Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
1.
Basis of Presentation and Business Description
The accompanying consolidated financial statements include the accounts of WWE. “WWE” refers to World Wrestling Entertainment, Inc. and its subsidiaries, unless the context otherwise requires. References to “we,” “us,” “our” and the “Company” r
efer to WWE
.
We are an integrated media and entertainment company, principally engaged in the production and distribution of
wrestling entertainment
content through various channels
,
including our
premium over-the-top
subscription network
(“
WWE Network
”)
,
content
rights agreements, pay-per-view event programming,
filmed entertainment,
live events
,
licensing of various WWE themed products
,
and the sale of consumer products featuring our brands. Our operations are organized around the following principal activities:
Media
:
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·
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The Media segment reflects the production and monetization of long-form and short-form
media
content across various platforms, including WWE Network, pay television, digital and social media, as well as filmed entertainment. Across these platforms, revenues principally consist of content rights fees, subscriptions to WWE Network, and advertising and sponsorships.
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Live Events
:
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Live events provide ongoing content for our media platforms. Live Event segment revenues consist primarily of ticket sales, including primary and secondary distribution, revenues from events for which we receive a fixed fee, as well as the sale of travel packages associated with the Company’s global live events.
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Consumer Products
:
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·
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The Consumer Products segment engages in the merchandising of WWE branded products, such as video games, toys and apparel, through licensing arrangements and direct-to-consumer sales. Revenues principally consist of royalties and licensee fees related to WWE branded products, and sales of merchandise distributed at our live events and through eCommerce platforms.
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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
20
,
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,
Summary of
Significant Accounting Policies
, for further details
regarding the composition of these line items
.
Regarding the segment presentation and expense caption revisions noted above, information presented for the
years ended December 31, 2017 and 2016
included in the Consolidated Financial Statements herein and elsewhere in this
Annual
Report ha
ve
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.
In addition, certain reclassifications have been made to the Consolidated Statements of Cash Flows for the year ended December 31, 2016 to conf
o
rm the presentation reflected in the 2018 and 2017 periods related to our adoption of a new accounting standard on January 1, 2017 related to share-based payment award accounting simplifications. The reclassifications have no impact on previously reported net asset or net cash activities. See Note 2,
Significant Accounting Policies – Stock-based compensation
, for further detail
s.
2. Summary of Significant Accounting Policies
Use of Estimates
— 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, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
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WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
Basis of Consolidation
— The consolidated financial statements include the accounts of WWE and all of its domestic and foreign subsidiaries. Included in Corporate are intersegment eliminations recorded in consolidation. All intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
— Cash and cash equivalents include cash on deposit in overnight deposit accounts, investments in Treasury bills and investments in money market accounts with original maturities of three months or less at the time of purchase.
Short-term Investments, Net
—
O
ur short-term investments
consist of
available-for-sale debt securities. Such investments consist of U.S. Treasury securities, corporate and municipal bonds, including pre-refunded municipal bonds, and government agency bonds. These investments are stated at fair value, with unrealized gains and losses on such securities reflected, net of tax, as other comprehensive income (loss) in stockholders’ equity. Realized gains and losses on investments are included in earnings and are derived using the specific identification method for determining the cost of securities sold.
Accounts Receivable, Net
— Accounts receivable relate principally to amounts due to us from distributors of our WWE Network, pay-per-view providers and television networks for pay-per-view presentations and television programming, respectively, as well as from licensees that produce consumer products containing our intellectual property and/or trademarks. We estimate the collectability of our receivables and establish allowances for the amount of accounts receivable that we estimate to be uncollectible. We base these allowances on our historical collection experience, the length of time our accounts receivable are outstanding and the financial condition of individual customers. An individual balance is charged to the allowance when all collection efforts have been exhausted and it is deemed likely to be uncollectible, taking into consideration the financial condition of the customer and other factors.
Inventory
— Inventory consists of merchandise sold on our websites and on distribution platforms, including Amazon, and merchandise sold at live events. Substantially all of our inventory is comprised of finished goods. Inventory is stated at the lower of cost
or
net realizable value. The valuation of our inventories requires management to make market estimates assessing the quantities and the prices at which we believe the inventory can be sold.
Property and Equipment, Net
— Property and equipment are
carried
at historical cost net of benefits associated with tax incentives less accumulated depreciation and amortization. Depreciation and amortization is computed on a straight-line basis over the estimated useful lives of the assets or, when applicable, the life of the lease, whichever is shorter. Vehicles and equipment are depreciated based on estimated useful lives varying from three to five years. Buildings and related improvements are depreciated based on estimated useful lives varying from five to thirty-nine years. Our corporate aircraft is depreciated over ten years on a straight-line basis less an estimated residual value.
Feature Film Production Assets, Net
—
Feature film production assets are recorded at the cost of production, including production overhead and net of production incentives. The costs for an individual film 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. Unamortized feature film production assets are evaluated for impairment each reporting period. We review and revise estimates of ultimate revenue and participation costs at each reporting period to reflect the most current information available. If estimates for a film’s ultimate revenues and/or costs are revised and indicate a significant decline in a film’s profitability or if events or circumstances change that indicate we should assess whether the fair value of a film is less than its unamortized film costs, we calculate the film's estimated fair value using a discounted cash flows model. If fair value is less than the unamortized cost, the film is written down to fair value. Impairment charges are recorded as an increase in amortization expense included in Operating expenses in the Consolidated Statements of Operations.
Our estimate of ultimate revenues for feature films includes revenues from all sources for ten years from the date of a film’s initial release. We estimate the ultimate revenues based on industry and Company specific trends, the historical performance of similar films, the star power of the lead actors, and the genre of the film. Prior to the release of a feature film and throughout its life, we revise our estimates of revenues based on expected future results, actual results and other known factors affecting the various distribution markets.
Television Production Assets, Net
— 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. Costs to produce our live event programming are expensed when the event is first broadcast and are not included in the capitalized costs or in the related amortization.
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WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
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 expense the remaining unamortized asset.
Valuation of Long-Lived Assets
— We periodically evaluate the carrying amount of long-lived assets for impairment when events and circumstances warrant such a review.
Investment Securities
— Equity investments that are marketable and have a readily determinable fair value are carried at fair value with changes in the fair value recorded through income and reflected in Other income, net in the Consolidated Statements of Operations. For nonmarketable equity securities (those without a readily determinable fair value), the Company elected to apply the practicality exception to apply fair value measurement, under which such securities will be measured at cost, less impairment, plus or minus observable price changes for identical or similar securities of the same issuer with such changes recorded in Other income, net in the Consolidated Statements of Operations.
For equity investments where the Company does not control the investee, and where it is not the primary beneficiary of a variable interest entity, but can exert significant influence over the financial and operating policies of the investee, the Company applies the equity method of accounting. Under the equity method of accounting, the Company’s share of the investee’s underlying net income or loss is recorded as investment income or loss within Other income, net in the Consolidated Statements of Operations, and is also included, net of cash dividends received
,
in Equity in earnings of affiliate, net of dividends received, in the Consolidated Statements of Cash Flows. Dividend distributions received from the investee reduces the Company’s carrying value of the investee and the cost basis if deemed a return of capital.
Nonmarketable equity securities and equity method investments are also subject to periodic impairment evaluations, and when factors indicate that a significant decrease in value has occurred.
Factors
considered in making such assessments may include near-term prospects of the investees, subsequent rounds of financing activities of the investees, and the investees’ capital structure as well as other economic variables, which reflect assumptions market participants may use in pricing these assets. If an equity method investment is deemed to have experienced an other-than-temporary decline below its carrying amount, we reduce the carrying amount of the equity method investment to its quoted or estimated fair value, as applicable, and establish a new carrying amount for the investment. For nonmarketable equity securities that are accounted for under the measurement alternative to fair value, the Company applies the impairment model that does not require the Company to consider whether the impairment is other-than-temporary. We record these impairment charges on our equity investments in Other income, net in the Consolidated Statements of Operations.
Income Taxes
— Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been reflected in the consolidated financial statements. Amounts are determined based on the differences between the book and tax bases of particular assets and liabilities and operating loss carry forwards, using tax rates in effect for the years in which the differences are expected to reverse. A valuation allowance is provided to offset deferred tax assets if, based upon the available evidence, it is more-likely-than-not that some or all of the deferred tax assets will not be realized. In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes, conversely, if we determine we might not be able to realize our deferred tax assets we would record a valuation allowance which would result in a charge to the provision for income taxes.
We use a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate tax positions taken or expected to be taken in a tax return by assessing whether they are more likely than not sustainable, based solely on their technical merits, upon examination, and including resolution of any related appeals or litigation process. The second step is to measure the associated tax benefit of each position, as the largest amount that we believe is more likely than not realizable. Differences between the amount of tax benefits taken or expected to be taken in our income tax returns and the amount of tax benefits recognized in our financial statements represent our unrecognized income tax benefits, which we record as a liability. Our policy is to include interest and penalties related to unrecognized income tax benefits as a component of income tax expense.
Revenue Recognition
— The Company adopted new accounting
pronouncements
in 2018 related to revenue recognition. See the discussion in
Recent Accounting Pronouncements
below and Note 4,
Revenues
, for further details.
Under the new revenue recognition rules adopted in 2018, 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.
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WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
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
estimated
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
content rights
distribution agreement
s
are generally
between
one
and
five
years in length and frequently provides for contractual increases over its term.
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WWE Network Subscriptions:
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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.
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Pay-per-view programming:
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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.
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Advertising and sponsorships:
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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.
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Live event ticket sales:
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Revenues from our live event ticket sales are recognized upon the occurrence of the related live event.
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·
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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.
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WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
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·
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Direct-to-consumer venue merchandise sales:
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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.
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Direct-to-consumer eCommerce sales:
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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.
Operating Expenses
—
Operating expenses consist of our production costs associated with developing our content, costs associated with operating our WWE Network, venue rental and related costs associated with the staging of our live events, compensation costs for our talent, and material and related costs associated with our consumer product merchandise sales. Included within operating expenses is the amortization and impairment of feature film and television production assets. 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. We amortize feature film production assets based on the estimated future cash flows. 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. Unamortized feature film and television production assets are evaluated for impairment each reporting period. Operating expenses also includes the amortization of costs related to content delivery and technology assets utilized for our WWE Network. These costs are amortized on a straight-line basis over the shorter of the expected useful life or the term of the respective service agreement. Program amortization for WWE Network is included in operating expenses as a component of amortization of television production assets. For episodic programming debuting and currently expected to air exclusively on WWE Network, the cost of the programming is expensed upon initial release, as the vast majority of viewership occur
s
in close proximity to the initial release. In addition, operating expenses include certain business operating support function costs, including our talent development, data analytics, data engineering, business strategy and real estate and facilities functions, as these activities directly support the operations of our segments.
Included within Operating expenses are the following:
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Year Ended December 31,
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2018
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2017
|
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2016
|
Amortization and impairment of feature film assets
|
|
$
|
8,822
|
|
$
|
17,377
|
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$
|
6,662
|
Amortization of television production assets
|
|
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29,568
|
|
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21,137
|
|
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26,933
|
Amortization of WWE Network content delivery and technology assets
|
|
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6,696
|
|
|
5,970
|
|
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4,832
|
Total amortization and impairment included in operating expenses
|
|
$
|
45,086
|
|
$
|
44,484
|
|
$
|
38,427
|
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 advertising
and promotional
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 segment, as they do not directly relate to revenue generating activities.
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 and certain international jurisdictions. Tax credits earned with respect to expenditures on qualifying film, television and other production activities, including qualifying capital projects, are included as an offset to the related asset or as an offset to production expenses when we have reasonable assurance regarding the realizable amount of the tax credits.
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WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
Advertising Expense
— Advertising costs are expensed as incurred, except for costs related to the development of a major commercial or media campaign, which are expensed in the period in which the commercial or campaign is first presented. For the years ended December 31, 2018, 2017 and 2016, we recorded advertising expenses
of
$
21,563
,
$23,629
and
$22,122
, respectively.
Foreign Currency Translation
— For the translation of the financial statements of our foreign subsidiaries whose functional currencies are n
on-
U.S. Dollars, assets and liabilities are translated at the year-end exchange rate, and income statement accounts are translated at monthly average exchange rates for the year. The resulting translation adjustments are recorded in accumulated other comprehensive income, a component of stockholders’ equity and also in comprehensive income. Foreign currency transactions are recorded at the exchange rate prevailing at the transaction date, with any gains/losses recorded in other income/expense.
Stock-Based Compensation
— Equity awards are granted to directors, officers and employees of the Company. Stock-based compensation costs associated with our restricted stock units ("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. 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.
Stock-based compensation costs associated with our performance stock units ("PSUs") are initially determined using the fair market value of the Company's common stock on the date the awards are approved by our Compensation Committee (service inception date). The vesting of these PSUs are subject to certain performance conditions and a service requirement of typically three and one half years. Until such time as the performance conditions are met, stock compensation costs associated with these PSUs are re-measured each reporting period based upon the fair market value of the Company's common stock and the estimated performance attainment on the reporting date. The ultimate number of PSUs that are issued to an employee is the result of the actual performance of the Company at the end of the performance period compared to the performance conditions. Stock compensation costs for our PSUs are recognized over the requisite service period using the graded vesting method, net of estimated forfeitures. 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.
In 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 WWE stock relative to the total shareholder return performance of a peer group over specified performance periods.
The fair value of these market-based awards are estimated on the date of grant using the Monte Carlo simulation valuation model. The Compensation costs associated with these types of awards are recognized over the requisite service period using the graded vesting method.
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.
Beginning in 2017, we adopted new accounting rules related to simplifying the accounting for our share-based compensation awards. The new rules require entities to record all excess tax benefits or deficiencies as income tax benefit or expense in the income statement, rather than as a component of additional paid-in capital, and requires entities to classify excess tax benefits as an operating activity in the statement of cash flows. These changes were adopted by the Company on a prospective basis starting in 2017 as allowed under the transition rules of the new guidance. Prior to the rule change, for fiscal year 2016, $893 of excess tax benefits remain classified in financing activities. The new rules also require that the amounts paid to satisfy the statutory income tax withholding obligation upon the vesting of a share-based payment award, which prior to adoption was classified in operating activities on the cash flow statement, are now classified as a financing activity in the Consolidated Statements of Cash Flows. The Company adopted this change retrospectively as allowed under the transition rules of the new guidance. As a result of the retrospective adoption of this change, cash outflows of
$5,544
were reclassified in the accompanying Consolidated Statements of Cash Flows from “Changes in accounts payable, accrued expenses and other liabilities” to “Taxes paid related to net settlement upon vesting of equity awards” for 2016.
Earnings Per Share (EPS)
— Basic EPS is calculated by dividing net income by the weighted average common shares outstanding during the period. Diluted EPS is calculated by dividing net income by the weighted average common shares outstanding during the period, plus dilutive potential common shares which is calculated using the treasury-stock method. Under the treasury-stock method, potential common shares are excluded from the computation of EPS in periods in which they have an anti-dilutive effect.
Net income per share of Class A and Class B common stock is computed in accordance with a two-class method of earnings allocation. As such, any undistributed earnings for each period are allocated to each class of common stock based on the proportionate
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WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
share of cash dividends that each class is entitled to receive.
D
uring 2018, 2017 and 2016, the dividends declared and paid per share of Class A and Class B common stock were the same.
Recent Accounting Pronouncements
In November 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-18, “
Collaborative Arrangements (Topic 808) – Clarifying the Interaction between Topic 808 and Topic 606
.” The amendments in this ASU clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606,
Revenue from Contracts with Customers
, when the collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue consideration received from a collaborative arrangement participant if the participant is not a customer. The new guidance is effective for interim and annual reporting periods starting in fiscal year 2020 for the Company, with early adoption permitted. The new guidance should be applied retrospectively to the date of initial application of the new revenue guidance in Topic 606 (January 1, 2018 for the Company). The Company is in the process of evaluating the impact, if any, of this new guidance on its consolidated financial statements and disclosures.
In August 2018, the FASB issued ASU No. 2018-15, “
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
.” The new guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The new guidance is effective for interim and annual reporting periods starting in fiscal year 2020 for the Company, with early adoption permitted. The new guidance should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company expects to adopt the new guidance prospectively and does not expect the adoption to have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, “
Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
”, which modifies the disclosure requirements on fair value measurements. The new guidance is effective for interim and annual reporting periods starting in fiscal year 2020 for the Company. Upon the effective date, certain provisions are to be applied prospectively, while others are to be applied retrospectively to all periods presented. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective date. We are currently evaluating the impact of the amendments on our consolidated financial statement disclosures. Since the amendments impact only disclosure requirements, we do not expect the amendments to have an impact on our consolidated financial statements.
In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, “
Disclosure Update and Simplification
,” amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders’ equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. This final rule became effective on November 5, 2018 and the Company anticipates its first presentation of changes in stockholders’ equity will be included in its Form 10-Q for the quarter ended March 31, 2019. We are in the process of evaluating the impact of the final rule, but do not anticipate a material impact on our consolidated financial statements.
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WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
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,
Equity – Equity-Based payments to Non-Employees
. The new guidance is effective for interim and annual reporting periods starting in fiscal year 2019 for the Company, 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 applied 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 interim and annual reporting periods starting in fiscal year 2019 for the Company. 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 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 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 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.
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 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. In July 2018, the FASB approved amendments to the standard that provides companies a transition option that would not require earlier comparative periods to be restated upon adoption (fiscal year 2018 and 2017 for the Company). In December 2018, the FASB issued additional clarifying amendments aimed at addressing certain matters specific to lessors. The new leasing standard along with its subsequent amendments are effective for the Company for interim and annual reporting periods starting in fiscal year 2019. The Company will adopt the new leasing rules on January 1, 2019 and apply the rules prospectively as of the adoption date. Although we do not expect a material impact to our
consolidated financial statements
, we currently expect a gross-up of our Consolidated Balance Sheet on the adoption date as we recognize right of use assets and lease liabilities related to our qualifying leases. The extent of such gross-up is being finalized as we are nearing the final stages of completing our lease portfolio review (we are primarily a lessee) which include our real estate leases and certain multi-year service contracts, which may contain embedded leases of equipment. Based on our preliminary findings, upon adoption of the new standard on January 1, 2019, we currently expect to recognize aggregate lease liabilities
ranging from $
4
0,000 to $
5
0,000, with
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
corresponding right of use assets of the same amount based on the present value of the remaining leases payments under current leasing standards for our existing leases. The new standard also provides practical expedients for an entity’s ongoing accounting. We currently expect to elect the short-term lease recognition exemption for qualifying leases. This means, for those leases that qualify as short-term leases, we will not recognize right of use assets or lease liabilities. We also currently expect to elect the practical expedient to not separate lease and non-lease components by class of underlying assets.
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 FASB also issued subsequent clarifying amendments during the first quarter of 2018. The Company’s investment portfolio consists of available-for-sale debt securities that are classified in Short-term investments, net on the Consolidated Balance Sheets. In addition, the Company also has Investment securities on our Consolidated Balance Sheets comprised of both nonmarketable and marketable equity securities and equity investments accounted for under the equity method of accounting. 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 are required to record unrealized holding gains and losses on marketable equity securities through income (previous rules allowed this to be recorded through other comprehensive income). However, any unrealized holding gains and losses related to available-for-sale debt securities will continue to be recorded through accumulated other comprehensive income. The new guidance also no longer allows the use of the cost method of accounting for nonmarketable equity securities without readily determinable fair values. However, for these nonmarketable equity investments, 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, along with the clarifying amendments, were 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. See Note 5,
Investment Securities and Short-Term Investments
, for further information on our equity investments.
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 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,
Revenues
, for further details.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
3. Earnings
Per Share
For purposes of calculating basic and diluted earnings per share, we used the following weighted average common shares outstanding (in thousands):
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|
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|
|
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|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Net income
|
|
$
|
99,588
|
|
$
|
32,640
|
|
$
|
33,841
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic common shares outstanding
|
|
|
77,536
|
|
|
76,743
|
|
|
76,149
|
Dilutive effect of restricted and performance stock units
|
|
|
1,877
|
|
|
1,721
|
|
|
1,385
|
Dilutive effect of convertible debt instruments
|
|
|
9,206
|
|
|
—
|
|
|
—
|
Dilutive effect of employee share purchase plan
|
|
|
—
|
|
|
7
|
|
|
5
|
Weighted average dilutive common shares outstanding
|
|
|
88,619
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|
|
78,471
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|
|
77,539
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|
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|
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|
|
|
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|
|
Earnings per share:
|
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|
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|
Basic
|
|
$
|
1.28
|
|
$
|
0.43
|
|
$
|
0.44
|
Diluted
|
|
$
|
1.12
|
|
$
|
0.42
|
|
$
|
0.44
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|
|
|
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|
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|
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|
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Anti-dilutive shares (excluded from per-share calculations):
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|
|
|
|
|
|
|
Net shares received on purchased call of convertible debt hedge
|
|
|
5,098
|
|
|
—
|
|
|
—
|
Outstanding restricted and performance stock units
|
|
|
3
|
|
|
—
|
|
|
—
|
Effect of Convertible Notes and Related Convertible Note Hedge and Warrants
I
n connection with the issuance of the Convertible Notes, the Company entered into Convertible Note Hedge and Warrant transactions as described further in Note 1
1
,
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 year ended December 31, 2018 includes
the effect of additional shares
of common stock issued using the treasury stock method since the average price of our common stock exceeded the conversion price of the Convertible Notes of $24.91 per share.
In addition,
the denominator of our diluted earnings per share calculation for the year ended December 31, 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
ha
d
a
$
0.1
3
impact
on diluted earnings per share
for the year end
ed
December 31,
201
8. There was no impact on diluted earnings per share during the years ended December 31, 2017 and 2016
since the average price of our common stock did not exceed the conversion price of
$24.91
per share
during those 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.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
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
of adoption
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 2018, 2017 and 201
6
, total consumer product licensing and film distribution revenues represented
5.7%
,
8.8%
and
8.1%
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.
The impact to our Consolidated Statements of Operations for the year ended December 31, 2018 as a result of applying ASC Topic 606 was a decrease to our Net revenues, Operating expenses and Operating
income of
$2,971
,
$1,360
and
$1,611
, respectively
. The impact to our Consolidated
Balance Sheet as of December 31, 2018 as a result of applying ASC Topic 606 was a decrease to our accumulated deficit and total liabilities of
$8,853
and
$1,213
, respectively, and an increase to total assets of
$7,640
.
See Note 2,
Summary of Significant Accounting Policies – Revenue Recognition
for information on our revenue recognition accounting policies.
Payment Terms
and Other
Our revenues do not include material amounts of variable consideration, other than the sale or usage-based royalties earned related to our consumer product licensing and certain other content rights contracts. Our payment terms vary by the type of products or services offered, and may be subject to contractual payment terms, which may include advance payment requirements. The time between invoicing and when payment is due is not significant, generally within
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)
Disaggregated Revenues
The following table presents our revenues disaggregated by primary revenue sources. Sales and usage-based taxes are excluded from revenues.
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|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
Media Segment
:
|
|
|
|
|
|
|
|
|
|
Network (including pay-per-view)
|
|
$
|
199,318
|
|
$
|
190,627
|
|
$
|
175,819
|
Core content rights fees (1)
|
|
|
269,793
|
|
|
244,247
|
|
|
217,226
|
Advertising and sponsorships
|
|
|
69,529
|
|
|
51,838
|
|
|
39,630
|
Other (2)
|
|
|
144,711
|
|
|
48,858
|
|
|
44,252
|
Total Media Segment net revenues
|
|
|
683,351
|
|
|
535,570
|
|
|
476,927
|
Live Events Segment
:
|
|
|
|
|
|
|
|
|
|
North American ticket sales
|
|
|
105,386
|
|
|
111,986
|
|
|
103,067
|
International ticket sales
|
|
|
22,347
|
|
|
31,731
|
|
|
32,861
|
Advertising and sponsorships
|
|
|
2,124
|
|
|
1,965
|
|
|
2,267
|
Other (3)
|
|
|
14,346
|
|
|
6,023
|
|
|
6,163
|
Total Live Events Segment net revenues
|
|
|
144,203
|
|
|
151,705
|
|
|
144,358
|
Consumer Products Segment
:
|
|
|
|
|
|
|
|
|
|
Consumer product licensing
|
|
|
45,970
|
|
|
52,127
|
|
|
49,126
|
eCommerce
|
|
|
34,942
|
|
|
37,815
|
|
|
34,607
|
Venue merchandise
|
|
|
21,694
|
|
|
23,742
|
|
|
24,198
|
Total Consumer Products Segment net revenues
|
|
|
102,606
|
|
|
113,684
|
|
|
107,931
|
Total net revenues
|
|
$
|
930,160
|
|
$
|
800,959
|
|
$
|
729,216
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Core content rights fees consist primarily of licensing revenues earned from the distribution of our flagship programs,
Raw
and
SmackDown
Live
, through global broadcast, pay television and digital platforms.
|
|
(2)
|
|
Other revenues within our Media segment reflect revenues earned from the distribution of other
WWE
content, including, but not limited to,
certain live in-ring programming in international markets,
scripted, reality and other programming, as well as theatrical and direct-to-home video releases.
|
|
(3)
|
|
Other rev
en
ues within our Live Events segment primarily consists of the sale of travel packages associated with the Company’s global live events and commissions earned through secondary ticketing
,
as well as revenues from
events for which
the Company
receives a fixed fee
.
|
Except for our WWE Network subscriptions revenues, which are recorded over time during the subscription term and our consumer product licensing revenues which are recorded over time during the licensing period, our other revenue streams identified in the table above are generally recognized at a point-in-time when the performance obligations are satisfied.
Remaining Performance Obligations
As of December 31, 2018, for contracts greater than one year, the aggregate amount of the transaction price allocated to remaining performance
obligations is
$3,353,354
, comprised
of our multi-year content distribution, consumer product licensing and sponsorship contracts. We will recognize rights fees related to our multi-year content distribution contracts as content is delivered to the distributors during the periods 2019 through 2028. We will recognize the revenues associated with the minimum guarantees on our multi-year consumer product licensing arrangements by the end of the licensing periods, which range from 2019 through 2024. For our multi-year sponsorship arrangements, we will recognize sponsorship revenues as the sponsorship obligations are satisfied during the periods 2019 through 202
8
. 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.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
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 December 31, 2018 and December 31, 2017 was
$
49,487
and
$69,795
, respectively
, and are included within Deferred income and Other non-current liabilities
on our Consolidated Balance Sheets
.
The net decrease in the deferred revenue balance for the year ended December 31, 20
18 of
$
20,308
is primarily driven by revenue recognized in 2018 as a result of satisfying our performance obligations.
Contract Costs (Costs of Obtaining a Contract)
Except for certain multi-year television content arrangements, we generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within Mark
et
ing and selling expenses within our Consolidated Statements of Operations.
Capitalized commission fees of
$1,886
and
$2,242
at December 31, 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
M
arketing and selling expense
s
. The amount of amortization was
$1,356
,
$1,281
and
$1,281
for the years ended December 31, 2018, 2017 and 2016, respectively, and there was
no
impairment in relation to the costs capitalized.
5
. Investment Securities and Short-Term Investments
Investment Securities
Included within Investment Securities are the following:
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|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2018
|
|
2017
|
Equity method investments
|
|
$
|
14,508
|
|
$
|
14,664
|
Nonmarketable equity investments without readily determinable fair value
|
|
|
10,840
|
|
|
12,703
|
Marketable equity investments with readily determinable fair values
|
|
|
4,848
|
|
|
—
|
Total investment securities
|
|
$
|
30,196
|
|
$
|
27,367
|
Equity Method Investments
Our equity method investments relate primarily to our investment in Tapout. In March 2015, WWE and ABG formed a joint venture to re-launch an apparel and lifestyle brand, Tapout. ABG agreed to contribute certain intangible assets for the Tapout brand, licensing contracts, systems, and other administrative functions to Tapout. The Company agreed to contribute promotional and marketing services related to the venture for a period of at least
five
years in exchange for a
50%
interest in the profits 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 years ended December 31, 2018, 2017 and 2016.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
The following table presents the net equity method earnings from Tapout and net dividends received from Tapout for the periods presented:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Net equity method earnings from Tapout
|
|
$
|
1,118
|
|
$
|
1,141
|
|
$
|
1,619
|
Net dividends received from Tapout
|
|
|
(1,274)
|
|
|
(1,084)
|
|
|
(1,190)
|
Equity in earnings of affiliate, net of dividends received
|
|
$
|
(156)
|
|
$
|
57
|
|
$
|
429
|
As promotional services are provided to Tapout, we record revenue and reduce the existing service obligation. During the year
s
ended
December 31, 2018, 2017 and 2016,
we recorded
revenues of
$2,767
,
$2,720
and
$2,893
, respectively, related to our fulfillment of our promotional services obligation to Tapout. The remaining service obligation as of December 31, 2018 was
$2,990
, and was included in Deferred Income and Other Non-Current Liabilities for
$2,760
and
$230
, respectively.
Our known maximum exposure to loss approximates the remaining service obligation to Tapout, which was
$2,990
as of December 31, 2018. Creditors of Tapout do not have recourse against the general credit of the Company.
Nonmarketable Equity Investments Without Readily Determinable Fair Values
Beginning in 2018, the Company prospectively adopted a new accounting standard on the accounting for equity investments. See Note 2,
Significant Accounting Policies – Recent Accounting
Pronouncements
, for further details. Under the new standard, for nonmarketable equity securities without readily determinable fair values, the Company has elected to use the measurement alternative to fair value that
will allow these investments to be recorded at cost, less impairment, and adjusted for subsequent observable price changes.
We evaluate our nonmarketable equity investments for impairment if factors indicate that a significant decrease in value has occurred.
During the year ended December 31, 2018, we made an additional investment of
$998
in an e-sports company, a
$220
investment in a venture fund that invests in early stage companies and
$112
of an additional investment in a subscription-based sports media company. During the year ended December 31,
2017, we invested
$2,000
in a competitive e-sports company and
$100
in a drone racing sports company. In 2017, we also made an additi
onal investment of
$200
in a virtual reality platform operator.
The following table summarizes the impairments and observable price change event adjustments recorded on our
nonmarketable
equity investments for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Impairments (1)
|
|
$
|
(3,773)
|
|
$
|
—
|
|
$
|
—
|
Observable price change upward adjustments (2)
|
|
|
2,181
|
|
|
—
|
|
|
—
|
Observable price change downward adjustments
|
|
|
—
|
|
|
—
|
|
|
—
|
Total income (loss) from adjustments to nonmarketable equity investments
|
|
$
|
(1,592)
|
|
$
|
—
|
|
$
|
—
|
|
(1)
|
|
During the year ended December 31, 2018, the Company recorded an impairment charge of $3,773 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 year ended December 31, 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.
|
Marketable Equity Investments With a Readily Determinable Fair Values
As of December 31, 2018, our investment portfolio includes one investment in a marketable equity security of a publicly traded company. During the year ended December 31, 2018, one of our nonmarketable equity investments, Phunware Inc. (“Phunware”), a software application developer, completed a reverse merger in December 2018 and the investee company became a publicly traded company with its common stock traded on the NASDAQ under the symbol PHUN. On the reverse merger closing date, WWE received common stock of Phunware in exchange for the preferred shares WWE owned in the investee. The Company now accounts for the
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
equity investment in the common stock of Phunware as a marketable equity investment with readily determinable fair values based on quoted prices on the NASDAQ. The Company continues to hold this investment as of December 31, 2018 and pursuant to the new accounting rules applicable to marketable equity securities, the Company recorded an unrealized holding gain of $2,474 based on the closing stock price of the investee company as of the last trading day of December 31, 2018. The unrealized holding gain was recorded in Other income, net in the Consolidated Statements of Operations for the year ended December 31, 2018. Prior to the accounting rule change on marketable equity investments, unrealized holding gains and losses were recorded through other comprehensive income
, net of tax
. As the underlying stock price of Phunware fluctuates, WWE is exposed to future earnings volatility to the extent WWE continues to hold this investment.
Short-Term Investments
Our s
hort-term investments
consist of available-for-sale debt securities which are
measured at fair value
and
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
|
|
Fair
|
|
Amortized
|
|
|
|
|
|
|
|
Fair
|
|
|
Cost
|
|
Gain
|
|
(Loss)
|
|
Value
|
|
Cost
|
|
Gain
|
|
(Loss)
|
|
Value
|
U.S. Treasury securities
|
|
$
|
62,847
|
|
$
|
4
|
|
$
|
(439)
|
|
$
|
62,412
|
|
$
|
73,169
|
|
$
|
—
|
|
$
|
(479)
|
|
$
|
72,690
|
Corporate bonds
|
|
|
100,543
|
|
|
—
|
|
|
(1,037)
|
|
|
99,506
|
|
|
58,003
|
|
|
—
|
|
|
(329)
|
|
|
57,674
|
Municipal bonds
|
|
|
7,900
|
|
|
—
|
|
|
(41)
|
|
|
7,859
|
|
|
17,538
|
|
|
7
|
|
|
(99)
|
|
|
17,446
|
Government agency bonds
|
|
|
22,066
|
|
|
—
|
|
|
(157)
|
|
|
21,909
|
|
|
12,007
|
|
|
—
|
|
|
(73)
|
|
|
11,934
|
Total
|
|
$
|
193,356
|
|
$
|
4
|
|
$
|
(1,674)
|
|
$
|
191,686
|
|
$
|
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
.
Our
U.S. Treasury securities, corporate bonds,
municipa
l
bonds
and government agency bonds
are included in Short-term investments, net on our Consolidated Balance Sheets. Realized gains and losses on investments are included in earnings and are derived using the specific identification method for determining the cost of securities sold.
As of
December 31, 2018
, contractual maturities of these
securities
are as follows:
|
|
|
|
|
|
|
|
Maturities
|
U.S. Treasury securities
|
|
1
month -
2
years
|
Corporate bonds
|
|
3
months -
4
years
|
Municipal bonds
|
|
5
months -
1
year
|
Government agency bonds
|
|
1
month -
3
years
|
During the years ended December 31, 2018, 2017 and 2016, we
recognized
$4,508
,
$2,007
and
$714
, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Proceeds from maturities and calls of short-term investments
|
|
$
|
61,428
|
|
$
|
35,660
|
|
$
|
8,065
|
Purchases of short-term investments
|
|
$
|
94,910
|
|
$
|
142,373
|
|
$
|
—
|
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
6
. Fair Value Measurement
Fair value is determined based on the exchange price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Fair value is a market-based measure
ment 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 consi
deration of non-performance risk,
including the Company’s own credit risk.
Additionally, the accounting guidance establishes a three-level hierarchy that ranks the quality and reliability of information used in developing fair value estimates. The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. In cases where two or more levels of inputs are used to determine fair value, a financial instrument's level is determined based on the lowest level input that is considered significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are summarized as follows:
|
|
Level 1-
|
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-
|
U
nobservable inputs, such as discounted cash flow models or valuations
, in which little or no market data exists.
|
Certain financial instruments are carried at cost on the Consolidated Balance Sheets, which approximates fair value due to their short-term, highly liquid nature. The carrying amounts of cash and cash equivalents, money market accounts, accounts receivable and accounts payable approximate fair value because of the short-term nature of such instruments.
We have classified our investments in
U.S. Treasury securities, corporate bonds,
munic
ipal
bonds
and government agency bonds
, which collectively are investments in available-for-sale securities,
within Level 2
,
as their valuation requires quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and/or model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data. The
U.S. Treasury securities, corporate bonds, municipal
bonds
and government agency bonds
are valued based on model-driven valuations.
A third
-
party service provider assists the Company with compiling market prices from a variety of industry standard data sources, security master files from large financial institutions and other third-party sources that are used to value our
U.S. Treasury securities, corporate bonds,
municipal
bonds
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 values
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 would 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.
See
Note 2,
Summary of 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.
See
Note 5,
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 indicators of impairment exist. These assets are recorded at fair value only when 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, the Company did not record any other impairment charges on long lived property and equipment and television production assets during the years ended December 31, 2018, 2017 and 2016.
The Company classifies these assets as Level 3 within the fair value hierarchy due to significant unobservable inputs.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
During the years ended
December 31, 2018
,
2017
and
2016
, the Company recorded
impairment charges
of
$4,865
,
$5,472
and
$823
on feature film production assets based upon fair value
measurements of
$3,635
,
$4,347
, and
$1,354
, respectively. See Note
8
,
Feature Film Production Assets
, for further discussion. The Company classifies these fair values 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 vid
eo 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
December 31, 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
December 31, 2018 and 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
|
Fair Value
|
|
Carrying Value (1)
|
|
Fair Value
|
|
Carrying Value (1)
|
Convertible senior notes
|
|
$
|
189,323
|
|
$
|
187,371
|
|
$
|
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.
|
7
. Property and Equipment
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2018
|
|
2017
|
Land, buildings and improvements
|
|
$
|
141,070
|
|
$
|
134,052
|
Equipment
|
|
|
129,367
|
|
|
98,245
|
Corporate aircraft
|
|
|
32,249
|
|
|
31,277
|
Vehicles
|
|
|
942
|
|
|
905
|
|
|
|
303,628
|
|
|
264,479
|
Less accumulated depreciation and amortization
|
|
|
(155,539)
|
|
|
(133,154)
|
Total
|
|
$
|
148,089
|
|
$
|
131,325
|
Depreciation expense for property and equipment
totaled
$24,176
,
$24,680
and
$23,195
for
the years ended
December 31, 2018
,
2017
and
2016
, 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
year
ended
December 31
, 2018.
During the year ended December 31, 2017, the Company retired assets, primarily television production equipment, that were no longer in use and reduced property and equipment cost
by
$57,255
, with
a corresponding reduction to accumulated depreciation of
$56,896
.
In
September 2016
, the Company acquired, through WWE Real Estate Holdings, LLC a wholly-owned special purpose subsidiary (“WWE Real Estate”), a building and underlying real property located in Stamford, Connecticut (the “Purchased Property”). In connection with the acquisition, WWE Real Estate assumed the seller’s interests as landlord under several existing leases of the Purchased Property, including the landlord’s interest in leases under which the Company is a tenant. Since the assets of WWE Real
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
Estate represent collateral for the underlying mortgage, these assets are not available to satisfy debts and obligations to any other creditors of the Company. As of
December 31, 2018 and 2017
,
costs
of
$
2
4,398
and
$2
4,
3
13
, respectively
, are reflected in Land, buildings and improvements, which is a component of Property and equipment,
net
on the Consolidated Balance Sheet. Depreciation on the Purchased Property is computed on a straight-line basis over the estimated useful lives of the Purchased Property in accordance with the Company’s existing accounting policy for property and equipment.
8
. Feature Film Production Assets, Net
Feature film production assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2018
|
|
2017
|
In release
|
|
$
|
12,430
|
|
$
|
15,869
|
Completed but not released
|
|
|
—
|
|
|
2,211
|
In production
|
|
|
707
|
|
|
3,107
|
In development
|
|
|
421
|
|
|
1,113
|
Total
|
|
$
|
13,558
|
|
$
|
22,300
|
Approximately
30
%
of “In release” film production assets are estimated to be amortized over the next 12 months and approximately
6
5
%
of “In release” film production assets are estimated to be amortized over the next three years. We anticipate amortizing
80%
of our
"In release" film production assets within
f
ive
years as we receive revenues associated with television distribution of our licensed films. During the years ended
December 31, 2018
,
2017
and
2016
, we
amortized
$3,106
,
$11,748
and
$5,720
, respectively, of feature film production assets.
During these periods, our films were released under a co-distribution model. Under the co-distribution model, t
hird-party
distribution partners
control the distribution and marketing of co-distributed films, and as a result, we
recognize
our share of
revenue after the third-party
distribution partners
recoup distribution fees and expenses and results are reported to
us. Results are typically reported to us in periods subsequent to the initial release of the film.
In certain arrangements, where worldwide film rights and interests are sold to third-party distribution partners, we recognize revenue upon delivery of the completed film to the third-party.
During the year ended December 31, 2018, we rel
eased
one
film via theatrical distribution,
Blood Brother
, and
one
film direct to DVD,
The Marine 6: Close Quarters
. These
two
films
comprised
$1,998
of
our “In release” feature film assets as of December 31, 2018.
During the year ended December 31, 2017, w
e released
four
feature
films
via theatrical distribution,
The Resurrection of Gavin Stone
,
Sleight
,
Armed Response
and
Birth of the Dragon
, and
five
films direct to DVD,
Surf’s Up 2: WaveMania
,
The Jetsons & WWE: Robo-Wres
tleMania!
,
The Marine 5: Battleground, Pure Country: Pure Heart
and
Killing Hasselhoff
. These
nine
films comprised
$7,458
of our
“In release” feature film assets as of December 31, 2017.
We currently
have
one theatrical film designated as “Completed b
ut
not released” and have
one
film
designated as
"In
production
."
We
also have
capitalized certain script development costs for various other film projects designated as “In development
.
” Capitalized script development costs are evaluated at each reporting period for impairment and to determine if a project is deemed to be abandoned. Du
rin
g the years ended December 31, 2018, 2017 and 2016
,
we expensed
$851
,
$157
and
$119
, resp
ectively,
related to previously capitalized development costs
related to
abandoned projects
.
Unamortized feature film production assets are evaluated for impairment each reporting period. We review and revise estimates of ultimate revenue and participation costs at each reporting period to reflect the most current information available. If estimates for a film’s ultimate revenue and/or costs are revised and indicate a significant decline in a film’s profitability or if events or circumstances change that indicate we should assess whether the fair value of a film is less than its unamortized fil
m costs, we calculate the film’s
estimated fair value using a discounted cash flows model. If fair value is less than unamortized cost, the film
asset
is written down to fair value.
We recorded
impairment
charges of
$4,865
,
$5,472
and
$823
related to our feature films during the years ended
December 31, 2018
,
2017
and
2016, respectively.
These impairment charges represent the excess of the recorded net carrying value over the estimated fair value.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
9
. Television Production Assets, Net
Television production assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2018
|
|
2017
|
In release
|
|
$
|
1,308
|
|
$
|
3,765
|
In production
|
|
|
6,165
|
|
|
3,527
|
Total
|
|
$
|
7,473
|
|
$
|
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.
Amortization of television production assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Television programming
|
|
$
|
22,312
|
|
$
|
17,399
|
|
$
|
15,860
|
WWE Network programming
|
|
|
7,256
|
|
|
3,738
|
|
|
11,073
|
Total
|
|
$
|
29,568
|
|
$
|
21,137
|
|
$
|
26,933
|
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 years ended
December 31, 2018
,
2017
and
2016
, we did
not
record any impairments related to our television production assets.
10
. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2018
|
|
2017
|
Trade related
|
|
$
|
12,198
|
|
$
|
12,727
|
Staff related
|
|
|
10,255
|
|
|
7,980
|
Management incentive compensation
|
|
|
37,103
|
|
|
21,556
|
Talent related
|
|
|
8,799
|
|
|
5,356
|
Accrued WWE Network related expenses
|
|
|
2,054
|
|
|
2,633
|
Accrued event and television production
|
|
|
13,881
|
|
|
7,929
|
Accrued legal and professional
|
|
|
4,906
|
|
|
5,182
|
Accrued purchases of property and equipment
|
|
|
13,464
|
|
|
2,334
|
Accrued film liability
|
|
|
2,774
|
|
|
1,993
|
Accrued other
|
|
|
14,724
|
|
|
10,048
|
Total
|
|
$
|
120,158
|
|
$
|
77,738
|
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
Accrued other includes accruals for our international and licensing business activities, as well as oth
er miscellaneous accruals, none
of which categories individually exceeds
5%
of current liabilities.
11. 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 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;
|
|
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 have the right to convert their notes at any time through at least March 31, 2019. As of December 31, 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 December 31, 2018, no actual conversions have occurred to date. See Note 3,
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,
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
we allocated the total amount of offering costs incurred to the debt and equity components based on their relative values.
Offering costs attributable to the debt component,
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 December 31,
|
|
|
2018
|
|
2017
|
Debt component
:
|
|
|
|
|
|
|
Principal
|
|
$
|
215,000
|
|
$
|
215,000
|
Less: Unamortized debt discount
|
|
|
(27,629)
|
|
|
(32,217)
|
Less: Unamortized debt issuance costs
|
|
|
(4,281)
|
|
|
(4,883)
|
Net carrying amount
|
|
$
|
183,090
|
|
$
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
3.375%
contractual coupon
|
|
$
|
7,256
|
|
$
|
7,232
|
|
$
|
262
|
Amortization of debt discount
|
|
|
4,588
|
|
|
4,290
|
|
|
151
|
Amortization of debt issuance costs
|
|
|
617
|
|
|
553
|
|
|
19
|
Interest expense
|
|
$
|
12,461
|
|
$
|
12,075
|
|
$
|
432
|
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
1
5
, 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 “Warrant
s
”),
to sell
warrants
to acquire approximately
8.03
million
shares of
our
Class A
common st
ock 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 represented 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 Warrant
s to the counterparties
.
The Warrants
transaction
s
ha
ve
been accounted for as part of additional paid-in capital.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
1
2
.
Long-Term Debt and Credit Facility
Long-Term Debt
I
ncluded within Long-Term Debt are the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
December 31,
|
|
December 31,
|
|
|
2018
|
|
2017
|
Current portion of long-term debt
:
|
|
|
|
|
|
|
Aircraft financing
|
|
$
|
4,740
|
|
$
|
4,638
|
Mortgage
|
|
|
378
|
|
|
—
|
Total current portion of long-term debt
|
|
|
5,118
|
|
|
4,638
|
|
|
|
|
|
|
|
Long-term debt
:
|
|
|
|
|
|
|
Aircraft financing
|
|
$
|
3,218
|
|
$
|
7,958
|
Mortgage
|
|
|
22,478
|
|
|
23,000
|
Total long-term debt
|
|
|
25,696
|
|
|
30,958
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,814
|
|
$
|
35,596
|
Mortgage
I
n September 2016, the Company acquired
real property and assumed future obligations
under a
l
oan
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 maintenance 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
would
not be available to satisfy debts and obligations due to any other creditors of the Company.
As of December 31, 2018, the scheduled principal repayments under our mortgage obligation for the subsequent five years and the remaining term of the mortgage are as follows:
|
|
|
|
|
|
|
|
December 31, 2019
|
|
$
|
378
|
December 31, 2020
|
|
|
395
|
December 31, 2021
|
|
|
413
|
December 31, 2022
|
|
|
432
|
December 31, 2023
|
|
|
452
|
Thereafter
|
|
|
20,786
|
|
|
$
|
22,856
|
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 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.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
As of
December 31, 2018
, the scheduled principal repayments under our
Aircraft
Note obligation for the subs
equent two years
are as follows:
|
|
|
|
|
|
|
|
December 31, 2019
|
|
$
|
4,740
|
December 31, 2020
|
|
|
3,218
|
|
|
$
|
7,958
|
The table above assumes that the
Aircraft
Note will not be prepaid prior to its maturity on August 7, 2020.
Credit Facility
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 da
te
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
December 31, 2018
, the LIBOR-based rate plus margin
was
4.31%
.
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
December 31, 2018
, the Company was in compliance with the
Revolving Credit Facility,
and ha
d
available debt capacity under the terms of the
R
evolving
C
redit
Facility of
$100,000
. As
of
December 31, 2018
and
2017
, there were
no
amounts outstanding under the
Revolving C
redit
F
acility.
13
. Income Taxes
F
or the years ended
December 31, 2018
,
2017
and
2016
, the effective tax rate on income from continuing operations was
6.1%
,
49.0%
and
36.4%
,
respectively.
The components of our tax provision are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Current taxes:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
81
|
|
$
|
7,785
|
|
$
|
(1,931)
|
State and local
|
|
|
235
|
|
|
1,313
|
|
|
1,210
|
Foreign
|
|
|
7,191
|
|
|
8,750
|
|
|
7,940
|
Deferred taxes:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,774)
|
|
|
13,177
|
|
|
11,582
|
State and local
|
|
|
737
|
|
|
396
|
|
|
560
|
Foreign
|
|
|
(21)
|
|
|
(1)
|
|
|
11
|
Total income tax expense
|
|
$
|
6,449
|
|
$
|
31,420
|
|
$
|
19,372
|
Within the current foreign tax provision
for the years ended December 31, 2018
,
2017
and
2016
is
$7,350
,
$8,453
and
$7,460
, respectively, of foreign withholding taxes paid
on income included within the US pre-tax book income b
elow.
The federal deferred tax provision for the year ended December 31, 2017 includes a charge of
$10,878
associated with the remeasurement of our deferred tax assets due to the revised corporate tax rate as a result of the Tax Act, as defined below.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
Components of
income before income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
United States
|
|
$
|
104,338
|
|
$
|
62,280
|
|
$
|
51,160
|
Foreign
|
|
|
1,699
|
|
|
1,780
|
|
|
2,053
|
Total income before income taxes
|
|
$
|
106,037
|
|
$
|
64,060
|
|
$
|
53,213
|
The following sets forth the d
ifference between the
provision
/(benefit)
for income taxes computed at the U.S. federal statutory income tax
rate of
21%
(for 2018) and
35%
(for
2017 and 2016)
and that reported for financial statement purposes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Statutory U.S. federal tax
|
|
$
|
22,268
|
|
$
|
22,421
|
|
$
|
18,625
|
State and local taxes, net of federal tax benefit
|
|
|
4,915
|
|
|
1,472
|
|
|
1,496
|
Foreign rate differential
|
|
|
(50)
|
|
|
(298)
|
|
|
(327)
|
Tax exempt interest income
|
|
|
(32)
|
|
|
(86)
|
|
|
(55)
|
Qualified production activity deduction
|
|
|
—
|
|
|
(1,750)
|
|
|
(942)
|
Nondeductible executive compensation
|
|
|
2,672
|
|
|
136
|
|
|
110
|
Unrecognized tax benefits
|
|
|
46
|
|
|
(146)
|
|
|
(248)
|
Meals and entertainment
|
|
|
233
|
|
|
317
|
|
|
308
|
Employee Stock Purchase Plan
|
|
|
248
|
|
|
44
|
|
|
3
|
Deferred tax asset remeasurement
|
|
|
(111)
|
|
|
10,878
|
|
|
—
|
Deemed repatriation transition tax
|
|
|
(19)
|
|
|
406
|
|
|
—
|
Foreign-derived intangible income (FDII)
|
|
|
(1,346)
|
|
|
—
|
|
|
—
|
Global intangible low-taxed income (GILTI)
|
|
|
122
|
|
|
—
|
|
|
—
|
Excess tax benefits related to the vesting of share-based compensation
|
|
|
(22,473)
|
|
|
(1,604)
|
|
|
—
|
Other
|
|
|
(24)
|
|
|
(370)
|
|
|
402
|
Provision for income taxes
|
|
$
|
6,449
|
|
$
|
31,420
|
|
$
|
19,372
|
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
The tax effects of temporary differences
and net operating losses
that give rise to significant portions of the deferred tax assets and deferred tax liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2018
|
|
2017
|
Deferred tax assets:
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
145
|
|
$
|
310
|
Inventory
|
|
|
1,329
|
|
|
1,696
|
Deferred income
|
|
|
1,932
|
|
|
8,670
|
Stock compensation
|
|
|
7,090
|
|
|
7,173
|
Net operating loss carryforward
|
|
|
1,103
|
|
|
1,195
|
Foreign tax credits
|
|
|
5,055
|
|
|
—
|
Investments
|
|
|
2,193
|
|
|
238
|
Intangible assets
|
|
|
1,619
|
|
|
1,673
|
Capitalized feature film production costs
|
|
|
1,418
|
|
|
1,316
|
Accrued liabilities and reserves
|
|
|
1,278
|
|
|
1,191
|
Federal benefit related to uncertain tax positions
|
|
|
108
|
|
|
103
|
Deferred tax assets, gross
|
|
|
23,270
|
|
|
23,565
|
Valuation allowance
|
|
|
(1,103)
|
|
|
(1,195)
|
Deferred tax assets, net
|
|
|
22,167
|
|
|
22,370
|
Deferred tax liabilities:
|
|
|
|
|
|
|
Property and equipment depreciation
|
|
|
(2,672)
|
|
|
(2,380)
|
Investments
|
|
|
(2,357)
|
|
|
(1,006)
|
Deferred tax liabilities
|
|
|
(5,029)
|
|
|
(3,386)
|
Total deferred tax assets, net
|
|
$
|
17,138
|
|
$
|
18,984
|
The temporary differences described above represent differences between the tax basis of assets or liabilities and amounts reported in the consolidated financial statements that will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled. The Company received tax deductions from the
vesting
of restricted stock units and performance stock
units of
$115,792
,
$21,457
and
$13,301
in
2018
,
2017
and
2016
, respectively.
As of
December 31, 2018 and 2017
, we had $
17,138
and
$
18,984
, respectively,
of deferred
tax assets, net, included
in our Consolidated Balance Sheet
s
.
The decrease in our deferred tax asset balance was driven by activity in prepaid royalties relating to
our
television contracts
, partially offset by an increase in foreign tax credit carryforwards
.
During the years ended December 31, 2018 and 2017, we recognized
$22,
47
3
and
$1,604
, respectively, of excess tax benefits related to the Company’s share-based compensation awards at vesting. Effective January 1, 2017, income tax effects of vested awards are included within the provision for income taxes on the Consolidated Statements of Operations.
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 2018.
Excluding this discrete tax item, our effective tax rate was
27%
and
52%
for the years ended December 31, 2018 and 2017, respectively.
The corresponding offset of these tax benefits is included as a component of Prepaid expenses and other current assets within our Consolidated Balance Sheets.
The Tax Cuts and Jobs Act (the “
Tax
Act”)
, which
was enacted
i
n December 2017
,
reduces the U.S. federal corporate tax rate from
35%
to
21%
,
effective as of January 1, 2018, and creates a territorial-style taxing system.
We are subject to the provision of 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
.
During the fourth quarter of 2017, the Company recorded a charge of
$10,878
associated with the remeasurement of its net deferred tax assets
due to the tax rate decreasing
from 35% to 21%, which reduced the future benefit the
C
ompany will realize associated with these assets.
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.
The Company recorded a charge of $406 in the fourth quarter of 2017 related to the one-time transition tax on mandatory repatriation of undistributed foreign earnings and profits per the Tax Act.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
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.
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 for the following aspects: remeasurement of deferred tax assets and liabilities, one-
time transition tax, tax on GILTI and foreign-derived intangible income. During the year ended December 31, 2018, we recorded a measurement period adjustment tax
benefit
of
$130
, consisting of
$111
to remeasure the net deferred tax asset based on finalized temporary differences and
$19
to revise the one-time transition tax based on revised earnings and profits computations completed during the period.
As of
December 31, 2018
and
2017
, we had
valuation
allowances of $
1,103
and
$
1,195
respectively, to reduce our deferred tax assets to an amount more likely than not to be recovered. This valuation allowance relates to foreign income taxes and the resulting net ope
rating losses in foreign jurisdictions where we have ceased operations.
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 assets will be realized. Changes in these factors may cause us to increase our valuation allowance on deferred tax assets, which would impact our income tax expense in the period we determine that these factors have changed.
We are subject to periodic audits of our various tax returns by government agencies which could result in possible tax liabilities. Although the outcome of these matters cannot currently be determined, we believe the outcome of these audits will not have a material effect on our financial statements.
Unrecognized Tax Benefits
For the year ended
December 31, 2018
, we
recognized
$108
of previously unrecognized tax benefits. This primarily relates to the statute of limitations expiring in certain state and local jurisdictions. Included in the amount
recognized was
$15
of potential interest and penalties related to uncertain tax positions. For the year ended December 31, 2017, we recognized
$189
of previously unrecognized tax benefits relating to the statute of limitations expiring in certain state and local jurisdictions. Included in the amount recognized was
$70
of potential interest and penalties related to uncertain tax positions. The recognition of these
amounts
contributed to our effective tax rate
of
6.1%
for the
year ended
December 31, 2018
as compared to
49.0%
for the year ended
December 31, 2017
.
At
December 31
, 2018, we had
$420
of unrecognized
tax benefits, which if recognized, would affect
our effective tax rate, which
is
classified in
Other n
on-c
urrent liabilities.
At
December 31, 2017
, we had
$389
of unrecognized tax benefits
, which is classified in Other non-current liabilities
.
Unrecognized tax benefit activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
Beginning Balance- January 1
|
|
$
|
389
|
|
$
|
487
|
Increase to unrecognized tax benefits recorded for positions taken during
the current year
|
|
|
64
|
|
|
56
|
Increase to unrecognized tax benefits recorded for positions
taken during a prior period
|
|
|
65
|
|
|
—
|
Decrease in unrecognized tax benefits relating to settlements with taxing
authorities
|
|
|
(7)
|
|
|
—
|
Decrease to unrecognized tax benefits resulting from a lapse of the
applicable statute of limitations
|
|
|
(91)
|
|
|
(154)
|
Ending Balance- December 31
|
|
$
|
420
|
|
$
|
389
|
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
We recognize potential
accrued interest and penalties related to uncertain tax positions in income tax expense. We have
$61
of accrued interest and
$31
of accrued
penalties related to uncertain tax positions as of
December 31, 2018
classified in
Other n
on-current liabilities. At
December 31, 2017
, we had
$84
of accrued interest and
$45
of accrued penalties rel
ated to uncertain tax positions
classified in
Other n
on-current liabilities.
Based upon the expiration of statutes of limitations and possible settlements in several jurisdictions, we believe it is reasonably possible that the total amount of previously unrecognized tax benefits may
decrease by
$142
within
12 months after
December 31, 2018
.
We file income tax returns in the United States and various state, local, and for
eign jurisdictions. During 2018 and 2017
, the Company
settled audits with various state and local jurisdictions. We are generally subject to examination by the IRS for years ending on or after December 31, 2015. We are also subject to examination by various state and local jurisdictions for years ending on or after December 31, 2015.
14
. 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 qualifying 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 years ended December 31, 2018, 2017 and 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Television production incentives
|
|
$
|
12,166
|
|
$
|
11,260
|
|
$
|
12,982
|
Feature film production incentives
|
|
$
|
—
|
|
$
|
3,683
|
|
$
|
1,347
|
1
5
. Commitments and Contingencies
We have certain commitments, including various non-cancelable operating leases for facilities and sales offices, service contracts with certain vendors and various talent
, and a service agreement obligation related to WWE Network
.
Future minimum payments as of
December 31, 2018
under the agreements described above were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
Service Contracts
|
|
Service
|
|
|
|
|
|
Lease
|
|
and Talent
|
|
Agreement
|
|
|
|
|
|
Commitments
|
|
Commitments
|
|
Commitments
|
|
Total
|
2019
|
|
$
|
5,917
|
|
$
|
35,509
|
|
$
|
5,875
|
|
$
|
47,301
|
2020
|
|
|
3,610
|
|
|
24,542
|
|
|
—
|
|
|
28,152
|
2021
|
|
|
2,614
|
|
|
8,314
|
|
|
—
|
|
|
10,928
|
2022
|
|
|
2,432
|
|
|
6,280
|
|
|
—
|
|
|
8,712
|
2023
|
|
|
2,134
|
|
|
640
|
|
|
—
|
|
|
2,774
|
Thereafter
|
|
|
6,292
|
|
|
439
|
|
|
—
|
|
|
6,731
|
Total
|
|
$
|
22,999
|
|
$
|
75,724
|
|
$
|
5,875
|
|
$
|
104,598
|
Rent expense under operating lease
commitments
totaled
$6,709
,
$6,240
and
$6,367
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
Legal Proceedings
On October 23, 2014, a lawsuit was filed in the U. S. District Court for the District of Oregon, entitled
William Albert Haynes III, on behalf of himself and others similarly situated, v. World Wrestling Entertainment, Inc.
This complaint was amended on January 30, 2015 and alleged that the Company ignored, downplayed, and/or failed to disclose the risks associated with traumatic brain injuries suffered by WWE’s performers and 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 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
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(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 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 plaintiffs have attempted to appeal these decisions. On November 16, 2018, the Company moved to dismiss all of the appeals, except for the appeal of the dismissal of the
Laurinaitis
case, for being filed untimely.
The
Company believes all claims and threatened claims against the Company in these various lawsuits were prompted by the same plaintiffs’ lawyer and that all are without merit. The Company intends to continue to defend itself against the attempt to appeal these decisions vigorously.
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.
16
. Related Party Transactions
Vincent K. McMahon, Chairman of the Board of Directors and Chief Executive Officer, controls a substantial majority of the voting power of the issued and outstanding shares of our common stock. Through the beneficial ownership of a substantial majority of our Class B common stock, Mr. McMahon can effectively exercise control over our affairs.
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
on the part of,
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
Alpha’s formation
, 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 after that date are not
required or
provided for
, after which we
will resume accounting for the investment under the equity method if Alpha subsequently
has
net income and our share of that net income exceeds the share of net losses
we did not
recognize 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 such services billed to Alpha on a cost-plus margin basis. During the year ended December 31, 2018, the Company billed Alpha
$1,
3
05
for services rendered under the support services agreement. As of December 31, 2018,
the Company had
$474
of
current
receivable
s
for
amounts billed to
Alpha
under the support services agreement.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
1
7
. Stockholders’ Equity
Class B Convertible Common Stock
Our Class B common stock is fully convertible into Class A common stock, on a
one
for one basis, at any time at the option of the holder. The two classes are entitled to equal per share dividends and distributions and vote together as a class with each share of Class B entitled to
ten
votes and each share of Class A entitled to
one
vote, except when separate class voting is required by applicable law. If, at any time, any shares of Class B common stock are beneficially owned by any person other than Vincent McMahon, Linda McMahon, any descendant of either of them, any entity which is wholly owned and is controlled by any combination of such persons or any trust, all the beneficiaries of which are any combination of such persons, each of those shares will automatically convert into shares of Class A common stock. During the years ended
December 31, 2018
,
2017
and
2016
, Class B shares were sold, resulting in their conversion to Class A shares. Through his beneficial ownership of a substantial
majority of our Class B common stock, our controlling stockholder, Vincent McMahon, can effectively exercise control over our affairs, and his interests could conflict with the holders of our Class A common stock.
Dividends
We declared and paid quarterly dividends of
$0.12
per share,
totaling
$37,243
,
$36,854
, and
$36,564
on all Class A and Class B shares for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
18
. Stock-based Compensation
Our 20
16
Omnibus Incentive Plan (the “20
16
Plan”)
provides for the grant of incentive or non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards and performance awards to eligible participants as determined by the Compensation Committee of the Board of Directors.
Awards may be granted
as incentives and rewards to encourage
officers, employees, consultants, advisors and independent contractors of the Company and its affiliates and to non-employee directors of the Company
to participate in our long-term success
.
As of
December 31, 2018
, there were
approximately
3.4
million
shares available
for future grants under the 2016
Plan. It is our policy to issue new shares to satisfy option exercises and the vesting of RSUs
,
PSUs
and PSU-TSRs
.
Restricted Stock Units
The Company grants RSUs to offic
ers 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 installm
ents. 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 tables summarize the RSU
activity
for the year ended
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
Weighted-
Average
Grant-Date
Fair Value
|
Unvested at January 1, 2018
|
|
477,792
|
|
$
|
18.33
|
Granted
|
|
185,570
|
|
$
|
37.03
|
Vested
|
|
(211,436)
|
|
$
|
17.54
|
Forfeited
|
|
(46,704)
|
|
$
|
24.93
|
Dividend equivalents
|
|
4,443
|
|
$
|
24.10
|
Unvested at December 31, 2018
|
|
409,665
|
|
$
|
26.52
|
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Stock-based compensation expense
|
|
$
|
4,680
|
|
$
|
3,519
|
|
$
|
2,407
|
Tax benefits realized
|
|
|
16,272
|
|
|
2,920
|
|
|
1,775
|
Weighted-average grant-date fair value of RSUs granted
|
|
|
6,872
|
|
|
6,054
|
|
|
3,825
|
Fair value of RSUs vested
|
|
|
3,709
|
|
|
2,490
|
|
|
1,580
|
As of
December 31, 2018
, total unrecognized stock-based compensation expense related to unvested RSUs net of estimated
forfeitures, was
$5,655
before income taxes, and is expected to be recognized over a weighted-average period of approximately
1.6
years.
Performance Stock Units
The Company grants P
SUs to offic
ers and employees under the 2016
Plan. Stock-based compensation costs associated with our PSUs are initially determined using the fair market value of the Company's common stock on the date the awards are approved by our Compensation Committee (service inception date). The vesting of these PSUs are subject to certain performance conditions and a service requirement of
typically three
and one
-
half years. Until the performance conditions are met, stock compensation costs associated with these PSUs are re-measured each reporting period based upon the fair market value of the Company's common stock and the
estimated performance
attainment on the reporting date. The ultimate number of PSUs that are issued to an employee is the result of the actual performance of the Company at the end of the performance period compared to the performance conditions
, and can range from
0%
to
200%
of the initial grant
. Stock compensation costs for our PSUs are recognized over the requisite service period using the graded vesting method, net o
f estimated forfeitures. We estimate forfeitures
based on historical trends when recognizing compensation expense and adjust the estimate of forfeitures when they are expected to differ or as forfeitures occur.
Unvested PSUs accrue dividend equivalents once the performance conditions are met at the same rate as are paid on our shares of Class A common stock. The dividend equivalents are subject to the same vesting schedule as the underlying PSUs.
The following tables summarize the PSU
activity
for the year ended
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
Weighted-
Average
Grant-Date
Fair Value
|
Unvested at January 1, 2018
|
|
2,053,931
|
|
$
|
21.37
|
Granted
|
|
369,996
|
|
$
|
74.69
|
Achievement adjustment
|
|
100,753
|
|
$
|
33.84
|
Vested
|
|
(1,244,447)
|
|
$
|
19.76
|
Forfeited
|
|
(177,199)
|
|
$
|
43.36
|
Dividend equivalents
|
|
13,051
|
|
$
|
23.33
|
Unvested at December 31, 2018
|
|
1,116,085
|
|
$
|
39.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Stock-based compensation expense
|
|
$
|
29,608
|
|
$
|
20,356
|
|
$
|
15,361
|
Tax benefits realized
|
|
|
99,520
|
|
|
18,538
|
|
|
11,525
|
Weighted-average grant-date fair value of PSUs granted
|
|
|
27,635
|
|
|
16,833
|
|
|
17,604
|
Fair value of PSUs vested
|
|
|
24,591
|
|
|
15,301
|
|
|
9,763
|
D
uring
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,
which resulted in a
n
achievement adjustment
increase of
100,753
PSUs
in
2018
relating to the
initial
2017
PSU grant.
As of
December 31, 2018
, total unrecognized stock-based compensation expense related to unvested PSUs, net of estimated forfeitures,
was
$35,212
before income taxes, and is expected to be recognized over a weighted-average period of approximately
1.6
years.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
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 PSU
-TSR
s with a market condition
where vesting is conditioned upon the total shareholder return performance of the Company’s stock relative to the performance of a peer group over
five
distinct performance periods from 2018 through 2024.
The payout for each performance period can vest at between 50% and 175% of the target award based on the percentile ranking of WWE’s total shareholder return performance with vesting capped at 100% if WWE’s absolute total shareholder return is negative.
The grant date fair value of the award was calculated using a Monte-Carlo simulation model which factors in the number of awards to be earned based on the achievement of the market condition. This model simulates the various stock price movements of the Company and peer group companies using certain assumptions, including the stock price of WWE and those of the peer group, stock price volatility, the risk-free interest rate, correlation coefficients, and expected dividend yield. The grant date fair value of the award totaled
$16,168
and is being amortized as compensation cost over the requisite service period using the graded vesting method from March 2018 through July 2024.
The following table
s
summarize the PSU-TSR activity for the year ended December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
Weighted-
Average
Grant-Date
Fair Value
|
Unvested at January 1, 2018
|
|
—
|
|
$
|
—
|
Granted
|
|
340,971
|
|
$
|
47.42
|
Unvested at December 31, 2018
|
|
340,971
|
|
$
|
47.42
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
Stock-based compensation expense
|
|
$
|
3,035
|
Tax benefits realized
|
|
|
—
|
Weighted-average grant-date fair value of PSU-TSRs granted
|
|
|
16,168
|
Fair value of PSU-TSRs vested
|
|
|
—
|
As of
December 31, 2018
, total unrecognized stock-based compensation expense related to unvested PSU
-TSR
s, net of estimated forfeitures,
was
$13,133
before income taxes, and is expected to be recognized over a weighted-average period of approximately
4.0
years.
Employee Stock Purchase Plan
We provide a stock purchase plan for our employees. Under the plan, all eligible regular full-time employees may contribute up to
10%
of their base compensation (subject to certain
dollar
limits) to the semi-annual purchase of shares of our common stock. The purchase price is
85%
of the fair market value at certain plan-defined dates. As this plan is defined as compensatory, a charge is recorded to
G
eneral and administrative expense
s
for the difference between the fair market value and the discounted price. During
2018
,
2017
and
2016
, employees
purchased
65,255
,
72,882
and
71,636
shares
of our common stock which resulted in an expense of
$1,981
,
$276
,
and $331
, respectively. As of December 31, 2018,
1.5
million shares
of the Company's common stock are
available
for issuance under the 2012 Employee Stock Purchase Plan.
1
9
. Employee Benefit Plans
We sponsor a 401(k) defined contribution plan covering substantially all employees. Under this plan, participants are allowed to make contributions based on a percentage of their salary, subject to a statutorily prescribed annual limit. We make matching contributions of
50%
of each participant’s contributions, up to
6%
of eligible compensation. We may also make additional discretionary contributions to the 401(k) plan. Our expense for matching contributions to the 401(k)
plan
was
$2,570
,
$2,
341
and
$
2
,
028
for the years ended
December 31, 2018
,
2017
and
2016
, re
spectively. The Company did
not
make any discretionary contributions for the years ended
December 31, 2018
,
2017
or
2016
.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
20
. 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
media
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,
Basis of Presentation and Business
Description
,
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.
Beginning 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 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)
The following tables present summarized financial information for each of the Company's reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
Media
|
|
$
|
683,351
|
|
$
|
535,570
|
|
$
|
476,927
|
Live Events
|
|
|
144,203
|
|
|
151,705
|
|
|
144,358
|
Consumer Products
|
|
|
102,606
|
|
|
113,684
|
|
|
107,931
|
Total net revenues
|
|
$
|
930,160
|
|
$
|
800,959
|
|
$
|
729,216
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
Media
|
|
$
|
11,863
|
|
$
|
11,884
|
|
$
|
11,433
|
Live Events
|
|
|
—
|
|
|
—
|
|
|
2
|
Consumer Products
|
|
|
—
|
|
|
—
|
|
|
—
|
Corporate
|
|
|
13,206
|
|
|
14,166
|
|
|
12,976
|
Total depreciation and amortization
|
|
$
|
25,069
|
|
$
|
26,050
|
|
$
|
24,411
|
|
|
|
|
|
|
|
|
|
|
Adjusted OIBDA:
|
|
|
|
|
|
|
|
|
|
Media
|
|
$
|
210,579
|
|
$
|
141,625
|
|
$
|
101,406
|
Live Events
|
|
|
20,543
|
|
|
27,115
|
|
|
26,822
|
Consumer Products
|
|
|
28,376
|
|
|
37,727
|
|
|
33,434
|
Corporate
|
|
|
(80,647)
|
|
|
(70,389)
|
|
|
(63,511)
|
Total Adjusted OIBDA
|
|
$
|
178,851
|
|
$
|
136,078
|
|
$
|
98,151
|
Reconciliation of Total Operating
Income
to Total
Adjusted
OIBDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Total operating income
|
|
$
|
114,478
|
|
$
|
75,578
|
|
$
|
55,641
|
Depreciation and amortization
|
|
|
25,069
|
|
|
26,050
|
|
|
24,411
|
Stock-based compensation
|
|
|
39,304
|
|
|
24,151
|
|
|
18,099
|
Other adjustments (1)
|
|
|
—
|
|
|
10,299
|
|
|
—
|
Total Adjusted OIBDA
|
|
$
|
178,851
|
|
$
|
136,078
|
|
$
|
98,151
|
|
(1)
|
|
Other adjustments for the year ended December 31, 2017 include $5,586 of non-recurring legal matters and other contractual obligations, and $4,713 of certain impairment charges related to our feature films.
|
Geographic Information
Net revenues by major geographic region are based upon the geographic location of where our content is distributed. The information below summarizes net revenues to unaffiliated customers by geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
North America
|
|
$
|
612,322
|
|
$
|
599,697
|
|
$
|
539,917
|
Europe/Middle East/Africa
|
|
|
237,196
|
|
|
125,639
|
|
|
122,728
|
Asia Pacific
|
|
|
69,064
|
|
|
61,568
|
|
|
54,699
|
Latin America
|
|
|
11,578
|
|
|
14,055
|
|
|
11,872
|
Total net revenues
|
|
$
|
930,160
|
|
$
|
800,959
|
|
$
|
729,216
|
The Company's property and equipment was almost entirely located in the United States at December 31, 2018 and 2017.
During the year ended December 31, 2018, there were
two
customers with revenues individually in excess of 10% of total consolidated net revenues.
During the years ended December 31, 2017 and 2016, there was one customer with revenues individually in excess of 10% of total consolidated net revenues.
These revenues are primarily reflected in our Media segment.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
2
1
. 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 that produce consumer products containing our intellectual
property
. We closely monitor the status of receivables with these customers and maintain allowances for anticipated losses as deemed appropriate. At
December 31, 2018
our
largest
receivable balance from
customers
w
as
30
%
of
our 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.
2
2
. Selected Quarterly Financial Information (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st
Quarter
|
|
2nd
Quarter
|
|
3rd
Quarter
|
|
4th
Quarter
|
2018
|
|
(1)
|
|
(1) (4)
|
|
(1) (2) (4)
|
|
(1) (2) (3) (4)
|
Net revenues
|
|
$
|
187,721
|
|
$
|
281,542
|
|
$
|
188,391
|
|
$
|
272,506
|
Operating expenses
|
|
$
|
120,061
|
|
$
|
198,891
|
|
$
|
120,797
|
|
$
|
169,433
|
Net income
|
|
$
|
14,835
|
|
$
|
9,945
|
|
$
|
33,590
|
|
$
|
41,218
|
Net income per common share: basic
|
|
$
|
0.19
|
|
$
|
0.13
|
|
$
|
0.43
|
|
$
|
0.55
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
188,444
|
|
$
|
214,586
|
|
$
|
186,325
|
|
$
|
211,604
|
Operating expenses
|
|
$
|
131,384
|
|
$
|
158,034
|
|
$
|
111,804
|
|
$
|
137,303
|
Net income
|
|
$
|
888
|
|
$
|
5,085
|
|
$
|
21,854
|
|
$
|
4,813
|
Net income per common share: basic
|
|
$
|
0.01
|
|
$
|
0.07
|
|
$
|
0.28
|
|
$
|
0.06
|
|
(1)
|
|
Operating expenses for the first, second, third and fourth quarters of 2018 includes impairment charges of
$925
,
$563
,
$1,325
and
$2,052
, respectively, related to certain of our feature films. Operating expenses for the first, second, third and fourth quarter of 2017 includes impairment charges of
$2,078
,
$1,084
,
$759
and
$1,551
, respectively, related to certain of our feature films. See Note 8,
Feature Film Production Assets
, for further discussion.
|
|
(2)
|
|
Net income for the third and fourth quarters of 2018 includes a benefit of
$11,702
and
$464
, respectively, related to television production incentives. Net income for the third and fourth quarters of 2017 includes a benefit of
$10,645
and
$615
, respectively, related to television production incentives.
|
|
(3)
|
|
Net income for the fourth quarter of 2017 includes one-time charges of
$10,878
associated with the remeasurement of our net deferred tax assets and
$406
related to the transition tax on mandatory repatriation of undistributed foreign earnings arising from the enactment of the Tax Act. See Note
12,
Income Taxes
, for further discussion.
|
|
(4)
|
|
Net income for the second and fourth quarters of 2018 includes impairment charges of
$3,000
and
$77
3
, respectively, related to our nonmarketable equity investments. Net income for the third quarter of 2018 includes a
$2,181
investment gain related to a favorable observable price adjustment related to a nonmarketable equity investment. Net income for the fourth quarter of 2018 includes a
$2,474
favorable mark-to-market adjustment on a marketable equity security. See Note 5,
Investment Securities and Short-Term Investments
, for further discussi
on.
|