wwe_10q.htm
UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| (
X ) |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
| |
| |
|
For the
quarterly period ended March 31,
2010 |
or
| ( ) |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
| |
|
|
| |
|
For the
transition period from ________ to _________ |
|
|
|
|
| |
|
Commission file number 0-27639 |
WORLD WRESTLING
ENTERTAINMENT, INC.
(Exact name of Registrant as specified in its
charter)
| Delaware |
|
|
04-2693383 |
| (State or other jurisdiction
of |
|
|
(I.R.S. Employer |
| incorporation or organization) |
|
|
Identification
No.) |
1241 East Main Street
Stamford, CT
06902
(203) 352-8600
(Address, including zip code, and telephone number, including area
code,
of Registrant’s principal executive offices)
Indicate by check
mark whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports) and (2) has been subject to such filing requirements for the past
90 days.
Yes
X
No _____
Indicate by check
mark whether the registrant has submitted electronically and posted on its
corporate website, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post
such files).
Yes
_____ No _____
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See definitions of
“large accelerated filer,” “accelerated filer,” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check one):
|
Large
accelerated filer o
|
Accelerated filer
x
|
|
|
Non-accelerated
filer o
(Do not check if a smaller
reporting company)
|
Smaller reporting
company o
|
|
Indicate by check
mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes _____ No
X
At May 2, 2010 the
number of shares outstanding of the Registrant’s Class A common stock, par value
$.01 per share, was 25,793,313 and the number of shares outstanding of the
Registrant’s Class B common stock, par value $.01 per share, was 47,713,563.
World Wrestling Entertainment, Inc.
Table
of Contents
|
|
|
Page # |
| Part I – FINANCIAL
INFORMATION |
|
|
|
|
| |
|
|
|
|
|
Item 1. Consolidated Financial Statements (unaudited) |
|
|
|
|
| |
|
|
|
|
|
Consolidated Income Statements for the
three months ended March 31, 2010 |
|
|
|
|
|
and March 31, 2009 |
|
|
2 |
|
| |
|
|
|
|
|
Consolidated Balance Sheets as of March
31, 2010 and December 31, 2009 |
|
|
3 |
|
| |
|
|
|
|
|
Consolidated Statements of Cash Flows for
the three months ended March 31, 2010 |
|
|
|
|
|
and March 31, 2009 |
|
|
4 |
|
| |
|
|
|
|
|
Consolidated Statement of Stockholders’
Equity and Comprehensive |
|
|
|
|
|
Income for the three months ended March
31, 2010 |
|
|
5 |
|
| |
|
|
|
|
|
Notes to Consolidated Financial
Statements |
|
|
6 |
|
| |
|
|
|
|
| Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations |
|
|
17 |
|
| |
|
|
|
|
| Item 3. Quantitative and Qualitative
Disclosures about Market Risk |
|
|
26 |
|
| |
|
|
|
|
| Item 4. Controls and
Procedures |
|
|
26 |
|
| |
|
|
|
|
| Part II – OTHER
INFORMATION |
|
|
|
|
| |
|
|
|
|
| Item 1. Legal Proceedings |
|
|
27 |
|
| |
|
|
|
|
| Item 1A. Risk Factors |
|
|
27 |
|
| |
|
|
|
|
| Item 6. Exhibits |
|
|
27 |
|
| |
|
|
|
|
| Signature |
|
|
28 |
|
1
World Wrestling
Entertainment, Inc.
Consolidated Income Statements
(In thousands, except
per share data)
(unaudited)
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
March 31, |
|
|
|
2010 |
|
2009 |
| Net revenues |
|
$ |
138,725 |
|
|
$ |
107,825 |
|
| |
|
|
|
|
|
|
|
|
| Cost of revenues |
|
|
73,685 |
|
|
|
56,437 |
|
| Selling, general and administrative expenses |
|
|
25,879 |
|
|
|
30,857 |
|
| Depreciation and amortization |
|
|
1,839 |
|
|
|
3,783 |
|
| |
|
|
|
|
|
|
|
|
| Operating income |
|
|
37,322 |
|
|
|
16,748 |
|
| |
|
|
|
|
|
|
|
|
| Investment income, net |
|
|
483 |
|
|
|
616 |
|
| Interest expense |
|
|
(71 |
) |
|
|
(91 |
) |
| Other expense, net |
|
|
(1,042 |
) |
|
|
(1,325 |
) |
| |
|
|
|
|
|
|
|
|
| Income before income taxes |
|
|
36,692 |
|
|
|
15,948 |
|
| |
|
|
|
|
|
|
|
|
| Provision for income taxes |
|
|
11,955 |
|
|
|
5,626 |
|
| |
|
|
|
|
|
|
|
|
| Net income |
|
$ |
24,737 |
|
|
$ |
10,322 |
|
| |
|
|
|
|
|
|
|
|
| Earnings per share |
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
Class A |
|
$ |
0.42 |
|
|
$ |
- |
|
|
Class B |
|
$ |
0.29 |
|
|
$ |
- |
|
|
Total |
|
$ |
0.33 |
|
|
$ |
0.14 |
|
| Diluted |
|
|
|
|
|
|
|
|
|
Class A |
|
$ |
0.41 |
|
|
$ |
- |
|
|
Class B |
|
$ |
0.29 |
|
|
$ |
- |
|
|
Total |
|
$ |
0.33 |
|
|
$ |
0.14 |
|
| |
|
|
|
|
|
|
|
|
| Weighted average common shares
outstanding |
|
|
|
|
|
|
|
|
| Basic |
|
|
|
|
|
|
|
|
|
Class A |
|
|
26,517 |
|
|
|
25,762 |
|
|
Class B |
|
|
47,714 |
|
|
|
47,714 |
|
| Diluted |
|
|
|
|
|
|
|
|
|
Class A |
|
|
27,505 |
|
|
|
26,185 |
|
|
Class B |
|
|
47,714 |
|
|
|
47,714 |
|
See Notes to
Consolidated Financial Statements.
2
World Wrestling
Entertainment, Inc.
Consolidated Balance Sheet
(dollars in
thousands)
(unaudited)
|
|
|
As of |
|
As of |
|
|
|
March 31, |
|
December 31, |
|
|
|
2010 |
|
2009 |
| ASSETS |
|
|
|
|
|
|
| CURRENT ASSETS: |
|
|
|
|
|
|
|
Cash and equivalents |
|
$
|
136,347 |
|
$
|
149,784 |
| Short-term investments |
|
|
90,112 |
|
|
58,440 |
| Accounts receivable, net |
|
|
65,538 |
|
|
62,732 |
| Inventory, net |
|
|
1,921 |
|
|
2,182 |
| Prepaid expenses and other current
assets |
|
|
24,667 |
|
|
21,721 |
|
Total current assets |
|
|
318,585 |
|
|
294,859 |
| |
|
|
|
|
|
|
| PROPERTY AND EQUIPMENT, NET |
|
|
81,217 |
|
|
84,376 |
| FEATURE FILM PRODUCTION ASSETS |
|
|
43,152 |
|
|
37,053 |
| INVESTMENT SECURITIES |
|
|
22,280 |
|
|
22,370 |
| INTANGIBLE ASSETS, NET |
|
|
273 |
|
|
276 |
| OTHER ASSETS |
|
|
1,640 |
|
|
1,687 |
| TOTAL ASSETS |
|
$ |
467,147 |
|
$ |
440,621 |
| LIABILITIES AND STOCKHOLDERS’
EQUITY |
|
|
|
|
|
|
| CURRENT LIABILITIES: |
|
|
|
|
|
|
| Current portion of long-term
debt |
|
$ |
1,103 |
|
$ |
1,082 |
| Accounts payable |
|
|
23,458 |
|
|
21,281 |
| Accrued expenses and other
liabilities |
|
|
45,403 |
|
|
35,164 |
| Deferred income |
|
|
25,609 |
|
|
14,603 |
|
Total current
liabilities |
|
|
95,573 |
|
|
72,130 |
| |
|
|
|
|
|
|
| LONG-TERM DEBT |
|
|
2,506 |
|
|
2,790 |
| NON-CURRENT INCOME TAX LIABILITIES |
|
|
13,712 |
|
|
17,152 |
| NON-CURRENT DEFERRED INCOME |
|
|
11,116 |
|
|
11,528 |
| |
|
|
|
|
|
|
| COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
| |
|
|
|
|
|
|
| STOCKHOLDERS' EQUITY: |
|
|
|
|
|
|
| Class A common stock |
|
|
258 |
|
|
257 |
| Class B common stock |
|
|
477 |
|
|
477 |
| Additional paid-in capital |
|
|
329,773 |
|
|
326,008 |
| Accumulated other comprehensive
income |
|
|
2,266 |
|
|
2,377 |
| Retained earnings |
|
|
11,466 |
|
|
7,902 |
|
Total stockholders'
equity |
|
|
344,240 |
|
|
337,021 |
| |
|
|
|
|
|
|
| TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY |
|
$ |
467,147 |
|
$ |
440,621 |
| |
|
|
|
|
|
|
See Notes to
Consolidated Financial Statements.
3
World Wrestling Entertainment,
Inc.
Consolidated Statements of Cash Flows
(dollars in
thousands)
(unaudited)
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
March 31, |
|
|
|
2010 |
|
2009 |
| OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
| Net income |
|
$
|
24,737 |
|
|
$ |
10,322 |
|
| Adjustments to reconcile net income to
net cash provided |
|
|
|
|
|
|
|
|
| by
operating activities: |
|
|
|
|
|
|
|
|
| Amortization of feature film production
assets |
|
|
1,340 |
|
|
|
1,574 |
|
| Revaluation of warrants |
|
|
(96 |
) |
|
|
858 |
|
| Depreciation and amortization |
|
|
1,839 |
|
|
|
3,783 |
|
| Realized gain on sale of
investments |
|
|
(52 |
) |
|
|
- |
|
| Amortization of investment
income |
|
|
366 |
|
|
|
288 |
|
| Stock compensation costs |
|
|
2,347 |
|
|
|
1,132 |
|
| (Recovery) provision for doubtful
accounts |
|
|
(1,488 |
) |
|
|
477 |
|
| Provision for inventory
obsolescence |
|
|
974 |
|
|
|
393 |
|
| Benefit from deferred income
taxes |
|
|
(3,694 |
) |
|
|
(484 |
) |
| Excess tax benefits from stock-based payment
arrangements |
|
|
(157 |
) |
|
|
- |
|
| Changes in assets and
liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(428 |
) |
|
|
6,372 |
|
|
Inventory |
|
|
(713 |
) |
|
|
522 |
|
|
Prepaid expenses and other
assets |
|
|
(2,850 |
) |
|
|
4,023 |
|
|
Feature film production
assets |
|
|
(7,597 |
) |
|
|
(223 |
) |
|
Accounts payable |
|
|
2,177 |
|
|
|
2,371 |
|
|
Accrued expenses and other
liabilities |
|
|
10,744 |
|
|
|
13,824 |
|
|
Deferred income |
|
|
10,594 |
|
|
|
2,086 |
|
|
Net cash provided by operating activities |
|
|
38,043 |
|
|
|
47,318 |
|
| |
|
|
|
|
|
|
|
|
| INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
| Purchases of property and equipment and other
assets |
|
|
(2,807 |
) |
|
|
(1,484 |
) |
| Proceeds from infrastructure
incentives |
|
|
3,240 |
|
|
|
- |
|
| Purchase of short-term
investments |
|
|
(34,566 |
) |
|
|
(10,168 |
) |
| Proceeds from sales or maturities of short-term
investments |
|
|
2,479 |
|
|
|
- |
|
|
Net cash used in investing
activities |
|
|
(31,654 |
) |
|
|
(11,652 |
) |
| |
|
|
|
|
|
|
|
|
| FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
| Repayments of long-term debt |
|
|
(263 |
) |
|
|
(245 |
) |
| Dividends paid |
|
|
(20,707 |
) |
|
|
(20,454 |
) |
| Issuance of stock, net |
|
|
434 |
|
|
|
429 |
|
| Net proceeds from exercise of stock
options |
|
|
553 |
|
|
|
- |
|
| Excess tax benefits from stock-based payment
arrangements |
|
|
157 |
|
|
|
- |
|
|
Net cash used in financing
activities |
|
|
(19,826 |
) |
|
|
(20,270 |
) |
| |
|
|
|
|
|
|
|
|
| NET (DECREASE) INCREASE IN CASH AND
EQUIVALENTS |
|
|
(13,437 |
) |
|
|
15,396 |
|
| CASH AND EQUIVALENTS, BEGINNING OF PERIOD |
|
|
149,784 |
|
|
|
119,655 |
|
| CASH AND EQUIVALENTS, END OF
PERIOD |
|
$ |
136,347 |
|
|
$ |
135,051 |
|
| |
|
|
|
|
|
|
|
|
See Notes to
Consolidated Financial Statements.
4
World
Wrestling Entertainment, Inc.
Consolidated
Statement of Stockholders' Equity and Comprehensive Income
(dollars and shares in
thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
Common
Stock |
|
Paid - in |
|
Comprehensive |
|
Retained |
|
|
|
|
|
|
|
Shares |
|
Amount |
|
Capital |
|
Income |
|
Earnings |
|
Total |
| Balance, December 31, 2009 |
|
73,404 |
|
$
|
734 |
|
$ |
326,008 |
|
$ |
2,377 |
|
|
$ |
7,902 |
|
|
$ |
337,021 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
24,737 |
|
|
|
24,737 |
|
| Translation adjustment |
|
|
|
|
- |
|
|
- |
|
|
8 |
|
|
|
- |
|
|
|
8 |
|
| Unrealized holding loss, net of
tax |
|
- |
|
|
|
|
|
|
|
|
(87 |
) |
|
|
|
|
|
|
(87 |
) |
| Reclassification adjustment for
gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
realized in net income, net of
tax |
|
|
|
|
|
|
|
|
|
|
(32 |
) |
|
|
|
|
|
|
(32 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,626 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock issuances, net |
|
44 |
|
|
1 |
|
|
242 |
|
|
- |
|
|
|
- |
|
|
|
243 |
|
| Exercise of stock options |
|
43 |
|
|
- |
|
|
553 |
|
|
|
|
|
|
|
|
|
|
553 |
|
| Excess tax benefits from stock
based |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| payment arrangements |
|
- |
|
|
- |
|
|
157 |
|
|
- |
|
|
|
- |
|
|
|
157 |
|
| Dividends paid |
|
- |
|
|
- |
|
|
466 |
|
|
- |
|
|
|
(21,173 |
) |
|
|
(20,707 |
) |
| Stock compensation costs |
|
- |
|
|
- |
|
|
2,347 |
|
|
- |
|
|
|
- |
|
|
|
2,347 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, March 31, 2010 |
|
73,491 |
|
$ |
735 |
|
$ |
329,773 |
|
$ |
2,266 |
|
|
$ |
11,466 |
|
|
$ |
344,240 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to
Consolidated Financial Statements.
5
World Wrestling Entertainment,
Inc.
Notes to Consolidated Financial Statements
(dollars in thousands,
except per share amounts)
(unaudited)
1. Basis of Presentation and Business
Description
The accompanying consolidated financial
statements include the accounts of World Wrestling Entertainment, Inc., and our
subsidiaries. “WWE” refers to World Wrestling Entertainment, Inc. and its
subsidiaries, unless the context otherwise requires. References to “we,” “us,”
“our” and the “Company” refer to WWE and its subsidiaries. We are an integrated
media and entertainment company, principally engaged in the development,
production and marketing of television and pay-per-view event programming and
live events and the licensing and sale of consumer products featuring our World
Wrestling Entertainment brands. Our operations are organized around four
principal activities:
Live and Televised Entertainment
- Revenues consist principally of
ticket sales to live events, sales of merchandise at these live events,
television rights fees, sales of television advertising and 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 and magazine publishing 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 featuring our Superstars. To date, we
have partnered with major studios to distribute our productions. We have recently announced plans to
self-distribute our future filmed entertainment productions beginning with our
next release, currently scheduled for September 2010.
All intercompany balances are eliminated in
consolidation. The accompanying consolidated financial statements are unaudited.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of financial position,
results of operations and cash flows at the dates and for the periods presented
have been included. The results of operations of any interim period are not
necessarily indicative of the results of operations for the full year. Effective
April 1, 2009, as a result of reconsidering contract elements of certain
international live event contracts, the accounting treatment for these
transactions was changed prospectively to reflect these transactions on a gross
basis pursuant to the authoritative literature regarding gross vs. net revenue
reporting. Previously, these contracts were incorrectly reported on a net basis
pursuant to the same authoritative literature. The impact of the accounting of
these contracts prior to April 1, 2009 was not material to any of the periods
presented, and therefore, the periods have not been adjusted.
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires our management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
Certain information and note disclosures normally included in annual financial
statements have been condensed or omitted from these interim financial
statements; these financial statements should be read in conjunction with the
financial statements and notes thereto included in our Form 10-K for the year
ended December 31, 2009.
6
World Wrestling Entertainment,
Inc.
Notes to Consolidated Financial Statements
(dollars in thousands,
except per share amounts)
(unaudited)
Recent Accounting Pronouncements
In January 2010, the FASB issued amendments to
the accounting standards related to the disclosures about an entity’s use of
fair value measurements. Among these amendments, entities will be required to
provide enhanced disclosures about transfers into and out of the Level 1 (fair
value determined based on quoted prices in active markets for identical assets
and liabilities) and Level 2 (fair value determined based on significant other
observable inputs) classifications, provide separate disclosures about
purchases, sales, issuances and settlements relating to the tabular
reconciliation of beginning and ending balances of the Level 3 (fair value
determined based on significant unobservable inputs) classification and provide
greater disaggregation for each class of assets and liabilities that use fair
value measurements. Except for the detailed Level 3 roll-forward disclosures,
the new standard is effective for the Company for interim and annual reporting
periods beginning after December 31, 2009. The adoption of this accounting
standards amendment did not have a material impact on the Company’s consolidated
financial statements. The requirement to provide detailed disclosures about the
purchases, sales, issuances and settlements in the roll-forward activity for
Level 3 fair value measurements is effective for the Company for interim and
annual reporting periods beginning after December 31, 2010. The Company does not
expect that the adoption of these new disclosure requirements will have a
material impact on its consolidated financial statements.
In February 2010, the FASB issued an amendment
to the accounting standards related to the accounting for, and disclosure of,
subsequent events in an entity’s consolidated financial statements. This
standard amends the authoritative guidance for subsequent events that was
previously issued and among other things exempts Securities and Exchange
Commission registrants from the requirement to disclose the date through which
it has evaluated subsequent events for either original or restated financial
statements. This standard does not apply to subsequent events or transactions
that are within the scope of other applicable GAAP that provides different
guidance on the accounting treatment for subsequent events or transactions. The
adoption of this standard did not have a material impact on the Company’s
consolidated financial statements.
2. Share Based
Compensation
Compensation expense relating to grants of
performance stock units (PSUs) and restricted stock units (RSUs) are recognized
over the period during which the employee rendered service to the Company
necessary to earn the award. Stock based compensation cost was approximately
$2,347 and $1,132 for the three months ended March 31, 2010 and 2009,
respectively.
During 2009, we granted approximately 586,500
PSUs under our 2007 Omnibus Incentive Plan (“Plan”) at a weighted average price
per share of $9.91. Based on the financial results for the year ended December
31, 2009, approximately 765,000 PSUs were ultimately issued in 2010 related to
this grant at an average price per share of $16.07.
During the quarter, we granted 422,250 PSUs as
part of the Plan at a weighted average price per share of $17.01. This grant is
subject to the Company achieving established earnings targets for the financial
results of the year ending December 31, 2010. Total compensation cost related to
these PSUs, based on the estimated value of the units on the issuance date, net
of estimated forfeitures, is $6,608. The compensation is being amortized over the service period,
which is approximately three and one-half years. If these goals are met, the
shares issued will vest in equal annual installments. At March 31, 2010, an
aggregate of 1,553,958 PSUs were unvested for all PSU grants with a weighted
average fair value of $15.52 per share.
7
World Wrestling Entertainment,
Inc.
Notes to Consolidated Financial Statements
(dollars in thousands,
except per share amounts)
(unaudited)
During the quarter, we granted 2,500 RSUs
under the Plan at a weighted average grant date fair value of $15.94 per share.
Total compensation cost related to these grants, net of estimated forfeitures,
is $37. The compensation is being amortized over the service period, which is
approximately three years. At March 31, 2010, 188,442 RSUs were unvested with a
weighted average fair value of $14.44 per share.
3. Stockholders’ Equity
Beginning in February 2008, the Board of
Directors authorized an increase in the quarterly cash dividend to $0.36 per
share on all Class A common shares not held by the McMahon family. At that time,
the McMahon family and their trusts entered into an agreement with the Company
to waive the increased portion of the dividend for all shares of Class A and
Class B common stock beneficially held by the family for a period of three
years, subject to early termination in the event of Vincent K. McMahon’s death.
Instead, they continue to receive a quarterly cash dividend of $0.24 per share.
Any new dividend waiver is subject to the agreement of members of the McMahon
family and their receipt of the approval of the Internal Revenue Service. We
paid cash dividends of $20,707 and $20,454 for the three months ended March 31,
2010 and March 31, 2009, respectively.
4. Earnings Per Share
For purposes of calculating basic and diluted
earnings per share, we used the following weighted average common shares
outstanding:
|
|
|
Three months ended |
|
|
|
March 31, |
|
March 31, |
|
|
|
2010 |
|
2009 |
| Basic |
|
|
|
|
| Class A |
|
26,517,262 |
|
25,762,676 |
| Class B |
|
47,713,563 |
|
47,713,563 |
| Diluted |
|
|
|
|
| Class A |
|
27,505,345 |
|
26,185,435 |
| Class B |
|
47,713,563 |
|
47,713,563 |
| Dilutive effect of outstanding options
and |
|
|
|
|
| restricted stock units |
|
988,083 |
|
421,668 |
| Anti-dilutive outstanding options |
|
- |
|
644,346 |
Net income per share of Class A Common Stock
and Class B Common Stock is computed in accordance with a two- class method of
earnings allocation. Any undistributed earnings for each period are allocated to
each class of common stock based on the proportionate share of the amount of
cash dividends that each class is entitled to receive.
8
World Wrestling Entertainment, Inc.
Notes to
Consolidated Financial Statements
(dollars in thousands, except per share
amounts)
(unaudited)
Earnings per share information is as follows:
|
|
|
March 31, |
|
March 31, |
|
|
|
2010 |
|
2009 |
| Basic |
|
|
|
|
|
|
| Class A |
|
$ |
0.42 |
|
|
- |
| Class B |
|
$ |
0.29 |
|
|
- |
| Total |
|
$ |
0.33 |
|
$ |
0.14 |
| Diluted |
|
|
|
|
|
|
| Class A |
|
$ |
0.41 |
|
|
- |
| Class B |
|
$ |
0.29 |
|
|
- |
| Total |
|
$ |
0.33 |
|
$ |
0.14 |
As there were no undistributed earnings
for the three months ended March 31, 2009, Class A and Class B earnings per
share were not calculated separately.
5. Segment Information
We do not allocate corporate overhead to each
of the segments, and as a result, corporate overhead is a reconciling item in
the table below. There are no inter-segment revenues. Revenues derived from
sales outside of North America were approximately $31,779 and $23,960 for the
three months ended March 31, 2010 and March 31, 2009, respectively. Revenues
generated in the United Kingdom, our largest international market, were
approximately $7,958 and $6,931 for the three months ended March 31, 2010 and
March 31, 2009, respectively. Unallocated assets consist primarily of cash,
short-term investments, real property and other investments.
|
|
|
Three months ended |
|
|
|
March 31, |
|
March 31, |
|
|
|
2010 |
|
2009 |
| Net revenues: |
|
|
|
|
|
|
| Live and Televised
Entertainment |
|
$ |
98,223 |
|
$ |
64,082 |
| Consumer Products |
|
|
30,746 |
|
|
33,069 |
| Digital Media |
|
|
6,396 |
|
|
6,929 |
| WWE Studios |
|
|
3,360 |
|
|
3,745 |
| Total net revenues |
|
$ |
138,725 |
|
$ |
107,825 |
| |
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
March 31, |
|
|
|
2010 |
|
2009 |
| Depreciation and amortization: |
|
|
|
|
|
|
| Live and Televised
Entertainment |
|
$ |
298 |
|
$ |
1,902 |
| Consumer Products |
|
|
62 |
|
|
337 |
| Digital Media |
|
|
287 |
|
|
273 |
| WWE Studios |
|
|
— |
|
|
— |
| Corporate |
|
|
1,192 |
|
|
1,271 |
| Total depreciation and
amortization |
|
$ |
1,839 |
|
$ |
3,783 |
| |
|
|
|
|
|
|
9
World Wrestling Entertainment, Inc.
Notes
to Consolidated Financial Statements
(dollars in thousands, except per share
amounts)
(unaudited)
| |
|
Three months ended |
| |
|
March 31, |
|
March 31, |
| |
|
2010 |
|
2009 |
| Operating income: |
|
|
|
|
|
|
|
|
| Live and Televised
Entertainment |
|
$ |
39,207 |
|
|
$ |
21,390 |
|
|
Consumer Products |
|
|
17,336 |
|
|
|
19,530 |
|
| Digital Media |
|
|
986 |
|
|
|
1,143 |
|
| WWE
Studios |
|
|
1,426 |
|
|
|
1,782 |
|
| Corporate |
|
|
(21,633 |
) |
|
|
(27,097 |
) |
|
Total operating income |
|
$ |
37,322 |
|
|
$
|
16,748 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
March 31, |
|
December 31, |
|
|
|
2010 |
|
2009 |
| Assets: |
|
|
|
|
|
|
| Live and Televised
Entertainment |
|
$ |
142,977 |
|
$ |
141,915 |
|
Consumer Products |
|
|
18,615 |
|
|
21,521 |
| Digital Media |
|
|
6,264 |
|
|
7,111 |
| WWE
Studios |
|
|
52,433 |
|
|
43,186 |
| Unallocated |
|
|
246,858 |
|
|
226,888 |
|
Total assets |
|
$
|
467,147 |
|
$ |
440,621 |
| |
|
|
|
|
|
|
6. Property and Equipment
Property and equipment consisted of the following:
|
|
|
As of |
|
|
|
March 31, |
|
December 31, |
|
|
|
2010 |
|
2009 |
| Land, buildings and
improvements |
|
$ |
74,060 |
|
|
$
|
74,363 |
|
| Equipment |
|
|
66,167 |
|
|
|
67,527 |
|
| Corporate aircraft |
|
|
20,859 |
|
|
|
20,858 |
|
| Vehicles |
|
|
537 |
|
|
|
537 |
|
| |
|
|
161,623 |
|
|
|
163,285 |
|
| Less accumulated depreciation and amortization |
|
|
(80,406 |
) |
|
|
(78,909 |
) |
|
Total |
|
$ |
81,217 |
|
|
$ |
84,376 |
|
| |
|
|
|
|
|
|
|
|
During 2010 we received tax credits relating
to our infrastructure improvements in conjunction with our transition to high
definition broadcasting. The credits were realized at $4,202 and were recorded
as a reduction of the related assets.
Depreciation and amortization expense for
property and equipment was $1,777 for the three months ended March 31, 2010 as
compared to $3,429 for the three months ended March 31, 2009. Depreciation
expense in the current quarter reflected a one-time benefit of $1,674 from the
recognition of an infrastructure tax credit.
10
World Wrestling Entertainment, Inc.
Notes
to Consolidated Financial Statements
(dollars in thousands, except per share
amounts)
(unaudited)
7. Feature Film Production
Assets
Feature film production assets are summarized as follows:
|
|
|
As of |
|
|
|
March 31, |
|
December 31, |
|
|
|
2010 |
|
2009 |
| Feature film productions: |
|
|
|
|
|
|
| In release |
|
$ |
26,494 |
|
$ |
27,772 |
| Completed but not released |
|
|
11,672 |
|
|
- |
| In production |
|
|
4,160 |
|
|
8,473 |
| In development |
|
|
826 |
|
|
808 |
| Total |
|
$ |
43,152 |
|
$
|
37,053 |
| |
|
|
|
|
|
|
There were no feature film releases in the
current quarter. In the prior year quarter we released one theatrical film,
12 Rounds, and one Direct-to-DVD film, Behind Enemy Lines: Colombia. 12 Rounds comprises $19,667 of our “In release” feature
film assets, and Behind Enemy Lines: Colombia
comprises $1,804 of “In
release” feature film assets.
Feature film production assets are recorded
net of the associated benefit of production incentives. During the three months
ended March 31, 2010 and 2009, we received $0 and $4,289, respectively, of
production incentives from domestic and international feature film production
activities.
Unamortized feature film production assets are
evaluated for impairment each reporting period. If the estimated revenue is not
sufficient to recover the unamortized asset, the asset will be written down to
fair value. As of March 31, 2010, we do not believe any capitalized assets
included in Feature Film Production Assets are impaired.
Approximately 40% of “In release” film
production assets are estimated to be amortized over the next 12 months and
approximately 80% of “In release” film production assets are estimated to be
amortized over the next three years.
We currently have two theatrical films
designated as “Completed but not released” and two theatrical films designated
as “In-production”. We also have capitalized certain script development costs
for various other film projects. Capitalized script development costs are
evaluated at each reporting period for impairment and are expensed when a
project is deemed to be abandoned. During the three months ended March 31, 2010
and 2009, we did not expense any previously capitalized development costs
related to abandoned projects.
8. Intangible Assets
Intangible assets consist of acquired sports
entertainment film libraries, trademarks and trade names. We have classified
these costs as intangible assets and amortize them over the period of the
expected revenues to be derived from these assets, generally from three to six
years. The net carrying amount of our intangibles assets were $273 and $276 as
of March 31, 2010 and December 31, 2009, respectively.
Amortization expense was $62 for the
three months ended March 31, 2010 as compared to $354 for the three months ended
March 31, 2009. Estimated future amortization expense is $140, $91 and $42 for
the years ending December 31, 2010, 2011 and 2012, respectively.
11
World Wrestling Entertainment, Inc.
Notes
to Consolidated Financial Statements
(dollars in thousands, except per share
amounts)
(unaudited)
9. Investment Securities and Short-Term
Investments
Investment securities and short-term investments as of March 31, 2010 and
December 31, 2009 consisted of the following:
|
|
|
March 31, 2010 |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
Holding |
|
|
|
|
|
|
Amortized |
|
Gain |
|
Fair |
|
|
|
Cost |
|
(Loss) |
|
Value |
| Student loan auction rate
securities |
|
$ |
24,400 |
|
$ |
(2,120 |
) |
|
$ |
22,280 |
| Municipal bonds |
|
|
59,611 |
|
|
347 |
|
|
|
59,958 |
| Government agency bonds |
|
|
20,000 |
|
|
8 |
|
|
|
20,008 |
| Corporate bonds |
|
|
10,119 |
|
|
27 |
|
|
|
10,146 |
|
Total |
|
$ |
114,130 |
|
$ |
(1,738 |
) |
|
$
|
112,392 |
| |
|
|
|
December 31, 2009 |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
Holding |
|
|
|
|
|
|
Amortized |
|
Gain |
|
Fair |
|
|
|
Cost |
|
(Loss) |
|
Value |
| Student loan auction rate
securities |
|
$ |
24,400 |
|
$ |
(2,030 |
) |
|
$ |
22,370 |
| Municipal bonds |
|
|
48,108 |
|
|
427 |
|
|
|
48,535 |
| Corporate bonds |
|
|
9,849 |
|
|
56 |
|
|
|
9,905 |
| Total |
|
$ |
82,357 |
|
$ |
(1,547 |
) |
|
$ |
80,810 |
| |
|
|
|
|
|
|
|
|
|
|
In February, 2008, we started to experience
difficulty in selling our investments in auction rate securities (“ARS”) due to
multiple failures of the auction mechanism that provided liquidity to these
investments. All of our ARS are collateralized by student loan portfolios
(substantially all of which are guaranteed by the United States Government). The
securities for which the auctions have failed will continue to accrue interest
and pay interest when due; to-date, none of the ARS in which we are invested has
failed to make an interest payment when due. Our ARS will continue to be
auctioned at each respective reset date until the auction succeeds, the issuer
redeems the securities or they mature (the stated maturities of the securities
are greater than 20 years). As we maintain a strong liquidity position, we have
no intent to sell the securities. We believe that it is not more likely than not
that we will be required to sell the securities before recovery of their
anticipated amortized cost basis.
As of March 31, 2010, we recorded a cumulative
adjustment to reduce the fair value of our investment in ARS of $2,120, which is
reflected as part of accumulated other comprehensive income in our Consolidated
Statement of Stockholders’ Equity and Comprehensive Income. We do not feel that
the fair value adjustment is other-than-temporary at this time due to the high
underlying creditworthiness of the issuer (including the backing of the loans
comprising the collateral package by the United States Government), our intent
not to sell the securities and our belief that it is not more likely than not
that we will be required to sell the securities before recovery of their
anticipated amortized cost basis.
12
World Wrestling Entertainment, Inc.
Notes
to Consolidated Financial Statements
(dollars in thousands, except per share
amounts)
(unaudited)
10. Fair Value Measurement
Fair value is determined based on
the exchange price that would be received to sell an asset or paid to transfer a
liability in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants at the
measurement date. Fair value is a market-based measurement based on assumptions
that "market participants" would use to price the asset or liability.
Accordingly, the framework considers markets or observable inputs as the
preferred source of value followed by assumptions based on hypothetical
transactions, in the absence of market inputs. The fair value should be
calculated based on assumptions that market participants would use in pricing
the asset or liability, not on assumptions specific to the entity. In addition,
the fair value of assets and liabilities should include consideration of
non-performance risk including the Company's own credit risk.
Additionally, the guidance establishes a
three-level hierarchy that ranks the quality and reliability of information used
in developing fair value estimates. The hierarchy gives the highest priority to
quoted prices in active markets and the lowest priority to unobservable data. In
cases where two or more levels of inputs are used to determine fair value, a
financial instrument's level is determined based on the lowest level input that
is considered significant to the fair value measurement in its entirety. The
three levels of the fair value hierarchy are summarized as follows:
Level 1- quoted prices in active markets for identical assets or
liabilities;
Level 2- quoted
prices in active markets for similar assets and liabilities and inputs that are
observable for the asset or liability; or
Level 3- unobservable inputs, such
as discounted cash flow models or valuations
The following assets are required to
be measured at fair value on a recurring basis and the classification within the
hierarchy as of March 31, 2010 and December 31, 2009, respectively, was as
follows:
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
Significant |
|
|
|
|
|
|
Quoted Market |
|
Observable |
|
Unobservable |
|
Fair Value at |
|
|
|
Prices in Active |
|
Inputs |
|
Inputs |
|
March 31, |
|
|
|
Markets (Level 1) |
|
(Level 2) |
|
(Level 3) |
|
2010 |
| Municipal bonds |
|
$ |
- |
|
$ |
59,958 |
|
$ |
- |
|
$ |
59,958 |
| Auction rate securities |
|
|
- |
|
|
- |
|
|
22,280 |
|
|
22,280 |
| Government agency bonds |
|
|
- |
|
|
20,008 |
|
|
- |
|
|
20,008 |
| Corporate bonds |
|
|
- |
|
|
10,146 |
|
|
- |
|
|
10,146 |
| Other |
|
|
- |
|
|
173 |
|
|
- |
|
|
173 |
| Total |
|
$ |
- |
|
$ |
90,285 |
|
$ |
22,280 |
|
$ |
112,565 |
| |
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
Significant |
|
|
|
|
|
|
Quoted Market |
|
Observable |
|
Unobservable |
|
Fair Value at |
|
|
|
Prices in Active |
|
Inputs |
|
Inputs |
|
December 31, |
|
|
|
Markets (Level 1) |
|
(Level 2) |
|
(Level 3) |
|
2009 |
| Municipal bonds |
|
$
|
- |
|
$
|
48,535 |
|
$
|
- |
|
$ |
48,535 |
| Auction rate securities |
|
|
- |
|
|
- |
|
|
22,370 |
|
|
22,370 |
| Corporate bonds |
|
|
- |
|
|
9,905 |
|
|
- |
|
|
9,905 |
| Other |
|
|
- |
|
|
77 |
|
|
- |
|
|
77 |
| Total |
|
$ |
- |
|
$ |
58,517 |
|
$ |
22,370 |
|
$ |
80,887 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
13
World Wrestling Entertainment, Inc.
Notes
to Consolidated Financial Statements
(dollars in thousands, except per share
amounts)
(unaudited)
Certain financial instruments are carried at
cost on the consolidated balance sheets, which approximates fair value due to
their short-term, highly liquid nature. The carrying amounts of cash, cash
equivalents, money market accounts, accounts receivable and accounts payable
approximate fair value because of the short-term nature of such instruments. Our
short-term investments are carried at fair value.
We have classified our investment in ARS
within Level 3. Starting in February 2008, we experienced difficulty selling our
investment in ARS due to multiple failures of the auction mechanism that
provided liquidity to these investments. The securities have been classified
within Level 3 as their valuation requires substantial judgment and estimation
of factors that are not currently observable in the market due to the lack of
trading in the securities. The fair value of the ARS, as consistent with prior
periods, was estimated through discounted cash flow models, which consider,
among other things, the timing of expected future successful auctions,
collateralization of underlying security investments and the risk of default by
the issuer. We will continue to assess the carrying value of our ARS on each
reporting date, based on the facts and circumstances surrounding our liquidity
needs and developments in the ARS markets.
The table below includes a roll forward of our
Level 3 assets (ARS) from January 1, 2010 to March 31, 2010 and January 1, 2009
to March 31, 2009, respectively.
|
|
|
Significant |
|
|
|
Significant |
|
|
|
Unobservable |
|
|
|
Unobservable |
|
|
|
Inputs |
|
|
|
Inputs |
|
|
|
(Level 3) |
|
|
|
(Level 3) |
| Fair value January 1, 2010 |
|
$
|
22,370 |
|
|
Fair value January 1, 2009 |
|
$
|
22,299 |
|
| Purchases |
|
|
- |
|
|
Purchases |
|
|
- |
|
| Redemptions/Proceeds |
|
|
- |
|
|
Redemptions/Proceeds |
|
|
- |
|
| Transfers in |
|
|
- |
|
|
Transfers in |
|
|
- |
|
| Realized gain |
|
|
- |
|
|
Realized gain |
|
|
- |
|
| Unrealized loss |
|
|
(90 |
) |
|
Unrealized loss |
|
|
(7 |
) |
| Fair value March 31, 2010 |
|
$ |
22,280 |
|
|
Fair value March 31, 2009 |
|
$ |
22,292 |
|
| |
|
|
|
|
|
|
|
|
|
|
11. Concentration of Credit
Risk
Our accounts receivable represent a significant portion of our current
assets and relate principally to a limited number of customers, including
television, pay-per-view and home video distributors. Over the past several
months, we have experienced a general slowing in payments from several of these
partners. The Company closely monitors the status of receivables with our
customers and maintains allowances for anticipated losses as deemed appropriate.
Our total allowance for doubtful accounts balance was $10,252 as of March 31,
2010 and $11,926 as of December 31, 2009.
14
World Wrestling Entertainment, Inc.
Notes
to Consolidated Financial Statements
(dollars in thousands, except per share
amounts)
(unaudited)
12. Film and Television Production
Incentives
The Company has access to various governmental programs that are designed
to promote film and television production within the United States and certain
international jurisdictions. Tax credits earned with respect to expenditures on
qualifying film, television and other production activities, including
qualifying capital projects, are included as an offset to the related asset or
as an offset to production expenses when we have reasonable assurance regarding
the realizable amount of the tax credits.
13. Income Taxes
At March 31, 2010, we have $9,172 of
unrecognized tax benefits, which if recognized, would affect our effective tax
rate.
We recognize potential accrued interest and
penalties related to uncertain tax positions in income tax expense. We have
approximately $1,827 of accrued interest and penalties related to uncertain tax
positions as of March 31, 2010.
We file income tax returns in the United
States, various states and various foreign jurisdictions. With few exceptions,
we are subject to income tax examinations by tax authorities for years on or
after April 30, 2006.
Based upon the expiration of statutes of
limitations and possible settlements in several jurisdictions, we believe it is
reasonably possible that the total amount of previously unrecognized tax
benefits may decrease by approximately $631 within 12 months of March 31,
2010.
14. Commitments and
Contingencies
Legal Proceedings
World Wide Fund for Nature
There has been no significant development in
this legal proceeding subsequent to the disclosure in Note 13 of Notes to
Consolidated Financial Statements in our Annual Report on Form 10-K for the year
ended December 31, 2009.
THQ/Jakks.
There has been no significant development in
this legal proceeding subsequent to the disclosure in Note 13 of Notes to
Consolidated Financial Statements in our Annual Report on Form 10-K for the year
ended December 31, 2009.
IPO Class Action
There has been no significant development in
this legal proceeding subsequent to the disclosure in Note 13 of Notes to
Consolidated Financial Statements in our Annual Report on Form 10-K for the year
ended December 31, 2009.
15
World Wrestling Entertainment, Inc.
Notes
to Consolidated Financial Statements
(dollars in thousands, except per share
amounts)
(unaudited)
Other Matters
We are not currently a party to any other
material legal proceedings. However, we are involved in several other suits and
claims in the ordinary course of business, the outcome of which is not expected
to have a material adverse effect on our financial condition, results of
operations or liquidity. We may from time to time become a party to other legal
proceedings.
15. Comprehensive Income
The following table presents the comprehensive income for the current and
prior year quarters.
|
|
|
As of |
|
|
|
March 31, |
|
March 31, |
|
|
|
2010 |
|
2009 |
| Net income |
|
$
|
24,737 |
|
|
$ |
10,322 |
|
| Translation adjustment |
|
|
8 |
|
|
|
(162 |
) |
| Unrealized holding (loss) gain, net of
tax |
|
|
(87 |
) |
|
|
432 |
|
| Reclassification adjustment for gains realized in net income, net
of tax |
|
|
(32 |
) |
|
|
- |
|
| Total comprehensive income |
|
$ |
24,626 |
|
|
$ |
10,592 |
|
| |
|
|
|
|
|
|
|
|
16
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 business segments.
Live and Televised
Entertainment
- Revenues consist principally of
ticket sales to live events, sales of merchandise at these live events,
television rights fees, sales of television advertising and sponsorships, and
fees for viewing our pay-per-view and video on demand programming.
Consumer Products
- Revenues consist principally of
direct sales of WWE produced home videos and magazine publishing 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 featuring our Superstars. To date, we
have partnered with major studios to distribute our productions. We have
recently announced plans to self-distribute our future filmed entertainment
productions beginning with our next release, currently scheduled for September
2010.
17
Results of Operations
Three Months Ended March 31, 2010 compared to Three Months Ended March
31, 2009
(Dollars in millions, except as noted)
Summary
| |
|
March 31, |
|
March 31, |
|
better |
| Net Revenues: |
|
|
2010 |
|
2009 |
|
(worse) |
| Live and Televised
Entertainment |
|
$
|
98.2 |
|
$ |
64.1 |
|
53 |
% |
| Consumer Products |
|
|
30.7 |
|
|
33.1 |
|
(7 |
%) |
| Digital Media |
|
|
6.4 |
|
|
6.9 |
|
(7 |
%) |
| WWE Studios |
|
|
3.4 |
|
|
3.7 |
|
(8 |
%) |
| Total |
|
$ |
138.7 |
|
$ |
107.8 |
|
29 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
March 31, |
|
better |
| Cost of Revenues: |
|
|
2010 |
|
2009 |
|
(worse) |
| Live and Televised
Entertainment |
|
$
|
56.8 |
|
|
$ |
38.3 |
|
|
(48 |
%) |
| Consumer Products |
|
|
12.0 |
|
|
|
12.2 |
|
|
2 |
% |
| Digital Media |
|
|
3.6 |
|
|
|
4.3 |
|
|
16 |
% |
| WWE Studios |
|
|
1.3 |
|
|
|
1.6 |
|
|
19 |
% |
| Total |
|
$ |
73.7 |
|
|
$ |
56.4 |
|
|
(31 |
%) |
| Profit contribution margin |
|
|
47 |
% |
|
|
48 |
% |
|
|
|
|
|
|
March 31, |
|
March 31, |
|
better |
| Operating Income: |
|
|
2010 |
|
2009 |
|
(worse) |
| Live and Televised
Entertainment |
|
$
|
39.2 |
|
|
$
|
21.4 |
|
|
83 |
% |
| Consumer Products |
|
|
17.3 |
|
|
|
19.5 |
|
|
(11 |
%) |
| Digital Media |
|
|
1.0 |
|
|
|
1.1 |
|
|
(9 |
%) |
| WWE Studios |
|
|
1.4 |
|
|
|
1.8 |
|
|
(22 |
%) |
| Corporate |
|
|
(21.6 |
) |
|
|
(27.1 |
) |
|
20 |
% |
| Total operating income |
|
$ |
37.3 |
|
|
$ |
16.7 |
|
|
123 |
% |
| Net income |
|
$ |
24.7 |
|
|
$ |
10.3 |
|
|
140 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
Our comparative results were significantly
impacted by the timing of our annual WrestleMania
pay-per-view event. In 2010, WrestleMania
XXVI occurred on March 28th and consequently is
included in our first quarter financial results. In 2009, WrestleMania
XXV occurred on April 5, 2009 and was included in
our second quarter financial results. WrestleMania
XXVI contributed approximately $28.8 million of
revenues and $13.1 million of profit contribution ($8.8 million, net of tax) to
our results in the current quarter.
Our Live and Televised Entertainment segment
revenues increased primarily due to a $28.5 million timing difference for
WrestleMania discussed previously. Our Consumer Products
segment reflected a 17% decrease in home video revenue, reflecting a decline in
sales of new release titles as compared to the prior year quarter and lower
sell-through at retail. The decrease in revenues for our Digital Media segment
reflects a 21% decline in web advertising revenues and a 45% decrease in
wireless revenue. WWE Studios revenue primarily reflects amounts earned from our
previously released films, The Marine,
See No Evil, The Condemned
and Behind Enemy Lines:
Colombia and vary based
upon the receipt of participation statements from our distribution
partners.
18
The following chart reflects comparative
revenues and key drivers for each of the businesses within our Live and
Televised Entertainment segment:
|
|
|
March 31, |
|
March
31, |
|
better |
| Live and Televised Entertainment
Revenues |
|
|
2010 |
|
2009 |
|
(worse) |
| Live events |
|
$
|
26.0 |
|
$ |
18.0 |
|
44 |
% |
|
Number of North American events |
|
|
71 |
|
|
83 |
|
(14 |
%) |
|
Average North American attendance |
|
|
8,100 |
|
|
6,100 |
|
33 |
% |
|
Average North American ticket price (dollars) |
|
$ |
38.64 |
|
$ |
33.54 |
|
15 |
% |
|
Number of international events |
|
|
4 |
|
|
4 |
|
- |
|
|
Average international attendance |
|
|
11,300 |
|
|
9,300 |
|
22 |
% |
|
Average international ticket price (dollars) |
|
$ |
51.37 |
|
|
N/A |
|
N/A |
|
| |
|
|
|
|
|
|
|
|
|
| Venue merchandise |
|
$ |
6.5 |
|
$ |
4.6 |
|
41 |
% |
|
Domestic per capita spending (dollars) |
|
$ |
10.33 |
|
$ |
9.29 |
|
11 |
% |
| |
| Pay-per-view |
|
$ |
32.4 |
|
$ |
13.6 |
|
138 |
% |
|
Number of pay-per-view events |
|
|
3 |
|
|
2 |
|
50 |
% |
|
Number of buys from pay-per-view events |
|
|
1,592,200 |
|
818,400 |
|
95 |
% |
|
Average revenue per buy (dollars) |
|
$ |
19.38 |
|
$ |
15.75 |
|
23 |
% |
|
Domestic retail price WrestleMania (dollars) |
|
$ |
54.95 |
|
|
N/A |
|
N/A |
|
|
Domestic retail price (dollars) |
|
$ |
44.95 |
|
$ |
39.95 |
|
13 |
% |
| |
| Television rights fees |
|
$ |
29.4 |
|
$ |
24.9 |
|
18 |
% |
|
Domestic |
|
$ |
18.4 |
|
$ |
15.6 |
|
18 |
% |
|
International |
|
$ |
11.0 |
|
$ |
9.3 |
|
18 |
% |
| |
| Television advertising |
|
$ |
1.4 |
|
$ |
1.4 |
|
- |
|
| |
| WWE Classics on Demand |
|
$ |
1.3 |
|
$ |
1.5 |
|
(13 |
%) |
| Other |
|
$ |
1.2 |
|
$ |
0.1 |
|
N/A |
|
| Total live and televised
entertainment |
|
$ |
98.2 |
|
$ |
64.1 |
|
53 |
% |
| |
| Ratings |
|
|
|
|
|
|
|
|
|
|
Average weekly household ratings for Raw |
|
|
3.8 |
|
|
3.8 |
|
- |
|
|
Average weekly household ratings for SmackDown |
|
|
2.1 |
|
|
2.2 |
|
(5 |
%) |
|
Average weekly household ratings for ECW |
|
|
1.1 |
|
|
1.4 |
|
(21 |
%) |
|
Average weekly household ratings for WWE NXT |
|
|
1.1 |
|
|
N/A |
|
N/A |
|
|
Average weekly household ratings for WWE Superstars |
|
|
1.3 |
|
|
N/A |
|
N/A |
|
|
|
|
March 31, |
|
March 31, |
|
better |
| Cost of Revenues-Live and Televised
Entertainment |
|
|
2010 |
|
2009 |
|
(worse) |
| Live events |
|
$
|
16.2 |
|
|
$
|
12.3 |
|
|
(32 |
%) |
| Venue merchandise |
|
|
4.1 |
|
|
|
2.9 |
|
|
(41 |
%) |
| Pay-per-view |
|
|
15.4 |
|
|
|
5.0 |
|
|
(208 |
%) |
| Television |
|
|
16.9 |
|
|
|
16.6 |
|
|
(2 |
%) |
| Television advertising |
|
|
0.4 |
|
|
|
0.1 |
|
|
(300 |
%) |
| WWE Classics on Demand |
|
|
0.3 |
|
|
|
0.3 |
|
|
- |
|
| Other |
|
|
3.5 |
|
|
|
1.1 |
|
|
(218 |
%) |
| Total |
|
$ |
56.8 |
|
|
$ |
38.3 |
|
|
(48 |
%) |
|
Profit contribution margin |
|
|
42 |
% |
|
|
40 |
% |
|
|
|
19
Live events revenues increased primarily due
to the impact of our annual WrestleMania event,
which occurred in the first quarter of 2010 as compared to the second quarter in
2009. Average attendance at our North American events was approximately 8,100 in
the current quarter as compared to 6,100 in the prior year. The average ticket
price for North American events was $38.64 in the current quarter as compared to
$33.54 in the prior year. The profit contribution margin for live events was 38% as compared to 32%
in the prior year quarter, with the current quarter reflecting the impact of
WrestleMania. Excluding the impact of WrestleMania in the
current quarter, North American average attendance and ticket price was 7,300
and $32.47, respectively, and the profit contribution margin was 47%. In the
prior year quarter, four of the international events performed were recorded as
buy-out deals. Subsequently, it was determined that these events should have
been recorded on a gross basis instead of a net basis. Had these events been
recorded on a gross basis, revenues and expenses would have each increased by
approximately $1.3 million, with no change to profit. See Note 1 to the
Consolidated Financial Statements.
Venue merchandise revenues increased 41% from
the prior year quarter primarily due to a 11% increase in per capita spending by
our fans. In the current quarter, revenues from our WrestleMania event
contributed approximately $1.6 million, or 25%, of the quarterly venue
merchandise revenue. The profit contribution margin decreased from 38% to 37% in
the current quarter due to the mix of products sold at venues.
Pay-per-view revenues increased $18.8 million
in the current quarter, which primarily reflects the impact of WrestleMania
XXVI. WrestleMania XXVI
generated approximately 0.9 million buys in the current quarter, or
approximately $19.0 million in pay-per-view related revenues. Pay-per-view buys
for the two events that occurred in both 2010 and 2009 increased approximately
3% in the current quarter. Beginning in January 2010, the domestic suggested
retail price for non-WrestleMania
pay-per-view events was increased to $44.95. Pay-per-view profit contribution
margin was 52% for the current quarter, as compared to 63% in the prior year
quarter, reflecting the increased production costs associated with WrestleMania
XXVI.
Television rights fees reflects rate increases
both in domestic and international markets as well as the addition of our new
domestic show, WWE Superstars, on WGN, which began airing in April 2009. WWE NXT
replaced our ECW television program beginning in February 2010. Television cost
of revenues has declined based upon cost containment improvements for our
televised events. The profit contribution margin increased from 33% to 42% in
the current quarter.
The following chart reflects comparative
revenues and certain drivers for selected businesses within our Consumer
Products segment:
|
|
|
March 31, |
|
March 31, |
|
better |
| Consumer Products
Revenues |
|
|
2010 |
|
2009 |
|
(worse) |
| Licensing |
|
$ |
19.9 |
|
$ |
19.8 |
|
1 |
% |
| Magazine publishing |
|
$ |
2.8 |
|
$ |
3.5 |
|
(20 |
%) |
| Net
units sold |
|
|
985,100 |
|
|
1,066,400 |
|
(8 |
%) |
| Home video |
|
$ |
7.6 |
|
$ |
9.2 |
|
(17 |
%) |
|
Gross units shipped |
|
|
813,000 |
|
|
912,000 |
|
(11 |
%) |
| Other |
|
$ |
0.4 |
|
$ |
0.6 |
|
(33 |
%) |
| Total |
|
$ |
30.7 |
|
$
|
33.1 |
|
(7 |
%) |
| |
|
|
|
|
|
|
|
|
|
20
|
|
|
March 31, |
|
March 31, |
|
better |
| Cost of Revenues-Consumer
Products |
|
|
2010 |
|
2009 |
|
(worse) |
| Licensing |
|
$ |
5.1 |
|
|
$ |
5.1 |
|
|
- |
|
| Magazine publishing |
|
|
2.7 |
|
|
|
2.7 |
|
|
- |
|
| Home video |
|
|
3.8 |
|
|
|
3.8 |
|
|
- |
|
| Other |
|
|
0.4 |
|
|
|
0.6 |
|
|
33 |
% |
| Total |
|
$ |
12.0 |
|
|
$ |
12.2 |
|
|
2 |
% |
| Profit contribution margin |
|
|
61 |
% |
|
|
63 |
% |
|
|
|
Licensing revenues increased by 1% in the
current quarter, reflecting higher royalties earned on the sales of toys and
novelties of $1.1 million, offset by lower royalties earned on the sales of
videogames of approximately $1.0 million. Our new multi-year toy agreement with
Mattel began on January 1, 2010. Licensing cost of revenues is essentially
unchanged from the prior year quarter.
Magazine publishing revenues declined based
on lower sell-through rates. Magazine publishing cost of revenues is essentially
unchanged, as compared to the prior year.
Home video revenues decreased by 17% in the current quarter,
based on the performance of our new release titles and lower sell-through at
retail. Home video cost of revenues is essentially unchanged from the prior year
quarter. Profit contribution margin was 50% in the current period as compared to
58% in the prior year quarter, reflecting increased distribution and fulfillment
fees per video sold and lower sell-through at retail.
The following chart provides performance results and certain
drivers for our Digital Media segment:
|
|
|
March 31, |
|
March 31, |
|
better |
| Digital Media Revenues |
|
|
2010 |
|
2009 |
|
(worse) |
| WWE.com |
|
$ |
3.4 |
|
|
$ |
3.9 |
|
(13 |
%) |
| WWEShop |
|
|
3.0 |
|
|
|
3.0 |
|
- |
|
| Average revenues per order
(dollars) |
|
$ |
47.77 |
|
|
$ |
49.63 |
|
(4 |
%) |
| Total |
|
$ |
6.4 |
|
|
$ |
6.9 |
|
(7 |
%) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
March 31, |
|
better |
| Cost of Revenues-Digital
Media |
|
|
2010 |
|
2009 |
|
(worse) |
| WWE.com |
|
$ |
1.5 |
|
|
$ |
2.2 |
|
|
32 |
% |
| WWEShop |
|
|
2.1 |
|
|
|
2.1 |
|
|
- |
|
| Total |
|
$ |
3.6 |
|
|
$ |
4.3 |
|
|
16 |
% |
| Profit contribution
margin |
|
|
44 |
% |
|
|
38 |
% |
|
|
|
WWE.com revenues decreased primarily due to
declines in advertising sold on our website and wireless revenue. The decrease
in WWE.com cost of revenues reflects lower support costs to operate our various
web-based activities.
WWEShop revenues were essentially unchanged
from the prior year quarter. The number of orders processed increased 3% to
approximately 62,000, which was offset by a 4% decline in the average amount
spent by customers per order to $47.77.
21
WWE Studios
WWE Studios has released four feature films:
See No Evil, The Marine,
The Condemned and 12 Rounds and two direct-to-DVD films, Behind Enemy Lines: Columbia and The Marine 2. We
recorded revenue of approximately $3.4 million in the current quarter related to
our prior theatrical releases as compared to $3.7 million in the prior year
quarter. We participate in revenues generated under the distribution of the
films through all media after the print and advertising and distribution costs
incurred by our distributors have been recouped and the results have been
reported to us.
We have announced our plan to
self-distribute our future filmed entertainment productions beginning with our
next release, currently scheduled for September 2010.
Selling, General and
Administrative
The following chart reflects the
amounts and percent change of certain significant overhead items:
|
|
|
March 31, |
|
March 31, |
|
better |
|
|
|
2010 |
|
2009 |
|
(worse) |
| Staff related |
|
$ |
13.5 |
|
|
$ |
16.0 |
|
|
16 |
% |
| Legal, accounting and other professional |
|
|
1.3 |
|
|
|
3.9 |
|
|
67 |
% |
| Stock compensation costs |
|
|
2.3 |
|
|
|
1.1 |
|
|
(109 |
%) |
| Advertising and promotion |
|
|
1.2 |
|
|
|
1.3 |
|
|
8 |
% |
| Bad debt |
|
|
(1.5 |
) |
|
|
0.5 |
|
|
400 |
% |
| All other |
|
|
9.1 |
|
|
|
8.1 |
|
|
12 |
% |
| Total SG&A |
|
$ |
25.9 |
|
|
$ |
30.9 |
|
|
16 |
% |
| SG&A as a percentage of net revenues |
|
|
19 |
% |
|
|
29 |
% |
|
|
|
The decrease in staff related expenses
reflects the impact of our corporate restructuring of approximately $2.2 million
in severance related costs in the prior year quarter. The decrease in legal,
accounting and other professional fees in the current quarter reflects a decline
in legal case activity. Bad debt expense reflects the receipt of amounts due
from customers that were previously reserved. Stock compensation costs in the
current quarter increased due to the additional number of shares ultimately
issued in the 2009 PSU grant as compared to the 2008 PSU grant.
|
|
|
March 31, |
|
March 31, |
|
better |
|
|
|
2010 |
|
2009 |
|
(worse) |
| Depreciation and
amortization |
|
$ |
1.8 |
|
|
$ |
3.8 |
|
|
|
53 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease reflects a $1.7 million
benefit from the recognition of an infrastructure tax credit received in
the current quarter.
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
income
|
|
$ |
0.5 |
|
|
$ |
0.6 |
|
|
|
(17 |
%) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
The decline in investment
income reflects lower interest rates on investment
balances.
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Other expense, net |
|
$ |
(1.0 |
) |
|
$ |
(1.3 |
) |
|
|
23 |
% |
Other expense, net includes the revaluation of
warrants held in certain licensees and realized foreign exchange gains and
losses.
22
|
|
|
March 31, |
|
March 31, |
|
|
|
2010 |
|
2009 |
| Provision for income taxes |
|
$ |
12.0 |
|
|
$ |
5.6 |
|
| Effective tax rate |
|
|
33 |
% |
|
|
35 |
% |
The effective tax rate in the
quarter was primarily driven by an increase in IRC Section 199 benefits relating
to qualified domestic production deductions
Liquidity and Capital Resources
Cash flows from operating activities for the
three months ended March 31, 2010 and March 31, 2009 were $38.0 million and
$47.3 million, respectively. Working capital, consisting of current assets less
current liabilities, was $223.0 million as of March 31, 2010 and $222.7 million
as of December 31, 2009.
We receive production tax credits or
refunds through various governmental programs designed to promote film and
television production within the United States and international jurisdictions.
We anticipate receiving approximately $8.0 to $12.0 million in production
credits within the next twelve months. The timing and realizable amount of
credits is impacted by our production schedule and limitations associated with
monetization of the credits.
Our accounts receivable represent a
significant portion of our current assets and relate principally to a limited
number of customers or distributors. Changes in the financial condition or
operations of our distributors or customers may result in increased delayed
payments or non-payments which would adversely impact our cash flows from
operating activities and/or our results of operations.
Cash flows used in investing activities were
$31.7 million for three months ended March 31, 2010 and $11.7 million for the
three months ended March 31, 2009. Capital expenditures for the three months
ended March 31, 2010 were $2.8 million as compared to $1.5 million for the three
months ended March 31, 2009. We received an infrastructure tax credit for
approximately $4.1 million in the current quarter that more than offset our
capital spend of $2.8 million. Capital expenditures for the remainder of 2010
are estimated to range between $9.0 million and $11.0 million, primarily
reflecting additional purchases of broadcasting equipment and building related
improvements.
Our investment policy is designed to preserve
capital and minimize interest rate, credit and market risk. In February 2008, we
started to experience difficulty in selling our ARS due to multiple failures of
the auction mechanism that provides liquidity to these investments. All of our
ARS are collateralized by student loan portfolios, substantially all of which
are guaranteed by the United States Government. We anticipate that the
securities for which the auctions have failed will continue to accrue interest
and pay interest when due; to-date, none of the ARS in which we are invested
have failed to make an interest payment when due. Our ARS will continue to be
auctioned every 35 days until the auctions succeed, the issuer redeems the
securities or they mature (the stated maturities of the securities are greater
than 20 years). As we maintain a strong liquidity position, our intent is not to
sell the security and we believe that it is not more likely than not that we
will be required to sell until one of the aforementioned remedies
occurs.
As of March 31, 2010, we have recorded a
cumulative adjustment of approximately $2.1 million to reduce the fair value of
our investment in ARS, which has been reflected as part of accumulated other
comprehensive income in our Consolidated Statement of Stockholders’ Equity and
Comprehensive Income. We do not believe that the fair market value adjustment is
other-than-temporary at this time due to the high underlying creditworthiness of
the issuer (including the backing of the loans included in the collateral
package by the United States Government), our intent not to sell the securities
and our determination that it is not more likely than not that we will be
required to sell the securities before recovery of their anticipated amortized
cost basis. The fair value of the ARS was estimated through discounted cash flow
models, which consider, among other things, the timing of expected future
successful auctions, collateralization of underlying security investments and
the risk of default by the issuer. We will continue to assess the carrying value
of our ARS on each reporting date, based on the facts and circumstances
surrounding our liquidity needs and developments in the ARS
markets.
23
Cash flows used in financing activities were
$19.8 million and $20.3 million for the three months ended March 31, 2010 and
March 31, 2009, respectively. Total dividend
payments on all Class A and Class B common shares in the three-month period
ended March 31, 2010 were approximately $20.7 million as compared to $20.5
million in the prior year three-month period ended March 31, 2009. Assuming the
continuation of these cash dividend rates of $0.36 and $0.24 per share of Class
A and Class B shares, respectively, and the same stock ownership, the estimated
amount of dividends to be paid during the remainder of 2010 is estimated to be
approximately $62.2 million.
Contractual Obligations
In addition to long-term debt, we have entered
into various other contracts under which we are required to make guaranteed
payments, including:
- Various operating leases for
office space and equipment.
- Employment contract with Vincent
K. McMahon, which runs through October 2011, with annual renewals thereafter if not terminated by us
or Mr. McMahon, as well as a talent contract with Mr. McMahon that is coterminous with his
employment contract. Mr. McMahon waives all of his compensation under theses agreements, except
for a salary of $850,000 per year.
- Other employment contracts, which
are generally for one-to three-year terms.
- Service contracts with certain of
our independent contractors, including our talent, which are generally for one-to four-year terms.
Our aggregate minimum payment obligations
under these contracts as of March 31, 2010, assuming the continued waiver of
compensation by Mr. McMahon (except for the annual salary of $850,000, noted
above), were as follows:
|
|
|
Payments due by
period |
|
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
After |
|
|
|
|
|
|
2010 |
|
2011 - 2012 |
|
2013 - 2014 |
|
2014 |
|
Total |
| Long-term debt (including interest
thereon) |
|
$ |
1.0 |
|
$ |
2.7 |
|
$ |
0.4 |
|
$
|
- |
|
$ |
4.1 |
| Operating leases |
|
|
1.8 |
|
|
3.4 |
|
|
2.7 |
|
|
3.2 |
|
|
11.1 |
| Talent, employment agreements and
other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| commitments |
|
|
12.8 |
|
|
10.4 |
|
|
5.4 |
|
|
3.7 |
|
|
32.3 |
| Total
commitments |
|
$ |
15.6 |
|
$ |
16.5 |
|
$ |
8.5 |
|
$ |
6.9 |
|
$ |
47.5 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We believe that cash generated from operations
and our existing cash and short-term investment securities will be sufficient to
meet our cash needs over the next twelve months for working capital, capital
expenditures and the payment of quarterly dividends.
24
Application of Critical Accounting Policies
There have been no additional changes to our
accounting policies that were previously disclosed in our Report on Form 10-K
for our fiscal year ended December 31, 2009 or in the methodology used in
formulating these significant judgments and estimates that affect the
application of these policies. Amounts included in our consolidated balance
sheets in accounts that we have identified as being subject to significant
judgments and estimates were as follows:
|
|
|
As of |
|
|
|
March 31, 2010 |
|
December 31, 2009 |
| Pay-per-view accounts
receivable |
|
|
$31.3 million |
|
|
|
|
$13.7 million |
|
| Feature film assets |
|
|
$43.2 million |
|
|
|
|
$37.1 million |
|
| Home video reserve for returns |
|
|
$5.2 million |
|
|
|
|
$5.5 million |
|
| Publishing newsstand reserve for returns |
|
|
$3.7 million |
|
|
|
|
$4.8 million |
|
| Allowance for doubtful
accounts |
|
|
$10.3 million |
|
|
|
|
$11.9 million |
|
| Accrued income taxes |
|
|
$13.6 million |
|
|
|
|
$(0.6) million |
|
Recent Accounting Pronouncements
There are no other accounting standards or
interpretations that have been issued, but which we have not yet adopted, that
we believe will have a material impact on our financial statements.
Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the
Private Securities Litigation Reform Act of 1995
The Private Securities Litigation Reform Act
of 1995 provides a “safe harbor” for certain statements that are forward-looking
and are not based on historical facts. When used in this Report, the words
“may,” “will,” “could,” “anticipate,” “plan,” “continue,” “project,” “intend”,
“estimate”, “believe”, “expect” and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain
such words. These statements relate to our future plans, objectives,
expectations and intentions and are not historical facts and accordingly involve
known and unknown risks and uncertainties and other factors that may cause the
actual results or the performance by us to be materially different from future
results or performance expressed or implied by such forward-looking statements.
The following factors, among others, could cause actual results to differ
materially from those contained in forward-looking statements made in this
Report, in press releases and in oral statements made by our authorized
officers: (i) our failure to maintain or renew key agreements could adversely
affect our ability to distribute our television and pay-per-view programming;
(ii) our failure to continue to develop creative and entertaining programs and
events would likely lead to a decline in the popularity of our brand of
entertainment; (iii) our failure to retain or continue to recruit key performers
could lead to a decline in the appeal of our storylines and the popularity of
our brand of entertainment; (iv) the loss of the creative services of Vincent K.
McMahon could adversely affect our ability to create popular characters and
creative storylines; (v) continued decline in general economic conditions and
disruption in financial markets could adversely affect our business; (vi) our
accounts receivable represent a significant portion of our current assets and
relate principally to a limited number of distributors, increasing our exposure
to bad debts and potentially impacting our results of operations; (vii) a
decline in the popularity of our brand of sports entertainment, including as a
result of changes in the social and political climate, could adversely affect
our business; (viii) changes in the regulatory atmosphere and related private
sector initiatives could adversely affect our business; (ix) the markets in
which we operate are highly competitive, rapidly changing and increasingly
fragmented, and we may not be able to compete effectively, especially against
competitors with greater financial resources or marketplace presence; (x) we
face uncertainties associated with international markets; (xi) we may be
prohibited from promoting and conducting our live events if we do not comply
with applicable regulations; (xii) because we depend upon our intellectual
property rights, our inability to protect those rights, or our infringement of
others’ intellectual property rights, could adversely affect our business;
(xiii) we could incur substantial liabilities if pending litigation is resolved
unfavorably; (xiv) we could incur substantial liability in the event of
accidents or injuries occurring during our physically demanding events; (xv) our
live events schedule exposes us to risks inherent in large public events as well
as travel to and from such events; (xvi) we continue to face risks inherent in
our feature film business; (xvii) through his beneficial ownership of a
substantial majority of our Class B common stock, our controlling stockholder,
Vincent K. McMahon, can exercise control over our affairs, and his interests may
conflict with the holders of our Class A common stock; (xviii) we could face a
variety of risks if we expand into new or complementary businesses; (xix) a
substantial number of shares are eligible for sale by Mr. McMahon and members of
his family or trusts established for their benefit, and the sale, or the
perception of possible sales, of those shares could lower our stock price; and
(xx) our Class A common stock has a relatively small public “float”. In
addition, our dividend is significant and is dependent on a number of factors,
including, among other things, our liquidity and historical and projected cash
flow, strategic plan (including alternative uses of capital), our financial
results and condition, contractual and legal restrictions on the payment of
dividends, general economic and competitive conditions and such other factors as
our Board of Directors may consider relevant including a waiver by the McMahon
family of a portion of the dividends as described elsewhere in this Report. The
forward-looking statements speak only as of the date of this Report and undue
reliance should not be placed on these statements.
25
Item 3. Quantitative and Qualitative
Disclosures about Market Risk
In the normal course of business, we are
exposed to foreign currency exchange rate, interest rate and equity price risks
that could impact our results of operations. Our foreign currency exchange rate
risk is minimized by maintaining minimal net assets and liabilities in
currencies other than our functional currency.
Interest Rate Risk
We are exposed to interest rate risk related
to our debt and investment portfolio. Our debt consists of the mortgage related
to our corporate headquarters, which has an annual interest rate of 7.6%. The
fair value of this debt is not significantly different from its carrying amount.
Our investment portfolio consists of
securities with a strong emphasis placed on preservation of capital. In an
effort to minimize our exposure to interest rate risk, our investment
portfolio’s dollar weighted duration, excluding our long term auction rate
securities, is less than one year. Due to the nature of our investments and our
strategy to minimize market and interest rate risk, we believe that our
portfolio would not be materially impacted by adverse fluctuations in interest
rates.
Item 4. Controls and
Procedures
Under the direction of our Chairman of the
Board and Chief Executive Officer and our Chief Financial Officer, we evaluated
our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule
15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on that
evaluation, our Chairman of the Board and Chief Executive Officer and our Chief
Financial Officer concluded that our disclosure controls and procedures were
effective as of March 31, 2010. No change in internal control over financial
reporting occurred during the quarter ended March 31, 2010, that materially
affected, or is reasonably likely to materially affect, such internal control
over financial reporting.
26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 14 to Notes to Consolidated
Financial Statements, which is incorporated herein by reference.
Item 1A. Risk Factors
We do not believe that there have
been any material changes to the risk factors previously disclosed in our Annual
Report on Form 10-K for the year ended December 31, 2009.
Item 6. Exhibits
(a.) Exhibits
31.1 Certification by
Vincent K. McMahon pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (filed
herewith).
31.2 Certification by
George A. Barrios pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (filed
herewith).
32.1 Certification by
Vincent K. McMahon and George A. Barrios pursuant to Section 906 of
Sarbanes-Oxley Act of 2002 (filed herewith).
27
SIGNATURE
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereto duly
authorized.
|
|
World Wrestling
Entertainment, Inc.
(Registrant)
|
|
|
|
|
|
| Dated: May 7, 2010 |
By: /s/ |
George A.
Barrios |
|
|
|
|
George A. Barrios |
|
|
|
Chief Financial
Officer |
28