Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations together with the audited consolidated financial statements and notes to the financial statements included elsewhere in this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed under 1A.—Risk Factors and other sections in this Annual Report.

Executive Overview

In 2014, all of our segments reported revenue growth as a result of higher attendance at our North America concerts, increased ticket sales globally in our Ticketing segment, higher artist management commissions and expansion of our sponsorship business. This led to our fourth consecutive year of overall revenue growth. Revenue increased 6% as compared to last year and while all our segments contributed to this success, it was largely driven by an increase in the number of stadium concert events in North America along with growth in our primary and resale businesses in Ticketing. Excluding the impact of a goodwill impairment in 2014, operating income and net income for the year both improved. 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. We believe that by leveraging our leadership position in the entertainment industry to reach fans through the live concert experience, we will sell more tickets which will then grow our sponsorship and advertising revenue.

Our Concerts segment revenue increased 5% as compared to last year driven by our North America business which had sell-out stadium tours as well as increased festival attendance resulting from our expanding portfolio of events. The number of fans attending our Concert events in North America rose by 6% for the year as a result of creatively packaged tours and festivals crossing all genres of music including rock/pop, country and electronic dance music. Due to a reduction of touring content in our international markets, we had fewer arena shows and, therefore, fewer fans attending events internationally which caused global concert attendance to fall by 2% for the year. Our overall Concerts operating results declined to a loss of $190.5 million for the year which includes a $117.0 million charge for a goodwill impairment relating to our international concerts division. We will continue to look for expansion opportunities in Concerts, 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.

Our Ticketing segment revenue increased 11% as compared to last year largely due to growth of our primary and resale businesses in North America. Our TM+ resale product continued to perform very strongly, delivering significant growth in gross transaction value in each quarter of 2014 as compared to the prior year. At the same time, we continued to invest in our primary ticketing platform in order to improve the ticket buying experience for our fans and provide better tools and information resources for our venue clients. Overall, the total number of tickets sold increased 3% due to strong concert ticket sales as well as growth in the arts and family categories. In our resale business, gross transaction value of resale tickets sold increased by 55% to over $900 million for the year due in large part to the success of our new TM+ product, which drove significant growth in concert and professional sports ticket sales. Throughout the year, 18% of our total tickets were sold via mobile and tablet devices, up from 14% last year, as we continued to implement new features that are driving further expansion of mobile ticket transactions. Operating margins for the year also improved from 7.2% in 2013 to 7.5% in 2014 as we continue to deliver reductions in our cost structure and to grow our resale business.

Our Artist Nation segment revenue increased 10% as compared to last year primarily due to increased artist management commissions. New manager and artist relationships resulted in increased revenue from touring, recording and other performance fees, leading to the year-over-year growth. Our artist services business declined due to lower retail merchandise sales and less international touring activity. Excluding the impact of a goodwill impairment charge of $17.9 million relating to our artist services (non-management) business, operating results for the Artist Nation segment improved significantly in the year, due to the increased artist activity along with continued alignment between artist managers and the rest of the Live Nation organization to deliver more services to these artists. Our Artist Nation segment is focused on serving its existing artists as well as developing new relationships with top artists and extending the various services it provides.

Our Sponsorship & Advertising segment revenue increased by 5% as compared to last year driven by growth in online sales in North America as well as new sponsorship deals. Overall, operating income is up due to increased revenue as well as improved margins on our sponsorships compared to last year when we had several clients with higher activation program costs. 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 our sales reach further into new markets internationally.

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 development of innovative products, grow sponsorship and advertising, sell more tickets and drive reductions in the cost to sell a ticket, grow secondary ticket volume and drive artist management through our other core businesses.

Segment Overview

Our reportable segments are Concerts, Ticketing, Artist Nation and Sponsorship & Advertising.

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 and the production of music festivals across the world. 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 September. 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.

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, we monitor attendance, 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 on a constant currency basis.

Ticketing

The Ticketing segment is primarily an agency business that sells tickets for events on behalf of our clients and retains a convenience charge and order processing fee 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, or secondary ticketing, primarily through our integrated inventory platform, referred to as TM+. Our Ticketing segment also manages our online activities including enhancements to our websites and bundling product offerings. Through our websites, we sell tickets to our own events as well as tickets for our ticketing clients and provide event information. Revenue related to ticketing service charges is recognized when the ticket is sold except for our own events where we control ticketing and then the revenue is deferred and recognized as the event occurs.

To judge the health of our Ticketing segment, we primarily review the gross transaction value and the number of tickets sold through our ticketing operations, average convenience charges and order processing fees, 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 apps and the 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 on a constant currency basis.

Artist Nation

The Artist Nation segment primarily provides management services to music artists 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 September tends to be a popular time for touring events.

To judge the health of our Artist Nation segment, we primarily review the annual commissions earned for each artist represented and the percentage of top artists on tour or with planned album releases, as these activities tend to drive higher revenue. For business that is conducted in foreign markets, we also compare the operating results from our foreign operations to prior periods on a constant currency basis.

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 concert, venue, artist relationship and ticketing assets, including advertising on our websites. We drive increased advertising scale to further monetize our concert platform through rich media offerings including 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 typically associated with our outdoor venues and festivals which are primarily used in or occur from May through September.

To judge the health of our Sponsorship & Advertising segment, we primarily review the average revenue per sponsor, the total revenue generated through sponsorship arrangements, the percentage of expected revenue under contract and the online revenue received from sponsors advertising on our websites. For business that is conducted in foreign markets, we also compare the operating results from our foreign operations to prior periods on a constant currency basis.

Consolidated Results of Operations

	Year Ended December 31,												% Change 2014 vs 2013		% Change 2013 vs 2012
	2014				2013				2012
	(in thousands)
Revenue	$	6,866,964			$	6,478,547			$	5,819,047			6%		11%
Operating expenses:
Direct operating expenses	4,919,969				4,680,507				4,151,277				5%		13%
Selling, general and administrative expenses	1,330,160				1,226,892				1,143,632				8%		7%
Depreciation and amortization	368,143				368,923				429,557				0%		(14)%
Goodwill impairment	134,961				—				—				*		*
Gain on disposal of operating assets	(4,494		)		(38,259		)		(514		)		*		*
Corporate expenses	101,000				94,385				113,364				7%		(17)%
Acquisition transaction expenses	10,061				6,439				3,370				*		*
Operating income (loss)	7,164				139,660				(21,639		)		(95)%		*
Operating margin	0.1		%		2.2		%		(0.4		)%
Interest expense	106,312				111,659				123,740
Loss (gain) on extinguishment of debt	188				36,269				(460		)
Interest income	(3,606		)		(5,071		)		(4,170		)
Equity in earnings of nonconsolidated affiliates	(4,166		)		(856		)		(9,921		)
Other expense, net	8,256				2,796				1,333
Loss before income taxes	(99,820		)		(5,137		)		(132,161		)
Income tax expense	4,630				30,878				29,736
Net loss	(104,450		)		(36,015		)		(161,897		)
Net income (loss) attributable to noncontrolling interests	(13,643		)		7,363				1,330
Net loss attributable to common stockholders of Live Nation	$	(90,807	)		$	(43,378	)		$	(163,227	)

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*	Percentages are not meaningful.

Key Operating Metrics

	Year Ended December 31,
	2014			2013			2012
Concerts (1)
Estimated events:
North America	15,948			15,580			14,942
International	6,853			7,270			6,996
Total estimated events	22,801			22,850			21,938
Estimated fans (rounded):
North America	40,092,000			37,954,000			32,079,000
International	18,486,000			21,527,000			17,915,000
Total estimated fans	58,578,000			59,481,000			49,994,000
Ticketing
Number of tickets sold (in thousands) (2)	153,744			148,852			147,732

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(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 and excludes tickets sold for the 2012 Olympics. This metric includes tickets sold during the year regardless of event timing except for our promoted events in our owned or operated venues and in certain European territories where these tickets are reported as the events occur. The total number of tickets sold reported above for 2014, 2013 and 2012 excludes approximately 300 million, 301 million and 284 million, respectively, of estimated tickets sold using our Ticketmaster systems, through season seat packages and our venue clients’ box offices, for which we do not receive a fee.

Revenue

Our revenue increased $388.4 million, or 6%, during the year ended December 31, 2014 as compared to the prior year. The overall increase in revenue was primarily due to increases in our Concerts and Ticketing segments of $209.7 million and $149.4 million, respectively. Excluding the decrease of approximately $0.1 million related to the impact of changes in foreign exchange rates, revenue increased $388.5 million, or 6%.

Our revenue increased $659.5 million, or 11%, during the year ended December 31, 2013 as compared to the prior year. The overall increase in revenue was primarily due to an increase in our Concerts segment of $646.8 million. Excluding the decrease of approximately $3.9 million related to the impact of changes in foreign exchange rates, revenue increased $663.4 million, or 11%.

More detailed explanations of these changes along with the impact of changes in foreign exchange rates, if significant, are included in the applicable segment discussions below.

Direct operating expenses

Our direct operating expenses increased $239.5 million, or 5%, during the year ended December 31, 2014 as compared to the prior year. The overall increase in direct operating expenses was primarily due to increases in our Concerts and Ticketing segments of $186.5 million and $91.1 million, respectively. Excluding the increase of approximately $5.3 million related to the impact of changes in foreign exchange rates, direct operating expenses increased $234.2 million, or 5%.

Our direct operating expenses increased $529.2 million, or 13% during the year ended December 31, 2013 as compared to the prior year. The overall increase in direct operating expenses was primarily due to an increase in our Concerts segment of $555.0 million. Excluding the decrease of approximately $3.2 million related to the impact of changes in foreign exchange rates, direct operating expenses increased $532.4 million, or 13%.

Direct operating expenses include artist fees, event production costs, ticketing client royalties, show-related marketing and advertising expenses, along with other costs.

More detailed explanations of these changes along with the impact of changes in foreign exchange rates, if significant, are included in the applicable segment discussions below.

Selling, general and administrative expenses

Our selling, general and administrative expenses increased $103.3 million, or 8%, during the year ended December 31, 2014 as compared to the prior year. The overall increase in selling, general and administrative expenses was primarily due to increases in our Concerts, Ticketing and Artist Nation segments of $33.9 million, $29.2 million and $34.8 million, respectively. Excluding the increase of approximately $1.0 million related to the impact of changes in foreign exchange rates, selling, general and administrative expenses increased $102.3 million, or 8%.

Our selling, general and administrative expenses increased $83.3 million, or 7%, during the year ended December 31, 2013 as compared to the prior year. The overall increase in selling, general and administrative expenses was primarily due to an increase in our Concerts segment of $63.0 million. Excluding the decrease of approximately $0.3 million related to the impact of changes in foreign exchange rates, selling, general and administrative expenses increased $83.6 million, or 7%.

More detailed explanations of these changes along with the impact of changes in foreign exchange rates, if significant, are included in the applicable segment discussions below.

Depreciation and amortization

Depreciation and amortization decreased $0.8 million during the year ended December 31, 2014 as compared to the prior year. The overall decrease in depreciation and amortization was primarily due to a decrease in our Concerts segment of $17.3 million partially offset by an increase in our Ticketing segment of $14.1 million.

Depreciation and amortization decreased $60.6 million, or 14%, during the year ended December 31, 2013 as compared to the prior year. The overall decrease in depreciation and amortization was primarily due to decreases in our Concerts and Artist Nation segments of $13.2 million and $73.1 million, respectively, partially offset by an increase in our Ticketing segment of $24.9 million.

More detailed explanations of these changes along with the impact of changes in foreign exchange rates, if significant, are included in the applicable segment discussions below.

Goodwill impairment

Goodwill impairments of $117.0 million and $17.9 million were recorded in conjunction with our annual impairment tests related to the International Concerts reporting unit in the Concerts segment and the Artist Services (non-management) reporting unit in the Artist Nation segment, respectively. See “—Critical Accounting Policies and Estimates —Goodwill” for further discussion of the factors impacting this impairment.

Gain on disposal of operating assets

Gain on disposal of operating assets for the year ended December 31, 2014 was $4.5 million consisting primarily of a gain recognized in our Concerts segment in connection with the final insurance recovery received for storm damage to an amphitheater in New York during Hurricane Sandy in 2012.

Gain on disposal of operating assets for the year ended December 31, 2013 was $38.3 million consisting primarily of a $24.8 million gain recognized in our Concerts segment from the May 2013 sale of a theater in New York. In addition, we recognized a gain in our Concerts segment of $14.1 million in connection with insurance recoveries for storm damage sustained to an amphitheater as discussed above.

Corporate expenses

Corporate expenses increased $6.6 million, or 7%, during the year ended December 31, 2014 as compared to the prior year primarily due to higher compensation-related costs driven by higher headcount and annual salary increases.

Corporate expenses decreased $19.0 million, or 17%, during the year ended December 31, 2013 as compared to the prior year primarily from a reduction in stock-based compensation and expense related to payments on the Trust Note due to the resignation of an executive on December 31, 2012.

Acquisition transaction expenses

Acquisition transaction expenses were $10.1 million, $6.4 million and $3.4 million during the years ended December 31, 2014, 2013 and 2012, respectively. All years include current-year acquisition costs that vary based on the size and number of acquisitions in the year and ongoing litigation costs relating to our merger with Ticketmaster.

Interest expense

Interest expense decreased $5.3 million, or 5%, during the year ended December 31, 2014 as compared to the prior year primarily due to the interest cost reduction realized from the August 2013 redemption of the 8.125% senior notes and the September 2014 redemption of the 2.875% convertible senior notes partially offset by additional interest cost from the 7% senior notes issued in August 2013 and the 5.375% senior notes and the 2.5% convertible senior notes issued in May 2014.

Interest expense decreased $12.1 million, or 10%, for the year ended December 31, 2013 as compared to the prior year primarily due to the interest cost reduction realized from the August 2012 redemption of the 10.75% senior notes and the August 2013 redemption of the 8.125% senior notes, partially offset by the additional interest cost from the 7% senior notes issued in August 2012 and 2013.

Our debt balances and weighted-average cost of debt, excluding unamortized debt discounts of $33.0 million and including debt premium of $7.3 million, were $2.1 billion and 4.3%, respectively, as of December 31, 2014.

Loss (gain) on extinguishment of debt

We recorded a loss on extinguishment of debt of $36.3 million for the year ended December 31, 2013 in connection with the refinancing of the term loans under our senior secured credit facility and the redemption of our 8.125% senior notes in August 2013. These obligations were paid with proceeds from incremental term loans under our amended senior secured credit facility and the issuance of additional 7% senior notes.

Equity in earnings of nonconsolidated affiliates

Equity in earnings of nonconsolidated affiliates increased $3.3 million during the year ended December 31, 2014 as compared to the prior year primarily due to impairment charges of $9.2 million recorded in 2013 related to investments in a concert promoter located in Europe and an ecommerce business, partially offset by lower earnings in 2014 on certain investments in the Concerts and Ticketing segments.

Equity in earnings of nonconsolidated affiliates decreased $9.1 million during the year ended December 31, 2013 as compared to the prior year primarily due to impairment charges of $9.2 million recorded in 2013 as discussed above.

Other expense, net

Other expense, net includes the impact of changes in foreign exchange rates of $28.9 million and $2.8 million in net losses for the years ended December 31, 2014 and 2013, respectively, and a net gain of $1.4 million for the year ended

December 31, 2012. The 2014 net loss was partially offset by a gain of $17.1 million recorded in connection with the consolidation of an artist management business that had been previously accounted for as an equity investment, due to a change in the governing agreements.

Income taxes

For the year ended December 31, 2014, we had a net tax expense of $4.6 million on a loss before income taxes of $99.8 million compared to a net tax expense of $30.9 million on a loss before income taxes of $5.1 million for 2013. In 2014, income tax expense primarily included $8.5 million related to tax expense for foreign entities and $7.0 million related to state and local income taxes partially offset by $12.9 million related to the reversal of valuation allowances in connection with certain acquisitions. The net decrease is due to a reduction in earnings in our foreign tax jurisdictions and the reversal of valuation allowances. These decreases were partially offset by increased state and local income taxes due to income in excess of available net operating loss carryforwards in certain states.

For the year ended December 31, 2013, we had a net tax expense of $30.9 million on a loss before income taxes of $5.1 million compared to a net tax expense of $29.7 million on a loss before income taxes of $132.2 million for 2012. In 2013, income tax expense primarily included $27.8 million related to tax expense for foreign entities and $3.9 million related to current state and local income taxes. The net increase in 2013 tax expense as compared to 2012 is principally due to higher earnings attributable to the 2012 acquisitions of foreign entities.

Net income (loss) attributable to noncontrolling interests

Net income (loss) attributable to noncontrolling interests decreased $21.0 million to a loss of $13.6 million during the year ended December 31, 2014 as compared to the prior year primarily due to the portion of the goodwill impairment attributable to noncontrolling interests partially offset by the prospective consolidation of, and improved operating results from, certain artist management companies.

Net income attributable to noncontrolling interests increased $6.0 million during the year ended December 31, 2013 as compared to the prior year primarily due to improved operating results from certain artist management businesses driven by an impairment in 2012 partially offset by lower operating results from certain concert promotion businesses.

Concerts Results of Operations

Our Concerts segment operating results were, and discussions of significant variances are, as follows:

	Year Ended December 31,												% Change 2014 vs 2013		% Change 2013 vs 2012
	2014				2013				2012
	(in thousands)
Revenue	$	4,726,877			$	4,517,191			$	3,870,371			5%		17%
Direct operating expenses	4,016,540				3,829,991				3,274,951				5%		17%
Selling, general and administrative expenses	666,475				632,614				569,570				5%		11%
Depreciation and amortization	115,088				132,386				145,552				(13)%		(9)%
Goodwill impairment	117,013				—				—				*		*
Gain on disposal of operating assets	(2,954		)		(38,927		)		(453		)		*		*
Acquisition transaction expenses	5,171				723				847				*		*
Operating loss	$	(190,456	)		$	(39,596	)		$	(120,096	)		*		67%
Operating margin	(4.0		)%		(0.9		)%		(3.1		)%
Adjusted operating income **	$	50,547			$	60,326			$	31,364			(16)%		92%

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*	Percentages are not meaningful.
**	AOI is defined and reconciled to operating income (loss) below.

Year Ended 2014 Compared to Year Ended 2013

Concerts revenue increased $209.7 million, or 5%, during the year ended December 31, 2014 as compared to the prior year. Excluding the increase of $8.2 million related to the impact of changes in foreign exchange rates, revenue increased $201.5 million, or 4%, primarily due to more shows at North America stadiums and amphitheaters and increased North America festival activity offset by fewer events in international arenas and stadiums driven by less available touring content. Revenue was also impacted by incremental revenue of $48.1 million primarily from the acquisition of festival promoter businesses.

Concerts direct operating expenses increased $186.5 million, or 5%, during the year ended December 31, 2014 as compared to the prior year. Excluding the increase of $9.3 million related to the impact of changes in foreign exchange rates, direct operating expenses increased $177.2 million, or 5%, primarily due to higher expenses associated with the increased show activity discussed above. In addition, we incurred incremental expenses of $50.6 million from the acquisitions noted above.

Concerts selling, general and administrative expenses increased $33.9 million, or 5%, during the year ended December 31, 2014 as compared to the prior year primarily due to higher compensation costs driven by annual salary increases and additional headcount along with a reduction in rent expense during 2013 due to the recognition of an incentive payment for early termination of a venue lease. In addition, we incurred incremental expenses of $8.6 million from the acquisitions noted above.

Concerts depreciation and amortization decreased $17.3 million, or 13%, during the year ended December 31, 2014 as compared to the prior year primarily due to higher impairment charges and amortization acceleration of certain intangible assets recorded during 2013. We recorded impairment charges of $8.6 million in 2013 primarily associated with venue management and leasehold intangible assets when it was determined that the estimated undiscounted cash flows associated with the respective intangible asset was less than its carrying value. In addition, in 2013 we accelerated $6.7 million of amortization associated with a change in the estimated useful lives of certain venue management and leasehold intangible assets. We did not record any significant impairment charges or accelerated amortization of long-lived assets during 2014.

Concerts recorded a goodwill impairment of $117.0 million related to our international concerts business. The impairment was recorded in the fourth quarter of 2014 in connection with our annual impairment test discussed in “—Critical Accounting Policies —Goodwill.”

Concerts gain on disposal of operating assets of $3.0 million for the year ended December 31, 2014 consists primarily of the final insurance recovery for storm damage to an amphitheater in New York during Hurricane Sandy in 2012. Concerts gain on disposal of operating assets of $38.9 million for the year ended December 31, 2013 was primarily due to a $24.8 million gain on the sale of a theater in New York and $14.1 million related to insurance recoveries from the storm damage discussed above.

Concerts acquisition transaction expenses increased $4.4 million for the year ended December 31, 2014 as compared to the prior year primarily due to costs associated with our acquisition of a festival and concert promoter in the United States.

The increased operating loss for Concerts for the year ended December 31, 2014 was primarily driven by the goodwill impairment, lower gain on disposal of operating assets, higher selling, general and administrative expenses and lower results from our international business. These decreases were partially offset by increased North America show activity.

Year Ended 2013 Compared to Year Ended 2012

Concerts revenue increased $646.8 million, or 17%, during the year ended December 31, 2013 as compared to the prior year partially due to incremental revenue of $144.7 million from the acquisitions of various festival promoters. In addition, revenue increased due to more shows and higher average attendance in our arenas globally and North America owned or operated amphitheaters, increased shows in third-party stadiums globally and expansion of premium ticket package sales. These increases were partially offset by less global touring activity.

Concerts direct operating expenses increased $555.0 million, or 17%, during the year ended December 31, 2013 as compared to the prior year partially due to incremental direct operating expenses of $162.1 million from acquisitions. In addition, we incurred higher expenses associated with the additional shows and attendance as discussed above. These increases were partially offset by lower costs due to reduced global touring activity.

Concerts selling, general and administrative expenses increased $63.0 million, or 11%, during the year ended December 31, 2013 as compared to the prior year primarily due to higher compensation costs associated with improved operating results and increased headcount along with incremental expenses of $8.4 million from the acquisitions noted above.

Concerts depreciation and amortization decreased $13.2 million, or 9%, during the year ended December 31, 2013 as compared to the prior year primarily due to higher impairments of intangible assets in 2012. We recorded impairment charges of $8.6 million in 2013 primarily associated with venue management and leasehold intangible assets as compared to

impairment charges of $26.9 million in 2012 primarily related to revenue-generating contract intangibles. In each case, it was determined that the estimated undiscounted cash flows associated with the respective intangible asset was less than its carrying value. This decrease was partially offset by additional amortization associated with recent acquisitions and $6.7 million of accelerated amortization recorded in 2013 resulting from a change in the estimated useful life of certain venue management and leasehold intangible assets.

Concerts gain on disposal of operating assets of $38.9 million for the year ended December 31, 2013 is primarily due to a $24.8 million gain on sale of a theater in New York and $14.1 million of insurance recoveries for storm damage to an amphitheater in New York during Hurricane Sandy in 2012.

The decreased operating loss for Concerts for the year ended December 31, 2013 was primarily driven by more shows and higher average attendance, reduced amortization expense and the gain on disposal of operating assets. These increases were partially offset by higher compensation costs related to the improved operating results.

Ticketing Results of Operations

Our Ticketing segment operating results were, and discussions of significant variances are, as follows:

	Year Ended December 31,												% Change 2014 vs 2013		% Change 2013 vs 2012
	2014				2013				2012
	(in thousands)
Revenue	$	1,557,254			$	1,407,817			$	1,374,049			11%		2%
Direct operating expenses	763,280				672,221				651,055				14%		3%
Selling, general and administrative expenses	471,982				442,788				434,310				7%		2%
Depreciation and amortization	204,901				190,801				165,947				7%		15%
Gain on disposal of operating assets	(1,583		)		(4		)		(225		)		*		*
Acquisition transaction expenses	1,381				245				153				*		*
Operating income	$	117,293			$	101,766			$	122,809			15%		(17)%
Operating margin	7.5		%		7.2		%		8.9		%
Adjusted operating income **	$	326,121			$	298,121			$	294,625			9%		1%

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*	Percentages are not meaningful.
**	AOI is defined and reconciled to operating income (loss) below.

Year Ended 2014 Compared to Year Ended 2013

Ticketing revenue increased $149.4 million, or 11%, during the year ended December 31, 2014 as compared to the prior year. Excluding the decrease of $11.2 million related to the impact of changes in foreign exchange rates, revenue increased $160.6 million, or 11%, primarily due to increased primary ticket sales and fees along with higher domestic resale ticket fees driven by growth in concert and professional sports ticket sales as a result of the continuing success of our TM+ resale product.

Ticketing direct operating expenses increased $91.1 million, or 14%, during the year ended December 31, 2014 as compared to the prior year. Excluding the decrease of $5.2 million related to the impact of changes in foreign exchange rates, direct operating expenses increased $96.3 million, or 14%, primarily due to higher costs associated with the increased primary and resale ticket sales discussed above partially offset by a legal settlement received in 2014.

Ticketing selling, general and administrative expenses increased $29.2 million, or 7%, during the year ended December 31, 2014 as compared to the prior year primarily due to higher compensation costs associated with annual salary increases and legal settlements received from insurance carriers in 2013.

Ticketing depreciation and amortization increased $14.1 million, or 7%, during the year ended December 31, 2014 as compared to the prior year primarily due to increased depreciation from continued investment in our technology platform and higher amortization associated with the impairment of certain intangible assets. In 2014, we recorded impairment charges of $9.2 million associated with an indefinite-lived intangible trade name in connection with the decision to rebrand certain markets that were not currently using the Ticketmaster trade name along with the impairment of certain technology intangible

assets as it was determined that the estimated undiscounted cash flows associated with the respective intangible asset were less than their carrying value.

Ticketing operating income increased for the year ended December 31, 2014 primarily due to increased domestic primary and resale ticket revenue partially offset by higher compensation costs and increased depreciation and amortization.

Year Ended 2013 Compared to Year Ended 2012

Ticketing revenue increased $33.8 million, or 2%, during the year ended December 31, 2013 as compared to the prior year primarily due to higher domestic primary and resale ticket volumes partially offset by a reduction in fees associated with the 2012 Olympics and lower domestic primary ticket fees resulting from the mix of fee structures on certain domestic primary ticket arrangements.

Ticketing direct operating expenses increased $21.2 million, or 3%, during the year ended December 31, 2013 as compared to the prior year primarily due to costs related to the higher ticket volumes discussed above. These increases were partially offset by a reduction in expenses associated with the 2012 Olympics and the change in fee structure noted above.

Ticketing selling, general and administrative expenses increased $8.5 million, or 2%, during the year ended December 31, 2013 as compared to the prior year primarily due to increased compensation costs driven by the re-platforming of our ticketing systems and increased costs associated with the renewal of certain sports league ticketing agreements. These increases were partially offset by legal settlements received from insurance carriers in 2013.

Ticketing depreciation and amortization increased $24.9 million, or 15%, during the year ended December 31, 2013 as compared to the prior year primarily due to higher amortization of non-recoupable contract advances associated with an increase in the amount of advances paid in 2013 as compared to the completion of the amortization related to several contracts in the prior year.

Ticketing operating income decreased for the year ended December 31, 2013 primarily due to increased compensation expenses associated with the re-platforming of our ticketing systems, increased amortization of contract advances and the reduction due to the 2012 Olympics. These decreases were partially offset by increases in primary and resale ticket volumes.

Artist Nation Results of Operations

Our Artist Nation segment operating results were, and discussions of significant variances are, as follows:

	Year Ended December 31,												% Change 2014 vs 2013		% Change 2013 vs 2012
	2014				2013				2012
	(in thousands)
Revenue	$	389,437			$	352,947			$	399,940			10%		(12)%
Direct operating expenses	212,302				218,113				263,896				(3)%		(17)%
Selling, general and administrative expenses	138,066				103,304				99,786				34%		4%
Depreciation and amortization	43,343				42,613				115,696				2%		(63)%
Goodwill impairment	17,948				—				—				*		*
Loss (gain) on disposal of operating assets	34				665				(42		)		*		*
Acquisition transaction expenses	566				3				1,163				*		*
Operating loss	$	(22,822	)		$	(11,751	)		$	(80,559	)		(94)%		85%
Operating margin	(5.9		)%		(3.3		)%		(20.1		)%
Adjusted operating income **	$	48,063			$	32,084			$	38,134			50%		(16)%

---

*	Percentages are not meaningful.
**	AOI is defined and reconciled to operating income (loss) below.

Year Ended 2014 Compared to Year Ended 2013

Artist Nation revenue increased $36.5 million, or 10%, during the year ended December 31, 2014 as compared to the prior year primarily due to incremental revenue of $27.3 million resulting from the acquisition or prospective consolidation of various artist management companies. In addition, revenue increased due to higher management commissions and the

expansion of production management projects. These increases were partially offset by a reduction in VIP ticket revenue due to the decision by the Concerts segment in July 2013 to expand their premium ticket packages and no longer outsource this service to Artist Nation.

Artist Nation direct operating expenses decreased $5.8 million, or 3%, during the year ended December 31, 2014 as compared to the prior year primarily due to a reduction in costs associated with the VIP ticket program discontinuation partially offset by increased costs related to the production management activity as discussed above.

Artist Nation selling, general and administrative expenses increased $34.8 million, or 34%, during the year ended December 31, 2014 as compared to the prior year primarily due to higher compensation and non-cash compensation expenses in the management business along with incremental expenses of $10.8 million resulting from the acquisitions and prospective consolidations discussed above.

Artist Nation depreciation and amortization increased $0.7 million, or 2%, during the year ended December 31, 2014 as compared to the prior year resulting primarily from an impairment charge of $6.1 million related to a client/vendor relationship intangible in the management business as it was determined that the estimated undiscounted cash flows associated with the respective intangible asset were less than their carrying value. The increase was partially offset by lower amortization from certain intangible assets that became fully amortized in 2013.

Artist Nation recorded a goodwill impairment of $17.9 million related to our artist services (non-management) business. The impairment was recorded in the fourth quarter of 2014 in connection with our annual impairment test discussed in “—Critical Accounting Policies —Goodwill”

The increased operating loss for Artist Nation for the year ended December 31, 2014 was primarily driven by the goodwill impairment. This was partially offset by higher management commissions and the acquisition or prospective consolidation of various artist management companies.

Year Ended 2013 Compared to Year Ended 2012

Artist Nation revenue decreased $47.0 million, or 12%, during the year ended December 31, 2013 as compared to the prior year primarily from the decision by the Concerts segment in July 2013 to expand their premium ticket packages and no longer outsource VIP ticket sales to Artist Nation along with a reduction in management revenue due to the departure of certain artist managers. This decrease was partially offset by incremental revenue of $5.2 million resulting from the acquisition of a production services company in July 2012 along with several artist management companies.

Artist Nation direct operating expenses decreased $45.8 million, or 17%, during the year ended December 31, 2013 as compared to the prior year primarily due to a reduction in costs associated with the VIP ticket program discontinuation discussed above.

Artist Nation depreciation and amortization decreased $73.1 million, or 63%, during the year ended December 31, 2013 as compared to the prior year primarily due to higher impairments of intangible assets in 2012 in the management business. We recorded impairment charges, primarily associated with client/vendor relationship intangible assets, of $2.0 million in 2013 compared to $62.7 million in 2012.

The decreased operating loss for Artist Nation for the year ended December 31, 2013 was primarily driven by the lower amortization expense.

Sponsorship & Advertising Results of Operations

Our Sponsorship & Advertising segment operating results were, and discussions of significant variances are, as follows:

	Year Ended December 31,												% Change 2014 vs 2013		% Change 2013 vs 2012
	2014				2013				2012
	(in thousands)
Revenue	$	300,279			$	284,692			$	247,921			5%		15%
Direct operating expenses	37,973				45,021				34,738				(16)%		30%
Selling, general and administrative expenses	50,292				45,618				38,198				10%		19%
Depreciation and amortization	4,281				2,351				1,187				82%		*
Acquisition transaction expenses	—				64				—				*		*
Operating income	$	207,733			$	191,638			$	173,798			8%		10%
Operating margin	69.2		%		67.3		%		70.1		%
Adjusted operating income **	$	213,410			$	194,807			$	175,619			10%		11%

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*	Percentages are not meaningful.
**	AOI is defined and reconciled to operating income (loss) below.

Year Ended 2014 Compared to Year Ended 2013

Sponsorship & Advertising revenue increased $15.6 million, or 5%, during the year ended December 31, 2014 as compared to the prior year. Excluding the increase of $1.9 million related to the impact of changes in foreign exchange rates, revenue increased $13.7 million, or 5%, primarily due to higher domestic online advertising and new, or expansion of existing, domestic sponsorship agreements along with incremental revenue of $4.2 million from the acquisition of various festival businesses. These increases were partially offset by lower international festival sponsorships.

Sponsorship & Advertising direct operating expenses decreased $7.0 million, or 16%, during the year ended December 31, 2014 as compared to the prior year primarily driven by lower fulfillment costs on certain sponsorship agreements and lower costs associated with the reduction in international festival sponsorships.

Sponsorship & Advertising selling, general and administrative expenses increased $4.7 million, or 10%, during the year ended December 31, 2014 as compared to the prior year primarily due to higher compensation costs from increased headcount to drive additional sales in future periods.

Sponsorship & Advertising depreciation and amortization increased $1.9 million, or 82%, during the year ended December 31, 2014 as compared to the prior year primarily due to incremental amortization related to certain intangible assets associated with the acquisitions discussed above.

The increased operating income for the year ended December 31, 2014 was primarily due to increased domestic online advertising and sponsorship programs.

Year Ended 2013 Compared to Year Ended 2012

Sponsorship & Advertising revenue increased $36.8 million, or 15%, during the year ended December 31, 2013 as compared to the prior year due to growth in online advertising, new sponsorship agreements globally, expansion of existing sponsorship arrangements and increased custom events. In addition, incremental revenue of $4.3 million resulting from sponsorships associated with recent acquisitions of festival promoters contributed to the increase.

Sponsorship & Advertising direct operating expenses increased $10.3 million, or 30%, during the year ended December 31, 2013 as compared to the prior year primarily driven by increased revenue and, in certain cases, higher fulfillment costs related to custom events.

Sponsorship & Advertising selling, general and administrative expenses increased $7.4 million, or 19%, during the year ended December 31, 2013 as compared to the prior year primarily due to higher compensation costs associated with improved performance and increased headcount to drive additional digital and sponsorship sales.

The increased operating income for the year ended December 31, 2013 was primarily due to higher online advertising and new sponsorship agreements globally partially offset by increased compensation costs.

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, payments under the Trust Note and acquisition-related severance), depreciation and amortization (including goodwill impairment), loss (gain) on disposal of operating assets and non-cash and certain stock-based compensation expense (including expense associated with grants of certain stock-based awards which were classified as liabilities). 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.

The following table sets forth the reconciliation of adjusted operating income (loss) to operating income (loss):

	Adjusted operating income (loss)				Non-cash and stock- based compensation expense				Loss (gain) on disposal of operating assets				Depreciation and amortization				Goodwill impairment				Acquisition expenses				Operating income (loss)
									(in thousands)
2014
Concerts	$	50,547			$	6,685			$	(2,954	)		$	115,088			$	117,013			$	5,171			$	(190,456	)
Ticketing	326,121				4,129				(1,583		)		204,901				—				1,381				117,293
Artist Nation	48,063				8,994				34				43,343				17,948				566				(22,822		)
Sponsorship & Advertising	213,410				1,396				—				4,281				—				—				207,733
Other and Eliminations	(102		)		—				(29		)		(2,062		)		—				38				1,951
Corporate	(83,175		)		17,825				38				2,592				—				2,905				(106,535		)
Total	$	554,864			$	39,029			$	(4,494	)		$	368,143			$	134,961			$	10,061			$	7,164
2013
Concerts	$	60,326			$	5,740			$	(38,927	)		$	132,386			$	—			$	723			$	(39,596	)
Ticketing	298,121				5,313				(4		)		190,801				—				245				101,766
Artist Nation	32,084				554				665				42,613				—				3				(11,751		)
Sponsorship & Advertising	194,807				754				—				2,351				—				64				191,638
Other and Eliminations	(1,829		)		—				7				(1,839		)		—				—				3
Corporate	(78,331		)		16,054				—				2,611				—				5,404				(102,400		)
Total	$	505,178			$	28,415			$	(38,259	)		$	368,923			$	—			$	6,439			$	139,660
2012
Concerts	$	31,364			$	5,514			$	(453	)		$	145,552			$	—			$	847			$	(120,096	)
Ticketing	294,625				6,273				(225		)		165,947				—				(179		)		122,809
Artist Nation	38,134				1,876				(42		)		115,696				—				1,163				(80,559		)
Sponsorship & Advertising	175,619				634				—				1,187				—				—				173,798
Other and Eliminations	(1,639		)		—				206				(1,654		)		—				—				(191		)
Corporate	(78,965		)		22,766				—				2,829				—				12,840				(117,400		)
Total	$	459,138			$	37,063			$	(514	)		$	429,557			$	—			$	14,671			$	(21,639	)

Liquidity and Capital Resources

Our working capital requirements and capital for our general corporate purposes, including acquisitions and capital expenditures, are funded from operations or from borrowings under our senior secured credit facility described below. Our cash is centrally managed on a worldwide basis. Our primary short-term liquidity needs are to fund general working capital requirements, capital expenditures and debt service requirements while our long-term liquidity needs are primarily related to acquisitions and debt repayment. Our primary sources of funds for our short-term liquidity needs will be cash flows from operations and borrowings under our senior secured credit facility, while our long-term sources of funds will be from cash flows from operations, long-term bank borrowings and other debt or equity financings. We may from time to time engage in open market purchases of our outstanding debt securities or redeem or otherwise repay such debt.

Our balance sheet reflects cash and cash equivalents of $1.4 billion at December 31, 2014 and $1.3 billion at December 31, 2013. Included in the December 31, 2014 and 2013 cash and cash equivalents balance is $533.8 million and $538.4 million, respectively, of cash received that includes the face value of tickets sold on behalf of clients and the clients’ share of convenience and order processing charges, or client cash. We generally do not utilize client cash for our own financing or investing activities as the amounts are payable to clients on a regular basis. Our foreign subsidiaries held approximately $477.1 million in cash and cash equivalents, excluding client cash, at December 31, 2014. We do not intend to repatriate these funds, but if we did, we would need to accrue and pay United States federal and state income taxes on any future repatriations, net of applicable foreign tax credits. We may from time to time enter into borrowings under our revolving credit facility. If the original maturity of these borrowings is ninety days or less, we present the borrowings and subsequent repayments on a net basis in the statement of cash flows to better represent our financing activities. Our balance sheet reflects current and long-term debt of $2.1 billion at December 31, 2014 and $1.8 billion at December 31, 2013. Our weighted-average cost of debt, excluding the debt discounts and including the debt premium on our term loans and notes, was 4.3% at December 31, 2014.

Our cash and cash equivalents are held in accounts managed by third-party financial institutions and consist of cash in our operating accounts and invested cash. Cash held in interest-bearing operating accounts in many cases exceeds the Federal Deposit Insurance Corporation insurance limits. The invested cash is in interest-bearing funds consisting primarily of bank deposits and money market funds. While we monitor cash and cash equivalent balances in our operating accounts on a regular basis and adjust the balances as appropriate, these balances could be impacted if the underlying financial institutions fail. To date, we have experienced no loss or lack of access to our cash and cash equivalents; however, we can provide no assurances that access to our cash and cash equivalents will not be impacted by adverse conditions in the financial markets.

For our Concerts segment, we generally receive cash related to ticket revenue at our owned or operated venues in advance of the event, which is recorded in deferred revenue until the event occurs. With the exception of some upfront costs and artist deposits, which are recorded in prepaid expenses until the event occurs, we pay the majority of event-related expenses at or after the event.

We view our available cash as cash and cash equivalents, less ticketing-related client cash, less event-related deferred revenue, less accrued expenses due to artists and cash collected on behalf of others for ticket sales, plus event-related prepaids. This is essentially our cash available to, among other things, repay debt balances, make acquisitions and finance capital expenditures.

Our intra-year cash fluctuations are impacted by the seasonality of our various businesses. Examples of seasonal effects include our Concerts and Artist Nation segments, which report the majority of their revenue in the second and third quarters. Cash inflows and outflows depend on the timing of event-related payments but the majority of the inflows generally occur prior to the event. See “—Seasonality” below. We believe that we have sufficient financial flexibility to fund these fluctuations and to access the global capital markets on satisfactory terms and in adequate amounts, although there can be no assurance that this will be the case, and capital could be less accessible and/or more costly given current economic conditions. We expect cash flows from operations and borrowings under our senior secured credit facility, along with other financing alternatives, to satisfy working capital requirements, capital expenditures and debt service requirements for at least the succeeding year.

We may need to incur additional debt or issue equity to make other strategic acquisitions or investments. There can be no assurance that such financing will be available to us on acceptable terms or at all. We may make significant acquisitions in the near term, subject to limitations imposed by our financing agreements and market conditions.

The lenders under our revolving loans and counterparties to our interest rate hedge agreements consist of banks and other third-party financial institutions. While we currently have no indications or expectations that such lenders and counterparties will be unable to fund their commitments as required, we can provide no assurances that future funding availability will not be impacted by adverse conditions in the financial markets. Should an individual lender default on its obligations, the remaining lenders would not be required to fund the shortfall, resulting in a reduction in the total amount available to us for future borrowings, but would remain obligated to fund their own commitments. Should any counterparty to our interest rate hedge agreements default on its obligations, we could experience higher interest rate volatility during the period of any such default.

Sources of Cash

Senior Secured Credit Facility

At December 31, 2014, our senior secured credit facility consisted of (i) a $115 million term loan A, (ii) a $950 million term loan B and (iii) a $335 million revolving credit facility. In addition, subject to certain conditions, we have the right to increase the facility by at least $450 million or a greater amount so long as the senior secured leverage ratio calculated on a pro-forma basis (as defined in the credit agreement) is no greater than 3.25x. The revolving credit facility provides for borrowings up to the amount of the facility with sublimits of up to (i) $150 million to be available for the issuance of letters of credit, (ii) $50 million to be available for swingline loans and (iii) $150 million to be available for borrowings in Euros or British Pounds and (iv) $50 million to be available for borrowings in one or more other approved currencies. The senior secured credit facility is secured by a first priority lien on substantially all of our tangible and intangible personal property and the domestic subsidiaries that are guarantors, and by a pledge of substantially all of the shares of stock, partnership interests and limited liability company interests of our direct and indirect domestic subsidiaries and 65% of each class of capital stock of any first-tier foreign subsidiaries.

The interest rates per annum applicable to revolving credit facility loans and term loan A under the senior secured credit facility are, at our option, equal to either LIBOR plus 2.25% or a base rate plus 1.25%, subject to stepdowns based on our net leverage ratio. The interest rates per annum applicable to term loan B are, at our option, equal to either LIBOR plus 2.75% or a base rate plus 1.75%, subject to a LIBOR floor of 0.75% and a base rate floor of 1.75%. We are required to pay a commitment fee of 0.5% per year on the undrawn portion available under the revolving credit facility, subject to stepdowns based on our net leverage ratio, and variable fees on outstanding letters of credit.

For the term loan A, we are required to make quarterly payments increasing over time from $2.9 million to $13.8 million with the balance due at maturity in August 2018. For the term loan B, we are required to make quarterly payments of $2.4 million with the balance due at maturity in August 2020. The revolving credit facility matures in August 2018. We are also required to make mandatory prepayments of the loans under the credit agreement, subject to specified exceptions, from excess cash flow, and with the proceeds of asset sales, debt issuances and specified other events.

During the year ended December 31, 2014, we made principal payments totaling $18.1 million primarily on these term loans. At December 31, 2014, the outstanding balances on these term loans, net of discounts, were $1.0 billion. There were no borrowings under the revolving credit facility as of December 31, 2014. Based on our letters of credit of $62.0 million, $273.0 million was available for future borrowings.

7% Senior Notes

In August 2013, we issued an additional $200 million principal amount of notes under the indenture governing our existing 7% senior notes due 2020 with a $9.0 million premium, which increased the total principal amount of such notes outstanding to $425 million. Interest on the notes is payable semi-annually in arrears on March 1 and September 1 of each year and the notes will mature on September 1, 2020. We may redeem some or all of the notes at any time prior to September 1, 2016 at a price equal to 100% of the aggregate principal amount, plus any accrued and unpaid interest to the date of redemption, plus a ‘make-whole’ premium using a discount rate equal to the treasury rate plus 50 basis points. We may also redeem up to 35% of the notes from the proceeds of certain equity offerings prior to September 1, 2015, at a price equal to 107% of the principal amount, plus any accrued and unpaid interest. In addition, on or after September 1, 2016, we may redeem at our option some or all of the notes at redemption prices that start at 103.5% of their principal amount, plus any accrued and unpaid interest to the date of redemption. We must make an offer to redeem the notes at 101% of the aggregate principal amount, plus any accrued and unpaid interest to the repurchase date, if we experience certain defined changes of control.

Proceeds from the issuance of the additional 7% senior notes and refinancing of our senior secured credit facility, excluding the outstanding principal amounts for lenders who elected to convert their outstanding term loans, of $802.2 million were used to repay $472.5 million principal amount of our outstanding borrowings under our then existing senior secured credit facility, to repay all of our outstanding 8.125% senior notes due 2018 with a principal amount of $250 million and to pay the related ‘make-whole’ premium on these senior notes and total accrued interest and fees of $35.3 million along with related fees and expenses for the refinancing of $22.0 million, leaving $22.4 million in additional cash for general corporate purposes. We recorded $36.3 million as a loss on extinguishment of debt related to this refinancing in 2013.

5.375% Senior Notes

In May 2014, we issued $250 million of 5.375% senior notes due 2022. Interest on the notes is payable semi-annually in arrears on June 15 and December 15, beginning December 15, 2014, and the notes will mature in June 2022. We may redeem some or all of the notes at any time prior to June 15, 2017 at a price equal to 100% of the principal amount, plus any accrued and unpaid interest to the date of redemption, plus a ‘make-whole’ premium. We may also redeem up to 35% of the aggregate principal amount of the notes from the proceeds of certain equity offerings prior to June 15, 2017, at a price equal to 105.375% of the principal amount, plus any accrued and unpaid interest. In addition, on or after June 15, 2017, we may redeem at our option some or all of the notes at redemption prices that start at 104.0313% of their principal amount, plus any accrued and unpaid interest to the date of redemption. We must make an offer to redeem the notes at 101% of the aggregate principal amount, plus any accrued and unpaid interest to the repurchase date, if we experience certain defined changes of control.

2.5% Convertible Senior Notes

In May 2014, we issued $275 million of convertible senior notes due 2019. The notes pay interest semiannually in arrears on May 15 and November 15 at a rate of 2.5% per annum, beginning on November 15, 2014. The notes will mature in May 2019 and may not be redeemed by us prior to the maturity date. The notes will be convertible, under certain circumstances, until November 15, 2018, and on or after such date without condition, at an initial conversion rate of 28.8363 shares of our common stock per $1,000 principal amount of notes, subject to adjustment, which represents a 52.5% conversion premium based on the last reported sale price for our common stock of $22.74 on May 19, 2014. Upon conversion, the notes may be settled in shares of common stock or, at our election, cash or a combination of cash and shares of common stock. Assuming we fully settled the notes in shares, the maximum number of shares that could be issued to satisfy the conversion is currently 7.9 million.

If we experience a fundamental change, as defined in the indenture governing the notes, the holders of the 2.5% convertible senior notes may require us to purchase for cash all or a portion of their notes, subject to specified exceptions, at a price equal to 100% of the principal amount of the notes plus accrued and unpaid interest, if any.

Extinguishment of Debt

In July 2014, the holders of $29.3 million in aggregate outstanding principal of the 2.875% convertible senior notes exercised their right to redeem their notes for cash and in late September 2014, pursuant to our option under the indenture governing the notes, we redeemed the remaining outstanding notes using the net proceeds from the issuances of our 5.375% senior notes and our 2.5% convertible senior notes. In addition to redeeming the principal amount of $220 million of the notes, we paid total accrued interest of $1.1 million and related fees and expenses of $0.2 million, leaving $293.9 million in additional cash available for general corporate purposes. The loss on extinguishment of debt in 2014 related to the redemption of the 2.875% convertible senior notes was not significant.

Debt Covenants

Our amended senior secured credit facility contains a number of covenants and restrictions that, among other things, requires us to satisfy certain financial covenants and restricts our and our subsidiaries’ ability to incur additional debt, make certain investments and acquisitions, repurchase our stock and prepay certain indebtedness, create liens, enter into agreements with affiliates, modify the nature of our business, enter into sale-leaseback transactions, transfer and sell material assets, merge or consolidate, and pay dividends and make distributions (with the exception of subsidiary dividends or distributions to the parent company or other subsidiaries on at least a pro-rata basis with any noncontrolling interest partners). Non-compliance with one or more of the covenants and restrictions could result in the full or partial principal balance of the credit facility becoming immediately due and payable. The amended senior secured credit facility agreement has one covenant, measured quarterly, that relates to total leverage. The consolidated total leverage covenant requires us to maintain a ratio of consolidated total funded debt to consolidated EBITDA (both as defined in the amended credit agreement) of 5.0x over the trailing four consecutive quarters through September 30, 2015. The consolidated total leverage ratio will reduce to 4.75x on December 31, 2015 and 4.50x on December 31, 2016.

The indentures governing our 7% senior notes and 5.375% senior notes contain covenants that limit, among other things, our ability and the ability of our restricted subsidiaries to incur certain additional indebtedness and issue preferred stock, make certain distributions, investments and other restricted payments, sell certain assets, agree to any restrictions on the ability of restricted subsidiaries to make payments to us, merge, consolidate or sell all of our assets, create certain liens, and engage in transactions with affiliates on terms that are not arms-length. Certain covenants, including those pertaining to incurrence of indebtedness, restricted payments, asset sales, mergers and transactions with affiliates will be suspended during any period in which the notes are rated investment grade by both rating agencies and no default or event of default under the indenture has occurred and is continuing. The 7% senior notes and the 5.375% senior notes contain two incurrence-based financial covenants, as defined, requiring a minimum fixed charge coverage ratio of 2.0x and a maximum secured indebtedness leverage ratio of 3.25x for the 7% senior notes and 3.5x for the 5.375% senior notes.

Some of our other subsidiary indebtedness includes restrictions on entering into various transactions, such as acquisitions and disposals, and prohibits payment of ordinary dividends. They also have financial covenants including minimum consolidated EBITDA to consolidated net interest payable, minimum consolidated cash flow to consolidated debt service and maximum consolidated debt to consolidated EBITDA, all as defined in the applicable debt agreements.

As of December 31, 2014, we believe we were in compliance with all of our debt covenants. We expect to remain in compliance with all of our debt covenants throughout 2015.

Disposals of Assets

During 2013 we received $82.6 million of proceeds primarily related to the sale of a theater in New York and insurance recoveries for storm damage sustained to an amphitheater located in New York. There were no significant disposals of operating assets in 2014 and 2012.

Stock Option Exercises

During 2014 and 2013 we received $21.8 million and $85.1 million, respectively, of proceeds from the exercise of stock options. There were no significant stock option exercises during 2012.

Uses of Cash

Acquisitions

When we make acquisitions, the acquired entity may have cash on its balance sheet at the time of acquisition. All amounts discussed in this section are presented net of any cash acquired. During 2014, we used $210.2 million of cash primarily for acquisitions of a controlling interest in a festival and concert promoter located in the United States in our Concerts and Sponsorship & Advertising segments and three acquisitions of artist management businesses located in the United States in our Artist Nation segment.

During 2013, we used $93.5 million of cash primarily for acquisitions of controlling interests in festival promoters located in the United States and the United Kingdom, both in our Concerts segment, along with the acquisition in our Artist Nation segment of an artist management business located in the United Kingdom.

During 2012, we used $75.6 million of cash primarily for acquisitions in our Concerts segment of a controlling interest in a concert promoter located in Australia and two festival promoters located in the United States and the United Kingdom.

Intangibles

During 2012, we used $14.6 million of cash primarily related to the purchase of rights to a festival in Europe. There was no significant use of cash to purchase intangible assets during 2014 and 2013.

Purchases of Noncontrolling Interests

During 2013, we used $50.9 million of cash primarily for the acquisition of the remaining equity interest in a company that owns the 3Arena in Ireland. There were no significant acquisitions of noncontrolling interests during 2014 and 2012.

Deferred and Contingent Consideration

We used $10.6 million of cash to settle deferred and contingent consideration liabilities for certain past acquisitions during 2012. There were no significant payments during 2014 and 2013.

Capital Expenditures

Venue and ticketing operations are capital intensive businesses, requiring continual investment in our existing venues and ticketing systems in order to address audience and artist expectations, technological industry advances and various federal, state and/or local regulations.

We categorize capital outlays between maintenance capital expenditures and revenue generating capital expenditures. Maintenance capital expenditures are associated with the renewal and improvement of existing venues and technology systems, web development and administrative offices. Revenue generating capital expenditures generally relate to the construction of new venues, major renovations to existing buildings or buildings that are being added to our venue network, the development of new online or ticketing tools and technology enhancements. Revenue generating capital expenditures can also include smaller projects whose purpose is to increase revenue and/or improve operating income. Capital expenditures typically increase during periods when venues are not in operation since that is the time that such improvements can be completed.

Our capital expenditures, including accruals but excluding expenditures funded by outside parties such as landlords or replacements funded by insurance companies, consisted of the following:

	Year Ended December 31,
	2014				2013				2012
	(in thousands)
Maintenance capital expenditures	$	60,320			$	59,645			$	62,962
Revenue generating capital expenditures	73,476				56,732				60,255
Total capital expenditures	$	133,796			$	116,377			$	123,217

Revenue generating capital expenditures for 2014 increased from the prior year primarily due to an increase in venue-related projects and higher investments in technology and development of innovative new products.

Revenue generating capital expenditures for 2013 decreased from the prior year primarily due to reduced expenditures related to the re-platforming of our ticketing system and other ticketing products.

For the years ended December 31, 2014, 2013 and 2012, $4.4 million, $24.7 million and $1.2 million, respectively, of insurance proceeds and landlord reimbursements have been excluded from capital expenditures in the table above. Included in this total for 2013, is $18.5 million of insurance proceeds, excluded from revenue generating capital expenditures, to restore an amphitheater in New York that sustained storm damage.

We currently expect capital expenditures to be approximately $145 million for the year ending December 31, 2015.

Contractual Obligations and Commitments

Firm Commitments

In addition to the scheduled maturities on our debt, we have future cash obligations under various types of contracts. We lease office space, certain equipment and many of the venues used in our concert operations under long-term operating leases. Some of our lease agreements contain renewal options and annual rental escalation clauses (generally tied to the consumer price index), as well as provisions for our payment of utilities and maintenance. We also have minimum payments associated with non-cancelable contracts related to our operations such as artist guarantee contracts and client ticketing agreements. As part of our ongoing capital projects, we will enter into construction-related commitments for future capital expenditure work. The scheduled maturities discussed below represent contractual obligations as of December 31, 2014 and thus do not represent all expected expenditures for those periods.

The scheduled maturities of our outstanding long-term debt (excluding unamortized debt discounts and premium), future minimum rental commitments under non-cancelable lease agreements, minimum payments under other non-cancelable contracts, capital expenditure commitments and expected payments of contingent consideration liabilities as of December 31, 2014 are as follows:

	Payments Due by Period
																	2020 and
	Total				2015				2016-2017				2018-2019				thereafter
	(in thousands)
Long-term debt obligations, including current maturities:
Term loans and revolving credit facility	$	1,043,062			$	21,000			$	69,600			$	61,837			$	890,625
7% senior notes	425,000				—				—				—				425,000
2.5% convertible senior notes (1)	275,000				—				—				275,000				—
5.375% senior note	250,000				—				—								250,000
Other long-term debt	96,031				26,485				31,242				10,011				28,293
Estimated interest payments (2)	504,278				90,828				173,918				161,060				78,472
Non-cancelable operating leases (3)	2,240,542				135,816				264,831				229,724				1,610,171
Non-cancelable contracts (3)	1,392,307				877,072				427,777				77,340				10,118
Capital expenditures	10,107				9,807				50				—				250
Contingent and deferred consideration	25,951				1,703				21,850				2,398				—
Total	$	6,262,278			$	1,162,711			$	989,268			$	817,370			$	3,292,929

(1) On or after November 2018, holders may convert their 2.5% convertible senior notes.

(2) Does not include interest on the revolving credit facility as the balance was zero as of December 31, 2014.

(3) Commitment amounts for non-cancelable operating leases and non-cancelable contracts which stipulate an increase in the commitment amount based on an inflationary index have been estimated using an inflation factor of 2.4% for North America, 3.3% for the United Kingdom and 1.8% for the Netherlands.

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During 2006, in connection with our acquisition of the Historic Theatre Group, we guaranteed obligations related to a lease agreement. In the event of default, we could be liable for obligations which have future lease payments (undiscounted) of approximately $20.0 million through the end of 2035 which are not reflected in the table above. The scheduled future minimum rentals for this lease for the years 2015 through 2019 are $1.6 million each year. The venues under the lease agreement were included in the sale of our North American theatrical business in 2008. The buyer assumed our obligations under the guaranty, however we remain contingently liable to the lessor. We believe that the likelihood of a material liability being triggered under this lease is remote, and no liability has been accrued for these contingent lease obligations as of December 31, 2014.

Aggregate minimum rentals of $70.5 million to be received in years 2015 through 2023 under non-cancelable subleases are excluded from the commitment amounts in the above table.

Guarantees of Third-Party Obligations

As of December 31, 2014 and 2013, we guaranteed the debt of third parties of approximately $13.1 million, in each respective year, primarily related to maximum credit limits on employee and tour-related credit cards and obligations under a venue management agreement.

Cash Flows

	Year Ended December 31,
	2014				2013				2012
	(in thousands)
Cash provided by (used in):
Operating activities	$	269,409			$	417,472			$	367,098
Investing activities	$	(384,294	)		$	(143,663	)		$	(203,791	)
Financing activities	$	240,864			$	32,984			$	(19,891	)

Operating Activities

Year Ended 2014 Compared to Year Ended 2013

Cash provided by operating activities was $269.4 million for the year ended December 31, 2014, compared to $417.5 million for the year ended December 31, 2013. The $148.1 million decrease in cash provided by operating activities resulted primarily from net changes in the event-related operating accounts which are dependent on the timing of ticket sales along with the size and number of future events. During 2014, this change was primarily due to an increase in prepaid event-related expenses driven by the timing of artist advances. Partially offsetting this use of operating cash was an increase in the cash portion of net income driven by growth in operating results in 2014.

Year Ended 2013 Compared to Year Ended 2012

Cash provided by operating activities was $417.5 million for the year ended December 31, 2013, compared to $367.1 million for the year ended December 31, 2012. The $50.4 million increase in cash provided by operating activities resulted primarily from an increase in the cash-related portion of net income driven by our improved operating results in 2013. In addition, we had higher collections of accounts receivable and also benefited from increases in accrued expenses in 2013 as compared to the prior year.

Investing Activities

Year Ended 2014 Compared to Year Ended 2013

Cash used in investing activities was $384.3 million for the year ended December 31, 2014, compared to $143.7 million for the year ended December 31, 2013. The $240.6 million increase in cash used in investing activities is primarily due to higher payments for acquisitions and lower proceeds received from the disposal of operating assets as compared to the prior year. See “—Sources of Cash” and “—Uses of Cash” above for further discussion.

Year Ended 2013 Compared to Year Ended 2012

Cash used in investing activities was $143.7 million for the year ended December 31, 2013, compared to $203.8 million for the year ended December 31, 2012. The $60.1 million decrease in cash used in investing activities is primarily due to higher proceeds received from the disposal of operating assets in 2013 as compared to the prior year. See “—Sources of Cash” above for further discussion.

Financing Activities

Year Ended 2014 Compared to Year Ended 2013

Cash provided by financing activities was $240.9 million for the year ended December 31, 2014, compared to $33.0 million for the year ended December 31, 2013. The $207.9 million increase in cash provided by financing activities is primarily a result of higher net proceeds from the issuance of the 5.375% senior notes and 2.5% convertible senior notes after repayment of the 2.875% convertible senior notes and lower payments for purchases of noncontrolling interests partially offset by lower proceeds from the exercise of stock options in 2014 as compared to the prior year.

Year Ended 2013 Compared to Year Ended 2012

Cash provided by financing activities was $33.0 million for the year ended December 31, 2013, compared to cash used in financing activities of $19.9 million for the year ended December 31, 2012. The $52.9 million increase in cash provided by financing activities is primarily a result of higher proceeds from the exercise of stock options partially offset by higher purchases of non-controlling interests in 2013 as compared to the prior year.

Seasonality

Our Concerts, Artist Nation and Sponsorship & Advertising segments typically experience higher operating income in the second and third quarters as our outdoor venues and festivals are primarily used in or occur during May through September, and our artist touring activity is higher. In addition, the timing of the on-sale of tickets and the tours of top-grossing acts can impact comparability of quarterly results year over year, although annual results may not be impacted. Our Ticketing segment sales are impacted by fluctuations in the availability of events for sale to the public, which vary depending upon scheduling by our clients.

Cash flows from our Concerts segment typically have a slightly different seasonality as payments are often made for artist performance fees and production costs for global tours in advance of the date the related event tickets go on sale. These artist fees and production costs are expensed when the event occurs. Once tickets for an event go on sale, we generally begin to receive payments from ticket sales at our owned or operated venues in advance of when the event occurs. We record these ticket sales as revenue when the event occurs.

We expect these trends to continue in the future. See Item 1A.—Risk Factors-Our operations are seasonal and our results of operations vary from quarter to quarter and year over year, so our financial performance in certain financial quarters or years may not be indicative of, or comparable to, our financial performance in subsequent quarters or years.

Market Risk

We are exposed to market risks arising from changes in market rates and prices, including movements in foreign currency exchange rates and interest rates.

Foreign Currency Risk

We have operations in countries throughout the world. The financial results of our foreign operations are measured in their local currencies. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which we have operations. Currently, we do not operate in any hyper-inflationary countries. Excluding the goodwill impairment, our foreign operations reported operating income of $85.9 million for the year ended December 31, 2014. We estimate that a 10% change in the value of the United States dollar relative to foreign currencies would change our operating income for the year ended December 31, 2014 by $8.6 million. As of December 31, 2014, our most significant foreign exchange exposure included the Euro, British Pound, Australian Dollar and Canadian Dollar. This analysis does not consider the implication such currency fluctuations could have on the overall economic conditions of the United States or other foreign countries in which we operate or on the results of operations of our foreign entities.

We primarily use forward currency contracts in addition to options to reduce our exposure to foreign currency risk associated with short-term artist fee commitments. We also may enter into forward currency contracts to minimize the risks and/or costs associated with changes in foreign currency rates on forecasted operating income. At December 31, 2014, we had forward currency contracts and options outstanding with a notional amount of $63.3 million.

Interest Rate Risk

Our market risk is also affected by changes in interest rates. We had $2.1 billion of total debt, net of unamortized discounts and premium, outstanding as of December 31, 2014. Of the total amount, taking into consideration existing interest rate hedges, we had $1.0 billion of fixed-rate debt and $1.1 billion of floating-rate debt.

Based on the amount of our floating-rate debt as of December 31, 2014, each 25 basis point increase or decrease in interest rates would increase or decrease our annual interest expense and cash outlay by approximately $2.6 million when the floor rate is not applicable. This potential increase or decrease is based on the simplified assumption that the level of floating-rate debt remains constant with an immediate across-the-board increase or decrease as of December 31, 2014 with no subsequent change in rates for the remainder of the period.

At December 31, 2014, we have an interest rate swap agreement that is designated as a cash flow hedge for accounting purposes. The interest rate swap had a notional amount of $6.8 million at December 31, 2014, to effectively convert a portion of our floating-rate debt to a fixed-rate basis, and expires in May 2015. The fair value of this agreement at December 31, 2014 was not significant. This agreement was put into place to reduce the variability of the cash flows from the interest payments related to certain financing.

We have two interest rate swap agreements with a $22.5 million aggregate notional amount at December 31, 2014, that effectively convert a portion of our floating-rate debt to a fixed-rate basis. Both agreements expire in December 2015. These interest rate swap agreements have not been designated as hedging instruments. Therefore, any change in fair value is recorded in earnings during the period of the change.

Recent Accounting Pronouncements

Recently Issued Pronouncements

In April 2014, the FASB issued guidance that raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. The guidance is effective for disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014 and interim periods within that year. This guidance is applied prospectively and early adoption is permitted. We will adopt this guidance on January 1, 2015 and will apply it prospectively to disposals occurring on or after January 1, 2015.

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 standard is effective for annual and interim periods beginning after December 15, 2016, and early adoption of the standard is not permitted. 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. We will adopt this standard on January 1, 2017, and are currently assessing which implementation method we will apply and the impact its adoption will have on our financial position and results of operations.

In June 2014, the FASB issued guidance that requires a performance target in a share-based payment that affects vesting, and that could be achieved after the requisite service period, be accounted for as a performance condition. The guidance is effective for annual periods beginning after December 15, 2015 and interim periods within that year, and early adoption is permitted. The guidance should be applied on a prospective basis to awards that are granted or modified on or after the effective date. The guidance may be applied on a modified retrospective basis for performance targets outstanding on or after the beginning of the first annual period presented as of the date of adoption. We do not currently expect to grant these type of awards, but will adopt this guidance on January 1, 2016 and will apply it prospectively to any awards granted on or after January 1, 2016 that include these terms.

In February 2015, the FASB issued new guidance for evaluating whether a reporting organization should consolidate certain legal entities. This guidance is effective for annual and interim periods beginning after December 15, 2015, and early adoption is permitted. The guidance should be applied either using a modified retrospective approach or retrospectively. We will adopt this standard on January 1, 2016, and we are currently assessing which implementation method we will apply and the impact its adoption will have on our financial position and results of operations.

Critical Accounting Policies and Estimates

The preparation of our financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and

liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. On an ongoing basis, we evaluate our estimates that are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of revenue and expenses that are not readily apparent from other sources. Because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such difference could be material. Management believes that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. The following narrative describes these critical accounting estimates, the judgments and assumptions and the effect if actual results differ from these assumptions where applicable.

Consolidation

We consolidate entities in which we own more than 50% of the voting common stock and control operations and also VIEs for which we are the primary beneficiary. Investments in nonconsolidated affiliates in which we own more than 20% of the voting common stock or otherwise exercise significant influence over operating and financial policies, but not control of the nonconsolidated affiliate, are accounted for using the equity method of accounting. Investments in nonconsolidated affiliates in which we own less than 20% of the voting common stock are accounted for using the cost method of accounting. Intercompany accounts among the consolidated businesses have been eliminated in consolidation. Net income (loss) attributable to noncontrolling interests is reflected in the statements of operations for consolidated affiliates.

Business Combinations

We account for our business combinations under the acquisition method of accounting. Identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquiree are recognized and measured as of the acquisition date at fair value. Additionally, contingent consideration is recorded at fair value on the acquisition date and classified as a liability. Goodwill is recognized to the extent by which the aggregate of the acquisition-date fair value of the consideration transferred and any noncontrolling interest in the acquiree exceeds the recognized basis of the identifiable assets acquired, net of assumed liabilities. Determining the fair value of assets acquired, liabilities assumed and noncontrolling interest requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash flows, discount rates and asset lives among other items.

Property, Plant and Equipment

We test for possible impairment of property, plant and equipment whenever events or circumstances change, such as a current period operating cash flow loss combined with a history of, or projected, operating cash flow losses or a significant adverse change in the manner in which the asset is intended to be used, which may indicate that the carrying amount of the asset may not be recoverable. If indicators exist, we compare the estimated undiscounted future cash flows related to the assets to the carrying amount of those assets. If the carrying value is greater than the estimated undiscounted future cash flows, the cost basis of the asset is reduced to reflect the current fair value. We use various assumptions in determining the current fair value of these assets, including future expected cash flows and discount rates, as well as future salvage values and other fair value measures. Our impairment loss calculations require us to apply judgment in estimating future cash flows, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows.

If actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values, we may be exposed to future impairment losses that could be material to our results of operations.

Intangibles

We test for possible impairment of definite-lived intangible assets whenever events or circumstances change, such as a current period operating cash flow loss combined with a history of, or projected, operating cash flow losses or a significant adverse change in the manner in which the asset is intended to be used, which may indicate that the carrying amount of the asset may not be recoverable. When specific assets are determined to be unrecoverable, the cost basis of the asset is reduced to reflect the current fair value.

We test for possible impairment of indefinite-lived intangible assets on at least an annual basis. Based on facts and circumstances, we perform either a qualitative or a quantitative assessment for impairment. If a qualitative assessment is performed, and the existence of events and circumstances indicate that it is more likely than not that an indefinite-lived intangible asset is impaired, then we perform the quantitative impairment test by comparing the fair value with the carrying amount. When specific assets are determined to be impaired, the cost basis of the asset is reduced to reflect the current fair value.

We use various assumptions in determining the current fair value of these definite-lived and indefinite-lived intangible assets, including future expected cash flows and discount rates, as well as other fair value measures. For intangibles related to

artist rights, we use assumptions about future revenue and operating income for the rights acquired. These projections are based on information about the artists’ past results and expectations about future results. Our impairment loss calculations require us to apply judgment in estimating future cash flows, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows.

If actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values, we may be exposed to future impairment losses that could be material to our results of operations.

Goodwill

We currently have seven reporting units with goodwill balances: International Concerts and North American Concerts within the Concerts segment; Artist Management and Artist Services (non-management) within the Artist Nation segment; International Ticketing and North American Ticketing within the Ticketing segment; and Sponsorship & Advertising.

We review goodwill for impairment annually, as of October 1, using a three-step process. We also test goodwill for impairment in other periods if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount or when we change our operating segments or reporting units.

The first step is a qualitative evaluation as to whether it is more likely than not that the fair value of any of our reporting units is less than its carrying value using an assessment of relevant events and circumstances. Examples of such events and circumstances include historical financial performance, industry and market conditions, macroeconomic conditions, reporting unit-specific events, historical results of goodwill impairment testing and the timing of the last performance of a quantitative assessment. If any reporting units are concluded to be more likely than not impaired, or if that conclusion cannot be determined qualitatively, a second step is performed for that reporting unit. Regardless, all reporting units undergo a second step at least once every five years. This second step, used to quantitatively screen for potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. The third step, employed for any reporting unit that fails the second step, is used to measure the amount of any potential impairment and compares the implied fair value of the reporting unit’s goodwill with the carrying amount of goodwill. If a reporting unit’s carrying value is negative, we do not follow this three step process. In this case, a qualitative evaluation is performed to determine whether it is more likely than not that the reporting unit’s goodwill is impaired. If it is, the comparison of the implied fair value of the reporting unit’s goodwill with the carrying amount of goodwill described above is performed. In all three steps, discount rates, market multiples and sensitivity tests are derived and/or computed with the assistance of external valuation consultants.

The second and third steps that we use to evaluate goodwill for impairment involve the determination of the fair value of our reporting units. Inherent in such fair value determinations are certain judgments and estimates relating to future cash flows, including our interpretation of current economic indicators and market valuations, and assumptions about our strategic plans with regard to our operations. Due to the uncertainties associated with such estimates, actual results could differ from such estimates.

In developing fair values for our reporting units, we may employ a market multiple or a discounted cash flow methodology, or a combination thereof. The market multiple methodology compares us to similar companies on the basis of risk characteristics to determine our risk profile relative to those companies as a group. This analysis generally focuses on both quantitative considerations, which include financial performance and other quantifiable data, and qualitative considerations, which include any factors which are expected to impact future financial performance. The most significant assumptions affecting the market multiple methodology are the market multiples and control premium. A control premium represents the additional value an investor would pay in order to obtain a controlling interest in the respective company.

The discounted cash flow methodology establishes fair value by estimating the present value of the projected future cash flows to be generated from the reporting unit. It is important to note that items such as depreciation, amortization and stock-based compensation expense are not part of cash flows which is more akin to our adjusted operating income metric. The discount rate applied to the projected future cash flows to arrive at the present value is intended to reflect all risks of ownership and the associated risks of realizing the stream of projected future cash flows. The discounted cash flow methodology uses our estimates of future financial performance. The most significant assumptions used in the discounted cash flow methodology are the discount rate, the attrition rate and expected future revenue, which vary among reporting units.

If actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values, we may be exposed to future impairment losses that could be material to our results of operations.

We perform sensitivity analyses when the most likely result is unclear in the first step and for both the second and third steps in our process. Generally, we test for sensitivities to discount rate, revenue growth, market multiples and customer attrition, which are the most significant assumptions. We did not identify any reporting units with sensitivity test results that would change our first step conclusions. The reporting units that did not advance to the second step each had a significant excess of fair value over their carrying value in the most recent quantitative tests, outperformed their recent financial expectations, and/or had improvement in their discount rates and market multiples. Although we cannot predict future

performance or market conditions, we do not currently believe that any of these reporting units are at risk of failing the second step in the near future.

The North American Concerts and Artist Management reporting units did advance to the second step, but did not advance to the third step and their excess of fair value over carrying value ranged from 22% to 37%. Both of these reporting units had outperformed their recent financial expectations and had improvement in their discount rates. North American Concerts had improvement in its market multiple whereas Artist Management had a slight decline. Sensitivity tests on North American Concerts showed that a 300 basis point change in the discount rate was needed to change the conclusion. It was not sensitive to revenue growth rate, market multiple or control premium changes. Artist Management showed a 150 basis point change in the discount rate or a 40% decline in the revenue growth rate was needed to change the conclusion. It was not sensitive to market multiple or control premium changes. Given the amount of excess fair value over carrying value and the results of the sensitivity tests performed, although we cannot predict future performance or market conditions, we do not currently believe these two reporting units are at risk of failing the second step in the near future.

Both the International Concerts and Artist Services (non-management) reporting units recorded goodwill impairments in the fourth quarter of 2014. Both of these reporting units did not meet their financial expectations in the current year, and for Artist Services, the market multiple decreased slightly. Offsetting these changes were improved discount rates for both reporting units and an increase in the market multiple for International Concerts. Although both reporting units failed the second step by only 6% or less and showed some sensitivity to the discount rate, revenue growth and market multiples, such that it would not take a large change in some of these assumptions to pass the second step, it was concluded that they should advance to the third step. Sensitivities were performed for the third step; however, those assumptions tested needed more than a minor improvement to change the conclusion of impairment. After taking into consideration the impairment recorded in 2014, although we cannot predict future performance or market conditions, we do not currently believe these two reporting units are at risk of failing the second step in the near future.

Revenue Recognition

Revenue from the promotion and production of an event is recognized after the show occurs. Revenue related to larger global tours is recognized after the show occurs; however, any profits related to these tours, primarily related to music tour production and tour management services, is recognized after minimum revenue thresholds, if any, have been achieved. Revenue collected in advance of the event is recorded as deferred revenue until the event occurs. Revenue collected from sponsorships and other revenue, which is not related to any single event, is classified as deferred revenue and generally amortized over the operating season or the term of the contract.

Revenue from our ticketing operations primarily consists of convenience and order processing fees charged at the time a ticket for an event is sold and is recorded on a net basis (net of the face value of the ticket). For tickets sold for events at our owned or operated venues in the United States, and where we control the tickets internationally, revenue is recognized after the show occurs. Revenue for these ticket service charges collected in advance of the event is recorded as deferred revenue until the event occurs. These service charges will be shared between our Ticketing and Concerts segments. For tickets sold for events at third-party venues, this revenue is recognized at the time of the sale and is recorded by our Ticketing segment.

We account for taxes that are externally imposed on revenue producing transactions on a net basis, as a reduction of revenue.

Litigation Accruals

We are currently involved in certain legal proceedings and, as required, have accrued our estimate of the probable costs for the resolution of these claims. Management’s estimates used have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to these proceedings.

Income Taxes

We account for income taxes using the liability method in accordance with the FASB guidance for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting bases and tax bases of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled. Deferred tax assets are reduced by valuation allowances if we believe it is more likely than not that some portion or the entire asset will not be realized. As almost all earnings from our continuing foreign operations are permanently reinvested and not distributed, our income tax provision does not include additional United States taxes on those foreign operations. The amount of earnings at December 31, 2014 that is permanently reinvested was approximately $1.1 billion. It is not practical to determine the amount of federal and state income taxes, if any, that might become due in the event that the earnings were distributed.

The FASB guidance for income taxes prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is more likely than not to be realized upon ultimate settlement.

Ratio of Earnings to Fixed Charges

The ratio of earnings to fixed charges is as follows:

Year Ended December 31,
2014		2013		2012		2011		2010
*		*		*		*		*

*	For the years ended December 31, 2014, 2013, 2012, 2011 and 2010, fixed charges exceeded earnings from continuing operations before income taxes and fixed charges by $65.2 million, $6.0 million, $142.1 million, $104.4 million and $193.6 million, respectively.

The ratio of earnings to fixed charges was computed on a total company basis. Earnings represent income from continuing operations before income taxes less equity in undistributed net income (loss) of nonconsolidated affiliates plus fixed charges. Fixed charges represent interest, amortization of debt discounts, premium and expense and the estimated interest portion of rental charges. Rental charges exclude variable rent expense for events in third-party venues.