<PAGE>
FORM 8-KA
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT TO REPORT
Filed pursuant to Section 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
THE TODD-AO CORPORATION
(Exact name of registrant as specified in its charter)
File No. 0-1461
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items of its Form
8-K, dated June 20, 1997 as set forth in the pages attached hereto.
2. Acquisition or Disposition of Assets.
7(a). Financial statements of Hollywood Digital Limited Partnership.
7(b). Pro Forma financial information combining The Todd-AO Corporation and
Hollywood Digital Limited Partnership.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendments to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 27, 1997
THE TODD-AO CORPORATION
----------------------------
/s/ Silas R. Cross
----------------------------
Silas R. Cross
Principal Accounting Officer
<PAGE>
THE TODD-AO CORPORATION
Item 2
Acquisition or Disposition of Assets
Subsequent event:
In August 1997, Hollywood Digital Limited Partnership, et. al. ("HD")
(the Seller) and The Todd-AO Corporation, et. al. ("TAO") (the Purchaser) agreed
that the operating profit of HD for the period July 1, 1996 to June 30, 1997 was
$4,793,356. Based on this operating profit, under the terms of the agreement,
the purchase price is reduced from $30,400,000 to $26,160,136. The convertible
subordinated notes of TAO issued as part of the total purchase price in the
total amount of $12,639,077 will be cancelled and new convertible subordinated
notes of TAO will be issued in the amount of $8,399,207 with the same terms and
conditions as the cancelled notes.
<PAGE>
THE TODD-AO CORPORATION
Item 7(a)
Financial Statements of Hollywood Digital Limited Partnership
I. For the years ended June 30, 1996 and 1995 (Audited)
a) Report of Independent Public Accountants.
b) Balance Sheets as of June 30, 1996 and 1995.
c) Statements of Operations for the years ended June 30, 1996 and
1995.
d) Statements of Partners' Capital (Deficit) for the years ended
June 30, 1996 and 1995.
e) Statements of Cash Flows for the years ended June 30, 1996 and
1995.
f) Notes to the Financial Statements.
II. For the nine months ended March 31, 1997 and 1996 (Unaudited)
a) Balance Sheet as of March 31, 1997.
b) Statements of Income for the nine months ended March 31, 1997 and
1996.
c) Statements of Cash Flows for the nine months ended March 31, 1997
and 1996.
<PAGE>
ARTHUR ANDERSON LLP
HOLLYWOOD DIGITAL LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
AS OF JUNE 30, 1996 AND 1995
TOGETHER WITH AUDITORS' REPORT
<PAGE>
ARTHUR ANDERSON LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Hollywood Digital Limited Partnership:
We have audited the accompanying balance sheets of HOLLYWOOD DIGITAL LIMITED
PARTNERSHIP (the "Partnership") as of June 30, 1996 and 1995 and the related
statements of operations, partners' capital and cash flows for the years then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 sign)ficant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hollywood Digital Limited
Partnership as of June 30, 1996 and 1995 and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
August 30, 1996
<PAGE>
HOLLYWOOD DIGITAL LIMITED PARTNERSHIP
BALANCE SHEETS AS OF JUNE 30. 1996 AND 1995
ASSETS
1996 1995
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 119,842 $ 89,272
Accounts receivable, less allowance
for doubtful accounts of $282,000
and $121,000, respectively 2,420,931 2,062,543
Prepaid expense and other assets 208,835 132,128
----------- -----------
Total current assets 2,749,608 2,283,943
----------- -----------
FIXED ASSETS:
Leasehold improvements 3,199,628 3,106,004
Technical equipment 16,079,108 13,410,123
Furniture and fixtures 893,948 795,709
----------- -----------
20,172,684 17,311,836
Less--Accumulated depreciation and amortization (9,535,429) (6,405,199)
----------- -----------
10,637,255 10,906,637
----------- -----------
OTHER ASSETS:
Deposits 101,559 299,483
Organization costs, net of amortization
of $169,104 and $118,373, respectively 84,552 135,283
----------- -----------
Total assets 101,559 299,483
----------- -----------
----------- -----------
The accompanying notes are an integral part of these balance sheets.
<PAGE>
HOLLYWOOD DIGITAL LIMITED PARTNERSHIP
BALANCE SHEETS AS OF JUNE 30. 1996 AND 1995
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
1996 1995
----------- -----------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 3,672,547 $ 1,486,770
Unearned revenue 199,064 -
Current portion of notes payable, capitalized
lease and financed equipment obligations 1,519,627 1,310,724
----------- -----------
Total current liabilities 5,391,238 2,797,494
LONG TERM LIABILITIES:
Notes payable, capital lease and financed
equipment obligations, net of current
portion 14,675,097 5,586,793
Deferred rent 151,033 173,134
----------- -----------
Total liabilities 20,217,368 8,557,421
----------- -----------
COMMITMENTS AND CONTINGENCIES
Partners' capital (deficit) (6,644,394) 5,067,925
----------- -----------
Total liabilities and partners' capital $13,572,974 $13,625,346
----------- -----------
----------- -----------
The accompanying notes are an integral part of these balance sheets.
<PAGE>
HOLLYWOOD DIGITAL LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
1996 1995
----------- -----------
NET REVENUES $15,343,597 $12,651,501
COST OF REVENUES:
Direct expenses 5,362,092 4,170,395
Depreciation 2,954,481 2,623,856
----------- -----------
Gross profit 7,027,024 5,857,250
----------- -----------
OPERATING EXPENSES:
Selling, general and administrative 8,514,529 6,170,036
Interest expense, net 1,500,483 670,972
Depreciation and amortization 334,034 314,472
----------- -----------
Total operating expenses 10,349,046 7,155,480
----------- -----------
Loss from operations (3,322,022) (1,298,230)
----------- -----------
OTHER INCOME, NET 27,536 564,443
----------- -----------
Loss from continuing operations
before extraordinary item (3,294,486) (733,787)
EXTRAORDINARY LOSS DUE TO EARLY
EXTINGUISHMENT OF DEBT - (151,510)
----------- -----------
Net Loss $(3,294,486) $ (885,297)
----------- -----------
----------- -----------
The accompanying notes are an integral part of these financial statements.
<PAGE>
HOLLYWOOD DIGITAL LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED JUNE 30. 1996 AND 1995
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- ----------- -----------
<S> <C> <C> <C>
BALANCE, June 30, 1994 $(55,848) $ 6,026,570 $ 5,970,722
Purchase of Partnership interest - (17,500) (17,500)
Net loss for 1995 (8,853) (876,444) (885,297)
-------- ----------- -----------
BALANCE, June 30, 1995 (64,701) 5,132,626 5,067,925
Restructure of Partnership interest
in exchange for note payable (8,417,833) (8,417,833)
Net loss for 1996 (32,945) (3,261,541) (3,294,486)
-------- ----------- -----------
BALANCE, June 30, 1996 $(97,646) $(6,546,748) $(6,644,394)
-------- ----------- -----------
-------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
HOLLYWOOD DIGITAL LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30. 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,294,486) $ (885,297)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,288,515 2,938,329
Amortization of debt discount 82,028 -
Deferred rent (22,101) (22,432)
Note payable (20,000) (20,000)
Loss (gain) on sale of assets 367 (9,567)
Changes in operating assets and liabilities:
Increase in accounts receivable (358,388) (158,558)
Decrease in prepaid expenses and other assets 121,217 1,075,666
Increase (decrease) in accounts payable and
accrued expenses 2,185,777 (1,701,712)
Increase in deferred revenue 199,064
----------- -----------
Net cash provided by operating activities $ 2,181,993 $ 1,216,429
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,009,172) (575,083)
Proceeds from the sale of assets 40,403 179,595
----------- -----------
Net cash used in investing activities (2,968,769) (395,488)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Partnership interest - (17,500)
Net proceeds from issuance of debt 2,149,748 6,484,034
Principal payments on capital leases and
financed equipment purchases (1,332,402) (7,670,051)
----------- -----------
Net cash provided by (used in) financing activities 817,346 (1,203,517)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 30,570 (382,576)
CASH AND CASH EQUIVALENTS, beginning of year 89,272 471,848
----------- -----------
CASH AND CASH EQUIVALENTS, end of year 119,842 89,272
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
HOLLYWOOD DIGITAL LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30. 1996
1. BUSINESS
Hollywood Digital Limited Partnership (the "Partnership") was formed in July
1992 (operations commenced in March 1993) to construct and operate a
full-service, all-digital, post-production facility to provide
post-production services to producers of programming for domestic and foreign
distribution. The Partnership initially consisted of a general partner, which
is a Delaware corporation, and Class A and B limited partners.
In June 1993, the Partnership redeemed certain Class B limited partners'
interest and converted the remaining Class B limited partner interest into a
Class A limited partner interest.
Post-production services begin after completion of photography and involve
film-to-videotape transfer and electronic editing of the videotape, including
addition of special effects and titles, color correction, sound editing and
mixing, and duplication. The Partnership provides fully integrated video,
audio and graphic services in an all-digital format, allowing material to be
manipulated efficiently through any number of generations without any
degradation of quality.
The Partnership is located in Hollywood, California and services a diverse
customer base, including producers of commercials, network television series
and motion pictures, music videos, and corporate promotional materials. The
Partnership grants credit to its customers, substantially all of whom are
participants in the entertainment industry.
The facility is housed in approximately 33,000 square feet of office space
which is leased under a longterm lease agreement.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Partnership considers all highly liquid investments purchased with
an original maturity date of three months or less to be cash
equivalents.
ORGANIZATION COSTS
Organization costs are being amortized on a straight-line basis over 5
years.
FIXED ASSETS
Fixed assets are stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful life of the related asset
ranging from 5-7 years. Amortization of leasehold improvements are
provided on a straight-line basis over the shorter of the useful life
or the term of the building lease.
<PAGE>
- 2 -
EQUIPMENT UNDER CAPITAL LEASES
Equipment under capital leases are stated at the present value of
future minimum lease payments, and are amortized on the straight-line
method over the shorter of the lease period or the estimated useful
life of the related asset.
REVENUE RECOGNITION
Revenues are recognized as services are performed. Payments received in
advance of the services performed are classified as unearned revenue on
the accompanying balance sheets.
DEFERRED RENT
Rent expense is recognized on a straight-line basis regardless of when
payments are due in accordance with the terms of the operating lease.
Deferred rent on the balance sheet reflects rent expense recognized in
excess of payments made.
ALLOCATION OF NET LOSS AND DISTRIBUTIONS
Net loss and distributions are allocated pursuant to the Partnership
Agreement.
CONCENTRATION OF RISK
Accounts receivable represents unsecured balances due from its
customers and the Partnership is at risk to the extent such amounts
become uncollectible. The Partnership performs credit evaluations of
each of its customers and maintains allowances for potential credit
losses. Such losses have generally been within management's
expectations.
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 assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates. Management believes that these estimates and
assumptions provide a reasonable basis for the fair presentation of the
financial statements.
ACCOUNTING FOR LONG-LIVED ASSETS
During fiscal year 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of,' ("SFAS
121"), which requires all impaired long-lived assets to be written down
to fair value. Management reviewed the Partnership's long-lived assets
and determined that there were no events that would cause them to
believe that the expected future cash flows from each long-lived asset
would not result in the recovery of the carrying amounts of such assets.
<PAGE>
- 3 -
ACCOUNTING FOR INCOME TAXES
No provision for federal or state income taxes has been included in the
accompanying financial statements since such taxes, if any, are
required to be reported by the respective partners on their separate
income tax returns.
3. OTHER ASSETS
The Partnership maintains certain deposits totaling $33,604 and $242,719 as
of June 30, 1996 and 1995, respectively, included in deposits in the
accompanying balance sheets as collateral for financing equipment obligations
which accrue interest at approximately 3.5% per annum. These deposit
requirements decline over the financing term and excess funds, including
accrued interest, are remitted to the Partnership at periodic intervals over
the financing term.
4. DEBT
JUNE 30, 1996 JUNE 30,1995
------------- ------------
Harvard debt, net of unamortized $ 8,499,861 $ -
discount of $410,139
Borrowings outstanding under the CIT
line of credit agreement 1,347,943 1,050,342
CIT term note payable, secured by
equipment, payable in monthly installments
of $121,301 including interest at Prime + 2%
per annum, due July 13, 2000 6,148,959 5,423,691
Capital lease obligations (Note 5) 61,294 266,817
Community Redevelopment Agency loan
which is to be forgiven at a rate of 10
percent of the $200,000 initial principle
balance per annum through 2003 136,667 156,667
----------- -----------
16,194,724 6,897,517
Less--Current amount of notes payable (1,519,627) (1,310,724)
----------- -----------
Long-term debt $14,675,097 $ 5,586,793
----------- -----------
----------- -----------
On June 30, 1995, the Partnership obtained a new financing package from CIT
totaling $12,000,000 that included term financing to refinance existing
equipment debt, additional equipment financing, and a line of credit. The
loss on the extinguishment and refinancing of certain capital lease
obligations for the fiscal year ending June 30, 1995 is reflected as an
extraordinary item in the accompanying statements of operations for the
fiscal year ending June 30, 1995. The agreement matures on July 13, 2000 and
includes certain financial and informational reporting covenants. The
borrow-ings on the line of credit are secured by customer accounts receivable
and inventory. Advances can be requested against the line of up to 80 percent
of eligible accounts receivable, as defined. Interest on borrowings against
the line of credit
<PAGE> - 4 -
is Prime + 1 3/4 percent and is payable on a monthly basis. The annual
interest rate on borrowings was 10% and 10.75% at June 30, 1996 and 1995,
respectively. The equipment term loan of $6,148,959 is secured by the
Partnership's equipment. Interest on the loan is at Prime + 2 percent.
On November 1, 1995, the limited partnership interest held by Harvard Private
Capital Group, Inc. was reduced from 76.47% to 10% in exchange for the
issuance of a face amount $8,910,000 Senior Subordinated Note (the "Note") by
the Partnership. The Note has a one year grace period regarding interest,
stated rates of 14 percent in the second year and 13 percent in the third and
fourth years. The Partnership has discounted this obligation using an
effective rate of 10 percent (approximate borrowing rate ofthe Partnership)
over the initial maturity date of October 31, 1999, which resulted in a
discount on the Note of $492,167 being recorded at issuance. The Partnership
has the option of extending the Note for one additional year from initial
maturity and the principal is due at maturity. Interest expense is recognized
over the term of the Note using the effective interest rate method.
The carrying value of the debt detailed above approximates fair market value.
5. COMMITMENTS AND CONTINGENCIES
LEASE
The Partnership is a party to a number of noncancellable lease agreements
involving its building and equipment. The leases extend for varying periods
up to 10 years. Certain equipment leases have purchase options.
The Partnership leases its editing and office facilities under an operating
lease agreement which expires in May 2003 with one 10-year extension term.
The agreement includes escalation clauses which are tied to the Consumer
Price Index. In addition, the Partnership is responsible for all insurance,
maintenance, and property taxes.
Minimum future lease obligations on long-term noncancellable leases in effect
at June 30, 1996 are as follows:
FISCAL YEARS CAPITAL OPERATING
------------ -------- ----------
1997 $ 50,385 $ 394,790
1998 17,226 435,620
1999 - 492,782
2000 - 533,612
2001 - 542,761
Thereafter - 1,640,943
-------- ----------
Total minimum lease payments 67,611 $4,040,508
----------
----------
Less--Interest 6,317
--------
Capital lease obligations 61,294
Less--Current portion (44,661)
--------
Long-term capital lease obligations $ 16,633
--------
--------
<PAGE>
- 5 -
Building and equipment rent expense for the year ended June 30, 1996
and 1995 was $489,570 and $410,433, respectively.
LITIGATION
The Partnership is involved in various claims and legal actions. The
Partnership believes, based in part upon consultation with legal
counsel, such claims and legal actions, individually or in the
aggregate, will not have a material effect on the business or financial
condition of the Partnership.
6. RELATED-PARTV TRANSACTIONS
The Partnership contracted with B & B Systems to perform general contracting,
engineering design and other services. The Partnership's former President and
CEO, whose employment contract was terminated in June 1994, is a 35 percent
owner of B & B Systems. At June 30, 1994, the Partnership owed B & B Systems
$617,694 for various services and the Partnership had $240,000 in accrued
liabilities relating to the termination of an employment agreement with the
former President and CEO. The Partnership subsequently settled the remaining
obligations to B & B Systems and the former CEO in fiscal year 1995 for
$350,000. The resulting gain on this settlement of $577,694 is included in
other income in the accompanying statement of operations in fiscal year 1995.
Harvard Private Capital Group, Inc. (a limited partner in the Partnership)
and HD Venture Capital, Inc. (the general partner in the Partnership) provide
management services to the Partnership. Management service expenses were
$55,000 for the periods ended June 30, 1996 and 1995.
7. EQUITV INTERESTS IN THE PARTNERSHIP
The following table sets forth, as of June 30, 1996, certain percentages of
limited partnership interests as granted to certain officers of the
Partnership:
NAME AND POSITION PERCENT GRANTED
----------------- ---------------
Rand Gladden
President and CEO 3%(1)
David Cottrell
Executive Vice President and CFO 2%
William Romeo
Vice President of Sales 2%
(1) increasing to 5% if certain performance hurdles are satisfied.
These interests were granted at estimated market value at the date of grant
and vest at various rates through December31, 1999.
<PAGE>
- 6 -
8. SUPPLEMENTAL CASH FLOW INFORMATION AND SUPPLEMENTAL DISCLOSURES OF
NON-CASH FINANCING ACTIVITIES
Cash paid during the period for interest $ 824,456 $699,790
---------- --------
---------- --------
Capital lease obligations $ - $ 85,950
---------- --------
---------- --------
Issuance of note payable for Partnership
interest (Note 4) $8,499,861 $ -
---------- --------
---------- --------
<PAGE>
HOLLYWOOD DIGITAL LIMITED PARTNERSHIP
BALANCE SHEETS
AS OF MARCH 31, 1997
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
1997
-------------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,145
Accounts receivable, less allowance
for doubtful accounts of $306,000. . . . . . . . . . . . . . . . . . . . . . 3,251,168
Prepaid expense and other assets . . . . . . . . . . . . . . . . . . . . . . . 324,754
------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,579,067
------------
FIXED ASSETS:
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,388,782
Technical equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,247,324
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,023,828
------------
21,659,934
Less--Accumulated depreciation and amortization. . . . . . . . . . . . . . . . (12,245,035)
------------
9,414,899
------------
OTHER ASSETS:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179,746
Organization costs, net of
amortization of $207,152 . . . . . . . . . . . . . . . . . . . . . . . . . . 46,504
------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,220,216
------------
------------
</TABLE>
<PAGE>
HOLLYWOOD DIGITAL LIMITED PARTNERSHIP
BALANCE SHEETS
AS OF MARCH 31, 1997
LIABILITIES AND PARTNERS' DEFICIT
MARCH 31,
1997
------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses . . . . . . . . . . . . $ 3,246,843
Bank overdraft. . . . . . . . . . . . . . . . . . . . . . . . 149,244
Current portion of notes payable, capitalized lease
and financed equipment obligations. . . . . . . . . . . . . 1,815,312
-----------
Total current liabilities . . . . . . . . . . . . . . . . . 5,211,399
-----------
LONG TERM LIABILITIES:
Notes payable, capital lease and financed
equipment obligations, net of current portion . . . . . . . 14,548,568
Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . 134,456
-----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . 19,894,423
-----------
PARTNERS' DEFICIT . . . . . . . . . . . . . . . . . . . . . . . (6,674,207)
-----------
Total liabilities and partners' deficit . . . . . . . . . . $13,220,216
-----------
-----------
<PAGE>
HOLLYWOOD DIGITAL LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE NINE MONTHS ENDED MARCH 31, 1997
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
--------- ----------- -----------
BALANCE, June 30, 1996. . . . . $(97,646) $(6,546,748) $(6,644,394)
Net loss for the nine months
ended March 31, 1997. . . . (298) (29,515) (29,813)
-------- ----------- -----------
BALANCE, March 31, 1997 . . . . $(97,944) $(6,576,263) $(6,674,207)
-------- ----------- -----------
-------- ----------- -----------
<PAGE>
HOLLYWOOD DIGITAL LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996
1997 1996
----------- -----------
Net revenues. . . . . . . . . . . . . . . . . . $14,822,549 $11,217,987
Costs and expenses:
Operating costs and other expenses. . . . . . 10,609,407 9,435,892
Depreciation. . . . . . . . . . . . . . . . . 2,747,654 2,399,519
Interest. . . . . . . . . . . . . . . . . . . 1,371,657 1,037,798
Other expense (income). . . . . . . . . . . . 123,644 128,884
----------- ------------
Total costs and expenses. . . . . . . . . . 14,852,362 13,002,093
----------- -----------
Net (loss). . . . . . . . . . . . . . . . . . . $ (29,813) $(1,784,106)
----------- -----------
----------- -----------
<PAGE>
HOLLYWOOD DIGITAL LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (29,813) $(1,786,184)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 2,747,654 2,399,519
(Gain) loss on disposition of assets. . . . . . . . . . . . . . . . -- 74,592
Changes is operating assets and liabilities:
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . (830,237) (523,692)
Other receivables, prepaid expenses and other assets. . . . . . . (194,106) 24,033
Accounts payable and accrued expenses . . . . . . . . . . . . . . (624,768) 671,998
Bank overdraft. . . . . . . . . . . . . . . . . . . . . . . . . . 149,244 279,707
----------- -----------
Net cash provided by operating activities . . . . . . . . . . . 1,217,974 1,139,973
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . (1,487,250) (2,401,410)
Proceeds from sale of assets. . . . . . . . . . . . . . . . . . . . . . -- 21,900
Repurchase of partnership interest
(Harvard note discount) - net . . . . . . . . . . . . . . . . . . . . -- 422,515
----------- -----------
Net cash used in investing activities . . . . . . . . . . . . . (1,487,250) (1,956,995)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . 152,579 727,751
----------- -----------
Net cash provided by financing activities . . . . . . . . . . . 152,579 727,751
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS. . . . . . . . . . . . . . . . . . . . . . . . . . (116,697) (89,271)
CASH AND CASH EQUIVALENTS, beginning of period. . . . . . . . . . . . . . 119,842 89,271
----------- -----------
CASH AND CASH EQUIVALENTS, end of period. . . . . . . . . . . . . . . . . $ 3,145 $ 0
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
THE TODD-AO CORPORATION
Item 7(b)
Pro Forma Financial Information
THE TODD-AO CORPORATION AND
HOLLYWOOD DIGITAL LIMITED PARTNERSHIP
PRO FORMA CONDENSED FINANCIAL STATEMENTS (Unaudited)
I. Balance Sheet as of May 31, 1997.
II. Statements of Income for the year ended August 31, 1996 and the nine months
ended May 31, 1997.
III. Footnotes to Financial Statements
The Todd-AO Corporation ("Todd-AO") purchased substantially all of the
assets and certain liabilities of Hollywood Digital Limited Partnership
("HD") for cash and Todd-AO Corporation convertible subordinated notes as of
June 20, 1997. The following pro forma condensed financial information and
explanatory notes are presented to show the pro forma effect of the
acquisition of HD on Todd-AO's historical results of operations. The
acquisition is reflected in the pro forma condensed financial information
using the purchase method of accounting.
The Pro Forma Condensed Balance Sheet as of May 31, 1996 assumes the
acquisition was consummated on that date. The Pro Forma Condensed Income
Statements assume the acquisition was consummated on September 1, 1995. Such
Pro Forma Condensed Financial Information is not necessarily indicative of
the financial position or results of operations as they may be in the future
or as they might have been had the acquisition been effected on the assumed
dates.
The Pro Forma Condensed Financial Information should be read in
conjunction with the historical financial statements and notes thereto of
Todd-AO, the audited historical financial statements and notes thereto of
Hollywood Digital Limited Partnership filed with this report, and the notes
to the Pro Forma Condensed Financial Information.
<PAGE>
THE TODD-AO CORPORATION
PRO FORMA CONDENSED BALANCE SHEET (Unaudited)
AS OF MAY 31, 1997
(Dollars in thousands, except amounts per share)
<TABLE>
<CAPTION>
TODD-AO HOLLYWOOD CONSOLIDATED
(1) DIGITAL (2) ADJUST PRO FORMA
---------- ----------- -------- ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,463 $ 10 $ $ 1,473
Marketable securities--at cost. . . . . . . . . . . . . . 7,908 7,908
Trade receivables--net. . . . . . . . . . . . . . . . . . 12,564 2,640 15,204
Inventories . . . . . . . . . . . . . . . . . . . . . . . 505 91 596
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 2,808 115 2,923
---------------------------------- --------
Total current assets. . . . . . . . . . . . . . . . . . . 25,248 2,856 0 28,104
INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . 992 992
PROPERTY AND EQUIPMENT--NET . . . . . . . . . . . . . . . . 43,324 9,417 2,700 (3) 55,441
GOODWILL--NET . . . . . . . . . . . . . . . . . . . . . . . 5,683 0 14,100 (4) 19,783
OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . . . 1,076 130 1,206
---------------------------------- --------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . $76,323 $ 12,403 $16,800 $105,526
---------------------------------- --------
---------------------------------- --------
LIABILITIES AND
SHAREHOLDERS EQUITY
CURRENT LIABILITIES:
Accrued payable and accrued liabilities . . . . . . . . . $ 8,371 $ 1,487 $ (20)(5) $ 9,838
Current maturities of long-term debt. . . . . . . . . . . 558 3,226 (3,197)(5) 587
Deferred income . . . . . . . . . . . . . . . . . . . . . 1,374 1,374
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 71 227 298
---------------------------------- --------
Total current liabilities . . . . . . . . . . . . . . . . 10,374 4,940 (3,217) 12,097
LONG-TERM DEBT. . . . . . . . . . . . . . . . . . . . . . . 974 14,904 4,177 (5) 20,055
LONG-TERM CONVERTIBLE NOTES . . . . . . . . . . . . . . . . 8,399 (6) 8,399
DEFERRED COMPENSATION . . . . . . . . . . . . . . . . . . . 217 217
DEFERRED GAIN:
SALE OF EQUIPMENT . . . . . . . . . . . . . . . . . . . . 3,804 3,804
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . 4,458 4,458
SHAREHOLDERS EQUITY:
Common stock. . . . . . . . . . . . . . . . . . . . . . . 99 99
Additional capital and other. . . . . . . . . . . . . . . 39,356 3,167 (3,167)(7) 39,356
Retained earnings . . . . . . . . . . . . . . . . . . . . 17,041 (10,608) 10,608 (7) 17,041
---------------------------------- --------
Total shareholders equity . . . . . . . . . . . . . . . . 56,496 (7,441) 7,441 56,496
---------------------------------- --------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . $76,323 $ 12,403 $16,800 $105,526
---------------------------------- --------
---------------------------------- --------
</TABLE>
<PAGE>
THE TODD-AO CORPORATION
PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED AUGUST 31, 1996 (Unaudited)
(Dollars in thousands, except amounts per share)
<TABLE>
<CAPTION>
TODD-AO HOLLYWOOD CONSOLIDATED
(1) DIGITAL (2) ADJUST PRO FORMA
--------- ----------- -------- ------------
<S> <C> <C> <C> <C>
REVENUES. . . . . . . . . . . . . . . . . . $ 62,920 $15,344 $78,264
COST AND EXPENSES:
Operating costs and other expenses. . . . 48,962 13,877 $(1,418)(9) 61,421
Depreciation and amortization . . . . . . 5,374 3,288 (1,248)(10) 7,414
Interest. . . . . . . . . . . . . . . . . 702 1,500 340 (11) 2,542
Equipment lease expense--net. . . . . . . 498 498
Other--net. . . . . . . . . . . . . . . . (242) (27) (269)
-------------------------------------- -------
Total costs and expenses. . . . . . . . . 55,294 18,638 (2,326) 71,606
-------------------------------------- -------
INCOME (LOSS) BEFORE
INCOME TAXES. . . . . . . . . . . . . . . 7,626 (3,294) 2,326 6,658
INCOME TAXES. . . . . . . . . . . . . . . . 2,782 (348)(12) 2,434
-------------------------------------- -------
INCOME (LOSS) FROM
OPERATIONS. . . . . . . . . . . . . . . . $ 4,844 $(3,294) $ 2,674 $ 4,224
-------------------------------------- -------
-------------------------------------- -------
INCOME PER SHARE. . . . . . . . . . . . . . $ 0.55 $ 0.48
--------- -------
--------- -------
AVERAGE SHARES
OUTSTANDING . . . . . . . . . . . . . . . 8,845,321 8,845,321
--------- ---------
--------- ---------
</TABLE>
<PAGE>
THE TODD-AO CORPORATION
PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED MAY 31, 1997 (Unaudited)
(Dollars in thousands, except amounts per share)
<TABLE>
<CAPTION>
TODD-AO HOLLYWOOD CONSOLIDATED
(1) DIGITAL (2) ADJUST PRO FORMA
--------- ----------- -------- ------------
<S> <C> <C> <C> <C>
REVENUES. . . . . . . . . . . . . . . . . . . . . $59,338 $14,823 $74,161
COST AND EXPENSES:
Operating costs and other expenses. . . . . . . 45,856 10,610 $ (140)(9) 56,326
Depreciation and amortization . . . . . . . . . 4,905 2,748 (1,218)(10) 6,435
Interest. . . . . . . . . . . . . . . . . . . . 483 1,371 9 (11) 1,863
Equipment lease expense--net. . . . . . . . . . 209 0 209
Other . . . . . . . . . . . . . . . . . . . . . (117) 124 7
----------------------- ------- -------
Total costs and expenses. . . . . . . . . . . . 51,336 14,853 (1,349) 64,840
----------------------------------- -------
INCOME (LOSS) BEFORE
INCOME TAXES. . . . . . . . . . . . . . . . . . 8,002 (30) 1,349 9,321
INCOME TAXES. . . . . . . . . . . . . . . . . . . 2,813 475(12) 3,288
----------------------------------- -------
INCOME (LOSS) FROM
OPERATIONS. . . . . . . . . . . . . . . . . . . $ 5,189 $ (30) $ 874 $ 6,033
----------------------------------- -------
----------------------------------- -------
INCOME PER SHARE. . . . . . . . . . . . . . . . . $ 0.52 $ 0.60
------- -------
------- -------
AVERAGE SHARES
OUTSTANDING . . . . . . . . . . . . . . . . . . 10,000,943 10,000,943
---------- ----------
---------- ----------
</TABLE>
<PAGE>
THE TODD-AO CORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (Unaudited)
[1] Condensed from audited financial statements included in the Todd-AO
Corporation Annual Report on Form 10-K for the year ended August
31,1996 and Quarterly Report on Form 10-Q for the nine months ended May
31, 1997.
[2] Recognizes the June 20, 1997 purchase of the assets and certain
liabilities (at historical cost) of Hollywood Digital Limited
Partnership ("HD") by Todd-AO Corporation.
[3] To reflect purchase accounting valuation increase of HD Equipment to
Fair Market Value.
[4] To recognize Goodwill arising from the purchase of HD including
estimated legal, accounting, audit and other acquisition related costs
($250M).
[5] The net additional bank borrowings required to assume HD indebtedness
arising from acquisition.
[6] To record 3-year convertible notes @ 5% interest issued as the net
purchase price due to the sellers of HD. The notes have been adjusted
to reduce the total purchase price of the acquisition based on the
operating profit (as defined in the agreement) for the 12 months ended
June 30, 1997. Interest is paid annually and the notes are convertible
to Todd-AO Corporation Class A common stock @ $11.875 per share.
[7] Elimination of HD equity at acquisition.
[8] Twelve month information is condensed from HD audited income statements
for the year ended June 30, 1996. Nine month information is condensed
from HD audited income statements for the nine months ended March 31,
1997.
[9] To eliminate non-recurring legal and other non-operating costs.
[10] To adjust to goodwill amortization for excess purchase costs ($14,100
over 5 years). To adjust depreciation for the Fair Market Value of the
property and equipment over the estimated remaining useful life of the
assets.
[11] To adjust interest to borrowing rate of Company's institutional lender
for debt acquired and assumed in acquisition ($18,829 @ 7.5%). To
record interest on convertible notes ($8,399 @ 5%).
[12] To adjust income taxes for income resulting from the inclusion of HD
net income in the consolidated net income of the Company, net of the
pro-forma adjustments noted above.
