10-Q 1 wwe-9302013x10q.htm QUARTERLY REPORT WWE-9.30.2013-10Q

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 September 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 October 30, 2013 the number of shares outstanding of the Registrant’s Class A common stock, par value $.01 per share, was 31,302,790 and the number of shares outstanding of the Registrant’s Class B common stock, par value $.01 per share, was 43,797,830.



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
 
Nine Months Ended

September 30,
2013
 
September 30,
2012
 
September 30,
2013
 
September 30,
2012
Net revenues
$
113,292

 
$
104,197

 
$
389,575

 
$
368,913

Cost of revenues (including amortization and impairments of feature film and television production assets of $12,039 and $2,132, respectively, and $19,485 and $7,776, respectively)
70,947

 
61,406

 
242,668

 
215,287

Selling, general and administrative expenses
32,640

 
32,459

 
110,976

 
98,920

Depreciation and amortization
6,503

 
5,307

 
17,819

 
14,046

Operating income
3,202

 
5,025

 
18,112

 
40,660

Investment income, net
264

 
635

 
1,102

 
1,679

Interest expense
(438
)
 
(457
)
 
(1,270
)
 
(1,354
)
Other income (expense), net
313

 
(203
)
 
(1,420
)
 
(746
)
Income before income taxes
3,341

 
5,000

 
16,524

 
40,239

Provision for income taxes
902

 
1,473

 
5,870

 
9,440

Net income
$
2,439

 
$
3,527

 
$
10,654

 
$
30,799


 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic and diluted
$
0.03

 
$
0.05

 
$
0.14

 
$
0.41

 

 
 



 
Weighted average common shares outstanding:

 
 
 

 
 
Basic
75,030

 
74,681

 
74,885

 
74,542

Diluted
75,388

 
74,845

 
75,335

 
74,864


See accompanying notes to consolidated financial statements.

2


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

 
Three Months Ended
 
Nine Months Ended
 
September 30,
2013
 
September 30,
2012
 
September 30,
2013
 
September 30,
2012
Net income
$
2,439

 
$
3,527

 
$
10,654

 
$
30,799

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustment
73

 
105

 
(107
)
 
180

Unrealized holding gain/(loss) - available-for-sale securities (net of tax (benefit)/expense of $49 and $36, respectively, and ($225) and $516, respectively)
79

 
59

 
(367
)
 
841

Reclassification adjustment for gains realized in net income - available-for-sale securities (net of tax expense of $0 and $66, respectively, and $1 and $75, respectively)

 
(107
)
 
(1
)
 
(121
)
Total other comprehensive income (loss)
152

 
57

 
(475
)
 
900

Comprehensive income
$
2,591

 
$
3,584

 
$
10,179

 
$
31,699


See accompanying notes to consolidated financial statements.

3


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

 
As of
 
September 30,
2013
 
December 31,
2012
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
37,081

 
$
66,048

Short-term investments, net
77,743

 
86,326

Accounts receivable (net of allowances for doubtful accounts and returns
 
 
 
of $8,940 and $14,691, respectively)
69,537

 
50,716

Inventory
2,532

 
1,770

Deferred income tax assets
11,048

 
14,403

Prepaid expenses and other current assets
15,536

 
15,269

Total current assets
213,477

 
234,532

PROPERTY AND EQUIPMENT, NET
133,194

 
102,162

FEATURE FILM PRODUCTION ASSETS, NET
17,195

 
23,691

TELEVISION PRODUCTION ASSETS, NET
10,992

 
6,331

INVESTMENT SECURITIES
7,859

 
5,220

OTHER ASSETS
8,792

 
9,447

TOTAL ASSETS
$
391,509

 
$
381,383

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:

 
 
Current portion of long-term debt
$
4,228

 
$

Accounts payable and accrued expenses
41,596

 
48,954

Deferred income
30,320

 
28,611

Total current liabilities
76,144

 
77,565

LONG-TERM DEBT
25,164

 

NON-CURRENT INCOME TAX LIABILITIES
9,336

 
9,092

COMMITMENTS AND CONTINGENCIES
 
 
 
STOCKHOLDERS’ EQUITY:
 
 
 
Class A common stock: ($.01 par value; 180,000,000 shares authorized;
 
 
 
30,789,056 and 29,253,665 shares issued and outstanding as of
 
 
 
September 30, 2013 and December 31, 2012, respectively)
308

 
293

Class B convertible common stock: ($.01 par value; 60,000,000 shares authorized;
 
 
 
44,302,830 and 45,500,830 shares issued and outstanding as of
 
 
 
September 30, 2013 and December 31, 2012, respectively)
443

 
455

Additional paid-in-capital
344,939

 
341,762

Accumulated other comprehensive income
3,556

 
4,031

Accumulated deficit
(68,381
)
 
(51,815
)
Total stockholders’ equity
280,865

 
294,726

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
391,509

 
$
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

 

 

 

 

 

 
10,654

 
10,654

Other comprehensive loss

 

 

 

 

 
(475
)
 

 
(475
)
Stock issuances, net
337

 
3

 

 

 
(842
)
 

 

 
(839
)
Conversion of Class B common stock by shareholder
1,198

 
12

 
(1,198
)
 
(12
)
 

 

 

 

Excess tax benefits from stock-based payment arrangements

 

 

 

 
223

 

 

 
223

Dividends paid

 

 

 

 
253

 

 
(27,220
)
 
(26,967
)
Stock-based compensation

 

 

 

 
3,543

 

 

 
3,543

Balance, September 30, 2013
30,789

 
$
308

 
44,303

 
$
443

 
$
344,939

 
$
3,556

 
$
(68,381
)
 
$
280,865


See accompanying notes to consolidated financial statements.

5


WORLD WRESTLING ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Nine Months Ended
 
September 30,
2013
 
September 30,
2012
OPERATING ACTIVITIES:
 
 
 
Net income
$
10,654

 
$
30,799

Adjustments to reconcile net income to net cash (used in)/provided by operating
 
 
 
               activities:
 
 
 
Amortization and impairments of feature film and television production assets
19,485

 
7,776

Depreciation and amortization
17,819

 
14,046

Amortization of bond premium
391

 
1,745

Amortization of debt issuance costs
1,559

 
461

Stock-based compensation
3,543

 
2,791

(Recovery from) provision for doubtful accounts
(356
)
 
1,204

Services provided in exchange for equity instruments
(659
)
 
219

Loss on disposal of property and equipment
335

 
40

Provision for deferred income taxes
4,040

 
2,052

Other non-cash adjustments
(252
)
 
(202
)
Cash (used in)/provided by changes in operating assets and liabilities:
 
 
 
Accounts receivable
(17,913
)
 
(2,820
)
Inventory
(761
)
 
(531
)
Prepaid expenses and other assets
(541
)
 
(2,488
)
Feature film production assets
(6,706
)
 
(6,975
)
Television production assets
(8,687
)
 
(5,507
)
Accounts payable and accrued expenses
(11,506
)
 
(1,585
)
Deferred income
1,709

 
(49
)
Net cash provided by operating activities
12,154

 
40,976

INVESTING ACTIVITIES:
 
 

Purchases of property and equipment and other assets
(18,302
)
 
(26,697
)
Purchase of corporate aircraft and related improvements
(29,730
)
 

Purchases of short-term investments
(24,112
)
 
(18,639
)
Proceeds from sales and maturities of investments
30,543

 
37,271

Purchase of cost method investments
(2,200
)
 
(5,000
)
Proceeds from sales of property and equipment
38

 

Net cash used in investing activities
(43,763
)
 
(13,065
)
FINANCING ACTIVITIES:

 
 
Proceeds from the issuance of note payable
29,730

 

Repayment of long-term debt
(348
)
 
(1,621
)
Dividends paid
(26,967
)
 
(26,845
)
Debt issuance costs
(674
)
 

Issuance of stock, net
640

 
751

Excess tax benefits from stock-based payment arrangements
261

 
6

Net cash provided by/(used in) financing activities
2,642

 
(27,709
)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(28,967
)
 
202

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
66,048

 
52,491

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
37,081

 
$
52,693

NON-CASH INVESTING AND FINANCING TRANSACTIONS:

 
 
Non-cash purchase of property and equipment and other assets
1,611

 
1,609


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
 
40,477

 
$
9.31

Vested
 
(60,538
)
 
$
10.12

Forfeited
 
(17,582
)
 
$
9.38

Dividend equivalents
 
5,000

 
$
9.23

Unvested at September 30, 2013
 
113,532

 
$
9.37


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

 
$
8.37

Granted
 
932,786

 
$
9.94

Vested
 
(314,008
)
 
$
9.35

Forfeited
 
(69,560
)
 
$
9.20

Dividend equivalents
 
25,902

 
$
9.45

Unvested at September 30, 2013
 
1,260,823

 
$
9.52

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 September 30, 2013.
Stock-based compensation costs totaled $785 and $1,035 for the three months ended September 30, 2013 and 2012, respectively, and $3,543 and $2,791 for the nine months ended September 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
 
Nine Months Ended

September 30,
2013
 
September 30,
2012
 
September 30,
2013
 
September 30,
2012
Net revenues:
 
 
 
 
 
 
 
Live and Televised Entertainment
$
89,532

 
$
79,049

 
$
294,735

 
$
271,804

Consumer Products
13,339

 
15,834

 
62,247

 
67,419

Digital Media
8,609

 
7,442

 
26,758

 
22,376

WWE Studios
1,812

 
1,872

 
5,835

 
7,314

Total net revenues
$
113,292

 
$
104,197

 
$
389,575

 
$
368,913

OIBDA:
 
 
 
 
 
 
 
Live and Televised Entertainment
$
35,390

 
$
30,534

 
$
95,312

 
$
99,284

Consumer Products
5,395

 
6,879

 
36,515

 
37,644

Digital Media
3,573

 
3,175

 
6,954

 
6,824

WWE Studios
(7,417
)
 
(2,014
)
 
(12,789
)
 
(4,297
)
Unallocated Corporate
(27,236
)
 
(28,242
)
 
(90,061
)
 
(84,749
)
Total OIBDA
$
9,705

 
$
10,332

 
$
35,931

 
$
54,706


Reconciliation of Total Operating Income to Total OIBDA
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2013
 
September 30,
2012
 
September 30,
2013
 
September 30,
2012
Total operating income
$
3,202

 
$
5,025

 
$
18,112

 
$
40,660

Depreciation and amortization
6,503

 
5,307

 
17,819

 
14,046

Total OIBDA
$
9,705

 
$
10,332

 
$
35,931

 
$
54,706

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
 
Nine Months Ended
 
September 30,
2013
 
September 30,
2012
 
September 30,
2013
 
September 30,
2012
North America
$
87,341

 
$
79,972

 
$
304,190

 
$
278,343

Europe/Middle East/Africa
11,249

 
9,465

 
51,406

 
51,584

Asia Pacific
13,737

 
13,284

 
29,580

 
30,144

Latin America
965

 
1,476

 
4,399

 
8,842

Total net revenues
$
113,292

 
$
104,197

 
$
389,575

 
$
368,913




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 $5,249 and $24,777 for the three and nine months ended September 30, 2013, respectively, and $4,809 and $24,387 for the corresponding periods in 2012, respectively. The Company’s property and equipment was almost entirely located in the United States at September 30, 2013 and 2012.
4. Property and Equipment
Property and equipment consisted of the following:
 
 
As of
 
 
September 30,
2013
 
December 31,
2012
Land, buildings and improvements
 
$
105,178

 
$
97,551

Equipment
 
103,462

 
93,316

Corporate aircraft
 
50,588

 
20,858

Vehicles
 
244

 
1,474

 
 
259,472

 
213,199

Less accumulated depreciation
 
(126,278
)
 
(111,037
)
Total
 
$
133,194

 
$
102,162

Included in Corporate aircraft for the period ended September 30, 2013 is $29,730 of costs related to the acquisition and refurbishment of a 2007 Bombardier Global 5000 aircraft. The aircraft is still being refurbished and has not yet been placed in service. Depreciation expense for property and equipment totaled $6,111 and $16,653 for the three and nine months ended September 30, 2013, respectively, as compared to $5,045 and $13,559 for the corresponding periods in 2012, respectively.
5. Feature Film Production Assets, Net
Feature film production assets consisted of the following:
 
 
As of
 
 
September 30,
2013
 
December 31,
2012
Feature film productions:
 
 
 
 
In release
 
$
9,620

 
$
13,238

Completed but not released
 
4,418

 
7,849

In production
 
2,407

 
1,977

In development
 
750

 
627

Total
 
$
17,195

 
$
23,691

Approximately 44% of “In release” film production assets are estimated to be amortized over the next 12 months and approximately 78% 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 nine months ended September 30, 2013, we released three feature films via theatrical distribution, No One Lives, The Call and Dead Man Down, which comprise $2,499 of our “In release” feature film assets, as of September 30, 2013. We also released two feature films, 12 Rounds 2: Reloaded and The Marine 3: Homefront direct to DVD during the nine months ended September 30, 2013 which comprise $2,849 of our "In release" feature film assets as of September 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



11



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



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.
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 impairment charges of $6,965 and $11,661 related to our feature films during the three and nine months ended September 30, 2013, respectively. We did not record an impairment charge during the three months ended September 30, 2012. During the nine months ended September 30, 2012, we recorded an impairment charge of $754. These impairment charges represent the excess of the recorded net carrying value over the estimated fair value.
We 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 nine months ended September 30, 2013, we did not record any expense related to previously capitalized development costs related to abandoned projects. During the three and nine months ended September 30, 2012, we expensed $448 and $1,045, respectively, of previously capitalized development costs related to abandoned projects.
6. Television Production Assets, Net
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 $10,992 and $6,331 capitalized as of September 30, 2013 and December 31, 2012, respectively, related to this type of programming. Costs to produce our live event programming are expensed when the event is first broadcast. During the three and nine months ended September 30, 2013, we amortized $4,026 related to our television production assets. We did not amortize any expenses during the three and nine months ended September 30, 2012. 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 nine months ended September 30, 2013 and 2012, we did not record any impairments related to our 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. On May 30, 2013, the Company made an investment of $2,200 in a live event touring business. 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 nine months ended September 30, 2013. Included in Investment Securities in our Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012 are $7,859 and $5,220, respectively, related to these investments. Additionally, the investment in Tout includes shares received in conjunction with a strategic partnership.



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:
 
September 30, 2013
 
December 31, 2012
 
 
 
Gross Unrealized
 
 
 
 
 
Gross Unrealized
 
 
 
Amortized
Cost
 

Gain
 

(Loss)
 
Fair
Value
 
Amortized
Cost
 
Gain
 
(Loss)
 
Fair
Value
Municipal bonds
$
56,643

 
$
248

 
$
(173
)
 
$
56,718

 
$
68,517

 
$
566

 
$
(84
)
 
$
68,999

Corporate bonds
21,067

 
86

 
(128
)
 
21,025

 
17,182

 
145

 

 
17,327

     Total
$
77,710

 
$
334

 
$
(301
)
 
$
77,743

 
$
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 September 30, 2013, contractual maturities of these bonds are as follows:
 
Maturities
Municipal bonds
1 month-10 years
Corporate bonds
3 months-5 years
The following table summarizes the short-term investment activity:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2013
 
September 30,
2012
 
September 30,
2013
 
September 30,
2012
Proceeds from sale of short-term investments
$

 
$
13,478

 
$
2,793

 
$
16,486

Proceeds from maturities and calls of short-term investments
7,480

 
4,175

 
27,750

 
20,785

Gross realized gains on sale of short-term investments

 
173

 
1

 
196


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.
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



13



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



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 was as follows:
 
 
Fair Value at September 30, 2013
 
Fair Value at December 31, 2012
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Municipal bonds
 
$
56,718

 
$

 
$
56,718

 
$

 
$
68,999

 
$

 
$
68,999

 
$

Corporate bonds
 
21,025

 

 
21,025

 

 
17,327

 

 
17,327

 

Total
 
$
77,743

 
$

 
$
77,743

 
$

 
$
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. A third party service provider assists the Company with compiling market prices from a variety of industry standard data sources, security master files from large financial institutions and other third-party sources that are used to value our municipal and corporate bond investments.
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 nine months ended September 30, 2013, the Company recorded impairment charges of $11,661 on feature film production assets based on a fair value measurements of $2,363. The Company recorded an impairment charge of $754 during the nine months ended September 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
 
 
September 30,
2013
 
December 31,
2012
Trade related
 
$
6,106

 
$
7,364

Payroll and related benefits
 
11,380

 
16,099

Talent related
 
6,318

 
9,805

Accrued event and television production
 
3,918

 
5,122

Accrued home entertainment expenses
 
1,599

 
1,989

Accrued legal and professional
 
1,727

 
1,243

Accrued purchases of property and equipment and other assets
 
1,611

 
1,415

Accrued film liability
 
2,875

 
572

Accrued other
 
6,062

 
5,345

Total
 
$
41,596

 
$
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. Debt
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 September 30, 2013, the LIBOR-based rate plus margin was 2.00%. As of September 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 September 30, 2013, the Company is in compliance with the provisions of this credit facility.
On August 7, 2013, the Company entered into a $31,568 promissory note (the “Note”) with RBS Asset Finance, Inc., for the purchase of a 2007 Bombardier Global 5000 aircraft and refurbishments. The Note bears interest at a rate of 2.18% per annum, is payable in monthly installments of $406 beginning in September 2013 and has a final maturity of August 7, 2020. The Note is secured by a first priority perfected security interest in the newly purchased aircraft. There was $29,392 of borrowings outstanding related to the Note as of September 30, 2013. Under the terms of the Note, the Company has the ability to borrow up to an additional $1,800 for refurbishments to the corporate aircraft. At September 30, 2013, the Company estimates its available debt capacity under the terms of the revolving credit facility to be approximately $120,000.



15



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



As of September 30, 2013, the scheduled principal repayments under our Note obligation for the current year, the subsequent five years and the remaining term of the note thereafter are as follows:
Remainder of 2013
 
$
1,048

December 31, 2014
 
4,251

December 31, 2015
 
4,345

December 31, 2016
 
4,440

December 31, 2017
 
4,538

December 31, 2018
 
4,638

Thereafter
 
7,960


 
$
31,220

The table above assumes that the Note will not be prepaid prior to its maturity on August 7, 2020.
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 September 30, 2013, we did not have any single customer balance that was greater than 10% of our gross accounts receivable balance.
12. Income Taxes
The effective tax rate was 36% for the nine months ended September 30, 2013 as compared to 24% for the nine months ended September 30, 2012. During the nine months ended September 30, 2012, we recognized $4,250 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 $1,493 of potential interest and penalties related to uncertain tax positions. The recognition of these amounts during the nine months ended September 30, 2012 resulted in an effective tax rate of 24%.
At September 30, 2013, we have $1,784 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 $599 and $716 of accrued interest and penalties related to uncertain tax positions as of September 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 $720 within twelve months of September 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 nine months ended September 30, 2013 and 2012, we received $427 and $864, and $478 and $1,626, respectively,



16



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



of incentives relating to feature film productions which reduced the related assets. During the three and nine months ended September 30, 2013 and 2012, we received $9,805 and $10,201 and $6,373 and $7,959, respectively, of incentives relating to television production activities that were 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.



17


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.




18


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

Summary

 
 
Three Months Ended
 
 
 
 
September 30,
2013
 
September 30,
2012
 
increase (decrease)
Net Revenues
 
 
 
 
 
 
Live and Televised Entertainment
 
$
89.5

 
$
79.0

 
13
 %
Consumer Products
 
13.4

 
15.8

 
(15
)%
Digital Media
 
8.6

 
7.5

 
15
 %
WWE Studios
 
1.8

 
1.9

 
(5
)%
Total
 
113.3

 
104.2

 
9
 %
 
 
 
 
 
 
 
OIBDA
 


 


 
 
Live and Televised Entertainment
 
35.4

 
30.5

 
16
 %
Consumer Products
 
5.4

 
6.8

 
(21
)%
Digital Media
 
3.6

 
3.2

 
13
 %
WWE Studios
 
(7.4
)
 
(2.0
)
 
270
 %
Unallocated Corporate Expenses
 
(27.3
)
 
(28.2
)
 
(3
)%
Total
 
9.7

 
10.3

 
(6
)%
OIBDA as a percentage of revenues
 
9
%
 
10
%
 

 
 


 


 
 
Depreciation and amortization expense
 
6.5

 
5.3

 
23
 %
Operating income
 
3.2

 
5.0

 
(36
)%
Investment and other income, net
 
0.1

 

 
100
 %
Income before income taxes
 
3.3

 
5.0

 
(34
)%
Provision for income taxes
 
0.9

 
1.5

 
(40
)%
Net income
 
$
2.4

 
$
3.5

 
(31
)%
The comparability of our results for the current year quarter was impacted by $7.0 million in impairment charges related to our film portfolio. There were no such impairments in the prior year quarter.
Our Live and Televised Entertainment segment revenues increased 13% primarily due to increased revenues in our television rights and live events businesses of $10.1 million and $2.2 million, respectively. Our Consumer Products segment experienced a 15% decrease in revenues primarily driven by declines in our licensing and home entertainment businesses. Our Digital Media segment experienced a 15% increase in revenues, primarily driven by higher sales of advertising across various digital platforms. Our WWE Studios segment experienced a $0.1 million decrease in revenues.



19


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)
 
September 30,
2013
 
September 30,
2012
 
increase (decrease)
Live events
 
$
25.0

 
$
22.8

 
10
 %
North America
 
$
17.5

 
$
17.0

 
3
 %
International
 
$
7.5

 
$
5.8

 
29
 %
Total live event attendance
 
435,200

 
426,200

 
2
 %
Number of North American events
 
62

 
70

 
(11
)%
Average North American attendance
 
5,500

 
5,200

 
6
 %
Average North American ticket price (dollars)
 
$
46.78

 
$
42.73

 
9
 %
Number of international events
 
14

 
7

 
100
 %
Average international attendance
 
6,700

 
8,400

 
(20
)%
Average international ticket price (dollars)
 
$
72.30

 
$
98.23

 
(26
)%
Venue merchandise
 
$
4.0

 
$
4.5

 
(11
)%
Domestic per capita spending (dollars)
 
$
9.53

 
$
10.68

 
(11
)%
Pay-per-view
 
$
14.6

 
$
16.3

 
(10
)%
Number of pay-per-view events
 
3

 
3

 
 %
Number of buys from pay-per-view events
 
761,000

 
789,000

 
(4
)%
Average revenue per buy (dollars)
 
$
19.35

 
$
20.57

 
(6
)%
Domestic retail price excluding WrestleMania (dollars)
 
$
44.95

 
$
44.95

 
 %
Television rights fees
 
$
44.1

 
$
34.0

 
30
 %
Domestic
 
$
30.5

 
$
21.3

 
43
 %
International
 
$
13.6

 
$
12.7

 
7
 %
Other
 
$
1.8

 
$
1.4

 
29
 %
Total Live and Televised Entertainment
 
$
89.5

 
$
79.0

 
13
 %
Ratings
 

 

 

       Average weekly household ratings for RAW
 
3.3

 
3.4

 
(3
)%
       Average weekly household ratings for SmackDown
 
2.2

 
2.2

 
 %
       Average weekly household ratings for WWE Main Event
 
0.9

 
N/A

 
 



20




Three Months Ended
 

OIBDA-Live and Televised Entertainment
(dollars in millions)

September 30,
2013

September 30,
2012
 
increase (decrease)
Live events

$
5.6

 
$
5.0

 
12
 %
Venue merchandise

1.7

 
1.5

 
13
 %
Pay-per-view

8.3

 
9.7

 
(14
)%
Television rights fees

21.8

 
15.5

 
41
 %
Other

(2.0
)
 
(1.2
)
 
67
 %
Total

$
35.4

 
$
30.5

 
16
 %
OIBDA as a percentage of revenues
 
40
%
 
39
%
 

Live events revenues increased by $2.2 million in the current year quarter as compared to the prior year quarter. Revenues from our North America live events business increased $0.5 million or 3%, reflecting increases in average attendance and average ticket prices. These increases were partially offset by eight fewer events held in the current year quarter. Our international live events business revenue increased $1.7 million primarily due to seven additional events held in the current year quarter. This was partially offset by a 26% decline in international ticket prices and a decline in average attendance of 20% in the current year quarter. The decreases in average ticket price and average attendance were due to changes in territory mix as the incremental events in the quarter were concentrated in South Africa, a region that has shown a high proportion of WWE fans, but that has experienced significant economic challenges. In addition, changes in foreign exchange rates contributed to the reduction in average ticket price. The live events OIBDA as a percentage of revenues was 22% in both the current and prior year quarters.
Venue merchandise revenues decreased by $0.5 million in the current year quarter as compared to the prior year quarter. This decrease is primarily due to a 9% reduction in total domestic attendance, reflecting the change in event mix during the quarter, and an 11% decline in domestic per capita merchandise sales to $9.53 in the current year quarter. The venue merchandise OIBDA as a percentage of revenues increased to 43% from 33% in the prior year quarter primarily due to a lower material costs.
Pay-per-view revenues decreased by $1.7 million in the current year quarter as compared to the prior year quarter primarily due to the performance of our SummerSlam event, as total buys for this event decreased 17%. In addition, the current quarter was negatively impacted by pay-per-view buys related to prior period events. Average revenue per buy declined by 6% to $19.35. The pay-per-view OIBDA as a percentage of revenues decreased to 57% from 60% in the prior year quarter primarily due to the aforementioned reduction in revenues.
Television rights fees revenues increased by $10.1 million in the current year quarter as compared to the prior year quarter. Domestically, television rights fees increased by $9.2 million, primarily due to the production and licensing of new programs. During the current year quarter, we began to produce and license a new television series, Total Divas, which is carried on the E! Network. In addition, during October 2012, we licensed a new original series, the WWE Main Event which is carried on the ION Television Network. Growth also reflected, to a lesser degree, contractual increases for our existing programs both domestically and internationally. The television rights fees OIBDA as a percentage of revenues increased to 49% from 46% in the prior year quarter.



21


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
 
September 30,
2013
 
September 30,
2012
 
increase (decrease)
Licensing
 
$
5.7

 
$
7.1

 
(20
)%
Home entertainment
 
$
5.2

 
$
6.4

 
(19
)%
Gross units shipped
 
718,200

 
933,100

 
(23
)%
Magazine publishing
 
$
1.5

 
$
1.6

 
(6
)%
Net units sold
 
444,700

 
533,300

 
(17
)%
Other
 
$
1.0

 
$
0.7

 
43
 %
Total
 
$
13.4

 
$
15.8

 
(15
)%
 
 
Three Months Ended
 
 
OIBDA-Consumer Products
 
September 30,
2013
 
September 30,
2012
 
increase (decrease)
Licensing
 
$
3.3

 
$
4.0

 
(18
)%
Home entertainment
 
1.9

 
2.5

 
(24
)%
Magazine publishing
 
0.1

 
0.2

 
(50
)%
Other
 
0.1

 
0.1

 
 %
Total
 
$
5.4

 
$
6.8

 
(21
)%
OIBDA as a percentage of revenues
 
40
%
 
43
%
 
 
Licensing revenues decreased by $1.4 million in the current year quarter as compared to the prior year quarter. This decrease was primarily due to a 24% reduction in video game shipments that resulted in a $1.3 million decline in video game royalties. Shipments of the Company’s annual franchise video game, WWE '13, which was the last release developed by THQ, declined to 178,000 units as compared to 233,000 units for the corresponding game in the prior year quarter. The licensing OIBDA as a percentage of revenues was 58% in the current year quarter compared to 56% in the prior year quarter due to product mix.
Home entertainment revenues decreased by $1.2 million or 19% in the current year quarter as compared to the prior year quarter. Domestic home entertainment revenue fell approximately $0.8 million, or 15%, reflecting a 23% decline in shipments to 718,200 units with five fewer releases in the quarter. The decline in shipments was partially offset by a 4% increase in the average price per unit to $11.41. Revenue from international licensing activities declined by approximately $0.4 million reflecting lower sales in Canada and the transition to a new licensee in the EMEA region. Home entertainment OIBDA as a percentage of revenues was 37% from 39% in the prior year quarter.
Magazine publishing revenues decreased slightly by $0.1 million to $1.5 million in the current quarter as compared to the prior year quarter. Net units sold decreased by 17% primarily due to one fewer issue being published in the current year quarter. We published three issues of WWE Magazine, two issues of WWE Kids magazine and one special issue in the current year quarter compared to three, three and one, respectively, in the prior year quarter. Publishing OIBDA as a percentage of revenues decreased to 7% from 13% in the prior year quarter.




22


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
 
September 30,
2013
 
September 30,
2012
 
increase (decrease)
WWE.com
 
$
5.7

 
$
4.8

 
19
%
WWEShop
 
2.9

 
2.7

 
7
%
Total
 
$
8.6

 
$
7.5

 
15
%
Average WWEShop revenues per order (dollars)
 
$
48.87

 
$
47.77

 
2
%
 
 
Three Months Ended
 
 
OIBDA-Digital Media
 
September 30,
2013
 
September 30,
2012
 
increase (decrease)
WWE.com
 
$
3.1

 
$
3.0

 
3
%
WWEShop
 
0.5

 
0.2

 
150
%
Total
 
$
3.6

 
$
3.2

 
13
%
OIBDA as a percentage of revenues
 
42
%
 
43
%
 

     
WWE.com revenues increased by $0.9 million in the current year quarter as compared to the prior year quarter, due to higher sales of advertising and digital content, including the Company’s pay-per-view events, across various digital platforms. WWE.com OIBDA as a percentage of revenues decreased to 54% in the current year quarter from 63% in the prior year quarter due to a $1.1 million increase in staff related expenses due to the hiring of additional personnel.
WWEShop revenues increased by $0.2 million in the current year quarter as compared to the prior year quarter. The number of on-line merchandise sales increased by 11% to 59,800 and the average revenue per order increased by 2% to $48.87. WWEShop OIBDA as a percentage of revenues increased to 17% in the current year quarter from 7% in the prior year quarter due to lower shipping related expenses.



23


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 September 30,





 
Sept 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
 
$
1.5

 
$
1.4

 
$

 
$

 
$

 
$ N/A

 
$

 
$ N/A

No One Lives
 
May 2013
 
2.2

 
0.5

 
0.8

 
(0.9
)
 
0.1

 
  N/A

 
(0.9
)
 
  N/A

The Call
 
Mar 2013
 
1.0

 
1.0

 
0.1

 
0.1

 

 
  N/A

 

 
  N/A

Dead Man Down
 
Mar 2013
 
5.8

 
1.0

 

 
(4.7
)
 

 
  N/A

 

 
  N/A

The Marine 3: Homefront
 
Mar 2013
 
1.5

 
1.4

 

 

 

 
  N/A

 

 
  N/A

 
 
 
 
12.0

 
5.3

 
0.9

 
(5.5
)
 
0.1

 

 
(0.9
)
 

2012


 

 

 

 

 

 

 

The Day
 
Nov 2012
 

 

 
0.2

 
0.1

 
0.2

 
N/A

 

 
N/A

Barricade
 
Sept 2012
 
4.1

 
0.1

 
1.2

 
(4.0
)
 
0.1

 
0.9

 
(0.3
)
 
(0.5
)
No Holds Barred
 
July 2012
 

 

 
0.6

 
0.3

 
0.1

 
0.5

 
0.1

 
0.2

Bending The Rules

Mar 2012

5.5

 
0.1

 
1.0

 
(5.4
)
 

 
(0.4
)
 
(0.7
)
 
(0.4
)
 
 
 
 
9.6

 
0.2


3.0


(9.0
)

0.4


1.0


(0.9
)

(0.7
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prior Releases



106.7

 
4.1

 
98.2

 
(22.9
)
 
1.3

 
0.9

 
(4.7
)
 
(0.3
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Completed but not released

4.4

 
4.4

 

 

 

 

 

 

In production



2.4

 
2.4

 

 

 

 

 

 

In development



0.8

 
0.8

 

 
(4.1
)
 


 

 

 
(0.5
)
Sub-total



$
135.9

 
$
17.2

 
$
102.1

 
$
(41.5
)
 
$
1.8

 
$
1.9

 
$
(6.5
)
 
$
(1.5
)
Selling, General & Administrative Expenses
 
 
 


 
 
 
 
 
 
 
 
 
(0.9
)
 
(0.5
)
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(7.4
)
 
$
(2.0
)
*     Production costs are presented net of the associated benefit of production incentives.
WWE Studios revenues decreased $0.1 million in the current year quarter as compared to the prior year quarter. The decrease in revenue is attributable to the timing of recognizing revenue from our movie portfolio. During the current year quarter, we did not release any feature films as compared to the prior year quarter in which we released two feature films, Barricade and No Holds Barred. OIBDA decreased $5.4 million in the current year quarter as compared to the prior year quarter, primarily as a result of recording impairment charges totaling $7.0 million in the current year quarter associated with the recent performance of movies released over the 2010 through 2012 period. This decrease was partially offset by lower amortization expense in the current quarter as compared to the prior year quarter.
At September 30, 2013, the Company had $17.2 million (net of accumulated amortization and impairment charges) of feature film production assets capitalized on its Consolidated Balance Sheet of which $9.6 million relates to films completed and in release and $7.6 million relates to various films not yet released. We review and revise estimates of ultimate revenue and 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 would indicate we



24


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
 
 
 
 
September 30,
2013
 
September 30,
2012
 
increase (decrease)
Staff related
 
$
12.4

 
$
11.9

 
4
 %
Management incentive compensation
 
0.5

 
2.6

 
(81
)%
Legal, accounting and other professional
 
4.9

 
3.6

 
36
 %
Travel and entertainment expense
 
1.3

 
1.0

 
30
 %
Advertising, marketing and promotion
 
1.3

 
1.2

 
8
 %
Corporate insurance
 
1.2

 
0.9

 
33
 %
Bad debt (recovery) expense
 
(0.2
)
 
0.3

 </