See accompanying notes to consolidated financial statements.
6
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
1. B
asis of Presentation and Business Description
The accompanying consolidated financial statements include the accounts of WWE. “WWE” refers to World Wrestling Entertainment, Inc. and its subsidiaries, unless the context otherwise requires. References to “we,” “us,” “our” a
nd 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 expense
s during the reporting period.
Actual results could differ from those estimates.
The accompanying consolidated finan
cial 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, 2017
.
We are an integrated media and entertainment company, principally engaged in the production and distribution of content through various channels, including our premium over-the-top WWE Network,
content
rights agreements, pay-per-view event programming,
filmed entertainment,
live events
,
licensing of various WWE themed products, and the sale of consumer products featuring our brands. Our operations are organized around the following principal activities:
Media
:
|
·
|
|
The Media segment reflects the production and monetization of long-form and short-form video content across various platforms, including WWE Network, pay television, digital and social media
,
as well as filmed entertainment. Across these platforms, revenue
s
principally consist of
content rights fees
,
subscriptions to WWE Network
, and
advertising and sponsorships.
|
Live Events
:
|
·
|
|
Live events provide ongoing content for our media platforms. Live Event segment revenues consist
primarily
of ticket sales, including primary and secondary distribution, 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. R
evenue
s
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.
|
In our prior reports filed with the Securities Exchange Commission ("SEC") through fiscal year 2017, we presented ten reportable
segments consisting of Network, Television, Home Entertainment, Digital Media, Live Events, Licensing, Venue Merchandise, WWEShop, WWE Studios and Corporate and Other. Effective January 1, 2018, we present three reportable segments consisting of our Media, Live Events and Consumer Products segments as described above. See Note 3,
Segment Information
, for further details on our reportable segments.
In connection with the revisions to its reportable segments, the Company revised certain expense captions presented on the Consolidated Statements of Operations. Previously, we presented Cost of revenues and Selling, general and administrative expenses. Effective in 2018, we present Operating expenses, Marketing and selling expenses and General and administrative expenses. See Note 2,
Significant Accounting Policies
, for further details.
Regarding the segment presentation and expense caption revisions noted above, i
nformation presented for the three
and
nine
months ended
September
30
, 201
7
included in the
C
onsolidated
F
inancial
S
tatements herein and elsewhere in this Quarterly Report has been
revised to conform to the current period
presentation.
Such revisions have no impact on our consolidated financial condition, results of operations or cash flows for the periods presented.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
2.
Significant Accounting Policies
Our significant accounting policies are detailed in Note 2,
Summary of Significant Accounting Policies
,
in the Notes to Consolidated Financial Statements within our Annual Report on Form 10-K for the year ended December 31, 2017.
Refer to Note 4,
Revenues
, for revision
s
made to our revenue recognition policies resulting from our adoption of the new revenue recognition standard starting in 2018.
The new revenue recognition
standard
primarily impacted the timing of our consumer
product
licensing and film distribution revenues where the Company had previously recorded revenues on a lag upon the receipt of licensing royalty statements and film participation statements. In addition to revising our policies for licensing and film distribution revenues, conforming wording changes were made to certain of our revenue recognition policies to
align
with the language in the new revenue
recognition
standard.
We also
amended our income tax policy to specify the Company’s
accounting
treatment of tax
es
on Global Intangible Low-taxed Income (“GILTI”)
provisions of the Tax Cuts and Jobs Act
of 2017
(the “Tax Act”)
. The Company
has
elected to recognize the tax on GILTI as a period expense in the period the tax is incurred.
Operating Expenses
Operating expenses consist of our production costs associated with developing our content, costs associated with
operating our WWE Network,
venue
rental and related costs associated with the staging of our live event
s
, compensation costs for our talent, and material
and related
costs associated with our consumer product merchandise sales. In addition, operating expenses include certain business operating support function costs, including our talent development, data analytics, data engineering, business strategy and
real estate and
facilit
ies
functions, as these
activities
directly support the operations of our segments.
Included within
Operating expenses
are the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Amortization and impairment of feature film assets
|
|
$
|
2,331
|
|
$
|
3,262
|
|
$
|
5,856
|
|
$
|
9,065
|
Amortization of television production assets
|
|
|
7,716
|
|
|
2,912
|
|
|
20,534
|
|
|
13,633
|
Amortization of WWE Network content delivery and technology assets
|
|
|
1,572
|
|
|
1,239
|
|
|
5,030
|
|
|
4,594
|
Total amortization and impairment included in operating expenses
|
|
$
|
11,619
|
|
$
|
7,413
|
|
$
|
31,420
|
|
$
|
27,292
|
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.
Marketing and Selling Expenses
Marketing and selling expenses consist of costs associated with the promotion
and marketing
of our services and products. These expenses include
sponsorship and advertising costs, and the
costs associated with our sales
and marketing functions
,
creative services functions
and our international offices
.
General and Administrative Expenses
General and administrative expenses include costs associated with our 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 costs to its business segments, as they do not directly
relate to revenue generating activities
.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
Recent Accounting Pronouncement
s
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-15, “
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
.” The new guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2019 (fiscal 2020 for the Company), with early adoption permitted. The new guidance should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company expects to adopt the new guidance prospectively and does not expect the adoption to have a material impact on its consolidated financial statements.
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, and interim periods within those fiscal years, beginning after December 15, 2019 (fiscal 2020 for the Company). Upon the effective date, certain provisions are to be applied prospectively, while others are to be applied retrospectively to all periods presented. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective date. We are currently evaluating the impact of the amendments on our consolidated financial statement disclosures. Since the amendments impact only disclosure requirements, we do not expect the amendments to have an impact on our
consolidated financial
statements.
In June 2018, the FASB issued ASU
No. 2018-07, “
Compensation
–
Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Accounting
.” The new guidance expands the scope of Topic 718,
Compensation
–
Stock Compensation
(which currently only includes share-based payments to employees
and non-employee directors
) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The new guidance supersedes Subtopic 505-50,
Equit
y –
Equity-Based payments to Non-Employees
. The new guidance is effective for fiscal years beginning after December 15, 2018 (fiscal 2019 for the Company), including interim periods within that fiscal year, with early adoption permitted. The Company has elected to early adopt the new guidance as of June 30, 2018. Since the Company does not currently have any share-based payment awards to nonemployees, the early adoption of the guidance had no impact on our consolidated financial statements. The Company will apply the guidance prospectively.
In February 2018, the FASB issued ASU No. 2018-02, “
Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
” that gives entities the option to reclassify to retained earnings tax effects related to items in accumulated other comprehensive income that the FASB refers to as having been stranded in accumulated other comprehensive income as a result of the enactment of the Tax Act. The new guidance also includes disclosure requirements regarding an entity’s accounting policy for releasing income tax effects from accumulated other comprehensive income. The new guidance is effective for fiscal years beginning after December 15, 2018 (
fiscal 2019 for the Company), including interim periods within those years. Early adoption is permitted in any interim period and should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. The Company has elected to early adopt the new guidance during the first quarter of 2018 and elected not to reclassify any stranded tax effects due to the insignificance of the amount remaining in accumulated other comprehensive income. Therefore, the adoption of the new guidance had no impact on our consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09,
“Compensation - Stock Compensation (Topic 718) Scope of Modification Accounting,”
which provides guidance on the various types of changes which would trigger modification accounting for share-based payment awards. In summary, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The guidance is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The amendments are applied prospectively to awards modified on or after the adoption date. The new guidance was adopted on January 1, 2018 with no impact on our consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01,
“Business Combinations (Topic 805) Clarifying the Definition of a Business.”
The amendments in this ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2017. The new standard is applied prospectively to transactions occurring on or after the adoption date and no disclosures are required at transition. The new guidance was adopted on January 1, 2018 with no impact on our consolidated financial statements.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
In August 2016, the FASB issued ASU No. 2016-15,
“Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments,”
which addresses eight specific cash flow issues and is intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance is effective for interim and annual periods beginning after December 15, 2017. The amendments in the ASU should be applied using a retrospective transition method to each period presented. The new guidance was adopted on January 1, 2018 and did not impact current period or prior period presented cash flow statements and had no impact on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02,
“Leases (Topic 842),”
which will supersede the existing guidance for lease accounting. This new standard will require lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The new standard requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use asset and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize a straight-line total lease expense. The new guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, which for the Company will be effective for the fiscal year beginning January 1, 2019.
In July 2018, the FASB issued two clarifying amendments to the lease guidance, which provide further Codification improvements and relieves the requirement to present prior comparative year results when adopting the new standard. Instead, companies can choose to recognize the cumulative-effect of applying the new standard to leased assets and liabilities as an adjustment to opening retained earnings in the year of adoption. Both amendments issued are effective in the same timeframe as ASU No. 2016-02. We intend to adopt the requirements of the new leasing standard via a cumulative-effect adjustment without restating prior periods
. While we are evaluating the impact that the new guidance will have on our consolidated financial statements, we currently expect a gross-up of our consolidated balance sheet
as we recognize
right of use assets and lease liabilities. The extent of such gross-up remains to be determined once we complete a review of our existing lease contracts (we are primarily a lessee) and service contracts, which may contain embedded leases.
In January 2016, the FASB issued ASU No. 2016-01,
“Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,”
as amended by ASU No. 2018-03,
“Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,”
issued in February 2018. The new guidance requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income (other than those accounted for under equity method of accounting). Under the new guidance, entities will no longer be able to recognize unrealized holding gains and losses on equity securities classified today as available-for-sale in other comprehensive income. The Company's current available-for-sale securities are invested primarily in debt securities which are not subject to the new guidance, therefore, we will continue to record any unrealized gains or losses on these available-for-sale debt securities through accumulated other comprehensive income. The new guidance also no longer allows the use of the cost method of accounting for equity securities without readily determinable fair values. However, for equity investments without readily determinable fair values, entities may elect a measurement alternative to fair value that will allow those investments to be recorded at cost, less impairment, and adjusted for subsequent observable price changes. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The new guidance was adopted on January 1, 2018 and the Company has elected to use the measurement alternative to measure our equity investments without readily determinable fair values and this guidance was applied prospectively.
Refer to Note 10,
Investment Securities and Short-Term
Investments
, for disclosures related to
observable price change events related to our equity investments without readily determinable fair values
that occurred during the current period
. During the first quarter of 2018, the FASB provided clarifying guidance on the application of ASU 2016-01 through the issuance of ASU No. 2018-03. Among other things, the amendment clarifies that the adjustments made under the measurement alternative are intended to reflect the fair value of the security as of the date that the observable transaction for a similar security took place. The amendment also clarifies that an entity measuring an equity security using the measurement alternative may change its measurement approach to a fair valuation method in accordance with Topic 820,
Fair Value Measurement
, through an irrevocable election that would apply to that security and all identical or similar investments of the same issuer. ASU No. 2018-03 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018 with early adoption permitted so long as ASU No. 2016-01 has been adopted. The Company has elected to early adopt the clarifying amendments in ASU No. 2018-03 as of January 1, 2018 and will apply the clarifying amendments to all interim periods within 2018. The adoption of the clarifying amendments had no impact to our consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09,
“Revenue from Contracts with Customers (Topic 606).”
This standard supersedes the revenue recognition requirements in ASC 605,
“Revenue Recognition,”
and most industry-specific guidance. The standard requires an entity to recognize revenue in an amount that reflects the consideration to which the entity expects to receive in exchange for goods or services. During 2016, the FASB issued additional interpretive guidance relating to the standard which covered the topics of principal versus agent considerations and identifying performance obligations and licensing. The standard along with the
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
subsequent clarifications issued are effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years. The new revenue guidance under Topic 606 was adopted on January 1, 2018 using the modified retrospective transition method. Under this transition method, we recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings on January 1, 2018. The comparative information presented has not been restated and continues to be reported under the accounting standards in effect for those periods. See Note 4,
Revenue
s
, for further details.
3
. Segment Information
In the first quarter of 2018, the Company revised its reportable segments to better reflect the way the Company now manages its business, including resource allocation and assessment. Over the past several years, the Company has evolved its business model, with an increasing share of revenue coming from the monetization of the Company’s video content across digital and direct-to-consumer platforms.
As the business model evolved, management’s analysis of its business segment results and the decisions on resource allocations to its business
segments
also changed. These changes necessitated a change in the Company’s segment reporting to align with management’s operational view. To reflect management’s revised perspective, as discussed in Note 1, effective on January 1, 2018, the Company now classifies its operations into three reportable segments: Media, Live Events and Consumer Products.
Segment information is prepared on the same basis that our chief operating decision maker manages the segments, evaluates financial results, and makes key operating decisions.
Additionally,
concurrent with the aforementioned
segment changes, certain business support functions including sales and marketing,
our
international
offices
, talent development and other business support functions previously reported in our Corporate and Other segment are now allocated to the three reportable segments based primarily on a percentage of revenue contribution. The remaining unallocated corporate expenses largely relate to corporate functions such as finance, legal, human resources, facilities and information technology
. The Company does not allocate these costs to its business segments, as they do not directly relate to revenue generating activities
. These unallocated corporate expenses will be shown, as applicable, as a reconciling item in tables where segment and consolidated results are both shown. Revenues from transactions between our operating segments are not material.
B
eginning in the first quarter of 2018, the Company also changed its primary measure of segment performance from operating income before depreciation and amortization (“OIBDA”) to Adjusted OIBDA.
The Company defines Adjusted OIBDA as operating income before depreciation and amortization,
excluding
stock-based compensation, certain impairment charges and other non-recurring material items. Adjusted OIBDA includes amortization expenses directly related to
our
revenue generating activities, including feature film and television production asset amortization, as well as the amortization of costs related to content delivery and technology assets utilized for our WWE Network. 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 provides a meaningful representation of operating cash flows
generated by
our segments
, and is
a
primary measure used by media investors, analysts and peers for
comparative purposes
.
The Company revised its financial information and disclosures for prior periods to reflect the segment disclosures as if the current measure of segment performance, Adjusted OIBDA, had been in effect throughout the periods presented.
We do not disclose
assets by segment information.
In general, assets of the Company are leveraged across its reportable segments and we do not provide assets by segment information to our chief operating decision maker, as that information is not typically used in the determination of resource allocation and assessing business performance of each reportable segment.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
The following tables present summarized financial information for each of the Company's reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Media
|
|
$
|
142,078
|
|
$
|
130,723
|
|
$
|
478,086
|
|
$
|
389,141
|
Live Events
|
|
|
26,723
|
|
|
31,600
|
|
|
109,808
|
|
|
116,533
|
Consumer Products
|
|
|
19,590
|
|
|
24,002
|
|
|
69,760
|
|
|
83,681
|
Total net revenues
|
|
$
|
188,391
|
|
$
|
186,325
|
|
$
|
657,654
|
|
$
|
589,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted OIBDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
Media
|
|
$
|
50,336
|
|
$
|
49,439
|
|
$
|
138,474
|
|
$
|
92,347
|
Live Events
|
|
|
120
|
|
|
3,663
|
|
|
18,458
|
|
|
25,826
|
Consumer Products
|
|
|
4,050
|
|
|
7,838
|
|
|
17,796
|
|
|
29,317
|
Corporate
|
|
|
(18,698)
|
|
|
(15,345)
|
|
|
(60,270)
|
|
|
(52,436)
|
Total Adjusted OIBDA
|
|
$
|
35,808
|
|
$
|
45,595
|
|
$
|
114,458
|
|
$
|
95,054
|
Reconciliation of Total Operating Income
to Total
Adjusted
OIBDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Total operating income
|
|
$
|
18,127
|
|
$
|
33,980
|
|
$
|
61,091
|
|
$
|
48,664
|
Depreciation and amortization
|
|
|
5,905
|
|
|
6,435
|
|
|
19,059
|
|
|
19,680
|
Stock-based compensation
|
|
|
11,776
|
|
|
5,180
|
|
|
34,308
|
|
|
17,962
|
Other adjustments (1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,748
|
Total Adjusted OIBDA
|
|
$
|
35,808
|
|
$
|
45,595
|
|
$
|
114,458
|
|
$
|
95,054
|
|
(1)
|
|
Other adjustments for the
nine
months ended
September
30, 2017
include
$5,586
of non-recurring legal matters and other contractual obligations, and
$
3
,
162
of certain impairment charges related to our feature films.
|
4.
Revenues
Adoption of ASC Topic 606, “Revenue from Contracts with Customers”
On January 1, 2018, the Company adopted the new revenue recognition standard pursuant to ASC Topic 606 to all contracts using the modified retrospective method. The most significant impact relates to the acceleration in the timing of revenue recognition of our consumer product licensing and film distribution revenues. The licensing and film distribution revenues historically have not comprised a significant percentage of total consolidated revenues. In 2017, 2016 and 2015, total consumer product licensing and film distribution revenues represented
8.8%
,
8.1%
and
8.5%
of total consolidated revenues, respectively. Prior to the adoption of the new revenue standard in 2018, we recorded revenues from our consumer product licensing arrangements and film distribution arrangements on a lag upon the receipt of statements from the licensee and/or film distributor. Under the new revenue recognition standard, revenues are recorded based on best estimates available in the period of sales or usage. Financial statements presented for the reporting periods beginning after January 1, 2018 are presented under ASC Topic 606, while prior period amounts presented are not adjusted and continue to be reported in accordance with our historical accounting under ASC Topic 605,
Revenue Recognition
. We do not expect the adoption of the new revenue standard to have a material impact to our annual consolidated financial statements on an ongoing basis, however, it will likely impact the revenues recorded in a specific quarter as compared to previously reported periods due to the lag reporting that was previously used in our consumer product licensing and film distribution arrangements.
Under the modified retrospective transition method, we recorded a net cumulative effect adjustment
of
$10,086
as an increase to opening retained earnings as of January 1, 2018. The cumulative effect impact of adopting Topic 606 related primarily to
our consumer product licensing revenues.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
The impact to our Consolidated Statements of Operations for the three
months ended
September 30
, 2018 as a result of applying ASC Topic 606 was a
de
crease to our Net revenues, Operating expenses and Operating
income
of
$2,712
,
$687
and
$2,025
, respectively
.
The impact to our Consolidated Statements of Operations for the nine months ended September 30, 2018 as a result of applying ASC Topic 606 was a decrease to our Net revenues,
Operating expenses and Operating income of
$11,194
,
$3,482
and
$7,712
, respectively. The impact to our Consolidated Balance Sheet as of September 30, 2018 as a result of applying ASC Topic 606 was a decrease to our accumulated deficit and total liabilities of
$4,185
and
$2,875
, respectively, and an increase to total assets of
$1,310
.
Revenue Recognition Policies
Under ASC Topic 606, most of our sales revenue continues to be recognized when products are shipped or as services are performed and was not materially impacted by the adoption of the new revenue recognition standard. Revenues are generally recognized when control of the promised goods or services is transferred to our customers either at a point in time or over time, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Most of our contracts have one performance obligation and all consideration is allocated to that performance obligation. Our revenues do not include material amounts of variable consideration. The variable consideration contained in our contracts relate primarily to sales or usage-based royalties earned on consumer product licensing contracts. The variability related to these sales or usage-based royalties will be resolved in the periods when the licensee generates sales related to the intellectual property license. As it relates to our Consumer Products segment, the Company accounts for shipping and handling activities as fulfillment activities.
We derive our revenues principally from the following sources: (i) content rights fees associated with the distribution of WWE’s media content, (ii) subscriptions to WWE Network, (iii) fees for viewing our pay-per-view programming, (iv) feature film distribution, (v) advertising and sponsorship sales, (vi) live event ticket sales, (vii) consumer product licensing royalties from the sale by third-party licensees of WWE branded merchandise, (viii) direct-to-consumer sales of merchandise at our live event venues, and (ix) direct-to-consumer sales of our merchandise through eCommerce platforms. The below describes our revenue recognition policies in further detail for each major revenue source of the Company.
Rights fees received from distributors of our programming, both domestically and internationally, are recorded when the program (functional intellectual property) has been delivered and control has been transferred to the distributor and the license period has begun. Any advance payments received from the distributors are deferred upon collection and recognized into revenue as content is delivered. Our typical distribution agreement is between
one
and
five
years in length and frequently provides for contractual increases over its term.
|
·
|
|
WWE Network Subscriptions:
|
Revenues from the sale of subscriptions to WWE Network are recognized ratably over each paid monthly membership period. Deferred revenues consist of subscription fees billed to members that have not been recognized and gift memberships that have not been redeemed.
|
·
|
|
Pay-per-view programming:
|
Revenues from our pay-per-view programming are recorded when the event is aired/performed and are based upon our initial estimate of the number of buys achieved. This initial estimate is based on preliminary buy information received from our pay-per-view distributors. These estimates are updated each reporting period based on the latest information available.
|
·
|
|
Feature film distribution:
|
We partner with distributors to co-distribute our films. In these arrangements, the third-party distribution partners control the distribution and marketing of our co-distributed films, and as a result, we recognize revenue on a net basis after the third-party distributor recoups distribution fees and expenses. An estimate of film distribution revenues is recorded in the period the films are exploited and exhibited based on best available information and final adjustments to the estimated amounts are recorded when final statements are received.
The estimates are derived from the best available recent information of film performance from our distributors and represents the most likely amount of revenues expected.
In certain arrangements, where worldwide film rights and interests are
licensed in perpetuity
to third-party distribution partners, we recognize revenue upon delivery and transfer of control of the completed film to the third-party.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
|
·
|
|
Advertising and sponsorships:
|
Through our sponsorship packages, we offer advertisers a full range of our promotional vehicles, including online and print advertising, on-air announcements and special appearances by our Superstars. We allocate the transaction price to all performance obligations contained within a sponsorship and advertising arrangement based upon their relative standalone selling price. Standalone selling prices are determined generally based on a rate card used to determine pricing for individual components. Revenues are recognized as each performance obligation is satisfied, which generally occurs when the sponsorship and advertising is aired, exhibited, performed or played on the applicable WWE platform. We are generally the principal in our advertising and sponsorship arrangements because we control the advertising and sponsorship inventory before it is transferred to our customers. Our control is evidenced by our sole ability to monetize the advertising and sponsorship inventory and being primarily responsible to our customers.
|
·
|
|
Live event ticket sales:
|
Revenues from our live event ticket sales are recognized upon the occurrence of the related live event.
|
·
|
|
Consumer product licensing royalties:
|
Licensing revenues consist principally of royalties or license fees related to various WWE themed products, such as video games, toys and apparel, which are created using WWE brands and marks (symbolic intellectual property). Revenues from our licensed products are recognized in the period of the underlying product sales based on estimates from licensees and adjustments to the estimated amounts are recorded when final statements are received. The estimates are derived from the best available recent information from our licensees of underlying sales performance and represents the most likely amount of revenues expected. Any upfront license fees or minimum guarantees received from the licensee are deferred upon collection and recognized into revenue over the contract term as the amounts are earned.
|
·
|
|
Direct-to-consumer venue merchandise sales:
|
Direct-to-consumer merchandise sales consist of sales of merchandise at our live events. Revenues are recognized at the point of sale, as control is transferred to the customer.
|
·
|
|
Direct-to-consumer eCommerce sales:
|
Direct-to-consumer eCommerce revenues consist of sales of merchandise on our websites, including through our WWEShop Internet storefront and on distribution platforms, including Amazon. Revenues are recognized at a point in time, as control is transferred to the customer upon shipment.
Payment Terms
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
30
to
60
days. We have elected the practical expedient to not adjust the total consideration within a contract to reflect a financing component when the duration of the financing is one year or less. Our contracts do not generally include a significant financing component. Our contracts with customers do not generally result in significant obligations associated with returns, refunds or warranties.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
Disaggregated Revenues
The following table presents our revenues disaggregated by primary revenue sources. Sales and usage-based taxes are excluded from revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Media Segment
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Network (including pay-per-view)
|
|
$
|
49,445
|
|
$
|
48,221
|
|
$
|
152,445
|
|
$
|
145,671
|
Core content rights fees (1)
|
|
|
65,912
|
|
|
60,375
|
|
|
197,590
|
|
|
179,684
|
Advertising and sponsorships
|
|
|
15,038
|
|
|
12,991
|
|
|
46,811
|
|
|
35,473
|
Other (2)
|
|
|
11,683
|
|
|
9,136
|
|
|
81,240
|
|
|
28,313
|
Total Media Segment net revenues
|
|
|
142,078
|
|
|
130,723
|
|
|
478,086
|
|
|
389,141
|
Live Events Segment
:
|
|
|
|
|
|
|
|
|
|
|
|
|
North American ticket sales
|
|
|
22,426
|
|
|
25,255
|
|
|
85,711
|
|
|
91,177
|
International ticket sales
|
|
|
2,238
|
|
|
5,081
|
|
|
15,771
|
|
|
19,006
|
Advertising and sponsorships
|
|
|
400
|
|
|
412
|
|
|
1,520
|
|
|
1,472
|
Other (3)
|
|
|
1,659
|
|
|
852
|
|
|
6,806
|
|
|
4,878
|
Total Live Events Segment net revenues
|
|
|
26,723
|
|
|
31,600
|
|
|
109,808
|
|
|
116,533
|
Consumer Products Segment
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer product licensing
|
|
|
8,559
|
|
|
11,331
|
|
|
28,608
|
|
|
40,819
|
eCommerce
|
|
|
6,786
|
|
|
7,211
|
|
|
23,304
|
|
|
23,519
|
Venue merchandise
|
|
|
4,245
|
|
|
5,460
|
|
|
17,848
|
|
|
19,343
|
Total Consumer Products Segment net revenues
|
|
|
19,590
|
|
|
24,002
|
|
|
69,760
|
|
|
83,681
|
Total net revenues
|
|
$
|
188,391
|
|
$
|
186,325
|
|
$
|
657,654
|
|
$
|
589,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Core content rights fees consist primarily of licensing revenues earned from the distribution of our flagship programs,
Raw
and
SmackDown Live
, through global broadcast, pay television and digital platforms.
|
|
(2)
|
|
Other
revenues within our Media segment reflect
revenues earned from the distribution of other
content, including, but not limited to,
scripted
,
reality
and other in-ring programming, as well as
theatrical and direct-to-home video
releases
.
|
|
(3)
|
|
Other revenues within our Live Events segment primarily consists of the sale of travel packages associated with the Company’s global live events and commissions earned through secondary ticketing.
|
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.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
Remaining Performance Obligations
As of
September 30
, 2018,
for contracts greater than one year,
the aggregate amount of the transaction price allocated to remaining performance
obligations is
$3,476,806
, comprised
of our multi-year content distribution, consumer product licensing and sponsorship contracts. We
will
recognize rights fees related to our multi-year content distribution contracts as content is delivered to the distributors during the periods 2018 through 202
8
. We
will
recognize the revenues associated with the minimum guarantees on our multi-year consumer product licensing arrangements by the end of the licensing periods
,
which
range
from 2018 through 202
4
. For our multi-year sponsorship arrangements, we
will
recognize sponsorship revenues as the sponsorship obligations are satisfied during the periods 2018 through 2021. The transaction price related to these future obligations do not include any variable consideration
, which generally consists of sales or usage-based royalties earned on consumer product licensing and certain other content rights contracts. The variability related to these sales or usage-based royalties will be resolved in the periods when the licensee generates sales related to the intellectual property license
.
Contract Assets and Contract Liabilities (Deferred Revenues)
A contract asset results when goods or services have been transferred to the customer, but payment is contingent upon a future event, other than the passage of time (i.e. type of unbilled receivable). The Company does not have any material unbilled receivables, therefore, does not have any contract assets, only accounts receivable as disclosed on the face of our consolidated balance sheet.
We record deferred revenues (also referred to as contract liabilities under 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, 2018 and December 31, 2017 was
$77,125
and
$
6
9,795
, respectively.
The increase in the deferred revenue balance for the nine months ended Sep
tember 30, 2018 of
$7,330
is primarily driven by cash payments received or due in advance of satisfying our performance obligations.
Contract Costs (Costs of Obtaining a Contract)
Except for certain multi-year television content arrangements, we generally expense sales commissions when incurred because the amortization period would have been one year
or less. These costs are recorded within Marking and selling expenses within our Consolidated Statements of Operations. Capitalized commission fees of
$2,231
and
$2,242
at September 30, 2018 and December 31, 2017, respectively, relate primarily to incremental costs of obtaining our long-term television content arrangements and these costs are being amortized over the duration of the underlying content agreements on a straight-line basis to marketing and selling expense. The amount of amortization was
$345
and
$320
, and
$986
and
$961
for the
three and nine months ended September 30, 2018 and 2017,
respectively
, and there was
no
impairment in relation to the costs capitalized.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
5
. Earni
ngs
Per Share
For purposes of calculating ba
sic and diluted earnings
per share, we used the following weighted average common shares outstanding (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net income
|
|
$
|
33,590
|
|
$
|
21,854
|
|
$
|
58,370
|
|
$
|
27,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic common shares outstanding
|
|
|
77,808
|
|
|
76,957
|
|
|
77,371
|
|
|
76,620
|
Dilutive effect of restricted and performance stock units
|
|
|
1,620
|
|
|
1,548
|
|
|
2,010
|
|
|
1,761
|
Dilutive effect of convertible debt instruments
|
|
|
11,332
|
|
|
—
|
|
|
8,563
|
|
|
—
|
Dilutive effect of employee share purchase plan
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
Weighted average dilutive common shares outstanding
|
|
|
90,760
|
|
|
78,505
|
|
|
87,944
|
|
|
78,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.43
|
|
$
|
0.28
|
|
$
|
0.75
|
|
$
|
0.36
|
Diluted
|
|
$
|
0.37
|
|
$
|
0.28
|
|
$
|
0.66
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive shares (excluded from per-share calculations):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net shares received on purchased call of convertible debt hedge
|
|
|
6,030
|
|
|
—
|
|
|
4,815
|
|
|
—
|
Outstanding restricted and performance stock units
|
|
|
1
|
|
|
—
|
|
|
320
|
|
|
—
|
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 1
3
,
Convertible Debt
. The collective impact of the Convertible Note Hedge and Warrants effectively eliminates any economic dilution that may occur from the actual conversion of the Convertible Notes between the conversion price of
$24.91
per share and the strike price of the Warrants of
$31.89
per share.
T
he denominator of our diluted earnings per share calculation
for the three and
nine
months ended
September
30, 2018 includes
the effect of additional shares
of common stock
issued
using the treasury stock method since the average price of
our common stock exceed
ed the conversion price of the Convertible Notes of
$24.91 per share. In addition,
the denominator of our diluted earnings per share calculation for the three and
nine
months ended
September
30, 2018 includes the additional shares issued related to the Warrants using the treasury stock method since
the average price of our common stock exceed
ed
the strike price of the Warrants of $31.89 per share.
The
dilution from the
C
onvertible
N
otes
and Warrants
had a
$
0.05
and $0.07
impact
on diluted earnings per share for the three
and
nine
months ended
September
30
, 2018
, respectively
. There was
no
impact on diluted earnings per share during the three
and
nine
months ended
September
30
, 2017
since the average price of our common stock did not exceed the conversion price of $24.91 during the periods
.
Prior to actual conversion, the Convertible Note Hedges are not considered for purposes of the calculation of diluted earnings per share, as their effect
would be anti-dilutive.
6
. Stock-
b
ased Compensation
Our
2016
O
mnibus 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 d
etermined by the Compensation Committee of the Board of Directors
. Awards may be granted
as incentives and re
wards to encourage officers, employees, consultants
,
advisors
and independent contractors
of the Company and its affiliates and to non-employee directors of the Company
to participate in our long-term success.
Stock-based compensation costs, which includes costs related to RSUs, PSUs
, PSU-TSRs
and the Company's
qualified e
mployee
s
tock
p
urchase
p
lan,
totaled $
11,776
and
$
5,180
, and
$
34,308
and
$
17,962
for the
three and nine months ended September 30, 2018 and 2017
, respectively.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
Restricted Stock Units
The Company grants restricted stock units ("RSUs") to officers and employees under the
2016
Plan.
Stock-based compensation costs associated with our RSUs are determined using the fair market value of the Company’s common stock on the date of the grant. These costs are recognized over the requisite service period using the graded vesting method, net of estimated forfeitures. RSUs have a service requirement typically over a
three
and
one-half
year vesting schedule and vest in equal annual installments. We estimate forfeitures based on historical trends when recognizing compensation expense and adjust the estimate of forfeitures when they are expected to differ or as forfeitures occur. Unvested RSUs accrue dividend equivalents at the same rate as are paid on our shares of Class A common stock. The dividend equivalents are subject to the same vesting schedule as the underlying RSUs.
The following table summarizes the RSU activity during the
nine months ended September 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
Weighted-
Average
Grant-Date
Fair Value
|
Unvested at January 1, 2018
|
|
477,792
|
|
$
|
18.33
|
Granted
|
|
185,059
|
|
$
|
36.92
|
Vested
|
|
(208,396)
|
|
$
|
17.45
|
Forfeited
|
|
(39,892)
|
|
$
|
24.62
|
Dividend equivalents
|
|
3,771
|
|
$
|
23.67
|
Unvested at September 30, 2018
|
|
418,334
|
|
$
|
26.44
|
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 Commi
ttee (service inception date).
The vesting of these PSUs are subject to certain performance conditions and a service requirement of
typically
three
and
one-half
years.
Until the performance conditions are met, stock compensation costs associated with these PSUs are re-measured each reporting period based upon the fair market value of the Company's common stock and the
estimated performance
att
ainment on the reporting date.
The ultimate number of PSUs that are issued to an employee is the result of the actual performance of the Company at the end of the performance period compared to the performance conditions. Stock compensation costs for our PSUs are recognized over the requisite service period using the graded vesting method,
net of estimated forfeitures. We estimate forfeitures based on historical trends wh
en
recognizing compensation expense and adjust the estimate of forfeitures when they are expected to differ or as forfeitures occur.
Unvested PSUs accrue dividend equivalents once the performance conditions are met at the same rate as are paid on our shares of Class A common stock. The dividend equivalents are subject to the same vesting schedule as the underlying PSUs.
The following table summarizes the PSU activity during the
nine months ended September 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
Weighted-
Average
Grant-Date
Fair Value
|
Unvested at January 1, 2018
|
|
2,053,931
|
|
$
|
21.37
|
Granted
|
|
369,996
|
|
$
|
96.34
|
Achievement adjustment
|
|
100,753
|
|
$
|
33.84
|
Vested
|
|
(1,244,447)
|
|
$
|
19.76
|
Forfeited
|
|
(162,682)
|
|
$
|
49.79
|
Dividend equivalents
|
|
11,736
|
|
$
|
22.97
|
Unvested at September 30, 2018
|
|
1,129,287
|
|
$
|
46.21
|
During the
nine months ended September 30, 2018
,
we granted
369,996
PSUs
,
which
are subject to certain performance conditions.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
During the year ended
December 31, 2017
, we granted
550,460
PSUs
,
which were subject to performance conditions.
During the first quarter of
2018
,
it was determined that
the performance conditions related to these PSUs were exceeded, whi
ch resulted in an
increase of
100,753
PSUs
in
2018
relating to the initial
2017
PSU grant.
Performance Stock Units with a Market Condition Tied to
Relative
Total Shareholder Return
During the first quarter of 2018, the Compensation Committee approved certain agreements to grant
PSUs with a market condition (“PSU-TSRs”) where vesting is conditioned upon the total shareholder return performance of the Company’s stock relative to the performance of a peer group over
five
distinct performance periods from 2018 through 2024. The grant date fair value of the award was calculated using a Monte-Carlo simulation model which factors in the number of awards to be earned based on the achievement of the market condition. This model simulates the various stock price movements of the Company and peer group companies using certain assumptions, including the stock price of WWE and those of the peer group, stock price volatility, the risk-free interest rate, correlation coefficients, and expected dividend yield. The grant date fair value of the award totaled
$16,168
and is being
amortized as compensation cost over the requisite service period using the graded vesting method
from March 2018
through July 2024
.
The following table summarizes the PSU
-TSR
activity during the
nine
months ended
September
30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
Weighted-
Average
Grant-Date
Fair Value
|
Unvested at January 1, 2018
|
|
—
|
|
$
|
—
|
Granted
|
|
340,971
|
|
$
|
47.42
|
Unvested at September 30, 2018
|
|
340,971
|
|
$
|
47.42
|
7
. Property and Equipment
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
September 30,
|
|
December 31,
|
|
|
2018
|
|
2017
|
Land, buildings and improvements
|
|
$
|
136,895
|
|
$
|
134,052
|
Equipment
|
|
|
115,305
|
|
|
98,245
|
Corporate aircraft
|
|
|
32,249
|
|
|
31,277
|
Vehicles
|
|
|
905
|
|
|
905
|
|
|
|
285,354
|
|
|
264,479
|
Less: accumulated depreciation and amortization
|
|
|
(149,829)
|
|
|
(133,154)
|
Total
|
|
$
|
135,525
|
|
$
|
131,325
|
Depreciation expense for property and equip
ment
totaled $
5,682
and
$
6,151
,
and $
18,406
and
$1
8,517
for the
three and nine months ended September 30, 2018 and 2017
, respectively.
During
the second quarter of 2018
, we recorded a non-cash abandonment charge of
$1,693
to write off the carrying value of internal use software that
we
deemed will no longer be used by the Company and had no further alternative use. This charge is included as a component of Operating expenses on the Consolidated Statements of Operations and included
within our Media segment results
for the nine months ended September 30, 2018
.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
8
. Feature Film Production Assets, Net
Feature film production assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
September 30,
|
|
December 31,
|
|
|
2018
|
|
2017
|
In release
|
|
$
|
11,653
|
|
$
|
15,869
|
Completed but not released
|
|
|
3,041
|
|
|
2,211
|
In production
|
|
|
2,199
|
|
|
3,107
|
In development
|
|
|
358
|
|
|
1,113
|
Total
|
|
$
|
17,251
|
|
$
|
22,300
|
Approximately
2
7
%
of “In release” film production assets are estimated to be amortized over the nex
t 12 months, and approximately
6
3
%
of “In release” film production assets are estimated to be amortized over the next
three years.
We anticipate amortizing approximately
80%
of our
"In release" film production asset
s
within four years as we receive revenues associated with television distr
ibution of
ou
r licensed films.
During the
three and nine months ended September 30, 2018 and 2017
, we amortized
$
884
and
$
2
,
346
,
and
$
2,192
and
$
4
,
987
,
respectively, of feature film production assets.
We
currently
have
three
films designated as “Completed but not released” and have
one
film
“In production.” We also have capitalized certain script development costs
and pre-production costs
for various other film projects designated as “In development.”
Capitalized script d
evelopment costs are evaluated at each reporting period for impairment and to determine if a project is deemed to be abandoned.
During the
three and nine months ended September 30, 2018
and 2017,
we
expensed
$
122
and
$157
, and
$
851
and
$157
,
respectively,
related to previously capitalized development costs
related to abandoned projects
.
Unamortized feature film production assets are evaluated for imp
airment each reporting period.
We review and revise estimates of ultimate revenue and participation costs at each reporting period to reflect the most
current information available.
If estimates for a film’s ultimate revenue and/or costs are revised and indicate a significant decline in a film’s profitability or if events or circumstances change that indicate we should assess whether the fair value of a film is less than its unamortized film costs, we calculate the film's estimated fair value using
a discounted cash flows model.
If fair value is less than unamortized cost, the film asset is written down to fair value.
We record
ed
impairment charges
of
$
1,325
and
$
759
, and
$
2,813
and
$3,
921
related
to our feature films
during the
three and nine months ended September 30, 2018 and 2017
, respectively.
These impairment charges represent the excess of the recorded net carrying value over
the estimated fair value.
9
. Television Production Assets, Net
Television production assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
September 30,
|
|
December 31,
|
|
|
2018
|
|
2017
|
In release
|
|
$
|
3,072
|
|
$
|
3,765
|
In production
|
|
|
3,223
|
|
|
3,527
|
Total
|
|
$
|
6,295
|
|
$
|
7,292
|
Television production assets consist primarily of
non-live event
episodic television series we have produced for distribution through a variety of platforms including on our WWE Network. Amounts capitalized include development costs, production costs, production overhead and employee salaries. Costs to produce episodic programming for television or distribution on WWE Network are amortized in the proportion that revenues bear to management's estimates of the ultimate revenue expected to be recognized from exploitation, exhibition or sale.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
Amortization of television production assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
WWE Network programming
|
|
$
|
630
|
|
$
|
566
|
|
$
|
5,688
|
|
$
|
3,685
|
Television programming
|
|
|
7,086
|
|
|
2,346
|
|
|
14,846
|
|
|
9,948
|
Total
|
|
$
|
7,716
|
|
$
|
2,912
|
|
$
|
20,534
|
|
$
|
13,633
|
Costs to produce our live event programming are expensed when the event is first broadcast
,
and are not included in the capitalized costs or amortization tables noted above
.
Unamortized television production assets are evaluated for impairment each reporting period. If conditions indicate a potential impairment, and the estimated future cash flows are not sufficient to recover the unamortized asset, the asset is written down to fair value. In addition, if we determine that a program will not likely air, we will
expense
the remaining
unamortized asset. During the
three and nine months ended September 30, 2018 and 2017
, we did
no
t record any impairments related to our television production assets
.
10
. Investment Securities and Short-Term Investments
Investment Securities
Included
with
in Investment Securities
are the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
September 30,
|
|
December 31,
|
|
|
2018
|
|
2017
|
Equity method investment
|
|
$
|
14,671
|
|
$
|
14,664
|
Equity investments without readily determinable fair values
|
|
|
12,922
|
|
|
12,703
|
Total investment securities
|
|
$
|
27,593
|
|
$
|
27,367
|
Equity Method Investment
In March 2015, WWE and
Authentic Brands Group (“
ABG
”)
formed a joint venture to re-launch an apparel and lifestyle brand, Tapout (the "Brand"). ABG agreed to contribute certain intangible assets for the Brand, licensing contracts, systems, and other administrative functions to Tapout.
The Company agreed to contribute promotional and marketing services related to the venture for a period of at least
five
years in exchange for a
50%
interest in the profits and losses
and voting interest in Tapout. The Company valued its initial investment of
$13,800
based on the fair value of the existing licensing contracts contributed by ABG
.
To the extent that Tapout records income or losses, we record our share proportionate to our ownership percentage, and any dividends received reduce the carrying amount of the investment.
Net equity method earnings from Tapout are included as a component of
Other
income, net on the Consolidated Statements of Operations. Net dividends received from Tapout are reflected on the Consolidated Statements of Cash Flows
within Net cash provided by operating activities
.
The Company did not record any impairment charges related to our investment in Tapout
during
the
three and nine months ended
September 30, 2018
and 2017
.
The following table presents the net equity method earnings from Tapout and net dividends received from Tapout for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net equity method earnings from Tapout
|
|
$
|
158
|
|
$
|
198
|
|
$
|
859
|
|
$
|
843
|
Net dividends received from Tapout
|
|
|
(68)
|
|
|
(164)
|
|
|
(852)
|
|
|
(832)
|
Equity in earnings of affiliate, net of dividends received
|
|
$
|
90
|
|
$
|
34
|
|
$
|
7
|
|
$
|
11
|
As promotional services are provided to Tapout, we record revenue and reduce th
e existing service obligation.
During the
three and nine months ended September 30, 2018 and 2017
, we recorded
revenues of
$
608
and
$
6
96
,
and
$
2,2
64
and
$
2,090
,
respectively,
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
related to our fulfillment of our promotional
services obligation to Tapout.
The remaining service obligation a
s of
September 30, 2018
was
$
3,
493
, and was included in Deferred Income and
Other
Non
-Current
Liabilities
for
$
2,760
and
$
7
33
, respectively
.
Our known maximum exposure to loss approximates the remaining service ob
ligation to Tapout, which
was
$
3,
493
as
of
September 30, 2018
. Creditors of Tapout do not have recourse against the general credit of the Company
.
Equity Investments Without Readily Determinable Fair Values
We evaluate our
equity
investments
without readily determinable fair values
for impairment if factors indicate that a significant decrease in value has occurred.
Beginning in 2018, the Company prospectively adopted a new accounting standard on the accounting for equity investments that do not have readily determinable fair values. Refer to Note 2,
Significant Accounting Policies – Recent Accounting
Pronouncements
, for further details. Under the new standard, 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.
The following table summarizes the impairments and observable price change event adjustments recorded on our equity investments without readily determinable fair values for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Impairments (1)
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(3,000)
|
|
$
|
—
|
Observable price change adjustments (2)
|
|
|
2,181
|
|
|
—
|
|
|
2,181
|
|
|
—
|
Total income (loss) from adjustments to equity investments
|
|
$
|
2,181
|
|
$
|
—
|
|
$
|
(819)
|
|
$
|
—
|
|
(1)
|
|
During the second quarter of 2018, the Company recorded an impairment charge of $3,000 on our investment in a mobile video publishing business for the excess of the carrying value over its estimated fair value resulting from going concern issues of the underlying investee company. This charge is reflected in
Other income, net
in our Consolidated Statements of Operations.
|
|
(2)
|
|
During the third quarter of 2018, the Company recorded an upward adjustment of $2,181 to the carrying value of our existing equity investment in an e-sports company. The adjustment was the result of an observable price change event in connection with a financing round completed by the investee where the underlying value of the preferred shares issued were greater than the value per share of WWE’s substantially similar preferred shares in the investee. This adjustment is reflected in
Other income, net
in our Consolidated Statements of Operations.
|
Short-Term Investments
Short-term investments measured at fair value consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2018
|
|
As of December 31, 2017
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
|
|
Fair
|
|
Amortized
|
|
|
|
|
|
|
|
Fair
|
|
|
Cost
|
|
Gain
|
|
(Loss)
|
|
Value
|
|
Cost
|
|
Gain
|
|
(Loss)
|
|
Value
|
U.S. Treasury securities
|
|
$
|
56,571
|
|
$
|
—
|
|
$
|
(657)
|
|
$
|
55,914
|
|
$
|
73,169
|
|
$
|
—
|
|
$
|
(479)
|
|
$
|
72,690
|
Corporate bonds
|
|
|
100,622
|
|
|
—
|
|
|
(685)
|
|
|
99,937
|
|
|
58,003
|
|
|
—
|
|
|
(329)
|
|
|
57,674
|
Municipal bonds
|
|
|
11,953
|
|
|
—
|
|
|
(70)
|
|
|
11,883
|
|
|
17,538
|
|
|
7
|
|
|
(99)
|
|
|
17,446
|
Government agency bonds
|
|
|
22,074
|
|
|
—
|
|
|
(336)
|
|
|
21,738
|
|
|
12,007
|
|
|
—
|
|
|
(73)
|
|
|
11,934
|
Total
|
|
$
|
191,220
|
|
$
|
—
|
|
$
|
(1,748)
|
|
$
|
189,472
|
|
$
|
160,717
|
|
$
|
7
|
|
$
|
(980)
|
|
$
|
159,744
|
We classify the investments listed in the above table as available-for-sale
debt
securities.
Such investments consist of
U.S. Treasury securities,
corporate
bonds,
municipal bonds,
including
pre-refunded municipal bonds
, and government agency bonds
.
These investments are stated at fair value as required by the applicable accounting guidance. Unrealized gains and losses on such securities are reflected, net of tax, as other comprehensive income (loss) in the Consolidated Statements of Comprehensive Income.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
Our
U.S. Treasury securities,
corporate
bonds,
municipal
bonds
and government agency bonds
are included in Short-term investments, net on ou
r Consolidated Balance Sheets.
Realized gains and losses on investments are included in earnings and are derived using the specific identification method for determinin
g the cost of securities sold.
As of
September 30, 2018
, contractual maturities of these
securities
are as follows:
|
|
|
|
|
|
|
|
Maturities
|
U.S. Treasury securities
|
|
2
months -
2
years
|
Corporate bonds
|
|
6
months -
5
years
|
Municipal bonds
|
|
1
month -
1
year
|
Government agency bonds
|
|
4 months - 4 years
|
During the three and nine months ended September 30, 2018 and 2017, we recogni
zed
$1,137 and $
649
, and $3,244 and $
1,449
, respectively, of interest income on our short-term investments. Interest income is reflected as a component
of Other income, net within our Consolidated Statements of Operations.
The following table summarizes the short-term investment activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Proceeds from sales and maturities of short-term investments
|
|
$
|
14,660
|
|
$
|
10,330
|
|
$
|
50,833
|
|
$
|
23,990
|
Purchases of short-term investments
|
|
$
|
17,520
|
|
$
|
35,110
|
|
$
|
82,064
|
|
$
|
123,806
|
11
. Fair Value Measurement
Fair value is determined based on the exchange price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in
an orderly transaction between
market partici
pants at the measurement date.
Fair value is a market-based measurement based on assumptions that market participants would use to
price the asset or liability.
Accordingly, the framework considers markets or observable inputs as the preferred source of value followed by assumptions based on hypothetical transactions, in the absence of market inputs.
The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of assets and liabilities should include consideration of non-performance risk, including the Company's own credit risk
.
Additionally, the accounting guidance establishes a three-level hierarchy that ranks the quality and reliability of information used in developing fair value estimates. The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. In cases where two or more levels of inputs are used to determine fair value, a financial instrument's level is determined based on the lowest level input that is considered significant to the fair valu
e measurement in its entirety.
The three input levels of the fair value hierarchy are summarized as follows
:
|
|
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 sho
rt-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 classifi
ed 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 observab
le market
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
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 a
re used to value our
corporate
bond,
U.S. Treasury securities,
municipal
bond
and government agency bond
investments.
The Company did not have any transfers between Level 1, Level 2, and Level 3 fair value investments during the periods presented
.
The fair value measurements of our
equity investments without readily determinable fair value
are classified within Level 3
as significant unobservable inputs are used
as part of the determination of
fair value
.
Significant unobservable inputs include variables such as near-term prospects of the investees, recent financing activities of the investees, and the investees' capital structure, as well as other economic variables, which reflect assumptions market participants wou
ld use in pricing these assets.
Beginning in 2018, the Company prospectively adopted a new accounting standard on the accounting for equity investments that do not have readily determinable fair values. Refer to Note 2,
Significant Accounting Policies – Recent Accounting
Pronouncements
, for further details. Under the new standard, 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.
Refer to Note 10,
Investment Securities and Short-Term Investments
, for details on impairments and observable pricing event adjustments related to our equity investments without readily determinable fair values.
The Company's
long-lived
property and equipment, feature film and television production assets are required to be measured at fair value on a non-recurring basis
if it is determined that i
ndicators of impairment exist.
These assets are recorded at fair value only whe
n an impairment is recognized.
During the
second quarter of 2018
, we recorded a non-cash abandonment charge of
$1,693
to write off the carrying value of internal use software that
we
deemed will no longer be used by the Company and had no further alternative use. This charge is included as a component of Operating expenses on the Consolidated Statements of Operations and included within our Media segment results. With the exception of this charge, t
he Company did not record any
other
impairment charges on long lived property and equipment and television production assets during
the
three and nine months ended
September 30, 2018
and
2017
. T
he Company classifies these assets as Level 3 within the fair value hierarchy due to significant unobservable inputs.
During
the nine months ended September 30, 2018 and 2017,
the Company
recorded
impairment
charges of
$
2,813
and
$
3
,
921
on feature film production assets based upon fair value measurements
of
$
2,
475
and
$
3,074
, respectively
.
See
Note
8
,
Feature Film Production
A
ssets, Net
, for further discussion.
The Company classifies these assets as Level 3 within the fair value hierarchy due to significant unobservable inputs
.
The Company utilizes a discounted cash flows model to determine the fair value of these impaired films where indicators of impairment exist. The significant unobservable inputs to this model are the Company’s expected cash flows for the film, including projected home video sales, pay and free TV sales and international sales, and a discount rate of
13%
that we estimate market participants would seek for bearing the risk associated with such assets. The Company utilizes an independent
third-party
valuation specialist who assists us in gathering the necessary inputs used in our model.
The fair value of the Company’s long-term debt, consisting
of a
mortgage loan assumed in connection with a building purchase and a
promissory note secured by the Company's Corporate Jet, is estimated based upon quoted price estimates
for similar debt arrangements.
At
September 30, 2018
, the face amount of the
mortgage loan and promissory
note 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, 2018
and
December 31, 2017
, 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
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
|
Fair Value
|
|
Carrying Value (1)
|
|
Fair Value
|
|
Carrying Value (1)
|
Convertible senior notes
|
|
$
|
191,468
|
|
$
|
186,196
|
|
$
|
182,661
|
|
$
|
182,783
|
|
(1)
|
|
The carrying value of the convertible debt instrument presented in the table above represents the face value of the convertible note less unamortized debt discount.
|
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
1
2
. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
September 30,
|
|
December 31,
|
|
|
2018
|
|
2017
|
Trade related
|
|
$
|
10,271
|
|
$
|
12,727
|
Staff related
|
|
|
7,787
|
|
|
7,980
|
Management incentive compensation
|
|
|
27,383
|
|
|
21,556
|
Talent related
|
|
|
3,905
|
|
|
5,356
|
Accrued WWE Network related expenses
|
|
|
2,331
|
|
|
2,633
|
Accrued event and television production
|
|
|
10,084
|
|
|
7,929
|
Accrued legal and professional
|
|
|
4,929
|
|
|
5,182
|
Accrued purchases of property and equipment
|
|
|
5,577
|
|
|
2,334
|
Accrued film liability
|
|
|
2,683
|
|
|
1,993
|
Accrued other
|
|
|
19,558
|
|
|
10,048
|
Total
|
|
$
|
94,508
|
|
$
|
77,738
|
Accrued other includes accruals for our international and licensing business activities, as well as other miscellaneous accruals, none
of which categories
individually exceeds
5%
of current liabilities.
1
3
.
Convertible Debt
In December 2016, we issued
$200,000
aggregate principal amount of
3.375%
convertible senior notes due
2023
and subsequently in January 2017, we issued an additional
$15,000
aggregate principal amount of such convertible notes through the partial exercise of an over-allotment option (collectively, the “Convertible Notes”). The Convertible Notes are due December 15, 2023, unless earlier repurchased by us or converted. Interest is payable semi-annually in arrears on June 15 and December 15 of each year. The sale of the Convertible Notes in December 2016 and January 2017 resulted in
$193,899
and
$14,534
in net proceeds, respectively, to WWE after deducting the initial purchasers’ discount and the estimated offering expenses. We used
$36,658
of the net proceeds from the sale of the Convertible Notes to pay the cost of the convertible bond hedges, as described below, after such cost was partially offset by the proceeds to us from the sale of warrants in the warrant transactions, as described below.
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 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
40.1405
shares of common stock per $1 principal amount of the Convertible Notes, which corresponds to an initial conversion price of approximately
$24.91
per share of our Class A common stock. At any time, prior to the close on the business day immediately preceding June 15, 2023, the Convertible Notes will be convertible under the following circumstances:
|
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
20
trading days (whether or not consecutive) during a period of
30
consecutive trading days ending on the last trading day of the immediately preceding quarter is greater than or equal to
130%
of the conversion price on each applicable trading day;
|
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
|
b)
|
|
During the
5
business day period after any
10
consecutive trading day period (the “measurement period”) in which the trading price per $1 principal amount of Convertible Notes for each trading day of the measurement period was less than
98%
of the product of the last reported sale price of our Class A common stock and the conversion rate on each such trading day;
|
|
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
ha
ve
the right to convert their notes at any time
through
at least
December 31
, 2018
.
As of
September
30, 2018, 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, 2018, no actual conversions have occurred to date.
Refer to Note 5,
Earnings 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. The value of the embedded conversion option was determined based on the estimated fair value of the debt without the conversion feature, which was determined using an expected present value technique (income approach) to estimate the fair value of similar nonconvertible debt; the debt discount is being amortized as additional non-cash interest expense over the term of the Convertible Notes using the effective interest method with an effective interest rate of
6.40%
per annum. 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 compone
nts based on their relative values. Offering costs attributable to the debt component,
totaling
$5,454
, are being amortized as non-cash interest expense over the term of the
Convertible
Notes, and offering costs attributable to the equity component, totaling
$1,110
,
were netted with
the equity component in stockholders' equity.
The Convertible Notes consisted of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
September 30,
|
|
December 31,
|
|
|
2018
|
|
2017
|
Debt component
:
|
|
|
|
|
|
|
Principal
|
|
$
|
215,000
|
|
$
|
215,000
|
Less: Unamortized debt discount
|
|
|
(28,804)
|
|
|
(32,217)
|
Less: Unamortized debt issuance costs
|
|
|
(4,442)
|
|
|
(4,883)
|
Net carrying amount
|
|
$
|
181,754
|
|
$
|
177,900
|
|
|
|
|
|
|
|
Equity component (1)
|
|
$
|
35,547
|
|
$
|
35,547
|
|
(1)
|
|
Recorded in the Consolidated Balance Sheets within additional paid-in capital,
net of
the
$1,110
issuance
costs in equity.
|
The following table sets forth total interest expense recognized related to the Convertible Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
3.375%
contractual coupon
|
|
$
|
1,814
|
|
$
|
1,814
|
|
$
|
5,442
|
|
$
|
5,418
|
Amortization of debt discount
|
|
|
1,156
|
|
|
1,086
|
|
|
3,413
|
|
|
3,190
|
Amortization of debt issuance costs
|
|
|
156
|
|
|
139
|
|
|
457
|
|
|
408
|
Interest expense
|
|
$
|
3,126
|
|
$
|
3,039
|
|
$
|
9,312
|
|
$
|
9,016
|
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
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”) with three separate counterparties. The Note Hedge transactions in December 2016 and January 2017 resulted in an aggregate payment to the Note Hedge counterparties of
$34,100
and
$2,558
, respectively. The Note Hedge transactions cover approximately
8.03
million shares of our Class A common stock related to the December 2016 issuance and
602,107
shares of our Class A common stock related to the January 2017 issuance, and are exercisable upon conversion of the Convertible Notes. The Note Hedge will expire on December 15, 2023, unless earlier terminated. The Note Hedge transactions have been accounted for as part of additional paid-in capital.
Warrant Transactions
In connection with entering into the Note Hedge transactions described above, we also concurrently entered into separate warrant transactions (the “Warrants”), to sell warrants to acquire approximately
8.03
million shares of our Class A common stock in connection with the Note Hedge transaction in December 2016 and
602,107
shares of our Class A common stock in connection with the Note Hedge transaction in January 2017, both at an initial strike price of approximately
$31.89
per share, which represents a premium of approximately
60.0%
over the last reported sale price of our Class A common stock of
$19.93
on December 12, 2016 (initial issuance date of the Convertible Notes). The Warrant transactions in December 2016 and January 2017 resulted in aggregate proceeds received of
$19,460
and
$1,460
, respectively, from the sale of the Warrants to the counterparties. The Warrants transactions have been accounted for as part of additional paid-in capital.
1
4
.
Long-Term
Debt
and Credit Facilit
y
Long-Term Debt
Included within Long-Term Debt are the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
September 30,
|
|
December 31,
|
|
|
2018
|
|
2017
|
Current portion of long-term debt
:
|
|
|
|
|
|
|
Aircraft financing
|
|
$
|
4,714
|
|
$
|
4,638
|
Mortgage
|
|
|
374
|
|
|
—
|
Total current portion of long-term debt
|
|
$
|
5,088
|
|
$
|
4,638
|
|
|
|
|
|
|
|
Long-term debt
:
|
|
|
|
|
|
|
Aircraft financing
|
|
$
|
4,413
|
|
$
|
7,958
|
Mortgage
|
|
|
22,571
|
|
|
23,000
|
Total long-term debt
|
|
$
|
26,984
|
|
$
|
30,958
|
|
|
|
|
|
|
|
Total
|
|
$
|
32,072
|
|
$
|
35,596
|
Mortgage
In
September
2016, the Company acquired real property and
assu
med future obligations under a loan a
greement, dated June 8, 2015, in the principal amount of
$23,000
, which loan is secured by a mortgage on the
property.
The loan bears interest at the rate of
4.50%
per annum and require
d
monthly interest only payments of
$86
until June 2018 and interest and principal payments of
$117
per month thereafter, with a balloon payment on maturity in
July 2025
. There is a significant yield mainte
nance premium for prepayments.
Pursuant to the
loan agreement
, since the assets of WWE Real Estate
, a subsidiary of the Company,
represent collateral for the underlying mortgage, these assets will not be available to satisfy debts and obligations due to any other creditors of the Company.
Aircraft Financing
In August
2013, the Company entered into a
$31,568
promissory note (the “
Aircraft
Note”) with Citizens Asset Finance, Inc., for the purchase of a 2007 Bombardier Global 5000 aircraft and refurbishments.
In August 2017, the Aircraft Note was
assigned to Fifth
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
Third Equipment Finance Company.
The
Aircraft
Note bears interest at a rate of
2.18%
per annum, is payable in monthly installments of
$406
, inclusive of interest, and has a final maturity of
August 7, 2020
.
The
Aircraft
Note is secured by a first priority perfected security interest in the purchased aircraft.
Credit Facili
ty
Revolving Credit Facility
In December
2016, in connection with the issuance of the
Convertible
Notes,
the Company
entered into
an amended and restated
$100,000
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
July 29, 2021
.
Applicable interest rates for the borrowings under the Revolving Credit Facility are based on the Company's current consolidated leverage ratio. As of
September 30, 2018
, the LIBOR-based rate plus
margin was
3.84
%
.
The
Company is required to pay a commitment fee calculated at a rate
per annum
of
0.30
%
on the
average daily unused portion of the Revolving Credit Facility. Under the terms of the Revolving Credit Facility, the Company is subject to certain financial covenants and restrictions, including restrictions on our ability to pay dividends and limitations with respect to our indebtedness, liens, mergers and acquisitions, dispositions of assets, investments, capital expenditures and transactions with affiliates.
As of
September 30, 2018
, the
Company was in compliance with the Revolving Credit Facility and had available debt capacity under the terms of the Revolving Credit Facility of $100,000. As of
September
30, 2018
and
December 31, 2017
, there were
no
amounts outstanding under the Revolving Credit Facility.
1
5
. Concentration of Credit Risk
We continually monitor our position with, and the credit quality of, the financial institutions that are counterparties
to our financial instruments.
Our accounts receivable relate principally to a limited number of distributors, including our
WWE
Network, television, pay-per-view, and home video distributors, and licensees
.
We closely monitor the status of receivables with these customers and maintain
allowances for anticipated
losses as deemed appropriate.
At
September 30, 2018
, our largest receivabl
e balance from customers
was
29
%
of
o
ur gross
accounts receivable.
At
December 31, 2017
,
our largest receivable balance from customers
was
1
6
%
of our gross accounts receivable. No other customers individually exceeded 10% of our gross accounts receivable balance
.
1
6
. Income Taxes
As of
September 30, 2018
, we had
$18,803
of
deferred
tax assets, net,
included in
non-
current
income tax
assets in our Consolidated Balance Sheets. As of
December 31, 2017
, we
had
$
18,984
of deferred tax assets, net, included in
N
on-current income tax assets in our Consolidated
Balance Sheets.
The Tax Act
, which
was enacted in December 2017
,
reduces the U.S. federal corporate income tax rate from
35%
to
21%
, effective as of January 1, 2018, and creates a territorial-style taxing system. The
Tax
Act also requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously deferred and creates new taxes on certain types of foreign earnings. We are subject to the provisions of FA
SB
ASC 740-10,
Income Taxes
, which requires that the effect on deferred tax assets and liabilities of a change in tax rates be recognized in the period the tax rate change was enacted. In December 2017, the SEC staff issued
Staff Accounting Bulletin (“SAB”)
118 which provides that companies that have not completed their accounting for the effects of the
Tax
Act but can determine a reasonable estimate of those effects should include a provisional amount based on their reasonable estimate in their financial statements. The guidance in SAB 118 also allows companies to adjust the provisional amounts during a one-year measurement period which is similar to the measurement period used when accounting for business combinations.
During the
three and nine months ended September 30, 2018 and 2017, we
recognized
$
20,688 and $1,599, and $20,734 and $1,603, respectively,
of excess tax benefits related to the Company’s share-based compensation awards at vesting.
Income tax effects of vested awards are included within the provision for income taxes on the Consolidated Statements of Operations.
Excluding this discrete tax item, our effective tax rate was 28% and 35% for the three and nine months ended September 30, 2018 and 2017, respectively.
The
tax benefit recorded
during the current year is driven by the increase in the Company’s stock price
between the original grant date of the awards and their subsequent vesting date in the third quart
er of 2018.
The corresponding offset of these tax benefits is included as a component of Prepaid expenses and other current assets within our Consolidated Balance Sheets.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
We applied the guidance in SAB 118 when accounting for the enactment-date effects of
the
Tax
Act
in 2017 and throughout 2018. At December 31, 2017, we had not completed our accounting for all of the enactment-date income tax effects of the Tax Act under ASC 740,
Income Taxes
, for the following aspects: remeasurement of deferred tax assets and liabilities, one-time transition tax, tax on GILTI and foreign-derived intangible income. At September 30, 2018, we recorded a measurement period
adjust
ment
to
tax expense of
$66
, consisting of expense of
$111
to remeasure the net deferred tax asset based on finalized temporary differences and a
tax benefit of
$45
to revise the one-time transition tax based on revised earnings and profits computations completed during the perio
d.
We continue to gather additional information related to the transition tax estimates and deferred tax estimates to more precisely compute the transition tax and remeasurement of deferred taxes. We anticipate additional I
nternal
R
evenue
S
ervice
guidance relative to the impacts of the Tax Act will be forthcoming throughout 2018.
The Company considers all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is required to reduce the net deferred tax assets to the amount that is more likely than not to
be realized in future periods.
The Company believes that based on past performance, expected future taxable income and prudent and feasible tax planning strategies, it is more likely than not that the net deferred tax asset
s
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.
1
7
. Film and Television Production Incentives
The Company has access to various governmental programs that are designed to promote film and television production within the United States of America and certain international jurisdictions. Incentives earned with respect to expenditures on qualifying film 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, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Television production incentives
|
|
$
|
11,702
|
|
$
|
10,645
|
|
$
|
11,702
|
|
$
|
10,645
|
Feature film production incentives
|
|
|
7
|
|
|
2,667
|
|
|
22
|
|
|
3,150
|
Total
|
|
$
|
11,709
|
|
$
|
13,312
|
|
$
|
11,724
|
|
$
|
13,795
|
1
8
. Commitments and Contingencies
Legal Proceeding
s
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 seeks 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
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
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 seeks 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 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 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. The Company does not know if the Laurinaitis Plaintiffs and Windham Defendants submitted the affidavits required under the Court’s September 29, 2017 order. 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
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
against the Windham defendants and dismiss the Laurinaitis plaintiffs’ complaint with prejudice and award sanctions against the Laurinaitis plaintiffs’ counsel because the amended pleadings fail 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 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 any appeal of these decisions vigorously.
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.
19.
Related Party Transactions
On April 3, 2018, the Company entered into transactions with Alpha Entertainment, LLC (“Alpha”), an entity controlled by Vincent K. McMahon, granting Alpha rights to launch a professional football league under the name “XFL”. Alpha has announced that it expects that this launch will occur in early 2020. Under these agreements, WWE received, among other things, an equity interest in Alpha without payment by or other financial obligation to WWE. The investment will be accounted for under the equity method of accounting. WWE’s equity interest in the net assets of Alpha at the transaction closing date on April 3, 2018 was insignificant.
After the date of investment, we recorded our proportionate share of Alpha’s reported net losses
which exceeded the carrying amount of the investment and
reduced the investment value to
zero
as of
June
30, 2018.
Subsequent losses reported after that date are not provided for. We will resume accounting for the investment under the equity method if Alpha subsequently reports net income and our share of that net income exceeds the share of net losses not recognized during the period the equity method of accounting was suspended.
In addition, WWE
entered into a support services agreement to provide Alpha with certain administrative support services with the costs of such services billed to Alpha on a cost-plus margin basis. Amounts billed to Alpha
under the support services agreement
for the three and
nine
months ended
September
30, 2018 were not
material
.