10-Q 1 f716748_1.txt FORM 10Q FOR MARCH 31, 2001 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 March 31, 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 May 11, 2001. Class Outstanding at May 11, 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

ITEM 1. FINANCIAL STATEMENTS dick clark productions, inc. CONDENSED CONSOLIDATED BALANCE SHEETS

dick clark productions, inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- (Unaudited) 1. Basis of Financial Statement Presentation ----------------------------------------- These condensed consolidated financial statements of dick clark productions, inc. and subsidiaries (collectively the "Company") have been prepared in accordance with accounting principals 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 principals 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, 2000, as included in the Company's 2000 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, 2000 financial statements is in 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 March 31, 2001, and the results of its operations and cash flows for the periods ended March 31, 2001 and 2000, respectively, have been made. Operating results for the three-month and nine-month periods ended March 31, 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 April of 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities." SOP 98-5 requires that all costs of start-up activities be expensed as incurred and that unamortized balances are written-off upon implementation. The Company adopted SOP 98-5 in the first quarter of the fiscal year ending June 30, 2000. The financial impact was recorded as a cumulative effect of an accounting change of $111,000, net of a tax benefit of $60,000. In June 2000, the Financial Accounting Standards Board ("FASB") issued SFAS No. 139, which, effective for financial statements for fiscal years beginning after December 15, 2000, rescinds FASB No. 53. The companies that were previously subject to the requirements of SFAS No. 53 now follow the guidance in the AICPA issued SOP 00-2, "Accounting by Producers or Distributors of Films", which was issued in June 2000. The primary changes from the guidance of SFAS No. 53 relate to the accounting for advertising and marketing costs in accordance with SOP 93-7, "Reporting on Advertising Costs," limitations on certain ultimate revenues that companies can use in their individual film forecast method, and more specific guidance related to projects in development. The Company adopted SOP 00-2 during the first quarter of the fiscal year ending June 30, 2001. There was no material impact on the financial results of the Company as a result of adoption. On April 25, 2000, the Company declared a 10% stock dividend of the common stock and Class A common stock to all stockholders of record as of the close of business on May 25, 2000, which was distributed on June 23, 2000. On both May 15, 1998 and June 11, 1999, the Company -6- distributed a 5% stock dividend of the common stock and Class A common stock to all stockholders of record as of the close of business on May 4, 1998 and May 21, 1999, respectively. Accordingly, stock share data have been adjusted for all periods presented to include the effect of the stock dividends. The condensed consolidated financial statements of prior periods reflect certain reclassifications to conform with the reclassifications 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):

1 Gross profit 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 80% and 70% of the Company's consolidated revenues for the three-month and nine-month periods ended March 31, 2001, respectively. 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 revenues 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 also, on a limited basis, 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 bear to management's estimate of the total revenue for each program from all sources. Substantially all television production costs are amortized in the initial year of delivery except for 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 revenues. 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 the restaurant concept to HMS Host. Up-front franchise fees from licenses are recognized upon entering into agreements. Additional license fees are recognized as reported to the Company by the licensees. -8- RESULTS OF OPERATIONS --------------------- Revenue for the three-month and nine-month periods ended March 31, 2001, was $22,251,000 and $49,218,000, compared to $31,507,000 and $64,738,000 for the comparable periods in the previous fiscal year. The decrease in revenue for the three-month and nine-month periods ended March 31, 2001, as compared to the corresponding period in the previous fiscal year, was primarily due to a decrease in entertainment revenue. The decrease in revenue from entertainment operations for the three-month period ended March 31, 2001, as compared to the corresponding period in the previous fiscal year, was primarily due to decreased annual shows and series revenue. The decrease in revenue from entertainment operations for the nine-month period ended March 31, 2001, as compared to the corresponding period in the previous fiscal year, was primarily due to decreased series, annual show, and corporate communications revenue. Revenue from restaurant operations for the three-month and nine-month periods ended March 31, 2001, decreased primarily due to a decline in same store sales, as well as the closure of the St. Louis unit in December 2000. Gross profit for the Company's productions for any period is a function of the profitability of the individual programs and projects delivered during that period. During the three-month period ended March 31, 2001, as compared to the corresponding period in the previous fiscal year, gross profit decreased, primarily as a result of decreased profitability on our annual shows. During the nine-month period ended March 31, 2001, as compared to the corresponding period in the previous fiscal year, gross profit decreased, primarily as a result of less profitable television series productions, annual shows, and corporate communications projects. Current trends in the television production industry, including increased competition from networks and general economic conditions, are not expected to change during the remainder of the current fiscal year. In addition, the Company does not presently anticipate an increase in revenue from its corporate communications business during the remainder of this fiscal year, with the performance of this business being significantly reduced when compared to the prior fiscal year. The Company's gross losses from restaurant operations decreased for the three-month period ended March 31, 2001, as compared to the quarter in the previous fiscal year, due to slightly improved operating margins. For the nine-month period ended March 31, 2001, the Company's gross losses from restaurant operations decreased primarily due to pre-opening expenditures incurred in the second quarter of fiscal 2000 for the two restaurants opened during that quarter. Operating income decreased for the three-month and nine-month periods ended March 31, 2001 as compared to the corresponding periods in prior fiscal year. Operating income decreased primarily as a result of decreased gross profit and increased general and administrative expense. The increase in general and administrative expense is primarily a result of the decrease in capitalized production overhead to television series and corporate communications projects between the two periods. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- The Company has funded its working capital requirements for television production primarily through installment payments from license fees from the 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 more than 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 $64,946,000 as of March 31, 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 communications 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. -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, 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 Chief Financial Officer and Treasurer (Principal financial officer and authorized to sign on behalf of registrant) Date: May 15, 2001 -12-

CLARK DICK PRODUCTIONS INC 10-Q