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| TKTM > SEC Filings for TKTM > Form 10-Q on 9-Nov-2009 | All Recent SEC Filings |
9-Nov-2009
Quarterly Report
Forward-Looking Statements
Forward-looking statements in this Quarterly Report are subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements or other public statements. Forward-looking statements include the information regarding future financial performance, business prospects and strategy, as well as anticipated financial position, liquidity and capital needs and other similar matters, in each case relating to the Company.
Statements preceded by, followed by or that otherwise include the words "believes," "expects," "anticipates," "intends," "projects," "estimates," "plans," "may increase," "may fluctuate," and similar expressions or future or conditional verbs such as "will," "should," "would," "may" and "could" are generally forward-looking in nature and not historical facts. You should understand that the following important factors could affect future results and could cause actual results to differ materially from those expressed in such forward-looking statements:
º •
º our pending merger with Live Nation;
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º adverse changes in economic conditions generally, including the
current worldwide economic downturn, or in any of the markets or
industries in which the businesses of the Company operate;
º •
º changes in senior management at the Company;
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º adverse changes to, or interruptions in, relationships with third
parties;
º •
º changes affecting the ability of the Company to efficiently maintain
and grow the market share of its various brands, as well as to extend
the reach of these brands through a variety of distribution channels
and to attract new (and retain existing) customers;
º •
º consumer acceptance of new products and services offered by the
Company;
º •
º the rates of growth of the Internet and the e-commerce industry;
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º changes adversely affecting the ability of the Company to adequately
expand the reach of its businesses into various international markets,
as well as to successfully manage risks specific to international
operations and acquisitions, including the successful integration of
acquired businesses;
º •
º regulatory legislative and legal actions and conditions affecting the
Company, including:
º •
º the promulgation of new, and/or the amendment of existing laws,
rules and regulations applicable to the Company and its
businesses;
º •
º changes in the application or interpretation of existing laws,
rules and regulations in the case of the businesses of the
Company. In each case, laws, rules and regulations include, among
others, those relating to sales, use, value-added and other
taxes, software programs, consumer protection and privacy,
intellectual property, the Internet and e-commerce; and
º •
º the outcome of pending and future legal proceedings to which the
Company is a party;
º •
º competition from other companies;
º •
º changes adversely affecting the ability of the Company and its
businesses to adequately protect intellectual property rights, as well
as to obtain licenses or other rights with respect to intellectual
property in the future, which may or may not be available on favorable
terms (if at all);
º •
º the substantial indebtedness of the Company and the possibility that
the Company may incur additional indebtedness;
º •
º third-party claims alleging infringement of intellectual property
rights by the Company or its businesses, which could result in the
expenditure of significant financial and managerial resources,
injunctions or the imposition of damages, as well as the need to enter
into formal licensing or other similar arrangements with such third
parties, which may or may not be available on favorable terms (if at
all);
º •
º the Company's ability to successfully integrate Front Line into its
businesses;
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º the Company's ability to successfully implement expense reduction
measures; and
º •
º natural disasters, acts of terrorism, war or political instability.
Certain of these factors and other factors, risks and uncertainties are discussed in Part II, Item 1A of this Quarterly Report on Form 10-Q. Other unknown or unpredictable factors may also cause actual results to differ materially from those projected by the forward-looking statements. Most of these factors are difficult to anticipate and are generally beyond the control of the Company.
You should consider the areas of risk described above, as well as those set forth in Part I, Item 1A of the Company's Annual Report on Form 10-K, as amended, for the year ended December 31, 2008, in connection with considering any forward-looking statements that may be made by the Company generally. The Company does not undertake any obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless required to do so by law.
Spin-Off from IAC/InterActive Corp
On July 1, 2008, the Board of Directors of IAC approved a plan to separate IAC into five separate, publicly traded companies via the distribution of all of the outstanding shares of common stock of four wholly-owned subsidiaries, including Ticketmaster Entertainment, formerly known as Ticketmaster.
On August 20, 2008, IAC distributed to its stockholders all of the outstanding shares of common stock, par value $0.01 per share, of Ticketmaster Entertainment (the "spin-off"). Our businesses include the businesses that formerly comprised IAC's Ticketmaster segment, which consists of its domestic and international ticketing and ticketing related businesses, subsidiaries and investments, excluding its ReserveAmerica subsidiary and its investment in Active.com. At the time of the spin-off, Ticketmaster Entertainment includes IAC's minority investment in Front Line. On October 29, 2008, the Company acquired additional equity interests in Front Line, giving Ticketmaster Entertainment a controlling interest in Front Line. As a result, the Company consolidated the results of Front Line from the acquisition date.
Pending Merger with Live Nation
On February 10, 2009, the Company entered into a definitive agreement to merge with Live Nation, Inc. ("Live Nation") in a stock transaction pursuant to which the Company will merge with and into an indirect, wholly-owned subsidiary of Live Nation ("Merger Sub"), with Merger Sub continuing as the surviving entity and an indirect, wholly-owned subsidiary of Live Nation and Live Nation continuing as the public parent of the combined companies (the "Merger"). Pursuant to the terms of
the Merger Agreement, the aggregate number of shares of Live Nation common stock that the holders of securities representing 100% of the voting power of the Company's equity interests issued and outstanding immediately prior to the consummation of the Merger are entitled to receive in the Merger will represent 50.01% of the total voting power of the Live Nation equity interests issued and outstanding immediately following the consummation of the Merger. The Merger requires, among other customary closing conditions, approval by a majority of the outstanding shares of the Company's common stock and Series A Preferred Stock, voting together as a single class, approval by a majority of the shares of Live Nation's common stock, represented in person or by proxy, domestic and foreign regulatory approvals, and receipt of the necessary consent of lenders party to the Company's credit facility to allow the facility to remain in effect after the consummation of the Merger with no default or event of default thereunder resulting from the Merger, which consent was obtained in May 2009. Liberty Media Corporation ("Liberty"), which beneficially owns approximately 29% of the Company's outstanding common stock, has agreed to vote in favor of the proposed transaction, subject to the terms of a voting agreement.
The proposed transaction has been subject to antitrust/competition regulatory review in the United States and four other countries. Ticketmaster Entertainment remains optimistic that the regulatory process will be completed, and the Merger will close, during the first quarter of 2010. In the United States, Ticketmaster Entertainment and Live Nation are engaged in discussions with the U.S. Department of Justice, Antitrust Division ("DOJ") regarding the proposed transaction. The parties have certified compliance with the DOJ's respective "second requests" and are now in the process of discussing the proposed transaction, and ways the parties might address any of the DOJ's concerns, with the DOJ, as well as responding to supplemental information requests from the DOJ about the parties' respective businesses.
The other jurisdictions where the transaction has been under regulatory review are Canada, the United Kingdom, Norway and Turkey. The Canadian Bureau of Competition ("CBC") issued a "second request" for additional information relating to the parties' respective businesses, and the parties are in the process of finalizing their responses to the CBC's requests. The U.K. authorities have issued several information requests to which the parties have responded, and the matter is now before the UK Competition Commission ("CC") via a referral from the UK Office of Fair Trading ("OFT") which completed its investigation in June 2009 and determined that further evaluation by the CC is warranted in light of competition concerns that were identified by the OFT. The CC published its "Provisional Findings" regarding the Merger on October 8, 2009, and on October 29, 2009 held remedies hearings with the parties to review how the parties might address and resolve the CC's concerns as set forth in its provisional findings that the Merger would result in a "substantial lessening of competition" in the UK ticketing market. The CC is scheduled to issue its final report on the Merger on or before January 19, 2010. The Norwegian and Turkish competition authorities have both completed and closed their investigations without asserting any objections to the Merger.
Basis of Presentation
These interim unaudited consolidated financial statements of Ticketmaster Entertainment discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations present our results of operations, financial position, temporary equity and equity, comprehensive income and cash flows on a consolidated basis. The consolidated financial statements include Ticketmaster Entertainment's investment in Front Line, which was consolidated beginning October 29, 2008, when the Company increased its ownership interest from 39.4% to 82.3% (approximately 75% on a diluted basis). Prior to October 29, 2008, the investment in Front Line was accounted for using the equity method of accounting.
We prepared the interim unaudited consolidated financial statements from the historical results of operations and historical basis of the assets and liabilities of Ticketmaster Entertainment with the
exception of income taxes. We computed income taxes using our stand-alone tax rate. Our income tax payable as well as deferred tax assets and liabilities represent the estimated impact of filing a consolidated income tax return with IAC through the spin-off, and filing a standalone consolidated income tax return thereafter.
Until the spin-off, we recorded expense allocations from IAC, which consisted of certain IAC general corporate overhead expenses based on the ratio of our revenue as a percentage of IAC's total revenue. The general corporate overhead allocations primarily included expenses relating to accounting, treasury, legal, tax, corporate support, human resource functions and internal audit. Since the spin-off, we have been performing these functions using our own resources or purchased services, including services purchased from IAC pursuant to the transitional services agreement among IAC and the Spincos.
The historical interim unaudited financial statements for periods prior to the spin-off are based on certain assumptions about Ticketmaster Entertainment as a stand-alone company. Our management believes the assumptions underlying the historical combined financial statements of Ticketmaster Entertainment are reasonable. However, this financial information does not necessarily reflect what the historical financial position, results of operations and cash flows of Ticketmaster Entertainment would have been if Ticketmaster Entertainment had been a stand-alone company prior to the spin-off.
Management Overview
Ticketmaster Entertainment is the world's leading live entertainment ticketing and marketing company, providing ticket sales, ticket resale services, marketing and distribution through www.ticketmaster.com, one of the largest e-commerce sites on the internet, approximately 7,100 independent sales outlets and 17 call centers worldwide. Ticketmaster Entertainment serves leading arenas, stadiums, amphitheaters, music clubs, concert promoters, professional sports franchises and leagues, college sports teams, performing arts venues, museums and theaters in the United States and abroad, including Australia, Canada, China, Denmark, Finland, Germany, Ireland, the Netherlands, New Zealand, Norway, Spain, Sweden, Turkey and the United Kingdom. Ticketmaster Entertainment is also a party to joint ventures with third parties to provide ticket distribution services in Mexico and supplied ticketing services for the 2008 Beijing Olympic Games. Ticketmaster Entertainment licenses its technology in Mexico, Argentina, Brazil, Chile, and Belgium.
Sources of Revenue
Ticketmaster Entertainment earns a majority of its revenue from primary ticketing on behalf of its clients. Ticketing operations revenue primarily consists of convenience and order processing fees generated primarily through ticket sales. The sale of tickets for an event often commences several months prior to the event performance date. Ticketmaster Entertainment recognizes revenue from the sale of a ticket when the ticket is sold. Fluctuations in ticket operations revenue occur largely as a result of changes in the number of tickets sold and the average revenue per ticket. The number of tickets sold varies as a result of (i) additions or losses of clients serviced by Ticketmaster Entertainment; (ii) fluctuations in the scheduling of events, particularly for popular performers; (iii) overall consumer demand for live entertainment events; and (iv) the percentage of tickets for events which are sold directly by clients. The average revenue per ticket varies as a result of the amount of convenience charges earned on each ticket. The amount of convenience charges typically varies based upon numerous factors, including the face price of the ticket, the type of event, and whether the ticket is purchased at an independent sales outlet, through call centers or via Ticketmaster Entertainment's websites, as well as the services to be rendered to the client.
Front Line secures work for the clients it represents, for which it receives a commission. Generally, commissions are payable by clients upon their receipt of payments for performance of services or upon the delivery or use of materials which they created. Revenue is recognized in the month of the artist event. Contingent commissions, such as those based on profits or gross receipts, are recorded upon determination of the amounts. Revenue is not recognized before persuasive evidence of an arrangement exists, services have been rendered, the amount to be received is fixed or determinable, and collectability is reasonably assured.
Other revenues consist of revenues from the sales of entertainment packages to consumers in connection with live performances. Entertainment packages are sold and cash is received from consumers in advance of the event. Revenue and related expenses incurred are deferred until the event occurs. In addition, Front Line sells entertainment related merchandise at live musical performances, to retailers, and directly to consumers via a website. For retail and internet sales, revenue is recognized upon shipment of the merchandise. Touring revenue, including the sale of merchandise, is recognized in the month of the event.
For a more detailed presentation of the Company's operating businesses, see the Company's Annual Report on Form 10-K, as amended, for the year ended December 31, 2008.
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