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,
2000.
_ 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)
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DELAWARE 23-2038115
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
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 Common Stock, par value $.01
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Securities registered pursuant to Section 12(b) of the Act: None (Title of Class)
Securities registered pursuant to Section 12(g) of the Act: None
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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 Form 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 20, 2000, was approximately $20,786,000.
As of September 20, 2000, 9,280,547 shares of Registrant's $.01 par
value common stock and 909,563 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
Stockholders to be held November 2, 2000 are incorporated by reference into Part
III of this Report.
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PART I
ITEM 1. BUSINESS
BACKGROUND
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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., 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 thousands of 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, licenses 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 generally 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, Missouri. Currently, the Company is operating
restaurants in nine locations, including Dick Clark's American Bandstand Grill
in Auburn Hills, Michigan, which opened in November 1999; and Dick Clark's
American Bandstand Diner(TM) in Schaumburg, Illinois, which opened in December
1999. For its restaurant operations, the Company intends to concentrate on less
capital-intensive growth avenues, including licensing, joint ventures, and
possibly, franchise opportunities.
In January 1991, the Company established a subsidiary, dick clark
communications, inc. ("dcci"), in order to enter the corporate productions and
communications business. This subsidiary specializes in the development and
execution of non-traditional marketing communications programs, corporate
meetings and special events, new product introductions, trade shows and
exhibits, event marketing, film, video and leisure attractions. The Company's
strategy is to provide value to its corporate communications clients by
accessing the wide range of talent and production resources the Company utilizes
for television production and by providing a level of creativity, production
quality and efficiency that is uncommon in this market.
In fiscal 2000, the Company established a subsidiary, dick clark
digital media, inc., to address the trends in emerging technology with respect
to the Internet, broadband, and enhanced or interactive television. In fiscal
2000, the Company entered into a strategic alliance with the ARTISTdirect
Network, a popular music, entertainment and e-commerce portal. This affiliation
provides the Company access to additional key resources for expanding the
Company's Internet presence.
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 communications programs involve the executive producing services and
creative input of Mr. Clark. However, Mr. Clark's performance services are not
exclusive to the Company. In addition to Mr. Clark, the Company employs other
experienced producers who are actively involved in the Company's entertainment
business.
The Company's two principal lines of business, according to industry
segments, are (1) television production and related activities (including,
without limitation, the aforementioned operations of dcci) and (2) 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, 2000, see Note 9
"Business Segment Information" to Item 8 of this Report.
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DESCRIPTION OF BUSINESS
TELEVISION PRODUCTION AND RELATED ACTIVITIES
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INTRODUCTION
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Historically, the Company has produced entertainment television
programming for daytime, primetime and late night telecast and has become one of
the most versatile independent production companies in the entertainment
business today. The Company's diverse programming has included awards shows,
entertainment and comedy specials and series, children's programming, talk and
game show series, movies-for-television and dramatic series. Many of the
established television specials are produced annually and have become
anticipated television events. 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, syndicators, and
other new digitized platforms for the distribution of content.
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 similar to those
provided be the Company. As a result, the Company's ability to market its
programming expertise has been reduced. The proliferation of cable networks over
the last decade also has resulted in smaller license fees being paid by networks
and other broadcasters. Specifically, developing and producing situation
comedies and dramatic series 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.
The Company owns the distribution rights to certain programming which
are not subject to restrictions associated with the initial license agreement.
Such programming 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, cable 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 the WB Network), syndicators of first-run
programming (such as Columbia, Inc. and Buena Vista Television) which license
programs on a station-by-station basis, and basic and pay cable networks (such
as The Fox Family Channel, The Nashville Network and VH-1). The Company, through
dcci, provides television expertise to those corporations seeking television
outlets for their events and promotions.
PRODUCTION. The production of television programming involves the
development of 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. However, due to the Company's reputation in the television
industry, some 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. In the alternative, a prospective
licensee, often times an advertiser, will request that the Company develop a
concept for a particular time period or type of audience. 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
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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 and/or a concept 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 is usually 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.
TELEVISION LICENSING. A majority of the Company's revenue is 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 of the major
networks and to a number of first-run syndicators, cable broadcasters and
advertisers. During fiscal 2000, revenue from one recurring annual special
represented approximately 11% of total revenue, and revenue from one television
series represented approximately 17% of total revenue. During fiscal 1999,
revenue from one recurring annual special represented approximately 14% of total
revenue and revenue from one television series represented approximately 13% of
total revenue. During fiscal 1998, revenue from one recurring annual special
represented approximately 11% of total revenue and revenue from two different
television series each represented approximately 11% of total revenue. See Note
2 "Summary of Significant Accounting Policies" to Item 8 of this Report for
additional information. 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 any other 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. The
Company incurred deficit financing in connection with the production of a
children's series that was delivered in fiscal 1998. The Company does not
anticipate incurring any material deficit financing obligation with respect to
any programs which are currently in development.
During the term of a first-run broadcast license, the Company
occasionally retains all other distribution rights associated with the program,
including foreign distribution rights. In the case of television movies, the
Company often will pre-sell 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., TVA International, and World
International Network, LLC) for the foreign distribution of certain of its
series, specials and television movies. In addition, the Company 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 2000, the Company licensed 59 one-hour episodes of its "TV
Bloopers and Practical Jokes", 22 one-hour episodes of its "Super Bloopers and
New Practical Jokes" and nine one-hour episodes of "TV Bloopers" (all of which
had previously been broadcast on network television as one hour shows) to The
Nashville Network. The Company also retains the rights to the clips from its
shows for use in its own productions as well as the ability to continue to
market the clips to its media archive customers. Additionally, the Company
licenses the syndication rights to television movies from its library, which the
Company often is able to syndicate a number of times over a period of many
years. For example, in fiscal 2000, the Company licensed the previously
broadcast television movie "The Good Doctor: the Paul Fleiss Story".
The Company has also used its library of entertainment and music
specials to create new programming.
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TELEVISION PROGRAMMING
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The Company develops and produces 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, dramatic 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 as many as 27 years.
The Company's award specials during fiscal 2000 included "The 27th
Annual American Music Awards" (ABC), the Company's most enduring award special,
which again was rated number one in its time period; "The 57th Annual Golden
Globe Awards" (NBC); the Company's seventeenth annual production for the
Hollywood Foreign Press Association, acknowledging excellence in television and
motion pictures; "The 16th Annual Soap Opera Awards" (NBC), produced for the
thirteenth consecutive year; "The 35th Annual Academy of Country Music Awards"
(CBS), another popular, long running awards production, produced for the
twenty-second consecutive year; and "The 27th Annual Daytime Emmy Awards" (CBS),
the eighth year of production of this special presented by the National Academy
of Television Arts & Sciences. The Company has several long-term license
agreements for recurring and annual specials, which expire in 2005.
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 example, the Bloopers programs evolved from an
entertainment special to a series and is still in production as television
specials for ABC.
The Company produced the following entertainment specials in fiscal
2000: "Golden Globe Arrivals Special" (NBC), "25 Years of #1 Hits: Arista
Records' Anniversary Celebration" (NBC); "Who is the Smartest Kid in America"
(Fox); "Garth Brooks and the Magic of Christmas" (NBC); and "The $64,000
Question and More", a game show pilot produced for CBS.
SERIES. The Company actively develops programs and ideas for potential
series production, which represents the most important area of development in
terms of potential revenue and profit growth for the Company. Series programming
presents many opportunities for long-term commitments and, in some cases, rerun
potential.
In fiscal 2000, the Company produced 43.5 hours of the game show
"Greed", hosted by Chuck Woolery, for the Fox Broadcasting Company.
In fiscal 2000, production completed on TNN's "Prime Time Country", a
live one-hour, weeknight, country music entertainment and variety series, which
premiered in January 1996. The syndicated talk show "Donny and Marie", for which
the Company served as executive producer, also wrapped up in fiscal 2000.
In fiscal 2000, 24 one-hour episodes of the new series "Your Big Break"
were produced in conjunction with Endemol Entertainment, Inc. The series was
syndicated to more than 90 percent of the United States, including the top 10
television markets. The series has been renewed for broadcast syndication by
Buena Vista Television with a 22-episode commitment for fiscal 2001.
In both fiscal 1999 and 1998, 13 episodes of "Beyond Belief", hosted by
"Star Trek's" Jonathan Frakes, were produced and delivered. In fiscal 1997, the
initial six episodes of "Beyond Belief", hosted by James Brolin, were produced
by the Company and began broadcasting.
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MOVIES. Television movies are continually under development and can be
a source of profitability and cash flow over the life of their distribution.
OTHER LICENSING
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MEDIA ARCHIVES AND HOME VIDEO. The Company believes that it owns one of
the largest collections of musical performance footage from the 1950s to the
present, 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 2000, the Company licensed footage from its library to Time-Life
Music, MTV, CNN, ABC, CBS and NBC, among many others.
LIVE SHOWS. Certain Company concepts and trade names have been licensed
for use by third parties in live shows. For example, in fiscal 2000, the concept
of the Dick Clark's "New Year's Rockin' Eve(R)" annual television special was
licensed to Holland America Cruise Line for a theatrical show on its ships which
will run through December 31, 2000.
TRADEMARK LICENSING. In fiscal 2000, the Company licensed to
International Game Technology, the largest slot machine manufacturer in the
country, the rights to develop three slot machines based on the Company's
entertainment concepts for sale to gaming casinos. The slot machines are
designed around the "New Year's Rockin' Eve(R)," "American Bandstand(R)," and
"Bloopers(TM)" concepts. Additionally, the Company licensed rights to Media Drop
In to create a "scratch-off" lottery game centered around the legendary daytime
television show, "American Bandstand."
OTHER BUSINESSES
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DICK CLARK COMMUNICATIONS, INC.("DCCI"): The corporate production and
business communications unit is an integral part of the Company's entertainment
division, which offers significant operating efficiencies and capitalizes on the
Company's internal resources, in particular, those in the area of television
production. These resources help dcci provide solutions to businesses seeking
alternatives to the traditional forms of communication to reach their intended
audiences.
dcci uses its "strategic entertainment" approach to create
award-winning communications experiences, from live events and meetings to
integrated marketing communications programs for major corporations. The dcci
roster of talent includes experts in marketing, entertainment, events, public
relations, promotions, advertising and production. Through this unique blend of
skills, dcci has created corporate "experiences" for a variety of clients during
fiscal 2000, including companies in emerging realms - advanced technology
industries and the Internet. For Agilent Technologies, dcci executed a series of
memorable events, including a media launch following its spin-off from the
Hewlett-Packard Company. RealNetworks, Inc., the Internet streaming-video
developer, turned to the Company to conceive and execute a memorable product
rollout. For Conexant Systems, Inc., formerly the semiconductor division of
Rockwell International, the Company produced a high-impact video presentation to
launch their new corporate image. Also in fiscal 2000, Stan Lee Media engaged
the Company to launch its entertainment web site, "Stanlee.net" and their first
Internet franchise, the "7th Portal", with a Hollywood-style premiere featuring
music icon Jerry Lee Lewis.
RECORD BUSINESS. In fiscal 1994, the Company established the CLICK
Records(R) Inc. ("CLICK") label. During fiscal 1999, the Company entered into an
agreement with Anderson Merchandisers to produce and distribute compilation
albums under the CLICK label. The first such album, "The American Music Awards
Present: Only The Hits", was produced and distributed during fiscal 1999,
exclusively at Wal-Mart stores nationwide.
In early fiscal 2000, the Company entered into an agreement with Q
Records, the record label of QVC, to create and sell a compact disc collectible
box set covering four decades of "American Bandstand" music. In late fiscal
2000, the Company extended its arrangement with Q Records to include a new
compact disc collection entitled "Dick Clark's Favorite Hits."
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DESCRIPTION OF BUSINESS
RESTAURANT OPERATIONS
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INTRODUCTION
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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(R) television show and over 40 years of
contemporary music, "Dick Clark's American Bandstand Grill(R)" ("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 Bandstand television show and the
music industry over the last four decades; a dance club area within some of the
restaurants with state-of-the-art audio-visual entertainment systems; and
signature "American Bandstand Grill" merchandise for customers to purchase. Each
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. In fiscal 2000, dcri opened
the initial "Dick Clark's AB Diner(TM)", an extension of the restaurant brand.
During fiscal 2000, dcri licensed three restaurants to the HMSHost
Corporation. The Indianapolis Airport location opened in December 1999, the Salt
Lake City Airport location opened in August 2000, and the third is expected to
open in January 2001, at Newark International Airport in New Jersey.
Currently, dcri has operations in nine locations: Overland Park,
Kansas, a suburb of Kansas City, Missouri which opened in August 1992;
Indianapolis, Indiana and Columbus, Ohio, which opened in April/May 1994;
Cincinnati, Ohio, which opened in March 1996; St. Louis, Missouri, which opened
in November 1996; King of Prussia, Pennsylvania, which opened in June 1997;
Grapevine Mills, Texas, which opened in January 1998; Auburn Hills, Michigan,
which opened in November 1999, and Schaumburg, Illinois, which opened in
December 1999.
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
Grill restaurants and which developed the first restaurant in Miami, Florida.
The Company subsequently 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.
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 Enterprises, Inc., and is loaned to dcri without
charge. Olive Enterprises, Inc., a Pennsylvania Corporation ("Olive"), is
controlled 100% by Mr. Clark. dcri also acquires memorabilia for its own use and
has invested $429,000 to date for current and future restaurants.
OPERATIONS
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The Company prides itself on the fact that all of its 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
consistently delivering high-quality food and service.
The primary commodities purchased by the Company's 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
can be made available upon short notice, from qualified substitute suppliers.
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The Company maintains centralized financial and accounting controls for
all owned and operated 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 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.
The Company believes that it is prudent to concentrate on less
capital-intensive growth avenues, including licensing, joint ventures, and
possibly, franchise opportunities. Expansion can occur through extension of the
current HMSHost license or by agreement with other major food-service operators.
The Company does not believe that opportunities for additional restaurant growth
are limited to airport locations. The Company is also evaluating the viability
of joint ventures and franchising "Dick Clark's AB Diner(TM)." This classic
concept - with its rock `n roll ambiance and All-American fare - seems well
suited for licensing. The Company is also in the process of evaluating joint
venture opportunities for future "American Bandstand Grills" in high-traffic,
tourist destinations.
GENERAL INFORMATION
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JOINT VENTURES
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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 to develop and produce the various
Bloopers and Practical Jokes series. The Company has 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%.
TRADEMARKS
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The United States registered service mark American Bandstand(R) was
transferred from Olive to the Company in fiscal 1998. 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(R) (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
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The Company's backlog consists of orders by networks, first-run
syndicators and cable networks for television programming to be delivered for
the 2000/2001 television season as well as contractual arrangements for the
services of dcci. At June 30, 2000, the Company had received orders for 2
series, 13 specials, and 4 corporate communications production events, which are
expected to result in aggregate revenue of $43,477,000. At June 30, 1999, the
Company had received orders for 2 series, 13 specials and 5 communications
production events which were expected to result in aggregate revenue of
$36,892,000. At June 30, 1998, the Company had received orders for 3 series, 8
specials, and 3 communications production events which were expected to result
in aggregate revenue of $36,550,000.
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, 2000, 1999
and 1998, such deferred revenue totaled $2,075,000, $695,000, and $1,861,000,
respectively.
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COMPETITION
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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. In 1995, the Federal Communications Commission (the "FCC") allowed
the Financial Interest and Syndication Rule (the "FinSyn Rule") to expire,
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 which could adversely impact the Company's rerun
syndication revenues. In addition, the Company has encountered 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 market for corporate communications services is large, but fierce,
with many companies vying for market share. Most customers require bids on a
competitive basis and some of the Company's competitors have larger staffs and a
greater global reach for information. Some of dcci's principle competitors have
been in business longer and are more established. The Company believes that dcci
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.
The restaurant industry is highly-competitive and 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 competition in the geographic area in
which the Company's restaurants are located. The degree to which such factors
may affect the Company's restaurant operations, 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.
9
<PAGE>
EMPLOYEES - TELEVISION PRODUCTION & RELATED ACTIVITIES
------------------------------------------------------
At June 30, 2000, the Company had approximately 100 full-time employees
in connection with the Company's television production, corporate communications
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 2001, one
contract with the American Federation of Musicians which will expire in May
2002, two contracts with the Directors Guild of America, which expire in June
2002, one contract with the Writers Guild of America which expires in May 2001
and two contracts with the Screen Actors Guild, both of which expire in June
2001. 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, 2000, the Company had approximately 700 employees in its
restaurant operations. Employees are paid on an hourly basis, except restaurant
managers and certain senior executives involved in the restaurant 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
the Company 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
rent is $649,000 and the lease expires on December 31, 2000. An extension of the
lease is currently being negotiated. 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 is also party to an Agreement with Olive, wherein Olive
provides records management services, including storage, retrieval and inventory
of customer records, files and other personal property. The term of the
Agreement extends through September 30, 2000. An extension of the Agreement is
currently being negotiated. See Note 6, "Related Party Transactions," to Item 8
of this Report for further details.
The Company has entered into lease agreements with respect to numerous
restaurant sites that terminate at varying dates through December 31, 2012.
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.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The Company's common stock is quoted on the National Association of
Securities Dealers' Automated Quotation ("NASDAQ") National Market under the
symbol dcpi. The following table sets forth the high and low bid prices for the
common stock during each quarter of fiscal 2000, 1999 and 1998 as reported by
NASDAQ. The prices reported reflect inter-dealer quotations, may not represent
actual transactions and do not include retail mark-ups, mark-downs or
commissions.
PRICE RANGE
<TABLE>
<CAPTION>
FISCAL 2000 FISCAL 1999 FISCAL 1998
HIGH LOW HIGH LOW HIGH LOW
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $ 13.86 $10.28 $ 19.91 $11.69 $ 11.96 $ 9.90
2nd Quarter 20.91 9.66 15.15 11.47 12.68 9.90
3rd Quarter 13.86 11.36 13.42 8.98 12.37 10.10
4th Quarter 13.25 11.02 12.96 7.79 16.56 10.39
</TABLE>
As of September 20, 2000, there were 9,280,547 shares of common stock
outstanding held by 508 holders of record and 909,563 shares of Class A common
stock outstanding.
On April 25, 2000, the company declared a ten percent stock dividend of
the common stock and Class A common stock to all holders of record as of the
close of business on May 25, 2000, which was distributed on June 23, 2000. On
May 11, 1999, the Board of Directors of the Company declared a five percent
stock dividend of the common stock and Class A common stock to all holders of
record as of the close of business on May 21, 1999, which was distributed on
June 11, 1999. On April 13, 1998, the Board of Directors of the Company declared
a five percent stock dividend of the common stock and Class A common stock to
all holders of record as of the close of business on May 4, 1998, which was
distributed on May 15, 1998.
The declaration of dividends in the future will be at the election of
the Board of Directors and will depend upon the earnings, capital requirements
and financial position of the Company, general economic conditions, state law
requirements and other relevant factors.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INCOME STATEMENT 2000 1999 1998 1997 1996
------------------------------------------------- ------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue $92,243 $72,334 $86,251 $66,129 $73,819
Gross profit 18,719 11,644 17,174 14,217 11,969
General and administrative expense 5,326 5,505 5,821 4,975 4,339
Impairment of long lived assets --- 4,092 --- --- ---
Minority interest expense (income) 506 (10) 97 672 351
Interest and other income 3,157 2,209 2,079 1,937 1,788
Income before provision for income taxes 16,044 4,266 13,335 10,507 9,067
Provision for income taxes 5,535 1,514 5,101 3,993 3,469
Cumulative effect of accounting change, net
of tax (111) --- --- --- ---
Net income $10,398 $2,752 $8,234 $6,514 $5,598
------------------------------------------------- ------------- ------------- ------------ ------------- ------------
BALANCE SHEET 2000 1999 1998 1997 1996
------------------------------------------------- ------------- ------------- ------------ ------------- ------------
Working capital(1) $56,938 $45,269 $39,115 $30,017 $29,573
Program costs, net 5,599 5,067 5,963 4,615 1,741
Total assets 83,923 69,918 73,215 63,298 52,711
Stockholders' equity 72,209 61,811 58,953 50,319 43,494
Weighted average number of shares
outstanding 10,188 10,179 10,171 10,100 10,040
Weighted average number of shares
and equivalents outstanding 10,346 10,311 10,296 10,215 10,183
Number of shares outstanding at
year end 10,190 10,186 10,174 10,105 10,068
Per share data:
Basic earnings per share $1.02 $.27 $.81 $.65 $.56
Diluted earnings per share 1.01 .27 .80 .64 .55
Net book value 7.09 6.07 5.80 4.95 4.32
------------------------------------------------- ------------- ------------- ------------ ------------- ------------
OTHER OPERATING DATA 2000 1999 1998 1997 1996
------------------------------------------ -------------------- ------------- ------------ ------------- ------------
EBITDA(2) $15,412 $8,769 $14,502 $10,565 $8,663
------------------------------------------ -------------------- ------------- ------------ ------------- ------------
</TABLE>
-----------------------
(1) Represents the sum of cash, marketable securities and accounts receivable
less accounts payable.
(2) EBITDA is earnings before interest and other income, taxes, depreciation,
amortization and other non-cash items. EBITDA is presented supplementally
because management believes it allows for a more complete analysis of
results of operations. This information should not be considered as an
alternative to any measure of performance or liquidity as promulgated under
accounting principles generally accepted in the United States (such as net
income or cash provided by or used in operating, investing and financing
activities) nor should it be considered as an indicator of the overall
financial performance of the Company. The Company's calculation of EBITDA
may be different from the calculation used by other companies and therefore
comparability may be limited.
12
<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 financial condition and
results of operations. This analysis should be read in conjunction with the
financial statements and the accompanying notes which begin on page 16.
INTRODUCTION
------------
A majority of the Company's revenue is 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 programming. 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 theatrical films,
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 restaurant
business (dcri and its subsidiaries). This business segment contributed
approximately 22%, 29% and 27% to the Company's consolidated revenue for fiscal
years ended June 30, 2000, 1999 and 1998, respectively.
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 is 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) is 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 bears 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 those successful
television series and television movies where there is likely to be future
revenue earned in domestic and foreign 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 dcci is recognized
when the services are completed for a live event, when a tape or film is
delivered to a customer, when services are completed pursuant to a particular
phase of a contract which provides for periodic payments, or as may be otherwise
provided in a particular contract. Costs of individual dcci productions are
capitalized and expensed as revenue is recognized.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's capital resources are more than adequate to meet its
current working capital requirements. The Company had cash and marketable
securities of approximately $58,472,000 as of June 30, 2000 compared to
$45,098,000 as of June 30, 1999. 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. The Company classifies investments in
marketable securities as "held-to-maturity", and carries these investments at
cost in accordance with 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.
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
13
<PAGE>
industry as "deficit financing"). None of the Company's television production in
fiscal 2000 or 1999 required material deficit financing by the Company. The
Company incurred deficit financing in connection with the production of a
children's series delivered in fiscal 1998. No programs which are currently in
development are anticipated to require material deficit financing.
Net cash provided by operating activities was approximately
$15,025,000, $6,204,000 and $9,218,000 in fiscal 2000, 1999 and 1998,
respectively. Net cash used in investing activities was approximately
$15,750,000, $7,382,000 and $5,848,000 in fiscal 2000, 1999 and 1998,
respectively. There was no net cash provided by financing activities in fiscal
2000, and net cash provided by financing activities was $109,000 and $400,000 in
fiscal 1999 and 1998, respectively. The fluctuations in cash provided by
operations and cash used for investing activities for those years primarily
reflect changes in production activity, the construction of two and the sale of
one "Dick Clark's American Bandstand Grill" restaurants in fiscal 2000, the
construction of one restaurant in fiscal 1998, and changes in the Company's
investment in marketable securities. The fluctuations in cash provided by
financing activities are the result of differing numbers of stock options
exercised in a particular year.
The Company expects to accomplish future growth of the restaurant
division through a focus on licensing agreements requiring little or no capital
outlay. However, the Company expects that the opening of any additional owned
and operated American Bandstand Grill restaurants would be financed from
available capital and/or alternative financing methods such as joint ventures
and limited recourse borrowings. Capital requirements for the Company's
corporate events and communications business, dcci, are anticipated to be
immaterial to the Company's overall capital position in fiscal 2001.
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, 2000 was $92,243,000 compared to
$72,334,000 for the year ended June 30, 1999 and $86,251,000 for the year ended
June 30, 1998. The increase in revenue in fiscal 2000 as compared to fiscal 1999
is primarily due to higher revenue from television series, specials programming,
and communications projects, offset in part by decreased revenue in same store
sales from restaurant operations.
The decrease in revenue in fiscal 1999 as compared to fiscal 1998 is
primarily due to lower revenue from television series and specials production as
well as reduced revenue from restaurant operations.
During fiscal 2000, revenue from one recurring annual special
represented approximately 11% of total revenue, and revenue from one television
series represented approximately 17% of total revenue. During fiscal 1999,
revenue from one recurring annual special represented approximately 14% of total
revenue and revenue from one television series represented approximately 13% of
total revenue. During fiscal 1998, revenue from one recurring annual special
represented approximately 11% of total revenue and revenue from two different
television series each represented approximately 11% of total revenue. No other
production or project accounted for more than 10% of total revenue for fiscal
2000, 1999 or 1998.
Gross Profit
Gross profit as a percentage of revenue was 20%, 16% and 20% for fiscal
2000, 1999 and 1998, respectively. The increase in gross profit as a percentage
of revenue in fiscal 2000 as compared to fiscal 1999 is primarily a result of
increased profitability in television series production. The decrease in gross
profit as a percentage of revenue in fiscal 1999 as compared to fiscal 1998 is
primarily a result of lower profitability in television specials and restaurant
operations.
General & Administrative Expense
General and administrative expense decreased in fiscal 2000 as compared
to fiscal 1999 primarily as a result of an increase in capitalized production
overhead to television series production, offset in part by increased bonus
14
<PAGE>
compensation. General and administrative expense decreased in fiscal 1999 as
compared to fiscal 1998 primarily as a result of reduced bonus compensation,
offset in part by increased personnel costs for restaurant operations.
Impairment of Long Lived Assets
As a result of declining operating results in three of the restaurant
units during the fourth quarter of fiscal 1999, and the evaluation of future
operating performance in these units, as required by the Financial Accounting
Standards Board's SFAS No. 121, in fiscal 1999, the Company recorded a noncash
impairment charge of $4,092,000, related to the writedown of the Company's
investment in these units. The Company considered continued and projected
underperformance in these units and changes in market conditions to be the
primary indicators of potential impairment. The impairment charge was recognized
as the future projected undiscounted cash flows for these units were estimated
to be insufficient to recover the related carrying value of the long lived
assets relating to the units. As a result, the carrying values of the assets for
two of the restaurants were written down to their estimated fair values based on
the projected discounted cash flows. Assets of the third restaurant unit were
written down to their estimated disposal value, the majority of which were
disposed of in fiscal 2000.
Other
Minority interest expense increased in fiscal 2000 as compared to
fiscal 1999 as a result of a legal settlement received related to the American
Bandstand Club in Reno, Nevada; and as a result of a major sale of the Company's
previously-produced "Super Bloopers and New Practical Jokes". 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. Minority interest expense decreased in fiscal
1999 as compared to fiscal 1998 as a result of the planned dissolution of the
Joint Venture associated with the closing of the American Bandstand Club in
Reno, Nevada.
GENERAL
-------
Other Operating Data
EBITDA is earnings before interest and other income, taxes,
depreciation, amortization, and other non-cash items. Non-cash items, such as
asset writedowns and impairment losses, are excluded from EBITDA as these items
do not impact operating results on a recurring basis. EBITDA is presented
supplementally because management believes it allows for a more complete
analysis of results of operations. This information should not be considered as
an alternative to any measure of performance or liquidity as promulgated under
accounting principles generally accepted in the United States (such as net
income or cash provided by or used in operating, investing and financing
activities) nor should it be considered as an indicator of the overall financial
performance of the Company. The Company's calculation of EBITDA may be different
from the calculation used by other companies and therefore comparability may be
limited.
Forward Looking Statements
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, to implement its licensing and related strategy
for its restaurant operations, and to attract new corporate communications
clients to dcci, and such competitive and other business risks as from time to
time may be detailed in the Company's reports to the Securities and Exchange
Commission.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-----------------------------------------------------
The information required by this item is set forth in the Financial
Statements, commencing on page 19 included herein.
15
<PAGE>
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
ASSETS 2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 5,298,000 $ 6,023,000
Marketable securities 53,174,000 39,075,000
Accounts receivable 4,609,000 4,540,000
Program costs, net 5,599,000 5,067,000
Prepaid royalty, net 2,424,000 2,728,000
Current and deferred income taxes 373,000 --
Property, plant and equipment, net 11,058,000 10,907,000
Goodwill and other assets, net 1,388,000 1,578,000
-------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 83,923,000 $ 69,918,000
=============================================================================================================
LIABILITIES AND STOCKHOLDERS'
EQUITY
-------------------------------------------------------------------------------------------------------------
LIABILITIES:
Accounts payable $ 6,143,000 $ 4,369,000
Accrued residuals and participations 2,737,000 2,075,000
Production advances and deferred revenue 2,075,000 695,000
Current and deferred income taxes -- 316,000
-------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 10,955,000 7,455,000
=============================================================================================================
Commitments and contingencies
Minority interest 759,000 652,000
STOCKHOLDERS' EQUITY:
Class A common stock, $.0l par value,
2,000,000 shares authorized:
910,000 shares issued 9,000 9,000
Common stock, $.01 par value,
20,000,000 shares authorized:
9,282,000 shares issued at June 30, 2000 and
9,276,000 shares issued at June 30, 1999 93,000 93,000
Treasury stock, at cost, 1,493 shares at June 30, 2000 (23,000) --
Additional paid-in capital 30,060,000 18,783,000
Retained earnings 42,070,000 42,926,000
-------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 72,209,000 $ 61,811,000
-------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 83,923,000 $ 69,918,000
-------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
16
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------------------------------------------
2000 1999 1998
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 92,243,000 $ 72,334,000 $86,251,000
Costs related to revenue 73,524,000 60,690,000 69,077,000
-------------------------------------------------------------------------------------------------------------------
Gross profit 18,719,000 11,644,000 17,174,000
General and administrative expense 5,326,000 5,505,000 5,821,000
Impairment of long lived assets --- 4,092,000 ---
Minority interest expense (income) 506,000 (10,000) 97,000
Interest and other income (3,157,000) (2,209,000) (2,079,000)
-------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 16,044,000 4,266,000 13,335,000
Provision for income taxes 5,535,000 1,514,000 5,101,000
-------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change 10,509,000 2,752,000 8,234,000
Cumulative effect of accounting change, net of tax (111,000) -- --
-------------------------------------------------------------------------------------------------------------------
Net income $ 10,398,000 $ 2,752,000 $8,234,000
-------------------------------------------------------------------------------------------------------------------
Per share data:
Basic earnings per share:
Before cumulative effect of accounting change $1.03 $0.27 $0.81
Cumulative effect of accounting change, net of tax (0.01) -- --
-------------------------------------------------------------------------------------------------------------------
Net income $ 1.02 $0.27 $0.81
-------------------------------------------------------------------------------------------------------------------
Diluted earnings per share:
Before cumulative effect of accounting change $1.02 $0.27 $0.80
Cumulative effect of accounting change, net of tax (0.01) -- --
-------------------------------------------------------------------------------------------------------------------
Net income $1.01 $0.27 $0.80
-------------------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 10,188,000 10,179,000 10,171,000
Weighted average number of shares and equivalents
outstanding 10,346,000 10,311,000 10,296,000
-------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
17
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
<TABLE>
<CAPTION>
---------------------------- --------------------- ----------------------- ------------------------ ------------- --------------
CLASS A COMMON TREASURY
COMMON STOCK STOCK STOCK ADDITIONAL
------------ ----- ----- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
---------------------------- --------------------- ----------------------- ------------------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1997 750,000 $7,000 7,632,000 $76,000 -- $-- $8,205,000 $42,031,000
Net income -- -- -- -- -- -- -- 8,234,000
Exercise of stock options -- -- 7,000 -- -- -- 400,000 --
Stock dividend 37,000 1,000 382,000 4,000 -- 5,226,000 (5,231,000)
---------------------------- ---------- ---------- ------------ ---------- ------------ ----------- ------------- --------------
Balance, June 30, 1998 787,000 8,000 8,021,000 80,000 -- -- 13,831,000 45,034,000
Net income -- -- -- -- -- -- -- 2,752,000
Exercise of stock options -- -- 11,000 -- -- -- 109,000 --
Stock dividend 40,000 --- 401,000 4,000 -- -- 4,843,000 (4,850,000)
---------------------------- ---------- ---------- ------------ ---------- ------------ ----------- ------------- --------------
Balance, June 30, 1999 827,000 8,000 8,433,000 84,000 -- -- 18,783,000 42,936,000
Net income -- -- -- -- -- -- -- 10,398,000
Treasury stock purchased -- -- -- -- 1 (23,000) 23,000 --
Exercise of stock options -- -- 6,000 -- -- -- -- --
Stock dividend 83,000 1,000 843,000 9,000 -- -- 11,254,000 (11,264,000)
---------------------------- ---------- ---------- ------------ ---------- ------------ ----------- ------------- --------------
BALANCE, JUNE 30, 2000 910,000 $9,000 9,282,000 $93,000 1 $(23,000) $30,060,000 $42,070,000
---------------------------- ---------- ---------- ------------ ---------- ------------ ----------- ------------- --------------
--------------
TOTAL
STOCKHOLDERS'
EQUITY
--------------
Balance, June 30, 1997 $50,319,000
Net income 8,234,000
Exercise of stock options 400,000
Stock dividend --
-------------------------- --------------
Balance, June 30, 1998 58,953,000
Net income 2,752,000
Exercise of stock options 109,000
Stock dividend (3,000)
-------------------------- --------------
Balance, June 30, 1999 61,811,000
Net income 10,398,000
Treasury stock purchased --
Exercise of stock options --
Stock dividend --
-------------------------- --------------
BALANCE, JUNE 30, 2000 $72,209,000
-------------------------- --------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
18
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------- ------------------- --------------------- ------------------
2000 1999 1998
----------------------------------------------------------------------- ------------------- --------------------- ------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 10,398,000 $ 2,752,000 $ 8,234,000
Adjustments to reconcile net income to net cash provided by operations:
Amortization expense 47,128,000 38,551,000 47,083,000
Impairment of long lived assets -- 4,092,000 ---
Depreciation expense 1,500,000 1,979,000 2,441,000
Investment in program costs (46,331,000) (37,014,000) (47,626,000)
Minority interest, net 107,000 (77,000) (178,000)
Changes in assets and liabilities:
Accounts receivable (69,000) 2,133,000 (2,452,000)
Other assets (835,000) (130,000) 255,000
Accounts payable, accrued residuals and participations 2,436,000 (3,662,000) 1,734,000
Production advances and deferred revenue 1,380,000 (1,166,000) (907,000)
Current and deferred income taxes payable (689,000) (1,254,000) 634,000
------------------- --------------------- ------------------
Net cash provided by operations 15,025,000 6,204,000 9,218,000
------------------- --------------------- ------------------
Cash flows from investing activities:
Purchases of marketable securities (36,206,000) (28,374,000) (24,413,000)
Sales of marketable securities 22,107,000 21,511,000 20,634,000
Expenditures on property, plant and equipment (2,960,000) (871,000) (2,227,000)
------------------- --------------------- ------------------
Disposals of property, plant and equipment 1,309,000 352,000 158,000
------------------- --------------------- ------------------
Net cash used for investing activities (15,750,000) (7,382,000) (5,848,000)
------------------- --------------------- ------------------
Cash flows from financing activities:
Exercise of stock options -- 109,000 400,000
------------------- --------------------- ------------------
Net cash provided by financing activities -- 109,000 400,000
------------------- --------------------- ------------------
Net (decrease) increase in cash and cash equivalents (725,000) (1,069,000) 3,770,000
Cash and cash equivalents at beginning of the year 6,023,000 7,092,000 3,322,000
------------------- --------------------- ------------------
Cash and cash equivalents at end of the year $ 5,298,000 $ 6,023,000 $ 7,092,000
----------------------------------------------------------------------- ------------------- --------------------- ------------------
Supplemental disclosures of cash flow information
Cash paid during the year for income taxes $ 6,187,000 $ 2,900,000 $ 4,189,000
----------------------------------------------------------------------- ------------------- --------------------- ------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
19
<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". All significant
inter-company balances and transactions have been eliminated in consolidation.
The common stock of the Company is entitled to one vote per share on
all of 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 consolidated financial statements in conformity with
accounting principles generally accepted in the United States 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 reported period. Actual results could differ from those
estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue
Revenue from television program licensing agreements is recognized when
each program becomes contractually available for broadcast and delivery. Revenue
earned currently which is to be received in future periods is discounted to
present value using the effective interest method. Depending on the type of
contract, revenue for dick clark communications, inc. is 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 is recognized
upon provision of goods and services to customers.
Revenue by significant customer as a percentage of total revenue is as follows:
Significant customers, year ended June 30, 2000 1999 1998
--------------------------------------------------------------------------------
NBC Entertainment 6% 5% 20%
ABC Entertainment 15% 18% 12%
Fox Broadcasting Company 22% 12% 10%
The Company produces television programming in relation to several
awards shows subject to long-term license agreements which expire in 2005. 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 Costs
Program costs, which include acquired rights, indirect production costs
(production overhead), residuals and third-party participations, 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, 2000, 1999 and 1998 there was
$4,362,000, $4,777,000 and $5,689,000, respectively, of production overhead
included within program costs.
20
<PAGE>
Upon distribution of acquired film rights, the Company uses the
individual film forecast method set forth in Statement of Financial Accounting
Standards (SFAS) No. 53 to amortize these program 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 reviews its estimates on a program-by-program basis and,
when unamortized costs exceed net realizable value for a program, that program'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.
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 for significant future revenue.
Income Taxes
Income taxes are accounted for in accordance with SFAS No. 109, which
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.
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which took effect in the Company's fiscal year ending June 30, 1999.
This statement established standards for the reporting and display of
comprehensive income and its components in financial statements and thereby
reports a measure of all changes in equity of an enterprise that result from
transactions and other economic events other than transactions with owners. The
Company does not have any components of comprehensive income other than net
income.
Earnings Per Share
Basic earnings per share are computed by dividing net income by the
weighted average number of shares of stock outstanding during the year. Diluted
earnings per share are determined by applying the treasury stock method to
compute dilution for common stock equivalents.
On April 25, 2000, the Company declared a 10% stock dividend of the
common stock and Class A common stock to holders of record as of the close of
business on May 25, 2000. The Company previously paid a 5% stock dividend of the
common stock and Class A common stock to holders of record as of the close of
business on May 21, 1999. Accordingly, share data have been retroactively
adjusted to include the effect of the stock dividends.
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.
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, if deemed necessary.
21
<PAGE>
Marketable Securities
Marketable securities consist primarily of investments in United States
Treasury Bills and Treasury Notes. The Company classifies its investments in
marketable securities as "held-to-maturity ", and carries the investments at
cost in accordance with SFAS 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. The cost of these investments
as of June 30, 2000 and 1999 was $53,174,000 and $39,075,000, respectively, and
the market value as of June 30, 2000 and 1999 was $52,353,000 and $38,611,000,
respectively. As of June 30, 2000, the recorded costs of marketable securities
maturing in fiscal 2001, 2002, 2003, and 2004 thereafter were $27,116,000,
$8,572,000, $5,940,000 and $11,546,000, respectively
Property, Plant and Equipment
Property, plant and equipment consist of the following as of June 30:
<TABLE>
<CAPTION>
2000 1999
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,322,000 $ 2,018,000
Buildings 3,363,000 4,920,000
Leasehold improvements 6,914,000 5,979,000
Furniture and fixtures 7,555,000 7,232,000
Production and other equipment 3,428,000 3,365,000
Construction in process 5,000 184,000
--------------------------------------
Less: accumulated depreciation and amortization (11,529,000) (12,791,000)
--------------------------------------
Property, plant and equipment, net $11,058,000 $10,907,000
======================================
</TABLE>
Depreciation and amortization is calculated using the straight-line
method based on estimated useful lives of the applicable property or asset.
Useful lives range from 3 to 30 years for buildings and leasehold improvements
and 5 to 7 years for furniture and fixtures and other equipment.
The cost of normal maintenance and repairs to properties and assets is
charged to expense when incurred. Major improvements to properties and assets
are capitalized and depreciated or amortized over the estimated useful life of
the improvements.
Goodwill and Other Assets
Goodwill resulting from the Company's acquisition of Harmon
Entertainment Restaurants (see Note 4) in fiscal 1990 is being amortized on a
straight-line basis over 20 years. In the first quarter of the fiscal year
ending June 30, 2000, the Company adopted AICPA Statement of Position (SOP)
98-5, "Reporting on the Costs of Start-Up Activities". This SOP requires that
all non-governmental entities expense costs of start-up activities (pre-opening,
pre-operating and organizational costs) as those costs are incurred and requires
the write-off of any unamortized balances upon implementation. The financial
impact of SOP 98-5 was recorded in the first quarter of fiscal year 2000 as a
cumulative effect of an accounting change of $111,000, net of a tax benefit of
$60,000. Other assets as of June 30, 1999 included capitalized organizational
and pre-opening costs. Liquor license costs of $199,000 and $143,000 which are
included in other assets as of June 30, 2000 and 1999, respectively, are not
being amortized. Accumulated amortization of goodwill and other assets at June
30, 2000 and 1999 was $3,122,000 and $3,052,000, respectively.
Long Lived Assets
The carrying values of the Company's assets are reviewed when events
and circumstances indicate that the carrying value of an asset may not be
recoverable. If it is determined that an impairment loss has occurred based on
undiscounted future cash flows, then a loss is recognized in the statement of
operations using a discounted cash flow or fair value model. As a result of
declining operating results in three of the restaurant units during the fourth
quarter of fiscal 1999, the Company recorded an impairment charge of $4,092,000.
22
<PAGE>
Unclassified Balance Sheet
In accordance with the provisions of SFAS 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, revenues 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
New Accounting Pronouncements
In June 2000, the AICPA issued Statement of Position (SOP) 00-2,
"Accounting by Producers or Distributors of Films". The primary changes from the
guidance of SFAS 53 relate to the accounting for advertising and marketing costs
in accordance with SOP 93-7, "Reporting on Advertising Costs", limitations on
certain ultimates that companies can use in their individual film forecast
method, and more specific guidance related to projects in development. SOP 00-2
is effective for fiscal years beginning after December 15, 2000 and should be
accounted for as a cumulative effect of changes in accounting principles to be
included in the statement of operations. Management intends to adopt the SOP
00-2 during the quarter ending September 30, 2000. Management expects that
adoption of SOP 00-2 will have an immaterial impact on the financial results of
the Company.
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 2001
through 2010. 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 dick clark communications, inc. are
amortized as projects, or identifiable elements pursuant to a contract, are
delivered.
Based on management's estimates of gross revenues as of June 30, 2000,
approximately 71% of the $3,865,000 of unamortized program costs applicable to
released programs will be amortized during the three fiscal years ending June
30, 2003.
23
<PAGE>
Capitalized program costs consist of the following as of June 30:
<TABLE>
<CAPTION>
2000 1999
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Released, since inception:
Television programs $296,106,000 $252,797,000
Communications projects 63,266,000 56,696,000
Movies for television 25,818,000 25,728,000
------------------------------------------------------
385,190,000 335,221,000
Less: accumulated amortization (381,325,000) (330,727,000)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3,865,000 4,494,000
=====================================================
In process:
Television programs 939,000 250,000
Communications projects 153,000 82,000
-----------------------------------------------------
1,092,000 332,000
=====================================================
Project development costs:
Television programs 483,000 68,000
Communications projects 157,000 134,000
Movies for television 2,000 39,000
-----------------------------------------------------
642,000 241,000
=====================================================
Program costs, net $ 5,599,000 $ 5,067,000
=====================================================
</TABLE>
24
<PAGE>
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 with 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 pre-payment of the remaining
portion of this obligation. The Company is amortizing the prepaid royalty of
$3,128,000 at the rate of 1.5% of all restaurant revenue. Accumulated
amortization of the royalty at June 30, 2000 and 1999 was $704,000 and $400,000,
respectively.
5. INCOME TAXES
The provision for income taxes consists of the following for the year
ended June 30:
<TABLE>
<CAPTION>
2000 1999 1998
-------------------------------------------------------------------------- ------------------- -------------------
Current:
<S> <C> <C> <C>
Federal $ 4,966,000 $ 2,229,000 $ 4,749,000
State 512,000 257,000 461,000
Foreign 195,000 190,000 252,000
------------------- ------------------- -------------------
5,673,000 2,676,000 5,462,000
Deferred:
Federal (130,000) (1,057,000) (320,000)
State (8,000) (105,000) ( 41,000)
------------------- ------------------- -------------------
(138,000) (1,162,000) (361,000)
------------------- ------------------- -------------------
$ 5,535,000 $1,514,000 $5,101,000
=================== =================== ===================
</TABLE>
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:
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998
------------------- ------------------- -------------------
<S> <C> <C> <C>
Statutory federal rate 34% 34% 34%
State taxes, net of federal income tax benefit 1 2 4
------------------- ------------------- -------------------
35% 36% 38%
=================== =================== ===================
</TABLE>
25
<PAGE>
The components of current and deferred income taxes are as follows:
<TABLE>
<CAPTION>
As of June 30, 2000 1999
------------------------------------------------------------ ---------------------- ----------------------
<S> <C> <C>
Deferred tax assets
Accrued residuals and participations $628,000 $ 484,000
Pre-opening costs 239,000 166,000
Depreciation 846,000 1,335,000
Bonus Accrual 228,000 ---
Other 60,000 65,000
Total deferred tax assets 2,001,000 2,050,000
====================== ======================
Deferred tax liabilities
Difference between book and tax accounting for program costs (232,000) (264,000)
Prepaid royalty (837,000) (968,000)
Tax deductible goodwill (179,000) (203,000)
====================== ======================
Total deferred tax liabilities (1,248,000) (1,435,000)
Net deferred tax asset 753,000 615,000
====================== ======================
Current taxes payable (380,000) (931,000)
Total current and deferred taxes receivable (payable) $ 373,000 $ (316,000)
====================== ======================
</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 stockholder, 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 2000, 1999
and 1998 the sublease income paid by Olive was $12,000 per year. 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 2000 or 1999. The Company also paid Olive $155,000, $154,000 and
$151,000 for storage services during the fiscal 2000, 1999 and 1998,
respectively.
The Company provided management and other services to Olive and other
companies owned by the Company's principal stockholder for which the Company
received $200,000, $191,000 and $177,000 for the fiscal 2000, 1999 and 1998,
respectively.
The Company retained the services of Dick Clark as host for certain of
its television programs and other talent services during fiscal 2000, 1999 and
1998 for which the Company paid him host fees of $762,000, $730,000 and
$687,000, 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.
26
<PAGE>
7. COMMITMENTS AND CONTINGENCIES
The Company has entered into employment agreements with certain key
employees requiring payment of annual compensation of $3,698,000, $2,134,000,
1,551,000, 1,551,000, and 1,551,000 for the years ending June 30, 2001, 2002,
2003, 2004, and 2005, respectively. Several agreements also provide for the
payment by the Company of certain profit participations based upon the profits
from specific programs, and/or individual subsidiaries or the Company as a
consolidated entity, as provided in the applicable employment agreements.
Several agreements have renewal options of 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, 2000, 1999 and 1998 was $649,000, $638,000
and $625,000, 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 December 31,
2012.
Total lease expense for the Company for the years ended June 30, 2000,
1999 and 1998 was $1,824,000, $1,570,000 and $1,538,000, respectively. The
various operating leases to which the Company is presently subject require
minimum lease payments as follows:
Year ended June 30,
------------------------------------------------ ---------------
2001 $1,554,000
2002 1,254,000
2003 1,197,000
2004 1,141,000
2005 1,089,000
Thereafter 4,281,000
------------------------------------------------ ---------------
8. STOCK OPTIONS
In August 1996, the Company's Board of Directors approved changes to
the Company's 1987 employee stock option plan. The 1996 plan was ratified by the
stockholders in November 1996. 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, with a maximum
limit of 250,000 shares to any employee during any calendar year. The exercise
price of the incentive and non-qualified stock options must be equal to at least
100 percent of the fair market value of the underlying shares as of the date of
grant. During fiscal years 2000 and 1999, respectively, 35,000 and 37,000
incentive stock options were granted to certain employees of the Company to
purchase shares at prices ranging from $10.00 to $14.50. No stock options were
granted during fiscal 1998.
As of June 30, 2000, 227,217 of all stock options granted, vested and
outstanding are exercisable at prices ranging from $3.20 to $13.92. 57,076
additional options will become exercisable in fiscal years 2001 through 2002.
During fiscal 2000, 1999 and 1998, 5,513, 10,500 and 7,500 options,
respectively, were exercised.
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock-based compensation plans. Accordingly, compensation
expense recognized was different than what would have otherwise been recognized
under the fair value based method defined in SFAS No. 123, "Accounting for
Stock-Based Compensation." Had compensation cost for the Company's stock-based
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the method of SFAS No. 123, the
Company's net income and net income per share would have been reduced to the pro
forma amounts indicated as follows:
27
<PAGE>
(in thousands, except per share amounts) 2000 1999 1998
--------------------------------------------------------------------------------
Net income
As reported $ 10,398 $ 2,752 $ 8,234
Pro forma 10,371 2,730 8,210
Earnings per share
As reported
Basic $ 1.02 $ .27 $ .81
Diluted 1.01 .27 .80
Pro forma
Basic $ 1.02 $ .27 $ .81
Diluted 1.00 .26 .80
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 2000, 1999 and 1998: expected volatility of 44
percent, 42 to 47 percent and 35 to 46 percent, respectively; assumed risk-free
interest rates of 7 percent, 4.9 to 5.1 percent and 6.3 to 6.6 percent,
respectively; expected lives of 5 years and 3.6 to 9.1 years, respectively; and
a dividend yield of zero percent. For each year the weighted-average fair value
of options granted during 2000 was $6.00.
A summary of the status of the Company's stock option plans as of June
30, 2000, 1999 and 1998, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
------------------------------ ---------------------- ---------------------- -------------------- ---------------------
Options Price Range Weighted Options Available
(Per Share) Average Price Outstanding For Grant
------------------------------ ---------------------- ---------------------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1997 $3.88 - 14.00 $4.91 200,250 678,250
Exercised 7.50 - 7.50 7.50 (7,500) ---
Stock Dividend 3.69 - 13.33 4.58 9,638 (9,638)
------------------------------ ---------------------- ---------------------- -------------------- ---------------------
Balance at June 30, 1998 3.69 - 13.33 4.58 202,388 668,612
Granted 10.00 - 14.50 12.96 37,000 (37,000)
Exercised 9.05 - 10.48 10.33 (10,500) ---
Canceled 13.33 - 14.50 13.71 (3,100) ---
Stock Dividend 3.51 - 12.86 5.30 11,291 (11,291)
------------------------------ ---------------------- ---------------------- -------------------- ---------------------
Balance at June 30, 1999 3.51 - 12.86 5.29 237,079 620,321
Granted 13.92 - 14.00 13.97 35,000 (35,000)
Exercised 4.08 - 4.08 4.08 (5,513) ---
Canceled 9.52 - 9.52 9.52 (6,300) ---
Stock Dividend 3.20 - 13.92 5.31 24,027 (24,027)
BALANCE AT JUNE 30, 2000 $ 3.20 - 14.00 $5.92 284,293 561,295
------------------------------ ---------------------- ---------------------- -------------------- ---------------------
</TABLE>
The following table summarizes information about stock options
outstanding at June 30, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
Weighted Average
Range of Number Remaining Weighted Average Number Weighted Average
Exercise Price Outstanding Contractual Life Exercise Price Exercisable Exercise Price
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
$3.30 - $ 3.20 200,650 2.17 $3.20 200,650 $3.20
8.56 - 11.69 47,143 2.18 11.28 10,067 10.40
13.92 - 14.00 36,500 4.68 13.96 16,500 13.92
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
$3.20 - 14.00 284,293 2.49 $5.92 227,217 $4.29
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
</TABLE>
28
<PAGE>
9. BUSINESS SEGMENT INFORMATION
The Company's business activities consist of two business segments:
entertainment operations and restaurant operations. The factors for determining
the reportable segments were based on the distinct nature of their operations.
They are managed as separate business units because each requires and is
responsible for executing a unique business strategy, as managed by the
respective chief operating decision makers. Identifiable assets are those assets
used in the operations of the segments. Summarized financial information
concerning the Company's reportable segments is shown in the following table:
<TABLE>
<CAPTION>
BUSINESS SEGMENTS
(IN THOUSANDS, AS OF JUNE 30,) ENTERTAINMENT RESTAURANTS TOTAL
----------------------------------------- -------------------- -------------------- -------------------------
2000
<S> <C> <C> <C>
Revenue $72,173 $20,070 $92,243
Gross profit (loss)(1) 20,130 (1,411) 18,719
Identifiable assets 68,111 15,812 83,923
Depreciation and amortization 233 2,292 2,525
Capital expenditures 108 2,852 2,960
----------------------------------------- -------------------- -------------------- -------------------------
1999
Revenue $51,324 $21,010 $72,334
Gross profit (loss)(1) 11,963 (319) 11,644
Impairment of long lived assets --- 4,092 4,092
Identifiable assets 53,926 15,992 69,918
Depreciation and amortization 249 2,371 2,620
Capital expenditures 455 416 871
----------------------------------------- -------------------- -------------------- -------------------------
1998
Revenue $63,310 $22,941 $86,251
Gross profit(1) 16,035 1,139 17,174
Identifiable assets 50,847 22,368 73,215
Depreciation and amortization 213 3,033 3,246
Capital expenditures 455 1,772 2,227
</TABLE>
(1) Does not include corporate overhead of $2,793,000, 2,987,000 and $3,580,000
for entertainment and $2,533,000, $2,518,000 and $2,012,000 for the restaurant
segment during the years 2000, 1999 and 1998, respectively. Gross profit also
excludes minority interest expense and interest and other income.
29
<PAGE>
RESULTS OF OPERATIONS BY QUARTER (UNAUDITED)
--------------------------------------------
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
Basic Diluted
1st Quarter Earnings Earnings
(ending September 30) Revenue Gross Profit Net Income Per Share (1) Per Share (1)
---------------------------- -------------------- --------------------- ------------------ --------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
1999 $10,585 $1,054 $360 $.04 $.03
1998 13,138 868 46 .00 .00
-------------------- --------------------- ------------------ --------------------- -----------------
2nd Quarter
(ending December 31)
---------------------------- -------------------- --------------------- ------------------ --------------------- -----------------
1999 $22,646 $2,288 $998 $.10 $.10
1998 16,391 2,226 867 .09 .08
-------------------- --------------------- ------------------ --------------------- -----------------
3rd Quarter
(ending March 31)
---------------------------- -------------------- --------------------- ------------------ --------------------- -----------------
2000 $31,507 $9,784 $5,774 $.57 $.56
1999 28,747 7,479 4,168 .41 .40
-------------------- --------------------- ------------------ --------------------- -----------------
4th Quarter
(ending June 30)
---------------------------- -------------------- --------------------- ------------------ --------------------- -----------------
2000 $27,505 $5,593 $3,266 $.32 $.32
1999 14,058 1,071 (2,329) (.23) (.23)
-------------------- --------------------- ------------------ --------------------- -----------------
</TABLE>
(1) The sum of the quarterly earnings per share may differ from the earnings
per share for the year due to the required method of computing dilution and
the weighted average number of shares.
MARKET AND DIVIDEND INFORMATION
-------------------------------
<TABLE>
<CAPTION>
PRICE RANGE FISCAL 2000 FISCAL 1999
----------------------------------------- ------------------------------------- ---------------------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C> <C>
1st Quarter $13.86 $10.28 $19.91 $11.69
2nd Quarter 20.91 9.66 15.15 11.47
3rd Quarter 13.86 11.36 13.42 8.98
4th Quarter 13.25 11.02 12.96 7.79
=================== ================= =============== =================
</TABLE>
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.
30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 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,
2000 and 1999, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 2000. 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 auditing standards generally
accepted in the United States. 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, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended June 30, 2000, in conformity with accounting principles generally
accepted in the United States.
As explained in Note 2 to the financial statements, during the quarter
ended September 30, 1999, the Company changed its method of accounting for
pre-opening costs to conform with Statement of Position 98-5.
Arthur Andersen, LLP
Los Angeles, CA
September 1, 2000
31
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
----------------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
---------------------------------------------------
ITEM 11. EXECUTIVE COMPENSATION.
-----------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
The information required by each of the items of Part III is omitted
from this Report. Pursuant to the General Instruction G(3) to Form 10-K, the
information is included in the Company's Proxy Statement for its 2000 Annual
Meeting of Stockholders to be held on November 2, 2000, and is incorporated
herein by reference. The Company intends to file such Proxy Statement with the
Securities and Exchange Commission not later than 120 days subsequent to June
30, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
-----------------------------------------------------------------
(a) The following represents a listing of all financial statements, financial
statement schedules exhibits filed as part of this Report.
(1) Financial Statements (see index to the consolidated financial
statements).
(2) Financial Statement Schedules (see index to the consolidated financial
statements).
(3) Exhibits
<TABLE>
<CAPTION>
Number Description of Document
<S> <C>
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).
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 Lease dated November 1, 1986, between the Registrant and Olive (incorporated by reference to
Exhibit 10.5 of the Registration Statement).
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.2 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).
10.3 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).
10.4 Employment Agreement dated as of July 1, 1997, between the Registrant and Richard W. Clark
(incorporated by reference to Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997).
10.5 Employment Agreement dated as of July 1, 1997, between the Registrant and Karen W. Clark
(incorporated by reference to Exhibit 10.10 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1997).
10.6 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).
10.7 Agreement dated December 31, 1994 to amend the Redemption Agreement dated June 30, 1990 between
Harmon Entertainment Corporation, a New Jersey corporation, and dick clark restaurants, inc.
(incorporated by reference to Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1995).
10.8 Employment Agreement dated as of July 1, 1997, between the Registrant and Francis C. La Maina
(incorporated by reference to Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1997).
10.9 Employment Agreement dated as of January 29, 1997, between the Registrant and William S. Simon
(incorporated by reference to Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1997).
10.10 1996 Employee Stock Option.
10.11 Assignment dated March 31, 1998 between dick clark productions, inc. and Olive Enterprises, Inc.
</TABLE>
* 21.1 List of subsidiaries.
* 27.1 Financial Data Schedule
-------------------
* Filed herewith
(4) Reports on Form 8-K
-------------------
(NONE)
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 28, 2000
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>
Chairman September 28, 2000
/s/ Richard W. Clark Chief Executive Officer and
---------------------------------- Director (Principal Executive Officer)
Richard W. Clark
/s/ Francis C. La Maina President, Chief Operating Officer September 28, 2000
---------------------------------- and Director
Francis C. La Maina
/s/ Karen W. Clark
----------------------------------- Director September 28, 2000
Karen W. Clark
/s/ Lewis Klein
----------------------------------- Director September 28, 2000
Lewis Klein
/s/ Enrique F. Senior
----------------------------------- Director September 28, 2000
Enrique F. Senior
/s/ Jeffrey B. Logsdon
------------------------------------ Director September 28, 2000
Jeffrey B. Logsdon
/s/ Robert A. Chuck
------------------------------------ Director September 28, 2000
Robert A. Chuck
/s/ William S. Simon
------------------------------------ Chief Financial Officer September 28, 2000
William S. Simon (Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
34
