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, 1997
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 8, 1997 was:
8,223,654 Class A Shares and 1,747,178 Class B Shares.
THE TODD-AO CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FEBRUARY 28, 1997
INDEX
- -----------------------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION Page
Item 1- FINANCIAL STATEMENTS
The following financial statements are filed herewith:
Consolidated Balance Sheets, February 28, 1997 and August 31, 1996 3
Consolidated Statements of Income and Retained Earnings for the
Six and Three Months Ended February 28, 1997 and 1996 5
Consolidated Statements of Cash Flows for the Six Months Ended
February 28, 1997 and 1996 6
Notes to Consolidated Financial Statements for the Six Months
Ended February 28, 1997 8
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 13
Item 6 - Exhibits and Reports on Form 8-K 13
Signature 13
2
THE TODD-AO CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
AUGUST 31, FEBRUARY 28,
------------ --------------
1996 1997
------------ --------------
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . $ 3,385 $ 1,791
Marketable securities. . . . . . . . . . . . . . . . . 2,616 7,945
Trade receivables
(net of allowance for doubtful accounts of $707 at
February 28, 1997 and $696 at August 31, 1996) . . . 9,132 13,547
Inventories (first-in first-out basis) . . . . . . . . 635 552
Income tax receivable. . . . . . . . . . . . . . . . . -- 390
Deferred income taxes. . . . . . . . . . . . . . . . . 1,152 1,115
Prepaids and other . . . . . . . . . . . . . . . . . . 988 1,073
------------ -------------
Total current assets . . . . . . . . . . . . . . . . . 17,908 26,413
------------ -------------
INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . 994 981
------------ -------------
PROPERTY AND EQUIPMENT - At Cost:
Land . . . . . . . . . . . . . . . . . . . . . . . . . 4,270 4,270
Buildings. . . . . . . . . . . . . . . . . . . . . . . 10,559 10,878
Leasehold improvements . . . . . . . . . . . . . . . . 6,286 6,930
Lease acquisition costs. . . . . . . . . . . . . . . . 2,187 2,187
Equipment. . . . . . . . . . . . . . . . . . . . . . . 31,271 38,399
Equipment under capital leases . . . . . . . . . . . . 3,360 3,360
Construction in progress . . . . . . . . . . . . . . . 1,402 270
------------ -------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . 59,335 66,294
Accumulated depreciation and amortization. . . . . . . (20,858) (23,800)
------------ -------------
Property and equipment - net . . . . . . . . . . . . . 38,477 42,494
------------ -------------
GOODWILL
(net of accumulated amortization of $406 at
February 28, 1997 and $190 at August 31, 1996) . . . 5,761 5,782
------------ -------------
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . 1,046 1,037
------------ -------------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . $ 64,186 $ 76,707
------------ -------------
------------ -------------
See notes to consolidated financial statements.
3
THE TODD-AO CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
AUGUST 31, FEBRUARY 28,
------------ --------------
1996 1997
------------ --------------
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . $ 2,812 $ 3,475
Accrued liabilities:
Payroll and related taxes. . . . . . . . . . . . . . 2,023 2,229
Interest . . . . . . . . . . . . . . . . . . . . . . 173 31
Equipment lease. . . . . . . . . . . . . . . . . . . 300 280
Other. . . . . . . . . . . . . . . . . . . . . . . . 1,198 1,027
Income taxes payable . . . . . . . . . . . . . . . . 368 1,469
Current maturities of long-term debt . . . . . . . . . 615 639
Capitalized lease obligations - current. . . . . . . . 616 237
Deferred income. . . . . . . . . . . . . . . . . . . . 634 1,559
------------ --------------
Total current liabilities. . . . . . . . . . . . . . . 8,739 10,946
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . 9,332 1,421
CAPITALIZED LEASE OBLIGATIONS. . . . . . . . . . . . . 22 --
DEFERRED COMPENSATION. . . . . . . . . . . . . . . . . 273 233
DEFERRED GAIN ON SALE/LEASEBACK. . . . . . . . . . . . 4,909 4,173
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 4,488 4,460
------------ --------------
Total liabilities. . . . . . . . . . . . . . . . . . . 27,763 21,233
------------ --------------
STOCKHOLDERS' EQUITY:
Common Stock:
Class A; authorized 30,000,000 shares of $0.01
par value; issued and outstanding 8,202,570 at
February 28, 1997 and 6,555,640 at
August 31, 1996. . . . . . . . . . . . . . . . . . . 65 82
Class B; authorized 6,000,000 shares of $0.01 par
value; issued and outstanding 1,747,178. . . . . . . 17 17
Additional capital . . . . . . . . . . . . . . . . . . 24,291 39,877
Retained earnings. . . . . . . . . . . . . . . . . . . 12,267 15,288
Unrealized gains on marketable securities and
long-term investments. . . . . . . . . . . . . . . . 42 3
Cumulative foreign currency translation adjustment . . (259) 207
------------ --------------
Total stockholders' equity . . . . . . . . . . . . . . 36,423 55,474
------------ --------------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . $ 64,186 $ 76,707
------------ --------------
------------ --------------
See notes to consolidated financial statements.
4
THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE SIX AND THREE MONTHS ENDED FEBRUARY 28, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS THREE MONTHS
------------------------ ------------------------
1996 1997 1996 1997
--------- ---------- --------- ----------
REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31,339 $ 39,681 $ 13,199 $ 19,341
--------- ---------- --------- ----------
COSTS AND EXPENSES:
Operating costs and other expenses . . . . . . . . . . . . . . . 24,279 30,659 11,256 15,102
Depreciation and amortization. . . . . . . . . . . . . . . . . . 2,588 3,187 1,322 1,565
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 386 327 184 106
Equipment lease expense - net. . . . . . . . . . . . . . . . . . 344 155 132 63
Other expense (income) - net . . . . . . . . . . . . . . . . . . (258) 99 (511) 60
--------- ---------- --------- ----------
Total costs and expenses . . . . . . . . . . . . . . . . . . . . 27,339 34,427 12,383 16,896
--------- ---------- --------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES . . . . . . . . . . . . 4,000 5,254 816 2,445
PROVISION FOR INCOME TAXES . . . . . . . . . . . . . . . . . . . 1,510 1,965 309 927
--------- ---------- --------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,490 3,289 $ 507 $ 1,518
--------- ----------
--------- ----------
RETAINED EARNINGS BEGINNING OF PERIOD. . . . . . . . . . . . . . 7,904 12,267
LESS: DIVIDENDS PAID . . . . . . . . . . . . . . . . . . . . . (241) (268)
--------- ----------
RETAINED EARNINGS END OF PERIOD. . . . . . . . . . . . . . . . . $ 10,153 $ 15,288
--------- ----------
--------- ----------
NET INCOME PER COMMON SHARE AND
COMMON SHARE EQUIVALENTS . . . . . . . . . . . . . . . . . . . $ 0.28 $ 0.34 $ 0.06 $ 0.14
--------- ---------- --------- ----------
--------- ---------- --------- ----------
WEIGHTED AVERAGE SHARES OUTSTANDING. . . . . . . . . . . . . . . 8,748,018 9,770,336 8,746,989 10,523,799
--------- ---------- --------- ----------
--------- ---------- --------- ----------
See notes to consolidated financial statements.
5
THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997 AND 1996
(DOLLARS IN THOUSANDS)
1996 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,490 $ 3,289
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . 2,588 3,187
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . -- 2
Deferred compensation. . . . . . . . . . . . . . . . . . . . . (98) (40)
Amortization of deferred gain on
sale/leaseback transaction . . . . . . . . . . . . . . . . . (736) (736)
(Gain) loss on sale of marketable securities
and investments. . . . . . . . . . . . . . . . . . . . . . . 41 --
(Gain) loss on disposition of fixed assets . . . . . . . . . . -- (23)
Changes in assets and liabilities (net of acquisitions):
Trade receivables . . . . . . . . . . . . . . . . . . . . . . (2,335) (4,246)
Inventories and other current assets. . . . . . . . . . . . . (56) 20
Accounts payable and accrued liabilities. . . . . . . . . . . 878 380
Accrued equipment lease . . . . . . . . . . . . . . . . . . . (80) (20)
Income taxes payable. . . . . . . . . . . . . . . . . . . . . 607 672
Deferred income . . . . . . . . . . . . . . . . . . . . . . . (298) 876
---------- ----------
Net cash flows provided by operating activities: . . . . . . . . . 3,001 3,361
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities and investments. . . . . . . . . 57 (5,901)
Proceeds from sale of marketable securities
and investments . . . . . . . . . . . . . . . . . . . . . . . . . 630 527
Proceeds from disposition of fixed assets. . . . . . . . . . . . . -- 26
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . (2,511) (6,511)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 (118)
---------- ----------
Net cash flows (used in) investing activities: . . . . . . . . . . $ (1,694) $ (11,977)
---------- ----------
6
THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997 AND 1996
(DOLLARS IN THOUSANDS)
(CONTINUED)
1996 1997
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt . . . . . . . . . . . . . . . . . . $ 1,400 $ 6,900
Payments of long-term debt . . . . . . . . . . . . . . . . . . . (3,359) (14,831)
Payments on capital lease obligations. . . . . . . . . . . . . . (508) (406)
Net proceeds from issuance of common stock . . . . . . . . . . . 238 15,603
Treasury stock transactions. . . . . . . . . . . . . . . . . . . (560) --
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . (241) (268)
-------------- --------------
Net cash flows provided by (used in) financing activities: . . . (3,030) 6,998
Effect of exchange rate changes on cash . . . . . . . . . . . . -- 24
-------------- --------------
NET (DECREASE) IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . (1,723) (1,594)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . 5,278 3,385
-------------- --------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,555 $ 1,791
-------------- --------------
-------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 414 $ 475
-------------- --------------
-------------- --------------
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . $ 905 $ 1,080
-------------- --------------
-------------- --------------
7
THE TODD-AO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------
If complete notes were to accompany these statements they would be substantially
in the same form as those to the Company's Financial Statements for the Year
Ended August 31, 1996. In addition the following notes are applicable:
1. In the opinion of management for the Company, all adjustments (which
comprise only normal recurring accruals) necessary for a fair presentation
of the results of operations have been included.
2. The consolidated financial statements include the Company and its wholly
owned subsidiaries Todd-AO Studios, Todd-AO Studios East, Inc. ("Todd-AO
East"), Todd-AO Productions, Inc., Todd-AO Digital Images, Inc. ("TDI"),
Todd-AO Video Services, Inc. ("TVS"), Todd-AO Studios West ("TSW"), Todd-AO
Europe Holding Ltd. ("TAO Europe"), Todd-AO Preservation Services,
Hollywood Supply Company and Todd-AO's Land of the Future. All significant
intercompany balances and transactions have been eliminated.
3. Net income per common share is computed based on the weighted average
number of common and common equivalent shares outstanding for each of the
years presented including common share equivalents arising from the assumed
conversion of any outstanding dilutive stock options.
4. On August 15, 1996, the Company purchased substantially all of the assets
and certain liabilities of Edit Acquisition LLC ("Editworks"). Editworks
provides video post production services to broadcasters, advertising
agencies and other businesses. The Company paid Editworks $3,680 in cash
and $970 in common stock.
The acquisition is being accounted for under the purchase method of
accounting. The following unaudited pro forma consolidated financial
information for the six months ended February 29, 1996 is presented as if
the acquisition had occurred on September 1, 1995. Pro forma adjustments
for Editworks are primarily to amortization of goodwill, interest expense
on borrowings in connection with the acquisition, and income taxes.
1996
------------
Revenues . . . . . . . . . . . . . . . . . . $ 33,529
------------
------------
Net income . . . . . . . . . . . . . . . . . $ 2,721
------------
------------
Net income per common share. . . . . . . . . $ 0.31
------------
------------
5. The Company has a stock repurchase program under which 1,300,000 shares may
be purchased from time to time in the open market or in private
transactions. As of February 28, 1997, 795,146 shares had been
repurchased. All of these shares have been cancelled and returned to
authorized but unissued status.
6. On October 10, 1996, the Company filed a registration statement with the
Securities and Exchange Commission and on November 20, 1996 the
registration statement, as amended, was declared effective for a public
offering of 1,500,000 primary Class A shares at $10.50 per share. On
November 26, 1996 the offering was completed and all the shares were sold
and issued. In December 1996 an additional 145,000 shares were sold and
issued in connection with the exercise of a portion of the underwriters'
over-allotment option. Proceeds from the offering, net of costs as of
February 28, 1997 totaled $15,594.
8
7. In January 1997 the Company announced that it was in negotiations to
acquire all of the stock of International Video Conversions, Inc.
("IVC"), a California corporation based in Burbank. IVC is engaged
in the business of providing a full range of video tape services
specializing in duplication, telecine and conversions including HDTV.
This acquisition has not materialized.
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", has been successfully demonstrated, but its implementation will
require a broad level of film industry acceptance which has not yet been
obtained. Pending such acceptance, further development and marketing
expenditures will be minimal. 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
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(DOLLARS IN THOUSANDS, EXCEPT AMOUNTS PER SHARE)
1. Material Changes in Financial Condition
In December 1994, the Company signed agreements with its bank to implement
the sale/leaseback of certain equipment and a long-term credit facility. An
aggregate of $11,218 of sound studio equipment was sold and leased back on
December 30, 1994. The sale/leaseback agreement, which consists of five 1-
year terms amortizing to approximately 40% with interest at Libor rates
plus 1.5% which can increase to Libor plus 2% if the leverage ratio (Funded
Indebtedness/EBITDA) is greater than 2:1, terminates on December 30, 1999.
Under the credit facility, including amendments in 1995 and 1996, the
Company may borrow up to $20,000 and L5,000 in revolving loans until
February 28, 2000. On that date and quarterly thereafter until the
expiration of the agreement on November 30, 2003, the revolving loan
commitment will reduce by 5% of the original loan commitment. The credit
facility provides for borrowings at the Bank's Reference rates (plus .5%),
CD rates (plus 1.625%) and Libor rates (plus 1.5%) which can increase to
plus 1%, 2.125% and 2%, respectively, if the leverage ratio (described
above) is greater than 2:1. Leverage ratios may not exceed 3:1. The
facility includes commitment fees at .5% per annum on the unused balance.
Other material restrictions include: the coverage ratio (cash flow/fixed
charges) may not be less than 1.75:1 through 1998 and 1.5:1 thereafter; the
Company is limited to $10,000 per annum for capital expenditures (except
for fiscal year 1997 which is limited to $12,500); Other Indebtedness or
Contingent Liabilities (outside the credit and sale/leaseback agreements)
may not exceed $8,000 and Minimum Net Worth is not to be less than $23,400
plus net proceeds from issuance of equity plus 50% of future consolidated
net income. These credit facilities are available for general corporate
purposes, capital expenditures and acquisitions. Management believes that
funds generated from operations, proceeds from the public offering
described below, proceeds from the sale/leaseback and the borrowings
available under the credit facility will be sufficient to meet the needs of
the Company at least through the end of 1997.
In February 1995, the Company used $6,878 of the proceeds from the
sale/leaseback agreement to acquire substantially all of the property,
equipment and inventory of Skywalker Sound South, renamed Todd-AO Studio
West. In March 1995, the Company used $7,726 under the credit facility in
connection with the acquisition of Chrysalis. In August 1996, the Company
used $4,280 under the credit facility in connection with the acquisition of
Editworks. As of February 28, 1997, the Company had $775 outstanding under
the credit facility.
The Company expects capital expenditures of approximately $11,500 for its
Los Angeles, New York City, Atlanta and London facilities in fiscal 1997.
These capital expenditures will be financed by credit facilities and
internally generated funds. As of February 28, 1997 the Company has
incurred $6,511 for fiscal 1997 capital expenditures.
On October 10, 1996, the Company filed a registration statement with the
Securities and Exchange Commission and on November 20, 1996 the
registration statement, as amended, was declared effective for a public
offering of 1,500,000 primary Class A shares at $10.50 per share. All of
the shares plus an additional 145,000, exercised as a portion of the
underwriters' over-allotment option, were sold and issued. Proceeds from
the offering, net of costs as of February 28, 1997 totaled $15,594. The
funds received were used to temporarily pay down existing debt in the
amount of $9,102. The remaining funds are currently invested in short-term
federal agency securities. These funds will be used for possible future
acquisitions, working capital requirements and other general corporate
purposes.
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.
10
2. Material Changes in Results of Operations
General
Since fiscal 1995, the Company has pursued a strategy of diversifying its
operations by acquiring or establishing complementary service companies in
the production and post production markets. This diversification is not
only functional but geographical, as represented by the Company's
acquisitions in Santa Monica, California, London, UK and Atlanta, Georgia.
The Company has not yet utilized the funds provided by the public offering
in November, 1996 for its primary long-term objective of accretive
acquisitions. The previously announced acquisition of International Video
Conversions in Burbank, California has not materialized.
SIX MONTHS ENDED FEBRUARY 28, 1997 COMPARED TO SIX MONTHS ENDED
FEBRUARY 29, 1996
Revenues increased $8,342 or 26.6% from $31,339 to $39,681 primarily due to
significant increases from the Company's sound services divisions ($4,257)
as well as its video services divisions which include Todd-AO Editworks
("Editworks") acquired in August 1996 and Todd-AO Filmatic ("Filmatic")
acquired in April 1996 which contributed revenue increases of $2,165 and
$522, respectively. There is also a non-recurring settlement of $434
included in the prior year revenue of Todd-AO UK, Ltd. (formerly
Chrysalis/Todd-AO Europe, Ltd. before name change on March 1, 1997).
Operating costs and other expenses increased $6,380 or 26.3% from $24,279
to $30,659. Cost increases related to the acquisitions described above
were higher than usual due to transitional changes at Editworks and the
relocation of Filmatic. These acquisitions are now fully integrated into
operations and should impact favorably on future results. The remaining
cost increases are related to the revenue increases described above.
Depreciation and amortization increased $599 or 23.1% primarily due to the
acquisitions and current year capital expenditures.
Net equipment lease expense decreased $189 or 54.9% due to decreases in the
interest rate and a declining principal balance while the straight line
amortization of the deferred gain remains the same.
Other (income) expense, net decreased $357 primarily due to a non-recurring
provision adjustment of $215 from a favorable settlement of a contested
claim and other provision adjustments of $202 in the prior year.
As a result of the above, income before taxes increased $1,254 from $4,000
to $5,254 and net income increased $799 from $2,490 to $3,289.
Earnings per share increased 21% from $0.28 to $0.34 in spite of a 12%
dilution in average shares outstanding primarily due to the November 1996
public offering when 1,645,000 shares were issued. If the public offering
had occurred as of September 1, 1996 and the bank credit facility debt paid
down, the EPS as of February 28, 1997 would not have changed from $0.34.
THREE MONTHS ENDED FEBRUARY 28, 1997 COMPARED TO THREE MONTHS ENDED
FEBRUARY 29, 1996.
Revenues increased $6,142 or 46.5% from $13,199 to $19,341 primarily due to
significant increases from the Company's sound services divisions ($3,820)
as well as its video services divisions which include Editworks and
Filmatic acquired in August and April 1996 which contributed revenue
increases of $1,181 and $243, respectively. There is also a non-recurring
settlement of $109 included in the prior year revenue of Todd-AO UK, Ltd.
11
Operating costs and other expenses increased $3,837 or $34.1% from $11,265
to $15,102. Cost increases related to the acquisitions described above
were higher than usual due to transitional changes at Editworks and the
relocation of Filmatic. The remaining cost increases are related to the
revenue increases described above.
Depreciation and amortization increased $243 or 18.4% primarily due to the
acquisitions and current year capital expenditures.
Net equipment lease expense decreased $69 or 52.3% due to a declining
principal balance while the straight line amortization of the deferred gain
remains the same.
Other (income) expense, net decreased $580 primarily due to a non-recurring
provision adjustment of $215 from a favorable settlement of a contested
claim and other provision adjustments of $199 in the prior year.
As a result of the above, income before taxes increased $1,629 from $816 to
$2,445 and net income increased $1,011 from $507 to $1,518.
Earnings per share increased 133% from $0.06 to $0.14 in spite of a 20%
dilution arising from the November 1996 public offering.
3. Material Changes in Cash Flows
For the six months ended February 28, 1997 the Company generated $3,361 in
cash from operating activities compared to $3,001 in 1996. In addition to
net income of $3,289, adjusted for depreciation and net amortization of
$2,451, increases in accounts payable and other liabilities of $1,928 also
increased cash provided by operations. Cash was utilized primarily to fund
trade receivables. The revenue increase in the second quarter of the
fiscal year represented 74% of the total increase for the six month period.
This, in addition to an overall increase in 1997 revenues, caused a
significant increase in trade receivables of $4,246 at February 28, 1997.
This is the opposite of the prior year when revenues in the second quarter
represented 25% of the total six month increase and caused a less severe
increase in trade receivables of $2,335.
Net cash generated from operating activities supplemented by proceeds from
the sale of certain marketable securities and investments and borrowings
from the Company's credit facility were used to reinvest in capital assets
of the Company and to pay down long-term debt. Cash generated from the net
proceeds received in connection with the Company's public offering of
$15,594 were used to pay down long-term debt, to purchase short-term
federal agency securities and to reinvest in capital assets of the Company.
4. Other Business Information
The Editworks division is currently constructing two audio rooms in order
to provide its clients with additional services. The rooms are expected to
begin operations in the fourth quarter of this fiscal year and thereafter
should contribute to the revenue and earnings of the Company.
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PART II - OTHER INFORMATION
ITEM 5. 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) Fourth amendment dated October 1, 1996 to Credit Agreement
dated as of December 2, 1994 between The Todd-AO
Corporation and Bank of America National Trust and Savings
Association.
(2) Employment agreement dated as of November 8, 1996 between
The Todd-AO Corporation and Christopher D. Jenkins.
(3) 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 10, 1997 /s/ Silas R. Cross
------------------ ------------------------------
Date Silas R. Cross
Chief Accounting Officer
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