<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 FEBRUARY 28, 1999
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)
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 April 15, 1999 was:
7,702,038 Class A Shares and 1,747,178 Class B Shares.
<PAGE>
THE TODD-AO CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FEBRUARY 28, 1999
INDEX
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
<S> <C>
Item 1- FINANCIAL STATEMENTS
The following financial statements are filed herewith:
Condensed Consolidated Balance Sheets, February 28, 1999
(Unaudited) and August 31, 1998 3
Condensed Consolidated Statements of Income and Retained
Earnings for the Six and Three Months Ended
February 28, 1999 and 1998 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended February 28, 1999 and 1998 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements for the
Six Months Ended February 28, 1999 (Unaudited) 8
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
<CAPTION>
PART II - OTHER INFORMATION
<S> <C>
Item 1 - Legal Proceedings 14
Item 6 - Exhibits and Reports on Form 8-K 14
Signature 14
</TABLE>
2
<PAGE>
THE TODD-AO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 28,
------------- --------------
1998 1999
(UNAUDITED)
------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents........................................... $ 3,997 $ 7,773
Marketable securities............................................... 1,490 1,379
Trade receivables
(net of allowance for doubtful accounts of $1,773 at
February 28, 1999 and $1,768 at August 31, 1998) ................ 18,164 20,988
Income tax receivable............................................... 1,397 1,307
Inventories (first-in first-out basis).............................. 783 756
Deferred income taxes............................................... 301 280
Prepaid deposits and other.......................................... 3,629 3,096
------------- -------------
Total current assets................................................ 29,761 35,579
------------- -------------
INVESTMENTS......................................................... 956 1,209
------------- -------------
PROPERTY AND EQUIPMENT - At Cost:
Land................................................................ 4,270 4,270
Buildings........................................................... 11,293 11,536
Leasehold improvements.............................................. 15,054 14,914
Lease acquisition costs............................................. 2,187 2,187
Equipment........................................................... 76,172 74,963
Equipment under capital leases...................................... 1,151 1,151
Construction in progress............................................ 1,466 2,265
------------- -------------
Total............................................................... 111,593 111,286
Accumulated depreciation and amortization........................... (38,046) (43,369)
------------- -------------
Property and equipment - net........................................ 73,547 67,917
------------- -------------
GOODWILL
(net of accumulated amortization of $2,160 at
February 28, 1999 and $1,646 at August 31, 1998)................. 29,193 28,680
------------- -------------
OTHER ASSETS........................................................ 1,909 2,018
------------- -------------
TOTAL............................................................... $135,366 $135,403
------------- -------------
------------- -------------
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
THE TODD-AO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 28,
------------- -------------
1998 1999
(UNAUDITED)
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable.................................................. $ 6,464 $ 5,721
Accrued liabilities:
Payroll and related taxes...................................... 3,520 4,274
Interest....................................................... 369 513
Equipment lease................................................ 569 750
Other.......................................................... 3,201 2,395
Income taxes payable.............................................. 1,090 2,325
Current maturities of long-term debt.............................. 537 269
Capitalized lease obligations - current........................... 422 370
Deferred income................................................... 897 1,006
------------- --------------
Total current liabilities......................................... 17,069 17,623
------------- --------------
LONG-TERM DEBT.................................................... 44,654 45,700
DEFERRED COMPENSATION AND OTHER................................... 266 204
DEFERRED GAIN ON SALE/LEASEBACK TRANSACTIONS...................... 6,085 5,101
DEFERRED INCOME TAXES............................................. 4,911 4,834
OTHER............................................................. 2,061 1,502
------------- --------------
Total liabilities................................................. 75,046 74,964
------------- --------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock:
Class A; authorized 30,000,000 shares of $0.01 par value;
7,778,338 issued at February 28, 1999 and 8,438,700 at
August 31, 1998..................................................... 84 78
Class B; authorized 6,000,000 shares of $0.01 par value; issued and
outstanding 1,747,178............................................... 17 17
Additional capital..................................................... 40,805 35,959
Treasury stock (56,700 and 235,151 shares at cost
as of February 28, 1999 and August 31, 1998, respectively)......... (2,338) (471)
Retained earnings...................................................... 20,538 23,623
Accumulated comprehensive income:
Unrealized gains on marketable securities
and long-term investments.......................................... 198 248
Cumulative foreign currency translation adjustment................. 1,016 985
------------- --------------
Total stockholders' equity............................................. 60,320 60,439
------------- --------------
TOTAL.................................................................. $135,366 $135,403
------------- --------------
------------- --------------
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
THE TODD-AO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE SIX AND THREE MONTHS ENDED FEBRUARY 28, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
-------------------------- --------------------------
1998 1999 1998 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES..................................................... $ 47,606 $ 62,335 $ 22,582 $ 28,388
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Operating costs and other expenses........................... 37,528 49,593 18,214 23,888
Depreciation and amortization................................ 4,714 6,371 2,293 2,968
Interest..................................................... 589 1,618 177 752
Equipment lease expense - net................................ 111 420 84 365
Other (income) - net......................................... (123) (703) (221) (847)
------------ ------------ ------------ ------------
Total costs and expenses..................................... 42,819 57,299 20,547 27,126
------------ ------------ ------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 4,787 5,036 2,035 1,262
PROVISION FOR INCOME TAXES................................... 1,698 1,671 719 365
------------ ------------ ------------ ------------
NET INCOME................................................... 3,089 3,365 $ 1,316 $ 897
------------ ------------
------------ ------------
RETAINED EARNINGS BEGINNING OF PERIOD........................ 17,711 20,538
LESS: DIVIDENDS PAID......................................... (295) (280)
------------ ------------
RETAINED EARNINGS END OF PERIOD.............................. $ 20,505 $ 23,623
------------ ------------
------------ ------------
NET INCOME PER COMMON SHARE:
Net income available to common stockholders.................. $ 3,089 $ 3,365 $ 1,316 $ 897
Effect of dilutive securities:
5% convertible debentures................................. 159 129 75 62
------------ ------------ ------------ ------------
Net income available to common stockholders
plus assumed conversions.................................. $ 3,248 $ 3,494 $ 1,391 $ 959
------------ ------------ ------------ ------------
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC....................................... 10,004,781 9,506,418 9,987,278 9,477,070
Effect of dilutive securities:
Stock options............................................. 510,835 380,694 487,096 429,850
5% convertible debentures................................. 711,057 670,509 711,057 643,341
------------ ------------ ------------ ------------
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED..................................... 11,226,673 10,557,621 11,185,431 10,550,261
------------ ------------ ------------ ------------
NET INCOME PER COMMON SHARE - BASIC.......................... $ 0.31 $ 0.35 $ 0.13 $ 0.10
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET INCOME PER COMMON SHARE - DILUTED........................ $ 0.29 $ 0.33 $ 0.12 $ 0.09
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
THE TODD-AO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1999
(UNAUDITED) (UNAUDITED)
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................... $ 3,089 $ 3,365
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization................................ 4,714 6,371
Deferred income taxes........................................ 334 (56)
Deferred compensation and other.............................. (138) (93)
Amortization of deferred gain on
sale/leaseback transaction............................... (1,060) (1,230)
(Gain) on sale of marketable securities
and investments.......................................... (49) --
(Gain) loss on disposition of fixed assets................... 8 (190)
Shares issued for stock award................................ 66 --
Changes in assets and liabilities (net of acquisitions):
Trade receivables, net.................................... (3,311) (2,824)
Inventories and other current assets...................... (39) 557
Accounts payable and accrued liabilities.................. (291) (651)
Accrued equipment lease................................ (69) 181
Income taxes payable, net................................. 1,230 1,328
Provision for liabilities................................. -- (559)
Deferred income........................................... (59) 109
------------- -------------
Net cash flows provided by operating activities: ................. 4,425 6,308
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities and investments............... (38) (92)
Proceeds from sale of marketable securities
and investments.............................................. 979 --
Proceeds from disposition of fixed assets....................... 5 136
Capital expenditures............................................ (13,189) (8,640)
Other assets.................................................... 75 (206)
------------- -------------
Net cash flows (used in) investing activities: ................... $(12,168) $(8,802)
------------- -------------
</TABLE>
6
<PAGE>
THE TODD-AO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 AND 1998
(DOLLARS IN THOUSANDS)
(CONTINUED)
<TABLE>
<CAPTION>
1998 1999
(UNAUDITED) (UNAUDITED)
------------- ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt............................... $ 6,400 $ 10,846
Payments of long-term debt................................. (8,870) (10,068)
Payments on capital lease obligations...................... (33) (52)
Proceeds from sale/leaseback transaction................... 8,500 8,809
Proceeds from issuance of common stock..................... 182 4
Treasury stock transactions................................ (489) (2,989)
Dividends paid............................................. (295) (280)
------------- ------------
Net cash flows provided by financing activities: ............ 5,395 6,270
Effect of exchange rate changes on cash .................. -- --
------------- ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS...................................... (2,348) 3,776
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD....................................... 5,127 3,997
------------- ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD............................................. $ 2,779 $ 7,773
------------- ------------
------------- ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................... $ 303 $ 1,392
------------- ------------
------------- ------------
Income taxes............................................... -- $ 240
------------- ------------
------------- ------------
</TABLE>
See notes to condensed consolidated financial statements.
7
<PAGE>
THE TODD-AO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
(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, 1998. 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.
3. The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share" ("EPS"), during the year ending August 31,
1998 and has restated its net income per common share disclosures for
prior periods to comply with SFAS No. 128. Under SFAS No. 128, primary
EPS is replaced by "Basic" EPS, which excludes dilution and is computed
by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. "Diluted"
EPS, which is computed similarly to fully diluted EPS, reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. When
dilutive, stock options are included as share equivalents in computing
diluted earnings per share using the treasury stock method.
4. On May 8, 1998, Todd-AO Europe Holding Co., Ltd. ("Todd Europe"), a
wholly owned United Kingdom subsidiary of the Company, purchased
substantially all of the outstanding shares of Tele-Cine Cell Group plc.
("TeleCine"), a U.K. Corporation. The purchase price of the shares was
$17,948 (L11,011) of which $15,741 was paid in cash and $2,207 is
represented by unsecured loan notes guaranteed as to principal only and
bearing interest at a fixed rate of 4.5% payable annually in arrears.
Included above is cash in the amount of $495 which was paid by Todd
Europe for costs incurred in connection with the acquisition. TeleCine is
a London based facility that specializes in video post-production and
special effects providing services to the film and television industries.
The acquisition is being accounted for under the purchase method of
accounting. The following unaudited pro forma consolidated financial
information for the six months ended February 28, 1998 is presented as if
the acquisition had occurred on September 1, 1997. Pro forma adjustments
for TeleCine are primarily to eliminate operations discontinued as part
of the acquisition plan, to adjust depreciation to estimated useful lives
of assets acquired, amortization of goodwill, interest expense on
borrowings in connection with the acquisition, and income taxes.
<TABLE>
<CAPTION>
1997
-----------
<S> <C>
Revenues........................................ $57,617
-----------
-----------
Net income...................................... $ 4,075
-----------
-----------
Net income per common share - Basic............. $ 0.41
-----------
-----------
Net income per common share - Diluted........... $ 0.38
-----------
-----------
</TABLE>
8
<PAGE>
5. In December 1998, November 1997 and December 1994 the Company signed
agreements with its bank to implement the sale/leaseback of certain
equipment. The agreements terminate on December 30, 2005, December 1,
2002 and December 30, 1999, respectively, and are being treated as
operating leases for financial statement purposes. On December 30, 1998,
November 3, 1997 and December 30, 1994 an aggregate of $8,809, $8,500 and
$11,218, respectively, of sound studio and video equipment was sold and
leased back. The total deferred gain on the transactions to be amortized
over five to seven years is $12,525. The annual lease cost currently is
approximately $3,350.
The net equipment lease expense is as follows for the six months ended:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
------------- --------------
1998 1999
------------- --------------
<S> <C> <C>
Equipment lease costs.................. $ 1,171 $ 1,650
Amortization of deferred gain
on sale of equipment................ (1,060) (1,230)
------------- --------------
Equipment lease expense, net........... $ 111 $ 420
------------- --------------
------------- --------------
</TABLE>
6. The Company has a stock repurchase program under which 2,300,000 shares
may be purchased from time to time in the open market or in private
transactions. As of February 28, 1999, 1,597,156 shares had been
repurchased. 1,532,905 of these shares have been cancelled and returned
to authorized but unissued status.
7. In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income." The Company adopted SFAS No. 130
beginning in the first quarter of fiscal 1999. Comprehensive income is
defined as all changes in shareholders' equity, except those resulting
from investments by or distributions to shareholders. The Company's
comprehensive income is as follows for the six months ended:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
--------------- --------------
1998 1999
--------------- --------------
<S> <C> <C>
Net income..................................... $3,089 $ 3,365
Unrealized gain (loss) on marketable
securities and long-term investments....... (8) 50
Foreign currency translation
Adjustments................................ (42) (31)
--------------- --------------
Comprehensive income........................... $3,039 $ 3,384
--------------- --------------
--------------- --------------
</TABLE>
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
Through February 28, 1999 the Company has signed three agreements with
its bank to implement the sale/leaseback of certain equipment. An
aggregate of $28,527 of sound studio and video equipment has been sold
and leased back. The agreements terminate on December 30, 1999, December
1, 2002 and December 30, 2005. All the agreements provide for interest
based on LIBOR rates.
Under a long-term credit agreement the Company may borrow up to $60,000
in revolving loans until November 30, 2001. On that date and thereafter
the revolving loan commitment will reduce to nil by the expiration of the
agreement on December 31, 2003. Annually, the Company may request an
automatic extension of the revolving period of the facility for one year
that will also extend the term period and the expiration date of the
agreement. The Company also has the availability of Standby Letters of
Credit up to $2,500 under the facility. The credit facility provides for
borrowings based on the Bank's Reference, CD, and LIBOR rates. The
facility includes commitment fees on the unused balance of the credit
facility. The agreement also contains various restrictive covenants which
must be met by the Company.
In January 1998 the Company entered into a three year interest rate swap
agreement for a notional amount of $10,000 to hedge the impact of
fluctuations in interest rates on its floating rate credit facility.
Under the agreement, the Company is obligated to pay 5.65% in exchange
for receiving three-month LIBOR on the notional amount. Settlements are
quarterly and the contract expires in March 2001.
The credit facilities are available for general corporate purposes,
capital expenditures and acquisitions. Management believes that funds
generated from operations, proceeds from the sale/leaseback agreements
and the borrowings available under the restated credit facility will be
sufficient to meet the needs of the Company at least through the end of
fiscal year 1999.
As of February 28, 1999, the Company had $35,725 outstanding under the
credit facility which had been used principally to fund acquisitions of
companies and equipment.
The Company expects capital expenditures of approximately $21,000 for its
Los Angeles, Santa Monica, New York City, Atlanta and London facilities
in fiscal 1999. These capital expenditures will be financed by internally
generated funds and borrowings under credit facilities.
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
SIX MONTHS ENDED FEBRUARY 28, 1999 COMPARED TO SIX MONTHS ENDED
FEBRUARY 28, 1998
Revenues increased $14,729 or 30.9% from $47,606 to $62,335 primarily due
to the acquisition of TeleCine in May 1998 ($11,884) and the formation of
Todd-AO Video Services DVD ("TAO DVD") formed in May 1998 to provide DVD
product services to the major Hollywood Studios and others ($1,735).
Higher utilization and activity in the Company's sound services divisions
was responsible for an increase of $710 and the Company's other video
services provided the remaining increase in revenues.
Operating costs and other expenses increased $12,065 or 32.1% from
$37,528 to $49,593. Cost increases are related to the TeleCine
acquisition ($9,117), the formation of TAO DVD ($1,090) and the other
revenue increases described above.
Depreciation and amortization increased $1,657 or 35.1% primarily due to
the equipment and goodwill acquired in the TeleCine acquisition ($1,017)
and to the assets placed in service in March 1998 in connection with the
new THD Santa Monica facility ($536) as well as increased capital
expenditures in other divisions.
Interest expense increased $1,029 or 174.7% primarily due to the TeleCine
acquisition financing.
Net equipment lease expense increased $309 as a result of the
sale/leaseback to the Company's financial institution of additional
equipment in December 1998.
Net other income increased $580 primarily from the sale of assets no
longer used in the U.K.
The effective income tax rate was reduced primarily due to the additional
income generated by the acquisition of TeleCine in the U.K.
As a result of the above, income before taxes increased $249 or 5.2% from
$4,787 to $5,036 and net income increased $276 or 8.9% from $3,089 to
$3,365.
THREE MONTHS ENDED FEBRUARY 28, 1999 COMPARED TO THREE MONTHS ENDED
FEBRUARY 28, 1998
Revenues increased $5,806 or 25.7% from $22,582 to $28,388 primarily due
to the acquisition of TeleCine in May 1998 ($5,428) and the formation of
TAO DVD formed in May 1998 to provide DVD product services to the major
Hollywood Studios and others ($1,000). These increases were offset by
revenue decreases in the sound services and other U.S. video divisions of
the Company due to lower capacity utilization as post production of
feature films fell below expectations. The U.K. video divisions of the
Company posted revenue increases.
Operating costs and other expenses increased $5,674 or 31.2% from $18,214
to $23,888. Cost increases are related primarily to the TeleCine
acquisition ($4,308) and the formation of TAO DVD ($614).
Depreciation and amortization increased $675 or 29.4% primarily due to
the equipment and goodwill acquired in the TeleCine acquisition ($418)
and to the assets placed in service in March 1998 in connection with the
new THD Santa Monica facility ($242).
Interest expense increased $575 or 324.9% primarily due to the TeleCine
acquisition financing.
11
<PAGE>
Net equipment lease expense increased $281 as a result of the
sale/leaseback to the Company's financial institution of additional
equipment in December 1998.
Net other income increased $626 primarily from the reduction of expenses
in connection with the Company's development projects.
The effective income tax rate was reduced primarily due to the additional
income generated by the acquisition of TeleCine in the U.K.
As a result of the above, income before taxes decreased $773 or 38% from
$2,035 to $1,262 and net income decreased $419 or 10.6% from $1,316 to
$897.
MATERIAL CHANGES IN CASH FLOWS
For the six months ended February 28, 1999, the Company generated $6,308
in cash from operating activities compared to $4,425 in 1998. Net income
of $3,365 adjusted for depreciation and net amortization of $5,141
provided cash of $8,506 in 1999 compared to $6,743 in 1998. The net
increase in accounts payable and other liabilities was restricted to $299
in 1999 compared to $870 in 1998. Cash provided by operations was
utilized primarily to fund trade receivables and capital expenditures in
both years.
Net cash generated by proceeds from the sale/leaseback of certain
equipment and net borrowings from the Company's credit facility totaling
$9,587 were used to purchase treasury stock under the Company's stock
repurchase program and to reinvest in capital assets of the Company.
OTHER BUSINESS INFORMATION
In January 1999, the Company, through its newly-formed subsidiary,
TODD-AO GERMANY GMBH, entered into a joint venture agreement with BUENA
VISTA INTERNATIONAL FILM PRODUCTION (GERMANY) GMBH ("BVI"), an affiliate
of Disney Enterprises, Inc. This agreement established a partnership,
which shall be known as Todd-AO [Germany] GmbH & Co. KG, which shall
develop and operate a German language dubbing facility in Germany. Under
the agreement, Disney Character Voices International, Inc. ("DCVI") shall
give the Studio the first opportunity to dub all of its products
appropriate for the German market, including live action and animated
theatrical features, trailers, videos, television, and animated
interactive projects. To this venture, Todd-AO and BVI committed to a
capital equivalent of $1,025 and a financial accommodation or loans not
to exceed $2,975 each.
On March 4, 1999, the Company and DCVI announced an agreement in
principle to build the Studio in Munich, Germany. A non-binding letter of
intent, signed by the Company, DCVI and the Minister of the Free State of
Bavaria, provides that the Studio would be located at the "Alte-Messe" in
the heart of Munich, shall encompass 36,000 square feet and would include
feature and video mixing studios, film and video dialogue recording rooms
and editorial suites. The City of Munich and the Free State of Bavaria
have offered a subsidy of DM 27,000 for the construction, development and
equipment of the Studio at this site location. A definitive agreement is
expected to be negotiated and signed by Todd-AO Germany and BVI, the
joint venture partners.
FORWARD LOOKING STATEMENTS
When used in this document, the words "believes", expects", anticipates",
"intends", and similar expressions are intended to identify forward
looking statements. Such statements are subject to a
12
<PAGE>
number of known risks and uncertainties. Actual results in the future
could differ materially from those described in the forward looking
statements. Such risks and uncertainties include, but are not limited to,
industry-wide market factors such as the timing of, and spending on,
feature film and television programming production, foreign and domestic
television advertising, and foreign and domestic spending by
broadcasters, cable companies and syndicators on first run and existing
content libraries. In addition, the failure of the company to maintain
relationships with key customers and certain key personnel, more rapid
than expected technological obsolescence, and failure to integrate
acquired operations in expected time frames could also cause actual
results to differ materially from those described in forward looking
statements.
YEAR 2000 COMPLIANCE ISSUE
The Company is currently working to resolve the potential impact of the
year 2000 on the processing of date-sensitive information by the
Company's computerized information systems. The year 2000 problem is the
result of computer programs being written using two digits (rather than
four) to define the applicable year. Any of the Company's programs that
have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000, which could result in miscalculations or
system failure. The Company has conducted a review of its computer
information systems and its technological operating equipment to identify
the systems that could be affected by the year 2000 compliance issue.
The Company uses purchased software programs for a variety of functions,
including general ledger, accounts payable, and accounts receivable
accounting packages as well as comprehensive facility management
packages. These programs are generally Year 2000 compliant, and any
software and/or computer systems not currently compliant will be upgraded
during fiscal 1999 under existing maintenance and other agreements and
through normal replacement programs currently in place. A review of the
Company's equipment containing embedded microprocessors or other
technology has revealed few systems that are not Year 2000 compliant and
those that are not compliant are expected to be upgraded through normal
maintenance replacements in fiscal 1999. Operation of these systems is
generally not time-sensitive and, if necessary, equipment settings can be
adjusted without posing any significant operational problems for the
Company.
Based on these reviews, costs of addressing potential problems are not
currently expected to have a material adverse impact on the Company's
financial position, results of operations or cash flows in future
periods.
To date, the Company has not identified any system which presents a
material risk of not being Year 2000 ready in a timely fashion or for
which a suitable alternative cannot be implemented. As the Company
progresses with its Year 2000 conversion, however, it may identify
systems which do present a material risk of Year 2000 disruption. Such
disruption may include, among other things, the inability to process
transactions or information, to record or access data, or engage in
similar normal business activities. If the Company, its customers or
vendors are unable to resolve such processing issues in a timely manner,
it could result in a material financial risk. Accordingly, the company
will devote the necessary resources to resolve all significant Year 2000
issues in a timely manner.
The discussion above contains certain forward looking statements. The
costs of the Year 2000 conversion, the date which the Company has set to
complete such conversion, and possible risks associated with the Year
2000 issue are based on the Company's current estimates and are subject
to various uncertainties that could cause the actual results to differ
materially from the Company's expectations. Such uncertainties include,
among others, the success of the Company in identifying systems that are
not Year 2000 compliant, the nature and amount of programming required to
upgrade or replace each of the affected systems, the availability of
qualified personnel, consultants and other resources, and the success of
the Year 2000 conversion efforts of others.
13
<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
April 14, 1999 /s/ Silas R. Cross
- --------------------------- -------------------------------------
Date Silas R. Cross
Chief Accounting Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 7,773
<SECURITIES> 1,379
<RECEIVABLES> 22,761
<ALLOWANCES> 1,773
<INVENTORY> 756
<CURRENT-ASSETS> 35,579
<PP&E> 111,286
<DEPRECIATION> 43,369
<TOTAL-ASSETS> 135,403
<CURRENT-LIABILITIES> 17,623
<BONDS> 45,700
0
0
<COMMON> 95
<OTHER-SE> 60,344
<TOTAL-LIABILITY-AND-EQUITY> 135,403
<SALES> 0
<TOTAL-REVENUES> 62,335
<CGS> 0
<TOTAL-COSTS> 56,384
<OTHER-EXPENSES> (703)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,618
<INCOME-PRETAX> 5,036
<INCOME-TAX> 1,671
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,365
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.33
</TABLE>
