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, 1997

                                       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 5, 1997, there were 9,476,256 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 5, 1997)
was approximately $105,470,729.  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>
                       DOCUMENTS INCORPORATED BY REFERENCE

Certain sections of the Registrant's  Annual Report to Stockholders for the year
ended March 31, 1997 are  incorporated  by  reference in Parts II and IV of this
Form 10-K to the extent  stated  herein.  In addition,  certain  sections of the
Registrant's   definitive  Proxy  Statement  for  the  1997  Annual  Meeting  of
Stockholders to be held on August 5, 1997 are  incorporated by reference in Part
II of this Form 10-K to the extent stated herein.

<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)  and one in the  United  Kingdom
(Cwmbran,  Wales).  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  1700  customers  an  integrated  range of  services  including  authoring,
pre-mastering  and mastering,  disc  replication,  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  by DLJ
Merchant Banking Inc. and certain of its affiliates (the "DLJ Investors"), along
with  other  investors,  for  the  purpose  of  acquiring  the CD  manufacturing
operations  of  Nimbus  Records  Limited  (the  "Predecessor").   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

DVD Production

Recognizing that DVD would play an important role in the technological evolution
of the CD, during fiscal 1997,  the Company  invested $9 million in hardware and
technical  expertise to ensure that Nimbus  would be a leader in producing  high
density discs. In January, 1997, the Company became only the second manufacturer
in the United States to produce  commercial DVD product.  In early 1997, players
capable of playing DVD Video  product  were  introduced  to the market and it is
anticipated  that  demand for this  product  will  increase  as the major  movie
studios begin to release titles in a DVD format. DVD Video is capable of storing
4.7 gigabytes of data, which is sufficient to hold a 135 minute movie with up to
three  spoken  languages,  three  foreign  language  subtitles  and six channel,
digital surround sound. DVD will ultimately have the capability of storing up to
17 gigabytes, 26 times the storage capacity of a current CD-ROM. DVD-ROM product
is also expected to be produced this year as add-on  DVD-ROM drives are marketed
and PCs are fitted with DVD-ROM drives.

Formation of EuroNimbus S.A.

On January 29, 1997,  the Company  formed  EuroNimbus  S.A.  ("EuroNimbus")  and
announced plans to build a new, full service compact disc  replication  plant in
Foetz,  Luxembourg.  EuroNimbus will be owned 70% by Nimbus  Manufacturing  (UK)
Limited and 30% by Saarbrucker  Zeitung Verlag und Druckerei,  Gmbh, a newspaper
and  printing  company  headquartered  in  Saarbrucken,   Germany.  The  initial
capitalization  of EuroNimbus will be $17 million.  The project will be financed
by a combination of government grants and loans, new bank borrowings and capital
contributions.  The Company expects to contribute  approximately $4 million. The
plant  will  be a  full  service  facility,  providing  mastering,  replicating,
printing and packaging  services.  The initial capacity of the plant is expected
to be 20 million discs  annually and all of the  equipment  will be DVD capable.
The Luxembourg  location is near the major markets for CD-Audio,  CD-ROM and DVD
in  Germany,  France,  Belgium and the  Netherlands.  The new  facility  will be
complementary  to the Cwmbran plant and will allow Nimbus to better  support the
requirements of its multinational customers.

A New Agreement with the Successor to R.R. Donnelley & Sons Company

In April 1994,  the Company  entered into a strategic  alliance (the  "Donnelley
CD-ROM  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,  as  permitted  by the  Donnelley  CD-ROM  Agreement,  Donnelley
assigned  substantially  all  of its  rights  in,  and  obligations  under,  the
Donnelley  CD-ROM  Agreement (as assigned,  the "Stream CD-ROM  Agreement")  and
transferred  shares of Nimbus Common Stock which  Donnelley had purchased  under
the  Donnelley  CD-ROM  Agreement  to  Stream  International,  Inc.  ("Stream"),
Donnelley's  majority-owned  subsidiary. The Stream CD-ROM Agreement, as amended
and restated on April 1, 1995,  required  Stream to purchase 23 million discs in
fiscal 1996 and 24 million discs annually  thereafter for a fixed price per disc
which was subject to reductions  based upon changes in the cost of manufacturing
CD-ROM  discs.  Effective  April 1, 1997, a new  agreement  was  executed  which
increased  Stream's  commitment to purchase  discs to 27.5 million during fiscal
1998 and 20.6 million  discs for the first nine months of fiscal  1999.  The new
agreement will terminate on December 31, 1998.

Closing of the Sunnyvale, CA Facility

On March 25, 1997, the Company announced that it was repositioning operations by
implementing  a two-plant  strategy  to service  the U.S.  market for CD and DVD
replication.  The two-plant  strategy involves closing the Company's  Sunnyvale,
California  plant and  concentrating  manufacturing  activities at the Company's
Charlottesville  and  Provo  facilities.  All  manufacturing  equipment  at  the
Sunnyvale plant was moved to Provo. The  consolidation of facilities is designed
to  reduce   overhead  while   providing   customers  with  greater   production
flexibility. As a result of this repositioning,  the Company incurred a one-time
charge to its fourth quarter  financial  results of approximately  $6.0 million,
$3.7 million after tax, or $0.16 per share.  The  transition  of operations  was
completed by June 1.

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.

CD-Audio Market.  The established  market for pre-recorded music represented the
first  major  application  of CD  technology.  In the seven  years  ended  1996,
worldwide  sales  of  full  length  pre-recorded  music  (CD-Audio,  LPs,  audio
cassettes) grew from  approximately 2.7 billion to 3.6 billion units, a compound
annual growth rate of 5.3%.  Over the same period,  full length  CD-Audio  sales
more than  doubled  from  approximately  900  million to 2.2  billion  units and
short-play CD singles contributed  approximately 364 million additional units in
1996, up from 90 million units seven 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  296 million CD-Audio
players  were in use in  1996,  representing  household  penetration  (including
multiple ownership by individual  households) of approximately 116%. By the year
2000, the Company  estimates that 461 million  CD-Audio  players will be in use,
representing  household penetration  (including multiple ownership by individual
households) of more than 174%.

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 63.9%
of the 1996  world  output  of  CD-Audio,  primarily  to meet the needs of their
affiliated   record  labels.   The  independent   record  labels  accounted  for
approximately  36.1% of 1996 CD-Audio unit sales.  These companies are generally
serviced 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,  including the Company, produced approximately 11%
of worldwide  CD-Audio output in 1996. In 1996, the Company  believes it was the
fifth largest independent CD-Audio manufacturer.

CD-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  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.

Worldwide CD-ROM demand was estimated to be 30 million units in 1992 and grew to
783 million  units in 1996,  a compound  annual  growth rate of 126.0%,  and the
Company  expects it to grow to  approximately  one  billion  units in 1997.  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
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 CD-ROM drives.  In the United
States and Europe,  the markets served by the Company,  the Company  expects the
installed  base of CD-ROM  drives to grow from 29 million in 1995 to 111 million
by 1999.

The  Music  Company  Manufacturers  collectively  produced  25.0%  of  the  1996
worldwide output of CD-ROM units. The five largest independent CD manufacturers,
including the Company,  collectively  produced  approximately  29.0% of the 1996
worldwide  output of CD-ROM.  The  remaining  1996 CD-ROM  worldwide  output was
produced by approximately 216 small to medium size CD manufacturing  operations.
Nimbus is the third largest CD-ROM  manufacturer  in North America and the fifth
largest in Europe.

DVD Market.  The Company  believes that DVD is the next logical  extension of CD
technology.  The new DVD  format is  capable  of  holding a full  length  motion
picture  (135  minutes)  on a  standard-sized  CD 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 650,000 DVD discs per month. The Company has hired full time
sales and support  staff and has produced  orders for both DVD Video and DVD-ROM
product.

Initially, the primary application for the DVD format will be traditional motion
pictures.  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 will also allow
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 $500 to $800 and it is expected  that more than 250 motion  picture  titles
are expected to be available by Christmas, 1997. DVD is expected to compete most
directly with the market for videocassette  sales  (sell-through)  which in 1996
was  estimated  to total  almost 1.1 billion  units across the three major world
regions of the U.S., Europe and Japan.

DVD-ROM  Market.  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 at least three personal computer  manufacturers will
feature a built-in  DVD-ROM  drive  this  fall.  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. The Company believes that
these new DVD-ROM  drives  will  initially  retail for less than $300.  Game and
multimedia developers are expected to lead the development of DVD-ROM products.

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 CDs. The  Company's  strategy for  achieving  these  objectives
includes the following:

Capitalizing  on the  Development  of DVD.  The  Company is well  positioned  to
participate  in the emerging DVD market.  The Company has acquired the equipment
necessary to manufacture the bonded two-sided disc format.  In addition,  Nimbus
representatives have been active participants in industry forums involved in the
review and  development  of format  standards and  manufacturing  protocols.  By
combining a direct sales effort targeting  independent motion picture production
companies with its existing CD-ROM sales force,  the Company intends to pursue a
strategy  in the DVD  market  similar to the one it has  utilized  in the CD-ROM
market.

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  believes its
ability to meet these needs has resulted in Nimbus  becoming  the third  largest
CD-ROM  manufacturer in North America and the fifth largest CD-ROM  manufacturer
in Europe. In the United States, 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 is equal in size to the demand from the
content  owner/developer.   Furthermore,  Nimbus'  agreement  with  Stream  will
continue  to enable the Company to have  relationships  with many of the world's
largest  hardware and  software  companies.  In addition,  the Company will take
advantage of its technological  expertise to produce DVD-ROM product for content
owners and developers.

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 1997, 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 167,000 discs in fiscal
1997.

Marketing Holographic CDs. In its effort to respond to customer piracy concerns,
the  Company has joint  venture  arrangements  with  Applied  Holographics,  PLC
("Applied  Holographics")  in both the U.S.  and the  United  Kingdom  to market
patented  technology to imprint  holograms onto CDs which provide customers with
an effective piracy deterrent  without loss of data capacity or playing time. In
addition, the use of the hologram as a marketing mechanism has proved to be very
successful.  During fiscal 1997, the hologram  technology was used by a division
of  BMG  Entertainment  on the  limited  edition  reissue  of  the  "Star  Wars"
soundtracks.  This technology is marketed under the name 3-D io d(TM) and allows
for a  holographic  image to be applied  using the Security  Band Process or the
Edge-to-Edge  Process. 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  by such  manufacturers  using 3-D io
d(TM) technology with all royalty revenues split equally between the Company and
Applied Holographics.

Customers

The  Company  maintains  a diverse  base of over  1700  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.  Under the terms of the  Stream  CD-ROM  Agreement,  Stream
accounted for 15% of fiscal 1997 net sales. No other customer  represented  more
than 10% of consolidated sales for fiscal 1997.

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  substantial  business  from United  Kingdom-based  major
record labels which accounted for  approximately  10.7% of the Company's  fiscal
1997 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  and Europe are  serviced by sales and  customer  service
representatives based at the Company's Cwmbran manufacturing facility as well as
a sales representative in London.

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,
Atlanta,   Georgia   and   Gardena   and   Sunnyvale,   California.   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 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.
A sales and marketing  executive  directs the sales team which is supported by a
marketing assistant.  The United Kingdom CD-ROM sales and marketing organization
develops markets within  continental Europe and will continue to do so until the
demand for products dictates that a separate sales force is needed.

Holographic CDs. In June 1995, the Company and Applied Holographics entered into
joint  venture  arrangements  in both the U.S. and the United  Kingdom to market
patented  technology to imprint holograms onto CDs in order to provide customers
with an effective  piracy  deterrent  without  loss of data  capacity or playing
time.  This technology is marketed by a dedicated sales staff under the name 3-D
i-d(TM) and allows for a  holographic  image to be applied to a CD using either
the Security Band Process or the Edge-to-Edge Process. 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 preparing to license 3-D i-d(TM)  technology
to other CD manufacturers and will collect a royalty fee for each CD produced by
such manufacturers using 3-D i-d(TM) technology with all royalty revenues split
equally between the Company and Applied Holographics.

Competition

The Company believes that the principal  competitive factors in the CD-Audio and
CD-ROM markets are service,  price,  quality and reliability for 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") and Denon  Electronics  Inc.  In 1996,  the Company
believes  it was the fifth  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"), Europe Optical Disc
and CD Plant  Manufacturing  A.B. In 1996, 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 1996,  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, KAO, MPO and Sonopress.  In 1996, 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 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.

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. The Company believes that current and projected  transmission  speeds
and  infrastructure  limitations of on-line  delivery  systems will prevent them
from replacing  CD-ROM 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  currently  has a
capacity of 650 megabytes.  In addition,  future  advances in CD-ROM  technology
such as higher speed drives and greater data compression  could improve CD-ROM's
advantages over potential competitive technologies.

The CD Manufacturing Process

The CD 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 CDs  consists  of  three  distinct  processes:
pre-mastering,  mastering and  electroplating.  Through these  processes,  metal
stampers are created  which contain the 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  preproduction  begins with the customer  data  supplied in any number of
approved input media.  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.
The CD-ROM  pre-master  is then  downloaded  onto a digital data  cartridge  for
mastering.

The  mastering  process  forms  the  master  image  of the  CD  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 the
characteristic CD 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 currently able to master 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  CDs. 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,  CD 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.  Using  equipment  designed  and
manufactured  by the Company,  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  decreased  manning  levels,  higher
operating efficiencies and reduced capital expenditures necessary to fund a line
extension.  In addition,  it provides  automatic  in-line  inspection for faster
response to quality issues thus improving productivity.

The  Company has two DVD  replication  lines.  Each line has 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 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 CDs are readily  available  from numerous  sources of
supply at competitive prices. The principal raw materials used by the Company to
manufacture CDs are CD 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 1997, 1996
and 1995 set forth in Note 16 of Notes to Consolidated  Financial  Statements of
the  Company's  1997 Annual Report to  Stockholders  is hereby  incorporated  by
reference.

Employees

As of  March  31,  1997,  the  Company  had 893  full-time  employees,  of which
approximately 693 were hourly employees and 200 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  165,000  discs per day  utilizing 12 press
lines. In addition, the facility has two DVD manufacturing lines with a capacity
of  approximately  650,000 discs per month.  The Company also owns an additional
237 acres of surrounding farmland.

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 its production  requirements  under the Stream CD-ROM  Agreement and the
demands  of its West  Coast  CD-ROM and  CD-Audio  customers.  The lease for the
manufacturing  space  expires  in May 2000.  The lease for the  warehouse  space
expires on May 1, 1998. The Provo facility currently has the capacity to produce
192,000 discs per day utilizing 14 press lines.

EuroNimbus  has leased  from the Grand  Duchy of  Luxembourg  approximately  2.5
hectares  of land in Foetz for a period of thirty  years.  EuroNimbus  is in the
process of constructing a 40,000 square foot manufacturing facility on the site.
EuroNimbus  holds a five year option to lease an additional 2.5 hectares of land
abutting the current site.

The Company  leases  82,000 square feet of office,  manufacturing  and warehouse
space in  Sunnyvale,  California.  This  facility  was the former site of Nimbus
Software Services, Inc.

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

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.  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.

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

On March 18, 1996,  the Company  received  notification  from the United  States
Environmental   Protection  Agency  ("EPA")  alleging  that  the  Company  is  a
Potentially   Responsible   Party   ("PRP")  for   clean-up  of  surface   water
contamination at the Cherokee Oil Company Site (the "Site") in Charlotte,  North
Carolina which was used by the Company for disposal of certain byproducts of its
manufacturing processes.  Subsequently,  the United States Department of Justice
notified the Company that it intended to seek recovery of the approximately $6.4
million  environmental  clean-up  costs  incurred to remediate the Site from the
Company and other PRPs, each of which was considered to be jointly and severally
liable.  In April 1997, the Company and numerous other PRPs reached a settlement
in principle  with the EPA. Under the terms of the  settlement,  58 PRPs and the
Site owner,  have agreed to  reimburse  the EPA $4.0 million to settle the EPA's
claim for  cleanup  costs.  The Company has  recorded a $300,000  provision  for
settlement costs associated with the Company's share of the cleanup costs of the
Site. The Company's share of the aggregate settlement fund may decrease as other
PRPs  join in the  settlement.  Management  of the  Company  believes  that  the
ultimate  settlement of this matter will not have a material  adverse  effect on
the Company's financial position or results of operations.

The Company is, from time to time,  involved in litigation  that it considers to
be in the ordinary course of business.

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

No matter was  submitted  during the fourth  quarter of fiscal 1997 to a vote of
the Company's security holders.

<PAGE>

                                     PART II

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

Market and Price Information

The  information  required by this section is  incorporated  by reference to the
section  entitled  "Common  Stock  Information"  appearing  on  page  24 of  the
Company's 1997 Annual Report to Stockholders.

Number of Stockholders

As of June 5, 1997, there were 222 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.

ITEM 6.     SELECTED FINANCIAL DATA

The  information  required  by this item is  incorporated  by  reference  to the
section entitled "Selected  Financial Data" appearing on page 9 of the Company's
1997 Annual Report to Stockholders.

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

The  information  required  by this item is  incorporated  by  reference  to the
section entitled  "Management's  Discussion and Analysis of Financial  Condition
and Results of  Operations"  appearing on page 10 of the  Company's  1997 Annual
Report to Stockholders.

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The  information  required  by this item is  incorporated  by  reference  to the
Consolidated  Financial  Statements,  and the related notes  thereto,  Report of
Independent  Accountants and the Supplementary  Quarterly Consolidated Financial
Data on pages 13 through 24 of the Company's 1997 Annual Report to
Stockholders.

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

None.

With the exception of the  information  specifically  incorporated  by reference
from the 1997  Annual  Report  to  Stockholders  in Parts II and IV of this Form
10-K, the Company's 1997 Annual Report to Stockholders is not to be deemed filed
as part of this Form 10-K.

<PAGE>

                                    PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The  information  required by this item  concerning the Company's  directors and
executive  officers is incorporated by reference to the information set forth in
the sections  entitled  "Proposal No. 1: Election of Directors"  and  "Executive
Officers of the Company" on pages 6 through 12 in the Company's definitive Proxy
Statement for the 1997 Annual  Meeting of  Stockholders  to be held on August 5,
1997 which will be filed  with the  Commission  within 120 days after the end of
the Company's fiscal year ended March 31, 1997.

ITEM 11.    EXECUTIVE COMPENSATION

The information  required by this item concerning the executive  compensation is
incorporated by reference to the  information set forth in the section  entitled
"Executive  Compensation"  on pages 13  through 21 in the  Company's  definitive
Proxy Statement for the 1997 Annual Meeting of Stockholders to be held on August
5, 1997 which will be filed with the Commission within 120 days after the end of
the Company's fiscal year ended March 31, 1997.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  information  required by this item  concerning  the  security  ownership of
certain  beneficial  owners and management is  incorporated  by reference to the
information set forth in the section entitled  "Securities  Ownership of Certain
Beneficial  Owners  and  Management"  on  pages  4  through  6 in the  Company's
definitive  Proxy  Statement for the 1997 Annual Meeting of  Stockholders  to be
held on August 5, 1997 which will be filed with the  Commission  within 120 days
after the end of the Company's fiscal year ended March 31, 1997.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information  required by this item concerning the certain  relationships and
related  transactions  is incorporated by reference to the information set forth
in the section entitled  "Certain  Relationships  and  Transactions" on pages 21
through 24 in the  Company's  definitive  Proxy  Statement  for the 1996  Annual
Meeting  of  Stockholders  to be held on August 5, 1997 which will be filed with
the Commission  within 120 days after the end of the Company's fiscal year ended
March 31, 1997.

<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 incorporated by reference
            to pages 13  through  24 of the  Company's  1997  Annual  Report  to
            Stockholders:

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

            ii)   Consolidated Balance Sheets as of March 31, 1997 and 1996.

            iii)  Consolidated  Statements  of Income for the three  years ended
                  March 31, 1997, 1996 and 1995.

            iv)   Consolidated  Statement of Stockholder's  Equity for the three
                  years ended March 31, 1997, 1996 and 1995.

            v)    Consolidated  Statements  of Cash Flows for the three years
                  ended March 31, 1997, 1996 and 1995.

            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, 1997.

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 26, 1997
                                    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 26, 1997.

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


                                    L. Steven Minkel
                                    Executive   Vice   President   and   Chief
                                    Financial  Officer  (Principal   Financial
                                    Officer)


                                    Gary E. Krutul
                                    Controller (Principal Accounting Officer)

                                    *
                                    Charles Ayres
                                    Director

                                    *
                                    Darryl G. Behrman
                                    Director

                                    *
                                    Grant G. Behrman
                                    Director

                                    *
                                    Robert M. Davidson
                                    Director

<PAGE>
                                    *
                                    David E. De Leeuw
                                    Director

                                    *
                                    Anthony V. Dub
                                    Director

                                    *
                                    Robert B. Hellman, Jr.
                                    Director

                                    *
                                    David E. King
                                    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.

  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.

  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.

  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.

  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.

 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.

 10.9   Amended and Restated  1995 Nimbus CD  International,  Inc.  Stock Option
        and Stock Award Plan  (incorporated  by reference 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  Asset  Purchase  Agreement,  dated as of August 31,  1995  among  Nimbus
        Software  Services,  Inc., HLS Duplication,  Inc., Nimbus  Manufacturing
        Inc. and Steven R. Sherman  (incorporated  by reference to Exhibit 10.11
        to Registrant's 1995 S-1).

 10.12  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).

 10.13  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).

 10.14  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).

 10.15  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).

 10.16  Employment  Agreement  dated as of June 10, 1996 between the Company and
        David J. Trudel.

 10.17  Shareholders'  Agreement  dated  as of  January  29,  1997 by and  among
        EuroNimbus S.A., Nimbus Manufacturing (UK) Limited and Saarbrucker
        Zeitung Verlag und Druckerei G.m.b.H.

 11.1   Computation of Net Income Per Share of Common Stock.

 13.1   Portions of the 1997 Annual  Report to  Stockholders  for the year ended
        March 31, 1997 expressly incorporated herein by reference.

 21.1   Subsidiaries of the Registrant.

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

 27.1   Financial Data Schedule.

<PAGE>

                                  EXHIBIT 11.1

                          NIMBUS CD INTERNATIONAL, INC.
             COMPUTATION  OF NET INCOME PER SHARE OF COMMON  STOCK 
               For the Years Ended March 31, 1997, 1996 and 1995
                      (In thousands, except per share data)
<TABLE>
<S>                                          <C>         <C>       <C> 
                                               1997      1996       1995
                                             --------  ---------  ---------
Primary and fully diluted (A):

  Weighted average common shares outstanding  20,862     13,894     13,805

  Net additional  common shares issueable 
     upon exercise of dilutive warrants and
     stock  options,  determined by the 
     treasury  stock method using the 
     estimated initial public offering
     price for options and warrants granted 
     within one year prior to the Offering 
     and Private Placement and the average 
     market price for options and warrants     2,145      2,055      2,088
     outstanding in periods after the Offering

  Issuance of common shares by the Company
     in the Offering and Private Placement                6,850      6,850
                                             --------  ---------  ---------

  Pro forma common shares and equivalents     23,007     22,799     22,743
                                             ========  =========  =========

  Net income - 1996 and 1995 is pro forma
   for the Offering and Private Placement     $9,175    $12,040     $8,196
                                             ========  =========  =========

Earnings per share - 1996 and 1995 is pro
  forma for the Offering and Private           $0.40      $0.53      $0.36
  Placement                                  ========  =========  =========
</TABLE>

(A) See Note 18 of Notes to Consolidated Financial Statements.

EXHIBIT 13.1

          PORTIONS OF THE 1997 ANNUAL REPORT TO STOCKHOLDERS FOR THE
     YEAR ENDED MARCH 31, 1997 EXPRESSLY INCORPORATED HEREIN BY REFERENCE

<PAGE>

                                  EXHIBIT 21.1

                         SUBSIDIARIES OF THE REGISTRANT

                 Name of Corporation           State/Country of
                                                Incorporation

            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

<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,  1997,  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
21, 1997.

                                          \s\Charles Ayers
                                          CHARLES AYERS


                                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,  1997  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
24, 1997.

                                          \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,  1997,  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
21, 1997.
                                          \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,  1997,  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
21, 1997.

                                          \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,  1997,  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
22, 1997.


                                          \s\David E. DeLeeuw
                                          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,  1997,  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
21, 1997.

                                          \s\Anthony V. Dub
                                          ANTHONY V. DUB

<PAGE>

                                POWER OF ATTORNEY

      I, DAVID KING, 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,  1997,  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
21, 1997.

                                          \s\ David King
                                          DAVID KING


                                POWER OF ATTORNEY

      I,  ROBERT  B.  HELLMAN,  JR.,  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,  1997,
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
23, 1997.

                                          \s\Robert B. Hellman, Jr.
                                          ROBERT B. HELLMAN, JR.


                                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,  1997,  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
22, 1997.

                                          \s\George E. McCown
                                          GEORGE E. MCCOWN

<PAGE>

                                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,  1997,  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
23, 1997.

                                          \s\Glenn McKenzie
                                          GLENN MCKENZIE

<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 Schedule and Reports on Form 8-K

Signatures

Exhibit Index

<PAGE>


                NIMBUS CD INTERNATIONAL, INC. AND SUBSIDIARIES
                           SELECTED FINANCIAL DATA (1)
<TABLE>
<S>              <C>        <C>      <C>     <C>      <C>      <C>      <C>

                Predecessor Combined               Company
                -----------------------------------------------------------
                                                      Fiscal Year
                                             ------------------------------
                             Pro
                             Forma
                             Twelve   Six
                  Six Months Months   Months        
(Dollars in       Ended      Ended    Ended   Ended    Ended    Ended    Ended
thousands,except  Sept.30,   March31  March31 March31  March31  March31  March31
per share data)   1992       1993     1993    1994     1995     1996     1997
--------------------------------------------------------------------------------
Operating Results:
  Net sales        $32,138  $69,447  $37,309  $69,934  $85,827  $118,24 $129,470
  Gross profit       7,674   18,648   10,974   19,527   27,606   34,436   37,509
  Restructuring                                                            
  charge                                                                   6,014
  Operating income     947    6,888    5,941    8,107   15,412   21,447   16,032
  Income (loss)
   before             (16)    3,125    3,141    4,836    8,524   10,459    9,175
   extraordinary
   item
  Extraordinary                                  (890)    (324)  (2,952)
  item (2)
  Net income (loss)   (16)    3,125    3,141    3,946    8,200    7,507    9,175
  Earnings per share                                                       $0.40
  Weighted average
   shares outstanding                                                     23,007

Pro Forma Operating
Data (3):
  Net income                                            $8,196  $12,040
  Earnings per share                                     $0.36    $0.53
  Weighted average 
   shares outstanding                                   22,743   22,799

Financial Position:
  Total assets                       $55,541  $59,532  $79,995  $90,753 $108,272
  Total debt                          18,144   18,043   63,909   26,131   25,999
  Stockholders'equity (deficit)       17,206   19,339   (8,120)  43,066   52,422
  Working capital                      4,546   (1,415)   5,716   16,187   10,170

Other Data:
  Discs sold(units):
   CD-Audio         20,392    47,211  26,819   54,378   58,766   61,748   64,254
   CD-ROM              626     1,791   1,165    4,865   28,982   63,930   92,143
--------------------------------------------------------------------------------
   Total discs      21,018    49,002  27,984   59,243   87,748  125,678  156,397
</TABLE>

(1) Set forth above is selected  consolidated  financial data of the Company for
the period  October 1, 1992 (date of formation)  to March 31, 1993,  and for the
fiscal years ended March 31, 1994, 1995, 1996, and 1997. Also set forth above is
selected   consolidated   financial   data  of  Nimbus   Records   Limited  (the
"Predecessor")  for the six months ended September 30, 1992. The historical data
of the Predecessor and the Company are  substantially  comparable as the effects
of purchase  accounting  adjustments did not materially affect operating income;
however,  interest expense is not comparable due to the use of different methods
of financing  before and after the Company's  acquisition of the  Predecessor in
October 1992.  The results of  operations  for the twelve months ended March 31,
1993 are presented on an unaudited  basis  combining  the  Company's  results of
operations  for the six  months  ended  March 31,  1993 with the  results of the
Predecessor for the six months ended September 30, 1992.

(2) 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 $4,164 ($2,952 net of tax ) on the debt extinguishment.

(3) The pro forma net income gives effect to the Recapitalization,  the Offering
and the  Private  Placement  (each as defined in Notes 5 and 6 to the  Company's
Consolidated  Financial  Statements).  See  Note  18 of  Notes  to  Consolidated
Financial Statements.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCAL CONDITION AND RESULTS OF
OPERATIONS

RESULTS OF OPERATIONS

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 in fiscal 1997 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 is 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  reflects  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 Nimbus  Software  Services,  Inc.  ("NSS")
declined  20.7% from $8.7  million in fiscal 1996 to $6.9 million in fiscal 1997
due, in part, to the loss of a significant  customer and the general  decline in
the  floppy  diskette  business  as it is  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 12(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,  fiscal 1996 gross margin 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 ("Sunnyvale") 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  expenses  in fiscal  1997  includes 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 Sunnyvale as part of a
program to reduce overhead costs and improve operating efficiencies. This charge
includes  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 million in fiscal 1996.  Exclusive of the  restructuring  charge
incurred for the closure of Sunnyvale,  operating income increased 2.8% to $22.0
million.  The increase in operating  income  primarily  reflects 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
proceeds  from 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 tax rate than the United
States.

Fiscal 1996 Compared to Fiscal 1995

Net Sales.  Total discs sold  increased  43.3% to 125.7  million units in fiscal
1996 from 87.7 million  units in fiscal  1995.  The increase was the result of a
120.3%  increase in CD-ROM unit sales from 29.0 million  discs in fiscal 1995 to
63.9 million  discs in fiscal 1996,  combined  with a 5.1%  increase in CD-Audio
unit sales  from 58.7  million  discs in fiscal  1995 to 61.7  million  discs in
fiscal  1996.  In the United  States,  CD-ROM  volume  increased  102.2% to 46.9
million  discs in fiscal  1996  from 23.2  million  discs in  fiscal  1995.  The
increase was primarily due to an additional  16.4 million discs  manufactured at
the Company's  Provo  facility  resulting  from a vendor supply  agreement  with
Stream International,  Inc. (the "Stream CD-ROM Agreement"). In fiscal 1996, the
United  Kingdom  CD-ROM volume  increased  193.1% to 17.0 million discs from 5.8
million discs.  CD-Audio  volume  increased in the United States by 7.5% to 28.7
million  discs in  fiscal  1996  while the  United  Kingdom  experienced  a 3.1%
increase in CD-Audio unit sales to 33.0 million.  Net sales  increased  37.8% to
$118.2  million in fiscal 1996 from $85.8 million in fiscal 1995.  Approximately
$23.4  million of the sales  increase in fiscal 1996 was due to the  increase in
disc volume offset by a decrease in the average disc selling price from $0.98 in
fiscal 1995 to $0.87 in fiscal 1996.  Both the CD-ROM and the  CD-Audio  markets
experienced  a decline in average disc selling  price in response to an increase
in production  capacity within the CD industry in both North America and Europe.
Discs produced under the Stream CD-ROM Agreement also realized lower disc prices
as, under the terms of the agreement, cost efficiencies resulting from increased
production  volumes are reflected in the disc sales price.  The  acquisition  of
substantially all of the assets of HLS Duplication,  Inc., which was operated as
NSS, on August 31, 1995  contributed  $8.7 million of turnkey and other  related
service revenues in fiscal 1996.

Gross Profit.  Gross profit increased 24.6% to $34.4 million in fiscal 1996 from
$27.6 million in fiscal 1995.  The increase in gross profit was primarily due to
the higher unit volume and additional turnkey related service revenues described
above,  reduced costs in the printing  process and improved labor and production
efficiencies  resulting  from the higher unit volumes.  Fiscal 1995 gross profit
included a $2.3 million gain from settlements  reached with licensing  companies
for prior royalty obligations,  while in fiscal 1996 the Company recorded a gain
of $1.7 million resulting from a settlement with one licensing company regarding
prior royalty  obligations.  Gross margin decreased to 29.1% in fiscal 1996 from
32.2% in fiscal 1995. The Company's gross margin was unfavorably impacted by the
additional  revenues  from the turnkey and  collateral  related  services of NSS
which  have a lower  gross  margin  than  CD  replication  sales,  as well as an
increase in the cost of  polycarbonate,  a primary raw  material  component.  In
addition,  the  mix  of  product  sales  toward  CD-ROM  resulted  in  increased
packaging, assembly and shipping cost.

Selling,   General   and   Administrative   Expenses.   Selling,   general   and
administrative  expenses  increased  6.6% to $13.0  million in fiscal  1996 from
$12.2   million  in  fiscal  1995.   The   increase  in  selling,   general  and
administrative expenses in fiscal 1996 was due to higher administrative support,
insurance, travel and computer leasing costs associated with the increased level
of operations  and the greater  number of production  facilities.  The increased
selling,  general and  administrative  expenses  in fiscal 1996  included 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.  Fiscal 1995
selling,  general and administrative  expenses included non-recurring charges of
$1.0 million  associated  with the termination of efforts to complete a business
acquisition  and an offering of  securities,  $0.5 million for the settlement of
litigation,  and $0.4 million of  compensation  expense  related to  accelerated
vesting of stock options. As a percentage of net sales,  selling,  general,  and
administrative  expenses  decreased to 11.0% in fiscal 1996 from 14.2% in fiscal
1995.

Operating  Income.  Operating  income increased 39.0% to $21.4 million in fiscal
1996 from  $15.4  million in fiscal  1995.  The  increase  in  operating  income
primarily reflected the higher unit volume described above.  Operating income as
a  percentage  of net sales was 18.1% and 18.0% for fiscal  years 1996 and 1995,
respectively.

Interest Expense. Interest expense increased to $5.3 million in fiscal 1996 from
$2.0 million in fiscal 1995 due to the increased  borrowings in connection  with
the  Recapitalization  (as  defined  in  Note  5 to the  Company's  Consolidated
Financial Statements).

Income Taxes.  Income tax expense  increased to $5.6 million in fiscal 1996 from
$5.0 million in fiscal 1995. The increase in income taxes was attributable to an
increase in income before taxes, which was partially offset by a decrease in the
Company's  effective tax rate from 37.1% in fiscal 1995 to 35.0% in fiscal 1996.
The decrease in the Company's  effective  tax rate  resulted from  favorable tax
adjustments  arising from an examination by the Inland Revenue of tax returns of
the Company's United Kingdom subsidiary.

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 $27.7 million in fiscal 1997. Working
capital was $10.2  million at March 31, 1997  compared to $16.2 million at March
31, 1996.  For fiscal 1997,  accounts  receivable  increased $0.3 million due to
higher sales volumes and inventories remained at $2.2 million. Accounts payable,
accrued expense and income taxes payable  increased $9.1 million in fiscal 1997,
largely reflecting the timing of income tax and royalty payments.

Capital  expenditures were $20.5 million for fiscal 1997 and were related to the
installation  of CD  manufacturing  capacity  at  the  Sunnyvale  facility,  the
expansion of mastering capacity at the Provo facility,  the addition of full DVD
manufacturing  capacity  at  the  Charlottesville   facility,  the  addition  of
manufacturing  capacity at the Cwmbran  facility,  and  equipment  purchases  to
increase   manufacturing   efficiencies.   In   addition,   the  Company   spent
approximately $1.5 million on computer software and implementation costs as part
of its program to upgrade its worldwide management information system.

On January 29, 1997 the Company  completed  the  formation  of  EuroNimbus  S.A.
("EuroNimbus")  and announced plans for the joint venture to build a new, 40,000
square foot replication plant in Luxembourg. See Note 3 of Notes to Consolidated
Financial Statements. EuroNimbus will invest approximately $17.0 million for the
new plant and  accompanying  mastering,  replication,  printing,  and  packaging
equipment. The capital project is anticipated to be financed by a combination of
government   grants  and  loans,   new   borrowings  and   stockholder   capital
contributions.  It is expected that the Company's  capital  contribution will be
approximately $4.0 million.

During fiscal 1998, the Company  anticipates  the need for  approximately  $14.5
million in cash for capital  expenditures  to expand its compact disc production
capacity,  replace and expand ancillary production  equipment,  and continue 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 the Company's credit agreement.

At March 31, 1997,  outstanding borrowings under the credit agreement were $26.0
million and the remaining  availability  under the revolving credit facility was
$23.25 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 $4.7 million and not higher than 9.5% on approximately  $19.1 million
of its term debt outstanding at March 31, 1997.

Seasonality and Quarterly Information

The Company's sales are seasonal, with peak sales activity normally occurring in
the third fiscal quarter as retail chains increase  inventory before the holiday
season.  As a result,  operating  income is typically higher in the third fiscal
quarter as fixed operating costs are spread over generally  higher sales volume.
In addition, in order to provide for capacity demands, long lead time production
equipment is typically ordered for delivery during the first fiscal quarter and,
to a lesser extent, the second fiscal quarter. Equipment installations generally
result in some level of production inefficiency which may have a negative impact
on margins.  The effect on margins may be amplified  when equipment is installed
in the lower sales volume first and second quarters.  Further,  pricing and unit
volumes can impact comparative  quarterly financial results either positively or
negatively in a manner that may not  necessarily  be indicative of a full year's
results.

Accounting Standards Changes

Effective March 31, 1998, the Company will adopt Financial  Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards No. 128 "Earnings Per
Share" which will supersede  Accounting  Principles Board ("APB") Opinion No. 15
"Earnings  Per Share".  This new  statement  requires  that "basic  earnings per
share" be computed by dividing  income  available to common  stockholders by the
weighted  average number of common shares  outstanding for the period.  "Diluted
earnings  per share" will  reflect the  potential  dilution if stock  options or
other securities  would result in the issuance or exercise of additional  shares
of common stock.  Initial estimates by management  indicate that "basic earnings
per share" will be greater than  "primary  earnings per share" as  calculated by
APB Opinion No. 15.

Contingencies

On March 18, 1996,  the Company  received  notification  from the United  States
Environmental   Protection  Agency  ("EPA")  alleging  that  the  Company  is  a
potentially   responsible  party  ("PRP")  for  the  cleanup  of  surface  water
contamination at the Cherokee Oil Company Site (the "Site") in Charlotte,  North
Carolina which was used by the Company for the disposal of certain byproducts of
its  manufacturing  processes.  Subsequently,  the U.S.  Department  of  Justice
notified the Company that it intended to seek recovery of the  approximate  $6.4
million  environmental  cleanup  cost  incurred to  remediate  the Site from the
Company and other PRPs,  each of which is considered to be jointly and severally
liable.  In April 1997, the Company and numerous other PRPs reached a settlement
in principle  with the EPA. Under the terms of the  settlement,  58 PRPs and the
Site owner,  have agreed to  reimburse  the EPA $4.0 million to settle the EPA's
claim for  cleanup  costs.  The Company has  recorded a $300,000  provision  for
settlement costs associated with the Company's share of the cleanup costs of the
Site. The Company's share of the aggregate settlement fund may decrease as other
PRPs  join in the  settlement.  Management  of the  Company  believes  that  the
ultimate  settlement of this matter will not have a material  adverse  effect on
the Company's financial position or results of operations.

The Internal  Revenue Service ("IRS")  recently  completed an examination of the
Company's  federal  income tax returns for fiscal 1993,  1994 and 1995. On March
12, 1997, the IRS issued 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. The Company
believes that it has substantial  authority for the positions taken on the prior
years' returns and will vigorously contest the proposed adjustments. The Company
has filed a protest of the adjustments  with the Appeals section of the IRS, and
believes that these  adjustments  will be reduced  through the appeals  process.
While the  outcome of this  matter  cannot be  predicated  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.

<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, 1997
and 1996,  and the  related  consolidated  statements  of income,  stockholders'
equity and cash flows for each of the three years in the period  ended March 31,
1997.  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, 1997 and 1996, and the
consolidated  results of their  operations  and their cash flows for each of the
three  years in the period  ended March 31, 1997 in  conformity  with  generally
accepted accounting principles.


Richmond, Virginia
May 21, 1997

                                    COOPERS & LYBRAND L.L.P.


<PAGE>

                NIMBUS CD INTERNATIONAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             March 31, 1997 and 1996
                  (Dollars in thousands, except share data)
<TABLE>
<S>                                                      <C>       <C>  

                        ASSETS                             1997      1996
Current assets:
  Cash and cash equivalents                              $7,790    $3,593
  Accounts and notes receivable-trade, less
   allowances for doubtful accounts of $1,812 and        26,393    26,121
   $2,014
  Inventories                                             2,217     2,177
  Prepaid expenses                                        1,329       729
  Deferred income taxes                                   3,415     1,766
                                                       ---------  --------
   Total current assets                                  41,144    34,386
                                                       ---------  --------
Property, plant and equipment, net                       63,431    50,809
Other assets and intangibles                              3,697     5,558
                                                       =========  ========
                                                       $108,272   $90,753
                                                       =========  ========

         LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities:
  Accounts payable                                        5,617     6,437
  Current portion of long-term debt                       5,159     1,463
  Accrued expenses and other liabilities                 13,533     6,872
  Income taxes payable                                    6,665     3,427
                                                       ---------  --------
   Total current liabilities                             30,974    18,199
                                                       ---------  --------

Long-term debt                                           20,840    24,668
Deferred income taxes                                     3,561     4,395
Other liabilities                                           475       425

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 and 38,973,173 shares
   issued; 20,870,579 and 20,829,962 shares                 390       390
   outstanding
  Paid-in capital                                        66,775    66,734
  Retained earnings                                      31,969    22,794
  Cumulative foreign currency translation adjustments       378       241
                                                       ---------  --------
                                                         99,512    90,159
  Treasury stock, at cost, 18,142,207 and 18,143,211    (47,090)  (47,093)
  shares
                                                       ---------  --------
   Total stockholders' equity                            52,422    43,066
                                                       =========  ========
                                                       $108,272   $90,753
                                                       =========  ========
</TABLE>

The accompanying  notes are an integral part of the consolidated financial 
statements.

<PAGE>

                NIMBUS CD INTERNATIONAL, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
              For the Years Ended March 31, 1997, 1996 and 1995
                (Dollars in thousands, except per share data)
<TABLE>
<S>                                     <C>          <C>        <C>
                                          1997        1996       1995
Net sales                               $129,470    $118,245    $85,827
Cost of goods sold                        91,961      83,809     58,221
                                        ---------  ----------  ---------
  Gross profit                            37,509      34,436     27,606

Selling, general and administrative       15,463      12,989     12,194
expenses
Restructuring charge                       6,014           -          -
                                        ---------  ----------  ---------
  Operating income                        16,032      21,447     15,412

Interest expense                           2,666       5,305      1,983
Other (income) expense, net                (395)          41      (121)
                                        ---------  ----------  ---------
  Income before income taxes and          13,761      16,101     13,550
  extraordinary item

Provision for income taxes                 4,586       5,642      5,026
                                        ---------  ----------  ---------
  Income before extraordinary item         9,175      10,459      8,524

Extraordinary item - extinguishment of
  debt (less income tax benefit of             -     (2,952)      (324)
  $1,231 and $191)
                                        ---------  ----------  ---------
  Net income                              $9,175      $7,507     $8,200
                                        =========  ==========  =========
  Net income - 1996 and 1995 are pro
   forma for the Offering (Note 18)       $9,175     $12,040     $8,196
                                        =========  ==========  =========
Earnings per share - 1996 and 1995 are
pro forma for the Offering (Note 18)       $0.40       $0.53      $0.36
                                        =========  ==========  =========
Weighted average shares outstanding       23,007      22,799     22,743
                                        =========  ==========  =========
</TABLE>

The accompanying  notes are an integral part of the consolidated financial 
statements.

<PAGE>
                NIMBUS CD INTERNATIONAL, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              For the Years Ended March 31, 1997, 1996, and 1995
                  (Dollars in thousands, except share data)
<TABLE>
<S>                <C>       <C>      <C>    <C>      <C>      <C>     <C>
                                                      Cumulative
                    Number of Shares                  Foreign
                   -------------------                Currency
                   Common     Treasury Common Paid-in Translatn Retaind Treasury
                   Stock      Stock    Stock  Capital Adjust.   Earnings Stock
Balances, April    25,695,184           $257  $12,478   $(483)   $7,087
  1, 1994
Issuance of
  common stock        286,128               3     997
Issuance of
  common stock in
  recapitalization  10,817,847            108  27,192
Issuance of                                     1,750
  warrants
Exercise of stock
  options
  (including
  income tax         2,174,014             22   3,104
  benefit of
  $1,190)
Repurchase of
  common stock              (25,168,211)
                                                                       $(63,515)
Fees and expenses
  related to
  recapitalzation                              (4,246)                   (1,777)
Net income                                                       8,200
Foreign currency
  translation                                              703
  adjustments
                   -----------------------------------------------------------
Balances,March 31,  38,973,17 (25,168,211) 390  41,275     220  15,287  (65,292)
  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
  adjustments                                               21
                   -----------------------------------------------------------
Balances,March 31, 38,973,17  (18,143,211) 390  66,734     241  22,794  (47,093)
  1996
Exercise of stock
  options             39,613        1,004           41                         3
Net income                                                       9,175
Foreign currency
  translation
  adjustments                                              137
                   ===========================================================
Balances,March 31, 39,012,78  (18,142,207)$390 $66,775    $378 $31,969 $(47,090)
  1997

</TABLE>

The accompanying  notes are an integral part of the consolidated financial 
statements.

<PAGE>

                NIMBUS CD INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the Years Ended March 31, 1997, 1996, and 1995
                             (Dollars in thousands)
<TABLE>
<S>                                           <C>         <C>       <C>

                                               1997        1996      1995
Cash flows from operating activities:
  Net income                                  $9,175      $7,507    $8,200
  Adjustments to reconcile net income to
   net cash provided by operating
   activities:
   Restructuring charge                        6,014
   Extraordinary item                                      2,047       324
   Depreciation and amortization               9,595       7,938     6,217
   Deferred income taxes                     (2,500)       2,922       796
   Net (gain) loss on sale of equipment         (98)         361        19
   and other assets
   Gains on settlement of royalty                        (1,744)   (2,300)
   obligation
   Write-off of public offering and                                  1,005
   acquisition costs
   Noncash compensation expense for stock                              628
   options
   Other, net                                   (24)        (56)        70
   Change in operating assets and
     liabilities, net of 1996
     acquisition:
     Accounts and notes receivable               355     (5,694)   (3,156)
     Inventories                                  37          31     (116)
     Prepaid expenses                          (502)         891   (1,063)
     Accounts payable                          1,939     (1,206)     5,373
     Accrued expenses                          3,670     (1,132)   (1,164)
                                           ----------  ----------  --------
     Net cash provided by operating           27,661      11,865    14,833
     activities
                                           ----------  ----------  --------

Cash flows from investing activities:
  Purchases of property, plant and          (20,507)    (10,087)   (17,017)
  equipment
  Proceeds from sale of equipment and            358          64       108
  other assets
  Acquisition of business, net of cash         (253)     (4,850)
  acquired
  Expenditures for computer software         (1,512)       (929)
  Other investing activities                   (435)       (548)       112
                                           ----------  ----------  --------
   Net cash used in investing activities    (22,349)    (16,350)   (16,797)
                                           ----------  ----------  --------

Cash flows from financing activities:
  Proceeds of debt                                         2,357    66,993
  Repayment of debt                          (1,510)    (37,000)   (21,612)
  Revolving credit borrowings, net                       (1,991)     (109)
  Issuance of common stock                                44,886    24,055
  Joint venture capital contribution             315
  Proceeds from issuance of warrants                                 1,750
  Proceeds from exercise of stock options         44                 1,168
  Purchase of treasury stock                                       (65,292)
  Payment of financing fees                    (159)     (1,140)   (3,686)
  Payment of costs related to initial                    (1,230)     (281)
  public offering
                                           ----------  ----------  --------
   Net cash (required) provided by           (1,310)       5,882     2,986
   financing activities
                                           ----------  ----------  --------
  Effect of exchange rate changes on cash        195       (122)        59
                                           ----------  ----------  --------
   Net increase in cash                        4,197       1,275     1,081

Cash and cash equivalents, beginning of        3,593       2,318     1,237
year
                                           ==========  ==========  ========
   Cash and cash equivalents, end of year     $7,790      $3,593    $2,318
                                           ==========  ==========  ========
</TABLE>

The accompanying  notes are an integral part of the consolidated financial 
statements.

<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.  was  organized  in  October  1992 to acquire
   certain companies which operate manufacturing facilities in the U.S. and U.K.
   (collectively, the "Company"). 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 video and CD-ROM market.

   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% or less 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 could differ from those
   estimates.

   b)  Currency   translation:   The  assets  and  liabilities  of  all  foreign
   subsidiaries  are translated from their respective  functional  currencies at
   the  exchange  rates in effect at the  balance  sheet  date and  revenue  and
   expense  accounts are  translated at weighted  average  monthly rates for the
   periods presented.  Foreign currency translation adjustments are reflected as
   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
   to hedge exposures related to foreign currency transactions. 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 are
   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 using the
   straight-line method.  Depreciable lives are as follows:

                                   Years
          Buildings                   40
          Leasehold improvements    5-12
          Machinery and equipment   5-12
   
   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.

   h)  Other   Assets  and   Intangibles:   Purchased   software   and   related
   implementation  costs are  capitalized in other assets and amortized over the
   estimated  useful  life.  The  excess  purchase  price over the fair value of
   identifiable  net assets acquired is allocated to goodwill and amortized over
   15 years.  At March 31, 1997,  there was no  goodwill.  Goodwill of $2,787 is
   included net of accumulated amortization of $96 as of March 31, 1996.

   i) Impairment of Long-Lived Assets:  Beginning in fiscal 1996, the review for
   the possible  impairment  of  long-lived  tangible and  intangible  assets is
   performed  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. After the restructuring charge, the
   Company  believes that there was no impairment of its tangible and intangible
   noncurrent assets at March 31, 1997.

   j)  Stock Options:  Beginning in fiscal 1997, the Company adopted the
   disclosure only provisions of SFAS No. 123 "Accounting for Stock-Based
   Compensation".  SFAS No. 123 allows companies to continue to recognize
   compensation costs 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 13 for such disclosure.

3. Expansion and Acquisition:

   On January 29, 1997, the Company  completed the formation of EuroNimbus  S.A.
   ("EuroNimbus")  and  announced  plans for the joint  venture  to build a new,
   40,000 square foot  replication  plant in Luxembourg.  EuroNimbus will invest
   approximately  $17.0  million for the new plant and  accompanying  mastering,
   replication,  printing,  and  packaging  equipment.  The  capital  project is
   anticipated to be financed by a combination  of government  grants and loans,
   new borrowings,  and stockholder capital  contributions.  It is expected that
   the Company's capital contribution will be approximately $4.0 million.

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

4. Restructuring Charge:

   The results of  operations  for fiscal 1997  include a charge of $6.0 million
   ($3.72 million after tax, or $0.16 per share) for costs  associated  with the
   closure of the Company's Sunnyvale facility which operated as NSS, as part of
   a program to reduce overhead costs and improve operating  efficiencies.  This
   charge includes  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. At March 31, 1997, $2.8 million of this amount
   remained in accrued liabilities.

   The CD manufacturing  equipment installed at Sunnyvale will be transferred to
   the Provo plant.  The costs of  transferring  and installing the equipment at
   Provo will be recorded as incurred during fiscal 1998.

5. 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.

6. 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.

   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.

7. Inventories:

   Inventories at year end consisted of the following:
<TABLE>
     <S>                            <C>        <C>
                                      1997       1996
     Raw materials                  $1,518     $1,849
     Work-in-process                   236        263
     Finished goods                    463         65
                                   ========   ========
                                    $2,217     $2,177
                                   ========   ========
</TABLE>

8. Property, Plant and Equipment:

   Property, plant and equipment at year end consisted of the following:
<TABLE>
     <S>                           <C>        <C> 
                                      1997       1996
     Land, buildings and           $20,865    $18,652
     improvements
     Machinery and equipment        62,925     46,986
     Construction in progress        5,976      1,549
                                   --------   --------
                                    89,766     67,187

     Less accumulated depreciation (26,335)   (16,378)
                                   --------   --------

     Net property, plant and       $63,431    $50,809
     equipment
                                   ========   ========
</TABLE>

   Depreciation expense amounted to $9,128,  $7,256, and $5,974 for fiscal years
   1997, 1996 and 1995 respectively.

9. Accrued Expenses and Other Liabilities:

   Accrued  expenses  and  other  liabilities  at  year  end  consisted  of  the
   following:
<TABLE>
     <S>                            <C>        <C>
                                      1997       1996
     Royalty obligations            $6,722     $2,753
     Taxes payable, other than       1,306      1,237
     income taxes
     Employee compensation and       1,406      1,863
     benefits
     Restructuring charge reserve    2,807
     Other items                     1,292      1,019
                                   ========   ========
                                   $13,533     $6,872
                                   ========   ========
</TABLE>

10.   Debt:

   The  Company's  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 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.  The  weighted  average  interest  rate  on  outstanding
   borrowings at March 31, 1997 was 8.3%.

   Long-term debt at year end consisted of the following:
<TABLE>
     <S>                                     <C>            <C>  
                                             1997           1996
     Variable rate term loan 
     (effective interest rate of 8.4% 
     at March 31, 1997, and 7.9% at 
     March 31, 1996), payable in 
     quarterly installments of varying       $24,249        $24,381
     amounts commencing in
     December, 1996 with the
     final maturity in September,
     2000

     Variable rate revolving
     loans (effective interest                 1,750          1,750
     rate of 7.3% at March 31,
     1997, and 7.1% at March 31,
     1996)
                                             --------       --------
     Total                                    25,999         26,131

     Less current maturities                   5,159          1,463
                                             --------       --------
                                             $20,840        $24,668
                                             ========       ========
</TABLE>

   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 scheduled annual principal payments, after fiscal 1998 are $7,636
   in 1999, $7,636 in 2000, and $3,818 in 2001. Interest paid on the outstanding
   debt  during  fiscal  1997,  1996 and 1995 was  $2,284,  $4,721  and  $1,882,
   respectively.  No interest was capitalized during fiscal 1997, 1996 and 1995.
   The recorded value of the Company's long-term debt at March 31, 1997 and 1996
   approximates its fair value.

   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 a 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.

   The interest rate caps ensure that the Company will not pay interest at rates
   higher  than 7.0% on $4,700 and not  higher  than 9.5% on $19,139 of its term
   debt  outstanding at March 31, 1997.  These interest rate  agreements did not
   have any material effect on the Company's interest expense for fiscal 1997 or
   1996.

   The estimated fair value of the Company's interest rate swap agreements which
   hedge  outstanding  borrowings  was an asset of $16 as of March 31,  1997 and
   $1,011 at March 31, 1996.

   Substantially all of the Company's tangible and intangible assets 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, 1997, none of the Company  retained  earnings was available for the
   payment of such dividends.

11.   Income Taxes:

   The components of income before income taxes and extraordinary  items were as
   follows:
<TABLE>
    <S>                                     <C>       <C>      <C>
                                               1997      1996     1995
                                            -------  --------  -------
    Domestic                                 $1,850    $8,162   $6,764
    Foreign                                  11,911     7,939    6,786
                                            =======  ========  =======
      Income before income taxes and        $13,761   $16,101  $13,550
      extraordinary items                   =======  ========  =======

    The provision for income taxes consisted of the following:
    Current                                    1997      1996     1995
                                             -------  --------  -------
      Federal                                $2,742    $1,057   $2,039
      State                                     355       156      178
      Foreign                                 3,972     2,492    2,013
                                             -------  --------  -------
       Total current                          7,069     3,705    4,230
                                             -------  --------  -------
    Deferred
      Federal                                (2,069)    1,733      164
      State                                    (253)      296       25
      Foreign                                  (161)     (92)      607
                                             -------  --------  -------
       Total deferred                        (2,483)    1,937      796
                                             -------  --------  -------

         Total income tax expense            $4,586    $5,642   $5,026
                                             =======  ========  =======
</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>
                                               1997     1996     1995
                                             -------  -------  -------
    Federal statutory tax rate                34.0%    34.0%    34.0%
    Increase (decrease) in taxes resulting
    from:
      State taxes, net of federal tax effect    0.5      1.9      1.0
      U.S. tax attributable to deemed
       repatriation of foreign subsidiary                0.7      0.8
       earnings (net of foreign tax credit)
      Difference between U.S. federal
       statutory rate and foreign effective
       rates in 1996, primarily               (1.7)    (1.9)      2.3
       attributable to an examination by
       foreign tax authorities
      Release of valuation allowance                             (5.1)
      Other                                     0.5      0.3      4.1
                                             -------  -------  -------
       Effective tax rate                     33.3%    35.0%    37.1%
                                             =======  =======  =======
</TABLE>

   Cash  payments  for income  taxes were  $4,345,  $1,275 and $1,855 for fiscal
   years 1997, 1996 and 1995, respectively.

   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>

   The components of the net deferred tax assets and liabilities as of March 31,
   1996 were as follows:
<TABLE>
    <S>                                      <C>      <C>       <C>
                                             Domestic Foreign   Total
    Deferred tax assets:
      Accrued royalties                                 $276      $276
      Accounts receivable                       $401               401
      Other accrued liabilities                  425     425       850
      Net operating loss carryforward          2,115             2,115
                                             -------  -------  -------
       Deferred tax asset                      2,941     701     3,642
                                             -------  -------  -------

    Deferred tax liabilities:
      Property, plant and equipment          (5,254)  (1,017)  (6,271)
                                             -------  -------  -------
       Deferred tax liability                (5,254)  (1,017)  (6,271)
                                             -------  -------  -------

         Net deferred tax liability         $(2,313)   $(316) $(2,629)
                                             =======  =======  =======
</TABLE>

   At March 31, 1997, the Company had net operating loss  carryforwards for U.S.
   tax return purposes of approximately  $5,002,  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.

   No provision for income taxes has been made for $8.1 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") recent  completed an examination of the
   Company's federal income tax returns for fiscal 1993, 1994 and 1995. On March
   12, 1997,  the IRS issued 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.
   The Company  believes  that it has  substantial  authority  for the positions
   taken on the prior years'  returns and will  vigorously  contest the proposed
   adjustments.  The  Company  has filed a protest of the  adjustments  with the
   Appeals  section of the IRS,  and  believes  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.

12.   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 $.019 to
   $.05 per disc sold. Royalty expense incurred under these agreements  amounted
   to  $11,343,  $9,037  and  $6,258  for  fiscal  years  1997,  1996 and  1995,
   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.  During  fiscal 1995,  the Company  reached
   settlements  with  certain  licensing  companies  for prior  year  royalties,
   recognizing a gain of $2,294.  The Company  believes that its accrued expense
   adequately  provide 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
   $3,202, $1,678 and $494 for fiscal years 1997, 1996 and 1995, respectively.

   At March 31, 1997,  future  obligations under operating lease agreements were
   as follows:
<TABLE>
       <S>                                  <C>
       Fiscal Year Ending March 31,         Amount
       1998                                 $2,678
       1999                                  1,983
       2000                                  1,769
       2001                                    877
       2002                                    242
       Thereafter                              202
                                         ==========
                                            $7,751
                                         ==========
</TABLE>

   c)  Capital expenditures:  At March 31, 1997, commitments for capital
   expenditures amounted to approximately $801.

   d) Litigation and related  matters:  On March 18, 1996, the Company  received
   notification from the United States  Environmental  Protection Agency ("EPA")
   alleging that the Company is a potentially  responsible party ("PRP") for the
   cleanup of surface water  contamination at the Cherokee Oil Company Site (the
   "Site") in Charlotte,  North  Carolina  which was used by the Company for the
   disposal of certain byproducts of its manufacturing processes.  Subsequently,
   the U.S.  Department of Justice notified the Company that it intended to seek
   recovery  of  the  approximately  $6.4  million  environmental  cleanup  cost
   incurred to remediate the Site from the Company and other PRPs, each of which
   is considered to be jointly and severally  liable. In April 1997, the Company
   and numerous other PRPs reached a settlement in principle with the EPA. Under
   the  terms of the  settlement,  58 PRPs and the Site  owner,  have  agreed to
   reimburse  the EPA $4.0 million to settle the EPA's claim for cleanup  costs.
   The Company has recorded a $300,000 provision for settlement costs associated
   with the  Company's  share of the cleanup  costs of the Site.  The  Company's
   share of the aggregate settlement fund may decrease as other PRPs join in the
   settlement.  Management of the Company believes that the ultimate  settlement
   of this  matter  will not have a  material  adverse  effect on the  Company's
   financial position or results of operations.

   From time to time, the Company is involved in litigation that it considers to
   be in the normal  course of business.  Certain  parties have alleged that the
   Company is liable for its producing discs from data provided by its customers
   that contain  copyrighted  material  not  belonging  to such  customers.  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.

13.   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  authorized to be issued.  Awards and their terms are  authorized by the
   Compensation Committee of the Company's Board of Directors.

   In October 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 have been  reserved  for issuance  thereunder.
   Awards of options to independent directors amounted to 7,500 shares in fiscal
   1997 and 10,000 shares in fiscal 1996.

   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  1997,  the  Company  awarded
   non-qualified  options to purchase 205,500 shares of non-voting  common stock
   that will vest ratably within five years from the dates of the grants.

   At March 31, 1997, 32,500 common shares were available for future grant under
   the Directors  Plan and 469,078 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 1997, 1996 and 1995:
<TABLE>
       <S>                              <C>            <C>
                                                        Weighted
                                         Number of      Average
                                           Stock        Exercise
                                          Options        Price
                                        ------------  -------------
       Outstanding, March 31, 1994        2,631,666      $0.55
       Granted                               37,605       1.06
       Canceled                            (17,298)       1.06
       Exercised                        (2,174,015)       0.54
                                        ------------  -------------
       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
                                        ============  =============
</TABLE>

Shares under option at March 31, 1997 were at the following exercise prices:
<TABLE>
     <S>           <C>        <C>        <C>           <C>         <C>

                              Options                    Options Currently
                            Outstanding                      Exercisable
                   ----------------------------------  -----------------------
                                 Wtd.       Wtd. Avg.
        Ex. Price    No. of      Avg.       Contractual  No. of      Wtd. Avg.
          Range      Options     Exercise   Life         Options     Exercise
                                 Price      (years)                  Price
       $0.53-$7.00   2,020,254     $2.12       6.31      935,844       $1.63
       $7.01-$16.50    203,000     $15.64      9.17       44,500      $15.23
                     =========                         =========
                     2,223,254                           980,344
                     =========                         =========
</TABLE>

   The  Company  applies  APB  Opinion  No. 25 and  related  Interpretations  in
   accounting  for  its  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>
                                 1997        1996
                               ---------   ---------
       Net income as reported    $9,175     $12,040
       Net income pro forma       8,719      11,803
       Earnings per share -       $0.40       $0.53
       as reported
       Earnings per share -       $0.39       $0.54
       pro forma
</TABLE>

   The  weighted  average  fair  value of  options  granted in 1997 and 1996 was
   $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> 
                                 1997        1996
                               ---------   ---------
       Risk-free interest rate     6.4%        6.8%
       Expected life in years       5-6         5-6
       Expected volatility        71.8%       70.0%
       Expected dividend yield     0.0%        0.0%
</TABLE>

14.   Related-Party Transactions:

   During  fiscal  1995,  the  Company  paid to McCown  De Leeuw & Co.,  Behrman
   Capital L.P., and DLJ Merchant Banking,  Inc.  approximately  $5.7 million in
   transaction costs related to the Recapitalization. Approximately $4.0 million
   of the costs was recorded as a reduction of paid-in  capital and $1.5 million
   was  recorded as an addition to treasury  stock.  The  remaining  transaction
   costs were charged to expense.

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
   $459, $343 and $296 for fiscal years 1997, 1996 and 1995 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
   $439, $413 and $395 for fiscal years 1997, 1996 and 1995 respectively.

16.   Geographic Segment Information:

   A summary of the Company's  operations  by  geographic  area for fiscal years
   1997, 1996 and 1995 is as follows:
<TABLE>
<S>       <C>     <C>     <C>     <C>    <C>      <C>     <C>     <C>     <C>
                    1997                 1996                 1995
            --------------------------------------------------------------------
          Net     Operating        Net    Operating       Net     Operating
          Sales   Income   Assets  Sales  Income   Assets Sales   Income  Assets
United    $80,236 $2,965  $68,056 $71,654 $10,793 $57,925 $48,663 $8,319 $52,171
States
United     50,095 13,067   40,216  46,919  10,698  32,828  37,466  7,141  27,824
Kingdom
Interarea   (861)                    (328)    (44)           (302)   (48)
sales
            ====================================================================
         $129,47 $16,032  $108,27 $118,24 $21,447 $90,753 $85,827 $15,41 $79,995
            ====================================================================
</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 enters into foreign exchange  contracts to hedge foreign currency
   transactions  and to  protect  it from risk due to  exchange  rate  movements
   because  gains and losses on these  contracts  offset gains and losses on the
   transactions  being hedged.  The Company does not engage in  speculation.  At
   March 31, 1997, the Company was not party to any forward exchange contracts.

   The Company's  customer base is primarily  American and British recording and
   software  companies.  One customer  operating under a vendor supply agreement
   accounted for 15% of fiscal 1997 net sales,  and 17% of fiscal 1996 sales. No
   other customer  represented  more than 10% of  consolidated  sales for fiscal
   years 1997,  1996 or 1995.  The Company  performs  credit  evaluations of its
   customers  and  maintains  reserves  for credit  losses.  The  provision  for
   doubtful accounts  amounted to $1,031,  $1,268 and $514 for fiscal 1997, 1996
   and 1995, respectively.

18.   Pro Forma Earnings per Share:

   The pro  forma  net  income  for  fiscal  1996 and 1995  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 and 1995, as adjusted for the
   following  assumptions  as if each had  occurred  on April 1,  1994:  (i) the
   assumed exercise of warrants and stock options  outstanding during each 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 net
   additional debt incurred in the Recapitalization, at an average interest rate
   of 9.2%,  resulting in additional  interest  expense of $2,512 ($1,557 net of
   tax) for the fiscal  year ended  March 31,  1995;  (iii) the  issuance by the
   Company of  6,350,000  shares of common  stock in the  Offering  and  500,000
   shares in the Private  Placement;  (iv) the application by the Company of the
   net proceeds of the Offering to repay $41.7 million of outstanding  debt; and
   (v) 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 fiscal 1996, and $1,983 ($1,229 net of tax)
   for fiscal 1995.

   Historical earnings per share data for fiscal 1996 and 1995 have been omitted
   as the historical capitalization of the Company prior to the Recapitalization
   and the Offering is not  indicative of its capital  structure  following such
   events.

19.   Accounting Standards Changes:

   Effective  March 31,  1998,  the  Company  will  adopt  Financial  Accounting
   Standards Board ("FASB") Statement of Financial  Accounting Standards No. 128
   "Earnings Per Share" which will supersede Accounting Principles Board ("APB")
   Opinion No. 15 "Earnings Per Share".  This new statement requires that "basic
   earnings  per share" be  computed  by  dividing  income  available  to common
   stockholders by the weighted average number of common shares  outstanding for
   the period.  "Diluted earnings per share", will reflect potential dilution if
   stock options or other securities would result in the issuance or exercise of
   additional shares of common stock.  Initial estimates by management  indicate
   that "basic  earnings per share" will be greater than  "primary  earnings per
   share" as calculated by APB Opinion No.
   15.

   Quarterly Financial Data (Unaudited):

   Summarized quarterly financial data for fiscal years 1997 and 1996 follows:
<TABLE>
<S>                      <C>          <C>             <C>           <C> 
                                      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         $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

                                      Three Months Ended
                  -----------------------------------------------------------
1996                     June 30      Sept. 30        Dec. 31       March 31
Discs sold                21,680        33,228         37,531         33,239
Net sales                $21,307       $30,545        $36,645        $29,748
Gross profit               7,212         8,982          9,880          8,362
Operating income           3,529         6,072          7,213          4,633
Income before
  extraordinary item         994         2,808          3,980          2,677
  item
Net income                   994         2,808          1,028          2,677
Net income - pro
  forma for the            1,655         3,451          4,257          2,677
  Offering
Earnings per
  share:  pro              $0.07         $0.15          $0.19          $0.12
  forma for the
  Offering

Stock price:
High                                                   $9-3/4         $9-1/8
Low                                                         7          6-1/2
</TABLE>

   Common Stock 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 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).  As of June 5, 1997,  there were 222  shareholders  of record.  The
   Company has not paid any dividends on its common stock.


<PAGE>


SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

Dated: June 26, 1997
                                    NIMBUS CD INTERNATIONAL, INC.
                                    (Registrant)

                                    L. Steven Minkel
                                    Executive Vice President and
                                    Chief Financial Officer


                                    Gary E. Krutul
                                    Corporate Controller
                                    (Principal Accounting Officer)

<PAGE>

                          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,
                                                        1997         1996
                                                      ----------  ---------
                       ASSETS
Cash                                                       $3         $2
Prepaid expenses                                           12        149
Other assets                                            5,667      5,652
Investment in subsidiaries, at equity                  47,149     37,834
                                                      ========  ========
  Total assets                                        $52,831    $43,637
                                                      ========  ========

                     LIABILITIES
Accounts payable                                           18         23
Accrued expenses                                          391        548
                                                      --------  ---------
  Total liabilities                                       409        571
                                                      --------  ---------

                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 and 38,973,173 shares
  issued; 20,870,579 and 20,829,962 shares                390        390
  outstanding
Paid-in capital                                        66,775     66,734
Retained earnings                                      31,969     22,794
Cumulative foreign currency translation adjustments       378        241
                                                      --------  ---------
                                                       99,512     90,159

Treasury stock, at cost 18,142,207 and 18,143,211     (47,090)   (47,093)
shares
                                                      --------  ---------
  Total stockholders' equity                           52,422     43,066
                                                      ========  =========
   Total liabilities and stockholders' equity         $52,831    $43,637
                                                      ========  =========
</TABLE>

The information  regarding  long-term debt and credit agreements of subsidiaries
contained  in Note 10 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 its subsidiaries.

<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, 1997, 1996 and 1995
<TABLE>
<S>                                           <C>       <C>        <C>
                                                1997       1996       1995
                                              ========  =========  =========
Equity in earnings of subsidiaries, net of     $9,175     $7,507     $8,200
applicable income tax                         ========  =========  =========
</TABLE>

                    CONDENSED  STATEMENTS  OF CASH  FLOWS 
          For the  fiscal  years ended March 31, 1997, 1996 and 1995
<TABLE>
<S>                                           <C>       <C>        <C>
                                                1997       1996       1995
                                              --------  ---------  ---------
Cash flows from operating activities:
Net income                                     $9,175     $7,507     $8,200
Less undistributed earnings of subsidiaries    (9,175)    (7,507)    (8,200)
Write-off of public offering and acquisition                          1,005
costs
Change in:
Prepaid expenses                                  137       (129)       (13)
Accounts payable                                   (5)      (619)       530
Accrued expenses                                 (157)       (43)    (1,227)
Other assets                                      (78)        20         73
                                              --------  ---------  ---------
Net cash provided by (used in) operating         (103)      (771)       368
activities                                    --------  ---------  ---------

Cash flows from investing activities:
Refund of costs related to proposed                                     112
acquisition
Advances to subsidiaries, net                     156     (4,267)      (483)
Purchase of property and equipment                (96)       (14)
                                              --------  ---------  ---------
Net cash provided (used) in investing              60     (4,281)      (371)
activities:                                   --------  ---------  ---------

Cash flows from financing activities:
Issuance of common stock                                  44,886     24,055
Proceeds from issuance of warrants                                    1,750
Proceeds from exercise of stock options            44                 1,168
Purchase of treasury stock                                          (65,292)
Payment of costs related to initial public                (1,230)      (281)
offering
Proceeds (repayments) of loans from                      (38,603)    38,603
subsidiaries, net
                                              --------  ---------  ---------
Net cash provided by financing activities          44      5,053          3
                                              --------  ---------  ---------
Increase in cash                                    1          1
Cash, beginning of year                             2          1          1
                                              --------  ---------  ---------
Cash, end of year                                  $3         $2         $1
                                              ========  =========  =========
</TABLE>

The information regarding related party transactions contained in Note 14 of the
Notes to Consolidated Financial Statements is incorporated herein by reference.

<PAGE>


                          NIMBUS CD INTERNATIONAL, INC.
                                   SCHEDULE II

                        Valuation and Qualifying Accounts
                             (Dollars in thousands)

<TABLE>
<S>                   <C>       <C>      <C>       <C>         <C>     <C>

                      Balance   Additions
                      at        Charged  Acquisi-  Deductions           Balance
Description           Beginning to Costs tion of   Write-Offs  Adjust-  at End
                      of Year   and      Business     1        ments2   of Year
                                Expenses
-----------------------------------------------------------------------------

Allowance for
doubtful accounts:

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

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

Fiscal year ended      $2,518     $514               $1,043      $77   $1,989
March 31, 1995
</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.