Live Nation Entertainment Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2018

Recurring

The Company currently has various financial instruments carried at fair value, such as marketable securities, derivatives and contingent consideration, but does not currently have nonfinancial assets and liabilities that are required to be measured at fair value on a recurring basis. The Company’s financial assets and liabilities are measured using inputs from all levels of the fair value hierarchy as defined in the FASB guidance for fair value. For this categorization, only inputs that are significant to the fair value are considered. The three levels are defined as follows:

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that can be accessed at the measurement date.

Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (i.e., market corroborated inputs).

Level 3—Unobservable inputs that reflect assumptions about what market participants would use in pricing the asset or liability. These inputs would be based on the best information available, including the Company’s own data.

In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company’s financial assets and liabilities that are required to be measured at fair value on a recurring basis, which are classified on the balance sheets as cash and cash equivalents, other current assets, other current liabilities and other long-term liabilities:



	Fair Value Measurements at December 31, 2018								Fair Value Measurements at December 31, 2017
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
			(in thousands)								(in thousands)
Assets:
Cash equivalents	$	86,046	$	—	$	—	$	86,046	$	58,063	$	—	$	—	$	58,063
Forward currency contracts	—		779		—		779		—		114		—		114
Total	$	86,046	$	779	$	—	$	86,825	$	58,063	$	114	$	—	$	58,177
Liabilities:
Forward currency contracts	$	—	$	260	$	—	$	260	$	—	$	1,276	$	—	$	1,276
Put option	—		—		8,002		8,002		—		—		5,768		5,768
Subsidiary equity awards	—		—		3,571		3,571		—		—		—		—
Contingent consideration	—		—		62,475		62,475		—		—		70,039		70,039
Total	$	—	$	260	$	74,048	$	74,308	$	—	$	1,276	$	75,807	$	77,083

Cash equivalents consist of money market funds. Fair values for cash equivalents are based on quoted prices in an active market. Fair values for forward currency contracts are based on observable market transactions of spot and forward rates.

Certain third parties have a put option to sell their noncontrolling interest in one of the Company’s subsidiaries to the Company and such put option is carried at fair value using Level 3 inputs because either (i) the put option is triggered by the occurrence of specific events, one of which is certain to occur, that requires the Company to buy the noncontrolling interest or (ii) the redemption price is not at fair value and the equity holder does not bear the risk and rewards of ownership. The redemption price for these put options are a variable amount based on a formula linked to historical earnings. The Company has recorded a current liability for these put options which are valued based on the historic results of that subsidiary. Changes in the fair value are recorded in selling, general and administrative expenses.

The Company has certain contingent consideration obligations related to acquisitions which are measured at fair value using Level 3 inputs. The amounts due to the sellers are based on the achievement of agreed-upon financial performance metrics by the acquired companies where the contingent obligation is either earned or not earned. The Company records the liability at the time of the acquisition based on the present value of management’s best estimates of the future results of the acquired companies compared to the agreed-upon metrics. Subsequent to the date of acquisition, the Company updates the original valuation to reflect current projections of future results of the acquired companies and the passage of time. Accretion of, and changes in the valuations of, contingent consideration are reported in selling, general and administrative expenses. See Note 6—Commitments and Contingent Liabilities for additional information related to the contingent payments.

Due to their short maturity, the carrying amounts of accounts receivable, accounts payable and accrued expenses approximated their fair values at December 31, 2018 and 2017.

The Company’s outstanding debt held by third-party financial institutions is carried at cost, adjusted for discounts or debt issuance costs. The Company’s debt is not publicly traded and the carrying amounts typically approximate fair value for debt that accrues interest at a variable rate, which are considered to be Level 2 inputs as defined in the FASB guidance.

The following table presents the estimated fair values of the Company’s senior notes and convertible senior notes at December 31, 2018 and 2017:



	Estimated Fair Value at:
	December 31, 2018		December 31, 2017
	Level 2
	(in thousands)
4.875% Senior Notes due 2024	$	552,368	$	592,325
5.625% Senior Notes due 2026	$	302,097	$	—
5.375% Senior Notes due 2022	$	251,390	$	259,233
2.5% Convertible Senior Notes due 2023	$	561,699	$	—
2.5% Convertible Senior Notes due 2019	$	40,710	$	310,635

The estimated fair value of the Company’s third-party fixed-rate debt is based on quoted market prices in active markets for the same or similar debt, which are considered to be Level 2 inputs.

Non-recurring

The following table shows the fair value of the Company’s financial assets that have been adjusted to fair value on a non-recurring basis which had a significant impact on the Company’s results of operations for the years ended December 31, 2018 and 2017:



	Fair Value		Fair Value Measurements Using						Loss
Description	Measurement		Level 1		Level 2		Level 3		(Gain)
	(in thousands)
2018
Goodwill	$	20,332	$	—	$	—	$	20,332	$	10,500
2017
Goodwill	$	30,832	$	—	$	—	$	30,832	$	20,000

During 2018 and 2017, in conjunction with the Company’s annual impairment tests, goodwill impairments were recorded for the Artist Services (non-management) reporting unit in the Concerts segment in the amount of $10.5 million and $20.0 million, respectively, as a component of depreciation and amortization. The Company calculated these impairments using a combination of a discounted cash flow methodology, which uses both Level 2 and Level 3 inputs, and a market multiple methodology, which uses primarily Level 2 inputs. The key inputs include discount rates, market multiples, control premiums, revenue growth and estimates of future financial performance. See Note 1—The Company and Summary of Significant Accounting Policies and Note 2—Long-Lived Assets for further discussion of the Company’s methodology and these impairments.

As discussed in Note 2—Long-Lived Assets, during 2016, the Company believed certain of its investment balances were impaired based on financial information received regarding the bankruptcy or dissolution of two nonconsolidated affiliates, which are considered Level 3 inputs. There were no significant impairments for the years ended December 31, 2018 or 2017.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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