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WWE > SEC Filings for WWE > Form 10-Q on 2-Aug-2013All Recent SEC Filings

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Form 10-Q for WORLD WRESTLING ENTERTAINMENTINC


2-Aug-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 sales of WWE produced content via home entertainment platforms, magazine sales 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 2013, the Company's results of operations analysis included a discussion of 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 June 30, 2013 compared to Three Months Ended June 30, 2012
(dollars in millions)

Summary

                                         Three Months Ended
                                        June 30,      June 30,
                                          2013          2012       increase (decrease)
Net Revenues
Live and Televised Entertainment      $   125.3      $  117.1                7  %
Consumer Products                          15.7          16.1               (2 )%
Digital Media                               9.2           7.8               18  %
WWE Studios                                 2.1           0.6              250  %
Total                                     152.3         141.6                8  %

OIBDA
Live and Televised Entertainment           38.5          42.6              (10 )%
Consumer Products                           7.6           7.4                3  %
Digital Media                               1.4           1.8              (22 )%
WWE Studios                                (0.4 )        (1.0 )            (60 )%
Unallocated Corporate Expenses            (32.2 )       (26.4 )             22  %
Total                                      14.9          24.4              (39 )%
OIBDA as a percentage of revenues            10 %          17 %

Depreciation and amortization expense       6.1           4.8               27  %
Operating income                            8.8          19.6              (55 )%
Investment and other expense, net          (0.4 )        (0.9 )            (56 )%
Income before income taxes                  8.4          18.7              (55 )%
Provision for income taxes                  3.2           6.8              (53 )%
Net income                            $     5.2      $   11.9              (56 )%

Our Live and Televised Entertainment segment revenues increased 7% primarily due to increased revenues in our television rights and live events businesses of $5.6 million and $4.7 million, respectively. Our Consumer Products segment experienced a 2% decrease in revenues primarily driven by a $0.7 million decline in our home entertainment business. Our Digital Media segment experienced an 18% increase in revenues, primarily driven by higher sales of advertising across various digital platforms. Our WWE Studios segment experienced a $1.5 million increase in revenues primarily due to two feature film releases in the current quarter.


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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             June 30,           June 30,
(dollars in millions except where noted)                 2013               2012         increase (decrease)
Live events                                       $       40.1         $       35.4               13  %
North America                                     $       30.1         $       22.3               35  %
International                                     $       10.0         $       13.1              (24 )%
Total live event attendance                            552,000              553,000                -  %
Number of North American events                             65                   57               14  %
Average North American attendance                        6,300                6,400               (2 )%
Average North American ticket price (dollars)     $      64.23         $      56.72               13  %
Number of international events                              22                   30              (27 )%
Average international attendance                         6,600                6,200                6  %
Average international ticket price (dollars)      $      68.16         $      63.47                7  %
Venue merchandise                                 $        6.9         $        5.4               28  %
Domestic per capita spending (dollars)            $      11.99         $      11.89                1  %
Pay-per-view                                      $       37.1         $       40.8               (9 )%
Number of pay-per-view events                                3                    4              (25 )%
Number of buys from pay-per-view events              1,551,200            1,897,360              (18 )%
Average revenue per buy (dollars)                 $      23.92         $      21.41               12  %
Domestic retail price WrestleMania (dollars)      $      59.95         $      54.95                9  %
Domestic retail price excluding WrestleMania
(dollars)                                         $      44.95         $      44.95                -  %
Television rights fees                            $       38.0         $       32.4               17  %
Domestic                                          $       23.8         $       19.3               23  %
International                                     $       14.2         $       13.1                8  %
Other                                             $        3.2         $        3.1                3  %
Total Live and Televised Entertainment            $      125.3         $      117.1                7  %
Ratings
    Average weekly household ratings for RAW               3.3                  3.5               (6 )%
    Average weekly household ratings
for SmackDown                                              2.1                  2.0                5  %
    Average weekly household ratings for WWE
Main Event                                                 0.8                  N/A
    Average weekly household ratings for
WWE Saturday Morning Slam                                  0.6                  N/A


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                                                          Three Months Ended
OIBDA-Live and Televised Entertainment                 June 30,         June 30,
(dollars in millions)                                    2013             2012        increase (decrease)
Live events                                          $     16.4       $     12.8               28  %
Venue merchandise                                           2.7              1.9               42  %
Pay-per-view                                                9.8             19.5              (50 )%
Television rights fees                                     11.9              9.7               23  %
Other                                                      (2.3 )           (1.3 )             77  %
Total                                                $     38.5       $     42.6              (10 )%
OIBDA as a percentage of revenues                            31 %             36 %

Live events revenues increased by $4.7 million in the current year quarter as compared to the prior year quarter. Revenues from our North America live events business increased $7.8 million or 35% primarily due to the strong performance of our annual WrestleMania event and the scheduling of eight additional domestic events in the current year quarter. In addition, we scheduled all of our Fan Axxess events, held in conjunction with WrestleMania XXIX, during the current year quarter while the majority of our Fan Axxess events for WrestleMania XXVIII were scheduled during our first quarter of 2012. WrestleMania XXIX experienced a 39% increase in average ticket prices contributing $3.6 million in incremental ticket revenue and Fan Axxess added $2.3 million in additional revenue in the current year quarter as compared to the prior year quarter. Average ticket prices for our North America events increased by 13% to $64.23 while the average attendance fell slightly by 2%. Our international live events business revenue decreased $3.1 million primarily due to eight fewer events held in the current year quarter. This was partially offset by a 7% increase in international ticket prices to $68.16 and an increase in average attendance of 6% to approximately 6,600 in the current year quarter. The increases in average ticket price and average attendance were due to changes in territory mix as the prior year quarter included weak attendance at our events in Mexico and our first live event in Brazil, a market with long-term strategic importance to WWE. The live events OIBDA as a percentage of revenues was 41% in the current year quarter compared to 36% in the prior year quarter.
Venue merchandise revenues increased by $1.5 million in the current year quarter as compared to the prior year quarter. This increase is primarily due to the timing of our Fan Axxess events as described above. Total paid attendance at our North America events increased 11% while domestic per capita merchandise sales at those events remained relatively unchanged at $11.99 in the current year quarter. The venue merchandise OIBDA as a percentage of revenues increased to 39% from 35% in the prior year quarter.
Pay-per-view revenues decreased by $3.7 million in the current year quarter as compared to the prior year quarter primarily attributable to one fewer pay-per-view event held in the current quarter, which accounted for $3.2 million of the revenue decline. Revenue from the three events in the quarter declined 3% versus the prior year quarter as a combined 13% decline in buys was nearly offset by a 12% increase in the average revenue per buy. The shortfall in revenue from these events, however, were offset by an increase in buys for prior period events. The rise in revenue per buy was due to an approximate 9% increase in the domestic retail price charged for viewing WrestleMania and to a higher proportion of buys to view our events in high definition, which generally garners a higher retail price. The pay-per-view OIBDA as a percentage of revenues decreased to 26% from 48% in the prior year quarter primarily due to a reduction in revenues and a $2.6 million increase in talent and advertising related expenses.
Television rights fees revenues increased by $5.6 million in the current year quarter as compared to the prior year quarter. Domestically, television rights fees increased by $4.5 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 the 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 the ION Television Network and WWE Saturday Morning Slam which is carried on the CW Network. The television rights fees OIBDA as a percentage of revenues increased to 31% from 30% 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
                                  June 30,         June 30,
Revenues-Consumer Products          2013             2012        increase (decrease)
Licensing                    $      6.7           $      6.6             2  %
Home entertainment           $      7.1           $      7.8            (9 )%
Gross units shipped             965,800              837,200            15  %
Magazine publishing          $      1.3           $      1.3             -  %
Net units sold                  465,000              468,700            (1 )%
Other                        $      0.6           $      0.4            50  %
Total                        $     15.7           $     16.1            (2 )%


                                       Three Months Ended
                                     June 30,       June 30,
OIBDA-Consumer Products                2013           2012       increase (decrease)
Licensing                           $    4.3       $    3.9               10  %
Home entertainment                       3.1            3.4               (9 )%
Magazine publishing                      0.1              -              100  %
Other                                    0.1            0.1                -  %
Total                               $    7.6       $    7.4                3  %
OIBDA as a percentage of revenues         48 %           46 %

Licensing revenues increased by $0.1 million in the current year quarter as compared to the prior year quarter. Royalties from the sale of toy products increased approximately 15%, or $0.5 million, led by higher sales of action figures in the U.S. with strong domestic retail support. This increase was offset by a $0.7 million reduction in video game revenue. Partially due to the transition of our video game licensee to Take-Two Interactive ("Take-Two"), shipments of our franchise video game, WWE'13, declined 65% in the current year quarter to 77,000 units as compared to the corresponding game in the prior year quarter. The licensing OIBDA as a percentage of revenues was 64% in the current year quarter compared to 59% in the prior year quarter due to lower costs associated with talent participations.
Home entertainment revenues decreased by $0.7 million or 9% in the current year quarter as compared to the prior year quarter. The 9% decline reflected a reduction in estimated sell-through rates and lower revenue from our international licensing activities. Domestic home entertainment revenue fell $0.4 million, or 6%, as a 15% increase in shipments to nearly 1.0 million units was more than offset by a 13% decline in the average price per unit to $10.59 and a rise in estimated returns. The change in projected returns derived from an increase in catalog shipments over the last twelve months, which historically have been characterized by lower estimated sell-through rates. Revenue from our international licensing activities declined by approximately $0.3 million due to the transition to a new licensee in the EMEA region. Home entertainment OIBDA as a percentage of revenues was 44% in both the current prior year quarters. Magazine publishing revenues remained flat at $1.3 million both in the current and prior year quarters. Net units sold decreased slightly by 1%. We published three issues of WWE Magazine and two issues of WWE Kids magazine both in the current year and prior year quarters. Publishing OIBDA as a percentage of revenues increased to 8% from 0% in the prior year quarter.


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Digital Media
The following tables provide performance results for our Digital Media segment
(dollars in millions except average revenues per order):
                                                           Three Months Ended
                                                         June 30,         June 30,
Revenues-Digital Media                                     2013             2012        increase (decrease)
WWE.com                                              $      6.1         $      4.8             27  %
WWEShop                                                     3.1                3.0              3  %
Total                                                $      9.2         $      7.8             18  %
Average WWEShop revenues per order (dollars)         $    47.92         $    48.70             (2 )%


                                       Three Months Ended
                                     June 30,       June 30,
OIBDA-Digital Media                    2013           2012       increase (decrease)
WWE.com                             $    1.0       $    1.5              (33 )%
WWEShop                                  0.4            0.3               33  %
Total                               $    1.4       $    1.8              (22 )%
OIBDA as a percentage of revenues         15 %           23 %

WWE.com revenues increased by $1.3 million in the current year quarter as compared to the prior year quarter, due to higher sales of advertising across various digital platforms. WWE.com OIBDA as a percentage of revenues decreased to 16% in the current year quarter from 31% in the prior year quarter due to a $1.3 million increase in staffing related expenses due to the hiring of additional personnel.
WWEShop revenues remained relatively flat at $3.1 million in the current year quarter as compared to the prior year quarter. The number of orders was unchanged at 63,000 and the average revenue per order decreased slightly by 2% to $47.92. WWEShop OIBDA as a percentage of revenues increased to 13% in the current year quarter from 10% in the prior year quarter due to lower shipping related expenses.


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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 June 30,
                                                 June 30,            Inception to-date                Revenue                    OIBDA
               Release     Production
   Title        Date         Costs*                2013             Revenue        OIBDA        2013           2012        2013        2012
2013
12 Rounds       June
2: Reloaded     2013     $         1.3     $              1.3     $        -     $     -     $      -          $ N/A     $     -       $ N/A
No One           May
Lives           2013               2.2                    1.5            0.7           -          0.7            N/A           -         N/A
                 Mar
The Call        2013               1.0                    1.0            0.1         0.1            -            N/A           -         N/A
Dead Man         Mar
Down            2013               5.7                    1.0              -        (4.7 )          -            N/A           -         N/A
The Marine
3:               Mar
Homefront       2013               1.4                    1.4              -           -            -            N/A           -         N/A
                                  11.6                    6.2            0.8        (4.6 )        0.7              -           -           -
2012
                Sept
Barricade       2012               4.0                    0.5            1.1        (3.6 )       (0.1 )          N/A        (0.2 )       N/A
No Holds        July
Barred          2012                 -                      -            0.6         0.2          0.1            N/A         0.1         N/A
Bending The      Mar
Rules           2012               5.5                    0.8            1.0        (4.7 )          -            0.2           -           -
                                   9.5                    1.3            2.7        (8.1 )          -            0.2        (0.1 )         -

Prior
Releases                         106.8                   10.0           96.8       (18.3 )        1.4            0.4         0.7         0.1

Completed but not
released                             -                      -              -           -            -              -           -           -
In
production                         5.3                    5.3              -           -            -              -           -           -
In
development                        0.8                    0.8              -        (4.1 )          -              -           -        (0.6 )
Sub-total                $       134.0     $             23.6     $    100.3     $ (35.1 )   $    2.1       $    0.6     $   0.6     $  (0.5 )
Selling, General &
Administrative
Expenses                                                                                                                    (1.0 )      (0.5 )
Total                                                                                                                    $  (0.4 )   $  (1.0 )

* Production costs are presented net of the associated benefit of production incentives. During the current year quarter, we released one feature film via theatrical distribution, No One Lives. We also released 12 Rounds 2: Reloaded direct to DVD during the current year quarter. Third-party distributors control the distribution and marketing of these two 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 are typically reported to us in periods subsequent to the initial release of these films. WWE Studios revenues increased $1.5 million in the current year quarter as compared to the prior year quarter. The increase in revenue is attributable to the performance of our new film release, No One Lives, and the timing of results generated by our overall portfolio of movies, including the impact of The Marine and The Marine 2, which were released in prior periods. WWE Studios OIBDA increased $0.7 million in the current year quarter as compared to the prior year quarter, primarily due to the profitability of our older film releases which had a positive impact on the current year quarter. At June 30, 2013, the Company had $23.6 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


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participation costs at the end of 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 unamortized cost, the film asset is written down to fair value. Unallocated Corporate Expenses
The following table presents the amounts and percent change of certain significant unallocated corporate expenses (dollars in millions):

                                                          Three Months Ended
                                                       June 30,         June 30,        increase
                                                         2013             2012         (decrease)
Staff related                                        $     13.7       $     11.6           18 %
Management incentive compensation                           1.9              1.6           19 %
Legal, accounting and other professional                    5.1              4.4           16 %
Travel and entertainment expense                            1.3              1.0           30 %
Advertising, marketing and promotion                        2.0              1.0          100 %
Corporate insurance                                         1.0              1.0            - %
Bad debt expense                                            0.1              0.1            - %
All other                                                   7.1              5.7           25 %
Total unallocated corporate expenses                 $     32.2       $     26.4           22 %
Unallocated corporate expenses as a percentage of
net revenues                                                 21 %             19 %

Unallocated corporate expenses increased by $5.8 million or 22% in the current year quarter compared to the prior year quarter. This was primarily due to increases in compensation and benefits expenses of $2.4 million. In addition, the Company incurred higher talent development costs of $1.0 million, marketing expenses of $1.0 million, and higher professional fees of $0.7 million, primarily to support our content related initiatives, including the potential launch of a WWE network.

Depreciation and Amortization
(dollars in millions)
                                       Three Months Ended
                                     June 30,          June 30,
                                       2013              2012       increase (decrease)
Depreciation and amortization   $     6.1             $     4.8               27 %
. . .
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