Annual report pursuant to Section 13 and 15(d)

FAIR VALUE MEASUREMENTS

v2.4.0.6
FAIR VALUE MEASUREMENTS
 12 Months Ended
Dec. 31, 2012
FAIR VALUE MEASUREMENTS [Abstract]  
FAIR VALUE MEASUREMENTS
NOTE 6—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, 2012 and 2011, 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
    
Fair Value Measurements
  
   
at December 31, 2012
    
at December 31, 2011
  
   
Level 1
    
Level 2
    
Level 3
    
Total
    
Level 1
    
Level 2
    
Level 3
    
Total
  
   
(in thousands)
    
(in thousands)
  
Assets:
                                                
Cash equivalents
   $ 61,996     $ -     $ -     $ 61,996     $ 138,537     $ -     $ -     $ 138,537  
Forward currency contracts
     -       81       -       81       -       355       -       355  
Interest rate cap
     -       -       -       -       -       7       -       7  
Stock options
     -       -       204       204       -       -       1,060       1,060  
Total
   $ 61,996     $ 81     $ 204     $ 62,281     $ 138,537     $ 362     $ 1,060     $ 139,959  
                                                                 
Liabilities:
                                                                
Interest rate swaps
   $ -     $ 2,811     $ -     $ 2,811     $ -     $ 3,037     $ -     $ 3,037  
Forward currency contracts
     -       625       -       625       -       -       -       -  
Contingent consideration
     -       -       6,718       6,718       -       -       8,363       8,363  
Total
   $ -     $ 3,436     $ 6,718     $ 10,154     $ -     $ 3,037     $ 8,363     $ 11,400  
 
Cash equivalents consist of money market funds. Fair values for cash equivalents are based on quoted prices in an active market. Fair values for forward currency contracts are based on observable market transactions of spot and forward rates. Fair values for the interest rate swaps and the interest rate cap are based on inputs corroborated by observable market data with similar tenors.
 
The Company has certain contingent consideration obligations related to acquisitions which are measured at fair value using Level 3 inputs. The amounts due to the sellers are based on the achievement of agreed-upon financial performance metrics by the acquired companies where the contingent obligation is either earned or not earned. The Company records the liability at the time of the acquisition based on management's best estimates of the future results of the acquired companies compared to the agreed-upon metrics. Subsequent to the date of acquisition, the Company updates the original valuation to reflect current projections of future results of the acquired companies and the passage of time. Accretion of, and changes in the valuations of contingent consideration are reported in acquisition transaction expenses. During the year ended December 31, 2012, the Company recognized a decrease of $1.6 million for its contingent consideration obligations primarily due to changes in earnings from artist relationships and a payment of an obligation.  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 a new contingent obligation resulting from the acquisition of LN-HS Concerts. See Note 7—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 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.
 
 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, 2012 and 2011.
 
 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 the carrying amounts typically approximate fair value for the Company's debt that accrues interest at a variable rate, which are considered to be Level 2 inputs. The estimated fair values of the 7% senior notes, the 8.125% senior notes and the 2.875% convertible senior notes were $236.3 million, $273.4 million and $219.4 million at December 31, 2012, respectively. 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. See Note 4—Long-term Debt for discussion of the issuance of the 7% senior notes and redemption of the 10.75% senior notes. The estimated fair value of the Company's third-party fixed-rate debt is based on quoted market prices in active markets for the same or similar debt, which are considered to be Level 2 inputs. The Company has fixed rate debt held by noncontrolling interest partners with a face value of $24.5 million and $26.0 million at December 31, 2012 and 2011, 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, 2012 and 2011:
 
   
Fair Value
                          
   
Measurement
                          
   
As Of
    
Fair Value Measurements Using
    
Total
  
Description
  
December 31
    
Level 1
    
Level 2
    
Level 3
    
Losses
  
   
(in thousands)
  
2012 Impairments
                              
    Property, plant and equipment $ 5,983 $ - $ 5,983 $ - $ 4,266
Definite-lived intangible assets, net
   $ 90,176     $ -     $ -     $ 90,176      $ 89,584  
2012 Total
                                   $ 93,850  
                                         
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  
 
During 2012, 2011 and 2010, the Company recorded an impairment charge of $4.3 million, $10.0 million and $16.4 million, respectively, as a component of depreciation and amortization for certain property, plant and equipment. The 2012 impairment charge was primarily related to certain leasehold improvements and office furniture and equipment in the Artist Nation segment, an amphitheater in the Concerts segment and a theatrical theater in other operations. 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. It was determined that these assets were impaired since the estimated undiscounted future 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 2012, 2011 and 2010, the Company recorded impairments related to definite-lived intangible assets of $89.6 million, $14.1 million and $17.2 million, respectively, as a component of depreciation and amortization. The 2012 impairment charge was primarily related to intangible assets for client/vendor relationships in the Artist Nation segment and revenue-generating contracts and client/vendor relationships in the Concerts segment. 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. In all cases it was determined that these assets were impaired since the most recent estimated undiscounted future cash flows associated with the respective assets fell to levels below their carrying values. These impairments were then calculated using operating cash flows which were discounted to approximate fair value. The key inputs in these calculations include future cash flow projections, including revenue and profit margins, attrition rates as applicable, and, for the fair value computation, a discount rate.  The key inputs 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.
 
During 2010, the Company recorded impairments related to certain artist advances of $13.4 million 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 future 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.