UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM
____________________
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended | |
or | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from ______ to ______ |
Commission File Number:
(Exact name of Registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(
(Address, including zip code, and telephone number, including area code,
of Registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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Accelerated Filer ¨ | Non-Accelerated Filer ¨ | Smaller Reporting Company | Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
At October 27, 2020, the number of shares outstanding of the Registrant’s Class A common stock, par value $.01 per share, was
TABLE OF CONTENTS
WORLD WRESTLING ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
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| Three Months Ended |
| Nine Months Ended | ||||||||
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| September 30, |
| September 30, | ||||||||
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| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Net revenues |
| $ | |
| $ | |
| $ | |
| $ | |
Operating expenses |
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Marketing and selling expenses |
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General and administrative expenses |
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Depreciation and amortization |
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Operating income |
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Interest expense |
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Other income, net |
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Income (loss) before income taxes |
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Provision for (benefit from) income taxes |
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Net income |
| $ | |
| $ | |
| $ | |
| $ | |
Earnings per share: basic |
| $ | |
| $ | |
| $ | |
| $ | |
Earnings per share: diluted |
| $ | |
| $ | |
| $ | |
| $ | |
Weighted average common shares outstanding: |
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Basic |
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Diluted |
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Dividends declared per common share (Class A and B) |
| $ | |
| $ | |
| $ | |
| $ | |
WORLD WRESTLING ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
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| Three Months Ended |
| Nine Months Ended | ||||||||
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| September 30, |
| September 30, | ||||||||
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| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Net income |
| $ | |
| $ | |
| $ | |
| $ | |
Other comprehensive income (loss): |
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Foreign currency translation adjustments |
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Net unrealized holding gains on available-for-sale debt securities (net of tax expense of $ |
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Total other comprehensive income |
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Comprehensive income |
| $ | |
| $ | |
| $ | |
| $ | |
WORLD WRESTLING ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
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| As of | ||||
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| September 30, |
| December 31, | ||
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| 2020 |
| 2019 | ||
ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
| $ | |
| $ | |
Short-term investments, net |
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Accounts receivable (net of allowance for doubtful accounts and returns of $ |
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Inventory, net |
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Prepaid expenses and other current assets |
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Total current assets |
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PROPERTY AND EQUIPMENT, NET |
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FINANCE LEASE RIGHT-OF-USE ASSETS, NET |
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OPERATING LEASE RIGHT-OF-USE ASSETS, NET |
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CONTENT PRODUCTION ASSETS, NET |
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INVESTMENT SECURITIES |
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DEFERRED INCOME TAX ASSETS, NET |
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OTHER ASSETS, NET |
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TOTAL ASSETS |
| $ | |
| $ | |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES: |
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Current portion of long-term debt |
| $ | |
| $ | |
Finance lease liabilities |
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Operating lease liabilities |
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Convertible debt |
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Accounts payable and accrued expenses |
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Deferred income |
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Total current liabilities |
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LONG-TERM DEBT |
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FINANCE LEASE LIABILITIES |
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OPERATING LEASE LIABILITIES |
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OTHER NON-CURRENT LIABILITIES |
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Total liabilities |
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COMMITMENTS AND CONTINGENCIES |
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STOCKHOLDERS’ EQUITY: |
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Class A common stock: ($ September 30, 2020 and December 31, 2019, respectively) |
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Class B convertible common stock: ($ September 30, 2020 and December 31, 2019, respectively) |
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Additional paid-in capital |
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Accumulated other comprehensive income |
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Accumulated deficit |
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Total stockholders’ equity |
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
| $ | |
| $ | |
WORLD WRESTLING ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
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| Three Months Ended September 30, 2020 | ||||||||||||||||||||
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| Accumulated |
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| Common Stock |
| Additional |
| Other |
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| Class A |
| Class B |
| Paid - in |
| Comprehensive |
| Accumulated |
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| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Income |
| Deficit |
| Total | ||||||
Balance, June 30, 2020 |
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| $ | |
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| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | |
Net income |
| — |
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| — |
| — |
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| — |
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| — |
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| — |
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Other comprehensive income |
| — |
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| — |
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Stock issuances, net |
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Taxes paid related to net settlement upon vesting of equity awards |
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| ( |
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Cash dividends declared |
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| ( |
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Stock-based compensation |
| — |
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Balance, September 30, 2020 |
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| $ | |
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| $ | |
| $ | |
| $ | ( |
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| Nine Months Ended September 30, 2020 | ||||||||||||||||||||
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| Accumulated |
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| Common Stock |
| Additional |
| Other |
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| Class A |
| Class B |
| Paid - in |
| Comprehensive |
| Accumulated |
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| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Income |
| Deficit |
| Total | ||||||
Balance, December 31, 2019 |
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| $ | |
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| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | |
Net income |
| — |
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| — |
| — |
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| — |
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| — |
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Other comprehensive income |
| — |
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| — |
| — |
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Stock issuances, net |
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Taxes paid related to net settlement upon vesting of equity awards |
| — |
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| — |
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| ( |
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| ( |
Cash dividends declared |
| — |
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| — |
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| — |
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| — |
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| ( |
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| ( |
Stock-based compensation |
| — |
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| — |
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| — |
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Balance, September 30, 2020 |
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| $ | |
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| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | |
WORLD WRESTLING ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
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| Three Months Ended September 30, 2019 | ||||||||||||||||||||
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| Accumulated |
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| Common Stock |
| Additional |
| Other |
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| Class A |
| Class B |
| Paid - in |
| Comprehensive |
| Accumulated |
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| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Income |
| Deficit |
| Total | ||||||
Balance, June 30, 2019 |
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| $ | |
| |
| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | |
Net income |
| — |
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| — |
| — |
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Other comprehensive income |
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Repurchase and retirement of common stock |
| ( |
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| — |
| — |
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| ( |
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| — |
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| ( |
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| ( |
Stock issuances, net |
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| — |
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| — |
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| — |
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| — |
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Taxes paid related to net settlement upon vesting of equity awards |
| — |
|
| — |
| — |
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| — |
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| ( |
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| — |
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| — |
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| ( |
Cash dividends declared |
| — |
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| — |
| — |
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| — |
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| — |
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| ( |
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| ( |
Stock-based compensation |
| — |
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| — |
| — |
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| — |
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| — |
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Balance, September 30, 2019 |
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| $ | |
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| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | |
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| Nine Months Ended September 30, 2019 | ||||||||||||||||||||
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| Accumulated |
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| Common Stock |
| Additional |
| Other |
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| Class A |
| Class B |
| Paid - in |
| Comprehensive |
| Accumulated |
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| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Income |
| Deficit |
| Total | ||||||
Balance, December 31, 2018 |
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| $ | |
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| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | |
Net income |
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Other comprehensive income |
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| — |
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| — |
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Repurchase and retirement of common stock |
| ( |
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| — |
| — |
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| — |
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| ( |
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| — |
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| ( |
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| ( |
Stock issuances, net |
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| — |
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| — |
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Conversion of Class B common stock by shareholder |
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| ( |
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| ( |
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| — |
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| — |
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Taxes paid related to net settlement upon vesting of equity awards |
| — |
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| — |
| — |
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| — |
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| ( |
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| — |
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| — |
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| ( |
Cash dividends declared |
| — |
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| — |
| — |
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| — |
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| — |
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| ( |
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| ( |
Stock-based compensation |
| — |
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| — |
| — |
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| — |
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| — |
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| — |
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Balance, September 30, 2019 |
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| $ | |
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| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | |
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WORLD WRESTLING ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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| Nine Months Ended | ||||
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| September 30, | ||||
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| 2020 |
| 2019 | ||
OPERATING ACTIVITIES: |
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Net income |
| $ | |
| $ | |
Adjustments to reconcile net income to net cash provided by operating activities: |
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Amortization and impairments of content production assets |
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Depreciation and amortization |
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Other amortization |
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(Gain) loss on equity investments, net |
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| ( |
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Stock-based compensation |
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Provision for deferred income taxes |
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Other non-cash adjustments |
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Cash provided by (used in) changes in operating assets and liabilities: |
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Accounts receivable |
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| ( |
Inventory |
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| ( |
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| ( |
Prepaid expenses and other assets |
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| ( |
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| ( |
Content production assets |
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| ( |
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| ( |
Accounts payable, accrued expenses and other liabilities |
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| ( |
Deferred income |
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Net cash provided by operating activities |
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INVESTING ACTIVITIES: |
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Purchases of property and equipment and other assets |
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| ( |
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| ( |
Purchases of short-term investments |
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| ( |
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| ( |
Proceeds from sales and maturities of short-term investments |
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Purchase of investment securities |
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| ( |
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| ( |
Other |
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| — |
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Net cash provided by (used in) investing activities |
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| ( |
FINANCING ACTIVITIES: |
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Repayment of long-term debt |
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| ( |
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| ( |
Repayment of finance leases |
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| ( |
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| ( |
Dividends paid |
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| ( |
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| ( |
Debt issuance costs |
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| — |
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| ( |
Proceeds from borrowings under Revolving Credit Facility |
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|
| — |
Taxes paid related to net settlement upon vesting of equity awards |
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| ( |
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| ( |
Proceeds from issuance of stock |
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Repurchase and retirement of common stock |
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| — |
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| ( |
Net cash provided by (used in) financing activities |
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| ( |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
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| ( |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
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CASH AND CASH EQUIVALENTS, END OF PERIOD |
| $ | |
| $ | |
NON-CASH INVESTING AND FINANCING TRANSACTIONS: |
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Purchases of property and equipment recorded in accounts payable |
| $ | |
| $ | |
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
The accompanying consolidated financial statements include the accounts of WWE. “WWE” refers to World Wrestling Entertainment, Inc. and its subsidiaries, unless the context otherwise requires. References to “we,” “us,” “our” and the “Company” refer to WWE.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
The accompanying consolidated financial statements are unaudited. All adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of financial position, results of operations, and cash flows at the dates and for the periods presented have been included. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year. All intercompany balances are eliminated in consolidation.
Certain information and note disclosures normally included in annual financial statements have been condensed or omitted from these interim financial statements; these financial statements should be read in conjunction with the financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2019.
We are an integrated media and entertainment company, principally engaged in the production and distribution of wrestling entertainment content through various channels, including our premium over-the-top subscription network (“WWE Network”), content rights agreements, pay-per-view event programming, filmed entertainment, live events, licensing of various WWE themed products, and the sale of consumer products featuring our brands. Our operations are organized around the following principal activities:
Media:
The Media segment reflects the production and monetization of long-form and short-form video content across various platforms, including WWE Network, broadcast and pay television, digital and social media, as well as filmed entertainment. Across these platforms, revenues principally consist of content rights fees associated with the distribution of our programming content, subscriptions to WWE Network, and advertising and sponsorships.
Live Events:
Live events provide ongoing content for our media platforms. Live Event segment revenues consist primarily of ticket sales, including primary and secondary distribution, revenues from events for which we receive a fixed fee, as well as the sale of travel packages associated with the Company’s global live events.
Consumer Products:
The Consumer Products segment engages in the merchandising of WWE branded products, such as video games, toys and apparel, through licensing arrangements and direct-to-consumer sales. Revenues principally consist of royalties and licensee fees related to WWE branded products, and sales of merchandise distributed at our live events and through eCommerce platforms.
Note on the COVID-19 Pandemic
The global spread of the coronavirus pandemic (“COVID-19”) and the various attempts to contain it have resulted in restrictions, postponements and cancellations of various sports and other events and has and likely will continue to require us to cancel, postpone or relocate certain of our live events. We do not currently expect insurance to cover a significant portion, if any, of this lost business. COVID-19 has also continued to create significant volatility, uncertainty and economic disruption, the full extent of which will depend on numerous evolving factors that we can neither predict nor control, including the pandemic’s duration and severity and the governmental, business and individual responses to it. As a result, we have been required to alter certain aspects of our operations beyond our live events. We have taken measures to protect the health and well-being of our employees and our talent and other vendors. Our workforce has spent a significant amount of time working from home. Travel has been severely curtailed. We have greatly increased our cleaning and health check protocols, which increase related expenditures. We also implemented certain cash conserving measures, which were or have been in effect for various time periods, including pausing our stock repurchase program and certain capital expenditures; containing employment costs through salary reductions and furloughs; containing certain third party vendor costs; and drawing under our revolving credit facility. We believe our partners’ operations have also been affected. To the extent the resulting
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
economic disruption is severe, we could see supply constraints and/or a negative impact on our customers’ demand, or ability to pay (including an impact on the collectability of our accounts receivable), for our goods and services. We will continue to actively monitor the issues raised by the COVID-19 pandemic and may take further actions that alter our business operations that are required by applicable governmental authorities and/or that we determine to be in the best interests of our employees, talent, customers, partners and stockholders. There can be no assurance that we will be entirely successful in these endeavors, which could result in inadvertent noncompliance with applicable law. The COVID-19 pandemic also could result in heightened litigation risks relating to personal injury or death and/or increased levels of commercial litigation. Any of the foregoing could have a material negative effect on our business and results of operations.
Our significant accounting policies are detailed in Note 2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements within our Annual Report on Form 10-K for the year ended December 31, 2019. During the first quarter of 2020, the Company adopted new accounting guidance related to improvements to the accounting for film costs. Refer to Note 9, Content Production Assets, Net, for a description of the updated accounting policy. Additionally, the Company adopted new accounting guidance related to the measurement of credit losses for certain financial instruments. Refer to Note 10, Investment Securities and Short-Term Investments, for details on the adoption. Additional details related to these adoptions are described further below in Recent Accounting Pronouncements.
Operating expenses consist of our production costs associated with developing our content, costs associated with operating our WWE Network, venue rental and related costs associated with the staging of our live events, compensation costs for our talent, and material and related costs associated with our consumer product merchandise sales. In addition, operating expenses include the operating costs associated with talent development, data analytics, data engineering, business strategy and real estate and facilities functions, as these activities directly support the operations of our segments.
Included within Operating expenses are the following:
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| Three Months Ended |
| Nine Months Ended | ||||||||
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| September 30, |
| September 30, | ||||||||
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| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Amortization and impairment of content production assets |
| $ | |
| $ | |
| $ | |
| $ | |
Depreciation and amortization of WWE Network content delivery and technology assets |
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Amortization of right-of-use assets - finance leases of equipment |
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Depreciation on equipment used directly to support operations |
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| — |
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| — |
Total depreciation and amortization included in operating expenses |
| $ | |
| $ | |
| $ | |
| $ | |
Costs to produce our live event programming are expensed when the event is first broadcast, and are not included in the amortization table noted above.
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” The amendment simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The new guidance is effective for fiscal years beginning after December 15, 2021 (fiscal year 2022 for the Company) with early adoption permitted, but no earlier than fiscal years beginning after December 15, 2020 (fiscal year 2021 for the Company). The amendments can be adopted either using a modified retrospective method of transition or a fully retrospective method of transition. The Company is currently evaluating the impact of the ASU on its consolidated financial statements and related disclosures.
In March 2019, the FASB issued Accounting Standards Update (“ASU”) No. 2019-02, “Improvements to Accounting for Costs of Films and License Agreements for Program Materials”, in order to align the accounting for production costs of an episodic television series with the accounting for production costs of films by removing the content distinction for capitalization. The amendments also require that an entity reassess estimates of the use of a film in a film group and account for any changes prospectively. In addition, the amendments require that an entity test films and license agreements for program material for impairment at a film group level when the film or license agreements are predominantly monetized with other films and license agreements. The Company evaluated its portfolio
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
of content assets in order to determine the predominant monetization strategies which now dictates the appropriate impairment model to apply. In general, the Company’s content assets related to original programming content airing on the WWE Network are predominantly monetized as a film group through monthly subscription fees collected from WWE Network subscribers, while the Company’s other content assets comprised largely of feature films and episodic television series which are licensed or sold to distributors are predominantly monetized individually through the underlying rights fees collected under the distribution arrangements. The Company previously provided separate captions within noncurrent assets on the face of the consolidated balance sheet for episodic television production assets and feature film production assets. With the adoption of the amendments, the Company now presents both episodic television and feature film production assets under one combined caption, Content production assets, net, within the noncurrent assets section of the consolidated balance sheet. To conform to the current period presentation, the Content productions assets, net balance of $
In November 2018, the FASB issued ASU No. 2018-18, “Collaborative Arrangements (Topic 808) – Clarifying the Interaction between Topic 808 and Topic 606.” The amendments in this ASU clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606, Revenue from Contracts with Customers, when the collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue consideration received from a collaborative arrangement participant if the participant is not a customer. The new guidance is effective for fiscal years beginning after December 15, 2019. The Company adopted the amendment on January 1, 2020 with no impact on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The new guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The new guidance is effective for fiscal years beginning after December 15, 2019. The Company adopted the amendments on January 1, 2020 and applied the amendments prospectively to all implementation costs incurred after the date of adoption.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”, which modifies the disclosure requirements on fair value measurements. The new guidance is effective for fiscal years beginning after December 15, 2019. Upon the effective date, certain provisions are to be applied prospectively, while others are to be applied retrospectively to all periods presented. The amendments eliminated certain disclosure requirements such as the elimination of disclosing the valuation process for Level 3 fair value measurements. Other amendments in the update did not largely impact the Company. The Company adopted the amendments on January 1, 2020 with no impact on our consolidated financial statements.
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
The Company currently classifies its operations into
Unallocated corporate general and administrative expenses largely relate to corporate functions such as finance, legal, human resources, facilities and information technology. These unallocated corporate general and administrative expenses will be shown, as applicable, as a reconciling item in tables where segment and consolidated results are both shown. Revenues from transactions between our operating segments are not material.
The Company presents Adjusted OIBDA as the primary measure of segment profit (loss). The Company defines Adjusted OIBDA as operating income before depreciation and amortization, excluding stock-based compensation, certain impairment charges and other non-recurring material items. Adjusted OIBDA includes depreciation and amortization expenses directly related to supporting the operations of our segments, including content production asset amortization, depreciation and amortization of costs related to content delivery and technology assets utilized for our WWE Network, as well as amortization of right-of-use assets related to finance leases of equipment used to produce and broadcast our live events. The Company believes the presentation of Adjusted OIBDA is relevant and useful for investors because it allows investors to view our segment performance in the same manner as the primary method used by management to evaluate segment performance and make decisions about allocating resources. Additionally, we believe that Adjusted OIBDA is a primary measure used by media investors, analysts and peers for comparative purposes.
We do not disclose assets by segment information. We do not provide assets by segment information to our chief operating decision maker, as that information is not typically used in the determination of resource allocation and assessing business performance of each reportable segment.
The following tables present summarized financial information for each of the Company's reportable segments:
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| Three Months Ended |
| Nine Months Ended | ||||||||
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| September 30, |
| September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Net revenues: |
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Media |
| $ | |
| $ | |
| $ | |
| $ | |
Live Events |
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Consumer Products |
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Total net revenues |
| $ | |
| $ | |
| $ | |
| $ | |
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Adjusted OIBDA: |
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Media |
| $ | |
| $ | |
| $ | |
| $ | |
Live Events |
|
| ( |
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| ( |
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| ( |
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Consumer Products |
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Corporate |
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| ( |
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| ( |
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| ( |
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| ( |
Total Adjusted OIBDA |
| $ | |
| $ | |
| $ | |
| $ | |
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
Reconciliation of Total Operating Income to Total Adjusted OIBDA
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| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Total operating income |
| $ | |
| $ | |
| $ | |
| $ | |
Depreciation and amortization (1) |
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Stock-based compensation |
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Other adjustments (2) |
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Total Adjusted OIBDA |
| $ | |
| $ | |
| $ | |
| $ | |
(1)
Revenues are generally recognized when control of the promised goods or services is transferred to our customers either at a point in time or over time, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Most of our contracts have
We derive our revenues principally from the following sources: (i) content rights fees associated with the distribution of WWE’s media content, (ii) subscriptions to WWE Network, (iii) fees for viewing our pay-per-view programming, (iv) feature film distribution, (v) advertising and sponsorship sales, (vi) live event ticket sales, (vii) consumer product licensing royalties from the sale by third-party licensees of WWE branded merchandise, (viii) direct-to-consumer sales of merchandise at our live event venues, and (ix) direct-to-consumer sales of our merchandise through eCommerce platforms.
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
Disaggregated Revenues
The following table presents our revenues disaggregated by primary revenue sources. Sales and usage-based taxes are excluded from revenues.
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| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Net revenues: |
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Media Segment: |
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Network (including pay-per-view) |
| $ | |
| $ | |
| $ | |
| $ | |
Core content rights fees (1) |
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Advertising and sponsorships |
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Other (2) |
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Total Media Segment net revenues |
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Live Events Segment: |
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North American ticket sales |
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| — |
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International ticket sales |
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| — |
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Advertising and sponsorships |
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| — |
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Other (3) |
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Total Live Events Segment net revenues |
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Consumer Products Segment: |
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Consumer product licensing |
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eCommerce |
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Venue merchandise |
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| — |
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Total Consumer Products Segment net revenues |
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Total net revenues |
| $ | |
| $ | |
| $ | |
| $ | |
(1)
(2)
(3)
Except for our WWE Network subscriptions revenues, which are recorded over time during the subscription term and our consumer product licensing revenues which are recorded over time during the licensing period, our other revenue streams identified in the table above are generally recognized at a point-in-time when the performance obligations are satisfied.
Payment Terms and Other
Our revenues do not include material amounts of variable consideration, other than the sale or usage-based royalties earned related to our consumer product licensing and certain other content rights contracts. Our payment terms vary by the type of products or services offered, and may be subject to contractual payment terms, which may include advance payment requirements. The time between invoicing and when payment is due is not significant, generally within
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
Remaining Performance Obligations
As of September 30, 2020, for contracts greater than one year, the aggregate amount of the transaction price allocated to remaining performance obligations is $
Contract Assets and Contract Liabilities (Deferred Revenues)
A contract asset results when goods or services have been transferred to the customer, but payment is contingent upon a future event, other than the passage of time. The Company does not have any material contract assets, only accounts receivable as disclosed on our Consolidated Balance Sheets.
We record deferred revenues (also referred to as contract liabilities under ASC Topic 606) when cash payments are received or due in advance of our performance. Our deferred revenue balance primarily relates to advance payments received related to our content distribution rights agreements, our consumer product licensing agreements, and our sponsorship and advertising arrangements. The Company’s deferred revenue (i.e. contract liabilities) as of September 30, 2020 and December 31, 2019 was $
The net increase in the deferred revenue balance for the nine months ended September 30, 2020 of $
Contract Costs (Costs of Obtaining a Contract)
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
For purposes of calculating basic and diluted earnings per share, we used the following weighted average common shares outstanding (in thousands):
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| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Net income |
| $ | |
| $ | |
| $ | |
| $ | |
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Weighted average basic common shares outstanding |
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Dilutive effect of restricted and performance stock units |
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Dilutive effect of convertible debt instruments |
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Dilutive effect of employee share purchase plan |
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| — |
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| — |
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Weighted average dilutive common shares outstanding |
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Earnings per share: |
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Basic |
| $ | |
| $ | |
| $ | |
| $ | |
Diluted |
| $ | |
| $ | |
| $ | |
| $ | |
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Anti-dilutive shares (excluded from per-share calculations): |
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Net shares received on purchased call of convertible debt hedge |
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Effect of Convertible Notes and Related Convertible Note Hedge and Warrants
In connection with the issuance of the Convertible Notes, the Company entered into Convertible Note Hedge and Warrant transactions as described further in Note 13, Convertible Debt. The collective impact of the Convertible Note Hedge and Warrants effectively eliminates any economic dilution that may occur from the actual conversion of the Convertible Notes between the conversion price of $
Our 2016 Omnibus Incentive Plan (the “2016 Plan”) provides for the grant of incentive or non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards and performance awards to eligible participants as determined by the Compensation Committee of the Board of Directors. Awards may be granted as incentives and rewards to encourage officers, employees, consultants, advisors and independent contractors of the Company and its affiliates and to non-employee directors of the Company to participate in our long-term success.
Stock-based compensation costs, which includes costs related to RSUs, PSUs, PSU-TSRs, the Company's qualified employee stock purchase plan and shares issued to the Company’s Board of Directors, totaled $
During the first quarter of 2020, certain executives of the Company who received PSUs and PSU-TSRs departed the Company, and therefore forfeited their respective shares. The Company estimates forfeitures on our stock-based compensation awards based on historical trends when recognizing compensation expense and adjust the estimate of forfeitures when they are expected to differ or as forfeitures occur. The units associated with these awards are included in the respective tables below.
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
Restricted Stock Units
The Company grants restricted stock units ("RSUs") to officers and employees under the 2016 Plan. Stock-based compensation costs associated with our RSUs are determined using the fair market value of the Company’s common stock on the date of the grant. These costs are recognized over the requisite service period using the graded vesting method, net of estimated forfeitures. RSUs have a service requirement typically over a
During the first quarter of 2020, the Compensation Committee approved the grant of RSUs to eligible employees for an aggregate value of $
The following table summarizes the RSU activity during the nine months ended September 30, 2020:
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| Units |
| Weighted- Average Grant-Date Fair Value | |
Unvested at January 1, 2020 |
| |
| $ | |
Granted |
| |
| $ | |
Vested |
| ( |
| $ | |
Forfeited |
| ( |
| $ | |
Dividend equivalents |
| |
| $ | |
Unvested at September 30, 2020 |
| |
| $ | |
Performance Stock Units
The Company grants performance stock units (“PSUs”) to officers and employees under the 2016 Plan. Stock-based compensation costs associated with our PSUs are initially determined using the fair market value of the Company’s common stock on the date the awards are approved by our Compensation Committee (service inception date). The vesting of these PSUs are subject to certain performance conditions and a service requirement of typically
During the third quarter of 2020, the Compensation Committee approved an agreement to grant PSUs to an executive management member for an aggregate value of $
The Company began expensing the second award of $
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
The following table summarizes the PSU activity during the nine months ended September 30, 2020:
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| Units |
| Weighted- Average Grant-Date Fair Value | |
Unvested at January 1, 2020 |
| |
| $ | |
Granted |
| |
| $ | |
Achievement adjustment |
| ( |
| $ | |
Vested |
| ( |
| $ | |
Forfeited |
| ( |
| $ | |
Dividend equivalents |
| |
| $ | |
Unvested at September 30, 2020 |
| |
| $ | |
During the year ended December 31, 2019, we granted
Performance Stock Units with a Market Condition Tied to Relative Total Shareholder Return
In March 2018, the Compensation Committee approved certain agreements to grant PSUs with a market condition (“PSU-TSRs”) where vesting is conditioned upon the total shareholder return performance of the Company’s stock relative to the performance of a peer group over
The following table summarizes the PSU-TSR activity during the nine months ended September 30, 2020:
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| Units |
| Weighted- Average Grant-Date Fair Value | |
Unvested at January 1, 2020 |
| |
| $ | |
Granted |
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| $ |
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Achievement adjustment |
| |
| $ | |
Vested |
| ( |
| $ | |
Forfeited |
| ( |
| $ | |
Dividend equivalents |
| |
| $ | |
Unvested at September 30, 2020 |
| |
| $ | |
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
Property and equipment consisted of the following:
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| As of | ||||
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| September 30, |
| December 31, | ||
|
| 2020 |
| 2019 | ||
Land, buildings and improvements |
| $ | |
| $ | |
Equipment |
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Corporate aircraft |
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Vehicles |
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Projects in progress |
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Less: accumulated depreciation and amortization |
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| ( |
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| ( |
Total |
| $ | |
| $ | |
Information about the Nature of WWE’s Lease Portfolio
As of September 30, 2020, the Company’s lease portfolio consists of operating and finance real estate leases for its sales offices, performance centers, warehouses and corporate related facilities. In addition, we have various live event production service arrangements that contain operating and finance equipment leases. With the exception of our new global headquarters lease that commenced on July 1, 2019 with an
Key Estimates and Judgments
Key estimates and judgments made in applying the lease accounting rules include how the Company determines (i) the discount rate it uses to discount the unpaid lease payments to present value, (ii) lease term and (iii) lease payments. ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. Generally, the Company cannot readily determine the interest rate implicit in the lease and therefore uses the incremental borrowing rate for its leases. The incremental borrowing rate reflects the rate of interest that the Company would pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. The incremental borrowing rates were generally determined by estimating the appropriate collateralized borrowing rates to be used for our leases and considered certain factors including, the lease term, economic environment and the assumed credit rating profile of the Company. The lease term for all of the Company’s lease arrangements include the noncancelable period of the lease plus, if applicable, any additional periods covered by an option to extend the lease that is reasonably certain to be exercised by the Company.
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
Quantitative Disclosures Related to Leases
The following table provides quantitative disclosure about the Company’s operating and financing leases for the periods presented:
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| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Lease costs |
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Finance lease costs: |
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Amortization of right-of-use assets |
| $ | |
| $ | |
| $ | |
| $ | |
Interest on lease liabilities |
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Operating lease costs |
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Other short-term and variable lease costs |
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| |
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| |
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| |
Sublease income (1) |
|
| — |
|
| ( |
|
| ( |
|
| ( |
Total lease costs |
| $ | |
| $ | |
| $ | |
| $ | |
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Other information |
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Cash paid for amounts included in the measurement of lease liabilities: |
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Operating cash flows from finance leases |
| $ | |
| $ | |
| $ | |
| $ | |
Operating cash flows from operating leases |
| $ | |
| $ | |
| $ | |
| $ | |
Finance cash flows from finance leases |
| $ | |
| $ | |
| $ | |
| $ | |
Right-of-use assets obtained in exchange for new finance lease liabilities |
| $ | |
| $ | |
| $ | |
| $ | |
Right-of-use assets obtained in exchange for new operating lease liabilities |
| $ |
|
| $ | |
| $ | |
| $ | |
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| As of |
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| September 30, |
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| 2020 |
| 2019 |
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| ||||
Weighted-average remaining lease term - finance leases |
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Weighted-average remaining lease term - operating leases |
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Weighted-average discount rate - finance leases |
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Weighted-average discount rate - operating leases |
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(1)
Maturity of lease liabilities as of September 30, 2020 were as follows:
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| Operating |
| Finance | ||
|
| Leases |
| Leases | ||
2020 |
| $ | |
| $ | |
2021 |
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2022 |
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2023 |
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2024 |
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Thereafter |
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Total lease payment |
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|
| |
Less: imputed interest |
|
| ( |
|
| ( |
Total future minimum lease payments |
| $ | |
| $ | |
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
Accounting Policy on Content Production Assets
The Company is primarily a content producer with content production assets consisting of feature films, non-live event episodic television series, and original programming content for our WWE Network. Feature film titles are predominantly monetized on their own through exploitation and exhibition through individual film distribution arrangements or by sale to a third party. The non-live event episodic television series are predominantly monetized on their own through individual television distribution arrangements. The original WWE Network programming content are predominantly monetized as a film group through the collection of monthly subscription fees from the WWE Network.
Amounts capitalized for content production assets typically include development costs, production costs, production overhead, and employee salaries and are net of any film production incentives associated with our feature films. Content production assets related to our feature films 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. Content production assets related to non-live event episodic television series are expensed upon delivery of the completed programming content to the individual television distributors. Our programming content distributed on our subscription-based WWE Network is expensed based upon viewership consumption patterns.
Unamortized content production costs are evaluated for impairment whenever events or changes in circumstances indicate that the fair value of a film predominantly monetized on its own or a film group may be less than its unamortized costs. As it relates to our unamortized feature film production assets, if estimates for a feature film’s ultimate revenues and/or costs are revised and indicate a significant decline in a film’s profitability or if events or circumstances change that indicate we should assess whether the fair value of a film is less than its unamortized film costs, we calculate the film's estimated fair value using a discounted cash flows model. If fair value is less than the unamortized cost, the film is written down to fair value. Our estimate of ultimate revenues for feature films includes revenues from all sources for
Other Content Production Asset Information
Content production assets consisted of the following:
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| Predominantly Monetized Individually |
| Predominantly Monetized as a Film Group | ||||||||
|
| As of |
| As of | ||||||||
|
| September 30, |
| December 31, |
| September 30, |
| December 31, | ||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
In release |
| $ | |
| $ | |
| $ | |
| $ | |
Completed but not released |
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In production |
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In development |
|
| |
|
| |
|
| — |
|
| — |
Total |
| $ | |
| $ | |
| $ | |
| $ | |
As of September 30, 2020, all of the “completed but not released” content assets that are monetized individually are estimated to be amortized over the next 12 months and approximately
As of September 30, 2020, all of the “completed but not released” content assets and “in release” content assets monetized as a film group are estimated to be amortized over the next 12 months.
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
Amortization and impairment of content production assets consisted of the following:
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| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Content production amortization expense - assets monetized individually |
| $ | |
| $ | |
| $ | |
| $ | |
Content production amortization expense - assets monetized as a film group |
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Content production impairment charges (1) |
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Content production development write-offs (2) |
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Total amortization and impairment of content production assets |
| $ | |
| $ | |
| $ | |
| $ | |
(1)
(2)
Investment Securities
Included within Investment Securities are the following:
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| As of | ||||
|
| September 30, |
| December 31, | ||
|
| 2020 |
| 2019 | ||
Equity method investments |
| $ | |
| $ | |
Nonmarketable equity investments without readily determinable fair values |
|
| |
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| |
Marketable equity investments with readily determinable fair values |
|
| |
|
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Total investment securities |
| $ | |
| $ | |
Equity Method Investments
Our equity method investments relate primarily to an investment in an apparel and lifestyle brand. To the extent the investees record income or losses, the Company records our share proportionate to our ownership percentage, and any dividends received reduce the carrying value amount of the investments. Net equity method earnings from our equity method investments are included as a component of Other income, net on the Consolidated Statements of Operations. Net dividends received from our equity method investments are reflected on the Consolidated Statements of Cash Flows within Net cash provided by operating activities.
We evaluate our equity method investments for impairment when events indicate that the fair value of the investments may be below the carrying value. When such a condition is deemed to be other than temporary, the carrying value of the investment is written down to its fair value. During the first quarter of 2020, the Company recorded an impairment charge of $
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
The following table presents the net equity method earnings from our equity method investments and net dividends received from our equity method investments for the periods presented:
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| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Net equity method earnings |
| $ | |
| $ | |
| $ | |
| $ | |
Net dividends received |
|
| ( |
|
| ( |
|
| ( |
|
| ( |
Equity in earnings of affiliate, net of dividends received |
| $ | ( |
| $ | ( |
| $ | ( |
| $ | ( |
Nonmarketable Equity Investments Without Readily Determinable Fair Values
We evaluate our nonmarketable equity investments without readily determinable fair values for impairment if factors indicate that a significant decrease in value has occurred. The Company has elected to use the measurement alternative to fair value that will allow these investments to be recorded at cost, less impairment, and adjusted for subsequent observable price changes.
During the first quarter of 2020, the Company recorded an impairment charge of $
Marketable Equity Investments With Readily Determinable Fair Values
As of September 30, 2020, our investment portfolio includes
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
Short-Term Investments
Short-term investments consist of available-for-sale debt securities which are measured at fair value and consisted of the following:
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| As of September 30, 2020 |
| As of December 31, 2019 | ||||||||||||||||||||
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| Gross Unrealized |
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| Gross Unrealized |
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| ||||||||
|
| Amortized |
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| Fair |
| Amortized |
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| Fair | ||||
|
| Cost |
| Gain |
| (Loss) |
| Value |
| Cost |
| Gain |
| (Loss) |
| Value | ||||||||
U.S. Treasury securities |
| $ | |
| $ | |
| $ | — |
| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | |
Corporate bonds |
|
| |
|
| |
|
| ( |
|
| |
|
| |
|
| |
|
| ( |
|
| |
Municipal bonds |
|
| — |
|
| — |
|
| — |
|
| — |
|
| |
|
| — |
|
| — |
|
| |
Government agency bonds |
|
| |
|
| |
|
| — |
|
| |
|
| |
|
| |
|
| — |
|
| |
Total |
| $ | |
| $ | |
| $ | ( |
| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | |
The Company adopted ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” on January 1, 2020 and applied the new modified credit impairment guidance related to available-for-sale debt securities prospectively. Under the new guidance, at each reporting date, entities must evaluate their individual available-for-sale debt securities that are in an unrealized loss position and determine whether the decline in fair value below the amortized cost basis results from a credit loss or other factors. The amount of the decline related to credit losses are recorded as a credit loss expense in earnings with a corresponding allowance for credit losses and the amount of the decline not related to credit losses are recorded through other comprehensive income, net of tax. As of September 30, 2020, the aggregate total amount of unrealized losses (that is, the amount by which amortized cost basis exceeds fair value) was $
Our U.S. Treasury securities, corporate bonds, municipal bonds and government agency 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, 2020, contractual remaining maturities of these securities are as follows:
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| Maturities |
U.S. Treasury securities |
| |
Corporate bonds |
| |
Municipal bonds |
| N/A |
Government agency bonds |
|
During the three and nine months ended September 30, 2020 and 2019, we recognized $
The following table summarizes the short-term investment activity:
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| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Proceeds from sales and maturities of short-term investments |
| $ | |
| $ | |
| $ | |
| $ | |
Purchases of short-term investments |
| $ | |
| $ | |
| $ | |
| $ | |
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
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.
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 input levels of the fair value hierarchy are summarized as follows:
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Level 1- | Observable inputs such as quoted prices in active markets for identical assets or liabilities; |
Level 2- | Inputs other than quoted prices in active markets for similar assets and liabilities that are directly or indirectly observable; or |
Level 3- | Unobservable inputs, such as discounted cash flow models or valuations, in which little or no market data exists. |
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 U.S. Treasury securities, corporate bonds, municipal bonds and government agency bonds, which collectively are investments in available-for-sale debt securities, 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 U.S. Treasury securities, corporate bonds, municipal bonds and government agency bonds are valued based on model-driven valuations. A third-party service provider assists the Company with compiling market prices from a variety of industry standard data sources, security master files from large financial institutions and other third-party sources that are used to value our corporate bond, U.S. Treasury securities, municipal bond and government agency bond investments. The Company did
The fair value measurements of our equity investments without readily determinable fair values and our equity method investments are classified within Level 3 as significant unobservable inputs are used as part of the determination of fair value. Significant unobservable inputs may 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. For our equity investments without readily determinable fair values, the Company has elected to use the measurement alternative to fair value that will allow these investments to be recorded at cost, less impairment, and adjusted for subsequent observable price changes. During the first quarter of 2020, the Company recorded impairment charges of $
The Company's long-lived property and equipment and content 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. The Company did
During the nine months ended September 30, 2020 and 2019, the Company recorded impairment charges of $
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
The fair value of the Company’s debt, consisting of a mortgage loan assumed in connection with a building purchase and borrowings under the Company's Revolving Credit Facility, is estimated based upon quoted price estimates for similar debt arrangements. At September 30, 2020, the carrying amount of the mortgage loan and the revolving credit facility borrowing approximates their fair value.
The convertible debt is not marked to fair value at the end of each reporting period, but instead is reported at amortized cost. As of September 30, 2020 and December 31, 2019, the calculation of the fair value of the debt component of the Company’s convertible debt required the use of Level 3 inputs, and was determined by calculating the fair value of similar debt without the associated conversion feature based on market conditions at that time:
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| September 30, 2020 |
| December 31, 2019 | ||||||||
|
| Fair Value |
| Carrying Value (1) |
| Fair Value |
| Carrying Value (1) | ||||
Convertible senior notes |
| $ | |
| $ | |
| $ | |
| $ | |
(1)
Accounts payable and accrued expenses consisted of the following:
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|
|
| As of | ||||
|
| September 30, |
| December 31, | ||
|
| 2020 |
| 2019 | ||
Trade related |
| $ | |
| $ | |
Staff related (1) |
|
| |
|
| |
Management incentive compensation |
|
| |
|
| |
Talent related |
|
| |
|
| |
Accrued WWE Network related expenses |
|
| |
|
| |
Accrued event and television production |
|
| |
|
| |
Accrued legal and professional |
|
| |
|
| |
Accrued purchases of property and equipment |
|
| |
|
| |
Accrued film liability |
|
| |
|
| |
Accrued other |
|
| |
|
| |
Total |
| $ | |
| $ | |
(1)
In December 2016 and January 2017, we issued $
The Convertible Notes are governed by an Indenture between us, as issuer, and U.S. Bank, National Association, as trustee. The Convertible Notes will be our general unsecured obligations and will rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the Convertible Notes; equal in right of payment to any of our unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries. In the event of our bankruptcy, liquidation, reorganization or other winding up, our assets that secure secured debt will be
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
available to pay obligations on the Convertible Notes only after all indebtedness under such secured debt has been repaid in full from such assets.
Upon conversion of the Convertible Notes, we will pay or deliver, as the case may be, cash, shares of our Class A common stock or a combination of cash and shares of Class A common stock, at our election, at a conversion rate of approximately
a)During any calendar quarter beginning after the calendar quarter ending on December 31, 2016 (and only during such calendar quarter), if the last reported sale price of our Class A common stock for at least
b)During the
c)Upon the occurrence of specified corporate events; or
d)On or after June 15, 2023 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Convertible Notes, in multiples of $1 principal amount, at the option of the holder regardless of the foregoing circumstances.
Pursuant to item (a) noted above, the Convertible Notes have been convertible since April 1, 2018, and holders of the Convertible Notes have the right to convert their notes at any time through at least December 31, 2020. As of September 30, 2020, since the Convertible Notes are convertible at the option of the holders, the Convertible Notes are reflected in current liabilities on our Consolidated Balance Sheet. As of September 30, 2020, no actual conversions have occurred to date. See Note 5, Earnings (Loss) Per Share, for a description of the dilutive nature of the Convertible Notes.
As a result of our cash conversion option, we separately accounted for the value of the embedded conversion option as a debt discount at its issuance date estimated fair value. The debt discount is amortized as additional non-cash interest expense over the term of the Convertible Notes using the effective interest method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. In accounting for the transaction costs related to the Note issuances, we allocated the total amount of offering costs incurred to the debt and equity components based on their relative values. Offering costs attributable to the debt component are amortized as non-cash interest expense over the term of the Convertible Notes. Offering costs attributable to the equity component were netted with the equity component in stockholders' equity.
The Convertible Notes consisted of the following components:
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| As of | ||||
|
| September 30, |
| December 31, | ||
|
| 2020 |
| 2019 | ||
Debt component: |
|
|
|
|
|
|
Principal |
| $ | |
| $ | |
Less: Unamortized debt discount |
|
| ( |
|
| ( |
Less: Unamortized debt issuance costs |
|
| ( |
|
| ( |
Net carrying amount |
| $ | |
| $ | |
|
|
|
|
|
|
|
Equity component (1) |
| $ | |
| $ | |
(1)
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
The following table sets forth total interest expense recognized related to the Convertible Notes:
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|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
| $ | |
| $ | |
| $ | |
| $ | | |
Amortization of debt discount |
|
| |
|
| |
|
| |
|
| |
Amortization of debt issuance costs |
|
| |
|
| |
|
| |
|
| |
Additional interest on Convertible Notes (1) |
|
| — |
|
| — |
|
| — |
|
| |
Interest expense |
| $ | |
| $ | |
| $ | |
| $ | |
(1)
Convertible Note Hedge
In connection with the pricing of the Convertible Notes in December 2016 and January 2017, we entered into convertible note hedge transactions with respect to our Class A common stock (the “Note Hedge”). The Note Hedge transactions cover approximately
Warrant Transactions
Included within Long-Term Debt are the following:
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| As of | ||||
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| September 30, |
| December 31, | ||
|
| 2020 |
| 2019 | ||
Current portion of long-term debt: |
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|
|
Revolving Credit Facility |
| $ | |
| $ | — |
Aircraft financing |
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| — |
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| |
Mortgage |
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| |
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| |
Total current portion of long-term debt |
| $ | |
| $ | |
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Long-term debt: |
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Mortgage |
| $ | |
| $ | |
Total long-term debt |
| $ | |
| $ | |
|
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|
Total |
| $ | |
| $ | |
Revolving Credit Facility
On May 24, 2019, the Company entered into an amended and restated $
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
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.
On April 16, 2020, as a precautionary measure to further strengthen liquidity due to the impact of COVID-19, the Company borrowed $
Mortgage
In September 2016, the Company acquired real property and assumed future obligations under a loan agreement, dated June 8, 2015, in the principal amount of $
Aircraft Financing
In August 2013, the Company entered into a $
We continually monitor our position with, and the credit quality of, the financial institutions that are counterparties to our financial instruments. Our accounts receivable relates principally to a limited number of distributors, including our WWE Network, television, pay-per-view distributors, and licensees. We closely monitor the status of receivables with these customers and maintain allowances for anticipated losses as deemed appropriate. We believe credit risk with respect to accounts receivable is limited due to the generally high credit quality of the Company’s major customers. At September 30, 2020, there were no customers that individually exceeded 10% of our gross accounts receivable balance. At December 31, 2019, our largest receivable balance from customers was
As of September 30, 2020, we had $
During the three and nine months ended September 30, 2020 we recognized $
Discrete tax items, including the aforementioned excess tax expenses and benefits, resulted in a net tax benefit of $
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
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
planning strategies, it is more likely than not that the net deferred tax assets 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.
The Company has access to various governmental programs that are designed to promote content production within the United States of America and certain international jurisdictions. Incentives earned with respect to expenditures on qualifying film production activities and capital projects are recorded as an offset to the related asset balances. Incentives earned with respect to television and other production activities are recorded as an offset to production expenses. The Company recognizes these benefits when we have reasonable assurance regarding the realizable amount of the incentives.
We recorded the following incentives during the three and nine months ended September 30, 2020 and 2019:
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| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Television production incentives |
| $ | |
| $ | |
| $ | |
| $ | |
Feature film production incentives |
|
| — |
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| |
|
| — |
|
| |
Infrastructure improvement incentives on qualifying capital projects (1) |
|
| — |
|
| — |
|
| — |
|
| |
Total |
| $ | |
| $ | |
| $ | |
| $ | |
(1)
Our future commitments related to our operating and finance leases are separately disclosed in Note 8, Leases.
Legal Proceedings
On October 23, 2014, a lawsuit was filed in the U. S. 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. This complaint was amended on January 30, 2015 and alleged that the Company ignored, downplayed, and/or failed to disclose the risks associated with traumatic brain injuries suffered by WWE’s performers and sought class action status. On March 31, 2015, the Company filed a motion to dismiss the first amended class action complaint in its entirety or, if not dismissed, to transfer the lawsuit to the U.S. District Court for the District of Connecticut. Without addressing the merits of the Company's motion to dismiss, the Court transferred the case to Connecticut on June 25, 2015. The plaintiffs filed an objection to such transfer, which was denied on July 27, 2015. On January 16, 2015, a second lawsuit was filed in the U.S. District Court for the Eastern District of Pennsylvania, entitled Evan Singleton and Vito LoGrasso, individually and on behalf of all others similarly situated, v. World Wrestling Entertainment, Inc., alleging many of the same allegations as Haynes. On February 27, 2015, the Company moved to transfer venue to the U.S. District Court for the District of Connecticut due to forum-selection clauses in the contracts between WWE and the plaintiffs and that motion was granted on March 23, 2015. The plaintiffs filed an amended complaint on May 22, 2015 and, following a scheduling conference in which the court ordered the plaintiffs to cure various pleading deficiencies, the plaintiffs filed a second amended complaint on June 15, 2015. On June 29, 2015, WWE moved to dismiss the second amended complaint in its entirety. On April 9, 2015, a third lawsuit was filed in the U. S. District Court for the Central District of California, entitled Russ McCullough, a/k/a “Big Russ McCullough,” Ryan Sakoda, and Matthew R. Wiese a/k/a “Luther Reigns,” individually and on behalf of all others similarly situated, v. World Wrestling Entertainment, Inc., asserting similar allegations to Haynes. The Company again moved to transfer the lawsuit to Connecticut due to forum-selection clauses in the contracts between WWE and the plaintiffs, which the California court granted on July 10, 2015. On September 21, 2015, the plaintiffs amended this complaint, and, on November 16, 2015, the Company moved to dismiss the amended complaint. Each of these suits sought unspecified actual, compensatory and punitive damages and injunctive relief, including ordering medical monitoring. The Haynes and McCullough cases purport to be class actions. On February 18, 2015, a lawsuit was filed in Tennessee state court and subsequently removed to the U.S. District Court for the Western District of Tennessee, entitled Cassandra Frazier, individually and as next of kin to her deceased husband, Nelson Lee Frazier, Jr., and as personal representative of the Estate of Nelson Lee Frazier, Jr. Deceased, v. World Wrestling Entertainment, Inc. A similar suit was filed in the U. S. District Court for the Northern District of Texas entitled Michelle James, as mother and next friend of Matthew Osborne, minor child, and Teagan Osborne, a minor child v. World
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
Wrestling Entertainment, Inc. These lawsuits contain many of the same allegations as the other lawsuits alleging traumatic brain injuries and further allege that the injuries contributed to these former talents’ deaths. WWE moved to transfer the Frazier and Osborne lawsuits to the U.S. District Court for the District of Connecticut based on forum-selection clauses in the decedents’ contracts with WWE, which motions were granted by the respective courts. On November 23, 2015, amended complaints were filed in Frazier and Osborne, which the Company moved to dismiss on December 16, 2015 and December 21, 2015, respectively. On November 10, 2016, the Court granted the Company’s motions to dismiss the Frazier and Osborne lawsuits in their entirety. On June 29, 2015, the Company filed a declaratory judgment action in the U. S. District Court for the District of Connecticut entitled World Wrestling Entertainment, Inc. v. Robert Windham, Thomas Billington, James Ware, Oreal Perras and various John and Jane Does seeking a declaration against these former performers that their threatened claims related to alleged traumatic brain injuries and/or other tort claims are time-barred. On September 21, 2015, the defendants filed a motion to dismiss this complaint, which the Company opposed. The Court previously ordered a stay of discovery in all cases pending decisions on the motions to dismiss. On January 15, 2016, the Court partially lifted the stay and permitted discovery only on three issues in the case involving Singleton and LoGrasso. Such discovery was completed by June 1, 2016. On March 21, 2016, the Court issued a memorandum of decision granting in part and denying in part the Company’s motions to dismiss the Haynes, Singleton/LoGrasso, and McCullough lawsuits. The Court granted the Company’s motions to dismiss the Haynes and McCullough lawsuits in their entirety and granted the Company’s motion to dismiss all claims in the Singleton/LoGrasso lawsuit except for the claim of fraud by omission. On March 22, 2016, the Court issued an order dismissing the Windham lawsuit based on the Court’s memorandum of decision on the motions to dismiss. On April 4, 2016, the Company filed a motion for reconsideration with respect to the Court’s decision not to dismiss the fraud by omission claim in the Singleton/LoGrasso lawsuit and, on April 5, 2016, the Company filed a motion for reconsideration with respect to the Court dismissal of the Windham lawsuit. On July 21, 2016, the Court denied the Company’s motion in the Singleton/LoGrasso lawsuit and granted in part the Company’s motion in the Windham lawsuit. On April 20, 2016, the plaintiffs filed notices of appeal of the Haynes and McCullough lawsuits. On April 27, 2016, the Company moved to dismiss the appeals for lack of appellate jurisdiction, which motions were granted, and the appeals were dismissed with leave to appeal upon the resolution of all of the consolidated cases. The Company filed a motion for summary judgment on the sole remaining claim in the Singleton/LoGrasso lawsuit, which was granted on March 28, 2018. The Company also filed a motion for judgment on the pleadings against the Windham defendants. Lastly, on July 18, 2016, a lawsuit was filed in the U.S. District Court for the District of Connecticut, entitled Joseph M. Laurinaitis, et al. vs. World Wrestling Entertainment, Inc. and Vincent K. McMahon, individually and as the trustee of certain trusts. This lawsuit contains many of the same allegations as the other lawsuits alleging traumatic brain injuries and further alleges, among other things, that the plaintiffs were misclassified as independent contractors rather than employees denying them, among other things, rights and benefits under the Occupational Safety and Health Act (OSHA), the National Labor Relations Act (NLRA), the Family and Medical Leave Act (FMLA), federal tax law, and various state Worker’s Compensation laws. This lawsuit also alleges that the booking contracts and other agreements between the plaintiffs and the Company are unconscionable and should be declared void, entitling the plaintiffs to certain damages relating to the Company’s use of their intellectual property. The lawsuit alleges claims for violation of RICO, unjust enrichment, and an accounting against Mr. McMahon. The Company and Mr. McMahon moved to dismiss and for sanctions with respect to this complaint on October 19, 2016. On November 9, 2016, the Laurinaitis plaintiffs filed an amended complaint. On December 23, 2016, the Company and Mr. McMahon moved to dismiss and for sanctions with respect to the amended complaint. On September 29, 2017, the Court issued an order on the motion to dismiss pending in the Laurinaitis case and on the motion for judgment on the pleadings pending in the Windham case. The Court reserved judgment on the pending motions and ordered that within thirty-five (35) days of the date of the order the Laurinaitis plaintiffs and the Windham defendants file amended pleadings that comply with the Federal Rules of Civil Procedure. The Court further ordered that each of the Laurinaitis plaintiffs and the Windham defendants submit to the Court for in camera review affidavits signed and sworn under penalty of perjury setting forth facts within each plaintiff’s or declaratory judgment-defendant’s personal knowledge that form the factual basis of their claim or defense. On November 3, 2017, the Laurinaitis plaintiffs filed a second amended complaint. The Company and Mr. McMahon believe that the second amended complaint failed to comply with the Court’s September 29, 2017 order and otherwise remained legally defective for all of the reasons set forth in their motion to dismiss the amended complaint. Also on November 3, 2017, the Windham defendants filed a second answer. On November 17, 2017, the Company and Mr. McMahon filed a response that, among other things, urged the Court to grant the motion for judgment on the pleadings against the Windham defendants and dismiss the Laurinaitis plaintiffs’ complaint with prejudice and award sanctions against the Laurinaitis plaintiffs’ counsel because the amended pleadings failed to comply with the Court’s September 29, 2017 order and the Federal Rules of Civil Procedure. On September 17, 2018, the Court granted the motion to dismiss filed by the Company and Mr. McMahon in the Laurinaitis case in its entirety, awarded sanctions against the Laurinaitis plaintiffs’ counsel, and granted the Company’s motion for judgment on the pleadings against the Windham defendants. The plaintiffs attempted to appeal these decisions. On November 16, 2018, the Company moved to dismiss all of the appeals, except for the appeal of the dismissal of the Laurinaitis case, for being filed untimely. On April 4, 2019, the Second Circuit issued an order referring the Company’s motions to dismiss to the panel that will determine the merits of the appeals. The plaintiffs-appellants’ opening brief was filed on July 8, 2019. The Company and Mr. McMahon filed their appellees’ brief on October 7, 2019. The plaintiffs-appellants filed a reply brief on October 28, 2019. The Second Circuit held oral argument on June 5, 2020. On September 9, 2020, the Second Circuit issued a summary order, dismissing the appeals of the sanctions orders and the merits appeals of the dismissal of all claims in the Haynes, McCullough, Frazier,
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
and Singleton cases for lack of appellate jurisdiction and affirming the judgment of the district court on all other claims. On September 23, 2020, the plaintiffs-appellants filed a petition for rehearing/rehearing en banc, which was denied on October 15, 2020. The Company believes all claims and threatened claims against the Company in these various lawsuits were prompted by the same plaintiffs’ lawyer and that all are without merit. The Company intends to continue to defend itself against the attempt to appeal these decisions vigorously.
On March 6, 2020, the Company along with its Chairman and CEO, Vince McMahon, and former-WWE officers and directors, Michelle Wilson and George Barrios (collectively, the “Individual Defendants”), were sued in the U.S. District Court for the Southern District of New York in a case captioned City of Warren Police and Fire Retirement System, individually and on behalf of all others similarly situated, v. World Wrestling Entertainment, Inc., Vincent K. McMahon, George A. Barrios, and Michelle D. Wilson, No. 1:20-cv-02031-JSR. The complaint alleges that the Company and the Individual Defendants made materially false and misleading statements in violation of the Securities Exchange Act of 1934 regarding WWE’s strategic relationship with the Kingdom of Saudi Arabia. Specifically, the complaint alleges that various public statements made by the Company and the Individual Defendants were false and misleading because they failed to disclose certain adverse facts regarding WWE’s strategic relationship with Saudi Arabia that supposedly was known by them and, as a result, the plaintiff class allegedly purchased WWE stock at artificially inflated prices. On March 12, 2020 a nearly-identical lawsuit was filed in the U.S. District Court for the Southern District of New York captioned Paul Szaniawski, individually and on behalf of all others similarly situated, v. World Wrestling Entertainment, Inc., Vincent K. McMahon, George A. Barrios, and Michelle D. Wilson, No. 1:20-cv-02223-JSR. This lawsuit was filed as related to the City of Warren case and was assigned to the same judge handling the City of Warren case. By Order dated May 12, 2020, the City of Warren and Szaniawski lawsuits were consolidated for all purposes. After multiple parties filed motions to be appointed lead plaintiff for the putative class in the consolidated action, on May 22, 2020, the Court issued a memorandum order selecting the Firefighters’ Pension System of the City of Kansas City, Missouri to be lead plaintiff and their attorneys, Labaton Sucharow LLP, to be lead counsel for the putative class. On May 26, 2020, the Company served Rule 11 motion for sanctions on the attorneys for the City of Warren Police and Fire Retirement System, the attorneys for Paul Szaniawski, and Labaton Sucharow LLP. The Rule 11 motion identified false allegations in the originally filed complaints and was supported by six declarations from Company executives and third-parties with direct first-hand knowledge of the matters at issue. Following service of the Rule 11 motion, the attorneys for the City of Warren Police and Fire Retirement System and the attorneys for Paul Szaniawski voluntarily dismissed their complaints before the expiration of the Rule 11 safe-harbor period. On June 8, 2020, the Firefighters’ Pension System of the City of Kansas City, Missouri filed a consolidated amended class action complaint. On June 26, 2020, the Company moved to dismiss the consolidated amended complaint in its entirety. The Court held oral argument on the Company’s motion to dismiss on July 30, 2020. On August 6, 2020, the Court denied the Company’s motion to dismiss. On August 19, 2020, the Court issued a case management plan that, among other things, scheduled this case to be trial ready on February 22, 2021.
Additionally, three purported shareholder derivative suits have been filed against the members of the Company’s Board of Directors patterned after the securities class action complaints filed in the U.S. District Court for the Southern District of New York. Merholz et al. v. Vincent K. McMahon et al, No. 3:20-cv-00557-VAB, was filed in the U.S. District Court for the District of Connecticut and assigned to the Honorable Victor A. Bolden. On May 29, 2020, the Defendants served Merholz’s counsel with a Rule 11 motion that identified the false allegations in the complaint. On May 19, 2020, Merholz filed an amended complaint prior to the expiration of the Rule 11 safe-harbor period, which is substantially similar to the consolidated amended class action complaint filed in the securities class action. Because Merholz’s amended complaint continued to assert allegations that were proven to be false by the Defendants’ Rule 11 motion regarding the original complaint, the Defendants served Merholz’s counsel with a Rule 11 motion regarding the amended complaint on July 2, 2020. On July 28, 2020, Merholz filed a second amended complaint. Kooi et al. v. Vincent K. McMahon et al., No. 3:20-cv-00743-VAB, was originally filed in Connecticut Superior Court and was removed by the Defendants to the U.S. District Court for the District of Connecticut on June 1, 2020. The Kooi lawsuit was deemed to be related to the Merholz lawsuit and transferred to Judge Bolden. On June 8, 2020, Kooi filed a motion to remand the lawsuit to state court. The Defendants filed its opposition to the motion to remand on June 29, 2020. Following Kooi’s affirmation of the allegations of the complaint in federal court by filing the motion to remand, on June 12, 2020, the Defendants served Kooi’s counsel with a Rule 11 motion similar to that served on counsel in the Merholz lawsuit. On July 3, 2020, Kooi filed an amended complaint that withdrew the false allegations identified in the Defendants’ Rule 11 motion. Nordstrom et al. v. Vincent K. McMahon et al., No. 3:20-cv-00904-VAB, was originally filed in Connecticut Superior Court, and also removed by the Defendants to the U.S. District Court for the District of Connecticut on July 1, 2020. The Nordstrom lawsuit was deemed to be related to the Merholz and Kooi lawsuits and was also transferred to Judge Bolden. Following Nordstrom’s affirmation of the allegations of the complaint in federal court, on July 24, 2020, the Defendants served Nordstrom’s counsel with a Rule 11 motion similar to that served on counsel in the Merholz and Kooi lawsuits. On July 31, 2020, Nordstrom filed a motion to remand the lawsuit to state court, which the Defendants opposed. On August 14, 2020, Nordstrom filed an amended complaint in the U.S. District Court for the District of Connecticut. On July 2, 2020, the Defendants moved to consolidate the Merholz, Kooi, and Nordstrom lawsuits for all purposes. Following a status conference held on July 24, 2020, on August 1, 2020, the Court denied the Defendants’ motion to consolidate without prejudice to renew following resolution of any motions to dismiss and motions to remand.
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
The Defendants filed a consolidated motion to dismiss the complaints in the Merholz, Kooi, and Nordstrom lawsuits on August 28, 2020. Merholz, Kooi, and Nordstrom filed oppositions to the motion to dismiss on September 18, 2020 and the Defendants filed its reply on October 2, 2020. Oral argument on the motion to dismiss and motions to remand is scheduled for October 29, 2020. On October 23, 2020, another shareholder, Dennis Palkon, moved to intervene in the proceedings before Judge Bolden, to have his counsel appointed as lead counsel, to designate the proposed complaint that he filed with his motion to intervene as the operative compliant, and to deny as moot Defendants’ pending motions to dismiss in light of the newly-filed complaint. The Company believes all claims in the securities class action and related derivative actions are without merit, and intends to defend itself and the members of the Board of Directors vigorously against them.
In addition to the foregoing, from time to time we become a party to other lawsuits and claims. By its nature, the outcome of litigation is not known, but the Company does not currently expect this ordinary course litigation to have a material adverse effect on our financial condition, results of operations or liquidity.
On February 7, 2019, the Company’s Board of Directors authorized a stock repurchase program of up to $
The Company did
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion in conjunction with the consolidated financial statements and related notes included elsewhere in this report.
Our operations are organized around the following principal activities:
Media:
The Media segment reflects the production and monetization of long-form and short-form video content across various platforms, including WWE Network, pay television, digital and social media, as well as filmed entertainment. Across these platforms, revenues principally consist of content rights fees associated with the distribution of our programming content, subscriptions to WWE Network, and advertising and sponsorships.
Live Events:
Live events provide ongoing content for our media platforms. Live Event segment revenues consist primarily of ticket sales, including primary and secondary distribution, revenues from events for which we receive a fixed fee, as well as the sale of travel packages associated with the Company’s global live events.
Consumer Products:
The Consumer Products segment engages in the merchandising of WWE branded products, such as video games, toys and apparel, through licensing arrangements and direct-to-consumer sales. Revenues principally consist of royalties and licensee fees related to WWE branded products, and sales of merchandise distributed at our live events and through eCommerce platforms.
Results of Operation
The Company presents Adjusted OIBDA as the primary measure of segment profit (loss). The Company defines Adjusted OIBDA as operating income before depreciation and amortization, excluding stock-based compensation, certain impairment charges and other non-recurring material items. Adjusted OIBDA includes depreciation and amortization expenses directly related to supporting the operations of our segments, including content production asset amortization, depreciation and amortization of costs related to content delivery and technology assets utilized for our WWE Network, as well as amortization of right-of-use assets related to finance leases of equipment used to produce and broadcast our live events. The Company believes the presentation of Adjusted OIBDA is relevant and useful for investors because it allows investors to view our segment performance in the same manner as the primary method used by management to evaluate segment performance and make decisions about allocating resources. Additionally, we believe that Adjusted OIBDA is a primary measure used by media investors, analysts and peers for comparative purposes.
Adjusted 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 Adjusted OIBDA is that it excludes depreciation and amortization, which represents the periodic charge for certain fixed assets and intangible assets used in our business. Additionally, Adjusted OIBDA excludes stock-based compensation, a non-cash expense that may vary between periods with limited correlation to underlying operating performance, as well as other non-recurring material items. Adjusted 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 Adjusted OIBDA. See Note 3, Segment Information, in the accompanying consolidated financial statements for a reconciliation of Adjusted OIBDA to operating income for the periods presented.
Unallocated corporate general and administrative expenses largely relate to corporate functions such as finance, legal, human resources, facilities and information technology. These unallocated corporate general and administrative expenses will be shown, as applicable, as a reconciling item in tables where segment and consolidated results are both shown.
Summary
In December 2019, an outbreak of a new strain of coronavirus (“COVID-19”) began in Wuhan, Hubei Province, China. In March 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. COVID-19 has resulted in restrictions, postponements and cancellations of various events, such as the relocation of WrestleMania 36 and the cancellation of ticketed events due to public health concerns. The impact of COVID-19 to our 2020 results had a greater impact on our live events and consumer products segments, which are highly dependent on ticket sales and purchases of merchandise by consumers at our live events. Our Media segment was impacted to a lesser extent since a large portion of these revenues are derived from contractual rights fees from our domestic and international distribution arrangements. We continue to deliver the weekly wrestling content associated with these arrangements (e.g. RAW, SmackDown and NXT) without ticketed audiences. We will monitor the developments of COVID-19 and actively manage our business to respond to the potential impacts. Additionally, please refer to Part II, Item 1A, Risk Factors, which provides a discussion of risk factors related to COVID-19.
Three Months Ended September 30, 2020 compared to Three Months Ended September 30, 2019
(dollars in millions)
The following tables present our consolidated results followed by our Adjusted OIBDA results:
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| Three Months Ended |
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|
| September 30, |
| Increase | |||||
|
| 2020 |
| 2019 |
| (decrease) | |||
Net revenues |
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|
|
|
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|
Media |
| $ | 201.0 |
| $ | 146.1 |
| 38 | % |
Live Events |
|
| 0.7 |
|
| 23.2 |
| (97) | % |
Consumer Products |
|
| 19.9 |
|
| 17.0 |
| 17 | % |
Total net revenues (1) |
|
| 221.6 |
|
| 186.3 |
| 19 | % |
Operating expenses |
|
|
|
|
|
|
|
|
|
Media |
|
| 89.7 |
|
| 97.5 |
| (8) | % |
Live Events |
|
| 4.5 |
|
| 23.8 |
| (81) | % |
Consumer Products |
|
| 13.8 |
|
| 12.5 |
| 10 | % |
Total operating expenses (2) |
|
| 108.0 |
|
| 133.8 |
| (19) | % |
Marketing and selling expenses |
|
|
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|
|
|
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|
|
Media |
|
| 13.1 |
|
| 12.4 |
| 6 | % |
Live Events |
|
| 0.6 |
|
| 3.0 |
| (80) | % |
Consumer Products |
|
| 0.8 |
|
| 1.0 |
| (20) | % |
Total marketing and selling expenses |
|
| 14.5 |
|
| 16.4 |
| (12) | % |
General and administrative expenses (3) |
|
| 25.2 |
|
| 18.5 |
| 36 | % |
Depreciation and amortization |
|
| 10.5 |
|
| 11.2 |
| (6) | % |
Operating income |
|
| 63.4 |
|
| 6.4 |
| 891 | % |
Interest expense |
|
| 9.2 |
|
| 7.9 |
| 16 | % |
Other income, net |
|
| 7.0 |
|
| 0.2 |
| 3,400 | % |
Income (loss) before income taxes |
|
| 61.2 |
|
| (1.3) |
| 4,808 | % |
Provision for (benefit from) income taxes |
|
| 13.0 |
|
| (7.1) |
| 283 | % |
Net income |
| $ | 48.2 |
| $ | 5.8 |
| 731 | % |
(1)Our consolidated net revenues increased by $35.3 million, or 19%, in the current year quarter as compared to the prior year quarter. This increase was driven by $60.2 million in incremental revenues primarily associated with the October 2019 renewal of our key domestic distribution agreements of our flagship programs, RAW and SmackDown. This increase was partially offset by $24.1 million of lower ticket and merchandise sales from our live events due to the cancellation of ticketed events due to public health concerns as a result of COVID-19. For further analysis, refer to Management’s Discussion and Analysis of our business segments.
(2)Our consolidated operating expenses decreased by $25.8 million, or 19%, in the current year quarter as compared to the prior year quarter. This decrease was primarily driven by $11.0 million of lower event related and content creation costs due to the cancellation of ticketed events resulting from COVID-19, coupled with $7.7 million of lower production costs associated with the timing of delivery of our reality-based programming. The current year period also includes $4.0 million of lower costs associated with the delivery of content to WWE Network, coupled with the impact of various short-term cost reductions that were implemented as a result of COVID-19. For further analysis, refer to Management’s Discussion and Analysis of our business segments.
(3)Our consolidated general and administrative expenses increased by $6.7 million, or 36%, in the current year quarter as compared to the prior year quarter. This increase was driven by $5.1 million of additional staff related costs primarily due to severance expenses associated with a reduction in our workforce as a result of COVID-19, coupled with $1.4 million of higher legal expenses resulting from ongoing litigation. For further analysis, refer to Management’s Discussion and Analysis of our business segments.
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| Three Months Ended | ||||||||||
|
| September 30, | ||||||||||
|
| 2020 |
| 2019 | ||||||||
Reconciliation of Operating Income to Adjusted OIBDA |
|
|
|
| % of Rev |
|
|
|
| % of Rev | ||
Operating income |
| $ | 63.4 |
| 29 | % |
| $ | 6.4 |
| 3 | % |
Depreciation and amortization |
|
| 10.5 |
| 5 | % |
|
| 11.2 |
| 6 | % |
Stock-based compensation |
|
| 4.9 |
| 2 | % |
|
| 7.8 |
| 4 | % |
Other adjustments (1) |
|
| 5.5 |
| 2 | % |
|
| — |
| — | % |
Adjusted OIBDA |
| $ | 84.3 |
| 38 | % |
| $ | 25.4 |
| 14 | % |
(1)Other adjustments in the current year quarter include severance expenses associated with a reduction in our workforce as a result of COVID-19.
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| Three Months Ended |
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| |||||
|
| September 30, |
| Increase | |||||
|
| 2020 |
| 2019 |
| (decrease) | |||
Adjusted OIBDA |
|
|
|
|
|
|
|
|
|
Media |
| $ | 101.7 |
| $ | 41.5 |
| 145 | % |
Live Events |
|
| (4.1) |
|
| (2.9) |
| (41) | % |
Consumer Products |
|
| 5.6 |
|
| 4.0 |
| 40 | % |
Corporate |
|
| (18.9) |
|
| (17.2) |
| (10) | % |
Total Adjusted OIBDA |
| $ | 84.3 |
| $ | 25.4 |
| 232 | % |
Media
The following tables present the performance results and key drivers for our Media segment (dollars in millions, except where noted):
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|
|
|
|
| Three Months Ended |
|
|
| ||||
|
| September 30, |
| Increase | |||||
|
| 2020 |
| 2019 |
| (decrease) | |||
Net Revenues |
|
|
|
|
|
|
|
|
|
Network (including pay-per-view) |
| $ | 47.8 |
| $ | 44.2 |
| 8 | % |
Core content rights fees (1) |
|
| 132.4 |
|
| 72.2 |
| 83 | % |
Advertising and sponsorship |
|
| 18.1 |
|
| 15.0 |
| 21 | % |
Other (2) |
|
| 2.7 |
|
| 14.7 |
| (82) | % |
Total net revenues |
| $ | 201.0 |
| $ | 146.1 |
| 38 | % |
|
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|
|
|
|
|
Operating Metrics |
|
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|
|
|
|
|
Number of paid WWE Network subscribers at period end |
|
| 1,548,600 |
|
| 1,465,400 |
| 6 | % |
Domestic |
|
| 1,136,400 |
|
| 1,062,100 |
| 7 | % |
International (3) |
|
| 412,200 |
|
| 403,300 |
| 2 | % |
Number of average paid WWE Network subscribers |
|
| 1,604,000 |
|
| 1,511,300 |
| 6 | % |
Domestic |
|
| 1,172,500 |
|
| 1,098,700 |
| 7 | % |
International (3) |
|
| 431,500 |
|
| 412,600 |
| 5 | % |
(1)Core content rights fees consist primarily of licensing revenues earned from the distribution of our flagship programs, RAW and SmackDown, as well as our NXT programming, through global broadcast, pay television and digital platforms.
(2)Other revenues within our Media segment reflect revenues earned from the distribution of other WWE content, including, but not limited to, certain live in-ring programming content in international markets, scripted, reality and other programming, as well as theatrical and direct-to-home video releases.
(3)Metrics reflect subscribers who are direct customers of WWE Network and estimated subscribers under licensed partner agreements, which have different economic terms for WWE Network.
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|
| Three Months Ended | ||||||||||
|
| September 30, | ||||||||||
|
| 2020 |
| 2019 | ||||||||
Reconciliation of Operating Income to Adjusted OIBDA |
|
|
|
| % of Rev |
|
|
|
| % of Rev | ||
Operating income |
| $ | 94.5 |
| 47 | % |
| $ | 33.0 |
| 23 | % |
Depreciation and amortization |
|
| 3.7 |
| 2 | % |
|
| 3.2 |
| 2 | % |
Stock-based compensation |
|
| 3.5 |
| 2 | % |
|
| 5.3 |
| 4 | % |
Other adjustments |
|
| — |
| — | % |
|
| — |
| — | % |
Adjusted OIBDA |
| $ | 101.7 |
| 51 | % |
| $ | 41.5 |
| 28 | % |
Media net revenues increased by $54.9 million, or 38%, in the current year quarter as compared to the prior year quarter. Our core content rights fees increased by $60.2 million, or 83%, driven primarily by the October 2019 renewal of our key domestic distribution agreements of our flagship programs, RAW and SmackDown. Network revenues, which includes revenues generated by WWE Network subscriptions and pay-per-view, increased by $3.6 million, or 8%, primarily due to an increase in average paid subscribers. The domestic subscription pricing of WWE Network at September 30, 2020 is $9.99 per month with no minimum commitment. These increases were partially offset by a decline in other revenue of $12.0 million, or 82%, driven primarily by the timing of delivery of our reality-based programming, which reduced revenues by $8.7 million, coupled with $3.1 million of lower revenue associated with our WWE Studios portfolio.
Media Adjusted OIBDA as a percentage of revenues increased in the current year quarter as compared to the prior year quarter. This increase was driven by increased revenues of $54.9 million, primarily due to the renewals of our key domestic distribution agreements, as discussed above, coupled with a $4.0 million of lower costs associated with the delivery of content to WWE Network. The current year quarter also includes the impact of various short-term cost reductions that were implemented as a result of COVID-19.
Live Events
The following tables present the performance results and key drivers for our Live Events segment (dollars in millions, except where noted):
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|
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|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
|
| ||||
|
| September 30, |
| Increase | |||||
|
| 2020 |
| 2019 |
| (decrease) | |||
Net Revenues |
|
|
|
|
|
|
|
|
|
North American ticket sales |
| $ | — |
| $ | 18.3 |
| (100) | % |
International ticket sales |
|
| — |
|
| 2.3 |
| (100) | % |
Advertising and sponsorship |
|
| — |
|
| 0.5 |
| (100) | % |
Other (1) |
|
| 0.7 |
|
| 2.1 |
| (67) | % |
Total net revenues |
| $ | 0.7 |
| $ | 23.2 |
| (97) | % |
|
|
|
|
|
|
|
|
|
|
Operating Metrics (2) |
|
|
|
|
|
|
|
|
|
Total live event attendance |
|
| — |
|
| 328,400 |
| (100) | % |
Number of North American events |
|
| — |
|
| 67 |
| (100) | % |
Average North American attendance |
|
| — |
|
| 4,430 |
| (100) | % |
Average North American ticket price (dollars) |
| $ | — |
| $ | 56.64 |
| (100) | % |
Number of international events |
|
| — |
|
| 7 |
| (100) | % |
Average international attendance |
|
| — |
|
| 4,480 |
| (100) | % |
Average international ticket price (dollars) |
| $ | — |
| $ | 65.18 |
| (100) | % |
(1)Other revenues within our Live Events segment primarily consists of the sale of travel packages associated with the Company’s global live events and commission earned through secondary ticketing, as well as revenues from events for which the Company receives a fixed fee.
(2)Metrics exclude the events for our domestic and United Kingdom NXT brands. These are our developmental brands that typically conduct their events in smaller venues with lower ticket prices. We did not conduct any ticketed NXT events in the current year quarter as a result of COVID-19. We conducted 46 events with paid attendance of 35,600 and average ticket prices of $38.48 in the prior year quarter.
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|
|
|
| Three Months Ended | ||||||||||
|
| September 30, | ||||||||||
|
| 2020 |
| 2019 | ||||||||
Reconciliation of Operating Loss to Adjusted OIBDA |
|
|
|
| % of Rev |
|
|
|
| % of Rev | ||
Operating loss |
| $ | (4.4) |
| (629) | % |
| $ | (3.5) |
| (15) | % |
Depreciation and amortization |
|
| — |
| — | % |
|
| — |
| — | % |
Stock-based compensation |
|
| 0.3 |
| 43 | % |
|
| 0.6 |
| 3 | % |
Other adjustments |
|
| — |
| — | % |
|
| — |
| — | % |
Adjusted OIBDA |
| $ | (4.1) |
| (586) | % |
| $ | (2.9) |
| (13) | % |
Live Events net revenues, which include revenues from ticket sales and travel packages, decreased by $22.5 million, or 97%, in the current year quarter as compared to the prior year quarter. Revenues from our North American and international ticket sales decreased by $20.6 million, or 100%, due to the impact of 74 fewer events during the current year quarter, primarily due to the cancellation of ticketed events as a result of public health concerns related to COVID-19.
Live Events Adjusted OIBDA decreased in the current year quarter as compared to the prior year quarter. This decrease was driven by the impact of fewer events as a result of COVID-19.
Consumer Products
The following tables present the performance results and key drivers for our Consumer Products segment (dollars in millions, except where noted):
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|
|
|
|
|
|
|
| Three Months Ended |
|
|
| ||||
|
| September 30, |
| Increase | |||||
|
| 2020 |
| 2019 |
| (decrease) | |||
Net Revenues |
|
|
|
|
|
|
|
|
|
Consumer product licensing |
| $ | 10.8 |
| $ | 7.8 |
| 38 | % |
eCommerce |
|
| 9.1 |
|
| 5.7 |
| 60 | % |
Venue merchandise |
|
| — |
|
| 3.5 |
| (100) | % |
Total net revenues |
| $ | 19.9 |
| $ | 17.0 |
| 17 | % |
|
|
|
|
|
|
|
|
|
|
Operating Metrics |
|
|
|
|
|
|
|
|
|
Average eCommerce revenue per order (dollars) |
| $ | 59.10 |
| $ | 46.09 |
| 28 | % |
Number of eCommerce orders |
|
| 153,200 |
|
| 115,500 |
| 33 | % |
Venue merchandise domestic per capita spending (dollars) |
| $ | — |
| $ | 9.38 |
| (100) | % |
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|
|
|
|
|
|
| Three Months Ended | ||||||||||
|
| September 30, | ||||||||||
|
| 2020 |
| 2019 | ||||||||
Reconciliation of Operating Income to Adjusted OIBDA |
|
|
|
| % of Rev |
|
|
|
| % of Rev | ||
Operating income |
| $ | 5.4 |
| 27 | % |
| $ | 3.4 |
| 20 | % |
Depreciation and amortization |
|
| — |
| — | % |
|
| — |
| — | % |
Stock-based compensation |
|
| 0.2 |
| 1 | % |
|
| 0.6 |
| 4 | % |
Other adjustments |
|
| — |
| — | % |
|
| — |
| — | % |
Adjusted OIBDA |
| $ | 5.6 |
| 28 | % |
| $ | 4.0 |
| 24 | % |
Consumer Products net revenues increased by $2.9 million, or 17%, in the current year quarter as compared to the prior year quarter. eCommerce revenues increased by $3.4 million, or 60%, primarily due to a 33% increase in the volume of online merchandise orders, coupled with a 28% increase in average revenue per order, which was driven, in part, by the release of new replica title belts. Consumer product licensing revenue increased by $3.0 million, or 38%, primarily due to higher sales of the Company’s licensed video games and toys. These increases were partially offset by a decline in venue merchandise revenues of $3.5 million, or 100%, driven by the cancellation of ticketed events in the current year quarter due to public health concerns as a result of COVID-19.
Consumer Products Adjusted OIBDA as a percentage of revenues increased in the current year quarter as compared to the prior year quarter. This increase was primarily driven by the increased revenues, as discussed above.
Corporate
Unallocated corporate general and administrative expenses largely relate to corporate administrative functions, including finance, investor relations, community relations, corporate communications, information technology, legal, human resources and our Board of Directors. The Company does not allocate these general and administrative expenses to its business segments.
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|
| Three Months Ended | ||||||||||
|
| September 30, | ||||||||||
|
| 2020 |
| 2019 | ||||||||
Reconciliation of Operating Loss to Adjusted OIBDA |
|
|
|
| % of Rev |
|
|
|
| % of Rev | ||
Operating loss |
| $ | (32.1) |
| (14) | % |
| $ | (26.5) |
| (14) | % |
Depreciation and amortization |
|
| 6.8 |
| 3 | % |
|
| 8.0 |
| 4 | % |
Stock-based compensation |
|
| 0.9 |
| 0 | % |
|
| 1.3 |
| 1 | % |
Other adjustments (1) |
|
| 5.5 |
| 2 | % |
|
| — |
| — | % |
Adjusted OIBDA |
| $ | (18.9) |
| (9) | % |
| $ | (17.2) |
| (9) | % |
(1)Other adjustments in the current year quarter include severance expenses associated with a reduction in our workforce as a result of COVID-19. Our policy is to record Company-wide severance expenses as unallocated corporate general and administrative expenses.
Corporate Adjusted OIBDA as a percentage of total revenues remained flat in the current year quarter as compared to the prior year quarter. The decrease in Corporate Adjusted OIBDA of $1.7 million, or 10%, was primarily driven by $1.4 million of higher legal expenses resulting from ongoing litigation.
Depreciation and Amortization
(dollars in millions)
|
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|
|
| Three Months Ended |
|
|
| ||||||
|
| September 30, |
| Increase | |||||||
|
| 2020 |
| 2019 |
| (decrease) | |||||
Depreciation and amortization |
| $ | 10.5 |
|
| $ | 11.2 |
|
| (6) | % |
Depreciation and amortization expense decreased by $0.7 million, or 6%, in the current year quarter as compared to the prior year quarter.
Interest Expense
(dollars in millions)
|
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|
| Three Months Ended |
|
|
| ||||||
|
| September 30, |
| Increase | |||||||
|
| 2020 |
| 2019 |
| (decrease) | |||||
Interest expense |
| $ | 9.2 |
|
| $ | 7.9 |
|
| 16 | % |
Interest expense increased by $1.3 million in the current year quarter as compared to the prior year quarter, primarily driven by expense of $0.9 million associated with the amount outstanding under the Company’s Revolving Credit Facility. The remaining portion of interest expense relates primarily to interest and amortization associated with our convertible notes, the revolving credit facility, other finance leases, mortgage and aircraft financing.
Other Income, Net
(dollars in millions)
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|
|
|
| Three Months Ended |
|
|
| ||||||
|
| September 30, |
| Increase | |||||||
|
| 2020 |
| 2019 |
| (decrease) | |||||
Other income, net |
| $ | 7.0 |
|
| $ | 0.2 |
|
| 3,400 | % |
Other income, net is comprised of interest income, gains and losses recorded on our equity investments, realized translation gains and losses, and rental income. The increase of $6.8 million in the current year quarter is driven by the recognition of an unrealized holding gain of $6.6 million resulting from valuation adjustments in our marketable equity investments, primarily DraftKings.
As the underlying stock prices of our marketable equity investments fluctuate, the Company is exposed to future earnings volatility to the extent we continue to hold these investments.
Income Taxes
(dollars in millions)
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|
|
| Three Months Ended |
|
|
| ||||||
|
| September 30, |
| Increase | |||||||
|
| 2020 |
| 2019 |
| (decrease) | |||||
Provision for (benefit from) income taxes |
| $ | 13.0 |
|
| $ | (7.1) |
|
| 283 | % |
Effective tax rate |
|
| 21 | % |
|
| 587 | % |
|
|
|
The provision for income taxes increased by $20.1 million in the current year quarter as compared to the prior year quarter. This increase was primarily driven by stronger operating performance, coupled with an $8.2 million reduction in excess tax benefits relating to share-based compensation. The current year quarter includes $0.2 million of excess tax expenses related to the Company’s share-based compensation awards at vesting, as compared to $8.0 million of excess tax benefits during the prior year quarter. The tax expense and benefit is driven by the change in the Company’s stock price between when the Company granted the awards and their subsequent vesting date during the third quarter.
Discrete tax items, including the aforementioned excess tax benefits, resulted in a net tax benefit of $0.1 million in the current year quarter as compared to $6.7 million in the prior year quarter. Excluding these items, our effective tax rate was 21% in the current year quarter as compared to 27% in the prior year quarter, which was driven by an increase in foreign derived investment income deductions.
Nine Months Ended September 30, 2020 compared to Nine Months Ended September 30, 2019
(dollars in millions)
The following tables present our consolidated results followed by our Adjusted OIBDA results:
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|
|
|
|
|
|
| Nine Months Ended |
|
|
| ||||
|
| September 30, |
| Increase | |||||
|
| 2020 |
| 2019 |
| (decrease) | |||
Net revenues |
|
|
|
|
|
|
|
|
|
Media |
| $ | 657.7 |
| $ | 478.5 |
| 37 | % |
Live Events |
|
| 19.2 |
|
| 98.2 |
| (80) | % |
Consumer Products |
|
| 59.1 |
|
| 60.9 |
| (3) | % |
Total net revenues (1) |
|
| 736.0 |
|
| 637.6 |
| 15 | % |
Operating expenses |
|
|
|
|
|
|
|
|
|
Media |
|
| 333.3 |
|
| 345.0 |
| (3) | % |
Live Events |
|
| 27.1 |
|
| 78.5 |
| (65) | % |
Consumer Products |
|
| 40.4 |
|
| 43.1 |
| (6) | % |
Total operating expenses (2) |
|
| 400.8 |
|
| 466.6 |
| (14) | % |
Marketing and selling expenses |
|
|
|
|
|
|
|
|
|
Media |
|
| 47.6 |
|
| 49.1 |
| (3) | % |
Live Events |
|
| 4.3 |
|
| 11.1 |
| (61) | % |
Consumer Products |
|
| 2.8 |
|
| 4.2 |
| (33) | % |
Total marketing and selling expenses (3) |
|
| 54.7 |
|
| 64.4 |
| (15) | % |
General and administrative expenses (4) |
|
| 75.9 |
|
| 66.4 |
| 14 | % |
Depreciation and amortization |
|
| 32.2 |
|
| 23.5 |
| 37 | % |
Operating income |
|
| 172.4 |
|
| 16.7 |
| 932 | % |
Interest expense |
|
| 26.5 |
|
| 18.2 |
| 46 | % |
Other income, net |
|
| 5.1 |
|
| 2.8 |
| 82 | % |
Income before income taxes |
|
| 151.0 |
|
| 1.3 |
| 11,515 | % |
Provision for (benefit from) income taxes |
|
| 32.8 |
|
| (6.5) |
| 605 | % |
Net income |
| $ | 118.2 |
| $ | 7.8 |
| 1,415 | % |
(1)Our consolidated net revenues increased by $98.4 million, or 15%, in the current year period as compared to the prior year period. This increase was primarily driven by $189.2 million in incremental revenues primarily associated with the October 2019 renewal of our key domestic distribution agreements of our flagship programs, RAW and SmackDown. This increase was partially offset by a decline of $84.8 million of lower ticket and merchandise sales due to the staging of 198 fewer events, including the cancellation of ticketed events due to public health concerns as a result of COVID-19. The current year period also included a reduction in revenues of $11.9 million driven by the timing of delivery of our reality-based programming. For further analysis, refer to Management’s Discussion and Analysis of our business segments.
(2)Our consolidated operating expenses decreased by $65.8 million, or 14%, in the current year period as compared to the prior year period. This decrease was primarily driven by $37.4 million of lower event related and content creation costs due to the cancellation of ticketed events resulting from COVID-19 and the production of content at a lower cost, coupled with $11.6 million of lower production costs associated with the timing of delivery of our reality-based programming. The current year period also includes $8.9 million of lower costs associated with the delivery of content to WWE Network, as well as the impact of various short-term cost reductions that were implemented as a result of COVID-19. For further analysis, refer to Management’s Discussion and Analysis of our business segments.
(3)Our consolidated marketing and selling expenses decreased by $9.7 million, or 15%, in the current year period as compared to the prior year period. This decrease was primarily driven by $3.9 million of lower advertising and promotional costs due the cancellation of ticketed events resulting from COVID-19. The current year period also includes the impact of various short-term cost reductions that were implemented as a result of COVID-19. For further analysis, refer to Management’s Discussion and Analysis of our business segments.
(4)Our consolidated general and administrative expenses increased by $9.5 million, or 14%, in the current year period as compared to the prior year period. This increase was primarily driven by $7.7 million of additional staff related costs due, in part, to $5.5 million of severance expenses associated with a reduction in our workforce as a result of COVID-19, coupled with $3.5 million of higher legal expenses resulting from ongoing litigation. For further analysis, refer to Management’s Discussion and Analysis of our business segments.
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|
|
| Nine Months Ended | ||||||||||
|
| September 30, | ||||||||||
|
| 2020 |
| 2019 | ||||||||
Reconciliation of Operating Income to Adjusted OIBDA |
|
|
|
| % of Rev |
|
|
|
| % of Rev | ||
Operating income |
| $ | 172.4 |
| 23 | % |
| $ | 16.7 |
| 3 | % |
Depreciation and amortization |
|
| 32.2 |
| 4 | % |
|
| 23.5 |
| 4 | % |
Stock-based compensation |
|
| 24.9 |
| 3 | % |
|
| 32.2 |
| 5 | % |
Other adjustments (1) |
|
| 5.5 |
| 1 | % |
|
| — |
| — | % |
Adjusted OIBDA |
| $ | 235.0 |
| 32 | % |
| $ | 72.4 |
| 11 | % |
(1)Other adjustments in the current year period include severance expenses associated with a reduction in our workforce as a result of COVID-19.
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| September 30, |
| Increase | |||||
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| 2020 |
| 2019 |
| (decrease) | |||
Adjusted OIBDA |
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Media |
| $ | 294.8 |
| $ | 107.5 |
| 174 | % |
Live Events |
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| (10.9) |
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| 11.2 |
| (197) | % |
Consumer Products |
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| 17.5 |
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| 16.2 |
| 8 | % |
Corporate |
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| (66.4) |
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| (62.5) |
| (6) | % |
Total Adjusted OIBDA |
| $ | 235.0 |
| $ | 72.4 |
| 225 | % |
Media
The following tables present the performance results and key drivers for our Media segment (dollars in millions, except where noted):
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| September 30, |
| Increase | |||||
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| 2020 |
| 2019 |
| (decrease) | |||
Net Revenues |
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Network (including pay-per-view) |
| $ | 140.7 |
| $ | 143.0 |
| (2) | % |
Core content rights fees (1) |
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| 398.5 |
|
| 209.3 |
| 90 | % |
Advertising and sponsorship |
|
| 48.8 |
|
| 44.8 |
| 9 | % |
Other (2) |
|
| 69.7 |
|
| 81.4 |
| (14) | % |
Total net revenues |
| $ | 657.7 |
| $ | 478.5 |
| 37 | % |
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Operating Metrics |
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Number of paid WWE Network subscribers at period end |
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| 1,548,600 |
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| 1,465,400 |
| 6 | % |
Domestic |
|
| 1,136,400 |
|
| 1,062,100 |
| 7 | % |
International (3) |
|
| 412,200 |
|
| 403,300 |
| 2 | % |
Number of average paid WWE Network subscribers |
|
| 1,575,600 |
|
| 1,594,100 |
| (1) | % |
Domestic |
|
| 1,144,500 |
|
| 1,163,900 |
| (2) | % |
International (3) |
|
| 431,100 |
|
| 430,200 |
| 0 | % |
(1)Core content rights fees consist primarily of licensing revenues earned from the distribution of our flagship programs, RAW and SmackDown, as well as our NXT programming, through global broadcast, pay television and digital platforms.
(2)Other revenues within our Media segment reflect revenues earned from the distribution of other WWE content, including, but not limited to, certain live in-ring programming content in international markets, scripted, reality and other programming, as well as theatrical and direct-to-home video releases.
(3)Metrics reflect subscribers who are direct customers of WWE Network and estimated subscribers under licensed partner agreements, which have different economic terms for WWE Network.
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| September 30, | ||||||||||
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| 2020 |
| 2019 | ||||||||
Reconciliation of Operating Income to Adjusted OIBDA |
|
|
|
| % of Rev |
|
|
|
| % of Rev | ||
Operating income |
| $ | 265.4 |
| 40 | % |
| $ | 76.2 |
| 16 | % |
Depreciation and amortization |
|
| 11.4 |
| 2 | % |
|
| 8.1 |
| 2 | % |
Stock-based compensation |
|
| 18.0 |
| 3 | % |
|
| 23.2 |
| 5 | % |
Other adjustments |
|
| — |
| — | % |
|
| — |
| — | % |
Adjusted OIBDA |
| $ | 294.8 |
| 45 | % |
| $ | 107.5 |
| 22 | % |
Media net revenues increased by $179.2 million, or 37%, in the current year period as compared to the prior year period. Our core content rights fees increased by $189.2 million, or 90%, driven primarily by the October 2019 renewal of our key domestic distribution agreements of our flagship programs, RAW and SmackDown. This increase was partially offset by a decline in other revenues of $11.7 million, or 14%, primarily driven by the timing of delivery of our reality-based programming. Network revenues, which includes revenues generated by WWE Network subscriptions and pay-per-view, declined by $2.3 million, or 2%, primarily due to a decline in average paid subscribers. The domestic subscription pricing of WWE Network at September 30, 2020 is $9.99 per month with no minimum commitment.
Media Adjusted OIBDA as a percentage of revenues increased in the current year period as compared to the prior year period. This increase was driven by increased revenues of $179.2 million, primarily due to the renewals of our key domestic distribution agreements, as discussed above, coupled with $8.9 million of lower costs associated with the delivery of content to WWE Network.
Live Events
The following tables present the performance results and key drivers for our Live Events segment (dollars in millions, except where noted):
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| September 30, |
| Increase | |||||
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| 2020 |
| 2019 |
| (decrease) | |||
Net Revenues |
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North American ticket sales |
| $ | 15.2 |
| $ | 76.0 |
| (80) | % |
International ticket sales |
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| 0.2 |
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| 12.0 |
| (98) | % |
Advertising and sponsorship |
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| 0.4 |
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| 1.7 |
| (76) | % |
Other (1) |
|
| 3.4 |
|
| 8.5 |
| (60) | % |
Total net revenues |
| $ | 19.2 |
| $ | 98.2 |
| (80) | % |
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Operating Metrics (2) |
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Total live event attendance |
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| 259,000 |
|
| 1,178,400 |
| (78) | % |
Number of North American events |
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| 41 |
|
| 210 |
| (80) | % |
Average North American attendance |
|
| 6,320 |
|
| 4,920 |
| 28 | % |
Average North American ticket price (dollars) |
| $ | 53.46 |
| $ | 66.19 |
| (19) | % |
Number of international events |
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| 1 |
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| 30 |
| (97) | % |
Average international attendance |
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| — |
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| 4,810 |
| (100) | % |
Average international ticket price (dollars) |
| $ | — |
| $ | 79.43 |
| (100) | % |
(1)Other revenues within our Live Events segment primarily consists of the sale of travel packages associated with the Company’s global live events and commission earned through secondary ticketing, as well as revenues from events for which the Company receives a fixed fee.
(2)Metrics exclude the events for our domestic and United Kingdom NXT brands. These are our developmental brands that typically conduct their events in smaller venues with lower ticket prices. We conducted 44 ticketed NXT events with paid attendance of 40,900 and average ticket prices of $37.36 in the current year period as compared to 152 events with paid attendance of 120,200 and average ticket prices of $43.13 in the prior year period.
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| Nine Months Ended | ||||||||||
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| September 30, | ||||||||||
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| 2020 |
| 2019 | ||||||||
Reconciliation of Operating (Loss) Income to Adjusted OIBDA |
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| % of Rev |
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|
|
| % of Rev | ||
Operating (loss) income |
| $ | (12.1) |
| (63) | % |
| $ | 8.7 |
| 9 | % |
Depreciation and amortization |
|
| — |
| — | % |
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| — |
| — | % |
Stock-based compensation |
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| 1.2 |
| 6 | % |
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| 2.5 |
| 3 | % |
Other adjustments |
|
| — |
| — | % |
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| — |
| — | % |
Adjusted OIBDA |
| $ | (10.9) |
| (57) | % |
| $ | 11.2 |
| 11 | % |
Live Events net revenues, which include revenues from ticket sales and travel packages, decreased by $79.0 million, or 80%, in the current year period as compared to the prior year period. Revenues from our North American and international ticket sales decreased by $72.6 million, or 83%, due to the impact of 198 fewer events in the current year period, largely driven by the cancellation of ticketed events as a result of COVID-19.
Live Events Adjusted OIBDA decreased in the current year period as compared to the prior year period. This decrease was driven by the impact of fewer events as a result of COVID-19.
Consumer Products
The following tables present the performance results and key drivers for our Consumer Products segment (dollars in millions, except where noted):
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| September 30, |
| Increase | |||||
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| 2020 |
| 2019 |
| (decrease) | |||
Net Revenues |
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Consumer product licensing |
| $ | 28.2 |
| $ | 26.6 |
| 6 | % |
eCommerce |
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| 27.7 |
|
| 18.9 |
| 47 | % |
Venue merchandise |
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| 3.2 |
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| 15.4 |
| (79) | % |
Total net revenues |
| $ | 59.1 |
| $ | 60.9 |
| (3) | % |
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Operating Metrics |
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Average eCommerce revenue per order (dollars) |
| $ | 56.41 |
| $ | 46.78 |
| 21 | % |
Number of eCommerce orders |
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| 488,800 |
|
| 394,800 |
| 24 | % |
Venue merchandise domestic per capita spending (dollars) |
| $ | 10.41 |
| $ | 10.43 |
| (0) | % |
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| Nine Months Ended | ||||||||||
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| September 30, | ||||||||||
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| 2020 |
| 2019 | ||||||||
Reconciliation of Operating Income to Adjusted OIBDA |
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| % of Rev |
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| % of Rev | ||
Operating income |
| $ | 15.9 |
| 27 | % |
| $ | 13.6 |
| 22 | % |
Depreciation and amortization |
|
| — |
| — | % |
|
| — |
| — | % |
Stock-based compensation |
|
| 1.6 |
| 3 | % |
|
| 2.6 |
| 4 | % |
Other adjustments |
|
| — |
| — | % |
|
| — |
| — | % |
Adjusted OIBDA |
| $ | 17.5 |
| 30 | % |
| $ | 16.2 |
| 27 | % |
Consumer Products net revenues decreased by $1.8 million, or 3%, in the current year period as compared to the prior year period. Venue merchandise revenues decreased by $12.2 million, or 79%, primarily driven by the cancellation of ticketed events in the current year period due to public health concerns as a result of COVID-19. This decline was partially offset by increased eCommerce revenues of $8.8 million, or 47%, primarily due to a 24% increase in the volume of online merchandise orders, coupled with a 21% increase in average revenue per order, which was driven, in part, by the release of new replica title belts. The current year period also included an increase of $1.6 million, or 6%, in our consumer product licensing revenues, primarily due to higher sales from the Company’s licensed video games.
Consumer Products Adjusted OIBDA as a percentage of revenues increased in the current year period as compared to the prior year period. This increase was primarily driven by the decline in event related costs due to the cancellation of ticketed events as a result of COVID-19.
Corporate
Unallocated corporate general and administrative expenses largely relate to corporate administrative functions, including finance, investor relations, community relations, corporate communications, information technology, legal, human resources and our Board of Directors. The Company does not allocate these general and administrative expenses to its business segments.
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| Nine Months Ended | ||||||||||
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| September 30, | ||||||||||
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| 2020 |
| 2019 | ||||||||
Reconciliation of Operating Loss to Adjusted OIBDA |
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| % of Rev |
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| % of Rev | ||
Operating loss |
| $ | (96.8) |
| (13) | % |
| $ | (81.8) |
| (13) | % |
Depreciation and amortization |
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| 20.8 |
| 3 | % |
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| 15.4 |
| 2 | % |
Stock-based compensation |
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| 4.1 |
| 1 | % |
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| 3.9 |
| 1 | % |
Other adjustments (1) |
|
| 5.5 |
| 1 | % |
|
| — |
| — | % |
Adjusted OIBDA |
| $ | (66.4) |
| (9) | % |
| $ | (62.5) |
| (10) | % |
(1)Other adjustments in the current year period include severance expenses associated with a reduction in our workforce as a result of COVID-19. Our policy is to record Company-wide severance expenses as unallocated corporate general and administrative expenses.
Corporate Adjusted OIBDA as a percentage of total revenues was essentially unchanged in the current year period as compared to the prior year period. The decrease in Corporate Adjusted OIBDA of $3.9 million, or 6%, was primarily driven by $3.5 million of higher legal expenses resulting from ongoing litigation.
Depreciation and Amortization
(dollars in millions)
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| Nine Months Ended |
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| September 30, |
| Increase | |||||||
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| 2020 |
| 2019 |
| (decrease) | |||||
Depreciation and amortization |
| $ | 32.2 |
|
| $ | 23.5 |
|
| 37 | % |
Depreciation and amortization expense increased by $8.7 million, or 37%, in the current year period as compared to the prior year period, primarily driven by additional expenses of $5.2 million associated with Company’s workspace strategy plan, which includes the amortization related to the right-of-use asset for the Company’s new global headquarters lease, which commenced on July 1, 2019, and the impact of other prior year capital expenditures.
Interest Expense
(dollars in millions)
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| Nine Months Ended |
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| September 30, |
| Increase | |||||||
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| 2020 |
| 2019 |
| (decrease) | |||||
Interest expense |
| $ | 26.5 |
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| $ | 18.2 |
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| 46 | % |
Interest expense increased by $8.3 million in the current year period as compared to the prior year period, primarily driven by expense of $8.6 million associated with the Company’s new global headquarters lease, which commenced on July 1, 2019 and is accounted for as a finance lease. The current year period also includes expense of $1.8 million associated with the amount outstanding under the Company’s Revolving Credit Facility. The prior year period included additional nonrecurring interest expense of $1.4 million related to our convertible notes. The remaining portion of interest expense relates primarily to interest and amortization associated with our convertible notes, the revolving credit facility, other finance leases, mortgage and aircraft financing.
Other Income, Net
(dollars in millions)
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| Nine Months Ended |
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| September 30, |
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| 2020 |
| 2019 |
| (decrease) | |||||
Other income, net |
| $ | 5.1 |
|
| $ | 2.8 |
|
| 82 | % |
Other income, net is comprised of interest income, gains and losses recorded on our equity investments, realized translation gains and losses, and rental income. The increase of $2.3 million in the current year period as compared to the prior year period is primarily driven by the recognition of a net unrealized holding gain of $14.4 million resulting from a valuation adjustment in our marketable equity investments, primarily DraftKings. Partially offset by impairment charges of $11.5 million on our investments in an apparel and lifestyle brand and a themed attraction touring company resulting from significant adverse changes in the economic and market conditions caused by COVID-19 combined with lower sales forecasts.
As the underlying stock prices of our marketable equity investments fluctuate, the Company is exposed to future earnings volatility to the extent we continue to hold these investments.
Income Taxes
(dollars in millions)
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| September 30, |
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| 2020 |
| 2019 |
| (decrease) | |||||
Provision for (benefit from) income taxes |
| $ | 32.8 |
|
| $ | (6.5) |
|
| (605) | % |
Effective tax rate |
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| 22 | % |
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| (481) | % |
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The effective tax rate in the current year period of 22% approximates the Company’s currently projected annual effective tax rate for the year ended December 31, 2020, excluding the impact of any discrete, non-recurring tax items.
The current year period includes $0.4 million of excess tax expenses related to the Company’s share-based compensation awards at vesting, as compared to $8.2 million of excess tax benefits during the prior year period. The tax expense and benefit is driven by the change in the Company’s stock price between when the Company granted the awards and their subsequent vesting date during the third quarter.
Discrete tax items, including the aforementioned excess tax benefits, resulted in a net tax benefit of $0.1 million in the current year period as compared to $6.8 million in the prior year period. Excluding these items, our effective tax rate was 22% in the current year quarter as compared to 25% in the prior year quarter.
Liquidity and Capital Resources
We had cash and cash equivalents and short-term investments of $638.3 million and $250.5 million as of September 30, 2020 and December 31, 2019, respectively. Our short-term investments consist primarily of U.S. Treasury securities, corporate bonds, municipal bonds, including pre-refunded municipal bonds, and government agency bonds. Our debt balance totaled $415.4 million and $214.4 million as of September 30, 2020 and December 31, 2019, respectively, and includes the carrying value of $193.1 million and $188.7 million related to our convertible senior notes due 2023 as of September 30, 2020 and December 31, 2019, respectively.
The COVID-19 pandemic has negatively impacted the global economy, disrupted business operations and created significant volatility and disruption to financial markets. Significant uncertainty remains as to the potential impact of the COVID-19 pandemic on our operations, and on the global economy as a whole. The extent and duration of the pandemic could continue to disrupt global markets and may affect our ability to generate cash from operations. Additionally, please refer to Part II, Item 1A, Risk Factors, which provides a discussion of risk factors related to COVID-19.
In order to preserve sufficient liquidity during these uncertain times, the Company has delayed construction on its new headquarters office space. The Company did not make any repurchases of common stock under our approved $500.0 million share repurchase program, which was temporarily suspended in April 2020. We may resume repurchases under this program, with any such repurchases being executed opportunistically, i.e. when the purchase price is below the Company’s intrinsic value as conservatively estimated by management, subject to the Company’s business outlook and liquidity at such time as well as whether share repurchases compare favorably to other capital allocation alternatives. To further strengthen the Company’s liquidity, as a precautionary measure, on April 16, 2020, the Company borrowed $200.0 million under its Revolving Credit Facility. We believe that this added liquidity combined with our existing cash and cash equivalents and short-term investment balances, along with cash generated from operations, will be sufficient to meet our ongoing operating requirements for at least the next twelve months, inclusive of dividend payments, debt service, content production activities, and planned capital expenditures.
As it relates to our Convertible Notes, which pursuant to the terms are currently convertible, we believe that if note holders elected to convert their notes within the next twelve months, the Company has sufficient means to settle the Convertible Notes using any combination of existing cash and cash equivalents and investment balances, cash generated from operations or through the issuance of shares.
Debt Summary and Borrowing Capacity
The Company has $215.0 million aggregate principal amount of 3.375% convertible senior notes (the "Convertible Notes") due December 15, 2023. See Note 13, Convertible Debt, and Note 5, Earnings Per Share, in the Notes to Consolidated Financial Statements for further information on the Convertible Notes, including the dilutive nature of the Convertible Notes.
On May 24, 2019, the Company entered into an amended and restated $200.0 million senior unsecured revolving credit facility with a syndicated group of banks, with JPMorgan Chase Bank, N.A. acting as Administrative Agent (the "Revolving Credit Facility"). The Revolving Credit Facility has a maturity date of May 24, 2024. On April 16, 2020, as a precautionary measure to further strengthen liquidity due to the impact of COVID-19, the Company borrowed $200.0 million under its Revolving Credit Facility. As of September 30, 2020, the Company was in compliance with the provisions of our Revolving Credit Facility and there was $200.0 million outstanding.
In September 2016, the Company acquired land and a building located in Stamford, Connecticut adjacent to our production facility. In connection with the acquisition, we assumed future obligations under a loan agreement, in the principal amount of $23.0 million, which loan is secured by a mortgage on the property. Pursuant to the loan agreement, the assets of WWE Real Estate, a subsidiary of the Company, represent collateral for the underlying mortgage, therefore these assets will not be available to satisfy debts and obligations due to any other creditors of the Company. As of September 30, 2020 and December 31, 2019, the amounts outstanding of the mortgage were $22.2 million and $22.5 million, respectively.
In 2013, the Company entered into a $31.6 million promissory note (the “Aircraft Note”) with Citizens Asset Finance, Inc., for the purchase of a 2007 Bombardier Global 5000 aircraft and refurbishments. The Aircraft Note matured on August 7, 2020 and was fully repaid. As of September 30, 2020, there were no amounts outstanding under the Aircraft Note. As of December 31, 2019, the amount outstanding under the Aircraft Note was $3.2 million.
Cash Flows from Operating Activities
Cash generated from operating activities was $257.5 million in the nine months ended September 30, 2020, as compared to $2.3 million for the corresponding period in the prior year. The $255.2 million increase in the current year period was primarily driven by the timing of collections associated with our large-scale international events, coupled with improved operating performance, including the renewal of our key domestic distribution agreements of our flagship programs, RAW and SmackDown.
In the current year period, we spent $19.5 million on content production activities, including Total Bellas Seasons 5 and 6, Miz & Mrs. Season 2, The Quest for Lost WWE Treasures, and various programs for WWE Network, as compared to $26.6 million in the prior year period. We anticipate spending approximately $10 million to $15 million on content production activities during the remainder of the current year. We received content production incentives of $0.4 million in the current year period, as compared to $0.7 million received in the prior year period. We anticipate receiving approximately $15 million of content production related incentives during the remainder of the year.
Our accounts receivable represents a significant portion of our current assets and relate principally to a limited number of distributors and licensees. At September 30, 2020, there were no customers that individually exceeded 10% 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. We believe credit risk with respect to accounts receivable is limited due to the generally high credit quality of the Company’s major customers.
Cash Flows from Investing Activities
Cash provided by investing activities was $19.5 million in the nine months ended September 30, 2020, as compared to cash used of $18.1 million in the prior year period. During the current year period, we received proceeds from the maturities of our short-term investments of $105.4 million and purchased $64.3 million of new investments, as compared to proceeds of $113.3 million and purchases of $74.9 million in the prior year period. Capital expenditures decreased by $34.9 million in the current year period. The prior year period included additional spending to support the Company’s workplace and technology related strategic initiatives. Due to the uncertainty created from the COVID-19 pandemic, we have temporarily delayed construction activity on the Company’s new global headquarters space in Stamford, Connecticut. Capital expenditures for the remainder of the current year are estimated to range between $7 million and $11 million.
Cash Flows from Financing Activities
Cash provided by financing activities was $152.0 million for the nine months ended September 30, 2020, as compared to cash used of $75.1 million for the prior year period. The Company received proceeds of $200.0 million from borrowings under the Revolving Credit Facility during the current year period. The Company made dividend payments of $27.9 million and $28.2 million during the nine months ended September 30, 2020 and 2019, respectively. Additionally, the Company made employee payroll withholding tax payments of $11.0 million in the current year period as compared to $30.1 million in the prior year period related to the net settlement upon vesting of employee equity awards. During the prior year period, the Company paid $8.5 million for stock repurchases under its approved stock repurchase program.
Contractual Obligations
Other than for obligations in the ordinary course of business, there have been no significant changes to our contractual obligations that were previously disclosed in our Report on Form 10-K for the fiscal year ended December 31, 2019.
Application of Critical Accounting Policies
Other than the revisions to our content production asset accounting policy, as disclosed in Note 9, Content Production Assets, Net, in the Notes to Consolidated Financial Statements, there have been no significant changes to our critical accounting policies that were previously disclosed in our Report on Form 10-K for our fiscal year ended December 31, 2019 or in the methodology used in formulating these significant judgments and estimates that affect the application of these policies.
Recent Accounting Pronouncements
The information set forth under Note 2 to the Consolidated Financial Statements under the caption “Recent Accounting Pronouncements” is incorporated herein by reference.
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-K and our other SEC filings, our press releases and comments made in earnings calls, investor presentations or otherwise to the public, 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-K and our other SEC filings, in press releases, earnings calls and other statements made by our authorized officers: (i) risks relating to the impact of the COVID-19 outbreak on our business, results of operations and financial condition; (ii) risks relating to entering, maintaining and renewing major distribution and event agreements; (iii) risks relating to a rapidly evolving media landscape; (iv) risks relating to WWE Network, including the risk that we are unable to attract, retain and renew subscribers; (v) our need to continue to develop creative and entertaining programs and events; (vi) our need to retain or continue to recruit key performers; (vii) the risk of a decline in the popularity of our brand of sports entertainment, including as a result of changes in the social and political climate; (viii) the possible unexpected loss of the services of Vincent K. McMahon; (ix) possible adverse changes in the regulatory atmosphere and related private sector initiatives; (x) the highly competitive, rapidly changing and increasingly fragmented nature of the markets in which we operate and/or our inability to compete effectively, especially against competitors with greater financial resources or marketplace presence; (xi) uncertainties associated with international markets including possible disruptions and reputational risks; (xii) our difficulty or inability to promote and conduct our live events and/or other businesses if we do not comply with applicable regulations; (xiii) our dependence on our intellectual property rights, our need to protect those rights, and the risks of our infringement of others’ intellectual property rights; (xiv) risks relating to the complexity of our rights agreements across distribution mechanisms and geographical areas; (xv) the risk of substantial liability in the event of accidents or injuries occurring during our physically demanding events including, without limitation, claims alleging traumatic brain injury; (xvi) exposure to risks relating to large public events as well as travel to and from such events; (xvii) risks inherent in our feature film business; (xviii) a variety of risks as we expand into new or complementary businesses and/or make strategic investments and/or acquisitions; (xix) risks related to our computer systems and online operations; (xx) risks relating to privacy norms and regulations; (xxi) risks relating to a possible decline in general economic conditions and disruption in financial markets; (xxii) risks relating to our accounts receivable; (xxiii) risks relating to our indebtedness including our convertible notes; (xxiv) potential substantial liabilities if litigation is resolved unfavorably; (xxv) our potential failure to meet market expectations for our financial performance; (xxvi) through his beneficial ownership of a substantial majority of our Class B common stock, our controlling stockholder, Vincent K. McMahon, exercises control over our affairs, and his interests may conflict with the holders of our Class A common stock; (xxvii) 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 (xxviii) risks related to the volatility 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. Forward-looking statements made by the Company speak only as of the date made, are subject to change without any obligation on the part of the Company to update or revise them, and undue reliance should not be placed on these statements. For more information about risks and uncertainties associated with the Company's business, please refer to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" sections of this Form 10-Q and our other SEC filings, including, but not limited to, our annual report on Form 10-K.
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, 2019.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chairman of the Board and Chief Executive Officer and our Chief Financial Officer, 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, 2020.
Our management, including our Chairman of the Board and Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how
well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system’s objectives will be met. Further, because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On October 23, 2014, a lawsuit was filed in the U. S. 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. This complaint was amended on January 30, 2015 and alleged that the Company ignored, downplayed, and/or failed to disclose the risks associated with traumatic brain injuries suffered by WWE’s performers and sought class action status. On March 31, 2015, the Company filed a motion to dismiss the first amended class action complaint in its entirety or, if not dismissed, to transfer the lawsuit to the U.S. District Court for the District of Connecticut. Without addressing the merits of the Company's motion to dismiss, the Court transferred the case to Connecticut on June 25, 2015. The plaintiffs filed an objection to such transfer, which was denied on July 27, 2015. On January 16, 2015, a second lawsuit was filed in the U.S. District Court for the Eastern District of Pennsylvania, entitled Evan Singleton and Vito LoGrasso, individually and on behalf of all others similarly situated, v. World Wrestling Entertainment, Inc., alleging many of the same allegations as Haynes. On February 27, 2015, the Company moved to transfer venue to the U.S. District Court for the District of Connecticut due to forum-selection clauses in the contracts between WWE and the plaintiffs and that motion was granted on March 23, 2015. The plaintiffs filed an amended complaint on May 22, 2015 and, following a scheduling conference in which the court ordered the plaintiffs to cure various pleading deficiencies, the plaintiffs filed a second amended complaint on June 15, 2015. On June 29, 2015, WWE moved to dismiss the second amended complaint in its entirety. On April 9, 2015, a third lawsuit was filed in the U. S. District Court for the Central District of California, entitled Russ McCullough, a/k/a “Big Russ McCullough,” Ryan Sakoda, and Matthew R. Wiese a/k/a “Luther Reigns,” individually and on behalf of all others similarly situated, v. World Wrestling Entertainment, Inc., asserting similar allegations to Haynes. The Company again moved to transfer the lawsuit to Connecticut due to forum-selection clauses in the contracts between WWE and the plaintiffs, which the California court granted on July 10, 2015. On September 21, 2015, the plaintiffs amended this complaint, and, on November 16, 2015, the Company moved to dismiss the amended complaint. Each of these suits sought unspecified actual, compensatory and punitive damages and injunctive relief, including ordering medical monitoring. The Haynes and McCullough cases purport to be class actions. On February 18, 2015, a lawsuit was filed in Tennessee state court and subsequently removed to the U.S. District Court for the Western District of Tennessee, entitled Cassandra Frazier, individually and as next of kin to her deceased husband, Nelson Lee Frazier, Jr., and as personal representative of the Estate of Nelson Lee Frazier, Jr. Deceased, v. World Wrestling Entertainment, Inc. A similar suit was filed in the U. S. District Court for the Northern District of Texas entitled Michelle James, as mother and next friend of Matthew Osborne, minor child, and Teagan Osborne, a minor child v. World Wrestling Entertainment, Inc. These lawsuits contain many of the same allegations as the other lawsuits alleging traumatic brain injuries and further allege that the injuries contributed to these former talents’ deaths. WWE moved to transfer the Frazier and Osborne lawsuits to the U.S. District Court for the District of Connecticut based on forum-selection clauses in the decedents’ contracts with WWE, which motions were granted by the respective courts. On November 23, 2015, amended complaints were filed in Frazier and Osborne, which the Company moved to dismiss on December 16, 2015 and December 21, 2015, respectively. On November 10, 2016, the Court granted the Company’s motions to dismiss the Frazier and Osborne lawsuits in their entirety. On June 29, 2015, the Company filed a declaratory judgment action in the U. S. District Court for the District of Connecticut entitled World Wrestling Entertainment, Inc. v. Robert Windham, Thomas Billington, James Ware, Oreal Perras and various John and Jane Does seeking a declaration against these former performers that their threatened claims related to alleged traumatic brain injuries and/or other tort claims are time-barred. On September 21, 2015, the defendants filed a motion to dismiss this complaint, which the Company opposed. The Court previously ordered a stay of discovery in all cases pending decisions on the motions to dismiss. On January 15, 2016, the Court partially lifted the stay and permitted discovery only on three issues in the case involving Singleton and LoGrasso. Such discovery was completed by June 1, 2016. On March 21, 2016, the Court issued a memorandum of decision granting in part and denying in part the Company’s motions to dismiss the Haynes, Singleton/LoGrasso, and McCullough lawsuits. The Court granted the Company’s motions to dismiss the Haynes and McCullough lawsuits in their entirety and granted the Company’s motion to dismiss all claims in the Singleton/LoGrasso lawsuit except for the claim of fraud by omission. On March 22, 2016, the Court issued an order dismissing the Windham lawsuit based on the Court’s memorandum of decision on the motions to dismiss. On April 4, 2016, the Company filed a motion for reconsideration with respect to the Court’s decision not to dismiss the fraud by omission claim in the Singleton/LoGrasso lawsuit and, on April 5, 2016, the Company filed a motion for reconsideration with respect to the Court dismissal of the Windham lawsuit. On July 21, 2016, the Court denied the Company’s motion in the Singleton/LoGrasso lawsuit and granted in part the Company’s motion in the Windham lawsuit. On April 20, 2016, the plaintiffs filed notices of appeal of the Haynes and McCullough lawsuits. On April 27, 2016, the Company moved to dismiss the appeals for lack of appellate jurisdiction, which motions were granted, and the appeals were dismissed with leave to appeal upon the resolution of all of the consolidated cases. The Company filed a motion for summary judgment on the sole remaining
claim in the Singleton/LoGrasso lawsuit, which was granted on March 28, 2018. The Company also filed a motion for judgment on the pleadings against the Windham defendants. Lastly, on July 18, 2016, a lawsuit was filed in the U.S. District Court for the District of Connecticut, entitled Joseph M. Laurinaitis, et al. vs. World Wrestling Entertainment, Inc. and Vincent K. McMahon, individually and as the trustee of certain trusts. This lawsuit contains many of the same allegations as the other lawsuits alleging traumatic brain injuries and further alleges, among other things, that the plaintiffs were misclassified as independent contractors rather than employees denying them, among other things, rights and benefits under the Occupational Safety and Health Act (OSHA), the National Labor Relations Act (NLRA), the Family and Medical Leave Act (FMLA), federal tax law, and various state Worker’s Compensation laws. This lawsuit also alleges that the booking contracts and other agreements between the plaintiffs and the Company are unconscionable and should be declared void, entitling the plaintiffs to certain damages relating to the Company’s use of their intellectual property. The lawsuit alleges claims for violation of RICO, unjust enrichment, and an accounting against Mr. McMahon. The Company and Mr. McMahon moved to dismiss and for sanctions with respect to this complaint on October 19, 2016. On November 9, 2016, the Laurinaitis plaintiffs filed an amended complaint. On December 23, 2016, the Company and Mr. McMahon moved to dismiss and for sanctions with respect to the amended complaint. On September 29, 2017, the Court issued an order on the motion to dismiss pending in the Laurinaitis case and on the motion for judgment on the pleadings pending in the Windham case. The Court reserved judgment on the pending motions and ordered that within thirty-five (35) days of the date of the order the Laurinaitis plaintiffs and the Windham defendants file amended pleadings that comply with the Federal Rules of Civil Procedure. The Court further ordered that each of the Laurinaitis plaintiffs and the Windham defendants submit to the Court for in camera review affidavits signed and sworn under penalty of perjury setting forth facts within each plaintiff’s or declaratory judgment-defendant’s personal knowledge that form the factual basis of their claim or defense. On November 3, 2017, the Laurinaitis plaintiffs filed a second amended complaint. The Company and Mr. McMahon believe that the second amended complaint failed to comply with the Court’s September 29, 2017 order and otherwise remained legally defective for all of the reasons set forth in their motion to dismiss the amended complaint. Also on November 3, 2017, the Windham defendants filed a second answer. On November 17, 2017, the Company and Mr. McMahon filed a response that, among other things, urged the Court to grant the motion for judgment on the pleadings against the Windham defendants and dismiss the Laurinaitis plaintiffs’ complaint with prejudice and award sanctions against the Laurinaitis plaintiffs’ counsel because the amended pleadings failed to comply with the Court’s September 29, 2017 order and the Federal Rules of Civil Procedure. On September 17, 2018, the Court granted the motion to dismiss filed by the Company and Mr. McMahon in the Laurinaitis case in its entirety, awarded sanctions against the Laurinaitis plaintiffs’ counsel, and granted the Company’s motion for judgment on the pleadings against the Windham defendants. The plaintiffs attempted to appeal these decisions. On November 16, 2018, the Company moved to dismiss all of the appeals, except for the appeal of the dismissal of the Laurinaitis case, for being filed untimely. On April 4, 2019, the Second Circuit issued an order referring the Company’s motions to dismiss to the panel that will determine the merits of the appeals. The plaintiffs-appellants’ opening brief was filed on July 8, 2019. The Company and Mr. McMahon filed their appellees’ brief on October 7, 2019. The plaintiffs-appellants filed a reply brief on October 28, 2019. The Second Circuit held oral argument on June 5, 2020. On September 9, 2020, the Second Circuit issued a summary order, dismissing the appeals of the sanctions orders and the merits appeals of the dismissal of all claims in the Haynes, McCullough, Frazier, and Singleton cases for lack of appellate jurisdiction and affirming the judgment of the district court on all other claims. On September 23, 2020, the plaintiffs-appellants filed a petition for rehearing/rehearing en banc, which was denied on October 15, 2020. The Company believes all claims and threatened claims against the Company in these various lawsuits were prompted by the same plaintiffs’ lawyer and that all are without merit. The Company intends to continue to defend itself against the attempt to appeal these decisions vigorously.
On March 6, 2020, the Company along with its Chairman and CEO, Vince McMahon, and former-WWE officers and directors, Michelle Wilson and George Barrios (collectively, the “Individual Defendants”), were sued in the U.S. District Court for the Southern District of New York in a case captioned City of Warren Police and Fire Retirement System, individually and on behalf of all others similarly situated, v. World Wrestling Entertainment, Inc., Vincent K. McMahon, George A. Barrios, and Michelle D. Wilson, No. 1:20-cv-02031-JSR. The complaint alleges that the Company and the Individual Defendants made materially false and misleading statements in violation of the Securities Exchange Act of 1934 regarding WWE’s strategic relationship with the Kingdom of Saudi Arabia. Specifically, the complaint alleges that various public statements made by the Company and the Individual Defendants were false and misleading because they failed to disclose certain adverse facts regarding WWE’s strategic relationship with Saudi Arabia that supposedly was known by them and, as a result, the plaintiff class allegedly purchased WWE stock at artificially inflated prices. On March 12, 2020 a nearly-identical lawsuit was filed in the U.S. District Court for the Southern District of New York captioned Paul Szaniawski, individually and on behalf of all others similarly situated, v. World Wrestling Entertainment, Inc., Vincent K. McMahon, George A. Barrios, and Michelle D. Wilson, No. 1:20-cv-02223-JSR. This lawsuit was filed as related to the City of Warren case and was assigned to the same judge handling the City of Warren case. By Order dated May 12, 2020, the City of Warren and Szaniawski lawsuits were consolidated for all purposes. After multiple parties filed motions to be appointed lead plaintiff for the putative class in the consolidated action, on May 22, 2020, the Court issued a memorandum order selecting the Firefighters’ Pension System of the City of Kansas City, Missouri to be lead plaintiff and their attorneys, Labaton Sucharow LLP, to be lead counsel for the putative class. On May 26, 2020, the Company served Rule 11 motion for sanctions on the attorneys for the City of Warren Police and Fire Retirement System, the attorneys for Paul Szaniawski, and Labaton Sucharow LLP. The Rule 11 motion identified false allegations in the originally filed complaints and was supported by six declarations from Company executives and third-parties with direct first-hand knowledge of the matters at issue. Following service of the Rule 11 motion, the attorneys for the City of Warren Police and Fire Retirement System and the attorneys for Paul Szaniawski voluntarily dismissed their complaints before the expiration of the Rule 11 safe-harbor period. On June 8, 2020, the Firefighters’ Pension System of the City of Kansas City, Missouri filed a consolidated amended class action complaint. On June 26, 2020, the Company moved to dismiss the consolidated amended complaint in its entirety. The Court held oral
argument on the Company’s motion to dismiss on July 30, 2020. On August 6, 2020, the Court denied the Company’s motion to dismiss. On August 19, 2020, the Court issued a case management plan that, among other things, scheduled this case to be trial ready on February 22, 2021.
Additionally, three purported shareholder derivative suits have been filed against the members of the Company’s Board of Directors patterned after the securities class action complaints filed in the U.S. District Court for the Southern District of New York. Merholz et al. v. Vincent K. McMahon et al, No. 3:20-cv-00557-VAB, was filed in the U.S. District Court for the District of Connecticut and assigned to the Honorable Victor A. Bolden. On May 29, 2020, the Defendants served Merholz’s counsel with a Rule 11 motion that identified the false allegations in the complaint. On May 19, 2020, Merholz filed an amended complaint prior to the expiration of the Rule 11 safe-harbor period, which is substantially similar to the consolidated amended class action complaint filed in the securities class action. Because Merholz’s amended complaint continued to assert allegations that were proven to be false by the Defendants’ Rule 11 motion regarding the original complaint, the Defendants served Merholz’s counsel with a Rule 11 motion regarding the amended complaint on July 2, 2020. On July 28, 2020, Merholz filed a second amended complaint. Kooi et al. v. Vincent K. McMahon et al., No. 3:20-cv-00743-VAB, was originally filed in Connecticut Superior Court and was removed by the Defendants to the U.S. District Court for the District of Connecticut on June 1, 2020. The Kooi lawsuit was deemed to be related to the Merholz lawsuit and transferred to Judge Bolden. On June 8, 2020, Kooi filed a motion to remand the lawsuit to state court. The Defendants filed its opposition to the motion to remand on June 29, 2020. Following Kooi’s affirmation of the allegations of the complaint in federal court by filing the motion to remand, on June 12, 2020, the Defendants served Kooi’s counsel with a Rule 11 motion similar to that served on counsel in the Merholz lawsuit. On July 3, 2020, Kooi filed an amended complaint that withdrew the false allegations identified in the Defendants’ Rule 11 motion. Nordstrom et al. v. Vincent K. McMahon et al., No. 3:20-cv-00904-VAB, was originally filed in Connecticut Superior Court, and also removed by the Defendants to the U.S. District Court for the District of Connecticut on July 1, 2020. The Nordstrom lawsuit was deemed to be related to the Merholz and Kooi lawsuits and was also transferred to Judge Bolden. Following Nordstrom’s affirmation of the allegations of the complaint in federal court, on July 24, 2020, the Defendants served Nordstrom’s counsel with a Rule 11 motion similar to that served on counsel in the Merholz and Kooi lawsuits. On July 31, 2020, Nordstrom filed a motion to remand the lawsuit to state court, which the Defendants opposed. On August 14, 2020, Nordstrom filed an amended complaint in the U.S. District Court for the District of Connecticut. On July 2, 2020, the Defendants moved to consolidate the Merholz, Kooi, and Nordstrom lawsuits for all purposes. Following a status conference held on July 24, 2020, on August 1, 2020, the Court denied the Defendants’ motion to consolidate without prejudice to renew following resolution of any motions to dismiss and motions to remand. The Defendants filed a consolidated motion to dismiss the complaints in the Merholz, Kooi, and Nordstrom lawsuits on August 28, 2020. Merholz, Kooi, and Nordstrom filed oppositions to the motion to dismiss on September 18, 2020 and the Defendants filed its reply on October 2, 2020. Oral argument on the motion to dismiss and motions to remand is scheduled for October 29, 2020. On October 23, 2020, another shareholder, Dennis Palkon, moved to intervene in the proceedings before Judge Bolden, to have his counsel appointed as lead counsel, to designate the proposed complaint that he filed with his motion to intervene as the operative compliant, and to deny as moot Defendants’ pending motions to dismiss in light of the newly-filed complaint. The Company believes all claims in the securities class action and related derivative actions are without merit, and intends to defend itself and the members of the Board of Directors vigorously against them.
In addition to the foregoing, from time to time we become a party to other lawsuits and claims. By its nature, the outcome of litigation is not known, but the Company does not currently expect this ordinary course litigation to have a material adverse effect on our financial condition, results of operations or liquidity.
Item 1A. Risk Factors
We previously updated the risk factors disclosed under the heading “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 in our Current Report on Form 8-K filed with the SEC on March 17, 2020, with respect to certain risks arising out of COVID-19. Given the continuing nature of the pandemic, we updated this risk factor in our Quarterly Report on Form 10-Q filed with the SEC on July 30, 2020 as follows:
The ongoing coronavirus (COVID-19) pandemic may continue to negatively affect world economies as well as our industry, business and results of operations.
As previously reported, the global spread of the coronavirus (COVID-19) and the various attempts to contain it have resulted in restrictions, postponements and cancellations of various sports and other events and has and likely will continue to require us to cancel, postpone or relocate certain of our live events. We do not currently expect insurance to cover a significant portion, if any, of this lost business. The pandemic has also continued to create significant volatility, uncertainty and economic disruption, the full extent of which will depend on numerous evolving factors that we can neither predict nor control including the pandemic’s duration and severity and the governmental, business and individual responses to it. As a result, we have been required to alter certain aspects of our operations beyond our live events. We have taken measures to protect the health and well-being of our employees and our talent and other vendors. Our workforce has spent a significant amount of time working from home. Travel has been severely curtailed. We have greatly increased our cleaning and health check protocols, which increase related expenditures. We also implemented certain cash conserving measures, which were or have been in effect for various time periods, including pausing our stock repurchase program and certain capital
expenditures; containing employment costs through salary reductions and furloughs; containing certain third party vendor costs; and drawing under our revolving credit facility. We believe our partners’ operations have also been affected. To the extent the resulting economic disruption is severe, we could see supply constraints and/or a negative impact on our customers’ demand, or ability to pay (including an impact on the collectability of our accounts receivable), for our goods and services. We will continue actively to monitor the issues raised by the COVID-19 pandemic and may take further actions that alter our business operations that are required by applicable governmental authorities and/or that we determine to be in the best interests of our employees, talent, customers, partners and stockholders. There can be no assurance that we will be entirely successful in these endeavors, which could result in inadvertent noncompliance with applicable law. The COVID-19 pandemic also could result in heightened litigation risks relating to personal injury or death and/or increased levels of commercial litigation. Any of the foregoing could have a material negative effect on our business and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table presents information with respect to purchases of common stock of the Company made during the three months ended September 30, 2020 pursuant to the Company’s authorized share repurchase program:
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Period |
| Total Number of Shares Purchased |
| Average Price Paid Per Share |
| Total Number of Shares Purchased as Part of Publicly Announced Program |
| Maximum Dollar Value that May Yet Be Purchased Under the Program (1) | ||
July 1, 2020 to July 31, 2020 |
| — |
| $ | — |
| — |
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| 416,559,270 |
August 1, 2020 to August 31, 2020 |
| — |
| $ | — |
| — |
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| 416,559,270 |
September 1, 2020 to September 30, 2020 |
| — |
| $ | — |
| — |
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| 416,559,270 |
Total |
| — |
| $ | — |
| — |
| $ | 416,559,270 |
(1)On February 7, 2019, the Company’s Board of Directors authorized a stock repurchase program of up to $500.0 million of our common stock. Repurchases may be made from time to time at management’s discretion subject to certain pre-approved parameters and in accordance with all applicable securities and other laws and regulations. The stock repurchase program does not obligate the Company to repurchase any minimum dollar amount or number of shares and may be modified, suspended or discontinued at any time. The repurchased shares under the program in previous periods were subsequently retired.
Item 6. Exhibits
(a) Exhibits:
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Exhibit | Description of Exhibit |
10.34* | |
10.35* | |
31.1 | |
31.2 | |
32.1 | |
101.INS | Inline XBRL Instance Document |
101.SCH | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
* Indicates management contract or compensatory plan or arrangement.
SIGNATURES
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.
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| World Wrestling Entertainment, Inc. (Registrant) | ||
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Dated: | October 29, 2020 | By: | /s/ KRISTINA SALEN |
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| Kristina Salen | |
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| Chief Financial Officer | |
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| (principal financial officer and authorized | |
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| signatory) | |
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| By: | /s/ MARK KOWAL |
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| Mark Kowal | |
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| Chief Accounting Officer and
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| Senior Vice President, Controller | |
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| (principal accounting officer and authorized | |
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| signatory) |