanding under MSG Networks’ 2010 Non-Employee Director Plan. These shares were issued under the Non-Employee Director Plan.
As a result of the Distribution, 26, 432 and 95 of the Company’s stock options, RSUs and PSUs, respectively, were issued to holders of MSG Networks equity awards.
Share-based Compensation Expense
Share-based compensation expense is generally recognized straight-line over the vesting term of the award, which typically provides for three-year vesting subject to continued employment. For MSG PSUs, the Company did not recognize share-based compensation expense during the first quarter of fiscal year 2016 as the performance conditions were not yet determined and therefore there was not a grant date for accounting purposes. On December 18, 2015, the Company’s Compensation Committee approved the conversion of the award to a three-year, time-vested award. Such award will cliff-vest on the third anniversary of the original grant date without a performance condition (other than conditions to satisfy tax deductibility for executive officers). As such, the Company began recognizing share-based compensation expense during the second quarter of fiscal year 2016.
For the three months ended December 31, 2015 and 2014, share-based compensation expense, reduced for estimated forfeiture, was recognized in the consolidated and combined statements of operations as a component of direct operating expenses or selling, general and administrative expenses and was $7,154 and $4,772, respectively. For the six months ended December 31, 2015 and 2014, share-based compensation expense was $10,259 and $7,087, respectively.

17



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


Share Units Award Activity

The following table summarizes activity relating to the Company's RSUs for the six months ended December 31, 2015:
 
Number of
 
Weighted-Average
Fair Value 
Per Share At
Date of Grant
 
Nonperformance
Based
Vesting
RSUs
 
Performance
Based
Vesting
RSUs
 
Unvested award balance as of September 30, 2015
103

 
19

 
$
134.45

  Granted
110

 
297

 
$
176.56

Vested
(7
)
 

 
$
179.16

Forfeited
(19
)
 

 
$
155.10

Unvested award balance, December 31, 2015
187

 
316

 
$
167.08

Note 12. 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 open market transactions, 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.
From the date of the authorization of the repurchase program through December 31, 2015, the Company has repurchased 98 shares, which are determined based on the settlement date of such trades, for a total cost of $15,716, including commissions and fees. These acquired shares have been classified as treasury stock in the accompanying consolidated balance sheet as of December 31, 2015. As of December 31, 2015, the Company had $509,286 of availability remaining under its stock repurchase authorization.
Note 13. Related Party Transactions
As of December 31, 2015, members of the Dolan family group, for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, including trusts for the benefit of the Dolan family group, collectively beneficially own all of the Company's outstanding Class B Common Stock and own approximately 2.6% of the Company’s outstanding Class A Common Stock. Such shares of the Company’s Class A Common Stock and Class B Common Stock, collectively, represent approximately 69.8% of the aggregate voting power of the Company’s outstanding common stock. Members of the Dolan family are also the controlling stockholders of MSG Networks, Cablevision Systems Corporation (“Cablevision”) and AMC Networks Inc.
In connection with the Distribution, the Company has entered into various agreements with MSG Networks, including media rights agreements covering the Knicks and the Rangers games, an Advertising Sales Representation Agreement, and the TSA.
In addition, the Company has various agreements with Cablevision. These agreements include arrangements with respect to a number of ongoing commercial relationships. The Company also has certain arrangements with its nonconsolidated affiliates.

18



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


Revenues and Operating Expenses
The following table summarizes the composition and amounts of the transactions with the Company's affiliates primarily with MSG Networks and Cablevision. These amounts are reflected in revenues and operating expenses in the accompanying consolidated and combined statements of operations for the three and six months ended December 31, 2015 and 2014:
 
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
 
2015
 
2014
 
2015
 
2014
Revenues
 
$
41,321

 
$
21,677

 
$
74,880

 
$
42,379

Operating expenses (credits):
 
 
 
 
 
 
 
 
Corporate general and administrative, net - MSG Networks
 
$
(2,196
)
 
$
(15,947
)
 
$
(33,787
)
 
$
(30,227
)
Advertising
 
777

 
1,283

 
945

 
1,425

Corporate general and administrative, net - Cablevision
 
1,091

 
474

 
1,411

 
1,154

Telephone and other fiber optic transmission services
 
396

 
362

 
781

 
734

Other
 
406

 
323

 
481

 
415

Revenues
In connection with the Distribution, the Company entered into new media rights agreements with MSG Networks covering the Knicks and Rangers, which provide MSG Networks with exclusive media rights to team games in their local markets and a new Advertising Sales Representation Agreement pursuant to which the Company has the exclusive right and obligation, for a commission, to sell MSG Networks’ advertising availabilities. Revenues from related parties primarily consist of local media rights recognized by the Company’s Sports segment from the licensing of team-related programming to MSG Networks under these new media rights agreements. Local media rights are generally recognized on a straight-line basis over the fiscal year. In addition, the Company and Tribeca Enterprises have a service agreement pursuant to which the Company provides marketing inventory and consulting services to Tribeca Enterprises for a fee.
Corporate General and Administrative Expense, net - MSG Networks
The Company’s corporate overhead expenses are primarily related to centralized functions, including executive compensation, finance, treasury, tax, internal audit, legal, information technology, human resources and risk management functions. Prior to the Distribution, allocations of corporate overhead and shared services expense were based on direct usage or the relative proportion of revenue or headcount. In addition, the Company’s Sports and Entertainment segments charged MSG Networks for various services performed on behalf of Former Parent. The amounts for the three and six months ended December 31, 2014 are presented net of charges of $835 and $1,325 received from MSG Networks for services rendered to the Company’s Sports and Entertainment segments.
Furthermore, for the three and six months ended December 31, 2015, Corporate general and administrative expense, net - MSG Networks amounts reflect charges from the Company to MSG Networks under the TSA of $2,229, net of general and administrative costs charged to the Company by MSG Networks.
Advertising Expenses
The Company incurs advertising expenses for services rendered by its related parties, primarily MSG Networks and Cablevision, most of which are related to the utilization of advertising and promotional benefits by the Company.
Corporate General and Administrative Expenses, net - Cablevision
Amounts are charged to the Company for corporate general and administrative expenses pursuant to administrative and other service agreements with Cablevision.
Telephone and Other Fiber Optic Transmission Services
Amounts are charged to the Company by Cablevision for telephone and other fiber optic transmission services.

19



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


Other Operating Expenses
The Company and its related parties enter into transactions with each other in the ordinary course of business. Amounts charged to the Company for other transactions with its related parties are net of amounts charged by the Company to the Knickerbocker Group, LLC, an entity owned by James L. Dolan, the Executive Chairman and a director of the Company, for office space equal to the allocated cost of such space.
Loan receivable from MSG Networks
On June 21, 2011, the Company’s wholly-owned captive insurance subsidiary, Eden Insurance Company, Inc. (“Eden”), entered into a loan agreement with MSG Networks (the “Loan Agreement”), under which Eden granted MSG Networks an unsecured loan bearing interest at a rate of 3.50% plus the six month applicable LIBOR rate with a principal amount not exceeding $8,000. Subsequently, the Loan Agreement was amended to increase the borrowing capacity to $40,000. While the term of the loan was five years, the subsidiary could have induced prepayment by MSG Networks with five business days notice. As a result of the Distribution, the loan payable was transferred to the Company and is now eliminated in consolidation. As of June 30, 2015, the subsidiary had an outstanding loan receivable from MSG Networks of $30,836, inclusive of accrued interest, and such amount was the largest amount outstanding during the periods ending on such date. For all periods presented, no interest or principal payments were received by Eden. Instead, on a semi-annual basis, the accrued but unpaid interest was added to the outstanding principal amount of the loan.
Other
See Note 5 for information on outstanding loans provided by the Company to its nonconsolidated affiliates.
Cash Management
Historically, MSG Networks used a centralized approach to cash management and financing of operations. The Company’s cash was available for use and was regularly “swept” by MSG Networks at its discretion. Transfers of cash both to and from MSG Networks are included as components of MSG Networks investment on the consolidated and combined statements of stockholders’ equity. The primary components of the net transfers to/from MSG Networks are cash pooling/general financing activities, various expense allocations to/from MSG Networks, and receivables/payables from/to MSG Networks deemed to be effectively net settled at the Distribution date.
MSG Networks Investment
All balances and transactions among the Company and MSG Networks and its subsidiaries, which, prior to the Distribution, include intercompany activities, are shown as components of stockholders’ equity in the combined balance sheet as of June 30, 2015. As the books and records of the Company were not kept on a separate basis from MSG Networks prior to the Distribution, the determination of the average net balance due to or from MSG Networks was not practicable for the periods prior to the Distribution.
Note 14. Income Taxes
Income tax expense (benefit) for the three and six months ended December 31, 2015 was $(70) and $52, respectively. The effective tax rates for the three and six months ended December 31, 2015 was (0.2)% and 0.1%, respectively.
Income tax expense for the three and six months ended December 31, 2014 was $223 and $446, respectively. The effective tax rate for the three and six months ended December 31, 2014 was 2.3% and (1.6)%, respectively.
The Company’s effective tax rates for the three and six months ended December 31, 2015 are different when compared to the statutory federal rate of 35% primarily due to a reduction of approximately $20,800 in the valuation allowance recorded on the Company's net deferred tax asset established at the time of the Distribution. As part of the Distribution, MSG Networks is responsible for paying taxes on approximately $348,000 of deferred revenue from ticket sales, sponsorship and suite rentals collected in advance related to the Company's business. This initially created a deferred tax asset which the Company recorded a full valuation allowance against as it was more likely than not that the deferred tax asset would not be realized.
In addition, the three month results include a benefit from a change in the state tax rates used to value deferred taxes related to indefinite-lived assets in connection with the filing of the December 31, 2014 state tax returns which included the Company's

20



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


results. Both the three month and six month results reflect an expense from an increase in the deferred tax liability on indefinite-lived intangible assets that cannot serve as a source of taxable income to support the realization of deferred tax assets.
The Company’s effective tax rates for the three and six months ended December 31, 2014 are different when compared to the statutory federal rate of 35% since an income tax benefit is not recognized on net operating losses attributable to these periods because a valuation allowance was recorded on the Company’s net deferred tax asset as it is more likely than not that the deferred tax asset will not be realized. Instead, the income tax expense is the result of an increase in the deferred tax liability on indefinite-lived intangible assets that cannot serve as a source of taxable income to support the realization of deferred tax assets.
The Company has not recorded any unrecognized tax benefits for uncertain tax positions as of December 31, 2015. The Company’s policy is to reflect interest and penalties associated with uncertain tax positions, if any, as a component of income tax expense.
Note 15. Segment Information
The Company is comprised of two reportable segments: MSG Entertainment and MSG Sports. In determining its reportable segments, the Company assessed the guidance of FASB ASC 280-10-50-1, which provides the definition of an operating segment. The Company has evaluated this guidance and determined that there are two reportable segments based upon the information provided to its chief operating decision maker. The Company allocates certain corporate costs to each of its reportable segments. In addition, the Company allocates its venue operating expenses to each of its reportable segments. Allocated venue operating expenses include the non-event related costs of operating the Company’s venues, and include such costs as rent for the Company’s leased venues, real estate taxes, insurance, utilities, repairs and maintenance, and labor related to the overall management of the venues. Depreciation expense related to The Garden, The Theater at Madison Square Garden, and the Forum is not allocated to the reportable segments and is reported in “All other.”
The Company evaluates segment performance based on several factors, of which the key financial measure is their operating income (loss) before (i) depreciation, amortization and impairments of property and equipment and intangible assets, (ii) share-based compensation expense or benefit, (iii) restructuring charges or credits and (iv) gains or losses on sales or dispositions of businesses, which is referred to as adjusted operating cash flow (“AOCF”), a non-GAAP measure. The Company believes AOCF is an appropriate measure for evaluating the operating performance of its business segments and the Company on a consolidated basis. AOCF and similar measures with similar titles are common performance measures used by investors and analysts to analyze the Company’s performance. The Company uses revenues and AOCF measures as the most important indicators of its business performance, and evaluates management’s effectiveness with specific reference to these indicators.
AOCF should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), cash flows from operating activities, and other measures of performance and/or liquidity presented in accordance with GAAP. The Company has presented the components that reconcile AOCF to operating income (loss), an accepted GAAP measure.

21



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


Information as to the operations of the Company’s reportable segments is set forth below. 
 
 
Three Months Ended December 31, 2015
 
 
MSG
Entertainment
 
MSG
Sports
 
All
Other
 
Total
Revenues
 
$
183,834

 
$
226,786

 
$
218

 
$
410,838

Direct operating expenses
 
110,477

 
139,155

 

 
249,632

Selling, general and administrative expenses
 
25,314

 
45,567

 
15,381

(a) 
86,262

Add back: share-based compensation expense
 
2,100

 
2,441

 
2,613

 
7,154

AOCF
 
50,143

 
44,505

 
(12,550
)
 
82,098

Depreciation and amortization
 
2,528

 
2,769

 
20,608

(b) 
25,905

Share-based compensation expense
 
2,100

 
2,441

 
2,613

 
7,154

Operating income (loss)
 
$
45,515

 
$
39,295

 
$
(35,771
)
 
$
49,039

Equity in loss of equity-method investments
 
 
 
 
 
 
 
(2,475
)
Interest income
 
 
 
 
 
 
 
1,448

Interest expense
 
 
 
 
 
 
 
(514
)
Miscellaneous expense
 
 
 
 
 
 
(c) 
(4,080
)
Income from operations before income taxes
 
 
 
 
 
 
 
$
43,418

Other information:
 
 
 
 
 
 
 
 
Capital expenditures
 
$
328

 
$
1,562

 
$
5,509

 
$
7,399

 
 
Three Months Ended December 31, 2014
 
 
MSG
Entertainment
 
MSG
Sports
 
All
Other
 
Total
Revenues
 
$
194,125

 
$
202,512

 
$
177

 
$
396,814

Direct operating expenses
 
118,810

 
150,057

 
3

 
268,870

Selling, general and administrative expenses
 
18,350

 
36,085

 
8,566

(a), (d) 
63,001

Add back: share-based compensation expense
 
896

 
1,025

 
2,851

 
4,772

AOCF
 
57,861

 
17,395

 
(5,541
)
 
69,715

Depreciation and amortization
 
2,546

 
2,769

 
19,709

(b) 
25,024

Share-based compensation expense
 
896

 
1,025

 
2,851

 
4,772

Operating income (loss)
 
$
54,419

 
$
13,601

 
$
(28,101
)
 
$
39,919

Equity in loss of equity-method investments
 
 
 
 
 
 
 
(30,151
)
Interest income
 
 
 
 
 
 
 
715

Interest expense
 
 
 
 
 
 
 
(619
)
Miscellaneous expense
 
 
 
 
 
 
 
(5
)
Income from operations before income taxes
 
 
 
 
 
 
 
$
9,859

Other information:
 
 
 
 
 
 
 
 
Capital expenditures
 
$
1,104

 
$
2,010

 
$
28,234

(e) 
$
31,348


22



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


 
 
Six Months Ended December 31, 2015
 
 
MSG
Entertainment
 
MSG
Sports
 
All
Other
 
Total
Revenues
 
$
260,860

 
$
299,934

 
$
425

 
$
561,219

Direct operating expenses
 
167,478

 
153,504

 

 
320,982

Selling, general and administrative expenses
 
43,122

 
81,527

 
19,981

(a) 
144,630

Add back: share-based compensation expense
 
3,016

 
4,015

 
3,228

 
10,259

AOCF
 
53,276

 
68,918

 
(16,328
)
 
105,866

Depreciation and amortization
 
5,102

 
5,629

 
40,414

(b) 
51,145

Share-based compensation expense
 
3,016

 
4,015

 
3,228

 
10,259

Operating income (loss)
 
$
45,158

 
$
59,274

 
$
(59,970
)
 
$
44,462

Equity in earnings of equity-method investments
 
 
 
 
 
 
 
204

Interest income
 
 
 
 
 
 
 
2,405

Interest expense
 
 
 
 
 
 
 
(1,054
)
Miscellaneous expense
 
 
 
 
 
 
(c) 
(4,080
)
Income from operations before income taxes
 
 
 
 
 
 
 
$
41,937

Other information:
 
 
 
 
 
 
 
 
Capital expenditures
 
$
917

 
$
3,329

 
$
55,435

(e) 
$
59,681

 
 
Six Months Ended December 31, 2014
 
 
MSG
Entertainment
 
MSG
Sports
 
All
Other
 
Total
Revenues
 
$
259,360

 
$
256,017

 
$
353

 
$
515,730

Direct operating expenses
 
171,458

 
165,448

 

 
336,906

Selling, general and administrative expenses
 
32,795

 
67,551

 
14,056

(a), (d) 
114,402

Add back: share-based compensation expense
 
1,850

 
2,164

 
3,073

 
7,087

AOCF
 
56,957

 
25,182

 
(10,630
)
 
71,509

Depreciation and amortization
 
5,072

 
15,735

 
38,756

(b) 
59,563

Share-based compensation expense
 
1,850

 
2,164

 
3,073

 
7,087

Operating income (loss)
 
$
50,035

 
$
7,283

 
$
(52,459
)
 
$
4,859

Equity in loss of equity-method investments
 
 
 
 
 
 
 
(32,755
)
Interest income
 
 
 
 
 
 
 
1,448

Interest expense
 
 
 
 
 
 
 
(1,275
)
Miscellaneous income
 
 
 
 
 
 
 
75

Loss from operations before income taxes
 
 
 
 
 
 
 
$
(27,648
)
Other information:
 
 
 
 
 
 
 
 
Capital expenditures
 
$
1,906

 
$
3,082

 
$
33,346

(e) 
$
38,334

_________________
(a) 
Consists of unallocated corporate general and administrative costs.

23



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


(b) 
Principally includes depreciation and amortization expense on The Garden, The Theater at Madison Square Garden, the Forum, and certain corporate property, equipment and leasehold improvement assets not allocated to the Company’s reportable segments.
(c) 
Miscellaneous expenses for the three and six months ended December 31, 2015 primarily include partial write-down of one of the Company’s cost-method investments (see Note 5).
(d) 
The amounts for the three and six months ended December 31, 2014 include executive management transition costs.
(e) 
Capital expenditures for the six months ended December 31, 2015 are primarily associated with the purchase of a new aircraft, as well as certain investments with respect to The Garden. Capital expenditures for the three and six months ended December 31, 2014 are primarily associated with certain investments with respect to The Garden and the Forum.
Substantially all revenues and assets of the Company’s reportable segments are attributed to or located in the United States and are primarily concentrated in the New York metropolitan area.

24


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains forward-looking statements. In this MD&A, there are statements concerning our future operating and future financial performance, including increased expenses of being a standalone public company. Words such as “expects,” “anticipates,” “believes,” “estimates,” “may,” “will,” “should,” “could,” “potential,” “continue,” “intends,” “plans,” and similar words and terms used in the discussion of future operating and future financial performance identify forward-looking statements. Investors are cautioned that such forward-looking statements are not guarantees of future performance, results or events and involve risks and uncertainties and that actual results or developments may differ materially from the forward-looking statements as a result of various factors. Factors that may cause such differences to occur include, but are not limited to:
the level of our revenues, which depends in part on the popularity and competitiveness of our sports teams and the level and popularity of the Radio City Christmas Spectacular, the Rockettes New York Spectacular and other entertainment events which are presented in our venues;
costs associated with player injuries, and waivers or contract terminations of players and other team personnel;
changes in professional sports teams’ compensation, including the impact of signing free agents and trades, subject to league salary caps and the impact of luxury tax;
the level of our capital expenditures and other investments;
general economic conditions, especially in the New York City metropolitan area where we conduct the majority of our operations;
the demand for sponsorship arrangements and for advertising;
competition, for example, from other teams, other venues and other sports and entertainment options;
changes in laws, NBA or NHL rules, regulations, guidelines, bulletins, directives, policies and agreements (including the leagues’ respective collective bargaining agreements with their players’ associations, salary caps, revenue sharing, NBA luxury tax thresholds and telecast rights) or other regulations under which we operate;
any NBA or NHL work stoppage;
seasonal fluctuations and other variation in our operating results and cash flow from period to period;
the level of our expenses, including our corporate expenses as a standalone publicly traded company;
the successful development of new live productions or enhancements to existing productions and the investments associated with such development or enhancements, including the Rockettes New York Spectacular, the Company’s newest large scale theatrical production;
the acquisition or disposition of assets or businesses and/or the impact of, and our ability to successfully pursue, acquisitions or other strategic transactions;
the operating and financial performance of our strategic acquisitions and investments, including those we do not control;
the costs associated with, and the outcome of, litigation and other proceedings to the extent uninsured;
the impact of governmental regulations or laws, including changes in how those regulations and laws are interpreted and the continued benefit of certain tax exemptions and the ability to maintain necessary permits or licenses;
financial community and rating agency perceptions of our business, operations, financial condition and the industry in which we operate;
our ownership of professional sports franchises in the NBA and NHL and certain transfer restrictions on our common stock; and
the factors described under “Risk Factors” contained in Amendment No. 6 to our Registration Statement on Form 10 filed with the SEC on September 11, 2015.

25


We disclaim any obligation to update or revise the forward-looking statements contained herein, except as otherwise required by applicable federal securities laws.
All dollar amounts included in the following MD&A are presented in thousands, except as otherwise noted.
Introduction
MD&A is provided as a supplement to, and should be read in conjunction with, the Company's unaudited Financial Statements and accompanying notes thereto included in this Quarterly Report on Form 10-Q, as well as the Company's audited annual financial statements included in Amendment No. 6 to our Registration Statement on Form 10 filed with the SEC on September 11, 2015 to help provide an understanding of our financial condition, changes in financial condition and results of operations. Unless the context otherwise requires, all references to “we,” “us,” “our,” “Madison Square Garden” or the “Company” refer collectively to The Madison Square Garden Company, a holding company, and its direct and indirect subsidiaries through which substantially all of our operations are actually conducted. The Company is comprised of two reportable segments: MSG Entertainment and MSG Sports. MSG Entertainment presents or hosts live entertainment events, such as concerts, family shows, performing arts and special events, in the Company's diverse collection of venues. MSG Entertainment also creates, produces and/or presents live productions, including the Radio City Christmas Spectacular and the Rockettes New York Spectacular, both starring the Rockettes, that are performed in the Company's venues. MSG Sports owns and operates the following professional sports franchises: the Knicks of the NBA, the Rangers of the NHL, the Liberty of the WNBA, the Hartford Wolf Pack of the AHL, which is the primary player development team for the Rangers, and the Westchester Knicks, an NBADL team. MSG Sports also promotes, produces and/or presents a broad array of other live sporting events outside of its teams' events.
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 Garden and The 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.
Factors Affecting Results of Operations
The consolidated statement of operations for the three months ended December 31, 2015 is presented on a consolidated basis, as the Company became a standalone public company on September 30, 2015. The Company's combined statements of operations for the three and six months ended December 31, 2014, as well as the financial information for the three months ended September 30, 2015 that is included in the results of operations for the six months ended December 31, 2015 were prepared on a standalone basis derived from the consolidated financial statements and accounting records of Former Parent and are presented as carve-out financial statements as the Company was not a standalone public company prior to the Distribution.
The combined statements of operations for the three and six months ended December 31, 2014, as well as the financial information for the three months ended September 30, 2015 that is included in the results of operations for the six months ended December 31, 2015, include allocations for certain support functions that were provided on a centralized basis by MSG Networks and not historically recorded at the business unit level, such as expenses related to finance, human resources, information technology, and facilities, among others. These expenses were allocated on the basis of direct usage when identifiable, with the remainder allocated on a pro-rata basis of combined revenues, headcount or other measures. 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 separate, standalone company during the periods presented. Actual costs that would have been incurred if the Company had been a separate, standalone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.
This MD&A is organized as follows:
Results of Operations. This section provides an analysis of our unaudited results of operations for the three and six months ended December 31, 2015 compared to the three and six months ended December 31, 2014 on a consolidated and where applicable, combined and segment basis.
Liquidity and Capital Resources. This section provides a discussion of our financial condition and liquidity, an analysis of our cash flows for the six months ended December 31, 2015 compared to the six months ended December 31, 2014, as well as certain contractual obligations and off balance sheet arrangements.
Seasonality of Our Business. This section discusses the seasonal performance of our segments.

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