e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended June 30, 2006, |
or |
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
from to |
Commission File Number 001-32601
LIVE NATION, INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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20-3247759 |
(State of Incorporation) |
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(I.R.S. Employer Identification No.) |
9348 Civic Center Drive
Beverly Hills, CA 90210
(Address of principal executive offices, including zip
code)
(310) 867-7000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. þ Yes o
No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer.
o Large accelerated
filer o Accelerated
filer þ
Non-accelerated filer
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2 of the
Exchange
Act). o Yes þ
No
On August 4, 2006, there were 65,477,685 outstanding shares
of the registrants common stock, $0.01 par value per
share, excluding 1,697,227 shares held in treasury.
LIVE NATION, INC.
INDEX TO
FORM 10-Q
2
PART I FINANCIAL INFORMATION
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Item 1. |
Financial Statements (unaudited) |
CONSOLIDATED BALANCE SHEETS
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June 30, | |
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December 31, | |
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2006 | |
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2005 | |
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(unaudited) | |
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(audited) | |
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(in thousands) | |
ASSETS |
CURRENT ASSETS
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Cash and cash equivalents
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$ |
603,432 |
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$ |
403,716 |
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Accounts receivable, less allowance of $11,121 as of
June 30, 2006 and
$9,518 as of December 31, 2005
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291,509 |
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190,207 |
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Prepaid expenses
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322,889 |
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115,055 |
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Other current assets
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49,929 |
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46,714 |
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Total Current Assets
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1,267,759 |
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755,692 |
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PROPERTY, PLANT AND EQUIPMENT
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Land, buildings and improvements
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934,335 |
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910,926 |
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Furniture and other equipment
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178,463 |
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166,004 |
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Construction in progress
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40,947 |
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39,856 |
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1,153,745 |
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1,116,786 |
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Less accumulated depreciation
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340,544 |
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307,867 |
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813,201 |
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808,919 |
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INTANGIBLE ASSETS
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Definite-lived intangibles net
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37,536 |
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12,351 |
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Goodwill
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157,864 |
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137,110 |
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OTHER ASSETS
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Notes receivable, less allowance of $745 as of June 30,
2006 and December 31, 2005
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3,195 |
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4,720 |
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Investments in, and advances to, nonconsolidated affiliates
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38,880 |
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30,660 |
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Other assets
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34,691 |
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27,132 |
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Total Assets
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$ |
2,353,126 |
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$ |
1,776,584 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
CURRENT LIABILITIES
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Accounts payable
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$ |
70,995 |
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$ |
37,654 |
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Deferred income
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622,200 |
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232,754 |
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Accrued expenses
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464,672 |
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405,507 |
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Current portion of long-term debt
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28,045 |
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25,705 |
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Total Current Liabilities
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1,185,912 |
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701,620 |
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Long-term debt
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338,840 |
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341,136 |
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Other long-term liabilities
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41,436 |
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30,766 |
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Minority interest liability
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65,932 |
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26,362 |
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Series A and Series B redeemable preferred stock
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40,000 |
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40,000 |
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Commitments and contingent liabilities (Note 5)
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SHAREHOLDERS EQUITY
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Common stock
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672 |
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672 |
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Additional paid-in capital
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767,521 |
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748,011 |
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Retained deficit
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(76,763 |
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(87,563 |
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Cost of shares held in treasury
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(21,473 |
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(18,003 |
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Accumulated other comprehensive income (loss)
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11,049 |
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(6,417 |
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Total Shareholders Equity
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681,006 |
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636,700 |
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Total Liabilities and Shareholders Equity
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$ |
2,353,126 |
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$ |
1,776,584 |
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See Notes to Consolidated and Combined Financial Statements
3
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
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Three Months Ended June 30, | |
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Six Months Ended June 30, | |
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2006 | |
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2005 | |
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2006 | |
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2005 | |
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(in thousands except share and per share data) | |
Revenue
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$ |
768,230 |
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$ |
741,691 |
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$ |
1,284,797 |
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$ |
1,186,174 |
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Operating expenses:
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Direct operating expenses
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604,779 |
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583,318 |
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982,611 |
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897,952 |
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Selling, general and administrative expenses
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129,187 |
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120,227 |
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245,203 |
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243,258 |
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Depreciation and amortization
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16,306 |
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15,282 |
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31,311 |
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30,759 |
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Gain on sale of operating assets
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(1,682 |
) |
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(260 |
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(9,410 |
) |
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(617 |
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Corporate expenses
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7,958 |
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7,866 |
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15,337 |
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27,090 |
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Operating income (loss)
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11,682 |
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15,258 |
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19,745 |
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(12,268 |
) |
Interest expense
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8,348 |
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875 |
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16,161 |
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1,494 |
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Interest expense with Clear Channel Communications
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10,827 |
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22,015 |
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Interest income
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4,496 |
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459 |
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5,976 |
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944 |
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Equity in earnings (loss) of nonconsolidated affiliates
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1,478 |
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(2,129 |
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3,302 |
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(1,619 |
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Other income (expense) net
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5,728 |
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(269 |
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4,009 |
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190 |
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Income (loss) before income taxes
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15,036 |
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1,617 |
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16,871 |
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(36,262 |
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Income tax benefit (expense):
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Current
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(5,884 |
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5,370 |
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(6,051 |
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17,521 |
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Deferred
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530 |
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(6,017 |
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(21 |
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(3,016 |
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Net income (loss)
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9,682 |
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970 |
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10,799 |
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(21,757 |
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Other comprehensive income (loss), net of tax:
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Unrealized holding gain on cash flow derivatives
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1,377 |
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1,869 |
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Foreign currency translation adjustments
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11,919 |
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10,319 |
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15,597 |
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19,903 |
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Comprehensive income (loss)
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$ |
22,978 |
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$ |
11,289 |
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$ |
28,265 |
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$ |
(1,854 |
) |
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Net income (loss) per common share:
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Basic
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$ |
.15 |
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$ |
.17 |
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Diluted
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$ |
.15 |
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$ |
.17 |
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Weighted average common shares outstanding:
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Basic
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64,462,679 |
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64,218,450 |
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Diluted
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65,329,597 |
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64,919,415 |
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See Notes to Consolidated and Combined Financial Statements
4
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Six Months Ended | |
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June 30, | |
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2006 | |
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2005 | |
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(in thousands) | |
CASH FLOWS FROM OPERATING ACTIVITIES
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Net income (loss)
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$ |
10,799 |
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$ |
(21,757 |
) |
Reconciling items:
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Depreciation
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|
30,375 |
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29,380 |
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Amortization of intangibles
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|
936 |
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|
1,379 |
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Deferred income tax expense
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21 |
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|
3,016 |
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Amortization of debt issuance costs
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|
292 |
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Current tax benefit dividends to Clear Channel Communications
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(27,807 |
) |
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Non-cash compensation expense
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1,570 |
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|
703 |
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Gain on sale of operating assets
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(9,410 |
) |
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(617 |
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Loss on sale of other investments
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2,051 |
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Equity in loss (earnings) of nonconsolidated affiliates
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(3,302 |
) |
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1,619 |
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Minority interest expense (income)
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(684 |
) |
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571 |
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Decrease in other net
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(39 |
) |
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(96 |
) |
Changes in operating assets and liabilities, net of effects of
acquisitions:
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Increase in accounts receivable
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(63,170 |
) |
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(68,517 |
) |
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Increase in prepaid expenses
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(199,189 |
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(202,060 |
) |
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Increase in other assets
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(13,828 |
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(69,338 |
) |
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Increase in accounts payable, accrued expenses and other
liabilities
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56,519 |
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96,622 |
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Increase in deferred income
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383,508 |
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|
333,202 |
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Increase (decrease) in minority interest liability
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7,690 |
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(953 |
) |
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Net cash provided by operating activities
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204,139 |
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|
75,347 |
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CASH FLOWS FROM INVESTING ACTIVITIES
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Decrease in notes receivable net
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|
938 |
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|
1,119 |
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Increase in investments in, and advances to, nonconsolidated
affiliates net
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(1,179 |
) |
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(173 |
) |
Contribution from minority interest partner
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15,343 |
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Proceeds from disposal of other investments
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1,743 |
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Purchases of property, plant and equipment
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(31,967 |
) |
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(49,891 |
) |
Proceeds from disposal of operating assets
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|
36,655 |
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|
337 |
|
Acquisition of operating assets, net of cash acquired
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(4,022 |
) |
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(1,226 |
) |
Decrease (increase) in other net
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(621 |
) |
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|
49 |
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Net cash provided by (used in) investing activities
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16,890 |
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(49,785 |
) |
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CASH FLOWS FROM FINANCING ACTIVITIES
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Proceeds from debt with Clear Channel Communications
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|
42,719 |
|
Proceeds from long-term debt, net of debt issuance costs
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|
1,228 |
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|
444 |
|
Payments on long-term debt
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|
(6,351 |
) |
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|
(508 |
) |
Payments for purchase of common stock
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|
|
(24,717 |
) |
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|
|
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Net cash provided by (used in) financing activities
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|
|
(29,840 |
) |
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|
42,655 |
|
Effect of exchange rate changes on cash
|
|
|
8,527 |
|
|
|
4,595 |
|
|
|
Net increase in cash and cash equivalents
|
|
|
199,716 |
|
|
|
72,812 |
|
Cash and cash equivalents at beginning of period
|
|
|
403,716 |
|
|
|
179,137 |
|
|
|
|
|
|
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|
Cash and cash equivalents at end of period
|
|
$ |
603,432 |
|
|
$ |
251,949 |
|
|
|
|
|
|
|
|
See Notes to Consolidated and Combined Financial Statements
5
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Live Nation, Inc. (the Company or Live
Nation) was incorporated in Delaware on August 2,
2005 in preparation for the contribution and transfer by Clear
Channel Communications, Inc. (Clear Channel) of
substantially all of its entertainment assets and liabilities to
the Company (the Separation). The Company completed
the Separation on December 21, 2005 and became a publicly
traded company on the New York Stock Exchange trading under the
symbol LYV.
Prior to the Separation, Live Nation was a wholly owned
subsidiary of Clear Channel. As part of the Separation, holders
of Clear Channels common stock received one share of Live
Nation common stock for every eight shares of Clear Channel
common stock.
Following the Separation, the Company reorganized its business
units and the way in which these businesses are assessed and
therefore changed its reportable segments, starting in 2006, to
Events, Venues and Sponsorship, and Digital Distribution. The
Events segment principally involves the promotion or production
of live music shows, theatrical performances and specialized
motor sports events as well as providing various services to
artists. The Venues and Sponsorship segment principally involves
the operation of venues and the sale of premium seats, national
and local sponsorships and placement of advertising, including
signage and promotional programs, and naming of subscription
series and venues. The Digital Distribution segment principally
involves the management of the Companys on-line and
wireless distribution activities, including the development of
the Companys website and managing the Companys
in-house ticketing operations and third-party ticketing
relationships. In addition, the Company has operations in the
sports representation and other businesses.
|
|
|
Preparation of Interim Financial Statements |
The consolidated and combined financial statements included in
this report have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission
(SEC) and, in the opinion of management, include all
adjustments (consisting of normal recurring accruals and
adjustments necessary for adoption of new accounting standards)
necessary to present fairly the results of the interim periods
shown. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles in the United States
have been condensed or omitted pursuant to such SEC rules and
regulations. Management believes that the disclosures made are
adequate to make the information presented not misleading. Due
to seasonality and other factors, the results for the interim
periods are not necessarily indicative of results for the full
year. The financial statements contained herein should be read
in conjunction with the consolidated and combined financial
statements and notes thereto included in the Companys 2005
Annual Report on
Form 10-K.
Prior to the Separation, the combined financial statements
include amounts that are comprised of businesses included in the
consolidated financial statements and accounting records of
Clear Channel, using the historical bases of assets and
liabilities of the entertainment business. Management believes
the assumptions underlying the combined financial statements are
reasonable. However, the combined financial statements included
herein may not reflect what the Companys results of
operations, financial position and cash flows would have been
had it operated as a separate, stand-alone entity during the
periods presented. Subsequent to the Separation, the
consolidated financial statements include all accounts of the
Company and its majority owned subsidiaries.
Significant intercompany accounts among the consolidated and
combined businesses have been eliminated in consolidation.
Minority interest expense, included in other income
(expense) net, is recorded for consolidated
affiliates in which the Company owns more than 50%, but not all,
of the voting common stock and also variable interest entities
for which the Company is the primary beneficiary. Investments in
nonconsolidated affiliates in which the Company owns 20% to 50%
of the voting common stock or otherwise
6
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
exercises significant influence over operating and financial
policies of the nonconsolidated affiliate are accounted for
using the equity method of accounting. Investments in
nonconsolidated affiliates in which the Company owns less than
20% of the voting common stock are accounted for using the cost
method of accounting.
Certain reclassifications have been made to the 2005
consolidated and combined financial statements to conform to the
2006 presentation.
|
|
|
New Accounting Pronouncements |
In February 2006, the Financial Accounting Standards Board
(FASB) issued FASB Staff Position
No. FAS 123(R)-4,
Contingent Cash Settlement
(FSP FAS 123(R)-4).
FSP FAS 123(R)-4
requires companies to classify employee stock options and
similar instruments with contingent cash settlement features as
equity awards under FASB Statement of Financial Accounting
Standards No. 123 (revised 2004), Share-Based Payment
(Statement 123(R)), provided that
(i) the contingent event that permits or requires cash
settlement is not considered probable of occurring and is not
within the control of the employee and (ii) the award
includes no other features that would require liability
classification. The Company considered
FSP FAS 123(R)-4
with its implementation of Statement 123(R), and determined
it had no impact on the Companys financial position or
results of operations.
In April 2006, the FASB issued FASB Staff Position
FIN 46(R)-6,
Determining the Variability to be Considered When Applying
FASB Interpretation No. 46(R)
(FSP FIN 46(R)-6).
FSP FIN 46(R)-6
addresses the approach to determine the variability to consider
when applying FASB Interpretation No. 46 (revised December
2003), Consolidation of Variable Interest Entities
(FIN 46(R)). The variability that is
considered in applying FIN 46(R) may affect (i) the
determination as to whether the entity is a variable interest
entity, (ii) the determination of which interests are
variable interests in the entity, (iii) if necessary, the
calculation of expected losses and residual returns of the
entity, and (iv) the determination of which party is the
primary beneficiary of the variable interest entity. The Company
will adopt FSP
FIN 46(R)-6 on
July 1, 2006 and does not anticipate adoption to materially
impact its financial position or results of operations.
In June 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109
(FIN 48). FIN 48 creates a single model to
address uncertainty in tax positions. FIN 48 clarifies the
accounting for income taxes by prescribing the minimum
recognition threshold a tax position is required to meet before
being recognized in the financial statements. FIN 48 also
provides guidance on derecognition, measurement, classification,
interest and penalties, accounting in interim periods,
disclosure and transition. FIN 48 is effective for fiscal
years beginning after December 15, 2006. The Company is
currently assessing the impact of FIN 48 on its financial
position and results of operations.
In June 2006, the Emerging Issues Task Force (EITF)
ratified the consensus reached in
Issue 06-3
How Taxes Collected from Customers and Remitted to Governmental
Authorities Should Be Presented in the Income Statement (That
Is, Gross versus Net Presentation)
(EITF 06-3).
EITF 06-3 is
applicable to all taxes that are externally imposed on a revenue
producing transaction between a seller and a customer.
EITF 06-3
concludes that a company may adopt a policy of presenting taxes
either gross within revenue or net. If taxes subject to
EITF 06-3 are
significant, a company is required to disclose its accounting
policy for presenting taxes and the amounts of such taxes that
are recognized on a gross basis.
EITF 06-3 is
effective for the first interim reporting period beginning after
December 15, 2006, with early application of this guidance
permitted. The Company adopted
EITF 06-3 on
June 30, 2006, and has added the required disclosures. The
Company accounts for taxes that are externally imposed on
revenue producing transactions on a net basis, as a reduction to
revenue.
7
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
NOTE 2 LONG-LIVED ASSETS
|
|
|
Definite-lived Intangibles |
The Company has definite-lived intangible assets which consist
primarily of non-compete agreements, intellectual property
rights and building or naming rights, all of which are amortized
over the shorter of either the respective lives of the
agreements or the period of time the assets are expected to
contribute to the Companys future cash flows. These
definite-lived intangibles had a gross carrying amount and
accumulated amortization of $44.7 million and
$7.2 million, respectively, as of June 30, 2006, and
$18.7 million and $6.3 million, respectively, as of
December 31, 2005. The increase in definite-lived
intangible assets during 2006 is due to intellectual property
rights and non-compete agreements resulting from recent
acquisitions.
Total amortization expense from definite-lived intangible assets
for the three months ended June 30, 2006 and 2005 and the
six months ended June 30, 2006 and 2005 was
$0.6 million, $0.7 million, $0.9 million and
$1.4 million, respectively.
The Company tests goodwill for impairment at least annually
using a two-step process. The first step, used to screen for
potential impairment, compares the fair value of the reporting
unit with its carrying amount, including goodwill. The second
step, used to measure the amount of any potential impairment,
compares the implied fair value of the reporting unit goodwill
with the carrying amount of that goodwill. As the Company has
realigned its segments, beginning in 2006, in accordance with
the change in the management of the business units, goodwill has
been reallocated to the new reporting business units that make
up these segments. The following table presents the changes in
the carrying amount of goodwill in each of the Companys
business segments for the six month period ended June 30,
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Venues and | |
|
Digital | |
|
|
|
|
Events | |
|
Sponsorship | |
|
Distribution | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Balance as of December 31, 2005
|
|
$ |
79,307 |
|
|
$ |
50,040 |
|
|
$ |
7,763 |
|
|
$ |
137,110 |
|
|
Acquisitions
|
|
|
2,273 |
|
|
|
14,913 |
|
|
|
|
|
|
|
17,186 |
|
|
Foreign currency
|
|
|
845 |
|
|
|
1,983 |
|
|
|
740 |
|
|
|
3,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2006
|
|
$ |
82,425 |
|
|
$ |
66,936 |
|
|
$ |
8,503 |
|
|
$ |
157,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the acquisition amounts above are $2.0 million
of goodwill recorded during the first quarter of 2006 related to
the Companys acquisition of Historic Theater Group and
$15.1 million of additional goodwill recorded during the
second quarter of 2006 related to its acquisition of Mean
Fiddler Group, PLC (Mean Fiddler) in July 2005.
NOTE 3 RESTRUCTURING
The Company has recorded liabilities related to acquisitions and
restructurings. In July 2005, the Company acquired a controlling
majority interest of 50.1% in Mean Fiddler in the United
Kingdom. Mean Fiddler is a consolidated subsidiary involved in
the promotion and production of live music events, including
festivals and venue operations. As part of the acquisition, the
Company accrued $4.7 million in 2005 and recorded an
additional accrual of $2.7 million in the second quarter of
2006 in restructuring costs in its Venues and Sponsorship
segment primarily related to lease terminations, which it
expects to pay over the next several years. These additional
costs were recorded as an adjustment to the purchase price. As
of June 30, 2006, the accrual balance for the Mean Fiddler
restructuring was $6.8 million. This restructuring has
resulted in the termination of 33 employees. In addition, the
Company has a remaining restructuring accrual of
$1.7 million as of June 30, 2006, related to its
merger with Clear Channel in August 2000.
8
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
The Company has recorded a liability in purchase accounting
primarily related to severance for terminated employees and
lease terminations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
June 30, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Severance and lease termination costs:
|
|
|
|
|
|
|
|
|
|
Accrual at January 1
|
|
$ |
6,223 |
|
|
$ |
2,579 |
|
|
Restructuring accruals recorded
|
|
|
2,735 |
|
|
|
|
|
|
Payments charged against restructuring accrual
|
|
|
(442 |
) |
|
|
(860 |
) |
|
|
|
|
|
|
|
Remaining accrual at June 30
|
|
$ |
8,516 |
|
|
$ |
1,719 |
|
|
|
|
|
|
|
|
The remaining severance and lease accrual is comprised of
$0.8 million of severance and $7.7 million of lease
termination. The severance accrual includes amounts that will be
paid over the next several years related to deferred payments to
former employees, as well as other compensation. The lease
termination accrual will be paid over the next 23 years.
During the three and six months ended June 30, 2006, there
were no payments charged to the restructuring reserve related to
severance. The Company is continuing to evaluate its purchase
accounting liabilities related to several leases in the Mean
Fiddler acquisition which may result in additional restructuring
accruals.
During the fourth quarter of 2005, the Company recorded
accruals, consisting of severance and lease termination costs,
related to the realignment of its business operations. The total
expense related to this restructuring was recorded in selling,
general and administrative expenses in 2005 as a component of
Events, Venues and Sponsorship, Digital Distribution and other
operations in amounts of $6.0 million, $1.6 million,
$0.8 million and $1.6 million, respectively. In
addition, $4.7 million of restructuring expense was
recorded in corporate expenses in 2005. As of June 30,
2006, the remaining accrual related to this 2005 restructuring
was $0.6 million.
NOTE 4 DERIVATIVE INSTRUMENTS
FASB Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities
(Statement 133), requires the Company to
recognize all of its derivative instruments as either assets or
liabilities in the consolidated balance sheets at fair value.
The accounting for changes in the fair value of a derivative
instrument depends on whether it has been designated and
qualifies as part of a hedging relationship, and further, on the
type of hedging relationship. For derivative instruments that
are designated and qualify as hedging instruments, the Company
must designate the hedging instrument, based upon the exposure
being hedged, as a fair value hedge, cash flow hedge or a hedge
of a net investment in a foreign operation. The Company formally
documents all relationships between hedging instruments and
hedged items, as well as its risk management objectives and
strategies for undertaking various hedge transactions. The
Company formally assesses, both at inception and at least
quarterly thereafter, whether the derivatives that are used in
hedging transactions are highly effective in offsetting changes
in either the fair value or cash flows of the hedged item. If a
derivative ceases to be a highly effective hedge, the Company
discontinues hedge accounting. The Company accounts for its
derivative instruments that are not designated as hedges at fair
value with changes in fair value recorded in earnings. The
Company does not enter into derivative instruments for
speculation or trading purposes.
For derivative instruments that are designated and qualify as a
cash flow hedge (i.e., hedging the exposure to variability in
expected future cash flows that is attributable to a particular
risk), the effective portion of the gain or loss on the
derivative instrument is reported as a component of other
comprehensive income and reclassified into earnings in the same
line item associated with the forecasted transaction in the same
period or periods during which the hedged transaction affects
earnings (for example, in interest expense when the hedged
transactions are interest cash flows associated with
floating-rate debt). The remaining gain
9
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
or loss on the derivative instrument in excess of the cumulative
change in the present value of future cash flows of the hedged
item, if any, is recognized in other income (expense)-net in
current earnings during the period of change.
On March 16, 2006, the Company entered into two interest
rate swap agreements, designated as cash flow hedges, which are
combinations of purchased interest rate caps on a notional
amount of a total of $162.5 million and sold floors over
the same period on a total of $121.9 million of the
notional amount to effectively convert a portion of its
floating-rate debt to a fixed-rate basis. The principal
objective of these contracts is to eliminate or reduce the
variability of the cash flows in interest payments associated
with the Companys variable rate debt as required by the
Companys senior secured credit facility, thus reducing the
impact of interest rate changes on future interest expense.
Approximately 50% of the Companys outstanding long-term
debt had its interest payments designated as the hedged
forecasted transactions against the interest rate swap
agreements at June 30, 2006. As of June 30, 2006, the
interest rate for these hedges was fixed at 5.11% on a variable
rate of 5.50% based on a
3-month LIBOR; this
variable rate is subject to quarterly adjustments. For the three
and six months ended June 30, 2006, these hedges were
determined to be highly effective and the Company recorded an
unrealized gain of $1.4 million and $1.9 million,
respectively, as a component of other comprehensive income.
Based on the current interest rate expectations, the Company
estimates that approximately $0.7 million of this gain in
other comprehensive income will be reclassified into earnings in
the next 12 months.
The Company has recorded a gain related to these derivative
instruments during the period as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
|
|
|
|
|
2006 | |
|
2005 |
|
2006 | |
|
2005 |
|
|
| |
|
|
|
| |
|
|
|
|
(in thousands) |
Balance at beginning of period
|
|
$ |
492 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Unrealized holding gain on cash flow derivatives
|
|
|
1,377 |
|
|
|
|
|
|
|
1,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$ |
1,869 |
|
|
$ |
|
|
|
$ |
1,869 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Occasionally, the Company will use forward currency contracts to
reduce its exposure to foreign currency risk. The principal
objective of such contracts is to minimize the risks and/or
costs associated with artist fee commitments. At June 30,
2006, the Company had $35.2 million outstanding in forward
currency contracts. The change in fair value of these
instruments from date of purchase through June 30, 2006 was
not significant.
NOTE 5 COMMITMENTS AND CONTINGENT
LIABILITIES
The Company has entered into an Agreement and Plan of Merger
with HOB Entertainment, Inc. which provides for the Company to
pay a $15 million termination fee if the Agreement and Plan
of Merger is terminated for certain reasons.
The Company has leases that contain contingent payment
requirements for which payments vary depending on revenues,
tickets sold or other variables.
As of June 30, 2006 and December 31, 2005, the Company
guaranteed the debt of third parties of approximately
$1.1 million and $1.9 million, respectively, primarily
related to maximum credit limits on employee and tour related
credit cards.
Certain agreements relating to acquisitions provide for purchase
price adjustments and other future contingent payments based on
the financial performance of the acquired companies. The Company
will accrue additional amounts related to such contingent
payments if and when it is determinable that the applicable
financial performance targets will be met. The aggregate of
these contingent payments, if performance targets are met, would
not significantly impact the financial position or results of
operations of the Company.
10
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
The Company has various investments in nonconsolidated
affiliates that are subject to agreements that contain
provisions that may result in future additional investments to
be made by the Company. These values are typically contingent
upon the investee meeting certain financial performance targets,
as defined in the agreements. The contingent payment amounts are
generally calculated based on predetermined multiples of the
achieved financial performance not to exceed a predetermined
maximum amount.
The Company initiated a lawsuit in July 2003 in the State Court
of Santa Clara County, California against the City of
Mountain View and Shoreline Regional Park Community, seeking
declaratory judgment, specific performance and injunctive relief
and remedies for breach of contract, inverse condemnation and
indemnification as a result of the defendants failure to
provide parking lots and calculate rent payments in accordance
with its lease agreement with the defendants. The defendants in
that suit counterclaimed against the Company seeking accounting
and declaratory judgment and alleging theft, conversion, false
claims, breach of contract, and racketeering relating to the
Companys payments under the lease agreement. Effective
May 10, 2006, the parties entered into a settlement
agreement, which does not constitute an admission of wrongdoing
or liability by the Company. This settlement of the litigation
was fully accrued for in the Companys results of
operations during 2005 and the first quarter of 2006. In
addition, the parties entered into an amended lease agreement
related to this amphitheater. The new lease includes fixed
annual rent payments and an additional rent amount prepaid in
the second quarter of 2006 which will be amortized on a
straight-line basis over the life of the new lease.
The Company was a defendant in a lawsuit filed by Melinda
Heerwagen on June 13, 2002, in the U.S. District Court
for the Southern District of New York. The plaintiff, on behalf
of a putative class consisting of certain concert ticket
purchasers, alleged that anti-competitive practices for concert
promotion services by the Company nationwide caused artificially
high ticket prices. On August 11, 2003, the Court ruled in
the Companys favor, denying the plaintiffs class
certification motion. The plaintiff appealed this decision to
the U.S. Court of Appeals for the Second Circuit. On
January 10, 2006, the U.S. Court of Appeals for the
Second Circuit affirmed the ruling in the Companys favor
by the District Court. On January 17, 2006, the plaintiff
filed a Notice of Voluntary Dismissal of her action in the
Southern District of New York.
The Company is a defendant in twenty putative class actions
filed by different named plaintiffs in various
U.S. District Courts throughout the country. The claims
made in these actions are substantially similar to the claims
made in the Heerwagen action, except that the geographic markets
alleged are regional, statewide or more local in nature, and the
members of the putative classes are limited to individuals who
purchased tickets to concerts in the relevant geographic markets
alleged. The Company has filed its answers in some of these
actions, and has denied liability. On December 5, 2005, the
Company filed a motion before the Judicial Panel on
Multidistrict Litigation to transfer these actions and any
similar ones commenced in the future to a single federal
district court for coordinated pre-trial proceedings. On
April 17, 2006, the Panel granted our motion and ordered
the consolidation and transfer of the actions to the
U.S. District Court for the Central District of California.
The Company intends to vigorously defend all claims in all of
the actions.
The Company is also currently involved in certain other legal
proceedings and, as required, has accrued its best estimate of
the probable settlement or other losses for the resolution of
these claims. These estimates have been developed in
consultation with counsel and are based upon an analysis of
potential results, 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 Companys assumptions
or the effectiveness of its strategies related to these
proceedings.
NOTE 6 RELATED-PARTY TRANSACTIONS
|
|
|
Relationship and Transactions with Clear Channel |
During the fourth quarter of 2005, the Company completed the
Separation. As a result, the Company recognized the par value
and additional paid-in capital in connection with the issuance
of its common stock in exchange for the net assets contributed
by Clear Channel. Prior to the Separation, Clear Channel provided
11
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
funding for certain of the Companys acquisitions. These
amounts funded by Clear Channel for these acquisitions were
recorded as a component of shareholders equity. Also,
certain tax related receivables and payables, which were
considered non-cash capital contributions or dividends, were
recorded in shareholders equity.
The Company has three non-employee directors on its Board of
Directors that are also directors and executive officers of
Clear Channel. These three directors receive directors
fees, stock options and restricted stock awards as do other
non-employee members of the Companys Board of Directors.
From time to time, the Company purchases advertising from Clear
Channel and its subsidiaries in the ordinary course of business.
For the three months ended June 30, 2006 and 2005 and the
six months ended June 30, 2006 and 2005, the Company
recorded $3.8 million, $2.6 million, $6.4 million
and $5.8 million, respectively, as components of direct
operating expenses and selling, general and administrative
expenses for these advertisements.
Pursuant to a transition services agreement, subsequent to the
Separation, Clear Channel provided or provides to the Company
certain limited administrative and support services such as
treasury, payroll and other financial related services; human
resources and employee benefits services; legal and related
services; information systems, network and related services;
investment services; and corporate services. The charges for
these transition services are intended to allow Clear Channel to
fully recover the allocated direct costs of providing the
services, plus all
out-of-pocket expenses.
The allocation of costs is based on various measures depending
on the service provided, including relative revenue, employee
headcount or number of users of a service. As of June 30,
2006, the only significant services that Clear Channel continues
to provide are tax and information systems related services. For
the three and six months ended June 30, 2006, the Company
recorded an aggregate of $1.3 million and
$2.6 million, respectively, for these services as
components of selling, general and administrative expenses and
corporate expenses.
Prior to the Separation, Clear Channel provided management
services to the Company, which included services similar to the
transition services, along with executive oversight. These
services were allocated to the Company based on actual direct
costs incurred or on the Companys share of Clear
Channels estimate of expenses relative to a seasonally
adjusted headcount. Management believes this allocation method
to be reasonable and the expenses allocated to be materially the
same as the amount that would have been incurred on a
stand-alone basis. For the three and six months ended
June 30, 2005, the Company recorded $2.6 million and
$4.7 million, respectively, as a component of corporate
expenses for these services.
Clear Channel owns the trademark and trade names used by the
Company prior to the Separation. Clear Channel charged the
Company a royalty fee based upon a percentage of annual revenue.
Clear Channel used a third-party valuation firm to assist in the
determination of the royalty fee. For the six months ended
June 30, 2005, the Company recorded $0.5 million of
royalty fees in corporate expenses. There was no fee recorded or
charged for the three months ended June 30, 2005.
Prior to the Separation, the operations of the Company were
included in a consolidated federal income tax return filed by
Clear Channel. The Companys provision for income taxes for
2005 was computed on the basis that the Company files separate
consolidated income tax returns with its subsidiaries. Tax
payments were made to Clear Channel on the basis of the
Companys separate taxable income. Tax benefits recognized
on employee stock option exercises prior to the Separation were
retained by Clear Channel.
The Companys domestic employees participated in Clear
Channels employee benefit plans prior to the Separation,
including employee medical insurance, an employee stock purchase
plan and a 401(k) retirement benefit plan. These costs were
recorded primarily as a component of selling, general and
administrative expenses and were approximately $2.4 million
and $4.7 million for the three and six months ended
June 30, 2005, respectively. Subsequent to the Separation,
the Company provides its own employee benefit plans.
In connection with the Separation, the Company entered into
various lease and licensing agreements with Clear Channel
primarily for office space occupied by the Companys
employees. For the three and six months
12
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
ended June 30, 2006, the Company recorded $0.2 million
and $0.4 million, respectively, of expense as a component
of selling, general and administrative expenses related to these
agreements.
As of June 30, 2006, the Company has recorded a liability
in accrued expenses to Clear Channel of $0.9 million for
the transition services described above and certain other costs
paid for by Clear Channel on the Companys behalf.
|
|
|
Transactions with Directors or Executive Officers |
In May 2006, the Company acquired a controlling interest in the
touring business of a commonly owned group of companies
operating under the name of Concert Productions International,
or CPI, and a 50% interest in several entities in the
non-touring business of CPI (collectively, the CPI
Entities). Concurrent with the acquisition, Michael Cohl
became a member of the Companys Board of Directors.
Michael Cohl owns a 72.37% interest in Concert Productions
International, Inc. (CPI, Inc.) which, together with
other sellers, sold the Company its interests in the CPI
Entities. Through his ownership in CPI, Inc., Mr. Cohl
indirectly received consideration from the sale of $72,370 in
cash and 54,519 shares of the Companys common stock,
which shares are subject to a Lockup and Registration Rights
Agreement. The CPI Entities have entered into a Services
Agreement with KSC Consulting (Barbados) Inc. for the executive
services of Michael Cohl, pursuant to which Mr. Cohl will
serve as Chief Executive Officer of the CPI Entities for a term
of five years. In addition, the Company entered into a
Securityholders Agreement and a Credit Agreement in connection
with this transaction. The Securityholders Agreement provides,
among other things, for the payment of fees and expenses to CPI,
Inc. and CPI Entertainment Rights, Inc., a wholly-owned
subsidiary of CPI, Inc., and the Credit Agreement requires the
Company to make certain extensions of credit to the CPI Entities.
The Company conducts certain transactions in the ordinary course
of business with companies that are owned, in part or in total,
by various members of management of the Companys
subsidiaries. These transactions primarily relate to venue
rentals, equipment rental, ticketing and other services and
reimbursement of certain costs. Expenses of $2.5 million,
$4.1 million, $3.7 million and $5.1 million were
incurred for the three and six months ended June 30, 2006
and 2005, respectively, and revenues of $0.0 million,
$0.1 million, $0.1 million and $0.2 million were
earned for the three and six months ended June 30, 2006 and
2005, respectively, from these companies for services rendered
or provided in relation to these business ventures. None of
these transactions were with directors or executive officers of
the Company.
NOTE 7 STOCK BASED COMPENSATION
In December 2005, the Company adopted its 2005 Stock Incentive
Plan. The plan authorizes the Company to grant stock option
awards, director shares, stock appreciation rights, restricted
stock and deferred stock awards, other equity-based awards and
performance awards. In connection with the Separation, options
to purchase approximately 2.1 million shares of the
Companys common stock and approximately 0.3 million
shares of restricted stock were granted to employees and
directors. The options granted to date all have an exercise
price of $10.60 per share.
The Company has granted options to purchase its common stock to
employees and directors of the Company and its affiliates under
the stock incentive plan at no less than the fair market value
of the underlying stock on the date of grant. These options are
granted for a term not exceeding ten years and the nonvested
options are forfeited in the event the employee or director
terminates his or her employment or relationship with the
Company or one of its affiliates. Any options that have vested
at the time of termination are forfeited to the extent they are
not exercised within the applicable post-employment exercise
period provided in their option agreements. These options
generally vest over three to five years. The stock incentive
13
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
plan contains anti-dilutive provisions that require the
adjustment of the number of shares of the Companys common
stock represented by, and the exercise price of, each option for
any stock splits or stock dividends.
Prior to the Separation, Clear Channel granted options to
purchase Clear Channels common stock to employees of the
Company and its affiliates under various stock option plans at
no less than the fair market value of the underlying stock on
the date of grant. Compensation expense relating to Clear
Channel stock options and restricted stock awards held by the
Companys employees was allocated by Clear Channel to the
Company on a specific employee basis. At the Separation, all
nonvested options outstanding under Clear Channels
stock-based compensation plans that were held by the
Companys employees were forfeited and any outstanding
vested options will be forfeited to the extent they are not
exercised within the applicable post-employment exercise period
provided in their option agreements. All Clear Channel
restricted stock awards held by the Companys employees at
the date of Separation were forfeited due to the termination of
their employment with the Clear Channel group of companies.
Effective January 1, 2006, the Company has adopted the fair
value recognition provisions of Statement 123(R), which is
a revision of FASB Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation
(Statement 123). Statement 123(R)
supersedes Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(APB 25), and related interpretations, and
amends FASB Statement of Financial Accounting Standards
No. 95, Statement of Cash Flows. The Company chose
the modified-prospective transition application of
Statement 123(R). The fair value of the options is
amortized to expense on a straight-line basis over the
options vesting period.
Prior to January 1, 2006, the Company accounted for its
stock-based award plans using the provisions of
Statement 123. As permitted under this standard,
compensation expense was recognized using the intrinsic value
method described in APB 25 under which compensation expense
is recorded to the extent that the current market price of the
underlying stock exceeds the exercise price. Prior periods were
not restated to reflect the impact of adoption of the new
standard.
As a result of the adoption of Statement 123(R), stock
based compensation expense recognized during the three and six
months ended June 30, 2006 includes compensation expense
for all share-based payments granted on or prior to, but not yet
vested at the end of the period based on the grant date fair
value estimated in accordance with the provisions of
Statement 123(R). No stock options have been granted since
adoption.
Due to the adoption of Statement 123(R), both the
Companys operating income (loss) and income (loss) before
income taxes were $0.5 million and $1.0 million lower
for the three and six months ended June 30, 2006,
respectively, and net income was $0.4 million and
$0.7 million lower for the three and six months ended
June 30, 2006, respectively. Prior to the adoption of
Statement 123(R) and through June 30, 2006, no tax
benefits from the exercise of stock options have been recognized
as no options granted by the Company subsequent to the
Separation have vested or have been exercised. Any future excess
tax benefits derived from the exercise of stock options will be
recorded prospectively and reported as cash flows from financing
activities in accordance with Statement 123(R).
14
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
The following table illustrates the effect on operating results
and per share information had the Company accounted for
share-based compensation in accordance with
Statement 123(R) for the periods indicated. Due to the
Separation, the Companys pro forma disclosures for 2005
include stock compensation expense for options granted by Clear
Channel prior to the Separation, and options granted by the
Company after the Separation, when applicable. As the Company
had no shares outstanding at June 30, 2005, there is no pro
forma loss per common share to disclose. The required pro forma
disclosures are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
June 30, 2005 | |
|
June 30, 2005 | |
|
|
| |
|
| |
|
|
(in thousands) | |
Net income (loss):
|
|
|
|
|
|
|
|
|
|
Reported
|
|
$ |
970 |
|
|
$ |
(21,757 |
) |
|
Pro forma stock compensation expense, net of tax:
|
|
|
|
|
|
|
|
|
|
|
Live Nation options
|
|
|
|
|
|
|
|
|
|
|
Clear Channel options
|
|
|
990 |
|
|
|
2,324 |
|
|
|
|
|
|
|
|
|
Net income (loss) including non-cash compensation expense
|
|
$ |
(20 |
) |
|
$ |
(24,081 |
) |
|
|
|
|
|
|
|
The fair value for options in Live Nation stock was estimated on
the date of grant using a Black-Scholes option-pricing model.
Expected volatilities are based on implied volatilities of
traded options and the historical volatility of stocks of
similar companies since the Companys common stock does not
have sufficient trading history to reasonably predict its own
volatility. The Company has 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 life of
the option is based on the U.S. Treasury Note rate. The
following assumptions were used to calculate the fair value of
the Companys options on the date of grant:
|
|
|
|
|
Risk-free interest rate
|
|
|
4.71 |
% |
Dividend yield
|
|
|
0.0 |
% |
Volatility factors
|
|
|
28 |
% |
Weighted average expected life (in years)
|
|
|
5 - 7.5 |
|
Clear Channel calculated the fair value for the options in Clear
Channel stock at the date of grant using a Black-Scholes
option-pricing model with the following assumptions for 2005:
|
|
|
|
|
Risk-free interest rate
|
|
|
3.76% - 4.44 |
% |
Dividend yield
|
|
|
1.46% - 2.36 |
% |
Volatility factors
|
|
|
25 |
% |
Weighted average expected life (in years)
|
|
|
5 - 7.5 |
|
The following table presents a summary of the Companys
stock options outstanding at, and stock option activity during,
the six months ended June 30, 2006 (Price
reflects the weighted average exercise price per share):
|
|
|
|
|
|
|
|
|
|
|
|
Options | |
|
Price | |
(in thousands, except per share data) |
|
| |
|
| |
Outstanding, January 1, 2006
|
|
|
2,078 |
|
|
$ |
10.60 |
|
|
Granted
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(12 |
) |
|
|
10.60 |
|
|
|
|
|
|
|
|
Outstanding, June 30, 2006
|
|
|
2,066 |
|
|
$ |
10.60 |
|
|
|
|
|
|
|
|
Exercisable, June 30, 2006
|
|
|
|
|
|
|
|
|
Weighted average fair value per option granted
|
|
|
|
|
|
$ |
3.72 |
|
15
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
The weighted average fair value of stock options granted is
required to be based on a theoretical option pricing model. In
actuality, because the Companys stock options are not
traded on an exchange, option holders can receive no value nor
derive any benefit from holding stock options under the plan
without an increase in the market price of Live Nation stock.
Such an increase in stock price would benefit all shareholders
commensurately.
There were 6.6 million shares available for future grants
under the stock incentive plan at June 30, 2006. Vesting
dates on the stock options range from December 2006 to December
2010, and expiration dates range from December 2012 to December
2015 at exercise prices and average contractual lives as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted | |
|
|
|
|
|
|
|
|
|
|
Average | |
|
|
|
|
|
|
|
|
Outstanding | |
|
Remaining | |
|
Weighted | |
|
|
|
Weighted |
Range of | |
|
as of | |
|
Contractual | |
|
Average | |
|
Exercisable | |
|
Average |
Exercise | |
|
6/30/06 | |
|
Life | |
|
Exercise | |
|
as of | |
|
Exercise |
Prices | |
|
(in thousands) | |
|
(in years) | |
|
Price | |
|
6/30/06 | |
|
Price |
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
$10.60 |
|
|
|
2,066 |
|
|
|
7.3 |
|
|
$ |
10.60 |
|
|
|
|
|
|
$ |
|
|
Prior to the Separation, Clear Channel granted restricted stock
awards to the Companys employees. All Clear Channel
restricted stock awards held by the Companys employees at
the date of the Separation were forfeited due to the termination
of their employment with the Clear Channel group of companies.
Subsequent to the Separation, the Company has granted restricted
stock awards to its employees and directors under the stock
incentive plan. These common shares carry a legend which
restricts their transferability for a term of one to five years
and are forfeited in the event the recipients employment
or relationship with the Company is terminated prior to the
lapse of the restriction. Recipients of the restricted stock
awards are entitled to all cash dividends as of the date the
award was granted.
The following table presents a summary of the Companys
restricted stock awards outstanding at June 30, 2006
(Price reflects the weighted average share price at
the date of grant):
|
|
|
|
|
|
|
|
|
|
|
|
Awards | |
|
Price | |
(in thousands, except per share data) |
|
| |
|
| |
Outstanding, January 1, 2006
|
|
|
319 |
|
|
$ |
10.60 |
|
|
Granted
|
|
|
5 |
|
|
|
18.21 |
|
|
Forfeited
|
|
|
(1 |
) |
|
|
10.60 |
|
|
|
|
|
|
|
|
Outstanding, June 30, 2006
|
|
|
323 |
|
|
$ |
10.72 |
|
|
|
|
|
|
|
|
The Company recorded $0.8 million and $1.6 million of
non-cash compensation expense during the three and six months
ended June 30, 2006, respectively, related to nonvested
stock based compensation arrangements for stock options and
restricted stock awards with $0.4 million and
$0.8 million recorded in selling, general and
administrative expenses and $0.4 million and
$0.8 million recorded in corporate expenses for the same
respective periods. As of June 30, 2006, there was
$9.6 million of total unrecognized compensation cost
related to nonvested stock based compensation arrangements for
stock options and restricted stock awards. This cost is expected
to be recognized over the next 5 years.
NOTE 8 EARNINGS PER SHARE
The Company computes net income per common share in accordance
with FASB Statement of Financial Accounting Standards
No. 128, Earnings per Share
(Statement 128). Under the provisions of
Statement 128, basic net income per common share is
computed by dividing the net income applicable to common shares
by the weighted average 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.
16
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the computation of basic and
diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
June 30, 2006 | |
|
June 30, 2006 | |
(in thousands, except per share data) |
|
| |
|
| |
Numerator:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
9,682 |
|
|
$ |
10,799 |
|
|
Effect of dilutive securities none
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for net income per common share diluted
|
|
$ |
9,682 |
|
|
$ |
10,799 |
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
|
|
|
64,463 |
|
|
|
64,218 |
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
|
|
867 |
|
|
|
701 |
|
|
|
|
|
|
|
|
Denominator for net income per common share diluted
|
|
|
65,330 |
|
|
|
64,919 |
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
.15 |
|
|
$ |
.17 |
|
|
Diluted
|
|
$ |
.15 |
|
|
$ |
.17 |
|
The calculation of diluted net income per share includes the
effects of the assumed exercise of any outstanding stock options
and the assumed vesting of shares of restricted stock where
dilutive. No information is shown for the three and six months
ended June 30, 2005 as the Company had no outstanding
shares prior to the Separation.
NOTE 9 RECENT DEVELOPMENTS
In April 2006, the Company sold its interest in a venue project
(theaters in Planet Hollywood in Las Vegas), and a portion of
certain prepaid production assets, theatrical productions and
investments in nonconsolidated affiliates and was reimbursed for
certain expenses related to these assets. These assets were sold
to an entity that is managed by two former members of senior
management of the Company. The Company received
$22.9 million in proceeds and recorded a $1.5 million
gain on sale of operating assets related to this sale.
In May 2006, the Company acquired a controlling interest in the
touring business of a commonly owned group of companies
operating under the name of Concert Productions International,
or CPI, and a 50% interest in several entities in the
non-touring business of CPI (collectively, the CPI
Entities) for $8 million in cash and
1,679,373 shares of the Companys common stock. Based
on the closing price of the Companys common stock on the
day of the transaction of $23.34, the total purchase price was
$47.2 million. The Company recorded an intangible asset of
$18.8 million related to the non-compete agreement which
will be amortized over a five-year period. The CPI Entities
engage in full service global tours, provide certain artist
services and invest in theatrical productions. The Company is
continuing to evaluate its purchase accounting related to this
acquisition.
In May 2006, the Company acquired a controlling interest in
Angel Festivals Limited (Angel). Angel, located in
the United Kingdom, owns various intellectual property rights
related to dance festivals. The Company recorded an intangible
asset of $2.6 million which will be amortized over the
remaining life of the intellectual property rights.
In June 2006, the Company acquired a controlling interest in
Cinq Group, LLC, which operates as TRUNK, Ltd.
(Trunk). Trunk is a specialty merchandise company,
located in the United States, that acquires licenses primarily
from music artists to design, manufacture and sell merchandise
through various distribution channels. The Company recorded an
intangible asset of $3.8 million which will be amortized
over the remaining lives of the various trademarks.
17
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
In June 2006, the Company agreed to acquire HOB Entertainment,
Inc. (HOB) through a merger transaction for
$350 million in cash. HOB owns and/or operates ten mid-size
venues under the House of Blues brand in cities such as Las
Vegas, Los Angeles, Chicago and Orlando and eight amphitheaters
in cities including Atlanta, Toronto, San Diego and Dallas.
The transaction has been approved by the Board of Directors of
each company and is also subject to review by the
U.S. Department of Justice. The Company currently expects
the transaction, which is subject to customary closing
conditions, to close by the end of 2006.
NOTE 10 OTHER INFORMATION
Included in gain on sale of operating assets for the six months
ended June 30, 2006 is a $7.7 million gain related to
the sale of a portion of the Companys sports
representation business assets located in Los Angeles which were
sold in January 2006 to a former member of senior management of
the Company.
Included in other income (expense) net for the three
and six months ended June 30, 2006 is income of
$5.9 million related to a fee received on the sale of land
in Ireland which was sold in April 2006 to the minority interest
holder in this entity. This fee was for payment of services
provided by the Company in completing the sale since, under the
terms of the original acquisition that included this asset, the
Company did not have the rights to the appreciation in the value
of this property. The minority interest holder contributed his
share of the appreciation in the value of the land to the entity.
NOTE 11 SEGMENT DATA
Following the Separation, the Company reorganized its business
units and the way in which these businesses are assessed and
therefore changed its reportable operating segments, starting in
2006, to Events, Venues and Sponsorship, and Digital
Distribution. The Events segment principally involves the
promotion or production of live music shows, theatrical
performances and specialized motor sports events and provides
various services to artists. The Venues and Sponsorship segment
principally involves the operation of venues and the sale of
premium seats, national and local sponsorships and placement of
advertising, including signage and promotional programs, and
naming of subscription series and venues. The Digital
Distribution segment principally involves the management of the
Companys on-line and wireless distribution activities,
including the development of the Companys website and
managing the Companys in-house ticketing operations and
third-party ticketing relationships. Included in the Digital
Distribution revenue below are revenues from ticket rebates
earned on tickets sold through phone, outlet and internet, for
events promoted by the Events segment. Other
includes sports representation, as well as other business
initiatives.
The Company has reclassified all periods presented to conform to
the current period presentation. Revenue and expenses earned and
charged between segments are eliminated in consolidation.
Corporate expenses, interest income and expense, equity in
earnings (loss) of nonconsolidated affiliates, other income
(expense) net and income taxes are managed on a
total company basis.
18
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
There are no customers that individually account for more than
ten percent of the Companys consolidated and combined
revenues in any year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Venues | |
|
|
|
|
|
|
|
|
|
Consolidated | |
|
|
|
|
and | |
|
Digital | |
|
|
|
|
|
|
|
and | |
|
|
Events | |
|
Sponsorship | |
|
Distribution | |
|
Other | |
|
Corporate | |
|
Eliminations | |
|
Combined | |
(in thousands) |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Six Months Ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
1,016,382 |
|
|
$ |
224,331 |
|
|
$ |
31,155 |
|
|
$ |
18,741 |
|
|
$ |
|
|
|
$ |
(5,812 |
) |
|
$ |
1,284,797 |
|
Direct operating expenses
|
|
|
912,366 |
|
|
|
72,945 |
|
|
|
927 |
|
|
|
2,185 |
|
|
|
|
|
|
|
(5,812 |
) |
|
|
982,611 |
|
Selling, general and administrative expenses
|
|
|
109,974 |
|
|
|
114,577 |
|
|
|
4,882 |
|
|
|
15,770 |
|
|
|
|
|
|
|
|
|
|
|
245,203 |
|
Depreciation and amortization
|
|
|
4,519 |
|
|
|
24,800 |
|
|
|
180 |
|
|
|
469 |
|
|
|
1,343 |
|
|
|
|
|
|
|
31,311 |
|
Loss (gain) on sale of operating assets
|
|
|
(1,793 |
) |
|
|
77 |
|
|
|
|
|
|
|
(7,687 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
(9,410 |
) |
Corporate expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,337 |
|
|
|
|
|
|
|
15,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
(8,684 |
) |
|
$ |
11,932 |
|
|
$ |
25,166 |
|
|
$ |
8,004 |
|
|
$ |
(16,673 |
) |
|
$ |
|
|
|
$ |
19,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues
|
|
$ |
|
|
|
$ |
5,812 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,812 |
|
Identifiable assets
|
|
$ |
997,762 |
|
|
$ |
1,068,751 |
|
|
$ |
15,691 |
|
|
$ |
68,145 |
|
|
$ |
202,777 |
|
|
$ |
|
|
|
$ |
2,353,126 |
|
Capital expenditures
|
|
$ |
1,149 |
|
|
$ |
25,686 |
|
|
$ |
2,698 |
|
|
$ |
36 |
|
|
$ |
2,398 |
|
|
$ |
|
|
|
$ |
31,967 |
|
|
Three Months Ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
594,122 |
|
|
$ |
146,772 |
|
|
$ |
20,567 |
|
|
$ |
9,735 |
|
|
$ |
|
|
|
$ |
(2,966 |
) |
|
$ |
768,230 |
|
Direct operating expenses
|
|
|
559,283 |
|
|
|
46,269 |
|
|
|
678 |
|
|
|
1,514 |
|
|
|
|
|
|
|
(2,965 |
) |
|
|
604,779 |
|
Selling, general and administrative expenses
|
|
|
56,587 |
|
|
|
61,516 |
|
|
|
2,584 |
|
|
|
8,501 |
|
|
|
|
|
|
|
(1 |
) |
|
|
129,187 |
|
Depreciation and amortization
|
|
|
2,523 |
|
|
|
12,588 |
|
|
|
114 |
|
|
|
234 |
|
|
|
847 |
|
|
|
|
|
|
|
16,306 |
|
Loss (gain) on sale of operating assets
|
|
|
(1,780 |
) |
|
|
73 |
|
|
|
|
|
|
|
(36 |
) |
|
|
61 |
|
|
|
|
|
|
|
(1,682 |
) |
Corporate expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,958 |
|
|
|
|
|
|
|
7,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
(22,491 |
) |
|
$ |
26,326 |
|
|
$ |
17,191 |
|
|
$ |
(478 |
) |
|
$ |
(8,866 |
) |
|
$ |
|
|
|
$ |
11,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues
|
|
$ |
|
|
|
$ |
2,966 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,966 |
|
Six Months Ended June 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
920,542 |
|
|
$ |
213,346 |
|
|
$ |
27,567 |
|
|
$ |
32,132 |
|
|
$ |
|
|
|
$ |
(7,413 |
) |
|
$ |
1,186,174 |
|
Direct operating expenses
|
|
|
828,844 |
|
|
|
66,385 |
|
|
|
1,101 |
|
|
|
8,961 |
|
|
|
|
|
|
|
(7,339 |
) |
|
|
897,952 |
|
Selling, general and administrative expenses
|
|
|
118,078 |
|
|
|
102,969 |
|
|
|
1,483 |
|
|
|
20,774 |
|
|
|
|
|
|
|
(46 |
) |
|
|
243,258 |
|
Depreciation and amortization
|
|
|
4,511 |
|
|
|
22,595 |
|
|
|
163 |
|
|
|
1,264 |
|
|
|
2,226 |
|
|
|
|
|
|
|
30,759 |
|
Gain on sale of operating assets
|
|
|
(110 |
) |
|
|
(303 |
) |
|
|
|
|
|
|
(176 |
) |
|
|
(28 |
) |
|
|
|
|
|
|
(617 |
) |
Corporate expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,090 |
|
|
|
|
|
|
|
27,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
(30,781 |
) |
|
$ |
21,700 |
|
|
$ |
24,820 |
|
|
$ |
1,309 |
|
|
$ |
(29,288 |
) |
|
$ |
(28 |
) |
|
$ |
(12,268 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues
|
|
$ |
|
|
|
$ |
7,380 |
|
|
$ |
33 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
7,413 |
|
Identifiable assets
|
|
$ |
761,643 |
|
|
$ |
931,045 |
|
|
$ |
14,395 |
|
|
$ |
51,083 |
|
|
$ |
136,673 |
|
|
$ |
|
|
|
$ |
1,894,839 |
|
Capital expenditures
|
|
$ |
3,924 |
|
|
$ |
43,504 |
|
|
$ |
5 |
|
|
$ |
72 |
|
|
$ |
2,386 |
|
|
$ |
|
|
|
$ |
49,891 |
|
19
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Venues | |
|
|
|
|
|
|
|
|
|
Consolidated | |
|
|
|
|
and | |
|
Digital | |
|
|
|
|
|
|
|
and | |
|
|
Events | |
|
Sponsorship | |
|
Distribution | |
|
Other | |
|
Corporate | |
|
Eliminations | |
|
Combined | |
(in thousands) |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Three Months Ended June 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
576,174 |
|
|
$ |
138,733 |
|
|
$ |
17,705 |
|
|
$ |
11,635 |
|
|
$ |
|
|
|
$ |
(2,556 |
) |
|
$ |
741,691 |
|
Direct operating expenses
|
|
|
543,237 |
|
|
|
39,897 |
|
|
|
708 |
|
|
|
2,001 |
|
|
|
|
|
|
|
(2,525 |
) |
|
|
583,318 |
|
Selling, general and administrative expenses
|
|
|
51,782 |
|
|
|
57,331 |
|
|
|
734 |
|
|
|
10,411 |
|
|
|
|
|
|
|
(31 |
) |
|
|
120,227 |
|
Depreciation and amortization
|
|
|
2,187 |
|
|
|
11,288 |
|
|
|
87 |
|
|
|
623 |
|
|
|
1,097 |
|
|
|
|
|
|
|
15,282 |
|
Loss (gain) on sale of operating assets
|
|
|
(68 |
) |
|
|
(174 |
) |
|
|
|
|
|
|
7 |
|
|
|
(25 |
) |
|
|
|
|
|
|
(260 |
) |
Corporate expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,866 |
|
|
|
|
|
|
|
7,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
(20,964 |
) |
|
$ |
30,391 |
|
|
$ |
16,176 |
|
|
$ |
(1,407 |
) |
|
$ |
(8,938 |
) |
|
$ |
|
|
|
$ |
15,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues
|
|
$ |
|
|
|
$ |
2,556 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,556 |
|
Revenue of $274.3 million and $380.4 million for the
three and six months ended June 30, 2006, respectively, and
$264.7 million and $392.2 million for the three and
six months ended June 30, 2005, respectively, was derived
from the Companys foreign operations. Of these amounts,
$143.2 million and $189.0 million for the three and
six months ended June 30, 2006, respectively, and
$135.4 million and $203.8 million for the three and
six months ended June 30, 2005, respectively, was derived
from the Companys operations in the United Kingdom.
Identifiable assets of $801.9 million and
$573.6 million were from the Companys foreign
operations as of June 30, 2006 and 2005, respectively, of
which $452.1 million and $246.6 million were from the
Companys operations in the United Kingdom as of
June 30, 2006 and 2005, respectively.
20
|
|
Item 2. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
Live Nation (which may be referred to as
we, us or our) means Live
Nation, Inc. and its subsidiaries, or one of our segments or
subsidiaries, as the context requires. You should read the
following discussion of our financial condition and results of
operations together with the unaudited consolidated and combined
financial statements and notes to the financial statements
included elsewhere in this quarterly report.
Special Note About Forward-Looking Statements
Certain statements contained in this quarterly report (or
otherwise made by us or on our behalf from time to time in other
reports, filings with the Securities and Exchange Commission,
news releases, conferences, internet postings or otherwise) that
are not statements of historical fact constitute
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Exchange Act of 1934, as amended,
notwithstanding that such statements are not specifically
identified. Forward-looking statements include, but are not
limited to, statements about our financial position, business
strategy, competitive position, potential growth opportunities,
potential operating performance improvements, the effects of
competition, the effects of future legislation or regulations
and plans and objectives of our management for future
operations. We have based our forward-looking statements on our
managements beliefs and assumptions based on information
available to our management at the time the statements are made.
Use of the words may, should,
continue, plan, potential,
anticipate, believe,
estimate, expect, intend,
outlook, could, target,
project, seek, predict or
variations of such words and similar expressions are intended to
identify forward-looking statements but are not the exclusive
means of identifying such statements.
Forward-looking statements are not guarantees of future
performance and are subject to risks and uncertainties that
could cause actual results to differ materially from those in
such statements. Factors that could cause actual results to
differ from those discussed in the forward-looking statements
include, but are not limited to, those set forth under
Item 1A. Risk Factors of our 2005
Form 10-K as well
as other factors described herein or in our annual, quarterly
and other reports we file with the SEC (collectively,
cautionary statements). Based upon changing
conditions, should any one or more of these risks or
uncertainties materialize, or should any underlying assumptions
prove incorrect, actual results may vary materially from those
described in any forward-looking statements. All subsequent
written and oral forward-looking
statements attributable to us
or persons acting on our behalf are expressly qualified in their
entirety by the applicable cautionary statements. We do not
intend to update these forward-looking statements, except
as required by applicable law.
Executive Overview
Beginning in 2006, we have adjusted our reportable segments due
to a reorganization of our business and a change in the way in
which management views and manages our business. The new
segments are Events, Venues and Sponsorship, and Digital
Distribution. In addition, we have operations in the sports
representation and other businesses, which are included under
other.
This has been an eventful first half of the year for all our
segments. The highlights for each segment are:
|
|
|
|
|
Our Events segment has been refocused on booking events for our
owned and/or operated amphitheaters, theaters and clubs, rather
than third-party venues. In addition, our touring group has
focused on acquiring high profile tours for both our
amphitheaters and third-party stadiums and arenas. We have been
particularly successful at creating touring packages for our
amphitheaters, combining such acts as Def Leppard and Journey,
Counting Crows and Goo Goo Dolls, and John Mayer and Sheryl Crow. |
|
|
|
In May 2006, we acquired a controlling interest in the touring
business of a commonly owned group of companies operating under
the name of Concert Productions International, or CPI, and a 50%
interest |
21
|
|
|
|
|
in several entities in the non-touring business of CPI
(collectively, the CPI Entities). Founded and led by
entertainment industry veteran Michael Cohl, CPI provides full
service global touring, having produced tours for top acts such
as the Rolling Stones, Pink Floyd and U2. CPI has also developed
additional revenue streams around the tours that it produces,
such as VIP ticketing, fan clubs, merchandising and DVDs.
CPIs Chief Executive Officer, Michael Cohl, has also
joined Live Nations Board of Directors. Due to the timing
of this acquisition, there was no significant impact to
operating income during the period. |
|
|
|
In June 2006, we acquired a controlling interest in Cinq Group,
LLC, which operates as TRUNK Ltd. (Trunk Ltd.).
Trunk Ltd. is a specialty merchandise company that acquires
licenses, primarily from music artists, to design, manufacture
and sell merchandise through various distribution channels. This
acquisition expands our artist merchandising services, further
extending the live experience beyond the two-hour show. |
|
|
|
Since January 2006, we have also been investing in building our
touring team and our tour marketing expertise. |
|
|
|
Subsequently, in July 2006, we announced that we have agreed to
acquire a majority interest in Musictoday, a leader in
connecting artists directly to their fans through on-line fan
clubs, artist
e-commerce and
fulfillment and artist fan club ticketing. This is another step
in adding complementary product lines to our live music and
venue businesses. |
|
|
|
|
|
Our Venues and Sponsorship segment continued to strengthen its
venue network during the first half of 2006 through acquisitions
(Historic Theater Group in Minneapolis) and new operating
agreements (Wembley Arena in London). |
|
|
|
In June 2006, we announced that we have agreed to acquire HOB
Entertainment, Inc. (HOB). HOB owns and/or operates
ten mid-size venues under the House of Blues brand in cities
such as Las Vegas, Los Angeles, Chicago and Orlando and eight
amphitheaters in cities including Atlanta, Toronto,
San Diego and Dallas. We currently expect this acquisition,
which is subject to customary closing conditions, to close by
the end of 2006. |
|
|
|
We started to see improved operating results from some of the
food and beverage initiatives that were implemented at the start
of the year. These initiatives include additional points of sale
and improved product offerings. |
|
|
|
During the second quarter of 2006, we also substantially
completed the staffing of our central venue management team. |
|
|
|
|
|
Our Digital Distribution segment successfully launched our new
website, www.livenation.com, in June 2006. The site is
continuing to be refined but we are pleased with the initial
results and it is already listed as the third largest
entertainment/event site according to Nielsen// NetRatings. |
|
|
|
|
|
As part of our strategy of refocusing the business on the areas
of live events and venue management, we sold other assets as
noted below: |
|
|
|
|
|
In the first quarter of 2006 we sold a portion of our sports
representation business assets in Los Angeles. In the second
quarter of 2006, we sold substantially all of the golf related
assets of our sports representation business and since the end
of the quarter we have sold the football and tennis divisions. |
22
|
|
|
|
|
In April 2006, we sold our interest in a venue project (theaters
in Planet Hollywood in Las Vegas) and a percentage of our
interest in Phantom of the Opera in Las Vegas. |
Our Separation from Clear Channel
We were formed through acquisitions of various entertainment
businesses and assets by our predecessors. On August 1,
2000, Clear Channel Communications, Inc. (Clear
Channel) acquired our entertainment business. On
August 2, 2005, we were incorporated in our current form as
a Delaware corporation to own substantially all of the
entertainment business of Clear Channel. On December 21,
2005, the separation of the business previously conducted by
Clear Channels live entertainment segment and sports
representation business, now comprising our business, and the
distribution by Clear Channel of all of our common stock to its
shareholders, was completed in a tax free spin-off (the
Distribution or the Separation).
Following our separation from Clear Channel, we became a
separate publicly traded company on the New York Stock Exchange
trading under the symbol LYV. In connection with the
Separation, we issued, through one of our subsidiaries,
$40 million of redeemable preferred stock, of which we
received $20 million of the proceeds, and borrowed
$325 million under a new credit agreement. We used the
proceeds to repay $220 million of debt owed to Clear
Channel and Clear Channel contributed to our capital the
remaining balance owed them.
Basis of Presentation
Prior to the Separation, our combined financial statements
include amounts that are comprised of businesses included in the
consolidated financial statements and accounting records of
Clear Channel, using the historical bases of assets and
liabilities of the entertainment business. Management believes
the assumptions underlying the combined financial statements are
reasonable. However, the combined financial statements included
herein may not reflect what our results of operations, financial
position and cash flows would have been had we operated as a
separate, stand-alone entity during the periods presented. As a
result of the Separation, we recognized the par value and
additional paid-in capital in connection with the issuance of
our common stock in exchange for the net assets of Clear
Channels entertainment business contributed at that time,
and we began accumulating retained earnings and currency
translation adjustments upon completion of the Separation.
Beginning on December 21, 2005, our consolidated financial
statements include all accounts of Live Nation and our majority
owned subsidiaries and also variable interest entities for which
we are the primary beneficiary.
Segment Overview
Following the Separation and the reorganization of our business,
we changed our reportable segments, starting in 2006, to Events,
Venues and Sponsorship, and Digital Distribution. In addition,
we have operations in the sports representation and other
businesses which are included under other.
Previously, we operated in two reportable business segments:
Global Music and Global Theater. In addition, previously
included under other were our operations in the
specialized motor sports, sports representation and other
businesses. We have reclassified all periods presented to
conform to the current period presentation.
Our Events segment principally involves the promotion and/or
production of live music shows, theatrical performances and
specialized motor sports events in our owned and/or operated
venues and in rented third-party venues. While our Events
segment operates year-round, we experience higher revenues
during the second and third quarters due to the seasonal nature
of shows at our outdoor amphitheaters and international
festivals, which primarily occur May through September.
As a promoter or presenter, we typically book performers,
arrange performances and tours, secure venues, provide for
third-party production services, sell tickets and advertise
events to attract audiences. We earn revenues primarily from the
sale of tickets and pay performers under one of several
formulas, including a fixed guaranteed amount and/or a
percentage of ticket sales or show profits. For each event, we
either use a venue we own or operate, or rent a third-party
venue. Revenues are generally related to the volume of ticket
sales and
23
ticket prices. Event costs, included in direct operating
expenses, such as artist and production service expenses, are
typically substantial in relation to the revenues. As a result,
significant increases or decreases in promotion revenue do not
typically result in comparable changes to operating income. In
the case of our amphitheaters, the Events segment typically
experiences losses related to the promotion of the event. These
losses are offset by the ancillary and sponsorship profits
generated by the Venues and Sponsorship segment and the ticket
rebates recorded in the Digital Distribution segment.
As a producer, we generally hire artistic talent, develop sets
and coordinate the actual performances of the events. We produce
tours on a global, national and regional basis. We generate
revenues by sharing in a percentage of event or tour profits
primarily related to the sale of tickets, merchandise and event
and tour sponsorships. These production revenues are generally
related to the size and profitability of the production. Artist
and production costs, included in direct operating expenses, are
typically substantial in relation to the revenues. As a result,
significant increases or decreases in revenue related to these
productions do not typically result in comparable changes to
operating income.
In addition to the above, we provide various services to artists
including marketing, advertising production services,
merchandise distribution and DVD/ CD production and distribution.
To judge the health of our Events segment, management monitors
the number of confirmed shows in our network of owned and
third-party venues, average paid attendance and advance ticket
sales. In addition, because a significant portion of our events
business is conducted in foreign markets, management looks at
the operating results from our foreign operations on a constant
dollar basis.
Our Venues and Sponsorship segment primarily involves the
management and operation of our owned and/or operated venues and
the sale of various types of sponsorships and advertising.
As a venue operator, we contract primarily with our Events
segment to drive show counts to fill our venues and we provide
operational services such as concessions, merchandising,
parking, security, ushering and ticket-taking. We generate
revenues primarily from food and beverage, parking, premium
seating and venue sponsorships.
We actively pursue the sale of national and local sponsorships
and placement of advertising, including signage and promotional
programs, and naming of subscription series. Many of our venues
also have name-in-title
sponsorship programs. We believe national sponsorships allow us
to maximize our network of venues and to arrange multi-venue
branding opportunities for advertisers. Our national sponsorship
programs have included companies such as American Express,
Anheuser Busch and Verizon. Our local and venue-focused
sponsorships include venue signage, promotional programs,
on-site activation,
hospitality and tickets, and are derived from a variety of
companies across various industry categories.
To monitor the health of our Venues and Sponsorship segment,
management reviews the number of shows at our venues,
attendance, food and beverage sales per attendee, premium seat
sales and corporate sponsorship renewals. In addition, because a
significant portion of our venues and sponsorship business is
conducted in foreign markets, management looks at the operating
results from our foreign operations on a constant dollar basis.
Our Digital Distribution segment is creating the new internet
and digital platform for Live Nation. This segment is involved
in managing our on-line and wireless distribution activities,
including the development of our website and management of our
in-house ticketing operations and third-party ticketing
relationships. This segment derives the majority of its revenues
from ticket rebates earned on tickets sold through phone, outlet
and internet, for events promoted or presented by the Events
segment.
To judge the health of our Digital Distribution segment,
management reviews the rebates earned per ticket sold and the
number of unique visitors to our website.
24
Consolidated and Combined Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
|
Six Months Ended | |
|
|
|
|
June 30, | |
|
|
|
June 30, | |
|
|
|
|
| |
|
|
|
| |
|
|
|
|
2006 | |
|
2005 | |
|
% Change | |
|
2006 | |
|
2005 | |
|
% Change | |
(in thousands) |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Revenue
|
|
$ |
768,230 |
|
|
$ |
741,691 |
|
|
|
4 |
% |
|
$ |
1,284,797 |
|
|
$ |
1,186,174 |
|
|
|
8 |
% |
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
|
604,779 |
|
|
|
583,318 |
|
|
|
4 |
% |
|
|
982,611 |
|
|
|
897,952 |
|
|
|
9 |
% |
|
Selling, general and administrative expenses
|
|
|
129,187 |
|
|
|
120,227 |
|
|
|
7 |
% |
|
|
245,203 |
|
|
|
243,258 |
|
|
|
1 |
% |
|
Depreciation and amortization
|
|
|
16,306 |
|
|
|
15,282 |
|
|
|
7 |
% |
|
|
31,311 |
|
|
|
30,759 |
|
|
|
2 |
% |
|
Gain on sale of operating assets
|
|
|
(1,682 |
) |
|
|
(260 |
) |
|
|
** |
|
|
|
(9,410 |
) |
|
|
(617 |
) |
|
|
** |
|
|
Corporate expenses
|
|
|
7,958 |
|
|
|
7,866 |
|
|
|
1 |
% |
|
|
15,337 |
|
|
|
27,090 |
|
|
|
43 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
11,682 |
|
|
|
15,258 |
|
|
|
(23 |
%) |
|
|
19,745 |
|
|
|
(12,268 |
) |
|
|
|
|
Interest expense
|
|
|
8,348 |
|
|
|
875 |
|
|
|
|
|
|
|
16,161 |
|
|
|
1,494 |
|
|
|
|
|
Interest expense with Clear Channel Communications
|
|
|
|
|
|
|
10,827 |
|
|
|
|
|
|
|
|
|
|
|
22,015 |
|
|
|
|
|
Interest income
|
|
|
4,496 |
|
|
|
459 |
|
|
|
|
|
|
|
5,976 |
|
|
|
944 |
|
|
|
|
|
Equity in earnings (loss) of nonconsolidated affiliates
|
|
|
1,478 |
|
|
|
(2,129 |
) |
|
|
|
|
|
|
3,302 |
|
|
|
(1,619 |
) |
|
|
|
|
Other income (expense) net
|
|
|
5,728 |
|
|
|
(269 |
) |
|
|
|
|
|
|
4,009 |
|
|
|
190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
15,036 |
|
|
|
1,617 |
|
|
|
|
|
|
|
16,871 |
|
|
|
(36,262 |
) |
|
|
|
|
Income tax benefit (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(5,884 |
) |
|
|
5,370 |
|
|
|
|
|
|
|
(6,051 |
) |
|
|
17,521 |
|
|
|
|
|
|
Deferred
|
|
|
530 |
|
|
|
(6,017 |
) |
|
|
|
|
|
|
(21 |
) |
|
|
(3,016 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
9,682 |
|
|
$ |
970 |
|
|
|
|
|
|
$ |
10,799 |
|
|
$ |
(21,757 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: |
Non-cash compensation expense of $0.3 million and
$0.4 million is included in corporate expenses and selling,
general and administrative expenses, respectively, for the three
months ended June 30, 2006, and $0.8 million and
$0.8 million is included in corporate expenses and selling,
general and administrative expenses, respectively, for the six
months ended June 30, 2006. For the three months and six
months ended June 30, 2005, expense of $0.4 million
and $0.7 million, respectively, was included in corporate
expenses and was based on an allocation from Clear Channel
related to issuance of Clear Channel stock awards above fair
value. |
|
|
|
|
** |
Percentages are not meaningful. |
Our revenue increased $26.5 million, or 4%, during the
three months ended June 30, 2006 as compared to the same
period of the prior year primarily due to increases in revenues
of our Events and Venues and Sponsorship segments of
$17.9 million and $8.0 million, respectively. Included
in the increase in revenue for the three months ended
June 30, 2006 was approximately $2.5 million from
increases in foreign exchange rates as compared to the same
period of 2005.
Our revenue increased $98.6 million, or 8%, during the six
months ended June 30, 2006 as compared to the same period
of the prior year primarily due to increases in revenues of our
Events, Venues and Sponsorship and Digital Distribution segments
of $95.8 million, $11.0 million and $3.6 million,
respectively, partially offset by a decrease in our other
operations of $13.4 million. Included in the increase in
revenue for the six months ended June 30, 2006 was
approximately $6.6 million of decreases in revenue from
decreases in foreign exchange rates as compared to the same
period of 2005.
25
|
|
|
Direct operating expenses |
Our direct operating expenses increased $21.5 million, or
4%, during the three months ended June 30, 2006 as compared
to the same period of the prior year primarily due to increases
in direct operating expenses in our Events and Venues and
Sponsorship segments of $16.0 million and
$6.4 million, respectively. Included in the increase in
direct operating expenses for the three months ended
June 30, 2006 was approximately $2.4 million from
increases in foreign exchange rates as compared to the same
period of 2005.
Our direct operating expenses increased $84.7 million, or
9%, during the six months ended June 30, 2006 as compared
to the same period of the prior year primarily due to increases
in direct operating expenses in our Events and Venues and
Sponsorship segments of $83.5 million and
$6.6 million, respectively, partially offset by a decrease
in our other operations of $6.8 million. Included in the
increase in direct operating expenses for the six months ended
June 30, 2006 was approximately $3.4 million of
decreases in direct operating expenses from decreases in foreign
exchange rates as compared to the same period of 2005.
Direct operating expenses include show related marketing and
advertising expenses along with other costs.
|
|
|
Selling, general and administrative expenses |
Our selling, general and administrative expenses increased
$9.0 million, or 7%, during the three months ended
June 30, 2006 as compared to the same period of the prior
year primarily due to increases in selling, general and
administrative expenses of our Events and Venues and Sponsorship
segments of $4.8 million and $4.2 million,
respectively. Included in the increase in selling, general and
administrative expenses for the three months ended June 30,
2006 was approximately $0.5 million of decreases in
selling, general and administrative expenses from decreases in
foreign exchange rates as compared to the same period of 2005.
Our selling, general and administrative expenses increased
$1.9 million, or 1%, during the six months ended
June 30, 2006 as compared to the same period of the prior
year primarily due to increases in selling, general and
administrative expenses of our Venues and Sponsorship and
Digital Distribution segments of $11.6 million and
$3.4 million, respectively, offset by decreases in our
Events segment and other operations of $8.1 million and
$5.0 million, respectively. Included in the increase in
selling, general and administrative expenses for the six months
ended June 30, 2006 was approximately $3.6 million of
decreases in selling, general and administrative expenses from
decreases in foreign exchange rates as compared to the same
period of 2005.
|
|
|
Depreciation and amortization |
Our depreciation and amortization increased $1.0 million,
or 7%, during the three months ended June 30, 2006 as
compared to the same period of the prior year primarily due to
an increase in depreciation and amortization of our Venues and
Sponsorship segment.
Our depreciation and amortization increased $0.6 million,
or 2%, during the six months ended June 30, 2006 as
compared to the same period of the prior year primarily due to
an increase in depreciation and amortization of our Venues and
Sponsorship segment of $2.2 million, partially offset by
decreases in our other and corporate operations of
$0.8 million and $0.9 million, respectively.
|
|
|
Gain on sale of operating assets |
Our gain on sale of operating assets increased $1.4 million
during the three months ended June 30, 2006 as compared to
the same period of the prior year primarily due to a gain
recorded in 2006 related to prepaid production assets,
theatrical productions and investments in nonconsolidated
affiliates that were sold.
Our gain on sale of operating assets increased $8.8 million
during the six months ended June 30, 2006 as compared to
the same period of the prior year primarily due to gains
recorded in 2006 on the sale of a portion of our sports
representation business assets located in Los Angeles and the
sale of prepaid production assets, theatrical productions and
investments in nonconsolidated affiliates.
26
Corporate expenses decreased $11.8 million, or 43%, during
the six months ended June 30, 2006 as compared to the same
period of the prior year primarily as a result of a
$12.5 million decline in litigation contingencies and
expenses during 2006 due to a case settled in 2005.
Interest expense increased $7.5 million during the three
months ended June 30, 2006 as compared to the same period
of the prior year primarily due to interest expense related to
our term loan and redeemable preferred stock, which did not
exist in the second quarter of 2005.
Interest expense increased $14.7 million during the six
months ended June 30, 2006 as compared to the same period
of the prior year primarily due to interest expense related to
our term loan, redeemable preferred stock and loan from the Mean
Fiddler minority interest holder, which did not exist in the
first six months of 2005.
Our debt balances, including redeemable preferred stock, and
weighted average cost of debt were $406.9 million and
8.03%, respectively, at June 30, 2006, and
$21.5 million and 7.62%, respectively, at June 30,
2005.
|
|
|
Interest expense with Clear Channel Communications |
Interest expense with Clear Channel Communications decreased
$10.8 million and $22.0 million during the three and
six months ended June 30, 2006, respectively, as compared
to the same periods of the prior year as this debt was repaid
to, or contributed to our capital by, Clear Channel on
December 21, 2005. Our debt balance and weighted average
cost of debt at June 30, 2005 was $642.7 million and
7.0%, respectively.
Interest income increased $4.0 million and
$5.0 million during the three and six months ended
June 30, 2006, respectively, as compared to the same
periods of the prior year primarily due to interest income
earned on excess cash invested in money market funds and other
short-term investments.
|
|
|
Equity in earnings (loss) of nonconsolidated
affiliates |
Equity in earnings (loss) of nonconsolidated affiliates
increased $3.6 million and $4.9 million during the
three and six months ended June 30, 2006, respectively, as
compared to the same periods of the prior year primarily due to
an increase in earnings from our investments in Marek Lieberberg
Konzertagentur, Broadway in Chicago and NBC-Live Nation
Ventures, LLC. Additionally, in 2005 we recorded an impairment
write-down of $2.5 million on an investment with no similar
write-down in 2006.
|
|
|
Other income (expense) net |
The principal components of other income (expense)
net, for the applicable periods, were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
June 30, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
(in thousands) |
|
| |
|
| |
|
| |
|
| |
Minority interest income (expense)
|
|
$ |
(151 |
) |
|
$ |
(398 |
) |
|
$ |
684 |
|
|
$ |
(571 |
) |
Other net
|
|
|
5,879 |
|
|
|
129 |
|
|
|
3,325 |
|
|
|
761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) net
|
|
$ |
5,728 |
|
|
$ |
(269 |
) |
|
$ |
4,009 |
|
|
$ |
190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest income (expense) increased $1.3 million
during the six months ended June 30, 2006 as compared to
the same period of the prior year primarily due to the
acquisition of a 50.1% interest in Mean Fiddler during the third
quarter of 2005. Mean Fiddler generates the majority of its
operating income during
27
the third quarter. In addition, we sold a 49.9% interest in our
production of Phantom of the Opera in Las Vegas during
the second quarter of 2006 which experienced operating losses
prior to opening. The increase is partially offset by an
impairment write-down in June 2006 of the minority interest
receivable for a venue operation company in Spain.
Other net increased $5.8 million and
$2.6 million during the three and six months ended
June 30, 2006, respectively, as compared to the same
periods of the prior year primarily due to a fee received on the
sale of land in Ireland during the second quarter of 2006.
Increase for the six months ended June 30, 2006 is
partially offset by a loss recorded in the value of stock
investments during 2006 received, or to be received, as part of
a contractual obligation which will be completed by the first
quarter of 2007.
Based on current information, we expect our effective tax rate
to be 36% for 2006 compared to an effective tax rate of 40% in
2005. This represents a net tax expense of $5.4 million and
$0.6 million for the three months ended June 30, 2006
and 2005, respectively, and a net tax expense of
$6.1 million for the six months ended June 30, 2006 as
compared to a net tax benefit of $14.5 million for the six
months ended June 30, 2005. The net increase in tax expense
is primarily attributable to increases in income (loss) before
income taxes. Our effective tax rate is higher than the
U.S. statutory rate of 35% due primarily to nondeductible
expenses, state income taxes, tax reserves and a significant
portion of our full year earnings being subject to tax in
countries other than the United States. The 2006 effective tax
rate is computed based on estimates of the full year earnings.
Events Results of Operations
Our Events segment operating results were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
|
Six Months Ended | |
|
|
|
|
June 30, | |
|
|
|
June 30, | |
|
|
|
|
| |
|
|
|
| |
|
|
|
|
2006 | |
|
2005 | |
|
% Change | |
|
2006 | |
|
2005 | |
|
% Change | |
(in thousands) |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Revenue
|
|
$ |
594,122 |
|
|
$ |
576,174 |
|
|
|
3 |
% |
|
$ |
1,016,382 |
|
|
$ |
920,542 |
|
|
|
10 |
% |
Direct operating expenses
|
|
|
559,283 |
|
|
|
543,237 |
|
|
|
3 |
% |
|
|
912,366 |
|
|
|
828,844 |
|
|
|
10 |
% |
Selling, general and administrative expenses
|
|
|
56,587 |
|
|
|
51,782 |
|
|
|
9 |
% |
|
|
109,974 |
|
|
|
118,078 |
|
|
|
(7 |
%) |
Depreciation and amortization
|
|
|
2,523 |
|
|
|
2,187 |
|
|
|
15 |
% |
|
|
4,519 |
|
|
|
4,511 |
|
|
|
0 |
% |
Gain on sale of operating assets
|
|
|
(1,780 |
) |
|
|
(68 |
) |
|
|
** |
|
|
|
(1,793 |
) |
|
|
(110 |
) |
|
|
** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$ |
(22,491 |
) |
|
$ |
(20,964 |
) |
|
|
7 |
% |
|
$ |
(8,684 |
) |
|
$ |
(30,781 |
) |
|
|
(72 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
** |
Percentages are not meaningful. |
Events revenue increased $17.9 million, or 3%, during the
three months ended June 30, 2006 as compared to the same
period of the prior year primarily due to the timing of the
Werchter festival in Belgium which took place earlier in 2006, a
slight increase in the number of amphitheater events and
attendance, and an increase in the number of global theater
events in the second quarter of 2006 as compared to the second
quarter of 2005. Partially offsetting this increase was a
decline in both the number of domestic music events held in
theaters and a decline in domestic festival revenues following
our exit from a number of unprofitable festivals held in 2005.
Events direct operating expenses increased $16.0 million,
or 3%, during the three months ended June 30, 2006 as
compared to the same period of the prior year primarily due to
the timing of the Werchter festival and an increase in the
number of global theater events as discussed above. In addition,
direct operating expenses increased due to the pre-opening costs
related to our production of Phantom of the Opera in Las
Vegas during
28
the second quarter of 2006. Partially offsetting this increase
was a decline in direct operating expenses due primarily to the
decline in the number of domestic music theater events noted
above and the exit from a number of domestic music festivals.
Events selling, general and administrative expenses increased
$4.8 million, or 9%, during the three months ended
June 30, 2006 as compared to the same period of the prior
year primarily due to an increase in reserves recorded against
receivables due to a vendor bankruptcy as well as increased
consulting expenses related to music marketing. In addition, due
to the acquisition of a 50.1% interest in Mean Fiddler during
the third quarter of 2005, we have incurred additional selling,
general and administrative expenses related to this business
that we did not have in the prior year.
Events gain on sale of operating assets increased
$1.7 million during the three months ended June 30,
2006 as compared to the same period of the prior year primarily
due to a gain recorded on the sale of theatrical assets that
were sold during 2006.
Overall, the decline in operating income for Events in the
second quarter of 2006 as compared to the same period of 2005 is
due primarily to the increased costs related to receivable
reserves arising from a vendor bankruptcy, increased costs
related to improving our marketing services and incremental
selling, general and administrative expenses due to the 2005
Mean Fiddler acquisition whose principal events occur later in
the year. These decreases were partially offset by an increase
in operating income due to the timing of the Werchter festival
in Belgium in 2006.
Events revenue increased $95.8 million, or 10%, during the
six months ended June 30, 2006 as compared to the same
period of the prior year primarily due to an increase in
attendance at third-party arenas and our owned and/or operated
amphitheaters for artists such as Madonna, Coldplay, and Billy
Joel and our specialized motor sports events. Also driving this
increase is timing and attendance at several international music
festivals.
Events direct operating expenses increased $83.5 million,
or 10%, during the six months ended June 30, 2006 as
compared to the same period of the prior year primarily due to
an increase in attendance at third-party arenas and our owned
and/or operated amphitheaters which resulted in higher talent
fees. In addition, direct operating expenses increased due to
the timing of several international music festivals. Partially
offsetting these increases were reduced direct operating
expenses due to the termination of several domestic music
festivals that occurred in 2005 and reduced costs related to
theatrical productions in 2006.
Events selling, general and administrative expenses declined
$8.1 million, or 7%, during the six months ended
June 30, 2006 as compared to the same period of the prior
year. The decrease is primarily due to a $13.4 million
decline in litigation contingencies and expenses mainly due to a
case settled in 2005. Partially offsetting the decline was an
increase in incremental selling, general and administrative
expenses due to the 2005 Mean Fiddler acquisition of
$2.6 million, receivable reserves recorded due to a vendor
bankruptcy and costs related to marketing services.
Events gain on sale of operating assets increased
$1.7 million during the six months ended June 30, 2006
as compared to the same period of the prior year primarily due
to a gain recorded on the sale of theatrical assets that were
sold in 2006.
Overall, the decline in operating loss for Events in the first
six months of 2006 as compared to the same period of 2005 is due
primarily to improved operating results from music and motor
sports events in third-party arenas and our domestic and
international festivals, and a decrease in litigation expenses.
These improvements were partially offset by the incremental
selling, general and administrative expenses related to the Mean
Fiddler acquisition which were not incurred in 2005 and which
principally relate to events that will occur later in the year.
29
Venues and Sponsorship Results of Operations
Our Venues and Sponsorship segment operating results were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
|
Six Months Ended | |
|
|
|
|
June 30, | |
|
|
|
June 30, | |
|
|
|
|
| |
|
|
|
| |
|
|
|
|
2006 | |
|
2005 | |
|
% Change | |
|
2006 | |
|
2005 | |
|
% Change | |
(in thousands) |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Revenue
|
|
$ |
146,772 |
|
|
$ |
138,733 |
|
|
|
6 |
% |
|
$ |
224,331 |
|
|
$ |
213,346 |
|
|
|
5 |
% |
Direct operating expenses
|
|
|
46,269 |
|
|
|
39,897 |
|
|
|
16 |
% |
|
|
72,945 |
|
|
|
66,385 |
|
|
|
10 |
% |
Selling, general and administrative expenses
|
|
|
61,516 |
|
|
|
57,331 |
|
|
|
7 |
% |
|
|
114,577 |
|
|
|
102,969 |
|
|
|
11 |
% |
Depreciation and amortization
|
|
|
12,588 |
|
|
|
11,288 |
|
|
|
12 |
% |
|
|
24,800 |
|
|
|
22,595 |
|
|
|
10 |
% |
Loss (gain) on sale of operating assets
|
|
|
73 |
|
|
|
(174 |
) |
|
|
** |
|
|
|
77 |
|
|
|
(303 |
) |
|
|
** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
26,326 |
|
|
$ |
30,391 |
|
|
|
(13 |
%) |
|
$ |
11,932 |
|
|
$ |
21,700 |
|
|
|
(45 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
** |
Percentages are not meaningful. |
Venues and Sponsorship revenue increased $8.0 million, or
6%, during the three months ended June 30, 2006 as compared
to the same period of the prior year primarily due to
incremental revenue of $12.6 million related to the
acquisitions of Historic Theater Group venues in 2006 and Mean
Fiddler venues during the third quarter of 2005 and the addition
of Wembley Arena in London during the second quarter of 2006. We
also experienced an increase in our owned and/or operated
amphitheater results and merchandise revenue resulting primarily
from an increase in attendance. However, this increase was
partially offset by a decline in revenues from several of our
larger domestic and international theatrical venues and one of
our international arenas due to a decline in activity during
2006. In addition, sponsorship revenues declined due to the
timing of completion of sponsorship sales in 2006.
Venues and Sponsorship direct operating expenses increased
$6.4 million, or 16%, during the three months ended
June 30, 2006 as compared to the same period of the prior
year primarily due to incremental direct operating expenses of
$4.7 million related to the Mean Fiddler acquisition and
Wembley Arena noted above. In addition, direct operating
expenses increased related to the increase in merchandise
revenue.
Venues and Sponsorship selling, general and administrative
expenses increased $4.2 million, or 7%, during the three
months ended June 30, 2006 as compared to the same period
of the prior year primarily due to an increase of
$7.0 million in expenses including salary, rent and
property tax related to the acquisitions of Historic Theater
Group and Mean Fiddler and the commencement of the Wembley Arena
operating agreement. We also incurred higher selling, general
and administrative expenses related to building the venue
management team in 2006.
Venues and Sponsorship depreciation and amortization expense
increased $1.3 million, or 12%, during the three months
ended June 30, 2006 as compared to the same period of the
prior year primarily due to increased depreciation related to
capital expenditures to improve the audience experience at our
owned and/or operated amphitheaters.
Overall, the decrease in operating income for Venues and
Sponsorship in the second quarter of 2006 as compared to the
same period of 2005 is due primarily to reduced activity in
several of our larger theatrical venues and an arena, a
reduction in sponsorship sales, increased costs related to
building the venue management team and higher depreciation
expense for our domestic venues. Offsetting this decline were
the improved operating results from our owned and/or operated
amphitheaters.
Venues and Sponsorship revenue increased $11.0 million, or
5%, during the six months ended June 30, 2006 as compared
to the same period of the prior year primarily due to
incremental revenue of $20.7 million
30
related to the acquisitions of Historic Theater Group venues in
2006 and Mean Fiddler venues during the third quarter of 2005
and the commencement of the Wembley Arena operating agreement
during the second quarter of 2006. We also experienced an
increase in our owned and/or operated amphitheater operating
results and merchandise revenue driven primarily from an
increase in attendance. However, these increases were partially
offset by a decline in revenues from a few of our larger
theaters and an arena due to weaker content and less events in
2006. In addition, sponsorship revenues declined due to the
timing of completion of sponsorship sales in 2006.
Venues and Sponsorship direct operating expenses increased
$6.6 million, or 10%, during the six months ended
June 30, 2006 as compared to the same period of the prior
year primarily due to the Mean Fiddler venues and the Wembley
Arena noted above, representing an increase of
$8.3 million. In addition, direct operating expenses
increased related to the increase in merchandise revenue.
However, these increases were partially offset by a decline in
direct operating expenses from a few of our larger theaters and
an arena due to weaker content and less events in 2006.
Venues and Sponsorship selling, general and administrative
expenses increased $11.6 million, or 11%, during the six
months ended June 30, 2006 as compared to the same period
of the prior year primarily due to an increase of
$11.6 million in expenses including salary, rent and
property tax related to the acquisitions of Historic Theater
Group and Mean Fiddler and the commencement of the Wembley Arena
operating agreement. In addition, we incurred higher salary
expense as a result of increased staffing for the venue
management team.
Venues and Sponsorship depreciation and amortization expense
increased $2.2 million, or 10%, during the six months ended
June 30, 2006 as compared to the same period of the prior
year primarily due to increased depreciation expense related to
capital expenditures to improve the audience experience at our
owned and/or operated amphitheaters.
Overall, the decrease in operating income for Venues and
Sponsorship in the first six months of 2006 as compared to the
same period of 2005 is due primarily to the operating results
for a few of our larger theaters and an arena being down due to
weaker content and less events in the first six months of 2006
and a reduction in sponsorship sales. In addition, this decrease
was driven by higher costs incurred related to building the
venue management team in 2006 and increased depreciation.
Offsetting this decline were the improved operating results from
our owned and/or operated amphitheaters and the Mean Fiddler
venues.
Digital Distribution Results of Operations
Our Digital Distribution segment operating results were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
|
Six Months Ended | |
|
|
|
|
June 30, | |
|
|
|
June 30, | |
|
|
|
|
| |
|
|
|
| |
|
|
|
|
2006 | |
|
2005 | |
|
% Change | |
|
2006 | |
|
2005 | |
|
% Change | |
(in thousands) |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Revenue
|
|
$ |
20,567 |
|
|
$ |
17,705 |
|
|
|
16 |
% |
|
$ |
31,155 |
|
|
$ |
27,567 |
|
|
|
13 |
% |
Direct operating expenses
|
|
|
678 |
|
|
|
708 |
|
|
|
4 |
% |
|
|
927 |
|
|
|
1,101 |
|
|
|
(16 |
%) |
Selling, general and administrative expenses
|
|
|
2,584 |
|
|
|
734 |
|
|
|
252 |
% |
|
|
4,882 |
|
|
|
1,483 |
|
|
|
229 |
% |
Depreciation and amortization
|
|
|
114 |
|
|
|
87 |
|
|
|
31 |
% |
|
|
180 |
|
|
|
163 |
|
|
|
10 |
% |
Gain on sale of operating assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
17,191 |
|
|
$ |
16,176 |
|
|
|
6 |
% |
|
$ |
25,166 |
|
|
$ |
24,820 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital Distribution revenues increased $2.9 million, or
16%, during the three months ended June 30, 2006 as
compared to the same period of the prior year primarily due to
additional ticket service charge rebates resulting from the
increase in the number of events and attendance within our
Events segment. The increase in
31
these revenues exceeds the growth for our Events segment during
the same period due to the type of events and the related
service charges.
Digital Distribution direct operating expenses remained
relatively flat during the three months ended June 30, 2006
as compared to the same period of the prior year due to the
small amount of direct operating expenses that are required for
this segment.
Digital Distribution selling, general and administrative
expenses increased $1.8 million, or 252%, during the three
months ended June 30, 2006 as compared to the same period
of the prior year primarily due to increases in salary for new
staff and consultant expenses related to our website and
internet management.
Overall, operating income for Digital Distribution increased
slightly in the second quarter of 2006 as compared to the same
period of 2005 primarily due to additional ticket service charge
rebates, partially offset by the increased costs related to
building the digital distribution management team and developing
our on-line presence.
Digital Distribution revenues increased $3.6 million, or
13%, during the six months ended June 30, 2006 as compared
to the same period of the prior year primarily due to additional
ticket service charge rebates resulting from the increase in the
number of events and attendance within our Events segment.
Digital Distribution direct operating expenses remained
relatively flat during the six months ended June 30, 2006
as compared to the same period of the prior year due to the
small amount of direct operating expenses that were incurred for
this segment.
Digital Distribution selling, general and administrative
expenses increased $3.4 million, or 229%, during the six
months ended June 30, 2006 as compared to the same period
of the prior year primarily due to increases in salary for new
staff and consultant expenses related to our website and
internet management.
Overall, operating income for Digital Distribution increased
slightly in the first six months of 2006 as compared to the same
period of 2005 primarily due to additional ticket service charge
rebates, partially offset by the increased costs related to
building the digital distribution management team and developing
our on-line presence.
Other Results of Operations
Our other operating results were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
|
Six Months Ended | |
|
|
|
|
June 30, | |
|
|
|
June 30, | |
|
|
|
|
| |
|
|
|
| |
|
|
|
|
2006 | |
|
2005 | |
|
% Change | |
|
2006 | |
|
2005 | |
|
% Change | |
(in thousands) |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Revenue
|
|
$ |
9,735 |
|
|
$ |
11,635 |
|
|
|
(16 |
%) |
|
$ |
18,741 |
|
|
$ |
32,132 |
|
|
|
(42 |
%) |
Direct operating expenses
|
|
|
1,514 |
|
|
|
2,001 |
|
|
|
(24 |
%) |
|
|
2,185 |
|
|
|
8,961 |
|
|
|
(76 |
%) |
Selling, general and administrative expenses
|
|
|
8,501 |
|
|
|
10,411 |
|
|
|
(18 |
%) |
|
|
15,770 |
|
|
|
20,774 |
|
|
|
(24 |
%) |
Depreciation and amortization
|
|
|
234 |
|
|
|
623 |
|
|
|
(62 |
%) |
|
|
469 |
|
|
|
1,264 |
|
|
|
(63 |
%) |
Loss (gain) on sale of operating assets
|
|
|
(36 |
) |
|
|
7 |
|
|
|
** |
|
|
|
(7,687 |
) |
|
|
(176 |
) |
|
|
** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
(478 |
) |
|
$ |
(1,407 |
) |
|
|
66 |
% |
|
$ |
8,004 |
|
|
$ |
1,309 |
|
|
|
** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
** |
Percentages are not meaningful. |
32
Other revenues decreased $1.9 million, or 16%, during the
three months ended June 30, 2006 as compared to the same
period of the prior year primarily due to a decrease in our
sports representation business as a result of the sale of a
portion of our sports representation business assets in Los
Angeles.
Other direct operating expenses decreased $0.5 million, or
24%, during the three months ended June 30, 2006 as
compared to the same period of the prior year primarily due to a
decrease in our sports representation business as a result of
the sale of a portion of our sports representation business
assets in Los Angeles.
Other selling, general and administrative expenses decreased
$1.9 million, or 18%, during the three months ended
June 30, 2006 as compared to the same period of the prior
year primarily due to decreases in expenses within our sports
representation business resulting from the sale of a portion of
our sports representation business assets early in 2006.
Overall, the decrease in operating loss for our other operations
during the second quarter of 2006 as compared to the same period
of 2005 is primarily due to the sale of a portion of our sports
representation business assets.
Other revenues decreased $13.4 million, or 42%, during the
six months ended June 30, 2006 as compared to the same
period of the prior year primarily due to a decrease in our
sports representation business resulting from an Australian golf
event managed in 2005 that we are no longer managing due to its
relocation to another country. In addition, revenues declined as
a result of the sale of a portion of our sports representation
business assets in Los Angeles.
Other direct operating expenses decreased $6.8 million, or
76%, during the six months ended June 30, 2006 as compared
to the same period of the prior year primarily due to a decrease
in our sports representation business resulting from the
relocation and loss of management over the Australian golf event
managed in 2005.
Other selling, general and administrative expenses decreased
$5.0 million, or 24%, during the six months ended
June 30, 2006 as compared to the same period of the prior
year primarily due to decreases in expenses within our sports
representation business resulting from the sale of a portion of
our sports representation business assets early in 2006.
Other gain on sale of operating assets increased
$7.5 million during the six months ended June 30, 2006
as compared to the same period of the prior year primarily due
to a gain recorded in 2006 on the sale of a portion of our
sports representation business assets located in Los Angeles.
Overall, the increase in operating income for our other
operations in the first six months of 2006 as compared to the
same period of 2005 is primarily due to the gain recorded on the
sale of a portion of our sports representation business assets.
33
Reconciliation of Segment Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
June 30, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
(in thousands) |
|
| |
|
| |
|
| |
|
| |
Events
|
|
$ |
(22,491 |
) |
|
$ |
(20,964 |
) |
|
$ |
(8,684 |
) |
|
$ |
(30,781 |
) |
Venues and Sponsorship
|
|
|
26,326 |
|
|
|
30,391 |
|
|
|
11,932 |
|
|
|
21,700 |
|
Digital Distribution
|
|
|
17,191 |
|
|
|
16,176 |
|
|
|
25,166 |
|
|
|
24,820 |
|
Other
|
|
|
(478 |
) |
|
|
(1,407 |
) |
|
|
8,004 |
|
|
|
1,309 |
|
Corporate
|
|
|
(8,866 |
) |
|
|
(8,938 |
) |
|
|
(16,673 |
) |
|
|
(29,288 |
) |
Eliminations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated and combined operating income (loss)
|
|
$ |
11,682 |
|
|
$ |
15,258 |
|
|
$ |
19,745 |
|
|
$ |
(12,268 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity and Capital Resources
Our working capital requirements and capital for our general
corporate purposes, including acquisitions and capital
expenditures, are funded from operations or from borrowings
under our senior secured credit facility described below. Our
cash is currently managed on a worldwide basis. Repatriation of
some of these funds could be subject to delay and could have
potential tax consequences, principally with respect to
withholding taxes paid in foreign jurisdictions which do not
give rise to a tax benefit in the United States due to our
current inability to realize foreign tax credits.
Our historical balance sheet reflects cash and cash equivalents
of $603.4 million and current and long-term debt of
$366.9 million at June 30, 2006, and cash and cash
equivalents of $403.7 million and current and long-term
debt of $366.8 million at December 31, 2005. These
debt balances do not include our outstanding redeemable
preferred stock.
In June 2006, we agreed to acquire HOB Entertainment, Inc.
through a merger transaction for $350 million in cash. We
currently expect the transaction, which is subject to customary
closing conditions, to close by the end of 2006. We believe that
we will be able to fund this acquisition with a combination of
existing cash and available borrowings under our existing senior
secured credit facility. We are also exploring additional
financing alternatives. However, if we do not pursue, or are
unable to secure, additional financing, this could limit our
ability to fund general working capital requirements and capital
expenditures in the near future.
We may need to incur additional debt or issue equity to make
other strategic acquisitions or investments. We cannot assure
that such financing will be available to us on acceptable terms
or that such financing will be available at all. Our ability to
issue additional equity may be constrained because our issuance
of additional stock may cause the Distribution to be taxable
under section 355(e) of the Internal Revenue Code, and,
under our tax matters agreement with Clear Channel, we would be
required to indemnify Clear Channel against the tax, if any. We
may make significant acquisitions in the near term, subject to
limitations imposed by our financing documents, market
conditions and the tax matters agreement.
We generally receive cash related to ticket revenues in advance
of the event, which is recorded in deferred income until the
event occurs. With the exception of some upfront costs and
artist deposits, which are recorded in prepaid expenses until
the event occurs, we pay the majority of event related expenses
at or after the event.
Our intra-year cash fluctuations are impacted by the seasonality
of our various businesses. Examples of seasonal effects include
our Events segment, which reports the majority of its revenues
in the second and third quarters, while our Venues and
Sponsorship segment reports the majority of its revenues in the
second, third and fourth quarters of the year. Cash inflows and
outflows depend on the timing of event-related payments but the
majority of the inflows generally occur prior to the event. See
Seasonality below. We believe that we
34
have sufficient financial flexibility to fund these fluctuations
and to access the global capital markets on satisfactory terms
and in adequate amounts, although there can be no assurance that
this will be the case. We expect cash flow from operations and
borrowings under our senior secured credit facility, along with
potential additional financing alternatives, to satisfy working
capital, capital expenditure and debt service requirements for
at least the succeeding year.
Sources of Cash
|
|
|
Senior Secured Credit Facility |
We have a $610 million multi-currency senior secured credit
facility consisting of a $325 million term loan and a
$285 million revolving credit facility. The revolving
credit facility provides for borrowings up to the amount of the
facility with sub-limits of up to $235 million to be
available for the issuance of letters of credit and up to
$100 million to be available for borrowings in foreign
currencies. The term loan portion of the credit facility matures
in June 2013. We are required to make minimum quarterly
principal repayments under the term loan of approximately
$3.2 million per year through March 2013, with the
remaining balance due at maturity. We are required to prepay the
outstanding term loan, subject to certain exceptions and
conditions, from certain asset sale proceeds and casualty and
condemnation proceeds that we do not reinvest within a
365-day period or from
additional debt issuance proceeds. The revolving credit portion
of the credit facility matures in June 2012. During the three
and six months ended June 30, 2006, we made principal
payments totaling $0.8 million and $1.6 million,
respectively, on the term loan. At June 30, 2006, the
outstanding balances on the term loan and revolving credit
facility were $323.4 million and $0, respectively. Taking
into account letters of credit of $101.4 million,
$183.6 million was available for future borrowings.
|
|
|
Redeemable Preferred Stock |
As part of the Separation, one of our subsidiaries sold
200,000 shares of Series A (voting) mandatorily
Redeemable Preferred Stock to third-party investors and issued
200,000 shares of Series B (non-voting) mandatorily
Redeemable Preferred Stock to Clear Channel who then sold this
Series B Redeemable Preferred Stock to third-party
investors. We did not receive any of the proceeds from the sale
of the Series B Redeemable Preferred Stock sold by Clear
Channel. As of June 30, 2006, we had 200,000 shares of
Series A Redeemable Preferred Stock and 200,000 shares
of Series B Redeemable Preferred Stock outstanding
(collectively, the Preferred Stock) with an
aggregate liquidation preference of $40 million. The
Preferred Stock accrues dividends at 13% per annum and is
mandatorily redeemable on December 21, 2011, although we
are obligated to make an offer to repurchase the Preferred Stock
at 101% of the liquidation preference in the event of a change
of control.
|
|
|
Guarantees of Third-Party Obligations |
As of June 30, 2006, we guaranteed the debt of third
parties of approximately $1.1 million, primarily related to
maximum credit limits on employee and tour related credit cards.
During the six months ended June 30, 2006, we received
$36.7 million of proceeds primarily related to the sale of
certain prepaid production assets, theatrical productions and
investments in nonconsolidated affiliates and portions of our
sports representation business assets.
The significant covenants on our $610 million,
multi-currency senior secured credit facility relate to total
leverage, senior leverage, interest coverage, and capital
expenditures contained and defined in the credit agreement. The
leverage ratio covenant requires us to maintain a ratio of
consolidated total indebtedness minus unrestricted cash and cash
equivalents, up to a maximum of $150 million (all as
defined by the credit agreement), to consolidated
earnings-before-interest-taxes-depreciation-and-amortization (as
defined by the credit agreement, Consolidated
EBITDA) of less than 4.5x through December 31, 2008,
and less than 4.0x
35
thereafter, provided that aggregated subordinated indebtedness
is less than $25 million. The senior leverage covenant,
which is only applicable provided aggregate subordinated
indebtedness is greater than $25 million, requires us to
maintain a ratio of consolidated senior indebtedness to
Consolidated EBITDA of less than 3.0x. The interest coverage
covenant requires us to maintain a minimum ratio of Consolidated
EBITDA to cash interest expense (as defined by the credit
agreement) of 2.5x. The capital expenditure covenant limits
annual capital expenditures (as defined by the credit agreement)
to $125 million or less through December 31, 2006, and
$110 million or less thereafter. In the event that we do
not meet these covenants, we are considered to be in default on
the credit facilities at which time the credit facilities may
become immediately due. This credit facility contains a cross
default provision that would be triggered if we were to default
on any other indebtedness greater than $10 million.
Our other indebtedness does not contain provisions that would
make it a default if we were to default on our credit facilities.
The fee we pay on borrowings on our $325 million senior
term loan is 2.25% above LIBOR. The fees we pay on our
$285 million multi-currency revolving credit facility
depend on our total leverage ratio. Effective April 4,
2006, our fees on borrowings reduced from 1.75% to 1.50% above
LIBOR and from .375% to .25% on the total remaining availability
on the revolving credit facility. In the event our leverage
ratio improves, the fees on revolving credit borrowings and the
unused availability decline gradually to .75% and .25%,
respectively, at a total leverage ratio of less than, or equal
to, 1.25x.
We believe there are no other agreements that contain provisions
that trigger an event of default upon a change in long-term debt
ratings that would have a material impact on our financial
statements.
At June 30, 2006, we were in compliance with all debt
covenants. We expect to remain in compliance with all of our
debt covenants throughout 2006.
Uses of Cash
During the six months ended June 30, 2006, our Venues and
Sponsorship segment used $2.0 million in cash, primarily
for our acquisition of an interest in Historic Theatre Group.
Historic Theatre Group operates three theaters in the
Minneapolis area that primarily host theatrical performances. In
addition, our Events segment used $2.0 million in cash,
primarily for our acquisitions of an interest in Angel Festivals
Limited, a dance festival promotion company; an interest in
Trunk Ltd., a specialty merchandise company; and interests in
several Concert Productions International entities, which engage
in full service global tours, provide certain artist services
and invest in theatrical productions.
Venue operations is a capital intensive business, requiring
consistent investment in our existing venues in order to address
audience and artist expectations, technological industry
advances and various federal and state regulations.
We categorize capital outlays into maintenance expenditures and
new venue expenditures. Maintenance expenditures are associated
with the renewal and improvement of existing venues and, to a
lesser extent, capital expenditures related to information
systems, web development and administrative offices. New venue
expenditures relate to either the construction of new venues or
major renovations to existing buildings that are being added to
our venue network. Capital expenditures typically increase
during periods when venues are not in operation.
36
Our capital expenditures consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
June 30, | |
|
|
| |
|
|
2006 | |
|
2005 | |
(in thousands) |
|
| |
|
| |
Maintenance expenditures
|
|
$ |
23,687 |
|
|
$ |
26,313 |
|
New venue expenditures
|
|
|
8,280 |
|
|
|
23,578 |
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$ |
31,967 |
|
|
$ |
49,891 |
|
|
|
|
|
|
|
|
While maintenance expenditures for the first six months of 2006
reflect a decrease over the same period of the prior year, we
expect the level of maintenance expenditures for the full year
to remain consistent with 2005 total expenditures. We continue
to improve the audience experience at our owned and/or operated
amphitheaters with much of this work being done before and after
the summer concert series.
New venue expenditures declined during the first six months of
2006 primarily due to the timing of capital expenditures
associated with the development and renovation of five venues,
three of which were completed in 2005. In addition, in May 2006,
we sold one of these venue projects which would have required us
to incur capital expenditures to build-out this venue. This sale
relieves us of these future capital expenditure commitments and
reimburses us for capital expenditures to date on this venue.
However, we expect to continue to incur additional costs in 2006
related to the build-out or renovation of other venues.
Our Board of Directors authorized a $150 million share
repurchase program in December 2005. As of July 31, 2006,
3.4 million shares have been repurchased for an aggregate
purchase price of $42.7 million, including commissions and
fees, with an average purchase price of $12.65 per share.
From January 1, 2006 to July 31, 2006, we repurchased
1.9 million shares of our common stock for an aggregate
purchase price of $24.7 million, including commissions and
fees.
Summary
Our primary short-term liquidity needs are to fund general
working capital requirements and capital expenditures while our
long-term liquidity needs are primarily acquisition related. Our
primary sources of funds for our short-term liquidity needs will
be cash flows from operations and borrowings under our credit
facility, while our long-term sources of funds will be from cash
from operations, long-term bank borrowings and other debt or
equity financing.
Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
June 30, | |
|
|
| |
|
|
2006 | |
|
2005 | |
(in thousands) |
|
| |
|
| |
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$ |
204,139 |
|
|
$ |
75,347 |
|
|
Investing activities
|
|
$ |
16,890 |
|
|
$ |
(49,785 |
) |
|
Financing activities
|
|
$ |
(29,840 |
) |
|
$ |
42,655 |
|
Cash provided by operations was $204.1 million for the six
months ended June 30, 2006 as compared to
$75.3 million for the six months ended June 30, 2005.
The $128.8 million increase in cash provided by operations
primarily resulted from an increase in net income, adjusted for
non-cash charges and non-operating activities, changes in escrow
cash balances and changes in the event related operating
accounts which are dependent on the number and size of events
on-going at period end. We held less cash in escrow during the
first six months of 2006 as compared to the same period of the
prior year due primarily to the acquisition of
37
Mean Fiddler in the third quarter of 2005. In addition, we
received more cash from advance ticket sales, based on the
timing and number of events going on sale during the first six
months of 2006 as compared to the same period of 2005, thus
resulting in an increase to cash provided by operations.
Conversely, we paid more accrued expenses in the first six
months of 2006 as compared to the same period of 2005, including
event related costs, resulting in a decrease to cash provided by
operations.
Cash provided by investing activities was $16.9 million for
the six months ended June 30, 2006, compared to cash used
in investing activities of $49.8 million for the six months
ended June 30, 2005. The $66.7 million increase in
cash provided by investing activities was primarily due to
$36.7 million of proceeds received from the sale of certain
prepaid production assets, theatrical productions and
investments in nonconsolidated affiliates and portions of our
sports representation business assets. In 2006, we received
$15.3 million from a minority interest partner in advance
of certain capital expenditures. Finally, our capital
expenditures declined during the first six months of 2006 as
compared to the same period of the prior year due to the timing
of five venue development and renovation projects, three of
which were completed in 2005.
Cash used in financing activities was $29.8 million for the
six months ended June 30, 2006, compared to cash provided
by financing activities of $42.7 million for the six months
ended June 30, 2005. The $72.5 million increase in
cash used in financing activities was primarily a result of
Clear Channel no longer funding our working capital requirements
subsequent to the Separation and also due to repurchases of our
common stock.
Seasonality
For financial statement purposes, our Events segment typically
experiences operating losses in the second and third quarters
due to the timing of the live music events, especially
domestically, where artist performance fees and other costs
typically exceed ticket revenues. These losses are offset by
higher operating income in the second and third quarters in our
Venues and Sponsorship segment as our outdoor venues are
primarily used in, and our sponsorship fulfillment is higher
during, May through September. In addition, the timing of tours
of top grossing acts can impact comparability of quarterly
results year over year, although annual results may not be
impacted.
Cash flows from the Events segment typically have a slightly
different seasonality as advance payments are often made for
artist performance fees and production costs in advance of the
date the related event tickets go on sale. These artist fees and
production costs are expensed when the event occurs. Once
tickets for an event go on sale, we begin to receive payments
from ticket sales, still in advance of when the event occurs. We
record these ticket sales as revenue when the event occurs.
Market Risk
We are exposed to market risks arising from changes in market
rates and prices, including movements in foreign currency
exchange rates and interest rates.
We have operations in countries throughout the world. The
financial results of our foreign operations are measured in
their local currencies. As a result, our financial results could
be affected by factors such as changes in foreign currency
exchange rates or weak economic conditions in the foreign
markets in which we have operations. Currently, we do not
operate in any hyper-inflationary countries. Our foreign
operations reported operating income of $9.0 million for
the six months ended June 30, 2006. We estimate that a 10%
change in the value of the United States dollar relative to
foreign currencies would change our operating income for the six
months ended June 30, 2006 by $0.9 million. As of
June 30, 2006, our primary foreign exchange exposure
included the Euro, British Pound, Swedish Kroner and Canadian
Dollar.
38
This analysis does not consider the implication such currency
fluctuations could have on the overall economic conditions of
the United States or other foreign countries in which we operate
or on the results of operations of our foreign entities.
Occasionally, we will use forward currency contracts to reduce
our exposure to foreign currency risk. The principal objective
of such contracts is to minimize the risks and/or costs
associated with artist fee commitments. At June 30, 2006,
we had $35.2 million outstanding in forward currency
contracts.
Our market risk is also affected by changes in interest rates.
We had $366.9 million total debt outstanding as of
June 30, 2006, of which $161.7 million was variable
rate debt.
Based on the amount of our floating-rate debt as of
June 30, 2006, each 25 basis point increase or
decrease in interest rates would increase or decrease our annual
interest expense and cash outlay by approximately
$0.4 million. This potential increase or decrease is based
on the simplified assumption that the level of floating-rate
debt remains constant with an immediate
across-the-board
increase or decrease as of June 30, 2006 with no subsequent
change in rates for the remainder of the period.
We currently use interest rate swaps and other derivative
instruments to reduce our exposure to market risk from changes
in interest rates. We do not intend to hold or issue interest
rate swaps for trading purposes. The accounting for changes in
the fair value of a derivative instrument depends on whether it
has been designated and qualifies as part of a hedging
relationship, and further, on the type of hedging relationship.
For derivative instruments that are designated and qualify as
hedging instruments, we must designate the hedging instrument,
based upon the exposure being hedged, as a fair value hedge,
cash flow hedge or a hedge of a net investment in a foreign
operation. We formally document all relationships between
hedging instruments and hedged items, as well as its risk
management objectives and strategies for undertaking various
hedge transactions. We formally assess, both at inception and at
least quarterly thereafter, whether the derivatives that are
used in hedging transactions are highly effective in offsetting
changes in either the fair value or cash flows of the hedged
item. If a derivative ceases to be a highly effective hedge, we
discontinue hedge accounting. We account for our derivative
instruments that are not designated as hedges at fair value with
changes in fair value recorded in current earnings during the
period of change.
For derivative instruments that are designated and qualify as a
fair value hedge (i.e., hedging the exposure to changes in the
fair value of an asset or a liability or an identified portion
thereof that is attributable to a particular risk), the gain or
loss on the derivative instrument as well as the offsetting loss
or gain on the hedged item attributable to the hedged risk are
recognized in the same line item associated with the hedged item
in current earnings during the period of the change in fair
values (for example, in interest expense when the hedged item is
fixed-rate debt). For derivative instruments that are designated
and qualify as a cash flow hedge (i.e., hedging the exposure to
variability in expected future cash flows that is attributable
to a particular risk), the effective portion of the gain or loss
on the derivative instrument is reported as a component of other
comprehensive income and reclassified into earnings in the same
line item associated with the forecasted transaction in the same
period or periods during which the hedged transaction affects
earnings (for example, in interest expense when the hedged
transactions are interest cash flows associated with
floating-rate debt). The remaining gain or loss on the
derivative instrument in excess of the cumulative change in the
present value of future cash flows of the hedged item, if any,
is recognized in other income (expense) net in
current earnings during the period of change. For derivative
instruments that are designated and qualify as a hedge of a net
investment in a foreign currency, the gain or loss is reported
in other comprehensive income as part of the cumulative
translation adjustment to the extent it is effective. Any
ineffective portions of net investment hedges are recognized in
other income (expense) net in current earnings
during the period of change.
In March 2006, we entered into two separate interest rate swaps
for which we purchased a series of interest rate caps and sold a
series of interest rate floors with a $162.5 million
aggregate notional amount that effectively converts a portion of
our floating-rate debt to a fixed-rate basis. These agreements
expire in March 2009. The fair value of these agreements at
June 30, 2006 was an asset of $1.9 million. These
agreements were put in place to eliminate or reduce the
variability of a portion of the cash flows from the interest
payments
39
related to the senior secured credit facility. The terms of the
senior secured credit facility required that an interest rate
swap be put in place for at least 50% of the outstanding debt
and for at least three years.
Ratio of Earnings to Fixed Charges
The ratio of earnings to fixed charges is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, | |
|
Year Ended December 31, | |
| |
|
| |
2006 | |
|
2005 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
1.29 |
|
|
|
0.35 |
|
|
|
0.41 |
|
|
|
1.11 |
|
|
|
1.67 |
|
|
|
1.29 |
|
|
|
* |
|
|
|
|
|
* |
For the year ended December 31, 2001, fixed charges
exceeded earnings before income taxes and fixed charges by
$262.0 million. |
The ratio of earnings to fixed charges was computed on a total
enterprise basis. Earnings represent income from continuing
operations before income taxes less equity in undistributed net
income (loss) of unconsolidated affiliates plus fixed charges.
Fixed charges represent interest, amortization of debt discount
and expense, and the estimated interest portion of rental
charges.
Recent Accounting Pronouncements
In February 2006, the FASB issued FASB Staff Position
No. FAS 123(R)-4,
Contingent Cash Settlement (FSP
FAS 123(R)-4).
FSP FAS 123(R)-4
requires companies to classify employee stock options and
similar instruments with contingent cash settlement features as
equity awards under FASB Statement of Financial Accounting
Standards No. 123 (revised 2004), Share-Based
Payment (Statement 123(R)), provided that
(i) the contingent event that permits or requires cash
settlement is not considered probable of occurring and is not
within the control of the employee and (ii) the award
includes no other features that would require liability
classification. We considered FSP
FAS123(R)-4 with our
implementation of Statement 123(R), and determined it had
no impact on our financial position or results of operations.
In April 2006, the FASB issued FASB Staff Position
FIN 46(R)-6,
Determining the Variability to be Considered When Applying
FASB Interpretation No. 46(R) (FSP
FIN 46(R)-6).
FSP FIN 46(R)-6
addresses the approach to determine the variability to consider
when applying FASB Interpretation No. 46 (revised December
2003), Consolidation of Variable Interest Entities
(FIN 46(R)). The variability that is
considered in applying FIN 46(R) may affect (i) the
determination as to whether the entity is a variable interest
entity, (ii) the determination of which interests are
variable interest in the entity, (iii) if necessary, the
calculation of expected losses and residual returns of the
entity, and (iv) the determination of which party is the
primary beneficiary of the variable interest entity. We will
adopt FSP
FIN 46(R)-6 on
July 1, 2006 and do not anticipate adoption to materially
impact our financial position or results of operations.
In June 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109
(FIN 48). FIN 48 creates a single model to
address uncertainty in tax positions. FIN 48 clarifies the
accounting for income taxes by prescribing the minimum
recognition threshold a tax position is required to meet before
being recognized in the financial statements. FIN 48 also
provides guidance on derecognition, measurement, classification,
interest and penalties, accounting in interim periods,
disclosure and transition. FIN 48 is effective for fiscal
years beginning after December 15, 2006. We are currently
assessing the impact of FIN 48 on our financial position
and results of operations.
In June 2006, the Emerging Issues Task Force (EITF)
ratified the consensus reached in
Issue 06-3
How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income
Statement (That Is, Gross versus Net Presentation)
(EITF 06-3).
EITF 06-3 is
applicable to all taxes that are externally imposed on a revenue
producing transaction between a seller and a customer.
EITF 06-3
concludes that a company may adopt a policy of presenting taxes
either gross within revenue or net. If taxes subject to
EITF 06-3 are
significant, a company is required to disclose its accounting
policy for
40
presenting taxes and the amounts of such taxes that are
recognized on a gross basis.
EITF 06-3 is
effective for the first interim reporting period beginning after
December 15, 2006, with early application of this guidance
permitted. We adopted
EITF 06-3 on
June 30, 2006, and have added the required disclosures to
reflect our policy on presenting taxes on a net basis.
Stock Option Accounting
We adopted Statement 123(R), which is a revision of FASB
Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation
(Statement 123) effective January 1, 2006.
Statement 123(R) supersedes Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25), and amends FASB Statement of
Financial Accounting Standards No. 95, Statement of Cash
Flows. Generally, the approach in Statement 123(R) is
similar to the approach described in Statement 123.
However, Statement 123(R) requires all share-based payments
to employees, including grants of employee stock options, to be
recognized in the income statement based on their fair values.
In accordance with Statement 123(R), we continue to use the
Black-Scholes option pricing model to estimate the fair value of
our stock options at the date of grant. Pro forma disclosure is
no longer an alternative. We chose the modified-prospective
application of Statement 123(R) and recorded
$0.5 million and $1.0 million of non-cash compensation
expense during the three and six months ended June 30,
2006. We expect that future periods of 2006 will be impacted by
similar amounts until additional stock option grants are
approved. The total amount of compensation costs not yet
recognized related to nonvested stock options at June 30,
2006 is $6.7 million with a weighted average period over
which it is expected to be recognized of 5 years.
Prior to adoption of Statement 123(R), we accounted for our
stock-based award plans in accordance with APB 25, and
related interpretations, under which compensation expense was
recorded only to the extent that the current market price of the
underlying stock exceeds the exercise price. In addition, we
disclosed the pro forma net income (loss) as if the stock-based
awards had been accounted for using the provisions of
Statement 123. Pro forma earnings (loss) per share amounts
are not disclosed as we had no common stock prior to the
Separation. There have been no modifications made to or changes
in the terms related to any outstanding stock options prior to
the adoption of Statement 123(R).
Critical Accounting Policies
The preparation of our financial statements in conformity with
Generally Accepted Accounting Principles requires management to
make estimates, judgments and assumptions that affect the
reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amount of expenses during the
reporting period. On an ongoing basis, we evaluate our estimates
that are based on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances. The result of these evaluations forms the basis
for making judgments about the carrying values of assets and
liabilities and the reported amount of expenses that are not
readily apparent from other sources. Because future events and
their effects cannot be determined with certainty, actual
results could differ from our assumptions and estimates, and
such difference could be material. Management believes that the
following accounting estimates are the most critical to aid in
fully understanding and evaluating our reported financial
results, and they require managements most difficult,
subjective or complex judgments, resulting from the need to make
estimates about the effect of matters that are inherently
uncertain. The following narrative describes these critical
accounting estimates, the judgments and assumptions and the
effect if actual results differ from these assumptions.
|
|
|
Allowance for Doubtful Accounts |
We evaluate the collectibility of our accounts receivable based
on a combination of factors. Generally, we record specific
reserves to reduce the amounts recorded to what we believe will
be collected when a customers account ages beyond typical
collection patterns, or we become aware of a customers
inability to meet its financial obligations. To a lesser extent,
we recognize reserves based on historical experience of bad
debts as a percentage of revenues for applicable businesses,
adjusted for relative improvements or deteriorations in the
agings.
41
Long-lived assets, such as property, plant and equipment, are
reviewed for impairment when events and circumstances indicate
that depreciable and amortizable long-lived assets might be
impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amount of
those assets. When specific assets are determined to be
unrecoverable, the cost basis of the asset is reduced to reflect
the current fair market value.
We use various assumptions in determining the current fair
market value of these assets, including future expected cash
flows and discount rates, as well as future salvage values. Our
impairment loss calculations require us to apply judgment in
estimating future cash flows, including forecasting useful lives
of the assets and selecting the discount rate that reflects the
risk inherent in future cash flows.
If actual results are not consistent with our assumptions and
judgments used in estimating future cash flows and asset fair
values, we may be exposed to future impairment losses that could
be material to our results of operations.
Goodwill represents the excess of the purchase price over the
fair value of identifiable net assets acquired in business
combinations. We review goodwill for any potential impairment at
least annually using the income approach to determine the fair
value of our reporting units. The fair value of our reporting
units is used to apply value to the net assets of each reporting
unit. To the extent that the carrying amount of net assets would
exceed the fair value, an impairment charge may be required to
be recorded.
The income approach we use for valuing goodwill involves
estimating future cash flows expected to be generated from the
related assets, discounted to their present value using a
risk-adjusted discount rate. Terminal values are also estimated
and discounted to their present value.
Revenue from the presentation and production of an event is
recognized after the performance occurs upon settlement of the
event. Revenue collected in advance of the event is recorded as
deferred income until the event occurs. Revenue collected from
sponsorships and other revenue, which is not related to any
single event, is classified as deferred income and generally
amortized over the operating season or the term of the contract.
We believe that the credit risk with respect to trade
receivables is limited due to the large number and the
geographic diversification of our customers.
We account for taxes that are externally imposed on revenue
producing transactions on a net basis, as a reduction to revenue.
Barter transactions represent the exchange of display space or
tickets for advertising, merchandise or services. These
transactions are generally recorded at the lower of the fair
market value of the display space or tickets relinquished or the
fair value of the advertising, merchandise or services received.
Revenue is recognized on barter and trade transactions when the
advertisements are displayed or the event occurs for which the
tickets are exchanged. Expenses are recorded when the
advertising, merchandise or service is received or when the
event occurs.
We are currently involved in certain legal proceedings and, as
required, have accrued our estimate of the probable costs for
the resolution of these claims. Managements estimates used
have been developed in consultation with counsel and are based
upon an analysis of potential results, assuming a combination of
litigation and settlement strategies. It is possible, however,
that future results of operations for any particular
42
period could be materially affected by changes in our
assumptions or the effectiveness of our strategies related to
these proceedings.
We account for income taxes using the liability method in
accordance with FASB Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes. Under this
method, deferred tax assets and liabilities are determined based
on differences between financial reporting bases and tax bases
of assets and liabilities and are measured using the enacted tax
rates expected to apply to taxable income in the periods in
which the deferred tax asset or liability is expected to be
realized or settled. Deferred tax assets are reduced by
valuation allowances if we believe it is more likely than not
that some portion or the entire asset will not be realized. As
all earnings from our foreign operations are permanently
reinvested and not distributed, our income tax provision does
not include additional U.S. taxes on foreign operations. It
is not practical to determine the amount of federal income
taxes, if any, that might become due in the event that the
earnings were distributed.
Our provision for income taxes has been computed on the basis
that we file separate consolidated income tax returns with our
subsidiaries. Prior to the Separation, our operations were
included in a consolidated federal income tax return filed by
Clear Channel. Certain tax liabilities owed by us were remitted
to the appropriate taxing authority by Clear Channel and were
accounted for as non-cash capital contributions by Clear Channel
to us. Tax benefits recognized on employee stock option
exercises were retained by Clear Channel. Subsequent to the
Separation, we file separate consolidated income tax returns.
|
|
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
Required information is within Item 2. Managements
Discussion and Analysis of Financial Condition and Results of
Operations Market Risk.
|
|
Item 4. |
Controls and Procedures |
Introduction
Live Nation became subject to the periodic and other reporting
requirements of the Securities Exchange Act of 1934, as amended,
on December 21, 2005, the date of our Separation from Clear
Channel.
Evaluation of Disclosure Controls and Procedures
Live Nation (the Company) has established disclosure
controls and procedures to ensure that material information
relating to the Company, including its consolidated
subsidiaries, is made known to the officers who certify the
Companys financial reports and to other members of senior
management and the Board of Directors. It should be noted that,
because of inherent limitations, our disclosure controls and
procedures, however well designed and operated, can provide only
reasonable, and not absolute, assurance that the objectives of
the disclosure controls and procedures are met.
Based on their evaluation as of June 30, 2006, the Chief
Executive Officer and Chief Financial Officer of the Company
have concluded that the Companys disclosure controls and
procedures (as defined in
Rules 13a-15(e)
and 15d-15(e) under the
Securities Exchange Act of 1934) are effective to ensure that
the information required to be disclosed by the Company in the
reports that it files or submits under the Securities Exchange
Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in SEC rules and
forms.
Managements Report on Internal Control over Financial
Reporting
As a result of our registration with the Securities and Exchange
Commission, we will be required to comply with Section 404
of the Sarbanes-Oxley Act of 2002 and regulations promulgated
thereunder as of December 31, 2006. We are currently
performing the system and process evaluation and testing
required in an effort to comply with the management
certification and auditor attestation requirements of
Section 404.
43
PART II OTHER INFORMATION
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|
Item 1. |
Legal Proceedings |
We initiated a lawsuit in July 2003 in the State Court of
Santa Clara County, California against the City of Mountain
View and Shoreline Regional Park Community, seeking declaratory
judgment, specific performance and injunctive relief and
remedies for breach of contract, inverse condemnation and
indemnification as a result of the defendants failure to
provide parking lots and calculate rent payments in accordance
with our lease agreement with the defendants. The defendants in
that suit counterclaimed against us seeking accounting and
declaratory judgment and alleging theft, conversion, false
claims, breach of contract, and racketeering relating to our
payments under the lease agreement. Effective May 10, 2006,
the parties entered into a settlement agreement, which does not
constitute an admission of wrongdoing or liability by us. This
settlement of the litigation was fully accrued for in our
results of operations during 2005 and the first quarter of 2006.
In addition, the parties entered into an amended lease agreement
related to this amphitheater. The new lease includes fixed
annual rent payments and an additional rent amount prepaid in
the second quarter of 2006 which will be amortized on a
straight-line basis over the life of the new lease.
We were a defendant in a lawsuit filed by Melinda Heerwagen on
June 13, 2002, in the U.S. District Court for the
Southern District of New York. The plaintiff, on behalf of a
putative class consisting of certain concert ticket purchasers,
alleged that anti-competitive practices for concert promotion
services by us nationwide caused artificially high ticket
prices. On August 11, 2003, the Court ruled in our favor,
denying the plaintiffs class certification motion. The
plaintiff appealed this decision to the U.S. Court of
Appeals for the Second Circuit. On January 10, 2006, the
U.S. Court of Appeals for the Second Circuit affirmed the
ruling in our favor by the District Court. On January 17,
2006, the plaintiff filed a Notice of Voluntary Dismissal of her
action in the Southern District of New York.
We are a defendant in twenty putative class actions filed by
different named plaintiffs in various U.S. District Courts
throughout the country. The claims made in these actions are
substantially similar to the claims made in the Heerwagen
action, except that the geographic markets alleged are
regional, statewide or more local in nature, and the members of
the putative classes are limited to individuals who purchased
tickets to concerts in the relevant geographic markets alleged.
We have filed our answers in some of these actions, and we have
denied liability. On December 5, 2005, we filed a motion
before the Judicial Panel on Multidistrict Litigation to
transfer these actions and any similar ones commenced in the
future to a single federal district court for coordinated
pre-trial proceedings. On April 17, 2006, the Panel granted
our motion and ordered the consolidation and transfer of the
actions to the U.S. District Court for the Central District
of California. We intend to vigorously defend all claims in all
of the actions.
From time to time, we are involved in other legal proceedings
arising in the ordinary course of our business, including
proceedings and claims based upon violations of antitrust laws
and tortious interference, which could cause us to incur
significant expenses. We also have been the subject of personal
injury and wrongful death claims relating to accidents at our
venues in connection with our operations. As required, we have
accrued our 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, 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 our assumptions or
the effectiveness of our strategies related to these
proceedings. In addition, under our agreements with Clear
Channel, we have assumed and will indemnify Clear Channel for
liabilities related to our business for which they are a party
in the defense.
While we attempt to identify, manage and mitigate risks and
uncertainties associated with our business to the extent
practical under the circumstances, some level of risk and
uncertainty will always be present. Item 1A of our 2005
Annual Report on
Form 10-K
describes some of the risks and uncertainties associated with
our business which have the potential to materially affect our
business, financial condition or results
44
of operations. We do not believe that there have been any material
changes to the risk factors previously disclosed in our 2005
Annual Report on
Form 10-K.
|
|
Item 2. |
Unregistered Sales of Equity Securities and Use of
Proceeds |
Issuer Purchases of Equity Securities
The following table sets forth certain information about the
shares of our common stock we repurchased during the three
months ended June 30, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Dollar | |
|
|
|
|
|
|
Total Number | |
|
Value of Shares | |
|
|
Total Number | |
|
|
|
of Shares Purchased | |
|
that May Yet | |
|
|
of Shares | |
|
Average Price |
|
as Part of Publicly | |
|
Be Purchased | |
Period |
|
Repurchased(1) | |
|
Paid per Share |
|
Announced Program | |
|
Under the Program | |
|
|
| |
|
|
|
| |
|
| |
April 1 - April 30
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
107,331,764 |
|
May 1 - May 31
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
107,331,764 |
|
June 1 - June 30
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
107,331,764 |
|
|
|
(1) |
On December 22, 2005, we publicly announced that our Board
of Directors authorized a $150 million share repurchase
program effective immediately. The repurchase program is
authorized through December 31, 2006, although the program
may be suspended or discontinued at any time prior to that date. |
As of July 31, 2006, 3.4 million shares had been
repurchased for an aggregate purchase price of
$42.7 million, including commissions and fees, under the
repurchase program.
|
|
Item 3. |
Defaults Upon Senior Securities |
None.
|
|
Item 4. |
Submission of Matters to a Vote of Security Holders |
None.
|
|
Item 5. |
Other Information |
Amendment of Employment Agreement of Alan Ridgeway
On August 8, 2006, the Compensation Committee of the Board
of Directors of Live Nation, Inc. approved an amendment (the
Amendment) to the employment agreement (the
Ridgeway Agreement) of Alan Ridgeway
(Ridgeway), which was entered into on
November 28, 2005 by Ridgeway and Live Nation Worldwide,
Inc. (formerly known as SFX Entertainment, Inc. d/b/a Clear
Channel Entertainment) (referred to in this Item 5 of
Form 10-Q as the
Company), a subsidiary of Live Nation, Inc. Pursuant
to the Ridgeway Agreement, Ridgeway serves as the Chief
Financial Officer of the Company. The Amendment provides that
the Company will pay to Ridgeway $1,000,000 as a retention bonus
(the Retention Bonus), which will be offset against
any Performance Bonuses (as defined in the Ridgeway Agreement)
subsequently earned by Ridgeway under the Ridgeway Agreement. If
Ridgeway is still employed with the Company as of
December 31, 2010 (the Target Date), any
remaining Retention Bonus that has not been so offset
(Unearned Portion of the Retention Bonus) will be
deemed earned by Ridgeway. If Ridgeways employment is
terminated prior to the Target Date, any remaining Unearned
Portion of the Retention Bonus will be (i) repayable to the
Company within ten business days of such termination, if
Ridgeways employment is terminated by the Company for
Cause or by Ridgeway without Good Reason
(as both terms are defined in the Ridgeway Agreement), or
(ii) deemed earned by Ridgeway, if Ridgeways
employment is terminated by the Company without
Cause, by Ridgeway with Good Reason, or
due to his death or disability.
This disclosure, which would otherwise be reported under
Item 1.01 of
Form 8-K, is being
made under this Item 5 of Form
10-Q in lieu of filing
a Form 8-K. The
foregoing description of the Amendment does not
45
purport to be complete and is qualified in its entirety by
reference to the Amendment, which is filed as Exhibit 10.3
to this Quarterly Report on
Form 10-Q, and to
the Ridgeway Agreement, which was filed as Exhibit 10.11 to
Live Nation Inc.s Form 10/A3, filed on
November 30, 2005.
Employment Agreement of Charles Walker
On May 5, 2006, we filed a Current Report on
Form 8-K reporting
that the Company entered into an employment agreement with
Charles Walker (the Walker Agreement), pursuant to
which Mr. Walker serves as our President of North America
Music. We attached the Walker Agreement as Exhibit 10.1 to
that Form 8-K, but
it was later determined that the Walker Agreement filed was not
the final version of the document that reflected the full
agreement in principle between the parties. The final version of
the Walker Agreement, which is attached to this Quarterly Report
on Form 10-Q as
Exhibit 10.2 hereto, differs from that filed with the
Form 8-K only in
providing that Mr. Walkers base salary was to be
effective as of May 1, 2005, which amounts to approximately
$71,000 in additional compensation to Mr. Walker.
46
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
2 |
.1 |
|
Agreement and Plan of Merger, dated June 30, 2006, by and
among Live Nation Worldwide, Inc., Harry Merger Sub Inc., HOB
Entertainment, Inc. (HOBE) and certain HOBE
stockholders named therein (incorporated by reference to
Exhibit 2.1 of the Companys Current Report on
Form 8-K filed July 7, 2006) |
|
4 |
.1 |
|
Lockup and Registration Rights Agreement, dated May 26,
2006, by and among Live Nation, Inc., SAMCO Investments Ltd.,
Concert Productions International Inc., CPI Entertainment
Rights, Inc., and the other parties set forth therein
(incorporated by reference to Exhibit 4.1 of the
Companys Current Report on Form 8-K filed
June 2, 2006) |
|
10 |
.1 |
|
Employment Agreement entered into May 1, 2006 by and
between SFX Entertainment, Inc., d/b/a Live Nation and Bruce
Eskowitz (incorporated by reference to Exhibit 10.1 of the
Companys Current Report on Form 8-K filed May 5,
2006) |
|
10 |
.2* |
|
Employment Agreement entered into May 1, 2006 by and
between SFX Entertainment, Inc., d/b/a Live Nation, and Charles
Walker |
|
10 |
.3* |
|
First Amendment to Employment Agreement entered into
August 8, 2006 by and between Live Nation Worldwide, Inc.
and Alan Ridgeway |
|
10 |
.4 |
|
Stock Purchase Agreement, dated May 26, 2006, by and among
Live Nation, Inc., SFX Entertainment, Inc., SAMCO Investments
Ltd., Concert Productions International Inc., CPI Entertainment
Rights, Inc., Michael Cohl and the other parties set forth
therein (incorporated by reference to Exhibit 10.2 of the
Companys Current Report on Form 8-K filed
June 2, 2006) |
|
10 |
.5 |
|
Securityholders Agreement, dated May 26, 2006, by and among
Live Nation, Inc., SFX Entertainment, Inc., SAMCO Investments
Ltd., Concert Productions International Inc., CPI Entertainment
Rights, Inc., Michael Cohl and the other parties set forth
therein (incorporated by reference to Exhibit 10.3 of the
Companys Current Report on Form 8-K filed
June 2, 2006) |
|
10 |
.6 |
|
Services Agreement, dated May 26, 2006, by and among CPI
International Touring Inc., CPI Touring (USA), Inc., Grand
Entertainment (Row), LLC, CPI Entertainment Content (2005),
Inc., CPI Entertainment Content (2006), Inc., KSC Consulting
(Barbados) Inc. and Michael Cohl (incorporated by reference to
Exhibit 10.4 of the Companys Current Report on
Form 8-K filed June 2, 2006) |
|
10 |
.7 |
|
Credit Agreement, dated May 26, 2006, by and among Live
Nation, Inc., SFX Entertainment, Inc., CPI International Touring
Inc., CPI Touring (USA), Inc., Grand Entertainment (Row), LLC,
CPI Entertainment Content (2005), Inc., and CPI Entertainment
Content (2006), Inc. (incorporated by reference to the exhibits
of the Companys Current Report on Form 8-K filed
June 2, 2006) |
|
31 |
.1* |
|
Certification of Chief Executive Officer |
|
31 |
.2* |
|
Certification of Chief Financial Officer |
|
32 |
.1** |
|
Section 1350 Certification of Chief Executive Officer |
|
32 |
.2** |
|
Section 1350 Certification of Chief Financial Officer |
47
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on
August 10, 2006.
|
|
|
|
|
Alan Ridgeway |
|
Chief Financial Officer |
|
|
|
|
|
Kathy Willard |
|
Chief Accounting Officer |
48
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
2 |
.1 |
|
Agreement and Plan of Merger, dated June 30, 2006, by and
among Live Nation Worldwide, Inc., Harry Merger Sub Inc., HOB
Entertainment, Inc. (HOBE) and certain HOBE
stockholders named therein (incorporated by reference to
Exhibit 2.1 of the Companys Current Report on
Form 8-K filed July 7, 2006) |
|
4 |
.1 |
|
Lockup and Registration Rights Agreement, dated May 26,
2006, by and among Live Nation, Inc., SAMCO Investments Ltd.,
Concert Productions International Inc., CPI Entertainment
Rights, Inc., and the other parties set forth therein
(incorporated by reference to Exhibit 4.1 of the
Companys Current Report on Form 8-K filed
June 2, 2006) |
|
10 |
.1 |
|
Employment Agreement entered into May 1, 2006 by and
between SFX Entertainment, Inc., d/b/a Live Nation and Bruce
Eskowitz (incorporated by reference to Exhibit 10.1 of the
Companys Current Report on Form 8-K filed May 5,
2006) |
|
10 |
.2* |
|
Employment Agreement entered into May 1, 2006 by and
between SFX Entertainment, Inc., d/b/a Live Nation, and Charles
Walker |
|
10 |
.3* |
|
First Amendment to Employment Agreement entered into
August 8, 2006 by and between Live Nation Worldwide, Inc.
and Alan Ridgeway |
|
10 |
.4 |
|
Stock Purchase Agreement, dated May 26, 2006, by and among
Live Nation, Inc., SFX Entertainment, Inc., SAMCO Investments
Ltd., Concert Productions International Inc., CPI Entertainment
Rights, Inc., Michael Cohl and the other parties set forth
therein (incorporated by reference to Exhibit 10.1 of the
Companys Current Report on Form 8-K filed
June 2, 2006) |
|
10 |
.5 |
|
Securityholders Agreement, dated May 26, 2006, by and among
Live Nation, Inc., SFX Entertainment, Inc., SAMCO Investments
Ltd., Concert Productions International Inc., CPI Entertainment
Rights, Inc., Michael Cohl and the other parties set forth
therein (incorporated by reference to Exhibit 10.2 of the
Companys Current Report on Form 8-K filed
June 2, 2006) |
|
10 |
.6 |
|
Services Agreement, dated May 26, 2006, by and among CPI
International Touring Inc., CPI Touring (USA), Inc., Grand
Entertainment (Row), LLC, CPI Entertainment Content (2005),
Inc., CPI Entertainment Content (2006), Inc., KSC Consulting
(Barbados) Inc. and Michael Cohl (incorporated by reference to
Exhibit 10.3 of the Companys Current Report on
Form 8-K filed June 2, 2006) |
|
10 |
.7 |
|
Credit Agreement, dated May 26, 2006, by and among Live
Nation, Inc., SFX Entertainment, Inc., CPI International Touring
Inc., CPI Touring (USA), Inc., Grand Entertainment (Row), LLC,
CPI Entertainment Content (2005), Inc., and CPI Entertainment
Content (2006), Inc. (incorporated by reference to
Exhibit 10.4 of the Companys Current Report on
Form 8-K filed June 2, 2006) |
|
31 |
.1* |
|
Certification of Chief Executive Officer |
|
31 |
.2* |
|
Certification of Chief Financial Officer |
|
32 |
.1** |
|
Section 1350 Certification of Chief Executive Officer |
|
32 |
.2** |
|
Section 1350 Certification of Chief Financial Officer |