See accompanying notes to consolidated financial statements.
6
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
1. B
asis of Presentation and Business Description
The accompanying consolidated financial statements include the accounts of WWE. “WWE” refers to World Wrestling Entertainment, Inc. and its subsidiaries, unless the context otherwise requires. References to “we,” “us,” “our” a
nd the “Company” refer to WWE.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense
s during the reporting period.
Actual results could differ from those estimates.
The accompanying consolidated finan
cial statements are unaudited.
All adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of financial position, results of operations, and cash flows at the dates and for the periods
presented have been included.
The results of operations of any interim period are not necessarily indicative of the results of
operations for the full year.
All intercompany balances are eliminated in consolidation.
Certain information and note disclosures normally included in annual financial statements have been condensed or omitted from these interim financial statements; these financial statements should be read in conjunction with the financial statements and notes thereto included in our Form 10-K for the year ended
December 31, 2018
.
We are an integrated media and entertainment company, principally engaged in the production and distribution of
wrestling entertainment
content through various channels, including our premium over-the-top
subscription network (“
WWE Network
”)
,
content
rights agreements, pay-per-view event programming,
filmed entertainment,
live events
,
licensing of various WWE themed products, and the sale of consumer products featuring our brands. Our operations are organized around the following principal activities:
Media
:
|
·
|
|
The Media segment reflects the production and monetization of long-form and short-form video content across various platforms, including WWE Network, pay television, digital and social media
,
as well as filmed entertainment. Across these platforms, revenue
s
principally consist of
content rights fees
,
subscriptions to WWE Network
, and
advertising and sponsorships.
|
Live Events
:
|
·
|
|
Live events provide ongoing content for our media platforms. Live Event segment revenues consist
primarily
of ticket sales, including primary and secondary distribution,
revenues from events for which we receive a fixed fee,
as well as the sale of travel packages
associated with the Company’s global
live events.
|
Consumer Products
:
|
·
|
|
The Consumer Products segment
engages in the merchandising of WWE branded products, such as video games, toys and apparel, through licensing arrangements and direct-to-consumer sales. R
evenue
s
principally consist of royalties
and
licensee fees related to
WWE branded
products, and
sales of
merchandise
distributed
at our live events and through eCommerce platforms.
|
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
2.
Significant Accounting Policies
Our significant accounting policies are detailed in Note 2,
Summary of Significant Accounting Policies
,
in the Notes to Consolidated Financial Statements within our Annual Report on Form 10-K for the year ended December 31, 201
8
.
Refer to Note
8
,
Leases
, for revision
s
made to our
lease accounting
policies resulting from our adoption of the new
lease accounting
standard starting in 201
9
.
Operating Expenses
Operating expenses consist of our production costs associated with developing our content, costs associated with
operating our WWE Network,
venue
rental and related costs associated with the staging of our live event
s
, compensation costs for our talent, and material
and related
costs associated with our consumer product merchandise sales. In addition, operating expenses include certain business operating support function costs, including our talent development, data analytics, data engineering, business strategy and
real estate and
facilit
ies
functions, as these
activities
directly support the operations of our segments.
Included within
Operating expenses
are the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2019
|
|
2018
|
Amortization and impairment of feature film assets
|
|
$
|
631
|
|
$
|
2,211
|
Amortization of television production assets
|
|
|
8,321
|
|
|
3,149
|
Amortization of WWE Network content delivery and technology assets
|
|
|
1,582
|
|
|
1,574
|
Amortization of right-of-use assets - finance leases of equipment
|
|
|
1,996
|
|
|
—
|
Total amortization and impairment included in operating expenses
|
|
$
|
12,530
|
|
$
|
6,934
|
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.
Recent Accounting Pronouncement
s
In March 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-02, “
Improvements to Accounting for Costs of Films and License Agreements for Program Materials
.” The amendments in this ASU align the accounting for production costs of an episodic television series with the accounting for production costs of films. In addition, the ASU modifies certain aspects of the capitalization, impairment, presentation and disclosure requirements under the current film and broadcaster entertainment industry guidance. The new guidance is effective for interim and annual reporting periods starting in fiscal year 2020, with early adoption permitted. The new guidance will be applied on a prospective basis. The Company is currently in the process of evaluating the impact, if any, of this new guidance on its consolidated financial statements.
In November 2018, the FAS
B
issued ASU No. 2018-18, “
Collaborative Arrangements (Topic 808) – Clarifying the Interaction between Topic 808 and Topic 606
.” The amendments in this ASU clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606,
Revenue from Contracts with Customers
, when the collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue consideration received from a collaborative arrangement participant if the participant is not a customer. The new guidance is effective for 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
does not expect the adoption of the amendments to have a material
impact on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, “
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
.” The new guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The new guidance is effective for 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.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
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 February 2016, the FASB issued ASU No. 2016-02,
“Leases (Topic 842),”
which supersede
s
existing guidance for lease accounting. This new standard require
s
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 account
s
for leases as finance leases or operating leases
with the
recogni
tion of
a right-of-use asset and a corresponding lease liability. For finance leases, the lessee recognize
s
interest expense and amortization of the right-of-use asset, and for operating leases, the lessee recognize
s
straight-line lease expense.
The new lease accounting standard along with the clarifying amendments subsequently issued by the FASB, collectively became effective for the Company on January 1, 2019.
The Company adopt
ed
the new leas
e accounting standard
by applying the new lease guidance at the adoption date on January 1, 2019, and as allowed under the standard, elected not to restate comparative periods. There was no cumulative-effect adjustment recorded in connection with our adoption. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard. We did not elect the hindsight practical expedient to determine the lease term for existing leases. As of January 1, 2019, in connection with the adoption of the new lease accounting standard, the Company recorded a right-of-use lease asset
totaling
$39,2
66
with a corresponding lease liability totaling
$40,4
58
. Refer
to Note 8,
Leases
, for further details on our adoption of the new standard.
3
. Segment Information
T
he Company
currently
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.
C
ertain business support functions including sales and marketing,
our
international
offices
and
talent development are 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.
The Company presents Adjusted OIBDA
as the primary measure of segment profit (loss).
The Company defines Adjusted OIBDA as operating income before depreciation and amortization,
excluding
stock-based compensation, certain impairment charges and other non-recurring material items. Adjusted OIBDA includes amortization expenses directly related to
our
revenue generating activities, including feature film and television production asset amortization, amortization of costs related to content delivery and technology assets utilized for our WWE Network
, as well as amortization of right-of-use assets related to finance leases of live event production equipment
. The Company believes the presentation of Adjusted OIBDA is relevant and useful for investors because it allows investors to view our segment performance in the same manner as the primary method used by management to evaluate segment performance and make decisions about allocating resources. Additionally, we believe that Adjusted OIBDA
is
a
primary measure used by media investors, analysts and peers for
comparative purposes
.
We do not disclose
assets by segment information.
W
e do not provide assets by segment information to our chief operating decision maker, as that information is not typically used in the determination of resource allocation and assessing business performance of each reportable segment.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
The following tables present summarized financial information for each of the Company's reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2019
|
|
2018
|
Net revenues:
|
|
|
|
|
|
|
Media
|
|
$
|
135,447
|
|
$
|
133,373
|
Live Events
|
|
|
26,239
|
|
|
30,770
|
Consumer Products
|
|
|
20,762
|
|
|
23,578
|
Total net revenues
|
|
$
|
182,448
|
|
$
|
187,721
|
|
|
|
|
|
|
|
Adjusted OIBDA:
|
|
|
|
|
|
|
Media
|
|
$
|
28,500
|
|
$
|
43,569
|
Live Events
|
|
|
794
|
|
|
3,605
|
Consumer Products
|
|
|
6,020
|
|
|
6,869
|
Corporate
|
|
|
(22,925)
|
|
|
(18,881)
|
Total Adjusted OIBDA
|
|
$
|
12,389
|
|
$
|
35,162
|
Reconciliation of Total Operating
(Loss)
Income
to Total
Adjusted
OIBDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2019
|
|
2018
|
Total operating (loss) income
|
|
$
|
(6,859)
|
|
$
|
21,750
|
Depreciation and amortization
|
|
|
6,420
|
|
|
6,339
|
Stock-based compensation
|
|
|
12,828
|
|
|
7,073
|
Other adjustments
|
|
|
—
|
|
|
—
|
Total Adjusted OIBDA
|
|
$
|
12,389
|
|
$
|
35,162
|
4. Revenues
Revenues are generally recognized when control of the promised goods or services is transferred to our customers either at a point in time or over time, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
Most
of our contracts have one performance obligation and all consideration is allocated to that performance obligation.
Our revenues do not include material amounts of variable consideration. The variable consideration contained in our contracts relate primarily to sales or usage-based royalties earned on consumer product licensing contracts. The variability related to these sales or usage-based royalties will be resolved in the periods when the licensee generates sales related to the intellectual property license. As it relates to our Consumer Products segment, the Company accounts for shipping and handling activities
as
fulfillment activities.
We derive our revenues principally from the following sources: (i) content rights fees associated with the distribution of WWE’s media content, (ii) subscriptions to WWE Network, (iii) fees for viewing our pay-per-view programming, (iv) feature film distribution, (v) advertising and sponsorship sales, (vi) live event ticket sales, (vii) consumer product licensing royalties from the sale by third-party licensees of WWE branded merchandise, (viii) direct-to-consumer sales of merchandise at our live event venues, and (ix) direct-to-consumer sales of our merchandise through eCommerce platforms.
Payment Terms
Our payment terms vary by the type of products or services offered, and may be subject to contractual payment terms, which may include advance payment requirements. The time between invoicing and when payment is due is not significant, generally within
30
to
60
days. We have elected the practical expedient to not adjust the total consideration within a contract to reflect a financing component when the duration of the financing is one year or less. Our contracts do not generally include a significant financing component. Our contracts with customers do not generally result in significant obligations associated with returns, refunds or warranties.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
Disaggregated Revenues
The following table presents our revenues disaggregated by primary revenue sources. Sales and usage-based taxes are excluded from revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2019
|
|
2018
|
Net revenues:
|
|
|
|
|
|
|
Media Segment:
|
|
|
|
|
|
|
Network (including pay-per-view)
|
|
$
|
47,013
|
|
$
|
46,752
|
Core content rights fees (1)
|
|
|
68,096
|
|
|
65,505
|
Advertising and sponsorships
|
|
|
10,873
|
|
|
12,232
|
Other (2)
|
|
|
9,465
|
|
|
8,884
|
Total Media Segment net revenues
|
|
|
135,447
|
|
|
133,373
|
Live Events Segment:
|
|
|
|
|
|
|
North American ticket sales
|
|
|
24,160
|
|
|
29,802
|
International ticket sales
|
|
|
193
|
|
|
—
|
Advertising and sponsorships
|
|
|
405
|
|
|
152
|
Other (3)
|
|
|
1,481
|
|
|
816
|
Total Live Events Segment net revenues
|
|
|
26,239
|
|
|
30,770
|
Consumer Products Segment:
|
|
|
|
|
|
|
Consumer product licensing
|
|
|
9,428
|
|
|
9,267
|
eCommerce
|
|
|
6,577
|
|
|
8,460
|
Venue merchandise
|
|
|
4,757
|
|
|
5,851
|
Total Consumer Products Segment net revenues
|
|
|
20,762
|
|
|
23,578
|
Total net revenues
|
|
$
|
182,448
|
|
$
|
187,721
|
|
|
|
|
|
|
|
|
(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 revenues within our Live Events segment
primarily consists of the sale of travel packages associated with the Company’s global live events and commissions earned through secondary ticketing
, 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
March 31, 201
9
,
for contracts greater than one year,
the aggregate amount of the transaction price allocated to remaining performance
obligations is
$
3,284,215
, 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 201
9
through 20
28
. 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 201
9
through 202
4
. For our multi-year sponsorship arrangements, we
will
recognize sponsorship revenues as the sponsorship obligations are satisfied during the periods 201
9
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)
(Unaudited)
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
ASC
Topic 606) when cash payments are received or due in advance of our performance. Our deferred revenue balance primarily relates to advance payments received related to our content
distribution
rights agreements
, our
consumer
product
licensing agreements
, and our sponsorship and advertising arrangements
. The Company’s deferred revenue (i.e. contract liabilities) as of March 31, 201
9
and December 31, 201
8
was
$
60,951
and
$49,487
, respectively, and are included within Deferred income and Other non-current liabilities on
our Consolidated Balance Sheets.
The
net
in
crease in the deferred revenue balance for the three months ended March 31, 201
9
of
$
11,464
is
primarily driven by
licensing advances received, partially offset by
revenue recognized during the period 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 Marking and selling expenses within our Consolidated Statements of Operations.
Capitalized commission
fees
of
$
1,541
and
$
1,886
at March 31, 201
9
and
December 31,
201
8
, respectively,
relate primarily to incremental costs of obtaining our long-term television content arrangements and these costs are being amortized over the duration of the underlying content agreements
on a straight-line basis
to marketing and selling expense. During the three months ended March 31, 201
9
and 201
8
, the amount of amortization was
$
345
and
$
320
, respectively
, and there was
no
impairment in relation to the costs capitalized.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
5
.
(Loss)
Earni
ngs
Per Share
For purposes of calculating ba
sic and diluted
(loss)
earnings
per share, we used the following weighted average common shares outstanding (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2019
|
|
2018
|
Net (loss) income
|
|
$
|
(8,396)
|
|
$
|
14,835
|
|
|
|
|
|
|
|
Weighted average basic common shares outstanding
|
|
|
78,040
|
|
|
77,142
|
Dilutive effect of restricted and performance stock units (1)
|
|
|
—
|
|
|
1,969
|
Dilutive effect of convertible debt instruments (1)
|
|
|
—
|
|
|
3,338
|
Dilutive effect of employee share purchase plan (1)
|
|
|
—
|
|
|
4
|
Weighted average dilutive common shares outstanding
|
|
|
78,040
|
|
|
82,453
|
|
|
|
|
|
|
|
(Loss) earnings per share:
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.11)
|
|
$
|
0.19
|
Diluted
|
|
$
|
(0.11)
|
|
$
|
0.18
|
|
|
|
|
|
|
|
Anti-dilutive shares (excluded from per-share calculations):
|
|
|
|
|
|
|
Shares issued under Convertible Notes and Warrants
|
|
|
11,429
|
|
|
N/A
|
Shares received on purchased call of convertible debt hedge
|
|
|
(6,072)
|
|
|
(2,524)
|
Outstanding restricted and performance stock units
|
|
|
1,798
|
|
|
699
|
|
(1)
|
|
Due to a net loss during the three months ended March 31, 2019, zero incremental shares are included because the effect would be antidilutive.
|
Effect of Convertible Notes and Related Convertible Note Hedge and Warrants
In connection with the issuance of the Convertible Notes, the Company entered into Convertible Note Hedge and Warrant transactions as described further in Note 14,
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.
The
denominator of our diluted earnings per share calculation
includes
the effect of additional shares 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 includes the
additional shares issued related to the Warrants using the treasury stock method
since the average price of our common stock exceeded the strike price of the Warrants of $31.89 per share
.
Due to a net loss during the three months ended March 31, 2019, there was no impact on diluted earnings per share as the effect would have been antidilutive.
The dilution from the Convertible Notes had
a
$0.01
impact on
diluted earnings per share for
the three months ended March 31
,
2018
.
Prior to actual conversion, the Convertible Note Hedges are not considered for purposes of the calculation of diluted earnings per share, as their effect would be anti-dilutive.
6
. Stock-
b
ased Compensation
Our
2016
O
mnibus Incentive Plan (the “2016
Plan”) provides for
the grant of incentive or non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards and performance awards to eligible participants as d
etermined by the Compensation Committee of the Board of Directors
. Awards may be granted
as incentives and re
wards to encourage officers, employees, consultants
,
advisors
and independent contractors
of the Company and its affiliates and to non-employee directors of the Company
to participate in our long-term success.
Stock-based compensation costs, which includes costs related to RSUs, PSUs
, PSU-TSRs
and the Company's
qualified e
mployee
s
tock
p
urchase
p
lan,
totaled $
12,828
and
$
7,073
for
the
three months ended March 31, 2019 and 2018
, respectively.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
Restricted Stock Units
The Company grants restricted stock units ("RSUs") to officers and employees under the
2016
Plan.
Stock-based compensation costs associated with our RSUs are determined using the fair market value of the Company’s common stock on the date of the grant. These costs are recognized over the requisite service period using the graded vesting method, net of estimated forfeitures. RSUs have a service requirement typically over a
three
and
one-half
year vesting schedule and vest in equal annual installments. We estimate forfeitures based on historical trends when recognizing compensation expense and adjust the estimate of forfeitures when they are expected to differ or as forfeitures occur. Unvested RSUs accrue dividend equivalents at the same rate as are paid on our shares of Class A common stock. The dividend equivalents are subject to the same vesting schedule as the underlying RSUs.
The following table summarizes the RSU activity during the
three months ended March 31, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
Weighted-
Average
Grant-Date
Fair Value
|
Unvested at January 1, 2019
|
|
409,665
|
|
$
|
26.52
|
Granted
|
|
82,653
|
|
$
|
83.12
|
Vested
|
|
(1,583)
|
|
$
|
16.74
|
Forfeited
|
|
(230)
|
|
$
|
19.38
|
Dividend equivalents
|
|
674
|
|
$
|
36.10
|
Unvested at March 31, 2019
|
|
491,179
|
|
$
|
36.10
|
Performance Stock Units
The Company grants performance stock units (“PSUs”) to officers and employees under the
2016
Plan.
Stock-based compensation costs associated with our PSUs
are initially determined using the fair market value of the Company’s common stock on the date the awards are approved by our Compensation Commi
ttee (service inception date).
The vesting of these PSUs are subject to certain performance conditions and a service requirement of
typically
three
and
one-half
years.
Until the performance conditions are met, stock compensation costs associated with these PSUs are re-measured each reporting period based upon the fair market value of the Company's common stock and the
estimated performance
att
ainment on the reporting date.
The ultimate number of PSUs that are issued to an employee is the result of the actual performance of the Company at the end of the performance period compared to the performance conditions. Stock compensation costs for our PSUs are recognized over the requisite service period using the graded vesting method,
net of estimated forfeitures. We estimate forfeitures based on historical trends wh
en
recognizing compensation expense and adjust the estimate of forfeitures when they are expected to differ or as forfeitures occur.
Unvested PSUs accrue dividend equivalents once the performance conditions are met at the same rate as are paid on our shares of Class A common stock. The dividend equivalents are subject to the same vesting schedule as the underlying PSUs.
The following table summarizes the PSU activity during the
three months ended March 31, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
Weighted-
Average
Grant-Date
Fair Value
|
Unvested at January 1, 2019
|
|
1,116,085
|
|
$
|
39.98
|
Granted
|
|
155,872
|
|
$
|
86.78
|
Achievement adjustment
|
|
297,061
|
|
$
|
83.51
|
Dividend equivalents
|
|
1,944
|
|
$
|
51.08
|
Unvested at March 31, 2019
|
|
1,570,962
|
|
$
|
54.62
|
During the year ended
December 31, 2018
, we granted
369,996
PSUs
,
which were subject to performance conditions.
During the first quarter of
2019
,
it was determined that
the performance conditions related to these PSUs were exceeded, whi
ch resulted in an
achievement adjustment
increase
of
297,061
PSUs in
2019
relating to the initial
2018
PSU grant.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
Performance Stock Units with a Market Condition Tied to
Relative
Total Shareholder Return
In March
2018, the Compensation Committee approved certain agreements to grant PSUs with a market condition (“PSU-TSRs”) where vesting is conditioned upon the total shareholder return performance of the Company’s stock relative to the performance of a peer group over 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 summarizes the PSU-TSR activity during the three months ended March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
Weighted-
Average
Grant-Date
Fair Value
|
Unvested at January 1, 2019
|
|
340,971
|
|
$
|
47.42
|
Granted
|
|
—
|
|
$
|
—
|
Vested
|
|
—
|
|
$
|
—
|
Unvested at March 31, 2019
|
|
340,971
|
|
$
|
47.42
|
7
. Property and Equipment
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
March 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
Land, buildings and improvements
|
|
$
|
142,328
|
|
$
|
141,070
|
Equipment and projects in progress
|
|
|
141,712
|
|
|
129,367
|
Corporate aircraft
|
|
|
32,249
|
|
|
32,249
|
Vehicles
|
|
|
942
|
|
|
942
|
|
|
|
317,231
|
|
|
303,628
|
Less: accumulated depreciation and amortization
|
|
|
(161,722)
|
|
|
(155,539)
|
Total
|
|
$
|
155,509
|
|
$
|
148,089
|
Depreciation expense for property and equip
ment totaled $
6,173
and
$
6
,
101
for the
three months ended March 31, 2019 and 2018
, respectively.
8
.
Leases
Lease Adoption on January 1, 2019
The Company adopted the new lease standard and applied the new rules starting on January 1, 2019 and elected not to restate prior periods as provided by the transition rules of the standard.
Upon the a
doption of the new
lease
standard on January 1, 2019,
we recorded a right-of-use
asset of
$39,266
and
a lease liability of
$40,458
. Included as a component of the adoption entry is the immaterial out-of-period correction of previously omitted capital leases embedded in our service agreements that were identified in our lease portfolio review. These leases were comprised of a right-of-use asset of
$16,620
and a lease liability of
$17,812
, with the resulting difference of $1,192 recorded as expense in the period. Based on quantitative and qualitative considerations, we do not believe the omitted capital leases were material to our historical consolidated financial statements. As of March 31, 2019, net lease assets and lease liabilities were
$35,050
and
$36,101
, respectively
.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
The Company
’s lease portfolio currently consists of
operating real estate leases
for its sales offices, performance centers, warehouses and corporate related facilities. In addition, we have various live event production service arrangements that contain
operating
and finance equipment
leases. Our
real estate
leases have remaining lease terms of
approximately
one
to
10
years, some of which may include options to extend the leases. Our
equipment leases, which are included as part of various operating service arrangements, generally have terms of approximately
one
to
five
years.
Generally, no covenants
are
imposed by our lease agreements.
Practical Expedient Elections
The Company applied the “package” of transition practical expedients which allows for the Company as of the adoption date on January 1, 2019 to (i) not reassess whether any expired or existing contracts are or contain leases, (ii) to not reassess lease classification for any expired or existing leases, and (iii) to not reassess treatment of initial direct costs, if any, for any expired or existing leases. The Company did not elect the “hindsight” practical expedient which would have allowed the Company to use hindsight when determining the remaining lease term as of the adoption date on January 1, 2019.
Lease Accounting Policy
The Company determines if a contract contains a lease at the inception of the arrangement. The Company has elected the short-term lease exemption, whereby leases with initial terms of one year or less are not capitalized and instead expensed generally on a straight-line basis over the lease term. The depreciable life of the underlying leased assets are generally limited to the expected lease term inclusive of any optional lease terms where we conclude at the inception of the lease that we are reasonably certain of exercising those renewal options. The Company is primarily a lessee with a lease portfolio comprised mainly of real estate and equipment leases. Operating and finance lease assets are included on our consolidated balance sheets in non-current assets as an operating or finance right-of-use asset. Operating and finance lease liabilities are included on our consolidated balance sheets in non-current liabilities for the portion that is due on a long-term basis and in current liabilities for portion that is due within 12 months of the financial statement date.
The right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term using an appropriate discount rate. Since the implicit rate is not readily available for our leases, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The right-of-use asset also may include any initial direct costs paid and is reduced by any lease incentives provided by the lessor. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term for our operating leases and for our finance leases, we record interest expense on the lease liability and straight-line amortization of the right-of-use asset over the lease term.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
Quantitative Disclosures Related to Leases
The following table provides quantitative disclosure about the Company’s operating and financing leases for the periods presented:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2019
|
Lease costs
|
|
|
|
Finance lease costs:
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
1,996
|
Interest on lease liabilities
|
|
|
1,377
|
Operating lease costs
|
|
|
2,467
|
Other short-term and variable lease costs
|
|
|
536
|
Sublease income (1)
|
|
|
(16)
|
Total lease costs
|
|
$
|
6,360
|
|
|
|
|
Other information
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows from finance leases
|
|
$
|
185
|
Operating cash flows from operating leases
|
|
$
|
2,208
|
Finance cash flows from finance leases
|
|
$
|
2,043
|
Right-of-use assets obtained in exchange for new finance lease liabilities
|
|
$
|
—
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
|
$
|
—
|
Weighted-average remaining lease term - finance leases
|
|
|
4.7 years
|
Weighted-average remaining lease term - operating leases
|
|
|
5.3 years
|
Weighted-average discount rate - finance leases
|
|
|
4.5%
|
Weighted-average discount rate - operating leases
|
|
|
4.6%
|
|
(1)
|
|
Sublease income excludes rental income from owned properties.
|
Maturity of lease liabilities as of March 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
Finance
|
|
|
Leases
|
|
Leases
|
2019
|
|
$
|
6,319
|
|
$
|
6,685
|
2020
|
|
|
5,718
|
|
|
8,096
|
2021
|
|
|
4,319
|
|
|
1,585
|
2022
|
|
|
1,548
|
|
|
48
|
2023
|
|
|
1,232
|
|
|
7
|
Thereafter
|
|
|
3,478
|
|
|
—
|
Total lease payment
|
|
|
22,614
|
|
|
16,421
|
Less: imputed interest
|
|
|
(2,283)
|
|
|
(651)
|
Total future minimum lease payments
|
|
$
|
20,331
|
|
$
|
15,770
|
Other Lease Related Information
On March 18, 2019, the Company
entered into
a lease
with Stamford Washington Office LLC (the “Landlord”) under which the Company will lease approximately
415,266
rentable square feet in
an office complex
located
in
Stamford, Connecticut. The new
location
will allow the Company to bring together its operations, including its production studios and corporate offices at its new site.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
The lease commencement date is expected to be no earlier than July 1, 2019. Upon lease commencement, the Company will construct interior tenant improvements with a move-in expected in early 2021. The Landlord will provide an allowance of up to
$40,338
to be applied to the cost of the Company’s tenant improvements.
The lease provides the Company with an
eighteen
-month free rent period from the lease commencement date, followed by an initial base term of
15
years with base rental payments of
$19,101
per year for the first five years, and increasing to
$20,927
per year over the second five-year term, and
$22,754
per year over the third five-year term. The lease includes
five
,
five
-year renewal options, with the first
three
renewal options renewing at the lower of the then-escalated rent per the lease agreement or the fair market value rent, and the last
two
renewal options renewing at the fair market value rent. The lease is expected to be accounted for as a finance lease pursuant to the new lease accounting standard
.
9
. Feature Film Production Assets, Net
Feature film production assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
March 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
In release
|
|
$
|
11,799
|
|
$
|
12,430
|
Completed but not released
|
|
|
736
|
|
|
—
|
In production
|
|
|
—
|
|
|
707
|
In development
|
|
|
413
|
|
|
421
|
Total
|
|
$
|
12,948
|
|
$
|
13,558
|
Approximately
32
%
of “In
release” film production assets are estimated to be amortized over the nex
t 12 months, and
approximately
66
%
of
“In release” film production assets are estimated to be amortized over the next
three years.
We anticipate amortizing approximately
80%
of
our "In release" film production
asset
s
within
five
years
as we receive revenues associated with television distr
ibution of ou
r licensed films.
During the
three months ended March 31, 2019 and 2018
, we
amortized
$
4
1
7
and
$
842
,
respectively, of feature film production assets.
During the three months ended March 31, 2019,
one
of our
feature film
s
,
Fighting With My Family
,
was released
via
theatrical distribution.
We
currently
have
one
film designated
as “Completed but not released
.
”
We also have capitalized certain script development costs
and pre-production costs
for various other film projects designated as “In development.”
Capitalized script d
evelopment costs are evaluated at each reporting period for impairment and to determine if a project is deemed to be abandoned.
During th
e three months ended March 31, 2019 and 2018,
we
expensed
$
16
and
$
444
, respectively
,
related
to previously capitalized development costs
related to abandoned projects
.
Unamortized feature film production assets are evaluated for imp
airment each reporting period.
We review and revise estimates of ultimate revenue and participation costs at each reporting period to reflect the most
current information available.
If estimates for a film’s ultimate revenue and/or costs are revised and indicate a significant decline in a film’s profitability or if events or circumstances change that indicate we should assess whether the fair value of a film is less than its unamortized film costs, we calculate the film's estimated fair value using
a discounted cash flows model.
If fair value is less than unamortized cost, the film asset is written down to fair value.
We record
ed
impairmen
t
charges
of
$
1
98
and
$
925
related
to our feature films
during the
three months ended March 31, 2019 and 2018
, 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)
(Unaudited)
10
. Television Production Assets, Net
Television production assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
March 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
In release
|
|
$
|
920
|
|
$
|
1,308
|
Completed but not released
|
|
|
35
|
|
|
—
|
In production
|
|
|
3,012
|
|
|
6,165
|
Total
|
|
$
|
3,967
|
|
$
|
7,473
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2019
|
|
2018
|
WWE Network programming
|
|
$
|
1,286
|
|
$
|
231
|
Television programming
|
|
|
7,035
|
|
|
2,918
|
Total
|
|
$
|
8,321
|
|
$
|
3,149
|
Costs to produce our live event programming are expensed when the event is first broadcast
,
and are not included in the capitalized costs or amortization tables noted above
.
Unamortized television production assets are evaluated for impairment each reporting period. If conditions indicate a potential impairment, and the estimated future cash flows are not sufficient to recover the unamortized asset, the asset is written down to fair value. In addition, if we determine that a program will not likely air, we will
expense
the remaining
unamortized asset. During the
three months ended March 31, 2019 and 2018
, we did
no
t record any impairments related to our television production assets
.
11
. Investment Securities and Short-Term Investments
Investment Securities
Included
with
in Investment Securities
are the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
March 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
Equity method investments
|
|
$
|
14,579
|
|
$
|
14,508
|
Nonmarketable equity investments without readily determinable fair values
|
|
|
10,959
|
|
|
10,840
|
Marketable equity investments with readily determinable fair values
|
|
|
4,655
|
|
|
4,848
|
Total investment securities
|
|
$
|
30,193
|
|
$
|
30,196
|
Equity Method Investment
s
Our equity method investments relate primarily to our investment in Tapout.
In March 2015, WWE and
Authentic Brands Group (“
ABG
”)
formed a joint venture to re-launch an apparel and lifestyle brand, Tapout. ABG agreed to contribute certain intangible assets for the
Tapout b
rand, 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
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
and losses
and voting interest in Tapout. The Company valued its initial investment of
$13,800
based on the fair value of the existing licensing contracts contributed by ABG
.
To the extent that Tapout records income or losses, we record our share proportionate to our ownership percentage, and any dividends received reduce the carrying amount of the investment.
Net equity method earnings from Tapout are included as a component of
Other income
, net on the Consolidated Statements of Operations. Net dividends received from Tapout are reflected on the Consolidated Statements of Cash Flows
within Net cash provided by operating activities
.
The Company did
not
record any impairment charges related to our investment in Tapout during
the
three months ended March 31, 2019 and 2018.
The following table presents the net equity method earnings from Tapout and net dividends received from Tapout for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2019
|
|
2018
|
Net equity method earnings from Tapout
|
|
$
|
232
|
|
$
|
379
|
Net dividends received from Tapout
|
|
|
(161)
|
|
|
(343)
|
Equity in earnings of affiliate, net of dividends received
|
|
$
|
71
|
|
$
|
36
|
As promotional services are provided to Tapout, we record revenue and reduce th
e existing service obligation.
During the
three months ended March 31, 2019 and 2018
, we recorded
revenues of
$760
and
$
7
67
,
respectively, related to our fulfillment of our promotional
services obligation to Tapout.
The remaining service obligation as of
March 31, 2019
was
$
2,230
, and was included in Deferred Income
.
Our known maximum exposure to loss approximates the remaining service ob
ligation to Tapout, which was
$
2,230
as of
March 31, 2019
. Creditors of Tapout do not have recourse against the general credit of the Company
.
Nonmarketable
Equity Investments Without Readily Determinable Fair Values
We evaluate our
nonmarketable
equity
investments
without readily determinable fair values
for impairment if factors indicate that a significant decrease in value has occurred.
T
he Company has elected to use the measurement alternative to fair value that will allow these investments to be recorded at cost, less impairment, and adjusted for subsequent observable price changes.
The
Company did
no
t record any impairment charges on
these
investments during the
three months ended March 31, 2019 and 2018
.
In addition, there were no observable price changes events that were completed during the three months ended March 31,
2019 and
2018.
Marketable Equity Investments With Readily Determinable Fair Values
As of March 31, 2019, our investment portfolio includes
one
investment in a marketable equity security of a publicly traded company. The Company accounts for the equity investment in the common stock of Phunware Inc. (“Phunware”), a software application developer, as a marketable equity investment with readily determinable fair values based on quoted prices on the NASDAQ. During the three months ended March 31, 2019, the Company recorded an unrealized holding
loss
of
$
194
based on the closing price of the investee company as of the last trading day of March 29, 2019
, which is included as a component
of
Other income, net in the Consolidated Statements of Operations. As the underlying stock price of Phunware fluctuates, WWE is exposed to future earnings volatility to the extent WWE continues to hold this investment.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
Short-Term Investments
Short-term investments
consist of available-for-sale debt securities which are
measured at fair value
and
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2019
|
|
As of December 31, 2018
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
|
|
Fair
|
|
Amortized
|
|
|
|
|
|
|
|
Fair
|
|
|
Cost
|
|
Gain
|
|
(Loss)
|
|
Value
|
|
Cost
|
|
Gain
|
|
(Loss)
|
|
Value
|
U.S. Treasury securities
|
|
$
|
45,110
|
|
$
|
11
|
|
$
|
(270)
|
|
$
|
44,851
|
|
$
|
62,847
|
|
$
|
4
|
|
$
|
(439)
|
|
$
|
62,412
|
Corporate bonds
|
|
|
113,881
|
|
|
25
|
|
|
(378)
|
|
|
113,528
|
|
|
100,543
|
|
|
—
|
|
|
(1,037)
|
|
|
99,506
|
Municipal bonds
|
|
|
7,834
|
|
|
—
|
|
|
(17)
|
|
|
7,817
|
|
|
7,900
|
|
|
—
|
|
|
(41)
|
|
|
7,859
|
Government agency bonds
|
|
|
19,332
|
|
|
—
|
|
|
(84)
|
|
|
19,248
|
|
|
22,066
|
|
|
—
|
|
|
(157)
|
|
|
21,909
|
Total
|
|
$
|
186,157
|
|
$
|
36
|
|
$
|
(749)
|
|
$
|
185,444
|
|
$
|
193,356
|
|
$
|
4
|
|
$
|
(1,674)
|
|
$
|
191,686
|
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,
municipal
bonds
and government agency bonds
are included in Short-term investments, net on ou
r Consolidated Balance Sheets.
Realized gains and losses on investments are included in earnings and are derived using the specific identification method for determinin
g the cost of securities sold.
As of
March 31, 2019
, contractual maturities of these
securities
are as follows:
|
|
|
|
|
|
|
|
Maturities
|
U.S. Treasury securities
|
|
1
month -
2
years
|
Corporate bonds
|
|
1
month -
4
years
|
Municipal bonds
|
|
2
months -
9
months
|
Government agency bonds
|
|
2
months -
3
years
|
During the three months ended March 31, 2019 and 2018, we
recognized
$
1,450
and
$
1,058
,
respectively
, of interest income on our short-term investments. Interest income is reflected as a component of Other income, net within our Consolidated Statements of Operations.
The following table summarizes the short-term investment activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2019
|
|
2018
|
Proceeds from sales and maturities of short-term investments
|
|
$
|
20,478
|
|
$
|
18,498
|
Purchases of short-term investments
|
|
$
|
13,398
|
|
$
|
39,103
|
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
1
2.
Fair Value Measurement
Fair value is determined based on the exchange price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in
an orderly transaction between
market partici
pants at the measurement date.
Fair value is a market-based measurement based on assumptions that market participants would use to
price the asset or liability.
Accordingly, the framework considers markets or observable inputs as the preferred source of value followed by assumptions based on hypothetical transactions, in the absence of market inputs.
The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of assets and liabilities should include consideration of non-performance risk, including the Company's own credit risk
.
Additionally, the accounting guidance establishes a three-level hierarchy that ranks the quality and reliability of information used in developing fair value estimates. The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. In cases where two or more levels of inputs are used to determine fair value, a financial instrument's level is determined based on the lowest level input that is considered significant to the fair valu
e measurement in its entirety.
The three input levels of the fair value hierarchy are summarized as follows
:
|
|
Level 1-
|
Observable inputs such as quoted prices in active markets for identical assets or liabilities;
|
Level 2-
|
Inputs other than quoted prices in active markets for similar assets and liabilities that are directly or indirectly observable; or
|
Level 3-
|
Unobservable inputs, such as discounted cash flow models or valuations, in which little or no market data exists.
|
Certain financial instruments are carried at cost on the Consolidated Balance Sheets, which approximates fair value due to their sho
rt-term, highly liquid nature.
The carrying amounts of cash and cash equivalents, money market accounts, accounts receivable, and accounts payable approximate fair value because of the short-term nature of such instruments
.
We have classifi
ed our investment in
U.S. Treasury securities,
corporate
bonds,
municipal
bonds
and government agency bonds
, which collectively are investments in available-for-sale debt securities,
within Level 2, as their valuation requires quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and/or model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observab
le market data. The
U.S. Treasury securities,
corporate bonds,
municipal
bonds
and government agency bonds
are valued based on model-driven valuations. A
third-party
service provider assists the Company with compiling market prices from a variety of industry standard data sources, security master files from large financial institutions and other third-party sources that a
re used to value our
corporate
bond,
U.S. Treasury securities,
municipal
bond
and government agency bond
investments.
The Company did
no
t have any transfers between Level 1, Level 2, and Level 3 fair value investments during the periods presented
.
The fair value measurements of our
equity investments without readily determinable fair value
are classified within Level 3
as significant unobservable inputs are used
as part of the determination of
fair value
.
Significant unobservable inputs include variables such as near-term prospects of the investees, recent financing activities of the investees, and the investees' capital structure, as well as other economic variables, which reflect assumptions market participants wou
ld use in pricing these assets.
T
he Company has elected to use the measurement alternative to fair value that will allow these investments to be recorded at cost, less impairment, and adjusted for subsequent observable price changes.
The Company did
no
t record an
y
impairment charge
s
on these assets
and there were no observable pricing events
durin
g the three months ended March 31,
2019 and
2018
.
The Company's
long-lived
property and equipment, feature film and television production assets are required to be measured at fair value on a non-recurring basis
if it is determined that i
ndicators of impairment exist.
These assets are recorded at fair value only whe
n an impairment is recognized.
The Company did
no
t record any impairment charges on long lived property and equipment and television production assets during
the
three months ended March 31, 2019 and 2018
. T
he Company classifies these assets as Level 3 within the fair value hierarchy due to significant unobservable inputs.
During the
three months ended March 31, 2019
and 2018
, the Company
recorded impairment charges of
$
198
and
$
925
on feature film production assets based upon fair value measurements of
$
0
and
$
899
,
respectively
.
See
Note
9
,
Feature Film Production Assets, Net
, for further discussion.
The Company classifies these assets as Level 3 within the fair value hierarchy due to significant unobservable inputs
.
The Company utilizes a discounted cash flows model to determine the fair value of these impaired films where indicators of impairment exist. The significant unobservable inputs to this model are the Company’s expected cash flows for the film, including projected home video sales, pay and free TV sales and international sales, and a discount rate of
13%
that we estimate market participants
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
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
March 31, 2019
, 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
March 31, 2019
and
December 31, 2018
, 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
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
|
Fair Value
|
|
Carrying Value (1)
|
|
Fair Value
|
|
Carrying Value (1)
|
Convertible senior notes
|
|
$
|
195,466
|
|
$
|
188,564
|
|
$
|
189,323
|
|
$
|
187,371
|
|
(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.
|
1
3
. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
March 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
Trade related
|
|
$
|
11,186
|
|
$
|
12,198
|
Staff related
|
|
|
7,670
|
|
|
10,255
|
Management incentive compensation
|
|
|
6,525
|
|
|
37,103
|
Talent related
|
|
|
4,975
|
|
|
8,799
|
Accrued WWE Network related expenses
|
|
|
3,345
|
|
|
2,054
|
Accrued event and television production
|
|
|
6,902
|
|
|
13,881
|
Accrued legal and professional
|
|
|
8,413
|
|
|
4,906
|
Accrued purchases of property and equipment
|
|
|
10,325
|
|
|
13,464
|
Accrued film liability
|
|
|
2,864
|
|
|
2,774
|
Accrued other
|
|
|
16,296
|
|
|
14,724
|
Total
|
|
$
|
78,501
|
|
$
|
120,158
|
Accrued other includes accruals for our international and licensing business activities, as well as other miscellaneous accruals, none
of which categories individually exceeds
5%
of current liabilities.
The decrease in accrued expenses is primarily due to the payout of the Company’s fiscal 2018 bonus.
14. Convertible Debt
In December 2016
and January 2017
, we issued
$2
15
,000
aggregate principal amount of
3.375%
convertible senior notes due
2023
(
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, beginning on June 15, 2017.
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
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
available to pay obligations on the Convertible Notes only after all indebtedness under such secured debt has been repaid in full from such assets.
Upon conversion of the Convertible Notes, we will pay or deliver, as the case may be, cash, shares of our Class A common stock or a combination of cash and shares of Class A common stock, at our election, at a conversion rate of approximately
40.1405
shares of common stock per $1 principal amount of the Convertible Notes, which corresponds to an initial conversion price of approximately
$24.91
per share of our Class A common stock. At any time, prior to the close on the business day immediately preceding June 15, 2023, the Convertible Notes will be convertible under the following circumstances:
|
a)
|
|
During any calendar quarter beginning after the calendar quarter ending on December 31, 2016 (and only during such calendar quarter), if the last reported sale price of our Class A common stock for at least
20
trading days (whether or not consecutive) during a period of
30
consecutive trading days ending on the last trading day of the immediately preceding quarter is greater than or equal to
130%
of the conversion price on each applicable trading day;
|
|
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.
|
Pursuance 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 June 30, 2019
. As of March 31, 201
9
,
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 March 31, 2019,
no actual conversions have occurred to date.
See Note 5,
Earnings Per Share
, for a description of the dilutive nature of the Convertible Notes.
The Convertible Notes consisted of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
March 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
Debt component
:
|
|
|
|
|
|
|
Principal
|
|
$
|
215,000
|
|
$
|
215,000
|
Less: Unamortized debt discount
|
|
|
(26,436)
|
|
|
(27,629)
|
Less: Unamortized debt issuance costs
|
|
|
(4,116)
|
|
|
(4,281)
|
Net carrying amount
|
|
$
|
184,448
|
|
$
|
183,090
|
|
|
|
|
|
|
|
Equity component (1)
|
|
$
|
35,547
|
|
$
|
35,547
|
|
(1)
|
|
Recorded in the Consolidated Balance Sheets within additional paid-in capital.
|
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
The following table sets forth total interest expense recognized related to the Convertible Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2019
|
|
2018
|
3.375%
contractual coupon
|
|
$
|
1,814
|
|
$
|
1,814
|
Amortization of debt discount
|
|
|
1,193
|
|
|
1,119
|
Amortization of debt issuance costs
|
|
|
165
|
|
|
148
|
Additional interest on Convertible Notes (1)
|
|
|
1,370
|
|
|
—
|
Interest expense
|
|
$
|
4,542
|
|
$
|
3,081
|
|
(1)
|
|
During the three months ended March 31, 2019,
additional nonrecurring interest expense was
incurred
pursuant to
the
n
otes’ indenture
related to the removal of the restrictive legend and assignment of the unrestricted CUSIP on the Convertib
le Notes
.
|
Convertible Note Hedge
In connection with the pricing of the Convertible Notes in December 2016 and January 2017, we entered into convertible note hedge transactions with respect to our Class A common stock (the “Note Hedge”). The Note Hedge transactions cover approximately
8.
6
3
million shares of our Class A common stock and are exercisable upon conversion of the Convertible Notes. The Note Hedge will expire on December 15, 2023, unless earlier terminated. The Note Hedge transactions have been accounted for as part of additional paid-in capital.
Warrant Transactions
In connection with entering into the Note Hedge transactions described above, we also concurrently entered into separate warrant transactions (the “Warrants”), to sell warrants to acquire approximately
8.
6
3
million shares of our Class A common stock in connection with the Note Hedge transaction
s
at an initial strike price of approximately
$31.89
per share, which represents a premium of approximately
60.0%
over the last reported sale price of our Class A common stock of
$19.93
on December 12, 2016 (initial issuance date of the Convertible Notes). The Warrants transactions have been accounted for as part of additional paid-in capital.
1
5
.
Long-Term
Debt
and Credit Facilit
y
Long-Term Debt
Included within Long-Term Debt are the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
March 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
Current portion of long-term debt
:
|
|
|
|
|
|
|
Aircraft financing
|
|
$
|
4,766
|
|
$
|
4,740
|
Mortgage
|
|
|
382
|
|
|
378
|
Total current portion of long-term debt
|
|
$
|
5,148
|
|
$
|
5,118
|
|
|
|
|
|
|
|
Long-term debt
:
|
|
|
|
|
|
|
Aircraft financing
|
|
$
|
2,017
|
|
$
|
3,218
|
Mortgage
|
|
|
22,381
|
|
|
22,478
|
Total long-term debt
|
|
$
|
24,398
|
|
$
|
25,696
|
|
|
|
|
|
|
|
Total
|
|
$
|
29,546
|
|
$
|
30,814
|
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
Mortgage
In
September
2016, the Company acquired real property and
assu
med future obligations under a loan a
greement, dated June 8, 2015, in the principal amount of
$23,000
, which loan is secured by a mortgage on the
property.
The loan bears interest at the rate of
4.50%
per annum and requires monthly interest only payments of
$86
until June 2018 and interest and principal payments of
$117
per month thereafter, with a balloon payment on maturity in
July 2025
. There is a significant yield mainte
nance premium for prepayments.
Pursuant to the
loan agreement
, since the assets of WWE Real Estate
, a subsidiary of the Company,
represent collateral for the underlying mortgage, these assets will not be available to satisfy debts and obligations due to any other creditors of the Company.
Aircraft Financing
In August
2013, the Company entered into a
$31,568
promissory note (the “
Aircraft
Note”) with Citizens Asset Finance, Inc., for the purchase of a 2007 Bombardier Global 5000 aircraft and refurbishments.
In August 2017, the Aircraft Note was
assigned to Fifth Third Equipment Finance Company.
The
Aircraft
Note bears interest at a rate of
2.18%
per annum, is payable in monthly installments of
$406
, inclusive of interest, and has a final maturity of
August 7, 2020
.
The
Aircraft
Note is secured by a first priority perfected security interest in the purchased aircraft.
Credit Facili
ty
Revolving Credit Facility
In December
2016, in connection with the issuance of the
Convertible
Notes, as defined below,
the Company
entered into
an amended and restated
$100,000
senior unsecured revolving credit facility with a syndicated group of banks, with JPMorgan Chase Bank, N.A. acting as Administrative Agent
(the “
Revolving Credit Facility
”).
The Revolving Credit Facility
has a
maturity date
of
July 29, 2021
.
Applicable interest rates for the borrowings under the Revolving Credit Facility are based on the Company's current consolidated leverage ratio. As of
March 31
, 2019
, the LIBOR-based rate plus margin was
4.10
%
. 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
March 31, 2019
, the Company was in compliance with the Revolving Credit Facility and had available debt capacity under the terms of the Revolving Credit Facility of
$100,000
.
As
of
March 31, 2019
and
December 31, 2018
, there were
no
amounts outstanding under the Revolving Credit Facility.
1
6
. Concentration of Credit Risk
We continually monitor our position with, and the credit quality of, the financial institutions that are counterparties
to our financial instruments.
Our accounts receivable relate principally to a limited number of distributors, including our
WWE
Network, television, pay-per-view, and home video distributors, and licensees
.
We closely monitor the status of receivables with these customers and maintain allowances for anticipated
losses as deemed appropriate.
At
March 31, 2019
, our largest receivabl
e balance from
custome
rs
was
23
%
of
our gross accounts receivable.
At
December 31, 2018
,
our largest receivable balance from customers
was
30
%
of our gross
accounts receivable. No other customers individually exceeded 10% of our gross accounts receivable balance
.
1
7
. Income Taxes
A
s of March 31, 2019 and December 31, 2018, we
had
$17,918
and $17,138
, respectively,
of deferred tax assets, net, included in our Consolidated
Balance Sheets.
The Company considers all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is required to reduce the net deferred tax assets to the amount that is more likely than not to
be realized in future periods.
The Company believes that based on past performance, expected future taxable income and prudent and feasible tax planning strategies, it is more likely than not that the net deferred tax asset
s will be realized.
Changes in these factors may cause us to increase our valuation allowance on deferred tax assets, which would impact our income tax expense in the period we determine that these factors have changed.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
1
8
. Film and Television Production Incentives
The Company has access to various governmental programs that are designed to promote film and television production within the United States of America and certain international jurisdictions. Incentives earned with respect to expenditures on qualifying film production activities and capital projects are recorded as an offset
to the related asset balances.
Incentives earned with respect to television and other production activities are recorded as an offset to production
expenses.
The Company recognizes these benefits when we have reasonable assurance regarding the realizable amount of the incentives.
We record
ed
$279
and
$15
of
feature film production incentives during the three months ended March 31, 2019 and 2018
, respectively
.
1
9
. Commitments and Contingencies
Refer to Note 8,
Leases
, for a description of the Company’s new global headquarters lease.
Legal Proceeding
s
On October 23, 2014, a lawsuit was filed in the U. S. District Court for the District of Oregon, entitled
William Albert Haynes III, on behalf of himself and others similarly situated, v. World Wrestling Entertainment, Inc.
This complaint was amended on January 30, 2015 and alleged that the Company ignored, downplayed, and/or failed to disclose the risks associated with traumatic brain injuries suffered by WWE’s performers and seeks class action status. On March 31, 2015, the Company filed a motion to dismiss the first amended class action complaint in its entirety or, if not dismissed, to transfer the lawsuit to the U.S. District Court for the District of Connecticut. Without addressing the merits of the Company's motion to dismiss, the Court transferred the case to Connecticut on June 25, 2015. The plaintiffs filed an objection to such transfer, which was denied on July 27, 2015. On January 16, 2015, a second lawsuit was filed in the U.S. District Court for the Eastern District of Pennsylvania, entitled
Evan Singleton and Vito LoGrasso, individually and on behalf of all others similarly situated, v. World Wrestling Entertainment, Inc.
, alleging many of the same allegations as
Haynes
. On February 27, 2015, the Company moved to transfer venue to the U.S. District Court for the District of Connecticut due to forum-selection clauses in the contracts between WWE and the plaintiffs and that motion was granted on March 23, 2015. The plaintiffs filed an amended complaint on May 22, 2015 and, following a scheduling conference in which the court ordered the plaintiffs to cure various pleading deficiencies, the plaintiffs filed a second amended complaint on June 15, 2015. On June 29, 2015, WWE moved to dismiss the second amended complaint in its entirety. On April 9, 2015, a third lawsuit was filed in the U. S. District Court for the Central District of California, entitled
Russ McCullough, a/k/a “Big Russ McCullough,” Ryan Sakoda, and 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
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WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
the Haynes, Singleton/LoGrasso, and McCullough lawsuits. The Court granted the Company’s motions to dismiss the Haynes and McCullough lawsuits in their entirety and granted the Company’s motion to dismiss all claims in the Singleton/LoGrasso lawsuit except for the claim of fraud by omission. On March 22, 2016, the Court issued an order dismissing the Windham lawsuit based on the Court’s memorandum of decision on the motions to dismiss. On April 4, 2016, the Company filed a motion for reconsideration with respect to the Court’s decision not to dismiss the fraud by omission claim in the Singleton/LoGrasso lawsuit and, on April 5, 2016, the Company filed a motion for reconsideration with respect to the Court dismissal of the Windham lawsuit. On July 21, 2016, the Court denied the Company’s motion in the Singleton/LoGrasso lawsuit and granted in part the Company’s motion in the Windham lawsuit. On April 20, 2016, the plaintiffs filed notices of appeal of the Haynes and McCullough lawsuits. On April 27, 2016, the Company moved to dismiss the appeals for lack of appellate jurisdiction, which motions were granted, and the appeals were dismissed with leave to appeal upon the resolution of all of the consolidated cases. The Company filed a motion for summary judgment on the sole remaining claim in the Singleton/LoGrasso lawsuit, which was granted on March 28, 2018. The Company also filed a motion for judgment on the pleadings against the Windham defendants. Lastly, on July 18, 2016, a lawsuit was filed in the U.S. District Court for the District of Connecticut, entitled
Joseph M. Laurinaitis, et al. vs. World Wrestling Entertainment, Inc. and Vincent K. McMahon, individually and as the trustee of certain trusts
. This lawsuit contains many of the same allegations as the other lawsuits alleging traumatic brain injuries and further alleges, among other things, that the plaintiffs were misclassified as independent contractors rather than employees denying them, among other things, rights and benefits under the Occupational Safety and Health Act (OSHA), the National Labor Relations Act (NLRA), the Family and Medical Leave Act (FMLA), federal tax law, and various state Worker’s Compensation laws. This lawsuit also alleges that the booking contracts and other agreements between the plaintiffs and the Company are unconscionable and should be declared void, entitling the plaintiffs to certain damages relating to the Company’s use of their intellectual property. The lawsuit alleges claims for violation of RICO, unjust enrichment, and an accounting against Mr. McMahon. The Company and Mr. McMahon moved to dismiss this complaint on October 19, 2016. On November 9, 2016, the
Laurinaitis
plaintiffs filed an amended complaint. On December 23, 2016, the Company and Mr. McMahon moved to dismiss the amended complaint. On September 29, 2017, the Court issued an order on the motion to dismiss pending in the
Laurinaitis
case and on the motion for judgment on the pleadings pending in the
Windham
case. The Court reserved judgment on the pending motions and ordered that within thirty-five (35) days of the date of the order the
Laurinaitis
plaintiffs and the
Windham
defendants file amended pleadings that comply with the Federal Rules of Civil Procedure. The Court further ordered that each of the
Laurinaitis
plaintiffs and the
Windham
defendants submit to the Court for in camera review affidavits signed and sworn under penalty of perjury setting forth facts within each plaintiff’s or declaratory judgment-defendant’s personal knowledge that form the factual basis of their claim or defense. On November 3, 2017, the Laurinaitis plaintiffs filed a second amended complaint. The Company and Mr. McMahon believe that the second amended complaint failed to comply with the Court’s September 29, 2017 order and otherwise remained legally defective for all of the reasons set forth in their motion to dismiss the amended complaint. Also on November 3, 2017, the Windham defendants filed a second answer. The Company does not know if the Laurinaitis Plaintiffs and Windham Defendants submitted the affidavits required under the Court’s September 29, 2017 order. On November 17, 2017, the Company and Mr. McMahon filed a response that, among other things, urged the Court to grant the motion for judgment on the pleadings 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.
On April 4, 2019, the Second Circuit issued an order referring the Company’s motions to dismiss to the panel that will determine the merits of the appeals and directing the plaintiffs-appellants to file a scheduling notification letter
indicating the date on which they will file their opening briefs
.
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.
Table of Contents
WORLD WRESTLING ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
20
.
Related Party Transactions
I
n April 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 three months ended March 31, 2019, the Company billed Alpha
$1,317
for
services rendered under the support services agreement. As o
f March 31, 2019, the
Company had
$1,037
of current receivables for amounts billed
to Alpha under the support services agreement.