Quarterly Report



Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q
________________________
(Mark One)
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
OR
 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to
Commission File Number: 1-36900
TMSGCLOGO0331201710QA01.JPG
(Exact name of registrant as specified in its charter)  
Delaware
 
47-3373056
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
_______________________ 
Two Penn Plaza
New York, NY 10121
(212) 465-6000
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
_______________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
Non-accelerated filer
þ
(Do not check if a smaller reporting company)
Smaller reporting company
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes þ No
Number of shares of common stock outstanding as of April 28, 2017 :  
Class A Common Stock par value $0.01 per share
 —
19,014,264
Class B Common Stock par value $0.01 per share
 —
4,529,517



Table of Contents



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




Table of Contents

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
 
 
March 31,
2017
 
June 30,
2016
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Current Assets:
 
 
 
 
Cash and cash equivalents
 
$
1,140,903

 
$
1,444,317

Restricted cash
 
32,647

 
27,091

Accounts receivable, net
 
131,636

 
75,998

Net related party receivables, current
 
5,293

 
4,079

Prepaid expenses
 
40,370

 
27,031

Other current assets
 
63,138

 
25,337

Total current assets
 
1,413,987

 
1,603,853

Net related party receivables, noncurrent
 

 
1,710

Investments and loans to nonconsolidated affiliates
 
239,921

 
263,546

Property and equipment, net of accumulated depreciation and amortization of $614,131 and $540,801 as of March 31, 2017 and June 30, 2016, respectively
 
1,166,508

 
1,160,609

Amortizable intangible assets, net
 
262,136

 
15,729

Indefinite-lived intangible assets
 
166,850

 
166,850

Goodwill
 
387,314

 
277,166

Other assets
 
98,979

 
54,487

Total assets
 
$
3,735,695

 
$
3,543,950

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
 
 
 
 
Current Liabilities:
 
 
 
 
Accounts payable
 
$
27,167

 
$
13,935

Net related party payables
 
31,756

 
15,275

Accrued liabilities:
 
 
 
 
Employee related costs
 
113,738

 
119,357

Other accrued liabilities
 
181,059

 
133,832

Deferred revenue
 
339,045

 
332,416

Total current liabilities
 
692,765

 
614,815

Long-term debt, net of deferred financing costs
 
105,292

 

Defined benefit and other postretirement obligations
 
56,878

 
66,035

Other employee related costs
 
23,453

 
32,921

Deferred tax liabilities, net
 
195,181

 
194,583

Other liabilities
 
76,217

 
49,175

Total liabilities
 
1,149,786

 
957,529

Commitments and contingencies (see Note 8)
 

 

Redeemable noncontrolling interests
 
85,000

 

The Madison Square Garden Company Stockholders’ Equity:
 
 
 
 
Class A Common stock, par value $0.01, 120,000 shares authorized; 19,012 and 19,777 shares outstanding as of March 31, 2017 and June 30, 2016, respectively
 
204

 
204

Class B Common stock, par value $0.01, 30,000 shares authorized; 4,530 shares outstanding as of March 31, 2017 and June 30, 2016
 
45

 
45

Preferred stock, par value $0.01,15,000 shares authorized; none outstanding as of March 31, 2017 and June 30, 2016
 

 

Additional paid-in capital
 
2,822,565

 
2,806,352

Treasury stock, at cost, 1,436 and 671 shares as of March 31, 2017 and June 30, 2016, respectively
 
(242,505
)
 
(101,882
)
Accumulated deficit
 
(64,132
)
 
(75,687
)
Accumulated other comprehensive loss
 
(25,771
)
 
(42,611
)
Total The Madison Square Garden Company stockholders’ equity
 
2,490,406

 
2,586,421

Nonredeemable noncontrolling interests
 
10,503

 

Total equity
 
2,500,909

 
2,586,421

Total liabilities, redeemable noncontrolling interests and equity
 
$
3,735,695

 
$
3,543,950

See accompanying notes to consolidated financial statements.

1



THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
 
 
Three Months Ended
 
Nine Months Ended
 
March 31,
 
March 31,
 
2017
 
2016
 
2017
 
2016
Revenues (a)
 
$
386,033

 
$
336,328

 
$
1,012,878

 
$
897,547

 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
Direct operating expenses (b)
 
252,708

 
275,118

 
630,788

 
596,100

Selling, general and administrative expenses (c)
 
100,084

 
92,352

 
271,365

 
236,982

Depreciation and amortization
 
26,535

 
25,794

 
78,611

 
76,939

Operating income (loss)
 
6,706

 
(56,936
)
 
32,114

 
(12,474
)
Other income (expense):
 
 
 
 
 
 
 
 
Loss in equity method investments
 
(26,319
)
 
(5,173
)
 
(28,501
)
 
(4,969
)
Interest income (d)
 
3,005

 
1,965

 
8,096

 
4,370

Interest expense
 
(831
)
 
(489
)
 
(1,732
)
 
(1,543
)
Miscellaneous income (expense)
 
36

 

 
1,441

 
(4,080
)
 
 
(24,109
)
 
(3,697
)
 
(20,696
)
 
(6,222
)
Income (loss) from operations before income taxes
 
(17,403
)
 
(60,633
)
 
11,418

 
(18,696
)
Income tax expense
 
(440
)
 
(123
)
 
(754
)
 
(175
)
Net income (loss)
 
(17,843
)
 
(60,756
)
 
10,664

 
(18,871
)
Less: Net loss attributable to nonredeemable noncontrolling interests
 
(298
)
 

 
(891
)
 

Net income (loss) attributable to The Madison Square Garden Company’s stockholders
 
$
(17,545
)
 
$
(60,756
)
 
$
11,555

 
$
(18,871
)
 
 
 
 
 
 
 
 
 
Basic earnings (loss) per common share attributable to The Madison Square Garden Company’s stockholders
 
$
(0.74
)
 
$
(2.47
)
 
$
0.48

 
$
(0.76
)
Diluted earnings (loss) per common share attributable to The Madison Square Garden Company’s stockholders
 
$
(0.74
)
 
$
(2.47
)
 
$
0.48

 
$
(0.76
)
Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
23,825

 
24,635

 
23,951

 
24,845

Diluted
 
23,825

 
24,635

 
24,147

 
24,845

_________________
(a)  
Include revenues from related parties of $41,679 and $41,843 for the three months ended March 31, 2017 and 2016 , respectively, and $114,560 and $116,723 for the nine months ended March 31, 2017 and 2016 , respectively.
(b)  
Include net charges from related parties of $346 and $271 for the three months ended March 31, 2017 and 2016 , respectively, and $1,035 and $236 for the nine months ended March 31, 2017 and 2016 , respectively.
(c)  
Include net charges from (to) related parties of $(1,304) and $1,238 for the three months ended March 31, 2017 and 2016 , respectively, and $(4,508) and $(28,634) for the nine months ended March 31, 2017 and 2016 , respectively.
(d)  
Includes interest income from nonconsolidated affiliates of $1,070 and $771 for the three months ended March 31, 2017 and 2016 , respectively, and $3,049 and $2,077 for the nine months ended March 31, 2017 and 2016 , respectively. In addition, interest income includes interest income from MSG Networks of $307 for the nine months ended March 31, 2016 .
See accompanying notes to consolidated financial statements.

2



THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
 
 
Three Months Ended
 
Nine Months Ended
 
 
March 31,
 
March 31,
 
 
2017
 
2016
 
2017
 
2016
Net income (loss)
 
 
 
$
(17,843
)
 
 
 
$
(60,756
)
 
 
 
$
10,664

 
 
 
$
(18,871
)
Other comprehensive income (loss), before income taxes:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pension plans and postretirement plan:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net unamortized losses arising during the period
 
$

 
 
 
$

 
 
 
$

 
 
 
$
(602
)
 
 
Amounts reclassified from accumulated other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of net actuarial loss included in net periodic benefit cost
 
336

 
 
 
236

 
 
 
1,024

 

 
790

 

Amortization of net prior service credit included in net periodic benefit cost
 
(12
)
 
324

 
(30
)
 
206

 
(37
)
 
987

 
(67
)
 
121

Net changes related to available-for-sale securities
 
 
 
5,678

 
 
 

 
 
 
15,853

 
 
 

Other comprehensive income
 
 
 
6,002

 
 
 
206

 
 
 
16,840

 
 
 
121

Comprehensive income (loss)
 
 
 
(11,841
)
 
 
 
(60,550
)
 

 
27,504

 
 
 
(18,750
)
Less: Comprehensive loss attributable to nonredeemable noncontrolling interests
 
 
 
(298
)
 
 
 

 
 
 
(891
)
 
 
 

Comprehensive income (loss) attributable to The Madison Square Garden Company’s stockholders
 
 
 
$
(11,543
)
 
 
 
$
(60,550
)
 
 
 
$
28,395

 
 
 
$
(18,750
)

See accompanying notes to consolidated financial statements.


3



THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
 
Nine Months Ended
 
 
March 31,
 
 
2017
 
2016
Cash flows from operating activities:
 
 
 
 
Net income (loss)
 
$
10,664

 
$
(18,871
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
78,611

 
76,939

Amortization of deferred financing costs
 
247

 

Share-based compensation expense
 
30,465

 
17,647

Loss in equity method investments, net of income distributions
 
29,356

 
4,969

Write-off of deferred production costs
 

 
41,816

Impairment of cost method investment
 

 
4,080

Provision for doubtful accounts
 
82

 
31

Change in assets and liabilities, net of acquisitions:
 
 
 
 
Accounts receivable, net
 
(49,885
)
 
(58,547
)
Net related party receivables
 
247

 
(16,255
)
Prepaid expenses and other assets
 
(15,462
)
 
(33,101
)
Accounts payable
 
6,040

 
7,431

Net related party payables
 
16,481

 
26,440

Accrued and other liabilities
 
(5,850
)
 
27,562

Deferred revenue
 
5,964

 
5,703

Deferred income taxes
 
598

 
177

Net cash provided by operating activities
 
107,558

 
86,021

Cash flows from investing activities:
 
 
 
 
Capital expenditures, net of acquisitions
 
(31,762
)
 
(64,029
)
Payments for acquisition of assets
 
(1,000
)
 
(2,000
)
Payments to acquire available-for-sale securities
 
(23,222
)
 

Payments for acquisition of businesses, net of cash acquired
 
(192,095
)
 

Investments and loans to nonconsolidated affiliates
 
(4,735
)
 
(31,992
)
Capital distribution from equity method investments
 

 
1,528

Net cash used in investing activities
 
(252,814
)
 
(96,493
)
Cash flows from financing activities:
 
 
 
 
Net transfers from MSG Networks and MSG Networks’ subsidiaries
 

 
1,525,241

Repurchases of common stock
 
(147,967
)
 
(78,001
)
Proceeds from stock option exercises
 
7

 
756

Taxes paid in lieu of shares issued for equity-based compensation
 
(7,034
)
 
(48
)
Payments for financing costs
 
(3,164
)
 

Net cash provided by (used in) financing activities
 
(158,158
)
 
1,447,948

Net increase (decrease) in cash and cash equivalents
 
(303,414
)
 
1,437,476

Cash and cash equivalents at beginning of period
 
1,444,317

 
14,211

Cash and cash equivalents at end of period
 
$
1,140,903

 
$
1,451,687

Non-cash investing and financing activities:
 
 
 
 
Investments and loans to nonconsolidated affiliates
 
$
351

 
$
2,094

Capital expenditures incurred but not yet paid
 
2,774

 
1,864

Accrued earn-out liability
 
7,900

 

Non-cash transfers resulting from the Distribution, net
 

 
(2,913
)
See accompanying notes to consolidated financial statements.

4



THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
(Unaudited)
(in thousands)  
 
 
Common
Stock
Issued
 
Additional
Paid-In
Capital
 
Treasury
Stock
 
Accumulated Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total The Madison Square Garden Company Stockholders  Equity
 
Non -
redeemable
Noncontrolling
Interests
 
Total Equity
 
Redeemable
Noncontrolling
 Interests
Balance as of June 30, 2016
 
$
249

 
$
2,806,352

 
$
(101,882
)
 
$
(75,687
)
 
$
(42,611
)
 
$
2,586,421

 
$

 
$
2,586,421

 
$

Net income (loss)
 

 

 

 
11,555

 

 
11,555

 
(891
)
 
10,664

 

Other comprehensive income
 

 

 

 

 
16,840

 
16,840

 

 
16,840

 

Comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
28,395

 
(891
)
 
27,504

 

Exercise of stock options
 

 
(39
)
 
46

 

 

 
7

 

 
7

 

Share-based compensation
 

 
30,584

 

 

 

 
30,584

 

 
30,584

 

Tax withholding associated with shares issued for equity-based compensation
 

 
(5,702
)
 
(1,332
)
 

 

 
(7,034
)
 

 
(7,034
)
 

Common stock issued under stock incentive plans
 

 
(8,630
)
 
8,630

 

 

 

 

 

 

Repurchases of common stock
 

 

 
(147,967
)
 

 

 
(147,967
)
 

 
(147,967
)
 

Noncontrolling interests from acquisition
 

 

 

 

 

 

 
11,394

 
11,394

 
85,000

Balance as of March 31, 2017
 
$
249

 
$
2,822,565

 
$
(242,505
)
 
$
(64,132
)
 
$
(25,771
)
 
$
2,490,406

 
$
10,503

 
$
2,500,909

 
$
85,000



See accompanying notes to consolidated financial statements.

 

5



THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
(Unaudited)
(in thousands)  
(Continued)
 
 
Common Stock Issued
 
MSG Networks’ Investment
 
Additional
Paid-In
Capital
 
Treasury
Stock
 
Accumulated Deficit
 
Accumulated
Other
Comprehensive
 Income (Loss)
 
Total The Madison Square Garden Company Stockholders  Equity
Balance as of June 30, 2015
 
$

 
$
1,263,490

 
$

 
$

 
$

 
$
(40,215
)
 
$
1,223,275

Net loss
 

 
(1,603
)
 

 

 
(17,268
)
 

 
(18,871
)
Other comprehensive income
 

 

 

 

 

 
121

 
121

Comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
(18,750
)
Exercise of stock options
 

 

 
(2,563
)
 
3,319

 

 

 
756

Share-based compensation
 

 

 
14,637

 

 

 

 
14,637

Tax withholding associated with shares issued for equity-based compensation
 

 

 
(48
)
 

 

 

 
(48
)
Repurchases of common stock
 

 

 

 
(78,001
)
 

 

 
(78,001
)
Net increase in MSG Networks’ investment
 

 
1,525,982

 

 

 

 

 
1,525,982

Conversion of MSG Networks’ investment
 
249

 
(2,787,869
)
 
2,787,620

 

 

 

 

Adjustments related to the transfer of certain assets and liabilities as a result of the Distribution
 

 

 
(413
)
 

 

 

 
(413
)
Adjustment related to the transfer of Pension Plans and Postretirement Plan liabilities as a result of the Distribution
 

 

 

 

 

 
5,896

 
5,896

Balance as of March 31, 2016
 
$
249

 
$

 
$
2,799,233

 
$
(74,682
)
 
$
(17,268
)
 
$
(34,198
)
 
$
2,673,334



See accompanying notes to consolidated financial statements.

6



THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
All amounts included in the following Notes to Consolidated Financial Statements are presented in thousands, except per share data or as otherwise noted.
Note 1. Description of Business and Basis of Presentation
Description of Business
The Madison Square Garden Company (together with its subsidiaries, the “Company” or “ Madison Square Garden ”) is a live sports and entertainment business. The Company classifies its business interests into two reportable segments: MSG Entertainment and MSG Sports. MSG Entertainment includes live entertainment events such as concerts, family shows, performing arts and special events, which are presented or hosted in the Company’s diverse collection of venues along with live offerings through TAO Group and Boston Calling Events LLC (“BCE”). TAO Group is a world-class hospitality group with globally-recognized entertainment dining and nightlife brands: TAO, Marquee, Lavo, Avenue, The Stanton Social, Beauty & Essex and Vandal. BCE produces outdoor music festivals, including New England’s premier Boston Calling Music Festival. MSG Entertainment also includes the Company’s original productions — the Christmas Spectacular Starring the Radio City Rockettes (the “ Christmas Spectacular ”) and the New York Spectacular Starring the Radio City Rockettes (the “ New York 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 New York Liberty (the “ Liberty ”) of the Women’s National Basketball Association (the “ WNBA ”), the Hartford Wolf Pack of the American Hockey League (the “ AHL ”) and the Westchester Knicks of the NBA Development League (the “ NBADL ”). The MSG Sports segment is also home to a broad array of other live sporting events, including professional boxing, college basketball, professional bull riding, mixed martial arts, tennis and college wrestling, all of which the Company promotes, produces and/or presents.
The Company conducts a significant portion of its operations at venues that it either owns or operates under long-term leases. The Company owns the Madison Square Garden Arena (“ The Garden ”) and The Theater at Madison Square Garden in New York City, the Forum in Inglewood, CA and The Chicago Theatre in Chicago. In addition, the Company leases Radio City Music Hall and the Beacon Theatre in New York City, and has a booking agreement with respect to the Wang Theatre in Boston. Additionally, TAO Group operates various restaurants, nightlife and hospitality venues under long-term leases and management contracts in New York, Las Vegas, Los Angeles and Australia.
The Company was incorporated on March 4, 2015 as an indirect, wholly-owned subsidiary of MSG Networks Inc. (“ MSG Networks ” or “ Former Parent ”), formerly known as The Madison Square Garden Company. On September 11, 2015, MSG Networks board of directors approved the distribution of all the outstanding common stock of Madison Square Garden to MSG Networks’ stockholders (the “ Distribution ”), which occurred on September 30, 2015. See Note 1 to the consolidated and combined financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2016 for more information regarding the Distribution to its common stockholders.
Basis of Presentation
The accompanying unaudited consolidated interim financial statements (referred to as the “ Financial Statements ” herein) have been prepared in accordance with U.S. generally accepted accounting principles (“ GAAP ”) and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission 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, 2016 . The Financial Statements presented in this Quarterly Report on Form 10-Q are unaudited; however, in the opinion of management, the Financial Statements reflect all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented. The results of operations for the periods presented are not necessarily indicative of the results that might be expected for future interim periods or for the full year. The dependence of the MSG Sports segment on revenues from its NBA and NHL sports teams generally means it earns a disproportionate share of its revenues in the second and third quarters of the Company’s fiscal year. The dependence of the MSG Entertainment segment on revenues from the Christmas Spectacular generally means it earns a disproportionate share of its revenues in the second quarter of the Company’s fiscal year.
For the periods after the Distribution, the financial information disclosed is presented on a consolidated basis, as the Company became a standalone public company on September 30, 2015. For the periods prior to the Distribution, the financial information was prepared on a standalone basis derived from the consolidated financial statements and accounting records of Former Parent and are presented as carve-out financial statements as the Company was not a standalone public company prior to the Distribution. See Note 1 to the consolidated and combined financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2016 for more information regarding the basis of presentation for periods before and after the Distribution.

7



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


The combined results of operations for the three months ended September 30, 2015 that are included in the results of operations for the nine months ended March 31, 2016 include allocations for certain support functions that were provided on a centralized basis by MSG Networks and not historically recorded at the business unit level, such as expenses related to finance, human resources, information technology, and venue operations , among others. These expenses were allocated on the basis of direct usage when identifiable, with the remainder allocated on a pro-rata basis of combined revenues, headcount or other measures. Management believes the assumptions underlying the combined financial statements, including the assumptions regarding allocating general corporate expenses, are reasonable. Nevertheless, the combined results of operations for the three months ended September 30, 2015 that are included in the results of operations for the nine months ended March 31, 2016 do not include all of the actual expenses that would have been incurred by the Company and do not reflect its combined results of operations, financial position and cash flows had it been a separate, standalone public company during the period presented on a combined basis. Actual costs that would have been incurred if the Company had been a separate, standalone public company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.
For purposes of the combined financial statements, income tax expense has been recorded as if the Company filed tax returns on a standalone basis separate from Former Parent. This separate return methodology applies to accounting guidance for income taxes in the combined financial statements as if the Company was a standalone public company for the periods prior to the Distribution. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of the Company’s actual tax balances prior to or subsequent to the Distribution. Prior to the Distribution, the Company's operating results were included in Former Parent’s consolidated U.S. federal and state income tax returns. Pursuant to rules promulgated by the Internal Revenue Service and various state taxing authorities, the Company filed its initial U.S. income tax return for the period from October 1, 2015 through June 30, 2016 in March 2017. The calculation of the Company’s income taxes involves considerable judgment and use of both estimates and allocations.
Note  2 . Accounting Policies
Principles of Consolidation
For the periods prior to the Distribution, the financial statements include certain assets and liabilities that were historically held at Former Parent’s corporate level but were specifically identifiable or otherwise attributable to the Company. All intercompany transactions between the Company and Former Parent have been included in the consolidated financial statements as components of MSG Networks’ investment. All significant intracompany transactions and accounts within the Company’s consolidated financial statements have been eliminated. Expenses related to corporate allocations prior to the Distribution were considered to be effectively settled in the financial statements at the time the transaction was recorded, with the offset recorded against MSG Networks’ investment.
The Company completed the acquisition of TAO Group Holding LLC (“ TAOH ”) on January 31, 2017. TAOH ’s results will be reported on a quarter lag basis. Accordingly, the Company's results for the three and nine months ended March 31, 2017 do not include any TAOH ’s operating results.
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 expense, income tax expense, performance and share-based compensation, depreciation and amortization, reserve and recovery for contingencies, 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

8



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


factors beyond the Company’s control could be material and would be reflected in the Company’s financial statements in future periods.
Summary of Significant Accounting Policies
The following is an update to the Company's Summary of Significant Accounting Policies disclosed in its Annual Report on Form 10-K for the year ended June 30, 2016 :
Business Combinations and Noncontrolling Interests
The acquisition method of accounting for business combinations requires management to use significant estimates and assumptions, including fair value estimates, as of the business combination date and to refine those estimates as necessary during the measurement period (defined as the period, not to exceed one year, in which the Company is allowed to adjust the provisional amounts recognized for a business combination).
Under the acquisition method of accounting, the Company recognizes separately from goodwill the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in an acquiree, generally at the acquisition date fair value. The Company measures goodwill as of the acquisition date as the excess of consideration transferred, which is also measured at fair value if the consideration is non-cash, over the net of the acquisition date amounts of the identifiable assets acquired and liabilities assumed. Costs that the Company incurs to complete a business combination such as investment banking, legal and other professional fees are not considered part of consideration and the Company charges these costs to selling, general and administrative expense as they are incurred. In addition, the Company recognizes measurement-period adjustments in the period in which the amount is determined, including the effect on earnings of any amounts the Company would have recorded in previous periods if the accounting had been completed at the acquisition date.
Interests held by third parties in consolidated majority-owned subsidiaries are presented as noncontrolling interests, which represents the noncontrolling stockholders’ interests in the underlying net assets of the Company’s consolidated majority-owned subsidiaries. Noncontrolling interests that are not redeemable are reported in the equity section of the consolidated balance sheets. Noncontrolling interests, where the Company may be required to repurchase under put options or other contractual redemption requirements that are not solely within the Company’s control, are reported in the consolidated balance sheets between liabilities and equity, as redeemable noncontrolling interests.
On July 1, 2016, the Company acquired a controlling interest in BCE . In accordance with Accounting Standards Codification (“ ASC ”) Topic 805, Business Combinations , and ASC Topic 810, Consolidation , the financial position of BCE has been consolidated with the Company’s consolidated balance sheet as of March 31, 2017 . The results of operations for BCE have been included in the Company’s consolidated results of operations from the date of acquisition in the MSG Entertainment segment. The relevant amounts attributable to investors other than the Company are reflected under “Nonredeemable noncontrolling interests,” “Net income (loss) attributable to nonredeemable noncontrolling interests” and “Comprehensive income (loss) attributable to nonredeemable noncontrolling interests” on the accompanying consolidated balance sheet, consolidated statement of operations and consolidated statement of comprehensive income, respectively. See Note 3 for more information regarding the Company’s acquisition of BCE .
On January 31, 2017, the Company acquired a controlling interest in TAOH . In accordance with ASC Topic 805, Business Combinations , and ASC Topic 810, Consolidation , TAOH financial statements will be consolidated in the Company’s consolidated financial statements. TAOH financial statements are not available within the time constraints the Company requires to ensure the financial accuracy of the operating results. Therefore, the Company records TAOH’s operating results in its consolidated statements of operations on a quarter lag basis . Any specific events having significant financial impact that occur during the lag period will be included in the Company’s current period results. As a result, while TAOH ’s balance sheet as of January 31, 2017, the TAOH acquisition date, has been included in the Company’s consolidated balance sheet as of March 31, 2017, the operating results of TAOH for the period from January 31, 2017 through March 31, 2017 are not reflected in the Company’s consolidated statements of operations for the three and nine months ended March 31, 2017. Accordingly, the results of operations for TAOH will be reflected in the Company’s consolidated financial statements beginning in the fourth quarter of fiscal year 2017 and will be included as part of the MSG Entertainment segment. TAOH reports on a fiscal year reflecting the retail-based calendar (containing 4-4-5 week calendar quarters) and its fiscal year periodically results in a 53-week year instead of a normal 52-week year.

9



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


The TAOH purchase agreement contains a put option to require the Company to purchase the other owners’ equity interests under certain circumstances. The noncontrolling interest combined with the put option is classified as redeemable noncontrolling interest in the consolidated balance sheet, separate from equity. The relevant amounts attributable to investors other than the Company are reflected under “Redeemable noncontrolling interests,” in the accompanying consolidated balance sheet, and will, in future filings, be reflected in “Net income (loss) attributable to Redeemable noncontrolling interests” and “Comprehensive income (loss) attributable to redeemable noncontrolling interests” on the accompanying consolidated balance sheet, consolidated statement of operations and consolidated statement of comprehensive income, respectively. See Note 3 for more information regarding the Company’s acquisition of TAOH . The put option can be settled, at the Company’s option, in cash, debt or shares of the Company’s Class A Common Stock. The ultimate amount paid upon the exercise of the put option will likely be different from the estimated fair value, given the calculation required pursuant to the TAOH operating agreement.
Contingent Consideration
Some of the Company’s acquisition agreements include contingent earn-out arrangements, which are generally based on the achievement of future operating targets.
The fair values of these earn-out arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates. For each transaction, the Company estimates the fair value of contingent earn-out payments as part of the initial purchase price and records the estimated fair value of contingent consideration that the Company will pay to the former owners as a liability in “Other accrued liabilities” and “Other liabilities” on the consolidated balance sheets.
The Company measures its contingent earn-out liabilities at fair value on a recurring basis using significant unobservable inputs classified within Level III of the fair value hierarchy, which can result in a significantly higher or lower liability with a higher liability capped by the contractual maximum of the contingent earn-out obligation. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate and amount paid will be recorded in earnings.
See Note 9 for more information regarding the fair value of the Company’s contingent consideration liabilities related to the acquisition of TAOH .
Revenue Recognition
Deferred revenue reported in the accompanying consolidated balance sheets as of March 31, 2017 and June 30, 2016 includes amounts due to the third-party promoters of $57,429 and $45,877 , respectively.
Recently Issued Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In February 2015, the Financial Accounting Standards Board (“ FASB ”) issued Accounting Standards Update (“ ASU ”) No. 2015-02 , Consolidation (Topic 810): Amendments to the Consolidation Analysis , which changes the analysis to be performed in determining whether certain types of legal entities should be consolidated. Specifically, ASU No. 2015-02 (i) modifies the assessment of whether limited partnerships are variable interest entities (each a “ VIE ”) or voting interest entities, (ii) eliminates the presumption that a limited partnership should be consolidated by its general partner, (iii) removes certain conditions for the evaluation of whether a fee paid to a decision maker constitutes a variable interest, and (iv) modifies the evaluation concerning the impact of related parties in the determination of the primary beneficiary of a VIE . This standard was adopted by the Company in the first quarter of fiscal year 2017. The adoption of the standard did not have an impact on the Company’s consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-05, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement , which provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract and expense the cost as the services are received. This standard was adopted by the Company in the first quarter of fiscal year 2017 on a prospective basis for all arrangements entered into or materially modified after July 1, 2016. The adoption of the standard did not have an impact on the Company’s consolidated financial statements.

10



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


Recently Issued Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers ( Topic 606 ) , which supersedes the revenue recognition requirements in FASB ASC Topic 605, Revenue Recognition . ASC Topic 606 , among other things, (i) is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange f or those goods or services, and (ii) requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU No. 2015-14 , Revenue from Contracts with Customers (Topic 606) : Deferral of the Effective Date , which defers the effective date of ASU No. 2014-09 for all entities by one year. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue versus Net) , which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard under ASU No. 2014-09. ASU No. 2016-08 clarifies how an entity should identify the unit of accounting (i.e. the specified good or service) for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing , which clarifies the principle in ASU No 2014-09 for determining whether a good or service is separately identifiable from other promises in the contract and, therefore, should be accounted for separately. ASU No. 2016-10 also clarifies that entities are not required to identify promised goods or services that are immaterial in the context of the contract and allows entities to elect to account for shipping and handling activities as a fulfillment cost rather than as an additional promised service. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical Expedients , which clarifies the following aspects in ASU No. 2014-09: collectability, presentation of sales taxes and other similar taxes collected from customers, noncash considerations, contract modifications at transition, completed contracts at transition, and technical correction. In December, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers , which allows entities not to make quantitative disclosures about remaining performance obligations in certain cases and requires entities that use any of the new or previously existing optional exemptions to expand their qualitative disclosures. Early adoption of ASC Topic 606 and the related updates discussed above is permitted and the Company can early adopt ASC Topic 606 and the related updates beginning in the first quarter of fiscal year 2018. If the Company does not apply the early adoption provision, ASC Topic 606 and the related updates will be effective for the Company beginning in the first quarter of fiscal year 2019 using one of two retrospective application methods. The Company is currently evaluating the impact the standard and updates will have on its consolidated financial statements. Based on efforts to date, the Company believes that the adoption of the standard could impact the identification of, and allocation across, performance obligations as well as the timing of revenue recognition for certain of its revenue streams that were previously recorded on a straight-line basis over the related contractual terms.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This standard, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income and (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. Early adoption is not permitted with the exception of certain provisions related to the presentation of other comprehensive income. This standard will be effective for the Company beginning in the first quarter of fiscal year 2019. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02 , Leases (Topic 842) , which supersedes existing guidance on accounting for leases in FASB ASC Topic 840, Leases . ASU No. 2016-02 , among other things, (i) requires lessees to account for leases as either finance leases or operating leases and generally requires all leases to be recorded on the balance sheet, including those leases classified as operating leases under previous accounting guidance, through the recognition of right-of-use assets and corresponding lease liabilities, and (ii) requires extensive qualitative and quantitative disclosures about leasing activities. The accounting applied by a lessor is largely unchanged from that applied under previous accounting guidance. This standard will be effective for the Company beginning in the first quarter of fiscal year 2020 and is required to be applied using the modified retrospective approach for all leases existing as of the effective date. Early adoption is permitted. The Company’s evaluation of the impact this standard will have on its consolidated financial statements is ongoing. Based on efforts to date, the adoption of the standard will result in the recognition of right of use assets and lease liabilities related to the Company’s operating leases.

11



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


In March 2016, the FASB issued ASU No. 2016-07, Investments - Equity Method and Joint Ventures (Topic 323), Simplifying the Transition to the Equity Method of Accounting . ASU No. 2016-07 eliminates the requirement for an investor to retrospectively apply the equity method when an investment that it had accounted for by another method qualifies for use of the equity method. This standard will be effective for the Company beginning in the first quarter of fiscal year 2018 and is required to be applied prospectively. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-based Payment Accounting . ASU No. 2016-09, among other things, (i) requires the income tax effects of all awards to be recognized in the statement of operations when the awards vest or are settled, (ii) allows an employer to repurchase more of an employee’s shares for tax withholding purposes than currently allowable, without triggering liability accounting, and provides companies with the option to make a policy election to account for forfeitures as they occur, and (iii) requires companies to present excess tax benefits as operating activity rather than as financing activity on the statement of cash flows. This standard will be effective for the Company beginning in the first quarter of fiscal year 2018. Early adoption is permitted. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230). ASU No. 2016-15 addresses eight specific cash flow issues and is intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This standard will be effective for the Company beginning in the first quarter of fiscal year 2019. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory . ASU No. 2016-16 requires entities to recognize income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This standard will be effective for the Company beginning in the first quarter of fiscal year 2019. Early adoption is permitted as of the beginning of an annual reporting period for which financial statements have not been issued or made available for issuance. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash . The primary purpose of ASU No. 2016-18 is to reduce the diversity in practice that exists in the classification and presentation of changes in restricted cash on the statement of cash flows. This standard will require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This standard will be effective retrospectively for the Company beginning in the first quarter of fiscal year 2019, and will result in a change to the Company’s presentation of net cash provided by (used in) operating activities in the statement of cash flows for the impact of changes in restricted cash balances. Early adoption is permitted in any interim or annual period.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business . The primary purpose of this ASU is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses, which will affect many areas of accounting including acquisitions, disposals, goodwill, and consolidation. This standard will be effective for the Company beginning in the first quarter of fiscal year 2019 and is required to be applied prospectively. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s 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 Company is currently evaluating the impact this standard will have on its consolidated financial statements.

12



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


In March 2017, the FASB issued ASU No. 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU No. 2017-07 requires employers to disaggregate the service cost component from the other components of net benefit cost and disclose by line item the amount of net benefit cost that is included in the statement of operations or capitalized in assets. The standard requires employers to report the service cost component in the same line item(s) as other compensation costs arising from services rendered by the pertinent employees during the period and to report other components of net benefit cost separately and outside the subtotal of operating income. The standard also allows only the service cost component to be eligible for capitalization. This standard will be effective for the Company beginning in the first quarter of fiscal year 2019. The guidance requires application on a retrospective basis for the presentation of the service cost component and the other components of net benefit cost in the statements of operations and on a prospective basis for the capitalization of the service cost component of net benefit cost in assets. Early adoption is permitted as of the beginning of an annual reporting period for which financial statements have not been issued or made available for issuance. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
Note  3 . Acquisitions
BCE Acquisition
On July 1, 2016, in connection with the Company’s strategy to broaden its live experience offerings, the Company acquired a controlling interest in BCE , the live events production company that owns and operates the Boston Calling Music Festival. The Company acquired net tangible assets of $2,221 . In addition, based on the purchase price allocation, the Company recognized $11,610 of amortizable intangible assets and $12,728 of goodwill. See Note 7 for more information regarding the intangible assets and goodwill recognized in this acquisition. The estimated fair value of the nonredeemable noncontrolling interest of $11,394 was based on the present value of future cash flows, adjusted for the lack of control and lack of marketability associated with the nonredeemable noncontrolling interests and was classified within Level III of the fair value hierarchy as they were valued using unobservable inputs. An additional escrow payment in the amount of $1,750 was made for potential earn-out. The amounts of revenue and earnings of BCE since the acquisition date included in the Company’s consolidated statements of operations for the reporting period were not material. Pro forma information is not provided since the acquisition was not material when compared with the Company’s consolidated financial statements.
Investment in Townsquare Media, Inc.
On August 16, 2016, the Company acquired 3,208 shares, or approximately 12% , of the common stock of Townsquare Media, Inc. (“ Townsquare ”) for approximately $23,000 in cash. Townsquare is a leading media, entertainment and digital marking solutions company that is listed on the New York Stock Exchange (“ NYSE ”) under the symbol “TSQ.” This investment is reported in the accompanying consolidated balance sheet as of March 31, 2017 in other assets, and is classified as available-for-sale securities in accordance with ASC Topic 320, Investments — Debt and Equity Securities . Investments in available-for-sale securities are carried at fair market value with the unrealized gains and losses, net of tax, included in the determination of comprehensive income (loss) and reported in stockholders’ equity. See Note 9 for more information on the fair value of the investment in Townsquare.
TAO Group Acquisition
In connection with the Company’s strategy to broaden its portfolio of live offerings, on January 31, 2017 the Company entered into a transaction agreement pursuant to which it acquired a 62.5% common equity interest and a preferred equity interest in TAOH , which indirectly owns all of the equity of TAO Group Operating LLC (“ TAOG ”). TAOG is engaged in the management and operation of restaurants, nightlife and hospitality venues in Las Vegas, New York City, Los Angeles and Australia (with additional venues under contract which are expected to open in New York City, Chicago and Singapore in the coming years). TAOG operations in Los Angeles began in March 2017 with the opening of four new venues (with a fifth opening soon). The initial purchase price of $178,627 , including $8,746 to acquire preferred equity in TAOH , is net of cash acquired of $11,344 and subject to customary working capital adjustments. In addition, the Company will be responsible to pay an earn-out of up to approximately $25,500 , if certain performance conditions based upon earnings growth are met during the first five years following the transaction.

13



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


The Company’s purchase price allocation for the TAOH acquisition is preliminary and subject to revision as additional information related to the fair value of the identifiable net assets and redeemable noncontrolling interests becomes available. The preliminary allocation of the purchase price to the assets acquired, liabilities assumed and allocation to intangible assets is presented below:
 
 
Estimated Fair Value
Cash and cash equivalents
 
$
11,344

Accounts receivable
 
5,804

Prepaid expenses
 
1,167

Other current assets
 
41,009

Property and equipment
 
53,411

Amortizable intangible assets
 
239,640

Other assets
 
1,472

Accounts payable
 
(7,046
)
Accrued expenses and other current liabilities
 
(39,814
)
Long-term loan payable, net of deferred financing costs
 
(105,292
)
Other long-term liabilities
 
(16,244
)
Total identifiable net assets acquired
 
185,451

Goodwill (a)
 
97,420

Redeemable noncontrolling interests (b)
 
(85,000
)
Total estimated consideration, including potential future contingent consideration
 
$
197,871

_______________________
(a)  
Goodwill recognized in this acquisition is expected to be deductible for tax purposes.
(b)  
The minority shareholders holding the remaining 37.5% of TAOH have various forms of put options that may be exercised upon the occurrence of certain conditions. If such an option is exercised prior to January 31, 2022, it would require the Company to purchase the equity of TAOH at fair market value (subject, in certain cases, to mandatory discounts) as determined by the parties or by a third party appraisal pursuant to the terms of the TAOH operating agreement. If such an option is exercised after January 31, 2022, it would require TAOH to purchase the equity at fair market value as determined by the parties or by a third party appraisal pursuant to the terms of the TAOH operating agreement. The Company may elect to satisfy this TAOH obligation through a sale of TAOH . In addition, the Company has a call option to purchase the remaining 37.5% equity of TAOH at fair market value after the fifth anniversary of the acquisition date, or earlier if certain conditions are met. Both put and call options can be settled at the Company’s discretion in cash, debt or shares of the Company’s Class A Common Stock. The ultimate amount paid upon the exercise of a put or call option will likely be different from the estimated fair value, given the calculations required pursuant to the TAOH operating agreement.
Amortizable intangible assets, goodwill, inventory, property and equipment, redeemable noncontrolling interests and the fair value of contingent consideration that arose from this acquisition were classified within Level III of the fair value hierarchy as they were valued using unobservable inputs, reflecting the Company’s best estimate of what hypothetical market participants would use to determine the value of acquired assets at the reporting date based on the best information available in the circumstances. When a determination is made to classify items within Level III of the fair value hierarchy, the evaluation is based upon the significance of the unobservable inputs to the overall fair value measurement. See Note 7 for more information regarding the intangible assets and goodwill recognized in this acquisition. See Note 9 for more information regarding the fair value of the Company’s contingent consideration liabilities arisen from this acquisition.
The initial estimated fair value of the redeemable noncontrolling interests at the time of acquisition was based on the option pricing method, adjusted for lack of marketability associated with the redeemable noncontrolling interests and was classified within Level III of the fair value hierarchy as they were valued using unobservable inputs. This methodology differs in

14



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


important respects from, and is likely to generate a different result than, the calculations required pursuant to the TAOH operating agreement to determine the price paid upon a put or call of TAOH interests.
Roof Deck Entertainment LLC, an indirect majority owned subsidiary of the Company, and Nevada Property 1, LLC, the owner of the property where the Marquee Las Vegas venue is located, were defendants in a lawsuit arising out of an incident at the Marquee Las Vegas venue that took place on April 7, 2012. On April 26, 2017, the jury returned a verdict against the defendants.  On April 28, 2017, prior to any judgment being entered, the parties to the lawsuit reached a settlement pursuant to which payments to the plaintiff will be made by insurance companies. Settlement papers are being finalized. The settlement related liability and a corresponding receivable in the same amount reflecting expected insurance recoveries are reported in other accrued liabilities and other current assets, respectively, in the accompanying consolidated balance sheet as of March 31, 2017 and reflected in the TAOH purchase price allocation disclosed above.
Unaudited Pro Forma Disclosure
TAOH financial statements are not available within the time constraints the Company requires to ensure the financial accuracy of the operating results. Therefore, the Company records TAOH’s operating results in its consolidated statements of operations on a quarter lag basis . As such, the operating results of TAOH since the acquisition date are not reflected in the Company’s consolidated financial statements for the three and nine months ended March 31, 2017 .
The unaudited pro forma information presented below illustrates the estimated impact of the TAOH acquisition on the Company's revenue and net income (loss) as if the acquisition, as described above, occurred on July 1, 2015. The information presented below is based on a preliminary estimate of the purchase price allocation to the assets and liabilities acquired. The unaudited pro forma information below includes the historical statements of operations of TAOH for the three and nine months ended December 31, 2016 and 2015, respectively, combined with the Company’s consolidated statements of operations for the three and nine months ended March 31, 2017 and 2016, respectively. Due to the nature of various proforma adjustments, as discussed below, the proforma results attributable to TAOH do not equal to what TAOH’s results would have been reported on a stand-alone basis. Furthermore, the unaudited pro forma financial information presented below does not reflect any impact that may be achieved by the combined business, such as expected savings from the restructured management compensation at TAOH, and is presented for comparative purposes only. It is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated on July 1, 2015 or that may result in the future.
 
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
 
2017
 
2016
 
2017
 
2016
Revenues
 
$
442,398

 
$
386,332

 
$
1,190,643

 
$
1,058,891

Net income (loss) attributable to The Madison Square Garden Company’s stockholders
 
(13,149
)
 
(60,570
)
 
14,827

 
(38,835
)
The historical financial information has been adjusted to reflect various purchase accounting adjustments, such as depreciation and amortization expenses associated with property and equipment and intangible assets, as well as pro forma interest expense adjustments to reflect the Company's new capital structure related to the senior secured term loan facility and income taxes. In addition, the pro forma information for the three and nine months ended March 31, 2017 excludes the impact of the Company's and TAOH's acquisition-related expenses as these items are reflected in the nine -month period ended March 31, 2016 as if the acquisition had been completed on July 1, 2015. The pro forma results for the nine months ended March 31, 2016 also include the expense impact from the step-up of inventory as this item is assumed to have occurred during the quarter ended September 30, 2015 as if the acquisition had been completed on July 1, 2015.
Other Acquisition Related Activities
During the three and nine months ended March 31, 2017 , the Company recognized $5,355 and $7,316 , respectively, of acquisition-related expenses in connection with the TAOH acquisition within selling, general and administrative expenses in the accompanying consolidated statement of operations.
In addition, in connection with this transaction, TAO Group Intermediate Holdings LLC (“ TAOIH ”), a subsidiary of TAOH , TAOG and certain of its subsidiaries obtained a five -year term senior secured term loan facility of $110,000 from a third party group of lenders to fund the acquisition of TAOH and a senior secured revolving credit facility of up to $12,000 with a term of

15



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


five years for working capital and general corporate purposes of TAOG . These credit facilities are provided without recourse to the Company or any of its affiliates (other than TAOIH and its subsidiaries). See Note 10 for more information regarding these credit facilities.
Note 4. Computation of Earnings (Loss) per Common Share
The following table presents a reconciliation of weighted-average shares used in the calculations of basic and diluted earnings (loss) per common share attributable to the Company’s stockholders (“EPS”).  
 
 
Three Months Ended
 
Nine Months Ended
 
 
March 31,
 
March 31,
 
 
2017
 
2016
 
2017
 
2016
Weighted-average shares (denominator):
 
 
 
 
 
 
 
 
Weighted-average shares for basic EPS
 
23,825

 
24,635

 
23,951

 
24,845

Dilutive effect of shares issuable under share-based compensation plans
 

 

 
196

 

Weighted-average shares for diluted EPS
 
23,825

 
24,635

 
24,147

 
24,845

  Anti-dilutive shares
 

 

 
4

 

Note 5. Team Personnel Transactions
Direct operating expenses in the accompanying consolidated statements of operations include provisions for transactions relating to players and certain other team personnel on the Company’s sports teams for a player trade and waiver/contract termination costs (“ Team Personnel Transactions ”). Team Personnel Transactions were $1,161 and $6,605 for the three months ended March 31, 2017 and 2016 , respectively, and $7,151 and $6,605 for the nine months ended March 31, 2017 and 2016 , respectively.

16



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


Note 6 . Investments and Loans to Nonconsolidated Affiliates
The Company’s investments and loans to nonconsolidated affiliates which are accounted for under the equity method and cost method of accounting in accordance with ASC Topic 323, Investments - Equity Method and Joint Ventures , and ASC Topic 325, Investments - Other , respectively, consisted of the following:
 
 
Ownership Percentage
 
Investment
 
Loan
 
 
Total
March 31, 2017
 
 
 
 
 
 
 
 
 
Equity method investments:
 
 
 
 
 
 
 
 
 
Azoff MSG Entertainment LLC (“AMSGE”)
 
50
%
 
$
104,144

 
$
97,500

 
 
$
201,644

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

 

 
2,662

(b)  
 
2,662

Tribeca Enterprises LLC (“Tribeca Enterprises”)
 
50
%
 
14,186

 
14,154

(c)  
 
28,340

Fuse Media LLC (“Fuse Media”)
 
15
%
 

 

 
 

Cost method investments
 
 
 
7,275

 

 (d)  
 
7,275

Total investments and loans to nonconsolidated affiliates
 
 
 
$
125,605

 
$
114,316

 
 
$
239,921

 
 
 
 
 
 
 
 
 
 
June 30, 2016
 
 
 
 
 
 
 
 
 
Equity method investments:
 
 
 
 
 
 
 
 
 
AMSGE
 
50
%
 
$
112,147

 
$
97,500

 
 
$
209,647

BBLV
 
(a)  

 

 
2,662

(b)  
 
2,662

Tribeca Enterprises
 
50
%
 
13,736

 
10,395

(c)  
 
24,131

Fuse Media
 
15
%
 
21,634

 

 
 
21,634

Cost method investments
 
 
 
3,794

 
1,678

 
 
5,472

Total investments and loans to nonconsolidated affiliates
 
 
 
$
151,311

 
$
112,235

 
 
$
263,546

_________________
(a)  
The Company is entitled to receive back its capital, which was 74% of BBLV’s total capital as of March 31, 2017 and June 30, 2016 , plus a preferred return, after which the Company would own a 20% interest in BBLV.
(b)  
Represents outstanding loan balance, inclusive of amounts due to the Company for interest of $62 as of March 31, 2017 and June 30, 2016 .
(c)  
Includes outstanding payments-in-kind (“ PIK ”) interest of $654 and $95 as of March 31, 2017 and June 30, 2016 , respectively. PIK interest owed does not reduce availability under the revolving credit facility.
(d)  
During the quarter ended March 31, 2017, one of the Company’s cost method investees converted $1,774 of outstanding principal amount of its convertible promissory note and unpaid accrued interest into preferred shares.

Certain Fuse Media warrant holders recently notified Fuse Media of their intent to exercise certain put options (which Fuse Media is currently disputing). The purported exercise of the put options triggered an assessment of Fuse Media’s fair value. This assessment, which was performed during the quarter ended March 31, 2017, resulted in unfavorable fair value measurements of Fuse Media. As a result, the Company evaluated whether or not an other-than-temporary impairment of its investment had occurred as of March 31, 2017. This evaluation resulted in the Company recording a pre-tax non-cash impairment charge of $20,613 to write off the carrying value of its equity investment in Fuse Media, which is reflected in loss in equity method investments in the accompanying consolidated statements of operations for the three and nine months ended March 31, 2017. The impairment charge was based on a comparison of the fair value of the investment to its carrying value, which was determined using a discounted cash flow analysis. The initial investment in Fuse Media was received by the Company as part of the overall consideration paid to Former Parent in connection with the sale of Fuse, a national music television network, in fiscal year 2014.

17



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


As a result of certain legal and regulatory actions against one of the Company’s cost method investments, the Company evaluated whether or not an other-than-temporary impairment of this cost method investment had occurred during the second quarter of fiscal year 2016. This evaluation resulted in the Company recording a pre-tax non-cash impairment charge of $4,080 to partially write down the carrying value of its cost method investment, which is reflected in miscellaneous expense in the accompanying consolidated statement of operations for the nine months ended March 31, 2016.
See Note 8 for more information regarding a legal matter associated with AMSGE .
Summarized Financial Information of Equity Method Investees
The following is summarized financial information for the Company’s individually significant equity method investment as required by the guidance in the SEC Regulation S-X Rule 4-08(g). The amounts shown below represent 100% of this equity method investment’s results of operations:
 
 
Three Months Ended
 
Nine Months Ended
 
 
March 31,
 
March 31,
Results of Operations
 
2017
 
2016
 
2017
 
2016
Revenues
 
$
30,892

 
$
28,912

 
$
102,356

 
$
95,733

Loss from continuing operations
 
(7,141
)
 
(3,111
)
 
(6,303
)
 
(2,566
)
Net loss
 
(7,141
)
 
(3,111
)
 
(6,303
)
 
(2,566
)
Net loss attributable to controlling interest
 
(6,797
)
 
(4,032
)
 
(7,736
)
 
(4,678
)
Note  7 . Goodwill and Intangible Assets
The carrying amounts of goodwill , by reportable segment, as of March 31, 2017 and June 30, 2016 are as follows:  
 
 
March 31,
2017
 
June 30,
2016
MSG Entertainment
 
$
169,127

 
$
58,979

MSG Sports
 
218,187

 
218,187

 
 
$
387,314

 
$
277,166

During the first quarter of fiscal year 2017, the Company performed its annual impairment test of goodwill and determined that there were no impairments of goodwill identified for either of its reporting units.
The increase in the carrying amount of goodwill , as compared to June 30, 2016 , in the MSG Entertainment segment was due to the purchase price allocation for the BCE and TAOH acquisitions during the first and third quarters of fiscal year 2017, respectively. The goodwill that arose from these acquisitions was valued using unobservable inputs within Level III of the fair value hierarchy, primarily from utilizing the discounted cash flow model, which is an income-based approach that allocates to goodwill any acquisition costs not specifically assigned to intangibles, fixed assets, working capital or noncontrolling interests. Goodwill recognized in these acquisitions is expected to be deductible for tax purposes. See Note 3 for more information on the allocation of the purchase price and goodwill recognized in connection with these acquisitions.
The Company’s indefinite-lived intangible assets as of March 31, 2017 and June 30, 2016 are as follows:
Sports franchises (MSG Sports segment)
 
$
101,429

Trademarks (MSG Entertainment segment)
 
62,421

Photographic related rights (MSG Sports segment)
 
3,000

 
 
$
166,850

During the first quarter of fiscal year 2017, the Company performed its annual impairment test of identifiable indefinite-lived intangible assets and determined that there were no impairments identified.

18



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


The Company’s intangible assets subject to amortization are as follows:  
March 31, 2017
 
Gross
 
Accumulated
Amortization
 
Net
Trade names
 
$
98,530

 
$
(126
)
 
$
98,404

Venue management contracts
 
79,000

 

 
79,000

Favorable lease assets
 
55,640

 

 
55,640

Season ticket holder relationships
 
50,032

 
(40,038
)
 
9,994

Festival rights
 
9,080

 
(554
)
 
8,526

Other intangibles
 
13,217

 
(2,645
)
 
10,572

 
 
$
305,499

 
$
(43,363
)
 
$
262,136

June 30, 2016
 
Gross
 
Accumulated
Amortization
 
Net
Season ticket holder relationships
 
$
73,124

 
$
(59,178
)
 
$
13,946

Other intangibles
 
4,217

 
(2,434
)
 
1,783

 
 
$
77,341

 
$
(61,612
)
 
$
15,729

The trade names, which are primarily attributable to the TAOH acquisition, were valued using unobservable inputs within Level III of the fair value hierarchy, utilizing the discounted cash flow models and relief-from-royalty approach. The estimated useful lives of these assets range from 10 to 25 years with a weighted-average amortization period of approximately 21 years.
The venue management contracts, which are attributable to the TAOH acquisition, were valued using unobservable inputs within Level III of the fair value hierarchy, utilizing the discounted cash flow models. The estimated useful lives of these assets range from 12 to 25 years with a weighted-average amortization period of approximately 18 years.
The favorable lease assets, which are attributable to the TAOH acquisition, were valued using unobservable inputs within Level III of the fair value hierarchy, based on the difference between the actual lease rates and the current market rent for similar properties in those locations, discounted back to present value at a market rate for applicable leases. The amortization periods for the favorable lease assets range from 1.5 to 16 years with a weighted-average amortization period of approximately 12 years.
The recorded amount for the gross carrying value of season ticket holder relationships, and the related accumulated amortization, decreased during the nine months ended March 31, 2017 as certain relationships became fully amortized.
Amortization expense for intangible assets was $1,611 and $1,741 for the three months ended March 31, 2017 and 2016 , respectively. For the nine months ended March 31, 2017 and 2016 , amortization expense for intangible assets was $4,843 and $5,210 , respectively.
Estimated future net amortization expense for intangible assets recognized in connection with the BCE and TAOH acquisitions for each fiscal year from 2017 through 2021 are as follows:
Fiscal year ending June 30, 2017 (a)
$
2,958

Fiscal year ending June 30, 2018
17,293

Fiscal year ending June 30, 2019
17,113

Fiscal year ending June 30, 2020
16,928

Fiscal year ending June 30, 2021
16,896

_______________________
(a)  
Amount disclosed represents the amortization expense for the remainder of fiscal year 2017 from April 1, 2017 to June 30, 2017 .

19



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


Note 8 . Commitments and Contingencies
Commitments
As more fully described in Note 7 to the consolidated and combined financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2016 , the Company’s commitments consist primarily of (i) the MSG Sports segment’s obligations under employment agreements that the Company has with its professional sports teams’ personnel that are generally guaranteed regardless of employee injury or termination, (ii) long-term noncancelable operating lease agreements primarily for entertainment venues and office and storage space, and (iii) revolving credit facilities provided by the Company to AMSGE and Tribeca Enterprises (see Note 6 ). The Company did not have any material changes in its contractual obligations since the end of fiscal year 2016 other than activities in the ordinary course of business and new contractual obligations recorded in connection with the acquisition of TAOH , which are primarily associated with long-term noncancelable operating lease agreements (See Note 3 for further information). The amount of new contractual obligations was approximately $157,000 as of March 31, 2017 . In addition, see Note 10 for information regarding the TAO Term Loan Facility.
Contingencies
On November 22, 2016, the Company announced that it was notifying customers that it had identified and has addressed a payment card issue that affected cards used at merchandise and food and beverage locations at several of the Company’s New York and Chicago venues. After being notified of a transaction pattern indicating a potential data security concern, the Company commenced an investigation and engaged leading computer security firms to examine its network. The Company, working with security firms, promptly fixed the issue and implemented enhanced security measures.
The Company has incurred and expects to incur expenses associated with the payment card incident and will continue to recognize those expenses as incurred. Such expenses were recognized in selling, general and administrative expenses in the accompanying consolidated statements of operations for the three and nine months ended March 31, 2017 . Payment card networks may demand that the Company pay certain fees and assessments designed to reimburse payment card issuers. During the second quarter of fiscal year 2017, the Company recorded a contingent liability equal to the currently estimable future payments and a receivable in the same amount reflecting probable insurance recoveries, which are reported in other accrued liabilities and other current assets, respectively, in the accompanying consolidated balance sheet as of March 31, 2017 . The Company cannot currently reasonably estimate the remaining amount that may be payable to the card companies and associations in connection with the incident. Although the Company expects its insurance coverage will offset most, if not all, of the expenses associated with the incident, the incident could have a material adverse impact on the Company’s operating results for future periods.
See Note 9 for more information regarding the Company’s contingent consideration liabilities related to the acquisition of TAOH .
Legal Matters
The Company owns 50% of AMSGE , which in turn owns a majority interest in Global Music Rights, LLC (“GMR”). GMR is primarily a performance rights organization, whose business includes obtaining the right to license the public performance rights of songs composed by leading songwriters. GMR engaged in negotiations with the Radio Music Licensing Committee (“RMLC”), which represents over 10,000 commercial radio stations. On November 18, 2016, RMLC filed a complaint against GMR in the United States District Court for the Eastern District of Pennsylvania alleging that GMR is violating Section 2 of the Sherman Antitrust Act and seeking an injunction, requiring, among other things, that GMR issue radio stations licenses for GMR’s repertory, upon request, at a rate set through a judicial rate-making procedure, that GMR offer “economically viable alternatives to blanket licenses,” and that GMR offer only licenses for songs which are fully controlled by GMR. GMR and RLMC agreed to an interim license arrangement through September 30, 2017. GMR has advised the Company that it believes that the RMLC Complaint is without merit and is vigorously defending itself. On January 20, 2017, GMR filed a motion to dismiss or to transfer venue, asserting that the Eastern District of Pennsylvania is not a proper venue for the matter, lacks personal jurisdiction of GMR and that in any event the complaint fails to state a claim. On December 6, 2016, GMR filed a complaint against RMLC in the United States District Court for the Central District of California, alleging that RMLC operates as an illegal cartel that unreasonably restrains trade in violation of Section 1 of the Sherman Antitrust Act and California state law, and seeking an injunction restraining RMLC and its co-conspirators from enforcing or establishing agreements that unreasonably restrict competition for copyright licenses. The judge in the Central District of California recently denied RMLC’s

20



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


motion to dismiss GMR’s claim for lack of ripeness and, on the basis that the two cases involve similar facts, stayed the California action in order to assess the status of the Pennsylvania case.  
The Company is a defendant in various other lawsuits. Although the outcome of these other lawsuits cannot be predicted with certainty, management does not believe that resolution of these other lawsuits will have a material adverse effect on the Company.
Note 9 . Fair Value Measurements
The following table presents the Company’s assets that are measured at fair value on a recurring basis, which include cash equivalents, marketable securities and available-for-sale securities:  
 
 
Fair Value Hierarchy
 
March 31,
2017
 
June 30,
2016
Assets:
 
 
 
 
 
 
Commercial Paper
 
I
 
$
105,093

 
$
79,968

Money market accounts
 
I
 
84,076

 
159,881

Time deposits
 
I
 
930,503

 
1,202,681

Marketable securities
 
I
 

 
787

Available-for-sale securities
 
I
 
39,075

 

Total assets measured at fair value
 
 
 
$
1,158,747

 
$
1,443,317

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 amounts of the Company’s commercial paper, money market accounts and time deposits approximate fair value due to their short-term maturities.
The carrying value and fair value of the Company’s financial instruments reported in the accompanying consolidated balance sheets are as follows:
 
 
March 31, 2017
 
June 30, 2016
 
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Assets
 
 
 
 
 
 
 
 
Notes receivable, including interest accruals
 
$
7,096

 
$
7,096

 
$
7,090

 
$
7,090

Marketable securities
 

 

 
787

 
787

Available-for-sale securities (a)
 
39,075

 
39,075

 

 

Liabilities
 
 
 
 
 
 
 
 
Long-term debt, including current portion (b)
 
110,000

 
110,000

 

 

_________________
(a)  
Aggregate cost basis for available-for-sale securities, including transaction costs, was $23,222 as of March 31, 2017 . The unrealized gain recorded in accumulated other comprehensive income was $15,853 as of March 31, 2017 . The fair value of the available-for-sale securities is determined based on quoted market prices in active market at NYSE , which is classified within Level I of the fair value hierarchy.
(b)  
On January 31, 2017, TAOIH, TAOG and certain of its subsidiaries entered into a $110,000 senior secured five -year term loan facility. Given that the Company consolidates TAOH financial results on a quarter lag basis, the Company believes the carrying value of the loan facility is the initial balance at the inception date, and approximates its fair value.
In connection with the TAOH acquisition (see Note 3 for further details), the Company recorded $7,900 as the initial fair value of contingent consideration liabilities as a part of purchase price. The fair value was estimated using a Monte-Carlo simulation model which included significant unobservable Level III inputs such as projected financial performance over the earn-out period (five years) along with estimates for market volatility and the discount rate applicable to potential cash payouts.

21



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


Note 10 . Credit Facilities

Knicks Revolving Credit Facility
On September 30, 2016, New York Knicks, LLC (“ Knicks LLC ”), a wholly owned subsidiary of the Company, entered into a credit agreement (the “ Knicks Credit Agreement ”) with a syndicate of lenders providing for a senior secured revolving credit facility of up to $200,000 with a term of five years (the “ Knicks Revolving Credit Facility ”) to fund working capital needs and for general corporate purposes.
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 March 31, 2017 , Knicks LLC was in compliance with this financial covenant.
All borrowings under the Knicks Revolving Credit Facility are subject to the satisfaction of certain customary conditions. Borrowings bear interest at a floating rate, which at the option of Knicks LLC may be either (i) a base rate plus a margin ranging from 0.00% to 0.125% per annum or (ii) LIBOR plus a margin ranging from 1.00% to 1.125% per annum.   Knicks LLC is required to pay a commitment fee ranging from 0.20% to 0.25% per annum in respect of the average daily unused commitments under the Knicks Revolving Credit Facility . The Knicks Revolving Credit Facility was undrawn as of March 31, 2017 .
All obligations under the Knicks Revolving Credit Facility are secured by a first lien security interest in certain of Knicks LLC’s assets, including, but not limited to, (i) the Knicks LLC’s membership rights in the NBA and (ii) revenues to be paid to the Knicks LLC by the NBA pursuant to certain U.S. national broadcast agreements.
Subject to customary notice and minimum amount conditions, Knicks LLC may voluntarily prepay outstanding loans under the Knicks Revolving Credit Facility at any time, in whole or in part, without premium or penalty (except for customary breakage costs with respect to Eurocurrency loans). Knicks LLC is required to make mandatory prepayments in certain circumstances, including without limitation if the maximum available amount under the Knicks Revolving Credit Facility is greater than 350% of qualified revenues.
In addition to the financial covenant described above, the Knicks Credit Agreement and the related security agreement contain certain customary representations and warranties, affirmative covenants and events of default. The Knicks Revolving Credit Facility contains certain restrictions on the ability of Knicks LLC to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the Knicks Revolving Credit Facility, including the following: (i) incurring additional indebtedness and contingent liabilities; (ii) creating liens on certain assets; (iii) making restricted payments during the continuance of an event of default under the Knicks Revolving Credit Facility; (iv) engaging in sale and leaseback transactions; (v) merging or consolidating; and (vi) taking certain actions that would invalidate the secured lenders’ liens on any Knicks LLC’s collateral.
Knicks Unsecured Credit Facility
On September 30, 2016, Knicks LLC entered into an unsecured revolving credit facility with a lender for an initial maximum credit amount of $15,000 and a one -year term (the “ Knicks Unsecured Credit Facility ”). This facility was undrawn as of March 31, 2017 .
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.
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 March 31, 2017 , Rangers LLC was in compliance with this financial covenant . All borrowings under the Rangers Revolving Credit Facility are subject to the satisfaction of certain customary conditions. Borrowings bear interest at a floating rate, which at the option of Rangers LLC may be either (i) a base rate plus a margin ranging from 0.125% to 0.50% per annum or (ii) LIBOR plus a margin ranging from 1.125% to 1.50% per annum.   Rangers LLC is required to pay a commitment

22



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


fee ranging from 0.375% to 0.625% per annum in respect of the average daily unused commitments under the Rangers Revolving Credit Facility . The Rangers Revolving Credit Facility was undrawn as of March 31, 2017 .
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 the maximum available amount under the Rangers Revolving Credit Facility is less than 17% of qualified revenues.
In addition to the financial covenant described above, the Rangers Credit Agreement and the related security agreement contain certain customary representations and warranties, affirmative covenants and events of default. The Rangers Revolving Credit Facility contains certain restrictions on the ability of Rangers LLC to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the Rangers Revolving Credit Facility, including the following: (i) incurring additional indebtedness and contingent liabilities; (ii) creating liens on certain assets; (iii) making restricted payments during the continuance of an event of default under the Rangers Revolving Credit Facility; (iv) engaging in sale and leaseback transactions; (v) merging or consolidating; and (vi) taking certain actions that would invalidate the secured lenders’ liens on any of Rangers LLC’s assets securing the obligations under the Rangers Revolving Credit Facility.
TAO Credit Facilities
On January 31, 2017, TAOIH , TAOG , and certain of its subsidiaries entered into a credit and guaranty agreement with a syndicate of lenders providing for a senior secured term loan facility of $110,000 with a term of five years (the “TAO Term Loan Facility”) to fund, in part, the acquisition of TAOH and a senior secured revolving credit facility of up to $12,000 with a term of five years (the “TAO Revolving Credit Facility,” and together with the TAO Term Loan Facility, the “TAO Credit Facilities”) for working capital and general corporate purposes of TAOG. The TAO Credit Facilities were obtained without recourse to MSG or any of its affiliates (other than TAOIH and its subsidiaries).
The TAO Credit Facilities require TAOIH (i) to maintain, for the relevant TAO entities, a minimum consolidated liquidity of $5,000 at all times, (ii) to comply with a maximum total net leverage ratio of 4.00:1.00 initially and stepping down over time to 2.50:1.00 by the third quarter of calendar year 2021 and through the remainder of the term of the TAO Credit Facilities, and (iii) to comply with a minimum fixed charge coverage ratio of 1.50:1.00 initially and stepping down over time to 1.15:1.00 by the fourth quarter of calendar year 2021 and through the remainder of the term of the TAO Credit Facilities. The TAO Revolving Credit Facility was undrawn as of March 31, 2017 .
The TAO entities under the TAO Credit Facilities are also subject to certain limitations with respect to making capital expenditures based upon the total net leverage ratio and other factors. The restrictions on capital expenditures are subject to certain “carry-forward” provisions and other customary carve-outs.
All borrowings under the TAO Credit Facilities are subject to the satisfaction of certain customary conditions, including compliance with a maximum leverage multiple, accuracy of representations and warranties and absence of a default or event of default. Borrowings bear interest at a floating rate, which at the option of TAOG may be either (i) a base rate plus a margin ranging from 6.50% to 7.00% per annum or (ii) LIBOR plus a margin ranging from 7.50% to 8.00% per annum.   TAOG is required to pay a commitment fee of 0.50% per annum in respect of the average daily unused commitments under the TAO Revolving Credit Facility.
All obligations under the TAO Credit Facilities are secured by a first lien security interest in substantially all of the applicable TAO entities’ assets, including, but not limited to, a pledge of all of the capital stock of substantially all of TAOIH’s wholly-owned domestic subsidiaries and 65% of the voting capital stock, and 100% of the non-voting capital stock, of each of its first-tier foreign subsidiaries.
Subject to customary notice and minimum amount conditions, TAOG may voluntarily prepay outstanding loans under the TAO Credit Facilities at any time, in whole or in part (subject to customary breakage costs with respect to LIBOR loans) with

23



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


premiums due in respect of prepayments of the TAO Term Loan Facility or permanent reduction under the TAO Revolving Credit Facility, in each case, starting at 5.0% initially and stepping down to 0% after three years. Beginning March 31, 2017, TAOG is required to make scheduled amortization payments under the TAO Term Loan Facility in consecutive quarterly installments equal to $687.5 per quarter initially, stepping up over time to $4,125 per quarter by March 31, 2021 and through the final maturity date of the TAO Term Loan Facility with the final balance payable on such maturity date. TAOG is also required to make mandatory prepayments under the TAO Credit Facilities in certain circumstances, including, without limitation, 75% of excess cash flow, with a step-down to 50% when the total net leverage ratio is less than 2.00:1.00.
The TAO Credit Facilities contain certain restrictions on the ability of TAOG to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the TAO Credit Facilities, including, without limitation, the following: (i) incurring additional indebtedness; (ii) creating liens on assets; (iii) making distributions, dividends and other restricted payments; (iv) engaging in sale and leaseback transactions; (v) merging or consolidating; (vi) making investments; and (vii) prepaying certain indebtedness.
Long-term debt maturities over the next five years for the TAO Term Loan Facility are as follows:
Fiscal year ending June 30, 2017
$

Fiscal year ending June 30, 2018
1,375

Fiscal year ending June 30, 2019
2,750

Fiscal year ending June 30, 2020
6,875

Fiscal year ending June 30, 2021
13,750

Thereafter
85,250

Deferred Financing Costs
In connection with the various credit facilities as discussed above, $8,715 of deferred financing costs were incurred, which are being amortized to interest expense over the life of these credit facilities, ranging from one to five years. In addition, the deferred financing costs are amortized on a straight-line basis over the five-year term of the TAO Term Loan Facility , which approximates the effective interest method.
The following table summarizes the presentation of the TAO Term Loan Facility and the related deferred financing costs in the accompanying consolidated balance sheet as of March 31, 2017 .
 
 
TAO Term Loan Facility
 
Deferred Financing Costs
 
Total
Long-term debt, net of deferred financing costs
 
110,000

 
(4,708
)
 
105,292


The following table summarizes deferred financing costs, net of amortization, related to the Knicks Revolving Credit Facility , Knicks Unsecured Credit Facility , Rangers Revolving Credit Facility , and TAO Revolving Credit Facility as reported on the accompanying consolidated balance sheet:
 
 
March 31,
2017
Other current assets
 
$
801

Other assets
 
2,959


24



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


Note 11. Accumulated Other Comprehensive Income (Loss)
The following table details the components of accumulated other comprehensive income (loss):
 
Pension Plans and
Postretirement
Plan (a)
 
Unrealized Gain on Available-for-sale
Securities
 
Accumulated
Other
Comprehensive
Income (Loss)
Balance as of June 30, 2016
$
(42,611
)
 
$

 
$
(42,611
)
Other comprehensive income before reclassifications, before income taxes

 
15,853

 
15,853

Amounts reclassified from accumulated other comprehensive loss, before income taxes
987

 

 
987

Other comprehensive income
987

 
15,853

 
16,840

Balance as of March 31, 2017
$
(41,624
)
 
$
15,853

 
$
(25,771
)
 
 
 
 
 
 
Balance as of June 30, 2015
$
(40,215
)
 
$

 
$
(40,215
)
Adjustment related to the transfer of Pension Plans and Postretirement Plan liabilities as a result of the Distribution
5,896

 

 
5,896

 
 
 
 
 
 
Other comprehensive loss before reclassifications, before income taxes
(602
)
 

 
(602
)
Amounts reclassified from accumulated other comprehensive loss, before income taxes
723

 

 
723

Other comprehensive income
121

 

 
121

Balance as of March 31, 2016
$
(34,198
)
 
$

 
$
(34,198
)
________________
(a)  
Amounts reclassified from accumulated other comprehensive loss, before income taxes, represent amortization of net actuarial loss and net unrecognized prior service credit included in net periodic benefit cost, which is reflected in direct operating expenses and selling, general and administrative expenses in the accompanying consolidated statements of operations (see Note 12 ).
Note 12 . Pension Plans and Other Postretirement Benefit Plan
See Note 9 to the consolidated and combined financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2016 for more information regarding the Company’s defined benefits pension plans (“Pension Plans”) and postretirement benefit plan (“Postretirement Plan”) as well as the treatment of the Pension Plans and Postretirement Plan before and after the Distribution.

25



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


Components of net periodic benefit cost for the Pension Plans and Postretirement Plan recognized in direct operating expenses and selling, general and administrative expenses in the accompanying consolidated statements of operations for the three and nine months ended March 31, 2017 and 2016 are as follows:  
 
 
Pension Plans
 
Postretirement Plan
 
 
Three Months Ended
 
Three Months Ended
 
 
March 31,
 
March 31,
 
 
2017
 
2016
 
2017
 
2016
Service cost (a)
 
$
18

 
$
22

 
$
34

 
$
26

Interest cost (a)
 
1,237

 
1,676

 
41

 
50

Expected return on plan assets
 
(596
)
 
(740
)
 

 

Recognized actuarial loss
 
336

 
236

 

 

Amortization of unrecognized prior service credit
 

 

 
(12
)
 
(30
)
Net periodic benefit cost
 
$
995

 
$
1,194

 
$
63

 
$
46

 
 
 
 
 
 
 
 
 
 
 
Pension Plans
 
Postretirement Plan
 
 
Nine Months Ended
 
Nine Months Ended
 
 
March 31,
 
March 31,
 
 
2017
 
2016
 
2017
 
2016
Service cost (a)
 
$
64

 
$
3,036

 
$
102

 
$
108

Interest cost (a)
 
3,717

 
5,285