LYV-2014.6.30-10Q

 
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 June 30, 2014
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 July 28, 2014, there were 200,511,675 outstanding shares of the registrant’s common stock, $0.01 par value per share, including 1,301,489 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
 
 
 
 
 
 
PART II—OTHER INFORMATION
 


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. and subsidiaries
SEC
United States Securities and Exchange Commission
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

1

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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
LIVE NATION ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
June 30,
2014
 
December 31,
2013
 
(in thousands)
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
2,041,686

 
$
1,299,184

Accounts receivable, less allowance of $18,065 and $19,850, respectively
563,394

 
439,151

Prepaid expenses
647,087

 
378,342

Other current assets
59,179

 
43,427

Total current assets
3,311,346

 
2,160,104

Property, plant and equipment
 
 
 
Land, buildings and improvements
815,728

 
816,931

Computer equipment and capitalized software
450,447

 
421,846

Furniture and other equipment
210,331

 
210,866

Construction in progress
64,514

 
52,883

 
1,541,020

 
1,502,526

Less accumulated depreciation
831,678

 
795,726

 
709,342

 
706,800

Intangible assets
 
 
 
Definite-lived intangible assets, net
647,645

 
676,564

Indefinite-lived intangible assets
376,235

 
376,736

Goodwill
1,502,707

 
1,466,983

Other long-term assets
324,845

 
296,334

Total assets
$
6,872,120

 
$
5,683,521

LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable, client accounts
$
700,524

 
$
656,253

Accounts payable
150,228

 
111,320

Accrued expenses
709,490

 
668,799

Deferred revenue
1,001,097

 
486,433

Current portion of long-term debt
269,628

 
278,403

Other current liabilities
41,851

 
54,310

Total current liabilities
2,872,818

 
2,255,518

Long-term debt, net
2,038,845

 
1,530,484

Long-term deferred income taxes
167,179

 
161,637

Other long-term liabilities
105,673

 
85,035

Commitments and contingent liabilities


 


Redeemable noncontrolling interests
56,171

 
61,041

Stockholders’ equity
 
 
 
Common stock
1,993

 
1,978

Additional paid-in capital
2,411,138

 
2,368,281

Accumulated deficit
(961,310
)
 
(951,796
)
Cost of shares held in treasury
(6,865
)
 
(6,865
)
Accumulated other comprehensive income (loss)
16,828

 
(2,370
)
Total Live Nation Entertainment, Inc. stockholders’ equity
1,461,784

 
1,409,228

Noncontrolling interests
169,650

 
180,578

Total equity
1,631,434

 
1,589,806

Total liabilities and equity
$
6,872,120

 
$
5,683,521


See Notes to Consolidated Financial Statements
2

Table of Contents

LIVE NATION ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2014
 
2013
 
2014
 
2013
 
(in thousands except share and per share data)
Revenue
$
1,665,785

 
$
1,679,513

 
$
2,793,101

 
$
2,603,211

Operating expenses:
 
 
 
 
 
 
 
Direct operating expenses
1,184,696

 
1,209,918

 
1,915,847

 
1,786,852

Selling, general and administrative expenses
325,925

 
295,719

 
628,330

 
575,241

Depreciation and amortization
76,219

 
82,688

 
158,807

 
164,853

Gain on disposal of operating assets
(3,787
)
 
(30,199
)
 
(3,281
)
 
(33,796
)
Corporate expenses
25,717

 
21,812

 
46,891

 
42,467

Acquisition transaction expenses
1,329

 
1,769

 
3,129

 
2,977

Operating income
55,686

 
97,806

 
43,378

 
64,617

Interest expense
27,590

 
30,041

 
52,082

 
58,192

Interest income
(1,146
)
 
(890
)
 
(1,812
)
 
(2,658
)
Equity in earnings of nonconsolidated affiliates
(960
)
 
(2,629
)
 
(3,766
)
 
(5,211
)
Other expense (income), net
(330
)
 
3,868

 
(1,506
)
 
7,506

Income (loss) before income taxes
30,532

 
67,416

 
(1,620
)
 
6,788

Income tax expense
4,710

 
8,401

 
2,655

 
11,960

Net income (loss)
25,822

 
59,015

 
(4,275
)
 
(5,172
)
Net income (loss) attributable to noncontrolling interests
2,888

 
885

 
5,239

 
(63
)
Net income (loss) attributable to common stockholders of Live Nation Entertainment, Inc.
$
22,934

 
$
58,130

 
$
(9,514
)
 
$
(5,109
)
 
 
 
 
 
 
 
 
Basic and diluted net income (loss) per common share attributable to common stockholders of Live Nation Entertainment, Inc.
$
0.11

 
$
0.30

 
$
(0.06
)
 
$
(0.03
)
 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
198,701,762

 
193,069,783

 
198,282,044

 
190,960,206

Diluted
205,989,271

 
196,770,405

 
198,282,044

 
190,960,206


See Notes to Consolidated Financial Statements
3

Table of Contents

LIVE NATION ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2014
 
2013
 
2014
 
2013
 
(in thousands)
Net income (loss)
$
25,822

 
$
59,015

 
$
(4,275
)
 
$
(5,172
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Unrealized gain (loss) on cash flow hedges
(5
)
 
(45
)
 
(8
)
 
25

Realized loss on cash flow hedges
16

 
449

 
33

 
457

Change in funded status of defined benefit pension plan

 

 
30

 

Foreign currency translation adjustments
9,324

 
(7,261
)
 
19,143

 
(41,518
)
Comprehensive income (loss)
35,157

 
52,158

 
14,923

 
(46,208
)
Comprehensive income (loss) attributable to noncontrolling interests
2,888

 
885

 
5,239

 
(63
)
Comprehensive income (loss) attributable to common stockholders of Live Nation Entertainment, Inc.
$
32,269

 
$
51,273

 
$
9,684

 
$
(46,145
)


See Notes to Consolidated Financial Statements
4

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LIVE NATION ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
Six Months Ended 
 June 30,
 
2014
 
2013
 
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net loss
$
(4,275
)
 
$
(5,172
)
Reconciling items:
 
 
 
Depreciation
61,906

 
59,410

Amortization
96,901

 
105,443

Deferred income tax benefit
(12,064
)
 
(6,305
)
Amortization of debt issuance costs and discount/premium, net
10,101

 
10,421

Non-cash compensation expense
22,568

 
14,119

Gain on disposal of operating assets
(3,281
)
 
(33,796
)
Equity in earnings of nonconsolidated affiliates
(3,766
)
 
(5,211
)
Other, net
947

 
(2,356
)
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
 
 
 
Increase in accounts receivable
(126,528
)
 
(182,561
)
Increase in prepaid expenses
(265,927
)
 
(230,247
)
Increase in other assets
(60,500
)
 
(62,053
)
Increase in accounts payable, accrued expenses and other liabilities
114,065

 
130,209

Increase in deferred revenue
508,323

 
588,446

Net cash provided by operating activities
338,470

 
380,347

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Distributions from nonconsolidated affiliates
1,836

 
2,740

Investments made in nonconsolidated affiliates
(1,512
)
 
(3,032
)
Purchases of property, plant and equipment
(66,388
)
 
(76,685
)
Proceeds from disposal of operating assets, net of cash divested
3,631

 
81,070

Cash paid for acquisitions, net of cash acquired
(24,518
)
 
(23,766
)
Purchases of intangible assets
(2,675
)
 
(17
)
Other, net
(4,019
)
 
(1,052
)
Net cash used in investing activities
(93,645
)
 
(20,742
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from long-term debt, net of debt issuance costs
514,612

 
89,369

Payments on long-term debt
(15,126
)
 
(106,388
)
Contributions from noncontrolling interests
81

 
267

Distributions to noncontrolling interests
(18,036
)
 
(1,936
)
Purchases and sales of noncontrolling interests, net
(3,528
)
 

Proceeds from exercise of stock options
11,737

 
73,449

Payments for deferred and contingent consideration
(5,541
)
 
(750
)
Net cash provided by financing activities
484,199

 
54,011

Effect of exchange rate changes on cash and cash equivalents
13,478

 
(29,411
)
Net increase in cash and cash equivalents
742,502

 
384,205

Cash and cash equivalents at beginning of period
1,299,184

 
1,001,055

Cash and cash equivalents at end of period
$
2,041,686

 
$
1,385,260


See Notes to Consolidated Financial Statements
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LIVE NATION ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1—BASIS OF PRESENTATION AND OTHER INFORMATION
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 issued by 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 2013 Annual Report on Form 10-K filed with the SEC on February 24, 2014, as amended by the Form 10-K/A filed with the SEC on June 30, 2014.
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 June 30, 2014 and December 31, 2013 cash and cash equivalents balance is $577.4 million and $538.4 million, respectively, of cash received that includes the face value of tickets sold on behalf of ticketing clients and the clients’ share of convenience and order processing charges.
Acquisitions
During the first six months of 2014, the Company completed its acquisition of two artist management businesses located in California and several other smaller acquisitions. These acquisitions were accounted for as business combinations under the acquisition method of accounting and were not significant either on an individual basis or in the aggregate.
Recently Issued Pronouncements
In April 2014, the FASB issued guidance that raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. The guidance is effective for disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014 and interim periods within that year. This guidance is applied prospectively and early adoption is permitted. The Company will adopt this guidance on January 1, 2015 and will apply it prospectively to disposals occurring on or after January 1, 2015.
In May 2014, the FASB issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under GAAP. The new standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is effective for annual and interim periods beginning after December 15, 2016, and early adoption of the standard is not permitted. The guidance should be applied retrospectively, either to each prior period presented in the financial statements, or only to the most current reporting period presented in the financial statements with a cumulative-effect adjustment as of the date of adoption. The Company will adopt this standard on January 1, 2017, and is currently assessing which implementation method it will apply and the impact its adoption will have on its financial position and results of operations.
In June 2014, the FASB issued guidance that requires a performance target in a share-based payment that affects vesting and that could be achieved after the requisite service period be accounted for as a performance condition. The guidance is

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effective for annual periods beginning after December 15, 2015 and interim periods within that year, and early adoption is permitted. The guidance should be applied on a prospective basis to awards that are granted or modified on or after the effective date. The guidance may be applied on a modified retrospective basis for performance targets outstanding on or after the beginning of the first annual period presented as of the date of adoption. The Company does not expect to grant these type of awards, but will adopt this guidance on January 1, 2016 and will apply it prospectively to any awards granted on or after January 1, 2016 that include these terms.
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 the three and six months ended June 30, 2013, the Company received partial insurance recoveries and recorded gains of $9.4 million and $12.6 million, 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. The Company received the final insurance recovery in the second quarter of 2014 and recorded gains of $3.6 million and $3.2 million during the three and six months ended June 30, 2014, respectively, as a component of gain on disposal of operating assets in the Concerts segment.
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.

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The following table presents the changes in the gross carrying amount and accumulated amortization of definite-lived intangible assets for the six months ended June 30, 2014:
 
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, 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

Gross carrying amount:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquisitions— current year

 
27,771

 
1,500

 

 
1,231

 

 
1,100

 
31,602

Acquisitions— prior year
(3,994
)
 
5,098

 

 

 

 

 

 
1,104

Foreign exchange
4,140

 
2,832

 

 
872

 
(591
)
 
146

 

 
7,399

Other (1)
(479
)
 
(800
)
 
(14,800
)
 

 

 

 
570

 
(15,509
)
Net change
(333
)
 
34,901

 
(13,300
)
 
872

 
640

 
146

 
1,670

 
24,596

Accumulated amortization:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization
(24,466
)
 
(19,784
)
 
(7,044
)
 
(3,417
)
 
(10,996
)
 
(2,003
)
 
(189
)
 
(67,899
)
Foreign exchange
(1,316
)
 
(744
)
 

 
(311
)
 
95

 
4

 

 
(2,272
)
Other (1)
478

 
878

 
15,300

 

 

 

 

 
16,656

Net change
(25,304
)
 
(19,650
)
 
8,256

 
(3,728
)
 
(10,901
)
 
(1,999
)
 
(189
)
 
(53,515
)
Balance as of June 30, 2014:
 
 
 
 
 
 
 
 
 
 
 
 
Gross carrying amount
584,761

 
312,838

 
123,899

 
86,514

 
101,304

 
28,670

 
4,045

 
1,242,031

Accumulated amortization
(256,357
)
 
(101,459
)
 
(92,872
)
 
(47,415
)
 
(84,011
)
 
(11,091
)
 
(1,181
)
 
(594,386
)
Net
$
328,404

 
$
211,379

 
$
31,027

 
$
39,099

 
$
17,293

 
$
17,579

 
$
2,864

 
$
647,645

_________
(1) 
Other includes net downs of fully amortized assets and $0.6 million of reclassifications of certain assets from indefinite-lived intangible assets.
Included in the current year acquisitions amount above of $31.6 million are client/vendor relationships primarily associated with the acquisitions of two artist management businesses during the first half of 2014 that are located in California.
The 2014 additions to definite-lived intangible assets from acquisitions have weighted-average lives as follows:
  
Weighted-
Average
Life (years)
 
 
Client/vendor relationships
7
Non-compete agreements
3
Technology
3
Other
10
All categories
6
Amortization of definite-lived intangible assets for the three months ended June 30, 2014 and 2013 was $33.3 million and $43.3 million, respectively, and for the six months ended June 30, 2014 and 2013 was $67.9 million and $81.5 million, respectively. In addition, amortization related to nonrecoupable ticketing contract advances for the three months ended June 30,

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2014 and 2013 was $11.6 million and $10.3 million, respectively, and for the six months ended June 30, 2014 and 2013 was $29.0 million and $23.9 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.
Goodwill
The following table presents the changes in the carrying amount of goodwill in each of the Company’s reportable segments for the six months ended June 30, 2014:
 
Concerts
 
Ticketing
 
Artist
Nation
 
Sponsorship
&  Advertising
 
Total
 
(in thousands)
Balance as of December 31, 2013:
 
 
 
 
 
 
 
 
 
Goodwill (1)
$
505,472

 
$
642,249

 
$
278,923

 
$
310,241

 
$
1,736,885

Accumulated impairment losses (1)
(269,902
)
 

 

 

 
(269,902
)
                 Net
235,570

 
642,249

 
278,923

 
310,241

 
1,466,983

 
 
 
 
 
 
 
 
 
 
Acquisitions—current year
1,129

 

 
17,539

 

 
18,668

Acquisitions—prior year
(1,786
)
 

 
(927
)
 
5,426

 
2,713

Foreign exchange
8,895

 
(629
)
 
221

 
5,856

 
14,343

 
 
 
 
 
 
 
 
 
 
Balance as of June 30, 2014:
 
 
 
 
 
 
 
 
Goodwill
513,710

 
641,620

 
295,756

 
321,523

 
1,772,609

Accumulated impairment losses
(269,902
)
 

 

 

 
(269,902
)
                 Net
$
243,808

 
$
641,620

 
$
295,756

 
$
321,523

 
$
1,502,707

_________
(1) 
The previously reported total balance has been reduced by $13.0 million due to the net down of fully impaired goodwill related to the Company’s non-core events business which was sold in 2008.

Included in the current year acquisitions amount above of $18.7 million is goodwill primarily associated with the March 2014 acquisition of an artist management business located in California.
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.

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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 reported as part of other long-term assets. The Company’s interests in these operations are recorded in the statement of operations as equity in earnings of nonconsolidated affiliates. For the six months ended June 30, 2014, the Company’s investment in Venta de Boletos por Computadora S.A. de C.V., a 33% owned ticketing distribution services company in Mexico, is considered significant on an individual basis and certain other investments are considered significant on an aggregate basis.
Summarized unaudited income statement information for the Company’s nonconsolidated affiliates noted above is as follows (at 100%):
 
 
Six Months Ended 
 June 30,
 
 
2014
 
2013
 
 
(in thousands)
Revenue
 
$
24,278

 
$
28,203

Operating income
 
$
9,912

 
$
14,956

Net income
 
$
8,044

 
$
11,894

Net income attributable to the common stockholders of the equity investee
 
$
8,010

 
$
11,863


Long-lived Asset Disposals
In May 2013, the Company completed the sale of a theatrical theater in New York.
The table below summarizes the asset and liability values for the six months ended June 30, 2013 for significant disposals and the resulting gain or loss recorded. There were no significant disposals of long-lived assets in the six months ended June 30, 2014.
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
 
$
(21,887
)
 
$

 
$
35,785

 
$

 
$
3,636

NOTE 3—LONG-TERM DEBT
In May 2014, the Company issued $250 million of 5.375% senior notes due 2022 and $275 million of 2.5% convertible senior notes due 2019. Proceeds from these borrowings, net of related fees and expenses of $10.4 million, was $514.6 million. The Company intends to use the proceeds to redeem all of its outstanding 2.875% convertible senior notes plus accrued interest, if any, and for general corporate purposes.

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Long-term debt, which includes capital leases, at June 30, 2014 and December 31, 2013, consisted of the following:
 
 
 
 
 
June 30, 2014
 
December 31, 2013
 
 
 
 
 
(in thousands)
Senior Secured Credit Facility:
 
 
 
 
 
Term loan A, net of unamortized discount of $1.7 million and $2.0 million
 
 
 
 
 
 
at June 30, 2014 and December 31, 2013, respectively
 
$
108,987

 
$
111,578

 
Term loan B, net of unamortized discount of $13.3 million and
 
 
 
 
 
 
$14.4 million at June 30, 2014 and December 31, 2013, respectively
 
929,587

 
933,226

 
Revolving credit facility
 

 

7% Senior Notes due 2020, plus unamortized premium of $7.9 million
 
 
 
 
 
and $8.6 million at June 30, 2014 and December 31, 2013, respectively
 
432,929

 
433,571

5.375% Senior Notes due 2022
 
250,000

 

2.875% Convertible Senior Notes due 2027, net of unamortized discount of
 
 
 

 
$0.6 million and $7.6 million at June 30, 2014 and December 31, 2013, respectively
 
219,401

 
212,415

2.5% Convertible Senior Notes due 2019, net of unamortized discount of
 
 
 
 
 
$21.6 million at June 30, 2014
 
253,401

 

Other long-term debt
 
114,168

 
118,097

 
 
 
 
 
2,308,473

 
1,808,887

Less: current portion
 
269,628

 
278,403

 
 
 
 
 
 
 
 
Total long-term debt, net
 
$
2,038,845

 
$
1,530,484


Future maturities of long-term debt at June 30, 2014 are as follow:
 
(in thousands)
2014
$
240,848

2015
48,174

2016
51,480

2017
49,027

2018
330,712

Thereafter
1,617,489

Total
2,337,730

Debt discount
(37,186
)
Debt premium
7,929

Total, including premium and discount
$
2,308,473

5.375% Senior Notes
In May 2014, the Company issued $250 million of 5.375% senior notes due 2022. Interest on the notes is payable semi-annually in cash in arrears on June 15 and December 15, beginning December 15, 2014, and the notes will mature on June 15, 2022. The Company may redeem some or all of the notes at any time prior to June 15, 2017 at a price equal to 100% of the principal amount, plus any accrued and unpaid interest to the date of redemption, plus a ‘make-whole’ premium. The Company may also redeem up to 35% of the aggregate principal amount of the notes from the proceeds of certain equity offerings prior to June 15, 2017, at a price equal to 105.375% of the principal amount, plus any accrued and unpaid interest. In addition, on or after June 15, 2017, the Company may redeem at its option some or all of the notes at redemption prices that start at 104.0313% 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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2.5% Convertible Senior Notes
In May 2014, the Company issued $275 million of convertible senior notes due 2019. The notes pay interest semiannually in arrears on May 15 and November 15 at a rate of 2.5% per annum, beginning on November 15, 2014. The notes will mature on May 15, 2019, and may not be redeemed by the Company prior to the maturity date. The notes will be convertible, under certain circumstances, until November 15, 2018, and on or after such date without condition, at an initial conversion rate of 28.8363 shares of the Company’s common stock per $1,000 principal amount of notes, subject to adjustment, which represents a 52.5% conversion premium based on the last reported sale price for the Company’s common stock of $22.74 on May 19, 2014. Upon conversion, the notes may be settled in shares of common stock or, at the Company’s election, cash or a combination of cash and shares of 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 currently 7.9 million.
If the Company experiences a fundamental change, as defined in the indenture governing the notes, the holders of the 2.5% convertible senior notes 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.
As of June 30, 2014, the carrying amount of the equity component of the notes was $22.0 million and the principal amount of the liability component (face value of the notes) was $275 million. As of June 30, 2014, the remaining period over which the discount will be amortized is approximately 4.5 years and the value of the notes, if converted and fully settled in shares, did not exceed the principal amount of the notes. For the three and six months ended June 30, 2014, the effective interest rate on the liability component of the notes was 5.0%. The following table summarizes the amount of pre-tax interest cost recognized on the notes:
 
Three and Six Months Ended 
 June 30, 2014
 
(in thousands)
Interest cost recognized relating to:
 
  Contractual interest coupon
$
726

  Amortization of debt discount
376

  Amortization of debt issuance costs
118

Total interest cost recognized on the notes
$
1,220


2.875% Convertible Senior Notes
In late July 2014, pursuant to the Company’s option under the indenture governing the 2.875% convertible senior notes, the Company notified the holders of these notes that it intends to redeem all outstanding notes in late September at a redemption price of 100% of the principal amount of the notes, plus accrued and unpaid interest.
NOTE 4—FAIR VALUE MEASUREMENTS
The following table shows the fair value of the Company’s significant financial assets 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:
 
Fair Value Measurements 
 at June 30, 2014
Fair Value Measurements 
 at December 31, 2013
 
Level 1
 
Level 1
 
(in thousands)
Assets:
 
 
 
Cash equivalents
$
257,548

 
$
26,627

The Company has cash equivalents which consist of money market funds. Fair values for cash equivalents are based on quoted prices in an active market which are considered to be Level 1 inputs as defined in the FASB guidance.
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. The estimated fair values of the 7% senior notes, the 5.375% senior notes, the 2.875% convertible senior notes and the 2.5% convertible senior notes were $467.5 million, $254.4 million, $220.0 million and $289.2 million, respectively, at June 30, 2014. The estimated fair values of the 7% senior notes and the 2.875%

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convertible senior notes were $461.9 million and $223.0 million, respectively, at December 31, 2013. 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 as defined in the FASB guidance. The Company has fixed rate debt held by noncontrolling interest partners with a face value of $34.9 million and $34.6 million at June 30, 2014 and December 31, 2013, respectively. The Company is unable to determine the fair value of this debt.
NOTE 5—COMMITMENTS AND CONTINGENT LIABILITIES
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. In June 2013, the parties reached a revised settlement, which was preliminarily approved by the Court in April 2014. Ticketmaster and its parent, Live Nation, have not acknowledged any violations of law or liability in connection with the matter.
As of June 30, 2014, 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.

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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.
NOTE 6—CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
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 June 30, 2014 and December 31, 2013, the Company had a receivable balance of $8.5 million and $13.5 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 
 June 30,
 
Six Months Ended 
 June 30,
  
2014
 
2013
 
2014
 
2013
 
(in thousands)
Other related-parties revenue
$
1,946

 
$
1,627

 
$
3,193

 
$
2,954

Other related-parties expenses
$
5,142

 
$
2,677

 
$
9,651

 
$
7,827

NOTE 7—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 2014 (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 (benefit) in the interim period in which they occur.
Income tax expense was $2.7 million for the six months ended June 30, 2014. Tax expense primarily consisted of income tax expense of $7.0 million based on the expected annual rate pertaining to ordinary income, $1.9 million of state and local tax expense and $0.4 million of adjustments for taxes related to prior periods. These expenses were partially offset by $6.1 million attributable to the release of valuation allowances primarily related to deferred tax liabilities associated with the March 2014 acquisition of an artist management business located in California.
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 2013 remain open to examination by the major tax jurisdictions to which the Company is subject.

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NOTE 8—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 for the six months ended June 30, 2014:
 
Live Nation
Entertainment, Inc.
Stockholders’  Equity
 
Noncontrolling
Interests
 
Total
Equity
 
Redeemable
Noncontrolling
Interests
 
(in thousands)
 
(in thousands)
Balance at December 31, 2013
$
1,409,228

 
$
180,578

 
$
1,589,806

 
$
61,041

Non-cash and stock-based compensation
22,568

 

 
22,568

 

Common stock issued under stock plans, net of shares withheld for employee taxes
(8,115
)
 

 
(8,115
)
 

Exercise of stock options
11,737

 

 
11,737

 

Fair value of convertible debt conversion feature, net of issuance costs
21,418

 

 
21,418

 

Acquisitions

 
3,343

 
3,343

 

Purchases of noncontrolling interests
(2,232
)
 
6

 
(2,226
)
 
(4,755
)
Sales of noncontrolling interests

 
(158
)
 
(158
)
 

Redeemable noncontrolling interests fair value adjustments
(2,504
)
 

 
(2,504
)
 
2,504

Noncontrolling interests contributions

 
106

 
106

 

Cash distributions

 
(16,043
)
 
(16,043
)
 
(1,993
)
Other

 
(4,511
)
 
(4,511
)
 
464

Comprehensive income (loss):
 
 
 
 

 
 
Net income (loss)
(9,514
)
 
6,329

 
(3,185
)
 
(1,090
)
Unrealized loss on cash flow hedges
(8
)
 

 
(8
)
 

Realized loss on cash flow hedges
33

 

 
33

 

Change in funded status of defined benefit pension plan
30

 

 
30

 

Foreign currency translation adjustments
19,143

 

 
19,143

 

Balance at June 30, 2014
$
1,461,784

 
$
169,650

 
$
1,631,434

 
$
56,171

Common Stock
During the first half of 2014, the Company issued 1.6 million shares of common stock in connection with stock option exercises and vestings of restricted stock awards, net of shares withheld for taxes.
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 January 2015 to December 2018. The redemption amounts for these puts are either 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.

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Table of Contents

Accumulated Other Comprehensive Income (Loss)
The following table presents changes in the components of AOCI, net of taxes, for the six months ended June 30, 2014:
 
 
Gains and Losses On Cash Flow Hedges
 
Defined Benefit Pension Items
 
Foreign Currency Items
 
Total
 
 
(in thousands)
Balance at December 31, 2013
 
$
(79
)
 
$
(611
)
 
$
(1,680
)
 
$
(2,370
)
Other comprehensive income (loss) before reclassifications
 
(8
)
 
30

 
19,143

 
19,165

Amount reclassified from AOCI
 
33

 

 

 
33

Net other comprehensive income
 
25

 
30

 
19,143

 
19,198

Balance at June 30, 2014
 
$
(54
)
 
$
(581
)
 
$
17,463

 
$
16,828

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 
 June 30,
 
Six Months Ended 
 June 30,
 
2014
 
2013
 
2014
 
2013
 
(in thousands except share and per share data)
Net income (loss) attributable to common stockholders of Live Nation Entertainment, Inc. —basic and diluted
$
22,934

 
$
58,130

 
$
(9,514
)
 
$
(5,109
)
Accretion of redeemable noncontrolling interests
(460
)
 
68

 
(2,504
)
 
(160
)
Net income (loss) available to common stockholders of Live Nation Entertainment, Inc.—basic and diluted
$
22,474

 
$
58,198

 
$
(12,018
)
 
$
(5,269
)
 
 
 
 
 
 
 
 
Weighted average common shares—basic
198,701,762

 
193,069,783

 
198,282,044

 
190,960,206

Effect of dilutive securities:
 
 
 
 
 
 
 
        Stock options, restricted stock and warrants
7,287,509

 
3,700,622

 

 

Weighted average common shares—diluted
205,989,271

 
196,770,405

 
198,282,044

 
190,960,206

 
 
 
 
 
 
 
 
Basic and diluted net income (loss) per common share
$
0.11

 
$
0.30

 
$
(0.06
)
 
$
(0.03
)
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 the assumed conversion of the 2.5% convertible senior notes and 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 
 June 30,
 
Six Months Ended 
 June 30,
  
2014
 
2013
 
2014
 
2013
 
(in thousands)
Options to purchase shares of common stock
5,108

 
6,734

 
17,755

 
17,695

Restricted stock awards—unvested
715

 
917

 
1,770

 
2,594

Warrants

 
500

 

 
500

Conversion shares related to the convertible senior notes
16,035

 
8,105

 
16,035

 
8,105

Number of anti-dilutive potentially issuable shares excluded from diluted common shares outstanding
21,858

 
16,256

 
35,560

 
28,894


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Table of Contents

NOTE 9—STOCK-BASED COMPENSATION
The following is a summary of stock-based compensation expense recorded by the Company during the respective periods:
  
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2014
 
2013
 
2014
 
2013
 
(in thousands)
Selling, general and administrative expenses
$
8,255

 
$
3,601

 
$
13,175

 
$
6,251

Corporate expenses
4,295

 
4,213

 
9,393

 
7,868

Total
$
12,550

 
$
7,814

 
$
22,568

 
$
14,119

The increase in stock-based compensation expense for the six months ended June 30, 2014 as compared to the same period of 2013 is due primarily to 2.2 million options and 0.7 million shares of restricted stock granted to management and directors during the first half of 2014, which will generally vest over one to four years. In addition, the Company granted other equity awards to employees during 2014, with the grant in the first quarter vesting over four years and the grant in the second quarter vesting at issuance. During the three and six months ended June 30, 2014, the Company recorded stock-based compensation expense for these other awards of $5.2 million and $5.5 million, respectively, as a component of selling, general and administrative expenses.
As of June 30, 2014, there was $60.1 million of total unrecognized compensation cost related to stock-based compensation arrangements for stock options, restricted stock awards and other equity awards. This cost is expected to be recognized over a weighted-average period of 2.7 years.
NOTE 10—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 or operated venues and in rented third-party venues, the production of music festivals and the operation and management of music venues. 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 Artist Nation segment provides management services to artists and other services including merchandise sales. 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 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 include accruals and 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.
For the six months ended June 30, 2013, the previously reported capital expenditures amount in the Concerts segment has been increased by $19.6 million to include partial insurance recoveries received in connection with storm damage to an amphitheater in New York during Hurricane Sandy. The expenditures had previously been reported net of these recoveries.
The following table presents the results of operations for the Company’s reportable segments for the three and six months ended June 30, 2014 and 2013:
 
Concerts
 
Ticketing
 
Artist
Nation
 
Sponsorship
& Advertising
 
Other
 
Corporate
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
(in thousands)
 
 
 
 
 
 
Three Months Ended June 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
$
1,172,166

 
$
371,000

 
$
79,162

 
$
70,903

 
$
839

 
$

 
$
(28,285
)
 
$
1,665,785

Direct operating expenses
969,991

 
183,269

 
47,242

 
9,995

 
1,590

 

 
(27,391
)
 
1,184,696


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Table of Contents

 
Concerts
 
Ticketing
 
Artist
Nation
 
Sponsorship
& Advertising
 
Other
 
Corporate
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
(in thousands)
 
 
 
 
 
 
Selling, general and administrative expenses
166,890

 
111,882

 
34,029

 
12,244

 
880

 

 

 
325,925

Depreciation and amortization
26,189

 
40,968

 
7,665

 
1,739

 
10

 
542

 
(894
)
 
76,219

Loss (gain) on disposal of operating assets
(3,745
)
 
(43
)
 
1

 

 

 

 

 
(3,787
)
Corporate expenses

 

 

 

 

 
25,717

 

 
25,717

Acquisition transaction expenses
456

 
58

 
(265
)
 

 

 
1,080

 

 
1,329

Operating income (loss)
$
12,385

 
$
34,866

 
$
(9,510
)
 
$
46,925

 
$
(1,641
)
 
$
(27,339
)
 
$

 
$
55,686

Intersegment revenue
$
25,604

 
$
187

 
$
2,494

 
$

 
$

 
$

 
$
(28,285
)
 
$

Three Months Ended June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
$
1,193,006

 
$
337,827

 
$
99,739

 
$
71,240

 
$
791

 
$

 
$
(23,090
)
 
$
1,679,513

Direct operating expenses
992,476

 
160,021

 
68,920

 
13,311

 
(2,206
)
 

 
(22,604
)
 
1,209,918

Selling, general and administrative expenses
159,517

 
101,919

 
22,476

 
10,959

 
848

 

 

 
295,719

Depreciation and amortization
35,068

 
36,685

 
10,136

 
596

 
11

 
678

 
(486
)
 
82,688

Loss (gain) on disposal of operating assets
(31,332
)
 
42

 
1,091

 

 

 

 

 
(30,199
)
Corporate expenses

 

 

 

 

 
21,812

 

 
21,812

Acquisition transaction expenses
313

 

 
17

 

 

 
1,439

 

 
1,769

Operating income (loss)
$
36,964

 
$
39,160

 
$
(2,901
)
 
$
46,374

 
$
2,138

 
$
(23,929
)
 
$

 
$
97,806

Intersegment revenue
$
21,254

 
$
714

 
$
1,122

 
$

 
$

 
$

 
$
(23,090
)
 
$

Six Months Ended June 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
$
1,834,656

 
$
725,461

 
$
151,718

 
$
116,291

 
$
1,585

 
$

 
$
(36,610
)
 
$
2,793,101

Direct operating expenses
1,487,146

 
355,860

 
89,318

 
18,059

 
681

 

 
(35,217
)
 
1,915,847

Selling, general and administrative expenses
316,806

 
225,902

 
59,822

 
24,165

 
1,635

 

 

 
628,330

Depreciation and amortization
54,709

 
86,951

 
15,436

 
1,943

 
20

 
1,141

 
(1,393
)
 
158,807


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Table of Contents

 
Concerts
 
Ticketing
 
Artist
Nation
 
Sponsorship
& Advertising
 
Other
 
Corporate
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
(in thousands)
 
 
 
 
 
 
Loss (gain) on disposal of operating assets
(3,235
)
 
(117
)
 
34

 

 

 
37

 

 
(3,281
)
Corporate expenses

 

 

 

 

 
46,891

 

 
46,891

Acquisition transaction expenses
783

 
63

 
188

 

 

 
2,095

 

 
3,129

Operating income (loss)
$
(21,553
)
 
$
56,802

 
$
(13,080
)
 
$
72,124

 
$
(751
)
 
$
(50,164
)
 
$

 
$
43,378

Intersegment revenue
$
33,034

 
$
460

 
$
3,116

 
$

 
$

 
$

 
$
(36,610
)
 
$

Capital expenditures
$
18,306

 
$
37,438

 
$
943

 
$
449

 
$

 
$
5,271

 
$

 
$
62,407

Six Months Ended June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
$
1,706,541

 
$
662,962

 
$
150,010

 
$
111,387

 
$
1,584

 
$

 
$
(29,273
)
 
$
2,603,211

Direct operating expenses
1,382,728

 
315,083

 
100,332

 
20,175

 
(3,171
)
 

 
(28,295
)
 
1,786,852

Selling, general and administrative expenses
296,835

 
213,859

 
42,514

 
20,647

 
1,386

 

 

 
575,241

Depreciation and amortization
63,770

 
79,498

 
20,170

 
738

 
185

 
1,470

 
(978
)
 
164,853

Loss (gain) on disposal of operating assets
(34,462
)
 
(20
)
 
679

 

 
7

 

 

 
(33,796
)
Corporate expenses

 

 

 

 

 
42,467

 

 
42,467

Acquisition transaction expenses
547

 
24

 
145

 

 

 
2,261

 

 
2,977

Operating income (loss)
$
(2,877
)
 
$
54,518

 
$
(13,830
)
 
$
69,827

 
$
3,177

 
$
(46,198
)
 
$

 
$
64,617

Intersegment revenue
$
26,967

 
$
981

 
$
1,325

 
$

 
$

 
$

 
$
(29,273
)
 
$

Capital expenditures
$
31,444

 
$
42,993

 
$
282

 
$
300

 
$

 
$
(171
)
 
$

 
$
74,848

 

19

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
“Live Nation” (which may be referred to as the “Company,” “we,” “us” or “our”) means Live Nation Entertainment, Inc. and its subsidiaries, or one of our segments or subsidiaries, as the context requires. You should read the following discussion of our financial condition and results of operations together with the unaudited consolidated financial statements and notes to the financial statements included elsewhere in this quarterly report.
Special Note About Forward-Looking Statements
Certain statements contained in this quarterly report (or otherwise made by us or on our behalf from time to time in other reports, filings with the SEC, news releases, conferences, internet postings or otherwise) that are not statements of historical fact constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended, notwithstanding that such statements are not specifically identified. Forward-looking statements include, but are not limited to, statements about our financial position, business strategy, competitive position, potential growth opportunities, potential operating performance improvements, the effects of competition, the effects of future legislation or regulations and plans and objectives of our management for future operations. We have based our forward-looking statements on our beliefs and assumptions based on information available to us at the time the statements are made. Use of the words “may,” “should,” “continue,” “plan,” “potential,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “outlook,” “could,” “target,” “project,” “seek,” “predict,” or variations of such words and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.
Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those set forth below under Part II Item 1A.—Risk Factors, in Part I Item IA.—Risk Factors of our 2013 Annual Report on Form 10-K, as well as other factors described herein or in our annual, quarterly and other reports we file with the SEC (collectively, “cautionary statements”). Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described in any forward-looking statements. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the applicable cautionary statements. We do not intend to update these forward-looking statements, except as required by applicable law.
Executive Overview
In the second quarter of 2014, our overall revenue decreased slightly compared to last year driven by a reduction in the number of concert events and fans due to fewer stadium and arena tours. However, Ticketing’s ticket sales increased by 2% overall for the quarter and, combined with strong growth in our resale business, resulted in a 10% improvement in Ticketing revenue for the quarter. For the first six months, our overall revenue is up 7% due to an increase in Ticketing ticket sales globally as well as growth in our resale business and strong first quarter results in our Concerts segment. We believe by leveraging our leadership position in the entertainment industry to reach fans through the live concert experience, we will sell more tickets which will then grow our sponsorship and advertising revenue. As the leading global live event and ticketing company, we believe that we are well-positioned to provide the best service to artists, teams, fans and venues and therefore drive growth across all our businesses.
Our Concerts segment revenue for the quarter decreased 2% compared to last year largely due to a reduction in the number of stadium shows as well as fewer arena events. The number of fans was down 5% as a result of these drivers. We delivered increased revenue in North America for the quarter from higher attendance at our amphitheaters as well as improved results for the Electric Daisy Carnival in Las Vegas at the end of June. As we noted in the last quarter, we had a significantly higher volume of arena shows and attendance in the first quarter this year than we have historically seen. This shift in timing drove higher revenue and higher operating income for Concerts in the first quarter. For the first six months, our Concerts revenue has improved 8% over last year. Our overall Concerts operating results declined for the quarter due to this timing of events as well as the gains recognized in the second quarter of 2013 from the sale of a theatrical theater in New York and higher insurance recoveries for storm damage sustained to an amphitheater in New York. We will continue to look for expansion opportunities, both domestically and internationally, as well as ways to market our events more effectively in order to continue to expand our fan base and geographic reach and to sell more tickets.
Our Ticketing segment revenue for the quarter increased 10% compared to last year largely due to higher primary ticket sales and growth of our resale business in North America. Overall, the total number of tickets sold during the quarter increased 2%. In our resale business, gross transaction value of tickets sold increased in the second quarter of 2014 due in large part to the success of our new TM+ product which drove significant growth in concert and professional sports ticket sales. For the first six months, our gross transaction value of resale tickets sold increased by over 30%, driven by concert and sports ticket sales on TM+ as well as increased results in our international markets. For the first six months, 17% of our total tickets were sold via mobile and tablet devices as we continue to implement new features that are driving further expansion of mobile ticket

20

Table of Contents

transactions. Ticketing operating results for the quarter were down due to higher investments in our technology products and higher depreciation and amortization expenses. We continue to invest in a variety of initiatives aimed at improving the ticket buying process and the overall fan and venue client experience.
Our Artist Nation segment revenue decreased 21% for the quarter as compared to last year primarily due to the decision in July of last year by the Concerts segment to no longer outsource VIP ticket sales to Artist Nation. Operating results for Artist Nation decreased in the quarter largely as a result of higher compensation costs and lower management commissions and merchandise sales. Our Artist Nation segment is focused on serving its existing artists as well as developing new relationships with top artists and extending the various services it provides.
Our Sponsorship & Advertising segment revenue was flat for the quarter as compared to the same period of the prior year with higher sponsorship revenue generated from new clients and our electronic music festivals offset by a decline in specialized campaigns that occurred in the second quarter of 2013. We are incurring higher compensation costs to expand our sales team which we expect to drive additional sales in our online group, in new markets, such as Australia, and new business lines, such as electronic dance music. We anticipate this investment in our sales force will generate revenue growth in the future. Overall, operating income increased slightly due to improved results on certain sponsorship programs partially offset by this growth in our sales staff as well as higher depreciation and amortization expenses. Our extensive on-site and online reach, global venue distribution network, artist relationships and ticketing operations are the key to securing long-term sponsorship agreements with major brands and we plan to expand these assets while extending further into new markets internationally.
We continue to be optimistic about the long-term potential of our company and are focused on the key elements of our business model expand our concert platform, drive conversion of ticket sales through social and mobile channels, grow our sponsorship and online revenue, sell more tickets for our Ticketmaster clients, deliver fans a fully integrated offering of primary and secondary tickets together, drive cost efficiencies and continue to align our artist management group with our other core businesses.
Our History
We were 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 us. We completed our separation from Clear Channel on December 21, 2005, and became a publicly traded company on the New York Stock Exchange trading under the symbol “LYV.”
On January 25, 2010, we 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.
Segment Overview
Our reportable segments are Concerts, Ticketing, Artist Nation and Sponsorship & Advertising.
Concerts
Our Concerts segment principally involves the global promotion of live music events in our owned or operated venues and in rented third-party venues, the operation and management of music venues and the production of music festivals across the world. While our Concerts segment operates year-round, we generally experience higher revenue during the second and third quarters due to the seasonal nature of shows at our outdoor amphitheaters and festivals, which primarily occur May through September. Revenue and related costs for events are generally deferred and recognized when the event occurs. All advertising costs for shows are expensed at the end of the year for any future events.
To judge the health of our Concerts segment, we primarily monitor the number of confirmed events in our network of owned or operated and third-party venues, talent fees, average paid attendance and advance ticket sales. In addition, at our owned or operated venues, we monitor attendance, ancillary revenue per fan and premium ticket sales. For business that is conducted in foreign markets, we also compare the operating results from our foreign operations to prior periods on a constant currency basis.

21

Table of Contents

Ticketing
Our Ticketing segment is primarily an agency business that sells tickets for events on behalf of its clients and retains a fixed fee or a percentage of the total convenience charge and order processing fee for its services. We sell tickets through websites, telephone, mobile apps and ticket outlets. Our ticketing sales are impacted by fluctuations in the availability of events for sale to the public, which may vary depending upon scheduling by our clients. Our Ticketing segment also manages our online activities including enhancements to our websites and bundled product offerings. Through our websites, we sell tickets to our own events as well as tickets for our ticketing clients and provide event information. Revenue related to ticketing service charges for our events where we control ticketing is deferred and recognized as the event occurs.
To judge the health of our Ticketing segment, we primarily review the gross transaction value and the number of tickets sold through our ticketing operations, average convenience charges and order processing fees, the number of clients renewed or added and the average royalty rate paid to clients who use our ticketing services. In addition, we review the number of visits to our websites, the overall number of customers in our database, the number of tickets sold via mobile apps and websites and the revenue related to the sale of other products on our websites. For business that is conducted in foreign markets, we also compare the operating results from our foreign operations to prior periods on a constant currency basis.
Artist Nation
Our Artist Nation segment primarily provides management services to music artists in exchange for a commission on the earnings of these artists. Our Artist Nation segment also sells merchandise associated with music artists at live performances, to retailers and directly to consumers via the internet. Revenue earned from our Artist Nation segment is impacted to a large degree by the touring schedules of the artists we represent and generally we experience higher revenue during the second and third quarters as the period from May through September tends to be a popular time for touring events.
To judge the health of our Artist Nation segment, we primarily review the annual commissions earned for each artist represented and the percentage of top artists on tour or with planned album releases as these activities tend to drive higher revenue. For business that is conducted in foreign markets, we also compare the operating results from our foreign operations to prior periods on a constant currency basis.
Sponsorship & Advertising
Our Sponsorship & Advertising segment employs a sales force that creates and maintains relationships with sponsors, through a combination of strategic, international, national and local opportunities that allow businesses to reach customers through our concert, venue, artist relationship and ticketing assets, including advertising on our websites. We work with our corporate clients to help create marketing programs that drive their business goals and connects their brands directly with fans and artists. We also develop, book and produce custom events or programs for our clients’ specific brands which are typically experienced exclusively by the clients’ consumers. These custom events can involve live music events with talent and media, using both online and traditional outlets. We typically experience higher revenue in the second and third quarters as a large portion of sponsorships are typically associated with our outdoor venues and festivals which are primarily used in or occur during May through September.
To judge the health of our Sponsorship & Advertising segment, we primarily review the average revenue per sponsor, the total revenue generated through sponsorship arrangements, the percentage of expected revenue under contract and the online revenue received from sponsors advertising on our websites. For business that is conducted in foreign markets, we also compare the operating results from our foreign operations to prior periods on a constant currency basis.

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Consolidated Results of Operations
 
 
Three Months Ended 
 June 30,
 
%
Change
 
Six Months Ended 
 June 30,
 
%
Change
 
2014
 
2013
 
2014
 
2013
 
 
(in thousands)
 
 
 
(in thousands)
 
 
Revenue
$
1,665,785

 
$
1,679,513

 
(1)%
 
$
2,793,101

 
$
2,603,211

 
7%
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Direct operating expenses
1,184,696

 
1,209,918

 
(2)%
 
1,915,847

 
1,786,852

 
7%
Selling, general and administrative expenses
325,925

 
295,719

 
10%
 
628,330

 
575,241

 
9%
Depreciation and amortization
76,219

 
82,688

 
(8)%
 
158,807

 
164,853

 
(4)%
Gain on disposal of operating assets
(3,787
)
 
(30,199
)
 
*
 
(3,281
)
 
(33,796
)
 
*
Corporate expenses
25,717

 
21,812

 
18%
 
46,891

 
42,467
<