-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, NL+aqtfeWen8CxnOxnBsg4+GxRUmJhH4x2YV5YR0VKQ7fN6FbqGVdQQbyv8SPOHT Pxa/uFgxkHrNc42yt3V/LQ== 0000950135-95-001334.txt : 19950614 0000950135-95-001334.hdr.sgml : 19950614 ACCESSION NUMBER: 0000950135-95-001334 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950429 FILED AS OF DATE: 19950613 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CML GROUP INC CENTRAL INDEX KEY: 0000729576 STANDARD INDUSTRIAL CLASSIFICATION: [3949] IRS NUMBER: 042451745 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09630 FILM NUMBER: 95546671 BUSINESS ADDRESS: STREET 1: 524 MAIN ST CITY: ACTON STATE: MA ZIP: 01720 BUSINESS PHONE: 5082644155 MAIL ADDRESS: STREET 1: 524 MAIN STREET CITY: ACTON STATE: MA ZIP: 01720 10-Q 1 FORM 10-Q FOR CML GROUP, INC. 1 =============================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 29, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ------------ -------------- Commission file number 0-12628 ------- CML GROUP, INC. ------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) Delaware 04-2451745 - ----------------------------------- ------------------------------------ (State or Other Jurisdiction of (IRS Employer Identification Number) Incorporation or Organization) 524 Main Street, Acton, Massachusetts 01720 - ------------------------------------- ----------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (508) 264-4155 -------------- Not Applicable --------------------------------------------------- (Former name, former address and former fiscal year if changed since last report) 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 ----- ----- Number of shares outstanding of each of the issuer's classes of common stock: 49,214,859 shares of common stock, $.10 par value, as of June 12, 1995. ================================================================================ Page 1 of 17 Pages Exhibit Index Begins at Page 15 2 CML GROUP, INC. AND SUBSIDIARIES -------------------------------- Form 10-Q Index -----
Page ---- Part I: Financial Information Item 1: Financial Statements Consolidated Condensed Balance Sheets as of April 29, 1995 and July 31, 1994 3 - 4 Consolidated Condensed Statements of Income for the three-month and nine-month periods ended April 29, 1995 and April 30, 1994 5 Consolidated Condensed Statements of Cash Flows for the nine-month periods ended April 29, 1995 and April 30, 1994 6 Notes to Consolidated Condensed Financial Statements 7 - 9 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 12 Part II: Other Information 13 - 14 Signatures 14 Exhibit Index 15
2 3 Part I: FINANCIAL INFORMATION Item 1. Financial Statements CML GROUP, INC. & SUBSIDIARIES Consolidated Condensed Balance Sheets ------------------------------------- ASSETS
April 29, 1995 July 31, 1994 -------------- ------------- Current assets: Cash and cash equivalents $ 15,252,000 $ 28,929,000 Accounts receivable - trade 66,375,000 42,075,000 Prepaid income taxes 6,688,000 6,688,000 Inventories: Raw materials 14,106,000 12,617,000 Work in process 4,289,000 3,552,000 Finished goods 51,732,000 64,564,000 ------------ ------------ Total inventories 70,127,000 80,733,000 Net assets of business held for sale 30,000,000 --- Other current assets 22,409,000 26,387,000 ------------ ------------ Total current assets 210,851,000 184,812,000 ------------ ------------ Property, plant and equipment, at cost: Land and buildings 19,515,000 20,172,000 Machinery and equipment 78,442,000 79,228,000 Leasehold improvements 78,804,000 113,910,000 ------------ ------------ 176,761,000 213,310,000 Less accumulated depreciation 62,610,000 65,705,000 ------------ ------------ 114,151,000 147,605,000 ------------ ------------ Goodwill 12,608,000 34,889,000 Other assets 17,466,000 17,357,000 ------------ ------------ $355,076,000 $384,663,000 ============ ============
See Notes to Consolidated Condensed Financial Statements. 3 4 CML GROUP, INC. & SUBSIDIARIES Consolidated Condensed Balance Sheets ------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY
April 29, 1995 July 31, 1994 -------------- ------------- Current liabilities: Current portion of long-term debt $ 170,000 $ 226,000 Accounts payable 32,283,000 33,868,000 Accrued compensation 5,002,000 8,423,000 Accrued advertising 10,100,000 5,302,000 Accrued income taxes 1,670,000 483,000 Accrued expenses relating to discontinued operations 8,675,000 -- Other accrued expenses 28,155,000 32,768,000 ------------ ------------ Total current liabilities 86,055,000 81,070,000 ------------ ------------ Noncurrent liabilities: Long-term debt 179,000 1,292,000 Convertible subordinated debentures 41,593,000 57,500,000 Other noncurrent liabilities 16,002,000 25,564,000 ------------ ------------ Total noncurrent liabilities 57,774,000 84,356,000 ------------ ------------ Stockholders' equity: Common stock par value $.10 per share Authorized - 120,000,000 shares Issued - 52,000,480 shares and 51,851,180 shares 5,200,000 5,185,000 Additional paid-in capital 79,250,000 78,736,000 Retained earnings 163,527,000 163,825,000 ------------ ------------ 247,977,000 247,746,000 Less treasury stock, at cost, 2,773,941 shares and 1,865,941 shares 36,730,000 28,509,000 ------------ ------------ 211,247,000 219,237,000 ------------ ------------ $355,076,000 $384,663,000 ============ ============
See Notes to Consolidated Condensed Financial Statements. 4 5 CML GROUP, INC. & SUBSIDIARIES Consolidated Condensed Statements of Income ------------------------------------------- For the periods ended April 29, 1995 and April 30, 1994
Three Months Nine Months ------------ ----------- 1995 1994 1995 1994 ---- ---- ---- ---- Net sales $179,525,000 $176,775,000 $587,715,000 $536,478,000 ------------ ------------ ------------ ------------ Less costs and expenses: Cost of goods sold 70,998,000 59,154,000 221,280,000 185,142,000 Selling, general and administrative expenses 110,655,000 87,756,000 305,317,000 252,956,000 Interest expense (income) (147,000) 477,000 806,000 1,493,000 ------------ ------------ ------------ ------------ 181,506,000 147,387,000 527,403,000 439,591,000 ------------ ------------ ------------ ------------ Income (loss) from continuing operations before income taxes and extraordinary credit (1,981,000) 29,388,000 60,312,000 96,887,000 Provision (benefit) for income taxes (1,301,000) 10,609,000 22,557,000 34,976,000 ------------ ------------ ------------ ------------ Income (loss) from continuing operations before extraordinary credit (680,000) 18,779,000 37,755,000 61,911,000 ------------ ------------ ------------ ------------ Discontinued operations: Income (loss) from operations, net of income taxes (4,345,000) (1,717,000) (1,346,000) 594,000 Provision for loss on disposal, net of income tax benefit (35,678,000) -- (35,678,000) -- ------------ ------------ ------------ ------------ (40,023,000) (1,717,000) (37,024,000) 594,000 ------------ ------------ ------------ ------------ Income (loss) before extraordinary credit (40,703,000) 17,062,000 731,000 62,505,000 Extraordinary credit - early extinguishment of debt, net of income taxes 1,073,000 -- 2,198,000 -- ------------ ------------ ------------ ------------ Net income (loss) ($39,630,000) $ 17,062,000 $ 2,929,000 $ 62,505,000 ============ ============ ============ ============ Earnings (loss) per share: Income (loss) from continuing operations before extraordinary credit: Primary ($0.01) $0.36 $0.75 $1.20 ============ ============ ============ ============ Fully diluted ($0.01) $0.36 $0.75 $1.18 ============ ============ ============ ============ Income (loss) before extraordinary credit: Primary ($0.82) $0.33 $0.01 $1.21 ============ ============ ============ ============ Fully diluted ($0.82) $0.33 $0.01 $1.19 ============ ============ ============ ============ Net income (loss): Primary ($0.80) $0.33 $0.06 $1.21 ============ ============ ============ ============ Fully diluted ($0.80) $0.33 $0.06 $1.19 ============ ============ ============ ============ Weighted average number of shares outstanding 50,216,999 51,554,304 50,565,802 51,781,621
See Notes to Consolidated Condensed Financial Statements. 5 6 CML GROUP, INC. & SUBSIDIARIES Consolidated Condensed Statements of Cash Flows -----------------------------------------------
For the Nine Months Ended ------------------------- April 29, 1995 April 30, 1994 -------------- -------------- Cash flows from operating activities: Net income $ 2,929,000 $ 62,505,000 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loss on disposal of discontinued operation 35,678,000 -- Gain on early extinguishment of debt (2,198,000) -- Depreciation and amortization 22,432,000 17,930,000 Loss on disposal of property, plant and equipment 2,367,000 1,366,000 Changes in working capital items (21,353,000) (39,652,000) (Increase) decrease in other assets (2,657,000) 484,000 Increase (decrease) in other noncurrent liabilities (264,000) 884,000 ------------ ------------ Net cash provided by operating activities 36,934,000 43,517,000 ------------ ------------ Cash flows from investing activities: Additions to property, plant and equipment (26,818,000) (41,916,000) Reduction in notes receivable 72,000 96,000 ------------ ------------ Net cash used in investing activities (26,746,000) (41,820,000) ------------ ------------ Cash flows from financing activities: Decrease in long-term debt (1,169,000) (223,000) Acquisition of convertible debentures (11,991,000) -- Dividends paid (2,998,000) (3,039,000) Exercise of stock options 529,000 396,000 Acquisition of treasury stock (8,236,000) (10,396,000) ------------ ------------ Net cash used in financing activities (23,865,000) (13,262,000) ------------ ------------ Net decrease in cash and cash equivalents during the period (13,677,000) (11,565,000) Cash and cash equivalents at the beginning of the period 28,929,000 64,010,000 ------------ ------------ Cash and cash equivalents at the end of the period $ 15,252,000 $ 52,445,000 ============ ============
See Notes to Consolidated Condensed Financial Statements. 6 7 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - ---------------------------------------------------- Note 1 - ------ The accompanying consolidated condensed financial statements and notes should be read in conjunction with the financial statements contained in the Company's Annual Report on Form 10-K. In the opinion of management, the accompanying consolidated condensed financial statements include all adjustments necessary for a fair presentation of the results of the interim periods presented and, except for the adjustments relating to the decision to sell Britches of Georgetowne (see Note 2), all such adjustments are of a normal recurring nature. The retail industry is seasonal in nature and the results of operations for the interim periods presented may not be indicative of the results for a full year. The Company does not own any securities covered by Statement of Financial Accounting Standards ("SFAS") No. 115. Adoption of SFAS No. 119 would not have a material effect on the Company's consolidated financial statements. Certain 1994 amounts have been reclassified to conform to the 1995 presentation. Note 2 - Discontinued Operation - ------------------------------- During the third quarter of fiscal 1995, the Company decided to sell its Britches of Georgetowne ("Britches") subsidiary and, therefore, has accounted for the planned divestiture as a discontinued operation in the accompanying consolidated condensed financial statements. In connection with its decision to sell Britches, the Company recorded a provision for loss on disposal of $35,678,000, net of an income tax benefit of $5,310,000. The pretax provision for loss on disposal includes a write-down of Britches net assets to estimated net realizable value and estimated operating losses until disposal. The Company anticipates that a sale can be consumated prior to the end of the third quarter of fiscal 1996 and, accordingly, has included the estimated net realizable value of Britches' net assets in current assets on the accompanying consolidated condensed balance sheet at April 29, 1995. Note 3 - Long-term Debt - ----------------------- Consolidated long-term debt is summarized as follows:
April 29, 1995 July 31, 1994 -------------- ------------- Note payable $240,000 $1,352,000 Obligations under capital leases 109,000 166,000 -------- ---------- 349,000 1,518,000 Less current portion 170,000 226,000 -------- ---------- Long-term debt $179,000 $1,292,000 ======== ==========
During the nine months ended April 29, 1995, the Company recorded an extraordinary gain of $2,198,000, net of income taxes of $1,313,000, resulting from the repurchase of $15,907,000 principal amount of the Company's 5 1/2% convertible subordinated debentures due 2003. 7 8 Note 4 - Contingencies - ---------------------- Litigation ---------- In October 1992, The Nature Company filed a lawsuit against Natural Wonders, Inc. in federal court seeking damages and injunctive relief to remedy alleged false representations, intellectual property infringement and unfair competition by Natural Wonders. In November 1992, Natural Wonders responded by filing counterclaims against The Nature Company alleging unfair competition, interference with Natural Wonders' contractual relations and prospective business advantage in violation of state and federal antitrust laws. This lawsuit was settled favorably during the third quarter of fiscal 1995. On October 25, 1994, four stockholders, owning an aggregate of 2,400 shares of CML Group, Inc. Common Stock, filed a class action lawsuit in the U.S. District Court for the District of Massachusetts against the Company and its Chairman, Charles M. Leighton, and President, G. Robert Tod. The complaint alleged that the Company failed to properly disclose the extent of its NordicTrack advertising expenditures and the impact of those expenditures on its future operating results, thereby violating federal securities laws. On December 19, 1994, the defendants filed a motion to dismiss the complaint, and on April 7, 1995, the plaintiffs responded by filing an Amended Complaint which added an allegation that Messrs. Leighton and Tod violated the securities laws by selling CML stock in the spring of 1994. The Company believes the Amended Complaint is without merit and intends to vigorously contest the lawsuit. In April 1995, the defendants filed a motion which is currently pending before the Court to dismiss this lawsuit. The Company is involved in various other legal proceedings and claims which have arisen in the ordinary course of business. Management believes the outcome of such proceedings will not have a material adverse impact on the Company's financial condition or results of operations. Environmental Matters --------------------- On June 3, 1991, the Company received from the United States Environmental Protection Agency ("EPA") a Special Notice Letter ("Special Notice") containing a formal demand on the Company as a Potentially Responsible Party ("PRP") for reimbursement of the costs incurred and expected to be incurred in response to environmental problems at a so-called "Superfund" site in Conway, New Hampshire. The EPA originally estimated the costs of remedial action and future maintenance and monitoring programs at the site at about $7.3 million. The Superfund site includes a vacant parcel of land owned by a subsidiary of the Company as well as adjoining property owned by others. No manufacturing or other activities involving hazardous substances have ever been conducted by the Company or its affiliates on the Superfund site in Conway. The environmental problems affecting the land resulted from activities by the owners of the adjoining parcel. Representatives of the Company have engaged in discussions with the EPA regarding responsibility for the environmental problems and the costs of cleanup. The owners of the adjoining parcel are bankrupt. The EPA commenced cleanup activities at the site in July 1992. The EPA has expended approximately $1.4 million for the removal phase of the site cleanup, which has now been completed. The EPA had estimated that the removal costs would exceed $3.0 million, but only a small portion of the solid waste removed from the site was ultimately 8 9 identified as hazardous waste. Therefore, the EPA's actual response costs for the removal phase were less than the EPA originally estimated. The EPA has implemented the groundwater phase of the cleanup, which was originally estimated by the EPA to cost approximately $4.0 million. The Company believes that the EPA's estimated cost for cleanup, including the remedial actions, is excessive and involves unnecessary actions. In addition, a portion of the remedial cost involves cleanup of the adjoining property that is not owned by the Company or any of its affiliates. Therefore, the Company believes it is not responsible for that portion of the cleanup costs. The Company has reserves and insurance coverage (from its primary insurer) for environmental liabilities at the site in the amount of approximately $2.3 million. The Company also believes that it is entitled to additional insurance from its excess insurance carriers. However, if excess liability coverage is not available to the Company and the ultimate liability substantially exceeds the primary insurance amount and reserves, the liability would have a material adverse effect upon the Company's operating results for the period in which the resolution of the claim occurs, but would not have a material adverse effect upon the Company's financial condition. In June 1992, the EPA notified the Company it may be liable for the release of hazardous substances by a former subsidiary at a hazardous waste treatment and storage facility in Southington, Connecticut. The EPA has calculated the Company's volumetric contribution at less than two tenths of one percent. The EPA has not completed its Remedial Investigation/Feasibility Study and, therefore, an estimate of cleanup costs is not available. Note 5 - Dividend - ----------------- On March 2, 1995, the Company's Board of Directors declared a cash dividend of $0.025 per share, payable June 16, 1995 to stockholders of record as of May 30, 1995. 9 10 Item 2. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations. --------------------- Introduction - ------------ After reviewing its performance and strategic fit with the Company's other business segments, the Company decided at the end of the third quarter of fiscal 1995 to sell its Britches of Georgetowne ("Britches") subsidiary. Accordingly, Britches has been accounted for as a discontinued operation in the accompanying consolidated condensed financial statements. The sale of Britches will allow the Company to focus on businesses which have the greatest growth prospects and offer the greatest potential return on investment. The Company's continuing operations consist of NordicTrack, NordicAdvantage and The Nature Company (including Smith & Hawken, Hear Music and The Scientific Revolution). Financial Condition - ------------------- Stockholders' equity decreased by $8.0 million from $219.2 million at July 31, 1994 to $211.2 million at April 29, 1995 due primarily to net income of $2.9 million, including a $40.0 million loss from discontinued operations, net of income taxes, offset by the purchase of $8.2 million of common stock and dividends of $3.2 million. During the first nine months of fiscal 1995, the Company spent approximately $26.8 million on additions to property, plant and equipment. The Company's ratio of long-term debt to equity decreased from 0.27 to 1 at July 31, 1994 to 0.20 to 1 at April 29, 1995 due primarily to a decrease in long-term debt. The decrease in long-term debt was due primarily to the purchase of $15.9 million principal amount of the Company's 5 1/2% convertible subordinated debentures due 2003. The Company's available cash decreased from $28.9 million at July 31, 1994 to $15.3 million at April 29, 1995. During the first nine months of fiscal 1995, the Company spent $20.2 million to purchase its convertible debentures and common stock. The Company may purchase additional shares of its common stock or convertible debentures. Total unused borrowing capacity under the Company's revolving credit agreement was approximately $50.8 million at April 29, 1995 compared to $52.3 million at July 31, 1994. Accounts receivable - trade increased by $24.3 million from $42.1 million at July 31, 1994 to $66.4 million at April 29, 1995 due primarily to an increase in receivables arising from the extended payment plans offered by NordicTrack. The Company believes that internally generated funds, available bank lines of credit and proceeds from the sale of assets will be sufficient to meet its current and long-term operating needs and anticipated capital expenditures. Results of Continuing Operations - -------------------------------- During the third quarter of fiscal 1995, net sales increased by $2.8 million to $179.5 million, or 1.6%, over the third quarter of fiscal 1994. The Company incurred a net loss of $39.6 million in the third quarter of fiscal 1995 compared with net income of $17.1 million in the third quarter of fiscal 1994. The $39.6 million net loss incurred during the third quarter of fiscal 1995 consisted of a loss from continuing operations of $0.7 million, a loss from discontinued operations of $40.0 million and an extraordinary credit of $1.1 million. For the first nine months of fiscal 1995, net sales increased by $51.2 million to $587.7 million, or 9.5%, compared to $536.5 million in the first nine months of fiscal 1994. Net income decreased to $2.9 million in the first nine months of fiscal 1995 from $62.5 million in the first nine months of fiscal 1994. The $2.9 million of net income during the first nine months of fiscal 1995 consisted of income from continuing operations of $37.7 million, a loss from discontinued operations of $37.0 million and an extraordinary credit of $2.2 million. Net income for the third quarter and first nine months of fiscal 1995 included an extraordinary gain, net of income taxes, of $1.1 million and $2.2 million, respectively , resulting from the purchase of the Company's 5 1/2% convertible subordinated debentures. 10 11 Total retail store sales increased by $14.3 million in the third quarter of fiscal 1995 to $95.0 million, or 17.7%, over the third quarter of fiscal 1994. During the third quarter of fiscal 1995, comparable store sales decreased by 18.9%. For the first nine months of fiscal 1995, total retail store sales increased by $49.7 million to $317.9 million, or 18.5%, over the first nine months of fiscal 1994 and comparable store sales decreased by 10.4%. The increase in total retail store sales for the third quarter and first nine months of fiscal 1995 was due to the addition of new stores, primarily by NordicAdvantage. Direct response and mail order sales decreased by $11.6 million during the third quarter of fiscal 1995 to $84.5 million, or 12.1%, over the third quarter of fiscal 1994. For the first nine months of fiscal 1995, direct response and mail order sales increased by $1.5 million to $269.8 million, or 0.6%, over the first nine months of fiscal 1994. The decrease in direct response and mail order sales during the third quarter of fiscal 1995 and the increase during the first nine months of fiscal 1995 was due primarily to direct response and mail order sales results at NordicTrack. Cost of goods sold increased from 33.5% and 34.5% of sales in the third quarter and first nine months of fiscal 1994, respectively, to 39.5% and 37.7% of sales in the third quarter and first nine months of fiscal 1995, respectively. The increase in cost of goods sold for the third quarter and first nine months of fiscal 1995 was due to several factors, including reduced manufacturing efficiencies, discontinuation of certain unprofitable products and writedowns of related surplus and obsolete inventories, higher refurbishment costs resulting from increased returns attributable to a recently introduced treadmill product, the results of a physical inventory at NordicTrack and higher markdowns recorded by The Nature Company as part of the strategy to re-merchandise The Nature Company concept. Selling, general and administrative expenses increased from 49.6% and 47.2% of sales in the third quarter and first nine months of fiscal 1994, respectively, to 61.6% and 51.9% of sales in the third quarter and first nine months of fiscal 1995, respectively. The increase in selling, general and administrative expenses for the third quarter and first nine months of fiscal 1995 was due primarily to fixed costs at NordicAdvantage and The Nature Company stores which experienced decreases in comparable store sales during the third quarter and first nine months of fiscal 1995 and reduced advertising efficiencies at NordicTrack. The Company earned net interest income of $0.1 million in the third quarter of fiscal 1995 compared to net interest expense of $0.5 million in the third quarter of fiscal 1994. During the first nine months of fiscal 1995, net interest expense decreased to $0.8 million, or 0.1% of sales, compared to net interest expense of $1.5 million, or 0.3% of sales, in the first nine months of fiscal 1994. The decrease in net interest expense during the third quarter and first nine months of fiscal 1995 was due primarily to higher interest rates earned on the Company's investments in money market mutual funds and higher interest expense attributable to Britches which has been accounted for as a discontinued operation in the accompanying consolidated condensed financial statements. The provision for income taxes as a percentage of pretax income increased from 36.1% in the first nine months of fiscal 1994 to 37.4% in the first nine months of fiscal 1995. The decrease in net income during the third quarter and first nine months of fiscal 1995 was due primarily to higher cost of goods sold and higher selling, general and administrative expenses at NordicTrack and The Nature Company and the loss from discontinued operations attributable to the decision to sell Britches. 11 12 During the third quarter of fiscal 1995, NordicTrack's sales increased by $4.1 million to $146.6 million, or 2.9%, over the third quarter of fiscal 1994 due to higher retail sales. Nordic Advantage's retail sales increased by $15.0 million, or 27.9%, from $53.8 million in the third quarter of fiscal 1994 to $68.8 million in the third quarter of fiscal 1995. Nordic Advantage's comparable store sales decreased 18.9% and 14.3% during the third quarter and first nine months of fiscal 1995, respectively. NordicTrack's direct response sales decreased by $10.9 million during the third quarter of fiscal 1995 to $77.8 million, or 12.3%, over the third quarter of fiscal 1994. During the first nine months of fiscal 1995, NordicTrack's sales increased by $46.8 million to $426.3 million, or 12.3%, over the first nine months of fiscal 1994. Nordic Advantage's retail sales increased $45.2 million, or 31.3%, from $144.5 million in the first nine months of fiscal 1994 to $189.7 million in the first nine months of fiscal 1995. During the first nine months of fiscal 1995, NordicTrack's direct response sales increased by $1.6 million to $236.6 million, or 0.7%, over the first nine months of fiscal 1994. The increase in retail sales at Nordic Advantage was due primarily to the opening of new stores. Nordic Advantage operated 114 stores at the end of the third quarter of fiscal 1995 compared to 75 stores at the end of the third quarter of fiscal 1994. The Nature Company segment includes The Nature Company, Smith & Hawken and two early stage retail concepts, Hear Music and Scientific Revolution. During the third quarter of fiscal 1995, The Nature Company segment's sales decreased by $1.4 million, or 4.1%, to $32.9 million over the third quarter of fiscal 1994. The Nature Company segment's retail sales decreased by $0.6 million, or 2.2%, to $26.3 million compared to $26.9 million during the third quarter of fiscal 1994. The Nature Company segment's comparable store sales decreased 19.0% and 7.0% during the third quarter and first nine months of fiscal 1995, respectively. At the end of the third quarter of fiscal 1995, The Nature Company segment operated 146 stores compared to 131 stores at the end of the third quarter of fiscal 1994. During the third quarter of fiscal 1995, The Nature Company segment's mail order sales decreased by $0.8 million to $6.6 million, or 10.8%, compared to $7.4 million during the third quarter of fiscal 1994. During the first nine months of fiscal 1995, The Nature Company segment's sales increased by $4.4 million to $161.4 million, or 2.8%, over the first nine months of fiscal 1994 due to the opening of new stores. The Nature Company segment's retail sales increased by $4.5 million, or 3.6%, to $128.2 million compared to $123.7 million in the first nine months of fiscal 1994 due to the opening of new stores. During the first nine months of fiscal 1995, The Nature Company segment's mail order sales decreased by $0.1 million, or 0.3%, to $33.2 million compared to $33.3 million during the first nine months of fiscal 1995. The Company does not own any securities covered by Statement of Financial Accounting Standards ("SFAS") No. 115. Adoption of SFAS No. 119 would not have a material effect on the Company's consolidated financial statements. Results of Discontinued Operations - ---------------------------------- During the third quarter of fiscal 1995, Britches' sales increased by $1.4 million, or 6.6% to $22.7 million compared to $21.3 million during the third quarter of fiscal 1994. During the first nine months of fiscal 1995, Britches' sales increased $10.1 million, or 11.1% to $100.9 million compared to $90.8 million in the first nine months of fiscal 1994. Britches' comparable store sales decreased 9.4% and 7.0% during the third quarter and first nine months of fiscal 1995, respectively. The Company expects the negative trend in comparable store sales will continue. The Company intends to fund Britches' seasonal requirements, capital expenditures and operating losses to the sale date. Cash proceeds from the sale of Britches may be used to paydown seasonal bank debt, fund the Company's continuing businesses or to purchase additional common stock or convertible debentures. 12 13 PART II: OTHER INFORMATION Item 1: Legal Proceedings. Environmental Matters --------------------- Note 4 of Notes to Consolidated Condensed Financial Statements in Item 1 of Part I hereof is hereby incorporated by reference for information concerning environmental matters. Litigation ---------- In October 1992, The Nature Company filed a lawsuit against Natural Wonders, Inc. in the United States District Court for the Northern District of California seeking damages and injunctive relief to remedy alleged false representations, intellectual property infringement and unfair competition by Natural Wonders. In November 1992, Natural Wonders responded by filing counterclaims against The Nature Company alleging unfair competition, interference with Natural Wonders' contractual relations and prospective business advantage in violation of state and federal antitrust laws, and seeking damages treble the amount to be proved at trial. This lawsuit was settled favorably during the third quarter of fiscal 1995. On October 25, 1994, four stockholders, owning an aggregate of 2,400 shares of CML Group, Inc. Common Stock, filed a class action lawsuit in the U.S. District Court for the District of Massachu- setts against the Company and its Chairman, Charles M. Leighton, and President, G. Robert Tod. The complaint alleged that the Com- pany failed to properly disclose the extent of its NordicTrack advertising expenditures and the impact of those expenditures on its future operating results, thereby violating federal securities laws. On December 19, 1994, the defendants filed a motion to dismiss the complaint, and on April 7, 1995, the plaintiffs responded by filing an Amended Complaint which added an allegation that Messrs. Leighton and Tod violated the securities laws by selling CML stock in the spring of 1994. The Company believes the Amended Complaint is without merit and intends to vigorously contest the lawsuit. In April 1995, the defendants filed a motion which is currently pending before the Court to dismiss this lawsuit. The Company is involved in various other legal proceedings which have arisen in the ordinary course of business. Management believes the outcome of such proceedings will not have a material adverse impact on the Company's financial condition or results of operations. 13 14 Items 2-5: None. Item 6: Exhibits and Reports on Form 8-K. (a) Exhibits - See Exhibit Index. (b) Reports on Form 8-K: None. 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. CML GROUP, INC. --------------- (Registrant) Date: June 13, 1995 /s/Glenn E. Davis ------------- ----------------- Glenn E. Davis Vice President and Controller (Principal Accounting Officer) 14 15 EXHIBIT INDEX
Page No. ------- 11 -- Statement Regarding Computation of Earnings Per Share 16 27 -- Financial Data Schedule 17
15 EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 Exhibit 11 ---------- CML GROUP, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE
Third Quarter Nine Months ------------- ----------- 1995 1994 1995 1994 ---- ---- ---- ---- Primary earnings (loss) per share: Weighted average number of shares outstanding: Common 49,536,857 50,512,151 49,795,869 50,571,798 Shares deemed outstanding from the assumed exercise of stock options and from deferred compensation awards 680,142 1,042,153 769,933 1,209,823 ------------ ----------- ----------- ----------- Total 50,216,999 51,554,304 50,565,802 51,781,621 ============ =========== =========== =========== Net income $(39,630,000) $17,062,000 $ 2,929,000 $62,505,000 ============ =========== =========== =========== Primary earnings (loss) per share ($0.80) $0.33 $0.06 $1.21 ====== ===== ===== ===== Fully diluted earnings (loss) per share: Weighted average number of shares outstanding, as above 50,216,999 51,554,304 50,565,802 51,781,621 Shares deemed outstanding from the assumed conversion of convertible subordinated debentures 1,743,667 2,218,649 2,024,256 2,218,649 Additional shares deemed outstanding from the assumed exercise of stock options -- -- 2,642 33,683 ------------ ----------- ----------- ----------- Total 51,960,666 53,772,953 52,592,700 54,033,953 ============ =========== =========== =========== Additional income from the elimination of the interest cost of the convertible subord- inated debentures, net of income tax effect $411,000 $543,000 $1,442,000 $1,563,000 Fully diluted earnings (loss) per share ($0.80) $0.33 $0.06 $1.19 ====== ===== ===== =====
16 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF CML GROUP, INC. FOR THE NINE MONTHS ENDED APRIL 29, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 U.S. DOLLARS 9-MOS JUL-31-1995 AUG-01-1994 APR-29-1995 1 15,252,000 0 66,375,000 2,970,000 70,127,000 210,851,000 176,761,000 62,610,000 355,076,000 86,055,000 41,593,000 5,200,000 0 0 242,777,000 355,076,000 587,715,000 587,715,000 221,280,000 221,280,000 0 5,224,000 806,000 60,312,000 22,557,000 37,755,000 (37,024,000) 2,198,000 0 2,929,000 .06 .06
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