UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
X Quarterly Report Pursuant To Section 13 Or 15(d) Of The
Securities Exchange Act Of 1934
For the quarterly period ended December 31, 1996
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: 0-26902
NIMBUS CD INTERNATIONAL, INC.
(exact name of registrant as specified in its charter)
Delaware 54-1651183
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
623 Welsh Run Road
Ruckersville, Virginia 22968
(Address of principal executive offices)
Telephone Number (804) 985-1100
(Registrant's telephone number, including area code)
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 _____
-----
As of February 11, 1997 there were 20,869,575 shares of the Registrant's
Common Stock outstanding.
<PAGE>
NIMBUS CD INTERNATIONAL, INC.
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheet
December 31, 1996 and March 31, 1996.....................3
Condensed Consolidated Statements of Income Three and
nine months ended December 31, 1996 and 1995.............4
Condensed Consolidated Statements of Cash Flows
Nine months ended December 31, 1996 and 1995.............5
Notes to Condensed Consolidated Financial Statements.....6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................11
Item 6. Exhibits and Reports on Form 8-K........................11
Signatures..............................................12
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NIMBUS CD INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ..................$ 3,743 $ 3,593
Accounts and notes receivable, less
allowances for doubtful accounts of ..... 34,423 26,121
$2,153 and $2,014
Inventories ................................ 2,939 2,177
Prepaid expenses ........................... 782 729
Deferred income taxes ...................... 1,750 1,766
----- -----
Total current assets .................... 43,637 34,386
------ ------
Property, plant, and equipment, net ........ 63,006 50,809
Other assets and intangibles ............... 6,622 5,558
----- -----
$ 113,265 $ 90,753
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...........................$ 7,819 $ 6,437
Current portion of long-term debt .......... 4,811 1,463
Accrued expenses ........................... 10,628 7,297
Income taxes payable ....................... 5,912 3,427
----- -----
Total current liabilities ............... 29,170 18,624
------ ------
Long-term debt ................................ 25,113 24,668
Deferred income taxes ......................... 4,417 4,395
Stockholders' equity:
Preferred stock, $0.01 par value;
authorized 2,000,000 shares, no
shares issued or outstanding
Common stock, $0.01 par value,
60,000,000 shares authorized
39,011,782 and 38,973,173 shares
issued; 20,869,575 and 20,829,962
shares outstanding....................... 390 390
Paid-in capital ............................ 66,775 66,734
Retained earnings .......................... 33,861 22,794
Cumulative foreign currency translation
adjustments................................. 629 241
--- ---
101,655 90,159
Treasury stock, at cost, 18,142,207 and
18,143,211 shares........................... (47,090) (47,093)
---------- ------- -------
Total stockholders' equity ................. 54,565 43,066
------ ------
$ 113,265 $ 90,753
========= ==========
</TABLE>
See accompanying notes to condensed
consolidated financial statements.
<PAGE>
NIMBUS CD INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $40,352 $36,645 $100,942 $88,497
Cost of goods sold 27,467 26,765 70,704 62,424
------ ------ ------ ------
Gross profit 12,885 9,880 30,238 26,073
Selling, general and administrative 3,802 2,667 11,381 9,258
expenses ----- ----- ------ -----
Operating income 9,083 7,213 18,857 16,815
Interest expense 701 1,103 1,972 4,609
Other (income) expense, net (103) (99) (293) (8)
---- --- ---- --
Income before income taxes and
extraordinary item 8,485 6,209 17,178 12,214
Provision for income taxes 2,975 2,229 6,112 4,431
----- ----- ----- -----
Income before extraordinary item 5,510 3,980 11,066 7,783
Extraordinary item-extinguishment 2,951 2,951
of debt (less income tax benefit of
$1,213)
Net income $5,510 $1,029 $11,066 $4,832
====== ====== ======= ======
Net income (1995 is pro forma for
the Offering) $5,510 $4,257 $11,066 $9,366
====== ====== ======= ======
Earnings per share (1995 is pro
forma for the Offering) $0.24 $0.19 $0.48 $0.41
===== ===== ===== =====
Weighted average shares outstanding 23,011 22,958 22,886 22,790
====== ====== ====== ======
</TABLE>
See accompanying notes to condensed
consolidated financial statements.
<PAGE>
NIMBUS CD INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
December 31,
<S> <C> <C>
1996 1995
Cash flows from operating activities:
Net income $11,066 $4,832
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary write-off of financing costs,
excluding costs of terminating interest rate
swap agreements 2,047
Depreciation and amortization 6,893 5,797
Deferred income taxes 1,919
Gain on settlement of royalty obligations (1,744)
Other, net 15
Change in operating assets and liabilities
(1995 is net of acquisition):
Accounts receivable-trade (7,453) (11,692)
Inventories (610) (1,311)
Prepaid expenses (7) 632
Accounts payable 1,422 (781)
Accrued expenses 3,124 118
Income taxes payable 1,984 2,059
----- -----
Net cash provided by operating activities 16,434 1,876
------ -----
Cash flows from investing activities:
Purchase of property, plant and equipment (16,670) (8,201)
Acquisition of business, net of cash acquired (2,275)
Other investing activities (112) (975)
Expenditures for computer software (1,054) (526)
------ ----
Net cash used in investing activities (17,836) (11,977)
------- -------
Cash flows from financing activities:
Proceeds from sale of common stock 44,886
Proceeds from exercise of stock options 41
Revolving credit borrowings, net 2,250 334
Proceeds of debt 2,357
Repayment of debt (748) (37,000)
Payment of costs related to initial public offering (1,230)
Payment of financing fees (119) (1,140)
---- ------
Net cash provided by financing activities 1,424 8,207
----- -----
Effect of exchange rate changes on cash 128 (36)
--- ---
Net increase (decrease) in cash 150 (1,930)
--- ------
Cash and cash equivalents, beginning of period 3,593 2,318
----- -----
Cash and equivalents, end of period $3,743 $388
====== ====
</TABLE>
See accompanying notes to condensed
consolidated financial statements.
<PAGE>
NIMBUS CD INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
1. Preparation of Interim Financial Statements
The condensed consolidated financial statements of Nimbus CD International,
Inc. (referred to as "Nimbus" or the "Company") have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission ("SEC"). In the opinion of management, these statements include
all adjustments necessary for a fair presentation of the financial position,
operating results and cash flows of all interim reporting periods reported
herein. All such adjustments are of a normal recurring nature. Certain
information and footnote disclosures prepared in accordance with generally
accepted accounting principles have been either condensed or omitted pursuant
to SEC rules and regulations. However, management believes that the
disclosures made are adequate for a fair presentation of results of
operations and financial position. It is suggested that these financial
statements be read in conjunction with the Company's audited financial
statements and notes thereto, together with management's discussion and
analysis of financial condition and results of operations, contained in the
Company's Annual Report to Stockholders incorporated by reference in the
Company's Annual Report on Form 10-K for the fiscal year ended March 31,1996.
The results of operations for the three and nine month periods ended December
31, 1996 are not necessarily indicative of the results for the entire fiscal
year ending March 31, 1997.
2. Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
<S> <C> <C>
Raw materials $2,162 $1,849
Work-in-process 437 263
Finished goods 340 65
--- --
$2,939 $2,177
========== =========
</TABLE>
3. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
<S> <C> <C>
Land, buildings and $19,171 $18,652
improvements
Machinery and equipment 53,003 46,986
Construction in progress 14,508 1,549
------ -----
86,682 67,187
Less accumulated depreciation (23,676) (16,378)
------- -------
Net property, plant and $63,006 $50,809
equipment ========= =========
</TABLE>
4. Commitments and Other Matters:
a) Capital Expenditures: At December 31, 1996 commitments for capital
expenditures amounted to approximately $4,831.
<PAGE>
b) Royalties: The Company is party to various licensing agreements for
technology associated with its product and the related manufacturing
process under which the Company is obligated to pay royalties ranging
from $.012 to $.05 per disc manufactured. In June 1995, the Company
reached a settlement with one licensing company and reduced its accrued
liability for this and certain other prior royalties by $1,744. This
royalty fee adjustment is reflected in cost of goods sold.
c) Litigation and related matters: On March 18, 1996, the Company received
notification from the United States Environmental Protection Agency
("EPA") alleging that the Company is a Potentially Responsible Party
("PRP") for the cleanup of surface water contamination at the Cherokee
Oil Company Site (the "Site") in Charlotte, North Carolina which was
used by the Company for the disposal of certain byproducts of its
manufacturing process. Subsequently, the U.S. Department of Justice
notified the Company that it intends to seek recovery of the
approximately $6,400 environmental cleanup cost incurred at the site
from the Company and other PRP's, each of which is considered jointly
and severally liable. The EPA has preliminarily determined that the
Company's share of the cleanup costs, based on the volume of material
contributed by the Company to the Site, will be approximately 5% of the
overall cost. The Company intends to challenge the EPA's basis of
allocation, but has recorded a $300 provision for settlement costs
associated with the cleanup of the Site. Management of the Company
believes that the ultimate settlement of this matter will not have a
material adverse effect on the Company's financial position or results
of operations.
5. Subsequent Events - EuroNimbus, S.A.
On January 29, 1997, the Company completed the formation of EuroNimbus, S.A.
("EuroNimbus") and announced plans to build a new, full service compact disc
replication plant in Luxembourg. EuroNimbus is owned 70% by Nimbus and 30% by
Saarbrucker Zeitung Verlag und Druckerei, Gmbh, and will invest approximately
$17 million for the new plant and associated equipment. The capital project
is anticipated to be financed by a combination of government grants and
loans, new borrowing, and shareholder contributions. It is expected that the
Nimbus contribution will be approximately $4 million.
6. Earnings Per Share
Earnings per share is based on the weighted average number of outstanding
common shares and dilutive options and warrants, determined by the treasury
stock method using the average trading price of the Company's common stock
during the three and nine month periods ending December 31, 1996.
7. Pro Forma Earnings per Share
The pro forma net income per share data presented in the accompanying
condensed consolidated statements of income for the three and nine month
periods ended December 31, 1995 has been computed based upon the total number
of shares issued and outstanding, net of treasury shares, at December 31,
1995, as adjusted for the following assumptions as if they had occurred on
April 1, 1995: (i) the assumed exercise of then outstanding warrants and
stock options, determined by the treasury stock method using the public
offering price of $7.00 per share for options and warrants granted within one
year prior to the October 31, 1995 Offering and the average market price for
options and warrants outstanding in periods after the Offering; (ii) the
issuance by the Company of 6,350,000 shares of common stock in the Offering
and 500,000 shares in a private placement; (iii) the application by the
Company of the net proceeds of the Offerings to repay $41.7 million of
outstanding debt; and (iv) an assumed average outstanding borrowing of
$28,300 at an average interest rate of 9.2%, resulting in a reduction of
interest expense of $445 ($276 net of tax) and $2,551 ($1,582 net of tax) for
the fiscal quarter and nine month period ended December 31, 1995.
Historical net income per share data for the fiscal 1995 periods has been
omitted as the historical capitalization of the Company prior to the Offering
and Private Placement is not indicative of its capital structure following
such events.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Three Months Ended December 31, 1996 and 1995
Net Sales. Total discs sold increased 33.3% to 50.0 million discs in the three
months ended December 31, 1996 from 37.5 million discs in the same period of
1995. The increase was primarily due to a 51.9% increase in CD-ROM unit sales to
31.3 million discs in the three months ended December 31, 1996 from 20.6 million
discs in the same period of 1995. CD-Audio unit sales increased 10.0% to 18.7
million units in the three months ended December 31, 1996 from 17.0 million
units in the same period of 1995. In the United States, total discs sold
increased 42.3% to 31.6 million units in the three months ended December 31,
1996 from 22.2 million units in the same period of 1995. The increase was
primarily due to an additional 5.1 million discs from the Company's Sunnyvale
facility which commenced CD production in August, 1996. United States CD-ROM
volume increased 57.2% to 22.8 million discs in the third fiscal quarter of 1997
from 14.5 million discs in the same period of fiscal 1996. CD-Audio volume
increased in the United States by 15.6% to 8.9 million discs in the three months
ended December 31, 1996 from 7.7 million discs in the third quarter of fiscal
1996. United Kingdom total unit sales increased 18.8% to 18.3 million discs in
the three months ended December 31, 1996 from 15.4 million discs in the same
period of 1995. CD-ROM volume increased 39.3% to 8.5 million discs from 6.1
million discs while CD-Audio sales units increased 5.4% to 9.8 million discs
during the third quarter of fiscal 1997 from 9.3 million units in the same
period of fiscal 1996. Net sales increased 10.1% to $40.4 million in the three
months ended December 31, 1996 from $36.7 million in the same period of 1995. CD
revenues increased 18.0% to $38.7 million in the three months ended December 31,
1996 from $32.8 million in the third quarter of fiscal 1996, while turnkey and
other related services of Nimbus Software Services, Inc. ("NSS") contributed
$1.3 million and $4.9 million of revenues for the three month periods ended
December 31, 1996 and 1995, respectively. The increase in net sales is due to
the increase in disc volumes described above, offset by a decline in the average
disc selling price from $0.84 to $0.77 for the three month periods ended
December 31, 1995 and 1996, respectively, or 8.3%. The price decline reflects an
industry increase in production capacity in both North America and Europe, a
change in sales mix from audio, which has a higher per unit packaging
configuration, to ROM, as well as a general decline in packaging pricing. In
addition, the Company has realized lower disc prices under a vendor supply
agreement, under which cost efficiencies resulting from increased production
volumes are reflected in the disc sales price.
Gross Profit. Gross profit increased 30.3% to $12.9 million in the three months
ended December 31, 1996 from $9.9 million in the same period of 1995. The gross
profit for the three month period ended December 31, 1995 included the reversal
of $0.3 million of accrued royalty expense resulting from settlements with
licensors of CD technology. Gross profit as a percent of net sales increased to
31.9% in the three months ended December 31, 1996 from 27.0% in the same period
of 1995. The increase in gross profit was primarily due to the higher unit
volume mentioned above, improved labor and production efficiencies resulting
from the higher unit volumes, and reduced raw material costs. In addition, the
Company's gross profit margin during the third quarter of fiscal 1997 was
favorably impacted by the change in production mix at the Sunnyvale facility
from turnkey and collateral related services to CD replication, which sales have
a higher gross margin. In future periods, the Company expects that cost of
revenues as a percentage of net revenues will continue to be impacted by the mix
of product sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 40.7% to $3.8 million in the three months
ended December 31, 1996 from $2.7 million in the same period of 1995. As a
percentage of net sales, selling, general and administrative expenses increased
to 9.4% in the three months ended December 31, 1996 from 7.3% in the same period
of the prior year. The prior year period includes a $0.2 million reversal of
accrued pension reserves in the United Kingdom. The increase in selling, general
and administrative expenses is attributable to higher legal and professional
fees, travel and consulting fees incurred in association with the Company's
management information system upgrade, and increased personnel, marketing, and
bad debt expenses incurred due to the expanded sales and marketing efforts in
the United States, and the increased level of sales noted above.
<PAGE>
Operating Income. Operating income increased 26.4% to $9.1 million in the three
months ended December 31, 1996 from $7.2 million in the same period of 1995. The
increase in operating income primarily reflects the higher unit volume mentioned
above. Operating income as a percentage of net sales increased to 22.5% in the
three months ended December 31, 1996 from 19.7% in the same period of 1995.
Interest Expense. Interest expense decreased to $ 0.7 million in the three
months ended December 31, 1996 from $1.1 million in the same period of 1995. The
decrease in interest expense reflects the application of the proceeds of the
Company's initial public offering in October 1995 to repay outstanding debt, as
well as lower worldwide interest rates when compared to the same period in the
prior fiscal year.
Income Taxes. Income tax expense increased to $3.0 million in the three months
ended December 31, 1996 from $2.2 million in the same period of 1995. The
increase in income tax expense is attributable to the increase in income before
taxes. The effective tax rate was 35.0% for the three months ended December 31,
1996 as compared with 35.9% for the three month period ended December 31, 1995.
Nine Months Ended December 31, 1996 and 1995
- --------------------------------------------
Net Sales. Total discs sold increased 29.8% to 119.9 million discs in the nine
months ended December 31, 1996 from 92.4 million discs in the same period of
1995. The increase resulted primarily from a 59.0% increase in CD-ROM volume to
70.6 million discs from 44.4 million discs for the nine month period ended
December 31, 1996 and 1995, respectively. The increase in CD-ROM unit sales was
experienced both in the United States, which increased 62.7% to 53.7 million
discs in fiscal 1997 from 33.0 million discs in fiscal 1996, and in the United
Kingdom, which increased 47.4% to 16.8 million discs from 11.4 million discs for
the nine months ended December 31, 1996 and 1995, respectively. Overall,
CD-Audio unit volume increased 2.7% to 49.3 million units for the nine months
ended December 31, 1995 from 48.0 million discs in the same period of the prior
fiscal year. The CD-Audio volume increase was 3.1% to 23.4 million units in the
United States and 2.2% to 25.9 million units in the United Kingdom for the first
nine months of fiscal 1997. Net sales increased 14.0% to $100.9 million for the
nine months ended December 31, 1996 from $88.5 million for the same period of
1995. Approximately $13.6 million of the sales increase is due to the increase
in disc volume, offset by a decrease in the average disc selling price from
$0.88 to $0.80, or 9.1%, while turnkey and other related services revenue
declined 32.3% from $6.2 million to $4.2 million.
Gross Profit. Gross profit increased 15.7% to $30.2 million for the nine month
period ended December 31, 1996 from $26.1 million in the same period of 1995.
The gross profit for the period ended December 31, 1995 included the reversal of
accrued royalties of $2.0 million to reflect settlements reached with licensors
of technology regarding prior royalty obligations. See Note 4(b) of Notes to
Condensed Consolidated Financial Statements. This adjustment was partially
offset by a $0.4 million writedown of obsolete production equipment. Gross
margin increased to 29.9% in the nine month period ended December 31, 1996 from
29.5% in the same period of 1995. Exclusive of the two non-recurring adjustments
noted above, gross profit as a percent of net sales for the nine month period
ended December 31, 1995 was 27.7%. The improved gross margin was attributable to
reduced raw material costs and increased per unit labor and overhead
efficiencies resulting from higher unit volumes, partially offset by higher
leasing costs related to expanded production capacity and the absorption of
factory overhead charges related to the start up of CD production at the
Sunnyvale facility.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 22.6% to $11.4 million in the nine month
period ended December 31, 1996 from $9.3 million in the same period of 1995. The
increase in the current year includes a $0.3 million reserve for environmental
clean-up costs, as well as higher administrative, personnel, professional and
consulting fees, and expanded sales and marketing costs due to the greater
number of production facilities and increased level of sales. The prior year
included an increase of $0.5 million in the allowance for doubtful accounts
resulting, in part, from the filing for bankruptcy by one of the Company's
customers. As a percentage of net sales, selling, general and administrative
expenses increased to11.3% in the nine months ended December 31, 1996 from 10.5%
in the same period of 1995.
<PAGE>
Operating Income. Operating income increased 12.5% to $18.9 million in the nine
month period ended December 31, 1996 from $16.8 million in the same period of
1995. The increase in operating income primarily reflects the higher unit volume
mentioned above. Operating income as a percent of net sales declined to 18.7% in
the nine months ended December 31, 1996 from 19.0% in the same period of 1995.
Interest Expense. Interest expense decreased to $2.0 million in the nine months
ended December 31, 1996 from $4.6 million in the same period of 1995. The
decrease in interest expense reflects the application of the proceeds of the
Company's initial public offering in October 1995 to repay outstanding debt.
Income Taxes. Income tax expense increased to $6.1 million in the nine months
ended December 31, 1996 from $4.4 million in the same period of 1995. The
effective tax rate was 35.6% for the nine months ended December 31, 1996 as
compared with 36.3% for the same period of 1995. The decrease in the effective
tax rate reflects the higher percentage of income attributable to United Kingdom
operations, which has a lower statutory rate than the United States.
Liquidity and Capital Resources
- -------------------------------
Working capital was $14.5 million at December 31, 1996 compared to $15.8 million
at March 31, 1996. Accounts receivable increased $8.3 million for the nine month
period ended December 31, 1996 due to higher sales volumes and inventories
increased $0.8 million to support the increased level of seasonal sales.
Accounts payable and accrued expenses increased $4.7 million for the nine month
period ended December 31, 1996, largely reflecting the timing of income tax and
royalty payments, and the remaining amounts due for equipment purchases.
Capital expenditures were $17.7 million for the nine months period ended
December 31, 1996. Capital expenditures in fiscal 1997 are related to the
installation of CD manufacturing capacity at the Sunnyvale facility, the
expansion of mastering capacity at the Provo facility, the addition of full DVD
manufacturing capacity at the Charlottesville facility, and equipment purchases
to increase manufacturing process efficiencies. The Company believes that these
capital expenditures and working capital requirements will be financed through a
combination of funds provided by operating activities and availability under its
borrowing arrangements.
On January 29, 1997 the Company completed the formation of EuroNimbus, S.A.
("EuroNimbus") and announced plans for the joint venture to build a new, 40,000
square foot CD replication plant in Luxembourg. See Note 5 of Notes to Condensed
Consolidated Financial Statements. EuroNimbus will invest approximately $17
million for the new plant and accompanying mastering, replication, printing, and
packaging equipment. The capital project is anticipated to be financed by a
combination of governmental grants and loans, new borrowing, and shareholder
contributions. It is expected that the Nimbus contribution will approximate $4
million.
Seasonality and Quarterly Information
- -------------------------------------
The Company's sales are seasonal, with peak sales activity normally occurring in
the third fiscal quarter as retail chains increase inventory before the holiday
season. As a result, operating income is typically higher in the third fiscal
quarter as fixed operating costs are spread over generally higher sales volume.
In addition, in order to provide for capacity demands, long lead time production
equipment is typically ordered for delivery during the first fiscal quarter and,
to a lesser extent, the second fiscal quarter. Equipment installations generally
result in some level of production inefficiency which may have a negative impact
on margins. The effect on margins may be amplified when equipment is installed
in the lower sales volume first and second quarters. Further, pricing and unit
volumes can impact comparative quarterly financial results either positively or
negatively in a manner that may not necessarily be indicative of a full year's
results.
"Safe Harbor" Statement
- ------------------------
(under the Private Securities Litigation Reform Act of 1995)
The statements included or incorporated by reference into the Company's
Securities and Exchange Commission filings and shareholder communications which
are not historical facts are forward-looking statements that involve risks and
uncertainties, including, but not limited to, the effect of changing CD
technology and the possibility that, over time, CD technology could be replaced
by another form of information storage and retrieval technology, the dependence
of the Company's growth prospects on the development of new technologies that
achieve market acceptance and create new demand for CDs and related services and
the highly competitive nature of the CD manufacturing industry which may
adversely affect prices for CDs and other aspects of the Company's business.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On March 18, 1996, the Company received notification from the United States
Environmental Protection Agency ("EPA") alleging that the Company is a
Potentially Responsible Party ("PRP") for the cleanup of surface water
contamination at the Cherokee Oil Company Site (the "Site") in Charlotte, North
Carolina which was used by the Company for the disposal of certain byproducts of
its manufacturing processes. Subsequently, the U.S. Department of Justice
notified the Company that it intends to seek recovery of the approximately $6.4
million environmental cleanup cost incurred at the Site from the Company and the
other PRPs each of which is considered jointly and severally liable. At a
meeting held June 27, 1996, the EPA indicated that it intends to allocate the
cleanup costs among the PRPs based on the volume of product disposed at the Site
by each PRP. The EPA has preliminarily determined that the Company's share of
the cleanup costs, based on the EPA's estimate of the volume of material
contributed by the Company to the Site, will be approximately 5% of the overall
cost. The Company has joined a group of major PRPs which has formed the Cherokee
Sites Interim Group ("The Interim Group"), which is currently seeking to reduce
the aggregate settlement costs to the major PRPs. The Company has recorded a
$300,000 provision for settlement costs associated with the cleanup of the Site.
Management of the Company believes that the ultimate settlement of this matter
will not have a material adverse effect on the Company's financial position or
results of operations.
From time to time, the Company is involved in litigation that it considers to be
in the normal course of business.
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibit 11 - Computation of Net Income Per Share of Common Stock.
B. Reports on Form 8-K. No reports on form 8-K were filed during the
quarter ended December 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 12, 1997
NIMBUS CD INTERNATIONAL, INC.
(Registrant)
/S/ L. Steven Minkel
--------------------
L. Steven Minkel
Executive Vice President and
Chief Financial Officer
/S/ Gary E. Krutul
------------------
Gary E. Krutul
Corporate Controller
(Principal Accounting Officer)
<PAGE>
Exhibit 11
NIMBUS CD INTERNATIONAL, INC.
COMPUTATION OF NET INCOME PER SHARE OF COMMON STOCK
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Primary and Fully Diluted (A):
Weighted average common shares outstanding 20,869 13,933 20,859 13,847
Net additional common shares issuable upon
exercise of dilutive warrants and stock
options, determined by the treasury stock
method using the estimated initial public
offering price for options and warrants
granted within one year prior to the
Offering and Private Placement and the
average market price for options and
warrants outstanding in periods after
the Offering and Private Placement 2,089 2,103 2,152 2,093
Issuance of common shares by the Company
in the Offerings and Private Placement 6,850 6,850
----- -----
Common shares and equivalents - 1995 is
pro forma for the Offering and Private
Placement 22,958 22,886 23,011 22,790
====== ====== ====== ======
Net income - 1995 is pro forma for the
Offering and Private Placement $5,510 $4,257 $11,066 $9,366
====== ====== ======= ======
Earnings per share - 1995 is pro forma
for the Offering and Private Placement $0.24 $0.19 $0.48 $0.41
===== ===== ===== =====
</TABLE>
(A) See Note 6 and 7 of Notes to Condensed Consolidated Financial Statements.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000919550
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 3,743
<SECURITIES> 0
<RECEIVABLES> 34,423
<ALLOWANCES> 2,153
<INVENTORY> 2,939
<CURRENT-ASSETS> 43,637
<PP&E> 86,682
<DEPRECIATION> 23,676
<TOTAL-ASSETS> 113,265
<CURRENT-LIABILITIES> 29,170
<BONDS> 0
0
0
<COMMON> 390
<OTHER-SE> 54,175
<TOTAL-LIABILITY-AND-EQUITY> 113,265
<SALES> 100,942
<TOTAL-REVENUES> 100,942
<CGS> 70,704
<TOTAL-COSTS> 70,704
<OTHER-EXPENSES> 11,381
<LOSS-PROVISION> 672
<INTEREST-EXPENSE> 1,972
<INCOME-PRETAX> 17,178
<INCOME-TAX> 6,112
<INCOME-CONTINUING> 11,066
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,066
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.48
</TABLE>
