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

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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 Item 1A.—Risk Factors and other sections in this Annual Report.

The following discussion of our financial condition and results of operations generally discusses 2019 and 2018 items along with year-over-year comparisons between these two years. Discussion of 2017 items and year-over-year comparisons between 2018 and 2017 can be found in Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2018 Annual Report on Form 10-K.

Executive Overview

Live Nation continued to see strong demand for live events in 2019, powering the concerts center of our business flywheel. The execution of our key strategic initiatives is elevating the live experience through our Concerts, Ticketing and Sponsorship & Advertising businesses to maximize benefits to the fans, to the many artists, teams and corporate sponsors we work with, and to our stockholders.

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 and uniquely engage more advertising partners. By advancing innovation in ticketing technology, we will continue to improve the fan experience by offering increased and more diversified, secure choices in an expanded ticketing marketplace. This gives us a compelling opportunity to grow our fan base and our results.

Our total revenue for the year was $11.5 billion, an increase of $0.8 billion, or 7%, on a reported basis, or $0.9 billion, or 9%, on a constant currency basis as compared to last year. The increase was largely driven by our Concerts segment due to more events, fans, and onsite revenue. We had record attendance at our concerts again in 2019. Ticketing increased as well, with strong growth in international ticket sales as well as the continued expansion of our resale business. Fee-bearing ticket sales also hit a record high in 2019. Sponsorship & Advertising again delivered strong growth over the prior year due in part to our first year with the Rock in Rio festival, as well as adding marquee brands as partners around the globe. Our operating results improved this year, compared to 2018, due to improved business performance.

Our Concerts segment drove most of our revenue growth this year, generating $9.4 billion of revenue, an increase of $0.7 billion, or 8%, on a reported basis, or $0.8 billion, a 9% increase without the impact of changes in foreign exchange rates. This higher revenue was due to additional arena activity in the United States, more stadium shows in Europe, expanded theater and club activity worldwide, and adding new markets to our festival footprint. Some of the biggest tours in 2019 featured Metallica, Ariana Grande, Backstreet Boys, Jonas Brothers, and Post Malone. Overall, Concerts attendance grew by 4.9 million to nearly 98 million fans, a record for the Company and an increase of 5% over the prior year. The growth of our amphitheater onsite business continued in 2019, with a focus on increased food and beverage offerings, premium parking, and other upsell programs. These initiatives helped grow our ancillary revenue per fan at our amphitheaters by $2.50 in 2019. We have continued to focus on platinum and premium ticket opportunities for fans and improving the sell-through on our best seats. We will continue to look for expansion opportunities, both domestically and internationally, as well as ways to market our events more effectively, in order to continue to expand our fan base and geographic reach and thereby sell more tickets and onsite products.

Our Ticketing segment revenue for 2019 increased by $15.6 million, or 1%, on a reported basis as compared to last year, or $35.4 million, a 2% increase, without the impact of changes in foreign exchange rates. We sold 220 million fee-bearing tickets worldwide in 2019, a 2.4 million ticket increase over last year. During 2019, we grew ticketing-related revenue streams, implemented tools to reduce costly fraudulent activity, and reduced our cost of customer acquisition. All these factors helped improve operating income for the segment as well as margins for the year. Our digital ticketing initiative continues to accelerate: we have installed our Presence system in over 700 venues in North America through the end of 2019, with approximately 121 million fans entering venues via the platform. App installations increased by 18% during the year, creating additional marketing opportunities for our company and driving conversion from search and discovery to purchase. On the mobile front, approximately 48% of our total tickets were sold via mobile and tablet devices in 2019, and our total mobile ticket sales increased by 13% year-over-year. This is a key component of our rollout of SafeTix which benefits our fans, our artists, and our clients. We will continue to implement new features to drive further expansion of mobile ticket transactions and invest in initiatives aimed at improving the ticket search, purchase and transfer process. As a result, we expect to continue to attract more ticket buyers and enhance the overall fan and venue/artist client experience.

Our Sponsorship & Advertising segment revenue for the year was up $86.3 million, or 17%, on a reported basis as compared to last year, or $98.6 million, or 20%, without the impact of changes in foreign exchange rates. Higher revenue largely resulted from new clients and increased festival sponsorship, including the Rock in Rio event in Brazil that occurs every two years. In 2019, we increased our strategic sponsors globally, and grew revenue from these partners by double-digits. The investment we have made over the past few years in premium inventory products including viewing decks, VIP clubs and social moments are generating sponsorship growth at our owned and operated venues. Renewals of our key existing clients were on plan and we saw growth from expanding into new categories such as consumer retail, automotive, and consumer packaged goods. Operating income improved by double-digits as a result of the strong operational results.

We believe that our extensive onsite and online reach, global venue distribution network, artist relationships, ticketing operations and live entertainment content are the keys to securing long-term sponsorship agreements with major brands, and we plan to expand and enhance these assets while extending further into new markets internationally.

Recent Events

In July 2019, we entered into agreements to acquire an aggregate 51% interest in OCESA Entretenimiento, S.A. de C.V. and certain other related subsidiaries of Corporación Interamericana de Entretenimiento, S.A.B. de C.V. (“CIE”). We made our initial concentration notice filings with the regulatory authorities in Mexico in late August and are in the process of responding to their requests for additional information in connection with their review of our filings. CIE shareholders approved the acquisition in September 2019. The acquisition is anticipated to close in the first half of 2020.

Segment Overview

Our reportable segments are Concerts, Ticketing 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, the production of music festivals across the world, the creation of associated content and the provision of management and other services to artists. While our Concerts segment operates year-round, we experience higher revenue during the second and third quarters due to the seasonal nature of shows at our outdoor amphitheaters and festivals, which primarily occur from May through October. Revenue and related costs for events are generally deferred and recognized when the event occurs. All advertising costs incurred during the year for shows in future years are expensed at the end of the year.

Concerts direct operating expenses include artist fees, event production costs, show-related marketing and advertising expenses, along with other costs.

To judge the health of our Concerts segment, we primarily monitor the number of confirmed events and fan attendance in our network of owned or operated and third-party venues, talent fees, average paid attendance, market ticket pricing, advance ticket sales and the number of major artist clients under management. In addition, at our owned or operated venues and festivals, we monitor ancillary revenue per fan and premium ticket sales. For business that is conducted in foreign markets, we also compare the operating results from our foreign operations to prior periods without the impact of changes in foreign exchange rates.

Ticketing

Our Ticketing segment is primarily an agency business that sells tickets for events on behalf of its clients and retains a portion of the service charges as our fee. Gross transaction value (“GTV”) represents the total amount of the transaction related to a ticket sale and includes the face value of the ticket as well as the service charge. Service charges are generally based on a percentage of the face value or a fixed fee. We sell tickets through websites, mobile apps, ticket outlets and telephone call centers. Our ticketing sales are impacted by fluctuations in the availability of events for sale to the public, which may vary depending upon scheduling by our clients. We also offer ticket resale services, sometimes referred to as secondary ticketing, principally through our integrated inventory platform, league/team platforms and other platforms internationally. Our Ticketing segment manages our online activities including enhancements to our ticketing websites and product offerings. Through our websites, we sell tickets to our own events as well as tickets for our clients and provide event information. Revenue related to ticketing service charges is recognized when the ticket is sold for our third-party clients. For our own events, where our concert promoters control ticketing, revenue is deferred and recognized when the event occurs.

To judge the health of our Ticketing segment, we primarily review the GTV and the number of tickets sold through our ticketing operations, the number of clients renewed or added and the average royalty rate paid to clients who use our ticketing services. In addition, we review the number of visits to our websites, cost of customer acquisition, the purchase conversion rate, the overall number of customers in our database, the number and percentage of tickets sold via mobile and the number of app installs. For business that is conducted in foreign markets, we also compare the operating results from our foreign operations to prior periods without the impact of changes in foreign exchange rates.

Sponsorship & Advertising

Our Sponsorship & Advertising segment employs a sales force that creates and maintains relationships with sponsors through a combination of strategic, international, national and local opportunities that allow businesses to reach customers through our concert, festival, venue and ticketing assets, including advertising on our websites. We drive increased advertising scale to further monetize our concerts platform through rich media offerings including advertising associated with live streaming and music-related content. We work with our corporate clients to help create marketing programs that support their business goals and connect their brands directly with fans and artists. We also develop, book and produce custom events or programs for our clients’ specific brands, which are typically experienced exclusively by the clients’ consumers. These custom events can involve live music events with talent and media, using both online and traditional outlets. We typically experience higher revenue in the second and third quarters, as a large portion of sponsorships are associated with shows at our outdoor amphitheaters and festivals, which primarily occur from May through October.

To judge the health of our Sponsorship & Advertising segment, we primarily review the revenue generated through sponsorship arrangements and online advertising, and the percentage of expected revenue under contract. For business that is conducted in foreign markets, we also compare the operating results from our foreign operations to prior periods without the impact of changes in foreign exchange rates.

Key Operating Metrics


	Year Ended December 31,
	2019	2018	2017
	(in thousands except estimated events)
Concerts (1)
Estimated events:
North America	28,426	24,186	19,933
International	11,830	10,810	9,659
Total estimated events	40,256	34,996	29,592
Estimated fans:
North America	62,695	61,159	54,868
International	34,967	31,607	31,363
Total estimated fans	97,662	92,766	86,231



Ticketing (2)
Number of fee-bearing tickets sold	219,838	217,441	205,703
Number of non-fee-bearing tickets sold	266,750	265,034	267,713
Total tickets sold	486,588	482,475	473,416

(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 fee-bearing tickets estimated above include primary and secondary tickets that are sold using our Ticketmaster systems or that we issue through affiliates. This metric includes primary tickets sold during the year regardless of event timing, except for our own events where our concert promoters control ticketing which are reported when the events occur. The non-fee-bearing tickets estimated above include primary tickets sold using our Ticketmaster systems, through season seat packages and our venue clients’ box offices, along with tickets sold on our “do it yourself” platform.

Non-GAAP Measures

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


	Operating income (loss)		Stock- based compensation expense		Loss (gain) on disposal of operating assets		Depreciation and amortization		Amortization of non-recoupable ticketing contract advances		Acquisition expenses		AOI
							(in thousands)
2019
Concerts	$	(53,463)	$	12,935	$	(2,490)	$	239,682	$	—	$	45,659	$	242,323
Ticketing	231,958		6,268		116		156,894		85,844		1,276		482,356
Sponsorship & Advertising	330,270		2,744		—		33,084		—		—		366,098
Other and Eliminations	(1,114)		—		—		364		(5,542)		—		(6,292)
Corporate	(182,807)		26,838		1		13,967		—		26		(141,975)
Total	$	324,844	$	48,785	$	(2,373)	$	443,991	$	80,302	$	46,961	$	942,510
2018
Concerts	$	(36,205)	$	12,203	$	10,361	$	206,772	$	—	$	32,851	$	225,982
Ticketing	201,914		4,753		7		143,551		85,110		1,177		436,512
Sponsorship & Advertising	283,153		1,665		2		30,779		—		—		315,599
Other and Eliminations	(18,311)		—		—		817		(5,023)		—		(22,517)
Corporate	(158,015)		26,961		(1)		4,610		—		13		(126,432)
Total	$	272,536	$	45,582	$	10,369	$	386,529	$	80,087	$	34,041	$	829,144
2017
Concerts	$	(93,589)	$	18,872	$	(1,056)	$	226,315	$	—	$	34,461	$	185,003
Ticketing	90,905		4,117		49		112,727		88,050		2,011		297,859
Sponsorship & Advertising	251,486		1,375		—		27,669		—		—		280,530
Other and Eliminations	(17,338)		—		—		433		(4,716)		—		(21,621)
Corporate	(140,067)		18,391		38		5,057		—		(47)		(116,628)
Total	$	91,397	$	42,755	$	(969)	$	372,201	$	83,334	$	36,425	$	625,143

Adjusted Operating Income (Loss)

AOI is a non-GAAP financial measure that we define as operating income (loss) before certain stock-based compensation expense, loss (gain) on disposal of operating assets, depreciation and amortization (including goodwill impairment), amortization of non-recoupable ticketing contract advances and acquisition expenses (including transaction costs, changes in the fair value of accrued acquisition-related contingent consideration obligations, and acquisition-related severance and compensation). 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 (loss), 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.

AOI Margin

AOI margin is a non-GAAP financial measure that we calculate by dividing AOI by revenue. We use AOI margin to evaluate the performance of our operating segments. We believe that information about AOI margin 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 (loss), thus providing insights into both operations and the other factors that affect reported results. AOI margin is not calculated or presented in accordance with GAAP. A limitation of the use of AOI margin 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 margin should be considered in addition to, and not as a substitute for, operating income (loss) margin, and other measures of financial performance reported in accordance with GAAP. Furthermore, this measure may vary among other companies; thus, AOI margin as presented herein may not be comparable to similarly titled measures of other companies.

Constant Currency

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

Segment Operating Results

Concerts

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


	Year Ended December 31,											% Change 2019 vs 2018	% Change 2018 vs 2017
	2019			2018			2017
	(in thousands)
Revenue	$	9,428,094		$	8,770,031		$	7,892,076		8%	11%
Direct operating expenses	7,857,437			7,340,757			6,641,071			7%	11%
Selling, general and administrative expenses	1,386,928			1,248,346			1,119,335			11%	12%
Depreciation and amortization	239,682			196,272			206,315			16%	(5)%
Goodwill impairment	—			10,500			20,000			*	*
Loss (gain) on disposal of operating assets	(2,490)			10,361			(1,056)			*	*

Operating loss	$	(53,463)		$	(36,205)		$	(93,589)		(48)%	61%
Operating margin	(0.6)		%	(0.4)		%	(1.2)		%
AOI **	$	242,323		$	225,982		$	185,003		7%	22%
AOI margin **	2.6		%	2.6		%	2.3		%


*			Percentages are not meaningful.
**			See “—Non-GAAP Measures” above for the definition and reconciliation of AOI and AOI margin.

Revenue

Concerts revenue increased $658.1 million during the year ended December 31, 2019 as compared to the prior year. Excluding the decrease of $154.5 million related to currency impacts, revenue increased $812.6 million, or 9%, primarily due to more shows in our North America arenas, international stadiums and theaters and clubs globally, higher average ticket prices in our North America theaters, higher festival activity and more shows sold to third-party promoters in markets where we do not have a local promoter presence. These increases were partially offset by fewer shows in our North America stadiums, international arenas and North America amphitheaters. Concerts had incremental revenue of $269.0 million during 2019, primarily from the acquisitions of concert and festival promotion businesses.

Operating results

The decline in operating results for Concerts for the year ended December 31, 2019 were primarily driven by higher compensation costs associated with salary increases and headcount growth along with increased depreciation and amortization associated with recent enhancements to certain venues and $21.2 million of impairment charges recorded during 2019 partially offset by improved overall operating results from our events. The impairment charges recorded in 2019 were primarily associated with revenue-generating contract intangible assets as it was determined that the estimated undiscounted cash flows associated with the respective intangible assets were less than their carrying value. There were no significant impairments of intangible assets recorded during 2018. In 2018, we recorded a $10.5 million goodwill impairment related to our Artist Services (non-management) business in connection with our annual impairment test. There was no goodwill impairment recorded in 2019. Included in selling, general and administrative expenses for the year ended December 31, 2019 is $91.5 million of expenses related to new acquisitions and new venues in the Concerts segment.

Ticketing

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


	Year Ended December 31,											% Change 2019 vs 2018	% Change 2018 vs 2017
	2019			2018			2017

	(in thousands)
Revenue	$	1,545,189		$	1,529,566		$	1,346,510		1%	14%
Direct operating expenses	514,169			549,265			460,881			(6)%	19%
Selling, general and administrative expenses	642,052			634,829			681,948			1%	(7)%
Depreciation and amortization	156,894			143,551			112,727			9%	27%
Loss on disposal of operating assets	116			7			49			*	*

Operating income	$	231,958		$	201,914		$	90,905		15%	*
Operating margin	15.0		%	13.2		%	6.8		%
AOI **	$	482,356		$	436,512		$	297,859		11%	47%
AOI margin **	31.2		%	28.5		%	22.1		%


*			Percentages are not meaningful.
**			See “—Non-GAAP Measures” above for the definition and reconciliation of AOI and AOI margin.

Revenue

Ticketing revenue increased $15.6 million during the year ended December 31, 2019 as compared to the prior year. Excluding the decrease of $19.8 million related to currency impacts, revenue increased $35.4 million, or 2%, primarily due to increased international primary ticket fees, driven by higher volume for concerts and sporting events, along with higher North America resale volume and increased ancillary revenue. These increases were partially offset by lower North America ticket volume driven by fewer concert events on sale in the first half of 2019, which was partially driven by more onsales for 2019 events in the fourth quarter of 2018.

Operating results

Ticketing operating income increased for the year ended December 31, 2019 primarily due to improved operating results from the increased ticketing activity discussed above along with lower customer acquisition costs and credit card related costs partially offset by increased depreciation and amortization associated with technology enhancements.

Sponsorship & Advertising

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


	Year Ended December 31,											% Change 2019 vs 2018	% Change 2018 vs 2017
	2019			2018			2017
	(in thousands)
Revenue	$	590,274		$	503,968		$	445,148		17%	13%
Direct operating expenses	114,326			92,494			78,725			24%	17%
Selling, general and administrative expenses	112,594			97,540			87,268			15%	12%
Depreciation and amortization	33,084			30,779			27,669			7%	11%
Loss on sale of operating assets	—			2			—			*	*

Operating income	$	330,270		$	283,153		$	251,486		17%	13%
Operating margin	56.0		%	56.2		%	56.5		%
AOI **	$	366,098		$	315,599		$	280,530		16%	13%
AOI margin **	62.0		%	62.6		%	63.0		%


*			Percentages are not meaningful.
**			See “—Non-GAAP Measures” above for the definition and reconciliation of AOI and AOI margin.

Revenue

Sponsorship & Advertising revenue increased $86.3 million during the year ended December 31, 2019 as compared to the prior year. Excluding the decrease of $12.3 million related to currency impacts, revenue increased $98.6 million, or 20%, primarily due to growth in our national sponsorship programs in North America along with increased sponsorship for our festivals and other venues. Sponsorship & Advertising had incremental revenue of $36.2 million during 2019 primarily from the acquisitions of concert and festival promotion businesses.

Operating results

The increased operating income for the year ended December 31, 2019 was primarily driven by the higher sponsorship activity discussed above partially offset by higher fulfillment costs on certain sponsorship programs and increased compensation expense driven by headcount growth.

Consolidated Results of Operations


	Year Ended December 31,																	% Change 2019 vs 2018	% Change 2018 vs 2017
	2019														2018	2017
	As Reported			Currency Impacts		Constant Currency**			As Reported			As Reported			As Reported	Constant Currency	As Reported
	(in thousands)
Revenue	$	11,547,969		$	186,582	$	11,734,551		$	10,787,800		$	9,687,222		7%	9%	11%
Operating expenses:
Direct operating expenses	8,467,182			139,426		8,606,608			7,967,932			7,181,898			6%	8%	11%
Selling, general and administrative expenses	2,145,486			31,658		2,177,144			1,997,028			1,907,723			7%	9%	5%
Depreciation and amortization	443,991			5,653		449,644			386,529			372,201			15%	16%	4%

Loss (gain) on disposal of operating assets	(2,373)			66		(2,307)			10,369			(969)			*	*	*
Corporate expenses	168,839			27		168,866			153,406			134,972			10%	10%	14%

Operating income	324,844			$	9,752	$	334,596		272,536			91,397			19%	23%	*
Operating margin	2.8		%			2.9		%	2.5		%	0.9		%
Interest expense	157,521								140,976			107,770

Interest income	(14,406)								(8,961)			(5,717)
Equity in earnings of nonconsolidated affiliates	(5,457)								(2,747)			(1,161)
Other expense (income), net	2,082								12,163			(115)
Income (loss) before income taxes	185,104								131,105			(9,380)
Income tax expense (benefit)	66,892								40,765			(17,154)
Net income	118,212								90,340			7,774
Net income attributable to noncontrolling interests	48,323								30,091			13,789
Net income (loss) attributable to common stockholders of Live Nation	$	69,889							$	60,249		$	(6,015)


*			Percentages are not meaningful.
**			See “—Non-GAAP Measures” above for definition of constant currency.

Corporate

Corporate expenses increased $15.4 million, or 10%, during the year ended December 31, 2019 as compared to the prior year primarily due to increased compensation expense driven by headcount growth and incentive compensation as a result of the increased operating results.

Interest expense

Interest expense increased $16.5 million, or 12%, during the year ended December 31, 2019 as compared to the prior year primarily due to additional interest costs from the 4.75% senior notes issued in October 2019 along with the 5.625% senior notes and the 2.5% convertible senior notes issued in March 2018.

Our debt balances, excluding unamortized debt discounts and issuance costs, were $3.4 billion and $2.9 billion as of December 31, 2019 and 2018, respectively.

Other expense (income), net

Other expense (income), net was expense of $12.2 million for the year ended December 31, 2018 and includes net foreign exchange rate gains of $11.6 million. The net foreign exchange rate gains and losses result primarily from revaluation of certain foreign currency denominated net assets held internationally.

Income taxes

For the year ended December 31, 2019, we had a net tax expense of $66.9 million on income before income taxes of $185.1 million compared to a net tax expense of $40.8 million on income before income taxes of $131.1 million for 2018. In 2019, the net income tax expense consisted of a $5.3 million tax expense related to United States federal income taxes, $55.5 million tax expense related to foreign entities and $6.1 million tax expense related to state and local income taxes. The net increase in tax expense of $26.1 million is due primarily to higher pre-tax earnings in taxable jurisdictions.

Net income attributable to noncontrolling interests

Net income attributable to noncontrolling interests increased $18.2 million during the year ended December 31, 2019 as compared to the prior year primarily from earnings associated with the acquisition of a festival promotion business located in Brazil that had been accounted for as an equity investment and improved operating results from certain artist management businesses located in the United States. These increases were partially offset by the portion of the intangible impairment attributable to noncontrolling interests. See “—Concerts” segment above for further discussion.

Liquidity and Capital Resources

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 $2.5 billion at December 31, 2019 and $2.4 billion at December 31, 2018. Included in the December 31, 2019 and 2018 cash and cash equivalents balance is $837.7 million and $859.1 million, respectively, of cash received that includes the face value of tickets sold on behalf of our ticketing clients and their share of service charges, which we refer to as client cash. We generally do not utilize client cash for our own financing or investing activities as the amounts are payable to our clients on a regular basis. Our foreign subsidiaries held approximately $933.7 million in cash and cash equivalents, excluding client cash, at December 31, 2019. We generally do not repatriate these funds, but if we did, we would need to accrue and pay United States state income taxes as well as any applicable foreign withholding or transaction taxes on future repatriations. We may from time to time enter into borrowings under our revolving credit facility. If the original maturity of these borrowings is 90 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 total net debt of $3.3 billion and $2.8 billion at December 31, 2019 and 2018, respectively. Our weighted-average cost of debt, excluding the unamortized debt discounts and debt issuance costs on our term loans and notes, was 4.2% at December 31, 2019.

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 equivalents 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 and festivals 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, plus event-related prepaid expenses. 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 segment, which reports the majority of its 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 depending on economic conditions at the time. 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 consist of banks and other third-party financial institutions. While we currently have no indications or expectations that such lenders 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.

Sources of Cash

Senior Secured Credit Facility

In October 2019, we amended our senior secured credit facility. The amended senior secured credit facility provides for (i) a five-year $400 million delayed draw term loan A facility, (ii) a seven-year $950 million term loan B facility and (iii) a five-year $500 million revolving credit facility. The delayed draw term loan A facility is available to be drawn for the first two years following the amendment. In addition, subject to certain conditions, we have the right to increase such facilities by an amount equal to the sum of (x) $985 million, (y) the aggregate principal amount of voluntary prepayments of the delayed draw term loan A and term loan B and permanent reductions of the revolving credit facility commitments, in each case, other than from proceeds of long-term indebtedness, and (z) additional amounts so long as the senior secured leverage ratio calculated on a pro-forma basis (as defined in the agreement) is no greater than 3.75x. The revolving credit facility provides for borrowings up to $500 million with sublimits of up to (i) $150 million for the issuance of letters of credit, (ii) $50 million for swingline loans, (iii) $300 million for borrowings in Euros or British Pounds and (iv) $100 million for borrowings in those or one or more other approved currencies. The amended senior secured credit facility is secured by a first priority lien on substantially all of our tangible and intangible personal property and our 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, subject to certain exceptions.

The interest rates per annum applicable to revolving credit facility loans and the delayed draw term loan A under the amended senior secured credit facility are, at our option, equal to either Eurodollar plus 1.75% or a base rate plus 0.75%, subject to stepdowns based on our net leverage ratio. The interest rates per annum applicable to the term loan B are, at our option, equal to either Eurodollar plus 1.75% or a base rate plus 0.75%. We are required to pay a commitment fee of 0.35% per year on the undrawn portion available under the revolving credit facility and delayed draw term loan A, subject to a stepdown 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 at a rate ranging from 0.625% of the original principal amount during the first three years to 1.25% during the last two years with the balance due at maturity in October 2024. For the term loan B, we are required to make quarterly payments of $2.4 million with the balance due at maturity in October 2026. We are also required to make mandatory prepayments of the loans under the amended 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, 2019, we made principal payments totaling $170.4 million primarily to repay the outstanding principal balance of our term loan A in connection with the October 2019 amendment. At December 31, 2019, the outstanding balances on these term loans, excluding discounts and debt issuance costs, were $947.6 million. There were no borrowings under the revolving credit facility as of December 31, 2019. Based on our outstanding letters of credit of $83.5 million, $416.5 million was available for future borrowings.

4.75% Senior Notes

In October 2019, we issued $950 million principal amount of 4.75% senior notes due 2027. Interest on the notes is payable semi-annually in cash in arrears on April 15 and October 15 of each year beginning on April 15, 2020, and will mature on October 15, 2027. We may redeem some or all of the notes, at any time prior to October 15, 2022, 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. We may redeem up to 35% of the aggregate principal amount of the notes from the proceeds of certain equity offerings prior to October 15, 2022, at a price equal to 104.750% of the aggregate principal amount, plus accrued and unpaid interest thereon, if any, to the date of redemption. In addition, on or after October 15, 2022, we may redeem some or all of the notes at any time at redemption prices starting at 103.563% 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 their aggregate principal amount, plus accrued and unpaid interest to the repurchase date, if we experience certain defined changes of control.

4.875% Senior Notes

At December 31, 2019, we had $575 million principal amount of 4.875% senior notes due 2024. Interest on the notes is payable semiannually in cash in arrears on May 1 and November 1 of each year, and the notes will mature in November 2024. In addition, on or after November 1, 2019, we may redeem some or all of the notes at any time at the redemption prices that start at 103.656% 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 their aggregate principal amount, plus accrued and unpaid interest to the repurchase date, if we experience certain defined changes of control.

5.625% Senior Notes

At December 31, 2019, we had $300 million principal amount of 5.625% senior notes due 2026. Interest on the notes is payable semiannually in cash in arrears on March 15 and September 15 and the notes will mature in March 2026. We may redeem some or all of the notes at any time prior to March 15, 2021 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 redeem up to 35% of the aggregate principal amount of the notes from proceeds of certain equity offerings prior to March 15, 2021, at a price equal to 105.625% of the aggregate principal amount being redeemed, plus any accrued and unpaid interest thereon to the date of redemption. In addition, on or after March 15, 2021, we may redeem some or all of the notes at any time at redemption prices that start at 104.219% 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 their 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 Due 2023

At December 31, 2019, we had $550 million principal amount of 2.5% convertible senior notes due 2023. The notes pay interest semiannually in arrears on March 15 and September 15 at a rate of 2.5% per annum. The notes will mature in March 2023, and may not be redeemed by us prior to the maturity date. The notes will be convertible, under certain circumstances, until December 15, 2022, and on or after such date without condition, at an initial conversion rate of 14.7005 shares of our common stock per $1,000 principal amount of notes, subject to adjustment, which represents a 54.4% conversion premium based on the last reported sale price of our common stock of $44.05 on March 19, 2018 prior to issuing the debt. 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 8.1 million.

If we experience a fundamental change, as defined in the indenture governing the notes, the holders of the 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 any accrued and unpaid interest.

2.0% Convertible Senior Notes Due 2025

In February 2020, we issued $400 million principal amount of 2.0% convertible senior notes due 2025. The proceeds were used to pay estimated fees of $6.5 million, leaving approximately $393.5 million for general corporate purposes, including acquisitions.

Interest on the notes is payable semiannually in arrears on February 15 and August 15, beginning August 15, 2020, at a rate of 2.0% per annum. The notes will mature on February 15, 2025. The notes will be convertible, under certain circumstances, until November 15, 2024, and on or after such date without condition, at an initial conversion rate of 9.4469 shares of our common stock per $1,000 principal amount of notes, subject to adjustment, which represents a 50.0% conversion premium based on the last reported sale price for our common stock of $70.57 on January 29, 2020 prior to issuing the debt. 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 3.8 million.

We may redeem for cash all or a portion of the notes, at our option, on or after February 21, 2023 and before the 41st scheduled trading day before the maturity date, if the sales price of our common stock reaches specified targets as defined in the indenture governing the notes. The redemption price will equal 100% of the principal amount of the notes plus accrued interest, if any.

If we experience a fundamental change, as defined in the indenture governing the notes, the holders of the 2.0% convertible senior notes due 2025 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 October 2019, we issued $950 million principal amount of 4.75% senior notes due 2027 and further amended our senior secured credit facility, including the draw down of $950 million principal amount under the new term loan B facility. The proceeds were used to repay the $1.1 billion principal balance outstanding on the term loans A and B under our then existing senior secured credit facility, to repay the entire $250 million principal amount of the 5.375% senior notes due 2022, to repay the related redemption premium of $3.4 million on the senior notes and accrued interest and fees of $30.8 million, leaving $527.5 million for general corporate purposes, including acquisitions. We recorded a $4.5 million loss on extinguishment of debt related to this refinancing.

In March 2018, we issued $300 million principal amount of 5.625% senior notes due 2026 and $550 million principal amount of 2.5% convertible senior notes due 2023 and amended our senior secured credit facility to reduce the applicable interest rate for the term loan B. Total gross proceeds of $850.0 million from the issuance of the notes were used to repay $246.3 million of the outstanding principal amount of our 2.5% convertible senior notes due 2019, the related repurchase premium of $90.4 million on those convertible senior notes and accrued interest and fees of $20.8 million, leaving $492.5 million in additional cash available for general corporate purposes. We recorded a $2.5 million loss on extinguishment of debt related to this refinancing.

Debt Covenants

Our senior secured credit facility contains a number of restrictions that, among other things, require us to satisfy a financial covenant and restrict 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 senior secured credit facility agreement has one covenant, measured quarterly, that relates to net leverage. The consolidated net leverage covenant requires us to maintain a ratio of consolidated total net debt to consolidated EBITDA (both as defined in the credit agreement) of 5.75x over the trailing four consecutive quarters through September 30, 2020. The consolidated total leverage ratio will reduce to 5.50x on December 31, 2020 and 5.25x on December 31, 2021.

The indentures governing our 4.75% senior notes, 4.875% senior notes, and 5.625% 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 on an arms-length basis. 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. All of these 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 3.5x.

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, 2019, we believe we were in compliance with all of our debt covenants related to our senior secured credit facility and our corporate senior notes and convertible senior notes. We expect to remain in compliance with all of these debt covenants throughout 2020.

Uses of Cash

Acquisitions

When we make acquisitions, the acquired entity may have cash at the time of acquisition. All amounts related to the use of cash for acquisitions discussed in this section are presented net of any cash acquired. During 2019, we used $235.1 million of cash primarily for the acquisitions of venue management and concert promotion businesses located in Canada, Belgium and the United States. As of the date of acquisition, the acquired businesses had a total of $74.7 million of cash on their balance sheets, primarily related to deferred revenue for future events.

During 2018, we used $120.2 million of cash primarily for the payment of contingent consideration related to an acquisition in Europe that occurred prior to the current accounting guidance for business combinations along with the acquisitions of various concert promotion and artist management businesses that are all located in the United States. As of the date of acquisition, the acquired businesses had a total of $19.3 million of cash on their balance sheets, primarily related to deferred revenue for future events.

Purchases and Sales of Noncontrolling Interests, net

In 2018, we used $159.6 million of cash primarily for the final payment due in connection with the 2017 acquisition of the remaining interest in a concert and festival promotion business located in the United States.

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 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 our venues are not in operation since that is the time that such improvements can be completed.

Our capital expenditures, including accruals for amounts incurred but not yet paid for but net of expenditures funded by outside parties such as landlords or replacements funded by insurance proceeds, consisted of the following:


	Year Ended December 31,
	2019		2018		2017
	(in thousands)
Maintenance capital expenditures	$	150,896	$	135,022	$	113,595
Revenue generating capital expenditures	164,708		115,667		113,756
Total capital expenditures	$	315,604	$	250,689	$	227,351

Maintenance capital expenditures for 2019 increased from the prior year primarily due to leasehold improvements of certain office facilities and venue-related projects.

Revenue generating capital expenditures for 2019 increased from the prior year primarily due to enhancements at our North America amphitheaters and higher investment in technology-related projects.

For the years ended December 31, 2019, 2018 and 2017, $22.0 million, $11.6 million and $20.5 million, respectively, of insurance proceeds and landlord reimbursements have been excluded from capital expenditures in the table above.

We currently expect capital expenditures to be approximately $375 million for the year ending December 31, 2020.

Contractual Obligations and Commitments

Firm Commitments

In addition to the scheduled maturities on our debt and operating lease liabilities, 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 guarantees 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, 2019 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 issuance costs), scheduled maturities of operating lease liabilities, minimum payments under other non-cancelable contracts, capital expenditure commitments and expected payments of contingent and deferred consideration liabilities as of December 31, 2019 are as follows:


	Payments Due by Period
	Total		2020		2021-2022		2023-2024		2025 and thereafter
	(in thousands)
Long-term debt obligations, including current maturities: (1)
Term loans and revolving credit facility	$	947,625	$	9,500	$	19,000	$	19,000	$	900,125
4.75% senior notes	950,000		—		—		—		950,000
4.875% senior notes	575,000		—		—		575,000		—
5.625% senior notes	300,000		—		—		—		300,000
2.5% convertible senior notes due 2023 (2)	550,000		—		550,000		—		—
Other long-term debt	80,642		28,295		36,038		9,932		6,377
Estimated interest payments (3)	861,888		141,183		277,417		242,463		200,825
Operating lease liabilities	2,271,626		194,811		366,138		339,905		1,370,772
Non-cancelable contracts	2,285,441		1,191,773		764,170		209,490		120,008
Capital expenditures	56,423		21,520		5,396		2,005		27,502
Contingent and deferred consideration	81,144		13,165		57,359		6,518		4,102
Uncertain income tax positions (4)	—		—		—		—		—
Total	$	8,959,789	$	1,600,247	$	2,075,518	$	1,404,313	$	3,879,711

(1) Does not include $400 million principal amount of 2.0% convertible senior notes due 2025 issued in February 2020.

(2) On or after December 15, 2022, holders may convert their 2.5% convertible senior notes.

(3) Does not include interest on the delayed draw term loan A or revolving credit facility as the balances were zero as of December 31, 2019.

(4) Does not include $1.7 million of uncertain tax positions due to the unpredictable timing of the future payments.

Guarantees of Third-Party Obligations

As of December 31, 2019 and 2018, we guaranteed the debt of third parties of approximately $16.5 million and $15.6 million, respectively, primarily related to maximum credit limits on employee and tour-related credit cards, obligations of a nonconsolidated affiliate and obligations under a venue management agreement.

Cash Flows


	Year Ended December 31,
	2019		2018		2017
	(in thousands)
Cash provided by (used in):
Operating activities	$	469,783	$	941,586	$	623,522
Investing activities	$	(691,000)	$	(496,909)	$	(327,586)
Financing activities	$	328,889	$	188,784	$	(127,083)

Operating Activities

Cash provided by operating activities decreased $471.8 million for the year ended December 31, 2019 as compared to the prior year. During 2019, our accounts payable and accrued expenses decreased as compared to increasing in 2018 based on the timing of payments and the increase in cash received for future events was lower in 2019 as compared to the same period of the prior year. These decreases were partially offset by higher net cash-related income in 2019.

Investing Activities

Cash used in investing activities increased $194.1 million for the year ended December 31, 2019 as compared to the prior year primarily due to higher acquisition payments, and higher purchases of property, plant and equipment. See “—Uses of Cash” above for further discussion.

Financing Activities

Cash provided by financing activities increased $140.1 million for the year ended December 31, 2019 as compared to the prior year primarily due to a decrease in purchases of noncontrolling interests and higher net proceeds from the refinancing of debt in October 2019 as compared to the refinancing in March 2018.

Seasonality

Our Concerts 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 from May through October. In addition, the timing of when tickets are sold 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 revenue is 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 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 and festivals 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 financial 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. Our foreign subsidiaries also carry certain net assets or liabilities that are denominated in a currency other than that subsidiary’s functional currency. 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 have significant operations in any hyper-inflationary countries. Our foreign operations reported operating income of $187.9 million for the year ended December 31, 2019. 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, 2019 by $18.8 million. As of December 31, 2019, 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. In addition, the reported carrying value of our assets and liabilities, including the total cash and cash equivalents held by our foreign operations, will also be affected by changes in foreign currency exchange rates.

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, 2019, we had forward currency contracts outstanding with a notional amount of $66.3 million.

Interest Rate Risk

Our market risk is also affected by changes in interest rates. We had $3.4 billion of total debt, excluding unamortized debt discounts and issuance costs, outstanding as of December 31, 2019. Of the total amount, we had $2.4 billion of fixed-rate debt and $1.0 billion of floating-rate debt.

Based on the amount of our floating-rate debt as of December 31, 2019, each 25-basis point increase or decrease in interest rates would increase or decrease our annual interest expense and cash outlay by approximately $2.5 million. 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, 2019 with no subsequent change in rates for the remainder of the period.

In January 2020, we entered into an interest rate swap agreement that is designated as a cash flow hedge for accounting purposes to effectively convert a portion of our floating-rate debt to a fixed-rate basis. The swap agreement expires in October 2026, has a notional amount of $500.0 million and ensures that a portion of our floating-rate debt does not exceed 3.397%.

Recent Accounting Pronouncements

Information regarding recently issued and adopted accounting pronouncements can be found in Item 8.—Financial Statements and Supplementary Data—Note 1—The Company and Summary of Significant Accounting Policies.

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

Typically 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 and do not exercise significant influence over operating and financial policies are accounted for at fair value unless the investment does not have a readily determinable fair value in which case the investment is accounted for at cost less any impairment. 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 projections of, operating cash flow losses or a significant adverse change in the manner in which the asset is intended to be used, which could 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 projections of, operating cash flow losses or a significant adverse change in the manner in which the asset is intended to be used, which could indicate that the carrying amount of the asset may not be recoverable.

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, we perform the quantitative impairment test by comparing the fair value with the carrying amount.

When performing quantitative assessments for impairment of our definite-lived and indefinite-lived intangible assets, we compare the estimated undiscounted future cash flows related to the asset or asset group to the carrying amount of those assets or asset group. If the carrying value is greater than the estimated undiscounted future cash flows, the cost basis of the asset or asset group 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, discount rates and royalty rates as well as 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.

Goodwill

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

We review goodwill for impairment annually, as of October 1, using a two-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 reporting units.

The first step of the process 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, it is our policy that all reporting units undergo a second step at least once every five years to support our annual qualitative first step. This second step, used to quantitatively screen for potential impairment and measure the impairment, if any, compares the fair value of the reporting unit with its carrying amount, including goodwill. 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. If the reporting unit’s carrying value exceeds its fair value, the excess of the carrying value over the fair value is recorded as an impairment to goodwill. If a reporting unit’s carrying value is negative, the reporting unit passes the impairment test. In this case, we will disclose the amount of goodwill allocated to that reporting unit and disclose which reportable segment the reporting unit is included in.

In both steps, discount rates, market multiples and sensitivity tests are derived and/or computed with the assistance of external valuation consultants. In addition, we perform sensitivity analyses for all reporting units either during the first or the second step of the process to assist in the evaluation. Generally, we test for sensitivities to discount rates, revenue and terminal growth rates, and market multiples, which are the most significant assumptions.

In developing fair values for our reporting units, we may employ a discounted cash flow or a market multiple methodology, or a combination thereof. 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. 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 and expected future revenue, which vary among reporting units.

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 used on projected future cash flows and market participant acquisition premium. A market participant acquisition premium represents the additional value a buyer would pay to obtain control of the respective reporting unit because having control would lead to higher cash flows, lower cost of capital or both.

In 2019, all of our reporting units with goodwill were assessed under the first qualitative step. Five of the reporting units did not advance to the second step. These reporting units had improved market multiples, no increases in discount rate and considerable excess of fair value over their carrying value in the most recent quantitative tests. Further review of these reporting units with sensitivity tests did not change our first step conclusions.

The Artist Management reporting unit advanced to the second step because it was unclear whether its fair value would exceed its carrying value due to varied factors such as lower than expected financial results in the current year, mixed changes in market multiples, and a decrease in discount rate. The excess of fair value over carrying value for this reporting unit was approximately 57%. Therefore, we concluded goodwill for this reporting unit was not impaired. Sensitivity tests showed that a 500-basis point change in the discount rate, or a 225% decline in the revenue growth rate, or a 400-basis point change in the market multiple was needed to change the conclusion.

The Artist Services reporting unit advanced to the second step because it was unclear whether its fair value would exceed its carrying value due to varied factors such as lower than expected financial results in the current year, mixed changes in market multiples, and a decrease in discount rate. The excess of fair value over carrying value was approximately 23%. Therefore, we concluded goodwill for this reporting unit was not impaired. Sensitivity tests showed that a 250-basis point change in the discount rate, or a 100% decline in the revenue growth rate, or a 250-basis point change in the market multiple was needed to change the conclusion. Based upon the results of the 2018 and 2017 second test, we recorded impairment charges of $10.5 million and $20.0 million, respectively, for the Artist Services (non-management) reporting unit.

Given the results of the tests performed, although we cannot predict future performance or market conditions, we do not currently believe any of our reporting units are at risk of failing the second step in the near future.

Revenue Recognition

Revenue from the promotion or production of an event is recognized when the show occurs. Revenue collected in advance of the event is recorded as deferred revenue until the event occurs. Revenue collected from sponsorship agreements, which is not related to a single event, is classified as deferred revenue and recognized over the term of the agreement or operating season as the benefits are provided to the sponsor.

Revenue from our ticketing operations primarily consists of our share of convenience and order processing fees charged at the time a ticket for an event is sold in either the primary or secondary markets. We act as an agent on behalf of our clients and therefore do not record the face value of the tickets as revenue. For tickets sold for our concert and festival events, where our concert promoters control ticketing, revenue is recognized when the show occurs. Revenue for these ticket service charges collected in advance of the event is recorded as deferred revenue until the event occurs and these service charges are shared between our Ticketing and Concerts segments. For tickets sold for events of our third-party clients and secondary market sales, 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 state taxes and foreign withholding or transaction taxes on those foreign earnings that would be incurred if they were distributed. It is not practicable to determine the amount of state and foreign income taxes, if any, that might become due in the event that any remaining available cash associated with these 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.

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