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World Wrestling Entertainment, Inc. Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q


ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 24, 2003

or

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                            to                             

Commission file number 0-27639

WORLD WRESTLING ENTERTAINMENT, INC.
(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)		   04-2693383
(I.R.S. Employer
Identification No.)

1241 East Main Street
Stamford, CT 06902
(203) 352-8600
(Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)

        Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý    No o

        At February 28, 2003, the number of shares outstanding of the Registrant's Class A common stock, par value $.01 per share, was 15,638,423 and the number of shares outstanding of the Registrant's Class B common stock, par value $.01 per share, was 54,780,207.


World Wrestling Entertainment, Inc.
Table of Contents

 
    
   Page
Part I—FINANCIAL INFORMATION    
 
Item 1.
 
Financial Statements
 
 

 
 
Consolidated Balance Sheets as of January 24, 2003 (Unaudited) and
April 30, 2002
 
2

 
 
Consolidated Statements of Operations for the three and nine months ended January 24, 2003 (Unaudited) and January 25, 2002 (Unaudited)
 
3

 
 
Consolidated Statement of Stockholders' Equity and Comprehensive Loss for the nine months ended January 24, 2003 (Unaudited)
 
4

 
 
Consolidated Statements of Cash Flows for the nine months ended January 24, 2003 (Unaudited) and January 25, 2002 (Unaudited)
 
5

 
 
Notes to Consolidated Financial Statements (Unaudited)
 
6
 
Item 2.
 
Management's Discussion and Analysis of Financial Condition and
Results of Operations
 
14
 
Item 3.
 
Quantitative and Qualitative Disclosures about Market Risk
 
23
 
Item 4.
 
Controls and Procedures
 
23

Part II—OTHER INFORMATION
 
 
 
Item 1.
 
Legal Proceedings
 
24
 
Item 6.
 
Exhibits and Reports on Form 8-K
 
24

Signature and Certifications
 
25

1


World Wrestling Entertainment, Inc.

Consolidated Balance Sheets
(dollars in thousands, except share and per share data)

 
   As of
January 24,
2003
   As of
April 30,
2002
  
 
   (Unaudited)

    
  
ASSETS
              
CURRENT ASSETS:              
  Cash and cash equivalents   $ 155,778   $ 86,659  
  Short-term investments     114,171     207,407  
  Accounts receivable (less allowance for doubtful accounts of $3,362 as of January 24, 2003 and $2,890 as of April 30, 2002)     52,142     63,835  
  Inventory, net     1,589     1,851  
Prepaid expenses and other current assets     17,617     15,935  
   
 
 
    Total current assets     341,297     375,687  
PROPERTY AND EQUIPMENT—NET     63,165     91,759  
GOODWILL—NET     —     2,533  
INTANGIBLE ASSETS     9,055     9,055  
OTHER ASSETS     22,025     8,407  
   
 
 
TOTAL ASSETS   $ 435,542   $ 487,441  
   
 
 

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
CURRENT LIABILITIES:              
  Current portion of long-term debt   $ 636   $ 601  
  Accounts payable     15,026     21,565  
  Accrued expenses and other liabilities     40,297     42,511  
  Deferred income     25,195     23,414  
  Net liabilities of discontinued operations     288     610  
   
 
 
    Total current liabilities     81,442     88,701  
LONG-TERM DEBT     8,822     9,302  
COMMITMENTS AND CONTINGENCIES (Note 6)              
STOCKHOLDERS' EQUITY:              
  Class A common stock: ($.01 par value; 180,000,000 shares authorized; 18,217,192 shares issued as of January 24, 2003 and 18,184,177 shares issued as of April 30, 2002)     182     181  
  Class B common stock: ($.01 par value; 60,000,000 shares authorized; 54,780,207 shares issued as of January 24, 2003 and April 30, 2002)     548     548  
  Treasury Stock (2,578,769 shares repurchased as of January 24, 2003 and 100,000 shares repurchased as of April 30, 2002)     (30,569 )   (1,139 )
  Additional paid-in capital     297,315     296,938  
  Accumulated other comprehensive loss     (557 )   (525 )
  Retained earnings     78,359     93,435  
   
 
 
    Total stockholders' equity     345,278     389,438  
   
 
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 435,542   $ 487,441  
   
 
 

See Notes to Consolidated Financial Statements

2


World Wrestling Entertainment, Inc.

Consolidated Statements of Operations
(dollars in thousands, except per share data)
(Unaudited)

 
   Three Months Ended
   Nine Months Ended
 
   January 24,
2003
   January 25,
2002
   January 24,
2003
   January 25,
2002
Net revenues   $ 95,629   $ 100,232   $ 276,544   $ 289,109
Cost of revenues     58,789     62,748     181,497     183,849
Selling, general and administrative expenses     27,103     26,208     78,258     78,481
Depreciation and amortization     3,473     2,810     9,202     7,695
Impairment of goodwill     2,533     —     2,533     —
Other impairment charges     30,392     —     30,392     —
   
 
 
 
Operating (loss) income     (26,661 )   8,466     (25,338 )   19,084
Interest expense     196     196     574     596
Interest and other income (loss), net     864     (632 )   1,253     16,413
   
 
 
 
(Loss) income from continuing operations before income taxes     (25,993 )   7,638     (24,659 )   34,901
(Benefit) provision for income taxes     (9,993 )   2,846     (9,583 )   13,276
   
 
 
 
(Loss) income from continuing operations     (16,000 )   4,792     (15,076 )   21,625
   
 
 
 

Discontinued Operations:
 
 
 
 
 
 
 
 
 
 
 
 
  Reversal of estimated shutdown costs of the XFL, net of tax benefit and minority interest     —     4,638     —     4,638
   
 
 
 
Net (loss) income   $ (16,000 ) $ 9,430   $ (15,076 ) $ 26,263
   
 
 
 
(Loss) earnings per common share—basic and diluted:                        
  Continuing operations   $ (0.23 ) $ 0.07   $ (0.21 ) $ 0.30
   
 
 
 
  Discontinued operations   $ —   $ 0.06   $ —   $ 0.06
   
 
 
 
  Net (loss) income   $ (0.23 ) $ 0.13   $ (0.21 ) $ 0.36
   
 
 
 

See Notes to Consolidated Financial Statements

3


World Wrestling Entertainment, Inc.

Consolidated Statements of Stockholders' Equity and Comprehensive Loss
(dollars and shares in thousands)
(Unaudited)

 
   Common Stock
    
    
   Accumulated
Other
Comprehensive
Loss
    
    
  
 
   Treasury
Stock
   Additional
Paid-in
Capital
   Retained
Earnings
    
  
 
   Shares
   Amount
   Total
  
Balance, May 1, 2002   72,864   $ 729   $ (1,139 ) $ 296,938   $ (525 ) $ 93,435   $ 389,438  
Comprehensive income (loss):                                          
  Translation adjustment         —           —     38     —     38  
  Unrealized holding gain, net of tax         —           —     (70 )   —     (70 )
  Net loss         —                       (15,076 )   (15,076 )
   
 
 
 
 
 
 
 
Total comprehensive loss                                       (15,108 )
   
 
 
 
 
 
 
 
  Exercise of stock options   31     1           404                 405  
  Tax benefit from exercise of stock options                     20                 20  
  Repurchase of common stock   (2,489 )         (29,554 )                     (29,554 )
  Sale of common stock-Employee Stock Purchase Plan   11           124   $ (47 )               77  
   
 
 
 
 
 
 
 
Balance, January 24, 2003   70,417   $ 730   $ (30,569 ) $ 297,315   $ (557 ) $ 78,359   $ 345,278  
   
 
 
 
 
 
 
 

See Notes to Consolidated Financial Statements

4


World Wrestling Entertainment, Inc.

Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)

 
   Nine Months Ended
  
 
   January 24,
2003
   January 25,
2002
  
OPERATING ACTIVITIES:              
Net (loss) income   $ (15,076 ) $ 26,263  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:              
  Income from discontinued operations     —     (4,638 )
  Gain on sale of stock     —     (7,138 )
  Revaluation of warrants     —     (17 )
  Depreciation and amortization     9,202     7,695  
  Amortization of deferred income     (952 )   (931 )
  Provision for doubtful accounts     1,353     (238 )
  Provision for inventory obsolescence     618     2,389  
  Impairment charges, goodwill and long-lived assets, net of tax     20,413     —  
  Changes in assets and liabilities:              
    Accounts receivable     10,750     10,690  
    Inventory     (356 )   (861 )
    Prepaid expenses and other assets     (2,878 )   117  
    Accounts payable     (6,539 )   (2,044 )
    Accrued expenses and other liabilities     (2,205 )   623  
    Deferred income     2,732     12,543  
   
 
 
    Net cash provided by continuing operations     17,062     44,453  
    Net cash used in discontinued operations     (644 )   (13,287 )
   
 
 
    Net cash provided by operating activities     16,418     31,166  
   
 
 
INVESTING ACTIVITIES:              
Purchase of property and equipment     (11,228 )   (14,964 )
Purchase of other assets     —     (4,900 )
Sale of short-term investments, net     93,124     819  
Net proceeds from sale of stock     —     10,903  
   
 
 
    Net cash provided by (used in) continuing operations     81,896     (8,142 )
    Net cash provided by discontinued operations     —     1,602  
   
 
 
    Net cash provided by (used in) investing activities     81,896     (6,540 )
   
 
 
FINANCING ACTIVITIES:              
Repayment of long-term debt     (445 )   (411 )
Purchase of treasury stock     (29,554 )   (1,139 )
Proceeds from sale of the Company's common stock     77     —  
Net proceeds from exercise of stock options     405     —  
   
 
 
    Net cash used in continuing operations     (29,517 )   (1,550 )
    Net cash provided by discontinued operations     322     6,600  
   
 
 
    Net cash (used in) provided by financing activities     (29,195 )   5,050  
   
 
 
NET INCREASE IN CASH AND CASH EQUIVALENTS     69,119     29,676  
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD     86,659     45,040  
   
 
 
CASH AND CASH EQUIVALENTS, END OF PERIOD   $ 155,778   $ 74,716  
   
 
 
SUPPLEMENTAL CASH FLOW INFORMATION:              
    Cash paid during the period for income taxes, net of refunds   $ 3,369   $ 7,332  
    Cash paid during the period for interest   $ 574   $ 634  

See Notes to Consolidated Financial Statements

5


World Wrestling Entertainment, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
(Unaudited)

1.    Basis of Presentation and Business Description

        The accompanying consolidated financial statements include the accounts of World Wrestling Entertainment, Inc., and its wholly owned subsidiaries, TSI Realty Company, World Wrestling Entertainment Canada, Inc., World Wrestling Entertainment (International) Limited, Stephanie Music Publishing, Inc., WCW, Inc., Event Services, Inc., The World Entertainment, Inc., WWE Hotel & Casino Ventures, LLC, WWE Sports, Inc. and the Company's majority-owned subsidiary Titan/Shane Partnership (collectively the "Company"). WWE Sports, Inc. owns 50% and had operating control of XFL, LLC, a professional football league, which was a venture with National Broadcasting Company. In early May 2001, the Company formalized its decision to discontinue operations of the XFL and, accordingly, reported XFL operating results and estimated shutdown costs as Discontinued Operations as of April 30, 2001. In February 2003, the Company closed the restaurant operations of its entertainment complex, The World. The retail operations of this complex will close on or about April 27, 2003. Accordingly, the Company will record the expense to shutdown this business in its fourth quarter ending April 30, 2003. For the three and nine months ended January 24, 2003, there were no results from discontinued operations.

        All significant intercompany transactions and balances have been eliminated. Certain prior year amounts have been reclassified to conform with the current year presentation. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year.

        The Company is an integrated media and entertainment company, principally engaged in the development, production and marketing of television programming, pay-per-view programming and live events, and the licensing and sale of branded consumer products featuring its World Wrestling Entertainment brand of entertainment. The Company's operations are organized around two principal activities:

2.    Earnings Per Share

        For the three months ended January 24, 2003, for the purpose of calculating earnings per share—basic and diluted, the weighted average number of common shares outstanding was 70,407,085.

6


        For the nine months ended January 24, 2003, for the purpose of calculating earnings per share—basic and diluted, the weighted average number of common shares outstanding was 70,633,799.

        For the three months ended January 25, 2002, for the purpose of calculating earnings per share—basic, the weighted average number of common shares outstanding was 72,832,384 and for the purpose of calculating earnings per share—diluted, the weighted average number of common shares outstanding was 72,832,434, which includes 50 shares representing the dilutive effect of common stock equivalents.

        For the nine months ended January 25, 2002 for the purpose of calculating earnings per share—basic, the weighted average number of common shares outstanding was 72,866,458 and for the purpose of calculating earnings per share—diluted, the weighted average number of common shares outstanding was 72,866,658, which includes 200 shares representing the dilutive effect of common stock equivalents.

        Excluded from the calculation of weighted average common shares outstanding for dilutive earnings per share purposes were outstanding options to purchase 7,009,425 common shares for the three and nine months ended January 24, 2003 and 6,269,125 for the three and nine months ended January 25, 2002, because the impact would have been anti-dilutive.

3.    Segment Information

        The Company's continuing operations are conducted within two reportable segments, live and televised entertainment and branded merchandise. The live and televised entertainment segment consists of live events, television programming and pay-per-view programming. The branded merchandise segment includes consumer products sold through third party licensees and the marketing and sale of merchandise, magazines and home videos and the operations of the Company's entertainment complex. The operations of its entertainment complex will completely cease on or about April 27, 2003, at which time its results will be classified as Discontinued Operations for all periods presented. The Company does not allocate corporate overhead to each of the segments and as a result, corporate overhead is a reconciling item in the table below. There are no intersegment revenues. Revenues derived from sales outside of North America were approximately $15,925 and $39,425 for the three and nine months ended January 24, 2003, respectively, and approximately $9,775 and $24,725 for the three and nine months ended January 25, 2002, respectively. The table presents information about the financial results of each segment for the three and nine months ended January 24, 2003 and

7


January 25, 2002 and assets as of January 24, 2003 and April 30, 2002. Unallocated assets consist primarily of cash, short-term investments and real property.

 
   Three Months Ended
   Nine Months Ended
  
 
   January 24,
2003
   January 25
2002
   January 24,
2003
   January 25,
2002
  
Net Revenues:                          
  Live and televised entertainment   $ 71,015   $ 73,421   $ 209,483   $ 218,490  
  Branded merchandise     24,614     26,811     67,061     70,619  
   
 
 
 
 
  Total net revenues   $ 95,629   $ 100,232   $ 276,544   $ 289,109  
   
 
 
 
 

Depreciation and Amortization:
 
 
 
 
 
 
 
 
 
 
 
 
 
  Live and televised entertainment   $ 961   $ 824   $ 2,629   $ 2,299  
  Branded merchandise     1,295     1,049     3,682     2,251  
  Corporate     1,217     937     2,891     3,145  
   
 
 
 
 
Total depreciation and amortization   $ 3,473   $ 2,810   $ 9,202   $ 7,695  
   
 
 
 
 
Operating Income (Loss):                          
  Live and televised entertainment   $ 21,959   $ 25,831   $ 57,849   $ 71,947  
  Branded merchandise (1)     (27,663 )   2,817     (24,145 )   5,292  
  Corporate     (20,957 )   (20,182 )   (59,042 )   (58,155 )
   
 
 
 
 
  Total operating (loss) income   ($ 26,661 ) $ 8,466   ($ 25,338 ) $ 19,084  
   
 
 
 
 
 
   As of
 
   January 24,
2003
   April 30,
2002
Assets:            
  Live and televised entertainment   $ 68,901   $ 78,799
  Branded merchandise     20,692     51,540
  Unallocated     345,949     357,102
   
 
  Total assets   $ 435,542   $ 487,441
   
 
(1)
Included in the branded merchandise operating loss for the three and nine months ended January 24, 2003 was an impairment charge of $32,925 as a result of an impairment test conducted on goodwill ($2,533) and other long-lived assets ($30,392) at the Company's entertainment complex, The World. The charge arose from continued operating losses at that facility and was taken in accordance with SFAS No. 142 "Goodwill and Other Intangible Assets" and SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets", respectively. Estimates of the fair values of the long-lived assets at The World were determined by an independent, third party appraiser, based on valuation methods, such as cost and fair market value approaches, with the valuation method used based upon the nature of the underlying assets.

8

4.    Property and Equipment

        Property and equipment consisted of the following as of:

 
   January 24,
2003
   April 30,
2002
Land, buildings and improvements   $ 84,164   $ 83,047
Equipment     47,307     43,747
Vehicles     752