TODD AO CORP, 10-K, 1996-11-27

TODD AO CORP
10-K, 1996-11-27
ALLIED TO MOTION PICTURE PRODUCTION

Previous: FIDELITY MAGELLAN FUND INC, NSAR-A, 1996-11-27

Next: MASSACHUSETTS ELECTRIC CO, U-6B-2, 1996-11-27

<PAGE>

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended AUGUST 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from to

Commission file number: 0-1461

THE TODD-AO CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE 13-1679856
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)

172 GOLDEN GATE AVENUE, SAN FRANCISCO, CALIFORNIA 94102
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (415) 928-3200

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
COMMON STOCK, CLASS A, NASDAQ
$ .01 PAR VALUE

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
----- -----

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. [ ]

The aggregate market value of voting stock held by non-affiliates at November
1, 1996 was approximately $52,000,000

The number of shares of common stock outstanding at November 1, 1996 was:
6,556,520 Class A Shares and 1,747,181 Class B Shares.

DOCUMENTS INCORPORATED BY REFERENCE

None

<PAGE>

THE TODD-AO CORPORATION
- ------------------------------------------------------------------------------
Annual Report on Form 10-K
August 31, 1996

TABLE OF CONTENTS
- ------------------------------------------------------------------------------
Part I Page

Item 1 - Business 1
Item 2 - Properties 6
Item 3 - Legal Proceedings 7
Item 4 - Submission of Matters to a Vote
of Security Holders 7

Part II

Item 5 - Market for the Registrant's Common
Stock and Related Stockholder Matters 8
Item 6 - Selected Financial Data 9
Item 7 - Management's Discussion and Analysis
of Financial Condition and
Results of Operations 9
Item 8 - Financial Statements and
Supplementary Data 12
Item 9 - Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 12

Part III

Item 10 - Directors and Executive Officers
of the Registrant 13
Item 11 - Executive Compensation 15
Item 12 - Security Ownership of Certain
Beneficial Owners and Management 17
Item 13 - Certain Relationships and Related
Transactions 18

Part IV

Item 14 - Exhibits, Financial Statement Schedule
and Reports on Form 8-K 19

Signatures 20
Exhibit Index 21

Index to Financial Statement
and Schedule 25

<PAGE>

PART I

ITEM 1. BUSINESS.

The Todd-AO Corporation and its subsidiaries (collectively
"Todd-AO" or the "Company") provides sound, video and ancillary post
production and distribution services to the motion picture and television
industries in the United States and Europe. The Company believes that it is
one of the largest independent providers of combined sound studio and video
services in the world, with facilities located in Los Angeles, New York,
London and Atlanta. Sound services include music recording, sound editing and
enhancement and the mixing of dialogue, music and sound effects. Todd-AO's
principal video services include film-to-video transfer (telecine), mastering
and duplication of professional videotape formats, transmission for satellite
broadcast, videotape editing, audio post production, and visual effects and
graphics. Todd-AO provides these sound and video services to over 500
clients, including the major motion picture studios and television production
companies. The Company believes that its principal strengths include the
depth and continuity of its creative and artistic talent, the quality and
scope of its facilities, a tradition of providing quality services to its
clients, and a history of technological innovation. Since its inception in
1952, the Company and its employees have been nominated for 31 Academy
Awards-Registered Trademark- and have won 18.

Demand for the Company's services and facilities is principally
derived from the production of new motion pictures, television programs and
television commercials, as well as the distribution of previously released
motion picture and television programming through distribution channels such
as television syndication, home video, cable and satellite. Historically, its
clients have outsourced, and are expected by the Company to continue to
outsource, many services required for production, post production, and
distribution of film and television programming. The Company believes that
trends toward digitalization and globalization in the entertainment and media
industries are increasing the quality, variety and number of post production
services required by customers. The Company believes that the worldwide
market penetration of distribution channels such as home video and digital
satellite broadcast is contributing to a growing demand for original and
reissued programming, American product in particular, which in turn should
increase demand for the Company's services.

The Company's objective is to be the leading worldwide independent
provider of sound and video post production services. Since 1994, the Company
has implemented a strategy to achieve this objective and to capitalize on the
movement towards digitalization and globalization in the motion picture and
television industries by expanding its range of services through strategic
acquisitions, internal growth and strategic alliances. The Company believes
that in the future, U.S. and international entertainment and media companies
will demand a broader range of sound and video post production services and
are likely to prefer a single-source provider. To implement its strategy, the
Company has assembled a senior management team experienced in the industry.

The Company entered the video services business in 1994 through its
acquisition of Film Video Masters by Todd-AO Video Services. In February
1995, the Company expanded its sound studio business through the acquisition
of Skywalker Sound South, renamed Todd-AO Studios West, with sound studios
and facilities located in the West Los Angeles area. Also, in March 1995, the
Company expanded its operations into Europe through the acquisition of
Chrysalis Television Facilities, Ltd. ("Chrysalis") in London, which also
augmented the Company's video services capabilities to include the collation
of television programming for satellite broadcast. The purchase of Filmatic
Laboratories ("Filmatic")in 1996 enlarged Todd-AO's video services
capabilities in London and added film processing capability. In August 1996,
the Company acquired Edit Acquisition LLC ("Editworks") located in Atlanta,
Georgia, which specializes in providing video services to the advertising
industry. As a result of these transactions, the Company has expanded its
client base, increased its range of services and broadened its global market
coverage.

Largely as a result of efforts implementing its strategy, the
Company's annual sales have grown in the past three years at an annual
compounded rate of 32% from $27.4 million in fiscal 1993 to $62.9

<PAGE>

million in fiscal 1996. Net income has grown in the same period at an annual
compounded rate of 62% from $1.14 million in fiscal 1993 to $4.84 million in
fiscal 1996.

SOUND STUDIO OPERATIONS

GENERAL

Todd-AO performs post production sound services primarily for
theatrical feature films, television series, television specials,
movies-of-the-week, trailers and commercials. Sound services include music
recording, sound editing and enhancement, mixing of music, sound effects, and
dialogue and narration. After picture editing, the soundtrack becomes the
primary focus of the production process. Feature film and television
producers utilize the Company's studio facilities and highly skilled sound
engineers to mix (rerecord) the basic elements of a soundtrack: dialogue (or
narration), music ("score") and all other recorded sounds referred to
collectively as "sound effects." A number of ancillary services derive from
this core activity, including sound effects editing, film-to-tape and
tape-to-tape transfers and duplication, automated dialogue replacement
("ADR"), live recorded sound effects ("Foley"), equipment rental, edit room
rental and sale of film and tape stock ("rawstock").

The demand for the Company's core motion picture services has
historically been seasonal, with higher demand in the fall (first fiscal
quarter) and spring (third fiscal quarter) preceding the Christmas holiday
season and summer theatrical releases, respectively. Demand has been lower in
the winter and summer, corresponding to the Company's second and fourth
fiscal quarters, respectively. Accordingly, the Company has historically
experienced, and expects to continue to experience, quarterly fluctuations in
revenue and net income.

FACILITIES

Currently, the Company offers 26 acoustically designed sound stages
equipped with modern sound recording equipment, providing a broad range of
sound services for both film and video tape. Todd-AO's scoring stage can
accommodate up to 150 musicians for live sound recording. The mixing
(rerecording) stages provide premium services including stereo sound in both
35mm and 70mm formats. Each of the Company's major feature stages has the
capability to create soundtracks utilizing any of the current digital release
formats. In order to emulate the movie theater environment, the Company's
film recording stages are of significant size. The Company believes that its
scoring stage is one of the largest in the world. In total, the Company has
over 69,000 square feet of stage space.

Todd-AO's facilities are conveniently located and readily
accessible to the film making and television community, with locations in
Hollywood, the San Fernando Valley, Los Angeles' westside and New York.

ACADEMY AWARDS-Registered Trademark-

Todd-AO has a long history and tradition of providing quality sound
services, starting with the theatrical release of OKLAHOMA! in 1955. Equally
important as the Company's technical facilities is the talented staff of
associated recording mixers. The Company's mixing teams have won numerous
Academy Awards-Registered Trademark- and Emmys, including a Lifetime
Achievement Award for Fred Hynes, who was a sound mixer of the Company for
over 30 years. This long tradition of sound recording excellence continues
today. The Company's employees have received eight Academy Award-Registered
Trademark- nominations for Best Sound in the last nine years and two Academy
Awards-Registered Trademark- for Best Sound in the last four years. A list of
some of Todd-AO's 1996 credits include: A TIME TO KILL, COURAGE UNDER FIRE,
THE CABLE GUY, MISSION IMPOSSIBLE, FLED, and THE CHAMBER.

<PAGE>

The Academy Awards-Registered Trademark- and nominations for Best
Sound received by the Company or its creative personnel are described below
(with Academy Award-Registered Trademark- winners shown in bold):

YEAR MOVIE(S) YEAR MOVIE(S)
---- -------- ---- --------
<S> <C> <C> <C>
1995 APOLLO 13, Braveheart 1977 Close Encounters of the Third Kind, Sorcerer
1994 Legends of the Fall 1976 A Star Is Born
1993 Schindler's List 1973 THE EXORCIST
1992 LAST OF THE MOHICANS 1972 CABARET
1990 Dick Tracy 1965 THE SOUND OF MUSIC
1988 Who Framed Roger Rabbit 1963 Cleopatra
1987 Empire of the Sun 1961 WEST SIDE STORY
1985 OUT OF AFRICA 1960 THE ALAMO
1982 E.T. - THE EXTRA-TERRESTRIAL 1959 Porgy and Bess
1979 1941 1958 SOUTH PACIFIC
1978 Hooper 1955 OKLAHOMA!

</TABLE>

Other Academy Awards-Registered Trademark- received:

YEAR ACCOMPLISHMENT
---- --------------

1995 Scientific/Technical Achievement Award
1994 Scientific/Technical Achievement Award
1987 Gordon E. Sawyer Lifetime Achievement Award (Fred Hynes)
1980 Honorary Award (Fred Hynes)
1973 Scientific/Technical Achievement Award
1968 Scientific/Technical Achievement Award
1957 Scientific/Technical Achievement Award

VIDEO SERVICES

Todd-AO, through its various subsidiaries and divisions in Los
Angeles, New York, London and Atlanta, provides video services (electronic
post production services) principally to the worldwide motion picture,
television, home video and advertising industries. Video post production is
provided by skilled technicians using sophisticated electronic equipment and
computers to process images and sound from film, videotape and computers onto
a master element from which distribution and broadcast materials are created
for worldwide markets. These markets include theatrical releases, home video,
cable, pay television, syndication, network, satellite, multimedia and
advertising. Todd-AO provides its video services to over 150 customers
including the major motion picture and television studios, independent
producers, advertising agencies, television networks, cable program suppliers
and television program syndicators.

Todd-AO's principal video and related services are as follows:

-FILM-TO-VIDEO TRANSFER (TELECINE). All feature films and most
television programming and advertising are produced on film but viewed
(except in movie theaters) on an electronic medium such as a television
screen. Todd-AO transfers the film to a video master in a frame-by-frame
process in which skilled personnel use specialized equipment to accurately
render the proper tone, color and lighting from the film original to the
video master.

-MASTERING AND DUPLICATION OF PROFESSIONAL FORMAT VIDEOTAPE.
Todd-AO receives original master elements from a program provider such as a
motion picture, television, commercial production, or home video company and
duplicates the master for broadcast use in a variety of professional formats.
Duplicates are used by television stations, home video duplicators, cable
systems operators, cable program

<PAGE>

suppliers, TV networks, pay-per-view and satellite distribution companies to
exhibit programs and commercials. Airlines use duplicates to exhibit
in-flight movies.

-TRANSMISSION. Chrysalis transmits television channels for
satellite and cable broadcasters by providing services to generate video and
audio signals which are passed on to the uplink provider for distribution by
satellite. Clients provide details of each program and its exact duration.
Each day, the client supplies a computerized playlist detailing the next 24
hours of network programming. This playlist is input into dedicated
technology which consecutively plays each program at the correct time,
thereby creating the continuous network output. To provide such transmission
services (often on a 24 hours a day, 7 days a week basis), Chrysalis provides
the technology, operational staff, physical library, database services,
engineering support and emergency power (in case of electrical failure).

-VIDEOTAPE EDITING. Editing entails the electronic transfer of
video or audio information from one or more sources to a new master element.
Editing is a highly creative service with individual editors often attaining
star status and receiving screen credits.

-AUDIO POST PRODUCTION. The Company provides services referred to
as audio layback and audio augmentation. Layback is the process by which the
sound and picture are synchronized and is frequently provided with telecine.
The final soundtracks for feature films often include foreign languages for
international release and are usually prepared separately for synchronization
to match the various versions of the picture. Audio augmentation or
"sweetening" is the process used to restore or modify existing sound or
create new sound. Sweetening allows for the addition of music or sound
effects, and eliminates unwanted portions of previously recorded sound.

-VISUAL EFFECTS AND GRAPHICS. The Company provides visual effects
and graphics services using modern computer imaging systems such as Silicon
Graphics workstations. Visual effects for motion pictures and television
include anything from a simple "fade to black" to the intricate "special
effects" common in today's feature films. Graphic services entail the
creating and melding of computer-generated images, video and audio, into
programming, including commercial advertising, television music videos, and
corporate video.

-BROADCAST STANDARDS CONVERSION. Several technically incompatible
video standards for broadcasting are in use throughout the world. The Company
converts feature films and television programs to or from any global
standard, depending on the intended market.

-CLOSED CAPTIONING/SUBTITLING. The vast majority of programming is
closed captioned (for the hearing impaired) or subtitled for foreign
languages. The Company electronically applies captions and subtitles onto the
program.

-PRODUCT EVALUATION/QUALITY ASSURANCE. The Company provides
comprehensive evaluation and quality control for video and audio products.
Todd-AO has consulted with several of the major entertainment and equipment
manufacturing companies to develop post production specifications, equipment
and processes.

-VAULTING/STORAGE. Todd-AO provides storage for up to 100,000
units in its environmentally controlled and secured vaults. The Company also
offers database and tracking services, 24-hour shipping and delivery services
and element disposal.

Todd-AO's ten largest video service customers account for over 75%
of the division's total revenues.

OTHER SERVICES

-PRESERVATION. Todd-AO has organized a limited liability company
with Chace Productions, Inc. for the protection, preservation, storage and
retrieval of motion picture and television sound tracks. Todd-AO/Chace is a
vertically integrated company, providing a full range of sound preservation,
media

<PAGE>

management services including data collection, transfer, protection and
hierarchical storage. In addition to sound track preservation, Todd-AO/Chace
intends to provide complete library services. These include client/server
access, cataloguing, data base creation and entry, custom transfer services
and audition libraries.

-FILM PROCESSING. Filmatic provides film laboratory services
including film developing, printing, cleaning and negative film cutting.
Established in 1935, Filmatic is widely considered to be one of England's
premier specialty film laboratories, providing its services to over 1,000
customers, including colleges, universities, corporate and training
companies, film and video libraries, independent production companies and
broadcast television. Currently, the British Broadcasting Corp. represents
20% of Filmatic's business.

-COMPACT DISTRIBUTION PRINT. CDP Limited Liability Company, a
joint venture of Todd-AO and United Artists Theatre Circuit, Inc., has
created a new print process, known as Compact Distribution Print or CDP. The
CDP process reduces the length of feature release prints without affecting
picture or sound quality by eliminating 37% of interframe waste in standard
prints, an inefficiency which has existed since the 1950s. In addition to
potential savings realized from reduced film stock footage and developing
costs, a compact print can generally be distributed on a single reel, thereby
reducing shipping and handling costs. Opportunities for the implementation of
CDP are currently being explored. The joint venture has received no firm
commitments for the application of CDP, and there are no assurances that film
distributors will choose to implement CDP.

COMPETITION

The Company encounters intense competition in each of the markets
that it serves. The Company competes on the basis of quality, service,
capacity, technical capability and price. Although price is an important
competitive factor, the lowest price is seldom the sole determining factor.
The cost of the Company's services is generally low in relation to the
overall budget or anticipated revenues of the project. Quality, capacity and
service remain the critical competitive factors in providing post production
services.

The Company's sound studio operations compete in both the feature
film and television markets. In the film market, competition for sound
services is predominantly driven by the skill and creativity of sound mixers.
The Company does not believe that it has a major independent competitor for
feature films in the Los Angeles marketplace. However, on a wider basis,
LucasFilm in Marin County, California, Sound One in New York and certain
London post production sound facilities compete with the Company for motion
picture studio clientele. In the television market, the competition is
intense and television pricing is constantly under pressure. In addition to
competing with the major studios, the Company also competes with a wide array
of independent post production sound facilities. The Company believes that
its major competitors are Larson Sound, Four Media Company ("4MC"), West
Productions, Echo Sound and Digital Sound and Picture.

With respect to video services, a variety of other companies offer
special effects, post production video and transmission services similar to
those provided by Todd-AO. Many of these competitors are larger and have
greater financial resources than the Company. Competition for video services
within a geographical region tends to be highly fragmented with a few larger
full service companies and numerous small firms specializing in only one or
two services. Most small operations are centered around key personnel who
serve one or two clients based on long-standing relationships.

The Company believes its major direct competitors in the Los
Angeles market for distribution, telecine and professional duplication work
are 4MC, Modern Videofilm, Vidfilm, Fototronics and All Post. These companies
all currently provide a significantly larger and more complete array of
services and facilities than Todd-AO.

The Company believes its major direct competition in the London
market for transmission are Molinare, Oasis, Telecine and TVP. All provide a
mixture of services for both large and small media clients across the
broadcast sector, and are conveniently located in the prime vendor area in
London's

<PAGE>

Soho district, close to many of the customers' offices. The Company believes
its major competition in the London market for film laboratory services are
Rank, Technicolor, Metrocolor, Soho Images, Colour Film Services and Buck
Laboratories. The Company believes its major direct competition in the
Atlanta market for editing and graphics are Crawford Communications, Inc.,
Video Tape Associates, Inc. ("VTA") and Peachtree Post. Crawford
Communications and VTA are both considerably larger and currently offer a
more complete array of services and facilities than does Editworks.

EMPLOYEES

Todd-AO employs approximately 500 employees, some on a
project-by-project basis. The Company has employment agreements with 60 of
its key management, creative and technical personnel. The Company's sound
studio creative and technical personnel are subject to a collective
bargaining agreement with the International Association of Theatrical and
Stage Employees. The Company has never experienced a work stoppage and
considers relations with its employees to be excellent.

PRINCIPAL STOCKHOLDERS

Over 58% of the Company's outstanding shares (representing over 84%
of the voting power) are beneficially owned by Marshall Naify, Robert A.
Naify, certain members of their families and certain trusts for the benefit
of family members (the "Naify Interests").

ITEM 2. PROPERTIES.

Sound studio operations are conducted in various owned, leased or
licensed premises in the Los Angeles area, New York City, Atlanta and London.
The Company's facilities are adequate to support its anticipated business.

The Company owns approximately 147,000 sq. ft. of building space in
Los Angeles. In addition, approximately 127,000 sq. ft. of building space are
subject to lease or license agreements. In London, Todd-AO owns the
underlying freehold of 17,600 sq. ft. of building space. It leases this area
to a third party under a lease agreement which expires in December 2042 and
subleases the same area from its tenant under a lease agreement which expires
in March 2008. Todd-AO also leases an additional 3,500 sq. ft. of its owned
London property to a third party under a lease agreement which expires in
June 2009. The Company also owns two undeveloped parcels of land in Killeen,
Texas.

The Company's Los Angeles sound studio facilities include premises
licensed from Radford Studio Center under agreements expiring in 2003, each
of which can be extended for an additional five years at the Company's
option. The New York sound studio facilities operate under a lease agreement
which expires in December 2002 and which can be extended for an additional
eight years at the Company's option. The New York lease agreement can be
terminated by the Company at any time upon six months' written notice to the
landlord.

The Company's Los Angeles post production video service facility
operates under a lease agreement for approximately 20,000 square feet which
expires in August 1999 and which can be extended for two additional five-year
terms or terminated on 90 days' written notice at the Company's option.

The newly acquired Atlanta post production facility operates under
a lease agreement for approximately 12,600 square feet which expires in
December 2001 and which can be extended for two additional five-year terms.

<PAGE>

ITEM 3. LEGAL PROCEEDINGS.

The Company is involved in litigation and similar claims incidental
to the conduct of its business. None of the pending actions is likely to
have a material adverse impact on the Company's financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

<PAGE>

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS.

The Company has two classes of Common Stock designated as Class A
Stock and Class B Stock, as described below. There were approximately 1,050
and 7 record holders of Class A and Class B Stock, respectively, as of
November 1, 1996. The number of holders of Class A Common Stock does not
include an indeterminate number of shareholders whose shares are held by
brokers in "street name."

On July 9, 1996, the par value of all classes of stock was reduced
from $.25 to $.01 per share.

Class A Stock

The Company's Class A Common Stock is traded on the Nasdaq National
Market System under the symbol "TODDA." The following table sets forth, for
the periods indicated, the high and low sales prices (without adjustment to
reflect the 10% stock dividend paid on September 29, 1995) for the Class A
Common Stock as reported on the Nasdaq National Market.

STOCK PRICE RANGES

FISCAL YEAR CLOSE
- ----------- ----------
HIGH LOW
---- ---
1995
- ----
First Quarter.............................................. 6 1/2 5
Second Quarter............................................. 6 4
Third Quarter.............................................. 6 3/8 5
Fourth Quarter............................................. 11 1/2 5 5/8

1996
- ----
First Quarter.............................................. 11 7
Second Quarter............................................. 9 3/4 7 1/8
Third Quarter.............................................. 19 1/4 8 3/4
Fourth Quarter............................................. 17 8 1/2

The holders of Class A Common Stock are entitled to cumulative cash
dividends at an annual rate of $.045 per share before any cash dividends may
be declared or paid on the Class B Common Stock. Holders of Class B Common
Stock are entitled to cash dividends equal to 90% of the cash dividends paid
on the Class A Common Stock.

The Company paid cash dividends of $.06 per Class A share for the
fiscal years 1995 and 1996. On August 11, 1995, a 10% stock dividend was
declared for holders of Class A and Class B stock payable on September 29,
1995 to shareholders of record on September 8, 1995.

The Transfer Agent and Registrar for the Class A Common Stock is
Continental Stock Transfer and Trust Company, 2 Broadway, New York, NY 10004.

Class B Stock

Class B shares have special voting rights (10 votes per share) and
are generally not transferable. Cash dividends are payable on the Class B
shares at a rate not to exceed 90% of the cash dividends paid on the Class A
shares. The two classes of stock participate on the same per share basis in
other property distributions. Class B Stock is convertible at the option of
the holder into Class A Stock and is automatically converted to Class A Stock
under certain circumstances. Conversion is on a share for share

<PAGE>

basis and once so converted the Class B Stock is retired and cannot
be reissued without a stockholder vote. Except for issuances in connection
with stock splits and stock dividends, additional Class B shares cannot be
issued without an affirmative vote of the Class B stockholders.

As of August 31, 1996, 1,747,181 Class B shares were outstanding
and owned by 7 shareholders, including 1,703,639 Class B shares owned by the
Naify Interests. Dividends in the amount of $0.054 per Class B share were
paid for fiscal years 1995 and 1996. The Company acts as Transfer Agent for
the Class B common stock.

ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT AMOUNTS PER SHARE)

Years Ended August 31

1992 1993 1994 1995 1996

Revenues.......................... $28,150 $27,402 $32,892 $50,003 $62,920
------- ------- ------- ------- -------
------- ------- ------- ------- -------

Net income........................ $ 2,129 $ 1,137 $ 1,780 $ 3,375 $ 4,844
------- ------- ------- ------- -------
------- ------- ------- ------- -------

Income per Common Share (1)....... $ .25 $ .14 $ .22 $ .40 $ .55
------- ------- ------- ------- -------
------- ------- ------- ------- -------

Total Assets...................... $31,892 $31,834 $36,728 $57,198 $64,186
------- ------- ------- ------- -------
------- ------- ------- ------- -------

Total Long-Term Debt Obligations.. $ 1,750 $ 0 $ 1,467 $ 8,327 $ 9,354
------- ------- ------- ------- -------
------- ------- ------- ------- -------

Cash Dividends:
Class A Shares.................. $ .0575 $ .06 $ .06 $ .06 $ .06
------- ------- ------- ------- -------
------- ------- ------- ------- -------

Class B Shares.................. $.05175 $ .054 $ .054 $ .054 $ .054
------- ------- ------- ------- -------
------- ------- ------- ------- -------

(1) Income per share computed using the average number of shares outstanding
and common stock equivalents of 8,350,594, 8,278,932, 8,195,678, 8,399,462
and 8,845,321 in 1992, 1993, 1994, 1995 and 1996, respectively.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(DOLLARS IN THOUSANDS, EXCEPT AMOUNTS PER SHARE)

GENERAL

The Company derives its revenue primarily from sound and video
services to the motion picture and television industries.

Over the past decade, the Company provided sound services
exclusively until the August 1994 acquisition of Todd-AO Video Services. This
acquisition represented a fundamental shift in management's vision of the
Company's future. Prior to fiscal 1995, the core sound business had grown
from $14,000 in revenues in 1986 to almost $33,000 in fiscal 1994, but
profitability was volatile and inherently subject to scheduling conflicts,
unpredictable overtime revenues and seasonality.

Beginning in fiscal 1995, the Company pursued a strategy of
diversifying its operations by acquiring or establishing complementary
service companies in the production and post production markets. This
diversification is not only functional but geographical, as represented by
the acquisitions in

<PAGE>

March 1995 of Chrysalis in London and in August 1996 of Editworks in Atlanta.
The Company also acquired Todd-AO Studios West in 1995 and Filmatic in 1996.

RESULTS OF OPERATIONS

The following discussion provides an analysis of the Company's
results of operations and should be read in conjunction with the Consolidated
Financial Statements and related notes thereto. The operating results for the
periods presented were not significantly affected by inflation.

The following sets forth, for the periods indicated, certain
information relating to the Company's operations expressed as a percentage of
the Company's revenues:

YEARS ENDED AUGUST 31,
---------------------------
1994 1995 1996
------- -------- --------

Revenues.................................... 100.0% 100.0% 100.0%

Costs and expenses:
Operating costs and other expenses......... 82.2 79.7 77.8
Depreciation and amortization.............. 7.9 7.8 8.5
Interest................................... -- 1.2 1.1
Equipment lease expense, net............... -- 1.2 0.8
Other (income) expense, net................ (2.3) (0.6) (0.5)
------- -------- --------
Total costs and expenses................ 87.8 89.3 87.7
------- -------- --------
Income before loss from joint venture
and provision for income taxes............. 12.2 10.7 12.3
Loss from joint venture..................... (3.7) (0.5) (0.2)
------- -------- --------
Income before provision for income taxes.... 8.5 10.2 12.1
Provision for income tax.................... 3.1 3.5 4.4
------- -------- --------
Net income.................................. 5.4% 6.7% 7.7%
------- -------- --------
------- -------- --------

FISCAL YEAR ENDED AUGUST 31, 1996 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1995

Revenues increased $12,917 or 25.8% from $50,003 to $62,920 due
primarily to the acquisitions of Todd-AO Studios West in February 1995,
Chrysalis in March 1995 and Filmatic in April 1996. The 1996 revenue
increases for these new subsidiaries were $4,663, $5,817 and $775,
respectively. These increases represent a full year of operations for Todd-AO
Studios West and Chrysalis in 1996 versus a partial period in 1995. Five
months of Filmatic's operations are included in 1996. The revenue increase
for the remaining divisions was $1,662 or 4.5%.

Operating costs and other expenses increased $9,095 or 22.8% from
$39,867 to $48,962 due primarily to the acquisitions described above. While
operating costs and other expenses increased in absolute dollars, they
decreased as a percentage of revenue from 79.7% to 77.8%. This reduction was
primarily the result of improved profit margins for a full year realized from
Todd-AO Studios West and Chrysalis and the consolidation of certain corporate
overhead costs associated with these acquisitions.

Depreciation and amortization increased $1,457 or 37.2% primarily
due to the acquisitions but did not materially change as a percentage of
revenue for the comparative periods. Interest expense, equipment lease
expense and other income did not materially change in dollars or as a
percentage of revenues for the comparative periods.

As a result of the above, income before taxes increased $2,540 from
$5,086 to $7,626 and net income increased $1,469 from $3,375 (6.7% of
revenue) to $4,844 (7.7% of revenue).

<PAGE>

FISCAL YEAR ENDED AUGUST 31, 1995 AS COMPARED TO FISCAL YEAR ENDED AUGUST 31,
1994

Total revenues increased $17,111 or 52.0% from $32,892 to $50,003.
This increase is the result of the organization and acquisition of new
operations in fiscal 1994 and 1995.

Sound studio revenues increased $7,703 due to the acquisition of
Skywalker Sound South by Todd-AO Studios West in February 1995. Todd-AO
Studios West provides post production sound services for the film and
television industries on the westside of Los Angeles. This increase in sound
studio revenues was offset by a $3,583 or 10.8% decrease at the Los Angeles
and New York studios due to reduced feature film dubbing bookings. These
reduced bookings were primarily the result of a threatened strike in Los
Angeles which caused scheduling irregularities through December 1994, and a
feature film stage which was closed for remodeling through January 1995.

Video services revenues increased $12,691 due to the inclusion of
Todd-AO Video Services ($6,504), Todd-AO Digital Images ("TDI")($1,253) and
Chrysalis ($4,934) in fiscal 1995. Todd-AO Video Services, which acquired
certain assets and liabilities of Film Video Masters, Inc. on August 30,
1994, provides post production video services to the film and television
industries. TDI, which was formed in the latter half of fiscal 1994, provides
visual effects services to the same industries. Todd-AO Europe Holding Co.
Ltd., a wholly owned subsidiary of the Company, acquired all of the
outstanding shares of Chrysalis in March 1995. Both corporations are based in
London and organized under the laws of the United Kingdom. Chrysalis
specializes in the collation of television programming for satellite
broadcast and also provides post production video services.

Operating costs and other expenses increased $12,846 or 47.5% from
$27,021 to $39,867 due primarily to the acquisitions described above.
Operating costs and other expenses decreased as a percentage of revenue from
82.2% to 79.7%. This improvement is primarily the result of increased profit
margins realized from Todd-AO Studios West and Chrysalis and the
consolidation of certain corporate overhead costs associated with the
acquisitions.

Depreciation and amortization increased $1,314 or 50.5% due to the
acquisitions described above but did not significantly change as a percentage
of revenue between fiscal 1994 and 1995.

Interest expense increased from $24 in fiscal 1994 to $581 in
fiscal 1995 primarily due to institutional borrowings of $7,726 in connection
with the acquisition of Chrysalis in March 1995. In fiscal 1995, the Company
also incurred equipment lease expense (net of deferred gain on sale of
equipment) of $593 in connection with a December 1994 sale/leaseback
agreement with its institutional lender.

Other (income) expense, net declined by $483 in fiscal 1995
primarily due to current year research and development costs and
non-recurring severance costs.

Losses from the Company's entertainment project development joint
venture declined from $1,215 (3.7% of revenue) in fiscal 1994 to $249 (0.5%
of revenue) in fiscal 1995 due to the termination of the development phase of
the venture early in fiscal 1995.

As a result of the above, income before taxes increased $2,284 from
$2,802 to $5,086 and net income increased $1,595 from $1,780 (5.4% of
revenue) to $3,375 (6.7% of revenue).

LIQUIDITY AND CAPITAL RESOURCES

In December 1994, the Company signed agreements with its bank to
implement the sale/leaseback of certain equipment and a long-term credit
facility. An aggregate of $11,218 of sound studio equipment was sold and
leased back on December 30, 1994. The sale/leaseback agreement terminates on
December 30, 1999. Under the credit facility, including amendments in 1995
and 1996, the Company may borrow up to $20,000 and L5,000 in revolving loans
until February 28, 2000. On that date and quarterly thereafter until the
expiration of the agreement on November 30, 2003, the revolving loan
commitment will reduce by 5% of the original loan commitment. These credit
facilities are available for

<PAGE>

general corporate purposes, capital expenditures and acquisitions. Management
believes that funds generated from operations, the proceeds from public
offering described below, the proceeds from the sale/leaseback and the
borrowings available under the credit facility will be sufficient to meet the
needs of the Company at least through the end of 1997.

In February 1995, the Company used $6,878 of the proceeds from the
sale/leaseback agreement to acquire substantially all of the property,
equipment and inventory of Skywalker Sound South, renamed Todd-AO Studio
West. In March 1995, the Company used $7,726 under the credit facility in
connection with the acquisition of Chrysalis. In August 1996, the Company
used $4,280 under the credit facility in connection with the acquisition of
Editworks. As of August 31, 1996, the Company had $8,437 outstanding under
the credit facility.

The Company expects capital expenditures of approximately $12,000
for its Los Angeles, New York City, Atlanta and London facilities in fiscal
1997. These capital expenditures will be financed by credit facilities and
internally generated funds.

On October 10, 1996, the Company filed a registration statement
with the Securities and Exchange Commission and on November 20, 1996 the
registration statement was declared effective for a public offering of
1,500,000 primary Class A shares at $10.50 per share, excluding the
underwriters' over-allotment option. The net proceeds currently expected
after deducting underwriting discounts and commissions and estimated expenses
of the offering are approximately $14,000. These net proceeds will be used
to fund possible future acquisitions, possible temporary repayment of
indebtedness outstanding under the Company's revolving credit facility,
working capital requirements and other general corporate purposes.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See Item 14 in Part IV of this 10-K Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT.

The executive officers and directors of the Company are as follows:

NAME AGE* POSITION WITH COMPANY
- ---- --- ---------------------
<S> <C> <C>
Salah M. Hassanein (1).......... 75 President, Chief Executive Officer and Director
Silas R. Cross.................. 57 Vice President, Treasurer and Assistant Secretary
Clay M. Davis................... 50 Vice President
J.R. DeLang..................... 40 Senior Vice President and Director
Graham Hall..................... 38 Managing Director of Chrysalis/Todd-AO Europe, Ltd.
Coburn T. Haskell............... 44 Vice President and Controller
Richard C. Hassanein............ 45 Vice President and Director
Christopher D. Jenkins.......... 41 Senior Vice President and Director
Dan Malstrom.................... 45 Secretary
Marshall Naify (1).............. 76 Co-Chairman of the Board of Directors
Robert A. Naify (1)............. 74 Co-Chairman of the Board of Directors
Richard O'Hare.................. 43 President of Todd-AO Video Services
A.C. Childhouse (2)............. 86 Director
David Haas...................... 55 Director
Herbert L. Hutner (2)........... 87 Director
Robert I. Knudson............... 71 Director
Michael S. Naify................ 34 Director
A. Frank Pierce................. 66 Director
Zelbie Trogden (2).............. 60 Director

</TABLE>
- ----------------

* As of October 1, 1996.

(1) Member of the Executive Committee.

(2) Member of the Audit and Compensation Committee.

Certain officers and directors of the Company were formerly
associated in various capacities with United Artists Communications, Inc.
("UACI"), now known as United Artists Theatre Circuit, Inc., a motion picture
theater company. UACI owned approximately 85% of the Company's common stock
until 1986.

Salah M. Hassanein was elected as a Director in 1962. In July 1996,
Mr. Hassanein was appointed the President and Chief Executive Officer of the
Company. From 1994 to 1996, he served as President and Chief Operating
Officer. Prior to 1994, Mr. Hassanein was the Company's Senior Executive Vice
President. Mr. Hassanein also served as President of Warner Bros.
International Theatres Co. from 1988 to June 30, 1994, and is presently a
consultant to Warner Bros. Mr. Hassanein previously served as Executive Vice
President of UACI and President and director of United Artists Eastern
Theatres, Inc. Mr. Hassanein is a principal of SMH Entertainment, Inc. and a
director of Software Technologies Corporation.

Silas R. Cross became Vice President and Controller of the Company
in 1988. In 1995, he was appointed Treasurer and Assistant Secretary. Mr.
Cross previously served as Assistant Treasurer of UACI, and has served the
Company in various capacities since 1965.

<PAGE>

Clay M. Davis was appointed a Vice President of the Company in
1996. Mr. Davis previously served as Vice President of Engineering of the
Todd-AO Studios since 1989.

J.R. DeLang was elected a Director in 1993. He has been the Senior
Vice President of the Company and the Executive Vice President of the
Company's Todd-AO Studios division since 1993. Mr. DeLang previously served
as Vice President of Sales and Marketing of Todd-AO Studios from 1988 to 1993
and Director of Sales and Marketing from 1987 to 1988.

Graham Hall was appointed Managing Director of Chrysalis in March
1990. From 1982 to 1990, Mr. Hall was employed by Rank Video Services where
he held various engineering positions, ultimately advancing to Technical
Development Manager.

Coburn T. Haskell has served as Vice President and as Controller of
the Company since 1995. Prior thereto, he served as Controller of Todd-AO
Studios from 1994 to 1995. Mr. Haskell joined the Company in 1990 as
Assistant Controller of Todd-AO Studios, having received his CPA
certification while employed by KPMG Peat Marwick from 1988 to 1990.
Previously, Mr. Haskell was Controller of American Fiber Optics Corporation.

Richard C. Hassanein has served as Vice President of the Company
and Director since 1993 and served as Executive Vice President of the
Company's subsidiary, Todd-AO Studios West, since 1995. Previously, he served
as Executive Vice President of the Company's subsidiary, Todd-AO Studios
East, from 1991 to 1995. Prior to 1991, Mr. Hassanein was an independent
representative for film and television producers. Previously, he was
President of United Film Distribution Co., Inc. Mr. Hassanein is the son of
Salah M. Hassanein.

Christopher D. Jenkins has been a Senior Vice President and
Director of the Company since 1987. He was appointed President of Todd-AO
Studios in 1990 and served as Vice President from 1987 to 1990. Mr. Jenkins
is currently a lead sound mixer for the Company, and has won two Academy
Awards-Registered Trademark- for sound.

Dan Malstrom is an attorney in private practice and has served as
the Company Secretary since 1987.

Marshall Naify was elected a Director in 1964, and currently serves
as Co-Chairman of the Board. He served as Chairman of the Board during the
period of 1990 until July 1996. From 1995 until July 1996, he also served as
Co-Chief Executive Officer. Mr. Naify previously served as Chairman of the
Board and Co-Chief Executive Officer of UACI. Mr. Naify is an investor. He is
the brother of Robert A. Naify.

Robert A. Naify was elected a Director in 1959 and currently serves
as Co-Chairman of the Board. Mr. Naify served as Co-Chairman and Co-Chief
Executive Officer from 1995 until July 1996. He previously served as
President and Chief Executive Officer during the period of 1990 until 1994.
Mr. Naify also served as President and Co-Chief Executive Officer of UACI.
Mr. Naify is an investor and is a director of Tele-Communications, Inc. He is
the brother of Marshall Naify.

Richard O'Hare has served as President of Todd-AO Video Services
since 1994 and previously served as the President of Film Video Masters, its
predecessor, from 1988 until its acquisition by the Company in 1994.
Previously, Mr. O'Hare was Vice President of Twentieth Century Fox Film
Corporation.

A.C. Childhouse was elected a Director in 1964. He previously
served as a Senior Vice President and Director of UACI. Mr. Childhouse is an
investor.

David Haas was elected a Director in October 1996. Mr. Haas has
been a financial consultant since 1995, and has assisted clients in the
negotiation and structuring of acquisitions. From 1990 to 1994, Mr. Haas
served as Senior Vice President and Controller of Time Warner Inc.

<PAGE>

Herbert L. Hutner was elected as a Director in 1987. He is an
investor and a financial consultant.

Robert I. Knudson was elected as a Director in 1983, and currently
serves as a consultant to the Company. He was previously an Executive Vice
President of the Company and served as President of Todd-AO Studios from 1981
until 1990. During his tenure as a lead sound mixer for the Company, Mr.
Knudson won three Academy Awards-Registered Trademark- for sound.

Michael S. Naify was elected a Director in 1993. He was previously
Vice President of the Company, serving in that capacity from 1993 to 1994. He
is the son of Marshall Naify.

A. Frank Pierce was elected as a Director in October 1996. Mr.
Pierce currently acts as an international consultant providing services
related to motion picture distribution. From January 1993 to June 1996, Mr.
Pierce served as Senior Vice President of Europe Theatrical Distribution for
Time Warner Entertainment. From 1972 to 1993, he served as Vice President of
Europe Theatrical Distribution for Time Warner Entertainment. From 1955 to
1972, Mr. Pierce served in numerous international positions within the motion
picture industry including Managing Director of Italy for Paramount Pictures
International and management positions in four Latin American countries for
Columbia Pictures International.

Zelbie Trogden was elected a Director in 1994. He has been a
financial consultant and a director of Citadel Holding Corporation and
Fidelity Federal Bank since 1993. Prior thereto, he held various executive
positions with Bank of America and Security Pacific National Bank from 1960
to 1993.

ITEM 11. EXECUTIVE COMPENSATION.

All applicable share and per share data for periods included in the
compensation tables set forth below have been adjusted to retroactively
reflect a 10% stock dividend paid on September 29, 1995.

SUMMARY COMPENSATION TABLE. Directors receive no cash compensation for their
services as directors. The following table shows, for the years ended August
31, 1996, 1995 and 1994 all forms of compensation for the Chief Executive
Officer and each of the most highly compensated executive officers of the
Company whose total annual salary and bonus exceeded $100,000 for the year
ended August 31, 1996.

ANNUAL COMPENSATION(1)
---------------------- LONG-TERM
COMPENSATION
-------------------
NO. OF SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) OPTIONS COMPENSATION($)
- --------------------------- ------ ------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Salah M. Hassanein 1996 100,000 (2) -- --
President and Chief Executive Officer 1995 100,001 (2) 66,000 --
The Todd-AO Corporation 1994 100,000 (2) 110,000 --

J.R. DeLang 1996 335,442 -- 15,000 (3)
Executive Vice-President 1995 293,942 -- 19,168 (3)
Todd-AO Studios 1994 203,876 -- 3,073 (3)

Christopher D. Jenkins 1996 575,631 (4) -- 3,460 (4)
President 1995 465,981 (4) -- 3,385 (4)
Todd-AO Studios 1994 471,920 (4) -- 4,146 (4)

</TABLE>

<PAGE>

Clay M. Davis 1996 176,546 -- 3,460 (5)
Vice President 1995 151,575 16,500 3,385 (5)
Todd-AO Studios 1994 151,231 -- 3,385 (5)

Richard O'Hare 1996 173,695 -- 17,228 (6)
President 1995 176,491 11,000 --
Todd-AO Video Services 1994 -- -- --

</TABLE>

- ------------

(1) The columns for "Bonus" and "Other Annual Compensation" have been
omitted because there is no compensation required to be reported in such
columns. The aggregate amount of perquisites and other personal benefits
provided to each officer listed above is less than 10% of the total annual
salary of such officer.

(2) Amounts shown as salary include professional fees of $80,000 for
1996, 1995 and 1994.

(3) Amounts shown as "All Other Compensation" represent contributions
made by the Company to its 401(k) Plan for 1996 and 1995 and under a
collective bargaining agreement to the Motion Picture Industry Pension Plan
for 1994 on Mr. DeLang's behalf.

(4) Amounts shown as salary include compensation of $475,631, $365,981
and $388,586 for 1996, 1995 and 1994, respectively, attributable to services
as a sound mixer. Amounts shown as "All Other Compensation" represent
contributions made by the Company under a collective bargaining agreement to
the Motion Picture Industry Pension Plan on Mr. Jenkins' behalf.

(5) Amounts shown as "All Other Compensation" represent contributions
made by the Company under a collective bargaining agreement to the Motion
Picture Industry Pension Plan on Mr. Davis' behalf.

(6) Amounts shown as "All Other Compensation" represent contributions
made by the Company to its 401(k) Plan on Mr. O'Hare's behalf.

OPTION EXERCISES AND VALUE TABLE. No stock options were granted by the
Company during the fiscal year ended August 31, 1996 to the executive
officers named in the Summary Compensation Table. The following table shows
each exercise of stock options during the fiscal year ended August 31, 1996
by each of the executive officers named in the Summary Compensation Table,
together with respective aggregate values of unexercised options as at August
31, 1996.

NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT AUGUST 31, 1996 AT AUGUST 31, 1996
-------------------------- -------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ---------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Salah M. Hassanein -- -- 110,000 66,000 $924,880 $626,208
J.R. DeLang -- -- 52,800 13,200 463,331 105,930
Christopher D. Jenkins -- -- 59,400 6,000 524,964 52,965
Clay M. Davis -- -- 20,900 6,600 195,569 52,965
Rick O'Hare -- -- 6,600 4,400 50,741 33,827

</TABLE>

<PAGE>

Employment Agreements

The Company has employment agreements with Messrs. Jenkins, DeLang
and O'Hare. Under Mr. Jenkins' agreement (expiring December 31, 2000),
compensation for sound mixing services is paid on an hourly basis at four
times the minimum supervisor union rate. Mr. Jenkins receives an additional
$100,000 per year for management and administrative services. The agreement
with Mr. DeLang (expiring September 30, 1997) provides for a salary of
$285,000 for the twelve months ending September 30, 1995, $300,000 for the
twelve months ending September 30, 1996 and $320,000 for the twelve months
ending September 30, 1997. Mr. O'Hare's agreement (expiring August 31, 1997)
provides for a salary of $153,016, $168,000 and $203,000 for the twelve
months ending August 31, 1995, 1996, and 1997, respectively.

None of the foregoing agreements include any termination or
change-in-control payments. The Company's stock option plans provide that the
unvested portion of the awards will become vested and exercisable in
connection with a change-in-control.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.

PRINCIPAL SHAREHOLDERS

The following table sets forth information with respect to the
beneficial ownership of the Company's outstanding Common Stock as of November
1, 1996 by (i) each person known by the Company to be the beneficial owner of
more than 5% of the outstanding shares of Common Stock, (ii) each director or
executive officer of the Company who beneficially owns any shares, and (iii)
all directors and executive officers of the Company as a group. Except as
otherwise indicated, the persons listed below have sole voting and investment
power with respect to all shares of Common Stock owned by them, except to the
extent such power may be shared with a spouse.

NUMBER OF SHARES BENEFICIALLY
OWNED PERCENT (2)
-------------------------------- -------------------
NAME(1) CLASS A CLASS B CLASS A CLASS B
- ------- --------------- --------------- -------- ---------
<S> <C> <C> <C> <C>
A.C. Childhouse........................ 41,087 -- .63% --%
Clay M. Davis.......................... 23,100 (3) -- .35 --
J.R. DeLang............................ 57,200 (3) -- .86 --
Heine Securities Corporation(4)........ 652,442 -- 9.95 --
Richard C. Hassanein................... 18,150 (3) -- .28 --
Salah M. Hassanein..................... 539,043 (3) -- 8.06 --
Herbert L. Hutner...................... 19,210 -- .29 --
Christopher D. Jenkins................. 61,600 (3) -- .93 --
Robert I. Knudson...................... 73,889 (3) -- 1.12 --
Marshall Naify(7)...................... 1,165,984 (3)(5) 678,839 17.57 38.85
Michael S. Naify(7).................... 72,834 -- 1.11 --
Robert A. Naify(7)..................... 1,093,964 (3)(6) 906,290 16.49 51.87
Other Naify Interests(7)............... 775,855 118,510 11.84 6.78
Zelbie Trogden......................... 6,600 (3) -- .10 --
All directors and current executive
officers as a group (18 persons)..... 3,205,711 (3) 1,585,129 48.30 90.72

</TABLE>

- --------------

(1) The address of each of the beneficial owners identified is 172
Golden Gate Avenue, San Francisco, California 94102, except for Heine
Securities Corporation whose address is 51 JFK Parkway, Short Hills, New
Jersey 07078.

<PAGE>

(2) Based on 6,556,520 shares of Class A Common Stock and 1,747,181
shares of Class B Common Stock outstanding at November 1, 1996. Pursuant to
the rules of the Commission, certain shares of Common Stock which a person
has the right to acquire within 60 days of the date hereof pursuant to the
exercise of stock options are deemed to be outstanding for the purpose of
computing the percentage ownership of such person but are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person.

The percentages of Class A Common Stock beneficially owned do not
give effect to the proposed public offering sale of 2,500,000 shares,
excluding the underwriters' over-allotment option, with respect to the
registration statement filed by the Company on October 10, 1996 which has not
yet become effective.

(3) Includes options exercisable within 60 days by Messrs. Davis,
DeLang, R. Hassanein, S.M. Hassanein, Jenkins, Knudson, M. Naify, R.A. Naify,
Trogden, and all directors and current executive officers as a group to
purchase, respectively, 23,100, 57,200, 17,050, 132,000, 61,600, 41,800,
78,100, 78,100, 6,600 and 519,200 shares of Class A Common Stock.

(4) Schedule 13G filed on February 10, 1996 by Heine Securities
Corporation and Michael F. Price indicates that Heine Securities Corporation
has sole investment discretion and voting authority with respect to the
shares of Class A Common Stock, which are legally owned by one or more of its
investment advisory clients.

(5) Includes 98,067 Class A shares held in the name of Marshall Naify
as trustee for one of his children and 30,166 shares of Class A Common Stock
held by a trust for which Mr. Naify is both trustee and beneficiary. Excludes
106,092 shares of Class A Common Stock held by an independent trustee for the
benefit of three of Mr. Naify's children. Mr. Naify disclaims beneficial
ownership of the shares held by the independent trustee.

(6) Excludes 461,473 shares of Class A Common Stock held of record or
beneficially by Mr. Naify's adult children and grandchildren as to which he
disclaims beneficial ownership.

(7) The Naify Interests (consisting of Marshall Naify, Robert A. Naify,
various members of their families and trusts for the benefit of such members)
may be deemed to constitute a "group" for purposes of Sections 13(d) and
13(g) of the Securities Exchange Act of 1934. The total Class A and B Stock
beneficially owned by The Naify Interests as of November 1, 1996 is 3,108,637
(47.01%) and 1,703,639 (97.51%), respectively.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

None.

<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.

(a) Financial Statements and Schedule are as listed in the "Index to
Financial Statements and Schedule" on page 25 of this 10-K Report.

(b) A report on Form 8-K and an Amendment to the report on Form 8-K/A
were filed on August 28, 1996 and September 17, 1996,
respectively, disclosing the acquisition of assets and certain
liabilities of Edit Acquisition LLC.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.

The Todd-AO Corporation

November 25, 1996 By /s/ Silas R. Cross
-------------------------------
Silas R. Cross
Vice President, Treasurer
and Principal Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.

<TABLE>
<S><C>
November 25, 1996 By /s/ Robert A. Naify November 25, 1996 By /s/ Marshall Naify
----------------------- -------------------------
Robert A. Naify Marshall Naify
Co-Chairman of the Co-Chairman of the
Board of Directors Board of Directors

November 25, 1996 By /s/ Salah M. Hassanein November 25, 1996 By /s/ Christopher D. Jenkins
------------------------ ----------------------------
Salah M. Hassanein Christopher D. Jenkins
Director, President and Senior Vice President and
Chief Executive Officer Director

November 25, 1996 By /s/ J.R. Delang November 25, 1996 By /s/ Richard Hassanein
------------------------ ----------------------------
J.R. DeLang Richard Hassanein
Senior Vice President Vice President and
and Director Director

November 25, 1996 By /s/ A.C. Childhouse November 25, 1996 By /s/ Michael S. Naify
------------------------ ----------------------------
A.C. Childhouse Michael S. Naify
Director Director

November 25, 1996 By /s/ Robert I. Knudson November 25, 1996 By /s/ Zelbie Trogden
------------------------ ----------------------------
Robert I. Knudson Zelbie Trogden
Director Director

November 25, 1996 By /s/ Herbert L. Hutner November 25, 1996 By /s/ A. Frank Pierce
------------------------ ----------------------------
Herbert L. Hutner A. Frank Pierce
Director Director

November 25, 1996 By /s/ David Haas
------------------------
David Haas
Director

</TABLE>

20
<PAGE>

EXHIBIT INDEX

EXHIBIT
NO. DESCRIPTION
- ------- -----------

3.1 Amended and Restated Certificate of Incorporation of The Todd-AO
Corporation is incorporated by reference from Registrant's Information
Statement dated May 13, 1996.

3.2 Registrant's Bylaws are incorporated by reference from the
Registrant's Proxy Statement dated April 2, 1990.

4.1 Specimen copy of class A Common Stock Certificate is incorporated
by reference from the Registrant's Registration Statement on Form S-2,
as filed on February 2, 1988 (Registration No. 33-19279).

9.1 Voting Trust Agreements.

Not applicable.

10.1 Asset Purchase Agreement dated March 3, 1986 between the Todd-AO
Corporation and Republic Corporation is incorporated by reference from
the Registrant's Report on Form 8-K filed on March 14, 1986.

10.2 License Agreement dated April 16, 1987 between the CBS/MTM Company and
the Todd-AO Corporation in incorporated by reference from the
Registrant's Report on Form 10-K for the fiscal year ended August 31,
1987.

10.3 License Agreement dated September 27, 1991 between the CBS/MTM Company
and The Todd-AO Corporation in incorporated by reference from the
Registrant's Form 10-K for the fiscal year ended August 31, 1991.

10.4 Employment and Consulting Agreement dated as of September 5, 1991 by
and between Shawn Murphy individually ("SM"), Murphy Balance
Engineering, a California corporation wholly owned by SM, and
Todd-AO/Glen Glenn Studios is incorporated by reference from the
Registrant's Form 10-K for the fiscal year ended August 31, 1993.

10.5 Equipment lease dated as of September 5, 1991 by and between Murphy
Mandala (a joint venture) (lessor) and Todd-AO/Glen glenn Studios
(lessee) is incorporated by reference from the Registrant's Form 10-K
for the fiscal year ended August 31, 1993.

10.6 Employment Agreement dated as of October 1, 1994 between the Todd-AO
Corporation and J.R. DeLang is incorporated by reference from the
Registrant's Form 10-K for the fiscal year ended August 31, 1995.

10.7 Amended and restated lease dated as of June 18, 1992 between West 54th
Street Partners L.P., successor in interest to Rita Silver, (Landlord)
and Todd-AO Studios East, Inc. (Tenant) with respect to premises
consisting of the 7th and 8th floors at 247-59 West 54th Street, New
York, NY is incorporated by reference from the Registrant's Form 10-K
for the fiscal year ended August 31, 1993.

10.8 Joint Venture Agreement dated as of July 20, 1992 between
Trans-Atlantic Enterprises, Inc. and Todd-AO Productions, Inc. is
incorporated by reference from the Registrant's Form 10-K for the
fiscal year ended August 31, 1992.

<PAGE>

EXHIBIT
NO. DESCRIPTION
- ------- -----------

10.9 Extension and amendments to Joint Venture Agreement dated as of
October 20, 1993 between Trans-Atlantic Enterprises, Inc. and Todd-AO
Productions, Inc. is incorporated by reference from the Registrant's
Form 10-K for the fiscal year ended August 31, 1993.

10.10 Amendment No. 2 to Joint Venture Agreement dated as of September
1, 1994 is incorporated by reference from the Registrant's Form 10-K
for the fiscal year ended August 31, 1994.

10.11 Employment Agreement dated as of January 1, 1994 between The
Todd-AO Corporation and Christopher D. Jenkins is incorporated by
reference from the Registrant's Form 10-Q filed on April 13, 1994.

10.12 Asset Purchase Agreement dated as of August 30, 1994 by and among
Todd-AO Video Services, Paskal Video and Joseph S. Paskal is
incorporated by reference from the Registrant's Form 8-K filed on
September 14, 1994.

10.13 Lease Agreement dated as of August 31, 1994 between Joseph S.
Paskal, Trustee, and Todd-AO Video Services is incorporated by
reference from the Registrant's Form 8-K filed on September 14, 1994.

10.14 Credit Agreement dated as of December 2, 1994 between The Todd-AO
Corporation and Bank of America National Trust and Savings Association
is incorporated by reference from the Registrant's Form 10-Q filed on
January 13, 1995.

10.15 First Amendment to Credit Agreement dated as of March 13, 1995
between The Todd-AO Corporation and Bank of America National Trust and
Savings Association is incorporated by reference from the Registrant's
Form 8-K filed on March 31, 1995.

10.16 Letter Amendment dated April 5, 1996 to Credit Agreement dated as
of December 2, 1994, between The Todd-AO Corporation and Bank of
America National Trust and Savings Association is incorporated by
reference from the Registrant's Form 10-Q for the quarter ended
February 29, 1996.

10.17 Third Amendment dated June 14, 1996 to Credit Agreement dated as
of December 2, 1994 between The Todd-AO Corporation and Bank of
America National Trust and Savings Association is incorporated by
reference from the Registrant's Form 10-Q for the quarter ended May
31, 1996.

10.18 Lease intended as a Security dated December 27, 1994 between The
Todd-AO Corporation and BA Leasing and Capital Corporation is
incorporated by reference from the Registrant's Form 10-Q filed on
January 13, 1995.

10.19 Asset Purchase Agreement dated as of February 13, 1995 between
Todd-AO Studios West and Kaytea Rose, Inc. (dba Skywalker Sound South)
is incorporated by reference from the Registrant's form 8-K filed on
February 27, 1995.

10.20 Real Property Purchase Agreement (including Exhibits) dated as of
February 13, 1995 between Todd-AO Studios West and Kaytea Rose, Inc.
is incorporated by reference from the Registrant's From 8-K filed on
February 27, 1995.

10.21 Assignment and Assumption Agreement dated as of February 3, 1995
by and among Todd-AO Studios West, The Todd-AO Corporation, Lucasfilm
Ltd., Lucas Holdings, Inc., Lucas Digital Ltd. and Lantana Center is
incorporated by reference from the Registrant's Form 8-K filed on
February 27, 1995.

<PAGE>

EXHIBIT
NO. DESCRIPTION
- ------- -----------

10.22 Lease dated as of May 21, 1989 between Lantana Center as Landlord
and Lucasfilm Ltd. as Tenant, as amended by documents dated March 27,
1990 and November 8, 1990 is incorporated by reference from the
Registrant's Form 8-K filed on February 27, 1995.

10.23 Agreement for the acquisition of the entire issued share capital
of Chrysalis Television Facilities Ltd. dated as of March 16, 1995
between FCB 1120 Ltd. (subsequently Todd-AO Europe Holdings Ltd.) and
Chrysalis Holdings Ltd. is incorporated by reference from the
Registrant's Form 8-K filed March 31, 1995.

10.24 Tax Deed dated as of March 16, 1995 between FCB 1120 Ltd. and
Chrysalis Holdings Ltd. is incorporated by reference from the
Registrant's Form 8-K filed on March 31, 1995.

10.25 Performance Guarantee dated March 16, 1995 between The Todd-AO
Corporation and Chrysalis Holding Ltd. is incorporated by reference
from the Registrant's Form 8-K filed on March 31, 1995.

10.26 Agreement for the acquisition of the entire issued share capital
of Filmatic Laboratories Ltd. dated as of April 18, 1996 between David
L. Gibbs, Ian Magowan and Todd-AO Europe Holding Company Ltd. is
incorporated by reference to the Registrant's Form 10-Q for the
quarter ended May 31, 1996.

10.27 Asset Purchase Agreement dated August 13, 1996 by and among The
Todd-AO Corporation (Purchaser), Edit Acquisition LLC (Seller), Edit
Group L.P., Patrick H. Furlong, Margie F. Furlong, and James V.
Furlong (Members) and Margie F. Furlong, Patrick H. Furlong, K. Robert
Draughon and Robert Martin (Guarantors), incorporated by reference
from the Registrant's Form 8-K and 8-K/A filed on August 28, 1996 and
September 17, 1996, respectively.

11.1 Computation of Per Share Earnings.

See Note 1 of Notes to Financial Statements.

12.1 Computation of Earnings to Fixed Charges.

Not applicable.

13.1 Annual Report to Stockholders.

The Annual Report to Stockholders will consist of this Form 10-K
Report.

18.1 Changes in Accounting Principles.

Not applicable.

20.1 Previously Unfiled Documents.

Not applicable.

<PAGE>

EXHIBIT
NO. DESCRIPTION
- ------- -----------

21.1 Subsidiaries of the Registrant

Todd-AO Productions, Inc., incorporated in California.

Todd-AO Studios East, Inc., incorporated in New York (parent) and
Todd-AO East, incorporated in New York (subsidiary).

Todd-AO Digital Images, incorporated in California.

Todd-AO Video Services, incorporated in California.

Todd-AO Studios, incorporated in California.

Todd-AO Studios West, incorporated in California.

Todd-AO Europe Holdings Ltd. (formerly FCB 1120 Ltd.) incorporated
in the U.K. (parent), Chrysalis/Todd-AO Europe Ltd., incorporated
in the U.K. (subsidiary) and Todd-AO/Filmatic Laboratories, Ltd.,
incorporated in the U.K. (subsidiary).

Todd-AO's Land of the Future, Inc., incorporated in California.

Todd-AO Preservation Services, Incorporated in California.

22.1 Published Reports Regarding Matters Submitted to a Vote of Security
Holders.

Not applicable.

23.1, 24.1, and 25.1

Not applicable.

27.1 Financial Data Schedule

Filed herewith.

<PAGE>

THE TODD-AO CORPORATION

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

Page

Independent Auditors' Report 26

Consolidated Balance Sheets, August 31, 1995 and 1996 27

Consolidated Statements of Income for the Years Ended
August 31, 1994, 1995 and 1996 29

Consolidated Statements of Stockholders' Equity for the
Years Ended August 31, 1994, 1995 and 1996 30

Consolidated Statements of Cash Flows for the Years Ended
August 31, 1994, 1995 and 1996 31

Notes to Consolidated Financial Statements 34

Supplemental Financial Statement Schedule:

II Valuation and Qualifying Accounts For The Years Ended
August 31, 1994, 1995 and 1996 43

Schedules other than those listed above have been omitted because of the
absence of the conditions under which they are required or because the
required information, where material, is shown in the financial statements
or the notes hereto.

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors of
The Todd-AO Corporation:

We have audited the accompanying consolidated balance sheets of The
Todd-AO Corporation and subsidiaries (the "Company") as of August 31, 1996,
and 1995, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended August
31, 1996. O and the nine months ended May 31, 1996ur audits also included
the financial statement schedule listed in the Index at Item 14a. These
financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of August
31, 1996 , August 31,and 1995 and May 31, 1996 and the results of its
operations and its cash flows for each of the three years in the period ended
August 31, 19956 and the nine months ended May 31, 1996 in conformity with
generally accepted accounting principles. Also in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

By /s/ DELOITTE & TOUCHE LLP

DELOITTE & TOUCHE LLP
Los Angeles, California

October 18, 1996

<PAGE>

THE TODD-AO CORPORATION

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

ASSETS
<TABLE>
<CAPTION>
AUGUST 31,
------------------
1995 1996
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................... $ 5,278 $ 3,385
Marketable securities....................................... 3,484 2,616
Trade receivables
(net of allowance for doubtful accounts of $828 and $696
at August 31, 1995 and 1996, respectively)................ 6,787 9,132
Inventories (first-in first-out basis)...................... 484 635
Prepaid income taxes........................................ 727 --
Deferred income taxes....................................... 924 1,152
Other....................................................... 565 988
-------- --------
Total current assets........................................ 18,249 17,908
-------- --------
INVESTMENTS................................................. 1,156 994
-------- --------
PROPERTY AND EQUIPMENT - At Cost:
Land........................................................ 4,270 4270
Buildings................................................... 10,548 10,559
Leasehold improvements...................................... 6,286 6,286
Lease acquisition costs..................................... 2,187 2,187
Equipment................................................... 24,785 31,259
Equipment under capital leases.............................. 3,163 3,360
Construction in progress.................................... -- 1,402
-------- --------
Total....................................................... 51,239 59,323
Accumulated depreciation and amortization................... (16,276 (20,846)
-------- --------
Property and equipment - net................................ 34,963 38,477
-------- --------
GOODWILL
(net of accumulated amortization of $63 and $190 at
August 31, 1995 and 1996, respectively)................... 1,832 5,761
-------- --------
OTHER ASSETS................................................ 998 1,046
-------- --------
TOTAL....................................................... $ 57,198 $ 64,186
-------- --------
-------- --------
</TABLE>

See notes to consolidated financial statements.

<PAGE>

THE TODD-AO CORPORATION

CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS)

LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
AUGUST 31,
----------------
1995 1996
------- -------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable...................................................... $ 1,784 $ 2,812
Accrued liabilities:
Payroll and related taxes........................................... 1,975 2,023
Interest 179 173
Equipment lease..................................................... 396 300
Other............................................................... 515 1,198
Income taxes payable................................................ -- 368
Current maturities of long-term debt.................................. 759 615
Capitalized lease obligations - current............................... 897 616
Deferred income....................................................... 703 634
------- -------
Total current liabilities............................................. 7,208 8,739
------- -------
LONG-TERM DEBT........................................................ 7,707 9,332
CAPITALIZED LEASE OBLIGATIONS......................................... 620 22
DEFERRED COMPENSATION................................................. 401 273
DEFERRED GAIN ON SALE/LEASEBACK....................................... 6,381 4,909
DEFERRED INCOME TAXES................................................. 3,683 4,488
------- -------
Total liabilities..................................................... 26,000 27,763
------- -------

COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock:
Class A; authorized 30,000,000 shares of $0.01 par value; issued and
outstanding 6,403,021 at August 31, 1995 and 6,555,640 at
August 31, 1996................................................... 64 65
Class B; authorized 6,000,000 shares of $0.01 par value; issued and
outstanding 1,747,181 at August 31, 1995 and 1996................. 17 17
Additional capital.................................................... 23,004 24,291
Retained earnings..................................................... 7,904 12,267
Unrealized gains on marketable securities and long-term investments... 473 42
Cumulative foreign currency translation adjustment.................... (264) (259)
------- -------
Total stockholders' equity............................................ 31,198 36,423
------- -------
TOTAL................................................................. $57,198 $64,186
------- -------
------- -------
</TABLE>

See notes to consolidated financial statements.

<PAGE>

THE TODD-AO CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
----------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES.................................................... $ 32,892 $ 50,003 $ 62,920
---------- ---------- ----------
COSTS AND EXPENSES:
Operating costs and other expenses.......................... 27,021 39,867 48,962
Depreciation and amortization............................... 2,603 3,917 5,374
Interest.................................................... 24 581 702
Equipment lease expense - net............................... -- 593 498
Other (income) expense - net................................ (773) (290) (359)
---------- ---------- ----------
Total costs and expenses.................................... 28,875 44,668 55,177
---------- ---------- ----------
INCOME BEFORE LOSS FROM JOINT VENTURE AND PROVISION FOR
INCOME TAXES............................................... 4,017 5,335 7,743
LOSS FROM JOINT VENTURE................................... (1,215) (249) (117)
---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES.................... 2,802 5,086 7,626
PROVISION FOR INCOME TAXES................................ 1,022 1,711 2,782
---------- ---------- ----------
NET INCOME.................................................. $ 1,780 $ 3,375 $ 4,844
---------- ---------- ----------
---------- ---------- ----------
NET INCOME PER COMMON SHARE AND COMMON SHARE EQUIVALENTS.... $ 0.22 $ 0.40 $ 0.55
---------- ---------- ----------
---------- ---------- ----------
WEIGHTED AVERAGE SHARES OUTSTANDING......................... 8,195,678 8,399,462 8,845,321
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

See notes to consolidated financial statements.

<PAGE>

THE TODD-AO CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------------- UNREALIZED
GAIN(LOSS)
CLASS A ON FOREIGN
------------------ CLASS B ADDITIONAL RETAINED TREASURY INVESTMENT CURRENCY
SHARES AMOUNT AMOUNT CAPITAL EARNINGS SHARES SECURITIES TRANSLATION
--------- ------- ------- ---------- -------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 1, 1993......... 6,432,859 $1,608 $ 437 $21,204 $ 3,612 -- -- --
Reduction of Class A and B shares par
value from $0.25 to $0.01........... -- (1,544) (420) (1,964) -- -- -- --
Purchase of treasury shares.......... (143,000) -- -- -- -- $(509) -- --
Treasury shares cancellation......... -- (1) -- (511) -- 509 -- --
Exercise of stock options............ 89,210 1 -- 246 -- -- -- --
Cash dividends:
Class A ($.06) per share........... -- -- -- -- (342) -- -- --
Class B ($.054) per share.......... -- -- -- -- (86) -- -- --
Net income........................... -- -- -- -- 1,780 -- -- --
--------- ------- ------- -------- -------- ------- -------- ----------
BALANCE AT AUGUST 31, 1994........... 6,379,069 64 17 22,903 4,964 -- -- --
Exercise of stock options............ 25,300 -- -- 101 -- -- -- --
Unrealized gain on investment
securities.......................... -- -- -- -- -- -- $ 473 --
Loss on foreign currency
translation......................... -- -- -- -- -- -- -- $ (264)
Cash dividends:
Class A ($.06) per share........... -- -- -- -- (349) -- -- --
Class B ($.054) per share.......... -- -- -- -- (86) -- -- --
Net income........................... -- -- -- -- 3,375 -- -- --
--------- ------- ------- -------- -------- ------- -------- ----------
BALANCE AT AUGUST 31, 1995........... 6,404,369 64 17 23,004 7,904 -- 473 (264)
Exercise of stock options............ 152,600 1 -- 1,043 -- -- -- --
Purchase of treasury shares.......... (68,192) -- -- -- -- (726) -- --
Treasury shares cancellation......... -- (1) -- (725) -- 726 -- --
Shares issued in acquisition of
Editworks........................... 66,863 1 -- 969 -- -- -- --
Unrealized (loss) on investment
securities.......................... -- -- -- -- -- -- (431) --
Gain on foreign currency
translation......................... -- -- -- -- -- -- -- 5
Cash dividends:
Class A ($.045) per share.......... -- -- -- -- (395) -- -- --
Class B ($.04) per share........... -- -- -- -- (86) -- -- --
Net income........................... -- -- -- -- 4,844 -- -- --
--------- ------- ------- -------- -------- ------- -------- ----------
BALANCE AT AUGUST 31, 1996........... 6,555,640 $ 65 $ 17 $24,291 $12,267 $ 0 $ 42 $ (259)
--------- ------- ------- -------- -------- ------- -------- ----------
--------- ------- ------- -------- -------- ------- -------- ----------
</TABLE>

See notes to consolidated financial statements.

<PAGE>

THE TODD-AO CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
--------------------------
1994 1995 1996
------- -------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................... $ 1,780 $ 3,375 $ 4,844
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................ 2,603 3,917 5,374
Deferred income taxes........................................ (386) 1,258 577
Loss from joint venture...................................... 1,215 249 117
Deferred compensation........................................ (119) (164) (128)
Amortization of deferred gain on sale/leaseback
transaction................................................ -- (964) (1,472)
(Gain) loss on sale of marketable securities and
investments................................................ (342) (127) 92
Loss on disposition of fixed assets.......................... -- -- 276
Changes in assets and liabilities (net of aqcuisitions):
Trade receivables.......................................... (894) (739) (1,494)
Income taxes receivable.................................... -- -- --
Inventories and other current assets....................... 38 (266) (338)
Accounts payable and accrued liabilities................... 1,249 138 550
Accrued equipment lease.................................... -- 396 (96)
Income taxes payable....................................... (210) (670) 926
Deferred income............................................ (93) 560 (69)
------- -------- -------
Net cash provided by operating activities........................ 4,841 6,963 9,159
------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities and investments.............. (3,050) (996) (374)
Proceeds from sale of marketable securities and investments.... 921 1,606 881
Capital expenditures........................................... (1,404) (3,345) (6,219)
Contributions to joint venture................................. (900) (249) (117)
Purchase of Paskal Video....................................... (1,150) -- --
Purchase of Skywalker Sound South.............................. -- (6,966) --
Purchase of Chrysalis.......................................... -- (8,333) --
Purchase of Editworks.......................................... -- -- (3,180)
Other assets................................................... (155) (1) (169)
------- -------- -------
Net cash flows (used in) investing activities.................... $(5,738) $(18,284) $(9,178)
------- -------- -------
</TABLE>

<PAGE>

THE TODD-AO CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(CONTINUED)

<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
-------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt................................... $ -- $ 7,722 $ 5,356
Payments on long-term debt..................................... -- (1,467) (4,430)
Payments on capital lease obligations.......................... (94) (1,108) (2,637)
Proceeds from sale/leaseback transaction....................... -- 11,218 --
Proceeds from issuance of common stock......................... 245 101 1,044
Treasury stock transactions.................................... (509) -- (726)
Dividends paid................................................. (428) (435) (481)
------- ------- -------
Net cash flows provided by (used in) financing activities: (786) 16,031 (1,874)
Effect of exchange rate changes on cash........................ -- (38) --
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (1,683) 4,672 (1,893)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................... 2,289 606 5,278
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR......................... $ 606 $ 5,278 $ 3,385
------- ------- -------
------- ------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest....................................................... $ 19 $ 408 $ 708
------- ------- -------
------- ------- -------
Income taxes................................................... $ 1,563 $ 1,413 $ 1,285
------- ------- -------
------- ------- -------
</TABLE>

SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND FINANCING ACTIVITIES:

1996:

On August 14, 1996, the Company acquired substantially all of the assets
and certain of the liabilities of Edit Acquisition LLC ("Editworks"). In
connection with this acquisition, the Company paid cash as follows:

Assets acquired:
Property and equipment ................................. $1,992
Accounts receivable .................................... 617
Goodwill ............................................... 3,930
Other assets............................................ 90
Liabilities assumed:
Accounts payable and accrued expenses .................. (807)
Capitalized lease obligations........................... (1,672)
Common stock issued in acquisition........................ (970)
-------
Cash paid in acquisition.................................. $ 3,180
-------
-------

<PAGE>

1995

a) On February 15, 1995, the Company acquired substantially all of the
property, equipment and inventory of Skywalker Sound South. In connection
with this acquisition, the Company paid cash as follows:

Assets acquired:
Land.................................................... $ 783
Buildings and improvements.............................. 844
Equipment............................................... 5,032
Other assets............................................ 307
-------
Cash paid in acquisition.................................. $6,966
-------
-------

b) On March 16, 1995, the Company acquired all of the outstanding shares of
Chrysalis Television Facilities, Ltd. In connection with this acquisition,
the Company paid cash as follows:

Assets acquired:
Property and equipment $7,599
Accounts receivable..................................... 1,815
Goodwill................................................ 1,963
Other assets............................................ 339
Liabilities assumed:
Accounts payable and accrued expenses................... (798)
Capitalized lease obligations........................... (1,072)
Real estate mortgage payable............................ (149)
Long-term debt issued to seller........................... (1,364)
-------
Cash paid in acquisition.................................. $ 8,333
-------
-------

1994:

a) On August 31, 1994, the Company acquired substantially all of the assets
and certain of the liabilities of Paskal Video. In connection with this
acquisition, the Company paid cash as follows:

Assets acquired:
Property and equipment.................................. $2,030
Accounts receivable..................................... 860
Other assets............................................ 121
Liabilities assumed:
Accounts payable and accrued expenses................... (329)
Capitalized lease obligations........................... (782)
Long-term debt issued to seller......................... (750)
-------
Cash paid in acquisition.................................. $1,150
-------
-------

b) During the year ended August 31, 1994, TDI entered into a capital lease
obligation in the amount of $886.

See notes to consolidated financial statements.

<PAGE>

THE TODD-AO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND OPTION DATA)

1. SIGNIFICANT ACCOUNTING POLICIES

OWNERSHIP AND BUSINESS - At August 31, 1996, Robert Naify, Marshall
Naify, and certain members of their families and various trusts for the
benefit of family members (the "Naify Interests") owned over 58% of the
outstanding shares of the Company, representing approximately 84% of the
total voting power.

BASIS OF PRESENTATION - The consolidated financial statements include
the Company and its wholly owned subsidiaries Todd-AO Studios East, Inc.
("Todd-AO East"), Todd-AO Productions, Inc., Todd-AO Digital Images, Inc.
("TDI"), Todd-AO Video Services, Inc. ("TVS"), Todd-AO Studios West ("TSW")
and Todd-AO Europe Holding Ltd. ("TAO Europe"). All significant intercompany
balances and transactions have been eliminated.

CASH AND CASH EQUIVALENTS - The Company considers investments with
original purchased maturities of three months or less to be cash equivalents.

MARKETABLE SECURITIES AND INVESTMENTS - Marketable securities consist
primarily of corporate preferred stocks and bonds. Management has classified
all investment securities as available-for-sale. As a result, securities are
reported at fair value with net unrealized holding gains and losses excluded
from earnings and reported in stockholders' equity. Fair value is based upon
quoted market prices using the specific identification method. Investments
include stock and other investments which management intends to hold for more
than one year.

DEPRECIATION AND AMORTIZATION - Depreciation and amortization are
computed at straight line rates based upon the estimated useful lives of the
various classes of assets. The principal rates are as follows: buildings,
3-5% per annum; equipment, 10-20% per annum; leaseholds, leasehold
improvements, and lease acquisition costs over the term of the lease.

GOODWILL - Goodwill represents the excess purchase price paid over the
value of net assets acquired, and is being amortized on a straight-line basis
over 15 years.

The Company assesses the recoverability of its intangible assets by
determining whether the amortization of the intangible asset balance over its
remaining life can be recovered through projected non-discounted future cash
flows over the remaining amortization period. If projected future cash flows
indicate that the unamortized intangible asset balances will not be
recovered, an adjustment is made to reduce the net intangible asset to an
amount consistent with projected future cash flows discounted at the
Company's incremental borrowing rate.

FOREIGN CURRENCY TRANSLATION - The Company's foreign subsidiary's
functional currency is its local currency. Assets and liabilities of foreign
operations are translated into U.S. dollars using current exchange rates, and
revenues and expenses are translated into U.S. dollars using average exchange
rates. The effects of the foreign currency translation adjustments are
deferred and are included as a component of stockholders' equity.

NET INCOME PER COMMON SHARE - Net income per common share is computed
based on the weighted average number of common and common equivalent shares
outstanding for each of the periods presented including common share
equivalents arising from the assumed conversion of any outstanding dilutive
stock options.

<PAGE>

FAIR VALUE OF FINANCIAL INSTRUMENTS - Statement of Financial and
Accounting Standard ("SFAS") No. 107 requires disclosures of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate fair value. Management
believes that the book value approximates fair value of the Company's
financial instruments because of the short-term nature of accounts receivable
and variable interest rates associated with long-term debt.

CONCENTRATION OF CREDIT RISK - The Company's accounts receivable are
related primarily to the entertainment industry and are unsecured. The
Company's ten largest customers account for approximately 53% of revenues and
for the year ended August 31, 1996, one customer accounted for approximately
12% of revenues.

USE OF ESTIMATES - 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 certain assets
and liabilities and disclosure of contingent assets and liabilities. Actual
results could differ from those estimates.

RECLASSIFICATIONS - Certain 1995 financial statement captions have been
reclassified in order to conform to 1996 presentation.

2. ACQUISITIONS

On August 31, 1994, TVS (a wholly owned subsidiary of the Company)
acquired certain of the assets and liabilities of Film Video Masters
("Paskal"). TVS provides post production video services to the film and
television industries. In consideration of the purchase, TVS paid Paskal
$1,150 in cash and issued a note in the amount of $750.

On February 15, 1995, TSW (a wholly owned subsidiary of the Company)
acquired substantially all of the property, equipment and inventory of Kaytea
Rose, Inc. (dba Skywalker Sound South)("SSS"). TSW provides post production
sound services to the film and television industries. In consideration of the
purchase, TSW paid $6,966 in cash. TSW is included in the Company's results
of operations from February 1995.

On March 16, 1995 TAO Europe (formerly FCB 1120, Ltd.)(a wholly owned
subsidiary of the Company) acquired all of the outstanding shares of
Chrysalis/Todd-AO Europe Ltd. ("Chrysalis")(formerly Chrysalis Television
Facilities, Ltd.) from Chrysalis Holdings Ltd. ("CHL"). TAO Europe, Chrysalis
and CHL are all corporations organized under the laws of the United Kingdom
and headquartered in London. Chrysalis specializes in the collation of
television programming for satellite broadcast and also provides post
production video and other services to a variety of clients. In consideration
of the purchase, TAO Europe paid CHL $1,966 in cash at closing and issued a
note in the amount of $1,364. An additional cash settlement of $220 was paid
in June 1995. Concurrently with the acquisition, TAO Europe advanced and
paid on behalf of Chrysalis its intercompany debt to CHL in the amount of
$4,585. Subsequent to the acquisition, TAO Europe advanced and paid on behalf
of Chrysalis other debt in the amount of $1,562. TAO Europe and Chrysalis
consolidated are included in the Company's results of operations from March
1995.

On August 15, 1996, the Company purchased substantially all of the
assets and certain liabilities of Edit Acquisition LLC ("Editworks").
Editworks provides video post production services to broadcasters,
advertising agencies and other businesses. At the closing, the Company paid
Editworks $3,180 in cash and $970 in common stock. An additional $500 in cash
is due upon completion of certain conditions.

The acquisitions are being accounted for under the purchase method of
accounting. The following unaudited pro forma consolidated financial
information is presented as if the acquisitions had occurred on September 1,
1994. Pro forma adjustments for TSW are primarily to operating expenses
related to nonapplicable allocations made by the parent corporation of SSS,
depreciation expense relating to the acquisition of assets, interest expense
on borrowings in connection with the acquisition and income taxes. Pro forma
adjustments for TAO Europe are primarily to amortization expense relating to
allocation

<PAGE>

of the purchase price, interest expense on borrowings in connection with the
acquisition and income taxes. Pro forma adjustments for Editworks are
primarily to amortization of goodwill, interest expense on borrowings in
connection with the acquisition, and income taxes.

1995 1996
-------- --------
Revenues.............................................. $ 62,293 $ 66,966
-------- --------
-------- --------
Net income............................................ $ 3,515 $ 5,121
-------- --------
-------- --------
Net income per common share........................... $ 0.42 $ 0.58
-------- --------
-------- --------

3. SALE/LEASEBACK

In December 1994 the Company signed an agreement with its bank to
implement the sale/leaseback of certain equipment. The agreement terminates
on December 30, 1999 and is being treated as an operating lease for financial
statement purposes. On December 30, 1994 an aggregate of $11,218 in equipment
was sold and leased back to the Company. The total deferred gain on the
transaction to be amortized over five years is $7,345.

The net equipment lease expense for the years ended August 31, 1995 and
1996 is as follows:

1995 1996
-------- --------
Equipment lease costs................................. $ 1,557 $ 1,970
Amortization of deferred gain on sale of equipment.... (964) (1,472)
-------- --------
Equipment lease expense, net.......................... $ 593 $ 498
-------- --------
-------- --------

4. LONG-TERM DEBT

Long-term debt outstanding as of August 31, 1995 and 1996 was as
follows:

1995 1996
-------- --------
Revolving credit facility - pound sterling credit
line ................................................ $ 6,391 $ 4,350
Revolving credit facility - other..................... -- 4,281
Note payable - Paskal Video acquisition............... 613 463
Note payable - Chrysalis acquisition.................. 1,318 853
Chrysalis mortgage note............................... 144 --
-------- --------
Total................................................. 8,466 9,947
Less: current maturities.............................. (759) (615)
-------- --------
Total long-term debt.................................. $ 7,707 $ 9,332
-------- --------
-------- --------

In December 1994 the Company signed a long-term credit agreement with
its bank which was amended in March 1995, April 1996 and June 1996. Under the
agreement the Company may borrow up to $28,000 in revolving loans until
February 28, 2000. On that date and quarterly thereafter until the expiration
of the agreement on November 30, 2003, the revolving loan commitment shall
reduce by 5% of the original loan commitment. Approximately $8,000 of the
available credit is restricted to pound sterling borrowings. The agreement
provides for interest at 1 2% plus reference rate; 11 2% plus offshore rates
("Libor") and 15 8% plus certificate of deposit rates ("CD")(Libor and CD
minimum borrowings $1,000 or ,500). These rates increase by 1 2% if certain
financial ratios are exceeded. The pound sterling borrowings are restricted
to Libor and CD options. The agreement contains various restrictive
provisions, including investment, capital expenditure, cash dividends and
borrowing limitations. As of August 31, 1996 the

<PAGE>

Company has not exceeded the interest rate financial ratios and is in
compliance with the various restrictive provisions of the agreement.

In connection with the acquisition of Paskal Video, the Company issued a
promissory note. The note is payable in 60 monthly installments of $13 plus
interest at the prime rate.

In connection with the acquisition of Chrysalis, TAO Europe issued a
note. The note is payable over a three year period in two installments of
$465 and one installment of $388. Each installment bears interest at 11 2%
above the prime rate of the National Westminster Bank in London. A mortgage
note in the amount of $144 with interest at 103 4% was also assumed at the
acquisition. In accordance with the provisions of the mortgage note, the
Company elected to pay off the entire balance in November 1995.

5. CAPITALIZED LEASE OBLIGATIONS

In 1994, the Company entered into lease obligations for equipment which
have been capitalized. In addition, the Company acquired leases on certain
other equipment with the Paskal, Chrysalis and Filmatic acquisitions. The
leases have implicit interest rates ranging from 71 2% to 111 2% and are
secured by the related equipment.

Capitalized lease obligations at August 31, 1996 mature as follows:

1997 .................................................... $ 642
1998 .................................................... 23
------
665
Less amounts representing interest....................... 27
------
$ 638
------
------

6. INCOME TAXES

The Company's effective income tax rate differs from the federal
statutory income tax rate due to the following:

YEARS ENDED AUGUST 31, 1994 1995 1996

Federal statutory income tax rate................. 35.0% 35.0% 35.0%
Adjust to actual Company rate..................... (1.0) (1.0) (1.0)
---- ---- ----
Adjusted federal statutory income tax rate........ 34.0 34.0 34.0
State taxes, net of federal benefit............... 6.6 0.8 1.6
Other, net ....................................... (4.1) (1.2) (0.9)
---- ---- ----
Total............................................. 36.5% 33.6% 36.5%
---- ---- ----
---- ---- ----

Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future.
Such deferred income tax asset and liability computations are based on
enacted tax laws and rates applicable to periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be
realized. Income tax expense is the tax payable or refundable for the period
plus or minus the change during the period in deferred tax assets and
liabilities.

<PAGE>

Deferred income tax assets and liabilities consist of the following:

1995 1996
------- -------
Current Asset:
Accounts receivable reserves.............................. $ 329 $ 237
Vacation pay accruals..................................... 359 379
State income taxes........................................ 151 611
Other..................................................... 85 (75)
------- -------
TOTAL CURRENT ASSET......................................... $ 924 $ 1,152
------- -------
------- -------
Long-Term Asset:
Deferred compensation..................................... $ 160 $ 106
U.K loss carryover........................................ -- 80
Equity in loss of Venture................................. 85 31
Other..................................................... 18 --
------- -------
Total long-term asset....................................... 263 217
------- -------
Long-Term Liabilities:
Depreciation.............................................. (1,986) (2,731)
Deferred gains on property................................ (1,843) (1,844)
Other..................................................... (117) (130)
------- -------
Total long-term liability................................... (3,946) (4,705)
------- -------
NET LONG-TERM LIABILITY..................................... $(3,683) $(4,488)
------- -------
------- -------

Components of the income tax provision are as follows:

1994 1995 1996
------ ------ ------
Current provision - domestic.......................... $1,408 $ 274 $1,644
Current provision - foreign........................... -- 180 561
Deferred provision - domestic......................... (386) 1,231 473
Deferred provision - foreign.......................... -- 26 104
------ ------ ------
Total................................................. $1,022 $1,711 $2,782
------ ------ ------
------ ------ ------
Components of pre-tax income are as follows:

1994 1995 1996
------ ------ ------
Domestic.............................................. $2,802 $4,347 $5,978
Foreign............................................... -- 739 1,648
------ ------ ------
Total................................................. $2,802 $5,086 $7,626
------ ------ ------
------ ------ ------

7. STOCKHOLDERS' EQUITY

The Company has 1,000,000 shares of $.01 par value preferred stock
authorized. As of August 31, 1996 no shares of preferred stock have been
issued or were outstanding.

The Class B stock is convertible at the option of the holder into Class
A stock and is automatically converted to Class A stock under certain
circumstances; holders have ten votes per share; transferability is
restricted; and dividends are limited to 90% of any dividends paid on Class A
stock.

On July 9, 1996 the Company filed an Amended and Restated Certificate of
Incorporation with the State of Delaware which increased the authorized
shares of Class A Stock from 20,000,000 to 30,000,000 and Class B Stock from
4,000,000 to 6,000,000. In addition, the par value of all classes of stock
was reduced from $.25 to $.01 per share.

<PAGE>

On August 11, 1995 a 10% stock dividend was declared for holders of
Class A and Class B stock, payable on September 29, 1995 to shareholders of
record on September 8, 1995.

The financial statements set forth herein, and applicable share and per
share data for periods and dates included in the accompanying financial
statements and notes, have been adjusted to retroactively reflect the stock
dividend and to restate the par value of the common stock.

The Company has a stock repurchase program under which 1,300,000 shares
may be purchased from time to time in the open market or in private
transactions. As of August 31, 1996, 795,146 shares had been repurchased. All
of these shares have been cancelled and returned to authorized but unissued
status.

8. STOCK OPTION AND STOCK APPRECIATION RIGHTS PLANS

STOCK OPTION PLANS

The Company has three stock option plans: The 1986, 1994 and the 1995
Stock Option Plans. These plans provide for the granting of either
non-qualified or incentive stock options at not less than 85% and 100% of the
market value of the stock on the date of the grant, respectively. Options
generally become exercisable in installments commencing as of the beginning
of a fiscal year near the date of grant.

The following summarizes stock option activity for the three years ended
August 31, 1996:

OPTION PRICE
SHARES PER SHARE
--------- ------------
Options outstanding, September 1, 1993............ 318,670 $2.03 - 4.50
Awarded........................................... 330,000 3.26
Exercised......................................... (89,210) 2.03 - 2.93
--------- ------------
Options outstanding, August 31, 1994.............. 559,460 2.03 - 4.50
Awarded........................................... 638,165 4.50 - 5.29
Exercised......................................... (25,300) 2.03 - 5.06
Forfeited......................................... (11,000) 4.50
--------- ------------
Options outstanding, August 31, 1995.............. 1,161,325 2.03 - 5.29
Awarded........................................... 14,500 7.13
Exercised......................................... (152,600) 2.03 - 7.13
Forfeited......................................... (14,580) 5.06 - 5.63
--------- ------------
Options outstanding, August 31, 1996.............. 1,008,645 $2.03 - 7.13
--------- ------------
--------- ------------

As of August 31, 1996, 70,125 shares and 337,390 shares were available
for grant under the 1986 and 1995 plans respectively. All aurhtorized options
under the 1994 Plan have been granted. As of August 31, 1996, 514,677
options were exercisable. Common Shares have been reserved for issuance
under the plans for all options outstanding at August 31, 1996.

In October 1995, SFAS No. 123 "Accounting for Stock-Based Compensation"
was issued. The Company does not intend to adopt the statement's fair value
provisions except for disclosure and will continue to use the intrinsic
method allowed by APB25.

STOCK APPRECIATION RIGHTS PLAN

The 1991 Stock Appreciation Rights Plan (the "SAR Plan") was adopted by
the Company effective February 6, 1991. The SAR Plan provided for the
granting of stock appreciation rights which entitled the grantee to receive
cash equal to the difference between the fair market value and the
appreciation base of the Class A common stock when the rights were exercised.

<PAGE>

During 1995 the Company implemented a program to encourage the holders
under the 1991 SAR Plan to exchange their SARs for stock options.

Under the program, each SAR holder who exercised the vested portion of a
SAR award during the April-May window period was entitled to exchange the
entire SAR award for a replacement stock option under the 1995 Stock Option
Plan. The replacement options were issued at exercise prices equal to the
fair market value of the Class A stock on the respective dates of the SAR
exercises, with an expiration date of August 31, 2004 (instead of the August
31, 2000 expiration date applicable to SAR awards) and with vesting
restrictions no more favorable to the holder than those applicable to the
exchanged SAR.

Of the SARs outstanding under the 1991 Plan, all but 11,000 were
exercised, resulting in a cash payment of $579. An aggregate of 303,367
incentive stock options and 82,623 nonqualified stock options were issued at
exercise prices ranging from $4.50 to $5.06.

The remaining 11,000 SARs were exercised in January 1996, terminating
the SAR Plan.

9. COMMITMENTS

OPERATING LEASES - Rent expense for noncancellable operating leases for
real property and equipment was $3,363, $4,045, and $4,526 for the years
ended August 31, 1994, 1995, and 1996, respectively. Minimum rentals for
operating leases for years ending after August 31, 1996 are as follows: 1997,
$4,534; 1998, $4,213; 1999, $4,103; 2000, $8,404; 2001, $2,213; and $18,042,
thereafter. Some of the leases have options to extend terms and are subject
to escalation clauses and one lease is subject to additional rent based on
revenue.

EMPLOYMENT AGREEMENTS - At August 31, 1996, the Company is committed to
compensation under long-term employment agreements with certain of its
officers and key employees as follows: 1997, $1,596; 1998, $676; 1999, $581
and 2000, $581.

10. PENSION PLAN

Certain officers and employees of the Company are eligible for
participation in the "Motion Picture Industry Pension Plan" ("MPIPP"), a
multi-employer defined benefit pension plan, the Company's 401(K) Profit
Sharing Plan and Trust in the U.S. or the Group Personal Pension Plan in the
U.K. The Plans are funded by employer and employee contributions. Total
pension plan expense for the Plans for the years ended August 31, 1994, 1995,
and 1996 are as follows:

AUGUST 31,
--------------------------
1994 1995 1996
----- ----- -----
MPIPP.................................. $ 395 $ 446 $ 474
U.S. 401(K)............................ $ 120 $ 107 $ 313
U.K. Plan.............................. $ 0 $ 33 $ 81

11. JOINT VENTURE

During 1992, Todd-AO Productions, Inc., a wholly owned subsidiary of the
Company, entered into a Joint Venture Agreement with Trans-Atlantic
Enterprises, Inc., for the development of motion picture and television
projects. The Joint Venture was dissolved during fiscal 1996. In the event
that certain projects developed by the Venture are ultimately produced or
otherwise commercialized, a portion of the proceeds is payable to Todd-AO
Productions.

<PAGE>

12. CONTINGENCIES

The Company is involved in litigation and similar claims incidental to
the conduct of its business. In management's opinion, none of the pending
actions is likely to have a material adverse impact on the Company's
financial statements.

13. BUSINESS SEGMENT INFORMATION

The Company does business in one industry segment. Information as to the
Company's operations in different geographic areas is as follows for the
years ended August 31, 1995 and 1996.

1995 1996
-------- --------
REVENUES:
United States....................................... $ 45,069 $ 51,394
Europe.............................................. 4,934 11,526
-------- --------
Total............................................... $ 50,003 $ 62,920
-------- --------
-------- --------
NET INCOME:
United States....................................... $ 2,842 $ 3,861
Europe.............................................. 533 983
-------- --------
Total $ 3,375 $ 4,844
-------- --------
-------- --------
ASSETS:
United States........................................ $ 45,074 $ 50,552
Europe............................................... 12,124 13,634
-------- --------
Total................................................ $ 57,198 $ 64,186
-------- --------
-------- --------

There were no foreign operations in 1994.

<PAGE>

14. QUARTERLY FINANCIAL DATA (UNAUDITED)

EARNINGS
GROSS PER COMMON
TOTAL PROFIT NET SHARE
REVENUES (LOSS) INCOME OUTSTANDING
-------- ------- ------ -----------
1995
- ----
First Quarter.......................... $8,778 $ (188) $ 176 $.02
Second Quarter......................... 10,057 627 114 .01
Third Quarter.......................... 18,290 3,752 2,329 .28
Fourth Quarter......................... 12,878 1,435 756 .09
-------- ------- ------ -------
TOTAL.................................. $50,003 $ 5,626 $3,375 $.40(a)
-------- ------- ------ -------
-------- ------- ------ -------

EARNINGS
PER COMMON
TOTAL GROSS NET SHARE
REVENUES PROFIT INCOME OUTSTANDING
-------- ------- ------ -----------
1996
- ----
First Quarter.......................... $18,140 $ 3,639 $1,983 $.23
Second Quarter......................... 13,199 489 507 .06
Third Quarter.......................... 16,801 2,399 1,572 .18
Fourth Quarter......................... 14,780 1,559 782 .09
-------- ------- ------ -------
TOTAL.................................. $62,920 $ 8,086 $4,844 $.55(a)
-------- ------- ------ -------
-------- ------- ------ -------
- ------------------------

(a) Aggregate per share amounts for each quarter may differ from annual totals
as each is independently calculated.

<PAGE>

THE TODD-AO CORPORATION SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
YEARS ENDED AUGUST 31, 1994, 1995 AND 1996

<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
----------- ------------ ------------- ---------- --------
ADDITIONS
CHARGED
BALANCE AT (CREDITED) TO BALANCE
BEGINNING OF COSTS AND DEDUCTIONS AT END OF
DESCRIPTION PERIOD EXPENSES AND OTHER PERIOD
----------- ------------ ------------- ---------- --------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:

Year ended August 31, 1994.............. $408 $ 31 $ (31) $408
----- ------ ------ ----
----- ------ ------ ----
Year ended August 31, 1995.............. $408 $ 649 $(229) $828
----- ------ ------ ----
----- ------ ------ ----
Year ended August 31, 1996.............. $828 $(158) $ 26 (a) $696
----- ------ ------ ----
----- ------ ------ ----
</TABLE>

(a) Includes balance acquired in acquisition of Editworks ($28).

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 3,385
<SECURITIES> 2,616
<RECEIVABLES> 9,828
<ALLOWANCES> 696
<INVENTORY> 635
<CURRENT-ASSETS> 17,908
<PP&E> 59,323
<DEPRECIATION> 20,846
<TOTAL-ASSETS> 64,186
<CURRENT-LIABILITIES> 8,739
<BONDS> 9,354
0
0
<COMMON> 82
<OTHER-SE> 36,341
<TOTAL-LIABILITY-AND-EQUITY> 64,186
<SALES> 0
<TOTAL-REVENUES> 62,920
<CGS> 0
<TOTAL-COSTS> 54,834
<OTHER-EXPENSES> (242)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 702
<INCOME-PRETAX> 7,626
<INCOME-TAX> 2,782
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,844
<EPS-PRIMARY> 0
<EPS-DILUTED> .55

</TABLE>