UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Commission File Number 001-32601

LIVE NATION, INC.

(Exact name of registrant as specified in its charter)

9348 Civic Center Drive

Beverly Hills, CA 90210

(Address of principal executive offices, including zip code)

(310) 867-7000

(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  þ Yes  o  No

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

o Large accelerated filer     o Accelerated filer     þ  Non-accelerated filer

      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o Yes  þ  No

      On August 4, 2006, there were 65,477,685 outstanding shares of the registrant’s common stock, $0.01 par value per share, excluding 1,697,227 shares held in treasury.

LIVE NATION, INC.

INDEX TO FORM 10-Q

PART I — FINANCIAL INFORMATION

CONSOLIDATED BALANCE SHEETS

See Notes to Consolidated and Combined Financial Statements

CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)

See Notes to Consolidated and Combined Financial Statements

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)

See Notes to Consolidated and Combined Financial Statements

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Live Nation, Inc. (the “Company” or “Live Nation”) was incorporated in Delaware on August 2, 2005 in preparation for the contribution and transfer by Clear Channel Communications, Inc. (“Clear Channel”) of substantially all of its entertainment assets and liabilities to the Company (the “Separation”). The Company completed the Separation on December 21, 2005 and became a publicly traded company on the New York Stock Exchange trading under the symbol “LYV”.

      Prior to the Separation, Live Nation was a wholly owned subsidiary of Clear Channel. As part of the Separation, holders of Clear Channel’s common stock received one share of Live Nation common stock for every eight shares of Clear Channel common stock.

      Following the Separation, the Company reorganized its business units and the way in which these businesses are assessed and therefore changed its reportable segments, starting in 2006, to Events, Venues and Sponsorship, and Digital Distribution. The Events segment principally involves the promotion or production of live music shows, theatrical performances and specialized motor sports events as well as providing various services to artists. The Venues and Sponsorship segment principally involves the operation of venues and the sale of premium seats, national and local sponsorships and placement of advertising, including signage and promotional programs, and naming of subscription series and venues. The Digital Distribution segment principally involves the management of the Company’s on-line and wireless distribution activities, including the development of the Company’s website and managing the Company’s in-house ticketing operations and third-party ticketing relationships. In addition, the Company has operations in the sports representation and other businesses.

      The consolidated and combined financial statements included in this report have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, include all adjustments (consisting of normal recurring accruals and adjustments necessary for adoption of new accounting standards) necessary to present fairly the results of the interim periods shown. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. Due to seasonality and other factors, the results for the interim periods are not necessarily indicative of results for the full year. The financial statements contained herein should be read in conjunction with the consolidated and combined financial statements and notes thereto included in the Company’s 2005 Annual Report on Form 10-K.

      Prior to the Separation, the combined financial statements include amounts that are comprised of businesses included in the consolidated financial statements and accounting records of Clear Channel, using the historical bases of assets and liabilities of the entertainment business. Management believes the assumptions underlying the combined financial statements are reasonable. However, the combined financial statements included herein may not reflect what the Company’s results of operations, financial position and cash flows would have been had it operated as a separate, stand-alone entity during the periods presented. Subsequent to the Separation, the consolidated financial statements include all accounts of the Company and its majority owned subsidiaries.

      Significant intercompany accounts among the consolidated and combined businesses have been eliminated in consolidation. Minority interest expense, included in other income (expense) — net, is recorded for consolidated affiliates in which the Company owns more than 50%, but not all, of the voting common stock and also variable interest entities for which the Company is the primary beneficiary. Investments in nonconsolidated affiliates in which the Company owns 20% to 50% of the voting common stock or otherwise

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

exercises significant influence over operating and financial policies of the nonconsolidated affiliate are accounted for using the equity method of accounting. Investments in nonconsolidated affiliates in which the Company owns less than 20% of the voting common stock are accounted for using the cost method of accounting.

      Certain reclassifications have been made to the 2005 consolidated and combined financial statements to conform to the 2006 presentation.

      In February 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. FAS 123(R)-4, Contingent Cash Settlement (“FSP FAS 123(R)-4”). FSP FAS 123(R)-4 requires companies to classify employee stock options and similar instruments with contingent cash settlement features as equity awards under FASB Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“Statement 123(R)”), provided that (i) the contingent event that permits or requires cash settlement is not considered probable of occurring and is not within the control of the employee and (ii) the award includes no other features that would require liability classification. The Company considered FSP FAS 123(R)-4 with its implementation of Statement 123(R), and determined it had no impact on the Company’s financial position or results of operations.

      In April 2006, the FASB issued FASB Staff Position FIN 46(R)-6, Determining the Variability to be Considered When Applying FASB Interpretation No. 46(R) (“FSP FIN 46(R)-6”). FSP FIN 46(R)-6 addresses the approach to determine the variability to consider when applying FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (“FIN 46(R)”). The variability that is considered in applying FIN 46(R) may affect (i) the determination as to whether the entity is a variable interest entity, (ii) the determination of which interests are variable interests in the entity, (iii) if necessary, the calculation of expected losses and residual returns of the entity, and (iv) the determination of which party is the primary beneficiary of the variable interest entity. The Company will adopt FSP FIN 46(R)-6 on July 1, 2006 and does not anticipate adoption to materially impact its financial position or results of operations.

      In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 creates a single model to address uncertainty in tax positions. FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently assessing the impact of FIN 48 on its financial position and results of operations.

      In June 2006, the Emerging Issues Task Force (“EITF”) ratified the consensus reached in Issue 06-3 — How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation) (“EITF 06-3”). EITF 06-3 is applicable to all taxes that are externally imposed on a revenue producing transaction between a seller and a customer. EITF 06-3 concludes that a company may adopt a policy of presenting taxes either gross within revenue or net. If taxes subject to EITF 06-3 are significant, a company is required to disclose its accounting policy for presenting taxes and the amounts of such taxes that are recognized on a gross basis. EITF 06-3 is effective for the first interim reporting period beginning after December 15, 2006, with early application of this guidance permitted. The Company adopted EITF 06-3 on June 30, 2006, and has added the required disclosures. The Company accounts for taxes that are externally imposed on revenue producing transactions on a net basis, as a reduction to revenue.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

NOTE 2 — LONG-LIVED ASSETS

      The Company has definite-lived intangible assets which consist primarily of non-compete agreements, intellectual property rights and building or naming rights, all of which are amortized over the shorter of either the respective lives of the agreements or the period of time the assets are expected to contribute to the Company’s future cash flows. These definite-lived intangibles had a gross carrying amount and accumulated amortization of $44.7 million and $7.2 million, respectively, as of June 30, 2006, and $18.7 million and $6.3 million, respectively, as of December 31, 2005. The increase in definite-lived intangible assets during 2006 is due to intellectual property rights and non-compete agreements resulting from recent acquisitions.

      Total amortization expense from definite-lived intangible assets for the three months ended June 30, 2006 and 2005 and the six months ended June 30, 2006 and 2005 was $0.6 million, $0.7 million, $0.9 million and $1.4 million, respectively.

      The Company tests goodwill for impairment at least annually using a two-step process. The first step, used to screen for potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. The second step, used to measure the amount of any potential impairment, compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. As the Company has realigned its segments, beginning in 2006, in accordance with the change in the management of the business units, goodwill has been reallocated to the new reporting business units that make up these segments. The following table presents the changes in the carrying amount of goodwill in each of the Company’s business segments for the six month period ended June 30, 2006:

      Included in the acquisition amounts above are $2.0 million of goodwill recorded during the first quarter of 2006 related to the Company’s acquisition of Historic Theater Group and $15.1 million of additional goodwill recorded during the second quarter of 2006 related to its acquisition of Mean Fiddler Group, PLC (“Mean Fiddler”) in July 2005.

NOTE 3 — RESTRUCTURING

      The Company has recorded liabilities related to acquisitions and restructurings. In July 2005, the Company acquired a controlling majority interest of 50.1% in Mean Fiddler in the United Kingdom. Mean Fiddler is a consolidated subsidiary involved in the promotion and production of live music events, including festivals and venue operations. As part of the acquisition, the Company accrued $4.7 million in 2005 and recorded an additional accrual of $2.7 million in the second quarter of 2006 in restructuring costs in its Venues and Sponsorship segment primarily related to lease terminations, which it expects to pay over the next several years. These additional costs were recorded as an adjustment to the purchase price. As of June 30, 2006, the accrual balance for the Mean Fiddler restructuring was $6.8 million. This restructuring has resulted in the termination of 33 employees. In addition, the Company has a remaining restructuring accrual of $1.7 million as of June 30, 2006, related to its merger with Clear Channel in August 2000.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

      The Company has recorded a liability in purchase accounting primarily related to severance for terminated employees and lease terminations as follows:

      The remaining severance and lease accrual is comprised of $0.8 million of severance and $7.7 million of lease termination. The severance accrual includes amounts that will be paid over the next several years related to deferred payments to former employees, as well as other compensation. The lease termination accrual will be paid over the next 23 years. During the three and six months ended June 30, 2006, there were no payments charged to the restructuring reserve related to severance. The Company is continuing to evaluate its purchase accounting liabilities related to several leases in the Mean Fiddler acquisition which may result in additional restructuring accruals.

      During the fourth quarter of 2005, the Company recorded accruals, consisting of severance and lease termination costs, related to the realignment of its business operations. The total expense related to this restructuring was recorded in selling, general and administrative expenses in 2005 as a component of Events, Venues and Sponsorship, Digital Distribution and other operations in amounts of $6.0 million, $1.6 million, $0.8 million and $1.6 million, respectively. In addition, $4.7 million of restructuring expense was recorded in corporate expenses in 2005. As of June 30, 2006, the remaining accrual related to this 2005 restructuring was $0.6 million.

NOTE 4 — DERIVATIVE INSTRUMENTS

      FASB Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“Statement 133”), requires the Company to recognize all of its derivative instruments as either assets or liabilities in the consolidated balance sheets at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship, and further, on the type of hedging relationship. For derivative instruments that are designated and qualify as hedging instruments, the Company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategies for undertaking various hedge transactions. The Company formally assesses, both at inception and at least quarterly thereafter, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in either the fair value or cash flows of the hedged item. If a derivative ceases to be a highly effective hedge, the Company discontinues hedge accounting. The Company accounts for its derivative instruments that are not designated as hedges at fair value with changes in fair value recorded in earnings. The Company does not enter into derivative instruments for speculation or trading purposes.

      For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transaction in the same period or periods during which the hedged transaction affects earnings (for example, in interest expense when the hedged transactions are interest cash flows associated with floating-rate debt). The remaining gain

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in other income (expense)-net in current earnings during the period of change.

      On March 16, 2006, the Company entered into two interest rate swap agreements, designated as cash flow hedges, which are combinations of purchased interest rate caps on a notional amount of a total of $162.5 million and sold floors over the same period on a total of $121.9 million of the notional amount to effectively convert a portion of its floating-rate debt to a fixed-rate basis. The principal objective of these contracts is to eliminate or reduce the variability of the cash flows in interest payments associated with the Company’s variable rate debt as required by the Company’s senior secured credit facility, thus reducing the impact of interest rate changes on future interest expense. Approximately 50% of the Company’s outstanding long-term debt had its interest payments designated as the hedged forecasted transactions against the interest rate swap agreements at June 30, 2006. As of June 30, 2006, the interest rate for these hedges was fixed at 5.11% on a variable rate of 5.50% based on a 3-month LIBOR; this variable rate is subject to quarterly adjustments. For the three and six months ended June 30, 2006, these hedges were determined to be highly effective and the Company recorded an unrealized gain of $1.4 million and $1.9 million, respectively, as a component of other comprehensive income. Based on the current interest rate expectations, the Company estimates that approximately $0.7 million of this gain in other comprehensive income will be reclassified into earnings in the next 12 months.

      The Company has recorded a gain related to these derivative instruments during the period as follows:

      Occasionally, the Company will use forward currency contracts to reduce its exposure to foreign currency risk. The principal objective of such contracts is to minimize the risks and/or costs associated with artist fee commitments. At June 30, 2006, the Company had $35.2 million outstanding in forward currency contracts. The change in fair value of these instruments from date of purchase through June 30, 2006 was not significant.

NOTE 5 — COMMITMENTS AND CONTINGENT LIABILITIES

      The Company has entered into an Agreement and Plan of Merger with HOB Entertainment, Inc. which provides for the Company to pay a $15 million termination fee if the Agreement and Plan of Merger is terminated for certain reasons.

      The Company has leases that contain contingent payment requirements for which payments vary depending on revenues, tickets sold or other variables.

      As of June 30, 2006 and December 31, 2005, the Company guaranteed the debt of third parties of approximately $1.1 million and $1.9 million, respectively, primarily related to maximum credit limits on employee and tour related credit cards.

      Certain agreements relating to acquisitions provide for purchase price adjustments and other future contingent payments based on the financial performance of the acquired companies. The Company will accrue additional amounts related to such contingent payments if and when it is determinable that the applicable financial performance targets will be met. The aggregate of these contingent payments, if performance targets are met, would not significantly impact the financial position or results of operations of the Company.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

      The Company has various investments in nonconsolidated affiliates that are subject to agreements that contain provisions that may result in future additional investments to be made by the Company. These values are typically contingent upon the investee meeting certain financial performance targets, as defined in the agreements. The contingent payment amounts are generally calculated based on predetermined multiples of the achieved financial performance not to exceed a predetermined maximum amount.

      The Company initiated a lawsuit in July 2003 in the State Court of Santa Clara County, California against the City of Mountain View and Shoreline Regional Park Community, seeking declaratory judgment, specific performance and injunctive relief and remedies for breach of contract, inverse condemnation and indemnification as a result of the defendants’ failure to provide parking lots and calculate rent payments in accordance with its lease agreement with the defendants. The defendants in that suit counterclaimed against the Company seeking accounting and declaratory judgment and alleging theft, conversion, false claims, breach of contract, and racketeering relating to the Company’s payments under the lease agreement. Effective May 10, 2006, the parties entered into a settlement agreement, which does not constitute an admission of wrongdoing or liability by the Company. This settlement of the litigation was fully accrued for in the Company’s results of operations during 2005 and the first quarter of 2006. In addition, the parties entered into an amended lease agreement related to this amphitheater. The new lease includes fixed annual rent payments and an additional rent amount prepaid in the second quarter of 2006 which will be amortized on a straight-line basis over the life of the new lease.

      The Company was a defendant in a lawsuit filed by Melinda Heerwagen on June 13, 2002, in the U.S. District Court for the Southern District of New York. The plaintiff, on behalf of a putative class consisting of certain concert ticket purchasers, alleged that anti-competitive practices for concert promotion services by the Company nationwide caused artificially high ticket prices. On August 11, 2003, the Court ruled in the Company’s favor, denying the plaintiff’s class certification motion. The plaintiff appealed this decision to the U.S. Court of Appeals for the Second Circuit. On January 10, 2006, the U.S. Court of Appeals for the Second Circuit affirmed the ruling in the Company’s favor by the District Court. On January 17, 2006, the plaintiff filed a Notice of Voluntary Dismissal of her action in the Southern District of New York.

      The Company is a defendant in twenty putative class actions filed by different named plaintiffs in various U.S. District Courts throughout the country. The claims made in these actions are substantially similar to the claims made in the Heerwagen action, except that the geographic markets alleged are regional, statewide or more local in nature, and the members of the putative classes are limited to individuals who purchased tickets to concerts in the relevant geographic markets alleged. The Company has filed its answers in some of these actions, and has denied liability. On December 5, 2005, the Company filed a motion before the Judicial Panel on Multidistrict Litigation to transfer these actions and any similar ones commenced in the future to a single federal district court for coordinated pre-trial proceedings. On April 17, 2006, the Panel granted our motion and ordered the consolidation and transfer of the actions to the U.S. District Court for the Central District of California. The Company intends to vigorously defend all claims in all of the actions.

      The Company is also currently involved in certain other legal proceedings and, as required, has accrued its best estimate of the probable settlement or other losses for the resolution of these claims. These estimates 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 the Company’s assumptions or the effectiveness of its strategies related to these proceedings.

NOTE 6 — RELATED-PARTY TRANSACTIONS

      During the fourth quarter of 2005, the Company completed the Separation. As a result, the Company recognized the par value and additional paid-in capital in connection with the issuance of its common stock in exchange for the net assets contributed by Clear Channel. Prior to the Separation, Clear Channel provided

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

funding for certain of the Company’s acquisitions. These amounts funded by Clear Channel for these acquisitions were recorded as a component of shareholders’ equity. Also, certain tax related receivables and payables, which were considered non-cash capital contributions or dividends, were recorded in shareholders’ equity.

      The Company has three non-employee directors on its Board of Directors that are also directors and executive officers of Clear Channel. These three directors receive directors’ fees, stock options and restricted stock awards as do other non-employee members of the Company’s Board of Directors.

      From time to time, the Company purchases advertising from Clear Channel and its subsidiaries in the ordinary course of business. For the three months ended June 30, 2006 and 2005 and the six months ended June 30, 2006 and 2005, the Company recorded $3.8 million, $2.6 million, $6.4 million and $5.8 million, respectively, as components of direct operating expenses and selling, general and administrative expenses for these advertisements.

      Pursuant to a transition services agreement, subsequent to the Separation, Clear Channel provided or provides to the Company certain limited administrative and support services such as treasury, payroll and other financial related services; human resources and employee benefits services; legal and related services; information systems, network and related services; investment services; and corporate services. The charges for these transition services are intended to allow Clear Channel to fully recover the allocated direct costs of providing the services, plus all out-of-pocket expenses. The allocation of costs is based on various measures depending on the service provided, including relative revenue, employee headcount or number of users of a service. As of June 30, 2006, the only significant services that Clear Channel continues to provide are tax and information systems related services. For the three and six months ended June 30, 2006, the Company recorded an aggregate of $1.3 million and $2.6 million, respectively, for these services as components of selling, general and administrative expenses and corporate expenses.

      Prior to the Separation, Clear Channel provided management services to the Company, which included services similar to the transition services, along with executive oversight. These services were allocated to the Company based on actual direct costs incurred or on the Company’s share of Clear Channel’s estimate of expenses relative to a seasonally adjusted headcount. Management believes this allocation method to be reasonable and the expenses allocated to be materially the same as the amount that would have been incurred on a stand-alone basis. For the three and six months ended June 30, 2005, the Company recorded $2.6 million and $4.7 million, respectively, as a component of corporate expenses for these services.

      Clear Channel owns the trademark and trade names used by the Company prior to the Separation. Clear Channel charged the Company a royalty fee based upon a percentage of annual revenue. Clear Channel used a third-party valuation firm to assist in the determination of the royalty fee. For the six months ended June 30, 2005, the Company recorded $0.5 million of royalty fees in corporate expenses. There was no fee recorded or charged for the three months ended June 30, 2005.

      Prior to the Separation, the operations of the Company were included in a consolidated federal income tax return filed by Clear Channel. The Company’s provision for income taxes for 2005 was computed on the basis that the Company files separate consolidated income tax returns with its subsidiaries. Tax payments were made to Clear Channel on the basis of the Company’s separate taxable income. Tax benefits recognized on employee stock option exercises prior to the Separation were retained by Clear Channel.

      The Company’s domestic employees participated in Clear Channel’s employee benefit plans prior to the Separation, including employee medical insurance, an employee stock purchase plan and a 401(k) retirement benefit plan. These costs were recorded primarily as a component of selling, general and administrative expenses and were approximately $2.4 million and $4.7 million for the three and six months ended June 30, 2005, respectively. Subsequent to the Separation, the Company provides its own employee benefit plans.

      In connection with the Separation, the Company entered into various lease and licensing agreements with Clear Channel primarily for office space occupied by the Company’s employees. For the three and six months

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

ended June 30, 2006, the Company recorded $0.2 million and $0.4 million, respectively, of expense as a component of selling, general and administrative expenses related to these agreements.

      As of June 30, 2006, the Company has recorded a liability in accrued expenses to Clear Channel of $0.9 million for the transition services described above and certain other costs paid for by Clear Channel on the Company’s behalf.

      In May 2006, the Company acquired a controlling interest in the touring business of a commonly owned group of companies operating under the name of Concert Productions International, or CPI, and a 50% interest in several entities in the non-touring business of CPI (collectively, the “CPI Entities”). Concurrent with the acquisition, Michael Cohl became a member of the Company’s Board of Directors. Michael Cohl owns a 72.37% interest in Concert Productions International, Inc. (“CPI, Inc.”) which, together with other sellers, sold the Company its interests in the CPI Entities. Through his ownership in CPI, Inc., Mr. Cohl indirectly received consideration from the sale of $72,370 in cash and 54,519 shares of the Company’s common stock, which shares are subject to a Lockup and Registration Rights Agreement. The CPI Entities have entered into a Services Agreement with KSC Consulting (Barbados) Inc. for the executive services of Michael Cohl, pursuant to which Mr. Cohl will serve as Chief Executive Officer of the CPI Entities for a term of five years. In addition, the Company entered into a Securityholders Agreement and a Credit Agreement in connection with this transaction. The Securityholders Agreement provides, among other things, for the payment of fees and expenses to CPI, Inc. and CPI Entertainment Rights, Inc., a wholly-owned subsidiary of CPI, Inc., and the Credit Agreement requires the Company to make certain extensions of credit to the CPI Entities.

      The Company conducts certain transactions in the ordinary course of business with companies that are owned, in part or in total, by various members of management of the Company’s subsidiaries. These transactions primarily relate to venue rentals, equipment rental, ticketing and other services and reimbursement of certain costs. Expenses of $2.5 million, $4.1 million, $3.7 million and $5.1 million were incurred for the three and six months ended June 30, 2006 and 2005, respectively, and revenues of $0.0 million, $0.1 million, $0.1 million and $0.2 million were earned for the three and six months ended June 30, 2006 and 2005, respectively, from these companies for services rendered or provided in relation to these business ventures. None of these transactions were with directors or executive officers of the Company.

NOTE 7 — STOCK BASED COMPENSATION

      In December 2005, the Company adopted its 2005 Stock Incentive Plan. The plan authorizes the Company to grant stock option awards, director shares, stock appreciation rights, restricted stock and deferred stock awards, other equity-based awards and performance awards. In connection with the Separation, options to purchase approximately 2.1 million shares of the Company’s common stock and approximately 0.3 million shares of restricted stock were granted to employees and directors. The options granted to date all have an exercise price of $10.60 per share.

      The Company has granted options to purchase its common stock to employees and directors of the Company and its affiliates under the stock incentive plan at no less than the fair market value of the underlying stock on the date of grant. These options are granted for a term not exceeding ten years and the nonvested options are forfeited in the event the employee or director terminates his or her employment or relationship with the Company or one of its affiliates. Any options that have vested at the time of termination are forfeited to the extent they are not exercised within the applicable post-employment exercise period provided in their option agreements. These options generally vest over three to five years. The stock incentive

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

plan contains anti-dilutive provisions that require the adjustment of the number of shares of the Company’s common stock represented by, and the exercise price of, each option for any stock splits or stock dividends.

      Prior to the Separation, Clear Channel granted options to purchase Clear Channel’s common stock to employees of the Company and its affiliates under various stock option plans at no less than the fair market value of the underlying stock on the date of grant. Compensation expense relating to Clear Channel stock options and restricted stock awards held by the Company’s employees was allocated by Clear Channel to the Company on a specific employee basis. At the Separation, all nonvested options outstanding under Clear Channel’s stock-based compensation plans that were held by the Company’s employees were forfeited and any outstanding vested options will be forfeited to the extent they are not exercised within the applicable post-employment exercise period provided in their option agreements. All Clear Channel restricted stock awards held by the Company’s employees at the date of Separation were forfeited due to the termination of their employment with the Clear Channel group of companies.

      Effective January 1, 2006, the Company has adopted the fair value recognition provisions of Statement 123(R), which is a revision of FASB Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“Statement 123”). Statement 123(R) supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and related interpretations, and amends FASB Statement of Financial Accounting Standards No. 95, Statement of Cash Flows. The Company chose the modified-prospective transition application of Statement 123(R). The fair value of the options is amortized to expense on a straight-line basis over the options’ vesting period.

      Prior to January 1, 2006, the Company accounted for its stock-based award plans using the provisions of Statement 123. As permitted under this standard, compensation expense was recognized using the intrinsic value method described in APB 25 under which compensation expense is recorded to the extent that the current market price of the underlying stock exceeds the exercise price. Prior periods were not restated to reflect the impact of adoption of the new standard.

      As a result of the adoption of Statement 123(R), stock based compensation expense recognized during the three and six months ended June 30, 2006 includes compensation expense for all share-based payments granted on or prior to, but not yet vested at the end of the period based on the grant date fair value estimated in accordance with the provisions of Statement 123(R). No stock options have been granted since adoption.

      Due to the adoption of Statement 123(R), both the Company’s operating income (loss) and income (loss) before income taxes were $0.5 million and $1.0 million lower for the three and six months ended June 30, 2006, respectively, and net income was $0.4 million and $0.7 million lower for the three and six months ended June 30, 2006, respectively. Prior to the adoption of Statement 123(R) and through June 30, 2006, no tax benefits from the exercise of stock options have been recognized as no options granted by the Company subsequent to the Separation have vested or have been exercised. Any future excess tax benefits derived from the exercise of stock options will be recorded prospectively and reported as cash flows from financing activities in accordance with Statement 123(R).

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

      The following table illustrates the effect on operating results and per share information had the Company accounted for share-based compensation in accordance with Statement 123(R) for the periods indicated. Due to the Separation, the Company’s pro forma disclosures for 2005 include stock compensation expense for options granted by Clear Channel prior to the Separation, and options granted by the Company after the Separation, when applicable. As the Company had no shares outstanding at June 30, 2005, there is no pro forma loss per common share to disclose. The required pro forma disclosures are as follows:

      The fair value for options in Live Nation stock was estimated on the date of grant using a Black-Scholes option-pricing model. Expected volatilities are based on implied volatilities of traded options and the historical volatility of stocks of similar companies since the Company’s common stock does not have sufficient trading history to reasonably predict its own volatility. The Company has used the simplified method for estimating the expected life within the valuation model which is the period of time that options granted are expected to be outstanding. The risk free rate for periods within the life of the option is based on the U.S. Treasury Note rate. The following assumptions were used to calculate the fair value of the Company’s options on the date of grant:

      Clear Channel calculated the fair value for the options in Clear Channel stock at the date of grant using a Black-Scholes option-pricing model with the following assumptions for 2005:

      The following table presents a summary of the Company’s stock options outstanding at, and stock option activity during, the six months ended June 30, 2006 (“Price” reflects the weighted average exercise price per share):

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

      The weighted average fair value of stock options granted is required to be based on a theoretical option pricing model. In actuality, because the Company’s stock options are not traded on an exchange, option holders can receive no value nor derive any benefit from holding stock options under the plan without an increase in the market price of Live Nation stock. Such an increase in stock price would benefit all shareholders commensurately.

     

      There were 6.6 million shares available for future grants under the stock incentive plan at June 30, 2006. Vesting dates on the stock options range from December 2006 to December 2010, and expiration dates range from December 2012 to December 2015 at exercise prices and average contractual lives as follows:

      Prior to the Separation, Clear Channel granted restricted stock awards to the Company’s employees. All Clear Channel restricted stock awards held by the Company’s employees at the date of the Separation were forfeited due to the termination of their employment with the Clear Channel group of companies.

      Subsequent to the Separation, the Company has granted restricted stock awards to its employees and directors under the stock incentive plan. These common shares carry a legend which restricts their transferability for a term of one to five years and are forfeited in the event the recipient’s employment or relationship with the Company is terminated prior to the lapse of the restriction. Recipients of the restricted stock awards are entitled to all cash dividends as of the date the award was granted.

      The following table presents a summary of the Company’s restricted stock awards outstanding at June 30, 2006 (“Price” reflects the weighted average share price at the date of grant):

      The Company recorded $0.8 million and $1.6 million of non-cash compensation expense during the three and six months ended June 30, 2006, respectively, related to nonvested stock based compensation arrangements for stock options and restricted stock awards with $0.4 million and $0.8 million recorded in selling, general and administrative expenses and $0.4 million and $0.8 million recorded in corporate expenses for the same respective periods. As of June 30, 2006, there was $9.6 million of total unrecognized compensation cost related to nonvested stock based compensation arrangements for stock options and restricted stock awards. This cost is expected to be recognized over the next 5 years.

NOTE 8 — EARNINGS PER SHARE

      The Company computes net income per common share in accordance with FASB Statement of Financial Accounting Standards No. 128, Earnings per Share (“Statement 128”). Under the provisions of Statement 128, basic net income per common share is computed by dividing the net income applicable to common shares by the weighted average of common shares outstanding during the period. Diluted net income per common share adjusts basic net income per common share for the effects of stock options, restricted stock and other potentially dilutive financial instruments only in the periods in which such effect is dilutive.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

      The following table sets forth the computation of basic and diluted net income per common share:

      The calculation of diluted net income per share includes the effects of the assumed exercise of any outstanding stock options and the assumed vesting of shares of restricted stock where dilutive. No information is shown for the three and six months ended June 30, 2005 as the Company had no outstanding shares prior to the Separation.

NOTE 9 — RECENT DEVELOPMENTS

      In April 2006, the Company sold its interest in a venue project (theaters in Planet Hollywood in Las Vegas), and a portion of certain prepaid production assets, theatrical productions and investments in nonconsolidated affiliates and was reimbursed for certain expenses related to these assets. These assets were sold to an entity that is managed by two former members of senior management of the Company. The Company received $22.9 million in proceeds and recorded a $1.5 million gain on sale of operating assets related to this sale.

      In May 2006, the Company acquired a controlling interest in the touring business of a commonly owned group of companies operating under the name of Concert Productions International, or CPI, and a 50% interest in several entities in the non-touring business of CPI (collectively, the “CPI Entities”) for $8 million in cash and 1,679,373 shares of the Company’s common stock. Based on the closing price of the Company’s common stock on the day of the transaction of $23.34, the total purchase price was $47.2 million. The Company recorded an intangible asset of $18.8 million related to the non-compete agreement which will be amortized over a five-year period. The CPI Entities engage in full service global tours, provide certain artist services and invest in theatrical productions. The Company is continuing to evaluate its purchase accounting related to this acquisition.

      In May 2006, the Company acquired a controlling interest in Angel Festivals Limited (“Angel”). Angel, located in the United Kingdom, owns various intellectual property rights related to dance festivals. The Company recorded an intangible asset of $2.6 million which will be amortized over the remaining life of the intellectual property rights.

      In June 2006, the Company acquired a controlling interest in Cinq Group, LLC, which operates as TRUNK, Ltd. (“Trunk”). Trunk is a specialty merchandise company, located in the United States, that acquires licenses primarily from music artists to design, manufacture and sell merchandise through various distribution channels. The Company recorded an intangible asset of $3.8 million which will be amortized over the remaining lives of the various trademarks.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

      In June 2006, the Company agreed to acquire HOB Entertainment, Inc. (“HOB”) through a merger transaction for $350 million in cash. HOB owns and/or operates ten mid-size venues under the House of Blues brand in cities such as Las Vegas, Los Angeles, Chicago and Orlando and eight amphitheaters in cities including Atlanta, Toronto, San Diego and Dallas. The transaction has been approved by the Board of Directors of each company and is also subject to review by the U.S. Department of Justice. The Company currently expects the transaction, which is subject to customary closing conditions, to close by the end of 2006.

NOTE 10 — OTHER INFORMATION

      Included in gain on sale of operating assets for the six months ended June 30, 2006 is a $7.7 million gain related to the sale of a portion of the Company’s sports representation business assets located in Los Angeles which were sold in January 2006 to a former member of senior management of the Company.

      Included in other income (expense) — net for the three and six months ended June 30, 2006 is income of $5.9 million related to a fee received on the sale of land in Ireland which was sold in April 2006 to the minority interest holder in this entity. This fee was for payment of services provided by the Company in completing the sale since, under the terms of the original acquisition that included this asset, the Company did not have the rights to the appreciation in the value of this property. The minority interest holder contributed his share of the appreciation in the value of the land to the entity.

NOTE 11 — SEGMENT DATA

      Following the Separation, the Company reorganized its business units and the way in which these businesses are assessed and therefore changed its reportable operating segments, starting in 2006, to Events, Venues and Sponsorship, and Digital Distribution. The Events segment principally involves the promotion or production of live music shows, theatrical performances and specialized motor sports events and provides various services to artists. The Venues and Sponsorship segment principally involves the operation of venues and the sale of premium seats, national and local sponsorships and placement of advertising, including signage and promotional programs, and naming of subscription series and venues. The Digital Distribution segment principally involves the management of the Company’s on-line and wireless distribution activities, including the development of the Company’s website and managing the Company’s in-house ticketing operations and third-party ticketing relationships. Included in the Digital Distribution revenue below are revenues from ticket rebates earned on tickets sold through phone, outlet and internet, for events promoted by the Events segment. “Other” includes sports representation, as well as other business initiatives.

      The Company has reclassified all periods presented to conform to the current period presentation. Revenue and expenses earned and charged between segments are eliminated in consolidation. Corporate expenses, interest income and expense, equity in earnings (loss) of nonconsolidated affiliates, other income (expense) — net and income taxes are managed on a total company basis.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

      There are no customers that individually account for more than ten percent of the Company’s consolidated and combined revenues in any year.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

      Revenue of $274.3 million and $380.4 million for the three and six months ended June 30, 2006, respectively, and $264.7 million and $392.2 million for the three and six months ended June 30, 2005, respectively, was derived from the Company’s foreign operations. Of these amounts, $143.2 million and $189.0 million for the three and six months ended June 30, 2006, respectively, and $135.4 million and $203.8 million for the three and six months ended June 30, 2005, respectively, was derived from the Company’s operations in the United Kingdom. Identifiable assets of $801.9 million and $573.6 million were from the Company’s foreign operations as of June 30, 2006 and 2005, respectively, of which $452.1 million and $246.6 million were from the Company’s operations in the United Kingdom as of June 30, 2006 and 2005, respectively.

      “Live Nation” (which may be referred to as “we”, “us” or “our”) means Live Nation, Inc. and its subsidiaries, or one of our segments or subsidiaries, as the context requires. You should read the following discussion of our financial condition and results of operations together with the unaudited consolidated and combined financial statements and notes to the financial statements included elsewhere in this quarterly report.

Special Note About Forward-Looking Statements

      Certain statements contained in this quarterly report (or otherwise made by us or on our behalf from time to time in other reports, filings with the Securities and Exchange Commission, news releases, conferences, internet postings or otherwise) that are not statements of historical fact constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended, notwithstanding that such statements are not specifically identified. Forward-looking statements include, but are not limited to, statements about our financial position, business strategy, competitive position, potential growth opportunities, potential operating performance improvements, the effects of competition, the effects of future legislation or regulations and plans and objectives of our management for future operations. We have based our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. Use of the words “may,” “should,” “continue,” “plan,” “potential,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “outlook,” “could,” “target,” “project,” “seek,” “predict” or variations of such words and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

      Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those set forth under Item 1A. — Risk Factors of our 2005 Form 10-K as well as other factors described herein or in our annual, quarterly and other reports we file with the SEC (collectively, “cautionary statements”). Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described in any forward-looking statements. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the applicable cautionary statements. We do not intend to update these forward-looking statements, except as required by applicable law.

Executive Overview

      Beginning in 2006, we have adjusted our reportable segments due to a reorganization of our business and a change in the way in which management views and manages our business. The new segments are Events, Venues and Sponsorship, and Digital Distribution. In addition, we have operations in the sports representation and other businesses, which are included under “other”.

      This has been an eventful first half of the year for all our segments. The highlights for each segment are:

Our Separation from Clear Channel

      We were formed through acquisitions of various entertainment businesses and assets by our predecessors. On August 1, 2000, Clear Channel Communications, Inc. (“Clear Channel”) acquired our entertainment business. On August 2, 2005, we were incorporated in our current form as a Delaware corporation to own substantially all of the entertainment business of Clear Channel. On December 21, 2005, the separation of the business previously conducted by Clear Channel’s live entertainment segment and sports representation business, now comprising our business, and the distribution by Clear Channel of all of our common stock to its shareholders, was completed in a tax free spin-off (the “Distribution” or the “Separation”). Following our separation from Clear Channel, we became a separate publicly traded company on the New York Stock Exchange trading under the symbol “LYV”. In connection with the Separation, we issued, through one of our subsidiaries, $40 million of redeemable preferred stock, of which we received $20 million of the proceeds, and borrowed $325 million under a new credit agreement. We used the proceeds to repay $220 million of debt owed to Clear Channel and Clear Channel contributed to our capital the remaining balance owed them.

Basis of Presentation

      Prior to the Separation, our combined financial statements include amounts that are comprised of businesses included in the consolidated financial statements and accounting records of Clear Channel, using the historical bases of assets and liabilities of the entertainment business. Management believes the assumptions underlying the combined financial statements are reasonable. However, the combined financial statements included herein may not reflect what our results of operations, financial position and cash flows would have been had we operated as a separate, stand-alone entity during the periods presented. As a result of the Separation, we recognized the par value and additional paid-in capital in connection with the issuance of our common stock in exchange for the net assets of Clear Channel’s entertainment business contributed at that time, and we began accumulating retained earnings and currency translation adjustments upon completion of the Separation. Beginning on December 21, 2005, our consolidated financial statements include all accounts of Live Nation and our majority owned subsidiaries and also variable interest entities for which we are the primary beneficiary.

Segment Overview

      Following the Separation and the reorganization of our business, we changed our reportable segments, starting in 2006, to Events, Venues and Sponsorship, and Digital Distribution. In addition, we have operations in the sports representation and other businesses which are included under “other”. Previously, we operated in two reportable business segments: Global Music and Global Theater. In addition, previously included under “other” were our operations in the specialized motor sports, sports representation and other businesses. We have reclassified all periods presented to conform to the current period presentation.

      Our Events segment principally involves the promotion and/or production of live music shows, theatrical performances and specialized motor sports events in our owned and/or operated venues and in rented third-party venues. While our Events segment operates year-round, we experience higher revenues during the second and third quarters due to the seasonal nature of shows at our outdoor amphitheaters and international festivals, which primarily occur May through September.

      As a promoter or presenter, we typically book performers, arrange performances and tours, secure venues, provide for third-party production services, sell tickets and advertise events to attract audiences. We earn revenues primarily from the sale of tickets and pay performers under one of several formulas, including a fixed guaranteed amount and/or a percentage of ticket sales or show profits. For each event, we either use a venue we own or operate, or rent a third-party venue. Revenues are generally related to the volume of ticket sales and

ticket prices. Event costs, included in direct operating expenses, such as artist and production service expenses, are typically substantial in relation to the revenues. As a result, significant increases or decreases in promotion revenue do not typically result in comparable changes to operating income. In the case of our amphitheaters, the Events segment typically experiences losses related to the promotion of the event. These losses are offset by the ancillary and sponsorship profits generated by the Venues and Sponsorship segment and the ticket rebates recorded in the Digital Distribution segment.

      As a producer, we generally hire artistic talent, develop sets and coordinate the actual performances of the events. We produce tours on a global, national and regional basis. We generate revenues by sharing in a percentage of event or tour profits primarily related to the sale of tickets, merchandise and event and tour sponsorships. These production revenues are generally related to the size and profitability of the production. Artist and production costs, included in direct operating expenses, are typically substantial in relation to the revenues. As a result, significant increases or decreases in revenue related to these productions do not typically result in comparable changes to operating income.

      In addition to the above, we provide various services to artists including marketing, advertising production services, merchandise distribution and DVD/ CD production and distribution.

      To judge the health of our Events segment, management monitors the number of confirmed shows in our network of owned and third-party venues, average paid attendance and advance ticket sales. In addition, because a significant portion of our events business is conducted in foreign markets, management looks at the operating results from our foreign operations on a constant dollar basis.

      Our Venues and Sponsorship segment primarily involves the management and operation of our owned and/or operated venues and the sale of various types of sponsorships and advertising.

      As a venue operator, we contract primarily with our Events segment to drive show counts to fill our venues and we provide operational services such as concessions, merchandising, parking, security, ushering and ticket-taking. We generate revenues primarily from food and beverage, parking, premium seating and venue sponsorships.

      We actively pursue the sale of national and local sponsorships and placement of advertising, including signage and promotional programs, and naming of subscription series. Many of our venues also have name-in-title sponsorship programs. We believe national sponsorships allow us to maximize our network of venues and to arrange multi-venue branding opportunities for advertisers. Our national sponsorship programs have included companies such as American Express, Anheuser Busch and Verizon. Our local and venue-focused sponsorships include venue signage, promotional programs, on-site activation, hospitality and tickets, and are derived from a variety of companies across various industry categories.

      To monitor the health of our Venues and Sponsorship segment, management reviews the number of shows at our venues, attendance, food and beverage sales per attendee, premium seat sales and corporate sponsorship renewals. In addition, because a significant portion of our venues and sponsorship business is conducted in foreign markets, management looks at the operating results from our foreign operations on a constant dollar basis.

      Our Digital Distribution segment is creating the new internet and digital platform for Live Nation. This segment is involved in managing our on-line and wireless distribution activities, including the development of our website and management of our in-house ticketing operations and third-party ticketing relationships. This segment derives the majority of its revenues from ticket rebates earned on tickets sold through phone, outlet and internet, for events promoted or presented by the Events segment.

      To judge the health of our Digital Distribution segment, management reviews the rebates earned per ticket sold and the number of unique visitors to our website.

Consolidated and Combined Results of Operations

      Our revenue increased $26.5 million, or 4%, during the three months ended June 30, 2006 as compared to the same period of the prior year primarily due to increases in revenues of our Events and Venues and Sponsorship segments of $17.9 million and $8.0 million, respectively. Included in the increase in revenue for the three months ended June 30, 2006 was approximately $2.5 million from increases in foreign exchange rates as compared to the same period of 2005.

      Our revenue increased $98.6 million, or 8%, during the six months ended June 30, 2006 as compared to the same period of the prior year primarily due to increases in revenues of our Events, Venues and Sponsorship and Digital Distribution segments of $95.8 million, $11.0 million and $3.6 million, respectively, partially offset by a decrease in our other operations of $13.4 million. Included in the increase in revenue for the six months ended June 30, 2006 was approximately $6.6 million of decreases in revenue from decreases in foreign exchange rates as compared to the same period of 2005.

      Our direct operating expenses increased $21.5 million, or 4%, during the three months ended June 30, 2006 as compared to the same period of the prior year primarily due to increases in direct operating expenses in our Events and Venues and Sponsorship segments of $16.0 million and $6.4 million, respectively. Included in the increase in direct operating expenses for the three months ended June 30, 2006 was approximately $2.4 million from increases in foreign exchange rates as compared to the same period of 2005.

      Our direct operating expenses increased $84.7 million, or 9%, during the six months ended June 30, 2006 as compared to the same period of the prior year primarily due to increases in direct operating expenses in our Events and Venues and Sponsorship segments of $83.5 million and $6.6 million, respectively, partially offset by a decrease in our other operations of $6.8 million. Included in the increase in direct operating expenses for the six months ended June 30, 2006 was approximately $3.4 million of decreases in direct operating expenses from decreases in foreign exchange rates as compared to the same period of 2005.

      Direct operating expenses include show related marketing and advertising expenses along with other costs.

      Our selling, general and administrative expenses increased $9.0 million, or 7%, during the three months ended June 30, 2006 as compared to the same period of the prior year primarily due to increases in selling, general and administrative expenses of our Events and Venues and Sponsorship segments of $4.8 million and $4.2 million, respectively. Included in the increase in selling, general and administrative expenses for the three months ended June 30, 2006 was approximately $0.5 million of decreases in selling, general and administrative expenses from decreases in foreign exchange rates as compared to the same period of 2005.

      Our selling, general and administrative expenses increased $1.9 million, or 1%, during the six months ended June 30, 2006 as compared to the same period of the prior year primarily due to increases in selling, general and administrative expenses of our Venues and Sponsorship and Digital Distribution segments of $11.6 million and $3.4 million, respectively, offset by decreases in our Events segment and other operations of $8.1 million and $5.0 million, respectively. Included in the increase in selling, general and administrative expenses for the six months ended June 30, 2006 was approximately $3.6 million of decreases in selling, general and administrative expenses from decreases in foreign exchange rates as compared to the same period of 2005.

      Our depreciation and amortization increased $1.0 million, or 7%, during the three months ended June 30, 2006 as compared to the same period of the prior year primarily due to an increase in depreciation and amortization of our Venues and Sponsorship segment.

      Our depreciation and amortization increased $0.6 million, or 2%, during the six months ended June 30, 2006 as compared to the same period of the prior year primarily due to an increase in depreciation and amortization of our Venues and Sponsorship segment of $2.2 million, partially offset by decreases in our other and corporate operations of $0.8 million and $0.9 million, respectively.

      Our gain on sale of operating assets increased $1.4 million during the three months ended June 30, 2006 as compared to the same period of the prior year primarily due to a gain recorded in 2006 related to prepaid production assets, theatrical productions and investments in nonconsolidated affiliates that were sold.

      Our gain on sale of operating assets increased $8.8 million during the six months ended June 30, 2006 as compared to the same period of the prior year primarily due to gains recorded in 2006 on the sale of a portion of our sports representation business assets located in Los Angeles and the sale of prepaid production assets, theatrical productions and investments in nonconsolidated affiliates.

      Corporate expenses decreased $11.8 million, or 43%, during the six months ended June 30, 2006 as compared to the same period of the prior year primarily as a result of a $12.5 million decline in litigation contingencies and expenses during 2006 due to a case settled in 2005.

      Interest expense increased $7.5 million during the three months ended June 30, 2006 as compared to the same period of the prior year primarily due to interest expense related to our term loan and redeemable preferred stock, which did not exist in the second quarter of 2005.

      Interest expense increased $14.7 million during the six months ended June 30, 2006 as compared to the same period of the prior year primarily due to interest expense related to our term loan, redeemable preferred stock and loan from the Mean Fiddler minority interest holder, which did not exist in the first six months of 2005.

      Our debt balances, including redeemable preferred stock, and weighted average cost of debt were $406.9 million and 8.03%, respectively, at June 30, 2006, and $21.5 million and 7.62%, respectively, at June 30, 2005.

      Interest expense with Clear Channel Communications decreased $10.8 million and $22.0 million during the three and six months ended June 30, 2006, respectively, as compared to the same periods of the prior year as this debt was repaid to, or contributed to our capital by, Clear Channel on December 21, 2005. Our debt balance and weighted average cost of debt at June 30, 2005 was $642.7 million and 7.0%, respectively.

      Interest income increased $4.0 million and $5.0 million during the three and six months ended June 30, 2006, respectively, as compared to the same periods of the prior year primarily due to interest income earned on excess cash invested in money market funds and other short-term investments.

      Equity in earnings (loss) of nonconsolidated affiliates increased $3.6 million and $4.9 million during the three and six months ended June 30, 2006, respectively, as compared to the same periods of the prior year primarily due to an increase in earnings from our investments in Marek Lieberberg Konzertagentur, Broadway in Chicago and NBC-Live Nation Ventures, LLC. Additionally, in 2005 we recorded an impairment write-down of $2.5 million on an investment with no similar write-down in 2006.

      The principal components of other income (expense) — net, for the applicable periods, were:

      Minority interest income (expense) increased $1.3 million during the six months ended June 30, 2006 as compared to the same period of the prior year primarily due to the acquisition of a 50.1% interest in Mean Fiddler during the third quarter of 2005. Mean Fiddler generates the majority of its operating income during

the third quarter. In addition, we sold a 49.9% interest in our production of Phantom of the Opera in Las Vegas during the second quarter of 2006 which experienced operating losses prior to opening. The increase is partially offset by an impairment write-down in June 2006 of the minority interest receivable for a venue operation company in Spain.

      Other — net increased $5.8 million and $2.6 million during the three and six months ended June 30, 2006, respectively, as compared to the same periods of the prior year primarily due to a fee received on the sale of land in Ireland during the second quarter of 2006. Increase for the six months ended June 30, 2006 is partially offset by a loss recorded in the value of stock investments during 2006 received, or to be received, as part of a contractual obligation which will be completed by the first quarter of 2007.

      Based on current information, we expect our effective tax rate to be 36% for 2006 compared to an effective tax rate of 40% in 2005. This represents a net tax expense of $5.4 million and $0.6 million for the three months ended June 30, 2006 and 2005, respectively, and a net tax expense of $6.1 million for the six months ended June 30, 2006 as compared to a net tax benefit of $14.5 million for the six months ended June 30, 2005. The net increase in tax expense is primarily attributable to increases in income (loss) before income taxes. Our effective tax rate is higher than the U.S. statutory rate of 35% due primarily to nondeductible expenses, state income taxes, tax reserves and a significant portion of our full year earnings being subject to tax in countries other than the United States. The 2006 effective tax rate is computed based on estimates of the full year earnings.

Events Results of Operations

      Our Events segment operating results were as follows:

      Events revenue increased $17.9 million, or 3%, during the three months ended June 30, 2006 as compared to the same period of the prior year primarily due to the timing of the Werchter festival in Belgium which took place earlier in 2006, a slight increase in the number of amphitheater events and attendance, and an increase in the number of global theater events in the second quarter of 2006 as compared to the second quarter of 2005. Partially offsetting this increase was a decline in both the number of domestic music events held in theaters and a decline in domestic festival revenues following our exit from a number of unprofitable festivals held in 2005.

      Events direct operating expenses increased $16.0 million, or 3%, during the three months ended June 30, 2006 as compared to the same period of the prior year primarily due to the timing of the Werchter festival and an increase in the number of global theater events as discussed above. In addition, direct operating expenses increased due to the pre-opening costs related to our production of Phantom of the Opera in Las Vegas during

the second quarter of 2006. Partially offsetting this increase was a decline in direct operating expenses due primarily to the decline in the number of domestic music theater events noted above and the exit from a number of domestic music festivals.

      Events selling, general and administrative expenses increased $4.8 million, or 9%, during the three months ended June 30, 2006 as compared to the same period of the prior year primarily due to an increase in reserves recorded against receivables due to a vendor bankruptcy as well as increased consulting expenses related to music marketing. In addition, due to the acquisition of a 50.1% interest in Mean Fiddler during the third quarter of 2005, we have incurred additional selling, general and administrative expenses related to this business that we did not have in the prior year.

      Events gain on sale of operating assets increased $1.7 million during the three months ended June 30, 2006 as compared to the same period of the prior year primarily due to a gain recorded on the sale of theatrical assets that were sold during 2006.

      Overall, the decline in operating income for Events in the second quarter of 2006 as compared to the same period of 2005 is due primarily to the increased costs related to receivable reserves arising from a vendor bankruptcy, increased costs related to improving our marketing services and incremental selling, general and administrative expenses due to the 2005 Mean Fiddler acquisition whose principal events occur later in the year. These decreases were partially offset by an increase in operating income due to the timing of the Werchter festival in Belgium in 2006.

      Events revenue increased $95.8 million, or 10%, during the six months ended June 30, 2006 as compared to the same period of the prior year primarily due to an increase in attendance at third-party arenas and our owned and/or operated amphitheaters for artists such as Madonna, Coldplay, and Billy Joel and our specialized motor sports events. Also driving this increase is timing and attendance at several international music festivals.

      Events direct operating expenses increased $83.5 million, or 10%, during the six months ended June 30, 2006 as compared to the same period of the prior year primarily due to an increase in attendance at third-party arenas and our owned and/or operated amphitheaters which resulted in higher talent fees. In addition, direct operating expenses increased due to the timing of several international music festivals. Partially offsetting these increases were reduced direct operating expenses due to the termination of several domestic music festivals that occurred in 2005 and reduced costs related to theatrical productions in 2006.

      Events selling, general and administrative expenses declined $8.1 million, or 7%, during the six months ended June 30, 2006 as compared to the same period of the prior year. The decrease is primarily due to a $13.4 million decline in litigation contingencies and expenses mainly due to a case settled in 2005. Partially offsetting the decline was an increase in incremental selling, general and administrative expenses due to the 2005 Mean Fiddler acquisition of $2.6 million, receivable reserves recorded due to a vendor bankruptcy and costs related to marketing services.

      Events gain on sale of operating assets increased $1.7 million during the six months ended June 30, 2006 as compared to the same period of the prior year primarily due to a gain recorded on the sale of theatrical assets that were sold in 2006.

      Overall, the decline in operating loss for Events in the first six months of 2006 as compared to the same period of 2005 is due primarily to improved operating results from music and motor sports events in third-party arenas and our domestic and international festivals, and a decrease in litigation expenses. These improvements were partially offset by the incremental selling, general and administrative expenses related to the Mean Fiddler acquisition which were not incurred in 2005 and which principally relate to events that will occur later in the year.

Venues and Sponsorship Results of Operations

      Our Venues and Sponsorship segment operating results were as follows:

      Venues and Sponsorship revenue increased $8.0 million, or 6%, during the three months ended June 30, 2006 as compared to the same period of the prior year primarily due to incremental revenue of $12.6 million related to the acquisitions of Historic Theater Group venues in 2006 and Mean Fiddler venues during the third quarter of 2005 and the addition of Wembley Arena in London during the second quarter of 2006. We also experienced an increase in our owned and/or operated amphitheater results and merchandise revenue resulting primarily from an increase in attendance. However, this increase was partially offset by a decline in revenues from several of our larger domestic and international theatrical venues and one of our international arenas due to a decline in activity during 2006. In addition, sponsorship revenues declined due to the timing of completion of sponsorship sales in 2006.

      Venues and Sponsorship direct operating expenses increased $6.4 million, or 16%, during the three months ended June 30, 2006 as compared to the same period of the prior year primarily due to incremental direct operating expenses of $4.7 million related to the Mean Fiddler acquisition and Wembley Arena noted above. In addition, direct operating expenses increased related to the increase in merchandise revenue.

      Venues and Sponsorship selling, general and administrative expenses increased $4.2 million, or 7%, during the three months ended June 30, 2006 as compared to the same period of the prior year primarily due to an increase of $7.0 million in expenses including salary, rent and property tax related to the acquisitions of Historic Theater Group and Mean Fiddler and the commencement of the Wembley Arena operating agreement. We also incurred higher selling, general and administrative expenses related to building the venue management team in 2006.

      Venues and Sponsorship depreciation and amortization expense increased $1.3 million, or 12%, during the three months ended June 30, 2006 as compared to the same period of the prior year primarily due to increased depreciation related to capital expenditures to improve the audience experience at our owned and/or operated amphitheaters.

      Overall, the decrease in operating income for Venues and Sponsorship in the second quarter of 2006 as compared to the same period of 2005 is due primarily to reduced activity in several of our larger theatrical venues and an arena, a reduction in sponsorship sales, increased costs related to building the venue management team and higher depreciation expense for our domestic venues. Offsetting this decline were the improved operating results from our owned and/or operated amphitheaters.

      Venues and Sponsorship revenue increased $11.0 million, or 5%, during the six months ended June 30, 2006 as compared to the same period of the prior year primarily due to incremental revenue of $20.7 million

related to the acquisitions of Historic Theater Group venues in 2006 and Mean Fiddler venues during the third quarter of 2005 and the commencement of the Wembley Arena operating agreement during the second quarter of 2006. We also experienced an increase in our owned and/or operated amphitheater operating results and merchandise revenue driven primarily from an increase in attendance. However, these increases were partially offset by a decline in revenues from a few of our larger theaters and an arena due to weaker content and less events in 2006. In addition, sponsorship revenues declined due to the timing of completion of sponsorship sales in 2006.

      Venues and Sponsorship direct operating expenses increased $6.6 million, or 10%, during the six months ended June 30, 2006 as compared to the same period of the prior year primarily due to the Mean Fiddler venues and the Wembley Arena noted above, representing an increase of $8.3 million. In addition, direct operating expenses increased related to the increase in merchandise revenue. However, these increases were partially offset by a decline in direct operating expenses from a few of our larger theaters and an arena due to weaker content and less events in 2006.

      Venues and Sponsorship selling, general and administrative expenses increased $11.6 million, or 11%, during the six months ended June 30, 2006 as compared to the same period of the prior year primarily due to an increase of $11.6 million in expenses including salary, rent and property tax related to the acquisitions of Historic Theater Group and Mean Fiddler and the commencement of the Wembley Arena operating agreement. In addition, we incurred higher salary expense as a result of increased staffing for the venue management team.

      Venues and Sponsorship depreciation and amortization expense increased $2.2 million, or 10%, during the six months ended June 30, 2006 as compared to the same period of the prior year primarily due to increased depreciation expense related to capital expenditures to improve the audience experience at our owned and/or operated amphitheaters.

      Overall, the decrease in operating income for Venues and Sponsorship in the first six months of 2006 as compared to the same period of 2005 is due primarily to the operating results for a few of our larger theaters and an arena being down due to weaker content and less events in the first six months of 2006 and a reduction in sponsorship sales. In addition, this decrease was driven by higher costs incurred related to building the venue management team in 2006 and increased depreciation. Offsetting this decline were the improved operating results from our owned and/or operated amphitheaters and the Mean Fiddler venues.

Digital Distribution Results of Operations

      Our Digital Distribution segment operating results were as follows: