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| WWE > SEC Filings for WWE > Form 10-Q on 10-Nov-2008 | All Recent SEC Filings |
10-Nov-2008
Quarterly Report
Background
The following analysis outlines all material activities contained within each of our business segments.
Live and Televised Entertainment
º Revenues consist principally of ticket sales to live events, sales of merchandise at these live events, television rights fees, sales of television advertising and sponsorships, and fees for viewing our pay-per-view and video on demand programming.
Consumer Products
º Revenues consist principally of direct sales of WWE produced home videos and magazine publishing and royalties or license fees related to various WWE themed products such as video games, toys and books.
Digital Media
º Revenues consist principally of advertising sales on our websites, sale of merchandise on our website through our WWEShop internet storefront and various broadband and mobile content.
WWE Studios (formerly WWE Films)
º Revenues consist of our share of receipts from the distribution of filmed entertainment featuring our Superstars. Two feature films were released in 2006 and one film was released in 2007. We participate in revenues generated under the distribution of the films through all media after the print and advertising and distribution costs incurred by our distributors have been recouped and the results have been reported to us.
Results of Operations
Three Months Ended September 30, 2008 compared to Three Months Ended September
30, 2007
(Dollars in millions, except as noted)
Summary
September 30, September 30, better
Net Revenues 2008 2007 (worse)
Live and Televised Entertainment $ 68.7 $ 68.6 -
Consumer Products 26.6 19.0 40 %
Digital Media 7.9 7.7 3 %
WWE Studios 5.6 12.8 (56 %)
Total $ 108.8 $ 108.1 1 %
September 30, September 30, better
Cost of Revenues: 2008 2007 (worse)
Live and Televised Entertainment $ 47.0 $ 42.3 (11 %)
Consumer Products 10.2 6.9 (48 %)
Digital Media 5.7 4.3 (33 %)
WWE Studios 3.4 9.9 66 %
Total $ 66.3 $ 63.4 (5 %)
Profit contribution margin 39 % 41 %
September 30, September 30, better
Operating Income: 2008 2007 (worse)
Live and Televised Entertainment $ 17.8 $ 23.1 (23 %)
Consumer Products 14.7 11.1 32 %
Digital Media 0.8 1.7 (53 %)
WWE Studios 1.7 2.5 (32 %)
Corporate (27.1 ) (25.0 ) (8 %)
Total operating income $ 7.9 $ 13.4 (41 %)
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Our net revenues for the current quarter increased slightly over the prior year quarter as revenue increases in home video in our Consumer Products group was offset by lower revenue associated with WWE Studios. Our operating income in the current quarter was adversely affected by increased costs associated with our pay-per-view events and television production. The following analysis provides a discussion for each of our operating segments.
September 30, September 30, better
Live and Televised Entertainment Revenues 2008 2007 (worse)
Live events $ 20.3 $ 20.1 1 %
Number of North American events 77 63 22 %
Average North American attendance 5,300 5,500 (4 %)
Average North American ticket price (dollars) $ 38.21 $ 38.92 (2 %)
Number of international events 12 15 (20 %)
Average international attendance 6,600 9,200 (28 %)
Average international ticket price (dollars) $ 80.68 $ 77.75 4 %
Venue merchandise $ 4.2 $ 3.9 8 %
Domestic per capita spending (dollars) $ 9.83 $ 10.15 (3 %)
Pay-per-view $ 16.4 $ 18.8 (13 %)
Number of pay-per-view events 3 3 -
Number of buys from pay-per-view events 926,000 1,063,000 (13 %)
Average revenue per buy (dollars) $ 17.17 $ 17.33 (1 %)
Domestic retail price (dollars) $ 39.95 $ 39.95 -
WWE 24/7 Classics On Demand $ 1.4 $ 1.4 -
Television rights fees
Domestic $ 15.4 $ 14.8 4 %
International 9.0 8.0 13 %
Total television rights fees $ 24.4 $ 22.8 7 %
Television advertising $ 2.0 $ 1.6 25 %
Total $ 68.7 $ 68.6 -
Ratings
Average weekly household ratings for Raw 3.1 3.7
Average weekly household ratings for SmackDown 2.4 2.6
Average weekly household ratings for ECW 1.4 1.4
September 30, September 30, better
Cost of Revenues-Live and Televised Entertainment 2008 2007 (worse)
Live events $ 15.6 $ 14.7 (6 %)
Venue merchandise 2.7 2.5 (8 %)
Pay-per-view 8.1 6.7 (21 %)
24/7 0.3 0.4 25 %
Advertising 0.2 0.4 50 %
Television 18.1 16.6 (9 %)
Other 2.0 1.0 (100 %)
Total $ 47.0 $ 42.3 (11 %)
Profit contribution margin 32% 38%
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Venue merchandise revenues reflect higher total attendance at our live events, offset by 3% lower per capita spending at our North American shows. The profit contribution margin decreased by 2% to 35% in the current quarter, reflecting the higher proportion of domestic sales, which have higher associated cost of revenues.
Pay-per-view revenues decreased by 13% in the current quarter, based on the lower number of total buys generated by our events in the quarter. Two of the events in the quarter, The Great American Bash and SummerSlam, generated an aggregate of 93,000 fewer buys than those events in the prior year quarter. The results for the third event in the quarter, Unforgiven, were essentially flat to the prior year event. Pay-per-view costs of revenues increased in the current quarter, primarily due to higher production related costs, partially due to broadcasting in high definition.
WWE 24/7 Classics on Demand, our subscription based video-on-demand service, generated revenues that were comparable to the prior year quarter. Currently, WWE 24/7 is offered in approximately 80% of video-on-demand enabled homes in the United States.
The higher television rights fees reflect contractual increases in several international territories. The increase in television cost of revenues reflects higher production and staging costs partially related to our broadcasting in high definition.
The following chart reflects comparative revenues and certain drivers for selected businesses within our Consumer Products segment:
September 30, September 30, better
Consumer Products Revenues 2008 2007 (worse)
Licensing $ 10.6 $ 9.4 13 %
Magazine publishing $ 4.7 $ 3.9 21 %
Net units sold 1,435,500 1,176,500 22 %
Home video $ 11.0 $ 5.7 93 %
Gross DVD units shipped 724,386 541,921 34 %
Other $ 0.3 $ - -
Total $ 26.6 $ 19.0 40 %
September 30, September 30, better
Cost of Revenues-Consumer Products 2008 2007 (worse)
Licensing $ 2.6 $ 2.0 (30 %)
Magazine publishing 3.5 2.8 (25 %)
Home video 4.0 1.8 (122 %)
Other 0.1 0.3 67 %
Total $ 10.2 $ 6.9 (48 %)
Profit contribution margin 62 % 64 %
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Licensing revenues increased in part due to higher royalties earned on sales of video games and music in the current quarter. Music and video game based revenues increased by an aggregate of approximately 52% in the current quarter. The increase in the licensing cost of revenues was due to additional amounts paid to our talent based on the increase in associated revenues and higher international commissions.
Home video revenues reflect the shipment of over 100,000 DVD units of Nature Boy Ric Flair-The Definitive Collection, which represented our best selling title in the current quarter. In addition, we shipped approximately 75,000 DVD units of The Life & Times of Mr. Perfect in the quarter. The revenue variance to the prior year quarter is driven by the release schedule in the prior year quarter. There were no new releases in the prior year quarter, excluding pay-per-view- events, based on shift in timing of releases to the fourth quarter of 2007.
The following chart provides performance results and key drivers for our Digital Media segment:
September 30, September 30, better
Digital Media Revenues 2008 2007 (worse)
WWE.com $ 4.0 $ 4.6 (13 %)
WWEShop 3.9 3.1 26 %
Average revenues per order (dollars) $ 54.72 $ 53.58 2 %
Total $ 7.9 $ 7.7 3 %
September 30, September 30, better
Cost of Revenues-Digital Media 2008 2007 (worse)
WWE.com $ 2.6 $ 1.8 (44 %)
WWEShop 3.1 2.5 (24 %)
Total $ 5.7 $ 4.3 (33 %)
Profit contribution margin 29 % 44 %
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WWE.com revenues reflect a decrease in advertising sales on our website, as well as decreased sales of downloadable mobile content. WWE.com cost of revenues reflects additional streaming and content development expenses.
WWEShop revenues increased due to higher per order spending as compared to the prior year quarter, as well as a 22% increase in the number of orders processed.
WWE Studios (formerly WWE Films)
We participate in film revenues once the print and advertising costs incurred by our distributors have been recouped and the results have been reported to us. We released three feature films, See No Evil, The Marine and The Condemned, which were released in 2006, 2006 and 2007, respectively. We recorded revenue of $5.6 million in the current quarter related to our three theatrical releases as compared to $12.8 million in the prior year quarter. In the prior year quarter we recorded our first revenues related to our theatrical releases, which included the successful results of The Marine DVD. In the current quarter, we also recorded a $1.9 million charge related to revised expectations for our See No Evil film, reflecting higher than anticipated distribution costs. In addition, we expensed $0.6 million of previously capitalized script development costs for abandoned film projects. This was partially offset by better than anticipated results from our films The Marine and The Condemned. As of September 30, 2008, we have approximately $32.1 million in capitalized film development costs associated with these films and various other film projects that are in development.
Selling, General and Administrative
The following chart reflects the amounts and percent change of certain
significant overhead items:
September 30, September 30, better
2008 2007 (worse)
Staff related $ 13.7 $ 13.0 (5 %)
Legal, accounting and other professional 4.7 5.0 6 %
Stock compensation costs 2.2 2.2 -
Advertising and promotion 1.6 0.9 (78 %)
All other 9.1 7.8 (17 %)
Total SG&A $ 31.3 $ 28.9 (8 %)
SG&A as a percentage of net revenues 29 % 27 %
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The increase in staff related expenses and advertising and promotion expenses partially reflect our international expansion with the employment of additional local personnel and incremental marketing presence in locations such as Australia, Japan and Brazil. Legal, accounting and professional fees in the current quarter reflect a decreased level of case activity.
September 30, September 30, better
2008 2007 (worse)
Depreciation and amortization $ 3.3 $ 2.4 (38 %)
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The increase in depreciation and amortization expense reflects the initial depreciation charges associated with the assets purchased for our implementation of high definition broadcasting.
Investment income, net $ 1.3 $ 1.8 (28 %) Investment income, net declined due to lower invested balances during the current quarter. Other expense, net $ (1.4 ) $ (0.8 ) (75%) |
Other expense, net includes a mark-to-market adjustment for the revaluation of warrants held in certain licensees.
September 30, September 30,
2008 2007
Provision for income taxes $ 2.5 $ 5.7
Effective tax rate 32 % 40 %
In the current quarter the effective tax rate was 32% as compared to 40% in
the prior year quarter. This decrease reflects the impact in the prior year
quarter of approximately $0.9 million of realized investment losses which were
not deductible for tax purposes.
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Nine Months Ended September 30, 2008 compared to Nine Months Ended September 30,
2007
(Dollars in millions, except as noted)
Summary
September 30, September 30, better
Net Revenues 2008 2007 (worse)
Live and Televised Entertainment $ 255.3 $ 234.5 9 %
Consumer Products 102.4 82.8 24 %
Digital Media 23.9 22.9 4 %
WWE Studios 19.5 12.8 52 %
Total $ 401.1 $ 353.0 14 %
September 30, September 30, better
Cost of Revenues: 2008 2007 (worse)
Live and Televised Entertainment $ 174.7 $ 151.1 (16 %)
Consumer Products 39.9 31.4 (27 %)
Digital Media 14.9 13.7 (9 %)
WWE Studios 13.2 25.9 49 %
Total $ 242.7 $ 222.1 (9 %)
Profit contribution margin 39 % 37 %
September 30, September 30, better
Operating Income: 2008 2007 (worse)
Live and Televised Entertainment $ 69.1 $ 73.9 (6 %)
Consumer Products 57.2 47.2 21 %
Digital Media 4.7 3.9 21 %
WWE Studios 5.0 (14.3 ) 135 %
Corporate (89.0 ) (67.0 ) (33 %)
Total operating income $ 47.0 $ 43.7 8 %
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Our Live and Televised Entertainment segment revenues benefited from the strength of our Live Events, specifically in International markets during the current period. Our Consumer Products segment reflected a 22% increase in licensing based revenues, driven in part from strong sales of our video games, while our WWE Studios segment reflected results driven by the timing of our theatrical releases. Operating income in the prior year period was negatively impacted by the recording of an asset impairment for our feature film The Condemned for $15.7 million.
The following chart reflects comparative revenues and key drivers for each of the businesses within our Live and Televised Entertainment segment:
September 30, September 30, better
Live and Televised Entertainment Revenues 2008 2007 (worse)
Live events $ 80.2 $ 68.4 17 %
Number of North American events 195 184 6 %
Average North American attendance 6,300 6,400 (2 %)
Average North American ticket price (dollars) $ 41.51 $ 40.42 3 %
Number of international events 51 45 13 %
Average international attendance 8,500 7,500 13 %
Average international ticket price (dollars) $ 84.60 $ 75.54 12 %
Venue merchandise $ 15.0 $ 14.5 3 %
Domestic per capita spending (dollars) $ 10.64 $ 11.41 (7 %)
Pay-per-view $ 75.5 $ 74.4 1 %
Number of pay-per-view events 10 11 (9 %)
Number of buys from pay-per-view events 4,022,900 4,068,600 (1 %)
Average revenue per buy (dollars) $ 18.45 $ 17.65 5 %
Domestic retail price (dollars) $ 39.95 $ 39.95 -
Domestic retail price WrestleMania (dollars) $ 54.95 $ 49.95 10 %
WWE 24/7 Classic on Demand $ 4.8 $ 3.8 26 %
Television rights fees
Domestic $ 45.6 $ 44.3 3 %
International $ 27.5 $ 24.3 13 %
Total television rights fees $ 73.1 $ 68.6 7 %
Television advertising $ 5.3 $ 3.7 43 %
Other $ 1.4 $ 1.1 27 %
Total $ 255.3 $ 234.5 9 %
Ratings
Average weekly household ratings for Raw 3.4 3.9
Average weekly household ratings for SmackDown 2.5 2.7
Average weekly household ratings for ECW 1.3 1.5
September 30, September 30, better
Cost of Revenues-Live and Televised Entertainment 2008 2007 (worse)
Live events $ 56.2 $ 49.2 (14 %)
Venue merchandise 9.1 9.0 (1 %)
Pay-per-view 43.8 36.6 (20 %)
24/7 1.4 1.5 7 %
Television 57.6 49.4 (17 %)
Advertising 0.6 0.6 -
Other 6.0 4.8 (25 %)
Total $ 174.7 $ 151.1 (16 %)
Profit contribution margin 32 % 36 %
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Live events revenues increased primarily as a result of the 13% increase in International average attendance and a 12% increase in the average ticket price at these events. Included in the fifty-one international events in the current period were fourteen events constructed as buy-out deals with local promoters that provided us with guaranteed revenues and limited the potential risk of performing these events in emerging markets. In the prior year, eighteen of the international events performed were constructed as buy-out deals. The overall profit contribution margin for our live events business increased 2% to 30% in the current period as compared to the prior year.
Venue merchandise revenues reflect higher total attendance at our North American live events based on the number of events, partially offset by 7% lower per capita spending at our North American shows. The profit contribution margin increased by 2% to 39% in the current quarter, reflecting lower freight and building related costs.