e
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
For the quarterly period ended NOVEMBER 30, 1995
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number: 0-1461
THE TODD-AO CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-1679856
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
172 GOLDEN GATE AVENUE, SAN FRANCISCO, CALIFORNIA 94102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 928-3200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
The number of shares of common stock outstanding at January 10, 1996
was: 6,372,527 Class A Shares and 1,747,181 Class B Shares.
THE TODD-AO CORPORATION
QUARTERLY REPORT ON FORM 10-Q
NOVEMBER 30, 1995
INDEX
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following financial statements are filed herewith:
Consolidated Balance Sheets, November 30, 1995
and August 31, 1995. Page 3
Consolidated Statements of Income and Retained Earnings
for the Three Months Ended November 30, 1995
and 1994. Page 5
Consolidated Statements of Cash Flows for the Three Months
Ended November 30, 1995 and 1994. Page 6
Notes to Consolidated Financial Statements for the
Three Months Ended November 30, 1995. Page 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS Page 10
PART II - OTHER INFORMATION
ITEM 1.
Legal Proceedings Page 12
ITEM 6.
Exhibits and Reports on Form 8-K Page 12
Signature Page 12
2
PART I - FINANCIAL INFORMATION
THE TODD-AO CORPORATION
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1995 and AUGUST 31, 1995
(Dollars in Thousands)
- -------------------------------------------------------------------------------
NOVEMBER 30, AUGUST 31,
1995 1995
----------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,113 $ 5,278
Marketable securities 3,345 3,484
Trade receivables
(net of allowance for doubtful
accounts of $837 at November 30, 1995
and $828 at August 31, 1995) 12,262 6,787
Inventories (first-in first-out basis) 516 484
Prepaid income taxes 727
Deferred income taxes 805 924
Other 681 565
-------- --------
Total current assets 19,722 18,249
-------- --------
INVESTMENTS 1,346 1,656
-------- --------
PROPERTY AND EQUIPMENT - at cost:
Land 4,270 4,270
Buildings 10,772 10,762
Leasehold improvements 6,802 6,802
Lease acquisition costs 2,187 2,187
Equipment 31,988 30,734
Equipment under capital leases 3,163 3,163
Construction in progress 456
-------- --------
Total 59,638 57,918
Accumulated depreciation and
amortization (24,196) (22,955)
-------- --------
Property and equipment - net 35,442 34,963
-------- --------
GOODWILL - net 1,801 1,832
-------- --------
OTHER ASSETS 403 498
-------- --------
TOTAL $ 58,714 $ 57,198
======== ========
See notes to consolidated financial statements.
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THE TODD-AO CORPORATION
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1995 and AUGUST 31, 1995
(Dollars in Thousands)
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NOVEMBER 30, AUGUST 31,
1995 1995
----------- ---------
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,319 $ 1,784
Accrued liabilities:
Payroll and related taxes 2,449 1,975
Interest 123 179
Equipment lease 393 396
Other 675 515
Income taxes payable 479
Current maturities of long-term debt 615 759
Capitalized lease obligations - current 767 897
Deferred income 538 703
-------- --------
Total current liabilities 8,358 7,208
LONG-TERM DEBT 7,493 7,707
CAPITALIZED LEASE OBLIGATIONS 491 620
DEFERRED COMPENSATION 342 401
DEFERRED GAIN ON SALE OF EQUIPMENT 6,013 6,381
DEFERRED INCOME TAXES 3,564 3,683
-------- --------
Total liabilities 26,261 26,000
-------- --------
SHAREOWNERS' EQUITY:
Common Stock:
Class A authorized 20,000,000 shares
of $0.25 par value; issued 6,365,927
at November 30, 1995 and 6,403,021 at
August 31, 1995 1,591 1,600
Class B authorized 4,000,000
shares of $0.25 par value;
issued and outstanding 1,747,181 437 437
Additional capital 20,564 21,048
Retained earnings 9,766 7,904
Unrealized gains on marketable
securities and long-term investments 354 473
Cumulative foreign currency translation adjustment (259) (264)
-------- --------
Total shareowners' equity 32,453 31,198
-------- --------
TOTAL $ 58,714 $ 57,198
======== ========
See notes to consolidated financial statements.
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THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1995 AND 1994
(Dollars in Thousands, except per share amounts)
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1995 1994
---- ----
REVENUES $ 18,140 $ 8,778
-------- --------
COSTS AND EXPENSES:
Operating costs and other expenses 13,023 8,136
Depreciation and amortization 1,266 830
Interest 202 46
Equipment lease expense - net 212
Other (income) expense - net 198 (415)
-------- --------
Total 14,901 8,597
-------- --------
INCOME BEFORE JOINT VENTURE
AND INCOME TAXES 3,239 181
(LOSS) FROM JOINT VENTURE (55) (55)
-------- --------
INCOME BEFORE INCOME TAXES 3,184 126
INCOME TAX (BENEFIT) PROVISION 1,201 (50)
-------- --------
NET INCOME 1,983 176
RETAINED EARNINGS BEGINNING OF PERIOD 7,904 4,964
LESS: DIVIDENDS PAID (121) (109)
-------- --------
RETAINED EARNINGS END OF PERIOD $ 9,766 $ 5,031
======== ========
NET INCOME PER COMMON SHARE
AND COMMON SHARE EQUIVALENTS $ .23 $ .02
======== ========
AVERAGE SHARES OUTSTANDING 8,748,954 8,382,825
========= =========
See notes to consolidated financial statements.
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5
THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1995 AND 1994
(Dollars in Thousands)
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1995 1994
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,983 $ 176
Adjustments to reconcile net
income to net cash provided
by (used in) operating activities:
Depreciation and amortization 1,266 830
Loss from joint venture 55 55
Deferred compensation (59) (14)
Amortization of deferred gain on
sale/leaseback transaction (368)
Loss on sale of marketable securities
and investments 201 62
Changes in assets and liabilities:
Trade receivables (5,475) (902)
Inventory and other current assets (148) (23)
Accounts payable and accrued
liabilities 1,110 (150)
Income tax payable 1,206 50
Deferred income (165) (1)
-------- --------
Net cash flows provided by (used in)
operating activities: (394) 83
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities
and investments (66) (213)
Proceeds from sale of marketable
securities and investments 195 1,299
Capital expenditures (1,745) (572)
Contributions to joint venture (55) (55)
Other assets 131 (45)
-------- --------
Net cash flows (used in)
investing activities: (1,540) (414)
-------- --------
CONTINUED ON PAGE 7
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THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1995 AND 1994
(Dollars in Thousands)
- --------------------------------------------------------------------------------
1995 1994
---- ----
CONTINUED FROM PAGE 6
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt $ 1,400
Payments of long-term debt (1,758) $ (24)
Payments on capital lease obligation (259) (185)
Proceeds from issuance of common stock 67 60
Treasury stock transactions (560)
Dividends paid (121) (109)
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Net cash flows (used in)
financing activities: (1,231) (258)
------- -------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (3,165) 239
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,278 606
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,113 $ 845
======= =======
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 258 $ 41
======= =======
Income taxes $ 0 $ 0
======= =======
See notes to consolidated financial statements.
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THE TODD-AO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1995
(Dollars in Thousands, except per share amounts)
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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, 1995. In addition the following notes are applicable:
1. In the opinion of management for the Company, all adjustments (which
comprise only normal recurring accruals) necessary for a fair presentation
of the results of operations have been included.
2. The consolidated financial statements include the Company and its wholly
owned subsidiaries Todd-AO Studios East, Inc. ("Todd-AO East"), Todd-AO
Productions, Inc., Todd-AO Digital Images, Inc. ("TDI"), Todd-AO Video
Services, Inc. ("TVS"), Todd-AO Studios West ("TSW") and Todd-AO Europe
Holding Ltd. ("TAO Europe"). All significant intercompany balances and
transactions have been eliminated.
3. Net income per common share is computed based on the weighted average
number of common and common equivalent shares outstanding for each of the
years presented including common share equivalents arising from the assumed
conversion of any outstanding dilutive stock options.
4. During 1992, Todd-AO Productions, Inc., a wholly owned subsidiary of the
Company, entered into a Joint Venture Agreement with Trans-Atlantic
Enterprises, Inc. for the development of motion picture and television
projects. Through November 30, 1995 Todd-AO Productions had invested
$2,621 (consisting of cash, services and accrued interest) in the Venture,
which is in the process of dissolution. In the event that certain projects
developed by the Venture are ultimately produced or otherwise
commercialized, a portion of the proceeds is payable to Todd-AO
Productions.
5. On August 31, 1994, TVS (a wholly owned subsidiary of the Company) acquired
certain of the assets and liabilities of Film Video Masters ("Paskal").
TVS provides post production video services to the film and television
industries. In consideration of the purchase, TVS paid Paskal $1,150 in
cash and issued a note in the amount of $750.
On February 15, 1995, TSW (a wholly owned subsidiary of the Company)
acquired substantially all of the property, equipment and inventory of
Kaytea Rose, Inc. (dba Skywalker Sound South) ("SSS"). TSW provides post
production sound services to the film and television industries. In
consideration of the purchase, TSW paid $6,966 in cash. TSW is included in
the Company's results of operations from February 1995.
On March 16, 1995 TAO Europe (formerly FCB 1120, Ltd.) (a wholly owned
subsidiary of the Company) acquired all of the outstanding shares of
Chrysalis/Todd-AO Europe Ltd. ("Chrysalis") (formerly Chrysalis Television
Facilities, Ltd.) from Chrysalis Holdings Ltd. ("CHL"). TAO Europe,
Chrysalis and CHL are all corporations organized under the laws of the
United Kingdom and headquartered in London. Chrysalis specializes in the
collation of television programming for satellite broadcast and also
provides post production video and other services to a variety of clients.
In consideration of the purchase, TAO Europe paid CHL $1,966 in cash at
closing and issued a note in the amount of $1,364. An additional
8
cash settlement of $220 was paid in June 1995. Concurrently with the
acquisition, TAO Europe advanced and paid on behalf of Chrysalis its
intercompany debt to CHL in the amount of $4,585. Subsequent to the
acquisition, TAO Europe advanced and paid on behalf of Chrysalis other debt in
the amount of $1,562. TAO Europe and Chrysalis consolidated are included in the
Company's results of operations from March 1995.
The acquisitions are being accounted for under the purchase method of
accounting. The following unaudited pro forma consolidated financial
information is presented as if the acquisitions of TSW and TAO Europe had
occurred on September 1, 1994. Pro forma adjustments for TSW for 1994 are
primarily to operating expenses related to nonapplicable allocations made by the
parent corporation of SSS, depreciation expense relating to the acquisition of
assets, interest expense on borrowings in connection with the acquisition and
income taxes. Pro forma adjustments for TAO Europe for 1994 are primarily to
amortization expense relating to allocation of the purchase price, interest
expense on borrowings in connection with the acquisition and income taxes.
1995 1994
Revenues $ 18,140 $ 13,830
========== ==========
Net Income $ 1,983 $ 135
========== ==========
Net income per common share $ 0.23 $ 0.02
========== ==========
6. The Company has a stock repurchase program under which 1,300,000 shares may
be purchased from time to time in the open market or in private
transactions. As of November 30, 1995, 785,146 shares had been
repurchased. All of these shares have been cancelled and returned to
authorized but unissued status.
7. On August 11, 1995 a 10% stock dividend was declared for holders of Class A
and Class B stock, payable on September 29, 1995 to shareholders of record
on September 8, 1995.
The financial statements set forth herein, and applicable share and per
share data for periods and dates included in the accompanying financial
statements and notes, have been adjusted to retroactively reflect the stock
dividend.
8. The Company is in the process of organizing a limited liability company
("LLC") with United Artists Theatre Circuit, Inc., an operator of motion
picture theatres ("UATC") for the purpose of exploiting proprietary
technology to conserve film stock and reduce the length of wide screen film
release prints. The technology, known as "Compact Distribution Print" or
"CDP", is in the final stages of development. It is anticipated that the
Company and UATC will each have a 50% interest in any profits of the LLC,
which is known as "CDP Limited Liability Company".
9. In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123 - Accounting For Stock Based
Compensation. The Company plans to adopt only the disclosure portions of
the Statement and therefore does not expect the Statement to have a
material effect on the financial statements.
9
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
1. Material Changes in Financial Condition
In December 1994 the Company signed agreements with its bank to implement
the sale/leaseback of certain equipment and a long-term revolving and term
loan credit agreement in amounts of $15,000 and $10,000 respectively. In
March 1995 the Company signed an amendment to the long-term revolving and
term loan credit agreement increasing the amount by $8,000. The
sale/leaseback agreement terminates on December 30, 1999. An aggregate of
$11,218 was sold and leased back on December 30, 1994. Under the new
credit agreement, the Company may borrow up to $18,000 in revolving loans
until November 30, 1997 when all revolving loans become term loans for the
remainder of the agreement which expires November 30, 2000. These credit
facilities are available for general corporate purposes, capital
expenditures and acquisitions. Management believes that the proceeds from
the sale/leaseback and the borrowings available under the new credit
facility will be sufficient to meet the needs of the Company for the
foreseeable future.
In February 1995 the Company used $6,878 of the proceeds from the
sale/leaseback agreement to acquire substantially all of the property,
equipment and inventory of Skywalker Sound South.
In March 1995 the Company used $7,726 under the credit agreement in
connection with the acquisition of Chrysalis Television Facilities Ltd.
As of November 30, 1995 the Company has $7,068 outstanding under the credit
agreement.
The Company expects capital expenditures of approximately $5,000 for its
Los Angeles, New York City and London facilities in fiscal 1996. These
capital expenditures will be financed by bank leasing and credit facilities
and by internally generated funds.
2. Material Changes in Results of Operations
Total revenues increased 106.7% ($9,362) and operating costs and expenses
increased 60.1% ($4,887).
SOUND SERVICES:
Sound studio revenues in California and New York increased $5,916. Revenue
increases due to the inclusion of the west side Los Angeles studios of
Todd-AO Studios West ("TSW") ($3,470) acquired in February 1995 were
augmented by revenue increases at the Los Angeles and New York studios due
primarily to increases in feature film dubbing bookings. In addition, a
feature film stage which was closed for remodelling in the prior year was
operational in the current year.
Sound studio operating costs and expenses increased $2,338 due to the
inclusion of TSW acquired in February 1995 and $688 related to the revenue
increases at the Los Angeles and New York studios.
10
VIDEO SERVICES:
Total video services revenues increased $3,446. Revenues increased $2,894
due to the acquisition of Chrysalis/Todd-AO Europe, Ltd. ("Chrysalis") in
March 1995. Todd-AO Video Services ("TVS") and Todd-AO Digital Images
("TDI") also had revenue increases in the current year.
Increases in operating costs and expenses attributable to TVS, TDI and
Chrysalis were $1,864 and are related to the revenue increases described
above.
CORPORATE:
Depreciation and amortization increased 52.5% ($436) primarily due to the
inclusion of TSW and Chrysalis in the current year.
Equipment lease expense net of gain on sale of equipment in connection with
a sale/leaseback agreement entered into in December 1994 with the Company's
institutional lender is $212 and interest expense primarily due to
borrowings in connection with the acquisition of Chrysalis is $202.
A net decrease in other income of $613 is primarily due to the following:
A $77 increase in interest and dividend income primarily due to investing
activities in connection with the proceeds from the sale/leaseback
agreement; current year research and development costs ($154); a net loss
from the disposition of assets and investments ($139); and a decrease of
$394 due to stock appreciation rights provision adjustments in the prior
year.
As a result of the above, income before taxes increased $3,058 and net
income increased $1,807.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in litigation and similar claims incidental to the
conduct of its business. None of the pending actions is considered
material.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). (1) Exhibit 27 Financial Data Schedule
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TODD-AO CORPORATION
January 11, 1996 /s/ Silas R. Cross
- -------------------- ----------------------------
Date Silas R. Cross
Chief Accounting Officer
12