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WWE > SEC Filings for WWE > Form 10-Q on 3-May-2013All Recent SEC Filings

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Form 10-Q for WORLD WRESTLING ENTERTAINMENTINC


3-May-2013

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, integrated sponsorship fees, 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 entertainment (DVD/Blue-ray), magazine publishing, and royalties or license fees related to various WWE themed products such as video games, toys and apparel.

Digital Media
Revenues consist principally of advertising sales on our websites, rights fees received for digital content, sale of merchandise on our website through our WWEShop internet storefront and sales of various broadband and mobile content.

WWE Studios
Revenues consist of amounts earned from the distribution of filmed entertainment.

Results of Operations
Beginning in the first quarter of 2013, the Company made changes to its operating plan and management reporting to reflect a change in the measurement used by management to evaluate performance. The Company changed its measure of segment profit (loss) to operating income (loss) before depreciation and amortization, or "OIBDA". Prior to the first quarter of 2013, the Company measured segment profit (loss) using profit contribution. The Company revised its discussion of results of operations for prior periods to reflect the segment disclosures as if the current measure of profit (loss), OIBDA, had been in effect throughout all periods presented.

The Company presents OIBDA as the primary measure of segment profit (loss). The Company believes the presentation of OIBDA is relevant and useful for investors because it allows investors to view our segment performance in the same manner as the primary method used by management to evaluate performance and make decisions about allocating resources. The Company defines OIBDA as operating income before depreciation and amortization, excluding feature film amortization, and film impairments. OIBDA is a non-GAAP financial measure and may be different than similarly-titled non-GAAP financial measures used by other companies. A limitation of OIBDA is that it excludes depreciation and amortization, which represents the periodic charge for certain fixed assets and intangible assets used in generating revenues for our business. OIBDA should not be regarded as an alternative to operating income or net income as an indicator of operating performance, or to the statement of cash flows as a measure of liquidity, nor should it be considered in isolation or as a substitute for financial measures prepared in accordance with GAAP. We believe that operating income is the most directly comparable GAAP financial measure to OIBDA. See Note 3, Segment Information in the accompanying Consolidated Financial Statements for a reconciliation of OIBDA to operating income for the periods presented.


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Three Months Ended March 31, 2013 compared to Three Months Ended March 31, 2012
(dollars in millions)

Summary

                                                       Three Months Ended
                                                  March 31,           March 31,         increase
                                                     2013               2012           (decrease)
Net Revenues
Live and Televised Entertainment               $        79.9       $        75.7           6  %
Consumer Products                                       33.2                35.5          (6 )%
Digital Media                                            9.0                 7.1          27  %
WWE Studios                                              1.9                 4.8         (60 )%
Total                                                  124.0               123.1           1  %

OIBDA
Live and Televised Entertainment                        21.4                26.1         (18 )%
Consumer Products                                       23.5                23.4           -  %
Digital Media                                            2.0                 1.8          11  %
WWE Studios                                             (5.0 )              (1.3 )       285  %
Unallocated Selling, General & Administrative
Expenses                                               (30.6 )             (30.0 )         2  %
Total                                                   11.3                20.0         (44 )%
OIBDA as a percentage of revenues                          9 %                16 %

Depreciation and amortization expense                    5.2                 4.0          30  %
Operating income                                         6.1                16.0         (62 )%
Investment and other (expense) income                   (1.3 )               0.5        (360 )%
Income before income taxes                               4.8                16.5         (71 )%
Provision for income taxes                               1.8                 1.2          50  %
Net income                                     $         3.0       $        15.3         (80 )%

The comparability of our results for the current year quarter were impacted by a $4.7 million impairment charge related to our feature film, Dead Man Down, and an approximate $3.4 million positive impact from the transition of our video game to a new licensee. In the prior year quarter, our results were impacted by a $0.8 million impairment charge related to our feature film, Bending the Rules and the recognition of a $4.1 million benefit due to previously unrecognized tax benefits.
Our Live and Televised Entertainment segment revenues increased 6% primarily due to a $5.0 million increase in our television rights business. Our Consumer Products segment experienced a 6% decrease in revenues primarily driven by a $2.2 million decline in our home video business. Our Digital Media segment experienced a 27% increase in revenues, primarily driven by higher sales of online advertising and incremental fees from a new agreement entered into with Hulu. Our WWE Studios segment experienced a 60% decline in revenues primarily due to the performance of our existing film portfolio.


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Live and Televised Entertainment
The following tables provide performance results and key drivers for our Live
and Televised Entertainment segment:
                                                          Three Months Ended
Revenues- Live and Televised Entertainment            March 31,         March 31,
(dollars in millions except where noted)                2013               2012         increase (decrease)
Live events                                       $       21.0        $       22.2               (5 )%
North America                                     $       20.0        $       18.9                6  %
International                                     $        1.0        $        3.3              (70 )%
Total live event attendance                            496,500             451,300               10  %
Number of North American events                             77                  69               12  %
Average North American attendance                        6,400               6,200                3  %
Average North American ticket price (dollars)     $      39.40        $      38.50                2  %
Number of international events                               3                   6              (50 )%
Average international attendance                         2,500               3,400              (26 )%
Average international ticket price (dollars)      $      82.51        $     125.60              (34 )%
Venue merchandise                                 $        5.1        $        5.1                -  %
Domestic per capita spending (dollars)            $      10.29        $       9.75                6  %
Pay-per-view                                      $       15.1        $       13.5               12  %
Number of pay-per-view events                                2                   2                -  %
Number of buys from pay-per-view events                744,500             684,700                9  %
Average revenue per buy (dollars)                 $      19.79        $      18.78                5  %
Domestic retail price (dollars)                   $      44.95        $      44.95                -  %
Television rights fees                            $       37.5        $       32.5               15  %
Domestic                                          $       24.2        $       20.1               20  %
International                                     $       13.3        $       12.4                7  %
Other                                             $        1.2        $        2.4              (50 )%
Total Live and Televised Entertainment            $       79.9        $       75.7                6  %
Ratings
    Average weekly household ratings for RAW               3.7                 3.5                6  %
    Average weekly household ratings
for SmackDown                                              2.3                 2.2                5  %
    Average weekly household ratings for Main
Event                                                      1.0                 N/A
    Average weekly household ratings for
Saturday Morning Slam                                      0.7                 N/A


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                                                          Three Months Ended
OIBDA-Live and Televised Entertainment                 March 31,       March 31,
(dollars in millions)                                    2013             2012        increase (decrease)
Live events                                          $      4.5       $      4.5                -  %
Venue merchandise                                           1.8              1.9               (5 )%
Pay-per-view                                                6.6              7.9              (16 )%
Television rights fees                                     12.7             12.8               (1 )%
Other                                                      (4.2 )           (1.0 )            320  %
Total                                                $     21.4       $     26.1              (18 )%
OIBDA as a percentage of revenues                            27 %             35 %

Live events revenues decreased by $1.2 million in the current year quarter as compared to the prior year quarter. Our international live events business decreased $2.3 million primarily due to three fewer events held in the current year quarter, a 26% decline in average attendance and a 34% decline in average ticket price as compared to the prior year quarter. The declines in average attendance and ticket prices were due to weak performances in Turkey and Qatar, which are emerging WWE markets, as compared to the prior year quarter which included an especially strong three-event tour in Abu-Dhabi. Revenues from our North America live events business increased $1.1 million or 6% primarily due to increases in the number of events, average attendance and average ticket prices in the current year quarter as compared to the prior year quarter. These increases were partially offset by a decline in revenues due to the timing of our annual Fan Axxess events held in conjunction with WrestleMania. We held the majority of our Fan Axxess events for WrestleMania XXVIII during the first quarter of 2012 while all of our Fan Axxess events held in conjunction with WrestleMania XXIX were held during the second quarter of 2013. OIBDA remained unchanged at $4.5 million in both the current and prior year quarters. The live events OIBDA as a percentage of revenues was 21% in the current year quarter compared to 20% in the prior year quarter.
Venue merchandise revenues remained flat at $5.1 million in both the current and prior year quarters. Increased sales of merchandise at our domestic events were offset by the impact of the timing of our Fan Axxess events described above. Total paid attendance at our events in domestic increased 21% while per capita merchandise sales at those events increased 6% to $10.29 in the current year quarter. OIBDA decreased by 5% from the prior year quarter primarily due to $0.2 million of additional compensation related expenses as a result of the hiring of new personnel. The venue merchandise OIBDA as a percentage of revenues decreased to 35% from 37% in the prior year quarter.
Pay-per-view revenues increased by $1.6 million in the current year quarter as compared to the prior year quarter. We experienced a 17% increase in buys for Royal Rumble and Elimination Chamber pay-per-views. Additionally, the average revenue per buy increased 5% from the prior year quarter due, in part, to an increased proportion of buys to view our events in high definition. Increases in the number of buys and revenue per buy, however, were partially offset by lower buys associated with prior period events. OIBDA decreased by 16% primarily due to a $3.3 million increase in talent related expenses. The pay-per-view OIBDA as a percentage of revenues decreased to 44% from 59% in the prior year quarter. Television rights fees revenues increased by $5.0 million in the current year quarter as compared to the prior year quarter. Domestically, television rights fees increased by $4.1 million, primarily due to the production and licensing of new programs. During July 2012, we began to produce and license an additional hour of RAW to USA Network. In addition, during the third quarter of 2012, we began licensing two new original series, the WWE Main Event which is carried on ION Television Network and Saturday Morning Slam which is carried on The CW Network. OIBDA decreased slightly to $12.7 million in the current year quarter primarily due to higher direct costs for staff related expenses and increased production expenses. The television rights fee OIBDA as a percentage of revenues decreased to 34% from 39% in the prior year quarter.


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Consumer Products
The following tables provide performance results and key drivers for our
Consumer Products segment (dollars in millions):
                                    Three Months Ended
                                 March 31,         March 31,
Revenues-Consumer Products          2013              2012        increase (decrease)
Licensing                    $     24.0           $      24.2              (1 )%
Home entertainment           $      7.0           $       9.2             (24 )%
Gross units shipped           1,216,200               830,000              47  %
Magazine publishing          $      1.6           $       1.4              14  %
Net units sold                  517,700               489,700               6  %
Other                        $      0.6           $       0.7             (14 )%
Total                        $     33.2           $      35.5              (6 )%


                                        Three Months Ended
                                     March 31,       March 31,
OIBDA-Consumer Products                 2013           2012        increase (decrease)
Licensing                           $    20.1       $    17.9               12  %
Home entertainment                        3.2             5.4              (41 )%
Magazine publishing                       0.1               -                -  %
Other                                     0.1             0.1                -  %
Total                               $    23.5       $    23.4                -  %
OIBDA as a percentage of revenues          71 %            66 %

Licensing revenues decreased by $0.2 million in the current year quarter as compared to the prior year quarter. The current year quarter reflected a $2.1 million positive impact associated with the bankruptcy of our former video game licensee, THQ and the transition to a new video game licensee, Take-Two Interactive. This positive impact was offset by lower revenue from video game, toys and other products, with the aggregate decline from our international markets. Excluding the impact of the video game transition, estimated sales of our video game declined approximately 12% with a corresponding reduction in average retail prices, and royalties from the sale of toy products declined approximately 6%, or $0.4 million, from the prior year quarter. In aggregate, excluding the impact of the video game transition, royalties from the sale of licensed products declined approximately 23%, or $2.2 million, in international markets. As a result of THQ's bankruptcy, we did not collect or recognize a portion of anticipated royalties due in the first quarter of 2013. Therefore, despite the positive impact of the transition of our video game license on revenue and income in the first quarter, WWE incurred an estimated economic loss of approximately $3.0 million stemming from foregone video game receipts. The licensing OIBDA as a percentage of revenues was 84% in the current year quarter compared to 74% in the prior year quarter.
Magazine publishing revenues increased by $0.2 million in the current year quarter as compared to the prior year quarter, predominantly from higher newsstand sales as well as higher advertising sales than in the prior year quarter. Net units sold increased by 6%. 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 quarters. OIBDA increased slightly by $0.1 million while cost of revenues remained relatively flat. Publishing OIBDA as a percentage of revenues increased to 6% from 0% in the prior year quarter. Home entertainment revenues decreased by $2.2 million in the current year quarter as compared to the prior year quarter. The 24% decline reflected a reduction in revenue from our international licensing activities and adjustments to prior period sell-through estimates. Revenue from our international licensing activities declined by approximately $1.3 million due to the recognition of greater minimum guarantees in the prior year quarter. Domestic home entertainment revenue fell approximately $0.9 million, or 13%, as a 47% increase in shipments to over 1.2 million units was more than offset by a net $3.3 million impact from prior period sell through adjustments. The quarter included an unfavorable adjustment for lower than anticipated sales of prior period releases


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compared to a positive adjustment in the prior year quarter. The average price per unit of $9.52 remained essentially unchanged from the prior year quarter. OIBDA decreased by 41% primarily due to the decline in revenues while there was no corresponding decline in cost of revenues as it remained flat compared to the prior year quarter. This was due to increased shipments offset by lower material costs. Home entertainment OIBDA as a percentage of revenues decreased to 46% in the current year quarter compared from 59% from the prior year quarter. Digital Media
The following tables provide performance results for our Digital Media segment (dollars in millions except average revenues per order):

                                                            Three Months Ended
                                                         March 31,         March 31,
Revenues-Digital Media                                     2013              2012         increase (decrease)
WWE.com                                              $       5.5         $       3.9             41  %
WWEShop                                                      3.5                 3.2              9  %
Total                                                $       9.0         $       7.1             27  %
Average WWEShop revenues per order (dollars)         $     47.97         $     48.04              -  %


                                        Three Months Ended
                                     March 31,      March 31,
OIBDA-Digital Media                    2013           2012        increase (decrease)
WWE.com                             $    1.2       $     1.1                 9 %
WWEShop                                  0.8             0.7                14 %
Total                               $    2.0       $     1.8                11 %
OIBDA as a percentage of revenues         22 %            25 %

WWE.com revenues increased by $1.6 million in the current year quarter as compared to the prior year quarter, due to higher sales of online advertising, including integrated cross-platform sales, as well as increased rights fees associated with the licensing of WWE programs to Hulu Plus. The related programming agreement with Hulu commenced in September 2012. OIBDA increased by 9% primarily due to increased revenues offset by higher compensation related expenses primarily as a result of the hiring of new personnel. WWE.com OIBDA as a percentage of revenues decreased to 22% in the current year quarter from 28% in the prior year quarter.
WWEShop revenues increased by $0.3 million in the current year quarter compared to the prior year quarter, driven by an 11% increase in the number of orders to 73,200. Average revenue per order essentially remained flat at $47.97. OIBDA increased by14% driven by increased revenues which was partially offset by additional cost of revenues of $0.1 million and selling, general and administrative expenses of $0.1 million. WWEShop OIBDA as a percentage of revenues increased to 23% in the current year quarter from 22% in the prior year quarter.


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WWE Studios
The following table provides detailed information for our WWE Studios' segment
(in millions):
                                                 Feature
                                                   Film
                                                Production
                                             Assets-net as of                                        For the Three Months Ended March 31,
                                                March 31,             Inception to-date                Revenue                   OIBDA
               Release     Production
   Title        Date         Costs*                2013              Revenue         OIBDA        2013         2012        2013         2012
       2013
                 Mar
The Call        2013     $         1.0     $              1.0     $     0.1        $   0.1     $    0.1        $ N/A     $   0.1        $ N/A
Dead Man         Mar
Down            2013               5.7                    1.0             -           (4.7 )          -          N/A        (4.7 )        N/A
The Marine
3:               Mar
Homefront       2013               1.5                    1.5             -              -            -          N/A           -          N/A
                                   8.2                    3.5           0.1           (4.6 )        0.1            -        (4.6 )          -
2012
                Sept
Barricade       2012               4.0                    0.6           1.2           (3.4 )        0.4          N/A         0.1          N/A
No Holds        July
Barred          2012                 -                      -           0.5            0.1          0.1          N/A           -          N/A
Bending The      Mar
Rules           2012               5.5                    0.8           1.0           (4.7 )        0.1          1.0           -         (1.0 )
                                   9.5                    1.4           2.7           (8.0 )        0.6          1.0         0.1         (1.0 )

Prior
Releases                         106.8                   10.4          95.4          (19.0 )        1.2          3.8           -            -

Completed but not
released                           3.6                    3.6             -              -            -            -           -            -
In
production                         1.0                    1.0             -              -            -            -           -            -
In
development                        0.7                    0.7             -           (4.1 )          -            -           -            -
Sub-total                $       129.8     $             20.6     $    98.2        $ (35.7 )   $    1.9     $    4.8     $  (4.5 )   $   (1.0 )
Selling, General &
Administrative
Expenses                                                                                                                 $  (0.5 )   $   (0.3 )
Total                                                                                                                    $  (5.0 )   $   (1.3 )

* Production costs are presented net of the associated benefit of production incentives. During the current year quarter, we released two feature films via theatrical distribution, Dead Man Down and The Call. We also released The Marine 3:
Homefront direct to DVD during the current quarter. Third-party distributors control the distribution and marketing of these three feature films and, as a result, we recognize revenue on a net basis after the third-party distributor recoups distribution fees and expenses and results are reported to us. Results will be reported to us in periods subsequent to the initial release of these films.
WWE Studios revenues decreased $2.9 million in the current year quarter as compared to the prior year quarter. The decrease in revenue is primarily attributable to the weaker performance of prior releases due to the age of our film library and differences in the revenue recognition between the various distribution models of our movies. Although there were three feature films released in the current quarter, revenues for these movies will be recognized on a net basis as participation statements are received rather than upon release as was the case with our self-distributed movie, Bending the Rules, in the prior year quarter. In addition, the decline reflected the timing of results generated by our overall portfolio of movies. WWE Studios OIBDA decreased $3.7 million in the current year quarter as compared to the prior year quarter, primarily as a result of recording an impairment charge of $4.7 million in the current quarter compared to $0.8 million in the prior year quarter. In the current year quarter, the Company recorded an impairment for Dead Man Down due to underperformance theatrically. Distribution expenses decreased $0.8 million in the current year quarter as compared to the prior year quarter. In addition, amortization of production assets decreased $2.4 million


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for our films in the current year quarter as compared to the prior year quarter due to the decreases in revenue as assets are amortized based on the share of revenue received in the period as a percent of total expected revenue over current and future periods.
At March 31, 2013, the Company had $20.6 million (net of accumulated amortization and impairment charges) of feature film production assets capitalized on its Consolidated Balance Sheet. We review and revise estimates of ultimate revenue and participation costs at the end of each reporting period to reflect the most current information available. If estimates for a film's . . .

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