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Live Nation Entertainment, Inc. - Quarter Report: 2013 June (Form 10-Q)


 
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, 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 July 31, 2013, there were 198,464,533 outstanding shares of the registrant’s common stock, $0.01 par value per share, including 2,444,803 shares of unvested restricted stock awards.
 


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)
Azoff Trust
The Azoff Family Trust of 1997, of which Irving Azoff is co-Trustee
Clear Channel
Clear Channel Communications, Inc.
Company
Live Nation Entertainment, Inc. and subsidiaries
Coppel
Michael Coppel Ventures Pty Ltd
CTS
CTS Eventim AG
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.

1

Table of Contents

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
LIVE NATION ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
June 30,
2013
 
December 31,
2012
 
(in thousands)
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
1,385,260

 
$
1,001,055

Accounts receivable, less allowance of $20,175 and $19,794, respectively
634,509

 
415,790

Prepaid expenses
607,376

 
359,936

Other current assets
60,212

 
36,031

Total current assets
2,687,357

 
1,812,812

Property, plant and equipment
 
 
 
Land, buildings and improvements
794,902

 
852,175

Computer equipment and capitalized software
372,704

 
338,919

Furniture and other equipment
199,478

 
200,743

Construction in progress
55,625

 
56,822

 
1,422,709

 
1,448,659

Less accumulated depreciation
730,014

 
726,873

 
692,695

 
721,786

Intangible assets
 
 
 
Definite-lived intangible assets, net
668,367

 
724,463

Indefinite-lived intangible assets
375,991

 
377,463

Goodwill
1,369,062

 
1,357,827

Investments in nonconsolidated affiliates
52,438

 
46,160

Other long-term assets
236,901

 
250,295

Total assets
$
6,082,811

 
$
5,290,806

LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable, client accounts
$
622,448

 
$
557,953

Accounts payable
167,818

 
102,718

Accrued expenses
631,216

 
626,723

Deferred revenue
1,018,135

 
402,002

Current portion of long-term debt
61,658

 
62,050

Other current liabilities
15,274

 
16,726

Total current liabilities
2,516,549

 
1,768,172

Long-term debt, net
1,662,035

 
1,677,955

Long-term deferred income taxes
192,821

 
199,596

Other long-term liabilities
87,409

 
94,409

Commitments and contingent liabilities


 


Redeemable noncontrolling interests
78,759

 
42,100

Stockholders’ equity
 
 
 
Common stock
1,959

 
1,877

Additional paid-in capital
2,355,798

 
2,272,882

Accumulated deficit
(913,527
)
 
(908,418
)
Accumulated other comprehensive loss
(51,959
)
 
(10,923
)
Total Live Nation Entertainment, Inc. stockholders’ equity
1,392,271

 
1,355,418

Noncontrolling interests
152,967

 
153,156

Total equity
1,545,238

 
1,508,574

Total liabilities and equity
$
6,082,811

 
$
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 
 June 30,
 
Six Months Ended 
 June 30,
 
2013
 
2012
 
2013
 
2012
 
(in thousands except share and per share data)
Revenue
$
1,679,513

 
$
1,550,677

 
$
2,603,211

 
$
2,418,674

Operating expenses:
 
 
 
 
 
 
 
Direct operating expenses
1,209,918

 
1,106,869

 
1,786,852

 
1,645,583

Selling, general and administrative expenses
295,719

 
280,943

 
575,241

 
549,078

Depreciation and amortization
82,688

 
94,259

 
164,853

 
173,972

Loss (gain) on disposal of operating assets
(30,199
)
 
93

 
(33,796
)
 
(195
)
Corporate expenses
21,812

 
27,415

 
42,467

 
50,632

Acquisition transaction expenses
1,769

 
(1,870
)
 
2,977

 
(561
)
Operating income
97,806

 
42,968

 
64,617

 
165

Interest expense
30,041

 
29,488

 
58,192

 
59,198

Interest income
(890
)
 
(931
)
 
(2,658
)
 
(1,831
)
Equity in earnings of nonconsolidated affiliates
(2,629
)
 
(1,801
)
 
(5,211
)
 
(5,682
)
Other expense, net
3,868

 
5,424

 
7,506

 
3,642

Income (loss) before income taxes
67,416

 
10,788

 
6,788

 
(55,162
)
Income tax expense
8,401

 
5,228

 
11,960

 
9,506

Net income (loss)
59,015

 
5,560

 
(5,172
)
 
(64,668
)
Net income (loss) attributable to noncontrolling interests
885

 
(2,132
)
 
(63
)
 
(3,210
)
Net income (loss) attributable to common stockholders of Live Nation Entertainment, Inc.
$
58,130

 
$
7,692

 
$
(5,109
)
 
$
(61,458
)
 
 
 
 
 
 
 
 
Basic and diluted net income (loss) per common share attributable to common stockholders of Live Nation Entertainment, Inc.
$
0.30

 
$
0.04

 
$
(0.03
)
 
$
(0.33
)
 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
193,069,783

 
186,893,774

 
190,960,206

 
186,707,769

Diluted
196,770,405

 
189,325,338

 
190,960,206

 
186,707,769


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,
 
2013
 
2012
 
2013
 
2012
 
(in thousands)
Net income (loss)
$
59,015

 
$
5,560

 
$
(5,172
)
 
$
(64,668
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Unrealized gain (loss) on cash flow hedges
(45
)
 
(83
)
 
25

 
(88
)
Realized loss on cash flow hedges
449

 

 
457

 

Foreign currency translation adjustments
(7,261
)
 
(34,188
)
 
(41,518
)
 
(8,865
)
Comprehensive income (loss)
52,158

 
(28,711
)
 
(46,208
)
 
(73,621
)
Comprehensive income (loss) attributable to noncontrolling interests
885

 
(2,132
)
 
(63
)
 
(3,210
)
Comprehensive income (loss) attributable to common stockholders of Live Nation Entertainment, Inc.
$
51,273

 
$
(26,579
)
 
$
(46,145
)
 
$
(70,411
)


See Notes to Consolidated Financial Statements
4

Table of Contents

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

 
Six Months Ended 
 June 30,
 
2013
 
2012
 
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net loss
$
(5,172
)
 
$
(64,668
)
Reconciling items:
 
 
 
Depreciation
59,410

 
59,691

Amortization
105,443

 
114,281

Deferred income tax benefit
(6,305
)
 
(6,946
)
Amortization of debt issuance costs and discount/premium, net
10,421

 
6,881

Non-cash compensation expense
14,119

 
17,919

Gain on disposal of operating assets
(33,796
)
 
(195
)
Equity in earnings of nonconsolidated affiliates
(5,211
)
 
(5,682
)
Other, net
1,468

 
(1,773
)
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
 
 
 
Increase in accounts receivable
(205,361
)
 
(103,344
)
Increase in prepaid expenses
(230,247
)
 
(305,090
)
Increase in other assets
(65,252
)
 
(62,284
)
Increase in accounts payable, accrued expenses and other liabilities
152,384

 
94,717

Increase in deferred revenue
588,446

 
566,621

Net cash provided by operating activities
380,347

 
310,128

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Distributions from nonconsolidated affiliates
2,740

 
703

Investments made in nonconsolidated affiliates
(3,032
)
 
(2,858
)
Purchases of property, plant and equipment
(76,685
)
 
(62,785
)
Proceeds from disposal of operating assets, net of cash divested
81,070

 
5,648

Cash paid for acquisitions, net of cash acquired
(23,766
)
 
(68,093
)
Purchases of intangible assets
(17
)
 
(11,469
)
(Increase) decrease other, net
(1,052
)
 
297

Net cash used in investing activities
(20,742
)
 
(138,557
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from long-term debt, net of debt issuance costs
89,369

 
58,270

Payments on long-term debt
(106,388
)
 
(44,222
)
Contributions from noncontrolling interests
267

 
130

Distributions to noncontrolling interests
(1,936
)
 
(8,189
)
Proceeds from exercise of stock options
73,449

 
859

Payments for deferred and contingent consideration
(750
)
 
(10,585
)
Net cash provided by (used in) financing activities
54,011

 
(3,737
)
Effect of exchange rate changes on cash and cash equivalents
(29,411
)
 
(7,048
)
Net increase in cash and cash equivalents
384,205

 
160,786

Cash and cash equivalents at beginning of period
1,001,055

 
844,253

Cash and cash equivalents at end of period
$
1,385,260

 
$
1,005,039


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 June 30, 2013 and December 31, 2012 cash and cash equivalents balance is $479.1 million and $441.6 million, respectively, representing the face value of tickets sold on behalf of clients and the clients’ share of convenience and order processing charges.
Acquisitions
During the first half of 2013, the Company completed its acquisition of a controlling interest in a company that promotes festivals and other smaller acquisitions. These acquisitions were accounted for as business combinations under the acquisition method of accounting and were not significant on an individual basis or in the aggregate.
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 to be applied prospectively and are effective for interim and annual periods beginning after December 15, 2012. The Company adopted this guidance on January 1, 2013.
Recently Issued Pronouncements
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 should be applied prospectively to unrecognized tax benefits that exist at the effective date. Early adoption and retrospective application of the new guidance is permitted. The Company is currently evaluating the new guidance and does not expect the adoption of this standard to have a material effect on its financial position.
NOTE 2—LONG-LIVED ASSETS
Property, Plant and Equipment
In the fourth quarter of 2012, an amphitheater located in New York that is operated by the Company sustained substantial damage during Hurricane Sandy. During 2013, the Company received an insurance recovery and recorded a gain of $9.4 million and $12.6 million for the three and six months ended June 30, 2013, respectively, as a component of loss (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 six months ended June 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
10,892

 
4,540

 

 

 

 
22,947

 

 
38,379

Acquisitions—prior year
(1,028
)
 

 

 

 

 

 

 
(1,028
)
Dispositions

 
(1,354
)
 

 

 

 

 

 
(1,354
)
Foreign exchange
(7,537
)
 
(7,359
)
 
(104
)
 
(2,163
)
 
(339
)
 
(481
)
 
(56
)
 
(18,039
)
Other (1)
(14,769
)
 

 
(14,257
)
 

 

 
405

 
(3,031
)
 
(31,652
)
 
(12,442
)
 
(4,173
)
 
(14,361
)
 
(2,163
)
 
(339
)
 
22,871

 
(3,087
)
 
(13,694
)
Accumulated amortization:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization
(23,251
)
 
(22,781
)
 
(10,896
)
 
(10,803
)
 
(11,438
)
 
(2,131
)
 
(244
)
 
(81,544
)
Dispositions

 
61

 

 

 

 

 

 
61

Foreign exchange
3,593

 
968

 
91

 
754

 
202

 
114

 
51

 
5,773

Other (1)
14,745

 

 
14,757

 

 

 
775

 
3,031

 
33,308

 
(4,913
)
 
(21,752
)
 
3,952

 
(10,049
)
 
(11,236
)
 
(1,242
)
 
2,838

 
(42,402
)
Balance as of June 30, 2013:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross carrying amount
502,629

 
257,482

 
154,057

 
116,096

 
101,085

 
41,294

 
3,365

 
1,176,008

Accumulated amortization
(202,462
)
 
(61,559
)
 
(107,417
)
 
(61,940
)
 
(64,531
)
 
(7,920
)
 
(1,812
)
 
(507,641
)
Net
$
300,167

 
$
195,923

 
$
46,640

 
$
54,156

 
$
36,554

 
$
33,374

 
$
1,553

 
$
668,367

_________
(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 assets.
Included in the current year acquisitions amount above of $38.4 million are trademarks and naming rights and revenue-generating contracts primarily associated with the May 2013 acquisition of a controlling interest in a company that promotes festivals.

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
7
Trademarks and naming rights
10
All categories
9
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 six months ended June 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. During the second quarter of 2012, the Company recorded an impairment charge related to definite-lived intangible assets of $13.9 million as a component of depreciation and amortization. The impairment charge primarily related to intangible assets for revenue-generating contracts and client/vendor relationships in the Concerts segment. See Note 4—Fair Value Measurements for further discussion of the inputs used to determine the fair value. There were no impairment charges recorded during the six months ended June 30, 2013.
Amortization from definite-lived intangible assets for the three months ended June 30, 2013 and 2012 was $43.3 million and $55.7 million, respectively, and for the six months ended June 30, 2013 and 2012 was $81.5 million and $95.6 million, respectively. The decrease in amortization for the three and six months ended June 30, 2013 is primarily driven by the impairment charge recorded during the second quarter of 2012 discussed above. During the second quarter of 2013, the Company recorded $4.9 million for acceleration of amortization primarily related to a change in estimate 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 June 30, 2013 and 2012 was $10.3 million and $7.9 million, respectively, and for the six months ended June 30, 2013 and 2012 was $23.9 million and $18.7 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 six months ended June 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
)
 
198,989

 
637,642

 
266,820

 
254,376

 

 
1,357,827

 
 
 
 
 
 
 
 
 
 
 
 
Acquisitions—current year
47,189

 

 

 
866

 

 
48,055

Acquisitions—prior year
(9,999
)
 

 
6,849

 

 

 
(3,150
)
Dispositions
(3,691
)
 

 
(251
)
 

 

 
(3,942
)
Foreign exchange
(16,763
)
 
(1,076
)
 
(275
)
 
(11,614
)
 

 
(29,728
)
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of June 30, 2013:
 
 
 
 
 
 
 
 
 
 
Goodwill
485,627

 
636,566

 
273,143

 
243,628

 
13,037

 
1,652,001

Accumulated impairment losses
(269,902
)
 

 

 

 
(13,037
)
 
(282,939
)
 
$
215,725

 
$
636,566

 
$
273,143

 
$
243,628

 
$

 
$
1,369,062

Included in the current year acquisitions amount above of $48.1 million is goodwill primarily associated with the May 2013 acquisition of a controlling interest in a company that promotes festivals.
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.
Investments in nonconsolidated affiliates
The Company has investments in various affiliates which are not consolidated and are accounted for under the equity method of accounting. The Company records its investments in these entities in the balance sheet as investments in nonconsolidated affiliates. The Company’s interests in these operations are recorded in the statement of operations as equity in earnings of nonconsolidated affiliates. For the six months ended June 30, 2013, two of the Company’s investments, which include a 33% owned ticketing distribution services company and a 50% owned artist management company, are considered significant.
Summarized unaudited income statement information for the Company’s significant nonconsolidated affiliates is as follows (at 100%):
 
Six Months Ended 
 June 30,
 
2013
 
2012
 
 (in thousands)
 Revenue
$
28,203

 
$
28,929

 Operating income
$
14,956

 
$
15,399

 Net income
$
11,693

 
$
12,720


Long-lived Asset Disposals
In May 2013, the Company completed the sale of a theatrical theater in New York. In January 2012, the Company completed the sale of an amphitheater in Ohio.

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The table below summarizes the asset and liability values at the time of sale for significant disposals and the resulting gain or loss recorded.
Divested Asset
 
Segment
 
Loss (Gain)
on Disposal of
Operating
Assets
 
Current
Assets
 
Noncurrent
Assets
 
Current
Liabilities
 
Noncurrent
Liabilities
 
 
(in thousands)
2013 Divestiture
 
 
 
 
 
 
 
 
 
 
 
 
New York theatrical theater
 
Concerts
 
$
(21,887
)
 
$

 
$
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 loss (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.
NOTE 3—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 and short-term intercompany loans. At June 30, 2013 and December 31, 2012, the Company had forward currency contracts and options outstanding with notional amounts of $123.2 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 June 30, 2013, the Company had interest rate swaps outstanding with notional amounts of $47.8 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 June 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 June 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 speculation 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 4—Fair Value Measurements for further discussion and disclosure of the fair values for the Company’s derivative instruments.
NOTE 4—FAIR VALUE MEASUREMENTS
The Company currently has various financial instruments carried at fair value, such as marketable securities, derivatives and contingent consideration, but does not currently have nonfinancial assets and 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).

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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 June 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
$
227,138

 
$

 
$

 
$
227,138

 
$
61,996

 
$

 
$

 
$
61,996

Forward currency contracts

 
3,509

 

 
3,509

 

 
81

 

 
81

Stock options

 

 
17

 
17

 

 

 
204

 
204

Total
$
227,138

 
$
3,509

 
$
17

 
$
230,664

 
$
61,996

 
$
81

 
$
204

 
$
62,281

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
$

 
$
1,980

 
$

 
$
1,980

 
$

 
$
2,811

 
$

 
$
2,811

Forward currency contracts

 
228

 

 
228

 

 
625

 

 
625

Contingent consideration

 

 
5,806

 
5,806

 

 

 
6,718

 
6,718

Total
$

 
$
2,208

 
$
5,806

 
$
8,014

 
$

 
$
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 5—Commitments and Contingent Liabilities for additional information related to the contingent payments.
The Company has stock options in a company that became publicly-traded in the third quarter of 2011 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 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.
During the second quarter of 2012, the Company recorded impairments related to definite-lived intangible assets of $13.9 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 impairments related to definite-lived intangible assets recorded for the six months ended June 30, 2013.
Due to their short maturity, the carrying amounts of accounts receivable, accounts payable and accrued expenses approximated their fair values at June 30, 2013 and December 31, 2012.
The Company’s outstanding debt held by third-party financial institutions is carried at cost, adjusted for discounts. The Company’s debt is not publicly-traded and the carrying amounts typically approximate fair value for the Company’s debt that

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accrues interest at a variable rate, which are considered to be Level 2 inputs. The estimated fair values of the 7% senior notes, the 8.125% senior notes and the 2.875% convertible senior notes were $238.4 million, $266.4 million and $222.5 million at June 30, 2013, respectively. 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 at December 31, 2012, respectively. 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 $23.4 million and $24.5 million at June 30, 2013 and December 31, 2012, respectively. The Company is unable to determine the fair value of this debt.
NOTE 5—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 2013. As of June 30, 2013, the Company has accrued $2.3 million in other current liabilities and $3.5 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 4—Fair Value Measurements for further discussion related to the valuation of these contingent payments.
CTS Arbitration
Live Nation Worldwide, Inc. (“Live Nation Worldwide”) and CTS were parties to an agreement (the “CTS Agreement”), pursuant to which CTS was to develop and Live Nation Worldwide licensed or agreed to use ticketing software or ticketing platforms. Under the agreement, CTS was to develop software to be licensed to Live Nation Worldwide to provide ticketing services in the United States and Canada. The CTS Agreement also generally required Live Nation Worldwide to use CTS’s ticketing platforms in certain European countries so long as CTS’s existing platforms were appropriately modified to meet local market conditions. In June 2010, Live Nation Worldwide terminated the CTS Agreement because CTS materially breached the agreement by failing to deliver a North American ticketing system that met the contractual requirements of being a “world class ticketing system . . . that fits the needs of the North American market,” and by failing to deliver a ticketing system for the United Kingdom and other European countries that fit the needs of those markets as required by the CTS Agreement.
In April 2010, CTS filed a request for arbitration with the International Court of Arbitration of the International Chamber of Commerce (“ICC”) pursuant to the CTS Agreement, alleging that Live Nation Worldwide improperly terminated the CTS Agreement and seeking specific performance and damages, including damages for royalties that would have been paid over the full 10-year term of the CTS Agreement. In June 2013, the arbitrator for the ICC ruled that Live Nation Worldwide validly terminated the CTS Agreement and therefore has no liability to CTS, thus concluding the matter in Live Nation Worldwide's favor.
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

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(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 June 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 and TicketsNow’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 will resolve 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 all claims in all of the actions.

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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 6—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 
 June 30,
 
Six Months Ended 
 June 30,
  
2013
 
2012
 
2013
 
2012
 
(in thousands)
Director related-party revenue
$

 
$
3,423

 
$
2,475

 
$
8,169

Director related-party expenses
$
1,473

 
$
6,360

 
$
3,527

 
$
9,604

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 as of June 30, 2013 who was also a director and executive officer of Clear Channel. 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.
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
Irving Azoff was the Company’s Executive Chairman and Chairman of its board of directors until his resignation as an officer, director and employee of the Company on December 31, 2012. ATC Aviation, Inc. (“ATC”), which is owned by Irving Azoff, owns an aircraft. An aircraft management and charter company, unrelated to either the Company or ATC, manages and operates the aircraft on ATC’s behalf. The Company was charged market rates for the use of the aircraft when used by Mr. Azoff or other executives on Company business, a portion of which was paid to ATC. These arrangements are no longer in effect following Mr. Azoff’s departure from the Company. For the three and six months ended June 30, 2012, the Company made payments totaling $0.4 million and $1.0 million, respectively.
Irving Azoff has a minority ownership interest in an entity that subleases office space from the Company. Rent charged by the Company totaled $0.2 million and $0.4 million, respectively, for the three and six months ended June 30, 2012.

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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 June 30, 2013 and December 31, 2012, the Company has a receivable balance of $11.5 million and $12.2 million, respectively, from certain of these companies. The following table sets forth expenses incurred and revenue earned from these companies for services rendered or provided in relation to these business ventures. None of these transactions were with directors or executive officers of the Company.
  
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
  
2013
 
2012
 
2013
 
2012
 
(in thousands)
Other related-parties revenue
$
1,627

 
$
861

 
$
2,954

 
$
2,315

Other related-parties expenses
$
2,677

 
$
2,158

 
$
7,827

 
$
4,034

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 19% 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 $12.0 million for the six months ended June 30, 2013. The components of tax expense that contributed to the net income tax expense for the six months ended June 30, 2013 primarily consist of income tax expense of $8.7 million based on the expected annual rate pertaining to ordinary income for the six month period, a $1.1 million federal tax adjustment to prior year tax filings and state and local taxes of $2.0 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 2001 through 2012 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:
 
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
14,119

 

 
14,119

 

Common stock issued under stock plans, net of shares withheld for employee taxes
(4,000
)
 

 
(4,000
)
 

Exercise of stock options
73,449

 

 
73,449

 

Acquisitions

 
146

 
146

 
38,561

Acquisitions of noncontrolling interests
(410
)
 
410

 

 

Sales of noncontrolling interests

 
(399
)
 
(399
)
 
 
Redeemable noncontrolling interests fair value adjustments
(160
)
 

 
(160
)
 
160

Noncontrolling interests contributions

 
267

 
267

 

Cash distributions

 
(1,936
)
 
(1,936
)
 

Other

 
(612
)
 
(612
)
 
(64
)
Comprehensive income (loss):
 
 
 
 

 
 
Net income (loss)
(5,109
)
 
1,935

 
(3,174
)
 
(1,998
)
Unrealized gain on cash flow hedges
25

 

 
25

 

Realized loss on cash flow hedges
457

 

 
457

 

Foreign currency translation adjustments
(41,518
)
 

 
(41,518
)
 

Balances at June 30, 2013
$
1,392,271

 
$
152,967

 
$
1,545,238

 
$
78,759

Common Stock
During the first half of 2013, the Company issued 8.2 million shares of common stock primarily in connection with stock option exercises.
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 six 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 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 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

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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 redemption amounts for these put arrangements are reflected in the Company’s balance sheets as redeemable noncontrolling interests outside of permanent equity and, at June 30, 2013 and December 31, 2012, were $78.8 million and $42.1 million, respectively. 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 six months ended June 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
 
25

 

 
(41,518
)
 
(41,493
)
Amount reclassified from AOCI
 
457

 

 

 
457

Net other comprehensive income (loss)
 
482

 

 
(41,518
)
 
(41,036
)
Balance at June 30, 2013
 
$
(113
)
 
$
(611
)
 
$
(51,235
)
 
$
(51,959
)
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,
  
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
$
58,130

 
$
7,692

 
$
(5,109
)
 
$
(61,458
)
 
 
 
 
 
 
 
 
Weighted average common shares—basic
193,070

 
186,894

 
190,960

 
186,708

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options, restricted stock and warrants
3,700

 
2,431

 

 

2.875% convertible senior notes

 

 

 

Weighted average common shares—diluted
196,770

 
189,325

 
190,960

 
186,708

 
 
 
 
 
 
 
 
Basic and diluted net income (loss) per common share
$
0.30

 
$
0.04

 
$
(0.03
)
 
$
(0.33
)

17

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 
 June 30,
 
Six Months Ended 
 June 30,
  
2013
 
2012
 
2013
 
2012
 
(in thousands)
Options to purchase shares of common stock
6,734

 
15,981

 
17,695

 
21,340

Restricted stock awards and units—unvested
917

 
3,179

 
2,594

 
3,935

Warrants
500

 
500

 
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
16,256

 
27,765

 
28,894

 
33,880

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,
 
2013
 
2012
 
2013
 
2012
 
(in thousands)
Selling, general and administrative expenses
$
3,601

 
$
3,353

 
$
6,251

 
$
6,644

Corporate expenses
4,213

 
5,587

 
7,868

 
11,275

Total
$
7,814

 
$
8,940

 
$
14,119

 
$
17,919

As of June 30, 2013, there was $50.1 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.
Azoff Trust Note
As part of the Merger, a note was issued to the Azoff Trust in exchange for shares of Ticketmaster’s series A convertible redeemable preferred stock held by the Azoff Trust. The note was paid in full in December 2012 in connection with Mr. Azoff’s resignation. For the three and six months ended June 30, 2012, the Company recorded $1.6 million and $3.2 million, respectively, of expense related to this note as a component of corporate expenses.
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 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.

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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.
The following table presents the results of operations for the Company’s reportable segments for the three and six months ending June 30, 2013 and 2012:
 
Concerts
 
Ticketing
 
Artist
Nation
 
Sponsorship
& Advertising
 
Other
 
Corporate
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
(in thousands)
 
 
 
 
 
 
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
)
 
$

Three Months Ended June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
$
1,076,024

 
$
328,939

 
$
109,241

 
$
61,278

 
$
422

 
$

 
$
(25,227
)
 
$
1,550,677

Direct operating expenses
896,083

 
154,367

 
73,371

 
9,337

 
(1,908
)
 

 
(24,381
)
 
1,106,869

Selling, general and administrative expenses
145,067

 
104,673

 
21,306

 
9,192

 
705

 

 

 
280,943

Depreciation and amortization
44,134

 
38,803

 
11,456

 
(18
)
 
11

 
719

 
(846
)
 
94,259

Loss (gain) on disposal of operating assets
1

 
(65
)
 

 

 
157

 

 

 
93

Corporate expenses

 

 

 

 

 
27,415

 

 
27,415

Acquisition transaction expenses
(2,219
)
 
(315
)
 
351

 

 

 
313

 

 
(1,870
)
Operating income (loss)
$
(7,042
)
 
$
31,476

 
$
2,757

 
$
42,767

 
$
1,457

 
$
(28,447
)
 
$

 
$
42,968

Intersegment revenue
$
20,989

 
$
2,382

 
$
1,856

 
$

 
$

 
$

 
$
(25,227
)
 
$

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


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Table of Contents

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
$
11,891

 
$
42,993

 
$
282

 
$
300

 
$

 
$
(171
)
 
$

 
$
55,295

Six Months Ended June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
$
1,524,723

 
$
655,483

 
$
170,646

 
$
97,406

 
$
1,198

 
$

 
$
(30,782
)
 
$
2,418,674

Direct operating expenses
1,239,436

 
306,242

 
114,009

 
16,058

 
(423
)
 

 
(29,739
)
 
1,645,583

Selling, general and administrative expenses
276,685

 
208,001

 
45,394

 
17,981

 
1,017

 

 

 
549,078

Depreciation and amortization
72,496

 
77,969

 
23,068

 
21

 
23

 
1,438

 
(1,043
)
 
173,972

Loss (gain) on disposal of operating assets
(469
)
 
(155
)
 

 

 
429

 

 

 
(195
)
Corporate expenses

 

 

 

 

 
50,632

 

 
50,632

Acquisition transaction expenses
(1,405
)
 
(335
)
 
401

 

 

 
778

 

 
(561
)
Operating income (loss)
$
(62,020
)
 
$
63,761

 
$
(12,226
)
 
$
63,346

 
$
152

 
$
(52,848
)
 
$

 
$
165

Intersegment revenue
$
25,038

 
$
2,696

 
$
3,048

 
$

 
$

 
$

 
$
(30,782
)
 
$

Capital expenditures
$
11,458

 
$
42,422

 
$
414

 
$
3,433

 
$
4

 
$
983

 
$

 
$
58,714


20

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 2012 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 2013, our revenue increased 8% compared to last year driven by an increase in our Concerts segment from higher event activity as well as the impact of the acquisition of a controlling interest in a company that is a leading promoter of festivals completed during the quarter. We had an increase in stadium events throughout Europe and more shows in Australia which was partially offset by fewer arena events in North America. Our Ticketing segment revenue was also up for the second quarter, despite the loss of the 2012 Olympics activity, driven by strong sales in Australia and the United Kingdom as well as our North American resale business. Our strategy remains focused on leveraging our leadership position in the live entertainment industry to reach fans through the live concert experience in order to sell more tickets and grow our sponsorship and advertising revenue, while continuing to optimize our cost structure. We believe that as the leading, global live event and ticketing company we are well-positioned to serve artists, teams, fans and venues.
Our Concerts segment delivered an 11% increase in revenue for the second quarter as compared to last year through increased event activity and attendance and higher results due to acquisitions. Our Concert attendance was up 8% globally driven by additional stadium activity in Europe, more events in newer markets like Australia, as well as growth in our festival business. Our overall Concerts operating results increased for the quarter due to improved profitability in our European business, our North American theaters and clubs business and in global touring, as well as expansion in our international markets.
Our Ticketing segment revenue for the second quarter increased by 3% compared to last year due to an increase in ticket sales for concert events in Australia and the United Kingdom as well as an increase in our resale business. Overall, the number of tickets sold during the second quarter increased by 2% due largely to higher sales in our international ticketing group. Tickets sold through our mobile applications in the second quarter nearly doubled as compared to last year and we are implementing new features this year that we expect to further expand mobile ticket transactions. In the second quarter, over 9% of our North American tickets were sold via mobile devices. Ticketing operating results in the second quarter were driven by strong international concert ticket sales, increased activity in our resale business, and cost savings partially driven by a legal settlement. As in the first quarter, we have incurred higher costs year-over-year from investments in our technology platforms. We will continue to invest in a variety of initiatives aimed at improving the ticket buying process and overall fan and venue client experience.

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Table of Contents

Our Artist Nation segment revenue decreased by 9% for the second quarter due to the restructuring of our artist management business in late 2012 and lower sales in our merchandise business. The reductions in management and merchandise revenue led to a year-over-year reduction in operating results for the segment. Our Artist Nation segment is focused on serving our existing artists as well as developing new relationships with top artists and extending the various services we provide.
Our Sponsorship & Advertising segment's second quarter revenue increased by 16% driven primarily by higher online advertising revenue as well as sponsorship revenue generated from tours and custom events. Overall operating income improved 8% in the second quarter driven by the higher activity. An increase in custom events in North America, which have higher direct costs, as well as the timing of fixed costs and our international festivals led to the reduction in operating margins. 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 continue to expand these assets while extending further into new markets internationally.
Our second quarter 2013 operating results were impacted positively by $30.2 million in gains recognized on the disposal of operating assets. These gains include a $21.9 million gain recognized on the sale of a theatrical theater in New York and a $9.4 million gain recognized in connection with an insurance recovery for storm damage sustained to an amphitheater in New York during Hurricane Sandy.
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 to sell more tickets, drive conversion of ticket sales through social and mobile channels, grow our sponsorship and online revenue and sell more tickets for our Ticketmaster clients while driving reductions in the ticketing cost structure.
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. We completed the Separation 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 and/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 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 and/or operated and third-party venues, talent fees, average paid attendance and advance ticket sales. In addition, at our owned and/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.
Ticketing
The Ticketing segment is primarily an agency business that sells tickets for events on behalf of our clients and retains a convenience charge and order processing fee for our 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 bundling 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 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 the revenue related to the sale of

22

Table of Contents

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
The 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 and provides other services to artists. 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 typically experience higher revenue in the second and third quarters as a large portion of sponsorships are typically associated with our outdoor venues and international 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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Table of Contents

Consolidated Results of Operations
 
 
Three Months Ended 
 June 30,
 
%
Change
 
Six Months Ended 
 June 30,
 
%
Change
 
2013
 
2012
 
2013
 
2012
 
 
(in thousands)
 
 
 
(in thousands)
 
 
Revenue
$
1,679,513

 
$
1,550,677

 
8
 %
 
$
2,603,211

 
$
2,418,674

 
8
 %
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Direct operating expenses
1,209,918

 
1,106,869

 
9
 %
 
1,786,852

 
1,645,583

 
9
 %
Selling, general and administrative expenses
295,719

 
280,943

 
5
 %
 
575,241

 
549,078

 
5
 %
Depreciation and amortization
82,688

 
94,259

 
(12
)%
 
164,853

 
173,972

 
(5
)%
Loss (gain) on disposal of operating assets
(30,199
)
 
93

 
*

 
(33,796
)
 
(195
)
 
*

Corporate expenses
21,812

 
27,415

 
(20
)%
 
42,467

 
50,632

 
(16
)%
Acquisition transaction expenses
1,769

 
(1,870
)
 
*

 
2,977

 
(561
)
 
*

Operating income
97,806

 
42,968

 
*

 
64,617

 
165

 
*

Operating margin
5.8
%
 
2.8
%
 
 
 
2.5
%
 

 
 
Interest expense
30,041

 
29,488

 
 
 
58,192

 
59,198

 
 
Interest income
(890
)
 
(931
)
 
 
 
(2,658
)
 
(1,831
)
 
 
Equity in earnings of nonconsolidated affiliates
(2,629
)
 
(1,801
)
 
 
 
(5,211
)
 
(5,682
)
 
 
Other expense, net
3,868

 
5,424

 
 
 
7,506

 
3,642

 
 
Income (loss) before income taxes
67,416

 
10,788

 
 
 
6,788

 
(55,162
)
 
 
Income tax expense
8,401

 
5,228

 
 
 
11,960

 
9,506

 
 
Net income (loss)
59,015

 
5,560

 
 
 
(5,172
)
 
(64,668
)
 
 
Net income (loss) attributable to noncontrolling interests
885

 
(2,132
)
 
 
 
(63
)
 
(3,210
)
 
 
Net income (loss) attributable to common stockholders of Live Nation Entertainment, Inc.
$
58,130

 
$
7,692

 
 
 
$
(5,109
)
 
$
(61,458
)
 
 
_________
*
Percentages are not meaningful.

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Table of Contents

Key Operating Metrics
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2013
 
2012
 
2013
 
2012
Concerts (1)
 
 
 
 
 
 
 
Total estimated events:
 
 
 
 
 
 
 
North America
4,076

 
3,983

 
7,339

 
7,188

International
1,842

 
1,709

 
3,464

 
3,309

Total estimated events
5,918

 
5,692

 
10,803

 
10,497

Total estimated attendance (rounded):
 
 
 
 
 
 
 
North America
9,321,000

 
9,282,000

 
14,376,000

 
13,642,000

International
6,021,000

 
4,877,000

 
9,071,000

 
7,728,000

Total estimated attendance
15,342,000

 
14,159,000

 
23,447,000

 
21,370,000

Ancillary net revenue per attendee (2):
 
 
 
 
 
 
 
North America amphitheaters
 
 
 
 
$
18.59

 
$
18.87

International festivals
 
 
 
 
$
16.81

 
$
17.83

Ticketing (3)
 
 
 
 
 
 
 
Number of tickets sold (in thousands):
 
 
 
 
 
 
 
Concerts
19,526

 
18,604

 
36,197

 
35,412

Sports
8,099

 
7,734

 
16,620

 
16,540

Arts and theater
3,962

 
4,371

 
8,226

 
9,190

Family
3,264

 
3,073

 
7,834

 
7,601

Other (4)
1,417

 
1,699

 
3,138

 
3,449

 
36,268

 
35,481

 
72,015

 
72,192

Gross value of tickets sold (in thousands)
$
2,326,378

 
$
2,191,152

 
$
4,508,229

 
$
4,411,351

Number of customers in database (2) (rounded)
 
 
 
 
124,265,000

 
115,071,000

Sponsorship & Advertising
 
 
 
 
 
 
 
Sponsorship revenue (in thousands)
$
54,322

 
$
48,223

 
$
82,575

 
$
73,940

Online advertising revenue (in thousands)
$
16,918

 
$
13,055

 
$
28,812

 
$
23,466

 _________

(1)
Events generally represent a single performance by an artist. Attendance generally represents the number of fans who were present at an event. Festivals are counted as one event in the quarter in which the festival begins but attendance is based on the days the fan was present at the festival and thus can be reported in multiple quarters. Events and attendance metrics are estimated each quarter.
(2)
Amounts are reported as of the latest period shown.
(3)
The number and gross value of tickets sold includes primary tickets only and excludes tickets sold for the 2012 Olympics. These metrics include tickets sold during the period regardless of event timing except for our promoted events in our owned and/or operated venues and in certain European territories where these tickets are reported as the events occur. The total number of tickets sold excludes approximately 25 million and 27 million tickets sold for the three months ended June 30, 2013 and 2012, respectively, and excludes approximately 53 million and 58 million tickets sold for the six months ended June 30, 2013 and 2012, respectively, through our venue clients’ box offices for which we do not receive a fee.
(4)
Other category includes tickets for comedy shows, facility tours, donations, lectures, seminars and cinemas.

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Revenue
Our revenue increased $128.8 million, or 8%, during the three months ended June 30, 2013 as compared to the same period of the prior year. The overall increase in revenue was primarily due to an increase in our Concerts segment of $117.0 million. Excluding the increase of approximately $4.7 million related to the impact of changes in foreign exchange rates, revenue increased $124.1 million, or 8%.
Our revenue increased $184.5 million, or 8%, during the six months ended June 30, 2013 as compared to the same period of the prior year. The overall increase in revenue was primarily due to an increase in our Concerts segment of $181.8 million. Excluding the increase of approximately $2.4 million related to the impact of changes in foreign exchange rates, revenue increased $182.1 million, or 8%.
More detailed explanations of these changes are included in the applicable segment discussions below.
Direct operating expenses
Our direct operating expenses increased $103.0 million, or 9%, during the three months ended June 30, 2013 as compared to the same period of the prior year. The overall increase in direct operating expenses was primarily due to an increase in our Concerts segment of $96.4 million. Excluding the increase of approximately $4.8 million related to the impact of changes in foreign exchange rates, direct operating expenses increased $98.2 million, or 9%.
Our direct operating expenses increased $141.3 million, or 9%, during the six months ended June 30, 2013 as compared to the same period of the prior year. The overall increase in direct operating expenses was primarily due to an increase in our Concerts segment of $143.3 million. Excluding the increase of approximately $2.9 million related to the impact of changes in foreign exchange rates, direct operating expenses increased $138.4 million, or 8%.
Direct operating expenses include artist fees, event production costs, ticketing client royalties, show-related marketing and advertising expenses along with other costs.
More detailed explanations of these changes are included in the applicable segment discussions below.
Selling, general and administrative expenses
Our selling, general and administrative expenses increased $14.8 million, or 5%, during the three months ended June 30, 2013 as compared to the same period of the prior year. The overall increase in selling, general and administrative expenses was primarily due to an increase in our Concerts segment of $14.5 million. Excluding the decrease of approximately $0.7 million related to the impact of changes in foreign exchange rates, selling, general and administrative expenses increased $15.5 million, or 6%.
Our selling, general and administrative expenses increased $26.2 million, or 5%, during the six months ended June 30, 2013 as compared to the same period of the prior year. The overall increase in selling, general and administrative expenses was primarily due to increases in our Concerts and Ticketing segments of $20.2 million and $5.9 million, respectively. Excluding the decrease of approximately $0.8 million related to the impact of changes in foreign exchange rates, selling, general and administrative expenses increased $27.0 million, or 5%.
More detailed explanations of these changes are included in the applicable segment discussions below.
Depreciation and amortization
Depreciation and amortization decreased $11.6 million, or 12%, during the three months ended June 30, 2013 as compared to the same period of the prior year. The overall decrease in depreciation and amortization was primarily due to a decrease in our Concerts segment of $9.1 million. Excluding the decrease of approximately $0.1 million related to the impact of changes in foreign exchange rates, depreciation and amortization decreased $11.5 million, or 12%.
Depreciation and amortization decreased $9.1 million, or 5%, during the six months ended June 30, 2013 as compared to the same period of the prior year. The overall decrease in depreciation and amortization was primarily due to a decrease in our Concerts segment of $8.7 million. Excluding the decrease of approximately $0.2 million related to the impact of changes in foreign exchange rates, depreciation and amortization decreased $8.9 million, or 5%.
More detailed explanations of these changes are included in the applicable segment discussions below.
Loss (gain) on disposal of operating assets
Gain on disposal of operating assets for the three and six months ended June 30, 2013 was $30.2 million and $33.8 million, respectively, consisting primarily of a $21.9 million gain recognized from the May 2013 sale of a theatrical theater in New York in our Concerts segment. In addition, we recognized a gain of $9.4 million and $12.6 million for the three and six

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months ended June 30, 2013, respectively, in connection with an insurance recovery for storm damage sustained to an amphitheater located in New York in our Concerts segment.
Corporate expenses
Corporate expenses decreased $5.6 million, or 20%, during the three months ended June 30, 2013 as compared to the same period of the prior year primarily due to a reduction in compensation, stock-based compensation and Azoff Trust note expense resulting from the resignation of Irving Azoff on December 31, 2012, formerly our Executive Chairman and Chairman of the board of directors.
Corporate expenses decreased $8.2 million, or 16%, during the six months ended June 30, 2013 as compared to the same period of the prior year primarily due to a reduction in compensation, stock-based compensation and Azoff Trust note expense resulting from the resignation of Irving Azoff and legal expenses incurred during 2012 in connection with a matter that was subsequently settled.
Acquisition transaction expenses
Acquisition transaction expenses for the three and six months ended June 30, 2013 were $1.8 million and $3.0 million, respectively, consisting primarily of costs associated with current year acquisitions and ongoing litigation relating to the Merger.
Acquisition transaction expenses for the three and six months ended June 30, 2012 were $(1.9) million and $(0.6) million, respectively, consisting primarily of reductions in the fair value of acquisition-related contingent consideration partially offset by costs associated with acquisitions and ongoing litigation relating to the Merger.
Interest expense
Interest expense decreased $1.0 million, or 2%, during the six months ended June 30, 2013 as compared to the same period of the prior year primarily due to the net interest cost reduction realized from the August 2012 redemption of the 10.75% senior notes and issuance of the 7% senior notes, partially offset by additional term loan B borrowings in June 2012.
Our debt balances and weighted-average cost of debt, excluding unamortized debt discounts of $27.3 million, were $1.75 billion and 5.3%, respectively, at June 30, 2013.
Other expense, net
Other expense, net was $3.9 million and $7.5 million for the three and six months ended June 30, 2013, respectively, and includes the impact of changes in foreign exchange rates of $4.4 million and $7.8 million, respectively.
Other expense, net was $5.4 million and $3.6 million for the three and six months ended June 30, 2012, respectively, and includes the impact of changes in foreign exchange rates of $4.2 million and $3.0 million, respectively.
Income taxes
Net income tax expense for the six months ended June 30, 2013 and 2012 was $12.0 million and $9.5 million, respectively, and consists primarily of income tax attributable to taxable income of our foreign locations. The increase in income taxes is driven by an increase in the taxable earnings of our taxable foreign locations.

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Concerts Results of Operations
Our Concerts segment operating results were, and discussions of significant variances are, as follows:
 
Three Months Ended 
 June 30,
 
%
Change
 
Six Months Ended 
 June 30,
 
%
Change
 
2013
 
2012
 
 
 
2013
 
2012
 
 
 
(in thousands)
 
 
 
(in thousands)
 
 
Revenue
$
1,193,006

 
$
1,076,024

 
11
 %
 
$
1,706,541

 
$
1,524,723

 
12
 %
Direct operating expenses
992,476

 
896,083

 
11
 %
 
1,382,728

 
1,239,436

 
12
 %
Selling, general and administrative expenses
159,517

 
145,067

 
10
 %
 
296,835

 
276,685

 
7
 %
Depreciation and amortization
35,068

 
44,134

 
(21
)%
 
63,770

 
72,496

 
(12
)%
Loss (gain) on disposal of operating assets
(31,332
)
 
1

 
*

 
(34,462
)
 
(469
)
 
*

Acquisition transaction expenses
313

 
(2,219
)
 
*

 
547

 
(1,405
)
 
*

Operating income (loss)
$
36,964

 
$
(7,042
)
 
*

 
$
(2,877
)
 
$
(62,020
)
 
95
 %
Operating margin
3.1
%
 
(0.7
)%
 
 
 
(0.2
)%
 
(4.1
)%
 
 
Adjusted operating income **
$
42,588

 
$
36,209

 
18
 %
 
$
29,446

 
$
11,258

 
*

_______
*
Percentages are not meaningful.
**
AOI is defined and reconciled to operating income (loss) below.
Three Months
Concerts revenue increased $117.0 million, or 11%, during the three months ended June 30, 2013 as compared to the same period of the prior year. Excluding the increase of $5.7 million related to the impact of changes in foreign exchange rates, revenue increased $111.3 million, or 10%, partially due to incremental revenue of $67.9 million resulting primarily from the May 2013 acquisition of a controlling interest in a company that promotes festivals. In addition, revenue increased from higher show counts in European stadiums and theaters, growth from our expansion in global markets such as Australia and more events and higher attendance for our North American theaters and clubs. These increases were partially offset by fewer arena shows in North America and a reduction of festival activity resulting primarily from the timing of the events.
Concerts direct operating expenses increased $96.4 million, or 11%, during the three months ended June 30, 2013 as compared to the same period of the prior year. Excluding the increase of $5.3 million related to the impact of changes in foreign exchange rates, direct operating expenses increased $91.1 million, or 10%, partially due to incremental direct operating expenses of $70.6 million resulting from the acquisitions noted above. In addition, we incurred higher expenses associated with the increased number of shows in Europe and our expansion in global markets. These increases were partially offset by lower costs associated with reduced global touring and festival activity and a reduction in North America arena shows.
Concerts selling, general and administrative expenses increased $14.5 million, or 10%, during the three months ended June 30, 2013 as compared to the same period of the prior year. Excluding the decrease of $0.2 million related to the impact of changes in foreign exchange rates, selling, general and administrative expenses increased $14.7 million, or 10%, partially due to incremental expenses of $2.3 million associated with the acquisitions noted above, increases in compensation-related costs and additional expenses following the June 2012 opening of the Ziggo Dome in The Netherlands.
Concerts depreciation and amortization decreased $9.1 million, or 21%, during the three months ended June 30, 2013 as compared to the same period of the prior year. Excluding the decrease of $0.1 million related to the impact of changes in foreign exchange rates, depreciation and amortization decreased $9.0 million, or 20%, primarily due to the $13.9 million of impairment charges recorded in the second quarter of 2012 related to revenue-generating and client/vendor relationship intangibles offset partially by $4.0 million of accelerated amortization recorded in the second quarter of 2013 resulting from a change in the estimated life of certain venue management and leasehold intangibles. There were no significant impairment charges recorded during the second quarter of 2013.
Concerts gain on disposal of operating assets of $31.3 million for the three months ended June 30, 2013 is primarily due to a gain on the sale of a theatrical theater in New York of $21.9 million and additional proceeds received in connection with an insurance recovery for storm damage during Hurricane Sandy to an amphitheater located in New York in October 2012.

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Concerts acquisition transaction expenses increased $2.5 million during the three months ended June 30, 2013 as compared to the same period of the prior year primarily due to the reduction in the fair value of certain acquisition-related contingent consideration during the second quarter of 2012.
The improved operating income for Concerts for the three months ended June 30, 2013 was primarily driven by improved results from theaters and clubs, global touring and domestic festival activity, increased show activity in Europe and the gain on disposal of operating assets. These increases were partially offset by the timing of international festivals.
Six Months
Concerts revenue increased $181.8 million, or 12%, during the six months ended June 30, 2013 as compared to the same period of the prior year. Excluding the increase of $3.5 million related to the impact of changes in foreign exchange rates, revenue increased $178.3 million, or 12%, partially due to incremental revenue from acquisitions of $81.7 million primarily from the May 2013 acquisition of a company that promotes festivals and the April 2012 acquisition of Coppel. We also had more shows in Europe, increased global touring activity, more events and higher attendance in our theaters and clubs and our expansion to new global markets. These increases were partially offset by fewer arena shows in North America and a reduction in global festival activity primarily driven by the timing of events.
Concerts direct operating expenses increased $143.3 million, or 12%, during the six months ended June 30, 2013 as compared to the same period of the prior year. Excluding the increase of $3.6 million related to the impact of changes in foreign exchange rates, direct operating expenses increased $139.7 million, or 11%, partially due to incremental direct operating expenses of $82.2 million from the acquisitions noted above and higher expenses associated with the increased show activity in Europe and global touring and our expansion to new global markets discussed above. These increases were partially offset by lower costs associated with reduced North America arena shows and global festival activity.
Concerts selling, general and administrative expenses increased $20.2 million, or 7%, during the six months ended June 30, 2013 as compared to the same period of the prior year. Excluding the decrease of $0.2 million related to the impact of changes in foreign exchange rates, selling, general and administrative expenses increased $20.4 million, or 7%, primarily due to higher compensation-related expenses driven by inflationary adjustments and our expansion in global markets, additional costs following the June 2012 opening of the Ziggo Dome in The Netherlands and increased property costs such as rent and insurance. In addition, incremental selling, general and administrative expenses of $3.5 million from the acquisitions noted above contributed to the increase.
Concerts depreciation and amortization decreased $8.7 million, or 12%, during the six months ended June 30, 2013 as compared to the same period of the prior year. Excluding the decrease of $0.2 million related to the impact of changes in foreign exchange rates, depreciation and amortization decreased $8.5 million, or 12%, primarily due to the $13.9 million of impairment charges recorded in the second quarter of 2012 primarily related to revenue-generating and client/vendor relationship intangibles offset partially by $4.0 million of accelerated amortization recorded in the second quarter of 2013 resulting from a change in the estimated life of certain venue management and leasehold intangible assets. There were no significant impairments recorded in the first half of 2013.
Concerts gain on disposal of operating assets of $34.5 million for the six months ended June 30, 2013 is primarily due to a $21.9 million gain on sale of a theatrical theater in New York and a $12.6 million insurance recovery for storm damage during Hurricane Sandy to an amphitheater located in New York in October 2012.
The decreased operating loss for Concerts for the six months ended June 30, 2013 was primarily driven by increased shows in Europe, improved results for our global touring activity and theaters and clubs, our expansion to new global markets and the gain on disposal of operating assets. These increases were partially offset by the reduction in global festival activity.

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Ticketing Results of Operations
Our Ticketing segment operating results were, and discussions of significant variances are, as follows:
 
Three Months Ended 
 June 30,
 
%
Change
 
Six Months Ended 
 June 30,
 
%
Change
 
2013
 
2012
 
 
 
2013
 
2012
 
 
 
(in thousands)
 
 
 
(in thousands)
 
 
Revenue
$
337,827

 
$
328,939

 
3
 %
 
$
662,962

 
$
655,483

 
1
 %
Direct operating expenses
160,021

 
154,367

 
4
 %
 
315,083

 
306,242

 
3
 %
Selling, general and administrative expenses
101,919

 
104,673

 
(3
)%
 
213,859

 
208,001

 
3
 %
Depreciation and amortization
36,685

 
38,803

 
(5
)%
 
79,498

 
77,969

 
2
 %
Loss (gain) on disposal of operating assets
42

 
(65
)
 
*

 
(20
)
 
(155
)
 
*

Acquisition transaction expenses

 
(315
)
 
*

 
24

 
(335
)
 
*

Operating income
$
39,160

 
$
31,476

 
24
 %
 
$
54,518

 
$
63,761

 
(14
)%
Operating margin
11.6
%
 
9.6
%
 
 
 
8.2
%
 
9.7
%
 
 
Adjusted operating income **
$
77,569

 
$
71,375

 
9
 %
 
$
137,158

 
$
143,936

 
(5
)%
 _______
*
Percentages are not meaningful.
**
AOI is defined and reconciled to operating income (loss) below.
Three Months
Ticketing revenue increased $8.9 million, or 3%, during the three months ended June 30, 2013 as compared to the same period of the prior year. Excluding the decrease of $0.8 million related to the impact of changes in foreign exchange rates, revenue increased $9.7 million, or 3%, primarily due to higher international primary ticket sales and increased domestic resale volume. These increases were partially offset by a reduction in fees associated with the 2012 Olympics and lower domestic primary ticket fees resulting from a reduction in ticket sales in the arts and theater category.
Ticketing direct operating expenses increased $5.7 million, or 4%, during the three months ended June 30, 2013 as compared to the same period of the prior year. Excluding the decrease of $0.3 million related to the impact of changes in foreign exchange rates, directing operating expenses increased $6.0 million, or 4%, primarily due to higher costs associated with the increased international primary ticket sales and domestic resale volume discussed above and higher royalty rates.
The increase in Ticketing operating income for the three months ended June 30, 2013 was primarily due to the higher international ticket sales and increased domestic resale ticket volumes.
Six Months
Ticketing revenue increased $7.5 million, or 1%, during the six months ended June 30, 2013 as compared to the same period of the prior year. Excluding the decrease of $0.9 million related to the impact of changes in foreign exchange rates, revenue increased $8.4 million, or 1%, partially due to strong international primary ticket sales during the second quarter of 2013 and increased domestic resale ticket volume. These increases were partially offset by a reduction in fees associated with the 2012 Olympics and lower domestic primary ticket fees resulting from a reduction in ticket sales in the arts and theater category.
Ticketing direct operating expenses increased $8.8 million, or 3%, during the six months ended June 30, 2013 as compared to the same period of the prior year. Excluding the decrease of $0.4 million related to the impact of changes in foreign exchange rates, directing operating expenses increased $9.2 million, or 3%, primarily due to costs related to the higher international primary ticket sales and increased domestic resale volume discussed above. These increases were partially offset by lower royalties on domestic primary ticket sales resulting from the reduction in ticket sales discussed above.
Ticketing selling, general and administrative expenses increased $5.9 million, or 3%, during the six months ended June 30, 2013 as compared to the same period of the prior year. Excluding the decrease of $0.5 million related to the impact of changes in foreign exchange rates, selling, general and administrative expenses increased $6.4 million, or 3%, primarily due to increased costs associated with higher resale activity, increased compensation costs driven by annual salary increases and

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higher headcount and increased rent due to office relocations. These increases were partially offset by costs incurred for the summer Olympics in 2012 that were not incurred in 2013.
The decrease in Ticketing operating income for the six months ended June 30, 2013 was primarily due to costs related to resale activity, higher compensation-related costs and reduction associated with the 2012 Olympics partially offset by higher international primary ticket sales.
Artist Nation Results of Operations
Our Artist Nation segment operating results were, and discussions of significant variances are, as follows:
 
 
Three Months Ended 
 June 30,
 
%
Change
 
Six Months Ended 
 June 30,
 
%
Change
 
2013
 
2012
 
 
 
2013
 
2012
 
 
 
(in thousands)
 
 
 
(in thousands)
 
 
Revenue
$
99,739

 
$
109,241

 
(9
)%
 
$
150,010

 
$
170,646

 
(12
)%
Direct operating expenses
68,920

 
73,371

 
(6
)%
 
100,332

 
114,009

 
(12
)%
Selling, general and administrative expenses
22,476

 
21,306

 
5
 %
 
42,514

 
45,394

 
(6
)%
Depreciation and amortization
10,136

 
11,456

 
(12
)%
 
20,170

 
23,068

 
(13
)%
Loss on disposal of operating assets
1,091

 

 
*

 
679

 

 
*

Acquisition transaction expenses
17

 
351

 
*

 
145

 
401

 
*

Operating income (loss)
$
(2,901
)
 
$
2,757

 
*

 
$
(13,830
)
 
$
(12,226
)
 
(13
)%
Operating margin
(2.9
)%
 
2.5
%
 
 
 
(9.2
)%
 
(7.2
)%
 
 
Adjusted operating income **
$
8,498

 
$
14,930

 
(43
)%
 
$
7,455

 
$
11,923

 
(37
)%
 
_______
*
Percentages are not meaningful.
**
AOI is defined and reconciled to operating income (loss) below.
Three Months
Artist Nation revenue decreased $9.5 million, or 9%, during the three months ended June 30, 2013 as compared to the same period of the prior year. Excluding the decrease of $0.4 million related to the impact of changes in foreign exchange rates, revenue decreased $9.1 million, or 8%, primarily due to a reduction in management revenue associated with the departure of certain artist managers in December 2012 and lower tour merchandise and VIP package sales driven by the timing of artists tours. These decreases were partially offset by incremental revenue of $2.0 million resulting primarily from the July 2012 acquisition of a production services company.
Artist Nation direct operating expenses decreased $4.5 million, or 6%, during the three months ended June 30, 2013 as compared to the same period of the prior year. Excluding the decrease of $0.3 million related to the impact of changes in foreign exchange rates, direct operating expenses decreased $4.2 million, or 6%, primarily due to reduced costs from the lower tour merchandise and VIP package sales discussed above. These decreases were partially offset by incremental direct operating expenses of $0.8 million resulting primarily from the acquisition noted above.
Artist Nation depreciation and amortization decreased $1.3 million, or 12%, during the three months ended June 30, 2013 as compared to the same period of the prior year primarily due to decreased amortization related to client/vendor relationship intangibles in the management business that were impaired in the fourth quarter of 2012.
Artist Nation loss on disposal of operating assets of $1.1 million for the three months ended June 30, 2013 is primarily due to the disposal of an artist management company in April 2013.
The increased operating loss for Artist Nation for the three months ended June 30, 2013 was primarily driven by the lower tour merchandise sales and the departure of certain artist managers in December 2012.
Six Months
Artist Nation revenue decreased $20.6 million, or 12%, during the six months ended June 30, 2013 as compared to the same period of the prior year. Excluding the decrease of $0.6 million related to the impact of changes in foreign exchange rates,

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revenue decreased $20.0 million, or 12%, primarily due to lower tour and retail merchandise sales and the departure of certain artist managers. These decreases were partially offset by incremental revenue of $2.5 million resulting primarily from the acquisition noted above.
Artist Nation direct operating expenses decreased $13.7 million, or 12%, during the six months ended June 30, 2013 as compared to the same period of the prior year. Excluding the decrease of $0.5 million related to the impact of changes in foreign exchange rates, direct operating expenses decreased $13.2 million, or 12%, primarily due to the reduced costs from the lower merchandise sales noted above.
Artist Nation selling, general and administrative expenses decreased $2.9 million, or 6%, during the six months ended June 30, 2013 as compared to the same period of the prior year primarily due to the departure of certain artist managers and reduced compensation-related expenses in the merchandise business resulting primarily from lower headcount. These decreases were partially offset by incremental expenses of $2.0 million resulting primarily from the acquisition noted above.
Artist Nation depreciation and amortization decreased $2.9 million, or 13%, during the six months ended June 30, 2013 as compared to the same period of the prior year primarily due to decreased amortization related to client/vendor relationship intangibles in the management business that were impaired in the fourth quarter of 2012.
The increased operating loss for Artist Nation for the six months ended June 30, 2013 was primarily driven by the departure of certain artist managers and lower retail and tour merchandise sales partially offset by lower amortization.
Sponsorship & Advertising Results of Operations
Our Sponsorship & Advertising segment operating results were, and discussions of significant variances are, as follows:
 
 
Three Months Ended 
 June 30,
 
%
Change
 
Six Months Ended 
 June 30,
 
%
Change
 
2013
 
2012
 
 
 
2013
 
2012
 
 
 
(in thousands)
 
 
 
(in thousands)
 
 
Revenue
$
71,240

 
$
61,278

 
16
%
 
$
111,387

 
$
97,406

 
14
%
Direct operating expenses
13,311

 
9,337

 
43
%
 
20,175

 
16,058

 
26
%
Selling, general and administrative expenses
10,959

 
9,192

 
19
%
 
20,647

 
17,981

 
15
%
Depreciation and amortization
596

 
(18
)
 
*

 
738

 
21

 
*

Operating income
$
46,374

 
$
42,767

 
8
%
 
$
69,827

 
$
63,346

 
10
%
Operating margin
65.1
%
 
69.8
%
 
 
 
62.7
%
 
65.0
%
 
 
Adjusted operating income **
$
47,159

 
$
42,911

 
10
%
 
$
70,919

 
$
63,636

 
11
%
_______
*
Percentages are not meaningful.
**
AOI is defined and reconciled to operating income (loss) below.
Three Months
Sponsorship & Advertising revenue increased $10.0 million, or 16%, during the three months ended June 30, 2013 as compared to the same period of the prior year. Excluding the increase of $0.2 million related to the impact of changes in foreign exchange rates, revenue increased $9.8 million, or 16%, primarily due to online advertising growth, new sponsorship agreements globally including the Ziggo Dome in The Netherlands and expansion of existing sponsorship arrangements.
Sponsorship & Advertising direct operating expenses increased $4.0 million, or 43%, during the three months ended June 30, 2013 as compared to the same period of the prior year. Excluding the increase of $0.1 million related to the impact of changes in foreign exchange rates, direct operating expenses increased $3.9 million, or 41%, primarily driven by the increased revenue and, in certain cases, increased fulfillment costs on some programs.
Sponsorship & Advertising selling, general and administrative expenses increased $1.8 million, or 19%, during the three months ended June 30, 2013 as compared to the same period of the prior year primarily due to increased headcount and compensation-related costs.
The increased operating income for the three months ended June 30, 2013 was primarily due to higher online advertising and new sponsorship agreements globally.

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Six Months
Sponsorship & Advertising revenue increased $14.0 million, or 14%, during the six months ended June 30, 2013 as compared to the same period of the prior year. Excluding the increase of $0.4 million related to the impact of changes in foreign exchange rates, revenue increased $13.6 million, or 14%, primarily due to online advertising growth, new sponsorship agreements globally including the Ziggo Dome and expansion of existing sponsorship arrangements.
Sponsorship & Advertising direct operating expenses increased $4.1 million, or 26%, during the six months ended June 30, 2013 as compared to the same period of the prior year. Excluding the increase of $0.2 million million related to the impact of changes in foreign exchange rates, direct operating expenses increased $3.9 million, or 24%, primarily driven by the increased revenue and, in certain cases, increased fulfillment costs on some programs.
Sponsorship & Advertising selling, general and administrative expenses increased $2.7 million, or 15%, during the six months ended June 30, 2013 as compared to the same period of the prior year primarily due to increased headcount and compensation-related costs.
The increased operating income for the six months ended June 30, 2013 was primarily due to higher online advertising and new sponsorship agreements globally.

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Reconciliation of Segment Adjusted Operating Income (Loss)
AOI is a non-GAAP financial measure that we define as operating income (loss) before acquisition expenses (including transaction costs, changes in the fair value of accrued acquisition-related contingent consideration arrangements, payments under the Azoff Trust note and acquisition-related severance), depreciation and amortization (including goodwill impairment), loss (gain) on disposal of operating assets and non-cash and certain stock-based compensation expense (including expense associated with grants of certain stock-based awards which were classified as liabilities). We use AOI to evaluate the performance of our operating segments. We believe that information about AOI assists investors by allowing them to evaluate changes in the operating results of our portfolio of businesses separate from non-operational factors that affect net income, thus providing insights into both operations and the other factors that affect reported results. AOI is not calculated or presented in accordance with GAAP. A limitation of the use of AOI as a performance measure is that it does not reflect the periodic costs of certain amortizing assets used in generating revenue in our business. Accordingly, AOI should be considered in addition to, and not as a substitute for, operating income (loss), net income (loss), and other measures of financial performance reported in accordance with GAAP. Furthermore, this measure may vary among other companies; thus, AOI as presented herein may not be comparable to similarly titled measures of other companies.
The following table sets forth the reconciliation of adjusted operating income (loss) to operating income (loss):

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Adjusted
operating
income
(loss)
 
Non-cash
and stock-
based
compensation
expense
 
Loss (gain)
on disposal of
operating
assets
 
Depreciation
and
amortization
 
Acquisition
expenses
 
Operating
income
(loss)
 
 
 
(in thousands)
 
 
 
 
Three Months Ended June 30, 2013
 
 
 
 
 
 
 
 
Concerts
$
42,588

 
$
1,575

 
$
(31,332
)
 
$
35,068

 
$
313

 
$
36,964

Ticketing
77,569

 
1,682

 
42

 
36,685

 

 
39,160

Artist Nation
8,498

 
155

 
1,091

 
10,136

 
17

 
(2,901
)
Sponsorship & Advertising
47,159

 
189

 

 
596

 

 
46,374

Other and Eliminations
1,663

 

 

 
(475
)
 

 
2,138

Corporate
(17,599
)
 
4,213

 

 
678

 
1,439

 
(23,929
)
Total
$
159,878

 
$
7,814

 
$
(30,199
)
 
$
82,688

 
$
1,769

 
$
97,806

Three Months Ended June 30, 2012
 
 
 
 
 
 
 
 
 
 
Concerts
$
36,209

 
$
1,335

 
$
1

 
$
44,134

 
$
(2,219
)
 
$
(7,042
)
Ticketing
71,375

 
1,491

 
(65
)
 
38,803

 
(330
)
 
31,476

Artist Nation
14,930

 
366

 

 
11,456

 
351

 
2,757

Sponsorship & Advertising
42,911

 
161

 

 
(18
)
 
1

 
42,767

Other and Eliminations
779

 

 
157

 
(835
)
 

 
1,457

Corporate
(20,226
)
 
5,587

 

 
719

 
1,915

 
(28,447
)
Total
$
145,978

 
$
8,940

 
$
93

 
$
94,259

 
$
(282
)
 
$
42,968

Six Months Ended June 30, 2013
 
 
 
 
 
 
 
 
 
 
Concerts
$
29,446

 
$
2,468

 
$
(34,462
)
 
$
63,770

 
$
547

 
$
(2,877
)
Ticketing
137,158

 
3,138

 
(20
)
 
79,498

 
24

 
54,518

Artist Nation
7,455

 
291

 
679

 
20,170

 
145

 
(13,830
)
Sponsorship & Advertising
70,919

 
354

 

 
738

 

 
69,827

Other and Eliminations
2,391

 

 
7

 
(793
)
 

 
3,177

Corporate
(34,599
)
 
7,868

 

 
1,470

 
2,261

 
(46,198
)
Total
$
212,770

 
$
14,119

 
$
(33,796
)
 
$
164,853

 
$
2,977

 
$
64,617

Six Months Ended June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
Concerts
$
11,258

 
$
2,656

 
$
(469
)
 
$
72,496

 
$
(1,405
)
 
$
(62,020
)
Ticketing
143,936

 
3,039

 
(155
)
 
77,969

 
(678
)
 
63,761

Artist Nation
11,923

 
680

 

 
23,068

 
401

 
(12,226
)
Sponsorship & Advertising
63,636

 
269

 

 
21

 

 
63,346

Other and Eliminations
(439
)
 

 
429

 
(1,020
)
 

 
152

Corporate
(36,153
)
 
11,275

 

 
1,438

 
3,982

 
(52,848
)
Total
$
194,161

 
$
17,919

 
$
(195
)
 
$
173,972

 
$
2,300

 
$
165


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Liquidity and Capital Resources
Our working capital requirements and capital for our general corporate purposes, including acquisitions and capital expenditures, are funded from operations or from borrowings under our senior secured credit facility described below. Our cash is centrally managed on a worldwide basis. Our primary short-term liquidity needs are to fund general working capital requirements, capital expenditures and debt service requirements while our long-term liquidity needs are primarily related to acquisitions and debt repayment. Our primary sources of funds for our short-term liquidity needs will be cash flows from operations and borrowings under our senior secured credit facility, while our long-term sources of funds will be from cash flows from operations, long-term bank borrowings and other debt or equity financings. We plan to strategically pursue refinancing opportunities to extend maturities and/or improve terms of our indebtedness when we believe market conditions are favorable. We may also from time to time engage in open market purchases of our outstanding debt securities or redeem or otherwise repay such debt.
Our balance sheet reflects cash and cash equivalents of $1.4 billion at June 30, 2013 and $1.0 billion at December 31, 2012. Included in the June 30, 2013 and December 31, 2012 cash and cash equivalents balance is $479.1 million and $441.6 million, respectively, of funds representing the face value of tickets sold on behalf of clients and the clients’ share of convenience and order processing charges, or client funds. We do not utilize client funds for our own financing or investing activities as the amounts are payable to clients. Our foreign subsidiaries held approximately $527.5 million in cash and cash equivalents, excluding client cash, at June 30, 2013. We do not intend to repatriate these funds, but would need to accrue and pay United States federal and state income taxes on any future repatriations, net of applicable foreign tax credits. We may from time to time enter into borrowings under our revolving credit facility. If the original maturity of these borrowings is ninety days or less, we present the borrowings and subsequent repayments on a net basis in the statement of cash flows to better represent our financing activities. Our balance sheet reflects current and long-term debt of $1.7 billion at both June 30, 2013 and December 31, 2012. Our weighted-average cost of debt, excluding the debt discounts on our term loans and notes, was 5.3% at June 30, 2013.
Our cash and cash equivalents are held in accounts managed by third-party financial institutions and consist of cash in our operating accounts and invested cash. Cash held in interest-bearing operating accounts in many cases exceeds the Federal Deposit Insurance Corporation insurance limits. The invested cash is in interest-bearing funds consisting primarily of bank deposits and money market funds. While we monitor cash and cash equivalent balances in our operating accounts on a regular basis and adjust the balances as appropriate, these balances could be impacted if the underlying financial institutions fail. To date, we have experienced no loss or lack of access to our cash and cash equivalents; however, we can provide no assurances that access to our cash and cash equivalents will not be impacted by adverse conditions in the financial markets.
For our Concerts segment, we generally receive cash related to ticket revenue at our owned and/or operated venues in advance of the event, which is recorded in deferred revenue until the event occurs. With the exception of some upfront costs and artist deposits, which are recorded in prepaid expenses until the event occurs, we pay the majority of event-related expenses at or after the event.
We view our available cash as cash and cash equivalents, less ticketing-related client funds, less event-related deferred revenue, less accrued expenses due to artists and cash collected on behalf of others for ticket sales, plus event-related prepaids. This is essentially our cash available to, among other things, repay debt balances, make acquisitions and finance capital expenditures.
Our intra-year cash fluctuations are impacted by the seasonality of our various businesses. Examples of seasonal effects include our Concerts and Artist Nation segments, which report the majority of their revenue in the second and third quarters. Cash inflows and outflows depend on the timing of event-related payments but the majority of the inflows generally occur prior to the event. See “—Seasonality” below. We believe that we have sufficient financial flexibility to fund these fluctuations and to access the global capital markets on satisfactory terms and in adequate amounts, although there can be no assurance that this will be the case, and capital could be less accessible and/or more costly given current economic conditions. We expect cash flows from operations and borrowings under our senior secured credit facility, along with other financing alternatives, to satisfy working capital requirements, capital expenditures and debt service requirements for at least the succeeding year.
We may need to incur additional debt or issue equity to make other strategic acquisitions or investments. There can be no assurance that such financing will be available to us on acceptable terms or at all. We may make significant acquisitions in the near term, subject to limitations imposed by our financing documents and market conditions.
The lenders under our revolving loans and counterparties to our interest rate hedge agreements consist of banks and other third-party financial institutions. While we currently have no indications or expectations that such lenders and counterparties will be unable to fund their commitments as required, we can provide no assurances that future funding availability will not be impacted by adverse conditions in the financial markets. Should an individual lender default on its obligations, the remaining lenders would not be required to fund the shortfall, resulting in a reduction in the total amount available to us for future

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borrowings, but would remain obligated to fund their own commitments. Should any counterparty to our interest rate hedge agreements default on its obligations, we could experience higher interest rate volatility during the period of any such default.
Sources of Cash
May 2010 Senior Secured Credit Facility
At June 30, 2013, our senior secured credit facility consists of (i) a $100 million term loan A, (ii) a $900 million term loan B and (iii) a $300 million revolving credit facility maturing in May 2015. In addition, subject to certain conditions, we have the right to increase such term loan facilities by up to $200 million in the aggregate. The five-year revolving credit facility provides for borrowings up to the amount of the facility with sublimits of up to (i) $150 million to be available for the issuance of letters of credit, (ii) $50 million to be available for swingline loans and (iii) $100 million to be available for borrowings in foreign currencies. The senior secured credit facility is secured by a first priority lien on substantially all of our domestic wholly-owned subsidiaries and on 65% of the capital stock of our wholly-owned foreign subsidiaries.
The interest rates per annum applicable to loans under the senior secured credit facility are, at our option, equal to either LIBOR plus 3.25% or a base rate plus 2.25%, subject to stepdowns based on our leverage ratio. The interest rate for the term loan B is subject to a LIBOR floor of 1.5% and a base rate floor of 2.5%. We are required to pay a commitment fee of 0.5% per year on the undrawn portion available under the revolving credit facility and variable fees on outstanding letters of credit.
For the term loan A, we are required to make quarterly payments ranging from $1.3 million to $10.0 million with the balance due at maturity in November 2015. For the term loan B, we are required to make quarterly payments of $2.3 million with the balance due at maturity in November 2016. We are 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.
During the six months ended June 30, 2013, we made principal payments totaling $10.8 million on these term loans. At June 30, 2013, the outstanding balances on the term loans, net of discounts, were $931.2 million. There were no borrowings under the revolving credit facility as of June 30, 2013. Based on our letters of credit of $55.9 million, $244.1 million was available for future borrowings.
Debt Covenants
Our senior secured credit facility contains a number of covenants and restrictions that, among other things, requires us to satisfy certain financial covenants and restricts our and our subsidiaries’ ability to incur additional debt, make certain investments and acquisitions, repurchase our stock and prepay certain indebtedness, create liens, enter into agreements with affiliates, modify the nature of our business, enter into sale-leaseback transactions, transfer and sell material assets, 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 senior secured credit facility agreement has two covenants measured quarterly that relate to total leverage and interest coverage. The consolidated total leverage covenant requires us to maintain a ratio of consolidated total debt to consolidated EBITDA (both as defined in the credit agreement or amendment thereto) of 4.5x over the trailing four consecutive quarters through December 31, 2013. The total leverage ratio will reduce to 4.25x on March 31, 2014, 4.0x on March 31, 2015 and 3.75x on March 31, 2016. The consolidated interest coverage covenant requires us to maintain a minimum ratio of consolidated EBITDA to consolidated interest expense (both as defined in the credit agreement or amendment thereto) of 3.0x over the trailing four consecutive quarters.
The indentures governing our 7% senior notes and our 8.125% senior notes contain covenants that limit, among other things, our ability and the ability of our 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 us; merge, consolidate or sell all of our assets; create certain liens; and engage in transactions with affiliates on terms that are not arm’s 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 indentures has occurred and is continuing. The 7% senior notes and the 8.125% senior notes each 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 for the 7% senior notes and 2.75x for the 8.125% senior notes.
Some of our other subsidiary indebtedness includes restrictions on entering into various transactions, such as acquisitions and disposals, and prohibits payment of ordinary dividends. They also have financial covenants including minimum consolidated EBITDA to consolidated net interest payable, minimum consolidated cash flow to consolidated debt service and maximum consolidated debt to consolidated EBITDA, all as defined in the applicable debt agreements.

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As of June 30, 2013, we believe we were in compliance with all of our debt covenants. We expect to remain in compliance with all of our debt covenants throughout 2013.
Disposals of assets
During the six months ended June 30, 2013, we received $81.1 million of proceeds primarily related to the sale of a theatrical theater in New York and an insurance recovery for storm damage sustained to an amphitheater located in New York. During the six months ended June 30, 2012, we received $5.6 million of proceeds primarily related to the sale of an amphitheater in Ohio. These proceeds are presented net of any cash included in the businesses sold.
Stock Option Exercises
During the six months ended June 30, 2013, we received $73.4 million of proceeds from the exercise of stock options. There were no significant stock option exercises for the six months ended June 30, 2012.
Uses of Cash
Acquisitions
When we make acquisitions, the acquired entity may have cash on its balance sheet at the time of acquisition. All amounts discussed in this section are presented net of any cash acquired. During the six months ended June 30, 2013, we used $23.8 million of cash primarily for the acquisition in our Concerts segment of a controlling interest in a company that promotes festivals in May 2013. During the six months ended June 30, 2012, we used $68.1 million of cash primarily for acquisitions in our Concerts segment of Coppel in April 2012, Cream Holdings Limited in May 2012 and HARD Events LLC in June 2012.
Intangibles
During the six months ended June 30, 2012, we used $11.5 million of cash primarily related to the acquisition of the rights to a festival in Europe. There were no significant purchases during the six months ended June 30, 2013.
Deferred and Contingent Consideration
During the six months ended June 30, 2012, we used $10.6 million of cash to settle deferred and contingent consideration liabilities for certain past acquisitions. There were no significant payments during the six months ended June 30, 2013.
Capital Expenditures
Venue and ticketing operations are capital intensive businesses, requiring continual investment in our existing venues and ticketing systems in order to address fan and artist expectations, technological industry advances and various federal, state and/or local regulations.
We categorize capital outlays between maintenance capital expenditures and revenue generating capital expenditures. Maintenance capital expenditures are associated with the renewal and improvement of existing venues and technology systems, web development and administrative offices. Revenue generating capital expenditures generally relate to the construction of new venues, major renovations to existing buildings or buildings that are being added to our venue network, the development of new online or ticketing tools and technology enhancements. Revenue generating capital expenditures can also include smaller projects whose purpose is to add revenue and/or improve operating income. Capital expenditures typically increase during periods when venues are not in operation since that is the time that such improvements can be completed.
Our capital expenditures, including accruals but excluding expenditures funded by outside parties such as landlords or replacements funded by insurance companies, consisted of the following:
 
Six Months Ended 
 June 30,
 
2013
 
2012
 
(in thousands)
Maintenance capital expenditures
$
26,845

 
$
26,657

Revenue generating capital expenditures
28,450

 
32,057

Total capital expenditures
$
55,295

 
$
58,714

Revenue generating capital expenditures during the first six months of 2013 decreased from the same period of the prior year primarily due to the timing of expenditures related to the re-platforming of our ticketing system, the launch of our resale ticketing product and purchases of technology and venue-related equipment. Excluded from revenue generating capital expenditures is the use of $17.0 million of insurance proceeds to restore an amphitheater in New York that sustained storm damage.

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We currently expect capital expenditures to be approximately $120 million for the full year 2013.
Cash Flows
 
Six Months Ended 
 June 30,
 
2013
 
2012
 
(in thousands)
Cash provided by (used in):
 
 
 
Operating activities
$
380,347

 
$
310,128

Investing activities
$
(20,742
)
 
$
(138,557
)
Financing activities
$
54,011

 
$
(3,737
)
Operating Activities
Cash provided by operations was $380.3 million for the six months ended June 30, 2013, compared to $310.1 million for the six months ended June 30, 2012. The $70.2 million increase in cash provided by operating activities resulted primarily from an increase in the cash-related portion of net income and net changes in the event-related operating accounts which are dependent on the timing of ticket sales along with the size and number of events for upcoming periods. During the first six months of 2013, we received more cash for future events which increased deferred revenue, had lower payments of prepaid event-related expenses and accrued event-related expenses, partially offset by a larger increase in accounts receivable as compared to the same period in the prior year.
Investing Activities
Cash used in investing activities was $20.7 million for the six months ended June 30, 2013, compared to $138.6 million for the six months ended June 30, 2012. The $117.8 million decrease in cash used in investing activities is primarily due to higher proceeds received from the disposal of operating assets and lower payments for acquisitions and purchases of intangible assets as compared to the same period in the prior year. See “—Sources of Cash” and “—Uses of Cash ” above for further discussion.
Financing Activities
Cash provided by financing activities was $54.0 million for the six months ended June 30, 2013, compared to cash used in financing activities of $3.7 million for the six months ended June 30, 2012. The $57.7 million increase in cash provided by financing activities is primarily a result of higher proceeds from the exercise of stock options and lower payments of deferred and contingent consideration partially offset by proceeds received in 2012 related to additional financing to fund Australian operations as compared to the same period in the prior year.
Seasonality
Our Concerts, Artist Nation and Sponsorship & Advertising segments typically experience higher operating income in the second and third quarters as our outdoor venues and international festivals are primarily used in or occur during May through September, and our artist touring activity is higher. In addition, the timing of the on-sale of tickets and the tours of top-grossing acts can impact comparability of quarterly results year over year, although annual results may not be impacted. Our Ticketing segment sales are impacted by fluctuations in the availability of events for sale to the public, which vary depending upon scheduling by our clients.
Cash flows from our Concerts segment typically have a slightly different seasonality as payments are often made for artist performance fees and production costs in advance of the date the related event tickets go on sale. These artist fees and production costs are expensed when the event occurs. Once tickets for an event go on sale, we generally begin to receive payments from ticket sales in advance of when the event occurs for events at our owned and/or operated venues. We record these ticket sales as revenue when the event occurs.
Market Risk
We are exposed to market risks arising from changes in market rates and prices, including movements in foreign currency exchange rates and interest rates.
Foreign Currency Risk
We have operations in countries throughout the world. The financial results of our foreign operations are measured in their local currencies. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which we have operations. Currently, we do not operate

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in any hyper-inflationary countries. Our foreign operations reported operating income of $49.4 million for the six months ended June 30, 2013. We estimate that a 10% change in the value of the United States dollar relative to foreign currencies would change our operating income for the six months ended June 30, 2013 by $4.9 million. As of June 30, 2013, our primary foreign exchange exposure included the Euro, British Pound, Australian Dollar and Canadian Dollar. This analysis does not consider the implication such currency fluctuations could have on the overall economic conditions of the United States or other foreign countries in which we operate or on the results of operations of our foreign entities.
We primarily use forward currency contracts in addition to options to reduce our exposure to foreign currency risk associated with short-term artist fee commitments. We also may enter into forward currency contracts to minimize the risks and/or costs associated with changes in foreign currency rates on forecasted operating income and short-term intercompany loans. At June 30, 2013, we had forward currency contracts and options outstanding with a notional amount of $123.2 million.
Interest Rate Risk
Our market risk is also affected by changes in interest rates. We had $1.7 billion of total debt, net of unamortized discounts, outstanding as of June 30, 2013. Of the total amount, taking into consideration existing interest rate hedges, we had $774.0 million of fixed-rate debt and $949.7 million of floating-rate debt.
Based on the amount of our floating-rate debt as of June 30, 2013, each 25 basis point increase or decrease in interest rates would increase or decrease our annual interest expense and cash outlay by approximately $2.4 million when the floor rate is not applicable. This potential increase or decrease is based on the simplified assumption that the level of floating-rate debt remains constant with an immediate across-the-board increase or decrease as of June 30, 2013 with no subsequent change in rates for the remainder of the period.
At June 30, 2013, we have an interest rate swap agreement that is designated as a cash flow hedge for accounting purposes. The interest rate swap had a notional amount of $12.2 million at June 30, 2013, to effectively convert a portion of our floating-rate debt to a fixed-rate basis and expires in May 2015. The fair value of this agreement at June 30, 2013 was a liability of $0.1 million. This agreement was put into place to reduce the variability of the cash flows from the interest payments related to certain financing.
Through a subsidiary of Academy Music Holdings Limited Group, we have two interest rate swap agreements with a $28.8 million aggregate notional amount at June 30, 2013, that effectively convert a portion of our floating-rate debt to a fixed-rate basis. Both agreements expire in December 2015. Also, in connection with the financing of the redevelopment of the O2 Dublin, we have an interest rate swap agreement with a notional amount of $6.8 million at June 30, 2013, that expires in December 2013, effectively converting a portion of our floating-rate debt to a fixed-rate basis. These interest rate swap agreements have not been designated as hedging instruments. Therefore, any change in fair value is recorded in earnings during the period of the change.
We currently have 2.875% convertible senior notes due 2027 with a principal amount of $220 million. Beginning with the period commencing on July 20, 2014 and ending on January 14, 2015, and for each of the interest periods commencing thereafter, we will pay contingent interest on the notes if the average trading price of the notes during the five consecutive trading days ending on the second trading day immediately preceding the first day of the applicable interest period equals or exceeds 120% of the principal amount of the notes. The contingent interest payable per note will equal 0.25% per year of the average trading price of such note during the applicable five trading-day reference period, payable in arrears.
Ratio of Earnings to Fixed Charges
The ratio of earnings to fixed charges is as follows:
Six Months Ended 
 June 30,
 
Year Ended December 31,
2013
 
2012
 
2012
 
2011
 
2010
 
2009
1.02
 
*
 
*
 
*
 
*
 
*
*
For the six months ended June 30, 2012, fixed charges exceeded earnings before income taxes and fixed charges by $60.8 million. For the years ended December 31, 2012, 2011, 2010 and 2009, fixed charges exceeded earnings from continuing operations before income taxes and fixed charges by $142.1 million, $104.4 million, $193.6 million and $116.5 million, respectively.
The ratio of earnings to fixed charges was computed on a total company basis. Earnings represent income from continuing operations before income taxes less equity in undistributed net income (loss) of nonconsolidated affiliates plus fixed charges. Fixed charges represent interest, amortization of debt discount, premium and expense and the estimated interest portion of rental charges. Rental charges exclude variable rent expense for events in third-party venues.

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Recent Accounting Pronouncements
Recently Adopted Pronouncements
In February 2013, the FASB issued guidance which requires companies to disclose additional information about reclassifications out of AOCI, including changes in AOCI balances by component and significant items reclassified out of AOCI. The new disclosure requirements are to be applied prospectively and are effective for interim and annual periods beginning after December 15, 2012. We adopted this guidance on January 1, 2013.
Recently Issued Pronouncements
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 should be applied prospectively to unrecognized tax benefits that exist at the effective date. Early adoption and retrospective application of the new guidance is permitted. We are currently evaluating the new guidance and do not expect the adoption of this standard to have a material effect on our financial position.
Critical Accounting Policies and Estimates
The preparation of our financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. On an ongoing basis, we evaluate our estimates that are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of revenue and expenses that are not readily apparent from other sources. Because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such difference could be material.
Management believes that the accounting estimates involved in business combinations, impairment of long-lived assets and goodwill, revenue recognition, litigation accruals, stock-based compensation and income taxes are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. These critical accounting estimates, the judgments and assumptions and the effect if actual results differ from these assumptions are described in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K filed with the SEC on February 26, 2013.
There have been no changes to our critical accounting policies during the six months ended June 30, 2013.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Required information is within Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Market Risk.
 
Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that material information relating to our company, including our consolidated subsidiaries, is made known to the officers who certify our financial reports and to other members of senior management and our board of directors.
Based on their evaluation as of June 30, 2013, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are effective to ensure that (1) the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (2) the information we are required to disclose in such reports is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or internal controls will prevent all possible errors and fraud. Our disclosure controls and procedures are, however, designed to provide reasonable assurance of achieving their objectives, and our Chief Executive Officer and

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Chief Financial Officer have concluded that our financial controls and procedures are effective at that reasonable assurance level.

Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION
Item 1. Legal Proceedings
Information regarding our legal proceedings can be found in Part I Financial InformationItem 1. Financial StatementsNote 5Commitments and Contingent Liabilities
Item 1A. Risk Factors
While we attempt to identify, manage and mitigate risks and uncertainties associated with our business to the extent practical under the circumstances, some level of risk and uncertainty will always be present. Part 1, Item 1A of our 2012 Annual Report on Form 10-K filed with the SEC on February 26, 2013, describes some of the risks and uncertainties associated with our business which have the potential to materially affect our business, financial condition or results of operations. We do not believe that there have been any material changes to the risk factors previously disclosed in our 2012 Annual Report on Form 10-K.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
 
Item 3. Defaults Upon Senior Securities
None.
 
Item 5. Other Information
None.
Item 6. Exhibits
The information in the Exhibit Index of this Quarterly Report on Form 10-Q is incorporated into this Item 6 by reference.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on August 6, 2013.
 
LIVE NATION ENTERTAINMENT, INC.
 
 
By:
/s/ Brian Capo
 
Brian Capo
 
Chief Accounting Officer

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EXHIBIT INDEX
 
 
Exhibit Description
 
Incorporated by Reference
 
Filed
Here
with
Exhibit
No.
 
Form
 
File No.
 
Exhibit No.
 
Filing Date
 
Filed By
 
2.1
 
Agreement and Plan of Merger, dated February 10, 2009, between Ticketmaster Entertainment, Inc. and Live Nation, Inc.
 
8-K
 
001-32601
 
2.1

 
2/13/2009
 
Live Nation
Entertainment,
Inc.
 
 
3.1
 
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Live Nation Entertainment, Inc.
 
8-K
 
001-32601
 
3.1

 
6/7/2013
 
Live Nation
Entertainment,
Inc.
 
 
3.2
 
Fifth Amended and Restated Bylaws of Live Nation Entertainment, Inc.
 
8-K
 
001-32601
 
3.2

 
6/7/2013
 
Live Nation
Entertainment,
Inc.
 
 
31.1
 
Certification of Chief Executive Officer.
 
 
 
 
 
 
 
 
 
 
 
X
31.2
 
Certification of Chief Financial Officer.
 
 
 
 
 
 
 
 
 
 
 
X
32.1
 
Section 1350 Certification of Chief Executive Officer.
 
 
 
 
 
 
 
 
 
 
 
X
32.2
 
Section 1350 Certification of Chief Financial Officer.
 
 
 
 
 
 
 
 
 
 
 
X
101.INS
 
XBRL Instance Document
 
 
 
 
 
 
 
 
 
 
 
X
101.SCH
 
XBRL Taxonomy Schema Document
 
 
 
 
 
 
 
 
 
 
 
X
101.CAL
 
XBRL Taxonomy Calculation Linkbase Document
 
 
 
 
 
 
 
 
 
 
 
X
101.DEF
 
XBRL Taxonomy Definition Linkbase Document
 
 
 
 
 
 
 
 
 
 
 
X
101.LAB
 
XBRL Taxonomy Label Linkbase Document
 
 
 
 
 
 
 
 
 
 
 
X
101.PRE
 
XBRL Taxonomy Presentation Linkbase Document
 
 
 
 
 
 
 
 
 
 
 
X

45