FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


(Mark One)

[ X ]       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
            SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

            For the fiscal year ended March 31, 1998

                                      OR

[   ]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
            SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
            For the transition period from    to

                        Commission file number 0-26902

                         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 number)

       623 Welsh Run Road, Guildford Farm, Ruckersville, Virginia 22968
                   (Address of principal executive offices)

         Registrant's telephone number, including area code: (804) 985-1100

             Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock, par value $0.01
                               (Title of Class)

      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.

      As of June 15,  1998,  there were  11,894,061  shares of the  Registrant's
common stock outstanding and the aggregate market value of such shares (based on
the closing sale price of such shares on the Nasdaq  National Market on June 15,
1998) was approximately  $125,631,019.  Shares of the Registrant's  common stock
held by each  executive  officer and director and by each entity that owns 5% or
more of the  Registrant's  common stock have been  excluded in that such persons
may be deemed to be affiliates.  This  determination  of affiliate status is not
necessarily a conclusive determination for other purposes.

<PAGE>
                                TABLE OF CONTENTS

                                     PART I

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

                                     PART II

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

                                    PART III

Item 10.          Directors and Executive Officers of the Registrant
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

Signatures

Exhibit Index

<PAGE>

                                     PART I

ITEM 1.   BUSINESS

Overview

Nimbus  CD  International,  Inc.  ("Nimbus"  or  the  "Company")  is  a  leading
independent  manufacturer  of compact discs ("CD") and digital  versatile  discs
("DVD") for  distribution  in North America,  the United Kingdom and continental
Europe.  Having established one of the first CD manufacturing  facilities in the
world in 1982,  Nimbus was a pioneer in CD  production,  and currently  serves a
broad  base of  customers  from two  manufacturing  sites in the  United  States
(Charlottesville,  Virginia  and Provo,  Utah),  one site in the United  Kingdom
(Cwmbran, Wales) and a new facility in Foetz, Luxembourg.  The Company has grown
rapidly since its entry into CD production,  driven  initially by demand for CDs
providing storage and playback of pre-recorded music  ("CD-Audio"),  followed by
the rapid emergence of "read only memory" CDs ("CD-ROM"),  which permit the cost
efficient  storage and retrieval of any  combination  of data,  text,  graphics,
audio and video,  and the recent  introduction of DVD products for video and ROM
applications.  Nimbus offers more than 2,000  customers an  integrated  range of
services  including  authoring,  pre-mastering and mastering,  disc replication,
holography,  packaging assembly and order  fulfillment.  The Company focuses its
marketing  efforts primarily on independent  record labels,  multimedia and game
software   developers,   personal   computer   ("PC")  hardware  and  peripheral
manufacturers  ("OEMs") and the  entertainment  industry,  all of which demand a
high level of service. The Company meets customer expectations by providing high
quality product at a competitive price within a short turnaround time.

The Company was  organized  in October  1992 as a Delaware  corporation  for the
purpose of acquiring the CD manufacturing  operations of Nimbus Records Limited.
The  Company's  principal  executive  office is  located  at 623 Welsh Run Road,
Guildford Farm,  Ruckersville,  Virginia 22968, and its telephone number at that
location is (804) 985-1100.  The Company's  Common Stock is traded on the Nasdaq
National Market under the symbol "NMBS".  Except as otherwise noted herein,  all
references to "Nimbus" or the "Company" shall mean Nimbus CD International, Inc.
and its subsidiaries.

Recent Developments

Subsequent Event

On June 16, 1998, the Company  entered into an Agreement and Plan of Merger with
Carlton  Communications  Plc  ("Carlton"),  pursuant  to which a  subsidiary  of
Carlton would acquire all of the  Company's  outstanding  common stock through a
tender offer at $11.50 per share, or a total consideration of approximately $264
million.  Consummation of the merger transaction is subject to normal regulatory
filings  and  approval  of the  Company's  stockholders.  Certain  stockholders,
including  management  of  the  Company,  control  an  aggregate  of  44% of the
Company's  common stock,  and have agreed to tender their shares when requested.
Following the close of the  transaction,  the Company will operate as a division
of Carlton's Technicolor Packaged Media Group.

Divx Agreement

On April 8, 1998, the Company entered into a replication and services  agreement
(the "Divx Agreement") with Digital Video Express,  LP, pursuant to which Nimbus
will perform certain  replication and  serialization  services with regard to an
extension  of  DVD  technology  which  results  in  an  encrypted,  individually
serialized  product  (a "Divx  disc")  which is  proprietary  to  Digital  Video
Express.  Nimbus  became the first of only a few  suppliers  selected to produce
discs  in  this  format.  Potentially,   the  five-year  agreement  may  require
production  of over 150 million Divx discs in  increasing  amounts over the term
depending on the growth and  acceptance  of the Divx  technology in the consumer
marketplace.

<PAGE>

DVD Production

In April 1998,  the Company  announced  that it had  committed to expand its DVD
production  capacity to accommodate an anticipated  increase in demand for DVDs.
New equipment, which will be installed in Nimbus' United States operations, will
support all DVD formats,  including  DVD-9 as well as Divx.  The expansion  will
increase  Nimbus'  annual DVD  production  capacity by 12 million discs over the
existing U.S. capacity of 12 million DVD discs,  which includes DVD-9 capability
installed in the fall of 1997. In addition, in April 1998, the Company installed
its first DVD line in the Cwmbran, Wales facility which management believes will
position  Nimbus to be an early  participant in the European DVD market.  All of
the major  Hollywood  movie studios have  committed to the DVD and Divx formats,
and release  schedules  are expected to be expanded and  accelerated  throughout
1998.  DVD-ROM  product  is also  expected  to be  produced  this year as add-on
DVD-ROM drives are marketed and new PCs are fitted with DVD-ROM drives.

Microsoft Authorized Replicator Status

In July 1997, Microsoft Corporation  ("Microsoft") designated the Company's U.S.
operations as Authorized Replicators. In January 1998, the Company's Cwmbran and
Luxembourg plants received similar designations. The Company is one of a limited
number of compact disc replicators to receive such designation. As an Authorized
Replicator,  Nimbus is approved to supply complete OEM products including CD-ROM
disc manufacturing,  print collateral materials,  packaging assembly and related
order  fulfillment  services  for  all  Microsoft  licensed  Original  Equipment
Manufacturers  (OEMs) and Delivery  Service  Partners  (DSPs) in each respective
territory. Receiving this status is a key component in the Company's strategy of
building a national and international OEM customer base for CD-ROM products.

Termination of Agreement with the Successor to R.R. Donnelley & Sons Company

In April 1994,  the Company  entered into a strategic  alliance (the  "Strategic
Agreement")  with R.R.  Donnelley  & Sons  ("Donnelley"),  pursuant to which the
Company  established a multi-line CD manufacturing  facility in Provo,  Utah. In
April 1995,  Donnelley assigned  substantially all of its rights and obligations
under the  Strategic  Agreement  and  transferred  shares of Nimbus Common Stock
which  Donnelley  had  purchased   under  the  Strategic   Agreement  to  Stream
International, Inc. ("Stream"), Donnelley's majority-owned subsidiary. Effective
April 1, 1997,  the  Strategic  Agreement was amended and restated and set forth
Stream's  commitment  to purchase 27.5 million discs during fiscal 1998 and 20.6
million  discs  during  the first  nine  months of fiscal  1999.  The  Strategic
Agreement  was  scheduled to terminate on December 31, 1998.  In December  1997,
Stream  assigned  substantially  all of its  rights  and  obligations  under the
Strategic Agreement to Modus Media International,  Inc. ("MMI"). Effective March
31,  1998,  the  Company  and MMI  determined  that it was in their  mutual best
interests to terminate the Strategic Agreement.

Commencement of European Production

On November  24,  1997,  the  Company's  European  subsidiary,  EuroNimbus  S.A.
("EuroNimbus")  commenced commercial  production of CDs at its new 40,000 square
foot  full  service  compact  disc  replication  plant  in  Foetz,   Luxembourg.
EuroNimbus  is 70% owned by Nimbus  Manufacturing  (UK) Limited and 30% owned by
Saarbrucker Zeitung Verlag and Druckerei, GmbH, a newspaper and printing company
headquartered in Saarbrucken,  Germany. The initial capitalization of EuroNimbus
was $15.7 million,  which was funded by a combination  of government  grants and
loans, new bank borrowings and capital  contributions.  The Company  contributed
approximately  $4.2  million to the joint  venture.  The plant is a full service
facility, initially capable of manufacturing 20 million CDs annually, and all of
the equipment is DVD capable.  The Luxembourg location is near major markets for
CDs and DVDs in Germany,  France, Belgium and the Netherlands,  and is supported
by a  strategically-located  and experienced  team of sales and customer service
personnel.  The new facility will be complementary to the Cwmbran plant and will
allow Nimbus to better support the requirements of its multinational customers.

<PAGE>

Industry Overview

Since its  introduction in 1982, CD technology has evolved from serving a narrow
set of applications to becoming the preferred  medium for the storage of digital
information.  On a cost per megabyte basis, CDs continue to compare favorably to
available  alternatives  for  high-capacity  applications  such as floppy disks,
magnetic tape and hard drives. As a result, CD technology is the dominant format
in the  audio  market  and is a  leading  technology  in the  data  storage  and
retrieval  markets.  The  video  market  is the  next  logical  extension  of CD
technology through the application of the DVD format.

CD-Audio Market.  The established  market for pre-recorded music represented the
first  major  application  of CD  technology.  In the eight  years  ended  1997,
worldwide  sales  of  full  length  pre-recorded  music  (CD-Audio,  LPs,  audio
cassettes) grew from  approximately 2.7 billion to 3.8 billion units, a compound
annual growth rate of 5.0%.  Over the same period,  full length  CD-Audio  sales
increased  167%  from  approximately  900  million  to  2.4  billion  units  and
short-play CD singles contributed  approximately 414 million additional units in
1997, up from 90 million units eight years earlier.

Consumer  acceptance of CD-Audio has been driven by its  superiority  over other
formats in terms of sound quality,  random accessing and indexing of data and by
the market penetration of CD players.  CD-Audio has become the standard for home
audio systems and significant market expansion has resulted from increased sales
of in-car and portable players. In the United States and Europe, the major world
markets in which the Company  participates,  approximately  342 million CD-Audio
players  were in use in  1997,  representing  household  penetration  (including
multiple ownership by individual  households) of approximately 133%. By the year
2000, the Company  estimates that 457 million  CD-Audio  players will be in use,
representing  household penetration  (including multiple ownership by individual
households) of more than 173%.

CD-Audio  manufacturing is dominated by manufacturing  organizations  affiliated
with the five major international music companies:  Sony, PolyGram,  Warner, BMG
and  EMI.  Collectively,   the  CD  manufacturers  affiliated  with  these  five
organizations (the "Music Company Manufacturers")  produced approximately 51% of
the  1997  world  output  of  CD-Audio,  primarily  to meet  the  needs of their
affiliated   record  labels.   The  independent   record  labels  accounted  for
approximately  26% of 1997  CD-Audio unit sales.  These  companies are generally
served by  "non-affiliated"  or  independent  CD  manufacturers,  including  the
Company, because of their smaller average unit runs and their greater need for a
broad range of services, such as pre-mastering and mastering,  disc replication,
packaging and shipping,  in addition to short turnaround times. The five largest
independent CD manufacturers,  excluding the Company, produced approximately 15%
of worldwide  CD-Audio output in 1997. In 1997, the Company  believes it was the
sixth largest, worldwide, independent CD-Audio manufacturer.

CD-ROM/DVD-ROM  Market.  CD-ROM is an extension of CD technology  which provides
storage and retrieval of any  combination  of data,  text,  graphics,  audio and
video.  CD-ROM is ideally suited to applications  involving the storage of large
amounts of stable  information  in a form which can be  distributed to a diverse
user  population.  CD-ROM was  introduced  in the late  1980s and was  initially
limited to business and professional applications such as library references and
parts catalogs.  Increasingly,  the widespread presence of PCs and CD-ROM drives
has  created  a  consumer  marketplace  for  applications  created  by  software
developers,  game developers,  database  publishers,  multimedia  publishers and
developers of "edutainment" products.

The Company believes that the expanded  information density afforded by DVD will
be employed by CD-ROM content owners who wish to incorporate a significant video
component in their material.  DVD-ROM product is beginning to be offered and all
major PC  manufacturers  are  shipping PCs with  built-in  DVD-ROM  drives.  The
Company  expects that OEM customers will bundle DVD-ROM product with PC hardware
and  peripherals.  Add-on DVD-ROM drives will also be available to the consumer.
Game and multimedia  developers are expected to lead the  development of DVD-ROM
products.

<PAGE>

Worldwide CD-ROM demand was estimated to be 30 million units in 1992 and grew to
1,062  million  units in 1997, a compound  annual  growth rate of 104%,  and the
Company  expects total ROM units to grow to  approximately  1.4 billion units by
2001. The market for  business-oriented  applications  is large and growing as a
result of the demand for  software  and other  database  products.  The consumer
market has also  continued to exhibit  substantial  growth.  This market has two
primary segments:  proprietary  CD-ROM game players such as "Sega Saturn," "Sony
Playstation" and "3DO" and home applications for PCs equipped with either CD-ROM
or DVD-ROM  drives.  In the United States and Europe,  the markets served by the
Company,  the Company  expects the installed  base of ROM drives to grow from 38
million in 1995 to 213 million by 2001.

The Music Company Manufacturers  collectively produced 25% of the 1997 worldwide
output of CD-ROM units. The five largest independent CD manufacturers, including
the  Company,  collectively  produced  approximately  29% of the 1997  worldwide
output of CD-ROM units.  The remaining 1997 CD-ROM worldwide output was produced
by approximately 243 small to medium size CD manufacturing operations. Nimbus is
the third largest CD-ROM  manufacturer in North America and the sixth largest in
Europe.

DVD-Video Market.  The new DVD format is capable of holding a full length motion
picture (135 minutes) on a CD-sized  disc with video and audio quality  superior
to current videocassette technology.  DVD has far greater information density as
well as a new playback technology. The Company has been capable of manufacturing
the DVD format since  November of 1996 and currently has the capacity to produce
1.2 million DVD discs per month.

Initially,  the  primary  applications  for the DVD format  will be  traditional
motion pictures and video applications.  Unlike videocassettes,  DVD experiences
no image or sound  degradation with normal use, offers greater storage capacity,
indexing and random access and lower manufacturing cost. The storage capacity of
the DVD format also allows for added features such as multiple foreign languages
and subtitles,  six-channel surround sound, director's notes,  story-based games
and other CD-ROM applications.  DVD players are commercially available at retail
prices  ranging from $350 to $600 and more than 1,000 motion  picture titles are
expected to be available by July 1998.  DVD is expected to compete most directly
with  the  market  for  videocassette  sales  (sell-through)  which  in 1997 was
estimated to total over 1.1 billion  units across the three major world  regions
of the U.S., Europe and Japan.

In the same three world  markets,  sources  estimate that 28.8 million DVD discs
were  manufactured  in 1997,  the first year of commercial  availability  of DVD
products.  The United States and European  markets in which the Company competes
accounted for approximately 54% of this volume.  Approximately 113.8 million DVD
discs are  expected  to be  produced  in the three  major  markets in 1998.  DVD
manufacturing  was dominated in 1997 by manufacturing  organizations  affiliated
with major home video  studios:  Warner,  Columbia/Tri-Star  and  MCA/Universal.
Collectively,  the DVD manufacturers  affiliated with these three  organizations
produced  approximately 71.7% of the 1997 world output of DVD units. The Company
has targeted the major studios  without  manufacturing  capacity:  Disney,  20th
Century Fox, Paramount and MGM, along with a group of independent  studios.  The
Company believes that it was the largest independent manufacturer of DVDs in the
United States during 1997.

Business Strategy

The Company's  objective is to increase sales and  profitability and to maximize
return to its  stockholders by leveraging its position as a leading  independent
manufacturer  of optical  discs.  The  Company's  strategy for  achieving  these
objectives includes the following:

Maximizing  DVD and  Divx  Opportunities.  The  Company  is well  positioned  to
participate in the emerging DVD market. Nimbus  representatives have been active
participants in industry forums involved in the review and development of format
standards  and  manufacturing  protocols  and  the  Company  served  as  a  paid
consultant  for the  development  of the Divx disc  technology.  The  Company is
combining a direct  sales effort  targeting  both major and  independent  motion
picture  production  companies  with its existing  CD-ROM sales force calling on
developers of multimedia and games applications.

The Company has established marketing and support staff to take advantage of its
technical  expertise  in DVD and Divx.  The Company is capable of  manufacturing
DVD-5,  DVD-10, DVD-9 and Divx formats with reliability and quality. The Company
believes that it is one of only two manufacturers  currently capable of offering
a Divx  disc.  Nimbus  manufactured  2.2  million  DVD discs in fiscal  1998 and
expects  substantial  growth of the product  line both in the United  States and
Europe. In order to better serve the DVD market, the Company intends to focus on
developing a major distribution capability.

Aggressively  Expanding its Position as a Leading Manufacturer of CD-ROM. CD-ROM
is currently the  Company's  largest  market and has been the Company's  fastest
growing product.  CD-ROM customers are often specialized software developers and
providers of digital  information who are unable to manufacture CDs in their own
facilities.   In  addition,  the  markets  for  these  applications  are  highly
competitive and time-sensitive.  Consequently, CD-ROM customers typically demand
high quality service with short  turnaround  times. The Company has targeted the
OEM market and has hired  staff to  actively  develop  relationships  with these
important  companies.  Management believes that the OEM market represents 30% of
the  total  demand  for  CD-ROM  product.  Nimbus'  designation  as a  Microsoft
Authorized Replicator positions the Company to become a direct, primary supplier
to OEMs.  In  addition,  the Company will take  advantage  of its  technological
expertise to produce  DVD-ROM  product for content owners and developers as well
as  supplying  DVD-ROM  product  to OEMs in  support  of the  rollout of DVD-ROM
drives.

Targeting  Selected  Customers  in  the  CD-Audio  Market.  CD-Audio  production
provides the Company with a strong, stable revenue base. The Company's marketing
efforts will remain focused on independent record companies (the fastest growing
segment  of the  recording  industry)  that  value the  Company's  high level of
service  including  rapid  turnaround,  inventory  tracking and  control,  print
material procurement, specialized packaging and fulfillment.

Maintaining its Position as a Leader in  Manufacturing  Efficiency and Technical
Expertise.  The Company  continues to invest in, and maximize the efficiency of,
equipment,  systems,  processes  and  personnel  to maintain  its  position as a
low-cost manufacturer of CDs. From fiscal 1991 to fiscal 1998, production yields
have  increased  from 40% to 92%,  while  pressing  cycle times have fallen from
approximately  seven  seconds  to less than four  seconds.  Discs  produced  per
employee  have risen from 56,100 discs in fiscal 1990 to 184,000 discs in fiscal
1998.

Marketing  Holographic CDs. In an effort to respond to customer piracy concerns,
the Company established a joint venture ("3dcd") with Applied Holographics,  PLC
("Applied  Holographics")  in both the United  States and the United  Kingdom to
market patented  technology to imprint holograms onto CDs. In addition,  the use
of the hologram as a marketing mechanism has proven successful.  This technology
is marketed under the name 3-D io d(TM) and allows for a holographic image to be
applied  either on the inner band of the disc using the Security Band Process or
on the face of the disc using the Edge-to-Edge Process. During fiscal 1998, 3dcd
licensed the right to use the Security Band  application  of this  technology to
Microsoft on an exclusive  basis for one year and a  semi-exclusive  basis for a
second  year.  The Company  believes  that the  Edge-to-Edge  Process  cannot be
duplicated without the embossing  machinery and the Company has received patents
for  certain  mechanical  aspects  of that  machinery.  The joint  ventures  are
prepared to license 3-D io d(TM) technology to other CD  manufacturers  and will
collect a royalty fee for each CD produced using 3-D io d(TM) technology by such
manufacturers.  All royalty  revenues are split equally  between the Company and
Applied Holographics.

Customers

The  Company  maintains  a diverse  base of over 2,000  customers.  The  Company
believes that its high quality  manufacturing  capability and effective customer
service have contributed significantly to the loyalty of its customer base. As a
result  of the  dynamic  nature  of the  CD-ROM  market,  the  number  of CD-ROM
customers is growing,  the type of CD-ROM  customers is changing and the size of
the orders is increasing.  In addition,  the Company  maintains a stable base of
CD-Audio  customers.  Sales under the terms of the Strategic  Agreement with MMI
accounted for 10.3% of fiscal 1998 net sales. No other customer represented more
than 10% of consolidated sales for fiscal 1998.

<PAGE>

Services and Marketing

The Company  provides its CD-Audio,  CD-ROM and DVD customers with an integrated
range  of  services  including  authoring,  pre-mastering  and  mastering,  disc
replication, packaging, assembly and order fulfillment. The Company has designed
its  operations to efficiently  produce a wide range of run sizes.  Although the
Company can produce large run sizes efficiently, its ability to provide discs at
competitive  prices for  smaller  order  sizes with  short  turnaround  times is
particularly  attractive to independent  record labels and many of the Company's
CD-ROM  customers.  The Company is equipped to provide product in a wide variety
of packaging  configurations which enables customers to design finished products
for the most effective retail marketing presentation.  The Company works closely
with its  customers  to ensure that label film which is used to produce  printed
material on the disc and print material to supplement  the packaged  product are
ordered and  delivered  on time.  The Company  also stores  print  material  for
customers to facilitate timely and cost-effective reordering.

CD-Audio.  The Company's marketing strategy has focused primarily on independent
record labels which utilize the Company's ability to offer full CD manufacturing
services.  In the United Kingdom,  in addition to independent record labels, the
Company has  attracted  business from United  Kingdom-based  major record labels
which  accounted for  approximately  1.6% of the Company's  fiscal 1998 CD-Audio
unit production in the United Kingdom.

In the  United  States,  the  Company  maintains  CD-Audio  sales  offices  near
Charlottesville,  Virginia, in Gardena,  California and in Millburn, New Jersey.
The sales  representatives  are responsible for maintaining  relationships  with
their existing  customers and developing new business  relationships.  The sales
representatives  are supported by a customer  service staff that is  responsible
for ensuring that each order is processed on a timely  basis,  that all required
support  materials are in place and that quality levels are achieved.  Customers
in the United Kingdom are serviced by sales and customer service representatives
based  at the  Company's  Cwmbran  manufacturing  facility  as  well  as a sales
representative in London.

In addition to being supported by the United Kingdom based sales team,  European
customers are also serviced by a sales team organized geographically, with sales
offices in France and Germany,  and customer  service  representatives  based in
Luxembourg.

CD-ROM/DVD-ROM.  In 1986,  the Company  formed a CD-ROM  division to explore new
applications  for CD  technology  and to cater to the  special  requirements  of
"CD-data  product"  clients.  The Company  believes it is a leading  supplier of
services and discs to CD-ROM and DVD-ROM developers, publishers and resellers.

The Company  provides  complete  CD-ROM and DVD-ROM  services to customers  from
technical and business  consultation on the use of data and applications through
the  conversion  of raw data to the  replication  of  information  on disc.  The
Company satisfies customer  requirements for regular CD-ROM and DVD-ROM updates,
data conversion and indexing,  authoring,  pre-mastering and data  verification.
Value-added   services  such  as  artwork  service  for  printed   material  and
specialized packaging are also provided.

The  CD-ROM  and  DVD-ROM  sales and  marketing  staff in the  United  States is
organized  geographically  with sales  offices near  Charlottesville,  Virginia,
Hawthorne, New Jersey and Gardena and Sunnyvale,  California.  Additionally, the
Company  employs a  dedicated  salesperson  to service  the North  American  OEM
market. The sales representatives are supported by a customer service staff that
is  responsible  for  ensuring  that orders are filled on a timely and  accurate
basis. In addition,  marketing  support  personnel assist with new prospects and
new product development.

The CD-ROM and DVD-ROM sales and marketing organization in the United Kingdom is
organized  around market  segments.  Sales resources are split into three market
areas:  hardware/software  developers,  games and game  developers  and database
publishers.   Continental   Europe  is  served   by  a  sales   team   organized
geographically,  with sales  offices in France and  Germany.  In  addition,  the
Company  employs a  salesperson  dedicated  to  servicing  the OEM market in the
United Kingdom and continental  Europe. A sales and marketing  executive directs
the sales team which is supported by a marketing assistant.

DVD-Video.  In the United States, the Company employs a dedicated salesperson to
service the movie  studios.  In addition,  the CD sales forces seek DVD business
among their client base. The DVD sales effort is supported by a product  manager
and customer service staff based at the Charlottesville facility.

Competition

The Company believes that the principal  competitive factors in the CD-Audio and
CD-ROM  markets  are  service,  price,  quality and  reliability  for the timely
delivery  of product.  The Company  believes  that it  competes  favorably  with
respect to each of these  factors.  With  increased  production  capacity in the
market,  CD prices  have  declined  and CD pricing  has  become an  increasingly
important  factor in obtaining  sales.  The Company believes that the quality of
its  products  and  services  and its  ability  to  accommodate  tight  delivery
schedules offset, to some extent,  the price competition  currently  existing in
the market.

In addition  to the Music  Company  Manufacturers,  the  Company  competes  with
independent  manufacturing companies or groups of companies in both the CD-Audio
and  CD-ROM  markets.  In the  United  States  CD-Audio  market,  the  Company's
competitors include Disctronics, Inc. ("Disctronics"),  Cinram, Ltd. ("Cinram"),
JVC America, Inc. ("JVC"),  Americ Disc, and Denon Electronics Inc. In 1997, the
Company believes it was the sixth largest independent  manufacturing  company in
the  United  States  CD-Audio  market.  In the  European  CD-Audio  market,  the
Company's competitors include Disctronics,  MPO Disque Compact ("MPO"),  DocData
and Dandisc/CD  Plant.  In 1997,  the Company  believes it was the fifth largest
independent manufacturing company in the European CD-Audio market.

In the United States CD-ROM market,  the  manufacturers  who compete with Nimbus
include Sony,  KAO  Infosystems  Company  ("KAO") and  Sonopress.  In 1997,  the
Company believes it was the second largest independent  manufacturing company in
the United States CD-ROM market.  In the European  CD-ROM market,  the Company's
competitors include Sony, MPO, KAO, Sonopress and Polygram. In 1997, the Company
believes  it was the third  largest  independent  manufacturing  company  in the
European CD-ROM market. The Music Company  Manufacturers,  as well as several of
the independent  manufacturers,  are larger and have greater financial resources
than the Company.

The Company believes that it is one of a small number of  manufacturers  capable
of manufacturing DVD product. Other manufacturers  presently known to be capable
of supplying  product in the U.S. market are Time Warner,  Panasonic,  JVC, Sony
and Pioneer.  The Company believes that the DVD manufacturing  process is unique
and more  technically  difficult than the  manufacture  of traditional  CDs. The
competitive  factors in this market,  in the near term,  will involve  technical
competence,  capacity and the quality of service. At the end of fiscal 1998, the
Company was the only manufacturer for Divx discs. While Nimbus expects to play a
major role in this market,  the Company is aware that a limited  number of other
manufacturers will also be designated to replicate Divx discs.

Other existing  technologies also compete with the Company's products to deliver
digital information. Portable media, such as digital audio tape, digital compact
cassette and the mini-disc have been introduced commercially, but have failed to
achieve widespread  consumer  acceptance.  In addition,  one-time recordable CDs
("CD-R") are available  and are often used by the Company's  customers to submit
material for mastering.  CD-R equipment  retails at significantly  higher prices
and CD-R blank  discs are  significantly  more  expensive  to  manufacture.  The
Company does not expect any of these technologies to expand beyond their current
market niches in the near future.

Electronic  on-line  delivery of digital  information  through  cable and modem,
satellite  transmission or through the Internet are potential future competitors
to CD-ROM and DVD. The Company believes that current and projected  transmission
speeds and  infrastructure  limitations of on-line delivery systems will prevent
them from replacing  CD-ROM or DVD in the  foreseeable  future.  For example,  a
conventional  modem operating at a data transmission  speed of 28.8 kilobits per
second would take  approximately  two days to download an entire CD, which has a
capacity  of 650  megabytes.  In  addition,  future  advances  in  optical  disc
technology  such as higher  speed  drives and  greater  data  compression  could
improve CD-ROM's and DVD's advantages over potential competitive technologies.

The Disc Manufacturing Process

The  disc  manufacturing  process,  used in each  of the  Company's  facilities,
consists of three stages: (i)  preproduction,  (ii) replication and printing and
(iii) packaging and fulfillment.  Except for  preproduction,  the  manufacturing
process is the same for both CD-Audio and CD-ROM.

Preproduction.  Preproduction  of discs  consists of three  distinct  processes:
pre-mastering,  mastering and  electroplating.  Through these  processes,  metal
stampers are created which contain bytes of data in a digital format.  The metal
stampers are then mounted in the plastic  injection  molding equipment to create
the disc. The  preproduction  process is critical to establishing the quality of
the final product.

For   CD-Audio,   the   pre-mastering   process   consists  of   reviewing   the
customer-supplied material to ensure that no discernible defects occurred during
the recording process. Once the material has passed the quality control process,
the editor  creates a table of contents to indicate  the start and stop times of
each audio track and downloads the data into a digital data format to be used in
the mastering process.

CD-ROM or DVD-ROM  preproduction  begins with the customer  data supplied in any
number of  approved  input  media.  Content is  evaluated  for viruses and other
integrity  checks are  performed.  For CD-ROM,  the data is processed  through a
pre-mastering  computer  system  where the data is  formatted  into the  desired
CD-ROM  structure to ensure that the finished disc will be  compatible  with the
intended  operating  system.  For DVD-ROM,  the data is  formatted  using a high
performance pre-mastering computer system into the new universal disc format for
optical  discs,  which allows the data to be  compatible  across many  operating
systems.  The formatted content is then transferred to digital storage media for
mastering.

DVD-Video  pre-mastering  follows a more  complex  process.  The video and audio
components that comprise movie programs must be compressed to allow for feasible
digital data  encoding  and  storage.  The encoded  components  are  multiplexed
together and then the project is authored to provide  titling and sub-titling of
the program, which allows for navigation in set-top players. The content is then
formatted to a structure  suitable for player logic and other operating systems.
Finally,  the  formatted  content is  transferred  to digital  storage media for
mastering.

The  mastering  process  forms the master  image of the CD or DVD from which the
polycarbonate  replicas are molded. A laser beam recorder  transfers the digital
information from the data cartridges onto a photo-sensitive coating applied to a
glass  mastering  substrate.  This  process  creates  the  "glass  master"  with
characteristic  data pits etched in the  photo-sensitive  coating.  The Security
Band  hologram  can also be mastered  onto the glass  substrate at the same time
that the  content is  mastered.  The  mastering  process is  critical to product
quality.  Any defect on the master will be replicated on all  production  discs;
therefore,  the  mastering  process  takes place in a class 1000  cleanroom,  an
environment free of microscopic  contaminants which can obscure large amounts of
data. The Company uses the Nimbus-Halliday laser mastering system,  manufactured
by Nimbus  Technology &  Engineering,  Inc., a former  affiliate of the Company.
This mastering  system is able to master all DVD formats.  Each of the Company's
senior  technical  managers  has  more  than 10  years  of  experience  with the
equipment,  which  the  Company  believes  will  enable  it to  achieve  maximum
definition and resolution from this system. Using an electroforming process, the
glass master yields nickel  stampers in the image of the master.  These stampers
are mounted in the injection  molding machines to replicate discs. The Company's
extensive  experience  with the system has created yields in excess of 90% and a
reputation for producing high quality stampers.

Replicating  and Printing.  The  replication of CDs utilizes a fully  integrated
line process which  incorporates a plastic injection  molding press,  metalizing
equipment and lacquering machinery. High quality, optical grade polycarbonate is
injected  into the mold cavity  where the metal  stamper has been  mounted.  The
Company's state of the art technology  allows for press cycle times of less than
four  seconds  per disc.  The clear  polycarbonate  disc  containing  all of the
digitized data is then covered with a metallic coating to provide for reflection
of the reading laser beam in the player. A thin layer of lacquer is applied over
the metal to protect it and to serve as a base for  printing  on the disc.  If a
customer has  requested  an  edge-to-edge  hologram,  it is at this stage in the
process that a holographic  shim containing the customer's  unique art work will
be used to emboss the hologram onto the disc. The disc is then  re-metalized and
lacquered to enhance the holographic image.

The Company has organized each of its replicating  facilities to incorporate its
uniquely designed in-line manufacturing cells. This system permits reduced labor
requirements,  higher operating efficiencies and reduced capital expenditures to
fund a line extension. In addition, it provides automatic in-line inspection for
faster response to quality issues, thus improving productivity.

The  replication  of DVDs and Divx discs  utilizes two presses which produce two
polycarbonate  substrates,  each  one-half  the  thickness  of  a  standard  CD.
Information is molded onto a layer or multiple  layers of a substrate  depending
on the data  requirements.  The two substrates are bonded together to form a DVD
or Divx disc.  In the case of a 4.7 gigabyte DVD, data will only be molded on to
one layer of the bottom  substrate.  This  manufacturing  method is more process
critical and requires new testing equipment to ensure the flatness of the bonded
disc.

Printing,  which is the  final  production  process,  is  performed  in  batches
off-line in order to take  advantage  of the high speed  nature of the  printing
process while avoiding  production delays typically  required for printer setup.
The  Company's  printing  equipment  includes  both  screen and offset  printing
processes,   each  capable  of  five  color  printing.  Dual  infeed  capability
effectively  doubles the capacity of several of the printers.  As a result,  the
Company  has been able to reduce  labor and  required  capital  while  improving
production  efficiency.  The Company can produce its own screens and can reuse a
screen  multiple times.  High demand colors are purchased  pre-mixed in order to
reduce ink waste.  Automated  label  inspection and print quality  assurance are
integrated  with the screen  printers to ensure  high  quality and to reduce the
need for manual quality inspection.

Packaging and Fulfillment.  The Company maintains  equipment to provide for most
customer requested packaging configurations and effectively uses temporary labor
provided by local  agencies  as well as local  packaging  contractors  to manage
unique, manual pack operations.  Currently, the standard packaging configuration
is a jewel box with customer supplied print material on the bottom and top sides
of the box. The jewel box is often  shrink  wrapped for  protection.  Product is
generally  shipped by common  carrier;  however,  the Company will provide other
methods of transport to ensure that critical delivery dates are met. The Company
also has the capability to offer electronic  order intake,  either directly from
the customer or via the Internet.

Suppliers

Although the Company's practice is to seek reduced costs and enhanced quality by
purchasing  from a limited  number of  suppliers,  all raw  materials  needed to
manufacture the Company's discs are readily  available from numerous  sources of
supply at competitive prices. The principal raw materials used by the Company to
manufacture discs are optical grade polycarbonate, aluminum, UV curable lacquers
and ink,  all of which are  available  from  multiple  commercial  sources.  The
Company  maintains  multiple  sources  of jewel  boxes and trays for each of its
manufacturing facilities.

Seasonality

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.

Geographic Segments

The summary of the Company's operations by geographic area for fiscal 1998, 1997
and 1996 is included elsewhere in this report on Form 10-K (see Note 16 to Notes
to Consolidated Financial Statements.

Employees

As of  March  31,  1998,  the  Company  had 816  full-time  employees,  of which
approximately 518 were hourly employees and 298 were salaried employees. None of
the  Company's  employees  is  represented  by a labor  union or is subject to a
collective bargaining agreement. The Company considers its employee relations to
be good.

Patents and Trademarks

The  Company,  like  most  other  CD  manufacturers,  uses  patented  technology
primarily  under  nonexclusive  licenses  from  the  holders  of  patents  which
generally  provide  for the  payment of  royalties  based upon the number of CDs
sold.

The  Company  regards  the  design  of some of its  manufacturing  equipment  as
proprietary  and attempts to protect it with a combination  of trade secret laws
and nondisclosure agreements with key employees.  There can be no assurance that
such  measures  will  provide  meaningful  protection  for the  Company's  trade
secrets, know-how and other proprietary information.

"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.

ITEM 2.   PROPERTIES

The  Company's  headquarters  is  located  off US  Highway  29 in  Ruckersville,
Virginia, which is approximately 20 miles north of Charlottesville, Virginia and
approximately  100 miles  south of  Washington,  DC,  on a  25-acre  site with a
107,000 square foot facility,  all of which the Company owns in fee simple.  The
facility has the capacity to produce  180,000  discs per day  utilizing 14 press
lines.  In  addition,  the  facility  has three DVD  manufacturing  lines with a
capacity of  approximately  900,000  discs per month.  The Company  also owns an
additional  237 acres of surrounding  farmland.  The Company leases two sites in
Ruckersville. One lease is for 13,000 square feet of warehouse space and expires
in January 1999.  The other lease is for 24,400  square feet of warehouse  space
and expires in May 2000.

The Company leases  approximately 42,000 square feet of office and manufacturing
space and an additional 42,000 square feet of warehouse space in Provo, Utah, to
satisfy the demands of its West Coast CD-ROM and CD-Audio customers.  The leases
are co-terminus  and expire in April 2000. The Provo facility  currently has the
capacity to produce 280,000 discs per day utilizing 18 press lines.

The Company also leases sales office space in Gardena and Sunnyvale,  California
and Millburn, New Jersey.

The  Company's  United  Kingdom  manufacturing  facility  is located in Cwmbran,
Wales,  which is 130 miles west of London.  The 30,000  square foot building was
constructed  in 1986 and a recent  addition  has added 25,000  square feet.  The
Company purchased the building in 1993. This facility's disc production capacity
is  approximately  230,000 discs per day using 17 press lines, of which two have
twin  cavity  molding  capability.   In  addition,  the  facility  has  one  DVD
manufacturing line with a capacity of approximately 300,000 discs per month. The
Company's  United Kingdom  subsidiary  also leases four adjacent,  12,000 square
foot  warehouses  pursuant to three leases which are used for packing  services,
warehousing  and shipping.  One lease expires in November 2001 and the other two
expire in 2011.

EuroNimbus  has leased  from the Grand  Duchy of  Luxembourg  approximately  2.2
hectares  of land in Foetz for a period of thirty  years.  EuroNimbus  completed
construction of a 40,000 square foot manufacturing facility on the site in 1997.
The  facility has a capacity to produce  60,000 discs per day  utilizing 4 press
lines.  EuroNimbus  holds a five year option to lease an additional 2.3 hectares
of land abutting the current site.

The Company's  manufacturing  facilities are equipped with specialized equipment
and utilize  extensive  automation  for the  manufacture  of its  products.  The
Company believes that its property and equipment are in good operating condition
and that its facilities are adequate to meet its current requirements.

ITEM 3.   LEGAL PROCEEDINGS

From time to time, the Company is involved in litigation that it considers to be
in the normal course of business.  The Company is not presently  involved in any
legal proceedings which the Company expects  individually or in the aggregate to
have a  material  adverse  effect  on its  financial  condition  or  results  of
operations.

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

No matter was  submitted  during the fourth  quarter of fiscal 1998 to a vote of
the Company's security holders.


                                     PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market and Price Information

The Company's  common stock  commenced  trading on the Nasdaq National market on
October  26,  1995  under the  symbol  NMBS.  Prior to that  date,  there was no
established public trading market for the common stock.

Set forth in the Notes to Consolidated  Financial Statements (Note 20), page F-7
are the daily high and low sales prices for the  Company's  common stock for the
period indicated,  as reported by MicroQuote II. The current quoted price of the
stock is listed daily in the Wall Street Journal in the National  Association of
Securities Dealers Automated quotation System (Nasdaq). The Company has not paid
any dividends on its common stock.

Number of Stockholders

As of June 15,  1998,  there were 288 record  holders  of the  Company's  Common
Stock.

Dividends

The Company has not paid any  dividends on its Common  Stock,  intends to retain
all  earnings  for the  operation  and  expansion  of its  business and does not
anticipate  paying cash dividends in the foreseeable  future.  Furthermore,  the
Company's bank loan agreement  restricts the Company's ability to pay dividends.
Any future  determination  as to the payment of cash  dividends will depend upon
the  Company's   results  of   operations,   financial   condition  and  capital
requirements,  lender  consent  under the bank  loan  agreement  and such  other
factors as the Company's Board of Directors deem relevant.

<PAGE>

ITEM 6.     SELECTED FINANCIAL DATA
<TABLE>
<S>                           <C>      <C>      <C>     <C>      <C>
                                     Company
                           ---------------------------------------------
                                    Fiscal Year Ended March 31
                           ---------------------------------------------
(In thousands, except per     1994     1995     1996    1997     1998
share data)
------------------------------------------------------------------------
Operating Results:
  Net sales                 $69,934  $85,827 $118,245 $129,470$132,340
  Gross profit               19,527   27,606   34,436  37,509   38,303
  Restructuring charge                                  6,014    (664)
  Operating income            8,107   15,412   21,447  16,032   21,333
  Income before               4,836    8,524   10,459   9,175   13,812
   extraordinary item
  Extraordinary item (1)      (890)    (324)  (2,952)
  Net income                  3,946    8,200    7,507   9,175   13,812
  Earnings per share -                                  $0.44    $0.65
  basic
  Earnings per share -                                  $0.40    $0.60
  diluted
  Weighted average shares
   outstanding:
   Basic                                               20,862   21,173
   Diluted                                             23,007   22,964

Pro Forma Operating Data
(2):
  Net income                          $8,196  $12,040
  Earnings per share -                 $0.40    $0.58
  basic
  Earnings per share -                 $0.36    $0.53
  diluted
  Weighted average shares
   outstanding:
   Basic                              20,656   20,744
   Diluted                            22,743   22,799

Financial Position:
  Total assets              $59,532  $79,995  $90,753 $108,272$131,303
  Total debt                 18,043   63,909   26,131  25,999   25,893
  Stockholders' equity       19,339  (8,120)   43,066  52,422   66,294
   (deficit)
  Working capital           (1,415)    5,716   16,187  10,170    8,488

Other Data:
  Discs sold (units):
   DVD                                                      6    2,201
   CD-Audio                  54,378   58,766   61,748  64,254   68,064
   CD-ROM                     4,865   28,982   63,930  92,137  114,725
------------------------------------------------------------------------
   Total discs               59,243   87,748  125,678 156,397  184,990
</TABLE>

(1) In November 1993, the Company  refinanced its outstanding  debt and incurred
an extraordinary  charge of $1,302 ($890 net of tax) on the debt extinguishment.
In March 1995,  the Company  refinanced  its  outstanding  debt and  incurred an
extraordinary  charge of $515 ($324 net of tax) on the debt  extinguishment.  In
October  1995,  the Company  refinanced  its  outstanding  debt and  incurred an
extraordinary charge of $4,183 ($2,952 net of tax) on the debt extinguishment.

(2) The pro forma net income gives effect to the Recapitalization,  the Offering
and the Private  Placement  (each as defined in Notes 13 and 14 to the Company's
Consolidated  Financial  Statements).  See  Note  18 of  Notes  to  Consolidated
Financial Statements.

<PAGE>

ITEM 7.     MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND
            RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Fiscal 1998 Compared to Fiscal 1997

Net Sales.  Total discs sold  increased  18.3% to 185.0  million units in fiscal
1998 from 156.4 million units in fiscal 1997. The increase resulted from a 24.5%
increase  in CD-ROM unit sales to 114.7  million  discs in fiscal 1998 from 92.1
million discs in fiscal 1997,  combined with a CD-Audio unit volume  increase of
5.9% to 68.1  million  discs in fiscal  1998 from 64.3  million  discs in fiscal
1997. In addition,  DVD unit sales, which began in fiscal 1998,  amounted to 2.2
million units.  In the United States,  total discs sold increased 10.7% to 111.4
million  units in fiscal 1998 from 100.6  million  units in fiscal 1997.  United
States  CD-ROM unit sales  increased  10.6% to 76.9 million units in fiscal 1998
from 69.5 million units in fiscal 1997,  while CD-Audio volume increased 4.8% to
32.5  million  discs in  fiscal  1998 from 31.0  million  discs in fiscal  1997.
European total unit sales  increased  31.7% to 73.5 million units in fiscal 1998
from 55.8 million  units in fiscal 1997.  CD-ROM unit sales in Europe  increased
67.7% to 37.9  million  units in fiscal 1998 from 22.6  million  units in fiscal
1997,  while CD-Audio unit sales  increased 7.2% to 35.6 million discs in fiscal
1998 from 33.2 million  discs in fiscal 1997.  European  unit sales  include 0.6
million  CD-Audio  units  and  0.8  million  CD-ROM  units  from  the  Company's
Luxembourg facility, which commenced disc production in December 1997.

Net sales increased 2.2% to $132.3 million in fiscal 1998 from $129.5 million in
fiscal 1997. Compact disc and related revenues, excluding DVD, increased 1.0% to
$125.5  million in fiscal 1998 from $124.2  million in fiscal 1997. DVD revenues
in fiscal  1998 were $6.6  million,  while  turnkey  and other  related  service
revenues of Nimbus Software Services,  Inc. ("NSS"),  which closed its Sunnyvale
facility in the first quarter of fiscal 1998, contributed $6.9 million in fiscal
1997.  Approximately  $18.0 million of the sales increase is due to the increase
in disc volume offset by a decrease in the average disc selling price from $0.79
in fiscal 1997 to $0.68 in fiscal 1998, or a 13.9%  decrease.  The price decline
reflects  an  oversupply  of  production  capacity  in  Europe,  as  well as the
continued  shift in sales mix to CD-ROM from  CD-Audio,  which  typically  has a
higher per unit packaging configuration. In addition, the Company realized lower
disc prices under a vendor supply agreement. The price declines noted above were
partially  mitigated by exchange rate differences  between the United States and
the United Kingdom during the twelve month period ended March 31, 1998.

Gross Profit.  Gross profit  increased 2.1% to $38.3 million in fiscal 1998 from
$37.5 million in fiscal 1997. Gross margin decreased slightly to 28.9% in fiscal
1998 from 29.0% in fiscal 1997. The increase in gross profit was attributable to
improved sales volume and mix,  reduced raw material costs and a decrease in the
overall level of factory  overhead  expenses due to the closure of the Company's
Sunnyvale  facility,  partially offset by a decline in the average selling price
noted above.  The Company's gross profit margin was  unfavorably  impacted by an
increase  in  depreciation   expense   resulting  from  capital   expansion  and
acquisition  projects in fiscal 1997 and 1998,  increased packaging material and
labor   costs  due  to  higher   sales   levels   of   non-automated   packaging
configurations,  increased  factory overhead charges for additional  warehousing
facilities  at both the  Charlottesville  and Provo  locations,  and  additional
freight  incurred in expediting  shipments to meet shorter turn times.  Finally,
the Company's gross margin included depreciation and factory overhead charges at
the Luxembourg  facility as the plant commenced disc production in December.  If
the results of the Luxembourg facility were excluded, the Company's gross profit
margin would have been 29.7%.

Selling,   General   and   Administrative   Expenses.   Selling,   general   and
administrative  expenses  increased  13.5% to $17.6  million in fiscal 1998 from
$15.5   million  in  fiscal  1997.   The   increase  in  selling,   general  and
administrative  expenses in fiscal 1998 includes $2.0 million of costs  incurred
in the process of  establishing  the  EuroNimbus  operations in  Luxembourg.  In
addition,  the Company  incurred higher sales and marketing costs resulting from
the  Company's  efforts to expand its CD-ROM  business,  penetrate  the original
equipment manufacturers' market, establish a presence on the European continent,
and enter the DVD home  entertainment  market.  As a  percentage  of net  sales,
selling,  general and administrative  expenses increased to 13.3% in fiscal 1998
from 11.9% in fiscal 1997.

Restructuring  Charge.  During  fiscal 1998,  the Company  reversed  $664 of the
remaining  restructuring  reserve for the closure of its Sunnyvale facility upon
the completion of the restructuring  plan at less than the originally  estimated
cost. The reversal resulted  primarily from the Company's release from its lease
obligation at the closed Sunnyvale facility.

Operating  Income.  Operating  income increased 33.1% to $21.3 million in fiscal
1998 from  $16.0  million in fiscal  1997.  The  increase  in  operating  income
primarily reflects the higher unit volume described above, and the restructuring
charge  incurred  for the closure of  Sunnyvale  in fiscal year 1997.  Operating
income as a  percentage  of net sales was 16.1% and 12.4% for fiscal  years 1998
and 1997, respectively.

Interest  Expense.  Interest expense amounted to $2.7 million in fiscal 1998 and
in fiscal 1997. Interest expense in fiscal 1998 remained constant as a result of
the increase in the Company's  effective interest rate in fiscal 1998, which was
offset by a lower level of borrowing.

Income Taxes.  Income tax expense  increased to $7.3 million in fiscal 1998 from
$4.6 million in fiscal 1997.  The increase in income taxes was  attributable  to
the increase in income before taxes. The Company's  effective tax rate increased
to 34.5% in fiscal 1998 from 33.3% in fiscal 1997. The increase in the Company's
effective tax rate reflects the higher percentage of net income  attributable to
United States operations,  which has a higher statutory tax rate than the United
Kingdom.

Fiscal 1997 Compared to Fiscal 1996

Net Sales.  Total discs sold  increased  24.4% to 156.4  million units in fiscal
1997 from 125.7 million units in fiscal 1996.  The increase  resulted  primarily
from a 44.1%  increase  in CD-ROM unit sales from 63.9  million  discs in fiscal
1996 to 92.1 million discs in fiscal 1997. The increase in CD-ROM unit sales was
experienced  both in the United States,  which  increased  48.2% to 69.5 million
units in fiscal 1997 from 46.9 million  units in fiscal 1996,  and in the United
Kingdom,  which increased 32.9% to 22.6 million units from 17.0 million units in
fiscal 1996. Overall,  CD-Audio unit volume increased 4.1% to 64.3 million discs
in fiscal 1997 from 61.7  million  discs in fiscal 1996.  In the United  States,
CD-Audio  volume  increased  8.0% to 31.0 million discs in fiscal 1997 from 28.7
million  discs in fiscal  1996,  while the  United  Kingdom  experienced  a 0.6%
increase in CD-Audio  unit sales to 33.2 million  discs in fiscal 1997 from 33.0
million discs in fiscal 1996.

Net sales increased 9.6% to $129.5 million in fiscal 1997 from $118.2 million in
fiscal 1996.  Approximately  $24.3 million of the sales  increase was due to the
increase in disc volume  offset by a decrease in the average disc selling  price
from $0.87 in fiscal 1996 to $0.79 in fiscal 1997, or a 9.2% decrease. The price
decline  reflected  the  continuing  excess  production  capacity  within the CD
industry in both North America and Europe, as well as a change in sales mix from
audio,  which has a higher per unit packaging  configuration,  to unpackaged ROM
discs.  Turnkey and other related  service  revenues of NSS declined  20.7% from
$8.7  million in fiscal 1996 to $6.9  million in fiscal 1997 due, in part,  from
the  loss of a  significant  customer  and the  general  decline  in the  floppy
diskette  business  as it was  replaced by CD-ROM as the  preferred  information
distribution medium.

Gross Profit.  Gross profit  increased 9.0% to $37.5 million in fiscal 1997 from
$34.4  million in fiscal  1996.  The fiscal  1996 gross  profit  included a $2.0
million  gain to  reflect  settlements  reached  with  licensors  of  technology
regarding  prior royalty  obligations.  See Note 11(a) of Notes to  Consolidated
Financial  Statements.  This  adjustment was partially  offset by a $0.4 million
writedown of obsolete production  equipment.  Gross margin decreased slightly to
29.0%  in  fiscal  1997  from  29.1%  in  fiscal  1996.  Exclusive  of  the  two
non-recurring  adjustments  noted above,  gross profit as a percent of net sales
for fiscal 1996 was 27.8%.  The improved  gross margin was due to improved labor
and production  efficiencies  resulting from the higher unit volumes and reduced
raw material and packaging  costs.  In addition,  the Company's gross margin was
favorably  impacted by the change in production  mix at the  Sunnyvale  facility
from low margin turnkey and collateral  related services to CD replication which
has a higher gross margin.

Selling,   General   and   Administrative   Expenses.   Selling,   general   and
administrative  expenses  increased  19.2% to $15.5  million in fiscal 1997 from
$13.0   million  in  fiscal  1996.   The   increase  in  selling,   general  and
administrative  expense in fiscal  1997  included  a $0.3  million  reserve  for
environmental clean-up costs as well as higher administrative personnel,  legal,
professional  and consulting fees, and expanded sales and marketing costs due to
the greater  number of production  facilities and increased  sales.  Fiscal 1996
includes  a  $0.5  million  increase  in the  allowance  for  doubtful  accounts
resulting,  in part,  from the filing  for  bankruptcy  by one of the  Company's
customers,  partially offset by a $0.2 million reversal of accrued  professional
fees in the United Kingdom. As a percentage of net sales,  selling,  general and
administrative  expenses  increased to 11.9% in fiscal 1997 from 11.0% in fiscal
1996.

Restructuring Charge. In the fourth quarter of fiscal 1997, the Company recorded
a restructuring charge of $6.0 million for the closure of its Sunnyvale facility
as  part  of  a  program  to  reduce   overhead  costs  and  improve   operating
efficiencies.  This charge  included  severance  payments,  commitments to third
parties, write-off of intangible assets, and the write-down of excess production
and other fixed assets.

Operating  Income.  Operating  income decreased 25.2% to $16.0 million in fiscal
1997 from $21.4 in fiscal 1996.  Exclusive of the restructuring  charge incurred
for the closure of NSS,  operating income  increased 2.8% to $22.0 million.  The
increase  in  operating  income  primarily  reflected  the  higher  unit  volume
described  above.  Operating  income as a percentage  of net sales was 12.4% and
18.1% for fiscal years 1997 and 1996, respectively.

Interest Expense. Interest expense decreased to $2.7 million in fiscal 1997 from
$5.3  million in fiscal  1996.  The  decrease in interest  expense  reflects the
reduction in borrowing  levels in fiscal 1997 as a result of the  application of
the proceeds of the Company's  initial  public  offering in October 1995 to debt
reduction,  as well as a decline in the  Company's  effective  interest  rate in
fiscal 1997.

Income Taxes.  Income tax expense  decreased to $4.6 million in fiscal 1997 from
$5.6 million in fiscal 1996.  The decrease in income taxes was  attributable  to
the decrease in income  before taxes  resulting  from the  restructuring  charge
incurred for the closure of Sunnyvale. The Company's effective tax rate declined
to 33.3% in fiscal 1997 from 35.0% in fiscal 1996. The decrease in the Company's
effective tax rate reflects the higher percentage of net income  attributable to
United  Kingdom  operations,  which has a lower  statutory  rate than the United
States.

Liquidity and Capital Resources

Historically,  the Company has satisfied its liquidity  needs through cash flows
from operations and various borrowing  arrangements.  Principal  liquidity needs
have included capital expenditures and debt repayment.

Operating  activities provided net cash of $25.5 million in fiscal 1998. Working
capital was $8.5  million at March 31, 1998  compared to $10.2  million at March
31, 1997.  For fiscal 1998,  accounts  receivable  increased $3.5 million due to
higher sales  volumes in the fourth  quarter of fiscal 1998 compared to the same
period of fiscal 1997.  Inventories and prepaid expenses  increased $0.3 million
each in fiscal  1998.  Accounts  payable and  accrued  expenses  increased  $5.9
million  in  fiscal  1998,  primarily  due to an  increase  in  accrued  royalty
payments,  while income taxes payable  increased  $0.3 million due to the higher
level of pretax earnings.

Capital  expenditures were $29.0 million for fiscal 1998 and were related to the
establishment of a disc manufacturing  facility in Luxembourg,  the expansion of
disc  manufacturing  capacity  in the United  States,  the  installation  of DVD
manufacturing  capability at the Cwmbran facility, the replacement and expansion
of  ancillary  production  equipment  at the Cwmbran  facility,  additional  DVD
bonding  equipment  in  Charlottesville,  and  the  continued  upgrading  of the
Company's worldwide management information system.

During fiscal 1999, the Company  anticipates  the need for  approximately  $22.1
million in cash for  capital  expenditures.  Capital  projects  for fiscal  1999
include the continued  expansion of DVD production  capacity in Charlottesville,
the  replacement  of  disc  production  equipment  in the  United  Kingdom,  the
expansion of mastering capacity and additional packaging equipment in the United
States,  the  expansion  of  warehouse  facilities  and  mastering  capacity  in
Luxembourg,  and the completion of the upgrade of its worldwide MIS system.  The
Company believes that these capital expenditures,  working capital requirements,
and any future  acquisitions  will be financed  through a  combination  of funds
provided  by  operating   activities  and   availability   under  its  borrowing
arrangements.

The  Company's  EuroNimbus  subsidiary  has  entered  into  several  new  credit
agreements to provide for ongoing capital expenditure and working capital needs.
The BIL  Agreement  provides for a term loan of LUF 225 million and a short term
facility of LUF 50 million.  A portion of the term loan can be utilized  for the
issuing of bank guarantees.  The SNCI Agreement  provides for a term loan of LUF
55 million to be used for  capital  expenditure  financing.  The ECSC  Agreement
provides for a term loan of LUF 70 million for capital expenditure financing.

At March 31, 1998,  outstanding borrowings under the Nimbus Manufacturing credit
agreement were $18.0 million and the remaining  availability under the revolving
credit  facility was $25.0  million.  Outstanding  borrowings  under the various
EuroNimbus  credit  agreements were $7.8 million and the remaining  availability
under the BIL and SNCI Agreements was approximately $1.8 million.

The Company has entered into  interest rate swap  agreements to protect  against
fluctuations in its variable rate term debt for initial notional amounts of $5.0
million and approximately  $20.0 million  (denominated in pounds sterling).  The
interest  rate caps ensure that the Company will not pay  interest  rates higher
than 7% on $3.7 million and not higher than 9.5% on approximately  $14.3 million
of its term debt outstanding at March 31, 1998.

Recent Accounting Pronouncements

Effective  with the first  quarter  of  fiscal  1999,  the  Company  will  adopt
Statement  No. 130  "Reporting  Comprehensive  Income"  ("SFAS  130").  SFAS 130
establishes  standards of reporting and display of comprehensive  income and its
components in a full set of general-purpose  financial  statements,  either in a
statement  of  operations  or in a separate  statement.  Additionally,  SFAS 130
requires the display of the accumulated balance of other comprehensive income as
a separate  caption in the equity  section of the  balance  sheet as well as the
disclosure of material  components of  accumulated  other  comprehensive  income
either on the face of the balance sheet,  in a statement of changes in equity or
in notes to the financial statements.

The Company will also adopt Statement No. 131 "Disclosures  about Segments of an
Enterprise  and  Related  Information"  ("SFAS 131" ) in fiscal  1999.  SFAS 131
establishes standards for the way that public companies report information about
operating  segments in both interim and annual financial  statements,  including
related  disclosures  about  products and services,  geographic  areas and major
customers.  The Company does not believe  that  adoption of SFAS 131 will have a
significant  effect on the  Company's  operating  segments  reported and related
disclosures.

Contingencies

The  Internal  Revenue  Service  ("IRS") has  completed  an  examination  of the
Company's  federal income tax returns for fiscal 1993, 1994 and 1995,  resulting
in a statutory  Notice of Deficiency for additional  federal income taxes in the
amount of $5.0 million,  plus interest,  resulting from proposed  adjustments to
the Company's  returns.  Certain  other  proposed  changes  would  eliminate the
Company's  U.S. net operating  loss  carryforwards.  On May 7, 1998, the Company
received  a letter  from the  Appeals  Division  of the IRS  which  details  the
position of that division on the adjustments  contained in the statutory  Notice
of Deficiency. The letter requests a settlement proposal from the Company on the
most  significant  adjustments,  including the Company's U.S net operating  loss
carryforwards.  The Company  believes that it has substantial  authority for the
positions taken on the prior years' returns and that these  adjustments  will be
reduced through the appeals process.  While the outcome of this matter cannot be
predicted with certainty,  the Company believes that the ultimate outcome of the
case will not result in a material  adverse impact on the liquidity,  results of
operations, or consolidated financial position of the Company.

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.  In addition,  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.

Year 2000

Certain  of the  Company's  information  systems  will  require  remediation  or
replacement  over the next eighteen months in order to render these systems Year
2000  compliant.  The Year 2000  problem is the result of computer  hardware and
software  systems  that use only two digits to represent  the year,  rather than
four. As a result,  these systems may not calculate dates beyond 1999, which may
cause errors in  information or systems  failures.  With respect to its internal
systems,  the Company is taking  appropriate steps to identify and remediate the
Year 2000 issues and does not expect the cost of these  efforts to be  material.
However,  the Year 2000  readiness of the Company's  customers and suppliers may
vary.

Subsequent Event

On June 16, 1998, the Company  entered into an Agreement and Plan of Merger with
Carlton  Communications  Plc  ("Carlton"),  pursuant  to which a  subsidiary  of
Carlton would acquire all of the  Company's  outstanding  common stock through a
tender offer at $11.50 per share, or a total consideration of approximately $264
million.  Consummation of the merger transaction is subject to normal regulatory
filings  and  approval  of the  Company's  stockholders.  Certain  stockholders,
including  management  of  the  Company,  control  an  aggregate  of  44% of the
Company's  common stock,  and have agreed to tender their shares when requested.
Following the close of the  transaction,  the Company will operate as a division
of Carlton's Technicolor Packaged Media Group.

Forward Looking Statements

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  within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements involve a
number of 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.

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The  financial  statements  and  schedules  listed in Items  14(a)(1) and (a)(2)
hereof  are  incorporated  herein  by  reference  and are  filed as part of this
report.

ITEM 9.     CHANGES  IN  AND   DISAGREEMENTS   WITH  ACCOUNTANTS  ON  ACCOUNTING
            AND FINANCIAL DISCLOSURE

None.

<PAGE>
                                    PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors of the Company

The  following  persons were elected as directors at the 1997 Annual  Meeting of
Stockholders  and  will  serve  until  their  successors  are duly  elected  and
qualified:
 <TABLE>
      <S>                                 <C>           <C>
                 Name                     Age           Director Since
                 ----                     ---           --------------
       Lyndon J. Faulkner                 37                 1992
       Charles Ayres                      38                 1995
       Darryl G. Behrman                  47                 1995
       Grant G. Behrman                   44                 1995
       Robert M. Davidson                 55                 1994
       David E. De Leeuw                  54                 1995
       Anthony V. Dub                     48                 1996
       George E. McCown                   63                 1995
       Glenn S. McKenzie                  45                 1995
       L. Steven Minkel                   56                 1997
</TABLE>

LYNDON J.FAULKNER.  President, Chief Executive Officer and Director since
October 1992 and Chairman of the Board of Directors since March 1995 and
Treasurer since August 1996.  Mr. Faulkner was employed in various capacities
by Nimbus Records Limited (the "Predecessor")from 1985 until October 1992, most
recently as Manufacturing Director.  Mr. Faulkner was initially responsible for
the design and development of the manufacturing process utilized by the
Predecessor.  Mr. Faulkner was educated in electrical and electronic engineering
in the United Kingdom.  Mr. Faulkner is a director of Tad Coffen Performance
Saddles Inc., a privately owned company.

CHARLES AYRES.  Director of the Company since March 1995. Mr. Ayres is a general
partner of MDC Management Company III, L.P., which is the general partner of
McCown De Leeuw & Co. III, L.P. and McCown De Leeuw & Co.(Europe) III, L.P., a
general partner of MDC Management Company IIIA, L.P., which is the general
partner of McCown De Leeuw & Co. (Asia) III, L.P. and a member of Gamma Fund,
LLC. Mr. Ayres has been affiliated with McCown De Leeuw & Co., Inc., an
affiliate of McCown De Leeuw & Co. III, L.P., since 1991.  Prior to that he was
a founding general partner of HMA Investments, Inc., a private investment firm
focused on middle-market management buyouts. He currently is a director of
certain privately held companies, including Aurora Foods Inc. and The Brown
Schools.

DARRYL G. BEHRMAN.  Director of the Company since March 1995.  Mr. Behrman is a
general partner of Behrman Brothers, L.P., the general partner of Behrman
Capital L.P. and Behrman Capital "B" L.P.  The Behrman Capital entities are
private investment firms focused on management buyouts of emerging growth
companies.  Prior to founding Behrman Capital in 1992, Mr. Behrman was a partner
at Wertheim Schroder& Co. Incorporated where he specialized in middle market
mergers and acquisitions, recapitalizations and management buyouts.  Prior to
that he worked for Citicorp's Merchant Banking Group where he served as Vice
President and head of the Corporate Advisory Group in London.  Mr. Behrman is a
Director of several privately held companies including Condor Systems, Inc.,
Professional Dental Associates, Inc. and Total Physician Services, Inc. He is
Chairman of the Board of Esoterix, Inc., a privately held company.  Darryl
Behrman and Grant Behrman are brothers.

GRANT G. BEHRMAN.  Director of the Company since March 1995.  Mr. Behrman is a
general partner of Behrman Brothers, L.P., the general partner of Behrman
Capital L.P. and Behrman Capital "B" L.P.  The Behrman Capital entities are
private investment firms focused on management buyouts of emerging growth
companies.  Prior to founding Behrman Capital in 1992, Mr. Behrman was employed
for ten years by Morgan Stanley & Co. Incorporated, most recently as a general
partner in its Venture Capital Group.  Mr. Behrman is a Director of Visual
Networks, Inc., which is a publicly traded company, as well as serving as
Director of several privately held companies including Esoterix, Inc. and Condor
Systems, Inc.  Darryl Behrman and Grant Behrman are brothers.

ROBERT M.  DAVIDSON.  Director of the Company  since July 1994.  Since  February
1997, Mr. Davidson has been Chairman and Chief Executive Officer of The Davidson
Group,  a privately  held  investment  company.  From 1989 to February 1997, Mr.
Davidson was Chairman of the Board of Directors and Chief  Executive  Officer of
Davidson & Associates,  Inc., a publicly-held  educational software company that
develops,  publishes and manufactures high quality educational software products
for home and school use. In 1996,  Mr.  Davidson also served as Vice Chairman of
CUC  International,  Inc., a publicly held  membership-based,  consumer services
company.   Mr.  Davidson  held  senior  management   positions  at  The  Parsons
Corporation,  a large engineering and construction  company,  from 1978 to 1989.
During his last five years at Parsons,  he served as Executive  Vice  President,
and was  responsible  for managing a major portion of the firm's  operations and
overseeing acquisitions of businesses and new technologies.

DAVID E. DE LEEUW.  Director of the Company since March 1995.  Mr. De Leeuw is a
managing general partner of MDC Management Company III, L.P., which is the
general partner of McCown De Leeuw & Co. III, L.P. and McCown De Leeuw & Co.
(Europe) III, L.P., a managing general partner of MDC Management Company IIIA,
L.P., which is the general partner of McCown De Leeuw & Co. (Asia) III, L.P. and
a member of Gamma Fund, LLC. Mr. De Leeuw was the co-founder in 1984 of McCown
De Leeuw & Co., Inc., an affiliate of McCown De Leeuw & Co. III, L.P.  He
currently serves as Vice Chairman of Vans, Inc. and a director of American
Residential Investment Trust, Inc., both publicly held companies.  He also
currently serves as a director of Aurora Foods Inc., AmeriComm Holdings, Inc.,
Outsourcing Solutions Inc. and Home Asset Management Corp., all privately held
companies.

ANTHONY V. DUB.  Director of the Company since May 1996.  Mr. Dub is an Advisor
of Credit Suisse First Boston, an international investment banking firm with
headquarters in New York City.  Mr. Dub joined Credit Suisse First Boston in
1971 and served as a Managing Director from 1981 until 1997.  He currently
serves as a director of Lomak Petroleum, Inc., a publicly held company.

GEORGE E.  MCCOWN.  Director of the Company  since March 1995.  Mr.  McCown is a
managing  general  partner of MDC  Management  Company III,  L.P.,  which is the
general  partner of McCown De Leeuw & Co. III,  L.P.,  and McCown De Leeuw & Co.
(Europe) III, L.P., a managing  general partner of MDC Management  Company IIIA,
L.P., which is the general partner of McCown De Leeuw & Co. (Asia) III, L.P. and
a member of Gamma Fund,  LLC. Mr. McCown was the co-founder in 1984 of McCown De
Leeuw & Co.,  Inc., an affiliate of McCown De Leeuw & Co. III, L.P. He serves as
Chairman of the Board of Building  Materials Holding Corp., and as Vice Chairman
of Vans,  Inc.,  both  publicly  held  companies  as well as Chairman of Pelican
Companies,  Inc., a privately held company. Mr. McCown also serves as a director
of Fibermark, Inc., a publicly held company, as well as serving as a director of
International  Data Response Corp.,  Fitness Holdings,  Inc., The Brown Schools,
RSP  Manufacturing  Corp.,  Home Asset Management Corp. and Fitness Europe,  all
privately held companies.

GLENN S. MCKENZIE.  Director of the Company since March 1995.  Mr.  McKenzie has
been President of Alpha Investments,  Inc., a management  consulting firm, since
October 1991. He currently  serves as a director of Fibermark,  Inc., a publicly
held company, and DEC International, Inc., a privately held company.

L. STEVEN MINKEL  Director of the Company since August 1997. Mr. Minkel has been
Executive Vice President,  Chief Financial  Officer and Secretary since November
1992.  Before  joining the Company,  from  February 1986 to October 1992, he was
Vice President and Chief  Financial  Officer of Duchossois  Industries,  Inc., a
privately owned manufacturing  conglomerate.  Mr. Minkel served as a director of
the Company from November 1992 through March 1995.

<PAGE>

Board Meetings

The Board of Directors met five times during  fiscal 1998.  All of such meetings
were special  meetings.  Except for David E. De Leeuw and George E. McCown,  all
directors attended at least 75% of the aggregate number of meetings of the Board
of Directors and standing  Committees on which they served.  Each of David E. De
Leeuw and George E. McCown attended, respectively, three out of five meetings of
the Board and the standing committees on which they served.

Committees

The  Board of  Directors  has an  Executive  Committee  comprised  of the  Chief
Executive Officer,  the Chief Financial Officer and two non-employee  directors,
an Audit Committee comprised of three non-employee  directors and a Compensation
Committee comprised of four directors,  two of whom the Company has deemed to be
independent.

The Executive  Committee held monthly meetings during fiscal 1998. The Executive
Committee  is  authorized,  within  parameters  and  limitations  set out by the
Company's  Board of  Directors,  to meet and act on behalf  of the Board  during
interim periods between regular  meetings of the Board.  During fiscal 1998, the
members of the Executive Committee included Messrs. Faulkner,  Minkel, Ayres and
G. Behrman.

The Audit Committee held one meeting during fiscal 1998. Its principal functions
are to recommend the firm of  independent  accountants to serve the Company each
fiscal year to the Board of Directors  and to review the plan and results of the
prior year's audit by the independent accountants as well as the scope, results,
and adequacy of the Company's internal  accounting  controls and procedures.  In
addition,  the Audit Committee  reviews the  independence of the accountants and
reviews  their fees for audit and  non-audit  services  rendered to the Company.
During fiscal 1998, the members of the Audit Committee included Messrs.
Davidson, Dub and McKenzie.

The  Compensation  Committee held two meetings during fiscal 1998. Its principal
functions  are to approve  remuneration  of the officers of the Company,  review
certain  benefit  programs,  and  approve  and  administer  remuneration  plans,
including the stock  incentive  plans of the Company.  During  fiscal 1998,  the
members of the  Compensation  Committee  included  Messrs.  Ayres,  D.  Behrman,
Davidson and Dub.

<PAGE>

Executive Officers of the Company

      The following  table lists the  executive  officers of the Company and its
affiliates.  All executive  officers are appointed annually by, and serve at the
discretion of, the Board of Directors of the Company.
<TABLE>
<S>                        <C>                         <C>
                                    Position             Business Experience
       Name and Age             with the Company       During Past Five Years
--------------------------------------------------------------------------------
Lyndon J. Faulkner (37)    President,                             *
                           Chief Executive Officer,
                           Treasurer and
                           Chairman of the Board of
                           Directors

L. Steven Minkel (56)      Executive Vice President,              *
                           Chief Financial Officer
                           and Secretary

Howard G. Nash (49)        European Managing          Mr. Nash has served as
                           Director, Nimbus           European Managing
                           Manufacturing (UK) Limited Director of Nimbus
                                                      Manufacturing (UK) Limited
                                                      since January 1994.  Prior
                                                      to that time, he was
                                                      employed in various
                                                      management capacities,
                                                      including Finance
                                                      Director, by Nimbus
                                                      Manufacturing (UK) Limited
                                                      and the Predecessor.

Robert J. Headrick (41)    President, Nimbus          Mr. Headrick has served
                           Information Systems,       as President of Nimbus
                           Inc.,                      Information Systems,
                           Executive Vice President,  Inc. since March 1993
                           Nimbus Manufacturing Inc.  and as Executive Vice
                                                      President of Nimbus
                                                      Manufacturing Inc. since
                                                      March 1994.

Robert J. Lynch (37)       Vice President, Nimbus     Mr. Lynch has served as
                           Manufacturing Inc.         Vice President of Nimbus
                                                      Manufacturing Inc. since
                                                      March 1994.  Prior to
                                                      that time, he was
                                                      employed in various
                                                      management capacities,
                                                      including Operations
                                                      Manager, by Nimbus
                                                      Manufacturing Inc. and
                                                      the Predecessor.

Gary E. Krutul (42)        Controller and Chief       Mr. Krutul has served as
                           Accounting Officer,        Controller and Chief
                           Assistant Secretary and    Accounting Officer since
                           Assistant Treasurer        June 1995 and Assistant
                                                      Secretary and Assistant
                                                      Treasurer since August
                                                      1996.  From September
                                                      1991 to February 1995,
                                                      Mr. Krutul served as
                                                      Financial Manager for
                                                      Bally's Total Fitness,
                                                      Inc.

---------------------------
* See "Director Biographies"
</TABLE>

<PAGE>

Family Relationships

Directors Grant and Darryl Behrman are brothers.  Otherwise,  there is no family
relationship  between any director,  executive  officer,  or person nominated or
chosen by the Company to become a director or executive officer.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section  16(a) of the  Securities  Exchange Act of 1934  requires the  Company's
directors,  executive officers, and persons who own more than ten percent of the
Company's  Common Stock,  to file with the  Securities  and Exchange  Commission
initial  reports  of  ownership  and  reports of  changes  in  ownership  of the
Company's  Common Stock and to provide copies of the reports to the Company.  To
the  Company's  knowledge,  based  solely on a review of the  copies of  reports
furnished to the Company, and written representations that no other reports were
required to be filed, during the fiscal year ended March 31, 1998, the Company's
directors,  executive officers,  and stockholders  beneficially owning more than
ten percent of the Company's Common Stock complied with their respective Section
16(a) reporting requirements.

ITEM 11.    EXECUTIVE COMPENSATION

Compensation of Directors

Beginning  November  1995,  the Company began paying an annual fee of $10,000 to
directors of the Company who are not  compensated  as officers of the Company or
employed by an affiliate of the Company,  including  McCown De Leeuw & Co., Inc.
(the "MDC Entities") and Behrman Capital L.P. ("Behrman  Capital").  The Company
also reimburses each director for  out-of-pocket  expenses incurred in attending
meetings of the Board of Directors and its committees.

In addition,  in October 1995, the Board of Directors,  with the approval of the
stockholders,  adopted the Nimbus CD International,  Inc. 1995 Stock Option Plan
for  Non-Employee  Directors (the  "Directors'  Plan").  The Directors'  Plan is
designed to attract and retain the services of experienced and highly  qualified
outside directors and to create a proprietary interest for such directors in the
Company's continued success.  Under the Directors' Plan, grants of stock options
will be made to each  member of the  Board,  who is (a) not an  employee  of the
Company,  (b) not an employee of an affiliate of the Company,  and (c) otherwise
not eligible  for  selection  to  participate  in any plan of the Company or its
affiliates  that  entitles  such  member to  acquire  securities  or  derivative
securities  of the Company.  An aggregate of 50,000  shares of Common Stock have
been  reserved for  issuance  under the  Directors'  Plan.  Notwithstanding  the
foregoing,  adjustments  may be made by the Company's  Board of Directors in the
number and class of shares  available  under the Directors' Plan and the number,
class and price of shares  subject to outstanding  option  grants,  in each such
case, to reflect changes in the Company's corporate structure or capitalization,
such as through a merger or stock split.

Options  awarded  under the  Directors'  Plan  expire ten years from the date of
grant (unless the period is shortened by the non-employee independent director's
retirement,  death,  disability  or a  change  of  control  as  defined  in  the
Directors' Plan). Options awarded subsequent to October 31, 1995 will permit the
non-employee independent director, for a period of up to ten years from the date
of grant  (unless  the  period  is  shortened  by the  non-employee  independent
director's  retirement,  death,  disability or a change in control as defined in
the Directors'  Plan), to purchase 2,500 shares of Common Stock from the Company
at the fair market value of such shares on the date such option is granted.

Each non-employee  independent  director will receive such an option whenever he
or she is elected,  re-elected or appointed to the Company's  Board of Directors
and otherwise  satisfies the  requirements  for  participation in the Directors'
Plan.  Generally,  an option shall only be exercisable with respect to one-third
of the  shares  subject to the  option on the first  anniversary  of the date of
grant (and not prior  thereto) and then with respect to an additional  one-third
of such shares  beginning on each of the second and third  anniversaries  of the
date of grant; provided, however, the option shall be fully exercisable upon (i)
the  attainment  of age 70 by the optionee or (ii) the death or  disability  (as
defined in the Directors' Plan) of the optionee.  Notwithstanding the foregoing,
in no event may an option under the  Directors'  Plan be exercised  prior to the
expiration  of six  months  from the date of grant.  Except in  certain  limited
circumstances,  an option may be  exercised  only if the optionee at the time of
exercise  is,  and at all times  following  the grant of the option  remains,  a
non-employee director of the Company.

On October 30, 1995,  Robert M. Davidson was awarded  options to purchase 10,000
shares of the Company's  Common Stock at an exercise price equal to $7.00.  Such
options vest ratably over a three year period with the first options  vesting on
October 30, 1996. On May 20, 1996,  upon his  appointment to the Company's Board
of Directors, Anthony V. Dub was awarded options to purchase 2,500 shares of the
Company's  Common Stock at an exercise  price of $11.25 per share.  Such options
shall vest ratably over three years  beginning  May 20, 1997. On August 6, 1996,
upon their  re-election  to the Board,  each of  Messrs.  Davidson  and Dub were
granted  options to purchase  2,500  additional  shares of the Company's  Common
Stock under the  Directors'  Plan at an exercise  price of $12.63.  Such options
shall vest ratably over three years beginning August 6, 1997. On August 5, 1997,
upon their  re-election  to the Board,  each of  Messrs.  Davidson  and Dub were
granted  options to purchase  2,500  additional  shares of the Company's  Common
Stock under the  Directors'  Plan at an exercise  price of $12.37.  Such options
will vest ratably over three years beginning August 5, 1998.

The Directors' Plan will terminate upon the earlier to occur of (i) the adoption
of a resolution of the Company's  Board of Directors  terminating the Directors'
Plan,  (ii) the date all shares of Common Stock subject to the  Directors'  Plan
are purchased  according to the provisions of the  Directors'  Plan or (iii) ten
years from the date of adoption of the Directors' Plan by the Company's Board of
Directors.

Executive Compensation

The following sections disclose detailed information about cash and equity-based
executive  compensation  paid  by  the  Company  to  certain  of  its  executive
employees.  The information is comprised of a stock performance  graph, a Report
of the  Compensation  Committee of the Company's  Board of Directors,  a Summary
Compensation  Table and additional tables which provide further details on stock
options issued by the Company.

Cumulative Total Stockholder Return

The following  performance graph compares the cumulative total return,  assuming
the  reinvestment  of  dividends,  for the period from  October 26, 1995 through
March 31, 1998,  from an investment  of $100 in (i) the Company's  Common Stock,
(ii) the Nasdaq  National  Market  Composite  Index,  and (iii) the Russell 2000
Index which is assembled by Frank  Russell  Company.  This data was furnished by
Media General Financial  Services,  Inc. The Company has chosen the Russell 2000
Index for comparison because the Company does not believe that it can reasonably
identify a peer group or a  published  industry or  line-of-business  index that
contains  companies  in a similar  line of business and because the Russell 2000
Index includes companies with capitalizations similar to that of the Company. No
dividends have been declared or paid on the Company's Common Stock.

Total Return Data Ending March 31
Nimbus CD International, Russell 2000 Index, NASDAQ Composite
<TABLE>
<S>                                   <C>        <C>        <C>        <C>
                                      10/26/95   3/31/96    3/31/97    3/31/98
                                     -------------------------------------------
Nimbus CD International
Cumulative  Data  Points  10/26/95 =   100.00     101.61     125.81    131.45
100

Russell 2000 Index
Cumulative  Data  Points  10/26/95 =   100.00     112.52     118.26    167.92
100

NASDAQ Composite
Cumulative  Data  Points  10/26/95 =   100.00     105.81     118.37    178.89
100
</TABLE>

The  Nasdaq  National   Market   Composite  Index  tracks  the  aggregate  price
performance  of equity  securities  of companies  traded on the Nasdaq  National
Market. The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "NMBS".

The performance of any individual  company's common stock is influenced not only
by its own  performance and future  prospects,  but also by a number of external
factors over which the company and its  management  have indirect or no control,
including  general  economic  conditions,  expectations for the company's future
performance  and  conditions  affecting  or  expected  to affect  the  company's
industry.  In  addition,  stock  performance  can be affected by factors such as
trading volume,  analytical research coverage by the investment  community,  and
the propensity of  stockholders to hold the stock for investment  purposes.  The
relative  weight of these  factors also changes over time.  Consequently,  stock
performance, including measurement against indices, may not be representative of
a company's financial performance for given periods of time.

Report of the Compensation Committee of the Board of Directors

During  fiscal  1998,  decisions on  compensation  for the  Company's  executive
officers were made by the Compensation Committee of the Board of Directors which
is composed  of four  directors  who are not  employed  by the  Company.  At the
direction of the Board of Directors,  the Compensation  Committee is responsible
for determining  salary and bonus plans for certain  officers  designated by the
Board,  from time to time,  and is  responsible  for  approving all stock option
awards granted under the Amended and Restated Nimbus CD International, Inc. 1995
Stock Option and Stock Award Plan (as the same may be amended or  modified,  the
"Nimbus Plan").  For fiscal 1998, the Board directed the Compensation  Committee
to review and approve salary and bonus awards for the Company's  Chief Executive
Officer and Chief Financial  Officer,  the European  Managing Director of Nimbus
Manufacturing  (UK)  Limited,  the  Vice  President-   Manufacturing  of  Nimbus
Manufacturing  Inc., the Executive Vice President of Nimbus  Manufacturing  Inc.
and  President  of Nimbus  Information  Systems,  Inc.  and the  Executive  Vice
President- North American Operations of Nimbus Manufacturing Inc.

The  Compensation   Committee's   primary  goal  is  to  develop  the  Company's
compensation  program so that it is related to creating  shareholder  value. The
Committee  seeks  to  offer  the  Company's   executive   officers   competitive
compensation opportunities based on their individual performance,  the Company's
financial  performance  and their  personal  contribution  to that  performance.
Furthermore,  the  executive  compensation  program is  designed  to attract and
retain  executive  talent that  contributes  to the Company's long term success,
reward  achievement of the Company's  short-term and long-term  strategic goals,
link  executive   officer   compensation  and  shareholder   interests   through
equity-based plans, and recognize and reward individual contributions to Company
performance.

During fiscal 1998,  the  Compensation  Committee  determined  salary levels for
executive officers by considering a number of factors, including: (i) individual
performance,  (ii) functions performed by the executive officer,  (iii) scope of
the  executive   officer's   on-going  duties,   (iv)  general  changes  in  the
compensation  peer group in which the Company  competes for executive talent and
(v) the  Company's  financial  performance  in  general.  No single  factor  was
predominant  in  determining  the salary  level of any  officer.  Moreover,  the
Committee did not weigh any single factor against  another in a manner that made
it  possible  to  assign  a  numerical  value to the  weight  of any  factor  in
determining the percentage increase in salary of the executive officers.

At a meeting of the Committee  held on April 1, 1997,  the Committee  approved a
salary  increase of 10% for Howard  Nash,  European  Managing  Director,  Nimbus
Manufacturing  (UK)  Limited.  Mr.  Faulkner  provided  the  Committee  with  an
evaluation of Mr. Nash's  performance  and  participated  in the discussion with
regard to the amount of salary increase. Salary increases were not considered by
the Committee for Messrs.  Faulkner,  Minkel,  Headrick, Lynch and Trudel during
fiscal 1998.

In order to increase incentives for exceptional  performance,  a portion of each
executive officer's  compensation is paid in the form of contingent cash bonuses
which are paid annually.  The bonus amounts for executive officers are dependent
in part  on the  Company's  financial  performance,  as  well as  individualized
criteria  such as  achievement  of  specific  goals for the  Company  and/or its
subsidiaries and satisfactory  completion of special projects  supervised by the
Chief Executive Officer. The Company's financial performance  objectives must be
achieved before individual objectives are evaluated. For fiscal 1998, no bonuses
were paid to Messrs. Faulkner,  Minkel, Trudel or Headrick because the financial
performance  objectives  established  for those officers were not achieved.  Mr.
Nash was  awarded  a  $11,541  bonus  based on 90%  performance  against  stated
objectives.  On May 15, 1998, the Committee approved a cash bonus of $25,000 for
Messrs.  Faulkner and Minkel based on factors extraordinary to these performance
measurements.

Stock  options  serve to  further  align the  interests  of  management  and the
Company's  stockholders by providing  executive  officers with an opportunity to
benefit from stock price appreciation that can be expected to accompany improved
financial performance. Options also enhance the Company's ability to attract and
retain  executives.  The number of option shares  granted and the other terms of
such options, such as the vesting period, are determined by the Committee, based
on  recommendations  of  management  in light  of,  among  other  factors,  each
executive  officer's  level  of  responsibility,  prior  performance  and  other
compensation.  However,  the plan does not provide any  quantitative  method for
weighting  these  factors,  and a decision to grant an award is based  primarily
upon  an  evaluation  of past as well  as  future  anticipated  performance  and
responsibilities of each executive officer.

On April 1, 1997, the Compensation Committee awarded non-qualified stock options
to purchase  197,500  shares of Common Stock at a purchase  price of $9.13 to 42
managers of the Company. Such options will vest ratably over five years with the
first one-fifth vesting on March 31, 1998. Of these options,  Messrs.  Faulkner,
Minkel,  Nash and Trudel each received  options to purchase 15,000 shares of the
Company's Common Stock. Mr. Headrick  received options to purchase 10,000 shares
of the Company's Common Stock.

On  December 9, 1997,  the  Committee  awarded  non-qualified  stock  options to
purchase  12,000  shares of Common  Stock at a  purchase  price of $10.13 to six
managers.  After giving effect to the above grants,  there are 352,204 shares of
Common Stock available to be awarded under the Nimbus Plan.

For fiscal 1999,  the  Compensation  Committee  will be  responsible  for salary
levels and bonuses for all persons employed by the Company who are deemed by the
Board to be within  the  Securities  and  Exchange  Commission's  definition  of
"executive officer".  Specifically, the Board has designated the Company's Chief
Executive Officer and Chief Financial Officer, the European Managing Director of
Nimbus  Manufacturing  (UK)  Limited,  the  Executive  Vice  President of Nimbus
Manufacturing  Inc. and President of Nimbus  Information  Systems,  Inc. and the
Executive  Vice President - North  American  Operations of Nimbus  Manufacturing
Inc.

To the extent  appropriate,  the Company  intends to take the necessary steps to
conform its  compensation  practices to comply with the $1 million  compensation
deduction  cap under  Section  162(m) of the Internal  Revenue Code of 1986,  as
amended.

Respectfully submitted:

COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS

Charles Ayers
Darryl G. Behrman
Robert M. Davidson
Anthony V. Dub

<PAGE>

Summary Compensation Table

The  following  summary   compensation  table  presents  information  about  the
compensation  paid by the Company  during its three most recent  fiscal years to
those individuals who were (i) the Company's Chief Executive Officer (the "CEO")
at the end of the last completed fiscal year,  regardless of compensation  level
and (ii) the four  other  most  highly  compensated  executive  officers  of the
Company (collectively,  the "Named Executive Officers"). 
<TABLE> 
<S>                 <C>         <C>      <C>     <C>         <C>      <C>
                          Summary Compensation Table
                                                                LONG-TERM
                                   ANNUAL COMPENSATION (1)     COMPENSATION
                                                                         ALL
                        FISCAL                      OTHER               OTHER
       NAME AND          YEAR                       ANNUAL    OPTIONS   COMPEN-
      PRINCIPAL         ENDED    SALARY   BONUS  COMPENSATION GRANTED   SATION
       POSITION        MARCH 31    ($)     ($)      ($)(2)      (#)      (3)
                                                                         ($)
--------------------------------------------------------------------------------
Lyndon J. Faulkner        1998   242,550  25,000        0       15,000   12,230
President, Chief          1997   242,550       0        0       35,000   11,422
Executive Officer,        1996   231,000  73,600        0      475,326   12,486
Treasurer and
Chairman of the Board
of Directors

L. Steven Minkel          1998   200,000  25,000        0       15,000    9,549
Executive Vice            1997   191,260       0        0       32,000    9,992
President, Chief          1996   177,876  73,600        0      316,821    9,070
Financial Officer and
Secretary

David J. Trudel (4)       1998   181,000       0        0       15,000    3,680
Executive Vice            1997   145,792       0   28,443       20,000    1,370
President, Nimbus
Manufacturing Inc.

Robert J. Headrick        1998   180,180       0        0       10,000    7,143
President, Nimbus         1997   180,180       0        0        5,000    7,265
Information Systems,      1996   173,828  23,400        0      105,670    7,211
Inc., Executive Vice
President, Nimbus
Manufacturing Inc.

Howard G. Nash            1998   128,427  11,541        0       15,000   28,070
European Managing         1997   105,650  32,000        0       20,000   22,489
Director, Nimbus          1996    92,918  31,746        0      131,993   19,528
Manufacturing (UK)
Limited
</TABLE>
-------------

(1)   While each of the five Named Executive  Officers  received  perquisites or
      other personal  benefits in the years shown, in accordance with Securities
      and Exchange Commission  regulations,  the value of these benefits are not
      indicated  since  they did not  exceed the lesser of $50,000 or 10% of the
      individual's salary and bonus in any year.

(2)   The amount set forth in the Summary  Compensation  Table under the heading
      "Other Annual  Compensation"  includes (i) $21,243 for reimbursements made
      by the  Company to Mr.  Trudel or on behalf of Mr.  Trudel for  relocation
      costs and (ii) $7,200 as an automobile allowance on behalf of Mr. Trudel.

<PAGE>

(3)   Amounts set forth in the Summary Compensation Table under the heading "All
      Other  Compensation"  include (i) contributions made by the Company to the
      Company's 401(k) plan or, in the case of Messrs. Faulkner and Nash, to the
      Company's  U.K.  Pension  Scheme for the  benefit  of the Named  Executive
      Officer  and (ii) the  Company's  payment of life  insurance  premiums  on
      behalf of the Named  Executive  Officer.  In fiscal 1998, the Company paid
      $885,  $2,254,  $1,141 and $743 in life  insurance  premiums  on behalf of
      Messrs.  Faulkner,  Minkel, Trudel and Headrick,  respectively.  In fiscal
      1997,  the  Company  paid $330,  $2,250,  $487 and $330 in life  insurance
      premiums  on behalf of Messrs.  Faulkner,  Minkel,  Trudel  and  Headrick,
      respectively.  In fiscal 1996,  the Company paid $330,  $1,440 and $330 in
      life  insurance  premiums  on  behalf  of  Messrs.  Faulkner,  Minkel  and
      Headrick, respectively.

(4) Mr. Trudel ceased to be employed by the Company in February 1998.

Employment Agreements

The  Company has entered  into  employment  agreements  with  Messrs.  Faulkner,
Minkel,  Headrick and Nash. The employment  agreement with Mr. Faulkner provides
for a base salary of not less than  $200,000  and  provides  for an initial term
ended March 31, 1994 and for  continuation  thereafter  for  additional one year
periods until  terminated in accordance  with the agreement.  The agreement also
provides for an annual bonus subject to the  achievement  of annual  performance
criteria (such bonus for fiscal 1998 was $0). The agreement may be terminated by
the Company with or without  cause,  provided that if it is  terminated  without
cause the Company will be obligated to pay the greater of one year's salary plus
the previous year's bonus or all salary and benefits  specified in the agreement
from the date of termination to the end of the then current contract term.

The employment  agreement with Mr. Minkel provides for a base salary of not less
than  $150,000 and  provides for an initial term ended  November 8, 1994 and for
continuation  thereafter  for  additional  one year periods until  terminated in
accordance  with the agreement.  The agreement also provides for an annual bonus
subject to the achievement of annual performance criteria (such bonus for fiscal
1998 was $0). The  agreement  may be  terminated  by the Company with or without
cause,  provided  that if it is  terminated  without  cause the Company  will be
obligated to pay the greater of one year's salary plus the previous year's bonus
or all  salary  and  benefits  specified  in the  agreement  from  the  date  of
termination to the end of the then current contract term.

The  employment  agreement with Mr.  Headrick  provides for a base salary of not
less than  $140,000  and  provides  for an  initial  term  ended  March 7, 1994.
Thereafter,  the  agreement  continues  for  additional  six month periods until
terminated in accordance with the agreement.  The agreement also provides for an
annual bonus,  subject to achievement of annual performance criteria (such bonus
for fiscal 1998 was $0). The  agreement may be terminated by the Company with or
without  cause,  provided that if it is terminated  without cause the Company is
obligated to pay Mr.  Headrick  the greater of six months'  salary or all salary
and benefits  specified in the agreement from the date of termination to the end
of the then current term.

Mr. Nash is employed  under a standard  contract for  employment of directors in
the United  Kingdom  which  provides,  among  other  things,  certain  statutory
entitlements and a base salary of (pound)38,250 which is reviewed annually.  The
agreement does not have a fixed term and, except in the case of serious employee
misconduct or gross negligence, requires the parties to the agreement to provide
12 months prior written notice of a desire to terminate.  The Company may make a
payment in lieu of notice.

Compensation Committee Interlocks and Insider Participation

From October 1992 until June 1993,  the  executive  compensation  program of the
Company  was  administered  by the Board of  Directors.  During  such period Mr.
Faulkner,  President, and Mr. Minkel, Executive Vice President,  participated in
the  deliberations  of the  Board  of  Directors  concerning  executive  officer
compensation. On June 3, 1993, the Board of Directors established a Compensation
Committee to  administer  the  Company's  executive  compensation  program.  The
Compensation Committee is currently comprised of four non-employee directors.

Stock Options

The Company has adopted the Amended and Restated Nimbus CD  International,  Inc.
1995 Stock Option and Stock Award Plan (the "Nimbus  Plan").  The Nimbus Plan is
intended to further the long-term stability and financial success of the Company
by attracting and retaining key employees  through the use of stock  incentives,
including stock options.  The Company does not award stock  appreciation  rights
under the Nimbus  Plan.  The Company has  reserved a total of  2,715,449  shares
(adjusted to give effect to the Company's  3.76049 stock split effective October
16, 1995) of common stock for issuance under the Nimbus Plan.

The following  table sets forth  additional  information  concerning  individual
grants of stock  options  made under the Nimbus Plan  during the last  completed
fiscal year to each of the Named Executive Officers:
<TABLE>
<S>                  <C>       <C>      <C>      <C>         <C>       <C>
                        Option Grants In Last Fiscal Year
                                                                 POTENTIAL
                                                              REALIZED VALUE AT
                                                               ASSUMED ANNUAL
                                                               RATES OF STOCK
                     INDIVIDUAL GRANTS                             PRICE
                                                                APPRECIATION
                                                                 FOR OPTION
                                                                  TERM (1)
------------------------------------------------------------  ---------------
                                 % OF
                                 TOTAL
                                OPTIONS
                               GRANTED   EXERCISE
                       OPTIONS    TO     OR BASE
                      GRANTED  EMPLOYEES  PRICE   EXPIRATION    5%      10%
        NAME             (2)   IN FISCAL  ($/SH)     DATE       ($)     ($)
                         (#)     YEAR
------------------------------------------------------------  ---------------

Lyndon J. Faulkner       15,000   7.1%    $9.13   3/31/07     $86,142 $218,298

L. Steven Minkel         15,000   7.1%    $9.13   3/31/07     $86,142 $218,298

David J. Trudel          15,000   7.1%    $9.13   3/31/07     $86,142 $218,298

Robert J. Headrick       10,000   4.7%    $9.13   3/31/07     $57,428 $145,532

Howard G. Nash           15,000   7.1%    $9.13   3/31/07     $86,142 $218,298
</TABLE>

(1)   The potential realized values in the table assume that the market price of
      the Company's Common Stock  appreciates in value from the date of grant to
      the end of the option term at the annualized rates of five percent and ten
      percent,  respectively. The actual value, if any, an executive may realize
      will  depend on the excess,  if any, of the stock price over the  exercise
      price on the date the option is exercised.  There is no assurance that the
      value realized by an executive  will be at or near the value  estimated in
      the table.

(2)   Options were granted  April 1, 1997.  The options will vest ratably over a
      five year  period with one fifth of the options  becoming  exercisable  on
      March 31, 1998 and one fifth  vesting each March 31  thereafter  until the
      options are fully vested on March 31, 2002.

<PAGE>

      The following  table sets forth  information  concerning  each exercise of
stock options during fiscal 1998 by each of the Named Executive Officers and the
fiscal year-end value of unexercised options, provided on an aggregated basis:
<TABLE>
<S>               <C>         <C>         <C>              <C>
              Aggregated Option Exercises in Last Fiscal Year and
                   Fiscal Year-End Unexercised Option Values

      (A)             (B)          (C)            (D)                (E)
                                               NUMBER OF
                                               SECURITIES         VALUE OF
                                               UNDERLYING        UNEXERCISED
                                              UNEXERCISED      IN-THE-MONEY(2)
                                               OPTIONS AT        OPTIONS AT
                                               FY-END (#)        FY-END ($)
                    SHARES
                   ACQUIRED     VALUE(1)      EXERCISABLE/      EXERCISABLE/
      NAME        ON EXERCISE   REALIZED     UNEXERCISABLE      UNEXERCISABLE
                      (#)          ($)
--------------------------------------------------------------------------------

Lyndon J. Faulkner     0       $0.00      484,789/264,196  $4,089,504/$1,785,385

L. Steven Minkel       0       $0.00      160,296/185,287  $1,111,096/$1,194,152

David J. Trudel        0       $0.00        11,000/24,000         $3,173/$12,690

Robert J. Headrick     0       $0.00        55,658/62,406      $405,140/$402,616

Howard G. Nash         0       $0.00       113,259/88,192      $870,931/$504,882
</TABLE>

(1)   The dollar  values  referred to in columns (C) and (E) are  calculated  by
      determining the difference between the fair market value of the securities
      underlying  the options and the exercise  price of the options at exercise
      or fiscal year-end, respectively.

(2)   Options  are  in-the-money  if the fair  market  value  of the  underlying
      securities exceeds the exercise price of the option.

<PAGE>

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth  information as of June 15, 1998, as to shares of
Common  Stock  owned by (i) each  person  who is  known  by the  Company  to own
beneficially  more than five percent of the Company's  Common  Stock,  (ii) each
director  of the  Company,  (iii) each  executive  officer  named in the Summary
Compensation  Table,  and (iv) all directors  and officers as a group,  together
with their respective percentages. 
<TABLE> 
<S>                                          <C>                 <C>
                                             AMOUNT AND NATURE    % OF CLASS
             NAME OF PERSON OR                 OF BENEFICIAL       (IF MORE
        NUMBER OF PERSONS IN GROUP             OWNERSHIP (1)     THAN 1%) (2)
        --------------------------             -------------     ------------
McCown De Leeuw & Co. III, L.P.(3)                5,528,901          25.8
McCown  De  Leeuw & Co.  Offshore  (Europe)       5,528,901          25.8
III, L.P. (3)
McCown De Leeuw & Co. (Asia) III, L.P. (3)        5,528,901          25.8
Gamma Fund LLC (3)                                5,528,901          25.8
Behrman Capital L.P. (4)                          3,670,066          17.1
Behrman Capital "B" L.P. (4)                      3,670,066          17.1
Strategic Entrepreneur Fund, L.P. (4)             3,670,066          17.1
Charles Ayres (3)                                 5,575,744          26.0
Darryl G. Behrman (4)                             3,670,066          17.1
Grant G. Behrman (4)                              3,670,066          17.1
Robert M. Davidson (5)                                9,165             *
David E. De Leeuw (3)(6)                          5,615,076          26.1
Anthony V. Dub (7)                                   19,165             *
Lyndon J. Faulkner (8)                              484,789           2.2
George E. McCown (3)(9)                           5,579,954          26.0
Glenn S. McKenzie (10)                                1,000             *
L. Steven Minkel (11)                               335,651           1.6
Robert J. Headrick (12)                              55,658             *
Howard G. Nash (13)                                 113,259             *
David J. Trudel (14)                                 11,000             *
All directors and executive officers as a        10,509,325          46.9
group (15 persons)(16)
----------------
</TABLE>
* Less than one percent of the issued and outstanding shares of Common Stock.

 (1)  The  amount  and  percentage  of  securities   beneficially  owned  by  an
      individual are determined in accordance  with the definition of beneficial
      ownership  set forth in the  regulations  of the  Securities  and Exchange
      Commission and, accordingly, may include securities owned by or for, among
      others,  the spouse and/or minor  children of the individual and any other
      relative  who has the  same  home as  such  individual,  as well as  other
      securities as to which the  individual  has or shares voting or investment
      power or has the right to  acquire  within 60 days  after  June 15,  1998.
      Beneficial  ownership may be  disclaimed as to certain of the  securities.
      Unless  otherwise  indicated,  the  persons and  entities  named have sole
      voting and dispositive power over their shares.

 (2)  Individual  percentages  have been rounded.  Shares subject to outstanding
      stock options or warrants  which the  individual  has the right to acquire
      within 60 days after June 15, 1998, are deemed to be  outstanding  for the
      purpose of computing the percentage of outstanding securities of the class
      owned by such individual, or any group including such individual,  but are
      not deemed  outstanding for the purpose of computing the percentage of the
      class owned by any other individual.

 (3)  Includes  4,478,412  shares owned by McCown De Leeuw & Co. III,  L.P.,  an
      investment  partnership  whose general  partner is MDC Management  Company
      III,  L.P.  ("MDC  III"),  774,046  shares  held by  McCown De Leeuw & Co.
      (Europe) III, L.P., an investment partnership whose general partner is MDC
      Management  Company IIIE, L.P. ("MDC IIIE"),  82,931 shares held by McCown
      De Leeuw & Co. (Asia) III, L.P., an investment  partnership  whose general
      partner is MDC Management  Company IIIA,  L.P.  ("MDC IIIA"),  and 193,512
      shares owned by Gamma Fund LLC, a  California  limited  liability  company
      ("Gamma").  The voting members of Gamma are George E. McCown,  David E. De
      Leeuw,  David E. King,  Robert B. Hellman,  Jr.,  Charles Ayres and Steven
      Zuckerman, who are also the only general partners of MDC III, MDC IIIE and
      MDC IIIA.  Voting and  dispositive  decisions  regarding  the Common Stock
      owned by MDC III, MDC IIIE and MDC IIIA are made by Messrs.  McCown and De
      Leeuw,  as Managing  General  Partners of each of such  partnerships,  who
      together  have more than the required  two-thirds-in-interest  vote of the
      Managing General  Partners  necessary to effect such decision on behalf of
      any such entity.  Voting and  dispositive  decisions  regarding the Common
      Stock owned by Gamma are made by a vote or consent of a majority in number
      of the members of Gamma. No general partner is able to individually direct
      the voting or disposition of Common Stock  beneficially  owned by MDC III,
      MDC IIIE and MDC IIIA. Messrs.  McCown, De Leeuw, King, Hellman, Ayres and
      Zuckerman,  disclaim  beneficial  ownership  of any shares of Common Stock
      owned by MDC III,  MDC IIIE,  MDC IIIA and Gamma  except to the  extent of
      their proportionate  partnership interests or membership interests (in the
      case of Gamma).  The  address of each of MDC III,  MDC IIIE,  MDC IIIA and
      Gamma is c/o McCown De Leeuw & Co., 3000 Sand Hill Road, Building 3, Suite
      290, Menlo Park, California 94025.

 (4)  Includes  3,306,037  shares owned by Behrman  Capital  L.P., an investment
      partnership whose general partner is Behrman  Brothers,  L.P., and 298,278
      shares owned by Behrman Capital "B" L.P., an investment  partnership whose
      general  partner is Behrman  Brothers,  L.P.,  and 65,751  shares owned by
      Strategic Entrepreneur Fund, L.P., an investment partnership whose general
      partners are Darryl G. Behrman and Grant G.  Behrman.  Darryl  Behrman and
      Grant Behrman are the only general  partners of each of Behrman  Brothers,
      L.P. and Strategic  Entrepreneur  Fund,  L.P., and, as such, each may make
      voting and  dispositive  decisions  regarding  the Common  Stock.  Messrs.
      Darryl Behrman and Grant Behrman have no direct ownership of any shares of
      Common  Stock and  disclaim  beneficial  ownership of any shares of Common
      Stock except to the extent of their proportionate  partnership  interests.
      The address of Behrman  Capital is c/o Behrman Capital L.P., 126 East 56th
      Street, New York, New York 10022.

(5) Includes 9,165 shares subject to stock options.

(6)   Includes  4,000  shares  held for the  benefit  of Mr. De Leeuw in the MDC
      Management  Company,  Inc. Retirement Savings and Investment Plan of which
      Mr. De Leeuw is a trustee.  Also  includes  1,000 shares held in trust for
      the  benefit of Brian De Leeuw,  Mr. De  Leeuw's  son,  of which  Treva De
      Leeuw,  Mr. De Leeuw's  wife,  serves as trustee.  Mr. De Leeuw  disclaims
      beneficial  ownership of the shares held in trust for the benefit of Brian
      De Leeuw.

(7)   Includes 4,165 shares subject to stock options.

(8)   All shares are subject to stock options.

(9)   Includes  4,000  shares  held for the  benefit  of Mr.  McCown  in the MDC
      Management  Company,  Inc. Retirement Savings and Investment Plan of which
      Mr. McCown is a trustee.

(10)  Mr. McKenzie is a consultant to McCown De Leeuw & Co.

(11)  Includes 160,296 shares subject to stock options. Also includes 500 shares
      owned by each of Lewis C. Minkel and Carter P. Minkel,  Mr. Minkel's adult
      sons, of which Mr. Minkel expressly disclaims beneficial ownership.

(12)  All shares are subject to stock options

(13)  All shares are subject to stock options.

(14)  All shares are subject to stock options.

(15)  Includes  933,632  shares  issuable upon the exercise of stock options and
      9,198,967  shares  beneficially  owned  by the MDC  Entities  and  Behrman
      Capital.

On June 16, 1998, the Company  entered into an Agreement and Plan of Merger with
Carlton  Communications  Plc  ("Carlton"),  pursuant  to which a  subsidiary  of
Carlton would acquire all of the  Company's  outstanding  common stock through a
tender offer at $11.50 per share, or a total consideration of approximately $264
million.  Consummation of the merger transaction is subject to normal regulatory
filings  and  approval  of the  Company's  stockholders.  Certain  stockholders,
including  management  of  the  Company,  control  an  aggregate  of  44% of the
Company's  common stock,  and have agreed to tender their shares with requested.
Following the close of the  transaction,  the Company will operate as a division
of Carlton's Technicolor Packaged Media Group.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Certain Relationships and Related Transactions

1995 Recapitalization. On March 31, 1995, certain affiliates of the MDC Entities
and Behrman Capital replaced  affiliates of DLJ Merchant  Banking,  Inc. ("DLJMB
Investors")  as  the  Company's  majority   stockholders  through  a  series  of
transactions  (the  "Recapitalization").  The MDC Entities  and Behrman  Capital
acquired  10,698,970  shares of the  Company's  Common  Stock  for an  aggregate
purchase price of $27 million and another  investor  acquired  118,876 shares of
Common Stock for $300,000.  The Company refinanced its then-outstanding debt and
borrowed an  additional  $41.1  million.  The Company also received $1.7 million
from Chase  Manhattan  Investment  Holdings,  Inc.  ("Chase  Manhattan") for the
issuance of warrants to purchase  693,453  shares of its Common  Stock for $0.01
per share. The warrants became  exercisable upon the occurrence of the Company's
initial  public  offering and Chase  Manhattan  exercised  its right to purchase
175,000  shares of Common  Stock.  Chase  Manhattan  exercised  their  remaining
518,453  warrants,  which  converted  into  518,002  shares of Common Stock in a
cashless transaction, on September 2, 1997.

The proceeds from the issuance of Common  Stock,  warrants and  additional  debt
were used by the Company to acquire  22,333,768  shares of its Common Stock held
by the DLJMB Investors and 2,834,436 shares of Common Stock from certain members
of management and other  stockholders  (including  2,174,015  shares received by
management  upon  exercise of stock  options  which  became  fully vested in the
Recapitalization) for an aggregate cost of $65.3 million, including related fees
and expenses.

Initial Public Offering. On October 16, 1995, the Company declared a 3.76049 for
one stock split  which was  distributed  to  stockholders  on October 18,  1995.
Thereafter,  on October  30,  1995,  the  Company  completed  an initial  public
offering of  securities  with the sale of 6,350,000  shares of Common Stock at a
price per share (net of underwriting discounts and commissions) of $6.55. Of the
6,350,000  shares of  Common  Stock  offered  for sale,  5,080,000  shares  were
purchased  and  offered  for sale to the  public by  underwriters  in the United
States  (the  "U.S.  Offering"),  with  the  remaining  1,270,000  shares  being
purchased  and  offered  for sale to the  public by  foreign  underwriters  (the
"International  Offering",  together with the U.S.  Offering,  the "Offerings").
Contemporaneously  with the Offerings,  Behrman Capital, a principal stockholder
of the Company, purchased 500,000 shares of Common Stock of the Company at $6.55
per share in a private placement transaction.

Stockholders  Agreement.  On March 31,  1995,  the Company and holders of Common
Stock (collectively,  the "Holders") entered into a Stockholders  Agreement (the
"Stockholders  Agreement").  The Stockholders  Agreement  contains,  among other
things,  restrictions  on the  transfer  of shares of Common  Stock and  certain
registration  rights with  respect  thereto and matters  related to the Board of
Directors  of  the  Company.  Upon  completion  of  the  Offerings,  all  of the
provisions  of the  Stockholders  Agreement  terminated  except  for  provisions
relating to certain registration rights. These provisions state that after March
31, 2000,  Behrman  Capital and the DLJMB  Investors,  and after March 31, 2002,
Chase  Manhattan,  shall each have a one time right to demand  that the  Company
register for sale under the Securities Act of 1933 (the "Securities Act") all or
a portion of the shares of Common  Stock of such Holder as then owned by it. Any
such registration is subject to certain time and size limitations.  In addition,
the Holders are also  entitled to require the Company to use its best efforts to
include  shares owned by them in a registered  offering of equity  securities of
the  Company,  subject to  marketing  restrictions  determined  by the  managing
underwriter.

Registration Rights Agreement.  Upon consummation of the Offerings,  the Company
and the MDC Entities entered into a registration  rights  agreement  pursuant to
which the Company will grant certain registration rights to the MDC Entities and
certain of their  transferees  and  assignees  with  respect to shares of Common
Stock  owned or  acquired  by the MDC  Entities  following  the  Offerings  (the
"Registration Rights Agreement"). Pursuant to the Registration Rights Agreement,
the MDC  Entities  will have the right to require the Company to file up to five
registration  statements  under the Securities Act, which may be increased by an
additional  three  registrations  if  effected  on Form  S-3,  covering  the MDC
Entities'  shares and the  shares of Common  Stock of  certain  transferees  and
assignees  of the MDC  Entities.  The  Company  has  agreed to pay all costs and
expenses  relating to the  exercise of the MDC  Entities'  registration  rights,
except for underwriting commissions relating to shares sold by the MDC Entities.
The Company will indemnify the MDC Entities for certain  liabilities,  including
liabilities under the Securities Act, in connection with any such  registration.
Under the Registration Rights Agreement, the MDC Entities will have the right to
transfer their respective  rights to a transferee or assignee of their shares of
the Common Stock in a transfer other than pursuant to a public offering.

By letter agreement dated October 31, 1995, the MDC Entities and Behrman Capital
agreed that upon  request of Behrman  Brothers,  L.P.,  the  general  partner of
Behrman  Capital L.P., the MDC Entities will agree to exercise one of the demand
registration  rights conferred on the MDC Entities  pursuant to the Registration
Rights  Agreement.  This  agreement  will  enable  Behrman  Capital to  exercise
incidental  registration  rights with  respect to their  shares of Common  Stock
which were granted pursuant to the Stockholders Agreement.

Pursuant to Rule 144 promulgated  under the Securities Act, the MDC Entities and
Behrman Capital may, without registration under the Securities Act, sell, within
any three-month  period, a number of shares less than or equal to the greater of
1% of the then outstanding shares of Common Stock or the average weekly reported
trading volume of the Common Stock during the four calendar weeks preceding such
sale,  subject,  in some cases, to the two year holding period described in Rule
144.  Shares owned by the MDC Entities and Behrman  Capital will be eligible for
sale to  "qualified  institutional  buyers"  pursuant  to Rule  144A  under  the
Securities Act without regard to the volume limitations contained in Rule 144.

Transactions with the Investors.  In connection with the  Recapitalization,  the
Company paid MDC Management Company III, L.P., an affiliate of the MDC Entities,
and Behrman Brothers  Management  Corporation,  an affiliate of Behrman Capital,
transaction fees of $2,425,000 and $1,575,000,  respectively, plus reimbursement
for  out-of-pocket  expenses  incurred in connection  with services  rendered in
connection with the Recapitalization.

Transactions   with   Management   Stockholders.    In   connection   with   the
Recapitalization,  the  Company (i)  purchased  296,549  shares of Common  Stock
received  pursuant  to the  exercise of stock  options  from  Messrs.  Faulkner,
Minkel,  Headrick,  Nash and Lynch on March  31,  1995 for  $2,814,250  and (ii)
purchased  117,628  additional  shares  of  Common  Stock  from Mr.  Minkel  for
$296,847.  The  shares  were  reacquired  at their  then fair value of $2.52 per
share,  the  price  paid  by  the  MDC  Entities,   Behrman  Capital  and  other
stockholders in the Recapitalization.

Transactions with Other Parties. The Company's United Kingdom subsidiary employs
the services of Whitehead  Electrical Company,  Ltd., an electrical  contracting
company  of which  Lyndon  Faulkner's  brother  is the  Managing  Director.  The
services  are  supplied  on  competitive   terms.  The  Company  paid  Whitehead
Electrical Company, Ltd. $141,904 during the fiscal year ended March 31, 1998.

In April 1994, the Company entered into the Donnelley CD-ROM Agreement with R.R.
Donnelley  & Sons  Company  ("Donnelley"),  whereby the  Company  established  a
multiline compact disc manufacturing  facility in Provo, Utah, requiring capital
expenditures  of  approximately  $13 million by the Company.  In April 1995,  as
permitted by the Donnelley CD-ROM Agreement,  Donnelley  assigned  substantially
all of its rights in, and obligations  under,  the Donnelley CD-ROM Agreement to
Stream (as assigned,  the "Stream CD-ROM  Agreement").  Effective April 1, 1997,
the Company entered into a new agreement with Stream which terminated the Stream
CD-ROM  Agreement  and set forth  Stream's  commitment  to purchase 27.5 million
discs  during  fiscal 1998 and 20.6  million  discs for the first nine months of
fiscal 1999.  The  agreement was scheduled to terminate on December 31, 1998. In
December 1997,  Stream assigned  substantially all of its rights and obligations
under the Stream Agreement to Modus Media International, Inc. ("MMI"). Effective
March 31, 1998,  the Company and MMI  determined  that, in  furtherance of their
mutual best interests, they would terminate the Agreement.

The Company  provides CD  manufacturing  services to Cedant  Software,  formerly
known as CUC  International,  Inc., a software  company.  Robert M. Davidson,  a
director  of  the  Company,  served  as  Vice  Chairman  of  the  Board  of  CUC
International,  Inc.  until his  resignation  on May 27,  1997.  These  services
supplied to CUC  International,  Inc. are on competitive  terms. Sales to Cedant
Software were $4.5 million for fiscal 1998.

<PAGE>
                                     PART IV

ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

a. The following documents are filed as part of this Form 10-K:

      1.    Financial   Statements   The   following    consolidated   financial
            statements,  and the related notes  thereto,  of the Company and the
            Report of the Independent Accountants are included in this report on
            Form 10-K. See index to  Consolidated  Financial  Statements on page
            F-1 hereof.

            i.    Report of Coopers & Lybrand L.L.P., Independent Accountants.

            ii.   Consolidated Balance Sheets as of March 31, 1998 and 1997.

            iii.  Consolidated  Statements  of Income for the three  years ended
                  March 31, 1998, 1997 and 1996.

            iv.   Consolidated  Statement of Stockholder's  Equity for the three
                  years ended March 31, 1998, 1997 and 1996.

            v.    Consolidated  Statements  of Cash  Flows for the  three  years
                  ended March 31, 1998, 1997 and 1996.

            vi.   Notes to Consolidated Financial Statements.

      2.    Schedules

            i.     Report of Coopers & Lybrand L.L.P., Independent Accountants.

            ii.    Schedule I     Condensed Financial Information of Registrant

            iii.   Schedule II    Valuation and Qualifying Accounts

            iv.    All  other   schedules  are  omitted  because  they  are  not
                   applicable or required,  or because the required  information
                   is  included  in the  Consolidated  Financial  Statements  or
                   notes.

      3.    Exhibits.  The exhibits listed on the accompanying index to exhibits
            immediately  following  this  Item 14 are  filed  as a part  of,  or
            incorporated by reference into, this Form 10-K.

b.    Reports on Form 8-K.  No  reports  on Form 8-K were filed  during the last
      quarter of the Company's fiscal year ended March 31, 1998.

c. Exhibits. See Item 14(a)(3) above.

d. Financial Statement Schedules. See Item 14(a)(2) above.

<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.

                               NIMBUS CD INTERNATIONAL, INC.



Dated: June 25, 1998
                               L. Steven Minkel
                               Executive  Vice   President,   Chief   Financial
                               Officer and Secretary

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 indicated on June 25, 1998.


                               /s/ Lyndon J. Faulkner
                               Chairman  of the Board of  Directors,  President,
                               and Chief Executive Officer (Principal Executive
                               Officer)

                               /s/ L. Steven Minkel
                               Executive Vice President and Chief Financial
                               Officer (Principal Financial Officer) and a
                               Director

                               /s/ Gary E. Krutul
                               Controller (Principal Accounting Officer)

                               Charles Ayres, Director*

                               Darryl G. Behrman, Director*
    
                               Grant G. Behrman, Director*

                               Robert M. Davidson, Director*

                               David E. De Leeuw, Director*

                               Anthony V. Dub, Director*

                               George E. McCown, Director*

                               Glenn S. McKenzie, Director*

--------------------------------------
* By L. Steven Minkel as Attorney-in-Fact.

<PAGE>

                               INDEX TO EXHIBITS

Exhibit
 Number                           Exhibit Description
  3.1   Restated  Certificate of Incorporation  of the Company  (incorporated by
        reference to Exhibit 3.1 to the Company's Registration Statement on Form
        S-1, Registration No. 33-75632 ("Registrant's 1995 S-1")).

  3.2   Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2
        to Registrant's 1995 S-1).

  4.1   Form of Certificate Representing Common Stock (incorporated by reference
        to Exhibit 4.1 to Registrant's 1995 S-1).

  4.2   Amended and Restated  Credit  Agreement  among Nimbus CD  International,
        Inc., Nimbus  Manufacturing Inc., Nimbus Manufacturing (UK) Limited, The
        Chase  Manhattan   Bank,  as  agent,   and  the  Lenders  party  thereto
        (incorporated by reference to Exhibit 4.2 to Registrant's 1995 S-1).

  4.3   Amendment  to Amended and  Restated  Credit  Agreement  among  Nimbus CD
        International,  Inc., Nimbus  Manufacturing  Inc., Nimbus  Manufacturing
        (UK) Limited,  The Chase Manhattan Bank, as agent, and the Lenders party
        thereto  (incorporated by reference to Exhibit 4.3 to Registrant's  1997
        Annual Report on Form 10-K).

  4.4   Second  Amendment to the Amended and  Restated  Credit  Agreement  among
        Nimbus  CD  International,   Inc.,  Nimbus  Manufacturing  Inc.,  Nimbus
        Manufacturing (UK) Limited, NationsBank, N.A., as agent, and the Lenders
        party thereto  (incorporated by reference to Exhibit 4.4 to Registrant's
        1997 Annual Report on Form 10-K).

  4.5   Third  Amendment  to the Amended and  Restated  Credit  Agreement  among
        Nimbus  CD  International,   Inc.,  Nimbus  Manufacturing  Inc.,  Nimbus
        Manufacturing (UK) Limited, NationsBank, N.A., as agent, and the Lenders
        party thereto  (incorporated by reference to Exhibit 4.5 to Registrant's
        1997 Annual Report on Form 10-K).

  4.6   Fourth  Amendment to the Amended and  Restated  Credit  Agreement  among
        Nimbus  CD  International,   Inc.,  Nimbus  Manufacturing  Inc.,  Nimbus
        Manufacturing (UK) Limited, NationsBank, N.A., as agent, and the Lenders
        party thereto  (incorporated by reference to Exhibit 4.6 to Registrant's
        1997 Annual Report on Form 10-K).

  4.7   Fifth  Amendment  to the Amended and  Restated  Credit  Agreement  among
        Nimbus  CD  International,   Inc.,  Nimbus  Manufacturing  Inc.,  Nimbus
        Manufacturing (UK) Limited, NationsBank, N.A., as agent, and the Lenders
        party thereto  (incorporated by reference to Exhibit 4.7 to Registrant's
        1997 Annual Report on Form 10-K).

  4.8   Sixth  Amendment  to the Amended and  Restated  Credit  Agreement  among
        Nimbus  CD  International,   Inc.,  Nimbus  Manufacturing  Inc.,  Nimbus
        Manufacturing (UK) Limited, NationsBank, N.A., as agent, and the Lenders
        party thereto.

  4.9   Credit Facility  Agreement among EuroNimbus S.A.,  Nimbus  Manufacturing
        (UK) Limited,  Saarbrucker  Zeitung Verlag und Druckerei GmbH and Banque
        Internationale a Luxembourg S.A.

 10.1   Limited Liability Company Agreement of 3dcd, L.L.C. dated as of June 28,
        1995  between  Nimbus   Manufacturing  Inc.  and  Applied   Holographics
        Corporation  (incorporated  by reference to Exhibit 10.1 to Registrant's
        1995 S-1).

 10.2   Cooperation  Agreement dated June 28, 1995 between Nimbus  Manufacturing
        (UK) Limited and Applied Holographics  Embossed Limited (incorporated by
        reference to Exhibit 10.2 to Registrant's 1995 S-1).

 10.3   Stockholders  Agreement  (incorporated  by  reference to Exhibit 10.3 to
        Registrant's 1995 S-1).

 10.4   Employment  Agreement  dated as of April 1, 1993 between the Company and
        Lyndon  J.  Faulkner  (incorporated  by  reference  to  Exhibit  10.4 to
        Registrant's 1995 S-1).

 10.5   Employment  Agreement  dated as of November 9, 1992  between the Company
        and L. Steven  Minkel  (incorporated  by  reference  to exhibit  10.5 to
        Registrant's 1995 S-1).

 10.6   Employment  Agreement  dated as of March 8, 1993 between the Company and
        Robert  J.  Headrick  (incorporated  by  reference  to  Exhibit  10.6 to
        Registrant's 1995 S-1).

 10.7   Form of Indemnification  Agreement (incorporated by reference to Exhibit
        10.7 to Registrant's 1995 S-1).

 10.8   Agreement  by and  between  Nimbus CD  International,  Inc.  and  Stream
        International  Holdings,  Inc. dated as of March 28, 1997  (incorporated
        by reference to Exhibit 10.8 to Registrant's  1997 Annual Report on Form
        10-K).

 10.9   Amended and Restated 1995 Nimbus CD International, Inc. Stock Option and
        Stock  Award  Plan   (incorporated  by  reference  to  Exhibit  10.9  to
        Registrant's 1996 Annual Report on Form 10-K)

 10.10  Form of  Registration  Rights  Agreement  (incorporated  by reference to
        Exhibit 10.10 to Registrant's 1995 S-1).

 10.11  Nimbus CD  International,  Inc. 1995 Stock Option Plan for  Non-employee
        Directors  (incorporated  by reference to Exhibit 10.12 to  Registrant's
        1995 S-1).

 10.12  CD Disc License  Agreement by and between U.S.  Philips  Corporation and
        Nimbus  Records  Inc.  dated as of  December  1, 1986  (incorporated  by
        reference to Exhibit 10.13 to Registrant's 1995 S-1).

 10.13  CD Disc License  Agreement by and between Philips  Electronics  N.V. and
        Nimbus   Manufacturing   (UK)  Ltd.,   dated  as  of  August  31,   1994
        (incorporated by reference to Exhibit 10.14 to Registrant's 1995 S-1).

 10.14  Patent License  Agreement by and between Nimbus  Manufacturing  Inc. and
        Thomson S.A., dated as of October 1, 1994  (incorporated by reference to
        Exhibit 10.15 to Registrant's 1995 S-1).

 10.15  Shareholders'  Agreement  dated  as of  January  29,  1997 by and  among
        EuroNimbus  S.A.,  Nimbus  Manufacturing  (UK)  Limited and  Saarbrucker
        Zeitung Verlag und Druckerei GmbH  (incorporated by reference to Exhibit
        10.17 to Registrant's 1997 Annual Report on Form 10-K).

 11.1   Computation of Net Income Per Share of Common Stock.

 21.1   Subsidiaries of the Registrant.

 23.1   Consent of Independent Accountants.

 24.1   Powers of attorney from officers and directors of the Company  signed by
        an attorney-in-fact.

        Financial Data Schedule for the Periods Ended:

 27.1   March 31, 1998

 27.2   December 31, 1997

 27.3   September 30, 1997

 27.4   March 31, 1997

 27.5   December 31, 1996

 27.6   September 30, 1996

 27.7   June 30, 1996

<PAGE>

                                                                    EXHIBIT 11.1

                          NIMBUS CD INTERNATIONAL, INC.
                 COMPUTATION OF NET INCOME PER SHARE OF COMMON STOCK
                              For the Years Ended
                         March 31, 1998, 1997 and 1996
                      (In thousands, except per share data)
<TABLE>
<S>                                          <C>       <C>        <C>
                                               1998      1997       1996
                                             --------  ---------  ---------
Net income used in calculating basic and diluted earnings per common share:

Net income - 1996 is pro forma for the       $13,812     $9,175    $12,040
Offering (A)                                 ========  =========  =========

  Basic earnings per common share:

   Weighted average common shares             21,173     20,862     20,744
     outstanding
                                             ========  =========  =========

   Basic earnings per common share             $0.65      $0.44      $0.58
                                             ========  =========  =========

  Diluted earnings per common share:
   Weighted average common shares             21,173     20,862     20,744
     outstanding
   Net additional common shares issueable
     upon exercise of dilutive warrants and
     stock options, determined by the
     treasury stock method using the           1,791      2,145      2,055
     average market price for options and
     warrants outstanding during the periods
                                             --------  ---------  ---------

   Weighted average number of shares used
     in calculating diluted earnings per      22,964     23,007     22,799
     common share                            ========  =========  =========

   Diluted earnings per common share           $0.60      $0.40      $0.53
                                             ========  =========  =========
</TABLE>
(A) See Note 18 of Notes to Consolidated Financial Statements.

<PAGE>
                                                                    EXHIBIT 21.1

                        SUBSIDIARIES OF THE REGISTRANT

                 Name of Corporation           State/Country of
                                                Incorporation

            Nimbus International Sales Corp.       Barbados
            Nimbus Manufacturing Inc.              Virginia
            Nimbus Manufacturing (UK) Limited    United Kingdom
            Nimbus Information Systems, Inc.       Virginia
            Nimbus Software Services, Inc.         Delaware
            CD Manufacturing (UK) Limited       United Kingdom
            3dcd, L.L.C.                           Delaware
            3dcd Limited                        United Kingdom
            EuroNimbus S.A.                       Luxembourg
            EuroNimbus GmbH                        Germany
            EuroNimbus s.a.r.l.                     France

<PAGE>

                                                                    EXHIBIT 23.1

                       CONSENT OF INDEPENDENT ACCOUNTANTS


      We consent to the incorporation by reference in the registration statement
of Nimbus CD International, Inc. on Form S-8 (File No. 333-37623) of our reports
dated May 22, 1998, on our audits of the consolidated  financial  statements and
financial statement  schedules of Nimbus CD International,  Inc. as of March 31,
1998 and 1997,  and for the years ended  March 31,  1998,  1997 and 1996,  which
reports are included in this Annual Report on Form 10-K.

COOPERS & LYBRAND L.L.P.

Richmond, Virginia
June 25, 1998

<PAGE>

                                                                    EXHIBIT 24.1

         POWERS OF ATTORNEY FROM OFFICERS AND DIRECTORS OF THE COMPANY
                        SIGNING BY AN ATTORNEY-IN-FACT

                               POWER OF ATTORNEY

      I,  CHARLES  AYRES,  a duly elected  Director of NIMBUS CD  INTERNATIONAL,
INC., a Delaware  corporation (the "Company"),  do hereby constitute and appoint
L. Steven Minkel and Gary E. Krutul,  each with full power of substitution,  for
me and in my name, place and stead, in any and all capacities (including without
limitation,  as Director of the Company), to sign the Company's Annual Report on
Form 10-K for the year  ended  March  31,  1988,  which is to be filed  with the
Securities and Exchange  Commission,  with all exhibits thereto, and any and all
documents in connection  therewith,  hereby granting unto said  attorney-in-fact
and agent full power and authority to do and perform any and all acts and things
requisite and necessary to be done, and hereby ratifying and confirming all that
said attorney-in-fact and agent may do or cause to be done by virtue hereof.

      IN WITNESS  WHEREOF,  the  undersigned  has executed this instrument as of
June 19, 1998.

                                          \s\ Charles Ayres
                                  CHARLES AYRES



                               POWER OF ATTORNEY

      I, DARRYL G. BEHRMAN,  a duly elected Director of NIMBUS CD INTERNATIONAL,
INC., a Delaware  corporation (the "Company"),  do hereby constitute and appoint
L. Steven Minkel and Gary E. Krutul,  each with full power of substitution,  for
me and in my name, place and stead, in any and all capacities (including without
limitation,  as Director of the Company), to sign the Company's Annual Report on
Form  10-K for the year  ended  March  31,  1998  which is to be filed  with the
Securities and Exchange  Commission,  with all exhibits thereto, and any and all
documents in connection  therewith,  hereby granting unto said  attorney-in-fact
and agent full power and authority to do and perform any and all acts and things
requisite and necessary to be done, and hereby ratifying and confirming all that
said attorney-in-fact and agent may do or cause to be done by virtue hereof.

      IN WITNESS  WHEREOF,  the  undersigned  has executed this instrument as of
April 27, 1998.

                                          \s\ Darryl G. Behrman
                                          DARRYL G. BEHRMAN



                               POWER OF ATTORNEY

      I, GRANT G. BEHRMAN,  a duly elected Director of NIMBUS CD  INTERNATIONAL,
INC., a Delaware  corporation (the "Company"),  do hereby constitute and appoint
L. Steven Minkel and Gary E. Krutul,  each with full power of substitution,  for
me and in my name, place and stead, in any and all capacities (including without
limitation,  as Director of the Company), to sign the Company's Annual Report on
Form 10-K for the year  ended  March  31,  1998,  which is to be filed  with the
Securities and Exchange  Commission,  with all exhibits thereto, and any and all
documents in connection  therewith,  hereby granting unto said  attorney-in-fact
and agent full power and authority to do and perform any and all acts and things
requisite and necessary to be done, and hereby ratifying and confirming all that
said attorney-in-fact and agent may do or cause to be done by virtue hereof.

      IN WITNESS  WHEREOF,  the  undersigned  has executed this instrument as of
April 27, 1998.

                                          \s\ Grant G. Behrman
                                          GRANT G. BEHRMAN


                               POWER OF ATTORNEY

      I, ROBERT M. DAVIDSON, a duly elected Director of NIMBUS CD INTERNATIONAL,
INC., a Delaware  corporation (the "Company"),  do hereby constitute and appoint
L. Steven Minkel and Gary E. Krutul,  each with full power of substitution,  for
me and in my name, place and stead, in any and all capacities (including without
limitation,  as Director of the Company), to sign the Company's Annual Report on
Form 10-K for the year  ended  March  31,  1998,  which is to be filed  with the
Securities and Exchange  Commission,  with all exhibits thereto, and any and all
documents in connection  therewith,  hereby granting unto said  attorney-in-fact
and agent full power and authority to do and perform any and all acts and things
requisite and necessary to be done, and hereby ratifying and confirming all that
said attorney-in-fact and agent may do or cause to be done by virtue hereof.

      IN WITNESS  WHEREOF,  the  undersigned  has executed this instrument as of
April 22, 1998.

                                          \s\ Robert M. Davidson
                                          ROBERT M. DAVIDSON



                               POWER OF ATTORNEY

      I, DAVID E. DE LEEUW, a duly elected Director of NIMBUS CD  INTERNATIONAL,
INC., a Delaware  corporation (the "Company"),  do hereby constitute and appoint
L. Steven Minkel and Gary E. Krutul,  each with full power of substitution,  for
me and in my name, place and stead, in any and all capacities (including without
limitation,  as Director of the Company), to sign the Company's Annual Report on
Form 10-K for the year  ended  March  31,  1998,  which is to be filed  with the
Securities and Exchange  Commission,  with all exhibits thereto, and any and all
documents in connection  therewith,  hereby granting unto said  attorney-in-fact
and agent full power and authority to do and perform any and all acts and things
requisite and necessary to be done, and hereby ratifying and confirming all that
said attorney-in-fact and agent may do or cause to be done by virtue hereof.

      IN WITNESS WHEREOF, the undersigned has executed this instrument as of May
26, 1998.

                                          \s\ David E. De Leeuw
                                          DAVID E. DE LEEUW


                               POWER OF ATTORNEY

      I,  ANTHONY V. DUB, a duly  elected  Director of NIMBUS CD  INTERNATIONAL,
INC., a Delaware  corporation (the "Company"),  do hereby constitute and appoint
L. Steven Minkel and Gary E. Krutul,  each with full power of substitution,  for
me and in my name, place and stead, in any and all capacities (including without
limitation,  as Director of the Company), to sign the Company's Annual Report on
Form 10-K for the year  ended  March  31,  1998,  which is to be filed  with the
Securities and Exchange  Commission,  with all exhibits thereto, and any and all
documents in connection  therewith,  hereby granting unto said  attorney-in-fact
and agent full power and authority to do and perform any and all acts and things
requisite and necessary to be done, and hereby ratifying and confirming all that
said attorney-in-fact and agent may do or cause to be done by virtue hereof.

      IN WITNESS  WHEREOF,  the  undersigned  has executed this instrument as of
June 19, 1998.

                                          \s\ Anthony V. Dub
                                          ANTHONY V. DUB



                               POWER OF ATTORNEY

      I, GEORGE E. McCOWN, a duly elected  Director of NIMBUS CD  INTERNATIONAL,
INC., a Delaware  corporation (the "Company"),  do hereby constitute and appoint
L. Steven Minkel and Gary E. Krutul,  each with full power of substitution,  for
me and in my name, place and stead, in any and all capacities (including without
limitation,  as Director of the Company), to sign the Company's Annual Report on
Form 10-K for the year  ended  March  31,  1998,  which is to be filed  with the
Securities and Exchange  Commission,  with all exhibits thereto, and any and all
documents in connection  therewith,  hereby granting unto said  attorney-in-fact
and agent full power and authority to do and perform any and all acts and things
requisite and necessary to be done, and hereby ratifying and confirming all that
said attorney-in-fact and agent may do or cause to be done by virtue hereof.

      IN WITNESS  WHEREOF,  the  undersigned  has executed this instrument as of
April 24, 1998.

                                          \s\ George E. McCown
                                          GEORGE E. MCCOWN


                               POWER OF ATTORNEY

      I, GLENN  McKENZIE,  a duly elected  Director of NIMBUS CD  INTERNATIONAL,
INC., a Delaware  corporation (the "Company"),  do hereby constitute and appoint
L. Steven Minkel and Gary E. Krutul,  each with full power of substitution,  for
me and in my name, place and stead, in any and all capacities (including without
limitation,  as Director of the Company), to sign the Company's Annual Report on
Form 10-K for the year  ended  March  31,  1998,  which is to be filed  with the
Securities and Exchange  Commission,  with all exhibits thereto, and any and all
documents in connection  therewith,  hereby granting unto said  attorney-in-fact
and agent full power and authority to do and perform any and all acts and things
requisite and necessary to be done, and hereby ratifying and confirming all that
said attorney-in-fact and agent may do or cause to be done by virtue hereof.

      IN WITNESS  WHEREOF,  the  undersigned  has executed this instrument as of
April 24, 1998.

                                          \s\ Glenn McKenzie
                                          GLENN MCKENZIE

<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
                          FINANCIAL STATEMENT SCHEDULES

Financial Statements:                                       Page

Report of Independent Accountants...........................F-2
Financial Statements:
 Consolidated Balance Sheets as of March 31, 1998 and 1997..F-3 
 Consolidated Statements of Income for the three years
     ended March 31, 1998, 1997 and 1996....................F-4
 Consolidated Statement of Stockholders'  Equity for the
     three years ended March 31, 1998, 1997 and 1996........F-5
 Consolidated Statements of Cash Flows for the three years
     ended March 31, 1998, 1997 and 1996....................F-6
 Notes to Consolidated Financial Statements.................F-7

Financial Statement Schedules:

Report of Independent Accountants...........................F-20

Schedule I - Condensed Financial Information of Registrant..F-21

Schedule II - Valuation and Qualifying Accounts.............F-23

<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

The Stockholders and Directors
Nimbus CD International, Inc.:

We have  audited  the  accompanying  consolidated  balance  sheets  of Nimbus CD
International,  Inc. and its  subsidiaries  (the "Company") as of March 31, 1998
and 1997,  and the  related  consolidated  statements  of income,  stockholders'
equity and cash flows for each of the three years in the period  ended March 31,
1998.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements 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 financial  statements  referred to above present fairly, in
all  material  respects,  the  consolidated  financial  position  of  Nimbus  CD
International,  Inc. and its subsidiaries as of March 31, 1998 and 1997, and the
consolidated  results of their  operations  and their cash flows for each of the
three  years in the period  ended March 31, 1998 in  conformity  with  generally
accepted accounting principles.


Richmond, Virginia
May 22, 1998
COOPERS & LYBRAND L.L.P.
                                        F2

<PAGE>

                   NIMBUS CD INTERNATIONAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             March 31, 1998 and 1997
                        (In thousands, except share data)
<TABLE>
<S>                                                    <C>       <C>
                        ASSETS                             1998      1997
Current assets:
  Cash and cash equivalents                            $          $
                                                          8,239     7,790
  Accounts and notes receivable-trade, less
   allowances for doubtful accounts of $2,251 and        30,046    26,393
   $1,812
  Inventories                                             2,500     2,217
  Prepaid expenses                                        1,624     1,329
  Deferred income taxes                                   3,396     3,415
                                                       ---------  --------
   Total current assets                                  45,805    41,144
                                                       ---------  --------
Property, plant and equipment, net                       79,907    63,431
Other assets and intangibles, net                         5,591     3,697
                                                       =========  ========
                                                       $131,303   $108,272
                                                       =========  ========

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
  Current portion of long-term debt                       6,605     5,159
  Accounts payable                                        9,259     5,617
  Accrued expenses and other liabilities                 14,439    13,533
  Income taxes payable                                    7,014     6,665
                                                       ---------  --------
   Total current liabilities                             37,317    30,974
                                                       ---------  --------

Long-term debt                                           19,288    20,840
Deferred income taxes                                     4,883     3,561
Minority interest and other liabilities                   3,521       475

Commitments and contingencies

Stockholders' equity:
  Preferred stock, $0.01 par value, 2,000,000 shares
   authorized, no shares issued or outstanding
  Common stock, $0.01 par value, 60,000,000 shares
   authorized, 39,012,786 shares issued; 21,388,581         390       390
   and 20,870,579 shares outstanding
  Paid-in capital                                        65,430    66,775
  Retained earnings                                      45,781    31,969
  Cumulative foreign currency translation adjustments       438       378
                                                       ---------  --------
                                                        112,039    99,512
  Treasury stock, at cost, 17,624,205 and 18,142,207    (45,745)  (47,090)
  shares                                               ---------  --------
   Total stockholders' equity                            66,294    52,422
                                                       =========  ========
                                                       $131,303   $108,272
                                                       =========  ========
</TABLE>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
                                   F-3

<PAGE>

                   NIMBUS CD INTERNATIONAL, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                  For the  Years  Ended  March  31,  1998,  1997  and  1996  (In
                      thousands, except per share data)

<TABLE>
<S>                                     <C>        <C>        <C>
                                          1998        1997       1996
Net sales                               $132,340    $129,470   $118,245
Cost of goods sold                        94,037      91,961     83,809
                                        ---------  ----------  ---------
  Gross profit                            38,303      37,509     34,436

Selling, general and administrative       17,634      15,463     12,989
expenses
Restructuring charge                        (664)      6,014          -
                                        ---------  ----------  ---------
  Operating income                        21,333      16,032     21,447

Other income (expense):
  Interest expense                        (2,672)     (2,666)    (5,305)
  Equity in earnings of affiliate          1,297
  Minority interest                          688
  Other, net                                 455         395       (41)
                                        ---------  ----------  ---------
   Income before income taxes and
     extraordinary item                   21,101      13,761     16,101

Provision for income taxes                 7,289       4,586      5,642
                                        ---------  ----------  ---------
  Income before extraordinary item        13,812       9,175     10,459
Extraordinary item - extinguishment of
  debt (net of income tax benefit of           -           -    (2,952)
  $1,213)
                                        ---------  ----------  ---------
  Net income                             $13,812      $9,175     $7,507
                                        =========  ==========  =========

Earnings per share - 1996 is pro forma for the Offering (Note 18):

Net income - 1996 is pro forma for the   $13,812      $9,175    $12,040
  Offering                              =========  ==========  =========

  Basic                                    $0.65       $0.44      $0.58
                                        =========  ==========  =========
  Diluted                                  $0.60       $0.40      $0.53
                                        =========  ==========  =========

Weighted average shares outstanding:

  Basic                                   21,173      20,862     20,744
                                        =========  ==========  =========
  Diluted                                 22,964      23,007     22,799
                                        =========  ==========  =========
</TABLE>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
                                   F-4

<PAGE>

                   NIMBUS CD INTERNATIONAL, INC. AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  For the Years Ended March 31, 1998, 1997 and 1996
                             (Dollars in thousands)
<TABLE>
<S>               <C>       <C>        <C>   <C>      <C>      <C>      <C>
                                                      Cumulative
                    Number of Shares                  Foreign
                   -------------------                Currency
                   Common    Treasury Common  Paid-in Transltn Retained Treasury
                     Stock    Stock    Stock  Capital AdjustmntEarnings Stock
Balances, April   38,973,17 (25,168,21) $390 $41,275  $   220  $15,287 $(65,292)
  1, 1995
Stock issued in
  connection with
  initial public
  offering and               6,850,000        25,911                     17,745
  private
  placement
Exercise of                    175,000         (452)                        454
  warrants
Net income                                                       7,507
Foreign currency
  translation                                              21
  adjustments
                   -----------------------------------------------------------
Balances,March     38,973,17(18,143,211)  390 66,734      241   22,794  (47,093)
  31, 1996
Exercise of stock
  options             39,613      1,004           41                          3
Net income                                                       9,175
Foreign currency
  translation
  adjustments                                             137
                   -----------------------------------------------------------
Balances,March     39,012,78(18,142,207)  390  66,775     378   31,969  (47,090)
  31, 1997
Exercise of                     518,002        (1,345)                    1,345
  warrants
Net income                                                      13,812
Foreign currency
  translation                                              60
  adjustments
                   -----------------------------------------------------------
Balances,March 31, 39,012,78(17,624,205) $390 $65,430    $438  $45,781 $(45,745)
  31, 1998         ========= ========== ===== =======  ======  ======= ========
</TABLE>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
                                        F-5
<PAGE>


                   NIMBUS CD INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  For the Years Ended March 31, 1998, 1997 and 1996
                             (Dollars in thousands)
<TABLE>
<S>                                          <C>         <C>       <C>
                                                1998        1997      1996
Cash flows from operating activities:
  Net income                                 $13,812      $9,175    $7,507
  Adjustments to reconcile net income to
   net cash provided by operating
   activities:
   Restructuring charge                        (664)       6,014
   Depreciation and amortization              11,130       9,595     7,938
   Minority interest                           (688)
   Deferred income taxes                       1,331     (2,500)     2,922
   Equity in undistributed income of         (1,297)
   affiliates
   Net (gain) loss on sale of equipment         (52)        (98)       361
   and other assets
   Gains on settlement of royalty                                  (1,744)
   obligation
   Extraordinary item                                                2,047
   Other, net                                  (196)        (24)      (56)
   Change in operating assets and
     liabilities, net of  acquisition:
     Accounts and notes receivable           (3,483)         355   (5,694)
     Inventories                               (257)          37        31
     Prepaid expenses                          (290)       (502)       891
     Accounts payable                          3,460       (983)   (1,872)
     Accrued expenses                          2,463       3,670   (1,132)
     Income taxes payable                        272       2,922       666
                                           ----------  ----------  --------
      Net cash provided by operating          25,541      27,661    11,865
      activities                           ----------  ----------  --------

Cash flows from investing activities:
  Purchases of property, plant and          (27,981)    (20,507)   (10,087)
  equipment
  Proceeds from governmental grants            2,215
  Proceeds from sale of equipment and            450         358        64
  other assets
  Expenditures for computer software         (1,051)     (1,512)     (929)
  Other investing activities                    (65)       (435)     (548)
  Acquisition of business, net of cash                     (253)   (4,850)
  acquired
                                           ----------  ----------  --------
   Net cash used in investing activities    (26,432)    (22,349)   (16,350)
                                           ----------  ----------  --------

Cash flows from financing activities:
  Proceeds of debt                             2,632                 2,357
  Repayment of debt                          (6,496)     (1,510)   (37,000)
  Revolving credit borrowings, net             3,323               (1,991)
  Capital contribution by minority             1,561         315
  interest
  Payment of financing fees                                (159)   (1,140)
  Proceeds from exercise of stock options                     44
  Issuance of common stock                                          44,886
  Payment of costs related to initial                              (1,230)
  public offering
                                           ----------  ----------  --------
   Net cash provided (required) by             1,020     (1,310)     5,882
   financing activities
                                           ----------  ----------  --------
  Effect of exchange rate changes on cash        320         195     (122)
                                           ----------  ----------  --------
   Net increase in cash                          449       4,197     1,275

Cash and cash equivalents, beginning of        7,790       3,593     2,318
year
                                           ==========  ==========  ========
   Cash and cash equivalents, end of year     $8,239      $7,790    $3,593
                                           ==========  ==========  ========
</TABLE>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
                                        F-6

<PAGE>

                   NIMBUS CD INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Dollars in thousands, except per share data)


1.  Organization and Principles of Consolidation:

   Nimbus CD  International,  Inc. (the  "Company") is a manufacturer of compact
   discs ("CDs") which are used primarily for the playback of pre-recorded music
   ("CD-Audio")  and  the  distribution  of  digitally   recorded   information,
   including  data,  text,  video,  audio  and  other  interactive  applications
   ("CD-ROM").  In addition,  the Company  manufactures  digital versatile discs
   ("DVD") for the home video and computer software markets.

   The  consolidated  financial  statements  present the  operating  results and
   financial position of the Company and its subsidiaries  including a 70% owned
   subsidiary,  EuroNimbus  S.A.  Investments  in joint  ventures  in which  the
   Company owns a 50% ownership interest are accounted for by the equity method.
   All significant intercompany balances and transactions have been eliminated.

2. Summary of Significant Accounting Policies:

   a)  Accounting   estimates:   The  preparation  of  financial  statements  in
   conformity with generally accepted accounting  principles requires management
   to make estimates and assumptions  that affect the reported amounts of assets
   and  liabilities  and disclosure of contingent  assets and liabilities at the
   date of the  financial  statements  and the reported  amounts of revenues and
   expenses  during the reporting  period.  Actual results may differ from those
   estimates.

   b)  Currency  translation:   The  assets  and  liabilities  of  all  non-U.S.
   subsidiaries that operate in a local currency environment are translated from
   their respective functional currencies to U.S. dollars at the fiscal year-end
   exchange  rates.  Revenue  and expense  accounts  are  translated  at average
   monthly  rates  for  the  periods  presented.   Translation  adjustments  are
   accumulated in a separate  component of stockholders'  equity.  The gains and
   losses from  foreign  currency  transactions,  not  material  in amount,  are
   reflected in operations.

   c) Cash and cash  equivalents:  Cash and cash  equivalents  include  all cash
   balances and highly  liquid  investments  with an original  maturity of three
   months or less.

   d) Financial instruments:  The Company enters into foreign exchange contracts
   for the purpose of currency  exchange rate risk management.  Gains and losses
   on these  contracts  are  recognized in the same period in which the gains or
   losses from the transaction being hedged are recorded.

   e) Inventories:  Inventories are valued at the lower of cost or market,  with
   cost for raw materials  determined  using the first-in,  first-out method and
   cost for work-in-process and finished goods determined using the average cost
   method.

   f) Property, plant and equipment:  Property, plant and equipment is stated at
   cost. The costs of significant improvements are capitalized.  Maintenance and
   repairs are expensed as incurred.  Depreciation is charged to operations over
   the  estimated  useful  lives of the  assets  which  range  from 5 years  for
   equipment to 40 years for buildings,  using the  straight-line  method.  When
   properties  are  sold or  retired,  their  cost and the  related  accumulated
   depreciation  are  eliminated  from  the  accounts  and  the  gain or loss is
   reflected in operations.

   g) Income taxes:  The Company provides for deferred income taxes based on the
   liability method of accounting for income taxes. Deferred tax liabilities and
   assets are determined  based on the difference  between  financial  statement
   carrying  amounts and the tax basis of assets and  liabilities  using enacted
   tax rates in effect in the years in which the  differences  are  expected  to
   reverse.

                                        F-7
<PAGE>

   h)  Other   Assets  and   Intangibles:   Purchased   software   and   related
   implementation  costs are  capitalized in other assets and amortized over its
   estimated useful life.

   i)  Impairment  of Long-Lived  Assets:  The Company  reviews for the possible
   impairment of  long-lived  tangible and  intangible  assets  whenever  events
   indicate that an asset may be impaired. In such events, the Company estimates
   the future  undiscounted  cash flows  expected  to result from the use of the
   asset and its eventual  disposition.  If the sum of these  undiscounted  cash
   flows is less than the carrying  amount of the asset,  an impairment  loss is
   recognized. Measurement of the impairment loss is based on the estimated fair
   value of the asset.  The Company believes that there was no impairment of its
   tangible and intangible noncurrent assets at March 31, 1998.

   j)   Reclassifications:   Certain  amounts  in  the  prior  years'  financial
   statements   have  been   reclassified   to  conform  with  the  fiscal  1998
   presentation.  The impact of these changes is not material and did not affect
   net income.

3. Accounting Standards Changes:

   Beginning in fiscal 1997, the Company  adopted the disclosure only provisions
   of Statement of Financial  Accounting  Standards ("SFAS") No. 123 "Accounting
   for Stock-Based  Compensation".  SFAS No. 123 allows companies to continue to
   recognize   compensation  expense  for  stock-based   employee   compensation
   arrangements  by  the  intrinsic  value  method  and  to  provide  pro  forma
   disclosure  of the impact on net income and earnings per share as if the fair
   value  based  compensation  cost  had been  recognized.  See Note 12 for such
   disclosure.

   In December 1997, the Company  implemented  SFAS No. 128 "Earnings Per Share"
   resulting in the  restatement  of earnings  per share for all prior  periods.
   SFAS 128  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"
   reflects the  potential  dilution of stock options or other  securities  that
   would  result in the  issuance  or exercise  of  additional  shares of common
   stock.  Outstanding  stock options and warrants in prior years  represent the
   difference between basic and diluted weighted average shares outstanding.

   Effective  with the first  quarter of fiscal  1999,  the  Company  will adopt
   Statement No. 130  "Reporting  Comprehensive  Income".  SFAS 130  establishes
   standards of reporting and display of comprehensive income and its components
   in a full set of general-purpose financial statements,  either in a statement
   of operations or in a separate statement. Additionally, SFAS 130 requires the
   display  of the  accumulated  balance  of  other  comprehensive  income  as a
   separate  caption in the equity  section of the balance  sheet as well as the
   disclosure of material components of accumulated other  comprehensive  income
   either on the face of the balance sheet,  in a statement of changes in equity
   or in notes to the  financial  statements.  The Company does not believe that
   adoption of SFAS 130 will have a material  effect on the Company's  financial
   position.

   The Company will also adopt Statement No. 131 "Disclosures  about Segments of
   an Enterprise and Related  Information"  in fiscal 1999. SFAS 131 establishes
   standards  for the way that public  companies  report  information  and about
   operating segments in both interim and annual financial statements, including
   related disclosures about products and services,  geographic areas, and major
   customers. The Company does not believe that adoption of SFAS 131 will have a
   significant  effect on the Company's  operating segments reported and related
   disclosures.

   In fiscal 1999,  the Company  will adopt the American  Institute of Certified
   Public  Accountants  Statement of Position  ("SOP")  98-5,  "Reporting on the
   Costs of Start-Up  Activities".  This SOP provides  guidance on the financial
   reporting  of start-up  costs and requires  that  entities  expense  costs of
   start-up  activities  as they are  incurred.  The  Company was  generally  in
   conformance with this standard and does not believe that adoption of SOP 98-5
   will have a material effect on the Company's financial position or results of
   operations.
                                        F-8
<PAGE>

4. Inventories:

   Inventories at year end consisted of the following:
<TABLE>
<S>                               <C>        <C>
                                      1998       1997
                                   --------  --------
    Raw materials                    $2,088    $1,518
    Work-in-process                     330       236
    Finished goods                       82       463
                                   --------  --------
                                     $2,500    $2,217
                                   ========  ========
</TABLE>

5. Property, Plant and Equipment:

   Property, plant and equipment at year end consisted of the following:
<TABLE>
<S>                               <C>       <C>

                                      1998       1997
                                  --------  ---------
    Land,buildings and             $25,989    $20,865
    improvements
    Machinery and equipment         84,016     62,925
    Construction in progress         5,112      5,976
                                  --------  ---------
                                   115,117     89,766

    Less accumulated depreciation  (35,210)   (26,335)
                                  --------  ---------

    Net property, plant and        $79,907    $63,431
    equipment                     ========  =========
</TABLE>

6. Accrued Expenses and Other Liabilities:

   Accrued  expenses  and  other  liabilities  at  year  end  consisted  of  the
   following:
<TABLE>
<S>                               <C>       <C>
                                      1998      1997
                                  --------  ---------
    Royalty obligations            $9,319     $6,722
    Taxes payable, other than       1,041      1,306
    income taxes
    Employee compensation and       2,177      1,406
    benefits
    Restructuring charge reserve               2,807
    Other items                     1,902      1,292
                                 ---------- --------
                                  $14,439    $13,533
                                 ========== ========
</TABLE>

7. Expansion and Acquisition:

   On January 29, 1997, the Company  completed the formation of EuroNimbus  S.A.
   ("EuroNimbus"),  a 70%  owned  joint  venture  with  Saarbrucker  Verlag  and
   Druckerei,  GmbH,  for the  purpose of building a disc  replication  plant in
   Luxembourg.  Construction  of the plant was  completed  and the  facility was
   commissioned in December 1997.

   On August 31, 1995, the Company acquired  substantially  all of the assets of
   HLS Duplication, Inc. which the Company operated as Nimbus Software Services,
   Inc. ("NSS"), for a purchase price of approximately $5.4 million in cash plus
   the  assumption  of  certain  specified  liabilities.   The  acquisition  was
   accounted for as a purchase for financial reporting purposes.  The results of
   the acquired entity, which were not material in relation to the Company, were
   included in the consolidated  financial results from the date of acquisition.
   The assets acquired and liabilities assumed were as follows:

                                        F-9
<PAGE>


<TABLE>
<S>                                                    <C>
                                                       Amount
                                                      --------
    Fair value of assets acquired                      $3,360
    Excess cost over fair value of net tangible         3,136
    assets acquired
    Liabilities assumed                                (1,093)
                                                      --------
                                                       $5,403
    Cash acquired                                        (300)
                                                      --------
    Cash paid for acquisition, net                     $5,103
                                                      ========
</TABLE>

8. Restructuring Charge:

   The results of  operations  for fiscal 1997 included a charge of $6.0 million
   for costs  associated with the closure of NSS, as part of a program to reduce
   overhead costs and improve operating  efficiencies.  The restructuring charge
   included severance and related benefit payments of $453, commitments to third
   parties of $929,  write-off of  intangible  and other  assets of $3,207,  the
   write-down of excess  production and other fixed assets of $1,350,  and other
   unusual expenses of $75.

   During fiscal 1998, the Company reversed $664 of its restructuring reserve as
   a  result  of the  completion  of the  restructuring  plan at less  than  the
   originally  estimated  cost.  A  summary  of the  restructuring  activity  is
   presented below.
<TABLE>
<S>                                                  <C>
                                                      Amount
                                                     --------
    1997 provision                                    $6,014
    1997 activity:
      Non-cash write-off of intangible assets         (3,207)
                                                     --------
    Balance at March 31, 1997                          2,807
    1998 activity:
      Non-cash write-off of property and equipment    (1,261)
      Reduction in workforce and other cash outflows    (882)
                                                     ========
    Restructuring reserve reversal                      $664
                                                     ========
</TABLE>
                                        F-10
<PAGE>

9. Debt:
   Long-term debt at year end consisted of the following:
<TABLE>
<S>                                                 <C>          <C>
                                                       1998         1997
                                                    -----------  ------------
    Variable rate term loan (effective  interest 
    rate of 8.8% at March 31, 1998, and 8.4% at
    March 31, 1997), payable in quarterly            $18,049        $24,249
    installments of varying amounts with the
    final maturity in September 2000

    Variable rate term loan (effective interest 
    rate of 4.4% at March 31, 1998), payable in 
    LUF in equal semi-annual  installments            5,165 
    commencing June 1999 with the final maturity 
    in December 2001

    Variable rate revolving loans (effective
    interest rate of 7.3% at March 31, 1997)                          1,750

    Fixed rate term loan  (effective  interest  
    rate of 5.5% at March 31, 1998), payable in 
    LUF in equal quarterly installments commencing      858 
    December 2000, with the final maturity in 
    September 2008

    Fixed rate term loan (effective interest rate
    of 5.0% at March 31, 1998), payable in LUF in      1,821
    May 2002
                                                    -----------  ------------
    Total                                             25,893         25,999
    Less current maturities                            6,605          5,159
                                                    -----------  ------------
                                                     $19,288        $20,840
                                                    ===========  ============
</TABLE>

   The Company's credit agreement with NationsBank,  N.A.  ("Credit  Agreement")
   provides  for ongoing  working  capital and capital  expenditure  needs.  The
   Credit  Agreement  provides for a term loan of $25.0  million and a revolving
   credit  facility,  the aggregate  principal  amount of which shall not exceed
   $25.0  million  outstanding  at any time.  A portion  of the  revolving  loan
   commitment may be utilized for letters of credit, a swingline facility and an
   overdraft  facility.  The Credit  Agreement has a dual currency  option which
   permits the Company to borrow in U.S. dollars or pounds sterling. Loans under
   the revolving credit facility may be borrowed, repaid and reborrowed, subject
   to a schedule of mandatory repayments and commitment  reductions.  The Credit
   Agreement  provides for the  prepayment  of principal  based on the Company's
   cash flow (as defined) or upon the occurrence of certain specified events.

   The Credit Agreement requires a commitment fee of .375% on the unused portion
   of the available  line of credit  amount.  Interest is payable in arrears for
   optionally  selected  interest  periods with interest payable not to exceed a
   three-month period.

   Substantially all of the Company's tangible and intangible assets,  excluding
   those of  EuroNimbus,  are pledged as  collateral  for  borrowings  under the
   Credit  Agreement.  The  Credit  Agreement  subjects  the  Company to certain
   restrictions  and  covenants,  including  limitations  on the  incurrence  of
   additional  debt,  capital  expenditures,  asset sales and the maintenance of
   certain  financial  ratios.  The Credit  Agreement  restricts  the payment of
   dividends on the Company's  common stock and, at March 31, 1998,  none of the
   Company's retained earnings were available for the payment of such dividends.

   The Company has entered into interest rate swap agreements to protect against
   fluctuations  in its variable  rate term debt through  September 30, 1998, as
   required by the Credit Agreement.  The Company  purchased  interest rate caps
   for initial notional amounts of $5,000 and approximately $20,000 (denominated
   in pounds sterling),  each declining over the term of the related borrowings.
   The cost of these  agreements was  approximately  $308 and is being amortized
   over the terms of the agreements.

                                        F-11
<PAGE>

   The interest rate caps ensure that the Company will not pay interest at rates
   higher  than 7.0% on $3,700 and not  higher  than 9.5% on $14,349 of its term
   debt  outstanding at March 31, 1998.  These interest rate  agreements did not
   have any material effect on the Company's interest expense for fiscal 1998 or
   1997.

   The estimated fair value of the Company's interest rate swap agreements which
   hedge  outstanding  borrowings was zero at March 31, 1998 and an asset of $16
   at March 31, 1997.

   The  Company's  EuroNimbus  subsidiary  has entered  into  several new credit
   agreements to provide for ongoing  capital  expenditure  and working  capital
   needs.  The BIL  Agreement  provides for a term loan of LUF 225 million and a
   short  term  facility  of LUF 50  million.  A portion of the term loan can be
   utilized for the issuance of bank guarantees.

   The short term facility can be utilized in the form of an overdraft  facility
   and is made  available  for a one year  period  with an  option to renew on a
   yearly basis.

   Interest  on the term loan is payable  in  arrears  at the end of  optionally
   selected  interest  periods  of either  three or six  months and a fixed rate
   option is  available.  Interest  on the short  term  facility  is  payable in
   arrears at the end of optionally selected interest periods.

   Substantially  all of EuroNimbus'  tangible and intangible assets are pledged
   as  collateral  for  borrowings  under the BIL  Agreement.  The BIL Agreement
   subjects  EuroNimbus  to  certain   restrictions  and  covenants,   including
   limitations on ownership  changes,  pari passu ranking and maintenance of one
   financial ratio.

   EuroNimbus'  SNCI Agreement  provides for a term loan of LUF 55 million to be
   used for capital  expenditure  financing.  Interest on the term loan is fixed
   for a minimum period of five years. Interest is payable quarterly in arrears.
   The SNCI  Agreement  commits  EuroNimbus  to  extend to the  lender  the same
   guarantees as to its most favored banking creditor.

   EuroNimbus'  ECSC Agreement  provides for a term loan of LUF 70 million.  The
   term loan cannot be repaid in advance. Interest on the term loan is fixed for
   the entire  term and is payable in arrears on an annual  basis.  An  interest
   rebate is available upon meeting an agreed upon schedule of job creation. The
   ECSC Agreement commits EuroNimbus to extend to the lender the same guarantees
   as to its most favored banking creditor.

   The  scheduled  annual  principal  payments,  after fiscal 1999 are $9,351 in
   2000,  $5,626 in 2001,  $1,900 in 2002,  $2,000 in 2003, and $411 thereafter.
   Interest paid on the  outstanding  debt during fiscal 1998, 1997 and 1996 was
   $1,859, $2,284 and $4,721,  respectively.  The weighted average interest rate
   on  outstanding  borrowings  at March 31,  1998 was  7.6%.  No  interest  was
   capitalized  during  fiscal 1998,  1997 or 1996.  The  recorded  value of the
   Company's  long-term  debt at March 31, 1998 and 1997  approximates  its fair
   value.

                                        F-12
<PAGE>

10.   Income Taxes:

   The components of income before income taxes and  extraordinary  item were as
   follows:
<TABLE>
<S>                                          <C>      <C>      <C>
                                              1998      1997     1996
                                             -------  --------  -------
    Domestic                                 $8,578     $1,850  $8,162
    Foreign                                  12,523     11,911   7,939
                                             =======  ========  =======
      Income before income taxes and         $21,101   $13,761  $16,101
      extraordinary item                     =======  ========  =======

    The provision for income taxes
    consisted of the following:
    Current
      Federal                                $2,270     $2,742  $1,057
      State                                     356        355     156
      Foreign                                 3,322      3,972   2,492
                                             -------  --------  -------
       Total current                          5,948      7,069   3,705
                                             -------  --------  -------

    Deferred
      Federal                                   915    (2,069)   1,733
      State                                     117      (253)     296
      Foreign                                   309      (161)    (92)
                                             -------  --------  -------
       Total deferred                         1,341    (2,483)   1,937
                                             -------  --------  -------

         Total income tax expense            $7,289     $4,586  $5,642
                                             =======  ========  =======
</TABLE>

   The  principal  reasons for the  differences  between  the federal  statutory
   income tax rate and the Company's  effective income tax rate on income before
   extraordinary item were as follows:
<TABLE>
<S>                                          <C>      <C>      <C>
                                              1998     1997     1996
                                             -------  -------  -------
    Federal statutory tax rate                34.0%    34.0%    34.0%
    Increase (decrease)in taxes resulting
    from:
      State taxes, net of federal tax effect    1.5      0.5      1.9
      U.S.   tax   attributable   to  deemed
       repatriation  of  foreign  subsidiary                      0.7
       earnings (net of foreign tax credit)
      Difference    between   U.S.   federal
       statutory rate and foreign  effective   (3.0)   (1.7)    (1.9)
       rates
      Other                                     2.0      0.5      0.3
                                             -------  -------  -------

       Effective tax rate                     34.5%    33.3%    35.0%
                                             =======  =======  =======
</TABLE>

   Cash  payments  for income  taxes were  $5,717,  $4,345 and $1,275 for fiscal
   years 1998, 1997 and 1996, respectively.

                                        F-13
<PAGE>


   The components of the net deferred tax assets and liabilities as of March 31,
   1998 were as follows:
<TABLE>
<S>                                          <C>      <C>      <C>
                                             Domestic Foreign   Total
                                             -------  -------  -------
    Deferred tax assets:
      Accrued royalties                      $ 2,045  $  641   $ 2,686
      Other accrued liabilities                  275     205       480
      Foreign tax credits                        700               700
      Net operating loss carryforward          1,636             1,636
                                             -------  -------  -------
       Deferred tax asset                      4,656     846     5,502
                                             -------  -------  -------

    Deferred tax liabilities:
      Property, plant and equipment          (5,679)  (1,310)  (6,989)
                                             -------  -------  -------
       Deferred tax liability                (5,679)  (1,310)  (6,989)
                                             -------  -------  -------

       Net deferred tax liability           $(1,023)  $ (464) $(1,487)
                                             =======  =======  =======
</TABLE>

   The components of the net deferred tax assets and liabilities as of March 31,
   1997 were as follows:
<TABLE>
<S>                                          <C>       <C>     <C>
                                             Domestic Foreign   Total
                                             -------  -------  -------
    Deferred tax assets:
      Accrued royalties                       $  939  $  695   $ 1,634
      Accounts receivable                        384      52       436
      Other accrued liabilities                  767     232       999
      Foreign tax credits                        963               963
      Net operating loss carryforward          1,876             1,876
                                             -------  -------  -------
       Deferred tax asset                      4,929     979     5,908
                                             -------  -------  -------

    Deferred tax liabilities:
      Property, plant and equipment          (4,920)  (1,134)  (6,054)
                                             -------  -------  -------
       Deferred tax liability                (4,920)  (1,134)  (6,054)
                                             -------  -------  -------

       Net deferred tax asset (liability)    $     9  $ (155)  $ (146)
                                             =======  =======  =======
</TABLE>

   At March 31, 1998, the Company had net operating loss  carryforwards for U.S.
   tax return  purposes of  approximately  $4,363 which expire in the years 2003
   though 2008. Due to certain  ownership changes as of October 1, 1992, the use
   of these net  operating  losses is  limited to  approximately  $640 per year.
   Additionally, the Company had foreign tax credits of $700 for U.S. tax return
   purposes which expire in the year 2001.

   No  provision   for  income  taxes  has  been  made  for  $17.0   million  of
   undistributed  earnings of the Company's foreign subsidiaries which have been
   indefinitely  reinvested.  It is not  practicable  to determine the amount of
   U.S. income tax which would be payable if such undistributed foreign earnings
   were repatriated through dividend  remittances because any U.S. taxes payable
   on such dividends would be offset, at least in part, by foreign tax credits.

   The Internal  Revenue  Service  ("IRS") has completed an  examination  of the
   Company's  federal  income tax returns for the fiscal years 1993,  1994,  and
   1995,  resulting in a statutory  Notice of Deficiency for additional  federal
   income taxes in the amount of $5.0 million,  plus  interest,  resulting  from
   proposed adjustments to the Company's returns. Certain other proposed changes
   would eliminate the Company's U.S. net operating loss  carryforwards.  On May
   7, 1998, the Company  received a letter from the Appeals  Division of the IRS
   which details the position of that division on the  adjustments  contained in
   the statutory Notice of Deficiency. The letter requests a settlement proposal
   from the Company on the most significant adjustments, including the Company's
   U.S. net  operating  loss  carryforwards.  The Company  believes  that it has
   substantial authority for the positions taken on the prior years' returns and
   that these adjustments will be reduced through the appeals process. While the
   outcome of this  matter  cannot be  predicted  with  certainty,  the  Company
   believes that the ultimate  outcome of the case will not result in a material
   adverse impact on the Company's financial position or results of operations.

                                        F-14
<PAGE>

11.   Commitments and Contingencies:

   a)  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 $.015 to
   $.045 per disc sold. Royalty expense incurred under these agreements amounted
   to  $11,302,  $11,343  and  $9,037  for  fiscal  years  1998,  1997 and 1996,
   respectively.  During fiscal 1996, the Company  reached a settlement with one
   licensing  company and reduced  its  accrued  liability  for this and certain
   other  prior  royalties  by $2,049.  The  Company  believes  that its accrued
   expense  adequately  provides  for  royalties  payable to patent  holders for
   proprietary technology.

   b) Operating leases: The Company leases manufacturing  facilities,  warehouse
   space,  equipment and other  property under various  agreements  which expire
   from 1998 through 2011.  Aggregate rent expense for these leases  amounted to
   $1,823, $3,202 and $1,678 for fiscal years 1998, 1997 and 1996, respectively.

   At March 31, 1998,  future  obligations under operating lease agreements were
   as follows:
<TABLE>
<S>                                        <C>
       Fiscal Year Ending March 31,          Amount
                                           ----------
       1999                                  $2,252
       2000                                   2,163
       2001                                     975
       2002                                     271
       2003                                     214
       Thereafter                               214
                                           ==========
                                             $6,089
                                           ==========
</TABLE>

   c)  Capital  expenditures:   At  March  31,  1998,  commitments  for  capital
   expenditures amounted to approximately $2,421.

   d) Litigation and related matters: From time to time, the Company is involved
   in litigation  that it considers to be in the normal course of business.  The
   Company is not presently  involved in any legal proceedings which the Company
   expects individually or in the aggregate to have a material adverse effect on
   its financial condition or results of operations.

12.   Stock Option Plans:

   The Company has adopted the Nimbus CD  International,  Inc. 1995 Stock Option
   and Stock  Award  Plan (the  "Nimbus  Plan")  which  provides  for  grants to
   officers  and key  employees of stock  options,  stock  appreciation  rights,
   restricted  stock awards or common stock in lieu of bonuses.  Under the terms
   of the Nimbus Plan, 2,715,449 shares of the Company's non-voting common stock
   were  reserved for  issuance.  Awards and their terms are  authorized  by the
   Compensation Committee of the Company's Board of Directors.

   In 1995,  the Company  adopted the Nimbus CD  International,  Inc. 1995 Stock
   Option Plan for Non-employee members of the Company's Board of Directors (the
   "Directors  Plan").  Under the terms of the Directors Plan,  50,000 shares of
   common stock has been reserved for issuance thereunder.  Awards of options to
   independent  directors  amounted to 5,000,  7,500 and 10,000 shares in fiscal
   years 1998, 1997 and 1996, respectively.

                                        F-15
<PAGE>

   The exercise price of options granted under the Nimbus Plan and the Directors
   Plan is the fair market value of the  Company's  common stock at the dates of
   grant.  All  options  expire  10 years  from the date of grant  and vest over
   periods of up to 10 years with earlier vesting upon the attainment of certain
   performance measurements or upon the occurrence of certain other events.

   No   restricted   stock   awards  have  been  made  under  the  Nimbus  Plan.
   Non-qualified  stock options to purchase  477,958 shares of common stock were
   granted in exchange for options  granted under  previous  Company  plans.  On
   April  3,  1995,  the  Company  awarded  non-qualified  options  to  purchase
   1,163,865 shares of non-voting common stock.  These options will vest ratably
   over five years from the date of grant.  On May 31, 1995, the Company awarded
   non-qualified  options to purchase 451,258 shares of non-voting common stock.
   These options will vest if the Company meets certain performance measurements
   or six years from the date of grant.  In fiscal  1998 and 1997,  the  Company
   awarded  non-qualified  options  to  purchase  213,260  and  205,500  shares,
   respectively,  of non-voting  common stock that will vest ratably within five
   years from the dates of the grants.

   At March 31, 1998, 27,500 common shares were available for future grant under
   the Directors  Plan and 352,204 common shares were available for future grant
   under the Nimbus Plan.

   The  following  is a summary of the  activity in the  Company's  stock option
   plans for fiscal years 1998, 1997 and 1996:
<TABLE>
<S>                                <C>             <C>

                                      Number of    Weighted Average
                                    Stock Options   Exercise Price
                                    -------------- ----------------
       Outstanding, March 31, 1995        477,958             0.62
       Granted                          1,625,123             2.55
       Canceled                          (42,210)             2.52
                                    --------------
       Outstanding, March 31, 1996      2,060,871             2.10
       Granted                            213,000            15.68
       Canceled                          (10,000)            16.50
       Exercised                         (40,617)             1.02
                                    --------------
       Outstanding, March 31, 1997      2,223,254             3.36
       Granted                            218,260             9.15
       Canceled                          (96,386)             3.22
                                    ==============  ===============
       Outstanding, March 31, 1998      2,345,128            $3.90
                                    ==============  ===============
</TABLE>

   Shares under option at March 31, 1998 were at the following exercise prices:
<TABLE>
<S>  <C>         <C>         <C>         <C>        <C>        <C>
                         Options Outstanding            Options Currently
                                                           Exercisable
                  -------------------------------- ------------------------
                                         Wtd. Avg.
     Ex.Price     No. of     Wtd. Avg.  contractual  No. of     Wtd. Avg.
      Range       Options    Exercise     Life       Options    Exercise
                               Price     (years)                  Price

  $0.53-$7.00    1,932,428     $2.10        5.45    1,165,933      $1.82
  $7.01-$16.50     412,700    $12.32        8.63      118,800     $13.45
               ============                       ============
                 2,345,128                          1,284,733
               ============                       ============
</TABLE>
                                        F-16
<PAGE>

   The  Company  applies  APB  Opinion  No. 25 and  related  interpretations  in
   accounting for its stock option plans. Accordingly,  no compensation cost has
   been recognized for stock options granted under the plans. If the Company had
   determined  the  compensation  based on the fair value of the  options on the
   date of grant in  accordance  with SFAS No. 123, the pro forma net income and
   earnings per share would be as follows:
<TABLE>
<S>                                  <C>           <C>         <C>
                                        1998         1997         1996
                                     ---------------------------------------
       Net income as reported         $13,812       $9,175      $12,040
       Net income pro forma            13,241        8,719       11,803
       Basic  earnings  per  share -    $0.65        $0.44        $0.58
       as reported
       Basic  earnings  per  share -    $0.63        $0.42        $0.57
       pro forma
       Diluted  earnings per share -    $0.60        $0.40        $0.53
       as reported
       Diluted  earnings per share -    $0.59        $0.39        $0.54
       pro forma
</TABLE>

   The weighted average fair value of options granted in 1998, 1997 and 1996 was
   $5.88, $10.69 and $1.74, respectively.  The fair value of each option granted
   was  estimated on the date of grant using the  Black-Scholes  option  pricing
   model using the following weighted average assumptions:
<TABLE>
<S>                                  <C>          <C>           <C>
                                        1998         1997         1996
                                     ---------------------------------------
       Risk-free interest rate           6.8%         6.4%         6.4%
       Expected life in years             5-6          5-6          5-6
       Expected volatility              61.6%        71.8%        70.0%
       Expected dividend yield           0.0%         0.0%         0.0%
</TABLE>

13.   Recapitalization:

   On March 31, 1995,  certain  affiliates of McCown De Leeuw & Co.  ("MDC") and
   Behrman Capital L.P. ("Behrman") replaced affiliates of DLJ Merchant Banking,
   Inc.  ("DLJMB") as the Company's  majority  stockholders  through a series of
   transactions (the  "Recapitalization").  MDC and Behrman acquired  10,698,970
   shares of the  Company's  common  stock for an  aggregate  purchase  price of
   $27,000 and another  investor  acquired  118,876  shares of common  stock for
   $300.  The  Company  refinanced  its   then-outstanding   debt  incurring  an
   extraordinary  charge of $515 ($324 net of tax)  related to the  write-off of
   deferred  financing  costs, and borrowed an additional  $41,091.  The Company
   also received $1,750 from the issuance of warrants to purchase 693,453 shares
   of its common stock for $0.01 per share.  The  proceeds  from the issuance of
   common  stock,  warrants  and  additional  debt were used by the  Company  to
   acquire  22,333,768  shares of its common  stock held by DLJMB and  2,834,436
   shares  of  common  stock  from  certain  members  of  management  and  other
   stockholders  for an aggregate  cost of $65,292,  including  related fees and
   expenses.  The  Recapitalization  was  accounted  for  as  a  treasury  stock
   transaction with no step up in the basis of the Company's assets.

14.  Initial Public Offering:

   On October 30, 1995, the Company  completed its initial public  offering with
   the sale of 6,350,000  shares of common stock at an initial  public  offering
   price of $7 per share (the "Offering").

   Contemporaneously  with the Offering,  Behrman Capital L.P. purchased 500,000
   shares of common stock of the Company in a private placement transaction (the
   "Private  Placement")  at a price  per  share  equal  to the  initial  public
   offering price less the underwriting discount.

   The net proceeds to the Company from the Offering and the Private  Placement,
   after deducting underwriting  discounts,  commissions and expenses payable by
   the Company,  were $43.7  million.  The Company used $41.7 million of the net
   proceeds  to reduce  outstanding  indebtedness  and $2.0  million for general
   corporate purposes.

                                        F-17
<PAGE>

   The Company incurred an extraordinary charge of $4,164 ($2,952 net of tax) in
   the third  quarter  of fiscal  1996  related  to the  write-off  of  deferred
   financing costs and the costs of terminating interest rate swap agreements in
   connection with the repayment of then-outstanding debt with the proceeds from
   the Offering and the Private Placement. Such charge has not been reflected in
   the pro forma net income and per share data for fiscal 1996.

15.  Employee Benefit Plans:

   The Company has adopted a 401(k)  savings and  investment  plan which  covers
   substantially  all  U.S.  employees.  Contributions  to the  plan  are at the
   discretion of the Company.  The expense  recognized  for the plan amounted to
   $576, $459 and $343 for fiscal years 1998, 1997 and 1996, respectively.

   The Company has adopted a defined  contribution  retirement plan which covers
   substantially  all  U.K.  employees.  Contributions  to the  plan  are at the
   discretion of the Company.  The expense  recognized  for the plan amounted to
   $510, $439 and $413 for fiscal years 1998, 1997 and 1996, respectively.

16.  Geographic Segment Information:

   A summary of the Company's  operations  by  geographic  area for fiscal years
   1998, 1997 and 1996 is as follows:

<TABLE>
<S>                  <C>         <C>       <C>
                        Net      Operating
                       Sales      Income     Assets
1998
North America         $77,812     $8,762    $75,474
Europe                 54,961     12,571     55,829
Interarea Sales         (433)
                      =======     ======    =======
                     $132,340    $21,333   $131,303

1997
North America         $80,236     $2,965    $68,056
Europe                 50,095     13,067     40,216
Interarea Sales         (861)
                      =======     ======    =======
                     $129,470    $16,032   $108,272

1996
North America         $71,654    $10,793    $57,925
Europe                 46,919     10,698     32,828
Interarea Sales         (328)       (44)
                      =======    =======    =======
                     $118,245    $21,447    $90,753
</TABLE>

   Interarea sales represented shipments of CDs and equipment between geographic
   locations.  Interarea  sales were made at prices which  approximate  cost and
   have been eliminated from consolidated net sales.

17. Off-Balance Sheet Risk and Concentration of Credit Risk:

   The Company  utilizes  foreign  exchange  contracts to reduce its exposure to
   potentially  adverse changes in foreign currency  exchange rates. The Company
   does not engage in speculation. As of March 31, 1998, the notional amounts of
   such  agreements  to  sell  foreign  currencies  were  $2,165.  There  was no
   significant gain or loss on these instruments as of March 31, 1998.

   The Company's  customer base is primarily  American and British recording and
   software  companies.  One customer  operating under a vendor supply agreement
   accounted  for 10% of fiscal 1998 sales,  15% of fiscal 1997 sales and 17% of
   fiscal  1996  sales.  No  other  customer   represented   more  than  10%  of
   consolidated  sales for fiscal years 1998, 1997 or 1996. The Company performs
   credit evaluations of its customers and maintains reserves for credit losses.
   The provision for doubtful accounts amounted to $1,200, $1,031 and $1,268 for
   fiscal 1998, 1997 and 1996, respectively.

18.   Pro Forma Earnings per Share:

   The  pro  forma  net   income   for   fiscal   1996   gives   effect  to  the
   Recapitalization,  the  Offering  and the  Private  Placement,  and pro forma
   earnings per share are computed based on the total number of shares of common
   stock issued and outstanding at March 31, 1996, as adjusted for the following
   assumptions  as if each  had  occurred  on  April 1,  1995:  (i) the  assumed
   exercise  of  warrants  and  stock  options   outstanding  during  the  year,
   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
   Offering and the Private  Placement 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

                                        F-18
<PAGE>

   shares in the Private Placement;  (iii) the application by the Company of the
   net proceeds of the Offering 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 historical interest expense
   of $2,551 ($1,582 net of tax) for the fiscal year ended March 31, 1996.

   Historical  earnings  per share data for fiscal 1996 have been omitted as the
   historical  capitalization of the Company prior to the  Recapitalization  and
   the  Offerings is not  indicative  of its capital  structure  following  such
   events.

19.   Subsequent Event

   On June 16, 1998,  the Company  entered into an Agreement  and Plan of Merger
   with Carlton  Communications Plc ("Carlton"),  pursuant to which a subsidiary
   of Carlton  would  acquire  all of the  Company's  outstanding  common  stock
   through a tender  offer at $11.50  per  share,  or a total  consideration  of
   approximately $264 million. Consummation of the merger transaction is subject
   to normal  regulatory  filings and  approval of the  Company's  stockholders.
   Certain  stockholders,  including  management  of  the  Company,  control  an
   aggregate of 44% of the  Company's  common  stock,  and have agreed to tender
   their shares when  requested.  Following  the close of the  transaction,  the
   Company will operate as a division of Carlton's  Technicolor  Packaged  Media
   Group.

20.   Quarterly Financial Data (Unaudited):

   Summarized quarterly financial data for fiscal years 1998 and 1997 follows:
<TABLE>
<S>                     <C>          <C>             <C>           <C>
(In thousands,
except per share                      Three Months Ended
data)
                  -----------------------------------------------------------
1998                     June 30      Sept. 30        Dec. 31       March 31
Discs sold                36,782        45,498         59,744         42,966
Net sales                $28,222       $32,496        $41,525        $30,097
Gross profit               6,918        10,161         12,807          8,417
Operating income           1,636         6,218          9,616          3,863
Net income                   705         3,664          6,888          2,555
Earnings per share:
  Basic                    $0.03         $0.18          $0.32          $0.12
  Diluted                  $0.03         $0.16          $0.30          $0.11

Stock price:
High                     $11-1/2           $14        $11-5/8        $12-1/2
Low                        8-3/8         9-7/8          8-1/4          9-7/8

                               Three Months Ended
                  -----------------------------------------------------------
1997                     June 30      Sept. 30        Dec. 31       March 31
Discs sold                33,027        36,874         49,991         36,505
Net sales                $29,229       $31,361        $40,352        $28,528
Gross profit               7,952         9,401         12,885          7,271
Operating income (loss)    3,733         6,041          9,083        (2,825)
Net income (loss)          2,009         3,547          5,510        (1,891)
Earnings per share:
  Basic                    $0.10         $0.17          $0.26        $(0.09)
  Diluted                  $0.09         $0.15          $0.24        $(0.08)
Stock price:
High                     $20-3/8       $14-3/4        $11-1/8        $12-5/8
Low                        7-3/4         8-5/8          7-7/8          8-1/2
</TABLE>

                                        F-19
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS


The Stockholders and Directors
Nimbus CD International, Inc.:

Our report on the consolidated  financial statements of Nimbus CD International,
Inc. and  subsidiaries  is included on page F-2 of this Form 10-K. In connection
with our audits of such financial  statements,  we have also audited the related
financial statement schedules listed in Item 14(a)(2) of this Form 10-K.

In our  opinion,  the  financial  statement  schedules  referred to above,  when
considered  in  relation  to the basic  financial  statements  taken as a whole,
present  fairly,  in all  material  respects,  the  information  required  to be
included therein.

COOPERS & LYBRAND L.L.P.
Richmond, Virginia
May 22, 1998
                                        F-20

<PAGE>

                          NIMBUS CD INTERNATIONAL, INC.
             SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                             (Dollars in thousands)

                            CONDENSED BALANCE SHEETS
<TABLE>
<S>                                                 <C>         <C>
                                                     March 31,  March 31,
                                                       1998       1997
                                                    ----------  ---------
                       ASSETS
Cash                                                       $3         $3
Prepaid expenses                                           18         12
Other assets                                            5,670      5,667
Investment in subsidiaries, at equity                  61,021     47,149
                                                    ==========  =========
  Total assets                                        $66,712    $52,831
                                                    ==========  =========

                     LIABILITIES
Accounts payable                                           10         18
Accrued expenses                                          408        391
                                                    ----------  ---------
  Total liabilities                                       418        409
                                                    ----------  ---------

                STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value; 2,000,000 shares
  authorized; no shares issued or outstanding
Common stock, $0.01 par value; 60,000,000 shares
  authorized; 39,012,786 shares issued; 21,388,581        390        390
  and 20,870,579 shares outstanding
Paid-in capital                                        65,430     66,775
Retained earnings                                      45,781     31,969
Cumulative foreign currency translation adjustments       438        378
                                                    ----------  ---------
                                                      112,039     99,512

Treasury stock, at cost 17,624,205 and 18,142,207     (45,745)   (47,090)
shares
                                                    ----------  ---------
  Total stockholders' equity                           66,294     52,422
                                                    ==========  =========
   Total liabilities and stockholders' equity         $66,712    $52,831
                                                    ==========  =========
</TABLE>

The information  regarding  long-term debt and credit agreements of subsidiaries
contained  in  Note 9 of the  Notes  to  Consolidated  Financial  Statements  is
incorporated herein by reference.  Nimbus CD International,  Inc. has guaranteed
the repayment of the outstanding debt of certain of its subsidiaries,  up to $18
million.

                                        F-21

<PAGE>

                          NIMBUS CD INTERNATIONAL, INC.
             SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                             (Dollars in thousands)

                      CONDENSED STATEMENTS OF INCOME 
           For the fiscal years ended March 31, 1998, 1997 and 1996
<TABLE>
<S>                                          <C>       <C>        <C>
                                                1998       1997      1996
                                              ========  =========  ========
Equity in earnings of subsidiaries, net of    $13,812     $9,175    $7,507
applicable income tax                         ========  =========  ========

                    CONDENSED STATEMENTS OF CASH FLOWS 
           For the fiscal years ended March 31, 1998, 1997 and 1996

                                                1998       1997      1996
                                              --------  ---------  --------
Cash flows from operating activities:
Net income                                    $13,812     $9,175    $7,507
Less undistributed earnings of subsidiaries   (13,812)   (9,175)   (7,507)
Change in:
Prepaid expenses                                  (6)        137     (129)
Accounts payable                                  (8)        (5)     (619)
Accrued expenses                                   17      (157)      (43)
Other assets                                      (3)       (78)        20
                                              --------  ---------  --------
  Net cash provided by (used in) operating                 (103)     (771)
  activities                                  --------  ---------  --------

Cash flows from investing activities:
Advances from (to) subsidiaries, net               40        156   (4,267)
Purchase of property and equipment               (40)       (96)      (14)
                                              --------  ---------  --------
  Net cash used in investing activities:                      60   (4,281)
                                              --------  ---------  --------

Cash flows from financing activities:
Issuance of common stock                                            44,886
Proceeds from exercise of stock options                       44
Payment of costs related to initial public                         (1,230)
offering
Proceeds (repayments) of loans from                               (38,603)
subsidiaries, net                             --------  ---------  --------
  Net cash provided by financing activities                   44     5,053
                                              --------  ---------  --------
  Increase in cash                                             1         1
Cash, beginning of year                             3          2         1
                                              --------  ---------  --------
  Cash, end of year                                $3         $3        $2
                                              ========  =========  ========
</TABLE>
                                        F-22
<PAGE>

                          NIMBUS CD INTERNATIONAL, INC.
                                   SCHEDULE II

                        Valuation and Qualifying Accounts
                             (Dollars in thousands)

<TABLE>
<S>               <C>        <C>        <C>         <C>        <C>     <C>
                             Additions
                  Balance at Charged to  Acquisition Deductions         Balance
Description       Beginning    Costs          of     Write-Offs Adjust- at End
                     of         and        Business     1        ments  of Year
                    Year      Expenses                             2
-----------------------------------------------------------------------------

Allowance for
doubtful accounts:

Fiscal year ended
March 31, 1998      $1,812     $1,200                  $638     $(123)   $2,251

Fiscal year ended
March 31, 1997      $2,014     $1,031                $1,286       $53    $1,812

Fiscal year ended
March 31, 1996      $1,989     $1,268         $50    $1,246      $(47)   $2,014
</TABLE>

1  Represents  accounts  written off as  uncollectible,  net of  collections  on
accounts previously written off.

2 Represents foreign currency translation adjustments of foreign subsidiary.


                                        F-23