UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-K
____________________
WASHINGTON, D.C. 20549
____________________
FORM 10-K
____________________
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the year ended December 31,
2009
or
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 0-27639
WORLD WRESTLING ENTERTAINMENT,
INC.
(Exact name of Registrant as specified in its charter)
(Exact name of Registrant as specified in its charter)
| Delaware | 04-2693383 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer 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)
Stamford, CT 06902
(203) 352-8600
(Address, including zip code, and telephone number, including area code,
of Registrant’s principal executive offices)
| SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT | |
| Class A Common Stock, $.01 par value per share | New York Stock Exchange |
| (Title of each class) | (Name of each exchange on which registered) |
SECURITIES REGISTERED PURSUANT TO SECTION
12(g) OF THE ACT
None
None
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined in Rule 405
of Securities Act. Yes o No x
Indicate by check
mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes o No x
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 o
Indicate by check
mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted
and posted to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o No o
Indicate by check
mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is not contained herein, and will not be contained, to the best of Registrant’s
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
x
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 | Smaller reporting company o |
| (Do not check if a smaller reporting company) | ||
Indicate by check
mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
____ No X
Aggregate market
value of the common stock held by non-affiliates of the Registrant at February
5, 2010 using our closing price on June 30, 2009 was approximately
$321,805,198.
As of February 5,
2010, the number of shares outstanding of the Registrant’s Class A common stock,
par value $.01 per share, was 25,721,433, and the number of shares outstanding
of the Registrant’s Class B common stock, par value $.01 per share, was
47,713,563 shares. Portions of the Registrant’s definitive proxy statement for
the 2010 Annual Meeting of Stockholders are incorporated by reference in Part
III of this Form 10-K.
TABLE OF
CONTENTS
* Incorporated by
reference from the Registrant’s Proxy Statement for the 2010 Annual Meeting of
Stockholders (the “Proxy Statement”).
World Wrestling
Entertainment, Inc. (“WWE”) is an integrated media and entertainment company. We
have been involved in the sports entertainment business for more than 25 years,
and have developed World Wrestling Entertainment into one of the most popular
brands in global entertainment today. We develop unique and creative content
centered around our talent and presented at our live and televised events. At
the heart of our success are the athletic and entertainment skills and appeal of
our WWE Superstars and our consistently innovative and multi-faceted storylines
across our brands. Anchored by these brands, we are able to
leverage our content and talent across virtually all media outlets. Our live and
televised events, consumer products, digital media and feature film outlets
provide significant cross-promotion and marketing opportunities that reinforce
our brands while effectively reaching our fans.
“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. World Wrestling Entertainment and the stylized and highly
distinctive World Wrestling Entertainment scratch logo are two of our
trademarks. This report also contains other WWE trademarks and trade names as
well as those of other companies. All trademarks and trade names appearing in
this report are the property of their respective holders.
Our operations are centered around the
following four 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 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 in 2010.
Live and Televised
Entertainment
(represents 70%, 63% and 65% of our net
revenues in 2009, 2008 and 2007, respectively)
Live Events
Our Raw Superstars
travel as one touring show while our SmackDown and ECW Superstars travel
together as a combined tour. This gives us flexibility in scheduling that allows
us to play numerous domestic and international markets. Live events and
television programming are our principal creative content and production
activities. Our creative team develops compelling and complex characters and
weaves them into dynamic storylines that combine physical and emotional
elements. Storylines are usually played out in the ring and unfold on our weekly
television shows, and culminate in our monthly pay-per-view events.
In 2009, we held 268
live events throughout North America, entertaining over one million fans at an
average ticket price of $37.64. We hold many of our live events at major arenas
across the country. In addition to providing the content for our television and
pay-per-view programming, these events provide us with a real-time assessment of
the popularity of our storylines and characters.
2
In 2009, we held 74
live events internationally, reaching approximately 600,000 fans at an average
ticket price of $66.08. These events were spread over several successful
international tours throughout Europe, Latin America and Australia.
Live events net
revenues were $108.8 million, $105.7 million and $99.3 million, representing
23%, 20% and 20% of total net revenues in 2009, 2008 and 2007, respectively.
Venue Merchandise
Our venue merchandise
business consists of the sale of various WWE-branded products at our live
events, such as T-shirts, caps and other novelty items, which feature our
Superstars and/or our logo. Nearly all of these products are designed by our
in-house creative staff and manufactured by third parties.
Venue merchandise net
revenues were $19.8 million, $18.5 million and $19.1 million, representing 4% of
total net revenues in each of 2009, 2008 and 2007.
Television Programming
Relying on our
in-house production capabilities at our technologically advanced, high
definition production facility, we produce seven hours of original weekly
programming, 52 weeks per year. This programming is distributed domestically,
internationally and via WWE.com. Our domestic programs are: “Monday Night RAW”
on USA Network, Telemundo, mun2 and Universal HD; “A.M. RAW” on USA Network;
“Friday Night SmackDown” on MyNetworkTV; “ECW” on the Syfy Channel; and “WWE
Superstars” on WGN America. WWE programs reach 16.3 million total viewers during
the average week. USA Network and the SyFy Channel are owned by NBC Universal.
“Monday Night RAW” is
a two-hour primetime program that is broadcast live on USA Network. It is among
the most watched regularly scheduled programs on primetime cable television and
anchors USA, helping make it a top-rated network. RAW also airs in replays on
Telemundo, mun2 and Universal HD.
Our two-hour “Friday
Night SmackDown” airs on MyNetworkTV in primetime on Fridays. SmackDown is the
top-rated broadcast program on Friday nights among male viewers, including the
key male 12-17, Men 18-34, Men 18-49 and Men 25-54 demographics, and is the
most-watched program on MyNetworkTV among all key demographics.
“ECW” is among the
top-rated programs on Syfy among households, total viewers and all key male
demographics. It also ranks among the top 10 regularly scheduled cable programs
on Tuesday nights among Men 25-54 and also runs replays on Universal HD and
mun2. Beginning in February 2010, the ECW television program was replaced with
WWE NXT, a hybrid live event/reality show.
“WWE Superstars” is
the most watched program on WGN America among households, total viewers and all
key demographics.
Each year, more than
7,500 hours of WWE’s television programming can be seen in more than 145
countries and 30 languages around the world. Our broadcast partners include:
BSkyB in the UK; Ten Sports in India, and J SPORTS in Japan, among many others.
The Company has
announced that it is in the early stages of exploring the formation of a WWE
network as an additional vehicle to distribute our programming content.
Television rights fee
net revenues were $111.9 million, $100.7 million and $92.4 million, representing
24%, 19% and 19% of total net revenues in 2009, 2008 and 2007, respectively.
Advertising
We provide
sponsorships in the US domestic market to meet the needs of our advertisers.
Through these sponsorships, we offer advertisers a full range of our promotional
vehicles, including internet and print advertising, arena signage, on-air
announcements and pay-per-view sponsorship. In Canada, we sell advertising in
our programs rather than receive a rights fee.
Advertising and
sponsorship net revenues were $7.7 million, $7.4 million and $5.9 million,
representing 2%, 1% and 1% of total net revenues in 2009, 2008 and 2007,
respectively.
3
Pay-Per-View Programming
WWE has been the
world’s pre-eminent provider of pay-per-view programming for the past 25 years.
In 2009, WWE televised 14 live pay-per-view events which consistently rank among
the highest selling live event programs in the industry. Consistent with
industry practices, we share the revenues with cable systems and satellite
providers such as DirecTV, and pay service fees to iNDEMAND and TVN. WWE’s
annual crown jewel, WrestleMania,
repeatedly achieves more than one million buys worldwide. On April 5, 2009, WWE
celebrated the 25th Anniversary of WrestleMania in Houston, TX before a sold-out
crowd with millions watching at home. The 25th Anniversary of WrestleMania achieved more than one million
buys and generated approximately $22.5 million in pay-per-view
revenue.
WWE produced 14
domestic pay-per-view programs in both 2009 and 2008. The suggested domestic
retail price for all pay-per-view events in 2009 was $39.95, with the exception
of WrestleMania which had a suggested domestic retail price
of $54.95. We have increased our suggested retail price to $44.95 for
pay-per-view events other than WrestleMania
beginning in January 2010
Our international
pay-per-view partners include SKY in the United Kingdom, Premiere in Germany,
SKY Perfect TV! in Japan, SKY Italia in Italy and Main Event in Australia, among
many others.
Pay-per-view net
revenues were $80.0 million, $91.4 million and $94.3 million, representing 17%,
17% and 19% of total net revenues in 2009, 2008 and 2007,
respectively.
WWE Classics On Demand
WWE Classics On
Demand is a Subscription Video On Demand (SVOD) service that offers highly-rated
and best-selling classic television shows, pay-per-view events, specials and
original programming for a monthly subscription fee. Most of this material is
drawn from WWE's extensive video library and includes other leading wrestling
brands. WWE owns and controls the content from the vast libraries of such
promotions as WCW, WCCW and AWA. WWE Classics on Demand subscribers have access
to approximately 40 hours of content each month.
WWE Classics On
Demand is currently distributed with 14 of the top 15 cable operators in the
United States, making WWE Classics on Demand available to more than 80 percent
of video-on-demand enabled subscribers. Major North American distributors
currently include: Comcast Communications, Cox Communications, Charter
Communications, Cablevision, Mediacom, and Verizon Communications, among
others.
WWE Classics On
Demand net revenues were $5.4 million in 2009, $6.3 million in 2008 and $4.9
million in 2007, representing 1% of total net revenues in each of 2009, 2008 and
2007.
Consumer Products
(represents 21%, 26% and 24% of our net
revenues in 2009, 2008 and 2007, respectively)
Licensing
We have established a
worldwide licensing program using our World Wrestling Entertainment marks and
logos, copyrighted works and characters on a large variety of retail products,
including toys, video games, apparel and books. Currently, we have relationships
with more than 160 licensees worldwide that provide products for sale at major
retailers. To maintain the distinctive style and quality of our intellectual
property and brand, we retain creative approval over the design, packaging,
advertising and promotional materials associated with these products.
Videogames and toys
represent important components of our licensing program. During 2009, we settled
all pending litigation with THQ, Inc. (“THQ”) and Jakks Pacific, Inc. and
announced a new multi-year videogame license with THQ effective January 1, 2010.
January 1, 2010, is also the effective date of our new comprehensive, multi-year
licensing agreement with Mattel, Inc. as our new master
toy licensee covering all global territories.
We have publishing
licensing agreements with Simon & Schuster, Dorling Kindersley, and Titan,
which allow us to publish original content in a variety of genres and formats,
including fiction, histories, how-to, comics, and biographies and
autobiographies. During 2009, we published eight new books, including the New
York Times bestselling WWE Encyclopedia, the autobiography of Rey Mysterio (Rey
Mysterio: Behind the Mask), a history of D-Generation X (Are You Ready? The
Unauthorized History of D-Generation X), and beginning reader books profiling
WWE Superstars John Cena, Undertaker, Triple H, and CM Punk.
4
Music is an integral
part of the entertainment experience surrounding WWE’s live events, television
programs and pay-per-views. We compose and record most of our music, including
our Superstar entrance themes, in our recording studio. In addition to our own
composed music, we license music performed by popular artists. Music links the
WWE brand to all media platforms including television, film, radio, video games,
live events and other emerging digital technologies. In addition to composing,
producing, and recording most of our music, including Superstar and Diva
entrance themes, WWE Music Group licenses commercial music for use across a
variety of cable television and pay-per-view programming needs.
WWE programming and
WWE.com have music woven in from up-and-coming artists across the board, thus
maintaining our commitment to developing artists and providing a platform for
awareness to an audience to which they might not be exposed through traditional
record company marketing.
Licensing net
revenues, including music, were $44.7
million, $60.5 million and $47.1 million, representing 9%, 11% and 10% of total
net revenues in 2009, 2008 and 2007, respectively.
Home Video
In 2009, we released
28 new home video productions and shipped approximately 3.5 million DVD and
Blu-ray units, including catalog titles released in prior years. In September
2009, Vivendi Entertainment became our home video distributor, replacing Genius
Products, LLC. Outside the United States, our new releases and catalog titles
are distributed through licensees.
Home video net
revenues were $39.4 million, $58.5 million and $53.7 million, representing 8%,
11% and 11% of total net revenues in 2009, 2008 and 2007,
respectively.
Magazine Publishing
WWE
Magazine is a global men’s
lifestyle publication with native language editions in Spain, Mexico, France,
Germany and Greece. Every issue is filled with features, photos, exclusive
interviews and access that fans will not see on television. In the US,
WWE Magazine is ranked “top-5” in retail revenue for the
men’s category, averaging more than $1.0 million in newsstand sales every month.
On average, more than 4.6 million readers purchase WWE Magazine every
month. Our WWE Kids magazine was launched in April 2008 and
published ten issues in 2009. WWE Kids also has
licensed editions in the UK and Germany.
Magazine publishing
net revenues were $13.5 million, $15.4 million and $16.5 million, representing
3% of total net revenues in 2009, 2008 and 2007.
Digital Media
(represents 7%, 7% and 7% of our net revenues
in 2009, 2008 and 2007, respectively)
WWE.com
WWE utilizes the
Internet to promote our brands, create a community experience among our fans,
market and distribute our online and mobile products and sell online
advertising. Our primary website, WWE.com, attracted an average of 14.0 million
monthly unique visitors worldwide. These visitors viewed an average of more
than 423 million pages and approximately 22.0 million video streams per
month. WWE wallpapers, ringtones, voicetones and videos are available through
our mobile partnership with AT&T.
WWE currently has
local language websites in 34 countries worldwide where fans can get the WWE
experience in their own language. Worldwide presence includes Japan, China,
Italy, Portugal, Spain, India and all of Latin America with local websites
recently launched in Germany and France.
WWE.com net revenues
were $16.8 million, $16.3 million and $16.2 million, representing 4%, 3% and 3%
of total net revenues in 2009, 2008 and 2007, respectively.
WWEShop
WWEShop is our
e-commerce storefront. WWEShop processed over 300,000 orders during 2009 as
compared to 329,200 in 2008.
WWEShop net revenues
were $16.0 million, $18.5 million and $18.6 million, representing 3%, 4% and 4%
of total net revenues in 2009, 2008 and 2007, respectively.
5
WWE Studios (represents 2%, 5% and 3% of our
net revenues in 2009, 2008 and 2007, respectively)
Established in 2002,
WWE Studios creates a diversified mix of filmed entertainment including
theatrical releases, direct-to-DVD films, television movies, series, animation,
reality and other projects currently in development.
WWE Studios has
released four feature films: See No Evil,
The Marine, The Condemned and
12 Rounds. WWE Studios has also released two
direct-to-DVD films, Behind Enemy Lines: Columbia and The Marine 2.
12 Rounds was distributed by Fox and was released in
March 2009. The Marine 2 starring WWE Superstar Ted DiBiase, was
produced in conjunction with 20th Century Fox Home Entertainment and was
released in December 2009.
In January 2010, WWE
Studios announced that it will self-distribute and market its upcoming films
beginning with the release of the drama Legendary (working
title) starring Patricia Clarkson, Danny Glover and WWE Superstar John Cena. WWE
Studios has also completed shooting the feature film, Knucklehead
starring Mark Feuerstein (Royal Pains), Melora Hardin (The Office), Paul "Big
Show" Wight (WWE), Dennis Farina (Law and Order) and Wendy Malick (Just Shoot
Me). The film is tentatively scheduled for release in the Fall of
2010.
WWE Studios remains
committed to providing global audiences family-friendly filmed entertainment
which leverages the World Wrestling Entertainment brand. Upcoming films will
feature well-known actors and actresses in lead roles supported by WWE
Superstars. WWE is slated to produce and release nine films through 2012.
Upcoming projects will feature a wide range of genres including family-friendly
comedies, dramas and thrillers. International distribution will be handled by
WWE’s existing television and video partners worldwide.
WWE Studios net
revenues were $7.7 million, $24.5 million and $16.0 million, representing 2%, 5%
and 3% of total net revenues in 2009, 2008 and 2007, respectively.
International
Revenues generated
outside of North America were approximately $127.1 million for 2009, $135.2
million for 2008 and $119.3 million for 2007. Revenues generated from
international sources accounted for approximately 27% of total revenues
generated in 2009, 26% in 2008 and 25% in 2007. Revenues generated in the United
Kingdom, our largest international market, were approximately $36.5 million,
$47.3 million and $45.0 million for 2009, 2008 and 2007,
respectively.
Creative Development and
Production
Headed by our
Chairman and Chief Executive Officer, Vincent K. McMahon, our creative team
develops compelling and complex characters and weaves them into dynamic
storylines that combine physical and emotional elements. Storylines are usually
played out in the ring and unfold on our weekly television shows, and culminate
in our monthly pay-per-view events.
Our success is due
primarily to the continuing popularity of our Superstars and Divas. We currently
have 140 Superstars and Divas under exclusive contracts, ranging from multi-year
guaranteed contracts with established Superstars to developmental contracts with
our Superstars in training. Our Superstars and Divas are highly trained and
motivated independent contractors, whose compensation is tied to the revenue
that they help generate. We own the rights to substantially all of our
characters and exclusively license the rights we do not own through agreements
with our Superstars and Divas. We continually seek to identify, recruit and
develop additional talent for our business.
Competition
While we believe that
we have a loyal fan base, the entertainment industry is highly competitive and
subject to fluctuations in popularity, which are not easy to predict. For our
live, television, pay-per-view and movie audiences, we face competition from
professional and college sports as well as from other forms of live, filmed and
televised entertainment and other leisure activities. We compete with
entertainment companies, professional and college sports leagues and other
makers of branded apparel and merchandise for the sale of our branded
merchandise. As we continue to expand into the highly competitive digital media
market we face increased competition from websites offering paid and free
web-based and wireless content. Many companies with whom we compete have greater
financial resources than we do.
6
Trademarks and Copyrights
Intellectual property
is material to all aspects of our operations, and we expend substantial cost and
effort in an attempt to maintain and protect our intellectual property and to
maintain compliance vis-à-vis other parties’ intellectual property. We have a
large portfolio of registered and unregistered trademarks and service marks
worldwide and maintain a large catalog of copyrighted works, including
copyrights in our television programming, music, photographs, books, magazines
and apparel art. A principal focus of our efforts is to protect the intellectual
property relating to our originally created characters portrayed by our
performers, which encompasses images, likenesses, names and other identifying
indicia of these characters. We also own a large number of internet website
domain names and operate a network of developed, content-based sites, which
facilitate and contribute to the exploitation of our intellectual property
worldwide.
We vigorously seek to
enforce our intellectual property rights by, among other things, searching the
internet to ascertain unauthorized use of our intellectual property, seizing
goods that feature unauthorized use of our intellectual property and seeking
restraining orders and/or damages in court against individuals or entities
infringing our intellectual property rights. Our failure to curtail piracy,
infringement or other unauthorized use of our intellectual property rights
effectively, or our infringement of others’ intellectual property rights, could
adversely affect our operating results.
Financial Information about Segments
See note 18 to Notes
to Consolidated Statements, which is included elsewhere in this Form 10-K, for
financial information about each of our segments.
Employees
As of February 2010
we had approximately 585 employees. This headcount excludes our Superstars, who
are independent contractors. Our in-house production staff is supplemented with
contract personnel for our television production. We believe that our
relationships with our employees are generally satisfactory. None of our
employees are represented by a union.
Regulation
Live Events
In various states in
the United States and some foreign jurisdictions, athletic commissions and other
applicable regulatory agencies require us to obtain licenses for promoters,
medical clearances and/or other permits or licenses for performers and/or
permits for events in order for us to promote and conduct our live events. In
the event that we fail to comply with the regulations of a particular
jurisdiction, we may be prohibited from promoting and conducting our live events
in that jurisdiction. The inability to present our live events over an extended
period of time or in a number of jurisdictions could lead to a decline in the
various revenue streams generated from our live events, which could adversely
affect our operating results.
Television Programming
The production of
television programming by independent producers is not directly regulated by the
federal or state governments, but the marketplace for television programming in
the United States and internationally is substantially affected by government
regulations applicable to, as well as social and political influences on,
television stations, television networks and cable and satellite television
systems and channels. We voluntarily designate the suitability of each of our
television shows using standard industry ratings, and all of our programming
carries a PG rating. Changes in governmental policy and private-sector
perceptions could further restrict our program content and adversely affect our
levels of viewership and operating results.
Available Information
Copies of our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments
to those reports, are available free of charge on our website at http://corporate.wwe.com as soon as reasonably practicable after such
reports are filed with the Securities and Exchange Commission (“SEC”). Our
reports are also available free of charge on the SEC’s website, http://www.sec.gov. None of the information on any of
our websites is part of this Annual Report on Form 10-K. Our Corporate
Governance Guidelines, Code of Business Conduct and charters of our Audit
Committee and Compensation Committee are also available on our website. A copy
of any of these documents will be mailed to any stockholder without charge upon
request to us at World Wrestling Entertainment, Inc., 1241 East Main Street,
Stamford, CT 06902, Attn: Investor Relations Department.
7
There are inherent
risks and uncertainties associated with our business that could adversely affect
our operating performance and financial condition. Set forth below are
descriptions of those risks and uncertainties that we currently believe to be
material, but the risks and uncertainties described below are not the only risks
and uncertainties that could affect our business. See the discussion under
“Cautionary Statement for Purposes of the ‘Safe Harbor’ Provisions of the
Private Securities Litigation Reform Act of 1995” in Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations, in
this Annual Report on Form 10-K.
Our failure to
maintain or renew key agreements could adversely affect our ability to
distribute television and pay-per-view programming which could adversely affect
our operating results.
Our television
programming is distributed by broadcast and cable networks, and our pay-per-view
programming is distributed by pay-per-view providers. Because our revenues are
generated, directly and indirectly, from the distribution of our televised and
pay-per-view programming, any failure to maintain or renew arrangements with
these distributors or the failure of the distributors to continue to provide
services to us could adversely affect our operating results. We regularly engage
in negotiations relating to substantial agreements covering the distribution of
our cable, broadcast and/or pay-per-view television by carriers located in the
United States and abroad.
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 and could
adversely affect our operating results.
The creation,
marketing and distribution of our live and televised entertainment, including
our pay-per-view events, is at the core of our business and is critical to our
ability to generate revenues across our media platforms and product outlets. Our
failure to continue to create popular live events and televised programming
would likely lead to a decline in our television ratings and attendance at our
live events, which would adversely affect our operating results.
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, which could
adversely affect our operating results.
Our success depends,
in large part, upon our ability to recruit, train and retain athletic performers
who have the physical presence, acting ability and charisma to portray
characters in our live events and televised programming. We cannot assure you
that we will be able to continue to identify, train and retain these performers
in the future. Additionally, we cannot assure you that we will be able to retain
our current performers during the terms of their contracts or when their
contracts expire. Our failure to attract and retain key performers, or a serious
or untimely injury to, or the death of, or unexpected or premature loss or
retirement for any reason of any of our key performers, could lead to a decline
in the appeal of our storylines and the popularity of our brand of
entertainment, which could adversely affect our operating results.
The loss of the
creative services of Vincent K. McMahon could adversely affect our ability to
create popular characters and creative storylines, which could adversely affect
our operating results.
In addition to
serving as Chairman of our Board of Directors and Chief Executive Officer, Mr.
McMahon leads the creative team that develops the storylines and the characters
for our televised programming and live events. Mr. McMahon is also an important
member of our cast of performers. The loss of Mr. McMahon due to unexpected
retirement, disability or death or other unexpected termination for any reason
could have a material adverse effect on our ability to create popular characters
and creative storylines, which could adversely affect our operating results.
A continued decline
in general economic conditions and disruption of financial markets may, among
other things, reduce the discretionary income of consumers or further erode
advertising markets, which could adversely affect our business.
Our operations are affected by general economic
conditions, which affect consumers’ disposable income. The demand for
entertainment and leisure activities tends to be highly sensitive to the level
of consumers’ disposable income. Declines in general economic conditions could
reduce the level of discretionary income that our fans and potential fans have
to spend on our live and televised entertainment and consumer products, which
could adversely affect our revenues. Volatility and disruption of financial
markets could limit our clients’, licensees’ and distributors’ ability to obtain
adequate financing to maintain operations and result in a decrease in sales
volume that could have a negative impact on our business, financial condition
and results of operations.Our television partners
derive revenues from our programming by the sale of advertising, and we sell
advertising directly on our website and in our magazines. As widely reported,
the advertising market has been impacted by the weak economic environment.
Continued softness in the market could adversely affect our revenues or the
financial viability of our distributors.
8
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.
A substantial portion
of our accounts receivable are from distributors of our pay-per-view,
television, home video and magazine products. Adverse changes in general
economic conditions and continued contraction in global credit markets could
precipitate liquidity problems among our key distributors. This could increase
our exposure to losses from bad debts and have a material adverse effect on our
business, financial condition and results of operations.
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.
Our operations are
affected by consumer tastes and entertainment trends, which are unpredictable
and subject to change and may be affected by changes in the social and political
climate. Our programming is created to evoke a passionate response from our
fans. Changes in our fans’ tastes or a material change in the perceptions of our
business partners, including our distributors and licensees, whether as a result
of the social and political climate or otherwise, could adversely affect our
operating results.
Changes in the
regulatory atmosphere and related private sector initiatives could adversely
affect our business.
While the production
of television programming by independent producers is not directly regulated by
the federal or state governments in the United States, the marketplace for
television programming in the United States is affected significantly by
government regulations applicable to, as well as social and political influences
on, television stations, television networks and cable and satellite television
systems and channels. We voluntarily designate the suitability of each of our
television shows using standard industry ratings, and all of our programming
currently has a PG rating. Domestic and foreign governmental and private-sector
initiatives relating to the content of media programming are announced from time
to time. Changes in these governmental policies and private-sector perceptions
could further restrict our program content and adversely affect our levels of
viewership and operating results.
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, which could adversely
affect our operating results.
For our live,
television and pay-per-view audiences, we face competition from professional and
college sports, as well as from other forms of live and televised entertainment
and other leisure activities in a rapidly changing and increasingly fragmented
marketplace. The manner in which audio/video content is distributed and viewed
is constantly changing, and while we attempt to distribute our content across
all platforms, our failure to continue to do so effectively could adversely
affect our operating results. For the sale of our consumer products, we compete
with entertainment companies, professional and college sports leagues and other
makers of branded apparel and merchandise. Many of the companies with whom we
compete have greater financial resources than we do.
Our failure to
compete effectively could result in a significant loss of viewers, venues,
distribution channels or performers and fewer entertainment and advertising
dollars spent on our form of sports entertainment, any of which could adversely
affect our operating results.
We face uncertainties
associated with international markets.
Our production of
live events overseas subjects us to the risks involved in foreign travel and
local regulations, including regulations requiring us to obtain visas for our
performers. In addition, these live events and the licensing of our television
and consumer products in international markets expose us to some degree of
currency risk. All international operations are subject to political instability
inherent in varying degrees in those markets. These risks could adversely affect
our operating results and impair our ability to pursue our business strategy as
it relates to international markets.
9
We may be prohibited
from promoting and conducting our live events if we do not comply with
applicable regulations.
In the United States
and some foreign jurisdictions, athletic commissions and other applicable
regulatory agencies require us to obtain licenses for promoters, medical
clearances and/or other permits or licenses for performers and/or permits for
events in order for us to promote and conduct our live events. In the event that
we fail to comply with the regulations of a particular jurisdiction, we may be
prohibited from promoting and conducting our live events in that jurisdiction.
The inability to present our live events over an extended period of time or in a
number of jurisdictions could lead to a decline in the various revenue streams
generated from our live events, which could adversely affect our operating
results.
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.
Our inability to
protect our large portfolio of trademarks, service marks, copyrighted material
and characters, trade names and other intellectual property rights from piracy,
counterfeiting or other unauthorized use could negatively affect our business.
Intellectual property is material to all aspects of our operations, and we
expend substantial cost and effort in an attempt to maintain and protect our
intellectual property and to maintain compliance vis-à-vis other parties’
intellectual property. We have a large portfolio of registered and unregistered
trademarks and service marks worldwide and maintain a large catalog of
copyrighted works, including copyrights to our television programming, music,
photographs, books, magazines and apparel art. A principal focus of our efforts
is to protect the intellectual property relating to our originally created
characters portrayed by our performers, which encompasses images, likenesses,
names and other identifying indicia of these characters. We also own a large
number of Internet website domain names and operate a network of developed,
content-based sites, which facilitate and contribute to the exploitation of our
intellectual property worldwide.
We vigorously seek to
enforce our intellectual property rights by, among other things, searching the
Internet to ascertain unauthorized use of our intellectual property, seizing at
our live events goods that feature unauthorized use of our intellectual property
and seeking restraining orders and/or damages in court against individuals or
entities infringing our intellectual property rights. Our failure to curtail
piracy, infringement or other unauthorized use of our intellectual property
rights effectively, or our infringement of others’ intellectual property rights,
could adversely affect our operating results.
We could incur
substantial liabilities if pending material litigation is resolved unfavorably.
We are currently a
party to civil litigation, which, if concluded adversely to our interests, could
adversely affect our operating results. In the ordinary course of business we
become subject to various complaints and litigation matters. The outcome of
litigation is inherently difficult to assess and quantify, and the defense
against such claims or actions can be costly. Any adverse judgment significantly
in excess of our insurance coverage could materially and adversely affect our
financial condition or results of operations.
We could incur
substantial liability in the event of accidents or injuries occurring during our
physically demanding events.
We hold numerous live
events each year. This schedule exposes our performers and our employees who are
involved in the production of those events to the risk of travel and
performance-related accidents, the consequences of which may not be fully
covered by insurance. The physical nature of our events exposes our performers
to the risk of serious injury or death. Although our performers, as independent
contractors, are responsible for maintaining their own health, disability and
life insurance, we self-insure medical costs for our performers for injuries
that they incur while performing. We also self-insure a substantial portion of
any other liability that we could incur relating to such injuries. Liability to
us resulting from any death or serious injury sustained by one of our performers
while performing, to the extent not covered by our insurance, could adversely
affect our business, financial condition and operating results.
Our live events
entail other risks inherent in public live events.
We hold numerous live
events each year, both domestically and internationally. Certain risks are
inherent in large events of this type as well as the travel to and from them.
Although we believe we take appropriate safety and financial precautions in
connection with our events, possible difficulties could occur including air and
land travel accidents, the spread of illness such as a H1N1 flu outbreak,
injuries resulting from building problems or other equipment malfunction,
violence, local labor strikes and other “force majeure” type events. These
issues could result in cancelled events and other disruptions to our business as
well as liability to other parties, any of which could materially and adversely
affect our financial condition or results in operation.
10
We will continue to
face certain risks relating to our feature film business.
We have substantial
capitalized film costs. These capitalized costs are reflected net of certain
production incentives granted by various governmental authorities; our ability
to realize these credits may be limited by changes in the legislation governing
the incentives and/or the economic environment; the inability to realize these
credits would have the effect of increasing our overall production costs.
Additionally, the accounting for our film business in accordance with generally
accepted accounting principles entails significant judgment used to develop
estimates of expected future revenues from films. If expected revenue for one or
more of our films does not materialize because audience demand does not meet
expectations, our estimated revenues may not be sufficient to recoup our
investment in the film. If actual revenues are lower than our estimated revenues
or if costs are higher than expected, we may be required to record an impairment
charge and write down the capitalized costs of the film. Under our historic
distribution model, we participate in revenue after our distribution partners
recoup their costs of distribution, including print and advertising. If a film
performance does not generate sufficient receipts to recoup these distribution
expenses, we would be obligated to reimburse our distribution partner for any
deficit. Additionally, we have recently announced that we will self distribute
and market our films. While we believe that this new model will better fit our
business needs, allowing us greater control in the ultimate success of our
films, no assurances can be given that we will be successful in these new
endeavors.
Through his
beneficial ownership of a substantial majority of our Class B common stock, Mr.
McMahon can exercise control over our affairs, and his interests may conflict
with the holders of our Class A common stock.
We have Class A
common stock and Class B common stock. The holders of Class A common stock
generally have rights identical to holders of Class B common stock, except that
holders of Class A common stock are entitled to one vote per share, and holders
of Class B common stock are entitled to ten votes per share. Holders of both
classes of common stock generally will vote together as a single class on all
matters presented to stockholders for their vote or approval, except as
otherwise required by applicable Delaware law.
A substantial
majority of the issued and outstanding shares of Class B common stock is owned
beneficially by Vincent K. McMahon. Mr. McMahon controls approximately 88% of
the voting power of the issued and outstanding shares of our common stock.
Through his beneficial ownership of a substantial majority of our Class B common
stock, Mr. McMahon effectively can exercise control over our affairs, and his
interest could conflict with the holders of our Class A common stock. In
addition, the voting power of Mr. McMahon through his ownership of our Class B
common stock could discourage others from initiating potential mergers,
takeovers or other change of control transactions. As a result, the market price
of our Class A common stock could decline.
To the extent the
Company’s distributions represent a return of capital for tax purposes
shareholders could recognize an increased capital gain upon a subsequent sale of
the Company’s Common Stock.
The Company believes
that its aggregate dividend distributions paid in 2009 were in excess of its
current earnings and profits for that year calculated under applicable Internal
Revenue Code (“IRC”) provisions. Under the IRC, distributions in excess of both
the Company’s current earnings and profits and the Company’s accumulated
earnings and profits will constitute a return of capital and will reduce the
stockholder’s adjusted tax basis in its Common Stock. If a stockholder’s
adjusted basis in its Common Stock is reduced to zero, these excess
distributions would thereafter constitute a capital gain to the stockholder.
Dividends paid by the Company could be in excess of current and accumulated
earnings and profits as early as calendar 2010.
Our dividend is
significant and is dependent on a number of factors, including a waiver from
members of the McMahon family and approval of any new waiver by the Internal
Revenue Service.
Our Board of
Directors regularly evaluates the Company’s Common Stock dividend policy and
determines the dividend rate each quarter. The level of dividends will continue
to be influenced by many factors, including, among other things, our liquidity
and historical and projected cash flow, our 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 from time to time. In February 2008, the Company increased its
quarterly dividend from $.24 to $.36 per share. 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 $.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. No assurances can
be given that any similar dividend waiver will be in place after the current
dividend waiver expires. While we intend to continue to pay quarterly dividends,
we cannot assure our stockholders that dividends will be paid in the future, or
that, if paid, dividends will be at the same amount or with the same frequency
as in the past. Any reduction in our dividend payments could have a negative
effect on our stock price.
11
We could face a
variety of risks if we expand into new and complementary
businesses.
We have entered into
new or complementary businesses in the past and may do so again in the future.
Risks of expansion may include, among other risks: potential diversion of
management’s attention and other resources, including available cash, from our
existing businesses; unanticipated liabilities or contingencies; reduced
earnings due to increased amortization, impairment charges and other costs;
competition from other companies with more experience in such businesses; and
possible additional regulatory requirements and compliance costs. In this
regard, the Company has announced that it is in the early stages of exploring
the formation of a WWE television network
as an additional vehicle to distribute our programming
content.
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 of those shares could lower
our stock price.
All of the issued and
outstanding shares of Class B common stock are held by Vincent McMahon and other
members of the McMahon family and trusts set up for these family members. Sales
of substantial amounts of these shares, or the perception that such sales could
occur, may lower the prevailing market price of our Class A common stock. If any
such sales were to occur, the shares would automatically convert into Class A
common stock, and the waiver of dividends in excess of $0.24 per share by the
McMahon family would terminate as to the shares sold. The Company is not aware
that any member of the McMahon family has any plan to sell shares other than
Shane McMahon, Vincent McMahon’s son and a former executive officer of the
Company, who has indicated an interest in a sale or sales of all or a
substantial portion of the approximate 1.9 million shares beneficially held by
him.
Our Class A common
stock has a relatively small public “float.”
Historically, as a
result of our relatively small public float, our Class A common stock has been
less liquid than the common stock of companies with broader public ownership,
and the trading prices for our Class A common stock have been more volatile than
generally may be the case for more widely-held common stock. Among other things,
trading of a relatively small volume of our Class A common stock may have a
greater impact on the trading price of our Class A common stock than would be
the case if our public float were larger.
None.
We have executive
offices, television and music recording studios, post-production operations and
warehouses at locations in or near Stamford, Connecticut. We also have offices
in New York, London, Toronto and Los Angeles, and have regional international
offices in Sydney, Tokyo, Shanghai, and Singapore. We own the buildings in which
our executive and administrative offices, our television and music recording
studios and our production operations are located. We lease space for our sales
offices, WWE Studios office, and other facilities.
Our principal
properties consist of the following:
| Square | Expiration Date | |||||||
| Facility | Location | Feet | Owned/Leased | of Lease | ||||
| Executive offices | Stamford, CT | 114,300 | Owned | — | ||||
| Production studio | Stamford, CT | 39,000 | Owned | — | ||||
| Studios | Stamford, CT | 7,000 | Leased | Various through September 2011 | ||||
| WWE Studios office | Los Angeles, CA | 11,000 | Leased | April 2020 | ||||
| Sales offices | Various | 17,900 | Leased | Various through October 2015 |
All of the facilities
listed above are utilized in our Live and Televised Entertainment, Consumer
Products and Digital Media segments, with the exception of the WWE Studios
office in Los Angeles, which focuses on our WWE Studios segment.
We have upgraded our
television production facility to produce high definition broadcasting. In order
to allow for future growth we have performed the initial planning for an
expansion of our television production facility. However, management has elected
to delay the start of any construction project until the economic environment
improves.
12
See Note 13 to Notes
to Consolidated Financial Statements, which is included elsewhere in this Form
10-K.
None.
13
Our Class A common
stock trades on the New York Stock Exchange under the symbol “WWE.”
The following table
sets forth the high and the low sale prices for the shares of Class A common
stock as reported by the New York Stock Exchange and the dividends paid on
shares of Class A and Class B common stock for the periods
indicated.
Fiscal Year 2008
| Quarter Ended | March 31 | June 30 | September 30 | December 31 | Full Year | |||||||||
| Class A common stock price per share: | ||||||||||||||
| High | $ | 19.48 | $ | 19.86 | $ | 17.13 | $ | 15.99 | $ | 19.86 | ||||
| Low | $ | 13.35 | $ | 14.97 | $ | 13.94 | $ | 8.76 | $ | 8.76 | ||||
| Class A dividends paid per share | $ | 0.36 | $ | 0.36 | $ | 0.36 | $ | 0.36 | $ | 1.44 | ||||
| Class B dividends paid per share | $ | 0.24 | $ | 0.24 | $ | 0.24 | $ | 0.24 | $ | 0.96 | ||||
Fiscal Year 2009
| Quarter Ended | March 31 | June 30 | September 30 | December 31 | Full Year | |||||||||
| Class A common stock price per share: | ||||||||||||||
| High | $ | 12.22 | $ | 14.25 | $ | 15.25 | $ | 16.59 | $ | 16.59 | ||||
| Low | $ | 8.98 | $ | 10.34 | $ | 11.93 | $ | 13.09 | $ | 8.98 | ||||
| Class A dividends paid per share | $ | 0.36 | $ | 0.36 | $ | 0.36 | $ | 0.36 | $ | 1.44 | ||||
| Class B dividends paid per share | $ | 0.24 | $ | 0.24 | $ | 0.24 | $ | 0.24 | $ | 0.96 | ||||
There were 9,955
holders of record of Class A common stock and five holders of record of Class B
common stock on February 5, 2010. Vincent K. McMahon, Chairman of the Board of
Directors and Chief Executive Officer, along with his wife Linda E. McMahon,
control approximately 88% of the voting power of the issued and outstanding
shares of our common stock. Through their beneficial ownership of a substantial
majority of our Class B common stock, Mr. and Mrs. McMahon can effectively
exercise control over our affairs. Sales
of substantial amounts of these shares, or the perception that such sales could
occur, may lower the prevailing market price of our Class A common stock.
If any such sales were to occur, the shares would automatically convert into
Class A common stock, and the waiver of dividends in excess of $0.24 per share
by the McMahon family would terminate as to the shares sold. The Company is not
aware that any member of the McMahon family has any plan to sell shares other
than Shane McMahon, Vincent McMahon’s son and a former executive officer of the
Company, who has indicated an interest in a sale or sales of all or a
substantial portion of the approximate 1.9 million shares beneficially held by
him.
In February 2008, the
Company increased its quarterly dividend from $.24 to $.36 per share. 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 $.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. No
assurances can be given that any similar dividend waiver will be in place after
the current dividend waiver expires.
Our Board of
Directors regularly evaluates the Company’s Common Stock dividend policy and
determines the dividend rate each quarter. The level of dividends will continue
to be influenced by many factors, including, among other things, our liquidity
and historical and projected cash flow, our 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 from time to time, including the waiver by the Mcmahon family
of a portion of the dividends. While we intend to continue to pay quarterly
dividends, we cannot assure our stockholders that dividends will be paid in the
future, or that, if paid, dividends will be at the same amount or with the same
frequency as in the past. Any reduction in our dividend payments could have a
negative effect on our stock price.
14
CUMULATIVE TOTAL RETURN CHART
Set forth below is a
line graph comparing, for the period commencing April 30, 2004 and ending
December 31, 2009, the cumulative total return on our Class A common stock
compared to the cumulative total return of the Russell 2000 Index and the
S&P Movies and Entertainment Index, a published industry index. The graph
assumes the investment of $100 at the close of trading of April 30, 2004 in our
Class A common stock, the Russell 2000 Index and the S&P Movies and
Entertainment Index and the reinvestment of all dividends.
| 4/04 | 4/05 | 4/06 | 12/06 | 12/07 | 12/08 | 12/09 | ||||||||
| World Wrestling Entertainment, Inc. | 100.00 | 80.03 | 136.63 | 134.11 | 129.26 | 106.96 | 165.17 | |||||||
| Russell 2000 | 100.00 | 104.71 | 139.76 | 145.22 | 142.94 | 94.65 | 120.36 | |||||||
| S&P Movies & Entertainment | 100.00 | 98.03 | 101.95 | 124.00 | 112.18 | 65.21 | 96.28 |
15
Equity Compensation Plan
Information
The following table
sets forth certain information with respect to securities authorized for
issuance under equity compensation plans as of December 31, 2009.
| Number of securities | Number of securities remaining | |||||||
| to be issued upon | Weighted-average | available for future issuance | ||||||
| exercise of outstanding | exercise price of | under equity compensation | ||||||
| options, warrants | outstanding options, | plans (excluding securities | ||||||
| Plan Category | and rights | warrants and rights | reflected in column (a)) | |||||
| (a) | (b) | (c) | ||||||
| Equity compensation plans approved by | ||||||||
| security holders : | ||||||||
| 1999 Long Term Incentive Plan | ||||||||
| Stock options | 192,436 | $ | 13.14 | - | ||||
| Restricted stock units | 203,686 | N/A | - | |||||
| 2007 Omnibus Incentive Plan | ||||||||
| Performance stock units | 883,210 | N/A | 3,534,861 | |||||
| Equity compensation plans not approved by | ||||||||
| security holders | N/A | N/A | N/A | |||||
| Total | 1,279,332 | 3,534,861 | ||||||
The following table
sets forth our selected financial data for the years ended December 31, 2009,
December 31, 2008 and December 31, 2007, the eight month transition period ended
December 31, 2006 and each of the two fiscal years in the period ended April 30,
2006. The selected financial data as of December 31, 2009 and December 31, 2008
and for the years ended December 31, 2009, December 31, 2008 and December 31,
2007 have been derived from the audited consolidated financial statements
included elsewhere in this Annual Report. The selected financial data as of
December 31, 2007, December 31, 2006, April 30, 2006 and April 30, 2005 and for
the eight month transition period ended December 31, 2006, fiscal years ended
April 30, 2006 and April 30, 2005 have been derived from our audited
consolidated financial statements, which are not included in this Annual Report.
You should read the selected financial data in conjunction with our consolidated
financial statements and related notes and the information set forth under
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” contained elsewhere in this Annual Report.
Financial
Highlights:
| For the periods ended December 31, | For the periods ended April 30, | ||||||||||||||||
| 2009 | 2008 | 2007 | T 2006 (1) | 2006 | 2005 | ||||||||||||
| Net revenues | $ | 475.2 | $ | 526.5 | $ | 485.7 | $ | 262.9 | $ | 400.1 | $ | 366.4 | |||||
| Operating income | $ | 77.1 | $ | 70.3 | $ | 68.4 | $ | 39.2 | $ | 70.5 | $ | 50.3 | |||||
| Income from continuing operations | $ | 50.3 | $ | 45.4 | $ | 52.1 | $ | 31.6 | $ | 47.0 | $ | 37.8 | |||||
| Net income | $ | 50.3 | $ | 45.4 | $ | 52.1 | $ | 31.6 | $ | 47.0 | $ | 39.1 | |||||
| Earnings per share, basic | $ | 0.68 | $ | 0.62 | $ | 0.73 | $ | 0.45 | $ | 0.68 | $ | 0.57 | |||||
| Earnings per share, diluted | $ | 0.68 | $ | 0.62 | $ | 0.72 | $ | 0.44 | $ | 0.67 | $ | 0.56 | |||||
| Dividends paid per Class A share | $ | 1.44 | $ | 1.44 | $ | 0.96 | $ | 0.72 | $ | 0.72 | $ | 0.36 | |||||
| Cash and short-term investments | $ | 208.2 | $ | 177.3 | $ | 266.4 | $ | 248.2 | $ | 280.9 | $ | 258.1 | |||||
| As of December 31, | As of April 30, | ||||||||||||||||
| 2009 | 2008 | 2007 | T 2006 | 2006 | 2005 | ||||||||||||
| Total assets | $ | 440.6 | $ | 429.4 | $ | 470.1 | $ | 453.3 | $ | 479.4 | $ | 441.4 | |||||
| Total debt | $ | 3.9 | $ | 4.9 | $ | 5.8 | $ | 6.7 | $ | 7.2 | $ | 8.0 | |||||
| Total stockholders’ equity | $ | 337.0 | $ | 360.0 | $ | 383.4 | $ | 385.7 | $ | 396.2 | $ | 375.5 | |||||
| (1) | In June 2006, WWE changed its fiscal year to a calendar basis beginning with calendar 2007. Due to the change to a calendar year end, we established an eight month transition period from May 1, 2006 through December 31, 2006. The results from this time period are referred to throughout this report as “2006 transition period”, “T 2006”, or the “transition period”. |
16
You should read the
following discussion in conjunction with the audited consolidated financial
statements and related notes included elsewhere in this Form 10-K.
Background
The following
analysis outlines all material activities contained within each of our four
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 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 in 2010.
We provide updated
information on the key drivers of our business including live event attendance,
pay-per-view buys, home video shipments, website traffic, and online merchandise
sales on a monthly basis on our corporate website http://corporate.wwe.com. Such information is not incorporated herein
by reference.
17
Results of Operations
Year Ended December
31, 2009 compared to Year Ended December 31, 2008 (dollars in
millions)
Summary
| Net Revenues | 2009 | 2008 | |||||
| Live and Televised Entertainment | $ | 335.0 | $ | 331.5 | |||
| Consumer Products | 99.7 | 135.7 | |||||
| Digital Media | 32.8 | 34.8 | |||||
| WWE Studios | 7.7 | 24.5 | |||||
| Total | $ | 475.2 | $ | 526.5 | |||
| Cost of Revenues | 2009 | 2008 | |||||
| Live and Televised Entertainment | $ | 191.9 | $ | 221.2 | |||
| Consumer Products | 41.5 | 52.1 | |||||
| Digital Media | 18.5 | 22.9 | |||||
| WWE Studios | 3.9 | 15.6 | |||||
| Total | $ | 255.8 | $ | 311.8 | |||
| Profit contribution margin | 46 | % | 41 | % | |||
| Operating Income | 2009 | 2008 | |||||
| Live and Televised Entertainment | $ | 124.7 | $ | 92.4 | |||
| Consumer Products | 52.7 | 76.5 | |||||
| Digital Media | 5.8 | 6.2 | |||||
| WWE Studios | 2.2 | 7.2 | |||||
| Corporate | (108.3 | ) | (112.0 | ) | |||
| Operating income | $ | 77.1 | $ | 70.3 | |||
| Income from operations | $ | 50.3 | $ | 45.4 | |||
Our Live and
Televised Entertainment segment benefited from strong performances of our live
events and higher television rights fees in both domestic and international
markets, which more than offset declines in our pay-per-view business. Our
Consumer Products segment experienced declines in both our home video and
licensing businesses, primarily video games and toys. Digital Media revenues
declined from the prior year, primarily as a result of 9% fewer orders for our
WWEShop online retail store. Revenues related to WWE Studios accounted for $7.7
million, as compared to $24.5 million recorded in the prior year, reflecting
timing differences in our films release schedule.
Operating income for
the year was also impacted by a $7.4 million charge for bad debt expense related
to a former distribution partner and the benefit of $8.3 million of tax
incentives relating to our production activities. $5.0 million of these
incentives were recorded as cost of revenues, primarily in our Live and
Televised Entertainment segment, while $3.3 million were recorded
in Selling, General & Administrative Expenses.
Revenues derived from
international sources represented 27% and 26% of total net revenues in 2009 and
2008, respectively.
18
Live and Televised
Entertainment
The following chart
provides performance results and key drivers for our Live and Televised
Entertainment segment:
| Revenues- Live and Televised Entertainment | 2009 | 2008 | |||||
| Live events (dollars in millions) | $ | 108.8 | $ | 105.7 | |||
| Number of North American events | 268 | 242 | |||||
| Average North American attendance | 6,500 | 6,400 | |||||
| Average North American ticket price (dollars) | $ | 37.64 | $ | 40.98 | |||
| Number of international events | 74 | 77 | |||||
| Average international attendance | 8,500 | 8,500 | |||||
| Average international ticket price (dollars) | $ | 66.08 | $ | 78.96 | |||
| Venue merchandise (dollars in millions) | $ | 19.8 | $ | 18.5 | |||
| Domestic per capita spending (dollars) | $ | 9.58 | $ | 10.35 | |||
| Pay-per-view (dollars in millions) | $ | 80.0 | $ | 91.4 | |||
| Number of pay-per-view events | 14 | 14 | |||||
| Number of buys of pay-per-views | 4,490,200 | 5,034,400 | |||||
| Average revenue per buy (dollars) | $ | 17.26 | $ | 17.76 | |||
| Domestic retail price, excluding WrestleMania (dollars) | $ | 39.95 | $ | 39.95 | |||
| Domestic retail price WrestleMania (dollars) | $ | 54.95 | $ | 54.95 | |||
| Television rights fees (dollars in millions) | |||||||
| Domestic | $ | 72.8 | $ | 63.5 | |||
| International | $ | 39.1 | $ | 37.2 | |||
| Television advertising (dollars in millions) | $ | 7.7 | $ | 7.4 | |||
| WWE Classics on Demand (dollars in millions) | $ | 5.4 | $ | 6.3 | |||
| Other (dollars in millions) | $ | 1.4 | $ | 1.5 | |||
| Total (dollars in millions) | $ | 335.0 | $ | 331.5 | |||
| Ratings: | |||||||
| Average weekly household ratings for Raw | 3.7 | 3.4 | |||||
| Average weekly household ratings for SmackDown | 2.0 | 2.4 | |||||
| Average weekly household ratings for ECW | 1.2 | 1.3 | |||||
| Cost of Revenues-Live and Televised Entertainment | 2009 | 2008 | |||||
| Live events | $ | 74.6 | $ | 74.3 | |||
| Venue merchandise | 11.1 | 11.2 | |||||
| Pay-per-view | 32.5 | 49.8 | |||||
| Television | 65.7 | 75.8 | |||||
| Television advertising | 0.9 | 0.8 | |||||
| WWE Classics on Demand | 0.8 | 1.8 | |||||
| Other | 6.3 | 7.5 | |||||
| Total | $ | 191.9 | $ | 221.2 | |||
| Profit contribution margin | 43 | % | 33 | % | |||
Live events revenue
reflects approximately $67.8 million for North American events and $41.0 million
for international events in 2009 as compared to $64.0 million for North American
events and $41.7 million for international events in 2008. During 2009, average
attendance at our North American events was approximately 6,500 while average
attendance at our international events was approximately 8,500. During 2008,
North American average attendance was approximately 6,400 and average
international attendance was approximately 8,500. Live events profit
contribution margin was 31% in 2009 as compared to 30% in 2008. During 2008, 18
of the international events performed were recorded as buy-out deals. In 2009 it
was determined that these 18 events in 2008, as well as four events in 2009,
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 $6.3 million in 2008 and approximately $1.3 million
in 2009, with no change to profit. See Note 1 to the Consolidated Financial
Statements.
19
Venue merchandise
revenues in 2009 were positively impacted by a 2% increase in average North
American attendance, partially offset by a 7% decrease in per capita spending
dollars. Venue merchandise profit contribution margin was 44% in 2009 as
compared to 39% in 2008.
Pay-per-view revenue
reflects approximately 4.5 million buys in 2009 as compared to 5.0 million buys
in 2008. In 2009, our premier annual pay-per-view event, WrestleMania XXV,
generated approximately 1.0 million buys as compared to 1.1 million buys for
WrestleMania XXIV. Several of our pay-per-view events were
re-branded in the current year to more accurately reflect the types of matches
showcased during each event. Domestic buys, which generate a higher price per
buy, represented 63% of total buys in 2009 as compared to 66% in 2008. The
pay-per-view profit contribution margin was 59% in 2009 as compared to 46% in
2008, reflecting lower production related costs in the current
year.
Television rights
fees reflect rate increases both in domestic and international markets as well
as the addition of our new domestic show on WGN, WWE Superstars, which began
airing in April 2009. Television cost of revenues has declined based upon cost
containment improvements and production related incentives
of $3.2 million in 2009. The profit contribution margin increased from 25% to
41% in the current year.
Advertising revenues
include sales of advertising in our Canadian television programs and
sponsorships. Advertising cost of revenues reflects costs associated with an
increased level of sponsorship related activities in the current year.
WWE Classics On
Demand, our subscription based video-on-demand service, generated lower revenues
based on a decline in the number of subscribers in the second half of the
year.
Consumer Products
The following chart
provides performance results and key drivers for our Consumer Products segment:
| Revenues-Consumer Products | 2009 | 2008 | |||||
| Licensing | $ | 44.7 | $ | 60.5 | |||
| Magazine publishing | $ | 13.5 | $ | 15.4 | |||
| Net units sold | 4,026,300 | 4,702,800 | |||||
| Home video | $ | 39.4 | $ | 58.5 | |||
| Gross DVD units | 3,506,857 | 4,053,719 | |||||
| Other | $ | 2.1 | $ | 1.3 | |||
| Total | $ | 99.7 | $ | 135.7 | |||
| Cost of Revenues-Consumer Products | 2009 | 2008 | |||||
| Licensing | $ | 11.0 | $ | 13.6 | |||
| Magazine publishing | $ | 11.1 | $ | 13.3 | |||
| Home video | $ | 17.7 | $ | 24.2 | |||
| Other | $ | 1.7 | $ | 1.0 | |||
| Total | $ | 41.5 | $ | 52.1 | |||
| Profit contribution margin | 58 | % | 62 | % | |||
Licensing revenues
include $8.2 million in the toy category as compared to $12.8 million in the
prior year, reflecting an overall softening in the retail market. Beginning on
January 1, 2010, Mattel became our master toy licensee under a multi-year
agreement. Videogame revenue was $19.6 million as compared to $25.3 million in
the prior year. In December 2009, we entered into a new eight year contract,
effective January 1, 2010, with THQ granting them exclusive worldwide rights to
develop and publish video games based on our content. In connection with this
agreement, we received a payment of $13.2 million in December 2009 which is
included as non-current deferred income on the balance sheet and will be
recognized ratably over the term of this agreement.
Licensing revenues
related to books were approximately $6.8 million lower in the current year, as
the prior year included the recognition of an advance relating to a multi-year
contract with a book publisher. Licensing cost of revenue consists primarily of
talent royalties and agent commissions paid to our licensing agents. The
licensing profit contribution margin was 75% in 2009 as compared to 78% in
2008.
20
Magazine publishing
revenues declined in the current year due to lower newsstand sell-through rates,
in addition to publishing two fewer special issues of WWE magazine in 2009 as
compared to the prior year. Magazine publishing profit contribution margin was
18% in 2009 as compared to 14% in 2008 as the profit margin was favorably
impacted by a decline in publication costs.
Home video revenue
reflects the sale of approximately 3.5 million gross DVD units in 2009 as
compared to 4.1 million gross units in 2008. Included in the successful titles
released in 2009 was WrestleMania XXV, which shipped
approximately 234,000 gross units. The home video profit contribution margin was
55% in 2009 as compared to 59% in 2008, reflecting increased distribution
costs.
Digital
Media
The following chart
provides performance results and key drivers for our Digital Media segment
(dollars in millions, except average revenues per order):
| Revenues- Digital Media | 2009 | 2008 | |||||
| WWE.com | $ | 16.8 | $ | 16.3 | |||
| WWEShop | 16.0 | 18.5 | |||||
| Total | $ | 32.8 | $ | 34.8 | |||
| Average WWEShop revenues per order (dollars) | $ | 51.83 | $ | 54.77 | |||
| Cost of Revenues-Digital Media | 2009 | 2008 | |||||
| WWE.com | $ | 6.9 | $ | 8.8 | |||
| WWEShop | 11.6 | 14.1 | |||||
| Total | $ | 18.5 | $ | 22.9 | |||
| Profit contribution margin | 44 | % | 34 | % | |||
WWE.com revenue in
2009 reflects additional syndicated content sales to outside websites. Web-based
advertising accounted for approximately $10.8 million in revenues as compared to
$10.6 million in 2008. The WWE.com profit contribution margin was 59% in 2009 as
compared to 46% in 2008, reflecting lower costs associated with the production
of web content and the benefit of $1.1 million of production
incentives.
WWEShop revenue in
2009 reflects approximately 300,000 customer orders, a decrease of 9% from the
prior year. The average customer spend, $51.83 per order, decreased 5% from the
prior year. The WWEShop profit contribution margin was 28% in 2009 as compared
to 24% in the 2008, partially reflecting a decrease in material and fulfillment
costs.
WWE Studios
The following chart
provides performance results for our WWE Studios segment (dollars in
millions):
| Revenues- WWE Studios | 2009 | 2008 | |||||
| WWE Studios | $ | 7.7 | $ | 24.5 | |||
| Total | $ | 7.7 | $ | 24.5 | |||
| Cost of Revenues-WWE Studios | 2009 | 2008 | |||||
| WWE Studios | $ | 3.9 | $ | 15.6 | |||
| Total | $ | 3.9 | $ | 15.6 | |||
| Profit contribution margin | 49 | % | 36 | % | |||
WWE participates in revenues associated with our film
projects when the distribution and advertising costs incurred by our
distributors have been recouped and the results have been reported to us. During
2009, revenues from our WWE Studios segment were $7.7 million, primarily
relating to our three previously released feature films The Marine, See No Evil
and The Condemned.
The revenues recorded
for our films varies based upon the release schedule of the films. During 2009
we released our fourth feature film, 12 Rounds, as well as two Direct-to-DVD
films, Behind Enemy
Lines: Colombia and The Marine
2. 12 Rounds generated approximately $12.2
million in gross domestic box office receipts. We believe the gross receipts
generated by 12 Rounds will be sufficient to recoup
the distribution expenses incurred by our distribution partner and our
investment in the film. We will begin recognizing revenue for 12 Rounds in 2010. 12 Rounds comprises $19.7 million of
our “In release” feature film assets. Behind Enemy Lines:
Colombia and The Marine
2 comprise $2.1 million and
$2.3 million, respectively, of “In release” feature film assets. Our feature
film assets are recorded net of certain production incentives. During 2009 we
received $4.3 million in production incentives relating to our film
production.
21
Expenses
The following chart
reflects the amounts of certain significant overhead items (dollars in
millions):
| Selling, General & Administrative Expenses | 2009 | 2008 | |||||
| Staff related | $ | 62.1 | $ | 55.2 | |||
| Legal, accounting and other professional | 14.8 | 16.6 | |||||
| Stock compensation | 7.4 | 8.0 | |||||
| Advertising and promotion | 4.1 | 11.6 | |||||
| Bad debt | 8.6 | 2.5 | |||||
| All other | 30.8 | 37.4 | |||||
| Total SG&A | $ | 127.8 | $ | 131.3 | |||
| SG&A as a percentage of net revenues | 27 | % | 25 | % | |||
Staff related
expenses in the current year include higher amounts of accrued incentive
compensation based on the Company’s performance. Advertising and promotion costs
in 2008 included $3.5 million associated with our McMahon’s Million Dollar
Mania™ brand awareness campaign. WWE was reimbursed $2.0 million, net of tax,
for the prize money associated with this event by the Chairman and Chief
Executive Officer of WWE, Vincent K. McMahon. Bad debt expense in the current
year reflects an approximately $7.4 million charge to bad debt expense related
to a former distribution partner. Additionally, the current year includes a
benefit of $3.3 million relating to television production
incentives.
| 2009 | 2008 | ||||
| Depreciation and amortization | $ | 14.4 | $ | 13.1 | |
The increase in
depreciation and amortization expense reflects a full year of depreciation
charges in 2009 associated with the equipment purchased for our move to high
definition broadcasting in 2008.
| 2009 | 2008 | ||||
| Investment income | $ | 3.1 | $ | 5.9 | |
The decline in
investment income reflects lower interest rates on investment
balances.
| 2009 | 2008 | ||||
| Interest expense | $ | 0.3 | $ | 0.4 | |
|
|
|||||
| 2009 | 2008 | ||||
| Other expense, net | $ | 0.4 | $ | 6.4 | |
Other expense, net
includes the revaluation of warrants held in certain licensees of $1.1 million
and $3.0 million for 2009 and 2008, respectively, and realized foreign exchange
gains and losses.
| Provision for Income Taxes | 2009 | 2008 | |||||
| Provision | $ | 29.1 | $ | 23.9 | |||
| Effective tax rate | 37 | % | 35 | % | |||
The prior year rate
reflects higher tax-exempt interest income and tax benefits related to a change
in previously unrecognized tax positions.
22
Year Ended December
31, 2008 compared to Year Ended December 31, 2007 (dollars in
millions)
Summary
| Net Revenues | 2008 | 2007 | |||||
| Live and Televised Entertainment | $ | 331.5 | $ | 316.8 | |||
| Consumer Products | 135.7 | 118.1 | |||||
| Digital Media | 34.8 | 34.8 | |||||
| WWE Studios | 24.5 | 16.0 | |||||
| Total | $ | 526.5 | $ | 485.7 | |||
| Cost of Revenues | 2008 | 2007 | |||||
| Live and Televised Entertainment | $ | 221.2 | $ | 202.8 | |||
| Consumer Products | 52.1 | 45.6 | |||||
| Digital Media | 22.9 | 21.3 | |||||
| WWE Studios | 15.6 | 29.1 | |||||
| Total | $ | 311.8 | $ | 298.8 | |||
| Profit contribution margin | 41 | % | 38 | % | |||
| Operating Income | 2008 | 2007 | |||||
| Live and Televised Entertainment | $ | 92.4 | $ | 100.2 | |||
| Consumer Products | 76.5 | 68.6 | |||||
| Digital Media | 6.2 | 6.3 | |||||
| WWE Studios | 7.2 | (14.8 | ) | ||||
| Corporate | (112.0 | ) | (91.9 | ) | |||
| Total operating income | $ | 70.3 | $ | 68.4 | |||
| Income from operations | $ | 45.4 | $ | 52.1 | |||
Our Live and
Televised Entertainment segment benefited from strong performances both at
international and North American live events as well as higher television rights
fees in both domestic and international markets. Our licensing based revenue
accounted for approximately 45% of our Consumer Products segment in 2008 as
compared to 40% in 2007, primarily due to amounts earned as part of a license
with our book publisher. Digital Media revenues were essentially unchanged from
the prior year. Revenues related to WWE Studios accounted for $24.5 million,
reflecting a full year of revenue, compared with the $16.0 million recorded in
the prior year which revenues began in the third quarter of 2007.
Revenues derived from
international sources represented 26% and 25% of total net revenues in 2008 and
2007, respectively.
23
Live and Televised
Entertainment
The following chart
provides performance results and key drivers for our Live and Televised
Entertainment segment:
| Revenues- Live and Televised Entertainment | 2008 | 2007 | |||||
| Live events (dollars in millions) | $ | 105.7 | $ | 99.3 | |||
| Number of North American events | 242 | 233 | |||||
| Average North American attendance | 6,400 | 6,600 | |||||
| Average North American ticket price (dollars) | $ | 40.98 | $ | 40.47 | |||
| Number of international events | 77 | 75 | |||||
| Average international attendance | 8,500 | 7,700 | |||||
| Average international ticket price (dollars) | $ | 78.96 | $ | 79.60 | |||
| Venue merchandise (dollars in millions) | $ | 18.5 | $ | 19.1 | |||
| Domestic per capita spending (dollars) | $ | 10.35 | $ | 10.75 | |||
| Pay-per-view (dollars in millions) | $ | 91.4 | $ | 94.3 | |||
| Number of pay-per-view events | 14 | 15 | |||||
| Number of buys of pay-per-views | 5,034,400 | 5,200,800 | |||||
| Average revenue per buy (dollars) | $ | 17.76 | $ | 17.43 | |||
| Domestic retail price, excluding WrestleMania (dollars) | $ | 39.95 | $ | 39.95 | |||
| Domestic retail price WrestleMania (dollars) | $ | 54.95 | $ | 49.95 | |||
| Television rights fees (dollars in millions) | |||||||
| Domestic | $ | 63.5 | $ | 59.6 | |||
| International | $ | 37.2 | $ | 32.8 | |||
| Television advertising (dollars in millions) | $ | 7.4 | $ | 5.9 | |||
| WWE 24/7 Classics on Demand (dollars in millions) | $ | 6.3 | $ | 4.9 | |||
| Other (dollars in millions) | $ | 1.5 | $ | 0.9 | |||
| Total (dollars in millions) | $ | 331.5 | $ | 316.8 | |||
| Ratings: | |||||||
| Average weekly household ratings for Raw | 3.4 | 3.7 | |||||
| Average weekly household ratings for SmackDown | 2.4 | 2.7 | |||||
| Average weekly household ratings for ECW | 1.3 | 1.5 | |||||
| Cost of Revenues-Live and Televised Entertainment | 2008 | 2007 | |||||
| Live events | $ | 74.3 | $ | 71.2 | |||
| Venue merchandise | 11.2 | 11.4 | |||||
| Pay-per-view | 49.8 | 43.6 | |||||
| Television | 75.8 | 66.5 | |||||
| Television advertising | 0.8 | 0.9 | |||||
| WWE 24/7 Classics on Demand | 1.8 | 2.1 | |||||
| Other | 7.5 | 7.1 | |||||
| Total | $ | 221.2 | $ | 202.8 | |||
| Profit contribution margin | 33 | % | 36 | % | |||
Live events revenue reflected approximately $64.0
million for North American events and $41.7 million for international events in
2008 as compared to $61.9 million for North American events and $37.4 million
for international events in 2007. During 2008, average attendance at our North
American events was approximately 6,400 while average attendance at our
international events was approximately 8,500. During 2007, North American
average attendance was approximately 6,600 and average international attendance
was approximately 7,700. During 2008, 18 of the international events performed
were recorded as buy-out deals. In 2009 it was determined that these 18 events
in 2008, as well as six events in 2007, 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 $6.3 million in
2008 and approximately $2.7 million in 2007, with no change to
profit. Live events profit
contribution margin was 30% in 2008 as compared to 28% in
2007.
24
Venue merchandise
revenues in 2008 were impacted by the slight decline in North American average
attendance and per capita spending dollars. Venue merchandise profit
contribution margin was 39% in 2008 as compared to 40% in 2007.
Pay-per-view revenue reflected approximately 5.0
million buys in 2008 as compared to 5.2 million buys in 2007. In 2008, our
premier annual pay-per-view event, WrestleMania
XXIV,
generated approximately 1.1 million buys as compared to 1.2 million buys
for WrestleMania
XXIII.
Domestic buys, which carry a higher price per buy, represented 66% of total buys
in 2008 and 2007. The pay-per-view profit contribution margin was 46% in 2008 as
compared to 54% in 2007, reflecting additional spending in guest talent pay,
promotion and consumer advertising in support of WrestleMania
XXIV.
The increase in
domestic and international television rights fees reflected our new agreement
with MyNetworkTV as well as contractual increases in several territories. The
increase in television cost of revenues reflects higher production and staging
costs incurred related to our broadcasting in high definition.
Advertising revenues
included sales of advertising in our Canadian television programs and
sponsorships. Advertising cost of revenues reflects costs associated with the
increased sponsorship related activities in 2008.
WWE 24/7 Classics On
Demand, our subscription based video-on-demand service, generated higher
revenues based on the expanded number of subscribers from 2007.
Consumer
Products
The following chart
provides performance results and key drivers for our Consumer Products
segment:
| Revenues- Consumer Products | 2008 | 2007 | |||||
| Licensing | $ | 60.5 | $ | 47.1 | |||
| Magazine publishing | $ | 15.4 | $ | 16.5 | |||
| Net units sold | 4,702,800 | 4,858,400 | |||||
| Home video | $ | 58.5 | $ | 53.7 | |||
| Gross DVD units | 4,053,719 | 4,034,167 | |||||
| Other | $ | 1.3 | $ | 0.8 | |||
| Total | $ | 135.7 | $ | 118.1 | |||
| Cost of Revenues-Consumer Products | 2008 | 2007 | |||||
| Licensing | $ | 13.6 | $ | 11.9 | |||
| Magazine publishing | $ | 13.3 | $ | 11.4 | |||
| Home video | $ | 24.2 | $ | 21.6 | |||
| Other | $ | 1.0 | $ | 0.7 | |||
| Total | $ | 52.1 | $ | 45.6 | |||
| Profit contribution margin | 62 | % | 61 | % | |||
Licensing revenues in 2008 reflect approximately
$12.8 million in the toy category, $25.3 million in the videogame category and
$9.3 million related to apparel and novelties. In 2007, revenues reflected
approximately $14.3 million in the toy category, $18.3 million in the videogame
category and $9.4 million related to apparel and novelties. 2008 reflects
revenues from the videogame title “SmackDown vs. Raw
2008” released in seven platforms versus four platforms for the prior release
in this series. Licensing revenues related to books were approximately $6.4
million higher in 2008, primarily due to amounts earned as part of a license
with our book publisher. Licensing revenue is dependent upon the release
schedule of products and is affected by the timing of when licensees report
results to us. Licensing cost of revenue consists primarily of talent royalties
and agent commissions paid to our licensing agents. The licensing profit
contribution margin was 78% in 2008 as compared to 75% in
2007.
Magazine publishing revenues declined in 2008 due
to lower newsstand sell-through rates as we published twenty-six issues as
compared to twenty-one issues in 2007. In April 2008, we began publishing a new
magazine titled WWE Kids, a bi-monthly publication for
6-14 year old WWE fans, which generated approximately $0.9 million in revenue.
The magazine publishing profit contribution margin was 14% in 2008 as compared
to 31% in 2007 as the profit margin was adversely impacted by the lower
sell-through rates and higher publication costs.
25
Home video revenue reflects the sale of
approximately 4.1 million gross DVD units in 2008 as compared to 4.0 million
gross units in 2007. Included in the successful titles released in 2008
was WrestleMania
XXIV, which shipped approximately
326,000 gross units. The increase in home video costs is due to higher
distribution fees and advertising. The home video profit contribution margin was
59% in 2008 as compared to 60% in 2007, reflecting the aforementioned cost
increases.
Digital
Media
The following chart
provides performance results and key drivers for our Digital Media segment
(dollars in millions, except average revenues per order):
| Revenues- Digital Media | 2008 | 2007 | |||||
| WWE.com | $ | 16.3 | $ | 16.2 | |||
| WWEShop | $ | 18.5 | $ | 18.6 | |||
| Total | $ | 34.8 | $ | 34.8 | |||
| Average revenues per order (dollars) | $ | 54.77 | $ | 54.94 | |||
| Cost of Revenues-Digital Media | 2008 | 2007 | |||||
| WWE.com | $ | 8.8 | $ | 7.6 | |||
| WWEShop | $ | 14.1 | $ | 13.7 | |||
| Total | $ | 22.9 | $ | 21.3 | |||
| Profit contribution margin | 34 | % | 39 | % | |||
WWE.com revenue in
2008 reflects additional web advertising and wireless content. Web-based
advertising accounted for approximately $10.6 million in revenues as compared to
$10.4 million in 2007. The WWE.com profit contribution margin was 46% in 2008 as
compared 53% in 2007, reflecting higher costs associated with web
content.
WWEShop revenue in
2008 reflects approximately 329,200 customer orders, essentially flat to the
prior year. The average customer spend, $54.77 per order, was essentially flat
to the prior year as well. The WWEShop profit contribution margin was 24% in
2008 as compared to 26% in the 2007, partially reflecting an increase in
material costs.
WWE
Studios
The following chart
provides performance results and key drivers for our WWE Studios segment
(dollars in millions):
| Revenues- WWE Studios | 2008 | 2007 | |||||
| WWE Studios | $ | 24.5 | $ | 16.0 | |||
| Total | $ | 24.5 | $ | 16.0 | |||
| Cost of Revenues-WWE Studios | 2008 | 2007 | |||||
| WWE Studios | $ | 15.6 | $ | 29.1 | |||
| Total | $ | 15.6 | $ | 29.1 | |||
| Profit contribution margin | 36 | % | (82 | %) | |||
WWE participates in revenues associated with our
film projects when the distribution and advertising costs incurred by our
distributors have been recouped and the results have been reported to us. During
2008, revenues from our WWE Studios segment was $24.5 million, relating to our
three feature films The Marine, See No Evil
and The Condemned.
During 2008 we expensed
$15.6 million of feature film production assets, including a $1.9 million film
asset impairment charge related to the performance of See No Evil
and approximately $0.9
million of development costs for abandoned projects.
During 2007 we recorded $16.0 million in revenue
and expensed approximately $29.1 million of feature film production assets,
including a $15.7 million film asset impairment charge related to the
performance of our theatrical release, The Condemned,
and approximately $0.4
million of development costs for abandoned projects.
26
Expenses
The following chart
reflects the amounts of certain significant overhead items (dollars in
millions):
| Selling, General & Administrative Expenses | 2008 | 2007 | |||||
| Staff related | $ | 55.2 | $ | 50.3 | |||
| Legal, accounting and other professional | 16.6 | 14.0 | |||||
| Stock compensation | 8.0 | 7.8 | |||||
| Advertising and promotion | 11.6 | 5.4 | |||||
| Bad debt | 2.5 | 0.1 | |||||
| All other | 37.4 | 31.5 | |||||
| Total SG&A | $ | 131.3 | $ | 109.1 | |||
| SG&A as a percentage of net revenues | 25 | % | 23 | % | |||
Staff related
expenses increased in 2008 due in part to the continued expansion of our Digital
Media content staff and advertising sales force and additional personnel related
to our international expansion. The increase in legal, accounting and other
professional fees reflected additional litigation based expense due to case
activity. Stock compensation expense includes amortization of restricted stock
unit and performance stock unit grants issued to employees. Advertising and
promotion costs in 2008 include $3.5 million associated with our McMahon’s
Million Dollar Mania brand awareness campaign. WWE was reimbursed $2.0 million,
net of tax, for the prize money associated with this event by the Chairman of
WWE, Vincent K. McMahon. Additional advertising and promotion costs of
approximately $1.2 million were also incurred in support of our new
international offices. Bad debt expense in the current year reflects an increase
for specifically identified accounts due to difficulties encountered in our
collection efforts.
| 2008 | 2007 | ||||
| Depreciation and amortization | $ | 13.1 | $ | 9.3 | |
The increase in
depreciation and amortization expense reflects the initial depreciation charges
associated with the assets purchased for our implementation of high definition
broadcasting.
| 2008 | 2007 | ||||
| Investment income | $ | 5.9 | $ | 9.1 | |
The decline in
investment income reflects lower investment balances.
| 2008 | 2007 | ||||
| Interest expense | $ | 0.4 | $ | 0.6 | |
| 2008 | 2007 | ||||
| Other expense, net | $ | 6.4 | $ | 0.5 | |
Other expense, net
includes a mark-to-market adjustment for the revaluation of warrants held in
licensees and realized losses on foreign currency transactions.
| Provision for Income Taxes | 2008 | 2007 | |||||
| Provision | $ | 23.9 | $ | 24.3 | |||
| Effective tax rate | 35 | % | 32 | % | |||
The prior year rate
reflects higher tax-exempt interest income and tax benefits related to a change
in previously unrecognized tax positions.
Liquidity and Capital
Resources
Cash flows provided
by operating activities were $116.4 million, $36.2 million and $98.2 million for
the years ended December 31, 2009, December 31, 2008 and December 31, 2007,
respectively. Cash flows provided by operating activities vary, in part, due to
the timing of our productions and the related amortization of feature films.
Cash flows used for feature film production were $9.9 million, $25.5 million and
$1.8 million for 2009, 2008 and 2007, respectively. The estimated cash to be
used in 2010 for film production costs is expected to be $20.0 to $25.0 million,
depending on the number and type of film projects selected. Working capital,
consisting of current assets less current liabilities, was $222.7 million,
$221.7 million and $276.1 million at December 31, 2009, December 31, 2008 and
December 31, 2007, respectively.
27
We
receive production incentive
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 $10.0 to
$15.0 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. In this
regard, during 2009 we recorded a charge for $7.4 million to reserve for a
receivable related to a former distribution partner.
Net cash flows used
in investing activities were $6.4 million in 2009, while cash flows provided by
investing activities were $21.7 million in 2008 and $13.0 million in 2007. As of
February 6, 2010, we had approximately $22.4 million of investment securities
invested in auction rate securities (“ARS”) and $64.0 million of investment
securities invested in municipal and corporate bonds.
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 December 31,
2009, we have recorded a cumulative adjustment of approximately $2.0 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 security and our determination that it is not more likely than
not that we will be required to sell the security before recovery of its
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.
Capital expenditures
for fixed asset projects were approximately $5.4 million, $26.3 million and
$18.2 million in 2009, 2008 and 2007, respectively. Capital expenditures in 2008
and 2007 reflected approximately $9.5 million and $10.1, respectively, related
to our transition to high definition broadcasting. Also in 2008 we acquired a
parcel of land adjacent to our television studio for approximately $3.0 million
and incurred approximately $3.9 million in costs related to the planning of our
media center expansion. However, management has elected to delay the start of
any construction for this expansion until the economic environment improves.
Capital expenditures in 2010, excluding costs incurred for the media center
project, are expected to be between $9.0 million and $11.0 million for building
improvements and equipment.
Cash flows used in
financing activities for 2009, 2008 and 2007, were $79.8 million $74.1 million
and $61.6 million, respectively. 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. The quarterly dividend on
all Class B common shares, held by members of the McMahon family and their
respective trusts, will remain at $0.24 per share as they have waived quarterly
cash dividends in excess of $0.24 per share for a period of three years. In
2009, we paid four quarterly cash dividends of $0.36 on all Class A common
shares, and $0.24 on all Class B common shares, for an aggregate amount of $82.3
million. In 2008, we paid four quarterly cash dividends of $0.36 on all Class A
common shares, and $0.24 on all Class B common shares, for an aggregate amount
of $81.4 million. In 2007, we paid four quarterly cash dividends, at $0.24 per
share on all Class A and Class B common shares, for an aggregate amount of $68.7
million. Assuming the continuation of these respective cash quarterly dividend
rates of $0.36 per share and $0.24 per share and the same stock ownership, the
estimated amount of dividends that would be paid for 2010 is approximately $82.9
million.
We believe that cash
generated from operations and from existing cash and short-term investments will
be sufficient to meet our cash needs over the next twelve months for working
capital, capital expenditures, feature film production and the payment of
dividends.
28
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 December 31, 2009, 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 to 2012 | 2013 to 2014 | 2014 | Total | ||||||||||
| Long-term debt (including interest thereon) | $ | 1.3 | $ | 2.7 | $ | 0.4 | $ | - | $ | 4.4 | ||||
| Operating leases | 2.1 | 2.2 | 1.6 | 2.3 | 8.2 | |||||||||
| Talent, employment agreements and other commitments | 15.5 | 9.9 | 5.4 | 3.7 | 34.5 | |||||||||
| Total commitments | $ | 18.9 | $ | 14.8 | $ | 7.4 | $ | 6.0 | $ | 47.1 | ||||
Seasonality
Our operating results
are not materially affected by seasonal factors; however, our premier
event, WrestleMania, occurs late in our first quarter or early in
our second quarter. In addition, revenues from our licensing and direct sale of
consumer products, including our catalogs, magazines and internet sites, may
vary from period to period depending on the volume and extent of licensing
agreements and marketing and promotion programs entered into during any
particular period of time, as well as the commercial success of the media
exposure of our characters and brand. The timing of these events as well as the
continued introduction of new product offerings and revenue generating outlets
can and will cause fluctuation in quarterly revenues and earnings.
Inflation
During 2009, 2008 and
2007, inflation has not had a material effect on our business.
Application of Critical Accounting
Policies
Accounting Policies
We believe the
following are the critical accounting policies used in the preparation of our
financial statements, as well as the significant judgments and estimates
affecting the application of these policies.
29
-
Revenue Recognition
Pay-per-view
programming:
Revenues from our
pay-per-view programming are recorded when the event is aired and are based upon
our initial estimate of the number of buys achieved. This initial estimate is
based on preliminary buy information received from our pay-per-view
distributors. Final reconciliation of the pay-per-view buys occurs within one
year and any subsequent adjustments to the buys are recognized in the period new
information is received. As of December 31, 2009, our pay-per-view accounts
receivable was $13.7 million. If our initial estimate is incorrect, it can
result in significant adjustments to revenues in subsequent years.
Licensing:
Licensing revenues
are recognized upon receipt of reports from the individual licensees that
detail the royalties generated by product sales. If we receive licensing
advances or up-front fees, such payments are deferred and recognized as income
as earned over the term of the contract. In connection with our new agreement
with THQ we received a payment of $13.2 million in December 2009 that we have
recorded as non-current deferred income and we will recognize this amount
ratably over the term of this agreement.
Home video:
Revenues from the
sales of home video titles are recorded at the later of the date of delivery by
our distributor to wholesalers, or the date that these products are made widely
available for sale by retailers, net of an allowance for estimated returns. The
allowance for estimated returns is based on historical information and current
industry trends. As of December 31, 2009, our home video returns allowance was
$5.5 million. If we do not accurately predict returns, we may have to adjust
revenues in future periods.
Magazine
publishing:
Publishing newsstand
revenues are recorded when shipped by our distributor to wholesalers/retailers,
net of an allowance for estimated returns. We estimate the allowance for
newsstand returns based upon our review of historical return rates and the
expected performance of our current titles in relation to prior issue return
rates. As of December 31, 2009, our newsstand returns allowance was $4.8
million. If we do not accurately predict returns, we may have to adjust revenues
in future periods.
Feature films:
We capitalize costs
of production and acquisition, including production overhead, as feature film
production assets. 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. The costs for an individual film are amortized and participation
and residual costs are accrued in the proportion that the current period’s
revenues bear to management’s estimates of the ultimate revenue from
exploitation, exhibition or sale of such film over a period not to exceed ten
years from the date of initial release. Management regularly reviews and
revises, when necessary, its ultimate revenue and cost estimates, which may
result in a change in the rate of amortization of film costs and/or write-down
of all or a portion of the unamortized costs of the film to its estimated fair
value. No assurance can be given that unfavorable changes to revenue and cost
estimates will not occur, which may result in significant write-downs affecting
our results of operations and financial condition. In 2008 and 2007 we recorded
an impairment charge of $1.9 million and $15.7 million related to See No Evil and
The Condemned, respectively. As of December 31, 2009, we
have approximately $37.1 million in capitalized film production
costs.
We have performed
estimates of our ultimate revenue for each of our released film projects, as
well as the capitalized costs for various film projects in development, and
believe no additional write-down is required at this time.
-
Allowance for Doubtful Accounts
Our receivables
represent a significant portion of our current assets. We are required to
estimate the collectibility of our receivables and to establish allowances for
the amount of receivables that we estimate to be uncollectible. We base these
allowances on our historical collection experience, the length of time our
receivables are outstanding and the financial condition of individual customers.
Changes in the financial condition of significant customers, either adverse or
positive, could impact the amount and timing of any additional allowances that
may be required. During 2009 we recorded an allowance for doubtful accounts of
$7.4 million related to a former distribution partner. As of December 31, 2009,
our allowance for doubtful accounts was $11.9 million.
30
-
Income Taxes
Deferred tax
liabilities and assets are recognized for the expected future tax consequences
of events that have been reflected in the Consolidated Financial Statements.
Deferred tax liabilities and assets are determined based on the differences
between the book and tax bases of particular assets and liabilities and
operating loss carryforwards, using tax rates in effect for the years in which
the differences are expected to reverse. A valuation allowance is provided to
offset deferred tax assets if, based upon the available evidence, including
consideration of tax planning strategies, it is more-likely-than-not that some
or all of the deferred tax assets will not be realized. As of December 31, 2009,
our deferred tax assets were $24.8 million, less a valuation allowance of $1.2
million. Our deferred tax liabilities were $18.1 million and our unrecognized
tax benefits totalled $9.2 million.
Recent Accounting Pronouncements
In July 2009, the
Financial Accounting Standards Board (FASB) issued authoritative guidance which
established the FASB Standards Accounting Codification ("Codification") as the
source of authoritative GAAP recognized by the FASB to be applied to
nongovernmental entities, and rules and interpretive releases of the SEC as
authoritative GAAP for SEC registrants. The Codification supersedes all the
existing non-SEC accounting and reporting standards upon its effective date and,
subsequently, the FASB will not issue new standards in the form of Statements,
FASB Staff Positions or Emerging Issues Task Force Abstracts. The guidance is
not intended to change or alter existing GAAP. The guidance became effective for
WWE in the third quarter of 2009. The guidance did not have an impact on the
Company's financial position, results of operations or cash flows. All
references to previous numbering of FASB Statements, FASB Staff Positions or
Emerging Issues Task Force Abstracts have been removed from the financial
statements and accompanying footnotes.
In August 2009, the
FASB issued guidance on the measurement of liabilities at fair value. The
guidance provides clarification that in circumstances in which a quoted market
price in an active market for an identical liability is not available, an entity
is required to measure fair value using a valuation technique that uses the
quoted price of an identical liability when traded as an asset or, if
unavailable, quoted prices for similar liabilities or similar assets when traded
as assets. If none of this information is available, an entity should use a
valuation technique in accordance with existing fair valuation principles. We
adopted the guidance in the quarter ended December 31, 2009. The adoption did
not have an impact on the Company's financial position, results of operations or
cash flows.
In May 2009, the FASB
issued authoritative guidance for subsequent events. The guidance provides
authoritative accounting literature related to evaluating subsequent events that
was previously addressed only in the auditing literature. The guidance is
similar to the current guidance with some exceptions that are not intended to
result in significant change to current practice. The guidance defines
subsequent events and also requires the disclosure of the date through which an
entity has evaluated subsequent events and the basis for that date. The Company
adopted the disclosure provisions of the guidance as of June 30, 2009. The
Company evaluated its December 31, 2009 financial statements for subsequent
events through February 23, 2010, the date the statements were issued. The
Company is not aware of any subsequent events which would require recognition or
disclosure in the financial statements.
In April 2009, the
FASB issued authoritative guidance for interim disclosures about fair value of
financial instruments, which amended existing guidance. The guidance requires
disclosures about fair value of financial instruments in interim financial
statements as well as in annual financial statements. The Company adopted the
provisions of the guidance as of June 30, 2009. The adoption did not have an
impact on the Company's financial position, results of operations or cash flows.
In April 2009, the
FASB issued authoritative guidance related to determining the fair value of an
asset or liability when the volume and level of activity for the asset or
liability has significantly decreased, which is effective for interim and annual
periods ending after June 15, 2009. The new rules also require additional
disclosures regarding the categories of fair value instruments, as well as the
inputs and valuation techniques utilized to determine fair value and any changes
to the inputs and valuation techniques during the period. The Company adopted
the provisions of the guidance as of June 30, 2009. The adoption did not have an
impact on the Company's financial position, results of operations or cash flows.
In April 2009, the
FASB issued authoritative guidance related to the recognition and presentation
of other than temporary impairments. The guidance amends existing other than
temporary impairment guidance for debt securities to make the guidance more
operational and to improve presentation and disclosure of other than temporary
impairments on debt and equity securities in the financial statements. It
requires disclosures about fair value of financial instruments in interim
financial statements as well as in annual financial statements. The Company
adopted the provisions of the guidance as of June 30, 2009. The adoption did not
have an impact on the Company's financial position, results of operations or
cash flows.
31
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.
32
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 primarily of municipal bonds and student loan auction rate
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.
The information
required by this item is set forth in the Consolidated Financial Statements
filed with this report.
None
We have performed an
evaluation under the supervision and with the participation of our management,
including our Chairman and Chief Executive Officer and our Chief Financial
Officer, of the effectiveness of our disclosure controls and procedures, as
defined under the Securities Exchange Act of 1934. Based on that evaluation, our
Chairman and Chief Executive Officer, and our Chief Financial Officer concluded
that as of the end of the period covered by this Form 10-K, our disclosure
controls and procedures were effective and designed to ensure that all material
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified by the SEC and that such information is
accumulated and communicated to our management, as appropriate to allow timely
decisions regarding required disclosure.
There were no changes
in the Company’s internal control over financial reporting identified in
connection with management’s evaluation that occurred during the fourth quarter
of our fiscal year ended December 31, 2009 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
Management’s Report
on Internal Control Over Financial Reporting
Our management is
responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and
15d-15(f). Under the supervision and with the participation of our management,
including our Chairman and Chief Executive Officer and our Chief Financial
Officer, we conducted an evaluation of the effectiveness of our internal control
over financial reporting as of December 31, 2009 based on the guidelines
established in Internal Control — Integrated Framework
issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Our internal control
over financial reporting includes policies and procedures that provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external reporting purposes in
accordance with U.S. generally accepted accounting principles.
Based on the results
of our evaluation, our management concluded that our internal control over
financial reporting was effective as of December 31, 2009. We review the results
of management’s assessment with our Audit Committee.
The effectiveness of
our internal control over financial reporting as of December 31, 2009 has been
audited by Deloitte & Touche LLP, an independent registered public
accounting firm, as stated in their report which is included in this Annual
Report on Form 10-K. Such report expresses an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2009.
33
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of
Directors and Stockholders of
World Wrestling
Entertainment, Inc.
Stamford, CT
We have audited the
internal control over financial reporting of World Wrestling Entertainment, Inc.
and subsidiaries (the "Company") as of December 31, 2009, based on criteria
established in Internal Control — Integrated Framework
issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management's Report on Internal Control over Financial
Reporting. Our
responsibility is to express an opinion on the Company's internal control over
financial reporting based on our audit.
We conducted our
audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company's internal
control over financial reporting is a process designed by, or under the
supervision of, the company's principal executive and principal financial
officers, or persons performing similar functions, and effected by the company's
board of directors, management, and other personnel to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial
reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of the
inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material
misstatements due to error or fraud may not be prevented or detected on a timely
basis. Also, projections of any evaluation of the effectiveness of the internal
control over financial reporting to future periods are subject to the risk that
the controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
In our opinion, the
Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2009, based on the criteria established
in Internal Control — Integrated Framework
issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We have also audited,
in accordance with the standards of the Public Company Accounting Oversight
Board (United States),the consolidated financial statements and financial
statement schedule as of and for the year ended December 31, 2009 of the Company
and our report dated February 24, 2010 expressed an unqualified opinion on those
financial statements and financial statement schedule.
/s/ Deloitte &
Touche LLP
Stamford, Connecticut
February 24,
2010
34
None.
The information
required by Part III (Items 10-14) is incorporated herein by reference to our
definitive proxy statement for our 2010 Annual Meeting of Stockholders, except
for the equity compensation plan information required by Item 12, which is set
forth above in Item 5.
(a) The following
documents are filed as a part of this report:
1. Consolidated
Financial Statements and Schedule: See index to Consolidated Financial
Statements on page F-1 of this Report.
2.
Exhibits:
| Exhibit | |||
| No. | Description of Exhibit | ||
| 3.1 |
Amended and
Restated Certificate of Incorporation (incorporated by reference to
Exhibit 3.2 to our Registration Statement on Form S-1 (No.
333-84327)).
|
||
| 3.1A |
Amendment to
Amended and Restated Certificate of Incorporation (incorporated by
reference to Exhibit 4.1(a) to our Registration Statement on Form S-8,
filed July 15, 2002).
|
||
| 3.2 |
Amended and
Restated By-laws (incorporated by reference to Exhibit 3.4 to our
Registration Statement on Form S-1 (No. 333-84327)).
|
||
| 3.2A |
Amendment to
Amended and Restated By-Laws (incorporated by reference to Exhibit 4.2(a)
to our Registration Statement on Form S-8, filed July 15,
2002).
|
||
| 10.1 |
World Wrestling
Entertainment, Inc. 2007 Omnibus Incentive Plan, effective July 20, 2007
(incorporated by reference to Exhibit 10.2 to the Current Report on Form
8-K filed July 26, 2007).*
|
||
| 10.2 |
Form of
Agreement for Performance Stock Units to the Company’s employees and
officers under the Company’s 2007 Omnibus Incentive Plan (incorporated by
reference to Exhibit 10.3 to the Current Report on Form 8-K filed July 26,
2007).*
|
||
| 10.3 |
Form of
Agreement for Restricted Stock Units to the Company’s employees and
officers under the Company’s 2007 Omnibus Incentive Plan (incorporated by
reference to Exhibit 10.4 to the Current Report on Form 8-K filed July 26,
2007).*
|
||
| 10.4 |
Employment
Agreement with Vincent K. McMahon, dated October 14, 1999 (incorporated by
reference to Exhibit 10.2 to our Registration Statement on Form S-1 (No.
333-84327)).*
|
||
| 10.4A |
Amendment,
dated as of May 1, 2002, to Employment Agreement with Vincent K. McMahon
(incorporated by reference to Exhibit 10.2A to our Annual Report on Form
10-K for the fiscal year ended April 30, 2002).*
|
||
| 10.4B |
Amendment,
dated June 23, 2006, to Employment Agreement with Vincent K. McMahon
(incorporated by reference to Exhibit 10.2B to our Annual Report on Form
10-K for the fiscal year ended April 30,
2006).*
|
||
35
| 10.5 |
Booking
Contract with Vincent K. McMahon, dated February 15, 2000 (incorporated by
reference to Exhibit 10.3 to our Annual Report on Form 10-K for the fiscal
year ended April 30, 2000).*
|
||
| 10.5A |
Amendment,
dated July 3, 2001, to Booking Contract with Vincent K. McMahon
(incorporated by reference to Exhibit 10.3A to our Annual Report on Form
10-K for the fiscal year ended April 30, 2001).*
|
||
| 10.6 |
World Wrestling
Entertainment Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.6 to our Annual Report on Form 10-K for the fiscal year ended
April 30, 2002).*
|
||
| 10.7 |
Registration
Rights Agreement, dated August 30, 2001, by and between Invemed Catalyst
Fund, L.P. and World Wrestling Entertainment, Inc. (incorporated by
reference to Exhibit 10.10 to our Annual Report on Form 10-K for the
fiscal year ended April 30, 2002).
|
||
| 10.8 |
Revised offer
letter between the Company and Donna Goldsmith (incorporated by reference
to Exhibit 99.1 to our Current Report on Form 8-K, dated December 1,
2008).*
|
||
| 10.9 |
Offer letter
between the Company and George A. Barrios (incorporated by reference to
Exhibit 10.21 to our Current Report on Form 8-K, dated March 14,
2008).*
|
||
| 10.10 |
Offer letter,
dated March 4, 2004, between the Company and John Laurinaitis
(incorporated by reference to Exhibit 10.17 to our Annual Report on Form
10-K for the fiscal year ended April 30, 2005).*
|
||
| 10.11 |
Employment
Agreement, dated June 15, 2009, between the Company and Michael Pavone
(incorporated by reference to Exhibit 10.19 to the Quarterly Report on
Form 10-Q for the quarter ended June 30, 2009).
|
||
| 10.12 |
Separation
Agreement and Release between the Company and Michael Sileck (incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated
December 31, 2008).*
|
||
| 10.13 |
Open End
Mortgage Deed, Assignment of Rents and Security Agreement between TSI
Realty Company and GMAC Commercial Mortgage Corp. (assigned to Citicorp
Real Estate, Inc.), dated as of December 12, 1997 (incorporated by
reference to Exhibit 10.11 to our Registration Statement on Form S-1 (No.
333-84327)).
|
||
| 10.14 |
Promissory Note
issued by TSI Realty Company to GMAC Commercial Mortgage Corp. (assigned
to Citicorp Real Estate, Inc.), dated as of December 12, 1997
(incorporated by reference to Exhibit 10.12 to our Registration Statement
on Form S-1 (No. 333-84327)).
|
||
| 10.15 |
Environmental
Indemnity Agreement among TSI Realty Company, Titan Sports Inc. and GMAC
Commercial Mortgage Corp. (assigned to Citicorp Real Estate, Inc.), dated
as of December 12, 1997 (incorporated by reference to Exhibit 10.13 to our
Registration Statement on Form S-1 (No. 333-84327)).
|
||
| 10.16 |
Assignment of
Leases and Rents between TSI Realty Company and GMAC Commercial Mortgage
Corp. (assigned to Citicorp Real Estate, Inc.), dated as of December 12,
1997 (incorporated by reference to Exhibit 10.14 to our Registration
Statement on Form S-1 (No. 333-84327)).
|
||
| 10.17 |
Agreement
between WWF-World Wide Fund for Nature and Titan Sports, Inc. dated
January 20, 1994 (incorporated by reference to Exhibit 10.16 to our
Registration Statement on Form S-1 (No. 333-84327)).
|
||
| 21.1 |
List of
Subsidiaries (filed herewith).
|
||
| 23.1 |
Consent of
Deloitte & Touche LLP (filed herewith).
|
||
| 31.1 |
Certification
by Vincent K. McMahon pursuant to Section 302 of Sarbanes-Oxley Act of
2002 (filed herewith).
|
||
36
| 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 the
Sarbanes-Oxley Act of 2002 (filed
herewith).
|
||
* Indicates
management contract or compensatory plan or arrangement.
37
SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) 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: February 23, 2010 | By: | /s/ VINCENT K. MCMAHON |
| Vincent K. McMahon | ||
| Chairman of the Board of Directors and | ||
| Chief Executive Officer | ||
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
| Signature | Title or Capacity | Date | ||
| Chairman of the Board of Directors and | ||||
| /s/ VINCENT K. MCMAHON | Chief Executive Officer | |||
| Vincent K. McMahon | (principal executive officer) | February 23, 2010 | ||
| /s/ DONNA N. GOLDSMITH | ||||
| Donna N. Goldsmith | Chief Operating Officer and Director | February 23, 2010 | ||
| /s/ LOWELL P. WEICKER Jr. | ||||
| Lowell P. Weicker Jr. | Director | February 23, 2010 | ||
| /s/ DAVID KENIN | ||||
| David Kenin | Director | February 23, 2010 | ||
| /s/ JOSEPH H. PERKINS | ||||
| Joseph H. Perkins | Director | February 23, 2010 | ||
| /s/ MICHAEL B. SOLOMON | ||||
| Michael B. Solomon | Director | February 23, 2010 | ||
| /s/ FRANK A. RIDDICK III | ||||
| Frank A. Riddick III | Director | February 23, 2010 | ||
| /s/ JEFFREY R. SPEED | ||||
| Jeffrey R. Speed | Director | February 23, 2010 | ||
| /s/ KEVIN DUNN | ||||
| Kevin Dunn | Director | February 23, 2010 | ||
| /s/ BASIL V. DEVITO Jr. | ||||
| Basil V. DeVito Jr | Director | February 23, 2010 | ||
| /s/ GEORGE A. BARRIOS | Chief Financial Officer | |||
| George A. Barrios | (principal financial and accounting officer) | February 23, 2010 | ||
38
WORLD
WRESTLING ENTERTAINMENT, INC.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
| Page | |
| Report of Independent Registered Public Accounting Firm | F-2 |
| Consolidated Income Statements for the years ended December 31, 2009, December 31, 2008 and December 31, 2007 | F-3 |
| Consolidated Balance Sheets as of December 31, 2009 and December 31, 2008 | F-4 |
| Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the years ended December 31, 2009, | |
| December 31, 2008 and December 31, 2007 | F-5 |
| Consolidated Statements of Cash Flows for the years ended December 31, 2009, December 31, 2008 and December 31, 2007 | F-7 |
| Notes to Consolidated Financial Statements | F-8 |
| Schedule II – Valuation and Qualifying Accounts | F-27 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of
Directors and Stockholders of
World Wrestling
Entertainment, Inc.
Stamford, CT
We have audited the
accompanying consolidated balance sheets of World Wrestling Entertainment, Inc,
and subsidiaries (the "Company") as of December 31, 2009 and 2008, and the
related consolidated statements of income, stockholders' equity and
comprehensive income, and cash flows for each of the three years in the period
ended December 31, 2009. Our audits also included the financial statement
schedule listed in the Index at Item 15. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.
We conducted our
audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such
consolidated financial statements present fairly, in all material respects, the
financial position of World Wrestling Entertainment, Inc. and subsidiaries as of
December 31, 2009 and 2008, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2009, in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
We have also audited,
in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Company's internal control over financial reporting
as of December 31, 2009, based on the criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated February 24, 2010 expressed an
unqualified opinion on the Company's internal control over financial reporting.
/s/ Deloitte &
Touche LLP
Stamford, Connecticut
Stamford, Connecticut
February 24,
2010
F-2
WORLD
WRESTLING ENTERTAINMENT, INC.
CONSOLIDATED INCOME STATEMENTS
(dollars
and shares in thousands, except per share data)
| For the years ended | ||||||||
| December 31, | December 31, | December 31, | ||||||
| 2009 | 2008 | 2007 | ||||||
| Net revenues | $ | 475,161 | $ | 526,457 | $ | 485,655 | ||
| Cost of revenues | 255,847 | 311,784 | 298,769 | |||||
| Selling, general and administrative expenses | 127,757 | 131,303 | 109,134 | |||||
| Depreciation and amortization | 14,424 | 13,083 | 9,319 | |||||
| Operating income | 77,133 | 70,287 | 68,433 | |||||
| Investment income, net | 3,051 | 5,872 | 9,110 | |||||
| Interest expense | 339 | 422 | 552 | |||||
| Other expense, net | 415 | 6,381 | 517 | |||||
| Income before income taxes | 79,430 | 69,356 | 76,474 | |||||
| Provision for income taxes | 29,127 | 23,940 | 24,337 | |||||
| Net income | $ | 50,303 | $ | 45,416 | $ | 52,137 | ||
| Earnings per share - Basic: | ||||||||
| Net income | $ | 0.68 | $ | 0.62 | $ | 0.73 | ||
| Earnings per share - Diluted: | ||||||||
| Net income | $ | 0.68 | $ | 0.62 | $ | 0.72 | ||
| Shares used in per share calculations: | ||||||||
| Basic | 73,765 | 72,889 | 71,616 | |||||
| Diluted | 74,286 | 73,523 | 72,301 | |||||
See
Accompanying Notes to Consolidated Financial Statements.
F-3
WORLD
WRESTLING ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(dollars
in thousands, except per share data)
| As of: | ||||||
| December 31, | December 31, | |||||
| 2009 | 2008 | |||||
| ASSETS | ||||||
| CURRENT ASSETS: | ||||||
| Cash and cash equivalents | $ | 149,784 | $ | 119,655 | ||
| Short-term investments | 58,440 | 57,686 | ||||
| Accounts receivable, net | 62,732 | 60,133 | ||||
| Inventory, net | 2,182 | 4,958 | ||||
| Prepaid expenses and other current assets | 21,721 | 37,596 | ||||
| Total current assets | 294,859 | 280,028 | ||||
| PROPERTY AND EQUIPMENT, NET | 84,376 | 92,367 | ||||
| FEATURE FILM PRODUCTION ASSETS | 37,053 | 31,657 | ||||
| INVESTMENT SECURITIES | 22,370 | 22,299 | ||||
| INTANGIBLE ASSETS, NET | 276 | 1,184 | ||||
| OTHER ASSETS | 1,687 | 1,875 | ||||
| TOTAL ASSETS | $ | 440,621 | $ | 429,410 | ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
| CURRENT LIABILITIES: | ||||||
| Current portion of long-term debt | $ | 1,082 | $ | 1,002 | ||
| Accounts payable | 21,281 | 18,334 | ||||
| Accrued expenses and other liabilities | 35,164 | 27,121 | ||||
| Deferred income | 14,603 | 11,875 | ||||
| Total current liabilities | 72,130 | 58,332 | ||||
| LONG-TERM DEBT | 2,790 | 3,872 | ||||
| NON-CURRENT INCOME TAX LIABILITIES | 17,152 | 7,232 | ||||
| NON-CURRENT DEFERRED INCOME | 11,528 | — | ||||
| COMMITMENTS AND CONTINGENCIES | ||||||
| STOCKHOLDERS’ EQUITY: | ||||||
| Class A common stock: ($.01 par value; 180,000,000 shares authorized; | ||||||
| 25,746,603 and 25,080,454 shares issued and outstanding as of December 31, | ||||||
| 2009 and 2008, respectively) | 257 | 252 | ||||
| Class B common stock: ($.01 par value; 60,000,000 shares authorized; | ||||||
| 47,713,563 shares issued as of December 31, 2009 and 2008) | 477 | 477 | ||||
| Additional paid-in capital | 326,008 | 317,105 | ||||
| Accumulated other comprehensive income | 2,377 | 1,171 | ||||
| Retained earnings | 7,902 | 40,969 | ||||
| Total stockholders’ equity | 337,021 | 359,974 | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 440,621 | $ | 429,410 | ||
See
Accompanying Notes to Consolidated Financial Statements.
F-4
WORLD
WRESTLING ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND
COMPREHENSIVE INCOME
(dollars
and shares in thousands)
| Accumulated | ||||||||||||||||||||
| Additional | Other | |||||||||||||||||||
| Common Stock | Paid – in | Comprehensive | Retained | |||||||||||||||||
| Shares | Amount | Capital | (Loss) Income | Earnings | Total | |||||||||||||||
| Balance, December 31, 2006 | 70,998 | 710 | 286,985 | 666 | 97,350 | 385,711 | ||||||||||||||
| Comprehensive income: | ||||||||||||||||||||
| Net income | — | — | — | — | 52,137 | 52,137 | ||||||||||||||
| Translation adjustment | — | — | — | 963 | — | 963 | ||||||||||||||
| Unrealized holding loss, net of tax of | ||||||||||||||||||||
| $31 | — | — | — | 51 | — | 51 | ||||||||||||||
| Reclassification adjustment for losses | ||||||||||||||||||||
| realized in net income, net of tax of | ||||||||||||||||||||
| $744 | — | — | — | 1,214 | — | 1,214 | ||||||||||||||
| Total comprehensive income | 54,365 | |||||||||||||||||||
| Stock issuances (repurchases), net | 318 | 3 | (1,274 | ) | — | (1,271 | ) | |||||||||||||
| Exercise of stock options | 472 | 5 | 6,165 | — | 6,170 | |||||||||||||||
| Excess tax benefits from stock-based | ||||||||||||||||||||
| payment arrangements | — | — | 841 | — | — | 841 | ||||||||||||||
| Dividends paid | — | — | 882 | — | (69,546 | ) | (68,664 | ) | ||||||||||||
| Adjustment to adopt uncertain tax | ||||||||||||||||||||
| positions | — | — | — | — | (1,502 | ) | (1,502 | ) | ||||||||||||
| Stock compensation costs | — | — | 7,730 | — | — | 7,730 | ||||||||||||||
| Balance, December 31, 2007 | 71,788 | 718 | 301,329 | 2,894 | 78,439 | 383,380 | ||||||||||||||
| Comprehensive income: | ||||||||||||||||||||
| Net income | — | — | — | — | 45,416 | 45,416 | ||||||||||||||
| Translation adjustment | — | — | — | (1,207 | ) | — | (1,207 | ) | ||||||||||||
| Unrealized holding loss, net of tax of | ||||||||||||||||||||
| $404 | — | — | — | (660 | ) | — | (660 | ) | ||||||||||||
| Reclassification adjustment for losses | ||||||||||||||||||||
| realized in net income, net of tax of | ||||||||||||||||||||
| $89 | — | — | — | 144 | — | 144 | ||||||||||||||
| Total comprehensive income | 43,693 | |||||||||||||||||||
| Stock issuances (repurchases), net | 551 | 6 | (2,963 | ) | — | — | (2,957 | ) | ||||||||||||
| Exercise of stock options | 514 | 5 | 6,263 | — | — | 6,268 | ||||||||||||||
| Excess tax benefits from stock-based | ||||||||||||||||||||
| payment arrangements | — | — | 1,081 | — | — | 1,081 | ||||||||||||||
| Dividends paid | — | — | 1,489 | — | (82,886 | ) | (81,397 | ) | ||||||||||||
| Stock compensation costs | — | — | 7,956 | — | — | 7,956 | ||||||||||||||
| Capital contribution by principal | ||||||||||||||||||||
| stockholder | — | — | 1,950 | — | — | 1,950 | ||||||||||||||
| Balance, December 31, 2008 | 72,853 | $ | 729 | $ | 317,105 | $ | 1,171 | $ | 40,969 | $ | 359,974 | |||||||||
See
Accompanying Notes to Consolidated Financial Statements.
F-5
WORLD
WRESTLING ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND
COMPREHENSIVE INCOME (CONTINUED)
(dollars
and shares in thousands)
| Accumulated | ||||||||||||||||||||
| Additional | Other | |||||||||||||||||||
| Common Stock | Paid – in | Comprehensive | Retained | |||||||||||||||||
| Shares | Amount | Capital | (Loss) Income | Earnings | Total | |||||||||||||||
| Balance, December 31, 2008 | 72,853 | $ | 729 | $ | 317,105 | $ | 1,171 | $ | 40,969 | $ | 359,974 | |||||||||
| Comprehensive income: | ||||||||||||||||||||
| Net income | — | — | — | — | 50,303 | 50,303 | ||||||||||||||
| Translation adjustment | — | — | — | 987 | — | 987 | ||||||||||||||
| Unrealized holding gain, net of tax of | ||||||||||||||||||||
| $541 | — | — | — | 883 | — | 883 | ||||||||||||||
| Reclassification adjustment for gains | ||||||||||||||||||||
| realized in net income, net of tax of | ||||||||||||||||||||
| $407 | — | — | — | (664 | ) | — | (664 | ) | ||||||||||||
| Total comprehensive income | 51,509 | |||||||||||||||||||
| Stock issuances (repurchases), net | 371 | 3 | (1,176 | ) | — | — | (1,173 | ) | ||||||||||||
| Exercise of stock options | 180 | 2 | 2,338 | — | — | 2,340 | ||||||||||||||
| Tax shortfall from stock-based payment | ||||||||||||||||||||
| arrangements | — | — | (690 | ) | — | — | (690 | ) | ||||||||||||
| Dividends paid | — | — | 1,101 | — | (83,370 | ) | (82,269 | ) | ||||||||||||
| Stock compensation costs | — | — | 7,330 | — | — | 7,330 | ||||||||||||||
| Balance, December 31, 2009 | 73,404 | $ | 734 | $ | 326,008 | $ | 2,377 | $ | 7,902 | $ | 337,021 | |||||||||
See
Accompanying Notes to Consolidated Financial Statements.
F-6
WORLD
WRESTLING ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
thousands)
| For the years ended | |||||||||||
| December 31, | December 31, | December 31, | |||||||||
| 2009 | 2008 | 2007 | |||||||||
| OPERATING ACTIVITIES: | |||||||||||
| Net income | $ | 50,303 | $ | 45,416 | $ | 52,137 | |||||
| Adjustments to reconcile net income to net cash provided by operating | |||||||||||
| activities: | |||||||||||
| Amortization of feature film production assets | 3,916 | 15,619 | 29,062 | ||||||||
| Depreciation and amortization | 14,424 | 13,083 | 9,319 | ||||||||
| Realized (gains) losses on sales of investments | (1,022 | ) | 233 | 1,958 | |||||||
| Amortization of investment income | 952 | 657 | (493 | ) | |||||||
| Stock compensation costs | 7,389 | 7,956 | 7,777 | ||||||||
| Unrealized loss on revaluation of warrants | 1,050 | 3,031 | 1,178 | ||||||||
| Provision for doubtful accounts | 8,558 | 2,521 | 47 | ||||||||
| Provision for inventory obsolescence | 1,991 | 2,679 | 1,037 | ||||||||
| Provision (benefit) for deferred income taxes | 672 | 6,605 | (7,421 | ) | |||||||
| Excess tax benefits from stock-based payment arrangements | (133 | ) | (1,081 | ) | (841 | ) | |||||
| Reimbursement of operating expenses by principle stockholder | — | 1,950 | — | ||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable | (11,158 | ) | (6,983 | ) | (4,531 | ) | |||||
| Inventory | 785 | (2,920 | ) | (2,704 | ) | ||||||
| Prepaid expenses and other assets | 18,864 | (7,402 | ) | 8,688 | |||||||
| Feature film production assets | (9,942 | ) | (25,524 | ) | (1,833 | ) | |||||
| Accounts payable | 2,948 | (3,617 | ) | 7,042 | |||||||
| Accrued expenses and other liabilities | 12,081 | (11,261 | ) | (598 | ) | ||||||
| Deferred income | 14,729 | (4,719 | ) | (1,661 | ) | ||||||
| Net cash provided by operating activities | 116,407 | 36,243 | 98,163 | ||||||||
| INVESTING ACTIVITIES: | |||||||||||
| Purchase of property and equipment and other assets | (5,525 | ) | (26,561 | ) | (18,516 | ) | |||||
| Purchases of short-term investments | (54,593 | ) | (119,495 | ) | (211,366 | ) | |||||
| Proceeds from sales or maturities of short-term investments | 53,687 | 167,796 | 242,888 | ||||||||
| Net cash (used in) provided by investing activities | (6,431 | ) | 21,740 | 13,006 | |||||||
| FINANCING ACTIVITIES: | |||||||||||
| Repayment of long-term debt | (1,002 | ) | (927 | ) | (860 | ) | |||||
| Issuance of stock, net | 951 | 842 | 882 | ||||||||
| Dividends paid | (82,269 | ) | (81,397 | ) | (68,664 | ) | |||||
| Net proceeds from exercise of stock options | 2,340 | 6,268 | 6,170 | ||||||||
| Excess tax benefits from stock-based payment arrangements | 133 | 1,081 | 841 | ||||||||
| Net cash used in financing activities | (79,847 | ) | (74,133 | ) | (61,631 | ) | |||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 30,129 | (16,150 | ) | 49,538 | |||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 119,655 | 135,805 | 86,267 | ||||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 149,784 | $ | 119,655 | $ | 135,805 | |||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | |||||||||||
| Cash paid during the period for income taxes, net of refunds | $ | 10,870 | $ | 16,683 | $ | 24,299 | |||||
| Cash paid during the period for interest | $ | 341 | $ | 416 | $ | 552 | |||||
See
Accompanying Notes to Consolidated Financial Statements.
F-7
WORLD
WRESTLING ENTERTAINMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share data)
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 in 2010.
All intercompany
transactions and balances have been eliminated. 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
relevant accounting literature. Previously, these contracts were incorrectly
reported on a net basis. The impact of the accounting of these contracts prior
to April 1, 2009 was not material to any of the periods presented, and
therefore, have not been adjusted.
2. Summary of Significant Accounting
Policies
Use of
Estimates — 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.
Cash and Cash
Equivalents — Cash and
cash equivalents include cash on deposit in overnight deposit accounts and
investments in money market accounts.
Investments — We classify all of our investments as
available-for-sale securities. Such investments consist primarily of municipal
bonds, including pre-refunded municipal bonds, corporate bonds and student loan
auction rate securities, which are classified as non-current due to continued
failures of the auction mechanism that provides liquidity to these investments.
All of these investments are stated at fair value, with unrealized gains and
losses on such securities reflected, net of tax, as other comprehensive income
(loss) in stockholders’ equity. Realized gains and losses on investments are
included in earnings and are derived using the specific identification method
for determining the cost of securities sold.
F-8
WORLD
WRESTLING ENTERTAINMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share data)
2. Summary of Significant Accounting Policies
(continued)
Accounts
Receivable — Accounts
receivable relate principally to amounts due to us from pay-per-view providers
and television networks for pay-per-view presentations and television
programming, respectively, and balances due from the sale of home videos and
magazines. Our accounts receivable represent a significant portion of our
current assets. We are required to estimate the collectibility of our
receivables and to establish allowances for the amount of accounts receivable
that we estimate to be uncollectible. We base these allowances on our historical
collection experience, the length of time our accounts receivable are
outstanding and the financial condition of individual customers. During 2009 we
recorded a $7,407 charge related to a receivable with a former distribution
partner. Accounts receivable are written off when considered uncollectible.
Activity in the allowance for doubtful accounts is as follows:
| Balance at | Charged to | Balance at | ||||||||||
| beginning | costs and | Write-offs and | end of | |||||||||
| of period | expenses | other | period | |||||||||
| 2009 | $ | 4,718 | $ | 8,558 | $ | (1,350 | ) | $ | 11,926 | |||
| 2008 | $ | 1,358 | $ | 2,521 | $ | 839 | $ | 4,718 | ||||
| 2007 | $ | 2,084 | $ | 47 | $ | (773 | ) | $ | 1,358 | |||
Inventory
— Inventory consists of merchandise sold
on a direct sales basis, and DVDs, which are sold through wholesale distributors
and retailers. Substantially all of our inventory is comprised of finished
goods. Inventory is stated at the lower of cost (first-in, first-out basis) or
market. The valuation of our inventories requires management to make market
estimates assessing the quantities and the prices at which we believe the
inventory can be sold.
Feature Films
— Feature films are
recorded at the cost of production, including production overhead. The costs for
an individual film will be amortized in the proportion that revenues bear to
management’s estimates of the ultimate revenue expected to be recognized from
exploitation, exhibition or sale of such film. Each reporting period management
reviews, and when necessary revises, its ultimate revenue and cost estimates,
which may result in a change in the rate of amortization of film costs and/or
write-down of all or a portion of the unamortized costs of the film to its
estimated fair value.
Property and
Equipment — Property and
equipment are stated at historical cost less accumulated depreciation and
amortization. Depreciation and amortization are computed on a straight-line
basis over the estimated useful lives of the assets or, when applicable, the
life of the lease, whichever is shorter. Vehicles and equipment are depreciated
based on estimated useful lives varying from three to five years. Buildings and
related improvements are depreciated based on estimated useful lives varying
from five to thirty-nine years. Our corporate aircraft is depreciated over ten
years on a straight-line basis less an estimated residual value of
$9,500.
Valuation of
Long-Lived Assets — We
periodically evaluate the carrying amount of long-lived assets when events and
circumstances warrant such a review.
Income
Taxes— Deferred tax liabilities and assets are
recognized for the expected future tax consequences of events that have been
reflected in the Consolidated Financial Statements. Deferred tax liabilities and
assets are determined based on the differences between the book and tax bases of
particular assets and liabilities and operating loss carryforwards, using tax
rates in effect for the years in which the differences are expected to reverse.
A valuation allowance is provided to offset deferred tax assets if, based upon
the available evidence, including consideration of tax planning strategies, it
is more-likely-than-not that some or all of the deferred tax assets will not be
realized.
Revenue
Recognition — Revenues are
generally recognized when products are shipped or as services are performed.
However, due to the nature of several of our business lines, there are
additional steps in the revenue recognition process, as described
below.
-
Pay-per-view programming:
Revenues from our
pay-per-view programming are recorded when the event is aired and are based upon
our initial estimate of the number of buys achieved. This initial estimate is
based on preliminary buy information received from our pay-per-view
distributors. Final reconciliation of the pay-per-view buys generally occurs
within one year and any subsequent adjustments to the buys are recognized in the
period new information is received.
F-9
WORLD
WRESTLING ENTERTAINMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share data)
2. Summary of Significant Accounting Policies
(continued)
-
Sponsorships:
Through our
sponsorship packages, we offer advertisers a full range of our promotional
vehicles, including internet and print advertising, on-air announcements and
special appearances by our Superstars. We assign the total sponsorship revenues
to the various elements contained within a sponsorship package based on
objective and reliable evidence of fair value and their relative fair values.
Our relative fair values for the sponsorship elements are based upon a
combination of historical prices and current advertising market conditions.
Revenue from these packages is recognized as each element is delivered.
-
Licensing:
Revenues from our
licensed products are recognized upon receipt of reports from the
individual licensees that detail the royalties generated by related product
sales. If we receive licensing advances, such payments are recorded as deferred
revenue and are recognized as income when earned.
-
Home video:
Revenues from the
sales of home video titles are recorded at the later of delivery by our
distributor to wholesalers, or the date that these products are made widely
available for sale by retailers, net of an allowance for estimated returns. The
allowance for estimated returns is based on historical information and current
industry trends.
-
Magazine publishing:
Publishing newsstand
revenues are recorded when the magazine is shipped, net of an allowance for
estimated returns. We estimate the allowance for newsstand returns based upon
our review of historical return rates and the expected performance of our
current titles in relation to prior issue return rates.
Advertising
Expense — Advertising
costs are expensed as incurred, except for costs related to the development of a
major commercial or media campaign which are expensed in the period in which the
commercial or campaign is first presented.
Foreign Currency
Translation — For the
translation of the financial statements of our foreign subsidiaries whose
functional currencies are not U.S. Dollars, assets and liabilities are
translated at the year-end exchange rate, and income statement accounts are
translated at average exchange rates for the year. The resulting translation
adjustments are recorded in accumulated other comprehensive income, a component
of stockholders’ equity. Foreign currency transactions are recorded at the
exchange rate prevailing at the transaction date.
Stock-Based
Compensation — New, modified and unvested share-based payment transactions with
employees, such as stock options, performance stock units and restricted stock
units, are recognized in the financial statements based on their fair value and
recognized as compensation expense over the vesting period.
Derivative
Instruments – We hold
warrants received from certain publicly traded companies with whom we had
licensing or distribution agreements. Warrants received from these licensees
were initially recorded at their estimated fair value on the date of grant using
the Black-Scholes option pricing model. That amount was recorded as deferred
revenue and is amortized into operating income over the life of the related
agreements using straight-line amortization. For 2009, 2008 and 2007, we
recorded revenues of $475, $493, $493, respectively, related to the amortization
of deferred revenue resulting from the receipt of such warrants. Subsequent to
receipt, the warrants are adjusted to their estimated fair value each quarter,
with changes in fair value included in other income (expense).
Intangible
Assets — Our intangible
assets consist of the cost of acquired film libraries which are amortized over
three years and acquired trademarks and trade names which are amortized over
three to six years. To the extent capitalized, our intangible assets are being
amortized over their estimated useful lives based on the period the assets are
expected to contribute to our cash flows. We perform impairment tests whenever
events or circumstances indicate that intangible assets might be impaired.
F-10
WORLD
WRESTLING ENTERTAINMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share data)
2. Summary of Significant Accounting Policies
(continued)
Earnings Per
Share(EPS) - We present
both basic and diluted EPS amounts. Basic EPS is calculated by dividing net
income by the weighted average number of common shares outstanding during the
year. Diluted EPS is based upon the weighted average number of common and common
equivalent shares outstanding during the year which is calculated using the
treasury-stock method. Common equivalent shares are excluded from the
computation in periods in which they have an anti-dilutive effect.
Recent Accounting
Pronouncements
In July 2009, the
Financial Accounting Standards Board (FASB) issued authoritative guidance which
established the FASB Standards Accounting Codification ("Codification") as the
source of authoritative GAAP recognized by the FASB to be applied to
nongovernmental entities, and rules and interpretive releases of the SEC as
authoritative GAAP for SEC registrants. The Codification supersedes all the
existing non-SEC accounting and reporting standards upon its effective date and,
subsequently, the FASB will not issue new standards in the form of Statements,
FASB Staff Positions or Emerging Issues Task Force Abstracts. The guidance is
not intended to change or alter existing GAAP. The guidance became effective for
us in the third quarter of 2009. The guidance did not have an impact on the
Company's financial position, results of operations or cash flows. All
references to previous numbering of FASB Statements, FASB Staff Positions or
Emerging Issues Task Force Abstracts have been removed from the financial
statements and accompanying footnotes.
In August 2009, the
FASB issued authoritative guidance on the measurement of liabilities at fair
value. The guidance provides clarification that in circumstances in which a
quoted market price in an active market for an identical liability is not
available, an entity is required to measure fair value using a valuation
technique that uses the quoted price of an identical liability when traded as an
asset or, if unavailable, quoted prices for similar liabilities or similar
assets when traded as assets. If none of this information is available, an
entity should use a valuation technique in accordance with existing fair
valuation principles. We adopted the guidance in the quarter ended December 31,
2009.
In May 2009, the FASB
issued authoritative guidance for subsequent events. The guidance provides
authoritative accounting literature related to evaluating subsequent events that
was previously addressed only in the auditing literature. The guidance is
similar to the current guidance with some exceptions that are not intended to
result in significant change to current practice. The guidance defines
subsequent events and also requires the disclosure of the date through which an
entity has evaluated subsequent events and the basis for that date. The Company
adopted the disclosure provisions of the guidance as of June 30, 2009. The
Company evaluated its December 31, 2009 financial statements for subsequent
events through February 24, 2010, the date the statements were issued. The
Company is not aware of any subsequent events which would require recognition or
disclosure in the financial statements.
In April 2009, the
FASB issued authoritative guidance for interim disclosures about fair value of
financial instruments, which amended existing guidance. The guidance requires
disclosures about fair value of financial instruments in interim financial
statements as well as in annual financial statements. The Company adopted the
provisions of the guidance as of June 30, 2009. The adoption did not have an
impact on the Company's financial position, results of operations or cash flows.
In April 2009, the
FASB issued authoritative guidance related to determining the fair value of an
asset or liability when the volume and level of activity for the asset or
liability has significantly decreased, which is effective for interim and annual
periods ending after June 15, 2009. The new rules also require additional
disclosures regarding the categories of fair value instruments, as well as the
inputs and valuation techniques utilized to determine fair value and any changes
to the inputs and valuation techniques during the period. The Company adopted
the provisions of the guidance as of June 30, 2009. The adoption did not have an
impact on the Company's financial position, results of operations or cash flows.
In April 2009, the
FASB issued authoritative guidance related to the recognition and presentation
of other than temporary impairments. The guidance amends existing other than
temporary impairment guidance for debt securities to make the guidance more
operational and to improve presentation and disclosure of other than temporary
impairments on debt and equity securities in the financial statements. The
guidance requires disclosures about fair value of financial instruments in
interim financial statements as well as in annual financial statements. The
Company adopted the provisions of the guidance as of June 30, 2009. The adoption
did not have an impact on the Company's financial position, results of
operations or cash flows.
F-11
WORLD
WRESTLING ENTERTAINMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share data)
3. Earnings Per Share
For purposes of
calculating basic and diluted earnings per share, we used the following weighted
average common shares outstanding:
| 2009 | 2008 | 2007 | |||
| Basic | 73,764,607 | 72,888,688 | 71,616,122 | ||
| Diluted | 74,286,403 | 73,523,270 | 72,301,211 | ||
| Dilutive effect of outstanding options | - | 61,225 | 209,576 | ||
| Dilutive effect of restricted and performance stock units | 518,387 | 571,032 | 474,025 | ||
| Dilutive effect of employee share purchase plan | 3,409 | 2,325 | 1,488 | ||
| Anti-dilutive outstanding options, end of year | 192,436 | 157,000 | 174,400 |
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. As
there were no undistributed earnings for years ended December 31, 2009 and 2008,
basic and diluted income per share was the same for both the Class A and Class B
stockholders.
4. 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 intangible
assets was $276 and $1,184 as of December 31, 2009 and December 31, 2008,
respectively.
Amortization expense
was $1,028, $1,380 and $1,389 for the years ended December 31, 2009, 2008 and
2007, respectively. Estimated future amortization expense is $183, $71 and $22
for the years ending December 31, 2010, 2011 and 2012,
respectively.
5. Investment Securities and Short-Term
Investments
Investments consisted
of the following:
| 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 | ||
The unrealized
holding loss of $1,547 at December 31, 2009 consisted of gross losses of $2,061
and gains of $514.
| December 31, 2008 | |||||||||
| Unrealized | |||||||||
| Holding | |||||||||
| Amortized | Gain | Fair | |||||||
| Cost | (Loss) | Value | |||||||
| Student loan auction rate securities | $ | 24,850 | $ | ( 2,551 | ) | $ | 22,299 | ||
| Municipal bonds | 56,854 | 756 | 57,610 | ||||||
| Other | 123 | (47 | ) | 76 | |||||
| Total | $ | 81,827 | $ | (1,842 | ) | $ | 79,985 | ||
The unrealized
holding loss of $1,842 at December 31, 2008 consisted of gross losses of $2,606
and gains of $764.
F-12
WORLD
WRESTLING ENTERTAINMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share data)
5. Investment Securities and Short-Term
Investments (continued)
Management deems
investments to be impaired when a decline in fair value is judged to be
other-than-temporary. If the cost of an investment exceeds its fair value, we
evaluate, among other factors, general market conditions, the duration and
extent to which the fair value is less than cost, as well as the ability to hold
and intent not to sell the investment.
Starting in February
2008, we experienced difficulty selling our investment in ARS due to multiple
failures of the auction mechanism that provides liquidity to these investments.
The securities for which auctions have failed will continue to accrue interest
and be auctioned every 35 days until the auction succeeds, the issuer calls the
securities, or they mature. Accordingly, there may be no effective mechanism for
selling these securities and we may own long-term securities; as such, we have
classified our investment in ARS as non-current investments. As of December 31,
2009, the Company had approximately $22,370 of student loan auction rate
securities which have been valued at their estimated fair value, based on a
discounted cash flow analysis which considered, among other things, the quality
of the underlying collateral, the credit rating of the issuers, an estimate of
when these securities are either expected to have a successful auction or
otherwise return to par value and expected interest income to be received over
this period. Because of the inherent subjectivity in valuing these securities,
we also obtained independent valuations for each of our ARS as of December 31,
2009 in estimating their fair values.
As of December 31,
2009 we do not believe the unrealized loss position in these securities of
$2,030 is other-than-temporary, and as such, the unrealized loss has been
recorded 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), and based on
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.
In addition to the
investments described above, we also hold warrants which we received from
certain publicly traded companies with whom we had licensing agreements. The
estimated fair value of these warrants, determined using the Black-Scholes
model, was $77, $1,127 and $4,158 as of December 31, 2009, December 31, 2008 and
December 31, 2007, respectively, and is included in other current assets at
December 31, 2009. We recognized mark to market adjustments of $(1,050),
$(3,031) and $(1,178) during 2009, 2008 and 2007, respectively, relating to
these warrants, which is included in other expense, net.
6. Fair Value Measurement
Effective January 1,
2008, the Company adopted new authoritative guidance that requires fair value to
be 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
F-13
WORLD
WRESTLING ENTERTAINMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share data)
6. Fair Value Measurement
(continued)
The following assets
are required to be measured at fair value on a recurring basis and the
classification within the hierarchy as of December 31, 2009 and December 31,
2008, respectively:
| 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 | ||||
| Significant | ||||||||||||
| Other | Significant | |||||||||||
| Quoted Market | Observable | Unobservable | Fair Value at | |||||||||
| Prices in Active | Inputs | Inputs | December 31, | |||||||||
| Markets (Level 1) | (Level 2) | (Level 3) | 2008 | |||||||||
| Municipal bonds | $ | - | $ | 57,610 | $ | - | $ | 57,610 | ||||
| Auction rate securities | - | - | 22,299 | 22,299 | ||||||||
| Other | 76 | 1,127 | - | 1,203 | ||||||||
| Total | $ | 76 | $ | 58,737 | $ | 22,299 | $ | 81,112 | ||||
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.
F-14
WORLD
WRESTLING ENTERTAINMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share data)
6. Fair Value Measurement
(continued)
The table below
includes a roll forward of our Level 3 assets (ARS) from January 1 to December
31 for 2008 and 2009.
| Significant | |||||||
| Unobservable Inputs | |||||||
| (Level 3) | |||||||
| 2009 | 2008 | ||||||
| Fair value January 1 | $ | 22,299 | $ | - | |||
| Purchases | - | - | |||||
| Redemptions/Proceeds | (450 | ) | (9,500 | ) | |||
| Transfers in | - | 34,350 | |||||
| Realized gain | - | - | |||||
| Unrealized gain (loss) | 521 | (2,551 | ) | ||||
| Fair value December 31 | $ | 22,370 | $ | 22,299 | |||
7. Property and Equipment
Property and
equipment consisted of the following:
| December 31, | December 31, | ||||||
| 2009 | 2008 | ||||||
| Land, buildings and improvements | $ | 74,363 | $ | 72,061 | |||
| Equipment | 67,527 | 71,140 | |||||
| Corporate aircraft | 20,858 | 20,858 | |||||
| Vehicles | 537 | 634 | |||||
| 163,285 | 164,693 | ||||||
| Less accumulated depreciation and amortization | (78,909 | ) | (72,326 | ) | |||
| Total | $ | 84,376 | $ | 92,367 | |||
Depreciation expense
was $13,396, $11,703 and $7,930, in 2009, 2008 and 2007,
respectively.
8. Feature Film Production
Assets
Feature film
production assets are summarized as follows:
| December 31, | December 31, | ||||
| 2009 | 2008 | ||||
| Feature film productions: | |||||
| In release | $ | 27,772 | $ | 5,871 | |
| Completed but not released | - | 22,666 | |||
| In production | 8,473 | 2,173 | |||
| In development | 808 | 947 | |||
| Total | $ | 37,053 | $ | 31,657 | |
F-15
WORLD
WRESTLING ENTERTAINMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share data)
8. Feature Film Production Assets
(continued)
We have released four
theatrical films: See No
Evil, The
Marine, The
Condemned and 12 Rounds. 12
Rounds was released in 2009 along with two
Direct-to-DVD films, Behind Enemy Lines:
Colombia and The Marine
2. Due to lower than expected performance, we recorded an impairment charge
of $1,940 in 2008 relating to See No
Evil and a $15,662 impairment charge in 2007 relating to The
Condemned.
Feature film
production assets are recorded net of the associated benefit of production
incentives. During 2009 and 2008 we received $4,289 and $0, respectively, of
film production incentives from domestic and international 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 December 31, 2009, we do not
believe any capitalized assets included in Feature Film Production Assets
are impaired.
We estimate that
approximately 33% of “In release” film production assets will be amortized over
the next twelve months. Approximately 79% of “In release” film production assets
are estimated to be amortized over the following three years.
We currently have two
theatrical films in-production and have capitalized certain script development
costs for various other film projects. Capitalized script development costs are
evaluated at each reporting period for impairment if, and when, a project is
deemed to be abandoned. Approximately $828, $886 and $367 of previously
capitalized development costs were expensed for abandoned projects in 2009, 2008
and 2007, respectively.
9. Accrued Expenses and Other
Liabilities
Accrued expenses and
other liabilities consisted of the following:
| December 31, | December 31, | ||||
| 2009 | 2008 | ||||
| Accrued pay-per-view event costs | $ | 3,995 | $ | 4,105 | |
| Accrued payroll and bonus related costs | 11,499 | 7,972 | |||
| Accrued legal and professional fees | 3,462 | 2,173 | |||
| Accrued home video production and distribution | 4,765 | 2,816 | |||
| Accrued other | 11,443 | 10,055 | |||
| Total | $ | 35,164 | $ | 27,121 | |
Accrued other
includes accruals for our publishing, television, and licensing business
activities, none of which exceeds 5% of current liabilities.
10. Debt
In 1997, we entered
into a mortgage loan agreement under which we borrowed $12,000 at an annual
interest rate of 7.6% with a maturity date of December 31, 2013. Principal and
interest are to be paid in 180 monthly installments of approximately $112. The
loan is collateralized by our executive offices and television studio in
Stamford, Connecticut.
As of December 31,
2009 the scheduled principal repayments under our mortgage obligation were as
follows:
| For the year ending December 31, 2010 | 1,082 | ||
| For the year ending December 31, 2011 | 1,169 | ||
| For the year ending December 31, 2012 | 1,262 | ||
| For the year ending December 31, 2013 | 359 | ||
| Total | $ | 3,872 | |
F-16
WORLD
WRESTLING ENTERTAINMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share data)
11. Income Taxes
For 2009, 2008 and
2007, we were taxed on our income from continuing operations at an effective tax
rate of 36.7%, 34.5% and 31.8%, respectively. Our income tax provision related
to our income from continuing operations for 2009, 2008 and 2007 was $29,127,
$23,940 and $24,337, respectively, and included federal, state and foreign
taxes.
The components of our
tax provision from continuing operations were as follows:
| 2009 | 2008 | 2007 | |||||||||
| Current: | |||||||||||
| Federal | $ | 24,523 | $ | 16,089 | $ | 27,994 | |||||
| State and local | 3,599 | 265 | 3,708 | ||||||||
| Foreign | 333 | 981 | 57 | ||||||||
| Deferred: | |||||||||||
| Federal | 1,337 | 6,453 | (6,721 | ) | |||||||
| State and local | (644 | ) | 161 | (701 | ) | ||||||
| Foreign | (21 | ) | (9 | ) | - | ||||||
| Total | $ | 29,127 | $ | 23,940 | $ | 24,337 | |||||
Components of income
before income taxes are as follows:
| 2009 | 2008 | 2007 | ||||||
| U.S. | $ | 78,580 | $ | 67,723 | $ | 76,205 | ||
| International subsidiaries | 850 | 1,633 | 269 | |||||
| Income before income taxes | $ | 79,430 | $ | 69,356 | $ | 76,474 | ||
The following sets
forth the difference between the provision for income taxes from continuing
operations computed at the U.S. federal statutory income tax rate of 35% and
that reported for financial statement purposes:
| 2009 | 2008 | 2007 | |||||||||
| Statutory U.S. federal tax at 35% | $ | 27,800 | $ | 24,275 | $ | 26,773 | |||||
| State and local taxes, net of federal benefit | 1,055 | 908 | 1,954 | ||||||||
| Foreign rate differential | (150 | ) | 264 | (38 | ) | ||||||
| Tax exempt interest income | (576 | ) | (1,489 | ) | (2,664 | ) | |||||
| Valuation allowance | (1,590 | ) | 109 | 610 | |||||||
| Unrecognized tax benefits | 3,029 | (236 | ) | (2,177 | ) | ||||||
| Other | (441 | ) | 109 | (121 | ) | ||||||
| Provision for income taxes | $ | 29,127 | $ | 23,940 | $ | 24,337 | |||||
F-17
WORLD
WRESTLING ENTERTAINMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share data)
11. Income Taxes
(continued)
The tax effects of
temporary differences that give rise to significant portions of the deferred tax
assets and deferred tax liabilities of continuing operations consisted of the
following
| December 31, | December 31, | ||||||
| 2009 | 2008 | ||||||
| Deferred tax assets: | |||||||
| Accounts receivable | $ | 4,291 | $ | 1,717 | |||
| Inventory | 4,197 | 3,830 | |||||
| Prepaid royalties | 6,540 | 2,015 | |||||
| Stock options/stock compensation | 1,101 | 1,528 | |||||
| Credits and net operating loss carryforwards | 1,225 | 1,150 | |||||
| Investments | 569 | 2,447 | |||||
| Intangible assets | 3,144 | 3,100 | |||||
| Feature film production asset | - | - | |||||
| Accrued liabilities and reserves | 711 | 1,243 | |||||
| Indirect income tax benefit | 3,052 | 2,269 | |||||
| Deferred tax assets, gross | 24,830 | 19,299 | |||||
| Valuation allowance | (1,214 | ) | (2,788 | ) | |||
| Deferred tax assets, net | 23,616 | 16,511 | |||||
| Deferred tax liabilities: | |||||||
| Property and equipment depreciation | (3,499 | ) | (3,053 | ) | |||
| Feature film production asset | (14,633 | ) | (6,385 | ) | |||
| Total deferred tax assets, net | $ | 5,484 | $ | 7,073 | |||
The temporary differences described above
represent differences between the tax basis of assets or liabilities and amounts
reported in the consolidated financial statements that will result in taxable or
deductible amounts in future years when the reported amounts of the assets or
liabilities are recovered or settled. As of December 31, 2009 and December 31,
2008, $11,655 and $7,113, respectively, of the net deferred tax assets are
included in prepaid expenses and other current assets and the remaining
$(6,171) and $(40), respectively, is included in other non-current income tax liabilities in our consolidated
balance sheets.
As of December 31,
2009 and December 31, 2008, we had valuation allowances of $1,214 and $2,788,
respectively, to reduce our deferred tax assets to an amount more likely than
not to be recovered. This remaining valuation allowance relates to losses
incurred as a result of our Australian film entities, and are not expected to be
realized.
We are subject to
periodic audits of our various tax returns by government agencies which could
result in possible tax liabilities. Although the outcome of these matters cannot
currently be determined, we believe the outcome of these audits will not have a
material effect on our financial statements.
U.S. income taxes
have been provided on unremitted earnings of our Brazilian entity and our
Australian film entities due to the fact that WWE expects to remit all earnings
from these entities. U.S. income taxes will be provided for unremitted earnings
of any future special purpose entity film company because of the tentative
nature of such entities.
U.S. income taxes
have not been provided for on approximately $4,100 of unremitted earnings of our
remaining international subsidiaries. These earnings are expected to be
indefinitely reinvested overseas. It is not practical to compute the estimated
deferred tax liability on these earnings. Any additional U.S. taxes payable on
the remaining foreign earnings, if remitted, would be substantially offset by
credits for foreign taxes already paid.
F-18
WORLD
WRESTLING ENTERTAINMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share data)
11. Income Taxes
(continued)
Unrecognized Tax Benefits
In July 2006, the
FASB issued authoritative guidance regarding accounting for the uncertainty in
income taxes. The guidance clarifies the accounting for income taxes by
prescribing a minimum probability threshold that a tax position must meet before
a financial statement benefit is recognized. As a result of the implementation
of this guidance on January 1, 2007, we recognized a $1,502 increase in the
liability for unrecognized income tax benefits, with a corresponding decrease in
the opening balance of retained earnings.
At the adoption date
of January 1, 2007, we had $14,018 ($10,382 net of federal benefit) of
unrecognized tax benefits and related interest, all of which would affect our
effective tax rate, if recognized. At December 31, 2009 and December 31, 2008,
we had $10,981 ($7,928 net of federal benefit) and $7,231 ($4,963 net of federal
benefit), respectively, of unrecognized tax benefits and related interest and
penalties, all of which would affect our effective tax rate if
recognized.
We file income tax
returns in the U.S., various states and various foreign jurisdictions. With a
few exceptions, all tax years before April 30, 2005 are no longer subject to
income tax examinations by tax authorities. Based upon the expiration of
statutes of limitations in several jurisdictions, the Company believes it is
reasonably possible that the total amount of previously unrecognized tax
benefits may decrease by approximately $1,637 within 12 months of December 31,
2009.
Unrecognized Tax benefits Tabular
Reconciliation
| 2009 | 2008 | 2007 | |||||||||
| Beginning Balance- January 1 | $ | 6,083 | $ | 9,541 | $ | 10,514 | |||||
| Increase to unrecognized tax benefits recorded for positions taken | |||||||||||
| during the current year | 3,087 | 1,783 | 1,949 | ||||||||
| Increase (decrease) to unrecognized tax benefits recorded for positions taken | |||||||||||
| during a prior period | 275 | (110 | ) | (985 | ) | ||||||
| Decrease in unrecognized tax benefits relating to settlements with | |||||||||||
| taxing authorities | (70 | ) | (3,049 | ) | — | ||||||
| Decrease to unrecognized tax benefits resulting from a lapse of the | |||||||||||
| applicable statute of limitations | (142 | ) | (2,082 | ) | (1,937 | ) | |||||
| Ending Balance- December 31 | $ | 9,233 | $ | 6,083 | $ | 9,541 | |||||
We recognize
potential accrued interest and penalties related to uncertain tax positions in
income tax expense. We have approximately $1,485 of accrued interest and $210 of
accrued penalties related to uncertain tax positions as of December 31, 2009. At
December 31, 2008, we had approximately $920 of accrued interest and $228 of
accrued penalties related to uncertain tax positions.
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. Incentives earned with respect to expenditures on qualifying
film, television and other productions are included as an offset to our
investment in films or production expenses when we have reasonable assurance
regarding the realizable amount of the credits. During 2009 we received $4,289
of incentives relating to feature film productions and $8,330 of incentives
relating to television and other productions.
F-19
WORLD
WRESTLING ENTERTAINMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share data)
13. Commitments and
Contingencies
We have certain
commitments, including various non-cancelable operating leases, performance
contracts with various performers and employment agreements with certain
executive officers.
Future minimum
payments as of December 31, 2009 under the agreements described above were as
follows:
| Operating | ||||||||
| Lease | Other | |||||||
| Commitments | Commitments | Total | ||||||
| For the year ending December 31, 2010 | $ | 2,058 | $ | 16,800 | $ | 18,858 | ||
| For the year ending December 31, 2011 | 1,297 | 7,120 | 8,417 | |||||
| For the year ending December 31, 2012 | 955 | 5,484 | 6,439 | |||||
| For the year ending December 31, 2013 | 849 | 3,304 | 4,153 | |||||
| For the year ending December 31, 2014 | 741 | 2,444 | 3,185 | |||||
| Thereafter | 2,336 | 3,709 | 6,045 | |||||
| Total | $ | 8,236 | $ | 38,861 | $ | 47,097 | ||
Rent expense under
operating leases included in continuing operations was approximately $2,646,
$2,758 and $2,609 for 2009, 2008 and 2007, respectively.
Legal Proceedings
World Wide Fund for Nature
In April 2000, the
World Wide Fund for Nature and its American affiliate, the World Wildlife Fund
(collectively, the “Fund”) instituted legal proceedings against us in the
English High Court seeking injunctive relief and unspecified damages for alleged
breaches of a 1994 agreement between the Fund and us regarding the use of the
initials “wwf”. In August 2001, a High Court judge granted the Fund's motion for
summary judgment, holding that we breached the agreement by using the initials
“wwf” in connection with certain of our website addresses and our former scratch
logo. The English Court of Appeal subsequently upheld that ruling. As a result
we are subject to an injunction barring us, either directly or indirectly, from
most uses of the initials “wwf.”
As part of its
original complaint, the Fund included a damages claim. On October 29, 2004, the
Fund filed a claim for, among other things, substantial monetary claims in an
amount calculated as a royalty based on certain percentages of our profits over
the period January 1997 through November 2002. The English courts have denied
the Fund’s claim for profit-based damages. We strongly believe that the Fund has
not suffered any loss or damage, and would vigorously defend against any other
type of damage claim if the Fund attempted, after so many years, to amend its
complaint to assert one. Based upon the decisions of the English courts, we do
not believe this matter will have a material adverse effect on our financial
condition, results of operations or liquidity.
THQ/Jakks
Since October 19,
2004, we were involved in various litigations against Jakks Pacific, Inc.
(“Jakks”), two foreign subsidiaries of Jakks, THQ Inc. (“THQ”) and THQ/Jakks
Pacific LLC (“THQ/Jakks LLC”), in connection with our videogame license then in
effect with THQ/Jakks LLC. On December 22, 2009, we reached a global settlement
with respect to these litigations and as part of this settlement, THQ paid us
$13.2 million and WWE and THQ entered into a new eight-year video game license
beginning January 1, 2010.
IPO Class Action
In December 2001, a
purported class action complaint was filed against us and certain of our
officers in the United States District Court for the Southern District of New
York alleging violations of federal securities laws relating to our initial
public offering in 1999. According to the claims, the underwriters, who were
also named as defendants, allegedly engaged in manipulative practices by, among
other things, pre-selling allotments of shares of our stock in return for
undisclosed, excessive commissions from the purchasers and/or entering into
after-market tie-in arrangements to artificially inflate the Company’s stock
price. The complaint further alleges that we knew or should have known of such
unlawful practices. In or around March 2009, the parties agreed to a global
settlement of the litigation in its entirety. On April 2, 2009, the plaintiffs
filed a motion for preliminary approval of settlement, which was granted by the
court by order dated June 10, 2009. On October 6, 2009, the court granted final
approval of the settlement agreement, and various objectors have filed notices
to appeal this decision. We are unable to predict whether these appeals will be
successful.
F-20
WORLD
WRESTLING ENTERTAINMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share data)
13. Commitments and Contingencies
(continued)
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.
14. Related Party
Transactions
Vincent K. McMahon,
Chairman of the Board of Directors and Chief Executive Officer, along with his
wife Linda E. McMahon, control approximately 88% of the voting power of the
issued and outstanding shares of our common stock. Through their beneficial
ownership of a substantial majority of our Class B common stock, Mr. and Mrs.
McMahon can effectively exercise control over our affairs.
In February 2008, the
Company increased its quarterly dividend from $.24 to $.36 per share. 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.
On September 16,
2009, Linda McMahon resigned as Chief Executive Office of the Company and
announced her candidacy for the United States Senate, representing the state of
Connecticut. Mrs. McMahon’s election team engaged the Company to produce certain
television advertisements during the initial months of the campaign. The Company
performed these services and charged the campaign the fair market value for the
provided television production services, approximately $162. In addition, Mrs.
McMahon rented personal office space from the Company for a period of two and
one half months for which the Company received approximately $23, which
represented the fair market value of the office space utilized.
In June 2008, the
Company performed a brand awareness campaign entitled McMahon’s Million Dollar
Mania™, whereby a total of $3,000 in cash prize awards was given away to viewers
of our Monday Night Raw television program. The prize money for this campaign
was personally funded by Vincent K. McMahon. As such, the Company received a
capital contribution of $1,950, representing the net of tax impact to WWE for
the prize money awarded to the selected contestants.
WWE currently holds
an employment contract with Vincent K. McMahon, which runs through October 2011,
with annual renewals thereafter if not terminated by us or Mr. McMahon. In
addition, Mr. McMahon holds a talent contract that is coterminous with his
employment contract. Mr. McMahon waives all of his compensation under these
agreements, except for a salary of $850 per year.
15. Stockholders’ Equity
Our Class B common
stock is fully convertible into Class A common stock, on a one for one basis, at
any time at the option of the holder. The two classes are entitled to equal per
share dividends and distributions and vote together as a class with each share
of Class B entitled to ten votes and each share of Class A entitled to one vote,
except when separate class voting is required by applicable law. If, at any
time, any shares of Class B common stock are beneficially owned by any person
other than Vincent McMahon, Linda McMahon, any descendant of either of them, any
entity which is wholly owned and is controlled by any combination of such
persons or any trust, all the beneficiaries of which are any combination of such
persons, each of those shares will automatically convert into shares of Class A
common stock. Through his beneficial ownership of a substantial majority of our
Class B common stock, our controlling stockholder, Vincent McMahon, can
effectively exercise control over our affairs, and his interests could conflict
with the holders of our Class A common stock.
F-21
WORLD
WRESTLING ENTERTAINMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share data)
15. Stockholders’ Equity
(continued)
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. The quarterly dividend on all Class B shares, held by members of the
McMahon family and their respective trusts, will remain at $0.24 per for a
period of three years, through February 2011. We paid four quarterly dividends
of $0.36 per share, or $36,504, on all Class A common shares and $0.24 per
share, or $45,765, on all Class B common shares in 2009.
16. Share Based
Compensation
The 2007 Omnibus
Incentive Plan (“2007 Plan”) provides for grants of options and other forms of
equity-based incentive awards as determined by the compensation committee of the
Board of Directors as incentives and rewards to encourage employees, directors,
consultants and performers to participate in our long-term success. Prior to the
2007 Plan, share based compensation was governed by the Company’s Long-Term
Incentive Plan (“LTIP”). In 2004, we began issuing restricted stock units
(“RSUs”), which generally vest annually. Current grants outstanding have vesting
periods between three and seven years. In July 2007, we began issuing
performance stock units (“PSUs”) in addition to RSUs.
As of December 31,
2009 there were approximately 3.5 million shares available for future grants
under the 2007 Plan. It is our policy to issue new shares to satisfy option
exercises and the vesting of RSUs and PSUs.
Stock based
compensation cost was $7,389, $7,956 and $7,777 for 2009, 2008 and 2007,
respectively. The total recognized tax benefit was $2,808, $3,023 and $2,955 for
2009, 2008 and 2007, respectively.
The benefits of tax
deductions in excess of recognized compensation costs are required to be
reported as financing cash flows, rather than as operating cash flows as
previously required. The tax benefits in excess of recognized compensation cost
for 2009, 2008 and 2007 were $133, $1,081 and $841, respectively.
Stock Options
We have not granted
any stock options since June 2004. The following table summarizes stock option
activity for 2009:
| Weighted | ||||||||||||
| Weighted | Average | |||||||||||
| Average | Remaining | Aggregate | ||||||||||
| Exercise | Contractual | Intrinsic | ||||||||||
| Stock Options | Shares | Price | Term | Value | ||||||||
| Outstanding at December 31, 2008 | 645,388 | $ | 14.00 | 1.5 | $ | 0 | ||||||
| Exercised | (179,823 | ) | $ | 13.01 | — |
$
|
213 | |||||
| Forfeited/Expired | (273,129 | ) | $ | 15.26 | — | — | ||||||
| Outstanding at December 31, 2009 | 192,436 | $ | 13.14 | 1.6 | $ | 421 | ||||||
| Vested at December 31, 2009 | 192,436 | $ | 13.14 | 1.6 | $ | 421 | ||||||
| Exercisable at December 31, 2009 | 192,436 | $ | 13.14 | 1.6 | $ | 421 | ||||||
As of December 31,
2009, there is no additional compensation cost related to unvested options that
has not yet been recognized. We estimate forfeitures, based on historical
trends, when recognizing compensation expense associated with stock options, and
will adjust our estimate of forfeitures when they are expected to differ. The
intrinsic value of options exercised was approximately $213, $2,730 and $2,038
for 2009, 2008 and 2007, respectively.
Cash received from
option exercises under all share-based payment arrangements was $2,340, $6,268
and $6,170 for 2009, 2008 and 2007, respectively. Tax benefits realized from tax
deductions associated with stock option exercises totaled $133, $1,037, $774 for
2009, 2008 and 2007, respectively.
F-22
WORLD
WRESTLING ENTERTAINMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share data)
16. Share Based Compensation
(continued)
Restricted Stock Units
The fair value of
RSUs is determined based on the number of shares granted and the quoted price of
our common stock on the grant date. The fair value of restricted stock units is
recognized as expense over the service period, net of estimated forfeitures,
using the straight-line method. We estimate forfeitures, based on historical
trends, when recognizing compensation expense and adjust the estimate of
forfeitures when they are expected to differ. For the year ended December 31,
2009, we estimate that 8% of the current year’s restricted stock units will be
forfeited over the life of the grant.
During 2009, we
granted 45,000 RSUs at a weighted average price per share of $11.54 and an
aggregate grant-date fair value of approximately $519. Such issuances were
granted to officers and employees under our 2007 Plan. We recognized $1,609 of
compensation expense associated with restricted stock units, which was
classified as selling, general and administrative expense. Tax benefits realized
from RSU related compensation expense totaled $611.
We granted 105,000
and 190,750 RSUs in 2008 and 2007, respectively, with an aggregate grant-date
fair value of approximately $1,659 and $3,063, respectively. During 2008 and
2007, we recognized $1,867 and $4,931, respectively, of compensation expense
associated with restricted stock units, which was classified as selling, general
and administrative expense. During 2008 and 2007, tax benefits realized from RSU
related compensation expense totaled $709 and $1,874, respectively.
The following table
summarizes the activity of restricted stock units:
| Weighted Average Grant | ||||||
| Restricted Stock Units | Shares | Date Fair Value | ||||
| Unvested at December 31, 2008 | 401,990 | $ | 15.79 | |||
| Granted | 45,000 | $ | 11.54 | |||
| Vested | (237,472 | ) | $ | 16.12 | ||
| Forfeited/Expired | (44,340 | ) | $ | 15.57 | ||
| Dividends | 38,508 | $ | 12.00 | |||
| Unvested at December 31, 2009 | 203,686 | $ | 14.22 | |||
The grant date fair
value of restricted stock units vested was $3,828, $7,240 and $6,476 for 2009,
2008 and 2007, respectively.
As of December 31, 2009 there was $875 of total
unrecognized compensation cost related to unvested RSUs to be recognized over a
weighted-average period of approximately 0.7 years. Based on the current
restricted stock units outstanding, $666 of compensation expense will be recognized in 2010 and the remaining $209
will be recognized from 2011 to 2012.
Performance Stock Units
The estimated grant
of PSUs is communicated to employees on the communication date, with the amount
of the grant based on achieving predetermined financial metrics. The estimated
number of PSUs expected to be issued is adjusted quarterly, based on the current
performance of the Company. The ultimate number of PSUs that are issued to an
employee is a result of the actual performance of the Company compared to the
performance targets.
The fair value of
PSUs is initially determined based on the number of shares granted and the
quoted price of our common stock on the grant date. The fair value of
performance stock units is recognized as expense over the service period, net of
estimated forfeitures, using the straight-line method. We estimate forfeitures,
based on historical trends, when recognizing compensation expense and adjust the
estimate of forfeitures when they are expected to differ. For the year ended
December 31, 2009, we estimate that 8% of the current year’s performance stock
grants will be forfeited over the life of the grant.
F-23
WORLD
WRESTLING ENTERTAINMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share data)
16. Share Based Compensation
(continued)
During 2009, we
issued approximately 586,500 PSUs at a weighted average price per share of
$9.91, as part of our 2007 Omnibus Incentive Plan. Based on the financial
results for the year ended December 31, 2009, approximately 765,000 PSUs are
expected to be issued in 2010 related to this grant. The estimated compensation
expense is $10,785 and the PSUs will vest in three annual installments beginning
in July 2010. In 2009, we recognized $5,580 of compensation expense associated
with performance stock units, which is classified as selling, general and
administrative expense. Tax benefits realized from PSU related compensation
expense totaled $2,120.
During 2008, we
issued approximately 471,500 PSUs as part of our 2007 Omnibus Incentive Plan.
Based on the financial results for the year ended December 31, 2008,
approximately 310,800 PSUs were ultimately issued in 2009 related to this grant.
In 2008, we recognized $5,839 of compensation expense associated with
performance stock units, which was classified as selling, general and
administrative expense. Tax benefits realized from PSU related compensation
expense totaled $2,219.
During 2007, we
issued approximately 475,000 PSUs which were subject to performance goals
established for the last two quarters of 2007. As these goals were exceeded,
approximately 585,000 PSUs were ultimately issued in 2008 related to this grant.
In 2007, we recognized $2,345 of compensation expense associated with
performance stock units, which is classified as selling, general and
administrative expense. Tax benefits realized from PSU related compensation
expense totaled $891.
The following table
summarizes the activity of performance stock units:
| Weighted Average | ||||||
| Performance Stock Units | Shares | Grant Date Fair Value | ||||
| Unvested at December 31, 2008 | 783,579 | $ | 17.58 | |||
| Adjustment | (67,365 | ) | $ | 18.83 | ||
| Granted | 586,500 | $ | 9.91 | |||
| Vested | (259,366 | ) | $ | 17.15 | ||
| Forfeited/Expired | (219,526 | ) | $ | 15.86 | ||
| Dividends | 59,388 | $ | 12.09 | |||
| Unvested at December 31, 2009 | 883,210 | $ | 12.91 | |||
As of December 31,
2009 there was $8,209 of total unrecognized compensation cost related to
unvested PSUs to be recognized over a weighted-average period of approximately
0.9 years. Based on the current PSUs outstanding, $5,083 of compensation expense
will be recognized in 2010 and the remaining $3,126 will be recognized during
2011 and 2012.
Employee Stock Purchase
Plan
We provide a stock
purchase plan for our employees. Under the plan, all regular full-time employees
may contribute up to 10% of their base compensation (subject to certain income
limits) to the semi-annual purchase of shares of our common stock. The purchase
price is 85% of the fair market value at certain plan-defined dates. As this
plan is defined as compensatory, a charge is recorded for the difference between
the fair market value and the discounted price. In 2009, two purchases occurred
and resulted in a $200 charge. Approximately 150 employees were participants in
the stock purchase plan and these employees purchased approximately 67,476
shares of our common stock at an average price of $8.80 per share.
F-24
WORLD
WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share data)
17. Employee Benefit Plans
We sponsor a 401(k)
defined contribution plan covering substantially all employees. Under this plan,
participants are allowed to make contributions based on a percentage of their
salaries, subject to a statutorily prescribed annual limit. We make matching
contributions of 50 percent of each participant’s contributions, up to 6% of
eligible compensation (maximum 3% matching contribution). We may also make
additional discretionary contributions to the 401(k) plan. Our expense for
matching contributions and additional discretionary contributions to the 401(k)
plan was $1,171, $1,136 and $1,010 during 2009, 2008 and 2007,
respectively.
18. Segment Information
Revenues derived from
sales outside of North America were approximately $127,096, $135,183 and
$119,298 for 2009, 2008 and 2007, respectively. Revenues generated in the United
Kingdom, our largest international market, were approximately $36,516, $47,301
and $45,068 for 2009, 2008 and 2007, respectively.
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 intersegment revenues.
The activities of each segment are summarized in Note 1.
The table presents
information about the financial results of each segment for 2009, 2008 and 2007
and assets as of December 31, 2009 and December 31, 2008. Unallocated assets
consist primarily of cash, investments and fixed assets.
| 2009 | 2008 | 2007 | |||||||||
| Net revenues: | |||||||||||
| Live and Televised Entertainment | $ | 334,993 | $ | 331,454 | $ | 316,842 | |||||
| Consumer Products | 99,740 | 135,669 | 118,087 | ||||||||
| Digital Media | 32,757 | 34,822 | 34,771 | ||||||||
| WWE Studios | 7,671 | 24,512 | 15,955 | ||||||||
| Total net revenues | $ | 475,161 | $ | 526,457 | $ | 485,655 | |||||
| Depreciation and amortization: | |||||||||||
| Live and Televised Entertainment | $ | 7,670 | $ | 6,374 | $ | 3,624 | |||||
| Consumer Products | 1,028 | 1,384 | 1,389 | ||||||||
| Digital Media | 1,263 | 1,204 | 836 | ||||||||
| Corporate | 4,463 | 4,121 | 3,470 | ||||||||
| Total depreciation and amortization | $ | 14,424 | $ | 13,083 | $ | 9,319 | |||||
| Operating income: | |||||||||||
| Live and Televised Entertainment | $ | 124,682 | $ | 92,386 | $ | 100,161 | |||||
| Consumer Products | 52,677 | 76,474 | 68,642 | ||||||||
| Digital Media | 5,795 | 6,182 | 6,293 | ||||||||
| WWE Studios | 2,173 | 7,189 | (14,743 | ) | |||||||
| Corporate | (108,194 | ) | (111,944 | ) | (91,920 | ) | |||||
| Total operating income | $ | 77,133 | $ | 70,287 | $ | 68,433 | |||||
F-25
WORLD
WRESTLING ENTERTAINMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share data)
18. Segment Information
(continued)
| As of: | |||||
| December 31, 2009 | December 31, 2008 | ||||
| Assets: | |||||
| Live and Televised Entertainment | $ | 141,915 | $ | 110,263 | |
| Consumer Products | 21,521 | 19,910 | |||
| Digital Media | 7,111 | 10,430 | |||
| WWE Studios | 43,186 | 52,568 | |||
| Unallocated | 226,888 | 236,239 | |||
| Total assets | $ | 440,621 | $ | 429,410 | |
19. Concentration of Credit
Risk
We continually
monitor our position with, and the credit quality of, the financial institutions
that are counterparties to our financial instruments. Our accounts receivable
represent a significant portion of our current assets and relate principally to
a limited number of distributors, including our pay-per-view and home video
distributors. We closely monitor the status of receivables with these customers
and maintain allowances for anticipated losses. 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. During the year, we recorded a $7,407 charge for bad debt expense
related to a receivable due from a previous distribution partner. 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 $11,926 as of December 31, 2009 and $4,718 as of
December 31, 2008. Bad debt expense was approximately $8,558 for the year ended
December 31, 2009, and $2,521 for the year ended December 31, 2008.
20. Quarterly Financial Summaries
(unaudited)
| 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | ||||||||
| 2009 | |||||||||||
| Net revenues | $ | 107,825 | $ | 138,794 | $ | 111,254 | $ | 117,288 | |||
| Cost of revenues | $ | 56,437 | $ | 75,750 | $ | 60,077 | $ | 63,583 | |||
| Net income | $ | 10,322 | $ | 19,874 | $ | 8,939 | $ | 11,168 | |||
| Earnings per common share: basic | |||||||||||
| Net income | $ | 0.14 | $ | 0.27 | $ | 0.12 | $ | 0.15 | |||
| Earnings per common share: diluted | |||||||||||
| Net income | $ | 0.14 | $ | 0.27 | $ | 0.12 | $ | 0.15 | |||
| 2008 | |||||||||||
| Net revenues | $ | 162,632 | $ | 129,658 | $ | 108,782 | $ | 125,385 | |||
| Cost of revenues | $ | 100,018 | $ | 76,358 | $ | 66,279 | $ | 69,129 | |||
| Net income | $ | 19,525 | $ | 7,031 | $ | 5,274 | $ | 13,586 | |||
| Earnings per common share: basic | |||||||||||
| Net income | $ | 0.27 | $ | 0.10 | $ | 0.07 | $ | 0.19 | |||
| Earnings per common share: diluted | |||||||||||
| Net income | $ | 0.27 | $ | 0.10 | $ | 0.07 | $ | 0.18 | |||
F-26
WORLD
WRESTLING ENTERTAINMENT, INC.
SCHEDULE
II — VALUATION AND QUALIFYING ACCOUNTS
(dollars
in thousands)
| Additions | |||||||||||||
| Balance at | Charged to | Balance at | |||||||||||
| Beginning | Costs and | End of | |||||||||||
| Description | of Period | Expenses | Deductions (1) | Period | |||||||||
| For the Year Ended December 31, 2009 | |||||||||||||
| Allowance for doubtful accounts | $ | 4,718 | $ | 8,558 | $ | (1,350 | ) | $ | 11,926 | ||||
| Inventory obsolescence reserve | 8,955 | 1,991 | (699 | ) | 10,247 | ||||||||
| Magazine publishing allowance for newsstand returns | 6,266 | 28,351 | (29,794 | ) | 4,823 | ||||||||
| Home video allowance for returns | 6,265 | 19,093 | (19,823 | ) | 5,535 | ||||||||
| For the Year Ended December 31, 2008 | |||||||||||||
| Allowance for doubtful accounts | $ | 1,358 | $ | 2,521 | $ | 839 | $ | 4,718 | |||||
| Inventory obsolescence reserve | 6,276 | 2,679 | - | 8,955 | |||||||||
| Magazine publishing allowance for newsstand returns | 4,808 | 32,596 | (31,138 | ) | 6,266 | ||||||||
| Home video allowance for returns | 6,622 | 18,809 | (19,166 | ) | 6,265 | ||||||||
| For the Year Ended December 31, 2007 | |||||||||||||
| Allowance for doubtful accounts | $ | 2,084 | $ | 47 | $ | (773 | ) | $ | 1,358 | ||||
| Inventory obsolescence reserve | 4,891 | 1,037 | (348 | ) | 6,276 | ||||||||
| Magazine publishing allowance for newsstand returns | 4,076 | 23,472 | (22,740 | ) | 4,808 | ||||||||
| Home video allowance for returns | 8,510 | 17,669 | (19,557 | ) | 6,622 | ||||||||
(1) Deductions are
comprised primarily of disposals of obsolete inventory, write-offs of specific
bad debts, and returns.
F-27