LYV-2013.9.30-10Q

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________ 
Form 10-Q
____________________________________ 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2013,
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                
Commission File Number 001-32601
____________________________________ 
LIVE NATION ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
____________________________________ 
Delaware
 
20-3247759
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
9348 Civic Center Drive
Beverly Hills, CA 90210
(Address of principal executive offices, including zip code)
(310) 867-7000
(Registrant’s telephone number, including area code)
____________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
Accelerated filer
 
¨
 
 
 
 
 
 
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No
On October 31, 2013, there were 199,291,639 outstanding shares of the registrant’s common stock, $0.01 par value per share, including 2,214,424 shares of unvested restricted stock awards and excluding 408,024 shares held in treasury.
 

Table of Contents

LIVE NATION ENTERTAINMENT, INC.
INDEX TO FORM 10-Q

 
 
Page
PART I—FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
PART II—OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 5.
Item 6.

Table of Contents

LIVE NATION ENTERTAINMENT, INC.
GLOSSARY OF KEY TERMS
 
AOCI
Accumulated other comprehensive income (loss)
AOI
Adjusted operating income (loss)
Clear Channel
Clear Channel Communications, Inc.
Company
Live Nation Entertainment, Inc. and subsidiaries
FASB
Financial Accounting Standards Board
GAAP
United States Generally Accepted Accounting Principles
Live Nation
Live Nation Entertainment, Inc., formerly known as Live Nation, Inc., and subsidiaries
Merger
Merger between Live Nation, Inc. and Ticketmaster Entertainment, Inc. announced in February 2009 and consummated in January 2010
MSG
The Madison Square Garden Company
SEC
United States Securities and Exchange Commission
Separation
The contribution and transfer by Clear Channel of substantially all of its entertainment assets and liabilities to Live Nation
Ticketmaster
For periods prior to May 6, 2010, Ticketmaster means Ticketmaster Entertainment LLC and its predecessor companies (including without limitation Ticketmaster Entertainment, Inc.); for periods on and after May 6, 2010, Ticketmaster means the Ticketmaster ticketing business of the Company
TicketsNow
TNow Entertainment Group, Inc.
Trust Note
A note issued as part of a prior acquisition to the family trust of a former executive, of which the former executive is a co-Trustee. This note had been issued in exchange for shares of Ticketmaster’s series A convertible redeemable preferred stock held by this trust.

1
Table of Contents

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
LIVE NATION ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
September 30,
2013
 
December 31,
2012
 
(in thousands)
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
1,302,578

 
$
1,001,055

Accounts receivable, less allowance of $17,240 and $19,794, respectively
578,426

 
415,790

Prepaid expenses
435,769

 
359,936

Other current assets
47,777

 
36,031

Total current assets
2,364,550

 
1,812,812

Property, plant and equipment
 
 
 
Land, buildings and improvements
812,685

 
852,175

Computer equipment and capitalized software
386,825

 
338,919

Furniture and other equipment
205,267

 
200,743

Construction in progress
59,305

 
56,822

 
1,464,082

 
1,448,659

Less accumulated depreciation
767,079

 
726,873

 
697,003

 
721,786

Intangible assets
 
 
 
Definite-lived intangible assets, net
644,410

 
724,463

Indefinite-lived intangible assets
376,440

 
377,463

Goodwill
1,397,471

 
1,357,827

Investments in nonconsolidated affiliates
40,128

 
46,160

Other long-term assets
255,558

 
250,295

Total assets
$
5,775,560

 
$
5,290,806

LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable, client accounts
$
659,803

 
$
557,953

Accounts payable
113,385

 
102,718

Accrued expenses
784,761

 
626,723

Deferred revenue
395,763

 
402,002

Current portion of long-term debt
263,689

 
62,050

Other current liabilities
16,350

 
16,726

Total current liabilities
2,233,751

 
1,768,172

Long-term debt, net
1,540,763

 
1,677,955

Long-term deferred income taxes
189,496

 
199,596

Other long-term liabilities
92,288

 
94,409

Commitments and contingent liabilities


 


Redeemable noncontrolling interests
66,680

 
42,100

Stockholders’ equity
 
 
 
Common stock
1,973

 
1,877

Additional paid-in capital
2,375,613

 
2,272,882

Accumulated deficit
(869,753
)
 
(908,418
)
Cost of shares held in treasury
(6,865
)
 
—

Accumulated other comprehensive loss
(11,261
)
 
(10,923
)
Total Live Nation Entertainment, Inc. stockholders’ equity
1,489,707

 
1,355,418

Noncontrolling interests
162,875

 
153,156

Total equity
1,652,582

 
1,508,574

Total liabilities and equity
$
5,775,560

 
$
5,290,806


See Notes to Consolidated Financial Statements
2
Table of Contents

LIVE NATION ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2013
 
2012
 
2013
 
2012
 
(in thousands except share and per share data)
Revenue
$
2,262,236

 
$
1,963,146

 
$
4,865,447

 
$
4,381,820

Operating expenses:
 
 
 
 
 
 
 
Direct operating expenses
1,698,731

 
1,457,423

 
3,485,583

 
3,103,006

Selling, general and administrative expenses
325,005

 
283,846

 
900,246

 
832,924

Depreciation and amortization
92,729

 
84,684

 
257,582

 
258,656

Gain on disposal of operating assets
(9,060
)
 
(60
)
 
(42,856
)
 
(255
)
Corporate expenses
26,442

 
30,842

 
68,909

 
81,474

Acquisition transaction expenses
2,352

 
1,896

 
5,329

 
1,335

Operating income
126,037

 
104,515

 
190,654

 
104,680

Interest expense
29,393

 
35,535

 
87,585

 
94,733

Loss (gain) on extinguishment of debt
36,269

 
(460
)
 
36,269

 
(460
)
Interest income
(1,547
)
 
(994
)
 
(4,205
)
 
(2,825
)
Equity in losses (earnings) of nonconsolidated affiliates
2,363

 
(3,117
)
 
(2,848
)
 
(8,799
)
Other expense (income), net
(5,269
)
 
(6,575
)
 
2,237

 
(2,933
)
Income before income taxes
64,828

 
80,126

 
71,616

 
24,964

Income tax expense
14,410

 
11,950

 
26,370

 
21,456

Net income
50,418

 
68,176

 
45,246

 
3,508

Net income attributable to noncontrolling interests
6,644

 
10,228

 
6,581

 
7,018

Net income (loss) attributable to common stockholders of Live Nation Entertainment, Inc.
$
43,774

 
$
57,948

 
$
38,665

 
$
(3,510
)
 
 
 
 
 
 
 
 
Basic and diluted net income (loss) per common share attributable to common stockholders of Live Nation Entertainment, Inc.
$
0.22

 
$
0.31

 
$
0.20

 
$
(0.02
)
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
196,396,704

 
187,153,788

 
192,792,286

 
186,857,527

Diluted
202,109,783

 
189,754,343

 
197,266,289

 
186,857,527


See Notes to Consolidated Financial Statements
3
Table of Contents

LIVE NATION ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2013
 
2012
 
2013
 
2012
 
(in thousands)
Net income
$
50,418

 
$
68,176

 
$
45,246

 
$
3,508

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Unrealized gain (loss) on cash flow hedges
(22
)
 
(68
)
 
3

 
(156
)
Realized loss on cash flow hedges
19

 
—

 
476

 
—

Change in funded status of defined benefit pension plan
—

 
(202
)
 
—

 
(202
)
Foreign currency translation adjustments
40,701

 
29,161

 
(817
)
 
20,296

Comprehensive income
91,116

 
97,067

 
44,908

 
23,446

Comprehensive income attributable to noncontrolling interests
6,644

 
10,228

 
6,581

 
7,018

Comprehensive income attributable to common stockholders of Live Nation Entertainment, Inc.
$
84,472

 
$
86,839

 
$
38,327

 
$
16,428



See Notes to Consolidated Financial Statements
4
Table of Contents

LIVE NATION ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

 
Nine Months Ended 
 September 30,
 
2013
 
2012
 
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
45,246

 
$
3,508

Reconciling items:
 
 
 
Depreciation
90,443

 
90,789

Amortization
167,139

 
167,867

Deferred income tax benefit
(8,230
)
 
(11,183
)
Amortization of debt issuance costs and discount/premium, net
15,409

 
11,415

Loss (gain) on extinguishment of debt
36,269

 
(460
)
Non-cash compensation expense
23,224

 
27,595

Gain on disposal of operating assets
(42,856
)
 
(255
)
Equity in earnings of nonconsolidated affiliates
(2,848
)
 
(8,799
)
Other, net
576

 
(364
)
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
 
 
 
Increase in accounts receivable
(129,361
)
 
(186,313
)
Increase in prepaid expenses
(50,432
)
 
(159,473
)
Increase in other assets
(94,512
)
 
(37,712
)
Increase in accounts payable, accrued expenses and other liabilities
260,254

 
138,270

Increase (decrease) in deferred revenue
(45,783
)
 
54,154

Net cash provided by operating activities
264,538

 
89,039

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Distributions from nonconsolidated affiliates
13,104

 
6,744

Investments made in nonconsolidated affiliates
(7,505
)
 
(3,212
)
Purchases of property, plant and equipment
(103,577
)
 
(92,372
)
Proceeds from disposal of operating assets, net of cash divested
83,086

 
7,788

Cash paid for acquisitions, net of cash acquired
(26,418
)
 
(71,256
)
Purchases of intangible assets
(17
)
 
(14,553
)
Other, net
(1,163
)
 
(943
)
Net cash used in investing activities
(42,490
)
 
(167,804
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from long-term debt, net of debt issuance costs
870,324

 
481,286

Payments on long-term debt
(854,277
)
 
(457,487
)
Contributions from noncontrolling interests
267

 
130

Distributions to noncontrolling interests
(12,382
)
 
(9,202
)
Purchases and sales of noncontrolling interests, net
(75
)
 
(259
)
Proceeds from exercise of stock options
80,593

 
926

Payments for deferred and contingent consideration
(750
)
 
(10,585
)
Net cash provided by financing activities
83,700

 
4,809

Effect of exchange rate changes on cash and cash equivalents
(4,225
)
 
13,374

Net increase (decrease) in cash and cash equivalents
301,523

 
(60,582
)
Cash and cash equivalents at beginning of period
1,001,055

 
844,253

Cash and cash equivalents at end of period
$
1,302,578

 
$
783,671


See Notes to Consolidated Financial Statements
5
Table of Contents

LIVE NATION ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1—BASIS OF PRESENTATION
Preparation of Interim Financial Statements
The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, they include all normal and recurring accruals and adjustments necessary to present fairly the results of the interim periods shown.
The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2012 Annual Report on Form 10-K filed with the SEC on February 26, 2013.
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.
Cash and Cash Equivalents
Included in the September 30, 2013 and December 31, 2012 cash and cash equivalents balance is $509.5 million and $441.6 million, respectively, of client cash which represents the face value of tickets sold on behalf of clients and the clients’ share of convenience and order processing charges.
Acquisitions
During the first nine months of 2013, the Company completed its acquisition of a controlling interest in a festival promoter and certain 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.
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 $2.0 million and $14.6 million for the three and nine months ended September 30, 2013, respectively, as a component of gain on disposal of operating assets in the Concerts segment representing the proceeds received in excess of the carrying value of the assets.

6
Table of Contents

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 nine months ended September 30, 2013:
 
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, 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
22,573

 
4,820

 
—

 
—

 
2,806

 
21,200

 
—

 
51,399

Acquisitions— prior year
(1,028
)
 
(2,833
)
 
—

 
—

 
—

 
—

 
—

 
(3,861
)
Dispositions
—

 
(1,354
)
 
—

 
—

 
—

 
—

 
—

 
(1,354
)
Foreign exchange
(43
)
 
(4,805
)
 
33

 
(251
)
 
453

 
125

 
(34
)
 
(4,522
)
Other (1)
(15,419
)
 
(1,771
)
 
(18,157
)
 
(25,000
)
 
—

 
405

 
(3,031
)
 
(62,973
)
Net change
6,083

 
(5,943
)
 
(18,124
)
 
(25,251
)
 
3,259

 
21,730

 
(3,065
)
 
(21,311
)
Accumulated amortization:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization
(36,018
)
 
(34,088
)
 
(16,745
)
 
(16,310
)
 
(17,687
)
 
(3,247
)
 
(356
)
 
(124,451
)
Dispositions
—

 
61

 
—

 
—

 
—

 
—

 
—

 
61

Foreign exchange
260

 
776

 
(30
)
 
165

 
(355
)
 
(103
)
 
31

 
744

Other (1)
15,419

 
1,771

 
18,908

 
25,000

 
—

 
775

 
3,031

 
64,904

Net change
(20,339
)
 
(31,480
)
 
2,133

 
8,855

 
(18,042
)
 
(2,575
)
 
2,706

 
(58,742
)
Balance as of September 30, 2013:
 
 
 
 
 
 
 
 
 
 
 
 
Gross carrying amount
521,154

 
255,712

 
150,294

 
93,008

 
104,683

 
40,153

 
3,387

 
1,168,391

Accumulated amortization
(217,888
)
 
(71,287
)
 
(109,236
)
 
(43,036
)
 
(71,337
)
 
(9,253
)
 
(1,944
)
 
(523,981
)
Net
$
303,266

 
$
184,425

 
$
41,058

 
$
49,972

 
$
33,346

 
$
30,900

 
$
1,443

 
$
644,410


_________
(1)
Other includes a reclassification from indefinite-lived intangible assets due to a change in the asset’s estimated useful life and netdowns of fully amortized or impaired assets.
Included in the current year acquisitions amount above of $51.4 million are trademarks and naming rights and revenue-generating contracts primarily associated with the May 2013 acquisition of a controlling interest in a festival promoter.

7
Table of Contents

The 2013 additions to definite-lived intangible assets from acquisitions have weighted-average lives as follows:
  
Weighted-
Average
Life (years)
 
 
Revenue-generating contracts
7
Client/vendor relationships
8
Technology
3
Trademarks and naming rights
10
All categories
8
The Company tests for possible impairment of definite-lived intangible assets whenever events or circumstances change, such as a significant reduction in operating cash flow or a 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. During the nine months ended September 30, 2012, the Company reviewed the carrying value of certain definite-lived intangible assets that management determined had an indicator that future operating cash flows may not support their carrying value, and it was determined that those assets were impaired since the estimated undiscounted operating cash flows associated with those assets were less than their carrying value. For the nine months ended September 30, 2012, the Company recorded impairment charges related to definite-lived intangible assets of $13.8 million as a component of depreciation and amortization. The impairment charges primarily related to intangible assets for revenue-generating contracts and client/vendor relationships in the Concerts segment. See Note 5—Fair Value Measurements for further discussion of the inputs used to determine the fair value. There were no significant impairment charges recorded during the nine months ended September 30, 2013.
Amortization of definite-lived intangible assets for the three months ended September 30, 2013 and 2012 was $42.9 million and $40.8 million, respectively, and for the nine months ended September 30, 2013 and 2012 was $124.5 million and $136.4 million, respectively. The decrease in amortization for the nine months ended September 30, 2013 is primarily driven by the impairment charge recorded in the first nine months of 2012 discussed above. In addition, the Company recorded impairment charges related to client/vendor relationship intangible assets in the Artist Nation segment in December 2012 which have contributed to the decrease in amortization. For the three and nine months ended September 30, 2013, the Company recorded $3.8 million and $9.0 million, respectively, 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 music theater.
Amortization related to nonrecoupable ticketing contract advances for the three months ended September 30, 2013 and 2012 was $18.8 million and $12.8 million, respectively, and for the nine months ended September 30, 2013 and 2012 was $42.7 million and $31.5 million, respectively.
As acquisitions and dispositions occur in the future and the valuations of intangible assets for recent acquisitions are completed, amortization may vary. Therefore, the expense to date is not necessarily indicative of the expense expected for the full year.

8
Table of Contents

Goodwill
The following table presents the changes in the carrying amount of goodwill in each of the Company’s reportable segments for the nine months ended September 30, 2013:
 
Concerts
 
Ticketing
 
Artist
Nation
 
Sponsorship
&  Advertising
 
Other
 
Total
 
(in thousands)
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
28,356

 
—

 
—

 
8,993

 
—

 
37,349

Acquisitions—prior year
(2,811
)
 
—

 
9,328

 
—

 
—

 
6,517

Dispositions
(3,691
)
 
—

 
(251
)
 
—

 
—

 
(3,942
)
Foreign exchange
(3,031
)
 
1,613

 
(122
)
 
1,260

 
—

 
(280
)
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of September 30, 2013:
 
 
 
 
 
 
 
 
 
 
Goodwill
487,714

 
639,255

 
275,775

 
264,629

 
13,037

 
1,680,410

Accumulated impairment losses
(269,902
)
 
—

 
—

 
—

 
(13,037
)
 
(282,939
)
                 Net
$
217,812

 
$
639,255

 
$
275,775

 
$
264,629

 
$
—

 
$
1,397,471

Included in the current year acquisitions amount above of $37.3 million is goodwill primarily associated with the May 2013 acquisition of a controlling interest in a festival promoter.
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.
Long-lived Asset Disposals
In May 2013, the Company completed the sale of a theatrical theater in New York. During the third quarter of 2013, a contingent liability related to the sale was resolved resulting in an additional $7.0 million of gain on disposal of operating assets. In January 2012, the Company completed the sale of an amphitheater in Ohio.
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
 
Gain on
Disposal of
Operating
Assets
 
Current
Assets
 
Noncurrent
Assets
 
Current
Liabilities
 
Noncurrent
Liabilities
 
 
(in thousands)
2013 Divestiture
 
 
 
 
 
 
 
 
 
 
 
 
New York theatrical theater
 
Concerts
 
$
(28,880
)
 
$
—

 
$
35,785

 
$
—

 
$
3,636

2012 Divestiture
 
 
 
 
 
 
 
 
 
 
 
 
Ohio amphitheater
 
Concerts
 
$
(444
)
 
$
—

 
$
5,400

 
$
444

 
$
—


Certain agreements relating to disposals of businesses provide for future contingent consideration to be paid to the Company based on the financial performance of the businesses sold. The Company will record additional amounts related to such contingent consideration, with a corresponding adjustment to gain on disposal of operating assets, if and when it is determinable that the applicable financial performance targets will be met. The aggregate of these contingent considerations, if all existing performance targets are met, would not significantly impact the results of operations of the Company. The last contingency period for which the Company has outstanding contingent consideration is for the period ending December 2013.

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NOTE 3—LONG-TERM DEBT
In August 2013, the Company issued an additional $200 million of 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 to provide for (i) a new $115 million term loan A facility, (ii) a new $950 million term loan B facility and (iii) a new $335 million revolving 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.
Long-term debt, which includes capital leases, at September 30, 2013 and December 31, 2012, consisted of the following:
 
 
 
 
 
September 30, 2013
 
December 31, 2012
 
 
 
 
 
(in thousands)
Senior Secured Credit Facility:
 
 
 
 
 
Term loan A, net of unamortized discount of $2.2 million and $0.9 million
 
 
 
 
 
 
at September 30, 2013 and December 31, 2012, respectively
 
$
112,828

 
$
76,556

 
Term loan B, net of unamortized discount of $15.0 million and
 
 
 
 
 
 
$14.1 million at September 30, 2013 and December 31, 2012, respectively
 
934,980

 
863,370

 
Revolving credit facility
 
—

 
—

7% Senior Notes due 2020, plus unamortized premium of $8.9 million
 
 
 
 
 
at September 30, 2013
 
433,893

 
225,000

2.875% Convertible Senior Notes due 2027, net of unamortized discount of
 
 
 
 
 
$11.0 million and $20.6 million at September 30, 2013 and December 31, 2012, respectively
 
209,047

 
199,419

8.125% Senior Notes due 2018
 
—

 
250,000

Other long-term debt
 
113,704

 
125,660

 
 
 
 
 
1,804,452

 
1,740,005

Less: current portion
 
263,689

 
62,050

 
 
 
 
 
 
 
 
Total long-term debt, net
 
$
1,540,763

 
$
1,677,955

Future maturities of long-term debt at September 30, 2013 are as follow:
 
(in thousands)
2013
$
33,272

2014
253,107

2015
46,153

2016
48,470

2017
47,312

Thereafter
1,395,390

Total
1,823,704

Debt discount
(28,145
)
Debt premium
8,893

Total, including premium and discount
$
1,804,452

 
 

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The Company’s 2.875% convertible senior notes due 2027 have been classified as current since the holders may require the Company to purchase for cash all or a portion of their notes in July 2014. If the notes are not redeemed during that period, the next redemption date is July 2017.
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 3.25x. 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 ranging 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 $68.3 million, $266.7 million was available for future borrowings under the revolving credit facility at September 30, 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.

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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 5.25x over the trailing four consecutive quarters through September 30, 2014. The consolidated total leverage ratio will reduce to 5.0x on December 31, 2014, 4.75x on December 31, 2015 and 4.50x 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 2.0x and a maximum secured indebtedness leverage ratio of 3.25x.
As of September 30, 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 2013.
NOTE 4—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 September 30, 2013 and December 31, 2012, the Company had forward currency contracts and options outstanding with notional amounts of $48.6 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 agreements 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 September 30, 2013, the Company had interest rate swaps outstanding with notional amounts of $48.5 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 September 30, 2013 and December 31, 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 September 30, 2013 and December 31, 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 5—Fair Value Measurements for further discussion and disclosure of the fair values for the Company’s derivative instruments.

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NOTE 5—FAIR VALUE MEASUREMENTS
The Company currently has various financial instruments carried at fair value, such as marketable securities and derivatives, and contingent consideration, but does not currently have nonfinancial assets and nonfinancial 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 September 30, 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
$
76,606

 
$
—

 
$
—

 
$
76,606

 
$
61,996

 
$
—

 
$
—

 
$
61,996

Forward currency contracts
—

 
251

 
—

 
251

 
—

 
81

 
—

 
81

Stock options
—

 
—

 
19

 
19

 
—

 
—

 
204

 
204

Total
$
76,606

 
$
251

 
$
19

 
$
76,876

 
$
61,996

 
$
81

 
$
204

 
$
62,281

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
$
—

 
$
1,823

 
$
—

 
$
1,823

 
$
—

 
$
2,811

 
$
—

 
$
2,811

Forward currency contracts
—

 
439

 
—

 
439

 
—

 
625

 
—

 
625

Put option
—

 
—

 
555

 
555

 
—

 
—

 
—

 
—

Contingent consideration
—

 
—

 
7,384

 
7,384

 
—

 
—

 
6,718

 
6,718

Total
$
—

 
$
2,262

 
$
7,939

 
$
10,201

 
$
—

 
$
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 and the interest rate cap are based on inputs corroborated by observable market data with similar tenors. The fair value of the interest rate cap, which expired on June 30, 2013, was de minimis at December 31, 2012.
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 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 6—Commitments and Contingent Liabilities for additional information related to the contingent payments.
The Company has stock options in a publicly-traded company which are measured at fair value using Level 3 inputs. The stock options were received as consideration in connection with a licensing agreement entered into by a subsidiary of the Company and became fully-vested in the second quarter of 2011. The Company has recorded an asset for these options which

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is valued using the Black-Scholes option pricing model. The Company recorded revenue based on the valuation of the options as of the measurement date, which was the vesting date. The changes in the valuation after the measurement date are recorded in other expense (income), net.
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.
During the first nine months of 2012, the Company recorded impairment charges related to definite-lived intangible assets of $13.8 million, as a component of depreciation and amortization. The impairment charges primarily related to intangible assets for revenue-generating contracts and client/vendor relationships in the Concerts segment. It was determined that these assets were impaired since the estimated undiscounted cash flows associated with these assets were less than their carrying value. These cash flows were calculated using operating cash flows which were discounted to approximate fair value. The operating cash flows for these non-recurring fair value measurements are considered Level 3 inputs. There were no significant impairments related to definite-lived intangible assets recorded for the nine months ended September 30, 2013.
Due to their short maturity, the carrying amounts of accounts receivable, accounts payable and accrued expenses approximated their fair values at September 30, 2013 and December 31, 2012.
The Company’s outstanding debt held by third-party financial institutions is carried at cost, adjusted for premiums 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 $443.1 million and $225.2 million, respectively, at September 30, 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. The Company has fixed rate debt held by noncontrolling interest partners with a face value of $24.8 million and $24.5 million at September 30, 2013 and December 31, 2012, respectively. The Company is unable to determine the fair value of this debt.
NOTE 6—COMMITMENTS AND CONTINGENT LIABILITIES
Certain agreements relating to acquisitions that occurred prior to the adoption in January 2009 of the new 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 Company. 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 September 30, 2013, the Company has accrued $2.0 million in other current liabilities and $5.4 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 5—Fair Value Measurements for further discussion related to the valuation of these contingent payments.
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

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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 agreed in principal on the terms of a revised settlement and intend to present those terms to the court for preliminary approval upon execution of a long-form settlement agreement. Ticketmaster and its parent, Live Nation, have not acknowledged any violations of law or liability in connection with the matter.
As of September 30, 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 allege essentially the same set of facts and causes of action. Each plaintiff purports 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 characterize 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 contains the additional allegation that Ticketmaster’s service fees violate anti-scalping laws. Each lawsuit seeks 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.
While it is reasonably possible that a loss related to the primary market claims of this matter could be incurred by the Company in a future period, the Company does not believe that a loss is probable of occurring at this time. Considerable uncertainty remains regarding the validity of the claims and damages asserted against the Company. As a result, the Company is currently unable to estimate the possible loss or range of loss for the primary market claims of this matter. The Company intends to continue to vigorously defend the remaining primary market claim in the Ontario case.

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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 7—CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
Transactions Involving Directors
The following table sets forth revenue earned and expenses incurred from the transactions noted below:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
  
2013
 
2012
 
2013
 
2012
 
(in thousands)
Director related-party revenue
$
—

 
$
3,189

 
$
2,475

 
$
11,359

Director related-party expenses
$
1,030

 
$
4,250

 
$
4,556

 
$
13,853

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 and Chairman of its board of directors until his resignation 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 three and nine months ended September 30, 2012, the Company made payments totaling $0.1 million and $1.2 million, respectively.
As of September 30, 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 totaled $0.2 million and $0.5 million, respectively, for the three and nine months ended September 30, 2012.

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Trust Note
For the three and nine months ended September 30, 2012, the Company recorded $1.6 million and $4.8 million, respectively, 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.
Other Related Parties
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 September 30, 2013 and December 31, 2012, the Company has a receivable balance of $11.4 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.
  
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
  
2013
 
2012
 
2013
 
2012
 
(in thousands)
Other related-parties revenue
$
3,538

 
$
2,146

 
$
5,688

 
$
4,461

Other related-parties expenses
$
8,721

 
$
10,216

 
$
15,735

 
$
14,249

NOTE 8—INCOME TAXES
The Company calculates interim effective tax rates in accordance with the FASB guidance for income taxes and applies the estimated annual effective tax rate to year-to-date pretax income (loss) at the end of each interim period to compute a year-to-date tax expense (or benefit). This guidance requires departure from effective tax rate computations when losses incurred within tax jurisdictions cannot be carried back and future profits associated with operations in those tax jurisdictions cannot be assured beyond any reasonable doubt. Accordingly, the Company has calculated and applied an expected annual effective tax rate of approximately 20% for 2013 (as compared to 19% in the prior year), excluding significant, unusual or extraordinary items, for ordinary income associated with operations for which the Company currently expects to have annual taxable income, which are principally outside of the United States. The Company has not recorded tax benefits associated with losses from operations for which future taxable income cannot be reasonably assured. As required by this guidance, the Company also includes tax effects of significant, unusual or extraordinary items in income tax expense in the interim period in which they occur.
Net income tax expense is $26.4 million for the nine months ended September 30, 2013. The components of tax expense that contributed to the net income tax expense for the nine months ended September 30, 2013 primarily consist of income tax expense of $24.4 million based on the expected annual rate pertaining to ordinary income for the nine month period and state and local taxes of $2.3 million.
Historically, the Company has reinvested all foreign earnings in its continuing foreign operations. The Company currently believes all undistributed foreign earnings that are not currently subject to United States federal income tax will be indefinitely reinvested in its foreign operations.
The tax years 2005 through 2012 remain open to examination by the major tax jurisdictions to which the Company is subject.

17
Table of Contents

NOTE 9—EQUITY
The following table shows the reconciliation of the carrying amount of stockholders’ equity attributable to Live Nation Entertainment, Inc., equity attributable to noncontrolling interests, total equity and also redeemable noncontrolling interests:
 
Live Nation
Entertainment, Inc.
Stockholders’  Equity
 
Noncontrolling
Interests
 
Total
Equity
 
Redeemable
Noncontrolling
Interests
 
(in thousands)
 
(in thousands)
Balances at December 31, 2012
$
1,355,418

 
$
153,156

 
$
1,508,574

 
$
42,100

Non-cash and stock-based compensation
23,224

 
—

 
23,224

 
—

Common stock issued under stock plans, net of shares withheld for employee taxes
(6,580
)
 
—

 
(6,580
)
 
—

Exercise of stock options and warrants
87,458

 
—

 
87,458

 
—

Purchase of common stock
(6,865
)
 
—

 
(6,865
)
 
—

Acquisitions
—

 
9,941

 
9,941

 
29,742

Acquisitions of noncontrolling interests
(851
)
 
767

 
(84
)
 
—

Sales of noncontrolling interests
—

 
(399
)
 
(399
)
 
—

Redeemable noncontrolling interests fair value adjustments
(424
)
 
—

 
(424
)
 
424

Noncontrolling interests contributions
—

 
267

 
267

 
—

Cash distributions
—

 
(12,312
)
 
(12,312
)
 
(70
)
Other
—

 
(648
)
 
(648
)
 
6

Comprehensive income (loss):
 
 
 
 

 
 
Net income (loss)
38,665

 
12,103

 
50,768

 
(5,522
)
Unrealized gain on cash flow hedges
3

 
—

 
3

 
—

Realized loss on cash flow hedges
476

 
—

 
476

 
—

Foreign currency translation adjustments
(817
)
 
—

 
(817
)
 
—

Balances at September 30, 2013
$
1,489,707

 
$
162,875

 
$
1,652,582

 
$
66,680

Common Stock
During the first nine months of 2013, the Company issued 9.7 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.
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 or comprehensive income. There were no significant acquisitions or sales of noncontrolling interests during the first nine months of 2013 or 2012.
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 December 2013 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, for increases in the estimated redemption

18
Table of Contents

value, or reductions in the estimated redemption value to the extent increases had been recognized previously, the Company accretes changes in 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. Accounting guidance prohibits the recognition of reductions in value below the initial issuance date value. Changes in 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. For redemption amounts that are fixed dollar amounts, if the initial fair value is the redemption amount, there are no changes recorded until the puts are exercised or expire. 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 the 2013 acquisitions.
Accumulated Other Comprehensive Income (Loss)
The following table presents changes in the components of AOCI, net of taxes, for the nine months ended September 30, 2013:
 
 
Gains and Losses On Cash Flow Hedges
 
Defined Benefit Pension Items
 
Foreign Currency Items
 
Total
 
 
(in thousands)
Balance at December 31, 2012
 
$
(595
)
 
$
(611
)
 
$
(9,717
)
 
$
(10,923
)
Other comprehensive income (loss) before reclassifications
 
3

 
—

 
(817
)
 
(814
)
Amount reclassified from AOCI
 
476

 
—

 
—

 
476

Net other comprehensive income (loss)
 
479

 
—

 
(817
)
 
(338
)
Balance at September 30, 2013
 
$
(116
)
 
$
(611
)
 
$
(10,534
)
 
$
(11,261
)
The realized loss on cash flow hedges reclassified from AOCI consists of one interest rate swap agreement.
Earnings per Share
The following table sets forth the computation of basic and diluted net income (loss) per common share:
  
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
  
2013
 
2012
 
2013
 
2012
 
(in thousands, except for per share data)
Net income (loss) attributable to common stockholders of Live Nation Entertainment, Inc.—basic and diluted
$
43,774

 
$
57,948

 
$
38,665

 
$
(3,510
)
 
 
 
 
 
 
 
 
Weighted average common shares—basic
196,397

 
187,154

 
192,792

 
186,858

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options, restricted stock and warrants
5,713

 
2,600

 
4,474

 
—

2.875% convertible senior notes
—

 
—

 
—

 
—

Weighted average common shares—diluted
202,110

 
189,754

 
197,266

 
186,858

 
 
 
 
 
 
 
 
Basic and diluted net income (loss) per common share
$
0.22

 
$
0.31

 
$
0.20

 
$
(0.02
)

19
Table of Contents

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. The following table shows securities excluded from the calculation of diluted net income per common share because such securities are anti-dilutive:
  
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
  
2013
 
2012
 
2013
 
2012
 
(in thousands)
Options to purchase shares of common stock
3,703

 
16,890

 
6,386

 
22,213

Restricted stock awards and units—unvested
765

 
2,308

 
786

 
4,061

Warrants
—

 
500

 
—

 
500

Conversion shares related to 2.875% convertible senior notes
8,105

 
8,105

 
8,105

 
8,105

Number of anti-dilutive potentially issuable shares excluded from diluted common shares outstanding
12,573

 
27,803

 
15,277

 
34,879

NOTE 10—STOCK-BASED COMPENSATION
The following is a summary of stock-based compensation expense recorded by the Company during the respective periods:
  
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2013
 
2012
 
2013
 
2012
 
(in thousands)
Selling, general and administrative expenses
$
4,915

 
$
3,771

 
$
11,166

 
$
10,414

Corporate expenses
4,190

 
5,906

 
12,058

 
17,181

Total
$
9,105

 
$
9,677

 
$
23,224

 
$
27,595

As of September 30, 2013, there was $40.7 million of total unrecognized compensation cost related to stock-based compensation arrangements for stock options and restricted stock awards. This cost is expected to be recognized over a weighted-average period of 2.7 years.
NOTE 11—SEGMENT DATA
The Company’s reportable segments are Concerts, Ticketing, Artist Nation and Sponsorship & Advertising. The Concerts segment involves the promotion of live music events globally in the Company’s owned and/or operated venues and in rented third-party venues, the production of music festivals and the operation and management of music venues and is the aggregation of the Company’s North American Concerts and International Concerts operating segments. The Ticketing segment involves the management of the Company’s global ticketing operations including providing ticketing software and services to clients and online access for customers relating to ticket and event information and is responsible for the Company’s primary websites, www.livenation.com and www.ticketmaster.com. The Ticketing segment is the aggregation of the Company’s North American Ticketing and International Ticketing operating segments. The Artist Nation segment provides management services to artists and other services including merchandise and is the aggregation of the Company’s Artist Management and Artist Services operating segments. The Sponsorship & Advertising segment manages the development of strategic sponsorship programs in addition to the sale of international, national and local sponsorships and placement of advertising including signage, promotional programs and banner ads in the Company’s owned and/or operated venues and on its primary websites.
Revenue and expenses earned and charged between segments are eliminated in consolidation. Corporate expenses and all line items below operating income are managed on a total company basis. The Company’s capital expenditures includes accruals but excludes expenditures funded by outside parties such as landlords or replacements funded by insurance companies.
The Company manages its working capital on a consolidated basis. Accordingly, segment assets are not reported to, or used by, the Company’s management to allocate resources to or assess performance of the segments, and therefore, total segment assets have not been presented.



20
Table of Contents

The following table presents the results of operations for the Company’s reportable segments for the three and nine months ending September 30, 2013 and 2012:
 
Concerts
 
Ticketing
 
Artist
Nation
 
Sponsorship
& Advertising
 
Other
 
Corporate
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
(in thousands)
 
 
 
 
 
 
Three Months Ended September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
$
1,726,986

 
$
356,809

 
$
111,060

 
$
110,217

 
$
793

 
$
—

 
$
(43,629
)
 
$
2,262,236

Direct operating expenses
1,487,856

 
166,509

 
69,231

 
15,112

 
3,109

 
—

 
(43,086
)
 
1,698,731

Selling, general and administrative expenses
170,005

 
112,940

 
29,348

 
11,979

 
733

 
—

 
—

 
325,005

Depreciation and amortization
32,821

 
49,150

 
10,736

 
(56
)
 
11

 
610

 
(543
)
 
92,729

Loss (gain) on disposal of operating assets
(9,035
)
 
(27
)
 
2

 
—

 
—

 
—

 
—

 
(9,060
)
Corporate expenses
—

 
—

 
—

 
—

 
—

 
26,442

 
—

 
26,442

Acquisition transaction expenses
745

 
221

 
(57
)
 
—

 
—

 
1,443

 
—

 
2,352

Operating income (loss)
$
44,594

 
$
28,016

 
$
1,800

 
$
83,182

 
$
(3,060
)
 
$
(28,495
)
 
$
—

 
$
126,037

Intersegment revenue
$
36,535

 
$
861

 
$
6,233

 
$
—

 
$
—

 
$
—

 
$
(43,629
)
 
$
—

Three Months Ended September 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
$
1,429,912

 
$
345,980

 
$
127,924

 
$
95,805

 
$
1,147

 
$
—

 
$
(37,622
)
 
$
1,963,146

Direct operating expenses
1,235,786

 
161,566

 
85,097

 
11,102

 
994

 
—

 
(37,122
)
 
1,457,423

Selling, general and administrative expenses
146,528

 
104,098

 
22,146

 
10,760

 
314

 
—

 
—

 
283,846

Depreciation and amortization
27,508

 
43,315

 
13,203

 
320

 
49

 
789

 
(500
)
 
84,684

Loss (gain) on disposal of operating assets
(8
)
 
10

 
—

 
—

 
(62
)
 
—

 
—

 
(60
)
Corporate expenses
—

 
—

 
—

 
—

 
—

 
30,842

 
—

 
30,842

Acquisition transaction expenses
1,032

 
381

 
—

 
—

 
—

 
483

 
—

 
1,896

Operating income (loss)
$
19,066

 
$
36,610

 
$
7,478

 
$
73,623

 
$
(148
)
 
$
(32,114
)
 
$
—

 
$
104,515

Intersegment revenue
$
33,510

 
$
(521
)
 
$
4,633

 
$
—

 
$
—

 
$
—

 
$
(37,622
)
 
$
—

Nine Months Ended September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
$
3,433,527

 
$
1,019,771

 
$
261,070

 
$
221,604

 
$
2,377

 
$
—

 
$
(72,902
)
 
$
4,865,447

Direct operating expenses
2,870,584

 
481,592

 
169,563

 
35,287

 
(62
)
 
—

 
(71,381
)
 
3,485,583

Selling, general and administrative expenses
466,840

 
326,799

 
71,862

 
32,626

 
2,119

 
—

 
—

 
900,246

Depreciation and amortization
96,591

 
128,648

 
30,906

 
682

 
196

 
2,080

 
(1,521
)
 
257,582


21
Table of Contents

Loss (gain) on disposal of operating assets
(43,497
)
 
(47
)
 
681

 
—

 
7

 
—

 
—

 
(42,856
)
Corporate expenses
—

 
—

 
—

 
—

 
—

 
68,909

 
—

 
68,909

Acquisition transaction expenses
1,292

 
245

 
88

 
—

 
—

 
3,704

 
—

 
5,329

Operating income (loss)
$
41,717

 
$
82,534

 
$
(12,030
)
 
$
153,009

 
$
117

 
$
(74,693
)
 
$
—

 
$
190,654

Intersegment revenue
$
63,502

 
$
1,842

 
$
7,558

 
$
—

 
$
—

 
$
—

 
$
(72,902
)
 
$
—

Capital expenditures
$
16,708

 
$
62,145

 
$
483

 
$
653

 
$
—

 
$
94

 
$
—

 
$
80,083

Nine Months Ended September 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
$
2,954,635

 
$
1,001,463

 
$
298,570

 
$
193,211

 
$
2,345

 
$
—

 
$
(68,404