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 (FEE REQUIRED) For the fiscal year ended June
30, 1996.
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
COMMISSION FILE NUMBER : 33-79356
dick clark productions, inc.
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(Exact name of registrant as specified in its charter)
DELAWARE 23-2038115
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3003 W. Olive Avenue, Burbank, California 91510-7811
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (818) 841-3003
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Common Stock, par value $.01
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(Title of Class)
Securities registered pursuant to Section 12(b) of the Act: None
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, and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] or 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 From 10-K or any
amendment to this Form 10-K. Yes [X] or No [_]
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant computed by reference to the closing sales
price as quoted on NASDAQ on September 23, 1996, was approximately $16,320,000.
As of September 23, 1996, 7,551,500 shares of Registrant's $.01 par
value common stock and 750,000 shares of the Registrant's $.01 par value Class A
common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the Annual Meeting of
Shareholders to be held November 12, 1996, are incorporated by reference into
Part I and Part III of this Report.
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PART I
ITEM 1. BUSINESS
BACKGROUND
dick clark productions, inc. was incorporated in California in 1977
and was reincorporated in November 1986 as a Delaware corporation. As used in
this Report, unless the context otherwise expressly requires, the term "Company"
refers to dick clark productions, inc. and its predecessors and their respective
subsidiaries.
The Company develops and produces a wide range of television
programming for television networks, first-run domestic syndicators (which
provide programming for independent and network affiliated stations), cable
networks and advertisers. Since 1957, the Company has been a significant
supplier of television programming and has produced more than 8,500 hours of
television entertainment, including series, annual, recurring and one-time
specials and movies for television. The Company also licenses the rebroadcast
rights to some of its programs, licences certain segments of its programming to
third parties and from time to time produces home videos. In addition, the
Company, on a limited basis, develops and produces theatrical motion pictures,
which are generaly produced in conjunction with third parties who provide the
financing for such motion pictures.
Since fiscal 1990, the Company has operated entertainment-themed
restaurants known as Dick Clark's American Bandstand Grill(R). In fiscal 1992,
the first restaurant developed by the Company was opened in Overland Park,
Kansas, a suburb of Kansas City. Since that time, the Company has opened three
more locations in Columbus, Ohio, Indianapolis, Indiana and Cincinnati, Ohio.
The Company is also a majority owner in a joint venture that in 1993 opened a
dance-club-only version of the restaurant, "Dick Clark's American Bandstand
Club," located in Reno, Nevada. Although the dance club concept has been
successful, the Company has chosen to focus its expansion efforts primarily on
the restaurant concept, which the Company believes has a broader market appeal
and greater potential for future revenue growth. It is the Company's long-term
objective to continue to develop its entertainment-themed restaurant concept by
opening additional Company-operated restaurants in strategically desirable
markets. The Company anticipates opening four additional restaurants by the end
of fiscal 1997 and is actively negotiating for additional sites for new
restaurants for this growing national chain.
In January 1991, the Company established a subsidiary, dick clark
corporate productions, inc. ("dccp"), in order to enter the corporate
productions and communication business. This subsidiary specializes in
marketing, event and business communication services using the exceptional
production resources available through the Company's television production
business. The Company's strategy is to combine its entertainment resources,
business relationships and talent contacts with experienced corporate
communications professionals in order to offer to dccp's clients new product
introductions; special events and event marketing; trade shows and exhibits;
film and video production; themed-entertainment attractions; and sales and
recognition meetings.
Since its inception, the Company's principal stockholder has been
Richard ("Dick") W. Clark, who the Company believes to be one of the best-known
personalities in the entertainment industry. Many of the Company's television
and corporate programs involve the executive producing services and creative
input of Mr. Clark. However, Mr. Clark's performance services are not exclusive
to the Company. The Company also employs other experienced producers who are
actively involved in the Company's television production business and dccp's
business.
The Company's principal lines of business according to industry
segments are television production and related activities (including, without
limitation, the aforementioned operations of dccp) and restaurant operations
(dick clark restaurants, inc. and its wholly owned subsidiaries). For financial
information about the Company's industry segments with respect to each of the
fiscal years in the three-year period ended June 30, 1996, see Note 9 "Business
Segment Information" to the Company's Consolidated Financial Statements on page
28 of the Company's 1996 Annual Report.
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DESCRIPTION OF BUSINESS
TELEVISION PRODUCTION AND RELATED BUSINESS
Introduction
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Historically, the Company has produced music, variety and comedy
entertainment television programming for daytime, primetime and late night
telecast, as well as television movies. The Company is one of the most versatile
independent production companies in the entertainment business today. The
Company's programming mix includes awards specials; event and entertainment
specials and series; music, talk and game show series; and
movies-for-television. This breadth of production, together with the Company's
reputation for developing high-quality, popular shows on budget, distinguishes
the Company as a unique and highly regarded programming provider. This is
particularly significant with the growing demand for cost-efficient, original
programming from new cable networks, advertisers and syndicators.
The Company has generally been able to fund its production costs from
license fees paid by the recipients of the programming. However, increasing
consolidation in the entertainment industry has resulted in many of the
Company's traditional customers (such as the television networks) merging with
its competitors who provide entertainment production services. As a result, the
Company's ability to market its programming expertise has been reduced. In
addition, the proliferation of cable networks over the last decade has also
resulted in smaller license fees being paid by networks and other broadcasters.
In particular, the development and production of situation comedies and dramatic
series generally now require substantial deficit financing because the license
fees payable for such programs do not cover production costs. Consequently, the
Company is selective in its development efforts in the dramatic and situation
comedy series area.
Programming in which the Company owns the distribution rights and
which are not subject to restrictions associated with the initial license
agreement may be marketed by the Company in ancillary markets which include,
among others, cable television, foreign and domestic rerun syndication and home
video. Successful television series and television movies can have significant
rerun syndication and other ancillary value. However, a television series must
normally be broadcast for at least three or four television seasons before rerun
syndication is feasible. Consequently, a relatively low percentage of television
series are successful enough to be syndicated.
Television Market, Production and Licensing
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Market. The market for television programming is composed primarily
of the broadcast television networks (ABC, CBS, NBC, Fox Broadcasting Company,
United Paramount Network and Warner Bros., a division of Time Warner
Entertainment Compnay L.P.), syndicators of first-run programming (such as
Columbia, Inc. and Time Warner, Inc.) which license programs on a
station-by-station basis, and basic and pay cable networks (such as The Family
Channel, The Nashville Network and VH-1). The Company also deals directly with
companies such as Busch Entertainment Corp., Universal Studios Hollywood and SFM
Entertainment, which finance the production of specials and other programming on
which they intend to advertise their products. The Company also works closely
with dccp to provide television expertise to those corporations seeking
television outlets for their events and promotions.
Production. The production of television programming involves the
development of a format based on a creative concept or literary property into a
television script or teleplay, the selection of talent and, in most cases, the
filming or taping and technical and post-production work necessary to create a
finished product. The Company is continuously engaged in developing and
acquiring concepts and literary properties. The most promising of these serve as
the basis of a plot or concept which may include a description of the principal
characters or performers, and in the case of a dramatic presentation, may
contain sample dialogue.
The development of a project often begins with a meeting of the
Company's development personnel, producers, directors and/or writers for the
purpose of reviewing a concept. Many of the Company's projects originate with
its own staff, although due to the Company's reputation in the television
industry, concepts for development are frequently presented to the Company by
unaffiliated parties. If a concept is attractive, the Company will present it to
a prospective licensee: either one of the television networks, a first-run
syndicator, a cable network or an advertiser. Alternatively, a prospective
licensee, in particular, an advertiser, will often request that the Company
develop a concept for a particular time period or type of audience.
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If a concept is accepted for further development, the prospective
licensee will usually commission and pay for a script prior to committing itself
to the production of a program. However, in the case of the Company's
entertainment programming as well as its awards specials, the licensee will
generally order production of the program based on the initial presentation.
Only a small percentage of the concepts and scripts presented each year are
selected to be produced. Generally, the network or other licensee retains the
right to approve the principal creative elements of a television production.
Once a script is approved by the licensee, a license fee is
negotiated and pre-production and production activities are undertaken. In the
case of a game show, a finished pilot episode usually is submitted for
acceptance as a series before additional episodes are ordered. A production
order for a series is usually for a specified number of episodes, with the
network or other licensee retaining an option to renew the license. The
production of additional episodes for a series or additional versions of a
special is usually dependent on the ratings obtained by the initial run of
episodes of the program or by the original special, respectively.
Licensing. A majority of the Company's revenues are derived from the
production and licensing of television programming. The Company's television
programming is licensed to the major television networks, cable networks,
domestic and foreign syndicators and advertisers. The Company also receives
production fees from programming buyers who retain ownership of the programming.
The Company has sold or licensed its programs to all the major networks and to a
number of first-run syndicators, cable broadcasters and advertisers. During
fiscal 1996, revenue from three customers individually accounted for more than
12% but not greater than 15% of the Company's revenue. During fiscal 1995,
revenue from two customers individually accounted for more than 14% but not
greater than 24% of the Company's revenue. During fiscal 1994, revenue from
three customers individually accounted for more than 16% but not greater than
31% of the Company's revenue. See Note 2 "Summary of Significant Accounting
Policies" to the Company's Consolidated Financial Statements on page 22 of the
Company's 1996 Annual Report. The Company is not committed exclusively to any
one network, syndicator, cable network or other licensee for the licensing of
the initial broadcast rights to all or any substantial part of the Company's
programming.
The Company's strategy is to develop programming that does not
require deficit financing, such as reality and variety series and award and
other event specials, which have the potential to be profitable in the first
year of release as well as to be renewed annually. The typical license agreement
for this type of programming provides for a fixed license fee to be paid in
installments by the licensee to the Company for the right to broadcast a program
or series in the United States for a specified number of times during a limited
period of time. In some instances, the Company shares its percentage of net
profits from distribution with third parties who contributed to the production
of the program. In the case of license agreements involving specials or music,
variety or game show series, the fixed license fee is ordinarily in excess of
production and distribution costs. For selected projects, however, the Company
may elect to produce programming for which the initial license fees will not
cover its production and distribution costs in the first year of a project's
release. None of the Company's television production in fiscal 1996 or 1995
required any material deficit financing by the Company. The Company does not
anticipate incurring any material deficit financing obligation with respect to
the programs which are currently in development.
During the term of a first-run broadcast license, the Company
generally retains all other distribution rights associated with the program,
including all foreign distribution rights. In the case of television movies, the
Company will often presell domestic, foreign and other rights in order to cover
all of the production and distribution costs for the television movie. From time
to time, the Company has entered into non-exclusive agreements with distribution
companies (such as Alfred Haber, Inc., Astral Bellevue Pathe, Inc. and Capital
Cities/ABC Video Productions, Inc.) for the foreign distribution of certain of
its series, specials and television movies. The Company also occasionally
licenses its programming directly to foreign broadcasters.
After the expiration of a first-run broadcast license, the Company
makes the program available for other types of domestic distribution in cases
where the Company has retained ownership and/or distribution rights to the
program. In fiscal 1996, the Company licensed 22 episodes of Super Bloopers and
Practical Jokes (previously broadcast on NBC) to The Family Channel along with
23 hours of specials for a three-year term. The Company also licensed to VH-1,
the cable music network, the exclusive rights to re-broadcast 50 episodes from
the original American Bandstand series in fiscal 1996 and an additional 50
episodes in fiscal 1997. The Company has retained the rights to the clips in
these shows for use in its own productions as well as the ability to continue to
market the clips to its media archive customers. The Company also licenses the
syndication rights to television movies from its library, which the Company is
often able to syndicate a number of times over a period of many years. For
example, in each of fiscal 1994, 1995 and 1996, the Company licensed the
previously broadcast television movie The Man in the Santa Claus Suit.
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The Company has also used its library of entertainment and music
specials to create new programming. For example, in fiscal 1994 the Company used
its library to produce and deliver the television specials American Bandstand
Presents the Teen Idols (NBC) and American Bandstand Presents the Number 1 Hits
(NBC).
Television Programming
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The Company has in development and production numerous television
projects for broadcast on network television, first-run syndication and cable
television. The Company has an established reputation among the major networks,
cable broadcasters and other licensees as a premier producer of television
awards programming. The Company is also strongly committed to the ongoing
development of entertainment specials and series which include music, variety
and comedy programming formats as well as reality-based programming. The Company
employs experienced producers responsible for the development and production in
each of these varied programming formats. The Company's staff is supplemented on
a project basis by industry professionals utilized to expand the Company's own
production resources.
Annual, Recurring and Other Specials. The Company is a leading
television producer of award specials, which are a significant part of the
Company's television production business and contribute and provide an ongoing
foundation of consistent revenue each fiscal year. Many of the Company's award
specials have enjoyed sustained growth, and certain of its specials have been
produced by the Company for more than 15 years and as many as 23 years.
The Company's award specials during fiscal 1996 included The 23rd
Annual American Music Awards (ABC), the Company's most enduring award special
and one of the music industry's biggest events; The 53rd Annual Golden Globe
Awards (NBC), the Company's fourteenth annual production for the Hollywood
Foreign Press Association, acknowledging excellence in television and motion
pictures; The 12th Annual Soap Opera Awards (NBC), produced for the ninth
consecutive year; The 31st Annual Academy of Country Music Awards (NBC), another
popular, long running awards production; The Jim Thorpe Pro Sports Awards (ABC),
produced for the fourth consecutive year (not renewed in fiscal 1997); and The
23rd Annual Daytime Emmy Awards (NBC), the fourth year of production of this
special presented by the National Academy of Television Arts & Sciences. The
Company has agreements for several recurring and annual specials subject to
long-term license agreements which expire between 1997 and 2000.
In addition to producing award specials for television, the Company
develops new concepts for television specials. Two important aspects of the
Company's production of specials are that the specials may serve as pilots for
the development of series programming and that specials may be produced on an
annual or recurring basis. For instance, the Bloopers programs evolved from an
entertainment special to a series. The original special, which was aired in
1981, was a "Bloopers only" special produced by the Company. This developed into
a one-hour primetime series on NBC featuring the Company's Bloopers segments
combined with Carson Productions, Inc.'s Practical Jokes segments (produced by
the C&C Joint Venture, a joint venture in which the Company has a controlling
interest). The series ran for three seasons ending with the 1985/1986 television
season. Additional specials were produced between 1986 and 1991; and in fiscal
1991, NBC ordered 12 additional Bloopers and Practical Jokes episodes as a
series (all produced by the C&C Joint Venture). The Company produced "Bloopers
only" specials entitled The Return of TV Censored Bloopers I and II in fiscal
1994; and The Return of TV Censored Bloopers III and IV in fiscal 1995. These
"Bloopers only" specials are owned exclusively by the Company. An additional six
of these "Bloopers only" specials have been ordered by NBC for fiscal 1997 and
1998.
Over the years, the Company has earned the reputation of delivering
quality entertainment specials on time and on budget. As a result, many specials
have become annual events or have developed into a series of specials. The
Company produced the following entertainment specials in fiscal 1996: "Dick
Clark's New Year's Rockin' Eve(R) '96" (ABC), which was the Company's 24th year
of production; three "Bloopers specials" entitled "All-Star TV Censored Bloopers
Unplugged," (NBC), "All New All-Star TV Censored Bloopers Fat Free," (NBC) and
"All New All-Star TV Censored Mega Bloopers," (NBC); "Rudy Coby: The Coolest
Magician on Earth - Ridiculously Dangerous" (Fox), the second show featuring
Rudy Coby that the Company has produced for Fox; "A Skater's Dream: Inside the
Ice Capades" (The Family Channel), an entertainment documentary following the
behind-the-scenes lives of the Ice Capades skaters; "Were Having a Baby" (ABC),
a documentary that profiled celebrity parenthood, featuring Marilu Henner
throughout her pregnancy and into the delivery room for the birth of her baby;
and "Busch Gardens/Sea World Party for the Planet" (CBS), the ninth year of
production of this environmental show to recognize the contributions of
America's youth.
The Company produced the following specials during fiscal 1995: Dick
Clark's New Year's Rockin' Eve 1995
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(ABC), which was broadcast for the 23rd consecutive year; Will You Marry Me 2
and 3, the latest two installments of a series of specials produced for ABC;
Christmas at Home With the Stars (ABC), a special showcasing individual music
stars preparing for Christmas celebration with their families; When Stars were
Kids (NBC), a special highlighting the childhood of celebrities; Rudy Coby: The
Coolest Magician on Earth (Fox), a magic special; and Party for the Planet
(CBS), the then latest in a series of specials sponsored by Busch Gardens/Sea
World recognizing environmental efforts by America's youth (the Company's eighth
year of production).
Among productions during fiscal 1994 were: Dick Clark's New Year's
Rockin' Eve 1994 (ABC), which was broadcast for the 22nd consecutive year; Hot
County Jam '94 (NBC), which brought together preeminent country performers for a
live broadcast from Nashville, Tennessee, based upon the Company's Hot Country
Nights television series; The Sea World/Busch Gardens Summer Celebration 1994
(CBS); American Bandstand Presents the Teen Idols (NBC), which showcased major
performances as they originally appeared in the popular American Bandstand
series; American Bandstand Presents the Number 1 Hits (NBC), which assembled
celebrated aspects of music captured over 30 years of the American Bandstand
series; World Cup '94: The Final Draw, which was telecast in the United States
on ESPN and was viewed by an estimated worldwide audience of over 750,000,000
featuring stars from the soccer and entertainment worlds and was one of the
first major events leading to the 1994 World Cup games; Universal Studios Summer
Blast (NBC), which introduced the then upcoming summer schedule at the Universal
Studios theme parks; and Will You Marry Me? (ABC), a Valentine's Day special
which explored celebrity and non-celebrity marriage proposals. In addition, in
fiscal 1994 the Company produced The Chrysler American Great 18 Golf
Championship, the Company's first venture into sports entertainment, which
featured PGA Tour professionals John Daly, Tom Kite, Davis Love, and Fuzzy
Zoeller competing in a round of golf on challenging holes at eighteen
distinctive golf holes across the United States.
In addition to the production of new programming, the Company markets
material from previously produced programs for new development projects.
Programs such as The American Music Awards 20th Anniversary Special, produced
and delivered in fiscal 1994 for NBC, utilized footage from previous programs.
In fiscal 1994, the Company produced The American Music Awards 20th Anniversary
Special, and The Golden Globes 50th Anniversary Celebration.
Series. The Company is actively developing programs and ideas for
potential series production. Three series were developed for broadcast during
fiscal 1996. The Company produced Prime Time Country, a live 90-minute,
five-night per week, country music entertainment and variety series for TNN. The
series premiered in January 1996 and originates from The Nashville Network
studio in Opryland U.S.A. The series is being produced in fiscal 1997 as a live
to tape one-hour, four-times per week show.
The Company also licensed exclusive rights to rebroadcast the
original American Bandstand series to VH-1, a cable division of MTV Networks.
The 50 episodes licensed span the decade from 1975 to 1985 and none has aired
since they were originally broadcast. The series kicked off with VH-1's American
Bandstand Marathon on January 1, 1996, which became the highest rated day of
music programming in VH-1's history, and continues to run on a regular basis as
VH-1's Best of American Bandstand. Fifty additional episodes have been ordered
by VH-1 for the 1996-97 television season.
Production has been completed for Tempestt, a new talk show series
broadcast in fiscal 1996. The non-renewal of this series for fiscal 1997 will
have an immaterial impact on the Company's gross profit or net income. Several
other pilot/specials are currently in various stages of development for series
production including a commitment from fx Networks, Inc. to produce 40 episodes
of a new game show series No Relation to be delivered in the first quarter of
fiscal 1997.
Dramatic and Situation Comedy Programming. The Company believes that
the present market conditions do not create a prudent risk-reward ratio for
situation comedies and dramatic series in light of the deficit financing costs
associated with producing such programs. In particular, networks now can produce
and own their own programming and many networks have developed their own
production companies and/or have merged with existing studios. As a result, the
Company is being selective in developing only those ideas and concepts that
require minimal deficit investment.
Movies. The Company develops television movies that require little or
no deficit financing. The Good Doctor, starring Michael Gross, Lois Nettleton
and Tricia Leigh Fisher, was produced and aired on CBS in fiscal 1996. In fiscal
1994, the Company delivered a television movie starring Beau Bridges and Lloyd
Bridges entitled Secret Sins of the
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Father, which aired on NBC. The Company presently has six television movie
projects in development funded by various networks.
By working with major studios that can provide financing, the Company
also develops theatrical film projects on a limited basis. The Company is
currently developing a motion picture utilizing the American Bandstand concept
with Jersey Films for theatrical release by Universal Pictures. During fiscal
1995, the Company developed a feature film project, National Lampoon's Senior
Trip, which was produced and distributed by New Line Cinema.
Live Shows
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"American Bandstand" has been licensed for use as a theme for live
stage shows at Harvey's in Lake Tahoe and inspired two other live shows, "Dick
Clark's Golden Greats" and "American Music Awards on Ice" at the Trump Castle in
Atlantic City.
Media Archives and Home Video
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The Company believes that it owns one of the largest collections of
musical performance footage, including 16mm films that have been enhanced and
transferred to video tape. The Company keeps an updated, computerized index of
available material in order to be able to easily access the performance footage.
The Company also occasionally acquires from others the rights to license classic
performances by popular recording artists. These rights are acquired from the
copyright holders and then licensed for television, film, cable and home video.
Although the Company's archives are used as source material for the Company's
productions, the Company actively licenses footage from its archives to third
parties as well. In fiscal 1996, the Company licensed footage from its library
to: BBC's ten-part rock and roll retrospective, History of Rock N Roll; VH-1's
highly successful weekly 70's series, Eight Track Flashback and VH-1 Presents
the 70's; Neil Diamond's TNN special, Under a Tennessee Moon; Mad About You New
Year's Eve episode with Dick Clark's cameo appearance; and Apple Production for
use in the production of the special on the Beatles, The Beatles Anthology;
among others.
In fiscal 1995, the Company licensed clips from American Bandstand
and other television programs to Time-Life Music in connection with an
infomercial, which was designed to market a compact disc or cassette series
entitled Dick Clark's Rock & Roll Era. The licensing agreement provides for a
royalty to be paid to the Company for each sale. The Company has an agreement
with Olive Enterprises, Inc. ("Olive"), a Company controlled by Mr. Clark, to
provide the performance services of Dick Clark, his name and his appearance for
this Time Life music promotion of the Dick Clark's Rock & Roll Era products.
Under this agreement, Olive receives 50% of the royalties earned by the Company.
The Company also uses its media archives to produce programs intended
directly for the home video market. The Company's previously produced home
videos include The Rock & Roll Collection: Dick Clark's Golden Greats, a
compilation of episodes from the series of the same name; Best of Bandstand
Volumes I & II, a collection of clips from the American Bandstand series; Elvis,
The Movie; and several other television movies from the Company's library. These
home video releases are distributed by various independent distribution
companies.
Entertainment-Related Businesses
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dick clark corporate productions, inc. The Company's wholly-owned
subsidiary, dick clark corporate productions, inc., specializes in marketing,
event and business communication services using the exceptional production
resources available through the Company's television production business.
During fiscal 1996, dick clark corporate productions evolved from
primarily an events producer to include innovative marketing and business
communications services for major corporations. The Company's strategy is to
provide its clients the benefit of a range of talents and production resources
available to the television production business - offering a distinct, new level
of creativity, production quality and expertise to this market. This access,
together with the Company's budgetary controls, provides higher entertainment
quality at an efficient cost. Using the entertainment resources of the Company,
dccp is able to provide solutions to businesses seeking alternatives to the
traditional forms of communication to reach their intended audiences.
During fiscal 1996, dccp produced and delivered the following: a
broad ranging marketing program to
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introduce the new BMW Z3 roadster which included event marketing, product
placement in the MGM James Bond movie, "Golden Eye" and the Neiman Marcus
Christmas Catalog, a national radio program, a feature film trailer as well as
various advertising materials; The Honda 25th Anniversary Celebration, a major
event for Honda's Automobile Division executives and dealer principals in
Orlando, Florida, which featured an American Bandstand theme illuminating the
history of Honda in the U.S.; the OpenDoc exhibit for IBM for the Object World
show in San Francisco and the COMDEX show in Las Vegas; the Hyundai Combined
Canadian/U.S. Automobile Dealer Meeting in Orlando, Florida - a two-day show
with three new car "reveals" and a special "Ride and Drive" program for dealers
to compare Hyundai models with competitors; a traveling display of assembly line
robots transformed into animatronic characters which helped launch the Mazda MPV
at auto shows nationwide; the Apple Computer Worldwide Sales Conference in New
Orleans - a three-day event for 2,000 people from divisions in Europe, the
Pacific and U.S. which encompassed both large and small meetings and a 48-course
"college campus" of 30-minute "product knowledge" seminars for the participants
as well as the Apple Computer permanent display area for the EPCOT "Innovations
Center" at the Walt Disney World in Florida.
During fiscal 1995, dccp delivered the following projects: The Apple
USA FY '95 Sales Conference in Atlanta, Georgia, created and produced to
communicate business plans and objectives for the ensuing year, as well as to
recognize outstanding individual and team achievements; Wendy's 25th Anniversary
Franchise Meeting in Dallas, Texas for Wendy's International, Inc. created and
produced to convey business plans, recognize outstanding franchisees and
celebrate that company's 25th anniversary; A Mazda Motor of America auto show
presentation designed to launch Mazda's new Protege Sedan; an exhibit for the PC
Expo in New York for Apple Computers; and certain elements of a broad ranging
marketing program to introduce the new BMW Z3 roadster (this project was
implemented primarily during fiscal 1996 as described above).
dccp's fiscal 1994 projects included: the introduction of the 777
jetliner for the Boeing Company, which was widely covered by domestic and
international media and was viewed by an audience of 100,000 during a one-day
presentation at the Boeing facility in Everett, Washington; the 1995 Model Year
Dealer Meeting for Mazda at Bally's Hotel in Las Vegas, which introduced the new
Mazda "Millennia" luxury sedan to the national dealer network; The Journey
Inside, an IMAX film underwritten by Intel Corporation through its Intel Digital
Education and Arts (IDEA) group, which was the first narrative IMAX film to
combine Hollywood feature-film talent and production skills with IMAX
technology; the main live entertainment event for the 1994 VISA International
Annual Conference in Cancun, Mexico, which was attended by representatives from
over 60 countries around the world; Borland International's Fall 1993 Workgroup
Strategy announcement show in a live television show format, which introduced an
important new product platform for Borland; and The Worlds of Intel 25th
Anniversary Summer Tour, celebrating Intel Corporation's first quarter-century
of success, which traveled to five cities in six weeks, entertained nearly
30,000 persons and was produced in diverse venues including indoor convention
centers and outdoor fields.
Record business. In fiscal 1994, the Company established the CLICK
Records(R) Inc. ("CLICK") label. During fiscal 1996, the Company entered into an
agreement with Castle Communications (U.S.), Inc. for worldwide distribution of
CLICK's recordings. Under the terms of the Company's agreement, the Company is
not responsible for financing the production or distribution costs of CLICK's
recordings. The strategy for the label involves enlisting the talent of popular
recording artists of the '60s, '70s and '80s to perform classic as well as
contemporary songs by varied composers and groups, resulting in recordings with
wide appeal. The first album to be produced and released under the agreement
with Castle Communications will feature The Spinners recording original songs
and covering hit songs from a variety of contemporary artists.
DESCRIPTION OF BUSINESS
RESTAURANT OPERATIONS
---------------------
Introduction
- ------------
The Company's restaurant operations are conducted by dick clark
restaurants, inc. ("dcri"), a wholly-owned subsidiary of the Company, and dcri's
wholly-owned subsidiaries. The restaurant operations include food and beverage
service as well as music, dancing and merchandising activities. Capitalizing on
the popularity of the American Bandstand television show and over 40 years of
contemporary music, "Dick Clark's American Bandstand Grill" entertainment theme
restaurants are an extension of the Company's entertainment business. Elements
of the theme include: the "Great American Food Experience(R)", a unique menu
concept featuring a variety of delicious regional specialties from around the
country; a design featuring a one-of-a-kind entertainment atmosphere based on
the American
8
<PAGE>
Bandstand television show and the music industry over the last four decades; a
dance club area within the restaurant with a state-of-the-art audio-visual
entertainment system; and signature "American Bandstand Grill" merchandise for
customers to purchase. Each "Dick Clark's American Bandstand Grill" also
features memorabilia and other items generally associated with rock n' roll and
the Company's activities throughout the years, including, vintage photos, gold
and platinum albums, original stage costumes, concert programs, rock stars'
musical instruments and rare posters.
The Grills have current operations in Overland Park, Kansas, a suburb
of Kansas City, which opened in August 1992; Indianapolis, Indiana and Columbus,
Ohio, which opened in April/May 1994; Cincinnati, Ohio, which opened in March
1996; and a dance-club-only variation of the concept in Reno, Nevada which
opened in August 1993.
The Company is developing four additional locations which are
tentatively scheduled to open in the second half of fiscal 1997 and, when
completed, will bring our total of restaurants to nine. The new Grills will be
located in Austin, Texas; Louisville, Kentucky; St. Louis, Missouri, and the
Philadelphia, Pennsylvania - where "American Bandstand" was created.
dcri and Harmon Entertainment Corporation, a New Jersey corporation
("Harmon"), were originally partners in Entertainment Restaurants, a New York
partnership (the "Partnership"), which was created to own, operate and manage
"Dick Clark's American Bandstand Grill" restaurants and which developed the
first restaurant in Miami, Florida. The Partnership purchased Harmon's interest
in the Partnership in the spring of 1990, whereupon dcri became the sole owner
of all of the assets of the Partnership. The Overland Park, Kansas restaurant
was the Company's first owned and operated "Dick Clark's American Bandstand
Grill" restaurant. The Company agreed to reimburse Harmon for capital
expenditures made in connection with the Miami restaurant and to pay Harmon a
royalty over time of 1.5% of gross revenues from restaurant operations, up to an
aggregate of $10,000,000, for its interest in the Partnership. The Company has
satisfied in full this obligation by an advance payment of $1,000,000 in the
spring of 1990 and a final payment of $3,128,000 in December 1994. The entire
$4,128,000 is being amortized by the Company at the rate of 1.5% of revenues.
dcri has numerous memorabilia displayed in its restaurants and such
memorabilia are an integral part of the restaurant's theme. Some of the
memorabilia is owned by Olive and loaned to dcri without charge. In fiscal 1995,
dcri began acquiring certain memorabilia for its own use and has invested
$170,000 to date for current and future grills.
Operations
- ----------
Significant resources are devoted to ensure that "Dick Clark's
American Bandstand Grill" restaurants offer the highest quality food and
service. Through its managerial personnel, the Company standardizes
specifications for the preparation and service of its food, the maintenance and
repair of its premises and the appearance and conduct of its employees.
Operating specifications and procedures are documented in a series of manuals.
Emphasis is placed on ensuring that quality ingredients are delivered to the
restaurants, continuously developing and improving restaurant food production
systems, and ensuring that all employees are dedicated to delivering
consistently high-quality food and service.
The primary commodities purchased by the "Dick Clark's American
Bandstand Grill" restaurants are beef, poultry, seafood and produce. The Company
monitors the current and future prices and availability of the primary
commodities purchased by the Company to minimize the impact of fluctuations in
price and availability and to make advance purchases of commodities when
considered to be advantageous. However, purchasing remains subject to price
fluctuations in certain commodities, particularly produce. All essential food
and beverage products are available, or upon short notice can be made available,
from alternative qualified suppliers.
The Company maintains centralized financial and accounting controls
for "Dick Clark's American Bandstand Grill" restaurants, which it believes are
important in analyzing profit margins. The restaurants utilize a computerized
POS system which provides point-of-sale transaction data and accumulation of
pertinent marketing information. Sales data are collected and analyzed on a
daily basis by management.
Locations. The success of any restaurant depends, to a large extent,
on its location. The site selection process for the Company's restaurants
consists of three main phases: strategic planning, site identification and
detailed site review. The strategic planning phase ensures that restaurants are
located in population areas with demographics that support the entertainment
concept. In the site identification phase, the major trade areas within a market
area are analyzed and a potential site is identified. The final and most
time-consuming phase is the detailed site review. In this phase, the site's
demographics, traffic and pedestrian counts, visibility, building constraints,
and competition are studied
9
<PAGE>
in detail. A detailed budget and return-on-investment analysis are also
completed. Senior management inspects and approves each restaurant site prior to
its lease, acquisition or construction.
In addition to the Company's first four restaurants, which average
10,000 square feet in size, the Company is developing alternate configurations
and sizes which increase the flexibility in choosing locations and expands the
potential of the restaurant group. As an example, the new Grill under
development in Austin, Texas, is an 8,500 square-foot unit that is designed with
a dance club area which will accommodate full dining during lunch and early
dinner hours when not in use as a dance club.
The Company is also planning to test future Grills of approximately
6,500 - 7,000 square feet without a dance club area. These smaller units may
provide increased profitability relative to their investment costs and should
make the search for prime locations easier. Accordingly, many more locations
with the right market and demographic mix will be available for consideration,
including locations in malls where appropriate.
Intended as a market test, the Company, through a joint venture,
opened a dance-club only variation of the "Dick Clark's American Bandstand
Grill" in the legendary Harold's Club in Reno, Nevada. Although the concept has
been profitable, the Company has chosen to focus its expansion efforts on
restaurants, which the Company believes have a broader market appeal and greater
potential for future revenue growth.
GENERAL INFORMATION
-------------------
Joint Ventures
- --------------
The Company from time to time enters into joint ventures with parties
not otherwise affiliated with the Company whose purpose is the production of
entertainment programming and other entertainment related activities associated
with the Company's business.
The C&C Joint Venture was organized by the Company and Freedom
Productions in 1983 to develop and produce the Bloopers series. In December
1988, the Company acquired a controlling interest in the C&C Joint Venture, and
the Company's share of net profits and losses in that venture is now 51%.
Dick Clark's American Bandstand Club, a joint venture between Reno
Entertainment, Inc., a wholly-owned subsidiary of dcri, and RLWH, Inc., was
organized to own and operate a dance club version of "Dick Clark's American
Bandstand Grill" in Reno, Nevada. Through its ownership in dcri, the Company
owns a 51% controlling interest in this venture.
Trademarks
- ----------
The Company licenses from Olive the United States registered service
mark American Bandstand(R) and various variations thereof. This license has been
extended through the end of fiscal 1997. As part of this license, the Company
utilizes the service marks and trademarks American Bandstand Grill(R), Dick
Clark's American Bandstand Grill(R) and AB (Stylized). The Company also owns
many other trademarks and service marks, including federal registration for
trademarks and service marks related to its television programming and other
businesses.
Certain of the Company's trademarks and service marks may be
considered to be material to the Company, such as the trademarks and service
marks used in connection with the Company's restaurant operations.
Backlog and Deferred Revenue
- ----------------------------
The Company's backlog consists of orders by networks, first-run
syndicators and cable networks for television programming to be delivered for
the 1996/1997 television season as well as contractual arrangements for the
services of dccp. At June 30, 1996, the Company had received orders for 3
series, 11 specials and 3 corporate production events which are expected to
total $29,425,000. At June 30, 1995, the Company had received orders for 1
series, 9 specials, and 3 corporate production events which were expected to
total $39,653,000. At June 30, 1994, the Company had
10
<PAGE>
received orders for 11 specials, and two corporate production events and one
rerun of a special originally broadcast in fiscal 1994 which were expected to
total approximately $20,511,000.
The Company receives payment installments in advance of and during
production of its television programs. These payments are included in deferred
revenue in the Company's consolidated balance sheets and are recognized as
revenue when the program is delivered to the licensee. At June 30, 1996, 1995
and 1994, such deferred revenue totaled $726,000, $4,097,000, and $2,286,000,
respectively.
Competition
- -----------
Competition in the television industry is intense. The most important
competitive factors include quality, variety of product and marketing. Many
companies compete to obtain the literary properties, production personnel, and
financing, which are essential to market acceptance of the Company's products.
Competition for viewers of the Company's programs has been heightened by the
proliferation of cable networks, which has resulted in the fragmentation of the
viewing audience. The Company also competes for distribution and pre-sale
arrangements, as well as the public's interest in, and acceptance of its
programs. The Company's success is highly dependent upon such unpredictable
factors as the viewing public's taste. Public taste changes, and a shift in
demand could cause the Company's present programming to lose its appeal.
Therefore, acceptance of future programming cannot be assured. Television and
feature films compete with many other forms of entertainment and leisure time
activities, some of which involve new areas of technology, including the
proliferation of internet services and new media games.
The Company's principal competitors in television production are the
television production divisions of the major television networks, motion picture
companies, which are also engaged in the television and feature film
distribution business, and many independent producers. Many of the Company's
principal competitors have greater financial resources and more personnel
engaged in the acquisition, development, production and distribution of
television programming. At present there is substantial competition in the
first-run syndication marketplace, resulting in fragmentation of ratings and
advertising revenues.
Certain of the Company's customers and the television networks are
considered competitors of the Company in that they produce programming for
themselves. While the Federal Communications Commission (the "FCC") promulgated
the Financial Interest and Syndication Rule (the "FinSyn Rule") in 1970 in order
to restrict network ownership of programming and syndication activities, the
FinSyn Rule, as later amended in 1992, expired on September 21, 1995, thereby
eliminating such restrictions. As a consequence, the 40% cap on network in-house
productions previously imposed in 1992 was eliminated, thereby permitting the
major networks to produce and syndicate, in house, all of their primetime
entertainment schedule. With the elimination of such restrictions, the major
networks have increased the amount of programming they produce through their own
production companies. Numerous consolidations have also occurred, further
restricting the Company's ability to sell its entertainment programming.
As a result of the elimination of the FinSyn Rule, the Company has
encountered increased competition in the domestic and foreign syndication of
future television programming, and the Company's rerun syndication revenues
could be adversely impacted by such modification. In addition, there is
increased competition from emerging networks, which were previously exempt from
any restrictions under the FinSyn Rule. The Company believes, however, that it
can continue to compete successfully in the highly-competitive market for
television programming. This belief is based on management's extensive
experience in the industry, the Company's reputation for prompt, cost-efficient
completion of production commitments and the Company's ability to attract
creative talents.
The restaurant industry is a highly-competitive industry that is
affected by many factors including changes in the economy, changes in
socio-demographic characteristics of areas in which restaurants are located,
changes in customer tastes and preferences, and increases in the number of
restaurants in which the Company's restaurants are located. The degree to which
such factors may affect the restaurant industry, however, are not generally
predictable.
Competition in the restaurant industry can be divided into three main
categories: fast food, casual dining, and fine dining. The casual dining segment
(which includes the Company's restaurant operations) includes a much smaller
number of national chains than the fast-food segment but does include many local
and regional chains as well as thousands of independent operators. The fine
dining segment consists primarily of small independent operations in addition to
several regional chains.
11
<PAGE>
The market for corporate production services is large with many
companies vying for market share. In fact, competition in the corporate
production services segment is fierce. Most customers require bids on a
competitive basis and some of the Company's competition have larger staffs and a
greater global reach for information. dccp's principal competitors are other
producers of corporate events and films (including Jack Morton Productions and
Carabiner, Inc.), which have been in business longer and are more established.
The Company believes that dccp can compete successfully in this market by
utilizing the Company's experience in producing live events for television and
its existing talent and business relationships.
Employees - Television Production & Related Activities
- ------------------------------------------------------
At June 30, 1996, the Company had approximately 75 full-time
employees in connection with the Company's television production and related
activities. The Company meets a substantial part of its personnel needs in this
business segment by retaining directors, actors, technicians and other
specialized personnel on a per production, weekly or per diem basis. Such
persons frequently are members of unions or guilds and generally are retained
pursuant to the rules of such organizations.
The Company is a signatory to numerous collective bargaining
agreements relating to various types of employees such as directors, actors,
writers and musicians. The Company's union wage scales and fringe benefits
follow prevailing industry standards. The Company is a party to one contract
with the American Federation of Television and Radio Artists, which expires in
November 1997, two contracts with the American Federation of Musicians which
expired in February and May of 1992 (the Company is currently operating under
the provisions of the contracts which expired and is in negotiations with this
union, and expects to renew these contracts in the near future), two contracts
with the Directors Guild of America, which expires in June 1999, one contract
with the Writers Guild of America which expires in May 1998 and two contracts
with the Screen Actors Guild, both of which expires in June 1998. The renewal of
these union contracts does not depend on the Company's activities or decisions
alone. If the relevant union and the industry are unable to come to new
agreements on a timely basis, any resulting work stoppage could adversely affect
the Company.
Employees - Restaurants
- -----------------------
At June 30, 1996, the Company had approximately 500 employees in its
restaurant operations. Employees are paid on an hourly basis, except restaurant
managers and certain senior executives involved in the restaurants operations. A
majority of the employees are employed on a part-time, hourly basis to provide
services necessary during peak periods of restaurant operations. The Company's
restaurant operations have not experienced any significant work stoppages and
believes its labor relations are good.
ITEM 2. PROPERTIES.
The Company leases from Olive under a triple net lease approximately
30,000 square feet of office space and equipment in two buildings located in
Burbank, California, for its principal executive offices. The current annual
base rent is $613,000 (payable monthly commencing January 1, 1992) and the lease
expires on December 31, 2000. The lease agreement provides for rental
adjustments every two years, commencing January 1, 1992, based on increases in
the Consumer Price Index during the two-year period. The Company subleases
approximately 10,000 square feet of space to third parties and affiliated
companies on a month-to-month basis. The Company believes that the subleases to
affiliated companies are no less favorable to the Company than could be obtained
from unaffiliated third parties on an arms-length basis.
The Company has entered into lease agreements with respect to
numerous restaurant sites that terminate at varying dates through November 30,
2010.
dcpi's subsidiary, dccp, is a lessee under a lease agreement with
Chelsea Atrium Associates, a New York Partnership, for approximately 5,000
square feet for the site of the dccp office in New York, New York. In addition,
dccp subleases a portion of the space to Kobin Enterprises, Ltd. That sublease
is due to expire September 30, 1996 with a one year renewal option. The lease
expires November 1, 1999. The current annual base rent is $85,000. This amount
increases 3.5% annually.
12
<PAGE>
The Company believes the properties and facilities it leases are
suitable and adequate for the Company's present business and operations.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in certain litigation in the ordinary course
of its business, none of which, in the opinion of management, is material to the
Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
<TABLE>
<CAPTION>
Price Range
Fiscal 1996 Fiscal 1995 Fiscal 1994
High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $10.00 $8.25 $10.75 $8.00 $5.38 $4.00
2nd Quarter 10.25 9.00 10.25 7.75 7.50 4.25
3rd Quarter 13.00 8.75 10.00 7.50 7.00 5.25
4th Quarter 15.00 12.00 9.75 8.50 10.50 5.75
=====================================================================
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Income Statement 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 73,819 $ 46,645 $ 58,296 $ 43,428 $ 36,582
Gross profit 11,969 9,094 10,681 5,078 7,395
G&A expenses 4,339 4,145 4,113 3,529 3,519
Minority interest 351 107 507 305 776
Interest and other income 1,788 1,711 1,455 1,444 1,631
Income before taxes 9,067 6,553 7,516 2,688 4,731
Provision (credit) for income taxes 3,469 2,461 2,640 (510) 1,655
Net income 5,598 4,092 5,138 3,198 3,076
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital(1) $ 29,573 $ 27,260 $ 27,136 $ 29,101 $ 25,622
Program costs, net 1,741 4,306 1,474 5,745 3,045
Total assets 52,711 48,308 44,317 42,461 36,033
Stockholders' equity 43,494 37,792 33,693 28,501 25,303
Weighted average number of shares
outstanding 8,279 8,278 8,266 8,265 8,265
Number of shares outstanding at
year end 8,302 8,279 8,277 8,265 8,265
Per share data
Net income .68 .49 .62 .39 .37
Net book value 5.25 4.57 4.07 3.45 3.06
- -------------------------------------------------------------------------------------------
</TABLE>
- --------
1 Represents the sum of cash, marketable securities and accounts
receivable less accounts payable.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The purpose of the following discussion and analysis is to explain
the major factors and variances between periods of the Company's results of
operations. This analysis should be read in conjunction with the financial
statements and the accompanying notes which begin on page 18.
INTRODUCTION
A majority of the Company's revenue are derived from the production
and licensing of television programming. The Company's television programming is
licensed to the major television networks, cable networks, program distributors,
domestic and foreign syndicators and advertisers. The Company also receives
production fees from program buyers who retain ownership of the programing. In
addition, the Company derives revenue from the rerun broadcast of its programs
on network and cable television and in foreign markets as well as the licensing
of its media and film archives to third parties for use in feature films and
television movies, specials and commercials. The Company, on a limited basis,
also develops theatrical films in association with established studios that
generally provide the financing necessary for production.
The Company also derives substantial revenue from its
entertainment-related businesses which include restaurants (dick clark
restaurants, inc. and its subsidiaries) and corporate events and production
(dick clark corporate productions, inc.) These businesses, on a combined basis,
contributed approximately 35%, 38% and 31% to the Company's consolidated revenue
for the fiscal years ended June 30, 1996, 1995, and 1994, respectively.
GENERAL
License fees for the production of television programming are
generally paid to the Company pursuant to license agreements during production
and upon availability and delivery of the completed program or shortly
thereafter. Revenue from network and cable television license agreements are
recognized for financial statement purposes upon availability and delivery of
each program or episode (in the case of a series). Revenue from rerun broadcast
(both domestic and foreign) are recognized for each program when it becomes
contractually available for broadcast.
Production costs of television programs are capitalized and charged
to operations on an individual program basis in the ratio that the current
year's gross revenue bear to management's estimate of the total revenue for each
program from all sources. Substantially all television production costs are
amortized in the initial year of delivery, except for successful television
series and television movies where there is likely to be future revenue earned
in domestic syndication and other markets. Successful television series and
television movies can achieve substantial revenue from rerun broadcasts in both
foreign and domestic markets after their initial broadcast, thereby allowing a
portion of the production costs to be amortized against future revenue.
Distribution costs of television programs are expensed in the period incurred.
Depending upon the type of contract, revenue for dick clark corporate
productions, inc. are recognized when the services are completed for a live
event, or when a tape or film is delivered to a customer, or when services are
completed pursuant to a particular Phase of a contract which provides for
periodic payments. Costs of corporate event productions are capitalized and
expensed as revenue is recognized.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital resources are more than adequate to meet
current working capital requirements. The Company had cash and marketable
securities of approximately $29,872,000 as of June 30, 1996 compared to
$29,066,000 as of June 30, 1995. The Company has no outstanding bank borrowings
or other indebtedness for borrowed money.
Marketable securities consist primarily of investments in United
States Treasury Bills and Treasury Notes. In fiscal year 1994, the Company
adopted Statement of Financial Accounting Standards No. 115. This Statement
requires investments in debt and equity securities, other than debt securities
classified as "held-to-maturity", to be reported at fair
15
<PAGE>
value. However, because the Company classifies investments in marketable
securities as "held-to-maturity", it will continue to carry its investments at
cost.
Historically, the Company has funded its investment in television
program costs primarily through installment payments of license fees and minimum
guaranteed license payments from program buyers. To the extent the Company
produces television movies and television series, the Company may be required to
finance the portion of its program costs for these programs not covered by
guaranteed license payments from program buyers (known in the television
industry as "deficit financing"). None of the Company's television production in
fiscal 1996 or 1995 required any material deficit financing on behalf of the
Company. The Company does not anticipate incurring any material deficit
financing of programs which are currently in development.
Net cash provided by operating activities was approximately $5.7
million, $1.5 million and $5.9 million in fiscal 1996, 1995 and 1994,
respectively. Net cash used in investing activities was approximately $8.1
million, $2.6 million and $4.4 million in fiscal 1996, 1995 and 1994,
respectively. The fluctuations in cash provided by operations and cash used for
investing activities for those years primarily reflect general increases and
decreases in production activity and the construction of the "'Dick Clark's
American Bandstand Grill" restaurant in Cincinnati, Ohio in fiscal 1996 and two
other restaurants in fiscal 1994.
The Company expects that the opening of additional American Bandstand
Grill restaurants will be financed from available capital and/or alternative
financing methods such as joint ventures and limited recourse borrowings. The
Company anticipates opening four additional locations in fiscal 1997 at an
estimated capital investment of $ 10.0 million which will be funded directly by
the Company without using such alternative methods. Capital requirements for the
Company's corporate events and production business, dick clark corporate
productions, inc., are anticipated to be immaterial to the Company's overall
capital position in fiscal 1997.
The Company expects that its available capital base and cash
generated from operations will be more than sufficient to meet its cash
requirements for the foreseeable future.
RESULTS OF OPERATIONS
Revenue - Revenue for the year ended June 30, 1996 were $73,819,000
compared to $46,645,000 for the year ended June 30, 1995 and $58,296,000 for the
year ended June 30, 1994.
The increase in revenue in fiscal 1996 as compared to fiscal 1995 is
primarily attributable to the delivery of a new five-day per week talk show
series delivered in fiscal 1996. The increase is further explained by increased
revenue associated with the Company's corporate production business, an improved
contract for one of its annual specials as well as the delivery in fiscal 1996
of a movie for television which did not occur in fiscal 1995.
The decrease in revenue in fiscal 1995 as compared to fiscal 1994 is
primarily due to the delivery of one time anniversary and tribute specials in
fiscal year 1994, as well as reduced revenue from the Company's corporate events
and production business. This decrease is further explained by a reduction in
the number of movies for television produced by the Company in fiscal 1995 as
compared to fiscal 1994. The decrease in revenue was offset in part by an
increase in revenue generated by the Company's restaurant business principally
due to the opening of two "Dick Clark's American Bandstand Grill" restaurants in
April and May of 1994.
During fiscal 1996, revenue from a five-day per week talk show series
represented approximately 15% of total revenue and revenue recognized from a
recurring annual special represented approximately 12% of total revenue. During
fiscal 1995, revenue from a recurring annual special represented approximately
20% of total revenue. During fiscal 1994, revenue from a recurring annual
special represented approximately 15% of total revenue. No other production or
project accounted for more than 10% of total revenue for fiscal 1996, 1995 or
1994.
Gross Profits - Gross profit as a percentage of revenue was 16%, 19%
and 18% for fiscal 1996, 1995 and 1994, respectively. The decrease in gross
profits as a percentage of revenue in fiscal 1996 as compared to fiscal 1995 is
primarily attributable to lower gross profit as a percentage of sales associated
with the new five-day per week television talk show series. Talk show series in
their first year of release typically earn small gross profits as a percentage
of sales. This syndicated five-day per week talk show series was in its first
year of release. In fiscal 1996, the decrease in gross profits as a percentage
of sales is further explained by a one time project for a customer of dick clark
corporate
16
<PAGE>
productions, which contributed lower gross profits as a percentage of the
contracted revenue due to the size and nature of the project.
Other - Minority interest expense increased in fiscal 1996 compared
to fiscal 1995 primarily as a result of the license of the rebroadcast rights to
22 episodes of the previously-produced "Super Bloopers and New Practical jokes".
Minority interest expense decreased in fiscal 1995 as compared to fiscal 1994
primarily as a result of the rebroadcast of previously-produced "Super Bloopers
and New Practical Jokes" during fiscal 1994, which resulted in higher gross
profits contributed by the C&C Joint Venture during that period. There were no
such rebroadcasts in fiscal 1995. The C&C Joint Venture, of which the Company
has a 51% interest, produced the "Super Bloopers and New Practical Jokes"
television specials. The Bloopers specials currently being produced by the
Company do not include the practical joke segments and are owned 100% by the
Company and there is, therefore, no minority interest expense associated with
their production.
INCOME TAXES
In connection with the implementation of Statement of Financial
Accounting Standards No. 109 during fiscal 1994 the Company recorded $262,000 of
income which represents the cumulative effect of this accounting change.
GENERAL
Certain statements in the foregoing Management's Discussion and
Analysis (the "MD&A") are not historical facts or information and certain other
statements in the MD&A are forward looking statements that involve risks and
uncertainties, including, without limitation, the Company's ability to develop
and sell television programming, timely completion of negotiations for new
restaurant sites and the ability to construct, finance and open new restaurants
and to attract new corporate productions clients, and such competitive and other
business risks as from time to time may be detailed in the Company's Securities
and Exchange Commission reports.
17
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Consolidated Balance Sheets
- ---------------------------
<TABLE>
<CAPTION>
Year ended June 30,
ASSETS 1996 1995
==========================================================================================================
<S> <C> <C>
Cash and cash equivalents $953,000 $3,297,000
Marketable securities 28,919,000 25,769,000
Accounts receivable 4,713,000 2,303,000
Program costs, net 1,741,000 4,306,000
Prepaid royalty 3,128,000 3,128,000
Leasehold improvements and equipment 10,949,000 7,152,000
Goodwill and other assets 2,308,000 2,353,000
--------------- --------------
Total assets $52,711,000 $48,308,000
- -------------------------------------------------------------------------- =============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------- --------------- --------------
Accounts payable $5,012,000 $4,109,000
Accrued residuals and participations 2,260,000 1,438,000
Production advances and deferred revenue 726,000 4,097,000
Current and deferred income taxes 602,000 348,000
--------------- --------------
Total liabilities 8,600,000 9,992,000
- -------------------------------------------------------------------------- =============== ==============
Commitments and contingencies
Minority interest 617,000 524,000
Stockholders' equity:
Class A common stock, $.01 par value,
2,000,000 shares authorized
750,000 shares outstanding 7,000 7,000
Common stock, $.01 par value,
20,000,000 shares authorized
7,551,500 shares outstanding at June 30, 1996 and 76,000 76,000
7,528,500 shares outstanding at June 30, 1995
Additional paid-in capital 7,894,000 7,790,000
Retained earnings 35,517,000 29,919,000
--------------- --------------
Total stockholders' equity 43,494,000 37,792,000
=============== ==============
Total liabilities and stockholders' equity $52,711,000 $48,308,000
- -------------------------------------------------------------------------- =============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE>
Consolidated Statements of Operations
- -------------------------------------
<TABLE>
<CAPTION>
Year ended June 30,
-------------------
1996 1995 1994
================================================================== ============== ============== ==============
<S> <C> <C> <C>
Gross revenue $73,819,000 $46,645,000 $58,296,000
Costs related to revenue 61,850,000 37,551,000 47,615,000
-------------- -------------- --------------
Gross profit 11,969,000 9,094,000 10,681,000
-------------- -------------- --------------
General and administrative expenses 4,339,000 4,145,000 4,113,000
Minority interest expense 351,000 107,000 507,000
Interest and other income (1,788,000) (1,711,000) (1,455,000)
-------------- -------------- --------------
Income before provision for income taxes 9,067,000 6,553,000 7,516,000
Provision for income taxes 3,469,000 2,461,000 2,640,000
-------------- -------------- --------------
Income before cumulative effect of accounting change 5,598,000 4,092,000 4,876,000
Cumulative effect of accounting change -- -- (262,000)
-------------- -------------- --------------
Net income $5,598,000 $4,092,000 $5,138,000
============== ============== ==============
Income per share
Before cumulative effect of accounting change $0.68 $0.49 $0.59
Cumulative effect of accounting change -- -- 0.03
-------------- -------------- --------------
Net income $0.68 $0.49 $0.62
============== ============== ==============
Weighted average number of shares outstanding 8,279,000 8,278,000 8,266,000
============== ============== ==============
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE>
Consolidated Statements of Stockholders' Equity
- -----------------------------------------------
<TABLE>
<CAPTION>
Additional Total
Class A Common Stock Common Stock Paid-In Retained Stockholders'
Shares Amount Shares Amount Capital Earnings Equity
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
June 30, 1993 750,000 $ 7,000 7,515,000 $ 76,000 $ 7,729,000 $20,689,000 $28,501,000
Net income -- -- -- -- -- 5,138,000 5,138,000
Exercise of stock options -- -- 12,000 -- 54,000 -- 54,000
- ------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance,
June 30, 1994 750,000 7,000 7,527,000 76,000 7,783,000 25,827,000 33,693,000
Net income -- -- -- -- -- 4,092,000 4,092,000
Exercise of stock options -- -- 1,500 -- 7,000 -- 7,000
Balance,
June 30, 1995 750,000 7,000 7,528,500 76,000 7,790,000 29,919,000 37,792,000
Net income -- -- -- -- -- 5,598,000 5,598,000
Exercise of stock options -- -- 23,000 -- 104,000 -- 104,000
Balance,
June 30, 1996 750,000 $ 7,000 7,551,500 $ 76,000 $ 7,894,000 $35,517,000 $43,494,000
=============================== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE>
Consolidated Statements of Cash Flows
- -------------------------------------
<TABLE>
<CAPTION>
Year ended June 30,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 5,598,000 $ 4,092,000 $ 5,138,000
Adjustments to reconcile net income to net cash
provided by operations
Amortization expense 47,778,000 20,858,000 37,111,000
Depreciation expense 1,123,000 981,000 567,000
Investment in program costs (44,952,000) (23,046,000) (32,426,000)
Minority interest, net 93,000 (441,000) 375,000
Disposals of leasehold improvements and equipment 73,000 177,000 --
Changes in assets and liabilities
Accounts receivable (2,410,000) 1,641,000 410,000
Prepaid royalty -- (3,128,000) --
Goodwill and other assets (216,000) (27,000) (1,494,000)
Accounts payable, accrued residuals and
participations 1,725,000 (1,826,000) 2,583,000
Production advances and deferred revenue (3,371,000) 1,811,000 (5,097,000)
Current and deferred income taxes 254,000 431,000 (1,280,000)
------------ ------------ ------------
Net cash provided by operations 5,695,000 1,523,000 5,887,000
------------ ------------ ------------
Cash flows from investing activities
Purchases of marketable securities (17,348,000) (14,224,000) (16,920,000)
Sales of marketable securities 14,198,000 12,803,000 17,375,000
Capital expenditures (4,993,000) (1,148,000) (4,836,000)
------------ ------------ ------------
Net cash used for investing activities (8,143,000) (2,569,000) (4,381,000)
------------ ------------ ------------
Cash flows from financing activities
Exercise of stock options 104,000 7,000 54,000
------------ ------------ ------------
Net cash provided by financing activities 104,000 7,000 54,000
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (2,344,000) (1,039,000) 1,560,000
Cash and cash equivalents at beginning of the year 3,297,000 4,336,000 2,776,000
------------ ------------ ------------
Cash and cash equivalents at end of the year $ 953,000 $ 3,297,000 $ 4,336,000
======================================================================== ============ ============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for income taxes $ 3,186,000 $ 2,030,000 $ 3,357,000
======================================================================== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
1 - Basis of Financial Statement Presentation
The consolidated financial statements include the accounts of dick
clark productions, inc., its wholly-owned subsidiaries and majority owned joint
ventures, collectively referred to as the "Company". For financial statement
reporting purposes, the accounts are consolidated using historical data. All
significant intercompany balances and transactions have been eliminated in
consolidation.
The common stock of the Company is entitled to one vote per share on
all the matters submitted to a vote of stockholders, and the Class A common
stock is entitled to 10 votes per share. Holders of Class A common stock are
entitled to a dividend equal to 85% of any declared cash dividends on the shares
of common stock. On liquidation of the Company, holders of the common stock are
entitled to receive $2.00 per share before any payment is made to the holders of
Class A common stock, and thereafter the holders of Class A common stock are
entitled to share ratably with the holders of common stock in the net assets
available for distribution.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure 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.
2 - Summary of Significant Accounting Policies
Revenue - Revenue from television program licensing agreements are
recognized when each program becomes contractually available for broadcast and
has been delivered to the licensee. Revenue earned currently which are to be
received in future are discounted to their present value using the effective
interest method. Depending on the type of contract, revenue for dick clark
corporate productions, inc. are recognized when services are completed for a
live event or when a tape or film is delivered to a customer or when services
are completed pursuant to a phase of a contract which provides for periodic
payment. Revenue from restaurant operations are recognized upon provision of
goods and services to customers.
Revenue by significant customer as a percentage of total revenue are
as follows:
Year ended June 30,
-------------------
Significant Customers 1996 1995 1994
- --------------------- ---- ---- ----
NBC entertainment 13% 15% 18%
ABC entertainment 13% 24% 31%
Columbia Tristar Television 15% 0% 0%
One customer of dick clark corporate productions, inc. 0% 0% 17%
The Company produces television programming in relation to several
awards shows subject to long-term license agreements which expire between 1997
and 2000. While the existence of each long-term agreement enhances the future
financial performance of the Company, the non-renewal of certain such agreements
at their respective expiration dates could have a material adverse impact on the
Company's financial performance.
Program Cost - Program costs, which include acquired film rights,
residual costs, third-party participation and indirect production costs
(production overhead) are charged to operations on an individual program basis
in the ratio that the current year's revenue for each program bears to
management's estimate of total ultimate revenue (for the current and future
years) for that program from all sources. This method of accounting is commonly
referred to as the individual-film-forecast method. For the fiscal years ended
June 30, 1996, 1995 and 1994 there was $4,825,000, $3,576,000 and $3,171,000,
respectively, of production overhead included within program costs.
Upon distribution of acquired film rights, the Company uses the
individual film forecast method set forth in SFAS No. 53 to amortize these
costs, together with the participants' share and residuals costs, based upon the
ratio of revenue earned in the current period to the Company's estimate of total
revenue to be realized. Management periodically
22
<PAGE>
reviews its estimates on a film-by-film basis and, when unamortized costs exceed
net realizable value for a film, that film's unamortized costs are written down
to net realizable value. When estimates of total revenue indicate that a program
will result in an ultimate loss, the entire loss is recognized. There were no
significant write downs of program costs in the fiscal years ended June 30,
1996, 1995 and 1994.
The Company periodically reviews the status of projects in
development. If, in the opinion of the Company's management, any such projects
are not planned for production, the costs and any reimbursements and earned
advances related thereto are charged to the appropriate profit and loss
accounts. Substantially all production and distribution costs are amortized in
the initial year of availability, except with respect to successful television
series and television movies which have the capacity of significant future
revenue.
Accounts Receivable - Accounts receivable represent unsecured
balances due from the Company's various customers and the Company is at risk to
the extent such amounts become uncollectible. The Company performs credit
evaluations of each of its customers and maintains allowances for potential
credit losses. Such losses have generally been within management's expectations.
Marketable Securities - Marketable securities consist primarily of
investments in United States Treasury Bills and Treasury Notes. In fiscal year
1994, the Company adopted Statement of Financial Accounting Standards No. 115.
This statement requires investments in debt and equity securities, other than
debt securities classified as "held-to-maturity", to be reported at fair value.
However, because the Company intends to classify investments in marketable
securities as "held-to-maturity", it will continue to carry the investments at
cost. The cost of these investments as of June 30, 1996 and 1995 was $28,919,000
and $25,769,000, respectively, and the market value as of June 30, 1996 and 1995
was $28,505,000 and $25,558,000, respectively. As of June 30, 1996, the recorded
cost of marketable securities maturing in fiscal 1997, 1998, 1999, and 2001 are
$18,030,000, $7,905,000, $2,960,000, and $23,000, respectively.
Cash and Cash Equivalents - Cash equivalents consist of investments
in interest bearing instruments issued by banks and other financial institutions
with original maturities of 90 days or less. Such investments are stated at
cost, which approximates market value.
Leasehold Improvements and Equipment - Leasehold improvements and
equipment consist of the following:
As of June 30,
--------------
FIXED ASSETS 1996 1995
- ------------ ---- ----
Land $660,000 $660,000
Buildings 3,112,000 1,465,000
Leasehold improvements 3,005,000 2,871,000
Furniture and fixtures 3,589,000 2,527,000
Production and other equipment 2,037,000 1,606,000
Construction in process 2,000,000 388,000
Total fixed assets $14,403,000 $9,517,000
Accumulated depreciation (3,454,000) (2,365,000)
Fixed assets, net $10,949,000 $7,152,000
=========== ==========
Depreciation is calculated using the straight-line method based on
estimated useful lives of the applicable property or assets. Useful lives range
from 3 to 30 years for buildings and leasehold improvements, 3 years for
furniture and fixture and computer software, and 3 to 5 years for
transportation, computer and other equipment.
The cost of normal maintenance and repairs to properties and assets
are charged to expense when incurred. Major improvements to properties and
assets are capitalized.
Goodwill and Other Assets - Goodwill resulting from the Company's
acquisition of Entertainment Restaurants (see Note 4) in fiscal 1990 is being
amortized on a straight-line basis over 20 years. Other assets include
capitalized organizational costs and pre-opening costs which are being amortized
over 5 years and 12 months, respectively.
23
<PAGE>
Organizational costs include legal and other expenses relating to the
acquisition of Entertainment Restaurants and other activities. Pre-opening costs
are limited to direct, incremental costs relating to start-up activities
associated with the Company's restaurant business. Accumulated amortization of
goodwill and other assets at June 30, 1996 and 1995 was $1,438,000 and
$1,521,000, respectively.
Unclassified Balance Sheet - In accordance with the provisions of
Statement of Financial Accounting Standards No. 53, the Company has elected to
present an unclassified balance sheet.
Joint Ventures - The Company has a controlling interest in several
joint venture arrangements in which the Company's share of profits and losses
exceed 50%. As a result, the assets, liabilities, revenue and expenses of such
joint ventures are included in the consolidated balance sheets and statements of
operations of the Company with the amounts due to others shown as minority
interest.
Reclassifications - The consolidated financial statements of prior
years reflect certain reclassifications to conform with classifications adopted
in the current year.
Net Income Per Share - Net income per share is computed on the basis
of the weighted average number of common shares outstanding each year, plus
common stock equivalents related to dilutive stock options. The number of shares
used in the computation of per share data was 8,279,000 in 1996, 8,278,000 in
1995, and 8,266,000 in 1994.
3 - Program Costs
The Company is engaged, as one of its principal activities, in the
development and production of a wide range of television and corporate
programming.
Management's estimate of forecasted revenue related to released
programs exceeds the unamortized costs on an individual program basis. Such
forecasted revenue is subject to revision in future periods if warranted by
changing conditions such as market appeal and availability of new markets. The
Company currently anticipates that all of such revenue and related amortization
will be recognized under the individual film forecast method where programs are
available for broadcast in certain secondary markets in years ranging from 1997
through 2001. While management can forecast ultimate revenue based on experience
and current market conditions, specific annual amortization charges to
operations are not predictable because revenue recognition is dependent upon
various external factors including expiration of network license agreements and
availability for broadcasting in certain secondary markets. Program costs
associated with corporate productions are amortized as projects, or identifiable
elements pursuant to a contract, are delivered.
Based on management's estimates of gross revenue as of June 30, 1996,
approximately 82% of the $552,000 of unamortized program costs applicable to
released programs will be amortized during the three fiscal years ending June
30, 1999.
24
<PAGE>
Capitalized program costs consist of the following:
As of June 30, 1996 1995
- --------------------------------------------------------------------------------
Released
Movies for television $ 19,926,000 $ 15,822,000
Television programs 153,388,000 121,426,000
Corporate programs 37,644,000 25,953,000
210,958,000 163,201,000
Less: accumulated amortization (210,406,000) (162,944,000)
552,000 257,000
============== ===============
In process
Movies for theatrical release 66,000 ---
Television programs 558,000 1,832,000
Corporate programs 248,000 1,345,000
872,000 3,177,000
============== ===============
Project development costs
Movies for television 241,000 772,000
Television programs 44,000 77,000
Corporate programs 32,000 23,000
317,000 872,000
============== ===============
Program costs, net $ 1,741,000 $ 4,306,000
============== ===============
4 - Prepaid Royalty
Pursuant to a redemption and settlement agreement dated June 14, 1990
(the "Redemption Agreement"), between Harmon Entertainment Corporation
("Harmon"), a previous co-venturer the Company in its restaurant business, the
Company, dick clark restaurants, inc ("dcri") and certain other parties, the
Company had an obligation to pay Harmon a royalty of up to $10,000,000 at a rate
of 1.5% of all restaurant revenue of which $1,000,000 was advanced to Harmon at
the time the Redemption Agreement was entered into by the parties thereto.
Pursuant to a modification dated December 31, 1994 to the Redemption Agreement,
the Company paid Harmon $3,128,000 as prepayment of the remaining portion of
this obligation. As part of this transaction, Harmon paid the Company $358,000
in settlement of amounts owed to the Company by Harmon pursuant to the findings
of an audit conducted by the Company in connection with the Redemption
Agreement. As a result of the prepayment, the Company satisfied in full its
royalty obligation to Harmon under the Redemption Agreement. Harmon also dropped
a previously asserted claim that it was owed certain other amounts under the
Redemption Agreement. The Company will amortize the prepaid royalty at the rate
of 1.5% of revenue after the $1,000,000 advanced to Harmon is recouped (based on
revenue).
25
<PAGE>
5 - Income Taxes
The provision for income taxes consists of the following:
Year ended June 30, 1996 1995 1994
- ------------------- ---- ---- ----
Current
Federal $ 3,174,000 $ 1,147,000 $ 2,456,000
State 367,000 199,000 278,000
Foreign 192,000 140,000 109,000
$ 3,733,000 $ 1,486,000 $ 2,843,000
Deferred
Federal (230,000) 883,000 (197,000)
State (34,000) 92,000 (6,000)
(264,000) 975,000 (203,000)
$ 3,469,000 $ 2,461,000 $ 2,640,000
=========== =========== ===========
A reconciliation of the difference between the statutory federal tax
rate and the Company's effective tax rate on a historical basis is as follows:
Year ended June 30, 1996 1995 1994
Statutory federal rate 34% 34% 34%
State taxes, net of federal income tax benefit 4 3 1
Other -- 1 --
Effective tax rate 38% 38% 35%
===== ===== =====
Statement of Financial Accounting Standards No. 109 requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in financial statements or tax
returns. Under this method, deferred tax liabilities and assets are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. In connection with the implementation of
Statement of Financial Accounting Standards No. 109, the Company recorded
$262,000 of income during the first quarter of fiscal 1994 which represents the
cumulative effect of this accounting change.
The Company paid $3,186,000, $2,030,000 and $3,357,000 for income
taxes during the fiscal years 1996, 1995, and 1994, respectively.
26
<PAGE>
The components of current and deferred income taxes were as follows:
<TABLE>
<CAPTION>
As of June 30, 1996 1995
- ------------------------------------------------------------------ ----------- -----------
<S> <C> <C>
Deferred tax assets
Accrued residuals and participations $ 247,000 $ 148,000
Rent abatement 38,000 45,000
Pre-opening costs 146,000 214,000
Depreciation 37,000 --
Bonus accrual 280,000 --
Miscellaneous 90,000 92,000
Total deferred tax assets $ 838,000 $ 499,000
=========== ===========
Deferred tax liabilities
Difference between book and tax accounting for program costs ($ 150,000) ($ 112,000)
Prepaid royalty (1,220,000) (1,174,000)
Tax deductible goodwill (284,000) (293,000)
Total deferred tax liabilities ($1,654,000) ($1,579,000)
Net deferred tax liability $ (816,000) ($1,080,000)
=========== ===========
Taxes receivable 214,000 732,000
Total current and deferred taxes payable ($ 602,000) ($ 348,000)
=========== ===========
</TABLE>
6 - Related Party Transactions
The Company is a tenant under a triple net lease (the "Burbank
Lease") with Olive Enterprises, Inc. ("Olive"), a company owned by the Company's
principal stockholders, covering the premises occupied by the Company in
Burbank, California (see Note 7 for a summary of the terms of the Burbank
Lease). The Company subleases a portion of the space covered by the Burbank
Lease to Olive and to unrelated third parties on a month-to-month basis. In
fiscal years 1996, 1995 and 1994 the sublease income paid by Olive was $12,000,
$12,000 and $15,000, respectively. The Company believes that the terms of the
Burbank Lease and sublease to Olive are no less favorable to the Company than
could have been obtained from unaffiliated third parties on an arms-length
basis. No significant leasehold improvements were made in fiscal years 1996 or
1995. The Company also paid Olive $142,000 for storage services during fiscal
1996.
The Company provided management and other services to Olive and other
companies owned by the Company's principal stockholders of $158,000, $159,000,
and $226,000 for the fiscal years 1996, 1995, and 1994, respectively.
The Company retained the services of Dick Clark as host for certain
of its television programs and other talent services during fiscal 1996, 1995
and 1994 for which the Company paid him fees of $735,000, $267,000 and $412,000,
respectively . Management believes that the fees paid by the Company are no more
than it would have paid to an unaffiliated third party on an arms-length basis.
The Company licenses the United States registered service mark
"American Bandstand" and all variations thereof from Olive. This license has
been extended through fiscal 1997. The Company is currently negotiating a
long-term extension of the license with Olive. The Company does not pay any
license fees to Olive under the current license arrangement.
7 - Commitments and Contingencies
The Company has entered into employment agreements with certain key
employees requiring payment of annual compensation of $2,613,000, $663,000,
$525,000, $525,000 and $0 for the years ending June 30, 1997, 1998, 1999, 2000
and 2001, respectively. Several agreements also provide for the payment by the
Company of certain profit participation based upon the profits from specific
programs, and/or individual subsidiaries of the Company as a consolidated
entity, as provided in the applicable employment agreements. Several agreements
have renewal options of
27
<PAGE>
up to two additional years.
The Company renegotiated its Burbank lease with Olive for the term
commencing June 1, 1989 and terminating December 31, 2000. The Burbank Lease
expense for the years ended June 30, 1996, 1995, and 1994 was $612,000, $601,000
and $568,000, respectively. The Burbank Lease provides for rent increases every
two years commencing January 1, 1992 based on increases in the Consumer Price
Index during the two-year period.
The Company has entered into lease agreements with respect to
restaurants that terminate at varying dates through November 30, 2010.
Total lease expense for the Company for the years ended June 30,
1996, 1995 and 1994 was $1,104,000, $1,058,000, and $868,000, respectively. The
various operating leases to which the Company is presently subject require
minimum lease payments as follows:
Year ended June 30,
- --------------------------------------------------------------------------------
1997 $1,214,000
1998 1,233,000
1999 1,238,000
2000 859,000
2001 528,000
Thereafter 4,803,000
8 - Stock Options
In September 1987, the Company's Board of Directors approved an
employee stock option plan which was ratified by the stockholders in November
1987. The plan provides for issuance of up to 1,000,000 shares of the Company's
common stock. Options granted under the plan may be either incentive stock
options or non-qualified stock options. The exercise price of the incentive and
non-qualified stock options must be equal to at least 100 percent or 85 percent,
respectively, of the fair market value of the underlying shares as of the date
of grant. During fiscal years 1996, 1995 and 1994, respectively , 1,000, 7,500,
and 34,000 incentive stock options were granted to certain employees of the
Company to purchase shares at prices ranging from $4.50 to $9.50.
As of June 30, 1996, 253,950 of all stock options granted, vested and
outstanding are exercisable at prices ranging from $3.88 to $9.50. 2,500
additional options will become exercisable in fiscal 1997. During fiscal 1996,
1995, and 1994, 23,000, 1,500 and 12,000 options, respectively were exercised.
No other options had been exercised prior to fiscal 1994. The dilutive effect of
these stock options is not significant to the fiscal 1996, 1995 and 1994 number
of shares outstanding and was, therefore, not included in the calculation of net
income per share.
28
<PAGE>
9 - Business segment information
The Company's business activities consist of two business segments:
entertainment operations and restaurant operations. The revenue and gross profit
of each of these business segments are reported in the following table. Inter-
segment revenue are insignificant.
Business Segments Consolidated
(in thousands) Entertainment Restaurants Total
- --------------------------------------------------------------------------------
1996
Revenue $60,287 $13,532 $73,819
Operating profit 11,295 674 11,969+
Identifiable assets 35,595 17,116 52,711
Depreciation 142 981 1,123
Capital expenditures 245 4,748 4,993
- --------------------------------------------------------------------------------
1995
Revenue $33,103 $13,542 $46,645
Operating profit 7,962 1,132 9,094+
Identifiable assets 35,616 12,692 48,308
Depreciation 157 824 981
Capital expenditures 169 979 1,148
- --------------------------------------------------------------------------------
1994
Revenue $51,951 $ 6,345 $58,296
Operating profit 10,352 329 10,681+
Identifiable assets 33,589 10,728 44,317
Depreciation 166 401 567
Capital expenditures 72 4,764 4,836
+ Does not include corporate overhead, minority interest expense and interest
and other income.
Results of Operations by Quarter
- --------------------------------
(In thousands, except per share amounts) (unaudited)
<TABLE>
<CAPTION>
1st Quarter Net Income
(ending September 30) Total Revenue Gross Profit Net Income per Share
- --------------------------------
<S> <C> <C> <C> <C>
1995 $8,384 $701 $60 .01
1994 $8,451 $751 $19 .00
------------- ----------- --------------- ----------------
2nd Quarter
(ending December 31)
- --------------------------------
1995 $18,561 $1,549 $512 .06
1994 $9,869 $1,399 $502 .06
------------- ----------- --------------- ----------------
3rd Quarter
(ending March 31)
- --------------------------------
1996 $28,113 $7,097 $4,380 .53
1995 $16,190 $5,329 $2,929 .35
------------- ----------- --------------- ----------------
4th Quarter
(ending June 30)
- --------------------------------
1996 $18,761 $2,622 $646 .08
1995 $12,135 $1,615 $642 .08
------------- ----------- --------------- ----------------
</TABLE>
29
<PAGE>
Market and Dividend Information
Price Range
Fiscal 1996 Fiscal 1995
- -------------------------------- ----------------------- ----------- ----------
High Low High Low
1st Quarter $10.00 $8.25 $10.75 $8.00
2nd Quarter 10.25 9.00 10.25 7.75
3rd Quarter 13.00 8.75 10.00 7.50
4th Quarter 15.00 12.00 9.75 8.50
The Company's common stock is traded over-the-counter and is quoted
on the NASDAQ National Market System (symbol DCPI). The preceding table sets
forth the range of prices (which represent actual transactions) by quarters as
provided by the National Association of Securities Dealers, Inc.
The Company has not paid a dividend during the past two years and
does not anticipate paying any dividends in fiscal 1997.
30
<PAGE>
Report of lndependent Public Accountants
----------------------------------------
To the Stockholders of dick clark productions, inc.:
We have audited the accompanying consolidated balance sheets of dick
clark productions, inc. (a Delaware corporation) and subsidiaries as of June 30,
1996 and 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audits
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, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of dick
clark productions, inc. and subsidiaries as of June 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1996, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
Los Angeles, California
August 23, 1996
31
<PAGE>
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS.
The information required by this item will be included in the
Company's definitive proxy statement for its 1996 Annual Meeting of Stockholder
(the "Proxy Statement") to be filed pursuant to regulation 14A, and such
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item will be included in the
Company's definitive Proxy Statement to be filed pursuant to regulation 14A and
such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item will be included in the
Company's definitive Proxy Statement to be filed pursuant to regulation 14A, and
such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item will be included in the
Company's definitive Proxy Statement to be filed pursuant to regulation 14A, and
such information is incorporated herein by reference.
32
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1 and 2 - Index to Financial Statements and Financial Statements
Schedules.
Consolidated Balance Sheets as of June 30, 1996 and 1995 18
Consolidated Statements of Operations for the years ended
June 30, 1996, 1995 and 1994 19
Consolidated Statements of Cash Flows for the years ended
June 30, 1996, 1995 and 1994 21
Notes to Consolidated Financial Statements 22 - 30
Report of Independent Public Accountants 31
Signatures 34
Schedules which are not included have been omitted because either
they are not required or are not applicable or because the required information
has been included elsewhere in the consolidated financial statements or notes
thereto.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
dick clark productions, inc.
By: /s/ RICHARD W. CLARK
-----------------------------
Richard W. Clark
Chairman and Chief Executive Officer
September 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been executed below by the following persons on behalf of the
Registrant and in the Capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ RICHARD W. CLARK Chairman September 27, 1996
________________________ Chief Executive Officer and
Richard W. Clark Director (Principal Executive Officer)
/s/ FRANCIS C. LA MAINA President, Chief Operating Officer September 27, 1996
________________________ and Director
Francis C. La Maina
/s/ KAREN W. CLARK Director September 27, 1996
________________________
Karen W. Clark
Director September 27, 1996
________________________
Lewis Klein
Director September 27, 1996
________________________
Enrique F. Senior
/s/ KENNETH H. FERGUSON Vice President, Treasurer and Chief September 27, 1996
________________________ Financial Officer (Principal Financial
Kenneth H. Ferguson and Accounting Officer)
</TABLE>
34
<PAGE>
List of Exhibits
Number Description of Document
3.1 Certificate of Incorporation of the Registrant dated
October 31, 1986 and Certificate of Correction dated
November 3, 1986, (incorporated by reference to Exhibit
3.1 of the Registrant's Registration Statement No. 33-9955
on Form S-1 (the "Registration Statement").
3.2 By-Laws of the Registrant (incorporated by reference to
Exhibit 3.2 of the Registration Statement).
4.1 Form of Warrant issued to Allen & Company Incorporated and
L.F. Rothschild, Towbin, Inc. (incorporated by reference
to Exhibit 4.1 of the Registration Statement).
4.2 Form of certificate for shares of the Registrant's Common
Stock (incorporated by reference to Exhibit 4.2 of the
Registration Statement).
9.1 Agreement dated October 31, 1986, between Richard W. Clark
and Karen W. Clark with form of voting trust agreement
attached (incorporated by reference to Exhibit 9.1 of the
Registration Statement).
10.1 Asset Exchange Agreement dated December 15, 1986, between
the Registrant and Olive Enterprises, Inc. ("Olive")
(incorporated by reference to Exhibit 10.1 of the
Registration Statement).
10.2 Asset Exchange Agreement dated December 15, 1986, among
the Registrant and Richard W. Clark, Karen W. Clark and
Francis C. La Maina (incorporated by reference to Exhibit
10.2 of the Registration Statement).
10.3 Bill of Sale and Assignment and Assumption Agreement dated
October 30, 1986, between the dick clark company, inc. and
dick clark radio network, inc. (incorporated by reference
to Exhibit 10.3 of the Registration Statement).
10.4 License Agreement dated December 15, 1986, between the
Registrant and Olive (incorporated by reference to Exhibit
10.5 of the Registration Statement).
10.5 Lease dated November 1, 1986, between the Registrant and
Olive (incorporated by reference to Exhibit 10.5 of the
Registration Statement).
10.6 Shareholders' Agreement dated as of December 23, 1986,
among Richard W. Clark, Karen W. Clark and Francis C. La
Maina (incorporated by reference to Exhibit 10.14 of the
Registration Statement).
10.7 Agreement and Plan of Merger dated March 1, 1985, between
the dick clark company, inc. and La Maina Enterprises,
Inc. (incorporated by Registration Statement).
10.8 Letter Agreement dated July 2, 1986, between the dick
clark company, inc. and Lewis J. Korman (incorporated by
reference to Exhibit 10.16 of the Registration Statement).
10.9 1987 Employee Stock Option (incorporated by reference
Registrant's Annual Report on Form 10-K for 1989).
10.10 Lease Amendment No. 1 dated June 30, 1989, between Olive
Enterprises, Inc. and the Registrant amending Lease
referred to as Exhibit 10.5 (incorporated by reference to
Registrant's Annual Report on Form 10-K for 1989).
35
<PAGE>
10.11 Redemption and Settlement Agreement dated June 14, 1990,
between the Registrant and Harmon Entertainment
Corporation (incorporated by reference to Registrant's
Current Report on Form 8-K dated June 28, 1990).
10.12 Sublease Agreement dated December 14, International, Inc.
and the Registrant (incorporated by reference to
Registrant's Annual Report on Form 10-K for 1991).
10.13 Letter Agreement dated May 15, 1990. between Alfred Haber,
Inc. and the Registrant (incorporated by reference to
Registrant's Annual Report on Form 10-K for 1991).
10.14 Employment Agreement dated as of July 1, 1992, between the
Registrant and Richard W. Clark (incorporated by reference
to Registrant's Annual Report on Form 10-K for 1991).
10.15 Employment Agreement dated as of July 2, 1993, between the
Registrant and Karen W. Clark (incorporated by reference
to Registrants Annual Report on Form 10-K for 1994).
10.16 Letter Agreement dated as of June 4, 1993, between Olive
Enterprises, Inc. for the
promotional/endorsement/spokesman services of Dick Clark
and Geviderm, inc., Inc. in connection with the Geviderm,
inc. Skin Care line (incorporated by reference to
Registrants Annual Report on Form 10-K for 1994).
10.17 Joint Venture Agreement dated as of June 22, 1993, between
Reno Entertainment, Inc. and RLWH, Inc (incorporated by to
Registrants Annual Report on Form 10-K for 1994).
10.18 Employment Agreement dated as of July 1, 1991, between the
Registrant and Kenneth H. Ferguson (incorporated by
reference to Registrants Annual Report on Form 10-K for
1994).
10.19 Agreement dated December 31, 1994 to amend the Redemption
Agreement dated June 30, 1990 between Herman Entertainment
Corporation, a New Jersey corporation and dick clark
restaurants, inc.
10.20 Employment Agreement dated as of March 1, 1995 between the
Registrant and Francis C. LaMaina.
* 21.1 List of subsidiaries.
23.1 Accountants' Consent
27.1 Financial Data Schedule
- -----------------------------------
* Filed herewith
36
Exhibit 21.1
dick clark productions, inc.
Subsidiaries & Affiliates
dick clark film group, inc.
dick clark features, inc.
dick clark presentations, inc.
dick clark media archives, inc.
dick clark company music, inc.
dick clark restaurants, inc.
C & C Joint Venture
Match Productions
dick clark corporate productions, inc.
geviderm, inc.
Metcalf Restaurants, inc.
Reno Entertainment, Inc.
Dick Clark's American Bandstand Club
Buckeye Entertainment, Inc.
Hoosier Entertainment, Inc.
Kenwood Entertainment
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000805370
<NAME> dick clark productions, inc.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 954,000
<SECURITIES> 28,919,000
<RECEIVABLES> 4,713,000
<ALLOWANCES> 0
<INVENTORY> 1,741,000
<CURRENT-ASSETS> 0
<PP&E> 14,077,000
<DEPRECIATION> 1,122,746
<TOTAL-ASSETS> 52,711,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 83,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 52,711,000
<SALES> 73,819,000
<TOTAL-REVENUES> 73,819,000
<CGS> 61,850,000
<TOTAL-COSTS> 66,540,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,067,000
<INCOME-TAX> 3,469,000
<INCOME-CONTINUING> 5,598,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,598,000
<EPS-PRIMARY> .68
<EPS-DILUTED> .68
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