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| WWE > SEC Filings for WWE > Form 10-Q on 8-May-2009 | All Recent SEC Filings |
8-May-2009
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 sales of various broadband and mobile content.
WWE Studios
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.
Results of Operations
Three Months Ended March 31, 2009 compared to Three Months Ended March 31, 2008
(Dollars in millions, except as noted)
Summary
March 31, March 31, better
Net Revenues 2009 2008 (worse)
Live and Televised Entertainment $ 64.1 $ 99.8 (36 %)
Consumer Products 33.1 43.4 (24 %)
Digital Media 6.9 8.1 (15 %)
WWE Studios 3.7 11.3 (67 %)
Total $ 107.8 $ 162.6 (34 %)
March 31, March 31, better
Cost of Revenues: 2009 2008 (worse)
Live and Televised Entertainment $ 38.3 $ 70.0 45 %
Consumer Products 12.2 15.8 23 %
Digital Media 4.3 4.7 9 %
WWE Studios 1.6 9.5 83 %
Total $ 56.4 $ 100.0 44 %
Profit contribution margin 48 % 38 %
March 31, March 31, better
Operating Income: 2009 2008 (worse)
Live and Televised Entertainment $ 21.4 $ 26.0 (18 %)
Consumer Products 19.5 25.5 (24 %)
Digital Media 1.1 2.0 (45 %)
WWE Studios 1.8 1.5 20 %
Corporate (27.1 ) (27.9 ) 3 %
Total operating income $ 16.7 $ 27.1 (38 %)
Net income $ 10.3 $ 19.5 (47 %)
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Our comparative results were significantly impacted by the timing of our annual WrestleMania pay-per-view event. In 2009, WrestleMania XXV occurred on April 5th and will consequently be included in our second quarter financial results. In 2008, WrestleMania XXIV occurred on March 31, 2008 and was included in our first quarter financial results. WrestleMania XXIV contributed approximately $31.3 million of revenues and $7.1 million of profit contribution ($4.6 million, net of tax) to our results for the first quarter of 2008.
Our Live and Televised Entertainment segment revenues decreased primarily due to the $31.3 million timing difference for WrestleMania discussed previously. Our Consumer Products segment reflected a 25% decrease in licensing based revenues, primarily from lower royalties generated by our video games. In addition, home video revenue decreased by 35%, reflecting two fewer new releases in the current quarter as well as a decline in catalog titles as compared to the prior year quarter. The decrease in revenues for our Digital Media segment reflects an 18% decline in web advertising revenues and a 14% decrease in WWE Shop merchandise sales. WWE Studios revenue reflects amounts earned from three of our feature films, "The Marine", "See No Evil" and "The Condemned", which were released in 2006, 2006 and 2007, respectively. We did not release a feature film in 2008.
March 31, March 31, better
Live and Televised Entertainment Revenues 2009 2008 (worse)
Live events $ 18.0 $ 24.6 (27 %)
Number of North American events 83 66 26 %
Average North American attendance 6,100 7,200 (15 %)
Average North American ticket price (dollars) $ 33.54 $ 45.39 (26 %)
Number of international events 4 8 (50 %)
Average international attendance 9,300 9,000 3 %
Average international ticket price (dollars) N/A $ 95.98 N/A
Venue merchandise $ 4.6 $ 5.6 (18 %)
Domestic per capita spending (dollars) $ 9.29 $ 11.20 (17 %)
Pay-per-view $ 13.6 $ 41.2 (67 %)
Number of pay-per-view events 2 3 (33 %)
Number of buys from pay-per-view events 818,400 2,033,300 (60 %)
Average revenue per buy (dollars) $ 15.75 $ 20.02 (21 %)
Domestic retail price WrestleMania (dollars) N/A $ 54.95 N/A
Domestic retail price (dollars) $ 39.95 $ 39.95 -
Television rights fees $ 24.9 $ 24.0 4 %
Domestic $ 15.6 $ 15.0 4 %
International $ 9.3 $ 9.0 3 %
Television advertising $ 1.4 $ 1.4 -
WWE 24/7 Classics on Demand $ 1.5 $ 1.6 (6 %)
Other $ 0.1 $ 1.4 N/A
Total live and televised entertainment $ 64.1 $ 99.8 (36 %)
Ratings
Average weekly household ratings for Raw 3.8 3.7 3 %
Average weekly household ratings for SmackDown* 2.2 2.8 (21 %)
Average weekly household ratings for ECW 1.4 1.3 8 %
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* Friday Night SmackDown moved from the CW Network to MyNetworkTV in October 2008.
March 31, March 31, better
Cost of Revenues-Live and Televised Entertainment 2009 2008 (worse)
Live events $ 12.3 $ 15.3 20 %
Venue merchandise 2.9 3.7 22 %
Pay-per-view 5.0 28.0 82 %
Television 16.6 19.5 15 %
WWE 24/7 Classics on Demand 0.3 0.5 40 %
Other 1.2 3.0 60 %
Total $ 38.3 $ 70.0 45 %
Profit contribution margin 40 % 30 %
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Venue merchandise revenues decreased 18% from the prior year quarter primarily due to a 17% decline in per capita spending by our fans. In the prior year quarter, revenues from our WrestleMania event contributed approximately $1.4 million, or 25%, of the quarterly venue merchandise revenue. The profit contribution margin increased from 34% to 38% in the current quarter due to the mix of products sold at venues.
Pay-per-view revenues decreased $27.7 million in the current quarter which reflects the impact of WrestleMania in the prior year quarter. WrestleMania XXIV generated approximately 1.1 million buys in the prior year quarter, or approximately $23.8 million in pay-per-view related revenues. Pay-per-view buys for the two events that occurred in both 2009 and 2008 decreased approximately 16% in the current quarter. Pay-per-view profit contribution margin was 63% for the current quarter, as compared to 32% in the prior year quarter. In the prior year, pay-per-view costs of revenues reflected significant production costs for WrestleMania XXIV, as it was performed in an outdoor stadium, the Citrus Bowl in Orlando, Florida.
The increase in television rights fees reflects rate increases internationally and additional rights fees for special domestic cable telecasts. The prior year quarter included significant costs for the production of telecasts in high-definition.
The following chart reflects comparative revenues and certain drivers for selected businesses within our Consumer Products segment:
March 31, March 31, better
Consumer Products Revenues 2009 2008 (worse)
Licensing $ 19.8 $ 26.2 (24 %)
Magazine publishing $ 3.5 $ 2.9 21 %
Net units sold 1,066,400 1,127,400 (5 %)
Home video $ 9.2 $ 14.0 (34 %)
Gross DVD units shipped 911,000 1,179,200 (23 %)
Other $ 0.6 $ 0.3 100 %
Total $ 33.1 $ 43.4 (24 %)
March 31, March 31, better
Cost of Revenues-Consumer Products 2009 2008 (worse)
Licensing $ 5.1 $ 6.5 22 %
Magazine publishing 2.7 2.7 -
Home video 3.8 6.4 41 %
Other 0.6 0.2 (200 %)
Total $ 12.2 $ 15.8 23 %
Profit contribution margin 63 % 64 %
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Magazine publishing revenues increased due to the addition of our WWE Kids magazine and better performance of our magazine specials, as compared to the prior year quarter. We published three magazines and one magazine special in both the current quarter and prior year quarter. We also published three issues of our WWE Kids magazine in the current year quarter. WWE Kids magazine was initially launched in April 2008. Magazine publishing cost of revenues remained consistent from the prior year quarter.
Home video revenues decreased by 35% in the current quarter, due to the release of two fewer titles in addition to weaker performance of titles of our pay-per-view events. Home video cost of revenues reflects a decrease in expenses associated with distribution and duplication as well as lower talent royalties for our home video products. This decrease in expenses led to an increase in the profit contribution margin to 58% in the current period as compared to 54% in the prior year quarter.
The following chart provides performance results and certain drivers for our Digital Media segment:
March 31, March 31, better
Digital Media Revenues 2009 2008 (worse)
WWE.com $ 3.9 $ 4.5 (13 %)
WWEShop 3.0 3.5 (14 %)
Average revenues per order (dollars) $ 49.63 $ 51.17 (3 %)
Other - 0.1 -
Total $ 6.9 $ 8.1 (15 %)
March 31, March 31, better
Cost of Revenues-Digital Media 2009 2008 (worse)
WWE.com $ 2.2 $ 2.1 (5 %)
WWEShop 2.1 2.4 13 %
Other - 0.2 -
Total $ 4.3 $ 4.7 9 %
Profit contribution margin 38 % 42 %
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WWE.com revenues decreased primarily due to less advertising sold on our website. Web-based advertising revenues were $2.4 million as compared to $2.9 million in the prior year quarter, reflecting a decline in premium ads placed on our websites. The slight increase in WWE.com cost of revenues reflects additional support costs to operate our various web-based activities.
WWEShop revenues declined due in part to a 12% decline in the number of orders processed to approximately 60,000 in the current quarter. In addition, the average amount spent by customers per order declined by 3% to $49.63.
WWE Studios
We recorded revenue of $3.7 million in the current quarter related to our three theatrical releases "The Marine", "See No Evil" and "The Condemned", as compared to $11.3 million in the prior year quarter. During the current quarter we released our fourth feature film, "12 Rounds" as well as one Direct-to-DVD film, "Behind Enemy Lines: Colombia". "12 Rounds" generated approximately $11.8 million in gross domestic box office receipts through May 3, 2009. 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.
Selling, General and Administrative
The following chart reflects the amounts and percent change of certain
significant overhead items:
March 31, March 31, better
2009 2008 (worse)
Staff related $ 16.0 $ 13.6 (18% )
Legal, accounting and other professional 3.9 3.9 -
Stock compensation costs 1.1 2.8 61%
Advertising and promotion 1.3 3.2 59%
All other 8.6 9.5 9%
Total SG&A $ 30.9 $ 33.0 6%
SG&A as a percentage of net revenues 29 % 20 %
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The increase in staff related expenses reflects the impact of our corporate restructuring of approximately $2.2 million in severance related costs. Stock compensation costs in the prior year quarter reflect additional expense based on the Company exceeding its EBITDA target and the subsequent issuance of additional stock. Stock compensation costs in the current quarter include a positive adjustment related to the rate of forfeitures of previously granted stock units. Advertising and promotion costs in the prior year quarter reflect additional advertising branding campaigns in conjunction with WrestleMania XXIV.
March 31, March 31, better
2009 2008 (worse)
Depreciation and amortization $ 3.8 $ 2.5 (52 %)
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The increase reflects the higher asset balance related to our high definition broadcasting equipment.
Investment income, net $ 0.6 $ 1.7 (65 %)
The decrease reflects lower interest rates on investments and lower average balances.
Other expense, net $ (1.3 ) $ (0.7 ) (86 %)
Other expense, net includes a mark-to-market adjustment for the revaluation of warrants held in certain licensees.
March 31, March 31,
2009 2008
Provision for income taxes $ 5.6 $ 8.6 35%
Effective tax rate 35 % 30 %
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The effective tax rate in the prior year quarter reflects the reversals of tax reserves due to the expiration of the statute of limitations related to certain previously unrecognized tax benefits.
Cash flows from operating activities for the three months ended March 31, 2009 and March 31, 2008 were $47.3 million and $15.0 million, respectively. Working capital, consisting of current assets less current liabilities, was $216.6 million as of March 31, 2009 and $221.7 million as of December 31, 2008.
Cash flows used in investing activities were $11.7 million for three months ended March 31, 2009 and cash flows provided by investing activities were $45.4 million for the three months ended March 31, 2008. Capital expenditures for the three months ended March 31, 2009 were $1.5 million as compared to $9.6 million for the three months ended March 31, 2008. Capital expenditures for the remainder of 2009 are estimated to range between $5.0 million and $6.0 million, primarily reflecting additional purchases of broadcasting equipment and building related improvements.
Our investment policy is designed to preserve capital and minimize interest rate, credit and market risk. In February 2008, we started to experience difficulty in selling our ARS due to multiple failures of the auction mechanism that provides liquidity to these investments. All of our ARS are collateralized by student loan portfolios, substantially all of which are guaranteed by the United States Government. We anticipate that the securities for which the auctions have failed will continue to accrue interest and pay interest when due; to-date, none of the ARS in which we are invested have failed to make an interest payment when due. Our ARS will continue to be auctioned every 35 days until the auctions succeed, the issuer redeems the securities or they mature (the stated maturities of the securities are greater than 20 years). As we maintain a strong liquidity position, we currently believe that we have the ability to hold our ARS until one of the aforementioned remedies occur.
As of March 31, 2009, we have recorded a cumulative adjustment of approximately $2.6 million to reduce the fair value of our investment in ARS, which has been reflected as part of accumulated other comprehensive income in our Consolidated Statement of Stockholders' Equity and Comprehensive Income. We do not believe that the fair market value adjustment is other-than-temporary at this time due to the high underlying creditworthiness of the issuer (including the backing of the loans included in the collateral package by the United States Government) and our current intent to hold the ARS until the illiquidity in the ARS market is resolved. The fair value of the ARS was estimated through discounted cash flow models, which consider, among other things, the timing of expected future successful auctions, collateralization of underlying security investments and the risk of default by the issuer. We will continue to assess the carrying value of our ARS on each reporting date, based on the facts and circumstances surrounding our liquidity needs and developments in the ARS markets.
Cash flows used in financing activities were $20.3 million and $15.9 million for the three months ended March 31, 2009 and March 31, 2008, respectively. Total dividend payments on all Class A and Class B common shares in the three-month period ended March 31, 2009 were approximately $20.5 million as compared to $20.2 million in the prior year three-month period ended March 31, 2008. Assuming the continuation of these cash dividend rates of $0.36 and $0.24 per share and the same stock ownership, the estimated amount of dividends to be paid during the remainder of 2009 is estimated to be approximately $61.5 million.
Contractual Obligations
In addition to long-term debt, we have entered into various other contracts under which we are required to make guaranteed payments, including:
º Various operating leases for office space and equipment.
º Employment contract with Vincent K. McMahon, which runs through October 2010, with annual renewals thereafter if not terminated by us or Mr. McMahon, as well as a talent contract with Mr. McMahon that is coterminous with his employment contract. Mr. McMahon waives all of his compensation under theses agreements, except for a salary of $850,000 per year.
º Other employment contracts which are generally for one to three-year terms.
º Service contracts with certain of our independent contractors, including our talent, which are generally for one to four-year terms.
Our aggregate minimum payment obligations under these contracts as of March 31, 2009 were as follows:
Payments due by period
($ in millions)
After
2009 2010 - 2011 2012 - 2013 2013 Total
Long-term debt (including interest expense) $ 1.0 $ 2.7 $ 1.7 $ - $ 5.4
Operating leases 1.6 2.9 1.5 0.9 6.9
Talent, employment agreements and other
commitments 16.2 25.1 8.1 11.0 60.4
Total commitments $ 18.8 $ 30.7 $ 11.3 $ 11.9 $ 72.7
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We believe that cash generated from operations and our existing cash and short-term investment securities will be sufficient to meet our cash needs over the next twelve months for working capital, capital expenditures and the payment of quarterly dividends.
Application of Critical Accounting Policies
There have been no additional changes to our accounting policies that were
previously disclosed in our Report on Form 10-K for our fiscal year ended
December 31, 2008 or in the methodology used in formulating these significant
judgments and estimates that affect the application of these policies. Amounts
included in our consolidated balance sheets in accounts that we have identified
as being subject to significant judgments and estimates were as follows:
As of
March 31, 2009 December 31, 2008
Pay-per-view accounts receivable $11.5 million $11.9 million
Home video reserve for returns $6.4 million $6.3 million
Publishing newsstand reserve for returns $4.3 million $6.3 million
Allowance for doubtful accounts $5.1 million $4.7 million
Inventory obsolescence reserve $9.3 million $9.0 million
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Recent Accounting Pronouncements
There are no other accounting standards or interpretations that have been issued, but which we have not yet adopted, that we believe will have a material impact on our financial statements.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain statements that are forward-looking and are not based on historical . . .
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