NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1
—THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
History
Live Nation was incorporated in Delaware on August 2, 2005 in preparation for the contribution and transfer by Clear Channel Communications, Inc. of substantially all of its entertainment assets and liabilities to the Company. The Company completed this 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, the Company merged with Ticketmaster Entertainment LLC and it became a wholly-owned subsidiary of Live Nation. Effective with the merger, Live Nation, Inc. changed its name to Live Nation Entertainment, Inc.
Seasonality
Due to the seasonal nature of shows at outdoor amphitheaters and festivals, which primarily occur from May through October, the Concerts and Sponsorship & Advertising segments experience higher revenue during the second and third quarters. The Ticketing segment’s revenue is 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.
Basis of Presentation and Principles of Consolidation
The Company’s consolidated financial statements include all accounts of the Company, its majority owned and controlled subsidiaries and VIEs for which the Company is the primary beneficiary. Intercompany accounts among the consolidated businesses have been eliminated in consolidation. Net income (loss) attributable to noncontrolling interests is reflected in the statements of operations.
Typically the Company consolidates entities in which the Company owns more than
50%
of the voting common stock and controls operations and also VIEs for which the Company is the primary beneficiary. Investments in nonconsolidated affiliates in which the Company owns more than
20%
of the voting common stock or otherwise exercises significant influence over operating and financial policies but not control of the nonconsolidated affiliate are accounted for using the equity method of accounting. Investments in nonconsolidated affiliates in which the Company owns less than
20%
of the voting common stock and does not exercise significant influence over operating and financial policies are accounted for using the cost method of accounting.
All cash flow activity reflected on the consolidated statements of cash flows for the Company is presented net of any non-cash transactions so the amounts reflected may be different than amounts shown in other places in the Company’s financial statements that are based on accrual accounting and therefore include non-cash amounts. For example, purchases of property, plant and equipment reflected on the consolidated statements of cash flows reflect the amount of cash paid during the year for these purchases and does not include the impact of the changes in accrued expenses related to capital expenditures during the year.
Variable Interest Entities
In the normal course of business, the Company enters into joint ventures or makes investments in companies that will allow it to expand its core business and enter new markets. In certain instances, such ventures or investments may be considered a VIE because the equity at risk is insufficient to permit it to carry on its activities without additional financial support from its equity owners. In determining whether the Company is the primary beneficiary of a VIE, it assesses whether it has the power to direct activities that most significantly impact the economic performance of the entity and has the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. The activities the Company believes most significantly impact the economic performance of its VIEs include the unilateral ability to approve the annual budget, the unilateral ability to terminate key management and the unilateral ability to approve entering into agreements with artists, among others. The Company has certain rights and obligations related to its involvement in the VIEs, including the requirement to provide operational cash flow funding. As of
December 31, 2018
and
2017
, excluding intercompany balances and allocated goodwill and intangible assets, there were
$261.5 million
and
$192.1 million
of assets and
$136.2 million
and
$98.0 million
of liabilities, respectively, related to VIEs included in the balance sheets. None of the Company’s VIEs are significant on an individual basis.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less. The Company’s cash and cash equivalents include domestic and foreign bank accounts as well as interest-bearing accounts consisting primarily of bank deposits and money market accounts managed by third-party financial institutions. These balances are stated at cost, which approximates fair value.
Restricted cash primarily consists of cash held in escrow accounts to fund capital improvements of certain leased or operated venues. The cash is held in these accounts pursuant to the related lease or operating agreement.
Included in the
December 31, 2018
and
2017
cash and cash equivalents balance is
$859.1 million
and
$769.4 million
, respectively, of cash received that includes the face value of tickets sold on behalf of ticketing clients and their share of service charges (“client cash”), which amounts are to be remitted to these clients. The Company generally does not utilize client cash for its own financing or investing activities as the amounts are payable to clients on a regular basis. These amounts due to clients are included in accounts payable, client accounts.
Cash held in interest-bearing operating accounts in many cases exceeds the Federal Deposit Insurance Corporation insurance limits. To reduce its credit risk, the Company monitors the credit standing of the financial institutions that hold the Company’s cash and cash equivalents; however, these balances could be impacted in the future if the underlying financial institutions fail. To date, the Company has experienced no loss of or lack of access to its cash or cash equivalents; however, the Company can provide no assurances that access to its cash and cash equivalents will not be impacted in the future by adverse conditions in the financial markets.
Allowance for Doubtful Accounts
The Company evaluates the collectability of its accounts receivable based on a combination of factors. Generally, it records specific reserves to reduce the amounts recorded to what it believes will be collected when a customer’s account ages beyond typical collection patterns, or the Company becomes aware of a customer’s inability to meet its financial obligations.
The Company believes that the credit risk with respect to trade receivables is limited due to the large number and the geographic diversification of its customers.
Prepaid Expenses
The majority of the Company’s prepaid expenses relate to event expenses including show advances and deposits and other costs directly related to future concert events. For advances that are expected to be recouped over a period of more than 12 months, the long-term portion of the advance is classified as other long-term assets. These prepaid costs are charged to operations upon completion of the related events.
Ticketing contract advances, which can be either recoupable or non-recoupable, represent amounts paid in advance to the Company’s clients pursuant to ticketing agreements and are reflected in prepaid expenses or in long-term advances if the amount is expected to be recouped or recognized over a period of more than twelve months. Recoupable ticketing contract advances are generally recoupable against future royalties earned by the clients, based on the contract terms, over the life of the contract. Non-recoupable ticketing contract advances, excluding those amounts paid to support clients’ advertising costs, are fixed additional incentives occasionally paid by the Company to secure the contract with certain clients and are typically amortized over the life of the contract on a straight-line basis.
Business Combinations
During
2018
,
2017
and
2016
, the Company completed several acquisitions that were accounted for as business combinations under the acquisition method of accounting. These acquisitions and the related results of operations were not significant on either an individual basis or in the aggregate.
The Company accounts for its business combinations under the acquisition method of accounting. Identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquiree are recognized and measured as of the acquisition date at fair value. Additionally, any contingent consideration is recorded at fair value on the acquisition date and classified as a liability. Goodwill is recognized to the extent by which the aggregate of the acquisition-date fair value of the consideration transferred and any noncontrolling interest in the acquiree exceeds the recognized basis of the identifiable assets acquired, net of assumed liabilities. Determining the fair value of assets acquired, liabilities assumed and noncontrolling interests requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash flows, discount rates and asset lives among other items.
Property, Plant and Equipment
Property, plant and equipment are stated at cost or fair value at the date of acquisition. Depreciation, which is recorded for both owned assets and assets under capital leases, is computed using the straight-line method over their estimated useful lives, which are typically as follows:
Buildings and improvements -
10
to
50
years
Computer equipment and capitalized software -
3
to
10
years
Furniture and other equipment -
3
to
10
years
Leasehold improvements are depreciated over the shorter of the economic life or associated lease term. Expenditures for maintenance and repairs are charged to operations as incurred, whereas expenditures for asset renewal and improvements are capitalized.
The Company tests for possible impairment of property, plant and equipment whenever events or circumstances change, such as a current period operating cash flow loss combined with a history of, or projections of, operating cash flow losses or a significant adverse change in the manner in which the asset is intended to be used, which could indicate that the carrying amount of the asset may not be recoverable. If indicators exist, the Company compares the estimated undiscounted future cash flows related to the asset to the carrying value of the asset. If the carrying value is greater than the estimated undiscounted future cash flow amount, an impairment charge is recorded based on the difference between the fair value and the carrying value. Any such impairment charge is recorded in depreciation and amortization in the statements of operations. The impairment loss calculations require management to apply judgment in estimating future cash flows and the discount rates that reflect the risk inherent in future cash flows.
Intangible Assets
The Company classifies intangible assets as definite-lived or indefinite-lived. Definite-lived intangibles include revenue-generating contracts, client/vendor relationships, trademarks and naming rights, technology, non-compete agreements, and venue management and leasehold agreements, all of which are amortized either on a straight-line basis over the respective lives of the agreements, typically
3
to
10
years, or on a basis more representative of the time pattern over which the benefit is derived. The Company periodically reviews the appropriateness of the amortization periods related to its definite-lived intangible assets. These assets are stated at cost or fair value at the date of acquisition. Indefinite-lived intangibles consist of trade names which are not subject to amortization.
The Company tests for possible impairment of definite-lived intangible assets whenever events or circumstances change, such as a current period operating cash flow loss combined with a history of, or projections of, operating cash flow losses or a significant adverse change in the manner in which the asset is intended to be used, which could indicate that the carrying amount of the asset may not be recoverable. If indicators exist, the Company compares the estimated undiscounted future cash flows related to the asset to the carrying value of the asset. If the carrying value is greater than the estimated undiscounted future cash flow amount, an impairment charge is recorded based on the difference between the fair value and the carrying value. Any such impairment charge is recorded in depreciation and amortization in the statements of operations.
The Company tests for possible impairment of indefinite-lived intangible assets at least annually. Depending on facts and circumstances, qualitative factors may first be assessed to determine whether the existence of events and circumstances indicate that it is more likely than not that an indefinite-lived intangible asset is impaired. If it is concluded that it is more likely than not impaired, the Company performs a quantitative impairment test by comparing the fair value with the carrying amount. If the qualitative assessment is not performed first, the Company performs only this quantitative test. When specific assets are determined to be impaired, the cost basis of the asset is reduced to reflect the current fair value. Any such impairment charge is recorded in depreciation and amortization in the statements of operations. The impairment loss calculations require management to apply judgment in estimating future cash flows, expected future revenue, discount rates and royalty rates that reflect the risk inherent in future cash flows.
Goodwill
The Company reviews goodwill for impairment annually, as of October 1, using a two-step process. It also tests goodwill for impairment in other periods if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount or when the Company changes its reporting units.
The first step is a qualitative evaluation as to whether it is more likely than not that the fair value of any of the Company’s reporting units is less than its carrying value using an assessment of relevant events and circumstances. Examples of such events and circumstances include historical financial performance, industry and market conditions, macroeconomic conditions, reporting unit-specific events, historical results of goodwill impairment testing and the timing of the last performance of a quantitative assessment.
If any reporting units are concluded to be more likely than not impaired, or if that conclusion cannot be determined qualitatively, a second step is performed for that reporting unit. Regardless, all reporting units undergo a second step at least once every
five
years. This second step, used to quantitatively screen for potential impairment and measure the impairment, if any, compares the fair value of the reporting unit with its carrying amount, including goodwill. Inherent in such fair value determinations are certain judgments and estimates relating to future cash flows, including the Company’s interpretation of current economic indicators and market valuations, and assumptions about the Company’s strategic plans with regard to its operations. Due to the uncertainties associated with such estimates, actual results could differ from such estimates. If the reporting unit’s carrying value exceeds its fair value, the excess of the carrying value over the fair value is recorded as an impairment to goodwill. If a reporting unit’s carrying value is negative, the reporting unit passes the impairment test. In this case, the Company will disclose the amount of goodwill allocated to that reporting unit and disclose which reportable segment the reporting unit is included in. In both steps, discount rates, market multiples, and sensitivity tests are derived and/or computed with the assistance of external valuation consultants.
In developing fair values for its reporting units, the Company employs a market multiple or a discounted cash flow methodology, or a combination thereof. The market multiple methodology compares the Company to similar companies on the basis of risk characteristics to determine its risk profile relative to those companies as a group. This analysis generally focuses on both quantitative considerations, which include financial performance and other quantifiable data, and qualitative considerations, which include any factors which are expected to impact future financial performance. The most significant assumptions affecting the market multiple methodology are the market multiples used on projected future cash flows and control premium. A control premium represents the additional value an investor would pay in order to obtain a controlling interest in the respective reporting unit.
The discounted cash flow methodology establishes fair value by estimating the present value of the projected future cash flows to be generated from the reporting unit less those cash flows attributable to noncontrolling interests. The discount rate applied to the projected future cash flows to arrive at the present value is intended to reflect all risks of ownership and the associated risks of realizing the stream of projected future cash flows. The discounted cash flow methodology uses the Company’s estimates of future financial performance. The most significant assumptions used in the discounted cash flow methodology are the discount rate and expected future revenue, which vary among reporting units.
Nonconsolidated Affiliates
In general, nonconsolidated investments in which the Company owns more than 20% of the common stock or otherwise exercises significant influence over an affiliate are accounted for under the equity method. The Company reviews the value of equity method investments and records impairment charges in the statements of operations for any decline in value that is determined to be other-than-temporary. If the Company obtains control of a nonconsolidated affiliate through the purchase of additional ownership interest or changes in the governing agreements, it remeasures its investment to fair value first and then applies the accounting guidance for business combinations. Any gain or loss resulting from the remeasurement to fair value is recorded as a component of other expense (income), net in the statements of operations.
Accounts Payable, Client Accounts
Accounts payable, client accounts consists of contractual amounts due to ticketing clients which includes the face value of tickets sold and the clients’ share of service charges.
Income Taxes
The Company accounts for income taxes using the liability method which results in deferred tax assets and liabilities based on differences between financial reporting bases and tax bases of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled. Deferred tax assets are reduced by valuation allowances if the Company believes it is more likely than not that some portion of or the entire asset will not be realized. As almost all earnings from the Company’s continuing foreign operations are permanently reinvested and not distributed, the Company’s income tax provision does not include additional United States state and foreign withholding or transaction taxes on those foreign earnings that would be incurred if they were distributed. It is not practicable to determine the amount of state and foreign income taxes, if any, that might become due in the event that any remaining available cash associated with these earnings were distributed.
The FASB guidance for income taxes prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is more likely than not to be realized upon ultimate settlement.
The Company has established a policy of including interest related to tax loss contingencies in income tax expense (benefit) in the statements of operations.
Revenue Recognition
Revenue from the promotion or production of an event in the Concerts segment is recognized when the show occurs. Revenue related to larger global tours is also recognized when the show occurs; however, any profits related to these tours, primarily related to music tour production and tour management services, is recognized after minimum revenue guarantee thresholds, if any, have been achieved. Revenue collected in advance of the event is recorded as deferred revenue until the event occurs. Revenue collected from sponsorship agreements, which is not related to a single event, is classified as deferred revenue and recognized over the term of the agreement or operating season as the benefits are provided to the sponsor.
Revenue from the Company’s ticketing operations primarily consists of service fees charged at the time a ticket for an event is sold in either the primary or secondary markets. For primary tickets sold to the Company’s concert and festival events, where the Company’s concert promoters control ticketing, the revenue for the associated ticket service charges collected in advance of the event is recorded as deferred revenue until the event occurs and these service charges are shared between the Company’s Ticketing and Concerts segments. For primary tickets sold for events of third-party clients and secondary market sales, the revenue is recognized at the time of the sale and is recorded by the Company’s Ticketing segment.
The Company accounts for taxes that are externally imposed on revenue producing transactions on a net basis.
Gross versus Net Revenue Recognition
The Company reports revenue on a gross or net basis based on management’s assessment of whether the Company acts as a principal or agent in the transaction. To the extent the Company acts as the principal, revenue is reported on a gross basis. The determination of whether the Company acts as a principal or an agent in a transaction is based on an evaluation of whether the Company has the substantial risks and rewards of ownership under the terms of an arrangement. The Ticketing segment’s revenue, which primarily consists of service fees from its ticketing operations, is recorded net of the face value of the ticket as the Company generally acts as an agent in these transactions.
Foreign Currency
Results of operations for foreign subsidiaries and foreign equity investees are translated into United States dollars using the average exchange rates during the year. The assets and liabilities of those subsidiaries and investees are translated into United States dollars using the exchange rates at the balance sheet date. The related translation adjustments are recorded in a separate component of stockholders’ equity in AOCI. Foreign currency transaction gains and losses are included in the statements of operations and include the impact of revaluation of certain foreign currency denominated net assets or liabilities held internationally. For the years ended
December 31, 2018
and
December 31, 2016
, the Company recorded net foreign currency transaction losses of
$11.6 million
and
$8.8 million
, respectively. For the year ended
December 31, 2017
, the Company recorded net foreign currency transaction gains of
$3.1 million
. The Company does not currently have significant operations in highly inflationary countries.
Advertising Expense
The Company records advertising expense in the year that it is incurred. Throughout the year, general advertising expenses are recognized as they are incurred, but event-related advertising for concerts is recognized once the show occurs. However, all advertising costs incurred during the year and not previously recognized are expensed at the end of the year. Advertising expenses of
$443.2 million
,
$378.1 million
and
$311.9 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively, were recorded as a component of direct operating expenses. Advertising expenses of
$30.9 million
,
$40.3 million
and
$33.2 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively, were recorded as a component of selling, general and administrative expenses.
Direct Operating Expenses
Direct operating expenses include artist fees, show-related marketing and advertising expenses, rent expense for events in third-party venues, credit card fees, telecommunication and data communication costs associated with the Company’s call centers, commissions paid on tickets distributed through independent sales outlets away from the box office, and salaries and wages related to seasonal employees at the Company’s venues along with other costs, including ticket stock and shipping. These costs are primarily variable in nature.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include salaries and other compensation costs related to full-time employees, fixed rent, travel and entertainment, legal expenses and consulting along with other costs.
Depreciation and Amortization
The Company’s depreciation and amortization is presented as a separate line item in the statements of operations. There is no depreciation or amortization included in direct operating expenses, selling, general and administrative expenses or corporate expenses. Amortization of nonrecoupable ticketing contract advances is recorded as a reduction to revenue.
Non-cash and Stock-based Compensation
The Company follows the fair value recognition provisions in the FASB guidance for stock compensation. Stock-based compensation expense recognized includes compensation expense for all share-based payments using the estimated grant date fair value. Stock-based compensation expense is adjusted for forfeitures as they occur.
The fair value for options in Live Nation stock is estimated on the date of grant using the Black-Scholes option-pricing model. The fair value of the options is amortized to expense on a straight-line basis over the options’ vesting period. The Company uses an expected volatility based on an even weighting of its own traded options and historical volatility. Beginning in 2017, the Company uses a weighted-average expected life based on historical experience calculated with the assistance of outside consultants. Through December 31, 2016, the Company used the simplified method for estimating the expected life within the valuation model which is the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the expected life of the option is based on the United States Treasury note rate.
The fair value of restricted stock awards and deferred stock awards, which is generally the stock price on the date of grant, is amortized to expense on a straight-line basis over the vesting period except for restricted stock awards and deferred stock awards with minimum performance or market targets as their vesting condition. The performance-based awards are amortized to expense on a graded basis over the vesting period to the extent that it is probable that the performance criteria will be met. Market-based award fair values are estimated using a Monte Carlo simulation model and are then amortized to expense on a graded basis over the derived service period, which is estimated as the median weighted average vesting period from the Monte Carlo simulation models. However, unlike awards with a service or performance condition, the expense for market-based awards will not be reversed solely because the market condition is not satisfied.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the amounts reported in the financial statements and accompanying notes including, but not limited to, legal, tax and insurance accruals, acquisition accounting and impairments. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
Accounting Pronouncements - Recently Adopted
Revenue Recognition
In May 2014, the FASB issued a comprehensive new revenue recognition standard that superseded nearly all existing revenue recognition guidance under GAAP. The new standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. The FASB also issued important guidance clarifying certain guidelines of the standard including (1) reframing the indicators in the principal versus agent guidance to focus on evidence that a company is acting as a principal rather than an agent and (2) identifying performance obligations and licensing. The guidance should be applied retrospectively, either to each prior period presented in the financial statements, or only to the most current reporting period presented in the financial statements with a cumulative-effect adjustment as of the date of adoption. The Company adopted this standard on January 1, 2018, applying it retrospectively to each prior period presented in the financial statements. The Company elected to use the consideration at the date of contract completion rather than estimating variable consideration in the comparative reporting periods and also elected not to provide disclosure of the amount and expected timing of recognition for consideration allocated to the remaining performance obligations. Had the Company estimated variable consideration for the comparative periods, it believes it would have resulted in an insignificant shift of revenue recognition between quarters. The adoption of this guidance did not have an impact to operating income.
For the Ticketing segment, the Company no longer presents payments to certain third parties as an expense and now reflects these payments as a reduction of revenue. The remaining revenue streams of the Company were not materially impacted by the new guidance. The table below represents the impact of the adoption to the Company’s consolidated and Ticketing segment’s results of operations for the years ended
December 31, 2017
and
2016
. The impact to the consolidated results of operations includes the elimination of intercompany transactions between the Company’s Concerts and Ticketing segments.
|
|
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|
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|
As Reported
|
|
Adjustment
|
|
As Adjusted
|
|
(in thousands)
|
Consolidated
|
|
|
|
|
|
2017
|
|
|
|
|
|
Revenue
|
$
|
10,337,448
|
|
|
$
|
(650,226
|
)
|
|
$
|
9,687,222
|
|
Direct operating expenses
|
$
|
7,748,791
|
|
|
$
|
(566,893
|
)
|
|
$
|
7,181,898
|
|
Depreciation and amortization
|
$
|
455,534
|
|
|
$
|
(83,333
|
)
|
|
$
|
372,201
|
|
2016
|
|
|
|
|
|
Revenue
|
$
|
8,354,934
|
|
|
$
|
(528,598
|
)
|
|
$
|
7,826,336
|
|
Direct operating expenses
|
$
|
6,082,708
|
|
|
$
|
(443,531
|
)
|
|
$
|
5,639,177
|
|
Depreciation and amortization
|
$
|
403,651
|
|
|
$
|
(85,067
|
)
|
|
$
|
318,584
|
|
Ticketing Segment
|
|
|
|
|
|
2017
|
|
|
|
|
|
Revenue
|
$
|
2,143,800
|
|
|
$
|
(797,290
|
)
|
|
$
|
1,346,510
|
|
Direct operating expenses
|
$
|
1,170,121
|
|
|
$
|
(709,240
|
)
|
|
$
|
460,881
|
|
Depreciation and amortization
|
$
|
200,777
|
|
|
$
|
(88,050
|
)
|
|
$
|
112,727
|
|
2016
|
|
|
|
|
|
Revenue
|
$
|
1,827,930
|
|
|
$
|
(661,901
|
)
|
|
$
|
1,166,029
|
|
Direct operating expenses
|
$
|
956,956
|
|
|
$
|
(574,266
|
)
|
|
$
|
382,690
|
|
Depreciation and amortization
|
$
|
185,925
|
|
|
$
|
(87,635
|
)
|
|
$
|
98,290
|
|
See Note
10
—Revenue Recognition for further discussion and disclosures required under this guidance.
Other Pronouncements
In January 2016, the FASB issued amendments for the recognition, measurement, presentation and disclosure of financial
instruments. Among other things, the guidance requires equity investments that do not result in consolidation, and which are
not accounted for under the equity method, to be measured at fair value with any change in fair value recognized in net income
unless the investments do not have readily determinable fair values. The amendments are to be applied through a cumulative effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption with the exception of equity investments
without readily determinable fair values, which will be applied prospectively. The Company adopted this guidance on January
1, 2018, and the adoption did not have a material impact on its financial position or results of operations.
In October 2016, the FASB issued guidance that requires companies to recognize the income tax effects of intercompany
sales and transfers of assets, other than inventory, in the period in which the transfer occurs. That is a change from current
guidance which requires companies to defer the income tax effects of intercompany transfers of assets until the asset has been
sold to an outside party or otherwise recognized. The guidance should be applied on a modified retrospective basis. The
Company adopted this guidance on January 1, 2018, and the adoption did not impact its financial position or results of
operations.
In November 2016, the FASB issued guidance that requires restricted cash and restricted cash equivalents to be included
with cash and cash equivalents when reconciling the beginning and ending total amounts in the statement of cash flows. The
guidance should be applied on a retrospective basis to each period presented. The Company adopted this guidance on January 1, 2018, and the adoption did not have a material impact on its statements of cash flows.
In January 2017, the FASB issued guidance that changes the definition of a business to assist entities with evaluating
when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the
fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so,
the set of transferred assets and activities is not a business and should be accounted for as an asset acquisition rather than a
business combination. The guidance also requires a business to include at least one substantive process and narrows the
definition of outputs. The guidance should be applied prospectively to any transactions occurring within the period of adoption.
The Company adopted this guidance on January 1, 2018, and is applying it prospectively to acquisitions occurring on or after
such date.
Accounting Pronouncements - Not Yet Adopted
Lease Accounting
In February 2016, the FASB issued guidance that requires lessees to recognize most leases on their balance sheet as a lease liability and asset, and to disclose key information about leasing arrangements. The guidance is effective for annual periods beginning after December 15, 2018 and interim periods within that year, and early adoption is permitted. The guidance should be applied on a modified retrospective basis.
To assess the impact of the standard, the Company has dedicated certain of its personnel to lead the implementation effort. These personnel reviewed the amended guidance and subsequent clarifications and attended multiple training sessions in order to understand the potential impact the new standard could have on the Company’s financial position and results of operations. The Company has formed a cross-functional steering committee including members from its major divisions and engaged a third-party consultant to develop its incremental borrowing rates. The Company has implemented third-party lease accounting software and is assessing internal controls needed to record, analyze and calculate the financial statement and disclosure impacts.
The Company will adopt this standard on January 1, 2019 applying the transitional provisions of the standard to the beginning of the period of adoption and will elect the package of practical expedients available under the transition guidance within the new guidance, which among other things, will allow the Company to carryforward the historical lease classification. The Company will also make an accounting policy election to keep leases with an initial term of twelve months or less off the balance sheet recognizing those lease payments in its statements of operations on a straight-line basis over the term of the lease. The new guidance will have a material impact on the Company’s balance sheets, but will not have a material impact on its statements of operations. The new guidance will have no impact on the Company’s compliance with the debt covenant requirements under its senior secured credit facility and other debt arrangements.
The Company expects to recognize operating lease assets and liabilities ranging from
$1.1 billion
to
$1.3 billion
as of January 1, 2019 with the difference recorded as an adjustment to retained earnings.
Other Pronouncements
In August 2018, the FASB issued guidance that aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amortization period of these implementation costs would include periods covered under renewal options that are reasonably certain to be exercised. The expense related to the capitalized implementation costs also would be presented in the same financial statement line item as the hosting fees. The guidance is effective for annual periods beginning after December 15, 2019 and interim periods within that year, and early adoption is permitted. The guidance should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company expects to adopt this guidance on January 1, 2020, and is currently assessing which implementation method it will apply and the impact that adoption will have on its financial position and results of operations.
NOTE
2
—LONG-LIVED ASSETS
Definite-lived Intangible Assets
The following table presents the changes in the gross carrying amount and accumulated amortization of definite-lived intangible assets for the years ended
December 31, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue-
generating
contracts
|
|
Client /
vendor
relationships
|
|
Trademarks
and
naming
rights
|
|
Technology
|
|
Other
(1)
|
|
Total
|
|
(in thousands)
|
Balance as of December 31, 2016:
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
$
|
760,398
|
|
|
$
|
402,009
|
|
|
$
|
94,338
|
|
|
$
|
53,078
|
|
|
$
|
124,007
|
|
|
$
|
1,433,830
|
|
Accumulated amortization
|
(316,800
|
)
|
|
(213,785
|
)
|
|
(23,724
|
)
|
|
(13,637
|
)
|
|
(53,853
|
)
|
|
(621,799
|
)
|
Net
|
443,598
|
|
|
188,224
|
|
|
70,614
|
|
|
39,441
|
|
|
70,154
|
|
|
812,031
|
|
Gross carrying amount:
|
|
|
|
|
|
|
|
|
|
|
Acquisitions—current year
|
19,095
|
|
|
22,635
|
|
|
—
|
|
|
12,707
|
|
|
6,620
|
|
|
61,057
|
|
Acquisitions—prior year
|
(6,724
|
)
|
|
—
|
|
|
35,464
|
|
|
1,120
|
|
|
—
|
|
|
29,860
|
|
Foreign exchange
|
23,308
|
|
|
10,457
|
|
|
1,429
|
|
|
2,278
|
|
|
4,857
|
|
|
42,329
|
|
Other
(2)
|
(6,714
|
)
|
|
(93,652
|
)
|
|
(4,900
|
)
|
|
(5,517
|
)
|
|
(253
|
)
|
|
(111,036
|
)
|
Net change
|
28,965
|
|
|
(60,560
|
)
|
|
31,993
|
|
|
10,588
|
|
|
11,224
|
|
|
22,210
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
(94,797
|
)
|
|
(61,550
|
)
|
|
(13,315
|
)
|
|
(13,869
|
)
|
|
(19,035
|
)
|
|
(202,566
|
)
|
Foreign exchange
|
(9,918
|
)
|
|
(4,460
|
)
|
|
(560
|
)
|
|
(764
|
)
|
|
(2,463
|
)
|
|
(18,165
|
)
|
Other
(2)
|
11,504
|
|
|
93,438
|
|
|
4,918
|
|
|
5,525
|
|
|
370
|
|
|
115,755
|
|
Net change
|
(93,211
|
)
|
|
27,428
|
|
|
(8,957
|
)
|
|
(9,108
|
)
|
|
(21,128
|
)
|
|
(104,976
|
)
|
Balance as of December 31, 2017:
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
789,363
|
|
|
341,449
|
|
|
126,331
|
|
|
63,666
|
|
|
135,231
|
|
|
1,456,040
|
|
Accumulated amortization
|
(410,011
|
)
|
|
(186,357
|
)
|
|
(32,681
|
)
|
|
(22,745
|
)
|
|
(74,981
|
)
|
|
(726,775
|
)
|
Net
|
379,352
|
|
|
155,092
|
|
|
93,650
|
|
|
40,921
|
|
|
60,250
|
|
|
729,265
|
|
Gross carrying amount:
|
|
|
|
|
|
|
|
|
|
|
Acquisitions—current year
|
6,128
|
|
|
84,146
|
|
|
2,067
|
|
|
30,029
|
|
|
15,402
|
|
|
137,772
|
|
Acquisitions—prior year
|
4,447
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,900
|
|
|
6,347
|
|
Dispositions
|
—
|
|
|
(11,812
|
)
|
|
—
|
|
|
—
|
|
|
(18,754
|
)
|
|
(30,566
|
)
|
Foreign exchange
|
(14,426
|
)
|
|
(7,378
|
)
|
|
(1,756
|
)
|
|
(1,626
|
)
|
|
(3,209
|
)
|
|
(28,395
|
)
|
Other
(2)
|
(92,549
|
)
|
|
(12,633
|
)
|
|
(2,935
|
)
|
|
(6,658
|
)
|
|
(10,407
|
)
|
|
(125,182
|
)
|
Net change
|
(96,400
|
)
|
|
52,323
|
|
|
(2,624
|
)
|
|
21,745
|
|
|
(15,068
|
)
|
|
(40,024
|
)
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
(81,291
|
)
|
|
(52,879
|
)
|
|
(12,633
|
)
|
|
(23,727
|
)
|
|
(20,123
|
)
|
|
(190,653
|
)
|
Dispositions
|
—
|
|
|
8,146
|
|
|
—
|
|
|
—
|
|
|
13,238
|
|
|
21,384
|
|
Foreign exchange
|
7,526
|
|
|
4,813
|
|
|
536
|
|
|
973
|
|
|
1,979
|
|
|
15,827
|
|
Other
(2)
|
92,774
|
|
|
12,678
|
|
|
2,970
|
|
|
6,673
|
|
|
10,557
|
|
|
125,652
|
|
Net change
|
19,009
|
|
|
(27,242
|
)
|
|
(9,127
|
)
|
|
(16,081
|
)
|
|
5,651
|
|
|
(27,790
|
)
|
Balance as of December 31, 2018:
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
692,963
|
|
|
393,772
|
|
|
123,707
|
|
|
85,411
|
|
|
120,163
|
|
|
1,416,016
|
|
Accumulated amortization
|
(391,002
|
)
|
|
(213,599
|
)
|
|
(41,808
|
)
|
|
(38,826
|
)
|
|
(69,330
|
)
|
|
(754,565
|
)
|
Net
|
$
|
301,961
|
|
|
$
|
180,173
|
|
|
$
|
81,899
|
|
|
$
|
46,585
|
|
|
$
|
50,833
|
|
|
$
|
661,451
|
|
___________________
(1)
Other primarily includes intangible assets for non-compete, venue management and leasehold agreements.
(2)
Other primarily includes netdowns of fully amortized or impaired assets.
Included in the current year acquisitions amount above for 2018 are definite-lived intangible assets primarily associated with the acquisitions of controlling interests in various concert and festival promotion business and artist management businesses that are all located in the United States, and the acquisition of certain software assets from a business located in the United States.
Included in the current year acquisitions amount above for 2017 are definite-lived intangible assets primarily associated with the acquisitions of an artist management business located in the United States, various concert promotion businesses located in the United States and Italy, a festival promotion business located in Switzerland and various ticketing businesses located in the United States and the Czech Republic.
Included in the prior year acquisitions amount above for 2017 are changes primarily associated with the acquisitions of festival promotion businesses located in the United States and Australia.
The
2018
and
2017
additions to definite-lived intangible assets from acquisitions have weighted-average lives as follows:
|
|
|
|
|
|
Weighted-
Average
Life
|
|
2018
|
|
2017
|
|
(in years)
|
Revenue-generating contracts
|
7
|
|
7
|
Client/vendor relationships
|
7
|
|
6
|
Trademarks and naming rights
|
3
|
|
—
|
Technology
|
3
|
|
3
|
Other
|
12
|
|
9
|
All categories
|
7
|
|
6
|
Amortization of definite-lived intangible assets for the years ended
December 31, 2018
,
2017
and
2016
was
$190.7 million
,
$202.6 million
and
$178.1 million
, respectively.
The following table presents the Company’s estimate of amortization expense for each of the five succeeding fiscal years for definite-lived intangible assets that exist at
December 31, 2018
:
|
|
|
|
|
|
(in thousands)
|
2019
|
$
|
176,313
|
|
2020
|
$
|
137,489
|
|
2021
|
$
|
99,384
|
|
2022
|
$
|
80,004
|
|
2023
|
$
|
65,987
|
|
As acquisitions and dispositions occur in the future and the valuations of intangible assets for recent acquisitions are completed, amortization expense may vary.
Indefinite-lived Intangibles
The Company has indefinite-lived intangible assets which consist of trade names. These indefinite-lived intangible assets had a carrying value of
$368.9 million
and
$369.0 million
as of
December 31, 2018
and
2017
, respectively.
Goodwill
The Company currently has
seven
reporting units with goodwill balances: International Concerts, North America Concerts, Artist Management and Artist Services (non-management) within the Concerts segment; Sponsorship & Advertising; and International Ticketing and North America Ticketing within the Ticketing segment. The Company reviews goodwill for impairment annually, as of October 1, using a two-step process: a qualitative review and a quantitative analysis. In
2018
, as part of the Company’s annual test for impairment of goodwill,
five
reporting units were assessed under the initial qualitative evaluation and did not require a quantitative analysis. These reporting units account for approximately
82%
of the Company’s goodwill at
December 31, 2018
. Considerations included (a) excess of fair values over carrying values in the most recent quantitative analysis performed, (b) improved market multiples, (c) changes in discount rates and (d) financial results.
Finally, for
two
reporting units that account for approximately
18%
of the Company’s goodwill at
December 31, 2018
, although market multiples have increased, the qualitative analysis was inconclusive due to increased discount rates and varying
results on recent financial performance against prior expectations. As such, quantitative analysis was performed for these reporting units.
The Company performed the quantitative analysis using a combination of a discounted cash flows methodology, which uses both market-based and internal assumptions, and a market multiple methodology, which uses primarily market-based assumptions applied to the Company’s projections of future cash flows.
Based upon the results of the annual tests for 2018 and 2017, the Company recorded impairment charges of
$10.5 million
and
$20.0 million
, respectively, related to its Artist Services (non-management) reporting unit. See Note
5
—Fair Value Measurements for discussion of the impairment calculation. There were
no
impairment charges recorded in 2016.
The following table presents the changes in the carrying amount of goodwill in each of the Company’s reportable segments for the years ended
December 31, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concerts
|
|
Sponsorship
& Advertising
|
|
Ticketing
|
|
Total
|
|
(in thousands)
|
Balance as of December 31, 2016:
|
|
|
|
|
|
|
|
Goodwill
|
$
|
1,017,020
|
|
|
$
|
395,826
|
|
|
$
|
739,105
|
|
|
$
|
2,151,951
|
|
Accumulated impairment losses
|
(404,863
|
)
|
|
—
|
|
|
—
|
|
|
(404,863
|
)
|
Net
|
612,157
|
|
|
395,826
|
|
|
739,105
|
|
|
1,747,088
|
|
|
|
|
|
|
|
|
|
Acquisitions—current year
|
10,265
|
|
|
5,438
|
|
|
11,139
|
|
|
26,842
|
|
Acquisitions—prior year
|
(21,614
|
)
|
|
(9,822
|
)
|
|
882
|
|
|
(30,554
|
)
|
Impairment
|
(20,000
|
)
|
|
—
|
|
|
—
|
|
|
(20,000
|
)
|
Foreign exchange
|
10,242
|
|
|
10,311
|
|
|
10,660
|
|
|
31,213
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2017:
|
|
|
|
|
|
|
|
Goodwill
|
1,015,913
|
|
|
401,753
|
|
|
761,786
|
|
|
2,179,452
|
|
Accumulated impairment losses
|
(424,863
|
)
|
|
—
|
|
|
—
|
|
|
(424,863
|
)
|
Net
|
591,050
|
|
|
401,753
|
|
|
761,786
|
|
|
1,754,589
|
|
|
|
|
|
|
|
|
|
Acquisitions—current year
|
42,841
|
|
|
3,902
|
|
|
5,875
|
|
|
52,618
|
|
Acquisitions—prior year
|
53,541
|
|
|
1,697
|
|
|
—
|
|
|
55,238
|
|
Dispositions
|
(7,053
|
)
|
|
—
|
|
|
—
|
|
|
(7,053
|
)
|
Impairment
|
(10,500
|
)
|
|
—
|
|
|
—
|
|
|
(10,500
|
)
|
Foreign exchange
|
(10,638
|
)
|
|
(6,603
|
)
|
|
(4,708
|
)
|
|
(21,949
|
)
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2018:
|
|
|
|
|
|
|
Goodwill
|
1,094,604
|
|
|
400,749
|
|
|
762,953
|
|
|
2,258,306
|
|
Accumulated impairment losses
|
(435,363
|
)
|
|
—
|
|
|
—
|
|
|
(435,363
|
)
|
Net
|
$
|
659,241
|
|
|
$
|
400,749
|
|
|
$
|
762,953
|
|
|
$
|
1,822,943
|
|
Included in the current year acquisitions amount above for 2018 is goodwill associated with the acquisitions of controlling interests in various concert and festival promotion businesses and various artist management businesses that are all located in the United States.
Included in the prior year acquisitions amount above for 2018 is a purchase price adjustment recognized in connection with contingent consideration paid during 2018 related to an acquisition that occurred prior to the Company’s adoption of the current FASB guidance for business combinations. Under the previous guidance, which was in place at the time of this acquisition, such contingent payments were recognized when it was determinable that the applicable financial targets were met.
Included in the current year acquisitions amount above for 2017 is goodwill associated with the acquisitions of various ticketing businesses located in the United States, an artist management business located in the United States, various concert promotion businesses located in Italy and the United States and a festival promotion business located in Switzerland.
Included in the prior year acquisitions amount above for 2017 are changes primarily associated with the acquisitions of festival promotion businesses located in the United States and Australia.
The Company is in various stages of finalizing its acquisition accounting for recent acquisitions, which include the use of external valuation consultants, and the completion of this accounting could result in a change to the associated purchase price allocations, including goodwill and its allocation between segments.
Investments in Nonconsolidated Affiliates
The Company has investments in various affiliates which are not consolidated and are accounted for under the equity method of accounting. The Company records its investments in these entities in the balance sheet as investments in nonconsolidated affiliates reported as part of other long-term assets. The Company’s interests in these operations are recorded in the statements of operations as equity in losses (earnings) of nonconsolidated affiliates. For the year ended
December 31, 2018
, the Company’s investment in Venta de Boletos por Computadora S.A. de C.V, a
33%
owned ticketing distribution services company, is considered significant on an individual basis. Summarized balance sheet and income statement information for this entity is as follows (at 100%):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
|
(in thousands)
|
Current assets
|
|
$
|
71,685
|
|
|
$
|
93,524
|
|
Noncurrent assets
|
|
$
|
4,074
|
|
|
$
|
2,514
|
|
Current liabilities
|
|
$
|
42,470
|
|
|
$
|
67,329
|
|
Noncontrolling interests
|
|
$
|
1,095
|
|
|
$
|
476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
(in thousands)
|
Revenue
|
|
$
|
56,857
|
|
|
$
|
56,078
|
|
|
$
|
47,556
|
|
Operating income
|
|
$
|
34,841
|
|
|
$
|
29,684
|
|
|
$
|
23,368
|
|
Net income
|
|
$
|
28,554
|
|
|
$
|
24,116
|
|
|
$
|
17,347
|
|
Net income attributable to the common stockholders of the equity investees
|
|
$
|
27,935
|
|
|
$
|
23,995
|
|
|
$
|
17,365
|
|
In May 2018, the Company acquired a
50%
interest in a festival promotion business located in Brazil that is accounted for under the equity method of accounting.
The Company reviews its nonconsolidated affiliates for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. For the year ended December 31, 2016, the Company recorded impairment charges related to its investments of
$16.5 million
as equity in losses (earnings) of nonconsolidated affiliates, primarily related to investments in a digital content company and an online merchandise company that are located in the United States. See Note
5
—Fair Value Measurements for further discussion of the inputs used to determine the fair values. There were no significant impairments of investments in nonconsolidated affiliates during 2018 or 2017.
NOTE
3
—LONG-TERM DEBT
Long-term debt, which includes capital leases, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
(in thousands)
|
Senior Secured Credit Facility:
|
|
|
|
|
|
Term loan A
|
|
$
|
156,750
|
|
|
$
|
175,750
|
|
|
Term loan B
|
|
953,148
|
|
|
962,849
|
|
4.875% Senior Notes due 2024
|
|
575,000
|
|
|
575,000
|
|
5.625% Senior Notes due 2026
|
|
300,000
|
|
|
—
|
|
5.375% Senior Notes due 2022
|
|
250,000
|
|
|
250,000
|
|
2.5% Convertible Senior Notes due 2023
|
|
550,000
|
|
|
—
|
|
2.5% Convertible Senior Notes due 2019
|
|
28,673
|
|
|
275,000
|
|
Other long-term debt
|
|
96,308
|
|
|
99,393
|
|
Total principal amount
|
|
2,909,879
|
|
|
2,337,992
|
|
Less unamortized discounts and debt issuance costs
|
|
(94,859
|
)
|
|
(38,033
|
)
|
Total long-term debt, net of unamortized discounts and debt issuance costs
|
|
2,815,020
|
|
|
2,299,959
|
|
Less: current portion
|
|
82,142
|
|
|
347,593
|
|
Total long-term debt, net
|
|
$
|
2,732,878
|
|
|
$
|
1,952,366
|
|
Future maturities of long-term debt at
December 31, 2018
are as follows:
|
|
|
|
|
|
(in thousands)
|
2019
|
$
|
82,142
|
|
2020
|
70,728
|
|
2021
|
123,767
|
|
2022
|
818,256
|
|
2023
|
922,284
|
|
Thereafter
|
892,702
|
|
Total
|
$
|
2,909,879
|
|
All long-term debt without a stated maturity date is considered current and is reflected as maturing in the earliest period shown in the table above. See Note
5
—Fair Value Measurements for discussion of the fair value measurement of the Company’s long-term debt.
Senior Secured Credit Facility
In March 2018, the Company amended its term loan B under the senior secured credit facility to reduce the applicable interest rate. At December 31, 2018, the Company’s senior secured credit facility consists of (i) a
$190 million
term loan A facility, (ii) a
$970 million
term loan B facility and (iii) a
$365 million
revolving credit facility. Subject to certain conditions, the Company has the right to increase the facility by an amount equal to the sum of
$625 million
and the aggregate principal amount of voluntary prepayments of the term B loans and permanent reductions of the revolving credit facility commitment, in each case, other than from proceeds of long-term indebtedness, and additional amounts so long as the senior secured leverage ratio calculated on a pro-forma basis (as defined in the credit agreement) is no greater than
3.25
x. The revolving credit facility provides for borrowings up to the amount of the facility with sublimits of up to (i)
$150 million
for the issuance of letters of credit, (ii)
$50 million
for swingline loans, (iii)
$200 million
for borrowings in Euros or British Pounds and (iv)
$50 million
for borrowings in one or more other approved currencies. The senior secured credit facility is secured by (i) a first priority lien on substantially all of the tangible and intangible personal property of the Company’s domestic subsidiaries that are guarantors and (ii) a pledge of substantially all of the shares of stock, partnership interests and limited liability company interests of the Company’s direct and indirect domestic subsidiaries and
65%
of each class of capital stock of any first-tier foreign subsidiaries, subject to certain exceptions.
The interest rates per annum applicable to revolving credit facility loans and the term loan A under the senior secured credit facility are, at the Company’s option, equal to either LIBOR plus
2.25%
or a base rate plus
1.25%
, subject to stepdowns based on the Company’s net leverage ratio. The interest rates per annum applicable to the term loan B are, at the Company’s option, equal to either LIBOR plus
1.75%
or a base rate plus
0.75%
. The Company is required to pay a commitment fee of
0.5%
per year on the undrawn portion available under the revolving credit facility, subject to a stepdown based on the Company’s net leverage ratio, and variable fees on outstanding letters of credit.
For the term loan A, the Company is required to make quarterly payments increasing over time from
$4.8 million
to
$28.5 million
, with the balance due at maturity in October 2021. For the term loan B, the Company is required to make quarterly payments of
$2.4 million
, with the balance due at maturity in October 2023. The revolving credit facility matures in October 2021. The Company is also required to make mandatory prepayments of the loans under the credit agreement, subject to specified exceptions, from excess cash flow and with the proceeds of asset sales, debt issuances and other specified events.
Based on the Company’s outstanding letters of credit of
$88.7 million
,
$276.3 million
was available for future borrowings under the revolving credit facility at
December 31, 2018
.
4.875% Senior Notes
At
December 31, 2018
, the Company had
$575 million
principal amount of
4.875%
senior notes due 2024. Interest on the notes is payable semiannually in cash in arrears on May 1 and November 1 of each year, and the notes will mature on November 1, 2024. The Company may redeem some or all of the notes, at any time prior to November 1, 2019, at a price equal to
100%
of the aggregate principal amount, plus any accrued and unpaid interest to the date of redemption, plus a ‘make-whole’ premium. The Company may redeem up to
35%
of the aggregate principal amount of the notes from the proceeds of certain equity offerings prior to November 1, 2019, at a price equal to
104.875%
of the aggregate principal amount, plus accrued and unpaid interest thereon, if any, to the date of redemption. In addition, on or after November 1, 2019, the Company may redeem some or all of the notes at any time at the redemption prices that start at
103.656%
of their principal amount, plus any accrued and unpaid interest to the date of redemption. The Company must make an offer to redeem the notes at
101%
of their aggregate principal amount, plus accrued and unpaid interest to the repurchase date, if it experiences certain defined changes of control.
5.625% Senior Notes
In March 2018, the Company issued
$300 million
principal amount of
5.625%
senior notes due 2026. Interest on the notes is payable semiannually in cash in arrears on March 15 and September 15 of each year, and the notes will mature on March 15, 2026. The Company may redeem some or all of the notes at any time prior to March 15, 2021 at a price equal to
100%
of the principal amount, plus any accrued and unpaid interest to the date of redemption, plus a ‘make-whole’ premium. The Company may redeem up to
35%
of the aggregate principal amount of the notes from proceeds of certain equity offerings prior to March 15, 2021, at a price equal to
105.625%
of the aggregate principal amount being redeemed, plus any accrued and unpaid interest thereon to the date of redemption. In addition, on or after March 15, 2021, the Company may redeem some or all of the notes at any time at redemption prices that start at
104.219%
of their principal amount, plus any accrued and unpaid interest to the date of redemption. The Company must make an offer to redeem the notes at
101%
of their aggregate principal amount, plus any accrued and unpaid interest to the repurchase date, if it experiences certain defined changes of control.
5.375% Senior Notes
At
December 31, 2018
, the Company had
$250 million
principal amount of
5.375%
senior notes due 2022. Interest on the notes is payable semiannually in arrears on June 15 and December 15 of each year, and the notes will mature on June 15, 2022. The Company may redeem some or all of the notes at redemption prices that start at
104.0313%
of their principal amount, plus any accrued and unpaid interest to the date of redemption. The Company must make an offer to redeem the notes at
101%
of the aggregate principal amount, plus any accrued and unpaid interest to the repurchase date, if it experiences certain defined changes of control.
2.5% Convertible Senior Notes Due 2019
As noted below, in March 2018, the Company acquired in private purchase transactions and subsequently retired
$246.3 million
of the outstanding principal amount of its
2.5%
convertible senior notes due 2019 for
$336.7 million
plus fees and accrued interest. The fair value of the equity component of the notes prior to repurchase was calculated assuming a
4.87%
non-convertible borrowing rate resulting in
$92.6 million
of the total repurchase price being recorded to additional paid-in capital. The remaining notes totaling
$28.7 million
are currently convertible at the election of the holder and will remain convertible through May 2019, at which time any notes that remain outstanding will mature.
2.5% Convertible Senior Notes Due 2023
In March 2018, the Company issued
$550 million
principal amount of
2.5%
convertible senior notes due 2023. The notes pay interest semiannually in arrears on March 15 and September 15 of each year, at a rate of
2.5%
per annum. The notes will mature on March 15, 2023, and may not be redeemed by the Company prior to the maturity date. The notes will be convertible,
under certain circumstances, until December 15, 2022, and on or after such date without condition, at an initial conversion rate of 14.7005 shares of the Company’s common stock per $1,000 principal amount of notes, subject to adjustment, which represents a
54.4%
conversion premium based on the last reported sale price for the Company’s common stock of
$44.05
on March 19, 2018 prior to issuing the debt. Upon conversion, the notes may be settled in shares of common stock or, at the Company’s election, cash or a combination of cash and shares of common stock. Assuming the Company fully settled the notes in shares, the maximum number of shares that could be issued to satisfy the conversion is currently
8.1 million
.
If the Company experiences a fundamental change, as defined in the indenture governing the notes, the holders of the notes may require the Company to purchase for cash all or a portion of their notes, subject to specified exceptions, at a price equal to
100%
of the principal amount of the notes plus any accrued and unpaid interest.
The carrying amount of the equity component of the notes is
$64.0 million
, which is treated as a debt discount and the principal amount of the liability component (face value of the notes) is
$550 million
. As of
December 31, 2018
, the remaining period for the unamortized debt discount balance of
$55.0 million
was approximately
four
years and the value of the notes, if converted and fully settled in shares, did not exceed the principal amount of the notes. As of
December 31, 2018
, the effective interest rate on the liability component of the notes was
5.7%
.
The following table summarizes the amount of pre-tax interest cost recognized on the
2.5%
convertible senior notes due 2019 and 2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
(in thousands)
|
Interest cost recognized relating to:
|
|
|
|
|
|
Contractual interest coupon
|
$
|
12,894
|
|
|
$
|
6,875
|
|
|
$
|
6,875
|
|
Amortization of debt discount
|
10,746
|
|
|
5,080
|
|
|
4,833
|
|
Amortization of debt issuance costs
|
1,940
|
|
|
1,358
|
|
|
1,358
|
|
Total interest cost recognized on the notes
|
$
|
25,580
|
|
|
$
|
13,313
|
|
|
$
|
13,066
|
|
Other Long-term Debt
As of
December 31, 2018
, other long-term debt includes capital leases of
$20.0 million
, debt to noncontrolling interest partners of
$34.7 million
and
$29.3 million
of a subsidiary’s term loan and revolving credit facility. The Company’s other long-term debt has a weighted average cost of debt of
4.5%
and maturities at various dates through
July 2046
.
Debt Extinguishment
In March 2018, the Company issued
$300 million
principal amount of
5.625%
senior notes due 2026, issued
$550 million
principal amount of
2.5%
convertible senior notes due 2023 and amended its senior secured credit facility to reduce the
applicable interest rate for the term loan B. Total gross proceeds of
$850.0 million
from the issuance of the notes were used to
repay
$246.3 million
of the outstanding principal amount of the Company’s
2.5%
convertible senior notes due 2019, the related
repurchase premium of
$90.4 million
on those convertible senior notes and accrued interest and fees of
$20.8 million
, leaving
$492.5 million
in additional cash available for general corporate purposes. The Company recorded a
$2.5 million
loss on extinguishment of debt related to this refinancing.
In October 2016, the Company issued
$575 million
principal amount of
4.875%
senior notes due 2024 and amended its senior secured credit facility. The amendment to the senior secured credit facility provided the existing term loan A and term loan B lenders with an option to convert their outstanding principal amounts into the new term loans. Excluding the outstanding principal amounts for lenders who elected to convert their outstanding term loans, total proceeds of
$858.5 million
were used to repay
$123.3 million
outstanding principal amount of the Company’s borrowings under the senior secured credit facility, to repay the entire
$425 million
principal amount of the Company’s
7%
senior notes due 2020 and to pay the related redemption premium of
$14.9 million
on the
7%
senior notes and accrued interest and fees of
$38.4 million
, leaving
$256.9 million
in additional cash available for general corporate purposes. The Company recorded
$14.0 million
as a loss on extinguishment of debt related to this refinancing in 2016. There were no significant gains or losses on extinguishment of debt recorded in 2017.
Debt Covenants
The Company’s senior secured credit facility contains a number of restrictions that, among other things, require the Company to satisfy a financial covenant and restrict the Company’s and its subsidiaries’ ability to incur additional debt, make certain investments and acquisitions, repurchase its stock and prepay certain indebtedness, create liens, enter into agreements with affiliates, modify the nature of its business, enter into sale-leaseback transactions, transfer and sell material assets, 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 a covenant, measured quarterly, that relates to total leverage. The consolidated total leverage covenant requires the Company to maintain a ratio of consolidated total funded debt to consolidated EBITDA (both as defined in the credit agreement) of
5.0
x over the trailing
four
consecutive quarters through September 30, 2019. The consolidated total leverage ratio will reduce to
4.75
x on December 31, 2019 and
4.5
x on December 31, 2020.
The indentures governing the
4.875%
senior notes, the
5.375%
senior notes and the
5.625%
senior notes contain covenants that limit, among other things, the Company’s ability and the ability of its restricted subsidiaries to incur certain additional indebtedness and issue preferred stock, make certain distributions, investments and other restricted payments, sell certain assets, agree to any restrictions on the ability of restricted subsidiaries to make payments to the Company, merge, consolidate or sell all of the Company’s assets, create certain liens, and engage in transactions with affiliates on terms that are not on an arms-length basis. Certain covenants, including those pertaining to incurrence of indebtedness, restricted payments, asset sales, mergers and transactions with affiliates will be suspended during any period in which the notes are rated investment grade by both rating agencies and no default or event of default under the indenture has occurred and is continuing. The
4.875%
senior notes, the
5.375%
senior notes and the
5.625%
senior notes contain
two
incurrence-based financial covenants, as defined, requiring a minimum fixed charge coverage ratio of
2.0
x and a maximum secured indebtedness leverage ratio of
3.5
x.
Some of the Company’s other subsidiary indebtedness includes restrictions on entering into various transactions, such as acquisitions and disposals, and prohibits payment of ordinary dividends. They also have financial covenants including minimum consolidated EBITDA to consolidated net interest payable, minimum consolidated cash flow to consolidated debt service and maximum consolidated debt to consolidated EBITDA, all as defined in the applicable debt agreements.
As of
December 31, 2018
, the Company believes it was in compliance with all of its debt covenants. The Company expects to remain in compliance with all of these covenants throughout
2019
.
NOTE
4
—DERIVATIVE INSTRUMENTS
The Company primarily uses forward currency contracts and options to reduce its exposure to foreign currency risk associated with short-term artist fee commitments. The Company may also enter into forward currency contracts to minimize the risks and/or costs associated with changes in foreign currency rates on forecasted operating income. At
December 31, 2018
and
2017
, the Company had forward currency contracts and options outstanding with notional amounts of
$89.4 million
and
$72.4 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.
The Company does not enter into derivative instruments for speculative or trading purposes and does not anticipate any significant recognition of derivative activity through the income statement in the future related to the instruments currently held. See Note
5
—Fair Value Measurements for further discussion and disclosure of the fair values for the Company’s derivative instruments.
NOTE
5
—FAIR VALUE MEASUREMENTS
Recurring
The Company currently has various financial instruments carried at fair value, such as marketable securities, derivatives and contingent consideration, but does not currently have nonfinancial assets and liabilities that are required to be measured at fair value on a recurring basis. The Company’s financial assets and liabilities are measured using inputs from all levels of the fair value hierarchy as defined in the FASB guidance for fair value. For this categorization, only inputs that are significant to the fair value are considered. The three levels are defined as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that can be accessed at the measurement date.
Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or
liability (i.e., interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (i.e., market corroborated inputs).
Level 3—Unobservable inputs that reflect assumptions about what market participants would use in pricing the asset or liability. These inputs would be based on the best information available, including the Company’s own data.
In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company’s financial assets and liabilities that are required to be measured at fair value on a recurring basis, which are classified on the balance sheets as cash and cash equivalents, other current assets, other current liabilities and other long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
at December 31, 2018
|
|
Fair Value Measurements
at December 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
(in thousands)
|
|
|
|
|
|
(in thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
86,046
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
86,046
|
|
|
$
|
58,063
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
58,063
|
|
Forward currency contracts
|
—
|
|
|
779
|
|
|
—
|
|
|
779
|
|
|
—
|
|
|
114
|
|
|
—
|
|
|
114
|
|
Total
|
$
|
86,046
|
|
|
$
|
779
|
|
|
$
|
—
|
|
|
$
|
86,825
|
|
|
$
|
58,063
|
|
|
$
|
114
|
|
|
$
|
—
|
|
|
$
|
58,177
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward currency contracts
|
$
|
—
|
|
|
$
|
260
|
|
|
$
|
—
|
|
|
$
|
260
|
|
|
$
|
—
|
|
|
$
|
1,276
|
|
|
$
|
—
|
|
|
$
|
1,276
|
|
Put option
|
—
|
|
|
—
|
|
|
8,002
|
|
|
8,002
|
|
|
—
|
|
|
—
|
|
|
5,768
|
|
|
5,768
|
|
Subsidiary equity awards
|
—
|
|
|
—
|
|
|
3,571
|
|
|
3,571
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Contingent consideration
|
—
|
|
|
—
|
|
|
62,475
|
|
|
62,475
|
|
|
—
|
|
|
—
|
|
|
70,039
|
|
|
70,039
|
|
Total
|
$
|
—
|
|
|
$
|
260
|
|
|
$
|
74,048
|
|
|
$
|
74,308
|
|
|
$
|
—
|
|
|
$
|
1,276
|
|
|
$
|
75,807
|
|
|
$
|
77,083
|
|
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.
Certain third parties have a put option to sell their noncontrolling interest in
one
of the Company’s subsidiaries to the Company and such put option is carried at fair value using Level 3 inputs because either (i) the put option is triggered by the occurrence of specific events,
one
of which is certain to occur, that requires the Company to buy the noncontrolling interest or (ii) the redemption price is not at fair value and the equity holder does not bear the risk and rewards of ownership. The redemption price for these put options are a variable amount based on a formula linked to historical earnings. The Company has recorded a current liability for these put options which are valued based on the historic results of that subsidiary. Changes in the fair value are recorded in selling, general and administrative expenses.
The Company has certain contingent consideration obligations related to acquisitions which are measured at fair value using Level 3 inputs. The amounts due to the sellers are based on the achievement of agreed-upon financial performance metrics by the acquired companies where the contingent obligation is either earned or not earned. The Company records the liability at the time of the acquisition based on the present value of management’s best estimates of the future results of the acquired companies compared to the agreed-upon metrics. Subsequent to the date of acquisition, the Company updates the original valuation to reflect current projections of future results of the acquired companies and the passage of time. Accretion of, and changes in the valuations of, contingent consideration are reported in selling, general and administrative expenses. See Note
6
—Commitments and Contingent Liabilities for additional information related to the contingent payments.
Due to their short maturity, the carrying amounts of accounts receivable, accounts payable and accrued expenses approximated their fair values at
December 31, 2018
and
2017
.
The Company’s outstanding debt held by third-party financial institutions is carried at cost, adjusted for discounts or debt issuance costs. The Company’s debt is not publicly traded and the carrying amounts typically approximate fair value for debt that accrues interest at a variable rate, which are considered to be Level 2 inputs as defined in the FASB guidance.
The following table presents the estimated fair values of the Company’s senior notes and convertible senior notes at December 31, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
Estimated Fair Value at:
|
|
December 31, 2018
|
|
December 31, 2017
|
|
Level 2
|
|
(in thousands)
|
4.875% Senior Notes due 2024
|
$
|
552,368
|
|
|
$
|
592,325
|
|
5.625% Senior Notes due 2026
|
$
|
302,097
|
|
|
$
|
—
|
|
5.375% Senior Notes due 2022
|
$
|
251,390
|
|
|
$
|
259,233
|
|
2.5% Convertible Senior Notes due 2023
|
$
|
561,699
|
|
|
$
|
—
|
|
2.5% Convertible Senior Notes due 2019
|
$
|
40,710
|
|
|
$
|
310,635
|
|
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.
Non-recurring
The following table shows the fair value of the Company’s financial assets that have been adjusted to fair value on a non-recurring basis which had a significant impact on the Company’s results of operations for the years ended
December 31, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Fair Value Measurements Using
|
|
Loss
|
Description
|
|
Measurement
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
(Gain)
|
|
|
(in thousands)
|
2018
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
20,332
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20,332
|
|
|
$
|
10,500
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
30,832
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
30,832
|
|
|
$
|
20,000
|
|
During 2018 and 2017, in conjunction with the Company’s annual impairment tests, goodwill impairments were recorded for the Artist Services (non-management) reporting unit in the Concerts segment in the amount of
$10.5 million
and
$20.0 million
, respectively, as a component of depreciation and amortization. The Company calculated these impairments using a combination of a discounted cash flow methodology, which uses both Level 2 and Level 3 inputs, and a market multiple methodology, which uses primarily Level 2 inputs. The key inputs include discount rates, market multiples, control premiums, revenue growth and estimates of future financial performance. See Note
1
—The Company and Summary of Significant Accounting Policies and Note
2
—Long-Lived Assets for further discussion of the Company’s methodology and these impairments.
As discussed in Note
2
—Long-Lived Assets, during 2016, the Company believed certain of its investment balances were impaired based on financial information received regarding the bankruptcy or dissolution of
two
nonconsolidated affiliates, which are considered Level 3 inputs. There were no significant impairments for the years ended December 31, 2018 or 2017.
NOTE
6
—COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases office space, certain equipment and many of its concert venues. Some of the lease agreements contain renewal options and annual rental escalation clauses (generally tied to the consumer price index), as well as provisions for the payment of utilities and maintenance by the Company. The Company also has non-cancelable contracts related to minimum performance payments with various artists, other event-related costs and nonrecoupable ticketing contract advances. In addition, the Company has commitments relating to additions to property, plant, and equipment under certain construction commitments for facilities and venues.
As of
December 31, 2018
, the Company’s future minimum rental commitments under non-cancelable operating lease agreements, minimum payments under non-cancelable contracts and capital expenditure commitments consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cancelable
Operating Leases
|
|
Non-cancelable
Contracts
|
|
Capital
Expenditures
|
|
(in thousands)
|
2019
|
$
|
195,160
|
|
|
$
|
1,190,326
|
|
|
$
|
14,428
|
|
2020
|
189,013
|
|
|
286,483
|
|
|
3,757
|
|
2021
|
168,314
|
|
|
244,816
|
|
|
4,144
|
|
2022
|
161,373
|
|
|
160,643
|
|
|
875
|
|
2023
|
153,569
|
|
|
74,879
|
|
|
779
|
|
Thereafter
|
1,651,260
|
|
|
93,918
|
|
|
29,330
|
|
Total
|
$
|
2,518,689
|
|
|
$
|
2,051,065
|
|
|
$
|
53,313
|
|
Commitment amounts for non-cancelable operating leases and non-cancelable contracts which stipulate an increase in the commitment amount based on an inflationary index have been estimated using an inflation factor of
1.7%
for North America,
2.8%
for the United Kingdom,
1.6%
for Denmark and
1.6%
for the Netherlands.
Aggregate minimum rentals of
$31.6 million
to be paid to the Company in years
2019
through
2032
under non-cancelable subleases are excluded from the commitment amounts in the above table.
Total rent expense charged to operations for
2018
,
2017
and
2016
was
$245.2 million
,
$220.1 million
and
$196.0 million
, respectively. In addition to the minimum rental commitments included in the table above, the Company has leases that contain contingent payment requirements for which payments vary depending on revenue, tickets sold or other variables. Contingent rent expense charged to operations for
2018
,
2017
and
2016
was
$55.7 million
,
$48.3 million
and
$49.0 million
, respectively. The above table above does not include contingent rent or rent expense for events in third-party venues.
In connection with asset and business disposals, the Company generally provides indemnifications to the buyers including claims resulting from employment matters, commercial claims and governmental actions that may be taken against the assets or businesses sold. Settlement of these claims is subject to various statutory limitations that are dependent upon the nature of the claim.
Certain agreements relating to acquisitions provide for deferred purchase consideration payments at future dates. A liability is established at the time of the acquisition for these fixed payments. For obligations payable at a date greater than twelve months from the acquisition date, the Company applies a discount rate to calculate the present value of the obligations. As of
December 31, 2018
, the Company has accrued
$5.5 million
in other current liabilities and
$7.3 million
in other long-term liabilities and, as of
December 31, 2017
, the Company had accrued
$109.6 million
in other current liabilities and
$6.1 million
in other long-term liabilities, related to these deferred purchase consideration payments. The decrease in other current liabilities during 2018 is primarily due to the timing of a payment for the acquisition of the redeemable noncontrolling interest in a festival and concert promoter business located in the United States following the put redemption in December 2017.
The Company has contingent obligations related to acquisitions which are accounted for as business combinations. Contingent consideration associated with business combinations is recorded at 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 selling, general and administrative expenses. The contingent consideration is generally subject to payout following the achievement of future performance targets and a portion is expected to be payable in the next twelve months. As of
December 31, 2018
, the Company has accrued
$39.5 million
in other current liabilities and
$23.0 million
in other long-term liabilities and, as of
December 31, 2017
, the Company had accrued
$34.2 million
in other current liabilities and
$35.8 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
March 2026
. See Note
5
—Fair Value Measurements for further discussion related to the valuation of these contingent payments.
As of
December 31, 2018
and
2017
, the Company guaranteed the debt of third parties of approximately
$15.6 million
and
$18.3 million
, respectively, primarily related to maximum credit limits on employee and tour-related credit cards, obligations of a nonconsolidated affiliate and obligations under a venue management agreement.
Litigation
Consumer Class Actions
The following class action lawsuits were filed against Live Nation and/or Ticketmaster LLC in the United States and Canada: Vaccaro v. Ticketmaster LLC (Northern District of Illinois, filed September 2018); Ameri v. Ticketmaster LLC (Northern District of California, filed September 2018); Lee v. Ticketmaster LLC, et al. (Northern District of California, filed September 2018); Thompson-Marcial v. Ticketmaster Canada Holdings ULC (Ontario Superior Court of Justice, filed September 2018); McPhee v. Live Nation Entertainment, Inc., et al. (Superior Court of Quebec, District of Montreal, filed September 2018); Crystal Watch v. Live Nation Entertainment, Inc., et al. (Court of Queen’s Bench for Saskatchewan, by amendments filed September 2018); Gaetano v. Live Nation Entertainment Inc., et al. (Northern District of New York, filed October 2018); Dickey v. Ticketmaster, LLC, et al. (Central District of California, filed October 2018); Gomel v. Live Nation Entertainment, Inc., et al (Supreme Court of British Columbia, Vancouver Registry, filed October 2018); Smith v. Live Nation Entertainment, Inc., et al. (Ontario Superior Court of Justice, filed October 2018); Messing v. Ticketmaster LLC, et al. (Central District of California, filed November 2018); and Niedbalski v. Ticketmaster LLC, et al. (Central District of California, filed December 2018). These lawsuits make similar factual allegations that Live Nation and/or Ticketmaster LLC engage in conduct that is intended to encourage the resale of tickets on secondary ticket exchanges at elevated prices. Based on these allegations, each plaintiff asserts violations of different state/provincial and federal laws. Each plaintiff also seeks to represent a class of individuals who purchased tickets on a secondary ticket exchange, as defined in each plaintiff’s complaint. The complaints seek a variety of remedies, including unspecified compensatory damages, punitive damages, restitution, injunctive relief and attorneys’ fees and costs. Based on information presently known to management, the Company does not believe that a loss is probable of occurring at this time, and believes that the potential liability, if any, will not have a material adverse effect on its financial condition, cash flows or results of operations. Further, the Company does not currently believe that the claims asserted in these lawsuits have merit, and considerable uncertainty exists regarding any monetary damages that will be asserted against the Company. As a result, the Company is currently unable to estimate the possible loss or range of loss for these matters. The Company intends to vigorously defend these actions.
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 purported violations of antitrust laws, intellectual property rights and tortious interference, which could cause the Company to incur significant expenses. The Company has also been the subject of personal injury and wrongful death claims relating to accidents at its venues in connection with its operations. As required, the Company has accrued its estimate of the probable settlement or other losses for the resolution of any outstanding claims. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, including, in some cases, estimated redemption rates for the settlement offered, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in the Company’s assumptions or the effectiveness of its strategies related to these proceedings.
NOTE
7
—CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
Transactions Involving Related Parties
The following table provides details of the total revenue earned and expenses incurred from all related-party transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
(in thousands)
|
Related-party revenue
|
$
|
158,171
|
|
|
$
|
126,251
|
|
|
$
|
117,384
|
|
Related-party expenses
|
$
|
4,300
|
|
|
$
|
4,430
|
|
|
$
|
2,859
|
|
Related-party acquisition related
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,145
|
|
The significant related-party transactions included in the table above are detailed below.
As of
December 31, 2018
and
2017
, the Company has payable balances of
$14.6 million
and
$23.1 million
, respectively, due to certain of the companies noted below.
Liberty Media
Two
current members of our board of directors were originally nominated by Liberty Media pursuant to a stockholder agreement. These directors receive directors’ fees and stock-based awards on the same basis as other non-employee members of the Company’s board of directors.
The Company leases a venue from and provides ticketing services to a sports franchise owned by Liberty Media and pays royalty fees and non-recoupable ticketing contract advances to the sports franchise. The Company also receives transaction fees from the sports franchise for tickets the sports franchise sells using the Company’s ticketing software. From time to time, the Company purchases advertising from a satellite radio company that is a subsidiary of Liberty Media.
Legends
The Company’s Chief Executive Officer became a member of the board of directors of Legends Hospitality Holding Company, LLC (“Legends”) in February 2015. In 2017, the Company’s President assumed this role from the Chief Executive Officer. Legends provides concession services to certain of the Company’s owned or operated amphitheaters. The Company receives fees based on concession sales at each of the amphitheaters.
Sirius XM
In January 2018, the Company’s Chief Executive Officer became a member of the board of directors of Sirius XM Holdings Inc. (“Sirius XM”), a satellite radio company that is a subsidiary of Liberty Media. From time to time, the Company purchases advertising from Sirius XM.
Senior Management
The Company conducts certain transactions in the ordinary course of business with companies that are owned, in part or in total, by certain members of senior management of the Company. These transactions primarily relate to ticketing services.
Transactions Involving Equity Method Investees
The Company conducts business with certain of its equity method investees in the ordinary course of business. Transactions primarily relate to venue rentals and ticketing services. Revenue of
$2.4 million
,
$2.4 million
and
$1.7 million
were earned in
2018
,
2017
and
2016
, respectively, and expenses of
$1.1 million
,
$1.4 million
and
$2.9 million
were incurred in
2018
,
2017
and
2016
, respectively, from these equity investees for services rendered or provided in relation to these business ventures.
NOTE
8
—INCOME TAXES
Significant components of the provision for income tax expense (benefit) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
(in thousands)
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
(55
|
)
|
|
$
|
(702
|
)
|
|
$
|
564
|
|
Foreign
|
|
40,239
|
|
|
50,970
|
|
|
29,902
|
|
State
|
|
6,828
|
|
|
4,117
|
|
|
5,454
|
|
Total current
|
|
47,012
|
|
|
54,385
|
|
|
35,920
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
2,246
|
|
|
(56,442
|
)
|
|
5,113
|
|
Foreign
|
|
(8,697
|
)
|
|
(15,841
|
)
|
|
(11,703
|
)
|
State
|
|
204
|
|
|
744
|
|
|
(1,301
|
)
|
Total deferred
|
|
(6,247
|
)
|
|
(71,539
|
)
|
|
(7,891
|
)
|
Income tax expense (benefit)
|
|
$
|
40,765
|
|
|
$
|
(17,154
|
)
|
|
$
|
28,029
|
|
|
|
|
|
|
|
|
The domestic income (loss) before income taxes was
$43.5 million
,
$(132.6) million
and
$1.1 million
for
2018
,
2017
and
2016
, respectively. Foreign income before income taxes was
$87.6 million
,
$123.2 million
and
$47.2 million
for
2018
,
2017
and
2016
, respectively.
Significant components of the Company’s deferred tax liabilities and assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
|
(in thousands)
|
Deferred tax liabilities:
|
|
|
|
|
Intangible assets
|
|
$
|
118,275
|
|
|
$
|
159,793
|
|
Prepaid expenses
|
|
2,534
|
|
|
7,882
|
|
Long-term debt
|
|
—
|
|
|
1,229
|
|
Other
|
|
5,865
|
|
|
7,533
|
|
Total deferred tax liabilities
|
|
126,674
|
|
|
176,437
|
|
Deferred tax assets:
|
|
|
|
|
Intangible assets
|
|
25,981
|
|
|
27,752
|
|
Accrued expenses
|
|
40,989
|
|
|
68,168
|
|
Net operating loss carryforwards
|
|
388,459
|
|
|
466,023
|
|
Foreign tax and other credit carryforwards
|
|
38,919
|
|
|
62,136
|
|
Equity compensation
|
|
24,211
|
|
|
20,549
|
|
Other
|
|
15,703
|
|
|
2,725
|
|
Total gross deferred tax assets
|
|
534,262
|
|
|
647,353
|
|
Valuation allowance
|
|
530,642
|
|
|
596,437
|
|
Total deferred tax assets
|
|
3,620
|
|
|
50,916
|
|
Net deferred tax liabilities
|
|
$
|
(123,054
|
)
|
|
$
|
(125,521
|
)
|
Each reporting period, the Company evaluates the realizability of all of its deferred tax assets in each tax jurisdiction. As of
December 31, 2018
, the Company continued to maintain a full valuation allowance against its net deferred tax assets in certain jurisdictions due to cumulative pre-tax losses. As a result of the valuation allowances, no tax benefits have been recognized for losses incurred in those tax jurisdictions in
2018
,
2017
and
2016
. The reduction in accrued expenses deferred tax assets is primarily related to the 2018 United States tax deduction for the January 2018 payment related to the Songkick settlement accrued in 2017. The reduction in the net operating loss carryforwards is primarily related to 2018 taxable income in jurisdictions for which we can utilize these carryforwards, including the United States. The reduction in foreign tax and other credit carryforwards is primarily related to the utilization of United States foreign tax credits to offset transition tax liability incurred as a result of the provisions of the Tax Cuts and Jobs Act (“TCJA”). The valuation allowance balance reduction in 2018 is primarily a result of the noted reductions in fully valued deferred tax assets.
During
2018
and
2017
, the Company recorded net deferred tax liabilities of
$4.0 million
and
$9.0 million
, respectively, due principally to differences in financial reporting and tax bases in assets acquired in business combinations.
As of
December 31, 2018
, the Company has United States federal, state and foreign deferred tax assets related to net operating loss carryforwards of
$95.0 million
,
$47.8 million
and
$245.7 million
, respectively. Based on current statutory carryforward periods, these losses will expire on various dates beginning in
2025
. The Company’s federal net operating loss may be subject to statutory limitations on the amount that can be used in any given year.
The reconciliation of income tax computed at the United States federal statutory rates to income tax expense (benefit) is:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
(in thousands)
|
Income tax expense (benefit) at United States statutory rates (21%, 35% and 35%, respectively)
|
|
$
|
27,532
|
|
|
$
|
(3,283
|
)
|
|
$
|
16,914
|
|
State income taxes, net of federal tax benefits
|
|
4,860
|
|
|
1,544
|
|
|
3,264
|
|
Differences between foreign and United States statutory rates
|
|
2,650
|
|
|
(10,887
|
)
|
|
(11,116
|
)
|
United States tax reform rate change
|
|
—
|
|
|
(55,685
|
)
|
|
—
|
|
Non-United States income inclusions and exclusions
|
|
(3,425
|
)
|
|
3,826
|
|
|
(2,749
|
)
|
United States income inclusions and exclusions
|
|
(13,790
|
)
|
|
11,347
|
|
|
(1,317
|
)
|
Nondeductible items
|
|
26,376
|
|
|
11,380
|
|
|
3,210
|
|
Tax contingencies
|
|
389
|
|
|
1,955
|
|
|
2,390
|
|
Tax expense from acquired goodwill
|
|
4,353
|
|
|
4,489
|
|
|
5,936
|
|
Change in valuation allowance
|
|
(8,845
|
)
|
|
18,067
|
|
|
11,820
|
|
Other, net
|
|
665
|
|
|
93
|
|
|
(323
|
)
|
|
|
$
|
40,765
|
|
|
$
|
(17,154
|
)
|
|
$
|
28,029
|
|
|
|
|
|
|
|
|
Income tax expense is principally attributable to the Company’s earnings in foreign tax jurisdictions along with state income taxes.
Amounts included in differences between foreign and United States statutory rates are impacted by changes in the mix of international earnings subject to various tax rates which can differ greatly in their proximity to the United States statutory rate. The differences between statutory rates is also impacted by the Company’s Luxembourg affiliates and tax rulings which include the application of a reduced Luxembourg effective rate to the net income before tax resulting from the Company’s financing activities in Luxembourg.
Amounts included in United States income inclusions and exclusions for 2018 include the favorable impact of tax deductions for vesting of restricted shares and exercises of stock options partially offset by unfavorable inclusions for global intangible low-taxed income (“GILTI”) under the provisions associated with the TCJA.
Nondeductible items in 2018 include the impact of increased nondeductible expenses pursuant to the provisions of the TCJA including nondeductible executive compensation and the Company’s goodwill impairment for Artist Services which was not deductible for income tax purposes. Nondeductible items in 2017 include the Company’s goodwill impairment for Artist Services. There were no impairments of goodwill in 2016.
The change in the valuation allowance in 2018 and 2017 resulted primarily from changes in the income within jurisdictions with full valuation allowances, including the United States.
On December 22, 2017, the TCJA was enacted, which amended the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. For businesses, the TCJA reduces the corporate federal tax rate from a maximum of
35%
to a flat
21%
rate. The rate reduction was effective on January 1, 2018. The TCJA resulted in a revaluation of the Company’s United States deferred tax assets and liabilities. Deferred income taxes result from temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through income tax expense. The provisional amount recorded to revalue our United States net deferred tax liability balance was a
$55.7 million
income tax benefit in the Company’s statements of operations for the year ended December 31, 2017. The international provisions of the TCJA, which generally establish a territorial-style system for taxing foreign-sourced income of domestic multinational corporations, includes the requirement that companies pay a one-time transition tax on earnings of certain foreign-sourced subsidiaries that were previously tax-deferred and creates new taxes on certain foreign-sourced earnings. During 2018, the Company recorded an update to the initial estimated amount recorded in 2017 for the one-time transition liability for its foreign subsidiaries which does not impact income tax expense for either period since the Company has reflected the transition tax liability as a reduction to existing fully-valued tax attribute carryforwards. The accounting guidance for income taxes requires companies to recognize the effect of the tax law changes in the period of enactment. However, the SEC allowed companies to
record provisional amounts during a measurement period not extending beyond one year from the TCJA enactment date. As of December 31, 2018, the Company has completed the accounting for all the provisional amounts recorded in 2017.
The TCJA also establishes new tax provisions affecting 2018, including, but not limited to, (1) creating a new provision designed to tax GILTI; (2) generally eliminating U.S. federal taxes on dividends from foreign subsidiaries; (3) eliminating the corporate alternative minimum tax; (4) creating the base erosion anti-abuse tax; (5) establishing a deduction for foreign derived intangible income; (6) repealing the domestic production activity deduction; and (7) establishing new limitations on deductible interest expense and certain executive compensation. The TCJA subjects a United States corporation to tax on its GILTI. GAAP allows companies to make an accounting policy election to either (1) treat taxes due on future GILTI inclusions in United States taxable income as a current-period expense when incurred (“period cost method”) or (2) factor such amounts into the measurement of its deferred taxes. The Company has elected to use the period cost method. The Company’s financial statements for the current year reflect the effects of the TCJA based on current guidance. None of the TCJA provisions applicable to 2018 impact tax expense due to the existence of fully-valued tax attribute carryforwards.
The following table summarizes the activity related to the Company’s unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
(in thousands)
|
Balance at January 1
|
|
$
|
30,630
|
|
|
$
|
15,117
|
|
|
$
|
14,022
|
|
Additions:
|
|
|
|
|
|
|
Increase for current year positions
|
|
1,531
|
|
|
807
|
|
|
—
|
|
Increase for prior year positions
|
|
2,995
|
|
|
15,498
|
|
|
1,978
|
|
Decrease for prior year positions
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
Interest and penalties for prior years
|
|
106
|
|
|
2,745
|
|
|
546
|
|
Reductions:
|
|
|
|
|
|
|
Expiration of applicable statute of limitations
|
|
(730
|
)
|
|
(1,233
|
)
|
|
—
|
|
Settlements for prior year positions
|
|
(9
|
)
|
|
(2,033
|
)
|
|
(1,188
|
)
|
Foreign exchange
|
|
(452
|
)
|
|
(271
|
)
|
|
(238
|
)
|
Balance at December 31
|
|
$
|
34,071
|
|
|
$
|
30,630
|
|
|
$
|
15,117
|
|
|
|
|
|
|
|
|
If the Company were to prevail on all uncertain tax positions, the net effect would be a decrease to its income tax provision of approximately
$16.7 million
. The remaining
$17.4 million
is offset by deferred tax assets that represent tax benefits that would be received in the event that the Company did not prevail on all uncertain tax positions. As of December 31, 2018, it is not expected that the total amounts of unrecognized tax benefits will increase or decrease materially within the next year.
The Company regularly assesses the likelihood of additional assessments in each taxing jurisdiction resulting from current and subsequent years’ examinations. Liabilities for income taxes are established for future income tax assessments when it is probable there will be future assessments and the amount can be reasonably estimated. Once established, liabilities for uncertain tax positions are adjusted only when there is more information available or when an event occurs necessitating a change to the liabilities. As of December 31, 2018, the Company believes that the resolution of income tax matters for open years will not have a material effect on its consolidated financial statements although the resolution of income tax matters could impact the Company’s effective tax rate for a particular future period.
The tax years
2009
through
2018
remain open to examination by the primary tax jurisdictions to which the company is subject.
NOTE 9—EQUITY
Dividends
The Company currently intends to retain future earnings, if any, to finance the expansion of its business. Therefore, it does not expect to pay any cash dividends in the foreseeable future. Moreover, the terms of the Company’s senior secured credit facility limit the amount of funds that the Company will have available to declare and distribute as dividends on its common stock. Payment of future cash dividends, if any, will be at the discretion of the Company’s board of directors in accordance with applicable laws after taking into account various factors, including the financial condition, operating results, current and anticipated cash needs, plans for expansion and contractual restrictions with respect to the payment of dividends.
Common Stock
Issued shares of common stock reported on the balance sheets include
1.4 million
and
1.6 million
, at
December 31,
2018
and
2017
, respectively, of unvested restricted stock awards that have not been included in the common shares issued reported on the statements of changes in equity. These shares will be reflected in the statements of changes in equity at the time of vesting.
During
2018
,
2017
and
2016
, the Company issued
2.3 million
,
3.5 million
and
1.4 million
shares, respectively, of common stock in connection with stock option exercises and vesting of restricted stock awards.
Common Stock Reserved for Future Issuance
Common stock of approximately
23.4 million
shares as of
December 31, 2018
is reserved for future issuances under the stock incentive plan (including
11.8 million
options,
1.4 million
restricted stock awards and
2.5 million
of deferred stock awards currently granted).
Noncontrolling Interests
Common securities held by the noncontrolling interests that do not include put arrangements exercisable outside of the control of the Company are recorded in equity, separate from the Company’s stockholders’ equity.
The purchase or sale of additional ownership in an already controlled subsidiary is recorded as an equity transaction with no gain or loss recognized in net income (loss) or comprehensive income (loss) as long as the subsidiary remains a controlled subsidiary. In 2018 and 2017, the Company acquired all or additional equity interests in several companies that did not have a significant impact to equity either on an individual basis or in the aggregate. In 2016, the Company acquired all or additional equity interests in
two
artist management businesses located in the United States along with other smaller companies. The following schedule reflects the change in ownership interests for these transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
(in thousands)
|
Net income (loss) attributable to common stockholders of Live Nation
|
$
|
60,249
|
|
|
$
|
(6,015
|
)
|
|
$
|
2,942
|
|
Transfers of noncontrolling interests:
|
|
|
|
|
|
Changes in Live Nation’s additional paid-in capital for purchases of noncontrolling interests, net of transaction costs
|
(8,210
|
)
|
|
(3,616
|
)
|
|
(49,111
|
)
|
Changes in Live Nation’s additional paid-in capital for sales of noncontrolling interests, net of transaction costs
|
1,410
|
|
|
—
|
|
|
1,424
|
|
Net transfers of noncontrolling interests
|
(6,800
|
)
|
|
(3,616
|
)
|
|
(47,687
|
)
|
Change from net income (loss) attributable to common stockholders of Live Nation and net transfers of noncontrolling interests
|
$
|
53,449
|
|
|
$
|
(9,631
|
)
|
|
$
|
(44,745
|
)
|
Redeemable Noncontrolling Interests
The Company is subject to put arrangements 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 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. For put arrangements that are not currently redeemable, the Company accretes up to the estimated redemption value over the period from the date of issuance to the earliest redemption date of the individual puts, with the offset recorded to additional paid-in capital. Decreases in accretion are only recognized to the extent that increases had been previously recognized. The estimated redemption values that are based on a formula linked to future earnings are computed each reporting period using projected cash flows, and the estimated redemption values that are based on fair value at the time of exercise are computed each reporting period by applying a multiple to projected earnings, both of which take into account the current expectations regarding profitability and the timing of revenue-generating events. The balances are reflected in the Company’s balance sheets as redeemable noncontrolling interests outside of permanent equity.
The Company’s estimate of redemption amounts for puts that are redeemable at fixed or determinable prices on fixed or determinable dates for the years ended December 31,
2019
,
2020
,
2021
,
2022
and
2023
are
$90.9 million
,
$96.5 million
,
$59.9 million
,
$29.8 million
and
$68.9 million
, respectively.
Transactions with Noncontrolling Interest Partners
The Company has loaned or advanced money to noncontrolling interest partners under the terms of the partnership operating agreements, promissory notes or other arrangements. As of December 31, 2018, the Company had outstanding notes receivable and prepayments of
$8.9 million
in other current assets and
$86.9 million
in other long-term assets, and as of December 31, 2017, the Company had outstanding notes receivable and prepayments of
$10.9 million
in other current assets and
$44.4 million
in other long-term assets.
Accumulated Other Comprehensive Income (Loss)
The following table presents changes in the components of AOCI, net of taxes, for the years ended
December 31, 2018
,
2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Items
|
|
Other
|
|
Total
|
|
|
(in thousands)
|
Balance at December 31, 2015
|
|
$
|
(111,299
|
)
|
|
$
|
(358
|
)
|
|
$
|
(111,657
|
)
|
Other comprehensive loss before reclassifications
|
|
(64,947
|
)
|
|
(103
|
)
|
|
(65,050
|
)
|
Amount reclassified from AOCI
|
|
—
|
|
|
—
|
|
|
—
|
|
Net other comprehensive loss
|
|
(64,947
|
)
|
|
(103
|
)
|
|
(65,050
|
)
|
Balance at December 31, 2016
|
|
(176,246
|
)
|
|
(461
|
)
|
|
(176,707
|
)
|
Other comprehensive income before reclassifications
|
|
67,704
|
|
|
—
|
|
|
67,704
|
|
Amount reclassified from AOCI
|
|
—
|
|
|
461
|
|
|
461
|
|
Net other comprehensive income
|
|
67,704
|
|
|
461
|
|
|
68,165
|
|
Balance at December 31, 2017
|
|
(108,542
|
)
|
|
—
|
|
|
(108,542
|
)
|
Other comprehensive loss before reclassifications
|
|
(36,689
|
)
|
|
—
|
|
|
(36,689
|
)
|
Amount reclassified from AOCI
|
|
—
|
|
|
—
|
|
|
—
|
|
Net other comprehensive loss
|
|
(36,689
|
)
|
|
—
|
|
|
(36,689
|
)
|
Balance at December 31, 2018
|
|
$
|
(145,231
|
)
|
|
$
|
—
|
|
|
$
|
(145,231
|
)
|
The realized loss in other reclassified from AOCI during 2017 resulted from the termination of a pension plan.
Earnings per Share
Basic net income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income per common share adjusts basic net income per common share for the effects of stock options, restricted stock and other potentially dilutive financial instruments only in the periods in which such effect is dilutive. The Company’s convertible senior notes are considered in the calculation of diluted net income per common share, if dilutive.
The calculation of diluted net income per common share includes the effects of the assumed exercise of any outstanding stock options, the assumed vesting of shares of restricted stock awards and the assumed conversion of the convertible senior notes where dilutive. For the years ended
December 31, 2018
,
2017
and
2016
there were no reconciling items to the weighted average common shares outstanding in the calculation of diluted net income per common share. The following table shows securities excluded from the calculation of diluted net income per common share because such securities were anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Options to purchase shares of common stock
|
|
11,784,023
|
|
|
14,238,589
|
|
|
16,283,434
|
|
Restricted and deferred stock awards—unvested
|
|
3,899,181
|
|
|
4,106,956
|
|
|
1,079,783
|
|
Conversion shares related to convertible senior notes
|
|
8,912,099
|
|
|
7,929,982
|
|
|
7,929,982
|
|
Number of anti-dilutive potentially issuable shares excluded from diluted common shares outstanding
|
|
24,595,303
|
|
|
26,275,527
|
|
|
25,293,199
|
|
NOTE
10
—REVENUE RECOGNITION
Concerts
Concerts revenue, including intersegment revenue, for the years ended
December 31, 2018
,
2017
and
2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
(in thousands)
|
Total Concert Revenue
|
$
|
8,770,031
|
|
|
$
|
7,892,076
|
|
|
$
|
6,283,521
|
|
Percentage of consolidated revenue
|
81.3
|
%
|
|
81.5
|
%
|
|
80.3
|
%
|
The Concerts segment generates revenue from the promotion or production of live music events and festivals in the Company’s owned or operated venues and in rented third-party venues, artist management commissions and the sale of merchandise for music artists at events. As a promoter and venue operator, the Company earns revenue primarily from the sale of tickets, concessions, merchandise, parking, ticket rebates or service charges on tickets sold by Ticketmaster or third-party ticketing agreements, and rental of the Company’s owned or operated venues. As an artist manager, the Company earns commissions on the earnings of the artists and other clients the Company represents, primarily derived from clients’ earnings for concert tours. Over
95%
of Concerts’ revenue, whether related to promotion, venue operations, artist management or artist event merchandising, is recognized on the day of the related event. The majority of consideration for the Concerts segment is collected in advance of or on the day of the event. Consideration received in advance of the event is recorded as deferred revenue. Any consideration not collected by the day of the event is typically received within three months after the event date.
Sponsorship & Advertising
Sponsorship & Advertising revenue, including intersegment revenue, for the years ended
December 31, 2018
,
2017
and
2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
(in thousands)
|
Total Sponsorship & Advertising Revenue
|
$
|
503,968
|
|
|
$
|
445,148
|
|
|
$
|
377,618
|
|
Percentage of consolidated revenue
|
4.7
|
%
|
|
4.6
|
%
|
|
4.8
|
%
|
The Sponsorship & Advertising segment generates revenue from sponsorship and marketing programs that provide its sponsors with strategic, international, national and local opportunities to reach customers through the Company’s venue, artist relationship and ticketing assets, including advertising on its websites. These programs can also include custom events or programs for the sponsors’ specific brands, which are typically experienced exclusively by the sponsors’ customers. Sponsorship agreements may contain multiple elements, which provide several distinct benefits to the sponsor over the term of the agreement, and can be for a single or multi-year term. The Company also earns revenue from exclusive access rights provided to sponsors in various categories such as ticket pre-sales, beverage pouring rights, venue naming rights, media campaigns, signage within the Company’s venues, and advertising on its websites. Revenue from sponsorship agreements is allocated to the multiple elements based on the relative stand-alone selling price of each separate element, which are determined using vendor-specific evidence, third-party evidence or the Company’s best estimate of the fair value. Revenue is recognized over the term of the agreement or operating season as the benefits are provided to the sponsor unless the revenue is associated with a specific event, in which case it is recognized when the event occurs. Revenue is collected in installment payments during the year, typically in advance of providing the benefit or the event. Revenue received in advance of the event or the sponsor receiving the benefit is recorded as deferred revenue.
At
December 31, 2018
, the Company had contracted sponsorship agreements with terms greater than one year that had approximately
$730.5 million
of revenue related to future benefits to be provided by the Company. The Company expects to recognize approximately
35%
,
24%
,
18%
and
23%
of this revenue in
2019
,
2020
,
2021
and thereafter, respectively.
Ticketing
Ticketing revenue, including intersegment revenue, for the years ended
December 31, 2018
,
2017
and
2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
(in thousands)
|
Total Ticketing Revenue
|
$
|
1,529,566
|
|
|
$
|
1,346,510
|
|
|
$
|
1,166,029
|
|
Percentage of consolidated revenue
|
14.2
|
%
|
|
13.9
|
%
|
|
14.9
|
%
|
Ticket fee revenue is generated from convenience and order processing fees, or service charges, charged at the time a ticket for an event is sold in either the primary or secondary markets. The Ticketing segment is primarily an agency business that sells tickets for events on behalf of its clients, which include venues, concert promoters, professional sports franchises and leagues, college sports teams, theater producers and museums. The Ticketing segment is acting as an agent on behalf of its clients and records revenue arising from convenience and order processing fees, regardless of whether these fees are related to tickets sold in the primary or secondary market, and regardless of whether these fees are associated with the Company’s concert events or third-party clients’ concert events. The Ticketing segment does not record the face value of the tickets as revenue. Ticket fee revenue is recognized when the ticket is sold for third-party clients and secondary market sales, as the Company has no further obligation to its client’s customers following the sale of the ticket. For the Company’s concert events where its concert promoters control ticketing, ticket fee revenue is recognized when the event occurs because the Company also has the obligation to deliver the event to the fan. The delivery of the ticket to the fan is not considered a distinct performance obligation for the Company’s concert events because the fan cannot receive the benefits of the ticket unless the Company also fulfills its obligation to deliver the event. The majority of ticket fee revenue is collected within the month of the ticket sale. Revenue received from the sale of tickets in advance of the Company’s concert events is recorded as deferred revenue.
Ticketing contract advances, which can be either recoupable or non-recoupable, represent amounts paid in advance to the Company’s clients pursuant to ticketing agreements and are reflected in prepaid expenses or in long-term advances if the amount is expected to be recouped or recognized over a period of more than twelve months. Recoupable ticketing contract advances are generally recoupable against future royalties earned by the client, based on the contract terms, over the life of the contract. Royalties are typically earned by the client when tickets are sold. Royalties paid to clients are recorded as a reduction to revenue when the tickets are sold and the corresponding service charge revenue is recognized. Non-recoupable ticketing contract advances, excluding those amounts paid to support clients’ advertising costs, are fixed additional incentives occasionally paid by the Company to certain clients to secure the contract and are typically amortized over the life of the contract on a straight-line basis as a reduction to revenue. At
December 31, 2018
and
2017
, the Company had ticketing contract advances of
$75.5 million
and
$76.0 million
, respectively, in prepaid expenses and
$78.5 million
and
$78.6 million
, respectively, in other long-term assets. The Company amortized
$80.1 million
,
$83.3 million
and
$85.1 million
for the years ended
December 31, 2018
,
2017
and
2016
respectively, related to non-recoupable ticketing contract advances.
Deferred Revenue
The majority of the Company’s deferred revenue is classified as current and is shown as a separate line item on the consolidated balance sheets. Deferred revenue that is not expected to be recognized within the next twelve months is classified as long-term and reflected in other long-term liabilities on the consolidated balance sheets. The Company had current deferred revenue of
$925.2 million
and
$805.0 million
at
December 31,
2017
and
2016
, respectively.
The table below summarizes the amount of deferred revenue recognized during the years ended
December 31, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
(in thousands)
|
Concerts
|
$
|
839,897
|
|
|
$
|
740,541
|
|
Sponsorship & Advertising
|
21,279
|
|
|
16,620
|
|
Ticketing
|
42,512
|
|
|
31,144
|
|
Other & Corporate
|
1,591
|
|
|
1,636
|
|
|
$
|
905,279
|
|
|
$
|
789,941
|
|