World Wrestling Entertainment (WWE) 10-Q 2005 Q2 Quarterly report

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

FORM 10-Q

x	QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES  EXCHANGE ACT OF 1934
	For the quarterly period ended July 29, 2005
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ________ to __________
	Commission file number 0-27639

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

Delaware	04-2693383
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1241 East Main Street Stamford, CT 06902 (203) 352-8600
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yesx Noo

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yesx Noo

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yeso Nox

At August 26, 2005, the number of shares outstanding of the Registrant’s Class A common stock, par value $.01 per share, was 21,270,489 and the number of shares outstanding of the Registrant’s Class B common stock, par value $.01 per share, was 47,713,563.

World Wrestling Entertainment, Inc.
Table of Contents

		Page #
Part I – FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited)
	Consolidated Income Statements for the three months ended July 29, 2005 and July 30, 2004	2
	Consolidated Balance Sheets as July 29, 2005 and April 30, 2005	3
	Consolidated Statements of Cash Flows for the three months ended July 29, 2005 and July 30, 2004	4
	Consolidated Statement of Stockholders’ Equity and Comprehensive Income for the three months ended July 29, 2005	5
	Notes to Consolidated Financial Statements	6
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3.  Quantitative and Qualitative Disclosures about Market Risk		19
Item 4.  Controls and Procedures		19
Part II – OTHER INFORMATION
Item 1.  Legal Proceedings		20
Item 6.  Exhibits		20
Signature		21

1

World Wrestling Entertainment, Inc.
Consolidated Income Statements
(in thousands, except per share data)
(unaudited)

	Three Months Ended
	July 29, 2005			July 30, 2004
Net revenues	$	93,812		$	81,551
Cost of revenues		52,501			48,416
Selling, general and administrative expenses		22,236			17,875
Depreciation and amortization		2,696			2,920
Stock compensation costs		579			1,111
Operating income		15,800			11,229
Investment income, net		1,872			1,232
Interest expense		152			167
Other (loss) income, net		(73	)		217
Income from continuing operations before income taxes		17,447			12,511
Provision for income taxes		6,269			4,754
Income from continuing operations		11,178			7,757
Income (loss) from discontinued operations, net of income taxes		2			(111	)
Net income	$	11,180		$	7,646
Earnings per common share - basic and diluted:
Continuing operations	$	0.16		$	0.11
Discontinued operations		—			—
Net income	$	0.16		$	0.11
Shares used in per share calculations:
Basic		68,899			68,691
Diluted		69,627			69,574

See Notes to Consolidated Financial Statements.

2

World Wrestling Entertainment, Inc.
Consolidated Balance Sheets
(dollars in thousands)
(unaudited)

	As of July 29, 2005			As of April 30, 2005
CURRENT ASSETS:
Cash and equivalents	$	74,480		$	56,568
Short-term investments		196,837			201,487
Accounts receivable, net		54,352			61,901
Inventory, net		1,285			1,057
Prepaid expenses and other current assets		10,879			15,191
Assets of discontinued operations		415			544
Total current assets		338,248			336,748
PROPERTY AND EQUIPMENT, NET		64,703			66,638
FEATURE FILM PRODUCTION ASSETS		30,723			28,771
INTANGIBLE ASSETS, NET		2,101			2,608
OTHER ASSETS		7,276			6,640
TOTAL ASSETS	$	443,051		$	441,405
CURRENT LIABILITIES:
Current portion of long-term debt	$	771		$	756
Accounts payable		15,913			15,669
Accrued expenses and other liabilities		21,418			21,151
Deferred income		18,132			20,843
Liabilities of discontinued operations		259			254
Total current liabilities		56,493			58,673
LONG-TERM DEBT		7,000			7,198
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Class A common stock		211			210
Class B common stock		479			479
Additional paid-in capital		256,066			254,716
Accumulated other comprehensive loss		(1,083	)		(908	)
Retained earnings		123,885			121,037
Total stockholders’ equity		379,558			375,534
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	443,051		$	441,405

See Notes to Consolidated Financial Statements.

3

World Wrestling Entertainment, Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)

	Three Months Ended
	July 29, 2005			July 30, 2004
OPERATING ACTIVITIES:
Net income	$	11,180		$	7,646
Adjustments to reconcile net income to net cash provided by operating activities:
(Income) loss from discontinued operations, net of taxes		(2	)		111
Revaluation of warrants		(639	)		(212	)
Depreciation and amortization		2,696			2,920
Realized loss on sale of investments		—			338
Amortization of investment income		(263	)		(32	)
Stock compensation costs		579			1,111
Provision for doubtful accounts		370			225
Provision for inventory obsolescence		307			46
Provision for deferred income taxes		308			581
Changes in assets and liabilities:
Accounts receivable		7,179			11,188
Inventory		(534	)		(11	)
Prepaid expenses and other assets		200			1,302
Feature film production assets		(1,952	)		(386	)
Accounts payable		243			(2,544	)
Accrued expenses and other liabilities		4,537			(12,300	)
Deferred income		(2,588	)		1,078
Net cash provided by continuing operations		21,621			11,061
Net cash provided by (used in) discontinued operations		136			(794	)
Net cash provided by operating activities		21,757			10,267
INVESTING ACTIVITIES:
Additions to property and equipment		(255	)		(916	)
Purchase of short-term investments		(1,325	)		(1,257	)
Proceeds from sales or maturities of short-term investments, net		5,470			20,000
Net cash provided by continuing operations		3,890			17,827
Net cash used in discontinued operations		—			—
Net cash provided by investing activities		3,890			17,827
FINANCING ACTIVITIES:
Repayments of long-term debt		(184	)		(171	)
Dividends paid		(8,267	)		(4,112	)
Issuance of stock, net		187			171
Proceeds from exercise of stock options		529			37
Net cash used in continuing operations		(7,735	)		(4,075	)
Net cash used in discontinued operations		—			—
Net cash used in financing activities		(7,735	)		(4,075	)
NET INCREASE IN CASH AND EQUIVALENTS		17,912			24,019
CASH AND EQUIVALENTS, BEGINNING OF PERIOD		56,568			48,467
CASH AND EQUIVALENTS, END OF PERIOD	$	74,480		$	72,486

See Notes to Consolidated Financial Statements.

4

World Wrestling Entertainment, Inc.
Consolidated Statement of Stockholders’ Equity and Comprehensive Income
(dollars and shares in thousands)
(unaudited)

					Additional Paid - in Capital		Accumulated Other Comprehensive Income
	Common Stock
										Retained Earnings
	Shares		Amount										Total
Balance, May 1, 2005		68,881	$	689	$	254,716	$	(908	)	$	121,037		$	375,534
Comprehensive income:
Net income		—		—		—		—			11,180			11,180
Translation adjustment		—		—		—		227			—			227
Unrealized holding loss, net of tax		—		—		—		(402	)		—			(402	)
Total comprehensive income														11,005
Stock compensation costs		—		—		579		—			—			579
Stock issuances, net		29		—		120		—			—			120
Exercise of stock options		59		1		526		—			—			527
Tax benefit from exercises		—		—		60		—			—			60
Dividends paid		—		—		65		—			(8,332	)		(8,267	)
Balance, July 29, 2005		68,969	$	690	$	256,066	$	(1,083	)	$	123,885		$	379,558

See Notes to Consolidated Financial Statements.

5

World Wrestling Entertainment, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
(unaudited)

1.       Basis of Presentation and Business Description

          The accompanying condensed consolidated financial statements include the accounts of World Wrestling Entertainment, Inc., and our subsidiaries.  We are an integrated media and entertainment company, principally engaged in the development, production and marketing of television and pay-per-view event programming and live events and the licensing and sale of branded consumer products featuring our World Wrestling Entertainment brands.  Our operations are organized around two principal activities:

•	Live and televised entertainment, which consists of live event and television programming and feature films.  Revenues consist principally of pay-per-view buys, attendance at live events, domestic and international television rights fees and sponsorships. Revenues also include the sale of television advertising time in Canada and, through October 2005, in the United States.
•	Branded merchandise, which consists of licensing and direct sale of merchandise. Revenues include sales of consumer products through third party licensees, direct marketing and sales of merchandise both at our live events and via our website, magazines, home videos and various services through our websites.
All significant intercompany balances have been eliminated.  Certain prior year amounts have been reclassified to conform with the current year presentation. The accompanying consolidated financial statements are unaudited. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included.  The results of operations of any interim period are not necessarily indicative of the results of operations for the full year.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates.  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 April 30, 2005.
Our fiscal year ends on April 30 of each year. Unless otherwise noted, all references to years relate to fiscal years, not calendar years and refer to the fiscal period by using the year in which the fiscal period ends. Our fiscal quarters are thirteen-week periods that end on the thirteenth Friday in the quarter, with the exception of our fourth quarter, which always ends on April 30.
2.       Stockholders’ Equity
Pro Forma Fair Value Disclosures

          The fair value of options granted to employees, which is amortized to expense over the option vesting period in determining the pro forma impact, is estimated on the date of the grant using the Black-Scholes option-pricing model.

          Had compensation expense for our stock options been recognized based on the fair value on the grant date under the methodology prescribed by SFAS No. 123, our income from continuing operations and basic and diluted earnings from continuing operations per common share for the three months ended July 29, 2005 and July 30, 2004 would have been impacted as shown in the following table:

6

World Wrestling Entertainment, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
(unaudited)

		Three months ended
		July 29, 2005			July 30, 2004
Reported income from continuing operations		$	11,178		$	7,757
Add:	Stock-based employee compensation expense included in reported income from continuing operations, net of related tax effects		359			689
Deduct:	Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(671	)		(978	)
Pro forma income from continuing operations		$	10,866		$	7,468
Reported basic and diluted earnings from continuing operations per common share		$	0.16		$	0.11
Pro forma basic and diluted earnings from continuing operations per common share		$	0.16		$	0.11

          In July 2005, we paid a quarterly dividend of $0.12 per share, or $8,267, on all Class A and Class B common shares.

          In July 2004, we granted 1,074,500 options with an exercise price of $12.90 and granted 133,900 restricted stock units at a price per share of $12.90.  Such issuances were granted to officers and employees under our 1999 Long-term Incentive Plan (the “Plan”). Total compensation costs related to the grant of the restricted stock units, based on the closing price of the underlying shares on the grant date, was $1,727 and is being amortized over the vesting period, which is seven years.

          As part of an employment agreement for our new Chief Financial Officer we granted 100,000 restricted stock units during the current quarter under the Plan.  The total compensation charge related to this grant, based on the closing price of the underlying shares on the grant date, is $1,041.  These units will vest 50% after the second year of his employment and 50% after the third year.

          Stock-based compensation expense for the three months ended July 29, 2005 and July 30, 2004 related to restricted stock grants was $579 ($359 net of tax) and $1,111 ($689 net of tax), respectively.  No compensation expense was recorded for the options granted under the intrinsic accounting method followed by the Company.

3.       Earnings Per Share

          For purposes of calculating basic and diluted earnings per share, we used the following weighted average common shares outstanding:

	Three months ended
	July 29, 2005		July 30, 2004
Basic		68,898,601		68,690,869
Diluted		69,627,110		69,574,200
Dilutive effect of outstanding options and restricted stock units		728,509		883,332
Anti-dilutive outstanding options		2,710,500		3,014,750

7

World Wrestling Entertainment, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
(unaudited)

4.       Segment Information

          Our continuing operations are conducted within two reportable segments, live and televised entertainment, and branded merchandise. The live and televised entertainment segment consists of live events, television programming and feature films. Our branded merchandise segment includes sales of consumer products through third party licensees, direct marketing and sales of merchandise both at our live events and via our website, magazines, home videos and various services through our websites.  We do not allocate corporate overhead to each of the segments and as a result, corporate overhead is a reconciling item in the table below.  There are no intersegment revenues.  Revenues derived from sales outside of North America were approximately $23,055 and $18,156 for the three months ended July 29, 2005 and July 30, 2004, respectively.  Unallocated assets consist primarily of cash, short-term investments and real property and other investments.

	Three months ended
	July 29, 2005			July 30, 2004
Net Revenues:
Live and televised entertainment	$	68,606		$	65,201
Branded merchandise		25,206			16,350
Total net revenues	$	93,812		$	81,551
Depreciation and Amortization:
Live and televised entertainment	$	1,040		$	1,349
Branded merchandise		356			337
Corporate		1,300			1,234
Total depreciation and amortization	$	2,696		$	2,920
Operating Income:
Live and televised entertainment	$	23,909		$	20,675
Branded merchandise		10,635			4,973
Corporate		(18,744	)		(14,419	)
Total operating income	$	15,800		$	11,229

	As of
	July 29, 2005		April 30, 2005
Assets:
Live and televised entertainment	$	98,765	$	109,050
Branded merchandise		16,603		12,300
Unallocated (1)		327,683		320,055
Total assets	$	443,051	$	441,405

(1)  Includes assets of discontinued operations of $415 and $544 as of July 29, 2005 and April 30, 2005, respectively.

8

World Wrestling Entertainment, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
(unaudited)

5.       Property and Equipment

          Property and equipment consisted of the following :

	As of
	July 29, 2005		April 30, 2005
Land, buildings and improvements	$	51,997	$	51,958
Equipment		42,735		42,511
Corporate aircraft		20,710		20,710
Vehicles		542		542
		115,984		115,721
Less accumulated depreciation and amortization		51,281		49,083
Total	$	64,703	$	66,638

          Depreciation and amortization expense for property and equipment was $2,188 and $2,422 for the three months ended July 29, 2005 and July 30, 2004, respectively.

6.       Feature Film Production Assets

          Feature film production assets are summarized as follows:

	As of
	July 29, 2005		April 30, 2005
Feature film productions:
In production	$	30,066	$	28,296
In development		657		475
Total	$	30,723	$	28,771

          We have completed the principal photography stage of production for two theatrical film releases and are currently involved in the post-production stage.  We have agreements for the worldwide distribution of the films and certain related rights and products.  We currently anticipate these films will be released during calendar year 2006.

          In addition to the capitalized production costs related to these two films, we have also capitalized certain script development costs for various other film projects. Capitalized script development costs are reviewed periodically for impairment if, and when, a project is deemed to be abandoned.

9

World Wrestling Entertainment, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
(unaudited)

7.       Intangible Assets

          Intangible assets consist of acquired sports entertainment film libraries, trademarks and trade names. We have classified these costs as intangible assets and amortize them over the period of the expected revenues to be derived from these assets.

          Intangible assets consisted of the following:

	As of July 29, 2005
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Film libraries	$	4,745	$	(3,389	)	$	1,356
Trademarks and trade names		2,660		(1,915	)		745
	$	7,405	$	(5,305	)	$	2,101

	As of April 30, 2005
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Film libraries	$	4,745	$	(2,993	)	$	1,752
Trademarks and trade names		2,660		(1,804	)		856
	$	7,405	$	(4,797	)	$	2,608

          Amortization expense for the three months ended July 29, 2005 and July 30, 2004, was $508 and $498, respectively.

          Estimated amortization expense for each of the years ending is as follows:

April 30, 2006	$	2,028
April 30, 2007		568
April 30, 2008		12
	$	2,608

8.       Investments

          Short-term investments consisted of the following as of July 29, 2005 and April 30, 2005:

	July 29, 2005
	Cost		Unrealized Holding Loss			Fair Value
Fixed-income mutual funds and other	$	159,643	$	(3,383	)	$	156,260
United States Treasury Notes		40,617		(40	)		40,577
Total	$	200,260	$	(3,423	)	$	196,837

10

World Wrestling Entertainment, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
(unaudited)

	April 30, 2005
	Cost		Unrealized Holding Loss			Fair Value
Fixed-income mutual funds and other	$	158,317	$	(2,677	)	$	155,640
United States Treasury Notes		45,945		(98	)		45,847
Total	$	204,262	$	(2,775	)	$	201,487

9.       Commitments and Contingencies

Legal Proceedings

World Wide Fund for Nature

          There has been no significant development in this legal proceeding subsequent to the disclosure in Note 11 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended April 30, 2005.

Shenker & Associates; THQ/Jakks

          There has been no significant development in this legal proceeding subsequent to the disclosure in Note 11 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended April 30, 2005, except as follows:

          In connection with our lawsuit against THQ/Jakks Pacific LLC et al., the U.S. District Court for the Southern District of New York issued an Order dated August 18, 2005 setting an initial briefing schedule with respect to the defendants’ motions to dismiss our amended complaint.

Marvel Enterprises

          There has been no significant development in this legal proceeding subsequent to the disclosure in Note 11 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended April 30, 2005, except as follows:

          On August 22, 2005, we entered into an agreement with Marvel Enterprises, Inc.  to settle our pending motion for the payment of attorneys’ fees and costs in the amount of $925 and certain non-monetary consideration, which was paid to us subsequent to the quarter end.

IPO Class Action

          There has been no significant development in this legal proceeding subsequent to the disclosure in Note 11 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended April 30, 2005.

11

World Wrestling Entertainment, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
(unaudited)

10.      Discontinued operations

          In early May 2001, we formalized our decision to discontinue operations of the XFL and in fiscal 2003 we closed the restaurant and retail operations of The World.  The results of the XFL and The World business and the assets and liabilities of the XFL and The World have been classified as discontinued operations in our consolidated financial statements and are summarized as follows:

	Three months ended
	July 29, 2005		July 30, 2004
Discontinued operations:
Income (loss) from discontinued operations, net of taxes of $0 and $60 for the three months ended July 29, 2005 and July 30, 2004, respectively	$	2	$	(111	)

	As of
	July 29, 2005		April 30, 2005
Assets:
Cash	$	415	$	544
Liabilities:
Accrued expenses	$	79	$	74
Minority interest		180		180
Total liabilities	$	259	$	254

          Assets of the discontinued operations are stated at their estimated net realizable value.

12

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Background

          We are an integrated media and entertainment company principally engaged in the development, production and marketing of television programming and live events and the licensing and sale of branded consumer products featuring our highly successful brands.

          Our operations are organized around two principal activities:

• Live and televised entertainment, which consists of live event and television programming and feature films.  Revenues consist principally of pay-per-view buys, attendance at live events, domestic and international television rights fees and sponsorships. Revenues also include the sale of television advertising time in Canada and, through October 2005, in the United States.

• Branded merchandise, which consists of licensing and direct sale of merchandise. Revenues include sales of consumer products through third party licensees, direct marketing and sales of merchandise both at our live events and via our website, magazines, home videos and various services through our websites.

Results of Operations

First Quarter Ended July 29, 2005 compared to First Quarter Ended July 30, 2004
(Dollars in millions, except as noted)

	July 29, 2005		July 30, 2004		better (worse)
Net Revenues
Live and televised	$	68.6	$	65.2		5	%
Branded merchandise		25.2		16.4		54	%
Total	$	93.8	$	81.6		15	%

	July 29, 2005			July 30, 2004			better (worse)
Operating Income
Live and televised	$	23.9		$	20.7			15	%
Branded merchandise		10.6			4.9			116	%
Corporate		(18.7	)		(14.4	)		(30	)%
Total operating income	$	15.8		$	11.2			41	%
Income from continuing operations	$	11.2		$	7.8			44	%

          Our live and televised segment increased net revenues and operating income primarily due to the airing of one additional pay-per-view event in the current quarter as compared to the prior year.  The branded merchandise segment yielded positive results in licensing sales outside of North America in the current quarter while sales of our merchandise domestically increased due to additional orders on our WWE Shop website.  Also, the release of several successful home video titles, including WrestleMania 21, drove a 46% increase in the gross units sold in the current quarter.

13

          Additional details regarding the results of the quarter follow below:

          The following chart reflects comparative revenues and key drivers for each of the businesses within our live and televised segment:

	July 29, 2005		July 30, 2004		better (worse)
Live and Televised Revenues
Live events	$	16.5	$	17.9		(8	)%
Number of events		70		89		(21	)%
Average attendance		4,600		3,800		21	%
Average ticket price (dollars)	$	45.32	$	45.54		0	%
Pay-per-view	$	21.6	$	16.9		28	%
Number of pay-per-view events		5		4		25	%
Number of buys from domestic pay-per-view events		1,444,600		1,122,100		29	%
Domestic retail price (dollars)	$	34.95	$	34.95		0	%
Advertising	$	10.4	$	10.6		(2	)%
Average weekly household ratings for RAW		3.8		3.7		3	%
Average weekly household ratings for SmackDown!		3.1		3.1		0	%
Sponsorship revenues	$	1.0	$	0.9		11	%
Television rights fees:
Domestic	$	12.9	$	13.8		(7	)%
International	$	7.1	$	6.0		18	%

          The decline in live events revenues is due, in part, to nineteen fewer events, including three fewer international events, as compared to the prior year quarter. This decline was offset, in part, by an increase in the average attendance for both the domestic and international shows. The average attendance at our North American live events was approximately 4,600 as compared to approximately 3,800 in the prior year quarter, while the average international attendance was 10,700 as compared to 9,300 in the prior year quarter.

          We aired five pay-per-view events in the first quarter of fiscal 2006 as compared to four pay-per-view events in the prior year quarter.  Each of the comparable four events either equaled or exceeded the buys recorded in the year ago quarter.  These buys were somewhat offset by a decrease in the prior year buys recorded in the current quarter.  We will produce sixteen pay-per-view events in fiscal 2006, as compared to fourteen events in fiscal 2005. 

          As previously disclosed, we have entered into a new distribution agreement whereby our RAW program and a one-hour weekend RAW branded program will air on USA Network, beginning October 2005.  Under the terms of this agreement, we will no longer sell or participate in any advertising revenue generated by these programs.  The impact of this change in fiscal 2006, for the period October through April, is estimated to be a reduction in revenues of approximately $18.1 million.  Under the terms on the agreement, we will receive rights fees from USA Network similar to those received from SpikeTV. 

          The decline in domestic television rights fees was due to the airing of two special programs on SpikeTV and UPN in the prior year quarter that did not recur in the first quarter of fiscal 2006.

14

          The following chart reflects comparative revenues and certain drivers for selected businesses within our branded merchandise segment:

	July 29, 2005		July 30, 2004		better (worse)
Branded Merchandise Revenues
Licensing	$	7.5	$	3.0		150	%
Merchandise	$	5.2	$	3.7		41	%
Domestic per capita spending (dollars)	$	10.59	$	9.16		16	%
Magazine publishing	$	2.1	$	2.2		(5	)%
Net units sold		730,400		789,400		(7	)%
Home video	$	8.5	$	5.7		49	%
Gross units sold		722,000		495,400		46	%
Digital media	$	1.7	$	1.6		6	%

          Licensing revenues increased due, in part, to increases of approximately $1.0 million in the Toys category and approximately $1.9 million in the Novelties category, particularly in territories outside North America.  Video Games revenues increased by approximately $1.5 million due to sales for the WrestleMania 21 game on the Xbox platform. There were no new titles released in the prior year quarter.

          The increase in merchandise revenues is primarily due to a $1.1 million increase in our WWE Shop website sales as compared to the prior year quarter.  For our WWE Shop website, the number of orders more than doubled from the prior year quarter from approximately 15,000 orders to approximately 41,000 orders.  In addition, there was a $0.4 million increase for merchandise sold at our venues for live events due to higher per capita spending and higher average attendance.

          Home video revenues increased as a result of the higher number of gross units sold.  WrestleMania 21 sold approximately 202,000 units in the current quarter, as compared to WrestleMania XX, which was released in Q4 of fiscal 2004 and sold 60,000 units in the prior year quarter. Other titles released in the quarter included Greatest Wrestling Stars of the 80’s, which sold approximately 95,000 units, and The Road Warriors, which sold approximately 84,000 units.

          Digital media increased primarily as a result of increased advertising, due in part to changes in our website design that allow advertisers additional options and more prominent advertisement placement.

	July 29, 2005			July 30, 2004			better (worse)
Cost of Revenues
Live and televised	$	40.2		$	39.2			(3	)%
Branded merchandise		12.3			9.2			(34	)%
Total	$	52.5		$	48.4			(8	)%
Profit contribution margin		44	%		41	%

          The following chart reflects comparative cost of revenues for each of the businesses within our live and televised segment:

	July 29, 2005		July 30, 2004		better (worse)
Cost of Revenues-Live and Televised
Live events	$	12.8	$	14.0		9	%
Pay-per-view	$	8.6	$	6.6		(30	)%
Advertising	$	3.6	$	3.6		0	%
Television production costs	$	12.8	$	12.9		1	%
Other	$	2.4	$	2.1		(14	)%

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          Live events cost of revenues decreased due to the production of nineteen fewer events during the current quarter as compared to last year.

          Pay-per-view cost of revenues increased due to the airing of one additional pay-per-view event as five events were produced in the current quarter as compared to four events in the year ago quarter.

          The following chart reflects comparative cost of revenues for certain of the businesses within our branded merchandise segment:

	July 29, 2005		July 30, 2004		better (worse)
Cost of Revenues — Branded Merchandise
Licensing	$	2.4	$	1.1		(118	)%
Merchandise	$	3.3	$	3.0		(10	)%
Magazine publishing	$	1.2	$	1.3		8	%
Home video	$	4.2	$	2.4		(75	)%
Digital media	$	1.2	$	1.2		0	%
Other		—	$	0.2		100	%

          Licensing cost of revenues increased due primarily to additional talent royalties and commissions related to the higher revenues generated for the current quarter. 

          Home video cost of revenues increased due to the production costs associated with the additional units sold in the current quarter.

	July 29, 2005		July 30, 2004		better (worse)
Selling, general and administrative expenses	$	22.2	$	17.9		(24	)%

          The following chart reflects the amounts and percent change of certain significant selling, general and administrative items:

	July 29, 2005			July 30, 2004			better (worse)
Staff related	$	11.5		$	10.6			(8	)%
Legal		2.4			2.6			8	%
Consulting and accounting		1.3			1.3			0	%
Advertising and promotion		0.6			0.8			25	%
Bad debt		0.4			0.2			(100	)%
All other		6.0			2.4			(150	)%
Total SG&A	$	22.2		$	17.9			(24	)%
SG&A as a percentage of net revenues		24	%		22	%

          The increase in staff related expenses is due in part to $1.4 million of severance pay related to certain restructuring plans implemented during the current quarter.  This increase was offset, in part, by the waiver of the Company’s Chairman and the Company’s Chief Executive Officer of their pay, which waiver began in November 2004 and reduced staff related expenses in the current quarter by $0.9 million. In addition, included in the prior year quarter in the All other category was a $2.1 million reduction of sales tax expense due to a tax refund.

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	July 29, 2005		July 30, 2004		better (worse)
Stock compensation costs	$	0.6	$	1.1		45	%

          Stock compensation expense relates to our restricted stock program which was initiated in fiscal 2004.  During 2004, we completed an exchange offer that gave all active employees and independent contractors who held stock options with a grant price of $17.00 or higher the ability to exchange their options, at a 6 to 1 ratio, for restricted stock units.  This exchange resulted in a total compensation charge of approximately $6.7 million, of which approximately $2.0 million was recorded in fiscal 2004, approximately $3.6 million was recorded in fiscal 2005 and approximately $1.1 million will be recorded in fiscal 2006, of which approximately $0.4 was recorded in the current fiscal quarter.  The remaining charge of approximately $0.2 million in our first fiscal quarter of 2006 reflects the amortization of restricted stock grants issued to employees under our 1999 Long-Term Incentive Plan (“LTIP”).

	July 29, 2005		July 30, 2004		better (worse)
Depreciation and amortization	$	2.7	$	2.9		7	%

	July 29, 2005		July 30, 2004		better (worse)
Investment income, net	$	1.9	$	1.2		58	%

	July 29, 2005		July 30, 2004		better (worse)
Interest expense	$	0.2	$	0.2		0	%

	July 29, 2005			July 30, 2004
Provision for income taxes	$	6.3		$	4.8
Effective tax rate		36	%		38	%

Liquidity and Capital Resources

          Cash flows from operating activities for the first quarter of fiscal 2006 and fiscal 2005 were $21.8 million and $10.3 million, respectively. Cash flows provided by operating activities from continuing operations were $21.6 million and $11.1 million for the first quarter of fiscal 2006 and fiscal 2005, respectively.  Working capital, consisting of current assets less current liabilities, was $281.8 million as of July 29, 2005 and $278.1million as of April 30, 2005.

          Cash flows provided by investing activities were $3.9 million and $17.8 million for the first quarter of fiscal 2006 and fiscal 2005, respectively. The decrease in cash flows from investing activities in fiscal 2006 was due primarily to sales of short-term investments in the prior year quarter.  As of August 26, 2005, we had approximately $189.0 million invested primarily in fixed-income mutual funds and short-term U.S. Treasury Notes.  Our investment policy is designed to preserve capital and minimize interest rate, credit and market risk.  Capital expenditures for the three months ended July 29, 2005 were $0.3 million as compared to $0.9 million for the three months ended July 30, 2004.  For fiscal 2006, we estimate capital expenditures to be between $10.0 million and $12.0 million, which include projects related to television equipment, building improvements and the purchase of land adjacent to our television facility.

          Cash flows used in financing activities for the first quarter of fiscal 2006 were $7.7 million and were $4.1 million for the first quarter of fiscal 2005.  In July 2005, we paid a quarterly dividend of $0.12 per share, or approximately $8.3 million, on all Class A and Class B common shares.  In July 2004, we paid a quarterly dividend, which was declared in fiscal 2004, of $0.06 per share, or approximately $4.1 million, on all Class A and Class B common shares.

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          We are producing feature films in order to further capitalize on our intellectual property and fan base.  We currently have two film projects that have completed principal photography and are currently in post-production.  As of July 29, 2005 we have approximately $30.7 million in capitalized film development costs.  The aggregate production budget for the two films is estimated to be approximately $32 million.  These two film projects represent the first steps for our film entertainment initiative as subsequent films are expected to be developed.

          For a table of our contractual obligations as of April 30, 2005, please see the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for our fiscal year  April 30, 2005.

          We believe that cash generated from operations and from existing cash and short-term investments will be sufficient to meet our cash needs over the next twelve months for working capital, capital expenditures and payment of quarterly dividends.

Application of Critical Accounting Policies

          There have been no changes to our accounting policies that were previously disclosed in our Annual Report on Form 10-K for our fiscal year ended April 30, 2005 nor in the methodology used in formulating these significant judgments and estimates that affect the application of these policies.  Amounts included in our consolidated balance sheets in accounts that we have identified as being subject to significant judgments and estimates were as follows:

	As of
	July 29, 2005		April 30, 2005
Pay-per-view accounts receivable	$	20.0 million	$	26.8 million
Advertising reserve for underdelivery	$	1.4 million	$	2.6 million
Home video reserve for returns	$	4.5 million	$	2.9 million
Publishing newsstand reserve for returns	$	3.1 million	$	4.6 million
Allowance for doubtful accounts	$	3.5 million	$	3.3 million

Recent Accounting Pronouncements

          There are no accounting standards or interpretations that have been issued, but which we have not yet adopted, that we believe will have a material impact on our financial statements.

Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995

          The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain statements that are forward-looking and are not based on historical facts. When used in this Quarterly Report, the words “may,” “will,” “could,” “anticipate,” “plan,” “continue,” “project,” “intend”, “estimate”, “believe”, “expect” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such words. These statements relate to our future plans, objectives, expectations and intentions and are not historical facts and accordingly involve known and unknown risks and uncertainties and other factors that may cause the actual results or the performance by us to be materially different from future results or performance expressed or implied by such forward-looking statements. The following factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this Quarterly Report, in press releases and in oral statements made by our authorized officers: (i) our failure to maintain or renew key agreements could adversely affect our ability to distribute our television and pay-per-view programming;  (ii) our failure to continue to develop creative and entertaining programs and events would likely lead to a decline in the popularity of our brand of entertainment; (iii) our failure to retain or continue to recruit key performers could lead to a decline in the appeal of our storylines and the popularity of our brand of entertainment; (iv) the loss of the creative services of Vincent K. McMahon could adversely affect our ability to create popular characters and creative storylines;  (v) a decline in general economic conditions could adversely affect our business; (vi) a decline in the popularity of our brand of sports entertainment, including as a result of changes in the social and political climate, could adversely affect our business; (vii) changes in the regulatory atmosphere and related private sector initiatives could adversely affect our business; (viii) the markets in which we operate are highly competitive, rapidly changing and increasingly fragmented, and we may not be able to compete effectively, especially against competitors with greater financial resources or marketplace presence; (ix) we face uncertainties associated with international markets; (x) we may be prohibited from promoting and conducting our live events if we do not comply with applicable regulations; (xi) because we depend upon our

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intellectual property rights, our inability to protect those rights, or our infringement of others’ intellectual property rights, could adversely affect our business; (xii) we could incur substantial liabilities if pending material litigation is resolved unfavorably; (xiii) our insurance may not be adequate to cover liabilities resulting from accidents or injuries that occur during our physically demanding events; (xiv) we will face a variety of risks as we expand into new and complementary businesses such as subscription video-on-demand and feature films; (xv)  through his beneficial ownership of a substantial majority of our Class B common stock, our controlling stockholder, Vincent K. McMahon, can exercise control over our affairs, and his interests may conflict with the holders of our Class A common stock; (xvi) a substantial number of shares will be eligible for future sale by Mr. McMahon, and the sale of those shares could lower our stock price; and (xvii) our Class A common stock has a relatively small public “float”.  The forward-looking statements speak only as of the date of this Quarterly Report and undue reliance should not be placed on these statements. 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

          In the normal course of business, we are exposed to foreign currency exchange rate, interest rate and equity price risks that could impact our results of operations.  Our foreign currency exchange rate risk is minimized by maintaining minimal net assets and liabilities in currencies other than our functional currency. 

Interest Rate Risk

          We are exposed to interest rate risk related to our debt and investment portfolio.  Our debt primarily consists of the mortgage related to our corporate headquarters, which has an annual interest rate of 7.6%.  Due to the decrease in mortgage rates, this debt is now at a rate in excess of market, however due to the terms of our agreement we are prohibited from refinancing for several years.  The impact of the decrease in mortgage rates is considered immaterial to our consolidated financial statements.

          Our investment portfolio currently consists primarily of fixed-income mutual funds and treasury notes, with a strong emphasis placed on preservation of capital.  In an effort to minimize our exposure to interest rate risk, our investment portfolio’s dollar weighted duration is less than one year. 

Item 4.  Controls and Procedures

          Under the direction of our Chairman and Chief Executive Officer, as co-principal executive officers, and our Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that our disclosure controls and procedures were effective as of July 29, 2005. No change in internal control over financial reporting occurred during the quarter ended July 29, 2005, that materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

          See Note 9 to Notes to Consolidated Financial Statements, which is incorporated herein by reference.

Item 6. Exhibits

(a.) Exhibits

31.1 Certification by Vincent K. McMahon pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (filed herewith).

31.2 Certification by Linda E. McMahon pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (filed herewith).

31.3 Certification by Michael Sileck pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (filed herewith).

31.4 Certification by Frank G. Serpe pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (filed herewith).

32.1 Certification by Vincent K. McMahon, Linda E. McMahon, Michael Sileck and Frank G. Serpe pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (filed herewith).

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SIGNATURE

          Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.

	World Wrestling Entertainment, Inc.
	(Registrant)
Dated:  September 7, 2005	By:	/s/ Michael Sileck
		Michael Sileck
		Chief Financial Officer

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