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WWE > SEC Filings for WWE > Form 10-K on 24-Feb-2014All Recent SEC Filings

Show all filings for WORLD WRESTLING ENTERTAINMENTINC

Form 10-K for WORLD WRESTLING ENTERTAINMENTINC


24-Feb-2014

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
You should read the following discussion in conjunction with the audited consolidated financial statements and related notes included elsewhere in this report.
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 sponsorships 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 content via home entertainment (DVD/Blu-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 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 18, Segment Information in the accompanying Consolidated Financial Statements for a reconciliation of OIBDA to operating income for the periods presented.


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Results of Operations
Year Ended December 31, 2013 compared to Year Ended December 31, 2012
(dollars in millions)
Summary
Net Revenues                          2013        2012       increase(decrease)
Live and Televised Entertainment    $ 382.3     $ 353.8               8  %
Consumer Products                      76.4        87.8             (13 )%
Digital Media                          38.5        34.5              12  %
WWE Studios                            10.8         7.9              37  %
Total                                 508.0       484.0               5  %

OIBDA
Live and Televised Entertainment      119.5       126.5              (6 )%
Consumer Products                      40.8        48.6             (16 )%
Digital Media                           7.9        10.3             (23 )%
WWE Studios                           (12.7 )      (5.5 )           131  %
Unallocated Corporate Expenses       (125.1 )    (116.7 )             7  %
Total                                  30.4        63.2             (52 )%
OIBDA as a percentage of revenues         6 %        13 %

Depreciation and amortization          24.5        20.0              23  %
Operating income                        5.9        43.2             (86 )%
Investment and other expense net       (1.3 )      (0.5 )           160  %
Income before income taxes              4.6        42.7             (89 )%
Provision for income taxes              1.8        11.3             (84 )%
Net income                          $   2.8     $  31.4             (91 )%

The comparability of our results for 2013 was impacted by $11.7 million of impairment charges related to our film portfolio, including $4.7 million and $0.9 million, for Dead Man Down and No One Lives, respectively, which were 2013 releases and $6.1 million from previously released films and an approximate $3.4 million positive impact from the transition of our video game business to a new licensee. In 2012, our results were impacted by a $1.2 million impairment charge related to our two feature films, Bending the Rules and Barricade, and the recognition of a $4.4 million benefit due to previously unrecognized tax benefits.
Our Live and Televised Entertainment segment revenues increased 8% primarily due to a $21.4 million increase in our television rights business from additional television programming. Our Consumer Products segment experienced a 13% decrease in revenues primarily driven by an $8.7 million decline in our home entertainment business. Our Digital Media segment experienced a 12% increase in revenues, primarily driven by higher sales of online advertising. Our WWE Studios segment experienced a 37% increase in revenues due in part to the November 2013 release of Christmas Bounty, a made-for-television production, and from our movie portfolio.


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Live and Televised Entertainment
The following tables present the performance results and key drivers for our
Live and Televised Entertainment segment:
Revenues- Live and Televised Entertainment
(dollars in millions except where noted)                 2013            2012         increase (decrease)
Live events                                          $     111.5     $     103.7                8  %
North America                                        $      81.4     $      72.1               13  %
International                                        $      30.1     $      31.6               (5 )%
Total live event attendance                            1,924,100       1,854,100                4  %
Number of North American events                              256             248                3  %
Average North American attendance                          6,000           5,900                2  %
Average North American ticket price (dollars)        $     48.63     $     45.39                7  %
Number of international events                                65              66               (2 )%
Average international attendance                           5,900           6,000               (2 )%
Average international ticket price (dollars)         $     74.13     $     74.15                -  %
Venue merchandise                                    $      19.4     $      18.8                3  %
Domestic per capita spending (dollars)               $     10.24     $     10.66               (4 )%
Pay-per-view                                         $      82.5     $      83.6               (1 )%
Number of pay-per-view events                                 12              12                -  %
Number of buys of pay-per-views                        3,838,000       4,023,000               (5 )%
Average revenue per buy (dollars)                    $     21.41     $     20.60                4  %
    Domestic retail price WrestleMania (dollars)     $     59.95     $     54.95                9  %
    Domestic retail price, excluding
WrestleMania (dollars)                               $     44.95     $     44.95                -  %
Television rights fees                               $     160.9     $     139.5               15  %
Domestic                                             $     105.9     $      88.9               19  %
International                                        $      55.0     $      50.6                9  %
Other                                                $       8.0     $       8.2               (2 )%
Total                                                $     382.3     $     353.8                8  %
Ratings:
    Average weekly household ratings for RAW                 3.4             3.3                3  %
    Average weekly household ratings for
SmackDown                                                    2.2             2.1                5  %
    Average weekly household ratings for WWE Main
Event                                                        0.9             0.8               13  %
    Average weekly household ratings for Total
Divas (E!)                                                   1.4             N/A

OIBDA-Live and Televised Entertainment (dollars in
millions)                                                2013            2012         increase (decrease)
Live events                                          $      30.1     $      26.5               14  %
Venue merchandise                                            7.5             6.7               12  %
Pay-per-view                                                34.1            44.9              (24 )%
Television rights                                           58.6            53.4               10  %
Other                                                      (10.8 )          (5.0 )            116  %
Total                                                $     119.5     $     126.5               (6 )%
OIBDA as a percentage of revenues                             31 %            36 %


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Live events revenues increased by $7.8 million in 2013 as compared to 2012. Revenues from our North America live events business increased $9.3 million or 13% due in part to a strong performance of our annual WrestleMania event which contributed $3.6 million in incremental ticket revenue in the current year. In addition, we held eight more events and experienced a 7% increase in average ticket prices in 2013 as compared to 2012. Our international live events business decreased $1.5 million in the current year primarily due to lower attendance and a decrease in average ticket prices partially offset by stronger attendance at the events held during our European tour in the current year and higher average ticket prices from the tour in Abu Dhabi. The decrease in average attendance was predominantly due to venue mix. The live events OIBDA as a percentage of revenues increased to 27% in 2013 from 26% in 2012.
Venue merchandise revenues increased by $0.6 million in 2013 as compared to 2012. Increased sales of merchandise at our domestic and Canadian events were partially offset by lower international licensing revenues. Total paid attendance at our domestic events increased 5% while the per capita merchandise spend at those events decreased 4% to $10.24 in the current year. The venue merchandise OIBDA as a percentage of revenues increased to 39% from 36% in 2012.
Pay-per-view revenues decreased by $1.1 million from 2012, primarily as result of a 5% decline in the number of pay-per-view buys in 2013. This decrease was partially offset by a 4% increase in average revenue per buy from 2012 due, in part, to an increase in the domestic retail price charged for viewing WrestleMania and higher retail prices charged for viewing our events in high definition. The pay-per-view OIBDA as a percentage of revenues decreased to 41% in 2013 from 54% in 2012 due primarily to an additional $5.1 million in talent related expenses.
Television rights fees revenues increased by $21.4 million in 2013 as compared to 2012. Domestically, television rights fees increased by $17.0 million, primarily due to the production and licensing of new programs. During the third quarter of 2013, we debuted a new television series, Total Divas, which is carried on the E! Network. In addition, 2013 includes the full year impact of programing introduced in 2012, particularly, an additional hour of RAW to the USA Network, as well as rights fees for an original series, WWE Main Event on the ION Television Network. The television rights fees OIBDA as a percentage of revenues decreased to 36% from 38% in 2012 primarily due to increased production costs.
Other Live and Televised OIBDA was a loss of $10.8 million in 2013 as compared to a loss of $5.0 million in 2012. This increase is a result of additional talent compensation and travel related costs.


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Consumer Products
The following tables present the performance results and key drivers for our
Consumer Products segment (dollars in millions):
Revenues-Consumer Products              2013            2012         increase (decrease)
Licensing                           $      43.6     $      46.3               (6 )%
Home entertainment                  $      24.3     $      33.0              (26 )%
Gross units shipped                   3,987,200       3,775,800                6  %
Magazine publishing                 $       5.7     $       6.0               (5 )%
Net units sold                        1,843,100       2,003,500               (8 )%
Other                               $       2.8     $       2.5               12  %
Total                               $      76.4     $      87.8              (13 )%

OIBDA-Consumer Products                 2013            2012         increase (decrease)
Licensing                           $      31.3     $      32.3               (3 )%
Home entertainment                          8.8            15.4              (43 )%
Magazine publishing                         0.1             0.4              (75 )%
Other                                       0.6             0.5               20  %
Total                               $      40.8     $      48.6              (16 )%
OIBDA as a percentage of revenues            53 %            55 %

Licensing revenues decreased by $2.7 million in 2013 as compared to 2012, reflecting a decline in revenue from sales of toys, video games and other products both domestically and internationally. The current year period reflected an estimated $2.0 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. As a result of THQ's bankruptcy, we did not collect or recognize a portion of anticipated royalties due in 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. Overall, sales of our video game declined approximately 11% due in part to lower effective pricing from 2012. Licensing OIBDA as a percentage of revenues was 72% in 2013 compared to 70% in 2012 partially as a result of product mix.
Home entertainment revenues decreased by $8.7 million or 26% in 2013 as compared to 2012. Domestic home entertainment revenue fell approximately $6.4 million, or 23%, as a 6% increase in shipments to 4.0 million units was more than offset by lower sell-through rates and a 13% decline in the average price per unit to $9.60 reflecting a shift in product mix and retail demand for lower priced product. Additionally, we released 28 titles in 2013 compared to 35 titles in 2012.
Revenue from our international home entertainment activities declined by approximately $2.3 million reflecting lower sales in Canada and the transition to a new licensee in the EMEA region. Home entertainment OIBDA as a percentage of revenues decreased to 36% in 2013 compared to 47% in 2012 due to lower sell-through rates and higher talent expenses.
Magazine publishing revenues decreased by $0.3 million in 2013 as compared to 2012. Net units sold decreased by 8% driven by weaker newsstand demand and lower subscription revenue for the WWE Kids magazine reflecting, in part, the continued overall decline in the magazine publishing industry. We published twelve issues of WWE Magazine, ten issues of WWE Kids magazine and three special issues both in 2013 and in 2012. Publishing OIBDA as a percentage of revenues was 2% in 2013 compared to 7% in 2012, as a result of the decrease in revenue coupled with constant unit production costs year over year.


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Digital Media
   The following tables present the performance results for our Digital Media
segment (dollars in millions, except where noted):
Revenues-Digital Media                                  2013          2012        increase (decrease)
WWE.com                                              $    23.0     $    19.7               17  %
WWEShop                                                   15.5          14.8                5  %
Total                                                $    38.5     $    34.5               12  %
Average WWEShop revenues per order (dollars)         $   48.10     $   47.66                1  %

OIBDA-Digital Media                                     2013          2012        increase (decrease)
WWE.com                                              $     5.5     $     8.2              (33 )%
WWEShop                                                    2.4           2.1               14  %
Total                                                $     7.9     $    10.3              (23 )%
OIBDA as a percentage of revenues                           21 %          30 %

WWE.com revenues increased by $3.3 million in 2013 as compared to 2012 due to the incremental impact of the Company's launch of digital distribution of our pay-per-view events across several new platforms and higher sales of advertising across various digital platforms. WWE.com OIBDA as a percentage of revenues decreased to 24% in 2013 from 42% in 2012 due to hiring of new personnel to support digital content initiatives.
WWEShop revenues increased by $0.7 million in 2013 compared to 2012, driven by a 4% increase in the number of orders to 320,200. Average revenue per order increased slightly by 1% to $48.10. WWEShop OIBDA as a percentage of revenues remained relatively flat in the periods.


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WWE Studios
The following table provides detailed information on our WWE Studios' segment
(in millions):


                                                 Feature
                                                  Film                                            For the Year Ended December 31,
                                               Production
                  Release      Production     Assets-net as      Inception to-date                 Revenue                    OIBDA
                                               of Dec 31,
    Title          Date          Costs*           2013          Revenue        OIBDA          2013           2012        2013        2012
2013
Christmas
Bounty           Nov 2013    $        3.7     $       0.1     $      4.1     $   0.6     $    4.1            $ N/A     $   0.6      $ N/A
12Rounds 2:
Reloaded         June 2013            1.5             1.4              -           -            -              N/A           -        N/A
No One Lives     May 2013             2.2             0.4            0.9        (0.8 )        0.9              N/A        (0.8 )      N/A
The Call         Mar 2013             1.0             1.0            0.3         0.3          0.3              N/A         0.3        N/A
Dead Man Down    Mar 2013             5.8             1.0              -        (4.7 )          -              N/A        (4.7 )      N/A
The Marine 3:
Homefront        Mar 2013             1.5             1.4            0.1           -          0.1              N/A           -        N/A
                                     15.7             5.3            5.4        (4.6 )        5.4                -        (4.6 )        -
2012
Barricade        Sept 2012            4.1             0.1            1.2        (4.0 )        0.4              0.8        (0.5 )     (1.3 )
The Day          Aug 2012               -               -            0.2         0.2          0.2                -         0.2          -
No Holds
Barred           July 2012              -               -            0.7         0.3          0.3              0.4         0.2        0.1
Bending the
Rules            Mar 2012             5.5               -            1.0        (5.4 )        0.1              0.9        (0.7 )     (1.5 )
                                      9.6             0.1            3.1        (8.9 )        1.0              2.1        (0.8 )     (2.7 )

Prior Releases                      106.7             4.0           98.6       (22.8 )        4.4              5.8        (3.8 )      0.1

Completed but not released            3.1             3.1              -           -            -                -           -          -
In production                         2.7             2.7              -           -            -                -           -          -
In development                        0.8             0.8              -        (4.1 )          -                -           -       (1.0 )
Sub-total                    $      138.6     $      16.0     $    107.1     $ (40.4 )   $   10.8          $   7.9     $  (9.2 )   $ (3.6 )
Selling,
General &
Administrative
Expenses                                                                                                                  (3.5 )     (1.9 )
Total                                                                                                                  $ (12.7 )   $ (5.5 )

* Production costs are presented net of the associated benefit of production incentives.

During 2013, we released three feature films via theatrical distribution, No One Lives, Dead Man Down and The Call, two films, 12 Rounds 2: Reloaded and The Marine 3: Homefront direct to DVD and one made-for-television movie, Christmas Bounty. Third-party distributors control the distribution and marketing of these 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 recorded revenues of $10.8 million for 2013 compared to $7.9 million for 2012, an increase of $2.9 million or 37%. Revenues for WWE Studios is impacted by the timing of our film releases and change in our distribution model. The increase in revenue in the current year is primarily related to the made-for-television movie, Christmas Bounty, which was released in the fourth quarter of 2013. Although, there were five feature films released in 2013 compared to four films released in 2012, revenues for these 2013 films will be recognized on a net basis as participation statements are received rather than upon release as was the case with our self-distributed titles, including Christmas Bounty. WWE Studios OIBDA decreased $7.2 million in 2013 as compared to 2012, primarily as a result of recording impairment charges of $11.7 million in 2013 compared with $1.2 million in 2012.
At December 31, 2013, the Company had $16.0 million (net of accumulated amortization and impairment charges) of feature film production assets capitalized on its Consolidated Balance Sheet, of which $9.4 million relates to films completed and in release and $6.6 million relates to various films not yet released. We review and revise estimates of ultimate revenue and participation


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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 flow model. If fair value is less than unamortized cost, the film asset is written down to fair value. In 2013, the Company recorded impairments totaling $11.7 million, including $4.7 million and $0.9 million, for Dead Man Down and No One Lives, respectively, which were 2013 releases and $6.1 million from previously released films. During 2012, we recorded impairment charges of $1.2 million related to the feature films, Bending the Rules and Barricade.
Unallocated Corporate Expenses
The following table presents the amounts and percent change of certain significant unallocated corporate expenses (dollars in millions):

                                                        2013          2012        increase (decrease)
Staff related                                        $    52.5     $    47.3                11  %
Management incentive compensation                          7.2          10.4               (31 )%
Legal, accounting and other professional                  20.6          17.2                20  %
Travel and entertainment expenses                          5.3           4.2                26  %
Advertising, marketing and promotion                       9.1           6.9                32  %
Corporate insurance                                        4.0           3.9                 3  %
Bad debt expense                                             -           2.5              (100 )%
All other                                                 26.4          24.3                 9  %
Total unallocated corporate expenses                 $   125.1     $   116.7                 7  %
Unallocated corporate expenses as a percentage of
net revenues                                                25 %          24 %

Unallocated corporate expenses increased by $8.4 million or 7% in 2013 compared to 2012. This was primarily due to increased expenses related to supporting our content related initiatives, including the launch of WWE Network in 2014, as well as to develop our advertising sales and international infrastructure, partially offset by decreased management incentive compensation due to 2013 operating performance.

Depreciation and Amortization
(dollars in millions)
                                 2013      2012      increase (decrease)
Depreciation and amortization   $ 24.5    $ 20.0               23 %

Depreciation and amortization expense increased by $4.5 million, or 23%, in 2013 compared to 2012. Depreciation expense for 2013 reflects higher property and equipment balances to support our emerging content and distribution efforts, including our new WWE Network.
Investment Income, Interest Expense and Other Expense, Net
(dollars in millions) . . .

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