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WWE > SEC Filings for WWE > Form 10-Q on 6-Nov-2012All Recent SEC Filings

Show all filings for WORLD WRESTLING ENTERTAINMENTINC

Form 10-Q for WORLD WRESTLING ENTERTAINMENTINC


6-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Background
The following analysis outlines all material activities contained within each of our reportable segments.
Live and Televised Entertainment
Revenues consist principally of ticket sales to live events, sales of merchandise at these live events, television rights fees, sponsorships, and fees for viewing our pay-per-view and video on demand programming.

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.


Table of Contents

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 )%

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.


Table of Contents

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 %


Table of Contents

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 )%


Table of Contents

                                                           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 %

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  %


Table of Contents

                                                            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 %

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.


Table of Contents

WWE Studios
The following table presents detailed information for our WWE Studios segment (dollars in millions):

Feature
Film
Production
Assets-net as of For the Three Months Ended September 30,
Sept 30, Inception to-date Revenue Profit (Loss)
Production
Title Release Date Costs* 2012 Revenue Profit (Loss) 2012 2011 2012 2011 Self - Distributed Films
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 )

* 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.


Table of Contents

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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