10-Q 1 wwe-20190331x10q.htm 10-Q Q1 2019 Form 10Q

 



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________

FORM 10-Q

____________________





 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

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 incorporation or organization)

(I.R.S. Employer Identification No.)



1241 East Main Street

Stamford, CT 06902

(203) 352-8600

(Address, including zip code, and telephone number, including area code,

of Registrant’s principal executive offices)



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    No 



Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).   Yes    No 



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):





 

 

 

 

Large accelerated filer  

Accelerated filer  

Non-accelerated filer  

Smaller reporting company  

Emerging growth company  



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.



Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes    No 



At April 23, 2019, the number of shares outstanding of the Registrant’s Class A common stock, par value $.01 per share, was 46,946,375 and the number of shares outstanding of the Registrant’s Class B common stock, par value $.01 per share, was 31,099,011.

 





 

 


 

TABLE OF CONTENTS





 



Page #

Part I – FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements (unaudited)

Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and 2018

Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018

Consolidated Statement of Stockholders’ Equity as of March 31,  2019 and 2018

Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018

Notes to Consolidated Financial Statements

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

30 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

38 

Item 4. Controls and Procedures

39 

Part II – OTHER INFORMATION

 

Item 1. Legal Proceedings

39 

Item 1A. Risk Factors

41 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

41 

Item 6. Exhibits

41 

Signatures

42 



 





 

 


 

WORLD WRESTLING ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

2019

 

2018

Net revenues

 

$

182,448 

 

$

187,721 

Operating expenses

 

 

135,450 

 

 

120,061 

Marketing and selling expenses

 

 

23,144 

 

 

19,896 

General and administrative expenses

 

 

24,293 

 

 

19,675 

Depreciation and amortization

 

 

6,420 

 

 

6,339 

Operating (loss) income

 

 

(6,859)

 

 

21,750 

Interest expense

 

 

6,339 

 

 

3,513 

Other income, net

 

 

1,849 

 

 

1,815 

(Loss) income before income taxes

 

 

(11,349)

 

 

20,052 

(Benefit from) provision for income taxes

 

 

(2,953)

 

 

5,217 

Net (loss) income

 

$

(8,396)

 

$

14,835 

(Loss) earnings per share: basic

 

$

(0.11)

 

$

0.19 

(Loss) earnings per share: diluted

 

$

(0.11)

 

$

0.18 

Weighted average common shares outstanding:

 

 

 

 

 

 

Basic

 

 

78,040 

 

 

77,142 

Diluted

 

 

78,040 

 

 

82,453 

Dividends declared per common share (Class A and B)

 

$

0.12 

 

$

0.12 



 

See accompanying notes to consolidated financial statements.

2


 

WORLD WRESTLING ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)







 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

2019

 

2018

Net (loss) income

 

$

(8,396)

 

$

14,835 

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

33 

 

 

(205)

Unrealized holding gains (losses) on available-for-sale debt securities (net of tax expense (benefit) of $230 and $(188), respectively)

 

 

727 

 

 

(595)

Total other comprehensive income (loss)

 

 

760 

 

 

(800)

Comprehensive (loss) income

 

$

(7,636)

 

$

14,035 



 

See accompanying notes to consolidated financial statements.

3


 

WORLD WRESTLING ENTERTAINMENT, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)







 

 

 

 

 

 



 

 

 

 

 

 



 

As of



 

March 31,

 

December 31,



 

2019

 

2018

ASSETS

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

Cash and cash equivalents

 

$

152,764 

 

$

167,457 

Short-term investments, net

 

 

185,444 

 

 

191,686 

Accounts receivable (net of allowance for doubtful accounts and returns

   of $1,101 and $1,009, respectively)

 

 

54,983 

 

 

78,925 

Inventory, net

 

 

8,771 

 

 

7,753 

Prepaid expenses and other current assets

 

 

37,641 

 

 

28,187 

Total current assets

 

 

439,603 

 

 

474,008 

PROPERTY AND EQUIPMENT, NET

 

 

155,509 

 

 

148,089 

FINANCE LEASE RIGHT-OF-USE ASSETS, NET

 

 

14,624 

 

 

 —

OPERATING LEASE RIGHT-OF-USE ASSETS, NET

 

 

20,426 

 

 

 —

FEATURE FILM PRODUCTION ASSETS, NET

 

 

12,948 

 

 

13,558 

TELEVISION PRODUCTION ASSETS, NET

 

 

3,967 

 

 

7,473 

INVESTMENT SECURITIES

 

 

30,193 

 

 

30,196 

DEFERRED INCOME TAX ASSETS, NET

 

 

17,918 

 

 

17,138 

OTHER ASSETS, NET

 

 

8,032 

 

 

9,837 

TOTAL ASSETS

 

$

703,220 

 

$

700,299 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

Current portion of long-term debt

 

$

5,148 

 

$

5,118 

Finance lease liabilities

 

 

8,406 

 

 

 —

Operating lease liabilities

 

 

7,218 

 

 

 —

Convertible debt

 

 

184,448 

 

 

183,090 

Accounts payable and accrued expenses

 

 

78,501 

 

 

120,158 

Deferred income

 

 

60,867 

 

 

49,173 

Total current liabilities

 

 

344,588 

 

 

357,539 

LONG-TERM DEBT

 

 

24,398 

 

 

25,696 

FINANCE LEASE LIABILITIES

 

 

7,364 

 

 

 —

OPERATING LEASE LIABILITIES

 

 

13,113 

 

 

 —

OTHER NON-CURRENT LIABILITIES

 

 

588 

 

 

827 

Total liabilities

 

 

390,051 

 

 

384,062 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

Class A common stock: ($.01 par value; 180,000,000 shares authorized;
   43,739,412 and 43,721,411 shares issued and outstanding as of
   March 31, 2019 and December 31, 2018, respectively)

 

 

437 

 

 

437 

Class B convertible common stock: ($.01 par value; 60,000,000 shares authorized;
   34,303,438 and 34,303,438 shares issued and outstanding as of
   March 31, 2019 and December 31, 2018, respectively)

 

 

343 

 

 

343 

Additional paid-in capital

 

 

429,217 

 

 

415,281 

Accumulated other comprehensive income

 

 

2,262 

 

 

1,502 

Accumulated deficit

 

 

(119,090)

 

 

(101,326)

Total stockholders’ equity

 

 

313,169 

 

 

316,237 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

703,220 

 

$

700,299 





 

See accompanying notes to consolidated financial statements.

4


 





WORLD WRESTLING ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended March 31, 2019



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 



 

Common Stock

 

Additional

 

Other

 

 

 

 

 

 



 

Class A

 

Class B

 

Paid - in

 

Comprehensive

 

Accumulated

 

 

 



 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Income

 

Deficit

 

Total

Balance, December 31, 2018

 

43,721 

 

$

437 

 

34,303 

 

$

343 

 

$

415,281 

 

$

1,502 

 

$

(101,326)

 

$

316,237 

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(8,396)

 

 

(8,396)

Other comprehensive income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

760 

 

 

 —

 

 

760 

Stock issuances, net

 

18 

 

 

 —

 

 —

 

 

 —

 

 

1,157 

 

 

 —

 

 

 —

 

 

1,157 

Taxes paid related to net settlement upon vesting of equity awards

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(51)

 

 

 —

 

 

 —

 

 

(51)

Cash dividends declared

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 

 

 —

 

 

(9,368)

 

 

(9,366)

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

12,828 

 

 

 —

 

 

 —

 

 

12,828 

Balance, March 31, 2019

 

43,739 

 

$

437 

 

34,303 

 

$

343 

 

$

429,217 

 

$

2,262 

 

$

(119,090)

 

$

313,169 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended March 31, 2018



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 



 

Common Stock

 

Additional

 

Other

 

 

 

 

 

 



 

Class A

 

Class B

 

Paid - in

 

Comprehensive

 

Accumulated

 

 

 



 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Income

 

Deficit

 

Total

Balance, December 31, 2017

 

42,498 

 

$

425 

 

34,609 

 

$

346 

 

$

422,208 

 

$

2,371 

 

$

(172,391)

 

$

252,959 

Cumulative effect of adopting ASC 606

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

10,086 

 

 

10,086 

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

14,835 

 

 

14,835 

Other comprehensive income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(800)

 

 

 —

 

 

(800)

Stock issuances, net

 

42 

 

 

 

 —

 

 

 —

 

 

749 

 

 

 —

 

 

 —

 

 

750 

Taxes paid related to net settlement upon vesting of equity awards

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(24)

 

 

 —

 

 

 —

 

 

(24)

Cash dividends declared

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 

 

 —

 

 

(9,260)

 

 

(9,258)

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

7,073 

 

 

 —

 

 

 —

 

 

7,073 

Balance, March 31, 2018

 

42,540 

 

$

426 

 

34,609 

 

$

346 

 

$

430,008 

 

$

1,571 

 

$

(156,730)

 

$

275,621 



 

See accompanying notes to consolidated financial statements.

5


 

WORLD WRESTLING ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

2019

 

2018

OPERATING ACTIVITIES:

 

 

 

 

 

 

Net (loss) income

 

$

(8,396)

 

$

14,835 

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

 

 

 

 

 

Amortization and impairments of feature film production assets

 

 

631 

 

 

2,211 

Amortization of television production assets

 

 

8,321 

 

 

3,149 

Depreciation and amortization

 

 

8,003 

 

 

7,916 

Services provided in exchange for equity instruments

 

 

(760)

 

 

(767)

Other amortization

 

 

3,496 

 

 

1,568 

Stock-based compensation

 

 

12,828 

 

 

7,073 

(Benefit from) provision for deferred income taxes

 

 

(780)

 

 

2,043 

Other non-cash adjustments

 

 

1,229 

 

 

(41)

Cash (used in)/provided by changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

23,989 

 

 

(2,472)

Inventory

 

 

(1,018)

 

 

(1,651)

Prepaid expenses and other assets

 

 

(9,425)

 

 

(12,000)

Feature film production assets

 

 

(21)

 

 

(370)

Television production assets

 

 

(4,815)

 

 

(4,472)

Accounts payable, accrued expenses and other liabilities

 

 

(38,757)

 

 

(25,089)

Deferred income

 

 

12,224 

 

 

10,689 

Net cash provided by operating activities

 

 

6,749 

 

 

2,622 

INVESTING ACTIVITIES:

 

 

 

 

 

 

Purchases of property and equipment and other assets

 

 

(16,831)

 

 

(4,452)

Purchases of short-term investments

 

 

(13,398)

 

 

(39,103)

Proceeds from sales and maturities of short-term investments

 

 

20,478 

 

 

18,498 

Purchase of investment securities

 

 

(120)

 

 

 —

Net cash used in investing activities

 

 

(9,871)

 

 

(25,057)

FINANCING ACTIVITIES:

 

 

 

 

 

 

Repayment of long-term debt

 

 

(1,268)

 

 

(1,150)

Repayment of finance leases

 

 

(2,043)

 

 

 —

Dividends paid

 

 

(9,366)

 

 

(9,258)

Taxes paid related to net settlement upon vesting of equity awards

 

 

(51)

 

 

(24)

Proceeds from issuance of stock

 

 

1,157 

 

 

750 

Net cash used in financing activities

 

 

(11,571)

 

 

(9,682)

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

 

(14,693)

 

 

(32,117)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

 

167,457 

 

 

137,700 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

152,764 

 

$

105,583 

NON-CASH INVESTING AND FINANCING TRANSACTIONS:

 

 

 

 

 

 

Purchases of property and equipment recorded in accounts payable
and accrued expenses (See Note 13)

 

$

10,325 

 

$

2,078 



 



 

 

See accompanying notes to consolidated financial statements.

6


 

Table of Contents

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.

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.

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. All intercompany balances are eliminated in consolidation.

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, 2018.

We are an integrated media and entertainment company, principally engaged in the production and distribution of wrestling entertainment content through various channels, including our premium over-the-top subscription network (“WWE Network”),  content rights agreements, pay-per-view event programming, filmed entertainment, live events,  licensing of various WWE themed products, and the sale of consumer products featuring our brands.  Our operations are organized around the following principal activities:

Media:

·

The Media segment reflects the production and monetization of long-form and short-form video content across various platforms, including WWE Network, pay television, digital and social media, as well as filmed entertainment. Across these platforms, revenues principally consist of content rights fees, subscriptions to WWE Network, and advertising and sponsorships.

Live Events:

·

Live events provide ongoing content for our media platforms. Live Event segment revenues consist primarily of ticket sales, including primary and secondary distribution, revenues from events for which we receive a fixed fee, as well as the sale of travel packages associated with the Company’s global live events.

Consumer Products:

·

The Consumer Products segment engages in the merchandising of WWE branded products, such as video games, toys and apparel, through licensing arrangements and direct-to-consumer sales. Revenues principally consist of royalties and licensee fees related to WWE branded products, and sales of merchandise distributed at our live events and through eCommerce platforms.



 

7


 

Table of Contents

WORLD WRESTLING ENTERTAINMENT, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share data)

(Unaudited)

 

2. Significant Accounting Policies

Our significant accounting policies are detailed in Note 2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements within our Annual Report on Form 10-K for the year ended December 31, 2018.  Refer to Note 8,  Leases, for revisions made to our lease accounting policies resulting from our adoption of the new lease accounting standard starting in 2019.  

Operating Expenses

Operating expenses consist of our production costs associated with developing our content, costs associated with operating our WWE Network, venue rental and related costs associated with the staging of our live events, compensation costs for our talent, and material and related costs associated with our consumer product merchandise sales. In addition, operating expenses include certain business operating support function costs, including our talent development, data analytics, data engineering, business strategy and real estate and facilities functions, as these activities directly support the operations of our segments.

Included within Operating expenses are the following:







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

2019

 

2018

Amortization and impairment of feature film assets

 

$

631 

 

$

2,211 

Amortization of television production assets

 

 

8,321 

 

 

3,149 

Amortization of WWE Network content delivery and technology assets

 

 

1,582 

 

 

1,574 

Amortization of right-of-use assets - finance leases of equipment

 

 

1,996 

 

 

 —

Total amortization and impairment included in operating expenses

 

$

12,530 

 

$

6,934 

Costs to produce our live event programming are expensed when the event is first broadcast, and are not included in the amortization table noted above.

Recent Accounting Pronouncements

In March 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-02, “Improvements to Accounting for Costs of Films and License Agreements for Program Materials.” The amendments in this ASU align the accounting for production costs of an episodic television series with the accounting for production costs of films. In addition, the ASU modifies certain aspects of the capitalization, impairment, presentation and disclosure requirements under the current film and broadcaster entertainment industry guidance. The new guidance is effective for interim and annual reporting periods starting in fiscal year 2020, with early adoption permitted. The new guidance will be applied on a prospective basis. The Company is currently in the process of evaluating the impact, if any, of this new guidance on its consolidated financial statements.

In November 2018, the FASB  issued ASU No. 2018-18, “Collaborative Arrangements (Topic 808) – Clarifying the Interaction between Topic 808 and Topic 606.” The amendments in this ASU clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606, Revenue from Contracts with Customers, when the collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue consideration received from a collaborative arrangement participant if the participant is not a customer. The new guidance is effective for interim and annual reporting periods starting in fiscal year 2020 for the Company, with early adoption permitted. The new guidance should be applied retrospectively to the date of initial application of the new revenue guidance in Topic 606 (January 1, 2018 for the Company). The Company does not expect the adoption of the amendments to have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The new guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The new guidance is effective for interim and annual reporting periods starting in fiscal year 2020 for the Company, with early adoption permitted. The new guidance should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company expects to adopt the new guidance prospectively and does not expect the adoption to have a material impact on its consolidated financial statements.

 

8


 

Table of Contents

WORLD WRESTLING ENTERTAINMENT, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share data)

(Unaudited)

 

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”, which modifies the disclosure requirements on fair value measurements. The new guidance is effective for interim and annual reporting periods starting in fiscal year 2020 for the Company. Upon the effective date, certain provisions are to be applied prospectively, while others are to be applied retrospectively to all periods presented. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective date. We are currently evaluating the impact of the amendments on our consolidated financial statement disclosures. Since the amendments impact only disclosure requirements, we do not expect the amendments to have an impact on our consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which supersedes existing guidance for lease accounting. This new standard requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The new standard requires a dual approach for lessee accounting under which a lessee accounts for leases as finance leases or operating leases with the recognition of a right-of-use asset and a corresponding lease liability. For finance leases, the lessee recognizes interest expense and amortization of the right-of-use asset, and for operating leases, the lessee recognizes straight-line lease expense. The new lease accounting standard along with the clarifying amendments subsequently issued by the FASB, collectively became effective for the Company on January 1, 2019. The Company adopted the new lease accounting standard by applying the new lease guidance at the adoption date on January 1, 2019, and as allowed under the standard, elected not to restate comparative periods. There was no cumulative-effect adjustment recorded in connection with our adoption. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard. We did not elect the hindsight practical expedient to determine the lease term for existing leases. As of January 1, 2019, in connection with the adoption of the new lease accounting standard, the Company recorded a right-of-use lease asset totaling $39,266 with a corresponding lease liability totaling $40,458. Refer to Note 8, Leases, for further details on our adoption of the new standard.    



3. Segment Information

The Company currently classifies its operations into three reportable segments: Media, Live Events and Consumer Products. Segment information is prepared on the same basis that our chief operating decision maker manages the segments, evaluates financial results, and makes key operating decisions.

Certain business support functions including sales and marketing, our international offices and talent development are allocated to the three reportable segments based primarily on a percentage of revenue contribution. The remaining unallocated corporate expenses largely relate to corporate functions such as finance, legal, human resources, facilities and information technology. The Company does not allocate these costs to its business segments, as they do not directly relate to revenue generating activities. These unallocated corporate expenses will be shown, as applicable, as a reconciling item in tables where segment and consolidated results are both shown. Revenues from transactions between our operating segments are not material.

The Company presents Adjusted OIBDA as the primary measure of segment profit (loss). The Company defines Adjusted OIBDA as operating income before depreciation and amortization, excluding stock-based compensation, certain impairment charges and other non-recurring material items. Adjusted OIBDA includes amortization expenses directly related to our revenue generating activities, including feature film and television production asset amortization, amortization of costs related to content delivery and technology assets utilized for our WWE Network, as well as amortization of right-of-use assets related to finance leases of live event production equipment. The Company believes the presentation of Adjusted 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 segment performance and make decisions about allocating resources.  Additionally, we believe that Adjusted OIBDA is a primary measure used by media investors, analysts and peers for comparative purposes.

We do not disclose assets by segment information. We do not provide assets by segment information to our chief operating decision maker, as that information is not typically used in the determination of resource allocation and assessing business performance of each reportable segment.

 

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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



 

March 31,



 

2019

 

2018

Net revenues:

 

 

 

 

 

 

Media

 

$

135,447 

 

$

133,373 

Live Events

 

 

26,239 

 

 

30,770 

Consumer Products

 

 

20,762 

 

 

23,578 

Total net revenues

 

$

182,448 

 

$

187,721 



 

 

 

 

 

 

Adjusted OIBDA:

 

 

 

 

 

 

Media

 

$

28,500 

 

$

43,569 

Live Events

 

 

794 

 

 

3,605 

Consumer Products

 

 

6,020 

 

 

6,869 

Corporate

 

 

(22,925)

 

 

(18,881)

Total Adjusted OIBDA

 

$

12,389 

 

$

35,162 



Reconciliation of Total Operating (Loss) Income to Total Adjusted OIBDA







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

2019

 

2018

Total operating (loss) income

 

$

(6,859)

 

$

21,750 

Depreciation and amortization

 

 

6,420 

 

 

6,339 

Stock-based compensation

 

 

12,828 

 

 

7,073 

Other adjustments

 

 

 —

 

 

 —

Total Adjusted OIBDA

 

$

12,389 

 

$

35,162 









4. Revenues



Revenues are generally recognized when control of the promised goods or services is transferred to our customers either at a point in time or over time, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Most of our contracts have one performance obligation and all consideration is allocated to that performance obligation. Our revenues do not include material amounts of variable consideration. The variable consideration contained in our contracts relate primarily to sales or usage-based royalties earned on consumer product licensing contracts. The variability related to these sales or usage-based royalties will be resolved in the periods when the licensee generates sales related to the intellectual property license. As it relates to our Consumer Products segment, the Company accounts for shipping and handling activities as fulfillment activities.

We derive our revenues principally from the following sources: (i) content rights fees associated with the distribution of WWE’s media content, (ii) subscriptions to WWE Network, (iii) fees for viewing our pay-per-view programming, (iv) feature film distribution, (v) advertising and sponsorship sales, (vi) live event ticket sales, (vii) consumer product licensing royalties from the sale by third-party licensees of WWE branded merchandise, (viii) direct-to-consumer sales of merchandise at our live event venues, and (ix) direct-to-consumer sales of our merchandise through eCommerce platforms.

Payment Terms

Our payment terms vary by the type of products or services offered, and may be subject to contractual payment terms, which may include advance payment requirements. The time between invoicing and when payment is due is not significant, generally within 30 to 60 days. We have elected the practical expedient to not adjust the total consideration within a contract to reflect a financing component when the duration of the financing is one year or less. Our contracts do not generally include a significant financing component. Our contracts with customers do not generally result in significant obligations associated with returns, refunds or warranties.

 

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WORLD WRESTLING ENTERTAINMENT, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share data)

(Unaudited)

 

Disaggregated Revenues

The following table presents our revenues disaggregated by primary revenue sources. Sales and usage-based taxes are excluded from revenues.





 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

2019

 

2018

Net revenues:

 

 

 

 

 

 

Media Segment:

 

 

 

 

 

 

Network (including pay-per-view)

 

$

47,013 

 

$

46,752 

Core content rights fees (1)

 

 

68,096 

 

 

65,505 

Advertising and sponsorships

 

 

10,873 

 

 

12,232 

Other (2)

 

 

9,465 

 

 

8,884 

Total Media Segment net revenues

 

 

135,447 

 

 

133,373 

Live Events Segment:

 

 

 

 

 

 

North American ticket sales

 

 

24,160 

 

 

29,802 

International ticket sales

 

 

193 

 

 

 —

Advertising and sponsorships

 

 

405 

 

 

152 

Other (3)

 

 

1,481 

 

 

816 

Total Live Events Segment net revenues

 

 

26,239 

 

 

30,770 

Consumer Products Segment:

 

 

 

 

 

 

Consumer product licensing

 

 

9,428 

 

 

9,267 

eCommerce

 

 

6,577 

 

 

8,460 

Venue merchandise

 

 

4,757 

 

 

5,851 

Total Consumer Products Segment net revenues

 

 

20,762 

 

 

23,578 

Total net revenues

 

$

182,448 

 

$

187,721 



 

 

 

 

 

 

(1)

Core content rights fees consist primarily of licensing revenues earned from the distribution of our flagship programs, Raw and SmackDown Live, through global broadcast, pay television and digital platforms.

(2)

Other revenues within our Media segment reflect revenues earned from the distribution of other WWE content, including, but not limited to, certain live in-ring programming in international markets, scripted,  reality and other programming, as well as theatrical and direct-to-home video releases.

(3)

Other revenues within our Live Events segment primarily consists of the sale of travel packages associated with the Company’s global live events and commissions earned through secondary ticketing, as well as revenues from events for which the Company receives a fixed fee.



Except for our WWE Network subscriptions revenues, which are recorded over time during the subscription term and our consumer product licensing revenues which are recorded over time during the licensing period, our other revenue streams identified in the table above are generally recognized at a point-in-time when the performance obligations are satisfied.

Remaining Performance Obligations

As of March 31, 2019,  for contracts greater than one year, the aggregate amount of the transaction price allocated to remaining performance obligations is $3,284,215, comprised of our multi-year content distribution, consumer product licensing and sponsorship contracts. We will recognize rights fees related to our multi-year content distribution contracts as content is delivered to the distributors during the periods 2019 through 2028. We will recognize the revenues associated with the minimum guarantees on our multi-year consumer product licensing arrangements by the end of the licensing periods, which range from 2019 through 2024. For our multi-year sponsorship arrangements, we will recognize sponsorship revenues as the sponsorship obligations are satisfied during the periods 2019 through 2028. The transaction price related to these future obligations do not include any variable consideration, which generally consists of sales or usage-based royalties earned on consumer product licensing and certain other content rights contracts. The variability related to these sales or usage-based royalties will be resolved in the periods when the licensee generates sales related to the intellectual property license.

 

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WORLD WRESTLING ENTERTAINMENT, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share data)

(Unaudited)

 

Contract Assets and Contract Liabilities (Deferred Revenues)

A contract asset results when goods or services have been transferred to the customer, but payment is contingent upon a future event, other than the passage of time (i.e. type of unbilled receivable). The Company does not have any material unbilled receivables, therefore, does not have any contract assets, only accounts receivable as disclosed on the face of our consolidated balance sheet.

We record deferred revenues (also referred to as contract liabilities under ASC Topic 606) when cash payments are received or due in advance of our performance. Our deferred revenue balance primarily relates to advance payments received related to our content distribution rights agreements, our consumer product licensing agreements, and our sponsorship and advertising arrangements. The Company’s deferred revenue (i.e. contract liabilities) as of March 31, 2019 and December 31, 2018 was $60,951 and $49,487, respectively, and are included within Deferred income and Other non-current liabilities on our Consolidated Balance Sheets.



The net increase in the deferred revenue balance for the three months ended March 31, 2019 of $11,464 is primarily driven by licensing advances received, partially offset by revenue recognized during the period as a result of satisfying our performance obligations.

Contract Costs (Costs of Obtaining a Contract)

Except for certain multi-year television content arrangements, we generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within Marking and selling expenses within our Consolidated Statements of Operations. Capitalized commission fees of $1,541 and $1,886 at March 31, 2019 and December 31, 2018, respectively, relate primarily to incremental costs of obtaining our long-term television content arrangements and these costs are being amortized over the duration of the underlying content agreements on a straight-line basis to marketing and selling expense. During the three months ended March 31, 2019 and 2018, the amount of amortization was $345 and $320, respectively, and there was no impairment in relation to the costs capitalized.



 

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WORLD WRESTLING ENTERTAINMENT, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share data)

(Unaudited)

 



5.  (Loss) Earnings Per Share

For purposes of calculating basic and diluted (loss) earnings per share, we used the following weighted average common shares outstanding (in thousands):







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

2019

 

2018

Net (loss) income

 

$

(8,396)

 

$

14,835 



 

 

 

 

 

 

Weighted average basic common shares outstanding

 

 

78,040 

 

 

77,142 

Dilutive effect of restricted and performance stock units (1)

 

 

 —

 

 

1,969 

Dilutive effect of convertible debt instruments (1)

 

 

 —

 

 

3,338 

Dilutive effect of employee share purchase plan (1)

 

 

 —

 

 

Weighted average dilutive common shares outstanding

 

 

78,040 

 

 

82,453 



 

 

 

 

 

 

(Loss) earnings per share:

 

 

 

 

 

 

Basic

 

$

(0.11)

 

$

0.19 

Diluted

 

$

(0.11)

 

$

0.18 



 

 

 

 

 

 

Anti-dilutive shares (excluded from per-share calculations):

 

 

 

 

 

 

Shares issued under Convertible Notes and Warrants

 

 

11,429 

 

 

N/A

Shares received on purchased call of convertible debt hedge

 

 

(6,072)

 

 

(2,524)

Outstanding restricted and performance stock units

 

 

1,798 

 

 

699 

(1)

Due to a net loss during the three months ended March 31, 2019, zero incremental shares are included because the effect would be antidilutive.

Effect of Convertible Notes and Related Convertible Note Hedge and Warrants

In connection with the issuance of the Convertible Notes, the Company entered into Convertible Note Hedge and Warrant transactions as described further in Note 14, Convertible Debt. The collective impact of the Convertible Note Hedge and Warrants effectively eliminates any economic dilution that may occur from the actual conversion of the Convertible Notes between the conversion price of $24.91 per share and the strike price of the Warrants of $31.89 per share.

The denominator of our diluted earnings per share calculation includes the effect of additional shares issued using the treasury stock method since the average price of our common stock exceeded the conversion price of the Convertible Notes of $24.91 per share. In addition, the denominator of our diluted earnings per share calculation includes the additional shares issued related to the Warrants using the treasury stock method since the average price of our common stock exceeded the strike price of the Warrants of $31.89 per share.  Due to a net loss during the three months ended March 31, 2019, there was no impact on diluted earnings per share as the effect would have been antidilutive. The dilution from the Convertible Notes had a  $0.01 impact on diluted earnings per share for the three months ended March 31,  2018. Prior to actual conversion, the Convertible Note Hedges are not considered for purposes of the calculation of diluted earnings per share, as their effect would be anti-dilutive.





6. Stock-based Compensation



Our 2016  Omnibus Incentive Plan (the “2016 Plan”) provides for the grant of incentive or non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards and performance awards to eligible participants as determined by the Compensation Committee of the Board of Directors. Awards may be granted as incentives and rewards to encourage officers, employees, consultants, advisors and independent contractors of the Company and its affiliates and to non-employee directors of the Company to participate in our long-term success.

Stock-based compensation costs, which includes costs related to RSUs, PSUs, PSU-TSRs and the Company's qualified employee stock purchase plan, totaled $12,828 and $7,073 for the three months ended March 31, 2019 and 2018, respectively.

 

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WORLD WRESTLING ENTERTAINMENT, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share data)

(Unaudited)

 

Restricted Stock Units

The Company grants restricted stock units ("RSUs") to officers and employees under the 2016 Plan. Stock-based compensation costs associated with our 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 have a service requirement typically over a three and one-half year vesting schedule and vest in equal annual installments.  We estimate forfeitures based on historical trends when recognizing compensation expense and adjust the estimate of forfeitures when they are expected to differ or as forfeitures occur. 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 the RSU activity during the three months ended March 31, 2019:







 

 

 

 

 



 

 

 

 

 



 

Units

 

Weighted-

Average

Grant-Date

Fair Value

Unvested at January 1, 2019

 

409,665 

 

$

26.52 

Granted

 

82,653 

 

$

83.12 

Vested

 

(1,583)

 

$

16.74 

Forfeited

 

(230)

 

$

19.38 

Dividend equivalents

 

674 

 

$

36.10 

Unvested at March 31, 2019

 

491,179 

 

$

36.10 





Performance Stock Units

The Company grants performance stock units (“PSUs”) to officers and employees under the 2016 Plan. Stock-based compensation costs associated with our 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). The vesting of these PSUs are subject to certain performance conditions and a service requirement of typically three and one-half years. Until 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 estimated performance attainment on the reporting date. The ultimate number of PSUs that are issued to an employee is the result of the actual performance of the Company at the end of the performance period compared to the performance conditions. Stock compensation costs for our PSUs are recognized over the requisite service period using the graded vesting method, net of estimated forfeitures. We estimate forfeitures based on historical trends when recognizing compensation expense and adjust the estimate of forfeitures when they are expected to differ or as forfeitures occur. 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.

The following table summarizes the PSU activity during the three months ended March 31, 2019:







 

 

 

 

 



 

 

 

 

 



 

Units

 

Weighted-

Average

Grant-Date

Fair Value

Unvested at January 1, 2019

 

1,116,085 

 

$

39.98 

Granted

 

155,872 

 

$

86.78 

Achievement adjustment

 

297,061 

 

$

83.51 

Dividend equivalents

 

1,944 

 

$

51.08 

Unvested at March 31, 2019

 

1,570,962 

 

$

54.62 





During the year ended December 31, 2018, we granted 369,996 PSUs,  which were subject to performance conditions. During the first quarter of 2019,  it was determined that the performance conditions related to these PSUs were exceeded, which resulted in an achievement adjustment increase of 297,061 PSUs in 2019 relating to the initial 2018 PSU grant.



 

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WORLD WRESTLING ENTERTAINMENT, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share data)

(Unaudited)

 

Performance Stock Units with a Market Condition Tied to Relative Total Shareholder Return

In March 2018, the Compensation Committee approved certain agreements to grant PSUs with a market condition (“PSU-TSRs”) where vesting is conditioned upon the total shareholder return performance of the Company’s stock relative to the performance of a peer group over five distinct performance periods from 2018 through 2024. The payout for each performance period can vest at between 50% and 175% of the target award based on the percentile ranking of WWE’s total shareholder return performance with vesting capped at 100% if WWE’s absolute total shareholder return is negative. The grant date fair value of the award was calculated using a Monte-Carlo simulation model which factors in the number of awards to be earned based on the achievement of the market condition. This model simulates the various stock price movements of the Company and peer group companies using certain assumptions, including the stock price of WWE and those of the peer group, stock price volatility, the risk-free interest rate, correlation coefficients, and expected dividend yield. The grant date fair value of the award totaled $16,168 and is being amortized as compensation cost over the requisite service period using the graded vesting method from March 2018 through July 2024. 

The following table summarizes the PSU-TSR activity during the three months ended March 31, 2019:





 

 

 

 

 



 

 

 

 

 



 

Units

 

Weighted-

Average

Grant-Date

Fair Value

Unvested at January 1, 2019

 

340,971 

 

$

47.42 

Granted

 

 —

 

$

 —

Vested

 

 —

 

$

 —

Unvested at March 31, 2019

 

340,971 

 

$

47.42 

 

7. Property and Equipment

Property and equipment consisted of the following:







 

 

 

 

 

 



 

 

 

 

 

 



 

As of



 

March 31,

 

December 31,



 

2019

 

2018

Land, buildings and improvements

 

$

142,328 

 

$

141,070 

Equipment and projects in progress

 

 

141,712 

 

 

129,367 

Corporate aircraft

 

 

32,249 

 

 

32,249 

Vehicles

 

 

942 

 

 

942 



 

 

317,231 

 

 

303,628 

Less: accumulated depreciation and amortization

 

 

(161,722)

 

 

(155,539)

    Total

 

$

155,509 

 

$

148,089 



Depreciation expense for property and equipment totaled $6,173 and $6,101 for the three months ended March 31, 2019 and 2018, respectively.

 

8.  Leases

Lease Adoption on January 1, 2019



The Company adopted the new lease standard and applied the new rules starting on January 1, 2019 and elected not to restate prior periods as provided by the transition rules of the standard. Upon the adoption of the new lease standard on January 1, 2019, we recorded a right-of-use asset of $39,266 and a lease liability of $40,458. Included as a component of the adoption entry is the immaterial out-of-period correction of previously omitted capital leases embedded in our service agreements that were identified in our lease portfolio review. These leases were comprised of a right-of-use asset of $16,620 and a lease liability of $17,812, with the resulting difference of $1,192 recorded as expense in the period. Based on quantitative and qualitative considerations, we do not believe the omitted capital leases were material to our historical consolidated financial statements. As of March 31, 2019, net lease assets and lease liabilities were $35,050 and $36,101, respectively.

 

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WORLD WRESTLING ENTERTAINMENT, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share data)

(Unaudited)

 



The Company’s lease portfolio currently consists of operating real estate leases for its sales offices, performance centers, warehouses and corporate related facilities. In addition, we have various live event production service arrangements that contain operating and finance equipment leases. Our real estate leases have remaining lease terms of approximately one to 10 years, some of which may include options to extend the leases. Our equipment leases, which are included as part of various operating service arrangements, generally have terms of approximately one to five years. Generally, no covenants are imposed by our lease agreements.

Practical Expedient Elections



The Company applied the “package” of transition practical expedients which allows for the Company as of the adoption date on January 1, 2019 to (i) not reassess whether any expired or existing contracts are or contain leases, (ii) to not reassess lease classification for any expired or existing leases, and (iii) to not reassess treatment of initial direct costs, if any, for any expired or existing leases. The Company did not elect the “hindsight” practical expedient which would have allowed the Company to use hindsight when determining the remaining lease term as of the adoption date on January 1, 2019.

Lease Accounting Policy

The Company determines if a contract contains a lease at the inception of the arrangement. The Company has elected the short-term lease exemption, whereby leases with initial terms of one year or less are not capitalized and instead expensed generally on a straight-line basis over the lease term. The depreciable life of the underlying leased assets are generally limited to the expected lease term inclusive of any optional lease terms where we conclude at the inception of the lease that we are reasonably certain of exercising those renewal options. The Company is primarily a lessee with a lease portfolio comprised mainly of real estate and equipment leases. Operating and finance lease assets are included on our consolidated balance sheets in non-current assets as an operating or finance right-of-use asset. Operating and finance lease liabilities are included on our consolidated balance sheets in non-current liabilities for the portion that is due on a long-term basis and in current liabilities for portion that is due within 12 months of the financial statement date.

The right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term using an appropriate discount rate. Since the implicit rate is not readily available for our leases, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The right-of-use asset also may include any initial direct costs paid and is reduced by any lease incentives provided by the lessor. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term for our operating leases and for our finance leases, we record interest expense on the lease liability and straight-line amortization of the right-of-use asset over the lease term.



 

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WORLD WRESTLING ENTERTAINMENT, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share data)

(Unaudited)

 

Quantitative Disclosures Related to Leases



The following table provides quantitative disclosure about the Company’s operating and financing leases for the periods presented:







 

 

 



 

 

 



 

Three Months Ended



 

March 31,



 

2019

Lease costs

 

 

 

Finance lease costs:

 

 

 

Amortization of right-of-use assets

 

$

1,996 

Interest on lease liabilities

 

 

1,377 

Operating lease costs

 

 

2,467 

Other short-term and variable lease costs

 

 

536 

Sublease income (1)

 

 

(16)

Total lease costs

 

$

6,360 



 

 

 

Other information

 

 

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

Operating cash flows from finance leases

 

$

185 

Operating cash flows from operating leases

 

$

2,208 

Finance cash flows from finance leases

 

$

2,043 

Right-of-use assets obtained in exchange for new finance lease liabilities

 

$

 —

Right-of-use assets obtained in exchange for new operating lease liabilities

 

$

 —

Weighted-average remaining lease term - finance leases

 

 

4.7 years

Weighted-average remaining lease term - operating leases

 

 

5.3 years

Weighted-average discount rate - finance leases

 

 

4.5% 

Weighted-average discount rate - operating leases

 

 

4.6% 

(1)

Sublease income excludes rental income from owned properties.



Maturity of lease liabilities as of March 31, 2019 were as follows:







 

 

 

 

 

 



 

 

 

 

 

 



 

Operating

 

Finance



 

Leases

 

Leases

2019

 

$

6,319 

 

$

6,685 

2020

 

 

5,718 

 

 

8,096 

2021

 

 

4,319 

 

 

1,585 

2022

 

 

1,548 

 

 

48 

2023

 

 

1,232 

 

 

Thereafter

 

 

3,478 

 

 

 —

Total lease payment

 

 

22,614 

 

 

16,421 

Less: imputed interest

 

 

(2,283)

 

 

(651)

Total future minimum lease payments

 

$

20,331 

 

$

15,770 



Other Lease Related Information



On March 18, 2019, the Company entered into a lease with Stamford Washington Office LLC (the “Landlord”) under which the Company will lease approximately 415,266 rentable square feet in an office complex located in Stamford, Connecticut. The new location will allow the Company to bring together its operations, including its production studios and corporate offices at its new site.



 

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WORLD WRESTLING ENTERTAINMENT, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share data)

(Unaudited)

 

 The lease commencement date is expected to be no earlier than July 1, 2019. Upon lease commencement, the Company will construct interior tenant improvements with a move-in expected in early 2021. The Landlord will provide an allowance of up to $40,338 to be applied to the cost of the Company’s tenant improvements.



The lease provides the Company with an eighteen-month free rent period from the lease commencement date, followed by an initial base term of 15 years with base rental payments of $19,101 per year for the first five years, and increasing to $20,927 per year over the second five-year term, and $22,754 per year over the third five-year term. The lease includes five,  five-year renewal options, with the first three renewal options renewing at the lower of the then-escalated rent per the lease agreement or the fair market value rent, and the last two renewal options renewing at the fair market value rent. The lease is expected to be accounted for as a finance lease pursuant to the new lease accounting standard.



9. Feature Film Production Assets, Net

Feature film production assets consisted of the following:







 

 

 

 

 

 



 

 

 

 

 

 



 

As of



 

March 31,

 

December 31,



 

2019

 

2018

In release

 

$

11,799 

 

$

12,430 

Completed but not released

 

 

736 

 

 

 —

In production

 

 

 —

 

 

707 

In development

 

 

413 

 

 

421 

    Total

 

$

12,948 

 

$

13,558 



Approximately 32% of “In release” film production assets are estimated to be amortized over the next 12 months, and approximately 66% of “In release” film production assets are estimated to be amortized over the next three years. We anticipate amortizing approximately 80% of our "In release" film production assets within five years as we receive revenues associated with television distribution of our licensed films. During the three months ended March 31, 2019 and 2018, we amortized $417 and $842, respectively, of feature film production assets.

During the three months ended March 31, 2019, one of our feature films,  Fighting With My Family, was released via theatrical distribution.

We currently have one film designated as “Completed but not released.”  We also have capitalized certain script development costs and pre-production 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 months ended March 31, 2019 and 2018, we expensed $16 and $444, respectively,  related to previously capitalized development costs related to abandoned projects. 

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 and/or costs 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 $198 and $925 related to our feature films during the three months ended March 31, 2019 and 2018, respectively. These impairment charges represent the excess of the recorded net carrying value over the estimated fair value.



 

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WORLD WRESTLING ENTERTAINMENT, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share data)

(Unaudited)

 

10. Television Production Assets, Net

Television production assets consisted of the following:







 

 

 

 

 

 



 

 

 

 

 

 



 

As of



 

March 31,

 

December 31,



 

2019

 

2018

In release

 

$

920 

 

$

1,308 

Completed but not released

 

 

35 

 

 

 —

In production

 

 

3,012 

 

 

6,165 

    Total

 

$

3,967 

 

$

7,473 



Television production assets consist primarily of non-live event episodic television series we have produced for distribution through a variety of platforms including on our WWE Network. Amounts capitalized include development costs, production costs, production overhead and employee salaries. Costs to produce episodic programming for television or distribution on WWE Network are amortized in the proportion that revenues bear to management's estimates of the ultimate revenue expected to be recognized from exploitation, exhibition or sale. 



Amortization of television production assets consisted of the following:







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

2019

 

2018

WWE Network programming

 

$

1,286 

 

$

231 

Television programming

 

 

7,035 

 

 

2,918 

    Total

 

$

8,321 

 

$

3,149 



Costs to produce our live event programming are expensed when the event is first broadcast, and are not included in the capitalized costs or amortization tables noted above.

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 expense the remaining unamortized asset. During the three months ended March 31, 2019 and 2018, we did not record any impairments related to our television production assets.

 

11. Investment Securities and Short-Term Investments

Investment Securities

Included within Investment Securities are the following:





 

 

 

 

 

 



 

 

 

 

 

 



 

As of



 

March 31,

 

December 31,



 

2019

 

2018

Equity method investments

 

$

14,579 

 

$

14,508 

Nonmarketable equity investments without readily determinable fair values

 

 

10,959 

 

 

10,840 

Marketable equity investments with readily determinable fair values

 

 

4,655 

 

 

4,848 

Total investment securities

 

$

30,193 

 

$

30,196 

Equity Method Investments



Our equity method investments relate primarily to our investment in Tapout. In March 2015, WWE and Authentic Brands Group (“ABG”) formed a joint venture to re-launch an apparel and lifestyle brand, Tapout. ABG agreed to contribute certain intangible assets for the Tapout brand, licensing contracts, systems, and other administrative functions to Tapout. The Company agreed to contribute promotional and marketing services related to the venture for a period of at least five years in exchange for a 50% interest in the profits

 

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WORLD WRESTLING ENTERTAINMENT, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share data)

(Unaudited)

 

and losses and voting interest in Tapout. The Company valued its initial investment of $13,800 based on the fair value of the existing licensing contracts contributed by ABG.  To the extent that Tapout records income or losses, we record our share proportionate to our ownership percentage, and any dividends received reduce the carrying amount of the investment. Net equity method earnings from Tapout are included as a component of Other income, net on the Consolidated Statements of Operations. Net dividends received from Tapout are reflected on the Consolidated Statements of Cash Flows within Net cash provided by operating activities.  The Company did not record any impairment charges related to our investment in Tapout during the three months ended March 31, 2019 and 2018.



The following table presents the net equity method earnings from Tapout and net dividends received from Tapout for the periods presented:







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

2019

 

2018

Net equity method earnings from Tapout

 

$

232 

 

$

379 

Net dividends received from Tapout

 

 

(161)

 

 

(343)

Equity in earnings of affiliate, net of dividends received

 

$

71 

 

$

36 



As promotional services are provided to Tapout, we record revenue and reduce the existing service obligation. During the three months ended March 31, 2019 and 2018, we recorded revenues of $760 and $767, respectively, related to our fulfillment of our promotional services obligation to Tapout. The remaining service obligation as of March 31, 2019 was $2,230, and was included in Deferred Income.

Our known maximum exposure to loss approximates the remaining service obligation to Tapout, which was $2,230 as of March 31, 2019. Creditors of Tapout do not have recourse against the general credit of the Company.

Nonmarketable Equity Investments Without Readily Determinable Fair Values

We evaluate our nonmarketable equity investments without readily determinable fair values for impairment if factors indicate that a significant decrease in value has occurred. The Company has elected to use the measurement alternative to fair value that will allow these investments to be recorded at cost, less impairment, and adjusted for subsequent observable price changes.

T