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| WWE > SEC Filings for WWE > Form 10-K on 2-Mar-2009 | All Recent SEC Filings |
2-Mar-2009
Annual Report
You should read the following discussion in conjunction with the audited consolidated financial statements and related notes included elsewhere in this Form 10-K.
Background
The following analysis outlines all material activities contained within each of our four 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 the 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 sales of 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. 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.
We provide updated information on the key drivers of our business including live event attendance, pay-per-view buys, home video shipments, website traffic, and online merchandise sales on a monthly basis on our corporate website http://corporate.wwe.com. Such information is not incorporated herein by reference.
Results of Operations
Year Ended December 31, 2008 compared to Year Ended December 31, 2007
(dollars in millions)
Summary
Net Revenues 2008 2007
Live and Televised Entertainment $ 331.5 $ 316.8
Consumer Products 135.7 118.1
Digital Media 34.8 34.8
WWE Studios 24.5 16.0
Total $ 526.5 $ 485.7
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Cost of Revenues 2008 2007
Live and Televised Entertainment $ 221.2 $ 202.8
Consumer Products 52.1 45.6
Digital Media 22.9 21.3
WWE Studios 15.6 29.1
Total $ 311.8 $ 298.8
Profit contribution margin 41 % 38 %
Operating Income 2008 2007
Live and Televised Entertainment $ 92.4 $ 100.2
Consumer Products 76.5 68.6
Digital Media 6.2 6.3
WWE Studios 7.2 (14.8 )
Corporate (112.0 ) (91.9 )
Total operating income $ 70.3 $ 68.4
Income from continuing operations $ 45.4 $ 52.1
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Our Live and Televised Entertainment segment benefited from strong performances both at international and North American live events as well as higher television rights fees in both domestic and international markets. Our licensing based revenue accounted for approximately 45% of our Consumer Products segment in 2008 as compared to 40% in 2007, primarily due to amounts earned as part of a license with our book publisher. Digital Media revenues were essentially unchanged from the prior year. Revenues related to WWE Studios accounted for $24.5 million, reflecting a full year of revenue, compared with the $16.0 million recorded in the prior year which revenues began in the third quarter of 2007.
Revenues derived from international sources represented 26% and 25% of total net revenues in 2008 and 2007, respectively.
Live and Televised Entertainment The following chart provides performance results and key drivers for our Live and Televised Entertainment segment: Revenues-Live and Televised Entertainment 2008 2007 Live events (dollars in millions) $ 105.7 $ 99.3 Number of North American events 242 233 Average North American attendance 6,400 6,600 Average North American ticket price (dollars) $ 40.98 $ 40.47 Number of international events 77 75 Average international attendance 8,500 7,700 Average international ticket price (dollars) $ 78.96 $ 79.60 Venue merchandise (dollars in millions) $ 18.5 $ 19.1 Domestic per capita spending (dollars) $ 10.35 $ 10.75 Pay-per-view (dollars in millions) $ 91.4 $ 94.3 Number of pay-per-view events 14 15 Number of buys of pay-per-views 5,034,400 5,200,800 Average revenue per buy (dollars) $ 17.76 $ 17.43 Domestic retail price, excluding WrestleMania (dollars) $ 39.95 $ 39.95 Domestic retail price WrestleMania (dollars) $ 54.95 $ 49.95 Television rights fees (dollars in millions) Domestic $ 63.5 $ 59.6 International $ 37.2 $ 32.8 Television advertising (dollars in millions) $ 7.4 $ 5.9 WWE 24/7 Classics on Demand (dollars in millions) $ 6.3 $ 4.9 Other (dollars in millions) $ 1.5 $ 0.9 Total (dollars in millions) $ 331.5 $ 316.8 Ratings: Average weekly household ratings for Raw 3.4 3.7 Average weekly household ratings for SmackDown 2.4 2.7 Average weekly household ratings for ECW 1.3 1.5 |
Cost of Revenues-Live and Televised Entertainment 2008 2007
Live events $ 74.3 $ 71.2
Venue merchandise 11.2 11.4
Pay-per-view 49.8 43.6
Television 75.8 66.5
Television advertising 0.8 0.9
WWE 24/7 Classics on Demand 1.8 2.1
Other 7.5 7.1
Total $ 221.2 $ 202.8
Profit contribution margin 33 % 36 %
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Live events revenue reflects approximately $64.0 million for North American events and $41.7 million for international events in 2008 as compared to $61.9 million for North American events and $37.4 million for international events in 2007. During 2008, average attendance at our North American events was approximately 6,400 while average attendance at our international events was approximately 8,500. During 2007, North American average attendance was approximately 6,600 and average international attendance was approximately 7,700. Live events profit contribution margin was 30% in 2008 as compared to 28% in 2007.
Venue merchandise revenues in 2008 were impacted by the slight decline in North American average attendance and per capita spending dollars. Venue merchandise profit contribution margin was 39% in 2008 as compared to 40% in 2007.
Pay-per-view revenue reflects approximately 5.0 million buys in 2008 as compared to 5.2 million buys in 2007. In 2008, our premier annual pay-per-view event, WrestleMania XXIV, generated approximately 1.1 million buys as compared to 1.2 million buys for WrestleMania XXIII. Domestic buys, which carry a higher price per buy, represented 66% of total buys in 2008 and 2007. The pay-per-view profit contribution margin was 46% in 2008 as compared to 54% in 2007, reflecting additional spending in guest talent pay, promotion and consumer advertising in support of WrestleMania XXIV.
The increase in domestic and international television rights fees reflects our new agreement with MyNetworkTV as well as contractual increases in several territories. The increase in television cost of revenues reflects higher production and staging costs incurred related to our broadcasting in high definition.
Advertising revenues include sales of advertising in our Canadian television programs and sponsorships. Advertising cost of revenues reflects costs associated with the increased sponsorship related activities in the current year.
WWE 24/7 Classics On Demand, our subscription based video-on-demand service, generated higher revenues based on the expanded number of subscribers from the prior year. WWE 24/7 Classics On Demand is currently offered in approximately 80% of video-on-demand enabled homes in the United States.
Consumer Products
The following chart provides performance results and key drivers for our
Consumer Products segment:
Revenues-Consumer Products 2008 2007
Licensing $ 60.5 $ 47.1
Magazine publishing $ 15.4 $ 16.5
Net units sold 4,702,800 4,858,400
Home video $ 58.5 $ 53.7
Gross DVD units 4,053,719 4,034,167
Other $ 1.3 $ 0.8
Total $ 135.7 $ 118.1
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Cost of Revenues-Consumer Products 2008 2007
Licensing $ 13.6 $ 11.9
Magazine publishing $ 13.3 $ 11.4
Home video $ 24.2 $ 21.6
Other $ 1.0 $ 0.7
Total $ 52.1 $ 45.6
Profit contribution margin 62 % 61 %
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Licensing revenues in 2008 reflect approximately $12.8 million in the toy category, $25.3 million in the videogame category and $9.3 million related to apparel and novelties. In 2007, revenues reflected approximately $14.3 million in the toy category, $18.3 million in the videogame category and $9.4 million related to apparel and novelties. 2008 reflects revenues from the videogame title "SmackDown vs. Raw 2008" released in seven platforms versus four platforms for the prior release in this series. Licensing revenues related to books were approximately $6.4 million higher in the current year, primarily due to amounts earned as part of a license with our book publisher. Licensing revenue is dependent upon the release schedule of products and is affected by the timing of when licensees report results to us. Licensing cost of revenue consists primarily of talent royalties and agent commissions paid to our licensing agents. The licensing profit contribution margin was 78% in 2008 as compared to 75% in 2007.
Magazine publishing revenues declined in the current year due to lower newsstand sell-through rates as we published twenty-six issues in 2008 as compared to twenty-one issues in 2007. In April 2008, we began publishing a new magazine titled WWE Kids, a bi-monthly publication for 6-14 year old WWE fans, which generated approximately $0.9 million in revenue. The magazine publishing profit contribution margin was 14% in 2008 as compared to 31% in 2007 as the profit margin was adversely impacted by the lower sell-thru rates and higher publication costs.
Home video revenue reflects the sale of approximately 4.1 million gross DVD units in 2008 as compared to 4.0 million gross units in 2007. Included in the successful titles released in 2008 was WrestleMania XXIV, which shipped approximately 326,000 gross units. The increase in home video costs is due to higher distribution fees and advertising. The home video profit contribution margin was 59% in 2008 as compared to 60% in 2007, reflecting the aforementioned cost increases.
Digital Media
The following chart provides performance results and key drivers for our
Digital Media segment (dollars in millions, except average revenues per order):
Revenues-Digital Media 2008 2007
WWE.com $ 16.3 $ 16.2
WWEShop $ 18.5 $ 18.6
Total $ 34.8 $ 34.8
Average revenues per order (dollars) $ 54.77 $ 54.94
Cost of Revenues-Digital Media 2008 2007
WWE.com $ 8.8 $ 7.6
WWEShop $ 14.1 $ 13.7
Total $ 22.9 $ 21.3
Profit contribution margin 34 % 39 %
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WWE.com revenue in 2008 reflects additional web advertising and wireless content. Web-based advertising accounted for approximately $10.6 million in revenues as compared to $10.4 million in 2007. The WWE.com profit contribution margin was 46% in 2008 as compared 53% in 2007, reflecting higher costs associated with web content.
WWEShop revenue in 2008 reflects approximately 329,200 customer orders, essentially flat to the prior year. The average customer spend, $54.77 per order, was essentially flat to the prior year as well. The WWEShop profit contribution margin was 24% in 2008 as compared to 26% in the 2007, partially reflecting an increase in material costs.
WWE Studios The following chart provides performance results and key drivers for our WWE Studios segment (dollars in millions, except average revenues per order): Revenues-WWE Studios 2008 2007 WWE Studios $ 24.5 $ 16.0 Total $ 24.5 $ 16.0 Cost of Revenues-WWE Studios 2008 2007 WWE Studios $ 15.6 $ 29.1 Total $ 15.6 $ 29.1 Profit contribution margin 36 % (82 %) |
WWE participates in revenues associated with our film projects when the distribution and advertising costs incurred by our distributors have been recouped and the results have been reported to us. During 2008, revenues from our WWE Studios segment was $24.5 million, relating to our three feature films The Marine, See No Evil and The Condemned. During 2008 we expensed $15.6 million of feature film production assets, including a $1.9 million film asset impairment charge related to the performance of See No Evil and approximately $0.9 million of development costs for abandoned projects.
During 2007 we recorded $16.0 million in revenue and expensed approximately $29.1 million of feature film production assets, including a $15.7 million film asset impairment charge related to the performance of our theatrical release, The Condemned, and approximately $0.4 million of development costs for abandoned projects.
Expenses
The following chart reflects the amounts of certain significant overhead
items (dollars in millions):
Selling, General & Administrative Expenses 2008 2007
Staff related $ 55.2 $ 50.3
Legal, accounting and other professional 16.6 14.0
Stock compensation 8.0 7.8
Advertising and promotion 11.6 5.4
Bad debt 2.5 0.1
All other 37.4 31.5
Total SG&A $ 131.3 $ 109.1
SG&A as a percentage of net revenues 25 % 23 %
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Staff related expenses increased in the current year due in part to the continued expansion of our Digital Media content staff and advertising sales force and additional personnel related to our international expansion. The increase in legal, accounting and other professional fees reflected additional litigation based expense based on case activity. Stock compensation expense includes amortization of restricted stock unit and performance stock unit grants issued to employees. Advertising and promotion costs in 2008 include $3.5 million associated with our McMahon's Million Dollar Mania™ brand awareness campaign. WWE was reimbursed $2.0 million, net of tax, for the prize money associated with this event by the Chairman of WWE, Vincent K. McMahon. Additional advertising and promotion costs of approximately $1.2 million were also incurred in support of our new international offices. Bad debt expense in the current year reflects an increase for specifically identified accounts due to difficulties encountered in our collection efforts.
2008 2007 Depreciation and amortization $ 13.1 $ 9.3
The increase in depreciation and amortization expense reflects the initial depreciation charges associated with the assets purchased for our implementation of high definition broadcasting.
2008 2007 Investment income $ 5.9 $ 9.1
2008 2007
Interest expense $ 0.4 $ 0.6
2008 2007
Other (expense) income, net $ (6.4 ) $ (0.5 )
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Other expense, net includes a mark-to-market adjustment for the revaluation of warrants held in licensees and realized losses on foreign currency transactions.
Provision for Income Taxes 2008 2007
Provision $ 23.9 $ 24.3
Effective tax rate 35 % 32 %
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The increase primarily represents tax benefits related to previously unrecognized tax benefits in the prior period, and less tax exempt investment income in the current period
Twelve Month Year Ended December 31, 2007 compared to Eight Month Transition Period Ended December 31, 2006 (dollars in millions)
Summary
Net Revenues 2007 T 2006
Live and Televised Entertainment $ 316.8 $ 183.0
Consumer Products 118.1 59.2
Digital Media 34.8 20.7
WWE Studios 16.0 -
Total $ 485.7 $ 262.9
Cost of Revenues 2007 T 2006
Live and Televised Entertainment $ 202.8 $ 114.9
Consumer Products 45.6 28.7
Digital Media 21.3 13.5
WWE Studios 29.1 -
Total $ 298.8 $ 157.1
Profit contribution margin 38 % 40 %
Operating Income 2007 T 2006
Live and Televised Entertainment $ 100.2 $ 57.0
Consumer Products 68.6 26.9
Digital Media 6.3 3.8
WWE Studios (14.8 ) (1.1 )
Corporate (91.9 ) (47.4 )
Total operating income $ 68.4 $ 39.2
Income from continuing operations $ 52.1 $ 31.6
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Revenues derived from international sources represented 25% and 23% of total net revenues in 2007 and T 2006, respectively.
Live and Televised Entertainment The following chart provides performance results and key drivers for our Live and Televised Entertainment segment: Revenues-Live and Televised Entertainment 2007 T 2006 Live events (dollars in millions) $ 99.3 $ 52.3 Number of North American events 233 212 Average North American attendance 6,600 4,860 Average North American ticket price (dollars) $ 40.47 $ 35.53 Number of international events 75 34 Average international attendance 7,700 8,290 Average international ticket price (dollars) $ 79.60 $ 68.47 Venue merchandise (dollars in millions) $ 19.1 $ 12.1 Domestic per capita spending (dollars) $ 10.75 $ 10.89 Pay-per-view (dollars in millions) $ 94.3 $ 53.4 Number of pay-per-view events 15 10 Number of buys from pay-per-view events 5,200,800 3,287,300 Average revenue per buy (dollars) $ 17.43 $ 15.46 Domestic retail price, excluding WrestleMania (dollars) $ 39.95 $ 39.95 WWE 24/7 Classics On Demand (dollars in millions) $ 4.9 $ 2.0 Advertising (dollars in millions) $ 5.9 $ 4.5 Sponsorship advertising $ 1.2 $ 0.5 Television rights fees (dollars in millions) Domestic $ 59.6 $ 38.0 International $ 32.8 $ 20.7 Other (dollars in millions) $ 0.9 - Total (dollars in millions) $ 316.8 $ 183.0 Ratings: Average weekly household ratings for Raw 3.7 3.9 Average weekly household ratings for SmackDown 2.7 2.4 Average weekly household ratings for ECW 1.5 1.9 Cost of Revenues-Live and Televised Entertainment 2007 T 2006 Live events $ 71.2 $ 40.9 Venue merchandise 11.4 8.1 Pay-per-view 43.6 19.3 WWE 24/7 Classics on Demand 2.1 - Advertising 0.9 (0.1 ) Television 66.5 40.4 Other 7.1 6.3 Total $ 202.8 $ 114.9 Profit contribution margin 36 % 37 % |
Venue merchandise revenues in 2007 were positively impacted by the increase in North American average attendance. Per capita spending dollars for venue sales were essentially flat. Venue merchandise profit contribution margin was 40% in 2007 as compared to 33% in the eight month transition period, reflecting lower cost of sales from the expiration of a consulting services agreement and reduced material costs.
Pay-per-view revenue reflects approximately 5.2 million buys in 2007 as compared to 3.3 million buys in the 2006 transition period. The average number . . .
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