<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 NOVEMBER 30, 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
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 January 9, 1997 was:
8,202,570 Class A Shares and 1,747,178 Class B Shares.
<PAGE>
THE TODD-AO CORPORATION
QUARTERLY REPORT ON FORM 10-Q
NOVEMBER 30, 1996
INDEX
- ------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION Page
Item 1- FINANCIAL STATEMENTS
The following financial statements are filed herewith:
Consolidated Balance Sheets, November 30, 1996 and August 31, 1996 3
Consolidated Statements of Income and Retained Earnings for the
Three Months Ended November 30, 1996 and 1995 5
Consolidated Statements of Cash Flows for the Three Months Ended
November 30, 1996 and 1995 6
Notes to Consolidated Financial Statements for the Three Months
Ended November 30, 1996 8
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II - OTHER INFORMATION
Item 5 - Legal Proceedings 12
Item 6 - Exhibits and Reports on Form 8-K 12
Signature 12
2
<PAGE>
THE TODD-AO CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
---------- ------------
1996 1996
---------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . $ 3,385 $ 16,533
Marketable securities. . . . . . . . . . . . . . . . . . . . 2,616 2,115
Trade receivables
(net of allowance for doubtful accounts of $715 at
November 30, 1996 and $696 at August 31, 1996) . . . . . . 9,132 13,393
Inventories (first-in first-out basis) . . . . . . . . . . . 635 661
Income tax receivable. . . . . . . . . . . . . . . . . . . . -- 347
Deferred income taxes. . . . . . . . . . . . . . . . . . . . 1,152 1,115
Prepaids and other . . . . . . . . . . . . . . . . . . . . . 988 1,170
---------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . . 17,908 35,334
---------- -----------
INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 994 925
---------- -----------
PROPERTY AND EQUIPMENT - At Cost:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,270 4,270
Buildings. . . . . . . . . . . . . . . . . . . . . . . . . . 10,559 10,878
Leasehold improvements . . . . . . . . . . . . . . . . . . . 6,286 7,331
Lease acquisition costs. . . . . . . . . . . . . . . . . . . 2,187 2,187
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . 31,259 35,229
Equipment under capital leases . . . . . . . . . . . . . . . 3,360 3,360
Construction in progress . . . . . . . . . . . . . . . . . . 1,402 243
---------- -----------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,323 63,498
Accumulated depreciation and amortization. . . . . . . . . . (20,846) (22,501)
---------- -----------
Property and equipment - net . . . . . . . . . . . . . . . . 38,477 40,997
---------- -----------
GOODWILL
(net of accumulated amortization of $304 at
November 30, 1996 and $190 at August 31, 1996) . . . . . . 5,761 5,870
---------- -----------
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . 1,046 1,029
---------- -----------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64,186 $ 84,155
---------- -----------
---------- -----------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
THE TODD-AO CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
---------- ------------
1996 1996
---------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . $ 2,812 $ 3,418
Accrued liabilities:
Payroll and related taxes. . . . . . . . . . . . . . . . . 2,023 2,067
Interest . . . . . . . . . . . . . . . . . . . . . . . . . 173 146
Equipment lease. . . . . . . . . . . . . . . . . . . . . . 300 304
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,198 1,156
Income taxes payable . . . . . . . . . . . . . . . . . . . 368 1,871
Current maturities of long-term debt . . . . . . . . . . . . 615 639
Capitalized lease obligations - current. . . . . . . . . . . 616 489
Deferred income. . . . . . . . . . . . . . . . . . . . . . . 634 812
---------- -----------
Total current liabilities. . . . . . . . . . . . . . . . . . 8,739 10,902
---------- -----------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . 9,332 11,414
CAPITALIZED LEASE OBLIGATIONS. . . . . . . . . . . . . . . . 22 2
DEFERRED COMPENSATION. . . . . . . . . . . . . . . . . . . . 273 258
DEFERRED GAIN ON SALE/LEASEBACK. . . . . . . . . . . . . . . 4,909 4,541
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . . . . 4,488 4,460
---------- -----------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . 27,763 31,577
---------- -----------
STOCKHOLDERS' EQUITY:
Common Stock:
Class A; authorized 30,000,000 shares of $0.01 par value;
issued and outstanding 8,057,020 at November 30, 1996 and
6,555,640 at August 31, 1996 . . . . . . . . . . . . . . . 65 81
Class B; authorized 6,000,000 shares of $0.01 par value;
issued and outstanding 1,747,178 . . . . . . . . . . . . . 17 17
Additional capital . . . . . . . . . . . . . . . . . . . . . 24,291 38,430
Retained earnings. . . . . . . . . . . . . . . . . . . . . . 12,267 13,916
Unrealized gains on marketable securities and long-term
investments. . . . . . . . . . . . . . . . . . . . . . . . 42 2
Cumulative foreign currency translation adjustment . . . . . (259) 132
---------- -----------
Total stockholders' equity . . . . . . . . . . . . . . . . . 36,423 52,578
---------- -----------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64,186 $ 84,155
---------- -----------
---------- -----------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF IN COME AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,140 $ 20,340
---------- ----------
COSTS AND EXPENSES:
Operating costs and other expenses . . . . . . . . . . . . . 13,023 15,557
Depreciation and amortization. . . . . . . . . . . . . . . . 1,266 1,622
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 202 221
Equipment lease expense - net. . . . . . . . . . . . . . . . 212 92
Other (income) expense - net . . . . . . . . . . . . . . . . 253 39
---------- ----------
Total costs and expenses . . . . . . . . . . . . . . . . . . 14,956 17,531
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES . . . . . . . . . . 3,184 2,809
PROVISION FOR INCOME TAXES . . . . . . . . . . . . . . . . . 1,201 1,038
---------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . 1,983 1,771
RETAINED EARNINGS BEGINNING OF PERIOD. . . . . . . . . . . . 7,904 12,267
LESS: DIVIDENDS PAID. . . . . . . . . . . . . . . . . . . . (121) (122)
---------- ----------
RETAINED EARNINGS END OF PERIOD. . . . . . . . . . . . . . . $ 9,766 $ 13,916
---------- ----------
NET INCOME PER COMMON SHARE AND
COMMON SHARE EQUIVALENTS . . . . . . . . . . . . . . . . . $ 0.23 $ 0.20
---------- ----------
WEIGHTED AVERAGE SHARES OUTSTANDING. . . . . . . . . . . . . 8,748,954 9,016,706
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 1,983 $ 1,771
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . 1,266 1,622
Deferred income taxes. . . . . . . . . . . . . . . . . . . -- 2
Loss from joint venture. . . . . . . . . . . . . . . . . . 55 --
Deferred compensation. . . . . . . . . . . . . . . . . . . (59) (15)
Amortization of deferred gain on
sale/leaseback transaction. . . . . . . . . . . . . . . . (368) (368)
(Gain) loss on sale of marketable securities
and investments . . . . . . . . . . . . . . . . . . . . . 201 --
Changes in assets and liabilities (net of acquisitions):
Trade receivables . . . . . . . . . . . . . . . . . . . . (5,475) (4,123)
Inventories and other current assets. . . . . . . . . . . (148) (185)
Accounts payable and accrued liabilities. . . . . . . . . 1,110 443
Income taxes payable. . . . . . . . . . . . . . . . . . . 1,206 1,116
Deferred income . . . . . . . . . . . . . . . . . . . . . (165) 167
---------- ----------
Net cash provided by (used in) operating activities: . . . . (394) 430
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities and investments . . . . . (66) --
Proceeds from sale of marketable securities
and investments . . . . . . . . . . . . . . . . . . . . . 195 530
Capital expenditures. . . . . . . . . . . . . . . . . . . . (1,745) (3,654)
Contributions to joint venture. . . . . . . . . . . . . . . (55) --
Other assets. . . . . . . . . . . . . . . . . . . . . . . . 131 (153)
---------- ----------
Net cash flows (used in) investing activities: . . . . . . . $ (1,540) $ (3,277)
---------- ----------
---------- ----------
</TABLE>
6
<PAGE>
THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(CONTINUED)
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt. . . . . . . . . . . . . . . . $ 1,400 $ 6,900
Payments on long-term debt. . . . . . . . . . . . . . . . . (1,758) (4,838)
Payments on capital lease obligations . . . . . . . . . . . (259) (155)
Net proceeds from issuance of common stock. . . . . . . . . 67 14,155
Treasury stock transactions . . . . . . . . . . . . . . . . (560) --
Dividends paid. . . . . . . . . . . . . . . . . . . . . . . (121) (122)
---------- ----------
Net cash flows provided by (used in)
financing activities:. . . . . . . . . . . . . . . . . . . . (1,231) 15,940
Effect of exchange rate changes on cash . . . . . . . . . . -- 55
---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS. . . . . . . . . . . . . . . . . . . . . . (3,165) 13,148
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . 5,278 3,385
---------- ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . $ 2,113 $ 16,533
---------- ----------
---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . $ 258 $ 254
---------- ----------
---------- ----------
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . $ 0 $ 0
---------- ----------
---------- ----------
</TABLE>
7
<PAGE>
THE TODD-AO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1996
(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 common stock.
The acquisition is being accounted for under the purchase method of
accounting. The following unaudited pro forma consolidated financial
information for the three months ended November 30, 1995 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.
1995
----------
Revenues. . . . . . . . . . . . . . . . . . . . . . $ 19,092
----------
----------
Net income. . . . . . . . . . . . . . . . . . . . . $ 2,035
----------
----------
Net income per common share . . . . . . . . . . . . $ 0.23
----------
----------
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 November 30, 1996, 795,146 shares had been
repurchased. All of these shares have been cancelled and returned to
authorized but unissued status.
6. 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 10,000,000 to 30,000,000 and Class B Stock
from 2,000,000 to 6,000,000. In addition, the par value of all classes of
stock was reduced from $.25 to $.01 per share.
8
<PAGE>
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.
7. In January 1997 the Company announced that it is in negotiations to acquire
all of the stock of International Video Conversions, Inc. ("IVC"), a
California corporation based in Burbank. IVC is engaged in the business of
providing a full range of video tape services specializing in duplication,
telecine and conversions including HDTV.
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", is in the final stages of development. 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 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 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 November 30, 1996, the Company had $10,788 outstanding
under the credit facility. This amount was reduced by $8,002 in December
1996.
The Company expects capital expenditures of approximately $11,500 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, as amended, 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. On November 26, 1996 the Company
received net proceeds, after deducting the underwriting discounts and
commissions, of $14,648. Additional net proceeds for the exercise of a
portion of the underwriters' over-allotment option were received in
December 1996 in the amount of $1,416. All other expenses of the offering
are estimated to be approximately $500. The funds received were used to
temporarily pay down existing debt in the amount of $1,100 in November 1996
and $8,002 in December 1996. 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.
2. Material Changes in Results of Operations
THREE MONTHS ENDED NOVEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
NOVEMBER 30, 1995
Revenues increased $2,200 or 12.1% from $18,140 to $20,340 due to the
acquisitions of Todd-AO Editworks ("Editworks") in August 1996 and Todd-AO
Filmatic ("Filmatic") in April 1996 as well as increases in the Company's
existing sound and video services. The increases for these new
subsidiaries were $984 and $279, respectively. The revenue increases for
the Company's remaining divisions was $937 or 5.2%. There is also a non-
recurring settlement of $325 included in the revenue of the prior year.
10
<PAGE>
Operating costs and other expenses increased $2,534 or 19.5% from $13,023
to $15,557. Cost increases related to the acquisitions described above
were higher than usual due to transitional changes at Editworks and the
relocation of Filmatic. In addition, the ratio of operating costs to
revenue were lower in the prior year due to certain favorable contracts and
arrangements.
Depreciation and amortization increased $356 or 28.1% primarily due to the
acquisitions.
Net equipment lease expense decreased $120 or 56.6% due primarily to
decreases in the interest rate.
Other (income) expense, net increased $214 primarily due to a loss in the
prior year from the disposition of assets and investments.
As a result of the above, income before taxes decreased $375 from $3,184 to
$2,809 and net income decreased $212 from $1,983 to $1,771.
11
<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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). (1) Exhibit 27 Financial Data Schedule.
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
January 13, 1997 /s/ Silas R. Cross
- ------------------- -----------------------------
Date Silas R. Cross
Chief Accounting Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 16,533
<SECURITIES> 2,115
<RECEIVABLES> 14,108
<ALLOWANCES> 715
<INVENTORY> 661
<CURRENT-ASSETS> 35,334
<PP&E> 63,498
<DEPRECIATION> 22,501
<TOTAL-ASSETS> 84,155
<CURRENT-LIABILITIES> 10,902
<BONDS> 11,416
0
0
<COMMON> 98
<OTHER-SE> 52,480
<TOTAL-LIABILITY-AND-EQUITY> 84,155
<SALES> 0
<TOTAL-REVENUES> 20,340
<CGS> 0
<TOTAL-COSTS> 17,271
<OTHER-EXPENSES> 39
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 221
<INCOME-PRETAX> 2,809
<INCOME-TAX> 1,038
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,771
<EPS-PRIMARY> 0
<EPS-DILUTED> .20
</TABLE>
