Annual report pursuant to Section 13 and 15(d)

FAIR VALUE MEASUREMENTS

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FAIR VALUE MEASUREMENTS
12 Months Ended
Dec. 31, 2013
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS
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 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, 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, 2013
 
Fair Value Measurements 
 at December 31, 2012
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
(in thousands)
 
 
 
 
 
(in thousands)
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents
$
26,627

 
$

 
$

 
$
26,627

 
$
61,996

 
$

 
$

 
$
61,996

Forward currency contracts

 
297

 

 
297

 

 
81

 

 
81

Stock options

 

 
469

 
469

 

 

 
204

 
204

Total
$
26,627

 
$
297

 
$
469

 
$
27,393

 
$
61,996

 
$
81

 
$
204

 
$
62,281

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
$

 
$
1,491

 
$

 
$
1,491

 
$

 
$
2,811

 
$

 
$
2,811

Forward currency contracts

 
1,543

 

 
1,543

 

 
625

 

 
625

Put option

 

 
435

 
435

 

 

 

 

Contingent consideration

 

 
5,934

 
5,934

 

 

 
6,718

 
6,718

Total
$

 
$
3,034

 
$
6,369

 
$
9,403

 
$

 
$
3,436

 
$
6,718

 
$
10,154


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 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 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 acquisition transaction expenses. See Note 7—Commitments and Contingent Liabilities for additional information related to the contingent payments.
The Company has stock options in both publicly traded and non-publicly traded companies that are measured at fair value using Level 3 inputs. The stock options were received as consideration in connection with operational agreements entered into by subsidiaries of the Company. The Company has recorded assets for these options which were valued using the Black-Scholes option pricing model.
A third-party has a put option to sell its noncontrolling interest to the Company in the second quarter of 2014 that was entered into as a separate transaction and therefore is carried at fair value using Level 3 inputs. The Company has recorded a current liability for this put option which is valued using the Black-Scholes option pricing model. Changes in the fair value are recorded in acquisition transaction expenses.
Due to their short maturity, the carrying amounts of accounts receivable, accounts payable and accrued expenses approximated their fair values at December 31, 2013 and 2012.
The Company’s outstanding debt held by third-party financial institutions is carried at cost, adjusted for premium 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 and the 2.875% convertible senior notes were $461.9 million and $223.0 million, respectively, at December 31, 2013. 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, respectively, at December 31, 2012. 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. See Note 4—Long-Term Debt for discussion of the issuance of additional 7% senior notes and redemption of the 8.125% senior notes. The Company has fixed rate debt held by noncontrolling interest partners with a face value of $34.6 million and $24.5 million at December 31, 2013 and 2012, 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, 2013 and 2012:
 
 
Fair Value
Measurement
 
 
 
 
 
 
 
 
 
 
at
 
Fair Value Measurements Using 
 
 
Total 
 
Description
 
 
December 31
 
Level 1 
 
 
Level 2 
 
 
Level 3 
 
 
Losses 
 
 
 
(in thousands)
2013 Impairments
 
 
 
 
 
 
 
 
 
 
Definite-lived intangible assets, net
 
$
660

 
$

 
$

 
$
660

 
$
10,625

Investments in nonconsolidated affiliates
 
$

 
$

 
$

 
$

 
$
9,174

2013 Total
 
 

 
 

 
 

 
 

 
$
19,799

 
 
 
 
 
 
 
 
 
 
 
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


In 2013, there were no significant impairment charges recorded related to property, plant and equipment. During 2012 and 2011, the Company recorded impairment charges of $4.3 million and $10.0 million, respectively, as a component of depreciation and amortization for certain property, plant and equipment. The 2012 impairment charges were primarily related to certain leasehold improvements and office furniture and equipment in the Artist Nation segment, an amphitheater in the Concerts segment and a theater in other operations. The 2011 impairment charges related to two amphitheaters, a music theater and a club in the Concerts segment. 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 2013, 2012 and 2011, the Company recorded impairment charges related to definite-lived intangible assets of $10.6 million, $89.6 million and $14.1 million, respectively, as a component of depreciation and amortization.The 2013 impairment charges were primarily related to intangible assets for venue management and leaseholds in the Concerts segment and client/vendor relationships in the Concerts and Artist Nation segments. The 2012 impairment charges were 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 charges related to intangible assets for client/vendor relationships, revenue-generating contracts and venue management and leaseholds in the Concerts segment. In all these cases it was determined that these assets were impaired since the most recent estimated undiscounted future cash flows associated with these assets were less than their carrying value. 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 2013, the Company recorded impairment charges related to investments in nonconsolidated affiliates of $9.2 million as a component of equity in earnings of nonconsolidated affiliates. The impairment charges primarily related to investments in a concert promoter located in Europe and an ecommerce business. Based on financial information received regarding the sale or liquidation of the nonconsolidated affiliates, the Company believed its investment balances were fully impaired. The financial information received from the nonconsolidated affiliates used for these non-recurring fair value measurements are considered Level 3 inputs.