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WORLD WRESTLING ENTERTAINMENT, LLC - Quarter Report: 2014 September (Form 10-Q)


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, 2014
 
 
 
or
 
 
 
o
 
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 o

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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer 
o
 
 
Accelerated filer 
x
  
Non-accelerated filer 
o
 
(Do not check if a smaller reporting company)
Smaller reporting company 
o
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o  No x

At October 29, 2014 the number of shares outstanding of the Registrant’s Class A common stock, par value $.01 per share, was 33,179,500 and the number of shares outstanding of the Registrant’s Class B common stock, par value $.01 per share, was 42,298,437.

Table of Contents

WORLD WRESTLING ENTERTAINMENT, INC.
TABLE OF CONTENTS

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

Table of Contents

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

 
Three Months Ended
 
Nine Months Ended

September 30,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
Net revenues
$
120,183

 
$
113,292

 
$
402,065

 
$
389,575

Cost of revenues (including amortization and impairments of feature film and television production assets of $6,261 and $12,039, respectively, and $22,644 and $19,485, respectively)
78,417

 
70,947

 
284,880

 
242,668

Selling, general and administrative expenses
39,075

 
32,640

 
136,279

 
110,976

Depreciation and amortization
7,730

 
6,503

 
20,648

 
17,819

Operating (loss) income
(5,039
)
 
3,202

 
(39,742
)
 
18,112

Loss on equity investment
(3,962
)
 
—

 
(3,962
)
 
—

Investment income, net
81

 
264

 
541

 
1,102

Interest expense
(546
)
 
(438
)
 
(1,536
)
 
(1,270
)
Other (expense) income, net
(1,061
)
 
313

 
(1,100
)
 
(1,420
)
(Loss) income before income taxes
(10,527
)
 
3,341

 
(45,799
)
 
16,524

(Benefit from) provision for income taxes
(4,606
)
 
902

 
(17,345
)
 
5,870

Net (loss) income
$
(5,921
)
 
$
2,439

 
$
(28,454
)
 
$
10,654


 
 
 
 
 
 
 
(Loss) Earnings per share:
 
 
 
 
 
 
 
Basic and diluted
$
(0.08
)
 
$
0.03

 
$
(0.38
)
 
$
0.14

 

 
 



 
Weighted average common shares outstanding:

 
 
 

 
 
Basic
75,402

 
75,030

 
75,232

 
74,885

Diluted
75,402

 
75,388

 
75,232

 
75,335

Dividends declared per common share (Class A and B)
$
0.12

 
$
0.12

 
$
0.36

 
$
0.36


See accompanying notes to consolidated financial statements.
2
Table of Contents

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

 
Three Months Ended
 
Nine Months Ended
 
September 30,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
Net (loss) income
$
(5,921
)
 
$
2,439

 
$
(28,454
)
 
$
10,654

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustment
(118
)
 
73

 
(64
)
 
(107
)
   Gains/(losses) on unrealized holding gains on available-for-sale securities (net of tax (benefit)/expense of ($64) and $49, respectively, ($1) and ($225), respectively)
(105
)
 
79

 
(2
)
 
(367
)
Reclassification adjustment for losses (gains) realized in net income - available-for-sale securities (net of tax (benefit)/expense of ($15) and $0, respectively, and ($14) and $1, respectively)
25

 
—

 
23

 
(1
)
Total other comprehensive (loss) income
(198
)
 
152

 
(43
)
 
(475
)
Comprehensive (loss) income
$
(6,119
)
 
$
2,591

 
$
(28,497
)
 
$
10,179


See accompanying notes to consolidated financial statements.
3
Table of Contents

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

 
As of
 
September 30,
2014
 
December 31,
2013
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
29,599

 
$
32,911

Short-term investments, net
39,139

 
76,476

Accounts receivable (net of allowances for doubtful accounts and returns
 
 
 
of $7,325 and $9,344 respectively)
56,669

 
59,552

Inventory
4,539

 
2,874

Deferred income tax assets
16,911

 
12,237

Prepaid expenses and other current assets
11,997

 
16,147

Total current assets
158,854

 
200,197

PROPERTY AND EQUIPMENT, NET
116,383

 
133,480

FEATURE FILM PRODUCTION ASSETS, NET
27,884

 
16,018

TELEVISION PRODUCTION ASSETS, NET
6,205

 
10,772

INVESTMENT SECURITIES
7,200

 
8,299

NON-CURRENT DEFERRED INCOME TAX ASSETS
14,407

 
—

OTHER ASSETS, NET
20,632

 
9,696

TOTAL ASSETS
$
351,565

 
$
378,462

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:

 

Current portion of long-term debt
$
4,321

 
$
4,251

Accounts payable and accrued expenses
69,448

 
47,882

Deferred income
31,389

 
30,112

Total current liabilities
105,158

 
82,245

LONG-TERM DEBT
22,670

 
25,385

NON-CURRENT INCOME TAX LIABILITIES
1,700

 
4,884

NON-CURRENT DEFERRED INCOME
6,375


—

COMMITMENTS AND CONTINGENCIES

 
 
STOCKHOLDERS’ EQUITY:
 
 
 
Class A common stock: ($.01 par value; 180,000,000 shares authorized;
 
 
 
33,173,259 and 31,302,790 shares issued and outstanding as of
 
 
 
September 30, 2014 and December 31, 2013, respectively)
332

 
313

Class B convertible common stock: ($.01 par value; 60,000,000 shares authorized;
 
 
 
42,298,437 and 43,797,830 shares issued and outstanding as of
 
 
 
September 30, 2014 and December 31, 2013, respectively)
423

 
438

Additional paid-in-capital
352,589

 
346,974

Accumulated other comprehensive income
3,469

 
3,512

Accumulated deficit
(141,151
)
 
(85,289
)
Total stockholders’ equity
215,662

 
265,948

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
351,565

 
$
378,462


See accompanying notes to consolidated financial statements.
4
Table of Contents

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, 2013
31,303

 
$
313

 
43,798

 
$
438

 
$
346,974

 
$
3,512

 
$
(85,289
)
 
$
265,948

Net loss
—

 
—

 
—

 
—

 
—

 
—

 
(28,454
)
 
(28,454
)
Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
(43
)
 
—

 
(43
)
Stock issuances, net
370

 
4

 
—

 
—

 
(1,117
)
 
—

 
—

 
(1,113
)
Conversion of Class B common stock by shareholder
1,500

 
15

 
(1,500
)
 
(15
)
 
—

 
—

 
—

 
—

Tax effect from stock-based payment arrangements
—

 
—

 
—

 
—

 
(80
)
 
—

 
—

 
(80
)
Dividends paid
—

 
—

 
—

 
—

 
315

 
—

 
(27,408
)
 
(27,093
)
Stock-based compensation
—

 
—

 
—

 
—

 
6,497

 
—

 
—

 
6,497

Balance, September 30, 2014
33,173

 
$
332

 
42,298

 
$
423

 
$
352,589

 
$
3,469

 
$
(141,151
)
 
$
215,662


See accompanying notes to consolidated financial statements.
5
Table of Contents

WORLD WRESTLING ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Nine Months Ended
 
September 30,
2014
 
September 30,
2013
OPERATING ACTIVITIES:
 
 
 
Net (loss) income
$
(28,454
)
 
$
10,654

Adjustments to reconcile net (loss) income to net cash used in operating activities:
 
 
 
Amortization and impairments of feature film production assets
3,210

 
15,459

Amortization of television production assets
19,435

 
4,026

Depreciation and amortization
22,042

 
17,819

 Loss on equity investment
3,962

 
—

Amortization of bond premium
1,014

 
391

Amortization of debt issuance costs
471

 
1,559

Stock-based compensation
6,497

 
3,543

Recovery from doubtful accounts
(403
)
 
(356
)
Services provided in exchange for equity instruments
(439
)
 
(659
)
Loss on disposal of property and equipment
148

 
335

(Benefit from) provision for deferred income taxes
(21,761
)
 
4,040

Other non-cash items
(346
)
 
(149
)
Cash (used in)/provided by changes in operating assets and liabilities:
 
 
 
Accounts receivable
3,002

 
(17,913
)
Inventory
(1,665
)
 
(761
)
Prepaid expenses and other assets
1,404

 
(644
)
Feature film production assets
(15,076
)
 
(6,706
)
Television production assets
(14,868
)
 
(8,687
)
Accounts payable, accrued expenses and other liabilities
8,939

 
(11,506
)
Deferred income
7,652

 
1,709

Net cash (used in)/provided by operating activities
(5,236
)
 
12,154

INVESTING ACTIVITIES:
 
 

Purchases of property and equipment and other assets
(9,181
)
 
(18,302
)
Purchase of corporate aircraft and related improvements
—

 
(29,730
)
Proceeds from sale of corporate aircraft
3,167

 
—

Net proceeds from infrastructure improvement incentives
2,937

 
—

Purchases of short-term investments
(2,511
)
 
(24,112
)
Proceeds from sales and maturities of investments
38,832

 
30,543

Purchase of equity investments
(2,204
)
 
(2,200
)
Proceeds from sales of property and equipment
—

 
38

Net cash provided by/(used in) investing activities
31,040

 
(43,763
)
FINANCING ACTIVITIES:

 
 
Proceeds from the issuance of note payable
364

 
29,730

Repayment of long-term debt
(3,009
)
 
(348
)
Dividends paid
(27,093
)
 
(26,967
)
Debt issuance costs
(758
)
 
(674
)
Proceeds from issuance of stock
895

 
640

Excess tax benefits from stock-based payment arrangements
485

 
261

Net cash (used in)/provided by financing activities
(29,116
)
 
2,642

NET DECREASE IN CASH AND CASH EQUIVALENTS
(3,312
)
 
(28,967
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
32,911

 
66,048

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
29,599

 
$
37,081

NON-CASH INVESTING TRANSACTIONS:

 
 
Non-cash purchase of property and equipment
$
720

 
$
1,611


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 and its subsidiaries. We are an integrated media and entertainment company, principally engaged in the production and distribution of content through various channels including our digital over-the-top ("OTT") WWE Network, television rights agreements, 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 the following four principal activities:
Media Division:
Network
•
Revenues consist principally of subscriptions to WWE Network and fees for viewing our pay-per-view and video-on-demand programming.
Television
•Revenues consist principally of television rights fees and television advertising fees.
Home Entertainment
•Revenues consist principally of sales of WWE produced content via home entertainment platforms.
Digital Media
•
Revenues consist principally of advertising sales on our websites, rights fees received for digital content, sales of various broadband and mobile content and magazine publishing.

Live Events
•Revenues consist principally of ticket sales and travel packages for live events.

Consumer Products Division:
Licensing
•
Revenues consist principally of royalties or license fees related to various WWE themed products such as video games, toys and apparel.
Venue Merchandise
•Revenues consist of sales of merchandise at our live events.
WWEShop
•Revenues consist of sales of merchandise on our website through our WWEShop internet storefront.

WWE Studios
•Revenues consist of amounts earned from the investment in, the production and/or distribution of filmed entertainment.

In our prior reports filed with the Securities Exchange Commission ("SEC") through fiscal year 2013, we presented five reportable segments: Live and Televised Entertainment, Consumer Products, Digital Media, WWE Studios and Unallocated Corporate and Other. Effective January 1, 2014, we now present ten reportable segments. Information presented for the three and nine months ended September 30, 2013 included in the unaudited consolidated financial statements herein and elsewhere in this Quarterly Report has been recast to reflect our new segment presentation. See Note 2, Segment Information, for further details on our reportable segments. Such revisions have no impact on our consolidated financial condition, results of operations or cash flows for the periods presented.



7
Table of Contents    
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)



Within the Consolidated Statements of Cash Flows from operating activities, certain prior year amounts were reclassified to conform to the current period presentation.
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.
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, 2013.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This ASU will supersede the revenue recognition requirements in ASC 605, “Revenue Recognition”, and most industry-specific guidance. The ASU requires an entity to recognize revenue in an amount that reflects the consideration to which the entity expects to receive in exchange for goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2016 and early adoption is not permitted. This standard update is effective for our fiscal year beginning of January 1, 2017. We are currently evaluating the impact of the adoption of this new standard on our consolidated financial statements.
In April 2014, the FASB issued Accounting Standards Update No. 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity". This ASU updated the accounting guidance related to discontinued operations. The updated accounting guidance provides a narrower definition of discontinued operations than existing GAAP. The updated accounting guidance requires that only disposals of components of an entity, or groups of components, that represent a strategic shift that has or will have a material effect on the reporting entity’s operations be reported in the financial statements as discontinued operations. The updated accounting guidance also provides guidance on the financial statement presentations and disclosures of discontinued operations. On July 1, 2014, we early adopted this accounting standard update which did not have a material effect on our consolidated financial statements.
2. Segment Information
During the first quarter of 2014, the Company launched WWE Network, which changed the way that certain content is delivered to our customers. The launch of WWE Network coupled with the continued convergence within the media landscape, has resulted in a change in the Company’s management reporting to its chief operating decision maker. These changes necessitated a change in the Company’s segment reporting to align with management’s operational view. As discussed in Note 1, the Company currently classifies its operations into ten reportable segments. The ten reportable segments of the Company now include the following: Network (which includes our pay-per-view business), Television, Home Entertainment and Digital Media, individual segments that comprise the Media Division; Live Events; Licensing, Venue Merchandise, WWEShop, individual segments that comprise the Consumer Products Division; WWE Studios and Corporate and Other (as defined below).

We do not disclose assets by segment information. In general, assets of the Company are leveraged across its reportable segments and 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.






8
Table of Contents    
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)



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 segment performance and make decisions about allocating resources. The Company defines OIBDA as operating income before depreciation and amortization, excluding feature film and television production asset amortization and impairments.
We do not allocate certain costs included in OIBDA of our Corporate and Other segment to the other reportable segments. Corporate and Other expense primarily includes corporate overhead and certain expenses related to sales and marketing, including our international offices, and talent development functions, including costs associated with our WWE Performance Center. These costs benefit the Company as a whole and are therefore not allocated. Revenues from transactions between our operating segments are not material.
The following tables present summarized financial information for each of the Company's reportable segments:
 
Three Months Ended
 
Nine Months Ended

September 30,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
Net revenues:
 
 
 
 
 
 
 
Network
$
26,119

 
$
15,553

 
$
87,786

 
$
69,719

Television
42,198

 
44,817

 
126,277

 
121,273

Home Entertainment
3,625

 
5,135

 
19,488

 
19,197

Digital Media
5,001

 
7,134

 
16,879

 
21,683

Live Events
21,742

 
25,138

 
83,742

 
87,719

Licensing
10,011

 
5,733

 
29,534

 
36,396

Venue Merchandise
4,163

 
4,024

 
15,663

 
16,024

WWEShop
4,290

 
2,956

 
12,485

 
9,497

WWE Studios
1,928

 
1,812

 
8,009

 
5,835

Corporate & Other
1,106

 
990

 
2,202

 
2,232

Total net revenues
$
120,183

 
$
113,292

 
$
402,065

 
$
389,575

OIBDA:
 
 
 
 

 

Network
$
2,317

 
$
7,378

 
$
(8,619
)
 
$
20,598

Television
20,712

 
21,260

 
43,001

 
44,680

Home Entertainment
1,277

 
1,942

 
10,423

 
8,226

Digital Media
2,004

 
3,115

 
811

 
5,531

Live Events
3,850

 
5,690

 
23,149

 
27,232

Licensing
5,828

 
3,228

 
16,450

 
27,659

Venue Merchandise
1,632

 
1,653

 
6,325

 
6,184

WWEShop
729

 
551

 
2,400

 
1,709

WWE Studios
(421
)
 
(7,417
)
 
940

 
(12,789
)
Corporate & Other
(35,237
)
 
(27,695
)
 
(113,974
)
 
(93,099
)
Total OIBDA
$
2,691

 
$
9,705

 
$
(19,094
)
 
$
35,931





9
Table of Contents    
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)



Reconciliation of Total Operating (Loss) Income to Total OIBDA
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
Total operating (loss) income
$
(5,039
)
 
$
3,202

 
$
(39,742
)
 
$
18,112

Depreciation and amortization
7,730

 
6,503

 
20,648

 
17,819

Total OIBDA
$
2,691

 
$
9,705

 
$
(19,094
)
 
$
35,931

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,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
North America
$
93,866

 
$
87,341

 
$
318,842

 
$
304,190

Europe/Middle East/Africa
11,646

 
11,249

 
47,840

 
51,406

Asia Pacific
13,704

 
13,737

 
30,991

 
29,580

Latin America
967

 
965

 
4,392

 
4,399

Total net revenues
$
120,183

 
$
113,292

 
$
402,065

 
$
389,575

Revenues generated from the United Kingdom, our largest international market, totaled $7,699 and $27,606 for the three and nine months ended September 30, 2014, respectively, and $5,249 and $24,777 for the corresponding periods in 2013. The Company’s property and equipment was almost entirely located in the United States at September 30, 2014 and 2013.
3. Stock-based Compensation
Restricted Stock Units
The Company grants restricted stock units ("RSUs") to officers and employees under the 2007 Amended and Restated Omnibus Incentive Plan (the "2007 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-year to three and one half year vesting schedule. We estimate forfeitures based on historical trends when recognizing compensation expense and adjust the estimate of forfeitures when they are expected to differ. 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.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)



The following table summarizes the RSU activity during the nine months ended September 30, 2014:
 
 
Units
 
Weighted-Average Grant-Date Fair Value
Unvested at January 1, 2014
 
107,034

 
$
9.87

Granted
 
106,296

 
$
23.28

Vested
 
(71,300
)
 
$
11.14

Forfeited
 
(25,184
)
 
$
13.09

Dividend equivalents
 
3,482

 
$
18.69

Unvested at September 30, 2014
 
120,328

 
$
20.54


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 2007 Plan. The vesting of these PSUs are subject to certain performance conditions and a service requirement of approximately 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. 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. 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 nine months ended September 30, 2014:
 
 
Units
 
Weighted-Average Grant-Date Fair Value
Unvested at January 1, 2014
 
1,259,629

 
$
13.46

Granted
 
278,281

 
$
13.77

Achievement adjustment
 
(387,633
)
 
$
23.99

Vested
 
(371,197
)
 
$
13.71

Forfeited
 
(39,828
)
 
$
18.32

Dividend equivalents
 
16,569

 
$
15.51

Unvested at September 30, 2014
 
755,821

 
$
15.44

During the year ended December 31, 2013, we granted 804,896 PSUs which were subject to performance conditions. During the three months ended March 31, 2014, certain performance conditions related to these PSUs were partially met which resulted in a reduction of 387,633 PSUs in 2014 relating to the initial 2013 PSU grant.
During the three months ended March 31, 2014, we granted 278,281 PSUs which are subject to certain performance conditions.
Stock-based compensation costs totaled $1,597 and $785 for the three months ended September 30, 2014 and 2013, respectively, and $6,497 and $3,543 for the nine months ended September 30, 2014 and 2013, respectively.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)



4. Property and Equipment
Property and equipment consisted of the following:

 
As of
 
 
September 30,
2014
 
December 31,
2013
Land, buildings and improvements
 
$
106,021

 
$
106,749

Equipment
 
109,394

 
107,305

Corporate aircrafts
 
31,277

 
51,757

Vehicles
 
244

 
244

 
 
246,936

 
266,055

Less accumulated depreciation
 
(130,553
)
 
(132,575
)
Total
 
$
116,383

 
$
133,480

Depreciation expense for property and equipment totaled $7,314 and $19,420 for the three months and nine months ended September 30, 2014, respectively, as compared to $6,111 and $16,653 for the corresponding periods in the prior year. During the first quarter of 2014, the Company received tax credits relating to our infrastructure improvements in conjunction with capital projects to support our increased content production efforts. Depreciation expense for the nine months ended September 30, 2014 reflects a benefit of $1,388 from the recognition of the infrastructure tax credit noted above. The credit was used to reduce the carrying value of the assets as of their in-service date and consequently the adjustment to depreciation expense reflects the revised amount incurred to date. The credit was received in the current year, but related to assets placed in service in prior years. Additionally, in conjunction with the anticipated sale of our old corporate aircraft, which sale did occur during the third quarter of 2014, depreciation expense for the nine months ended September 30, 2014 includes an adjustment of $1,600 to reduce the carrying value of the asset to its estimated fair value. Depreciation expense for the third quarter of 2014 includes an impairment charge of $1,757 related to a change in business strategy related to our gamification platform. See Note 14, Restructuring Charge, for further details.
5. Feature Film Production Assets, Net
Feature film production assets consisted of the following:
 
 
As of
 
 
September 30,
2014
 
December 31,
2013
Feature film productions:
 
 
 
 
In release
 
$
11,740

 
$
9,413

Completed but not released
 
5,115

 
3,130

In production
 
10,490

 
2,686

In development
 
539

 
789

Total
 
$
27,884

 
$
16,018

Approximately 55% of “In release” film production assets are estimated to be amortized over the next 12 months and approximately 79% 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, 2014, we released one feature film via theatrical distribution, Oculus, and two films direct to DVD, Scooby Doo at WrestleMania and Leprechaun: Origins, which comprise $4,980 of our "In release" feature film assets as of September 30, 2014. During 2013, the Company entered into an agreement to co-distribute the feature film Road to Paloma. This film was released via a limited theatrical release and on DVD in July 2014. The Company intends to recognize



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)



revenue generated by this film in a manner similar to how it recognizes revenue for its licensed films. In 2014, the Company did not record any revenue associated with this release. Third-party distributors control the distribution and marketing of co-distributed films, and as a result, we recognize revenue on a net basis after the third-party distributor recoups distribution fees and expenses and results are reported to us. Results are typically reported to us in periods subsequent to the initial release of the film. 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 and two films, 12 Rounds 2: Reloaded and The Marine 3: Homefront direct to DVD, which aggregate $3,625 of our "In release" feature film assets as of September 30, 2014.
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 did not record any impairment charges during the three and nine months ended September 30, 2014 related to our feature films. During the three and nine months ended September 30, 2013, we recorded impairment charges of $6,965 and $11,661, respectively related to our feature films. These impairment charges represent the excess of the recorded net carrying value over the estimated fair value.
We currently have five films designated as "Completed but not released" and have six films "In production". We also have capitalized certain script development costs for various other film projects designated as “In development”. Capitalized script development costs are evaluated at each reporting period for impairment and to determine if a project is deemed to be abandoned. During the nine months ended September 30, 2014, we expensed $339 related to previously capitalized development costs of abandoned projects. We did not incur any comparable expenses for the three months ended September 30, 2014 or in the prior year periods.
6. Television Production Assets, Net
Television production assets consisted of the following:
 
 
As of
 
 
September 30,
2014
 
December 31,
2013
Television productions:
 
 
 
 
In release
 
$
5,932

 
$
1,365

In production
 
273

 
9,407

Total
 
$
6,205

 
$
10,772

Television production assets consist primarily of episodic content series we have produced for distribution through a variety of platforms including on WWE Network. Amounts capitalized primarily include development costs, production costs, production overhead and employee salaries. We have $6,205 and $10,772 capitalized as of September 30, 2014 and December 31, 2013, respectively, related to this type of programming. Costs to produce our live event programming are expensed when the event is first broadcast. 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. During the three and nine months ended September 30, 2014, we amortized $5,121 and $19,435 of television production assets, of which $1,621 and $9,668 were related to Network programming and $3,500 and $9,767 were related to Television programming, respectively. During the three and nine months ended September 30, 2013, we amortized $4,026 related to Television programming.



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



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, 2014 and 2013, we did not record any impairments related to our television production assets.
7. Investment Securities and Short-Term Investments
Investment Securities:
WWE maintains several cost method investments. On March 14, 2014, the Company invested $2,000 in Series E Preferred Stock of a software application developer. On June 25, 2012, the Company invested $5,000 in Series B Preferred Stock in a mobile video publishing business, ("Investment"), and entered into a two-year strategic partnership during which time WWE received $1,758 in common stock. In July of 2014 this Investment initiated a convertible note financing arrangement, the (“July financing”) which resulted in a change in WWE's ownership of common shares, preferred stock and convertible notes. We evaluate our cost method investments for impairment if factors indicate that a significant decrease in value has occurred. As a result of the July financing we performed an analysis to reassess the fair value of this Investment due to the change in the capital structure and recorded an impairment charge of $3,962 for the excess of the carrying value over the estimated fair value of $3,000. The Company did not record any impairment charge on these assets during the nine months ended September 30, 2013. Investment Securities in our Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013 of $7,200 and $8,299, respectively, are amounts related to these investments.
Short-Term Investments:
Short-term investments measured at fair value consisted of the following:
 
September 30, 2014
 
December 31, 2013
 
 
 
Gross Unrealized
 
 
 
 
 
Gross Unrealized
 
 
 
Amortized
Cost
 

Gain
 

(Loss)
 
Fair
Value
 
Amortized
Cost
 
Gain
 
(Loss)
 
Fair
Value
Municipal bonds
$
19,577

 
$
64

 
$
—

 
$
19,641

 
$
44,636

 
$
176

 
$
(91
)
 
$
44,721

Corporate bonds
19,512

 
39

 
(53
)
 
19,498

 
31,825

 
104

 
(174
)
 
31,755

Total
$
39,089

 
$
103

 
$
(53
)
 
$
39,139

 
$
76,461

 
$
280

 
$
(265
)
 
$
76,476

We classify the investments listed in the above table as available-for-sale securities. Such investments consist primarily of corporate 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, 2014, contractual maturities of these bonds are as follows:
 
Maturities
Municipal bonds
1 month-4 years
Corporate bonds
4 months-3 years



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



The following table summarizes the short-term investment activity:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
Proceeds from sale of short-term investments
$
14,794

 
$
—

 
$
22,572

 
$
2,793

Proceeds from maturities and calls of short-term investments
$
7,225

 
$
7,480

 
$
16,260

 
$
27,750

Gross realized (loss) gains on sale of short-term investments
$
(40
)
 
$
—

 
$
(37
)
 
$
1

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 accounting guidance establishes a three-level hierarchy that ranks the quality and reliability of information used in developing fair value estimates. The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. In cases where two or more levels of inputs are used to determine fair value, a financial instrument's level is determined based on the lowest level input that is considered significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are summarized as follows:
Level 1- 
quoted prices in active markets for identical assets or liabilities;
Level 2-
quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or
Level 3-
unobservable inputs, such as discounted cash flow models or valuations
The following assets are required to be measured at fair value on a recurring basis and the classification within the hierarchy was as follows:
 
 
Fair Value at September 30, 2014
 
Fair Value at December 31, 2013
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Municipal bonds
 
$
19,641

 
$
—

 
$
19,641

 
$
—

 
$
44,721

 
$
—

 
$
44,721

 
$
—

Corporate bonds
 
19,498

 
—

 
19,498

 
—

 
31,755

 
—

 
31,755

 
—

Total
 
$
39,139

 
$
—

 
$
39,139

 
$
—

 
$
76,476

 
$
—

 
$
76,476

 
$
—

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



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)



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 fair value measurements of our investment securities, which are recorded under the cost method, are classified within Level 3 as significant unobservable inputs are used to fair value these assets due to the absence of quoted market prices and inherent lack of liquidity. Significant unobservable inputs include variables such as near-term prospects of the investees, recent financing activities of the investees, and the investees’ capital structure as well as other economic variables, which reflect assumptions market participants would use in pricing these assets. Our investments are recorded at fair value only if an impairment charge is recognized. During the nine months ended September 30, 2014, the Company recorded an impairment charge of $3,962 on the Investment for the excess of the carrying value over the estimated fair value of $3,000. The Company did not record any impairment charge on these assets during the nine months ended September 30, 2013.
The Company's long lived property and equipment, feature film and television production assets 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, 2014, the Company recorded an adjustment of $1,600 to reduce the carrying value of our old corporate aircraft to its estimated fair value and recorded an impairment charge of $1,757 related to a change in business strategy related to our gamification platform. During the nine months ended September 30, 2013, the Company recorded an impairment charge of $11,661 on a feature film production asset based on a fair value measurement of $2,363. 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 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 valuation specialist who assists us in gathering the necessary inputs used in our model.
The fair value of the Company’s long-term debt, consisting of a promissory note payable to RBS Asset Finance, Inc. is estimated based upon quoted price estimates for similar debt arrangements.  At September 30, 2014, the face amount of the note approximates its fair value.



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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,
2014
 
December 31,
2013
Trade related
 
$
9,563

 
$
8,565

Staff related
 
9,236

 
5,580

Management incentive compensation
 
9,978

 
5,711

Talent related
 
6,226

 
6,304

Accrued WWE Network related expenses
 
13,116

 
2,477

Accrued event and television production
 
4,294

 
4,429

Accrued home entertainment expenses
 
738

 
1,341

Accrued legal and professional
 
1,802

 
1,903

Accrued purchases of property and equipment
 
720

 
1,700

Accrued film liability
 
2,559

 
2,654

Accrued other
 
11,216

 
7,218

Total
 
$
69,448

 
$
47,882

Accrued other at September 30, 2014 includes an accrual for costs associated with our domestic television rights agreement, as well as, other miscellaneous accruals, none of which categories individually exceeds 5% of current liabilities. The increase in accrued expenses is also due to the timing of staff related expenses and an increase in management incentive compensation based on Company performance and for various accrued expenses related to WWE Network operations.
10. Debt
Aircraft Financing

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, inclusive of interest, 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. As of September 30, 2014, the amount outstanding under the Note was $26,991.

Revolving Credit Facility

In September 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. 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, 2014, the LIBOR-based rate plus margin was 2.49%. The Company is also 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. Under the terms of the revolving credit facility, the Company is subject to certain financial covenants and restrictions, including restrictions on our ability to pay dividends and limitations with respect to our indebtedness, liens, mergers and acquisitions, dispositions of assets, investments, capital expenditures, and transactions with affiliates.

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.




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)



On May 1, 2014, the Company entered into a First Amendment to its Amended and Restated Credit Facility ("the Amendment") and further modified certain financial covenants to provide for greater financial flexibility. The Amendment, among other things, (a) adjusts the consolidated EBITDA calculation for the four quarterly periods in 2014 and the first and second quarters of 2015 by permitting the add-back of WWE Network Expenses subject to specified maximum amounts in such periods, (b) increases the consolidated EBITDA calculation by the amount of any net investments in respect of feature film production, subject to specified maximum amounts for the quarters ending September 30, 2014 and December 31, 2014 and (c) reduces the consolidated fixed charge coverage ratio for four quarters in 2014 and the first two quarters in 2015 such that the consolidated fixed charge coverage ratio may not be less than 1.0:1.0 for the respective quarterly periods ending March 31, 2014, June 30, 2014, September 30, 2014 and December 31, 2014, increasing to 1.10:1.0 for the quarter ending March 31, 2015, to 1.15:1.0 for the quarter ending June 30, 2015, and to 1.25:1.0 for the quarter ending September 30, 2015 and thereafter.  The Amendment also includes certain additional allowances for the Company to make investments in special film entities. 

As of September 30, 2014, the Company is in compliance with the provisions of the Amendment and has available debt capacity under the terms of the revolving credit facility of approximately $160,000. As of September 30, 2014 and December 31, 2013, there were no amounts outstanding under the credit facility.
 
11. Concentration of Credit Risk
We continually monitor our position with, and the credit quality of, the financial institutions that are counterparties to our financial instruments. Our accounts receivable relate principally to a limited number of distributors, including our network, 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, 2014, our largest single customer balance was approximately 13% of our gross accounts receivable balance.
12. Income Taxes
As of September 30, 2014, we had $16,911 of deferred tax assets, net included in current assets and $14,407 included in non-current assets in our Consolidated Balance Sheets. As of December 31, 2013, we had $12,237 of deferred tax assets, net included in current assets and $2,681 of deferred tax liabilities, net included in Noncurrent Income Tax Liabilities in our Consolidated Balance Sheets. The large increase in our deferred tax asset balance was driven by our operating loss in the current year and associated net operating loss and foreign tax credit carryforwards.

The Company considers all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is required to reduce the net deferred tax assets to the amount that is more likely than not to be realized in future periods. The Company believes that based on past performance, expected future taxable income and prudent and feasible tax planning strategies, it is more likely than not that the net deferred tax asset will be realized. Changes in these factors may cause us to increase our valuation allowance on deferred tax assets, which would impact our income tax expense in the period we determine that these factors have changed.

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 nine months ended September 30, 2014, we received $3,080 for infrastructure improvement incentives relating to qualifying capital projects. Of this amount $2,937, was recorded as a reduction in property and equipment. We did not receive any similar incentives for the nine months ended September 30, 2013. During the three and nine months ended September 30, 2014 and 2013, we received $1,515 and $1,971, and $427 and $864, respectively, of incentives relating to feature film productions which reduced the related assets. During the three and nine months ended September 30, 2014, we received $10,833 of incentives relating to television production activities that was recorded as an offset to production expenses. During the three and nine months ended



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



September 30, 2013, we received $9,805 and $10,201, respectively of incentives related to television production activities that were recorded as an offset to production expenses.
14. Restructuring Charge
On July 31, 2014, the Company announced a restructuring plan in support of a cost cutting initiative. Included in this restructuring was the shutdown of our magazine publishing business, a shift in our gamification strategy, and a reduction in our approved headcount. Additionally, the cost cutting initiatives include reducing prospective spending throughout our operations. As a result of these efforts, the Company recorded a one-time pre-tax restructuring charge of approximately $4,200 in the third quarter of 2014, comprised primarily of a cash charge of approximately $2,000 for severance costs and the write-down of certain assets associated with our gamification business resulting in a non-cash charge of approximately $1,800. The severance costs are recorded in Selling, General and Administrative expenses in our Consolidated Statements of Income. Approximately $1,100 of cash spend related to severance and other restructuring charges was paid out in the third quarter and we anticipate that a majority of the remaining liability will be paid out over the next two quarters.
15. Commitments and Contingencies
Legal Proceedings
On July 26, 2014, the Company received notice of a lawsuit filed in the United States District Court for the District of Connecticut, entitled Warren Ganues and Dominic Varriale, on behalf of themselves and all others similarly situated, v. World Wrestling Entertainment, Inc., Vincent K. McMahon and George A. Barrios, alleging violations of federal securities laws based on certain statements relating to the negotiation of WWE’s domestic television license. The complaint seeks certain unspecified damages. A nearly identical lawsuit was filed one month later entitled Curtis Swanson, on behalf of himself and all others similarly situated, v. World Wrestling Entertainment, Inc., Vincent K. McMahon and George A. Barrios. Both lawsuits are purported securities class actions subject to the Private Securities Litigation Reform Act of 1995 (“PSLRA”). On September 23-24, five putative plaintiffs filed motions to be appointed lead plaintiff and to consolidate the two cases pursuant to the PSLRA. The Company joined the motion for consolidation made by the putative lead plaintiffs. The Company believes the claims are without merit and intends to vigorously defend itself against them.
On October 25, 2014, the Company received notice of a purported class action lawsuit filed in the United States District Court for the District of Oregon, entitled William Albert Haynes III, on behalf of himself and others similarly situated, v. World Wrestling Entertainment, Inc. alleging, among other things, that the Company concealed and denied medical research and evidence concerning traumatic brain injuries suffered by WWE’s performers.  The Company believes the claims are without merit and intends to vigorously defend itself against them.
In addition to the foregoing, we are involved in several other 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 this 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.
16. Subsequent Event
In October of 2014, the Company received a $50,000 advance payment related to a recently executed television distribution agreement. The $50,000 advance will be recorded as deferred revenue and will be reduced as earned per the terms of the agreement.



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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.
Media Division:
Network
•
Revenues consist principally of subscriptions to WWE Network and fees for viewing our pay-per-view and video-on-demand programming.
Television
•Revenues consist principally of television rights fees and television advertising fees.
Home Entertainment
•Revenues consist principally of sales of WWE produced content via home entertainment platforms.
Digital Media
•
Revenues consist principally of advertising sales on our websites, rights fees received for digital content, sales of various broadband and mobile content and magazine publishing.

Live Events
•Revenues consist principally of ticket sales and travel packages for live events.

Consumer Products Division:
Licensing
•
Revenues consist principally of royalties or license fees related to various WWE themed products such as video games, toys and apparel.
Venue Merchandise
•Revenues consist of sales of merchandise at our live events.
WWEShop
•Revenues consist of sales of merchandise on our website through our WWEShop internet storefront.

WWE Studios
•Revenues consist of amounts earned from the investment in, the production and/or distribution of filmed entertainment.

Corporate & Other
•
Revenues consist of amounts earned from talent appearances. Expenses include corporate overhead and certain expenses related to sales and marketing, including our international offices, and talent development functions.








20
Table of Contents

Results of Operations
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 segment performance and make decisions about allocating resources. The Company defines OIBDA as operating income before depreciation and amortization, excluding feature film and television production asset amortization and 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 2, Segment Information in the accompanying Consolidated Financial Statements for a reconciliation of OIBDA to operating income for the periods presented.




21
Table of Contents

Results of Operations
Three Months Ended September 30, 2014 compared to Three Months Ended September 30, 2013
(dollars in millions)
Summary
 
 
Three Months Ended
 
 
 
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
Net Revenues
 
 
 
 
 
 
Media Division
 
$
76.9

 
$
72.7

 
6
 %
Live Events
 
21.8

 
25.1

 
(13
)%
Consumer Products Division
 
18.5

 
12.6

 
47
 %
WWE Studios
 
1.9

 
1.8

 
6
 %
Corporate & Other
 
1.1

 
1.1

 
—
 %
Total
 
120.2

 
113.3

 
6
 %
 
 
 
 
 
 
 
OIBDA
 
 
 
 
 
 
Media Division
 
$
26.3

 
$
33.7

 
(22
)%
Live Events
 
3.9

 
5.6

 
(30
)%
Consumer Products Division
 
8.2

 
5.5

 
49
 %
WWE Studios
 
(0.4
)
 
(7.4
)
 
(95
)%
Corporate & Other
 
(35.3
)
 
(27.7
)
 
27
 %
Total
 
2.7

 
9.7

 
(72
)%
OIBDA as a percentage of revenues
 
2
%
 
9
%
 

 
 
 
 
 
 
 
Depreciation and amortization expense
 
$
7.7

 
$
6.5

 
18
 %
Operating (loss) income
 
(5.0
)
 
3.2

 
(256
)%
Loss in equity investment
 
(4.0
)
 
—

 
(100
)%
Investment and other (expense) income, net
 
(1.5
)
 
0.1

 
(1,600
)%
(Loss) income before income taxes
 
(10.5
)
 
3.3

 
(418
)%
(Benefit from) provision for income taxes
 
(4.6
)
 
0.9

 
(611
)%
Net (loss) income
 
$
(5.9
)
 
$
2.4

 
(346
)%
Our Media division revenues increased 6% driven primarily the impact of the launch of our WWE Network. Our Live Events segment revenues decreased by 13% primarily due to unfavorable North American venue mix. Our Consumer Products division experienced a 47% increase in revenues, primarily due to increased video game royalties. Our WWE Studios segment increased slightly by $0.1 million.
The comparability of our results in the current year quarter were impacted by $4.2 million in restructuring charges of which $2.4 million relates to severance and other costs and is included in Corporate and Other Expense with $0.3 million included in our Digital Media segment, and $1.8 million relates to the impairment of gamification assets and is included in depreciation and amortization expense. The current year quarter also includes a $4.0 million impairment of an equity investment and is included in other expense. In the prior year quarter, our results were impacted by $7.0 million of impairment charges related to our film portfolio.



22
Table of Contents

Media Division
The following tables present the performance results for our segments within our Media division (dollars in millions, except where noted):
 
 
Three Months Ended
 
 
Revenues-Media Division
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
Network
 
$
26.1

 
$
15.5

 
68
 %
Subscriptions
 
$
22.4

 
N/A

 
 
Pay-per-view
 
$
3.7

 
$
14.6

 
(75
)%
Video-on-demand
 
$
—

 
$
0.9

 
(100
)%
Monthly subscription price (dollars)(a)                                                    
 
$9.99 / $12.99

 
N/A

 
 
Number of paid subscribers at period end 
 
731,359

 
N/A

 
 
    Domestic
 
702,883

 
N/A

 
 
    International
 
28,476

 
N/A

 
 
Number of average paid subscribers (b)
 
723,174

 
N/A

 
 
Number of pay-per-view events
 
3

 
3

 
—
 %
Number of buys from pay-per-view events
 
284,600
 
761,000
 
(63
)%
Average revenue per buy (dollars)
 
$
12.83

 
$
19.35

 
(34
)%
Pay-per-view domestic retail price, excluding WrestleMania (dollars)
 
$
44.95

 
$
44.95

 
—
 %
Television
 
$
42.2

 
$
44.8

 
(6
)%
Home Entertainment
 
$
3.6

 
$
5.2

 
(31
)%
Gross units shipped
 
429,000

 
718,200

 
(40
)%
Digital Media
 
$
5.0

 
$
7.2

 
(31
)%
Total
 
$
76.9

 
$
72.7

 
6
 %
 
 
 
 
 
 
 
Television Ratings
 
 
 
 
 
 
       Average weekly household ratings for RAW
 
3.4

 
3.3

 
3
 %
       Average weekly household ratings for SmackDown
 
2.2

 
2.2

 
—
 %
       Average weekly household ratings for WWE Main Event
 
N/A

 
0.9

 


       Average weekly household ratings for Total Divas (E!)
 
1.4

 
1.4

 
—
 %
 
 
Three Months Ended
 
 
OIBDA-Media Division
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
Network
 
$
2.3

 
$
7.4

 
(69
)%
Television
 
20.7

 
21.3

 
(3
)%
Home Entertainment
 
1.3

 
1.9

 
(32
)%
Digital Media
 
2.0

 
3.1

 
(35
)%
Total
 
$
26.3

 
$
33.7

 
(22
)%
OIBDA as a percentage of revenues
 
34
%
 
46
%
 
 
(a) This is our pricing for our domestic subscribers. In certain international territories, subscribers can access the Network by other means, subscription pricing may vary.
(b) Average subscribers shown for 2014 represent the average level of subscribers over the three months ended September 30, 2014. WWE Network launched in the U.S. on February 24, 2014.



23
Table of Contents


Network revenues, which include revenues generated by WWE Network, pay-per-view and video-on-demand, increased 68% or $10.6 million in the current quarter as compared to the prior year quarter as new subscription revenue more than offset a decline in pay-per-view revenue. WWE Network generated $22.4 million in subscription revenue with approximately 723,000 average paid subscribers at quarter-end. During the three months ended September 30, 2014, WWE Network had approximately 285,000 gross additions to its subscriber base, offset by churn of 254,000 subscribers. Gross additions include unique new subscribers and win-backs (subscribers that previously churned out and subsequently became a subscriber). WWE Network launched on February 24, 2014 and is a subscription based OTT product which includes our events previously distributed as pay-per-view events. As subscribers join WWE Network, it is expected that pay-per-view buys will decrease. Network subscription revenue was partially offset by a $10.9 million decline in pay-per-view revenue, driven by an overall 63% decline in buys for the Company’s pay-per-view events and a 34% decline in revenue per buy to $12.83, as a higher percentage of our buys are now generated internationally, which has lower pricing than domestic.  Total Network OIBDA as a percentage of revenues decreased to 9% in the current year quarter as compared to 48% in the prior year quarter driven mainly by the costs associated with the launch and ongoing support of our WWE Network. Included in the current quarter results is approximately $6.7 million of costs related to advertising,$2.8 million of programming costs, and $2.7 million of development costs.

The following table contains subscriber data for the three months ended September 30, 2014:
 
 
September 30,
2014
Beginning subscribers
 
699,752

Net subscriber additions
 
31,607

Ending subscribers
 
731,359


Television revenues, which include revenues generated from television rights fees and advertising, decreased by 6% or $2.6 million in the current year quarter as compared to the prior year quarter.  Our domestic television rights fees decreased by $4.1 million, primarily due to the timing of airing our Total Divas program, which is carried on the E! Network, as five fewer episodes were aired in the current year quarter as compared to the prior year quarter. In addition, the decrease in revenues includes the absence of rights fees from our Main Event program which ceased television distribution in the first quarter of 2014 and is currently broadcast on WWE Network. These decreases were partially offset by increases in our international rights business which increased by $1.1 million as a result of contractual increases for existing programs. The television OIBDA as a percentage of revenues increased to 49% from 48% in the prior year quarter.

Home entertainment revenues, which include revenues generated from the sale of WWE produced content via home entertainment platforms such as DVD and Blu-Ray discs, decreased 31% or $1.6 million in the current year quarter compared to the prior year quarter.  This decrease reflected a 40% decline in units shipped, combined with a 19% decrease in the average price per unit to $9.22. The decline in unit shipments reflects reduced shipments of WWE's catalog titles which are typically characterized by lower prices and profit margins than new releases. The average effective price decline reflected retail pricing pressure on both new releases and catalog titles which more than offset the impact of product mix. Home entertainment OIBDA as a percentage of revenues decreased to 36% in the current year quarter compared to 37% in the prior year quarter driven by decreased revenues and in part due to higher talent royalties.
Digital media revenues, which include revenues generated from WWE.com and from our magazine publishing business, decreased 31% or $2.2 million. The decrease in revenue was primarily related to a $1.5 million decline in WWE.com revenues as pay-per-view webcast sales declined due to the launch of WWE Network. Additionally, the decrease reflected lower advertising revenues across various platforms. Publishing revenues declined by $0.7 million in the current quarter primarily due to the discontinuance of our print WWE Magazine business. These declines were partially offset by higher YouTube royalties versus the prior year quarter as the Company's video streams continue to rise with approximately 3 billion streams year-to-date through September 30, 2014. Digital media OIBDA as a percentage of revenues decreased to 40% in the current year quarter compared to 43% in the prior year quarter driven primarily by lower revenues and the discontinuance our print magazine business.

   



24
Table of Contents

Live Events
The following tables present the performance results and key drivers for our Live Events segment (dollars in millions, except where noted):

 
Three Months Ended
 
 
Revenues- Live Events
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
Live events
 
$
21.6

 
$
25.0

 
(14
)%
North America
 
$
17.3

 
$
17.5

 
(1
)%
International
 
$
4.3

 
$
7.5

 
(43
)%
Total live event attendance
 
421,300

 
435,200

 
(3
)%
Number of North American events
 
73

 
62

 
18
 %
Average North American attendance
 
5,100

 
5,500

 
(7
)%
Average North American ticket price (dollars)
 
$
44.60

 
$
46.78

 
(5
)%
Number of international events
 
6

 
14

 
(57
)%
Average international attendance
 
7,700

 
6,700

 
15
 %
Average international ticket price (dollars)
 
$
92.89

 
$
72.30

 
28
 %
Travel packages
 
$
0.2

 
$
0.1

 
100
 %
Total live events
 
$
21.8

 
$
25.1

 
(13
)%

 
 
Three Months Ended
 
 
OIBDA-Live Events
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
Live events
 
$
3.8

 
$
5.6

 
(32
)%
Travel packages
 
0.1

 
—

 
100
 %
Total
 
$
3.9

 
$
5.6

 
(30
)%
OIBDA as a percentage of revenues
 
18
%
 
22
%
 

Live events revenues, which include revenues from ticket sales and travel packages, decreased 13% or $3.3 million in the current year quarter as compared to the prior year quarter. Revenues from our international live events business decreased by $3.2 million primarily due to the staging of eight fewer events in the current year quarter as compared to the prior year quarter, which was partially offset by a 28% increase in average ticket prices to $92.89 and a 15% increase in average attendance. The changes in ticket prices and average attendance were predominantly due to changes in country mix. Revenues from our North America live events business decreased by $0.2 million or 1%, primarily due to an overall 7% lower average attendance and a 5% decrease in average ticket prices to $44.60 due to venue mix. The decrease was partially offset by staging eleven additional events. Live events OIBDA as a percentage of revenues decreased to 18% in the current year quarter compared to 22% in the prior year quarter, driven in part, by higher event venue costs and an increase in production costs.



25
Table of Contents

Consumer Products Division
   The following tables present the performance results and key drivers for our Consumer Products division (dollars in millions, except where noted):
 
 
Three Months Ended
 
 
Revenues-Consumer Products Division
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
Licensing
 
$
10.0

 
$
5.7

 
75
 %
Venue merchandise
 
4.2

 
4.0

 
5
 %
Domestic per capita spending (dollars)
 
$
9.69

 
$
9.53

 
2
 %
WWEShop
 
4.3

 
2.9

 
48
 %
Average WWEShop revenues per order (dollars)
 
$
47.59

 
$
48.87

 
(3
)%
Total
 
$
18.5

 
$
12.6

 
47
 %

 
 
Three Months Ended
 
 
OIBDA-Consumer Products Division
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
Licensing
 
$
5.9

 
$
3.3

 
79
 %
Venue merchandise
 
1.6

 
1.7

 
(6
)%
WWEShop
 
0.7

 
0.5

 
40
 %
Total
 
$
8.2

 
$
5.5

 
49
 %
OIBDA as a percentage of revenues
 
44
%
 
44
%
 
 
Licensing revenues increased 75% or $4.3 million in the current year quarter as compared to the prior year quarter primarily driven by higher contractual royalty rates in the current year quarter compared to the prior year quarter for video game revenue. Licensing OIBDA as a percentage of revenues increased slightly to 59% in the current year quarter compared to 58% in the prior year quarter.
Venue merchandise revenues increased by $0.2 million in the current year quarter as compared to the prior year quarter primarily due a 2% increase in per capital merchandise spend at domestic events, which was partially offset by a 3% lower total attendance. The venue merchandise OIBDA as a percentage of revenues decreased to 38% from 43% in the prior year quarter due to higher event venue costs.
WWEShop revenues increased 48% or $1.4 million in the current year quarter compared to the prior year quarter, based on a 50% increase in the volume of online merchandise sales to approximately 89,900 orders globally. Orders increased primarily due to mobile shop optimization and a distribution strategy in the UK utilizing Amazon UK. The average revenue per order decreased 3% to $47.59 in the current year quarter compared to the prior year quarter. WWEShop OIBDA as a percentage of revenues decreased to 16% in the current year quarter from 17% in the prior year quarter due to lower margins related to international sales.




26
Table of Contents

WWE Studios    
The following table presents the detailed information for our WWE Studios segment (dollars in millions):
 
 
 
 
 
 
Feature
Film
Production
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets-net as of
 
 
 
 
 
For the Three Months Ended September 30,
 
 
Release
 
Production
 
Sept 30,
 
Inception to-date
 
Revenue
 
OIBDA
Title
 
 Date
 
 Costs*
 
2014
 
Revenue
 
OIBDA
 
2014
 
2013
 
2014
 
2013
2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leprechaun: Origins
 
Aug 2014
 
$
1.0

 
$
1.0

 
$
—

 
$
—

 
$
—

 
$ N/A
 
$
—

 
$ N/A

Oculus
 
April 2014
 
3.0

 
3.0

 
—

 
—

 
—

 
   N/A
 
—

 
N/A

Scooby Doo! WrestleMania Mystery
 
Mar 2014
 
1.3

 
1.0

 
0.5

 
0.2

 
0.5

 
  N/A
 
0.2

 
N/A

 
 
 
 
5.3

 
5.0

 
0.5

 
0.2

 
0.5

 
—

 
0.2

 
—

2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Christmas Bounty
 
Nov 2013
 
3.7

 
0.1

 
4.1

 
0.5

 
—

 
    N/A

 
—

 
N/A

12 Rounds 2: Reloaded
 
June 2013
 
1.4

 
1.0

 
0.8

 
0.4

 
0.3

 
—

 
0.2

 
—

No One Lives
 
May 2013
 
2.2

 
0.4

 
0.9

 
(0.8
)
 
—

 
0.1

 
—

 
(0.9
)
The Call
 
Mar 2013
 
1.0

 
0.4

 
4.0

 
3.4

 
0.2

 
—

 
0.1

 
—

Dead Man Down
 
Mar 2013
 
5.8

 
1.0

 
—

 
(4.7
)
 
—

 
—

 
—

 
—

The Marine 3: Homefront
 
Mar 2013
 
1.5

 
0.8

 
1.2

 
0.6

 
0.4

 
—

 
0.2

 
—

 
 
 
 
15.6

 
3.7

 
11.0

 
(0.6
)
 
0.9

 
0.1

 
0.5

 
(0.9
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prior Releases
 
 
 
116.3

 
3.1

 
103.6

 
(31.0
)
 
0.5

 
1.7

 
0.1

 
(5.6
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Completed but not released
 
5.1

 
5.1

 
—

 
—

 
—

 
—

 
—

 
—

In production
 
 
 
10.5

 
10.5

 
—

 
—

 
—

 
—

 
—

 
—

In development
 
 
 
0.5

 
0.5

 
—

 
(4.4
)
 
 
 
—

 
—

 
—

Sub-total
 
 
 
$
153.3

 
$
27.9

 
$
115.1

 
$
(35.8
)
 
$
1.9

 
$
1.8

 
0.8

 
(6.5
)
Selling, General & Administrative Expenses
 

 
 
 


 
 
 
 
 
 
 
(1.2
)
 
(0.9
)
Total
 
 
 
 
 
 
 


 
 
 
 
 
 
 
$
(0.4
)
 
$
(7.4
)
*     Production costs are presented net of the associated benefit of production incentives.
During the current year quarter, we released one film direct to DVD, Leprechaun: Origins. During 2013, the Company entered into an agreement to co-distribute the feature film Road to Paloma. This film was released via a limited theatrical release and on DVD in July 2014. The Company intends to recognize revenue generated by this film in a manner similar to how it recognizes revenue for its licensed films. In 2014, the Company did not record any revenue associated with this release. Third-party distributors control the distribution and marketing of co-distributed films, and as a result, we recognize revenue on a net basis after the third-party distributor recoups distribution fees and expenses and results are reported to us. Results are typically reported to us in quarters subsequent to the initial release of these films. We did not release any feature films in the prior year quarter.
WWE Studios revenues increased $0.1 million in the current year quarter as compared to the prior year quarter. The revenue recognized in the current year quarter is primarily associated with our 2013 portfolio of film releases. WWE Studios OIBDA increased $7.0 million primarily due to recording impairment charges totaling $7.0 million in the prior year quarter.



27
Table of Contents

At September 30, 2014, the Company had $27.9 million (net of accumulated amortization and impairment charges) of feature film production assets capitalized on its Consolidated Balance Sheet of which $11.8 million is for films in-release, $10.5 million is for films in production and the remaining $5.6 million is for films that are completed, pending release, or developmental projects. We review and revise estimates of ultimate revenue and participation costs at the end of each reporting quarter 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 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.
 
 
Three Months Ended
 
 
Revenues- Corporate & Other
(dollars in millions )
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
Other
 
$
1.1

 
$
1.1

 
—
%
Other revenues include revenues associated with talent appearances and were flat in the periods.
 
 
Three Months Ended
 
 
OIBDA- Corporate & Other
(dollars in millions )
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
Corporate & Other
 
$
(35.3
)
 
$
(27.7
)
 
27
%
Corporate & Other Expenses
The following table presents the amounts and percent change of certain significant corporate and other expenses (dollars in millions):
 
 
Three Months Ended
 
 
 
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
Staff related
 
$
14.8

 
$
11.4

 
30
 %
Management incentive compensation
 
2.8

 
0.5

 
460
 %
Legal, accounting and other professional
 
4.9

 
3.5

 
40
 %
Travel and entertainment expense
 
1.4

 
1.3

 
8
 %
Advertising, marketing and promotion
 
2.1

 
1.8

 
17
 %
Corporate insurance
 
1.0

 
1.2

 
(17
)%
Bad debt recovery
 
(0.4
)
 
(0.2
)
 
100
 %
All other
 
9.8

 
9.3

 
5
 %
Total corporate & other expenses
 
$
36.4

 
$
28.8

 
26
 %
Corporate & Other as a percentage of net revenues
 
30
%
 
25
%
 

Corporate and other expenses primarily include corporate overhead and certain expenses related to sales and marketing, including our international offices, and talent development functions, including costs associated with our WWE Performance Center. These costs benefit the Company as a whole and are therefore not allocated to individual businesses. Corporate and other expenses increased $7.6 million or 26% as compared to the prior year quarter. The increase in expenses during the quarter was primarily driven by a $5.7 million increase in salary and benefit costs, in part, related to severance costs associated with our restructuring plan and increased management incentive compensation based upon Company performance, as well, as a $1.4 million increase in professional fees in support of our strategic objectives.



28
Table of Contents

Depreciation and Amortization
(dollars in millions)
 
 
Three Months Ended
 
 
 
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
Depreciation and amortization
 
$
7.7

 
$
6.5

 
18
%

Depreciation expense for the current year quarter includes an impairment charge of $1.8 million related to a shift in digital gaming strategy as part our restructuring plan.
Investment Income, Interest and Other (Expense) Income, Net
(dollars in millions)
 
 
Three Months Ended
 
 
 
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
Loss on equity investment
 
$
(4.0
)
 
$
—

 
(100
)%
Investment income, interest and other (expense) income, net
 
(1.5
)
 
0.1

 
(1,600
)%
The current year quarter includes an impairment charge of $4.0 million on an equity investment for the excess of the carrying value over its estimated fair value. Investment income, interest and other (expense) income, net yielded an expense of $1.5 million compared to income of $0.1 million in the prior year quarter reflecting changes in realized foreign exchange losses of $0.9 million.
Income Taxes
(dollars in millions)
 
 
Three Months Ended
 
 
 
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
(Benefit from) provision for income taxes
 
$
(4.6
)
 
$
0.9

 
(611
)%
Effective tax rate
 
44
%
 
27
%
 
 

The Company recorded a tax benefit of $4.6 million associated with our operating loss in the quarter. The Company currently believes this benefit is realizable and has not recorded a valuation allowance against the related deferred tax assets. If it becomes more likely than not that the Company will not realize these benefits, a valuation allowance would be recorded with a corresponding charge to our income tax provision.



29
Table of Contents

Results of Operations
Nine Months Ended September 30, 2014 compared to Nine Months Ended September 30, 2013
(dollars in millions)
Summary
 
 
Nine Months Ended
 
 
 
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
Net Revenues
 
 
 
 
 
 
Media Division
 
$
250.4

 
$
231.9

 
8
 %
Live Events
 
83.8

 
87.7

 
(4
)%
Consumer Products Division
 
57.7

 
61.9

 
(7
)%
WWE Studios
 
8.0

 
5.8

 
38
 %
Corporate & Other
 
2.2

 
2.3

 
(4
)%
Total
 
402.1

 
389.6

 
3
 %
 
 
 
 
 
 
 
OIBDA
 
 
 
 
 
 
Media Division
 
$
45.6

 
$
79.0

 
(42
)%
Live Events
 
23.2

 
27.2

 
(15
)%
Consumer Products Division
 
25.2

 
35.6

 
(29
)%
WWE Studios
 
0.9

 
(12.8
)
 
107
 %
Corporate & Other
 
(114.0
)
 
(93.1
)
 
22
 %
Total
 
(19.1
)
 
35.9

 
(153
)%
OIBDA as a percentage of revenues
 
(5
)%
 
9
%
 

 
 
 
 
 
 
 
Depreciation and amortization expense
 
$
20.6

 
$
17.8

 
16
 %
Operating (loss) income
 
(39.7
)
 
18.1

 
(319
)%
Loss on equity investment
 
(4.0
)
 
—

 
(100
)%
Investment and other expense, net
 
(2.1
)
 
(1.6
)
 
31
 %
(Loss) income before income taxes
 
(45.8
)
 
16.5

 
(378
)%
(Benefit from) provision for income taxes
 
(17.3
)
 
5.8

 
(398
)%
Net (loss) income
 
$
(28.5
)
 
$
10.7

 
(366
)%
Our Media division revenues increased 8% driven primarily due to the impact of the launch of our new WWE Network and increases from our Television segment. Our Live Events segment revenues declined by 4% due to decreased stadium capacity and ticket prices at WrestleMania due to the venue location and the staging of ten fewer international events. Our Consumer Products division experienced a 7% decline in revenues, primarily driven by lower licensing revenues from our video games. Our WWE Studios segment reflected a $2.2 million increase in revenues driven by the timing of our film releases and the related revenue from our movie portfolio.
The comparability of our results in the current year period were impacted by $4.2 million in restructuring charges of which $2.4 million relates to severance and other costs and is included in Corporate and Other Expense with $0.3 million included in our Digital Media Segment, and $1.8 million relates to the impairment of gamification assets and is included in depreciation and amortization expense. The current year period also includes a $4.0 million impairment of an equity investment and is included in other expense and a $1.6 million adjustment to reduce the carrying value of the old corporate aircraft to its estimated fair value, included in depreciation expense. In the prior year period, our results were impacted by $11.7 million of impairment charges



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related to our film portfolio and an approximate $3.4 million positive impact from the transition of our video game to a new licensee.
Media Division
The following tables present the performance results for our segments within our Media division (dollars in millions, except where noted):
 
 
Nine Months Ended
 
 
Revenues-Media Division
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
Network
 
$
87.8

 
$
69.7

 
26
 %
Subscriptions
 
$
46.2

 
N/A

 


Pay-per-view
 
$
41.3

 
$
66.8

 
(38
)%
Video-on-demand
 
$
0.3

 
$
2.9

 
(90
)%
Monthly subscription price (dollars) (a)
 
$9.99 / $12.99

 
N/A

 
 
Number of paid subscribers at period end
 
731,359

 
N/A

 
 
    Domestic
 
702,883

 
N/A

 
 
    International
 
28,476

 
N/A

 
 
Number of average paid subscribers (b)
 
514,652

 
N/A

 
 
Number of pay-per-view events
 
9

 
8

 
13
 %
Number of buys from pay-per-view events
 
2,020,600
 
3,056,400
 
(34
)%
Average revenue per buy (dollars)
 
$
20.29

 
$
21.80

 
(7
)%
Pay-per-view domestic retail price, excluding WrestleMania (dollars)
 
$
44.95

 
$
44.95

 
—
 %
     Pay-per-view domestic retail price WrestleMania (dollars)
 
$
59.95

 
$
59.95

 
—
 %
Television
 
$
126.2

 
$
121.3

 
4
 %
Home Entertainment
 
$
19.5

 
$
19.2

 
2
 %
Gross units shipped
 
2,094,300

 
2,900,200

 
(28
)%
Digital Media
 
$
16.9

 
$
21.7

 
(22
)%
Total
 
$
250.4

 
$
231.9

 
8
 %
 
 
 
 
 
 
 
Television Ratings
 
 
 
 
 
 
       Average weekly household ratings for RAW
 
3.5

 
3.4

 
3
 %
       Average weekly household ratings for SmackDown
 
2.3

 
2.2

 
5
 %
       Average weekly household ratings for WWE Main Event
 
1.0

 
0.9

 
11
 %
       Average weekly household ratings for Total Divas (E!)
 
1.4

 
1.4

 
—
 %
 
 
Nine Months Ended
 
 
OIBDA-Media Division
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
Network
 
$
(8.6
)
 
$
20.6

 
(142
)%
Television
 
43.0

 
44.7

 
(4
)%
Home Entertainment
 
10.4

 
8.2

 
27
 %
Digital Media
 
0.8

 
5.5

 
(85
)%
Total
 
$
45.6

 
$
79.0

 
(42
)%
OIBDA as a percentage of revenues
 
18
%
 
34
%
 
 



31
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(a) This is our pricing for our domestic subscribers. In certain international territories, subscribers can access the Network by other means, subscription pricing may vary.
(b) Average subscribers shown for 2014 represent the average level of subscribers over the nine months ended September 30, 2014. WWE Network launched in the U.S. on February 24, 2014.

Network revenues, which include revenues generated by WWE Network, pay-per-view and video-on-demand, increased by $18.1 million in the current year period as compared to the prior year period. WWE Network, which launched on February 24, 2014, accounted for $46.2 million in new digital subscription revenues in the current year period with approximately 515,000 average paid subscribers for the nine months ended September 30, 2014. During the nine months ended September 30, 2014, WWE Network had approximately 1,154,000 gross additions to its subscriber base, offset by churn of 423,000 subscribers. Gross additions include unique new subscribers and win-backs (subscribers that previously churned out and subsequently became a subscriber). The subscription to WWE Network is $9.99 per month with a 6 month commitment or $12.99 a month with no commitment period. WWE Network is a 24/7 streaming network that provides access to live and scheduled programming, including all 12 of WWE’s live pay-per-view events, as well as access to its comprehensive video-on-demand library. The $46.2 million of revenues generated by WWE Network in the current year period was partially offset by the decline in pay-per-view revenue of $25.5 million due primarily to a 34% decline in total pay-per-view buys primarily attributable to WWE Network's launch. Additionally, the average revenue per buy declined by 7% to approximately $20.29 per buy due to a higher portion of pay-per-view buys coming from international markets in which have lower effective pricing. In addition, video-on-demand revenues decreased by $2.6 million due to the cessation of our Classics On Demand offering in January 2014 in anticipation of the launch of WWE Network in February.  Total Network OIBDA as a percentage of revenues decreased to a loss of 10% in the current year period as compared to a profit of 30% in the prior year period driven mainly by the costs associated with the launch and ongoing support of our WWE Network. In support of the network launch, we incurred $15.0 million of advertising costs, $11.2 million of customer service costs in anticipation of initial customer demand and inquiries and $10.9 million of programing costs.
 
Television revenues, which include revenues generated from television rights fees and advertising, increased by $4.9 million in the current year period as compared to the prior year period.  Our domestic television rights fees increased by $1.8 million, primarily due to the timing of airing our Total Divas program, which is carried on the E! Network, as the current year period included Season 2 and part of Season 3 compared to the prior year period which included only part of Season 1. This increase was partially offset by the absence of rights fees from our Main Event and Saturday Morning Slam programs which ceased television distribution in the first quarter of 2014 and second quarter of 2013, respectively. Main Event currently is broadcast on WWE Network. Additionally, our international television rights fees increased by $2.6 million.  The television OIBDA as a percentage of revenues decreased to 34% from 37% in the prior year period primarily due to product mix.

Home entertainment revenues, which include revenues generated from the sale of WWE produced content via home entertainment platforms such as DVD and Blu-Ray discs, increased by $0.3 million in the current year period compared to the prior year period.  This increase was due in part to the recognition of a $2.5 million minimum guarantee from our home video distributer. This increase was offset by a decrease in domestic home entertainment revenue which fell by $2.3 million, due to a 28% decline in shipments to 2.1 million units and a 6% decline in the average price per unit to $9.70. Home entertainment OIBDA as a percentage of revenues increased to 53% in the current year period compared to 43% in the prior year period driven by the recognition of the minimum guarantee and the lack of associated variable costs.
Digital media revenues, which include revenues generated from WWE.com and from our magazine publishing business, decreased by $4.8 million. WWE.com revenues decreased by $3.1 million in the current year period compared to the prior year period due to digital pay-per-view revenue cannibalization by WWE Network and decreased monetization of video content across various digital platforms. This decrease was partially offset by higher advertising versus the prior year period. Publishing revenues decreased by $1.7 million primarily due to decreased sell through prior to the discontinuance of our print WWE magazine business in the third quarter of 2014. Digital media OIBDA as a percentage of revenues decreased to 5% in the current year period from 25% in the prior year period driven by the decline in digital pay-per-view buy revenue, decreased performance of our publishing business and a relatively fixed cost structure.



32
Table of Contents

Live Events
The following tables present the performance results and key drivers for our Live Events segment (dollars in millions, except where noted):
 
 
Nine Months Ended
 
 
Revenues- Live Events
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
Live events
 
$
81.6

 
$
86.1

 
(5
)%
North America
 
$
66.5

 
$
67.6

 
(2
)%
International
 
$
15.1

 
$
18.5

 
(18
)%
Total live event attendance
 
1,454,500

 
1,483,700

 
(2
)%
Number of North American events
 
207

 
204

 
1
 %
Average North American attendance
 
6,100

 
6,100

 
—
 %
Average North American ticket price (dollars)
 
$
49.66

 
$
49.63

 
—
 %
Number of international events
 
29

 
39

 
(26
)%
Average international attendance
 
6,400

 
6,300

 
2
 %
Average international ticket price (dollars)
 
$
79.99

 
$
69.92

 
14
 %
Travel packages
 
$
2.2

 
$
1.6

 
38
 %
Total live events
 
$
83.8

 
$
87.7

 
(4
)%

 
 
Nine Months Ended
 
 
OIBDA-Live Events
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
Live events
 
$
22.4

 
$
26.5

 
(15
)%
Travel packages
 
0.8

 
0.7

 
14
 %
Total
 
$
23.2

 
$
27.2

 
(15
)%
OIBDA as a percentage of revenues
 
28
%
 
31
%
 
 
Live events revenues, which include revenues from ticket sales and travel packages, decreased by $3.9 million in the current year period as compared to the prior year period. Revenues from our North America live events business decreased $1.1 million or 2%, primarily due to the performance of WrestleMania 30, which experienced decreased attendance as a result of stadium capacity, partially due to configuration which was partially offset by staging three additional events in the current year period. Overall, total average attendance and average ticket price remained flat. Our international live events business decreased $3.4 million, primarily driven by ten fewer events held, which was offset, in part, by an increase in average ticket prices and to a lesser extent average attendance in the current year period as compared to the prior year period. Live events OIBDA as a percentage of revenues decreased to 28% in the current year period compared to 31% in the prior year period, driven in part, by higher talent and advertising related expenses.



33
Table of Contents

Consumer Products Division
   The following tables present the performance results and key drivers for our Consumer Products division (dollars in millions, except where noted):

 
Nine Months Ended
 
 
Revenues-Consumer Products Division
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
Licensing
 
$
29.5

 
$
36.4

 
(19
)%
Venue merchandise
 
15.7

 
16.0

 
(2
)%
Domestic per capita spending (dollars)
 
$
9.79

 
$
10.65

 
(8
)%
WWEShop
 
12.5

 
9.5

 
32
 %
Average WWEShop revenues per order (dollars)
 
$
49.15

 
$
48.23

 
2
 %
Total
 
$
57.7

 
$
61.9

 
(7
)%

 
 
Nine Months Ended
 
 
OIBDA-Consumer Products Division
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
Licensing
 
$
16.5

 
$
27.7

 
(40
)%
Venue merchandise
 
6.3

 
6.2

 
2
 %
WWEShop
 
2.4

 
1.7

 
41
 %
Total
 
$
25.2

 
$
35.6

 
(29
)%
OIBDA as a percentage of revenues
 
44
%
 
58
%
 
 
Licensing revenues decreased by $6.9 million in the current year period as compared to the prior year period driven largely by the inclusion in the prior year period of an $8.0 million favorable benefit in connection with the termination of our former video game licensee, THQ, whereby the Company recognized $8.0 million of revenue related to an advance received when the Company entered into the license agreement with THQ in 2009.  Additionally, to a lesser extent, the remainder of the decline in licensing revenues is attributable to lower licensing revenue performance from our toys and apparel. These decreases were partially offset by the transition to a new video game licensee, Take-Two Interactive which resulted in a $2.9 million increase in our video game revenues. Licensing OIBDA as a percentage of revenues was 56% in the current year period compared to 76% in the prior year period. The OIBDA margin in the prior year period reflected a positive benefit associated with the recognition of the advance received from THQ.
Venue merchandise revenues decreased by $0.3 million in the current year period as compared to the prior year period primarily due to an 8% decline in per capita merchandise spend at our domestic events to $9.79 in the current year period. The venue merchandise OIBDA as a percentage of revenues increased to 40% from 39% in the prior year period driven by decreased material costs, talent royalties and lower event venue costs.
WWEShop revenues increased by $3.0 million in the current year period compared to the prior year period, based on a 29% increase in the volume of online merchandise sales to approximately 253,200 orders. Orders increased primarily due to mobile shop optimization and a distribution strategy in the UK utilizing Amazon UK. The average revenue per order increased 2% to $49.15 in the current year period. WWEShop OIBDA as a percentage of revenues remained relatively consistent in the periods at approximately 19%.





34
Table of Contents

WWE Studios    
The following table presents the detailed information for our WWE Studios segment (dollars in millions):
 
 
 
 
 
 
Feature
Film
Production
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets-net as of
 
 
 
 
 
For the Nine Months Ended
September 30,
 
 
Release
 
Production
 
Sept 30,
 
Inception to-date
 
Revenue
 
OIBDA
Title
 
 Date
 
 Costs*
 
2014
 
Revenue
 
OIBDA
 
2014
 
2013
 
2014
 
2013
2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leprechaun: Origins
 
Aug 2014
 
$
1.0

 
$
1.0

 
$
—

 
$
—

 
$
—

 
$ N/A
 
$
—

 
$ N/A

Oculus
 
April 2014
 
3.0

 
3.0

 
—

 
—

 
—

 
  N/A
 
—

 
N/A

Scooby Doo! WrestleMania Mystery
 
Mar 2014
 
1.3

 
1.0

 
0.5

 
0.2

 
0.5

 
   N/A
 
0.2

 
   N/A

 
 
 
 
5.3

 
5.0

 
0.5

 
0.2

 
0.5

 
—

 
0.2

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Christmas Bounty
 
Nov 2013
 
3.7

 
0.1

 
4.1

 
0.5

 
—

 
   N/A

 
(0.1
)
 
  N/A

12 Rounds 2: Reloaded
 
June 2013
 
1.4

 
1.0

 
0.8

 
0.4

 
0.8

 
—

 
0.4

 
—

No One Lives
 
May 2013
 
2.2

 
0.4

 
0.9

 
(0.8
)
 
—

 
0.8

 
—

 
(0.9
)
The Call
 
Mar 2013
 
1.0

 
0.4

 
4.0

 
3.4

 
3.7

 
0.1

 
3.1

 
0.1

Dead Man Down
 
Mar 2013
 
5.8

 
1.0

 
—

 
(4.7
)
 
—

 
—

 
—

 
(4.7
)
The Marine 3: Homefront
 
Mar 2013
 
1.5

 
0.8

 
1.2

 
0.6

 
1.1

 
—

 
0.6

 
—

 
 
 
 
15.6

 
3.7

 
11.0

 
(0.6
)
 
5.6

 
0.9

 
4.0

 
(5.5
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prior Releases
 
 
 
116.3

 
3.1

 
103.6

 
(31.0
)
 
1.9

 
4.9

 
0.7

 
(4.8
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Completed but not released
 
5.1

 
5.1

 
—

 
—

 
—

 
—

 
—

 
—

In production
 
 
 
10.5

 
10.5

 
—

 
—

 
—

 
—

 
—

 
—

In development
 
 
 
0.5

 
0.5

 
—

 
(4.4
)
 
—

 
—

 
(0.3
)
 
—

Sub-total
 
 
 
$
153.3

 
$
27.9

 
$
115.1

 
$
(35.8
)
 
$
8.0

 
$
5.8

 
$
4.6

 
$
(10.3
)
Selling, General & Administrative Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
(3.7
)
 
(2.5
)
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
0.9

 
$
(12.8
)
*     Production costs are presented net of the associated benefit of production incentives.
During the current year period, we released one feature film via theatrical distribution, Oculus, and two films direct to DVD, Scooby Doo at WrestleMania, and Leprechaun: Origins. During 2013, the Company entered into an agreement to co-distribute the feature film Road to Paloma. This film was released via a limited theatrical release and on DVD in July 2014. The Company intends to recognize revenue generated by this film in a manner similar to how it recognizes revenue for its licensed films. In 2014, the Company did not record any revenue associated with this release. Third-party distributors control the distribution and marketing of co-distributed films, and as a result, we recognize revenue on a net basis after the third-party distributor recoups distribution fees and expenses and results are reported to us. Results are typically reported to us in quarters subsequent to the initial release of these films. During the prior year period, we released three feature films via theatrical distribution, No One Lives, Dead Man Down and The Call and two films, 12 Rounds 2: Reloaded and The Marine 3: Homefront direct to DVD.



35
Table of Contents

WWE Studios revenues increased $2.2 million in the current year period as compared to the prior year period. The increase in revenue is driven by the timing of our film releases and when participation statements are received. In the current year period, we recognized $3.7 million in revenue from our licensed film, The Call, which was released in 2013. WWE Studios OIBDA increased $13.7 million in the current year period as compared to the prior year period, due in part, to the profitability of The Call, and the absence of impairment charges in the current year period, as $11.7 million of impairment charges were recorded in the prior year period.
At September 30, 2014, the Company had $27.9 million (net of accumulated amortization and impairment charges) of feature film production assets capitalized on its Consolidated Balance Sheet of which $11.8 million is for films in-release, $10.5 million is for films in production and the remaining $5.6 million is for films that are completed, pending release, or developmental projects. We review and revise estimates of ultimate revenue and participation costs at the end of each reporting quarter 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 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.
 
 
Nine Months Ended
 
 
Revenues- Corporate & Other
(dollars in millions )
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
Other
 
$
2.2

 
$
2.3

 
(4
)%
Other revenues, which include revenues associated with talent appearances, decreased by $0.1 million in the current year period as compared to the prior year period.
 
 
Nine Months Ended
 
 
OIBDA- Corporate & Other
(dollars in millions )
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
Corporate & Other
 
$
(114.0
)
 
$
(93.1
)
 
22
%
Corporate & Other Expenses
The following table presents the amounts and percent change of certain significant corporate and other expenses (dollars in millions):
 
 
Nine Months Ended
 
 
 
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
Staff related
 
$
41.9

 
$
36.5

 
15
 %
Management incentive compensation
 
9.4

 
5.1

 
84
 %
Legal, accounting and other professional
 
17.4

 
11.0

 
58
 %
Travel and entertainment expense
 
4.9

 
3.6

 
36
 %
Advertising, marketing and promotion
 
7.2

 
5.9

 
22
 %
Corporate insurance
 
2.7

 
3.1

 
(13
)%
Bad debt recovery
 
(0.4
)
 
(0.4
)
 
—
 %
All other
 
33.1

 
30.6

 
8
 %
Total corporate & other expenses
 
$
116.2

 
$
95.4

 
22
 %
Corporate & Other as a percentage of net revenues
 
29
%
 
24
%
 

Corporate and other expenses primarily include corporate overhead and certain expenses related to our sales and marketing, including our international offices, and talent development functions, including costs associated with our WWE Performance Center. These costs benefit the Company as a whole and are therefore not allocated to individual businesses. Corporate and other



36
Table of Contents

expenses increased by $20.8 million or 22% in the current year period compared to the prior year period. This is primarily due to increases in professional fees of $6.4 million, management incentive compensation of $4.3 million reflecting amounts expected to be paid based on the Company's operating performance, and staff related expenses of $5.4 million primarily to support talent development and other strategic objectives. Staff related expenses in the current year period includes $2.0 million in severance associated with our restructuring plan.
Depreciation and Amortization
(dollars in millions)
 
 
Nine Months Ended
 
 
 
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
Depreciation and amortization
 
$
20.6

 
$
17.8

 
16
%
Depreciation expense in the current year period includes a benefit of $1.4 million from the recognition of an infrastructure tax credit. This credit was used to reduce the carrying value of the assets as of their in-service date and consequently the adjustment to depreciation expense reflects the revised amount incurred to date. This credit was received in the current year but related to assets placed in service in prior years. Additionally, the current year balance includes an adjustment of $1.6 million to reduce the carrying value of our old corporate aircraft to its estimated fair value and an impairment charge of $1.8 million related to a shift in our digital gaming strategy related to our gamification platform as part of our restructuring plan. Overall depreciation expense in the current year was higher due to depreciation expense related to the Company's recent investments in property and equipment to support our emerging content distribution efforts, including our WWE Network.
Investment Income, Interest and Other Expense, Net
(dollars in millions)
 
 
Nine Months Ended
 
 
 
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
Loss on equity investment
 
$
(4.0
)
 
$
—

 
(100
)%
Investment income, interest and other expense, net
 
(2.1
)
 
(1.6
)
 
31
 %
In the current year period, we recorded a loss on an equity investment of $4.0 million. Investment income, interest and other expense, net yielded an expense of $2.1 million compared to $1.6 million in the prior year period, reflecting lower investment income.
Income Taxes
(dollars in millions)
 
 
Nine Months Ended
 
 
 
 
September 30,
2014
 
September 30,
2013
 
increase
(decrease)
(Benefit from) provision for income taxes
 
$
(17.3
)
 
$
5.8

 
(398
)%
Effective tax rate
 
38
%
 
36
%
 
 
  
The Company recorded a tax benefit of $17.3 million associated with our operating loss in the current year period. The Company currently believes this benefit is realizable and has not recorded a valuation allowance against the related deferred tax assets. If it becomes more likely than not that the Company will not realize these benefits, a valuation allowance would be recorded with a corresponding charge to our income tax provision.



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Liquidity and Capital Resources
We had cash and short-term investments of $68.7 million and $109.4 million as of September 30, 2014 and December 31, 2013, respectively. Our short-term investments consist primarily of corporate bonds and municipal bonds, including pre-refunded municipal bonds.  Our debt balance totaled $27.0 million and $29.6 million as of September 30, 2014 and December 31, 2013, respectively, and is related to the financing of our corporate aircraft purchased in August 2013. 
On February 24, 2014, the Company launched WWE Network, an over-the-top subscription based platform for subscribers to access WWE content, including our marquis pay-per-view events. Our pay-per-view business was impacted by WWE Network and the Company expects to continue investing in WWE Network, both in terms of operating and capital expenditures. We believe that cash provided by operations, including an upcoming $50 million advance payment associated with our recently announced domestic television rights deal, our existing cash and investment balances, as well as available liquidity under our revolving credit facility, will be sufficient to meet our operating requirements over the next 12 months. Longer-term results of WWE Network's launch, specifically subscriber adoption rates could have a profound positive or negative impact on the Company’s liquidity and may require additional actions by the Company to obtain liquidity.
Our uses of cash include dividend payments, debt service, spending on feature film production, capital expenditures, and additional operating costs associated with WWE Network.
Borrowing Capacity

In May 2014, we entered into a First Amendment to our amended and restated $200 million revolving credit facility to provide for financial flexibility during our Network launch. As of September 30, 2014, the Company is in compliance with the provisions of the credit facility and has available debt capacity under the terms of the revolving credit facility of approximately $160.0 million. As of September 30, 2014 and December 31, 2013, there were no amounts outstanding under the credit facility.
Cash Flows from Operating Activities
Cash flows used in operating activities were $5.2 million in the current year period as compared to $12.2 million generated from operations for the corresponding period in the prior year. The $17.4 million increase in cash used in operating activities is driven by changes in operating performance, including increased spending for the launch and ongoing support of WWE Network, as well as, from increased spending on film and television production assets.  These increases were partially offset by a $5.1 million reduction in the annual payout of management incentive compensation related to the Company’s previous year performance as compared to the prior year period and other changes in working capital.
In the current year period, we spent $15.3 million on feature film production activities, compared to $8.6 million in the prior year period. In the current year period, we received $2.0 in incentives related to feature film productions. In the prior year period, we received $0.9 million in incentives related to feature film productions. We anticipate spending between $4.0 million and $7.0 million on feature film production activities during the remainder of the current year.
In the current year period, we recognized $13.8 million of non-film related incentives including infrastructure credits, compared to $10.2 million in the prior year periods. The current year amount includes credits associated with qualifying capital projects which are reflected in investing activities discussed below.

During the current year period, we spent $14.8 million to produce additional content, including Total Divas Season 3 and programming for WWE Network, compared to $8.7 million in the prior year period. We anticipate spending approximately $5.0 million to $7.0 million to produce additional content, including Total Divas and programming for WWE Network content during the remainder of the current year.

Our accounts receivable represent a significant portion of our current assets and relate principally to a limited number of customers, distributors and licensees that produce consumer products containing our trademarks. At September 30, 2014, our largest single customer balance was approximately 13% of our gross accounts receivable balance. Changes in the financial condition or operations of our distributors, customers or licensees may result in increased delayed payments or non-payments which would adversely impact our cash flows from operating activities and/or our results of operations.




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Cash Flows from Investing Activities
Cash flows generated from investing activities was $31.0 million in the current year period as compared to cash used in investing activities of $43.8 million in the prior year period. The increase of $74.8 million was primarily related to a $29.9 million increase in net investment activity (purchases and proceeds), a reduction in capital spending as a result of the Company's purchase of a new corporate aircraft in the prior year period and sale of the old corporate aircraft in the current year and a reduction in capital spending of $9.1 million. Additionally, the increase was as a result of proceeds from infrastructure tax credits related to capital projects of $2.9 million as compared to the prior year period. For the remainder of 2014, we also anticipate spending approximately $3.0 million to $5.0 million on the purchase of property and equipment and other assets.
Cash Flows from Financing Activities
Cash flows used in financing activities was $29.1 million for the current year period as compared to cash generated from financing activities of $2.6 million for the prior year period. The Company paid dividends of approximately $27 million in both the current and prior year periods. The prior year period reflects $29.7 million in proceeds from the issuance of a note payable entered into in August 2013 related to the purchase of our new corporate aircraft. In the current year period, we paid $3.0 million of scheduled principal payments related to the new corporate aircraft debt compared to $0.3 million in the prior year period.
Contractual Obligations
There have been no significant changes to our contractual obligations that were previously disclosed in our Report on Form 10-K for the fiscal period ended December 31, 2013.
Application of Critical Accounting Policies
Other than the addition of revenue recognition accounting and programming amortization accounting policies related to WWE Network launched in February 2014, there have been no significant changes to our accounting policies that were previously disclosed in our Report on Form 10-K for our fiscal year ended December 31, 2013 or in the methodology used in formulating these significant judgments and estimates that affect the application of these policies. The accounting policies for WWE Network are described below.

•
Revenue Recognition for WWE Network

Revenues are recognized ratably over each monthly membership period. Deferred revenue consists of membership fees billed to members that have not been recognized and gift memberships that have not been redeemed.


•
Programming Amortization for WWE Network

For episodic programming debuting and currently expected to air exclusively on our Network, the cost of the programming is expensed upon initial release, as our expectation is that the vast majority of viewership will occur in close proximity to the initial release. We will monitor this assumption and potentially revise this policy if actual viewership patterns vary.



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Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This ASU will supersede the revenue recognition requirements in ASC 605, “Revenue Recognition”, and most industry-specific guidance. The ASU requires an entity to recognize revenue in an amount that reflects the consideration to which the entity expects to receive in exchange for goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2016 and early adoption is not permitted. This standard update is effective for our fiscal year beginning of January 1, 2017. We are currently evaluating the impact of the adoption of this new standard on our consolidated financial statements.

In April 2014, the FASB issued Accounting Standards Update No. 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity". This ASU updated the accounting guidance related to discontinued operations. The updated accounting guidance provides a narrower definition of discontinued operations than existing GAAP. The updated accounting guidance requires that only disposals of components of an entity, or groups of components, that represent a strategic shift that has or will have a material effect on the reporting entity’s operations be reported in the financial statements as discontinued operations. The updated accounting guidance also provides guidance on the financial statement presentations and disclosures of discontinued operations. On July 1, 2014, we early adopted this accounting standard update which did not have a material effect on our consolidated financial statements.



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Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain statements that are forward-looking and are not based on historical facts. When used in this Form 10-Q, the words “may,” “will,” “could,” “anticipate,” “plan,” “continue,” “project,” “intend”, “estimate”, “believe”, “expect” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such words. These statements relate to our future plans, objectives, expectations and intentions and are not historical facts and accordingly involve known and unknown risks and uncertainties and other factors that may cause the actual results or the performance by us to be materially different from future results or performance expressed or implied by such forward-looking statements. The following factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this Form 10-Q, in press releases and in oral statements made by our authorized officers: (i) risks relating to entering, maintaining and renewing major distribution agreements; (ii) risks relating to the launch and operations of our digital WWE Network; (iii) our failure to continue to develop creative and entertaining programs and events would likely lead to a decline in the popularity of our brand of entertainment; (iv) our failure to retain or continue to recruit key performers could lead to a decline in the appeal of our storylines and the popularity of our brand of entertainment; (v) the unexpected loss of the services of Vincent K. McMahon could adversely affect our ability to create popular characters and creative storylines or otherwise adversely affect our operations; (vi) a decline in the popularity of our brand of sports entertainment, including as a result of changes in the social and political climate, could adversely affect our business; (vii) changes in the regulatory atmosphere and related private sector initiatives could adversely affect our business; (viii) the markets in which we operate are highly competitive, rapidly changing and increasingly fragmented, and we may not be able to compete effectively, especially against competitors with greater financial resources or marketplace presence; (ix) we face uncertainties associated with international markets; (x) we may be prohibited from promoting and conducting our live events and/or other businesses if we do not comply with applicable regulations; (xi) because we depend upon our intellectual property rights, our inability to protect those rights, or our infringement of others’ intellectual property rights, could adversely affect our business; (xii) we could incur substantial liability in the event of accidents or injuries occurring during our physically demanding events; (xiii) our live events expose us to risks relating to large public events as well as travel to and from such events; (xiv) we continue to face risks inherent in our feature film business; (xv) in addition to the launch of WWE Network, we could face a variety of risks if we expand into new or complementary businesses and/or make strategic investments; (xvi) risks related to our computer systems and online operations; (xvii) decline in general economic conditions and disruption in financial markets could adversely affect our business; (xviii) our accounts receivable represent a significant portion of our current assets and relate principally to a limited number of distributors and licensees, increasing our exposure to bad debts and potentially impacting our results of operations;(xix) our ability to access our revolving credit facility may be limited due to certain financial covenants and restrictions; (xx) we could incur substantial liabilities if litigation is resolved unfavorably; (xxi) our failure to meet market expectations for our financial performance could adversely affect the market price and volatility of our stock; (xxii) through his beneficial ownership of a substantial majority of our Class B common stock, our controlling stockholder, Vincent K. McMahon, can exercise control over our affairs, and his interests may conflict with the holders of our Class A common stock; (xxiii) a substantial number of shares are eligible for sale by Mr. McMahon and members of his family or trusts established for their benefit, and the sale, or the perception of possible sales, of those shares could lower our stock price; and (xxiv) risks related to the relatively small public “float” of our Class A common stock. In addition, our dividend is dependent on a number of factors, including, among other things, our liquidity and historical and projected cash flow, strategic plan (including alternative uses of capital), our financial results and condition, contractual and legal restrictions on the payment of dividends (including under our revolving credit facility), general economic and competitive conditions and such other factors as our Board of Directors may consider relevant. The forward-looking statements speak only as of the date of this Form 10-Q and undue reliance should not be placed on these statements. We undertake no obligation to update or revise any forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no significant changes to our market risk factors that were previously disclosed in our Report on Form 10-K for our fiscal year ended December 31, 2013.



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Item 4. Controls and Procedures
Under the direction of our Chairman of the Board and Chief Executive Officer and our Chief Financial Officer, we evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on that evaluation, our Chairman of the Board and Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2014. No change in internal control over financial reporting occurred during the quarter ended September 30, 2014, that materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.
On May 14, 2013, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) issued an updated version of its Internal Control - Integrated Framework (2013 Framework). Originally issued in 1992 (1992 Framework), the framework helps organizations design, implement and evaluate the effectiveness of internal control concepts and simplify their use and application. The 1992 Framework remains available during the transition period, which extends to December 15, 2014, after which time COSO will consider it as superseded by the 2013 Framework. As of September 30, 2014, we continue to utilize the 1992 Framework during the transition to the 2013 Framework by the end of 2014.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On July 26, 2014, the Company received notice of a lawsuit filed in the United States District Court for the District of Connecticut, entitled Warren Ganues and Dominic Varriale, on behalf of themselves and all others similarly situated, v. World Wrestling Entertainment, Inc., Vincent K. McMahon and George A. Barrios, alleging violations of federal securities laws based on certain statements relating to the negotiation of WWE’s domestic television license. The complaint seeks certain unspecified damages. A nearly identical lawsuit was filed one month later entitled Curtis Swanson, on behalf of himself and all others similarly situated, v. World Wrestling Entertainment, Inc., Vincent K. McMahon and George A. Barrios. Both lawsuits are purported securities class actions subject to the Private Securities Litigation Reform Act of 1995 (“PSLRA”). On September 23-24, five putative plaintiffs filed motions to be appointed lead plaintiff and to consolidate the two cases pursuant to the PSLRA. The Company joined the motion for consolidation made by the putative lead plaintiffs. The Company believes the claims are without merit and intends to vigorously defend itself against them.
On October 25, 2014, the Company received notice of a purported class action lawsuit filed in the United States District Court for the District of Oregon, entitled William Albert Haynes III, on behalf of himself and others similarly situated, v. World Wrestling Entertainment, Inc. alleging, among other things, that the Company concealed and denied medical research and evidence concerning traumatic brain injuries suffered by WWE’s performers.  The Company believes the claims are without merit and intends to vigorously defend itself against them.
In addition to the foregoing, we are involved in several other 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 this 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.
Item 1A. Risk Factors
We do not believe there have been any material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013. 





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Item 5. Other Information
None.
Item 6. Exhibits
(a) Exhibits
10.9A* Amendment, dated October 8, 2014, to Employment Agreement between the Company and Michael J. Luisi (incorporated by reference to Exhibit 10.9A to the Company’s 8-K filed October 8, 2014).
10.13* Form of Indemnification Agreement to be entered into between the Company and each of its Directors and certain officers.
31.1 Certification by Vincent K. McMahon pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (filed herewith).
31.2 Certification by George A. Barrios pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (filed herewith).
32.1 Certification by Vincent K. McMahon and George A. Barrios pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (filed herewith).
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Presentation Linkbase Document
___________
* Indicates management contract or compensation plan or arrangement.




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SIGNATURE
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
 
 
World Wrestling Entertainment, Inc.
(Registrant)
 
 
 
 
 
Dated:
October 30, 2014
By: /s/  
George A. Barrios
 
 
 
 
George A. Barrios
 
 
 
Chief Strategy and Financial Officer
 
 
 
(principal financial officer
 
 
 
and authorized signatory)
 
 
 
 
 
 
 
     /s/  
Mark Kowal
 
 
 
 
Mark Kowal
 
 
 
Senior Vice President, Corporate Controller
 
 
 
(principal accounting officer and authorized
 
 
 
signatory)
 
 
 
 
 
 
 
 
 
 




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