UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- ------------------------------------------------------------------------------
FORM 10-Q
- ------------------------------------------------------------------------------
(Mark One)
X Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities
Exchange Act Of 1934.
For the quarterly period ended June 30, 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: 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 officers)
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 August 12, 1997 there were 20,870,579 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 Sheets
June 30, 1997 and March 31, 1997.........................3
Condensed Consolidated Statements of Income
Three months ended June 30, 1997 and 1996................4
Condensed Consolidated Statements of Cash Flows
Three months ended June 30, 1997 and 1996................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.......................................10
Signatures..............................................12
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NIMBUS CD INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<S> <C> <C>
June 30, March 31,
1997 1997
------------ ------------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ $
9,223 7,790
Accounts and notes receivable, less
allowances for doubtful accounts of 25,941 26,393
$2,670 and $1,812
Inventories 1,702 2,217
Prepaid expenses 1,231 1,329
Deferred income taxes 3,430 3,415
------------ ------------
Total current assets 41,527 41,144
------------ ------------
Property, plant and equipment, net 66,734 63,431
Other assets and intangibles 3,656 3,697
============ ============
$ 111,917 $ 108,272
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable 7,554 5,617
Current portion of long-term debt 5,595 5,159
Accrued expenses and other liabilities 15,086 13,533
Income taxes payable 7,211 6,665
------------ ------------
Total current liabilities 35,446 30,974
------------ ------------
Long-term debt 18,143 20,840
Deferred income taxes 3,579 3,561
Other liabilities 1,471 475
Commitments and contingencies 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
39,012,786 shares issued; 20,870,579 390 390
shares outstanding
Paid-in capital 66,775 66,775
Retained earnings 32,674 31,969
Cumulative foreign currency translation 529 378
adjustments
------------ ------------
100,368 99,512
Treasury stock, at cost, 18,142,207 (47,090) (47,090)
shares
------------ ------------
Total stockholders' equity 53,278 52,422
============ ============
$ 111,917 $ 108,272
============ ============
</TABLE>
See accompanying notes to condensed
consolidated financial statements.
<PAGE>
NIMBUS CD INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<S> <C> <C>
Three months ended
June 30,
1997 1996
---------- ----------
Net sales $ 28,222 $ 29,229
Cost of goods sold 21,304 21,277
---------- ----------
Gross profit 6,918 7,952
Selling, general and administrative 5,282 4,219
expenses
---------- ----------
Operating income 1,636 3,733
Interest expense 698 600
Other (income) expense, net (217) (80)
---------- ----------
Income before income taxes 1,155 3,213
Provision for income taxes 450 1,204
========== ==========
Net income $ 705 $2,009
========== ==========
Earnings per share $ 0.03 $ 0.09
========== ==========
Weighted average shares outstanding 22,961 23,025
========== ==========
</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>
<S> <C> <C>
Three Months Ended
June 30
1997 1996
---------- ---------
Cash flows from operating activities:
Net income $ 705 $ 2,009
Adjustments to reconcile net income to net cash
provided by operating
activities:
Depreciation and amortization 3,033 2,050
Other, net (11) 9
Change in operating assets and liabilities:
Accounts receivable-trade 697 541
Inventories 529 (346)
Prepaid expenses 110 (123)
Accounts payable 1,756 1,826
Accrued expenses 1,484 1,046
Income taxes payable 445 1,417
---------- ---------
Net cash provided by operating activities 8,748 8,429
---------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (5,752) (5,920)
Expenditures for computer software (134) (276)
Other investing activities (47) (34)
---------- ---------
Net cash used in investing activities (5,933) (6,230)
---------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options 41
Revolving credit borrowings, net (750) 1,000
Repayment of debt (1,780)
Capital contribution by minority interest 1,010
---------- ---------
Net cash (used in) provided by financing (1,520) 1,041
activities
Effect of exchange rate changes on cash 138 90
Net increase in cash 1,433 3,330
---------- ---------
Cash and cash equivalents, beginning of period 7,790 3,593
========== =========
Cash and equivalents, end of period $ 9,223 $ 6,923
========== =========
</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") for the three month periods
ended June 30, 1997 and 1996 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 31,1997. The results of operations
for the three months ended June 30, 1997 are not necessarily indicative of
the results for the entire fiscal year ending March 31, 1998.
2. Inventories
Inventories consisted of the following:
<TABLE>
<S> <C> <C>
June 30, March 31,
1997 1997
Raw materials $ 1,258 $ 1,518
Work-in-process 96 236
Finished goods 348 463
=========== ===========
$ 1,702 $ 2,217
=========== ===========
</TABLE>
3. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
<TABLE>
<S> <C> <C>
June 30, March 31,
1997 1997
Land, buildings and improvements $ 20,997 $ 20,865
Machinery and equipment 68,151 62,925
Construction in progress 6,237 5,976
----------- ----------
95,385 89,766
Less accumulated depreciation (28,651) (26,335)
----------- ----------
Net property, plant and equipment $ 66,734 $ 63,431
=========== ==========
</TABLE>
<PAGE>
4. Commitments and Other Matters:
a) Capital Expenditures: At June 30, 1997, commitments for capital
expenditures amounted to approximately $6,917.
b) Litigation and related matters: On March 18, 1996, the Company received
notification from the United States Environmental Protection Agency
("EPA") alleging that the Company was 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 intended 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 was considered
to be jointly and severally liable. In April, 1997, the Company and
numerous other PRPs reached a settlement with the EPA. Under the terms
of the settlement, 58 PRPs and the Site owner have reimbursed the EPA
$4.0 million for the cleanup costs. The Company's share of the
aggregate settlement, paid June 25, 1997, was $277, which was fully
provided for at March 31, 1997.
5. Accounting Standard Changes
Effective March 31, 1998, the Company will adopt Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 128
"Earnings Per Share" which will supersede Accounting Principles Board
Opinion No. 15 "Earnings Per Share". This new statement requires that
"basic earnings per share" be computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding for the period. "Diluted earnings per share" will reflect the
potential dilution if stock options or other securities would result in
the issuance or exercise of additional shares of common stock. Early
adoption of the standard is prohibited; however, the Company has computed
the pro forma earnings per share amounts using the new standard as
follows:
<TABLE>
<S> <C> <C>
Three Months Ended June 30, ------------------------
1997 1996
----------- -----------
Basic earnings per share $0.03 $0.10
Diluted earnings per share $0.03 $0.09
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
Net Sales. Total discs sold increased 11.5% to 36.8 million discs in the three
months ended June 30, 1997 from 33.0 million discs in the same period of 1996.
The increase was the result of a 26.1% increase in CD-Audio unit sales to 16.9
million discs in the three months ended June 30, 1997 from 13.4 million discs in
the same period of 1996. CD-ROM unit sales increased 0.5% to 19.7 million units
in the three months ended June 30, 1997 from 19.6 million units in the same
period of 1996. In the United States, CD-Audio volume increased 20.3% to 7.7
million discs in the three month period ended June 30, 1997 from 6.4 million
discs in the same period of 1996. United Kingdom CD-Audio unit volume increased
31.4% to 9.2 million discs from 7.0 million discs. CD-ROM sales decreased in the
United States by 11.0% to 13.7 million discs in the quarter ended June 30, 1997
from 15.4 million discs in the same period of 1996, while the United Kingdom
experienced a 42.9% increase in CD-ROM unit sales to 6.0 million discs in the
quarter ended June 30, 1997 from 4.2 million units in the same period of 1996.
In addition, 182,000 DVD discs were sold in the United States during the three
month period ending June 30, 1997.
Net sales decreased 3.4% to $28.2 million in the three months ended June 30,
1997 from $29.2 million in the same period of 1996 due to the closing of the
Company's Sunnyvale facility which operated as Nimbus Software Services, Inc.
("NSS"). NSS contributed revenues of $2.2 million from turnkey and other related
services for the three month period ended June 30, 1996 compared to $0.3 million
for the same period of 1997. Compact disc revenues, including DVD, and related
services increased 3.3% to $27.9 million in the three month period ended June
30, 1997 from $27.0 million for the same period of the prior year. The increase
in CD revenues is attributable to the increase in disc unit volumes, which was
largely offset by the continued decline in disc prices. The average per disc
selling price decreased to $.75 from $.82 for the quarters ended June 30, 1997
and 1996, respectively, or 8.5%. The price decline was experienced both in the
United States and the United Kingdom, and was partially mitigated by favorable
currency exchange rate changes between the two countries, as well as a shift in
sales mix from CD-ROM to CD-Audio, which typically has a higher per unit
packaging configuration.
Gross Profit. Gross profit decreased 13.8% to $6.9 million in the three months
ended June 30, 1997 from $8.0 million in the same period of 1996. Gross profit
as a percent of net sales decreased to 24.5% in the three months ended June 30,
1997 from 27.4% in the same period of 1996. The decrease in the Company's gross
profit margin during the first quarter of fiscal 1998 was due primarily to a
$0.9 million increase in depreciation expense resulting from capital expansion
and acquisition projects in fiscal 1997 and 1998 in both the United States and
the United Kingdom. Also, the Company incurred additional factory overhead
charges, primarily labor and transportation, associated with transferring the CD
manufacturing equipment and inventory from the Sunnyvale facility to the Provo
plant. These costs were largely offset by reduced raw material and packaging
costs and a reduction in the overall level of factory overhead charges due to
the closure of the Company's Sunnyvale facility. The Company anticipates
improvement in gross profit as a percentage of sales as depreciation charges are
absorbed by higher production volumes and the Company continues to realize the
benefits of restructuring its North American operations into the two remaining
plants.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses increased 26.2% to $5.3 million in the three months
ended June 30, 1997 from $4.2 million in the same period of the prior year. As a
percentage of net sales, selling, general and administrative expenses increased
to 18.8% in the three months ended June 30, 1997 from 14.4% in the same period
of the prior year. The increase in the current year included a $0.5 million
increase in the allowance for doubtful accounts and $0.3 million of costs
incurred in the process of establishing the EuroNimbus operations in Luxembourg.
In addition, the Company experienced higher legal and professional fees, and
higher sales and marketing costs associated with efforts to penetrate the OEM
and DVD markets. The prior year selling, general and administrative expenses
included a $0.2 million provision for the Cherokee Oil Company Site
environmental clean-up costs.
<PAGE>
Operating Income. Operating income decreased 43.2% to $1.6 million in the three
months ended June 30, 1997 from $3.7 million in the same period of 1996. The
decrease in operating income was due to the lower net sales, higher depreciation
and selling, general and administrative expenses mentioned above. Operating
income as a percent of net sales decreased to 5.7% in the three months ended
June 30, 1997 from 12.7% in the same period of 1996.
Interest Expense. Interest expense increased to $0.7 million in the three months
ended June 30, 1997 from $0.6 million in the same period of 1996. The increase
in interest expense reflects an increase in the Company's effective interest
rate in the first quarter of fiscal 1998.
Income Taxes. Income taxes decreased to $0.4 million in the three months ended
June 30, 1997 from $1.2 million in the same period of the prior year due to
lower income before income taxes. The effective tax rate was 39.0% for the three
months ended June 30, 1997 as compared with 37.5% for the prior year's quarter.
The increase in the Company's effective income tax rate reflects the Company's
inability to record income tax benefits on losses incurred by its new European
operations in Luxembourg.
Liquidity and Capital Resources
Working capital, which consists primarily of cash, cash equivalents, accounts
receivable, and inventories, was $6.1 million at June 30, 1997, compared to
$10.2 million at March 31, 1997. Operating activities provided net cash of $8.7
million in the three month period ended June 30, 1997 compared with $8.4 million
in the prior year period. Accounts payable, accrued expenses and income taxes
payable increased $3.7 million due to expenditures for capital equipment and the
timing of income tax and royalty payments.
Capital expenditures were $5.9 million for the three month period ended June 30,
1997. Capital expenditures in fiscal 1998 are related to the expansion of
compact disc manufacturing capacity, the replacement and expansion of ancillary
production equipment, and the continued upgrading of the Company's worldwide
management information system. 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.
Accounting Standard Changes
Effective March 31, 1998, the Company will adopt Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 128 "Earnings Per Share"
which will supersede Accounting Principles Board Opinion No. 15 "Earnings Per
Share". This new statement requires that "basic earnings per share" be computed
by dividing income available to common stockholders by the weighted average
number of common shares outstanding for the period. "Diluted earnings per share"
will reflect the potential dilution if stock options or other securities would
result in the issuance or exercise of additional shares of common stock. Early
adoption of the standard is prohibited; however, the Company has computed the
pro forma earnings per share amounts using the new standard as follows:
<TABLE>
<S> <C> <C>
Three Months Ended June 30,
---------------------------
1997 1996
------------ ------------
Basic earnings per share $0.03 $0.10
Diluted earnings per share $0.03 $0.09
</TABLE>
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 was 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 intended to seek recovery of the approximately $6.4
million environmental cleanup cost incurred to remediate the Site from the
Company and the other PRPs, each of which was considered to be jointly and
severally liable. In April, 1997, the Company and numerous other PRPs reached a
settlement with the EPA. Under the terms of the settlement, 58 PRPs and the Site
owner have reimbursed the EPA $4.0 million for the cleanup costs. The Company's
share of the aggregate settlement, paid June 25, 1997, was $277, which was fully
provided for at March 31, 1997.
The Company is, from time to time, involved in litigation that it considers to
be in the ordinary 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 June 30,
1997.
<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: August 12, 1997
NIMBUS CD INTERNATIONAL, INC.
(Registrant)
L. Steven Minkel
Executive Vice President and
Chief Financial Officer
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>
<S> <C> <C>
Three months ended June 30,
1997 1996
------------ ------------
Primary and Fully Diluted:
Weighted average common shares 20,870 20,839
outstanding
Netadditional common shares issuable
upon exercise of dilutive warrants and
stock options, determined by the treasury
stock method using the average market
price for options and warrants out- 2,091 2,186
standing during the periods
------------ ------------
Common shares and equivalents. 22,961 23,025
============ ============
Net income. $ 705 $ 2,009
============ ============
Earnings per share. $ 0.03 $ 0.09
============ ============
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<CIK> 0000919550
<NAME> Nimbus CD International, Inc.
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 9,223
<SECURITIES> 0
<RECEIVABLES> 28,611
<ALLOWANCES> 2,670
<INVENTORY> 1,702
<CURRENT-ASSETS> 41,527
<PP&E> 95,385
<DEPRECIATION> 28,651
<TOTAL-ASSETS> 98,660
<CURRENT-LIABILITIES> 35,446
<BONDS> 0
0
0
<COMMON> 390
<OTHER-SE> 52,888
<TOTAL-LIABILITY-AND-EQUITY>111,917
<SALES> 28,222
<TOTAL-REVENUES> 28,222
<CGS> 21,304
<TOTAL-COSTS> 21,304
<OTHER-EXPENSES> 5,282
<LOSS-PROVISION> 888
<INTEREST-EXPENSE> 698
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