Annual report pursuant to Section 13 and 15(d)

FAIR VALUE MEASUREMENTS

v2.4.0.6
FAIR VALUE MEASUREMENTS
 12 Months Ended
Dec. 31, 2011
FAIR VALUE MEASUREMENTS [Abstract]  
FAIR VALUE MEASUREMENTS
NOTE 7-FAIR VALUE MEASUREMENTS
 
The Company currently has various financial instruments carried at fair value, such as marketable securities, derivatives and contingent consideration, but does not currently have nonfinancial assets and nonfinancial liabilities that are required to be measured at fair value on a recurring basis. The Company's financial assets and liabilities are measured using inputs from all levels of the fair value hierarchy as defined in the FASB guidance for fair values. For this categorization, only inputs that are significant to the fair value are considered. The three levels are defined as follows:
 
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that can be accessed at the measurement date.
 
Level 2-Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (i.e., market corroborated inputs).
 
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, as of December 31, 2011 and 2010, which are classified on the balance sheets as cash and cash equivalents, other current assets, other long-term assets, other current liabilities and other long-term liabilities:
 
   
Fair Value Measurements
 at December 31, 2011
   
Fair Value Measurements
 at December 31, 2010
 
   
Level 1
    
Level 2
    
Level 3
    
Total
    
Level 1
    
Level 2
    
Level 3
    
Total
  
   
(in thousands)
    
(in thousands)
  
Assets:
                                                
Cash equivalents
   $ 138,537     $ -     $ -     $ 138,537     $ 96,293     $ -     $ -     $ 96,293  
Forward currency contracts
     -       355       -       355       -       6       -       6  
Interest rate cap
     -       7       -       7       -       167       -       167  
Investments in rabbi trusts
     -       -       -       -       3,576       -       -       3,576  
Stock options
     -       -       1,060       1,060       -       -       278       278  
Total
   $ 138,537     $ 362     $ 1,060     $ 139,959     $ 99,869     $ 173     $ 278     $ 100,320  
                                                                 
Liabilities:
                                                                
Interest rate swaps
   $ -     $ 3,037     $ -     $ 3,037     $ -     $ 2,119     $ -     $ 2,119  
Forward currency contracts
     -       -       -       -       -       2,769       -       2,769  
Contingent consideration
     -       -       8,363       8,363       -       -       15,976       15,976  
Other current liabilities
     -       -       -       -       3,576       -       -       3,576  
Total
   $ -     $ 3,037     $ 8,363     $ 11,400     $ 3,576     $ 4,888     $ 15,976     $ 24,440  
 
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. Investments in rabbi trusts include exchange-traded equity securities and mutual funds. Fair values for these investments are based on quoted prices in active markets. Fair values for the interest rate swaps and the interest rate cap are based on inputs corroborated by observable market data with similar tenors. Other current liabilities represent deferred compensation obligations to employees under a certain benefit plan. The liabilities related to this plan were adjusted based on changes in the fair value of the underlying employee-directed investments and therefore were classified consistent with the investments. In December 2010, the Company terminated this plan and all related assets were distributed to employees in 2011.
 
The Company has certain contingent consideration obligations for those acquisitions that occurred after December 31, 2008, which are measured at fair value using Level 3 inputs. The amounts due to the sellers are based on the achievement of agreed-upon financial performance metrics by the acquired companies where the contingent obligation is either earned or not earned. The Company records the liability at the time of the acquisition based on management's best estimates of the future results of the acquired companies compared to the agreed-upon metrics. The most significant estimate involved in the measurement process is the projection of future results of the acquired companies. The Company uses an implied probability method, which is based on one set of projections as its best estimate of future results of the acquired companies and, as a result, the Company does not develop a range of outcomes. By comparing these estimates to the agreed-upon metrics, the Company estimates the amount, if any, anticipated to be paid to the seller at a future date. For obligations payable at a date greater than twelve months from the acquisition date, the Company applies a discount rate to present value the estimated obligations. The discount rate is intended to reflect the risks of ownership, time-value of money and the associated risks of realizing the stream of projected cash flows. Subsequent to the date of acquisition, the Company updates the original valuation to reflect current projections of future results of the acquired companies and the passage of time. Accretion of, and changes in the valuations of contingent consideration are reported in acquisition transaction expenses. During the year ended December 31, 2011, the Company recognized a decrease of $7.6 million for its contingent consideration obligations primarily driven by a reduction in earnings from certain artist relationships and the timing of key artist tours partially offset by the acquisition of LN-HS Concerts. During the year ended December 31, 2010, the Company recognized an increase of $16.0 million for its contingent consideration obligations primarily driven by the acquisition of contingent consideration obligations for certain artist relationships as part of the Merger and the acquisition of LN-Haymon. See Note 8-Commitments and Contingent Liabilities for additional information related to the contingent payments.
 
The Company has stock options in a company that became publicly-traded in the third quarter of 2011 which are measured at fair value using Level 3 inputs. The stock options were received as consideration in connection with a licensing agreement entered into by a subsidiary of the Company and became fully-vested in the second quarter of 2011. The Company has recorded an asset for these options which was valued using the Black-Scholes option pricing model. The Company utilized information from the most recently available public filing and stock price of the company at the valuation date for assumptions with respect to share price, volatility and dividend yield inputs and utilized the remaining contractual period of the options as the expected term input and a risk-free rate consistent with that expected term. The Company has recorded revenue based on the valuation of the options as of the measurement date, which was the vesting date. The changes in the valuation after the measurement date are recorded in other expense (income)-net.
 
The following table summarizes the changes in the Company's Level 3 assets and liabilities for the years ended December 31, 2011 and 2010:
 
   
Stock Options
    
Contingent Consideration
  
   
(in thousands)
  
Balance as of December 31, 2009
   $ -     $ -  
Total gains and losses (realized/unrealized)included in earnings
     -       (3,083 )
Purchases
     278       (24,995 )
Settlements
     -       12,102  
Balance as of December 31, 2010
     278       (15,976 )
Total gains and losses (realized/unrealized)included in earnings
     782       11,691  
Purchases
     -       (4,078 )
Settlements
     -       -  
Balance as of December 31, 2011
   $ 1,060     $ (8,363 )
                 
The amount of total gains and losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held:
                
As of December 31, 2010
   $ -     $ (3,083 )
As of December 31, 2011
   $ 782     $ (11,674 )
 
Due to the short maturity, the carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximated their fair values at December 31, 2011 and 2010.
 
The Company's outstanding debt held by third-party financial institutions is carried at cost, adjusted for premiums or discounts. The Company's debt is not publicly-traded and, as it relates to the Company's debt that accrues interest at a variable rate, the carrying amounts typically approximate their fair value. The estimated fair values of the 8.125% senior notes, the 10.75% senior notes and the 2.875% convertible senior notes were $243.3 million, $306.4 million and $193.6 million at December 31, 2011, respectively. The estimated fair values of the 8.125% senior notes, the 10.75% senior notes and the 2.875% convertible senior notes were $252.0 million, $311.4 million and $195.8 million at December 31, 2010, respectively. The estimated fair value of the Company's third-party fixed-rate debt is based on third-party quotes, which are considered to be Level 2 inputs. The Company has fixed rate debt with noncontrolling interest partners of $25.7 million and $29.5 million at December 31, 2011 and 2010, respectively. The Company is unable to determine the fair value of this debt.
 
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, 2011 and 2010:
 
   
Fair Value
                          
   
Measurement
                          
   
As Of
    
Fair Value Measurements Using
    
Total
  
Description
  
December 31
    
Level 1
    
Level 2
    
Level 3
    
Losses
  
   
(in thousands)
  
2011 Impairments
                              
Property, plant and equipment
   $ 5,400     $ -     $ 5,400     $ -     $ 10,030  
Definite-lived intangible assets, net
   $ 44,585     $ -     $ -     $ 44,585       14,103  
2011 Total
                                   $ 24,133  
2010 Impairments
                                        
Property, plant and equipment
   $ 6,156     $ -     $ 5,000     $ 1,156     $ 16,377  
Definite-lived intangible assets, net
   $ -     $ -     $ -     $ -       17,178  
Indefinite-lived intangible assets
   $ 343,000     $ -     $ -     $ 343,000       10,000  
Artist advances
   $ 99,092     $ -     $ -     $ 99,092       13,373  
2010 Total
                                   $ 56,928  
 
During 2011, 2010 and 2009, the Company recorded an impairment charge of $10.0 million, $16.4 million and $9.6 million, respectively, as a component of depreciation and amortization for certain property, plant and equipment assets.  The 2011 impairment charge related to two amphitheaters, a music theater and a club in the Concerts segment.  The 2010 impairment charge was primarily related to a club in the Concerts segment and a theatrical theater in other operations.  The 2009 impairment charge was related to two music theaters, two clubs and a theater development project in the Concerts segment.  It was determined that these assets were impaired since the estimated undiscounted cash flows associated with the respective asset were less than its carrying value.  These cash flows were calculated using the estimated sale values for the assets being sold and/or operating cash flows, all of which were discounted to approximate fair value. The estimated sale values and operating cash flows used for these non-recurring fair value measurements are considered Level 2 and Level 3 inputs, respectively.
 
During 2011, 2010 and 2009, the Company recorded impairments related to definite-lived intangible assets of $14.1 million, $17.2 million and $0.9 million, respectively, as a component of depreciation and amortization. The 2011 impairment charge related to intangible assets for client/vendor relationships, revenue-generating contracts and venue management and leaseholds in the Concerts segment.  The 2010 impairment charge was primarily related to intangible assets for revenue-generating contracts and trademarks and naming rights in the Concerts segment. The 2009 impairment charge was related to intangible assets for venue management and leaseholds in the Concerts segment. It was determined that these assets were impaired since the estimated undiscounted cash flows associated with the respective asset were less than its carrying value. These cash flows were calculated using operating cash flows which were discounted to approximate fair value. The operating cash flows used for these non-recurring fair value measurements are considered Level 3 inputs.
 
During 2010, the Company recorded an impairment related to indefinite-lived intangible assets of $10.0 million, as a component of depreciation and amortization in the Ticketing segment.  It was determined that certain indefinite-lived intangible assets were impaired since the estimated fair value associated with those assets was less than its carrying value. The fair value of these assets was calculated using a relief-from royalty method. The relief-from royalty method applied a royalty rate to the projected earnings attributable to the indefinite-lived intangible assets. The projected earnings used for these non-recurring fair value measurements are considered Level 3 inputs.  There was no impairment charge recorded for the years ended December 31, 2011 and 2009.
 
During 2010 and 2009, the Company recorded impairments related to certain artist advances of $13.4 million and $1.9 million, respectively, as a component of direct operating expenses in the Concerts segment.  It was determined that the recoverability of certain artist advances was uncertain since the estimated undiscounted cash flows associated with those advances were less than their carrying value.  These cash flows were calculated using operating cash flows which were discounted to approximate fair value. The operating cash flows used for these non-recurring fair value measurements are considered Level 3 inputs.