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| WWE > SEC Filings for WWE > Form 10-Q on 6-Nov-2012 | All Recent SEC Filings |
6-Nov-2012
Quarterly Report
Consumer Products
• Revenues consist principally of the direct sales of WWE produced home
videos, magazine and royalties or license fees related to various WWE
themed products such as video games, toys and books.
Digital Media
• 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
• Revenues consist of receipts from the distribution of filmed entertainment.
Results of Operations
Three Months Ended September 30, 2012 compared to Three Months Ended
September 30, 2011
(Dollars in millions, except as noted)
Summary
Three Months Ended
September 30, September 30,
2012 2011 better (worse)
Net Revenues:
Live and Televised Entertainment $ 79.0 $ 78.1 1 %
Consumer Products 15.8 19.8 (20 )%
Digital Media 7.5 6.9 9 %
WWE Studios 1.9 3.7 (49 )%
Total 104.2 108.5 (4 )%
Profit Contribution:
Live and Televised Entertainment 32.0 33.5 (4 )%
Consumer Products 8.5 12.8 (34 )%
Digital Media 3.8 3.8 - %
WWE Studios (1.5 ) (6.1 ) 75 %
Total 42.8 44.0 (3 )%
Profit contribution margin 41 % 41 %
Selling, general and administrative expenses 32.5 24.5 (33 )%
Depreciation and amortization expense 5.3 3.6 (47 )%
Operating income 5.0 15.9 (69 )%
Investment income, net 0.6 0.5 20 %
Interest expense (0.4 ) (0.1 ) (300 )%
Other expense, net (0.2 ) (0.7 ) 71 %
Income before income taxes 5.0 15.6 (68 )%
Provision for income taxes 1.5 5.0 70 %
Net income $ 3.5 $ 10.6 (67 )%
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The comparability of our results for the current year quarter was impacted by
the inclusion of $2.1 million of operating expenses in the current year quarter
associated with our emerging content and distribution efforts, including a
potential network. In the prior year quarter, there were no such expenses.
Further, in the prior year quarter, we recorded an impairment charge of $5.1
million relating to three of our self-distribution feature films; there were no
such impairments in the current year quarter.
Our Live and Televised Entertainment segment revenues increased 1% primarily
due to a $0.9 million increase in revenues in our venue merchandise business and
a $0.5 million increase in revenues in our pay-per-view business. Our Consumer
Products segment experienced a 20% decrease in revenues driven by a $1.2 million
decline in multimedia game licensing revenues partially due to one fewer video
game release in the current year. Our Digital Media segment experienced a 9%
increase in revenues, primarily due to increased rights fees associated with the
licensing of original short-form content to YouTube. Our WWE Studios segment
experienced a $1.8 million decrease in revenue primarily due to the timing of
our film releases.
The following tables present the performance results and key drivers for our Live and Televised Entertainment segment:
Three Months Ended
Revenues- Live and Televised Entertainment September 30, September 30,
(dollars in millions except where noted) 2012 2011 better (worse)
Live events $ 22.8 $ 23.0 (1 )%
North America $ 17.0 $ 14.2 20 %
International $ 5.8 $ 8.8 (34 )%
Total live event attendance 426,200 424,600 - %
Number of North American events 70 64 9 %
Average North American attendance 5,200 4,900 6 %
Average North American ticket price (dollars) $ 42.73 $ 41.34 3 %
Number of international events 7 15 (53 )%
Average international attendance 8,400 7,200 17 %
Average international ticket price (dollars) $ 98.23 $ 80.08 23 %
Venue merchandise $ 4.5 $ 3.6 25 %
Domestic per capita spending (dollars) $ 10.28 $ 10.18 1 %
Pay-per-view $ 16.3 $ 15.8 3 %
Number of pay-per-view events 3 3 - %
Number of buys from pay-per-view events 789,000 758,000 4 %
Average revenue per buy (dollars) $ 20.57 $ 20.76 (1 )%
Domestic retail price WrestleMania (dollars) $ 54.95 $ 54.95 - %
Domestic retail price excluding WrestleMania
(dollars) $ 44.95 $ 44.95 - %
Television rights fees $ 34.0 $ 34.0 - %
Domestic $ 21.3 $ 19.9 7 %
International $ 12.7 $ 14.1 (10 )%
Other $ 1.4 $ 1.7 (18 )%
Total Live and Televised Entertainment $ 79.0 $ 78.1 1 %
Ratings
Average weekly household ratings for RAW 3.4 3.4 - %
Average weekly household ratings
for SmackDown 2.2 2.1 5 %
Three Months Ended
Profit Contribution-Live and Televised September 30, September 30,
Entertainment (dollars in millions) 2012 2011 better (worse)
Live events $ 5.8 $ 5.9 (2 )%
Venue merchandise 1.8 1.4 29 %
Pay-per-view 10.0 10.2 (2 )%
Television rights fees 15.7 16.6 (5 )%
Other (1.3 ) (0.6 ) (117 )%
Total $ 32.0 $ 33.5 (4 )%
Profit contribution margin 41 % 43 %
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Overall live events revenues remained relatively flat in the current year
quarter as compared to the prior year quarter. Revenues from our North America
live events business increased $2.8 million or 20% reflecting increases in the
number of events, average attendance and average ticket prices. Our
international live events business decreased $3.0 million primarily the result
of WWE holding half the number of events it did in the comparable prior year
period. This impact however was mitigated by a 17% increase in average
attendance and a 23% increase in average ticket prices. Cost of revenue for live
events decreased by $0.1 million from the prior year quarter. The live events
profit contribution margin was 25% in the current year quarter compared to 26%
in the prior year quarter.
Venue merchandise revenues increased by $0.9 million in the current year
quarter as compared to the prior year quarter. This 25% increase was primarily
due to a 26% increase in total domestic attendance and a 1% increase in domestic
per capita merchandise sales to $10.28 in the current year quarter. Cost of
revenue for venue merchandise increased by $0.5 million from the prior year
quarter, driven by the increased sales. The venue merchandise profit
contribution margin increased to 40% from 39% in the prior year quarter.
Pay-per-view revenues increased by $0.5 million in the current year quarter
as compared to the prior year quarter, as total buys increased 4%. The growth in
buys for our current period events was predominantly due to our SummerSlam
pay-per-view. Buys for that event increased 21% from the prior year quarter,
demonstrating its creative strength and audience appeal. The prior year was
positively impacted by buys for WrestleMania, a prior period event, coming in
greater than our estimate. Cost of revenues for pay-per-view increased by $0.7
million from the prior year quarter, primarily driven by higher promotion and
advertising related expenses. The pay-per-view profit contribution margin
decreased to 61% from 65% in the prior year quarter.
Television rights fees remained flat at $34.0 million in both the current and
prior year comparable quarter. Domestically, television rights fees increased by
$1.4 million, primarily due to incremental license fees from the production and
distribution of new programs and contractual increases from our existing
programs partially offset by the reduction in production service fees and due to
the mix of integrated sponsorship asset utilization. Internationally, our
television rights fees decreased by $1.4 million primarily due the expiration of
a licensing agreement. Television rights cost of revenues increased by $0.9
million as compared to the prior year quarter due to higher production costs.
The television rights fee profit contribution margin decreased to 46% from 49%
in the prior year quarter.
The following tables present the performance results and key drivers for our
Consumer Products segment (dollars in millions):
Three Months Ended
September 30, September 30,
Revenues-Consumer Products 2012 2011 better (worse)
Licensing $ 7.1 $ 9.0 (21 )%
Magazine publishing $ 1.6 $ 1.9 (16 )%
Net units sold 533,300 593,600 (10 )%
Home video $ 6.4 $ 8.3 (23 )%
Gross units shipped 933,100 686,000 36 %
Other $ 0.7 $ 0.6 17 %
Total $ 15.8 $ 19.8 (20 )%
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Three Months Ended
September 30, September 30,
Profit Contribution-Consumer Products 2012 2011 better(worse)
Licensing $ 5.3 $ 6.8 (22 )%
Magazine publishing 0.2 0.2 - %
Home video 2.8 5.7 (51 )%
Other 0.2 0.1 100 %
Total $ 8.5 $ 12.8 (34 )%
Profit contribution margin 54 % 65 %
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Licensing revenues decreased by $1.9 million in the current year quarter as
compared to the prior year quarter, as a result of reduced sales of video games
and novelty products. Royalties earned from the sale of video games declined by
$1.2 million due primarily to one fewer release, WWE All Stars, in the current
year period. WWE All Stars was released in March 2011 and was not refreshed in
the current year. Shipments of our franchise video game, WWE'12, also declined
5% in the current year quarter to 127,000 units. Royalties from the sale of
toys, however, increased 16%, or $0.5 million, reflecting the introduction of
our Brawlin' Buddies toy by Mattel and strong domestic retail support. Licensing
cost of revenues decreased by $0.4 million from the prior year quarter,
primarily due to lower commission and talent participations driven by decreased
revenues. The licensing profit contribution margin was 75% in the current year
quarter compared to 76% in the prior year quarter.
Magazine publishing revenues decreased by $0.3 million in the current year
quarter as compared to the prior year quarter, driven by weaker newsstand demand
as a result of the continued overall decline in the magazine publishing
industry. We published three issues of WWE Magazine, three issues of WWE Kids
magazine and one special issue both in the current year and prior year periods.
Net units sold decreased by 10%. Magazine publishing cost of revenues decreased
by $0.3 million, primarily as a result of a 23% decrease in unit production.
Publishing profit contribution margin increased to 13% from 11% in the prior
year quarter.
Home video revenues decreased by $1.9 million in the current year quarter as
compared to the prior year quarter. The 23% decline in revenue reflected a
reduction in average unit price and lower sell-through rates that was partially
offset by an increase in shipments. Although shipments increased 36% to 933,100
units, a majority of this growth was derived from lower priced new releases and
catalog titles; the resulting change in product mix contributed to a 16%
reduction in average price to $11.01. In the prior year quarter, we received a
retroactive price adjustment of $1.1 million from one of our suppliers. The
impact of this pricing adjustment was the primary reason for the deterioration
in the home video profit contribution margin to 44% from 69%.
The following tables present the performance results for our Digital Media
segment (dollars in millions except where noted):
Three Months Ended
September 30, September 30,
Revenues-Digital Media 2012 2011 better (worse)
WWE.com $ 4.8 $ 3.7 30 %
WWEShop 2.7 3.2 (16 )%
Total $ 7.5 $ 6.9 9 %
Average WWEShop revenues per order (dollars) $ 47.77 $ 46.94 2 %
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Three Months Ended
September 30, September 30,
Profit Contribution-Digital Media 2012 2011 better (worse)
WWE.com $ 3.4 $ 2.9 17 %
WWEShop 0.4 0.9 (56 )%
Total $ 3.8 $ 3.8 - %
Profit contribution margin 51 % 55 %
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WWE.com revenues increased by $1.1 million in the current year quarter as
compared to the prior year quarter, driven by increased rights fees associated
with the licensing of original content to YouTube. WWE.com cost of revenues
increased by $0.6 million in the current year quarter due to increased expenses
related to the production and integration of new content. WWE.com profit
contribution margin decreased to 71% in the current year quarter from 78% in the
prior year quarter.
WWEShop revenues decreased by $0.5 million in the current year quarter
compared to the prior year quarter, driven by a 21% decline in the volume of
on-line merchandise sales to approximately 54,000 orders. The decline reflected
a comparison to strong sales and effective merchandising of certain
talent-specific products in the prior year quarter. The average revenue per
order increased 2% to $47.77. WWEShop costs of revenues were both $2.3 million
in the current and prior year quarters. WWEShop profit contribution margin
decreased to 15% in the current year quarter from 28% in the prior year quarter
primarily due to integration costs from the change to a new fulfillment service
provider in the current year quarter.
WWE Studios
The following table presents detailed information for our WWE Studios segment
(dollars in millions):
Barricade Sept 2012 $ 3.9 $ 1.4 $ 0.9 $ (2.7 ) $ 0.9 $ N/A $ (0.5 ) $ N/A
No Holds
Barred July 2012 - - 0.5 0.2 0.5 N/A 0.2 N/A
Bending The
Rules Mar 2012 5.5 0.9 0.8 (4.7 ) (0.4 ) N/A (0.4 ) N/A
The Reunion Oct 2011 6.9 1.8 2.0 (4.8 ) (0.1 ) N/A (0.1 ) N/A
Inside Out Sept 2011 5.1 1.2 1.6 (3.8 ) (0.3 ) 1.0 (0.4 ) (3.4 )
That's What
I Am April 2011 4.7 0.4 0.9 (4.9 ) - (0.4 ) - (0.6 )
The
Chaperone Mar 2011 5.8 0.7 4.2 (3.8 ) - 0.4 - (1.2 )
Knucklehead Oct 2010 6.4 0.7 4.3 (4.1 ) - - - (1.3 )
Legendary Sept 2010 5.3 1.5 6.5 (2.1 ) - (0.1 ) - (0.2 )
43.6 8.6 21.7 (30.7 ) 0.6 0.9 (1.2 ) (6.7 )
Licensed
Films
Marine 2 Dec 2009 2.3 0.7 2.5 0.9 - 0.2 - -
12 Rounds Mar 2009 19.7 4.3 12.6 (2.9 ) 1.1 1.3 - 0.2
BELC 3 Jan 2009 2.5 0.2 2.5 0.2 - 0.2 - -
The
Condemned May 2007 17.5 - 10.9 (6.5 ) - 0.2 - 0.2
The Marine Oct 2006 20.2 0.1 38.0 15.3 0.2 0.8 0.2 0.6
See No Evil May 2006 10.4 0.4 7.1 (2.9 ) - 0.1 - -
Other - - 0.2 0.2 - - -
72.6 5.7 73.8 4.3 1.3 2.8 0.2 1.0
Completed but not released 10.3 5.6 - - - - - -
In
production - 2.2 - - - - - -
In
development - 0.7 - (4.2 ) - - (0.5 ) (0.4 )
Total $ 126.5 $ 22.8 $ 95.5 $ (30.6 ) $ 1.9 $ 3.7 $ (1.5 ) $ (6.1 )
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* Production costs are presented net of the associated benefit of production incentives. At September 30, 2012, the Company had $22.8 million (net of accumulated amortization and impairment charges) of feature film production assets capitalized on our Consolidated Balance Sheet. We review and revise estimates of ultimate revenue and participation costs at each reporting period to reflect the most current information available. If estimates for a film's ultimate revenue are revised and indicate a significant decline in a film's profitability or if events or circumstances change that indicate we should assess whether the fair value of a film is less than its unamortized film costs, we calculate the film's estimated fair value using a discounted cash flows model. If fair value is less than amortized cost, the film is written down. Revenue recognition for our feature films varies depending on the method of distribution and the extent of control the Company exercises over the distribution and related expenses. We exercise significant control over our self-distributed films and as a result, we record revenues and related expenses on a gross basis in our financial statements. Third-party distribution partners control the distribution and marketing of our licensed films, and as a result, we recognize revenues on a net basis after the third-party distributor recoups distribution fees and expenses and results have been reported to us. This typically occurs in periods subsequent to the initial release of the film.
WWE Studios revenues decreased $1.8 million in the current year quarter as
compared to the prior year quarter, primarily due to the relative performance
and timing of releases of feature films from our movie portfolio. Revenues from
our self-distributed films decreased $0.3 million while revenues for our
licensed films decreased $1.5 million in the current year quarter as compared to
the prior year quarter. The decrease in revenue associated with our
self-distributed films was attributable to the relative performance and timing
of releases from our movie portfolio. The decrease in revenue associated with
licensed films is primarily attributable to the age our film library, with the
most recent film having been release in 2009.
WWE Studios cost of revenues decreased $6.4 million in the current year quarter
as compared to the prior year quarter, partially as a result of recording a $5.1
million impairment charge in the prior year quarter. There was no impairment
charge recorded in the current year quarter. Excluding the impact of the
impairment charge in the prior year quarter, cost of revenues decreased to $3.4
million compared to $4.7 million. Distribution expenses decreased $0.4 million
in the current year quarter as compared to the prior year quarter, due to the
timing of film releases. In addition, amortization of production assets
decreased $0.3 million for our self-distributed films and $0.6 million for our
licensed films in the current year quarter as compared to the prior year quarter
due to the decreases in revenue as assets are amortized in proportion as revenue
received relates to expected revenue.
During the three months ended September 30, 2012, the Company entered into an
agreement to co-distribute the feature film, The Day, domestically. The Company
intends to recognize revenue generated by this film in a manner similar to how
it recognizes revenue for its licensed films; on a net basis, after distribution
fees and expenses have been recouped and expenses and results have been reported
to us.
Selling, General and Administrative
The following table presents the amounts and percent change of certain
significant overhead items (dollars in millions):
Three Months Ended
September 30, September 30, better
2012 2011 (worse)
Staff related $ 15.1 $ 15.1 - %
Management incentive compensation 3.1 (2.6 ) (219 )%
Legal, accounting and other professional 3.9 4.0 3 %
Travel and entertainment expense 1.4 1.2 (17 )%
Advertising, marketing and promotion 1.5 0.9 (67 )%
. . .
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