NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1—THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
History
Live Nation was incorporated in Delaware on August 2, 2005 in preparation for the contribution and transfer by Clear Channel of substantially all of its entertainment assets and liabilities to the Company. The Company completed the Separation on December 21, 2005 and became a publicly traded company on the New York Stock Exchange trading under the symbol “LYV.” Prior to the Separation, Live Nation was a wholly-owned subsidiary of Clear Channel.
On January 25, 2010, the Company merged with Ticketmaster. Effective on the date of the Merger, Ticketmaster became a wholly-owned subsidiary of Live Nation and Live Nation, Inc. changed its name to Live Nation Entertainment, Inc.
Seasonality
Due to the seasonal nature of shows at outdoor amphitheaters and festivals, which primarily occur May through September, the Company experiences higher revenue for the Concerts and Sponsorship & Advertising segments during the second and third quarters. The Artist Nation segment’s revenue is impacted, to a large degree, by the touring schedules of artists it represents and generally, the Company experiences higher revenue in this segment during the second and third quarters as the period from May through September tends to be a popular time for touring events. The Ticketing segment’s sales are impacted by fluctuations in the availability of events for sale to the public, which vary depending upon scheduling by its clients. The Company’s seasonality also results in higher balances in cash and cash equivalents, accounts receivable, prepaid expenses, accrued expenses and deferred revenue at different times in the year. Therefore, the results to date are not necessarily indicative of the results expected for the full year.
Basis of Presentation and Principles of Consolidation
The Company’s consolidated financial statements include all accounts of the Company, its majority owned and controlled subsidiaries and VIEs for which the Company is the primary beneficiary.
The Company consolidates entities in which the Company owns more than
50%
of the voting common stock and controls operations and also VIEs for which the Company is the primary beneficiary. Investments in nonconsolidated affiliates in which the Company owns more than
20%
of the voting common stock or otherwise exercises significant influence over operating and financial policies but not control of the nonconsolidated affiliate are accounted for using the equity method of accounting. Investments in nonconsolidated affiliates in which the Company owns less than
20%
of the voting common stock are accounted for using the cost method of accounting. Intercompany accounts among the consolidated businesses have been eliminated in consolidation. Net income (loss) attributable to noncontrolling interests is reflected in the statements of operations for consolidated affiliates.
All cash flow activity reflected on the consolidated statements of cash flows for the Company is presented net of any non-cash transactions so the amounts reflected may be different than amounts shown in other places in the Company’s financial statements that are based on accrual accounting and therefore include non-cash amounts. For example, the purchases of property, plant and equipment reflected on the consolidated statements of cash flows reflects the amount of cash paid during the year for these purchases and does not include the impact of the changes in accrued expenses related to capital expenditures during the year.
Variable Interest Entities
In the normal course of business, the Company enters into joint ventures or makes investments in companies that will allow it to expand its core business and enter new markets. In certain instances, such ventures or investments may be considered a VIE because the equity at risk is insufficient to permit it to carry on its activities without additional financial support from the Company. In determining whether the Company is the primary beneficiary of a VIE, it assesses whether it has the power to direct activities that most significantly impact the economic performance of the entity and has the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. The activities the Company believes most significantly impact the economic performance of its VIEs include the unilateral ability to approve the annual budget, the unilateral ability to terminate key management and the unilateral ability to approve entering into agreements with artists, among others. The Company has certain rights and obligations related to its involvement in the VIEs, including the requirement to provide operational cash flow funding. As of December 31, 2013 and 2012, excluding intercompany balances and allocated goodwill and intangible assets, there were
$109.1 million
and
$72.4 million
of assets and
$53.6 million
and
$34.0 million
of liabilities, respectively, related to VIEs included in the Company’s Consolidated Balance Sheets. None of the Company’s VIEs are significant on an individual basis.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less. The Company’s cash and cash equivalents consist primarily of domestic and foreign bank accounts as well as money market accounts. To reduce its credit risk, the Company monitors the credit standing of the financial institutions that hold the Company’s cash and cash equivalents. These balances are stated at cost, which approximates fair value.
Included in the
December 31, 2013
and
2012
cash and cash equivalents balance is
$538.4 million
and
$441.6 million
, respectively, of cash received that includes the face value of tickets sold on behalf of clients and the clients’ share of convenience and order processing charges (“client cash”). The Company generally does not utilize client cash for its own financing or investing activities as the amounts are payable to clients and these amounts due are included in accounts payable, client accounts.
The Company’s available cash and cash equivalents are held in accounts managed by third-party financial institutions and consist of cash in operating accounts and invested cash. Cash held in interest-bearing operating accounts in many cases exceeds the Federal Deposit Insurance Corporation insurance limits. The invested cash is held in interest-bearing funds consisting primarily of bank deposits and money market funds.
While the Company monitors cash and cash equivalents balances in its operating accounts on a regular basis and adjusts the balances as appropriate, these balances could be impacted in the future if the underlying financial institutions fail. To date, the Company has experienced no loss or lack of access to its cash or cash equivalents; however, the Company can provide no assurances that access to its cash and cash equivalents will not be impacted in the future by adverse conditions in the financial markets.
Allowance for Doubtful Accounts
The Company evaluates the collectability of its accounts receivable based on a combination of factors. Generally, it records specific reserves to reduce the amounts recorded to what it believes will be collected when a customer’s account ages beyond typical collection patterns, or the Company becomes aware of a customer’s inability to meet its financial obligations.
The Company believes that the credit risk with respect to trade receivables is limited due to the large number and the geographic diversification of its customers.
Prepaid Expenses
The majority of the Company’s prepaid expenses relate to event expenses including show advances and deposits and other costs directly related to future concert events. For advances that are expected to be recouped over a period of more than 12 months, the long-term portion of the advance is classified as other long-term assets. These prepaid costs are charged to operations upon completion of the related events.
Ticketing Contract Advances
Ticketing contract advances, which can be either recoupable or non-recoupable, represent amounts paid in advance to the Company’s clients pursuant to ticketing agreements and are reflected in prepaid expenses or in other long-term assets if the amount is expected to be recouped or recognized over a period of more than 12 months. Recoupable ticketing contract advances are generally recoupable against future royalties earned by the clients, based on the contract terms, over the life of the contract. Non-recoupable ticketing contract advances, excluding those amounts paid to support clients’ advertising costs, are fixed additional incentives occasionally paid by the Company to secure exclusive rights with certain clients and are normally amortized over the life of the contract on a straight-line basis. Amortization of these non-recoupable ticketing contract advances is included in depreciation and amortization in the statements of operations. For the years ended
December 31, 2013
,
2012
and
2011
, the Company amortized
$73.6 million
,
$48.1 million
and
$38.6 million
, respectively, related to non-recoupable ticketing contract advances.
Business Combinations
The Company accounts for its business combinations under the acquisition method of accounting. Identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquiree are recognized and measured as of the acquisition date at fair value. Additionally, any contingent consideration is recorded at fair value on the acquisition date and classified as a liability. Goodwill is recognized to the extent by which the aggregate of the acquisition-date fair value of the consideration transferred and any noncontrolling interests in the acquiree exceeds the recognized basis of the identifiable assets acquired, net of assumed liabilities. Determining the fair value of assets acquired, liabilities assumed and noncontrolling interests requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash flows, discount rates and asset lives among other items.
Property, Plant and Equipment
Property, plant and equipment are stated at cost or fair value at date of acquisition. Depreciation, which is recorded for both owned assets and assets under capital leases, is computed using the straight-line method over their estimated useful lives, which are as follows:
Buildings and improvements -
10
to
50
years
Computer equipment and capitalized software -
3
to
10
years
Furniture and other equipment -
3
to
10
years
Leasehold improvements are depreciated over the shorter of the economic life or associated lease term assuming the Company exercises renewal periods, if appropriate. Expenditures for maintenance and repairs are charged to operations as incurred, whereas expenditures for asset renewal and improvements are capitalized.
The Company tests for possible impairment of property, plant and equipment whenever events or circumstances change, such as a current period operating cash flow loss combined with a history of, or projected, operating cash flow losses or a significant adverse change in the manner in which the asset is intended to be used, which may indicate that the carrying amount of the asset may not be recoverable. If indicators exist, the Company compares the estimated undiscounted future cash flows related to the asset to the carrying value of the asset. If the carrying value is greater than the estimated undiscounted future cash flow amount, an impairment charge is recorded based on the difference between the fair value and the carrying value. Any such impairment charge is recorded in depreciation and amortization expense in the statement of operations. The impairment loss calculations require management to apply judgment in estimating future cash flows and the discount rates that reflect the risk inherent in future cash flows.
Intangible Assets
The Company classifies intangible assets as definite-lived or indefinite-lived. Definite-lived intangibles primarily include revenue-generating contracts, client/vendor relationships, non-compete agreements, venue management and leasehold agreements, technology and trademarks and naming rights, all of which are amortized either on a straight-line basis over the respective lives of the agreements, typically
three
to
twenty
years, or on a basis more representative of the time pattern over which the benefit is derived. The Company periodically reviews the appropriateness of the amortization periods related to its definite-lived intangible assets. These assets are stated at cost or fair value. Indefinite-lived intangibles primarily include trade names. The excess cost over fair value of net assets acquired is classified as goodwill. Indefinite-lived intangibles are not subject to amortization, but are reviewed for impairment at least annually.
The Company tests for possible impairment of definite-lived intangible assets whenever events or circumstances change, such as a current period operating cash flow loss combined with a history of, or projected, operating cash flow losses or a significant adverse change in the manner in which the asset is intended to be used, which may indicate that the carrying amount of the asset may not be recoverable. If indicators exist, the Company compares the estimated undiscounted future cash flows related to the asset to the carrying value of the asset. If the carrying value is greater than the estimated undiscounted future cash flow amount, an impairment charge is recorded based on the difference between the fair value and the carrying value. Any such impairment charge is recorded in depreciation and amortization expense in the statement of operations.
The Company tests for possible impairment of indefinite-lived intangible assets at least annually. Depending on facts and circumstances, qualitative factors may first be assessed to determine whether the existence of events and circumstances indicate that it is more likely than not that an indefinite-lived intangible asset is impaired. If it is concluded that it is more likely than not impaired, then the Company performs a quantitative impairment test by comparing the fair value with the carrying amount. If the qualitative assessment is not performed first, the Company performs only this quantitative test. When specific assets are determined to be impaired, the cost basis of the asset is reduced to reflect the current fair value. Any such impairment charge is recorded in depreciation and amortization in the statement of operations.
The impairment loss calculations require management to apply judgment in estimating future cash flows and the discount rates that reflect the risk inherent in future cash flows.
Goodwill
The Company reviews goodwill for impairment at least annually, as of October 1, using a three-step process. The first step is a qualitative evaluation as to whether it is more likely than not that the fair value of any of the Company’s reporting units is less than its carrying value using an assessment of relevant events and circumstances. Examples of such events and circumstances include financial performance, industry and market conditions, macroeconomic conditions, reporting unit-specific events, historical results of goodwill impairment testing and the timing of the last performance of a quantitative assessment. If any reporting units are concluded to be more likely than not impaired, a second step is performed for that reporting unit. This second step, used to quantitatively screen for potential impairment, compares the fair value of the reporting
unit’s goodwill with its carrying amount, including goodwill. The third step, employed for any reporting unit that fails the second step, is used to measure the amount of any potential impairment and compares the implied fair value of the reporting unit with the carrying amount of goodwill. If a reporting unit’s carrying value is negative, the Company does not follow this three-step process. In this case, a qualitative evaluation is performed to determine whether it is more likely than not that the reporting unit’s goodwill is impaired. If it is, the third step discussed above is performed to measure the amount of any potential impairment.
The second and third steps that the Company uses to evaluate goodwill for impairment involve the determination of the fair value of the Company’s reporting units. Inherent in such fair value determinations are certain judgments and estimates relating to future cash flows, including the Company’s interpretation of current economic indicators and market valuations, and assumptions about the Company’s strategic plans with regard to its operations. Due to the uncertainties associated with such estimates, actual results could differ from such estimates.
In developing fair values for its reporting units, the Company may employ a market multiple or a discounted cash flow methodology, or a combination thereof. The market multiple methodology compares the Company to similar companies on the basis of risk characteristics to determine its risk profile relative to the comparable companies as a group. This analysis generally focuses on quantitative considerations, which include financial performance and other quantifiable data, and qualitative considerations, which include any factors which are expected to impact future financial performance. The most significant assumptions affecting the market multiple methodology are the market multiples used and control premium. A control premium represents the value an investor would pay above noncontrolling interest transaction prices in order to obtain a controlling interest in the respective company.
The discounted cash flow methodology establishes fair value by estimating the present value of the projected future cash flows to be generated from the reporting unit. The discount rate applied to the projected future cash flows to arrive at the present value is intended to reflect all risks of ownership and the associated risks of realizing the stream of projected future cash flows. The discounted cash flow methodology uses the Company’s projections of financial performance. The most significant assumptions used in the discounted cash flow methodology are the discount rate, attrition rate and expected future revenue and operating margins, which vary among reporting units.
The Company also tests goodwill for impairment in interim periods if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount or when the Company changes its operating segments or reporting units.
Nonconsolidated Affiliates
In general, nonconsolidated investments in which the Company owns more than
20%
of the common stock or otherwise exercises significant influence over the affiliate are accounted for under the equity method. The Company recognizes gains or losses upon the issuance of securities by any of its equity method investees. The Company reviews the value of equity method investments and records impairment charges in the statement of operations for any decline in value that is determined to be other-than-temporary.
Accounts Payable, Client Accounts
Accounts payable, client accounts consists of contractual amounts due to ticketing clients which includes the face value of tickets sold and the clients’ share of convenience and order processing charges.
Income Taxes
The Company accounts for income taxes using the liability method in accordance with the FASB guidance for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting bases and tax bases of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled. Deferred tax assets are reduced by valuation allowances if the Company believes it is more likely than not that some portion of or the entire asset will not be realized. As all earnings from the Company’s continuing foreign operations are permanently reinvested and not distributed, the Company’s income tax provision does not include additional United States taxes on those foreign operations. It is not practical to determine the amount of federal and state income taxes, if any, that might become due in the event that the earnings were distributed.
The FASB guidance for income taxes prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is more likely than not to be realized upon ultimate settlement.
The Company has established a policy of including interest related to tax loss contingencies in income tax expense (benefit).
Revenue Recognition
Revenue from the promotion and production of an event in the Concerts segment is recognized after the show occurs. Revenue related to larger global tours is recognized after the show occurs; however, any profits related to these tours, primarily related to music tour production and tour management services, is recognized after minimum revenue guarantee thresholds, if any, have been achieved. Revenue collected in advance of the event is recorded as deferred revenue until the event occurs. Revenue collected from sponsorships and other revenue, which is not related to any single event, is classified as deferred revenue and generally amortized over the operating season or the term of the contract.
Revenue from the Company’s ticketing operations primarily consists of convenience charges and order processing fees charged at the time a ticket for an event is sold. For tickets sold for events at the Company’s owned or operated venues in the United States, and where the Company controls the tickets internationally, this revenue is recognized after the show occurs. Revenue for the associated ticket service charges collected in advance of the event is recorded as deferred revenue until the event occurs. These service charges are shared between the Company’s Ticketing segment and the Concerts segment. For tickets sold for events at third-party venues, the revenue is recognized at the time of the sale and is recorded by the Company’s Ticketing segment.
The Company accounts for taxes that are externally imposed on revenue producing transactions on a net basis, as a reduction of revenue.
Gross versus Net Revenue Recognition
The Company reports revenue on a gross or net basis based on management’s assessment of whether the Company acts as a principal or agent in the transaction. To the extent the Company acts as the principal, revenue is reported on a gross basis. The determination of whether the Company acts as a principal or an agent in a transaction is based on an evaluation of whether the Company has the substantial risks and rewards of ownership under the terms of an arrangement. The Ticketing segment’s revenue, which primarily consists of convenience charges and order processing fees from its ticketing operations, is recorded net of the face value of the ticket as the Company generally acts as an agent in these transactions.
Foreign Currency
Results of operations for foreign subsidiaries and foreign equity investees are translated into United States dollars using the average exchange rates during the year. The assets and liabilities of those subsidiaries and investees are translated into United States dollars using the exchange rates at the balance sheet date. The related translation adjustments are recorded in a separate component of stockholders’ equity in AOCI. Cumulative translation adjustments included in AOCI were
$(1.7) million
and
$(9.7) million
as of
December 31, 2013
and
2012
, respectively. Foreign currency transaction gains and losses are included in the statements of operations. For the years ended
December 31, 2013
and
2011
, the Company recorded net foreign currency transaction losses of
$2.8 million
and
$5.1 million
, respectively. For the year ended
December 31,
2012
, the Company recorded net foreign currency transaction gains of
$1.4 million
. The Company does not have operations in highly inflationary countries.
Advertising Expense
The Company records advertising expense in the year that it is incurred. Throughout the year, general advertising expenses are recognized as they are incurred but event-related advertising for concerts is recognized once the show occurs. However, all advertising costs incurred during the year and not previously recognized are expensed at the end of the year. Advertising expenses of
$224.0 million
,
$208.0 million
and
$200.5 million
for the years ended
December 31, 2013
,
2012
and
2011
, respectively, were recorded as a component of direct operating expenses. Advertising expenses of
$27.8 million
,
$21.6 million
and
$18.0 million
for the years ended
December 31, 2013
,
2012
and
2011
, respectively, were recorded as a component of selling, general and administrative expenses.
Direct Operating Expenses
Direct operating expenses include artist fees, show related marketing and advertising expenses, royalties paid to clients for a share of convenience and order processing fees, rent expense for events in third-party venues, credit card fees, telecommunications and data communication costs associated with the Company’s call centers, commissions paid on tickets distributed through independent sales outlets away from the box office, and salaries and wages related to seasonal employees at the Company’s venues along with other costs, including ticket stock and shipping. These costs are primarily variable in nature.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include salaries and other compensation costs related to full-time employees, fixed rent, legal expenses and consulting along with other costs.
Depreciation and Amortization
The Company’s depreciation and amortization is presented as a separate line item in the statements of operations. There is no depreciation or amortization included in direct operating expenses, selling, general and administrative expenses or corporate expenses.
Non-cash and Stock-based Compensation
The Company follows the fair value recognition provisions in the FASB guidance for stock compensation. Stock-based compensation expense recognized includes compensation expense for all share-based payments using the estimated grant date fair value net of expected forfeitures. Judgment is required in estimating the amount of stock-based awards expected to be forfeited prior to vesting. If actual forfeitures differ from these estimates, non-cash compensation expense could vary.
The fair value for options in Live Nation stock is estimated on the date of grant using the Black-Scholes option-pricing model. The fair value of the options is amortized to expense on a straight-line basis over the options’ vesting period. The Company uses an expected volatility based on an even weighting of its own traded options and historical volatility. The Company uses the simplified method for estimating the expected life within the valuation model which is the period of time that options granted are expected to be outstanding. The Company uses the simplified method as it does not believe its historical experience provides a reasonable basis with which to estimate the expected term due to the impact of a number of divestitures after the Separation, the varying vesting terms of awards issued since the Separation and the impact from the type and amount of awards converted pursuant to the Merger. The risk-free rate for periods within the expected life of the option is based on the United States Treasury note rate.
The fair value of restricted stock and restricted stock units, which is generally the stock price on the date of issuance, is amortized to expense, net of expected forfeitures, on a straight-line basis over the vesting period.
Acquisition Transaction Expenses
Acquisition transaction expenses consist of direct costs related to business combinations, such as legal and accounting transaction charges related to reviewing and closing an acquisition and also other legal costs directly tied to the transaction. These expenses also reflect changes in the fair value of accrued acquisition-related contingent consideration arrangements. The Company records transaction costs incurred in connection with the purchase or sale of a noncontrolling interest in a subsidiary, when control is maintained, as a deduction from equity in additional paid-in capital.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the amounts reported in the financial statements and accompanying notes including, but not limited to, legal, tax and insurance accruals, acquisition accounting and impairments. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
Recent Accounting Pronouncements
Recently Adopted Pronouncements
In February 2013, the FASB issued guidance which requires companies to disclose additional information about reclassifications out of AOCI, including changes in AOCI balances by component and significant items reclassified out of AOCI. The new disclosure requirements are applied prospectively and are effective for interim and annual periods beginning after December 15, 2012. The Company adopted this guidance on January 1, 2013.
In July 2013, the FASB issued guidance that requires a liability related to an unrecognized tax benefit to be offset against a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward if certain criteria are met. The guidance is effective for interim and annual periods beginning after December 15, 2013 and are applied prospectively to unrecognized tax benefits that exist at the effective date. Early adoption and retrospective application of the new guidance are permitted. This guidance is consistent with the Company’s present practice and will not have a material impact on its financial position.
NOTE
2
—LONG-LIVED ASSETS
Property, Plant and Equipment
In the fourth quarter of 2012, an amphitheater in New York that is operated by the Company sustained substantial damage during Hurricane Sandy. During 2013, the Company received insurance recoveries and recorded a gain of
$14.1 million
for the
year ended
December 31, 2013
as a component of (gain) loss on disposal of operating assets in the Concerts segment representing the proceeds received in excess of the carrying value of the assets.
During each year presented, the Company reviewed the carrying value of certain property, plant and equipment that management determined would, more likely than not, be disposed of before the end of their previously estimated useful lives or had an indicator that future operating cash flows may not support their carrying value. It was determined that certain assets were impaired since the estimated undiscounted cash flows associated with the respective asset were less than its carrying value. For the years ended
December 31, 2012
and
2011
, the Company recorded impairment charges of
$4.3 million
and
$10.0 million
, respectively, as a component of depreciation and amortization. There were no significant impairment charges recorded during 2013.
The 2012 impairment charges were primarily related to certain leasehold improvements and office furniture and equipment in the Artist Nation segment, an amphitheater in the Concerts segment and a theater in other operations. The 2011 impairment charges related to
two
amphitheaters, a music theater and a club in the Concerts segment. See Note
6
—Fair Value Measurements for further discussion of the inputs used to determine the fair values.
Definite-lived Intangible Assets
The Company has definite-lived intangible assets which are amortized over the shorter of either the lives of the respective agreements or the period of time the assets are expected to contribute to the Company’s future cash flows. The amortization is recognized on either a straight-line or expected cash flows basis.
The following table presents the changes in the gross carrying amount and accumulated amortization of definite-lived intangible assets for the years ended
December 31, 2013
and
2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue-
generating
contracts
|
|
Client /
vendor
relationships
|
|
Non-compete
agreements
|
|
Venue
management
and
leaseholds
|
|
Technology
|
|
Trademarks
and
naming
rights
|
|
Other
|
|
Total
|
|
|
(in thousands)
|
|
Balance as of December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
$
|
542,426
|
|
|
$
|
330,575
|
|
|
$
|
171,765
|
|
|
$
|
116,772
|
|
|
$
|
103,337
|
|
|
$
|
24,517
|
|
|
$
|
6,426
|
|
|
$
|
1,295,818
|
|
|
Accumulated amortization
|
(170,889
|
)
|
|
(66,548
|
)
|
|
(93,464
|
)
|
|
(39,017
|
)
|
|
(31,812
|
)
|
|
(16,202
|
)
|
|
(4,174
|
)
|
|
(422,106
|
)
|
|
Net
|
371,537
|
|
|
264,027
|
|
|
78,301
|
|
|
77,755
|
|
|
71,525
|
|
|
8,315
|
|
|
2,252
|
|
|
873,712
|
|
|
Gross carrying amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions—current year
|
23,428
|
|
|
58,662
|
|
|
3,000
|
|
|
—
|
|
|
1,564
|
|
|
5,764
|
|
|
—
|
|
|
92,418
|
|
|
Acquisitions— prior year
|
—
|
|
|
14,194
|
|
|
—
|
|
|
—
|
|
|
(3,900
|
)
|
|
—
|
|
|
—
|
|
|
10,294
|
|
|
Foreign exchange
|
5,443
|
|
|
(428
|
)
|
|
98
|
|
|
1,487
|
|
|
423
|
|
|
498
|
|
|
26
|
|
|
7,547
|
|
|
Other
(1)
|
(56,226
|
)
|
|
(141,348
|
)
|
|
(6,445
|
)
|
|
—
|
|
|
—
|
|
|
(12,356
|
)
|
|
—
|
|
|
(216,375
|
)
|
|
Net change
|
(27,355
|
)
|
|
(68,920
|
)
|
|
(3,347
|
)
|
|
1,487
|
|
|
(1,913
|
)
|
|
(6,094
|
)
|
|
26
|
|
|
(106,116
|
)
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
(80,220
|
)
|
|
(114,611
|
)
|
|
(25,276
|
)
|
|
(12,482
|
)
|
|
(21,244
|
)
|
|
(2,620
|
)
|
|
(459
|
)
|
|
(256,912
|
)
|
|
Foreign exchange
|
(2,748
|
)
|
|
4
|
|
|
(77
|
)
|
|
(392
|
)
|
|
(239
|
)
|
|
(211
|
)
|
|
(17
|
)
|
|
(3,680
|
)
|
|
Other
(1)
|
56,308
|
|
|
141,348
|
|
|
7,448
|
|
|
—
|
|
|
—
|
|
|
12,355
|
|
|
—
|
|
|
217,459
|
|
|
Net change
|
(26,660
|
)
|
|
26,741
|
|
|
(17,905
|
)
|
|
(12,874
|
)
|
|
(21,483
|
)
|
|
9,524
|
|
|
(476
|
)
|
|
(43,133
|
)
|
|
Balance as of December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
515,071
|
|
|
261,655
|
|
|
168,418
|
|
|
118,259
|
|
|
101,424
|
|
|
18,423
|
|
|
6,452
|
|
|
1,189,702
|
|
|
Accumulated amortization
|
(197,549
|
)
|
|
(39,807
|
)
|
|
(111,369
|
)
|
|
(51,891
|
)
|
|
(53,295
|
)
|
|
(6,678
|
)
|
|
(4,650
|
)
|
|
(465,239
|
)
|
|
Net
|
317,522
|
|
|
221,848
|
|
|
57,049
|
|
|
66,368
|
|
|
48,129
|
|
|
11,745
|
|
|
1,802
|
|
|
724,463
|
|
|
Gross carrying amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions—current year
|
85,927
|
|
|
31,582
|
|
|
—
|
|
|
—
|
|
|
3,370
|
|
|
10,500
|
|
|
—
|
|
|
131,379
|
|
|
Acquisitions— prior year
|
(1,028
|
)
|
|
(2,833
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,861
|
)
|
|
Dispositions
|
—
|
|
|
(1,354
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,354
|
)
|
|
Foreign exchange
|
2,476
|
|
|
(6,525
|
)
|
|
98
|
|
|
(17
|
)
|
|
826
|
|
|
376
|
|
|
(34
|
)
|
|
(2,800
|
)
|
|
Other
(1)
|
(17,352
|
)
|
|
(4,588
|
)
|
|
(31,317
|
)
|
|
(32,600
|
)
|
|
(4,956
|
)
|
|
(775
|
)
|
|
(4,043
|
)
|
|
(95,631
|
)
|
|
Net change
|
70,023
|
|
|
16,282
|
|
|
(31,219
|
)
|
|
(32,617
|
)
|
|
(760
|
)
|
|
10,101
|
|
|
(4,077
|
)
|
|
27,733
|
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
(49,972
|
)
|
|
(47,918
|
)
|
|
(21,984
|
)
|
|
(24,615
|
)
|
|
(24,116
|
)
|
|
(4,160
|
)
|
|
(416
|
)
|
|
(173,181
|
)
|
|
Dispositions
|
—
|
|
|
61
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
61
|
|
|
Foreign exchange
|
(884
|
)
|
|
1,412
|
|
|
(92
|
)
|
|
219
|
|
|
(655
|
)
|
|
(209
|
)
|
|
31
|
|
|
(178
|
)
|
|
Other
(1)
|
17,352
|
|
|
4,443
|
|
|
32,317
|
|
|
32,600
|
|
|
4,956
|
|
|
1,955
|
|
|
4,043
|
|
|
97,666
|
|
|
Net change
|
(33,504
|
)
|
|
(42,002
|
)
|
|
10,241
|
|
|
8,204
|
|
|
(19,815
|
)
|
|
(2,414
|
)
|
|
3,658
|
|
|
(75,632
|
)
|
|
Balance as of December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
585,094
|
|
|
277,937
|
|
|
137,199
|
|
|
85,642
|
|
|
100,664
|
|
|
28,524
|
|
|
2,375
|
|
|
1,217,435
|
|
|
Accumulated amortization
|
(231,053
|
)
|
|
(81,809
|
)
|
|
(101,128
|
)
|
|
(43,687
|
)
|
|
(73,110
|
)
|
|
(9,092
|
)
|
|
(992
|
)
|
|
(540,871
|
)
|
|
Net
|
$
|
354,041
|
|
|
$
|
196,128
|
|
|
$
|
36,071
|
|
|
$
|
41,955
|
|
|
$
|
27,554
|
|
|
$
|
19,432
|
|
|
$
|
1,383
|
|
|
$
|
676,564
|
|
_________
|
|
|
|
(1)
|
Other includes netdowns of fully amortized or impaired assets and for 2013 a reclassification from indefinite-lived intangible assets due to a change in the asset’s estimated useful life.
|
Included in the current year acquisitions amount above for 2013 is
$131.4 million
of definite-lived intangible assets primarily related to revenue-generating contracts, client/vendor relationships and trademarks and naming rights. These additions are primarily associated with the May 2013 acquisition of a controlling interest in a festival promoter based in Los Angeles and the December 2013 acquisitions of a controlling interest in a festival promoter in the United Kingdom and an artist management business based in Ireland.
Included in the current year acquisitions amount above for 2012 is
$92.4 million
of definite-lived intangible assets primarily related to client/vendor relationships and revenue-generating contracts associated with the April 2012 acquisition of a concert promotion business in Australia and New Zealand, the May 2012 acquisition of a festival promoter based in the United Kingdom and the purchase of rights to a festival held in Europe.
Included in the prior year acquisitions amount above for 2012 is
$10.3 million
of definite-lived intangible assets primarily related to client/vendor relationships associated with the consolidation of certain artist management businesses that had been previously accounted for as equity investments due to a change in the governing agreements.
The
2013
and
2012
additions to definite-lived intangible assets from acquisitions have weighted-average lives as follows:
|
|
|
|
|
|
|
|
|
|
Weighted-
Average
Life (years)
|
|
|
2013
|
|
2012
|
|
|
|
|
|
|
Revenue-generating contracts
|
9
|
|
|
11
|
|
Client/vendor relationships
|
8
|
|
|
9
|
|
Non-compete agreements
|
—
|
|
|
3
|
|
Technology
|
5
|
|
|
6
|
|
Trademarks and naming rights
|
10
|
|
|
10
|
|
All categories
|
9
|
|
|
9
|
During all years presented, the Company reviewed the carrying value of certain definite-lived intangible assets that management determined would not be renewed or that had an indicator that future operating cash flows may not support its carrying value. It was determined that certain assets were impaired since the estimated undiscounted future cash flows associated with those assets were less than its carrying value. For the years ended
December 31, 2013
,
2012
and
2011
, the Company recorded impairment charges related to definite-lived intangible assets of
$10.6 million
,
$89.6 million
and
$14.1 million
, respectively, as a component of depreciation and amortization. The 2013 impairment charges primarily related to venue management and leasehold intangible assets in the Concerts segment and client/vendor relationship intangible assets in the Artist Nation segment. The 2012 impairment charges primarily related to client/vendor relationship intangible assets in the Artist Nation segment and revenue-generating contracts and client/vendor relationship intangible assets in the Concerts segment. The 2011 impairment charges related to intangible assets for client/vendor relationships, revenue-generating contracts and venue management and leaseholds in the Concerts segment. See Note
6
—Fair Value Measurements for further discussion of the inputs used to determine the fair values.
Amortization of definite-lived intangible assets for the years ended
December 31, 2013
,
2012
and
2011
was
$173.2 million
,
$256.9 million
and
$175.2 million
, respectively. The decrease in amortization for the
year ended
December 31, 2013
as compared to the prior year is primarily driven by lower amortization related to the impairment of intangible assets discussed above. This decrease was partially offset by
$10.9 million
for acceleration of amortization primarily related to changes in estimates of certain venue management and leasehold intangible assets in the Concerts segment due to the reduction in the lease term of a theater along with additional amortization of intangibles for the acquisitions noted above. The increase in amortization for the year ended
December 31, 2012
as compared to the prior year is primarily driven by higher amortization related to the impairment of intangible assets discussed above, additional definite-lived intangibles acquired in the acquisitions noted above and
$3.7 million
related to the acceleration of amortization resulting from a change in the estimated useful life of a venue management and leaseholds intangible asset in the Concerts segment.
The following table presents the Company’s estimate of amortization expense for each of the five succeeding fiscal years for definite-lived intangible assets that exist at
December 31, 2013
:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2014
|
$
|
135,109
|
|
|
2015
|
$
|
116,995
|
|
|
2016
|
$
|
103,347
|
|
|
2017
|
$
|
86,391
|
|
|
2018
|
$
|
69,981
|
|
As acquisitions and dispositions occur in the future and the valuations of intangible assets for recent acquisitions are completed, amortization may vary.
Indefinite-lived Intangibles
The Company has indefinite-lived intangible assets which consist primarily of the intangible value related to trade names. These indefinite-lived intangible assets had a carrying value of
$376.7 million
and
$377.5 million
as of
December 31, 2013
and
2012
, respectively.
The Company tests for possible impairment of indefinite-lived intangible assets on at least an annual basis. There was no impairment charge on these assets recorded for the years ended
December 31, 2013
,
2012
and
2011
.
Goodwill
The Company reviews goodwill for impairment at least annually, as of October 1, using a three-step process: a qualitative review, a quantitative analysis and a measurement of implied goodwill. As part of the Company’s annual test for impairment of goodwill,
four
reporting units were assessed under the initial qualitative evaluation and did not require a quantitative analysis. These reporting units account for approximately
66%
of the Company’s goodwill. Considerations included the considerable excess of fair values over carrying values in the most recent quantitative analysis performed together with the following comparison of current information to the most recent quantitative analysis: (a) financial results outperforming prior expectations, (b) a flat or declining discount rate and (c) a large increase in market multiples.
A quantitative analysis was also performed for
two
reporting units that account for approximately
19%
of the Company’s goodwill. The quantitative analysis was performed for these reporting units primarily due to a slight to moderate decline in financial performance as compared to that projected in the most recent quantitative analysis. These reporting units did, however, also experience a decline in discount rates and an increase in market multiples as compared to their most recent quantitative analysis. The Company performed sensitivity analyses as part of these quantitative tests and noted that the growth rate or discount rate would have to change by more than one percentage point or that market multiples would have to decline by 19% to change the conclusion.
Finally, an assessment of the implied fair value of goodwill was performed for
one
reporting unit that accounts for approximately
15%
of the Company’s goodwill due to a negative carrying value which requires a measurement to be performed since a qualitative analysis was not conclusive. The reporting unit’s financial performance was slightly below that anticipated in the most recent impairment test, however, the discount rate remained constant and its market multiples experienced a large increase. The measurement resulted in no impairment.
The following table presents the changes in the carrying amount of goodwill in each of the Company’s reportable segments for the years ended
December 31, 2013
and
2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concerts
|
|
Ticketing
|
|
Artist
Nation
|
|
Sponsorship
& Advertising
|
|
Other
|
|
Total
|
|
|
(in thousands)
|
|
Balance as of December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
$
|
387,188
|
|
|
$
|
633,852
|
|
|
$
|
262,158
|
|
|
$
|
244,348
|
|
|
$
|
13,037
|
|
|
$
|
1,540,583
|
|
|
Accumulated impairment losses
|
(269,902
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,037
|
)
|
|
(282,939
|
)
|
|
Net
|
117,286
|
|
|
633,852
|
|
|
262,158
|
|
|
244,348
|
|
|
—
|
|
|
1,257,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions—current year
|
71,942
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
71,942
|
|
|
Acquisitions—prior year
|
—
|
|
|
2,380
|
|
|
4,542
|
|
|
—
|
|
|
—
|
|
|
6,922
|
|
|
Foreign exchange
|
9,761
|
|
|
1,410
|
|
|
120
|
|
|
10,028
|
|
|
—
|
|
|
21,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
468,891
|
|
|
637,642
|
|
|
266,820
|
|
|
254,376
|
|
|
13,037
|
|
|
1,640,766
|
|
|
Accumulated impairment losses
|
(269,902
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,037
|
)
|
|
(282,939
|
)
|
|
Net
|
198,989
|
|
|
637,642
|
|
|
266,820
|
|
|
254,376
|
|
|
—
|
|
|
1,357,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions—current year
|
42,826
|
|
|
1,715
|
|
|
3,253
|
|
|
49,748
|
|
|
—
|
|
|
97,542
|
|
|
Acquisitions—prior year
|
(2,811
|
)
|
|
—
|
|
|
9,203
|
|
|
—
|
|
|
—
|
|
|
6,392
|
|
|
Dispositions
|
(3,691
|
)
|
|
—
|
|
|
(251
|
)
|
|
—
|
|
|
—
|
|
|
(3,942
|
)
|
|
Foreign exchange
|
257
|
|
|
2,892
|
|
|
(102
|
)
|
|
6,117
|
|
|
—
|
|
|
9,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
505,472
|
|
|
642,249
|
|
|
278,923
|
|
|
310,241
|
|
|
13,037
|
|
|
1,749,922
|
|
|
Accumulated impairment losses
|
(269,902
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,037
|
)
|
|
(282,939
|
)
|
|
Net
|
$
|
235,570
|
|
|
$
|
642,249
|
|
|
$
|
278,923
|
|
|
$
|
310,241
|
|
|
$
|
—
|
|
|
$
|
1,466,983
|
|
Included in the current year acquisitions amount above for
2013
is
$97.5 million
of goodwill primarily associated with the May 2013 acquisition of a controlling interest in a festival promoter based in Los Angeles and the December 2013 acquisition of a controlling interest in a festival promoter in the United Kingdom.
Included in the current year acquisitions amount above for
2012
is
$71.9 million
of goodwill primarily related to the acquisition of a concert promotion business located in Australia and New Zealand and the acquisition of a festival promoter in the United Kingdom.
Of the total amount of goodwill recognized in connection with the
2013
and
2012
acquisitions,
$30.3 million
and
$9.6 million
, respectively, is expected to be deductible for tax purposes.
The Company reviews for possible impairment of goodwill annually. There was no impairment charge related to goodwill recorded for the years ended
December 31, 2013
,
2012
and
2011
.
The Company is in the process of finalizing its acquisition accounting for recent acquisitions which could result in a change to the associated purchase price allocations, including goodwill and its allocation between segments.
Investments in nonconsolidated affiliates
The Company has investments in various affiliates which are not consolidated and are accounted for under the equity method of accounting. The Company records its investments in these entities in the balance sheet as investments in nonconsolidated affiliates. The Company’s interests in these operations are recorded in the statement of operations as equity in earnings of nonconsolidated affiliates. For the year ended December 31, 2013, the Company’s investments in Venta de Boletos por Computadora S.A. de C.V, a
33%
owned ticketing distribution services company, and Three Six Zero Grp Limited, a
50%
owned artist management company, are considered significant on an individual basis and certain other investments are considered significant on an aggregate basis. Summarized balance sheet and income statement information for the Company’s significant nonconsolidated affiliates is as follows (at 100%):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2013
|
|
2012
|
|
|
|
(in thousands)
|
|
Current assets
|
|
$
|
41,083
|
|
|
$
|
58,594
|
|
|
Noncurrent assets
|
|
$
|
12,357
|
|
|
$
|
7,642
|
|
|
Current liabilities
|
|
$
|
22,167
|
|
|
$
|
33,319
|
|
|
Noncurrent liabilities
|
|
$
|
195
|
|
|
$
|
61
|
|
|
Noncontrolling interests
|
|
$
|
296
|
|
|
$
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
|
(in thousands)
|
|
Revenue
|
|
$
|
79,264
|
|
|
$
|
66,180
|
|
|
$
|
64,492
|
|
|
Operating income
|
|
$
|
33,151
|
|
|
$
|
31,973
|
|
|
$
|
29,658
|
|
|
Net income
|
|
$
|
26,150
|
|
|
$
|
24,839
|
|
|
$
|
22,729
|
|
|
Net income attributable to the common stockholders of the equity investees
|
|
$
|
26,088
|
|
|
$
|
24,808
|
|
|
$
|
22,729
|
|
The Company reviews its investments in nonconsolidated affiliates for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. For the year ended December 31, 2013, the Company recorded impairment charges related to these investments of
$9.2 million
as equity in earnings of nonconsolidated affiliates. The impairments primarily related to an investment in a concert promoter located in Europe and an investment in an ecommerce business. See Note
6
—Fair Value Measurements for further discussion of the inputs used to determine the fair values.
Long-lived Asset Disposals
In May 2013, the Company completed the sale of a theater in New York. In January 2012, the Company completed the sale of an amphitheater in Ohio. In January 2011, the Company sold its
50%
controlling interest in an artist management company. In May 2011, the Company completed the sale of an amphitheater in Texas.
The table below summarizes the asset and liability values at the time of sale for significant disposals and the resulting gain or loss recorded.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divested Asset
|
|
Segment
|
|
Loss (Gain) on
Disposal of
Operating
Assets
|
|
Current
Assets
|
|
Noncurrent
Assets
|
|
Current
Liabilities
|
|
Noncurrent
Liabilities
|
|
|
|
(in thousands)
|
|
2013 Divestiture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New York theater
|
|
Concerts
|
|
$
|
(24,845
|
)
|
|
$
|
—
|
|
|
$
|
35,785
|
|
|
$
|
—
|
|
|
$
|
3,636
|
|
|
2012 Divestiture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ohio amphitheater
|
|
Concerts
|
|
$
|
(444
|
)
|
|
$
|
—
|
|
|
$
|
5,400
|
|
|
$
|
444
|
|
|
$
|
—
|
|
|
2011 Divestiture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas amphitheater
|
|
Concerts
|
|
$
|
798
|
|
|
$
|
—
|
|
|
$
|
3,206
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Artist management company
|
|
Artist Nation
|
|
$
|
(1,264
|
)
|
|
$
|
3
|
|
|
$
|
4,153
|
|
|
$
|
119
|
|
|
$
|
—
|
|
NOTE
3
—ACQUISITIONS
During 2013, the Company completed its acquisitions of a controlling interest in a festival promoter located in Los Angeles, California and a controlling interest in a festival promoter located in the United Kingdom, an artist management
business located in Ireland and other smaller acquisitions. These acquisitions were accounted for as business combinations under the acquisition method of accounting and were not significant on an individual basis or in the aggregate.
During 2012, the Company completed its acquisitions of a controlling interest in a concert promotion business in Australia and New Zealand, a controlling interest in a festival promoter located in the United Kingdom, a festival promoter located in Los Angeles, California and other smaller acquisitions. These acquisitions were accounted for as business combinations under the acquisition method of accounting and were not significant on an individual basis or in the aggregate.
Front Line
In the first quarter of 2011, the Company acquired all of the remaining equity interests of Front Line that it did not previously own in a series of transactions. As a result of these transactions, the Company was able to further simplify its operating structure.
Under the terms of the stock purchase agreement, the Company purchased all restricted and unrestricted shares of common stock of Front Line held by a former executive of the Company and the Trust (collectively the “Former Executive Sellers”), purchased all in-the-money options for common stock of Front Line held by the Former Executive Sellers and purchased all shares of common stock of Front Line held by The Madison Square Garden Company (“MSG”). The Company also paid an amount equal to a 2010 dividend paid by Front Line to the Former Executive Sellers and MSG, pro-rated for the period from January 1, 2011 through the closing date, and paid the former executive a contractually-owed tax gross-up associated with his restricted Front Line common stock and dividend. In total, under the stock purchase agreement, the Company paid
$56.3 million
in cash and
$18.6 million
in newly-issued shares of Live Nation common stock to the Former Executive Sellers and
$0.2 million
in cash and
$41.0 million
in newly issued shares of Live Nation common stock to MSG. These shares were valued using the closing price of the Company’s stock on the date of the transaction. Of the total shares of Live Nation stock issued, the Former Executive Sellers received
1.8 million
shares of common stock and MSG received
3.9 million
shares of common stock.
As part of individual redemption agreements, the Company also purchased the remaining smaller holdings of outstanding Front Line restricted shares of common stock from other individuals for a total of
$12.8 million
in cash.
The shares purchased under all of these agreements had redemption features and, previous to these repurchases, the Former Executive Sellers’ and MSG’s common shares and the Former Executive Sellers’ options were classified as redeemable noncontrolling interests and all of the remaining shares were classified as liabilities. All of these instruments were carried at their fair values and amounts paid as part of these agreements were recorded in the income statement to the extent they were in excess of the amount recorded on the balance sheet, with the exception of the unrestricted shares of common stock held by the Former Executive Sellers and MSG which were accounted for as the acquisition of noncontrolling interests and the difference between the carrying value and settlement value was recorded in additional paid-in capital. Tax gross-up amounts paid were recorded in the income statement to the extent the amount paid exceeded the amount already accrued. As a result of the repurchases, the Company recorded
$24.4 million
in selling, general and administrative expenses in the first quarter of 2011, which is classified as stock-based compensation. Further, cash flows from financing activities reflects a
$47.9 million
use of cash and cash flows from operating activities reflects a
$21.4 million
use of cash as a result of these transactions. Total non-cash consideration was $
59.6 million
and is not included in the statement of cash flows.
NOTE
4
—LONG-TERM DEBT
Long-term debt, which includes capital leases, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2013
|
|
2012
|
|
|
|
|
|
|
(in thousands)
|
|
Senior Secured Credit Facility:
|
|
|
|
|
|
|
Term loan A, net of unamortized discount of $2.0 million and $0.9 million
|
|
|
|
|
|
|
|
in 2013 and 2012, respectively
|
|
$
|
111,578
|
|
|
$
|
76,556
|
|
|
|
Term loan B, net of unamortized discount of $14.4 million and
|
|
|
|
|
|
|
|
$14.1 million in 2013 and 2012, respectively
|
|
933,226
|
|
|
863,370
|
|
|
|
Revolving credit facility
|
|
—
|
|
|
—
|
|
|
7% Senior Notes due 2020, plus unamortized premium of $8.6 million
|
|
|
|
|
|
|
in 2013
|
|
433,571
|
|
|
225,000
|
|
|
2.875% Convertible Senior Notes due 2027, net of unamortized discount of
|
|
|
|
|
|
|
$7.6 million and $20.6 million in 2013 and 2012, respectively
|
|
212,415
|
|
|
199,419
|
|
|
8.125% Senior Notes due 2018
|
|
—
|
|
|
250,000
|
|
|
Other long-term debt
|
|
118,097
|
|
|
125,660
|
|
|
|
|
|
|
|
1,808,887
|
|
|
1,740,005
|
|
|
Less: current portion
|
|
278,403
|
|
|
62,050
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt, net
|
|
$
|
1,530,484
|
|
|
$
|
1,677,955
|
|
Future maturities of long-term debt at
December 31, 2013
are as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2014
|
$
|
285,989
|
|
|
2015
|
46,344
|
|
|
2016
|
48,985
|
|
|
2017
|
47,329
|
|
|
2018
|
54,015
|
|
|
Thereafter
|
1,341,622
|
|
|
Total
|
1,824,284
|
|
|
Debt discount
|
(23,968
|
)
|
|
Debt premium
|
8,571
|
|
|
Total, including premium and discount
|
$
|
1,808,887
|
|
|
|
|
Payments due in 2014 include
$7.6 million
of unamortized debt discount on the Convertible Senior Notes.
All long-term debt without a stated maturity date is considered current and is reflected as maturing in the earliest period shown in the table above. See Note
6
—Fair Value Measurements for discussion of fair value measurement of the Company’s long-term debt.
Senior Secured Credit Facility
In August 2013, the Company amended its senior secured credit facility and now has (i) a
$115 million
term loan A facility with a maturity of
five
years, (ii) a
$950 million
term loan B facility with a maturity of
seven
years and (iii) a
$335 million
revolving credit facility with a maturity of
five
years. In addition, subject to certain conditions, the Company has the right to increase such facilities by at least
$450 million
or a greater amount so long as the senior secured leverage ratio calculated on a pro-forma basis (as defined in the credit agreement) is no greater than
3.25
x. The revolving credit facility provides for borrowings up to the amount of the facility with sublimits of up to (i)
$150 million
for the issuance of letters of credit, (ii)
$50 million
for swingline loans, (iii)
$150 million
for letters of credit in Euros or British Pounds and (iv)
$50 million
for letters of credit in one or more other approved currencies. The amended senior secured credit facility is secured by a first priority lien on substantially all of the tangible and intangible personal property of the Company and the domestic subsidiaries that are guarantors, and by a pledge of substantially all of the shares of stock, partnership interests and limited liability company interests of the Company’s direct and indirect domestic subsidiaries and
65%
of each class of capital stock of any first-tier foreign subsidiaries.
The interest rates per annum applicable to revolving credit facility loans and the term loan A under the amended senior secured credit facility are, at the Company’s option, equal to either LIBOR plus
2.25%
or a base rate plus
1.25%
, subject to stepdowns based on the Company’s net leverage ratio. The interest rates per annum applicable to the term loan B are, at the Company’s option, equal to either LIBOR plus
2.75%
or a base rate plus
1.75%
, subject to a LIBOR floor of
0.75%
and a base rate floor of
1.75%
. The Company is required to pay a commitment fee of
0.5%
per year on the undrawn portion available under the revolving credit facility, subject to stepdowns based on the Company’s net leverage ratio, and variable fees on outstanding letters of credit.
For the term loan A, the Company is required to make quarterly payments increasing over time from
$1.4 million
to
$13.8 million
with the balance due at maturity in August 2018. For the term loan B, the Company is required to make quarterly payments of
$2.4 million
with the balance due at maturity in August 2020. The Company is also required to make mandatory prepayments of the loans under the credit agreement, subject to specified exceptions, from excess cash flow and with the proceeds of asset sales, debt issuances and specified other events.
Based on the Company’s outstanding letters of credit of
$68.1 million
,
$266.9 million
was available for future borrowings under the revolving credit facility at
December 31, 2013
.
7% Senior Notes
In August 2013, the Company issued an additional
$200 million
principal amount of its existing
7%
senior notes due 2020 with a
$9.0 million
premium, which increased the total principal amount of such notes outstanding to
$425 million
. Interest on the notes is payable semi-annually in cash in arrears on March 1 and September 1 of each year and the notes will mature on September 1, 2020. The Company may redeem some or all of the notes at any time prior to September 1, 2016 at a price equal to
100%
of the aggregate principal amount, plus any accrued and unpaid interest to the date of redemption, plus a ‘make-whole’ premium using a discount rate equal to the treasury rate plus
50
basis points. The Company may also redeem up to
35%
of the notes from the proceeds of certain equity offerings prior to September 1, 2015, at a price equal to
107%
of the principal amount, plus any accrued and unpaid interest. In addition, on or after September 1, 2016, the Company may redeem at its option some or all of the notes at redemption prices that start at
103.5%
of their principal amount, plus any accrued and unpaid interest to the date of redemption. The Company must make an offer to redeem the notes at
101%
of the aggregate principal amount, plus any accrued and unpaid interest to the repurchase date, if it experiences certain defined changes of control.
2.875% Convertible Senior Notes
In July 2007, the Company issued
$220 million
of convertible senior notes due 2027. The notes pay interest semiannually at a rate of
2.875%
per annum. Beginning with the period commencing on July 20, 2014 and ending on January 14, 2015, and for each of the interest periods commencing thereafter, the Company will pay contingent interest on the notes if the average trading price of the notes during the
five
consecutive trading days ending on the second trading day immediately preceding the first day of the applicable interest period equals or exceeds
120%
of the principal amount of the notes. The contingent interest payable per note will equal
0.25%
per year of the average trading price of such note during the applicable
five
trading-day reference period, payable in arrears. The notes will be convertible, under certain circumstances, at an initial conversion rate of
36.8395
shares per
$1,000
principal amount of notes, which represents a
27.5%
conversion premium based on the last reported sale price of
$21.29
per share on July 10, 2007. Upon conversion, the notes may be settled in shares of Live Nation common stock or, at the Company’s election, cash or a combination of cash and shares of Live Nation common stock. Assuming the Company fully settled the notes in shares, the maximum number of shares that could be issued to satisfy the conversion is
8.1 million
.
Holders of the
2.875%
convertible senior notes may require the Company to purchase for cash all or a portion of their notes on July 15, 2014, July 15, 2017 and July 15, 2022 at a price equal to
100%
of the principal amount plus accrued and
unpaid interest, if any, subject to specified additional conditions. Accordingly, the notes have been classified as current at December 31, 2013. In addition, if the Company experiences a fundamental change, as defined in the indenture governing the notes, holders may require the Company to purchase for cash all or a portion of their notes, subject to specified exceptions, at a price equal to
100%
of the principal amount of the notes plus accrued and unpaid interest, if any.
On or after July 20, 2014, the Company may redeem all or a portion of the notes for cash at a price equal to
100%
of the principal amount being redeemed plus accrued and unpaid interest, if any.
As of
December 31, 2013
and
2012
, the carrying amount of the equity component of the notes was
$73.0 million
in each of the respective periods. As of
December 31, 2013
and
2012
, the principal amount of the liability component (face value of the notes) was
$220 million
in each of the respective periods. As of
December 31, 2013
, the remaining period over which the discount will be amortized is approximately
one
year. At
December 31, 2013
, the value of the notes, if converted and fully settled in shares, does not exceed the principal amount of the notes. For the years ended
December 31, 2013
,
2012
and
2011
, the effective interest rate on the liability component of the notes was
9.7%
. The following table summarizes the amount of pre-tax interest cost recognized on the notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
(in thousands)
|
|
Interest cost recognized relating to:
|
|
|
|
|
|
|
Contractual interest coupon
|
$
|
6,325
|
|
|
$
|
6,325
|
|
|
$
|
6,325
|
|
|
Amortization of debt discount
|
12,995
|
|
|
11,792
|
|
|
10,700
|
|
|
Amortization of debt issuance costs
|
703
|
|
|
703
|
|
|
703
|
|
|
Total interest cost recognized on the notes
|
$
|
20,023
|
|
|
$
|
18,820
|
|
|
$
|
17,728
|
|
See Note
5
—
Derivative Instruments for discussion on the accounting for derivative instruments embedded within the 2.875% convertible senior notes.
Other Long-term Debt
Other long-term debt is comprised of capital leases of
$10.8 million
and notes payable and other debt of
$107.3 million
, including debt to noncontrolling interest partners of
$34.6 million
, debt related to the redevelopment of The O
2
Dublin of
$10.2 million
,
$38.0 million
of long-term debt for Academy Music Holdings Limited Group which consists of term loans and shareholder loan notes and
$20.7 million
of long-term debt for the Company’s Australian operations. Total notes payable consist primarily of
eighteen
notes with interest rates ranging from
0.4%
to
11.0%
and maturities of up to
eight
years.
Debt Extinguishment
In August 2013, the Company issued additional notes under the indenture governing its existing
7%
senior notes due 2020 with a
$9.0 million
premium and amended its senior secured credit facility. The amendment to the senior secured credit facility provided the existing term loan A and term loan B lenders with an option to convert their outstanding principal amounts into the new term loans. Excluding the outstanding principal amounts for lenders who elected to convert their outstanding term loans, proceeds of
$802.2 million
from issuance of these borrowings were used to repay
$472.5 million
principal amount of the Company’s outstanding borrowings under the existing senior secured credit facility, to repay the entire
$250 million
principal amount of the Company’s outstanding
8.125%
senior notes due 2018 and to pay the related ‘make-whole’ premium on these senior notes and total accrued interest and fees of
$35.3 million
along with related fees and expenses for the refinancing of
$22.0 million
, leaving
$22.4 million
in additional cash for general corporate purposes. The Company recorded
$36.3 million
as a loss on extinguishment of debt related to this refinancing.
In August 2012, the proceeds from the issuance of the 7% senior notes and increased term loan B borrowings were used to repay all of the Company’s outstanding
10.75%
senior notes with a principal amount of
$287 million
, to pay related redemption premium and accrued interest of
$19.5 million
and to pay related fees and expenses for the refinancing of
$6.1 million
, leaving
$12.4 million
in additional cash available for general corporate purposes. The gain on extinguishment of debt resulting from these transactions was not significant.
Debt Covenants
The Company’s amended senior secured credit facility contains a number of covenants and restrictions that, among other things, require the Company to satisfy certain financial covenants and restrict the Company’s and its subsidiaries’ ability to incur additional debt, make certain investments and acquisitions, repurchase its stock and prepay certain indebtedness, create liens, enter into agreements with affiliates, modify the nature of its business, enter into sale-leaseback transactions, transfer and sell material assets and merge or consolidate, and pay dividends and make distributions (with the exception of subsidiary dividends or distributions to the parent company or other subsidiaries on at least a pro-rata basis with any noncontrolling interest partners). Non-compliance with one or more of the covenants and restrictions could result in the full or partial principal balance of the credit facility becoming immediately due and payable. The amended senior secured credit facility agreement has a covenant, measured quarterly, that requires the Company to maintain a maximum ratio of consolidated total funded debt to consolidated EBITDA (both as defined in the credit agreement) of
5.25
x over the trailing
four
consecutive quarters through September 30, 2014. The consolidated total leverage ratio will reduce to
5.0
x on December 31, 2014,
4.75
x on December 31, 2015 and
4.50
x on December 31, 2016.
The indenture governing the
7%
senior notes contains covenants that limit, among other things, the Company’s ability and the ability of its restricted subsidiaries to incur certain additional indebtedness and issue preferred stock, make certain distributions, investments and other restricted payments, sell certain assets, agree to any restrictions on the ability of restricted subsidiaries to make payments to the Company, merge, consolidate or sell all of the Company’s assets, create certain liens, and engage in transactions with affiliates on terms that are not arms-length. Certain covenants, including those pertaining to incurrence of indebtedness, restricted payments, asset sales, mergers and transactions with affiliates will be suspended during any period in which the notes are rated investment grade by both rating agencies and no default or event of default under the indenture has occurred and is continuing. The 7% senior notes contain
two
incurrence-based financial covenants, as defined, requiring a minimum fixed charge coverage ratio of
2.0
x and a maximum secured indebtedness leverage ratio of
3.25
x.
Some of the Company’s other subsidiary indebtedness includes restrictions on entering into various transactions, such as acquisitions and disposals, and prohibits payment of ordinary dividends. They also have financial covenants including minimum consolidated EBITDA to consolidated net interest payable, minimum consolidated cash flow to consolidated debt service and maximum consolidated debt to consolidated EBITDA, all as defined in the applicable debt agreements.
As of
December 31, 2013
, the Company believes it was in compliance with all of its debt covenants. The Company expects to remain in compliance with all of these covenants throughout
2014
.
NOTE
5
—DERIVATIVE INSTRUMENTS
The Company primarily uses forward currency contracts and options to reduce its exposure to foreign currency risk associated with short-term artist fee commitments. The Company may also enter into forward currency contracts to minimize the risks and/or costs associated with changes in foreign currency rates on forecasted operating income. At
December 31, 2013
and
2012
, the Company had forward currency contracts and options outstanding with notional amounts of
$96.0 million
and
$100.0 million
, respectively. These instruments have not been designated as hedging instruments and any change in fair value is reported in earnings during the period of the change. The Company’s foreign currency derivative activity, including the related fair values, are not material to any period presented.
Additionally, the Company has entered into certain interest rate swaps and cap a
greements to limit its exposure to variable interest rates, related to portions of the Company’s outstanding debt
,
some
of which have been designated as cash flow hedges. At
December 31, 2013
, the Company had interest rate swaps outstanding with notional amounts of
$39.3 million
. At
December 31, 2012
, the Company had interest rate swaps and cap agreements outstanding with notional amounts of
$133.8 million
. The Company’s interest rate swaps and cap activity, including the related fair values, are not material to any period presented. As of
December 31, 2013
and
2012
, there was no ineffective portion or amount excluded from effectiveness testing for derivatives designated as cash flow hedging instruments.
The Company’s
2.875%
convertible senior notes include certain provisions which are bifurcated from the notes and accounted for as derivative instruments. As of
December 31, 2013
and
2012
, the fair value of these provisions were considered to be
de minimis
.
The Company does not enter into derivative instruments for speculative or trading purposes and does not anticipate any significant recognition of derivative activity through the income statement in the future related to the instruments currently held. See Note
6
—Fair Value Measurements for further discussion and disclosure of the fair values for the Company’s derivative instruments.
NOTE
6
—FAIR VALUE MEASUREMENTS
The Company currently has various financial instruments carried at fair value, such as marketable securities, derivatives, and contingent consideration, but does not currently have nonfinancial assets and liabilities that are required to be measured at fair value on a recurring basis. The Company’s financial assets and liabilities are measured using inputs from all levels of the fair value hierarchy as defined in the FASB guidance for fair values. For this categorization, only inputs that are significant to the fair value are considered. The three levels are defined as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that can be accessed at the measurement date.
Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (i.e., market corroborated inputs).
Level 3—Unobservable inputs that reflect assumptions about what market participants would use in pricing the asset or liability. These inputs would be based on the best information available, including the Company’s own data.
In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company’s financial assets and liabilities that are required to be measured at fair value on a recurring basis, which are classified on the balance sheets as cash and cash equivalents, other current assets, other long-term assets, other current liabilities and other long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
at December 31, 2013
|
|
Fair Value Measurements
at December 31, 2012
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
(in thousands)
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
26,627
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
26,627
|
|
|
$
|
61,996
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
61,996
|
|
|
Forward currency contracts
|
—
|
|
|
297
|
|
|
—
|
|
|
297
|
|
|
—
|
|
|
81
|
|
|
—
|
|
|
81
|
|
|
Stock options
|
—
|
|
|
—
|
|
|
469
|
|
|
469
|
|
|
—
|
|
|
—
|
|
|
204
|
|
|
204
|
|
|
Total
|
$
|
26,627
|
|
|
$
|
297
|
|
|
$
|
469
|
|
|
$
|
27,393
|
|
|
$
|
61,996
|
|
|
$
|
81
|
|
|
$
|
204
|
|
|
$
|
62,281
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
1,491
|
|
|
$
|
—
|
|
|
$
|
1,491
|
|
|
$
|
—
|
|
|
$
|
2,811
|
|
|
$
|
—
|
|
|
$
|
2,811
|
|
|
Forward currency contracts
|
—
|
|
|
1,543
|
|
|
—
|
|
|
1,543
|
|
|
—
|
|
|
625
|
|
|
—
|
|
|
625
|
|
|
Put option
|
—
|
|
|
—
|
|
|
435
|
|
|
435
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Contingent consideration
|
—
|
|
|
—
|
|
|
5,934
|
|
|
5,934
|
|
|
—
|
|
|
—
|
|
|
6,718
|
|
|
6,718
|
|
|
Total
|
$
|
—
|
|
|
$
|
3,034
|
|
|
$
|
6,369
|
|
|
$
|
9,403
|
|
|
$
|
—
|
|
|
$
|
3,436
|
|
|
$
|
6,718
|
|
|
$
|
10,154
|
|
Cash equivalents consist of money market funds. Fair values for cash equivalents are based on quoted prices in an active market. Fair values for forward currency contracts are based on observable market transactions of spot and forward rates. Fair values for the interest rate swaps are based on inputs corroborated by observable market data with similar tenors.
The Company has certain contingent consideration obligations related to acquisitions which are measured at fair value using Level 3 inputs. The amounts due to the sellers are based on the achievement of agreed-upon financial performance metrics by the acquired companies where the contingent obligation is either earned or not earned. The Company records the liability at the time of the acquisition based on the present value of management’s best estimates of the future results of the acquired companies compared to the agreed-upon metrics. Subsequent to the date of acquisition, the Company updates the original valuation to reflect current projections of future results of the acquired companies and the passage of time. Accretion of, and changes in the valuations of, contingent consideration are reported in acquisition transaction expenses. See Note
7
—Commitments and Contingent Liabilities for additional information related to the contingent payments.
The Company has stock options in both publicly traded and non-publicly traded companies that are measured at fair value using Level 3 inputs. The stock options were received as consideration in connection with operational agreements entered into by subsidiaries of the Company. The Company has recorded assets for these options which were valued using the Black-Scholes option pricing model.
A third-party has a put option to sell its noncontrolling interest to the Company in the second quarter of 2014 that was entered into as a separate transaction and therefore is carried at fair value using Level 3 inputs. The Company has recorded a current liability for this put option which is valued using the Black-Scholes option pricing model. Changes in the fair value are recorded in acquisition transaction expenses.
Due to their short maturity, the carrying amounts of accounts receivable, accounts payable and accrued expenses approximated their fair values at
December 31, 2013
and
2012
.
The Company’s outstanding debt held by third-party financial institutions is carried at cost, adjusted for premium or discounts. The Company’s debt is not publicly traded and the carrying amounts typically approximate fair value for the Company’s debt that accrues interest at a variable rate, which are considered to be Level 2 inputs. The estimated fair values of the
7%
senior notes and the
2.875%
convertible senior notes were
$461.9 million
and
$223.0 million
, respectively, at
December 31, 2013
. The estimated fair values of the
7%
senior notes, the
8.125%
senior notes and the
2.875%
convertible senior notes were
$236.3 million
,
$273.4 million
and
$219.4 million
, respectively, at
December 31, 2012
. The estimated fair value of the Company’s third-party fixed-rate debt is based on quoted market prices in active markets for the same or similar debt, which are considered to be Level 2 inputs. See Note
4
—Long-Term Debt for discussion of the issuance of additional 7% senior notes and redemption of the 8.125% senior notes. The Company has fixed rate debt held by noncontrolling interest partners with a face value of
$34.6 million
and
$24.5 million
at
December 31, 2013
and
2012
, respectively. The Company is unable to determine the fair value of this debt.
The following table shows the fair value of the Company’s financial assets that have been adjusted to fair value on a non-recurring basis which had a significant impact on the Company’s results of operations for the years ended
December 31, 2013
and
2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
Measurement
|
|
|
|
|
|
|
|
|
|
|
|
at
|
|
Fair Value Measurements Using
|
|
Total
|
|
Description
|
|
December 31
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Losses
|
|
|
|
(in thousands)
|
|
2013 Impairments
|
|
|
|
|
|
|
|
|
|
|
|
Definite-lived intangible assets, net
|
|
$
|
660
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
660
|
|
|
$
|
10,625
|
|
|
Investments in nonconsolidated affiliates
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,174
|
|
|
2013 Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 Impairments
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
$
|
5,983
|
|
|
$
|
—
|
|
|
$
|
5,983
|
|
|
$
|
—
|
|
|
$
|
4,266
|
|
|
Definite-lived intangible assets, net
|
|
$
|
90,176
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
90,176
|
|
|
$
|
89,584
|
|
|
2012 Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
93,850
|
|
In 2013, there were
no
significant impairment charges recorded related to property, plant and equipment. During
2012
and
2011
, the Company recorded impairment charges of
$4.3 million
and
$10.0 million
, respectively, as a component of depreciation and amortization for certain property, plant and equipment. The 2012 impairment charges were primarily related to certain leasehold improvements and office furniture and equipment in the Artist Nation segment, an amphitheater in the Concerts segment and a theater in other operations. The 2011 impairment charges related to
two
amphitheaters, a music theater and a club in the Concerts segment. It was determined that these assets were impaired since the estimated undiscounted future cash flows associated with the respective asset were less than its carrying value. These cash flows were calculated using the estimated sale values for the assets being sold and/or operating cash flows, all of which were discounted to approximate fair value. The estimated sale values and operating cash flows used for these non-recurring fair value measurements are considered Level 2 and Level 3 inputs, respectively.
During
2013
,
2012
and
2011
, the Company recorded impairment charges related to definite-lived intangible assets of
$10.6 million
,
$89.6 million
and
$14.1 million
, respectively, as a component of depreciation and amortization.The 2013 impairment charges were primarily related to intangible assets for venue management and leaseholds in the Concerts segment and client/vendor relationships in the Concerts and Artist Nation segments.
The 2012 impairment charges were primarily related to intangible assets for client/vendor relationships in the Artist Nation segment and revenue-generating contracts and client/vendor relationships in the Concerts segment. The 2011 impairment charges related to intangible assets for client/vendor relationships, revenue-generating contracts and venue management and leaseholds in the Concerts segment. In all these cases it was determined that these assets were impaired since the most recent estimated undiscounted future cash flows associated with
these assets were less than their carrying value. These impairments were then calculated using operating cash flows which were discounted to approximate fair value. The key inputs in these calculations include future cash flow projections, including revenue and profit margins, attrition rates as applicable, and, for the fair value computation, a discount rate. The key inputs used for these non-recurring fair value measurements are considered Level 3 inputs.
During
2013
, the Company recorded impairment charges related to investments in nonconsolidated affiliates of
$9.2 million
as a component of equity in earnings of nonconsolidated affiliates. The impairment charges primarily related to investments in a concert promoter located in Europe and an ecommerce business. Based on financial information received regarding the sale or liquidation of the nonconsolidated affiliates, the Company believed its investment balances were fully impaired. The financial information received from the nonconsolidated affiliates used for these non-recurring fair value measurements are considered Level 3 inputs.
NOTE
7
—COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases office space, certain equipment and many of its concert venues. Some of the lease agreements contain renewal options and annual rental escalation clauses (generally tied to the consumer price index), as well as provisions for the payment of utilities and maintenance by the Company. The Company also has non-cancelable contracts related to minimum performance payments with various artists, other event-related costs and nonrecoupable ticketing contract advances. In addition, the Company has commitments relating to additions to property, plant, and equipment under certain construction commitments for facilities and venues.
As of
December 31, 2013
, the Company’s future minimum rental commitments under non-cancelable operating lease agreements with terms in excess of one year, minimum payments under non-cancelable contracts in excess of one year and capital expenditure commitments consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cancelable
Operating Leases
|
|
Non-cancelable
Contracts
|
|
Capital
Expenditures
|
|
|
(in thousands)
|
|
2014
|
$
|
119,371
|
|
|
$
|
864,519
|
|
|
$
|
7,736
|
|
|
2015
|
123,562
|
|
|
193,083
|
|
|
25
|
|
|
2016
|
124,820
|
|
|
110,086
|
|
|
25
|
|
|
2017
|
114,118
|
|
|
136,240
|
|
|
25
|
|
|
2018
|
106,567
|
|
|
26,196
|
|
|
—
|
|
|
Thereafter
|
1,692,127
|
|
|
29,990
|
|
|
250
|
|
|
Total
|
$
|
2,280,565
|
|
|
$
|
1,360,114
|
|
|
$
|
8,061
|
|
Commitment amounts for non-cancelable operating leases and non-cancelable contracts which stipulate an increase in the commitment amount based on an inflationary index have been estimated using an inflation factor of
2.4%
for North America,
3.3%
for the United Kingdom and
1.8%
for the Netherlands.
Aggregate minimum rentals of
$85.7 million
to be received in years
2014
through
2023
under non-cancelable subleases are excluded from the commitment amounts in the above table.
Total rent expense charged to operations for
2013
,
2012
and
2011
was
$162.6 million
,
$145.2 million
and
$128.7 million
, respectively. In addition to the minimum rental commitments included in the table above, the Company has leases that contain contingent payment requirements for which payments vary depending on revenue, tickets sold or other variables. Contingent rent expense charged to operations for
2013
,
2012
and
2011
was
$46.5 million
,
$30.0 million
and
$17.0 million
, respectively. The above table above does not include contingent rent or rent expense for events in third-party venues.
In connection with asset and business disposals, the Company generally provides indemnifications to the buyers including claims resulting from employment matters, commercial claims and governmental actions that may be taken against the assets or businesses sold. Settlement of these claims is subject to various statutory limitations that are dependent upon the nature of the claim.
Certain agreements relating to acquisitions that occurred prior to the adoption in January 2009 of the FASB guidance for business combinations provide for purchase price adjustments and other future contingent payments based on the financial performance of the acquired companies. The Company will accrue additional amounts related to such contingent payments, which were part of the business combinations, with a corresponding adjustment to goodwill, if and when it is determinable that the applicable financial performance targets will be met. The aggregate of these contingent payments, if all performance targets are met, would not significantly impact the financial position of the Compa
ny. As of December 31, 2013, the Company has accrued
$1.0 million
in other current liabilities for amounts due under these arrangements. The last
contingency period for which the Company has an outstanding contingent payment is for the period ending December 2017
.
The Company also has certain contingent obligations related to acquisitions made after the adoption in January 2009 of the FASB guidance for business combinations. In accordance with the current guidance, contingent consideration associated with business combinations must be recorded at its fair value at the time of the acquisition and reflected at current fair value for each subsequent reporting period thereafter until settled. The Company records these fair value changes in its statements of operations as acquisition transaction expenses. The contingent consideration is generally subject to payout following the achievement of future performance targets and a portion is expected to be payable in the next twelve months. As of
December 31, 2013
, the Company has accrued
$1.9 million
in other current liabilities and
$4.0 million
in other long-term liabilities and, as of
December 31, 2012
, the Company had accrued
$2.5 million
in other current liabilities and
$4.2 million
in other long-term liabilities, representing the fair value of these estimated payments. The last contingency period for which the Company has an outstanding contingent payment is for the period ending December 2017. See Note
6
—Fair Value Measurements for further discussion related to the valuation of these contingent payments.
During 2006, in connection with the Company’s acquisition of Historic Theatre Group, the Company guaranteed obligations related to a lease agreement. In the event of default, the Company could be liable for obligations through the end of
2035
which have future lease payments (undiscounted) of approximately
$21.5 million
as of
December 31, 2013
. The scheduled future minimum rentals for this lease for the years
2014
through
2018
are
$1.6 million
each year. The venues under the lease agreement were included in the sale of the Company’s North American theatrical business in 2008. The buyer has assumed the Company’s obligations under the guaranty, however the Company remains contingently liable to the lessor. The Company believes that the likelihood of a material liability being triggered under this lease is remote, and no liability has been accrued for these contingent lease obligations as of
December 31, 2013
.
As of
December 31, 2013
and
2012
, the Company guaranteed the debt of third parties of approximately
$13.1 million
and
$12.7 million
, respectively, primarily related to maximum credit limits on employee and tour-related credit cards and obligations under a venue management agreement.
Litigation
Ticketing Fees Consumer Class Action Litigation
In October 2003, a putative representative action was filed in the Superior Court of California challenging Ticketmaster’s charges to online customers for shipping fees and alleging that its failure to disclose on its website that the charges contain a profit component is unlawful. The complaint asserted a claim for violation of California’s Unfair Competition Law (“UCL”) and sought restitution or disgorgement of the difference between (i) the total shipping fees charged by Ticketmaster in connection with online ticket sales during the applicable period, and (ii) the amount that Ticketmaster actually paid to the shipper for delivery of those tickets. In August 2005, the plaintiffs filed a first amended complaint, then pleading the case as a putative class action and adding the claim that Ticketmaster’s website disclosures in respect of its ticket order processing fees constitute false advertising in violation of California’s False Advertising Law. On this new claim, the amended complaint seeks restitution or disgorgement of the entire amount of order processing fees charged by Ticketmaster during the applicable period. In April 2009, the Court granted the plaintiffs’ motion for leave to file a second amended complaint adding new claims that (a) Ticketmaster’s order processing fees are unconscionable under the UCL, and (b) Ticketmaster’s alleged business practices further violate the California Consumer Legal Remedies Act. Plaintiffs later filed a third amended complaint, to which Ticketmaster filed a demurrer in July 2009. The Court overruled Ticketmaster’s demurrer in October 2009.
The plaintiffs filed a class certification motion in August 2009, which Ticketmaster opposed. In February 2010, the Court granted certification of a class on the first and second causes of action, which allege that Ticketmaster misrepresents/omits the fact of a profit component in Ticketmaster’s shipping and order processing fees. The class would consist of California consumers who purchased tickets through Ticketmaster’s website from 1999 to present. The Court denied certification of a class on the third and fourth causes of action, which allege that Ticketmaster’s shipping and order processing fees are unconscionably high. In March 2010, Ticketmaster filed a Petition for Writ of Mandate with the California Court of Appeal, and plaintiffs also filed a motion for reconsideration of the Superior Court’s class certification order. In April 2010, the Superior Court denied plaintiffs’ Motion for Reconsideration of the Court’s class certification order, and the Court of Appeal denied Ticketmaster’s Petition for Writ of Mandate. In June 2010, the Court of Appeal granted the plaintiffs’ Petition for Writ of Mandate and ordered the Superior Court to vacate its February 2010 order denying plaintiffs’ motion to certify a national class
and enter a new order granting plaintiffs’ motion to certify a nationwide class on the first and second claims. In September 2010, Ticketmaster filed its Motion for Summary Judgment on all causes of action in the Superior Court, and that same month plaintiffs filed their Motion for Summary Adjudication of various affirmative defenses asserted by Ticketmaster. In November 2010, Ticketmaster filed its Motion to Decertify Class.
In December 2010, the parties entered into a binding agreement providing for the settlement of the litigation and the resolution of all claims therein. In September 2011, the Court declined to approve the settlement in its then-current form. Litigation continued, and in September 2011, the Court granted in part and denied in part Ticketmaster’s Motion for Summary Judgment. The parties reached a new settlement in September 2011, which was approved preliminarily, but in September 2012 the Court declined to grant final approval. The parties have reached a revised settlement and presented those terms to the court for preliminary approval in December 2013. Ticketmaster and its parent, Live Nation, have not acknowledged any violations of law or liability in connection with the matter.
As of
December 31, 2013
, the Company has accrued
$35.4 million
, its best estimate of the probable costs associated with the settlement referred to above. This liability includes an estimated redemption rate. Any difference between the Company’s estimated redemption rate and the actual redemption rate it experiences will impact the final settlement amount; however, the Company does not expect this difference to be material.
Canadian Consumer Class Action Litigation Relating to TicketsNow
In February 2009,
four
putative consumer class action complaints were filed in various provinces of Canada against TicketsNow, Ticketmaster, Ticketmaster Canada Ltd. and Premium Inventory, Inc. All of the cases alleged essentially the same set of facts and causes of action. Each plaintiff purported to represent a class consisting of all persons who purchased a ticket from Ticketmaster, Ticketmaster Canada Ltd. or TicketsNow from February 2007 to present and alleges that Ticketmaster conspired to divert a large number of tickets for resale through the TicketsNow website at prices higher than face value. The plaintiffs characterized these actions as being in violation of Ontario’s Ticket Speculation Act, the Amusement Act of Manitoba, the Amusement Act of Alberta or the Quebec Consumer Protection Act. The Ontario case contained the additional allegation that Ticketmaster’s service fees violate anti-scalping laws. Each lawsuit sought compensatory and punitive damages on behalf of the class.
In February 2012, the parties entered into a settlement agreement that resolved all of the resale market claims. The court approval process for the settlement has been completed, with final approvals given in all provinces. The settlement was paid in January 2013, the full amount of which was funded by an escrow established in connection with Ticketmaster’s 2008 acquisition of TicketsNow.
In December 2013, the Court issued an order granting the Company's Motion for Summary Judgment and dismissing the primary market claim, which was the remaining part of the Ontario case. A settlement agreement was thereafter reached under which the Company waived its right to seek recovery of its attorney’s fees and costs and the plaintiffs waived their right to appeal, fully and finally resolving and disposing of the litigation.
Other Litigation
From time to time, the Company is involved in other legal proceedings arising in the ordinary course of its business, including proceedings and claims based upon violations of antitrust laws and intellectual property rights, and tortious interference, which could cause the Company to incur significant expenses. The Company has also been the subject of personal injury and wrongful death claims relating to accidents at its venues in connection with its operations. As required, the Company has accrued its estimate of the probable settlement or other losses for the resolution of any outstanding claims. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, including, in some cases, estimated redemption rates for the settlement offered, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in the Company’s assumptions or the effectiveness of its strategies related to these proceedings. In addition, under the Company’s agreements with Clear Channel, it has assumed and will indemnify Clear Channel for liabilities associated with matters prior to its Separation that are related to its business for which they are a party in the defense.
NOTE
8
—CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
Agreements with Liberty Media
In connection with a stockholder agreement, Liberty Media exercised its right to nominate
two
members to the Company’s board of directors. In February 2011, the Company entered into a subscription agreement with Liberty Media. Pursuant to the subscription agreement, in February and June 2011, the Company sold to Liberty Media
1.8 million
and
5.5 million
shares, respectively, of the Company’s common stock for aggregate cash consideration of
$18.8 million
and
$57.7 million
, respectively.
Transactions Involving Directors
The following table sets forth revenue earned and expenses incurred from the transactions noted below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
(in thousands)
|
|
Director related-party revenue
|
$
|
2,475
|
|
|
$
|
18,329
|
|
|
$
|
22,069
|
|
|
Director related-party expenses
|
$
|
4,559
|
|
|
$
|
21,795
|
|
|
$
|
25,210
|
|
Relationship with Clear Channel
For purposes of governing certain of the ongoing relationships between Clear Channel and Live Nation at and after the Separation, Clear Channel and Live Nation entered into a tax matters agreement, among other agreements.
The Company has a non-employee director who was also a director and executive officer of Clear Channel until July 2013. This director receives directors’ fees, stock options and restricted stock awards on the same basis as other non-employee members of the Company’s board of directors. From time to time, the Company purchases advertising from Clear Channel and its subsidiaries in the ordinary course of business on an arms-length basis. The Company also has various lease and licensing agreements with Clear Channel for office space. These transactions are included in the table above through July 2013.
Transactions with MSG
The Company had a non-employee director until February 2013 who is also a director and executive officer of MSG and Cablevision Systems Corporation. This director received directors’ fees, stock options and restricted stock awards on the same basis as other non-employee members of the Company’s board of directors. From time to time, the Company promotes events at venues owned and/or operated by MSG and pays rental fees and co-promote fees to MSG and its subsidiaries. In addition, the Company provides ticketing services for venues and sports franchises owned and/or operated by MSG and pays royalty fees to MSG and its subsidiaries. The Company also receives transaction fees from MSG and its subsidiaries for tickets MSG sells using the Company’s ticketing software. Finally, the Company purchases advertising from Cablevision Systems Corporation and its subsidiaries from time to time. All of these transactions are entered into in the ordinary course of business on an arms-length basis and are included in the table above through February 2013.
Transactions Involving Executives
ATC Aviation, Inc. (“ATC”), which was owned by the Company’s former Executive Chairman who resigned on December 31, 2012, owned an aircraft. The Company was charged market rates for the use of the aircraft when used by the former executive or other executives on Company business, a portion of which was paid to ATC. These arrangements are no longer in effect following the executive’s departure from the Company. For the years ended
December 31, 2012
and
2011
the Company made payments totaling
$1.9 million
and
$1.7 million
, respectively.
As of
December 31, 2012
, the former executive noted above had a minority ownership interest in an entity that subleases office space from the Company. Rent charged by the Company for the years ended
December 31, 2012
and
2011
totaled
$0.7 million
for each respective period.
The Trust was a party to the Second Amended and Restated Stockholders’ Agreement of Front Line dated as of June 9, 2008, as amended (the “Front Line Stockholders’ Agreement”). The Front Line Stockholders’ Agreement governed certain matters related to Front Line and the ownership of securities of Front Line, including board designation rights, transaction approval requirements, share transfer provisions, and put and call rights. The Front Line Stockholders’ Agreement also provided for an annual pro rata dividend to be paid to the stockholders as soon as reasonably practicable after the end of each fiscal year. The Front Line Stockholders’ Agreement was terminated in connection with the first quarter 2011 acquisition of the remaining equity interests in Front Line. See Note 3—Acquisitions for further discussion of this 2011 transaction.
In January 2011, the board of directors of Front Line declared a dividend payable in cash to the holders of record of Front Line common stock. This dividend was paid in January 2011 and totaled
$20.1 million
of which the Company received
$15.0 million
. The Trust received a pro rata portion of this dividend totaling
$3.0 million
. In connection with the January 2011 dividend, the former executive mentioned above received a gross-up payment of
$0.6 million
.
Trust Note
For the
year ended
December 31, 2012
, the Company recorded
$11.7 million
of acquisition expenses related to the Trust Note as a component of corporate expenses. The Trust Note was paid in full in December 2012 in connection with the resignation of the executive affiliated with the trust that held the Trust Note.
Transactions Involving Equity Method Investees
The Company conducts business with certain of its equity method investees in the ordinary course of business. Transactions relate to venue rentals, management fees and sponsorship revenue. Revenue of
$2.6 million
,
$2.3 million
and
$1.3 million
were earned in
2013
,
2012
and
2011
, respectively, and expenses of
$7.5 million
,
$6.8 million
and
$4.8 million
were incurred in
2013
,
2012
and
2011
, respectively, from these equity investees for services rendered or provided in relation to these business ventures.
Other Related Parties
During the year ended December 31, 2011, the Company paid
$6.8 million
for deferred consideration due in connection with the acquisition of a company owned by various members of management of one of the Company’s subsidiaries. This company holds a venue lease and the agreement was paid in full in 2011.
In January 2011, the Company sold a
49.9%
noncontrolling interest in its clubs and theaters venue promotion business in Boston to a company partially owned by
two
employees of one of the Company’s subsidiaries in exchange for assets and cash valued at
$12.6 million
.
The Company conducts certain transactions in the ordinary course of business with companies that are owned, in part or in total, by various members of management of the Company’s subsidiaries or companies over which it has significant influence. These transactions primarily relate to venue rentals, concession services, equipment rentals, ticketing, marketing and other services. As of
December 31, 2013
and
December 31, 2012
, the Company has a receivable balance of
$13.5 million
and
$12.2 million
, respectively, from certain of these companies. The following table sets forth expenses incurred and revenue earned from these companies for services rendered or provided in relation to these business ventures. None of these transactions were with directors or executive officers of the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
(in thousands)
|
|
Other related-parties revenue
|
$
|
6,526
|
|
|
$
|
4,958
|
|
|
$
|
5,226
|
|
|
Other related-parties expenses
|
$
|
21,284
|
|
|
$
|
14,275
|
|
|
$
|
9,007
|
|
NOTE 9—INCOME TAXES
Significant components of the provision for income tax expense (benefit) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
|
(in thousands)
|
|
Current—federal
|
|
$
|
1,238
|
|
|
$
|
2,235
|
|
|
$
|
(23,340
|
)
|
|
Current—foreign
|
|
41,664
|
|
|
34,541
|
|
|
38,328
|
|
|
Current—state
|
|
3,864
|
|
|
3,917
|
|
|
4,391
|
|
|
Total current
|
|
46,766
|
|
|
40,693
|
|
|
19,379
|
|
|
Deferred—federal
|
|
(852
|
)
|
|
(386
|
)
|
|
(29,153
|
)
|
|
Deferred—foreign
|
|
(14,606
|
)
|
|
(14,591
|
)
|
|
(13,463
|
)
|
|
Deferred—state
|
|
(430
|
)
|
|
4,020
|
|
|
(2,987
|
)
|
|
Total deferred
|
|
(15,888
|
)
|
|
(10,957
|
)
|
|
(45,603
|
)
|
|
Income tax expense (benefit)
|
|
$
|
30,878
|
|
|
$
|
29,736
|
|
|
$
|
(26,224
|
)
|
|
|
|
|
|
|
|
|
Current income tax expense
increased
$6.1 million
for the
year ended
December 31, 2013
as compared to the prior year due principally to results attributable to the 2012 acquisitions of foreign entities. Current income tax expense
increased
$21.3
million
for the
year ended
December 31, 2012
as compared to the prior year due principally to the carryback of domestic net operating losses in 2011 which generated
$24.2 million
of federal tax refunds.
Deferred income tax benefit increased
$4.9 million
for the
year ended
December 31, 2013
as compared to the prior year due principally to an increase in the blended state tax rate. Deferred income tax benefit
decreased
$34.6 million
for the
year ended
December 31, 2012
as compared to the prior year due principally to the reversal of valuation allowances recorded against United States federal and state deferred tax assets driven primarily by deferred tax attributes relating to the acquisition of the remaining interests in Front Line in the first quarter of 2011 and an increase in the blended state tax rate in 2012.
The domestic net loss before income taxes was
$103.9 million
,
$232.3 million
and
$200.4 million
for
2013
,
2012
and
2011
, respectively. Non-United States income before income taxes was
$98.8 million
,
$100.1 million
and
$103.8 million
for
2013
,
2012
and
2011
, respectively.
Significant components of the Company’s deferred tax liabilities and assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2013
|
|
2012
|
|
|
|
(in thousands)
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Intangible assets
|
|
$
|
234,454
|
|
|
$
|
281,071
|
|
|
Prepaid expenses
|
|
7,089
|
|
|
4,575
|
|
|
Long-term debt
|
|
51,166
|
|
|
41,949
|
|
|
Total deferred tax liabilities
|
|
292,709
|
|
|
327,595
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
Intangible and fixed assets
|
|
8,991
|
|
|
27,723
|
|
|
Accrued expenses
|
|
59,944
|
|
|
53,125
|
|
|
Net operating loss carryforwards
|
|
393,628
|
|
|
379,111
|
|
|
Foreign tax credit carryforwards
|
|
42,323
|
|
|
38,710
|
|
|
Equity compensation
|
|
24,930
|
|
|
47,542
|
|
|
Investments in nonconsolidated
|
|
|
|
|
|
affiliates
|
|
—
|
|
|
5,267
|
|
|
Other
|
|
14,597
|
|
|
14,114
|
|
|
Total gross deferred tax assets
|
|
544,413
|
|
|
565,592
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
435,578
|
|
|
425,404
|
|
|
Total deferred tax assets
|
|
108,835
|
|
|
140,188
|
|
|
Net deferred tax liabilities
|
|
$
|
(183,874
|
)
|
|
$
|
(187,407
|
)
|
|
|
|
|
|
|
The valuation allowance was recorded due to the uncertainty of the ability to generate sufficient taxable income necessary to realize certain deferred tax assets in future years. If, at a later date, it is determined that due to a change in circumstances, the Company will utilize all or a portion of those deferred tax assets, the Company will reverse the corresponding valuation allowance with the offset to income tax benefit. In the first quarter of 2011, the Company recognized an income tax benefit of
$39.5 million
due to the partial release of its valuation allowance. This release was related to the Company’s ability to consider Front Line’s net deferred tax liabilities as a source of future taxable income within the consolidated federal tax provision as a result of the acquisition of the remaining Front Line equity interests in 2011. For further discussion of events involving Front Line, see Note 3
—
Acquisitions.
During
2013
and
2012
, the Company recorded net deferred tax liabilities of
$15.1 million
and
$21.3 million
, respectively, due principally to differences in financial reporting and tax bases in assets acquired in business combinations.
Deferred tax assets related to intangibles and fixed assets principally relate to differences in book and tax basis of tax-deductible goodwill created from the Company’s various stock acquisitions. As of
December 31, 2013
, the Company has United States federal and state deferred tax assets related to net operating loss carryforwards of
$289.8 million
and
$70.5 million
, respectively. Based on current statutory carryforward periods, these losses will expire on various dates between the years
2016
and
2033
. The amount of United States net operating loss carryforwards that will expire if not utilized in 2016, 2017
and 2018 is
$18.3 million
,
$14.6 million
and
$40.0 million
, respectively. The Company’s federal net operating loss is partially subject to statutory limitations on the amount that can be used in any given year.
The reconciliation of income tax computed at the United States federal statutory tax rates to income tax expense (benefit) is:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
|
(in thousands)
|
|
Income tax benefit at United States statutory rates
|
|
$
|
(1,798
|
)
|
|
$
|
(46,256
|
)
|
|
$
|
(33,820
|
)
|
|
State income taxes, net of federal tax benefits
|
|
3,864
|
|
|
3,917
|
|
|
4,391
|
|
|
Differences between foreign and United States statutory rates
|
|
(21,182
|
)
|
|
(25,637
|
)
|
|
(25,158
|
)
|
|
Non-United States income inclusions and exclusions
|
|
18,525
|
|
|
9,901
|
|
|
11,288
|
|
|
Nondeductible items
|
|
7,570
|
|
|
9,005
|
|
|
9,252
|
|
|
Tax contingencies
|
|
697
|
|
|
4,316
|
|
|
2,632
|
|
|
Change in valuation allowance
|
|
15,912
|
|
|
79,214
|
|
|
7,412
|
|
|
Other, net
|
|
7,290
|
|
|
(4,724
|
)
|
|
(2,221
|
)
|
|
|
|
$
|
30,878
|
|
|
$
|
29,736
|
|
|
$
|
(26,224
|
)
|
|
|
|
|
|
|
|
|
During
2013
and
2012
, the Company recorded income tax expense of approximately
$30.9 million
and
$29.7 million
, respectively, on losses before tax of
$5.1 million
and
$132.2 million
, respectively. Income tax expense is principally attributable to the Company’s earnings in foreign tax jurisdictions.
In 2013 and 2012, there were no significant income tax benefits recognized from valuation allowance reversals attributable to acquisitions. During 2011, the Company recorded an income tax benefit of approximately
$26.2 million
on a loss before income tax of
$96.6 million
. This income tax benefit was principally attributable to the reversal of valuation allowances recorded against United States federal and state deferred tax assets driven primarily by deferred tax attributes of
$39.5 million
relating to the acquisition of the remaining interests in Front Line in the first quarter of 2011 and the carryback of the Front Line tax loss for the short period January 1, 2011 to February 4, 2011 caused by the acquisition.
Differences between foreign and United States statutory rates of
$21.2 million
,
$25.6 million
and
$25.2 million
for the years ended
December 31, 2013
,
2012
and
2011
, respectively, are primarily attributable to the Company’s Luxembourg holding company structure and tax rulings received from the Luxembourg tax authorities.
The Company regularly assesses the likelihood of additional assessments in each taxing jurisdiction resulting from current and subsequent years’ examinations. Liabilities for income taxes are established for future income tax assessments when it is probable there will be future assessments and the amount thereof can be reasonably estimated. Once established, liabilities for uncertain tax positions are adjusted only when there is more information available or when an event occurs necessitating a change to the liabilities. The Company believes that the resolution of income tax matters for open years will not have a material effect on its consolidated financial statements although the resolution of income tax matters could impact the Company’s effective tax rate for a particular future period.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. For the years ended
December 31, 2013
,
2012
and
2011
, the Company has recognized
$0.1 million
,
$0.7 million
and
$0.7 million
, respectively, of interest and penalties related to uncertain tax positions. As of
December 31, 2013
and
2012
, the Company has accrued interest related to uncertain tax positions of
$1.2 million
and
$1.6 million
, respectively.
The tax years
2005
through
2013
remain open to examination by the major tax jurisdictions to which the Company is subject.
At
December 31, 2013
and
2012
, the Company had
$12.9 million
and
$16.0 million
, respectively, of unrecognized tax benefits. All of these unrecognized tax benefits would favorably impact the effective tax rate if recognized at some point in the future. The following table summarizes the activity related to the Company’s unrecognized tax benefits for the years ended
December 31, 2013
,
2012
and
2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
|
(in thousands)
|
|
Balance at January 1
|
|
$
|
15,974
|
|
|
$
|
13,357
|
|
|
$
|
10,917
|
|
|
Additions:
|
|
|
|
|
|
|
|
Increase in tax for current year positions
|
|
396
|
|
|
2,978
|
|
|
1,991
|
|
|
Increase in tax for prior year positions
|
|
800
|
|
|
652
|
|
|
—
|
|
|
Decrease in tax for prior year positions
|
|
(75
|
)
|
|
—
|
|
|
(86
|
)
|
|
Interest and penalties for prior years
|
|
148
|
|
|
686
|
|
|
727
|
|
|
Reductions:
|
|
|
|
|
|
|
|
Expiration of applicable statue of limitations
|
|
(572
|
)
|
|
—
|
|
|
—
|
|
|
Settlements for prior year positions
|
|
(3,212
|
)
|
|
(1,716
|
)
|
|
—
|
|
|
Foreign exchange
|
|
(599
|
)
|
|
247
|
|
|
(192
|
)
|
|
Reclassification to other liabilities
|
|
—
|
|
|
(230
|
)
|
|
—
|
|
|
Balance at December 31
|
|
$
|
12,860
|
|
|
$
|
15,974
|
|
|
$
|
13,357
|
|
|
|
|
|
|
|
|
|
NOTE 10—EQUITY
Dividends
The Company presently intends to retain future earnings, if any, to finance the expansion of its business. Therefore, it does not expect to pay any cash dividends in the foreseeable future. Moreover, the terms of the Company’s senior secured credit facility limit the amount of funds that the Company will have available to declare and distribute as dividends on its common stock. Payment of future cash dividends, if any, will be at the discretion of the Company’s board of directors in accordance with applicable laws after taking into account various factors, including the financial condition, operating results, current and anticipated cash needs, plans for expansion and contractual restrictions with respect to the payment of dividends.
Common Stock
Issued shares of common stock reported on the Consolidated Balance Sheet include
2.2 million
and
3.2 million
, at
December 31,
2013
and
2012
, respectively, of unvested restricted stock awards that have not been included in the common shares issued reported on the Consolidated Statement of Changes In Equity. These shares will be reflected in the Consolidated Statement of Changes In Equity at the time of vesting.
During
2013
, the Company issued
10.1 million
shares of common stock primarily in connection with stock option exercises.
The above shares include
0.5 million
shares of common stock that were issued in connection with the exercise of warrants to purchase the Company’s common stock. The transactions were cashless net exercises resulting in the Company repurchasing
0.4 million
of the shares issued which have been recorded in treasury stock at a value of
$6.9 million
.
In February 2011, the Company issued
5.7 million
shares of common stock in connection with the acquisition of the remaining interests in Front Line. See Note
3
—Acquisitions for further discussion regarding this 2011 transaction.
In February and June 2011, the Company issued
1.8 million
and
5.5 million
shares, respectively, of common stock pursuant to a subscription agreement with Liberty Media. See Note
8
—Certain Relationships and Related-Party Transactions for further discussion of the subscription agreement.
In May 2011, the Company issued
0.7 million
shares of common stock in connection with the acquisition of the remaining interests in an artist management business.
Common Stock Reserved for Future Issuance
Common stock of approximately
25.9 million
shares as of
December 31, 2013
is reserved for future issuances under the stock incentive plan (including
16.6 million
options and
2.2 million
restricted stock awards currently granted).
Noncontrolling Interests
Common securities held by the noncontrolling interests that do not include put arrangements exercisable outside of the control of the Company are recorded in equity, separate from the Company’s stockholders’ equity.
The purchase or sale of additional ownership in an already controlled subsidiary is recorded as an equity transaction with no gain or loss recognized in consolidated net income (loss) or comprehensive income (loss) as long as the subsidiary remains a controlled subsidiary. In 2013, the Company acquired the remaining equity interest in a company that owns The O
2
Dublin and other smaller companies. In 2011, the Company acquired the remaining equity interests in Front Line and other smaller companies. See Note
3
—Acquisitions for further discussion regarding the Front Line acquisition. The following schedule reflects the change in ownership interests for these transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
(in thousands)
|
|
Net loss attributable to common stockholders of Live Entertainment, Inc.
|
$
|
(43,378
|
)
|
|
$
|
(163,227
|
)
|
|
$
|
(83,016
|
)
|
|
Transfers from noncontrolling interest:
|
|
|
|
|
|
|
Changes in Live Nation Entertainment, Inc.’s additional paid-in capital for purchase of noncontrolling interests, net of transaction costs
|
(17,732
|
)
|
|
43
|
|
|
85,590
|
|
|
Change from net loss attributable to common stockholders of Live Nation Entertainment, Inc. and transfers from noncontrolling interests
|
$
|
(61,110
|
)
|
|
$
|
(163,184
|
)
|
|
$
|
2,574
|
|
Redeemable Noncontrolling Interests
The Company is subject to put arrangements arising from business combinations where the holders of the noncontrolling interests can require the Company to repurchase their shares at specified dates in the future or within specified periods in the future. Certain of these puts can be exercised earlier upon the occurrence of triggering events as specified in the agreements. The exercise dates for these puts range from June 2014 to December 2018. The redemption amounts for these puts are either at a fixed amount, at fair value at the time of exercise or a variable amount based on a formula linked to earnings. In accordance with the FASB guidance for business combinations, the redeemable noncontrolling interests are recorded at their fair value at acquisition date. As these put arrangements are not currently redeemable, the Company accretes up to the redemption value over the period from the date of issuance to the earliest redemption date of the individual puts, with the offset recorded to additional paid-in capital. Decreases in accretion are only recognized to the extent that increases had been previously recognized. The estimated redemption values that are based on a formula linked to future earnings are computed using projected cash flows each reporting period which take into account the current expectations regarding profitability and the timing of revenue-generating events. The amounts for these put arrangements are reflected in the Company’s balance sheets as redeemable noncontrolling interests outside of permanent equity. The increase during the current year is principally related to puts associated with 2013 acquisitions.
Accumulated Other Comprehensive Income (Loss)
The following table presents changes in the components of AOCI, net of taxes, for the years ended
December 31, 2013
,
2012
and
2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains and Losses on Cash Flow Hedges
|
|
Defined Benefit Pension Items
|
|
Foreign Currency Items
|
|
Total
|
|
|
|
(in thousands)
|
|
Balance at December 31, 2010
|
|
$
|
(272
|
)
|
|
$
|
(179
|
)
|
|
$
|
(21,793
|
)
|
|
$
|
(22,244
|
)
|
|
Other comprehensive loss before reclassifications
|
|
(159
|
)
|
|
(42
|
)
|
|
(13,929
|
)
|
|
(14,130
|
)
|
|
Net other comprehensive loss
|
|
(159
|
)
|
|
(42
|
)
|
|
(13,929
|
)
|
|
(14,130
|
)
|
|
Balance at December 31, 2011
|
|
(431
|
)
|
|
(221
|
)
|
|
(35,722
|
)
|
|
(36,374
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
|
(148
|
)
|
|
(390
|
)
|
|
26,005
|
|
|
25,467
|
|
|
Amount reclassified from AOCI
|
|
(16
|
)
|
|
—
|
|
|
—
|
|
|
(16
|
)
|
|
Net other comprehensive income (loss)
|
|
(164
|
)
|
|
(390
|
)
|
|
26,005
|
|
|
25,451
|
|
|
Balance at December 31, 2012
|
|
(595
|
)
|
|
(611
|
)
|
|
(9,717
|
)
|
|
(10,923
|
)
|
|
Other comprehensive income before reclassifications
|
|
20
|
|
|
—
|
|
|
8,037
|
|
|
8,057
|
|
|
Amount reclassified from AOCI
|
|
496
|
|
|
—
|
|
|
—
|
|
|
496
|
|
|
Net other comprehensive income
|
|
516
|
|
|
—
|
|
|
8,037
|
|
|
8,553
|
|
|
Balance at December 31, 2013
|
|
$
|
(79
|
)
|
|
$
|
(611
|
)
|
|
$
|
(1,680
|
)
|
|
$
|
(2,370
|
)
|
The realized loss on cash flow hedges reclassified from AOCI consists of
one
interest rate swap agreement.
Earnings per Share
Basic net income (loss) per common share is computed by dividing the net income (loss) applicable to common shares by the weighted average number of common shares outstanding during the period. Diluted net income per common share adjusts basic net income per common share for the effects of stock options, restricted stock and other potentially dilutive financial instruments only in the periods in which such effect is dilutive. The Company’s
2.875%
convertible notes are considered in the calculation of diluted net income per common share, if dilutive.
The calculation of diluted net income per common share includes the effects of the assumed exercise of any outstanding stock options and warrants, the assumed vesting of shares of restricted stock awards and units and the assumed conversion of the
2.875%
convertible senior notes where dilutive. For the years ended December 31, 2013, 2012 and 2011 there were no reconciling items to net loss attributable to common stockholders of Live Nation Entertainment, Inc. or weighted average common shares outstanding in the calculation of diluted net income per common share. The following table shows securities excluded from the calculation of diluted net income per common share because such securities are anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
(in thousands)
|
|
Options to purchase shares of common stock
|
16,628
|
|
|
24,722
|
|
|
21,429
|
|
|
Restricted stock awards and units—unvested
|
2,210
|
|
|
3,207
|
|
|
4,028
|
|
|
Warrants
|
—
|
|
|
500
|
|
|
500
|
|
|
Conversion shares related to 2.875% convertible senior notes
|
8,105
|
|
|
8,105
|
|
|
8,105
|
|
|
Number of anti-dilutive potentially issuable shares excluded from diluted common shares outstanding
|
26,943
|
|
|
36,534
|
|
|
34,062
|
|
