With over twenty years of experience in the sports entertainment business and the mergers of some of the leading companies in the wrestling industry, Vince McMahon organized the World Wrestling Entertainment Inc., in the late 1970s. The organization consist of an integrated media and entertainment company engaged in the development, production and marketing of television and pay-per-view programming, live events and the licensing and sale of branded consumer products. There are other wrestling organizations in Japan and Mexico, the World Wrestling Entertainment and National Wrestling Alliance are the only major one left in North America. (Edger WWE 10K, 2004). This paper will analyze this company’s long-term financing policies and capitol structure. A two to three year analysis will be conducted of this company for historical purposes.
Section 1: Company’s Long-Time Financing Policy and Capital Structure Recent long-term financing decisions
WWE had cash flows from operating activities for the fiscal years ended April 30, 2004 of $61.9 million. There working capital which consist of current assets less current liabilities, was $265.6 million. They used $111.0 million in investing activities. As of June 25, 2004, they had approximately $224.8 million invested primarily in fixed income mutual funds and short-term U.S. Treasury notes. The company faces a rising interest rate environment will incur some capital loss. They plan to offset this loss by earning higher interest rates on short-term securities and mutual funds. In fiscal 2004, they had capital expenditures of approximately $5.3 million. The company used $30.9 cash flows for financing activities for the fiscal year ended April 30, 2004. In June 2003, they purchased approximately 2.0 million shares of our common stock from Viacom, Inc. for approximately $19.2 million (Edger WWE 10K, 2004).
WWE’s investment portfolio consists primarily of fixed income mutual funds and United States Treasury Notes. They attempt to minimize their foreign currency exchange rate risk by maintaining minimal net assets and liabilities in currencies other than US currency. There debt primarily consists of the mortgage related to there corporate headquarters, which has an annual interest rate of 7.6%. This debt is at a rate in excess of market. WWE cannot refinance at a lower interest rate due to the terms of there agreement. These terms prevent them from refinancing for several years (Edger WWE 10K, 2004). A financial analysis is one method that is used to answer questions about the financial health of the firm. We look at liquidity measures to determine firm’s ability to meets its current obligations. Short-term creditors must be able to assess the likelihood that a firm to which they plan to extend credit will be able to pay current obligations as they become due. The cash necessary to pay current liabilities as they mature will come from the firm’s available cash and from other current assets that can be converted into cash relatively quickly, i.e., receivables, marketable securities, and inventory (Cantos, 2004, Week 4, pg. 8)
In Million U.S. Dollars| 2002| 2003| 2004|
Current Assets| 419| 360.8| 351.6|
Current Liabilities| 96.6| 85.7| 86|
Working Capital| 322.4| 275.1| 265.6|
Current Ratio| 4.3 :1| 4.2:1| 4.1:1|
Working capital is one method to determine the liquidity of the World Wrestling Entertainment, Inc. Working capital is calculated by subtracting current assets from current liabilities. There is a decrease of $ 9 million dollars of working capital between 2003 and 2004. The 2004 working capital is still a positive balance and the organization is able to meet its current financial obligations.
Current ratio is a measurement that “measures a firm’s ability to pay their current obligations. The...