10-Q 1 f760871.txt FORM 10-Q 09/30/01 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ( X ) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2001. OR ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________ to ____________ Commission File No. 0-15192 DICK CLARK PRODUCTIONS, INC. ---------------------------- (Exact name of registrant as specified in its charter) DELAWARE 23-2038115 -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3003 West Olive Avenue, Burbank, California 91505-4590 (Address of principal executive offices, including zip code) (818) 841-3003 (Registrant's telephone number, including area code) 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Below are indicated the number of shares outstanding of each of the registrant's classes of common stock as of November 12, 2001. Class Outstanding at November 12, 2001 -------------------------------------------------------------------------------- Common Stock, $0.01 par value 9,284,000 Class A Common Stock, $0.01 par value 910,000 dick clark productions, inc. Form 10-Q For the Quarter Ended September 30, 2001
PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements Condensed Consolidated Balance Sheets as of September 30, 2001 (unaudited) and June 30, 2001................................................. 3 Condensed Consolidated Statements of Operations for the three-months ended September 30, 2001 and September 30, 2000 (unaudited)................... 4 Condensed Consolidated Statements of Cash Flows for the three-months ended September 30, 2001 and September 30, 2000 (unaudited)................... 5 Notes to Condensed Consolidated Financial Statements.......................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................... 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk.................... 10 Part II. OTHER INFORMATION Item 1. Legal Proceedings............................................................. 11 Item 2. Changes in Securities and Use of Proceeds..................................... 11 Item 3. Defaults Upon Senior Securities............................................... 11 Item 4. Submission of Matters to a Vote of Security Holders........................... 11 Item 5. Other Information............................................................. 11 Item 6. Exhibits and Reports on Form 8-K.............................................. 11 Signatures.................................................................... 12
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ITEM 1. FINANCIAL STATEMENTS DICK CLARK PRODUCTIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, JUNE 30, ASSETS 2001 2001 --------------------------------------------------------------- ------------- ------------- (unaudited) Cash and cash equivalents $ 8,348,000 $ 5,030,000 Marketable securities 53,899,000 59,088,000 Accounts receivable 2,512,000 2,333,000 Program costs, net 5,742,000 5,288,000 Prepaid royalty, net 2,002,000 2,087,000 Current and deferred income taxes 427,000 75,000 Property and equipment, net 9,714,000 10,009,000 Goodwill and other assets, net 1,646,000 1,458,000 -------------- ------------- Total assets $ 84,290,000 $ 85,368,000 ============== ============= LIABILITIES & STOCKHOLDERS' EQUITY --------------------------------------------------------------- LIABILITIES: Accounts payable $ 4,362,000 $ 5,506,000 Accrued participations and residuals 1,116,000 1,472,000 Production advances and deferred revenue 1,192,000 496,000 -------------- ------------- TOTAL LIABILITIES 6,670,000 7,474,000 Commitments and contingencies Minority interest 499,000 498,000 STOCKHOLDERS' EQUITY: Class A common stock, $.01 par value, 2,000,000 shares authorized 910,000 shares outstanding 9,000 9,000 Common stock, $.01 par value, 20,000,000 shares authorized 9,284,000 shares issued 93,000 93,000 Additional paid-in capital 30,078,000 30,078,000 Retained earnings 46,941,000 47,216,000 -------------- ------------- TOTAL STOCKHOLDERS' EQUITY 77,121,000 77,396,000 -------------- ------------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 84,290,000 $ 85,368,000 ============== ============= The accompanying notes are an integral part of these condensed consolidated balance sheets. -3-
DICK CLARK PRODUCTIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, --------------------------------------- 2001 2000 ---------------- ------------------ Revenue $ 7,010,000 $ 10,449,000 Costs related to revenue 7,071,000 9,626,000 ---------------- ------------------ Gross (loss) profit (61,000) 823,000 General and administrative expense 1,177,000 1,415,000 ---------------- ------------------ Operating loss (1,238,000) (592,000) Interest income 817,000 906,000 Minority interest expense (1,000) (55,000) Other income 2,000 - ---------------- ------------------ (Loss) income before benefit (provision) for income taxes (420,000) 259,000 Benefit (provision) for income taxes 145,000 (89,000) ---------------- ------------------ Net (loss) income $ (275,000) $ 170,000 ================= ================== Per share data: Basic earnings per share: $ (0.03) $ 0.02 ================= ================== Diluted earnings per share: $ (0.03) $ 0.02 ================= ================== Weighted average number of shares outstanding, basic 10,194,000 10,190,000 ================= ================== Weighted average number of shares outstanding, diluted 10,194,000 10,336,000 ================= ================== The accompanying notes are an integral part of these condensed consolidated statements. -4-
dick clark productions, inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended September 30, ----------------------- 2001 2000 --------- ---------- Cash flows from operating activities: Net (loss) income $ (275,000) $ 170,000 Adjustments to reconcile net (loss) income to net cash used by operations: Amortization expense 2,182,000 4,307,000 Depreciation expense 358,000 364,000 Investment in program costs (2,636,000) (7,040,000) Minority interest, net 1,000 54,000 Changes in assets and liabilities: Accounts receivable (179,000) 1,490,000 Current and deferred income taxes (352,000) 89,000 Other assets (103,000) (59,000) Accounts payable (1,144,000) (1,384,000) Accrued participations and residuals (356,000) (1,216,000) Production advances and deferred revenue 696,000 1,865,000 --------- ---------- Net cash used by operations (1,808,000) (1,360,000) --------- ---------- Cash flows from investing activities: Purchases of marketable securities - (726,000) Maturities of marketable securities held to maturity 5,189,000 4,663,000 Purchases of property and equipment (63,000) (198,000) --------- ---------- Net cash provided by investing activities 5,126,000 3,739,000 --------- ---------- Net increase in cash and cash equivalents 3,318,000 2,379,000 Cash and cash equivalents, beginning of the period 5,030,000 5,298,000 --------- ---------- Cash and cash equivalents, end of the perio $ 8,348,000 $ 7,677,000 ========= ========== Supplemental disclosures of cash flow information: Cash paid during the period for income taxes $ 224,000 $ 20,000 ========= ========== The accompanying notes are an integral part of these condensed consolidated statements. -5-
DICK CLARK PRODUCTIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2001 (Unaudited) 1. Basis of Financial Statement Presentation ----------------------------------------- The condensed consolidated financial statements of dick clark productions, inc. and subsidiaries (collectively the "Company") have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Interim financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete year-end financial statements. The accompanying financial statements should be read in conjunction with the more detailed financial statements and related footnotes for the fiscal year ended June 30, 2001, as included in the Company's 2001 Annual Report on Form 10-K (the "Annual Report") filed with the Securities and Exchange Commission. A signed independent accountant's report regarding the June 30, 2001 financial statements is included on page 20 of the Annual Report. Significant accounting policies used by the Company are summarized in Note 2 to the financial statements included in the Annual Report. In the opinion of management, all adjustments (which include only recurring normal adjustments) required for a fair presentation of the financial position of the Company as of September 30, 2001, and the results of its operations and cash flows for the periods ended September 30, 2001 and 2000, respectively, have been made. Operating results for the three-months ended September 30, 2001 are not necessarily indicative of the operating results for the entire fiscal year. The carrying values of the Company's assets are reviewed when events and circumstances indicate that the carrying value of an asset may not be recoverable. If it is determined that an impairment loss has occurred based on undiscounted future cash flows, then a loss is recognized in the statement of operations using a discounted cash flow or fair value model. In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations." This statement has eliminated the flexibility to account for some mergers and acquisitions as pooling of interests, and effective as of July 1, 2001, all business combinations are to be accounted for using the purchase method. The Company adopted SFAS No. 141 as of July 1, 2001, and there was no impact on the Company's financial statements. All acquisition transactions that the Company enters into prospectively must be accounted for using the purchase method. In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." Under this statement goodwill and intangible assets with indefinite lives are no longer subject to amortization, but rather an annual assessment of impairment by applying a fair-value-based test. The Company will implement SFAS No. 142 on July 1, 2002. The impact of such adoption has not been determined. -6- In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and associated asset retirement costs. The purpose of this statement is to develop consistent accounting of asset retirement obligations and related costs in the financial statements and provide more information about future cash outflows, leverage and liquidity regarding retirement obligations and the gross investment in long-lived assets. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company will implement SFAS No. 143 on July 1, 2002. The impact of such adoption has not been determined. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which is effective for fiscal years beginning after December 15, 2001. This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a segment of a business (as previously defined in that Opinion). This statement also amends Accounting Research Bulletin No. 51, "Consolidated Financial Statements", to eliminate the exception to consolidation for subsidiary for which control is likely to be temporary. The Company will adopt SFAS No. 144 on July 1, 2002. The Company has not yet determined the impact of such adoption. The condensed consolidated financial statements of the previous fiscal period reflect certain reclassifications to conform with classifications adopted in the current period. 2. BUSINESS SEGMENT INFORMATION ---------------------------- The Company's business activities consist of two business segments: entertainment operations and restaurant operations. The factors for determining the reportable segments were based on the distinct nature of their operations. They are managed as separate business units because each requires and is responsible for executing a unique business strategy, as managed by the respective chief operating decision-makers. Summarized financial information concerning the Company's reportable segments is shown in the following tables (in thousands):
Business Segments (dollars in thousands) Entertainment Restaurants Total Three-months ended September 30, 2001 Revenue $ 2,702 $ 4,308 $ 7,010 Gross profit (loss) 1 300 (361) (61) Operating (loss) 1 (514) (724) (1,238) Identifiable assets 71,494 12,796 84,290 Three-months ended September 30, 2000 Revenue $ 5,263 $ 5,186 $10,449 Gross profit (loss) 1 968 (145) 823 Operating income (loss) 1 63 (655) (592) Identifiable assets 68,041 15,371 83,412 1 Gross profit (loss) and operating income (loss) exclude interest income, minority interest expense, and other income.
-7- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION ------------ The Company's business activities consist of two business segments: entertainment operations and restaurant operations. The entertainment segment contributed approximately 39% of the Company's consolidated revenue for the three-months ended September 30, 2001. The Company's television programming is generally licensed to the major television networks, cable networks, 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 for use in feature films, television movies, etc. The Company also derives revenue from the development and execution of non-traditional marketing communications programs, corporate meetings and special events, new product introductions, trade shows and exhibits, event marketing, film, video and leisure attractions. The Company, on a limited basis, also develops feature films in association with established studios that can provide financing necessary for production. License fees for the production of television programming are paid to the Company pursuant to license agreements during production and upon delivery of the programs or shortly thereafter. Revenue from network and cable television license agreements is recognized for financial statement purposes upon delivery of each program or in the case of a series, each episode. Revenue from the rerun broadcast of television programming (both domestic and foreign) is recognized for each program when a particular program becomes contractually available for broadcast. Depending on the type of contract, revenue for the Company's communications projects is recognized when the services are completed for a live event, when a tape or film is delivered to a customer, or when services are completed pursuant to a particular phase of a contract which provides for periodic payments. Production costs of television programs are capitalized and charged to operations on an individual 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 television movies and series where there would be anticipated future revenue earned from rerun and other exploitation. Successful television movies and series can achieve substantial revenue from rerun broadcasts in both foreign and domestic markets after the 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. Costs for communications projects are capitalized and expensed as revenue is recognized. Revenue from restaurant operations is recognized upon provision of goods and services to customers. The Company also licenses various applications of the restaurant concept to HMSHost Corporation. Up-front franchise fees from licenses are recognized upon entering into agreements. License royalties are recognized as reported to the Company by the licensees. -8- RESULTS OF OPERATIONS --------------------- Revenue for the three-months ended September 30, 2001, was $7,010,000 compared to $10,449,000 for the comparable period in the previous fiscal year. The decrease in revenue for the three-months ended September 30, 2001, as compared to the corresponding period in the previous fiscal year, is primarily due to decreased revenue from entertainment operations, primarily the result of reduced television series and specials production. In addition, revenue from restaurant operations decreased for the three-months ended September 30, 2001, as compared to the corresponding period in the previous fiscal year, as a result of decreased revenue from existing units and lost revenue from one closed unit. The Company incurred a gross loss during the three-months ended September 30, 2001 which was primarily due to decreased profitability in entertainment operations as well as an increase in gross losses in restaurant operations. Gross profit for the Company's entertainment productions for any period is a function of the profitability of the individual programs and projects delivered during that period. The Company had decreased profitability in entertainment operations for the three-months ended September 30, 2001, as compared to gross profit for the corresponding period in the previous fiscal year, primarily as a result of decreased profitability recognized from television series production. The Company's gross losses from restaurant operations increased for the three-months ended September 30, 2001, as compared to the corresponding period in the previous fiscal year, as a result of decreased profitability in existing units, offset in part by the closure of an unprofitable unit in fiscal 2000. Operating losses increased for the three-months ended September 30, 2001 as compared to the corresponding period in the previous fiscal year. Operating losses increased primarily as a result of decreased gross profit, offset in part by decreased general and administrative expense. The decrease in general and administrative expense for the three-months ended September 30, 2001 when compared to the same period in the previous fiscal year is primarily attributable to the Company's outsourcing of the restaurant management function in December 2000 and an overall reduction in personnel throughout the Company. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- The Company has funded its working capital requirements for television production primarily through installment payments from license fees from television and cable networks and minimum guaranteed distribution payments from independent distributors. The Company has generally been able to cover the costs of its television programming and corporate projects through license or syndication fees and production revenues respectively, and has incurred no significant capital expenditure commitments. The Company expects that its available capital base and cash generated from operations will be sufficient to meet its cash requirements for the foreseeable future. The Company has no outstanding bank borrowings or other borrowed indebtedness and had cash and marketable securities (principally consisting of government securities) of approximately $62,247,000 as of September 30, 2001. -9- 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, to implement its licensing and related strategy for its restaurant operations, 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk in the normal course of its investing activities. The Company does not have significant exposure to fluctuations in interest rates because it invests primarily in United States Treasury Notes and Treasury Bills and has no debt. The Company does not undertake any specific actions to cover its exposure to interest rate risk. -10- PART II. OTHER INFORMATION Item 1. None Item 2. None Item 3. None Item 4. Not Applicable Item 5. None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None. (b) Reports No event has occurred during the quarter for which this report is filed that would require the filing of a report on Form 8-K and, therefore, no such report has been filed. -11- SIGNATURES Pursuant to the requirements 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/ William S. Simon ------------------------------------- William S. Simon Vice President of Finance, Treasurer and Chief Financial Officer (Principal financial officer and authorized to sign on behalf of registrant) Date: November 14, 2001 -12-