UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
OR
| ||
| ||
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period fromto
Commission File Number: 1-34434
The Madison Square Garden Inc.Company
(Exact name of registrant as specified in its charter)
Delaware | 27-0624498 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Two Penn Plaza
New York, NY 10121
(212) 465-6000
(Address, including zip code, and telephone number, including area code, of
registrant’s principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ¨x No x¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated | ¨ | Accelerated | ¨ | Non-accelerated | x | Smaller reporting | ¨ | |||||||
filer | filer | filer | company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock outstanding, as the latest practicable date.
Class of Stock | Shares Outstanding as of | |||
Class A Common Stock par value $0.01 per share | | |||
Class B Common Stock par value $0.01 per share | 13,588,555 |
THE MADISON SQUARE GARDEN INC.COMPANY
INDEX TO FORM 10-Q
PART I – FINANCIAL INFORMATION
THE MADISON SQUARE GARDEN INC.COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except earnings per share amounts) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
(in thousands, except per share data) | Three Months Ended March 31, | |||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2011 | 2010 | |||||||||||||||||||
Revenues (including revenues from Cablevision of $39,633 and $31,060 for the three months ended September 30, 2010 and 2009, respectively, and $118,416 and $95,002 for the nine months ended September 30, 2010 and 2009, respectively) | $ | 190,830 | $ | 161,764 | $ | 724,462 | $ | 650,418 | ||||||||||||||||
Revenues (including revenues from Cablevision of $41,475 and $39,597) | $ | 330,413 | $ | 306,501 | ||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Direct operating (excluding depreciation and amortization shown below and including expenses from Cablevision of $2,640 and $7,242 for the three months ended September 30, 2010 and 2009, respectively, and $8,373 and $21,441 for the nine months ended September 30, 2010 and 2009, respectively) | 81,016 | 71,821 | 401,930 | 401,149 | ||||||||||||||||||||
Selling, general and administrative (including expenses from Cablevision of $2,558 and $12,303 for the three months ended September 30, 2010 and 2009, respectively, and $9,222 and $37,190 for the nine months ended September 30, 2010 and 2009, respectively) | 70,057 | 62,565 | 197,689 | 202,245 | ||||||||||||||||||||
Direct operating (excluding depreciation and amortization shown below and including expenses from Cablevision of $2,550 and $3,069) | 207,610 | 196,463 | ||||||||||||||||||||||
Selling, general and administrative (including expenses from Cablevision of $2,554 and $3,828) | 71,234 | 64,846 | ||||||||||||||||||||||
Depreciation and amortization | 13,499 | 15,477 | 42,759 | 45,973 | 21,170 | 15,061 | ||||||||||||||||||
164,572 | 149,863 | 642,378 | 649,367 | 300,014 | 276,370 | |||||||||||||||||||
Operating income | 26,258 | 11,901 | 82,084 | 1,051 | 30,399 | 30,131 | ||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||
Interest income (including interest income from Cablevision of $0 for both the three months ended September 30, 2010 and 2009 and $914 and $0 for the nine months ended September 30, 2010 and 2009, respectively) | 619 | 649 | 2,660 | 2,101 | ||||||||||||||||||||
Interest income (including interest income from Cablevision of $914 for the three months ended March 31, 2010) | 631 | 1,473 | ||||||||||||||||||||||
Interest expense | (1,841) | (912) | (4,988) | (3,032) | (1,690) | (1,591) | ||||||||||||||||||
Miscellaneous | 1,050 | — | 3,050 | 2,000 | 5,561 | 2,000 | ||||||||||||||||||
(172) | (263) | 722 | 1,069 | 4,502 | 1,882 | |||||||||||||||||||
Income from operations before income taxes | 26,086 | 11,638 | 82,806 | 2,120 | 34,901 | 32,013 | ||||||||||||||||||
Income tax benefit (expense) | (6,822) | (1,537) | (32,148) | 2,141 | ||||||||||||||||||||
Income tax expense | (15,814) | (14,632) | ||||||||||||||||||||||
Net income | $ | 19,264 | $ | 10,101 | $ | 50,658 | $ | 4,261 | $ | 19,087 | $ | 17,381 | ||||||||||||
Basic net earnings per common share | $ | 0.26 | $ | 0.14 | $ | 0.69 | $ | 0.06 | ||||||||||||||||
Basic earnings per common share | $ | 0.26 | $ | 0.24 | ||||||||||||||||||||
Diluted net earnings per common share | $ | 0.25 | $ | 0.14 | $ | 0.66 | $ | 0.06 | ||||||||||||||||
Diluted earnings per common share | $ | 0.25 | $ | 0.23 | ||||||||||||||||||||
Weighted-average number of common shares outstanding: | ||||||||||||||||||||||||
Weighted-average number of common shares outstanding: (Note 3) | ||||||||||||||||||||||||
Basic | 74,010 | 73,309 | 73,808 | 73,309 | 74,193 | 73,450 | ||||||||||||||||||
Diluted | 76,811 | 73,309 | 76,604 | 73,309 | 77,200 | 76,200 |
See accompanying notes to consolidated financial statements.
THE MADISON SQUARE GARDEN INC.COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value) | September 30, 2010 | December 31, 2009 | ||||||||||||||
(in thousands, except per share data) | March 31, 2011 | December 31, 2010 | ||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
ASSETS | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 325,885 | $ | 109,716 | $ | 310,817 | $ | 354,498 | ||||||||
Restricted cash | 11,416 | 7,139 | 7,464 | 4,215 | ||||||||||||
Accounts receivable, net of allowance for doubtful accounts of $2,126 and $2,337 | 105,582 | 130,460 | ||||||||||||||
Accounts receivable, net of allowance for doubtful accounts of $2,375 and $2,410 | 133,234 | 127,897 | ||||||||||||||
Net receivable due from Cablevision | 23,095 | 7,845 | 25,210 | 22,907 | ||||||||||||
Prepaid expenses | 71,423 | 36,849 | 33,741 | 40,411 | ||||||||||||
Advances due from a subsidiary of Cablevision | — | 190,000 | ||||||||||||||
Other current assets | 36,889 | 37,049 | 24,551 | 25,638 | ||||||||||||
Total current assets | 574,290 | 519,058 | 535,017 | 575,566 | ||||||||||||
Property and equipment, net of accumulated depreciation and amortization of $401,367 and $375,223 | 407,377 | 342,005 | ||||||||||||||
Property and equipment, net of accumulated depreciation and amortization of $425,426 and $408,561 | 515,438 | 472,821 | ||||||||||||||
Other assets | 134,282 | 131,820 | 125,936 | 118,429 | ||||||||||||
Amortizable intangible assets, net of accumulated amortization of $109,179 and $105,351 | 134,708 | 148,028 | ||||||||||||||
Amortizable intangible assets, net of accumulated amortization of $117,789 and $113,484 | 126,098 | 130,403 | ||||||||||||||
Indefinite-lived intangible assets | 158,096 | 158,096 | 158,096 | 158,096 | ||||||||||||
Goodwill | 742,492 | 742,492 | 742,492 | 742,492 | ||||||||||||
$ | 2,151,245 | $ | 2,041,499 | $ | 2,203,077 | $ | 2,197,807 | |||||||||
LIABILITIES AND EQUITY | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Accounts payable | $ | 4,052 | $ | 7,104 | $ | 14,887 | $ | 8,118 | ||||||||
Accrued liabilities: | ||||||||||||||||
Employee related costs | 50,009 | 71,646 | 56,798 | 71,859 | ||||||||||||
Other accrued expenses | 86,554 | 85,815 | ||||||||||||||
Other accrued liabilities | 142,873 | 117,509 | ||||||||||||||
Deferred revenue | 189,964 | 133,584 | 126,650 | 148,819 | ||||||||||||
Total current liabilities | 330,579 | 298,149 | 341,208 | 346,305 | ||||||||||||
Defined benefit and other postretirement obligations | 46,005 | 45,165 | 54,125 | 55,700 | ||||||||||||
Other employee related costs | 40,235 | 44,407 | 36,403 | 40,079 | ||||||||||||
Other liabilities | 65,169 | 63,568 | 62,659 | 57,272 | ||||||||||||
Deferred tax liability | 530,374 | 484,107 | 519,332 | 527,527 | ||||||||||||
Total liabilities | 1,012,362 | 935,396 | 1,013,727 | 1,026,883 | ||||||||||||
Commitments and contingencies (Refer to Note 9) | ||||||||||||||||
Commitments and contingencies (Note 8) | ||||||||||||||||
Stockholders’ Equity: | ||||||||||||||||
Class A Common stock, par value $0.01, 360,000 authorized; 62,262 outstanding as of September 30, 2010 | 624 | — | ||||||||||||||
Class B Common stock, par value $0.01, 90,000 authorized; 13,589 outstanding as of September 30, 2010 | 136 | — | ||||||||||||||
Preferred stock, par value $0.01, 45,000 authorized; none outstanding | — | — | ||||||||||||||
Additional paid-in capital (paid-in capital, for the period prior to the Distribution) | 1,028,587 | 1,042,283 | ||||||||||||||
Treasury stock | (3,723) | — | ||||||||||||||
Class A Common stock, par value $0.01, 360,000 shares authorized; 62,103 and 62,265 shares outstanding | 625 | 624 | ||||||||||||||
Class B Common stock, par value $0.01, 90,000 shares authorized; and 13,589 shares outstanding | 136 | 136 | ||||||||||||||
Preferred stock, par value $0.01, 45,000 shares authorized; none outstanding | — | — | ||||||||||||||
Additional paid-in capital | 1,038,730 | 1,032,121 | ||||||||||||||
Treasury stock, at cost, 479 and 234 shares | (10,279) | (3,723) | ||||||||||||||
Retained earnings | 128,531 | 77,873 | 180,340 | 161,253 | ||||||||||||
Accumulated other comprehensive loss | (15,272) | (14,053) | (20,202) | (19,487) | ||||||||||||
Total stockholders’ equity | 1,138,883 | 1,106,103 | 1,189,350 | 1,170,924 | ||||||||||||
$ | 2,151,245 | $ | 2,041,499 | $ | 2,203,077 | $ | 2,197,807 | |||||||||
See accompanying notes to consolidated financial statements.
THE MADISON SQUARE GARDEN INC.COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) | Nine Months Ended September 30, | |||||||||||||||
2010 | 2009 | |||||||||||||||
(in thousands) | Three Months Ended March 31, | |||||||||||||||
2011 | 2010 | |||||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income | $ | 50,658 | $ | 4,261 | $ | 19,087 | $ | 17,381 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||||
Depreciation and amortization | 42,759 | 45,973 | 21,170 | 15,061 | ||||||||||||
Impairment of deferred costs | 9,945 | — | ||||||||||||||
Amortization of deferred financing costs | 1,454 | — | 545 | 362 | ||||||||||||
Share-based compensation expense related to equity classified awards | 7,104 | — | 3,268 | 2,067 | ||||||||||||
Share-based compensation expense prior to the Distribution | 1,012 | 10,781 | — | 1,012 | ||||||||||||
Excess tax benefit on share-based awards | (566) | — | (2,666) | (372) | ||||||||||||
Deemed capital contribution (distribution) related to income taxes | 6,780 | (56) | ||||||||||||||
Deemed capital contribution related to income taxes | — | 2,712 | ||||||||||||||
Gain on exchange of investment | (3,375) | — | ||||||||||||||
Provision for doubtful accounts | 423 | 436 | 199 | 64 | ||||||||||||
Amortization of purchase accounting liability related to unfavorable contracts | — | (1,344) | ||||||||||||||
Change in assets and liabilities: | ||||||||||||||||
Accounts receivable, net | 24,455 | 37,271 | (5,536) | 3,739 | ||||||||||||
Net receivable due from Cablevision | (15,250) | 416 | (2,303) | (16,414) | ||||||||||||
Prepaid expenses and other assets | (46,183) | (39,453) | (1,695) | (7,317) | ||||||||||||
Accrued and other liabilities | (39,926) | (52,933) | 4,231 | 10,192 | ||||||||||||
Deferred revenue | 56,380 | 40,705 | (22,169) | (33,693) | ||||||||||||
Deferred income taxes | 7,370 | (2,141) | (7,656) | 4,132 | ||||||||||||
Net cash provided by operating activities | 106,415 | 43,916 | ||||||||||||||
Net cash provided by (used in) operating activities | 3,100 | (1,074) | ||||||||||||||
Cash flows from investing activities: | ||||||||||||||||
Capital expenditures | (73,066) | (41,209) | (42,863) | (21,346) | ||||||||||||
Proceeds from asset sale | 10 | — | ||||||||||||||
Decrease in restricted cash | 2,000 | — | ||||||||||||||
Payments for acquisition of assets | (352) | — | ||||||||||||||
Net cash used in investing activities | (71,056) | (41,209) | (43,215) | (21,346) | ||||||||||||
Cash flows from financing activities: | ||||||||||||||||
Proceeds from promissory note due from a subsidiary of Cablevision | 190,000 | — | — | 190,000 | ||||||||||||
Additions to deferred financing costs | (8,370) | — | — | (8,322) | ||||||||||||
Principal payments on capital lease obligations | (984) | (914) | (352) | (326) | ||||||||||||
Purchase of shares | (3,723) | — | ||||||||||||||
Deemed repurchases of restricted shares | (6,556) | (3,723) | ||||||||||||||
Proceeds from stock option exercises | 3,321 | — | 676 | 2,250 | ||||||||||||
Excess tax benefit on share-based awards | 566 | — | 2,666 | 372 | ||||||||||||
Capital contribution | — | 148 | ||||||||||||||
Net cash provided by (used in) financing activities | 180,810 | (766) | (3,566) | 180,251 | ||||||||||||
Net increase in cash and cash equivalents | 216,169 | 1,941 | ||||||||||||||
Net increase (decrease) in cash and cash equivalents | (43,681) | 157,831 | ||||||||||||||
Cash and cash equivalents at beginning of period | 109,716 | 70,726 | 354,498 | 109,716 | ||||||||||||
Cash and cash equivalents at end of period | $ | 325,885 | $ | 72,667 | $ | 310,817 | $ | 267,547 | ||||||||
Non-cash investing and financing activities: | ||||||||||||||||
Deemed capital (distributions) contributions, net primarily related to income taxes and share-based compensation expense prior to the Distribution | $ | (23,792) | $ | 10,725 | ||||||||||||
Deemed capital distributions, net primarily related to income taxes and share-based compensation expense prior to the Distribution | $ | — | $ | 26,636 | ||||||||||||
Capital expenditures incurred but not yet paid | 30,928 | 9,576 | 22,446 | 6,701 | ||||||||||||
Leasehold improvements paid by landlord | 3,984 | — | ||||||||||||||
Asset retirement obligations | 18,088 | — |
See accompanying notes to consolidated financial statements.
THE MADISON SQUARE GARDEN INC.COMPANY
CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands) | Common Stock Issued | Additional Paid-in Capital (Paid-in Capital for the period prior to the Distribution) | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||||||||
Balance at January 1, 2010 | $ | — | $ | 1,042,283 | $ | — | $ | 77,873 | $ | (14,053) | $ | 1,106,103 | ||||||||||||
Net income | — | — | — | 50,658 | — | 50,658 | ||||||||||||||||||
Pension and postretirement plan liability adjustments, net of taxes | — | — | — | — | 901 | 901 | ||||||||||||||||||
Comprehensive income | 51,559 | |||||||||||||||||||||||
Deemed capital contribution related to share-based compensation expense prior to the Distribution | — | 1,012 | — | — | — | 1,012 | ||||||||||||||||||
Deemed capital contribution related to income taxes | — | 6,780 | — | — | — | 6,780 | ||||||||||||||||||
Adjustments related to the transfer of liabilities from Cablevision related to certain pension plans as a result of the Distribution, net of taxes | — | (1,224) | — | — | (2,120) | (3,344 | ) | |||||||||||||||||
Deemed capital contribution related to the transfer of certain liabilities between the Company and Cablevision, net of taxes | — | 5,125 | — | — | — | 5,125 | ||||||||||||||||||
Reclassification of common stock in connection with the Distribution | 755 | (755) | — | — | — | — | ||||||||||||||||||
Distribution date deferred tax assets and liabilities adjustments (Refer to Note 16) | — | (35,485) | — | — | — | (35,485 | ) | |||||||||||||||||
Proceeds from exercise of options | 5 | 3,316 | — | — | — | 3,321 | ||||||||||||||||||
Share-based compensation expense | — | 7,104 | — | — | — | 7,104 | ||||||||||||||||||
Treasury stock acquired from acquisition of restricted shares | — | — | (3,723) | — | — | (3,723 | ) | |||||||||||||||||
Excess tax benefit on share-based awards, net of deficiency | — | 431 | — | — | — | 431 | ||||||||||||||||||
Balance at September 30, 2010 | $ | 760 | $ | 1,028,587 | $ | (3,723) | $ | 128,531 | $ | (15,272) | $ | 1,138,883 | ||||||||||||
(in thousands) | Common Stock Issued | Additional Paid-In Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||||||||
Balance at January 1, 2011 | $ | 760 | $ | 1,032,121 | $ | (3,723) | $ | 161,253 | $ | (19,487) | $ | 1,170,924 | ||||||||||||
Net income | — | — | — | 19,087 | — | 19,087 | ||||||||||||||||||
Pension and postretirement plan liability adjustments, net of taxes | — | — | — | — | 354 | 354 | ||||||||||||||||||
Unrealized loss on investment, net of taxes | — | — | — | — | (1,069) | (1,069) | ||||||||||||||||||
Comprehensive income | 18,372 | |||||||||||||||||||||||
Proceeds from exercise of options | 1 | 675 | — | — | — | 676 | ||||||||||||||||||
Share-based compensation expense | — | 3,268 | — | — | — | 3,268 | ||||||||||||||||||
Treasury stock acquired from acquisition of restricted shares | — | — | (6,556) | — | — | (6,556) | ||||||||||||||||||
Excess tax benefit on share-based awards | — | 2,666 | — | — | — | 2,666 | ||||||||||||||||||
Balance at March 31, 2011 | $ | 761 | $ | 1,038,730 | $ | (10,279) | $ | 180,340 | $ | (20,202) | $ | 1,189,350 | ||||||||||||
(In thousands) | Common Stock Issued | Additional Paid-in Capital (Paid-in Capital for the period prior to the Distribution) | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||||||||
Balance at January 1, 2009 | $ | — | $ | 1,027,726 | $ | — | $ | 50,224 | $ | (5,327) | $ | 1,072,623 | ||||||||||||
Net income | — | — | — | 4,261 | — | 4,261 | ||||||||||||||||||
Pension and postretirement plan liability adjustments, net of taxes | — | — | — | — | 3 | 3 | ||||||||||||||||||
Comprehensive income | 4,264 | |||||||||||||||||||||||
Deemed capital contribution related to the allocation of Cablevision share-based compensation expense | — | 10,781 | — | — | — | 10,781 | ||||||||||||||||||
Capital contribution | — | 148 | — | — | — | 148 | ||||||||||||||||||
Deemed capital distribution related to income taxes | — | (56 | ) | — | — | — | (56 | ) | ||||||||||||||||
Balance at September 30, 2009 | $ | — | $ | 1,038,599 | $ | — | $ | 54,485 | $ | (5,324) | $ | 1,087,760 | ||||||||||||
(in thousands) | Common Stock Issued | Additional Paid-In Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||||||||
Balance at January 1, 2010 | $ | — | $ | 1,042,283 | $ | — | $ | 77,873 | $ | (14,053) | $ | 1,106,103 | ||||||||||||
Net income | — | — | — | 17,381 | — | 17,381 | ||||||||||||||||||
Pension and postretirement plan liability adjustments, net of taxes | — | — | — | — | 284 | 284 | ||||||||||||||||||
Comprehensive income | 17,665 | |||||||||||||||||||||||
Deemed capital contribution related to share-based compensation expense prior to the Distribution | — | 1,012 | — | — | — | 1,012 | ||||||||||||||||||
Deemed capital contribution related to income taxes | — | 2,712 | — | — | — | 2,712 | ||||||||||||||||||
Adjustments related to the transfer of liabilities from Cablevision in connection with certain pension plans as a result of the Distribution, net of taxes | — | — | — | — | (1,805) | (1,805) | ||||||||||||||||||
Deemed capital contribution related to the transfer of certain liabilities between the Company and Cablevision, net of taxes | — | 5,125 | — | — | — | 5,125 | ||||||||||||||||||
Reclassification of common stock in connection with the Distribution | 755 | (755) | — | — | — | — | ||||||||||||||||||
Distribution date deferred tax assets and liabilities adjustments (Note 14) | — | (35,485) | — | — | — | (35,485) | ||||||||||||||||||
Proceeds from exercise of options | 4 | 2,246 | — | — | — | 2,250 | ||||||||||||||||||
Share-based compensation expense | — | 2,067 | — | — | — | 2,067 | ||||||||||||||||||
Treasury stock acquired from acquisition of restricted shares | — | — | (3,723) | — | — | (3,723) | ||||||||||||||||||
Excess tax benefit on share-based awards | — | 372 | — | — | — | 372 | ||||||||||||||||||
Balance at March 31, 2010 | $ | 759 | $ | 1,019,577 | $ | (3,723) | $ | 95,254 | $ | (15,574) | $ | 1,096,293 | ||||||||||||
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(InAll amounts included in the following Notes to Consolidated Financial Statements are presented in thousands, except per share amounts)data or as otherwise noted.
(Unaudited)
Note 1. Description of Business
The Madison Square Garden Inc.Company (together with its subsidiaries, the “Company” or “Madison Square Garden”), formerly named Madison Square Garden, Inc., was incorporated on July 29, 2009 as an indirect, wholly-owned subsidiary of Cablevision Systems Corporation (“Cablevision”). On January 12, 2010, Cablevision’s board of directors approved the distribution of all the outstanding common stock of The Madison Square Garden Inc.Company to Cablevision shareholders (the “Distribution”) and the Company thereafter acquired the subsidiaries of Cablevision that owned, directly and indirectly, all of the partnership interests in Madison Square Garden,MSG Holdings, L.P. (“MSG L.P.”)., formerly named Madison Square Garden, L.P. MSG L.P. was the indirect, wholly-owned subsidiary of Cablevision through which Cablevision held the Company’s businesses until the Distribution occurred on February 9, 2010. Each holder of record of Cablevision NY Group Class A Common Stock as of close of business on January 25, 2010 (the “Record Date”) received one share of Madison Square Garden, Inc.the Company’s Class A Common Stock for every four shares of Cablevision NY Group Class A Common Stock held. Each holder of record of Cablevision NY Group Class B Common Stock as of the Record Date received one share of Madison Square Garden, Inc.the Company’s Class B Common Stock for every four shares of Cablevision NY Group Class B Common Stock held. MSG L.P. is now a wholly-owned subsidiary of The Madison Square Garden Inc.Company through which the Company conducts substantially all of its business activities.
Madison Square Garden is a fully-integrated sports, entertainment and media business. The Company classifies its business interests intois comprised of three reportable segments: MSG Media, MSG Entertainment, and MSG Sports. MSG Media produces, develops and acquires content for multiple distribution platforms, including content originating from the Company’s venues. The MSG Media segment includes the MSG Networks (MSG network, MSG Plus, MSG HD and MSG Plus HD), regional sports networks, and the Fuse Networks (Fuse and Fuse HD), a national television network dedicated to music. MSG Entertainment creates, produces and/or presents a variety of live productions, including theRadio City Christmas Spectacular, featuring the Radio City Rockettes and shows that the Company co-produces with(the “Rockettes”). We have also co-produced or presented events by Cirque du Soleil, such asincludingWintuk. MSG Entertainment also presents or hosts other live entertainment events such as concerts, family shows and special events in the Company’s diverse collection of venues. MSG Sports owns and operates sports franchises, including the New York Knicks (“Knicks”(the “Knicks”) of the National Basketball Association (“NBA”(the “NBA”), the New York Rangers (“Rangers”(the “Rangers”) of the National Hockey League (“NHL”(the “NHL”), the New York Liberty (the “Liberty”) of the Women’s National Basketball Association (the “WNBA”), and the Hartford Wolf PackConnecticut Whale of the American Hockey League (the “AHL”), which is the primary player development team for the Rangers. MSG Sports also features other sports properties, including the presentation of a wide variety of premier live sporting events.events, including professional boxing, college basketball, track and field and tennis.
The Company conducts a significant portion of its operations at venues that areit either ownedowns or operated by itoperates under long-term leases. The Company owns Thethe Madison Square Garden Arena (“The Garden”) and The Theater at Madison Square Garden in New York City, as well as The Chicago Theatre in Chicago. It leases Radio City Music Hall and the Beacon Theatre in New York City. The Company also has a booking agreement with respect to the Wang Theatre in Boston.
Note 2. Accounting Policies
Unaudited Interim Financial Statements
The accompanying unauditedinterim consolidated quarterly financial statements have been prepared on a basis consistentin accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and pursuantthe instructions to the rulesRule 10-01 of the U.S. Securities and Exchange Commission (“SEC”)Regulation S-X, and should be read in conjunction with the audited combinedconsolidated financial statements and related notes thereto includedof the Company filed in the Company’s 2009its 2010 Annual Report on Form 10-K filed on March 18, 2010 with the SEC (the “2009 Annual Report on Form 10-K”).10-K. The financial statements as of September 30, 2010March 31, 2011 and for the three and nine months ended September 30,March 31, 2011 and 2010 and 2009 presented in this Quarterly Report on Form 10-Q are unaudited; however, in the opinion of management such financial statements reflect all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the 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 our revenues on our professional sports teams and theRadio City Christmas shows Spectaculargenerally make our business seasonal with a disproportionate share of our revenues and operating income being derived in the fourth quarter of each calendar year.
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of The Madison Square Garden Inc.Company and its subsidiaries. For periods prior to the Distribution date, the financial statements were prepared on a combined basis and reflect the assets, liabilities, revenues and expenses of the Company as if it were a separate entity for those periods. However, for all periods prior to the Distribution, deferred tax assets and liabilities have been measured using the estimated applicable corporate tax rates historically used by Cablevision (refer to Note 16). All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of the accompanying interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions thatabout future events. These estimates and the underlying assumptions affect the reported amounts of assets and liabilities at the date of the financial statementsreported, disclosures about contingent assets and theliabilities, and reported amounts of revenues and expenses duringexpenses. Such estimates include the reporting periods presented. Estimates are based on past experiencevaluation of accounts receivable, goodwill, intangible assets, other long-lived assets, tax accruals and other considerations reasonable under the circumstances. Actual results could differ from those estimates.liabilities. In
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except per share amounts)
(Unaudited)(Continued)
Reclassifications
Certain prior period amounts have been reclassified to conform toaddition, estimates are used in revenue recognition, income tax expense, performance-based compensation, depreciation and amortization, and the current year presentation.
Recently Adopted Accounting Pronouncements
In October 2009, the Financial Accounting Standards Board issued Accounting Standards Update No. 2009-13,Multiple-Deliverable Revenue Arrangements (“ASU No. 2009-13”), which provides amendments that (a) update the criteriaallowance for separating consideration in multiple-deliverable arrangements, (b) establish a selling price hierarchy for determining the selling pricelosses. Management believes its use of a deliverable, and (c) replace the term “fair value”estimates in the revenue allocation guidance with the term “selling price”interim consolidated financial statements to clarify that the allocation of revenue is basedbe reasonable.
Management evaluates its estimates on entity-specific assumptions. ASU No. 2009-13 eliminates the residual method of allocating arrangement consideration to deliverables, requires the use of the relative selling price method and requires that a vendor determines its best estimate of selling price in a manner consistent with that used to determine the price to sell the deliverable on a stand-alone basis. ASU No. 2009-13 requires a vendor to significantly expand the disclosures related to multiple-deliverable revenue arrangements with the objective to provide information about the significant judgments made and changes to those judgments and how the application of the relative selling-price method affects the timing or amount of revenue recognition. ASU No. 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 with early adoption being permitted.
The Company has various types of multiple-deliverable arrangements, including multi-year sponsorship agreements. The deliverables included in each sponsorship agreement vary and may include suite licenses, event tickets, and various media and advertising benefits, which include items such as, but not limited to, signage in The Gardenan ongoing basis using historical experience and other MSG venues. The timing of revenue recognition for each deliverable is dependent upon meetingfactors, including the revenue recognition criteria forgeneral economic environment and actions it may take in the respective deliverable.
The Company allocates revenue to all deliverables in an arrangement based on their relative selling price. The new accounting principles establish a hierarchy to determine the selling price to be used for allocating revenue to the deliverables as follows: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”) and (iii) best estimate of selling price (“BESP”). VSOE is generally limited to the price that a vendor chargesfuture. We adjust such estimates when it sells the same or similar products or services on a standalone basis. TPE is determined based on the prices charged by competitors of the Company for a similar deliverable when sold separately. When the Company is unable to establish VSOE for deliverables, the Company determines the estimated selling price using BESP.
For many deliverables in an arrangement, such as game tickets and advertising assets, the Company has VSOE of selling price as it typically sells the same or similar deliverables regularly on a standalone basis. The Company’s process for determining its estimated selling prices for deliverables without VSOE or TPE involves management’s judgment. The Company’s process considers multiple factors that may vary depending upon the unique facts and circumstances related to each deliverable. Keydictate. However, these estimates may involve significant uncertainties and judgments and cannot be determined with precision. In addition, these estimates are based on our best judgment at a point in time and as such these estimates may ultimately differ from actual results. Changes in estimates resulting from weakness in the economic environment or other factors considered by the Companybeyond our control could be material and would be reflected in developing BESP for deliverables include, but are not limited to, prices charged for similar deliverables, the Company’s ongoing pricing strategy and policies, consideration of pricing of similar deliverables sold in other multiple-deliverable agreements, and other factors.
The Company retrospectively adopted ASU No. 2009-13 effective as of January 1, 2009 as the standard more appropriately reflects the economics of the Company’s multiple-deliverable agreements. The adoption of ASU 2009-13 had an immaterial impact on previously reported revenues and operating income and therefore, no adjustments to prior interim or annual financial statements were made.in future periods.
Note 3. NetComputation of Earnings per Common Share
Basic net earnings per common share (“EPS”) is based upon net income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted EPS for periods after the Distribution date, reflects the effect of the assumed exercise of stock options and vesting of restricted stock,shares, restricted stock units and shares restricted on the same basis as underlying Cablevision restricted shares (refer to(see Note 13)12) only in the periods in which such effect would have been dilutive.
Common shares assumed to be outstanding during the three and nine month periods ended September 30, 2009 totaled 73,309, representing the shares issued to Cablevision shareholders on the Distribution date for purposes of calculating EPS.
The following table presents a reconciliation of weighted-average shares used in the calculation of basic and diluted EPS.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2010 |
2009 |
2010 |
2009 | 2011 | 2010 | |||||||||||||||||||
Weighted-average shares for basic EPS | 74,010 | 73,309 | 73,808 | 73,309 | 74,193 | 73,450 | ||||||||||||||||||
Dilutive effect of shares issuable under share-based compensation plans and shares restricted on the same basis as underlying Cablevision restricted shares | 2,801 | — | 2,796 | — | 3,007 | 2,750 | ||||||||||||||||||
Weighted-average shares for diluted EPS | 76,811 | 73,309 | 76,604 | 73,309 | 77,200 | 76,200 | ||||||||||||||||||
The Company has excluded 29 and 42 shares from the calculation of diluted EPS for the three and nine months ended September 30,March 31, 2011 and 2010 does not include 4 and 40 shares, respectively, because the effect of their inclusion would have been anti-dilutive.
Note 4. Comprehensive Income
The following table presents comprehensive income for the three and nine months ended September 30, 2010 and 2009.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2010 |
2009 |
2010 |
2009 | |||||||||||||
Net income | $ | 19,264 | $ | 10,101 | $ | 50,658 | $ | 4,261 | ||||||||
Pension and postretirement plan liability adjustments, net of taxes | 339 | (50) | 901 | 3 | ||||||||||||
Comprehensive income | $ | 19,603 | $ | 10,051 | $ | 51,559 | $ | 4,264 | ||||||||
Note 5. Impairment Charges
During the second quarter of 2010, the Company evaluated whether or not an impairment of the deferred costs associated withBanana Shpeel, a show that the Company co-produced with Cirque du Soleil, had occurred as a result of its financial performance.
In determining whether the deferred costs were recoverable, the Company estimated the undiscounted future cash flows over the expected term of the show and compared the undiscounted cash flows to the asset’s carrying value. As a result, the Company concluded the costs would not be recoverable. The Company then determined the fair value of the asset by discounting the estimated future cash flows. The impairment charge was the difference between the carrying value of the asset and its fair value.
As such, during the second quarter of 2010, the Company’s MSG Entertainment reportable segment recorded a pre-tax impairment charge of $9,945 for the unamortized deferred costs remaining on the Company’s consolidated financial statements at the end of the show’s run at the Beacon Theatre.
This pre-tax impairment charge is reflected in direct operating expenses in the accompanying consolidated statement of operations for the nine months ended September 30, 2010.
Note 6.4. Team Personnel Transactions and Insurance Recoveries
Direct operating and selling, general and administrative expenses in the accompanying consolidated statements of operations include net provisions for transactions relating to players on our sports teams for season-ending injuries, waivers and trades and termination costs of other team personnel (“Team Personnel Transactions”). The Company’s MSG Sports segment recognizes the estimated ultimate costcosts of these events, including the Company’s estimated future obligation for luxury tax attributable to Knicks player transactions, in the period in which they occur, net of anticipated insurance recoveries. Amounts due to such players are generally paid over their remaining contract terms. There were no Team Personnel Transactions during the three months ended September 30, 2010 and 2009. For the nine months ended September 30, 2010 and 2009, provisionsProvisions for Team Personnel Transactions amounted to $6,313$9,675 and $23,486,$6,223 for the three months ended March 31, 2011 and 2010, respectively, which were net of insurance recoveries of $820$0 and $426,$820, respectively.
In addition, during the ninethree months ended September 30,March 31, 2011 and 2010, and 2009, the Company recorded $7,921$0 and $4,838,$7,320, respectively, in insurance recoveries related to non season-ending player injuries.
The accompanying consolidated balance sheets as of September 30, 2010 and December 31, 2009 include $0 and $5,929, respectively, in other current assets, for these team personnel-related insurance recoveries.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except per share amounts)
(Unaudited)
Note 7.5. Investments
In June 2008, theThe Company purchasedhad an investment of $37,632 in which it held a minoritynon-controlling ownership interest in a company for $37,632,Front Line Management Group, Inc. (“Front Line”), which iswas accounted for under the cost method.method and reported as a component of other assets in the accompanying consolidated balance sheet as of December 31, 2010. During both of the nine month periodsthree months ended September 30,March 31, 2011 and 2010, and 2009, the Company received a$2,186 and $2,000, dividendrespectively, in dividends representing the distribution of earnings from this cost method investment which was recognized in miscellaneous income in the accompanying consolidated statements of operations.
On February 4, 2011, the Company exchanged its ownership interest in Front Line, valued at approximately $41,000, for approximately 3,913 shares, or 2.16%, of Live Nation Entertainment, Inc. (“Live Nation”) common stock as of that date. As a result of September 30, 2010 and Decemberthis exchange the Company recorded a pretax gain of $3,375 during the three months ended March 31, 2009, this2011, which was recognized in miscellaneous income in the accompanying consolidated statement of operations. This investment is recognized as a component of other assetsreported in the accompanying consolidated balance sheets. It was not practicable forsheet as of March 31, 2011 in other assets, and is classified as available-for-sale. Investments in
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
available-for-sale securities are carried at fair market value with the Company to estimateunrealized gains and losses, net of tax, included in the determination of comprehensive income and reported in stockholders’ equity. The fair value of this minority ownership interest.the investment in Live Nation common stock as of March 31, 2011 was $39,128.
Note 8.6. Goodwill and Intangible Assets
The carrying amount of goodwill, by reportable segment, as of September 30, 2010March 31, 2011 and December 31, 20092010 is as follows:
MSG Media | $ | 465,326 | ||
MSG Entertainment | 58,979 | |||
MSG Sports | 218,187 | |||
$ | 742,492 | |||
Based on the Company’s annual impairment test duringDuring the first quarter of 2010,2011, the Company’s reporting units had significant safety margins, representing the excess of the estimated fair value of each reporting unit lessCompany performed its respective carrying value (including goodwill allocated to each respective reporting unit). In order to evaluate the sensitivity of the estimated fair value calculations of the Company’s reporting units on the annual impairment calculation fortest of goodwill, the Company applied a hypothetical 30% decrease to the estimated fair valueand there was no impairment of each reporting unit. This hypothetical decrease of 30% would have no impact on the goodwill impairment analysisidentified for any of the Company’s reporting units.its reportable segments.
The Company’s intangible assets are as follows:
As of September 30, 2010 | Gross | Accumulated Amortization | Net | |||||||||||||||||||||
As of March 31, 2011 | Gross | Accumulated Amortization | Net | |||||||||||||||||||||
Intangible assets subject to amortization: | ||||||||||||||||||||||||
Affiliation agreements and affiliate relationships | $120,536 | $ (47,073) | $ 73,463 | $120,536 | $ (50,554) | $ 69,982 | ||||||||||||||||||
Season ticket holder relationships | 75,005 | (30,462) | 44,543 | 75,005 | (33,186) | 41,819 | ||||||||||||||||||
Suite holder relationships | 15,394 | (7,694) | 7,700 | 15,394 | (8,394) | 7,000 | ||||||||||||||||||
Broadcast rights | 15,209 | (12,322) | 2,887 | 15,209 | (13,087) | 2,122 | ||||||||||||||||||
Other intangibles | 17,743 | (11,628) | 6,115 | 17,743 | (12,568) | 5,175 | ||||||||||||||||||
Total intangible assets subject to amortization | 243,887 | (109,179) | 134,708 | 243,887 | (117,789) | 126,098 | ||||||||||||||||||
Sports franchises (MSG Sports segment) | 96,215 | — | 96,215 | 96,215 | — | 96,215 | ||||||||||||||||||
Trademarks (MSG Entertainment segment) | 61,881 | — | 61,881 | 61,881 | — | 61,881 | ||||||||||||||||||
Total indefinite-lived intangible assets | 158,096 | — | 158,096 | 158,096 | — | 158,096 | ||||||||||||||||||
Total intangible assets | $401,983 | $(109,179) | $292,804 | $401,983 | $(117,789) | $284,194 | ||||||||||||||||||
As of December 31, 2009 | Gross | Accumulated Amortization | Net | |||||||||||||||||||||
As of December 31, 2010 | Gross | Accumulated Amortization | Net | |||||||||||||||||||||
Intangible assets subject to amortization: | ||||||||||||||||||||||||
Affiliation agreements and affiliate relationships | $124,770 | $ (45,909) | $ 78,861 | $120,536 | $ (48,814) | $ 71,722 | ||||||||||||||||||
Season ticket holder relationships | 75,005 | (26,377) | 48,628 | 75,005 | (31,824) | 43,181 | ||||||||||||||||||
Suite holder relationships | 15,394 | (6,645) | 8,749 | 15,394 | (8,044) | 7,350 | ||||||||||||||||||
Broadcast rights | 15,209 | (11,182) | 4,027 | 15,209 | (12,706) | 2,503 | ||||||||||||||||||
Other intangibles | 23,001 | (15,238) | 7,763 | 17,743 | (12,096) | 5,647 | ||||||||||||||||||
Total intangible assets subject to amortization | 253,379 | (105,351) | 148,028 | 243,887 | (113,484) | 130,403 | ||||||||||||||||||
Sports franchises (MSG Sports segment) | 96,215 | — | 96,215 | 96,215 | — | 96,215 | ||||||||||||||||||
Trademarks (MSG Entertainment segment) | 61,881 | — | 61,881 | 61,881 | — | 61,881 | ||||||||||||||||||
Total indefinite-lived intangible assets | 158,096 | — | 158,096 | 158,096 | — | 158,096 | ||||||||||||||||||
Total intangible assets | $411,475 | $(105,351) | $306,124 | $401,983 | $(113,484) | $288,499 | ||||||||||||||||||
During the first quarter of 2011, the Company performed its annual impairment test of identifiable indefinite-lived intangible assets, and there was no impairment identified.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except per share amounts)
(Unaudited)(Continued)
Based on the Company’s annual impairment test during the first quarter of 2010, the Company’s Radio City related trademarks and sports franchise identifiable indefinite-lived intangible assets had significant safety margins, representing the excess of each identifiable indefinite-lived intangible asset’s estimated fair value less its respective carrying value. In order to evaluate the sensitivity of the fair value calculations of all the Company’s identifiable indefinite-lived intangibles, the Company applied hypothetical 15%, 20% and 30% decreases to the estimated fair value of each of the Company’s identifiable indefinite-lived intangibles. These hypothetical 15%, 20% and 30% decreases in estimated fair value would not have resulted in an impairment of any of our identifiable indefinite-lived intangibles other than The Chicago Theatre related trademarks, which have a carrying value of $8,000. The hypothetical fair value decline would have resulted in impairment charges against The Chicago Theatre related trademarks of approximately $95, $560 and $1,490 at 15%, 20% and 30%, respectively.
Amortization expense was $4,305 and $4,597,$4,528 for the three months ended September 30,March 31, 2011 and 2010, and 2009, respectively. Amortization expense was $13,320 and $14,952 for the nine months ended September 30, 2010 and 2009, respectively. The Company expects its aggregate annual amortization expense for existing intangible assets subject to amortization for each year from 20102011 through 20142015 to be as follows:
For the year ended December 31, 2010 (including the nine months ended September 30, 2010) | $ | 17,629 | ||||||
For the year ended December 31, 2011 | 17,224 | |||||||
For the year ended December 31, 2011 (including the three months ended March 31, 2011) | $ | 17,219 | ||||||
For the year ended December 31, 2012 | 14,434 | 14,447 | ||||||
For the year ended December 31, 2013 | 10,574 | 10,575 | ||||||
For the year ended December 31, 2014 | 10,574 | 10,575 | ||||||
For the year ended December 31, 2015 | 10,575 |
Note 9. Commitments7. Property and Contingencies
CommitmentsEquipment
As more fully described in Notes 7of March 31, 2011 and 8December 31, 2010, property and equipment (including equipment under capital leases) consisted of the audited combined financial statements offollowing assets:
March 31, 2011 | December 31, 2010 | |||||||
Land | $ | 67,921 | $ | 67,921 | ||||
Buildings | 233,582 | 209,857 | ||||||
Equipment | 247,371 | 242,847 | ||||||
Aircraft | 42,961 | 42,961 | ||||||
Furniture and fixtures | 17,484 | 17,085 | ||||||
Leasehold improvements | 143,908 | 141,636 | ||||||
Construction in progress | 187,637 | 159,075 | ||||||
940,864 | 881,382 | |||||||
Less accumulated depreciation and amortization | (425,426) | (408,561) | ||||||
$ | 515,438 | $ | 472,821 | |||||
Depreciable and amortizable assets are depreciated or amortized on a straight-line basis over their estimated useful lives.
Depreciation and amortization expense on property and equipment (including equipment under capital leases) amounted to $16,865 and $10,533 for the Company included in the 2009 Annual Report on Form 10-K, the Company’s commitments primarily consist of long-term agreements for exclusive broadcast rights for certain live sporting events, obligations under employment agreements thatthree months ended March 31, 2011 and 2010, respectively.
Project-to-date, the Company has with its professional sports teams’ personnel, long-term noncancelable operating lease agreements for entertainment venues and office and storage space, and minimum purchase requirements. These arrangements result from the Company’s normal course of business and represent obligations that may be payable over several years.
On July 8, 2010,incurred approximately $222,000 in connectionconstruction costs associated with the comprehensive transformation of The Garden into a state-of-the-art arena (the “Transformation”), the Company entered into a that are primarily recorded in construction management agreement (the “Construction Agreement”) with Turner Construction Company (“Turner”). Under the Construction Agreement, the Company has engaged Turnerin progress. As of March 31, 2011, approximately $23,000 of property and equipment related to act as construction manager for the Transformation with responsibilityhave been placed in service. Depreciation is being accelerated for the orderly and expeditious performanceThe Garden assets that are planned to be removed as a result of the construction work associated withTransformation.
As of March 31, 2011 and December 31, 2010, the Transformation, including the direct performancegross amount of construction work, the engagementequipment and supervision of, and responsibility for, subcontractors and the achievement of specific construction-related milestones in accordance with the timetable prescribed for the Transformation. For more information on the Construction Agreement, refer to the Company’s filing on Form 8-K filed with the SEC on July 9, 2010.
Legal Matters
In March 2008, a lawsuit was filedrelated accumulated depreciation recorded under capital leases included in the United States District Court for the Southern District of New York against MSG L.P. arising out of a January 23, 2007 automobile accident involving an individual who was allegedly drinking alcohol at several different establishments prior to the accident, allegedly including at an event at The Garden. The accident resulted in the death of two individuals. The plaintiffs filed suit against MSG L.P., the driver, and a New York City bar, asserting claims under the New York Dram Shop Act and seeking unspecified compensatory and punitive damages. The Company has insurance coverage for compensatory damages and legal expenses in this matter. Discovery in the case has been completed and MSG L.P. has filed a motion for summary judgment.table above are as follows:
In addition to the matter discussed above, the Company is a defendant in various lawsuits. Although the outcome of these matters cannot be predicted with certainty, management does not believe that resolution of these lawsuits will have a material adverse effect on the financial position or liquidity of the Company.
March 31, 2011 | December 31, 2010 | |||||||
Equipment | $ | 13,296 | $ | 13,304 | ||||
Less accumulated depreciation | (9,799) | (9,557) | ||||||
$ | 3,497 | $ | 3,747 | |||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except per share amounts)
(Unaudited)(Continued)
Note 10. Debt
Total debtThe Company has recorded asset retirement obligations primarily related to the estimated cost associated with the removal of assets as a result of the Company consistsTransformation. The change in the carrying amount of asset retirement obligations for the three months ended March 31, 2011 is as follows:
Balance as of December 31, 2010 | $ | 27,358 | ||
Revisions in estimated liabilities, net | 18,091 | |||
Payments | (2,392 | ) | ||
Balance as of March 31, 2011 | $ | 43,057 | ||
As of March 31, 2011, $32,972 of the following:
September 30, 2010 | December 31, 2009 | |||||||
Revolving Credit Facility | $ | — | $ | — | ||||
Capital lease obligations due to a subsidiary of Cablevision(a) | 5,251 | 6,235 | ||||||
Total | $ | 5,251 | $ | 6,235 | ||||
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On January 28, 2010, MSG L.P. and certain of its subsidiaries entered into a credit agreement with a syndicate of lenders providing for a new senior secured revolving credit facility of up to $375,000 with a term of five years (the “Revolving Credit Facility”). The proceeds of borrowings under the Revolving Credit Facility are available for working capital and capital expenditures, including but not limited to the Transformation, and for general corporate purposes. All borrowings under the Revolving Credit Facility are subject to the satisfaction of customary conditions, including covenant compliance, absence of a default and accuracy of representations and warranties. As of September 30, 2010, there was $3,657 in letters of credit issued under the Revolving Credit Facility. The Company’s available borrowing capacity under the Revolving Credit Facility as of September 30, 2010 remained in excess of $370,000.
The Revolving Credit Facility requires MSG L.P. to comply with the following financial covenants: (i) a maximum total secured leverage ratio of 3.50:1.00; and (ii) a maximum total leverage ratio of 6.00:1.00. In addition, there is a minimum interest coverage ratio of 2.50:1.00 for Madison Square Garden, Inc. As of September 30, 2010, the Company wasremaining balance recorded in compliance with the financial covenantsother liabilities, in the Revolving Credit Facility.accompanying consolidated balance sheet.
In connection with the entry into this borrowing facility, the Company incurred deferred financing costs of $10,900, which are being amortized to interest expense over the five-year term of the Revolving Credit Facility.
Note 11.8. Commitments and Contingencies
Commitments
As more fully described in Notes 10 and 11 to the consolidated financial statements of the Company included in the 2010 Annual Report on Form 10-K, the Company’s commitments primarily consist of long-term agreements for exclusive broadcast rights for certain live sporting events, obligations under employment agreements that the Company has with its professional sports teams’ personnel, long-term noncancelable operating lease agreements for entertainment venues and office and storage space, and minimum purchase requirements. These arrangements result from the Company’s normal course of business and represent obligations that may be payable over several years.
Legal Matters
In March 2008, a lawsuit was filed in the United States District Court for the Southern District of New York against MSG L.P. arising out of a January 23, 2007 automobile accident involving an individual who was allegedly drinking at several different establishments prior to the accident, allegedly including an event at The Garden. The plaintiffs filed suit against MSG L.P., the driver, and a New York City bar, asserting claims under the New York Dram Shop Act and seeking unspecified compensatory and punitive damages. On April 13, 2011, the claims against the Company were resolved directly by our insurers and dismissed with prejudice, without any payment by the Company to the plaintiffs.
In addition to the matter discussed above, the Company is a defendant in various lawsuits. Although the outcome of these matters cannot be predicted with certainty, management does not believe that resolution of these lawsuits will have a material adverse effect on the Company.
Note 9. Debt
Total debt of the Company consists of the following:
March 31, 2011 | December 31, 2010 | |||||||
Revolving Credit Facility | $ | — | $ | — | ||||
Capital lease obligations due to a subsidiary of Cablevision(a) | 4,568 | 4,920 | ||||||
Total | $ | 4,568 | $ | 4,920 | ||||
(a) | Classified in other liabilities in the accompanying consolidated balance sheets. |
On January 28, 2010, MSG L.P. and certain of its subsidiaries entered into a credit agreement with a syndicate of lenders providing for a new senior secured revolving credit facility of up to $375,000 with a term of five years (the “Revolving Credit Facility”). The proceeds of borrowings under the Revolving Credit Facility are available for working capital and capital expenditures, including but not limited to the Transformation, and for general corporate purposes. All borrowings under the Revolving Credit Facility are subject to the satisfaction of customary conditions, including covenant compliance, absence of a default and accuracy of representations and warranties. As of March 31, 2011, there was $6,900 in letters of credit issued under the Revolving Credit Facility. Available borrowing capacity under the Revolving Credit Facility as of March 31, 2011 was $368,100.
The Revolving Credit Facility requires MSG L.P. to comply with the following financial covenants: (i) a maximum total secured leverage ratio of 3.50:1.00 and (ii) a maximum total leverage ratio of 6.00:1.00. In addition, there is a minimum interest coverage
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
ratio of 2.50:1.00 for the Company. As of March 31, 2011, the Company was in compliance with the financial covenants in the Revolving Credit Facility.
In connection with the establishment of this borrowing facility, the Company incurred deferred financing costs of $10,900, which are being amortized to interest expense over the five-year term of the Revolving Credit Facility.
Note 10. Fair Value Measurements
The fair value hierarchy, as outlined in the guidance under Accounting Standards Codification Topic 820, is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions. The fair value hierarchy consists of the following three levels:
Level I — Quoted prices for identical instruments in active markets.
Level II — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level III — Instruments whose significant value drivers are unobservable.
The following table presents for each of these hierarchy levels, the Company’s financial assets that are measured at fair value on a recurring basis at September 30, 2010 and December 31, 2009:basis:
September 30, 2010 | Total | Quoted Prices In Active Markets for Identical Assets Level 1 | Significant Other Observable Inputs Level 2 | Significant Unobservable Inputs Level 3 | ||||||
Cash equivalents | $224,032 | $224,032 | $ — | $ — | ||||||
December 31, 2009 | ||||||||||
Cash equivalents | $109,296 | $109,296 | $ — | $ — |
Level I | Level II | Level III | Total | |||||||||||||
March 31, 2011 | ||||||||||||||||
Assets: | ||||||||||||||||
Money market accounts | $ | 225,541 | $ | — | $ | — | $ | 225,541 | ||||||||
Time deposits | 75,093 | — | — | 75,093 | ||||||||||||
Available-for-sale securities (in Other assets) | 39,128 | — | — | 39,128 | ||||||||||||
Total assets measured at fair value | $ | 339,762 | $ | — | $ | — | $ | 339,762 | ||||||||
December 31, 2010 | ||||||||||||||||
Assets: | ||||||||||||||||
Money market accounts | $ | 266,851 | $ | — | $ | — | $ | 266,851 | ||||||||
Time deposits | 75,009 | — | — | 75,009 | ||||||||||||
Total assets measured at fair value | $ | 341,860 | $ | — | $ | — | $ | 341,860 | ||||||||
The Company’s cash equivalents are primarily invested in moneyMoney market fundsaccounts and time deposits
Money market accounts and time deposits are classified within Level 1 of the fair value hierarchy as they are valued using observable inputs that reflect quoted prices for identical assets in active markets. The carrying amount of the Company’s cash equivalentsmoney market accounts and time deposits approximates fair value due to their short-term maturities.
Note 12. Pension and Other Postretirement Benefit PlansAvailable-for-sale securities (in other assets)
The Company sponsors a non-contributory qualified defined benefit pension plan covering its non-union employees hired prior to Januaryavailable-for-sale securities category includes available-for-sale marketable equity securities, whose fair value is determined using quoted market prices. Such items are classified in Level 1 2001 (the “Retirement Plan”). Benefits payable to retirees under the Retirement Plan are based upon years of service and participants’ compensation. The Company also sponsors an unfunded, non-qualified defined benefit pension plan for the benefit of certain employees who participate in the underlying qualified plan (the “Excess Plan”). This plan provides that, upon retirement, a participant will receive a benefit based on a formula which reflects the participant’s years of service and compensation. As of December 31, 2007, both the Retirement Plan and Excess Plan were amended to freeze all benefits earned through December 31, 2007 and eliminate the ability of participants to earn benefits for future service under these plans.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except per share amounts)
(Unaudited)
In addition, the Company sponsors two non-contributory qualified defined benefit pension plans covering certain of its union employees (“Union Plans”). Benefits payable to retirees under the Union Plans are based upon years of service and, for one of the plans, participants’ compensation.
Effective January 1, 2010, employees of the Company ceased participation in the Cablevision Cash Balance Pension Plan and Cablevision Excess Cash Balance Plan (the “Cablevision Cash Balance Plans”) and began participation in the Company-sponsored MSG Cash Balance Pension Plan and MSG Excess Cash Balance Plan, an unfunded non-contributory, non-qualified excess cash balance plan (collectively, the “MSG Cash Balance Plans”). Also effective January 1, 2010, the Company assumed the liability to pay benefits to current and former employees of the Company who had previously participated in the Cablevision Cash Balance Plans. The estimates of such liabilities assumed under the MSG Cash Balance Pension Plan and MSG Excess Cash Balance Plan as of January 1, 2010 were $3,187 and $2,564, respectively, and are reflected in the accompanying consolidated balance sheet as of September 30, 2010.
The Retirement Plan, Excess Plan, Union Plans, and MSG Cash Balance Plans are collectively referred to as “Pension Plans.”
The Company also sponsors a contributory welfare plan which provides certain postretirement healthcare benefits to certain employees hired prior to January 1, 2001 and their dependents that are eligible for early or normal retirement under the Retirement Plan, as well as certain union employees (“Postretirement Plan”)(See Note 5).
Components of net periodic benefit cost for the Company’s Pension Plans and Postretirement Plan for the three and nine months ended September 30, 2010 and 2009 are as follows:
Pension Plans | Postretirement Plan | |||||||||||||||
Three Months Ended September 30, | ||||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Service cost | $ 1,831 | $ 95 | $ 40 | $ 49 | ||||||||||||
Interest cost | 1,508 | 1,216 | 77 | 75 | ||||||||||||
Expected return on plan assets | (551) | (570) | — | — | ||||||||||||
Recognized actuarial loss (gain) | 626 | (30) | (29) | (20) | ||||||||||||
Amortization of unrecognized prior service cost (credit) | 4 | 1 | (33) | (33) | ||||||||||||
Net periodic benefit cost | $ 3,418 | $ 712 | $ 55 | $ 71 | ||||||||||||
Pension Plans | Postretirement Plan | |||||||||||||||
Nine Months Ended September 30, | ||||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Service cost | $ 4,555 | $ 293 | $ 149 | $ 177 | ||||||||||||
Interest cost | 4,764 | 3,960 | 257 | 252 | ||||||||||||
Expected return on plan assets | (1,213) | (1,713) | — | — | ||||||||||||
Recognized actuarial loss (gain) | 1,683 | 146 | (56) | (42) | ||||||||||||
Amortization of unrecognized prior service cost (credit) | 21 | 2 | (99) | (99) | ||||||||||||
Net periodic benefit cost | $ 9,810 | $ 2,688 | $ 251 | $ 288 | ||||||||||||
In addition to the amounts reflected in the table above for Company sponsored benefit plans, for the three and nine months ended September 30, 2009, the Company recorded $1,354 and $3,854, respectively, of expense related to the Cablevision Cash Balance Plans.
The Company contributed $10,100 and $2,515 to the Retirement Plan and Union Plans, respectively, during the nine months ended September 30, 2010.
In addition, Cablevision sponsors qualified and non-qualified savings plans (the “Cablevision Savings Plans”) in which employees of the Company continue to participate for a period of time after the Distribution (the “Transition Period”) until such time that the Company establishes its own savings plans. The Company makes matching cash contributions on behalf of its employees to the Cablevision Savings Plans in accordance with the terms of those plans. Expenses related to the Cablevision Savings Plans included in the accompanying consolidated statements of operations were $763 and $2,162 for the three and nine months ended September 30, 2010, respectively, compared to $643 and $1,838 for the comparable periods of the prior year.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except per share amounts)
(Unaudited)
Note 11. Pension and Other Postretirement Benefit Plans
The Company sponsors a non-contributory qualified defined benefit pension plan covering its non-union employees hired prior to January 1, 2001 (the “Retirement Plan”). Benefits payable to retirees under the Retirement Plan are based upon years of service and participants’ compensation. The Company also sponsors an unfunded, non-qualified defined benefit pension plan for the benefit of certain employees who participate in the underlying qualified plan (the “Excess Plan”). This plan provides that, upon retirement, a participant will receive a benefit based on a formula which reflects the participant’s years of service and compensation. As of December 31, 2007, both the Retirement Plan and Excess Plan were amended to freeze all benefits earned through December 31, 2007 and eliminate the ability of participants to earn benefits for future service under these plans.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Prior to the Distribution, certain Company employees participated in the Cablevision Cash Balance Pension Plan, a non-contributory qualified cash balance retirement plan, and the Cablevision Excess Cash Balance Plan, an unfunded non-contributory non-qualified excess cash balance plan. Effective January 1, 2010, employees of the Company ceased participation in the Cablevision Cash Balance Pension Plan and the Cablevision Excess Cash Balance Plan (collectively, the “Cablevision Cash Balance Plans”) and began participation in the Company-sponsored MSG Cash Balance Pension Plan and MSG Excess Cash Balance Plan (collectively, the “MSG Cash Balance Plans”), respectively. Also effective January 1, 2010, the Company assumed the liability to pay benefits to current and former employees of the Company who had previously participated in the Cablevision Cash Balance Plans. On April 4, 2011, plan assets with a fair value of $9,261 were transferred from the Cablevision Cash Balance Pension Plan to the MSG Cash Balance Pension Plan. This amount represents the portion of the assets of the Cablevision Cash Balance Pension Plan attributable to the liability previously transferred from this plan to the MSG Cash Balance Pension Plan.
On March 1, 2011, the Company merged the Retirement Plan into the MSG Cash Balance Pension Plan, effectively combining the plan assets and liabilities of the respective plans. In connection with this merger, the respective benefit formulas of the plans were not amended. As of March 1, 2011, the Retirement Plan no longer exists as a stand-alone plan and is part of the MSG Cash Balance Pension Plan. The Company did not perform a remeasurement of the MSG Cash Balance Pension Plan’s assets, liabilities, and expense as of the merger date as the potential impact was determined to not be material.
In addition, the Company sponsors two non-contributory qualified defined benefit pension plans covering certain of its union employees (“Union Plans”). Benefits payable to retirees under the Union Plans are based upon years of service and, for one plan, participants’ compensation.
The Excess Plan, Union Plans and MSG Cash Balance Plans (which now includes the former Retirement Plan) are collectively referred to as “Pension Plans.”
The Company also sponsors a contributory welfare plan which provides certain postretirement healthcare benefits to certain employees hired prior to January 1, 2001 and their dependents that are eligible for early or normal retirement under the Retirement Plan (or effective March 1, 2011, eligible to commence receipt of such early or normal Retirement Plan benefits under the MSG Cash Balance Pension Plan), as well as certain union employees (“Postretirement Plan”).
Components of net periodic benefit cost for the Company’s Pension Plans and Postretirement Plan for the three months ended March 31, 2011 and 2010 are as follows:
Pension Plans | Postretirement Plan | |||||||||||||||
Three Months Ended March 31, | ||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Service cost | $ | 1,688 | $ | 1,361 | $ | 64 | $ | 54 | ||||||||
Interest cost | 1,738 | 1,628 | 101 | 91 | ||||||||||||
Expected return on plan assets | (532) | (331) | — | — | ||||||||||||
Recognized actuarial loss (gain) | 650 | 530 | 1 | (14) | ||||||||||||
Amortization of unrecognized prior service cost (credit) | 7 | 8 | (33) | (33) | ||||||||||||
Net periodic benefit cost | $ | 3,551 | $ | 3,196 | $ | 133 | $ | 98 | ||||||||
The Company contributed $4,300 and $192 to the MSG Cash Balance Pension Plan and one of its Union Plans, respectively, during the three months ended March 31, 2011.
In addition, Cablevision sponsors qualified and non-qualified savings plans (the “Cablevision Savings Plans”) in which employees of the Company continued to participate for a period of time after the Distribution (the “Transition Period”) until such time that the Company established its own savings plans. The Company made matching cash contributions on behalf of its employees to the Cablevision Savings Plans in accordance with the terms of those plans. Effective February 1, 2011, the Company established the MSG Holdings, L.P. 401(k) Savings Plan and the MSG Holdings, L.P. Excess Savings Plan (the “Madison Square Garden Savings Plans”). As of February 1, 2011, eligible employees of the Company have ceased participation in the Cablevision Savings Plans and participate in the Madison Square Garden Savings Plans. Expenses related to the Cablevision Savings Plans and Madison Square Garden Savings Plans included in the accompanying consolidated statements of operations were $857 and $643 for the three months ended March 31, 2011 and 2010, respectively.
Note 13.12. Share-based Compensation
In connection with the Distribution, the Company adopted the Madison Square Garden, Inc.Company’s 2010 Employee Stock Plan (the “Employee Stock Plan”) and the Madison Square Garden, Inc.Company’s 2010 Stock Plan for Non-Employee Directors (the “Non-Employee Director Plan”).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Under the Employee Stock Plan, the Company is authorized to grant incentive stock options, non-qualified stock options, restricted shares, restricted stock units, stock appreciation rights and other equity-based awards. The Company may grant awards for up to 7,000 shares of Madison Square Garden, Inc.the Company’s Class A Common Stock (subject to certain adjustments). Options and stock appreciation rights under the Employee Stock Plan must be granted with an exercise price of not less than the fair market value of a share of Madison Square Garden, Inc.the Company’s Class A Common Stock on the date of grant and must expire no later than 10 years from the date of grant (or up to one additional year in the case of the death of a holder). The terms and conditions of awards granted under the Employee Stock Plan, including vesting and exercisability, are determined by the Compensation Committee of the Board of Directors (“Compensation Committee”) and may be based upon performance criteria.
Under the Non-Employee Director Plan, the Company is authorized to grant non-qualified stock options, restricted stock units and other equity-based awards. The Company may grant awards for up to 300 shares of Madison Square Garden, Inc.the Company’s Class A Common Stock (subject to certain adjustments). Options under the Non-Employee Director Plan must be granted with an exercise price of not less than the fair market value of a share of Madison Square Garden, Inc.the Company’s Class A Common Stock on the date of grant and must expire no later than 10 years from the date of grant (or up to one additional year in the case of the death of a holder). The terms and conditions of awards granted under the Non-Employee Director Plan, including vesting and exercisability, are determined by the Compensation Committee. Unless otherwise provided in an applicable award agreement, options granted under this plan will be fully vested and exercisable, and restricted stock units granted under this plan will be fully vested, upon the date of grant.
Treatment After the Distribution of Share-based Payment Awards Initially Granted Under Cablevision Equity Award Programs
As described in Note 12 to the audited combined financial statements of the Company included in the 2009 Annual Report on Form 10-K, priorPrior to the Distribution certain Company employees and employees and non-employee directors of Cablevision (some of whom are employees or directors of the Company) participated in Cablevision’s equity award programs.
In connection with See Note 15 to the consolidated financial statements of the Company included in the 2010 Annual Report on Form 10-K for more information regarding the treatment after the Distribution each Cablevision stock option and stock appreciation right (“rights” or “SAR”) outstanding at the Distribution date became two options/rights. Cablevision options were converted into options to acquire Cablevision NY Group Class A Common Stock and options to acquire Madison Square Garden, Inc. Class A Common Stock. Cablevision rights were converted into rights with respect to the cash value of Cablevision NY Group Class A Common Stock and rights with respect to the cash value of Madison Square Garden, Inc.’s Class A Common Stock. The number of shares of Madison Square Garden, Inc. Class A Common Stock that became subject to each option/right was based on the one:four distribution ratio (i.e., one share of Madison Square Garden, Inc. Class A Common Stock for every four shares of Cablevision NY Group Class A Common Stock). The existing exercise price was allocated between the existing Cablevision options/rights and the Madison Square Garden, Inc. new options/rights based upon the ten-day weighted-average prices of the Cablevision NY Group Class A Common Stock and Madison Square Garden, Inc. Class A Common Stock, taking into account the one:four distribution ratio. As a result of this adjustment, 82.63% of the pre-Distribution exercise price of options and rights was allocated to the Cablevision options and rights and 17.37% was allocated to the new Madison Square Garden, Inc. options and rights. The options and the rights with respect to Madison Square Garden, Inc. Class A Common Stock were issuedshare-based payment awards initially granted under the Company’s new Employee Stock Plan or the Non-Employee Director Plan, as applicable.
Further, in connection with the Distribution, one share of Madison Square Garden, Inc. Class A Common Stock was issued in respect of every four shares of Cablevision restricted stock and the Madison Square Garden, Inc. shares are restricted on the same basis as the underlying Cablevision restricted shares. These shares were not issued under any of the Company’s new equity plans as they were issued as a dividend in respect of Cablevision NY Group Class A Common Stock in connection with the Distribution.
In addition, in connection with the Distribution, non-employee directors of Cablevision (some of whom are directors of the Company) received one share of Madison Square Garden, Inc. Class A Common Stock under the Non-Employee Director Plan for every four restricted stock units held under the applicable Cablevision equity plan.
As a result of the foregoing, on the Distribution date, Madison Square Garden, Inc. issued to holders of Cablevision equity awards (including its employees and Cablevision employees and/or non-employee directors) 2,238 shares of Madison Square Garden, Inc. Class A Common Stock (restricted on the same basis as the underlying Cablevision shares), 45 unrestricted shares of Madison Square Garden, Inc. Class A Common Stock, 2,471 non-qualified options for Madison Square Garden, Inc. Class A Common Stock and 155 Madison Square Garden, Inc. SARs.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except per share amounts)
(Unaudited)
award programs.
Share-based Payment Award Activity
The following table summarizes activity for the three months ended March 31, 2011 relating to holders (including both Company and Cablevision employees) of Madison Square Garden, Inc.the Company’s stock options for the period from February 10, 2010 (the day following the Distribution date) to September 30, 2010:options:
Number of | Weighted Average Exercise Price Per Share | Weighted- Average Remaining Contractual Term (in years) | ||||||||||
Time Vesting Options | Performance Vesting Options(a) | |||||||||||
Balance, February 10, 2010 | 2,308 | 163 | $ 9.53 | 4.84 | ||||||||
Granted | — | — | — | |||||||||
Exercised | (352) | (39) | $ 8.48 | |||||||||
Forfeited/Expired | (47) | — | $ 27.73 | |||||||||
Balance, September 30, 2010 | 1,909 | 124 | $ 9.31 | 4.41 | ||||||||
Options exercisable at September 30, 2010 | 1,066 | 124 | $ 10.12 | 4.47 | ||||||||
Options expected to vest in the future | 843 | — | $ 8.17 | 4.32 | ||||||||
Number of | Weighted- Average Exercise Price Per Share | Weighted- Average Remaining Contractual Term (in years) | ||||||||||
Time Vesting Options | Performance Vesting Options(a) | |||||||||||
Balance, January 1, 2011 | 1,883 | 120 | $ 9.29 | 4.16 | ||||||||
Exercised | (84) | — | 8.06 | |||||||||
Forfeited/Expired | (1) | — | 9.38 | |||||||||
Balance, March 31, 2011 | 1,798 | 120 | $ 9.34 | 3.93 | ||||||||
Options exercisable at March 31, 2011 | 1,339 | 120 | $ 9.44 | 3.87 | ||||||||
Options expected to vest in future | 459 | — | $ 9.04 | 5.15 | ||||||||
(a) | The Cablevision performance objective with respect to these awards has been achieved. |
Of the total number of stock options as of September 30, 2010, 1,927 were held by Cablevision employees (including the Company’s Executive Chairman, and President and Chief Executive Officer).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table summarizes activity for the three months ended March 31, 2011 relating to holders (including both Company and Cablevision employees) of Madison Square Garden, Inc.the Company’s Class A Common Stock restricted on the same basis as the underlying Cablevision restricted stock, as well as restricted shares issued under the Employee Stock PlanPlan:
Restricted Shares | Weighted-Average Fair Value Per Share at Date of Grant | |||||
Unvested award balance, January 1, 2011 | 1,852 | $11.28 | ||||
Vested | (557 | ) | 17.49 | |||
Forfeited | (24 | ) | 9.87 | |||
Unvested award balance, March 31, 2011 | 1,271 | $ 8.56 | ||||
During the three months ended March 31, 2011, 557 shares of the Company’s Class A Common Stock restricted on the same basis as the underlying Cablevision restricted shares vested. To fulfill the employees’ statutory minimum tax withholding obligations for the period from February 10, 2010 (the day followingapplicable income and other employment taxes, 221 of these shares, with an aggregate value of $6,556, were surrendered to the Distribution date) to September 30, 2010:Company. These acquired shares have been classified as treasury stock.
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Of the total unvested award balance as of September 30, 2010, 1,435March 31, 2011, 945 shares of the Company’s Class A Common Stock restricted on the same basis as the underlying Cablevision restricted shares were held by Cablevision employees (including shares of the Company granted to Company’s Executive Chairman and President and Chief Executive Officer)Officer, as employees of Cablevision).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except per share amounts)
(Unaudited)
The following table summarizes activity for the three months ended March 31, 2011 relating to Madison Square Garden, Inc.holders of the Company’s Restricted Stock Units (“RSUs”) for the period from February 10, 2010 (the day following the Distribution date) to September 30, 2010::
Number of | Weighted- Average Fair Value Per Share at Date of Grant | |||||||||
Time Vesting RSUs | Performance Vesting RSUs | |||||||||
Balance, February 10, 2010 | — | — | $ — | |||||||
Granted | 533 (a)(b) | 301(a) | $21.87 | |||||||
Vested | (50)(b) | — | $21.90 | |||||||
Awards forfeited | (29) | — | $21.90 | |||||||
Unvested award balance, September 30, 2010 | 454 | 301 | $21.87 | |||||||
Number of | Weighted- Average Fair Value Per Share at Date of Grant | |||||||||
Time Vesting RSUs | Performance Vesting RSUs(c) | |||||||||
Unvested award balance, January 1, 2011 | 454 | 301 | $21.21 | |||||||
Granted | 442 | (a)(b) | 169 | (a) | 27.48 | |||||
Vested | (22 | )(b) | — | 27.48 | ||||||
Forfeited | (22 | ) | — | 22.17 | ||||||
Unvested award balance, March 31, 2011 | 852 | 470 | $23.99 | |||||||
(a) | Primarily represents a grant made by the Company to its employees under the Employee Stock Plan, on March |
(b) | On March |
(c) | The Company’s performance objective with respect to the performance vesting RSUs granted in 2010 has been achieved. |
Share-based Compensation Expense
Share-based compensation expense, recognized as selling, general and administrative expense, for the three and nine months ended September 30,March 31, 2011 and 2010 was $2,502$3,299 and $8,361,$3,311, respectively. Share-based compensation expense for the three and nine months ended September 30, 2009 was $3,868 and $10,718, respectively. For the three and nine months ended September 30, 2009, the Company’s share-based compensation expense includes amounts related to Company employees participating in Cablevision equity award programs, as well as amounts related to Cablevision employees and non-employee directors to the extent allocated to the Company. Effective January 1, 2010, the Company no longer receives an allocation of share-based compensation expense for Cablevision employees and non-employee directors, including expense related to the Company’s Executive Chairman, and President and Chief Executive Officer with respect to their participation in Cablevision equity award programs (given that they remained as executive officers of Cablevision).
Note 14. Related Party Transactions
The Dolan family, including trusts for the benefit of the Dolan family, collectively owns all of the Company’s outstanding Class B Common Stock, less than 4% of outstanding Madison Square Garden, Inc. Class A Common Stock and thereby holds approximately 70% of the total voting power of Madison Square Garden, Inc.’s outstanding common stock. The Dolan family is also the controlling stockholder of Cablevision.
In connection with the Distribution, the Company entered into various agreements with Cablevision, including a distribution agreement, a tax disaffiliation agreement, a transition services agreement and an employee matters agreement. These agreements govern certain of the Company’s relationships with Cablevision subsequent to the Distribution and provide for the allocation of employee benefits, taxes and certain other liabilities and obligations attributable to periods prior to the Distribution. These agreements also include arrangements with respect to transition services and a number of on-going commercial relationships. The distribution agreement includes an agreement that the Company and Cablevision agree to provide each other with indemnities with respect to liabilities arising out of the businesses Cablevision transferred to the Company.
For periods prior to January 1, 2010, the combined financial statements of the Company reflect charges incurred pursuant to certain allocation policies of Cablevision. Effective January 1, 2010 through the Distribution date, the Company received allocations from Cablevision generally consistent with the transition services agreement, with certain adjustments. Although management believes that these charges have been made on a reasonable basis, it is not practicable to determine whether the allocated amounts represent amounts that might have been incurred on a stand-alone basis, including as a separate independent publicly traded company, as there are no company-specific or comparable industry benchmarks with which to make such estimates. Actual costs that may have been incurred if the Company had been a stand-alone company would depend on a number of factors, including what functions were outsourced or performed by employees and strategic decisions made in areas such as information technology, staffing and infrastructure.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except per share amounts)
(Unaudited)
The following table summarizes the composition and amounts of the significant transactions with Cablevision that are reflected in revenues and operating expenses in the accompanying consolidated statements of operations for the three and nine months ended September 30, 2010 and 2009:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues | $39,633 | $31,060 | $118,416 | $95,002 | ||||||||||||
Operating expenses: | ||||||||||||||||
Corporate general and administrative | (1,325 | ) | (6,396 | ) | (7,100 | ) | (19,240 | ) | ||||||||
Origination, master control and post production services and studio costs | (2,415 | ) | (4,669 | ) | (6,884 | ) | (13,332 | ) | ||||||||
Risk management and general insurance | — | (1,595 | ) | (713 | ) | (4,785 | ) | |||||||||
Cablevision long-term incentive plans | — | (1,336 | ) | — | (3,938 | ) | ||||||||||
Share-based compensation | — | (1,367 | ) | — | (4,605 | ) | ||||||||||
Health and welfare plans | — | (3,273 | ) | — | (9,623 | ) | ||||||||||
Other | (1,458 | ) | (909 | ) | (2,898 | ) | (3,108 | ) |
Revenues
The Company recognizes revenue from the distribution of programming services to subsidiaries of Cablevision. Cablevision pays the Company for advertising in connection with signage at events, sponsorships and television advertisements.
Corporate General and Administrative
General and administrative costs, including costs of maintaining corporate headquarters, facilities and common support functions (such as executive management, human resources, legal, finance, tax, accounting, audit, treasury, strategic planning, information technology, transportation services, creative and production services, etc.) have been charged to the Company by Cablevision through December 31, 2009. From January 1, 2010 through the Distribution date, the Company received allocations from Cablevision generally consistent with the transition services agreement, with certain adjustments. Subsequent to the Distribution date, amounts charged to the Company by Cablevision were pursuant to the transition services agreement.
Origination, Master Control and Post Production Services and Studio Costs
Cablevision provides certain origination, master control and post production services to the Company. During the three and nine months ended September 30, 2009 Cablevision also provided studio usage to the Company.
Risk Management and General Insurance
Cablevision provided the Company with risk management and general insurance related services through the date of the Distribution. For periods after the Distribution, Cablevision continued to provide risk management services through the transition services agreement (these amounts are reflected in the “Corporate general and administrative” line in the table above).
Cablevision Long-Term Incentive Plans
In 2009, 2008 and 2007, Cablevision granted three-year performance awards to certain employees under Cablevision’s 2006 Cash Incentive Plan. The performance metrics in each employee’s applicable award agreement for 2009 and 2008 are required to be adjusted to reflect the exclusion of the Company from the business of Cablevision. In addition, Cablevision granted deferred compensation awards to certain employees under Cablevision’s Long-Term Incentive Plan (which was superseded by the Cablevision 2006 Cash Incentive Plan), which were unaffected by the Distribution. For the nine months ended September 30, 2009, the Company’s long-term incentive plan expense includes amounts related to Company employees participating in Cablevision award programs, as well as amounts related to Cablevision employees to the extent allocated to the Company. Effective January 1, 2010, the Company no longer receives an allocation of long-term incentive plan expense for Cablevision employees, including expense related to the Company’s Executive Chairman, and President and Chief Executive Officer with respect to their participation in Cablevision long-term incentive plans (given that they remained as executive officers of Cablevision). The amount in the table above only reflects the portion of the Company’s expense related to the allocation for Cablevision employees.
The portion of the Company’s long-term incentive plan liability as of the Distribution date related to the allocation for Cablevision employees was assumed by Cablevision and is reflected as a deemed capital contribution from Cablevision in the accompanying consolidated statement of equity and comprehensive income (loss) for the nine months ended September 30, 2010.
Share-based Compensation
The amount in the table above only reflects the portion of the Company’s expense related to the allocation for Cablevision employees and non-employee directors. Refer to Note 13 for a discussion of share-based compensation expense.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except per share amounts)
(Unaudited)
Health and Welfare Plans
Employees of the Company participated in health and welfare plans sponsored by Cablevision though December 31, 2009. Health and welfare benefit costs have generally been charged by Cablevision based upon the proportionate number of participants in the plans.
Other
The Company and Cablevision routinely enter into transactions with each other in the ordinary course of business. The Company may incur expenses charged by Cablevision that include, but are not limited to film library usage and advertising expenses.
Advances to Cablevision
As of December 31, 2009, the Company had advances outstanding to a subsidiary of Cablevision of $190,000 in the form of non-interest bearing advances. On January 28, 2010, the advances were replaced with a non-amortizing promissory note in the principal amount of $190,000, which accrued interest at a rate of 3.25% per annum. The note had a maturity date of June 30, 2010 with prepayment without penalty at Cablevision’s option. In March 2010, the entire principal balance of the promissory note was repaid, along with $914 of accrued interest.
Other
Refer to Note 10 for information on the Company’s capital lease obligations due to a subsidiary of Cablevision.
Refer to Note 12 for discussion of the participation of Company employees in Cablevision sponsored retirement benefit plans.
Note 15. Property and Equipment13. Related Party Transactions
As of September 30, 2010 and December 31, 2009, property and equipment (including equipment under capital leases) consistedThe Dolan family, including trusts for the benefit of the following assets:Dolan family, collectively owns all of the Company’s outstanding Class B Common Stock and owns approximately 3.6% of the Company’s outstanding Class A Common Stock. Such shares of the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
September 30, 2010 | December 31, 2009 | |||||||
Land | $ | 67,921 | $ | 67,921 | ||||
Buildings | 180,946 | 185,618 | ||||||
Equipment | 234,420 | 222,965 | ||||||
Aircraft | 38,611 | 38,611 | ||||||
Furniture and fixtures | 15,166 | 14,330 | ||||||
Leasehold improvements | 131,181 | 129,352 | ||||||
Construction in progress | 140,499 | 58,431 | ||||||
808,744 | 717,228 | |||||||
Less accumulated depreciation and amortization | (401,367) | (375,223) | ||||||
$ | 407,377 | $ | 342,005 | |||||
DepreciationCompany’s Class A Common Stock and amortization expense on propertyClass B Common Stock, collectively, represent approximately 70% of the aggregate voting power of the Company’s outstanding common stock. The Dolan family is also the controlling stockholder of Cablevision.
In connection with the Distribution, the Company entered into various agreements with Cablevision, such as a distribution agreement, a tax disaffiliation agreement, a transition services agreement, an employee matters agreement and equipment (including equipment under capital leases) amountedcertain related party arrangements. These agreements govern certain of the Company’s relationships with Cablevision subsequent to $9,194the Distribution and $29,439provide for the allocation of employee benefits, taxes and certain other liabilities and obligations attributable to periods prior to the Distribution. These agreements also include arrangements with respect to transition services and a number of on-going commercial relationships. The distribution agreement includes an agreement that the Company and Cablevision agree to provide each other with indemnities with respect to liabilities arising out of the businesses Cablevision transferred to the Company.
The following table summarizes the composition and amounts of the significant transactions with Cablevision that are reflected in revenues and operating expenses in the accompanying consolidated statements of operations for the three and nine months ended September 30,March 31, 2011 and 2010:
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Revenues | $ | 41,475 | $ | 39,597 | ||||
Operating expenses: | ||||||||
Corporate general and administrative | $ | (994 | ) | $ | (3,309 | ) | ||
Origination, master control and post production services | (2,435 | ) | (2,254 | ) | ||||
Risk management and general insurance | — | (713 | ) | |||||
Rent expense | (137 | ) | (135 | ) | ||||
Other expenses | (1,538 | ) | (486 | ) |
Revenues
The Company recognizes revenue from the distribution of programming services to subsidiaries of Cablevision. Cablevision pays the Company for advertising in connection with signage at events, sponsorships and media advertisements.
Corporate General and Administrative
Primarily represents amounts charged to the Company by Cablevision pursuant to the transition services agreement. From January 1, 2010 respectively, as comparedthrough the Distribution date, the Company received allocations from Cablevision generally consistent with the transition services agreement, with certain adjustments.
Origination, Master Control and Post Production Services
Cablevision provides certain origination, master control and post production services to $10,880the Company.
Risk Management and $31,021 forGeneral Insurance
Cablevision provided the comparable periodsCompany with risk management and general insurance related services through the date of the prior year.
Project-to-date,Distribution. For a period after the Company has incurred approximately $126,500Distribution, Cablevision provided risk management services through the transition services agreement (these amounts are reflected in costs associated with the Transformation that are primarily recorded in construction in progress. Depreciation is being accelerated for The Garden assets that are planned to be removed as a result of the Transformation.
As of September 30, 2010“Corporate general and December 31, 2009, the gross amount of equipment and related accumulated depreciation recorded under capital leases includedadministrative expenses” line in the table above areabove).
Rent expense
Cablevision leases certain facilities under long-term lease agreements. The Company pays its share of monthly lease payments for the portion of the premises utilized.
Other expenses
The Company and Cablevision routinely enter into transactions with each other in the ordinary course of business.
Advances to Cablevision
On March 23, 2010, a subsidiary of Cablevision repaid to the Company the entire principal balance of a $190,000 non-amortizing promissory note due June 30, 2010 along with $914 of interest, that accrued at the rate of 3.25% per annum, and without prepayment penalty. The promissory note was executed on January 28, 2010 to replace the non-interest bearing advance owed to the Company by the same subsidiary of Cablevision that was outstanding as follows:of December 31, 2009.
Other
See Note 9 for information on the Company’s capital lease obligations due to a subsidiary of Cablevision.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
September 30, 2010 | December 31, 2009 | |||||||
Equipment | $ | 13,320 | $ | 13,351 | ||||
Less accumulated depreciation | (9,316) | (8,588) | ||||||
$ | 4,004 | $ | 4,763 | |||||
See Note 11 for discussion of the participation of Company employees in Cablevision sponsored retirement benefit plans.
Note 16.14. Income Taxes
Income tax expense for the three and nine months ended September 30, 2010March 31, 2011 of $6,822 and $32,148, respectively, differs from the income tax expense derived from applying the statutory federal rate to pretax income due principally to state income taxes and the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except per share amounts)
(Unaudited)
impact of nondeductible expenses, partially offset by the tax benefit resulting from nontaxable disability insurance recoveries. In addition, in the third quarter, the Company recorded a benefit of approximately $4,000 from the impact of a reduction in the effective state tax rate on the deferred tax liability balance. This benefit was recorded in connection with filing income tax returns during the third quarter of 2010. The effective tax rate was 26% and 39% for the three and nine months ended September 30, 2010, respectively.
Income tax expense (benefit) for the three and nine months ended September 30, 2009 of $1,537 and ($2,141), respectively,$15,814 differs from the income tax expense derived from applying the statutory federal rate to pretax income due principally to state income taxes and the impact of nondeductible expenses (mainly nondeductible player disability and life insurance premiums), partially offset by the domestic production activities deduction.
Income tax benefit resultingexpense for the three months ended March 31, 2010 of $14,632 differs from nontaxable disability insurance recoveries. In addition, in the third quarter,income tax expense derived from applying the Company recorded a benefit of approximately $3,200 fromstatutory federal rate to pretax income due principally to state income taxes and the impact of a reduction in the effective state tax rate on the deferred tax liability balance. This benefit was recorded in connection with the filing of income tax returns during the third quarter of 2009. The effective tax rate was 13% and (101%) for the three and nine months ended September 30, 2009, respectively.nondeductible expenses.
For all periods prior to the Distribution, deferred tax assets and liabilities have beenwere measured using the estimated applicable corporate tax rates historically used by Cablevision. Due to the Company’s significant presence in the City of New York, the estimated applicable corporate tax rate used to measure deferred taxes is higher for the Company as a stand-alone entity. As such, as of the Distribution date, an increase in the deferred tax liability of $31,353 to reflect use of the higher stand-alone estimated applicable corporate tax rate was recorded as an adjustment to paid-in capital. In addition, as of the Distribution date, the deferred tax asset for share-based awards was reduced by $4,092 through an adjustment to paid-in capital to eliminate the portion of the deferred tax asset relating to the share-based compensation expense attributable to Cablevision employees that was allocated to the Company prior to the Distribution.
For all periods prior to the Distribution, allocable current income tax liabilities calculated on a stand-alone company basis that the Company did not pay directly have been reflected as deemed capital contributions to the Company from Cablevision. Such contributions (distributions) amounted to $6,780 and ($56)$2,712 for the ninethree months ended September 30, 2010 and 2009, respectively.March 31, 2010.
Note 17.15. Segment Information
The Company classifies its business interests into three reportable segments, which are MSG Media, MSG Entertainment and MSG Sports. The Company allocates certain corporate costs to all of its reportable segments. In addition, the Company allocates its venue operating costsexpenses to its MSG Entertainment and MSG Sports segments. Venue operating costsexpenses include the non-event related costs of operating the Company’s venues, and includeincludes such costs as rent, real estate taxes, insurance, utilities, repairs and maintenance and labor related to the overall management of the venues. Depreciation expense related to The Garden and The Theater at Madison Square Garden is not allocated to the reportable segments and is recognized in “All other.”
The Company conducts a significant portion of its operations at venues that areit either ownedowns or operated by itoperates under long-term leases. The Company owns The Garden and The Theater at Madison Square Garden in New York City, as well as The Chicago Theatre in Chicago. It leases Radio City Music Hall and the Beacon Theatre in New York City. The Company also has a booking agreement with respect to the Wang Theatre in Boston.
The Company evaluates segment performance based on several factors, of which the key financial measure is their operating income (loss) before depreciation and amortization, share-based compensation expense or benefit and restructuring charges or credits, which is referred to as adjusted operating cash flow (“AOCF”), a non-GAAP measure. The Company has presented the components that reconcile adjusted operating cash flowAOCF to operating income (loss), an accepteda GAAP measure. Information as to the operations of the Company’s reportable segments is set forth below.
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2011 | 2010 | |||||||||||||||||||
Revenues | ||||||||||||||||||||||||
MSG Media | $ | 133,434 | $ | 113,580 | $ | 407,421 | $ | 345,638 | $ | 147,564 | $ | 139,505 | ||||||||||||
MSG Entertainment | 38,184 | 30,557 | 126,422 | 109,589 | 42,805 | 41,473 | ||||||||||||||||||
MSG Sports | 36,905 | 34,765 | 243,442 | | 244,927 | | 157,739 | 142,663 | ||||||||||||||||
Inter-segment eliminations | (17,693) | (17,138) | (52,823) | (49,736) | (17,695) | (17,140) | ||||||||||||||||||
$ | 190,830 | $ | 161,764 | $ | 724,462 | $ | 650,418 | $ | 330,413 | $ | 306,501 | |||||||||||||
(a) | Primarily represents local media rights recognized by the Company’s MSG Sports segment from the licensing of team related programming to the Company’s MSG Media segment which are eliminated in consolidation. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except per share amounts)
(Unaudited)(Continued)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Inter-segment revenues | ||||||||||||||||
MSG Media | $ | — | $ | — | $ | — | $ | — | ||||||||
MSG Entertainment | (26) | (25) | (77) | (76) | ||||||||||||
MSG Sports | (17,667) | (17,113) | (52,746) | (49,660) | ||||||||||||
$ | (17,693) | $ | (17,138) | $ | (52,823) | $ | (49,736) | |||||||||
Inter-segment eliminations are primarily local television rights recognized by the Company’s MSG Sports segment from the licensing of team programming to the Company’s MSG Media segment.
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Inter-segment revenues | ||||||||
MSG Media | $ | — | $ | — | ||||
MSG Entertainment | (26) | (26) | ||||||
MSG Sports | (17,669) | (17,114) | ||||||
$ | (17,695) | $ | (17,140) | |||||
Reconciliation (by Segment and in Total) of Adjusted Operating Cash FlowAOCF to Operating Income (Loss)
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2011 | 2010 | |||||||||||||||||||
Adjusted operating cash flow | ||||||||||||||||||||||||
AOCF | ||||||||||||||||||||||||
MSG Media | $ | 55,666 | $ | 42,543 | $ | 179,558 | $ | 126,117 | $ | 62,577 | $ | 61,779 | ||||||||||||
MSG Entertainment | (10,930) | (14,757) | (43,680) | (40,816) | (6,782) | (12,713) | ||||||||||||||||||
MSG Sports | 1,559 | 5,265 | 8,511 | (21,757) | 3,540 | 3,407 | ||||||||||||||||||
All other(a) | (4,036) | (1,805) | (11,185) | (5,802) | (4,467) | (3,970) | ||||||||||||||||||
$ | 42,259 | $ | 31,246 | $ | 133,204 | $ | 57,742 | $ | 54,868 | $ | 48,503 | |||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2011 | 2010 | |||||||||||||||||||
Depreciation and amortization | ||||||||||||||||||||||||
MSG Media | $ | 4,430 | $ | 4,653 | $ | 14,197 | $ | 15,158 | $ | 5,551 | $ | 4,798 | ||||||||||||
MSG Entertainment | 2,304 | 2,574 | 6,943 | 7,623 | 2,314 | 2,331 | ||||||||||||||||||
MSG Sports | 2,621 | 3,160 | 7,835 | 8,306 | 2,650 | 2,607 | ||||||||||||||||||
All other(b) | 4,144 | 5,090 | 13,784 | 14,886 | 10,655 | 5,325 | ||||||||||||||||||
$ | 13,499 | $ | 15,477 | $ | 42,759 | $ | 45,973 | $ | 21,170 | $ | 15,061 | |||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2011 | 2010 | |||||||||||||||||||
Share-based compensation expense | ||||||||||||||||||||||||
MSG Media | $ | 954 | $ | 1,585 | $ | 2,642 | $ | 4,394 | $ | 862 | $ | 1,204 | ||||||||||||
MSG Entertainment | 702 | 1,470 | 2,442 | 4,073 | 902 | 1,241 | ||||||||||||||||||
MSG Sports | 641 | 813 | 1,858 | 2,251 | 761 | 866 | ||||||||||||||||||
All other | 205 | — | 1,419 | — | 774 | — | ||||||||||||||||||
$ | 2,502 | $ | 3,868 | $ | 8,361 | $ | 10,718 | $ | 3,299 | $ | 3,311 | |||||||||||||
Three Months Ended March 31, | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Operating income (loss) | ||||||||||||||||||||||||
MSG Media | $ | 56,164 | $ | 55,777 | ||||||||||||||||||||
MSG Entertainment | (9,998) | (16,285) | ||||||||||||||||||||||
MSG Sports | 129 | (66) | ||||||||||||||||||||||
All other | (15,896) | (9,295) | ||||||||||||||||||||||
$ | 30,399 | $ | 30,131 | |||||||||||||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except per share amounts)
(Unaudited)(Continued)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Operating income (loss) | ||||||||||||||||
MSG Media | $ | 50,282 | $ | 36,305 | $ | 162,719 | $ | 106,565 | ||||||||
MSG Entertainment | (13,936) | (18,801) | (53,065) | (52,512) | ||||||||||||
MSG Sports | (1,703) | 1,292 | (1,182) | (32,314) | ||||||||||||
All other | (8,385) | (6,895) | (26,388) | (20,688) | ||||||||||||
$ | 26,258 | $ | 11,901 | $ | 82,084 | $ | 1,051 | |||||||||
A reconciliation of reportable segment operating income to the Company’s consolidated income from operations before income taxes is as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2011 | 2010 | |||||||||||||||||||
Total operating income for reportable segments | $ | 34,643 | $ | 18,796 | $ | 108,472 | $ | 21,739 | $ | 46,295 | $ | 39,426 | ||||||||||||
Other operating loss | (8,385) | (6,895) | (26,388) | (20,688) | (15,896) | (9,295) | ||||||||||||||||||
Operating income | 26,258 | 11,901 | 82,084 | 1,051 | 30,399 | 30,131 | ||||||||||||||||||
Items excluded from operating income: | ||||||||||||||||||||||||
Interest income | 619 | 649 | 2,660 | 2,101 | 631 | 1,473 | ||||||||||||||||||
Interest expense | (1,841) | (912) | (4,988) | (3,032) | (1,690) | (1,591) | ||||||||||||||||||
Miscellaneous income | 1,050 | — | 3,050 | 2,000 | 5,561 | 2,000 | ||||||||||||||||||
Income from operations before income taxes | $ | 26,086 | $ | 11,638 | $ | 82,806 | $ | 2,120 | $ | 34,901 | $ | 32,013 | ||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2011 | 2010 | |||||||||||||||||||
Capital expenditures | ||||||||||||||||||||||||
MSG Media | $ | 5,895 | $ | 387 | $ | 15,988 | $ | 2,046 | $ | 2,771 | $ | 7,699 | ||||||||||||
MSG Entertainment | 1,373 | 1,343 | 3,927 | 12,150 | 1,048 | 1,262 | ||||||||||||||||||
MSG Sports | 235 | 45 | 405 | 265 | 115 | 59 | ||||||||||||||||||
All other | 25,990 | 9,843 | 52,746 | 26,748 | 38,929 | 12,326 | ||||||||||||||||||
$ | 33,493 | $ | 11,618 | $ | 73,066 | $ | 41,209 | $ | 42,863 | $ | 21,346 | |||||||||||||
(a) | Consists principally of unallocated corporate general and administrative costs. |
(b) | Principally includes depreciation and amortization expense on The Garden and the Theater at Madison Square Garden and certain corporate property, equipment and leasehold improvement assets not allocated to the Company’s reportable segments. |
(c) | Principally includes capital expenditures associated with the ongoing Transformation. |
Substantially all revenues and assets of the Company’s reportable segments are attributed to or located in the United States and are primarily concentrated in the New York metropolitan area.
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In this Management’s Discussion and Analysis of Financial Condition and Results of Operations,MD&A, there are statements concerning our future operating and future financial performance.performance, including: the timing and anticipated benefits of, and the inclusion of a reserve for, the comprehensive Transformation; and the ability to renew affiliation agreements. Words such as “expects”, “anticipates”, “believes”, “estimates”, “may”, “will”, “should”, “could”, “potential”, “continue”, “intends”, “plans”, and similar words and terms used in the discussion of future operating and future financial performance identify forward-looking statements. Investors are cautioned that such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties and that actual results or developments may differ materially from the forward-looking statements as a result of various factors. Factors that may cause such differences to occur include, but are not limited to:
• | the level of our revenues, which depends in part on the popularity and competitiveness of our sports teams and the level and popularity of theRadio City Christmas Spectacular and other entertainment events which are presented in our venues; |
costs associated with player injuries, and waivers or terminations of players and other team personnel;
changes in professional sports teams’ compensation, including the impact of signing of free agents, subject to league salary caps;
the level and timing of our capital expenditures, including the planned comprehensive transformationTransformation of The Madison Square Garden Arena (“The Garden”);Garden;
the impact of the planned comprehensive transformationTransformation of The Garden on our operations;
the demand for our programming among cable television systems, satellite, telephone and other multichannel distributors (which we refer to as “Distributors”), and our ability to renew affiliation agreements with them;
general economic conditions especially in the New York metropolitan area where we conduct the majority of our operations;
the demand for advertising time and viewer ratings for our programming;
competition, for example, from other regional sports networks, other teams and other entertainment options;
changes in laws, National Basketball Association (“NBA”)NBA or National Hockey League (“NHL”)NHL rules, regulations, guidelines, bulletins, directives, policies and agreements (including the leagues’ respective collective bargaining agreements with their players’ associations, salary caps, and NBA luxury tax thresholds)thresholds and revenue sharing) or other regulations under which we operate;
any NBA or NHL work stoppage;
our ability to maintain, obtain or produce content for our MSG Media segment, together with the cost of such content;
the level of our expenses, including the anticipated expenditures related to the expected increase in our corporate expenses as a publicly-traded company;
future acquisitions and dispositions of assets;
the costs associated with, and the outcome of, litigation and other proceedings to the extent uninsured;
financial community and rating agency perceptions of our business, operations, financial condition and the industry in which we operate;
our ownership of professional sports franchises in the NBA and NHL and certain transfer restrictions on our common stocks; and
the factors described under “Risk Factors” in our 20092010 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 18, 2010 (“2009 Annual Report on Form 10-K”).4, 2011.
We disclaim any obligation to update or revise the forward-looking statements contained herein, except as otherwise required by applicable federal securities laws.
All dollar amounts included in the following Management’s Discussion and Analysis of Financial Condition and Results of OperationsMD&A are presented in thousands, except as otherwise noted. Capitalized terms used in the following Management’s Discussion and Analysis of Financial Condition and Results of Operations and not otherwise defined shall have the meaning set forth in the accompanying Notes to the Consolidated Financial Statements.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
(Continued)
Introduction
Management’s Discussion and Analysis, or MD&A of our financial condition and results of operations is provided as a supplement to, and should be read in conjunction with, our unaudited consolidated financial statements and footnotes thereto included elsewhere herein to help provide an understanding of our financial condition, changes in financial condition and results of our operations.operations. Unless the context otherwise requires, all references to “we”, “us”, “our”, “Madison Square Garden” or the “Company” refer to The Madison Square Garden Inc.,Company, together with its direct and indirect subsidiaries. “Madison Square Garden, Inc.” refers to“The Madison Square Garden Inc.Company” refers to The Madison Square Garden Company individually as a separate entity. The Madison Square Garden Inc.Company is a holding company and conducts substantially all of its operations through its subsidiaries. This MD&A should be read in conjunction with our 20092010 Annual Report on Form 10-K, and is organized as follows:
Results of Operations.This section provides an analysis of our results of operations for the three and nine months ended September 30, 2010March 31, 2011 compared to the three and nine months ended September 30, 2009.March 31, 2010. Our discussion is presented on both a consolidated and segment basis.basis.
Liquidity and Capital Resources.This section provides a discussion of our financial condition, liquidity and capital resources as of September 30, 2010,March 31, 2011, as well as an analysis of our cash flows for the ninethree months ended September 30, 2010 and 2009.March 31, 2011 compared to the three months ended March 31, 2010.
Recently Adopted Accounting Pronouncements and Critical Accounting Policies. This section discusses our critical accounting policy in respect of goodwill and identifiable indefinite-lived intangible assets in order to provide the Company’s adoptionresults of Accounting Standards Update No. 2009-13,Multiple-Deliverable Revenue Arrangements(“ASU No. 2009-13”). In addition, this section discussesour annual impairment testing performed during the three months ended March 31, 2011. There is no update to our other significant accounting policies, consideredincluding our critical accounting policies, which are discussed in our 2010 Annual Report on Form 10-K under Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the notes to be important to ourthe consolidated financial condition and resultsstatements of operations and which require significant judgment and estimates on the part of management in their application.Company included therein.
The Company classifies its business interests into three reportable segments: MSG Media, MSG Entertainment, and MSG Sports. MSG Media produces, develops and acquires content for multiple distribution platforms, including content originating from the Company’sour venues. MSG Entertainment creates, produces and/or presents a variety of live productions, including theRadio City Christmas Spectacular, featuring the Radio City Rockettes, and shows that the Company co-produces with Cirque du Soleil, such asWintuk.Rockettes. MSG Sports owns and operates sports franchises, including the New York Knicks (“Knicks”) of the NBA, the New York Rangers (“Rangers”) of the NHL, the New York Liberty of the Women’s National Basketball Association,WNBA, and the Hartford Wolf PackConnecticut Whale of the American Hockey League,AHL, which is the primary player development team for the Rangers. MSG Sports also features other sports properties, including the presentation of a wide variety of premier live sporting events.
The dependence of our revenues on our professional sports teams and theRadio City Christmas showsSpectacular generally make our business seasonal with a disproportionate share of our revenues and operating income being derived in the fourth quarter of each calendar year.
Management’s Discussion and Analysis
of Financial Condition and Results of OperationsChange in Fiscal Year
(Continued)On February 7, 2011, the Board of Directors of The Madison Square Garden Company approved a change in the Company’s fiscal year end from December 31 to June 30, effective June 30, 2011. The Company plans to report our financial results for the six month transition period of January 1, 2011 through June 30, 2011 on a Transition Report on Form 10-K/T and to thereafter file annual reports for each twelve month period ended June 30 of each year beginning with the twelve month period ended June 30, 2012. We believe the change in fiscal year will better align our financial planning and reporting cycles with the seasonality of our business, particularly our MSG Sports and MSG Entertainment segments.
Results of Operations
The tablestable below setsets forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenues.
STATEMENT OF OPERATIONS DATA
Three Months Ended September 30, | Increase | |||||||||||||||||||
2010 | 2009 | (Decrease) | ||||||||||||||||||
Amount | % of Revenues | Amount | % of Revenues | in Net Income | ||||||||||||||||
Revenues | $ 190,830 | 100% | $161,764 | 100% | $ 29,066 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Direct operating (excluding depreciation and amortization shown below) | 81,016 | 42% | 71,821 | 44% | (9,195) | |||||||||||||||
Selling, general and administrative | 70,057 | 37% | 62,565 | 39% | (7,492) | |||||||||||||||
Depreciation and amortization | 13,499 | 7% | 15,477 | 10% | 1,978 | |||||||||||||||
Operating income | 26,258 | 14% | 11,901 | 7% | 14,357 | |||||||||||||||
Other income (expense): | ||||||||||||||||||||
Interest expense, net | (1,222) | -1% | (263) | NM | (959) | |||||||||||||||
Miscellaneous | 1,050 | 1% | — | NM | 1,050 | |||||||||||||||
Income from operations before income taxes | 26,086 | 14% | 11,638 | 7% | 14,448 | |||||||||||||||
Income tax expense | (6,822) | -4% | (1,537) | -1% | (5,285) | |||||||||||||||
Net income | $ 19,264 | 10% | $ 10,101 | 6% | $ 9,163 | |||||||||||||||
Nine Months Ended September 30, | Increase | Three Months Ended March 31, | Increase | |||||||||||||||||||||||||||||||||||||
2010 | 2009 | (Decrease) | 2011 | 2010 | (Decrease) | |||||||||||||||||||||||||||||||||||
Amount | % of Revenues | Amount | % of Revenues | in Net Income | Amount | % of Revenues | Amount | % of Revenues | in Net Income | |||||||||||||||||||||||||||||||
Revenues | $ | 724,462 | 100% | $ | 650,418 | 100% | $ | 74,044 | $ | 330,413 | 100% | $ | 306,501 | 100% | $ | 23,912 | ||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||||||
Direct operating (excluding depreciation and amortization shown below) | 401,930 | 55% | 401,149 | 62% | (781) | 207,610 | 63% | 196,463 | 64% | (11,147) | ||||||||||||||||||||||||||||||
Selling, general and administrative | 197,689 | 27% | 202,245 | 31% | 4,556 | 71,234 | 22% | 64,846 | 21% | (6,388) | ||||||||||||||||||||||||||||||
Depreciation and amortization | 42,759 | 6% | 45,973 | 7% | 3,214 | 21,170 | 6% | 15,061 | 5% | (6,109) | ||||||||||||||||||||||||||||||
Operating income | 82,084 | 11% | 1,051 | NM | 81,033 | 30,399 | 9% | 30,131 | 10% | 268 | ||||||||||||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||||||||||||
Interest expense, net | (2,328) | NM | (931) | NM | (1,397) | (1,059) | NM | (118) | NM | (941) | ||||||||||||||||||||||||||||||
Miscellaneous | 3,050 | NM | 2,000 | NM | 1,050 | 5,561 | 2% | 2,000 | 1% | 3,561 | ||||||||||||||||||||||||||||||
Income from operations before income taxes | 82,806 | 11% | 2,120 | NM | 80,686 | 34,901 | 11% | 32,013 | 10% | 2,888 | ||||||||||||||||||||||||||||||
Income tax benefit (expense) | (32,148) | -4% | 2,141 | NM | (34,289) | |||||||||||||||||||||||||||||||||||
Income tax expense | (15,814) | -5% | (14,632) | -5% | (1,182) | |||||||||||||||||||||||||||||||||||
Net income | $ | 50,658 | 7% | $ | 4,261 | 1% | $ | 46,397 | $ | 19,087 | 6% | $ | 17,381 | 6% | $ | 1,706 | ||||||||||||||||||||||||
NM – Percentage is not meaningful
See “Business Segment Results” for a more detailed discussion relating to the operating results of our segments. The business segment results do not reflect inter-segment eliminations.
Management’s Discussion and Analysis
of Financial Condition andConsolidated Results of Operations
(Continued)
Consolidated Results
Revenues
Revenues for the three months ended September 30, 2010March 31, 2011 increased $29,066,$23,912, or 18%8%, to $190,830 as compared to the comparable period of the prior year. Revenues for the nine months ended September 30, 2010 increased $74,044, or 11%, to $724,462,$330,413 as compared to the comparable period of the prior year. The net increases areincrease is attributable to the following:
Three Months | Nine Months | |||||||
Ended September 30, 2010 | ||||||||
Increase in MSG Media segment revenues | $ | 19,854 | $ | 61,783 | ||||
Increase in MSG Entertainment segment revenues | 7,627 | 16,833 | ||||||
Increase (decrease) in MSG Sports segment revenues | 2,140 | (1,485) | ||||||
Inter-segment eliminations | (555) | (3,087) | ||||||
$ | 29,066 | $ | 74,044 | |||||
Increase in MSG Media segment revenues | $ | 8,059 | ||
Increase in MSG Entertainment segment revenues | 1,332 | |||
Increase in MSG Sports segment revenues | 15,076 | |||
Inter-segment eliminations | (555) | |||
$ | 23,912 | |||
Direct operating expenses (excluding depreciation and amortization)
Direct operating expenses (excluding depreciation and amortization) for the three months ended September 30, 2010March 31, 2011 increased $9,195,$11,147, or 13%6%, to $81,016 as compared to the comparable period of the prior year. Direct operating expenses (excluding depreciation and amortization) for the nine months ended September 30, 2010 increased $781, or less than 1%, to $401,930,$207,610 as compared to the comparable period of the prior year. The net increases areincrease is attributable to the following:
Three Months | Nine Months | |||||||
Ended September 30, 2010 | ||||||||
Increase in MSG Media segment expenses | $ | 3,823 | $ | 4,278 | ||||
Increase in MSG Entertainment segment expenses | 3,812 | 18,331 | ||||||
Increase (decrease) in MSG Sports segment expenses | 2,112 | (18,747) | ||||||
Inter-segment eliminations | (552) | (3,081) | ||||||
$ | 9,195 | $ | 781 | |||||
Increase in MSG Media segment expenses | $ | 5,410 | ||
Decrease in MSG Entertainment segment expenses | (4,692) | |||
Increase in MSG Sports segment expenses | 10,983 | |||
Inter-segment eliminations | (554) | |||
$ | 11,147 | |||
Selling, general and administrative expenses
Selling, general and administrative expenses increased $7,492, or 12%, for the three months ended September 30, 2010, to $70,057 as compared to the comparable period of the prior year. Selling, general and administrative expenses decreased $4,556,March 31, 2011 increased $6,388, or 2%10%, to $197,689 for the nine months ended September 30, 2010,$71,234 as compared to the comparable period of the prior year. The net increase (decrease) is attributable to the following:
Three Months | Nine Months | |||||||
Ended September 30, 2010 | ||||||||
Increase in MSG Media segment expenses | $ | 2,277 | $ | 2,312 | ||||
Decrease in MSG Entertainment segment expenses | (780) | (265) | ||||||
Increase (decrease) in MSG Sports segment expenses | 3,562 | (13,399) | ||||||
Increase in other expenses | 2,433 | 6,796 | ||||||
$ | 7,492 | $ | (4,556) | |||||
Increase in MSG Media segment expenses | $ | 1,509 | ||
Decrease in MSG Entertainment segment expenses | (246) | |||
Increase in MSG Sports segment expenses | 3,855 | |||
Increase in other expenses | 1,270 | |||
$ | 6,388 | |||
For both periods theThe increase in other expenses discussed above is primarily reflectsdue to an increase in certain costs related to being an independent publicly traded company, which were not allocatedunallocated share-based compensation as compared to the Company’s business segments.comparable period of the prior year.
Depreciation and amortization
Depreciation and amortization for the three months ended September 30, 2010 decreased $1,978,March 31, 2011 increased $6,109, or 13%41%, to $21,170 as compared to the comparable period of the prior year. The increase reflects higher depreciation expense primarily associated with certain assets that will be removed as a result of the ongoing Transformation.
Interest expense, net
Interest expense, net for the three months ended March 31, 2011 increased $941, or 797%, to $1,059 as compared to the comparable period of the prior year primarily due to lower depreciation expense resulting from a reduction in the depreciable asset base. Depreciation and amortization for the nine months ended September 30, 2010 decreased $3,214, or 7%, as comparedinterest income attributable to the comparable periodrepayment of the prior year. This decline was primarily due to lower amortization expensepromissory note by a subsidiary of intangible assets resulting from certain intangible assets becoming fully amortized, as well as lower depreciation expenseCablevision in the third quarter of 2010, as discussed above.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
(Continued)
Interest expense, net
Interest expense, net for the three months ended September 30, 2010 increased $959, or 365% as compared to the comparable period of the prior year primarily due to higher interest expense related to fees associated with the Company’s credit facility which was entered into in JanuaryMarch 2010. Interest expense, net for the nine months ended September 30, 2010 increased $1,397, or 150%, as compared to the comparable period of the prior year due to higher interest expense related to fees associated with the Company’s credit facility which was offset in part by higher interest income.
Miscellaneous income
Miscellaneous income for the ninethree months ended September 30,March 31, 2011 and 2010 reflects dividends of $2,186 and 2009 reflects a dividend of $2,000, respectively, received from an investment accounted for under the cost methodmethod. On February 4, 2011, the Company exchanged this investment for an investment in marketable securities, which is accounted for as available-for-sale. As a result of this exchange the Company recorded a pretax gain of $3,375 during the first quarter of 2010 and the second quarter of 2009, respectively. It also reflects a gain from insurance proceeds of $1,050, recorded in the third quarter of 2010, related to certain fully amortized theater show assets that were destroyed in a flood at a storage facility.three months ended March 31, 2011.
Income taxes
Income tax expense for the three and nine months ended September 30, 2010March 31, 2011 increased $1,182, or 8%, to $15,814 as compared to the comparable period of $6,822 and $32,148, respectively,the prior year. Income tax expense differs from the income tax expense derived from applying the statutory federal rate to pretax income due principally to state income taxes and the impact of nondeductible expenses (mainly nondeductible player disability and life insurance premiums), partially offset by the tax benefit resulting from nontaxable disability insurance recoveries. In addition, in the third quarter, the Company recorded a benefit of approximately $4,000 from the impact of a reduction in the effective state tax rate on the deferred tax liability balance. This benefit was recorded in connection with filing income tax returns during the third quarter of 2010.domestic production activities deduction. The effective tax rate was 26% and 39%45% for the three and nine months ended September 30, 2010, respectively.March 31, 2011.
Income tax expense (benefit)of $14,632 for the three and nine months ended September 30, 2009 of $1,537 and ($2,141), respectively,March 31, 2010, differs from the income tax expense derived from applying the statutory federal rate to pretax income due principally to state income taxes and the impact of nondeductible expenses partially offset by the tax benefit resulting from nontaxable disability insurance recoveries. In addition, in the third quarter, the Company recorded a benefit of approximately $3,200 from the impact of a reduction in the effective state tax rate on the deferred tax liability balance. This benefit was recorded in connection with the filing of income tax returns during the third quarter of 2009.expenses. The effective tax rate was 13% and (101%)46% for the three and nine months ended September 30, 2009, respectively.March 31, 2010.
Adjusted operating cash flow (“AOCF”)AOCF
The Company evaluates segment performance based on several factors, of which the key financial measure is their operating income (loss) before depreciation and amortization, share-based compensation expense or benefit and restructuring charges or credits, which is referred to as adjusted operating cash flow,AOCF, a non-GAAP measure. The Company has presented the components that reconcile adjusted operating cash flowAOCF to operating income, an accepteda GAAP measure. The following is a reconciliation of operating income to adjusted operating cash flow:AOCF:
Three Months Ended September 30, | Increase (Decrease) in AOCF | Nine Months Ended September 30, | Increase (Decrease) in AOCF | Three Months Ended March 31, | Increase (Decrease) | |||||||||||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2011 | 2010 | in AOCF | ||||||||||||||||||||||||||||||
Operating income | $ | 26,258 | $ | 11,901 | $ | 14,357 | $ | 82,084 | $ | 1,051 | $ | 81,033 | $ | 30,399 | $ | 30,131 | $ | 268 | ||||||||||||||||||
Share-based compensation | 2,502 | 3,868 | (1,366) | 8,361 | 10,718 | (2,357) | 3,299 | 3,311 | (12) | |||||||||||||||||||||||||||
Depreciation and amortization | 13,499 | 15,477 | (1,978) | 42,759 | 45,973 | (3,214) | 21,170 | 15,061 | 6,109 | |||||||||||||||||||||||||||
Adjusted operating cash flow | $ | 42,259 | $ | 31,246 | $ | 11,013 | $ | 133,204 | $ | 57,742 | $ | 75,462 | ||||||||||||||||||||||||
AOCF | $ | 54,868 | $ | 48,503 | $ | 6,365 | ||||||||||||||||||||||||||||||
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
(Continued)
Adjusted operating cash flowAOCF for the three months ended September 30, 2010March 31, 2011 increased $11,013,$6,365, or 35%13%, to $42,259, as compared to the comparable period of the prior year. Adjusted operating cash flow for the nine months ended September 30, 2010 increased $75,462, or 131%, to $133,204,$54,868, as compared to the comparable period of the prior year. The net increases areincrease is attributable to the following:
Three Months | Nine Months | |||||||
Ended September 30, 2010 | ||||||||
Increase in adjusted operating cash flow of the MSG Media segment | $ | 13,123 | $ | 53,441 | ||||
Increase (decrease) in adjusted operating cash flow of the MSG Entertainment segment | 3,827 | (2,864) | ||||||
(Decrease) increase in adjusted operating cash flow of the MSG Sports segment | (3,706) | 30,268 | ||||||
Other net decreases | (2,231) | (5,383) | ||||||
$ | 11,013 | $ | 75,462 | |||||
Increase in AOCF of the MSG Media segment | $ | 798 | ||
Reduction in AOCF loss of the MSG Entertainment segment | 5,931 | |||
Increase in AOCF of the MSG Sports segment | 133 | |||
Other net decreases | (497) | |||
$ | 6,365 | |||
Effective July 1, 2010 DISH Network’s (“DISH”) license to carry Fuse expired and Fuse has not been carried by DISH since that date. Effective October 1, 2010, DISH’s license to carry MSG network and MSG Plus expired and these networks have not been carried by DISH since that date. The financial impact of the two events will depend on many factors including if, when and on what terms DISH and the Company reach new carriage agreements to restore DISH’s carriage of any or all of the networks. The loss of the agreements did not have a material impact on the Company’s and MSG Media segment’s financial condition or revenues in the first quarter, but did have a material impact on the Company’s and MSG Media segment’s operating income and AOCF during the quarter. If new carriage agreements are not reached with DISH, the impact on the Company’s and MSG Media segment’s financial condition or revenues will not be material but itmay continue to be material to the Company’s and MSG Media segment’s operating income or AOCF.
In addition, the stated term of a carriage agreement with a Fuse distributor expired effective January 1, 2011. The Company remains in active negotiations with this distributor for a new multi-year agreement and the distributor continues to carry Fuse. The financial impact will depend on many factors including if, when and on what terms the Company reaches a new carriage agreement. However, the Company has not recognized revenue for such carriage since the expiration of the stated term of the agreement. The Company expects that the fees to be agreed will apply retroactively if and when a new carriage agreement is reached. The failure to recognize such revenue did not have a material impact on the Company’s and MSG Media segment’s financial condition or revenues or on the MSG Media segment’s operating income or AOCF in the first quarter, but did have a material impact on the Company’s operating income and AOCF during the quarter. If a new Fuse carriage agreement is not reached with this distributor, the impact on the Company’s and MSG Media segment’s financial condition or revenues would not be material, but may be material to the Company’s and MSG Media segment’s operating income andor AOCF.
On September 16, 2010, DISH filed a complaint with the Federal Communication Commission (“FCC”)FCC under the FCC’s program access rules. The complaint alleges, among other things, that the terms and conditions the Company offered DISH for carriage of our networks were discriminatory and unfair. The Company is vigorously defending against the claims made by DISH and believes that such claims are without merit.
Business Segment Results
MSG Media
The tablestable below setsets forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenues for the Company’s MSG Media segment.
Three Months Ended September 30, | Increase (Decrease) in Operating Income | |||||||||||||||||||
2010 | 2009 | |||||||||||||||||||
Amount | % of Revenues | Amount | % of Revenues | |||||||||||||||||
Revenues | $ | 133,434 | 100% | $ | 113,580 | 100% | $ | 19,854 | ||||||||||||
Direct operating expenses (excluding depreciation and amortization) | 51,812 | 39% | 47,989 | 42% | (3,823) | |||||||||||||||
Selling, general and administrative expenses | 26,910 | 20% | 24,633 | 22% | (2,277) | |||||||||||||||
Depreciation and amortization | 4,430 | 3% | 4,653 | 4% | 223 | |||||||||||||||
Operating income | $ | 50,282 | 38% | $ | 36,305 | 32% | $ | 13,977 | ||||||||||||
Revenues Direct operating expenses (excluding depreciation and amortization) Selling, general and administrative expenses Depreciation and amortization Operating incomeManagement’s Discussion and Analysis Three Months Ended March 31, Increase 2011 2010 (Decrease) in Amount % of
Revenues Amount % of
Revenues Operating
Income $ 147,564 100% $ 139,505 100% $ 8,059 62,801 43% 57,391 41% (5,410) 23,048 16% 21,539 15% (1,509) 5,551 4% 4,798 3% (753) $ 56,164 38% $ 55,777 40% $ 387
of Financial Condition and Results of Operations
(Continued)
Nine Months Ended September 30, | Increase (Decrease) in Operating Income | |||||||||||||||||||
2010 | 2009 | |||||||||||||||||||
Amount | % of Revenues | Amount | % of Revenues | |||||||||||||||||
Revenues | $ | 407,421 | 100% | $ | 345,638 | 100% | $ | 61,783 | ||||||||||||
Direct operating expenses (excluding depreciation and amortization) | 160,930 | 39% | 156,652 | 45% | (4,278) | |||||||||||||||
Selling, general and administrative expenses | 69,575 | 17% | 67,263 | 19% | (2,312) | |||||||||||||||
Depreciation and amortization | 14,197 | 3% | 15,158 | 4% | 961 | |||||||||||||||
Operating income | $ | 162,719 | 40% | $ | 106,565 | 31% | $ | 56,154 | ||||||||||||
The following is a reconciliation of operating income to adjusted operating cash flow:AOCF:
Three Months Ended September 30, | Increase (Decrease) in AOCF | Nine Months Ended September 30, | Increase (Decrease) in AOCF | Three Months Ended March 31, | Increase (Decrease) | |||||||||||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2011 | 2010 | in AOCF | ||||||||||||||||||||||||||||||
Operating income | $ | 50,282 | $ | 36,305 | $ | 13,977 | $ | 162,719 | $ | 106,565 | $ | 56,154 | $ | 56,164 | $ | 55,777 | $ | 387 | ||||||||||||||||||
Share-based compensation | 954 | 1,585 | (631) | 2,642 | 4,394 | (1,752) | 862 | 1,204 | (342) | |||||||||||||||||||||||||||
Depreciation and amortization | 4,430 | 4,653 | (223) | 14,197 | 15,158 | (961) | 5,551 | 4,798 | 753 | |||||||||||||||||||||||||||
Adjusted operating cash flow | $ | 55,666 | $ | 42,543 | $ | 13,123 | $ | 179,558 | $ | 126,117 | $ | 53,441 | ||||||||||||||||||||||||
AOCF | $ | 62,577 | $ | 61,779 | $ | 798 | ||||||||||||||||||||||||||||||
Revenues
Revenues for the three months ended September 30, 2010March 31, 2011 increased $19,854,$8,059, or 17%6%, to $133,434 as compared to the comparable period of the prior year. Revenues for the nine months ended September 30, 2010 increased $61,783, or 18%, to $407,421,$147,564 as compared to the comparable period of the prior year. The net increases areincrease is attributable to the following:
Three Months | Nine Months | |||||||
Ended September 30, 2010 | ||||||||
Increase in affiliation fee revenue, primarily at MSG Networks | $ | 18,663 | $ | 57,291 | ||||
Increase in advertising revenue | 1,076 | 4,549 | ||||||
Other net increases (decreases) | 115 | (57) | ||||||
$ | 19,854 | $ | 61,783 | |||||
Increase in advertising revenue | $ | 5,036 | ||
Increase in affiliation fee revenue | 3,324 | |||
Other net decreases | (301) | |||
$ | 8,059 | |||
The increasesincrease in advertising revenue discussed above was primarily driven by higher sales generated from the telecast of professional sports programming and, to a lesser extent, higher ratings at Fuse.
The increase in affiliation fee revenue referred todiscussed above werewas primarily attributable to higher contractual affiliation rates.rates, with the overall increase being substantially offset by the impact of the expiration of certain affiliation agreements, as discussed in the “Results of Operations—Consolidated Results of Operations” section above.
Direct operating expenses (excluding depreciation and amortization)
Direct operating expenses (excluding depreciation and amortization) for the three months ended September 30, 2010March 31, 2011 increased $3,823,$5,410, or 8%9%, to $51,812 as compared to the comparable period of the prior year. Direct operating expenses (excluding depreciation and amortization) for the nine months ended September 30, 2010 increased $4,278, or 3%, to $160,930,$62,801 as compared to the comparable period of the prior year. The net increases areincrease is attributable to the following:
Three Months | Nine Months | |||||||
Ended September 30, 2010 | ||||||||
Increase in rights fees, primarily those attributable to the MSG Sports segment | $ | 893 | $ | 4,588 | ||||
Increase (decrease) in levels of other programming costs | 2,930 | (310 | ) | |||||
$ | 3,823 | $ | 4,278 | |||||
Increase in non-rights related programming expenses | $ | 3,878 | ||
Increase in rights fees, including revenues reported by the MSG Sports segment from the licensing of team related programming to MSG Media | 1,532 | |||
$ | 5,410 | |||
The increase in othernon-rights related programming expenses was driven by costs during the quarter is primarily due toassociated with new programming coststhat debuted in the second half of both music and sports content.
Management’s Discussion and Analysis
2010, as well as the timing of Financial Condition and Results of Operations
(Continued)
certain events.
Selling, general and administrative expenses
Selling, general and administrative expenses for the three months ended September 30, 2010March 31, 2011 increased $2,277,$1,509, or 9%7%, to $26,910$23,048 as compared to the comparable period of the prior year. Selling, general and administrative expenses for the nine months ended September 30, 2010 increased $2,312, or 3%, to $69,575, as compared to the comparable period of the prior year. The net increases are attributable to the following:
Three Months | Nine Months | |||||||
Ended September 30, 2010 | ||||||||
Increase in marketing costs primarily associated with new programming | $ | 2,973 | $ | 3,299 | ||||
Decrease in share-based compensation | (631) | (1,752) | ||||||
Other net (decreases) increases | (65) | 765 | ||||||
$ | 2,277 | $ | 2,312 | |||||
The decrease in share-based compensation isyear primarily due to the elimination of the allocation of share-based compensation expense for Cablevision employees effective January 1, 2010.an increase in marketing costs associated with our programming.
Depreciation and amortization
Depreciation and amortization for the three months ended September 30, 2010 decreased $223,March 31, 2011 increased $753, or 5%16%, to $4,430$5,551 as compared to the comparable period of the prior year driven by lower amortization due to certain intangible assets becoming fully amortized during the first and second quarters of 2010. Depreciation and amortization for the nine months ended September 30, 2010 decreased $961, or 6%, to $14,197, as compared to the comparable period of the prior year. This decline was primarily due to lower amortization of intangible assets resulting from certain intangible assets becoming fully amortized, partly offset by higher depreciation expense.expense associated with assets placed into service during the fourth quarter of 2010.
Adjusted operating cash flowAOCF
Adjusted operating cash flowAOCF for the three months ended September 30, 2010March 31, 2011 increased $13,123,$798, or 31%1%, to $55,666 as compared to the comparable period of the prior year. Adjusted operating cash flow for the nine months ended September 30, 2010 increased $53,441, or 42%, to $179,558,$62,577 as compared to the comparable period of the prior year. The change for both periods is primarily due to an increaseincreases in advertising and affiliation fee revenue partiallyrevenues substantially offset by higher direct operating expenses and, to a lesser extent, an increase in selling, general and administrative expenses, as discussed above.
See “Results of Operations-Consolidated Results”Operations - Consolidated Results of Operations” regarding carriageexpiration of FUSE, MSG network, and MSG Plus by DISH.certain affiliation agreements.
MSG Entertainment
The tablestable below setsets forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenues for the Company’s MSG Entertainment segment.
Three Months Ended September 30, | (Increase) Decrease in Operating Loss | |||||||||||||||||||
2010 | 2009 | |||||||||||||||||||
Amount | % of Revenues | Amount | % of Revenues | |||||||||||||||||
Revenues | $ | 38,184 | 100% | $ | 30,557 | 100% | $ | 7,627 | ||||||||||||
Direct operating expenses (excluding depreciation and amortization) | 34,490 | 90% | 30,678 | 100% | (3,812) | |||||||||||||||
Selling, general and administrative expenses | 15,326 | 40% | 16,106 | 53% | 780 | |||||||||||||||
Depreciation and amortization | 2,304 | 6% | 2,574 | 8% | 270 | |||||||||||||||
Operating loss | $ | (13,936) | -36% | $ | (18,801) | -62% | $ | 4,865 | ||||||||||||
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
(Continued)
Nine Months Ended September 30, | (Increase) | Three Months Ended March 31, | Decrease in Operating Loss | |||||||||||||||||||||||||||||||||||||
2010 | 2009 | Decrease in | 2011 | 2010 | ||||||||||||||||||||||||||||||||||||
Amount | % of Revenues | Amount | % of Revenues | Operating Loss | Amount | % of Revenues | Amount | % of Revenues | ||||||||||||||||||||||||||||||||
Revenues | $ 126,422 | 100% | $ 109,589 | 100% | $ 16,833 | $ | 42,805 | 100% | $ | 41,473 | 100% | $ | 1,332 | |||||||||||||||||||||||||||
Direct operating expenses (excluding depreciation and amortization) | 126,184 | 100% | 107,853 | 98% | (18,331) | 34,580 | 81% | 39,272 | 95% | 4,692 | ||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 46,360 | 37% | 46,625 | 43% | 265 | 15,909 | 37% | 16,155 | 39% | 246 | ||||||||||||||||||||||||||||||
Depreciation and amortization | 6,943 | 5% | 7,623 | 7% | 680 | 2,314 | 5% | 2,331 | 6% | 17 | ||||||||||||||||||||||||||||||
Operating loss | $ (53,065) | -42% | $ (52,512) | -48% | $ (553) | $ | (9,998) | -23% | $ | (16,285) | -39% | $ | 6,287 | |||||||||||||||||||||||||||
The following is a reconciliation of operating loss to adjusted operating cash flow:AOCF:
Three Months Ended September 30, | Increase (Decrease) | Nine Months Ended September 30, | (Decrease) | Three Months Ended March 31, | Increase (Decrease) in AOCF | |||||||||||||||||||||||||||||||
2010 | 2009 | in AOCF | 2010 | 2009 | in AOCF | 2011 | 2010 | |||||||||||||||||||||||||||||
Operating loss | $ | (13,936) | $ | (18,801) | $ | 4,865 | $ | (53,065) | $ | (52,512) | $ | (553) | $ | (9,998) | $ | (16,285) | $ | 6,287 | ||||||||||||||||||
Share-based compensation | 702 | 1,470 | (768) | 2,442 | 4,073 | (1,631) | 902 | 1,241 | (339) | |||||||||||||||||||||||||||
Depreciation and amortization | 2,304 | 2,574 | (270) | 6,943 | 7,623 | (680) | 2,314 | 2,331 | (17) | |||||||||||||||||||||||||||
Adjusted operating cash flow | $ | (10,930) | $ | (14,757) | $ | 3,827 | $ | (43,680) | $ | (40,816) | $ | (2,864) | ||||||||||||||||||||||||
AOCF | $ | (6,782) | $ | (12,713) | $ | 5,931 | ||||||||||||||||||||||||||||||
Revenues
Revenues for the three months ended September 30, 2010March 31, 2011 increased $7,627,$1,332, or 25%3%, to $38,184 as compared to the comparable period of the prior year. Revenues for the nine months ended September 30, 2010 increased $16,833, or 15%, to $126,422$42,805 as compared to the comparable period of the prior year. The net increases areincrease is attributable to the following:
Three Months | Nine Months | |||||||
Ended September 30, 2010 | ||||||||
(Decrease) increase in event-related revenues at Radio City Music Hall | $ | (657) | $ | 12,820 | ||||
Increase in event-related revenues at The Garden and The Theater at Madison Square Garden | 5,946 | 8,239 | ||||||
Increase in revenues from the presentation ofBanana Shpeel | 1,361 | 4,541 | ||||||
Decrease in event-related revenues at the Beacon Theatre, excluding $2,747 of revenues fromBanana Shpeelin the nine months ended September 30, 2010 reported above | (1,569) | (10,468) | ||||||
Other net increases | 2,546 | 1,701 | ||||||
$ | 7,627 | $ | 16,833 | |||||
Increase in event-related revenues at the Beacon Theatre | $ | 3,832 | ||
Increase in event-related revenues at The Garden and The Theater at Madison Square Garden, excludingWintuk, primarily driven by additional events at The Theater at Madison Square Garden | 1,072 | |||
Decrease in revenues from the presentation ofWintuk, primarily due to the decrease in the number of scheduled performances | (1,130) | |||
Decrease in event-related revenues at Radio City Music Hall, excludingRadio City Christmas Spectacular, primarily due to the decrease in the number of events | (1,537) | |||
Decrease in revenues from the presentation of theRadio City Christmas Spectacularfranchise | (2,170) | |||
Other net increases primarily due to higher venue related sponsorship and signage revenues | 1,265 | |||
$ | 1,332 | |||
The higher event-related revenues at Radio City Music Hall for the nine month period were primarily due to an increase in the number of events, including performances of theRadio City Christmas Spectacularthat took place in January 2010, where none took place in January 2009.
The higher event-related revenues at The Garden and The Theater at Madison Square Garden for the three month and nine month periods ended September 30, 2010 reflect an increase in the number of events at The Garden which more than offset fewer events at The Theater at Madison Square Garden. The Theater at Madison Square Garden was closed for the summer of 2010 as part of the overall transformation of The Garden.
The decline in revenues at the Beacon Theatre excluding revenues generated fromBanana Shpeel (shown in a separate line in the table above), during the three month period is primarily due to the early close ofBanana Shpeelat the Beacon Theatre. The show was scheduled to run at the Beacon Theatre through the end of August but closed early, in June, with insufficient lead time to make the venue available for other events during the third quarter. The nine month results also reflect a lower level ofreflects more events held at the venue during the first and second quartersthree months ended March 31, 2011 as compared to the comparable period of 2010 when the prior year. The Company utilized the theaterBeacon Theatre during the first quarter of 2010 to rehearse and presenttheBanana Shpeel.
Management’s Discussion and Analysisproduction.
The decrease in revenues from theRadio City Christmas Spectacularfranchise, which includes the New York edition of Financial Condition and Resultsthe show as well as shows outside of Operations
(Continued)the New York area, was driven by fewer scheduled performances as there were performances in January 2010, while none took place in January 2011.
Other net increases for the three and nine month periods ended September 30, 2010 include approximately $1,100 and $1,300, respectively, of insurance proceeds related to the loss of revenue on certain shows canceled in 2009 due to inclement weather.
Direct operating expenses (excluding depreciation and amortization)
Direct operating expenses (excluding depreciation and amortization) for the three months ended September 30, 2010 increased $3,812,March 31, 2011 decreased $4,692, or 12%, to $34,490 as compared to the comparable period of the prior year. Direct operating expenses (excluding depreciation and amortization) for the nine months ended September 30, 2010 increased $18,331, or 17%, to $126,184,$34,580 as compared to the comparable period of the prior year. The net increases aredecrease is attributable to the following:
Three Months | Nine Months | |||||||
Ended September 30, 2010 | ||||||||
Increase in expenses due to the presentation ofBanana Shpeel, including an impairment charge of $9,945 recorded in the second quarter of 2010 | $ | 1,640 | $ | 17,993 | ||||
(Decrease) increase in event-related expenses at Radio City Music Hall | (1,271) | 7,202 | ||||||
Net increase in event-related expenses at The Garden and The Theater at Madison Square Garden | 3,460 | 2,552 | ||||||
Decrease in event-related expenses at the Beacon Theatre excluding the costs associated withBanana Shpeelas reported above | (534) | (6,054) | ||||||
Other net increases (decreases) | 517 | (3,362) | ||||||
$ | 3,812 | $ | 18,331 | |||||
Decrease in direct operating expenses related to the presentation ofthe Radio City Christmas Spectacular franchise | $ | (4,672) | ||
Decrease in direct operating expenses associated with the presentation ofWintuk, primarily due to the decrease in the number of performances | (1,449) | |||
Decrease in event-related direct operating expenses at Radio City Music Hall, excludingRadio City Christmas Spectacular, primarily due to the decrease in the number of events | (915) | |||
Increase in event-related expenses at the Beacon Theatre primarily due to an increase in the number of events | 2,029 | |||
Other net increases | 315 | |||
$ | (4,692) | |||
The Company recorded a pre-tax impairment chargedecrease in direct operating expenses related to theRadio City Christmas Spectacularfranchise primarily relates to fewer scheduled performances in the secondfirst quarter of 2010 for2011 as compared to the unamortized deferred costs related toBanana Shpeelremaining on the Company’s financial statements at the endcomparable period of the show’s run at the Beacon Theatre. The show recently played in Toronto but subsequent tour stops in other cities have since been suspended.prior year.
Selling, general and administrative expenses
Selling, general and administrative expenses for the three months ended September 30, 2010March 31, 2011 decreased $780,$246, or 5%2%, to $15,326$15,909 as compared to the comparable period of the prior year, primarily due to a decrease in share-based compensation of $768 as a result of the elimination of the allocation of share-based compensation expense for Cablevision employees effective January 1, 2010.
Selling, general and administrative expenses for the nine months ended September 30, 2010 decreased $265, or less than 1%, to $46,360, as compared to the comparable period of the prior year. The decrease is primarily attributable to lower share-based compensation of $1,631, which was partly offset by higher other employee compensation and related benefits of $1,394.
Adjusted operating cash flowAOCF
Adjusted operating cash flow increased duringAOCF loss improved for the three months ended September 30, 2010March 31, 2011 as compared to the comparable period of the prior year by $3,827,$5,931, or 26%47%, to a loss of $10,930$6,782 primarily due to net higher event-related revenues partially offset by a net increasedecrease in direct operating expenses, mainly attributable to those associated with 2010 productions, as discussed above.
Adjusted operating cash flow decreased $2,864, or 7%, to a loss of $43,680, for the nine months ended September 30, 2010, as compared to the comparable period of the prior year due to increased direct operating expenses, primarily attributable to the write-off of deferred costs associated withBanana Shpeel,partly offset by the impact of net higher revenues.
MSG Sports
The tablestable below setsets forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenues for the Company’s MSG Sports segment.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
(Continued)
Three Months Ended September 30, | (Increase) | Three Months Ended March 31, | (Increase) | |||||||||||||||||||||||||||||||||||||
2010 | 2009 | Decrease in | 2011 | 2010 | Decrease in | |||||||||||||||||||||||||||||||||||
Amount | % of Revenues | Amount | % of Revenues | Operating Loss | Amount | % of Revenues | Amount | % of Revenues | Operating Loss | |||||||||||||||||||||||||||||||
Revenues | $ | 36,905 | 100% | $ | 34,765 | 100% | $ | 2,140 | $ | 157,739 | 100% | $ | 142,663 | 100% | $ | 15,076 | ||||||||||||||||||||||||
Direct operating expenses (excluding depreciation and amortization) | 12,290 | 33% | 10,178 | 29% | (2,112) | 127,806 | 81% | 116,823 | 82% | (10,983) | ||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 23,697 | 64% | 20,135 | 58% | (3,562) | 27,154 | 17% | 23,299 | 16% | (3,855) | ||||||||||||||||||||||||||||||
Depreciation and amortization | 2,621 | 7% | 3,160 | 9% | 539 | 2,650 | 2% | 2,607 | 2% | (43) | ||||||||||||||||||||||||||||||
Operating income (loss) | $ | (1,703) | -5% | $ | 1,292 | 4% | $ | (2,995) | $ | 129 | NM | $ | (66) | NM | $ | 195 | ||||||||||||||||||||||||
Nine Months Ended September 30, | (Increase) | |||||||||||||||||||||||||||||||||||||||
2010 | 2009 | Decrease in | ||||||||||||||||||||||||||||||||||||||
Amount | % of Revenues | Amount | % of Revenues | Operating Loss | ||||||||||||||||||||||||||||||||||||
Revenues | $ | 243,442 | 100% | $ | 244,927 | 100% | $ | (1,485) | ||||||||||||||||||||||||||||||||
Direct operating expenses (excluding depreciation and amortization) | 167,288 | 69% | 186,035 | 76% | 18,747 | |||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 69,501 | 29% | 82,900 | 34% | 13,399 | |||||||||||||||||||||||||||||||||||
Depreciation and amortization | 7,835 | 3% | 8,306 | 3% | 471 | |||||||||||||||||||||||||||||||||||
Operating loss | $ | (1,182) | NM | $ | (32,314) | -13% | $ | 31,132 | ||||||||||||||||||||||||||||||||
NM – Percentage is not meaningful
The following is a reconciliation of operating income (loss) to adjusted operating cash flow:AOCF:
Three Months Ended September 30, | Increase (Decrease) | Nine Months Ended September 30, | Increase (Decrease) | Three Months Ended March 31, | Increase (Decrease) | |||||||||||||||||||||||||||||||
2010 | 2009 | in AOCF | 2010 | 2009 | in AOCF | 2011 | 2010 | in AOCF | ||||||||||||||||||||||||||||
Operating income (loss) | $ | (1,703) | $ | 1,292 | $ | (2,995) | $ | (1,182) | $ | (32,314) | $ | 31,132 | $ | 129 | $ | (66) | $ | 195 | ||||||||||||||||||
Share-based compensation | 641 | 813 | (172) | 1,858 | 2,251 | (393) | 761 | 866 | (105) | |||||||||||||||||||||||||||
Depreciation and amortization | 2,621 | 3,160 | (539) | 7,835 | 8,306 | (471) | 2,650 | 2,607 | 43 | |||||||||||||||||||||||||||
Adjusted operating cash flow | $ | 1,559 | $ | 5,265 | $ | (3,706) | $ | 8,511 | $ | (21,757) | $ | 30,268 | ||||||||||||||||||||||||
AOCF | $ | 3,540 | $ | 3,407 | $ | 133 | ||||||||||||||||||||||||||||||
Revenues
Revenues for the three months ended September 30, 2010March 31, 2011 increased $2,140$15,076, or 6%11%, to $36,905,157,739 as compared to the comparable period of the prior year. Revenues for the nine months ended September 30, 2010 decreased $1,485, or less than 1%, to $243,442, as compared to the comparable period of the prior year. These changes areThe net increase is attributable to the following:
Three Months | Nine Months | |||||||
Ended September 30, 2010 | ||||||||
Increase (decrease) in sports team playoff related revenues | $ | 504 | $ | (6,954) | ||||
Increase (decrease) in revenues from other live sporting events | 2,200 | (803) | ||||||
Increase in broadcast rights fees from MSG Media | 553 | 3,081 | ||||||
Increase in sponsorship and signage revenues | 959 | 2,681 | ||||||
(Decrease) increase in sports team pre-season/regular ticket related revenue | (1,589) | 800 | ||||||
Other net decreases | (487) | (290) | ||||||
$ | 2,140 | $ | (1,485) | |||||
Increase in professional sports teams’ food, beverage and merchandise sales | $ | 3,302 | ||
Increase in professional sports teams’ regular season ticket related revenue | 3,185 | |||
Increase in event-related revenues from other live sporting events | 3,031 | |||
Increase in professional sports teams’ sponsorship and signage revenues | 1,938 | |||
Increase in suite rental fee revenue | 1,858 | |||
Increase in revenues from NHL and NBA distributions | 1,245 | |||
Other net increases | 517 | |||
$ | 15,076 | |||
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
(Continued)
The increase inEvent-related revenues from other live sportssporting events include ticket related revenues, venue license fees we charge to promoters for the three months ended September 30, 2010 is primarily due to larger scale events during the third quarteruse of 2010 as compared to the third quarter of 2009. For the nine months ended September 30, 2010, the third quarter increase was offset by the absence of arena boxing bouts in 2010 versus one in each of the firstour venues, single night suite rental fees, and second quarters of 2009.
The decrease in sports team pre-season/regular ticket related revenue during the three months ended September 30, 2010 was primarily due to fewer preseason games as compared to the comparable period last year due to timing. The increase for the nine months ended September 30, 2010 was primarily due to higher average ticket prices, offset in part by the timing of pre-season games.food, beverage and merchandise sales.
Direct operating expenses (excluding depreciation and amortization)
Direct operating expenses (excluding depreciation and amortization) for the three months ended September 30, 2010March 31, 2011 increased $2,112,$10,983, or 21%9%, to $12,290, as compared to the comparable period of the prior year. Direct operating expenses (excluding depreciation and amortization) for the nine months ended September 30, 2010 decreased $18,747, or 10%, to $167,288,$127,806 as compared to the comparable period of the prior year. The net changes areincrease is attributable to the following:
Three Months | Nine Months | |||||||
Ended September 30, 2010 | ||||||||
Decrease in team personnel compensation, inclusive of favorable impact of higher insurance recoveries of $3,083 during the nine month period related to non season-ending player injuries | $ | (935) | $ | (11,096) | ||||
Increase (decrease) in sports team playoff related expenses, including playoff related NHL revenue sharing | 528 | (4,598) | ||||||
Decrease due to (lower) net provision for NBA luxury tax (excluding the impact of certain team personnel transactions described below) during the nine month period of $(3,714), and (lower) higher net provisions for NHL revenue sharing (excluding playoffs) during the three and nine month periods of $(36) and $493, respectively | (36) | (3,221) | ||||||
Decrease in net provisions for certain team personnel transactions (including the impact of NBA luxury tax) | — | (1,656) | ||||||
Increase (decrease) in expenses associated with other live sporting events | 1,248 | (1,049) | ||||||
Increase in other team operating expenses | 1,022 | 1,287 | ||||||
Other net increases | 285 | 1,586 | ||||||
$ | 2,112 | $ | (18,747) | |||||
Increase in net provisions for certain team personnel transactions (including the impact of NBA luxury tax) | $ | 3,452 | ||
Increase in team personnel compensation, net of insurance recoveries | 2,160 | |||
Increase in expenses associated with other live sporting events | 1,517 | |||
Increase in professional sports teams’ expenses associated with food, beverage and merchandise sales | 1,384 | |||
Increase due to higher net provision for NBA luxury tax (excluding the impact of certain team personnel transactions) of $1,428, partly offset by lower net provision for NHL revenue sharing (excluding playoffs) of $(171) | 1,257 | |||
Increase in other team operating expenses | 882 | |||
Other net increases | 331 | |||
$ | 10,983 | |||
Increase in team personnel compensation for the three months ended March 31, 2011, as compared to the comparable period of the prior year, includes the impact of $7,320 in insurance recoveries related to non season-ending player injuries in the first quarter of 2010. There were no insurance recoveries related to non season-ending player injuries in the first quarter of 2011.
Net provisions for certain team personnel transactions (including the impact of NBA luxury tax), NBA luxury tax (excluding the impact of certain team personnel transactions) and NHL revenue sharing (excluding playoffs) were as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2010 | 2009 | (Decrease) | 2010 | 2009 | (Decrease) | |||||||||||||||||||
Net provisions for NBA luxury tax (excluding the impact of certain team personnel transactions) and NHL revenue sharing (excluding playoffs) | $ | (257) | $ | (221) | $ | (36) | $ | (145) | $ | 3,076 | $ | (3,221) | ||||||||||||
Net provisions for certain team personnel transactions (including the impact of NBA luxury tax) | $ | — | $ | — | $ | — | $ | 6,313 | $ | 7,969 | $ | (1,656) |
Net provisions for certain team personnel transactions (including the impact of NBA luxury tax) Net provisions for NBA luxury tax (excluding the impact of certain team personnel transactions) and NHL revenue sharing (excluding playoffs)There were no team personnel transactions during the three months ended September 30, 2010 and 2009. Three Months Ended
March 31, 2011 2010 Increase $ 9,675 $ 6,223 $ 3,452 726 (531) 1,257
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
(Continued)
Team personnel transactions for the ninethree months ended September 30,March 31, 2011 reflect provisions recorded for player trades and a player waiver of $4,393 and $3,096, respectively, and season-ending player injuries of $2,186. Team personnel transactions for the three months ended March 31, 2010 reflect provisions recorded for a player waiverswaiver of $4,838$4,748 and season-ending player injuries of $1,475, which is net of insurance recoveries of $820. Team personnel transactions for the nine months ended September 30, 2009 primarily include provisions recorded for player waivers and the costs associated with a player trade of $5,109 and $3,286, respectively. The cost of these transactions are recorded when the transaction occurs, but payments owed are generally paid over the remaining contract terms.
The changeincrease in the net provisionsprovision for NBA luxury tax (excluding the impact of certain team personnel transactions) for the ninethree months ended September 30, 2010March 31, 2011 as compared to the comparable period of the prior year reflects a lower net provision for NBA luxury tax,was primarily due to the Knicks recording a decreasemodest provision for a league-wide player escrow shortfall in the first quarter of 2011 versus recording a league distribution of player escrowed amounts in the first quarter of 2010. In addition, the gross luxury tax associated with the active rosters partly offset by the lower escrow recoveries.
The changesdeclined in the net provisions for NHL revenue sharing (excluding playoffs) for the nine months ended September 30, 2010first quarter of 2011 as compared to the comparable period of the prior year reflectas the Company will not be a highergross luxury tax payer for the 2010-11 season and expects to receive a share of luxury tax proceeds from tax-paying teams.
The decrease in the net provision for NHL revenue sharing expense,(excluding playoffs) for the three months ended March 31, 2011 as compared to the comparable period of the prior year is based primarily on estimates of the Rangers’ and league-wide revenues at the end of the season.
Selling, general and administrative expenses
Selling, general and administrative expenses for the three months ended September 30, 2010March 31, 2011 increased $3,562,$3,855, or 18%17%, to $23,697, as compared to the comparable period of the prior year primarily due to higher employee salaries and related benefits. Selling, general and administrative expenses for the nine months ended September 30, 2010 decreased $13,399, or 16%, to $69,501, as compared to the comparable period of the prior year primarily due to lower costs attributable to a separation agreement with a team executive entered into in 2009.
Adjusted operating cash flow
Adjusted operating cash flow for the three months ended September 30, 2010 decreased $3,706, or 70%, to $1,559, as compared to the comparable period of the prior year. Adjusted operating cash flow for the nine months ended September 30, 2010 increased $30,268, or 139%, to $8,511,$27,154, as compared to the comparable period of the prior year. The decreasenet increase is primarily attributable to the increase in employee compensation and related benefits and marketing related costs.
AOCF
AOCF for the third quarter isthree months ended March 31, 2011 increased $133, or 4%, to $3,540, as compared to the comparable period of the prior year. The increase was primarily due to higheran increase in revenues more than offset by higher direct operating expenses and, to a lesser extent, an increase in selling, general and administrative expenses, as discussed above. The increase during the nine months was due primarily to the lower direct operating and selling, general and administrative expenses, including the costs attributable to a separation agreement with a team executive entered into in 2009, referred to above.
On November 2, 2010, following overnight work which included the cleaning of asbestos-related materials in the attic above the ceiling of The Garden during which debris fell into The Garden, the Company postponed the Knicks game scheduled for that evening. On November 3, 2010, after receiving assurances from New York City and environmental experts regarding the safety of The Garden for customers and employees, the Company announced that The Garden was reopening in time for the next scheduled event. The postponed Knicks game will be rescheduled.
Liquidity and Capital Resources
Overview
Our primary sources of liquidity are cash and cash equivalents on hand, cash flowflows from the operations of our businesses and available borrowing capacity under our $375,000 five-year credit agreement with a syndicate of lenders, that we refer to as the “Credit Agreement,” providing for a senior secured revolving credit facility that we refer to as the “Revolving Credit Facility” (see “Financing Agreements” below.) Our principal uses of cash include capital spending, working capital-related items and investments that we may fund from time to time. We currently expect that our net funding and investment requirements for the next twelve months will be met by our cash and cash equivalents on hand and cash generated by our operating activities. The decision of the Company as to the use of its available liquidity will be based upon an ongoing review of the funding needs of the business, the optimal allocation of cash resources, and the timing of cash flow generation.
We previously announced our intent to pursueare currently pursuing a comprehensive transformationmajor renovation of The Garden, which project we refer to as the “Transformation”. We continue to review all aspects of this complex project with our consultants in order to improve the Transformation plans, mitigate project risks and identify efficiencies in all aspects of costs, planning and project-phasing. We also continue to refine our cost estimates to ensure that the Transformation meets our overall expectations and objectives. While the cost estimates are not yet final, current estimated Transformation costs remain within the $775,000 to $850,000 range we have previously disclosed. Total Transformation costs incurred year-to-date and project-to-date through September 30, 2010 were approximately $68,100 and $126,500, of which approximately $46,400 and $96,200 has been paid, respectively. We expect that the estimated costs associated with the project will be met from cash and cash equivalents on hand and cash flow from our operations. To the extent that management determines that financing for the Transformation is required or desirable, we would expect to draw on our Revolving Credit Facility for that purpose.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
(Continued)
The Transformation will be a year-round project inTransformation. In order to most efficiently and effectively complete the construction work.Transformation, it will remain a year-round project. Our goal is to minimize disruption to current operations and, to achieve this, we plan for The Garden to remain open for the Knicks’ and Rangers’ regular seasons and playoffs. We have now closed The Garden and The Theater at Madison Square Garden for the off-season following the Knicks’ and Rangers’ playoffs and other events during such periods in the years the Transformation takes place, while we sequence the constructionplan to ensure that we maximize our construction efforts when we close The Garden and The Theater at Madison Square Garden after the conclusion of the Knicks’ and Rangers’ seasons, including any playoffs, in the 2012 and 2013 calendar years. The outcome of the Knicks’ and Rangers’ seasons will determine when the venues will close. Given that we cannot know in advance when those seasons will end, we are generally not booking live entertainment or other sporting events from a period commencing in April and ending in October. We are also currently not planning to host pre-season Rangers’ games in 2011 at The Garden. While we seek to minimize disruptions during summer months. the Transformation, including scheduling events at other venues or to other times of the year when The Garden or The Theater at Madison Square Garden will be open, we do not expect to be able to reschedule all events that would otherwise have occurred during the shutdowns. Consequently, we expect to lose revenues as a result of this schedule.
We currently expect the renovated lower bowl of The Garden to be open for the 2011-12 NBA and NHL regular seasons and the renovated upper bowl to be open for the 2012-13 NBA and NHL regular seasons. In each case, construction on areas such as concourses and certain restrooms, concessions and suites will continue during the seasons and a portion of the upper bowl seating (less than 1,5001,100 seats) will be unavailable during part of the 2011-2012 NBA and NHL seasons. We plan to close
As we begin the transformation of the lower bowl of The Garden, with the help of our project manager, construction manager and The Theater at Madison Square Garden during the summer months from 2011architect, we continue to 2013 (for not less than twenty weeks after the conclusionrefine our near-term construction phasing. For example, we accelerated portions of the Knicks’ and Rangers’ seasons). The Theater at Madison Square Gardenconstruction work, previously planned for this off-season, earlier into calendar 2011 while the building was closedstill in use for the summer of 2010 in orderevents. While this initiative increases overall project costs, we believe it was advisable to supportaccelerate work where we could do so, given the Transformation. We will seek to move events during the summer months to our other venues or to other times of the year when The Garden or The Theater at Madison Square Garden will be open, although some loss of revenue will occur. Given the scope and complexity of the project there can be no assurance thatand the benefits of reducing some scheduling pressure on our off-season months. We were able to accomplish this effort while minimizing disruption to our customers. In addition to shifting forward portions of the construction work, we have entered into our
first off-season shutdown, after which we will gain important experience and knowledge related to the project. While we have previously provided a range of projected construction costs for the Transformation willproject, we believe it would be completedimprudent and premature to provide an estimate at this time. Rather, for planning and liquidity purposes, and to be prudent and cautious, we are factoring in a reserve, which may or whatmay not be entirely necessary, that is 15% above the ultimate cost, scope or timinghigh-end of the previously provided cost range of $850,000.
The Transformation project remains within our overall expectations. Our schedule for opening the lower and upper bowls, as well as the other elements in the transformed arena, has not changed. Construction costs for the Transformation project incurred through March 31, 2011 were approximately $222,000 of which approximately $51,000 was incurred in 2011. We continue to believe that we will be.have sufficient liquidity to fund the Transformation project from cash on hand, cash flows from operations and, if necessary, our Revolving Credit Facility.
As with any major renovation project, the Transformation is subject to potential unexpected delays, costs or other problems. Depending upon the severity and timing, such events could materially and negatively affect our business, results of operations and cash flows.
We have assessed the implications of the recent volatility in the capital and credit markets againston our ability to meet our net funding and investing requirements over the next twelve months and we believe that athe combination of cash and cash equivalents on hand, cash generated from operating activities and borrowing availability under our Revolving Credit Facility should provide us with sufficient liquidity. However, continued market disruptions could cause broader economic downturns, which may lead to reducedlower demand for our offerings, such as lower levels of attendance or advertising levels.advertising. These economic events could adversely impact our results of operations and our cash flows and might require that we seek alternative sources of funding.
Financing Agreements
Revolving Credit Facility
On January 28, 2010, Madison Square Garden, L.P. (“MSG L.P.”), our wholly owned subsidiary, and certain of its subsidiaries entered into the Revolving Credit Facility.Agreement. The proceeds of borrowings under the Revolving Credit Facilityfacility are available for working capital and capital expenditures, including but not limited to the Transformation, and for general corporate purposes. The Revolving Credit FacilityAgreement and the related security agreement contain certain customary representations and warranties, affirmative covenants and events of default. All borrowings under the Revolving Credit Facility are subject to the satisfaction of customary conditions, including covenant compliance, absence of a default and accuracy of representations and warranties. As of September 30, 2010,March 31, 2011, there was $3,657$6,900 in letters of credit issued under the Revolving Credit Facility. Our available borrowing capacity under the Revolving Credit Facility as of September 30, 2010March 31, 2011 was $368,100.
Borrowings under the Revolving Credit Facility bear interest at a floating rate which, at the option of MSG L.P., may be either 2.5% over a U.S. Federal Funds Rate or U.S. Prime Rate, or 3.5% over an adjusted LIBOR rate. Accordingly, we will be subject to interest rate risk with respect to any borrowings we may make under that facility. In appropriate circumstances, we may seek to reduce this exposure through the use of interest rate swaps or similar instruments. Upon a payment default in excessrespect of $370,000.principal, interest or other amounts due and payable under the Credit Agreement or related loan documents, default interest will accrue on all overdue amounts at an additional rate of 2.00% per annum.
The Revolving Credit Facility requires MSG L.P. to pay a commitment fee of 0.75% in respect of the average daily unused commitments thereunder. MSG L.P. is also required to pay customary letter of credit fees, as well as fronting fees, to banks that issue letters of credit pursuant to the Revolving Credit Facility.
The Credit Agreement requires MSG L.P. to comply with the following financial covenants: (i) a maximum total secured leverage ratio of 3.50:1.00;1.00 and (ii) a maximum total leverage ratio of 6.00:1.00. In addition, there is a minimum interest coverage ratio of 2.50:1.00 for Madison Square Garden, Inc.the Company. As of September 30, 2010,March 31, 2011, the Company was in compliance with the financial covenants in the Revolving Credit Facility.Agreement.
Advances to Cablevision
As of December 31, 2009, the Company had advances outstanding toOn March 23, 2010, a subsidiary of Cablevision of $190,000 inrepaid to the form of non-interest bearing advances. On January 28, 2010, the advances were replaced with a non-amortizing promissory note in the principal amount of $190,000, which accrued interest at a rate of 3.25% per annum. The note had a maturity date of June 30, 2010 with prepayment without penalty at Cablevision’s option. In March 2010,Company the entire principal balance of thea $190,000 non-amortizing promissory note was repaid,due June 30, 2010 along with $914 of interest, that accrued interest.at the rate of 3.25% per annum, and without prepayment penalty. The promissory note was executed on January 28, 2010 to replace the non-interest bearing advance owed to the Company by the same subsidiary of Cablevision that was outstanding as of December 31, 2009.
Tax Disaffiliation Agreement
Under the terms of our Tax Disaffiliation Agreement with Cablevision, in order to preserve the tax-free treatment to Cablevision of the Distribution, we are subject to certain restrictions during the two-year period following the Distribution that might affect our ability to raise cash. In particular, we may not issue equity securities if any such issuances would, in the aggregate, constitute 50% or more of the voting power or value of our capital stock, which restriction might limit our financing options. This restriction will be more pronounced if the market price of our stock declines significantly below the value of our stock on the Distribution date, since the restrictions in the Tax Disaffiliation Agreement apply to the number of shares issued, rather than the proceeds we receive upon
issuance. In addition, we are restricted from selling certain of our assets during the two-year period, which might also impede our ability to raise cash through asset sales.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
(Continued)
Cash Flow Discussion
Operating Activities
Net cash provided by operating activities increased $62,499 to $106,415 for the ninethree months ended September 30, 2010 from $43,916 forMarch 31, 2011 increased by $4,174 to $3,100 as compared to the nine months ended September 30, 2009.comparable period of the prior year. This increase in operating cashwas driven primarily resulted fromby an increase in net income of $46,397, as well as increases in cash flow of $13,121 and $2,981$4,233 resulting from non-cash itemschanges in assets and liabilities.
The increase in changes in assets and liabilities respectively.was primarily due to increases during the three months ended March 31, 2011 in the net receivable due from Cablevision and prepaid expenses and other assets of $2,303 and $1,695, respectively, as compared to increases of $16,414 and $7,317, respectively, during the comparable period of the prior year, as well as a decrease of $22,169 in deferred revenue during the three months ended March 31, 2011, as compared to a decrease of $33,693 during the comparable period of the prior year.
The changes in assets and liabilities described above were partially offset by increases during the three months ended March 31, 2011 in accounts receivable, net and accrued and other liabilities of $5,536 and $4,231, respectively, as compared to a decrease of $3,739 and an increase of $10,192 during the comparable period of the prior year, as well as a decrease in deferred income taxes of $7,656 during the three months ended March 31, 2011, as compared to an increase of $4,132 during the comparable period of the prior year.
Investing Activities
Net cash used in investing activities increased $29,847 to $71,056 for the ninethree months ended September 30, 2010 from $41,209 forMarch 31, 2011 increased by $21,869 to $43,215 as compared to the nine months ended September 30, 2009comparable period of the prior year primarily due to higher capital expenditures of $31,857. Thedriven by an increase in capital expenditures mainly reflects additional costs related toassociated with the Transformation of The Garden, as well as new office space and HD production facilitiesTransformation.
Financing Activities
Net cash used in financing activities for the MSG Media segment.
Financing Activities
Netthree months ended March 31, 2011 was $3,566 as compared to $180,251 of net cash provided by financing activities increased $181,576 to $180,810 for the ninethree months ended September 30,March 31, 2010. The change is primarily driven by the 2010 from net cash used in financing activities of $766 for the nine months ended September 30, 2009 primarily due to the receipt of amountsthe principal balance of a $190,000 promissory note due from a subsidiary of Cablevision of $190,000 in the first quarter of 2010 partly offset by additions made to deferred financing costs of $8,370 in 2010.Cablevision.
Recently Adopted Accounting Pronouncements and Critical Accounting Policies
Recently Adopted Accounting Pronouncements
In October 2009, the Financial Accounting Standards Board issued ASU No. 2009-13, which provides amendments that (a) update the criteria for separating consideration in multiple-deliverable arrangements, (b) establish a selling price hierarchy for determining the selling price of a deliverable, and (c) replace the term “fair value” in the revenue allocation guidance with the term “selling price” to clarify that the allocation of revenue is based on entity-specific assumptions. ASU No. 2009-13 eliminates the residual method of allocating arrangement consideration to deliverables, requires the use of the relative selling price method and requires that a vendor determines its best estimate of selling price in a manner consistent with that used to determine the price to sell the deliverable on a stand-alone basis. ASU No. 2009-13 requires a vendor to significantly expand the disclosures related to multiple-deliverable revenue arrangements with the objectiveThe following critical accounting policy discussion has been included to provide information about the significant judgments made and changes to those judgments and how the applicationresults of the relative selling-price method affects the timing or amount of revenue recognition. ASU No. 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 with early adoption being permitted.
The Company has various types of multiple-deliverable arrangements, including multi-year sponsorship agreements. The deliverables included in each sponsorship agreement vary and may include suite licenses, event tickets, and various media and advertising benefits, which include items such as, but not limited to, signage in The Garden and other MSG venues. The timing of revenue recognition for each deliverable is dependent upon meeting the revenue recognition criteria for the respective deliverable.
The Company allocates revenue to all deliverables in an arrangement based on their relative selling price. The new accounting principles establish a hierarchy to determine the selling price to be used for allocating revenue to the deliverables as follows: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”) and (iii) best estimate of selling price (“BESP”). VSOE is generally limited to the price that a vendor charges when it sells the same or similar products or services on a standalone basis. TPE is determined based on the prices charged by competitors of the Company for a similar deliverable when sold separately. When the Company is unable to establish VSOE for deliverables, the Company determines the estimated selling price using BESP.
For many deliverables in an arrangement, such as game tickets and advertising assets, the Company has VSOE of selling price as it typically sells the same or similar deliverables regularly on a standalone basis. The Company’s process for determining its estimated selling prices for deliverables without VSOE or TPE involves management’s judgment. The Company’s process considers multiple factors that may vary depending upon the unique facts and circumstances related to each deliverable. Key factors considered by the Company in developing BESP for deliverables include, but are not limited to, prices charged for similar deliverables, the Company’s ongoing pricing strategy and policies, consideration of pricing of similar deliverables sold in other multiple-deliverable agreements, and other factors.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
(Continued)
The Company retrospectively adopted ASU No. 2009-13 effective as of January 1, 2009 as the standard more appropriately reflects the economics of the Company’s multiple-deliverable agreements. The adoption of ASU 2009-13 had an immaterial impact on previously reported revenues and operating income and therefore, no adjustments to prior interim or annual financial statements were made.
Critical Accounting Policies
In preparing its financial statements, the Company is required to make certain estimates, judgments and assumptions that it believes are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:
Impairment of Long-Lived and Indefinite-Lived Assets
Useful Lives of Finite-Lived Intangible Assets
Defined Benefit Pension and Other Postretirement Benefit Plans
Refer to Note 8 of accompanying financial statements regarding Company’s annual impairment testing of goodwill and identifiable indefinite-lived assets.
Thereintangible assets performed during the three months ended March 31, 2011. Accordingly, we have been no significant changes tonot repeated herein a discussion of the methodologies and processes used in developing estimates relating to the significantCompany’s other critical accounting policies from what was describedas set forth in our 20092010 Annual Report on Form 10-K under Item 7 – “Management’s Discussion10-K.
Goodwill
Goodwill is tested annually for impairment during the first quarter and Analysisat any time upon the occurrence of Financial Condition and Resultscertain events or substantive changes in circumstances. The impairment test for goodwill is a two-step process. The first step of Operations” andthe goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the notessame manner as the amount of goodwill that would be recognized in a business combination. For the purpose of evaluating goodwill impairment, the Company has three reporting units that are the same as its reportable segments, and all of which recognized goodwill.
The goodwill balance as of March 31, 2011 by reportable segment is as follows:
MSG Media | $ | 465,326 | ||
MSG Entertainment | 58,979 | |||
MSG Sports | 218,187 | |||
$ | 742,492 | |||
During the first quarter of 2011, the Company performed its annual impairment test of goodwill, and there was no impairment of goodwill identified for any of its reportable segments.
Identifiable Indefinite-Lived Intangible Assets
Identifiable indefinite-lived intangible assets are tested annually for impairment during the first quarter and at any time upon the occurrence of certain events or substantive changes in circumstances. The impairment test for identifiable indefinite-lived intangible assets consists of a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The following table sets forth the amount of identifiable indefinite-lived intangible assets reported in the Company’s consolidated balance sheet as of March 31, 2011 by reportable segment:
MSG Entertainment | $ | 61,881 | ||
MSG Sports | 96,215 | |||
$ | 158,096 | |||
The Company’s identifiable indefinite-lived intangible assets relate to trademarks and sports franchises. The Company’s indefinite-lived trademark intangible assets relate to the audited annual financial statementsCompany’s Radio City related trademarks which include theRadio City Christmas Spectacular and the Rockettes and The Chicago Theatre related trademarks, which were all valued using a relief-from-royalty method in which the expected benefits are valued by discounting hypothetical royalty payments based on projected revenues covered by the trademarks. The Company’s indefinite-lived sports franchises intangibles representing the Company’s NBA and NHL sports franchises were valued using a direct valuation method based on market comparables. Both the Radio City related trademarks and the sports franchises were recorded in April 2005, when Cablevision acquired the remaining 40% interest in a subsidiary of Cablevision which wholly-owned the Company. Significant judgments inherent in a discounted cash flow valuation include the selection of appropriate discount rates, estimating the amount and timing of estimated future cash flows and identification of appropriate continuing growth rate assumptions. The discount rates used in the analysis are intended to reflect the risk inherent in the projected future cash flows generated by the respective intangible assets.
During the first quarter of 2011, the Company included therein.performed its annual impairment test of identifiable indefinite-lived intangible assets, and there was no impairment identified.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
There were no material changes to the disclosure on this matter made in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.2010.
Item 4.Controls and Procedures
Based on their evaluation as of the end of the period covered by this report, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures referred to in paragraph 4(c) of their certifications included as exhibits to this report were effective.
PART II—OTHER INFORMATION
In March 2008, a lawsuit was filed in the United States District Court for the Southern District of New York against MSG L.P. arising out of a January 23, 2007 automobile accident involving an individual who was allegedly drinking at several different establishments prior to the accident, allegedly including an event at The Garden. The plaintiffs filed suit against MSG L.P., the driver, and a New York City bar, asserting claims under the New York Dram Shop Act and seeking unspecified compensatory and punitive damages. On April 13, 2011, the claims against the Company were resolved directly by our insurers and dismissed with prejudice, without any payment by the Company to the plaintiffs.
In addition to the matter discussed above, the Company is a defendant in various lawsuits. Although the outcome of these matters cannot be predicted with certainty, management does not believe that resolution of these lawsuits will have a material adverse effect on the Company.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
(a) Total Number of Shares (or Units) Purchased | (b) Average Price Paid per Share (or Unit) | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | |||||||||||||
March 3, 2011 | 220,671 | $ | 29.71 | N/A | N/A | |||||||||||
In March 2011, certain shares of the Company’s Class A Common Stock that were restricted on the same basis as underlying Cablevision restricted shares and issued to employees of the Company and Cablevision at the Distribution vested. To fulfill the employees’ statutory minimum tax withholding obligations for the applicable income and other employment taxes of approximately $6.6 million, 220,671 of these shares were surrendered to the Company. The 220,671 acquired shares have been classified as treasury stock.
Effective May 5, 2011, Madison Square Garden, Inc. (the “Company”) changed its name from Madison Square Garden, Inc. to The Madison Square Garden Company. A copy of the Certificate of Ownership and Merger merging The Madison Square Garden Company with and into Madison Square Garden, Inc. changing the Company’s name to The Madison Square Garden Company is attached hereto as Exhibit 3.1. A copy of the Amended By-Laws of the Company reflecting the name change from Madison Square Garden, Inc. to The Madison Square Garden Company is attached as Exhibit 3.2.
(a) | Index to Exhibits |
|
| |
3.1 | Certificate of Ownership and Merger merging The Madison Square Garden Company With and Into Madison Square Garden, Inc. | |
3.2 | Amended By-Laws of The Madison Square Garden Company. | |
10.1 | Amendment No. 1 to the Credit Agreement dated as of April 15, 2011 among Madison Square Garden, L.P., the Guarantors (as defined in the Credit Agreement), the banks, financial institutions and other institutional lenders parties to the Credit Agreement and JPMorgan Chase Bank, National Association, as agent for the Lenders. | |
31.1 | Certification of Hank J. Ratner pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Robert M. Pollichino pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of Hank J. Ratner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of Robert M. Pollichino pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 5th6th day of November, 2010.May, 2011.
The Madison Square Garden | ||
By: | /s/ Robert M. Pollichino | |
Name: | Robert M. Pollichino | |
Title: | Executive Vice President and Chief Financial Officer |
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