THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS (Continued)
(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 from noncontrolling interest holders
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE MADISON SQUARE GARDEN COMPANY
|
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS (Continued)
|
(Unaudited)
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, 2019
|
|
|
Common
Stock
Issued
|
|
Additional
Paid-In
Capital
|
|
Treasury
Stock
|
|
Retained Earnings
|
|
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, 2019
|
|
$
|
249
|
|
|
$
|
2,845,961
|
|
|
$
|
(207,790
|
)
|
|
$
|
29,003
|
|
|
$
|
(46,923
|
)
|
|
$
|
2,620,500
|
|
|
$
|
18,260
|
|
|
$
|
2,638,760
|
|
|
$
|
67,627
|
|
Net income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,160
|
|
|
—
|
|
|
14,160
|
|
|
(1,073
|
)
|
|
13,087
|
|
|
(1,404
|
)
|
Other comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,853
|
|
|
13,853
|
|
|
—
|
|
|
13,853
|
|
|
—
|
|
Comprehensive income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28,013
|
|
|
(1,073
|
)
|
|
26,940
|
|
|
(1,404
|
)
|
Share-based compensation
|
|
—
|
|
|
36,067
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
36,067
|
|
|
—
|
|
|
36,067
|
|
|
—
|
|
Tax withholding associated with shares issued for equity-based compensation
|
|
—
|
|
|
(26,264
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(26,264
|
)
|
|
—
|
|
|
(26,264
|
)
|
|
—
|
|
Common stock issued under stock incentive plans
|
|
—
|
|
|
(21,897
|
)
|
|
21,897
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Contribution from noncontrolling interest holders
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,709
|
|
|
3,709
|
|
|
—
|
|
Distributions to noncontrolling interest holders
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(535
|
)
|
|
(535
|
)
|
|
—
|
|
Balance as of December 31, 2019
|
|
$
|
249
|
|
|
$
|
2,833,867
|
|
|
$
|
(185,893
|
)
|
|
$
|
43,163
|
|
|
$
|
(33,070
|
)
|
|
$
|
2,658,316
|
|
|
$
|
20,361
|
|
|
$
|
2,678,677
|
|
|
$
|
66,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Contribution from noncontrolling interest holders
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,244
|
|
|
5,244
|
|
|
|
Distributions to noncontrolling interest holders
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(259
|
)
|
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.
|
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, including concerts and other live events, such as 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 Hospitality”) and Boston Calling Events LLC (“BCE”). Tao Group Hospitality is a hospitality group with globally recognized entertainment, dining and nightlife brands including Tao, Marquee, Lavo, Avenue, Beauty & Essex and Cathédrale. BCE owns and operates New England’s premier Boston Calling Music Festival. MSG Entertainment also includes the Company’s original production — the Christmas Spectacular Starring the Radio City Rockettes (the “Christmas Spectacular”).
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”). These professional sports franchises are collectively referred to herein as the “sports teams.” For the three and six months ended December 31, 2018, 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. MSG Sports also includes other live sporting events, including professional boxing, college basketball, college hockey, professional bull riding, mixed martial arts, esports and college wrestling, all of which the Company promotes, produces and/or presents. In addition, MSG Sports 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. Additionally, Tao Group Hospitality 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 30, 2015, MSG Networks distributed all of the outstanding common stock of Madison Square Garden to MSG Networks’ stockholders.
Potential Spin-off Transaction
On June 27, 2018, the Company announced that its board of directors (“Board”) had authorized the Company’s management to explore a possible spin-off that would create a separately-traded public company comprised of its sports business, including the New York Knicks and New York Rangers professional sports franchises (“Sports Spinco”). On October 4, 2018, in connection with the distribution of Sports Spinco, 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). Upon completion of the contemplated separation, record holders of the Company’s common stock would have received a pro-rata distribution, expected to be equivalent, in the aggregate, to an approximately two-thirds economic interest in Sports Spinco. The remaining common stock, equivalent to an approximately one-third economic interest in Sports Spinco, was to be retained by the Company and used primarily to fund a portion of construction costs of MSG Spheres in Las Vegas and London. In October 2019, the Board reassessed the desirability of the retained interest based on the evolving timeline of the MSG Sphere in London (and related capital needs), the Company’s access to liquidity and greater tax efficiencies. Based on those considerations, on November 7, 2019, the Board authorized the Company’s management to proceed with pursuing the separation of the Company’s entertainment business (including sports bookings) from its sports businesses, but to do so without creating a retained interest.
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
On November 21, 2019, the newly formed registrant, MSG Entertainment Spinco, Inc. (together with its subsidiaries, “Entertainment Spinco”), was incorporated in the State of Delaware. The Company refers to the potential spin-off as the “Entertainment Distribution.” References to “Entertainment Spinco” include the subsidiaries of the Company that will be subsidiaries of Entertainment Spinco at the time of the Entertainment Distribution. On December 2, 2019, in connection with the Entertainment Distribution, Entertainment Spinco, a subsidiary of the Company, confidentially submitted an initial draft Registration Statement on Form 10 with the SEC (which has been amended). The expectation is that the separation will take the form of a tax-free pro-rata distribution of 100% of the stock of Entertainment Spinco, a new entity that will own the Company’s entertainment business (including sports bookings), with the Company’s stockholders continuing to own 100% of the Company, whose assets will consist of the Company’s sports businesses. There can be no assurance that the proposed transaction will be completed in the manner described above, or at all. Completion of the transaction is subject to various conditions, including final Board approval, approvals from the NBA and NHL, receipt of a tax opinion from counsel and the effectiveness of the registration statement with the SEC. The Company will maintain the current operating structure and will continue to report the financial results of its entertainment business (including sports bookings) in continuing operations until the Entertainment 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 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, 2019 (“fiscal year 2019”). 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 MSG Entertainment 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 MSG Sports 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.
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 Hospitality, 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 Hospitality, 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, 2019 for more information regarding the classification of redeemable noncontrolling interests of Tao Group Hospitality.
Tao Group Hospitality’s results are reported on a three-month lag basis and Tao Group Hospitality reports on a fiscal year reflecting the retail calendar that ends on the last Sunday of the calendar year (containing 4-4-5 week calendar quarters). Accordingly, the Company’s results for the three months ended December 31, 2019 and 2018 include Tao Group Hospitality’s operating results from July 1, 2019 to September 29, 2019 and from July 2, 2018 to September 30, 2018, respectively, and the Company’s results for the six months ended December 31, 2019 and 2018 include Tao Group Hospitality’s operating results from April 1, 2019 to September 29, 2019 and April 2, 2018 to September 30, 2018, respectively. With the exception of the balances and activities pertaining to the Tao Group Hospitality’s credit agreements entered into in May 2019, which are recorded as of December 31, 2019 and June 30, 2019 and for the three and six months ended December 31, 2019, as well as cash distributions, all other disclosures related to Tao Group Hospitality’s financial position are therefore reported as of September 29, 2019 and March 31, 2019, as applicable. See Note 12 for Tao Group Hospitality’s credit agreements entered in May 2019.
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 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.
Recently Issued Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases in Accounting Standards Codification (“ASC”) Topic 840, Leases. ASU No. 2016-02, among other things, requires (i) 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) 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 Company adopted ASU No. 2016-02 on July 1, 2019 and elected to apply the standard as of the beginning of the first quarter of fiscal year 2020 under the modified-retrospective transition approach. In connection with the adoption of this standard, the Company applied the package of practical expedients intended to ease transition for existing leases by not requiring the Company to reassess (i) its initial lease classification conclusions for existing or expired leases, (ii) whether an existing or expired contract is a lease or contains an embedded lease, and (iii) the capitalization of initial direct costs for existing or expired leases. In addition, the Company elected not to use “hindsight” in accordance with ASC Subtopic 842-10-65-1 (g) in assessing lease terms and impairment of right-of-use (“ROU”) assets for existing or expired leases under the new standard.
Upon adoption of this standard, the Company recorded initial (i) operating lease ROU assets of $261,110, (ii) current operating lease liabilities of $51,389, and (iii) long-term operating lease liabilities of $207,425. The Company did not record any adjustment to retained earnings. As of July 1, 2019, there were no material finance leases for which the Company was a lessee.
See Note 8 for further details on disclosure required under ASC Topic 842.
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Recently Issued Accounting Pronouncements Not Yet Adopted
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. In May 2019, the FASB issued ASU No. 2019-05, Targeted Transition Relief, which amends ASC Topic 326 to provide an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost. In November 2019, FASB issued ASU No. 2019-11 to provide clarification guidance in a number of areas, including: (i) expected recoveries for purchased financial assets with credit deterioration, (ii) transition relief for troubled debt restructuring, (iii) disclosures related to accrued interest receivables, and (iv) financial assets secured by collateral maintenance provisions. 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 August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement as part of the FASB’s broader disclosure framework project. ASU No. 2018-13 removes, modifies and adds certain disclosures providing greater focus on requirements that clearly communicate the most important information to the users of the financial statements with respect to fair value measurements. The standard is effective for the Company beginning in the first quarter of fiscal year 2021, with early adoption permitted. Most of the disclosure requirements in ASU No. 2018-13 would need to be applied on a retrospective basis except for the guidance related to (i) unrealized gains and loss included in other comprehensive income, (ii) disclosure related to range and weighted average Level 3 unobservable inputs, and (iii) narrative disclosure requirements on measurement uncertainty, which are required to be applied on a prospective basis. The 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. 2018-14, 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 2021, 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 adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
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 adoption of this standard is not expected to have a material impact on the Company’s 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.
In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825 — Financial Instruments. This ASU provides narrow-scope amendments to help apply these recent standards. The transition requirements and effective date of this ASU will be effective for the Company in the first quarter of fiscal year 2021 with early adoption permitted for certain amendments. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
In November 2019, the FASB issued ASU No. 2019-08, Compensation — Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements — Share-Based Consideration Payable to a Customer. This ASU requires that share-based payment awards issued to a customer in connection with a revenue arrangement be recorded as a reduction of the transaction price in revenue. The amount recorded as a reduction of the transaction price is measured using the grant-date fair value of the award and is classified in accordance with ASC Topic 718. Changes in the measurement of the share-based payments after the grant date that are due to the form of the consideration are not included in the transaction price and are recorded elsewhere in the statement of operations. The award is measured and classified under ASC Topic 718 for its entire life, unless the award is modified after it vests and the grantee is no longer a customer. The new guidance is effective for the Company in the first quarter of fiscal year 2021, with early adoption permitted. The adoption of this standard is not expected to have an impact on the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU eliminates certain exceptions to the general approach in ASC Topic 740 and includes methods of simplification to the existing guidance. The new guidance is effective for the Company in the first quarter of fiscal year 2022, with early adoption permitted. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
In January 2020, the FASB issued ASU No. 2020-01, Investments-Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The amendments in this ASU clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. In addition, the amendments clarify the accounting for certain forward contracts and purchased options accounted for under Topic 815. The new guidance is effective for the Company 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.
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
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. For the three and six months ended December 31, 2019 and 2018, the Company did not have any material impairment losses on receivables or contract assets arising from contracts with customers.
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, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2019
|
|
|
MSG
Entertainment
|
|
MSG
Sports
|
|
Eliminations
|
|
Total
|
Event-related and entertainment dining and nightlife offerings (a)
|
|
$
|
281,947
|
|
|
$
|
144,017
|
|
|
$
|
(83
|
)
|
|
$
|
425,881
|
|
Sponsorship, signage and suite licenses (b)
|
|
23,857
|
|
|
57,268
|
|
|
(170
|
)
|
|
80,955
|
|
League distributions (b)
|
|
—
|
|
|
46,419
|
|
|
—
|
|
|
46,419
|
|
Local media rights fees from MSG Networks (b)
|
|
—
|
|
|
60,527
|
|
|
—
|
|
|
60,527
|
|
Other (c)
|
|
6,888
|
|
|
8,235
|
|
|
(100
|
)
|
|
15,023
|
|
Total revenues from contracts with customers
|
|
$
|
312,692
|
|
|
$
|
316,466
|
|
|
$
|
(353
|
)
|
|
$
|
628,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2018
|
|
|
MSG
Entertainment
|
|
MSG
Sports
|
|
Eliminations
|
|
Total
|
Event-related and entertainment dining and nightlife offerings (a)
|
|
$
|
282,749
|
|
|
$
|
146,721
|
|
|
$
|
—
|
|
|
$
|
429,470
|
|
Sponsorship, signage and suite licenses (b)
|
|
24,662
|
|
|
60,906
|
|
|
(170
|
)
|
|
85,398
|
|
League distributions (b)
|
|
—
|
|
|
42,057
|
|
|
—
|
|
|
42,057
|
|
Local media rights fees from MSG Networks (b)
|
|
—
|
|
|
58,199
|
|
|
—
|
|
|
58,199
|
|
Other (c)
|
|
9,103
|
|
|
7,960
|
|
|
—
|
|
|
17,063
|
|
Total revenues from contracts with customers
|
|
$
|
316,514
|
|
|
$
|
315,843
|
|
|
$
|
(170
|
)
|
|
$
|
632,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, 2019
|
|
|
MSG
Entertainment
|
|
MSG
Sports
|
|
Eliminations
|
|
Total
|
Event-related and entertainment dining and nightlife offerings (a)
|
|
$
|
418,695
|
|
|
$
|
155,057
|
|
|
$
|
(96
|
)
|
|
$
|
573,656
|
|
Sponsorship, signage and suite licenses (b)
|
|
38,927
|
|
|
79,246
|
|
|
(340
|
)
|
|
117,833
|
|
League distributions (b)
|
|
—
|
|
|
60,844
|
|
|
—
|
|
|
60,844
|
|
Local media rights fees from MSG Networks (b)
|
|
—
|
|
|
66,738
|
|
|
—
|
|
|
66,738
|
|
Other (c)
|
|
14,077
|
|
|
10,615
|
|
|
(176
|
)
|
|
24,516
|
|
Total revenues from contracts with customers
|
|
$
|
471,699
|
|
|
$
|
372,500
|
|
|
$
|
(612
|
)
|
|
$
|
843,587
|
|
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, 2018
|
|
|
MSG
Entertainment
|
|
MSG
Sports
|
|
Eliminations
|
|
Total
|
Event-related and entertainment dining and nightlife offerings (a)
|
|
$
|
419,785
|
|
|
$
|
156,963
|
|
|
$
|
—
|
|
|
$
|
576,748
|
|
Sponsorship, signage and suite licenses (b)
|
|
39,992
|
|
|
83,161
|
|
|
(340
|
)
|
|
122,813
|
|
League distributions (b)
|
|
—
|
|
|
56,928
|
|
|
—
|
|
|
56,928
|
|
Local media rights fees from MSG Networks (b)
|
|
—
|
|
|
64,171
|
|
|
—
|
|
|
64,171
|
|
Other (c)
|
|
19,690
|
|
|
9,972
|
|
|
—
|
|
|
29,662
|
|
Total revenues from contracts with customers
|
|
$
|
479,467
|
|
|
$
|
371,195
|
|
|
$
|
(340
|
)
|
|
$
|
850,322
|
|
_________________
|
|
(a)
|
Consisted of (i) ticket sales and other ticket-related revenues, (ii) Tao Group Hospitality’s entertainment dining and nightlife offerings, (iii) food, beverage and merchandise sales, and (iv) venue license fees from third-party promoters. Event-related revenues and entertainment, dining and nightlife offerings are recognized at a point in time as the related event occurs. As such, these revenues have been included in the same category in the table above.
|
|
|
(b)
|
See Note 3 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2019 for further details on the pattern of recognition of (i) sponsorship, signage and suite license revenues, (ii) league distributions, and (iii) local media rights fees from MSG Networks.
|
|
|
(c)
|
For the three and six months ended December 31, 2019 and 2018, the Company’s other revenues primarily consisted of managed venue revenues from Tao Group Hospitality and advertising commission revenue from MSG Networks. For the three and six months ended December 31, 2018, the Company’s other revenues also included revenues from Obscura Digital (“Obscura”).
|
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed receivables, contract assets and contract liabilities on the consolidated balance sheet. The following table provides information about contract balances from the Company’s contracts with customers as of December 31, 2019 and June 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
June 30,
|
|
|
2019
|
|
2019
|
Receivables from contracts with customers, net (a)
|
|
$
|
131,079
|
|
|
$
|
96,982
|
|
Contract assets, current (b)
|
|
11,395
|
|
|
7,314
|
|
Deferred revenue, including non-current portion (c)
|
|
318,147
|
|
|
305,821
|
|
_________________
|
|
(a)
|
Receivables from contracts with customers, which are reported in Accounts receivable, net and Net related party receivables in the Company’s consolidated balance sheets, represent the Company’s unconditional rights to consideration under its contracts with customers. As of December 31, 2019 and June 30, 2019, the Company’s receivables reported above included $189 and $126, respectively, related to various related parties associated with contracts with customers. See Note 18 for further details on these related party arrangements.
|
|
|
(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 once the Company’s right to consideration becomes unconditional.
|
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
|
|
(c)
|
Deferred revenue primarily relates to the Company’s receipt of consideration from customers in advance of the Company’s transfer of goods or services to those customers. Deferred revenue is reduced and the related revenue is recognized once the underlying goods or services are transferred to a customer. As of December 31, 2019, the Company’s deferred revenue related to local media rights with MSG Networks was $9,403. The Company had no deferred revenue related to local media rights with MSG Networks as of June 30, 2019. See Note 18 for further details on these related party arrangements. Revenue recognized for the six months ended December 31, 2019 relating to the deferred revenue balance as of June 30, 2019 was $161,470.
|
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, 2019. This primarily relates to performance obligations under sponsorship and suite license arrangements. 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 2020 (remainder)
|
|
$
|
123,605
|
|
Fiscal Year 2021
|
|
201,298
|
|
Fiscal Year 2022
|
|
154,324
|
|
Fiscal Year 2023
|
|
87,092
|
|
Fiscal Year 2024
|
|
59,824
|
|
Thereafter
|
|
133,249
|
|
|
|
$
|
759,392
|
|
Note 4. Team Personnel Transactions
Direct operating expenses in the accompanying consolidated statements of operations include a net expense for transactions relating to the Company’s sports teams for waiver/contract termination costs and player trades (“Team personnel transactions”). Team personnel transactions expense was $17,644 and $40,754 for the three months ended December 31, 2019 and 2018, respectively, and $27,887 and $40,087 for the six months ended December 31, 2019 and 2018, respectively.
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,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Weighted-average shares (denominator):
|
|
|
|
|
|
|
|
|
Weighted-average shares for basic EPS
|
|
23,913
|
|
|
23,777
|
|
|
23,870
|
|
|
23,742
|
|
Dilutive effect of shares issuable under share-based compensation plans
|
|
66
|
|
|
63
|
|
|
107
|
|
|
118
|
|
Weighted-average shares for diluted EPS
|
|
23,979
|
|
|
23,840
|
|
|
23,977
|
|
|
23,860
|
|
Weighted-average anti-dilutive shares
|
|
510
|
|
|
575
|
|
|
507
|
|
|
288
|
|
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
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,
2019
|
|
June 30,
2019
|
|
December 31,
2018
|
|
June 30,
2018
|
Captions on the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,000,103
|
|
|
$
|
1,086,372
|
|
|
$
|
1,227,861
|
|
|
$
|
1,225,638
|
|
Restricted cash (a)
|
|
43,001
|
|
|
31,529
|
|
|
23,717
|
|
|
30,982
|
|
Cash, cash equivalents and restricted cash on the consolidated statements of cash flows
|
|
$
|
1,043,104
|
|
|
$
|
1,117,901
|
|
|
$
|
1,251,578
|
|
|
$
|
1,256,620
|
|
_________________
|
|
(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, 2019 for more information regarding the nature of restricted cash.
|
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 and equity investments without readily determinable fair values in accordance with ASC Topic 323, Investments - Equity Method and Joint Ventures and ASC Topic 321, Investments - Equity Securities, respectively, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership Percentage
|
|
Investment
|
|
Loan
|
|
Total
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Equity method investments:
|
|
|
|
|
|
|
|
|
SACO Technologies Inc. (“SACO”)
|
|
30
|
%
|
|
$
|
41,997
|
|
|
$
|
—
|
|
|
$
|
41,997
|
|
Others
|
|
|
|
|
7,910
|
|
|
—
|
|
|
7,910
|
|
Equity investments without readily determinable fair values (a)
|
|
|
|
13,334
|
|
|
—
|
|
|
13,334
|
|
Total investments and loans to nonconsolidated affiliates
|
|
|
|
$
|
63,241
|
|
|
$
|
—
|
|
|
$
|
63,241
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
Equity method investments:
|
|
|
|
|
|
|
|
|
SACO
|
|
30
|
%
|
|
$
|
44,321
|
|
|
$
|
—
|
|
|
$
|
44,321
|
|
Tribeca Enterprises LLC (“Tribeca Enterprises”) (b)
|
|
50
|
%
|
|
—
|
|
|
18,000
|
|
|
18,000
|
|
Others
|
|
|
|
8,372
|
|
|
—
|
|
|
8,372
|
|
Equity investments without readily determinable fair values (a)
|
|
|
|
13,867
|
|
|
—
|
|
|
13,867
|
|
Total investments and loans to nonconsolidated affiliates
|
|
|
|
$
|
66,560
|
|
|
$
|
18,000
|
|
|
$
|
84,560
|
|
_________________
|
|
(a)
|
In accordance with the ASC Topic 321, Investments - Equity Securities, the Company applies the measurement alternative to its equity investments without readily determinable fair values. The Company recorded an impairment charge of $533 for the six months ended December 31, 2019. See Note 7 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2019 for more information regarding the application of the measurement alternative.
|
|
|
(b)
|
On August 5, 2019, immediately prior to the sale of the Company’s equity capital in Tribeca Enterprises for $18,000, the Company contributed the $18,000 of indebtedness under the Company’s revolving credit facility to the Company’s equity capital in Tribeca Enterprises.
|
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Equity Investment with Readily Determinable Fair Value
In addition to the investments discussed above, the Company holds an investment of 3,208 shares of the common stock of Townsquare Media, Inc. (“Townsquare”). Townsquare is a leading media, entertainment and digital marketing solutions company that is listed on the New York Stock Exchange (“NYSE”) under the symbol “TSQ.” In accordance with ASC Topic 321, Investments - Equity Securities, this investment is measured at readily determinable fair value and is reported under Other assets in the accompanying consolidated balance sheets as of December 31, 2019 and June 30, 2019. See Note 11 for more information on the fair value of the investment in Townsquare.
Note 8. Leases
The Company’s leases primarily consist of certain live-performance venues, entertainment dining and nightlife venues, corporate office space, storage and, to a lesser extent, office and other equipment. The Company determines whether an arrangement contains a lease at the inception of the arrangement. If a lease is determined to exist, the lease term is assessed based on the date when the underlying asset is made available for the Company’s use by the lessor. The Company’s assessment of the lease term reflects the non-cancellable term of the lease, inclusive of any rent-free periods and/or periods covered by early-termination options which the Company is reasonably certain not to exercise, as well as periods covered by renewal options which the Company is reasonably certain of exercising. The Company also determines lease classification as either operating or finance at lease commencement, which governs the pattern of expense recognition and the presentation reflected in the consolidated statements of operations over the lease term.
For leases with a term exceeding 12 months, a lease liability is recorded on the Company’s consolidated balance sheet at lease commencement reflecting the present value of the fixed minimum payment obligations over the lease term. A corresponding ROU asset equal to the initial lease liability is also recorded, adjusted for any prepaid rent and/or initial direct costs incurred in connection with execution of the lease and reduced by any lease incentives received.
The Company includes fixed payment obligations related to non-lease components in the measurement of ROU assets and lease liabilities, as the Company has elected to account for lease and non-lease components together as a single lease component. ROU assets associated with finance leases are presented separate from operating leases ROU assets and are included within Property and equipment, net on the Company’s consolidated balance sheet. For purposes of measuring the present value of the Company’s fixed payment obligations for a given lease, the Company uses its incremental borrowing rate, determined based on information available at lease commencement, as rates implicit in the underlying leasing arrangements are typically not readily determinable. The Company’s incremental borrowing rate reflects the rate it would pay to borrow on a secured basis and incorporates the term and economic environment surrounding the associated lease.
For operating leases, fixed lease payments are recognized as lease expense on a straight-line basis over the lease term. For finance leases, the initial ROU asset is depreciated on a straight-line basis over the lease term, along with recognition of interest expense associated with accretion of the lease liability, which is ultimately reduced by the related fixed payments. For leases with a term of 12 months or less (“short-term leases”), any fixed lease payments are recognized on a straight-line basis over the lease term and are not recognized on the consolidated balance sheet. Variable lease costs for both operating and finance leases, if any, are recognized as incurred and such costs are excluded from lease balances recorded on the consolidated balance sheet. In addition, the Company excluded its ground lease with Las Vegas Sands Corp. (“Sands”) associated with MSG Sphere in Las Vegas from the ROU asset and lease liability balance recorded on the consolidated balance sheet as the ground lease will have no fixed rent. Under the ground lease agreement, Sands will receive priority access to purchase tickets to events at the venue for inclusion in hotel packages or other uses, as well as certain rent-free use of the venue to support its Expo Center business. However, if certain return objectives are achieved, Sands will receive 25% of the after-tax cash flow in excess of such objectives. The ground lease is for a term of 50 years.
As of December 31, 2019, the Company’s existing operating leases, which are recorded on the accompanying financial statements, have remaining lease terms ranging from 1 month to 18.75 years. In certain instances, leases include options to renew, with varying option terms in each case. The exercise of lease renewal options is generally at the Company’s discretion and is considered in the Company’s assessment of the respective lease term. The Company’s lease agreements do not contain material residual value guarantees or material restrictive covenants.
THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands, except per share data)
The following table summarizes the ROU assets and lease liabilities recorded on the Company’s consolidated balance sheet as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
Line Item in the Company’s Consolidated Balance Sheet
|
|
|
Right-of-use assets:
|
|
|
|
|
Operating leases
|
|
Right-of-use lease assets
|
|
$
|
241,833
|
|
Lease liabilities:
|
|
|
|
|
Operating leases, current
|
|
Operating lease liabilities, current
|
|
$
|
51,206
|
|
Operating leases, noncurrent
|
|
Operating lease liabilities, noncurrent
|
|
189,978
|
|
Total lease liabilities
|
|
|
|
$
|
241,184
|
|
The following table summarizes the activity recorded within the Company’s consolidated statement of operations for the three and six months ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line Item in the Company’s Consolidated Statement of Operations
|
|
Three Months Ended December 31, 2019
|
|
Six Months Ended December 31, 2019
|
Operating lease cost
|
|
Direct operating expenses
|
|
$
|
8,151
|
|
|
$
|
16,476
|
|
Operating lease cost
|
|
Selling, general and administrative expenses
|
|
4,903
|
|
|
9,718
|
|
Short-term lease cost
|
|
Direct operating expenses
|
|
54
|
|
|
432
|
|
Variable lease cost
|
|
Direct operating expenses
|
|
923
|
|
|
2,457
|
|
Variable lease cost
|
|
Selling, general and administrative expenses
|
|
13
|
|
|
26
|
|
Total lease cost
|
|
|
|
$
|
14,044
|
|
|
$
|
29,109
|
|
Supplemental Information
For the six months ended December 31, 2019, cash paid for amounts included in the measurement of lease liabilities was $27,209 and the Company had no ROU assets obtained in exchange for new operating lease liabilities.
The weighted average remaining lease term for operating leases recorded on the accompanying consolidated balance sheet as of December 31, 2019 was 6.5 years. The weighted average discount rate was 9.45% as of December 31, 2019 and represented the Company’s estimated incremental borrowing rate, assuming a secured borrowing, based on the remaining lease term at the time of either (i) adoption of the standard or (ii) the period in which the lease term expectation was modified.
Maturities of operating lease liabilities as of December 31, 2019 are as follows:
|
|
|
|
|
|
Fiscal Year 2020 (remainder)
|
|
$
|
27,751
|
|
Fiscal Year 2021
|
|
54,589
|
|
Fiscal Year 2022
|
|
54,671
|
|
Fiscal Year 2023
|
|
50,325
|
|
Fiscal Year 2024
|
|
38,329
|
|
Thereafter
|
|
126,228
|
|
Total lease payments
|
|
351,893
|
|
Less imputed interest
|
|
110,709
|
|
Total lease liabilities (a)
|
|
$
|
241,184
|
|
________________
|
|
(a)
|
Operating lease payments exclude minimum lease payments related to a location associated with the entertainment dining and nightlife offerings as the Company has not yet taken possession of the space.
|
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Note 9. Goodwill and Intangible Assets
The carrying amounts of goodwill, by reportable segment, as of December 31, 2019 and June 30, 2019 are as follows:
|
|
|
|
|
|
MSG Entertainment
|
|
$
|
165,558
|
|
MSG Sports
|
|
226,955
|
|
|
|
$
|
392,513
|
|
During the first quarter of fiscal year 2020, the Company performed its annual impairment test of goodwill and determined that there were no impairments of goodwill identified for any of its reporting units as of the impairment test date.
The Company’s indefinite-lived intangible assets as of December 31, 2019 and June 30, 2019 are as follows:
|
|
|
|
|
|
|
|
|
Sports franchises (MSG Sports)
|
|
$
|
111,064
|
|
Trademarks (MSG Entertainment)
|
|
62,421
|
|
Photographic related rights (MSG Sports)
|
|
3,000
|
|
|
|
$
|
176,485
|
|
During the first quarter of fiscal year 2020, the Company performed its annual impairment test of identifiable indefinite-lived intangible assets and determined that there were no impairments identified as of the impairment test date.
The Company’s intangible assets subject to amortization are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
Trade names
|
|
$
|
99,830
|
|
|
$
|
(14,822
|
)
|
|
$
|
85,008
|
|
Venue management contracts
|
|
79,000
|
|
|
(12,169
|
)
|
|
66,831
|
|
Favorable lease assets (a)
|
|
—
|
|
|
—
|
|
|
—
|
|
Season ticket holder relationships
|
|
50,032
|
|
|
(49,209
|
)
|
|
823
|
|
Non-compete agreements
|
|
11,400
|
|
|
(5,334
|
)
|
|
6,066
|
|
Festival rights
|
|
8,080
|
|
|
(1,885
|
)
|
|
6,195
|
|
Other intangibles
|
|
9,364
|
|
|
(6,686
|
)
|
|
2,678
|
|
|
|
$
|
257,706
|
|
|
$
|
(90,105
|
)
|
|
$
|
167,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
Trade names
|
|
$
|
100,830
|
|
|
$
|
(12,228
|
)
|
|
$
|
88,602
|
|
Venue management contracts
|
|
79,000
|
|
|
(9,887
|
)
|
|
69,113
|
|
Favorable lease assets (a)
|
|
54,253
|
|
|
(10,382
|
)
|
|
43,871
|
|
Season ticket holder relationships
|
|
50,032
|
|
|
(47,541
|
)
|
|
2,491
|
|
Non-compete agreements
|
|
11,400
|
|
|
(4,311
|
)
|
|
7,089
|
|
Festival rights
|
|
8,080
|
|
|
(1,617
|
)
|
|
6,463
|
|
Other intangibles
|
|
10,064
|
|
|
(6,987
|
)
|
|
3,077
|
|
|
|
$
|
313,659
|
|
|
$
|
(92,953
|
)
|
|
$
|
220,706
|
|
_________________
|
|
(a)
|
Upon adoption of ASC Topic 842, the Company also reclassified favorable lease assets net balance of $43,871, which was recognized in connection with the acquisition of Tao Group Hospitality, from Amortizable intangible assets, net, to Right-of-use lease assets in the accompanying consolidated balance sheet as of July 1, 2019. In addition, the Company also reclassified unfavorable lease liability of $6,841, which was reported in Other liabilities in the accompanying consolidated balance sheet, to Right-of-use lease assets as of July 1, 2019.
|
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
For the three months ended December 31, 2019 and 2018, amortization expense for intangible assets, excluding the amortization of favorable lease assets of $1,174 for the three months ended December 31, 2018, which is reported in rent expense, was $5,006 and $4,448, respectively. For the six months ended December 31, 2019 and 2018, amortization expense for intangible assets, excluding the amortization of favorable lease assets of $2,393 for the six months ended December 31, 2018, which is reported in rent expense, was $9,234 and $9,060, respectively.
Note 10. Commitments and Contingencies
Commitments
As more fully described in Note 10 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2019, the Company’s commitments consist primarily of (i) the MSG Sports’ obligations under employment agreements that the Company has with its professional sports teams’ personnel that are generally guaranteed regardless of employee injury or termination and (ii) long-term noncancelable operating lease agreements primarily for Company venues, including Tao Group Hospitality venues, and various corporate offices. The Company adopted ASU No. 2016-02, Leases (Topic 842), on July 1, 2019. As a result, the contractual obligations related to future lease payments, which were historically reported as off-balance sheet commitments, are now reflected on the consolidated balance sheet as lease liabilities as of December 31, 2019. See Note 8 for more details about the lease liabilities. Except as described above with respect to lease accounting, the Company did not have any material changes in its contractual obligations since the end of fiscal year 2019 other than activities in the ordinary course of business.
In connection with the Tao Group Hospitality and CLG acquisitions, the Company has accrued deferred and contingent consideration as part of the purchase price allocation. See Note 11 for further details of the amount recorded in the accompanying consolidated balance sheet as of December 31, 2019.
Legal Matters
The Company is a defendant in various lawsuits. Although the outcome of these lawsuits cannot be predicted with certainty (including the extent of available insurance, if any), management does not believe that resolution of these lawsuits will have a material adverse effect on the Company.
Note 11. Fair Value Measurements
The following table presents the Company’s assets that are measured at fair value on a recurring basis, which include cash equivalents and an equity investment with readily determinable fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hierarchy
|
|
December 31,
2019
|
|
June 30,
2019
|
Assets:
|
|
|
|
|
|
|
Commercial Paper
|
|
I
|
|
$
|
169,239
|
|
|
$
|
169,707
|
|
Money market accounts
|
|
I
|
|
194,807
|
|
|
101,517
|
|
Time deposits
|
|
I
|
|
620,613
|
|
|
789,833
|
|
Equity investment with readily determinable fair value
|
|
I
|
|
31,985
|
|
|
17,260
|
|
Total assets measured at fair value
|
|
|
|
$
|
1,016,644
|
|
|
$
|
1,078,317
|
|
All assets listed above are classified within Level I of the fair value hierarchy as they are valued using observable inputs that reflect quoted prices for identical assets in active markets. The carrying amount of the Company’s commercial paper, money market accounts and time deposits approximates fair value due to their short-term maturities.
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
The carrying value and fair value of the Company’s financial instruments reported in the accompanying consolidated balance sheets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
June 30, 2019
|
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
Assets
|
|
|
|
|
|
|
|
|
Notes receivable (a)
|
|
$
|
12,560
|
|
|
$
|
12,560
|
|
|
$
|
13,348
|
|
|
$
|
13,348
|
|
Short-term investments (a)
|
|
113,020
|
|
|
113,020
|
|
|
108,416
|
|
|
108,416
|
|
Equity investment with readily determinable fair value (b)
|
|
31,985
|
|
|
31,985
|
|
|
17,260
|
|
|
17,260
|
|
Subordinated term loan receivable (c)
|
|
—
|
|
|
—
|
|
|
58,735
|
|
|
57,711
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Long-term debt, including current portion (d)
|
|
$
|
36,250
|
|
|
$
|
36,486
|
|
|
$
|
55,000
|
|
|
$
|
54,883
|
|
_________________
|
|
(a)
|
The Company’s notes receivable are invested with banking institutions as collateral for issuances of letters of credit. In addition, the Company’s short-term investments consist of investments that (i) have original maturities of greater than three months and (ii) can be converted into cash by the Company within one year. The Company’s notes receivable and short-term investments are carried at cost, including interest accruals, which approximate fair value and are classified within Level III of the fair value hierarchy.
|
|
|
(b)
|
Aggregate cost basis for the Company’s equity investment with readily determinable fair value in Townsquare, including transaction costs, was $23,222 as of December 31, 2019. The fair value of this investment is determined based on quoted market prices in an active market on the NYSE, which is classified within Level I of the fair value hierarchy. For the three months ended December 31, 2019 and 2018, the Company recorded an unrealized gain (loss) of $9,432 and $(12,031), respectively, and for the six months ended December 31, 2019 and 2018, the Company recorded an unrealized gain (loss) of $14,725 and $(7,667), respectively, as a result of changes in the market value related to this investment. The unrealized gain (loss) is reported in Miscellaneous income (expense), net in the accompanying consolidated statement of operations.
|
|
|
(c)
|
In connection with the sale of the Company’s joint venture interest in Azoff MSG Entertainment LLC (“AMSGE”) in December 2018, the $63,500 outstanding balance under the revolving credit facility extended by the Company to AMSGE was converted to a subordinated term loan with an original maturity date of September 21, 2021. The subordinated loan was assumed by an affiliate of AMSGE. During the three months ended March 31, 2019, the Company received a $4,765 principal repayment. During the three months ended December 31, 2019, the Company received a $58,735 principal repayment for the remaining outstanding balance. The Company’s subordinated term loan receivable as of June 30, 2019 was classified within Level II of the fair value hierarchy as it was valued using quoted indices of similar securities for which the inputs were readily observable.
|
|
|
(d)
|
On May 23, 2019, Tao Group Intermediate Holdings LLC and Tao Group Operating LLC entered into a $40,000 five-year term loan facility and a $25,000 five-year term revolving facility. The Company’s long-term debt is classified within Level II of the fair value hierarchy as it is valued using quoted indices of similar securities for which the inputs are readily observable. See Note 12 for more information and outstanding balances on this long-term debt.
|
Contingent Consideration Liabilities
In connection with the Tao Group Hospitality and CLG acquisitions (see Note 11 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2019 for further details), the Company recorded certain deferred and contingent consideration liabilities at fair value as part of the preliminary purchase price allocation. As of December 31, 2019 and June 30, 2019, the fair value of deferred and contingent consideration liabilities in connection with the Tao Group Hospitality and CLG acquisitions was $3,349.
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Note 12. Credit Facilities
Knicks Revolving Credit Facility
On September 30, 2016, New York Knicks, LLC (“Knicks LLC”), a wholly owned subsidiary of the Company, entered into a credit agreement (the “Knicks Credit Agreement”) with a syndicate of lenders providing for a senior secured revolving credit facility of up to $200,000 with a term of five years (the “Knicks Revolving Credit Facility”) to fund working capital needs and for general corporate purposes. Amounts borrowed may be distributed to the Company except during an event of default.
The Knicks Revolving Credit Facility requires Knicks LLC to comply with a debt service ratio of 1.5:1.0 over a trailing four quarter period. As of December 31, 2019, Knicks LLC was in compliance with this financial covenant.
All borrowings under the Knicks Revolving Credit Facility are subject to the satisfaction of certain customary conditions. Borrowings bear interest at a floating rate, which at the option of Knicks LLC may be either (i) a base rate plus a margin ranging from 0.00% to 0.125% per annum or (ii) LIBOR plus a margin ranging from 1.00% to 1.125% per annum. Knicks LLC is required to pay a commitment fee ranging from 0.20% to 0.25% per annum in respect of the average daily unused commitments under the Knicks Revolving Credit Facility. There was no borrowing under the Knicks Revolving Credit Facility as of December 31, 2019.
All obligations under the Knicks Revolving Credit Facility are secured by a first lien security interest in certain of Knicks LLC’s assets, including, but not limited to, (i) the Knicks LLC’s membership rights in the NBA and (ii) revenues to be paid to the Knicks LLC by the NBA pursuant to certain U.S. national broadcast agreements.
Subject to customary notice and minimum amount conditions, Knicks LLC may voluntarily prepay outstanding loans under the Knicks Revolving Credit Facility at any time, in whole or in part, without premium or penalty (except for customary breakage costs with respect to Eurocurrency loans). Knicks LLC is required to make mandatory prepayments in certain circumstances, including without limitation if the maximum available amount under the Knicks Revolving Credit Facility is greater than 350% of qualified revenues.
In addition to the financial covenant described above, the Knicks Credit Agreement and related security agreements contain certain customary representations and warranties, affirmative covenants and events of default. The Knicks Revolving Credit Facility contains certain restrictions on the ability of Knicks LLC to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the Knicks Revolving Credit Facility, including the following: (i) incurring additional indebtedness and contingent liabilities; (ii) creating liens on certain assets; (iii) making restricted payments during the continuance of an event of default under the Knicks Revolving Credit Facility; (iv) engaging in sale and leaseback transactions; (v) merging or consolidating; and (vi) taking certain actions that would invalidate the secured lenders’ liens on any Knicks LLC’s collateral.
Knicks Unsecured Credit Facility
On September 30, 2016, Knicks LLC entered into an unsecured revolving credit facility with a lender for an initial maximum credit amount of $15,000 and a 364-day term (the “Knicks Unsecured Credit Facility”). Knicks LLC renewed this facility with the lender on the same terms in successive years and the facility has been renewed for a new term effective as of September 27, 2019. There was no borrowing under the Knicks Unsecured Credit Facility as of December 31, 2019. This facility does not have financial covenants.
Rangers Revolving Credit Facility
On January 25, 2017, New York Rangers, LLC (“Rangers LLC”), a wholly owned subsidiary of the Company, entered into a credit agreement (the “Rangers Credit Agreement”) with a syndicate of lenders providing for a senior secured revolving credit facility of up to $150,000 with a term of five years (the “Rangers Revolving Credit Facility”) to fund working capital needs and for general corporate purposes. Amounts borrowed may be distributed to the Company except during an event of default.
The Rangers Revolving Credit Facility requires Rangers LLC to comply with a debt service ratio of 1.5:1.0 over a trailing four quarter period. As of December 31, 2019, Rangers LLC was in compliance with this financial covenant.
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
All borrowings under the Rangers Revolving Credit Facility are subject to the satisfaction of certain customary conditions. Borrowings bear interest at a floating rate, which at the option of Rangers LLC may be either (i) a base rate plus a margin ranging from 0.125% to 0.50% per annum or (ii) LIBOR plus a margin ranging from 1.125% to 1.50% per annum. Rangers LLC is required to pay a commitment fee ranging from 0.375% to 0.625% per annum in respect of the average daily unused commitments under the Rangers Revolving Credit Facility. There was no borrowing under the Rangers Revolving Credit Facility as of December 31, 2019.
All obligations under the Rangers Revolving Credit Facility are secured by a first lien security interest in certain of Rangers LLC’s assets, including, but not limited to, (i) Rangers LLC’s membership rights in the NHL, (ii) revenues to be paid to Rangers LLC by the NHL pursuant to certain U.S. and Canadian national broadcast agreements, and (iii) revenues to be paid to Rangers LLC pursuant to local media contracts.
Subject to customary notice and minimum amount conditions, Rangers LLC may voluntarily prepay outstanding loans under the Rangers Revolving Credit Facility at any time, in whole or in part, without premium or penalty (except for customary breakage costs with respect to Eurocurrency loans). Rangers LLC is required to make mandatory prepayments in certain circumstances, including without limitation if qualified revenues are less than 17% of the maximum available amount under the Rangers Revolving Credit Facility.
In addition to the financial covenant described above, the Rangers Credit Agreement and related security agreements contain certain customary representations and warranties, affirmative covenants and events of default. The Rangers Revolving Credit Facility contains certain restrictions on the ability of Rangers LLC to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the Rangers Revolving Credit Facility, including the following: (i) incurring additional indebtedness and contingent liabilities; (ii) creating liens on certain assets; (iii) making restricted payments during the continuance of an event of default under the Rangers Revolving Credit Facility; (iv) engaging in sale and leaseback transactions; (v) merging or consolidating; and (vi) taking certain actions that would invalidate the secured lenders’ liens on any of Rangers LLC’s assets securing the obligations under the Rangers Revolving Credit Facility.
TAO Credit Facilities
On May 23, 2019, Tao Group Intermediate Holdings LLC (“TAOIH” or “Intermediate Holdings”) and Tao Group Operating LLC (“TAOG” or “Senior Borrower”), entered into a credit agreement (the “Tao Senior Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, collateral agent and a letter of credit issuer, and the lenders party thereto. Together the Tao Senior Credit Agreement and a $49,000 intercompany subordinated credit agreement (the “Tao Subordinated Credit Agreement”) between a subsidiary of the Company and Tao Group Sub-Holdings LLC, a subsidiary of Tao Group Hospitality replaced the Senior Borrower’s prior credit agreement dated January 31, 2017 (“2017 Tao Credit Agreement”). The 2017 Tao Credit Agreement was terminated on May 23, 2019 in its entirety in accordance with its terms as a result of the repayment of all obligations thereunder from the proceeds of the Tao Senior Credit Agreement and the Tao Subordinated Credit Agreement as well as cash on hand. During the six months ended December 31, 2019, Tao Group Hospitality repaid $5,000 under the Tao Subordinated Credit Agreement. The balances and interest-related activities pertaining to the Tao Subordinated Credit Agreement have been eliminated in the consolidated financial statements in accordance with ASC Topic 810, Consolidation.
The Tao Senior Credit Agreement provides TAOG with senior secured credit facilities (the “Tao Senior Secured Credit Facilities”) consisting of: (i) an initial $40,000 term loan facility with a term of five years (the “Tao Term Loan Facility”) and (ii) a $25,000 revolving credit facility with a term of five years (the “Tao Revolving Credit Facility”). Up to $5,000 of the Tao Revolving Credit Facility is available for the issuance of letters of credit. All borrowings under the Tao Revolving Credit Facility, including, without limitation, amounts drawn under the revolving line of credit are subject to the satisfaction of customary conditions. The Tao Senior Secured Credit Facilities were obtained without recourse to the Company or any of its affiliates (other than TAOG, TAOIH and its subsidiaries as discussed below).
The Tao Senior Credit Agreement requires Intermediate Holdings to comply with a maximum total leverage ratio of 4.00:1.00 and a maximum senior leverage ratio of 3.00:1.00 from the closing date until December 31, 2021 and a maximum total leverage ratio of 3.50:1.00 and a maximum senior leverage ratio of 2.50:1.00 from and after December 31, 2021. In addition, there is a minimum fixed charge coverage ratio of 1.25:1.00 for TAOIH. As of December 31, 2019, TAOIH was in compliance with these financial covenants.
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
All obligations under the Tao Senior Credit Agreement are guaranteed by TAOIH and TAOIH’s existing and future direct and indirect domestic subsidiaries (other than (i) TAOG, (ii) domestic subsidiaries substantially all of whose assets consist of controlled foreign corporations and (iii) subsidiaries designated as immaterial subsidiaries or unrestricted subsidiaries) (the “Tao Subsidiary Guarantors”, and together with TAOIH, the “Tao Guarantors”). All obligations under the Tao Senior Credit Agreement, including the guarantees of those obligations, are secured by substantially all of the assets of TAOG and each Guarantor (collectively, “Tao Collateral”), including, but not limited to, a pledge of the equity interests in TAOG held directly by TAOIH and the equity interests in each Tao Subsidiary Guarantor held directly or indirectly by TAOIH.
Borrowings under the Tao Senior Credit Agreement bear interest at a floating rate, which at the option of the Senior Borrower may be either (i) a base rate plus an additional rate ranging from 1.50% to 2.50% per annum (determined based on a total leverage ratio) (the “Base Rate”), or (ii) a Eurocurrency rate plus an additional rate ranging from 2.50% to 3.50% per annum (determined based on a total leverage ratio) (the “Eurocurrency Rate”). The Tao Senior Credit Agreement requires TAOG to pay a commitment fee of 0.50% in respect of the daily unused commitments under the Tao Revolving Credit Facility. TAOG is also required to pay customary letter of credit fees, as well as fronting fees, to banks that issue letters of credit pursuant to the Tao Senior Credit Agreement. The interest rate on the Tao Senior Credit Agreement as of December 31, 2019 was 4.30%. The outstanding amount drawn on the Tao Revolving Credit Facility was $15,000 as of June 30, 2019, which is reported under Long-term debt, net of deferred financing costs in the accompanying consolidated balance sheet. In addition to scheduled repayments required under the Tao Term Loan Facility, Tao Group Hospitality repaid the $15,000 outstanding balance under the Tao Revolving Credit Facility during the six months ended December 31, 2019. There was no borrowing under the Tao Revolving Credit Facility as of December 31, 2019.
During the six months ended December 31, 2019 and 2018, the Company made interest payments of $1,218 and $5,489, respectively, under the Tao Senior Credit Agreement and the 2017 Tao Credit Agreement.
In addition to the financial covenants described above, the Tao Senior Credit Agreement and related security agreements contain certain customary representations and warranties, affirmative covenants and events of default. The Tao Senior Credit Agreement contains certain restrictions on the ability of TAOIH, the TAOG and its restricted subsidiaries to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the Tao Senior Credit Agreement, including, without limitation, the following: (i) incurring additional indebtedness and contingent liabilities; (ii) creating liens on certain assets; (iii) making investments, loans or advances in or to other persons; (iv) paying dividends and distributions or repurchasing capital stock; (v) engaging in certain transactions with affiliates; (vi) amending specified agreements; (vii) merging or consolidating; (viii) making certain dispositions; and (ix) entering into agreements that restrict the granting of liens. Intermediate Holdings is subject to a customary passive holding company covenant.
Subject to customary notice and minimum amount conditions, TAOG may voluntarily prepay outstanding loans under the Tao Senior Credit Agreement at any time, in whole or in part, without premium or penalty (except for customary breakage costs with respect to Eurocurrency loans). The initial Tao Term Loan Facility amortizes quarterly in accordance with its terms from June 30, 2019 through March 31, 2024 with a final maturity date on May 23, 2024. TAOG is required to make mandatory prepayments on the Tao Term Loan Facility from the net cash proceeds of certain sales of assets (including Tao Collateral) or casualty insurance and/or condemnation recoveries (in each case, subject to certain reinvestment, repair or replacement rights) and the incurrence of certain indebtedness, subject to certain exceptions.
See Note 12 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2019 for more information regarding the Company’s debt maturities for the Tao Senior Secured Credit Facilities.
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Deferred Financing Costs
The following table summarizes the presentation of the Tao Term Loan Facility and the related deferred financing costs in the accompanying consolidated balance sheets as of December 31, 2019 and June 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Tao Term Loan Facility
|
|
Deferred Financing Costs
|
|
Total
|
Current portion of long-term debt, net of deferred financing costs
|
|
$
|
5,000
|
|
|
$
|
(208
|
)
|
|
$
|
4,792
|
|
Long-term debt, net of deferred financing costs (a)
|
|
31,250
|
|
|
(727
|
)
|
|
30,523
|
|
Total
|
|
$
|
36,250
|
|
|
$
|
(935
|
)
|
|
$
|
35,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
Tao Term Loan Facility
|
|
Deferred Financing Costs
|
|
Total
|
Current portion of long-term debt, net of deferred financing costs
|
|
$
|
6,250
|
|
|
$
|
(208
|
)
|
|
$
|
6,042
|
|
Long-term debt, net of deferred financing costs (a)
|
|
33,750
|
|
|
(831
|
)
|
|
32,919
|
|
Total
|
|
$
|
40,000
|
|
|
$
|
(1,039
|
)
|
|
$
|
38,961
|
|
_________________
|
|
(a)
|
In addition to the outstanding balance associated with the Tao Term Loan Facility disclosed above, the Company’s Long-term debt, net of deferred financing costs in the accompanying consolidated balance sheets also includes $637 related to a note with respect to a loan received by BCE from its noncontrolling interest holder that is due in April 2021 as of December 31, 2019 and June 30, 2019, and $15,000 outstanding balance under the Tao Revolving Credit Facility as of June 30, 2019.
|
The following table summarizes deferred financing costs, net of amortization, related to the Knicks Revolving Credit Facility, Rangers Revolving Credit Facility, and Tao Revolving Credit Facility as reported on the accompanying consolidated balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
June 30,
2019
|
Other current assets
|
|
$
|
760
|
|
|
$
|
760
|
|
Other assets
|
|
892
|
|
|
1,273
|
|
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Note 13. Pension Plans and Other Postretirement Benefit Plan
See Note 13 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2019 for more information regarding the Company’s defined benefit pension plans (“Pension Plans”), postretirement benefit plan (“Postretirement Plan”), The Madison Square Garden 401(k) Savings Plan and the MSG Sports & Entertainment, LLC Excess Savings Plan (collectively, the “Savings Plans”), and The Madison Square Garden 401(k) Union Plan (the “Union Savings Plan”).
Defined Benefit Pension Plans and Postretirement Benefit Plan
The following table presents components of net periodic benefit cost for the Pension Plans and Postretirement Plan included in the accompanying consolidated statements of operations for the three and six months ended December 31, 2019 and 2018. Service cost is recognized in Direct operating expenses and Selling, general and administrative expenses. All other components of net periodic benefit cost are reported in Miscellaneous income (expense), net.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
Postretirement Plan
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
December 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Service cost
|
|
$
|
20
|
|
|
$
|
20
|
|
|
$
|
17
|
|
|
$
|
27
|
|
Interest cost
|
|
1,328
|
|
|
1,473
|
|
|
27
|
|
|
57
|
|
Expected return on plan assets
|
|
(1,328
|
)
|
|
(782
|
)
|
|
—
|
|
|
—
|
|
Recognized actuarial loss
|
|
344
|
|
|
318
|
|
|
2
|
|
|
10
|
|
Amortization of unrecognized prior service credit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
Net periodic benefit cost
|
|
$
|
364
|
|
|
$
|
1,029
|
|
|
$
|
46
|
|
|
$
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
Postretirement Plan
|
|
|
Six Months Ended
|
|
Six Months Ended
|
|
|
December 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Service cost
|
|
$
|
48
|
|
|
$
|
40
|
|
|
$
|
35
|
|
|
$
|
55
|
|
Interest cost
|
|
2,656
|
|
|
2,946
|
|
|
55
|
|
|
115
|
|
Expected return on plan assets
|
|
(2,659
|
)
|
|
(1,563
|
)
|
|
—
|
|
|
—
|
|
Recognized actuarial loss
|
|
680
|
|
|
636
|
|
|
5
|
|
|
20
|
|
Amortization of unrecognized prior service credit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
Net periodic benefit cost
|
|
$
|
725
|
|
|
$
|
2,059
|
|
|
$
|
95
|
|
|
$
|
187
|
|
Defined Contribution Pension Plans
For the three and six months ended December 31, 2019 and 2018, expenses related to the Savings Plans and Union Savings Plan included in the accompanying consolidated statements of operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings Plans
|
|
Union Savings Plan
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Three Months Ended
|
|
Six Months Ended
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
$
|
2,883
|
|
|
$
|
3,076
|
|
|
$
|
5,510
|
|
|
$
|
5,376
|
|
|
$
|
31
|
|
|
$
|
26
|
|
|
$
|
53
|
|
|
$
|
48
|
|
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Note 14. Share-based Compensation
See Note 14 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2019 for more information regarding the Company’s 2015 Employee Stock Plan (the “Employee Stock Plan”) and its 2015 Stock Plan for Non-Employee Directors.
Share-based compensation expense was $16,694 and $20,215 for the three months ended December 31, 2019 and 2018, respectively, and $33,585 and $30,404 for the six months ended December 31, 2019 and 2018, respectively. In addition, capitalized share-based compensation expense was $1,232 and $2,482 for the three and six months ended December 31, 2019, respectively. There were no costs related to share-based compensation that were capitalized for the three and six months ended December 31, 2018.
Restricted Stock Units Award Activity
The following table summarizes activity related to the Company’s restricted stock units and performance restricted stock units, collectively referred to as “RSUs,” for the six months ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Weighted-Average
Fair Value
Per Share at
Date of Grant
|
|
Nonperformance
Based Vesting
RSUs
|
|
Performance
Based Vesting
RSUs
|
|
Unvested award balance, June 30, 2019
|
229
|
|
|
359
|
|
|
$
|
252.02
|
|
Granted (a)
|
123
|
|
|
114
|
|
|
$
|
247.18
|
|
Vested
|
(107
|
)
|
|
(121
|
)
|
|
$
|
213.94
|
|
Forfeited
|
(6
|
)
|
|
(11
|
)
|
|
$
|
261.55
|
|
Unvested award balance, December 31, 2019
|
239
|
|
|
341
|
|
|
$
|
264.75
|
|
_____________________
|
|
(a)
|
Includes incremental performance based RSUs (“PRSUs”) that were historically reported at a target payout of 100%. Upon meeting the performance objectives, the number of PRSUs vested at 105.5% of target.
|
The fair value of RSUs that vested during the six months ended December 31, 2019 was $59,032. Upon delivery, RSUs granted under the Employee Stock Plan were net share-settled to cover the required statutory tax withholding obligations. To fulfill the employees’ required statutory tax withholding obligations for the applicable income and other employment taxes, 101 of these RSUs, with an aggregate value of $26,264 were retained by the Company and the taxes paid are reflected as financing activity in the accompanying consolidated statement of cash flows for the six months ended December 31, 2019.
The fair value of RSUs that vested during the six months ended December 31, 2018 was $50,371. The weighted-average fair value per share at grant date of RSUs granted during the six months ended December 31, 2018 was $305.40.
Stock Options Award Activity
The following table summarizes activity related to the Company’s stock options for the six months ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Time Vesting Options
|
|
Weighted-Average Exercise Price Per Share
|
|
Weighted-Average Remaining Contractual Term (In Years)
|
|
Aggregate Intrinsic Value
|
|
|
|
|
Balance as of June 30, 2019
|
543
|
|
|
$
|
325.47
|
|
|
|
|
|
Granted
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Balance as of December 31, 2019
|
543
|
|
|
$
|
325.47
|
|
|
6.55
|
|
$
|
7,887
|
|
Exercisable as of December 31, 2019
|
175
|
|
|
$
|
299.67
|
|
|
6.87
|
|
$
|
5,258
|
|
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Note 15. Stock Repurchase Program
On September 11, 2015, the Company’s Board authorized the repurchase of up to $525,000 of the Company’s Class A Common Stock once the shares of the Company’s Class A Common Stock began “regular way” trading on October 1, 2015. Under the authorization, shares of Class A Common Stock may be purchased from time to time in accordance with applicable insider trading and other securities laws and regulations. The timing and amount of purchases will depend on market conditions and other factors.
During the three and six months ended December 31, 2019, the Company did not engage in any share repurchase activities under its share repurchase program. As of December 31, 2019, the Company had $259,639 of availability remaining under its stock repurchase authorization.
Note 16. Accumulated Other Comprehensive Loss
The following table details the components of accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2019
|
|
Pension Plans and
Postretirement
Plan
|
|
Cumulative Translation Adjustments
|
|
Accumulated
Other
Comprehensive
Loss
|
Balance as of September 30, 2019
|
$
|
(41,741
|
)
|
|
$
|
(14,861
|
)
|
|
$
|
(56,602
|
)
|
Other comprehensive income before reclassifications
|
—
|
|
|
23,186
|
|
|
23,186
|
|
Amounts reclassified from accumulated other comprehensive loss (a)
|
346
|
|
|
—
|
|
|
346
|
|
Other comprehensive income
|
346
|
|
|
23,186
|
|
|
23,532
|
|
Balance as of December 31, 2019
|
$
|
(41,395
|
)
|
|
$
|
8,325
|
|
|
$
|
(33,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2018
|
|
Pension Plans and
Postretirement
Plan
|
|
Cumulative Translation Adjustments
|
|
Accumulated
Other
Comprehensive
Loss
|
Balance as of September 30, 2018
|
$
|
(40,519
|
)
|
|
$
|
(1,453
|
)
|
|
$
|
(41,972
|
)
|
Other comprehensive loss before reclassifications
|
—
|
|
|
(2,251
|
)
|
|
(2,251
|
)
|
Amounts reclassified from accumulated other comprehensive loss (a)
|
326
|
|
|
—
|
|
|
326
|
|
Other comprehensive income (loss)
|
326
|
|
|
(2,251
|
)
|
|
(1,925
|
)
|
Balance as of December 31, 2018
|
$
|
(40,193
|
)
|
|
$
|
(3,704
|
)
|
|
$
|
(43,897
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, 2019
|
|
Pension Plans and
Postretirement
Plan
|
|
Cumulative Translation Adjustments
|
|
Accumulated
Other
Comprehensive
Loss
|
Balance as of June 30, 2019
|
$
|
(42,080
|
)
|
|
$
|
(4,843
|
)
|
|
$
|
(46,923
|
)
|
Other comprehensive income before reclassifications
|
—
|
|
|
13,168
|
|
|
13,168
|
|
Amounts reclassified from accumulated other comprehensive loss (a)
|
685
|
|
|
—
|
|
|
685
|
|
Other comprehensive income
|
685
|
|
|
13,168
|
|
|
13,853
|
|
Balance as of December 31, 2019
|
$
|
(41,395
|
)
|
|
$
|
8,325
|
|
|
$
|
(33,070
|
)
|
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, 2018
|
|
Pension Plans and
Postretirement
Plan
|
|
Cumulative Translation Adjustments
|
|
Unrealized Gain (Loss) on Available-for-sale
Securities (b)
|
|
Accumulated
Other
Comprehensive
Loss
|
Balance as of June 30, 2018
|
$
|
(40,846
|
)
|
|
$
|
(502
|
)
|
|
$
|
(5,570
|
)
|
|
$
|
(46,918
|
)
|
Reclassification of unrealized loss on available-for-sale securities
|
—
|
|
|
—
|
|
|
5,570
|
|
|
5,570
|
|
Other comprehensive income (loss) before reclassifications
|
—
|
|
|
(3,202
|
)
|
|
—
|
|
|
(3,202
|
)
|
Amounts reclassified from accumulated other comprehensive loss (a)
|
653
|
|
|
—
|
|
|
—
|
|
|
653
|
|
Other comprehensive income (loss)
|
653
|
|
|
(3,202
|
)
|
|
—
|
|
|
(2,549
|
)
|
Balance as of December 31, 2018
|
$
|
(40,193
|
)
|
|
$
|
(3,704
|
)
|
|
$
|
—
|
|
|
$
|
(43,897
|
)
|
________________
|
|
(a)
|
Amounts reclassified from accumulated other comprehensive loss represent the amortization of net actuarial loss and net unrecognized prior service credit included in net periodic benefit cost, which is reflected under Miscellaneous income (expense), net in the accompanying consolidated statements of operations.
|
|
|
(b)
|
As of July 1, 2018, upon adoption of ASU No. 2016-01, the Company recorded a transition adjustment to reclassify accumulated other comprehensive loss associated with its investment in Townsquare in the amount of $2,466 pre-tax ($5,570, net of tax) to accumulated deficit. See Notes 11 and 19 for more information related to the investment in Townsquare and its impact on the Company’s operating results for the three and six months ended December 31, 2019 and 2018, which is reflected under Miscellaneous income (expense), net in the accompanying consolidated statements of operations.
|
Note 17. Income Taxes
Income tax expense for the three months ended December 31, 2019 of $1,176 differs from income tax expense derived from applying the statutory federal rate of 21% to pretax income primarily due to a tax benefit related to a decrease in valuation allowance of $33,637 and excess tax benefit related to share-based compensation awards of $450, partially offset by state income tax expense of $11,862 and tax expense from nondeductible officers’ compensation of $1,547.
Income tax expense for the six months ended December 31, 2019 of $1,604 differs from income tax expense derived from applying the statutory federal rate of 21% to pretax income primarily due to a tax benefit related to a decrease in valuation allowance of $6,927 and excess tax benefit related to share-based compensation awards of $3,960, partially offset by state income tax expense of $4,127 and tax expense from nondeductible officers’ compensation of $3,008.
Income tax expense for the three months ended December 31, 2018 of $656 differs from income tax expense derived from applying the statutory federal rate of 21% to pretax income primarily due to a tax benefit related to a decrease in valuation allowance of $30,310, partially offset by (i) state income tax expense of $10,642, (ii) tax expense of nondeductible officers’ compensation of $1,680, and (iii) tax expense relating to noncontrolling interest of $1,159.
Income tax expense for the six months ended December 31, 2018 of $1,352 differs from income tax expense derived from applying the statutory federal rate of 21% to pretax income primarily due to a tax benefit related to a decrease in valuation allowance of $18,976 and excess tax benefit related to share-based compensation awards of $5,793, partially offset by (i) state income tax expense of $7,547, (ii) tax expense relating to nondeductible officers’ compensation of $5,333, and (iii) tax expense relating to noncontrolling interest of $1,545.
The Company was notified during the third quarter of fiscal year 2018 that the Internal Revenue Service (“IRS”) was commencing an audit of the federal income tax return for the year ended June 30, 2016. In October 2019, the Company was informed by the IRS that the audit resulted in no changes.
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Note 18. Related Party Transactions
As of December 31, 2019, members of the Dolan family including trusts for members of the Dolan family (collectively, the “Dolan Family Group”), for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, collectively beneficially own all of the Company’s outstanding Class B Common Stock and own approximately 3.5% 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 71.1% 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 and AMC Networks Inc. (“AMC Networks”).
The Company has various agreements with MSG Networks, including media rights agreements covering the Knicks and the Rangers games, an advertising sales representation agreement, and a services agreement (the “Services Agreement”). Pursuant to the Services Agreement, which was effective July 1, 2018, the Company provides certain services to MSG Networks, such as information technology, accounts payable and payroll, human resources, and other corporate functions, as well as the executive support services described below, in exchange for service fees. The Services Agreement expired on June 30, 2019. The Company entered into an interim agreement with MSG Networks, pursuant to which the parties are providing the same services on the same terms. The Company expects to enter into a new services agreement this calendar year, which will be retroactive to July 1, 2019. MSG Networks also provides certain services to the Company, in exchange for service fees.
The Company shares certain executive support costs, including office space, executive assistants, security and transportation costs, for (i) the Company’s Executive Chairman and Chief Executive Officer with MSG Networks and (ii) the Company’s Vice Chairman with MSG Networks and AMC Networks.
On June 16, 2016, the Company entered into an arrangement with the Dolan Family Office, LLC (“DFO”), an entity owned and controlled by Charles F. Dolan, AMC Networks and MSG Networks providing for the sharing of certain expenses associated with executive office space which is available to James L. Dolan (the Executive Chairman, Chief Executive Officer and a director of the Company, the Executive Chairman and a director of MSG Networks, and a director of AMC Networks), Charles F. Dolan (the father of James L. Dolan and the Executive Chairman and a director of AMC Networks and a director of the Company and MSG Networks), and the DFO which is controlled by Charles F. Dolan. Effective September 2018, the Company is no longer party to this arrangement.
The Company is a party to various Aircraft Support Services Agreements (the “Support Agreements”), pursuant to which the Company provides certain aircraft support services to entities controlled by (i) the Company’s Executive Chairman, Chief Executive Officer and a director, (ii) Charles F. Dolan, a director of the Company, and (iii) Patrick F. Dolan, the son of Charles F. Dolan and brother of James L. Dolan. On December 17, 2018, the Company terminated the agreement providing services to the entity controlled by Charles F. Dolan, and entered into a new agreement with Charles F. Dolan and certain of his children, who are siblings of James L. Dolan, specifically: Thomas C. Dolan (a director of the Company), Deborah Dolan-Sweeney, Patrick F. Dolan, Marianne Dolan Weber (a director of the Company), and Kathleen M. Dolan, which provides substantially the same services as the prior agreement for a new aircraft.
In addition, the Company is party to reciprocal time sharing/dry lease agreements with each of (i) Quart 2C, LLC (“Q2C”), a company controlled by the Company’s Executive Chairman, Chief Executive Officer and a director, and Kristin A. Dolan, his spouse and a director of the Company, and (ii) Charles F. Dolan and Sterling Aviation, LLC, a company controlled by Charles F. Dolan (collectively, “CFD”), pursuant to which the Company has agreed from time to time to make its aircraft available to each of Q2C and CFD, and Q2C, and CFD have agreed from time to time to make their aircraft available to the Company. Pursuant to the terms of the agreements, Q2C and/or CFD may lease on a non-exclusive, “time sharing” basis, the Company’s Gulfstream Aerospace G550 aircraft (the “G550 Aircraft”). On December 17, 2018, in connection with the purchase of a new aircraft (as noted above), the Company replaced the dry lease agreement with CFD with a new dry lease agreement with Sterling2k LLC, an entity owned and controlled by Deborah Dolan-Sweeney, the daughter of Charles F. Dolan and the sister of the Company’s Executive Chairman and Chief Executive Officer, which provides for the Company’s usage of the new aircraft on the same terms as the prior agreement.
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
On May 6, 2019, the Company entered into a dry lease agreement with Brighid Air, LLC (“Brighid Air”), a company owned and controlled by Patrick F. Dolan, the son of Charles F. Dolan and the brother of the Company’s Executive Chairman, Chief Executive Officer and a director, pursuant to which the Company may lease on a non-exclusive basis Brighid Air’s Bombardier BD100-1A10 Challenger 350 aircraft (the “Challenger”). In connection with the dry lease agreement, on May 6, 2019 the Company also entered into a Flight Crew Services Agreement (the “Flight Crew Agreement”) with DFO, an entity owned and controlled by Charles F. Dolan, pursuant to which the Company may utilize pilots employed by DFO for purposes of flying the Challenger when the Company is leasing that aircraft under the Company’s dry lease agreement with Brighid Air.
The Company and each of MSG Networks and AMC Networks are party to certain aircraft time sharing agreements, pursuant to which the Company has agreed from time to time to make its aircraft available to MSG Networks and/or AMC Networks for lease on a “time sharing” basis. Additionally, the Company, MSG Networks and AMC Networks have agreed on an allocation of the costs of certain helicopter use by its shared executives.
In addition to the aircraft arrangements described above, certain executives of the Company are party to aircraft time sharing agreements, pursuant to which the Company has agreed from time to time to make certain aircraft available for lease on a “time sharing” basis for personal use in exchange for payment of actual expenses of the flight (as listed in the agreement).
From time to time the Company enters into arrangements with 605, LLC. Kristin A. Dolan, a director of the Company and spouse of James L. Dolan, is the founder and Chief Executive Officer of 605, LLC. James L. Dolan, the Company’s Executive Chairman, Chief Executive Officer and a director, and Kristin A. Dolan own 50% of 605, LLC. 605, LLC provides audience measurement and data analytics services to the Company and its subsidiaries in the ordinary course of business.
As of December 31, 2019 and June 30, 2019, BCE had $637 of notes payable. See Note 12 for further information.
The Company has also entered into certain commercial agreements with its nonconsolidated affiliates in connection with MSG Sphere. For the six months ended December 31, 2019, the Company recorded approximately $7,370 of capital expenditures in connection with services provided to the Company under these agreements.
Revenues and Operating Expenses (Credits)
The following table summarizes the composition and amounts of the transactions with the Company’s affiliates, primarily MSG Networks. These amounts are reflected in revenues and operating expenses in the accompanying consolidated statements of operations for the three and six months ended December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Revenues
|
|
$
|
67,500
|
|
|
$
|
65,012
|
|
|
$
|
74,564
|
|
|
$
|
71,746
|
|
Operating expenses (credits):
|
|
|
|
|
|
|
|
|
Corporate general and administrative expenses, net — MSG Networks
|
|
$
|
(2,602
|
)
|
|
$
|
(2,772
|
)
|
|
$
|
(5,204
|
)
|
|
$
|
(5,276
|
)
|
Consulting fees
|
|
—
|
|
|
842
|
|
|
—
|
|
|
1,792
|
|
Advertising expenses
|
|
101
|
|
|
278
|
|
|
144
|
|
|
346
|
|
Other operating expenses, net
|
|
(103
|
)
|
|
205
|
|
|
(14
|
)
|
|
186
|
|
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Revenues
Revenues from related parties primarily consist of local media rights recognized by MSG Sports from the licensing of team-related programming to MSG Networks under the media rights agreements covering the Knicks and Rangers, which provide MSG Networks with exclusive media rights to team games in their local markets, as well as commissions earned in connection with the advertising sales representation agreement pursuant to which the Company has the exclusive right and obligation to sell MSG Networks’ advertising availabilities. As a result of the timing of recognition of media rights revenue, the Company recorded deferred revenue of $9,403 in the accompanying consolidated balance sheets as of December 31, 2019. The Company had no deferred revenue related to local media rights with MSG Networks as of June 30, 2019.
The Company and Tribeca Enterprises have a service agreement pursuant to which the Company provides marketing inventory, advertising sales and consulting services to Tribeca Enterprises for a fee. On August 5, 2019, the Company sold its equity capital in Tribeca Enterprises. Accordingly, Tribeca Enterprises is no longer a related party of the Company, and thus the related party transactions disclosed herein that relate to Tribeca Enterprises were recognized prior to August 5, 2019. The Company is also a party to certain commercial arrangements with AMC Networks and its subsidiaries.
Corporate General and Administrative Expenses, net — MSG Networks
The Company’s corporate overhead expenses that are charged to MSG Networks are primarily related to centralized functions, including executive compensation, finance, treasury, tax, internal audit, legal, information technology, human resources and risk management functions.
Corporate general and administrative expenses, net - MSG Networks reflects charges from the Company to MSG Networks under the Services Agreement of $2,641 and $2,779 for the three months ended December 31, 2019 and 2018, respectively, and $5,282 and $5,287 for the six months ended December 31, 2019 and 2018, respectively.
Consulting Fees
On December 5, 2018, the Company’s joint venture interest in AMSGE was sold to Azoff Music, which resulted in the Company no longer being an owner of AMSGE (renamed The Azoff Company). Accordingly, The Azoff Company is not a related party of the Company, and thus the related party transactions disclosed herein that relate to AMSGE were recognized prior to December 5, 2018. Prior to the sale of AMSGE, the Company paid AMSGE and its nonconsolidated affiliates for advisory and consulting services that AMSGE and its nonconsolidated affiliates provide to the Company, and for the reimbursement of certain expenses in connection with such services.
Advertising Expenses
The Company incurs advertising expenses for services rendered by its related parties, primarily MSG Networks, most of which are related to the utilization of advertising and promotional benefits by the Company.
Other Operating Expenses, net
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, Chief Executive Officer and a director of the Company, for office space equal to the allocated cost of such space and the cost of certain technology services. In addition, other operating expenses include net charges relating to (i) reciprocal aircraft arrangements between the Company and each of Q2C and CFD and (ii) time sharing agreements with MSG Networks and AMC Networks.
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Note 19. 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 ASC 280-10-50-1, which provides the definition of a reportable segment. In accordance with the FASB’s guidance, the Company takes into account whether two or more operating segments can be aggregated together as one reportable segment as well as the type of discrete financial information that is available and regularly reviewed by its chief operating decision maker. The Company has evaluated this guidance and determined that there are two reportable segments. The Company allocates certain corporate costs and its performance 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 and amortization expense related to The Garden, Hulu Theater at Madison Square Garden, the Forum, and certain corporate property, equipment and leasehold improvements not allocated to the reportable segments is reported in “Corporate and Other.” Additionally, the Company does not allocate any purchase accounting adjustments to the reporting segments.
The Company evaluates segment performance based on several factors, of which the key financial measure is 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 income (loss), a non-GAAP measure. In addition to excluding the impact of the items discussed above, the impact of purchase accounting adjustments related to business acquisitions is also excluded in evaluating the Company’s consolidated adjusted operating income (loss). Because it is based upon operating income (loss), adjusted operating income (loss) also excludes interest expense (including cash interest expense) and other non-operating income and expense items. Management believes that the exclusion of share-based compensation expense or benefit allows investors to better track the performance of the various operating units of the Company’s business without regard to the settlement of an obligation that is not expected to be made in cash. The Company believes adjusted operating income (loss) is an appropriate measure for evaluating the operating performance of its business segments and the Company on a consolidated basis. Adjusted operating income (loss) 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 adjusted operating income (loss) measures as the most important indicators of its business performance and evaluates management’s effectiveness with specific reference to these indicators.
Adjusted operating income (loss) 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. Since adjusted operating income (loss) is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies. The Company has presented the components that reconcile operating income (loss), the most directly comparable GAAP financial measure, to adjusted operating income (loss).
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Information as to the operations of the Company’s reportable segments is set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2019
|
|
|
|
MSG
Entertainment
|
|
MSG
Sports
|
|
Corporate and Other
|
|
Purchase
accounting adjustments
|
|
Inter-segment eliminations
|
|
Total
|
Revenues
|
|
|
$
|
312,692
|
|
|
$
|
316,466
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(353
|
)
|
|
$
|
628,805
|
|
Direct operating expenses
|
|
|
162,102
|
|
|
208,347
|
|
|
10
|
|
|
1,114
|
|
|
(235
|
)
|
|
371,338
|
|
Selling, general and administrative expenses
|
(a)
|
|
50,240
|
|
|
57,169
|
|
|
40,843
|
|
|
50
|
|
|
112
|
|
|
148,414
|
|
Depreciation and amortization
|
(b)
|
|
4,816
|
|
|
1,782
|
|
|
18,490
|
|
|
3,123
|
|
|
—
|
|
|
28,211
|
|
Operating income (loss)
|
|
|
$
|
95,534
|
|
|
$
|
49,168
|
|
|
$
|
(59,343
|
)
|
|
$
|
(4,287
|
)
|
|
$
|
(230
|
)
|
|
$
|
80,842
|
|
Loss in equity method investments
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,170
|
)
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
6,269
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,715
|
)
|
Miscellaneous income, net
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
9,299
|
|
Income from operations before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
93,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of operating income (loss) to adjusted operating income (loss):
|
|
|
|
|
Operating income (loss)
|
|
|
$
|
95,534
|
|
|
$
|
49,168
|
|
|
$
|
(59,343
|
)
|
|
$
|
(4,287
|
)
|
|
$
|
(230
|
)
|
|
$
|
80,842
|
|
Add back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
3,202
|
|
|
4,348
|
|
|
9,144
|
|
|
—
|
|
|
—
|
|
|
16,694
|
|
Depreciation and amortization
|
|
|
4,816
|
|
|
1,782
|
|
|
18,490
|
|
|
3,123
|
|
|
—
|
|
|
28,211
|
|
Other purchase accounting adjustments
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,164
|
|
|
—
|
|
|
1,164
|
|
Adjusted operating income (loss)
|
|
|
$
|
103,552
|
|
|
$
|
55,298
|
|
|
$
|
(31,709
|
)
|
|
$
|
—
|
|
|
$
|
(230
|
)
|
|
$
|
126,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(d)
|
|
$
|
3,354
|
|
|
$
|
6,617
|
|
|
$
|
118,378
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
128,349
|
|
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2018
|
|
|
|
MSG
Entertainment
|
|
MSG
Sports
|
|
Corporate and Other
|
|
Purchase
accounting adjustments
|
|
Inter-segment eliminations
|
|
Total
|
Revenues
|
|
|
$
|
316,514
|
|
|
$
|
315,843
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(170
|
)
|
|
$
|
632,187
|
|
Direct operating expenses
|
|
|
167,014
|
|
|
218,714
|
|
|
38
|
|
|
1,213
|
|
|
(170
|
)
|
|
386,809
|
|
Selling, general and administrative expenses
|
(a)
|
|
52,457
|
|
|
53,313
|
|
|
30,521
|
|
|
522
|
|
|
122
|
|
|
136,935
|
|
Depreciation and amortization
|
(b)
|
|
3,769
|
|
|
1,984
|
|
|
18,947
|
|
|
5,466
|
|
|
—
|
|
|
30,166
|
|
Operating income (loss)
|
|
|
$
|
93,274
|
|
|
$
|
41,832
|
|
|
$
|
(49,506
|
)
|
|
$
|
(7,201
|
)
|
|
$
|
(122
|
)
|
|
$
|
78,277
|
|
Earnings in equity method investments
|
|
|
|
|
|
|
|
|
|
|
|
|
9,487
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
6,899
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,176
|
)
|
Miscellaneous expense, net
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
(12,863
|
)
|
Income from operations before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
76,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of operating income (loss) to adjusted operating income (loss):
|
|
|
|
|
Operating income (loss)
|
|
|
$
|
93,274
|
|
|
$
|
41,832
|
|
|
$
|
(49,506
|
)
|
|
$
|
(7,201
|
)
|
|
$
|
(122
|
)
|
|
$
|
78,277
|
|
Add back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
3,960
|
|
|
4,818
|
|
|
11,437
|
|
|
—
|
|
|
—
|
|
|
20,215
|
|
Depreciation and amortization
|
|
|
3,769
|
|
|
1,984
|
|
|
18,947
|
|
|
5,466
|
|
|
—
|
|
|
30,166
|
|
Other purchase accounting adjustments
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,735
|
|
|
—
|
|
|
1,735
|
|
Adjusted operating income (loss)
|
|
|
$
|
101,003
|
|
|
$
|
48,634
|
|
|
$
|
(19,122
|
)
|
|
$
|
—
|
|
|
$
|
(122
|
)
|
|
$
|
130,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(d)
|
|
$
|
6,038
|
|
|
$
|
1,218
|
|
|
$
|
31,782
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
39,038
|
|
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, 2019
|
|
|
|
MSG
Entertainment
|
|
MSG
Sports
|
|
Corporate and Other
|
|
Purchase
accounting adjustments
|
|
Inter-segment eliminations
|
|
Total
|
Revenues
|
|
|
$
|
471,699
|
|
|
$
|
372,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(612
|
)
|
|
$
|
843,587
|
|
Direct operating expenses
|
|
|
268,029
|
|
|
232,658
|
|
|
131
|
|
|
3,390
|
|
|
(406
|
)
|
|
503,802
|
|
Selling, general and administrative expenses
|
(a)
|
|
100,898
|
|
|
107,321
|
|
|
82,498
|
|
|
106
|
|
|
236
|
|
|
291,059
|
|
Depreciation and amortization
|
(b)
|
|
9,790
|
|
|
3,583
|
|
|
37,364
|
|
|
6,465
|
|
|
—
|
|
|
57,202
|
|
Operating loss
|
|
|
$
|
92,982
|
|
|
$
|
28,938
|
|
|
$
|
(119,993
|
)
|
|
$
|
(9,961
|
)
|
|
$
|
(442
|
)
|
|
$
|
(8,476
|
)
|
Loss in equity method investments
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,643
|
)
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
13,585
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,556
|
)
|
Miscellaneous income, net
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
14,377
|
|
Income from operations before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of operating income (loss) to adjusted operating income (loss):
|
|
|
|
|
Operating income (loss)
|
|
|
$
|
92,982
|
|
|
$
|
28,938
|
|
|
$
|
(119,993
|
)
|
|
$
|
(9,961
|
)
|
|
$
|
(442
|
)
|
|
$
|
(8,476
|
)
|
Add back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
7,018
|
|
|
9,117
|
|
|
17,450
|
|
|
—
|
|
|
—
|
|
|
33,585
|
|
Depreciation and amortization
|
|
|
9,790
|
|
|
3,583
|
|
|
37,364
|
|
|
6,465
|
|
|
—
|
|
|
57,202
|
|
Other purchase accounting adjustments
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,496
|
|
|
—
|
|
|
3,496
|
|
Adjusted operating income (loss)
|
|
|
$
|
109,790
|
|
|
$
|
41,638
|
|
|
$
|
(65,179
|
)
|
|
$
|
—
|
|
|
$
|
(442
|
)
|
|
$
|
85,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(d)
|
|
$
|
5,946
|
|
|
$
|
13,213
|
|
|
$
|
202,176
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
221,335
|
|
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, 2018
|
|
|
|
MSG
Entertainment
|
|
MSG
Sports
|
|
Corporate and Other
|
|
Purchase
accounting adjustments
|
|
Inter-segment eliminations
|
|
Total
|
Revenues
|
|
|
$
|
479,467
|
|
|
$
|
371,195
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(340
|
)
|
|
$
|
850,322
|
|
Direct operating expenses
|
|
|
274,799
|
|
|
234,033
|
|
|
59
|
|
|
2,167
|
|
|
(340
|
)
|
|
510,718
|
|
Selling, general and administrative expenses
|
(a)
|
|
101,426
|
|
|
95,530
|
|
|
54,597
|
|
|
581
|
|
|
122
|
|
|
252,256
|
|
Depreciation and amortization
|
(b)
|
|
8,251
|
|
|
3,926
|
|
|
38,217
|
|
|
9,462
|
|
|
—
|
|
|
59,856
|
|
Operating income (loss)
|
|
|
$
|
94,991
|
|
|
$
|
37,706
|
|
|
$
|
(92,873
|
)
|
|
$
|
(12,210
|
)
|
|
$
|
(122
|
)
|
|
$
|
27,492
|
|
Earnings in equity method investments
|
|
|
|
|
|
|
|
|
|
|
|
|
20,012
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
14,073
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,209
|
)
|
Miscellaneous expense, net
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
(9,096
|
)
|
Income from operations before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
43,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of operating income (loss) to adjusted operating income (loss):
|
|
|
|
|
Operating income (loss)
|
|
|
$
|
94,991
|
|
|
$
|
37,706
|
|
|
$
|
(92,873
|
)
|
|
$
|
(12,210
|
)
|
|
$
|
(122
|
)
|
|
$
|
27,492
|
|
Add back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
6,801
|
|
|
7,590
|
|
|
16,013
|
|
|
—
|
|
|
—
|
|
|
30,404
|
|
Depreciation and amortization
|
|
|
8,251
|
|
|
3,926
|
|
|
38,217
|
|
|
9,462
|
|
|
—
|
|
|
59,856
|
|
Other purchase accounting adjustments
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
2,748
|
|
|
$
|
—
|
|
|
2,748
|
|
Adjusted operating income (loss)
|
|
|
$
|
110,043
|
|
|
$
|
49,222
|
|
|
$
|
(38,643
|
)
|
|
$
|
—
|
|
|
$
|
(122
|
)
|
|
$
|
120,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(d)
|
|
$
|
14,337
|
|
|
$
|
2,130
|
|
|
$
|
64,586
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
81,053
|
|
_________________
|
|
(a)
|
Corporate and Other’s selling, general and administrative expenses primarily consist of unallocated corporate general and administrative costs, including expenses associated with the Company’s content development and technology associated with the Company’s MSG Sphere initiative, as well as other business development activities.
|
|
|
(b)
|
Corporate and Other principally includes depreciation and amortization of The Garden, Hulu 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 income (expense), net primarily includes unrealized gain (loss) for the Company’s investment in Townsquare in accordance with ASU No. 2016-01 of $9,432 and $(12,031) for the three months ended December 31, 2019 and 2018, respectively, and $14,725 and $(7,667) for the six months ended December 31, 2019 and 2018, respectively. In addition, miscellaneous income (expense), net includes dividend income from the investment in Townsquare and non-service cost components of net periodic pension and postretirement benefit cost in accordance with ASU No. 2017-07. See Note 13 for further details on the non-service cost components of net periodic pension and postretirement benefit cost.
|
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
|
|
(d)
|
Substantially all of Corporate and Other’s capital expenditures for the three and six months ended December 31, 2019 and 2018 are related to the Company’s planned MSG Spheres in Las Vegas and London. MSG Entertainment’s capital expenditures for the six months ended December 31, 2018 are primarily associated with the opening of a new Tao Group Hospitality venue.
|
A significant majority of 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.
Note 20. Subsequent Event
On January 22, 2020, the Company acquired an additional 15% of common equity interest in Tao Group Hospitality from its noncontrolling interest holders through an issuance of shares of the Company’s Class A Common Stock. The Company now owns 77.5% of common equity interest in Tao Group Hospitality.