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EX-32.2 - EXHIBIT 32.2 - Madison Square Garden Cotmsgcexhibit3221231201810q.htm
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EX-31.2 - EXHIBIT 31.2 - Madison Square Garden Cotmsgcexhibit3121231201810q.htm
EX-31.1 - EXHIBIT 31.1 - Madison Square Garden Cotmsgcexhibit3111231201810q.htm
EX-10.2 - EXHIBIT 10.2 - Madison Square Garden Cotmsgcexhibit1021231201810q.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, 2018
OR
 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to
Commission File Number: 1-36900
tmsgclogo1231201810q.jpg
(Exact name of registrant as specified in its charter) 
Delaware
 
47-3373056
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
_______________________ 
Two Penn Plaza
New York, NY 10121
(212) 465-6000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
_______________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
 
Accelerated filer
o
Non-accelerated filer
o
 
Smaller reporting company
o
 
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes þ No
Number of shares of common stock outstanding as of January 31, 2019:  
Class A Common Stock par value $0.01 per share
 —
19,228,993

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






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




PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
 
 
December 31,
2018
 
June 30,
2018
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Current Assets:
 
 
 
 
Cash and cash equivalents
 
$
1,227,861

 
$
1,225,638

Restricted cash
 
23,717

 
30,982

Accounts receivable, net
 
157,310

 
100,725

Net related party receivables
 
2,394

 
567

Prepaid expenses
 
53,351

 
28,761

Other current assets
 
50,441

 
28,996

Total current assets
 
1,515,074

 
1,415,669

Investments and loans to nonconsolidated affiliates
 
94,292

 
209,951

Property and equipment, net of accumulated depreciation and amortization of $761,165 and $713,357 as of December 31, 2018 and June 30, 2018, respectively
 
1,288,412

 
1,253,671

Amortizable intangible assets, net
 
232,353

 
243,806

Indefinite-lived intangible assets
 
175,985

 
175,985

Goodwill
 
392,513

 
392,513

Other assets
 
99,880

 
44,578

Total assets
 
$
3,798,509

 
$
3,736,173

 
 
 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.

1



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

 
 
December 31,
2018
 
June 30,
2018
 
 
(Unaudited)
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
 
 
Current Liabilities:
 
 
 
 
Accounts payable
 
$
34,300

 
$
28,939

Net related party payables, current
 
21,616

 
13,675

Current portion of long-term debt, net of deferred financing costs
 
2,417

 
4,365

Accrued liabilities:
 
 
 
 
Employee related costs
 
115,259

 
123,992

Other accrued liabilities
 
194,687

 
180,272

Collections due to promoters
 
60,069

 
89,513

Deferred revenue
 
299,646

 
324,749

Total current liabilities
 
727,994

 
765,505

Related party payables, noncurrent
 
172

 

Long-term debt, net of deferred financing costs
 
100,429

 
101,335

Defined benefit and other postretirement obligations
 
38,192

 
49,240

Other employee related costs
 
66,985

 
53,501

Deferred tax liabilities, net
 
80,042

 
78,968

Other liabilities
 
64,536

 
56,905

Total liabilities
 
1,078,350

 
1,105,454

Commitments and contingencies (see Note 9)
 

 

Redeemable noncontrolling interests
 
72,770

 
76,684

The Madison Square Garden Company Stockholders’ Equity:
 
 
 
 
Class A Common stock, par value $0.01, 120,000 shares authorized; 19,229 and 19,136 shares outstanding as of December 31, 2018 and June 30, 2018, respectively
 
204

 
204

Class B Common stock, par value $0.01, 30,000 shares authorized; 4,530 shares outstanding as of December 31, 2018 and June 30, 2018
 
45

 
45

Preferred stock, par value $0.01, 15,000 shares authorized; none outstanding as of December 31, 2018 and June 30, 2018
 

 

Additional paid-in capital
 
2,812,880

 
2,817,873

Treasury stock, at cost, 1,219 and 1,312 shares as of December 31, 2018 and June 30, 2018, respectively
 
(207,790
)
 
(223,662
)
Retained earnings (accumulated deficit)
 
66,963

 
(11,059
)
Accumulated other comprehensive loss
 
(43,897
)
 
(46,918
)
Total The Madison Square Garden Company stockholders’ equity
 
2,628,405

 
2,536,483

Nonredeemable noncontrolling interests
 
18,984

 
17,552

Total equity
 
2,647,389

 
2,554,035

Total liabilities, redeemable noncontrolling interests and equity
 
$
3,798,509

 
$
3,736,173


See accompanying notes to consolidated financial statements.

2


THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
 
 
Three Months Ended
 
Six Months Ended
 
December 31,
 
December 31,
 
2018
 
2017
 
2018
 
2017
Revenues (a)
 
$
632,187

 
$
536,302

 
$
850,322

 
$
781,517

 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
Direct operating expenses (b)
 
386,809

 
311,614

 
510,718

 
435,094

Selling, general and administrative expenses (c)
 
136,935

 
120,729

 
252,256

 
226,413

Depreciation and amortization
 
30,166

 
30,544

 
59,856

 
61,090

Operating income
 
78,277

 
73,415

 
27,492

 
58,920

Other income (expense):
 
 
 
 
 
 
 
 
Earnings (loss) in equity method investments
 
9,487

 
(2,608
)
 
20,012

 
2,117

Interest income (d)
 
6,899

 
5,378

 
14,073

 
9,764

Interest expense
 
(5,176
)
 
(3,798
)
 
(9,209
)
 
(7,509
)
Miscellaneous expense, net
 
(12,863
)
 
(1,228
)
 
(9,096
)
 
(2,238
)
 
 
(1,653
)
 
(2,256
)
 
15,780

 
2,134

Income from operations before income taxes
 
76,624

 
71,159

 
43,272

 
61,054

Income tax benefit (expense)
 
(656
)
 
116,832

 
(1,352
)
 
116,070

Net income
 
75,968

 
187,991

 
41,920

 
177,124

Less: Net income (loss) attributable to redeemable noncontrolling interests
 
(3,142
)
 
(767
)
 
(3,655
)
 
133

Less: Net loss attributable to nonredeemable noncontrolling interests
 
(2,489
)
 
(855
)
 
(3,812
)
 
(1,515
)
Net income attributable to The Madison Square Garden Company’s stockholders
 
$
81,599

 
$
189,613

 
$
49,387

 
$
178,506

 
 
 
 
 
 
 
 
 
Basic earnings per common share attributable to The Madison Square Garden Company’s stockholders
 
$
3.43

 
$
8.03

 
$
2.08

 
$
7.57

Diluted earnings per common share attributable to The Madison Square Garden Company’s stockholders
 
$
3.42

 
$
7.96

 
$
2.07

 
$
7.48

Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
23,777

 
23,621

 
23,742

 
23,594

Diluted
 
23,840

 
23,813

 
23,860

 
23,861

_________________
(a) 
Includes revenues from related parties of $65,012 and $41,131 for the three months ended December 31, 2018 and 2017, respectively, and $71,746 and $77,041 for the six months ended December 31, 2018 and 2017, respectively.
(b) 
Includes net charges from related parties of $325 and $425 for the three months ended December 31, 2018 and 2017, respectively, and $489 and $571 for the six months ended December 31, 2018 and 2017, respectively.
(c) 
Includes net charges to related parties of $1,772 and $1,186 for the three months ended December 31, 2018 and 2017, respectively, and $3,441 and $2,624 for the six months ended December 31, 2018 and 2017, respectively.
(d) 
Includes interest income from nonconsolidated affiliates of $1,181 and $2,154 for the three months ended December 31, 2018 and 2017, respectively, and $2,334 and $3,317 for the six months ended December 31, 2018 and 2017, respectively.

See accompanying notes to consolidated financial statements.

3


THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
 
 
Three Months Ended
 
Six Months Ended
 
 
December 31,
 
December 31,
 
 
2018
 
2017
 
2018
 
2017
Net income
 
 
 
$
75,968

 
 
 
$
187,991

 
 
 
$
41,920

 
 
 
$
177,124

Other comprehensive income (loss), before income taxes:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pension plans and postretirement plan:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amounts reclassified from accumulated other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of actuarial loss included in net periodic benefit cost
 
$
328

 
 
 
$
280

 
 
 
$
656

 

 
$
620

 

Amortization of prior service credit included in net periodic benefit cost
 
(2
)
 
326

 
(6
)
 
274

 
(3
)
 
653

 
(18
)
 
602

Cumulative translation adjustments
 
 
 
(2,251
)
 
 
 
2,277

 
 
 
(3,202
)
 
 
 
2,277

Net changes related to available-for-sale securities
 
 
 

 
 
 
(7,443
)
 
 
 

 
 
 
(8,213
)
Other comprehensive loss
 
 
 
(1,925
)
 
 
 
(4,892
)
 
 
 
(2,549
)
 
 
 
(5,334
)
Comprehensive income
 
 
 
74,043

 
 
 
183,099

 

 
39,371

 
 
 
171,790

Less: Comprehensive income (loss) attributable to redeemable noncontrolling interests
 
 
 
(3,142
)
 
 
 
(767
)
 
 
 
(3,655
)
 
 
 
133

Less: Comprehensive loss attributable to nonredeemable noncontrolling interests
 
 
 
(2,489
)
 
 
 
(855
)
 
 
 
(3,812
)
 
 
 
(1,515
)
Comprehensive income attributable to The Madison Square Garden Company’s stockholders
 
 
 
$
79,674

 
 
 
$
184,721

 
 
 
$
46,838

 
 
 
$
173,172


See accompanying notes to consolidated financial statements.


4


THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
 
Six Months Ended
 
 
December 31,

 
2018
 
2017
Cash flows from operating activities:
 
 
 
 
Net income
 
$
41,920

 
$
177,124

Adjustment to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
59,856

 
61,090

Provision for (benefit from) deferred income taxes
 
1,074

 
(116,112
)
Share-based compensation expense
 
30,404

 
26,816

Earnings in equity method investments
 
(20,012
)
 
(2,117
)
Purchase accounting adjustments associated with rent-related intangibles and deferred rent
 
2,167

 
2,280

Unrealized loss on equity investment with readily determinable fair value
 
7,667

 

Other non-cash adjustments
 
494

 
1,133

Change in assets and liabilities, net of acquisitions:
 
 
 
 
Accounts receivable, net
 
(56,781
)
 
(16,896
)
Net related party receivables
 
(1,827
)
 
1,190

Prepaid expenses and other assets
 
(33,844
)
 
(13,305
)
Accounts payable
 
5,361

 
14,544

Net related party payables
 
8,113

 
3,621

Accrued and other liabilities
 
10,045

 
(85,656
)
Collections due to promoters
 
(29,444
)
 
(21,986
)
Deferred revenue
 
3,326

 
20,873

Net cash provided by operating activities
 
28,519

 
52,599

Cash flows from investing activities:
 
 
 
 
Capital expenditures, net of acquisitions
 
(81,053
)
 
(127,684
)
Payments for acquisition of assets
 

 
(6,000
)
Payments for acquisition of businesses, net of cash acquired
 

 
(8,288
)
Investments and loans to nonconsolidated affiliates
 
(52,064
)
 
(3,000
)
Proceeds from sale of nonconsolidated affiliate
 
125,000

 

Loan payment received
 

 
2,600

Cash paid for notes receivable
 
(7,761
)
 
(1,500
)
Net cash used in investing activities
 
(15,878
)
 
(143,872
)
Cash flows from financing activities:
 
 
 
 
Repurchases of common stock
 

 
(11,830
)
Taxes paid in lieu of shares issued for equity-based compensation
 
(19,525
)
 
(12,232
)
Noncontrolling interest holders capital contribution
 
5,026

 

Distributions to noncontrolling interest holders
 
(259
)
 
(3,750
)
Loans from noncontrolling interest holders
 
606

 

Principal repayment on long-term debt
 
(3,929
)
 

Payment of contingent consideration
 

 
(4,000
)
Payments for financing costs
 

 
(62
)
Net cash used in financing activities
 
(18,081
)
 
(31,874
)
Effect of exchange rates on cash, cash equivalents and restricted cash
 
398

 
12

Net decrease in cash, cash equivalents and restricted cash
 
(5,042
)
 
(123,135
)
Cash, cash equivalents and restricted cash at beginning of period
 
1,256,620

 
1,272,114

Cash, cash equivalents and restricted cash at end of period
 
$
1,251,578

 
$
1,148,979

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

 
$
14

Capital expenditures incurred but not yet paid
 
6,788

 
5,764

Tenant improvement paid by landlord
 
11,114

 

Accrued earn-out liability and other contingencies
 

 
4,504

Acquisition of assets not yet paid
 

 
3,000

See accompanying notes to consolidated financial statements.

5


THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
(Unaudited)
(in thousands) 
 
 
Three Months Ended December 31, 2018
 
 
Common
Stock
Issued
 
Additional
Paid-In
Capital
 
Treasury
Stock
 
Retained Earnings (Accumulated Deficit)
 
Accumulated
Other
Comprehensive
Loss
 
Total The Madison Square Garden Company Stockholders Equity
 
Non -
redeemable
Noncontrolling
Interests
 
Total Equity
 
Redeemable
Noncontrolling
 Interests
Balance as of September 30, 2018
 
$
249

 
$
2,795,544

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

 
$
19,546

 
$
2,549,756

 
$
75,912

Net income (loss)
 

 

 

 
81,599

 

 
81,599

 
(2,489
)
 
79,110

 
(3,142
)
Other comprehensive loss
 

 

 

 

 
(1,925
)
 
(1,925
)
 

 
(1,925
)
 

Comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
79,674

 
(2,489
)
 
77,185

 
(3,142
)
Share-based compensation
 

 
20,215

 

 

 

 
20,215

 

 
20,215

 

Tax withholding associated with shares issued for equity-based compensation
 

 
(1,694
)
 

 

 

 
(1,694
)
 

 
(1,694
)
 

Common stock issued under stock incentive plans
 

 
(1,185
)
 
1,185

 

 

 

 

 

 

Contribution of joint venture interests
 

 

 

 

 

 

 
1,927

 
1,927

 

Balance as of December 31, 2018
 
$
249

 
$
2,812,880

 
$
(207,790
)
 
$
66,963

 
$
(43,897
)
 
$
2,628,405

 
$
18,984

 
$
2,647,389

 
$
72,770


See accompanying notes to consolidated financial statements.



6


THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS (Continued)
(Unaudited)
(in thousands) 
 
 
Three Months Ended December 31, 2017
 
 
Common Stock Issued
 
Additional
Paid-In
Capital
 
Treasury
Stock
 
Retained Earnings (Accumulated Deficit)
 
Accumulated
Other
Comprehensive Loss
 
Total The Madison Square Garden Company Stockholders Equity
 
Non -
redeemable
Noncontrolling
Interests
 
Total Equity
 
Redeemable
Noncontrolling
Interests
Balance as of September 30, 2017
 
$
249

 
$
2,826,590

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

 
$
18,624

 
$
2,413,537

 
$
81,530

Net income (loss)
 

 

 

 
189,613

 

 
189,613

 
(855
)
 
188,758

 
(767
)
Other comprehensive loss
 

 

 

 

 
(4,892
)
 
(4,892
)
 

 
(4,892
)
 

Comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
184,721

 
(855
)
 
183,866

 
(767
)
Share-based compensation
 

 
13,912

 

 

 

 
13,912

 

 
13,912

 

Tax withholding associated with shares issued for equity-based compensation
 

 
(1,359
)
 

 

 

 
(1,359
)
 

 
(1,359
)
 

Common stock issued under stock incentive plans
 

 
(1,023
)
 
1,023

 

 

 

 

 

 

Repurchases of common stock
 

 

 
(8,069
)
 

 

 
(8,069
)
 

 
(8,069
)
 

Distributions to noncontrolling interest holders
 

 

 

 

 

 

 
(210
)
 
(210
)
 
(2,944
)
Balance as of December 31, 2017
 
$
249

 
$
2,838,120

 
$
(242,495
)
 
$
27,693

 
$
(39,449
)
 
$
2,584,118

 
$
17,559

 
$
2,601,677

 
$
77,819


See accompanying notes to consolidated financial statements.


7


THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS (Continued)
(Unaudited)
(in thousands) 
 
 
Six Months Ended December 31, 2018
 
 
Common
Stock
Issued
 
Additional
Paid-In
Capital
 
Treasury
Stock
 
Retained Earnings (Accumulated Deficit)
 
Accumulated
Other
Comprehensive
Loss
 
Total The Madison Square Garden Company Stockholders Equity
 
Non -
redeemable
Noncontrolling
Interests
 
Total Equity
 
Redeemable
Noncontrolling
 Interests
Balance as of June 30, 2018
 
$
249

 
$
2,817,873

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

 
$
17,552

 
$
2,554,035

 
$
76,684

Adoption of ASU No. 2016-01
 

 

 

 
(5,570
)
 
5,570

 

 

 

 

Adoption of ASC Topic 606
 

 

 

 
34,205

 

 
34,205

 

 
34,205

 

Net income (loss)
 

 

 

 
49,387

 

 
49,387

 
(3,812
)
 
45,575

 
(3,655
)
Other comprehensive loss
 

 

 

 

 
(2,549
)
 
(2,549
)
 

 
(2,549
)
 

Comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
46,838

 
(3,812
)
 
43,026

 
(3,655
)
Share-based compensation
 

 
30,404

 

 

 

 
30,404

 

 
30,404

 

Tax withholding associated with shares issued for equity-based compensation
 

 
(19,525
)
 

 

 

 
(19,525
)
 

 
(19,525
)
 

Common stock issued under stock incentive plans
 

 
(15,872
)
 
15,872

 

 

 

 

 

 

Distributions to noncontrolling interest holders
 

 

 

 

 

 

 

 

 
(259
)
Contribution of joint venture interests
 

 

 

 

 

 

 
5,244

 
5,244

 

Balance as of December 31, 2018
 
$
249

 
$
2,812,880

 
$
(207,790
)
 
$
66,963

 
$
(43,897
)
 
$
2,628,405

 
$
18,984

 
$
2,647,389

 
$
72,770


See accompanying notes to consolidated financial statements.


8


THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS (Continued)
(Unaudited)
(in thousands) 
 
 
Six Months Ended December 31, 2017
 
 
Common Stock Issued
 
Additional
Paid-In
Capital
 
Treasury
Stock
 
Retained Earnings (Accumulated Deficit)
 
Accumulated
Other
Comprehensive Loss
 
Total The Madison Square Garden Company Stockholders Equity
 
Non -
redeemable
Noncontrolling
Interests
 
Total Equity
 
Redeemable
Noncontrolling
Interests
Balance as of June 30, 2017
 
$
249

 
$
2,832,516

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

 
$
11,698

 
$
2,419,861

 
$
80,630

Change in accounting policy related to share-based forfeiture rates
 

 
2,403

 

 
(2,403
)
 

 

 

 

 

Net income (loss)
 

 

 

 
178,506

 

 
178,506

 
(1,515
)
 
176,991

 
133

Other comprehensive loss
 

 

 

 

 
(5,334
)
 
(5,334
)
 

 
(5,334
)
 

Comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
173,172

 
(1,515
)
 
171,657

 
133

Share-based compensation
 

 
26,845

 

 

 

 
26,845

 

 
26,845

 

Tax withholding associated with shares issued for equity-based compensation
 

 
(12,232
)
 

 

 

 
(12,232
)
 

 
(12,232
)
 

Common stock issued under stock incentive plans
 

 
(11,412
)
 
11,412

 

 

 

 

 

 

Repurchases of common stock
 

 

 
(11,830
)
 

 

 
(11,830
)
 

 
(11,830
)
 

Distributions to noncontrolling interest holders
 

 

 

 

 

 

 
(806
)
 
(806
)
 
(2,944
)
Noncontrolling interests from acquisitions
 

 

 

 

 

 

 
8,182

 
8,182

 

Balance as of December 31, 2017
 
$
249

 
$
2,838,120

 
$
(242,495
)
 
$
27,693

 
$
(39,449
)
 
$
2,584,118

 
$
17,559

 
$
2,601,677

 
$
77,819


See accompanying notes to consolidated financial statements.

9



THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
All amounts included in the following Notes to Consolidated Financial Statements are presented in thousands, except per share data or as otherwise noted.
Note 1. Description of Business and Basis of Presentation
Description of Business
The Madison Square Garden Company (together with its subsidiaries, the “Company” or “Madison Square Garden”) is a live sports and entertainment business. The Company classifies its business interests into two reportable segments: MSG Entertainment and MSG Sports. MSG Entertainment includes live entertainment events such as concerts, family shows, performing arts and special events, which are presented or hosted in the Company’s diverse collection of venues along with live offerings through TAO Group Holdings LLC (“TAO Group”) and Boston Calling Events LLC (“BCE”). TAO Group is a hospitality group with globally-recognized entertainment dining and nightlife brands, including: TAO, Marquee, Lavo, Avenue, Beauty & Essex and Vandal. BCE produces New England’s premier live music festival, Boston Calling Music Festival. The MSG Entertainment segment also includes the Company’s original production — the Christmas Spectacular Starring the Radio City Rockettes (the “Christmas Spectacular”) — and Obscura Digital (“Obscura”), a creative studio, which the Company acquired in November 2017.
MSG Sports includes the Company’s professional sports franchises: the New York Knicks (the “Knicks”) of the National Basketball Association (the “NBA”), the New York Rangers (the “Rangers”) of the National Hockey League (the “NHL”), the Hartford Wolf Pack of the American Hockey League (the “AHL”) and the Westchester Knicks of the NBA G League (the “NBAGL”). The professional sports franchises are collectively referred to herein as “the sports teams.” For all periods presented, MSG Sports also included the New York Liberty (the “Liberty”) of the Women’s National Basketball Association (the “WNBA”), which was sold in January 2019 (see Note 19). The MSG Sports segment also includes other live sporting events, including professional boxing, college basketball, college hockey, professional bull riding, mixed martial arts, esports, tennis and college wrestling, all of which the Company promotes, produces and/or presents. In addition, the MSG Sports segment includes Counter Logic Gaming (“CLG”), a premier North American esports organization, which the Company acquired in July 2017, and Knicks Gaming, the Company’s franchise that competes in the NBA 2K League. CLG and Knicks Gaming are collectively referred to herein as “the esports teams,” and together with the sports teams, “the teams.”
The Company conducts a significant portion of its operations at venues that it either owns or operates under long-term leases. The Company owns the Madison Square Garden Arena (“The Garden”) and Hulu Theater at Madison Square Garden in New York City, the Forum in Inglewood, CA and The Chicago Theatre in Chicago. In addition, the Company leases Radio City Music Hall and the Beacon Theatre in New York City, and has a booking agreement with respect to the Wang Theatre in Boston. Additionally, TAO Group operates various restaurants, nightlife and hospitality venues under long-term leases and management contracts in New York, Las Vegas, Los Angeles, Chicago, Australia and Singapore.
The Company was incorporated on March 4, 2015 as an indirect, wholly-owned subsidiary of MSG Networks Inc. (“MSG Networks”), formerly known as The Madison Square Garden Company. On September 11, 2015, MSG Networksboard of directors approved the distribution of all the outstanding common stock of Madison Square Garden to MSG Networks’ stockholders (the “2015 Distribution”), which occurred on September 30, 2015. See Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2018 for more information regarding the 2015 Distribution to its common stockholders.
Potential Spin-off Transaction
On June 27, 2018, the Company announced that its board of directors (“Board”) has authorized the Company’s management to explore a possible spin-off that would create a separately-traded public company comprised of its sports businesses, including the New York Knicks and New York Rangers professional sports franchises (the “Sports Distribution”). On October 4, 2018, in connection with the Sports Distribution, a subsidiary of the Company submitted an initial Registration Statement on Form 10 with the U.S. Securities and Exchange Commission (“SEC”) (which has been amended). If the Company proceeds with the Sports Distribution, it would be structured as a tax-free transaction to the Company’s stockholders. Upon completion of the contemplated separation, record holders of the Company’s common stock would receive a pro-rata distribution, expected to be equivalent, in the aggregate, to an approximately two-thirds economic interest in the sports company. The remaining common stock, expected to be equivalent to an approximately one-third economic interest in the sports company, would be retained by the Company. There can be no assurance that the proposed transaction will be completed in the manner described above, or at all. The Company’s management is working to complete the proposed transaction in the second half of calendar year 2019. Completion of the transaction would be subject to various conditions, including certain league approvals, a private letter ruling

10



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


from the Internal Revenue Service (“IRS”), receipt of a tax opinion from counsel and final Board approval. The Company will maintain the current operating structure and will continue to report the financial results of its sports business in continuing operations until the Sports Distribution is completed.
Basis of Presentation
The accompanying unaudited consolidated interim financial statements (referred to as the “Financial Statements” herein) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information, and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2018 (“fiscal year 2018”). The Financial Statements presented in this Quarterly Report on Form 10-Q are unaudited; however, in the opinion of management, the Financial Statements reflect all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented. The results of operations for the periods presented are not necessarily indicative of the results that might be expected for future interim periods or for the full year. The dependence of the MSG Entertainment segment on revenues from the Christmas Spectacular generally means it earns a disproportionate share of its revenues in the second quarter of the Company’s fiscal year. The dependence of the MSG Sports segment on revenues from its NBA and NHL sports teams generally means it earns a disproportionate share of its revenues in the second and third quarters of the Company’s fiscal year. This impact will be more significant as a result of the adoption of ASC Topic 606 (as defined below).
Reclassifications
Certain reclassifications have been made in order to conform to the current period’s presentation. The reclassifications primarily relate to: (i) the presentation in the consolidated statement of cash flows for the prior year period in connection with the adoption of Accounting Standards Update (“ASU”) No. 2016-18, Statement of Cash Flows: Restricted Cash, (ii) the presentation of the non-service cost components of net periodic pension and postretirement benefit cost in the consolidated statement of operations for the prior year period in connection with the adoption of ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, (iii) segregation of amounts due to promoters from deferred revenue in connection with the adoption of Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (Topic 606) (referred to herein as “ASC Topic 606”), and (iv) an indefinite-lived intangible asset that was previously reported under other assets. See Note 2 for further details related to the adoption of ASU No. 2016-18, ASU No. 2017-07 and ASC Topic 606.
Note 2. Accounting Policies
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of The Madison Square Garden Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. In addition, the consolidated financial statements of the Company include the accounts from TAO Group, BCE and CLG, in which the Company has controlling voting interests. The Company’s consolidation criteria are based on authoritative accounting guidance for voting interest, controlling interest or variable interest entities. TAO Group, BCE and CLG are consolidated with the equity owned by other shareholders shown as redeemable or nonredeemable noncontrolling interests in the accompanying consolidated balance sheets, and the other shareholders’ portion of net earnings (loss) and other comprehensive income (loss) shown as net income (loss) or comprehensive income (loss) attributable to redeemable or nonredeemable noncontrolling interests in the accompanying consolidated statements of operations and consolidated statements of comprehensive income (loss), respectively. See Note 2 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2018 for more information regarding the classification of redeemable noncontrolling interests of TAO Group. In addition, TAO Group’s results are reported on a three-month lag basis and TAO Group reports on a fiscal year reflecting the retail-based calendar (containing 4-4-5 week calendar quarters). Accordingly, the Company’s results for the three months ended December 31, 2018 and 2017 include TAO Group’s operating results from July 2, 2018 to September 30, 2018 and June 26, 2017 to September 24, 2017, respectively and the Company’s results for the six months ended December 31, 2018 and 2017 include TAO Group’s operating results from April 2, 2018 to September 30, 2018 and March 27, 2017 to September 24, 2017, respectively.

11



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


Use of Estimates
The preparation of the accompanying Financial Statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amount of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the valuation of accounts receivable, investments, goodwill, intangible assets, other long-lived assets, tax accruals and other liabilities. In addition, estimates are used in revenue recognition, revenue sharing expense (net of escrow), luxury tax, income tax, performance and share-based compensation, depreciation and amortization, litigation matters and other matters, as well as in the valuation of contingent consideration and noncontrolling interests resulting from business combination transactions. Management believes its use of estimates in the Financial Statements are reasonable.
Management evaluates its estimates on an ongoing basis using historical experience and other factors, including the general economic environment and actions it may take in the future. The Company adjusts such estimates when facts and circumstances dictate. However, these estimates may involve significant uncertainties and judgments and cannot be determined with precision. In addition, these estimates are based on management’s best judgment at a point in time and, as such, these estimates may ultimately differ from actual results. Changes in estimates resulting from weakness in the economic environment or other factors beyond the Company’s control could be material and would be reflected in the Company’s financial statements in future periods.
Summary of Significant Accounting Policies
The following is an update to the Company’s Summary of Significant Accounting Policies disclosed in its Annual Report on Form 10-K for the year ended June 30, 2018:
Revenue Recognition
Amounts due to third-party promoters of $89,513, which were previously reported as Deferred revenue in the accompanying consolidated balance sheet as of June 30, 2018, are now reported as Collections due to promoters in the accompanying consolidated balance sheet. In addition, see Recently Adopted Accounting Pronouncements below for disclosure related to the transitional impact of adopting ASC Topic 606 and Note 3 for other disclosure required under ASC Topic 606.
Recently Issued Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition. Subsequently, the FASB issued various updates related to ASC Topic 606 including: (i) ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, (ii) ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue versus Net), (iii) ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, (iv) ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical Expedients, and (v) ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The Company adopted ASC Topic 606 in the first quarter of fiscal year 2019 using the modified retrospective method for those contracts with customers which were not completed as of July 1, 2018. Results for reporting periods beginning after July 1, 2018 are presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the historic accounting guidance under ASC Topic 605.

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

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


12



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


The Company also enters into arrangements with multiple performance obligations, such as multi-year sponsorship agreements. To the extent these arrangements provide for performance obligations that are consistent over the multi-year contractual term, such performance obligations generally meet the definition of a series as provided for under the provisions of ASC Topic 606. As a result, the contractual fees for all years during the contract term are aggregated and the related revenue is recognized proportionately as the underlying performance obligations are satisfied. In general, sponsorship revenue was previously recognized by treating each year of the arrangement as a discrete contract year, and as such the stated contract price was recognized in each year.
Furthermore, the timing of certain fulfillment costs associated with performance obligations, primarily professional sports teams’ operating expenses, were also similarly impacted within the fiscal year.
The adoption of ASC Topic 606 had the following impact on revenues, operating expenses and operating income for the three and six months ended December 31, 2018:
 
 
Three Months Ended December 31, 2018
 
 
As reported under
ASC Topic 606
 
Changes due to
the adoption of
ASC Topic 606 (a)
 
Amounts without adoption
of ASC Topic 606
Revenues
 
$
632,187

 
$
(38,589
)
 
$
593,598

 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
Direct operating expenses
 
386,809

 
(7,117
)
 
379,692

Selling, general and administrative expenses
 
136,935

 

 
136,935

Depreciation and amortization
 
30,166

 

 
30,166

Operating income
 
$
78,277

 
$
(31,472
)
 
$
46,805


 
 
Six Months Ended December 31, 2018
 
 
As reported under
ASC Topic 606
 
Changes due to
the adoption of
ASC Topic 606 (a)
 
Amounts without adoption
of ASC Topic 606
Revenues
 
$
850,322

 
$
1,769

 
$
852,091

 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
Direct operating expenses
 
510,718

 
(2,336
)
 
508,382

Selling, general and administrative expenses
 
252,256

 

 
252,256

Depreciation and amortization
 
59,856

 

 
59,856

Operating income
 
$
27,492

 
$
4,105

 
$
31,597

_________________
(a) 
See Note 18 for the impact of the adoption of ASC Topic 606 on the Company’s reportable segments results of operations.

13



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


In accordance with the new revenue recognition standard disclosure requirements, the following tables summarize the impact of adopting ASC Topic 606 on the Company’s consolidated balance sheet as of July 1, 2018.
 
 
Consolidated Balance Sheet As of July 1, 2018
 
 
Amounts without
the adoption
of ASC Topic 606
 
Changes due to
the adoption of
ASC Topic 606
 
Adjusted under
ASC Topic 606
ASSETS
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
Other current assets
 
$
28,996

 
$
4,366

 
$
33,362

Total current assets
 
1,415,669

 
4,366

 
1,420,035

Total assets
 
$
3,736,173

 
$
4,366

 
$
3,740,539

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

 
$
79

 
$
124,071

Other accrued liabilities
 
180,272

 
562

 
180,834

Deferred revenue
 
324,749

 
(30,480
)
 
294,269

Total current liabilities
 
765,505

 
(29,839
)
 
735,666

Total liabilities
 
1,105,454

 
(29,839
)
 
1,075,615

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

 
23,146

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

 
34,205

 
2,570,688

Total equity
 
2,554,035

 
34,205

 
2,588,240

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

 
$
4,366

 
$
3,740,539

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This standard, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income and (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. In February 2018, the FASB issued ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which clarifies certain aspects of the guidance issued in ASU No. 2016-01. Among other things, the amendment clarifies that an entity that uses the measurement alternative for equity securities without readily determinable fair values can change its measurement approach to fair value. Once the election is made, the measurement approach is irrevocable and the entity is required to apply the selected approach to that security and all identical or similar investments of the same issuer. This change in accounting is expected to create greater volatility in the Company’s miscellaneous income (expense) in the future. The primary impact of the adoption of ASU No. 2016-01 and ASU No. 2018-03 relate to the Company’s available-for-sale equity investment and resulted in unrecognized gains and losses from such investment being reflected in the Company’s consolidated statements of operations beginning in fiscal year 2019. The Company adopted ASU No. 2016-01 and ASU No. 2018-03 in the first quarter of fiscal year 2019 and recorded a cumulative-effect adjustment to the balance sheet by reclassifying the balance of the Accumulated other comprehensive loss to Accumulated deficit of $5,570 including income tax expense effect of $3,104. See Notes 7 and 10 for more information on the Company’s equity investment with readily determinable fair value in Townsquare Media, Inc. (“Townsquare”).

14



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


In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230). ASU No. 2016-15 addresses eight specific cash flow issues and is intended to reduce diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The Company adopted this standard in the first quarter of fiscal year 2019 retrospectively. The adoption of this standard did not have an impact on the Company’s consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. ASU No. 2016-16 requires the recognition of income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The Company adopted this standard in the first quarter of fiscal year 2019 on a modified retrospective basis. The adoption of this standard did not have an impact on the Company’s consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash. The primary purpose of ASU No. 2016-18 is to reduce diversity in the classification and presentation of changes in restricted cash on the statement of cash flows. This standard requires that a statement of cash flows explains the change during the period in total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this standard in the first quarter of fiscal year 2019 retrospectively and it resulted in a decrease to net cash flows provided by operating activities of $10,668 for the six months ended December 31, 2017. See Note 6 for a reconciliation of the cash, cash equivalents and restricted cash reported in the Company’s consolidated balance sheets to the amounts as reported on the consolidated statements of cash flows.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business. The primary purpose of this ASU is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses, which will affect many areas of accounting, including acquisitions, disposals, goodwill, and consolidation. The Company adopted this standard in the first quarter of fiscal year 2019. The adoption of this standard did not have an impact on the Company’s consolidated financial statements.
In March 2017, the FASB issued ASU No. 2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU No. 2017-07 requires employers to disaggregate the service cost component from the other components of net benefit cost and disclose by line item the amount of net benefit cost that is included in the statement of operations or capitalized in assets. The standard requires employers to report the service cost component in the same line item(s) as other compensation costs arising from services rendered by the pertinent employees during the period and to report other components of net benefit cost separately and outside the subtotal of operating income. The standard also allows only the service cost component to be eligible for capitalization. The guidance requires application on a retrospective basis for the presentation of the service cost component and the other components of net benefit cost in the statements of operations and on a prospective basis for the capitalization of the service cost component of net benefit cost in assets. The Company adopted this standard in the first quarter of fiscal year 2019 retrospectively and elected the practical expedient allowed by ASU No. 2017-07 to utilize amounts disclosed in the Company’s pension plans and other postretirement benefit plan (see Note 12) for the prior comparative period as the estimation basis for applying the retrospective presentation requirements. As a result, the Company recorded a prior period adjustment in the accompanying consolidated statements of operations for the three months ended December 31, 2017 to decrease Direct operating expenses and Selling, general and administrative expenses by $267 and $711, respectively, which was related to the non-service cost components of net periodic pension and postretirement benefit cost, with a corresponding adjustment of $978 in Miscellaneous expense, net. For the six months ended December 31, 2017, the Company recorded a prior period adjustment in the accompanying consolidated statements of operations to decrease Direct operating expenses and Selling, general and administrative expenses by $523 and $1,465, respectively, which was related to the non-service cost components of net periodic pension and postretirement benefit cost, with a corresponding adjustment of $1,988 in Miscellaneous expense, net.
For the three and six months ended December 31, 2018, the non-service cost components of net periodic pension and postretirement benefit cost included under Miscellaneous expense, net in the accompanying consolidated statements of operations was $1,074 and $2,151.

15



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


Recently Issued Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases in ASC Topic 840, Leases. ASU No. 2016-02, among other things, (i) requires lessees to account for leases as either finance leases or operating leases and generally requires all leases to be recorded on the balance sheet, including those leases classified as operating leases under previous accounting guidance, through the recognition of right-of-use assets and corresponding lease liabilities, and (ii) requires extensive qualitative and quantitative disclosures about leasing activities. The accounting applied by a lessor is largely unchanged from that applied under previous accounting guidance. In January 2018, the FASB issued ASU No. 2018-01, Leases (Topic 842) — Land Easement Practical Expedient for Transition to Topic 842, which provides a lessee or lessor the option to not assess at transition whether existing land easements, not currently accounted for as leases under the current lease guidance, should be treated as leases under the new standard. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842) Targeted improvements, which provides an additional (and optional) transition method whereby the new lease standard is applied at the adoption date and recognized as an adjustment to retained earnings. The effective date and transition requirements for ASU No. 2018-01, ASU No. 2018-10 and ASU No. 2018-11 are the same as ASU No. 2016-02. This standard, as amended, will be effective for the Company beginning in the first quarter of fiscal year 2020 and is required to be applied using the modified retrospective approach for all leases existing as of the effective date. Early adoption is permitted; however, the Company currently does not plan to adopt this standard early. The Company’s evaluation of the impact this standard will have on its consolidated financial statements is ongoing. Based on efforts to date, the adoption of the standard will result in the recognition of right of use assets and lease liabilities related to the Company’s operating leases.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses. ASU No. 2016-13 replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that will require the reflection of expected credit losses and will also require consideration of a broader range of reasonable and supportable information to determine credit loss estimates. For most financial instruments, the standard will require the use of a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses, which will generally result in the earlier recognition of credit losses on financial instruments. This standard will be effective for the Company beginning in the first quarter of fiscal year 2021, with early adoption permitted. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. ASU No. 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard will be effective for the Company beginning in the first quarter of fiscal year 2021 and is required to be applied prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In June 2018, the FASB issued ASU No. 2018-07, Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of ASC Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. ASU No. 2018-07 specifies that ASC Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards. ASU No. 2018-07 also clarifies that ASC Topic 718 does not apply to share-based payments used to effectively provide (i) financing to the issuer or (ii) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC Topic 606. This standard will be effective for the Company beginning in the first quarter of fiscal year 2020, with early adoption permitted, but no earlier than the adoption of ASC Topic 606. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement as part of the FASB’s broader disclosure framework project. ASU No. 2018-13 removes, modifies and adds certain disclosures providing greater focus on requirements that clearly communicate the most important information to the users of the financial statements with respect to fair value measurements. The standard is effective for the Company beginning in the first quarter of fiscal year 2021, with early adoption permitted. Most of the disclosure requirements in ASU No. 2018-13 would need to be applied on a retrospective basis except for the guidance related to (i) unrealized gains and loss included in other comprehensive income, (ii) disclosure related to range and weighted average

16



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


Level 3 unobservable inputs and (iii) narrative disclosure requirements on measurement uncertainty, which are required to be applied on a prospective basis. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans — General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. ASU No. 2018-14 removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and adds additional disclosures. The standard will be effective for the Company in the fourth quarter of fiscal year 2020, with early adoption permitted. The amendments in ASU No. 2018-14 are required to be applied retrospectively. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles — Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. ASU No. 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance also specifies that the balance sheet, income statement, and statement of cash flows presentation of capitalized implementation costs and the related amortization should align with the presentation of the hosting (service) element of the arrangement. The standard is effective for the Company in the first quarter of fiscal year 2021, with early adoption permitted. Entities have the option to apply the guidance prospectively to all implementation costs incurred after the date of adoption or retrospectively. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
In November 2018, the FASB issued ASU No. 2018-17, Targeted Improvements to Related Party Guidance for Variable Interest Entities. ASU No. 2018-17 amends the variable interest entities (“VIE”) guidance to align the evaluation of a decision maker’s or service provider’s fee in assessing a variable interest with the guidance in the primary beneficiary test. Specifically, indirect interests held by a related party that is under common control will now be considered on a proportionate basis, rather than in their entirety, when assessing whether the fee qualifies as a variable interest. The proportionate basis approach is consistent with the treatment of indirect interests held by a related party under common control when evaluating the primary beneficiary of a VIE. This effectively means that when a decision maker or service provider has an interest in a related party, regardless of whether they are under common control, it will consider that related party's interest in a VIE on a proportionate basis throughout the VIE model, for both the assessment of a variable interest and the determination of a primary beneficiary. The standard will be effective for the Company in the first quarter of fiscal year 2021, with early adoption permitted. The amendments in ASU No. 2018-17 are required to be applied retrospectively. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. ASU No. 2018-18 clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC Topic 606 when the counterparty is a customer. In addition, ASU No. 2018-18 precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. The standard will be effective for the Company in the first quarter of fiscal year 2021, with early adoption permitted. The amendments in ASU No. 2018-18 are required to be applied retrospectively to the date when the Company initially adopted ASC Topic 606. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
Note 3. Revenue Recognition
Contracts with Customers
All revenue recognized in the consolidated statements of operations is considered to be revenue from contracts with customers in accordance with ASC Topic 606. For the three and six months ended December 31, 2018, the Company did not have any impairment losses on receivables or contract assets arising from contracts with customers.
The Company recognizes revenue when, or as, performance obligations under the terms of a contract are satisfied, which generally occurs when, or as, control of promised goods or services are transferred to customers. Revenue is measured as the amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services (“transaction price”). To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the most likely amount to which the Company expects to be entitled. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable

17



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


that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and the determination of whether to include such estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information that is reasonably available. The Company accounts for taxes collected from customers and remitted to governmental authorities on a net basis and excludes these amounts from revenues.
In addition, the Company defers certain costs to fulfill the Company’s contracts with customers to the extent such costs relate directly to the contracts, are expected to generate resources that will be used to satisfy the Company’s performance obligations under the contracts and are expected to be recovered through revenue generated under the contracts. Contract fulfillment costs are expensed as the Company satisfies the related performance obligations.
Arrangements with Multiple Performance Obligations
The Company has arrangements with multiple performance obligations, such as multi-year sponsorship agreements which may derive revenues for each of the Company’s segments within a single arrangement. Payment terms for such arrangements can vary by contract, but payments are generally due in installments throughout the contractual term. The performance obligations included in each sponsorship agreement vary and may include various advertising benefits such as, but not limited to, signage at The Garden and the Company’s other venues, digital advertising, event or property specific advertising, as well as non-advertising benefits such as suite licenses and event tickets. To the extent the Company’s multi-year arrangements provide for performance obligations that are consistent over the multi-year contractual term, such performance obligations generally meet the definition of a series as provided for under the accounting guidance. If performance obligations are concluded to meet the definition of a series, the contractual fees for all years during the contract term are aggregated and the related revenue is recognized proportionately as the underlying performance obligations are satisfied.
The timing of revenue recognition for each performance obligation is dependent upon the facts and circumstances surrounding the Company’s satisfaction of its respective performance obligation. The Company allocates the transaction price for such arrangements to each performance obligation within the arrangement based on the estimated relative standalone selling price of the performance obligation. The Company’s process for determining its estimated standalone selling prices involves management’s judgment and considers multiple factors including company specific and market specific factors that may vary depending upon the unique facts and circumstances related to each performance obligation. Key factors considered by the Company in developing an estimated standalone selling price for its performance obligations include, but are not limited to, prices charged for similar performance obligations, the Company’s ongoing pricing strategy and policies, and consideration of pricing of similar performance obligations sold in other arrangements with multiple performance obligations.
The Company may incur costs such as commissions to obtain its multi-year sponsorship agreements. The Company assesses such costs for capitalization on a contract by contract basis. To the extent costs are capitalized, the Company estimates the useful life of the related contract asset which may be the underlying contract term or the estimated customer life depending on the facts and circumstances surrounding the contract. The contract asset is amortized over the estimated useful life.
Principal versus Agent Revenue Recognition
The Company reports revenue on a gross or net basis based on management’s assessment of whether the Company acts as a principal or agent in the transaction. The determination of whether the Company acts as a principal or an agent in a transaction is based on an evaluation of whether the Company controls the good or service before transfer to the customer. When the Company concludes that it controls the good or service before transfer to the customer, the Company is considered a principal in the transaction and records revenue on a gross basis. When the Company concludes that it does not control the good or service before transfer to the customer but arranges for another entity to provide the good or service, the Company acts as an agent and records revenue on a net basis in the amount it earns for its agency service.
In connection with the 2015 Distribution, the Company entered into an advertising sales representation agreement with MSG Networks. Pursuant to the agreement, the Company has the exclusive right and obligation to sell advertising on behalf of MSG Networks. The Company is entitled to and earns commission revenue as the advertisements are aired on MSG Networks. Since the Company acts as an agent, the Company recognizes the advertising commission revenue on a net basis.
The Company’s revenue recognition policies that summarize the nature, amount, timing and uncertainty associated with each of the Company’s revenue sources are discussed further in each respective segment discussion below.

18



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


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

19



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


The Company’s professional sports teams also derive revenue from the distribution of league-wide national and international television contracts and other league-wide revenue sources. The transaction price for each of these revenues is based upon the expected distribution values as communicated by the applicable league. The timing of revenue recognition is dependent on the nature of the underlying performance obligation, which is generally over time. Receipt of league-wide revenues generally occurs at the time of communication or according to a specified timeline.
MSG Sports also earns revenues from the sale of advertising in the form of venue signage and sponsorships, which are not related to any specific event. The Company’s performance obligations with respect to this advertising are satisfied as the related benefits are delivered over the term of the respective agreements.
The Company’s MSG Sports segment also derives revenue from live sporting events not related to the Company’s teams. The Company’s performance obligations with respect to event-related revenues from other live sporting events, including the sale of tickets, venue license fees earned in connection with other live sporting events that the Company does not produce or promote, sponsorships, concessions and merchandise are satisfied at the point of sale or as the related event occurs.
Amounts collected in advance of the Company’s satisfaction of its contractual performance obligations are recorded as a contract liability within deferred revenue and are recognized as the Company satisfies the related performance obligations. Amounts collected in advance of events for which the Company is not the promoter or co-promoter do not represent contract liabilities and are recorded as collections due to promoters on the balance sheet.
Disaggregation of Revenue
The following table disaggregates the Company’s revenue by major source and reportable segment based upon the timing of transfer of goods or services to the customer for the three and six months ended December 31, 2018:
 
 
Three Months Ended December 31, 2018
 
 
MSG
Entertainment
 
MSG
Sports
 
Eliminations
 
Total
Event-related (a)
 
$
282,749

 
$
146,721

 
$

 
$
429,470

Sponsorship, signage and suite licenses
 
24,662

 
60,906

 
(170
)
 
85,398

League distributions
 

 
42,057

 

 
42,057

Local media rights fees from MSG Networks
 

 
58,199

 

 
58,199

Other (b)
 
9,103

 
7,960

 

 
17,063

Total revenues from contracts with customers
 
$
316,514

 
$
315,843

 
$
(170
)
 
$
632,187

 
 
Six Months Ended December 31, 2018
 
 
MSG
Entertainment
 
MSG
Sports
 
Eliminations
 
Total
Event-related (a)
 
$
419,785

 
$
156,963

 
$

 
$
576,748

Sponsorship, signage and suite licenses
 
39,992

 
83,161

 
(340
)
 
122,813

League distributions
 

 
56,928

 

 
56,928

Local media rights fees from MSG Networks
 

 
64,171

 

 
64,171

Other (b)
 
19,690

 
9,972




29,662

Total revenues from contracts with customers
 
$
479,467

 
$
371,195

 
$
(340
)
 
$
850,322

_________________
(a) 
Consists of (i) TAO Group’s entertainment dining and nightlife offerings, (ii) ticket sales and other ticket-related revenues, (iii) venue license fees from third-party promoters and (iv) food, beverage and merchandise sales.
(b) 
Primarily consists of (i) managed venue revenues from TAO Group, (ii) revenues from Obscura and (iii) advertising commission revenue from MSG Networks.

20



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


Contract Balances
The timing of revenue recognition, billings and cash collections results in billed receivables, contract assets and contract liabilities on the consolidated balance sheet. The following table provides information about contract balances from the Company’s contracts with customers as of December 31, 2018 and July 1, 2018.
 
 
December 31,
 
July 1,
 
 
2018
 
2018
Accounts receivable, net (a)
 
$
157,310

 
$
100,725

Contract assets, current (b)
 
10,460

 
4,366

Deferred revenue, including non-current portion (c)
 
307,770

 
304,501

_________________
(a) 
Accounts receivable represent the Company’s unconditional rights to consideration under its contracts with customers.
(b) 
Contract assets, which are reported as Other current assets in the Company’s consolidated balance sheets, primarily relate to the Company’s rights to consideration for goods or services transferred to the customer, for which the Company does not have an unconditional right to bill as of the reporting date. Contract assets are transferred to accounts receivable, net, once the Company’s right to consideration becomes unconditional.
(c) 
Deferred revenue primarily relates to the Company’s receipt of consideration from a customer in advance of the Company’s transfer of goods or services to that customer. Deferred revenue is reduced and the related revenue is recognized once the underlying goods or services are transferred to the customer. Revenue recognized for the six months ended December 31, 2018 relating to the deferred revenue balance as of July 1, 2018 was $224,091.
Transaction Price Allocated to the Remaining Performance Obligations
The following table depicts the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of December 31, 2018. In developing the estimated revenue, the Company applies the allowable practical expedient and does not disclose information about remaining performance obligations that have original expected durations of one year or less. Additionally, the Company has elected to exclude variable consideration from its disclosure related to the remaining performance obligations under its local media rights arrangements with MSG Networks.
Fiscal year 2019 (remainder)
 
$
124,596

Fiscal year 2020
 
209,240

Fiscal year 2021
 
170,759

Fiscal year 2022
 
128,637

Fiscal year 2023
 
73,175

Thereafter
 
173,356

 
 
$
879,763

Note 4. Team Personnel Transactions
Direct operating expenses in the accompanying consolidated statements of operations include net provisions for transactions relating to players and certain other team personnel of the Company’s sports teams for waivers/contract termination costs and a player trade (“Team personnel transactions”). Team personnel transactions were $40,754 and $2,758 for the three months ended December 31, 2018 and 2017, respectively, and $40,087 and $2,858 for the six months ended December 31, 2018 and 2017, respectively.

21



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


Note 5. Computation of Earnings per Common Share
The following table presents a reconciliation of weighted-average shares used in the calculations of basic and diluted earnings per common share attributable to the Company’s stockholders (“EPS”).  
 
 
Three Months Ended
 
Six Months Ended
 
 
December 31,
 
December 31,
 
 
2018
 
2017
 
2018
 
2017
Weighted-average shares (denominator):
 
 
 
 
 
 
 
 
Weighted-average shares for basic EPS
 
23,777

 
23,621

 
23,742

 
23,594

Dilutive effect of shares issuable under share-based compensation plans
 
63

 
192

 
118

 
267

Weighted-average shares for diluted EPS
 
23,840

 
23,813

 
23,860

 
23,861

  Weighted-average anti-dilutive shares
 
575

 
19

 
288

 
10

Note 6. Cash, Cash Equivalents and Restricted Cash
The following table provides a summary of the amounts recorded as cash, cash equivalents and restricted cash.
 
 
As of
 
 
December 31,
2018
 
June 30,
2018
 
December 31,
2017
 
June 30,
2017
Captions on the consolidated balance sheets:
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
1,227,861

 
$
1,225,638

 
$
1,125,647

 
$
1,238,114

Restricted cash (a)
 
23,717

 
30,982

 
23,332

 
34,000

Cash, cash equivalents and restricted cash on the consolidated statements of cash flows
 
$
1,251,578

 
$
1,256,620

 
$
1,148,979

 
$
1,272,114

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

22



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


Note 7. Investments and Loans to Nonconsolidated Affiliates
The Company’s investments and loans to nonconsolidated affiliates which are accounted for under the equity method of accounting, equity investments without readily determinable fair values and cost method of accounting in accordance with ASC Topic 323, Investments - Equity Method and Joint Ventures, ASC Topic 321, Investments - Equity Securities and ASC Topic 325, Investments - Other, respectively, consisted of the following:
<
 
 
Ownership Percentage
 
Investment
 
Loan
 
Total
December 31, 2018
 
 
 
 
 
 
 
 
Equity method investments:
 
 
 
 
 
 
 
 
SACO Technologies Inc. (“SACO”)
 
30
%
 
$
45,755

 
$

 
$
45,755

Tribeca Enterprises LLC (“Tribeca Enterprises”) (a)
 
50
%
 
8,613

 
20,245

 
28,858