<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 29, 2000
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: (323) 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 4, 2000 was: 9,040,218
Class A Shares and 1,747,178 Class B Shares.
<PAGE>
THE TODD-AO CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FEBRUARY 29, 2000
<TABLE>
<CAPTION>
INDEX
- ---------------------------------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION Page
- ------------------------------
<S> <C>
Item 1- FINANCIAL STATEMENTS
The following financial statements are filed herewith:
Condensed Consolidated Balance Sheets, February 29, 2000
(Unaudited) and August 31, 1999 3
Condensed Consolidated Statements of Income and Retained Earnings for the
Six and Three Months Ended February 28, 1999 and February 29, 2000 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
February 28, 1999 and February 29, 2000 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements for the Six Months
Ended February 29, 2000 (Unaudited) 8
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 15
Item 6 - Exhibits and Reports on Form 8-K 15
Signature 15
</TABLE>
2
<PAGE>
THE TODD-AO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 29,
------------- -------------
1999 2000
(UNAUDITED)
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............................................. $ 9,739 $ 9,652
Marketable securities.................................................. 1,317 412
Trade receivables
(net of allowance for doubtful accounts of $1,215 at
August 31, 1999 and $1,275 at February 29, 2000) ................... 18,169 22,828
Income tax receivable.................................................. 634 493
Inventories (first-in first-out basis)................................. 856 744
Deferred income taxes.................................................. 755 755
Prepaid deposits and other............................................. 3,005 3,013
------------- -------------
Total current assets................................................... 34,475 37,897
------------- -------------
INVESTMENTS............................................................ 892 4,365
------------- -------------
PROPERTY AND EQUIPMENT - At Cost:
Land................................................................... 4,270 4,270
Buildings.............................................................. 17,688 17,650
Leasehold improvements................................................. 18,603 19,384
Lease acquisition costs................................................ 2,187 2,187
Equipment.............................................................. 79,651 86,649
Equipment under capital leases......................................... 1,151 1,151
Construction in progress............................................... 4,803 2,954
------------- -------------
Total.................................................................. 128,353 134,245
Accumulated depreciation and amortization.............................. (48,305) (54,708)
------------- -------------
Property and equipment - net........................................... 80,048 79,537
------------- -------------
GOODWILL
(net of accumulated amortization of $2,875 at
August 31, 1999 and $3,565 at February 29, 2000).................... 33,875 33,185
------------- -------------
OTHER ASSETS........................................................... 3,890 2,740
------------- -------------
TOTAL.................................................................. $ 153,180 $ 157,724
============= =============
</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 29,
-------------- -------------
1999 2000
(UNAUDITED)
-------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable....................................................... $ 5,465 $ 5,127
Accrued liabilities:
Payroll and related taxes........................................... 3,089 3,714
Interest............................................................ 762 503
Equipment lease..................................................... 1,588 1,404
Other............................................................... 4,706 3,641
Income taxes payable.............................................. 2,247 1,674
Current maturities of long-term debt................................... 979 800
Capitalized lease obligations - current................................ 336 324
Deferred income........................................................ 914 1,053
------------- -------------
Total current liabilities.............................................. 20,086 18,240
------------- -------------
LONG-TERM DEBT......................................................... 65,520 61,866
DEFERRED COMPENSATION AND OTHER........................................ 1,439 1,303
DEFERRED GAIN ON SALE/LEASEBACK TRANSACTIONS........................... 4,046 3,674
DEFERRED INCOME TAXES.................................................. 3,254 3,254
------------- -------------
Total liabilities...................................................... 94,345 88,337
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock:
Class A; authorized 30,000,000 shares of $0.01 par value; issued 8,124,333
at August 31, 1999 and 9,008,180 at
February 29, 2000................................................... 82 91
Class B; authorized 6,000,000 shares of $0.01 par value;
issued and outstanding 1,747,178.................................... 17 17
Additional capital..................................................... 37,887 47,306
Treasury stock (6,000 shares at cost as of August 31, 1999
and February 29, 2000)............................................. (47) (47)
Retained earnings...................................................... 21,432 21,997
Accumulated other comprehensive income (loss) ......................... (536) 23
------------- -------------
Total stockholders' equity............................................. 58,835 69,387
------------- -------------
TOTAL.................................................................. $ 153,180 $ 157,724
============= =============
</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 FEBRUARY 29, 2000
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
-------------------------- --------------------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
RESTATED
<S> <C> <C> <C> <C>
REVENUES..................................................... $ 62,335 $ 64,675 $ 28,388 $ 31,119
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Operating costs and other expenses........................... 49,701 52,344 23,920 26,092
Depreciation and amortization................................ 6,371 7,298 2,968 3,718
Interest..................................................... 1,618 2,498 752 1,239
Equipment lease expense - net................................ 420 1,409 365 480
Other expense (income) - net................................. (811) 277 (879) 175
------------ ------------ ------------ ------------
Total costs and expenses..................................... 57,299 63,826 27,126 31,704
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES AND CHANGE IN
ACCOUNTING PRINCIPLE 5,036 849 1,262 (585)
PROVISION FOR INCOME TAXES................................... 1,671 284 365 (142)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE CHANGE IN
ACCOUNTING PRINCIPLE...................................... 3,365 565 897 (443)
CHANGE IN ACCOUNTING PRINCIPLE,
NET OF INCOME TAXES OF $150............................... (293) -- -- --
------------ ------------ ------------ ------------
NET INCOME (LOSS)............................................ 3,072 565 $ 897 $ (443)
============ ============
RETAINED EARNINGS BEGINNING OF PERIOD........................ 20,538 21,432
LESS: DIVIDENDS PAID (280) --
------------ ------------
RETAINED EARNINGS END OF PERIOD.............................. $ 23,330 $ 21,997
============ ============
NET INCOME (LOSS) PER COMMON SHARE:
Net income (loss) available to common stockholders........... $ 3,072 $ 565 $ 897 $ (443)
Effect of dilutive securities: 5% convertible debentures.... 129 -- 62 --
------------ ------------ ------------ ------------
Net income (loss) available to common stockholders
plus assumed conversions.................................. $ 3,201 $ 565 $ 959 $ (443)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC....................................... 9,506,418 10,166,543 9,477,070 10,450,259
Effect of dilutive securities:
Stock options............................................. 380,694 341,549 429,850 --
5% convertible debentures................................. 670,509 -- 643,341 --
------------ ------------ ------------ ------------
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED..................................... 10,557,621 10,508,092 10,550,261 10,450,259
------------ ------------ ------------ ------------
NET INCOME (LOSS) PER COMMON SHARE:
Income (loss) before change in
accounting principle - Basic........................... $ 0.35 $ 0.06 $ 0.10 $ (0.04)
Change in accounting principle............................ (0.03) -- -- --
------------ ------------ ------------ ------------
Net income (loss) - Basic................................. $ 0.32 $ 0.06 $ 0.10 $ (0.04)
============ ============ ============ ============
Income (loss) before change in
accounting principle - Diluted......................... $ 0.33 $ 0.05 $ 0.09 $ (0.04)
Change in accounting principle............................ (0.03) -- -- --
------------ ------------ ------------ ------------
Net income (loss) - Diluted............................... $ 0.30 $ 0.05 $ 0.09 $ (0.04)
============ ============ ============ ============
</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 FEBRUARY 29, 2000 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 2000
------------- -------------
RESTATED
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................................... $ 3,072 $ 565
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................................... 6,371 7,298
Deferred income taxes........................................... (56) --
Deferred compensation and other................................. (93) (110)
Foreign currency exchange rate.................................. -- (241)
Amortization of deferred gain on
sale/leaseback transaction.................................. (1,230) (372)
(Gain) on sale of marketable securities
and investments............................................. -- (391)
(Gain) on disposition of fixed assets........................... (190) (4)
Changes in assets and liabilities (net of acquisitions):
Trade receivables, net....................................... (2,824) (4,659)
Inventories and other current assets......................... 557 353
Accounts payable and accrued liabilities..................... (651) (1,037)
Accrued equipment lease...................................... 181 (184)
Income taxes payable, net.................................... 1,178 (681)
Provision for liabilities.................................... (559) (26)
Deferred income.............................................. 109 139
------------- -------------
Net cash flows provided by operating activities ..................... 5,865 650
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities and investments.................. (92) (674)
Proceeds from sale of marketable securities
and investments................................................. -- 1,381
Proceeds from disposition of fixed assets.......................... 136 23
Capital expenditures............................................... (8,640) (6,116)
Purchase of 50% investment in 103 Estudio, S.L..................... -- (2,084)
Other assets....................................................... 237 1,150
------------- -------------
Net cash flows (used in) investing activities........................ $ (8,359) $ (6,320)
------------- -------------
</TABLE>
6
<PAGE>
THE TODD-AO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 AND FEBRUARY 29, 2000 (UNAUDITED)
(DOLLARS IN THOUSANDS)
(CONTINUED)
<TABLE>
<CAPTION>
1999 2000
------------- ------------
RESTATED
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt......................................... $ 10,846 $ 4,848
Payments of long-term debt........................................... (10,068) (1,082)
Payments on capital lease obligations................................ (52) (12)
Proceeds from sale/leaseback transaction............................. 8,809 --
Proceeds from issuance of common stock............................... 4 1,829
Treasury stock transactions.......................................... (2,989) --
Dividends paid....................................................... (280) --
------------- ------------
Net cash flows provided by financing activities........................ 6,270 5,583
Effect of exchange rate changes on cash ............................ -- --
------------- ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS................................................ 3,776 (87)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD................................................. 3,997 9,739
------------- ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD....................................................... $ 7,773 $ 9,652
============= ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................................. $ 1,392 $ 2,706
============= ============
Income taxes......................................................... $ 240 $ 0
============= ============
</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 29, 2000 (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, 1999. 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 condensed consolidated financial statements include the Company and its
wholly owned subsidiaries.
3. During fiscal year 1999, the Company adopted the Statements of Position
(SOP) No. 98-5, "Reporting on the Costs of Start-Up Activities". The effect
of the adoption was to record an expense, net of tax, of $293 in 1999. The
quarter ended November 30, 1998 has been restated to reflect this change.
The restatement had no impact on previously reported income before change
in accounting principle.
4. Basic earnings per share ("EPS") 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 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.
5. In June 1999 all of the issued and outstanding shares of Sound One
Corporation ("Sound One"), a New York corporation, were acquired by the
Company through a Merger Agreement signed June 8, 1999. Todd-AO East, Inc.,
an indirect wholly owned subsidiary of the Company, was merged into Sound
One extinguishing all of the issued and outstanding shares of common stock
of Sound One in exchange for a cash consideration of $11.50 per share. In
consideration of the purchase, the Company paid $11,962 in cash for the
common stock and an additional $353 in cash for costs incurred in
connection with the acquisition. In addition, $800 is represented by
non-compete agreements. Sound One is the leading post production sound
facility in New York servicing the entertainment industry.
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, 1999 is presented as if
the acquisition had occurred on September 1, 1998. Pro forma adjustments
for Sound One are primarily for amortization of goodwill and non-compete
agreements, changes in executive compensation, depreciation adjustments,
interest expense on borrowings in connection with the acquisition, and
income taxes.
8
<PAGE>
<TABLE>
<CAPTION>
1998
----------
<S> <C>
Revenues.......................................................... $69,158
========
Net income before change in accounting principle.................. $ 3,821
========
Net income........................................................ $ 3,528
========
Net income per common share - before change in
accounting principle - Basic................................... $ 0.40
========
Net income per common share - Basic............................... $ 0.37
========
Net income per common share - before change in
accounting principle - Diluted................................. $ 0.37
========
Net income per common share - Diluted............................. $ 0.35
========
</TABLE>
6. 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, as amended, terminate on December 30, 2005,
December 1, 2002 and June 30, 2000, 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 29,
-------------- ---------------
1999 2000
-------------- --------------
<S> <C> <C>
Equipment lease costs......................................... $ 1,650 $ 1,781
Amortization of deferred gain on sale of equipment............ (1,230) (372)
------------- --------------
Equipment lease expense, net.................................. $ 420 $ 1,409
============= ==============
</TABLE>
In June 2000, one of the Company's sale/leaseback agreements is maturing.
In fiscal year 1999, the Company exercised its option to purchase for
$5,699 the equipment currently being leased under this agreement. The
purchase price exceeds the equipment's estimated fair value, as
determined by an independent valuation, by approximately $788. The
Company recorded a pre-tax loss on equipment lease commitments in this
amount during the fiscal year ended August 31, 1999.
7. In September 1998, the Company adopted a stock repurchase program under
which 2,300,000 shares could be purchased from time to time in the open
market or in private transactions. As of February 29, 2000, 1,621,756
shares had been repurchased. 1,555,303 of these shares have been
cancelled and returned to authorized but unissued status. 60,453 of these
shares were transferred to the Company's 401(k) plan.
Purchases under this program were discontinued in April 1999.
In connection with the acquisition of Hollywood Digital, the Company
issued convertible subordinated notes. In November 1999, the Company
exercised its right to convert the existing Hollywood Digital notes
(totalling $7,599) and in December 1999 converted the notes to 643,327
shares of Todd-AO Class A common stock.
9
<PAGE>
8. 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 29,
-------------- --------------
1999 2000
-------------- --------------
<S> <C> <C>
Net income..................................... $ 3,072 $ 565
Unrealized gain on marketable securities
and long-term investments................... 50 1,177
Less: Classification adjustment for gains
included in net income...................... -- (224)
Foreign currency translation adjustments....... (31 ) (241)
Tax effect on other comprehensive income....... (79 ) (346)
-------------- -------------
Comprehensive income........................... $ 3,012 $ 931
============== =============
</TABLE>
9. The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," for its fiscal year ended August 31,
1999, which changed the way the Company reports information about its
operating segments. The Company's business units have been aggregated into
two reportable operating segments: sound and video services. The Other
column includes corporate related items and income and expenses not
allocated to reportable segments. The Company's reportable operating
segments have been determined in accordance with the Company's internal
management structure, which is organized based on operating activities. The
Company evaluates performance based upon several factors, including segment
income (loss) before income taxes, interest, depreciation and amortization
of intangibles.
Summarized financial information concerning the Company's reportable
segments is shown in the following tables:
<TABLE>
<CAPTION>
SOUND VIDEO
SERVICES SERVICES OTHER TOTAL
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
SIX MONTHS ENDED
FEBRUARY 28, 1999:
Revenues............................. $ 22,181 $ 40,154 $ -- $ 62,335
Income before income taxes,
interest, depreciation and
amortization of intangibles....... 3,208 9,688 129 13,025
Identifiable assets.................. 30,795 73,132 2,796 106,723
Intangible assets, net............... -- 28,680 -- 28,680
Capital expenditures................. 1,536 7,104 -- 8,640
Depreciation expense................. 1,173 4,588 -- 5,761
SIX MONTHS ENDED
FEBRUARY 29, 2000:
Revenues............................. $ 23,843 $ 40,832 $ -- $ 64,675
Income (loss) before income taxes,
interest, depreciation and
amortization of intangibles....... 88 10,764 (207) 10,645
Identifiable assets.................. 41,315 77,611 5,613 124,539
Intangible assets, net............... 7,017 26,168 -- 33,185
Capital expenditures................. 2,353 3,763 -- 6,116
Depreciation expense................. 1,412 5,196 -- 6,608
</TABLE>
10
<PAGE>
The following table reconciles segment income before income taxes,
interest, depreciation and amortization of intangibles to the Company's
consolidated net income:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
FEBRUARY 28, FEBRUARY 29,
-------------- --------------
1999 2000
-------------- --------------
<S> <C> <C>
Income before income taxes, interest,
depreciation and amortization of intangibles........... $ 13,025 $ 10,645
Amortization of intangibles............................... (610) (690)
Interest expense.......................................... (1,618) (2,498)
Depreciation.............................................. (5,761) (6,608)
Provision for income taxes................................ (1,671) (284)
-------------- --------------
Net income before change in accounting principle.......... 3,365 565
Change in accounting principle, net....................... (293) --
-------------- --------------
Net income................................................ $ 3,072 $ 565
============== ==============
</TABLE>
10. On December 10, 1999, the Company entered into an Agreement and Plan of
Merger (the "Agreement") with Liberty Media Corporation (subject to
stockholder approval) in which Liberty Media shall acquire 60% of the
outstanding equity and more than 90% of the outstanding voting power of
Todd-AO in a tax-free transaction. On March 6, 2000, the Agreement was
amended to allow the merger closing to occur no later than June 9, 2000, to
adopt the Amended and Restated Certificate of Incorporation which increases
the authorized stock of the Company after the merger, and to provide for
stockholder approval of the terms and conditions of the post-merger
business combinations of Soundelux Entertainment Group and Four Media
Company with Todd-AO. A special meeting of Todd-AO stockholders shall occur
in May 2000.
11
<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
Under a new long-term credit agreement dated June 30, 1999 and expiring
on May 31, 2004, the Company may borrow up to $80,000 in revolving loans
until May 31, 2002. On that date and thereafter, the revolving loan
commitment will reduce incrementally to nil by the expiration of the
agreement. Prior to May 31, 2002 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.
Prior to December 31, 2000 the Company may make a one-time request to
increase the credit line by up to $20,000. Such increase is at the sole
discretion of the Banks; however, the Company has the option to bring a
new bank to the syndicate, thereby avoiding the Banks' discretion. The
Company also has the availability of Standby Letters of Credit up to
$20,000 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. Other
material restrictions include: the Fixed Charge Coverage Ratio may not be
less than 1.25:1; Other Indebtedness (excluding up to $35,000 in Capital
or Off Balance Sheet Leases, the convertible subordinated notes issued in
the Hollywood Digital acquisition, non-recourse debt up to $50,000 of
less than 100% owned Joint Ventures, $5,000 in purchase money mortgage
financing and the existing TeleCine mortgage debt for the Charlotte
Street property) may not exceed $10,000; Leverage Ratio is not to exceed
4:1 through May 31, 2001 (decreasing thereafter); Net Worth is not to be
less than $54,000 plus net proceeds from issuance of equity plus 50% of
consolidated net income subsequent to May 31, 1998 (excluding the effect
of stock repurchases up to $3,000 from the closing date through the
fiscal year ending August 31, 2000).
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.
Through August 31, 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, as amended, terminate on June 30, 2000, December 1,
2002 and December 30, 2005. All the agreements provide for interest based
on LIBOR rates.
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
2000.
In June 1997, the Company used $15,760 under its credit facility to
acquire the assets of Hollywood Digital. In May 1998, the Company used
$14,000 to fund a substantial portion of the TeleCine acquisition. In
June 1999, $11,962 was used to fund the Sound One acquisition. In
September 1999, $2,084 was used to acquire a 50% interest in a
Barcelona-based sound facility named 103 Estudio, S.L. As of February 29,
2000, the Company had $55,874 outstanding under the credit facility,
which has been used principally to fund the acquisitions described and
for capital expenditures.
12
<PAGE>
The Company has exercised its option to purchase for $5,699 the equipment
currently being leased under the sale/leaseback transaction maturing in
June 2000. The purchase will be funded by borrowings under credit
facilities.
In December 1999, the Company converted subordinated notes totalling
$7,599 issued in connection with the Hollywood Digital acquisition into
643,327 shares of Todd-AO Class A common stock.
The Company expects capital expenditures of approximately $14,000 for its
Los Angeles, Santa Monica, New York City, Atlanta and London facilities
in fiscal 2000. 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.
2. Material Changes in Results of Operations
SIX MONTHS ENDED FEBRUARY 29, 2000 COMPARED TO SIX MONTHS ENDED FEBRUARY
28, 1999
Revenues increased $2,340 or 3.75% from $62,335 to $64,675. Increases in
revenue due to the acquisition of Sound One in June 1999 ($5,807) were
offset by lower utilization and activity in the Company's other sound
services divisions ($4,145) while the Company's video services divisions
remained flat, increasing revenues by $678.
Operating costs and other expenses increased $2,643 or 5.32% from $49,701
to $52,344. Cost increases related to the acquisition of Sound One
($4,619) were offset by cost decreases in the Company's other sound and
video divisions as a result of the revenue decreases described above.
Depreciation and amortization increased $927 or 14.55% primarily due to
the equipment and goodwill acquired with the Sound One acquisition.
Interest expense increased $880 or 54.39% primarily due to the Sound One
acquisition financing.
Net equipment lease expense increased $989 primarily as a result of the
sale/leaseback to the Company's financial institution of certain
equipment in December 1998.
Net other expense increased $1,088 primarily due to costs incurred to
date in connection with the Liberty Media Corporation merger ($810). The
Company expects to incur additional costs in connection with the Liberty
merger.
As a result of the above, income before taxes and net change in
accounting principle decreased $4,187 from $5,036 to $849 and net income
before change in accounting principle decreased $2,800 from $3,365 to
$565.
The Company elected early adoption of Statement of Position No. 98-5,
"Reporting on the Costs of Start-Up Activities" in the prior year and
reported the cumulative effect of a change in accounting principle, as
described in Accounting Principles Board Opinion No. 20, in the amount of
$293, net of income tax benefit in the amount of $150.
As a result of the above, net income after net change in accounting
principle decreased $2,507 from $3,072 to $565.
13
<PAGE>
THREE MONTHS ENDED FEBRUARY 29, 2000 COMPARED TO THREE MONTHS ENDED
FEBRUARY 28, 1999
Revenues increased $2,731 or 9.62% from $28,388 to $31,119. Increases in
revenue due to the acquisition of Sound One in June 1999 ($3,384) were
offset by lower utilization and activity in the Company's other sound
services divisions ($1,079) while the Company's video services divisions
remained flat, increasing revenues by $426.
Operating costs and other expenses increased $2,172 or 9.08% from $23,920
to $26,092. Cost increases related to the acquisition of Sound One
($2,553) were offset by cost decreases in the Company's other sound and
video divisions as a result of the revenue decreases described above.
Depreciation and amortization increased $750 or 25.27% primarily due to
the equipment and goodwill acquired with the Sound One acquisition.
Interest expense increased $487 or 64.76% primarily due to the Sound One
acquisition financing.
Net equipment lease expense increased $115 primarily as a result of the
sale/leaseback to the Company's financial institution of certain
equipment in December 1998.
Net other expense increased $1,054 due to costs incurred in the current
quarter in connection with the Liberty Media Corporation merger ($250)
and to the reduction of expenses in connection with the Company's
development projects reported in the prior period. The Company expects to
incur additional costs in connection with the Liberty merger.
As a result of the above, income before taxes decreased $1,847 from
$1,262 to a loss before taxes of $585 and net income decreased $1,340
from $897 to a net loss of $443.
MATERIAL CHANGES IN CASH FLOWS
For the six months ended February 29, 2000, the Company generated $650 in
cash from operating activities compared to $5,865 in 1999. Net income of
$565 adjusted for depreciation and net amortization of $6,926 provided
cash of $7,491 in 2000 compared to $8,213 in 1999. Trade receivables
increased $4,659 in 2000 compared to $2,824 in 1999. Decreases in
accounts payable and other liabilities were $1,789 in 2000 compared to an
increase of $258 in 1999. Cash provided by operations supplemented by
borrowings from the Company's credit facility were used to pay down
accounts payable and other liabilities and to fund trade receivables in
2000 and cash provided by operations was utilized primarily to fund
capital expenditures in 1999.
Borrowings from the Company's credit facility of $4,848 supplemented by
net cash generated from the sale of marketable securities, other assets
and the cash proceeds from issuing common stock totalling $3,709 were
also used to acquire a 50% interest in a Barcelona-based sound facility
named 103 Estudio, S.L. for $2,084 and to reinvest in capital assets of
the Company.
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 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.
14
<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 likely to
have a material adverse impact on the Company's financial position or
results of operations.
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, 2000 /s/ Silas R. Cross
- --------------------- ----------------------------------
Date Silas R. Cross
Chief Accounting Officer
15
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