<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the quarterly period ended MAY 31, 1997
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 of
incorporation) Identification No.)
900 N. SEWARD STREET, HOLLYWOOD, CALIFORNIA 90038
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (213) 962-5304
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
-------- --------
The number of shares of common stock outstanding at July 9, 1997 was: 8,173,054
Class A Shares and 1,747,178 Class B Shares.
<PAGE>
THE TODD-AO CORPORATION
QUARTERLY REPORT ON FORM 10-Q
MAY 31, 1997
INDEX
PART I - FINANCIAL INFORMATION Page
Item 1- FINANCIAL STATEMENTS
The following financial statements are filed herewith:
Consolidated Balance Sheets, May 31, 1997 and August 31, 1996 3
Consolidated Statements of Income and Retained Earnings for the
Nine and Three Months Ended May 31, 1997 and 1996 5
Consolidated Statements of Cash Flows for the Nine Months Ended
May 31, 1997 and 1996 6
Notes to Consolidated Financial Statements for the Nine Months
Ended May 31, 1997 8
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 13
Item 4 - Submission of Matters to a Vote of Security Holders 13
Item 6 - Exhibits and Reports on Form 8-K 13
Signature 14
2
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<TABLE>
<CAPTION>
THE TODD-AO CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
AUGUST 31, MAY 31,
--------- ---------
1996 1997
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . $ 3,385 $ 1,463
Marketable securities. . . . . . . . . . . . . . . . . . . 2,616 7,908
Trade receivables
(net of allowance for doubtful accounts of $693 at
May 31, 1997 and $696 at August 31, 1996) . . . . . . . 9,132 12,564
Inventories (first-in first-out basis) . . . . . . . . . . 635 505
Income tax receivable. . . . . . . . . . . . . . . . . . . -- 390
Deferred income taxes. . . . . . . . . . . . . . . . . . . 1,152 1,115
Prepaids and other . . . . . . . . . . . . . . . . . . . . 988 1,303
--------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . 17,908 25,248
--------- ---------
INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . . 994 992
--------- ---------
PROPERTY AND EQUIPMENT - At Cost:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,270 4,270
Buildings. . . . . . . . . . . . . . . . . . . . . . . . . 10,559 10,878
Leasehold improvements . . . . . . . . . . . . . . . . . . 6,286 7,376
Lease acquisition costs. . . . . . . . . . . . . . . . . . 2,187 2,187
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . 31,271 40,242
Equipment under capital leases . . . . . . . . . . . . . . 3,360 3,360
Construction in progress . . . . . . . . . . . . . . . . . 1,402 337
--------- ---------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . 59,335 68,650
Accumulated depreciation and amortization. . . . . . . . . (20,858) (25,326)
--------- ---------
Property and equipment - net . . . . . . . . . . . . . . . 38,477 43,324
--------- ---------
GOODWILL
(net of accumulated amortization of $509 at
May 31, 1997 and $190 at August 31, 1996). . . . . . . . 5,761 5,683
--------- ---------
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . 1,046 1,076
--------- ---------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64,186 $ 76,323
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
THE TODD-AO CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
AUGUST 31, MAY 31,
--------- ---------
1996 1997
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . $ 2,812 $ 3,250
Accrued liabilities:
Payroll and related taxes. . . . . . . . . . . . . . . . 2,023 2,045
Interest . . . . . . . . . . . . . . . . . . . . . . . . 173 37
Equipment lease. . . . . . . . . . . . . . . . . . . . . 300 282
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 1,198 952
Income taxes payable . . . . . . . . . . . . . . . . . . 368 1,805
Current maturities of long-term debt . . . . . . . . . . . 615 558
Capitalized lease obligations - current. . . . . . . . . . 616 71
Deferred income. . . . . . . . . . . . . . . . . . . . . . 634 1,374
Total current liabilities. . . . . . . . . . . . . . . . . 8,739 10,374
--------- ---------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . 9,332 974
CAPITALIZED LEASE OBLIGATIONS. . . . . . . . . . . . . . . 22 0
DEFERRED COMPENSATION. . . . . . . . . . . . . . . . . . . 273 217
DEFERRED GAIN ON SALE/LEASEBACK. . . . . . . . . . . . . . 4,909 3,804
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . . . 4,488 4,458
--------- ---------
Total liabilities. . . . . . . . . . . . . . . . . . . . . 27,763 19,827
--------- ---------
STOCKHOLDERS' EQUITY:
Common Stock:
Class A; authorized 30,000,000 shares of $0.01 par value;
issued 8,153,154 at May 31, 1997 and 6,555,640 at
August 31, 1996. . . . . . . . . . . . . . . . . . . . . 65 82
Class B; authorized 6,000,000 shares of $0.01 par value;
issued and outstanding 1,747,178 . . . . . . . . . . . . 17 17
Additional capital . . . . . . . . . . . . . . . . . . . . 24,291 39,893
Retained earnings. . . . . . . . . . . . . . . . . . . . . 12,267 17,041
Treasury stock . . . . . . . . . . . . . . . . . . . . . . -- (705)
Unrealized gains (losses) on marketable securities
and long-term investments. . . . . . . . . . . . . . . . 42 (39)
Cumulative foreign currency translation adjustment . . . . (259) 207
--------- ---------
Total stockholders' equity . . . . . . . . . . . . . . . . 36,423 56,496
--------- ---------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64,186 $ 76,323
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE NINE AND THREE MONTHS ENDED MAY 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS THREE MONTHS
-------------------------- --------------------------
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES . . . . . . . . . . . . . . . . . . . . $ 48,140 $ 59,338 $ 16,801 $ 19,657
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Operating costs and other expenses . . . . . . . 37,231 45,856 12,952 15,197
Depreciation and amortization. . . . . . . . . . 3,967 4,905 1,379 1,718
Interest . . . . . . . . . . . . . . . . . . . . 531 483 145 156
Equipment lease expense - net. . . . . . . . . . 415 209 71 54
Other expense (income) - net . . . . . . . . . . (437) (117) (179) (216)
----------- ----------- ----------- -----------
Total cost and expenses. . . . . . . . . . . . . 41,707 51,336 14,368 16,909
----------- ----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES . . . . 6,433 8,002 2,433 2,748
PROVISION FOR INCOME TAXES . . . . . . . . . . . 2,371 2,813 861 848
----------- ----------- ----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . 4,062 5,189 $ 1,572 $ 1,900
----------- -----------
----------- -----------
RETAINED EARNINGS BEGINNING OF PERIOD. . . . . . 7,904 12,267
LESS: DIVIDENDS PAID . . . . . . . . . . . . . (361) (415)
----------- -----------
RETAINED EARNINGS END OF PERIOD. . . . . . . . . $ 11,605 $ 17,041
----------- -----------
----------- -----------
NET INCOME PER COMMON SHARE AND
COMMON SHARE EQUIVALENTS . . . . . . . . . . . . $ 0.46 $ 0.52 $ 0.18 $ 0.18
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE SHARES OUTSTANDING. . . . . . . 8,805,359 10,000,943 8,883,035 10,472,072
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MAY 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
1996 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 4,062 $ 5,189
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . . . 3,967 4,905
Deferred income taxes. . . . . . . . . . . . . . . . . . 23 --
Deferred compensation. . . . . . . . . . . . . . . . . . (136) (56)
Amortization of deferred gain on
sale/leaseback transaction. . . . . . . . . . . . . . . (1,104) (1,105)
(Gain) loss on sale of marketable securities
and investments. . . . . . . . . . . . . . . . . . . . 42 (27)
(Gain) loss on disposition of fixed assets . . . . . . . -- (23)
Changes in assets and liabilities (net of acquisitions):
Trade receivables. . . . . . . . . . . . . . . . . . . (4,022) (3,294)
Inventories and other current assets . . . . . . . . . (16) (159)
Accounts payable and accrued liabilities . . . . . . . 103 (60)
Accrued equipment lease. . . . . . . . . . . . . . . . (96) (18)
Income taxes payable . . . . . . . . . . . . . . . . . 1,212 1,008
Deferred income. . . . . . . . . . . . . . . . . . . . (257) 690
---------- ----------
Net cash flows provided by operating activities: . . . . . 3,778 7,050
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities and investments . . . . (73) (6,208)
Proceeds from sale of marketable securities
and investments . . . . . . . . . . . . . . . . . . . . 881 864
Proceeds from disposition of fixed assets . . . . . . . . -- 26
Capital expenditures. . . . . . . . . . . . . . . . . . . (3,317) (8,948)
Other assets. . . . . . . . . . . . . . . . . . . . . . . 128 (195)
---------- ----------
Net cash flows (used in) investing activities: . . . . . . $ (2,381) $ (14,461)
---------- ----------
</TABLE>
6
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<TABLE>
<CAPTION>
THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MAY 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
(CONTINUED)
1996 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt. . . . . . . . . . . . . . . $ 2,175 $ 6,900
Payments of long-term debt. . . . . . . . . . . . . . . . (4,516) (15,344)
Payments on capital lease obligations . . . . . . . . . . (669) (568)
Net proceeds from issuance of common stock. . . . . . . . 519 15,654
Treasury stock transactions . . . . . . . . . . . . . . . (560) (740)
Dividends paid. . . . . . . . . . . . . . . . . . . . . . (361) (415)
-------- --------
Net cash flows provided by (used in) financing activities: (3,412) 5,487
Effect of exchange rate changes on cash . . . . . . . . . -- 2
-------- --------
NET (DECREASE) IN CASH AND
CASH EQUIVALENTS. . . . . . . . . . . . . . . . . . . . . (2,015) (1,922)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . 5,278 3,385
-------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . $ 3,263 $ 1,463
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . $ 581 $ 503
-------- --------
-------- --------
Income taxes. . . . . . . . . . . . . . . . . . . . . . . $ 2,495 $ 1,600
-------- --------
-------- --------
</TABLE>
7
<PAGE>
THE TODD-AO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MAY 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
If complete notes were to accompany these statements they would be substantially
in the same form as those to the Company's Financial Statements for the Year
Ended August 31, 1996. In addition the following notes are applicable:
1. In the opinion of management for the Company, all adjustments (which
comprise only normal recurring accruals) necessary for a fair presentation
of the results of operations have been included.
2. The consolidated financial statements include the Company and its wholly
owned subsidiaries Todd-AO Studios, 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"), Todd-AO
Europe Holding Ltd. ("TAO Europe"), Todd-AO Preservation Services,
Hollywood Supply Company and Todd-AO's Land of the Future. All significant
intercompany balances and transactions have been eliminated.
3. Net income per common share is computed based on the weighted average
number of common and common equivalent shares outstanding for each of the
years presented including common share equivalents arising from the assumed
conversion of any outstanding dilutive stock options.
4. 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. The Company paid Editworks $3,680 in cash
and $970 in Class A common stock.
The acquisition is being accounted for under the purchase method of
accounting. The following unaudited pro forma consolidated financial
information for the nine months ended May 31, 1996 is presented as if the
acquisition had occurred on September 1, 1995. Pro forma adjustments for
Editworks are primarily to amortization of goodwill, interest expense on
borrowings in connection with the acquisition, and income taxes.
1996
---------
Revenues $ 50,727
---------
---------
Net income $ 4,177
---------
---------
Net income per common share $ 0.47
---------
---------
5. 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 May 31, 1997, 875,446 shares had been repurchased.
799,146 of these shares have been cancelled and returned to authorized but
unissued status.
6. On October 10, 1996, the Company filed a registration statement with the
Securities and Exchange Commission and on November 20, 1996 the
registration statement, as amended, was declared effective for a public
offering of 1,500,000 primary Class A shares at $10.50 per share. On
November 26, 1996 the offering was completed and all the shares were sold
and issued. In December 1996 an additional 145,000 shares were sold and
issued in connection with the exercise of a portion of the underwriters'
over-allotment option. Proceeds from the offering, net of costs totaled
$15,594.
8
<PAGE>
7. On June 20, 1997, the Company and its newly formed, wholly owned subsidiary
Todd-AO HD, Inc. ("THD") acquired the assets and certain liabilities of
Hollywood Digital Limited Partnership ("Hollywood Digital") for $30,400.
Hollywood Digital is a digital based post-production facility providing
sound and video services to the film, television and advertising
industries. In consideration of the purchase, the Company paid $17,741 in
cash to pay down existing debt of Hollywood Digital and $20 in cash to
assume additional debt. The Company also issued two convertible
subordinated notes in the amounts of $9,239 and $3,400, respectively. The
second note, in the amount of $3,400, is subject to reduction by an
adjustment factor (defined in the purchase agreement) and will be held in
escrow until the purchase price has been finally determined. The notes are
convertible into the Company's Class A Common Stock at the conversion price
of $11.875 per share at any time before the maturity date. THD will be
included in the Company's results of operations beginning June 20, 1997.
In January 1997 the Company announced that it was in negotiations to
acquire all of the stock of International Video Conversions, Inc. ("IVC"),
a California corporation based in Burbank. This acquisition has not
materialized, and the Company has filed an action against the seller
seeking damages and other appropriate relief.
The Company is in the process of organizing a limited liability company
("LLC") with United Artists Theatre Circuit, Inc., an operator of motion
picture theatres ("UATC") for the purpose of exploiting proprietary
technology to conserve film stock and reduce the length of wide screen film
release prints. The technology, known as "Compact Distribution Print" or
"CDP", has been successfully demonstrated, but its implementation will
require a broad level of film industry acceptance which has not yet been
obtained. Pending such acceptance, further development and marketing
expenditures will be minimal. It is anticipated that the Company and UATC
will each have a 50% interest in any profits of the LLC, which is known as
"CDP Limited Liability Company".
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(DOLLARS IN THOUSANDS, EXCEPT AMOUNTS PER SHARE)
1. Material Changes in Financial Condition
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, which consists of five
1-year terms amortizing to approximately 40% with interest at Libor rates
plus 1.5% which can increase to Libor plus 2% if the leverage ratio (Funded
Indebtedness/EBITDA) is greater than 2:1, terminates on December 30, 1999.
Under the credit facility, including amendments in 1995, 1996 and 1997, the
Company may borrow up to $35,000 in revolving loans ($25,000 in Dollar and
$10,000 in Multi-currency) 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. The Company also has the availability of Standby Letters of
Credit up to $1,000 under the facility. The credit facility provides for
borrowings at the Bank's Reference rates (plus .5%), CD rates (plus 1.625%)
and Libor rates (plus 1.5%) which can increase to plus 1%, 2.125% and 2%,
respectively, if the leverage ratio (described above) is greater than 2:1.
Leverage ratios may not exceed 3:1. The facility includes commitment fees
at .125% to .5% (based on the leverage ratio) per annum on the unused
balances. Other material restrictions include: the coverage ratio (cash
flow/fixed charges) may not be less than 1.75:1 through 1998 and 1.5:1
thereafter; the Company is limited to $10,000 per annum for capital
expenditures (except for fiscal year 1997 which is limited to $16,500);
Other Indebtedness or Contingent Liabilities (outside the credit and
sale/leaseback agreements) may not exceed $8,000 (except for convertible
subordinated notes in a total amount not greater than $12,800 issued in
connection with the Hollywood Digital acquisition) and Minimum Net Worth is
not to be less than $25,000 plus net proceeds from issuance of equity plus
50% of future consolidated net income. These credit facilities are
available for general corporate purposes, capital expenditures and
acquisitions. Management believes that funds generated from operations,
proceeds from the public offering described below, 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 May 31, 1997, the Company had $775 outstanding under the
credit facility.
In June 1997, the Company used $15,760 under the credit facility and $3,000
from the proceeds of the offering described below to acquire the assets of
Hollywood Digital.
The Company expects capital expenditures of approximately $16,500 for its
Los Angeles, Santa Monica, New York City, Atlanta and London facilities in
fiscal 1997. These capital expenditures will be financed by credit
facilities and internally generated funds. As of May 31, 1997 the Company
has incurred $8,900 for fiscal 1997 capital expenditures.
On October 10, 1996, the Company filed a registration statement with the
Securities and Exchange Commission. Proceeds from the offering, net of
costs totaled $15,594. The funds received were used to temporarily pay
down existing debt in the amount of $9,102. The remaining funds are
currently invested in short-term federal agency securities. These funds
will be used for possible future acquisitions, working capital requirements
and other general corporate purposes. (See Note 6)
The Company does not believe that it is currently exposed to any material
foreign exchange rate risk and, at present, does not have a policy for
managing such risk beyond the utilization of local currency borrowings to
fund foreign acquisitions whenever possible.
10
<PAGE>
2. Material Changes in Results of Operations
General
Since fiscal 1995, the Company has 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 Company's
acquisitions in Santa Monica, California, London, United Kingdom and
Atlanta, Georgia. The Company has utilized some of the funds provided by
the public offering in November, 1996 in conjunction with its amended
credit facility for its primary long-term objective of accretive
acquisitions with the purchase of the assets of Hollywood Digital in June
1997.
NINE MONTHS ENDED MAY 31, 1997 COMPARED TO NINE MONTHS ENDED MAY 31, 1996
Revenues increased $11,198 or 23.3% from $48,140 to $59,338 due to
significant increases from the Company's sound services divisions ($5,382)
as well as its video services divisions ($6,250) including Todd-AO
Editworks ("Editworks") acquired in August 1996 and Todd-AO Filmatic
("Filmatic") acquired in April 1996 which contributed revenue increases of
$3,312 and $815, respectively. There is also a non-recurring settlement of
$434 included in the prior year revenue of Todd-AO UK, Ltd.
Operating costs and other expenses increased $8,625 or 23.2% from $37,231
to $45,856. Cost increases related to the acquisitions described above
were higher than usual due to transitional changes at Editworks and the
relocation of Filmatic. These acquisitions are now fully integrated into
operations and should impact favorably on future results. The remaining
cost increases are related to the revenue increases described above.
Depreciation and amortization increased $938 or 23.7% primarily due to the
acquisitions and current year capital expenditures.
Net equipment lease expense decreased $206 or 49.6% due to decreases in the
interest rate and a declining principal balance while the straight line
amortization of the deferred gain remains the same.
Other (income) expense, net decreased $320 primarily due to a non-recurring
provision adjustment of $216 from a favorable settlement of a contested
claim and other provision adjustments of $218 in the prior year.
As a result of the above, income before taxes increased $1,569 from $6,433
to $8,002 and net income increased $1,127 from $4,062 to $5,189.
Earnings per share increased 13% from $0.46 to $0.52 in spite of a 12%
dilution in average shares outstanding primarily due to the November 1996
public offering when 1,645,000 shares were issued. If the public offering
had occurred as of September 1, 1996 and the bank credit facility debt paid
down, the EPS as of May 31, 1997 would have changed from $0.52 to $0.51.
THREE MONTHS ENDED MAY 31, 1997 COMPARED TO THREE MONTHS ENDED MAY 31,
1996.
Revenues increased $2,856 or 17.0% from $16,801 to $19,657 due to increases
from the Company's sound services divisions ($1,125) as well as its video
services divisions ($2,165) which include Editworks and Filmatic acquired
in August and April 1996 which contributed revenue increases of $1,147 and
$293, respectively. There is also a non-recurring settlement of $434
included in the prior year revenue of Todd-AO UK, Ltd.
11
<PAGE>
Operating costs and other expenses increased $2,245 or $17.3% from $12,952
to $15,197. Cost increases related to the acquisitions described above
were higher than usual due to transitional changes at Editworks and the
relocation of Filmatic. These acquisitions are now fully integrated into
operations and should impact favorably on future results. The remaining
cost increases are related to the revenue increases described above.
Depreciation and amortization increased $339 or 24.6% primarily due to the
acquisitions and current year capital expenditures.
Net equipment lease expense decreased $17 or 23.9% due to a declining
principal balance while the straight line amortization of the deferred gain
remains the same.
Other (income) expense, net increased $37 or 20.7% primarily due to
provision adjustments of $208 in the prior year which are offset by an
increase of $167 in interest and divided income in the current year.
As a result of the above, income before taxes increased $315 from $2,433 to
$2,748 and net income increased $328 from $1,572 to $1,900.
Earnings per share did not change from $0.18 in spite of a 15% dilution
arising from the November 1996 offering.
3. Material Changes in Cash Flows
For the nine months ended May 31, 1997 the Company generated $7,050 in cash
from operating activities compared to $3,778 in 1996. In addition to net
income of $5,189, adjusted for depreciation and net amortization of $3,800,
net increases in accounts payable and other liabilities of $1,620 also
increased cash provided by operations. Cash was utilized primarily to fund
the increase in trade receivables.
Net cash generated from operating activities supplemented by proceeds from
the sale of certain marketable securities and investments and borrowings
from the Company's credit facility were used to reinvest in capital assets
of the Company and to pay down long-term debt. Cash generated from the
issuance of common stock ($15,654) included net proceeds received in
connection with the Company's public offering of $15,594 which were used to
pay down long-term debt, to purchase short-term federal agency securities
and to reinvest in capital assets of the Company.
4. Other Business Information
The Editworks division is currently constructing two audio rooms in order
to provide its clients with additional services. The rooms are expected to
begin operations in the fourth quarter of this fiscal year and thereafter
should contribute to the revenue and earnings of the Company.
Hollywood Digital, acquired by the Company in June 1997 and which will
contribute to the revenue and earnings in the fourth quarter of this fiscal
year, is also expecting to open a separate facility in Santa Monica,
California to primarily service its advertising clients. The present
Hollywood facility will expand its current feature and television services.
The new facility will begin operations during fiscal year 1998.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in litigation and similar claims incidental to
the conduct of its business. None of the pending actions is
considered material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held at 1224 S. Beverwil Drive,
Los Angeles, CA 90035 on February 25, 1997. In addition to the
election of directors and procedural matters, disclosure of which has
been omitted pursuant to the instructions, proposals were submitted to
and approved by the stockholders as follows:
Number of Votes
Against Or
Description Of Proposal In Favor Of Abstaining
----------------------- ----------- ----------
Increase Authorized Shares 20,924,814 457,455
and Approve New Options
under the 1994 Stock Option Plan
Increase Authorized Shares 19,992,202 461,747
and Approve New Options
under the 1995 Stock Option Plan
Amendments re Committee 22,188,287 77,953
Membership and Option
Assignability
1986, 1994 and 1995
Stock Option Plans
Adopt New Plan 19,681,531 443,470
and Approve New Options
1997 Stock Option Plan
Increase Authorized Shares 19,992,202 461,747
and Approve New Options
under the 1994 Stock Option Plan
Ratify Appointment of 22,247,425 30,565
Independent Auditors
All of the foregoing proposals are discussed in the Company's Proxy
Statement dated January 20, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). (1) Exhibit 27 Financial Data Schedule.
13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TODD-AO CORPORATION
JULY 10, 1997 /s/ Silas R. Cross
- -------------------- --------------------------
Date Silas R. Cross
Chief Accounting Officer
14
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 1,463
<SECURITIES> 7,908
<RECEIVABLES> 13,257
<ALLOWANCES> 693
<INVENTORY> 505
<CURRENT-ASSETS> 25,248
<PP&E> 68,650
<DEPRECIATION> 25,326
<TOTAL-ASSETS> 76,323
<CURRENT-LIABILITIES> 10,374
<BONDS> 974
0
0
<COMMON> 99
<OTHER-SE> 56,397
<TOTAL-LIABILITY-AND-EQUITY> 76,323
<SALES> 0
<TOTAL-REVENUES> 59,338
<CGS> 0
<TOTAL-COSTS> 50,970
<OTHER-EXPENSES> (117)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 483
<INCOME-PRETAX> 8,002
<INCOME-TAX> 2,813
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,189
<EPS-PRIMARY> 0
<EPS-DILUTED> .52
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