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, 1997.
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
COMMISSION FILE NUMBER : 33-79356
dick clark productions, inc.
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(Exact name of registrant as specified in its charter)
DELAWARE 23-2038115
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3003 W. Olive Avenue, Burbank, California 91510-7811
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (818) 841-3003
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Common Stock, par value $.01
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(Title of Class)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] or No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this 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 23, 1997, was approximately $15,239,000.
As of September 23, 1997, 7,631,500 shares of Registrant's $.01 par
value common stock and 750,000 shares of the Registrant's $.01 par value Class A
common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the Annual Meeting of Shareholders
to be held November 4, 1997, are incorporated by reference into Part I and Part
III of this Report.
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. and its predecessors and their respective
subsidiaries.
The Company develops and produces a wide range of television
programming for television networks, first-run domestic syndicators (which
provide programming for independent and network affiliated stations), cable
networks and advertisers. Since 1957, the Company has been a significant
supplier of television programming and has produced 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. Since that time, the Company has opened seven
additional locations, most recently in St. Louis, Missouri; Austin, Texas; and,
King of Prussia, Pennsylvania. The Company is also a majority owner in a joint
venture that in 1993 opened a dance-club-only version of the restaurant, "Dick
Clark's American Bandstand Club," located in Reno, Nevada. Although the dance
club concept has been successful, the Company has chosen to focus its expansion
efforts primarily on the restaurant concept, which the Company believes has a
broader market appeal and greater potential for future revenue growth. It is the
Company's long-term objective to continue to develop its entertainment-themed
restaurant concept by opening additional Company-operated restaurants in
strategically desirable markets. The Company anticipates opening additional
restaurants during fiscal 1998 and is actively negotiating for additional sites
for new restaurants for this growing national chain.
In January 1991, the Company established a subsidiary, dick clark
corporate productions, inc. ("dccp"), in order to enter the corporate
productions and communications business. This subsidiary specializes in
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 add value to its 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.
Since its inception, the Company's principal stockholder has been
Richard ("Dick") W. Clark, who the Company believes to be one of the best-known
personalities in the entertainment industry. Many of the Company's television
and corporate programs involve the executive producing services and creative
input of Mr. Clark. However, Mr. Clark's performance services are not exclusive
to the Company. The Company also employs other experienced producers who are
actively involved in the Company's television production business and dccp's
business.
The Company's principal lines of business according to industry
segments are television production and related activities (including, without
limitation, the aforementioned operations of dccp) and restaurant operations
(dick clark restaurants, inc. and its wholly owned subsidiaries). For financial
information about the Company's industry segments with respect to each of the
fiscal years in the three-year period ended June 30, 1997, see Note 9 "Business
Segment Information" to the Company's Consolidated Financial Statements on page
28 of the Company's 1997 Annual Report.
2
DESCRIPTION OF BUSINESS
TELEVISION PRODUCTION AND RELATED BUSINESS
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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 programming mix includes 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 an
expected television event. This breadth of production, together with the
Company's reputation for developing high-quality, popular shows on budget,
distinguishes the Company as a unique and highly regarded programming provider.
This is particularly significant with the growing demand for cost-efficient,
original programming from new cable networks, advertisers and syndicators.
The Company has generally been able to fund its production costs from
license fees paid by the recipients of the programming. However, increasing
consolidation in the entertainment industry has resulted in many of the
Company's traditional customers (such as the television networks) merging with
its competitors who provide entertainment production services. As a result, the
Company's ability to market its programming expertise has been reduced. In
addition, the proliferation of cable networks over the last decade has also
resulted in smaller license fees being paid by networks and other broadcasters.
In particular, the development and production of situation comedies and dramatic
series generally now require substantial deficit financing because the license
fees payable for such programs do not cover production costs. Consequently, the
Company is selective in its development efforts in the dramatic and situation
comedy series area.
Programming in which the Company owns the distribution rights and
which are not subject to restrictions associated with the initial license
agreement may be marketed by the Company in ancillary markets which include,
among others, cable television, foreign and domestic rerun syndication and home
video. Successful television series and television movies can have significant
rerun syndication and other ancillary value. However, a television series must
normally be broadcast for at least three or four television seasons before rerun
syndication is feasible. Consequently, a relatively low percentage of television
series are successful enough to be syndicated.
Television Market, Production and Licensing
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Market. The market for television programming is composed primarily
of the broadcast television networks (ABC, CBS, NBC, Fox Broadcasting Company,
United Paramount Network and Warner Bros., a division of Time Warner
Entertainment Company L.P.), 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 Family
Channel, The Nashville Network and VH-1). The Company also deals directly with
companies such as Busch Entertainment Corp., Universal Studios Hollywood and SFM
Entertainment, which finance the production of specials and other programming on
which they intend to advertise their products. The Company also works closely
with dccp to provide television expertise to those corporations seeking
television outlets for their events and promotions.
Production. The production of television programming involves the
development of a format based on a creative concept or literary property into a
television script or teleplay, the selection of talent and, in most cases, the
filming or taping and technical and post-production work necessary to create a
finished product. The Company is continuously engaged in developing and
acquiring concepts and literary properties. The most promising of these serve as
the basis of a plot or concept which may include a description of the principal
characters or performers, and in the case of a dramatic presentation, may
contain sample dialogue.
The development of a project often begins with a meeting of the
Company's development personnel, producers, directors and/or writers for the
purpose of reviewing a concept. Many of the Company's projects originate with
its own staff, although due to the Company's reputation in the television
industry, concepts for development are frequently presented to the Company by
unaffiliated parties. If a concept is attractive, the Company will present it to
a prospective licensee: either one of the television networks, a first-run
syndicator, a cable network or an advertiser. Alternatively, a prospective
licensee, in particular, an advertiser, will often request that the Company
develop a concept for a particular time period or type of audience.
If a concept is accepted for further development, the prospective
licensee will usually commission and pay for a script
3
prior to committing itself to the production of a program. However, in the case
of the Company's entertainment programming as well as its awards specials, the
licensee will generally order production of the program based on the initial
presentation. Only a small percentage of the concepts and scripts presented each
year are selected to be produced. Generally, the network or other licensee
retains the right to approve the principal creative elements of a television
production.
Once a script 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 usually is submitted for
acceptance as a series before additional episodes are ordered. A production
order for a series is usually for a specified number of episodes, with the
network or other licensee retaining an option to renew the license. The
production of additional episodes for a series or additional versions of a
special is usually dependent on the ratings obtained by the initial run of
episodes of the program or by the original special, respectively.
Licensing. A majority of the Company's 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 1997, revenue from a recurring annual special represented approximately
14% of total revenue. During fiscal 1996, revenue from three customers
individually accounted for more than 12% but not greater than 15% of the
Company's revenue. During fiscal 1995, revenue from two customers individually
accounted for more than 14% but not greater than 24% of the Company's revenue.
See Note 2 "Summary of Significant Accounting Policies" to the Company's
Consolidated Financial Statements on page 22 of the Company's 1997 Annual
Report. The Company is not committed exclusively to any one network, syndicator,
cable network or other licensee for the licensing of the initial broadcast
rights to all or any substantial part of 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. None of the Company's television production in fiscal 1997 required any
material deficit financing by the Company. The Company does anticipate incurring
deficit financing in connection with the production of a children's series to be
delivered in fiscal 1998. The Company does not anticipate incurring any material
deficit financing obligation with respect to any other programs which are
currently in development.
During the term of a first-run broadcast license, the Company
generally retains all other distribution rights associated with the program,
including all foreign distribution rights. In the case of television movies, the
Company will often 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. and World International Network, LLC) for
the foreign distribution of certain of its series, specials and television
movies. The Company also occasionally licenses its programming directly to
foreign broadcasters.
After the expiration of a first-run broadcast license, the Company
makes the program available for other types of domestic distribution in cases
where the Company has retained ownership and/or distribution rights to the
program. In fiscal 1997, the Company licensed 118 half-hour episodes of its
Super Bloopers and Practical Jokes series (which had previously been broadcast
on NBC as one hour shows) to the Family Channel. In fiscal 1996, the Company
licensed 22 episodes of Super Bloopers and Practical Jokes (previously broadcast
on NBC) to the Family Channel along with 23 hours of specials for a three-year
term. The Company also licensed to VH-1, the cable music network, the exclusive
rights to re-broadcast 50 episodes from the original American Bandstand series
in fiscal 1996 and an additional 50 episodes in fiscal 1997. The Company has
retained the rights to the clips in these shows for use in its own productions
as well as the ability to continue to market the clips to its media archive
customers. The Company also licenses the syndication rights to television movies
from its library, which the Company is often able to syndicate a number of times
over a period of many years. For example, in each of fiscal 1995, 1996 and 1997,
the Company licensed the previously broadcast television movie The Man in the
Santa Claus Suit.
The Company has also used its library of entertainment and music
specials to create new programming.
4
Television Programming
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The Company has in development and production numerous television
projects for broadcast on network television, first-run syndication and cable
television. The Company has an established reputation among the major networks,
cable broadcasters and other licensees as a premier producer of television
awards programming. The Company is also strongly committed to the ongoing
development of entertainment specials and series which include music, variety,
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 24 years.
The Company's award specials during fiscal 1997 included The 24th
Annual American Music Awards (ABC), the Company's most enduring award special
and again was rated number one in its time period; The 54th Annual Golden Globe
Awards (NBC), the Company's fifteenth annual production for the Hollywood
Foreign Press Association, acknowledging excellence in television and motion
pictures; The 12th Annual Soap Opera Awards (NBC), produced for the tenth
consecutive year; The 32nd Annual Academy of Country Music Awards (NBC), another
popular, long running awards production; "The Family Film Awards" (2 hours-CBS),
hosted by Beau Bridges, Anna Chlumsky and Joey Lawrence, was a new award shows
honoring film and television productions for their family-oriented content; "The
Primetime Emmy Awards" (3 hours-ABC) was hosted by Paul Reiser and received its
highest ratings since 1986; and The 24th Annual Daytime Emmy Awards (NBC), the
fifth year of production of this special presented by the National Academy of
Television Arts & Sciences. The Company has agreements for several recurring and
annual specials subject to long-term license agreements which expire between
1997 and 2000.
In addition to producing award specials for television, the Company
develops new concepts for television specials. Two important aspects of the
Company's production of specials are that the specials may serve as pilots for
the development of series programming and that specials may be produced on an
annual or recurring basis. For instance, the Bloopers programs evolved from an
entertainment special to a series and is still in production as television
specials for NBC.
The Company produced the following entertainment specials in fiscal
1997: "Dick Clark's New Year's Rockin' Eve(R) '97" (ABC), which was the
Company's 25th year of production; three "Bloopers specials" entitled "All New,
All-Star TV Censored Show Me the Bloopers," (NBC), "All New, All-Star TV Tickle
Me Censored Bloopers," (NBC) and "All New, New All-Star TV Censored Bloopers
Palooza," (NBC); and, It's Hot in Here! (UPN), a Fall Preview Special for the
new Paramont Broadcast Network.
In addition to the production of new programming, the Company markets
material from previously produced programs for new development projects.
Programs such as The American Music Awards 20th Anniversary Special, and The
Golden Globes 50th Anniversary Celebration produced and delivered in fiscal 1994
for NBC, utilized footage from previous programs.
Series. The Company is actively developing programs and ideas for
potential series production and 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. Fiscal 1997 saw these series underway.
The initial six episodes of a new primetime, one-hour dramatic
anthology series called "Beyond Belief: Fact or Fiction" were produced for the
Fox Broadcasting Company. James Brolin hosted the series which began
broadcasting in May 1997. The episodes were rebroadcast beginning in August
1997. This series, if successful, could be a significant contributor to the
revenue and profit of the Company.
Production continued for TNN's "Prime Time County," a live 60-minute,
weeknight, country music entertainment and variety series, which premiered in
January 1996. The show originates from The Nashville Network Studio in Opryland
USA. The Company has received a renewal commitment to produce the show through
September 1998.
5
Forty episodes of "No Relation" have been produced and delivered, the
first original game show series for the fX cable network.
A total of 50 additional episodes of the series "VH1's Best of
American Bandstand" with new introductions were delivered for the 1997 season,
bringing the total number of episodes airing on VH1 to 100 episodes.
A three-year license agreement with the Family Channel was entered
into to rerun 118 half-hour episodes of "TV Bloopers and Practical Jokes" series
originally broadcast on NBC. This agreement is in addition to the 22 episodes of
"Bloopers" programming licensed to the Family Channel in fiscal 1996.
CBS committed to 13 episodes - a full season's order - for a new
Saturday morning half-hour comedy show for children called "The Weird Al Show."
Featuring "Weird Al" Yankovic, the series began airing in September 1997 for the
1997-98 children's television season. The Company is deficit financing a portion
of the production cost in anticipation of the potential success of the series.
The Company also has been retained to executive produce a talk show
pilot featuring Donny and Marie Osmond. The series is being marketed for
distribution by Columbia Tristar Television Distribution for the Fall 1998
season.
After the end of the fiscal year, we received a commitment for Buena
Vista Television to develop a talk show pilot featuring Jackie Guerra. The show
will be marketed for possible distribution in calendar 1998.
Movies. Television movies are continually under development and can
be an important source of profitability and cash flow over the life of their
distribution.
In fiscal 1997, we produced a Movie-of-the-Week for CBS, "Deep Family
Secrets," starring Richard Crenna and Angie Dickinson. "Country Angel," an
independently financed move-for-television, is in development and tentatively
scheduled to start filming in fiscal 1998. "Alien Abduction," a two-hour taped
drama for the Paramount Broadcast Network (UPN), is scheduled to start
production in fiscal 1998.
By working with major studios that can provide financing, the Company
also develops theatrical film projects on a limited basis. The Company is
currently developing a motion picture utilizing the American Bandstand concept
with Jersey Films for theatrical release by Universal Pictures. "Tenth Justice,"
is in development as a feature film for Fox 2000, based on the New York Times
best seller.
Live Shows
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"American Bandstand" has been licensed for use as a theme name and
logo for live stage shows. In fiscal 1997, we entered into a three-year license
agreement for a new live show produced by Opryland Productions, Inc. at its
Opryland USA Theme Park, a family-oriented entertainment facility in Nashville.
We continue to license the "American Bandstand" trademark for use in a live show
at Harvey's hotel and casino at Lake Tahoe, Nevada.
Media Archives and Home Video
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The Company believes that it owns one of the largest collections of
musical performance footage, including 16mm films that have been enhanced and
transferred to video tape. The Company keeps an updated, computerized index of
available material in order to be able to easily access the performance footage.
The Company also occasionally acquires from others the rights to license classic
performances by popular recording artists. These rights are acquired from the
copyright holders and then licensed for television, film, cable and home video.
Although the Company's archives are used as source material for the Company's
productions, the Company actively licenses footage from its archives to third
parties as well. In fiscal 1997, the Company licensed footage from its library
to: MTV's "Legends" series, Oprah Winfrey Show, Rosie O'Donnell Show, ABC News
20/20, NBC "Dateline," A&E's "Biography," Lifetime's "Intimate Portrait," Access
Hollywood and E!
The Company also uses its media archives to produce programs intended
directly for the home video market. The Company's previously produced home
videos include The Rock & Roll Collection: Dick Clark's Golden Greats, a
compilation of episodes from the series of the same name; Best of Bandstand
Volumes I & II, a collection of clips from the American Bandstand series; Elvis,
The Movie; and several other television movies from the Company's library. These
home video releases are distributed by various independent distribution
companies.
6
In fiscal 1997, a special direct-to-home video was produced called
"Kid Talk 2000," which will be distributed by MVP Entertainment in fiscal 1998.
Other Businesses
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dick clark corporate productions, inc. The Company's wholly-owned
subsidiary, dick clark corporate productions, inc., specializes in 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.
During fiscal 1996, dick clark corporate productions evolved from
primarily an events producer to include innovative marketing and business
communications services for major corporations. In fiscal 1997, dccp's strategy
is to provide its clients the benefit of a range of talents and production
resources available to the television production business - offering a distinct,
new level of creativity, production quality and expertise to this market. This
access, together with the Company's budgetary controls, provides higher
entertainment quality at an efficient cost. Using the entertainment resources of
the Company, dccp is able to provide solutions to businesses seeking
alternatives to the traditional forms of communication to reach their intended
audiences.
During fiscal 1997, dccp produced and delivered the following: The
50th Anniversary Celebration of Tektronix, Inc. - An open-air, live event which
entertained 7,000 employees and featured company exhibits and a dynamic
performance by the legendary Smokey Robinson; The Nissan Z-car Tribute - This
event marked the end of an era which paid tribute to the final Z-car with an
exhibit and commemoration ceremony at the Petersen Automotive Museum in Los
Angeles. The American Honda Motor Co. Motorcycle Division Dealer Meeting - A
production for the National Dealer Meeting in Nashville, Tennessee, which
capitalized on the Company's expertise and strong ties in the country music
market; The Boeing Next Generation 737 Launch - The newly designed Boeing 737
series was introduced to the world by converting a working airplane hangar into
the world's largest museum. More than 41,000 guests attended the event during a
single day in Renton, Washington; The Boeing Paris Air Show Exhibit - A complete
redesign project based on the impressive results that were achieved by the
Company on both the 737 and 777 launches; ITT Sheraton 1st Global Marketing and
Sales Summit - An International summit for ITT Sheraton, which included the
design of a custom set, coaching for senior executives, and break-out sessions;
Kodak Professional Division Launch Meeting - After a period of downsizing and
consolidation, Kodak hired the Company to a project which launched a new
Professional Division, this included the complete project from theme
development, all speech writing and video production to environmental design;
The Mazda Auto Show Film - To attract visitors to Mazda's Auto Show booth and
convey its overall brand premise, the Company developed a panoramic film
experience, projected on a 12' x 40' screen with surround sound. The Company
tapped into its Hollywood connections to bring award-winning talent to the film,
which traveled to auto shows nationwide; Caruso Affiliated Holdings Promenade at
Westlake Opening - To celebrate the opening of this unique open-air mall, the
Company created a private event with a special appearance by Steve Allen, a live
30-piece orchestra, a laser show, fireworks display and dinner for 1,000 guests;
Sony Business and Professional Group National Sales and Management Meeting - An
event in Florida with Sony to help focus the attendees on goals and objectives
for the year, get them prepared for a new wave of digital products, motivate
them and recognize their achievements.
Record business. In fiscal 1994, the Company established the CLICK
Records(R) Inc. ("CLICK") label. During fiscal 1996, the Company entered into an
agreement with Castle Communications (U.S.), Inc. for worldwide distribution of
CLICK's recordings. Under the terms of the Company's agreement, the Company is
not responsible for financing the production or distribution costs of CLICK's
recordings. The strategy for the label involves enlisting the talent of popular
recording artists of the '60s, '70s and '80s to perform classic as well as
contemporary songs by varied composers and groups, resulting in recordings with
wide appeal. During fiscal 1997, we completed a CD of The Spinners, called "The
Spinners at Their Best". In 1997, however, Castle Communications filed for
bankruptcy and as such we are reassessing our options with respect to production
and distribution. A second CD which was in production featuring The Association,
and a planned third CD with Little Anthony and the Imperials have been put on
hold pending the Company's decision with respect to CLICK Records.
The Company collaborated with HarperCollins, which published an
oversized illustrated book tracing "American Bandstand" and its impact on the
American scene musically and culturally over four decades.
7
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 television show and over 40 years of
contemporary music, "Dick Clark's American Bandstand Grill" ("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 the
restaurant with a state-of-the-art audio-visual entertainment system; and
signature "American Bandstand Grill" merchandise for customers to purchase. Each
"Dick Clark's American Bandstand Grill" also features memorabilia and other
items generally associated with rock n' roll and the Company's activities
throughout the years, including vintage photos, gold and platinum albums,
original stage costumes, concert programs, rock stars' musical instruments and
rare posters.
Currently, the Company has operations in eight locations: Overland
Park, Kansas, a suburb of Kansas City, which opened in August 1992;
Indianapolis, Indiana and Columbus, Ohio, which opened in April/May 1994;
Cincinnati, Ohio, which opened in March 1996; St Louis, Missouri, which opened
in November 1996; Austin, Texas, which opened in May 1997; King of Prussia,
Pennsylvania, which opened in June 1997; and a dance-club-only variation of the
concept in Reno, Nevada which opened in August 1993.
The Company is developing additional locations which could open in
the second half of fiscal 1998.
dcri and Harmon Entertainment Corporation, a New Jersey corporation
("Harmon"), were originally partners in Entertainment Restaurants, a New York
partnership (the "Partnership"), which was created to own, operate and manage
"Dick Clark's American Bandstand Grill" restaurants and which developed the
first restaurant in Miami, Florida. The Partnership purchased Harmon's interest
in the Partnership in the spring of 1990, whereupon dcri became the sole owner
of all of the assets of the Partnership. The Overland Park, Kansas restaurant
was the Company's first owned and operated "Dick Clark's American Bandstand
Grill" restaurant. The Company agreed to reimburse Harmon for capital
expenditures made in connection with the Miami restaurant and to pay Harmon a
royalty over time of 1.5% of gross revenues from restaurant operations, up to an
aggregate of $10,000,000, for its interest in the Partnership. The Company has
satisfied in full this obligation by an advance payment of $1,000,000 in the
spring of 1990 and a final payment of $3,128,000 in December 1994. The entire
$4,128,000 is being amortized by the Company at the rate of 1.5% of revenues.
dcri has numerous memorabilia displayed in its restaurants and such
memorabilia are an integral part of the restaurant's theme. Some of the
memorabilia is owned by Olive and loaned to dcri without charge. In fiscal 1995,
dcri began acquiring certain memorabilia for its own use and has invested
$356,000 to date for current and future grills.
Operations
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Significant resources are devoted to ensure that "Dick Clark's
American Bandstand Grill" restaurants offer the highest quality food and
service. Through its managerial personnel, the Company standardizes
specifications for the preparation and service of its food, the maintenance and
repair of its premises and the appearance and conduct of its employees.
Operating specifications and procedures are documented in a series of manuals.
Emphasis is placed on ensuring that quality ingredients are delivered to the
restaurants, continuously developing and improving restaurant food production
systems, and ensuring that all employees are dedicated to delivering
consistently high-quality food and service.
The primary commodities purchased by the "Dick Clark's American
Bandstand Grill" restaurants are beef, poultry, seafood and produce. The Company
monitors the current and future prices and availability of the primary
commodities purchased by the Company to minimize the impact of fluctuations in
price and availability and to make advance purchases of commodities when
considered to be advantageous. However, purchasing remains subject to price
fluctuations in certain commodities, particularly produce. All essential food
and beverage products are available, or upon short notice can be made available,
from alternative qualified suppliers.
8
The Company maintains centralized financial and accounting controls
for "Dick Clark's American Bandstand Grill" restaurants, which it believes are
important in analyzing profit margins. The restaurants utilize a computerized
POS system which provides point-of-sale transaction data and accumulation of
pertinent marketing information. Sales data are collected and analyzed on a
daily basis by management.
Locations. The success of any restaurant depends, to a large extent,
on its location. The site selection process for the Company's restaurants
consists of three main phases: strategic planning, site identification and
detailed site review. The strategic planning phase ensures that restaurants are
located in population areas with demographics that support the entertainment
concept. In the site identification phase, the major trade areas within a market
area are analyzed and a potential site is identified. The final and most
time-consuming phase is the detailed site review. In this phase, the site's
demographics, traffic and pedestrian counts, visibility, building constraints,
and competition are studied 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.
Six of the Company's first eight locations average 10,000 square feet
in size. The Company is developing alternate configurations and sizes which
increase the flexibility in choosing locations and expands the potential of the
restaurant group. As an example, the new Grill opened in Austin, Texas, is an
8,500 square-foot unit that is designed with a dance club area which will
accommodate full dining during lunch and early dinner hours when not in use as a
dance club. In addition, the Grill opened in St. Louis is a 7,600 square foot
unit. This is the Company's first restaurant-only unit without a dance floor - a
potential prototype for another version of the Grill.
The smaller and varied restaurant formats that we have developed
should make a greater number of locations available for future consideration,
expanding the overall potential of the restaurant group. In particular, smaller
units should provide increased opportunities for growth as the investment in
individual restaurants will be less and the site alternatives will be more
numerous.
The Company is also planning to test future Grills of approximately
6,500 - 7,000 square feet without a dance club area. These smaller units may
provide increased profitability relative to their investment costs and should
make the search for prime locations easier. Accordingly, many more locations
with the right market and demographic mix will be available for consideration,
including locations in malls where appropriate.
Intended as a market test, the Company, through a joint venture,
opened a dance-club only variation of the "Dick Clark's American Bandstand
Grill" in the legendary Harold's Club in Reno, Nevada. Although the concept has
been profitable, the Company has chosen to focus its expansion efforts on
restaurants, which the Company believes have a broader market appeal and greater
potential for future revenue growth.
GENERAL INFORMATION
-------------------
Joint Ventures
- --------------
The Company from time to time enters into joint ventures with parties
not otherwise affiliated with the Company whose purpose is the production of
entertainment programming and other entertainment related activities associated
with the Company's business.
The C&C Joint Venture was organized by the Company and Freedom
Productions in 1983 to develop and produce the Bloopers series. In December
1988, the Company acquired a controlling interest in the C&C Joint Venture, and
the Company's share of net profits and losses in that venture is now 51%.
Dick Clark's American Bandstand Club, a joint venture between Reno
Entertainment, Inc., a wholly-owned subsidiary of dcri, and RLWH, Inc., was
organized to own and operate a dance club version of "Dick Clark's American
Bandstand Grill" in Reno, Nevada. Through its ownership in dcri, the Company
owns a 51% controlling interest in this venture.
Trademarks
- ----------
The Company licenses from Olive the United States registered service
mark American Bandstand(R) and various
9
variations thereof. This license has been extended through the end of fiscal
1997. As part of this license, the Company utilizes the service marks and
trademarks American Bandstand Grill(R), Dick Clark's American Bandstand Grill(R)
and AB (Stylized). The Company also owns many other trademarks and service
marks, including federal registration for trademarks and service marks related
to its television programming and other businesses.
Certain of the Company's trademarks and service marks may be
considered to be material to the Company, such as the trademarks and service
marks used in connection with the Company's restaurant operations.
Backlog and Deferred Revenue
- ----------------------------
The Company's backlog consists of orders by networks, first-run
syndicators and cable networks for television programming to be delivered for
the 1997/1998 television season as well as contractual arrangements for the
services of dccp. At June 30, 1997, the Company had received orders for 2
series, 10 specials, and 6 corporate production events which are expected to
total $34,047,000. At June 30, 1996, the Company had received orders for 3
series, 11 specials and 3 corporate production events which were expected to
total $29,425,000. At June 30, 1995, the Company had received orders for 1
series, 9 specials, and 3 corporate production events which were expected to
total $39,653,000.
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, 1997, 1996
and 1995, such deferred revenue totaled $2,768,000, $726,000, and $4,097,000,
respectively.
Competition
- -----------
Competition in the television industry is intense. The most important
competitive factors include quality, variety of product and marketing. Many
companies compete to obtain the literary properties, production personnel, and
financing, which are essential to market acceptance of the Company's products.
Competition for viewers of the Company's programs has been heightened by the
proliferation of cable networks, which has resulted in the fragmentation of the
viewing audience. The Company also competes for distribution and pre-sale
arrangements, as well as the public's interest in, and acceptance of its
programs. The Company's success is highly dependent upon such unpredictable
factors as the viewing public's taste. Public taste changes, and a shift in
demand could cause the Company's present programming to lose its appeal.
Therefore, acceptance of future programming cannot be assured. Television and
feature films compete with many other forms of entertainment and leisure time
activities, some of which involve new areas of technology, including the
proliferation of internet services and new media games.
The Company's principal competitors in television production are the
television production divisions of the major television networks, motion picture
companies, which are also engaged in the television and feature film
distribution business, and many independent producers. Many of the Company's
principal competitors have greater financial resources and more personnel
engaged in the acquisition, development, production and distribution of
television programming. At present there is substantial competition in the
first-run syndication marketplace, resulting in fragmentation of ratings and
advertising revenues.
Certain of the Company's customers and the television networks are
considered competitors of the Company in that they produce programming for
themselves. While the Federal Communications Commission (the "FCC") promulgated
the Financial Interest and Syndication Rule (the "FinSyn Rule") in 1970 in order
to restrict network ownership of programming and syndication activities, the
FinSyn Rule, as later amended in 1992, expired on September 21, 1995, thereby
eliminating such restrictions. As a consequence, the 40% cap on network in-house
productions previously imposed in 1992 was eliminated, thereby permitting the
major networks to produce and syndicate, in house, all of their primetime
entertainment schedule. With the elimination of such restrictions, the major
networks have increased the amount of programming they produce through their own
production companies. Numerous consolidations have also occurred, further
restricting the Company's ability to sell its entertainment programming.
As a result of the elimination of the FinSyn Rule, the Company has
encountered increased competition in the domestic and foreign syndication of
future television programming, and the Company's rerun syndication revenues
could be adversely impacted by such modification. In addition, there is
increased competition from emerging networks, which were previously exempt from
any restrictions under the FinSyn Rule. The Company believes, however, that it
can continue to compete successfully in the highly-competitive market for
television programming. This belief is based on management's extensive
10
experience in the industry, the Company's reputation for prompt, cost-efficient
completion of production commitments and the Company's ability to attract
creative talents.
The restaurant industry is a highly-competitive industry that is
affected by many factors including changes in the economy, changes in
socio-demographic characteristics of areas in which restaurants are located,
changes in customer tastes and preferences, and increases in the number of
restaurants in which the Company's restaurants are located. The degree to which
such factors may affect the restaurant industry, however, are not generally
predictable.
Competition in the restaurant industry can be divided into three main
categories: fast food, casual dining, and fine dining. The casual dining segment
(which includes the Company's restaurant operations) includes a much smaller
number of national chains than the fast-food segment but does include many local
and regional chains as well as thousands of independent operators. The fine
dining segment consists primarily of small independent operations in addition to
several regional chains.
The market for corporate production services is large with many
companies vying for market share. In fact, competition in the corporate
production services segment is fierce. Most customers require bids on a
competitive basis and some of the Company's competition have larger staffs and a
greater global reach for information. dccp's principle competitors are other
producers of corporate events and films (including Jack Morton Productions and
Carabiner, Inc.), which have been in business longer and are more established.
The Company believes that dccp can compete successfully in this market by
utilizing the Company's experience in producing live events for television and
its existing talent and business relationships.
Employees - Television Production & Related Activities
- ------------------------------------------------------
At June 30, 1997, the Company had approximately 100 full-time
employees in connection with the Company's television production and related
activities. The Company meets a substantial part of its personnel needs in this
business segment by retaining directors, actors, technicians and other
specialized personnel on a per production, weekly or per diem basis. Such
persons frequently are members of unions or guilds and generally are retained
pursuant to the rules of such organizations.
The Company is a signatory to numerous collective bargaining
agreements relating to various types of employees such as directors, actors,
writers and musicians. The Company's union wage scales and fringe benefits
follow prevailing industry standards. The Company is a party to one contract
with the American Federation of Television and Radio Artists, which expires in
November 1997, two contracts with the American Federation of Musicians which
expired in February and May of 1992 (the Company is currently operating under
the provisions of the contracts which expired and is in negotiations with this
union, and expects to renew these contracts in the near future), two contracts
with the Directors Guild of America, which expires in June 1999, one contract
with the Writers Guild of America which expires in May 1998 and two contracts
with the Screen Actors Guild, both of which expire in June 1998. The renewal of
these union contracts does not depend on the Company's activities or decisions
alone. If the relevant union and the industry are unable to come to new
agreements on a timely basis, any resulting work stoppage could adversely affect
the Company.
Employees - Restaurants
- -----------------------
At June 30, 1997, 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
believes its labor relations are good.
ITEM 2. PROPERTIES.
The Company leases from Olive under a triple net lease approximately
30,000 square feet of office space and equipment in two buildings located in
Burbank, California, for its principal executive offices. The current annual
base rent is $613,000 (payable monthly commencing January 1, 1992) and the lease
expires on December 31, 2000. The lease agreement provides for rental
adjustments every two years, commencing January 1, 1992, based on increases in
the Consumer Price Index during the two-year period. The Company subleases
approximately 10,000 square feet of space to third parties and affiliated
companies on a month-to-month basis. The Company believes that the subleases to
affiliated companies are no less favorable to the Company than could be obtained
from unaffiliated third parties on an arms-length basis.
11
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, 1999.
The Company has entered into lease agreements with respect to
numerous restaurant sites that terminate at varying dates through November 30,
2010.
dcpi's subsidiary, dccp, is a lessee under a lease agreement with
Chelsea Atrium Associates, a New York Partnership, for approximately 5,000
square feet for the site of the dccp office in New York, New York. In addition,
dccp subleases a portion of the space to Kobin Enterprises, Ltd. That sublease
has been renewed through September 30, 1998. The lease expires November 1, 1999.
The current annual base rent is $85,000. This amount increases 3.5% annually.
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.
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
Price Range
Fiscal 1997 Fiscal 1996 Fiscal 1995
----------- ----------- -----------
High Low High Low High Low
--------- --------- --------- --------- --------- --------
1st Quarter $ 14.25 $ 11.00 $ 10.00 $ 8.25 $ 10.75 $ 8.00
2nd Quarter 12.00 10.50 10.25 9.00 10.25 7.75
3rd Quarter 12.25 10.00 13.00 8.75 10.00 7.50
4th Quarter 14.00 11.38 15.00 12.00 9.75 8.50
ITEM 6. SELECTED FINANCIAL DATA
Income Statement 1997 1996 1995 1994 1993
================================================================================
Total revenues $66,129 $73,819 $46,645 $58,296 $43,428
Gross profit 14,217 11,969 9,094 10,681 5,078
G&A expenses 4,975 4,339 4,145 4,113 3,529
Minority interest 672 351 107 507 305
Interest and other income (1,937) 1,788 1,711 1,455 1,444
Income before taxes 10,507 9,067 6,553 7,516 2,688
Provision (credit) for income taxes 3,993 3,469 2,461 2,640 (510)
Net income 6,514 5,598 4,092 5,138 3,198
================================================================================
Balance Sheet 1997 1996 1995 1994 1993
========================================================================================================
Working capital $30,017 $29,573 $27,260 $27,136 $29,101
Program costs, net 4,615 1,741 4,306 1,474 5,745
Total assets 63,298 52,711 48,308 44,317 42,461
Stockholders' equity 50,319 43,494 37,792 33,693 28,501
Weighted average number of shares outstanding
Number of shares outstanding at 8,328 8,279 8,278 8,266 8,265
year end
Per share data 8,382 8,302 8,279 8,277 8,265
Net income
Net book value .78 .68 .49 .62 .39
6.00 5.25 4.57 4.07 3.45
========================================================================================================
- --------
1 Represents the sum of cash, marketable securities and accounts receivable
less accounts payable.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of the following discussion and analysis is to explain
the major factors and variances between periods of the Company's results of
operations. This analysis should be read in conjunction with the financial
statements and the accompanying notes which begin on page 18.
Introduction
- ------------
A majority of the Company's revenue 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 and
television movies, specials and commercials. The Company, on a limited basis,
also develops theatrical films in association with established studios that
generally provide the financing necessary for production.
The Company also derives substantial revenue from its restaurant
business (dick clark restaurants, inc. and its subsidiaries). This business
segment contributed approximately 24%, 18 % and 29% to the Company's
consolidated revenue for the fiscal years ended June 30, 1997, 1996, and 1995,
respectively.
General
- -------
License fees for the production of television programming are
generally paid to the Company pursuant to license agreements during production
and upon availability and delivery of the completed program or shortly
thereafter. Revenue from network and cable television license agreements 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 dick clark corporate
productions, inc. 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 corporate event productions are capitalized and expensed as
revenue is recognized.
Liquidity and Capital Resources
- -------------------------------
The Company's capital resources are more than adequate to meet its
current working capital requirements. The Company had cash and marketable
securities of approximately $31,754,000 as of June 30, 1997 compared to
$29,872,000 as of June 30, 1996. 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 its 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
14
produces television movies and television series, the Company may be required to
finance the portion of its program costs for these programs not covered by
guaranteed license payments from program buyers (known in the television
industry as "deficit financing"). None of the Company's television production in
fiscal 1997 or 1996 required any material deficit financing by the Company. The
Company does anticipate incurring deficit financing in connection with the
production of a children's series to be delivered in fiscal 1998. No other
programs which are currently in development are anticipated to required any
material deficit financing.
Net cash provided by operating activities was approximately $8.6
million, $5.8 million and $1.5 million in fiscal 1997, 1996 and 1995,
respectively. Net cash used in investing activities was approximately $6.6
million, $8.2 million and $2.6 million in fiscal 1997, 1996 and 1995,
respectively. The fluctuations in cash provided by operations and cash used for
investing activities for those years primarily reflect changes in production
activity and the construction of three "Dick Clark's American Bandstand Grill"
restaurants in fiscal 1997 and one restaurant in fiscal 1996.
The Company expects that the opening of additional American Bandstand
Grill restaurants will be financed from available capital and/or alternative
financing methods such as joint ventures and limited recourse borrowings. The
Company anticipates opening additional locations in fiscal 1998 which will be
funded directly by the Company without using such alternative methods. Capital
requirements for the Company's corporate events and production business, dick
clark corporate productions, inc., are anticipated to be immaterial to the
Company's overall capital position in fiscal 1998.
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, 1997 was $66,129,000
compared to $73,819,000 for the year ended June 30, 1996 and $46,645,000 for the
year ended June 30, 1995.
The decrease in revenue in fiscal 1997 as compared to fiscal 1996 is
primarily attributable to decreased revenue associated with the television
series "Tempestt" which completed production during fiscal 1996 as well as
decreased revenue associated with the Company's corporate production business.
This decrease was offset in part by increased revenue associated with the
opening of three additional restaurants during fiscal 1997 as well as the
inclusion of revenue from an additional restaurant which was operating for only
four months during fiscal 1996.
The increase in revenue in fiscal 1996 as compared to fiscal 1995 was
primarily attributable to the delivery of the "Tempestt" talk show series in
fiscal 1996. The increase is further explained by increased revenue associated
with the Company's corporate production business, an improved contract for one
annual special as well as the delivery in fiscal 1996 of a movie for television
which did not occur in fiscal 1995.
During fiscal 1997, revenue from a recurring annual special
represented approximately 14% of total revenue. During fiscal 1996, revenue from
a five-day per week talk show series represented approximately 15% of total
revenue and revenue recognized from a recurring annual special represented
approximately 12% of total revenue. During fiscal 1995, revenue from a recurring
annual special represented approximately 20% of total revenue. No other
production or project accounted for more than 10% of total revenue for fiscal
1997, 1996 or 1995.
Gross Profit -- Gross profit as a percentage of revenue was 21 %, 16%
and 19% for fiscal 1997, 1996 and 1995, respectively. The increase in gross
profit as a percentage of revenue in fiscal 1997 as compared to fiscal 1996 is
primarily attributable to increased profitability of the Company's television
series production activities. During fiscal 1996 the Company produced a five-day
per week television talk show series which earned a small gross profit as a
percentage of sales. This syndicated five-day per week talk show series was
cancelled by the end of fiscal 1996 and, as a consequence, gross profit as a
percentage of sales increased in fiscal 1997. The increase in gross profit as a
percentage of sales is further explained by the production and delivery of a new
dramatic series for Fox Broadcasting Company during fiscal 1997.
The decrease in gross profit as a percentage of revenue in fiscal
1996 as compared to fiscal 1995 is primarily attributable to lower gross profit
as a percentage of sales associated with the five-day per week television talk
show series. Talk show series in their first year of release typically earn a
small gross profit as a percentage of sales. This syndicated five-day per week
talk show series was in its first year of release. The decrease in gross profit
as a percentage of sales in
15
fiscal 1996 is further explained by a one time project for a customer of dick
clark corporate productions, which contributed lower gross profit as a
percentage of the contracted revenue due to the size and nature of the project.
General & Administrative -- General and administrative expense
increased in fiscal 1997 and fiscal 1996 compared to the corresponding periods
in the previous fiscal years primarily as a result of increased personnel costs
associated with the expansion of the restaurant business.
Other -- Minority interest expense increased in fiscal 1997 compared
to fiscal 1996 primarily as a result of the licensing of the rebroadcast rights
to 118 episodes of the previously-produced "Super Bloopers and New Practical
Jokes". Minority interest expense increased in fiscal 1996 compared to fiscal
1995 primarily as a result of the licensing of 22 episodes of the
previously-produced "Super Bloopers and New Practical Jokes" shows. 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.
General
- -------
Certain statements in the foregoing Management's Discussion and
Analysis (the "MD&A") are not historical facts or information and certain other
statements in the MD&A are forward looking statements that involve risks and
uncertainties, including, without limitation, the Company's ability to develop
and sell television programming, timely completion of negotiations for new
restaurant sites and the ability to construct, finance and open new restaurants
and to attract new corporate productions clients, and such competitive and other
business risks as from time to time may be detailed in the Company's Securities
and Exchange Commission reports.
16
CONSOLIDATED BALANCE SHEETS
YEAR ENDED JUNE 30,
-------------------
ASSETS 1997 1996
---- ----
Cash and cash equivalents $ 3,322,000 $ 953,000
Marketable securities 28,432,000 28,919,000
Accounts receivable 4,221,000 4,713,000
Program costs, net 4,615,000 1,741,000
Prepaid royalty 3,128,000 3,128,000
Property, plant and equipment, net 16,711,000 11,275,000
Goodwill and other assets, net 2,869,000 1,982,000
----------- -----------
Total assets $63,298,000 $52,711,000
----------- -----------
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 5,958,000 $ 5,012,000
Accrued residuals and participations 2,410,000 2,260,000
Production advances and deferred revenue 2,768,000 726,000
Current and deferred income taxes 936,000 602,000
----------- -----------
Total liabilities 12,072,000 8,600,000
----------- -----------
Commitments and contingencies
Minority interest 907,000 617,000
Stockholders' Equity:
Class A common stock, $.0l par value,
2,000,000 shares authorized
750,000 shares outstanding 7,000 7,000
Common stock, $.01 par value,
20,000,000 shares authorized
7,631,500 shares outstanding at June 30, 1997 & 76,000 76,000
7,551,500 shares outstanding at June 30, 1996
Additional paid-in capital 8,205,000 7,894,000
Retained earnings 42,031,000 35,517,000
----------- -----------
Total stockholders' equity 50,319,000 43,494,000
----------- -----------
Total liabilities & stockholders' equity $63,298,000 $52,711,000
----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
17
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30,
-------------------
1997 1996 1995
---- ---- ----
Gross revenue $ 66,129,000 $ 73,819,000 $ 46,645,000
Costs related to revenue 51,912,000 61,850,000 37,551,000
------------ ------------ ------------
Gross profit 14,217,000 11,969,000 9,094,000
General and administrative expense 4,975,000 4,339,000 4,145,000
Minority interest expense 672,000 351,000 107,000
Interest and other income (1,937,000) (1,788,000) (1,711,000)
------------ ------------ ------------
Income before provision for
income taxes 10,507,000 9,067,000 6,553,000
Provision for income taxes 3,993,000 3,469,000 2,461,000
------------ ------------ ------------
Net income $ 6,514,000 $ 5,598,000 $ 4,092,000
------------ ------------ ------------
Net income per share $ 0.78 $ 0.68 $ 0.49
------------ ------------ ------------
Weighted average number of
shares outstanding 8,328,000 8,279,000 8,278,000
------------ ------------ ------------
The accompanying notes are an integral part of these consolidated financial
statements.
18
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Class A Common Additional Total
Common Stock Stock Paid-in Retained Stockholders'
Shares Amount Shares Amount Capital Earnings Equity
- ------------------------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance,
June 30, 1994 750,000 $ 7,000 7,527,000 $ 76,000 $ 7,783,000 $25,827,000 $33,693,000
Net income -- -- -- -- -- 4,092,000 4,092,000
Exercise of -- -- 1,500 -- 7,000 -- 7,000
stock options
- ------------------------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance,
June 30, 1995 750,000 7,000 7,528,500 76,000 7,790,000 29,919,000 37,792,000
Net income -- -- -- -- -- 5,598,000 5,598,000
Exercise of -- -- 23,000 -- 104,000 -- 104,000
stock options
- ------------------------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance,
June 30, 1996 750,000 7,000 7,551,500 76,000 7,894,000 35,517,000 43,494,000
Net income -- -- -- -- -- 6,514,000 6,514,000
Exercise of -- -- 80,000 -- 311,000 -- 311,000
stock options
- ------------------------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance,
June 30, 1997 750,000 $ 7,000 7,631,500 $ 76,000 $ 8,205,000 $42,031,000 $50,319,000
- ------------------------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
19
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
Cash flows from operating activities
Net income $ 6,514,000 $ 5,598,000 $ 4,092,000
Adjustments to reconcile net income to net cash
provided by operations
Amortization expense 22,239,000 47,778,000 20,858,000
Depreciation expense 1,468,000 1,123,000 981,000
Investment in program costs (24,586,000) (44,952,000) (23,046,000)
Minority interest, net 290,000 93,000 (441,000)
Disposals of leasehold improvements & equipment 150,000 73,000 177,000
Changes in assets and liabilities
Accounts receivable 492,000 (2,410,000) 1,641,000
Prepaid royalty -- -- (3,128,000)
Goodwill and other assets (1,414,000) (114,000) (21,000)
Accounts payable, accrued residuals and participations 1,096,000 1,725,000 (1,826,000)
Production advances and deferred revenue 2,042,000 (3,371,000) 1,811,000
Current and deferred income taxes payable 334,000 254,000 431,000
------------ ------------ ------------
Net cash provided by operations 8,625,000 5,797,000 1,529,000
------------ ------------ ------------
Cash flows from investing activities
Purchases of marketable securities (29,068,000) (17,348,000) (14,224,000)
Sales of marketable securities 29,555,000 14,198,000 12,803,000
Expenditures on property, plant and equipment (7,054,000) (5,095,000) (1,154,000)
------------ ------------ ------------
Net cash used for investing activities (6,567,000) (8,245,000) (2,575,000)
------------ ------------ ------------
Cash flows from financing activities
Exercise of stock options 311,000 104,000 7,000
------------ ------------ ------------
Net cash provided by financing activities 311,000 104,000 7,000
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 2,369,000 (2,344,000) (1,039,000)
Cash and cash equivalents at beginning of the year 953,000 3,297,000 4,336,000
------------ ------------ ------------
Cash and cash equivalents at end of the year $ 3,322,000 $ 953,000 $ 3,297,000
------------ ------------ ------------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for income taxes $ 3,664,000 $ 3,186,000 $ 2,030,000
------------ ------------ ------------
The accompanying notes are an integral part of these consolidated financial
statements.
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
1 -- Basis of Financial Statement Presentation
The consolidated financial statements include the accounts of dick
clark productions, inc., its wholly-owned subsidiaries and majority owned joint
ventures, collectively referred to as the "Company". For financial statement
reporting purposes, the accounts are consolidated using historical data. All
significant 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 the matters submitted to a vote of stockholders, and the Class A common
stock is entitled to 10 votes per share. Holders of Class A common stock are
entitled to a dividend equal to 85% of any declared cash dividends on the shares
of common stock. On liquidation of the Company, holders of the common stock are
entitled to receive $2.00 per share before any payment is made to the holders of
Class A common stock, and thereafter the holders of Class A common stock are
entitled to share ratably with the holders of common stock in the net assets
available for distribution.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the 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 corporate productions, 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:
YEAR ENDED JUNE 30,
Significant Customers 1997 1996 1995
- --------------------- ---- ---- ----
NBC entertainment 15% 13% 15%
ABC entertainment 17% 13% 24%
Columbia Tristar Television 0% 15% 0%
The Company produces television programming in relation to several
awards shows subject to long-term license agreements which expire between 1997
and 2000. While the existence of each long-term agreement enhances the future
financial performance of the Company, the non-renewal of certain such agreements
at their respective expiration dates could have a material adverse impact on the
Company's financial performance.
Program 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, 1997,
1996 and 1995 there was $5,237,000, $4,825,000 and $3,576,000, respectively, of
production overhead included within program costs.
Upon distribution of acquired film rights, the Company uses the
individual film forecast method set forth in SFAS No. 53 to amortize these
program costs, together with the participants' share and residuals costs, based
upon the ratio of revenue
21
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. There were no significant write downs of
program costs in the fiscal years ended June 30, 1997, 1996 and 1995.
The Company periodically reviews the status of projects in
develpment. If, in the opinion of the Company's management, any such projects
are not planned for production, the costs and any reimbrusements 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.
Accounts Receivable --Accounts receivable represent unsecured
balances due from the Company's various customers and the Company is at risk to
the extent such amounts become uncollectible. The Company performs credit
evaluations of each of its customers and maintains allowances for potential
credit losses. Such losses have generally been within management's expectations.
Marketable Securities -- Marketable securities consist primarily of
investments in United States Treasury Bills and Treasury Notes. The Company
classifies its investments in marketable securities as "held-to-maturity ", and
carries the 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. The cost of these investments as of June 30, 1997
and 1996 was $28,432,000 and $28,919,000, respectively, and the market value as
of June 30, 1997 and 1996 was $28,133,000 and $28,505,000, respectively. As of
June 30, 1997, the recorded costs of marketable securities maturing in fiscal
1998, 1999, 2000, and 2001 were $17,340,000, $6,024,000, $3,561,000, and
$1,507,000, respectively.
Cash and Cash Equivalents - Cash equivalents consist of investments
in interest bearing instruments issued by banks and other financial institutions
with original maturities of 90 days or less. Such investments are stated at
cost, which approximates market value.
Property, Plant and Equipment - Property, plant and equipment consist
of the following:
As of June 30,
1997 1996
------------ ------------
Land $ 1,993,000 $ 660,000
Buildings 4,464,000 3,112,000
Leasehold improvements 5,889,000 3,005,000
Furniture and fixtures 6,210,000 3,915,000
Production and other equipment 2,920,000 2,037,000
Construction in process 73,000 2,000,000
------------ ------------
Total property, plant and equipment $ 21,549,000 $ 14,729,000
Accumulated depreciation (4,838,000) (3,454,000)
------------ ------------
Property, plant and equipment, net $ 16,711,000 $ 11,275,000
============ ============
Depreciation 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. Smallwares, included in furniture
and fixtures, of $451,000 and $326,000 at June 30,1997 and 1996, respectively,
are not being depreciated.
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 over the estimated useful life of the
improvements.
Goodwill and Other Assets -- Goodwill resulting from the Company's
acquisition of Entertainment Restaurants (see Note 4) in fiscal 1990 is being
amortized on a straight-line basis over 20 years. Other assets include
capitalized organizational costs, pre-opening costs and liquor license costs.
Organizational costs and pre-opening costs are being amortized over 5 years and
12 months, respectively. Organizational costs include legal and other expenses
relating primarily to the Company's various restaurant locations. Pre-opening
costs are limited to direct, incremental costs relating to start-up activities
associated with the Company's restaurant business. Liquor license costs at June
30, 1997 and 1996 of $143,000 and $75,000, respectively, are not being
amortized. Accumulated amortization of goodwill and other assets at June 30,
1997 and 1996 was $1,966,000 and $1,438,000, respectively.
22
Unclassified Balance Sheet --In accordance with the provisions of
Statement of Financial Accounting Standards No. 53, the Company has elected to
present an unclassified balance sheet.
Joint Ventures --The Company has a controlling interest in several
joint venture arrangements in which the Company's share of profits and losses
exceed 50%. As a result, the assets, liabilities, 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.
Net Income Per Share -- Net income per share is computed on the basis
of the weighted average number of common shares outstanding each year, plus
common stock equivalents related to dilutive stock options.
New Accounting Pronouncements -- In February, 1997 the Financial
Accounting Standards Board (FASB) issued SFAS No. 128, "Earnings Per Share"
which will be implemented by the Company in the quarter ending December 31,
1997. The new standard simplifies the computation of earnings per share (EPS)
and increases comparability to international standards. Under SFAS No. 128,
primary EPS is replaced by "Basic" EPS, which excludes dilution and is computed
by dividing income available to common shareholders by the weighted-average
number of common shares outstanding for the period. "Diluted" EPS, which is
computed similarly to fully diluted EPS, reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock.
In February, 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure", which is effective for the Company's
fiscal year ending June 30, 1998. This statement establishes standards for
disclosing information about an entity's capital structure.
In June, 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" which is effective for 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.
In June, 1997, the FASB issued SFAS No. 131, "Disclosure about
Segments of An Enterprise and Related Information", which is effective for the
Company's fiscal year ending June 30, 1999. This statement changes the
requirements under which public businesses report disaggregated information.
The Company will adopt these statements on their respective effective
dates. Management does not anticipate the implementation of SFAS 128 to have a
material impact on the computation of earnings per share. The effect of the
other new accounting pronouncements has not yet been determined by Management.
3 - Program Costs
The Company is engaged, as one of its principle activities, in the
development and production of a wide range of television and corporate
programming.
Management's estimate of forecasted revenue related to released
programs exceeds the unamortized costs on an individual program basis. Such
forecasted revenue is subject to revision in future periods if warranted by
changing conditions such as market appeal and availability of new markets. The
Company currently anticipates that all of such revenue and related amortization
will be recognized under the individual-film-forecast method where programs are
available for broadcast in certain secondary markets in years ranging from 1997
through 2002. 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.
23
Program costs associated with corporate productions are amortized as
projects, or identifiable elements pursuant to a contract, are delivered.
Based on management's estimates of gross revenues as of June 30,
1997, approximately 77% of the $1,592,000 of unamortized program costs
applicable to released programs will be amortized during the three fiscal years
ending June 30, 2000.
Capitalized program costs consist of the following:
As of June 30, 1997 1996
- --------------------------------------------------------------------------------
Released, since inception
Movies for television $ 23,795,000 $ 19,926,000
Television programs 178,563,000 153,388,000
Corporate programs 45,556,000 37,644,000
247,914,000 210,958,000
Less: accumulated amortization (246,322,000) (210,406,000)
1,592,000 552,000
============= =============
In process
Movies for theatrical release 86,000 66,000
Television programs 1,872,000 558,000
Corporate programs 437,000 248,000
2,395,000 872,000
============= =============
Project development costs
Movies for television 511,000 241,000
Television programs 80,000 44,000
Corporate programs 37,000 32,000
628,000 317,000
============= =============
Program costs, net $ 4,615,000 $ 1,741,000
============= =============
4 - Prepaid Royalty
Pursuant to a redemption and settlement agreement dated June 14, 1990
(the "Redemption Agreement"), between Harmon Entertainment Corporation
("Harmon"), a previous co-venturer 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. As part of this transaction, Harmon paid the Company
$358,000 in settlement of amounts owed to the Company by Harmon pursuant to the
findings of an audit conducted by the Company in connection with the Redemption
Agreement. As a result of the pre-payment, the Company satisfied in full its
royalty obligation to Harmon under the Redemption Agreement. Harmon also dropped
a previously asserted claim that it was owed certain other amounts under the
Redemption Agreement. The Company is amortizing the prepaid royalty at the rate
of 1.5% of revenue after the $1,000,000 advanced to Harmon is recouped (based on
revenue).
24
5 - Income Taxes
The provision for income taxes consists of the following:
Year ended June 30, 1997 1996 1995
----------- ----------- -----------
Current
Federal $ 3,539,000 $ 3,174,000 $ 1,147,000
State 376,000 367,000 199,000
Foreign 170,000 192,000 140,000
----------- ----------- -----------
$ 4,085,000 $ 3,733,000 $ 1,486,000
Deferred
Federal (87,000) (230,000) 883,000
State (5,000) (34,000) 92,000
(92,000) (264,000) 975,000
----------- ----------- -----------
$ 3,993,000 $ 3,469,000 $ 2,461,000
=========== =========== ===========
A reconciliation of the difference between the statutory federal tax
rate and the Company's effective tax rate on a historical basis is as follows:
Year ended June 30, 1997 1996 1995
- ------------------- ---- ---- ----
Statutory federal rate 34% 34% 34%
State taxes, net of federal income tax benefit 4 4 3
Other -- -- 1
---- ---- ----
Effective tax rate 38% 38% 38%
==== ==== ====
Statement of Financial Accounting Standards No. 109 requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in financial statements or tax
returns. Under this method, deferred tax liabilities and assets are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
The components of current and deferred income taxes were as follows:
As of June 30,
1997 1996
----------- -----------
Deferred tax assets
Accrued residuals and participations $ 311,000 $ 247,000
Rent abatement 29,000 38,000
Pre-opening costs 214,000 146,000
Depreciation 68,000 37,000
Bonus accrual 362,000 280,000
Miscellaneous 35,000 90,000
----------- -----------
Total deferred tax assets $ 1,019,000 $ 838,000
=========== ===========
Deferred tax liabilities
Difference between book and tax accounting for program costs $ (481,000) $ (150,000)
Prepaid royalty (1,189,000) (1,220,000)
Tax deductible goodwill (257,000) (284,000)
----------- -----------
Total deferred tax liabilities $(1,927,000) $(1,654,000)
Net deferred tax liability (908,000) $ (816,000)
=========== ===========
Taxes (payable)/receivable (28,000) 214,000
Total current and deferred taxes payable $ (936,000) $ (602,000)
=========== ===========
25
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
principle stockholders, covering the premises occupied by the Company in
Burbank, California (see Note 7 for a summary of the terms of the Burbank
Lease). The Company subleases a portion of the space covered by the Burbank
Lease to Olive and to unrelated third parties on a month-to-month basis. In
fiscal years 1997, 1996 and 1995 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 years 1997 or 1996. The Company also paid Olive
$156,000, $142,000 and $97,000 for storage services during the fiscal years
1997, 1996 and 1995, respectively.
The Company provided management and other services to Olive and other
companies owned by the Company's principle stockholders for which the Company
received $150,000, $158,000, and $159,000 for the fiscal years 1997, 1996, and
1995, respectively.
The Company retained the services of Dick Clark as host for certain
of its television programs and other talent services during fiscal 1997, 1996
and 1995 for which the Company paid him host fees of $435,000, $735,000, and
$267,000, respectively. Management believes that the fees paid by the Company
are no more than it would have paid to an unaffiliated third party on an
arms-length basis.
The Company currently licenses the United States registered service
mark "American Bandstand" and all variations thereof from Olive. The Company
does not pay any license fees to Olive under these license agreements.
7 - Commitments and Contingencies
The Company has entered into employment agreements with certain key
employees requiring payment of annual compensation of $2,921,000, $1,829,000,
$1,828,000, $1,585,000 and $1,585,000 for the years ending June 30, 1998, 1999,
2000, 2001 and 2002, respectively. Several agreements also provide for the
payment by the Company of certain profit participation based upon the profits
from specific programs, and/or individual subsidiaries 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 terminat ing December 31, 2000. The Burbank Lease
expense for the years ended June 30, 1997, 1996, and 1995 was $616,000, $612,000
and $601,000, 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.
26
Total lease expense for the Company for the years ended June 30,
1997, 1996 and 1995 was $1,282,000, $1,104,000, and $1,058,000, respectively.
The various operating leases to which the Company is presently subject require
minimum lease payments as follows:
Year ended June 30,
1998 $1,473,000
1999 1,478,000
2000 1,099,000
2001 784,000
2002 795,000
Thereafter 4,597,000
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 1997, 1996 and 1995, respectively, 18,300, 1,000, and
7,500 incentive stock options were granted to certain employees of the Company
to purchase shares at prices ranging from $7.50 to $14.00.
As of June 30, 1997, 174,950 of all stock options granted, vested and
outstanding are exercisable at prices ranging from $3.88 to $14.00. 17,300
additional options will become exercisable between fiscal years 1998 and 2000.
During fiscal 1997 and 1996, 80,000 and 23,000 options, respectively, were
exercised. The dilutive effect of these stock options is not significant to the
fiscal 1997, 1996 and 1995 number of shares outstanding and was, therefore, not
included in the calculation of net income per share.
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock-based compen sation plans. Accordingly, compensation
expense recognized was different than what would have otherwise been recognized
under the fair value based method defined in Statement of Financial Accounting
Standards (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 123, the Company's net income and net
income per share would have been reduced to the pro forma amounts indicated as
follows:
(thousands, except per share amounts) 1997 1996
----- -----
Net income
As reported $ 6,514 $ 5,598
Pro forma 6,484 5,575
Net income per share
As reported .78 .68
Pro forma .78 .67
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 1997 and 1996: dividend yield of zero percent for
both years; expected volatility of 35 to 46 percent; risk-free interest rates of
6.32 to 6.57 percent and expected lives of 3.60 to 9.10 years.
27
A summary of the status of the Company's stock option plans as of
June 30, 1997, 1996 and 1995, and changes during the years ending on those dates
is presented below:
Options Price Range Weighted Options Available
(Per Share) Average Price Outstanding For Grant
----------- ------------- ----------- ---------
Balance at June 30, 1994 $ 3.88-6.50 $4.14 308,450 674,550
Granted 7.50-7.50 7.50 7,500 (7,500)
Exercised 4.50-4.50 4.50 (1,500) --
Cancelled 4.50-4.50 4.50 (18,500) 18,500
Balance at June 30, 1995 3.88-7.50 4.20 295,950 685,550
Granted 9.50-9.50 9.50 1,000 (1,000)
Exercised 4.50-4.50 4.50 (23,000) --
Cancelled 6.50-6.50 6.50 (20,000) 20,000
Balance at June 30, 1996 3.88-9.50 4.01 253,950 704,550
Granted 11.00-14.00 12.16 18,300 (18,300)
Exercised 3.88-4.00 3.91 (80,000) --
Cancelled -- -- -- --
Balance at June 30, 1997 $3.88-14.00 $4.83 192,250 686,250
The following table summarizes information about stock options
outstanding at June 30, 1997:
Options Outstanding Options Exercisable
------------------- -------------------
Number Weighted Average Number
Range of Outstanding Remaining Weighted Average Exercisable Weighted Average
Exercise Price At 06-30-97 Contractual Life Exercise Price At 06-30-97 Exercise Price
- -------------- ----------- ---------------- -------------- ----------- --------------
$ 3.88-3.88 165,450 5.17 $ 3.88 165,450 $ 3.88
7.50-9.50 8,500 7.09 7.74 8,500 7.74
11.00-14.00 18,300 4.45 12.16 1,000 14.00
$ 3.88-14.00 192,250 5.19 $ 4.83 174,950 $ 4.12
9 -- Business Segment Information
The Company's business activities consist of two business segments:
entertainment operations and restaurant operations. The revenue and gross profit
of each of these business segments are reported in the following table.
Inter-segment revenue is insignificant.
Business Segments
(in thousands) Entertainment Restaurants Total
1997
$50,547 $15,582 $66,129
Revenue 13,352 865 14,217
Operating profit+ 40,529 22,769 63,298
Identifiable assets 150 1,318 1,468
Depreciation 229 6,825 7,054
Capital expenditures
1996
Revenue $60,287 $13,532 $73,819
Operating profit+ 11,295 674 11,969
Identifiable assets 35,595 17,116 52,711
Depreciation 142 981 1,123
245 4,850 5,095
Capital expenditures
1995
Revenue $33,103 $13,542 $46,645
Operating profit+ 7,962 1,132 9,094
Identifiable assets 35,616 12,692 48,308
Depreciation 157 824 981
Capital expenditures 169 985 1,154
- --------------------
+ Does not include corporate overhead $3,476,000, $3,471,000, and $3,834,000
for entertainment and $1,499,000, $868,000, and $311,000 for the restaurant
segment during the years 1997, 1996, and 1995, respectively. Gross profit
also excludes minority interest expense and interest and other income.
28
Results of Operations by Quarter
(In thousands, except per share amounts) (unaudited)
1st Quarter Net Income
(ending September 30) Total Revenue Gross Profit Net Income per Share
- --------------------- ------------- ------------ ---------- ---------
1996 $10,909 $1,251 $303 .04
1995 $8,384 $701 $60 .01
------------- ------------ ---------- --------
2nd Quarter
(ending December 31)
- ----------------------
1996 $9,907 $2,031 $698 .08
1995 $18,561 $1,549 $512 .06
------------- ------------ ---------- --------
3rd Quarter
(ending March 31)
- ----------------------
1997 $22,243 $8,532 $4,464 .54
1996 $28,113 $7,097 $4,380 .53
------------- ------------ ---------- --------
4th Quarter
(ending June 30)
- ----------------------
1997 $23,069 $2,404 $1,049 .13
1996 $18,761 $2,622 $646 .08
------------- ------------ ---------- --------
Market and Dividend Information
Price Range Fiscal 1997 Fiscal 1996
----------------------- -----------
High Low High Low
---- --- ---- ---
1st Quarter $14.25 $11.00 $10.00 $8.25
------ ------ ------ -----
2nd Quarter 12.00 10.50 10.25 9.00
3rd Quarter 12.25 10.00 13.00 8.75
4th Quarter 14.00 11.38 15.00 12.00
------ ------ ------ -----
The Company's common stock is traded over-the-counter and is quoted on the
Nasdaq National Market System (symbol DCPI). The preceding table sets forth the
range of prices (which represent actual transactions) by quarters as provided by
the National Association of Securities Dealers, Inc.
The Company has not paid a dividend during the past two years and
does not anticipate paying any dividends in fiscal 1998.
29
Report of Independent Public Accountants
To the Stockholders of dick clark productions, inc.:
We have audited the accompanying consolidated balance sheets of dick
clark productions, inc. (a Delaware corporation) and subsidiaries as of June 30,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of dick
clark productions, inc. and subsidiaries as of June 30, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1997, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
August 22, 1997
30
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 , 1997
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.
Signature Title Date
/s/ Richard W. Clark Chairman September , 1997
Richard W. Clark Chief Executive Officer
and Director (Principal
Executive Officer)
/s/ Francis C. La Maina President, Chief Operating September , 1997
Francis C. La Maina Officer and Director
/s/ Karen W. Clark Director September , 1997
Karen W. Clark
/s/ Lewis Klein Director September , 1997
Lewis Klein
/s/ Enrique F. Senior Director September , 1997
Enrique F. Senior
/s/ Jeffrey B. Logsdon Director September , 1997
Jeffrey B. Logsdon
/s/ Robert A. Chuck Director September , 1997
Robert A. Chuck
/s/ Kenneth H. Ferguson Chief Financial Officer September , 1997
Kenneth H. Ferguson
31
LIST OF EXHIBITS
----------------
Number Description of Document
3.1 Certificate of Incorporation of the Registrant dated October 31, 1986
and Certificate of Correction dated November 3, 1986, (incorporated
by reference to Exhibit 3.1 of the Registrant's Registration
Statement No. 33-9955 on Form S-1 (the "Registration Statement").
3.2 By-Laws of the Registrant (incorporated by reference to Exhibit 3.2
of the Registration Statement).
4.1 Form of Warrant issued to Allen & Company Incorporated and L.F.
Rothschild, Towbin, Inc. (incorporated by reference to Exhibit 4.1 of
the Registration Statement).
4.2 Form of certificate for shares of the Registrant's Common Stock
(incorporated by reference to Exhibit 4.2 of the Registration
Statement).
9.1 Agreement dated October 31, 1986, between Richard W. Clark and Karen
W. Clark with form of voting trust agreement attached (incorporated
by reference to Exhibit 9.1 of the Registration Statement).
10.1 Asset Exchange Agreement dated December 15, 1986, between the
Registrant and Olive Enterprises, Inc. ("Olive") (incorporated by
reference to Exhibit 10.1 of the Registration Statement).
10.2 Asset Exchange Agreement dated December 15, 1986, among the
Registrant and Richard W. Clark, Karen W. Clark and Francis C. La
Maina (incorporated by reference to Exhibit 10.2 of the Registration
Statement).
10.3 Bill of Sale and Assignment and Assumption Agreement dated October
30, 1986, between the dick clark company, inc. and dick clark radio
network, inc. (incorporated by reference to Exhibit 10.3 of the
Registration Statement).
10.4 License Agreement dated December 15, 1986, between the Registrant and
Olive (incorporated by reference to Exhibit 10.5 of the Registration
Statement).
10.5 Lease dated November 1, 1986, between the Registrant and Olive
(incorporated by reference to Exhibit 10.5 of the Registration
Statement).
10.6 Shareholders' Agreement dated as of December 23, 1986, among Richard
W. Clark, Karen W. Clark and Francis C. La Maina (incorporated by
reference to Exhibit 10.14 of the Registration Statement).
10.7 Agreement and Plan of Merger dated March 1, 1985, between the dick
clark company, inc. and La Maina Enterprises, Inc. (incorporated by
Registration Statement).
10.8 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).
*10.9 Employment Agreement dated as of July 1, 1997, between the Registrant
and Richard W. Clark (incorporated by reference to Registrant's
Annual Report on Form 10-K for 1991).
*10.10 Employment Agreement dated as of July 1, 1997, between the Registrant
and Karen W. Clark (incorporated by reference to Registrants Annual
Report on Form 10-K for 1994).
10.11 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).
32
*10.12 Employment Agreement dated as of July 1, 1997, between the Registrant
and Kenneth H. Ferguson (incorporated by reference to Registrants
Annual Report on Form 10-K for 1994).
*10.13 Employment Agreement dated as of July 1, 1997, between the Registrant
and Francis C. La Maina.
*10.14 Employment Agreement dated as of January 29, 1997, between the
Registrant and William S. Simon.
10.19 1996 Employee Stock Option.
*21.1 List of subsidiaries.
23.1 Accountants' consent
*27.1 Financial Data Schedule
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* Filed herewith