UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2003
or
|_| 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 (I.R.S. Employer
incorporation or organization) 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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
Class A Common Stock, $.01 par value per share New York Stock Exchange
(Title of each class) (Name of each exchange on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in the Exchange Act Rule 12b-2). Yes |X| No |_|
Aggregate market value of the voting stock held by non-affiliates of the
Registrant at June 13, 2003 was approximately $128,272,325.
As of June 13, 2003, the number of shares outstanding of the Registrant's Class
A common stock, par value $.01 per share, was 13,602,216 and the number of
shares outstanding of the Registrant's Class B common stock, par value $.01 per
share, was 54,780,207 shares.
Portions of the Registrant's definitive proxy statement for the 2003 Annual
Meeting of Stockholders are incorporated by reference in Part III of this Form
10-K
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business ......................................................................... 1
Item 2. Properties ....................................................................... 10
Item 3. Legal Proceedings ................................................................ 11
Item 4. Submission of Matters to a Vote of Security Holders............................... 11
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................................................... 12
Item 6. Selected Historical Consolidated Financial and
Other Data........................................................................ 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................... 16
Item 7A. Quantitative and Qualitative Disclosures about Market Risk........................ 26
Item 8. Consolidated Financial Statements and Schedule.................................... 26
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures......................................................... 26
PART III
Item 10. Directors and Executive Officers of the Registrant................................ *
Item 11. Executive Compensation............................................................ *
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related
Stockholder Matters............................................................ *
Item 13. Certain Relationships and Related Party Transactions.............................. *
Item 14. Controls and Procedures........................................................... 26
Item 15. Principle Accountant Fees and Services............................................ *
PART IV
Item 16. Exhibits, Financial Statement Schedules and Reports
on Form 8-K....................................................................... 27
* Incorporated by reference from the Registrant's Proxy Statement for the
2003 Annual Meeting of Stockholders (the "Proxy Statement").
PART I
Item 1. Business
We are an integrated media and entertainment company, principally engaged
in the development, production and marketing of television programming, live
events and the licensing and sale of branded consumer products featuring our
World Wrestling Entertainment brand. We have been involved in the sports
entertainment business for over 20 years, and have developed World Wrestling
Entertainment into one of the most popular forms of entertainment today.
The key economic drivers of our business, television ratings, average
attendance at our live events and pay-per-view buys, remain down from historical
levels. In fiscal 2003, we created two distinct television brands, Raw and
SmackDown!, each with its own story lines and talent. This allowed us to create
two touring companies and increase the number of live events we hold globally
and provides the potential to increase our share of the entertainment business.
We believe that this strategy is beginning to take hold, but needs time to
produce the intended marketplace results. We retain the distinction of
consistently being the number one regularly scheduled program on cable with Raw
which airs on TNN, and SmackDown! is the highest-rated show on UPN. In addition,
this past television season SmackDown! was the third highest rated regularly
scheduled program among male teens on Thursday nights.
In this Annual Report on Form 10-K, "WWE" refers to World Wrestling
Entertainment, Inc. and its subsidiaries and its predecessors, unless the
context otherwise requires. References to "we," "us," "our" and the "Company"
refer to WWE and its subsidiaries. World Wrestling Entertainment and the
stylized and highly distinctive World Wrestling Entertainment scratch logo are
two of our marks. This Annual Report on Form 10-K also contains other WWE
trademarks and trade names as well as those of other companies. All trademarks
and trade names appearing in this report are the property of their respective
holders.
Creative Development and Production
Our creative team, headed by Vincent McMahon, develops soap opera-like
story lines employing the same techniques that are used by many successful
television series. We create compelling and complex characters and weave them
into interactive entertainment that combines social satire, action adventure,
drama, mystery, athleticism and humor. The interactions among the characters
reflect a wide variety of contemporary topics, often depicting exaggerated
versions of real life situations and typically containing "good versus evil" or
"settling the score" themes. Story lines are usually played out in the wrestling
ring, our main stage, and typically unfold on our weekly television shows and
monthly pay-per-view events. Woven into the story lines is the ongoing
competition for the various World Wrestling Entertainment championship titles.
Our creative team also develops a character for each performer. Once a
character's basic traits have been formulated, we work to define and emphasize
those traits through various accessories, including costumes and entrance music.
We own the rights to the majority of our characters, and we exclusively license
the rights we do not own through agreements with our performers.
Our success is, in large part, due to the continuing popularity of our
performers. We currently have exclusive contracts with approximately 140
performers, ranging from development contracts with prospective performers to
long term guaranteed contracts with established performers. These contracts vary
depending upon a number of factors, including the performer's popularity with
our audience, and his or her skill level and prior experience. Our performers
are independent contractors who are highly trained and motivated and portray
popular characters such as The Rock, Stone Cold Steve Austin, The Undertaker,
Triple H, Goldberg, Kane, Chris Jericho, Kurt Angle and Brock Lesnar. We
constantly seek to identify, recruit and develop additional performers for our
business. Once recruited, established performers are immediately incorporated
into our story lines while less experienced performers participate in our own
extensive developmental training programs.
With limited exceptions, we retain all rights in perpetuity to any
intellectual property that we develop in connection with the characters
portrayed by our performers. This includes the character and any associated
costumes, names, props, story lines and merchandise. Our performers share in a
portion of the revenues that we receive. We believe that our relationships with
our performers are generally good.
1
Live and Televised Entertainment
Live events and television programming are our principal creative and
production activities. The following chart reflects worldwide revenues from
these activities for each of our five fiscal years ended April 30, 2003:
[THE FOLLOWING DATA WAS REPRESENTED AS A COLUMN CHART IN THE PRINTED MATERIAL]
Worldwide Live & Televised Entertainment Revenue
($ in millions)
1999 2000 2001 2002 2003
$170.1 $265.5 $335.7 $323.5 $295.4
$150 $200 $250 $300 $350 $400
Live Events
Live events are the cornerstone of our business, providing the content for
our television and pay-per-view programming. Each event is a highly theatrical
production, which involves a significant degree of audience participation and
employs various special effects, including lighting, pyrotechnics, powerful
entrance music and a variety of props.
We promote our live events through a variety of media, including
television, radio, print and the Internet. Our revenues from live events are
primarily derived from ticket sales, with prices for the year averaging
approximately $39.00 per ticket. The operator of a venue at which our live event
is held typically receives a fixed fee or a percentage of the revenues from
ticket and merchandise sales.
In fiscal 2003, we held 327 live events in approximately 193 cities in
North America, including 44 of the 50 largest metropolitan areas in the United
States, as well as eighteen international locations. We have consistently held
many of our live events at major arenas, such as Madison Square Garden in New
York City, Arrowhead Pond of Anaheim, Allstate Arena in Chicago, First Union
Center in Philadelphia, and the Fleet Center in Boston. We expect to hold
approximately 320-330 live events in fiscal 2004. With two talent teams each
aligned with a distinct brand, we are able to take advantage of international
demand of our events and have planned approximately 30 international events in
fiscal 2004, including tours in Europe, Asia and Australia.
2
The following chart reflects worldwide revenues from live events for each
of our five fiscal years ended April 30, 2003:
[THE FOLLOWING DATA WAS REPRESENTED AS A COLUMN CHART IN THE PRINTED MATERIAL]
Worldwide Live Events Revenue
($ in millions)
1999 2000 2001 2002 2003
$49.6 $68.9 $81.9 $74.1 $72.2
$25 $75 $125
The following chart reflects worldwide attendance from live events for each of
our five fiscal years ended April 30, 2003:
[THE FOLLOWING DATA WAS REPRESENTED AS A COLUMN CHART IN THE PRINTED MATERIAL]
Worldwide Live Events Attendance
(in thousands)
1999 2000 2001 2002 2003
2,274 2,485 2,450 2,033 1,815
1,000 1,500 2,000 2,500 3,000
- ------------------------------------------------------------------------------------
o 199 Events in 1999 o 206 Events in 2000 o 212 Events in 2001
o 237 Events in 2002 o 327 Events in 2003
- ------------------------------------------------------------------------------------
3
Television Programming
As an independent producer, relying primarily on our in-house production
capabilities, we create seven television shows, consisting of nine hours of
original programming, 52 weeks per year. Our nine hours of programming deliver
approximately 19 million television impressions each week. In addition to our
television programming, we produce 12 pay-per-view events.
Seven hours of our programming air domestically on cable and broadcast
networks owned by Viacom Inc. and two hours air on syndicated television
stations. Our programming lineup is as follows:
o Raw is our two-hour live production that airs on TNN in primetime and has
consistently been the number one rated regularly scheduled cable
television program.
o SmackDown! is a taped two-hour program that airs on United Paramount
Network ("UPN") in primetime and is the highest rated program on UPN.
o Sunday Night Heat is primarily a taped one-hour live event program which
has aired on TNN on Sunday evenings since April 2003, and Bottom Line is
a post produced "magazine" type show which airs in syndication on Friday /
Saturday nights. Both of these programs help further define our Raw brand.
Prior to April 2003, Sunday Night Heat aired on MTV.
o Velocity is a taped one-hour live event program which airs on TNN on
Saturday nights, and After Burn is a post produced "magazine" type show
which airs in syndication on Saturday / Sunday nights. Both of these
programs help further define our SmackDown! brand.
o Confidential is a taped one-hour magazine-style program which airs on TNN
on Saturday nights. This program provides an up-close look at World
Wrestling Entertainment and its past and present performers, both in and
out of the ring.
Currently TNN is available in approximately 85 million households and UPN
is available in approximately 95 million households. Our two syndicated programs
air on approximately 240 broadcast stations across the country.
In connection with our TNN programming, we receive a rights fee totaling
approximately $0.6 million per week. This agreement remains in effect through
the Fall of 2005. In connection with our UPN programming, we will receive a
rights fee of approximately $0.3 million per week beginning in October 2003.
This agreement remains in effect through the Fall of 2004, with UPN having two
successive one year options thereafter.
In addition to the foregoing programming, we have co-produced a weekly
half-hour reality-based program, Tough Enough, on MTV. MTV has not excercised
its option for a fourth season and as a result, we are exploring other networks
to carry the show.
4
The following chart reflects revenues from domestic television rights fees
for each of our five fiscal years ended April 30, 2003:
[THE FOLLOWING DATA WAS REPRESENTED AS A COLUMN CHART IN THE PRINTED MATERIAL]
Domestic Television Rights Fees Revenue
($ in millions)
1999 2000 2001 2002 2003
$5.0 $7.0 $20.9 $35.0 $38.8
$0 $10 $20 $30 $40 $50
In addition to rights fees, we generate revenues through the sale of a
substantial portion of the advertising time on our TNN programming and Canadian
television programs to over 110 major advertisers and sponsors. We advertise
products from some of the leading companies in the food and beverage, video
game, toy, movie and television studio and telecommunications industries, among
others. In addition to the sale of our advertising time, we also package
sponsorships to meet the needs of our advertisers. These sponsorships range from
presenting the Slam Of The Week, a 25-35 second spot that airs within our
television programs, to sponsoring our annual WrestleMania event. Through these
sponsorships, we offer advertisers a full range of our promotional vehicles,
including television, Internet and print advertising, arena signage, on-air
announcements and special appearances by our performers. Additionally, as part
of certain sponsorship packages, we produce commercials featuring our
performers. Due to the density of certain demographics that our programming
attracts, we believe that we are an efficient vehicle for our advertisers. Our
programming is principally directed to audiences aged 12 to 34.
Advertising time and customized sponsorship programs are sold directly by
our sales forces. Our arrangement with TNN provides that we pay the network a
fixed percentage of our net advertising revenues less certain adjustments with a
guaranteed minimum. With respect to SmackDown!, under our new agreement, which
will be effective October 2003, UPN will sell all advertising inventory and
sponsorship elements and pay us a rights fee.
The following chart reflects worldwide advertising revenues for each of
our five fiscal years ended April 30, 2003:
[THE FOLLOWING DATA WAS REPRESENTED AS A COLUMN CHART IN THE PRINTED MATERIAL]
Worldwide Advertising Revenues, net
($ in millions)
1999 2000 2001 2002 2003
$30.1 $77.9 $90.3 $83.6 $72.9
$0 $50 $100 $150
5
Our television and music recording studios and post-production operations,
including producers, directors, editors, cameramen, audio engineers, graphic
designers, English and Spanish-speaking announcers and an administrative staff
that oversees the production schedule, are housed at our state-of-the-art
facility in Stamford, Connecticut. Our staff is augmented by freelance
technicians who assist in our remote television broadcasts.
Pay-Per-View Programming
On a monthly basis, our story lines either culminate or change direction
at each pay-per-view event. We intensively market and promote the story lines
that are associated with our upcoming pay-per-view event through our television
shows, our Internet sites, and a variety of other promotional campaigns. We
produce 12 domestic pay-per-view programs annually, which consistently rank
among the highest selling pay-per-view programs. Pay-per-view buys of our
domestic events were 5.4 million, 7.1 million and 8.0 million in fiscal 2003,
2002 and 2001, respectively. A substantial number of buys for an event and the
related payment is determined and paid by the cable and satellite distributors
within 120 days after the event. Final reconciliation is generally completed
within one year. WrestleMania, which is our annual premier event, has a
suggested retail price of $39.95 and each of our other 11 domestic pay-per-view
events has a suggested retail price of $34.95. Consistent with industry
practices, we share the revenues with the cable systems and satellite providers
and pay service fees to inDemand.
The following chart reflects worldwide revenues from our pay-per-view
programming for each of our five fiscal years ended April 30, 2003:
[THE FOLLOWING DATA WAS REPRESENTED AS A COLUMN CHART IN THE PRINTED MATERIAL]
Worldwide Pay-Per-View Revenues
($ in millions)
1999 2000 2001 2002 2003
$81.0 $106.4 $128.2 $112.0 $91.1
$0 $50 $100 $150
Television Rights Fees Revenues Outside of North America
Our television programming is currently broadcast in over 100 countries
and 12 different languages. We have expanded our distribution throughout Asia,
Europe, Latin America, Australia and Africa and have secured new television
distribution agreements on terrestrial, cable and satellite platforms throughout
those locations. Most notably we have recently signed distribution agreements
with broadcasters in Germany, Japan and Singapore.
6
The following chart reflects television rights fees revenues outside of
North America for each of our five fiscal years ended April 30, 2003:
[THE FOLLOWING DATA WAS REPRESENTED AS A COLUMN CHART IN THE PRINTED MATERIAL]
Television Rights Fees Revenues outside of North America
($ in millions)
1999 2000 2001 2002 2003
$4.1 $5.1 $14.3 $18.3 $19.7
$0 $10 $20 $30 $40
Branded Merchandise
We offer a wide variety of branded merchandise through a licensing program
and an integrated direct sales effort. The following chart reflects worldwide
revenues from the sale of our branded merchandise for each of our five fiscal
years ended April 30, 2003:
[THE FOLLOWING DATA WAS REPRESENTED AS A COLUMN CHART IN THE PRINTED MATERIAL]
Worldwide Branded Merchandise Revenues
($ in millions)
1999 2000 2001 2002 2003
$80.2 $112.4 $102.5 $86.1 $78.9
$0 $50 $100 $150
Licensing and Direct Sales
We have an established worldwide licensing program using our World
Wrestling Entertainment marks and logos, copyrighted works and characters on
thousands of retail products, including toys, video games, apparel, books and a
wide assortment of other items. In all of our licensing agreements, we retain
creative approval over the design, packaging, advertising and promotional
material associated with licensed products to maintain the distinctive style,
look and quality of our intellectual property and brand. Our licensing
agreements provide that we receive a percentage of the wholesale revenues as a
royalty and require minimum guarantees.
Our direct merchandise operations consist of the design, sourcing,
marketing and distribution of various products, such as T-shirts, caps and other
items, all of which feature our characters and/or our scratch logo. All of these
products are designed by our in-house creative staff and manufactured by third
parties. The merchandise is sold at our live events under arrangements with the
arenas, which receive a percentage of the revenues. Our merchandise is also sold
through our wweshopzone.com web site, our internally developed catalogs and our
television shows.
7
Home Video
We own and continue to amass a video library containing thousands of hours
of programming from our pay-per-view events and our television shows dating back
to the 1970s. Beginning in the mid-1980s, this library was used in the
production and sale of home videos by a licensee. In 1998, we began to produce
and market home videos in-house and in 1999, we added DVD's. In addition to
producing videos and DVD's from our library of footage, we also utilize original
footage produced specifically for this purpose. We create master tapes and
contract with third parties to create our DVD master and to duplicate our videos
and DVD's. In August 2001, we entered into an agreement with Sony Music Video,
under which Sony is responsible for the domestic retail distribution of our home
video products. Our videos are typically sold at retail sales prices of $14.95
to $19.95 for VHS and $24.95 for our DVD's. In fiscal 2003, we sold
approximately 1.4 million units which consisted of 24 new titles as well as
other titles from our catalog.
The injunction issued by the English High Court in legal proceedings
instituted against us by World Wide Fund for Nature affects the Company's use,
repackaging and sales of our historical video library due to legal constraints
against using our former logo and verbal references to the "WWF." See Note 11 to
Notes to Consolidated Financial Statements.
SmackDown! Records
Music is an integral part of the entertainment experience at our live
events and on our television programs. We compose and record theme songs
tailored to our characters in our recording studio in Stamford, Connecticut. We
and a third-party music publisher own the musical composition rights to music
produced prior to January 1, 2003, and we own all of the sound recording rights
to our master recordings and all of the musical composition rights to music
produced since January 1, 2003. Third parties manufacture, market and distribute
CDs of our music to retailers nationwide, such as MusicLand, K-Mart, Wal-Mart,
Best Buy and Transworld.
Publishing
Our publishing operations consist primarily of two magazines, World
Wrestling Entertainment Magazine and RAW Magazine, each of which are issued
every four weeks, and a series of specials. All of these magazines are used to
help shape and complement story lines in our television programs and at our live
events. We also include a direct marketing catalog in our magazines on a
quarterly basis. The magazines include color photographs taken at recent live
events, biographies and features of our performers and human interest articles.
Our in-house publishing and editorial departments prepare all editorial content.
We use outside contractors to print and distribute the magazines to subscribers
and newsstands. The combined circulation of our magazines was approximately 5.4
million and circulation for our specials was approximately 1.0 million in fiscal
2003.
Under a publishing licensing agreement that we entered into with Simon and
Schuster in November 2002, we have our own publishing imprint. This agreement
has provided us the opportunity to broaden into literary genres beyond
autobiographies, including children's books, cookbooks, historical anthologies,
trivia books and yearbooks.
Digital Media
We utilize the Internet to promote our brand, create a community
experience among our fans and to market and distribute our various products.
Through our network of Internet sites, our fans can purchase and view our
monthly pay-per-view specials and purchase our branded merchandise online
through our wweshopzone.com site. In addition, our fans can obtain our latest
news and information, including content that is accessible only online, stay
abreast of our evolving story lines, tap into interactive chat rooms to
communicate with each other and our performers, experience archived video and
audio clips of performers and previous media events and access all reports we
file with the Securities and Exchange Commission. We promote wwe.com on our
televised programming, at our live events, in our magazines and in substantially
all of our marketing and promotional materials. In addition to wwe.com and
wweshopzone.com, our network of sites includes, among others, therock.com,
wwedivas.com, undertaker.com and wwecorpbiz.com.
WWE.com continues to maintain a strong base in the number of people
visiting our sites and purchasing our products via the Internet. According to
netScore, in April 2003, our Internet sites generated approximately 210 million
page views worldwide, and we had approximately 5.8 million unique visitors
worldwide.
8
Total Sales outside North America
The following chart reflects revenues derived from sales outside of North
America from all activities within our live and televised and branded
merchandise segments for each of our three fiscal years ended April 30, 2003:
[THE FOLLOWING DATA WAS REPRESENTED AS A COLUMN CHART IN THE PRINTED MATERIAL]
Total Revenues from Sales outside of North America
($ in millions)
2001 2002 2003
$28.9 $38.5 $51.8
$0 $25 $50 $75
Other Business Developments
In fiscal 2002, we launched a new entertainment division, WWE Films, which
is based in Los Angeles, California, to spearhead our initiatives in developing
complementary theatrical and television productions. Our first planned project
is a feature film, which is currently in the development phase. In addition, we
also are in the development phase of an animation series.
Discontinued Operations
In May 2000, we acquired for approximately $24.5 million an entertainment
complex in New York City. Through May 2003, we invested an additional $31.5
million in the facility. These investments included the construction of a
marquee and a television and recording sound stage and studio. The complex
included a 600 seat restaurant and 2,200 square feet of retail space. This
complex, The World, generated net revenue of $8.1 million, $14.1 million and
$16.6 million in fiscal 2003, 2002 and 2001, respectively, and incurred
operating losses of $43.1 million, $7.9 million and $2.6 million in fiscal 2003,
2002 and 2001, respectively.
In February 2003, we closed the restaurant operations of the entertainment
complex and in April 2003, we closed the retail store. As a result, we recorded
an after-tax charge of approximately $8.9 million in our fourth quarter ended
April 30, 2003. This amount includes, in addition to other costs, rental
payments required under the lease, net of our current estimate of potential
sub-rental income. This lease expires on October 31, 2017 and the aggregate
rental payments through the end of the term are approximately $46.0 million
excluding any potential sub-rental income. Included in fiscal 2003 loss from
discontinued operations was an impairment charge of $32.9 million as a result of
an impairment test conducted on goodwill ($2.5 million) and other long-lived
assets ($30.4 million).
Competition
While we believe that we have a loyal fan base, the entertainment industry
is highly competitive and subject to fluctuations in popularity, which are not
easy to predict. For our live, television and pay-per-view audiences we face
competition from professional and college sports as well as from other forms of
live, film and televised entertainment and other leisure activities. We compete
for advertising dollars with other media companies. We compete with
entertainment
9
companies, professional and college sports leagues and other makers of branded
apparel and merchandise for the sale of our branded merchandise. Many companies
with whom we compete have greater financial resources than we do.
Trademarks and Copyrights
Intellectual property is material to all aspects of our operations and we
expend substantial cost and effort in an attempt to maintain and protect our
intellectual property and to maintain compliance vis-a-vis other parties'
intellectual property. See Note 11 to Notes to Consolidated Financial
Statements. We have a large portfolio of registered and pending trademarks and
service marks worldwide and maintain a large catalog of copyright registrations
for music, film footage, photographs, books and magazines, videos, video games
and apparel art and miscellaneous merchandise. The focus of our continuous
registration effort is to seek copyright and trademark registration of marks and
works which embody our originally created characters portrayed by our
performers, and which encompass images, likenesses, names and logos of these
characters. We also own a large number of Internet web domain names and have a
network of developed sites, which contribute to the exploitation of our
trademarks and service marks worldwide.
We vigorously enforce our intellectual property rights by, among other
things, searching the Internet to ascertain unauthorized use of our intellectual
property, seizing goods at our live events that feature unauthorized use of our
intellectual property and pursuing legal action against parties infringing our
intellectual property rights.
Employees
The following chart reflects worldwide head count as of June 2003, 2002
and 2001. The headcount excludes employees of our discontinued operations, The
World and the XFL.
[THE FOLLOWING DATA WAS REPRESENTED AS A COLUMN CHART IN THE PRINTED MATERIAL]
Worldwide Headcount
2001 2002 2003
214 212 202
154 154 148
81 69 62
0 50 100 150 200 250 300
- --------------------------------------------------------------------------------
o Responsible for the management, marketing and administrative functions.
o Responsible for the organization and production of live events and
television programming.
o Responsible for licensing, merchandising and consumer product sales.
o 2001 Total = 449; 2002 Total = 435; 2003 Total = 412
- --------------------------------------------------------------------------------
Our in-house production staff is supplemented with contract personnel for
our television production. We believe that our relationships with our employees
are generally satisfactory. None of our employees are represented by a union.
Item 2. Properties
We have executive offices, television and music recording studios,
post-production operations and warehouses at locations in or near Stamford,
Connecticut, and have offices in New York, London, Toronto and Los Angeles. We
own
10
the buildings in which our executive and administrative offices, our television
and music recording studios and our post-production operations are located. We
lease space for our sales offices, WWE Films office, and our warehouse
facilities.
Our principal properties consist of the following:
Expiration Date
Facility Location Square Feet Owned/Leased of Lease
- --------- -------- ----------- ------------ ------------
Executive offices Stamford, CT 114,300 Owned --
Production studio Stamford, CT 39,000(1) Owned --
Ring / Photo studio Stamford, CT 5,600 Leased May 11, 2006
Sales office New York, NY 10,075 Leased July 15, 2008
Sales office Toronto, Canada 7,069 Leased February 28, 2006
Sales office London, England 600 Leased Month to month
Executive office Los Angeles, CA 2,100 Leased July 15, 2007
Warehouse Trumbull, CT 30,000 Leased August 9, 2004
(1) Excludes 4,000 sq ft of temporary space and 138,000 square feet of parking
space adjacent to the production facilities.
In addition, we own a daycare facility in Stamford, Connecticut on
property adjacent to our production facilities, which originally offered child
care services only to our employees, but is now also open to the public. The
licensing and operation of this facility is fully managed by a third-party
contractor. We have the responsibility to obtain the required licenses and to
ensure that the facility meets health, safety, fire and building codes.
We are currently in the process of seeking a subtenant or assignee for our
46,500 square foot rental space in New York City, which was used for our
entertainment complex, The World. The lease expires in October 2017, and
aggregate rental payments through the end of the term are approximately $46.0
million, excluding any potential sub-rental income.
Regulation
Live Events
In certain states we are required to comply with regulations of state
athletic commissions and other applicable regulatory agencies in order to
promote and conduct our live entertainment. Twenty-two states require that we
obtain a promoter's license, which is a corporate license necessary for us to
promote our live events and is granted to us on an annual basis. Twenty states
require our performers and referees to obtain a performer's license, which is an
individual license necessary for our performers and referees to perform at our
live events and is typically granted to them on an annual basis. Eight states
require that our performers take an annual physical examination. In addition to
the annual licenses that certain states require, twelve states require that we
obtain a permit for each event that we hold. We are also subject to the
regulations of athletic commissions in certain Canadian provinces. These
commissions require that we obtain promoter's licenses and medical approval for
our performers. We are in compliance with all applicable state and local
athletic commission regulations.
Television Programming
The production and distribution of television programming by independent
producers is not directly regulated by the federal or state governments, but the
marketplace for television programming in the United States is substantially
affected by regulations of the Federal Communications Commission applicable to
television stations, television networks and cable television systems and
channels. We voluntarily designate the suitability of each of our television
shows using standard industry ratings, such as PG (L,V) or TV14.
Item 3. Legal Proceedings
See Note 11 to Notes to Consolidated Financial Statements, which is
incorporated herein by reference.
Item 4. Submission of matters to a vote of Security Holders
None.
11
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Price Range of Class A Common Stock
Our Class A common stock trades on the New York Stock Exchange under the
symbol "WWE."
The following table sets forth the high and the low sale prices for the
shares of Class A common stock as reported by the New York Stock Exchange for
the periods indicated.
Class A common stock
--------------------
Fiscal 2003 High Low
- ----------- ------ -----
First Quarter $15.30 $8.49
Second Quarter $10.40 $6.76
Third Quarter $ 9.02 $7.53
Fourth Quarter $ 9.20 $7.43
Class A common stock
--------------------
Fiscal 2002 High Low
- ----------- ------ ------
First Quarter $15.50 $12.00
Second Quarter $13.20 $10.33
Third Quarter $14.25 $10.67
Fourth Quarter $15.85 $12.85
There were 10,557 holders of record of Class A common stock and three
holders of record of Class B common stock as of June 13, 2003.
In June 2003, our Board of Directors approved the payment of a quarterly
dividend of $0.04 per share on all Class A and Class B common shares. The record
date for the first such dividend is June 27, 2003 and the payment date will be
on or about July 10, 2003.
12
Equity Compensation Plan Information
The following table sets forth certain information with respect to securities
authorized for issuance under equity compensation plans as of April 30, 2003.
Plan Category Number of securities Weighted-average Number of securities remaining
to be issued upon exercise price of available for future issuance
exercise of outstanding outstanding options, under equity compensation plans
options, warrants and rights warrants and rights (excluding securities reflected in
column (a))
(a) (b) (c)
Equity compensation 6,964,450 $15.89 2,822,350
plans approved by
security holders
Equity compensation None N/A None
plans not approved by
security holders
Total 6,964,450 $15.89 2,822,350
On June 13, 2003, we granted 792,500 options at an exercise price of $9.60 and
granted 178,000 shares of restricted stock at an average price per share of
$9.60. Such issuances were granted under our 1999 Long-term Incentive Plan,
which was approved by our stockholders.
13
Item 6. Selected Historical Consolidated Financial and Other Data
The following table sets forth our selected historical consolidated
financial data for each of the five fiscal years in the period ended April 30,
2003. The selected historical consolidated financial data as of April 30, 2003
and 2002 and for the fiscal years ended April 30, 2003, 2002 and 2001 have been
derived from the audited consolidated financial statements included elsewhere in
this Form 10-K. The selected historical consolidated financial data as of April
30, 2001, 2000 and 1999 and for the fiscal years ended April 30, 2000 and 1999
have been derived from our audited consolidated financial statements, which have
not been included in this Form 10-K. Certain prior year amounts have been
reclassified to conform to current year presentation. You should read the
selected historical consolidated financial data in conjunction with our
historical consolidated financial statements and related notes and the
information set forth under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained elsewhere in this Form 10-K.
Year Ended April 30,
-----------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(dollars in thousands, except per share data)
Summary Operations Data:
Net revenues .......................................... $374,264 $409,622 $438,139 $377,899 $250,335
Cost of revenues ...................................... 237,343 251,124 249,308 219,569 145,887
Selling, general and administrative expenses (1) ...... 99,349 98,291 96,486 71,095 45,521
Income from continuing operations
before income taxes (2) .............................. 27,358 67,451 102,669 74,777 57,973
Income from continuing operations (3) ................. 16,362 42,498 64,526 59,577 56,030
Net (loss) income (4) ................................. $(19,195) $ 42,233 $ 15,987 $ 58,908 $ 56,030
Earnings (loss) per share:
Earnings from continuing operations
per common share: basic and diluted .................. $ 0.23 $ 0.58 $ 0.90 $ 0.95 $ 0.99
(Loss) earnings per common share:
basic and diluted ................................... $ (0.27) $ 0.58 $ 0.22 $ 0.94 $ 0.99
Summary Cash Flows Data:
Net (loss) income ..................................... $(19,195) $ 42,233 $ 15,987 $ 58,908 $ 56,030
Depreciation & amortization ........................... $ 10,545 $ 10,174 $ 4,736 $ 2,544 $ 1,946
Changes in working captial ............................ (3,751) 28,598 (10,595) (3,157) (2,297)
Capital expenditures and other
investing activities, net ............................ (13,593) (4,485) (14,404) (15,068) (14,634)
Financing activities, net ............................. (29,072) (1,282) 61,057 110,474 (6,082)
As of April 30,
-----------------------------------------------------------------
Summary Balance Sheets Data: 2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(dollars in thousands)
Cash and cash equivalents and
short-term investments ............................... $271,114 $293,803 $239,058 $208,992 $ 45,727
Property and equipment-net ............................ 59,325 59,214 54,819 41,484 28,377
Total assets .......................................... 437,257 495,352 466,181 337,032 130,188
Total long-term debt (including
current portion) ..................................... 9,903 9,903 10,459 11,417 12,791
Total stockholders' equity ............................ 341,959 389,438 347,859 258,537 72,260
Year Ended April 30,
-----------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(dollars in thousands)
Other Non-Financial Data:
Number of live events.................................. 327 237 212 206 199
Total attendance....................................... 1,815,100 2,032,754 2,449,800 2,485,100 2,273,701
Domestic pay-per-view buys............................. 5,378,100 7,135,464 8,010,400 6,884,600 5,365,100
(1) Included in fiscal 2001 was a payment for the settlement of an outstanding
lawsuit for $7.0 million ($4.3 million, net of taxes).
(2) Included in fiscal 2001 and 2000 were non-cash stock option charges of
approximately $0.8 million ($0.5 million, net of taxes) and approximately
$6.0 million ($3.7 million, net of taxes), respectively, relating to the
granting of stock options to certain performers who are independent
contractors. In addition, included in fiscal 2000 was a non-
14
cash charge of $9.3 million ($5.7 million, net of taxes). In April 2000,
we entered into a non-forfeitable agreement with Viacom whereby Viacom
acquired approximately 2.3 million newly issued shares of our Class A
common stock at $13 per share.
(3) Concurrent with the issuance of shares in our initial public offering in
October 1999 (the "Offering"), we terminated our election to be subject to
the provisions of Subchapter S and have become subject to the provisions
of Subchapter C of the Internal Revenue Code. The provision for income
taxes reflected in our historical consolidated financial statements
through the date of our Offering relates only to foreign and certain state
income taxes for those states that did not recognize Subchapter S status.
(4) Included in our net (loss) income was the operating results of our
discontinued operations, The World and the XFL and their respective
estimated shutdown costs.
15
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
You should read the following discussion in conjunction with the audited
consolidated financial statements and related notes included elsewhere in this
Form 10-K.
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:
o Live and televised entertainment, which consists of live event and
television programming. Revenues consist principally of attendance at live
events, sale of television advertising time and sponsorships, domestic and
international television rights fees and pay-per-view buys.
o Branded merchandise, which consists of licensing and direct sale of
merchandise. Revenues include the marketing and sale of merchandise,
magazines and home videos, and revenues from consumer products sold
through third party licensees.
Fiscal Year Ended April 30, 2003 compared to Fiscal Year Ended April 30, 2002
- --------------------------------------------------------------------------------
Net revenues 2003 2002 better (worse)
Live & Televised $295.4 $323.5 (9%)
Branded Merchandise $ 78.9 $ 86.1 (8%)
------ ------ ----
Total $374.3 $409.6 (9%)
====== ======
The following chart reflects comparative revenues and key drivers for each of
the businesses within our live and televised segment:
Live & Televised Revenues 2003 2002 better (worse)
Live Events $ 72.2 $ 74.1 (3%)
Number of Events 327 237 38%
Average Attendance 5,551 8,562 (35%)
Average Ticket Price $ 38.82 $ 35.69 9%
Pay-Per-View $ 91.1 $ 112.0 (19%)
Number of Domestic Buys 5,378,100 7,135,464 (25%)
Retail Price,excluding Wrestlemania $ 29.95 $ 24.95 20%
Advertising $ 72.9 $ 83.6 (13%)
Average weekly household ratings for Raw 3.7 4.6 (20%)
Average weekly household ratings for SmackDown! 3.4 4.0 (15%)
Sponsorship revenues $ 8.7 $ 13.2 (34%)
Television Rights Fees:
Domestic $ 38.8 $ 35.0 11%
International $ 19.7 $ 18.3 8%
16
The following chart reflects comparative revenues and certain drivers for
selected business within our branded merchandise segment:
Branded Merchandise Revenues 2003 2002 better (worse)
Licensing $21.8 $ 24.4 (11%)
Merchandise $22.4 $26.2 (14%)
Per Capita Spending $9.15 $8.48 8%
Publishing $15.2 $16.3 (7%)
Net Units sold 6,427,500 6,867,700 (6%)
Home Video $13.8 $ 13.6 1%
Net Units sold:
DVD 916,200 625,900 46%
VHS 466,800 1,041,200 (55%)
Internet Advertising $ 4.9 $ 4.4 11%
Cost of Revenues 2003 2002 better (worse)
Live & Televised $190.6 $ 194.2 2%
Branded Merchandise $ 46.7 $ 56.9 18%
------ ------ ---
Total $237.3 $ 251.1 6%
====== ======
Profit Contribution Margin 37% 39%
Cost of Revenues -Live & Televised 2003 2002 better (worse)
Live Events $ 56.1 $ 52.2 (7%)
Pay-Per-View $ 36.7 $ 42.5 14%
Advertising $ 35.2 $ 36.9 5%
Television $ 50.2 $ 49.6 (1%)
Other $ 12.4 $ 13.0 5%
Profit Contribution Margin 35% 40%
The decrease in the profit contribution margin was due primarily to the impact
of the William Morris Agency, Inc. settlement, the fixed nature of our
television production costs and the decline in pay-per-view revenues.
Cost of Revenues - Branded Merchandise 2003 2002 better (worse)
Licensing $ 6.6 $ 9.8 33%
Merchandise $ 20.4 $ 22.6 10%
Publishing $ 9.4 $ 10.0 6%
Home Video $ 6.5 $ 9.4 31%
Digital Media $ 3.3 $ 5.0 34%
Profit Contribution Margin 41% 34%
The increase in the profit contribution margin was due in part to the absence of
costs in fiscal 2003 related to our sponsoring of a National Hot Rod Association
("NHRA") racing team and lower expenses associated with maintaining our web site
in fiscal 2003 and higher inventory write-offs in the home video category in
fiscal 2002.
17
The following chart reflects the amounts and percent change of certain
significant overhead items:
Selling, General & Administrative Expenses 2003 2002 better (worse)
Staff related expenses $ 36.6 $ 37.4 2%
Legal and litigation 18.4 14.6 (26%)
Consulting and accounting fees 8.9 8.9 --
Advertising and promotion expenses 8.6 9.4 9%
Bad debt expense 3.8 1.0 (280%)
All other 23.0 27.0 15%
------- ------- -----
Total SG&A $ 99.3 $ 98.3 1%
SG&A as a percentage of net revenues 27% 24%
The increase in bad debt expense was related to a pay-per-view service and a
cable system that distribute our pay-per-view events. Included in legal and
litigation in 2003 was a $3.8 million offer to settle a legal dispute partially
offset by $1.0 million of net favorable settlements.
Depreciation and Amortization 2003 2002 better (worse)
$10.5 $10.2 (3%)
Interest Expense 2003 2002 better (worse)
$0.8 $0.8 --
The following reflects the amounts and percentage changes of certain significant
interest income and other items:
Interest income and other, net 2003 2002 better (worse)
Interest income $2.0 $10.6 (81%)
Gain on sale / revaluation of warrants -- $10.6 (100%)
Impairment loss on equity investments ($0.6) ($2.9) 79%
The decrease in interest income is due to lower average interest rates earned on
our investments as well as a loss of approximately $1.6 million from an
investment in mortgage-backed securities. During fiscal 2002, we exercised and
sold certain warrants resulting in a $6.8 million gain. In addition, as a result
of our adoption of SFAS No. 133 in fiscal 2002, we recorded a $2.4 million gain
from the revaluation of these warrants, and subsequent to our adoption of SFAS
No. 133, we recorded an additional increase of $1.4 million in the revaluation
of the warrants.
Provision for Income Taxes 2003 2002 better (worse)
Provision $11.0 $25.0 56%
Effective Tax Rate 40.2% 37.0%
The increase in the effective tax rate is due to capital losses generated in the
current year which may not be deductible for tax purposes. We have determined
that it is more likely than not these losses will not be fully utilized and as
such, we have recorded a valuation allowance against these benefits.
Discontinued Operations- XFL. Income from discontinued operations was $4.6
million for the fiscal year ended April 30, 2002. The results from fiscal 2002
reflected the reversal of shutdown reserves that were no longer required and the
recognition of certain tax benefits.
Discontinued Operations- The World. In February 2003, we closed the restaurant
operations of our entertainment complex, The World, and in April 2003, we closed
the retail operation. As a result, the operations of The World, as well as the
estimated costs to shut down this business, have been reflected in discontinued
operations. We recorded an after-tax charge of $8.9 million in the fourth
quarter related to the estimated costs to shut down this facility. This amount
includes, in addition to other costs, rental payments required under the lease,
net of management's current estimate of potential sub-rental income. This lease
expires on October 31, 2017.
18
Loss from discontinued operations of The World, net of income taxes, was
$26.7 million for the fiscal year ended April 30, 2003 as compared to a loss
from discontinued operations, net of taxes, of $4.9 million for the fiscal year
ended April 30, 2002. Included in fiscal 2003 was an impairment charge of $32.9
million ($20.4 million, after tax) as a result of impairment tests conducted on
goodwill and other long-lived assets related to The World.
Fiscal Year Ended April 30, 2002 compared to Fiscal Year Ended April 30, 2001
- --------------------------------------------------------------------------------
Revenues 2002 2001 better (worse)
Live & Televised $323.5 $335.7 (4%)
Branded Merchandise 86.1 102.5 (16%)
------ ------ ----
Total $409.6 $438.2 (7%)
====== ======
The following chart reflects comparative revenues and key drivers for each of
the businesses within our live and televised segment:
Live & Televised Revenues 2002 2001 better (worse)
Live Events $74.1 $81.9 (10%)
Number of Events 237 212 12%
Average Attendance 8,562 11,556 (26%)
Average Ticket Price $35.69 $32.63 9%
Pay-Per-View $112.0 $128.2 (13%)
Number of Domestic Buys 7,135,464 8,010,400 (11%)
Advertising $83.6 $90.3 (7%)
Ratings for Raw-TNN 4.6 5.0 (8%)
Ratings for Raw-USA -- 6.3 --
Ratings for SmackDown! 4.0 4.6 (13%)
Sponsorship revenues $13.2 $12.5 6%
Television Rights Fees
Domestic $35.0 $20.9 68%
International $18.3 $14.3 28%
The following chart reflects comparative revenues and certain drivers for
selected businesses within our branded merchandise segment:
Branded Merchandise Revenues 2002 2001 better (worse)
Licensing $24.4 $35.6 (31%)
Merchandise $26.2 $28.9 (9%)
Per Capita Spending $8.48 $8.29 2%
Publishing $16.3 $17.0 (4%)
Net units sold 6,867,700 7,594,400 (10%)
Home Video $13.6 $12.2 11%
Net units sold:
DVD 625,900 167,900 273%
VHS 1,041,200 1,285,700 (19%)
Internet Advertising $ 4.4 $ 5.6 (21%)
19
Cost of Revenues 2002 2001 better (worse)
Live & Televised $194.2 $188.5 (3%)
Branded Merchandise 56.9 60.8 6%
------ ------ ---
Total $251.1 $249.3 (1%)
====== ======
Profit Contribution Margin 39% 43%
The following chart represents comparative revenues and key drivers for each of
the businesses within our live and televised segment:
Cost of Revenues -Live & Televised 2002 2001 better (worse)
Live Events $ 52.2 $ 60.9 14%
Pay-Per-View $ 42.5 $ 41.6 (2%)
Advertising $ 36.9 $ 39.7 7%
Television $ 49.6 $ 38.6 (28%)
Other $ 13.0 $ 7.7 (69%)
Profit Contribution Margin 40% 44%
The decrease in the profit contribution margin was due primarily to the decrease
in pay-per-view revenues.
The following chart reflects comparative revenues and certain drivers for
selected businesses within our branded merchandise segment:
Cost of Revenues -Branded Merchandise 2002 2001 better (worse)
Licensing $ 9.8 $ 13.8 29%
Merchandise $ 22.6 $ 23.9 5%
Publishing $ 10.0 $ 9.7 (3%)
Home Video $ 9.4 $ 6.2 (52%)
Digital Media $ 5.0 $ 4.9 (2%)
Profit Contribution Margin 34% 38%
The decrease in the profit contribution margin was due to the mix of product
within the segments.
The following chart reflects the amounts and percent change of certain
significant overhead items:
Selling, General & Administrative Expenses 2002 2001 better (worse)
Staff related expenses $ 37.4 $ 37.8 1%
Legal and litigation 14.6 16.1 9%
Consulting and accounting fees 8.9 9.1 2%
Advertising and promotion expenses 9.4 5.4 (74%)
All other 28.0 28.1 --
------ ------ -----
Total SG&A $ 98.3 $ 96.5 (2%)
====== ======
SG&A as a percentage of net revenues 24% 22%
The increase in advertising and promotion expenses was due primarily to our
contractual agreement to purchase $7.0 million of advertising time from a media
company. This agreement was entered into in connection with our acquisition of
certain assets of WCW, Inc. in March 2001 and is in effect through June 2004.
See "Liquidity and Capital Resources."
Depreciation and Amortization 2002 2001 better (worse)
$10.2 $4.7 (117%)
The increase in depreciation and amortization was due in part to the accelerated
write-off of approximately $2.1 million of architectual costs in 2002 related to
our cancelled project in Las Vegas, as well as higher depreciation and
amortization related to increased capital spending in fiscal 2002 and 2001.
20
Interest Expense 2002 2001 better (worse)
$0.8 $0.9 11%
The following reflects the amounts and percentage changes of certain significant
interest income and other items:
Interest Income and Other, net 2002 2001 better (worse)
Interest Income $10.6 $15.3 (31%)
Gain on sale/Revaluation of warrants $10.6 -- --
Impairment loss on equity investments ($2.9) -- --
The decrease in interest income was a result of lower average interest rates in
fiscal 2002. During fiscal 2002, we exercised and sold certain warrants
resulting in a $6.8 million gain. In addition, as a result of our adoption of
SFAS No. 133 in fiscal 2002, we recorded a $2.4 million gain from the
revaluation of these warrants, and subsequent to our adoption of SFAS No. 133,
we recorded an increase of $1.4 million in the revaluation of the warrants.
Provision for Income Taxes 2002 2001 better (worse)
Provision $25.0 $38.1 34%
Effective Tax Rate 37.0% 37.2%
Discontinued Operations-XFL. Income from discontinued operations of the XFL, net
of minority interest and income taxes, was $4.6 million for the fiscal year
ended April 30, 2002 as compared to a loss from discontinued operations of $46.9
million for the fiscal year ended April 30, 2001. The results from fiscal 2002
reflected the reversal of shutdown reserves that were no longer required and the
recognition of certain tax benefits. Included in the net loss for fiscal 2001
was a loss from operations of $31.3 million and a loss on the shutdown of $15.6
million. The estimated shutdown costs consisted primarily of staff, lease and
labor obligations, write-offs of certain fixed assets and accounts receivable
and inventory write downs.
On June 12, 2000, NBC purchased approximately 2.3 million newly issued shares of
our Class A common stock at $13 per share for a total investment of $30.0
million. As a result of the stock purchase, which was at a below market price,
we recorded a non-cash charge of $10.7 million, which was being amortized over
30 months. Amortization of $3.7 million during fiscal 2001 was reflected in
discontinued operations. As a result of our decision to discontinue operations
of the XFL, we wrote off the remaining unamortized asset of $7.0 million which
was also reflected in discontinued operations. In May 2002, we repurchased 2.3
million shares of our Class A common stock from NBC for $27.7 million.
Discontinued Operations - The World. Loss from discontinued operations of The
World, net of income taxes, was $4.9 million for the fiscal ended April 30, 2002
as compared to $1.6 million for the fiscal year ended April 30, 2001.
Liquidity and Capital Resources
Cash flows from operating activities for the fiscal years ended April 30,
2003 and 2002 were $21.1 million and $57.9 million, respectively, and cash flows
used for operating activities was $23.4 million for fiscal 2001. Cash flows
provided by operating activities from continuing operations were $28.0 million
in fiscal 2003 as compared to $76.5 million in fiscal 2002 and $62.0 million in
fiscal 2001. Working capital, consisting of current assets less current
liabilities, was $275.1 million as of April 30, 2003 and $322.1 million as of
April 30, 2002.
Cash flows provided by investing activities were $49.7 million in fiscal
2003 and cash flows used in investing activities for the fiscal years ended
April 30, 2002 and 2001 were $22.7 million and $141.5 million, respectively. As
of April 30, 2003, we had approximately $102.4 million invested primarily in
short-term municipal securities and corporate paper which consisted primarily of
AA or AAA rated instruments. The maturities of these instruments are generally
for a term of three months or shorter. In addition, we had approximately $40.2
million invested in mutual funds, which primarily held AAA and AA rated
instruments. Our investment policy is designed to assume a minimum of credit,
interest rate and market risk.
In fiscal 2003, we had capital expenditures of approximately $10.6
million, consisting primarily of digital media equipment for our wweshopzone.com
web site, television equipment and building improvements. Capital expenditures
for fiscal 2004 are expected to be between $7.5 million - $10.0 million, which
includes a conversion of our critical business and financial systems, television
equipment and building improvements.
21
In March 2003, we acquired a film library and certain other assets for
$3.0 million from an unaffiliated professional wrestling organization. In March
2001, we acquired certain assets of the WCW brand, including trade names, tape
library and other intangible assets from a subsidiary of AOL Time Warner for
approximately $2.5 million. In addition, we incurred certain related costs to
acquire these assets of approximately $6.6 million.
Cash flows used in financing activities for the fiscal year ended April
30, 2003 was $28.8 million and cash flows provided by financing activities $6.8
million and $107.5 million for the fiscal years ended April 30, 2002 and 2001,
respectively.
In June 2003, our board of directors approved the payment of a quarterly
dividend of $0.04 per share on all Class A and Class B common shares.
In June 2003, we purchased approximately 2.0 million shares of common
stock from Viacom for approximately $19.3 million.
In 1997, we entered into a mortgage loan agreement under which we borrowed
$12.0 million at an annual interest rate of 7.6% to be repaid in monthly
installments over 15 years. This term loan is collateralized by our executive
offices and television production studio, both of which are located in Stamford,
Connecticut. The term loan may not be prepaid in whole or in part prior to and
through January 1, 2006. Thereafter, the term loan may be prepaid in whole with
the payment of a premium. As of June 6, 2003, the outstanding principal amount
of the term loan was $9.2 million.
In 2000 we entered into a lease agreement for a 1998 Canadair Challenger
604 airplane. The term of this aircraft lease is for twelve years ending on
October 30, 2012. The monthly lease payment is determined by a floating rate,
which is based upon the 30-day US Commerical Paper Rate as stated by the Federal
Reserve plus 1.95%. The current monthly payment is approximately $120,000. At
the end of the term of the lease agreement, we have guaranteed the lessor up to
$2.5 million if the jet is sold for less than $9.0 million.
We have entered into various other contracts under which we are required
to make guaranteed payments, including:
o Performer contracts providing for future minimum guaranteed payments.
o Television distribution agreements with Viacom affiliates UPN and TNN that
provide for the payment of the greater of a fixed percentage of the
revenues from the sale of television advertising time or an annual minimum
payment. Our current agreement for UPN programming covers two hours of
programming every week and expires in September 2003. Under the terms of
our new agreement with UPN, which is effective October 2003, we will
receive a weekly rights fee for our SmackDown! program and UPN would sell
all of the advertising time. The balance of our Viacom agreement covers
five hours of programming every week and expires in September 2005.
o Advertising commitments to a media company over a three year period,
ending June 2004.
o Various operating leases for our offices.
o Employment contract with Vincent K. McMahon, which is for a seven-year
term commencing in October 1999 and in addition, a talent contract which
is co-terminous with his employment contract.
o Employment contract with Linda E. McMahon, which is for a four-year term
commencing in October 1999. Pursuant to its terms, this contract was
renewed for an additional year.
o Employment contracts with certain of our employees, which are generally
for one to three year terms.
o Service contracts with certain of our independent contractors, which are
generally for one to four year terms.
22
Our aggregate minimum payment obligations under these contracts as of
April 30, 2003 was as follows:
Payments due by period
----------------------
($ in millions)
Less than After
1 year 1-3 years 4-5 years 5 years Total
--------------------------------------------------------
Long-term debt $ 0.8 $ 1.7 $ 1.9 $5.5 $ 9.9
Operating leases $ 3.0 $ 4.6 $ 4.2 $6.6 $ 18.4
Television programming agreements $12.8 $ 5.8 $ 2.4 $2.7 $ 23.7
Other commitments $34.4 $18.6 $ 7.8 $ -- $ 60.8
----- ----- ----- ----- ------
Total Commitments from
Continuing Operations $51.0 $30.7 $16.3 $14.8 $112.8
Operating lease - The World (1) $ 2.5 $ 5.4 $ 5.7 $32.7 $ 46.3
----- ----- ----- ----- ------
Total $53.5 $36.1 $22.0 $47.5 $159.1
===== ===== ===== ===== ======
(1) Excludes any estimated sub-rental income.
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, quarterly dividends, capital expenditures and
strategic investments as well as costs related to the shut down of The World.
Seasonality
Our operating results are not materially affected by seasonal factors;
however, because we operate on a fiscal calendar, the number of pay-per-view
events recorded in a given quarter may vary. In addition, revenues from our
licensing and direct sale of consumer products, including through our catalogs,
magazines and Internet sites, may vary from period to period depending on the
volume and extent of licensing agreements and marketing and promotion programs
entered into during any particular period of time, as well as the commercial
success of the media exposure of our characters and brand. The timing of these
events as well as the continued introduction of new product offerings and
revenue generating outlets can and will cause fluctuation in quarterly revenues
and earnings.
Inflation
During the past three fiscal years, inflation has not had a material
effect on our business.
Application of Critical Accounting Policies
Critical Accounting Policies
We believe the following are the critical accounting policies used in the
preparation of our financial statements, as well as the significant judgments
and estimates affecting the application of these policies.
Revenue Recognition
Pay-per-view programming:
Revenues from our pay-per-view programming are recorded when the event is
aired and are based upon our initial estimate of the number of buys achieved.
This initial estimate is based on preliminary buy information received from our
pay-per-view distributors. Final reconciliation of the pay-per-view buys occurs
within one year and any subsequent adjustments to the buys are recognized on a
cash basis. As of April 30, 2003, our pay-per-view Accounts Receivable was $24.3
million. If our initial estimate is incorrect, it can result in significant
adjustments to revenues in subsequent years.
23
Television advertising:
Revenues from the sale of television advertising are recorded when the
commercial airs within our programming and are based upon contractual amounts
previously established with our advertisers. These contractual amounts are
typically based on the advertisement reaching a desired number of viewers. If an
ad does not reach the desired number of viewers, we record an estimated reserve
to reflect rebates or future free advertising due to advertisers, based on the
difference between the intended delivery (as contracted) and actual delivery of
audiences. As of April 30, 2003, our estimated reserve was $6.9 million. If our
estimated reserves are incorrect, revenues in subsequent periods would have to
be adjusted.
Home Video:
Revenues from the sales of VHS and DVD titles are recorded when shipped by
our distributor to wholesalers / retailers, net of an allowance for estimated
returns. The allowance for estimated returns is based on historical information
and current industry trends. As of April 30, 2003, our home video returns
allowance was $1.5 million. If we do not accurately predict returns, we may have
to adjust revenues in future periods.
Magazine publishing:
Publishing newsstand revenues are recorded when shipped by our distributor
to wholesalers / retailers, net of an allowance for estimated returns. We
estimate the allowance for newsstand returns based upon our review of historical
return rates and the expected performance of our current titles in relation to
prior issue return rates. As of April 30, 2003, our newsstand returns allowance
was $5.0 million. If we do not accurately predict returns, we may have to adjust
revenues in future periods.
Allowance for Doubtful Accounts
Our receivables represent a significant portion of our current assets. We
are required to estimate the collectibility of our receivables and to establish
allowances for the amount of receivables that we estimate to be uncollectible.
We base these allowances on our historical collection experience, the length of
time our receivables are outstanding and the financial condition of individual
customers. As of April 30, 2003, our allowance for doubtful accounts was $5.3
million. Changes in the financial condition of significant customers, either
adverse or positive, could impact the amount and timing of any additional
allowances that may be required.
Initial Adoption of Accounting Policies
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." During 2003, the economic
conditions surrounding our entertainment complex in New York City and its
continued weak operating results indicated potential impairment. The impairment
test prescribed by SFAS No. 144 was performed and ultimately resulted in a
non-cash pre-tax impairment charge of $30.4 million that was recorded in the
current year. In conjunction with the impairment test above, it was determined
that goodwill related to the purchase of The World was also impaired and as a
result, we recorded an additional non-cash pre-tax charge of $2.5 million in
accordance with SFAS No. 142, "Goodwill and Other Intangible Assets".
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". In February 2003, we closed the
restaurant operations at The World and in April 2003, we closed the retail
operations at the facility. Total costs related to the shut down of these
operations are estimated to be $8.9 million, net of applicable tax benefits of
$3.3 million and were recorded as discontinued operations in our consolidated
financial statements in the current year, in accordance with SFAS No. 146.
Recent Pronouncements
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement amends existing authoritative pronouncements to
make various technical corrections, clarify meanings, or describe their
applicability under changed conditions. This statement became effective for us
on May 1, 2003 and does not have a material impact on our operating results or
financial position.
24
In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." The disclosure requirements of
FIN 45 were effective for financial statements of interim or annual periods
ending after December 15, 2002 and did not have a material impacton our
consolidated financial statements.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities." FIN 46 requires us to consolidate a variable interest entity
if we are subjected to a majority of the risk of loss from the variable interest
entity's activities or entitled to receive a majority of the entity's residual
returns, or both. We currently lease a corporate jet which is not held in a
variable interest entity, and, accordingly is accounted for as an operating
lease. We do not currently have any interests in variable interest entities and,
accordingly do not expect the adoption of FIN 46 to have a material impact on
our consolidated financial statements.
In November 2002, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables."
EITF Issue No. 00-21 provides guidance on how to account for arrangements that
involve the delivery or performance of multiple products, services and/or rights
to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue
arrangements entered into in fiscal periods beginning after June 15, 2003. The
adoption of this consensus is not expected to have a material impact on our
consolidated financial statements.
In November 2001, the EITF reached a consensus on Issue No. 01-09,
"Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor's Products)". This consensus addresses income statement
characterization issues and recognition and measurement issues relating to
consideration given by a vendor to a customer. As a result of this
pronouncement, we reclassified $1.7 million in fiscal 2003 and $1.3 million in
fiscal 2002 and 2001 of discounts previously classified as expenses to the
prescribed accounting as a reduction of revenue.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards for how an issuer classifies and measures in its
balance sheet certain financial instruments with characteristics of both
liabilities and equity. It is effective for us in the second quarter of 2004,
but, because we have no instruments falling under the provisions of SFAS No.
150, it will not have an impact on our consolidated 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 Annual 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
Annual Report, in press releases and in oral statements made by our authorized
officers: (i) 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; (ii) our failure to retain or continue to recruit key
performers could lead to a decline in the appeal of our story lines and the
popularity of our brand of entertainment; (iii) the loss of the creative
services of Vincent McMahon could adversely affect our ability to create popular
characters and story lines; (iv) our failure to maintain or renew key agreements
could adversely affect our ability to distribute our television and pay-per-view
programming, and in this regard our primary distribution agreement with Viacom
runs until Fall 2004 for its UPN network and Fall 2005 for its TNN network; (v)
we may not be able to compete effectively with companies providing other forms
of entertainment and programming, and many of these competitors have greater
financial resources than we; (vi) we may not be able to protect our intellectual
property rights which could negatively impact our ability to compete in the
sports entertainment market; (vii) general economic conditions or a change in
the popularity of our brand of sports entertainment could adversely impact our
business; (viii) risks associated with producing live events, both domestically
and internationally, including without limitation risks that our insurance may
not cover liabilities resulting from accidents or injuries and that we may be
prohibited from promoting and conducting live events if we do not comply with
applicable regulations; (ix) uncertainties associated with international
markets; (x) we could incur substantial liabilities, or be required to conduct
certain aspects of our business differently, if pending or future material
litigation is resolved
25
unfavorably; (xi) any new or complementary businesses into which we may expand
in the future could adversely affect our existing businesses; (xii) through his
beneficial ownership of a substantial majority of our Class B common stock, our
controlling stockholder can exercise significant influence over our affairs, and
his interests could conflict with the holders of our Class A common stock; and
(xiii) a substantial number of shares will be eligible for future sale by our
current majority stockholder, and the sale of those shares could lower our stock
price. The forward-looking statements speak only as of the date of this Annual
Report and undue reliance should not be placed on these statements.
Item 7A. 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
maintining 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 recent
decreases 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 consists primarily of government obligations,
highly rated corporate obligations and bond mutual funds, 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 two years. Due to the nature of our investments and our strategy to
minimize market and interest rate risk, our portfolio would not be materially
impacted by adverse fluctuations in interest rates.
Item 8. Consolidated Financial Statements and Schedule
The information required by this item is set forth in the Consolidated
Financial Statements filed with this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None.
PART III
The information required by Part III (Items 10-13 and 15) is incorporated
herein by reference to the captions "Directors and Executive Officers of the
Registrant", "Executive Compensation", "Security Ownership of Certain Beneficial
Owners and Management and Related Stockholders Matters and Certain Relationships
and Related Party Transactions" and "Independent Auditor Fees" in our definitive
proxy statement for our 2003 Annual Meeting of Stockholders.
Item 14. Controls and Procedures
Based on their most recent review, which was completed within 90 days of
the filing of this report, our Chief Executive Officer and our Chief Financial
Officer have concluded that our disclosure controls and procedures are effective
to ensure that information required to be disclosed by us in the reports that we
file or submit under the Securities Exchange Act of 1934, as amended, is
accumulated and communicated to our management, including our Chief Executive
Officer and our Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure and are effective to ensure that such
information is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms. While we are in the process of
formalizing certain of our control procedures, there were no significant changes
in our internal controls or in other factors that could significantly affect
those controls subsequent to the date of this evaluation.
26
PART IV
Item 16. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as a part of this report:
1. Consolidated Financial Statements and Schedule: See index to Consolidated
Financial Statements on page F-1 of this Report.
2. Exhibits:
Exhibit No. Description of Exhibit
- ----------- ----------------------
3.1 Amended and Restated Certificate of Incorporation
(Incorporated by reference to Exhibit 3.2 to our Registration
Statement on Form S-1 (No. 333-84327)).
3.1A Amendment to Amended and Restated Certificate of Incorporation
(Incorporated by reference to Exhibit 4.1(a) to our
Registration Statement on Form S-8, filed July 15, 2002).
3.2 Amended and Restated By-laws (Incorporated by reference to
Exhibit 3.4 to our Registration Statement on Form S-1 (No.
333-84327)).
3.2A Amendment to Amended and Restated By-Laws (Incorporated by
reference to Exhibit 4.2(a) to our Registration Statement on
Form S-8, filed July 15, 2002).
10.1 1999 Long -Term Incentive Plan (Incorporated by reference to
Exhibit 10.1 to our Registration Statement on Form S-1 (No.
333-84327))(the "LTIP").*
10.1A Form of Option Agreement granted during 2003 under the LTIP
(filed herewith)*
10.2 Employment Agreement with Vincent K. McMahon, dated October 14,
1999 (Incorporated by reference to Exhibit 10.2 to our
Registration Statement on Form S-1 (No. 333-84327)).*
10.2A Amendment, dated as of May 1, 2002, to Employment Agreement
with Vincent K. McMahon.*
10.2B Form of Agreement for Restricted Performance Stock Units granted
during 2003 under the LTIP (filed herewith).*
10.3 Booking Contract with Vincent K. McMahon, dated February 15,
2000 (Incorporated by reference to Exhibit 10.3 to our Annual
Report on Form 10-K for the fiscal year ended April 30, 2000).*
10.3A Amendment, dated July 3, 2001, to Booking Contract with Vincent
K. McMahon (Incorporated by reference to Exhibit 10.3A to our
Annual Report on Form 10-K for the fiscal year ended April 30,
2001).*
10.4 Employment Agreement with Linda E. McMahon, dated October 14,
1999 (Incorporated by reference to Exhibit 10.3 to our
Registration Statement on Form S-1 (No. 333-84327)).*
10.5 Booking Contract with Linda E. McMahon, dated February 15,
2000 (Incorporated by reference to Exhibit 10.5 to our Annual
Report on Form 10-K for the fiscal year ended April 30,
2000).*
10.6 World Wrestling Entertainment Employee Stock Purchase Plan
(Incorporated by reference to Exhibit 10.6 to our Annual Report
on Form 10-K for the fiscal year ended April 30, 2002).*
27
10.7 License Agreement with inDemand, formerly known as Viewer's
Choice L.L.C., dated as of January 20, 1999 (Incorporated by
reference to Exhibit 10.7 to our Registration Statement on
Form S-1 (No. 333-84327)). (1)
10.8 World Wrestling Entertainment, Inc. Management Bonus Plan.
(filed herewith).*
10.9 Independent Contractor Agreement, dated May 1, 2003, between
the Registrant and Communications Consultants, Inc. (filed
herewith).*
10.10 Registration Rights Agreement, dated August 30, 2001, by and
between Invemed Catalyst Fund, L.P. and World Wrestling
Entertainment, Inc. (Incorporated by reference to Exhibit
10.10 to our Annual Report on Form 10-K for the fiscal year
ended April 30, 2002).
10.11 Open End Mortgage Deed, Assignment of Rents and Security
Agreement between TSI Realty Company and GMAC Commercial
Mortgage Corp. (assigned to Citicorp Real Estate, Inc.), dated
as of December 12, 1997 (Incorporated by reference to Exhibit
10.11 to our Registration Statement on Form S-1 (No.
333-84327)).
10.12 Promissory Note issued by TSI Realty Company to GMAC
Commercial Mortgage Corp. (assigned to Citicorp Real Estate,
Inc.), dated as of December 12, 1997 (Incorporated by
reference to Exhibit 10.12 to our Registration Statement on
Form S-1 (No. 333-84327)).
10.13 Environmental Indemnity Agreement among TSI Realty Company,
Titan Sports Inc. and GMAC Commercial Mortgage Corp. (assigned
to Citicorp Real Estate, Inc.), dated as of December 12, 1997
(Incorporated by reference to Exhibit 10.13 to our
Registration Statement on Form S-1 (No. 333-84327)).
10.14 Assignment of Leases and Rents between TSI Realty Company and
GMAC Commercial Mortgage Corp. (assigned to Citicorp Real
Estate, Inc.), dated as of December 12, 1997 (Incorporated by
reference to Exhibit 10.14 to our Registration Statement on
Form S-1 (No. 333-84327)).
10.15 Form of Tax Indemnification Agreement among the Registrant,
Stephanie Music Publishing, Inc., Vincent K. McMahon and the
Vincent K. McMahon Irrevocable Deed of Trust, dated as of June
30, 1999 (Incorporated by reference to Exhibit 10.15 to our
Registration Statement on Form S-1 (No. 333-84327)).
10.16 Agreement between WWF-World Wide Fund for Nature and Titan
Sports, Inc. dated January 20, 1994 (Incorporated by reference
to Exhibit 10.16 to our Registration Statement on Form S-1
(No. 333-84327)).
21.1 List of Significant Subsidiaries (filed herewith).
23.1 Consent of Deloitte & Touche LLP (filed herewith).
99.1 Certification by Linda E. McMahon and Philip B. Livingston pursuant
to Section 906 of Sarbanes-Oxley Act of 2002 (filed herewith).
- --------------------------------------------------------------------------------
* Indicates management contract or compensatory plan or arrangement.
(1) Certain portions of this exhibit have been omitted based upon a request
for confidential treatment filed by the Company with the Secretary of the
Commission on August 25, 1999, as amended on October 8, 1999. The omitted
portion of this exhibit has been separately filed with the Commission.
(2) Certain portions of this exhibit have been omitted based upon a request
for confidential treatment filed by the Company with the Secretary of the
Commission on September 14, 1999 as amended on October 8, 1999. The
Omitted portion of this exhibit has been separately filed with Commission.
28
(b) Reports on Form 8-K:
The Registrant filed a Form 8-K dated February 25, 2003 under Item 5,
Other Events and Item 7, Financial Statements and Exhibits.
29
SIGNATURES
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: July 2, 2003 By: /s/ Linda E. McMahon
-----------------------------------
Linda E. McMahon
Chief Executive Officer
Dated: July 2, 2003 By: /s/ Philip B.Livingston
-----------------------------------
Philip B. Livingston
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title or Capacity Date
--------- ----------------- ----
By: /s/ Vincent K. McMahon Chairman of the Board of Directors July 2, 2003
- -----------------------------------
Vincent K. McMahon
By: /s/ Linda E. McMahon Chief Executive Officer and Director July 2, 2003
- -----------------------------------
Linda E. McMahon
By: /s/ Lowell P. Weicker Jr. Director July 2, 2003
- -----------------------------------
Lowell P. Weicker Jr.
By: /s/ David Kenin Director July 2, 2003
- -----------------------------------
David Kenin
By: /s/ Joseph Perkins Director July 2, 2003
- -----------------------------------
Joseph Perkins
By: /s/ Michael B. Solomon Director July 2, 2003
- -----------------------------------
Michael B. Solomon
By: /s/ Philip B. Livingston Chief Financial Officer
- ----------------------------------- and Director July 2, 2003
Philip B. Livingston
By: /s/ Frank G. Serpe Senior Vice President and
- ----------------------------------- Chief Accounting Officer July 2, 2003
Frank G. Serpe
30
CERTIFICATIONS
Securities and Exchange Act of 1934 Rule 13a-14 as adopted pursuant to Section
302 of Sarbanes-Oxley Act of 2002:
I, Linda E. McMahon, certify that:
1. I have reviewed this annual report on Form 10-K of World Wrestling
Entertainment, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this annual
report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we
have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Dated: July 2, 2003
By: /s/ Linda E. McMahon
-----------------------------------
Linda E. McMahon
Chief Executive Officer
31
I, Philip B. Livingston, certify that:
1. I have reviewed this annual report on Form 10-K of World Wrestling
Entertainment, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this annual
report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we
have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Dated: July 2, 2003
By: /s/ Philip B.Livingston
-----------------------------------
Philip B. Livingston
Chief Financial Officer
32
WORLD WRESTLING ENTERTAINMENT, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Management.......................................................... F-2
Independent Auditors' Report.................................................. F-3
Consolidated Statements of Operations
for the years ended April 30, 2003, 2002 and 2001............................. F-4
Consolidated Balance Sheets as of
April 30, 2003 and 2002....................................................... F-5
Consolidated Statements of Stockholders' Equity
and Comprehensive Income (Loss) for the years
ended April 30, 2003, 2002 and 2001........................................... F-6
Consolidated Statements of Cash Flows for
the years ended April 30, 2003, 2002 and 2001................................. F-7
Notes to Consolidated Financial Statements.................................... F-8
Schedule II - Valuation and Qualifying Accounts............................... F-26
F-1
Report of Management
The consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America. The
integrity and objectivity of the data in these financial statements, including
estimates and judgments relating to matters not concluded by year end, are the
responsibility of management, as is all other information included in the Annual
Report, unless otherwise indicated.
The consolidated financial statements of World Wrestling Entertainment, Inc.
have been audited by Deloitte & Touche LLP, independent auditors. Management has
made available to Deloitte & Touche LLP, all of World Wrestling Entertainment,
Inc.'s financial records and related data, as well as the minutes of
stockholders' and directors' meetings. Furthermore, management believes that all
representations made to Deloitte & Touche LLP during its audit were valid and
appropriate.
Management has established and maintains a system of internal accounting control
that provides reasonable assurance as to the integrity and reliability of the
consolidated financial statements, the protection of assets from unauthorized
use or disposition and the prevention and detection of fraudulent financial
reporting. The concept of reasonable assurance recognizes that the costs of an
internal accounting control system should not exceed, in management's judgment,
the benefits to be derived.
Management maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed by World Wrestling
Entertainment, Inc. is recorded, processed, summarized and reported within the
time periods specified by the Securities and Exchange Commission's rules and
forms.
Management also seeks to ensure the objectivity and integrity of its financial
data by the careful selection of its managers, by organizational arrangements
that provide an appropriate division of responsibility and by communication
programs aimed at ensuring that its policies, standards and managerial
authorities are understood throughout the organization. Management regularly
monitors the system of internal accounting control for compliance.
The Audit Committee of the Board of Directors meets periodically with management
and the independent auditors to review the manner in which they are performing
their respective responsibilities and to discuss auditing, internal accounting
controls and financial reporting matters. The independent auditors periodically
meet privately with the Audit Committee and have access to the Audit Committee
at any time.
July 2, 2003
/s/ Linda E. McMahon
- -----------------------------------
Linda E. McMahon
Chief Executive Officer
/s/ Philip B. Livingston
- -----------------------------------
Philip B. Livingston
Chief Financial Officer
F-2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of World Wrestling Entertainment,
Inc.:
We have audited the accompanying consolidated balance sheets of World Wrestling
Entertainment, Inc. (the "Company") as of April 30, 2003 and 2002 and the
related consolidated statements of operations, stockholders' equity and
comprehensive income (loss) and of cash flows for each of the three years in the
period ended April 30, 2003. Our audits also included the financial statement
schedule listed in the index at Item 15(a)1. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of World Wrestling Entertainment, Inc.
as of April 30, 2003 and 2002 and the results of its operations and its cash
flows for each of the three years in the period ended April 30, 2003 in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
/s/ Deloitte and Touche LLP
Stamford, Connecticut
June 13, 2003
F-3
World Wrestling Entertainment, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
Fiscal year ended April 30,
--------------------------------------
2003 2002 2001
---- ---- ----
Net revenues ......................................................... $ 374,264 $ 409,622 $ 438,139
Cost of revenues ..................................................... 237,343 251,124 249,308
Selling, general and administrative expenses ......................... 99,349 98,291 96,486
Depreciation and amortization ........................................ 10,545 10,174 4,736
--------- --------- ---------
Operating income ..................................................... 27,027 50,033 87,609
Interest expense ..................................................... 783 784 856
Interest income and other, net ....................................... 1,114 18,202 15,916
--------- --------- ---------
Income from continuing operations
before income taxes ................................................. 27,358 67,451 102,669
Provision for income taxes ........................................... 10,996 24,953 38,143
--------- --------- ---------
Income from continuing operations .................................... 16,362 42,498 64,526
--------- --------- ---------
Discontinued Operations:
Loss from XFL operations, net of
taxes of $17,679 and minority interest ........................... -- -- (31,293)
Estimated income (loss) on shutdown
of the XFL, net of taxes of $2,917
and $5,265 for fiscal 2002 and 2001,
respectively, and minority interest .............................. -- 4,638 (15,617)
--------- --------- ---------
Income (loss) from discontinued
operations - XFL ................................................. -- 4,638 (46,910)
--------- --------- ---------
Loss from The World operations, net
of taxes of $16,359, $3,006 and
$999 for fiscal 2003, 2002
and 2001, respectively .......................................... (26,691) (4,903) (1,629)
Estimated loss on shutdown of The World,
net of taxes of $3,257 ........................................... (8,866) -- --
--------- --------- ---------
Loss from discontinued operations - The World ..................... (35,557) (4,903) (1,629)
--------- --------- ---------
Loss from discontinued operations ................................. (35,557) (265) (48,539)
--------- --------- ---------
Net income (loss) .................................................... $ (19,195) $ 42,233 $ 15,987
========= ========= =========
Earnings (loss) per common share-Basic:
Continuing operations ............................................. $ 0.23 $ 0.58 $ 0.90
========= ========= =========
Discontinued operations ........................................... $ (0.50) $ -- $ (0.67)
========= ========= =========
Net income (loss) ................................................. $ (0.27) $ 0.58 $ 0.22
========= ========= =========
Earnings (loss) per common share-Diluted:
Continuing operations ............................................. $ 0.23 $ 0.58 $ 0.90
========= ========= =========
Discontinued operations ........................................... $ (0.50) $ -- $ (0.67)
========= ========= =========
Net income (loss) ................................................. $ (0.27) $ 0.58 $ 0.22
========= ========= =========
See Notes to Consolidated Financial Statements.
F-4
World Wrestling Entertainment, Inc.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
As of April 30,
----------------------
2003 2002
---- -----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............................................. $ 128,473 $ 86,396
Short-term investments ................................................. 142,641 207,407
Accounts receivable (less allowance for
doubtful accounts of $5,284 and $2,840
as of April 30, 2003 and 2002, respectively) .......................... 49,729 63,762
Inventory, net ......................................................... 839 1,451
Prepaid expenses and other current assets .............................. 18,443 15,760
Assets of discontinued operations ...................................... 21,129 44,256
--------- ---------
Total current assets ................................................. 361,254 419,032
PROPERTY AND EQUIPMENT--NET ............................................... 59,325 59,214
INTANGIBLE ASSETS ......................................................... 12,055 9,055
OTHER ASSETS .............................................................. 4,623 8,051
--------- ---------
TOTAL ASSETS .............................................................. $ 437,257 $ 495,352
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt ...................................... $ 777 $ 601
Accounts payable ....................................................... 14,188 19,490
Accrued expenses and other liabilities ................................. 34,991 45,963
Deferred income ........................................................ 24,662 23,190
Liabilities of discontinued operations ................................. 11,554 7,368
--------- ---------
Total current liabilities ............................................ 86,172 96,612
LONG-TERM DEBT ............................................................ 9,126 9,302
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A common stock: ($.01 par value;
180,000,000 shares authorized; 18,215,427
shares and 18,184,177 shares issued as of
April 30, 2003 and 2002, respectively) ............................... 182 181
Class B common stock: ($.01 par value;
60,000,000 shares authorized;
54,780,207 shares issued as of
April 30, 2003 and 2002 ............................................... 548 548
Treasury stock (2,578,769 shares
and 100,000 shares as of
April 30, 2003 and 2002,
respectively) ......................................................... (30,569) (1,139)
Additional paid-in capital ............................................. 297,315 296,938
Accumulated other comprehensive income (loss) .......................... 243 (525)
Retained earnings ...................................................... 74,240 93,435
--------- ---------
Total stockholders' equity ........................................... 341,959 389,438
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................. $437,257 $ 495,352
========= =========
See Notes to Consolidated Financial Statements.
F-5
World Wrestling Entertainment, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
(dollars and shares in thousands)
Accumulated
Additional Other
Common Stock Treasury Paid-in Comprehensive Retained
Shares Amount Stock Capital Income (loss) Earnings Total
------ ------ ----- ------- ------------- -------- -----
Balance, May 1, 2000 ........................... 68,167 $682 $ -- $ 222,535 $ 105 $ 35,215 $ 258,537
Comprehensive income:
Net income .................................. -- -- -- -- -- 15,987 15,987
Translation adjustment ...................... -- -- -- -- (175) -- (175)
Unrealized holding loss, net of tax ......... -- -- -- -- (527) -- (527)
---------
Total comprehensive income ..................... 15,285
Issuance of common stock ....................... 4,615 46 -- 59,954 -- -- 60,000
Stock issuance costs ........................... -- -- -- (534) -- -- (534)
Non-cash stock issuance charge ................. -- -- -- 10,673 -- -- 10,673
Stock option charge ............................ -- -- -- 1,092 -- -- 1,092
Exercise of stock options ...................... 150 1 -- 2,549 -- -- 2,550
Tax benefit from exercise of stock options ..... -- -- -- 256 -- -- 256
-------------------------------------------------------------------------------
Balance, April 30, 2001 ........................ 72,932 729 -- 296,525 (597) 51,202 347,859
Comprehensive income:
Net income .................................. -- -- -- -- -- 42,233 42,233
Translation adjustment ...................... -- -- -- -- 37 -- 37
Unrealized holding gain, net of tax ......... -- -- -- -- 35 -- 35
---------
Total comprehensive income ..................... 42,305
Purchase of treasury stock ..................... (100) -- (1,139) -- -- -- (1,139)
Exercise of stock options ...................... 32 -- -- 413 -- -- 413
-------------------------------------------------------------------------------
Balance, April 30, 2002 ........................ 72,864 729 (1,139) 296,938 (525) 93,435 389,438
Comprehensive loss:
Net loss .................................... -- -- -- -- -- (19,195) (19,195)
Translation adjustment ...................... -- -- -- -- 322 -- 322
Unrealized holding gain, net of tax ......... -- -- -- -- 446 -- 446
---------
Total comprehensive loss ....................... (18,427)
Purchase of treasury stock ..................... (2,489) -- (29,554) -- -- -- (29,554)
Proceeds from sale of treasury stock ........... 10 -- 124 (47) -- -- 77
Exercise of stock options ...................... 31 1 -- 404 -- -- 405
Tax benefit from exercise of stock options ..... -- -- -- 20 -- -- 20
---------
-------------------------------------------------------------------------------
Balance, April 30, 2003 ........................ 70,416 $730 $(30,569) $ 297,315 $ 243 $ 74,240 $ 341,959
===============================================================================
See Notes to Consolidated Financial Statements.
F-6
World Wrestling Entertainment, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Year Ended April 30,
2003 2002 2001
--------- -------- ---------
OPERATING ACTIVITIES:
Net (loss) income ................................................................ ($ 19,195) $ 42,233 $ 15,987
Adjustments to reconcile net (loss)
income to net cash provided by
(used in) operating activities:
Loss from discontinued operations ................................................ 35,557 265 48,539
Gain on sale of property and stock, and revaluation of warrants, net ............. -- (5,287) (1,249)
Cumulative effect of change
in accounting principle,
net of tax ...................................................................... -- (1,487) --
Depreciation and amortization .................................................... 10,545 10,174 4,736
Amortization of deferred income .................................................. (1,268) (1,270) (407)
Provision for doubtful accounts .................................................. 3,697 900 1,239
Provision for inventory obsolescence ............................................. 797 3,780 803
Stock option charges ............................................................. -- -- 760
Provision (benefit) for deferred income taxes .................................... 1,650 (1,433) 2,235
Changes in assets and liabilities:
Accounts receivable ......................................................... 10,334 7,388 (12,936)
Inventory ................................................................... (185) (1,086) (2,196)
Prepaid expenses and other assets ........................................... (614) 5,689 (3,906)
Accounts payable ............................................................ (5,302) 25 2,086
Accrued expenses and other liabilities ...................................... (10,724) 6,403 6,812
Deferred income ............................................................. 2,740 10,179 (454)
--------- -------- ---------
Net cash provided by continuing operations ................................ 28,032 76,473 62,049
Net cash used in discontinued operations .................................. (6,894) (18,587) (85,403)
--------- -------- ---------
Net cash provided by (used in)
operating activities ..................................................... 21,138 57,886 (23,354)
--------- -------- ---------
INVESTING ACTIVITIES:
Purchases of property and equipment .............................................. (10,593) (12,499) (21,554)
Acquisitions, net of cash acquired ............................................... (3,000) (4,900) (4,155)
Sale (purchase) of short-term investments, net ................................... 65,416 (13,070) (87,794)
Net proceeds from the sale of investments ........................................ -- 12,914 11,305
--------- -------- ---------
Net cash provided by (used in) continuing operations ...................... 51,823 (17,555) (102,198)
Net cash used in discontinued operations .................................. (2,134) (5,179) (39,273)
--------- -------- ---------
Net cash provided by (used in) investing operations ....................... 49,689 (22,734) (141,471)
--------- -------- ---------
FINANCING ACTIVITIES:
Repayments of long-term debt ..................................................... (601) (556) (959)
Proceeds from capital lease agreement ............................................ 601 -- --
Common stock issued, including treasury stock reissued,
net of stock issuance costs ..................................................... 77 -- 59,466
Repurchase of Class A common stock ............................................... (29,554) (1,139) --
Proceeds from exercise of stock options .......................................... 405 413 2,550
--------- -------- ---------
Net cash (used in) provided by continuing operations ...................... (29,072) (1,282) 61,057
Net cash provided by discontinued operations .............................. 322 8,100 46,415
--------- -------- ---------
Net cash (used in) provided by financing activities ....................... (28,750) 6,818 107,472
--------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................ 42,077 41,970 (57,353)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ...................................... 86,396 44,426 101,779
--------- -------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................................ $ 128,473 $ 86,396 $ 44,426
========= ======== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period
for income taxes, net of refunds ................................................ $ 6,398 $ 7,741 $ 33,646
Cash paid during the period for interest ......................................... $ 783 $ 783 $ 856
SUPPLEMENTAL NON-CASH INFORMATION:
Receipt of warrants .............................................................. $-- $-- $ 2,884
See Notes to Consolidated Financial Statements.
F-7
World Wrestling Entertainment, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
1. Basis of Presentation and Business Description
The accompanying consolidated financial statements include the accounts of World
Wrestling Entertainment, Inc., and our wholly owned subsidiaries. In 2003, we
closed the operations of our entertainment complex, The World. We recorded the
results from operations of this business and the estimated shutdown cost as
discontinued operations. In early May 2001, we discontinued operations of the
XFL and accordingly, reported XFL operating results and estimated shutdown costs
as discontinued operations.
All significant intercompany balances have been eliminated. Certain prior year
amounts have been reclassified to conform with the current year presentation.
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 World
Wrestling Entertainment brand of entertainment. Our continuing operations are
organized around two principal activities:
o Live and televised entertainment, which consists of live event and
television programming. Revenues consist principally of attendance at live
events, sale of television advertising time and sponsorships, domestic and
international television rights fees and pay-per-view buys.
o Branded merchandise, which consists of licensing and direct sale of
merchandise. Revenues include sales of consumer products through third
party licensees and direct marketing and sales of merchandise, magazines
and home videos.
Our discontinued operations consisted primarily of food and beverage and retail
revenues generated from our entertainment complex and revenues from attendance
at live events, sale of television advertising time and sales of consumer
products from the XFL.
2. Summary of Significant Accounting Policies
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles 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.
Fiscal Period - 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.
Cash and Cash Equivalents - Cash and cash equivalents include cash on deposit in
overnight deposit accounts and investments in money market accounts.
Short-term Investments- We classify all of our short-term investments as
available-for-sale securities. Such short-term investments consist primarily of
United States government and federal agencies securities, corporate commercial
paper, corporate bonds, mutual funds and mortgage-backed securities, all of
which are stated at market value, with unrealized gains and losses on such
securities reflected, net of tax, as other comprehensive income (loss) in
stockholders' equity. Realized gains and losses on short-term investments are
included in earnings and are derived using the specific identification method
for determining the cost of securities sold. As of April 30, 2003, the fair
value of our short-term investments were approximately $148 greater than cost
and as of April 30, 2002, the fair value was $518 lower than cost. We recorded
unrealized income (losses) of $446, net of taxes, and $(163), net of taxes, for
2003 and 2002, respectively, which was included in accumulated other
comprehensive income (loss). It is our intent to maintain a liquid portfolio to
take advantage of investment opportunities; therefore, all securities are
considered to be available-for-sale and are classified as current assets.
F-8
World Wrestling Entertainment, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
Accounts Receivable - Accounts receivable relate principally to amounts due to
us from pay-per-view providers and television networks for pay-per-view
presentations and television programming, respectively and balances due from the
sale of television advertising, videotapes and DVDs and magazines. Our
receivables represent a significant portion of our current assets. We are
required to estimate the collectibility of our receivables and to establish
allowances for the amount of receivables that we estimate to be uncollectible.
We base these allowances on our historical collection experience, the length of
time our receivables are outstanding and the financial condition of individual
customers.
Inventory - Inventory consists of merchandise sold on a direct sales basis, and
videotapes and DVDs, which are sold through wholesale distributors and
retailers. Substantially all of our inventory is comprised of finished goods.
Inventory is stated at the lower of cost (first-in, first-out basis) or market.
The valuation of our inventories requires management to make market estimates
assessing the quantities and the prices at which we believe the inventory can be
sold.
Property and Equipment - Property and equipment are stated at historical cost
less accumulated depreciation and amortization. Depreciation and amortization is
computed on a straight-line basis over the estimated useful lives of the assets
or, when applicable, the life of the lease, whichever is shorter. Vehicles and
equipment are depreciated based on estimated useful lives varying from three to
five years. Buildings and related improvements are amortized over the lesser of
the remaining useful life of the buildings or the anticipated life of
improvements.
Leased Property Under Capital Leases - Property under capital leases is
amortized over the shorter of the lives of the respective leases or the
estimated useful lives of the assets.
Valuation of Long-Lived Assets - In May 2002, we adopted SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". In accordance
with SFAS No. 144, we periodically evaluate the carrying value of long-lived
assets when events and circumstances warrant such a review. During 2003, the
economic conditions surrounding our entertainment complex in New York City, The
World, and its continued weak operating results indicated potential impairment.
In accordance with the prescribed accounting, an impairment test was performed
which ultimately resulted in a non-cash pre-tax impairment charge of $30,392
that was recorded in 2003 and reflected in discontinued operations.
Income Taxes - We account for income taxes in accordance with the provisions of
SFAS No. 109, "Accounting for Income Taxes." Our deferred provision was
determined under the asset and liability method. Under this method, deferred
assets and liabilities are recognized based on differences between financial
statement and income tax basis of assets and liabilities using presently enacted
tax rates. Valuation allowances are established to reduce deferred tax assets
when it is more likely than not that some portion or all of the deferred tax
assets will not be realized. We consider estimated future taxable income and
ongoing tax planning strategies in assessing the need for valuation allowances.
Revenue Recognition
Revenues are generally recognized when products are shipped or as services are
performed. However, due to the nature of several of our business lines, there
are additional steps in the revenue recognition process, as described below.
Pay-per-view programming:
Revenues from our pay-per-view programming are recorded when the event is aired
and are based upon our initial estimate of the number of buys achieved. This
initial estimate is based on preliminary buy information received from our
pay-per-view distributors. Final reconciliation of the pay-per-view buys
generally occurs within one year and any subsequent adjustments to the buys are
recognized on a cash basis.
Television advertising:
Revenues from the sale of television advertising are recorded when the
commercial airs within our programming and are based upon contractual amounts
previously established with our advertisers. These contractual amounts are
typically based on the advertisement reaching a desired number of viewers. If an
ad does not reach the desired number of viewers, we record an estimated reserve
to reflect rebates or future free advertising due to advertisers, based on the
difference between the intended delivery (as contracted) and actual delivery of
audiences.
F-9
World Wrestling Entertainment, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
Licensing:
Licensing revenues are recognized upon receipt of notice by the individual
licensees as to license fees due. If we receive licensing advances, such
payments are deferred and recognized as income on an as earned basis.
Home Video:
Revenues from the sales of VHS and DVD titles are recorded when shipped by our
distributor to wholesalers / retailers, net of an allowance for estimated
returns. The allowance for estimated returns is based on historical information
and current industry trends.
Magazine publishing:
Publishing newsstand revenues are recorded when shipped by our distributor to
wholesalers / retailers, net of an allowance for estimated returns. We estimate
the allowance for newsstand returns based upon our review of historical returns
rates and the expected performance of our current titles in relation to prior
issue return rates.
Advertising Expense-- Advertising costs are expensed as incurred, except for
costs related to the development of a major commercial or media campaign which
are expensed in the period in which the commercial or campaign is first
presented.
Foreign Currency Translation - For translation of the financial statements of
our Canadian and United Kingdom subsidiaries, we have determined that the
Canadian Dollar and the U.K. Pound are the functional currencies. Assets and
liabilities are translated at the year-end exchange rate, and income statement
accounts are translated at average exchange rates for the year. The resulting
translation adjustments are recorded in accumulated other comprehensive income,
a component of stockholders' equity. Foreign currency transactions are recorded
at the exchange rate prevailing at the transaction date.
Stock-Based Compensation-- We account for stock-based compensation using the
intrinsic value method as prescribed under Accounting Principles Board Opinion
("APB") No 25, "Accounting for Stock Issued to Employees," and related
interpretations. Under this method, no compensation expense is recognized when
the number of shares granted is known and the exercise price of the stock option
is equal to or greater than the market price of our stock on the grant date. We
follow the disclosure-only provisions of Statement of Financial Accounting
Standards ("SFAS") No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure", and SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS Nos. 148 and 123 encourage, but do not require, companies to
adopt a fair value based method for determining expense related to stock-based
compensation (See Note 11).
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 with the
following assumptions:
April 30,
-----------------------------------------
2003 2002 2001
---------- ------- ----------
Expected life of option .................................... 3 years 3 years 3 years
Risk-free interest rate .................................... 2.5% 3.4% 4.5%
Expected volatility of our common stock .................... 38% 67% 71%
2003 2002 2001
---------- ------ ----------
Weighted average fair value per share of
each option granted to employees .......................... $ 3.73 $ 6.48 $ 7.21
Total number of options granted to employees ............... 1,219,000 5,000 1,481,200
Total fair value of all options
granted to employees ...................................... $ 4,548 $ 32 $ 10,677
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
F-10
World Wrestling Entertainment, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
continuing operations per common share for 2003, 2002 and 2001 would have been
impacted as shown in the following table:
Year Ended April 30,
-----------------------------
2003 2002 2001
---- ---- ----
Reported income from continuing operations ........................... $16,362 $42,498 $ 64,526
Pro forma income from continuing operations .......................... $12,760 $37,105 $156,438
Reported basic and diluted earnings from
continuing operations per common share ............................. $ 0.23 $ 0.58 $ 0.90
Pro forma basic and diluted earnings
from continuing operations per common share ........................ $ 0.18 $ 0.51 $ 0.78
In accordance with SFAS No.123, the weighted average fair value of stock options
granted to employees was based on a theoretical statistical model using
assumptions. In actuality, because our stock options are not traded on any
exchange, employees can receive no value nor derive any benefit from holding
stock options under these plans without an increase in market price of our
common stock. Such an increase in stock price would benefit all stockholders
commensurately.
Derivative Instruments - We recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value. In
the first quarter of fiscal 2002, we adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", and as a result, recorded an
increase to income from continuing operations of $1,487, net of taxes.
Subsequent to our initial adoption of SFAS No. 133, in fiscal 2002, we also
recorded a $1,414 increase to income from continuing operations based on the
revaluation of these derivatives.
Goodwill & Other Intangible Assets - In July 2001, SFAS No. 141 "Business
Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets" were
released. We elected to early adopt SFAS No. 142 as of May 1, 2001. As required
by SFAS No. 142, we performed an impairment test on intangible assets as of the
adoption date and on goodwill within six months from the date of adoption. We
completed this transitional impairment test and deemed that no impairment loss
existed. During 2003, the economic conditions surrounding The World, and its
continued weak operating results indicated potential impairment of the site's
long-lived assets and goodwill. As a result of the indicated impairment, a
valuation was performed on the site and ultimately resulted in the recording of
a write-down of the long-lived assets and our goodwill related to the purchase
of the site. The write-down of the goodwill resulted in a non-cash pre-tax
impairment charge of $2,533 that was recorded in 2003. As of April 30, 2003 and
2002, we had intangible assets with a book value of $12,055 and $9,055,
respectively. We will continue to perform impairment tests annually and whenever
events or circumstances occur indicating that intangible assets might be
impaired.
Discontinued Operations - In June 2002, the FASB issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities". In February
2003, we closed the restaurant operations at The World and in April 2003, we
closed the retail operations at the facility. Total costs related to the shut
down of these operations are estimated to be $8,866, net of applicable tax
benefits of $3,257 and were recorded as discontinued operations in 2003, in
accordance with SFAS No. 146. Prior to the adoption of SFAS No. 146, we
accounted for our discontinued XFL operations in accordance with Accounting
Principles Board Opinion ("APB") No. 30, "Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions".
Total income (loss) related to our discontinued XFL operations were $4,638 and
($46,910) for 2002 and 2001, respectively.
Recent Accounting Pronouncements - In April 2002, the FASB issued SFAS No. 145,
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of SFAS No. 13, and
Technical Corrections." This Statement amends existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. This statement became
effective for us on May 1, 2003 and does not have a material impact on our
operating results or financial position.
F-11
World Wrestling Entertainment, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." The disclosure requirements of
FIN 45 were effective for financial statements of interim or annual periods
ending after December 15, 2002 and did not have a material impact on our
consolidated financial statements.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities." FIN 46 requires us to consolidate a variable interest entity if we
are subjected to a majority of the risk of loss from the variable interest
entity's activities or entitled to receive a majority of the entity's residual
returns, or both. We currently lease a corporate jet, which is not held in a
variable interest entity, and accordingly, is accounted for as an operating
lease. We do not currently have any interests in variable interest entities and,
accordingly do not expect the adoption of FIN 46 to have a material impact on
our consolidated financial statements.
In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus on
Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." EITF Issue
No. 00-21 provides guidance on how to account for arrangements that involve the
delivery or performance of multiple products, services and/or rights to use
assets. The provisions of EITF Issue No. 00-21 will apply to revenue
arrangements entered into in fiscal periods beginning after June 15, 2003. The
adoption of this consensus is not expected to have a material impact on our
consolidated financial statements.
In November 2001, the EITF reached a consensus on Issue No. 01-09, "Accounting
for Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendor's Products)". This consensus addresses income statement characterization
issues and recognition and measurement issues relating to consideration given by
a vendor to a customer. As a result of this pronouncement, we reclassified
$1,697, $1,303 and $1,347 in fiscal 2003, 2002 and 2001, respectively, of
discounts previously classified as expenses to the prescribed accounting as a
reduction of revenue.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
establishes standards for how an issuer classifies and measures in its balance
sheet certain financial instruments with characteristics of both liabilities and
equity. It is effective for us in the second quarter of 2004, but, because we
have no instruments falling under the provisions of SFAS No. 150, it will not
have an impact on our consolidated financial statements.
3. Earnings Per Share
For purposes of calculating basic and diluted earnings per share, we used the
following weighted average common shares outstanding:
For the years ended April 30,
2003 2002 2001
------------------------------------------
Weighted average number of common shares outstanding:
Basic 70,621,898 72,861,797 72,025,222
Diluted 70,623,129 72,865,624 72,216,870
Dilutive effect of outstanding options 1,231 3,827 191,648
Anti-dilutive outstanding options 6,869,450 5,306,750 5,454,500
4. Intangible Assets
In March 2003, we acquired a film library and certain other assets for $3,000
from an unaffiliated professional wrestling organization. We have classified
these costs as intangible assets and will amortize them over the expected period
of, and in
F-12
World Wrestling Entertainment, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
proportion to, the expected revenues to be derived from this film library. In
March 2001, we acquired substantially all of the intellectual properties and
certain other assets of World Championship Wrestling (the "WCW"), including
trade names, tape library and other intangible assets from a subsidiary of AOL
Time Warner for $2,500. In addition, we incurred certain related costs to
acquire these assets of approximately $6,600. We have classified these costs as
intangible assets with an indefinite life.
5. Investments
Short-term investments consisted of the following:
April 30, 2003
-----------------------------------------
Unrealized Fair
Cost Holding Gain Value
-----------------------------------------
Government obligations ........................... $ 63,755 $ -- $ 63,755
Mutual funds ..................................... 40,027 148 40,175
Corporate obligations and other .................. 38,711 -- 38,711
-------- -------- --------
Total ............................................ $142,493 $ 148 $142,641
======== ======== ========
April 30, 2002
-----------------------------------------
Unrealized Fair
Cost Holding Loss Value
-----------------------------------------
Government obligations ........................... $ 26,725 $ -- $ 26,725
Corporate obligations and other .................. 129,763 (518) 129,245
Mortgage backed securities ....................... 51,437 -- 51,437
-------- -------- --------
Total .................................. $207,925 $ (518) $207,407
======== ======== ========
In 2003, we recorded to interest income and other, net, an impairment charge of
approximately $613 related to certain stock we held. In addition to the
short-term investments included above, we received warrants from four publicly
traded companies with whom we had either licensing or program distribution
agreements. The estimated fair value of the warrants relating to these contracts
on the date of receipt aggregated approximately $5,237. In connection with the
adoption of SFAS 133, in 2002, we recorded a cumulative effect adjustment of
$1,487, net of taxes. Subsequent to the adoption, we recorded a $1,414 increase
to income from continuing operations based on the revaluation of these warrants.
These warrants were then exercised and the related stock was sold, generating a
net gain of $6,757. Additionally, we wrote down the carrying value of certain of
our other warrants deemed impaired to zero, resulting in a charge of $2,884.
Each of the charges noted above were recorded in interest income and other, net,
during 2002.
6. Property and Equipment
Property and equipment consisted of the following:
April 30,
--------------------
2003 2002
------- -------
Land, buildings and improvements ..................... $51,051 $51,905
Equipment ............................................ 40,332 37,408
Vehicles ............................................. 639 769
Property under capital lease ......................... 1,515 --
------- -------
93,537 90,082
Less accumulated depreciation
and amortization ................................ 34,212 30,868
------- -------
Total ............................................ $59,325 $59,214
======= =======
F-13
World Wrestling Entertainment, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
7. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following:
April 30,
2003 2002
------- -------
Accrued pay-per-view event costs ................. $ 5,580 $ 6,047
Accrued settlement offer ......................... 3,750 --
Accrued income taxes ............................. 5,173 6,224
Accrued talent royalties ......................... 759 2,094
Accrued payroll related costs .................... 2,359 2,116
Accrued television costs ......................... 3,364 13,076
Accrued other .................................... 14,006 16,406
------- -------
Total ........................................ $34,991 $45,963
======= =======
8. Debt
Debt as of April 30, 2003 and 2002 consisted of the following:
April 30,
2003 2002
------ ------
Mortgage loan agreement .......................... $9,302 $9,903
Obligation under capital lease ................... 601 --
------ ------
9,903 9,903
Less current portion ............................. 777 601
------ ------
Long-term debt ................................... $9,126 $9,302
====== ======
In 1997, we entered into a mortgage loan agreement under which we borrowed
$12,000 at an annual interest rate of 7.6%. Principal and interest are to be
paid in 180 monthly installments of approximately $112. The loan is
collateralized by our executive offices and television studio in Stamford,
Connecticut.
Interest expense for this loan was $783, $784 and $856 for 2003, 2002 and 2001,
respectively.
In July 2002, we entered into a capital lease arrangement related to certain
computer equipment. The net carrying amount of our capitalized lease equipment
is $822 as of April 30, 2003. The lease bears an effective interest rate of 6.5%
and expires in June, 2007.
As of April 30, 2003, the scheduled principal repayments under our debt
obligations were as follows:
Year Ending April 30,
- ---------------------
2004 ................................................... $ 777
2005 ................................................... 839
2006 ................................................... 904
2007 ................................................... 974
2008 ................................................... 908
Thereafter ................................................ 5,501
------
$9,903
======
F-14
World Wrestling Entertainment, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
9. Income Taxes
For 2003, 2002 and 2001, we were taxed on our income from continuing operations
at an effective tax rate of 40.2%, 37.0% and 37.2%, respectively. Our income tax
provision related to our income from continuing operations for fiscal 2003, 2002
and 2001 was $10,996, $24,953, and $38,143 respectively, and included federal,
state and foreign taxes. Including our loss from discontinued operations of The
World and the XFL, our (benefit) provision for income taxes was $(8,620),
$19,030 and $14,200 for 2003, 2002 and 2001, respectively.
The components of our tax provision from continuing operations were as follows:
Year ended April 30,
--------------------
2003 2002 2001
------- -------- -------
Current:
Federal ........................... $ 5,990 $ 21,456 $32,446
State and local ................... 1,057 3,129 3,062
Foreign ........................... 2,299 1,801 400
Deferred:
Federal ........................... 1,430 (1,224) 1,961
State and local ................... 202 (225) 271
Foreign ........................... 18 16 3
------- -------- -------
Total ........................ $10,996 $ 24,953 $38,143
======= ======== =======
Our (benefit) provision for income taxes from continuing operations and
discontinued operations was as follows:
Year ended April 30,
--------------------
2003 2002 2001
-------- -------- --------
Provision for income taxes
from continuing operations ............ $ 10,996 $ 24,953 $ 38,143
Benefit for income taxes
from discontinued operations .......... (19,616) (5,923) (23,943)
-------- -------- --------
Total (benefit) provision for
income taxes .......................... $ (8,620) $ 19,030 $ 14,200
======== ======== ========
The following sets forth the difference between the provision for income taxes
from continuing operations computed at the U.S. federal statutory income tax
rate of 35% and that reported for financial statement purposes:
Year ended April 30,
--------------------
2003 2002 2001
-------- -------- --------
Statutory U.S. federal tax at 35% ...... $ 9,575 $ 23,608 $ 35,934
State and local taxes, net of
federal benefit ....................... (532) 2,024 3,080
Foreign ................................ 112 136 140
Valuation allowance .................... 2,025 -- --
Other .................................. (184) (815) (1,011)
-------- -------- --------
Provision for income taxes ............. $ 10,996 $ 24,953 $ 38,143
======== ======== ========
The state tax benefit for 2003 is comprised of state and local taxes, net of
federal benefits, reduced by the reversal of a tax reserve established in prior
years. The tax reserve is no longer necessary due to the conclusion of various
state examinations.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities of continuing operations
consisted of the following:
F-15
World Wrestling Entertainment, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
April 30,
2003 2002
---- ----
Deferred tax assets:
Accounts receivable ................................... $ 2,759 $ 1,110
Inventories ........................................... 464 1,093
Prepaid royalties ..................................... 3,479 3,217
Stock options ......................................... 4,286 4,993
Investments ........................................... 3,736 2,625
Intangible assets ..................................... 786 857
Accrued liabilities and reserves ...................... 4,516 2,994
Foreign ............................................... 47 65
-------- --------
20,073 16,954
Valuation allowance ................................... (2,437) (412)
-------- --------
17,636 16,542
Deferred tax liabilities:
Fixed assets and depreciation ......................... 4,465 1,307
Prepaid royalties ..................................... -- 490
-------- --------
4,465 1,797
-------- --------
Total, net ...................................... $ 13,171 $ 14,745
======== ========
The temporary differences described above represent differences between the tax
basis of assets or liabilities and their reported amounts in the consolidated
financial statements that will result in taxable or deductible amounts in future
years when the reported amounts of the assets or liabilities are recovered or
settled. As of April 30, 2003 and 2002, $11,194 and $9,543, respectively, of the
net deferred tax assets are included in prepaid expenses and other current
assets and the remaining $1,977 and $5,202, respectively, are included in other
non-current assets in our consolidated balance sheets.
As of April 30, 2003, and April 30, 2002 we had valuation allowances of $2,437
and $412, respectively to reduce our deferred tax assets to an amount more
likely than not to be recovered. The valuation allowances primarily relate to
the deferred tax assets arising from losses on investments which are capital in
nature for which the realization is uncertain. A majority of these capital loss
carry forwards expire in 2008.
U.S. Federal income taxes have not been provided on unremitted earnings of our
foreign subsidiary, because our intent is to keep such earnings indefinitely
reinvested in the foreign subsidiary's operations.
10. Commitments and Contingencies
We have certain commitments, including various non-cancelable operating leases,
performance contracts with various performers, employment agreements with
certain executive officers, advertising commitments and agreements with Viacom
and United Paramount Network ("UPN") which guarantee a minimum payment for
advertising during their terms. Our current agreement with UPN expires in
September 2003 at which time we will no longer sell advertising time on the
television shows aired on UPN. Commencing in October 2003, under the terms of
our new agreement with UPN, we will receive a rights fee for our programming.
In addition, we have a lease agreement for a 1998 Canadair Challenger 604
airplane. The term of this aircraft lease is for twelve years ending on October
30, 2012. The monthly lease payment for this aircraft lease is determined by a
floating rate, which is based upon 30-day commerical paper rate as stated by the
Federal Reserve plus 1.95%. Total principal payments under this lease are
$22,500. As of April 30, 2003, our outstanding principal balance was $20,369.
F-16
World Wrestling Entertainment, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
Future minimum payments as of April 30, 2003 under the agreements described
above were as follows:
Operating Lease Other
Year Ending April 30, Commitments Commitments Total
- --------------------- ----------- ----------- -----
2004 .......................... $ 2,963 $47,241 $ 50,204
2005 .......................... 2,338 24,362 26,700
2006 .......................... 2,268 10,279 12,547
2007 .......................... 2,140 2,544 4,684
2008 .......................... 2,075 169 2,244
Thereafter ........................ 6,608 -- 6,608
------- ------- --------
Total ........................ $18,392 $84,595 $102,987
======= ======= ========
Rent expense under operating leases from continuing operations was approximately
$2,402, $2,228 and $1,546 for 2003, 2002 and 2001, respectively.
In addition, we have an operating lease for space in New York City that is
currently unoccupied which was related to our former entertainment complex, The
World. We are currently seeking a sub-tenant. The total payments remaining on
the lease is approximately $46,000 as of April 30, 2003. However, in accordance
with SFAS No. 146, we have reduced this accrual by our current estimate for
sub-tenant rental income of approximately 75% of the remaining payments on the
lease (see Note 17).
Legal Proceedings
World Wide Fund for Nature
In April 2000, the World Wide Fund for Nature and its American affiliate, the
World Wildlife Fund (collectively, the "Fund") instituted legal proceedings
against us in the English High Court seeking injunctive relief and unspecified
damages for alleged breaches of a 1994 agreement between the Fund and us
regarding the use of the initials "wwf" including (i) the wwf.com and
wwfshopzone.com internet domain names and in the contents of various of our
websites, and (ii) our "scratch" letter logo. On August 10, 2001, the trial
judge granted the Fund's motion for summary judgment, holding that we breached
the parties' agreement by using the "wwf" website addresses and scratch logo.
That ruling subsequently was upheld by the English Court of Appeals. Since
November 10, 2002, we have been subject to an injunction barring us, either on
our own or through our officers, servants, agents, subsidiaries, licensees or
sub licensees, our television or other affiliates or otherwise, of most uses of
the initials "wwf," including in connection with the "wwf" website addresses and
the use of the scratch logo.
In compliance with the injunction, we have taken the following significant
steps, many of which go beyond the literal requirements of the injunction: (1)
changed our name to "World Wrestling Entertainment, Inc."; (2) switched our
initials to "WWE"; (3) revised our logo to be a scratch "WW"; (4) incorporated
these changes into, among other things, our television and pay-per-view shows,
promotional materials, advertising campaigns, statutory filings with federal and
state agencies, and corporate stationery and corporate facilities; (5) advised
our licensees and business partners of the terms of the injunction; and (6)
directed our licensees and business partners to refrain from using the initials
"wwf" in any manner which, if done by us, would be a breach of any of the
prohibitions of the injunction. However, the elimination of certain historical
uses of the scratch logo, including, specifically, WWE's archival video footage
containing the scratch logo during the period 1998-May 2002 and the scratch logo
embedded in programming code of WWE-licensed video games created during the
period 1999-2001 is, as a practical matter, not possible. On an application for
relief by our videogame licensee, THQ/Jakks Pacific LLC ("THQ/Jakks"), the
English Court of Appeals ruled that THQ/Jakks' marketing and sale of games with
embedded references to the initials "wwf" is not a breach of the injunction and
would not constitute a contempt of court by either THQ/Jakks or us.
F-17
World Wrestling Entertainment, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
The Fund also has pending before the trial court a damages claim associated with
the Company's use of the initials "wwf." Although the Fund has never submitted a
formal claim of damages to the court, the Fund has claimed in correspondence
that at least $360 million would be required to fund a multi-year media
advertising campaign to remedy the Fund's alleged loss of
recognition/exclusivity as a result of our use of the initials "wwf." In that
correspondence, the Fund, through its Legal Advisor, demanded a payment of $90
million prior to the injunction compliance date to settle its alleged damages
claims and resolve all remaining issues. We vigorously rejected the Fund's
demand and contend that the Fund's tactics were a bad faith attempt to coerce us
into an unwarranted cash payment of $90 million. Indeed, despite repeated
inquiries by us, the Fund has never provided us with any documentation or
support for any alleged damage claims, nor has the Fund come forward with any
evidence throughout the entire litigation that it suffered any actual injury to
its fundraising and/or environmental conservation activities as a result of our
conduct. We strongly dispute that the Fund has suffered any such damages. We are
unable to predict the outcome of any adjudication of the Fund's claims in an
English court if the Fund were actually to present a damages claim. An
unfavorable outcome of the Fund's damages claims, however, may have a material
adverse effect on our financial condition or results of operations.
Shenker & Associates
On November 14, 2000, Stanley Shenker & Associates, Inc. filed a complaint
against us in Superior Court, Judicial District of Stamford/Norwalk,
Connecticut, relating to the termination of an Agency Agreement between us and
Plaintiff. Plaintiff seeks compensatory damages and punitive damages in an
unspecified amount, attorneys' fees, an accounting and a declaratory judgment.
On December 15, 2000, we filed a motion to strike all the claims against us,
with the exception of one count for breach of contract. The motion was granted
as to two claims. On March 27, 2001, the Plaintiff filed a substituted complaint
reasserting all counts against us. On April 11, 2001, we answered the substitute
complaint. On February 27, 2002, we filed amended counterclaims and on June 19,
2002, we filed second amended counterclaims alleging tortuous interference with
business relations, conversion, fraud and conspiracy in connection with the
Plaintiff's solicitation and receipt of improper payments from various of our
licensees. On February 14, 2003, we filed a complaint against one of our former
officers, and certain entities related to him, claiming such officer
participated with Shenker in an alleged scheme to advance certain licenses in
exchange for payments to the officer. That suit has been consolidated with the
suit pending against us. Discovery in the consolidated cases has been extended
through September 2003. We have denied liability and intend to defend the action
vigorously. An unfavorable outcome of this suit may have a material adverse
effect on our financial condition or results of operations.
Marvel Enterprises
On October 19, 2001, we were served with a complaint by Marvel Enterprises, Inc.
in the Superior Court of Fulton County, Georgia alleging that we breached the
terms of a license agreement regarding the rights to manufacture and distribute
toy action figures of various wrestling characters. The plaintiff seeks damages
and a declaration that the agreement is in force and effect. We filed our Answer
on November 19, 2001. The Complaint also named as a defendant Universal
Wrestling Corp. ("Universal, Inc."), formerly known as World Championship
Wrestling, Inc. Due to a conflict between Universal, Inc. and plaintiff's
counsel, by agreement of the parties Universal, Inc. was dismissed from the
suit. On December 28, 2001, the plaintiff commenced a separate action against
Universal, Inc., filed in the same court as a related action to the suit pending
against us. We are defending Universal, Inc. in connection with these claims.
The two suits have been consolidated for discovery and trial. On December 14,
2001, we filed a motion to dismiss all claims against us. That motion was denied
on March 14, 2002. On May 15, 2003 we filed a motion for summary judgment on all
claims. Universal similarly filed a motion for summary judgment on all claims
against us. Oral argument in respect of both motions for summary judgment have
been scheduled for July 25, 2003. We have denied liability and intend to defend
the action vigorously. An unfavorable outcome of this suit may have a material
adverse effect on our financial condition or results of operations.
F-18
World Wrestling Entertainment, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
IPO Class Action
On December 5, 2001, a purported class action Complaint was filed against us
asserting claims for alleged violations of the federal securities laws. Also
named as defendants in this suit were Bear, Stearns & Co. Inc., Merrill Lynch,
Pierce, Fenner & Smith, Incorporated, Credit Suisse First Boston Corporation,
WIT Capital Corporation, Donaldson, Lufkin & Jenrette Securities Corporation,
Chase H&Q (Hambrecht & Quist LLC) (collectively, the "Underwriter Defendants"),
Vincent K. McMahon, Linda E. McMahon and August J. Liguori (collectively, the
"Individual Defendants"). The complaint alleges, inter alia, (i) claims under
Section 11 of the Securities Act against all defendants, (ii) claims under
Section 12(2) of the Securities Act against the Underwriter Defendants, (iii)
claims under Section 15 of the Securities Act against us and the Individual
Defendants, (iv) claims under Section 10(b) of the Exchange Act and Rule
10(b)(5) against all defendants, and (v) claims under Section 20(a) of the
Exchange Act against the Individual Defendants. According to the allegations of
the Complaint, the Underwriter Defendants allegedly engaged in manipulative
practices by, inter alia, pre-selling allotments of shares of our stock in
return for undisclosed, excessive commissions from the purchasers and/or
entering into after-market tie-in arrangements which allegedly artificially
inflated our stock price. The plaintiff further alleges that we knew or should
have known of such unlawful practices. As relief, the Complaint seeks (i) a
ruling that the suit is properly maintainable as a class action, (ii)
unspecified class damages and statutory compensation against all defendants,
jointly and severally, (iii) an award of attorneys' fees and costs, and (iv)
such other relief as the court deems proper. We deny all allegations against us,
believe that we have meritorious defenses on plaintiffs' claims, and intend to
defend this action vigorously. We understand that nearly 1,000 suits with
similar claims and/or allegations have been filed over the past couple of years
against companies which have gone public in that general time period. All of
these claims have been consolidated before the same judge in the United States
District Court for the Southern District of New York. We were part of a motion
to dismiss filed on behalf of all issuers on July 15, 2002. On February 19,
2003, the court issued its ruling granting in part and denying in part the
issuers' motion. Specifically, the court granted the motion dismissing the
Section 10(b) claims against us and denied the motion as to Section 11 claims
against us. A settlement between the class plaintiffs and the issuer defendants,
including WWE and the Individual Defendants, currently is being contemplated.
Although we cannot predict the likelihood of such settlement being reached on
the terms currently being contemplated, if it were, we anticipate that it would
not have a material adverse effect on us.
We are not currently a party to any other material legal proceedings. However,
we are involved in several other suits and claims in the ordinary course of
business, and we may from time to time become a party to other legal
proceedings.
11. Stockholders' Equity
On October 15, 1999, we filed an amended and restated certificate of
incorporation which, among other things, authorized 60,000,000 shares of new
Class B common stock, par value $.01 per share, reclassified each outstanding
share of World Wrestling Entertainment, Inc. common stock into 566,670 shares of
Class B common stock, authorized 180,000,000 shares of new Class A common stock,
par value $.01 per share, and authorized 20,000,000 shares of preferred stock,
par value $.01 per share. Class B common stock is fully convertible into Class A
common stock, on a one for one basis, at any time at the option of the holder.
The two classes are entitled to equal per share dividends and distributions and
vote together as a class with each share of Class B entitled to ten votes and
each share of Class A entitled to one vote, except when separate class voting is
required by applicable law. If, at any time, any shares of Class B common stock
are beneficially owned by any person other than Vincent McMahon, Linda McMahon,
any descendant of either of them, any entity which is wholly owned and is
controlled by any combination of such persons or any trust, all the
beneficiaries of which are any combination of such persons, each of those shares
will automatically convert into shares of Class A common stock.
In July 2002, our Board of Directors approved an employee stock purchase plan,
the World Wrestling Entertainment 2002 Employee Stock Purchase Plan (the
"ESPP"). Under the plan, any regular full-time employee may contribute up to 10%
of their base compensation (subject to certain income limits) to the semi-annual
purchase of shares of our common stock. The purchase price is 85% of the fair
market value at certain plan-defined dates. At April 30, 2003, approximately 35
employees were participants in the plan. In fiscal 2003, employee participants
purchased approximately 11,600 shares of our common stock under the plan at a
price of $7.07 per share.
F-19
World Wrestling Entertainment, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
In July 1999, we adopted the 1999 Long-Term Incentive Plan ("LTIP"). The LTIP
provides for grants of options as incentives and rewards to encourage employees,
directors, consultants and performers in our long-term success. The LTIP
provides for grants of options to purchase shares at a purchase price equal to
the fair market value on the date of the grant. The options expire 10 years
after the date of the grant and are generally exercisable in installments
beginning one year from the date of the grant. The LTIP also provides for the
grant of other forms of equity-based incentive awards as determined by the
Compensation Committee of the Board of Directors. Of our total options
outstanding, 1,172,000 were granted to independent contractors consisting
primarily of our performers. With respect to the options granted to independent
contractors, we recorded a charge of $1,092 (of which, $332 was included in
discontinued operations) for 2001. The options granted to employees have been
accounted for using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Presented below is a summary of the LTIP's activity for the three years ended
April 30, 2003.
Weighted Average
Options Exercise Price
---------- --------------
Options outstanding at May 1, 2000 ............................... 5,348,500 $17.00
Options granted .................................................. 1,666,200 $14.42
Options canceled ................................................. (194,000) $17.00
Options exercised ................................................ (150,000) $17.00
---------- ------
Options outstanding at April 30, 2001 ............................ 6,670,700 $16.36
Options granted .................................................. 5,000 $13.82
Options canceled ................................................. (390,100) $16.20
Options exercised ................................................ (32,000) $12.94
---------- ------
Options outstanding at April 30, 2002 ............................ 6,253,600 $16.40
Options granted .................................................. 1,219,000 $13.02
Options canceled ................................................. (476,900) $15.44
Options exercised ................................................ (31,250) $12.94
---------- ------
Options outstanding at April 30, 2003 ............................ 6,964,450 $15.89
==========
Options available for future grants at April 30, 2003 ............ 2,822,350
==========
The number of options exercisable as of April 30, 2003, 2002 and 2001 was
5,021,600, 3,618,735 and 1,832,743, respectively. The following table summarizes
information for options outstanding and exercisable as of April 30, 2003:
Number of Options Weighted Average Weighted Average Number of Options Weighted Average
Range of Exercise Prices Outstanding Remaining Life Exercise Price Exercisable Exercise Price
------------------------ ----------- -------------- -------------- ----------- --------------
$7.66-$21.00 6,964,450 7.1 years $15.89 5,021,600 $16.74
F-20
World Wrestling Entertainment, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
12. Employee Benefit Plans
We sponsor a 401(k) defined contribution plan covering substantially all
employees. Under this plan, participants are allowed to make contributions based
on a percentage of their salaries, subject to a statutorily prescribed annual
limit. We make matching contributions of 50 percent of each participant's
contributions, up to 6% of eligible compensation (maximum 3% matching
contribution). We may also make additional discretionary contributions to the
401(k) plan. Our expense for matching contributions and additional discretionary
contributions to the 401(k) plan was $840, $865, and $635 during 2003, 2002 and
2001, respectively.
13. Related Party Transactions
A member of our Board of Directors also was an independent contractor engaged by
us during 2003, 2002 and 2001. In 2003 this director received $280 and in 2002
and 2001 this director received $60 for his services as an independent
contractor.
On June 11, 2003 we repurchased approximately 2.0 million shares of common stock
from Viacom for approximately $19.3 million.
14. Segment Information
Our continuing operations are conducted within two reportable segments, live and
televised entertainment and branded merchandise. Our live and televised
entertainment segment consists of live events and television programming. Our
branded merchandise segment includes consumer products sold through third party
licensees and the marketing and sale of merchandise, magazines and home videos.
The results of operations for The World and for the XFL are not included in the
segment reporting as they are classified separately as discontinued operations
in our consolidated financial statements (See Note 17). 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 $51,840,
$38,459 and $28,941 for 2003, 2002 and 2001, respectively. The table presents
information about the financial results of each segment for 2003, 2002 and 2001
and assets as of April 30, 2003 and 2002. Unallocated assets consist primarily
of cash, short-term investments and real property and other investments.
F-21
World Wrestling Entertainment, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
April 30,
--------------------------------------
2003 2002 2001
--------- --------- ---------
Net revenues:
Live and televised entertainment ........................ $ 295,432 $ 323,458 $ 335,668
Branded merchandise ..................................... 78,832 86,164 102,471
--------- --------- ---------
Total net revenues ...................................... $ 374,264 $ 409,622 $ 438,139
========= ========= =========
Depreciation and Amortization:
Live and televised entertainment ........................ $ 3,709 $ 3,205 $ 2,839
Branded merchandise ..................................... 2,062 -- --
Corporate ............................................... 4,774 6,969 1,897
--------- --------- ---------
Total depreciation and amortization ..................... $ 10,545 $ 10,174 $ 4,736
========= ========= =========
Operating income (loss):
Live and televised entertainment ........................ $ 88,266 $ 113,924 $ 130,625
Branded merchandise ..................................... 23,362 20,829 29,070
Corporate................................................ (84,601) (84,720) (72,086)
--------- --------- ---------
Total operating income .................................. $ 27,027 $ 50,033 $ 87,609
========= ========= =========
Assets: .................................................... 2003 2002
Live and televised entertainment ........................ $ 73,727 $ 78,799
Branded merchandise ..................................... 17,395 18,453
Unallocated (1) ......................................... 346,135 398,100
--------- ---------
Total assets ............................................ $ 437,257 $ 495,352
========= =========
(1) - Includes Assets of discontinued operations of $21,129 and $44,256 as of
April 30,2003 and 2002, respectively.
15. Financial Instruments and Off-Balance Sheet Risk
Concentration of Credit Risk - Financial instruments which potentially subject
us to concentrations of credit risk are principally bank deposits, short-term
investments and accounts receivable. Cash and cash equivalents are deposited
with high credit quality financial institutions. Short-term investments
primarily consist of AAA or AA rated instruments. Except for receivables from
cable companies related to pay-per-view events, concentrations of credit risk
with respect to trade receivables are limited due to the large number of
customers. A significant portion of trade receivables for pay-per-view events is
received from our pay-per-view administrator, who collects and remits payments
to us from individual cable system operators. We perform ongoing evaluations of
our customers' financial condition, including our pay-per-view administrator,
and we monitor our exposure for credit losses and maintain allowances for
anticipated losses.
Fair Value of Financial Instruments - The carrying amounts of cash, cash
equivalents, short-term investments, accounts receivable and accounts payable
approximate fair value because of the short-term nature, and maturity of such
instruments. Our debt primarily consists of the mortgage related to our
corporate headquarters, which has an annual interest rate of 7.6%. Due to the
recent decreases 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.
F-22
World Wrestling Entertainment, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
16. Quarterly Financial Summaries (unaudited)
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- -------- --------
2003
- ----
Net revenues ............................................... $ 85,449 $ 90,323 $ 92,565 $ 105,927
Gross profit ............................................... $ 28,831 $ 28,150 $ 35,854 $ 44,086
Income from continuing operations .......................... $ 3,855 $ 259 $ 5,988 $ 6,260
Loss from discontinued operations (1) ...................... $ (1,327) $ (1,863) $(21,988) $ (10,379)
Net income (loss) .......................................... $ 2,528 $ (1,604) $(16,000) $ (4,119)
Earnings (loss) per common share: basic and diluted
Continuing operations ................................... $ 0.05 $ 0.00 $ 0.09 $ 0.09
Discontinued operations (1) ............................. $ (0.02) $ (0.03) $ (0.31) $ (0.15)
Net income (loss) ....................................... $ 0.04 $ (0.02) $ (0.23) $ (0.06)
2002
- ----
Net revenues ............................................... $ 87,006 $ 95,031 $ 95,986 $ 131,599
Gross profit ............................................... $ 30,987 $ 34,177 $ 35,254 $ 58,080
Income from continuing operations .......................... $ 12,707 $ 5,953 $ 5,420 $ 18,418
Loss from discontinued operations (2) ...................... $ (715) $ (1,112) $ 4,010 $ (2,448)
Net income ................................................. $ 11,992 $ 4,841 $ 9,430 $ 15,970
Earnings (loss) per common share: basic and diluted
Continuing operations ................................... $ 0.17 $ 0.08 $ 0.07 $ 0.25
Discontinued operations (2) ............................. $ (0.01) $ (0.02) $ 0.05 $ (0.03)
Net income .............................................. $ 0.16 $ 0.07 $ 0.13 $ 0.22
(1) - Our discontinued operations include an after-tax impairment charge of
$20,413 recorded in the third quarter of 2003 and after-tax charges
related to the shut down of The World of $8,866 recorded in the fourth
quarter of 2003 (see Note 17).
(2) - For the third quarter of 2002, our discontinued operations reflect the
reversal of shutdown reserves that were no longer required and the
recognition of certain tax benefits.
17. Discontinued Operations
The World
During February 2003, we closed the restaurant operations of The World and in
April 2003, we closed the retail store. As a result, we recorded an after-tax
charge of approximately $8,866 during the fourth quarter of 2003 in accordance
with SFAS No. 146. This amount includes, in addition to other costs, rental
payments required under the lease, net of management's current estimate of
potential sub-rental income and leasing costs.
Included in the loss from discontinued operations for 2003 was an impairment
charge of $32,925 as a result of an impairment test conducted on goodwill
($2,533) and other long-lived assets ($30,392) at The World. The charge arose
from continued operating losses at that facility and was taken in accordance
with SFAS No. 142 and SFAS No. 144, respectively. Estimates of the fair values
of the long-lived assets at The World were determined by an independent, third
party appraiser, based on valuation methods, such as cost and fair market value
approaches, with the valuation method used based upon the nature of the
underlying assets.
In May 2000, we had acquired for $24,500 this leased entertainment complex which
was located in Times Square. The allocation of the purchase price included
approximately $21,200 in fixed assets, $1,300 in current assets and $900 in
liabilities. Goodwill arising as a result of this transaction was approximately
$2,900. In accordance with SFAS No. 142, we ceased amortization of goodwill as
of May 1, 2002.
F-23
World Wrestling Entertainment, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
The results of The World business, which has been classified as discontinued
operations in the accompanying consolidated financial statements, are summarized
as follows:
Year ended April 30,
---------------------------------
2003 2002 2001
---- ---- ----
Discontinued Operations:
Loss from The World operations,
net of taxes of $16,359, 3,006 and
$999 for 2003, 2002 and 2001, respectively ....................... $(26,691) $(4,903) $(1,629)
Estimated loss on shutdown of The World, net of taxes $3,257 ......... (8,866) -- --
-------- ------- -------
Loss from discontinued operations ................................. $(35,557) $(4,903) $(1,629)
======== ======= =======
As of April 30,
2003 2002
------- -------
Assets:
Cash .............................................................. $ 586 $ 263
Accounts receivable ............................................... 5 74
Income tax receivable ............................................. 5,343 4,004
Prepaid expenses .................................................. 94 69
Inventory ......................................................... 65 400
Property and equipment ............................................ -- 32,545
Deferred income taxes, net of
valuation allowance of $1,350 .................................... 14,437 460
Goodwill .......................................................... -- 2,534
------- -------
Total Assets ......................................................... $20,530 $40,349
------- -------
Liabilities:
Accounts payable .................................................. $ 19 $ 622
Accrued expenses .................................................. 10,648 2,005
Deferred income ................................................... -- 224
------- -------
Total Liabilities .................................................... $10,667 $ 2,851
======= =======
XFL
During 2002, as a result of the reversal of shutdown reserves that were no
longer required and the recognition of certain tax benefits, we recorded income
from discontinued operations of $4,638, net of minority interest and taxes. The
remaining shutdown liabilities consist primarily of XFL medical and other
shutdown costs of approximately $835.
In early May 2001, we formalized our decision to discontinue operations of the
XFL and, accordingly, reported XFL operating results and estimated shutdown
costs as discontinued operations in our consolidated financial statements. This
decision was a culmination of management's analysis of the financial viability
of the venture, which commenced during the fourth quarter of 2001. Estimated
shutdown costs consisted primarily of fixed asset and other asset impairment
charges of $9,600, contractual labor costs of $8,400, lease costs of $1,700,
workers compensation and severance costs of $5,400 and other shutdown costs of
$2,600.
On June 12, 2000, NBC purchased approximately 2.3 million newly issued shares of
our Class A common stock at $13 per share for a total investment of $30,000. As
a result of the stock purchase, which was at a below market price, we recorded a
non-cash charge of $10,673, which was being amortized over 30 months.
Amortization of $3,699 was reflected in discontinued operations for 2001. As a
result of our decision to discontinue operations of the XFL, we wrote off the
F-24
World Wrestling Entertainment, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
remaining unamortized asset of $6,974 which was also reflected in discontinued
operations. In May 2002, we repurchased these shares from NBC for $27,692 and
have classified these shares as treasury stock in our consolidated balance
sheet.
The results of the XFL business, which has been classified as discontinued
operations in the consolidated financial statements, are summarized as follows:
Year ended April 30,
--------------------------------
2003 2002 2001
---- ---- ----
Discontinued Operations:
Loss from XFL operations, net of minority
interest of $42,940 applicable income tax
benefits of $17,679 ..................................... $-- $- $(31,293)
Estimated income (loss) on shutdown of the
XFL, net of minority interest of $1,721
and 13,907 and applicable income tax
benefits of $2,917 and $5,265 for 2002
and 2001, respectively .................................... -- 4,638 (15,617)
Income (loss) from discontinued operations ................. $-- $4,638 $(46,910)
===== ====== ========
As of April 30,
2003 2002
----- ----
Assets:
Cash .................................................... $ 599 $ 3,907
----- -------
Total Assets ............................................... $ 599 $ 3,907
----- -------
Liabilities:
Accounts payable ........................................ $ -- $ 39
Accrued expenses ........................................ 913 4,974
Due to World Wrestling Entertainment, Inc. .............. 262 115
Minority interest ....................................... (288) (611)
----- -------
Total Liabilities .......................................... $ 887 $ 4,517
----- -------
18. Subsequent Event
On June 13, 2003, our Board of Directors approved the payment of a quarterly
dividend of $0.04 per share on all Class A and Class B common shares. The record
date for the first such dividend is June 27, 2003 and the payment date is on or
about July 10, 2003.
F-25
World Wrestling Entertainment, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars In Thousands)
Balance Additions
At Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions (1) Period
----------- --------- -------- -------------- ------
For the Year Ended April 30, 2003
Allowance for doubtful accounts ......................... $2,840 $3,697 $(1,253) $ 5,284
Inventory obsolescence reserve .......................... 2,351 797 (2,256) 892
For the Year Ended April 30, 2002
Allowance for doubtful accounts ......................... $1,868 $ 900 $ 72 $ 2,840
Inventory obsolescence reserve .......................... 457 3,780 (1,886) 2,351
For the Year Ended April 30, 2001
Allowance for doubtful accounts ......................... $1,085 $1,239 $ (456) $ 1,868
Inventory obsolescence reserve .......................... 2,071 803 (2417) 457
(1) Deductions are comprised primarily of disposals of obsolete inventory,
write-offs of specific bad debts and other adjustments.
F-26