<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, 1996
                                          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)

              172 GOLDEN GATE AVENUE, SAN FRANCISCO, CALIFORNIA       94102
                  (Address of principal executive offices)          (Zip Code)

Registrant's telephone number, including area code: (415) 928-3200

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, 1996 was approximately $52,000,000

The number of shares of common stock outstanding at November 1, 1996 was: 
6,556,520 Class A Shares and 1,747,181 Class B Shares.


                         DOCUMENTS INCORPORATED BY REFERENCE

None


<PAGE>

THE TODD-AO CORPORATION
------------------------------------------------------------------------------
Annual Report on Form 10-K
August 31, 1996

TABLE OF CONTENTS
------------------------------------------------------------------------------
Part I                                                                    Page

         Item 1  - Business                                                  1
         Item 2  - Properties                                                6
         Item 3  - Legal Proceedings                                         7
         Item 4  - Submission of Matters to a Vote
                   of Security Holders                                       7

Part II

         Item 5  - Market for the Registrant's Common
                   Stock and Related Stockholder Matters                     8
         Item 6  - Selected Financial Data                                   9
         Item 7  - Management's Discussion and Analysis
                   of Financial Condition and 
                   Results of Operations                                     9
         Item 8  - Financial Statements and
                   Supplementary Data                                       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                         17
         Item 13 - Certain Relationships and Related
                   Transactions                                             18

Part IV

         Item 14 - Exhibits, Financial Statement Schedule
                   and Reports on Form 8-K                                  19

                   Signatures                                               20
                   Exhibit Index                                            21

                   Index to Financial Statement
                   and Schedule                                             25

<PAGE>


                                        PART I
                                           
ITEM 1.   BUSINESS.

          The Todd-AO Corporation and its subsidiaries (collectively 
"Todd-AO" or the "Company") provides 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 500 
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 31 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. ("Chrysalis") 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. As a result of these transactions, the Company has expanded its 
client base, increased its range of services and broadened its global market 
coverage. 

          Largely as a result of efforts implementing its strategy, the 
Company's annual sales have grown in the past three years at an annual 
compounded rate of 32% from $27.4 million in fiscal 1993 to $62.9 

                                    1

<PAGE>

million in fiscal 1996. Net income has grown in the same period at an annual 
compounded rate of 62% from $1.14 million in fiscal 1993 to $4.84 million in 
fiscal 1996. 

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 (rerecord) 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 
(rerecording) 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 eight Academy Award-Registered 
Trademark- nominations for Best Sound in the last nine years and two Academy 
Awards-Registered Trademark- for Best Sound in the last four years. A list of 
some of Todd-AO's 1996 credits include: A TIME TO KILL, COURAGE UNDER FIRE, 
THE CABLE GUY, MISSION IMPOSSIBLE, FLED, and THE CHAMBER. 

                                 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): 

<TABLE>
<CAPTION>

 YEAR     MOVIE(S)                      YEAR     MOVIE(S)
 ----     --------                      ----     --------
<S>       <C>                           <C>      <C>
1995      APOLLO 13, Braveheart         1977     Close Encounters of 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!
 
</TABLE>

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 150 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 

                                      3

<PAGE>

suppliers, TV networks, pay-per-view and satellite distribution companies to 
exhibit programs and commercials. Airlines use duplicates to exhibit 
in-flight movies. 

          -TRANSMISSION.  Chrysalis 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), Chrysalis 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 75% 
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 is a 
vertically integrated company, providing a full range of sound preservation, 
media 

                                    4

<PAGE>

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. 

          -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 1,000 
customers, including colleges, universities, corporate and training 
companies, film and video libraries, independent production companies and 
broadcast television. Currently, the British Broadcasting Corp. represents 
20% of Filmatic's business. 

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

                                   5

<PAGE>

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. 

EMPLOYEES

          Todd-AO employs approximately 500 employees, some on a 
project-by-project basis. The Company has employment agreements with 60 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

          Over 58% of the Company's outstanding shares (representing over 84% 
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 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 127,000 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 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 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 facility 
operates 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. 

          The newly acquired 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. 

                                         6

<PAGE>

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.

                                         7

<PAGE>

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

          The Company has two classes of Common Stock designated as Class A 
Stock and Class B Stock, as described below.  There were approximately 1,050 
and 7 record holders of Class A and Class B Stock, respectively, as of 
November 1, 1996.  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
                                           
FISCAL YEAR                                                            CLOSE
-----------                                                         ----------
                                                                    HIGH   LOW
                                                                    ----   ---
1995
----
First Quarter..............................................         6 1/2      5
Second Quarter.............................................             6      4
Third Quarter..............................................         6 3/8      5
Fourth Quarter.............................................        11 1/2  5 5/8

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


          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 1995 and 1996. 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 

                                 8

<PAGE>

basis and once so converted the Class B Stock is retired and cannot 
be reissued without a stockholder vote. Except for issuances in connection 
with stock splits and stock dividends, additional Class B shares cannot be 
issued without an affirmative vote of the Class B stockholders.  

          As of August 31, 1996, 1,747,181 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 1995 and 1996.  The Company acts as Transfer Agent for 
the Class B common stock.  

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

                                              Years Ended August 31 

                                      1992     1993     1994     1995     1996

Revenues..........................   $28,150  $27,402  $32,892  $50,003  $62,920
                                     -------  -------  -------  -------  -------
                                     -------  -------  -------  -------  -------
               
Net income........................   $ 2,129  $ 1,137  $ 1,780  $ 3,375  $ 4,844
                                     -------  -------  -------  -------  -------
                                     -------  -------  -------  -------  -------

Income per Common Share (1).......   $   .25  $   .14  $   .22  $   .40  $   .55
                                     -------  -------  -------  -------  -------
                                     -------  -------  -------  -------  -------

Total Assets......................   $31,892  $31,834  $36,728  $57,198  $64,186
                                     -------  -------  -------  -------  -------
                                     -------  -------  -------  -------  -------

Total Long-Term Debt Obligations..   $ 1,750  $     0  $ 1,467  $ 8,327  $ 9,354
                                     -------  -------  -------  -------  -------
                                     -------  -------  -------  -------  -------

Cash Dividends:
  Class A Shares..................   $ .0575  $   .06  $   .06  $   .06  $   .06
                                     -------  -------  -------  -------  -------
                                     -------  -------  -------  -------  -------

  Class B Shares..................   $.05175  $  .054  $  .054  $  .054  $  .054
                                     -------  -------  -------  -------  -------
                                     -------  -------  -------  -------  -------


(1)  Income per share computed using the average number of shares outstanding
     and common stock equivalents of 8,350,594, 8,278,932, 8,195,678, 8,399,462
     and 8,845,321 in 1992, 1993, 1994, 1995 and 1996, 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 

                                       9

<PAGE>

March 1995 of Chrysalis in London and in August 1996 of Editworks in Atlanta. 
The Company also acquired Todd-AO Studios West in 1995 and Filmatic in 1996. 

RESULTS OF OPERATIONS

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

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

                                                   YEARS ENDED AUGUST 31,
                                                 ---------------------------
                                                   1994     1995      1996
                                                 -------  --------  --------
 
Revenues....................................      100.0%   100.0%    100.0%
              
Costs and expenses:
 Operating costs and other expenses.........       82.2     79.7      77.8
 Depreciation and amortization..............        7.9      7.8       8.5
 Interest...................................         --      1.2       1.1
 Equipment lease expense, net...............         --      1.2       0.8
 Other (income) expense, net................       (2.3)    (0.6)     (0.5)
                                                 -------  --------  --------
    Total costs and expenses................       87.8     89.3      87.7
                                                 -------  --------  --------
Income before loss from joint venture 
 and provision for income taxes.............       12.2     10.7      12.3
Loss from joint venture.....................       (3.7)    (0.5)     (0.2)
                                                 -------  --------  --------
Income before provision for income taxes....        8.5     10.2      12.1
Provision for income tax....................        3.1      3.5       4.4
                                                 -------  --------  --------
Net income..................................        5.4%     6.7%      7.7%
                                                 -------  --------  --------
                                                 -------  --------  --------

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, 
Chrysalis 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 Chrysalis 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 Chrysalis and the consolidation of certain corporate 
overhead costs associated with these acquisitions. 

          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). 

                                      10

<PAGE>

FISCAL YEAR ENDED AUGUST 31, 1995 AS COMPARED TO FISCAL YEAR ENDED AUGUST 31, 
1994

          Total revenues increased $17,111 or 52.0% from $32,892 to $50,003. 
This increase is the result of the organization and acquisition of new 
operations in fiscal 1994 and 1995. 

          Sound studio revenues increased $7,703 due to the acquisition of 
Skywalker Sound South by Todd-AO Studios West in February 1995. Todd-AO 
Studios West provides post production sound services for the film and 
television industries on the westside of Los Angeles. This increase in sound 
studio revenues was offset by a $3,583 or 10.8% decrease at the Los Angeles 
and New York studios due to reduced feature film dubbing bookings. These 
reduced bookings were primarily the result of a threatened strike in Los 
Angeles which caused scheduling irregularities through December 1994, and a 
feature film stage which was closed for remodeling through January 1995. 

          Video services revenues increased $12,691 due to the inclusion of 
Todd-AO Video Services ($6,504), Todd-AO Digital Images ("TDI")($1,253) and 
Chrysalis ($4,934) in fiscal 1995. Todd-AO Video Services, which acquired 
certain assets and liabilities of Film Video Masters, Inc. on August 30, 
1994, provides post production video services to the film and television 
industries. TDI, which was formed in the latter half of fiscal 1994, provides 
visual effects services to the same industries. Todd-AO Europe Holding Co. 
Ltd., a wholly owned subsidiary of the Company, acquired all of the 
outstanding shares of Chrysalis in March 1995. Both corporations are based in 
London and organized under the laws of the United Kingdom. Chrysalis 
specializes in the collation of television programming for satellite 
broadcast and also provides post production video services. 

          Operating costs and other expenses increased $12,846 or 47.5% from 
$27,021 to $39,867 due primarily to the acquisitions described above. 
Operating costs and other expenses decreased as a percentage of revenue from 
82.2% to 79.7%. This improvement is primarily the result of increased profit 
margins realized from Todd-AO Studios West and Chrysalis and the 
consolidation of certain corporate overhead costs associated with the 
acquisitions. 

          Depreciation and amortization increased $1,314 or 50.5% due to the 
acquisitions described above but did not significantly change as a percentage 
of revenue between fiscal 1994 and 1995. 

          Interest expense increased from $24 in fiscal 1994 to $581 in 
fiscal 1995 primarily due to institutional borrowings of $7,726 in connection 
with the acquisition of Chrysalis in March 1995. In fiscal 1995, the Company 
also incurred equipment lease expense (net of deferred gain on sale of 
equipment) of $593 in connection with a December 1994 sale/leaseback 
agreement with its institutional lender. 

          Other (income) expense, net declined by $483 in fiscal 1995 
primarily due to current year research and development costs and 
non-recurring severance costs. 

          Losses from the Company's entertainment project development joint 
venture declined from $1,215 (3.7% of revenue) in fiscal 1994 to $249 (0.5% 
of revenue) in fiscal 1995 due to the termination of the development phase of 
the venture early in fiscal 1995. 

          As a result of the above, income before taxes increased $2,284 from 
$2,802 to $5,086 and net income increased $1,595 from $1,780 (5.4% of 
revenue) to $3,375 (6.7% 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 terminates on 
December 30, 1999. Under the credit facility, including amendments in 1995 
and 1996, the Company may borrow up to $20,000 and L5,000 in revolving loans 
until February 28, 2000. On that date and quarterly thereafter until the 
expiration of the agreement on November 30, 2003, the revolving loan 
commitment will reduce by 5% of the original loan commitment. These credit 
facilities are available for 

                                     11 

<PAGE>

general corporate purposes, capital expenditures and acquisitions. Management 
believes that funds generated from operations, the proceeds from public 
offering described below, the proceeds from the  sale/leaseback and the 
borrowings available under the credit facility will be sufficient to meet the 
needs of the Company at least through the end of 1997. 

          In February 1995, the Company used $6,878 of the proceeds from the 
sale/leaseback agreement to acquire substantially all of the property, 
equipment and inventory of Skywalker Sound South, renamed Todd-AO Studio 
West. In March 1995, the Company used $7,726 under the credit facility in 
connection with the acquisition of Chrysalis. In August 1996, the Company 
used $4,280 under the credit facility in connection with the acquisition of 
Editworks. As of August 31, 1996, the Company had $8,437 outstanding under 
the credit facility. 

          The Company expects capital expenditures of approximately $12,000 
for its Los Angeles, New York City, Atlanta and London facilities in fiscal 
1997. These capital expenditures will be financed by credit facilities and 
internally generated funds.

          On October 10, 1996, the Company filed a registration statement 
with the Securities and Exchange Commission and on November 20, 1996 the 
registration statement was declared effective for a public offering of 
1,500,000 primary Class A shares at $10.50 per share, excluding the 
underwriters' over-allotment option.  The net proceeds currently expected 
after deducting underwriting discounts and commissions and estimated expenses 
of the offering are approximately $14,000.  These net proceeds will be used 
to fund possible future acquisitions, possible temporary repayment of 
indebtedness outstanding under the Company's revolving credit facility, 
working capital requirements and other general corporate purposes.

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:

<TABLE>
<CAPTION>

NAME                                AGE*             POSITION WITH COMPANY
----                                ---              ---------------------
<S>                                 <C>   <C>
Salah M. Hassanein (1)..........     75   President, Chief Executive Officer and Director
Silas R. Cross..................     57   Vice President, Treasurer and Assistant Secretary
Clay M. Davis...................     50   Vice President
J.R. DeLang.....................     40   Senior Vice President and Director
Graham Hall.....................     38   Managing Director of Chrysalis/Todd-AO Europe, Ltd.
Coburn T. Haskell...............     44   Vice President and Controller
Richard C. Hassanein............     45   Vice President and Director
Christopher D. Jenkins..........     41   Senior Vice President and Director
Dan Malstrom....................     45   Secretary
Marshall Naify (1)..............     76   Co-Chairman of the Board of Directors
Robert A. Naify (1).............     74   Co-Chairman of the Board of Directors
Richard O'Hare..................     43   President of Todd-AO Video Services
A.C. Childhouse (2).............     86   Director
David Haas......................     55   Director
Herbert L. Hutner (2)...........     87   Director
Robert I. Knudson...............     71   Director
Michael S. Naify................     34   Director
A. Frank Pierce.................     66   Director
Zelbie Trogden (2)..............     60   Director
 
</TABLE>
----------------

*         As of October 1, 1996. 

(1)       Member of the Executive Committee.

(2)       Member of the Audit and Compensation 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. 

          Graham Hall was appointed Managing Director of Chrysalis 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 and served as Executive Vice President of the 
Company's subsidiary, Todd-AO Studios West, since 1995. 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 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. 

          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.      

                                   14

<PAGE>

          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. 

          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.  Directors receive no cash compensation for their 
services as directors. The following table shows, for the years ended August 
31, 1996, 1995 and 1994 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, 1996.

<TABLE>
<CAPTION>


                                            ANNUAL COMPENSATION(1)     
                                            ----------------------     LONG-TERM
                                                                      COMPENSATION
                                                                   -------------------
                                                                    NO. OF SECURITIES
                                            FISCAL                     UNDERLYING            ALL OTHER
NAME AND PRINCIPAL POSITION                  YEAR      SALARY ($)       OPTIONS           COMPENSATION($)
---------------------------                 ------   ------------- -------------------  -------------------
<S>                                          <C>       <C>          <C>                 <C>
Salah M. Hassanein                           1996      100,000 (2)         --                   --
President and Chief Executive Officer        1995      100,001 (2)        66,000                --
The Todd-AO Corporation                      1994      100,000 (2)       110,000                --

J.R. DeLang                                  1996      335,442             --                15,000 (3) 
Executive Vice-President                     1995      293,942             --                19,168 (3) 
Todd-AO Studios                              1994      203,876             --                 3,073 (3) 

Christopher D. Jenkins                       1996      575,631 (4)         --                 3,460 (4) 
President                                    1995      465,981 (4)         --                 3,385 (4) 
Todd-AO Studios                              1994      471,920 (4)         --                 4,146 (4) 


</TABLE>


                                                      15

<PAGE>

<TABLE>
<CAPTION>


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

Clay M. Davis                                1996     176,546              --                 3,460 (5) 
Vice President                               1995     151,575             16,500              3,385 (5) 
Todd-AO Studios                              1994     151,231              --                 3,385 (5) 

Richard O'Hare                               1996     173,695              --                17,228 (6) 
President                                    1995     176,491             11,000                --       
Todd-AO Video Services                       1994        --                --                   --       


</TABLE>

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

(1)       The columns for "Bonus" and "Other Annual Compensation" have been 
omitted because there is no compensation required to be reported in such 
columns. 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 $80,000 for 
1996, 1995 and 1994.

(3)       Amounts shown as "All Other Compensation" represent contributions 
made by the Company to its 401(k) Plan for 1996 and 1995 and under a 
collective bargaining agreement to the Motion Picture Industry Pension Plan 
for 1994 on Mr. DeLang's behalf. 

(4)       Amounts shown as salary include compensation of $475,631, $365,981 
and $388,586 for 1996, 1995 and 1994, 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. 

(5)       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. 

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

OPTION EXERCISES AND VALUE TABLE.  No stock options were granted by the 
Company during the fiscal year ended August 31, 1996 to the executive 
officers named in the Summary Compensation Table. The following table shows 
each exercise of stock options during the fiscal year ended August 31, 1996 
by each of the executive officers named in the Summary Compensation Table, 
together with respective aggregate values of unexercised options as at August 
31, 1996. 

<TABLE>
<CAPTION>

                                                            NUMBER OF               VALUE OF UNEXERCISED
                                                       UNEXERCISED OPTIONS          IN-THE-MONEY OPTIONS
                                                        AT AUGUST 31, 1996           AT AUGUST 31, 1996
                                                    --------------------------   -------------------------
                    SHARES ACQUIRED      VALUE
NAME                 ON EXERCISE (#)   REALIZED ($) EXERCISABLE  UNEXERCISABLE   EXERCISABLE  UNEXERCISABLE
----                ----------------   ------------ -----------  -------------   -----------  -------------
<S>                 <C>                <C>          <C>          <C>             <C>          <C>
Salah M. Hassanein         --              --         110,000        66,000        $924,880      $626,208
J.R. DeLang                --              --          52,800        13,200         463,331       105,930
Christopher D. Jenkins     --              --          59,400         6,000         524,964        52,965
Clay M. Davis              --              --          20,900         6,600         195,569        52,965
Rick O'Hare                --              --           6,600         4,400          50,741        33,827

</TABLE>

                                                     16

<PAGE>

Employment Agreements

          The Company has employment agreements with Messrs. Jenkins, DeLang 
and O'Hare. Under Mr. Jenkins' agreement (expiring December 31, 2000), 
compensation for sound mixing services is paid on an hourly basis at four 
times the minimum supervisor union rate. Mr. Jenkins receives an additional 
$100,000 per year for management and administrative services. The agreement 
with Mr. DeLang (expiring September 30, 1997) provides 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 (expiring August 31, 1997) 
provides for a salary of $153,016, $168,000 and $203,000 for the twelve 
months ending August 31, 1995, 1996, and 1997, respectively. 

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

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

PRINCIPAL SHAREHOLDERS

          The following table sets forth information with respect to the 
beneficial ownership of the Company's outstanding Common Stock as of November 
1, 1996 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)
                                           --------------------------------  -------------------
NAME(1)                                       CLASS A           CLASS B       CLASS A   CLASS B
-------                                    ---------------  ---------------  --------  ---------
<S>                                        <C>            <C>                <C>       <C>
A.C. Childhouse........................        41,087            --             .63%       --%
Clay M. Davis..........................        23,100 (3)        --             .35        --
J.R. DeLang............................        57,200 (3)        --             .86        --
Heine Securities Corporation(4)........       652,442            --            9.95        --
Richard C. Hassanein...................        18,150 (3)        --             .28        --
Salah M. Hassanein.....................       539,043 (3)        --            8.06        --
Herbert L. Hutner......................        19,210            --             .29        --
Christopher D. Jenkins.................        61,600 (3)        --             .93        --
Robert I. Knudson......................        73,889 (3)        --            1.12        --
Marshall Naify(7)......................     1,165,984 (3)(5)  678,839         17.57     38.85
Michael S. Naify(7)....................        72,834            --            1.11        --
Robert A. Naify(7).....................     1,093,964 (3)(6)  906,290         16.49     51.87
Other Naify Interests(7)...............       775,855         118,510         11.84      6.78
Zelbie Trogden.........................         6,600 (3)        --             .10        --
All directors and current executive
  officers as a group (18 persons).....     3,205,711 (3)   1,585,129         48.30     90.72

</TABLE>

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


(1)       The address of each of the beneficial owners identified is 172 
Golden Gate Avenue, San Francisco, California 94102, except for Heine 
Securities Corporation whose address is 51 JFK Parkway, Short Hills, New 
Jersey 07078. 

                                     17

<PAGE>

(2)       Based on 6,556,520 shares of Class A Common Stock and 1,747,181 
shares of Class B Common Stock outstanding at November 1, 1996. 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.

          The percentages of Class A Common Stock beneficially owned do not 
give effect to the proposed public offering sale of 2,500,000 shares, 
excluding the underwriters' over-allotment option, with respect to the 
registration statement filed by the Company on October 10, 1996 which has not 
yet become effective.

(3)       Includes options exercisable within 60 days by Messrs. Davis, 
DeLang, R. Hassanein, S.M. Hassanein, Jenkins, Knudson, M. Naify, R.A. Naify, 
Trogden, and all directors and current executive officers as a group to 
purchase, respectively, 23,100, 57,200, 17,050, 132,000, 61,600, 41,800, 
78,100, 78,100, 6,600 and 519,200 shares of Class A Common Stock. 

(4)       Schedule 13G filed on February 10, 1996 by Heine Securities 
Corporation and Michael F. Price indicates that Heine Securities Corporation 
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 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. 

(6)       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. 

(7)       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, 1996 is 3,108,637 
(47.01%) and 1,703,639 (97.51%), respectively. 

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

           None.


                                       18

<PAGE>

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

          (a) Financial Statements and Schedule are as listed in the "Index to
              Financial Statements and Schedule" on page 25 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 August 28, 1996 and September 17, 1996, 
              respectively, disclosing the acquisition of assets and certain 
              liabilities of Edit Acquisition LLC.

          (c) Exhibits are as listed in the Exhibit Index on page 21 of this 
              10-K Report.

                                 





                                       19

<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 25, 1996        By /s/           Silas R. Cross
                                           -------------------------------
                                                  Silas R. Cross
                                             Vice President, Treasurer
                                          and Principal Accounting Officer

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

<TABLE>
<S><C>
November 25, 1996  By /s/    Robert A. Naify      November 25, 1996   By /s/      Marshall Naify
                        -----------------------                             -------------------------
                             Robert A. Naify                                      Marshall Naify
                            Co-Chairman of the                                  Co-Chairman of the
                            Board of Directors                                  Board of Directors
               
November 25, 1996  By /s/   Salah M. Hassanein    November 25, 1996   By /s/   Christopher D. Jenkins
                        ------------------------                            ----------------------------
                            Salah M. Hassanein                                 Christopher D. Jenkins
                          Director, President and                             Senior Vice President and 
                          Chief Executive Officer                                      Director

November 25, 1996  By /s/       J.R. Delang       November 25, 1996   By /s/      Richard Hassanein   
                        ------------------------                            ----------------------------
                                J.R. DeLang                                       Richard Hassanein
                            Senior Vice President                                 Vice President and
                                  and Director                                        Director

November 25, 1996  By /s/     A.C. Childhouse     November 25, 1996   By /s/        Michael S. Naify
                        ------------------------                            ----------------------------
                              A.C. Childhouse                                       Michael S. Naify
                                Director                                                Director
                                   
November 25, 1996  By /s/   Robert I. Knudson     November 25, 1996   By /s/         Zelbie Trogden
                        ------------------------                            ----------------------------
                            Robert I. Knudson                                        Zelbie Trogden
                               Director                                                 Director

November 25, 1996  By /s/    Herbert L. Hutner    November 25, 1996   By /s/        A. Frank Pierce
                        ------------------------                            ----------------------------
                             Herbert L. Hutner                                      A. Frank Pierce
                                Director                                               Director

November 25, 1996  By /s/      David Haas 
                         ------------------------  
                               David Haas
                                Director

</TABLE>

                                             20
<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.

 10.4     Employment and Consulting Agreement dated as of September 5, 1991 by
          and between Shawn Murphy individually ("SM"), Murphy Balance
          Engineering, a California corporation wholly owned by SM, and 
          Todd-AO/Glen Glenn Studios is incorporated by reference from the
          Registrant's Form 10-K for the fiscal year ended August 31, 1993.

 10.5     Equipment lease dated as of September 5, 1991 by and between Murphy
          Mandala (a joint venture) (lessor) and Todd-AO/Glen glenn Studios
          (lessee) is incorporated by reference from the Registrant's Form 10-K
          for the fiscal year ended August 31, 1993.

 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.


                                      21

<PAGE>

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

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

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

 10.11    Employment Agreement dated as of January 1, 1994 between The
          Todd-AO Corporation and Christopher D. Jenkins is incorporated by
          reference from the Registrant's Form 10-Q filed on April 13, 1994.

 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    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.

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

 10.20    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 From 8-K filed on
          February 27, 1995.

 10.21    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.


                                      22

<PAGE>

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

 10.22    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.

 10.23    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.

 10.24    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.

 10.25    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.

 10.26    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.

 10.27    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.

 11.1     Computation of Per Share Earnings. 

               See Note 1 of Notes to Financial Statements.

 12.1     Computation of Earnings to Fixed Charges.

               Not applicable.

 13.1     Annual Report to Stockholders.

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

 18.1     Changes in Accounting Principles.

               Not applicable.

 20.1     Previously Unfiled Documents.

               Not applicable. 


                                      23

<PAGE>

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

 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), Chrysalis/Todd-AO Europe 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.

 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.


                                      24

<PAGE>

                            THE TODD-AO CORPORATION

          INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

                                                                     Page

Independent Auditors' Report                                          26

Consolidated Balance Sheets, August 31, 1995 and 1996                 27

Consolidated Statements of Income for the Years Ended
   August 31, 1994, 1995 and 1996                                     29

Consolidated Statements of Stockholders' Equity for the
   Years Ended August 31, 1994, 1995 and 1996                         30

Consolidated Statements of Cash Flows for the Years Ended
   August 31, 1994, 1995 and 1996                                     31

Notes to Consolidated Financial Statements                            34

Supplemental Financial Statement Schedule:

   II   Valuation and Qualifying Accounts For The Years Ended
        August 31, 1994, 1995 and 1996                                43

   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.


                                      25

<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, 1996, 
and 1995, and the related consolidated statements of income, stockholders' 
equity and cash flows for each of the three years in the period ended August 
31, 1996.  O and the nine months ended May 31, 1996ur 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, 1996 , August 31,and 1995 and May 31, 1996 and the results of its 
operations and its cash flows for each of the three years in the period ended 
August 31, 19956 and the nine months ended May 31, 1996 in conformity with 
generally accepted accounting principles.  Also in our opinion, such 
financial statement schedule, when considered in relation to the basic 
consolidated financial statements taken as a whole, presents fairly in all 
material respects the information set forth therein.

                                        By   /s/ DELOITTE & TOUCHE LLP  

                                             DELOITTE & TOUCHE LLP
                                             Los Angeles, California

October 18, 1996


                                      26

<PAGE>

                           THE TODD-AO CORPORATION

                         CONSOLIDATED BALANCE SHEETS
                            (DOLLARS IN THOUSANDS)

                                    ASSETS
<TABLE>
<CAPTION>
                                                                  AUGUST 31,
                                                              ------------------
                                                                1995      1996
                                                              --------  --------
<S>                                                           <C>       <C>
CURRENT ASSETS
Cash and cash equivalents...................................  $  5,278  $  3,385
Marketable securities.......................................     3,484     2,616
Trade receivables
  (net of allowance for doubtful accounts of $828 and $696
  at August 31, 1995 and 1996, respectively)................     6,787     9,132
Inventories (first-in first-out basis)......................       484       635
Prepaid income taxes........................................       727        --
Deferred income taxes.......................................       924     1,152
Other.......................................................       565       988
                                                              --------  --------
Total current assets........................................    18,249    17,908
                                                              --------  --------
INVESTMENTS.................................................     1,156       994
                                                              --------  --------
PROPERTY AND EQUIPMENT - At Cost:
Land........................................................     4,270      4270
Buildings...................................................    10,548    10,559
Leasehold improvements......................................     6,286     6,286
Lease acquisition costs.....................................     2,187     2,187
Equipment...................................................    24,785    31,259
Equipment under capital leases..............................     3,163     3,360
Construction in progress....................................        --     1,402
                                                              --------  --------
Total.......................................................    51,239    59,323
Accumulated depreciation and amortization...................   (16,276   (20,846)
                                                              --------  --------
Property and equipment - net................................    34,963    38,477
                                                              --------  --------
GOODWILL
  (net of accumulated amortization of $63 and $190 at 
  August 31, 1995 and 1996, respectively)...................     1,832     5,761
                                                              --------  --------
OTHER ASSETS................................................       998     1,046
                                                              --------  --------
TOTAL.......................................................  $ 57,198  $ 64,186
                                                              --------  --------
                                                              --------  --------
</TABLE>

               See notes to consolidated financial statements.


                                      27

<PAGE>

                           THE TODD-AO CORPORATION

                   CONSOLIDATED BALANCE SHEETS (CONTINUED)
                            (DOLLARS IN THOUSANDS)

                     LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                           AUGUST 31,
                                                                        ----------------
                                                                         1995     1996
                                                                        -------  -------
<S>                                                                     <C>      <C>
CURRENT LIABILITIES:
Accounts payable......................................................  $ 1,784  $ 2,812
Accrued liabilities:
  Payroll and related taxes...........................................    1,975    2,023
  Interest                                                                  179      173
  Equipment lease.....................................................      396      300
  Other...............................................................      515    1,198
  Income taxes payable................................................       --      368
Current maturities of long-term debt..................................      759      615
Capitalized lease obligations - current...............................      897      616
Deferred income.......................................................      703      634
                                                                        -------  -------
Total current liabilities.............................................    7,208    8,739
                                                                        -------  -------
LONG-TERM DEBT........................................................    7,707    9,332
CAPITALIZED LEASE OBLIGATIONS.........................................      620       22
DEFERRED COMPENSATION.................................................      401      273
DEFERRED GAIN ON SALE/LEASEBACK.......................................    6,381    4,909
DEFERRED INCOME TAXES.................................................    3,683    4,488
                                                                        -------  -------
Total liabilities.....................................................   26,000   27,763
                                                                        -------  -------
 
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock:
  Class A; authorized 30,000,000 shares of $0.01 par value; issued and
    outstanding 6,403,021 at August 31, 1995 and 6,555,640 at 
    August 31, 1996...................................................       64       65
  Class B; authorized 6,000,000 shares of $0.01 par value; issued and
    outstanding 1,747,181 at August 31, 1995 and 1996.................       17       17
Additional capital....................................................   23,004   24,291
Retained earnings.....................................................    7,904   12,267
Unrealized gains on marketable securities and long-term investments...      473       42
Cumulative foreign currency translation adjustment....................     (264)    (259)
                                                                        -------  -------
Total stockholders' equity............................................   31,198   36,423
                                                                        -------  -------
TOTAL.................................................................  $57,198  $64,186
                                                                        -------  -------
                                                                        -------  -------
</TABLE>

                See notes to consolidated financial statements.


                                      28

<PAGE>

                             THE TODD-AO CORPORATION
                                       
                         CONSOLIDATED STATEMENTS OF INCOME
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                    YEARS ENDED AUGUST 31,
                                                              ----------------------------------
                                                                 1994        1995        1996
                                                              ----------  ----------  ----------
<S>                                                           <C>         <C>         <C>
REVENUES....................................................  $   32,892  $   50,003  $   62,920
                                                              ----------  ----------  ----------
COSTS AND EXPENSES:
Operating costs and other expenses..........................      27,021      39,867      48,962
Depreciation and amortization...............................       2,603       3,917       5,374
Interest....................................................          24         581         702
Equipment lease expense - net...............................          --         593         498
Other (income) expense - net................................        (773)       (290)       (359)
                                                              ----------  ----------  ----------
Total costs and expenses....................................      28,875      44,668      55,177
                                                              ----------  ----------  ----------
INCOME BEFORE LOSS FROM JOINT VENTURE AND PROVISION FOR
 INCOME TAXES...............................................       4,017       5,335       7,743
  LOSS FROM JOINT VENTURE...................................      (1,215)       (249)       (117)
                                                              ----------  ----------  ----------
INCOME BEFORE PROVISION FOR INCOME TAXES....................       2,802       5,086       7,626
  PROVISION FOR INCOME TAXES................................       1,022       1,711       2,782
                                                              ----------  ----------  ----------
NET INCOME..................................................  $    1,780  $    3,375  $    4,844
                                                              ----------  ----------  ----------
                                                              ----------  ----------  ----------
NET INCOME PER COMMON SHARE AND COMMON SHARE EQUIVALENTS....  $     0.22  $     0.40  $     0.55
                                                              ----------  ----------  ----------
                                                              ----------  ----------  ----------
WEIGHTED AVERAGE SHARES OUTSTANDING.........................   8,195,678   8,399,462   8,845,321
                                                              ----------  ----------  ----------
                                                              ----------  ----------  ----------
</TABLE>

               See notes to consolidated financial statements.


                                      29

<PAGE>

                           THE TODD-AO CORPORATION
                                       
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
             FOR THE YEARS ENDED AUGUST 31, 1994, 1995 AND 1996
                           (DOLLARS IN THOUSANDS) 

<TABLE>
<CAPTION>
                                                     COMMON STOCK
                                       ----------------------------------------                         UNREALIZED
                                                                                                        GAIN(LOSS)
                                            CLASS A                                                        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 SEPTEMBER 1, 1993.........  6,432,859  $1,608    $ 437     $21,204     $ 3,612        --          --             --
Reduction of Class A and B shares par
 value from $0.25 to $0.01...........         --  (1,544)    (420)     (1,964)         --        --          --             --
Purchase of treasury shares..........   (143,000)     --       --          --          --     $(509)         --             --
Treasury shares cancellation.........         --      (1)      --        (511)         --       509          --             --
Exercise of stock options............     89,210       1       --         246          --        --          --             --
Cash dividends:
  Class A ($.06) per share...........         --      --       --          --        (342)       --          --             --
  Class B ($.054) per share..........         --      --       --          --         (86)       --          --             --
Net income...........................         --      --       --          --       1,780        --          --             --
                                       ---------  -------  -------   --------     --------   -------    --------     ----------
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..........    (68,192)     --       --          --          --      (726)         --             --
Treasury shares cancellation.........         --      (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 ($.045) per share..........         --      --       --          --        (395)       --          --             --
  Class B ($.04) per share...........         --      --       --          --         (86)       --          --             --
Net income...........................         --      --       --          --       4,844        --          --             --
                                       ---------  -------  -------   --------     --------   -------    --------     ----------
BALANCE AT AUGUST 31, 1996...........  6,555,640  $   65    $  17     $24,291     $12,267     $   0       $  42        $  (259)
                                       ---------  -------  -------   --------     --------   -------    --------     ----------
                                       ---------  -------  -------   --------     --------   -------    --------     ----------
</TABLE>

               See notes to consolidated financial statements.


                                      30

<PAGE>

                            THE TODD-AO CORPORATION
                                       
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS) 

<TABLE>
<CAPTION>
                                                                     YEARS ENDED AUGUST 31,
                                                                   --------------------------
                                                                    1994      1995     1996
                                                                   -------  --------  -------
<S>                                                                <C>      <C>       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income.....................................................  $ 1,780  $  3,375  $ 4,844
  Adjustments to reconcile net income to net cash provided by
    operating activities:
    Depreciation and amortization................................    2,603     3,917    5,374
    Deferred income taxes........................................     (386)    1,258      577
    Loss from joint venture......................................    1,215       249      117
    Deferred compensation........................................     (119)     (164)    (128)
    Amortization of deferred gain on sale/leaseback
      transaction................................................       --      (964)  (1,472)
    (Gain) loss on sale of marketable securities and
      investments................................................     (342)     (127)      92
    Loss on disposition of fixed assets..........................       --        --      276
    Changes in assets and liabilities (net of aqcuisitions):
      Trade receivables..........................................     (894)     (739)  (1,494)
      Income taxes receivable....................................       --        --       --
      Inventories and other current assets.......................       38      (266)    (338)
      Accounts payable and accrued liabilities...................    1,249       138      550
      Accrued equipment lease....................................       --       396      (96)
      Income taxes payable.......................................     (210)     (670)     926
      Deferred income............................................      (93)      560      (69)
                                                                   -------  --------  -------
Net cash provided by operating activities........................    4,841     6,963    9,159
                                                                   -------  --------  -------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of marketable securities and investments..............   (3,050)     (996)    (374)
  Proceeds from sale of marketable securities and investments....      921     1,606      881
  Capital expenditures...........................................   (1,404)   (3,345)  (6,219)
  Contributions to joint venture.................................     (900)     (249)    (117)
  Purchase of Paskal Video.......................................   (1,150)       --       --
  Purchase of Skywalker Sound South..............................       --    (6,966)      --
  Purchase of Chrysalis..........................................       --    (8,333)      --
  Purchase of Editworks..........................................       --        --   (3,180)
  Other assets...................................................     (155)       (1)    (169)
                                                                   -------  --------  -------
Net cash flows (used in) investing activities....................  $(5,738) $(18,284) $(9,178)
                                                                   -------  --------  -------
</TABLE>


                                      31

<PAGE>

                           THE TODD-AO CORPORATION
                                       
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (DOLLARS IN THOUSANDS)
                                 (CONTINUED)

<TABLE>
<CAPTION>
                                                                    YEARS ENDED AUGUST 31,
                                                                   -------------------------
                                                                    1994     1995     1996
                                                                   -------  -------  -------
<S>                                                                <C>      <C>      <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings of long-term debt...................................  $    --  $ 7,722  $ 5,356
  Payments on long-term debt.....................................       --   (1,467)  (4,430)
  Payments on capital lease obligations..........................      (94)  (1,108)  (2,637)
  Proceeds from sale/leaseback transaction.......................       --   11,218       --
  Proceeds from issuance of common stock.........................      245      101    1,044
  Treasury stock transactions....................................     (509)      --     (726)
  Dividends paid.................................................     (428)    (435)    (481)
                                                                   -------  -------  -------
Net cash flows provided by (used in) financing activities:            (786)  16,031   (1,874)
  Effect of exchange rate changes on cash........................       --      (38)      --
                                                                   -------  -------  -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............   (1,683)   4,672   (1,893)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR...................    2,289      606    5,278
                                                                   -------  -------  -------
CASH AND CASH EQUIVALENTS AT END OF YEAR.........................  $   606  $ 5,278  $ 3,385
                                                                   -------  -------  -------
                                                                   -------  -------  -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
  Interest.......................................................  $    19  $   408  $   708
                                                                   -------  -------  -------
                                                                   -------  -------  -------
  Income taxes...................................................  $ 1,563  $ 1,413  $ 1,285
                                                                   -------  -------  -------
                                                                   -------  -------  -------
</TABLE>

SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND FINANCING ACTIVITIES:

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 ..................     (807)
       Capitalized lease obligations...........................   (1,672)
     Common stock issued in acquisition........................     (970)
                                                                 -------
     Cash paid in acquisition..................................  $ 3,180
                                                                 -------
                                                                 -------


                                      32

<PAGE>

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

1994:

a)   On August 31, 1994, the Company acquired substantially all of the assets
     and certain of the liabilities of Paskal Video. In connection with this
     acquisition, the Company paid cash as follows: 

     Assets acquired:
       Property and equipment..................................   $2,030
       Accounts receivable.....................................      860
       Other assets............................................      121
     Liabilities assumed:
       Accounts payable and accrued expenses...................     (329)
       Capitalized lease obligations...........................     (782)
       Long-term debt issued to seller.........................     (750)
                                                                 -------
     Cash paid in acquisition..................................   $1,150
                                                                 -------
                                                                 -------

b)   During the year ended August 31, 1994, TDI entered into a capital lease
     obligation in the amount of $886.


              See notes to consolidated financial statements.


                                      33

<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, 1996, Robert Naify, Marshall 
Naify, and certain members of their families and various trusts for the 
benefit of family members (the "Naify Interests") owned over 58% of the 
outstanding shares of the Company, representing approximately 84% 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") 
and Todd-AO Europe Holding Ltd. ("TAO Europe"). 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. 

     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 years. 

     The Company assesses the recoverability of its intangible assets by 
determining whether the amortization of the intangible asset balance over its 
remaining life can be recovered through projected non-discounted future cash 
flows over the remaining amortization period. If projected future cash flows 
indicate that the unamortized intangible asset balances will not be 
recovered, an adjustment is made to reduce the net intangible asset to an 
amount consistent with projected future cash flows discounted at the 
Company's incremental borrowing rate. 

     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. 


                                      34

<PAGE>

     FAIR VALUE OF FINANCIAL INSTRUMENTS - Statement of Financial and 
Accounting Standard ("SFAS") No. 107 requires disclosures of fair value 
information about financial instruments, whether or not recognized in the 
balance sheet, for which it is practicable to estimate fair value. Management 
believes that the book value approximates fair value of the Company's 
financial instruments because of the short-term nature of accounts receivable 
and variable interest rates associated with long-term debt. 

     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 53% of revenues and 
for the year ended August 31, 1996, one customer accounted for approximately 
12% 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. 

     RECLASSIFICATIONS - Certain 1995 financial statement captions have been 
reclassified in order to conform to 1996 presentation.

2.   ACQUISITIONS

     On August 31, 1994, TVS (a wholly owned subsidiary of the Company) 
acquired certain of the assets and liabilities of Film Video Masters 
("Paskal"). TVS provides post production video services to the film and 
television industries. In consideration of the purchase, TVS paid Paskal 
$1,150 in cash and issued a note in the amount of $750. 

     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 (formerly FCB 1120, Ltd.)(a wholly owned 
subsidiary of the Company) acquired all of the outstanding shares of 
Chrysalis/Todd-AO Europe Ltd. ("Chrysalis")(formerly Chrysalis Television 
Facilities, Ltd.) from Chrysalis Holdings Ltd. ("CHL"). TAO Europe, Chrysalis 
and CHL are all corporations organized under the laws of the United Kingdom 
and headquartered in London. Chrysalis 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 Chrysalis its intercompany debt to CHL in the amount of 
$4,585. Subsequent to the acquisition, TAO Europe advanced and paid on behalf 
of Chrysalis other debt in the amount of $1,562. TAO Europe and Chrysalis 
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. At the closing, the Company paid 
Editworks $3,180 in cash and $970 in common stock. An additional $500 in cash 
is due upon completion of certain conditions. 

     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, 
1994. Pro forma adjustments for TSW are primarily to operating expenses 
related to nonapplicable allocations made by the parent corporation of SSS, 
depreciation expense relating to the acquisition of assets, interest expense 
on borrowings in connection with the acquisition and income taxes. Pro forma 
adjustments for TAO Europe are primarily to amortization expense relating to 
allocation 


                                      35

<PAGE>

of the purchase price, interest expense on borrowings in connection with the 
acquisition and income taxes. Pro forma adjustments for Editworks are 
primarily to amortization of goodwill, interest expense on borrowings in 
connection with the acquisition, and income taxes. 

                                                               1995      1996
                                                             --------  --------
     Revenues..............................................  $ 62,293  $ 66,966
                                                             --------  --------
                                                             --------  --------
     Net income............................................  $  3,515  $  5,121
                                                             --------  --------
                                                             --------  --------
     Net income per common share...........................  $   0.42  $   0.58
                                                             --------  --------
                                                             --------  --------

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 is $7,345. 

     The net equipment lease expense for the years ended August 31, 1995 and 
1996 is as follows: 

                                                               1995      1996
                                                             --------  --------
     Equipment lease costs.................................  $  1,557  $  1,970
     Amortization of deferred gain on sale of equipment....      (964)   (1,472)
                                                             --------  --------
     Equipment lease expense, net..........................  $    593  $    498
                                                             --------  --------
                                                             --------  --------

4.   LONG-TERM DEBT

     Long-term debt outstanding as of August 31, 1995 and 1996 was as 
follows: 

                                                               1995      1996
                                                             --------  --------
     Revolving credit facility - pound sterling credit 
      line ................................................  $  6,391  $  4,350
     Revolving credit facility - other.....................        --     4,281
     Note payable - Paskal Video acquisition...............       613       463
     Note payable - Chrysalis acquisition..................     1,318       853
     Chrysalis mortgage note...............................       144        --
                                                             --------  --------
     Total.................................................     8,466     9,947
     Less: current maturities..............................      (759)     (615)
                                                             --------  --------
     Total long-term debt..................................  $  7,707  $  9,332
                                                             --------  --------
                                                             --------  --------

     In December 1994 the Company signed a long-term credit agreement with 
its bank which was amended in March 1995, April 1996 and June 1996. Under the 
agreement the Company may borrow up to $28,000 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. Approximately $8,000 of the 
available credit is restricted to pound sterling borrowings. The agreement 
provides for interest at 1 2% plus reference rate; 11 2% plus offshore rates 
("Libor") and 15 8% plus certificate of deposit rates ("CD")(Libor and CD 
minimum borrowings $1,000 or  ,500). These rates increase by 1 2% if certain 
financial ratios are exceeded. The pound sterling borrowings are restricted 
to Libor and CD options. The agreement contains various restrictive 
provisions, including investment, capital expenditure, cash dividends and 
borrowing limitations. As of August 31, 1996 the 


                                      36

<PAGE>

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 Chrysalis, 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 11 2% 
above the prime rate of the National Westminster Bank in London. A mortgage 
note in the amount of $144 with interest at 103 4% was also assumed at the 
acquisition. In accordance with the provisions of the mortgage note, the 
Company elected to pay off the entire balance in November 1995.

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, Chrysalis and Filmatic acquisitions. The 
leases have implicit interest rates ranging  from 71 2% to 111 2% and are 
secured by the related equipment. 

     Capitalized lease obligations at August 31, 1996 mature as follows: 

     1997 ....................................................    $  642
     1998 ....................................................        23
                                                                  ------
                                                                     665
     Less amounts representing interest.......................        27
                                                                  ------
                                                                  $  638
                                                                  ------
                                                                  ------

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,                              1994 1995 1996

     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...............    6.6    0.8    1.6
     Other, net .......................................   (4.1)  (1.2)  (0.9)
                                                          ----   ----   ----
     Total.............................................   36.5%  33.6%  36.5%
                                                          ----   ----   ----
                                                          ----   ----   ----

     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. 


                                      37

<PAGE>


     Deferred income tax assets and liabilities consist of the following: 

                                                               1995     1996
                                                              -------  -------
Current Asset:
  Accounts receivable reserves..............................  $   329  $   237
  Vacation pay accruals.....................................      359      379
  State income taxes........................................      151      611
  Other.....................................................       85      (75)
                                                              -------  -------
TOTAL CURRENT ASSET.........................................  $   924  $ 1,152
                                                              -------  -------
                                                              -------  -------
Long-Term Asset:
  Deferred compensation.....................................  $   160  $   106
  U.K loss carryover........................................       --       80
  Equity in loss of Venture.................................       85       31
  Other.....................................................       18       --
                                                              -------  -------
Total long-term asset.......................................      263      217
                                                              -------  -------
Long-Term Liabilities:
  Depreciation..............................................   (1,986)  (2,731)
  Deferred gains on property................................   (1,843)  (1,844)
  Other.....................................................     (117)    (130)
                                                              -------  -------
Total long-term liability...................................   (3,946)  (4,705)
                                                              -------  -------
NET LONG-TERM LIABILITY.....................................  $(3,683) $(4,488)
                                                              -------  -------
                                                              -------  -------

    Components of the income tax provision are as follows:

                                                         1994    1995    1996
                                                        ------  ------  ------
Current provision - domestic..........................  $1,408  $  274  $1,644
Current provision - foreign...........................      --     180     561
Deferred provision - domestic.........................    (386)  1,231     473
Deferred provision - foreign..........................      --      26     104
                                                        ------  ------  ------
Total.................................................  $1,022  $1,711  $2,782
                                                        ------  ------  ------
                                                        ------  ------  ------
Components of pre-tax income are as follows:

                                                         1994    1995    1996
                                                        ------  ------  ------
Domestic..............................................  $2,802  $4,347  $5,978
Foreign...............................................      --     739   1,648
                                                        ------  ------  ------
Total.................................................  $2,802  $5,086  $7,626
                                                        ------  ------  ------
                                                        ------  ------  ------

7.   STOCKHOLDERS' EQUITY

     The Company has 1,000,000 shares of $.01 par value preferred stock 
authorized. As of August 31, 1996 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.


                                      38

<PAGE>


     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, 1996, 795,146 shares had been repurchased. All 
of these shares have been cancelled and returned to authorized but unissued 
status. 

8.   STOCK OPTION AND STOCK APPRECIATION RIGHTS PLANS 

STOCK OPTION PLANS

     The Company has three stock option plans: The 1986, 1994 and the 1995 
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. 

     The following summarizes stock option activity for the three years ended 
August 31, 1996: 

                                                               OPTION PRICE
                                                     SHARES     PER SHARE
                                                    ---------  ------------
Options outstanding, September 1, 1993............    318,670  $2.03 - 4.50
Awarded...........................................    330,000   3.26
Exercised.........................................    (89,210)  2.03 - 2.93
                                                    ---------  ------------
Options outstanding, August 31, 1994..............    559,460   2.03 - 4.50
Awarded...........................................    638,165   4.50 - 5.29
Exercised.........................................    (25,300)  2.03 - 5.06
Forfeited.........................................    (11,000)  4.50
                                                    ---------  ------------
Options outstanding, August 31, 1995..............  1,161,325   2.03 - 5.29
Awarded...........................................     14,500   7.13
Exercised.........................................   (152,600)  2.03 - 7.13
Forfeited.........................................    (14,580)  5.06 - 5.63
                                                    ---------  ------------
Options outstanding, August 31, 1996..............  1,008,645  $2.03 - 7.13
                                                    ---------  ------------
                                                    ---------  ------------

     As of August 31, 1996, 70,125 shares and 337,390 shares were available 
for grant under the 1986 and 1995 plans respectively. All aurhtorized options 
under the 1994 Plan have been granted.  As of August 31, 1996, 514,677 
options were exercisable.  Common Shares have been reserved for issuance 
under the plans for all options outstanding at August 31, 1996.

     In October 1995, SFAS No. 123 "Accounting for Stock-Based Compensation" 
was issued. The Company does not intend to adopt the statement's fair value 
provisions except for disclosure and will continue to use the intrinsic 
method allowed by APB25. 

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. 


                                      39

<PAGE>

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

     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 $3,363, $4,045, and $4,526 for the years 
ended August 31, 1994, 1995, and 1996, respectively. Minimum rentals for 
operating leases for years ending after August 31, 1996 are as follows: 1997, 
$4,534; 1998, $4,213; 1999, $4,103; 2000, $8,404; 2001, $2,213; and $18,042, 
thereafter. Some of the leases have options to extend terms and are subject 
to escalation clauses and one lease is subject to additional rent based on 
revenue. 

     EMPLOYMENT AGREEMENTS - At August 31, 1996, the Company is committed to 
compensation under long-term employment agreements with certain of its 
officers and key employees as follows:  1997, $1,596; 1998, $676; 1999, $581 
and 2000, $581.

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, 1994, 1995, 
and 1996 are as follows:

                                                           AUGUST 31,
                                                   --------------------------
                                                   1994       1995      1996
                                                   -----      -----     -----
     MPIPP..................................       $ 395      $ 446     $ 474
     U.S. 401(K)............................       $ 120      $ 107     $ 313
     U.K. Plan..............................       $   0      $  33     $  81

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 is payable to Todd-AO 
Productions.


                                      40

<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.

     On October 10, 1996, the Company filed a registration statement with the 
Securities and Exchange Commission and on November 20, 1996 the registration 
statement was declared effective for a public offering of 1,500,000 primary 
Class A shares at $10.50 per share, excluding the underwriters' 
over-allotment option.

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 and 1996. 

                                                              1995      1996
                                                            --------  --------
     REVENUES:
      United States.......................................  $ 45,069  $ 51,394
      Europe..............................................     4,934    11,526
                                                            --------  --------
      Total...............................................  $ 50,003  $ 62,920
                                                            --------  --------
                                                            --------  --------
     NET INCOME:
      United States.......................................  $  2,842  $  3,861
      Europe..............................................       533       983
                                                            --------  --------
      Total                                                 $  3,375  $  4,844
                                                            --------  --------
                                                            --------  --------
     ASSETS:
      United States........................................ $ 45,074  $ 50,552
      Europe...............................................   12,124    13,634
                                                            --------  --------
      Total................................................ $ 57,198  $ 64,186
                                                            --------  --------
                                                            --------  --------

     There were no foreign operations in 1994.


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<PAGE>

14.  QUARTERLY FINANCIAL DATA (UNAUDITED)

                                                                      EARNINGS
                                                     GROSS           PER COMMON
                                          TOTAL     PROFIT    NET       SHARE
                                         REVENUES   (LOSS)   INCOME  OUTSTANDING
                                         --------   -------  ------  -----------
1995
----
First Quarter..........................   $8,778    $  (188) $  176      $.02
Second Quarter.........................   10,057        627     114       .01
Third Quarter..........................   18,290      3,752   2,329       .28
Fourth Quarter.........................   12,878      1,435     756       .09
                                         --------   -------  ------      -------
TOTAL..................................   $50,003   $ 5,626  $3,375      $.40(a)
                                         --------   -------  ------      -------
                                         --------   -------  ------      -------

                                                                      EARNINGS
                                                                     PER COMMON
                                          TOTAL      GROSS    NET       SHARE
                                         REVENUES   PROFIT   INCOME  OUTSTANDING
                                         --------   -------  ------  -----------
1996
----
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)
                                         --------   -------  ------      -------
                                         --------   -------  ------      -------
------------------------

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


                                      42

<PAGE>

                            THE TODD-AO CORPORATION                  SCHEDULE II

                       VALUATION AND QUALIFYING ACCOUNTS
                             (DOLLARS IN THOUSANDS)
                   YEARS ENDED AUGUST 31, 1994, 1995 AND 1996

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


Year ended August 31, 1994..............       $408           $  31       $ (31)        $408
                                              -----          ------       ------        ----
                                              -----          ------       ------        ----
Year ended August 31, 1995..............       $408           $ 649       $(229)        $828
                                              -----          ------       ------        ----
                                              -----          ------       ------        ----
Year ended August 31, 1996..............       $828           $(158)      $  26 (a)     $696
                                              -----          ------       ------        ----
                                              -----          ------       ------        ----
</TABLE>
 
(a) Includes balance acquired in acquisition of Editworks ($28).


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