<PAGE>

                         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, 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 Identification No.)
of incorporation)

          900 N. SEWARD STREET, HOLLYWOOD, CALIFORNIA             90038
         (Address of principal executive offices)              (Zip Code)

Registrant's telephone number, including area code: (213) 962-5304

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              Name of each exchange on which registered
  -------------------              -----------------------------------------
COMMON STOCK, CLASS A,                                 NASDAQ
   $ .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
18, 1997 was approximately $45,800,000

The number of shares of common stock outstanding at November 18, 1998 was:
7,732,549 Class A Shares and 1,747,178 Class B Shares.

                         DOCUMENTS INCORPORATED BY REFERENCE

None

<PAGE>

The Todd-AO Corporation
--------------------------------------------------------------------------------
Annual Report on Form 10-K
August 31, 1998

<TABLE>
<CAPTION>
Table of Contents
--------------------------------------------------------------------------------
Part I                                                                      Page
<S>                                                                         <C>
     Item 1  -  Business                                                      1
     Item 2  -  Properties                                                    6
     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
</TABLE>

<PAGE>

                                       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 34 Academy 
Awards-Registered Trademark- and have won 19. 

          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 account for approximately 56% 
and 63% of revenues for the fiscal years ended August 31, 1998 and 1997, 
respectively.  The Walt Disney Company and its affiliated companies, the only 
customer to account for more than 10% of revenues, accounted for 15% and 17% 
of revenues for 1998 and 1997, 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 

                                      1
<PAGE>

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. As a result of these transactions, the Company has 
expanded its client base, increased its range of services and broadened its 
global market coverage.  In May 1998, the Company also announced the 
formation of Todd-AO Video Services DVD, Inc. ("TVS DVD") in Hollywood which 
will provide Digital Versatile Disc ("DVD") services including encoding, 
authoring, and proofing to the major Hollywood studios and others.

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)
<TABLE>
<CAPTION>
                                                                                   BASIC           DILUTED
                                                                               EARNINGS PER     EARNINGS PER
                                            TOTAL         GROSS       NET      COMMON SHARE     COMMON SHARE
1997                                      REVENUES       PROFIT     INCOME      OUTSTANDING      OUTSTANDING
----                                      --------       ------     ------     ------------     ------------
<S>                                      <C>           <C>         <C>         <C>              <C>
First Quarter ........................   $  20,340     $  3,069    $ 1,771     $   .21          $   .20
Second Quarter .......................      19,341        2,611      1,518         .15              .14
Third Quarter ........................      19,657        2,688      1,900         .19              .18
Fourth Quarter .......................      19,633        1,455        816         .08              .08
                                         ---------     --------    -------     ----------       ------------
TOTAL ................................   $  78,971     $  9,823    $ 6,005     $   .63(a)       $   .59(a)
                                         ---------     --------    -------     ----------       ------------
                                         ---------     --------    -------     ----------       ------------
<CAPTION>
<S>                                      <C>           <C>         <C>         <C>              <C>
                                                                                  BASIC           DILUTED
                                                                      NET      EARNINGS PER     EARNINGS PER
                                            TOTAL         GROSS     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)
                                         ---------     --------    -------     ----------       ------------
                                         ---------     --------    -------     ----------       ------------
</TABLE>

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

                                      2
<PAGE>

FACILITIES

          Currently, the Company offers 26 acoustically designed sound stages 
equipped with modern sound recording equipment, providing a broad range of 
sound services for both film and video tape. Todd-AO's scoring stage can 
accommodate up to 150 musicians for live sound recording. 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 69,000 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 two Academy 
Awards-Registered Trademark- for Best Sound. A list of some of Todd-AO's 1998 
credits include: SAVING PRIVATE RYAN, THERE'S SOMETHING ABOUT MARY, DEEP 
IMPACT, PLEASANTVILLE, DR. DOOLITTLE, AND LOST IN SPACE.

          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): 

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

Other Academy Awards-Registered Trademark- received: 

<TABLE>
<CAPTION>
YEAR      ACCOMPLISHMENT
----      --------------
<S>       <C>
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
</TABLE>
                                      3
<PAGE>

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.

                                      4
<PAGE>

          -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.  TVS DVD provides video and audio compression 
(encoding), menu/interactive design, formatting (authoring), specification 
verification and player compatibility testing (proofing) of DVD product.  TVS 
DVD is in its start-up stage and expects to produce about 25 complete 
projects per month during this time 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. 
The Company does not believe that it has a major independent 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, Sound 
One in New York 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 Larson Sound, Four Media 
Company ("4MC"), West Productions, Echo Sound Digital Sound and Picture, 
Westwind Media and EFX/Wilshire Studios.

          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 

                                      5
<PAGE>

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, Fototronics, Pacific Ocean Post, Encore 
Video and VDI Media. These companies all currently provide a significantly 
larger and more complete array of video services and facilities than Todd-AO. 

          The Company believes its major direct competition in the London 
market for Todd-AO UK and TeleCine in the area of transmissions are Pearson, 
Molinare, TSI, and Arena. 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 Rank, 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 and Peachtree Post. 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 860 employees, some on a 
project-by-project basis. The Company has employment agreements with 100 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 52% 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.

          Sound studio 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 238,000 sq. ft. of building space is 
subject to lease or license agreements. In London, Todd-AO owns the 
underlying freehold of 17,600 sq. ft. of building space. 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 Santa Monica 
from Lantana Center. 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 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 New York lease agreement can be terminated by the Company at any 
time upon six months' written notice to the landlord. 

          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 1999 and which can be extended 

                                      6
<PAGE>

for two additional five-year terms 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 33,500 square feet which expire between July 
2004 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.

                                      7
<PAGE>

                                      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 713 
and 7 record holders of Class A and Class B Stock, respectively, as of 
November 18, 1998.  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

<TABLE>
<CAPTION>
FISCAL YEAR                                                       CLOSE
-----------                                                 -----------------
                                                              HIGH       LOW
                                                            -------    ------
<S>                                                          <C>       <C>
1997
----
First Quarter. . . . . . . . . . . . . . . . . . . . .       13 3/4     9 1/2
Second Quarter . . . . . . . . . . . . . . . . . . . .       10 3/4     9 1/8
Third Quarter. . . . . . . . . . . . . . . . . . . . .        9 3/4     8 1/4
Fourth Quarter . . . . . . . . . . . . . . . . . . . .       10 3/8     8 3/4

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
</TABLE>

          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 per Class A share for the
fiscal years 1997 and 1998. 

          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, 1998, 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 $0.054 per Class B share were 
paid for fiscal years 1997 and 1998.  The Company acts as Transfer Agent for 
the Class B common stock.

                                      8
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                          Years Ended August 31 
                                                                         -------------------------------------------------------
                                                                           1994        1995        1996        1997        1998
<S>                                                                      <C>         <C>         <C>       <C>          <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .         $32,892     $50,003     $62,920   $  78,971    $102,614
                                                                         -------     -------     -------   ---------    --------
                                                                         -------     -------     -------   ---------    --------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .         $ 1,780     $ 3,375     $ 4,844   $   6,005    $  3,419
                                                                         -------     -------     -------   ---------    --------
                                                                         -------     -------     -------   ---------    --------
Income per Common Share - Basic (1). . . . . . . . . . . . . . .         $   .24     $   .41     $   .59$        .63    $    .34
                                                                         -------     -------     -------   ---------    --------
                                                                         -------     -------     -------   ---------    --------
Income per Common Share - Diluted (2). . . . . . . . . . . . . .         $   .24     $   .40     $   .55$        .59    $    .33
                                                                         -------     -------     -------   ---------    --------
                                                                         -------     -------     -------   ---------    --------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . .         $36,728     $57,198     $64,186    $103,451    $135,366
                                                                         -------     -------     -------   ---------    --------
                                                                         -------     -------     -------   ---------    --------
Total Long-Term Debt Obligations . . . . . . . . . . . . . . . .         $ 1,467     $ 8,327     $ 9,354   $  25,430    $ 44,654
                                                                         -------     -------     -------   ---------    --------
                                                                         -------     -------     -------   ---------    --------
Cash Dividends:
    Class A Shares . . . . . . . . . . . . . . . . . . . . . . .         $   .06     $   .06     $   .06   $     .06    $    .06
                                                                         -------     -------     -------   ---------    --------
                                                                         -------     -------     -------   ---------    --------
    Class B Shares . . . . . . . . . . . . . . . . . . . . . . .         $  .054     $  .054     $  .054   $    .054    $   .054
                                                                         -------     -------     -------   ---------    --------
                                                                         -------     -------     -------   ---------    --------
</TABLE>

(1)       Basic income per share computed using average number of shares 
          outstanding of 7,344,310, 8,167,905, 8,191,065, 9,539,312 and 
          9,987,429 in 1994, 1995, 1996, 1997 and 1998, respectively.

(2)       Diluted income per share computed using the average number of 
          shares outstanding and common stock equivalents of 7,450,616, 
          8,399,462, 8,845,321, 10,207,503 and 11,218,051 in 1994, 1995, 
          1996, 1997 and 1998 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 and in August 1996 of Editworks in Atlanta. The 
Company also acquired Todd-AO Studios West in 1995, Filmatic in 1996 and 
Hollywood Digital in 1997. 

                                      9
<PAGE>

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:

<TABLE>
<CAPTION>
                                                       YEARS ENDED AUGUST 31,
                                                      -------------------------
                                                       1996     1997     1998
                                                      ------   ------   ------
<S>                                                   <C>      <C>      <C>
Revenues ............................................  100.0%   100.0%   100.0%

Costs and expenses:
 Operating costs and other expenses .................   77.8     78.2     80.9
 Depreciation and amortization ......................    8.5      9.0     10.4
 Restructuring charges ..............................     --       --      2.7
 Interest ...........................................    1.1      1.2      1.8
 Equipment lease expense, net .......................    0.8      0.3      0.2
 Other (income) expense, net ........................   (0.5)    (0.1)    (0.5)
                                                      ------   ------   ------
     Total costs and expenses .......................   87.7     88.6     95.5
                                                      ------   ------   ------

Income before provision for income taxes ............   12.1     11.4      4.5
Provision for income tax ............................    4.4      3.7      1.2
                                                      ------   ------   ------
Net income ..........................................    7.7%     7.7%     3.3%
                                                      ------   ------   ------
                                                      ------   ------   ------
</TABLE>

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.  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.  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.

                                      10
<PAGE>

          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 
non-recurring 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.

MATERIAL CHANGES IN CASH FLOWS

          For the year ended August 31, 1998 the Company generated $16,964 in 
cash from operating activities compared to $11,466 in 1997.  Cash provided by 
operating activities from net income of $3,419, adjusted for depreciation, 
net amortization, and impairment of assets of $11,164, and augmented by a net 
increase in receivables and a decrease in payables and accrued liabilities 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 
$22,689 were used to pay down long-term debt, reinvest in capital assets of 
the Company and to fund the acquisition of TeleCine.

OTHER BUSINESS INFORMATION

          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.

          In May 1998, the Company announced the formation of TVS DVD which will
provide DVD product services including encoding, authoring, and proofing to the
major Hollywood studios and others.  TVS DVD is in its start-up stage and
currently expects to produce about 25 complete projects per month.

FISCAL YEAR ENDED AUGUST 31, 1997 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1996

          Revenues increased $16,051 or 25.5% from $62,920 to $78,971 due to 
significant increases from the Company's sound services divisions ($5,124) as 
well as its video services divisions ($10,927) including Todd-AO/Editworks 
("Editworks") acquired in August 1996 and Todd-AO Filmatic ("Filmatic") 
acquired in April 1996 which contributed revenue increases of $4,262 and 
$382, respectively.  Hollywood Digital, acquired in June 1997, contributed 
$3,864 of the increase.  The revenue increase for the remaining video 
divisions was $2,419.

          Operating costs and other expenses increased $12,793 or 26.1% from 
$48,962 to $61,755.  Cost increase related to the acquisitions described 
above were higher than usual due to transitional changes at Editworks and the 
relocation of Filmatic.  These acquisitions, as well as Hollywood Digital, 
are now fully integrated into operations and should impact favorably on 
future results.  In addition, Todd-AO Digital 

                                      11
<PAGE>

Images ("TDI") recorded cost increases of $476 against flat revenue.  In 
order to take advantage of certain operating efficiencies the operations of 
TDI were transferred to the newly acquired Hollywood Digital in August 1997.  
Hollywood Digital has an experienced and successful feature film effects 
division and will be responsible for all digital special effects for the 
Company.  The remaining cost increases are related to revenue increases 
described above.

          Depreciation and amortization increased $1,754 or 32.6% primarily 
due to the acquisitions and current year capital expenditures.

          Net equipment lease expense decreased $233 or 46.8% due to 
decreases in the interest rate and a declining principal balance while the 
associated straight line amortization of the deferred gain remains the same.

          Other (income) expense, including the 1996 loss from joint venture, 
net decreased $192 primarily due to non-recurring provision adjustments in 
the prior year.

          As a result of the above, income before taxes increased $1,327 from 
$7,626 to $8,953.  The effective income tax rate decreased from 36.5% to 
32.9% and net income increased $1,161 from $4,844 to $6,005.

          Earnings per share increased 9% from $0.55 to $0.60 in spite of a 
14% dilution in average shares outstanding primarily due to the November 1996 
public offering when 1,645,000 shares were issued.  If the public offering 
had occurred as of September 1, 1996 and the bank credit facility debt paid 
down, the EPS as of August 31, 1997 would not have changed from $0.60.

MATERIAL CHANGES IN CASH FLOWS

          For the year ended August 31, 1997 the Company generated $11,466 in 
cash from operating activities compared to $9,652 in 1996.  In addition to 
net income of $6,005, adjusted for depreciation and net amortization of 
$5,656, net increases in accounts payable and other liabilities of $928 also 
increased cash provided by operations.  Cash was utilized primarily to fund 
the increase in trade receivables and other current assets.

          Net cash generated from operating activities supplemented by 
proceeds from the sale of certain marketable securities and investments and 
borrowings from the Company's credit facility were used to reinvest in 
capital assets of the Company, to pay down long-term debt and to acquire 
Hollywood Digital.  Cash generated from the issuance of common stock 
($15,755) included net proceeds received in connection with the Company's 
public offering of $15,512 which were used to pay down long-term debt, to 
reinvest in capital assets of the Company and to acquire Hollywood Digital.

OTHER BUSINESS INFORMATION

          The Editworks division completed constructing two audio rooms in 
order to provide its clients with additional services.  The rooms began 
operations in the fourth quarter of this fiscal year and have begun 
contributing to the revenue and earnings of the division.

          Due to shortened post production schedules for motion picture 
features, it has become the norm for clients to use two stages rather than 
one for the pre-mixing phase of the total post production sound mixing 
process.  In view of this development, the Company is converting an ADR 
(Additional Dialogue Replacement) Stage at the Hollywood facilities into a 
new sound mixing stage primarily for dialogue pre-mixing services, but which 
can also be used for various other mixing services.  The newly converted 
stage is expected to begin operating in the second quarter of fiscal year 
1998.

          Hollywood Digital, acquired by the Company in June 1997 and which 
contributed to the revenue and earnings in the fourth quarter of this fiscal 
year, is also expecting to open a separate facility in Santa Monica, 
California to primarily service its advertising clients.  The present 
Hollywood facility will expand its current feature and television services.  
The new facility will begin operations during fiscal year 1998.

                                      12
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

          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 consists of five 1-year terms 
amortizing to approximately 42% with interest at LIBOR rates ranging from 
plus .75% to plus 2% based on the leverage ratio (Funded Indebtedness/EBITDA 
excluding convertible subordinated notes issued by Company in connection with 
the Hollywood Digital acquisition) and 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 $60,000 in revolving loans (including up 
to 50% in Multi-currency) until November 30, 2001.  On that date and 
quarterly thereafter until August 31, 2003, 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, 2003.  Annually, 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.  
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, CD, and LIBOR rates ranging from plus .75% to plus 
2.125% based on the leverage ratio.  The leverage ratio that determines the 
rate ranges from less than 1:1 to greater than 2.5:1.  The leverage ratio may 
not exceed 3.5:1 until February 28, 2000.  Thereafter, the leverage ratio 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.  
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 $8,000 during the fiscal 
year ending August 31, 1999).

          Management evaluated capital raising alternatives including capital 
and operating leases, sale/leaseback and other sources of long-term debt 
including bank and public financing.  Based upon cost, structure and term the 
sale/leaseback financing provided incremental funding with a favorable impact 
on earnings per share as compared with available alternative debt financings.

          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.  At August 31, 1998, based 
on dealer quoted market prices, the Company would have to pay $64 to 
terminate the swap agreement.

          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 1999.

          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.

                                      13
<PAGE>

          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.  In May 1998, the Company used $14,000 under the credit 
facility to fund a substantial portion of the TeleCine acquisition.  As of 
August 31, 1998, the Company had $33,975 outstanding under the credit 
facility.

          The Company expects capital expenditures of approximately $21,000 
for its Los Angeles, Santa Monica, New York City, Atlanta and London 
facilities in fiscal 1999. 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.

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 1999 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 1999.  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 

                                      14
<PAGE>

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.

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.

                                      15
<PAGE>

                                      PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

          The executive officers and directors of the Company are as follows:


<TABLE>
<CAPTION>
NAME                                           AGE*                    POSITION WITH COMPANY
----                                           ----                    ---------------------
<S>                                            <C>     <C>
Salah M. Hassanein (1) .....................     77    President, Chief Executive Officer and Director
M. David Cottrell ..........................     42    Vice President of Administration and Controls
Silas R. Cross .............................     59    Vice President, Treasurer and Assistant Secretary
Clay M. Davis ..............................     52    Vice President
J.R. DeLang ................................     42    Senior Vice President and Director
Rand Gladden ...............................     47    Vice President and President of Todd-AO Hollywood Digital
Graham Hall ................................     40    Managing Director of Todd-AO UK Ltd.
Coburn T. Haskell ..........................     46    Vice President and Controller
Richard C. Hassanein .......................     47    Vice President and Director
Christopher D. Jenkins .....................     43    Senior Vice President and Director
Marshall Naify (1) .........................     78    Co-Chairman of the Board of Directors
Robert A. Naify (1) ........................     76    Co-Chairman of the Board of Directors
Richard O'Hare .............................     45    Vice President and President of Todd-AO Video Services
Kathleen N. Reck ...........................     57    Vice President Human Resources
Judi M. Sanzo ..............................     41    Vice President, General Counsel, and Secretary
William R. Strickley .......................     48    Senior Vice President and Chief Financial Officer
David Haas (3) .............................     57    Director
Herbert L. Hutner (2)(3) ...................     89    Director
Robert I. Knudson ..........................     73    Director
David P. Malm ..............................     34    Director
Michael S. Naify ...........................     36    Director
A. Frank Pierce (2) ........................     68    Director
Sydney Pollack .............................     64    Director
Zelbie Trogden (3) .........................     62    Director
</TABLE>

---------------------------
*         As of August 31, 1998. 

(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, and is presently a 
consultant to Warner Bros. Mr. Hassanein previously served as Executive Vice 
President of UACI and President and director of United Artists Eastern 
Theatres, Inc. Mr. Hassanein is a principal of SMH Entertainment, Inc. and a 
director of Software Technologies Corporation. 

          M. David Cottrell was appointed Vice President of Administration 
and Controls 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.

                                      16
<PAGE>

          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. 

          Rand Gladden was appointed Vice President of the Company and 
President of Todd-AO Hollywood Digital in 1997.  Mr. Gladden previously 
served as President and CEO of Hollywood Digital Limited Partnership from 
1994 to 1997. Previously, he was a Vice President of The Post Group.

          Graham Hall was appointed Managing Director of Todd-AO UK in 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. Mr. Jenkins 
is currently a lead sound mixer for the Company, and has won two Academy 
Awards-Registered Trademark- for sound. 

          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 currently 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. 

          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.

                                      17
<PAGE>

          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.

          William "Randy" Strickley was appointed Senior Vice President and 
Chief Financial Officer of the Company in May 1997.  Mr. Strickley was Bank 
of America's Entertainment and Media Group managing director with 25 years 
experience in corporate and international banking.

          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. and GRB 
Entertainment, Inc.

          Herbert L. Hutner was elected as a Director in 1987. He is an 
investor and a financial consultant.

          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.

                                      18
<PAGE>

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, 1998, 1997 and 1996 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, 1998. 

<TABLE>
<CAPTION>
                                                               ANNUAL COMPENSATION(1)          LONG-TERM
                                                               ----------------------         COMPENSATION
                                                                                              ------------
                                                                                           NO. OF SECURITIES
                                                  FISCAL                                       UNDERLYING          All Other
NAME AND PRINCIPAL POSITION                        YEAR       SALARY ($)     BONUS ($)           OPTIONS         Compensation($)
---------------------------                       ------      ----------     ---------           -------         ---------------
<S>                                               <C>      <C>             <C>             <C>                  <C>
Salah M. Hassanein                                 1998       250,000 (2)   241,813 (3)             --                 --
President and Chief Executive Officer              1997       123,250 (2)   231,875 (3)          100,000               --
The Todd-AO Corporation                            1996       100,000 (2)        --                 --                 --

J.R. DeLang                                        1998       469,297            --                 --              15,000 (4)
Senior Vice-President                              1997       403,490            --               10,000            15,000 (4)
The Todd-AO Corporation                            1996       335,442            --                 --              15,000 (4)

Christopher D. Jenkins                             1998       962,027 (5)        --                 --               6,068 (5)
President                                          1997       709,306 (5)        --               10,000             4,687 (5)
Todd-AO Studios                                    1996       575,631 (5)        --                 --               3,400 (5)

Clay M. Davis                                      1998       253,815            --                 --               6,068 (6)
Vice President                                     1997       246,534            --               15,000             4,687 (6)
The Todd-AO Corporation                            1996       176,546            --                 --               3,460 (6)

Richard O'Hare                                     1998       204,677            --                 --              15,000 (7)
President                                          1997       210,922            --               10,000            15,000 (7)
Todd-AO Video Services                             1996       173,695            --                 --              17,228 (7)

Rand Gladden                                       1998       279,167            --                 --                 --
President                                          1997        52,949            --               10,000               --
Todd-AO Hollywood Digital                          1996          --              --                 --                 --
</TABLE>

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

(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
1998, $87,500 for 1997 and $80,000 for 1996.

(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 1998, 1997 and 1996 on Mr. DeLang's behalf. 

(5)       1998 and 1997 salary amounts include non-qualified stock option
exercise compensation of $55,385 and $73,975, respectively.  Amounts shown as
salary also include compensation of $806,642, $535,331, and $475,631 for 1998,
1997 and 1996, 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.

                                      19
<PAGE>

(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. 

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, 1998 to each of the executive 
officers named in the Summary Compensation Table:

<TABLE>
<CAPTION>
                       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% ($)
------------------      -------------   -----------    ------------   ----------         ------        -------
<S>                     <C>             <C>            <C>            <C>                <C>           <C>
Richard O'Hare             5,000             5.21%        $9.83        8/31/2004         18,994         43,860
</TABLE>

OPTION EXERCISES AND VALUE TABLE

          The following table shows each exercise of stock options during the
fiscal year ended August 31, 1998 by each of the executive officers named in the
Summary Compensation Table, together with respective aggregate values of
unexercised options as at August 31, 1998.

<TABLE>
<CAPTION>
                                   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, 199             at August 31, 1998
                                                      -----------------------------  ----------------------------
                    Shares
                    Acquired            Value
Name                on Exercise (#)     Realized ($)   Exercisable    Unexercisable  Exercisable    Unexercisable
-------------       ---------------     ------------   -----------    -------------  -----------    -------------
<S>                 <C>                 <C>            <C>            <C>            <C>            <C>
Salah M. Hassanein         --                --           194,000         82,000        $197,054        $45,122
J.R. DeLang              11,000           $49,198          43,600         10,400         $15,871         $2,587
Christopher D. Jenkins   11,000           $55,385          45,800          8,200         $13,457         $1,294
Clay M. Davis            5,500            $27,693          20,300         11,200          $6,555         $1,294
Richard O'Hare             --                --            15,000         11,000          $2,761             $0
Rand Gladden               --                --             2,000          8,000              $0             $0
</TABLE>

EMPLOYMENT AGREEMENTS

          The Company has employment agreements with Messrs. Jenkins, Davis 
and Gladden. 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, 1999) provides for a salary of $200,000, 
$215,000 and $230,000 for the twelve months ending February 28, 1997, 1998 
and 1999, respectively.  Mr. Gladden's agreement (expiring January 1, 2001) 
provides for a salary of $275,000, $300,000, and $325,000 for the twelve 
months ending June 30, 1998, 1999, and 2000, respectively plus $175,000 for 
the six months ending January 1, 2001.  The Company is currently negotiating 
agreements for Messrs. DeLang and O'Hare.

                                      20
<PAGE>

          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 
1, 1998 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. 

<TABLE>
<CAPTION>
                                                   NUMBER OF SHARES BENEFICIALLY
                                                               OWNED                           PERCENT (2)             OPTIONS (3)
                                                   -----------------------------         ------------------------      -----------
NAME (1)                                              CLASS A          CLASS B             CLASS A      CLASS B          CLASS A
--------                                           -------------     -----------         -----------  -----------      -----------
<S>                                                <C>               <C>                 <C>          <C>              <C> 
Arnold C. Childhouse (deceased) ..............        16,666                 0                .22%           0%            16,666
Silas R. Cross ...............................        19,250                 0                .25%           0%            14,250
M. David Cottrell ............................         4,500                 0                .06%           0%             4,000
Clay M. Davis ................................        36,500                 0                .47%           0%            25,500
J.R. DeLang ..................................        72,000                 0                .93%           0%            50,000
Rand Gladden .................................        15,134(4)              0                .20%           0%             4,000
David Haas ...................................        30,000                 0                .39%           0%            15,000
Coburn Haskell ...............................        17,000                 0                .22%           0%            17,000
Richard C. Hassanein .........................        29,100                 0                .37%           0%            28,000
Salah M. Hassanein ...........................       858,043                 0               8.04%           0%                 0
Herbert L. Hutner ............................        35,100                 0                .45%           0%            25,000
Christopher D. Jenkins .......................        72,000                 0                .93%           0%            50,000
Robert I. Knudson ............................        82,089                 0               1.06%           0%            22,500
David P. Malm ................................         7,527(4)              0                .10%           0%             6,000
Richard O'hare ...............................        18,000                 0                .23%           0%            18,000
Frank Pierce .................................        15,000                 0                .19%           0%            15,000
Sydney Pollack ...............................         5,000                 0                .06%           0%             5,000
Judi M. Sanzo ................................         1,000                 0                .01%           0%             1,000
William R. Strickley .........................         8,500                 0                .11%           0%             8,000
Zelbie Trogden ...............................        20,000                 0                .26%           0%            20,000
Marshall Naify (8) ...........................     1,272,967(5)          678,839            16.03%       38.85%           210,150
Michael S. Naify (8) .........................       184,820(7)              0               2.39%           0%            15,000
Robert A. Naify (8) ..........................     1,276,014(6)          906,290            16.07%       51.87%           210,150
Other Naify Interests (8) ....................       776,936             118,510             8.50%        6.78%                 0
All directors and current executive
officers as a group (22 persons) .............     4,097,210           1,585,129           46.83%          90.73%       1,017,216
</TABLE>

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

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

(2)       Based on 7,732,549 shares of Class A Common Stock and 1,747,178 
shares of Class B Common Stock outstanding at November 18, 1998. 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.

                                      21
<PAGE>

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

(4)       Includes 11,134 and 1,527 shares beneficially owned by Messrs. 
Gladden and Malm respectively, which are issuable upon conversion of certain 
convertible subordinated notes acquired in connection with the Company's 
acquisition of Hollywood Digital.

(5)       Includes 30,166 shares of Class A Common Stock held by a trust for 
which Mr. Naify is both trustee and beneficiary. Excludes 109,652 shares of 
Class A Common Stock held by an independent trustee for the benefit of three 
of Mr. Naify's children. Mr. Naify disclaims beneficial ownership of the 
shares held by the independent trustee. 

(6)       Includes 55,000 shares of Class A Common Stock held by a trust for 
which Mr. Naify is both trustee and beneficiary.Excludes 457,913 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 1,081 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 1, 1998 is 3,510,737 
(42.98%) and 1,703,639 (97.51%), respectively. 

ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

          None.

                                      22
<PAGE>

                                      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)  Exhibits are as listed in the Exhibit Index on page 25 of this
               10-K Report.

                                      23
<PAGE>

                                     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.

<TABLE>
               <S>                                 <C>
                                                    The Todd-AO Corporation

               November 19, 1998        By /s/             Silas R. Cross       
                                                   -----------------------------
                                                           Silas R. Cross
                                                        Vice President, Treasurer
                                                    and Principal Accounting Officer

               November 19, 1998        By /s/          William R. Strickley    
                                                   -----------------------------
                                                        William R. Strickley
                                                    Senior Vice President and
                                                        Chief Financial Officer
</TABLE>

          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.

<TABLE>
<S>                                                              <C>                       
November 19, 1998    By /s/          Robert A. Naify             November 19, 1998   By /s/         Marshall Naify 
                                   ------------------------                                    ---------------------------
                                     Robert A. Naify                                                Marshall Naify
                                   Co-Chairman of the                                             Co-Chairman of the
                                   Board of Directors                                              Board of Directors
          
November 19, 1998    By /s/          Salah M. Hassanein          November 19, 1998  By /s/       Christopher D. Jenkins   
                                   ------------------------                                    ---------------------------
                                     Salah M. Hassanein                                          Christopher D. Jenkins
                                   Director, President and                                     Senior Vice President and 
                                   Chief Executive Officer                                          Director

November 19, 1998    By /s/             J.R. DeLang              November 19, 1998   By /s/      Richard Hassanein 
                                   ------------------------                                    ---------------------------
                                        J.R. DeLang                                              Richard Hassanein
                                   Senior Vice President                                       Vice President and
                                        and Director                                                Director

November 19, 1998    By /s/          Sydney Pollack              November 19, 1998   By /s/      Michael S. Naify 
                                   ------------------------                                    ---------------------------
                                     Sydney Pollack                                              Michael S. Naify
                                        Director                                                     Director

November 19, 1998    By /s/          Robert I. Knudson           November 19, 1998   By /s/         Zelbie Trogden 
                                   ------------------------                                    ---------------------------
                                     Robert I. Knudson                                              Zelbie Trogden
                                        Director                                                       Director

November 19, 1998    By /s/          Herbert L. Hutner           November 19, 1998  By /s/            A. Frank Pierce   
                                   ------------------------                                    ---------------------------
                                     Herbert L. Hutner                                                A. Frank Pierce
                                        Director                                                          Director

November 19, 1998    By /s/          David Haas                  November 19, 1998  By /s/            David P. Malm     
                                   ------------------------                                    ---------------------------
                                     David Haas                                                       David P. Malm
                                      Director                                                       Director
</TABLE>

                                      24
<PAGE>

                                   EXHIBIT INDEX
 

<TABLE>
<CAPTION>
EXHIBIT        
  NO.      DESCRIPTION
-------    -----------
<S>        <C>
  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).

  9.1      Voting Trust Agreements.

             Not applicable.

 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.

 10.8      Joint Venture Agreement dated as of July 20, 1992 between 
           Trans-Atlantic Enterprises, Inc. and Todd-AO Productions, Inc. is
           incorporated by reference from the Registrant's Form 10-K for the
           fiscal year ended August 31, 1992.
 
 10.9      Extension and amendments to Joint Venture Agreement dated as of
           October 20, 1993 between Trans-Atlantic Enterprises, Inc. and
           Todd-AO Productions, Inc. is incorporated by reference from the
           Registrant's Form 10-K for the fiscal year ended August 31, 1993.

 10.10     Amendment No. 2 to Joint Venture Agreement dated as of September
           1, 1994 is incorporated by reference from the Registrant's Form
           10-K for the fiscal year ended August 31, 1994.
 
 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.
</TABLE>
                                      25
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
  NO.      DESCRIPTION
-------    -----------
<S>        <C>
 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.

 10.20     First Amended and Restated Credit Agreement dated October 20,
           1997 between The Todd-AO Corporation and Bank of America National
           Trust and Savings Association is incorporated by reference from
           the Registrant's Form 10-K filed on November 19, 1997.

 10.20a    First Amendment dated April 16, 1998 to the First Amended and
           Restated Credit Agreement dated October 27, 1997 between The
           Todd-AO Corporation and Bank of America National Trust and
           Savings Association is filed herewith.

 10.20b    Second Amendment dated July 21, 1998 to the First Amended and
           Restated Credit Agreement dated October 27, 1997 between The
           Todd-AO Corporation and Bank of America National Trust and
           Savings Association is filed herewith.

 10.20c    Third Amendment dated September 21, 1998 to the First Amended and
           Restated Credit Agreement dated October 27, 1997 between The
           Todd-AO Corporation and Bank of America National Trust and
           Savings Association is filed herewith.

 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.

 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.
</TABLE>
                                      26
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
  NO.      DESCRIPTION
-------    -----------
<S>        <C>
 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.

 10.33     Employment Agreement dated as of June 19, 1997 between The 
           Todd-AO Corporation and Rand Gladden 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.

 10.35     Joint Venture Agreement dated September 8, 1998 between The 
           Todd-AO Corporation and United Artists Theatre Circuit, Inc. 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.

             Not applicable.
</TABLE>
                                      27
<PAGE>


<TABLE>
<CAPTION>
EXHIBIT
  NO.      DESCRIPTION
-------    -----------
<S>        <C>
 20.1      Previously Unfiled Documents.

             Not applicable.

 21.1      Subsidiaries of the Registrant

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

             Todd-AO Studios, incorporated in California.

             Todd-AO Studios West, incorporated in California.

             Todd-AO Video Services, incorporated in California.

             Todd-AO Video Services 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 plc., organized in the U.K. (parent)
                     SUBSIDIARIES
                     Tele-Cine Ltd., incorporated in the U.K.
                     XTV Cell, Ltd., incorporated in the U.K.
                     XTV 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 Digital Images, incorporated in California (inactive).

             Hollywood Supply Company, incorporated in California (inactive).

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

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

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

 22.1      Published Reports Regarding Matters Submitted to a Vote of Security Holders.

             Not applicable.

 23.1, 24.1, and 25.1

             Not applicable.

 27.1      Financial Data Schedule

             Filed herewith.
</TABLE>
                                      28
<PAGE>

                              THE TODD-AO CORPORATION
                                          
           INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE


<TABLE>
<CAPTION>
                                                                              Page
<S>                                                                           <C>
Report of Independent Public Accountants                                        30

Independent Auditors' Report                                                    31

Consolidated Balance Sheets, August 31, 1997 and 1998                           32

Consolidated Statements of Income for the Years Ended
  August 31, 1996, 1997 and 1998                                                34

Consolidated Statements of Stockholders' Equity for the
  Years Ended August 31, 1996, 1997 and 1998                                    35

Consolidated Statements of Cash Flows for the Years Ended
  August 31, 1996, 1997 and 1998                                                36

Notes to Consolidated Financial Statements                                      39

Supplemental Financial Statement Schedule:

     II   Valuation and Qualifying Accounts For The Years Ended
          August 31, 1996, 1997 and 1998                                        51
</TABLE>

     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 hereto.

                                      29
<PAGE>

                      REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



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

     We have audited the accompanying consolidated balance sheet of The 
Todd-AO Corporation (a Delaware corporation) and its subsidiaries as of 
August 31, 1998, and the related consolidated statements of income, 
stockholders' equity, and cash flows for the year then ended. These financial 
statements are the responsibility of the Company's management. Our 
responsibility is to express an opinion on these financial statements 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, 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 the results of 
their operations and their cash flows for the year then ended in conformity 
with generally accepted accounting principles.

     Our audit was 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 the audit of the basic financial statements and, in our 
opinion, fairly state 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 13, 1998

                                      30
<PAGE>

                            INDEPENDENT AUDITORS' REPORT



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

     We have audited the accompanying consolidated balance sheet of The 
Todd-AO Corporation and subsidiaries (the "Company") as of August 31, 1997 
and the related consolidated statements of income, stockholders' equity, and 
cash flows for the years ended August 31, 1997 and 1996.  Our audits also 
included the financial statement schedule listed in the Index at Item 14a for 
the two years ended August 31, 1997 and 1996.  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 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, such consolidated financial statements present fairly, 
in all material respects, the financial position of the Company as of August 
31, 1997 and the results of its operations and its cash flows for the years 
ended August 31, 1997 and 1996 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.

By /s/ DELOITTE & TOUCHE LLP  



DELOITTE & TOUCHE LLP
Los Angeles, California

October 24, 1997


                                      31



<PAGE>

                     THE TODD-AO CORPORATION

                   CONSOLIDATED BALANCE SHEETS
                     (DOLLARS IN THOUSANDS)


                             ASSETS

<TABLE>
<CAPTION>
                                                                                          AUGUST 31,
                                                                                   ------------------------
                                                                                      1997         1998
                                                                                   ----------    ----------
<S>                                                                                <C>           <C>
CURRENT ASSETS
Cash and cash equivalents..............................................            $    5,127    $    3,997
Marketable securities..................................................                 1,977         1,490
Trade receivables
  (net of allowance for doubtful accounts of $562 and $1,768 at
  August 31, 1997 and 1998, respectively)..............................                13,176        18,164
Income tax receivable..................................................                   671         1,397
Inventories (first-in first-out basis).................................                   625           783
Deferred income taxes..................................................                   368           301
Prepaid deposits and other.............................................                 2,168         3,629
                                                                                   ----------    ----------


Total current assets...................................................                24,112        29,761
                                                                                   ----------    ----------


INVESTMENTS............................................................                   997           956
                                                                                   ----------    ----------


PROPERTY AND EQUIPMENT - At Cost:
Land...................................................................                 4,270         4,270
Buildings..............................................................                10,994        11,293
Leasehold improvements.................................................                10,203        15,054
Lease acquisition costs................................................                 2,187         2,187
Equipment..............................................................                54,707        76,172
Equipment under capital leases.........................................                 1,540         1,151
Construction in progress...............................................                   920         1,466
                                                                                   ----------    ----------


Total                                                                                  84,821       111,593
Accumulated depreciation and amortization..............................               (27,697)      (38,046)
                                                                                   ----------    ----------


Property and equipment -- net..........................................                57,124        73,547
                                                                                   ----------    ----------


GOODWILL
  (net of accumulated amortization of $602 and $1,646 at
  August 31, 1997 and 1998, respectively)..............................                19,162        29,193
                                                                                   ----------    ----------


OTHER ASSETS...........................................................                 2,056         1,909
                                                                                   ----------    ----------


TOTAL                                                                              $  103,451   $   135,366
                                                                                   ==========   ===========
</TABLE>



               See notes to consolidated financial statements.


                                      32

<PAGE>

                       THE TODD-AO CORPORATION

                     CONSOLIDATED BALANCE SHEETS
                       (DOLLARS IN THOUSANDS)
                             (CONTINUED)


                LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                          AUGUST 31,
                                                                                   ------------------------
                                                                                      1997         1998
                                                                                   ----------    ----------
<S>                                                                                <C>           <C>
CURRENT LIABILITIES:
Accounts payable.......................................................            $    5,302    $    6,464
Accrued liabilities:
   Payroll and related taxes...........................................                 2,507         3,520
   Interest............................................................                   422           369
   Equipment lease.....................................................                   279           569
   Other...............................................................                 1,533         3,201
Income taxes payable...................................................                   105         1,090
Current maturities of long-term debt...................................                   578           537
Capitalized lease obligations -- current...............................                    35           422
Deferred income........................................................                 1,459           897
                                                                                   ----------    ----------


Total current liabilities..............................................                12,220        17,069
                                                                                   ----------    ----------


LONG-TERM DEBT.........................................................                25,430        44,654
DEFERRED COMPENSATION AND OTHER........................................                   326           266
DEFERRED GAIN ON SALE/LEASEBACK TRANSACTIONS...........................                 3,437         6,085
DEFERRED INCOME TAXES..................................................                 4,659         4,911
OTHER..................................................................                    --         2,061
                                                                                   ----------    ----------


Total liabilities......................................................                46,072        75,046
                                                                                   ----------    ----------



COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Common Stock:
   Class A; authorized 30,000,000 shares of $0.01 par value;
   issued 8,290,494 at August 31, 1997 and 8,438,700
   at August 31, 1998..................................................                    83            84
   Class B; authorized 6,000,000 shares of $0.01 par value;
   issued and outstanding 1,747,178 at August 31, 1997 and 1998........                    17            17
Additional capital.....................................................                39,996        40,805
Treasury stock (74,731 and 235,151 shares at cost
   as of August 31, 1997 and 1998, respectively........................                  (691)       (2,338)
Retained earnings......................................................                17,711        20,538
Unrealized gains on marketable securities and long-term investments....                    94           198
Cumulative foreign currency translation adjustment.....................                   169         1,016
                                                                                   ----------    ----------


Total stockholders' equity.............................................                57,379        60,320
                                                                                   ----------    ----------


TOTAL..................................................................            $  103,451    $  135,366
                                                                                   ==========    ==========
</TABLE>

               See notes to consolidated financial statements.

                                      33
<PAGE>

                             THE TODD-AO CORPORATION

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

<TABLE>
<CAPTION>
                                                                            YEARS ENDED AUGUST 31,
                                                                     ----------------------------------------
                                                                         1996          1997          1998
                                                                     ------------  ------------  ------------
<S>                                                                  <C>           <C>           <C>
REVENUES......................................................        $    62,920   $    78,971   $   102,614
                                                                     ------------  ------------  ------------
COSTS AND EXPENSES:
Operating costs and other expenses............................             48,962        61,755        83,034
Depreciation and amortization.................................              5,374         7,128        10,685
Interest......................................................                702           920         1,807
Equipment lease expense -- net................................                498           265           245
Restructuring charges:
 Equipment....................................................                 --            --         2,414
 Lease costs..................................................                 --            --           353
Other (income) expense -- net.................................               (242)          (50)         (573)
                                                                     ------------  ------------  ------------


Total costs and expenses......................................             55,294        70,018        97,965
                                                                     ------------  ------------  ------------


INCOME BEFORE PROVISION FOR INCOME TAXES......................              7,626         8,953         4,649
  PROVISION FOR INCOME TAXES..................................              2,782         2,948         1,230
                                                                     ------------  ------------  ------------


NET INCOME....................................................        $     4,844   $     6,005   $     3,419
                                                                     ============  ============  ============




NET INCOME PER COMMON SHARE:
Net income available to common stockholders...................        $     4,844   $     6,005   $     3,419

Effect of dilutive securities:
 5% convertible debentures....................................                 --            47           302
                                                                     ------------  ------------  ------------

Net income available to common stockholders
 plus assumed conversions.....................................              4,844         6,052         3,721
                                                                     ------------  ------------  ------------

WEIGHTED AVERAGE SHARES
 OUTSTANDING B BASIC..........................................          8,191,065     9,539,312     9,987,429
Effect of dilutive securities:
 Stock options................................................            654,256       549,681       519,565
 5% convertible debentures....................................                 --       118,510       711,057
                                                                     ------------  ------------  ------------

WEIGHTED AVERAGE SHARES
 OUTSTANDING -- DILUTED.......................................          8,845,321    10,207,503    11,218,051
                                                                     ------------  ------------  ------------


NET INCOME PER COMMON SHARE -- BASIC..........................        $      0.59   $      0.63   $      0.34
                                                                     ============  ============  ============


NET INCOME PER COMMON SHARE -- DILUTED........................        $      0.55   $      0.59   $      0.33
                                                                     ============  ============  ============
</TABLE>

               See notes to consolidated financial statements.

                                      34
<PAGE>

                             THE TODD-AO CORPORATION

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
               FOR THE YEARS ENDED AUGUST 31, 1996, 1997 AND 1998
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                     COMMON STOCK                                     UNREALIZED 
                                         --------------------------------------                         GAIN 
                                              CLASS A                                                  (LOSS)
                                         -----------------                                               ON      FOREIGN
                                                            CLASS B  ADDITIONAL  RETAINED  TREASURY  INVESTMENT  CURRENCY
                                          SHARES    AMOUNT  AMOUNT    CAPITAL    EARNINGS   SHARES   SECURITIES  TRANSLATION
                                         ---------  ------  -------  ----------  --------  --------  ----------  -----------
<S>                                      <C>        <C>     <C>      <C>         <C>       <C>       <C>         <C>
BALANCE AT AUGUST 31, 1995.............  6,404,369  $   64  $    17  $   23,004  $  7,904  $     --  $      473  $      (264)
Exercise of stock options..............    152,600       1       --         550        --        --          --           --
Tax benefit from exercise
 of stock options......................         --      --       --         493        --        --          --           --
Purchase of treasury shares............         --      --       --          --        --      (726)         --           --
Treasury shares cancellation...........    (68,192)     (1)      --        (725)       --       726          --           --
Shares issued in acquisition of 
  Editworks............................     66,863       1       --         969        --        --          --           --
Unrealized (loss) on investment 
  securities...........................         --      --       --          --        --        --        (431)          --
Gain on foreign currency translation...         --      --       --          --        --        --          --            5
Cash dividends:
  Class A ($.06) per share.............         --      --       --          --      (395)       --          --           --
  Class B ($.054) per share............         --      --       --          --       (86)       --          --           --
Net income.............................         --      --       --          --     4,844        --          --           --
                                         ---------  ------  -------  ----------  --------  --------  ----------  -----------

BALANCE AT AUGUST 31, 1996.............  6,555,640      65       17      24,291    12,267         0          42         (259)
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           --
Gain on foreign currency translation...         --      --       --          --        --        --          --          428
Cash dividends:
  Class A ($.06) per share.............         --      --       --          --      (475)       --          --           --
  Class B ($.054) per share............         --      --       --          --       (86)       --          --           --
Net income.............................         --      --       --          --     6,005        --          --           --
                                         ---------  ------  -------  ----------  --------  --------  ----------  -----------

BALANCE AT AUGUST 31, 1997.............  8,290,494      83       17      39,996    17,711      (691)         94          169
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           --
Gain on foreign currency translation...         --      --       --          --        --        --          --          847
Cash dividends:
  Class A ($.06) per share.............         --      --       --          --      (506)       --          --           --
  Class B ($.054) per share............         --      --       --          --       (86)       --          --           --
Net income.............................         --      --       --          --     3,419        --          --           --
                                         ---------  ------  -------  ----------  --------  --------  ----------  -----------
BALANCE AT AUGUST 31, 1998.............  8,438,700  $   84  $    17  $   40,805  $ 20,538  $ (2,338) $      198  $     1,016
                                         =========  ======  =======  ==========  ========  ========  ==========  ===========
</TABLE>



               See notes to consolidated financial statements.


                                      35

<PAGE>

                            THE TODD-AO CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                               YEARS ENDED AUGUST 31,
                                                                       -------------------------------------
                                                                          1996          1997         1998
                                                                       ----------    ----------   ----------
<S>                                                                    <C>           <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income....................................................       $    4,844    $    6,005   $    3,419
  Adjustments to reconcile net income to net cash
     provided by operating activities:
     Depreciation and amortization..............................            5,374         7,128       10,685
     Restructuring charges......................................               --            --        2,767
     Deferred income taxes......................................              577           968          327
     Tax benefit from exercise of stock options.................              493            67          200
     Loss from joint venture....................................              117            --           --
     Deferred compensation and other............................             (128)          (72)         (60)
     Foreign currency exchange rate (gain) loss.................               --           (21)         847
     Amortization of deferred gain on
          sale/leaseback transaction............................           (1,472)       (1,472)      (2,288)
     (Gain) loss on sale of marketable securities
          and investments.......................................               92           (20)         (83)
     Loss (gain) on disposition of fixed assets.................              276           103         (209)
     Shares issued for stock award..............................               --           206          268
     Changes in assets and liabilities (net of acquisitions):
       Trade receivables, net...................................           (1,494)       (1,249)       2,241
       Inventories  and other  current assets...................             (338)       (1,133)        (526)
       Accounts payable and accrued liabilities.................              550         1,149          712
       Accrued equipment lease..................................              (96)          (21)         290
       Income taxes payable, net................................              926          (931)         254
       Provision for liabilities................................               --            --       (1,277)
       Deferred income..........................................              (69)          759         (603)
                                                                       ----------    ----------   ----------
Net cash provided by operating activities.......................            9,652        11,466       16,964
                                                                       ----------    ----------   ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of marketable securities and investments.............             (374)           --         (431)
  Proceeds from sale of marketable securities
    and investments.............................................              881           708        1,146
  Proceeds from disposition of fixed assets.....................               --            87          416
  Capital expenditures..........................................           (6,219)      (13,147)     (24,348)
  Purchase of Tele-Cine Cell Group plc..........................               --            --      (15,741)
  Purchase of Editworks.........................................           (3,180)         (500)          --
  Purchase of Hollywood Digital.................................               --       (17,761)          --
  Other assets..................................................             (286)         (234)         319
                                                                       ----------    ----------   ----------
Net cash flows used in investing activities.....................       $   (9,178)   $  (30,847)  $  (38,639)
                                                                       ----------    ----------   ----------
</TABLE>




                                      36

<PAGE>

                            THE TODD-AO CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (DOLLARS IN THOUSANDS)
                                  (CONTINUED)
<TABLE>
<CAPTION>
                                                                               YEARS ENDED AUGUST 31,
                                                                    -----------------------------------------
                                                                        1996           1997           1998
                                                                    ------------  ------------   ------------
<S>                                                                 <C>           <C>            <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings of long-term debt.............................         $      5,356  $     23,800   $    28,101
  Payments on long-term debt...............................               (4,430)      (16,309)      (13,912)
  Payments on capital lease obligations....................               (2,637)         (603)          (64)
  Proceeds from sale/leaseback transaction.................                   --            --         8,500
  Proceeds from issuance of common stock...................                  551        15,755           342
  Treasury stock purchases.................................                 (726)         (996)       (1,857)
  Dividends paid...........................................                 (481)         (561)         (592)
                                                                    ------------  ------------   ------------


Net cash flows (used in) provided by financing activities:                (2,367)       21,086        20,518
  Effect of exchange rate changes on cash..................                   --            37            27
                                                                    ------------  ------------   ------------


NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS.........................................               (1,893)        1,742        (1,130)
CASH AND CASH EQUIVALENTS AT
  BEGINNING OF YEAR .......................................                5,278         3,385         5,127
                                                                    ------------  ------------   ------------

CASH AND CASH EQUIVALENTS AT
  END OF YEAR..............................................         $      3,385  $      5,127   $     3,997
                                                                    ============  ============   ============

SUPPLEMENTAL DISCLOSURES OF
  CASH FLOW INFORMATION:
Cash paid during the year for:
  Interest.................................................         $        708  $        526   $      1,696
                                                                    ============  ============   ============




  Income taxes..............................................               $1,285        $1,725         $ 860
                                                                    ============= =============  ============
</TABLE>


SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND FINANCING ACTIVITIES:

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:

<TABLE>
<S>                                                                        <C>
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
                                                                           ========
</TABLE>



                                      37

<PAGE>



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:

<TABLE>
<S>                                                                  <C>
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
                                                                       ========
</TABLE>


     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.


1996:

     On August 14, 1996, the Company acquired substantially all of the assets
     and certain of the liabilities of Edit Acquisition LLC ("Editworks"). In
     connection with this acquisition, the Company paid cash as follows:

<TABLE>
<S>                                                                  <C>
Assets acquired:
  Property and equipment.....................................         $   1,992
  Accounts receivable........................................               617
  Goodwill...................................................             3,930
  Other assets...............................................                90
Liabilities assumed:
  Accounts payable and accrued expenses......................              (307)
  Capitalized lease obligations..............................            (1,672)
Common stock issued in acquisition...........................              (970)
                                                                      ---------
Cash paid in acquisition.....................................         $   3,680
                                                                      =========
</TABLE>



               See notes to consolidated financial statements.


                                      38

<PAGE>

                                   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, 1998, Robert Naify, Marshall 
Naify, and certain members of their families and various trusts for the 
benefit of family members (the "Naify Interests") owned approximately 52% of 
the outstanding shares of The Todd-AO Corporation (the "Company"), 
representing approximately 80% of the total voting power.

         BASIS OF PRESENTATION -- The consolidated financial statements include
the Company and its wholly owned subsidiaries Todd-AO Studios East, Inc. and its
wholly owned subsidiaries ("Todd-AO East"), Todd-AO Studios, Todd-AO Studios
West ("TSW"), Todd-AO Video Services ("TVS"), Todd-AO Video Services DVD, Inc.
("TVS 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'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 -- As of each balance sheet date, the Company
evaluates the recovery of its long-lived assets and recognizes impairment if it
is probable that the recorded amounts are not recoverable based upon future
undiscounted cash flows or if there is an event or change in circumstances which
indicate that the carrying amount of an asset may not be recoverable.

         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. The Company 
has recorded an impairment loss based on an appraisal of this older equipment 
in the amount of $2,414 in the current year. In addition, a lease impairment 
cost of $353 has also been recognized in the current year 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 


                                      39

<PAGE>

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 for 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.

         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 56% of revenues for 
the year ended August 31, 1998 and 63% for the year ended August 31, 1997. 
The Walt Disney Company and its affiliated companies, the only customer to 
account for more than 10% of revenues, accounted for approximately 15%, 17% 
and 12% of revenues for 1998, 1997 and 1996, 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. 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."

         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 1997, the 
Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting 
Comprehensive Income." The statement establishes standards for the reporting 
and display of comprehensive income and its components in a full set of 
general purpose financial statements. The statement applies to all 
enterprises that provide a full set of general purpose financial statements. 
The statement becomes effective for all financial statements for fiscal years 
beginning after December 15, 1997, with earlier application permitted.

         In June 1997, the FASB issued SFAS No. 131, "Disclosures about 
Segments of an Enterprise and Related Information." The statement changes the 
way public companies report segment information in annual financial 
statements and also requires those companies to report selected segment 
information in interim financial reports to shareholders. The statement 
supersedes SFAS No. 14. The statement becomes 

                                      40

<PAGE>

effective for all financial statements for fiscal years beginning after 
December 15, 1997, with earlier adoption permitted.

         In February 1998, the FASB issued SFAS No. 132, "Employer's 
Disclosure about Pension and Other Postretirement Benefits." This statement 
revises employers' disclosure about pension and other postretirement benefit 
plans. It does not change the measurement or recognition of those plans. The 
statement is effective for fiscal years beginning after December 15, 1997, 
with earlier adoption permitted.

         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, 1999. 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 those Statements and will apply such
provisions as deemed appropriate.

2.   ACQUISITIONS

         On August 15, 1996, the Company purchased substantially all of the
assets and certain liabilities of Edit Acquisition LLC ("Editworks"). Editworks
provides video post production services to broadcasters, advertising agencies
and other businesses. The Company paid Editworks $3,680 in cash and $970 in
Class A common stock.

         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.

         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, 1997 and 1998 are presented as if 
the acquisitions had occurred on September 1, 1996.Pro forma adjustments for 
Hollywood Digital are primarily for non-recurring legal and other 
non-operating costs, amortization of goodwill, 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.

<TABLE>
<CAPTION>
                                                                               1997         1998
                                                                            ----------   ----------
<S>                                                                         <C>           <C>
Revenues..........................................................           $ 111,964    $ 116,511
                                                                             ---------    ---------
                                                                             ---------    ---------
Net income........................................................           $   8,791    $   7,513
                                                                             ---------    ---------
                                                                             ---------    ---------

Net income per common share -- Basic..............................           $    0.92    $    0.75
                                                                             ---------    ---------
                                                                             ---------    ---------
Net income per common share -- Diluted............................           $    0.62    $    0.70
                                                                             ---------    ---------
                                                                             ---------    ---------
</TABLE>

                                      41
<PAGE>

3.   SALE/LEASEBACK

         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 
statement 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 currently is 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 $1,400.

         The net equipment lease expense is as follows for the years ended:

<TABLE>
<CAPTION>
                                                            LEASE #1     LEASE #2      TOTAL
                                                           ---------    ---------    ---------
<S>                                                        <C>          <C>          <C>
AUGUST 31, 1998
Equipment lease costs....................                  $   1,428    $   1,105    $   2,533
Amortization of deferred gain
 on sale of equipment....................                     (1,472)        (816)      (2,288)
                                                           ---------    ---------    ---------

Equipment lease expense, net.............                  $     (44)   $     289    $     245
                                                           =========    =========    =========


AUGUST 31, 1997
Equipment lease costs....................                  $   1,737    $       0    $   1,737
Amortization of deferred gain
 on sale of equipment....................                     (1,472)           0       (1,472)
                                                           ---------    ---------    ---------

Equipment lease expense, net.............                  $     265    $       0    $     265
                                                           =========    =========    =========

AUGUST 31, 1996
Equipment lease costs....................                  $   1,970    $       0    $   1,970
Amortization of deferred gain
 on sale of equipment....................                     (1,472)           0       (1,472)
                                                           ---------    ---------    ---------

Equipment lease expense, net.............                  $     498    $       0    $     498
                                                           =========    =========    =========
</TABLE>


4.   LONG-TERM DEBT

         Long-term debt outstanding as of August 31, 1997 and 1998 was as
follows:

<TABLE>
<CAPTION>                                                                      1997         1998
                                                                           -----------  -----------
<S>                                                                        <C>          <C>
Revolving credit facility (including multi-currency)..............         $    16,775  $    33,975
Note payable -- Paskal Video acquisition..........................                 313          150
Note payable -- Todd-AO UK acquisition............................                 408           --
Note payable -- Hollywood Digital -- Community
  Redevelopment Agency............................................                 113           93
Bank overdraft facility -- TeleCine acquisition (UK)..............                  --          367
Notes payable (unsecured) -- TeleCine acquisition (UK)............                  --        2,207
Convertible subordinated notes payable --
  Hollywood Digital acquisition...................................               8,399        8,399
                                                                           -----------  -----------

Total.............................................................              26,008       45,191
Less: current maturities..........................................                (578)        (537)
                                                                           -----------  -----------


Total long-term debt..............................................         $    25,430  $    44,654
                                                                           ===========  ===========
</TABLE>



                                      42

<PAGE>



         Aggregate loan maturities subsequent to August 31, 1998 are as follows:

<TABLE>
<CAPTION>
FISCAL YEARS ENDING                                         TOTALS
                                                          ----------
<S>                                                       <C>
1999................................................       $     537
2000................................................           8,419
2001................................................              20
2002................................................          10,721
2003................................................           8,507
Thereafter..........................................          16,987
                                                           ---------
Total...............................................       $  45,191
                                                           =========
</TABLE>

         In October 1997, the Company signed a new First Amended and Restated 
Credit Agreement with its bank to replace the long-term credit agreement 
signed in December 1994. Under the agreement, the Company may borrow up to 
$60,000 in revolving loans (including up to 50% in Multi-currency) until 
November 30, 2001. On that date and quarterly thereafter until August 31, 
2003, 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, 2003. Annually, 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. 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, CD, and LIBOR rates 
ranging from plus .75% to plus 2.125% based on the leverage ratio. The 
leverage ratio that determines the rate ranges from less than 1:1 to greater 
than 2.5:1. The leverage ratio may not exceed 3.5:1 until February 28, 2000. 
Thereafter, the leverage ratio 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. 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 
$8,000 during the fiscal year ending August 31, 1999).

         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. At August 31, 1998 based upon dealer quoted 
market prices the Company would have to pay $64 to terminate the swap 
agreement.

         In connection with the acquisition of Paskal Video, the Company 
issued a promissory note. The note is payable in 60 monthly installments of 
$13 plus interest at the prime rate.

         In connection with the acquisition of Todd-AO UK, Todd Europe issued 
a note payable over a three-year period in two installments of $465 and one 
installment of $388. The note was completely satisfied during 1998.

         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. The Company also acquired a non-interest bearing note 
payable to the Community Redevelopment Agency. The note is forgiven at the 
rate of $20 annually as long as the Company maintains the appearance of the 
building located on Sunset Boulevard in Hollywood, California.

                                      43

<PAGE>

         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. In addition, TeleCine has a multiple line 
facility for overdrafts and working capital in the amount of L1,500 from a 
bank, which is due on demand until April 2, 1999. Interest on the facility is 
at 1.5% above the base rate as quoted by the bank.

5.   CAPITALIZED LEASE OBLIGATIONS

         In 1998, the Company acquired lease obligations for equipment which 
had been capitalized in connection with the acquisition of TeleCine. The lease 
has an implicit interest rate of approximately 9% and is secured by the 
related equipment.

         Capitalized lease obligations at August 31, 1998 mature as follows:

<TABLE>
<S>                                                                               <C>
1999............................................................................   $ 460
Less amounts representing interest..............................................      38
                                                                                   -----
                                                                                   $ 422
                                                                                   =====
</TABLE>


6.   INCOME TAXES

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

<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,                                                   1996      1997     1998
                                                                        -------   -------  --------
<S>                                                                     <C>       <C>      <C>
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.............................            1.6      (2.2)     (6.8)
Other, net......................................................           (0.9)      1.1      (0.7)
                                                                        -------   -------  --------
Total...........................................................           34.7%     32.9%     26.5%
                                                                        =======   =======  ========
</TABLE>

         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.


                                      44

<PAGE>

         Deferred income tax assets and liabilities consist of the following:

<TABLE>
<CAPTION>
                                                      FEDERAL      STATE       FOREIGN      TOTAL
                                                    ----------  -----------  ----------  -----------
1998:
-----
<S>                                                 <C>         <C>          <C>         <C> 
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)
                                                    ==========  ===========  ==========  ===========

<CAPTION>

                                                     FEDERAL      STATE       FOREIGN      TOTAL
                                                    ----------  -----------  ----------  -----------
1997:
<S>                                                 <C>         <C>          <C>         <C> 
Current Asset:
  Accounts receivable reserves............          $      186  $        47  $        9  $       242
  Vacation pay accruals...................                 188           47           0          235
  State income taxes......................                 127            0           0          127
  Other...................................                (192)         (44)         --         (236)
                                                    ----------  -----------  ----------  -----------
TOTAL CURRENT ASSET.......................          $      309  $        50  $        9  $       368
                                                    ==========  ===========  ==========  ===========

Long-Term Asset:
  Deferred compensation...................          $       63  $        16  $       --  $        79
  U.K loss carryover......................                  --           --          83           83
  U.K. capital allowances.................                  --           --         605          605
  State income tax credit carryover.......                  --        1,067          --        1,067
  State income tax loss carryover.........                  --          531          --          531
  Other...................................                  --           --          --            0
                                                    ----------  -----------  ----------  -----------
Total long-term asset.....................                  63        1,614         688        2,365
                                                    ----------  -----------  ----------  -----------

Long-Term Liability:
  Depreciation............................              (2,815)      (1,710)       (352)      (4,877)
  Deferred gains on property..............              (1,420)        (359)        (86)      (1,865)
  Other...................................                (312)          30           0         (282)
                                                    ----------  -----------  ----------  -----------
Total long-term liability.................             (4,547)      (2,039)       (438)      (7,024)
                                                    ----------  -----------  ----------  -----------
NET LONG-TERM LIABILITY...................             $(4,484)      $ (425)       $250      $(4,659)
                                                    ==========  ===========  ==========  ===========
</TABLE>


                                      45

<PAGE>

         Components of the income tax provision are as follows:

<TABLE>
<CAPTION>
                                                                        1996      1997       1998
                                                                      ---------  --------  ---------
<S>                                                                   <C>        <C>       <C>
Current provision -- domestic.................................        $   1,644  $  1,156  $     (84)
Current provision -- foreign..................................              561      (217)       988
Deferred provision -- domestic................................              473     1,343        550
Deferred provision -- foreign.................................              104       666       (224)
                                                                      ---------  --------  ---------
Total.........................................................        $   2,782  $  2,948  $   1,230
                                                                      =========  ========  =========
</TABLE>


Components of pre-tax income are as follows:
<TABLE>
<CAPTION>
                                                                        1996       1997      1998
                                                                      ---------  --------  ---------
<S>                                                                   <C>        <C>       <C>
Domestic......................................................        $   5,978  $  7,454  $   1,675
Foreign.......................................................            1,648     1,499      2,974
                                                                      ---------  --------  ---------
Total.........................................................        $   7,626  $  8,953  $   4,649
                                                                      =========  ========  =========
</TABLE>



7.   STOCKHOLDERS' EQUITY

         The Company has 1,000,000 shares of $.01 par value preferred stock 
authorized. As of August 31, 1998 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.

         On July 9, 1996 the Company filed an Amended and Restated 
Certificate of Incorporation with the State of Delaware which increased the 
authorized shares of Class A Stock from 20,000,000 to 30,000,000 and Class B 
Stock from 4,000,000 to 6,000,000. In addition, the par value of all classes 
of stock was reduced from $.25 to $.01 per share. The financial statements 
set forth herein, and applicable share and per share data for periods and 
dates included in the accompanying financial statements and notes, have been 
adjusted to retroactively restate the par value of the common stock.

         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 August 31, 1998, 1,092,456 shares had been repurchased. 
831,856 of these shares have been canceled and returned to authorized but 
unissued status. On September 2, 1998, the Board of Directors approved an 
increase of 1,000,000 additional shares which may be purchased under the 
repurchase program.

8.   STOCK OPTIONS

 STOCK OPTION PLANS

         The Company has four stock option plans: The 1986, 1994, 1995 and 
the 1997 Stock Option Plans. 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.

                                      46

<PAGE>



         The following summarizes stock option activity for the three years
ended August 31, 1998:

<TABLE>
<CAPTION>
                                                                                     WEIGHTED
                                                                     NUMBER OF    AVERAGE PRICE
                                                                      SHARES        PER SHARE
                                                                    ------------  ---------------
<S>                                                                 <C>           <C>
Options outstanding, September 1, 1995......................           1,161,325      $4.01
Awarded.....................................................              14,500       7.13
Exercised...................................................            (152,600)      3.60
Forfeited...................................................             (14,580)      5.02
                                                                    ------------  ---------------
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       9.91
Exercised...................................................             (96,206)      3.50
Forfeited...................................................             (31,984)      9.85
                                                                    ------------  ---------------
Options outstanding, August 31, 1998........................           1,633,401      $7.35
                                                                    ============  ===============
Vested as of August 31, 1998................................             903,467
                                                                    ============
</TABLE>



         As of August 31, 1998, 82,015 shares and 267,640 shares were 
available for grant under the 1986 and 1995 plans respectively. All 
authorized options under the 1994 and 1997 Plans have been granted. Common 
Shares have been reserved for issuance under the plans for all options 
outstanding at August 31, 1998.

<TABLE>
<CAPTION>
                              OPTIONS OUTSTANDING                     OPTIONS EXERCISABLE
                  ---------------------------------------------  -------------------------------
                                   WEIGHTED
                     NUMBER         AVERAGE        WEIGHTED
   RANGE OF       OUTSTANDING      REMAINING        AVERAGE       EXERCISABLE       WEIGHTED
   EXERCISE        AT AUGUST      CONTRACTUAL      EXERCISE        AT AUGUST        AVERAGE
    PRICES          31, 1998         LIFE            PRICE         31, 1998      EXERCISE PRICE
---------------   -------------  --------------  --------------  --------------  ---------------
<S>               <C>            <C>             <C>             <C>             <C>
$ 4.50 -- 11.00      831,735         6 years          $ 7.12        447,135      $      6.19
  3.26 -- 10.50      386,654         5 years            8.44        198,660             7.29
  3.59               220,000       0.8 years            3.59        176,000             3.59
 10.50                23,346       3.3 years           10.50          9,340            10.50
  9.13 -- 10.50      171,666         8 years           10.36         72,332            10.44
---------------   -------------  --------------  --------------  --------------  ---------------
$ 2.03 -- 11.00    1,633,401      5.23 years          $ 7.35        903,467      $      6.31
                  =============                                  ==============
</TABLE>

         The Company has adopted the disclosure-only provisions of SFAS 123, 
"Accounting for Stock-Based Compensation." The estimated fair value of 
options granted during 1998, 1997 and 1996 pursuant to SFAS 123 was 
approximately $343, $2,738 and $42, respectively. Had the Company adopted 
SFAS 123, pro forma net income for those years would have been $2,863, $5,461 
and $4,836, respectively. Pro forma "basic" net income per share would have 
been $0.29, $0.57 and $0.59 and "diluted" net income per share would have 
been $0.28, $0.54 and $0.55 for 1998, 1997 and 1996, 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 0.55%-0.70%, volatility of 25%, a risk free interest rate 
of 5.05% for 1998 and 6.28% for 1997 and 1996 and expected option lives of 6 
to 8 years.

 STOCK APPRECIATION RIGHTS PLAN

         The 1991 Stock Appreciation Rights Plan (the "SAR Plan") was adopted by
the Company effective February 6, 1991. The SAR Plan provided for the granting
of stock appreciation rights which entitled the grantee to receive cash equal to
the difference between the fair market value and the appreciation base of the
Class A common stock when the rights were exercised.

         During 1995 the Company implemented a program to encourage the holders
under the 1991 SAR Plan to exchange their SARs for stock options.


                                      47

<PAGE>

         Under the program, each SAR holder who exercised the vested portion 
of a SAR award during the April-May window period was entitled to exchange 
the entire SAR award for a replacement stock option under the 1995 Stock 
Option Plan. The replacement options were issued at exercise prices equal to 
the fair market value of the Class A stock on the respective dates of the SAR 
exercises, with an expiration date of August 31, 2004 (instead of the August 
31, 2000 expiration date applicable to SAR awards) and with vesting 
restrictions no more favorable to the holder than those applicable to the 
exchanged SAR.

         Of the SARs outstanding under the 1991 Plan, all but 11,000 were 
exercised, resulting in a cash payment of $579. An aggregate of 303,367 
incentive stock options and 82,623 nonqualified stock options were issued at 
exercise prices ranging from $4.50 to $5.06.

         The remaining 11,000 SARs were exercised in January 1996, terminating
the SAR Plan.

9.   COMMITMENTS

         OPERATING LEASES - Rent expense for noncancellable operating leases 
for real property and equipment was $4,526, $4,736 and $6,524 for the years 
ended August 31, 1996, 1997 and 1998, respectively. Minimum rentals for 
operating leases for years ending after August 31, 1998 are as follows: 1999, 
$7,737; 2000, $7,505; 2001, $12,031; 2002, $5,555; 2003, $7,475 and $15,617, 
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.

         EMPLOYMENT AGREEMENTS - At August 31, 1998, the Company is committed 
to compensation under long-term employment agreements with certain of its 
officers and key employees as follows: 1999, $2,885; 2000, $2,291; 2001, $824 
and 2002, $569.

10.  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. The Plans are funded by employer and employee contributions. Total 
pension plan expense for the Plans for the years ended August 31, 1996, 1997, 
and 1998 are as follows:

<TABLE>
<CAPTION>
                                                                AUGUST 31,
                                                         -------------------------
                                                          1996      1997      1998
                                                         ------    ------    -----
     <S>                                                 <C>       <C>       <C>
     MPIPP............................................    $ 474     $ 618    $ 648
     U.S. 401(k)......................................    $ 313     $ 225    $ 370
     U.K. Plan........................................    $  81     $  85    $  95
</TABLE>

11.  JOINT VENTURES

         During 1992, Todd-AO Productions, Inc., a wholly owned subsidiary of 
the Company, entered into a Joint Venture Agreement with Trans-Atlantic 
Enterprises, Inc., for the development of motion picture and television 
projects. The Joint Venture was dissolved during fiscal 1996. In the event 
that certain projects developed by the Venture are ultimately produced or 
otherwise commercialized, a portion of the proceeds are payable to Todd-AO 
Productions.

         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.

                                      48

<PAGE>

         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.

12.  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.

13.  BUSINESS SEGMENT INFORMATION

         The Company does business in one industry segment. Information as to
the Company's operations in different geographic areas is as follows for the
years ended August 31, 1996, 1997 and 1998.

<TABLE>
<CAPTION>
                                                                   1996         1997        1998
                                                                ----------  -----------  -----------
<S>                                                             <C>         <C>          <C>
REVENUES:
  United States..........................................       $   51,394  $    65,436  $    79,143
  Europe.................................................           11,526       13,535       23,471
                                                                ----------  -----------  -----------
  Total..................................................       $   62,920  $    78,971  $   102,614
                                                                ==========  ===========  ===========

NET INCOME:
  United States..........................................       $    3,861  $     4,955  $     1,209
  Europe.................................................              983        1,050        2,210
                                                                ----------  -----------  -----------
  Total..................................................       $    4,844  $     6,005  $     3,419
                                                                ==========  ===========  ===========

ASSETS:
  United States..........................................       $   50,552  $    85,569  $    91,001
  Europe.................................................           13,634       17,882       44,365
                                                                ----------  -----------  -----------
  Total..................................................       $   64,186  $   103,451  $   135,366
                                                                ==========  ===========  ===========
</TABLE>

                                      49

<PAGE>

14.  QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                                         BASIC            DILUTED
                                                                        EARNINGS          EARNINGS
                                                                          PER              PER
                                                                         COMMON           COMMON
1997                             TOTAL        GROSS         NET          SHARE             SHARE
----                            REVENUES      PROFIT       INCOME      OUTSTANDING      OUTSTANDING
                              ------------  ----------   ----------  ---------------  --------------
<S>                           <C>           <C>          <C>         <C>              <C>
First Quarter............     $     20,340  $    3,069   $    1,771  $      .21       $      .20
Second Quarter...........           19,341       2,611        1,518         .15              .14
Third Quarter............           19,657       2,688        1,900         .19              .18
Fourth Quarter...........           19,633       1,455          816         .08              .08
                              ------------  ----------   ----------  ---------------  --------------
TOTAL....................     $     78,971  $    9,823   $    6,005  $      .63 (a)   $      .59 (a)
                              ============  ==========   ==========  ===============  ==============
</TABLE>


<TABLE>
<CAPTION>
                                                                         BASIC            DILUTED
                                                                        EARNINGS          EARNINGS
                                                                          PER              PER
                                                            NET          COMMON           COMMON
1998                             TOTAL        GROSS        INCOME        SHARE             SHARE
----                            REVENUES      PROFIT       (LOSS)      OUTSTANDING      OUTSTANDING
                              ------------  ----------   ----------  ---------------  --------------
<S>                           <C>           <C>          <C>         <C>              <C>
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)
                              ============  ==========   ==========  ===============  ==============
</TABLE>

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


                                      50

<PAGE>

                             THE TODD-AO CORPORATION             SCHEDULE II

                         VALUATION AND QUALIFYING ACCOUNTS
                              (DOLLARS IN THOUSANDS)
                    YEARS ENDED AUGUST 31, 1996, 1997 AND 1998


<TABLE>
<CAPTION>
                COLUMN                      COLUMN           COLUMN         COLUMN         COLUMN
                  A                            B               C               D             E
---------------------------------------  --------------  --------------  -------------  ------------
                                                           ADDITIONS
                                                            CHARGED
                                           BALANCE AT     (CREDITED) TO                    BALANCE
                                          BEGINNING OF        COSTS        DEDUCTIONS     AT END OF
             DESCRIPTION                     PERIOD        ANDEXPENSES      AND OTHER       PERIOD
---------------------------------------  --------------  --------------  -------------  ------------
<S>                                      <C>             <C>             <C>            <C>
Allowance for doubtful accounts:

Year ended August 31, 1996............       $   828         $ (158)        $    26 (a)     $  696
                                             =======         ======         =======        =======

Year ended August 31, 1997............       $   696         $  106         $  (240)(b)     $  562
                                             =======         ======         =======        =======

Year ended August 31, 1998............       $   562         $  (28)        $ 1,234 (c)     $1,768
                                             =======         ======         =======        =======
</TABLE>


(a)  Includes balance acquired in acquisition of Editworks ($28).
(b)  Includes balance acquired in acquisition of Hollywood Digital ($351).
(c)  Includes balance acquired in acquisition of TeleCine ($1,220).


                                      51