24 WWE Studios Changed to a Self-Distribution Model Starting In

JOB TITLE WWE AR REVISION 4 SERIAL <12345678> DATE / TIME Tuesday, March 15, 2011 5:36 AM JOB NUMBER 210456 TYPE PAGE NO. 24 OPERATOR PM8 WWE Studios changed to a self-distribution model starting in the third quarter of the current year. Under this model, we recognize revenues and expenses for our films on a gross basis upon release. During the current year, we released two feature films under this model, Legendary and Knucklehead. In the current year, we recorded $8.8 million in revenue and $11.5 million in cost of revenue related to these self-distributed films. We record distribution related expenses when incurred and amortize feature film production costs in the same proportion that a film’s revenue for the period relates to our ultimate revenue projections for such film. Included in the cost of revenue is $5.3 million of amortization of production costs and $6.2 million of distribution related expenses. We have $56.3 million of feature film production assets capitalized on our balance sheet as of December 31, 2010, of which $21.0 million relates to licensed films and $35.3 million relates to films either released or scheduled to be released under our new distribution model. The recoverability of these assets is dependant upon the revenue generated by a specific film, which is impacted by general economic conditions, the demand for our content by audiences and the economic impact of changes in content distribution channels. Unamortized feature film production assets are evaluated for impairment each reporting period. If conditions indicate a potential impairment, and the estimated fair value of a film is not greater than the unamortized asset, the asset will be written down to fair value. As of December 31, 2010 and December 31, 2009, we do not believe any capitalized assets included in Feature Film Production Assets are impaired. Expenses The following chart reflects the amounts of certain significant overhead items (dollars in millions): Selling, General & Administrative Expenses 2010 2009 Staff related. $ 52.4 $ 62.1 Legal, accounting and other professional. 11.3 14.8 Stock compensation. 7.6 7.4 Advertising and promotion. 4.6 4.1 Bad debt . 0.8 8.6 All other. 32.7 30.8 Total SG&A . $109.4 $127.8 SG&A as a percentage of net revenues . 23% 27% The decrease of $9.7 million in staff related expenses in the current year as compared to the prior year is attributable to a $4.7 million decrease in accrued management incentive compensation and a $1.4 million decrease in employee benefit related costs, primarily as a result of changes to our healthcare administrator, decreased medical claims paid and decreased negotiated rates. In addition, $2.2 million in severance related costs related to a restructuring was recorded in the prior year. Legal, accounting and professional fees in the current year benefited from a decrease in legal case activity. Our bad debt expense in the prior year included a $7.4 million charge related to a former distribution partner. 2010 2009 Depreciation and amortization. $ 11.7 $ 14.4 The decrease in depreciation and amortization expense reflects a $1.7 million benefit from the recognition of an infrastructure tax credit received in the current year. This credit was used to reduce the carrying value of assets as of their in service date and consequently the adjustment to depreciation expense reflects the revised amount incurred to date. This credit was received in the current year but related to assets placed in service in prior years. 2010 2009 Investment income. $ 2.0 $ 3.1 The decline in investment income in the current year reflects lower realized gains from investment sales in the current year, as higher interest rates in the current year offset lower investment balances. 2010 2009 Interest expense . $ 0.3 $ 0.3 2010 2009 Other expense, net . $ 2.1 $ 0.4 24 CREATION DATE: 03/15/11 OUTPUT DATE: 03/15/11.

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