SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended AUGUST 31, 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: (323) 962-5304

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Title of each class
- ----------------------
COMMON STOCK, CLASS A,
$ .01 PAR VALUE

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
-------- --------

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of voting stock held by non-affiliates at November
11, 1999 was approximately $92,200,000.

The number of shares of common stock outstanding at November 11, 1999 was:
8,136,653 Class A Shares and 1,747,178 Class B Shares.

DOCUMENTS INCORPORATED BY REFERENCE

None

The Todd-AO Corporation
- ---------------------------------------------------------------------------------------------------------
Annual Report on Form 10-K
August 31, 1999

Table of Contents
- ---------------------------------------------------------------------------------------------------------
Part I Page

Item 1 -Business 1
Item 2 -Properties 7
Item 3 -Legal Proceedings 7
Item 4 -Submission of Matters to a Vote
of Security Holders 7

Part II

Item 5 -Market for the Registrant's Common
Stock and Related Stockholder Matters 8
Item 6 -Selected Financial Data 9
Item 7 -Management's Discussion and Analysis
of Financial Condition and
Results of Operations 9
Item 8 -Financial Statements and
Supplementary Data 15
Item 9 -Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 15

Part III

Item 10 -Directors and Executive Officers
of the Registrant 16
Item 11 -Executive Compensation 19
Item 12 -Security Ownership of Certain
Beneficial Owners and Management 21
Item 13 -Certain Relationships and Related
Transactions 22

Part IV

Item 14 -Exhibits, Financial Statement Schedule
and Reports on Form 8-K 23

Signatures 24
Exhibit Index 25

Index to Financial Statements
and Schedule 29

PART I

ITEM 1. BUSINESS.
(DOLLARS IN THOUSANDS, EXCEPT AMOUNTS PER SHARE)

The Todd-AO Corporation and its subsidiaries (collectively "Todd-AO" or
the "Company") provide sound, video and ancillary post production and
distribution services to the motion picture and television industries in the
United States and Europe. The Company believes that it is one of the largest
independent providers of combined sound studio and video services in the world,
with facilities located in Los Angeles, New York, London and Atlanta. Sound
services include music recording, sound editing and enhancement and the mixing
of dialogue, music and sound effects. Todd-AO's principal video services include
film-to-video transfer (telecine), mastering and duplication of professional
videotape formats, transmission for satellite broadcast, videotape editing,
audio post production, and visual effects and graphics. The Company believes
that its principal strengths include the depth and continuity of its creative
and artistic talent, the quality and scope of its facilities, a tradition of
providing quality services to its clients, and a history of technological
innovation. Since its inception in 1952, the Company and its employees have been
nominated for 35 Academy Awards-Registered Trademark- and have won 20.

Todd-AO provides its sound and video services to over 1,500 clients,
including the major motion picture studios and television production companies.
The Company's ten largest customers accounted for approximately 52% and 56% of
revenues for the fiscal years ended August 31, 1999 and 1998, respectively. The
Walt Disney Company and its affiliated companies, the only customer to account
for more than 10% of revenues, accounted for 16% and 15% of revenues for 1999
and 1998, respectively.

Demand for the Company's services and facilities is principally derived
from the production of new motion pictures, television programs and television
commercials, as well as the distribution of previously released motion picture
and television programming through distribution channels such as television
syndication, home video, cable and satellite. Historically, its clients have
outsourced, and are expected by the Company to continue to outsource, many
services required for production, post production, and distribution of film and
television programming. The Company believes that trends toward digitalization
and globalization in the entertainment and media industries are increasing the
quality, variety and number of post production services required by customers.
The Company believes that the worldwide market penetration of distribution
channels such as home video and digital satellite broadcast is contributing to a
growing demand for original and reissued programming, American product in
particular, which in turn should increase demand for the Company's services.

The Company's objective is to be the leading worldwide independent
provider of sound and video post production services. Since 1994, the Company
has implemented a strategy to achieve this objective and to capitalize on the
movement towards digitalization and globalization in the motion picture and
television industries by expanding its range of services through strategic
acquisitions, internal growth and strategic alliances. The Company believes that
in the future, U.S. and international entertainment and media companies will
demand a broader range of sound and video post production services and are
likely to prefer a single-source provider. To implement its strategy, the
Company has assembled a senior management team experienced in the industry.

The Company entered the video services business in 1994 through its
acquisition of the assets and certain liabilities of Film Video Masters by
Todd-AO Video Services for the purchase price of $1,900. In February 1995, the
Company expanded its sound studio business through the acquisition of the assets
of Skywalker Sound South, renamed Todd-AO Studios West, with sound studios and
facilities located in the West Los Angeles area for $6,966. Also, in March 1995,
the Company expanded its operations into Europe through the acquisition of the
stock and inter-company debt ($8,135) of Chrysalis Television Facilities, Ltd.
("Todd-AO UK") in London, which also augmented the Company's video services
capabilities to include the collation of television programming for satellite
broadcast. The purchase of Filmatic Laboratories ("Filmatic") for a nominal sum
in 1996 enlarged Todd-AO's video services capabilities in London and added film
processing to its services. In August 1996, the Company acquired for the total
sum of $4,650 the assets and certain liabilities of Edit Acquisition LLC
("Editworks") located in Atlanta, Georgia, which specializes in providing video
services to the advertising industry. Expanding its sound and video services
still further, the Company acquired the assets and certain liabilities of
Hollywood Digital Limited Partnership ("Hollywood Digital") in June 1997. In
consideration, the Company paid down existing debt

of $17,761 and issued convertible subordinated notes in the amount of $8,399.
Hollywood Digital is a digital based post-production facility providing sound
and video services to the film, television and advertising industries. In March
1998, the Company opened a new facility in Santa Monica, California primarily to
service Hollywood Digital's advertising customers. In May 1998, the Company
further expanded its operations in Europe by acquiring the stock of Tele-Cine
Cell Group plc. ("TeleCine") in London for a total purchase price of $17,948
which it anticipates will double its video post-production and special effects
services capabilities in the U.K. as well as adding graphics based clientele to
its customer base. In May 1998, the Company formed Todd-AO DVD, Inc. ("TAO DVD")
in Hollywood which provides Digital Versatile Disc ("DVD") services including
encoding, authoring, and proofing to the major Hollywood studios and others. In
June 1999, the Company expanded its operations on the east coast by acquiring
the stock of Sound One Corporation ("Sound One") for a total purchase price of
$13,115. Sound One is the leading post production sound facility in New York. As
a result of these transactions, the Company has expanded its client base,
increased its range of services and broadened its global market coverage.

LIBERTY MEDIA TRANSACTION

On July 30, 1999, the Company entered into a Letter of Intent with
Liberty Media Corporation (NYSE: LMG.A) in which Liberty Media shall acquire
control of Todd-AO in a tax-free transaction. The merger is subject to the
delivery of a fairness opinion by a financial advisor and the approval of
Todd-AO's stockholders as well as other customary closing conditions.

On September 24, 1999, the Company retained Banc of America Securities
LLC (BAS) to render an opinion to the Board of Directors on the proposed merger
transaction with Liberty Media and to advise the Board concerning the
consideration to be received by current Class A stockholders in this
transaction. On October 14, 1999, the Company's Board of Directors received a
favorable oral report from BAS regarding the fairness of this proposed
transaction to all current Company Class A shareholders. BAS announced that a
fairness opinion shall be issued in writing, once a definitive merger agreement
has been signed by the parties.

After the Letter of Intent was signed with Liberty Media on July 30,
1999, the independent directors (who constitute a majority of the Board of
Directors) undertook to direct the negotiation of the definitive merger
agreement. In these negotiations, the Board members were advised by Delaware
counsel. As a result of the Board's efforts, the agreement shall provide, among
other terms, that existing Company Class A and Class B common stock will be
reclassified. Each share of either class of Company stock will be converted into
0.4 shares of Todd-AO New Class A common stock and 0.6 shares of Todd-AO New
Class B common stock. Subsequently, all of Todd-AO's New Class B common stock
will be exchanged for shares of AT&T's Class A Liberty Media Group common stock
(LMG.A shares) on the basis of 1 LMG.A share for each 2.4 shares of Todd-AO's
New Class B common stock outstanding on the closing date. This revised structure
treats all Company Class A and Class B shareholders alike and provides a more
favorable exchange ratio than previously announced. Negotiations with Liberty
Media are in a final stage, and a definitive merger agreement is imminent.

SOUND STUDIO OPERATIONS

GENERAL

Todd-AO performs post production sound services primarily for
theatrical feature films, television series, television specials,
movies-of-the-week, trailers and commercials. Sound services include music
recording, sound editing and enhancement, mixing of music, sound effects, and
dialogue and narration. After picture editing, the soundtrack becomes the
primary focus of the production process. Feature film and television producers
utilize the Company's studio facilities and highly skilled sound engineers to
mix (re-record) the basic elements of a soundtrack: dialogue (or narration),
music ("score") and all other recorded sounds referred to collectively as "sound
effects." A number of ancillary services derive from this core activity,
including sound effects editing, film-to-tape and tape-to-tape transfers and
duplication, automated dialogue replacement ("ADR"), live recorded sound effects
("Foley"), equipment rental, edit room rental and sale of film and tape stock
("rawstock").

The demand for the Company's core motion picture services has
historically been seasonal, with higher demand in the fall (first fiscal
quarter) and spring (third fiscal quarter) preceding the Christmas holiday
season and summer theatrical releases, respectively. Demand has been lower in
the winter and summer, corresponding to the Company's second and fourth fiscal
quarters, respectively. Accordingly, the Company has historically experienced,
and expects to continue to experience, quarterly fluctuations in revenue and net
income.

QUARTERLY FINANCIAL DATA SCHEDULE (UNAUDITED)

DILUTED
BASIC EARNINGS EARNINGS
(LOSS) PER (LOSS) PER
TOTAL GROSS NET INCOME COMMON SHARE COMMON SHARE
1998 REVENUES PROFIT (LOSS) OUTSTANDING OUTSTANDING
- ---- ------------ ---------- ----------- -------------- --------------

First Quarter............ $ 25,024 $ 3,262 $ 1,773 $ .18 $ .16
Second Quarter........... 22,582 1,991 1,316 .13 .12
Third Quarter............ 27,252 2,860 1,627 .16 .15
Fourth Quarter........... 27,756 537 (1,297) (.13) (.11)
------------ ---------- ----------- -------------- --------------
TOTAL.................... $ 102,614 $ 8,650 $ 3,419 $ .34(a) $ .33(a)
============ ========== =========== ============== ==============

DILUTED
BASIC EARNINGS EARNINGS
(LOSS) PER (LOSS) PER
TOTAL GROSS NET INCOME COMMON SHARE COMMON SHARE
1999 REVENUES PROFIT (LOSS) OUTSTANDING OUTSTANDING
- ---- ------------ ---------- ----------- -------------- --------------
First Quarter............ $ 33,947 $ 4,784 $ 2,468 $ .26 $ .24
Second Quarter........... 28,388 1,167 897 .10 .09
Third Quarter............ 28,093 784 62 .01 .01
Fourth Quarter........... 28,089 569 (2,114) (.22) (.21)
------------ ---------- ----------- -------------- --------------
TOTAL.................... $ 118,517 $ 7,304 $ 1,313 $ .14(a) $ .13(a)
============ ========== =========== ============== ==============

- --------------
(a) Aggregate per share amounts for each quarter may differ from annual totals
as each is independently calculated.

FACILITIES

Currently, the Company offers 35 acoustically designed sound stages
equipped with modern sound recording equipment, providing a broad range of sound
services for both film and videotape. Todd-AO's scoring stage can accommodate up
to 150 musicians for live sound recording. Most of the mixing (re-recording)
stages provide premium services including stereo sound in both 35mm and 70mm
formats. Each of the Company's major feature stages has the capability to create
soundtracks utilizing any of the current digital release formats. In order to
emulate the movie theater environment, the Company's film recording stages are
of significant size. The Company believes that its scoring stage is one of the
largest in the world. In total, the Company has over 80,000 square feet of stage
space.

Todd-AO's facilities are conveniently located and readily accessible to
the film making and television community, with locations in Hollywood, the San
Fernando Valley, Los Angeles' westside and New York.

ACADEMY AWARDS-Registered Trademark-

Todd-AO has a long history and tradition of providing quality sound
services, starting with the theatrical release of OKLAHOMA! in 1955. Equally
important as the Company's technical facilities is the talented staff of
associated recording mixers. The Company's mixing teams have won numerous
Academy Awards-Registered Trademark- and Emmys, including a Lifetime Achievement
Award for Fred Hynes, who was a sound mixer of the Company for over 30 years.
This long tradition of sound recording excellence continues today. The Company's
employees have received nine Academy Award-Registered Trademark- nominations for
Best Sound in the last ten years and three Academy Awards-Registered Trademark-
for Best Sound. A list of some of Todd-AO's 1999 credits include: MEET JOE
BLACK, ED TV, THE PRINCE OF EGYPT, WALT DISNEY'S TARZAN, RANDOM HEARTS AND
DOUBLE JEOPARDY.

The Academy Awards-Registered Trademark- and nominations for Best Sound
received by the Company or its creative personnel are described below (with
Academy Award-Registered Trademark- winners shown in bold):

YEAR MOVIE(S) YEAR MOVIE(S)
- ---- -------- ---- --------

1998 SAVING PRIVATE RYAN 1978 Hooper
1997 L.A. Confidential 1977 Close Encounters of the Third Kind, Sorcerer
1996 Evita 1976 A Star Is Born
1995 APOLLO 13, Braveheart 1973 THE EXORCIST
1994 Legends of the Fall 1972 CABARET
1993 Schindler's List 1965 THE SOUND OF MUSIC
1992 LAST OF THE MOHICANS 1963 Cleopatra
1990 Dick Tracy 1961 WEST SIDE STORY
1988 Who Framed Roger Rabbit 1960 THE ALAMO
1987 Empire of the Sun 1959 Porgy and Bess
1985 OUT OF AFRICA 1958 SOUTH PACIFIC
1982 E.T. - THE EXTRA-TERRESTRIAL 1955 OKLAHOMA!
1979 1941

Other Academy Awards-Registered Trademark- received:

YEAR ACCOMPLISHMENT
- ---- --------------

1997 Scientific/Technical Achievement Award
1995 Scientific/Technical Achievement Award
1994 Scientific/Technical Achievement Award
1987 Gordon E. Sawyer Lifetime Achievement Award (Fred Hynes)
1980 Honorary Award (Fred Hynes)
1973 Scientific/Technical Achievement Award
1968 Scientific/Technical Achievement Award
1957 Scientific/Technical Achievement Award

VIDEO SERVICES

Todd-AO, through its various subsidiaries and divisions in Los
Angeles, New York, London and Atlanta, provides video services (electronic
post production services) principally to the worldwide motion picture,
television, home video and advertising industries. Video post production is
provided by skilled technicians using sophisticated electronic equipment and
computers to process images and sound from film, videotape and computers onto
a master element from which distribution and broadcast materials are created
for worldwide markets. These markets include theatrical releases, home video,
cable, pay television, syndication, network, satellite, multimedia and
advertising. Todd-AO provides its video services to over 1,000 customers
including the major motion picture and television studios, independent
producers, advertising agencies, television networks, cable program suppliers
and television program syndicators.

Todd-AO's principal video and related services are as follows:

-- FILM-TO-VIDEO TRANSFER (TELECINE). All feature films and most
television programming and advertising are produced on film but viewed
(except in movie theaters) on an electronic medium such as a television
screen. Todd-AO transfers the film to a video master in a frame-by-frame
process in which skilled personnel use specialized equipment to accurately
render the proper tone, color and lighting from the film original to the
video master.

-- MASTERING AND DUPLICATION OF PROFESSIONAL FORMAT VIDEOTAPE.
Todd-AO receives original master elements from a program provider such as a
motion picture, television, commercial production, or home video company and
duplicates the master for broadcast use in a variety of professional formats.
Duplicates are used by television stations, home video duplicators, cable
systems operators, cable program suppliers, TV networks, pay-per-view and
satellite distribution companies to exhibit programs and commercials.
Airlines use duplicates to exhibit in-flight movies.

-- TRANSMISSION. Todd-AO UK transmits television channels for
satellite and cable broadcasters by providing services to generate video and
audio signals which are passed on to the uplink provider for distribution by
satellite. Clients provide details of each program and its exact duration.
Each day, the client supplies a computerized playlist detailing the next 24
hours of network programming. This playlist is input into dedicated
technology which consecutively plays each program at the correct time,
thereby creating the continuous network output. To provide such transmission
services (often on a 24 hours a day, 7 days a week basis), Todd-AO UK
provides the technology, operational staff, physical library, database
services, engineering support and emergency power (in case of electrical
failure).

-- VIDEOTAPE EDITING. Editing entails the electronic transfer of
video or audio information from one or more sources to a new master element.
Editing is a highly creative service with individual editors often attaining
star status and receiving screen credits.

-- AUDIO POST PRODUCTION. The Company provides services referred to
as audio layback and audio augmentation. Layback is the process by which the
sound and picture are synchronized and is frequently provided with telecine.
The final soundtracks for feature films often include foreign languages for
international release and are usually prepared separately for synchronization
to match the various versions of the picture. Audio augmentation or
"sweetening" is the process used to restore or modify existing sound or
create new sound. Sweetening allows for the addition of music or sound
effects, and eliminates unwanted portions of previously recorded sound.

-- VISUAL EFFECTS AND GRAPHICS. The Company provides visual effects
and graphics services using modern computer imaging systems such as Silicon
Graphics workstations. Visual effects for motion pictures and television
include anything from a simple "fade to black" to the intricate "special
effects" common in today's feature films. Graphic services entail the
creating and melding of computer-generated images, video and audio, into
programming, including commercial advertising, television music videos, and
corporate video.

-- BROADCAST STANDARDS CONVERSION. Several technically incompatible
video standards for broadcasting are in use throughout the world. The Company
converts feature films and television programs to or from any global
standard, depending on the intended market.

-- CLOSED CAPTIONING/SUBTITLING. The vast majority of programming is
closed captioned (for the hearing impaired) or subtitled for foreign
languages. The Company electronically applies captions and subtitles onto the
program.

-- PRODUCT EVALUATION/QUALITY ASSURANCE. The Company provides
comprehensive evaluation and quality control for video and audio products.
Todd-AO has consulted with several of the major entertainment and equipment
manufacturing companies to develop post production specifications, equipment
and processes.

-- VAULTING/STORAGE. Todd-AO provides storage for up to 100,000
units in its environmentally controlled and secured vaults. The Company also
offers database and tracking services, 24-hour shipping and delivery services
and element disposal.

OTHER SERVICES

-- DVD SERVICES. TAO DVD provides video and audio compression
(encoding), menu/interactive design, formatting (authoring), specification
verification and player compatibility testing (proofing) of DVD product. TAO
DVD is currently producing more than 30 complete projects per month for the
major Hollywood studios and others.

-- FILM PROCESSING. Filmatic provides film laboratory services
including film developing, printing, cleaning and negative film cutting.
Established in 1935, Filmatic is widely considered to be one of England's
premier specialty film laboratories, providing its services to over 500
customers, including colleges, universities, corporate and training
companies, film and video libraries, independent production companies and
broadcast television.

-- COMPACT DISTRIBUTION PRINT. CDP Limited Liability Company, a
joint venture of Todd-AO and United Artists Theatre Circuit, Inc., has
created a new print process, known as Compact Distribution Print or CDP. The
CDP process reduces the length of feature release prints without affecting
picture or sound quality by eliminating 37% of interframe waste in standard
prints, an inefficiency which has existed since the 1950s. In addition to
potential savings realized from reduced film stock footage and developing
costs, a compact print can generally be distributed on a single reel, thereby
reducing shipping and handling costs. Opportunities for the implementation of
CDP are currently being explored.

COMPETITION

The Company encounters intense competition in each of the markets
that it serves. The Company competes on the basis of quality, service,
capacity, technical capability and price. Although price is an important
competitive factor, the lowest price is seldom the sole determining factor.
The cost of the Company's services is generally low in relation to the
overall budget or anticipated revenues of the project. Quality, capacity and
service remain the critical competitive factors in providing post production
services.

The Company's sound studio operations compete in both the feature
film and television markets. In the film market, competition for sound
services is predominantly driven by the skill and creativity of sound mixers.
Beyond the in-house facilities of major studios such as Universal, Warner
Bros., Sony, 20th Century and Disney, the Company does not believe that it
has a major competitor for feature films in the Los Angeles marketplace.
However, two smaller independent facilities have opened and attracted a
portion of the feature film market. On a wider basis, LucasFilm in Marin
County, California and certain London post production sound facilities
compete with the Company for motion picture studio clientele. In the
television market, the competition is intense and television pricing is
constantly under pressure. In addition to competing with the major studios,
the Company also competes with a wide array of independent post production
sound facilities. The Company believes that its major competitors are Four
Media Company ("4MC"), Westwind Media, EFX/Wilshire Studios and Pacifica
Media (formerly Larson Sound and Echo Sound). The Company believes that its
major competitors in New York are `Sync Sound and East Coast Post.

With respect to video services, a variety of other companies offer
special effects, post production video and transmission services similar to
those provided by Todd-AO. Many of these competitors are larger and have
greater financial resources than the Company. Competition for video services
within a geographical region tends to be highly fragmented with a few larger
full service companies and numerous small firms specializing in only one or
two services. Most small operations are centered around key personnel who
serve one or two clients based on long-standing relationships. The Company
believes its major direct competitors in the Los Angeles market for
distribution, telecine and professional duplication work are 4MC, Modern
Videofilm, Vidfilm, Laser Pacific and VDI Media.

The Company believes its major direct competition in the London
market for Todd-AO UK and TeleCine in the area of transmissions are Pearson,
Flextech, Cast, TLI and Arena. In addition, the Company competes in London
with VTR Group, Molinare, TSI and TVI/TVP (a division of 4MC) for market
share in sound and video post production. All provide a mixture of services
for both large and small media clients across the broadcast sector, and are
conveniently located in the prime vendor area in London's Soho district,
close to many of the customers' offices. The Company believes its major
competition in the London market for film laboratory services are Deluxe,
Technicolor, Metrocolor, Soho Images, Colour Film Services and Buck
Laboratories. The Company believes its major direct competition in the
Atlanta market for editing and graphics are Crawford Communications, Inc.,
Video Tape Associates, Inc. ("VTA"), Click 3X, Brickhouse Editorial and
Turner Broadcasting's new in-house facilities. Crawford Communications and
VTA are both considerably larger and currently offer a more complete array of
services and facilities than does Editworks.

EMPLOYEES

Todd-AO employs approximately 920 employees, some on a
project-by-project basis. The Company has employment agreements with 110 of
its key management, creative and technical personnel. The Company's sound
studio creative and technical personnel are subject to a collective
bargaining agreement with the International Association of Theatrical and
Stage Employees. The Company has never experienced a work stoppage and
considers relations with its employees to be excellent.

PRINCIPAL STOCKHOLDERS

Approximately 53% of the Company's outstanding shares (representing
over 80% of the voting power) are beneficially owned by Marshall Naify,
Robert A. Naify, certain members of their families and certain trusts for the
benefit of family members (the "Naify Interests").

ITEM 2. PROPERTIES.

The Company's current operations are conducted in various owned,
leased or licensed premises in the Los Angeles/Santa Monica area, New York
City, Atlanta and London. The Company's facilities are adequate to support
its anticipated business.

The Company owns approximately 147,000 sq. ft. of building space in
Los Angeles. In addition, approximately 300,000 sq. ft. of building space is
subject to lease or license agreements. In London, Todd-AO owns approximately
10,500 sq. ft. of building space near Soho. Todd-AO also owns the underlying
freehold of 17,600 sq. ft. of building space in Camden Town, London. It
leases this area to a third party under a lease agreement which expires in
December 2042 and subleases the same area from its tenant under a lease
agreement which expires in March 2008. Todd-AO also leases an additional
3,500 sq. ft. of its owned London property to a third party under a lease
agreement which expires in June 2009. The Company also owns two undeveloped
parcels of land in Killeen, Texas.

The Company's Los Angeles/Santa Monica sound studio facilities
include premises licensed from Radford Studio Center under agreements
expiring in 2003, each of which can be extended for an additional five years
at the Company's option. The Company also leases premises in Lantana Center,
Santa Monica. The lease expires in December 2010 and can be extended for an
additional ten years at the Company's option. The New York sound studio
facilities on 54th Street operate under a lease agreement which expires in
December 2002 and which can be extended for an additional eight years at the
Company's option. The 54th Street lease agreement can be terminated by the
Company at any time upon six months' written notice to the landlord. The New
York sound studio facilities located at 1619 Broadway operate under a lease
agreement which expires in January 2010.

The Company's Los Angeles post production video service facilities
operate (1) under a lease agreement for approximately 20,000 square feet
which expires in August 2004 and which can be extended for one additional
five-year term or terminated on 90 days' written notice at the Company's
option and (2) under a lease agreement for approximately 35,000 sq. ft. which
expires in May 2003 and can be extended for an additional ten years at the
Company's option. The Company's Santa Monica video service facility operates
under a lease agreement for approximately 25,000 sq. ft. which expires in
July 2006 and which can be extended for two additional five-year terms at the
Company's option.

The Atlanta post production facility operates under a lease
agreement for approximately 12,600 square feet which expires in December 2001
and which can be extended for two additional five-year terms.

In London, the Company's TeleCine facilities operate under lease
agreements for approximately 22,700 square feet which expire on various dates
between September 2005 and March 2017 and one lease for 6,200 sq. ft. which
expires July 2000. The Company also leases 7,500 square feet of office and
storage space in London with leases expiring in October 2000 and September
2002.

ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS.

The Company has two classes of Common Stock designated as Class A Stock
and Class B Stock, as described below. There were approximately 675 and 7 record
holders of Class A and Class B Stock, respectively, as of November 16, 1999. The
number of holders of Class A Common Stock does not include an indeterminate
number of shareholders whose shares are held by brokers in "street name."

Class A Stock

The Company's Class A Common Stock is traded on the Nasdaq National
Market System under the symbol "TODDA." The following table sets forth, for the
periods indicated, the high and low sales prices for the Class A Common Stock as
reported on the Nasdaq National Market.

STOCK PRICE RANGES
FISCAL YEAR CLOSE
- ----------- ------------------
HIGH LOW
-------- -------

1998
First Quarter............................................................................ 12 7/8 8 7/8
Second Quarter........................................................................... 11 1/8 7 7/8
Third Quarter............................................................................ 13 9 7/8
Fourth Quarter........................................................................... 12 5/8 5 5/16

1999
First Quarter............................................................................ 9 1/4 5 1/2
Second Quarter........................................................................... 9 5/8 7 5/8
Third Quarter............................................................................ 8 1/2 5 13/16
Fourth Quarter........................................................................... 14 3/4 8 9/16

The holders of Class A Common Stock are entitled to cumulative cash
dividends at an annual rate of $.045 per share before any cash dividends may
be declared or paid on the Class B Common Stock. Holders of Class B Common
Stock are entitled to cash dividends equal to 90% of the cash dividends paid
on the Class A Common Stock.

The Company paid cash dividends of $.06 and $.045 per Class A share
for the fiscal years 1998 and 1999, respectively. The Company's Board of
Directors has declined to issue a cash dividend beginning with the fourth
quarter of 1999.

The Transfer Agent and Registrar for the Class A Common Stock is
Continental Stock Transfer and Trust Company, 2 Broadway, New York, NY 10004.

Class B Stock

Class B shares have special voting rights (10 votes per share) and
are generally not transferable. Cash dividends are payable on the Class B
shares at a rate not to exceed 90% of the cash dividends paid on the Class A
shares. The two classes of stock participate on the same per share basis in
other property distributions. Class B Stock is convertible at the option of
the holder into Class A Stock and is automatically converted to Class A Stock
under certain circumstances. Conversion is on a share for share basis and
once so converted the Class B Stock is retired and cannot be reissued without
a stockholder vote. Except for issuances in connection with stock splits and
stock dividends, additional Class B shares cannot be issued without an
affirmative vote of the Class B stockholders.

As of August 31, 1999, 1,747,178 Class B shares were outstanding and
owned by 7 shareholders, including 1,703,639 Class B shares owned by the
Naify Interests. Dividends in the amount of $.054 and $.0405 per Class B
share were paid for fiscal years 1998 and 1999, respectively. The Company's
Board of Directors has declined to issue a cash dividend beginning with the
fourth quarter of 1999. The Company acts as Transfer Agent for the Class B
common stock.

ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT AMOUNTS PER SHARE)

Years Ended August 31
--------------------------------------------------------
1995 1996 1997 1998 1999

Revenues.......................................... $ 50,003 $ 62,920 $ 78,971 $ 102,614 $ 118,517
======== ======== ========= ========= ==========

Net income........................................ $ 3,375 $ 4,844 $ 6,005 $ 3,419 $ 1,313
======== ======== ========= ========= ==========

Income per Common Share - Basic (1)............... $ .41 $ .59 $ .63 $ .34 $ .14
======== ======== ========= ========= ==========

Income per Common Share - Diluted (2)............. $ .40 $ .55 $ .59 $ .33 $ .13
======== ======== ========= ========= ==========

Total Assets...................................... $ 57,198 $ 64,186 $ 103,451 $ 135,596 $ 153,180
======== ======== ========= ========= ==========

Total Long-Term Debt Obligations.................. $ 8,327 $ 9,354 $ 25,430 $ 44,654 $ 65,520
======== ======== ========= ========= ==========

Cash Dividends:
Class A Shares................................ $ .06 $ .06 $ .06 $ .06 $ .045
======== ======== ========= ========= ==========

Class B Shares................................ $ .054 $ .054 $ .054 $ .054 $ .0405
======== ======== ========= ========= ==========

(1) Basic income per share computed using average number of shares
outstanding of 8,167,905, 8,191,065, 9,539,312, 9,987,429 and 9,570,187
in 1995, 1996, 1997, 1998 and 1999, respectively.

(2) Diluted income per share computed using the average number of shares
outstanding and common stock equivalents of 8,399,462, 8,845,321,
10,207,503, 11,218,051 and 9,832,614 in 1995, 1996, 1997, 1998 and
1999, respectively.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(DOLLARS IN THOUSANDS, EXCEPT AMOUNTS PER SHARE)

GENERAL

The Company derives its revenue primarily from sound and video
services to the motion picture and television industries.

Over the past decade, the Company provided sound services
exclusively until the August 1994 acquisition of Todd-AO Video Services. This
acquisition represented a fundamental shift in management's vision of the
Company's future. Prior to fiscal 1995, the core sound business had grown
from $14,000 in revenues in 1986 to almost $33,000 in fiscal 1994, but
profitability was volatile and inherently subject to scheduling conflicts,
unpredictable overtime revenues and seasonality.

Beginning in fiscal 1995, the Company 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 acquisitions in March 1995 and May 1998 of Todd-AO UK and TeleCine,
respectively, in London, in August 1996 of Editworks in Atlanta and in June
1999 of Sound One in New York City. The Company also acquired Todd-AO Studios
West in 1995, Filmatic in 1996 and Hollywood Digital in 1997.

RESULTS OF OPERATIONS

The following discussion provides an analysis of the Company's results
of operations and should be read in conjunction with the Consolidated Financial
Statements and related notes thereto. The operating results for the periods
presented were not significantly affected by inflation.

The following sets forth, for the periods indicated, certain
information relating to the Company's operations expressed as a percentage of
the Company's revenues:

YEARS ENDED AUGUST 31,
---------------------------
1997 1998 1999
-------- -------- --------

Revenues................................................... 100.0% 100.0% 100.0%

Costs and expenses:
Operating costs and other expenses....................... 78.2 80.9 81.7
Depreciation and amortization............................ 9.0 10.4 10.8
Restructuring and other charges......................... -- 2.7 0.7
Interest................................................. 1.2 1.8 3.1
Equipment lease expense, net............................. 0.3 0.2 1.3
Other (income) expense, net.............................. (0.1) (0.5) 0.3
-------- -------- --------
Total costs and expenses.............................. 88.6 95.5 97.9
-------- -------- --------

Income before provision for income taxes................ 11.4 4.5 2.1
Provision for income tax................................ 3.7 1.2 0.7
-------- -------- --------

Net income before change in
accounting principle................................ 7.7 3.3 1.4
Change in accounting principle, net..................... -- -- (0.3)
-------- -------- --------
Net income.............................................. 7.7% 3.3% 1.1%
======== ======== ========

FISCAL YEAR ENDED AUGUST 31, 1999 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1998

Revenues increased $15,903 or 15.5% from $102,614 to $118,517 primarily
due to the acquisitions of TeleCine in May 1998 ($14,652) and Sound One in June
1999 ($2,247) and to the formation of Todd-AO DVD ("TAO DVD") in May 1998 to
provide DVD product services to the major Hollywood studios and others ($3,831).
These increases were offset by lower utilization and activity in the Company's
sound services divisions ($3,860) and the Company's other video services
divisions ($967).

Operating costs and other expenses increased $13,856 or 16.7% from
$83,034 to $96,890. Cost increases are primarily related to the TeleCine
($11,137) and Sound One ($1,887) acquisitions and to the formation of TAO DVD
($1,636). Costs in connection with the Company's other sound and video services
divisions decreased as a result of the revenue decreases described above.

For fiscal year 1999, restructuring and other charges pertains to one
of the Company's sale/leaseback agreements which matures December 1999. As of
August 31, 1999 the lease commitment amount exceeded the estimated fair value of
the equipment, as determined by an independent valuation, by approximately $788.
The Company recorded a pre-tax loss on equipment lease commitments in this
amount. This amount is less than a pre-tax restructuring charge of $2,767
recorded by the Company in the previous year to recognize the impairment of
certain assets.

Depreciation and amortization increased $2,144 or 20.1% primarily due
to the equipment and goodwill acquired with the TeleCine and Sound One
acquisitions and to current year capital expenditures.

Interest expense increased $1,810 or 100.2% primarily due to the
TeleCine and Sound One acquisitions financing.

Net equipment lease expense increased $1,249 primarily as a result of
the sale/leaseback to the Company's financial institution of certain equipment
in December 1998.

Net other expense increased $986 primarily due to employment severance
costs ($612) and a provision for post retirement benefits in connection with
Todd-AO Filmatic.

The effective income tax rate increased from 26.5% to 35.7% primarily
due to the termination of a state income tax credit program.

As a result of the above, income before taxes and net change in
accounting principles decreased $2,163 from $4,649 to $2,486 and net income
before net change in accounting principles decreased $1,813 from $3,419 to
$1,606.

The Company has elected early adoption of Statements of Position No.
98-5, "Reporting on the Costs of Start-Up Activities" and is reporting the
cumulative effect of a change in accounting principles, 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 election described above, net income after net
change in accounting principles decreased $2,106 from $3,419 to $1,313.

MATERIAL CHANGES IN CASH FLOWS

For the year ended August 31, 1999, the Company generated $13,085 in
cash from operating activities compared to $16,964 in 1998. Cash provided by
operating activities from net income of $1,313, adjusted for depreciation and
net amortization of $10,404 and augmented by a decrease in receivables of
approximately $1,000 was utilized primarily to fund capital expenditures.

Net cash generated by proceeds from the sale/leaseback of certain
equipment and net borrowings from the Company's credit facility totaling $28,661
were used to reinvest in capital assets of the Company and to fund the
acquisition of Sound One.

OTHER BUSINESS INFORMATION

On September 24, 1999, the Company retained BAS to render an opinion to
the Board of Directors on the proposed merger transaction with Liberty Media and
to advise the Board concerning the consideration to be received by current Class
A stockholders in this transaction. On October 14, 1999, the Company's Board of
Directors received a favorable oral report from BAS regarding the fairness of
this proposed transaction to all current Company Class A shareholders. BAS
announced that a fairness opinion shall be issued in writing, once a definitive
merger agreement has been signed by the parties.

On July 30, 1999, the Company entered into a Letter of Intent with
Liberty Media in which Liberty Media shall acquire control of Todd-AO in a
tax-free transaction. Under the terms of the Letter of Intent, fifty percent
(50%) of Todd-AO's outstanding Class A stock and one hundred percent (100%) of
Todd-AO's outstanding Class B stock shall be converted into shares of AT&T's
Class A Liberty Media Group Tracking Stock at the conversion rate of 1 share of
Liberty Media Group Stock for each 2.5 shares of Todd-AO's Class A and Class B
stock. The transaction will result in the issuance of approximately 2.5 million
shares of Class A Liberty Media Group Stock. The merger is subject to the
delivery of a fairness

opinion by a financial advisor and the approval of Todd-AO's stockholders as
well as other customary closing conditions.

On September 22, 1999, the Company, through its wholly owned
subsidiary, Todd-AO, Espana (formerly Todd-AO's Land of the Future),
purchased a fifty percent (50%) interest in a Barcelona-based sound facility
named 103 Estudio, S.L., for $2,010. The purchase agreement includes plans
for expansion of the current Barcelona facility, comprising state-of-the-art
digital dubbing studios designed for foreign language dubbing of feature
films and television programs. New premises near the two existing facilities
have already been acquired. Existing management shall remain in place, and
the Company shall assume two positions on the Board, thereby participating in
all top management policies and decisions of the new company, which shall be
named 103 Todd-AO Estudio, S.L.

On March 4, 1999, the Company and DCVI announced an agreement in
principle to build a studio in Munich, Germany. A non-binding letter of
intent, signed by the Company, Disney Character Voices International, Inc.
("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.

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, 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.

FISCAL YEAR ENDED AUGUST 31, 1998 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1997

Revenues increased $23,643 or 29.9% from $78,971 to $102,614
primarily due to the acquisition of Hollywood Digital ("THD") in June 1997,
the acquisition of Tele-Cine Cell Group plc. ("TeleCine") on May 8, 1998, and
the opening of the new THD Santa Monica facility in late March 1998.
Increases in video services revenues from THD (including Santa Monica),
TeleCine, and the Company's other video divisions of $28,036 were offset by
the Company's sound services, which were down compared to a particularly
strong prior year. This was primarily due to downtime on three sound stages
closed during part of the year for renovation and conversion to advanced
digital technology and to the negative impact of a threatened Screen Actors
Guild strike that caused major delays in motion picture production
industrywide.

Operating costs and other expenses increased $21,279 or 34.5% from
$61,755 to $83,034. Cost increases related to the THD and TeleCine
acquisitions and the new THD Santa Monica facility ($21,021) and the
Company's other video services divisions ($982) were offset by a reduction in
costs for the sound services divisions related to their revenue decreases
described above. These cost reductions were not sufficient to offset the
narrowing of the profit margin in the sound services divisions from the
revenue reductions.

The Company recorded a pre-tax restructuring charge of $2,767 in its
fourth quarter ended August 31, 1998 to recognize the impairment of certain
assets, as determined by an independent valuation. The Company has recently
invested in advanced digital technologies in both the sound and video areas
of post-production. Due to the acceleration in demand by the marketplace for
these advanced technologies, certain older composite digital and analog-based
technologies, primarily in the editing and graphics areas of video
post-production, have experienced a significant reduction in demand. The
Company believes that taking the restructuring charge is a prudent action and
anticipates the impact of changing technology on our business.

The post-tax restructuring charge is $2,034 and the Basic and Diluted
Net Income Per Common Share of the Company excluding this non-recurring expense
would have been $0.55 and $0.51, respectively. The Basic and Diluted Net Income
Per Common Share of the Company including the restructuring charge is $0.34 and
$0.33, respectively.

Depreciation and amortization increased $3,557 or 49.9% primarily due
to the equipment and goodwill acquired with the THD and TeleCine acquisitions
and to current year capital expenditures.

Interest expense increased $887 or 96.4% primarily due to the THD and
TeleCine financing.

Other income - net increased $523. This was primarily due to a suit
settlement in the Company's favor ($200), a net gain from the sale of assets
($156), a reduction in expenses related to the Company's investment in CDP
($199), and a net reduction in expenses from miscellaneous provisions ($123).
This was offset by a decrease in interest income ($184).

The effective income tax rate decreased from 32.9% to 26.5% primarily
due to state income tax credit carryovers.

As a result of the above, income before taxes decreased $4,304 from
$8,953 to $4,649 and net income decreased $2,586 from $6,005 to $3,419.

LIQUIDITY AND CAPITAL RESOURCES

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 terminate on December 30, 1999, December 1, 2002 and December 30,
2005. All the agreements provide for interest based on LIBOR rates.

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.

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. As of August 31, 1999, the Company
had $51,790 outstanding under the credit facility, which has been used
principally to fund the acquisitions described and for capital expenditures.

The Company has exercised its option to purchase for $5,699 the
equipment currently being leased under the sale/leaseback transaction maturing
in December 1999. The purchase will be funded by borrowings under credit
facilities.

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.

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.

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 2000 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 2000. 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.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISKS

The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate risks. The Company has entered into an interest rate
swap to alter its fixed and floating rate mix, and to effectively swap floating
rate exposure to fixed rates lower than those available to the Company if fixed
rate borrowings were made directly. Under the interest rate swap agreement, the
Company agrees with a counter party to exchange, at specific intervals, the
difference between fixed rate and floating rate interest amounts calculated by
reference to an agreed notional principal amount.

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.

FOREIGN CURRENCY RISK

The Company's foreign subsidiary's functional currency is its local
currency. Assets and liabilities of foreign operations are translated into U.S.
dollars using year-end exchange rates. The effects of the foreign currency
translation adjustments are deferred and are included as a component of
stockholders' equity.

At fiscal year-end August 31, 1999 the Company's only foreign
currency denomination was the British pound which has been stable relative to
the United States dollar. Total revenues denominated in the British pound for
the fiscal year ended August 31, 1999 were approximately 33% of total
revenues and assets denominated in the British pound were approximately 30%
of total assets.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See Item 14 in Part IV of this 10-K Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

On August 31, 1999, the executive officers and directors of the
Company are as follows:

NAME AGE POSITION WITH COMPANY
- ---- --- ----------------------

Salah M. Hassanein (1)............ 78 President, Chief Executive Officer and Director
M. David Cottrell................. 43 Vice President of Administration
Silas R. Cross.................... 60 Vice President, Treasurer and Assistant Secretary
Clay M. Davis..................... 53 Vice President
J.R. DeLang....................... 43 Senior Vice President and Director
Graham Hall....................... 41 Director of Todd-AO Europe Holding Company Ltd.
Coburn T. Haskell................. 47 Vice President and Controller
Richard C. Hassanein.............. 48 Vice President and Director
Christopher D. Jenkins............ 44 Senior Vice President and Director
Jeremy Koch....................... 58 Senior Vice President
Marshall Naify (1)................ 79 Co-Chairman of the Board of Directors
Robert A. Naify (1)............... 77 Co-Chairman of the Board of Directors
Richard O'Hare.................... 46 Vice President and President of Todd-AO Video Services
Kathleen N. Reck.................. 58 Vice President Human Resources
Judi M. Sanzo..................... 41 Vice President, General Counsel and Secretary
David Haas (3).................... 58 Director
Herbert L. Hutner (2)(3).......... 90 Director
Robert I. Knudson................. 74 Director
David P. Malm (3)................. 35 Director
Michael S. Naify.................. 37 Director
A. Frank Pierce (2)............... 69 Director
Sydney Pollack.................... 65 Director
Zelbie Trogden (2)(3)............. 63 Director

- --------------
(1) Member of the Executive Committee.

(2) Member of the Compensation Committee.

(3) Member of the Audit Committee.

Certain officers and directors of the Company were formerly associated
in various capacities with United Artists Communications, Inc. ("UACI"), now
known as United Artists Theatre Circuit, Inc., a motion picture theater company.
UACI owned approximately 85% of the Company's common stock until 1986.

Salah M. Hassanein was elected as a Director in 1962. In July 1996, Mr.
Hassanein was appointed the President and Chief Executive Officer of the
Company. From 1994 to 1996, he served as President and Chief Operating Officer.
Prior to 1994, Mr. Hassanein was the Company's Senior Executive Vice President.
Mr. Hassanein also served as President of Warner Bros. International Theatres
Co. from 1988 to June 30, 1994. Mr. Hassanein previously served as Executive
Vice President and director of UACI and President of United Artists Eastern
Theatres, Inc. Mr. Hassanein is a principal of SMH Entertainment, Inc. and a
director of Software Technologies Corporation and Nuesoft Technologies, Inc.

M. David Cottrell was appointed Vice President of Administration for
the Company in 1998. Mr. Cottrell was formerly Executive Vice President and
Chief Financial Officer for Todd-AO/Hollywood Digital from 1993 to 1998.
Previously, he was Vice President of Finance for The Post Group Inc.

Silas R. Cross became a Vice President of the Company in 1988. In 1995,
he was appointed Treasurer and Assistant Secretary. Mr. Cross previously served
as Assistant Treasurer of UACI, and has served the Company in various capacities
since 1965.

Clay M. Davis was appointed a Vice President of the Company in 1996.
Mr. Davis previously served as Vice President of Engineering of the Todd-AO
Studios since 1989.

J.R. DeLang was elected a Director in 1993. He has been the Senior Vice
President of the Company and the Executive Vice President of the Company's
Todd-AO Studios division since 1993. Mr. DeLang previously served as Vice
President of Sales and Marketing of Todd-AO Studios from 1988 to 1993 and
Director of Sales and Marketing from 1987 to 1988. Mr. DeLang resigned from the
Board of Directors on September 15, 1999.

Graham Hall was appointed Director of Todd-AO Europe Holding Company
Ltd. and TeleCine Ltd. in January 1999. Mr. Hall has also served as Managing
Director of Todd-AO UK since March 1990. From 1982 to 1990, Mr. Hall was
employed by Rank Video Services where he held various engineering positions,
ultimately advancing to Technical Development Manager.

Coburn T. Haskell has served as Vice President and as Controller of the
Company since 1995. Prior thereto, he served as Controller of Todd-AO Studios
from 1994 to 1995. Mr. Haskell joined the Company in 1990 as Assistant
Controller of Todd-AO Studios, having received his CPA certification while
employed by KPMG Peat Marwick from 1988 to 1990. Previously, Mr. Haskell was
Controller of American Fiber Optics Corporation.

Richard C. Hassanein has served as Vice President of the Company and
Director since 1993. Mr. Hassanein was appointed President of the Company's
subsidiary, Todd-AO Studios West in 1997. He was Executive Vice President of
Todd-AO Studios West from 1995 to 1997. From 1991 to 1995, he served as
Executive Vice President of the Company's subsidiary, Todd-AO Studios East.
Previously, he was President of United Film Distribution Co.
Mr. Hassanein is the son of Salah M. Hassanein.

Christopher D. Jenkins has been a Senior Vice President and Director of
the Company since 1987. He was appointed President of Todd-AO Studios in 1990
and served as Vice President from 1987 to 1990. He is currently a lead sound
mixer for the Company, and has won two Academy Awards-Registered Trademark- for
sound. Mr. Jenkins resigned from the Board of Directors on September 15, 1999.

Jeremy Koch was appointed Senior Vice President of the Company in June
1999. He is also the President of the Company's newly acquired subsidiary, Sound
One Corporation. Prior to the acquisition, Mr. Koch served as President of Sound
One Corporation from 1993 to 1999.

Marshall Naify was elected a Director in 1964, and currently serves as
Co-Chairman of the Board. He served as Chairman of the Board during the period
of 1990 until July 1996. From 1995 until July 1996, he also served as Co-Chief
Executive Officer. Mr. Naify previously served as Chairman of the Board and
Co-Chief Executive Officer of UACI. Mr. Naify is an investor. He is the brother
of Robert A. Naify.

Robert A. Naify was elected a Director in 1959 and serves as
Co-Chairman of the Board. Mr. Naify served as Co-Chairman and Co-Chief Executive
Officer from 1995 until July 1996. He previously served as President and Chief
Executive Officer during the period of 1990 until 1994. Mr. Naify also served as
President and Co-Chief Executive Officer of UACI. Mr. Naify is an investor and
is a director of Tele-Communications, Inc. He is the brother of Marshall Naify.
Robert A. Naify resigned from the Board of Directors on September 15, 1999.

Richard O'Hare was appointed Vice President of the Company in 1997. He
has served as President of Todd-AO Video Services since 1994 and previously
served as the President of Film Video Masters, its predecessor, from 1988 until
its acquisition by the Company in 1994. Previously, Mr. O'Hare was Vice
President of Twentieth Century Fox Film Corporation.

Kathleen N. Reck was appointed Vice President Human Resources of the
Company in 1997. She has served as Director of Human Resources since 1986.
Previously, Ms. Reck was an employee of Glen Glenn Sound.

Judi M. Sanzo was appointed Vice President, General Counsel, and
Secretary of the Company in 1998. Ms. Sanzo brings to Todd-AO a considerable
background in legal affairs and, most recently, in private practice where she
specialized in litigation, business counseling and administrative proceedings.
She is a member of the California and Massachusetts bars.

David Haas was elected a Director in October 1996. Mr. Haas has been a
financial consultant since 1995, and has assisted clients in financial planning,
financing and the negotiation and structuring of acquisitions. From 1990 to
1994, Mr. Haas served as Senior Vice President and Controller of Time Warner
Inc. He is currently a director of Information Holdings, Inc.

Herbert L. Hutner was elected as a Director in 1987. He is an investor
and a financial consultant. Mr. Hutner was a Director of UACI from 1965 to 1986
and served as Chairman of the President's Advisory Commission on the Arts,
Kennedy Center, from 1982 to 1988.

Robert I. Knudson was elected as a Director in 1983, and currently
serves as a consultant to the Company. He was previously an Executive Vice
President of the Company and served as President of Todd-AO Studios from 1981
until 1990. During his tenure as a lead sound mixer for the Company, Mr. Knudson
won three Academy Awards-Registered Trademark- for sound.

David P. Malm was elected a Director in 1997. He is currently a partner
of Halpern, Denny & Company, a Boston based private equity investment firm, a
director of Tealuxe, Inc., E-Z Serve/Swifty Mart Convenience Stores, Ecce Panis,
Inc., H.C. Shaw Company, and Chairman of Brown Broadcasting Service, Inc. Prior
to forming Halpern, Denny & Company in 1991, Mr. Malm was affiliated with Bain
Capital, a private equity investment firm, and Bain & Company, a corporate
strategy consulting firm. He also previously worked in the Investment Banking
Group at Morgan Stanley & Company.

Michael S. Naify was elected a Director in 1993. He was previously Vice
President of the Company, serving in that capacity from 1993 to 1994. He is the
son of Marshall Naify.

A. Frank Pierce was elected as a Director in October 1996. Mr. Pierce
currently acts as an international consultant providing services related to
motion picture distribution. From January 1993 to June 1996, Mr. Pierce served
as Senior Vice President of Europe Theatrical Distribution for Time Warner
Entertainment. From 1972 to 1993, he served as Vice President of Europe
Theatrical Distribution for Warner Bros. International. From 1955 to 1972, Mr.
Pierce served in numerous international positions within the motion picture
industry including Managing Director of Italy for Paramount Pictures
International and management positions in four Latin American countries for
Columbia Pictures International.

Sydney Pollack, the renowned Academy Award-Registered Trademark-
- -winning director, was elected a director in 1998. Mr. Pollack's 17 films have
received 46 Academy Award-Registered Trademark- nominations including four for
Best Picture. His film OUT OF AFRICA won seven Oscars including Best Picture
and Best Director. In addition to winning the New York Film Critics' Award for
his 1982 film TOOTSIE, Mr. Pollack won the Golden Globe for Best Director twice,
the National Society of Film Critics Award, and the NATO Director of the Year
Award. Mr. Pollack formed Mirage Enterprises in 1985, which produces motion
picture feature films. He is a founding member of The Sundance Institute, The
Chairman Emeritus of The American Cinematheque, and serves on the Board of
Directors of the Film Preservation Board and The Motion Picture and Television
Fund Foundation.

Zelbie Trogden was elected a Director in 1994. He has been a financial
consultant and was a director of Citadel Holding Corporation and Fidelity
Federal Bank from 1993 to 1994. Prior thereto, he held various executive
positions with Bank of America and Security Pacific National Bank from 1960 to
1993.

ITEM 11. EXECUTIVE COMPENSATION.

SUMMARY COMPENSATION TABLE. Non-Management directors (7) receive $10,000 per
year for their services as directors. All other directors receive no cash
compensation for their services as directors. The following table shows, for the
years ended August 31, 1999, 1998 and 1997 all forms of compensation for the
Chief Executive Officer and each of the most highly compensated executive
officers of the Company whose total annual salary and bonus exceeded $100,000
for the year ended August 31, 1999.

ANNUAL COMPENSATION(1) LONG-TERM
---------------------- COMPENSATION
------------
NO. OF
SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS COMPENSATION($)
- --------------------------- ------ ----------- ----------- ------------ ---------------

Salah M. Hassanein 1999 221,160 (2) -- -- --
President and Chief Executive Officer 1998 250,000 (2) 241,813 (3) -- --
The Todd-AO Corporation 1997 123,250 (2) 231,875 (3) 76,000 --

J.R. DeLang 1999 450,625 -- -- 16,000 (4)
Senior Vice-President 1998 469,297 (4) -- -- 16,000 (4)
The Todd-AO Corporation 1997 403,490 (4) -- 7,600 15,000 (4)

Christopher D. Jenkins 1999 739,408 (5) -- -- 6,068 (5)
President 1998 962,027 (5) -- -- 6,068 (5)
Todd-AO Studios 1997 709,306 (5) -- 7,600 4,687 (5)

Clay M. Davis 1999 242,892 -- 5,000 6,068 (6)
Vice President 1998 253,815 -- -- 6,068 (6)
The Todd-AO Corporation 1997 246,534 -- 11,650 4,687 (6)

Richard O'Hare 1999 288,938 -- 10,000 16,000 (7)
President 1998 204,677 -- 4,050 16,000 (7)
Todd-AO Video Services 1997 210,922 -- 7,600 15,000 (7)

- ----------

(1) The column for "Other Annual Compensation" has been omitted because
there is no compensation required to be reported in such column. The aggregate
amount of perquisites and other personal benefits provided to each officer
listed above is less than 10% of the total annual salary of such officer.

(2) Amounts shown as salary include professional fees of $125,000 for 1999
and 1998, and $87,500 for 1997.

(3) Class A Common Stock bonus of 50,000 shares valued at grant date at
$241,813 for 1998 and 50,000 shares valued at grant date at $231,875 for 1997.

(4) 1998 and 1997 salary amounts include non-qualified stock option
exercise compensation of $49,198 and $82,913, respectively. Amounts shown as
"All Other Compensation" represent contributions made by the Company to its
401(k) Plan for 1999, 1998 and 1997 on Mr. DeLang's behalf.

(5) 1998 salary includes non-qualified stock option exercise compensation
of $129,360. Amounts shown as salary also include compensation of $639,408,
$732,667, and $609,306 for 1999, 1998 and 1997, respectively, attributable to
services as a sound mixer. Amounts shown as "All Other Compensation" represent
contributions made by the Company under a collective bargaining agreement to the
Motion Picture Industry Pension Plan on Mr. Jenkins' behalf.

(6) 1998 and 1997 salary amounts include non-qualified stock option
exercise compensation of $27,693 and $36,988, respectively. Amounts shown as
"All Other Compensation" represent contributions made by the Company under a
collective bargaining agreement to the Motion Picture Industry Pension Plan on
Mr. Davis' behalf.

(7) Amounts shown as "All Other Compensation" represent contributions made
by the Company to its 401(k) Plan on Mr. O'Hare's behalf.

OPTION/SAR GRANTS TABLE

The following table shows all individual grants of stock options during
the fiscal year ended August 31, 1999 to each of the executive officers named in
the Summary Compensation Table:

OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
- ----------------------------------------------------------------------------- ---------------------------------
% OF TOTAL
OPTIONS
GRANTED TO
EMPLOYEES EXERCISE
OPTIONS IN FISCAL OR BASE EXPIRATION
NAME GRANTED (#) YEAR PRICE ($/SH) DATE 5% ($) 10% ($)
- --------------------------- ------------------------------------------------ ---------------------------------

Richard O'Hare 10,000 14.18% $9.50 8/31/2004 34,082 62,783
Clay M. Davis 5,000 7.09% $8.50 8/31/2004 10,450 22,835

OPTION EXERCISES AND VALUE TABLE

The following table shows each exercise of stock options during the
fiscal year ended August 31, 1999 by each of the executive officers named in the
Summary Compensation Table, together with respective aggregate values of
unexercised options as at August 31, 1999.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
---------------------------------------------------------
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT AUGUST 31, 1999 AT AUGUST 31, 1999
-------------------------- ---------------------------
SHARES
ACQUIRED VALUE
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- --------------- ----------- -------------------------- ---------------------------

Salah M. Hassanein -- -- 222,600 30,400 $2,091,974 $188,115
J.R. DeLang -- -- 49,560 3,040 $442,800 $18,812
Christopher D. Jenkins -- -- 49,560 3,040 $439,093 $18,812
Clay M. Davis -- -- 23,250 9,500 $196,055 $56,286
Richard O'Hare -- -- 18,370 14,280 $142,992 $76,365

Employment Agreements

The Company has employment agreements with Messrs. Jenkins, Davis and
O'Hare. Under Mr. Jenkins' agreement (expiring December 31, 2000), compensation
for sound mixing services is paid on an hourly basis at four times the minimum
supervisor union rate. Mr. Jenkins receives an additional $100,000 per year for
management and administrative services. Mr. Davis' agreement (expiring February
28, 2002) provides for a salary of $240,000, $250,000 and $260,000 for the
twelve months ending February 28, 2000, 2001 and 2002, respectively. Mr.
O'Hare's agreement (expiring August 31, 2001) provides for a salary of $260,000
and $280,000 for the twelve months ending August 31, 2000 and 2001,
respectively.

None of the foregoing agreements include any termination or
change-in-control payments. The Company's stock option plans provide that the
unvested portion of the awards will become vested and exercisable in connection
with a change-in-control.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.

PRINCIPAL SHAREHOLDERS

The following table sets forth information with respect to the
beneficial ownership of the Company's outstanding Common Stock as of November
11, 1999 by (i) each person known by the Company to be the beneficial owner of
more than 5% of the outstanding shares of Common Stock, (ii) each director or
executive officer of the Company who beneficially owns any shares, and (iii) all
directors and executive officers of the Company as a group. Except as otherwise
indicated, the persons listed below have sole voting and investment power with
respect to all shares of Common Stock owned by them, except to the extent such
power may be shared with a spouse.

NUMBER OF SHARES BENEFICIALLY
OWNED PERCENT (2) OPTIONS (3)
------------------------------- ----------------------- -------------
NAME (1) CLASS A CLASS B CLASS A CLASS B CLASS A
- -------- --------------- ------------- ----------- ---------- -------------

M. David Cottrell................ 6,780 0 .08% 0% 6,280
Silas R. Cross................... 14,230 0 .17% 0% 9,830
Clay M. Davis.................... 37,500 0 .46% 0% 26,500
J.R. DeLang...................... 73,080 0 .89% 0% 51,080
David Haas....................... 30,200 0 .37% 0% 15,200
Coburn Haskell................... 10,080 0 .12% 0% 8,080
Richard C. Hassanein............. 32,180 0 .39% 0% 31,080
Salah M. Hassanein............... 813,843 0 9.72% 0% 237,800
Herbert L. Hutner................ 28,100 0 .34% 0% 19,000
Christopher D. Jenkins........... 73,080 0 .89% 0% 51,080
Robert I. Knudson................ 83,169 0 1.02% 0% 23,580
Jeremy Koch...................... 135,000 0 1.66% 0% 0
David P. Malm.................... 9,447(4) 0 .12% 0% 7,920
Richard O'Hare................... 22,700 0 .28% 0% 22,700
Frank Pierce..................... 15,200 0 .19% 0% 15,200
Sydney Pollack................... 7,700 0 .09% 0% 7,700
Kate Reck........................ 6,240 0 .08% 0% 6,240
Judi M. Sanzo.................... 7,620 0 .09% 0% 7,620
Zelbie Trogden................... 20,120 0 .25% 0% 20,120
Marshall Naify (8)............... 1,279,683(5) 678,838 15.52% 38.85% 107,000
Michael S. Naify (8)............. 221,347(7) 0 2.72% 0% 15,200
Robert A. Naify (8).............. 1,251,174(6) 906,290 15.18% 51.87% 107,000
Other Naify Interests (8)........ 755,178 118,508 8.51% 6.78% 0
All directors and current executive
officers as a group (21 persons). 2,927,299 678,838 33.17% 38.85% 689,210
- -----------

(1) The address of each of the beneficial owners identified is 900 N.
Seward Street, Hollywood, California 90038.

(2) Based on 8,136,653 shares of Class A Common Stock and 1,747,178 shares
of Class B Common Stock outstanding at November 11, 1999. Pursuant to the rules
of the Commission, certain shares of Common Stock which a person has the right
to acquire within 60 days of the date hereof pursuant to the exercise of stock
options are deemed to be outstanding for the purpose of computing the percentage
ownership of such person but are not deemed outstanding for the purpose of
computing the percentage ownership of any other person.

(3) Class A Common Stock options exercisable within 60 days.

(4) Includes 1,527 shares beneficially owned by Mr. Malm, which are
issuable upon conversion of certain convertible subordinated notes acquired in
connection with the Company's acquisition of Hollywood Digital.

(5) Includes 1,172,683 shares of Class A Common Stock held by trusts for
which Mr. Naify is both trustee and beneficiary. Excludes 72,080 shares of Class
A Common Stock held by an independent trustee for the benefit of Mr. Naify's
children. Mr. Naify disclaims beneficial ownership of the shares held by the
independent trustee.

(6) Includes 1,144,174 shares of Class A Common Stock held by trusts for
which Mr. Naify is both trustee and beneficiary. Excludes 472,482 shares of
Class A Common Stock held of record or beneficially by Mr. Naify's adult
children and grandchildren as to which he disclaims beneficial ownership.

(7) Excludes 2,326 shares of Class A Common Stock held by an independent
trustee for the benefit of his child.

(8) The Naify Interests (consisting of Marshall Naify, Robert A. Naify,
various members of their families and trusts for the benefit of such members)
may be deemed to constitute a "group" for purposes of Sections 13(d) and 13(g)
of the Securities Exchange Act of 1934. The total Class A and B Stock
beneficially owned by The Naify Interests as of November 11, 1999 is 3,507,382
(41.92%) and 1,703,636 (97.51%), respectively.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

None.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.

(a) Financial Statements and Schedules are as listed in the "Index to
Financial Statements and Schedule" on page 29 of this 10-K Report.

(b) A report on Form 8-K was filed on June 21, 1999 disclosing the
acquisition by merger agreement of all the issued and outstanding
common stock of Sound One Corporation.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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

December 7, 1999 By /s/ Silas R. Cross
------------------------------------
Silas R. Cross
Vice President, Treasurer
and Principal Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

December 7, 1999 By /s/ Salah M. Hassanein December 7, 1999 By /s/ Marshall Naify
---------------------- ----------------------
Salah M. Hassanein Marshall Naify
Director, President and Chairman of the
Chief Executive Officer Board of Directors

December 7, 1999 By /s/ David P. Malm December 7, 1999 By /s/ Richard Hassanein
------------------- -----------------------
David P. Malm Richard Hassanein
Director Vice President and
Director

December 7, 1999 By /s/ Sydney Pollack December 7, 1999 By /s/ Michael S. Naify
------------------- -----------------------
Sydney Pollack Michael S. Naify
Director Director

December 7, 1999 By /s/ Robert I. Knudson December 7, 1999 By /s/ Zelbie Trogden
------------------- -----------------------
Robert I. Knudson Zelbie Trogden
Director Director

December 7, 1999 By /s/ Herbert L. Hutner December 7, 1999 By /s/ A. Frank Pierce
------------------- ----------------------
Herbert L. Hutner A. Frank Pierce
Director Director

December 7, 1999 By /s/ David Haas
-------------------
David Haas
Director

EXHIBIT INDEX

EXHIBIT
NO. DESCRIPTION
- --------- -----------

3.1 Amended and Restated Certificate of Incorporation of The Todd-AO
Corporation is incorporated by reference from Registrant's
Information Statement dated May 13, 1996.

3.2 Registrant's Bylaws are incorporated by reference from the
Registrant's Proxy Statement dated April 2, 1990.

4.1 Specimen copy of class A Common Stock Certificate is incorporated by
reference from the Registrant's Registration Statement on Form S-2,
as filed on February 2, 1988 (Registration No. 33-19279).

10.1 Asset Purchase Agreement dated March 3, 1986 between the Todd-AO
Corporation and Republic Corporation is incorporated by reference
from the Registrant's Report on Form 8-K filed on March 14, 1986.

10.2 License Agreement dated April 16, 1987 between the CBS/MTM Company
and the Todd-AO Corporation in incorporated by reference from the
Registrant's Report on Form 10-K for the fiscal year ended August 31,
1987.

10.3 License Agreement dated September 27, 1991 between the CBS/MTM
Company and The Todd-AO Corporation in incorporated by reference from
the Registrant's Form 10-K for the fiscal year ended August 31, 1991.

10.7 Amended and restated lease dated as of June 18, 1992 between West
54th Street Partners L.P., successor in interest to Rita Silver,
(Landlord) and Todd-AO Studios East, Inc. (Tenant) with respect to
premises consisting of the 7th and 8th floors at 247-59 West 54th
Street, New York, NY is incorporated by reference from the
Registrant's Form 10-K for the fiscal year ended August 31, 1993.

10.11 Employment Agreement dated as of November 8, 1996 between The Todd-AO
Corporation and Christopher D. Jenkins is incorporated by reference
from the Registrant's Form 10-Q filed on April 10, 1997.

10.12 Asset Purchase Agreement dated as of August 30, 1994 by and among
Todd-AO Video Services, Paskal Video and Joseph S. Paskal is
incorporated by reference from the Registrant's Form 8-K filed on
September 14, 1994.

10.13 Lease Agreement dated as of August 31, 1994 between Joseph S. Paskal,
Trustee, and Todd-AO Video Services is incorporated by reference from
the Registrant's Form 8-K filed on September 14, 1994.

10.21 Lease intended as a Security dated December 27, 1994 between The
Todd-AO Corporation and BA Leasing and Capital Corporation is
incorporated by reference from the Registrant's Form 10-Q filed on
January 13, 1995.

10.22 Lease intended as a security dated November 3, 1997 between Todd-AO
Studios West and BA Leasing and Capital Corporation is incorporated
by reference from the Registrant's Form 10-K filed on November 19,
1997.

EXHIBIT
NO. DESCRIPTION
- --------- -----------

10.23 Asset Purchase Agreement dated as of February 13, 1995 between
Todd-AO Studios West and Kaytea Rose, Inc. (dba Skywalker Sound
South) is incorporated by reference from the Registrant's form 8-K
filed on February 27, 1995.

10.24 Real Property Purchase Agreement (including Exhibits) dated as of
February 13, 1995 between Todd-AO Studios West and Kaytea Rose, Inc.
is incorporated by reference from the Registrant's Form 8-K filed on
February 27, 1995.

10.25 Assignment and Assumption Agreement dated as of February 3, 1995 by
and among Todd-AO Studios West, The Todd-AO Corporation, Lucasfilm
Ltd., Lucas Holdings, Inc., Lucas Digital Ltd. and Lantana Center is
incorporated by reference from the Registrant's Form 8-K filed on
February 27, 1995.

10.26 Lease dated as of May 21, 1989 between Lantana Center as Landlord and
Lucasfilm Ltd. as Tenant, as amended by documents dated March 27,
1990 and November 8, 1990 is incorporated by reference from the
Registrant's Form 8-K filed on February 27, 1995.

10.27 Agreement for the acquisition of the entire issued share capital of
Chrysalis Television Facilities Ltd. dated as of March 16, 1995
between FCB 1120 Ltd. (subsequently Todd-AO Europe Holdings Ltd.) and
Chrysalis Holdings Ltd. is incorporated by reference from the
Registrant's Form 8-K filed March 31, 1995.

10.28 Tax Deed dated as of March 16, 1995 between FCB 1120 Ltd. and
Chrysalis Holdings Ltd. is incorporated by reference from the
Registrant's Form 8-K filed on March 31, 1995.

10.29 Performance Guarantee dated March 16, 1995 between The Todd-AO
Corporation and Chrysalis Holding Ltd. is incorporated by reference
from the Registrant's Form 8-K filed on March 31, 1995.

10.30 Agreement for the acquisition of the entire issued share capital of
Filmatic Laboratories Ltd. dated as of April 18, 1996 between David
L. Gibbs, Ian Magowan and Todd-AO Europe Holding Company Ltd. is
incorporated by reference to the Registrant's Form 10-Q for the
quarter ended May 31, 1996.

10.31 Asset Purchase Agreement dated August 13, 1996 by and among The
Todd-AO Corporation (Purchaser), Edit Acquisition LLC (Seller), Edit
Group L.P., Patrick H. Furlong, Margie F. Furlong, and James V.
Furlong (Members) and Margie F. Furlong, Patrick H. Furlong, K.
Robert Draughon and Robert Martin (Guarantors), incorporated by
reference from the Registrant's Form 8-K and 8-K/A filed on August
28, 1996 and September 17, 1996, respectively.

10.32 Agreement and Exhibits for the Purchase and Sale of Assets dated June
18, 1997 among The Todd-AO Corporation, Todd-AO HD, Inc. and
Hollywood Digital Limited Partnership, Hollywood Digital Inc., The
Palladion Limited Partnership, HDZ Digital Limited Partnership,
Phemus Corporation, Rand Gladden, William Romeo, David Cottrell and
Michael Jackson is incorporated by reference from the Registrant's
Form 8-K filed on July 7, 1997.

10.34 Recommended Offer by Astaire and Partners Limited on behalf of
Todd-AO Europe Holding Company Limited (a wholly owned subsidiary of
The Todd-AO Corporation) for the entire issued and to be issued
ordinary share capital of Tele-Cine Cell Group plc. is incorporated
by reference from the Registrant's Form 8-K filed on May 18, 1998.

EXHIBIT
NO. DESCRIPTION
- --------- -----------

10.35 Joint Venture Agreement dated September 8, 1998 between The Todd-AO
Corporation and United Artists Theatre Circuit, Inc. is incorporated
by reference from the Registrant's Form 10-K filed on November 19,
1998.

10.36 Lease Intended as Security dated as of December 30, 1998 between BA
Leasing and Capital Corporation and The Todd-AO Corporation is
incorporated by reference from the Registrant's Form 10-Q filed on
January 13, 1999.

10.36a Appendix to Lease Intended as Security dated as of December 30, 1998
between BA Leasing and Capital Corporation and The Todd-AO
Corporation is incorporated by reference from the Registrant's Form
10-Q filed on January 13, 1999.

10.37 Merger Agreement among The Todd-AO Corporation, Todd-AO East, Inc.,
and Sound One Corporation dated as of June 8, 1999 is incorporated by
reference from the Registrant's Form 8-K filed on June 21, 1999.

10.38 Credit Agreement dated as of June 30, 1999 by and among The Todd-AO
Corporation, Union Bank of California, N.A., Societe Generale, Sanwa
Bank California, and Bank of America National Trust and Savings
Association, as Administrative Agent and Issuing Bank is filed
herewith.

10.39 Purchase Agreement dated as of September 22, 1999 between 103
Estudio, S.A. and Todd-AO, Espana is filed herewith.

11.1 Computation of Per Share Earnings.

See Note 1 of Notes to Financial Statements.

12.1 Computation of Earnings to Fixed Charges.

Not applicable.

13.1 Annual Report to Stockholders.

The Annual Report to Stockholders will consist of this Form 10-K
Report.

18.1 Changes in Accounting Principles.

See Note 1 of Notes to Financial Statements.

21.1 Subsidiaries of the Registrant

Todd-AO Studios East, Inc., incorporated in New York (parent).
SUBSIDIARIES
Sound One Corporation, incorporated in New York.

Todd-AO Studios, incorporated in California.

Todd-AO Studios West, incorporated in California.

Todd-AO Video Services, incorporated in California.

EXHIBIT
NO. DESCRIPTION
- --------- -----------

Todd-AO DVD, Inc., incorporated in California.

Todd-AO Hollywood Digital, incorporated in California.

Todd-AO Europe Holding Company Ltd., incorporated in the U.K. (parent)
SUBSIDIARIES
Todd-AO UK, Ltd, incorporated in the U.K.
Todd-AO Filmatic Laboratories Ltd., incorporated in the U.K.
Tele-Cine Cell Group Ltd., organized in the U.K. (parent)
SUBSIDIARIES
Tele-Cine Ltd., incorporated in the U.K.
XTV Ltd., incorporated in the U.K.
XTV Cell, Ltd., incorporated in the U.K. (inactive).
Silver Digital Ltd., incorporated in the U.K. (inactive).
File Exchange Ltd., incorporated in the U.K. (inactive).

Todd-AO, Espana (formerly Todd-AO's Land of the Future),
incorporated in California.

Todd-AO Digital Images, incorporated in California (inactive).

Hollywood Supply Company, incorporated in California (inactive).

Todd-AO Productions, Inc., incorporated in California (inactive).

Todd-AO Preservation Services, incorporated in California (inactive).

27.1 Financial Data Schedule

Filed herewith.

THE TODD-AO CORPORATION

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

Page

Report of Independent Public Accountants 30

Independent Auditors' Report 31

Consolidated Balance Sheets, August 31, 1998 and 1999 32

Consolidated Statements of Income for the Years Ended
August 31, 1997, 1998 and 1999 34

Consolidated Statements of Stockholders' Equity and Comprehensive
Income (Loss) for the Years Ended August 31, 1997, 1998 and 1999 35

Consolidated Statements of Cash Flows for the Years Ended
August 31, 1997, 1998 and 1999 36

Notes to Consolidated Financial Statements 39

Supplemental Financial Statement Schedule:

II Valuation and Qualifying Accounts For The Years Ended
August 31, 1997, 1998 and 1999 52

Schedules other than those listed above have been omitted because of the
absence of the conditions under which they are required or because the
required information, where material, is shown in the financial statements or
the notes thereto.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Todd-AO Corporation:

We have audited the accompanying consolidated balance sheets of The
Todd-AO Corporation (a Delaware corporation) and its subsidiaries as of
August 31, 1998 and 1999, and the related consolidated statements of income,
stockholders' equity and comprehensive income (loss), and cash flows for the
years then ended. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The Todd-AO
Corporation and its subsidiaries as of August 31, 1998 and 1999, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.

As explained in Note 1 to the consolidated financial statements,
effective September 1, 1998, the Company changed its method of accounting for
the cost of start-up activities in accordance with Statements of Position No.
98-5.

Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in the index
of financial statements is presented for purposes of complying with the
Securities and Exchange Commissions' rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.

/s/ ARTHUR ANDERSEN LLP

Los Angeles, California
November 9, 1999

INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors of
The Todd-AO Corporation:

We have audited the accompanying consolidated statements of income,
stockholders' equity and comprehensive income, and cash flows of The Todd-AO
Corporation and subsidiaries (the "Company") for the year ended August 31,
1997. Our audit also included the financial statement schedule listed in the
Index at Item 14a for the year ended August 31, 1997. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audit.

We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present
fairly, in all material respects, the results of operations of the Company
and its cash flows for the year ended August 31, 1997 in conformity with
generally accepted accounting principles. Also in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.

/s/ DELOITTE & TOUCHE LLP

Los Angeles, California
October 24, 1997

THE TODD-AO CORPORATION

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

ASSETS

AUGUST 31,
---------------------------
1998 1999
------------ -------------

CURRENT ASSETS
Cash and cash equivalents.............................................. $ 3,997 $ 9,739
Marketable securities.................................................. 1,490 1,317
Trade receivables
(net of allowance for doubtful accounts of $1,768 and $1,215 at
August 31, 1998 and 1999, respectively)............................. 18,164 18,169
Income taxes receivable................................................ 1,397 634
Inventories (first-in first-out basis)................................. 783 856
Deferred income taxes.................................................. 532 755
Prepaid deposits and other............................................. 3,628 3,005
------------ ------------
Total current assets................................................... 29,991 34,475
------------ ------------
INVESTMENTS............................................................ 956 892
------------ ------------

PROPERTY AND EQUIPMENT - At Cost:
Land................................................................... 4,270 4,270
Buildings.............................................................. 11,293 17,688
Leasehold improvements................................................. 15,054 18,603
Lease acquisition costs................................................ 2,187 2,187
Equipment.............................................................. 76,172 79,651
Equipment under capital leases......................................... 1,151 1,151
Construction in progress............................................... 1,466 4,803
------------ ------------

Total.................................................................. 111,593 128,353
Accumulated depreciation and amortization.............................. (38,046) (48,305)
------------ ------------

Property and equipment - net........................................... 73,547 80,048
------------ ------------

GOODWILL
(net of accumulated amortization of $1,646 and $2,875 at
August 31, 1998 and 1999, respectively)............................. 29,193 33,875
------------ ------------

OTHER ASSETS........................................................... 1,909 3,890
------------ ------------

TOTAL.................................................................. $ 135,596 $ 153,180
============ ============

See notes to consolidated financial statements.

THE TODD-AO CORPORATION

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(CONTINUED)

LIABILITIES AND STOCKHOLDERS' EQUITY

AUGUST 31,
--------------------------
1998 1999
------------ ------------

CURRENT LIABILITIES:
Accounts payable....................................................... $ 6,464 $ 5,465
Accrued liabilities:
Payroll and related taxes........................................... 3,520 3,089
Interest............................................................ 369 762
Equipment lease..................................................... 569 1,588
Other............................................................... 3,201 4,706
Income taxes payable.............................................. 1,090 2,247
Current maturities of long-term debt................................... 537 979
Capitalized lease obligations - current................................ 422 336
Deferred income........................................................ 897 914
------------ ------------
Total current liabilities.............................................. 17,069 20,086
------------ ------------

LONG-TERM DEBT......................................................... 44,654 65,520
DEFERRED COMPENSATION AND OTHER........................................ 266 208
DEFERRED GAIN ON SALE/LEASEBACK TRANSACTIONS........................... 6,085 4,046
DEFERRED INCOME TAXES.................................................. 5,141 3,254
OTHER.................................................................. 2,061 1,231
------------ ------------

Total liabilities...................................................... 75,276 94,345
------------ ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Common Stock:
Class A; authorized 30,000,000 shares of $0.01 par value;
issued 8,438,700 at August 31, 1998 and 8,124,333
at August 31, 1999.................................................. 84 82
Class B; authorized 6,000,000 shares of $0.01 par value;
issued and outstanding 1,747,178 at August 31, 1998 and 1999........ 17 17
Additional capital..................................................... 40,805 37,887
Treasury stock (235,151 and 6,000 shares at cost
as of August 31, 1998 and 1999, respectively)...................... (2,338) (47)
Retained earnings...................................................... 20,538 21,432

Accumulated other comprehensive income (loss).......................... 1,214 (536)
------------ ------------
Total stockholders' equity............................................. 60,320 58,835
------------ ------------
TOTAL.................................................................. $135,596 $153,180
============ ============

See notes to consolidated financial statements.

THE TODD-AO CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

YEARS ENDED AUGUST 31,
-----------------------------------------
1997 1998 1999
------------ ------------ -------------

REVENUES...................................................... $ 78,971 $ 102,614 $ 118,517
------------ ------------ -------------
COSTS AND EXPENSES:
Operating costs and other expenses............................ 61,755 83,034 96,890
Depreciation and amortization................................. 7,128 10,685 12,829
Interest...................................................... 920 1,807 3,617
Equipment lease expense - net................................. 265 245 1,494
Restructuring and other charges:
Equipment.................................................. -- 2,414 --
Lease costs................................................ -- 353 --
Loss on equipment lease commitments........................ -- -- 788
Other (income) expense - net.................................. (50) (573) (413)
------------ ------------ -------------
Total costs and expenses...................................... 70,018 97,965 116,031
------------ ------------ -------------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND CHANGE IN ACCOUNTING PRINCIPLE......................... 8,953 4,649 2,486
PROVISION FOR INCOME TAXES.................................. 2,948 1,230 880
------------ ------------ -------------
INCOME BEFORE CHANGE IN
ACCOUNTING PRINCIPLE....................................... 6,005 3,419 1,606

CHANGE IN ACCOUNTING PRINCIPLE,
NET OF INCOME TAXES OF $150................................ -- -- (293)
------------ ------------ -------------
NET INCOME.................................................... $ 6,005 $ 3,419 $ 1,313
============ ============ =============

Net income available to common stockholders................... $ 6,005 $ 3,419 $ 1,313

Effect of dilutive securities:
5% convertible debentures.................................. 47 302 --
------------ ------------ -------------
Net income available to common stockholders
plus assumed conversions................................... $ 6,052 $ 3,721 $ 1,313
------------ ------------ -------------
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC........................................ 9,539,312 9,987,429 9,570,187
Effect of dilutive securities:
Stock options.............................................. 549,681 519,565 262,427
5% convertible debentures.................................. 118,510 711,057 --
------------ ------------ -------------
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED...................................... 10,207,503 11,218,051 9,832,614
------------ ------------ -------------
NET INCOME PER COMMON SHARE:
Income before change in accounting principle - Basic....... $ 0.63 $ 0.34 $ 0.17
Change in accounting principle............................. -- -- (0.03)
------------ ------------ -------------
Net income - Basic......................................... $ 0.63 $ 0.34 $ 0.14
============ ============ =============

Income before change in accounting principle - Diluted..... $ 0.59 $ 0.33 $ 0.16
Change in accounting principle............................. -- -- (0.03)
------------ ------------ -------------
Net income - Diluted....................................... $ 0.59 $ 0.33 $ 0.13
============ ============ =============

See notes to consolidated financial statements.

THE TODD-AO CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED AUGUST 31, 1997, 1998 AND 1999
(DOLLARS IN THOUSANDS)

COMMON STOCK ACCUM. OTHER
---------------------------------------- COMPRE- COMPRE-
CLASS A HENSIVE HENSIVE
-------------------- CLASS B ADDITIONAL RETAINED TREASURY INCOME INCOME
SHARES AMOUNT AMOUNT CAPITAL EARNINGS STOCK (LOSS) (LOSS)
---------- ------- ------- ---------- --------- -------- --------- ----------

BALANCE AT AUGUST 31, 1996.......... 6,555,640 $ 65 $ 17 $ 24,291 $12,267 $ -- $ (217) $ --
Exercise of stock options........... 76,564 1 -- 226 -- -- -- --
Tax benefit from exercise
of stock options................. -- -- -- 67 -- -- -- --
Purchase of treasury shares......... -- -- -- -- -- (1,047) -- --
Treasury shares cancellation........ (36,710) -- -- (305) -- 305 -- --
Treasury shares transfer to 401(k) . -- -- -- -- -- 51 -- --
Shares issued in stock offering..... 1,645,000 16 -- 15,512 -- -- -- --
Shares issued for stock award....... 50,000 1 -- 205 -- -- -- --
Unrealized gain on
investment securities............ -- -- -- -- -- -- 52 52
Gain on foreign currency translation -- -- -- -- -- -- 428 428
Cash dividends:
Class A ($.06) per share......... -- -- -- -- (475) -- -- --
Class B ($.054) per share........ -- -- -- -- (86) -- -- --
Net income.......................... -- -- -- -- 6,005 -- -- 6,005
---------- ------- ------- ---------- --------- -------- --------- ----------

BALANCE AT AUGUST 31, 1997.......... 8,290,494 83 17 39,996 17,711 (691) 263 $ 6,485
==========
Exercise of stock options........... 98,206 1 -- 341 -- -- -- --
Tax benefit from exercise
of stock options................. -- -- -- 200 -- -- -- --
Purchase of treasury shares......... -- -- -- -- -- (1,857) -- --
Treasury shares transfer to 401(k) . -- -- -- -- -- 210 -- --
Shares issued for stock award....... 50,000 -- -- 268 -- -- -- --
Unrealized gain on
investment securities............ -- -- -- -- -- -- 104 $ 104
Gain on foreign currency translation -- -- -- -- -- -- 847 847
Cash dividends:
Class A ($.06) per share......... -- -- -- -- (506) -- -- --
Class B ($.054) per share........ -- -- -- -- (86) -- -- --
Net income.......................... -- -- -- -- 3,419 -- -- 3,419
---------- ------- ------- ---------- --------- -------- --------- ----------

BALANCE AT AUGUST 31, 1998.......... 8,438,700 84 17 40,805 20,538 (2,338) 1,214 $ 4,370
==========
Exercise of stock options........... 274,080 3 -- 1,095 -- -- -- --
Tax benefit from exercise
of stock options................. -- -- -- 123 -- -- -- --
Purchase of treasury shares......... -- -- -- -- -- (3,288) -- --
Treasury shares cancellation........ (723,447) (7) -- (5,316) -- 5,323 -- --
Treasury shares transfer to 401(k) . -- -- -- -- -- 256 -- --
Shares issued as compensation....... 135,000 2 -- 1,180 -- -- -- --
Unrealized (loss) on
investment securities............ -- -- -- -- -- -- (148) $ (148)
(Loss) on foreign currency
translation....................... -- -- -- -- -- -- (1,602) (1,602)
Cash dividends:
Class A ($.045) per share........ -- -- -- -- (349 -- -- --
Class B ($.0405) per share....... -- -- -- -- (70 -- -- --
Net income.......................... -- -- -- -- 1,313 -- -- 1,313
---------- ------- ------- ---------- --------- -------- --------- ----------

BALANCE AT AUGUST 31, 1999.......... 8,124,333 $ 82 $ 17 $ 37,887 $21,432 $ (47) $ (536) $ (437)
========== ======= ======= ========== ========= ======== ========= ==========

See notes to consolidated financial statements.

THE TODD-AO CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

YEARS ENDED AUGUST 31,
-----------------------------------------
1997 1998 1999
------------ ------------- ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 6,005 $ 3,419 $ 1,313
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.......................... 7,128 10,685 12,829
Restructuring and other charges........................ -- 2,767 788
Deferred income taxes.................................. 968 327 (2,695)
Tax benefit from exercise of stock options............. 67 200 123
Deferred compensation and other........................ (72) (60) (40)
Foreign currency exchange rate (gain) loss............. (21) 847 (718)
Amortization of deferred gain on
sale/leaseback transaction......................... (1,472) (2,288) (2,425)
(Gain) loss on sale of marketable securities
and investments.................................... (20) (83) (115)
Loss (gain) on disposition of fixed assets............. 103 (209) (254)
Shares issued for stock award.......................... 206 268 --
Changes in assets and liabilities (net of acquisitions):
Trade receivables, net.............................. (1,249) 2,241 1,053
Inventories and other current assets................ (1,133) (526) 645
Accounts payable and accrued liabilities............ 1,149 712 1,202
Accrued equipment lease............................. (21) 290 231
Income taxes payable, net........................... (931) 254 1,900
Provision for liabilities and other................. -- (1,277) (769)
Deferred income..................................... 759 (603) 17
------------ ------------- ------------
Net cash provided by operating activities................... 11,466 16,964 13,085
------------ ------------- ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities and investments......... -- (431) (283)
Proceeds from sale of marketable securities
and investments........................................ 708 1,146 294
Proceeds from disposition of fixed assets................. 87 416 426
Capital expenditures...................................... (13,147) (24,348) (23,176)
Purchase of Sound One..................................... -- -- (12,315)
Purchase of Tele-Cine Cell Group plc...................... -- (15,741) --
Purchase of Editworks..................................... (500) -- --
Purchase of Hollywood Digital............................. (17,761) -- --
Other assets.............................................. (234) 319 1,791
------------ ------------- ------------
Net cash flows used in investing activities................. $ (30,847) $ (38,639) $ (33,263)
------------ ------------- ------------

THE TODD-AO CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(CONTINUED)

YEARS ENDED AUGUST 31,
----------------------------------------
1997 1998 1999
------------ ------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt.............................. $ 23,800 $ 28,101 $ 34,202
Payments on long-term debt................................ (16,309) (13,912) (14,350)
Payments on capital lease obligations..................... (603) (64) (73)
Proceeds from sale/leaseback transaction.................. -- 8,500 8,809
Proceeds from issuance of common stock.................... 15,755 342 1,098
Treasury stock purchases.................................. (996) (1,857) (3,288)
Dividends paid............................................ (561) (592) (419)
------------ ------------ ------------
Net cash flows provided by financing activities: 21,086 20,518 25,979
Effect of exchange rate changes on cash................... 37 27 (59)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS......................................... 1,742 (1,130) 5,742
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR........................................ 3,385 5,127 3,997
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR.............................................. $ 5,127 $ 3,997 $ 9,739
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................. $ 526 $ 1,696 $ 3,130
============ ============ ============
Income taxes.............................................. $ 1,725 $ 860 $ 753
============ ============ ============

SUPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND FINANCING ACTIVITIES:

1999:

In June 1999 the Company acquired substantially all of the outstanding
shares of Sound One Corporation. In connection with the acquisition the
Company paid cash as follows:

Assets acquired:
Property and equipment..................................................... $ 4,069
Trade and other receivables - net.......................................... 1,304
Inventory.................................................................. 108
Deferred tax asset......................................................... 1,000
Other assets............................................................... 1,811
Goodwill................................................................... 7,137
Liabilities assumed:
Accounts payable and accrued liabilities - net............................. 270
Bank loan.................................................................. (833)
Deferred income tax........................................................ (569)
Common stock issued as compensation............................................ (1,182)
Non-compete agreements payable to sellers...................................... (800)
-----------
Cash paid in acquisition....................................................... $ 12,315
===========

1998:

On May 8, 1998 the Company acquired substantially all of the outstanding
shares of Tele-Cine Cell Group plc. In connection with the acquisition the
Company paid cash as follows:

Assets acquired:
Property and equipment..................................................... $ 8,378
Trade and other receivables - net.......................................... 7,755
Investments................................................................ 119
Inventory.................................................................. 200
Goodwill................................................................... 10,699
Liabilities assumed:
Accounts payable and accrued liabilities - net............................. (2,888)
Bank loan.................................................................. (2,638)
Equipment leases........................................................... (438)
Provision for liabilities and charges...................................... (3,239)
Long-term debt issued to sellers............................................... (2,207)
-----------
Cash paid in acquisition....................................................... $ 15,741
===========

1997:

On June 20, 1997, the Company acquired substantially all of the assets and
certain of the liabilities of Hollywood Digital Limited Partnership. In
connection with this acquisition the Company paid cash as follows:

Assets acquired:
Property and equipment..................................................... $ 12,117
Accounts receivable........................................................ 2,640
Goodwill................................................................... 14,100
Other assets............................................................... 344
Liabilities assumed:
Accounts payable and accrued expenses...................................... (2,745)
Deferred rent and notes payable............................................ (296)
Convertible subordinated notes issued to seller................................ (8,399)
-----------
Cash paid in acquisition....................................................... $ 17,761
===========

In July 1997, a non-cash adjustment in connection with the acquisition of
Chrysalis Television Facilities, Ltd. U.K capital allowances in the amount
of $1,056 was made to deferred income taxes and goodwill.

See notes to consolidated financial statements.

THE TODD-AO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND OPTION DATA)

1. SIGNIFICANT ACCOUNTING POLICIES

OWNERSHIP AND BUSINESS - At August 31, 1999, Robert Naify, Marshall
Naify, and certain members of their families and various trusts for the benefit
of family members (the "Naify Interests") owned approximately 53% of the
outstanding shares of The Todd-AO Corporation (the "Company"), representing
approximately 80% of the total voting power.

ON JULY 30, 1999, THE COMPANY ANNOUNCED THAT IT HAD ENTERED INTO A
LETTER OF INTENT WITH LIBERTY MEDIA CORPORATION IN WHICH LIBERTY MEDIA SHALL
ACQUIRE CONTROL OF TODD-AO IN A TAX-FREE TRANSACTION. NEGOTIATIONS WITH LIBERTY
MEDIA ARE IN A FINAL STAGE, AND A DEFINITIVE MERGER AGREEMENT IS IMMINENT.

BASIS OF PRESENTATION - The consolidated financial statements include
the Company and its wholly owned subsidiaries Todd-AO Studios East, Inc. and its
wholly owned subsidiary ("Todd-AO East"), Todd-AO Studios, Todd-AO Studios West
("TSW"), Todd-AO Video Services ("TVS"), Todd-AO DVD, Inc. ("TAO DVD"), Todd-AO
Hollywood Digital ("THD"), Todd-AO Europe Holding Company, Ltd. and its wholly
owned subsidiaries ("Todd Europe"), Todd-AO Productions, Inc., Todd-AO Digital
Images, Hollywood Supply Company, Todd-AO, Espana (formerly Todd-AO's Land of
the Future), and Todd-AO Preservation Services. All significant intercompany
balances and transactions have been eliminated.

CASH AND CASH EQUIVALENTS - The Company considers investments with
original purchased maturities of three months or less to be cash equivalents.

MARKETABLE SECURITIES AND INVESTMENTS - Marketable securities consist
primarily of corporate preferred stocks and bonds. Management has classified all
investment securities as available-for-sale. As a result, securities are
reported at fair value with net unrealized holding gains and losses excluded
from earnings and reported in stockholders' equity. Fair value is based upon
quoted market prices using the specific identification method. Investments
include stock and other investments which management intends to hold for more
than one year.

PROPERTY AND EQUIPMENT - Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed at straight-line rates based upon the estimated useful lives of the
various classes of assets. The principal rates are as follows: buildings, 3-5%
per annum; equipment, 10-20% per annum; leaseholds, leasehold improvements, and
lease acquisition costs over the term of the lease.

GOODWILL - Goodwill represents the excess purchase price paid over the
value of net assets acquired, and is being amortized on a straight-line basis
over their useful lives ranging from 15 to 40 years.

LONG-LIVED Assets - Management continuously monitors and evaluates the
realizability of its long-lived assets, including goodwill, to determine whether
their carrying values have been impaired. In evaluating the value and future
benefits of long-term assets, their carrying value is compared to management's
best estimate of undiscounted future cash flows over the remaining amortization
period. Management also considers events or changes in circumstances, which
indicate that an asset may not be recoverable. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying value of the assets exceeds the estimated fair value of the assets.

As a result of the Company's recent investment in advanced digital
technologies and the acceleration in demand by the marketplace for these
advanced technologies, certain older composite digital and analogue-based
technologies have experienced a significant reduction in demand. In fiscal year
1998 the Company recorded an impairment loss based on an appraisal of this older
equipment in the amount of $2,414. In addition, a lease impairment cost of $353
was also recognized in 1998 due to the loss of a beneficial option in the
renegotiation of a building lease.

INCOME TAXES - Deferred income taxes are provided for temporary
differences between the financial statement and income tax bases of the
Company's assets and liabilities, based on enacted tax rates. A valuation
allowance is provided when it is more likely than not that some portion or all
of the deferred income tax assets will not be realized.

FOREIGN CURRENCY TRANSLATION - The Company's foreign subsidiary's
functional currency is its local currency. Assets and liabilities of foreign
operations are translated into U.S. dollars using current exchange rates, and
revenues and expenses are translated into U.S. dollars using average exchange
rates. The effects of the foreign currency translation adjustments are deferred
and are included as a component of stockholders' equity.

NET INCOME PER COMMON SHARE - 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.

During a loss period the assumed exercise of in-the-money stock options
has an antidilutive effect. As a result of the fourth quarter loss in fiscal
year 1999, the weighted average of dilutive stock options was reduced by 137,527
shares of common stock. Additionally, out-of-the money options to purchase
approximately 454,000, 543,000, and 365,000 shares of common stock were
outstanding during fiscal years ended August 31, 1997, 1998, and 1999,
respectively. They were excluded from the computation of diluted income per
share as they would have been antidilutive. As of August 31, 1999, debentures
that are convertible into 643,341 shares of common stock were excluded from the
computation of diluted income per share as they would have been antidilutive.

FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts of cash and
cash equivalents, accounts receivable and accounts payable approximate fair
value because of the short-term maturity of these instruments. Notes payable are
carried at amounts approximating fair values based on current rates offered to
the Company for debt with similar collateral and guarantees, if any, and
maturities.

The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate risks. The Company has entered into an interest rate
swap to alter its fixed and floating rate mix, and to effectively swap floating
rate exposure to fixed rates lower than those available to the Company if fixed
rate borrowings were made directly. Under the interest rate swap agreement, the
Company agrees with a counterparty to exchange, at specific intervals, the
difference between fixed rate and floating rate interest amounts calculated by
reference to an agreed notional principal amount.

CONCENTRATION OF CREDIT RISK - The Company's accounts receivable are
related primarily to the entertainment industry and are unsecured. The Company's
ten largest customers account for approximately 52% of revenues for the year
ended August 31, 1999 and 56% for the year ended August 31, 1998. The Walt
Disney Company and its affiliated companies, the only customer to account for
more than 10% of revenues, accounted for approximately 16%, 15% and 17% of
revenues for 1999, 1998 and 1997, respectively.

USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of certain
assets and liabilities and disclosure of contingent assets and liabilities.
Actual results could differ from those estimates.

STOCK-BASED COMPENSATION - In fiscal 1998, the Company adopted the
disclosure only provision of SFAS No. 123, "Accounting for Stock-Based
Compensation". The Company continues to account for its stock compensation
arrangements using the intrinsic value method in accordance with Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees."

CHANGE IN ACCOUNTING PRINCIPLE - The Company adopted the Statements of
Position (SOP) No. 98-5 "Reporting on the Costs of Start-Up Activities" during
fiscal year 1999. The effect of the adoption was to record an expense, net of
tax, of $293 in the current year.

COMPREHENSIVE INCOME - In fiscal year 1999, the Company adopted
Statement of SFAS No. 130, "Reporting Comprehensive Income." This statement
establishes standards for the reporting and display of comprehensive income
and its components in a full set of general purpose financial statements. The
implementation of SFAS No. 130 did not have an impact on the Company's
results of operations.

RECLASSIFICATIONS - Certain reclassifications have been made to the
prior years' consolidated financial statements to conform with the current
year's presentation.

RECENT ISSUED ACCOUNTING PRONOUNCEMENTS - In June 1998, the FASB issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which is effective for all quarters of fiscal years beginning after June 15,
2000. This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities.

The Company is currently reviewing the Statement and will apply such
provisions as deemed appropriate.

2. ACQUISITIONS

On June 20, 1997, the Company and its newly formed, wholly owned
subsidiary THD acquired the assets and certain liabilities of Hollywood Digital
Limited Partnership ("Hollywood Digital"). Hollywood Digital is a digital based
post-production facility providing sound and video services to the film,
television and advertising industries. In consideration of the purchase, the
Company paid $17,761 in cash to pay down existing debt of Hollywood Digital. The
Company also issued convertible subordinated notes in the amount of $8,399. The
notes are convertible into the Company's Class A Common Stock at the adjusted
conversion price of $11.812 per share at any time before the maturity date.

On May 8, 1998, 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.

TeleCine has recorded against acquisition reserves equipment
abandonment charges of $1,229, severance and related payments of $205 and
other charges of $561 from the date of acquisition to August 31, 1998 and
severance and related payments of $249, lease payments for unused equipment
of $481 and other charges of $217 for the year ended August 31, 1999. During
the fiscal year ended August 31, 1999, $851 of acquisition reserves no longer
required was credited to goodwill.

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 acquisitions are being accounted for under the purchase method of
accounting. The following unaudited pro forma consolidated financial information
for the years ended August 31, 1998 and 1999 are presented as if the
acquisitions had occurred on September 1, 1997. 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. 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.

1998 1999
----------- -----------

Revenues.......................................................... $ 128,996 $ 130,106
=========== ===========
Net income before change in accounting principle.................. $ 5,723 $ 1,995
=========== ===========
Net income........................................................ $ 5,723 $ 1,702
=========== ===========
Net income per common share - before change in
accounting principle - Basic................................... $ 0.57 $ 0.21
=========== ===========
Net income per common share - Basic............................... $ 0.57 $ 0.18
=========== ===========
Net income per common share - before change in
accounting principle - Diluted................................. $ 0.54 $ 0.20
=========== ===========
Net income per common share - Diluted............................. $ 0.54 $ 0.17
=========== ===========

3. SALE/LEASEBACK

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 years ended
August 31,

1997 1998 1999
--------- --------- ---------

Equipment lease costs................................ $ 1,737 $ 2,533 $ 3,690
Amortization of deferred gain
on sale of equipment.............................. (1,472) (2,288) (2,196)
--------- --------- ---------
Equipment lease expense, net......................... $ 265 $ 245 $ 1,494
========= ========= =========
Loss on equipment lease commitments.................. $ -- $ -- $ 788
========= ========= =========

In December 1999, one of the Company's sale/leaseback agreements is
maturing. The Company has 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.

4. LONG-TERM DEBT

Long-term debt outstanding as of August 31, 1999 and 1998 was as
follows:

1998 1999
----------- -----------

Revolving credit facility (including multi-currency).............. $ 33,975 $ 51,790
Mortgage payable - TeleCine Charlotte Street property............. -- 5,141
Payables pursuant to non-compete agreements....................... -- 700
Notes payable (unsecured) - TeleCine acquisition (UK)............. 2,207 419
Convertible subordinated notes payable -
Hollywood Digital acquisition.................................. 8,399 7,599
Other............................................................. 610 850
----------- -----------
Total............................................................. 45,191 66,499
Less: current maturities.......................................... (537) (979)
----------- -----------
Total long-term debt.............................................. $ 44,654 $ 65,520
=========== ===========

Aggregate loan maturities subsequent to August 31, 1999 are as follows:

FISCAL YEARS ENDING TOTALS
----------

2000 .......................................................................... $ 979
2001 .......................................................................... 434
2002 .......................................................................... 809
2003 .......................................................................... 96
2004 .......................................................................... 1,893
Thereafter .................................................................... 54,689
----------
Subtotal ...................................................................... 58,900
Debt convertible into common stock subsequent to
August 31, 1999 ............................................................ 7,599
----------
Total ......................................................................... $ 66,499
==========

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 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 to be at the sole discretion of the Banks. 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) many not exceed
$10,000; Leverage Ratio is not to exceed 4:1 through May 31, 2001 (decreasing
thereafter); Net Worth is not be to 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). As of August 31, 1999,
the Company was in compliance with the covenants.

In April 1999, the Company, through its indirectly wholly owned
subsidiary, TeleCine, Ltd., financed the purchase of the freehold property at
50/54 Charlotte Street, London, U.K. with a 10-year term mortgage loan in the
amount of $5,246. The loan is secured by the property. Equal payments of $105
(principal and interest) are due quarterly based on a 25-year amortization
period with the balance of the note due after 10 years. Interest is fixed at
6.7251%. The note contains a minimum net worth requirement of at least $8,965
plus 50% of earnings subsequent to fiscal year 1998.

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
3 month LIBOR on the notional amount. Settlements are quarterly and the
contract expires in March 2001.

In connection with the acquisition of Hollywood Digital, the Company
issued convertible subordinated notes. The notes are convertible into the
Company's Class A common stock at the adjusted conversion price of $11.812
per share at any time before the maturity date and bear interest at 5%
payable annually. In November 1998, $800 of the notes were paid at the
election of the holders.

In November 1999, the Company exercised its right to convert the
remaining Hollywood Digital notes to common stock. These notes in the amount
of $7,599 are classified as long-term debt on the balance sheet at August 31,
1999.

In connection with the acquisition of TeleCine, Todd Europe, the
Company's U.K. wholly owned subsidiary, issued unsecured loan notes in the
amount of $2,207 guaranteed as to principal only and bearing interest at 4.5%
payable annually in arrears. $1,788 of the notes were paid down during the
current year at the election of the noteholders.

Other long-term debt consists of notes and obligations acquired in
connection with other acquisitions and bearing interest between the prime
rate and the prime rate plus 1/4%.

5. INCOME TAXES

The Company's effective income tax rate differs from the federal
statutory income tax rate due to the following:

YEARS ENDED AUGUST 31, 1997 1998 1999
- ---------------------- ------- ------- -------

Federal statutory income tax rate............................... 35.0 % 35.0 % 35.0 %
Adjust to actual Company rate................................... (1.0) (1.0) (1.0)
------- ------- -------

Adjusted federal statutory income tax rate...................... 34.0 34.0 34.0
State taxes, net of federal benefit............................. (2.2) (6.8) 0.0
Other, net...................................................... 1.1 (0.7) 1.7
------- ------- -------
Total........................................................... 32.9 % 26.5 % 35.7 %
======= ======= =======

Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future.
Such deferred income tax asset and liability computations are based on enacted
tax laws and rates applicable to periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.

Components of the income tax provision are as follows:

1997 1998 1999
-------- --------- --------

Current provision - domestic.................................. $1,156 $ (84) $ 312
Current provision - foreign................................... (217) 988 2,114
Deferred provision - domestic................................. 1,343 550 (1,029)
Deferred provision - foreign.................................. 666 (224) (667)
-------- --------- --------
Total......................................................... $2,948 $1,230 $ 730
======== ========= ========

Components of pre-tax income are as follows:
1997 1998 1999
-------- --------- --------

Domestic...................................................... $7,454 $1,675 $ (2,179)
Foreign....................................................... 1,499 2,974 4,222
-------- --------- --------
Total......................................................... $8,953 $4,649 $2,043
======== ========= ========

Deferred income tax assets and liabilities consist of the following:

FEDERAL STATE FOREIGN TOTAL
---------- ----------- ---------- -----------

1999:
Current Asset:
Accounts receivable reserves........ $ 20 $ 8 $ 35 $ 63
Vacation pay accruals............... 223 55 0 278
State income taxes.................. (133) -- 0 (133)
General and pension provisions...... -- -- 476 476
Other............................... 55 16 -- 71
---------- ----------- ---------- -----------
TOTAL CURRENT ASSET..................... $ 165 $ 79 $ 511 $ 755
========== =========== ========== ===========
Long-Term Asset:
Deferred compensation............... $ 19 $ 5 $ -- $ 24
Net operating loss carryovers....... 2,597 1,131 58 3,786
U.K. capital allowances............. -- -- 944 944
State income tax credit carryover... -- 1,743 -- 1,743
Other............................... 119 81 -- 200
---------- ----------- ---------- -----------
Total long-term asset................... 2,735 2,960 1,002 6,697
---------- ----------- ---------- -----------
Long-Term Liability:
Depreciation........................ (5,827) (1,474) (295) (7,596)
Goodwill............................ (244) (60) -- (304)
Deferred gains on property.......... (1,420) (348) (77) (1,845)
Other............................... (191) (14) (1) (206)
---------- ----------- ---------- -----------
Total long-term liability............... (7,682) (1,896) (373) (9,951)
---------- ----------- ---------- -----------
NET LONG-TERM LIABILITY................. $ (4,947) $ 1,064 $ 629 $ (3,254)
========== =========== ========== ===========
1998:
Current Asset:
Accounts receivable reserves........ $ 21 $ 5 $ 234 $ 260
Vacation pay accruals............... 275 67 -- 342
State income taxes.................. (77) -- -- (77)
Other............................... -- 7 -- 7
---------- ----------- ---------- -----------
TOTAL CURRENT ASSET..................... $ 219 $ 79 $ 234 $ 532
========== =========== ========== ===========
Long-Term Asset:
Deferred compensation............... $ 44 $ 10 $ -- $ 54
U.K loss carryover.................. -- -- 84
84
U.K. capital allowances............. -- -- 255 255
State income tax credit carryover... -- 1,656 -- 1,656
Other............................... (5) 96 -- 91
---------- ----------- ---------- -----------
Total long-term asset................... 39 1,762 339 2,140
---------- ----------- ---------- -----------
Long-Term Liability:
Depreciation........................ (3,481) (1,192) -- (4,673)
Goodwill............................ (128) (31) -- (159)
Deferred gains on property.......... (1,869) (454) (80) (2,403)
Other............................... (53) 9 (2) (46)
---------- ----------- ---------- -----------
Total long-term liability............... (5,531) (1,668) (82) (7,281)
---------- ----------- ---------- -----------
NET LONG-TERM LIABILITY................. $ (5,492) $ 94 $ 257 $ (5,141)
========== =========== ========== ===========

Pursuant to the Internal Revenue Code Section 382, the Company's
existing net operating loss carryovers and other deferred tax assets and
liabilities may be unavailable for future use in the event of significant
ownership changes of the Company's common stock.

6. STOCKHOLDERS' EQUITY

The Company has 1,000,000 shares of $.01 par value preferred stock
authorized. As of August 31, 1999 no shares of preferred stock have been
issued or were outstanding.

The Class B stock is convertible at the option of the holder into
Class A stock and is automatically converted to Class A stock under certain
circumstances; holders have ten votes per share; transferability is
restricted; and dividends are limited to 90% of any dividends paid on Class A
stock.

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 August 31, 1999, 1,621,756 shares had been repurchased.
1,555,303 of these shares have been canceled and returned to authorized but
unissued status.

7. STOCK OPTIONS

STOCK OPTION PLANS

The Company has five stock option plans: The 1986, 1994, 1995, and
1997 Stock Option Plans and the 1998 Stock Incentive Plan. As of August 31,
1999, no stock options or shares have been issued from the 1998 Plan. These
plans provide for the granting of either non-qualified or incentive stock
options at not less than 85% and 100% of the market value of the stock on the
date of the grant, respectively. Options generally become exercisable in
installments commencing as of the beginning of a fiscal year near the date of
grant.

On December 10, 1998, the Company granted to all option holders a
one-time re-pricing adjustment with respect to all options outstanding with
exercise prices in excess of the $8.00 per share market value determined as
of that date. Option holders electing to reduce the exercise price of their
share options agreed to reduce the number of their affected option shares
outstanding by the same ratio as the price reduction.

The following summarizes stock option activity for the three years
ended August 31, 1999:

WEIGHTED
NUMBER OF AVERAGE PRICE
SHARES PER SHARE
------------ ---------------

Options outstanding, August 31, 1996........................ 1,008,645 $ 4.17
Awarded..................................................... 773,000 10.40
Exercised................................................... (78,564) 2.93
Forfeited................................................... (37,490) 8.32
------------ ---------------
Options outstanding, August 31, 1997........................ 1,665,591 $ 7.03
Awarded..................................................... 96,000 9.92
Exercised................................................... (96,206) 3.50
Forfeited................................................... (31,984) 9.85
------------ ---------------
Options outstanding, August 31, 1998........................ 1,633,401 $ 7.35
Awarded..................................................... 70,500 9.34
Exercised................................................... (274,080) 4.00
Forfeited................................................... (53,696) 8.33
Forfeited due to repricing.................................. (176,775) 10.41
------------ ---------------
Options outstanding, August 31, 1999........................ 1,199,350 $ 6.57
============ ===============
Vested as of August 31, 1999................................ 814,528
============

As of August 31, 1999, 71,765 shares, 72,000 shares, 314,045 shares,
35,150 shares and 536,783 shares were available for grant under the 1986,
1994, 1995, 1997 and 1998 plans respectively. Common Shares have been
reserved for issuance under the plans for all options outstanding at August
31, 1999.

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- ------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED WEIGHTED
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
RANGE OF AT AUGUST CONTRACTUAL EXERCISE AT AUGUST EXERCISE
EXERCISE PRICES 31, 1999 LIFE PRICE 31, 1999 PRICE
----------------- ------------- -------------- -------------- -------------- --------------

$ 4.50 - 13.88 741,500 5 years $6.38 498,558 $5.71
3.26 - 8.00 320,258 4 years 6.37 236,152 5.79
8.00 17,742 2.3 years 8.00 10,648 8.00
8.00 119,850 7 years 8.00 69,170 8.00
----------------- ------------- -------------- -------------- -------------- --------------
$ 3.26 - 13.88 1,199,350 4.89 years $6.57 814,528 $5.96
============= ==============

The Company has adopted the disclosure-only provisions of SFAS 123.
The estimated fair value of options granted during 1999, 1998 and 1997
pursuant to SFAS 123 was approximately $490, $343 and $2,738, respectively.
Had the Company adopted SFAS 123, pro forma net income for those years would
have been $621, $2,863 and $5,461, respectively. Pro forma "basic" net income
per share would have been $0.06, $0.29 and $0.57 and "diluted" net income per
share would have been $0.06, $0.28 and $0.54 for 1999, 1998 and 1997,
respectively. The fair value of each option grant was estimated using the
Black-Scholes option-pricing model with the following weighted average
assumptions: dividend yield of 0.43%-0.75%, volatility of 25%, a risk free
interest rate of 4.95% for 1999, 5.05% for 1998 and 6.28% for 1997 and
expected option lives of 5 to 9 years.

8. COMMITMENTS

OPERATING LEASES - Rent expense for noncancellable operating leases
for real property and equipment was $4,736, $6,524 and $8,242 for the years
ended August 31, 1997, 1998 and 1999, respectively. Minimum rentals for
operating leases for years ending after August 31, 1999 are as follows: 2000,
$14,009; 2001, $7,607; 2002, $7,142; 2003, $5,385; 2004, $4,347 and $20,021,
thereafter. Some of the leases have options to extend terms and are subject
to escalation clauses and two leases are subject to additional rent based on
revenue.

Additionally, the Company has guaranteed the residual values of
$1,221 and $2,823 for sale/leaseback transactions maturing in 2003 and 2005.
The Company exercised its option to purchase for $5,699 the equipment
currently being leased under the sale/leaseback transaction maturing in
December 1999.

EMPLOYMENT AGREEMENTS - At August 31, 1999, the Company is committed
to compensation under long-term employment agreements with certain of its
officers and key employees as follows: 2000, $2,984; 2001, $2,009 and 2002,
$1,309.

9. PENSION PLAN

Certain officers and employees of the Company are eligible for
participation in the "Motion Picture Industry Pension Plan" ("MPIPP"), a
multi-employer defined benefit pension plan, the Company's 401(k) Profit
Sharing Plan and Trust in the U.S. or the Group Personal Pension Plan in the
U.K. Contributions to the MPIPP are determined in accordance with the
provisions of negotiated labor contracts and generally are based on the
number of hours worked. The Plans are funded by employer and employee
contributions. Total pension plan expense for the Plans for the years ended
August 31, 1997, 1998, and 1999 are as follows:

AUGUST 31,
---------------------------
1997 1998 1999
---- ---- ----

MPIPP............................................ $ 618 $ 648 $ 687
U.S. 401(k)...................................... $ 225 $ 370 $ 485
U.K. Plan........................................ $ 85 $ 95 $ 273

10. JOINT VENTURES

The Company has organized a limited liability company ("LLC") which
is known as "CDP Limited Liability Company" 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. Under a Joint Venture Agreement
dated September 8, 1998, the Company, UATC and Richard Vetter, author of
certain CDP patents, will have interests of 45%, 45% and 10%, respectively,
in any profits of the LLC, after the recoupment of their defined investments
in the CDP technology.

On September 8, 1997, the Company and Disney Character Voices
International, Inc. ("DCVI") committed to jointly establishing a dubbing and
audio post production studio in Germany. The Company and DCVI's German
subsidiaries, TODD-AO GERMANY GMBH and BUENA VISTA INTERNATIONAL FILM
PRODUCTION (GERMANY) GMBH have agreed to jointly build a state-of-the-art,
all-digital post production complex in Munich. The 36,000 square foot
facility will include feature and video mixing studios, film and video
dialogue recording rooms and editorial suites. The Company will manage all
technical and operational functions and DCVI will coordinate the creative
services of the studios. Additional joint ventures are contemplated for
France, Italy, Spain and Asia. The foreign language dubbing studios will
provide each of those territories with state-of-the-art theatrical and
television recording, mixing and editing facilities.

11. CONTINGENCIES

The Company is involved in litigation and similar claims incidental
to the conduct of its business. In management's opinion, none of the pending
actions is likely to have a material adverse impact on the Company's
financial position or results of operations.

12. BUSINESS SEGMENT INFORMATION

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 accounting policies of
the operating segments are the same as those described in the summary of
significant accounting policies. 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:

SOUND VIDEO
SERVICES SERVICES OTHER TOTAL
---------- ----------- ---------- -----------

YEAR ENDED AUGUST 31, 1999:

Revenues............................. $ 41,242 $ 77,275 $ -- $ 118,517
Income (loss) before income taxes,
interest, depreciation and
amortization of intangibles....... 4,030 17,629 (2,727) 18,932
Identifiable assets.................. 39,822 77,148 2,335 119,305
Intangible assets, net............... 7,102 26,773 -- 33,875
Capital expenditures................. 3,591 19,585 -- 23,176
Depreciation expense................. 2,191 9,396 -- 11,587

YEAR ENDED AUGUST 31, 1998:

Revenues............................. $ 42,855 $ 59,759 $ -- $ 102,614
Income (loss) before income taxes,
interest, depreciation and
amortization of intangibles....... 5,537 11,452 152 17,141
Identifiable assets.................. 34,934 68,604 2,865 106,403
Intangible assets, net............... -- 29,193 -- 29,193
Capital expenditures................. 7,147 17,201 -- 24,348
Depreciation expense................. 2,533 7,116 -- 9,649

YEAR ENDED AUGUST 31, 1997:

Revenues............................. $ 47,248 $ 31,723 $ -- $ 78,971
Income (loss) before income taxes,
interest, depreciation and
amortization of intangibles....... 9,985 7,297 (281) 17,001
Identifiable assets.................. 34,797 46,619 2,873 84,289
Intangible assets, net............... -- 19,162 -- 19,162
Capital expenditures................. 2,690 10,457 -- 13,147
Depreciation expense................. 2,959 3,787 -- 6,746

The following table reconciles segment income (loss) before income
taxes, interest, depreciation and amortization of intangibles to the Company's
consolidated or combined (as applicable) net income (in thousands):

YEARS ENDED AUGUST 31,
----------------------------------
1997 1998 1999
---------- ---------- -----------

Income before income taxes, interest,
depreciation and amortization of intangibles........ $ 17,001 $ 17,141 $ 18,932
Amortization of intangibles............................ (382) (1,036) (1,242)
Interest expense....................................... (920) (1,807) (3,617)
Depreciation........................................... (6,746) (9,649) (11,587)
Provision for income taxes............................. (2,948) (1,230) (880)
---------- ---------- -----------
Net income before change in
accounting principle................................ 6,005 3,419 1,606
Change in accounting principle, net.................... -- -- (293)
---------- ---------- -----------
Net income............................................. $ 6,005 $ 3,419 $ 1,313
========== ========== ===========

Information as to the Company's operations in different geographic
areas is as follows for the years ended August 31, 1997, 1998 and 1999.

1997 1998 1999
---------- ---------- -----------

REVENUES:
United States......................................... $ 65,436 $ 79,143 $ 79,330
United Kingdom........................................ 13,535 23,471 39,187
---------- ---------- -----------
Total................................................. $ 78,971 $102,614 $118,517
========== ========== ===========
NET INCOME (LOSS):
United States......................................... $ 4,955 $ 1,209 $ (1,169)
United Kingdom........................................ 1,050 2,210 2,775
---------- ---------- -----------
Subtotal.............................................. 6,005 3,419 1,606
United States - net change in accounting principle.... -- -- (293)
========== ========== ===========
Total................................................. $ 6,005 $ 3,419 $ 1,313
========== ========== ===========
ASSETS:
United States......................................... $ 85,569 $ 91,001 $106,258
United Kingdom........................................ 17,882 44,365 46,922
---------- ---------- -----------
Total................................................. $103,451 $135,366 $153,180
========== ========== ===========

13. SUBSEQUENT EVENTS

On September 22, 1999, the Company, through its newly-formed wholly
owned subsidiary, Todd-AO, Espana, purchased a fifty percent (50%) interest
in a Barcelona-based sound facility named 103 Estudio, S.L., for $2,010. The
purchase agreement includes plans for expansion of the current Barcelona
facility, comprising state-of-the-art digital dubbing studios designed for
foreign language dubbing of feature films and television programs. New
premises near the two existing facilities have already been acquired.
Existing management shall remain in place, and the Company shall assume two
positions on the Board, thereby participating in all top management policies
and decisions of the new company, which shall be named 103 Todd-AO Estudio,
S.L.

14. QUARTERLY FINANCIAL DATA (UNAUDITED)

BASIC DILUTED
EARNINGS EARNINGS
(LOSS) (LOSS)
PER PER
COMMON COMMON
TOTAL GROSS NET INCOME SHARE SHARE
1998 REVENUES PROFIT (LOSS) OUTSTANDING OUTSTANDING
------------ ---------- ----------- -------------- --------------

First Quarter............ $ 33,947 $ 4,784 $ 2,468 $ .26 $ .24
Second Quarter........... 28,388 1,167 897 .10 .09
Third Quarter............ 28,093 784 62 .01 .01
Fourth Quarter........... 28,089 569 (2,114) (.22) (.21)
------------ ---------- ----------- -------------- --------------
TOTAL.................... $ 118,517 $ 7,304 $ 1,313 $ .14(a) $ .13(a)
============ ========== =========== ============== ==============

- --------------

(a) Aggregate per share amounts for each quarter may differ from annual totals
as each is independently calculated.

THE TODD-AO CORPORATION SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
YEARS ENDED AUGUST 31, 1997, 1998 AND 1999

COLUMN COLUMN COLUMN COLUMN COLUMN COLUMN
A B C D E F
------------ --------------- ------------- ------------- ------------
ADDITIONS ADDITIONS
CHARGED ACQUIRED OR
BALANCE AT (CREDITED) TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER DEDUCTIONS AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS AND OTHER PERIOD
- -------------------------------------- ------------ --------------- ------------- ------------- ------------

Allowance for doubtful accounts:

Year ended August 31, 1997........... $ 696 $ 106 $ 351 (a) $ (591) $ 562
============ =============== ============= ============= ============

Year ended August 31, 1998........... $ 562 $ (28) $1,220 (b) $ 14 $1,768
============ =============== ============= ============= ============

Year ended August 31, 1999........... $1,768 $(650) $ 94 (c) $ 3 $1,215
============ =============== ============= ============= ============

(a) Balance acquired in acquisition of Hollywood Digital.
(b) Balance acquired in acquisition of TeleCine.
(c) Balance acquired in acquisition of Sound One.

Allowance for acquisition reserves:

Year ended August 31, 1997........... $ -- $ -- $ -- $ -- $ --
============ =============== ============= ============= ============

Year ended August 31, 1998........... $ -- $ -- $3,995 (a) $(1,995) $2,000
============ =============== ============= ============= ============

Year ended August 31, 1999........... $2,000 $ -- $ (851)(b) $ (947) $ 202
============ =============== ============= ============= ============

(a) Balance acquired in acquisition of TeleCine ($3,995).
(b) Excess reserves credited to goodwill ($851).