<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, 1997
                                          OR
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from                         to

Commission file number: 0-1461

                               THE TODD-AO CORPORATION
                (Exact name of registrant as specified in its charter)

         DELAWARE                                    13-1679856
(State or other jurisdiction            (I.R.S. Employer Identification No.)
of incorporation)

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

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

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 1,
1997 was approximately $63,500,000

The number of shares of common stock outstanding at November 1, 1997 was:
8,241,150 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, 1997

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

         Item 1  - Business                                               1
         Item 2  - Properties                                             6
         Item 3  - Legal Proceedings                                      6
         Item 4  - Submission of Matters to a Vote
                   of Security Holders                                    6

Part II

         Item 5  - Market for the Registrant's Common
                   Stock and Related Stockholder Matters                  7
         Item 6  - Selected Financial Data                                8
         Item 7  - Management's Discussion and Analysis
                   of Financial Condition and
                   Results of Operations                                  8
         Item 8  - Financial Statements and
                   Supplementary Data                                     12
         Item 9  - Changes in and Disagreements with
                   Accountants on Accounting and
                   Financial Disclosure                                   12

Part III

         Item 10 - Directors and Executive Officers
                   of the Registrant                                      13
         Item 11 - Executive Compensation                                 15
         Item 12 - Security Ownership of Certain
                   Beneficial Owners and Management                       18
         Item 13 - Certain Relationships and Related
                   Transactions                                           19

Part IV

         Item 14 - Exhibits, Financial Statement Schedule
                   and Reports on Form 8-K                                20

                   Signatures                                             21
                   Exhibit Index                                          22

                   Index to Financial Statement
                   and Schedule                                           26


<PAGE>

                                        PART I

ITEM 1.  BUSINESS.

         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. Todd-AO provides these
sound and video services to over 700 clients, including the major motion picture
studios and television production companies. 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 32 Academy Awards-Registered Trademark- and have won 18.

         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 Film Video Masters by Todd-AO Video Services. In February 1995,
the Company expanded its sound studio business through the acquisition of
Skywalker Sound South, renamed Todd-AO Studios West, with sound studios and
facilities located in the West Los Angeles area. Also, in March 1995, the
Company expanded its operations into Europe through the acquisition 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") in 1996 enlarged Todd-AO's video services capabilities in London
and added film processing capability. In August 1996, the Company acquired 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 Hollywood Digital Limited
Partnership ("Hollywood Digital") in June 1997.  Hollywood Digital is a digital
based post production facility providing sound and video services to the film,
television and advertising industries.  As a result of these transactions, the
Company has expanded its client base, increased its range of services and
broadened its global market coverage.


                                          1
<PAGE>

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.

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 in the last five years. A list of some of Todd-AO's 1997 credits
include: DANTE'S PEAK, FATHER'S DAY, L.A. CONFIDENTIAL, FACE OFF, PRIVATE PARTS,
and THE PEACEMAKER.


                                          2
<PAGE>

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

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

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


Other Academy Awards-Registered Trademark- received:

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

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


VIDEO SERVICES

         Todd-AO, through its various subsidiaries and divisions in Los
Angeles, New York, London and Atlanta, provides video services (electronic post
production services) principally to the worldwide motion picture, television,
home video and advertising industries. Video post production is provided by
skilled technicians using sophisticated electronic equipment and computers to
process images and sound from film, videotape and computers onto a master
element from which distribution and broadcast materials are created for
worldwide markets. These markets include theatrical releases, home video, cable,
pay television, syndication, network, satellite, multimedia and advertising.
Todd-AO provides its video services to over 350 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.


                                          3
<PAGE>

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

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

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

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

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

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

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

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

         Todd-AO's ten largest video service customers account for over 73% of
the division's total revenues.

OTHER SERVICES

         -PRESERVATION.  Todd-AO has organized a limited liability company with
Chace Productions, Inc. for the protection, preservation, storage and retrieval
of motion picture and television sound tracks. Todd-AO/Chace intends to provide
a full range of sound preservation, media management services including data
collection, transfer, protection and hierarchical storage. In addition to sound
track preservation, Todd-AO/Chace intends to provide complete library services.
These include client/server access, cataloguing, data base creation and entry,
custom transfer services and audition libraries.


                                          4
<PAGE>

         -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. Currently, the British Broadcasting Corp. represents 16% of
Filmatic's business.

         -COMPACT DISTRIBUTION PRINT.  CDP Limited Liability Company, a
proposed 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. The joint venture has received no firm commitments for the application
of CDP, and there are no assurances that film distributors will choose to
implement CDP.

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, 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 and Digital Sound and
Picture.

         With respect to video services, a variety of other companies offer
special effects, post production video and transmission services similar to
those provided by Todd-AO. Many of these competitors are larger and have greater
financial resources than the Company. Competition for video services within a
geographical region tends to be highly fragmented with a few larger full service
companies and numerous small firms specializing in only one or two services.
Most small operations are centered around key personnel who serve one or two
clients based on long-standing relationships.

         The Company believes its major direct competitors in the Los Angeles
market for distribution, telecine and professional duplication work are 4MC,
Modern Videofilm, Vidfilm, Fototronics, Pacific Ocean Post, Encore Video and All
Post. 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 transmission are Molinare, Oasis, Telecine and TVP. 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") 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.


                                          5
<PAGE>

EMPLOYEES

         Todd-AO employs approximately 650 employees, some on a
project-by-project basis. The Company has employment agreements with 70 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 50% of the Company's outstanding shares (representing
over 79% 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 190,000 sq. ft. of building space are
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 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.

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 condition.

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

         Not applicable.


                                          6
<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 729 and 7
record holders of Class A and Class B Stock, respectively, as of November 1,
1997.  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."

         On July 9, 1996, the par value of all classes of stock was reduced
from $.25 to $.01 per share.

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 (without adjustment to reflect
the 10% stock dividend paid on September 29, 1995) 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>
1996
First Quarter. . . . . . . . . . . . . . . . . . . . .        11              7
Second Quarter . . . . . . . . . . . . . . . . . . . .     9 3/4          7 1/8
Third Quarter. . . . . . . . . . . . . . . . . . . . .    19 1/4          8 3/4
Fourth Quarter . . . . . . . . . . . . . . . . . . . .        17          8 1/2

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

</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 1996 and 1997. On August 11, 1995, a 10% stock dividend was
declared for holders of Class A and Class B stock payable on September 29, 1995
to shareholders of record on September 8, 1995.

         The 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.


                                          7
<PAGE>

    As of August 31, 1997, 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 1996 and 1997.  The Company acts as Transfer Agent for the Class B
common stock.

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

<TABLE>
<CAPTION>

                                                    . . . . . . . . . . . . Years Ended August 31 . . . . . . . . . . .

                                                     1993           1994           1995           1996           1997
<S>                                                 <C>            <C>            <C>            <C>           <C>
Revenues . . . . . . . . . . . . . . . . . . . .    $27,402        $32,892        $50,003        $62,920       $ 78,971
                                                    -------        -------        -------        -------       --------
                                                    -------        -------        -------        -------       --------
Net income . . . . . . . . . . . . . . . . . . .    $ 1,137        $ 1,780        $ 3,375        $ 4,844       $  6,005
                                                    -------        -------        -------        -------       --------
                                                    -------        -------        -------        -------       --------
Income per Common Share (1). . . . . . . . . . .    $   .14        $   .22        $   .40        $   .55       $    .60
                                                    -------        -------        -------        -------       --------
                                                    -------        -------        -------        -------       --------
Total Assets . . . . . . . . . . . . . . . . . .    $31,834        $36,728        $57,198        $64,186       $103,451
                                                    -------        -------        -------        -------       --------
                                                    -------        -------        -------        -------       --------
Total Long-Term Debt Obligations . . . . . . . .    $     0        $ 1,467        $ 8,327        $ 9,354       $ 25,430
                                                    -------        -------        -------        -------       --------
                                                    -------        -------        -------        -------       --------
Cash Dividends:
    Class A Shares . . . . . . . . . . . . . . .     $  .06         $  .06         $  .06         $  .06         $  .06
                                                    -------        -------        -------        -------       --------
                                                    -------        -------        -------        -------       --------
    Class B Shares . . . . . . . . . . . . . . .    $  .054        $  .054        $  .054        $  .054        $  .054
                                                    -------        -------        -------        -------       --------
                                                    -------        -------        -------        -------       --------
</TABLE>
(1)      Income per share computed using the average number of shares
outstanding and common stock equivalents of 8,278,932, 8,195,678, 8,399,462,
8,845,321 and 10,088,993 in 1993, 1994, 1995, 1996 and 1997, 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 of Todd-AO UK 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.


                                          8
<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,
                                                     ------------------------------------
                                                      1995           1996           1997
                                                     ------         ------         ------
<S>                                                  <C>            <C>            <C>
 Revenues. . . . . . . . . . . . . . . . . . . .     100.0%         100.0%         100.0%

 Costs and expenses:
    Operating costs and other expenses . . . . .       79.7           77.8           78.2
    Depreciation and amortization. . . . . . . .        7.8            8.5            9.0
    Interest . . . . . . . . . . . . . . . . . .        1.2            1.1            1.2
    Equipment lease expense, net . . . . . . . .        1.2            0.8            0.3
    Other (income) expense, net. . . . . . . . .       (0.6)          (0.5)          (0.1)
                                                       ----           ----           ----
      Total costs and expenses . . . . . . . . .       89.3           87.7           88.6
                                                       ----           ----           ----
 Income before loss from joint venture and
   provision for income taxes. . . . . . . . . .       10.7           12.3           11.4
 Loss from joint venture . . . . . . . . . . . .       (0.5)          (0.2)           0.0
                                                       ----           ----           ----

 Income before provision for income taxes. . . .       10.2           12.1           11.4
 Provision for income tax. . . . . . . . . . . .        3.5            4.4            3.7
                                                       ----           ----           ----
 Net income. . . . . . . . . . . . . . . . . . .       6.7%           7.7%           7.7%
                                                       ----           ----           ----
                                                       ----           ----           ----

</TABLE>
 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 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.


                                          9
<PAGE>

         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 $11,420 in
cash from operating activities compared to $9,159 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 ($15,822) 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.

FISCAL YEAR ENDED AUGUST 31, 1996 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1995

         Revenues increased $12,917 or 25.8% from $50,003 to $62,920 due
primarily to the acquisitions of Todd-AO Studios West in February 1995, Todd-AO
UK in March 1995 and Filmatic in April 1996. The 1996 revenue increases for
these new subsidiaries were $4,663, $5,817 and $775, respectively. These
increases represent a full year of operations for Todd-AO Studios West and
Todd-AO UK in 1996 versus a partial period in 1995. Five months of Filmatic's
operations are included in 1996. The revenue increase for the remaining
divisions was $1,662 or 4.5%.

         Operating costs and other expenses increased $9,095 or 22.8% from
$39,867 to $48,962 due primarily to the acquisitions described above. While
operating costs and other expenses increased in absolute dollars, they decreased
as a percentage of revenue from 79.7% to 77.8%. This reduction was primarily the
result of improved profit margins for a full year realized from Todd-AO Studios
West and Todd-AO UK and the consolidation of certain corporate overhead costs
associated with these acquisitions.


                                          10
<PAGE>

         Depreciation and amortization increased $1,457 or 37.2% primarily due
to the acquisitions but did not materially change as a percentage of revenue for
the comparative periods. Interest expense, equipment lease expense and other
income did not materially change in dollars or as a percentage of revenues for
the comparative periods.

         As a result of the above, income before taxes increased $2,540 from
$5,086 to $7,626 and net income increased $1,469 from $3,375 (6.7% of revenue)
to $4,844 (7.7% of revenue).

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 consists of five
1-year terms amortizing to approximately 40% with interest at Libor rates plus
1.5% which can increase to Libor plus 2% if the leverage ratio (Funded
Indebtedness/EBITDA) is greater than 2:1, terminates on December 30, 1999. Under
the credit facility, including amendments in 1995, 1996 and 1997, the Company
may borrow up to $35,000 in revolving loans ($25,000 in Dollar and $10,000 in
Multi-currency) until February 28, 2000. On that date and quarterly thereafter
until the expiration of the agreement on November 30, 2003, the revolving loan
commitment will reduce by 5% of the original loan commitment.  The Company also
has the availability of Standby Letters of Credit up to $1,000 under the
facility.  The credit facility provides for borrowings at the Bank's Reference
rates (plus .5%), CD rates (plus 1.625%) and Libor rates (plus 1.5%) which can
increase to plus 1%, 2.125% and 2%, respectively, if the leverage ratio
(described above) is greater than 2:1.  Leverage ratios may not exceed 3:1.  The
facility includes commitment fees at .125% to .5% (based on the leverage ratio)
per annum on the unused balances.  Other material restrictions include: the
coverage ratio (cash flow/fixed charges) may not be less than 1.75:1 through
1998 and 1.5:1 thereafter; the Company is limited to $10,000 per annum for
capital expenditures (except for fiscal year 1997 which is limited to $16,500);
Other Indebtedness or Contingent Liabilities (outside the credit and
sale/leaseback agreements) may not exceed $8,000 (except for convertible
subordinated notes issued in connection with the Hollywood Digital acquisition)
and Minimum Net Worth is not to be less than $25,000 plus net proceeds from
issuance of equity plus 50% of future consolidated net income.

         In October 1997, the Company signed a second agreement with its bank
to implement the sale/leaseback of certain equipment for up to $10,000 and
restated the long-term credit facility signed in December 1994.  An aggregate of
$8,500 of sound studio equipment was sold and leased back on November 3, 1997.
The sale/leaseback agreement, which consists of five 1-year terms amortizing to
approximately 42% with interest at Libor rates plus .75% if the leverage ratio
(Funded Indebtedness/EBITDA but excluding convertible subordinated notes issued
by Company in connection with the Hollywood Digital acquisition) is under 1:1
and which increases .25% for each .5 increase in the ratio up to Libor plus 2%
if the leverage ratio is greater than 2.5:1, terminates on December 31, 2002.
Under the new First Amended and Restated Credit Agreement, dated as of October
20, 1997, the Company may borrow up to $50,000 (with a provision for an increase
to $60,000 requiring Bank consent and Company Board approval) in revolving loans
(including up to 50% in Multi-currency) until November 30, 2000.  On that date
and quarterly thereafter until August 31, 2002, the revolving loan commitment
will reduce by 6.25% to 50% of the combined loan commitment on the reduction
date.  The remaining 50% will reduce to nil by the expiration of the agreement
on December 31, 2002.  Annually, the Company may request an automatic extension
of the revolving period of the facility for one year which will also extend the
term period and the expiration date of the agreement.  The Company also has the
availability of Standby Letters of Credit up to $2,500 under the facility.  The
credit facility provides for borrowings at the Bank's Reference rates (plus
 .125%), CD rates (plus 0.875%) and Libor rates (plus .75%) which increase
incrementally to plus 1%, 2.125% and 2%, respectively, based on the leverage
ratio.  The leverage ratios which determine the rates range from less than 1:1
to greater than 2.5:1.  Leverage ratios may not exceed 3:1.  The facility
includes commitment fees at .2% to .5% (based on the leverage ratio) per annum
on the unused balances.  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


                                          11
<PAGE>

the Bank's approval.  Minimum Net Worth is not to be less than $25,000 plus
net proceeds from issuance of equity plus 50% of future consolidated net
income.

         The credit facilities are available for general corporate purposes,
capital expenditures and acquisitions.  Management believes that funds generated
from operations, proceeds from the new sale/leaseback and the borrowings
available under the restated credit facility will be sufficient to meet the
needs of the Company at least through the end of 1998.

         On October 10, 1996, the Company filed a registration statement with
the Securities and Exchange Commission.  Proceeds from the offering, net of
costs totaled $15,512.  The funds received were used to pay down existing debt
in the amount of $9,102.  The remaining funds were used in the acquisition of
Hollywood Digital and for other general corporate purposes.

         In June 1997, the Company used $15,760 under the credit facility and
$3,000 from the proceeds of the offering described above to acquire the assets
of Hollywood Digital.  As of August 31, 1997, the Company had $16,775
outstanding under the credit facility.

         The Company expects capital expenditures of approximately $18,000 for
its Los Angeles, Santa Monica, New York City, Atlanta and London facilities in
fiscal 1998. Included in this amount is $7,500 for a new facility in Santa
Monica, California to service primarily the advertising clients of Hollywood
Digital.  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.

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.


                                          12
<PAGE>

                                       PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

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


 NAME                          AGE*              POSITION WITH COMPANY
 Salah M. Hassanein (1). . .    76     President, Chief Executive Officer and
                                       Director
 Silas R. Cross. . . . . . .    58     Vice President, Treasurer and Assistant
                                       Secretary
 Clay M. Davis . . . . . . .    51     Vice President
 J.R. DeLang . . . . . . . .    41     Senior Vice President and Director
 Rand  Gladden . . . . . . .    46     Vice President and President of Todd-AO
                                       Hollywood Digital
 Graham Hall . . . . . . . .    39     Managing Director of Todd-AO UK Ltd.
 Coburn T. Haskell . . . . .    45     Vice President and Controller
 Richard C. Hassanein. . . .    46     Vice President and Director
 Christopher D. Jenkins. . .    42     Senior Vice President and Director
 Dan Malstrom. . . . . . . .    46     Secretary
 Marshall Naify (1). . . . .    77     Co-Chairman of the Board of Directors
 Robert A. Naify (1) . . . .    75     Co-Chairman of the Board of Directors
 Richard O'Hare. . . . . . .    44     Vice President and President of Todd-AO
                                       Video Services
 Kathleen N. Reck. . . . . .    56     Vice President Human Resources
 William R. Strickley. . . .    47     Senior Vice President and Chief
                                        Financial Officer
 A.C. Childhouse (2) . . . .    87     Director
 David Haas (3). . . . . . .    56     Director
 Herbert  L.  Hutner (2)(3).    88     Director
 Robert I. Knudson . . . . .    72     Director
 David P. Malm . . . . . . .    33     Director
 Michael S. Naify. . . . . .    35     Director
 A. Frank Pierce (2) . . . .    67     Director
 Zelbie Trogden (3). . . . .    61     Director

------------
*        As of August 31, 1997.

(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.

         Silas R. Cross became Vice President and Controller 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.


                                          13
<PAGE>

         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.  Previously, he served as Executive Vice
President of the Company's subsidiary, Todd-AO Studios East, from 1991 to 1995.
Prior to 1991, Mr. Hassanein was an independent representative for film and
television producers. Previously, he was President of United Film Distribution
Co., Inc. 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.

         Dan Malstrom is an attorney in private practice and has served as the
Company Secretary since 1987.

         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.


                                          14
<PAGE>

         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.

         A.C. Childhouse was elected a Director in 1964. He previously served
as a Senior Vice President and Director of UACI. Mr. Childhouse is an investor.

         David Haas was elected a Director in October 1996. Mr. Haas has been a
financial consultant since 1995, and has assisted clients in the negotiation and
structuring of acquisitions. From 1990 to 1994, Mr. Haas served as Senior Vice
President and Controller of Time Warner 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 Director of Hollywood Digital Inc., 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 an associate at
Bain Capital and Bain & Company.  He 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 Time Warner Entertainment. 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.

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

ITEM 11.      EXECUTIVE COMPENSATION.

         All applicable share and per share data for periods included in the
compensation tables set forth below have been adjusted to retroactively reflect
a 10% stock dividend paid on September 29, 1995.

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, 1997, 1996 and 1995 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, 1997.

<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                1997      123,250 (2)    205,625 (3)         100,000             --
President and Chief
  Executive Officer               1996      100,000 (2)       --                  --               --
The Todd-AO Corporation           1995      100,001 (2)       --                66,000             --


</TABLE>

                                          15
<PAGE>

<TABLE>
<CAPTION>



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

J.R. DeLang                    1997    403,490      --               10,000           15,000 (4)
Executive Vice-President       1996    335,442      --                 --             15,000 (4)
Todd-AO Studios                1995    293,942      --               44,000           19,168 (4)

Christopher D. Jenkins         1997    709,306 (5)  --               10,000            4,687 (5)
President                      1996    575,631 (5)  --                 --              3,400 (5)
Todd-AO Studios                1995    465,981 (5)  --               44,000            3,385 (5)

Clay M. Davis                  1997    246,534      --               15,000            4,687 (6)
Vice President                 1996    176,546      --                 --              3,460 (6)
Todd-AO Studios                1995    151,575      --               16,500            3,385 (6)

Richard O'Hare                 1997    210,922      --               10,000           15,000 (7)
President                      1996    173,695      --                 --             17,228 (7)
Todd-AO Video Services         1995    176,491      --               11,000              --

Richard Hassanein              1997    131,801      --               10,000           13,180 (8)
President                      1996    114,000      --                 --             11,400 (8)
Todd-AO Studios West           1995    113,000      --               22,000           11,300 (8)

</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 $87,500 for 1997 and
$80,000 for 1996 and 1995.

(3) Class A Common Stock bonus of 50,000 shares valued at grant date at
$205,625.

(4) 1997 salary amount includes non-qualified stock option exercise
compensation of $82,913.  Amounts shown as "All Other Compensation" represent
contributions made by the Company to its 401(k) Plan for 1997, 1996 and 1995 on
Mr. DeLang's behalf.

(5) 1997 salary amount includes non-qualified stock option exercise
compensation of $73,975.  Amounts shown as salary also include compensation of
$535,331, $475,631 and $365,981 for 1997, 1996 and 1995, respectively,
attributable to services as a sound mixer. Amounts shown as "All Other
Compensation" represent contributions made by the Company under a collective
bargaining agreement to the Motion Picture Industry Pension Plan on Mr. Jenkins'
behalf.

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

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

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

                                          16
<PAGE>

OPTION/SAR GRANTS TABLE

    The following table shows all individual grants of stock options during the
fiscal year ended August 31, 1997 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>
Salah M. Hassanein                   100,000         12.94%         $10.50      8/31/2003        407,354        941,235
J.R. DeLang                           10,000          1.29%         $10.50      8/31/2004         48,022        114,036
Christopher D. Jenkins                10,000          1.29%         $10.50      8/31/2004         48,022        114,036
Clay M. Davis                         10,000          1.29%         $10.50      8/31/2004         48,022        114,036
Clay M. Davis                          5,000          0.65%         $11.00      8/31/2004         24,011         57,018
Richard O'Hare                        10,000          1.29%         $10.50      8/31/2004         48,022        114,036
Richard Hassanein                     10,000          1.29%         $10.50      8/31/2004         48,022        114,036


</TABLE>

OPTION EXERCISES AND VALUE TABLE

    The following table shows each exercise of stock options during the fiscal
year ended August 31, 1997 by each of the executive officers named in the
Summary Compensation Table, together with respective aggregate values of
unexercised options as at August 31, 1997.

<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, 1997           AT AUGUST 31, 1997
                                                                     -------------------           --------------------


                                      SHARES
                                     ACQUIRED        VALUE
NAME                               ON EXERCISE(#)  REALIZED($)  EXERCISABLE    UNEXERCISABLE  EXERCISABLE    UNEXERCISABLE
----                               -------------   -----------  -----------    -------------  -----------    -------------
<S>                                <C>             <C>          <C>            <C>            <C>            <C>
Salah M. Hassanein                        --             --        152,000        124,000       $605,616       $241,472
J.R. DeLang                           11,000        $82,913         48,200         16,800       $202,054        $35,420
Christopher D. Jenkins                11,000        $73,975         52,600         12,400       $222,244        $17,710
Clay M. Davis                          5,500        $36,988         20,600         16,400        $83,837        $17,710
Richard O'Hare                            --             --         10,800         10,200        $32,454         $8,114
Richard Hassanein                         --             --         19,050         12,950        $65,105        $19,738

</TABLE>

Employment Agreements

    The Company has employment agreements with Messrs. Jenkins, DeLang, O'Hare,
Davis and Richard Hassanein. 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. The agreement with
Mr. DeLang (which expired September 30, 1997) provided for a salary of $285,000
for the twelve months ending September 30, 1995, $300,000 for the twelve months
ending September 30, 1996 and $320,000 for the twelve months ending
September 30, 1997. Mr. O'Hare's agreement (which expired August 31, 1997)
provided for a salary of $153,016, $168,000 and $203,000 for the twelve months
ending August 31, 1995, 1996, and 1997, respectively.  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. Richard Hassanein's agreement (expiring August 31, 1999)
provides for a salary of $130,000, $140,000 and $150,000 for the twelve months
ending August 31, 1997, 1998 and 1999, respectively.  The Company is currently
negotiating new agreements for Messrs. DeLang and O'Hare.


                                          17
<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, 1997 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 . . . . . . .         57,753            0        .69%           0%           16,666
Silas R. Cross . . . . . . . . . .         16,700            0        .20%           0%           11,700
Clay M. Davis. . . . . . . . . . .         31,300            0        .37%           0%           25,800
J.R. DeLang. . . . . . . . . . . .         65,600            0        .78%           0%           54,600
Franklin Resources (4) . . . . . .        652,442            0       7.84%           0%                0
Rand Gladden . . . . . . . . . . .         13,134(5)         0        .16%           0%            2,000
David Haas . . . . . . . . . . . .         10,000            0        .12%           0%           10,000
Coburn Haskell . . . . . . . . . .         13,350            0        .16%           0%           13,350
Richard C. Hassanein . . . . . . .         24,900            0        .30%           0%           23,800
Salah M. Hassanein . . . . . . . .        701,043(6)         0       8.36%           0%          194,000
Herbert L. Hutner. . . . . . . . .         26,766            0        .32%           0%           16,666
Christopher D. Jenkins . . . . . .         67,800            0        .81%           0%           56,800
Robert I. Knudson. . . . . . . . .         78,989            0        .95%           0%           33,150
David P. Malm. . . . . . . . . . .          1,527(5)         0        .02%           0%                0
Richard O'Hare . . . . . . . . . .         15,000            0        .18%           0%           15,000
Frank Pierce . . . . . . . . . . .         10,000            0        .12%           0%           10,000
William R. Strickley . . . . . . .          4,500            0        .05%           0%            4,000
Zelbie Trogden . . . . . . . . . .         14,800            0        .18%           0%           14,800
Marshall Naify (9) . . . . . . . .      1,257,034(7)   678,839      14.85%       38.85%          146,150
Michael S. Naify (9) . . . . . . .         72,834            0        .88%           0%                0
Robert A. Naify (9). . . . . . . .      1,162,014(8)   906,290      13.72%       51.87%          146,150
Other Naify Interests (9). . . . .        775,855      118,510       9.32%        6.78%                0
All directors and current executive
officers as a group (21 persons) .      3,653,674    1,585,129      43.32%       90.72%          798,862


</TABLE>

___________

(1) The address of each of the beneficial owners identified is 900 N. Seward
Street, Hollywood, California 90038, except for Franklin Resources, Inc. whose
address is 777 Mariners Island Blvd., San Mateo, California 94404.

(2) Based on 8,321,450 shares of Class A Common Stock and 1,747,178 shares of
Class B Common Stock outstanding at November 1, 1997. 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.


                                          18
<PAGE>

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

(4) Schedule 13G filed on February 12, 1997 by Franklin Resources, Inc.,
Charles B. Johnson, Ruperth Johnson Jr. and Franklin Mutual Advisors, Inc.
indicates that Franklin Mutual Advisors, Inc. has sole investment discretion and
voting authority with respect to the shares of Class A Common Stock, which are
legally owned by one or more of its investment advisory clients.

(5) 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.

(6) Includes 100,000 Class A shares which are subject to shareholder approval
and vesting restrictions.

(7) Includes 98,067 Class A shares held in the name of Marshall Naify as
trustee for one of his children and 30,166 shares of Class A Common Stock held
by a trust for which Mr. Naify is both trustee and beneficiary. Excludes 106,092
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.

(8) Excludes 461,473 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.

(9) 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, 1997 is 3,267,737 (38.77%) and
1,703,639 (97.51%), respectively.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

    None.


                                          19
<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 26 of this 10-K
              Report.

         (b)  A report on Form 8-K and an Amendment to the report on Form 8-K/A
              were filed on July 7, 1997 and September 8, 1997, respectively,
              disclosing the acquisition of assets and certain liabilities of
              Hollywood Digital Limited Partnership.

         (c)  Exhibits are as listed in the Exhibit Index on page 22 of this
              10-K Report.


                                          20
<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.

                                    The Todd-AO Corporation

         November 19, 1997        By /s/        Silas R. Cross
                                            --------------------------------
                                                      Silas R. Cross
                                                Vice President, Treasurer
                                            and Principal Accounting Officer

         November 19, 1997        By /s/        William R. Strickley
                                            --------------------------------
                                                  William R. Strickley
                                                Senior Vice President and
                                                 Chief Financial Officer

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

November 19, 1997   By /s/ Robert A. Naify       
                         ------------------------- 
                           Robert A. Naify       
                         Co-Chairman of the       
                         Board of Directors       

November 19, 1997   By /s/ Salah M. Hassanein    
                         ------------------------- 
                          Salah M. Hassanein    
                        Director, President and  
                        hief Executive Officer   

November 19, 1997   By /s/ J.R. DeLang           
                         ------------------------- 
                             J.R. DeLang           
                        Senior Vice President    
                            and Director          

November 19, 1997   By /s/ A.C. Childhouse       
                         ------------------------- 
                           A.C. Childhouse       
                              Director            

November 19, 1997   By /s/ Robert I. Knudson     
                         ------------------------- 
                           Robert I. Knudson     
                               Director            

November 19, 1997   By /s/ Herbert L. Hutner     
                         ------------------------- 
                           Herbert L. Hutner     
                                Director           

November 19, 1997   By /s/ David Haas            
                         ------------------------- 
                              David Haas            
                              Director             

November 19, 1997   By /s/ Marshall Naify          
                         ------------------------- 
                            Marshall Naify          
                          Co-Chairman of the        
                          Board of Directors        
                                                   
November 19, 1997  By /s/ Christopher D. Jenkins   
                         ------------------------- 
                          Christopher D. Jenkins   
                         Senior Vice President and 
                                  Director         

November 19, 1997   By /s/ Richard Hassanein       
                         ------------------------- 
                            Richard Hassanein       
                           Vice President and      
                               Director            
                                                   
November 19, 1997   By /s/ Michael S. Naify        
                         ------------------------- 
                           Michael S. Naify        
                               Director            
                                                   
November 19, 1997   By /s/ Zelbie Trogden          
                         ------------------------- 
                           Zelbie Trogden          
                              Director             
                                                   
November 19, 1997  By /s/ A. Frank Pierce          
                         ------------------------- 
                          A. Frank Pierce          
                              Director             
                                                   
November 19, 1997  By /s/ David P. Malm            
                         ------------------------- 
                          David P. Malm            
                             Director              


                                          21
<PAGE>

                                    EXHIBIT INDEX

 EXHIBIT
  NO.         DESCRIPTION
----------    -------------
      3.1     Amended and Restated Certificate of Incorporation of The Todd-AO
              Corporation is incorporated by reference from Registrant's
              Information Statement dated May 13, 1996.

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

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

     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.

    10.6      Employment Agreement dated as of October 1, 1994 between the
              Todd-AO Corporation and J.R. DeLang is incorporated by reference
              from the Registrant's Form 10-K for the fiscal year ended August
              31, 1995.

    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.



                                          22
<PAGE>


 EXHIBIT
   NO.        DESCRIPTION
----------    -----------
    10.11     Employment Agreement dated as of November 8, 1996 between The
              Todd-AO Corporation and Christopher D. Jenkins is incorporated by
              reference from the Registrant's Form 10-Q filed on April 10,
              1997.

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

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

    10.14     Credit Agreement dated as of December 2, 1994 between The Todd-AO
              Corporation and Bank of America National Trust and Savings
              Association is incorporated by reference from the Registrant's
              Form 10-Q filed on January 13, 1995.

    10.15     First Amendment to Credit Agreement dated as of March 13, 1995
              between The Todd-AO Corporation and Bank of America National
              Trust and Savings Association is incorporated by reference from
              the Registrant's Form 8-K filed on March 31, 1995.

    10.16     Letter Amendment dated April 5, 1996 to Credit Agreement dated as
              of December 2, 1994, between The Todd-AO Corporation and Bank of
              America National Trust and Savings Association is incorporated by
              reference from the Registrant's Form 10-Q for the quarter ended
              February 29, 1996.

    10.17     Third Amendment dated June 14, 1996 to Credit Agreement dated as
              of December 2, 1994 between The Todd-AO Corporation and Bank of
              America National Trust and Savings Association is incorporated by
              reference from the Registrant's Form 10-Q for the quarter ended
              May 31, 1996.

    10.18     Fourth Amendment dated October 1, 1996 to Credit Agreement dated
              as of December 2, 1994 between the Todd-AO Corporation and Bank
              of America National Trust and Savings Association is incorporated
              by reference from the Registrant's Form 10-Q filed on April 10,
              1997.

    10.19     Fifth Amendment dated June 6, 1997 to Credit Agreement dated as
              of December 2, 1994 between Todd-AO Corporation and Bank of
              America National Trust and Savings Association is incorporated by
              reference from the Registrant's Form 8-K filed on July 7, 1997.

    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 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
              filed herewith.

    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.


                                          23
<PAGE>

 EXHIBIT
   NO.        DESCRIPTION
----------    -----------
    10.24     Real Property Purchase Agreement (including Exhibits) dated as of
              February 13, 1995 between Todd-AO Studios West and Kaytea Rose,
              Inc. is incorporated by reference from the Registrant's Form 8-K
              filed on February 27, 1995.

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

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

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

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

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

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

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

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

    10.33     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.

    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.


                                          24
<PAGE>

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

    20.1      Previously Unfiled Documents.

                Not applicable.

    21.1      Subsidiaries of the Registrant

                Todd-AO Productions, Inc., incorporated in California.
   
                Todd-AO Studios East, Inc., incorporated in New York (parent)
                and Todd-AO East, incorporated in New York (subsidiary).
   
                Todd-AO Digital Images, incorporated in California.
   
                Todd-AO Video Services, incorporated in California.
   
                Todd-AO Studios, incorporated in California.
   
                Todd-AO Studios West, incorporated in California.
   
                Todd-AO Europe Holdings Ltd. (formerly FCB 1120 Ltd.)
                incorporated in the U.K. (parent), Todd-AO UK, Ltd, incorporated
                in the U.K. (subsidiary) and Todd-AO/Filmatic Laboratories, 
                Ltd., incorporated in the U.K. (subsidiary).
   
                Todd-AO's Land of the Future, Inc., incorporated in California.
   
                Todd-AO Preservation Services, incorporated in California.
   
                Todd-AO Hollywood Digital, incorporated in California.
   
                Hollywood Supply Company, incorporated in California.

    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.


                                          25
<PAGE>

                               THE TODD-AO CORPORATION

            INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE


                                                                    Page

Independent Auditors' Report                                         27

Consolidated Balance Sheets, August 31, 1996 and 1997                28

Consolidated Statements of Income for the Years Ended
    August 31, 1995, 1996 and 1997                                   30

Consolidated Statements of Stockholders' Equity for the
    Years Ended August 31, 1995, 1996 and 1997                       31

Consolidated Statements of Cash Flows for the Years Ended
    August 31, 1995, 1996 and 1997                                   32

Notes to Consolidated Financial Statements                           35

Supplemental Financial Statement Schedule:

    II   Valuation and Qualifying Accounts For The Years Ended
         August 31, 1995, 1996 and 1997                              45

    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.


                                          26
<PAGE>
                             INDEPENDENT AUDITORS' REPORT




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

    We have audited the accompanying consolidated balance sheets of The Todd-AO
Corporation and subsidiaries (the "Company") as of August 31, 1997, and 1996,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended August 31, 1997.  Our
audits also included the financial statement schedule listed in the Index at
Item 14a. 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 1996 and the results of its operations and its cash flows for each of
the three years in the period ended August 31, 1997 in conformity with generally
accepted accounting principles.  Also in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.


By /s/ DELOITTE & TOUCHE LLP



DELOITTE & TOUCHE LLP
Los Angeles, California

October 24, 1997


                                          27
<PAGE>

                               THE TODD-AO CORPORATION

                             CONSOLIDATED BALANCE SHEETS
                                (DOLLARS IN THOUSANDS)


                                        ASSETS

<TABLE>
<CAPTION>

                                                                                    AUGUST 31,
                                                                            ------------------------
                                                                              1996           1997
                                                                            ---------     ----------
<S>                                                                         <C>            <C>
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . .   $   3,385      $   5,127
Marketable securities. . . . . . . . . . . . . . . . . . . . . . . . . .       2,616          1,977
Trade receivables
    (net of allowance for doubtful accounts of $696 and $562 at
    August 31, 1996 and 1997, respectively). . . . . . . . . . . . . . .       9,132         13,176
Income tax receivable. . . . . . . . . . . . . . . . . . . . . . . . . .          --            671
Inventories (first-in first-out basis) . . . . . . . . . . . . . . . . .         635            625
Prepaid income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .          --             --
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . .       1,152            368
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         988          2,168
                                                                            ---------     ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . .      17,908         24,112
                                                                            ---------     ----------
INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         994            997
                                                                            ---------     ----------
PROPERTY AND EQUIPMENT - At Cost:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       4,270          4,270
Buildings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      10,559         10,994
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . .       6,286         10,203
Lease acquisition costs. . . . . . . . . . . . . . . . . . . . . . . . .       2,187          2,187
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      31,259         54,707
Equipment under capital leases . . . . . . . . . . . . . . . . . . . . .       3,360          1,540
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . .       1,402            920
                                                                            ---------     ----------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      59,323         84,821
Accumulated depreciation and amortization. . . . . . . . . . . . . . . .     (20,846)       (27,697)
                                                                            ---------     ----------
Property and equipment - net . . . . . . . . . . . . . . . . . . . . . .      38,477         57,124
                                                                            ---------     ----------
GOODWILL
    (net of accumulated amortization of $190 and $602 at
    August 31, 1996 and 1997, respectively). . . . . . . . . . . . . . .       5,761         19,162
                                                                            ---------     ----------
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       1,046          2,056
                                                                            ---------     ----------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $  64,186     $  103,451
                                                                            ---------     ----------
                                                                            ---------     ----------

</TABLE>

                   See notes to consolidated financial statements.


                                          28
<PAGE>
                               THE TODD-AO CORPORATION

                       CONSOLIDATED BALANCE SHEETS (CONTINUED)
                                (DOLLARS IN THOUSANDS)


                         LIABILITIES AND STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>

                                                                                       AUGUST 31,
                                                                                 -----------------------
                                                                                  1996           1997
                                                                                 --------     ----------
<S>                                                                              <C>           <C>
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $  2,812     $    5,302
Accrued liabilities:
  Payroll and related taxes. . . . . . . . . . . . . . . . . . . . . . . . .        2,023          2,507
  Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          173            422
  Equipment lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          300            279
  Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        1,198          1,533
  Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . .          368            105
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . .          615            578
Capitalized lease obligations - current. . . . . . . . . . . . . . . . . . .          616             35
Deferred income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          634          1,459
                                                                                 --------     ----------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . .        8,739         12,220
                                                                                 --------     ----------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        9,332         25,430
CAPITALIZED LEASE OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . .           22             --
DEFERRED COMPENSATION AND OTHER. . . . . . . . . . . . . . . . . . . . . . .          273            326
DEFERRED GAIN ON SALE/LEASEBACK. . . . . . . . . . . . . . . . . . . . . . .        4,909          3,437
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . .        4,488          4,659
                                                                                 --------     ----------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       27,763         46,072
                                                                                 --------     ----------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Common Stock:
  Class A; authorized 30,000,000 shares of $0.01 par value;
  issued and outstanding 6,555,640 at August 31, 1996 and
  8,284,925 issued at August 31, 1997. . . . . . . . . . . . . . . . . . . .           65             83
  Class B; authorized 6,000,000 shares of $0.01 par value;
  issued and outstanding 1,747,178 at August 31, 1996 and 1997 . . . . . . .           17             17
Additional capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       24,291         39,996
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           --           (691)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       12,267         17,711
Unrealized gains on marketable securities and long-term investments. . . . .           42             94
Cumulative foreign currency translation adjustment . . . . . . . . . . . . .         (259)           169
                                                                                 --------     ----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . .       36,423         57,379
                                                                                 --------     ----------
TOTAL  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $ 64,186     $  103,451
                                                                                 --------     ----------
                                                                                 --------     ----------

</TABLE>



                   See notes to consolidated financial statements.


                                          29
<PAGE>

                               THE TODD-AO CORPORATION

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


<TABLE>
<CAPTION>

                                                                                        YEARS ENDED AUGUST 31,
                                                                                ---------------------------------------
                                                                                   1995          1996           1997
                                                                                ---------      ---------     ----------
<S>                                                                              <C>            <C>           <C>
REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $  50,003      $  62,920     $   78,971
                                                                                ---------      ---------     ----------
COSTS AND EXPENSES:
Operating costs and other expenses . . . . . . . . . . . . . . . . . . . . .       39,867         48,962         61,755
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . .        3,917          5,374          7,128
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          581            702            920
Equipment lease expense - net. . . . . . . . . . . . . . . . . . . . . . . .          593            498            265
Other (income) expense - net . . . . . . . . . . . . . . . . . . . . . . . .         (290)          (359)           (50)
                                                                                ---------      ---------     ----------
Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . .       44,668         55,177         70,018
                                                                                ---------      ---------     ----------
INCOME BEFORE LOSS FROM JOINT VENTURE
   AND PROVISION FOR INCOME TAXES. . . . . . . . . . . . . . . . . . . . . .        5,335          7,743          8,953
  LOSS FROM JOINT VENTURE. . . . . . . . . . . . . . . . . . . . . . . . . .         (249)          (117)            --
                                                                                ---------      ---------     ----------
INCOME BEFORE PROVISION FOR INCOME TAXES . . . . . . . . . . . . . . . . . .        5,086          7,626          8,953
  PROVISION FOR INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . .        1,711          2,782          2,948
                                                                                ---------      ---------     ----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $   3,375      $   4,844     $    6,005
                                                                                ---------      ---------     ----------
                                                                                ---------      ---------     ----------

NET INCOME PER COMMON SHARE AND
   COMMON SHARE EQUIVALENTS. . . . . . . . . . . . . . . . . . . . . . . . .    $    0.40      $    0.55        $  0.60
                                                                                ---------      ---------     ----------
                                                                                ---------      ---------     ----------

WEIGHTED AVERAGE SHARES OUTSTANDING. . . . . . . . . . . . . . . . . . . . .    8,399,462      8,845,321     10,088,993
                                                                                ---------      ---------     ----------
                                                                                ---------      ---------     ----------

</TABLE>


                   See notes to consolidated financial statements.


                                          30
<PAGE>

                               THE TODD-AO CORPORATION

                   CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  FOR THE YEARS ENDED AUGUST 31, 1995, 1996 AND 1997
                               (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, 1994 . . . .    6,379,069     $  64    $    17  $  22,903   $  4,964        --          --            --
Exercise of stock options. . . . .       25,300        --         --        101         --        --          --            --
Unrealized gain on investment
  securities . . . . . . . . . . .           --        --         --         --         --        --    $    473            --
Loss on foreign currency
  translation. . . . . . . . . . .           --        --         --         --         --        --          --    $     (264)
Cash dividends:
  Class A ($.06) per share . . . .           --        --         --         --       (349)       --          --            --
  Class B ($.054) per share. . . .           --        --         --         --        (86)       --          --            --
Net income . . . . . . . . . . . .           --        --         --         --      3,375        --          --            --
                                      ---------     -----    -------  ---------   --------   --------  ----------   ----------
BALANCE AT AUGUST 31, 1995 . . . .    6,404,369        64         17     23,004      7,904        --         473          (264)
Exercise of stock options. . . . .      152,600         1         --      1,043         --        --          --            --
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         --        293         --        --          --            --
Purchase of treasury shares. . . .           --        --         --         --         --    (1,047)         --            --
Treasury shares cancellation . . .      (36,710)       --         --       (305)        --       305          --            --
Treasury shares transfer to 401(k)       (5,569)       --         --         --         --        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 . . . .    8,284,925     $  83    $    17  $  39,996   $ 17,711   $  (691)  $      94    $      169
                                      ---------     -----    -------  ---------   --------   --------  ----------   ----------
                                      ---------     -----    -------  ---------   --------   --------  ----------   ----------

</TABLE>


                   See notes to consolidated financial statements.


                                          31
<PAGE>

                               THE TODD-AO CORPORATION

                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>

                                                                              YEARS ENDED AUGUST 31,
                                                                   ----------------------------------------
                                                                       1995           1996           1997
                                                                   ----------      ---------     ----------
<S>                                                                <C>             <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income . . . . . . . . . . . . . . . . . . . . . . . . . .    $   3,375      $   4,844       $  6,005
  Adjustments to reconcile net income to net cash
     provided by operating activities:
     Depreciation and amortization . . . . . . . . . . . . . . .        3,917          5,374          7,128
     Deferred income taxes . . . . . . . . . . . . . . . . . . .        1,258            577            968
     Loss from joint venture . . . . . . . . . . . . . . . . . .          249            117             --
     Deferred compensation and other . . . . . . . . . . . . . .         (164)          (128)           (72)
     Amortization of deferred gain on
        sale/leaseback transaction . . . . . . . . . . . . . . .         (964)        (1,472)        (1,472)
     (Gain) loss on sale of marketable securities
        and investments. . . . . . . . . . . . . . . . . . . . .         (127)            92            (20)
     Loss on disposition of fixed assets . . . . . . . . . . . .           --            276            103
     Shares issued for stock award . . . . . . . . . . . . . . .           --             --            206
     Changes in assets and liabilities (net of acquisitions):
        Trade receivables, net . . . . . . . . . . . . . . . . .         (739)        (1,494)        (1,249)
        Inventories and other current assets . . . . . . . . . .         (266)          (338)        (1,133)
        Accounts payable and accrued liabilities . . . . . . . .          138            550          1,149
        Accrued equipment lease. . . . . . . . . . . . . . . . .          396            (96)           (21)
        Income taxes payable, net. . . . . . . . . . . . . . . .         (670)           926           (931)
        Deferred income. . . . . . . . . . . . . . . . . . . . .          560            (69)           759
                                                                   ----------      ---------     ----------
Net cash provided by operating activities. . . . . . . . . . . .        6,963          9,159         11,420
                                                                   ----------      ---------     ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of marketable securities and investments. . . . . . .         (996)          (374)            --
  Proceeds from sale of marketable securities
     and investments . . . . . . . . . . . . . . . . . . . . . .        1,606            881            708
  Proceeds from disposition of fixed assets. . . . . . . . . . .           --             --             87
  Capital expenditures . . . . . . . . . . . . . . . . . . . . .       (3,345)        (6,219)       (13,147)
  Contributions to joint venture . . . . . . . . . . . . . . . .         (249)          (117)            --
  Purchase of Skywalker Sound South. . . . . . . . . . . . . . .       (6,966)            --             --
  Purchase of Todd-AO UK . . . . . . . . . . . . . . . . . . . .       (8,333)            --             --
  Purchase of Editworks. . . . . . . . . . . . . . . . . . . . .           --         (3,180)          (500)
  Purchase of Hollywood Digital. . . . . . . . . . . . . . . . .           --             --        (17,761)
  Other assets . . . . . . . . . . . . . . . . . . . . . . . . .           (1)          (169)          (234)
                                                                   ----------      ---------     ----------
Net cash flows used in investing activities. . . . . . . . . . .  $  (18,284)     $  (9,178)    $  (30,868)
                                                                   ----------      ---------     ----------
</TABLE>


                                          32
<PAGE>

                               THE TODD-AO CORPORATION

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

<TABLE>
<CAPTION>

                                                                              YEARS ENDED AUGUST 31,
                                                                     --------------------------------------
                                                                        1995           1996           1997
                                                                     --------       --------      ---------
<S>                                                                  <C>            <C>           <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings of long-term debt . . . . . . . . . . . . . . . . .     $  7,722       $  5,356     $   23,800
  Payments on long-term debt . . . . . . . . . . . . . . . . . .       (1,467)        (4,430)       (16,309)
  Payments on capital lease obligations. . . . . . . . . . . . .       (1,108)        (2,637)          (603)
  Proceeds from sale/leaseback transaction . . . . . . . . . . .       11,218             --             --
  Proceeds from issuance of common stock . . . . . . . . . . . .          101          1,044         15,822
  Treasury stock transactions. . . . . . . . . . . . . . . . . .           --           (726)          (996)
  Dividends paid . . . . . . . . . . . . . . . . . . . . . . . .         (435)          (481)          (561)
                                                                     --------       --------      ---------
Net cash flows provided by (used in) financing activities: . . .       16,031         (1,874)        21,153
  Effect of exchange rate changes on cash. . . . . . . . . . . .          (38)            --             37
                                                                     --------       --------      ---------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . .        4,672         (1,893)         1,742
CASH AND CASH EQUIVALENTS AT
  BEGINNING OF YEAR. . . . . . . . . . . . . . . . . . . . . . .          606          5,278          3,385
                                                                     --------       --------      ---------
CASH AND CASH EQUIVALENTS AT
  END OF YEAR. . . . . . . . . . . . . . . . . . . . . . . . . .     $  5,278       $  3,385      $   5,127
                                                                     --------       --------      ---------
                                                                     --------       --------      ---------

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
  Interest . . . . . . . . . . . . . . . . . . . . . . . . . . .     $    408         $  708         $  526
                                                                     --------       --------       --------
                                                                     --------       --------       --------

  Income taxes . . . . . . . . . . . . . . . . . . . . . . . . .     $  1,413       $  1,285       $  1,725
                                                                     --------       --------       --------
                                                                     --------       --------       --------

</TABLE>


SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND FINANCING ACTIVITIES:

1997:

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

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

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


                                          33
<PAGE>

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:

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


1995:

a)  On February 15, 1995, the Company acquired substantially all of the
    property, equipment and inventory of Skywalker Sound South. In connection
    with this acquisition, the Company paid cash as follows:

    Assets acquired:
       Land. . . . . . . . . . . . . . . . . . . . . . .     $    783
       Buildings and improvements. . . . . . . . . . . .          844
       Equipment . . . . . . . . . . . . . . . . . . . .        5,032
       Other assets. . . . . . . . . . . . . . . . . . .          307
                                                             --------
    Cash paid in acquisition . . . . . . . . . . . . . .     $  6,966
                                                             --------
                                                             --------


b)  On March 16, 1995, the Company acquired all of the outstanding shares of
    Chrysalis Television Facilities, Ltd. In connection with this acquisition,
    the Company paid cash as follows:

    Assets acquired:
       Property and equipment. . . . . . . . . . . . . .     $  7,599
       Accounts receivable . . . . . . . . . . . . . . .        1,815
       Goodwill. . . . . . . . . . . . . . . . . . . . .        1,963
       Other assets. . . . . . . . . . . . . . . . . . .          339
    Liabilities assumed:
       Accounts payable and accrued expenses . . . . . .         (798)
       Capitalized lease obligations . . . . . . . . . .       (1,072)
       Real estate mortgage payable. . . . . . . . . . .         (149)
    Long-term debt issued to seller. . . . . . . . . . .       (1,364)
                                                             --------
    Cash paid in acquisition . . . . . . . . . . . . . .     $  8,333
                                                             --------
                                                             --------


                   See notes to consolidated financial statements.


                                          34
<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, 1997, Robert Naify, Marshall
Naify, and certain members of their families and various trusts for the benefit
of family members (the "Naify Interests") owned approximately 50% of the
outstanding shares of the Company, representing approximately 79% 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.
("Todd-AO East"), Todd-AO Productions, Inc., Todd-AO Digital Images, Inc.
("TDI"), Todd-AO Video Services, Inc. ("TVS"), Todd-AO Studios West ("TSW"),
Todd-AO Europe Holding Ltd. ("TAO Europe") and Todd-AO Hollywood Digital
("Hollywood Digital"). 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 15 and 25 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.

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

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

         NET INCOME PER COMMON SHARE - Net income per common share is computed
based on the weighted average number of common and common equivalent shares
outstanding for each of the periods presented including common share equivalents
arising from the assumed conversion of any outstanding dilutive stock options.
Fully diluted earnings per share are not materially different from primary
earnings per share.


                                          35

<PAGE>

         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.

         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 63% of revenues and for the year
ended August 31, 1997, The Walt Disney Company and its affiliated companies
accounted for approximately 17% of revenues.

         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 1997, the Company adopted the
disclosure only provision of Statement of Financial and Accounting Standards
("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
1996 and  1995 consolidated financial statements to conform with the current
year's presentation.

         RECENT ISSUED ACCOUNTING PRONOUNCEMENTS - In February 1997, the
Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share."
The statement is effective for interim periods and fiscal years ending after
December 15, 1997.  The Company does not expect that the statement will have a
material effect on the Company's consolidated financial statements.

         In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" and No. 131, "Disclosure about Segments of
an Enterprise and Related Information."  These statements are effective for
financial statements issued for periods beginning after December 15, 1997.  The
Company has not yet determined the impact of adopting these statements.

2.  ACQUISITIONS

         On February 15, 1995, TSW (a wholly owned subsidiary of the Company)
acquired substantially all of the property, equipment and inventory of Kaytea
Rose, Inc. (dba Skywalker Sound South)("SSS"). TSW provides post production
sound services to the film and television industries. In consideration of the
purchase, TSW paid $6,966 in cash. TSW is included in the Company's results of
operations from February 1995.

         On March 16, 1995 TAO Europe (a wholly owned subsidiary of the
Company) acquired all of the outstanding shares of Todd-AO UK Ltd. (formerly
Chrysalis/Todd-AO Europe Ltd.) ("Todd-AO UK") (formerly Chrysalis Television
Facilities, Ltd.) from Chrysalis Holdings Ltd. ("CHL"). TAO Europe, Todd-AO UK
and CHL are all corporations organized under the laws of the United Kingdom and
headquartered in London. Todd-AO UK specializes in the collation of television
programming for satellite broadcast and also provides post production video and
other services to a variety of clients. In consideration of the purchase, TAO
Europe paid CHL $1,966 in cash at closing and issued a note in the amount of
$1,364. An additional cash settlement of $220 was paid in  June 1995.
Concurrently with the acquisition, TAO Europe advanced and paid on behalf of
Todd-AO UK its intercompany debt to CHL in the amount of $4,585. Subsequent to
the acquisition, TAO Europe advanced and paid on behalf of Todd-AO UK other debt
in the amount of $1,562. TAO Europe and Todd-AO UK consolidated are included in
the Company's results of operations from March 1995.

         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.

                                          36
<PAGE>

         On June 20, 1997, the Company and its newly formed, wholly owned
subsidiary Todd-AO Hollywood Digital acquired the assets and certain liabilities
of Hollywood Digital Limited Partnership ("Hollywood Digital").  Hollywood
Digital is a digital based post-production facility providing sound and video
services to the film, television and advertising industries.  In consideration
of the purchase, the Company paid $17,761 in cash to pay down existing debt of
Hollywood Digital.  The Company also issued convertible subordinated notes in
the amount of $8,399.  The notes are convertible into the Company's Class A
Common Stock at the conversion price of $11.875 per share at any time before the
maturity date.  Todd-AO Hollywood Digital is included in the Company's results
of operations from June 20, 1997.

    The acquisitions are being accounted for under the purchase method of
accounting. The following unaudited pro forma consolidated financial information
is presented as if the acquisitions had occurred on September 1, 1995.  Pro
forma adjustments for Editworks are primarily to amortization of goodwill,
interest expense on borrowings in connection with the acquisition, and income
taxes.  Pro forma adjustments for Hollywood Digital are primarily to
non-recurring legal and other non-operating costs, amortization of goodwill,
interest expense on borrowings in connection with the acquisition, and income
taxes.
                                                     1996           1997
                                                  ---------      ---------
     Revenues. . . . . . . . . . . . . . . .      $  81,713      $  94,771
                                                  ---------      ---------
                                                  ---------      ---------
     Net income. . . . . . . . . . . . . . .      $   4,369      $   6,808
                                                  ---------      ---------
                                                  ---------      ---------
     Net income per common share . . . . . .      $    0.49      $    0.67
                                                  ---------      ---------
                                                  ---------      ---------

3.  SALE/LEASEBACK

         In December 1994 the Company signed an agreement with its bank to
implement the sale/leaseback of certain equipment. The agreement terminates on
December 30, 1999 and is being treated as an operating lease for financial
statement purposes. On December 30, 1994, an aggregate of $11,218 in equipment
was sold and leased back to the Company. The total deferred gain on the
transaction to be amortized over five years was $7,345.

         The net equipment lease expense for the years ended August 31, 1996
and 1997 is as follows:

                                                                1996      1997
                                                              -------  --------
    Equipment lease costs. . . . . . . . . . . . . . . . .    $ 1,970  $ 1,737
    Amortization of deferred gain on sale of equipment . .     (1,472)  (1,472)
                                                              -------  -------
    Equipment lease expense, net . . . . . . . . . . . . .    $   498  $   265
                                                              -------  -------
                                                              -------  -------


4.  LONG-TERM DEBT

         Long-term debt outstanding as of August 31, 1996 and 1997 was as
follows:
 
<TABLE>
<CAPTION>
                                                                         1996        1997
                                                                       --------    --------
<S>                                                                    <C>         <C>
    Revolving credit facility - multi-currency credit line . . . . .   $  4,350    $    775
    Revolving credit facility - other. . . . . . . . . . . . . . . .      4,281      16,000
    Note payable - Paskal Video acquisition. . . . . . . . . . . . .        463         313
    Note payable - Todd-AO UK acquisition. . . . . . . . . . . . . .        853         408
    Note payable - Hollywood Digital - Community
       Redevelopment Agency. . . . . . . . . . . . . . . . . . . . .         --         113
    Convertible subordinated notes payable -
       Hollywood Digital acquisition . . . . . . . . . . . . . . . .         --       8,399
                                                                       --------    --------
    Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      9,947      26,008
    Less: current maturities . . . . . . . . . . . . . . . . . . . .       (615)       (578)
                                                                       --------    --------
    Total long-term debt . . . . . . . . . . . . . . . . . . . . . .   $  9,332    $ 25,430
                                                                       --------    --------
                                                                       --------    --------

</TABLE>
 
                                          37
<PAGE>

         In December 1994, the Company signed a long-term credit agreement with
its bank which was amended in 1995, 1996 and 1997. Under the agreement, the
Company may borrow up to $35,000 in revolving loans until February 28, 2000. On
that date and quarterly thereafter until the expiration of the agreement on
November 30, 2003, the revolving loan commitment shall reduce by 5% of the
original loan commitment. Under the agreement, $10,000 of the available credit
is restricted to multi-currency borrowings. The agreement provides for interest
at 1/2% plus reference rate; 1 1/2% plus offshore rates ("Libor") and 1 5/8%
plus certificate of deposit rates ("CD")(Libor and CD minimum borrowings $1,000
or L500). These rates increase by 1/2% if certain financial ratios are exceeded.
The multi-currency borrowings are restricted to Libor and CD options. The
agreement contains various restrictive provisions, including investment, capital
expenditure, cash dividends and borrowing limitations. The most restrictive
covenant limits the Company's capital expenditures for fiscal year 1997 to
$16,500.  As of August 31, 1997 the Company has not exceeded the interest rate
financial ratios and is in compliance with the various restrictive provisions of
the 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, TAO Europe issued a note.
The note is payable over a three year period in two installments of $465 and one
installment of $388. Each installment bears interest at 1 1/2% above the prime
rate of the National Westminster Bank in London.

    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 conversion price of $11.875 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.

5.  CAPITALIZED LEASE OBLIGATIONS

    In 1994, the Company entered into lease obligations for equipment which
have been capitalized. In addition, the Company acquired leases on certain other
equipment with the Paskal, Todd-AO UK, Filmatic and Hollywood Digital
acquisitions. The leases have implicit interest rates ranging  from 7 1/2% to
11 1/2% and are secured by the related equipment.

         Capitalized lease obligations at August 31, 1997 mature as follows:

    1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $  37
    Less amounts representing interest . . . . . . . . . . . . .         2
                                                                     -----
                                                                     $  35
                                                                     -----
                                                                     -----

6.  INCOME TAXES

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

    YEARS ENDED AUGUST 31,                             1995      1996     1997
    ----------------------                             ----      ----     ----
    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. . . . .        0.8       1.6     (2.2)
    Other, net . . . . . . . . . . . . . . . . .       (1.2)     (0.9)     1.1
                                                       ----      ----     ----
    Total. . . . . . . . . . . . . . . . . . . .       33.6%     36.5%    32.9%
                                                       ----      ----     ----
                                                       ----      ----     ----


                                          38
<PAGE>

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.

         Deferred income tax assets and liabilities consist of the following:
 
<TABLE>
<CAPTION>
                                                FEDERAL     STATE     FOREIGN     TOTAL
                                               --------   --------   --------   --------
<S>                                            <C>        <C>        <C>        <C>
1997:
----
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)
                                               --------   --------   --------   --------
                                               --------   --------   --------   --------
1996:
----
Current Asset:
  Accounts receivable reserves . . . . . . .   $    164   $     40   $     33   $    237
  Vacation pay accruals. . . . . . . . . . .        305         74         --        379
  State income taxes . . . . . . . . . . . .        145        466         --        611
  Other. . . . . . . . . . . . . . . . . . .        (64)       (15)         4        (75)
                                               --------   --------   --------   --------
TOTAL CURRENT ASSET. . . . . . . . . . . . .   $    550   $    565   $     37   $  1,152
                                               --------   --------   --------   --------
                                               --------   --------   --------   --------

Long-Term Asset:
  Deferred compensation. . . . . . . . . . .   $     85   $     21         --   $    106
  U.K loss carryover . . . . . . . . . . . .         --         --         80         80
  U.K. capital allowances. . . . . . . . . .         --         --         --          0
  State income tax credit carryover. . . . .         --         --         --          0
  State income tax loss carryover. . . . . .         --         --         --          0
  Other. . . . . . . . . . . . . . . . . . .         25          6         --         31
                                               --------   --------   --------   --------
Total long-term asset. . . . . . . . . . . .        110         27         80        217
                                               --------   --------   --------   --------
Long-Term Liability:
  Depreciation . . . . . . . . . . . . . . .     (1,931)      (635)      (165)    (2,731)
  Deferred gains on property . . . . . . . .     (1,420)      (342)       (82)    (1,844)
  Other. . . . . . . . . . . . . . . . . . .       (155)        25         --       (130)
                                               --------   --------   --------   --------
Total long-term liability. . . . . . . . . .     (3,506)      (952)      (247)    (4,705)
                                               --------   --------   --------   --------
NET LONG-TERM LIABILITY. . . . . . . . . . .   $ (3,396)  $   (925)  $   (167)  $ (4,488)
                                               --------   --------   --------   --------
                                               --------   --------   --------   --------

</TABLE>
 
                                          39
<PAGE>

         Components of the income tax provision are as follows:

                                                    1995      1996      1997
                                                  --------  --------  --------
    Current provision - domestic . . . . . .        $  274  $  1,644  $  1,156
    Current provision - foreign. . . . . . .           180       561      (217)
    Deferred provision - domestic. . . . . .         1,231       473     1,343
    Deferred provision - foreign . . . . . .            26       104       666
                                                  --------  --------  --------
    Total. . . . . . . . . . . . . . . . . .      $  1,711  $  2,782  $  2,948
                                                  --------  --------  --------
                                                  --------  --------  --------

    Components of pre-tax income are as follows:
                                                    1995      1996      1997
                                                  --------  --------  --------
    Domestic . . . . . . . . . . . . . . . .      $  4,347  $  5,978  $  7,454
    Foreign. . . . . . . . . . . . . . . . .           739     1,648     1,499
                                                  --------  --------  --------
    Total. . . . . . . . . . . . . . . . . .      $  5,086  $  7,626  $  8,953
                                                  --------  --------  --------
                                                  --------  --------  --------

7.  STOCKHOLDERS' EQUITY

         The Company has 1,000,000 shares of $.01 par value preferred stock
authorized. As of August 31, 1997 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.

         On August 11, 1995 a 10% stock dividend was declared for holders of
Class A and Class B stock, payable on September 29, 1995 to shareholders of
record on September 8, 1995.

         The financial statements set forth herein, and applicable share and
per share data for periods and dates included in the accompanying financial
statements and notes, have been adjusted to retroactively reflect the stock
dividend and to 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, 1997, 915,656 shares had been repurchased.
831,856 of these shares have been canceled and returned to authorized but
unissued status.

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.

                                          40
<PAGE>

         The following summarizes stock option activity for the three years
ended August 31, 1997:

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

    Options outstanding, September 1, 1994 . . .         559,460       $2.92
    Awarded. . . . . . . . . . . . . . . . . . .         638,165        4.92
    Exercised. . . . . . . . . . . . . . . . . .         (25,300)       2.93
    Forfeited. . . . . . . . . . . . . . . . . .         (11,000)       4.50
                                                      ----------     ----------
    Options outstanding, August 31, 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
                                                      ----------     ----------
                                                      ----------     ----------
    Vested as of August 31, 1997 . . . . . . . .         721,912
                                                      ----------
                                                      ----------

         As of August 31, 1997, 81,465 shares and 175,540 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,
1997.
 
<TABLE>
<CAPTION>
                           OPTIONS OUTSTANDING                   OPTIONS EXERCISABLE
               ------------------------------------------   -------------------------------
                                  WEIGHTED
                    NUMBER         AVERAGE      WEIGHTED
                 OUTSTANDING      REMAINING      AVERAGE    EXERCISABLE AT      WEIGHTED
  RANGE OF       AT AUGUST 31,   CONTRACTUAL    EXERCISE      AUGUST 31,         AVERAGE
EXERCISE PRICES      1997            LIFE         PRICE          1997        EXERCISE PRICE
---------------  -------------  ------------    --------    --------------   --------------
<S>              <C>            <C>             <C>         <C>              <C>
$  2.03 -   2.93       55,500         1 year     $  2.22          55,500          $  2.22
   4.50 -  11.00      825,091        7 years        6.88         373,745             5.73
   3.26 -  10.50      386,654        6 years        8.44         121,330             6.56
   3.59               220,000      1.8 years        3.59         132,000             3.59
  10.50                23,346      4.3 years       10.50           4,670            10.50
   9.13 -  10.50      155,000        9 years       10.37          34,667            10.50
---------------  ------------   ------------     -------    --------------   --------------
$  2.03 -  11.00    1,665,591     6.03 years     $  7.03         721,912          $  5.47
                 ------------                               --------------
                 ------------                               --------------

</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 1997 and 1996 pursuant to SFAS 123 was approximately $2,940,268
and $46,206, respectively.  Had the Company adopted SFAS 123, pro forma net
income would have been $5,420 and $4,835, and pro forma net income per share
would have been $0.54 and $0.55 for 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 6.28% and expected option lives
of 7 to 9 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.

                                          41
<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 $4,045, $4,526 and $4,736 for the years
ended August 31, 1995, 1996, and 1997, respectively. Minimum rentals for
operating leases for years ending after August 31, 1997 are as follows: 1998,
$5,076; 1999, $4,782; 2000, $4,545; 2001, $9,313; 2002, $3,065 and $13,320,
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, 1997, the Company is committed
to compensation under long-term employment agreements with certain of its
officers and key employees as follows:  1998, $1,238; 1999, $1,161; 2000, $806
and 2001, $0.

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, 1995, 1996, and 1997 are as
follows:

                                                         AUGUST 31,
                                                 ------------------------
                                                 1995      1996      1997
                                                 ----      ----      ----

         MPIPP . . . . . . . . . . . . . . .     $ 446     $ 474     $ 618
         U.S. 401(k) . . . . . . . . . . . .     $ 107     $ 313     $ 225
         U.K. Plan . . . . . . . . . . . . .     $  33     $  81     $  85

11. JOINT VENTURE

         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 is in the process of organizing a limited liability
company ("LLC") with United Artists Theatre Circuit, Inc., an operator of motion
picture theatres ("UATC") for the purpose of exploiting proprietary technology
to conserve film stock and reduce the length of wide screen film release prints.
The technology, known as "Compact Distribution Print" or "CDP", has been
successfully demonstrated, but its implementation will require a broad level of
film industry acceptance which has not yet been obtained.  Pending such
acceptance, further development and marketing expenditures will be minimal.  It
is anticipated that the Company and UATC will each have a 50% interest in any
profits of the LLC, which is known as "CDP Limited Liability Company".


                                          42
<PAGE>

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
statements.

         In January 1997 the Company announced that it was in negotiations to
acquire all of the stock of International Video Conversions, Inc. ("IVC"), a
California corporation based in Burbank.  This acquisition has not materialized,
and the Company has filed an action against the seller seeking damages and other
appropriate relief.

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, 1995, 1996 and 1997.

                                           1995        1996        1997
                                        ---------   ---------   ---------
    REVENUES:
     United States . . . . . . . .      $  45,069   $  51,394   $  65,436
     Europe. . . . . . . . . . . .          4,934      11,526      13,535
                                        ---------   ---------   ---------
     Total . . . . . . . . . . . .      $  50,003   $  62,920   $  78,971
                                        ---------   ---------   ---------
                                        ---------   ---------   ---------
    NET INCOME:
     United States . . . . . . . .       $  2,842    $  3,861    $  4,955
     Europe. . . . . . . . . . . .            533         983       1,050

                                        ---------   ---------   ---------
     Total . . . . . . . . . . . .       $  3,375    $  4,844    $  6,005
                                        ---------   ---------   ---------
                                        ---------   ---------   ---------
    ASSETS:
     United States . . . . . . . .      $  45,074   $  50,552   $  85,569
     Europe. . . . . . . . . . . .         12,124      13,634      17,882
                                        ---------   ---------   ---------
     Total . . . . . . . . . . . .      $  57,198   $  64,186  $  103,451
                                        ---------   ---------   ---------
                                        ---------   ---------   ---------

14. QUARTERLY FINANCIAL DATA (UNAUDITED)




                                                                     EARNINGS
                                                                       PER
                                                GROSS                 COMMON
                                      TOTAL     PROFIT      NET       SHARE
1996                                REVENUES    (LOSS)    INCOME   OUTSTANDING
----                               ---------  --------  --------  ------------
 First Quarter . . . . . . .       $  18,140  $  3,639  $  1,983    $  .23
 Second Quarter. . . . . . .          13,199       489       507       .06
 Third Quarter . . . . . . .          16,801     2,399     1,572       .18
 Fourth Quarter. . . . . . .          14,780     1,559       782       .09
                                   ---------  --------  --------  ------------
 TOTAL . . . . . . . . . . .       $  62,920  $  8,086  $  4,844    $  .55 (a)
                                   ---------  --------  --------  ------------
                                   ---------  --------  --------  ------------



                                                                     EARNINGS
                                                                       PER
                                                                      COMMON
                                      TOTAL    GROSS      NET         SHARE
1997                                REVENUES   PROFIT    INCOME    OUTSTANDING
----                               ---------  --------  --------  ------------
 First Quarter . . . . . . .       $  20,340  $  3,069  $  1,771    $  .20
 Second Quarter. . . . . . .          19,341     2,611     1,518       .14
 Third Quarter . . . . . . .          19,657     2,688     1,900       .18
 Fourth Quarter. . . . . . .          19,633     1,455       816       .08
                                   ---------  --------  --------  ------------
 TOTAL . . . . . . . . . . .       $  78,971  $  9,823  $  6,005  $    .60 (a)
                                   ---------  --------  --------  ------------
                                   ---------  --------  --------  ------------

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

                                          43
<PAGE>

15. SUBSEQUENT EVENTS

         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 which will be launched under the name
TODD-AO GERMANY.  Additional joint ventures are contemplated for France, Italy,
Spain and Asia.  The Company will manage all technical and operational functions
and DCVI will coordinate the creative services of the studios.  The foreign
language dubbing studios will provide each territory with state-of-the-art
theatrical and television recording, mixing and editing facilities.  Additional
post production services will be added as demand expands.

         On October 20, 1997, the Company and its bank signed a First Amended
and Restated Credit Agreement under which the Company may borrow up to $50,000
in revolving loans.  The agreement expires December 31, 2002 and may be extended
annually by the Company under certain conditions.

         On November 3, 1997, the Company signed an agreement with its bank to
implement the sale/leaseback of certain equipment for up to $10,000.  On that
date an aggregate of $8,500 of sound studio equipment was sold and leased back.
The agreement terminates on December 31, 2002.

                                          44
<PAGE>

                               THE TODD-AO CORPORATION               SCHEDULE II

                          VALUATION AND QUALIFYING ACCOUNTS
                                (Dollars in thousands)
                      YEARS ENDED AUGUST 31, 1995, 1996 AND 1997



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

Year ended August 31, 1995........  $  408      $  649     $ (229)       $  828
                                    ------      -------    -------       ------
                                    ------      -------    -------       ------

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

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



    (a)  Includes balance acquired in acquisition of Editworks ($28).
    (a)  Includes balance acquired in acquisition of Hollywood Digital ($351).