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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K
 
              [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
               THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
                                       OR
 
           [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
 
          FOR THE TRANSITION PERIOD FROM              TO

            COMMISSION FILE NUMBER             001-12391
 
                                PANAVISION INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
           DELAWARE                                       13-3593063
  (STATE OR OTHER JURISDICTION                         (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION)                     IDENTIFICATION NO.)
 
          6219 DE SOTO AVENUE
       WOODLAND HILLS, CALIFORNIA                             91367
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                    (ZIP CODE)
 
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 316-1000
          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 
                                              NAME OF EACH EXCHANGE
           TITLE OF EACH CLASS                 ON WHICH REGISTERED
           -------------------                ---------------------
              Common Stock                   New York Stock Exchange

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                                      None
 
     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 the voting stock of the Registrant held by
non-affiliates of the Registrant on March 20, 1998 was approximately $104
million.
 
     As of March 20, 1998, there were 18,928,500 shares of Panavision Inc.
Common Stock outstanding.
 
                      DOCUMENTS INCORPORATED BY REFERENCE:
 
(1) Portions of the registrant's 1998 definitive proxy statement, issued in
connection with the annual meeting of stockholders, are incorporated by 
reference in Part III of this Form 10-K.
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                                PANAVISION INC.

                      INDEX TO ANNUAL REPORT ON FORM 10-K

                      FOR THE YEAR ENDED DECEMBER 31, 1997
 
<TABLE>
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<S>       <C>                                                                                                <C>
                                                     PART I
Item 1    Business........................................................................................      3
Item 2    Properties......................................................................................     13
Item 3    Legal Proceedings...............................................................................     13
Item 4    Submission of Matters to a Vote of Security Holders.............................................     13

                                                     PART II
Item 5    Market for Registrant's Common Equity and Related Stockholder Matters...........................     13
Item 6    Selected Financial Data.........................................................................     14
Item 7    Management's Discussion and Analysis of Financial Condition and
            Results of Operations.........................................................................     15
Item 8    Financial Statements and Supplementary Data.....................................................     23
Item 9    Changes in and Disagreements With Accountants on Accounting and
            Financial Disclosure..........................................................................     23

                                                    PART III
Item 10   Directors and Executive Officers of the Registrant..............................................     23
Item 11   Executive Compensation..........................................................................      *
Item 12   Security Ownership of Certain Beneficial Owners and Management..................................      *
Item 13   Certain Relationships and Related Transactions..................................................      *

                                                     PART IV
Item 14   Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................     24
</TABLE>
 
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* Incorporated by reference from Panavision Inc. Proxy Statement.

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                                     PART I
 
ITEM 1. BUSINESS
 
OVERVIEW
 
     Panavision Inc. (the Company or Panavision) is a leading designer,
manufacturer and supplier of high precision film camera systems, comprising
cameras, lenses and accessories, for the motion picture and television
industries. In 1997 in North America, Panavision equipment was utilized in over
80% of feature films produced by major motion picture studios, and over 80% of
episodic or 'series' television productions shot on film (such as E.R. and
SEINFELD). In addition, Panavision estimates that in 1997 it serviced nearly 40%
of the independent feature film market in North America and over 20% of the
feature film market in the United Kingdom and Europe. Panavision also supplies
camera systems to the television commercial market in North America, the United
Kingdom, Europe and the Asia Pacific region, which includes Japan, Australia,
New Zealand, Indonesia and Malaysia.
 
     Unlike equipment manufactured by its competitors, Panavision camera systems
are not available for sale but instead are rented exclusively through the
Company's domestic and international owned and operated facilities as well as
its network of independent agents. The Company believes that its position as an
industry leader results from its control over the manufacturing and distribution
process, its broad range of technologically superior and innovative products,
its long-standing collaborative relationships with filmmakers and studios, the
breadth of its camera equipment inventory and its dedication to customer
service. Panavision is the only supplier of cinematography equipment that
manufactures a complete camera system incorporating its own proprietary prime
and zoom lenses, the most critical components of a camera system.
 
     Panavision is recognized in the motion picture and television industries as
the preeminent brand name for cinematography equipment. Since the Company's
inception in 1954, Panavision has continually introduced new camera systems,
lenses, and accessories that have become industry standards. The Company's close
relationship with producers, directors and cinematographers results in a
cooperative effort to design and produce unique systems and accessories that
meet filmmakers' creative needs. Panavision has received two OSCARS and 18
Awards for Scientific and Technical Achievement from the Academy of Motion
Picture Arts and Sciences. Since 1990, two-thirds of the Academy Award nominees
for Best Cinematography, and six of the seven cinematographers who have won the
OSCAR for Best Cinematography, used Panavision camera systems. Panavision camera
systems were used to film nine of the top ten box office movies shot on film in
each of 1997 and 1996, including MEN IN BLACK, THE LOST WORLD: JURASSIC PARK,
LIAR, LIAR, JERRY MAGUIRE, MY BEST FRIEND'S WEDDING, MISSION: IMPOSSIBLE,
INDEPENDENCE DAY, RANSOM, TWISTER and A TIME TO KILL. In addition to the
Company's involvement in the motion picture industry, a predominant number of
U.S. prime time episodic or 'series' television programs that are shot on film
use Panavision camera systems, including FRIENDS and N.Y.P.D. BLUE.
 
     Renting, rather than purchasing, equipment is more cost-effective for
feature film, television and commercial producers given the periods of
inactivity typically experienced between productions. In addition, renting

camera systems from Panavision ensures continual access to state-of-the-art
equipment as well as the availability of the proper equipment combinations for
each specific project. Since the average cost of camera rental represents less
than 1% of the average film budget, customers tend to place a higher priority on
quality of service and availability of a broad range of technologically superior
equipment than on price considerations, which enables Panavision to receive a
premium for its equipment.
 
     Panavision maintains the leading position in an otherwise fragmented rental
market for cinematographic equipment. Panavision is the only supplier of
cinematographic equipment that has a network of rental offices and maintenance
facilities throughout North America, Europe and the Asia Pacific region and is
the only major manufacturer located near Hollywood. As the only vertically
integrated provider of camera systems to the film and television industries,
Panavision is better able to meet its customers' needs effectively. In contrast,
the Company's manufacturing competitors are located in Europe and sell their
products to rental companies, which then rent the equipment to the ultimate
user.
 
     The demand for cinematographic equipment is driven by the number and
complexity of feature films, television programs and commercials being produced.
Demand for film-based entertainment has continued to grow steadily in recent
years as evidenced by the growth in the number of feature film starts in North
America
 
                                       3
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from 350 in 1992 to 576 in 1997, an increase in domestic box office receipts of
28.1% from 1992 to 1997, and an increase of approximately 6,400 exhibitor
screens over the same period. Additionally, the number of action films and
special effects in feature film and television productions have increased
significantly, thereby increasing the equipment required and lengthening the
rental period. In addition, an increase in the number of television networks and
channels and in their demand for original programming has also driven the
increased use of camera systems.
 
     In addition to manufacturing and renting camera systems, the Company also
rents lighting, lighting grip, power distribution, generation and related
transportation equipment through Lee Lighting, the largest lighting rental
company in the United Kingdom, as well as through its owned and operated
facilities in Chicago, Dallas, Orlando, Toronto and Australia. The Company also
manufacturers and sells lighting filters and other color-correction and
diffusion filters through Lee Filters.
 
     Panavision was incorporated in Delaware in 1990. Predecessors of Panavision
have been engaged in the design and manufacturing of cinematography equipment
since 1954. The Company's principal executive office is located at 6219 De Soto
Avenue, Woodland Hills, California 91367 and its telephone number is (818)
316-1000.
 
     On June 5, 1997, the Company completed its acquisition (the FSG
Acquisition) of Visual Action Holdings plc's Film Services Group (Film Services
Group or FSG) for approximately $61 million. FSG includes camera rental
operations which rent primarily non-Panavision manufactured equipment in the

United Kingdom, France, Australia and two U.S. cities, Chicago and Dallas, as
well as smaller rental operations in New Zealand, Malaysia and Indonesia.
Management intends to augment the existing FSG equipment inventory base with
Panavision camera systems over time. Management believes that the FSG
Acquisition has substantially improved its competitive position internationally
as well as in the mid-western U.S. commercial market.
 
PROPOSED RECAPITALIZATION
 
     On December 18, 1997, the Company, PX Holding Corporation, (PX Holding) an
indirectly wholly owned subsidiary of Mafco Holdings, Inc. (Mafco) and PX Merger
Corporation, a wholly owned subsidiary of PX Holding, entered into an Agreement
of Recapitalization and Merger (the Recapitalization Agreement). Pursuant to the
terms of the Recapitalization Agreement and subject to the conditions set forth
therein, PX Merger Corporation will be merged with and into the Company (the
Merger).
 
     Pursuant to the Recapitalization Agreement, stockholders of the Company
(other than Warburg, Pincus Capital Company, L.P. (Warburg, Pincus)) will, in
the aggregate, have the opportunity to elect to have their shares of Common
Stock converted into the right to receive $27.00 per share in cash. To the
extent that holders (other than Warburg, Pincus) of more than 88% of the shares
of Common Stock elect to have their shares converted into the right to receive
cash, the election is subject to proration.
 
     Pursuant to a Voting and Stockholders Agreement, dated as of December 18,
1997, as amended by the First Amendment dated as of March 16, 1998 (the
Stockholders Agreement, and together with the Recapitalization Agreement and the
transaction contemplated thereby, the Proposed Recapitalization), by and among
Warburg, Pincus, Mafco and the Company, Warburg, Pincus has agreed to exchange
88% of its shares of Common Stock for Series A redeemable preferred stock
(Redeemable Preferred Stock) of the Company redeemable immediately upon
consummation of the Merger at a price equivalent to $26.50 in cash per share of
Common Stock. To the extent fewer than 88% of the shares of Common Stock held by
stockholders (other than Warburg, Pincus) are exchanged for cash, Warburg,
Pincus will increase the number of shares of Common Stock it exchanges for
Redeemable Preferred Stock (or will sell such shares to PX Holding), up to the
remainder of its shares of Common Stock.
 
     As a result of the Proposed Recapitalization, Mafco will acquire control of
the Company. Assuming stockholders (other than Warburg, Pincus) of at least 88%
of the shares of Common Stock elect to receive cash for their shares, Mafco will
beneficially own approximately 72% of the issued and outstanding Common Stock.
 
     Funds required in connection with the transaction, including to acquire the
shares and outstanding stock options, to refinance existing indebtedness and to
pay related fees and expenses, will be obtained through a combination of bank
financing, the issuance of subordinated notes and the purchase by Mafco of
equity in the recapitalized Company. This transaction, which is subject to
certain conditions, including stockholder approval, is expected to be completed
in the second quarter of 1998.
 
                                       4
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     In connection with the Proposed Recapitalization, the Company expects to
(i) enter into a new credit agreement with a maximum commitment amount of $340
million, (ii) assume obligations under subordinated notes with an aggregate
issue price of $150 million and (iii) receive an equity contribution from PX
Holding, of approximately $154 million.
 
COMPETITIVE STRENGTHS
 
     Panavision's leading market position is demonstrated by its premier brand
name recognition and its market share of over 80% of the major studio feature
films and episodic television programs produced in North America in 1997. The
Company's leading position results from the following competitive strengths
which provide substantial barriers to entry for new competitors.
 
     CONTROL OVER MANUFACTURING AND DISTRIBUTION PROCESS.  Panavision is the
only vertically integrated renter of camera systems to the film and television
industry. The Company's control over both the manufacturing and distribution
processes enables it to (i) rapidly incorporate technological development and
filmmakers' suggestions into new products, (ii) maintain product exclusivity and
(iii) offer products with greater quality and higher performance at a premium
price.
 
     REPUTATION FOR QUALITY AND TECHNOLOGICALLY ADVANCED PRODUCTS.  Panavision
is recognized as the industry leader in the development of high quality,
technologically advanced camera systems and its products have become industry
standards. Panavision has received two OSCARS and 18 other Academy Awards
granted for Scientific and Technical Achievement, including a 1998 award for the
Panavision/Frazier Lens System. In addition to the development of new products,
Panavision is also better able to upgrade its existing inventory to meet
continually changing market demands, thereby reducing obsolescence, achieving
better control of inventory and product availability, and providing its
customers with access to the latest technological advances.
 
     CLOSE RELATIONS WITH FILMMAKERS. As a result of Panavision's significant
relationships with cinematographers, directors and producers and its leading
market position, Panavision gains early access to productions and is able to
influence the selection of camera systems. Additionally, Panavision offers
instruction and training in the handling of Panavision equipment to young
directors and cinematographers while they are still in film school and
thereafter, thereby developing loyalty to Panavision and providing a foundation
for Panavision to sustain its strong market position. Panavision is the only
major manufacturer of cameras and lenses located in the Hollywood area, enabling
the Company to develop close relationships with filmmakers as well as enabling
the Company to rapidly respond to its customers' needs.
 
     RANGE AND BREADTH OF CAMERA EQUIPMENT.  Panavision believes that it has the
world's largest inventory of camera systems, with over 1,000 cameras and 5,000
lenses. It also offers a broad range of choices, including equipment that is
exclusively available through Panavision and its agents. The Company believes
that the range and breadth of its camera inventory enable it to serve a greater
number of productions throughout the world and make it the only company in the
industry with the ability to serve multiple large-scale feature film productions
simultaneously.
 

     DEDICATION TO CUSTOMER SERVICE.  Panavision places special emphasis on
customer service. The Company's customer service, repair and maintenance
personnel are 'on call' and available to assist customers 24 hours a day. In
order to provide filmmakers with a high level of support, the Company sends
marketing representatives and technicians to film production sets to provide
advice or immediate assistance with any equipment needs or questions. The
Company assigns to each production a sales representative who possesses skills
and experience appropriate to the needs of that production in an attempt to
foster a strong and lasting working relationship with the customer. In addition,
as part of its customer service, the Company often develops, customizes or
procures equipment for specific customers or projects.
 
GROWTH STRATEGY
 
     The Company's growth strategy is to increase its market share in the
worldwide commercial and feature film markets by leveraging its strong
competitive position and brand name in the feature film and television
industries in North America. The Company's strategy involves the following
elements:
 
     INCREASE INVENTORY OF AVAILABLE CAMERA EQUIPMENT.  Until mid-1996, the
Company's growth had been inhibited by equipment shortages resulting from
limited manufacturing capacity and capital expenditure constraints imposed by
its prior credit facilities. The Company believes that its move to its current
manufacturing facility in 1996 as well as its enhanced access to capital will
enable the Company to continue to expand its
 
                                       5
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equipment base in order to meet expected market demand and to capture a larger
market share, particularly in the worldwide commercial and independent feature
film markets.
 
     EXPAND NEW PRODUCT DEVELOPMENT.  The Company intends to continue developing
and manufacturing the next generation of technologically superior cameras,
lenses and accessories. The Company is currently rolling out its Millennium
camera system and focusing its development efforts on value-added accessories
that increase the overall size and rental price of a camera package. The
Company's move into a larger manufacturing facility enabled the Company to hire
additional personnel and significantly increase its research and development of
new products in an effort to extend its leadership in technology and product
development and to further facilitate collaborative efforts with filmmakers. For
example, the Company has recently introduced a new close focus macro-zoom lens
and the Panavision/Frazier Lens System which provide filmmakers with unique
creative tools that were previously unavailable.
 
     GEOGRAPHIC EXPANSION AND STRATEGIC ACQUISITIONS.  From time to time the
Company has pursued strategic acquisitions, such as the FSG Acquisition, as a
means of expanding market share in existing markets and as a gateway to new
geographical markets. The Company will continue to evaluate such opportunities
as they arise, as well as other opportunities, such as strategic alliances or
the expansion of its agent network.
 
CAMERA RENTAL MARKETS

 
     Panavision supplies cinematographic equipment, such as cameras, lenses and
accessories to its customers on a project-by-project basis. The Company has a
rental inventory of over 1,000 cameras (including non-Panavision manufactured
equipment) and 5,000 lenses, as well as associated accessories. The Company
rents its equipment through 22 owned and operated rental facilities which are
strategically located in cities where the most feature films are produced,
including Los Angeles, Toronto, London and Paris. The Company also rents its
equipment through ten independent agents, including agents located in New York,
Tokyo and Hong Kong. Panavision's network of owned and operated rental offices
and independent agents provides it with a competitive advantage as it is the
only rental company that offers clients equipment and service on a national and
worldwide basis.
 
  FEATURE FILMS
 
     The rental process for feature films takes about four to seven months from
the time the producer approves the project until filming is completed and the
equipment package is returned to Panavision for servicing. The decision makers
for the various markets are the producers, directors and cinematographers. In
general, after production is approved, the decision makers discuss the
requirements with their Panavision sales representative and then finalize the
equipment package. The equipment is subsequently prepped at the Panavision
rental facility and shipped to the studio or location to commence principal
photography. Once the equipment is returned, the Company services its equipment
in preparation for the next rental. The average feature film rental is for 10 to
12 weeks. Panavision rents camera packages that include cameras, lenses and
accessories. The average weekly rental package price for feature films has
increased since 1992 due to the addition of value-added proprietary lenses and
accessories as well as modest price increases on existing inventory.
 
     The number of feature films produced in North America increased from
approximately 350 in 1992 to 576 in 1997. Major studio feature film productions
decreased to approximately 86 in 1997 from approximately 104 in 1992, the first
decline in any year since 1992. However, the number of independent feature films
produced in North America increased from approximately 246 in 1992 to
approximately 490 in 1997. Major studio feature films are typically large-budget
productions with camera rental budgets that require greater depth of product and
experienced customer service personnel. The Company expects that the production
of large-budget action films will continue due in part to their success in the
international theater, television and home video markets. In 1997, approximately
34% of the Company's camera rental revenue were generated from feature films. In
addition, the Company estimates that its camera rental revenue from feature
films has grown 57% since 1992. The Company believes the feature film market,
particularly independent productions, offers significant growth opportunities.
 
  COMMERCIALS
 
     Although commercial productions generally last for only one to seven days,
daily rental rates for camera systems are equivalent to feature film rental
rates and represent a significant part of the camera equipment rental market.
Many of the creative people involved in the filming of commercials seek to
distinguish their products by using innovative techniques requiring
technologically advanced equipment--the ability to achieve a unique 'look,'

which the Company believes can, in many cases, be achieved best by using
Panavision products. By
 
                                       6
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pursuing opportunities to expand its presence in the television commercial
market, the Company believes that it can develop brand loyalty to Panavision
products and beneficial long-term relationships with directors and
cinematographers, many of whom begin their careers filming television
commercials. In 1997, approximately 31% of the Company's camera rental revenue
were generated from commercials. The Company estimates that its camera rental
revenue from commercials has grown 289% since 1992. The Company believes this
market offers significant opportunities for growth.
 
  EPISODIC TELEVISION
 
     The episodic or 'series' television market in North America is comprised
primarily of dramas, situation comedies and action programs produced on film
which are aired in both prime and non-prime time slots. These programs are
broadcast on the four major television networks as well as on the WB, UPN and
cable networks. The number of episodic shows produced on film has increased by
approximately 100% since 1992, resulting primarily from the advent of new
broadcast networks and increased original programming on cable networks. Over
the same period, the Company believes that the use of film rather than videotape
in episodic television has increased because of a number of factors. Film is an
excellent storage or archival medium and may be digitally transferred to other
media, such as the evolving high definition television technologies, with
greater resolution than videotape. The image quality that film offers is very
important to television programs that will be syndicated into many markets. In
contrast, videotape may not be fully compatible with high definition television
and may deteriorate more rapidly over time.
 
     In 1997, approximately 25% of the Company's camera rental revenue was
generated from episodic television. The Company estimates that its camera rental
revenue for 1997 from episodic television has grown 205% since 1992. The Company
believes it will continue to make inroads in this market as a result of new
network programming requirements and innovative Panavision products such as the
3-Perf(Registered) System, the Pedestal Camera System and a 2,000-foot film
magazine.
 
  MOVIES OF THE WEEK
 
     In addition to episodic television, there are also movies of the week shot
specifically for network and cable television. The number of movies of the week
productions in North America has increased from approximately 185 in 1992 to
approximately 227 in 1997. However, due to the relatively low budgets associated
with these productions, overall cost is a major factor in the selection of the
camera equipment that is used and, accordingly, the dollar size of this market
is relatively small.
 
     In 1997, approximately 4% of the Company's camera rental revenue was
generated from movies of the week. The Company estimates that its camera rental
revenue from movies of the week has grown 17% since 1992. While the Company will
continue to serve this market, given its size and price sensitivity, the Company

expects to focus on higher-budget productions.
 
PRODUCTS
 
  RESEARCH AND PRODUCT DEVELOPMENT
 
     The Company is in the process of expanding its research and development
group, which currently comprises approximately 40 mechanical, software,
electronic and optical engineers, draftsmen and machinists. Additionally, the
research and development group has a dedicated machine shop that manufactures
prototype equipment. These internal capabilities enable the Company to develop
proprietary technology in collaboration with filmmakers to address their unique
requirements.
 
     The Company has long been a leader in the research and development of film
camera lenses. Since the first Panavision lens was introduced in 1957, the
Company has introduced many innovative spherical and anamorphic lenses,
including the PRIMO(Registered) series which won Academy Awards in 1990, 1991,
1994 and 1995. During 1997, the Company completed the development of a new macro
close-focus, wide-angle zoom lens. This new lens is designed to address the need
within the commercial market for a compact lens with the ability to operate in
low light environments and maintain focus at extremely close ranges (e.g.,
table-top or other close-up work). In 1997, the Company introduced a new
sync-sound camera which is lighter and quieter than current Panavision cameras
and incorporates enhanced view finding and video monitoring capabilities. In
addition, the Company is in the process of developing a digital video assist
device that will enable the director and cinematographer to perform certain
immediate on-set digital editing functions.
 
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     Research and development expenses for the years ended 1997, 1996 and 1995
were $4.5 million, $4.3 million and $3.0 million, respectively.
 
  CAMERA SYSTEMS
 
     The Company is the only provider of camera systems with an integrated
design that provides customers with compatible products that are available
worldwide. Each camera package rented for a project is comprised of a number of
camera systems, each of which includes a camera, lenses and accessories. A
cinematographer's needs may include a sync-sound camera, such as the Platinum
Panaflex(Registered) and a high-speed Panastar(Registered) camera. Each camera's
rental price includes a variety of accessories such as eyepieces, viewfinders,
cables, brackets and grips.
 
     Cameras.  There are two basic types of motion picture cameras--Synchronous,
or 'sync-sound,' and Mit Out Sound (MOS). Sync-sound cameras are used to shoot
pictures while recording dialogue. MOS cameras are used primarily to shoot
high-speed footage and special effects and may also be used as backup cameras in
situations where dialogue is not being recorded. The Company's camera inventory
consists of both sync-sound and MOS cameras with various features and at a range
of prices. While the majority of the Company's sync-sound cameras are 35mm
cameras, the Company also manufactures 16mm cameras, which are used primarily on
episodic television shows, and 65mm cameras, which are used primarily for

special effects and special venue presentations.
 
     The Company's inventory also includes a number of non-Panavision cameras
which are used to supplement the Company's product line. Due to its ability to
purchase non-Panavision cameras if there is a business need to do so, the
Company is able to compete with independent renters of cinematography equipment
on the same level and with the same equipment. Its competitors, on the other
hand, do not have the corresponding ability to purchase Panavision equipment, as
Panavision equipment is not available to rental companies other than the
Company's agents.
 
     Lenses.  Panavision develops, designs and manufactures its own prime (fixed
focal length) and zoom lenses, the most critical component affecting picture
quality and an important consideration for the filmmaker. For many years, the
Company specialized in anamorphic lenses, which are used for the wide-screen
movie format. While the Company remains the world's leading supplier of these
lenses, in 1985 a strategic decision was made to design and develop a new series
of prime and zoom lenses specifically for cinematography applications.
Accordingly, the Company created a line of advanced spherical lenses for the
non-wide screen format, producing its proprietary PRIMO PRIME(Registered) and
PRIMO ZOOM(Registered) lenses. The PRIMO(Registered) lenses have performance
characteristics that exceed the other lenses available in the marketplace.
 
     Accessories.  In order to provide its customers with a fully integrated
camera system, the Company frequently introduces new camera accessories and
currently offers an extensive range of products requested by and developed in
conjunction with filmmakers. Certain accessories may reduce overall production
costs by lowering the labor intensiveness of the production process and thereby
decreasing the shooting days. Moreover, an accessory product often achieves such
widespread acceptance among the Company's customers that the Company
incorporates it into the base camera package, thereby increasing the overall
package price.
 
MANUFACTURING AND ASSEMBLY
 
     The Company manufactures cameras, lenses and accessories designed by the
Company's in-house research and development staff. The Company has over 100
non-union employees at its recently renovated and expanded 150,000 square foot
manufacturing facility in Woodland Hills, California, located near Hollywood.
While the breadth of the Company's rental inventory has allowed it to adequately
service certain segments of the feature film and television industries, until
mid-1996 capital constraints precluded Panavision from investing in additional
rental equipment to expand its market share in other attractive markets,
including both North American and international independent feature films and
commercials. In 1997 the Company increased its camera manufacturing production
to take advantage of what it believes to be favorable rates of return as well as
high demand for its equipment, doubling the number of new camera systems
manufactured in 1997 to 72 from 35 in 1996. Panavision expects to manufacture a
similar number of camera systems in 1998. The Company believes that its existing
manufacturing facility has sufficient capacity to increase manufacturing of
camera systems beyond the level achieved in 1997.
 
     The Company develops and designs all the critical components for its camera
systems, including the camera movement and lens. An entire camera system

consists of hundreds of parts, each carefully produced, assembled 

                                       8
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and tested. The manufacturing process takes up to four months and primarily
involves the fabrication and assembly of camera and lens components by over 100
highly skilled workers, each of whom generally has an area of specialization.
Following the assembly process, each camera system is rigorously tested to
achieve the high standard of performance that customers expect from Panavision.
 
     While the Company manufactures most of the components internally, certain
components and subassembly work, including glass grinding, lens element
polishing and die casting, are outsourced to selected suppliers. The Company has
developed long-standing relationships with its significant suppliers and
believes that they will continue to supply high-quality products in quantities
sufficient to satisfy its requirements. Since certain components, particularly
the lens element, require long lead times, precise production schedules are
critical. Inventory levels are determined based on input from marketing,
operations and the agent network. The Company maintains a fairly constant
production schedule in order to utilize efficiently its resources and service
its customers' requirements.
 
MARKETING AND CUSTOMER SERVICE
 
     The principal decision makers in the selection of the camera packages are
cinematographers, directors and producers, who view their cameras and related
equipment as critical artistic tools. Camera packages typically comprise a very
small percentage of a production budget. Accordingly, absent budget constraints,
the selection of equipment is driven by its suitability, technological
capabilities and reliability, as well as by the degree to which the manufacturer
or renter is able to rapidly service the technical needs of the filmmaker, both
before and during film production.
 
     The Company's skilled sales representatives have established close working
relationships with numerous filmmakers. To cultivate these relationships, the
Company assigns to each production a sales representative who possessed skills
and experience appropriate to the needs of that production. Based on discussions
with the filmmaker, the sales representative recommends a camera package
tailored to achieve the filmmaker's desired visual effect and meet the
production budget. In addition, sales representatives provide further advice and
support by visiting film production sites throughout the production. As a result
of providing high-quality customer service, many of the Company's
representatives have been working with the same filmmakers throughout their
careers and in many instances the collaborative effort with the filmmaker has
prompted the design of innovative camera systems and accessories.
 
     After preliminary decisions have been made with respect to the proper
camera package, the camera equipment is delivered to a preparation room in one
of the Company's facilities reserved for that filmmaker. The filmmaker, together
with his own and Panavision's representatives, then inspects, tests and
experiments with the equipment at the facility's prep floor, sound stage, film
studio and screening room.
 
DISTRIBUTION

 
     Camera packages are rented to the motion picture and television industries
through rental houses owned and operated by Panavision as well as by independent
agents. These rental houses serve as a single point of contact for the
cinematographers and often provide services including maintenance and technical
advice. Panavision is the only manufacturer to have a significant portion of its
revenue generated through owned and operated rental houses, primarily because of
the Company's choice not to sell its equipment. The Company does not currently
intend to begin selling its camera systems.
 
     Panavision owns and operates camera rental facilities domestically in
Woodland Hills, Hollywood, Chicago, Dallas, Orlando and Wilmington, and
internationally in Toronto and Vancouver, Canada, Dublin, Ireland, London (five)
and Manchester, England, Paris, France (two), Sydney, Brisbane and Melbourne,
Australia, Auckland and Wellington, New Zealand, Jakarta, Indonesia and Kuala
Lumpur, Malaysia. The Chicago, Dallas, Orlando, Toronto and Australia facilities
also provide lighting, lighting grip and power distribution and generation
equipment.
 
     In addition to its owned and operated facilities, the Company serves its
customers through a network of domestic and international third-party agents who
are responsible for the rental of the Company's equipment in locations that are
not serviced by the owned and operated facilities. Agents pay approximately 60%
of their rental revenue to the Company and retain the balance, which is charged
as a commission expense in the Company's statement of income. The Company uses
10 third-party agents to facilitate the rental of its products, accounting for
approximately 6% and 13% of the Company's revenue in 1997 and 1996,
respectively. In June 1997, the 
 
                                       9
<PAGE>
Company acquired several of its third-party agents in the FSG Acquisition. This
acquisition primarily accounts for the reduction in the percent of total Company
revenue ascribed to third-party agents. All of the Company's agents are
well-trained in the use of Panavision equipment and are supported by the
Company's technical staff.
 
     The Company's domestic third-party agent network includes agents in New
York and San Francisco, and internationally, agents are located in Canada,
Mexico, Italy, Spain, Sweden, Hong Kong, Japan and South Africa. The Hong Kong
agent has offices in mainland China.
 
     For information as to the Company's operations in different geographical
areas, see Note 10 of Notes to the Consolidated Financial Statements of the
Company included elsewhere in this Form 10-K.
 
COMPETITION
 
     The market for high-precision cinematography equipment is highly
competitive, primarily driven by technology, customer service and, to a lesser
extent, price. As a manufacturer of cinematography equipment, the Company has
two primary competitors, Arriflex, based in Munich, Germany, and Moviecam, based
in Vienna, Austria. Both of these companies manufacture only cameras and certain
accessories, primarily for sale to rental houses and individuals, who are not

the end users. Because Panavision manufacturers lenses, cameras, and a full
range of accessories, has close relationships with filmmakers and has in-house
design and manufacturing capabilities, the Company believes that it is better
able to develop the innovative camera systems demanded by its customers.
 
     As a renter of cinematography equipment, the Company competes with numerous
rental facilities which must purchase their equipment from other manufacturers
and then rent that equipment to their customers. While the overall rental
business is price competitive and subject to discounting, the Company has chosen
to compete on the basis of its large inventory base, technologically advanced
proprietary products, broad product line, extensive sales and marketing force
and commitment to customer service. The Company believes that it, as both the
manufacturer and rental house, is able to respond to many user requests on
shorter notice more effectively than its rental competitors. In addition to its
existing competitors, the Company may encounter competition from new
competitors, as well as from new types of equipment.
 
LIGHTING RENTAL
 
     In addition to manufacturing and renting camera systems, the Company rents
lighting, lighting grip, transportation and distribution equipment and mobile
generators used in the production of feature films, television programs and
commercials, outside broadcasts and other events from its owned and operated
facilities located in the United Kingdom, Chicago, Dallas, Orlando, Toronto and
Australia. In addition, the Company sells consumable products including lighting
filters, light bulbs and gaffer tape, which are used in all types of production.
Effective July 1, 1996, the Company acquired Lee Lighting, which for 1997 had
revenue of approximately $23.4 million. The Company's other lighting rental
operations had combined revenue of approximately $7.2 million for 1997.
 
  LEE LIGHTING
 
     Lee Lighting is the largest lighting rental operation in the United
Kingdom. Lee Lighting purchases lighting equipment, lighting grip equipment and
generators from independent manufacturers to maintain and build its rental asset
base. Lee Lighting currently has the largest inventory of lampheads, the core
element of lighting equipment used by filmmakers in all areas of the industry,
in the United Kingdom. This large rental asset base and Lee Lighting's
experienced management and electricians allow it to service a number of films
which may be shooting concurrently. Lee Lighting operates lighting rental
operations in London, Bristol, Manchester and Glasgow, each of which has its own
rental inventories. From these four locations, Lee Lighting is able to service
any production in England, Wales or Scotland. In addition, Lee Lighting
maintains a rental base at Shepperton Studios, the second largest studio complex
in the United Kingdom for the production of feature films.
 
     Lee Lighting also supplies equipment to any U.K.-based production crew for
shoots in Europe, South America or Africa. Typically, Lee Lighting does not
service productions based outside of the United Kingdom, except occasionally in
Ireland. Recently, Lee Lighting has supplied the entire lighting needs of such
major feature films as THE AVENGERS, LOST IN SPACE, FOUR WEDDINGS AND A FUNERAL,
ROB ROY, MISSION: IMPOSSIBLE, 101 DALMATIONS, EVITA and THE SAINT.

 

                                       10
<PAGE>
 
     COMPETITION.  Lee Lighting services both the motion picture and television
industries, including studio programs, outside broadcasts, commercials and
made-for-television movies (equivalent to movies of the week). These markets
require a similar range of lighting productions and related support equipment;
however, feature films and episodic television programs generally require larger
equipment packages than commercials. The composition of equipment packages is
frequently determined by the producer, director or cinematographer, who may
desire a specific type of image or lighting effect. Although Lee Lighting is the
largest lighting rental company in the United Kingdom, the lighting rental
market is price competitive.
 
     COMPETITIVE STRENGTHS.  The Company believes Lee Lighting is
well-positioned in the U.K. lighting rental industry because of the following
competitive strengths:
 
          Reputation for Outstanding Service.  Over the last two decades Lee
     Lighting has developed a reputation among U.K. producers of feature films,
     television programs and commercials for providing outstanding service. Lee
     Lighting is the only lighting company in the United Kingdom that supplies
     its own electricians in connection with the rental of its equipment. Many
     major U.K. feature film producers regularly use Lee Lighting's equipment
     and the services of its skilled gaffers and electricians. This service
     force is on call 24 hours a day, seven days a week and is supplemented by
     freelance labor when required. This affords Lee Lighting the competitive
     advantage of providing customers with a higher quality and more consistent
     service, which is critical to success in capturing feature film work. Many
     of Lee Lighting's technicians are considered to be among the best in the
     film industry and their services are requested by some of the world's
     leading cinematographers.
 
          Depth of Inventory.  Lee Lighting maintains the largest rental asset
     base of lighting equipment, transport, mobile generators and power
     distribution equipment in the United Kingdom. This permits Lee Lighting to
     service as many as 15 feature films at the same time. The Company believes
     that its extensive inventory of equipment provides it with an important
     competitive advantage. Its substantial inventory enables Lee Lighting to
     service projects with large-scale equipment and personnel requirements,
     such as feature films and outside broadcasts, while still maintaining
     sufficient capacity to service other projects simultaneously. Lee Lighting
     believes that its position as the inventory market leader makes it the only
     source for certain large-scale projects. Lee Lighting intends to add to its
     rental asset base while actively pursuing opportunities to increase its
     share in the U.K. feature film market as well as the television market,
     including commercials and television broadcasts.
 
          Experienced Management.  Lee Lighting currently employs senior
     management who have developed relationships over many years with
     influential individuals in the U.K. motion picture and television
     industries. Under this management there is a sizable field force of gaffers
     and electricians who work exclusively for Lee Lighting.
 

LEE FILTERS
 
     Lee Filters is a manufacturer of light control media for the motion
picture, television and theater industries. Sales of filters or gels used by
lighting directors to control or correct lighting conditions during productions
comprise 80% of Lee Filters' business. The balance consists of the sale of
photographic filters and related products. Lee Filters' revenue was
approximately $12.8 million and $12.3 million in 1997 and 1996, respectively.
 
     Lee Filters' lighting filters are available in a wide range of colors and
applications. These lighting filters are made either from polyester or
polycarbonate film purchased from U.K. and European petrochemical companies. Lee
Filters' range of light control filters includes tungsten conversion, daylight
conversion, arc correction, fluorescent, diffusion and ultraviolet grades. The
film base is impervious to water, is totally transparent and has a high melting
point, making it ideal for the manufacture of filter systems. Rolls of film are
coated on both sides with specially prepared lacquers which give them exactly
the color or light management properties demanded by the user. The color
formulas are proprietary to Lee Filters and are computer filed to ensure exact
reproduction from one batch to the next. Lee Filters also makes stills
photographic resin and polyester filters and a camera filter holder system for
amateur stills photographers, and produces bellows for stills camera
manufacturers.

     Lighting filter distribution is handled primarily through a network of
third-party dealers who have been selected because of their specific knowledge
of the filters' market in their respective countries. For 1997, approximately
50% of Lee Filters' sales were in the United Kingdom and Europe. In the United
Kingdom, Lee 
                                       11
<PAGE>
Filters sells on a direct basis to end users and rental houses as
well as to distributors and dealers. In Europe, Lee Filters has distributors in
France, Germany, Italy, Spain, Benelux, Portugal, Scandinavia and Switzerland.
 
     For 1997, approximately 37% of Lee Filters' sales were generated in North
America where it has established distribution operations in Los Angeles,
California and the New York metropolitan area to service U.S. dealers. A
third-party distributor has been established in Toronto to serve the Canadian
market. The remaining 13% of sales were generated primarily in Japan, Hong Kong,
Singapore and Australia.
 
  COMPETITION
 
     Lee Filters has one principal competitor and several smaller competitors.
Some of these competitors are contract processors or coaters who supply the end
user through other distributors, and some are sales companies which usually
purchase and resell filters. Its principal competitor offers a full range of
filters, some of which are made in-house and some of which are purchased.
 
  COMPETITIVE STRENGTHS
 
     Wide Range of Filter Types and Colors.  Lee Filters believes it
manufactures more types of filters and a wider range of colors than its

competitors and is the only company which does not sell on a private label basis
to others. Lee Filters does not resell filters made by other manufacturers,
thereby enabling it to maintain better quality control.
 
     Large Inventory.  Lee Filters maintains a sizable inventory of filters in
three locations in order to provide same-day service to production companies.
This is especially important in servicing feature films while on location.
Quality and availability of product are the principal reasons Lee Filters is a
preeminent supplier to the U.K., European and U.S. feature film industry.
 
     Lee Filters intends to expand its position in lighting filters for the
film, television and theater markets by improving its distribution and dealer
network, particularly in North and South America and in the Far East. In
addition, it plans to increase its product offerings on a selective basis to the
stills photography market in the United Kingdom and the United States.
 
INTELLECTUAL PROPERTY
 
     The Company relies on a combination of patents, licensing arrangements,
trade names, trademarks, service marks, trade secrets know-how and proprietary
technology to protect its intellectual property rights. The Company owns or has
been assigned or licensed under several domestic and foreign patents and patent
applications relating to its cameras, lenses and accessories. The Company also
owns or has been assigned several domestic and foreign trademark or service mark
registrations including Panavision(Registered), Panaflex(Registered),
Panahead(Registered), Panalite(Registered), Panavid(Registered),
Panastar(Registered), Primo Zoom(Registered), Primo-L(Registered) and
3-Perf(Registered) which are material to its business.
 
ENVIRONMENTAL MATTERS
 
     The Company is subject to foreign, federal, state and local environmental
laws and regulations relating to the use, storage, handling, generation,
transportation, emission, discharge, disposal and remediation of hazardous and
non-hazardous substances, materials and wastes (Environmental Laws). The Company
also is subject to laws and regulations relating to worker health and safety.
The Company believes that its operations are in substantial compliance with all
applicable Environmental Laws. The Company expects to spend approximately $2.0
million at its Lee Filters' Andover, England facility during 1998 and 1999 to
comply with anticipated air emissions requirements in the United Kingdom.
Although no other material capital or operating expenditures relating to
environmental controls or other environmental matters are currently anticipated,
there can be no assurance that the Company will not incur costs in the future
relating to environmental matters that would have a material adverse effect on
the Company's business or financial condition.
 
EMPLOYEES
 
     As of December 31, 1997, the Company had a total of approximately 1,227
full time employees, consisting of 502 employees based in the United States, 64
employees based in Canada, 502 employees based in the United Kingdom, 63
employees based in France, 70 employees based in Australia and 26 employees
based in New Zealand. The Company is not a party to any collective bargaining
agreements. The Company believes that its relationships with its employees are

good.
 
                                       12
<PAGE>
ITEM 2. PROPERTIES
 
PROPERTIES
 
     The Company's headquarters and principal manufacturing facility are located
at its 150,000 square-foot facility in Woodland Hills, California. The Company
also operates domestic rental facilities in Woodland Hills, Hollywood, Chicago,
Dallas, Orlando and Wilmington. To service its international markets, Panavision
operates rental facilities in Toronto and Vancouver, Canada, Dublin, Ireland,
London (five) and Manchester, England, Paris, France (two), Sydney, Brisbane and
Melbourne, Australia, Auckland and Wellington, New Zealand, Jakarta, Indonesia
and Kuala Lumpur, Malaysia. Lee Lighting operates rental facilities in London,
Bristol and Manchester, England and Glasgow, Scotland. Lee Filters has
operations in Burbank, California and Teterboro, New Jersey as well as a
manufacturing facility located in Andover, England. All of the Company's
facilities are leased, with the exception of two of the Company's greater London
facilities, a small fabricating facility in Sydney, Australia and its facility
located in Glasgow, Scotland, which are owned.
 
ITEM 3. LEGAL PROCEEDINGS
 
     The Company is not engaged in any legal proceeding other than ordinary
routine litigation incidental to its business. Panavision does not believe that
any such proceedings currently pending will have a material adverse effect on
its business or financial condition.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     No matters were submitted to a vote of security holders during the fourth
quarter of 1997.
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     The Company's Common Stock is listed on the New York Stock Exchange (NYSE)
under the symbol 'PVI.' As of March 20, 1998, there were approximately 2172
holders of the Company's Common Stock comprised of 47 record holders and 2125
beneficial holders.
 
<TABLE>
<CAPTION>
                                                                                  STOCK SALES PRICES
                                                                              --------------------------
                                                                              HIGH      LOW      CLOSING
                                                                              ----      ---      -------
<S>                                                                           <C>       <C>      <C>
1997
  First Quarter............................................................   $21 3/8   $16 3/8     $17 3/8
  Second Quarter...........................................................    20 1/2    16          19 15/16

  Third Quarter............................................................    22 1/4    18          20 7/8
  Fourth Quarter...........................................................    28 1/4    20 7/8      25 13/16
1996*
  Nov. 20--Dec. 31, 1996...................................................   $24       $18 5/8     $20 3/4
</TABLE>
 
------------------
* Information represents the period since the Company's Common Stock began
  trading on the NYSE after its initial public offering on November 20, 1996
  through December 31, 1996.
 
     The Company has never paid a cash dividend on its Common Stock and does not
anticipate paying any cash dividends on the Common Stock in the foreseeable
future. The current policy of the Company's Board of Directors is to retain
earnings to finance the operations and expansion of the Company's business. In
addition, the Company's existing credit agreement restricts the Company's
ability to pay dividends to its stockholders (see Note 6 of Notes to the
Consolidated Financial Statements of the Company).
 
                                       13

<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
 
     The following selected financial data has been derived from the
Consolidated Financial Statements that have been audited by Ernst & Young LLP,
independent auditors. The information set forth below is not necessarily
indicative of results of future operations, and should be read in conjunction
with Item 7 'Management's Discussion and Analysis of Financial Condition and
Results of Operations' and the consolidated financial statements and related
notes thereto included elsewhere in this Form 10-K.
 
<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                                        --------------------------------------------------------
                                                        1997(1)     1996(2)     1995(3)       1994        1993
                                                        --------    --------    --------    --------    --------
                                                                (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                     <C>         <C>         <C>         <C>         <C>
STATEMENT OF OPERATIONS DATA:
Revenue..............................................   $176,863    $124,638    $ 95,328    $ 77,100    $ 66,710
Cost of revenue......................................     90,879      59,473      44,369      40,995      36,432
                                                        --------    --------    --------    --------    --------
Gross margin.........................................     85,984      65,165      50,959      36,105      30,278
Selling, general and administrative expenses(4)......     47,575      30,688      28,486      19,210      18,875
Research and development expenses....................      4,494       4,310       2,986       2,442       2,272
                                                        --------    --------    --------    --------    --------
Operating income.....................................     33,915      30,167      19,487      14,453       9,131
Net interest expense.................................     (6,385)     (7,435)     (5,616)     (5,318)     (5,229)
Net other income (expense)(5)........................      1,210      (1,425)        415         665         183
                                                        --------    --------    --------    --------    --------
Income before non-controlling partners' interest in
  PILP and income taxes..............................     28,740      21,307      14,286       9,800       4,085

Non-controlling partners' interest in--PILP(6).......         --      (4,500)     (7,348)       (879)       (327)
                                                        --------    --------    --------    --------    --------
Income before income taxes...........................     28,740      16,807       6,938       8,921       3,758
Income tax provision.................................     (9,252)     (3,536)     (1,375)     (1,843)       (453)
                                                        --------    --------    --------    --------    --------
Net income...........................................   $ 19,488    $ 13,271    $  5,563    $  7,078    $  3,305
                                                        --------    --------    --------    --------    --------
                                                        --------    --------    --------    --------    --------
Basic earnings per share.............................   $   1.07    $    .94    $    .41    $    .52    $    .24
                                                        --------    --------    --------    --------    --------
                                                        --------    --------    --------    --------    --------
Diluted earnings per share...........................   $   1.03    $    .84    $    .36    $    .46    $    .22
                                                        --------    --------    --------    --------    --------
                                                        --------    --------    --------    --------    --------
Shares used in computation--Basic....................     18,174      14,130      13,706      13,706      13,706
Shares used in computation--Diluted..................     19,012      15,733      15,277      15,277      15,277
</TABLE>
 
<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                                        --------------------------------------------------------
                                                          1997        1996        1995        1994        1993
                                                        --------    --------    --------    --------    --------
<S>                                                     <C>         <C>         <C>         <C>         <C>
BALANCE SHEET DATA:
Total assets.........................................   $281,937    $176,746    $165,751    $149,707    $140,075
Total current liabilities............................     44,334      27,214      25,162      18,230      13,419
Long-term debt.......................................    119,999      55,000     124,678     127,000     131,000
Stockholders' equity (deficiency)....................    109,444      93,018       6,456         922      (6,706)
</TABLE>
 
------------------
 
(1) Includes operating results of the Film Services Group since June 5, 1997,
    the date of its acquisition.
 
(2) Includes operating results of Lee Lighting Limited since its acquisition
    effective July 1, 1996.
 
(3) Includes operating results of Panavision Canada Corporation, a former agent,
    since January 20, 1995, the date of its acquisition.
 
(4) The fourth quarter of 1997 includes approximately $300,000 of legal fees
    related to the Proposed Recapitalization and approximately $279,000 for a
    payroll tax charge related to the exercise of options.
 
(5) In the fourth quarter of 1996, deferred financing costs in the amount of
    $1.8 million were written off.
 
(6) In the 1996 Recapitalization, the Company acquired the non-controlling
    partners' interest in PILP effective May 8, 1996. Accordingly, there will be
    no further allocation of PILP's income to non-controlling partners.
 

                                       14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
     The following should be read in conjunction with the Consolidated Financial
Statements of Panavision and the Notes thereto included elsewhere in this Form
10-K.
 
INTRODUCTION
 
THE PROPOSED RECAPITALIZATION
 
     On December 18, 1997, the Company, PX Holding Corporation, (PX Holding) an
indirectly wholly owned subsidiary of Mafco Holdings, Inc. (Mafco) and PX Merger
Corporation, a wholly owned subsidiary of PX Holding, entered into an Agreement
of Recapitalization and Merger (the Recapitalization Agreement). Pursuant to the
terms of the Recapitalization Agreement and subject to the conditions set forth
therein, PX Merger Corporation will be merged with and into the Company (the
Merger).
 
     Pursuant to the Recapitalization Agreement, stockholders of the Company
(other than Warburg, Pincus Capital Company, L.P. (Warburg, Pincus)) will, in
the aggregate, have the opportunity to elect to have their shares of Common
Stock converted into the right to receive $27.00 per share in cash. To the
extent that holders (other than Warburg, Pincus) of more than 88% of the shares
of Common Stock elect to have their shares converted into the right to receive
cash, the election is subject to proration.
 
     Pursuant to a Voting and Stockholders Agreement, dated as of December 18,
1997, as amended by the First Amendment dated as of March 16, 1998 (the
Stockholders Agreement, and together with the Recapitalization Agreement and the
transaction contemplated thereby, the Proposed Recapitalization), by and among
Warburg, Pincus, Mafco and the Company, Warburg, Pincus has agreed to exchange
88% of its shares of Common Stock for Series A redeemable preferred stock
(Redeemable Preferred Stock) of the Company redeemable immediately upon
consummation of the Merger at a price equivalent to $26.50 in cash per share of
Common Stock. To the extent fewer than 88% of the shares of Common Stock held by
stockholders (other than Warburg, Pincus) are exchanged for cash, Warburg,
Pincus will increase the number of shares of Common Stock it exchanges for
Redeemable Preferred Stock (or will sell such shares to PX Holding), up to the
remainder of its shares of Common Stock.
 
     As a result of the Proposed Recapitalization, Mafco will acquire control of
the Company. Assuming stockholders (other than Warburg, Pincus) of at least 88%
of the shares of Common Stock elect to receive cash for their shares, Mafco will
beneficially own approximately 72% of the issued and outstanding Common Stock.
 
     Funds required in connection with the transaction, including to acquire the
shares and outstanding stock options, to refinance existing indebtedness and to
pay related fees and expenses, will be obtained through a combination of bank
financing, the issuance of subordinated notes and the purchase by Mafco of
equity in the recapitalized Company. This transaction, which is subject to
certain conditions, including stockholder approval, is expected to be completed

in the second quarter of 1998.
 
     In February of 1998, PX Escrow Corp., an indirect wholly owned subsidiary
of Mafco, issued 9 5/8% senior subordinated discount notes (the Notes) due in
2006 for gross proceeds of $150.0 million. Upon consummation of the Proposed
Recapitalization, the net proceeds from such offering will be transferred to the
Company and the obligations of PX Escrow Corp. under the Notes will be assumed
by Panavision. At that time, Panavision will also enter into a new credit
agreement with a group of banks. If the Proposed Recapitalization is not
completed, all obligations under the Notes will remain with PX Escrow Corp.
 
     In connection with the Proposed Recapitalization, the Company will
recognize the following charges in the period in which the recapitalization
transaction closes: approximately $29.3 million relating to the cash settlement
of unexercised stock options, approximately $17.5 million relating to the
purchase by the Company of shares acquired through the exercise of certain stock
options, approximately $6.0 million relating to transaction expenses,
approximately $2.3 million related to the increase in the valuation allowance on
deferred tax assets and an extraordinary charge of approximately $1.8 million
relating to the write-off of deferred financing costs relating to the repayment
of borrowings under Panavision's existing credit agreement.
 
                                       15
<PAGE>
THE 1996 RECAPITALIZATION
 
     Panavision is a holding company that owns 100% of the non-voting Class A
and voting Class B limited partnership units of Panavision International, L.P.
(PILP). All business operations of the Company are conducted within PILP and
other subsidiaries of Panavision. In May 1996, the Company effected a
recapitalization (the 1996 Recapitalization), pursuant to which, for a total of
$126.1 million in cash, the Company acquired all of the equity interests in PILP
it did not previously own and retired all of PILP's outstanding debt securities.
Prior to the 1996 Recapitalization, certain non-controlling partners owned 70%
of the non-voting Class A and 30% of the voting Class B limited partnership
units of PILP. The non-controlling partners consisted of members of the bank
group that provided PILP's prior credit facility and were not otherwise
affiliated with the Company, PILP or Warburg, Pincus. The non-controlling
partners acquired their interest in PILP in connection with PILP's prior credit
facility. As a result of the 1996 Recapitalization, the Company owns 100% of the
outstanding interests of PILP and Warburg, Pincus and management owned 90% and
10%, respectively, of the common stock of the Company prior to the initial
public offering, described below.
 
     The 1996 Recapitalization was financed by (i) borrowings of $110.0 million
under a new credit facility, (ii) funds from working capital and (iii) loans
from Warburg, Pincus and management. The loans consisted of subordinated demand
notes of $11,608,000, $580,400, $165,829 and $82,914 issued to Warburg, Pincus
and Messrs. Scott, Farrand and Marcketta, respectively. These notes were repaid
subsequent to the initial public offering. In addition, effective July 1, 1996,
Warburg contributed substantially all of the assets of Lee Lighting to the
Company as a capital contribution in the amount of $8.0 million and made an
additional capital contribution of $0.8 million in cash.
 

     Prior to the 1996 Recapitalization, the non-controlling partners owned 70%
of the non-voting Class A and 30% of the voting Class B limited partnership
units. However, since the non-controlling partners had a deficit in their
capital accounts at the formation of PILP, such deficit was allocated entirely
to the Company as the general partner of PILP. In addition, PILP's losses for
1991 and 1992 and distributions made by PILP to various taxing authorities on
behalf of the non-controlling partners were charged to the Company's capital
account. In 1993, 1994 and 1995, as PILP generated earnings before the
non-controlling partners' interest, a portion of their interest in those
earnings was allocated to the Company's capital account to restore the
proportionate amount of the non-controlling partners' deficits and distributions
for taxes previously charged to the Company's capital account. The significant
increase in the non-controlling partners' interest in PILP from $0.9 million in
1994 to $7.3 million in 1995 reflects the substantial completion of the
restoration of the Company's capital account. Since the 1996 Recapitalization,
no additional provision for non-controlling partners' interest in PILP has been
made in the Company's statement of income.
 
INITIAL PUBLIC OFFERING
 
     On November 20, 1996, the Company completed its initial public offering of
4,025,000 shares of Common Stock at a price of $17 per share which raised net
proceeds of $61.6 million. Of the net proceeds from the offering, $47.0 million
were used to repay bank debt and approximately $12.9 million were used to repay
subordinated notes and accrued interest payable to Warburg and Messrs. Scott,
Farrand and Marcketta. The balance of the net proceeds was maintained as working
capital for ongoing operations.
 
RECENT ACQUISITIONS
 
     On June 5, 1997, the Company completed its acquisition of the Film Services
Group (FSG) from Visual Action Holdings plc (the FSG Acquisition). FSG includes
camera rental operations which rent primarily non-Panavision manufactured
equipment in the United Kingdom, France, Australia and two U.S. cities, Chicago
and Dallas, as well as smaller rental operations in New Zealand, Malaysia and
Indonesia. The majority of the equipment acquired as a result of these
transactions included film cameras, lenses and complementary product accessories
which rent to the film production community. The purchase price was
approximately $61.0 million and was reduced by the amount of certain debt
assumed by the Company.
 
     The acquisition has been recorded under the purchase method of accounting
and the operating results of FSG have been included in the Company's
consolidated financial statements since the acquisition date of June 5, 1997.
The purchase price and direct acquisition costs have been allocated to the
acquired assets and assumed
 
                                       16
<PAGE>
liabilities based on their relative fair values. The Company has also provided
approximately $6.3 million primarily to cover the estimated transaction costs,
lease cancellations and severance pay related to the FSG Acquisition. Goodwill
of approximately $9.7 million was recognized as part of the transaction and is
being amortized over 30 years.

 
     In July 1996, the Company acquired Lee Lighting, the largest lighting
rental company in the United Kingdom. The acquisition was accounted for using
the purchase method of accounting and therefore, the results of operations of
Lee Lighting since the acquisition date are included in the consolidated results
of operations of the Company.
 
RESULTS OF OPERATIONS
 
     The following discussion and analysis includes the Company's consolidated
historical results of operations for 1997, 1996 and 1995.
 
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
 
     Camera rental revenue increased $27.2 million, or 30.3%, to $117.0 million
for the year ended December 31, 1997 from $89.8 million for the year ended
December 31, 1996. The increase resulted primarily from the FSG Acquisition,
which resulted in increased camera rental revenue of $23.4 million and from the
rental of newly manufactured camera systems, specialty lenses and accessories to
supply the increased demand in the North American independent feature film,
commercial and episodic television markets as well as the U.K. feature film and
commercial markets.
 
     Lighting rental revenue increased $15.7 million to $30.6 million for the
year ended December 31, 1997 from $14.9 million for the year ended December 31,
1996. The increase was primarily due to improved lighting rental revenue at Lee
Lighting in the U.K. of $12.3 million, which was primarily related to the
comparison of twelve months of Lee Lighting results included in 1997 as compared
to six months results in 1996; and at Panavision Canada of $1.3 million, offset
by a slight decrease in lighting rental revenue at Panavision Florida. The
remaining increase of $2.2 million resulted primarily from the FSG Acquisition
in June 1997.
 
     Sales and other revenue increased $9.4 million, or 47.2%, to $29.3 million
for the year ended December 31, 1997 from $19.9 million for the year ended
December 31, 1996. The increase was primarily due to the FSG Acquisition in June
1997, which resulted in increased sales and other revenue of $8.7 million, and
an increase in sales and other revenue at Lee Lighting in the U.K. of $0.7
million, which was primarily related to the comparison of twelve months of Lee
Lighting results included in 1997 as compared to six months results in 1996.
 
     Cost of camera rental increased $14.0 million, or 37.5%, to $51.3 million
for the year ended December 31, 1997 from $37.3 million for the year ended
December 31, 1996. The increase was primarily due to the FSG Acquisition in June
1997, which resulted in increased cost of camera rental of $12.7 million,
increased depreciation expense related to additional camera systems of $1.6
million and small decreases in the cost of camera rental at various operations.
 
     Cost of lighting rental increased $12.4 million to $22.2 million for the
year ended December 31, 1997 from $9.8 million for the year ended December 31,
1996. The increase was primarily due to increased cost of lighting rental at Lee
Lighting of $9.9 million, which was primarily related to the comparison of
twelve months of Lee Lighting results included in 1997 as compared to six months
results in 1996, and due to the FSG Acquisition in June 1997, which resulted in

increased cost of lighting rental of $1.6 million. The remaining increase was
due to increased cost of lighting rental at Panavision Canada.
 
     Cost of sales and other increased $5.0 million, or 40.3%, to $17.4 million
for the year ended December 31, 1997 from $12.4 million for the year ended
December 31, 1996. The increase was primarily due to the FSG Acquisition in June
1997, which resulted in increased cost of sales and other of $4.8 million, and
due to a small increase in cost of sales and other at Lee Lighting.
 
     Gross margin increased $20.8 million, or 31.9%, to $86.0 million for the
year ended December 31, 1997 from $65.2 million for the year ended December 31,
1996. The increase was primarily due to the factors discussed above. Total gross
margin percentage decreased to 49% in 1997 from 52% in 1996. Camera rental
 
                                       17
<PAGE>
gross margin percentage decreased to 56% in 1997 from 58% in 1996 due to the
acquisition of FSG in June 1997. The gross margin percentage for camera rental
revenue for the FSG companies is lower than that of the Panavision companies.
Lighting rental gross margin percentage decreased to 27% in 1997 from 34% in
1996 due to the acquisition of Lee Lighting in 1996. The inclusion of twelve
months results of Lee Lighting in 1997 as compared to the inclusion of six
months results of Lee Lighting in 1996 had the effect of lowering the gross
margin percentage in 1997. Lee Lighting's gross margin percentage for lighting
rental is lower than for the operations in Canada and Florida, which were the
only lighting rental operations in the Company in 1996 prior to the acquisition
of Lee Lighting in July 1996. Sales and other gross margin percentage increased
to 40% in 1997 from 38% in 1996 due to the higher gross margin percentage on
sales and other revenue generated by the FSG companies.
 
     Selling, general and administrative expenses increased $16.9 million, or
55.0%, to $47.6 million for the year ended December 31, 1997 from $30.7 million
for the year ended December 31, 1996. This increase was primarily due to the FSG
Acquisition in June 1997, which resulted in increased selling, general and
administrative expenses of $12.7 million, and increased selling, general and
administrative expenses at Lee Lighting of $1.7 million, which was primarily
related to the comparison of twelve months of Lee Lighting results included in
1997 as compared to six months results in 1996. The remaining increase was also
due to small increases in operating and personnel costs throughout the Company
and the expensing of $0.3 million for a payroll tax charge related to the
exercise of options in December 1997 and the expensing of $0.3 million for legal
fees related to the Proposed Recapitalization.
 
     Research and development expenses increased $0.2 million, or 4.7%, to $4.5
million for the year ended December 31, 1997 from $4.3 million for the year
ended December 31, 1996. The increase related to additional personnel costs
incurred in connection with the development of a new sync-sound camera system
and a digital video assist device. The Company expects research and development
costs to continue to increase as the Company hires additional personnel to
develop new specialty lenses and accessory products targeted primarily to
service the feature film and commercial markets.
 
     Operating income increased $3.7 million, or 12.3%, to $33.9 million for the
year ended December 31, 1997 from $30.2 million for the year ended December 31,

1996. The increase was primarily due to the factors discussed above.
 
     Net interest expense decreased $1.0 million, or 13.5%, to $6.4 million for
the year ended December 31, 1997 from $7.4 million for the year ended December
31, 1996. The decrease was primarily due to reduced borrowing during the first
six months of 1997 and the difference in rates during 1997 as compared to 1996.
The Company's interest expense will increase significantly as a result of the
additional debt to be incurred in connection with the successful completion of
the Proposed Recapitalization.
 
     Net other income increased $2.6 million to $1.2 million for the year ended
December 31, 1997 from net other expense of $1.4 million for the year ended
December 31, 1996. The increase was primarily due to a one time charge of $1.8
million in 1996 to write off deferred financing costs and the recognition of
approximately $0.5 million in unused reserves in 1997, due to the favorable
settlement of termination benefit disputes related to the Company's former
French and Italian operations.
 
     Income before income taxes increased $11.9 million, or 70.8%, to $28.7
million for the year ended December 31, 1997 from $16.8 million for the year
ended December 31, 1996. The increase was due primarily to the factors discussed
above and the elimination of the charge for the non-controlling partners'
interest in PILP which was $4.5 million in 1996.
 
     The effective tax rates for years ended December 31, 1997 and 1996 were
32.2% and 21.0%, respectively. The increase in the effective tax rate for
December 31, 1997 was primarily due to a decrease in the amount of benefit
attributable to NOL and AMT credit carryforwards and a higher effective rate
relating to income from foreign operations. In both years the effective tax
rates were lower than the statutory rate principally due to the reduction in the
valuation allowance for deferred tax assets.
 
     Net income increased $6.2 million, or 46.6%, to $19.5 million for the year
ended December 31, 1997 from $13.3 million for the year ended December 31, 1996.
The increase was primarily due to the factors discussed above.
 
                                       18
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
 
     Camera rental revenue increased $14.7 million, or 19.6%, to $89.8 million
for the year ended December 31, 1996 from $75.1 million for the year ended
December 31, 1995. The increase resulted primarily from the rental of newly
manufactured camera systems, specialty lenses and accessories to supply the
increased demand in the North American and international feature film and
commercial markets as well as the North American episodic television market.
Revenue also increased as a result of a small increase in rental rates.
 
     Lighting rental revenue increased $10.8 million to $14.9 million for the
year ended December 31, 1996 from $4.1 million for the year ended December 31,
1995. The increase was primarily due to the acquisition of Lee Lighting in July
1996.
 
     Sales and other revenue increased $3.8 million, or 23.6%, to $19.9 million

for the year ended December 31, 1996 from $16.1 million for the year ended
December 31, 1995. The increase was primarily due to increased sales of Lee
Filters through the Company's U.S. distribution operation, which contributed
revenue of approximately $4.4 million.
 
     Cost of camera rental increased $4.6 million, or 14.1%, to $37.3 million
for the year ended December 31, 1996 from $32.7 million for the year ended
December 31, 1995. The increase was primarily due to the increase in
maintenance, service and labor costs required to service additional rental
customers. Additionally, third-party camera agent rental commissions increased
as a result of an increase in third-party agent revenue around the world.
 
     Cost of lighting rental increased $8.1 million to $9.8 million for the year
ended December 31, 1996 from $1.7 million for the year ended December 31, 1995.
The increase was primarily due to the acquisition of Lee Lighting in July 1996.
 
     Cost of sales and other increased $2.4 million, or 24.0%, to $12.4 million
for the year ended December 31, 1996 from $10.0 million for the year ended
December 31, 1995. The increase was primarily due to the increase in sales of
Lee Filters and a small increase in the cost of sales in the United Kingdom.
 
     Gross margin increased $14.2 million, or 27.8%, to $65.2 million for the
year ended December 31, 1996 from $51.0 million for the year ended December 31,
1995. The increase was primarily due to the factors discussed above.
 
     Selling, general and administrative expenses increased $2.2 million, or
7.7%, to $30.7 million for the year ended December 31, 1996 from $28.5 million
for the year ended December 31, 1995. The 1996 results include a $1.8 million
increase in costs related to the acquisition of Lee Lighting. Corporate general
and administrative expenses increased $0.9 million as a result of non-cash
compensation for options and shares of Common Stock issued to certain members of
senior management. Selling, general and administrative expenses at the other
operations decreased by a net $0.4 million as a result of non-recurring charges
in 1995 of $1.8 million, relating to an early lease termination for the
Company's former corporate headquarters, and $1.7 million, for the write-down of
the carrying value of certain real property owned by the Company's U.K. rental
operation. These decreases were partially offset by a $3.1 million increase in
selling, distribution and other general and administrative expenses to support
the increase of business activity at the Woodland Hills, Hollywood, U.K. and Lee
Filters operations.
 
     Research and development expenses increased $1.3 million, or 43.3%, to $4.3
million for the year ended December 31, 1996 from $3.0 million for the year
ended December 31, 1995. The increase related to additional personnel costs
incurred in connection with the development of a new sync-sound camera system
and a digital video assist device. The Company expects research and development
costs to continue to increase as the Company hires additional personnel to
develop new specialty lenses and accessory products targeted primarily to
service the feature film and commercial markets.
 
     Operating income increased $10.7 million, or 54.9%, to $30.2 million for
the year ended December 31, 1996 from $19.5 million for the year ended December
31, 1995. The increase was primarily due to the factors discussed above.
 

                                       19
<PAGE>
     Net interest expense increased $1.8 million, or 32.1%, to $7.4 million for
the year ended December 31, 1996 from $5.6 million for the year ended December
31, 1995. The increase was primarily due to an increase in interest bearing debt
and a decrease in interest income due to the decrease in cash resulting from the
1996 Recapitalization.
 
     Net other expense increased $1.8 million to $1.4 million for the year ended
December 31, 1996 from net other income of $0.4 million for the year ended
December 31, 1995. The increase was due to a one time non-cash charge of $1.8
million to write off unamortized debt issuance costs incurred in connection with
the 1996 Recapitalization.
 
     Income before income taxes increased $9.9 million, or 143.5%, to $16.8
million for the year ended December 31, 1996 from $6.9 million for the year
ended December 31, 1995. The increase was due primarily to the factors discussed
above as well as a $2.8 million decrease in the charge for the non-controlling
partners' interest to $4.5 million in 1996 from $7.3 million in 1995 resulting
from the purchase by the Company of the non-controlling partners' interest in
the 1996 Recapitalization.
 
     The effective tax rates for years ended December 31, 1996 and 1995 were
21.0% and 19.8%, respectively, and were lower than the statutory rate
principally due to the reduction in valuation allowance for deferred tax assets.
 
     Net income increased $7.7 million, or 137.5%, to $13.3 million for the year
ended December 31, 1996 from $5.6 million for the year ended December 31, 1995.
The increase was primarily due to the factors discussed above.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     In conjunction with the purchase of the Film Services Group of Visual
Action Holdings plc on June 5, 1997, the Company entered into a new credit
agreement (Credit Agreement) with Chase Manhattan Bank for a maximum aggregate
amount of $150.0 million. The Credit Agreement provides for a term loan in the
amount of $60.0 million and a revolving credit commitment of up to $90.0
million. Borrowings under this agreement were used to fund the FSG Acquisition,
refinance loans outstanding under the previous credit agreement and provide
funds for general corporate purposes. At December 31, 1997, borrowings under the
Credit Agreement were $60.0 million and $65.0 million for the term loan and the
revolving facility, respectively.
 
     Principal repayments under the Credit Agreement are due quarterly beginning
March 1998 through June 2004. Interest is payable at rates equal to the prime
rate or a margin in excess of LIBOR or PIBOR, which fluctuates directly with the
Company's total debt ratio, as defined in the Credit Agreement. The LIBOR/PIBOR
rate margins range between 0.625% and 1.25%. Of the $65.0 million outstanding
under the revolving facility, $35.6 million is outstanding (using the exchange
rate at December 31, 1997) as a sterling-based loan. The Company drew down a
portion of the facility as a sterling-based loan in order to provide a natural
currency hedge against fluctuations in the U.K. pound as the FSG Acquisition
increased the Company's U.K. based net assets. The Company has designated the
sterling denominated borrowings as an economic hedge of its investments in its

U.K. based subsidiaries and accordingly unrealized gains and losses resulting
from changes in the exchange rates are included in translation adjustment.
 
     Under the Credit Agreement, the Company entered into an interest rate
protection agreement to protect the Company from LIBOR increases. The agreement
covers a notional amount of $50.0 million which expires on June 10, 1998 and
protects the Company from LIBOR increases above 7.37%. Since the floor for this
agreement is 5.50%, in the event of a LIBOR reduction below this floor, there
would be no benefit to the Company. At December 31, 1997 the interest rate under
the Credit Agreement was 7.25% The Company believes the carrying value of its
amounts payable under this agreement approximate fair value based upon current
yields for debt issues of similar quality and terms.
 
     The Company's obligations under the Credit Agreement are secured by
substantially all of the Company's assets. As of December 31, 1997 the Company
had approximately $24.0 million available under the revolving facility. The
Credit Agreement requires that the Company meet certain financial tests and
other restrictive covenants including maintaining certain total debt, fixed
charge and interest coverage ratio levels. As of December 31, 1997, the
Company's ability to pay dividends to its stockholders is restricted by this
agreement.
 
                                       20
<PAGE>
     With the exception of its initial public offering, the Company relies
primarily upon cash provided by operations to finance its operations, repay
long-term indebtedness and fund capital expenditures primarily for manufacturing
camera systems, lenses and accessories and purchasing other rental equipment.
 
     The following table sets forth certain information from the Company's
Consolidated Statements of Cash Flows for the years indicated (in thousands):
 
<TABLE>
<CAPTION>
                                                                                     YEAR ENDED DECEMBER 31,
                                                                                ---------------------------------
                                                                                  1997         1996        1995
                                                                                ---------    --------    --------
<S>                                                                             <C>          <C>         <C>
Net cash provided by (used in):
Operating activities.........................................................   $  50,500    $ 26,432    $ 34,317
Investing activities.........................................................    (107,506)    (33,472)    (15,699)
Financing activities.........................................................      57,589     (14,296)     (9,724)
</TABLE>
 
     For the year ended December 31, 1997, cash provided by operating activities
was $50.5 million. Net income of $19.5 million, adjusted for depreciation and
amortization of $26.6 million, provided $46.1 million, which was partially
offset by a use of $1.0 million, resulting from a change in non-cash working
capital items, and miscellaneous non-cash items of $5.4 million. Total cash used
in investing activities of $107.5 million was comprised of capital expenditures
of $46.7 million, offset by $1.7 million of proceeds received from the
disposition of certain equipment. The majority of the capital expenditures were
used to manufacture camera rental systems and to purchase other rental

equipment. The net investing activities also reflect a use of $58.7 million for
business acquisitions, a use of $5.1 million due to changes in other long-term
assets and a source of $1.3 million from the disposition of the Company's
investment in Aaton, a French camera manufacturing company. Cash provided in
financing activities of $57.6 million was comprised of additional net borrowings
of $63.8 million, primarily related to the FSG Acquisition, offset by loans due
from officers and key employees of $7.1 million, and proceeds from the exercise
of options of $0.9 million.
 
     For the year ended December 31, 1996, cash provided by operating activities
was $26.4 million. Net income of $13.3 million, adjusted for depreciation and
amortization of $19.2 million and the non-controlling partners' interest in PILP
of $4.5 million, provided $37.0 million, which was partially offset by a use of
$11.9 million, resulting from the net change in non-cash working capital items,
and miscellaneous non-cash items of $(1.4) million. Total investing activities
of $33.5 million were comprised of capital expenditures of $27.8 million, offset
by $1.4 million of proceeds received from the disposition of certain equipment.
The majority of the capital expenditures were used to manufacture camera rental
systems and to purchase other rental equipment, with approximately $1.2 million
incurred to complete the leasehold improvements at the new facility in Woodland
Hills. The net investing activities also reflect a benefit of $1.0 million for
cash on the balance sheet of Lee Lighting which was acquired in July 1996. In
addition, $8.1 million was used to acquire the non-controlling partners'
interest in PILP in connection with the 1996 Recapitalization. Cash used in
financing activities of $14.3 million was comprised of the reduction in
outstanding borrowings in connection with the 1996 Recapitalization and $1.5
million of distributions to taxing authorities on behalf of the partners in
PILP.
 
     For the year ended December 31, 1995, cash provided by operating activities
was $34.3 million. Net income of $5.6 million, adjusted for depreciation and
amortization of $17.5 million, the non-controlling partners' interest in PILP of
$7.3 million and the net change in non-cash working capital items of $3.0
million, provided $33.4 million of the total. Total investing activities of
$15.7 million were comprised of capital expenditures of $19.5 million, partially
offset by $2.2 million of proceeds received from the disposition of certain
equipment. Approximately $15.5 million of the capital expenditures were used to
manufacture camera rental systems and to purchase other rental equipment and
$3.4 million were incurred for leasehold improvements to renovate the Company's
new facility in Woodland Hills. The net investing activities also reflect a
benefit of $1.6 million for cash on the balance sheet of Panavision Canada,
which was acquired in January 1995. Financing activities of $9.7 million were
comprised of $7.5 million in repayments of borrowings under the credit
facilities existing prior to the 1996 Recapitalization and $2.2 million of
distributions to taxing authorities on behalf of the partners in PILP.
 
     The Company intends to use the cash provided by operating activities to
make additional capital expenditures, to manufacture camera systems and purchase
other rental equipment. The Company increased
 
                                       21
<PAGE>
capital expenditures from $27.8 million in 1996 to $46.7 million in 1997 and
expects to spend approximately $47.0 million in 1998 in order to maintain its

significantly increased production of camera systems and to provide additional
rental and capital equipment for Lee Lighting and all other Company operations.
The Company increased research and development expenses incurred in developing
new rental products from $4.3 million in 1996 to $4.5 million in 1997 and
intends to spend approximately $5.3 million in 1998. All research and
development expenses and capital expenditures for 1997 were funded by cash flow
from operations and the Company currently expects all such expenditures in 1998
to be funded by cash flow from operations. However, following the successful
completion of the Proposed Recapitalization, as more fully described in the
beginning of Management's Discussion and Analysis of Financial Condition and
Results of Operations and Note 1 of the Notes to the Consolidated Financial
Statements, the Company will become highly leveraged which will likely have a
significant impact on its future liquidity.
 
SEASONALITY
 
     The Company's revenue and net income are subject to seasonal fluctuations
experienced primarily in the first and second calendar quarters. Feature film
and commercial production activity typically reaches its peak in the third and
fourth quarters. In North America, episodic television programs cease filming in
the second quarter for several months, and typically resume production in
August.
 
IMPACT OF INFLATION
 
     The Company's results of operations and financial condition are presented
based upon historical cost. While it is difficult to measure accurately the
impact of inflation due to the imprecise nature of the estimates required, the
Company believes that the effects of inflation, if any, on its results of
operations and financial condition have been minor.
 
YEAR 2000 COMPLIANCE
 
     The year 2000 problem is the result of computer programs that were written
using two digits rather than four to define the applicable year; accordingly,
computer programs that have time-sensitive software may recognize a date using
'00' as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculation causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal activities.
 
     The Company has commenced its process for reviewing its worldwide
operations for compliance with the year 2000 problem. Based upon this
preliminary review, internal systems either are, or are anticipated to be, in
compliance. Although the Company has commenced the process of inquiring of
outside vendors whether or not they will also be year 2000 compliant, the
Company has not been able to determine precisely the impact, if any, on its
operations if outside vendors fail to comply with the year 2000 requirements. In
the event that the Company's internal systems or systems of significant outside
vendors are not converted or modified in a timely manner to make them year 2000
compliant, there could be a material adverse effect upon the business and
financial results of the Company. The overall anticipated cost of year 2000
compliance for the internal systems of the Company is not expected to be
material.

 
FORWARD-LOOKING STATEMENT
 
     Certain plans, objectives, projections and other information regarding
future performance and outcomes discussed in this Form 10-K are forward-looking
statements that are subject to risks and uncertainty. There can be no assurance
that these future results will be achieved. Potential risk and uncertainty which
could adversely affect the Company's ability to obtain these results include,
without limitation, the following factors:
 
o significant reduction in the total number of feature films produced
 
o competitive pressures arising from changes in technology, customer
  requirements and industry standards
 
o an increase in expenses related to new product initiatives and product
  development efforts
 
o unfavorable foreign currency fluctuations
 
                                       22
<PAGE>
o significant increases in interest rates
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     An index to financial statements and required financial statement schedules
is set forth in Item 14(a).
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
     None.
 
                                    PART III
 
     The information required by Items 10, 11, 12 and 13 are included in the
Company's 1998 definitive Proxy Statement under the captions 'Nominees for
Election as Directors of Panavision', 'Security Ownership of Certain Beneficial
Owners and Management,' 'Executive Compensation,' and 'Certain Relationships and
Transactions.' Such information is incorporated herein by reference, pursuant to
General Instruction G (3).
 
                                       23

<PAGE>
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
<TABLE>
<CAPTION>
   EXHIBIT
    NUMBER       DESCRIPTION
--------------   ----------------------------------------------------------------------------------------------------
<S>              <C>   <C>
(a)(1) & (2)      --   The consolidated financial statements and consolidated financial statement schedule filed as
                       part of this Annual Report on Form 10-K can be found beginning on page F-1.
     (a)(3)       --   See below.
(b)               --   Reports on Form 8-K.
                       During the fourth quarter of 1997, the Company filed one Current Report on Form 8-K dated
                       December 18, 1997, filed on December 19, 1997, to announce that the Company entered into (i)
                       an Agreement of Recapitalization and Merger, dated as of December 18, 1997, by and among PX
                       Holding Corporation, PX Merger Corporation (Merger Sub) and the Company, pursuant to which
                       Merger Sub will be merged with and into the Company with the Company as the surviving
                       corporation and (ii) a Voting and Stockholders Agreement, dated as of December 18, 1997, by
                       and among Warburg, Pincus Capital Company, L.P., a Delaware limited partnership, the Company
                       and Mafco Holdings Inc., a Delaware corporation.
(c)               --   Exhibits.
         *3.1     --   Restated Certificate of Incorporation.
         *3.2     --   Restated By-Laws.
         *4       --   Specimen of the Company's Common Stock Certificate.
        *10.1     --   Amended and Restated Stockholders Agreement, dated as of June 12, 1996.
        *10.2     --   Restated and Amended Credit Agreement, dated September 10, 1996, among Panavision
                       International, L.P., the subsidiary guarantors and the lenders listed therein, and The Chase
                       Manhattan Bank, as Administrative Agent.
        *10.3     --   1996 Stock Option Plan.
        *10.4     --   Employment Agreement, dated as of June 12, 1996, between the Company and William C. Scott.
        *10.5     --   Lease, dated June 13, 1995, between the Company and Trizec Warner Inc.
        *10.6     --   Executive Incentive Compensation Plan.
       **10.7     --   Second Restated and Amended Credit Agreement, dated December 5, 1996 among Panavision
                       International, L.P., the subsidiary guarantors and the lenders listed therein, and The Chase
                       Manhattan Bank, as Administrative Agent.
       **10.8     --   First Amended and Restated Stock Option Plan.
         10.9     --   Agreement, dated May 18, 1997, among Visual Action Holdings plc, Panavision Europe Limited and
                       the Company (incorporated herein by reference to Exhibit 2.1 to the Company's Current Report
                       on Form 8-K/A Amendment No. 1 to Form 8-K dated June 5, 1997).
         10.10    --   Agreement, dated May 18, 1997, between Visual Action Holdings plc and the Company
                       (incorporated herein by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K/A
                       Amendment No. 1 to Form 8-K dated June 5, 1997).
         10.11    --   Stock Purchase Agreement, dated May 18, 1997, among Visual Action Holdings, Inc., Visual
                       Action Holdings plc and the Company (incorporated herein by reference to Exhibit 2.3 to the
                       Company's Current Report on Form 8-K/A Amendment No. 1 to Form 8-K dated June 5, 1997).
         10.12    --   Credit Agreement, dated June 5, 1997, among Panavision International, L.P., the subsidiary
                       guarantors and the lenders listed therein, and The Chase Manhattan Bank, as Administrative
                       Agent (incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on
                       Form 10-Q for the quarter ended June 30, 1997).
</TABLE>
                                       24

<PAGE>
<TABLE>
<CAPTION>
   EXHIBIT
    NUMBER       DESCRIPTION
--------------   ----------------------------------------------------------------------------------------------------
<S>              <C>   <C>
         10.13    --   Agreement of Recapitalization and Merger, dated as of December 18, 1997, by and among PX
                       Holding Corporation, PX Merger Corporation and the Company (incorporated herein by reference
                       to Exhibit 10.1 to the Company's Current Report on Form 8-K dated December 18, 1997).
         10.14    --   Voting and Stockholders Agreement, dated as of December 18, 1997, by and among Warburg Pincus
                       Capital Company, L.P., the Company and Mafco Holdings Inc. (incorporated by reference to
                       Exhibit 10.2 to the Company's Current Report on Form 8-K dated December 18, 1997).
         21       --   Subsidiaries of the Company.
         23       --   Consent of Ernst & Young LLP, Independent Auditors.
         27       --   Financial Data Schedule.
        *99.1     --   Consent of Martin D. Payson to be named as a director of the Company.
</TABLE>
 
------------------
 * Incorporated herein by reference to the identically numbered exhibit to the
   Company's Registration Statement on Form S-1, Registration No. 333-12235.
 
** Incorporated herein by reference to the identically numbered exhibit to the
   Company's Annual Report on Form 10-K for the fiscal year ended December 31,
   1996.
 
                                       25

<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.
 
                                          PANAVISION INC.
 
<TABLE>
<S>                                                     <C>
Date: March  24, 1998                                                     By: /s/WILLIAM C. SCOTT
                                                                            William C. Scott
                                                                          Chairman of the Board
                                                                       and Chief Executive Officer
</TABLE>
 
     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
 
<TABLE>
<CAPTION>
                SIGNATURE                                      TITLE                             DATE
------------------------------------------  -------------------------------------------   -------------------
 
<S>                                         <C>                                           <C>
      /s/           JOHN S. FARRAND         President, Chief Operating Officer and             March 24, 1998
------------------------------------------  Director
             John S. Farrand
 
     /s/        JEFFREY J. MARCKETTA        Executive Vice President and Chief                 March 24, 1998
------------------------------------------  Financial Officer
           Jeffrey J. Marcketta
 
    /s/      CHRISTOPHER M.R. PHILLIPS      Controller                                         March 24, 1998
------------------------------------------
        Christopher M.R. Phillips
 
      /s/            SIDNEY LAPIDUS         Director                                           March 24, 1998
------------------------------------------
              Sidney Lapidus
 
      /s/          MARTIN D. PAYSON         Director                                           March 24, 1998
------------------------------------------
             Martin D. Payson
 
      /s/         WILLIS G. RYCKMAN         Director                                           March 24, 1998
------------------------------------------
            Willis G. Ryckman
 
      /s/           JOANNE R. WENIG         Director                                           March 24, 1998
------------------------------------------
             Joanne R. Wenig
</TABLE>
 
                                       26

<PAGE>
                         INDEX TO FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULE
 
<TABLE>
<CAPTION>
                                                                                                              PAGE
                                                                                                              ----
 
<S>                                                                                                           <C>
Report of Ernst & Young LLP, Independent Auditors..........................................................    F-2
 
Consolidated Statements of Income--Years Ended December 31, 1997, 1996 and 1995............................    F-3
 
Consolidated Balance Sheets--December 31, 1997 and 1996....................................................    F-4
 
Consolidated Statements of Stockholders' Equity--Years Ended December 31, 1997, 1996 and 1995..............    F-5
 
Consolidated Statements of Cash Flows--Years Ended December 31, 1997, 1996 and 1995........................    F-6
 
Notes to Consolidated Financial Statements.................................................................    F-7
 
Financial Statement Schedule:
 
     Schedule II--Valuation and Qualifying Accounts and Reserves...........................................    S-1
</TABLE>
 
     All other schedules are omitted because they are not required by the
regulations or related instructions or are not applicable.
 
                                      F-1

<PAGE>
               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
 
The Board of Directors and Stockholders
Panavision Inc.
 
     We have audited the accompanying consolidated balance sheets of Panavision
Inc. as of December 31, 1997 and 1996, and the related consolidated statements
of income, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1997. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Panavision Inc. at December 31, 1997 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
 
                                                               ERNST & YOUNG LLP
 
Los Angeles, California
February 13, 1998
 
                                      F-2


<PAGE>
                                PANAVISION INC.

                       CONSOLIDATED STATEMENTS OF INCOME

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                                      YEAR ENDED DECEMBER 31,
                                                                                  -------------------------------
                                                                                    1997        1996       1995
                                                                                  --------    --------    -------
<S>                                                                               <C>         <C>         <C>
Camera rental..................................................................   $117,028    $ 89,785    $75,083
Lighting rental................................................................     30,562      14,917      4,121
Sales and other................................................................     29,273      19,936     16,124
                                                                                  --------    --------    -------
Total rental revenue and sales.................................................    176,863     124,638     95,328
Cost of camera rental..........................................................     51,271      37,276     32,721
Cost of lighting rental........................................................     22,169       9,847      1,687
Cost of sales and other........................................................     17,439      12,350      9,961
                                                                                  --------    --------    -------
Gross margin...................................................................     85,984      65,165     50,959
Selling, general and administrative expenses...................................     47,575      30,688     28,486
Research and development expenses..............................................      4,494       4,310      2,986
                                                                                  --------    --------    -------
Operating income...............................................................     33,915      30,167     19,487
Interest income................................................................        484         747      1,597
Interest expense...............................................................     (6,869)     (8,182)    (7,213)
Foreign exchange gain (loss)...................................................       (105)        368        (32)
Other, net.....................................................................      1,315      (1,793)       447
                                                                                  --------    --------    -------
Income before non-controlling partners' interest in PILP
  and income taxes.............................................................     28,740      21,307     14,286
Non-controlling partners' interest in PILP.....................................         --      (4,500)    (7,348)
                                                                                  --------    --------    -------
Income before income taxes.....................................................     28,740      16,807      6,938
Income tax provision...........................................................     (9,252)     (3,536)    (1,375)
                                                                                  --------    --------    -------
Net income.....................................................................   $ 19,488    $ 13,271    $ 5,563
                                                                                  --------    --------    -------
                                                                                  --------    --------    -------
Basic earnings per share.......................................................   $   1.07    $    .94    $   .41
                                                                                  --------    --------    -------
                                                                                  --------    --------    -------
Diluted earnings per share.....................................................   $   1.03    $    .84    $   .36
                                                                                  --------    --------    -------
                                                                                  --------    --------    -------
Shares used in computation--Basic..............................................     18,174      14,130     13,706
Shares used in computation--Diluted............................................     19,012      15,733     15,277
</TABLE>
                            See accompanying notes.
 
                                      F-3


<PAGE>
                                PANAVISION INC.

                          CONSOLIDATED BALANCE SHEETS

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                                                    DECEMBER 31,
                                                                                             --------------------------
                                                                                                1997           1996
                                                                                             -----------    -----------
<S>                                                                                          <C>            <C>
                                          ASSETS
Current assets:
  Cash and cash equivalents...............................................................    $   11,020     $   10,629
  Accounts receivable (net of allowance of $3,959 in 1997 and $2,500 in 1996).............        25,645         20,124
  Inventories.............................................................................         8,540          5,182
  Prepaid expenses........................................................................         2,968          2,259
  Notes receivable from officers and key employees........................................         7,115             --
  Income tax receivable...................................................................         3,423             --
  Other current assets....................................................................         2,566            337
                                                                                             -----------    -----------
Total current assets......................................................................        61,277         38,531
Property, plant and equipment, net........................................................       199,038        130,441
Deferred tax assets.......................................................................         2,329          3,742
Goodwill..................................................................................         9,859             --
Other.....................................................................................         9,434          4,032
                                                                                             -----------    -----------
Total assets..............................................................................    $  281,937     $  176,746
                                                                                             -----------    -----------
                                                                                             -----------    -----------
 
                           LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable........................................................................    $    9,819     $    6,168
  Accrued liabilities.....................................................................        23,745         16,046
  Deferred tax liabilities................................................................         5,387             --
  Current maturities of long-term debt....................................................         5,383          5,000
                                                                                             -----------    -----------
Total current liabilities.................................................................        44,334         27,214
Long-term debt............................................................................       119,999         55,000
Deferred tax liabilities..................................................................         6,217            549
Other liabilities.........................................................................         1,943            965
Commitments and contingencies
Stockholders' equity:
  Preferred stock, $.01 par value; 2,000 shares authorized; no shares issued and
     outstanding..........................................................................            --             --
  Common stock, $.01 par value; 50,000 shares authorized; 18,929 shares issued and
     outstanding at December 31, 1997, and 18,155 shares issued and outstanding at
     December 31, 1996....................................................................           189            181
  Additional paid-in capital..............................................................        77,053         76,109
  Retained earnings.......................................................................        34,463         14,975

  Foreign currency translation adjustment.................................................        (2,261)         1,753
                                                                                             -----------    -----------
Total stockholders' equity................................................................       109,444         93,018
                                                                                             -----------    -----------
Total liabilities and stockholders' equity................................................    $  281,937     $  176,746
                                                                                             -----------    -----------
                                                                                             -----------    -----------
</TABLE>
 
                            See accompanying notes.
 
                                      F-4
 

<PAGE>
                                PANAVISION INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                           COMMON STOCK                                        CUMULATIVE
                                      -----------------------                    RETAINED       FOREIGN
                                      SHARES ISSUED              ADDITIONAL      EARNINGS       CURRENCY
                                           AND                    PAID-IN      (ACCUMULATED    TRANSLATION   STOCKHOLDERS'
                                       OUTSTANDING     AMOUNT     CAPITAL        DEFICIT)      ADJUSTMENT       EQUITY
                                      -------------    ------    ----------    ------------    ----------    -------------
<S>                                   <C>              <C>       <C>           <C>             <C>           <C>
Balance at January 1, 1995...........     13,706        $137      $  4,863       $ (3,859)      $   (219)      $     922
  Net income.........................         --          --            --          5,563             --           5,563
  Foreign currency translation
     adjustment......................         --          --            --             --            (29)            (29)
                                      -------------    ------    ----------    ------------    ----------    -------------
Balance at December 31, 1995.........     13,706         137         4,863          1,704           (248)          6,456
  Net income.........................         --          --            --         13,271             --          13,271
  Compensation recorded in connection
     with shares issued to
     officers........................        424           4           891             --             --             895
  Net proceeds from initial public
     offering........................      4,025          40        61,585             --             --          61,625
  Contribution of Lee Lighting
     assets..........................         --          --         8,000             --             --           8,000
  Contribution from parent...........         --          --           770             --             --             770
  Foreign currency translation
     adjustment......................         --          --            --             --          2,001           2,001
                                      -------------    ------    ----------    ------------    ----------    -------------
Balance at December 31, 1996.........     18,155         181        76,109         14,975          1,753          93,018
  Net income.........................         --          --            --         19,488             --          19,488
  Exercise of options................        774           8           944             --             --             952
  Foreign currency translation
     adjustment......................         --          --            --             --         (4,014)         (4,014)
                                      -------------    ------    ----------    ------------    ----------    -------------
Balance at December 31, 1997.........     18,929        $189      $ 77,053       $ 34,463       $ (2,261)      $ 109,444
                                      -------------    ------    ----------    ------------    ----------    -------------
                                      -------------    ------    ----------    ------------    ----------    -------------
</TABLE>
 
                            See accompanying notes.
 
                                      F-5


<PAGE>
                                PANAVISION INC.

                    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                     YEAR ENDED DECEMBER 31,
                                                                                ---------------------------------
                                                                                  1997         1996        1995
                                                                                ---------    --------    --------
<S>                                                                             <C>          <C>         <C>
OPERATING ACTIVITIES:
  Net income.................................................................   $  19,488    $ 13,271    $  5,563
     Adjustments to derive net cash provided by operating activities:
       Depreciation and amortization.........................................      26,573      19,203      17,479
       Deferred income taxes.................................................       6,701      (2,031)        620
       (Gain) loss on sale of property and equipment.........................        (947)       (928)        597
       (Gain) loss from disposition of investment............................        (328)         --          --
       Non-controlling partners' interest in PILP............................          --       4,500       7,348
       Stock compensation expense............................................          --         895          --
     Changes in operating assets and liabilities, net of the effect of
       acquisitions:
       Accounts receivable...................................................       7,305      (6,644)     (1,498)
       Inventories...........................................................        (692)       (147)     (1,138)
       Prepaid expenses and other current assets.............................      (1,832)       (377)         17
       Accounts payable......................................................      (2,030)     (4,004)      3,629
       Accrued liabilities...................................................      (4,539)        683       1,484
       Other, net............................................................         801       2,011         216
                                                                                ---------    --------    --------
Net cash provided by operating activities....................................      50,500      26,432      34,317
INVESTING ACTIVITIES
  Acquisition of non-controlling partners' interest in PILP..................          --      (8,126)         --
  Capital expenditures.......................................................     (46,732)    (27,816)    (19,454)
  Proceeds from dispositions of equipment....................................       1,730       1,444       2,139
  Proceeds from disposition of investment....................................       1,253          --          --
  Business acquisitions, net of cash acquired................................     (58,684)      1,026       1,616
  Change in other assets.....................................................      (5,073)         --          --
                                                                                ---------    --------    --------
Net cash used in investing activities........................................    (107,506)    (33,472)    (15,699)
FINANCING ACTIVITIES
  Deferred financing costs...................................................        (865)     (1,469)         --
  Distributions to non-controlling partners in PILP..........................          --      (1,523)     (2,199)
  Borrowings under notes payable.............................................      73,631     110,000          --
  Repayments of notes payable................................................      (9,014)   (176,166)     (7,525)
  Net proceeds from initial public offering..................................          --      61,625          --
  Proceeds from exercise of options..........................................         952          --          --
  Contribution from parent...................................................          --         770          --
  Notes receivable from officers and key employees...........................      (7,115)         --          --
  Notes payable to affiliates................................................          --      (7,533)         --
                                                                                ---------    --------    --------
Net cash provided by (used in) financing activities..........................      57,589     (14,296)     (9,724)

Effect of exchange rate changes on cash......................................        (192)        280          57
                                                                                ---------    --------    --------
Net increase (decrease) in cash and cash equivalents.........................         391     (21,056)      8,951
Cash and cash equivalents at beginning of period.............................      10,629      31,685      22,734
                                                                                ---------    --------    --------
Cash and cash equivalents at end of period...................................   $  11,020    $ 10,629    $ 31,685
                                                                                ---------    --------    --------
                                                                                ---------    --------    --------
SUPPLEMENTAL CASH FLOW INFORMATION
  Interest paid during the period............................................   $   6,417    $  8,670    $  7,490
  Income taxes paid during the period........................................   $   2,874    $  4,267    $  1,075
</TABLE>
 
During 1996, Warburg, Pincus acquired substantially all of the assets of 
Lee Lighting and contributed them in a non-cash transaction to the Company 
(see Note 14).
 
                            See accompanying notes.

                                      F-6


<PAGE>
                                PANAVISION INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1997
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
   Description of Business and Basis of Presentation
 
     Panavision Inc. (Panavision or the Company), a majority owned subsidiary of
Warburg, Pincus Capital Company L.P. (Warburg, Pincus or parent), commenced
operations effective June 1, 1991. Prior to the May 1996 recapitalization
transaction described below, Panavision owned 100% of the general partnership
interests, 30% of the non-voting Class A limited partnership interests and 70%
of the voting Class B limited partnership interests in Panavision International,
L.P. (PILP), a Delaware limited partnership. PILP was formed effective June 1,
1991 to own and operate the camera rental and lighting filters business
previously owned by Lee International Inc. (LII), an affiliated company. This
transaction was recorded on a historical cost basis. All of the Company's
operations are conducted through PILP and its subsidiaries.
 
     The consolidated financial statements include the accounts of Panavision,
PILP and PILP's majority-owned subsidiaries. All significant intercompany
amounts and transactions have been eliminated.
 
     Certain amounts in previously issued financial statements have been
reclassified to conform to the 1997 presentation.
 
     Panavision is a leading designer, manufacturer and supplier of
high-precision film camera systems, comprising cameras, lenses and accessories,
for the motion picture and television industries. The Company rents its products
through its owned and operated facilities in North America, Europe, and the Asia
Pacific region, as well as through a worldwide agent network. In addition to
manufacturing and renting camera systems, the Company also rents lighting,
lighting grip, power distribution, generation and related transportation
equipment and sells lighting filters and other color correction and diffusion
filters.
 
  The 1996 Recapitalization
 
     In May 1996, the Company effected a recapitalization (the 1996
Recapitalization), pursuant to which it acquired all of PILP's limited
partnership units it did not previously own and retired all of PILP's
outstanding debt securities, other than those owned by Warburg, Pincus, for a
total of $126.1 million in cash. As part of the 1996 Recapitalization, Warburg,
Pincus and senior management loaned the Company $12.5 million in the form of
subordinated debt, and the Company borrowed $110.0 million through a credit
arrangement with a group of banks (see Note 6). The balance of the funds
required came from the Company's cash on hand. As a result of the 1996
Recapitalization, the Company owns all of the general and limited partnership
units in PILP. During November 1996, Panavision Inc. completed an initial public
offering of its common stock. A portion of the offering proceeds were used to
retire the loans from Warburg, Pincus and senior management. The remainder was

contributed to PILP and used to pay down a portion of the Company's bank
borrowings.
 
  Non-controlling Partners' Interest in PILP
 
     The non-controlling partners' interest in PILP represents 70% of the
non-voting Class A limited partnership units and the 30% voting Class B limited
partnership units which Panavision did not own prior to the 1996
Recapitalization. The PILP partnership agreement included provisions for the
allocation of the partnership earnings and losses between Panavision and the
non-controlling partners. However, since the non-controlling partners had a
deficit in their partnership capital accounts as of the inception of PILP, such
deficit was allocated to Panavision, as were PILP's losses for 1991 and 1992.
Certain other distributions made by PILP in each year for tax payments, have all
been charged against Panavision's interest in PILP and as a reduction of income
in the accompanying consolidated financial statements. Accordingly, as required
under generally accepted accounting principles, the non-controlling partners'
share of PILP's income for 1993, 1994 and 1995 has been reduced to the extent of
such deficit, losses and distributions. As previously described, in connection
with the 1996 Recapitalization, Panavision has acquired the non-controlling
partners' equity in PILP.
 
                                      F-7

<PAGE>
                                PANAVISION INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                               DECEMBER 31, 1997
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

   The Proposed Recapitalization
 
     On December 18, 1997, the Company, PX Holding Corporation, (PX Holding) an
indirectly wholly owned subsidiary of Mafco Holdings, Inc. (Mafco) and PX Merger
Corporation, a wholly owned subsidiary of PX Holding, entered into an Agreement
of Recapitalization and Merger (the Recapitalization Agreement). Pursuant to the
terms of the Recapitalization Agreement and subject to the conditions set forth
therein, PX Merger Corporation will be merged with and into the Company (the
Merger).
 
     Pursuant to the Recapitalization Agreement, stockholders of the Company
(other than Warburg, Pincus Capital Company, L.P. (Warburg, Pincus)) will, in
the aggregate, have the opportunity to elect to have their shares of Common
Stock converted into the right to receive $27.00 per share in cash. To the
extent that holders (other than Warburg, Pincus) of more than 88% of the shares
of Common Stock elect to have their shares converted into the right to receive
cash, the election is subject to proration.
 
     Pursuant to a Voting and Stockholders Agreement, dated as of December 18,
1997, as amended by the First Amendment (the Stockholders Agreement, and
together with the Recapitalization Agreement and the transaction contemplated
thereby, the Proposed Recapitalization), by and among Warburg, Pincus, Mafco and
the Company, Warburg, Pincus has agreed to exchange 88% of its shares of Common
Stock for Series A redeemable preferred stock (Redeemable Preferred Stock) of
the Company redeemable immediately upon consummation of the Merger at a price
equivalent to $26.50 in cash per share of Common Stock. To the extent fewer than
88% of the shares of Common Stock held by stockholders (other than Warburg,
Pincus) are exchanged for cash, Warburg, Pincus will increase the number of
shares of Common Stock it exchanges for Redeemable Preferred Stock (or will sell
such shares to PX Holding), up to the remainder of its shares of Common Stock.
 
     As a result of the Proposed Recapitalization, Mafco will acquire control of
the Company. Assuming stockholders (other than Warburg, Pincus) of at least 88%
of the shares of Common Stock elect to receive cash for their shares, Mafco will
beneficially own approximately 72% of the issued and outstanding Common Stock.
 
     Funds required in connection with the transaction, including to acquire the
shares and outstanding stock options, to refinance existing indebtedness and to
pay related fees and expenses, will be obtained through a combination of bank
financing, the issuance of subordinated notes and the purchase by Mafco of
equity in the recapitalized Company. This transaction, which is subject to
certain conditions, including stockholder approval, is expected to be completed
in the second quarter of 1998.
 
     In February of 1998, PX Escrow Corp., an indirect wholly owned subsidiary
of Mafco, issued 9 5/8% senior subordinated discount notes (the Notes) due in

2006 for gross proceeds of $150.0 million. Upon consummation of the Proposed
Recapitalization, the net proceeds from such offering will be transferred to the
Company and the obligations of PX Escrow Corp. under the Notes will be assumed
by Panavision. At that time, Panavision will also enter into a new credit
agreement with a group of banks. If the Proposed Recapitalization is not
completed, all obligations under the Notes will remain with PX Escrow Corp.
 
     In connection with the Proposed Recapitalization, the Company will
recognize the following charges in the period in which the recapitalization
transaction closes: approximately $29.3 million relating to the cash settlement
of unexercised stock options, approximately $17.5 million relating to the
purchase by the Company of shares acquired through the exercise of certain stock
options, approximately $6.0 million relating to transaction expenses,
approximately $2.3 million related to the increase in the valuation allowance on
deferred tax assets and an extraordinary charge of approximately $1.8 million
relating to the write-off of deferred financing costs relating to the repayment
of borrowings under Panavision's existing credit agreement.
 
                                      F-8

<PAGE>
                                PANAVISION INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                               DECEMBER 31, 1997
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

   Translation of Foreign Currencies
 
     The functional currency for the Company's foreign subsidiaries is the local
currency. All assets and liabilities denominated in foreign functional
currencies are translated into U.S. dollars at rates of exchange in effect at
the balance sheet date. Income statement items are translated at the average
rate of exchange prevailing during the period. Translation gains and losses are
recorded as a separate component of stockholders' equity. Gains and losses
resulting from transactions in other than functional currencies are reflected in
net income.

   Cash Equivalents
 
     The Company considers all highly liquid debt instruments purchased with
original maturity dates of three months or less and investments in money market
funds to be cash equivalents. The carrying amount reported in the balance sheet
for cash and cash equivalents approximates fair value.
 
  Inventories
 
     Inventories are valued at the lower of cost or market value and are
determined principally under the first-in, first-out method.
 
  Property, Plant and Equipment
 
     Property, plant and equipment, including rental equipment, are stated at
cost. Maintenance and repairs are charged to expense as incurred. Additions,
improvements and replacements that extend asset life are capitalized.
 
     Depreciation is provided on a straight-line basis over the estimated useful
lives of the assets. Leasehold improvements are amortized over the shorter of
the useful life of the related asset or the remaining lease term. Cost and
accumulated depreciation applicable to assets retired or otherwise disposed of
are eliminated from the accounts, and any gain or loss on such disposition is
reflected in income.
 
     Depreciation is provided principally over the following useful lives:
 
<TABLE>
<S>                                                                      <C>
Buildings and improvements............................................   10-30 years
Rental assets.........................................................    5-20 years
Machinery and equipment...............................................    5-10 years
Furniture and fixtures................................................    5-10 years
</TABLE>
 
  Goodwill and Other Intangibles
 

     Goodwill recognized in business combinations accounted for as purchases is
being amortized primarily over 30 years. As of December 31, 1997 goodwill is
$9.9 million net of accumulated amortization of $0.2 million. Goodwill
amortization expense amounted to $0.2 million for 1997. Goodwill is primarily
related to the FSG Acquisition on June 5, 1997.
 
     Other intangibles such as patents and trademarks are included on the
balance sheet as a component of other assets and are being amortized on a
straight-line basis over their estimated useful lives ranging from 5 to 12
years. Amortization expense amounted to $0.2 million, $0.3 million and $0.6
million for 1997, 1996 and 1995, respectively. Accumulated amortization was $5.5
million and $5.3 million at December 31, 1997 and 1996, respectively.
 
  Accounting for Long-Lived Assets
 
     Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standard No. 121 'Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of' (SFAS 121). Long-lived assets, such
as buildings, equipment and intangibles, are reviewed for impairment whenever
 
                                      F-9

<PAGE>
                                PANAVISION INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                               DECEMBER 31, 1997
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

events or changes in circumstances indicate that the net book value of these
assets may not be recoverable. Prior to the adoption of SFAS 121, the Company
recorded an impairment loss of $1.7 million during 1995 with respect to certain
real property owned by its U.K. operation. With the exception of the impairment
loss recognized during 1995, current and prior period financial statements have
not been affected by the adoption of SFAS 121.
 
  Income Taxes
 
     Income taxes are accounted for using the liability method in accordance
with Statement of Financial Accounting Standard No. 109 'Accounting for Income
Taxes' (see Note 5). Under this method, deferred tax liabilities and assets are
recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities. It is
the Company's policy not to provide U.S. federal income taxes on undistributed
earnings of foreign subsidiaries, as such earnings, if any, are intended to be
permanently reinvested in those operations. As of December 31, 1997, the
Company's accumulated foreign earnings were approximately $15,561,000.
 
  Concentration of Credit Risk
 
     Most of the Company's customers are in the entertainment industry. The
Company performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses. The Company does not generally require
collateral. Actual losses and allowances have been within management's
expectations.
 
  Revenue Recognition
 
     Rental revenue is recognized over the related equipment rental period.
Sales revenue is recognized upon shipment. Returns and allowances, which have
not been significant, are provided for in the period of sale.
 
  Effects of Recent Accounting Pronouncements
 
     In June 1997, Statement of Financial Accounting Standards No. 131,
'Disclosures About Segments of an Enterprise and Related Information' (SFAS 131)
was issued. SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. SFAS 131 is effective for financial
statements for fiscal years beginning after December 15, 1997.
 
  Earnings Per Share

 
     During the year ended December 31, 1997, the Company adopted SFAS No. 128.
'Earnings Per Share' (SFAS 128) which required a change in the method used to
compute earnings per share. Under this new standard, primary and fully diluted
earnings per share were replaced with 'Basic' and 'Diluted' earnings per share.
Basic earnings per share amounts exclude the dilutive effect of potential common
shares and are therefore higher than the primary earnings per share amounts
previously presented. For Panavision, diluted earnings per share amounts under
the new standard are the same as primary earnings per share amounts previously
presented. As required by SFAS 128, all prior period amounts have been restated
to conform to the new presentation.
 
     Basic earnings per share is based upon the weighted-average number of
common shares outstanding. Diluted earnings per share is based upon the
weighted-average number of common shares and dilutive potential common shares
outstanding. Potential common shares are outstanding options under the Company's
stock option plan which are included under the treasury stock method.
 
                                      F-10

<PAGE>
                                PANAVISION INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                               DECEMBER 31, 1997
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

     The following table sets forth the computation for basic and diluted
earnings per share (in thousands, except per share information):
 
<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                                          -----------------------------
                                                                           1997       1996       1995
                                                                          -------    -------    -------
<S>                                                                       <C>        <C>        <C>
Numerator for basic and diluted earnings per share-net income..........   $19,488    $13,271    $ 5,563
                                                                          -------    -------    -------
Denominator:
  Denominator for basic earnings per share-weighted-average shares.....    18,174     14,130     13,706
  Effect of dilutive securities-employee stock options.................       838      1,603      1,571
                                                                          -------    -------    -------
  Denominator for diluted earnings per share-adjusted weighted-average
     shares............................................................    19,012     15,733     15,277
Basic earnings per share...............................................   $  1.07    $   .94    $   .41
                                                                          -------    -------    -------
                                                                          -------    -------    -------
Diluted earnings per share.............................................   $  1.03    $   .84    $   .36
                                                                          -------    -------    -------
                                                                          -------    -------    -------
</TABLE>
 
     Options to purchase 529,875 shares, which were outstanding during the years
ended December 31, 1997 and 1996, were excluded from the respective computations
of diluted earnings per share. These options were excluded from the computation
as they will only vest if the Company achieves EBDIT (as defined) of $62.0
million in its year ending December 31, 1998 or the lower amount of $65.0
million or a 10% increase of its actual 1998 EBDIT (as defined) in its year
ending December 31, 1999. For additional disclosures regarding the outstanding
stock options see Note 8.
 
  Stock-Based Benefits
 
     Statement of Financial Accounting Standards No. 123 'Accounting for
Stock-Based Compensation' (SFAS 123), recommends that stock awards granted
subsequent to January 1, 1995 be recognized as compensation expense based on
their fair value at the date of grant. Alternatively, a company may use APB 25
'Accounting for Stock Issued to Employees,' and disclose the pro forma income
amount which would have resulted from recognizing such awards at their fair
value. The Company will continue to account for stock-based compensation expense
under APB 25 and make the required pro forma disclosures for compensation.
 

  Use of Estimates and Assumptions
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from such estimates.
 
                                      F-11

<PAGE>
                                PANAVISION INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                               DECEMBER 31, 1997
 
2. PROPERTY, PLANT AND EQUIPMENT
 
     Property, plant and equipment consist of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                                       DECEMBER 31,
                                                                                   --------------------
                                                                                     1997        1996
                                                                                   --------    --------
<S>                                                                                <C>         <C>
Land............................................................................   $    877    $    856
Buildings and improvements......................................................     11,771       9,015
Rental assets...................................................................    300,313     217,785
Machinery and equipment.........................................................     10,921      11,033
Furniture and fixtures..........................................................      4,500       3,820
Other...........................................................................      1,294       1,214
                                                                                   --------    --------
                                                                                    329,676     243,723
Less accumulated depreciation and amortization..................................    130,638     113,282
                                                                                   --------    --------
                                                                                   $199,038    $130,441
                                                                                   --------    --------
                                                                                   --------    --------
</TABLE>
 
3. INVENTORIES
 
     Inventories consist of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                                          DECEMBER 31,
                                                                                        ----------------
                                                                                         1997      1996
                                                                                        ------    ------
<S>                                                                                     <C>       <C>
Finished goods.......................................................................   $3,983    $2,008
Work-in-process......................................................................      153        99
Component parts......................................................................    1,607     1,586
Supplies.............................................................................    2,797     1,489
                                                                                        ------    ------
                                                                                        $8,540    $5,182
                                                                                        ------    ------
                                                                                        ------    ------
</TABLE>
 
4. ACCRUED LIABILITIES

 
     Accrued liabilities consist of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                                        DECEMBER 31,
                                                                                     ------------------
                                                                                      1997       1996
                                                                                     -------    -------
<S>                                                                                  <C>        <C>
Interest payable..................................................................   $   653    $   294
Professional fees.................................................................     1,754      2,015
Taxes other than income taxes.....................................................     2,199        555
Payroll and related costs.........................................................     6,425      6,974
Leases, severance and other FSG Acquisition related costs.........................     4,139      --
Accrued marketing and other.......................................................     8,575      6,208
                                                                                     -------    -------
                                                                                     $23,745    $16,046
                                                                                     -------    -------
                                                                                     -------    -------
</TABLE>
 
                                      F-12

<PAGE>
                                PANAVISION INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                               DECEMBER 31, 1997
 
5. INCOME TAXES
 
     The provision for income taxes includes the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                                     DECEMBER 31,
                                                                              --------------------------
                                                                               1997      1996      1995
                                                                              ------    ------    ------
<S>                                                                           <C>       <C>       <C>
Current provision:
  Federal..................................................................   $   76    $3,559    $  515
  State....................................................................      180       727       154
  Foreign..................................................................    2,295     1,281        86
                                                                              ------    ------    ------
Total current provision....................................................    2,551     5,567       755
                                                                              ------    ------    ------
Deferred provision:
  Federal..................................................................    5,039    (1,372)      537
  State....................................................................      138      (730)       83
  Foreign..................................................................    1,524        71      --
                                                                              ------    ------    ------
Total deferred provision...................................................    6,701    (2,031)      620
                                                                              ------    ------    ------
                                                                              $9,252    $3,536    $1,375
                                                                              ------    ------    ------
                                                                              ------    ------    ------
</TABLE>
 
     For financial statement purposes, income before income taxes includes the
following components (in thousands):
 
<TABLE>
<CAPTION>
                                                                                   DECEMBER 31,
                                                                           ----------------------------
                                                                            1997       1996       1995
                                                                           -------    -------    ------
<S>                                                                        <C>        <C>        <C>
Income before income taxes:
  Domestic..............................................................   $16,546    $12,206    $4,219
  Foreign...............................................................    12,194      4,601     2,719
                                                                           -------    -------    ------
                                                                           $28,740    $16,807    $6,938
                                                                           -------    -------    ------
                                                                           -------    -------    ------
</TABLE>

 
     A reconciliation from the provision for income taxes based on the federal
statutory rate of 35% to the actual rate follows:
 
<TABLE>
<CAPTION>
                                                                                       DECEMBER 31,
                                                                                --------------------------
                                                                                1997      1996       1995
                                                                                ----      -----      -----
<S>                                                                             <C>       <C>        <C>
Statutory rate applied to income before income taxes.........................   35.0%      35.0%      35.0%
State income taxes, net of federal income tax benefit........................    3.1        4.3        2.2
Reduction of valuation allowance.............................................   (8.8)     (27.0)      (3.7)
Non-deductible (non-taxable) differences in allocation of earnings to non-
  controlling partners.......................................................    --         9.0      (14.9)
Foreign income taxed at varying rates........................................     .7       --         --
Other, net...................................................................    2.2        (.3)       1.2
                                                                                ----      -----      -----
                                                                                32.2%      21.0%      19.8%
                                                                                ----      -----      -----
                                                                                ----      -----      -----
</TABLE>
 
     Deferred income taxes reflect the net tax effects of net operating loss
carryforwards, credits, and temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the
 
                                      F-13

<PAGE>
                                PANAVISION INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                               DECEMBER 31, 1997
 
5. INCOME TAXES--(CONTINUED)

amounts used for income tax purposes. Significant components of the Company's
deferred tax assets and liabilities as of December 31, 1997 and 1996 are as
follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                                       DECEMBER 31,
                                                                                    -------------------
                                                                                      1997       1996
                                                                                    --------    -------
<S>                                                                                 <C>         <C>
Deferred tax assets:
  Domestic net operating loss carryforwards......................................   $  4,470    $ 2,736
  Foreign net operating loss carryforwards.......................................      1,219      1,359
  Tax credit carryforwards (primarily alternative minimum tax credits)...........     10,387      9,503
  Expense accruals...............................................................      4,847      1,911
  State income taxes.............................................................        425      --
  Other..........................................................................        172        172
                                                                                    --------    -------
Total deferred tax assets........................................................     21,520     15,681
Valuation allowance..............................................................     (4,023)    (6,557)
                                                                                    --------    -------
Net deferred tax assets..........................................................     17,497      9,124
Deferred tax liabilities:
  Fixed assets...................................................................    (16,990)    (5,874)
  Stock based compensation.......................................................     (8,272)     --
  State income taxes.............................................................      --           (57)
                                                                                    --------    -------
Total deferred tax liabilities...................................................    (25,262)    (5,931)
                                                                                    --------    -------
Net deferred tax (liabilities) assets............................................   $ (7,765)   $ 3,193
                                                                                    --------    -------
                                                                                    --------    -------
Balance Sheet Classifications:
  Current deferred tax assets (included in other current assets).................   $  1,510    $ --
  Non-current deferred tax assets................................................      2,329      3,742
  Non-current deferred tax liability.............................................     (6,217)      (549)
  Current deferred tax liability.................................................     (5,387)     --
                                                                                    --------    -------
                                                                                    $ (7,765)   $ 3,193
                                                                                    --------    -------
                                                                                    --------    -------
</TABLE>
 
     Federal net operating loss (NOL) carryforwards of $11,826,000, which expire
from 2006 to 2012, alternative minimum tax (AMT) credit carryforwards of

$6,693,000, which may be used indefinitely, and foreign tax credit (FTC)
carryforwards of $2,013,000, which expire from 1998 to 2002, are available to
the Company. Certain tax attributes are subject to annual limitations under
Internal Revenue Code (the Code) Section 382.
 
     In connection with the purchase of the Film Services Group of Visual Action
Holdings plc, additional deferred tax liabilities of $2,503,000 were
established.
 
     The Company has assessed the realizability of all of its tax attributes and
has accordingly adjusted the valuation allowance as of December 31, 1997. The
Company's assessment took into account the limitations on the deductibility of
tax attributes under Section 382 and the alternative minimum tax provisions of
the Code, as well as the uncertainty of realizing taxable income in certain
foreign jurisdictions. In 1997, there was a net decrease in the valuation
allowance of $2,534,000. The net decrease is a result of current realization of
previously unbenefitted NOLs and credits. In 1996, there was a net increase in
the valuation reserve of $2,086,000.
 
6. LONG-TERM DEBT
 
     In conjunction with the purchase of the Film Services Group of Visual
Action Holdings plc on June 5, 1997 (the FSG Acquisition) (see Note 14), the
Company entered into a new credit agreement (Credit Agreement) with Chase
Manhattan Bank for a maximum aggregate amount of $150.0 million. The Credit
Agreement provides for
 
                                      F-14

<PAGE>
                                PANAVISION INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                               DECEMBER 31, 1997
 
6. LONG-TERM DEBT--(CONTINUED)

a term loan in the amount of $60.0 million and a revolving credit commitment of
up to $90.0 million. Borrowings under this agreement were used to fund the FSG
Acquisition, refinance loans outstanding under the previous credit agreement and
provide funds for general corporate purposes. At December 31, 1997, borrowings
under the Credit Agreement were $60.0 million and $65.0 million for the term
loan and the revolving facility, respectively.
 
     Principal repayments under the Credit Agreement are due quarterly beginning
March 1998 through June 2004. Interest is payable at rates equal to the prime
rate or a margin in excess of LIBOR or PIBOR, which fluctuates directly with the
Company's total debt ratio, as defined in the Credit Agreement. The LIBOR/PIBOR
rate margins range between 0.625% and 1.25%. Of the $65.0 million outstanding
under the revolving facility, $35.6 million is outstanding (using the exchange
rate at December 31, 1997) as a sterling-based loan. The Company drew down a
portion of the facility as a sterling-based loan in order to provide a natural
currency hedge against fluctuations in the U.K. pound as the FSG Acquisition
significantly increased the Company's U.K. based net assets. The Company has
designated the sterling denominated borrowings as an economic hedge of its
investments in its U.K. based subsidiaries and accordingly unrealized gains and
losses resulting from changes in the exchange rates are included in translation
adjustment.
 
     Under the Credit Agreement, the Company entered into an interest rate
protection agreement to protect the Company from LIBOR increases. The agreement
covers a notional amount of $50.0 million which expires on June 10, 1998 and
protects the Company from LIBOR increases above 7.37%. Since the floor for this
agreement is 5.50%, in the event of a LIBOR reduction below this floor, there
would be no benefit to the Company. At December 31, 1997 the interest rate under
the Credit Agreement was 7.25% The Company believes the carrying value of its
amounts payable under this agreement approximate fair value based upon current
yields for debt issues of similar quality and terms.
 
     The Company's obligations under the Credit Agreement are secured by
substantially all of the Company's assets. As of December 31, 1997, the Company
had approximately $24 million available under the revolving facility. The Credit
Agreement requires that the Company meet certain financial tests and other
restrictive covenants including maintaining certain total debt, fixed charge and
interest coverage ratio levels. As of December 31, 1997, the Company was in
compliance with all financial covenants of the Credit Agreement. The Company's
ability to pay dividends to its stockholders is restricted by this agreement.
 
     The following sets forth the aggregate principal maturities of the
Company's debt during the twelve month periods ending December 31st (in
thousands):
 
<TABLE>

<S>                                                                        <C>
1998....................................................................   $  5,383
1999....................................................................     10,000
2000....................................................................     10,000
2001....................................................................     14,600
2002....................................................................     30,250
Thereafter..............................................................     55,149
                                                                           --------
                                                                           $125,382
                                                                           --------
                                                                           --------
</TABLE>
 
7. COMMON STOCK
 
     The Board of Directors, in May and November of 1996, declared a 90:1 stock
split and a 1413:1 stock split, respectively, of the Company's common stock. All
applicable share and per share amounts have been adjusted for the stock splits.
 
                                      F-15

<PAGE>
                                PANAVISION INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                               DECEMBER 31, 1997
 
8. STOCK OPTION PLAN
 
     In connection with the 1996 Recapitalization, the Board of Directors
adopted a stock option plan (the Plan) which is open to participation by
directors, officers, consultants, and other key employees of the Company or of
its subsidiaries and certain other key persons. The Plan provides for the
issuance of incentive and nonqualified stock options under the Code. An
aggregate of 3,000,000 shares of common stock are reserved for issuance under
the Plan. The options were granted for a term of ten years, five years in the
case of incentive options. If an incentive stock option is granted to an
individual owning more than 10% of the total combined voting power of all stock,
the exercise price of the option may not be less than 110% of the fair market
value of the underlying shares on the date of grant and the term of the option
may not exceed five years. The Plan also provides that the aggregate fair market
value (determined as of the time the option is granted) of the common stock with
respect to which incentive stock options are exercisable for the first time by
an optionee during any calendar year shall not exceed $100,000. As of December
31, 1997, the Company had options for 865,950 shares of common stock available
for future grant under the Plan.
 
     In connection with the 1996 Recapitalization, certain members of management
were granted nonqualified options for an aggregate of 1,766,250 shares of common
stock exercisable at $1.22 per share. Options for 1,236,375 shares will vest at
the end of eight years from the date of grant and could vest sooner if certain
performance targets are met as described below:
 
          o Options for 353,250 shares vested upon the successful completion of
            the initial public offering of common stock in November 1996.
 
          o Options for 300,263 shares vested upon achievement by the Company of
            EBDIT (as defined) in excess of $46.2 million for the year ended
            December 31, 1996.
 
          o Options for 300,262 shares vested upon achievement by the Company of
            EBDIT (as defined) in excess of $50.4 million for the year ended
            December 31, 1997.
 
          o Options for 282,600 shares will vest if the Company achieves EBDIT
            (as defined) of $55.2 million, or Free Cash Flow (as defined) of
            $34.0 million during its year ending December 31, 1998,
            respectively.
 
     The exercise price of these options was less than the deemed fair market
value of the Company's common stock on the date of grant and accordingly the
Company recorded an aggregate non-cash compensation charge of $280,000 for the
year ended December 31, 1996.
 
     Options for the remaining 529,875 shares will only vest if the Company

achieves EBDIT (as defined) of $62.0 million in its year ending December 31,
1998 or the lower amount of $65.0 million or a 10% increase of its actual 1998
EBDIT (as defined) in its year ending December 31, 1999. These options are being
accounted for as variable options, and the Company will record additional
non-cash compensation charges in 1998 or 1999 if the achievement of these
performance targets becomes probable. The per share compensation charge will be
equal to the difference between the option exercise price of $1.22 and the
quoted market value of the common stock in the future when the targets are
achieved.
 
     In connection with the successful completion of the Company's initial
public offering, certain members of management and key employees were granted
options to purchase an aggregate of 369,000 shares of common stock. The exercise
price of these options is equal to the initial public offering price of $17.00
per share. The options vest over a period of five years at 20% per year
beginning on the first anniversary of the initial public offering, November 20,
1997.
 
                                      F-16

<PAGE>
                                PANAVISION INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                               DECEMBER 31, 1997
 
8. STOCK OPTION PLAN--(CONTINUED)

     Option information with respect to the Company's stock option plan is as
follows:
 
<TABLE>
<CAPTION>
                                                                                   EXERCISE PRICE
                                                                            -----------------------------
                                                                                              WEIGHTED
                                                                SHARES         RANGE        AVERAGE PRICE
                                                               ---------    ------------    -------------
<S>                                                            <C>          <C>             <C>
Options outstanding at December 31, 1995....................           0         --             --
  Grants....................................................   2,135,250    $1.22-$17.00       $  3.95
  Exercises.................................................           0         --             --
  Cancellations.............................................           0         --             --
                                                               ---------    ------------    -------------
Options outstanding at December 31, 1996....................   2,135,250      1.22-17.00          3.95
  Grants....................................................      12,000           17.50         17.50
                                                                   6,000           17.25         17.25
  Exercises.................................................    (773,500)           1.22          1.22
  Cancellations.............................................     (19,200)          17.00         17.00
                                                               ---------    ------------    -------------
Options outstanding at December 31, 1997....................   1,360,550    $1.22-$17.50       $  5.49
                                                               ---------    ------------    -------------
                                                               ---------    ------------    -------------
</TABLE>
 
     Information regarding stock options outstanding and exercisable as of
December 31, 1997 is as follows:
 
<TABLE>
<CAPTION>
                                                                                         PRICE RANGE
                                                                                  -------------------------
                                                                                    $1.22      $17.00-17.50
                                                                                  ---------    ------------
<S>                                                                               <C>          <C>
Options outstanding at December 31, 1997:
  Number.......................................................................     992,750        367,800
  Weighted average exercise price..............................................       $1.22         $17.02
  Weighted average remaining contractual life..................................   6.9 years      3.9 years
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                        DECEMBER 31,

                                                                                     ------------------
                                                                                      1997       1996
                                                                                     -------    -------
<S>                                                                                  <C>        <C>
Options exercisable:
  Number..........................................................................   281,597    653,513
  Weighted average exercise price.................................................   $  5.36    $  1.22
</TABLE>
 
     If the Company recognized employee stock option-related compensation
expense in accordance with SFAS 123 and used the Black-Scholes option valuation
model for determining the weighted average fair value of options granted during
1997, its pro forma net income and pro forma diluted earnings per share would
have been $19,419,000 and $1.02, respectively. During 1996, pro forma net income
and pro forma diluted earnings per share would have been $13,258,000 and $.84,
respectively. For purposes of the pro forma expense, the weighted average fair
value of the options is amortized over the vesting period. The pro forma effect
on net income for 1997 and 1996 may not be representative of future years'
impact. The weighted average fair value of $7.45 for 1997 and $1.35 for 1996 for
stock option grants was estimated at the date of grant using the following
assumptions and the Black-Scholes option valuation model:
 
<TABLE>
<CAPTION>
                                                                              1997       1996
                                                                             -------    -------
<S>                                                                          <C>        <C>
Risk-free interest rate...................................................     6.00%      6.19%
Expected life.............................................................   5 years    5 years
Expected volatility.......................................................       .38        .17
Expected dividend yield...................................................     0.00%      0.00%
</TABLE>
 
     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options. The Company's stock options have
characteristics significantly different from those of traded options such as
vesting restrictions and non-transferability of options. In addition, the
assumptions used in option
 
                                      F-17

<PAGE>
                                PANAVISION INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                               DECEMBER 31, 1997
 
8. STOCK OPTION PLAN--(CONTINUED)

valuation models are subjective, particularly the expected stock price
volatility for the underlying stock. Because changes in these subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing model does not provide a reliable single measure of the
fair value of its employee stock options.
 
     In connection with the 1996 Recapitalization (see Note 1), the Company
issued 423,900 shares of common stock to certain members of management. The
Company has recorded compensation expense in the amount of $615,000 during the
twelve months ended December 31, 1996. The compensation expense represents the
Company's best estimate of the fair market value of the stock as of the date of
issuance, based in part on value attributed to the equity securities of PILP
which were acquired in the 1996 Recapitalization, in an arms-length transaction.
 
9. EMPLOYEE BENEFIT PLANS
 
     The Company sponsors a defined contribution 401(k) plan covering a majority
of its domestic employees. Eligible employees may contribute from 1% to 16% of
their base compensation. The Company makes matching contributions equal to 75%
of employee before-tax contributions from 1% to 6%. For the years ended December
31, 1997, 1996 and 1995, the Company recorded expense of $820,000, $590,000 and
$503,000, respectively, related to the 401(k) plan.
 
     In addition, the Company sponsors a defined contribution retirement plan,
which covers certain foreign employees. Participating employees contribute from
5% to 15% of their base compensation. The Company contributes 13.4% of base
compensation for participating employees regardless of their level of
contribution. For the years ended December 31, 1997, 1996 and 1995, the Company
expensed $824,000, $440,000 and $189,000, respectively, representing the
Company's contributions.
 
10. GEOGRAPHICAL INFORMATION
 
     Information as to the Company's operations in different geographical areas
is as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                UNITED     UNITED
                                                STATES     KINGDOM    OTHER(1)    ELIMINATIONS     TOTAL
                                               --------    -------    --------    ------------    --------
<S>                                            <C>         <C>        <C>         <C>             <C>
December 31, 1997
  Revenue...................................   $108,126    $67,034    $ 33,596      $(31,893)     $176,863
  Operating income..........................   $ 39,623    $11,051    $  9,761      $(26,520)     $ 33,915
  Identifiable assets.......................   $195,684    $75,287    $ 42,650      $(31,684)     $281,937

December 31, 1996
  Revenue...................................   $ 86,435    $38,267    $ 14,768      $(14,832)     $124,638
  Operating income..........................   $ 28,514    $ 6,191    $  6,291      $(10,829)     $ 30,167
  Identifiable assets.......................   $144,566    $31,991    $ 10,342      $(10,153)     $176,746
December 31, 1995
  Revenue...................................   $ 68,102    $23,004    $ 14,227      $(10,005)     $ 95,328
  Operating income..........................   $ 17,996    $ 3,492    $  5,877      $ (7,878)     $ 19,487
  Identifiable assets.......................   $145,300    $17,708    $ 10,420      $ (7,677)     $165,751
</TABLE>
 
------------------
 
(1) For the year ended December 31, 1997, Other is comprised of the Company's
    85% owned subsidiary in Canada, the Company's French operations and the
    Company's Far East operations. For the years ended December 31, 1996 and
    1995, Other is principally comprised of the Company's 85% owned subsidiary
    in Canada which was acquired in January 1995.
 
                                      F-18

<PAGE>
                                PANAVISION INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                               DECEMBER 31, 1997
 
11.  COMMITMENTS AND CONTINGENCIES
 
     The Company leases real estate, equipment, and vehicles under noncancelable
operating leases. Future minimum payments under noncancelable operating leases
with initial or remaining terms of one year or more are presented below (in
thousands):
 
<TABLE>
<S>                                                                         <C>
1998.....................................................................   $ 5,634
1999.....................................................................     4,402
2000.....................................................................     3,347
2001.....................................................................     3,207
2002.....................................................................     2,988
Thereafter...............................................................    24,998
                                                                            -------
                                                                            $44,576
                                                                            -------
                                                                            -------
</TABLE>
 
     In June 1995, the Company entered into a 16-year lease for its principal
operating facility in Woodland Hills, California; the Company relocated to this
facility during June 1996. In connection with this lease, the Company negotiated
a settlement for its existing leases covering its prior operating facility and
recorded a $1,800,000 charge during 1995 representing the cost of the
settlement.
 
     During the years ended December 31, 1997, 1996 and 1995, rental expense
under operating leases was $6,054,000, $3,190,000 and $2,274,000, respectively.
 
     The Company and its subsidiaries are defendants in actions for matters
arising out of normal business operations. The Company does not believe that any
such proceedings currently pending will have a materially adverse effect on its
consolidated financial position, results of operations, or cash flows.
 
12. RELATED PARTY TRANSACTIONS
 
     In December 1997, in order to facilitate the payment of taxes related to
the exercise of options, which were issued pursuant to the Panavision Inc. Stock
Option Plan, the Company made advances to certain officers and key employees in
the form of notes. Notes were issued by Messrs. Scott, Farrand and Marcketta,
the Company's Chief Executive Officer, President and Chief Financial Officer,
respectively, in the amount of $2,152,503, $3,698,800 and $924,700,
respectively. The balance of the notes were issued to other key employees. The
notes mature on the earlier of December 24, 2000 or the date of consummation of
the Proposed Recapitalization. The Company expects that the notes will be repaid
during 1998 even if the Proposed Recapitalization is not completed. Interest on

the notes is compounded semiannually at the applicable federal rate in effect on
the date the notes were issued. These amounts are reflected on the Company's
consolidated balance sheet as notes receivable from officers and key employees
as of December 31, 1997.
 
     Mr. Farrand, an executive officer of Panavision, is the obligor in respect
of a promissory demand note issued to the Company in January 1987. The principal
amount of and accrued interest on this note were $540,000 and $38,681,
respectively, as of December 31, 1997. The note accrues interest at a rate of
7.04% per annum, and, as of December 31, 1997, no payments of principal had been
made. This note was originally issued in connection with Mr. Farrand's purchase
of a residence and is secured by a portion of Mr. Farrand's common stock and
options in Panavision.
 
     Included in other assets at December 31, 1997, 1996 and 1995, is a loan
receivable of $450,000 due in 2003 from Pany Rental, Inc. (dba Panavision New
York), an agent in which the Company acquired a one-third interest during 1994.
 
In accordance with an agreement, certain administrative services have been
provided by the Company to LII. The amount received by the Company from LII was
$510,000 and $687,000 for the years ended December 31, 1996 and 1995,
respectively. The amounts received have been offset against selling, general and
administrative
 
                                      F-19

<PAGE>
                                PANAVISION INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                               DECEMBER 31, 1997
 
12. RELATED PARTY TRANSACTIONS--(CONTINUED)

expenses in the accompanying consolidated statements of income. The agreement
with LII expired on September 30, 1996.
 
13. QUARTERLY OPERATING DATA (UNAUDITED)
 
     The following is a summary of unaudited quarterly results of operations (in
thousands, except per share data):
 
<TABLE>
<CAPTION>
                                                                                 QUARTER
                                                              ---------------------------------------------
                                                               FIRST     SECOND(1)    THIRD(2)    FOURTH(3)
                                                              -------    ---------    --------    ---------
<S>                                                           <C>        <C>          <C>         <C>
Year ended December 31, 1997
  Net sales................................................   $31,156     $37,688     $ 55,840     $52,179
  Gross margin.............................................    15,327      17,079       28,547      25,031
  Net income...............................................     3,518       2,866        7,577       5,527
  Basic earnings per share(4)..............................   $   .19     $   .16     $    .42     $   .30
                                                              -------    ---------    --------    ---------
                                                              -------    ---------    --------    ---------
  Diluted earnings per share(4)............................   $   .18     $   .15     $    .39     $   .29
                                                              -------    ---------    --------    ---------
                                                              -------    ---------    --------    ---------
Year ended December 31, 1996
  Net sales................................................   $25,165     $24,095     $ 35,790     $39,588
  Gross margin.............................................    13,569      12,356       19,046      20,194
  Net income...............................................     1,196       1,231        5,671       5,173
  Basic earnings per share(4)..............................   $   .09     $   .09     $    .40     $   .32
                                                              -------    ---------    --------    ---------
                                                              -------    ---------    --------    ---------
  Diluted earnings per share(4)............................   $   .08     $   .09     $    .37     $   .30
                                                              -------    ---------    --------    ---------
                                                              -------    ---------    --------    ---------
</TABLE>
 
------------------
 
(1) The second quarter of 1997 includes the operating results of the FSG
    companies since June 5, 1997, the date of acquisition.
 
(2) The third quarter of 1996 includes the operating results of Lee Lighting
    since its acquisition effective July 1, 1996 (see Note 14).
 
(3) The fourth quarter of 1997 includes three unusual items totaling

    approximately $1.1 million: a foreign exchange loss of approximately
    $520,000 due to the decline in the Australia dollar; additional SG&A costs
    of approximately $300,000 for legal fees related to the Proposed
    Recapitalization; and approximately $279,000 in additional payroll tax
    expenses associated with the exercise by management of certain stock
    options. In connection with the refinancing in 1996 of the Company's debt,
    the Company wrote off $1.8 million of deferred financing costs in the fourth
    quarter of 1996.
 
(4) Earnings per share for the first three quarters of 1997 and all of 1996 were
    restated to Basic and Diluted earnings per share reflecting the adoption of
    SFAS 128.
 
14.  BUSINESS COMBINATIONS
 
     On June 5, 1997, the Company completed its acquisition of the Film Services
Group (FSG) from Visual Action Holdings plc. FSG includes camera rental
operations which rent primarily non-Panavision manufactured equipment in the
United Kingdom, France, Australia and two U.S. cities, Chicago and Dallas, as
well as smaller rental operations in New Zealand, Malaysia and Indonesia. The
majority of the equipment acquired as a result of these transactions included
film cameras, lenses and complementary product accessories which rent to the
filmed production community. The purchase price was approximately $61.0 million
and was reduced by the amount of certain debt assumed by the Company.
 
                                      F-20

<PAGE>
                                PANAVISION INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                               DECEMBER 31, 1997
 
14.  BUSINESS COMBINATIONS--(CONTINUED)

     The acquisition has been recorded under the purchase method of accounting
and FSG's operating results have been included in the Company's consolidated
financial statements since the acquisition date of June 5, 1997. The purchase
price and direct acquisition costs have been allocated to the acquired assets
and assumed liabilities based on their relative fair values. The Company also
provided approximately $6.3 million to cover the estimated transaction costs,
lease cancellations and severance pay related to the FSG Acquisition. Goodwill
of approximately $9.7 million was recognized as part of the transaction and is
being amortized over 30 years.
 
     Unaudited pro forma revenue would have increased by $25.9 million for the
twelve months ended December 31, 1997 and by $59.1 million for the twelve months
ended December 31, 1996, and unaudited pro forma net income and diluted earnings
per share would have decreased by $0.3 million and $0.02, respectively, for the
twelve months ended December 31, 1997 and would have increased by $1.7 million
and $0.11, respectively, for the twelve months ended December 31, 1996 had the
acquisition occurred at the beginning of each respective period.
 
     Effective July 1, 1996, Warburg, Pincus acquired substantially all of the
assets of Lee Lighting and contributed them to Panavision. The purchase price of
$8 million approximated the net book value of the assets acquired. Lee Lighting
rents lighting equipment, mobile generators and distribution and sells lighting
consumables for the production of feature films, television programs and other
filmed entertainment.
 
     The acquisition of Lee Lighting has been recorded under the purchase method
of accounting and its operating results have been included in the Company's
consolidated financial statements since the acquisition date of July 1, 1996.
 
     Unaudited pro forma revenue, net income and diluted earnings per share for
the Company would have increased by $10,400,000, $605,000, and $.04,
respectively, for 1996 and by $19,749,000, $1,204,000 and $.08, respectively,
for 1995 had the Lee Lighting acquisition occurred at the beginning of each
respective period.
 
                                      F-21


<PAGE>
                                PANAVISION INC.

          SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
 
<TABLE>
<CAPTION>
                                                           BEGINNING    ALLOWANCES    AMOUNTS      BALANCES      ENDING
                                                            BALANCE     ACQUIRED*     RESERVED    WRITTEN OFF    BALANCE
                                                           ---------    ----------    --------    -----------    -------
                                                                                  (IN THOUSANDS)
<S>                                                        <C>          <C>           <C>         <C>            <C>
Allowance for Doubtful Accounts
December 31, 1997.......................................    $ 2,500       $1,508       $  456        $ 505       $ 3,959
December 31, 1996.......................................    $ 2,043       $  --        $1,376        $ 919       $ 2,500
December 31, 1995.......................................    $ 1,772       $  --        $  829        $ 558       $ 2,043
</TABLE>
 
------------------
* Amount represents allowance for doubtful account balances acquired through the
  FSG Acquisition.
 
                                      S-1


<PAGE>
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 EXHIBIT
  NUMBER     DESCRIPTION
----------   -----------
<S>          <C>
   *3.1       --   Restated Certificate of Incorporation.
   *3.2       --   Restated By-Laws.
   *4         --   Specimen of the Company's Common Stock Certificate.
  *10.1       --   Amended and Restated Stockholders Agreement, dated as of June 12, 1996.
  *10.2       --   Restated and Amended Credit Agreement, dated September 10, 1996, among Panavision International,
                   L.P., the subsidiary guarantors and the lenders listed therein, and The Chase Manhattan Bank, as
                   Administrative Agent.
  *10.3       --   1996 Stock Option Plan.
  *10.4       --   Employment Agreement, dated as of June 12, 1996, between the Company and William C. Scott.
  *10.5       --   Lease, dated June 13, 1995, between the Company and Trizec Warner Inc.
  *10.6       --   Executive Incentive Compensation Plan.
 **10.7       --   Second Restated and Amended Credit Agreement, dated December 5, 1996 among Panavision
                   International, L.P., the subsidiary guarantors and the lenders listed therein, and The Chase
                   Manhattan Bank, as Administrative Agent.
 **10.8       --   First Amended and Restated Stock Option Plan.
   10.9       --   Agreement, dated May 18, 1997, among Visual Action Holdings plc, Panavision Europe Limited and the
                   Company (incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form
                   8-K/A Amendment No. 1 to Form 8-K dated June 5, 1997).
   10.10      --   Agreement, dated May 18, 1997, between Visual Action Holdings plc and the Company (incorporated
                   herein by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K/A Amendment No. 1
                   to Form 8-K dated June 5, 1997).
   10.11      --   Stock Purchase Agreement, dated May 18, 1997, among Visual Action Holdings, Inc., Visual Action
                   Holdings plc and the Company (incorporated herein by reference to Exhibit 2.3 to the Company's
                   Current Report on Form 8-K/A Amendment No. 1 to Form 8-K dated June 5, 1997).
   10.12      --   Credit Agreement, dated June 5, 1997, among Panavision International, L.P., the subsidiary
                   guarantors and the lenders listed therein, and The Chase Manhattan Bank, as Administrative Agent
                   (incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
                   for the quarter ended June 30, 1997).
   10.13      --   Agreement of Recapitalization and Merger, dated as of December 18, 1997, by and among PX Holding
                   Corporation, PX Merger Corporation and the Company (incorporated herein by reference to Exhibit
                   10.1 to the Company's Current Report on Form 8-K dated December 18, 1997).
   10.14      --   Voting and Stockholders Agreement, dated as of December 18, 1997, by and among Warburg Pincus
                   Capital Company, L.P., the Company and Mafco Holdings Inc. (incorporated by reference to Exhibit
                   10.2 to the Company's Current Report on Form 8-K dated December 18, 1997).
   21         --   Subsidiaries of the Company.
   23         --   Consent of Ernst & Young LLP, Independent Auditors.
   27         --   Financial Data Schedule.
  *99.1       --   Consent of Martin D. Payson to be named as a director of the Company.
</TABLE>
 
------------------
  * Incorporated herein by reference to the identically numbered exhibit to the
Company's Registration Statement on Form S-1, Registration No. 333-12235.
 
 ** Incorporated herein by reference to the identically numbered exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996.