10-Q 1 wwe-6302013x10q.htm QUARTERLY REPORT WWE-6.30.2013-10Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X )
    
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
 
 
ACT OF 1934
 
 
 
For the quarterly period ended June 30, 2013
 
 
 
or
 
 
 
(    )
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
 
 
ACT OF 1934
 
 
 
 
 
For the transition period from ______ to ______
 
 
 
 
 
Commission file number 001-16131
WORLD WRESTLING ENTERTAINMENT, INC.
(Exact name of Registrant as specified in its charter)
Delaware
    
04-2693383
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
1241 East Main Street
Stamford, CT 06902
(203) 352-8600
(Address, including zip code, and telephone number, including area code,
of Registrant’s principal executive offices)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes  
X   
     
No  
        
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  
X   
     
No  
        
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer 
o
 
 
Accelerated filer 
ý
  
Non-accelerated filer 
o
 
(Do not check if a smaller reporting company)
Smaller reporting company 
o
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  
       
     
No  
X    
At July 31, 2013 the number of shares outstanding of the Registrant’s Class A common stock, par value $.01 per share, was 30,461,060 and the number of shares outstanding of the Registrant’s Class B common stock, par value $.01 per share, was 44,630,830.



WORLD WRESTLING ENTERTAINMENT, INC.
TABLE OF CONTENTS

      
      
 
Page #
Part I – FINANCIAL INFORMATION
 
 
 
 
 
 
Item 1. Consolidated Financial Statements (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



WORLD WRESTLING ENTERTAINMENT, INC.
CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share data)
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
June 30,
2013
 
June 30,
2012
 
June 30,
2013
 
June 30,
2012
Net revenues
$
152,282

 
$
141,648

 
$
276,283

 
$
264,716

Cost of revenues (including amortization and impairments of feature film production assets of $1,372 and $1,085, respectively, and $7,446 and $5,644, respectively)
96,855

 
85,484

 
171,721

 
153,881

Selling, general and administrative expenses
40,504

 
31,747

 
78,335

 
66,461

Depreciation and amortization
6,084

 
4,821

 
11,316

 
8,739

Operating income
8,839

 
19,596

 
14,911

 
35,635

Investment income, net
390

 
545

 
838

 
1,044

Interest expense
(480
)
 
(395
)
 
(832
)
 
(897
)
Other expense, net
(388
)
 
(1,049
)
 
(1,733
)
 
(543
)
Income before income taxes
8,361

 
18,697

 
13,184

 
35,239

Provision for income taxes
3,179

 
6,754

 
4,968

 
7,967

Net income
$
5,182

 
$
11,943

 
$
8,216

 
$
27,272

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.07

 
$
0.16

 
$
0.11

 
$
0.37

Diluted
$
0.07

 
$
0.16

 
$
0.11

 
$
0.36

 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
74,821

 
74,484

 
74,810

 
74,472

Diluted
75,368

 
74,882

 
75,305

 
74,870


See accompanying notes to consolidated financial statements.

2


WORLD WRESTLING ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
June 30,
2013
 
June 30,
2012
 
June 30,
2013
 
June 30,
2012
Net income
$
5,182

 
$
11,943

 
$
8,216

 
$
27,272

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustment
(92
)
 
(34
)
 
(180
)
 
75

Unrealized holding gain/(loss) - available-for-sale securities (net of tax (benefit)/expense of ($267) and $382, respectively, and ($274) and $480, respectively)
(438
)
 
622

 
(448
)
 
782

Reclassification adjustment for gains/(loss) realized in net income - available-for-sale securities (net of tax (benefit)/expense of $1 and ($9), respectively, and $1 and ($9), respectively)
1

 
(14
)
 
1

 
(14
)
Total other comprehensive (loss) income
(529
)
 
574

 
(627
)
 
843

Comprehensive income
$
4,653

 
$
12,517

 
$
7,589

 
$
28,115


See accompanying notes to consolidated financial statements.

3


WORLD WRESTLING ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited)

 
As of
 
June 30, 2013
 
December 31, 2012
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
44,026

 
$
66,048

Short-term investments, net
78,826

 
86,326

Accounts receivable (net of allowances for doubtful accounts and returns
 
 
 
of $11,513 and $14,691, respectively)
57,124

 
50,716

Inventory
1,728

 
1,770

Deferred income tax assets
12,876

 
14,403

Prepaid expenses and other current assets
11,089

 
15,269

Total current assets
205,669

 
234,532

PROPERTY AND EQUIPMENT, NET
105,403

 
102,162

FEATURE FILM PRODUCTION ASSETS, NET
23,602

 
23,691

TELEVISION PRODUCTION ASSETS
10,293

 
6,331

INVESTMENT SECURITIES
7,859

 
5,220

OTHER ASSETS
9,672

 
9,447

TOTAL ASSETS
$
362,498

 
$
381,383

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:

 
 
Accounts payable and accrued expenses
$
41,691

 
$
48,954

Deferred income
23,641

 
28,611

Total current liabilities
65,332

 
77,565

NON-CURRENT INCOME TAX LIABILITIES
9,811

 
9,092

COMMITMENTS AND CONTINGENCIES
 
 
 
STOCKHOLDERS’ EQUITY:
 
 
 
Class A common stock: ($.01 par value; 180,000,000 shares authorized;
 
 
 
30,191,977 and 29,253,665 shares issued and outstanding as of
 
 
 
June 30, 2013 and December 31, 2012, respectively)
302

 
293

Class B convertible common stock: ($.01 par value; 60,000,000 shares authorized;
 
 
 
44,630,830 and 45,500,830 shares issued and outstanding as of December 31,
 
 
 
June 30, 2013 and December 31, 2012, respectively)
446

 
455

Additional paid-in-capital
344,776

 
341,762

Accumulated other comprehensive income
3,404

 
4,031

Accumulated deficit
(61,573
)
 
(51,815
)
Total stockholders’ equity
287,355

 
294,726

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
362,498

 
$
381,383



See accompanying notes to consolidated financial statements.

4


WORLD WRESTLING ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)

 
Common Stock
 
Additional
 
Accumulated
Other
 

 
 
 
Class A
 
Class B
 
Paid - in
 
Comprehensive
 
Accumulated
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Income
 
Deficit
 
Total
Balance, December 31, 2012
29,254

 
$
293

 
45,501

 
$
455

 
$
341,762

 
$
4,031

 
$
(51,815
)
 
$
294,726

Net income

 

 

 

 

 

 
8,216

 
8,216

Other comprehensive loss

 

 

 

 

 
(627
)
 

 
(627
)
Stock issuances, net
68

 

 

 

 
251

 

 

 
251

Conversion of Class B common stock by shareholder
870

 
9

 
(870
)
 
(9
)
 

 

 

 

Tax effect from stock-based payment arrangements

 

 

 

 
(13
)
 

 

 
(13
)
Dividends paid

 

 

 

 
18

 

 
(17,974
)
 
(17,956
)
Stock-based compensation

 

 

 

 
2,758

 

 

 
2,758

Balance, June 30, 2013
30,192

 
$
302

 
44,631

 
$
446

 
$
344,776

 
$
3,404

 
$
(61,573
)
 
$
287,355


See accompanying notes to consolidated financial statements.

5


WORLD WRESTLING ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Six Months Ended
 
June 30,
2013
 
June 30,
2012
OPERATING ACTIVITIES:
 
 
 
Net income
$
8,216

 
$
27,272

Adjustments to reconcile net income to net cash (used in)/provided by operating
 
 
 
               activities:
 
 
 
Amortization and impairments of feature film production assets
7,446

 
5,644

Depreciation and amortization
11,316

 
8,739

Amortization of bond premium
1,089

 
1,158

Amortization of debt issuance costs
279

 
307

Stock-based compensation
2,758

 
1,756

(Recovery from) provision for doubtful accounts
(184
)
 
889

Services provided in exchange for equity instruments
(439
)
 

Loss on disposal of property and equipment
323

 
110

Provision (benefit) for deferred income taxes
2,168

 
(2,501
)
Other
(5
)
 
(29
)
Cash (used in)/provided by changes in operating assets and liabilities:
 
 
 
Accounts receivable
(5,965
)
 
9,218

Inventory
43

 
(18
)
Prepaid expenses and other assets
3,260

 
2,828

Feature film production assets
(5,100
)
 
(5,327
)
Television production assets
(3,962
)
 
(4,984
)
Accounts payable and accrued expenses
(10,381
)
 
2,444

Deferred income
(4,970
)
 
(2,767
)
Net cash provided by operating activities
5,892

 
44,739

INVESTING ACTIVITIES:
 
 
 
Purchases of property and equipment and other assets
(13,139
)
 
(17,549
)
Purchases of short-term investments
(17,374
)
 
(9,886
)
Proceeds from sales and maturities of investments
23,063

 
19,618

Purchase of cost method investments
(2,200
)
 
(5,000
)
Proceeds from sales of property and equipment
36

 

Net cash used in investing activities
(9,614
)
 
(12,817
)
FINANCING ACTIVITIES:

 
 
Repayment of long-term debt

 
(619
)
Dividends paid
(17,956
)
 
(17,875
)
Debt issuance costs
(674
)
 

Issuance of stock, net
326

 
452

Excess tax benefits from stock-based payment arrangements
4

 
6

Net cash used in financing activities
(18,300
)
 
(18,036
)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(22,022
)
 
13,886

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
66,048

 
52,491

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
44,026

 
$
66,377

NON-CASH INVESTING AND FINANCING TRANSACTIONS:

 
 
Non-cash purchase of property and equipment and other assets
$
2,554

 
$
1,408


See accompanying notes to consolidated financial statements.

6


WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)

1. Basis of Presentation and Business Description
The accompanying consolidated financial statements include the accounts of WWE. “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, pay-per-view event programming, live events, feature films, licensing of various WWE themed products and the sale of consumer products featuring our 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, integrated sponsorships fees, and fees for viewing our pay-per-view and video-on-demand programming. 
Consumer Products
Revenues consist principally of sales of WWE produced content via home entertainment platforms, magazine sales and royalties or license fees related to various WWE themed products such as video games, toys and apparel. 
Digital Media
Revenues consist principally of advertising sales on our websites, rights fees received for digital content, sale of merchandise on our website through our WWEShop internet storefront and sales of various broadband and mobile content. 
WWE Studios
Revenues consist of amounts earned from the distribution of filmed entertainment. 
All intercompany balances are eliminated in consolidation. The accompanying consolidated financial statements are unaudited. All adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Certain information and note disclosures normally included in annual financial statements have been condensed or omitted from these interim financial statements; these financial statements should be read in conjunction with the financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2012.
Recent Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board ("FASB") issued an accounting standards update on the reporting of amounts reclassified out of accumulated other comprehensive income, to improve the transparency of reporting. These reclassifications present the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income–but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. We adopted this accounting standards update on January 1, 2013 which did not have a material effect on our consolidated financial statements.




7



WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)




In October 2012, the FASB issued an accounting standards update to amend the requirements related to an impairment assessment of unamortized film costs and clarify when unamortized film costs should be assessed for impairment. The update revises the impairment assessment to remove the rebuttable presumption that the conditions leading to the write-off of unamortized film costs after the balance sheet date existed as of the balance sheet date. The update also eliminates the requirement that an entity incorporate into fair value measurements used in impairment tests the effects of any changes in estimates resulting from the consideration of subsequent evidence, if the information would not have been considered by market participants at the measurement date. This standard update is effective for impairment assessments performed on or after December 15, 2012. We adopted this accounting standards update for our film impairment assessment as of December 31, 2012 which did not have a material effect on our consolidated financial statements for the periods presented herein.
In December 2011, the FASB issued an accounting standards update that expands the disclosure requirements for the offsetting of assets and liabilities related to certain financial instruments and derivative instruments. The update requires disclosures to present both gross information and net information for financial instruments and derivative instruments that are eligible for net presentation due to a right of offset, an enforceable master netting arrangement or similar agreement. We adopted this accounting standards update as of January 1, 2013 which did not have a material effect on our consolidated financial statements.
2. Stock-based Compensation
Restricted Stock Units
Stock-based compensation costs associated with our restricted stock units ("RSUs") are determined using the fair market value of the Company’s common stock on the date of the grant. These costs are recognized over the requisite service period using the graded vesting method, net of estimated forfeitures. RSUs typically have a three-year service requirement and vest in equal annual installments and are granted under our 2007 Omnibus Incentive Plan (the "Plan"). Unvested RSUs accrue dividend equivalents at the same rate as are paid on our shares of Class A common stock. The dividend equivalents are subject to the same vesting schedule as the underlying RSUs.
The following table summarizes RSUs activity:
 
 
Units
 
Weighted-Average Grant-Date Fair Value
Unvested at January 1, 2013
 
146,175

 
$
9.97

Granted
 
38,477

 
$
8.78

Vested
 
(22,226
)
 
$
11.20

Forfeited
 
(15,379
)
 
$
9.29

Dividends equivalents
 
3,661

 
$
9.26

Unvested at June 30, 2013
 
150,708

 
$
9.40


Performance Stock Units
Stock-based compensation costs associated with our performance stock units ("PSUs") are initially determined using the fair market value of the Company’s common stock on the date the awards are approved by our Compensation Committee (service inception date) and are granted under the Plan. The vesting of these PSUs are subject to certain performance conditions and a service requirement of three and one half years. Until such time as the performance conditions are met, stock compensation costs associated with these PSUs are re-measured each reporting period based upon the fair market value of the Company's common stock and the probability of attainment on the reporting date. Stock compensation costs for our PSUs are recognized over the requisite service period using the graded vesting method, net of estimated forfeitures. Unvested PSUs accrue dividend equivalents once the performance conditions are met at the same rate as are paid on our shares of Class A common stock. The dividend equivalents are subject to the same vesting schedule as the underlying PSUs.



8



WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)




The following table summarizes PSUs activity:
 
 
Units
 
Weighted-Average Grant-Date Fair Value
Unvested at January 1, 2013
 
685,703

 
$
0.01

Granted
 
932,786

 
$
10.06

Forfeited
 
(63,519
)
 
$
9.24

Dividends equivalents
 
20,229

 
$
0.01

Unvested at June 30, 2013
 
1,575,199

 
$
9.56

During the year ended 2012, we awarded 622,700 PSUs which were subject to certain performance conditions. During the three months ended March 31, 2013, the performance conditions were met and we granted 709,186 PSUs at a weighted average grant date fair value of $8.46. During three months ended March 31, 2013, we awarded 804,896 PSUs which are subject to certain performance conditions which have not been met as of June 30, 2013.
Stock-based compensation costs totaled $1,543 and $1,077 for the three months ended June 30, 2013 and 2012, respectively, and $2,758 and $1,756 for the six months ended June 30, 2013 and 2012, respectively.
3. Segment Information
As discussed in Note 1, the Company classifies its operations into four reportable segments: Live and Televised Entertainment, Consumer Products, Digital Media and WWE Studios.
Beginning in the first quarter of 2013, the Company made changes to its operating plan and management reporting to reflect a change in the measurement used by management to evaluate performance. The Company changed its measure of segment profit (loss) to operating income (loss) before depreciation and amortization or "OIBDA". Prior to 2013, the Company measured segment profit (loss) using operating income. The Company revised its financial information and disclosures for prior periods to reflect the segment disclosures as if the current measure of profit (loss), OIBDA, had been in effect throughout all periods presented.

The Company presents OIBDA as the primary measure of segment profit (loss). The Company believes the presentation OIBDA is relevant and useful for investors because it allows investors to view our segment performance in the same manner as the primary method used by management to evaluate performance and make decisions about allocating resources. The Company defines OIBDA as operating income before depreciation and amortization, excluding feature film amortization and film impairments.
We do not allocate certain costs included in OIBDA to our reportable segments. These costs are primarily corporate overhead expenses and costs which benefit the Company as a whole and are therefore not allocated to our reportable segments. Starting in the second quarter of 2012, we began allocating certain staff related expenses, specifically stock compensation costs, management incentive compensation and medical benefits in our management reporting and, as such, we included these costs in the calculation of OIBDA for our reportable segments. This change did not have a material impact on our reportable segments' OIBDA. Revenues from transactions between our operating segments are not material.



9



WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)



The following tables present summarized financial information for each of the Company's reportable segments:
 
Three Months Ended
 
Six Months Ended
 
June 30,
2013
 
June 30,
2012
 
June 30,
2013
 
June 30,
2012
Net revenues:
 
 
 
 
 
 
 
Live and Televised Entertainment
$
125,277

 
$
117,040

 
$
205,203

 
$
192,754

Consumer Products
15,734

 
16,126

 
48,908

 
51,585

Digital Media
9,153

 
7,793

 
18,149

 
14,935

WWE Studios
2,118

 
689

 
4,023

 
5,442

Total net revenues
$
152,282

 
$
141,648

 
$
276,283

 
$
264,716

OIBDA:
 
 
 
 
 
 
 
Live and Televised Entertainment
$
38,462

 
$
42,603

 
$
59,922

 
$
68,750

Consumer Products
7,615

 
7,373

 
31,120

 
30,765

Digital Media
1,380

 
1,894

 
3,381

 
3,649

WWE Studios
(328
)
 
(976
)
 
(5,372
)
 
(2,283
)
Unallocated Corporate
(32,206
)
 
(26,477
)
 
(62,824
)
 
(56,507
)
Total OIBDA
$
14,923

 
$
24,417

 
$
26,227

 
$
44,374


Reconciliation of Total Operating Income to Total OIBDA
 
Three Months Ended
 
Six Months Ended
 
June 30,
2013
 
June 30,
2012
 
June 30,
2013
 
June 30,
2012
Total operating income
$
8,839

 
$
19,596

 
$
14,911

 
$
35,635

Depreciation and amortization
6,084

 
4,821

 
11,316

 
8,739

Total OIBDA
$
14,923

 
$
24,417

 
$
26,227

 
$
44,374

Geographic Information
Net revenues by major geographic region are based upon the geographic location of where our content is distributed. The information below summarizes net revenues to unaffiliated customers by geographic area:
 
Three Months Ended
 
Six Months Ended
 
June 30,
2013
 
June 30,
2012
 
June 30,
2013
 
June 30,
2012
North America
$
119,025

 
$
105,327

 
$
216,849

 
$
198,371

Europe/Middle East/Africa
23,904

 
24,163

 
40,157

 
42,119

Asia Pacific
7,958

 
8,354

 
15,843

 
16,860

Latin America
1,395

 
3,804

 
3,434

 
7,366

Total net revenues
$
152,282

 
$
141,648

 
$
276,283

 
$
264,716




10



WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)



Revenues generated from the United Kingdom, our largest international market, totaled $11,825 and $19,528 for the three and six months ended June 30, 2013, respectively, and $11,427 and $19,578 for the corresponding periods in 2012, respectively. The Company’s property and equipment was almost entirely located in the United States at June 30, 2013 and 2012.
4. Property and Equipment
Property and equipment consisted of the following:
 
 
As of
 
 
June 30,
2013
 
December 31,
2012
Land, buildings and improvements
 
$
102,892

 
$
97,551

Equipment
 
101,206

 
93,316

Corporate aircraft
 
20,858

 
20,858

Vehicles
 
1,474

 
1,474

 
 
226,430

 
213,199

Less accumulated depreciation
 
(121,027
)
 
(111,037
)
Total
 
$
105,403

 
$
102,162

Depreciation expense for property and equipment totaled $5,696 and $10,542 for the three and six months ended June 30, 2013, respectively, as compared to $4,708 and $8,514 for the corresponding periods in 2012, respectively.
5. Feature Film Production Assets
Feature film production assets consisted of the following:
 
 
As of
 
 
June 30,
2013
 
December 31,
2012
Feature film productions:
 
 
 
 
In release
 
$
17,518

 
$
13,238

Completed but not released
 

 
7,849

In production
 
5,320

 
1,977

In development
 
764

 
627

Total
 
$
23,602

 
$
23,691

Approximately 44% of “In release” film production assets are estimated to be amortized over the next 12 months and approximately 75% of “In release” film production assets are estimated to be amortized over the next three years. We anticipate amortizing 80% of our "In release" film production asset within four years as we receive revenues associated with international distribution of our licensed films.
During the six months ended June 30, 2013, we released three feature films via theatrical distribution, No One Lives, The Call and Dead Man Down, which comprise $3,477 of our “In release” feature film assets, as of June 30, 2013. We also released two feature films, 12 Rounds 2: Reloaded and The Marine 3: Homefront direct to DVD during the six months ended June 30, 2013 which comprise $2,727 of our "In release" feature film assets as of June 30, 2013. Third-party distributors control the distribution and marketing of these films, and as a result, we recognize revenue on a net basis after the third-party distributor recoups distribution fees and expenses and results are reported to us. Results are typically reported to us in periods subsequent to the initial release of the film.



11



WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)



Unamortized feature film production assets are evaluated for impairment each reporting period. We review and revise estimates of ultimate revenue and participation costs at each reporting period to reflect the most current information available. If estimates for a film’s ultimate revenue are revised and indicate a significant decline in a film’s profitability or if events or circumstances change that indicate we should assess whether the fair value of a film is less than its unamortized film costs, we calculate the film's estimated fair value using a discounted cash flows model. If fair value is less than unamortized cost, the film asset is written down to fair value.
We recorded an impairment charge of $4,696 during the three months ended March 31, 2013 related to our feature film, Dead Man Down. During the three months ended March 31, 2012, we recorded an impairment charge of $754 related to our feature film Bending the Rules. There were no impairment charges recorded for the three months ended June 30, 2013 and 2012. These impairment charges represent the excess of the recorded net carrying value over the estimated fair value.
We currently have no theatrical films designated as “Completed but not released”. We currently have three films designated as "In Production" that comprise $5,320 of our feature film assets as of June 30, 2013. We also have capitalized certain script development costs for various other film projects designated as “In development”. Capitalized script development costs are evaluated at each reporting period for impairment and to determine if a project is deemed to be abandoned. During the three and six months ended June 30, 2013, we did not record any expense related to previously capitalized development costs related to abandoned projects. During the three and six months ended June 30, 2012, we expensed $582 and $597, respectively, of previously capitalized development costs related to abandoned projects.
6. Television Production Assets
Television production assets consist primarily of episodic television series we have produced for distribution, either on a potential network or through other distribution platforms. Amounts capitalized include development costs, production costs, post-production costs and related production or post-production overhead. We have $10,293 and $6,331 capitalized as of June 30, 2013 and December 31, 2012, respectively, related to this type of programming. Costs to produce live event programming are expensed when the event is first broadcast. Unamortized television production assets are evaluated for impairment each reporting period. If conditions indicate a potential impairment, and the estimated future cash flows are not sufficient to recover the unamortized asset, the asset is written down to fair value. In addition, if we determine that a program will not likely air, we will write-off the remaining unamortized asset. During the three and six months ended June 30, 2013 and 2012, we did not record any impairments related to any television production assets.
7. Investment Securities and Short-Term Investments
On June 25, 2012, the Company invested $5,000 in Tout Industries, Inc.'s ("Tout") Series B Preferred Stock. In July 2012, the Company entered into a two-year strategic partnership whereby WWE would fully integrate and promote Tout's technology platform into WWE's TV broadcasts, digital properties and live events. WWE is eligible to receive up to 11,250 shares of Tout common stock per quarter over the life of the two-year agreement if certain performance metrics are met. During the six months ended June 30, 2013, we achieved the required performance metrics and recorded revenue of $439. The Company increased its investment in Tout for the 22,500 shares it received related to the fourth quarter of 2012 and first quarter of 2013, respectively. The Company recorded a receivable for the shares it expects to receive related to the second quarter of 2013.
On May 30, 2013, the Company made an investment of $2,200 in a live event touring business. Our investment does not provide the ability to exercise significant influence over the investee.
Both investments are accounted for under the cost method. We evaluate our cost method investments for impairment if factors indicate that a significant decrease in value has occurred. No such indicators were noted during the three and six months ended June 30, 2013. Included in Investment Securities in our Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012 are $7,859 and $5,220, respectively related to these investments.



12



WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)



Short-term investments measured at fair value consisted of the following:
 
June 30, 2013
 
December 31, 2012
 
 
 
Gross Unrealized
 
 
 
 
 
Gross Unrealized
 
 
 
Amortized
Cost
 

Gain
 

(Loss)
 
Fair
Value
 
Amortized
Cost
 
Gain
 
(Loss)
 
Fair
Value
Municipal bonds
$
59,551

 
$
327

 
$
(290
)
 
$
59,588

 
$
68,517

 
$
566

 
$
(84
)
 
$
68,999

Corporate bonds
19,371

 
64

 
(197
)
 
19,238

 
17,182

 
145

 

 
17,327

     Total
$
78,922

 
$
391

 
$
(487
)
 
$
78,826

 
$
85,699

 
$
711

 
$
(84
)
 
$
86,326

We classify the investments listed in the above table as available-for-sale securities. Such investments consist primarily of corporate bonds and municipal bonds, including pre-refunded municipal bonds. These investments are stated at fair value as required by the applicable accounting guidance. Unrealized gains and losses on such securities are reflected, net of tax, as other comprehensive income (loss) in the Consolidated Statements of Comprehensive Income.
Our municipal and corporate bonds are included in Short-term investments, net on our Consolidated Balance Sheets. 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. As of June 30, 2013, contractual maturities of these bonds are as follows:
 
Maturities
Municipal bonds
1 month-10 years
Corporate bonds
1 month-5 years
The following table summarizes the short-term investment activity:
 
Three Months Ended
 
Six Months Ended
 
June 30,
2013
 
June 30,
2012
 
June 30,
2013
 
June 30,
2012
Proceeds from sale of short-term investments
$
2,793

 
$
3,008

 
$
2,793

 
$
3,008

Proceeds from maturities and calls of short-term investments
11,485

 
11,110

 
20,270

 
16,610

Gross realized gains on sale of short-term investments
1

 
23

 
1

 
23


8. Fair Value Measurement
Fair value is determined based on the exchange price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Fair value is a market-based measurement based on assumptions that "market participants" would use to price the asset or liability. Accordingly, the framework considers markets or observable inputs as the preferred source of value followed by assumptions based on hypothetical transactions, in the absence of market inputs. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of assets and liabilities should include consideration of non-performance risk including the Company's own credit risk.



13



WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)



Additionally, the guidance establishes a three-level hierarchy that ranks the quality and reliability of information used in developing fair value estimates. The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. In cases where two or more levels of inputs are used to determine fair value, a financial instrument's level is determined based on the lowest level input that is considered significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are summarized as follows:
Level 1- 
quoted prices in active markets for identical assets or liabilities;
Level 2-
quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or
Level 3-
unobservable inputs, such as discounted cash flow models or valuations
The following assets are required to be measured at fair value on a recurring basis and the classification within the hierarchy were as follows:
 
 
Fair Value at June 30, 2013
 
Fair Value at December 31, 2012
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Municipal bonds
 
$
59,588

 
$

 
$
59,588

 
$

 
$
68,999

 
$

 
$
68,999

 
$

Corporate bonds
 
19,238

 

 
19,238

 

 
17,327

 

 
17,327

 

Total
 
$
78,826

 
$

 
$
78,826

 
$

 
$
86,326

 
$

 
$
86,326

 
$

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 and cash equivalents, money market accounts, accounts receivable and accounts payable approximate fair value because of the short-term nature of such instruments.
We have classified our investment in municipal and corporate bonds within Level 2 as their valuation requires quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and/or model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data. The municipal and corporate bonds are valued based on model-driven valuations whereby market prices from a variety of industry standard data providers, security master files from large financial institutions and other third-party sources are used as inputs to an algorithm.
The Company also has assets that are required to be measured at fair value on a non-recurring basis if it is determined that indicators of impairment exist. These assets are recorded at fair value only when an impairment is recognized. During the six months ended June 30, 2013, the Company recorded an impairment charge of $4,696 on a feature film production asset based on a fair value measurements of $989. The Company recorded an impairment charge of $754 during the six months ended June 30, 2012 on a feature film production asset based on a fair value measurement of $1,000. See Note 5, Feature Film Production Assets, for further discussion. The Company classifies these assets as Level 3 within the fair value hierarchy due to significant unobservable inputs. The Company utilizes a discounted cash flows model to determine the fair value of these impaired films where indicators of impairment exist. The significant unobservable inputs to this model are the Company’s expected cash flows for the film, including projected home video sales, pay and free TV sales and international sales, and a discount rate of 13% that we estimate market participants would seek for bearing the risk associated with such assets. The Company utilizes an independent third party specialist that assists us in gathering the necessary inputs used in our model.



14



WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)



9. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
 
 
As of
 
 
June 30,
2013
 
December 31,
2012
Trade related
 
$
6,941

 
$
7,364

Payroll and related benefits
 
10,150

 
16,099

Talent related
 
6,307

 
9,805

Accrued event and television production
 
3,782

 
5,122

Accrued home entertainment expenses
 
1,815

 
1,989

Accrued legal and professional
 
2,177

 
1,243

Accrued purchases of property and equipment and other assets
 
2,554

 
1,415

Accrued film liability
 
2,893

 
572

Accrued other
 
5,072

 
5,345

Total
 
$
41,691

 
$
48,954

Accrued other includes accruals for our publishing and licensing business activities and other miscellaneous accruals, none of which categories individually exceeds 5% of current liabilities.
10. Senior Unsecured Revolving Credit Facility
In 2011, the Company entered into a $200,000 senior unsecured revolving credit facility with a syndicated group of banks, with JPMorgan Chase acting as administrative agent. In April 2013, the Company amended and restated the revolving credit facility. Under the terms of the amended credit facility, (i) the maturity date was extended to September 9, 2016, (ii) changes were made to the applicable margin for borrowings under the facility, and (iii) restrictions on certain financial covenants were amended to provide for greater financial flexibility. Applicable interest rates for the borrowings under the revolving credit facility are based on the Company's current consolidated leverage ratio. As of June 30, 2013, the LIBOR-based rate plus margin was 2.02%. As of June 30, 2013 and December 31, 2012, there were no amounts outstanding under the credit facility. The Company is required to pay a commitment fee calculated at a rate per annum of 0.375% on the average daily unused portion of the credit facility. Borrowings under the credit facility are subject to certain financial covenants and certain restrictions. As of June 30, 2013, the Company is in compliance with the provisions of this credit facility.
11. 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 relate principally to a limited number of distributors, including our television, pay-per-view and home video distributors and licensees that produce consumer products containing our intellectual trademarks. We closely monitor the status of receivables with these customers and maintain allowances for anticipated losses as deemed appropriate. At June 30, 2013, our largest single customer balance was approximately 10% of our gross accounts receivable balance.




15



WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)



12. Income Taxes
The effective tax rate was 38% for the six months ended June 30, 2013 as compared to 23% for the six months ended June 30, 2012. During the six months ended June 30, 2012, we recognized $3,697 of previously unrecognized tax benefits primarily related to the settlement of various audits, including the State of Connecticut, the IRS, and other state and local jurisdictions. Included in the amount recognized was $1,388 of potential interest and penalties related to uncertain tax positions. The recognition of these amounts during the six months ended June 30, 2012 resulted in an effective tax rate of 23%.
At June 30, 2013, we have $2,149 of unrecognized tax benefits, which if recognized, would affect our effective tax rate. The entire amount is classified as Non-current income tax liabilities. At December 31, 2012, we had $2,128 of unrecognized tax benefits. All of this amount was classified as Non-current income tax liabilities.
We recognize potential accrued interest and penalties related to uncertain tax positions in income tax expense. We have $772 and $716 of accrued interest and penalties related to uncertain tax positions as of June 30, 2013 and December 31, 2012, respectively. Essentially the entire amounts are included in Non-current income tax liabilities for the periods presented.
Based upon the expiration of statutes of limitations and possible settlements in several jurisdictions, we believe it is reasonably possible that the total amount of previously unrecognized tax benefits including interest and penalties may decrease by $658 within 12 months of June 30, 2013.
13. 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 of America and certain international jurisdictions. Incentives earned with respect to expenditures on qualifying film, television and other production activities, including qualifying capital projects, are included as an offset to the related asset or as an offset to production expenses when we have reasonable assurance regarding the realizable amount of the incentives. During the three and six months ended June 30, 2013 and 2012, we received $437 and $1,148, respectively, of incentives relating to feature film productions which reduced the related assets. During the three and six months ended June 30, 2013 and 2012, we received $395 and $1,560, respectively, of incentives relating to television production activities that was recorded as an offset to production expenses.
14. Commitments and Contingencies
Legal Proceedings
We are involved in several litigations and claims that we consider to be in the ordinary course of our business. By its nature, the outcome of litigation is not known but the Company does not currently expect its pending litigation to have a material adverse effect on our financial condition, results of operations or liquidity. We may from time to time become a party to other legal proceedings.
15. Purchase of Corporate Jet
On June 16, 2013, we entered into a purchase agreement to buy a 2007 Bombardier Global 5000 jet for a purchase price of $27.0 million which will replace the Company's current corporate aircraft. We entered into this purchase agreement after an agreement to purchase a comparable aircraft under similar terms was terminated. We anticipate the total cost of the aircraft including certain improvements to be in the range of $31.0 million to $33.0 million. The Company expects to market the current aircraft for sale after completion of the purchase of the new aircraft and subsequent refurbishment of both the purchased aircraft and our existing aircraft.



16


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Background
     The following analysis outlines all material activities contained within each of our reportable segments.
Live and Televised Entertainment
Revenues consist principally of ticket sales to live events, sales of merchandise at these live events, television rights fees, integrated sponsorship fees, and fees for viewing our pay-per-view and video-on-demand programming.
Consumer Products
Revenues consist principally of sales of WWE produced content via home entertainment platforms, magazine sales and royalties or license fees related to various WWE themed products such as video games, toys and apparel. 
Digital Media
Revenues consist principally of advertising sales on our websites, rights fees received for digital content, sale of merchandise on our website through our WWEShop internet storefront and sales of various broadband and mobile content. 
WWE Studios
Revenues consist of amounts earned from the distribution of filmed entertainment.

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

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




17


Three Months Ended June 30, 2013 compared to Three Months Ended June 30, 2012
(dollars in millions)

Summary

 
Three Months Ended
 
 
 
June 30,
2013
 
June 30,
2012
 
increase (decrease)
Net Revenues
 
 
 
 
 
Live and Televised Entertainment
$
125.3

 
$
117.1

 
7
 %
Consumer Products
15.7

 
16.1

 
(2
)%
Digital Media
9.2

 
7.8

 
18
 %
WWE Studios
2.1

 
0.6

 
250
 %
Total
152.3

 
141.6

 
8
 %
 
 
 
 
 
 
OIBDA


 


 
 
Live and Televised Entertainment
38.5

 
42.6

 
(10
)%
Consumer Products
7.6

 
7.4

 
3
 %
Digital Media
1.4

 
1.8

 
(22
)%
WWE Studios
(0.4
)
 
(1.0
)
 
(60
)%
Unallocated Corporate Expenses
(32.2
)
 
(26.4
)
 
22
 %
Total
14.9

 
24.4

 
(39
)%
OIBDA as a percentage of revenues
10
%
 
17
%
 

 


 


 
 
Depreciation and amortization expense
6.1

 
4.8

 
27
 %
Operating income
8.8

 
19.6

 
(55
)%
Investment and other expense, net
(0.4
)
 
(0.9
)
 
(56
)%
Income before income taxes
8.4

 
18.7

 
(55
)%
Provision for income taxes
3.2

 
6.8

 
(53
)%
Net income
$
5.2

 
$
11.9

 
(56
)%
Our Live and Televised Entertainment segment revenues increased 7% primarily due to increased revenues in our television rights and live events businesses of $5.6 million and $4.7 million, respectively. Our Consumer Products segment experienced a 2% decrease in revenues primarily driven by a $0.7 million decline in our home entertainment business. Our Digital Media segment experienced an 18% increase in revenues, primarily driven by higher sales of advertising across various digital platforms. Our WWE Studios segment experienced a $1.5 million increase in revenues primarily due to two feature film releases in the current quarter.



18


Live and Televised Entertainment
The following tables provide performance results and key drivers for our Live and Televised Entertainment segment:
 
 
Three Months Ended
 
 
Revenues- Live and Televised Entertainment
(dollars in millions except where noted)
 
June 30,
2013
 
June 30,
2012
 
increase (decrease)
Live events
 
$
40.1

 
$
35.4

 
13
 %
North America
 
$
30.1

 
$
22.3

 
35
 %
International
 
$
10.0

 
$
13.1

 
(24
)%
Total live event attendance
 
552,000

 
553,000

 
 %
Number of North American events
 
65

 
57

 
14
 %
Average North American attendance
 
6,300

 
6,400

 
(2
)%
Average North American ticket price (dollars)
 
$
64.23

 
$
56.72

 
13
 %
Number of international events
 
22

 
30

 
(27
)%
Average international attendance
 
6,600

 
6,200

 
6
 %
Average international ticket price (dollars)
 
$
68.16

 
$
63.47

 
7
 %
Venue merchandise
 
$
6.9

 
$
5.4

 
28
 %
Domestic per capita spending (dollars)
 
$
11.99

 
$
11.89

 
1
 %
Pay-per-view
 
$
37.1

 
$
40.8

 
(9
)%
Number of pay-per-view events
 
3

 
4

 
(25
)%
Number of buys from pay-per-view events
 
1,551,200

 
1,897,360

 
(18
)%
Average revenue per buy (dollars)
 
$
23.92

 
$
21.41

 
12
 %
Domestic retail price WrestleMania (dollars)
 
$
59.95

 
$
54.95

 
9
 %
Domestic retail price excluding WrestleMania (dollars)
 
$
44.95

 
$
44.95

 
 %
Television rights fees
 
$
38.0

 
$
32.4

 
17
 %
Domestic
 
$
23.8

 
$
19.3

 
23
 %
International
 
$
14.2

 
$
13.1

 
8
 %
Other
 
$
3.2

 
$
3.1

 
3
 %
Total Live and Televised Entertainment
 
$
125.3

 
$
117.1

 
7
 %
Ratings
 

 

 

       Average weekly household ratings for RAW
 
3.3

 
3.5

 
(6
)%
       Average weekly household ratings for SmackDown
 
2.1

 
2.0

 
5
 %
       Average weekly household ratings for WWE Main Event
 
0.8

 
N/A

 
 
       Average weekly household ratings for WWE Saturday Morning Slam
 
0.6

 
N/A

 
 



19




Three Months Ended
 

OIBDA-Live and Televised Entertainment
(dollars in millions)

June 30,
2013

June 30,
2012
 
increase (decrease)
Live events

$
16.4

 
$
12.8

 
28
 %
Venue merchandise

2.7

 
1.9

 
42
 %
Pay-per-view

9.8

 
19.5

 
(50
)%
Television rights fees

11.9

 
9.7

 
23
 %
Other

(2.3
)
 
(1.3
)
 
77
 %
Total

$
38.5

 
$
42.6

 
(10
)%
OIBDA as a percentage of revenues
 
31
%
 
36
%
 

Live events revenues increased by $4.7 million in the current year quarter as compared to the prior year quarter. Revenues from our North America live events business increased $7.8 million or 35% primarily due to the strong performance of our annual WrestleMania event and the scheduling of eight additional domestic events in the current year quarter. In addition, we scheduled all of our Fan Axxess events, held in conjunction with WrestleMania XXIX, during the current year quarter while the majority of our Fan Axxess events for WrestleMania XXVIII were scheduled during our first quarter of 2012. WrestleMania XXIX experienced a 39% increase in average ticket prices contributing $3.6 million in incremental ticket revenue and Fan Axxess added $2.3 million in additional revenue in the current year quarter as compared to the prior year quarter. Average ticket prices for our North America events increased by 13% to $64.23 while the average attendance fell slightly by 2%. Our international live events business revenue decreased $3.1 million primarily due to eight fewer events held in the current year quarter. This was partially offset by a 7% increase in international ticket prices to $68.16 and an increase in average attendance of 6% to approximately 6,600 in the current year quarter. The increases in average ticket price and average attendance were due to changes in territory mix as the prior year quarter included weak attendance at our events in Mexico and our first live event in Brazil, a market with long-term strategic importance to WWE. The live events OIBDA as a percentage of revenues was 41% in the current year quarter compared to 36% in the prior year quarter.
Venue merchandise revenues increased by $1.5 million in the current year quarter as compared to the prior year quarter. This increase is primarily due to the timing of our Fan Axxess events as described above. Total paid attendance at our North America events increased 11% while domestic per capita merchandise sales at those events remained relatively unchanged at $11.99 in the current year quarter. The venue merchandise OIBDA as a percentage of revenues increased to 39% from 35% in the prior year quarter.
Pay-per-view revenues decreased by $3.7 million in the current year quarter as compared to the prior year quarter primarily attributable to one fewer pay-per-view event held in the current quarter, which accounted for $3.2 million of the revenue decline. Revenue from the three events in the quarter declined 3% versus the prior year quarter as a combined 13% decline in buys was nearly offset by a 12% increase in the average revenue per buy. The shortfall in revenue from these events, however, were offset by an increase in buys for prior period events. The rise in revenue per buy was due to an approximate 9% increase in the domestic retail price charged for viewing WrestleMania and to a higher proportion of buys to view our events in high definition, which generally garners a higher retail price. The pay-per-view OIBDA as a percentage of revenues decreased to 26% from 48% in the prior year quarter primarily due to a reduction in revenues and a $2.6 million increase in talent and advertising related expenses.
Television rights fees revenues increased by $5.6 million in the current year quarter as compared to the prior year quarter. Domestically, television rights fees increased by $4.5 million, primarily due to the production and licensing of new programs. During July 2012, we began to produce and license an additional hour of RAW to the USA Network. In addition, during the third quarter of 2012, we began licensing two new original series, the WWE Main Event which is carried on the ION Television Network and WWE Saturday Morning Slam which is carried on the CW Network. The television rights fees OIBDA as a percentage of revenues increased to 31% from 30% in the prior year quarter.



20


Consumer Products
The following tables provide performance results and key drivers for our Consumer Products segment (dollars in millions):
 
 
Three Months Ended
 
 
Revenues-Consumer Products
 
June 30,
2013
 
June 30,
2012
 
increase (decrease)
Licensing
 
$
6.7

 
$
6.6

 
2
 %
Home entertainment
 
$
7.1

 
$
7.8

 
(9
)%
Gross units shipped
 
965,800

 
837,200

 
15
 %
Magazine publishing
 
$
1.3

 
$
1.3

 
 %
Net units sold
 
465,000

 
468,700

 
(1
)%
Other
 
$
0.6

 
$
0.4

 
50
 %
Total
 
$
15.7

 
$
16.1

 
(2
)%
 
 
Three Months Ended
 
 
OIBDA-Consumer Products
 
June 30,
2013
 
June 30,
2012
 
increase (decrease)
Licensing
 
$
4.3

 
$
3.9

 
10
 %
Home entertainment
 
3.1

 
3.4

 
(9
)%
Magazine publishing
 
0.1

 

 
100
 %
Other
 
0.1

 
0.1

 
 %
Total
 
$
7.6

 
$
7.4

 
3
 %
OIBDA as a percentage of revenues
 
48
%
 
46
%
 
 
Licensing revenues increased by $0.1 million in the current year quarter as compared to the prior year quarter. Royalties from the sale of toy products increased approximately 15%, or $0.5 million, led by higher sales of action figures in the U.S. with strong domestic retail support. This increase was offset by a $0.7 million reduction in video game revenue. Partially due to the transition of our video game licensee to Take-Two Interactive ("Take-Two"), shipments of our franchise video game, WWE'13, declined 65% in the current year quarter to 77,000 units as compared to the corresponding game in the prior year quarter. The licensing OIBDA as a percentage of revenues was 64% in the current year quarter compared to 59% in the prior year quarter due to lower costs associated with talent participations.
Home entertainment revenues decreased by $0.7 million or 9% in the current year quarter as compared to the prior year quarter. The 9% decline reflected a reduction in estimated sell-through rates and lower revenue from our international licensing activities. Domestic home entertainment revenue fell $0.4 million, or 6%, as a 15% increase in shipments to nearly 1.0 million units was more than offset by a 13% decline in the average price per unit to $10.59 and a rise in estimated returns. The change in projected returns derived from an increase in catalog shipments over the last twelve months, which historically have been characterized by lower estimated sell-through rates. Revenue from our international licensing activities declined by approximately $0.3 million due to the transition to a new licensee in the EMEA region. Home entertainment OIBDA as a percentage of revenues was 44% in both the current prior year quarters.
Magazine publishing revenues remained flat at $1.3 million both in the current and prior year quarters. Net units sold decreased slightly by 1%. We published three issues of WWE Magazine and two issues of WWE Kids magazine both in the current year and prior year quarters. Publishing OIBDA as a percentage of revenues increased to 8% from 0% in the prior year quarter.




21


Digital Media
The following tables provide performance results for our Digital Media segment (dollars in millions except average revenues per order):

 
Three Months Ended
 
 
Revenues-Digital Media
 
June 30,
2013
 
June 30,
2012
 
increase (decrease)
WWE.com
 
$
6.1

 
$
4.8

 
27
 %
WWEShop
 
3.1

 
3.0

 
3
 %
Total
 
$
9.2

 
$
7.8

 
18
 %
Average WWEShop revenues per order (dollars)
 
$
47.92

 
$
48.70

 
(2
)%
 
 
Three Months Ended
 
 
OIBDA-Digital Media
 
June 30,
2013
 
June 30,
2012
 
increase (decrease)
WWE.com
 
$
1.0

 
$
1.5

 
(33
)%
WWEShop
 
0.4

 
0.3

 
33
 %
Total
 
$
1.4

 
$
1.8

 
(22
)%
OIBDA as a percentage of revenues
 
15
%
 
23
%
 

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



22


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





 
Feature
Film
Production
 

 

 

 

 

 






 
Assets-net as of
 

 

 
For the Three Months Ended June 30,





 
June 30,
 
Inception to-date
 
Revenue
 
OIBDA
Title

Release Date

Production Costs*
 
2013
 
Revenue
 
OIBDA
 
2013
 
2012
 
2013
 
2012
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
12 Rounds 2: Reloaded
 
June 2013
 
$
1.3

 
$
1.3

 
$

 
$

 
$

 
$ N/A

 
$

 
$ N/A

No One Lives
 
May 2013
 
2.2

 
1.5

 
0.7

 

 
0.7

 
  N/A

 

 
  N/A

The Call
 
Mar 2013
 
1.0

 
1.0

 
0.1

 
0.1

 

 
  N/A

 

 
  N/A

Dead Man Down
 
Mar 2013
 
5.7

 
1.0

 

 
(4.7
)
 

 
  N/A

 

 
  N/A

The Marine 3: Homefront
 
Mar 2013
 
1.4

 
1.4

 

 

 

 
  N/A

 

 
  N/A

 
 
 
 
11.6

 
6.2

 
0.8

 
(4.6
)
 
0.7

 

 

 

2012


 

 

 

 

 

 

 

Barricade
 
Sept 2012
 
4.0

 
0.5

 
1.1

 
(3.6
)
 
(0.1
)
 
    N/A

 
(0.2
)
 
    N/A

No Holds Barred
 
July 2012
 

 

 
0.6

 
0.2

 
0.1

 
    N/A

 
0.1

 
    N/A

Bending The Rules

Mar 2012

5.5

 
0.8

 
1.0

 
(4.7
)
 

 
0.2

 

 

 
 
 
 
9.5

 
1.3

 
2.7

 
(8.1
)
 

 
0.2

 
(0.1
)
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prior Releases



106.8

 
10.0

 
96.8

 
(18.3
)
 
1.4

 
0.4

 
0.7

 
0.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Completed but not released


 

 

 

 

 

 

 

In production



5.3

 
5.3

 

 

 

 

 

 

In development



0.8

 
0.8

 

 
(4.1
)
 

 

 

 
(0.6
)
Sub-total



$
134.0

 
$
23.6

 
$
100.3

 
$
(35.1
)
 
$
2.1

 
$
0.6

 
$
0.6

 
$
(0.5
)
Selling, General & Administrative Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
(1.0
)
 
(0.5
)
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(0.4
)
 
$
(1.0
)
*     Production costs are presented net of the associated benefit of production incentives.
During the current year quarter, we released one feature film via theatrical distribution, No One Lives. We also released 12 Rounds 2: Reloaded direct to DVD during the current year quarter. Third-party distributors control the distribution and marketing of these two feature films and, as a result, we recognize revenue on a net basis after the third-party distributor recoups distribution fees and expenses and results are reported to us. Results are typically reported to us in periods subsequent to the initial release of these films.
WWE Studios revenues increased $1.5 million in the current year quarter as compared to the prior year quarter. The increase in revenue is attributable to the performance of our new film release, No One Lives, and the timing of results generated by our overall portfolio of movies, including the impact of The Marine and The Marine 2, which were released in prior periods. WWE Studios OIBDA increased $0.7 million in the current year quarter as compared to the prior year quarter, primarily due to the profitability of our older film releases which had a positive impact on the current year quarter.
At June 30, 2013, the Company had $23.6 million (net of accumulated amortization and impairment charges) of feature film production assets capitalized on its Consolidated Balance Sheet. We review and revise estimates of ultimate revenue and



23


participation costs at the end of each reporting period to reflect the most current information available. If estimates for a film’s ultimate revenue are revised and indicate a significant decline in a film’s profitability or if events or circumstances change that indicate we should assess whether the fair value of a film is less than its unamortized film costs, we calculate the film's estimated fair value using a discounted cash flows model. If fair value is less than unamortized cost, the film asset is written down to fair value.
Unallocated Corporate Expenses
The following table presents the amounts and percent change of certain significant unallocated corporate expenses (dollars in millions):
 
 
Three Months Ended
 
 
 
 
June 30,
2013
 
June 30,
2012
 
increase (decrease)
Staff related
 
$
13.7

 
$
11.6

 
18
%
Management incentive compensation
 
1.9

 
1.6

 
19
%
Legal, accounting and other professional
 
5.1

 
4.4

 
16
%
Travel and entertainment expense
 
1.3

 
1.0

 
30
%
Advertising, marketing and promotion
 
2.0

 
1.0

 
100
%
Corporate insurance
 
1.0

 
1.0

 
%
Bad debt expense
 
0.1

 
0.1

 
%
All other
 
7.1

 
5.7

 
25
%
Total unallocated corporate expenses
 
$
32.2

 
$
26.4

 
22
%
Unallocated corporate expenses as a percentage of net revenues
 
21
%
 
19
%
 
 
Unallocated corporate expenses increased by $5.8 million or 22% in the current year quarter compared to the prior year quarter. This was primarily due to increases in compensation and benefits expenses of $2.4 million. In addition, the Company incurred higher talent development costs of $1.0 million, marketing expenses of $1.0 million, and higher professional fees of $0.7 million, primarily to support our content related initiatives, including the potential launch of a WWE network.
Depreciation and Amortization
(dollars in millions)
 
 
Three Months Ended
 
 
 
 
June 30,
2013
 
June 30,
2012
 
increase (decrease)
Depreciation and amortization
 
$
6.1

 
$
4.8

 
27
%
Depreciation and amortization expense increased by $1.3 million, or 27%, in the current year quarter compared to the prior year quarter. Depreciation expense for the current year quarter reflects higher property and equipment balances due to increased capital expenditures to support our emerging content and distribution efforts, including a potential network.
Investment Income, Interest and Other Expense, Net
(dollars in millions)
 
 
Three Months Ended
 
 
 
 
June 30,
2013