SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the quarterly period ended FEBRUARY 28, 1998
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
of incorporation) Identification No.)
900 N. SEWARD STREET, HOLLYWOOD, CALIFORNIA 90038
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (213) 962-5304
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------- -------
The number of shares of common stock outstanding at April 1, 1998 was:
8,238,450 Class A Shares and 1,747,178 Class B Shares.
THE TODD-AO CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FEBRUARY 28, 1998
INDEX
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PART I - FINANCIAL INFORMATION Page
Item 1- FINANCIAL STATEMENTS
The following financial statements are filed herewith:
Consolidated Balance Sheets, February 28, 1998 and August 31, 1997 3
Consolidated Statements of Income and Retained Earnings for the
Six and Three Months Ended February 28, 1998 and 1997 5
Consolidated Statements of Cash Flows for the Six Months Ended
February 28, 1998 and 1997 6
Notes to Consolidated Financial Statements for the Six Months
Ended February 28, 1998 8
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 13
Item 6 - Exhibits and Reports on Form 8-K 13
Signature 13
THE TODD-AO CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
August 31, February 28,
---------- ------------
1997 1998
---------- ------------
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 5,127 $ 2,779
Marketable securities . . . . . . . . . . . . . . . . . . 1,977 1,344
Trade receivables
(net of allowance for doubtful accounts of $641 at
February 28, 1998 and $562 at August 31, 1997) . . . . 13,176 16,487
Inventories (first-in first-out basis) . . . . . . . . . 625 556
Income tax receivable . . . . . . . . . . . . . . . . . . 671 671
Deferred income taxes . . . . . . . . . . . . . . . . . . 368 12
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 2,168 2,479
--------- ---------
Total current assets . . . . . . . . . . . . . . . . . . 24,112 24,328
--------- ---------
INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . 997 730
--------- ---------
PROPERTY AND EQUIPMENT - At Cost:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . 4,270 4,270
Buildings . . . . . . . . . . . . . . . . . . . . . . . . 10,994 10,994
Leasehold improvements . . . . . . . . . . . . . . . . . 10,203 10,250
Lease acquisition costs . . . . . . . . . . . . . . . . . 2,187 2,187
Equipment . . . . . . . . . . . . . . . . . . . . . . . . 54,707 52,143
Equipment under capital leases . . . . . . . . . . . . . 1,540 1,417
Construction in progress . . . . . . . . . . . . . . . . 920 11,100
--------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 84,821 92,361
Accumulated depreciation and amortization . . . . . . . . (27,697) (29,763)
--------- ---------
Property and equipment - net . . . . . . . . . . . . . . 57,124 62,598
--------- ---------
GOODWILL
(net of accumulated amortization of $1,073 at
February 28, 1998 and $602 at August 31, 1997) . . . . 19,162 18,691
--------- ---------
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . 2,056 1,834
--------- ---------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . $103,451 $108,181
--------- ---------
--------- ---------
See notes to consolidated financial statements.
THE TODD-AO CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
August 31, February 28,
---------- ------------
1997 1998
---------- ------------
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . $ 5,302 $ 4,933
Accrued liabilities:
Payroll and related taxes . . . . . . . . . . . . . 2,507 2,692
Interest . . . . . . . . . . . . . . . . . . . . . . 422 660
Equipment lease . . . . . . . . . . . . . . . . . . . 279 210
Other . . . . . . . . . . . . . . . . . . . . . . . 1,533 1,188
Income taxes payable . . . . . . . . . . . . . . . . 105 1,335
Current maturities of long-term debt . . . . . . . . . . 578 578
Capitalized lease obligations - current . . . . . . . . 35 2
Deferred income . . . . . . . . . . . . . . . . . . . . . 1,459 1,400
--------- ---------
Total current liabilities . . . . . . . . . . . . . . . 12,220 12,998
--------- ---------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . 25,430 22,960
DEFERRED COMPENSATION AND OTHER . . . . . . . . . . . . . 326 188
DEFERRED GAIN ON SALE/LEASEBACK . . . . . . . . . . . . . 3,437 7,313
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . 4,659 4,637
--------- ---------
Total liabilities . . . . . . . . . . . . . . . . . . . . 46,072 48,096
--------- ---------
STOCKHOLDERS' EQUITY:
Common Stock:
Class A; authorized 30,000,000 shares of $0.01 par
value; issued and outstanding 8,238,450 at
February 28, 1998 and 8,284,925 at
August 31, 1997 . . . . . . . . . . . . . . . . . . . . 83 84
Class B; authorized 6,000,000 shares of $0.01 par
value; issued and outstanding 1,747,178 . . . . . . . . 17 17
Additional capital . . . . . . . . . . . . . . . . . . . 39,996 40,446
Treasury stock . . . . . . . . . . . . . . . . . . . . . (691) (1,180)
Retained earnings . . . . . . . . . . . . . . . . . . . . 17,711 20,505
Unrealized gains on marketable securities and
long-term investments . . . . . . . . . . . . . . . . . 94 86
Cumulative foreign currency translation adjustment . . . 169 127
--------- ---------
Total stockholders' equity . . . . . . . . . . . . . . . 57,379 60,085
--------- ---------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . $103,451 $108,181
--------- ---------
--------- ---------
See notes to consolidated financial statements.
THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE SIX AND THREE MONTHS ENDED FEBRUARY 28, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Six Months Three Months
-------------------------- -------------------------
1997 1998 1997 1998
---------- ----------- ---------- -----------
REVENUES ....................................... $ 39,681 $ 47,606 $ 19,341 $ 22,582
---------- ----------- ---------- -----------
COSTS AND EXPENSES:
Operating costs and other expenses ............. 30,659 37,528 15,102 18,214
Depreciation and amortization .................. 3,187 4,714 1,565 2,293
Interest ....................................... 327 589 106 177
Equipment lease expense - net .................. 155 111 63 84
Other expense (income) - net ................... 99 (123) 60 (221)
---------- ----------- ---------- -----------
Total costs and expenses ....................... 34,427 42,819 16,896 20,547
---------- ----------- ---------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES ....... 5,254 4,787 2,445 2,035
PROVISION FOR INCOME TAXES ..................... 1,965 1,698 927 719
---------- ----------- ---------- -----------
NET INCOME ..................................... 3,289 3,089 $1,518 $1,316
---------- -----------
---------- -----------
RETAINED EARNINGS BEGINNING OF PERIOD .......... 12,267 17,711
LESS: DIVIDENDS PAID .......................... (268) (295)
---------- -----------
RETAINED EARNINGS END OF PERIOD ................ $ 15,288 $ 20,505
---------- -----------
---------- -----------
NET INCOME PER COMMON SHARE:
Net income available to common stockholders .... $ 3,290 $ 3,089 $ 1,519 $ 1,316
Effect of dilutive securities:
5% convertible debentures .................... -- 159 -- 75
---------- ----------- ---------- -----------
Net income available to common stockholders
plus assumed conversions ..................... $ 3,290 $ 3,248 $ 1,519 $ 1,391
---------- ----------- ---------- -----------
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC .......................... 9,150,617 10,004,781 9,931,585 9,987,278
Effect of dilutive securities:
Stock options ................................ 619,719 510,835 592,214 487,096
5% convertible debentures .................... -- 711,057 -- 711,057
---------- ----------- ---------- -----------
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED ........................ 9,770,336 11,226,673 10,523,799 11,185,431
---------- ----------- ---------- -----------
NET INCOME PER COMMON SHARE - BASIC ............ $ 0.36 $ 0.31 $ 0.15 $ 0.13
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
NET INCOME PER COMMON SHARE - DILUTED .......... $ 0.34 $ 0.29 $ 0.14 $ 0.12
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
See notes to consolidated financial statements.
THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1998 AND 1997
(DOLLARS IN THOUSANDS)
1997 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 3,289 $ 3,089
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization......................... 3,187 4,714
Deferred income taxes, net............................ 2 334
Deferred compensation................................. (40) (138)
Amortization of deferred gain on
sale/leaseback transaction.......................... (736) (1,060)
(Gain) loss on sale of marketable securities
and investments..................................... -- (49)
(Gain) loss on disposition of fixed assets............ (23) 8
Shares issued for stock award......................... -- 66
Changes in assets and liabilities (net of acquisitions):
Trade receivables................................... (4,246) (3,311)
Inventories and other current assets................ 20 (39)
Accounts payable and accrued liabilities............ 380 (291)
Accrued equipment lease............................. (20) (69)
Income taxes payable, net........................... 672 1,230
Deferred income..................................... 876 (59)
-------- --------
Net cash flows provided by operating activities:.......... 3,361 4,425
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities and investments....... (5,901) (38)
Proceeds from sale of marketable securities
and investments....................................... 527 979
Proceeds from disposition of fixed assets............... 26 5
Capital expenditures.................................... (6,511) (13,189)
Other assets........................................... (118) 75
-------- --------
Net cash flows (used in) investing activities:............ $(11,977) $(12,168)
-------- --------
THE TODD-AO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(CONTINUED)
1997 1998
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt........................... $ 6,900 $ 6,400
Payments of long-term debt............................. (14,831) (8,870)
Payments on capital lease obligations.................. (406) (33)
Net proceeds from issuance of common stock............. 15,603 182
Proceeds from sale/leaseback transaction............... -- 8,500
Treasury stock transactions............................ -- (489)
Dividends paid......................................... (268) (295)
-------- -------
Net cash flows provided by financing activities:......... 6,998 5,395
Effect of exchange rate changes on cash................ 24 --
-------- -------
NET (DECREASE) IN CASH AND
CASH EQUIVALENTS....................................... (1,594) (2,348)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD.................................... 3,385 5,127
-------- -------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD.......................................... $ 1,791 $ 2,779
-------- -------
-------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................... $ 475 $ 303
-------- -------
-------- -------
Income taxes........................................... $ 1,080 --
-------- -------
-------- -------
THE TODD-AO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1998
(Dollars in Thousands, except per share amounts)
- -------------------------------------------------------------------------------
If complete notes were to accompany these statements they would be
substantially in the same form as those to the Company's Financial Statements
for the Year Ended August 31, 1998. In addition the following notes are
applicable:
1. In the opinion of management for the Company, all adjustments (which
comprise only normal recurring accruals) necessary for a fair presentation
of the results of operations have been included.
2. The consolidated financial statements include the Company and its wholly
owned subsidiaries.
3. The Company has adopted Statement of Financial Accounting Standards No.
128 ("SFAS No. 128"), "Earnings Per Share", beginning in its second
quarter ending February 28, 1998 and has restated all prior periods
presented to comply with the provisions of SFAS No. 128. Under SFAS No.
128, net income per common share is replaced by "Basic" net income per
common share, 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" net income per common share
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 net income per common share using the treasury stock
method. Certain dilutive securities with an impact of 671,750 shares and
673,000 shares for the six and three months ended February 28, 1998,
respectively, and 351,500 shares and 703,000 shares for the six and three
months ended February 28, 1997, respectively, are not included in the
calculation of diluted net income per common share because the option's
exercise price was greater than the average market price of the common
shares.
4. On June 20, 1997, the Company and its newly formed, wholly owned
subsidiary Todd-AO Hollywood Digital ("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 conversion price of $11.812 per share at any time before the
maturity date.
The acquisition is being accounted for under the purchase method of
accounting. The following unaudited pro forma consolidated financial
information for the six months ended February 28, 1997 is presented as if
the acquisition had occurred on September 1, 1996. Pro forma adjustments
for Hollywood Digital are primarily to non-recurring legal and other
non-operating costs, amortization of goodwill, interest expense on
borrowings in connection with the acquisition, and income taxes.
1997
-------
Revenues................................... $50,116
-------
-------
Net income................................. $ 3,857
-------
-------
Net income per common share - Basic........ $ 0.39
-------
-------
Net income per common share - Diluted...... $ 0.37
-------
-------
5. In November 1997 and December 1994 the Company signed agreements with its
bank to implement the sale/leaseback of certain equipment. The five year
agreements terminate on December 1, 2002 and December 30, 1999,
respectively, and are being treated as operating leases for financial
statements purposes. On November 3, 1997 an aggregate of $8,500 of sound
studio equipment was sold and leased back (lease #2). The total deferred
gain on the transaction to be amortized over five years is $4,937. The
annual lease cost is expected to be approximately $1,400. On December 30,
1994 an aggregate of $11,218 was sold and leased back (lease #1). The
total deferred gain on the transaction to be amortized over five years is
$7,345. The annual lease cost currently is approximately $1,500.
The net equipment lease expense for the six months ended February 28, 1998
is as follows:
LEASE #1 LEASE #2 TOTAL
-------- -------- -----
Equipment lease costs........... $ 775 $ 396 $ 1,171
Amortization of deferred gain
on sale of equipment.......... (737) (323) (1,060)
----- ----- -------
Equipment lease expense, net.... $ 38 $ (73) $ 111
----- ----- -------
----- ----- -------
6. The Company has a stock repurchase program under which 1,300,000 shares may
be purchased from time to time in the open market or in private
transactions. As of February 28, 1998, 961,156 shares had been repurchased.
831,856 of these shares have been cancelled and returned to authorized but
unissued status.
7. On October 10, 1996, the Company filed a registration statement with the
Securities and Exchange Commission. Proceeds from the offering, net of
costs totaled $15,512. The funds received were used to pay down existing
debt in the amount of $9,102. The remaining funds were used in the
acquisition of Hollywood Digital and for other general corporate purposes.
8. On April 6, 1998, the Company announced that the Board of Directors of
London-based Tele-Cine Cell Group plc. ("Tele-Cine") unanimously resolved
to recommend an offer to be made by the Company's wholly owned subsidiary,
Todd-AO Europe Holding Company, Ltd. ("TAO Europe"), to purchase the entire
issued and to be issued ordinary share capital of Tele-Cine for
approximately L9,954 ($16,600). The offer will be conditional upon
acceptance by holders of 90% of Tele-Cine's ordinary shares. Shareholders,
representing 53.6% of the ordinary shares outstanding, have signed
"irrevocable undertakings" to accept the offer. TAO Europe is offering
Tele-Cine shareholders 80 pence ($1.33) in cash for each share they own, or
notes with a nominal value of 80 pence paying 4.5% interest. Tele-Cine
provides post-production, production and special effects services to the
film and video industry. The purchase offer will be funded by the
Company's credit facility which will be amended to accommodate the terms of
the offer.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(DOLLARS IN THOUSANDS, EXCEPT AMOUNTS PER SHARE)
1. Material Changes in Financial Condition
In December 1994, the Company signed agreements with its bank to implement
the sale/leaseback of certain equipment and a long-term credit facility. An
aggregate of $11,218 of sound studio equipment was sold and leased back on
December 30, 1994. The sale/leaseback agreement, which terminates on
December 30, 1999, consists of five 1-year terms amortizing to approximately
40%. The agreement, amended in December 1997, provides for interest at the
same Libor rates and terms as the second sale/leaseback agreement (see
below).
In October 1997, the Company signed a second agreement with its bank to
implement the sale/leaseback of certain equipment for up to $10,000 and
restated the long-term credit facility signed in December 1994. An aggregate
of $8,500 of sound studio equipment was sold and leased back on November 3,
1997. The sale/leaseback agreement, which consists of five 1-year terms
amortizing to approximately 42% with interest at Libor rates plus .75% if
the leverage ratio (Funded Indebtedness/EBITDA but excluding convertible
subordinated notes issued by Company in connection with the Hollywood
Digital acquisition) is under 1:1 and which increases .25% for each .5
increase in the ratio up to Libor plus 2% if the leverage ratio is greater
than 2.5:1, terminates on December 1, 2002. Under the new First Amended
and Restated Credit Agreement, dated as of October 20, 1997, the Company
may borrow up to $50,000 (with a provision for an increase to $60,000
requiring Bank consent and Company Board approval) in revolving loans
(including up to 50% in Multi-currency) until November 30, 2000. On that
date and quarterly thereafter until August 31, 2002, the revolving loan
commitment will reduce by 6.25% to 50% of the combined loan commitment on
the reduction date. The remaining 50% will reduce to nil by the expiration
of the agreement on December 31, 2002. Annually, the Company may request
an automatic extension of the revolving period of the credit facility for
one year which will also extend the term period and the expiration date of
the agreement. The Company also has the availability of Standby Letters of
Credit up to $2,500 under the facility. The credit facility provides for
borrowings at the Bank's Reference rates (plus .125%), CD rates (plus
0.875%) and Libor rates (plus .75%) which increase incrementally to plus
1%, 2.125% and 2%, respectively, based on the leverage ratio. The leverage
ratios which determine the rates range from less than 1:1 to greater than
2.5:1. Leverage ratios may not exceed 3:1. The facility includes
commitment fees at .2% to .5% (based on the leverage ratio) per annum on
the unused balance of the credit facility. Other material restrictions
include: the coverage ratio (cash flow/fixed charges) may not be less than
1.25:1; Other Indebtedness or Contingent Liabilities (excluding up to
$25,000 in Capital or Off Balance Sheet Leases, the convertible
subordinated notes issued in the Hollywood Digital acquisition and
non-recourse debt up to $50,000 of less than 100% owned Joint Ventures)
may not exceed $10,000 without the Bank's approval. Minimum Tangible Net
Worth is not to be less than $25,000 plus net proceeds from issuance of
equity plus 50% of consolidated net income subsequent to May 31, 1997.
The credit facilities are available for general corporate purposes, capital
expenditures and acquisitions. Management believes that funds generated
from operations, proceeds from the new sale/leaseback 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 1998.
On October 10, 1996, the Company filed a registration statement with the
Securities and Exchange Commission. Proceeds from the offering, net of
costs totaled $15,512. The funds received were used to pay down existing
debt in the amount of $9,102. The remaining funds were used in the
acquisition of Hollywood Digital and for other general corporate purposes.
In June 1997, the Company used $15,760 under the credit facility and $3,000
from the proceeds of the offering described above to acquire the assets of
Hollywood Digital. In November 1997, the Company used $8,500 from the
sale/leaseback of equipment described above to pay down the credit facility
debt. As of February 28, 1998, the Company had $14,275 outstanding under
the credit facility.
The Company expects capital expenditures of approximately $22,500 for its
Los Angeles, Santa Monica, New York City, Atlanta and London facilities in
fiscal 1998. Included in this amount is $7,500 for a new facility in Santa
Monica, California to service primarily the advertising clients of THD.
These capital expenditures will be financed by credit facilities and
internally generated funds.
The Company does not believe that it is currently exposed to any
material foreign exchange rate risk and, at present, does not have a
policy for managing such risk beyond the utilization of local currency
borrowings to fund foreign acquisitions whenever possible.
2. Material Changes in Results of Operations
SIX MONTHS ENDED FEBRUARY 28, 1998 COMPARED TO SIX MONTHS ENDED FEBRUARY 28,
1997
Revenues increased $7,925 or 20.0% from $39,681 to $47,606 primarily
due to the acquisition of Hollywood Digital in June 1997. Video
services revenues from THD and the Company's other video divisions of
$12,525 were offset by the Company's sound services, which were down
compared to a particularly strong six months in the prior year. This
was primarily due to downtime on three sound stages closed during the
period for renovation and conversion to digital technology and to
softness in the sound services market.
Operating costs and other expenses increased $6,869 or 22.4% from
$30,659 to $37,528. Cost increases related to the THD acquisition
($8,376) and the Company's other video services divisions ($146) were
offset by a reduction in costs for the sound services divisions
related to their revenue decreases described above.
Depreciation and amortization increased $1,527 or 47.9% primarily due
to the equipment and goodwill acquired with the THD acquisition.
Interest expense increased $262 or 80.1% primarily due to the THD financing.
As a result of the above, income before taxes decreased $467 from
$5,254 to $4,787 and net income decreased $200 from $3,289 to $3,089.
THREE MONTHS ENDED FEBRUARY 28, 1998 COMPARED TO THREE MONTHS ENDED
FEBRUARY 28, 1997
Revenues increased $3,241 or 16.8% from $19,341 to $22,582 primarily
due to the acquisition of Hollywood Digital in June 1997. Video
services revenues from THD and the Company's other video divisions of
$5,641 were offset by the Company's sound services, which were down
compared to a particularly strong quarter in the prior year. This was
primarily due to downtime on three sound stages closed for most of the
quarter for renovation and conversion to digital technology and to
softness in the sound services market.
Operating costs and other expenses increased $3,112 or 20.6% from
$15,102 to $18,214. Cost increases related to the THD acquisition
($4,141) were offset by a reduction in costs for the sound services
divisions related to their revenue decreases described above.
Depreciation and amortization increased $728 or 46.5% primarily due to
the equipment and goodwill acquired with the THD acquisition.
Interest expense increased $71 or 67.0% primarily due to the THD
financing.
As a result of the above, income before taxes decreased $410 from
$2,445 to $2,035 and net income decreased $202 from $1,518 to $1,316.
MATERIAL CHANGES IN CASH FLOWS
For the six months ended February 28, 1998 the Company generated
$4,425 in cash from operating activities compared to $3,361 in 1997.
Cash provided by operating activities from net income of $3,089,
adjusted for depreciation and amortization of $3,654, was utilized
primarily to fund trade receivables.
Net cash generated from operating activities supplemented by proceeds
from the sale/leaseback of certain equipment and borrowings from the
Company's credit facility totaling $14,900 were used to reinvest in
capital assets of the Company and to pay down long-term debt.
OTHER BUSINESS INFORMATION
THD is opened a separate facility in Santa Monica, California on March
23, 1998 to primarily service its advertising clients. The present
Hollywood facility will expand its current feature and television
services.
Todd-AO UK Ltd. ("TAO UK"), which currently services eight
transmission feeds for Turner Entertainment Network, is in
negotiations to add two new feeds and upgrade two existing feeds in
fiscal year 1998. This would increase transmission services provided
by TAO UK by approximately 40%.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in litigation and similar claims incidental to
the conduct of its business. None of the pending actions is
considered material.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). (1) Exhibit 27 Financial Data Schedule.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TODD-AO CORPORATION
April 14, 1998 /s/ Silas R. Cross
- -------------------- ------------------------------
Date Silas R. Cross
Chief Accounting Officer