UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________ 
Form 10-Q
____________________________________ 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                
Commission File Number 001-32601
____________________________________ 
LIVE NATION ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
____________________________________ 
Delaware
 
20-3247759
(State of Incorporation)
 
(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
(Registrant’s 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.    x  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
Accelerated filer
 
¨
 
 
 
 
 
 
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No
On July 21, 2016, there were 203,085,142 outstanding shares of the registrant’s common stock, $0.01 par value per share, including 1,114,683 shares of unvested restricted stock awards and excluding 408,024 shares held in treasury.
 


Table of Contents

LIVE NATION ENTERTAINMENT, INC.
INDEX TO FORM 10-Q

 
 
Page
PART I—FINANCIAL INFORMATION
 
 
 
 
 
 
PART II—OTHER INFORMATION
 


Table of Contents

LIVE NATION ENTERTAINMENT, INC.
GLOSSARY OF KEY TERMS 
    
AOCI
Accumulated other comprehensive income (loss)
AOI
Adjusted operating income (loss)
Company
Live Nation Entertainment, Inc. and subsidiaries
FASB
Financial Accounting Standards Board
GAAP
United States Generally Accepted Accounting Principles
Live Nation
Live Nation Entertainment, Inc. and subsidiaries
SEC
United States Securities and Exchange Commission
Ticketmaster
For periods prior to May 6, 2010, Ticketmaster means Ticketmaster Entertainment LLC and its predecessor companies (including without limitation Ticketmaster Entertainment, Inc.); for periods on and after May 6, 2010, Ticketmaster means the ticketing business of the Company.

See Notes to Consolidated Financial Statements
1

Table of Contents

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
LIVE NATION ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
June 30,
2016
 
December 31,
2015
 
(in thousands)
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
1,512,099

 
$
1,303,125

Accounts receivable, less allowance of $18,216 and $17,168, respectively
634,562

 
452,600

Prepaid expenses
779,743

 
496,226

Other current assets
43,548

 
36,364

Total current assets
2,969,952

 
2,288,315

Property, plant and equipment
 
 
 
Land, buildings and improvements
822,761

 
840,032

Computer equipment and capitalized software
511,693

 
505,233

Furniture and other equipment
242,079

 
233,271

Construction in progress
85,720

 
47,684

 
1,662,253

 
1,626,220

Less accumulated depreciation
949,441

 
894,938

 
712,812

 
731,282

Intangible assets
 
 
 
Definite-lived intangible assets, net
810,418

 
777,763

Indefinite-lived intangible assets
369,001

 
369,317

Goodwill
1,670,676

 
1,604,315

Other long-term assets
510,567

 
385,249

Total assets
$
7,043,426

 
$
6,156,241

LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable, client accounts
$
710,087

 
$
662,941

Accounts payable
103,722

 
58,607

Accrued expenses
778,101

 
686,664

Deferred revenue
1,347,953

 
618,640

Current portion of long-term debt, net
44,918

 
42,352

Other current liabilities
38,653

 
32,002

Total current liabilities
3,023,434

 
2,101,206

Long-term debt, net
1,985,190

 
2,002,662

Long-term deferred income taxes
198,617

 
199,472

Other long-term liabilities
127,887

 
142,267

Commitments and contingent liabilities


 


Redeemable noncontrolling interests
292,516

 
263,715

Stockholders’ equity
 
 
 
Common stock
2,024

 
2,020

Additional paid-in capital
2,412,928

 
2,428,566

Accumulated deficit
(1,083,176
)
 
(1,075,111
)
Cost of shares held in treasury
(6,865
)
 
(6,865
)
Accumulated other comprehensive loss
(136,404
)
 
(111,657
)
Total Live Nation stockholders’ equity
1,188,507

 
1,236,953

Noncontrolling interests
227,275

 
209,966

Total equity
1,415,782

 
1,446,919

Total liabilities and equity
$
7,043,426

 
$
6,156,241


See Notes to Consolidated Financial Statements
2

Table of Contents

LIVE NATION ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands except share and per share data)
Revenue
$
2,179,258

 
$
1,765,777

 
$
3,386,974

 
$
2,886,089

Operating expenses:
 
 
 
 
 
 
 
Direct operating expenses
1,605,688

 
1,279,099

 
2,389,891

 
2,000,388

Selling, general and administrative expenses
374,826

 
329,570

 
712,040

 
643,702

Depreciation and amortization
95,424

 
88,571

 
190,379

 
173,112

Gain on disposal of operating assets
(279
)
 
(76
)
 
(254
)
 
(37
)
Corporate expenses
29,440

 
26,368

 
54,049

 
50,614

Operating income
74,159

 
42,245

 
40,869

 
18,310

Interest expense
25,284

 
25,650

 
50,716

 
51,013

Interest income
(650
)
 
(394
)
 
(1,206
)
 
(1,959
)
Equity in losses (earnings) of nonconsolidated affiliates
305

 
367

 
(287
)
 
(2,613
)
Other expense (income), net
7,353

 
(8,500
)
 
(1,194
)
 
12,528

Income (loss) before income taxes
41,867

 
25,122

 
(7,160
)
 
(40,659
)
Income tax expense
5,406

 
4,910

 
12,333

 
5,655

Net income (loss)
36,461

 
20,212

 
(19,493
)
 
(46,314
)
Net income (loss) attributable to noncontrolling interests
(1,280
)
 
5,156

 
(12,716
)
 
(3,091
)
Net income (loss) attributable to common stockholders of Live Nation
$
37,741

 
$
15,056

 
$
(6,777
)
 
$
(43,223
)
 
 
 
 
 
 
 
 
Basic and diluted net income (loss) per common share available to common stockholders of Live Nation
$
0.13

 
$
0.06

 
$
(0.16
)
 
$
(0.25
)
 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
201,896,009

 
200,767,811

 
201,796,075

 
200,463,314

Diluted
208,601,733

 
208,778,589

 
201,796,075

 
200,463,314

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to net income (loss) available to common stockholders of Live Nation:
 
 
 
 
 
 
 
Net income (loss) attributable to common stockholders of Live Nation
$
37,741

 
$
15,056

 
$
(6,777
)
 
$
(43,223
)
Accretion of redeemable noncontrolling interests
(11,292
)
 
(3,105
)
 
(24,628
)
 
(6,993
)
Basic and diluted net income (loss) available to common stockholders of Live Nation
$
26,449

 
$
11,951

 
$
(31,405
)
 
$
(50,216
)
 
 
 
 
 
 
 
 

See Notes to Consolidated Financial Statements
3

Table of Contents

LIVE NATION ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)

 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
Net income (loss)
$
36,461

 
$
20,212

 
$
(19,493
)
 
$
(46,314
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(23,499
)
 
26,609

 
(24,747
)
 
(18,059
)
Other

 
(62
)
 

 
138

Comprehensive income (loss)
12,962

 
46,759

 
(44,240
)
 
(64,235
)
Comprehensive income (loss) attributable to noncontrolling interests
(1,280
)
 
5,156

 
(12,716
)
 
(3,091
)
Comprehensive income (loss) attributable to common stockholders of Live Nation
$
14,242

 
$
41,603

 
$
(31,524
)
 
$
(61,144
)

See Notes to Consolidated Financial Statements
4

Table of Contents

LIVE NATION ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

 
Six Months Ended 
 June 30,
 
2016
 
2015
 
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net loss
$
(19,493
)
 
$
(46,314
)
Reconciling items:
 
 
 
Depreciation
67,482

 
63,705

Amortization
122,897

 
109,407

Deferred income tax benefit
(2,708
)
 
(1,415
)
Amortization of debt issuance costs, discounts and premium, net
5,199

 
5,301

Non-cash compensation expense
17,144

 
17,562

Other, net
1,845

 
(494
)
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
 
 
 
Increase in accounts receivable
(171,670
)
 
(122,058
)
Increase in prepaid expenses and other assets
(407,450
)
 
(317,566
)
Increase in accounts payable, accrued expenses and other liabilities
186,888

 
33,936

Increase in deferred revenue
710,841

 
620,412

Net cash provided by operating activities
510,975

 
362,476

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Advances and collections of notes receivable, net
(4,513
)
 
(14,136
)
Investments made in nonconsolidated affiliates
(13,508
)
 
(11,023
)
Purchases of property, plant and equipment
(78,880
)
 
(67,344
)
Cash paid for acquisitions, net of cash acquired
(122,318
)
 
(69,244
)
Other, net
(191
)
 
(2,194
)
Net cash used in investing activities
(219,410
)
 
(163,941
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Payments on long-term debt
(18,640
)
 
(17,170
)
Distributions to noncontrolling interests
(22,211
)
 
(9,370
)
Purchases and sales of noncontrolling interests, net
(16,559
)
 
(9,491
)
Proceeds from exercise of stock options
743

 
13,015

Payments for deferred and contingent consideration
(3,732
)
 
(4,125
)
Other, net
(8,695
)
 
(5,221
)
Net cash used in financing activities
(69,094
)
 
(32,362
)
Effect of exchange rate changes on cash and cash equivalents
(13,497
)
 
(22,383
)
Net increase in cash and cash equivalents
208,974

 
143,790

Cash and cash equivalents at beginning of period
1,303,125

 
1,382,029

Cash and cash equivalents at end of period
$
1,512,099

 
$
1,525,819




See Notes to Consolidated Financial Statements
5

Table of Contents

LIVE NATION ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1—BASIS OF PRESENTATION AND OTHER INFORMATION
Preparation of Interim Financial Statements
The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, they include all normal and recurring accruals and adjustments necessary to present fairly the results of the interim periods shown.
The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2015 Annual Report on Form 10-K filed with the SEC on February 25, 2016, as amended by the Form 10-K/A filed with the SEC on June 29, 2016.
Seasonality
Due to the seasonal nature of shows at outdoor amphitheaters and festivals, which primarily occur from May through October, the Concerts and Sponsorship & Advertising segments experience higher revenue during the second and third quarters. The Artist Nation segment’s revenue is impacted, to a large degree, by the touring schedules of artists it represents and generally experiences higher revenue during the second and third quarters as the period from May through October tends to be a popular time for touring events. The Ticketing segment’s revenue is impacted by fluctuations in the availability of events for sale to the public, which vary depending upon scheduling by its clients. The Company’s seasonality also results in higher balances in cash and cash equivalents, accounts receivable, prepaid expenses, accrued expenses and deferred revenue at different times in the year. Therefore, the results to date are not necessarily indicative of the results expected for the full year.
Cash and Cash Equivalents
Included in the June 30, 2016 and December 31, 2015 cash and cash equivalents balance is $605.7 million and $549.0 million, respectively, of cash received that includes the face value of tickets sold on behalf of ticketing clients and their share of service charges, which amounts are to be remitted to the clients.
Acquisitions
During the first six months of 2016, the Company completed several acquisitions that were accounted for as business combinations under the acquisition method of accounting and were not significant either on an individual basis or in the aggregate.
Income Taxes
Each reporting period, the Company evaluates the realizability of all of its deferred tax assets in each tax jurisdiction. As of June 30, 2016, the Company continued to maintain a full valuation allowance against its net deferred tax assets in certain jurisdictions due to sustained pre-tax losses. As a result of the valuation allowances, no tax benefits have been recognized for losses incurred in those tax jurisdictions for the first six months of 2016 and 2015.
Reclassifications
The Company has reclassified $5.3 million of payments for employee taxes, where shares were withheld upon the vesting or exercise of equity awards in order to satisfy the withholding obligation, from operating activities to financing activities within the consolidated statements of cash flows for the six months ended June 30, 2015. This reclassification was made in connection with the modified retrospective application of new accounting guidance for employee share-based payment transactions as discussed below.
Recent Accounting Pronouncements
Recently Adopted Pronouncements
In April 2015, the FASB amended its guidance on internal-use software providing clarification to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The Company adopted this guidance prospectively on January 1, 2016 and it did not have a material effect on the Company’s financial position or results of operations.

6

Table of Contents

In March 2016, the FASB issued guidance that simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies, as well as classification in the statement of cash flows. The Company adopted this guidance effective January 1, 2016 using a modified retrospective transition method with a cumulative-effect adjustment to retained earnings for the changes to the accounting for forfeitures and excess tax benefits or deficiencies. Upon adoption of this guidance, the Company no longer estimates forfeitures in advance and now recognizes forfeitures as they occur and has reflected a cumulative effect adjustment to accumulated deficit in the consolidated balance sheets of $1.3 million.
Recently Issued Pronouncements
In May 2014, the FASB issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under GAAP. The new standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The FASB continues to issue guidance clarifying certain guidelines of the standard including reframing the indicators in the principal versus agent guidance to focus on evidence that a company is acting as a principal rather than agent. The standard is effective for annual periods beginning after December 15, 2017 and interim periods within that year. Early adoption of the standard is only permitted for annual periods beginning after December 15, 2016 and interim periods within that year. The guidance should be applied retrospectively, either to each prior period presented in the financial statements, or only to the most current reporting period presented in the financial statements with a cumulative-effect adjustment as of the date of adoption. The Company will adopt this standard on January 1, 2018, and is currently assessing which implementation method it will apply and the impact that adoption will have on its financial position and results of operations.
In January 2016, the FASB issued amendments for the recognition, measurement, presentation, and disclosure of financial instruments. Among other things, the guidance requires equity investments that do not result in consolidation and are not accounted for under the equity method to be measured at fair value with any change in fair value recognized in net income unless the investments do not have readily determinable fair values. The amendments are effective for annual periods beginning after December 15, 2017 and interim periods within that year. Early adoption is not permitted for most of the amendments. The amendments are to be applied through a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption with the exception of equity investments without readily determinable fair values, which will be applied prospectively. The Company will adopt this standard on January 1, 2018, and currently expects that adoption of this guidance will not have a material impact on its financial position or results of operations.
In February 2016, the FASB issued guidance that requires lessees to recognize most leases on their balance sheet as a lease liability and a right-of-use asset, and to disclose key information about leasing arrangements. The guidance is effective for annual periods beginning after December 15, 2018 and interim periods within that year, and early adoption is permitted. The guidance should be applied on a modified retrospective basis. The Company expects to adopt this standard on January 1, 2019, and is currently evaluating the impact that the standard will have on its financial position and results of operations.
In March 2016, the FASB issued guidance clarifying that the assessment of whether an embedded contingent put or call option is clearly and closely related to the debt instrument only requires an analysis pursuant to the four-step decision sequence outlined in the guidance for embedded derivatives. The guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within that year. The guidance should be applied to existing debt instruments using a modified retrospective method as of the beginning of the period of adoption. The Company will adopt this standard on January 1, 2017, and currently expects that adoption of this guidance will not impact its financial position or results of operations.
NOTE 2—LONG-LIVED ASSETS
Definite-lived Intangible Assets
The Company has definite-lived intangible assets which are amortized over the shorter of either the lives of the respective agreements or the period of time the assets are expected to contribute to the Company’s future cash flows. The amortization is recognized on either a straight-line or expected cash flows basis.

7

Table of Contents

The following table presents the changes in the gross carrying amount and accumulated amortization of definite-lived intangible assets for the six months ended June 30, 2016:
 
Revenue-
generating
contracts
 
Client /
vendor
relationships
 
Trademarks
and
naming
rights
 
Non-compete
agreements
 
Venue
management
and
leaseholds
 
Technology
 
Other
 
Total
 
(in thousands)
Balance as of December 31, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
Gross carrying amount
$
700,795

 
$
379,282

 
$
86,556

 
$
176,354

 
$
66,051

 
$
30,265

 
$
3,598

 
$
1,442,901

Accumulated amortization
(313,743
)
 
(169,620
)
 
(14,578
)
 
(121,319
)
 
(35,645
)
 
(8,602
)
 
(1,631
)
 
(665,138
)
Net
387,052

 
209,662

 
71,978

 
55,035

 
30,406

 
21,663

 
1,967

 
777,763

Gross carrying amount:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquisitions— current year
46,541

 
55,910

 
259

 

 

 
8,604

 

 
111,314

Acquisitions— prior year
11,404

 
782

 
3,620

 
1,500

 
1,174

 

 
154

 
18,634

Dispositions

 
(2,299
)
 

 

 
(1,093
)
 

 

 
(3,392
)
Foreign exchange
(9,923
)
 
(900
)
 
(387
)
 
(2,264
)
 
(1,697
)
 
(96
)
 

 
(15,267
)
Other(1)
(1,919
)
 
(2,307
)
 
(5
)
 

 

 

 
(1
)
 
(4,232
)
Net change
46,103

 
51,186

 
3,487

 
(764
)
 
(1,616
)
 
8,508

 
153

 
107,057

Accumulated amortization:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization
(33,092
)
 
(31,098
)
 
(4,931
)
 
(10,554
)
 
(2,676
)
 
(2,616
)
 
(198
)
 
(85,165
)
Dispositions

 
599

 

 

 

 

 

 
599

Foreign exchange
4,034

 
282

 
180

 
618

 
713

 
176

 
8

 
6,011

Other(1)
1,854

 
2,307

 

 

 

 

 
(8
)
 
4,153

Net change
(27,204
)
 
(27,910
)
 
(4,751
)
 
(9,936
)
 
(1,963
)
 
(2,440
)
 
(198
)
 
(74,402
)
Balance as of June 30, 2016:
 
 
 
 
 
 
 
 
 
 
 
 
Gross carrying amount
746,898

 
430,468

 
90,043

 
175,590

 
64,435

 
38,773

 
3,751

 
1,549,958

Accumulated amortization
(340,947
)
 
(197,530
)
 
(19,329
)
 
(131,255
)
 
(37,608
)
 
(11,042
)
 
(1,829
)
 
(739,540
)
Net
$
405,951

 
$
232,938

 
$
70,714

 
$
44,335

 
$
26,827

 
$
27,731

 
$
1,922

 
$
810,418

______________
(1) Other includes netdowns of fully amortized or impaired assets.

Included in the current year acquisitions amounts above are definitive-lived intangible assets primarily associated with the acquisition of a controlling interest in an artist management business with locations in the United States and Canada and controlling interests in festival and concert promoters located in the United Kingdom and the United States.
Included in the prior year acquisitions amounts above are definitive-lived intangible assets primarily associated with the acquisition of a controlling interest in a festival promoter located in the United States.

8

Table of Contents

The 2016 additions to definite-lived intangible assets from acquisitions have weighted-average lives as follows:
 
Weighted-
Average
Life (years)
Revenue-generating contracts
7
Client/vendor relationships
5
Trademarks and naming rights
5
Technology
5
All categories
6
Amortization of definite-lived intangible assets for the three months ended June 30, 2016 and 2015 was $45.4 million and $43.5 million, respectively, and for the six months ended June 30, 2016 and 2015 was $85.2 million and $76.1 million, respectively. Amortization related to nonrecoupable ticketing contract advances for the three months ended June 30, 2016 and 2015 was $15.0 million and $13.2 million, respectively, and for the six months ended June 30, 2016 and 2015 was $36.5 million and $32.8 million, respectively.
The following table presents the Company’s estimate of amortization expense for each of the five succeeding fiscal years for definite-lived intangible assets that exist at June 30, 2016:
 
(in thousands)
July 1 - December 31, 2016
$
95,596

2017
$
164,773

2018
$
142,238

2019
$
118,143

2020
$
102,921

As acquisitions and dispositions occur in the future and the valuations of intangible assets for recent acquisitions are completed, amortization may vary. Therefore, the expense to date is not necessarily indicative of the expense expected for the full year.
Goodwill
The following table presents the changes in the carrying amount of goodwill in each of the Company’s reportable segments for the six months ended June 30, 2016:
 
Concerts
 
Sponsorship
& Advertising
 
Ticketing
 
Artist
Nation
 
Total
 
(in thousands)
Balance as of December 31, 2015:
 
 
 
 
 
 
 
 
 
Goodwill
$
602,771

 
$
332,081

 
$
733,825

 
$
340,501

 
$
2,009,178

Accumulated impairment losses
(386,915
)
 

 

 
(17,948
)
 
(404,863
)
                 Net
215,856

 
332,081

 
733,825

 
322,553

 
1,604,315

 
 
 
 
 
 
 
 
 
 
Acquisitions—current year
30,990

 
25,855

 
3,638

 
17,873

 
78,356

Acquisitions—prior year
(19,171
)
 
18,581

 

 
449

 
(141
)
Dispositions

 

 

 
(323
)
 
(323
)
Foreign exchange
(15,542
)
 
3,145

 
1,232

 
(366
)
 
(11,531
)
 
 
 
 
 
 
 
 
 
 
Balance as of June 30, 2016:
 
 
 
 
 
 
 
 
 
Goodwill
599,048

 
379,662

 
738,695

 
358,134

 
2,075,539

Accumulated impairment losses
(386,915
)
 

 

 
(17,948
)
 
(404,863
)
                 Net
$
212,133

 
$
379,662

 
$
738,695

 
$
340,186

 
$
1,670,676


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Included in the current year acquisitions amounts above is goodwill primarily associated with the acquisition of controlling interests in festival and concert promoters located in the United Kingdom and the United States, an artist management business with locations in the United States and Canada and a digital content company located in the United States.
Included in the prior year acquisitions amounts above are net reductions in goodwill resulting from changes in purchase price allocations of prior year acquisitions primarily related to the acquisition of a controlling interest in a festival promoter located in the United States and a venue management business in New Zealand.
The Company is in various stages of finalizing its acquisition accounting for recent acquisitions, which include the use of external valuation consultants, and the completion of this accounting could result in a change to the associated purchase price allocations, including goodwill and its allocation between segments.
Investments in Nonconsolidated Affiliates
The Company has investments in various affiliates that are not consolidated and are accounted for under the equity method of accounting. The Company records its investments in these entities on the balance sheets as investments in nonconsolidated affiliates reported as part of other long-term assets. The Company’s interests in these businesses are recorded in the consolidated statements of operations as equity in losses (earnings) of nonconsolidated affiliates. For the six months ended June 30, 2016, the Company’s investment in Venta de Boletos por Computadora S.A. de C.V., a 33% owned ticketing distribution services company, and Vice Nation, LLC, a 60% owned digital content company, are considered significant on an individual basis.
Summarized unaudited income statement information for the Company’s nonconsolidated affiliates noted above is as follows (at 100%):
 
 
June 30,
 
 
2016
 
2015
 
 
(in thousands)
Revenue
 
$
24,608

 
$
25,273

Operating income
 
$
8,143

 
$
10,540

Net income
 
$
4,915

 
$
6,968

Net income attributable to the common stockholders of the equity investees
 
$
4,878

 
$
6,856

NOTE 3—FAIR VALUE MEASUREMENTS
The Company’s outstanding debt held by third-party financial institutions is carried at cost, adjusted for any premium, 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 estimated fair values of the Company’s 7% senior notes, 5.375% senior notes and 2.5% convertible senior notes were $443.1 million, $253.8 million and $285.3 million, respectively, at June 30, 2016. The estimated fair values of the 7% senior notes, 5.375% senior notes and 2.5% convertible senior notes were $443.1 million, $249.4 million and $280.2 million, respectively, at December 31, 2015. 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 had fixed-rate debt held by noncontrolling interest partners with a face value of $36.3 million and $32.9 million at June 30, 2016 and December 31, 2015, respectively. The Company is unable to determine the fair value of this debt.
NOTE 4—COMMITMENTS AND CONTINGENT LIABILITIES
Ticketing Fees Consumer Class Action Litigation
On March 18, 2016, all appeals relating to a settlement agreement reached by the plaintiffs and Ticketmaster in respect of a ticketing fees consumer class action litigation matter originally filed in October 2003 against Ticketmaster were dismissed, thus resolving this matter and allowing the implementation of the terms of the settlement. On March 30, 2016, the Company funded a portion of the settlement primarily related to the plaintiffs’ attorney fees. Ticketmaster and its parent, Live Nation, have not acknowledged any violations of law or liability in connection with the matter.
As of June 30, 2016, the Company had accrued $16.6 million, its best estimate of the probable remaining costs associated with the settlement referred to above, which was recorded in prior years. The calculation of this liability is based in part upon an estimated redemption rate. Any difference between the Company’s estimated redemption rate and the actual redemption rate it experiences will impact the final settlement amount; however, the Company does not expect this difference to be material.

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NOTE 5—EQUITY
The following table shows the reconciliation of the carrying amount of stockholders’ equity attributable to Live Nation, equity attributable to noncontrolling interests, total equity and also redeemable noncontrolling interests for the six months ended June 30, 2016:
 
Live Nation
Stockholders’ Equity
 
Noncontrolling
Interests
 
Total
Equity
 
Redeemable
Noncontrolling
Interests
 
(in thousands)
 
(in thousands)
Balance at December 31, 2015
$
1,236,953

 
$
209,966

 
$
1,446,919

 
$
263,715

Non-cash compensation expense
17,144

 

 
17,144

 

Common stock issued under stock plans, net of shares withheld for employee taxes
(3,606
)
 

 
(3,606
)
 

Exercise of stock options
743

 

 
743

 

Acquisitions

 
39,963

 
39,963

 
26,183

Divestitures

 
(1,856
)
 
(1,856
)
 

Purchases of noncontrolling interests
(6,575
)
 
(7,664
)
 
(14,239
)
 
(563
)
Redeemable noncontrolling interests fair value adjustments
(24,628
)
 

 
(24,628
)
 
24,628

Cash distributions

 
(12,914
)
 
(12,914
)
 
(9,297
)
Other

 
608

 
608

 
(262
)
Comprehensive loss:
 
 
 
 

 
 
Net loss
(6,777
)
 
(828
)
 
(7,605
)
 
(11,888
)
Foreign currency translation adjustments
(24,747
)
 

 
(24,747
)
 

Balance at June 30, 2016
$
1,188,507

 
$
227,275

 
$
1,415,782

 
$
292,516


Accumulated Other Comprehensive Loss
The following table presents changes in the components of AOCI, net of taxes, for the six months ended June 30, 2016:
 
Defined Benefit Pension Items
 
Foreign Currency Items
 
Total
 
(in thousands)
Balance at December 31, 2015
$
(358
)
 
$
(111,299
)
 
$
(111,657
)
Other comprehensive loss before reclassifications

 
(24,747
)
 
(24,747
)
Balance at June 30, 2016
$
(358
)
 
$
(136,046
)
 
$
(136,404
)

Earnings Per Share
The following table sets forth the computation of weighted average common shares outstanding:
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Weighted average common shares—basic
201,896,009

 
200,767,811

 
201,796,075

 
200,463,314

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options, restricted stock and warrants
6,705,724

 
8,010,778

 

 

Weighted average common shares—diluted
208,601,733

 
208,778,589

 
201,796,075

 
200,463,314

Basic net income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. The calculation of diluted net income (loss) per common share includes the effects of the assumed exercise of any outstanding stock options, the assumed

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vesting of shares of restricted stock awards and the assumed conversion of the convertible senior notes where dilutive.
The following table shows securities excluded from the calculation of diluted net income (loss) per common share because such securities are anti-dilutive:
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
Options to purchase shares of common stock
5,384

 
3,075

 
17,313

 
16,657

Restricted stock awards—unvested
523

 
242

 
1,115

 
1,047

Conversion shares related to the convertible senior notes
7,930

 
7,930

 
7,930

 
7,930

Number of anti-dilutive potentially issuable shares excluded from diluted common shares outstanding
13,837

 
11,247

 
26,358

 
25,634

NOTE 6—SEGMENT DATA
The Company’s reportable segments are Concerts, Sponsorship & Advertising, Ticketing and Artist Nation. The Concerts segment involves the promotion of live music events globally in the Company’s owned or operated venues and in rented third-party venues, the production of music festivals, the operation and management of music venues and the creation of associated content. The Sponsorship & Advertising segment manages the development of strategic sponsorship programs in addition to the sale of international, national and local sponsorships and placement of advertising such as signage, promotional programs, rich media offerings, including advertising associated with live streaming and music-related original content, and ads across the Company’s distribution network of venues, events and websites. The Ticketing segment involves the management of the Company’s global ticketing operations, including providing ticketing software and services to clients, ticket resale services and online access for customers relating to ticket and event information, and is responsible for the Company’s primary websites, www.livenation.com and www.ticketmaster.com. The Artist Nation segment provides management services to artists and other services including merchandise sales.
Revenue and expenses earned and charged between segments are eliminated in consolidation. The Company’s capital expenditures below include accruals and expenditures funded by outside parties such as landlords or replacements funded by insurance proceeds.
The Company manages its working capital on a consolidated basis. Accordingly, segment assets are not reported to, or used by, the Company’s management to allocate resources to or assess performance of the segments, and therefore, total segment assets have not been presented.
The following table presents the results of operations for the Company’s reportable segments for the three and six months ended June 30, 2016 and 2015:
 
Concerts
 
Sponsorship
& Advertising
 
Ticketing
 
Artist
Nation
 
Other
 
Corporate
 
Eliminations
 
Consolidated
 
(in thousands)
Three Months Ended June 30, 2016
 
 
 
 
 
 
 
 
Revenue
$
1,597,756

 
$
95,200

 
$
443,348

 
$
86,720

 
$
1,506

 
$

 
$
(45,272
)
 
$
2,179,258

Direct operating expenses
1,350,297

 
15,687

 
235,546

 
48,875

 

 

 
(44,717
)
 
1,605,688

Selling, general and administrative expenses
193,357

 
16,004

 
121,067

 
39,618

 
4,780

 

 

 
374,826

Depreciation and amortization
35,673

 
4,423

 
39,927

 
14,224

 
880

 
852

 
(555
)
 
95,424

Loss (gain) on disposal of operating assets
(324
)
 

 
31

 
(45
)
 

 
59

 

 
(279
)
Corporate expenses

 

 

 

 

 
29,440

 

 
29,440


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Table of Contents

 
Concerts
 
Sponsorship
& Advertising
 
Ticketing
 
Artist
Nation
 
Other
 
Corporate
 
Eliminations
 
Consolidated
 
(in thousands)
Operating income (loss)
$
18,753

 
$
59,086

 
$
46,777

 
$
(15,952
)
 
$
(4,154
)
 
$
(30,351
)
 
$

 
$
74,159

Intersegment revenue
$
43,070

 
$

 
$

 
$
2,202

 
$

 
$

 
$
(45,272
)
 
$

Three Months Ended June 30, 2015
 
 
 
 
 
 
 
 
Revenue
$
1,268,382

 
$
81,071

 
$
360,197

 
$
87,835

 
$
791

 
$

 
$
(32,499
)
 
$
1,765,777

Direct operating expenses
1,075,507

 
10,717

 
171,045

 
53,806

 

 

 
(31,976
)
 
1,279,099

Selling, general and administrative expenses
158,689

 
13,856

 
117,027

 
39,582

 
416

 

 

 
329,570

Depreciation and amortization
40,033

 
2,225

 
35,561

 
10,756

 
13

 
506

 
(523
)
 
88,571

Loss (gain) on disposal of operating assets
(55
)
 

 
(30
)
 

 

 
9

 

 
(76
)
Corporate expenses

 

 

 

 

 
26,368

 

 
26,368

Operating income (loss)
$
(5,792
)
 
$
54,273

 
$
36,594

 
$
(16,309
)
 
$
362

 
$
(26,883
)
 
$

 
$
42,245

Intersegment revenue
$
30,572

 
$

 
$
460

 
$
1,467

 
$

 
$

 
$
(32,499
)
 
$

Six Months Ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
Revenue
$
2,278,834

 
$
152,836

 
$
849,134

 
$
161,785

 
$
2,347

 
$

 
$
(57,962
)
 
$
3,386,974

Direct operating expenses
1,887,431

 
29,201

 
442,011

 
88,086

 

 

 
(56,838
)
 
2,389,891

Selling, general and administrative expenses
354,997

 
29,873

 
239,329

 
80,458

 
7,383

 

 

 
712,040

Depreciation and amortization
67,120

 
9,329

 
85,676

 
26,704

 
900

 
1,774

 
(1,124
)
 
190,379

Loss (gain) on disposal of operating assets
(358
)
 

 
31

 
(45
)
 

 
118

 

 
(254
)
Corporate expenses

 

 

 

 

 
54,049

 

 
54,049

Operating income (loss)
$
(30,356
)
 
$
84,433

 
$
82,087

 
$
(33,418
)
 
$
(5,936
)
 
$
(55,941
)
 
$

 
$
40,869

Intersegment revenue
$
54,517

 
$

 
$

 
$
3,445

 
$

 
$

 
$
(57,962
)
 
$

Capital expenditures
$
29,958

 
$
962

 
$
40,892

 
$
789

 
$
460

 
$
4,133

 
$

 
$
77,194


13

Table of Contents

 
Concerts
 
Sponsorship
& Advertising
 
Ticketing
 
Artist
Nation
 
Other
 
Corporate
 
Eliminations
 
Consolidated
 
(in thousands)
Six Months Ended June 30, 2015
 
 
 
 
 
 
 
 
 
 
Revenue
$
1,891,616

 
$
133,168

 
$
735,827

 
$
165,780

 
$
1,584

 
$

 
$
(41,886
)
 
$
2,886,089

Direct operating expenses
1,561,479

 
21,345

 
356,737

 
100,636

 
1,068

 

 
(40,877
)
 
2,000,388

Selling, general and administrative expenses
309,113

 
26,950

 
229,587

 
76,802

 
1,250

 

 

 
643,702

Depreciation and amortization
69,214

 
4,213

 
78,857

 
20,791

 
24

 
1,022

 
(1,009
)
 
173,112

Loss (gain) on disposal of operating assets
171

 

 
(179
)
 

 

 
(29
)
 

 
(37
)
Corporate expenses

 

 

 

 

 
50,614

 

 
50,614

Operating income (loss)
$
(48,361
)
 
$
80,660

 
$
70,825

 
$
(32,449
)
 
$
(758
)
 
$
(51,607
)
 
$

 
$
18,310

Intersegment revenue
$
39,311

 
$

 
$
460

 
$
2,115

 
$

 
$

 
$
(41,886
)
 
$

Capital expenditures
$
18,867

 
$
1,721

 
$
42,117

 
$
868

 
$

 
$
438

 
$

 
$
64,011


14

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
“Live Nation” (which may be referred to as the “Company,” “we,” “us” or “our”) means Live Nation Entertainment, 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 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 SEC, 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 beliefs and assumptions considering the information available to us 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 below under Part II Item 1A.—Risk Factors, in Part I Item IA.—Risk Factors of our 2015 Annual Report on 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
In the second quarter of 2016, our total revenue increased by $413 million, or 23%, on a reported basis as compared to last year, or $436 million, a 25% increase, without the impact of changes in foreign exchange rates. The revenue increase was largely driven by growth in our Concerts segment due to the increase in the number of events and fans. Our three largest segments reported revenue growth in the quarter as a result of our highest second quarter Concerts attendance ever, record high ticket sales in our Ticketing business and growth of strategic deals in North America driving Sponsorship & Advertising. For the first six months of 2016, our total revenue grew $501 million, or 17%, on a reported basis as compared to last year, or $546 million, a 19% increase, without the impact of changes in foreign exchange rates. Our three largest segments also delivered revenue increases in the first half of the year, underscoring the continued success of our strategic initiatives and the underlying health of the live event and ticketing businesses. As the leading global live event and ticketing company, we believe that we are well-positioned to provide the best service to artists, teams, fans and venues and therefore drive growth across all our businesses and that by leveraging our leadership position in the entertainment industry to reach fans through the live concert experience, we will sell more tickets and grow our Sponsorship & Advertising segment revenue.
Our Concerts segment revenue for the quarter increased by $329 million, or 26%, on a reported basis as compared to last year, or $346 million, a 27% increase, without the impact of changes in foreign exchange rates. This increase was largely due to significant stadium activity in both North America and Europe with shows by artists including Beyoncé, Rihanna, Bruce Springsteen, and Coldplay. Our amphitheater business in North America also continues to grow as our year-over-year fans increased by 17% to almost 4.5 million in the quarter with show count up 18%. There was a 12% increase in our ancillary revenue per fan in the quarter which was driven by various food and beverage initiatives at our venues including “Grab and Go” options, focused wine programs, and pre-show ordering. Attendance at our festivals was relatively flat in the quarter, largely due to the shift of some of our biggest events, such as the Rock Werchter festival in Belgium, from the second quarter in 2015 to the third quarter in 2016. However, our Electric Daisy Carnival festival in Las Vegas had its best year in terms of both revenue and attendance and is now our biggest festival worldwide. Overall, attendance at our shows increased by 22% in the second quarter of 2016 as compared to last year. Our Concerts segment operating results for the quarter exceeded last year and this was again largely driven by the high volume of stadium and amphitheater activity.
For the first six months, our Concerts segment was the largest contributor to our overall revenue growth, with an increase of $387 million, or 20%, on a reported basis as compared to last year, or $418 million, a 22% increase, without the impact of changes in foreign exchange rates. As in the second quarter, this higher revenue was largely due to an increase in the number of

15

Table of Contents

stadium shows in North America and Europe as well as a 16% growth in attendance in our amphitheaters. Year-to-date, there has been a 16% increase in the overall number of fans attending our shows as compared to 2015. Operating income for the first six months of the year was up due to the higher number of shows in stadiums and amphitheaters. Internationally, we launched our Concerts business in Germany, adding half a million fans through the end of the second quarter. We will continue to look for expansion opportunities, both domestically and internationally, as well as ways to market our events more effectively, in order to continue to expand our fan base and geographic reach and to sell more tickets and advertising.
Our Sponsorship & Advertising segment revenue for the quarter was up $14 million, or 17%, on a reported basis as compared to last year, or $15 million, a 19% increase, without the impact of changes in foreign exchange rates. Higher revenue resulted from new clients, growth in our online business and increased festival sponsorships, which also improved our operating income. For the first six months, Sponsorship & Advertising revenue was up $20 million, or 15%, on a reported basis as compared to last year, or $22 million, a 17% increase, without the impact of changes in foreign exchange rates which also drove improved operating income. Our focus on expanding our amphitheater and festival products in North America as well as adding new sales categories has contributed to this growth. We believe that our extensive on-site and online reach, global venue distribution network, artist relationships and ticketing operations are the key to securing long-term sponsorship agreements with major brands, and we plan to expand these assets while extending further into new markets internationally.
Our Ticketing segment revenue for the second quarter increased by $83 million, or 23%, on a reported basis as compared to last year, or $87 million, a 24% increase, without the impact of changes in foreign exchange rates. This increase was due to a 9% growth in primary ticket sales as well as a 49% increase in gross transaction value, or GTV, from our resale ticketing business globally driven by both concerts and arts tickets. We delivered historically high revenue and ticket sales globally for our Ticketing segment in the quarter, driven by high demand for concert tickets and continued positive fan response to our integrated ticketing platform of primary and resale tickets which drove higher operating results for the quarter.
For the first six months, Ticketing revenue was up $113 million, or 15%, on a reported basis as compared to last year, or $124 million, a 17% increase, without the impact of changes in foreign exchange rates driven by both higher primary ticket sales and our expanding resale business which also led to increased operating results. In our primary business, we have sold 81 million tickets worldwide for the first six months, an 8% increase over last year. Resale GTV grew by 45% in the same period, with increases in both our North America and Europe sales. In the first half of the year, we made several improvements to our apps which drove a 39% increase in app installs. We also continued to see growth in our mobile ticket sales with an increase of 37% in the first six months of the year and they now represent more than a quarter of our total ticket sales. In our resale ticketing business, both our North America and international GTV grew by over 40% in the first six months of the year as the number of events activated on our TM+ product increased by over 20% and we launched our secondary business in Sweden. Internationally, we have seen strong growth in ticket sales in Germany as a result of the launch of our concert promotion business in that country. We will continue to implement new features to drive further expansion of mobile ticket transactions and invest in initiatives aimed at improving the ticket search, purchase and transfer process which we expect will attract more ticket buyers and enhance the overall fan and venue client experience.
Our Artist Nation segment revenue for the second quarter decreased $1 million, or 1%, on a reported basis as compared to last year as a result of changes in foreign exchange rates partially offset by higher merchandise sales. For the first six months of the year, Artist Nation revenue was down $4 million, or 2%, on a reported basis as compared to last year with changes in timing of management clients’ activity and events. On a year-to-date basis, Artist Nation’s operating results were down primarily due to increased amortization expense in the period from acquisitions. Our Artist Nation segment is focused on managing its existing clients as well as developing new relationships with top artists and extending the various services it provides to its clients.
We continue to be optimistic about the long-term potential of our company and are focused on the key elements of our business model - expand our concert platform, drive conversion of ticket sales through social and mobile channels, sell more tickets for our Ticketmaster clients, deliver to our fans a fully integrated offering of primary and secondary tickets together, grow our sponsorship and online revenue, drive cost efficiencies and continue to align our artist management group with our other core businesses.
Our History
We were incorporated in Delaware on August 2, 2005 in preparation for the contribution and transfer by Clear Channel Communications, Inc. of substantially all of its entertainment assets and liabilities to us. We completed the separation on December 21, 2005, and became a publicly traded company on the New York Stock Exchange trading under the symbol “LYV.”
On January 25, 2010, we merged with Ticketmaster Entertainment LLC and it became a wholly-owned subsidiary of Live Nation. Effective with the merger, Live Nation, Inc. changed its name to Live Nation Entertainment, Inc.

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Table of Contents

Segment Overview
Our reportable segments are Concerts, Sponsorship & Advertising, Ticketing, and Artist Nation.
Concerts
Our Concerts segment principally involves the global promotion of live music events in our owned or operated venues and in rented third-party venues, the operation and management of music venues, the production of music festivals across the world and the creation of associated content. While our Concerts segment operates year-round, we experience higher revenue during the second and third quarters due to the seasonal nature of shows at our outdoor amphitheaters and festivals, which primarily occur from May through October. Revenue and related costs for events are generally deferred and recognized when the event occurs. All advertising costs incurred during the year for shows in future years are expensed at the end of the year.
Concerts direct operating expenses include artist fees, event production costs, show-related marketing and advertising expenses, along with other costs.
To judge the health of our Concerts segment, we primarily monitor the number of confirmed events in our network of owned or operated and third-party venues, talent fees, average paid attendance and advance ticket sales. In addition, at our owned or operated venues and festivals, we monitor ancillary revenue per fan and premium ticket sales. For business that is conducted in foreign markets, we also compare the operating results from our foreign operations to prior periods without the impact of changes in foreign exchange rates.
Sponsorship & Advertising
Our Sponsorship & Advertising segment employs a sales force that creates and maintains relationships with sponsors through a combination of strategic, international, national and local opportunities that allow businesses to reach customers through our concerts, venue, artist relationship and ticketing assets, including advertising on our websites. We drive increased advertising scale to further monetize our concerts platform through rich media offerings including advertising associated with live streaming and music-related original content. We work with our corporate clients to help create marketing programs that drive their business goals and connect their brands directly with fans and artists. We also develop, book and produce custom events or programs for our clients’ specific brands which are typically experienced exclusively by the clients’ consumers. These custom events can involve live music events with talent and media, using both online and traditional outlets. We typically experience higher revenue in the second and third quarters, as a large portion of sponsorships are associated with shows at our outdoor amphitheaters and festivals, which primarily occur from May through October.
Direct operating expenses include fulfillment costs related to our sponsorship programs, along with other costs.
To judge the health of our Sponsorship & Advertising segment, we primarily review the revenue generated through sponsorship arrangements, the percentage of expected revenue under contract and online advertising revenue through our websites. For business that is conducted in foreign markets, we also compare the operating results from our foreign operations to prior periods without the impact of changes in foreign exchange rates.
Ticketing
Our Ticketing segment is primarily an agency business that sells tickets for events on behalf of our clients and retains a service charge for these services. We sell tickets through websites, mobile apps, ticket outlets and telephone call centers. Our ticketing sales are impacted by fluctuations in the availability of events for sale to the public, which may vary depending upon scheduling by our clients. We also offer ticket resale services, sometimes referred to as secondary ticketing, primarily through our integrated inventory platform, league/team platforms and other platforms internationally. Our Ticketing segment also manages our online activities including enhancements to our websites and product offerings. Through our websites, we sell tickets to our own events as well as tickets for our clients and provide event information. Revenue related to ticketing service charges is recognized when the ticket is sold except for our own events where our concert promoters control ticketing and then the revenue is deferred and recognized as the event occurs.
Ticketing direct operating expenses include ticketing client royalties and credit card fees, along with other costs.
To judge the health of our Ticketing segment, we primarily review the gross transaction value and the number of tickets sold through our primary and secondary ticketing operations, the number of clients renewed or added and the average royalty rate paid to clients who use our ticketing services. In addition, we review the number of visits to our websites, the overall number of customers in our database, the number of tickets sold via mobile, the number of app installs and gross transaction value and fees related to secondary ticket sales. For business that is conducted in foreign markets, we also compare the operating results from our foreign operations to prior periods without the impact of changes in foreign exchange rates.

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Artist Nation
Our Artist Nation segment primarily provides management services to music artists and other clients in exchange for a commission on the earnings of these artists. Our Artist Nation segment also creates and sells merchandise for music artists at live performances, to retailers and directly to consumers via the internet. Revenue earned from our Artist Nation segment is impacted to a large degree by the touring schedules of the artists we represent and generally we experience higher revenue during the second and third quarters as the period from May through October tends to be a popular time for touring events.
Artist Nation direct operating expenses include merchandise royalties and event production costs, along with other costs.
To judge the health of our Artist Nation segment, we primarily review the number of major clients represented. For business that is conducted in foreign markets, we also compare the operating results from our foreign operations to prior periods without the impact of changes in foreign exchange rates.
Key Operating Metrics

 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Concerts (1)
 
 
 
 
 
 
 
Estimated events:
 
 
 
 
 
 
 
North America
4,441

 
4,382

 
7,896

 
7,819

International
2,236

 
1,961

 
4,655

 
3,668

Total estimated events
6,677

 
6,343

 
12,551

 
11,487

Estimated fans (rounded):
 
 
 
 
 
 
 
North America
12,101,000

 
10,754,000

 
16,962,000

 
16,221,000

International
6,878,000

 
4,740,000

 
11,013,000

 
7,893,000

Total estimated fans
18,979,000

 
15,494,000

 
27,975,000

 
24,114,000

Ticketing (2)
 
 
 
 
 
 
 
Number of tickets sold (in thousands)
40,220

 
36,788

 
80,911

 
74,733

 _________

(1) 
Events generally represent a single performance by an artist. Fans generally represent the number of people who attend an event. Festivals are counted as one event in the quarter in which the festival begins, but the number of fans is based on the days the fans were present at the festival and thus can be reported across multiple quarters. Events and fan attendance metrics are estimated each quarter.
(2) 
The number of tickets sold includes primary tickets only. This metric includes tickets sold during the period regardless of event timing except for our own events where our concert promoters control ticketing which are reported as the events occur. The total number of tickets sold reported above for the three months ended June 30, 2016 and 2015 excludes approximately 61 million and 61 million, respectively, and for the six months ended June 30, 2016 and 2015 excludes approximately 136 million and 133 million, respectively, of tickets sold using our Ticketmaster systems, through season seat packages and our venue clients’ box offices, for which we do not receive a fee.
Non-GAAP Measures
Reconciliation of Segment Adjusted Operating Income (Loss)
AOI is a non-GAAP financial measure that we define as operating income (loss) before acquisition expenses (including transaction costs, changes in the fair value of accrued acquisition-related contingent consideration arrangements, acquisition-related severance and compensation), depreciation and amortization (including goodwill impairment), loss (gain) on disposal of operating assets and certain stock-based compensation expense. We use AOI to evaluate the performance of our operating segments. We believe that information about AOI assists investors by allowing them to evaluate changes in the operating results of our portfolio of businesses separate from non-operational factors that affect net income, thus providing insights into both operations and the other factors that affect reported results. AOI is not calculated or presented in accordance with GAAP. A limitation of the use of AOI as a performance measure is that it does not reflect the periodic costs of certain amortizing assets used in generating revenue in our business. Accordingly, AOI should be considered in addition to, and not as a substitute for, operating income (loss), net income (loss), and other measures of financial performance reported in accordance with GAAP. Furthermore, this measure may vary among other companies; thus, AOI as presented herein may not be comparable to similarly titled measures of other companies.

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Table of Contents

The following table sets forth the reconciliation of adjusted operating income (loss) to operating income (loss):
 
Adjusted
operating
income
(loss)
 
Stock-
based
compensation
expense
 
Loss (gain)
on disposal of
operating
assets
 
Depreciation
and
amortization
 
Acquisition
expenses
 
Operating
income
(loss)
 
 (in thousands)
Three Months Ended June 30, 2016
 
 
 
 
 
 
 
 
Concerts
$
60,183

 
$
1,885

 
$
(324
)
 
$
35,673

 
$
4,196

 
$
18,753

Sponsorship & Advertising
63,812

 
303

 

 
4,423

 

 
59,086

Ticketing
87,545

 
619

 
31

 
39,927

 
191

 
46,777

Artist Nation
(1,760
)
 
995

 
(45
)
 
14,224

 
(982
)
 
(15,952
)
Other and Eliminations
(3,635
)
 
12

 

 
325

 
182

 
(4,154
)
Corporate
(25,090
)
 
4,407

 
59

 
852

 
(57
)
 
(30,351
)
Total
$
181,055

 
$
8,221

 
$
(279
)
 
$
95,424

 
$
3,530

 
$
74,159

Three Months Ended June 30, 2015
 
 
 
 
 
 
 
 
 
 
Concerts
$
37,285

 
$
1,758

 
$
(55
)
 
$
40,033

 
$
1,341

 
$
(5,792
)
Sponsorship & Advertising
56,900

 
402

 

 
2,225

 

 
54,273

Ticketing
73,215

 
642

 
(30
)
 
35,561

 
448

 
36,594

Artist Nation
(3,223
)
 
1,226

 

 
10,756

 
1,104

 
(16,309
)
Other and Eliminations
(148
)
 

 

 
(510
)
 

 
362

Corporate
(22,305
)
 
4,037

 
9

 
506

 
26

 
(26,883
)
Total
$
141,724

 
$
8,065

 
$
(76
)
 
$
88,571

 
$
2,919

 
$
42,245

Six Months Ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
Concerts
$
46,921

 
$
3,741

 
$
(358
)
 
$
67,120

 
$
6,774

 
$
(30,356
)
Sponsorship & Advertising
94,452

 
690

 

 
9,329

 

 
84,433

Ticketing
169,597

 
1,583

 
31

 
85,676

 
220

 
82,087

Artist Nation
(5,477
)
 
2,202

 
(45
)
 
26,704

 
(920
)
 
(33,418
)
Other and Eliminations
(5,966
)
 
12

 

 
(224
)
 
182

 
(5,936
)
Corporate
(45,087
)
 
8,916

 
118

 
1,774

 
46

 
(55,941
)
Total
$
254,440

 
$
17,144

 
$
(254
)
 
$
190,379

 
$
6,302

 
$
40,869

Six Months Ended June 30, 2015
 
 
 
 
 
 
 
 
 
 
Concerts
$
25,637

 
$
3,838

 
$
171

 
$
69,214

 
$
775

 
$
(48,361
)
Sponsorship & Advertising
85,742

 
869

 

 
4,213

 

 
80,660

Ticketing
151,603

 
1,505

 
(179
)
 
78,857

 
595

 
70,825

Artist Nation
(7,990
)
 
2,558

 

 
20,791

 
1,110

 
(32,449
)
Other and Eliminations
(1,743
)
 

 

 
(985
)
 

 
(758
)
Corporate
(41,910
)
 
8,792

 
(29
)
 
1,022

 
(88
)
 
(51,607
)
Total
$
211,339

 
$
17,562

 
$
(37
)
 
$
173,112

 
$
2,392

 
$
18,310


Constant Currency
Constant currency is a non-GAAP financial measure. We calculate currency impacts as the difference between current period activity translated using the current period’s currency exchange rates and the comparable prior period’s currency exchange rates. We present constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations.



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Table of Contents

Segment Operating Results
Concerts
Our Concerts segment operating results were, and discussions of significant variances are, as follows:
 
Three Months Ended 
 June 30,
 
%
Change
 
Six Months Ended 
 June 30,
 
%
Change
 
2016
 
2015
 
 
 
2016
 
2015
 
 
 
(in thousands)
 
 
 
(in thousands)
 
 
Revenue
$
1,597,756

 
$
1,268,382

 
26%
 
$
2,278,834

 
$
1,891,616

 
20%
Direct operating expenses
1,350,297

 
1,075,507

 
26%
 
1,887,431

 
1,561,479

 
21%
Selling, general and administrative expenses
193,357

 
158,689

 
22%
 
354,997

 
309,113

 
15%
Depreciation and amortization
35,673

 
40,033

 
(11)%
 
67,120

 
69,214

 
(3)%
Loss (gain) on disposal of operating assets
(324
)
 
(55
)
 
*
 
(358
)
 
171
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