-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Np8Ar3yX8NT/OxmfS+oo4Q/R5FdZyUNZ8HGClDT6LU5OERcLr2OqGdjK2KkRvziX b9G562hOqMGe7MANXJWnqw== 0000950135-95-002261.txt : 19951031 0000950135-95-002261.hdr.sgml : 19951031 ACCESSION NUMBER: 0000950135-95-002261 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950731 FILED AS OF DATE: 19951030 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09630 FILM NUMBER: 95585411 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-K 1 CML GROUP, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (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 JULY 31, 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 incorporation (I.R.S. Employer or organization) Identification No.) 524 MAIN STREET, ACTON, MASSACHUSETTS 01720 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (508) 264-4155 Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange Title of each class on which registered ------------------- --------------------- Common Stock, $.10 par value New York Stock Exchange Preference Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None (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. [ ] The aggregate market value of voting Common Stock held by non-affiliates of the registrant was approximately $295,806,194 based on the closing price of the Common Stock as reported on the New York Stock Exchange on October 18, 1995. Number of shares of Common Stock outstanding as of October 18, 1995: 49,324,691 shares. Page 1 of 48 Pages Exhibit Index Begins at Page 41 2 Documents Incorporated by Reference
Part of Report into Documents which Incorporated --------- ------------------- Portions of Proxy Statement for the Items 10, 11, 12 & 13 of Annual Meeting of Stockholders to be Part III held December 1, 1995 to be filed with the Securities and Exchange Commission on or about November 2, 1995 pursuant to Reg. 240.14a-6(b) under the Securities Exchange Act of 1934.
2 3 PART I Item 1. Business -------- CML Group, Inc. (the "Company" or "CML") was incorporated under the laws of the State of Delaware in 1969. Unless the context otherwise requires, the term "Company" as used herein includes CML and its subsidiaries. CML Group, Inc. is a specialty marketing company offering: (i) physical fitness and exercise equipment and other health-related products and (ii) nature-, gardening-, music- and science-related gifts and accessories. The Company markets its products primarily through direct response advertising in print and on television, through its mail order catalogs and through its own specialty retail stores and kiosks. At July 31, 1995, the Company operated 263 retail stores (excluding 113 stores operated by Britches of Georgetowne) and 90 mall kiosks and had proprietary mail order customer lists containing approximately 3 million names. The Company's principal specialty retailing operations are conducted under the trade names NordicTrack(R), NordicAdvantage(TM), The Nature Company(TM), Smith & Hawken(R) and Hear Music. As part of its strategy to focus its resources on businesses which have the greatest growth prospects and offer the greatest potential return on investment, the Company decided during fiscal 1995 to sell its men's apparel subsidiary, Britches of Georgetowne ("Britches"). Britches conducts its operations under the trade names Britches of Georgetowne(R) and Britches Great Outdoors(TM). Although the Company has retained an investment banking firm to assist in the sale of the subsidiary, no assurance can be given that a sale will occur. See Note 3 of Notes to Consolidated Financial Statements for additional information. On February 25, 1993, the Company acquired certain assets and assumed certain liabilities of the gardening business of Smith & Hawken, Ltd., a specialty retailer of gardening products and accessories located in Mill Valley, California. See Note 2 of Notes to Consolidated Financial Statements for additional information. During fiscal 1992, the Company decided to sell certain parts of its Britches for Women and Mason & Sullivan divisions and to liquidate the remaining assets and liabilities. CML's continuing operations consist of four subsidiaries operating in two industry segments: (i) NordicTrack designs, manufactures and markets high quality aerobic and anaerobic exercise equipment to consumers primarily through direct response advertising in print and on television, its own mail order catalogs and retail stores and kiosks operated by its wholly-owned subsidiary, NordicAdvantage and (ii) the Nature Company segment ("NC Segment") includes The Nature Company which markets a wide range of products that enhance observation, understanding and appreciation of nature through its own retail stores and catalogs; Smith & Hawken, a leading marketer of gardening tools, plants and accessories, acquired in February 1993; and an early stage retail concept, Hear Music that sells music-related merchandise through its own retail stores. 3 4 Information on the Company's industry segments is presented in Note 11 - Industry Segments of Notes to Consolidated Financial Statements. For the fiscal year ended July 31, 1995, approximately 55.1% of the Company's total revenues from continuing operations were derived from retail stores and mall kiosks compared to approximately 49.7% in fiscal 1994 and 46.8% in fiscal 1993. In fiscal 1995, direct response and mail order sales accounted for approximately 44.9% of total revenues compared to 50.3% in fiscal 1994 and 53.2% in fiscal 1993. NordicTrack - ----------- NordicTrack designs, manufactures and markets high quality aerobic and anaerobic exercise equipment to consumers primarily through direct response advertising in print and on television and through its own mail order catalogs. NordicTrack also sells its products to its wholly-owned subsidiary, NordicAdvantage which operates specialty retail stores and kiosks located primarily in the United States and Canada. NordicTrack's products are designed to provide efficient, non-jarring exercise at home. NordicTrack's principal aerobic products consist of several models of cross country ski exercisers at prices ranging from $300 to $1,500, several models of a non-motorized treadmill product marketed under the WalkFit(TM) tradename at prices ranging from $400 to $600 and a rider product marketed under the NordicRider(TM) tradename at a price of $300. NordicTrack introduced its first cross country ski exerciser in 1976, the WalkFit treadmill in November 1993 and the NordicRider in October 1995. NordicTrack's cross country ski exercisers utilize a flywheel mechanism which, in conjunction with an upper body resistance mechanism, replicates the non-jarring motion of cross country skiing and provides a complete upper and lower body workout. NordicTrack's principal anaerobic product, the NordicFlex Gold(TM), was introduced in December 1991. The NordicFlex Gold, which sells for $800, incorporates a unique isokinetic resistance device which provides resistance in relation to the force exerted. The NordicFlex Gold provides users with the upper and lower body exercise needed to maintain strength, tone and flexibility, and allows the user to tailor an individual fitness program with 32 different exercises. During fiscal 1995, approximately 45.3% of NordicTrack's net sales was derived from NordicAdvantage's retail operations, and the remaining 54.7% was derived from its direct response and mail order operations. NordicAdvantage opened 26 retail stores during fiscal 1995 compared to 41 and 29 stores opened during fiscal 1994 and 1993, respectively. At the end of fiscal 1995, NordicAdvantage operated 114 stores compared to 88 stores at July 31, 1994 and 47 stores at July 31, 1993. NordicAdvantage plans to open approximately 20 stores during fiscal 1996. These stores, which vary in size from 936 to 4,303 square feet and average approximately 1,724 square feet in size, are generally located in high traffic urban and suburban malls in affluent areas and in discount outlet malls. A portion of NordicAdvantage's retail sales comes from seasonal kiosks which are open for only a portion of the year. The stores and kiosks have allowed NordicAdvantage to reach that portion of the fitness market which does not traditionally purchase by direct response or mail order. NordicTrack operates a retail store in Germany and a retail store, kiosk and marketing facility in the United Kingdom. To date, international sales have not been significant. 4 5 NordicTrack's operations, including personnel, stores, purchasing, manufacturing, distribution, order fulfillment, accounting and management information systems, are separate and distinct from the Company's other operations. The Nature Company Segment - -------------------------- The NC Segment includes The Nature Company which creates, sources and sells products that enhance the observation, understanding and appreciation of the natural world; Smith & Hawken, a leading marketer of gardening tools, plants and accessories, acquired in February 1993; and an early stage retail concept, Hear Music which sells music-related merchandise. The Nature Company's merchandise categories include books, gifts, children's educational toys, music, clothing, accessories, backyard and garden items, minerals, sculpture, posters, optics, paper products, instruments, nature video and audio tapes and CD-ROM's, and limited edition prints. Smith & Hawken's merchandise categories include garden furniture, gardening tools, plants, garden-related accessories, books, housewares and gifts and clothing. Hear Music sells a limited selection of compact discs and tapes targeted primarily at customers older than those targeted by most music stores. During fiscal 1995, approximately 78.8% of the NC Segment's sales was derived from its retail operations, and the remaining 21.2% was derived from its mail order operations. The NC Segment opened 15 stores during fiscal 1995 compared to 22 stores opened during fiscal 1994. At the end of fiscal 1995, the NC Segment operated 148 stores compared to 133 stores at the end of fiscal 1994. The segment's retail stores, which vary in size from 1,290 square feet to 7,649 square feet and average 3,032 square feet, are located in tourist festival marketplaces, high traffic urban and suburban malls in affluent areas and affluent main street areas in the United States and Canada and the United Kingdom. The NC Segment plans to open approximately 12 stores during fiscal 1996. The NC Segment mailed approximately 26 million catalogs during fiscal 1995 and generated $44.2 million in total mail-order revenues in fiscal 1995. The companies included in the NC Segment currently share real estate services, order processing services, fulfillment and distribution services and management information services and systems. The NC Segment's operations, including personnel, stores, purchasing, merchandising, distribution, order fulfillment, accounting and management information systems, are separate and distinct from the Company's other industry segment. Britches for Men - ---------------- During fiscal 1995, the Company decided to sell its men's apparel subsidiary, Britches of Georgetowne. Britches sells men's sportswear and casual outdoor clothing, designed for casual weekend living, through stores in urban and suburban locations primarily in the mid-Atlantic, the northeast, upper midwest and southeastern states and Washington, D.C. operating under the trade name Britches Great Outdoors ("BGO"). Britches also sells men's tailored professional clothing through stores concentrated in the mid-Atlantic and southeastern states and Washington, D.C. operating under the trade name Britches of Georgetowne ("BGT"). Merchandise sold by BGT consists primarily of tailored natural fiber suits, sport coats, trousers, shirts and neckties with traditional yet fashion-forward styling. BGO stores are located in university towns, high traffic malls and main street areas in affluent urban and suburban areas. BGO stores vary in size from 2,075 square feet to 7,254 square feet and average 3,506 square feet. Britches opened 16 new BGO stores during fiscal 5 6 1995 compared to 27 BGO stores opened during fiscal 1994. At the end of fiscal 1995, Britches operated 99 BGO stores compared to 83 stores at the end of fiscal 1994. The Company plans to open 3 BGO stores during fiscal 1996. BGT stores, which vary in size from 3,114 square feet to 7,536 square feet and average 5,111 square feet, are primarily located in major high traffic shopping malls and main street areas in affluent urban and suburban areas. Britches operated 14 BGT stores at July 31, 1995 and 1994. The Company does not plan to open or close any BGT stores during fiscal 1996. Britches' operations, including personnel, stores, purchasing, merchandising, distribution, order fulfillment, accounting and management information systems, are separate and distinct from the Company's other operations. Trade Names - ----------- The Company believes that the names under which it conducts its business are of significant value because they are established, well-known and respected. Shown below are the Company's principal trade names and trademarks and the estimated number of years in existence:
Principal Trade Names Years in and Trademarks Existence --------------------- --------- NordicTrack(R) Over 18 NordicAdvantage, Inc. (TM) Over 4 The Nature Company(TM) Over 15 Smith & Hawken(R) Over 10 Hear Music Over 4 Britches Great Outdoors(TM) Over 20 Britches of Georgetowne(R) Over 25
Distribution - ------------ NordicTrack's products are manufactured principally at its Glencoe, Minnesota production facility and shipped from that facility to its direct response customers. NordicTrack also sells certain products to its wholly- owned subsidiary, NordicAdvantage, which resells the products through its retail stores and kiosks. The NC Segment's products are shipped by its suppliers to its distribution center in Florence, Kentucky and reshipped by the NC Segment to stock its retail stores and to fill its mail orders. Britches' products are shipped by its suppliers to its distribution center in Herndon, Virginia, from which Britches supplies its retail stores. 6 7 Suppliers - --------- The Company has many domestic and foreign suppliers, none of which accounts for more than 10% of its purchases. Generally, the Company is not dependent upon any single source for any raw materials or items of merchandise. Each specialty retailing operation generally contracts with one or more printers and paper suppliers for its direct response and mail order catalogs. Manufacturing - ------------- The Company's principal manufacturing activity consists of the production of NordicTrack physical fitness exercise equipment, primarily at two facilities comprising approximately 345,000 square feet located in the cities of Glencoe and Belle Plaine, Minnesota. The materials required for the Company's manufacturing operations are generally available from a wide variety of suppliers. Competition - ----------- The markets in which the Company is engaged are highly competitive. NordicTrack competes with several companies which design, manufacture and distribute physical fitness and exercise equipment, including ICON, Inc., Road Master Industries, Inc., Diversified Products Corp., Health Rider, Inc., Soloflex, Inc. and Consumer Direct, Inc. During the past five years, NordicTrack's competitors have introduced several new and competitive products at competitive prices. Many of the competitors of The Nature Company, Smith & Hawken and Hear Music are larger companies with greater financial resources, a greater selection of merchandise and nationwide distribution, including a large number and wide variety of specialty retail stores, discount stores and department stores. The Nature Company primarily competes with Natural Wonders, Inc., a large specialty retailer located in the San Francisco Bay Area with retail stores throughout the United States and with smaller specialty retailers in local markets selling clothing, educational toys for children, books, posters and other similar items. In addition, The Nature Company competes with other companies with mail order catalogs and retail stores that sell items similar to those sold by The Nature Company. These competitors include department stores, book stores, jewelry stores, clothing stores and outdoor stores. Smith & Hawken competes with mail order catalogs which sell gardening-related merchandise such as Gardener's Eden, David Kay, Calyx & Corolla and Gardener's Supply. Smith & Hawken also competes with independent garden stores and plant nurseries in towns and cities throughout the United States. Hear Music competes with larger companies selling pre-recorded music on compact discs and tapes which have greater financial resources, a greater selection of merchandise and nationwide distribution. Hear Music also competes with smaller local and regional music stores. The men's tailored professional clothing and sportswear and casual wear businesses are highly competitive. BGT and BGO compete with larger companies with greater financial resources, a greater selection of merchandise and nationwide distribution. BGT's competitors include but are not limited to Nordstrom and Brooks Brothers. BGO's competitors include but are not limited to Eddie Bauer, L.L. Bean, J. Crew, The Gap, Banana Republic, Structure, 7 8 Abercrombie and Fitch and Land's End. BGT and BGO also compete with smaller, generally regional specialty stores. Competition in the direct response and mail order business has intensified in recent years due to increases in the number of competitors, the number of catalogs mailed and the number of competitors using direct response advertisements in both print and television media. Seasonality - ----------- The Company's businesses are seasonal with significant amounts of retail sales in the second and third fiscal quarters. The following table shows the approximate percentage of consolidated sales from continuing operations in each quarter of fiscal 1995:
Percentage Fiscal Quarter Ended of Sales -------------------- -------- October 18% January 39% April 25% July 18% ---- Total 100% ====
Working Capital Requirements - ---------------------------- Inventory purchases represent the most significant use of working capital. The Company believes that its working capital requirements follow the seasonal patterns of other companies operating within its industry segments. Inventory represented approximately 42% and 52% of the Company's working capital assets, excluding cash and cash equivalents and net assets of business held for sale, at July 31, 1995 and 1994, respectively. Inventory purchases are based on future anticipated sales and typically reach their highest levels of the year in the fall in anticipation of the Christmas holiday season. Backlog, Contracts and Research - ------------------------------- Backlog is not a significant factor in the Company's business. The Company does not have any material contracts which are subject to renegotiation. The Company's research and development activities primarily consist of the design and development of new products and the improvement of existing products at NordicTrack, The Nature Company and Smith & Hawken. Environmental Matters - --------------------- On June 3, 1991, the Company received from the United States Environmental Protection Agency ("EPA") a Special Notice Letter 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 8 9 Superfund site includes a vacant parcel of land owned by a subsidiary of the Company as well as adjoining property owned by a third party. 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 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 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 begun to implement the groundwater phase of the cleanup, which the EPA originally estimated would cost approximately $4.0 million. The Company believes that the EPA's estimated cost for cleanup, including the proposed remedial actions, is excessive and involves unnecessary actions. In addition, a portion of the proposed 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 the Company's former Boston Whaler 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. Employees - --------- During fiscal 1995, the Company employed, on average, approximately 6,800 people, including full-time, part-time and seasonal employees. The Company from time to time employs a large number of part-time employees because of the seasonality of the Company's sales. The Company considers its employee relations to be good. 9 10 Foreign and Domestic Operations - ------------------------------- To date, international sales, licensing revenues and export sales have accounted for less than five percent of the Company's total annual sales. The Company's NordicTrack subsidiary operates a retail store in Germany and a retail store, kiosk and marketing facility in the United Kingdom. The Nature Company has licensed the right to use its name and trademarks and generally to copy its design concept, trade dress and merchandise to a licensee in Japan. At July 31, 1995, the Japanese licensee operated 11 retail stores. Sales between the Company's operating units are not significant. Item 2. Properties ---------- Most of the Company's facilities, including its retail stores, are leased from third parties. However, its principal NordicTrack manufacturing, administrative and telemarketing facilities are owned by the Company. The Company also owns its corporate offices in Acton, Massachusetts. Shown below is a summary of the Company's principal facilities at July 31, 1995, excluding Britches of Georgetowne.
Square Feet ----------------------------- Owned Leased Total ------- ----------- --------- Distribution Facilities for Direct Response, Mail Order and Retail Operations 85,500 421,500 507,000 Retail Selling Space 8,958 648,027 656,985 Manufacturing Space 206,500 45,000 251,500 Office and Administrative Space 226,500 85,000 311,500 ------- --------- --------- Total 527,458 1,199,527 1,726,985 ======= ========= =========
The leases covering the Company's distribution and manufacturing facilities expire at various dates over the next 15 years. Most of the retail store leases have initial terms ranging from five to ten years, with options to renew in certain cases. Retail store leases generally provide for a minimum or base rent; additional expenses for common area maintenance charges and additional rent calculated as a percentage of sales in excess of specified levels. Rental expense under all leases for fiscal 1995 was approximately $47.4 million. For additional information regarding the Company's lease obligations, see Note 8- Commitments and Contingencies of Notes to Consolidated Financial Statements. 10 11 Item 3. Legal Proceedings ----------------- In May 1994, ICON, Inc. commenced a civil suit against NordicTrack in the United States District Court for the District of Utah alleging infringement of three patents of ICON, Inc. arising out of NordicTrack's design of its WalkFit treadmill and certain other similar products. Discovery is nearly complete and NordicTrack's motion for summary judgement is currently pending before the court. In January 1995, an individual, William Wilkinson, filed a demand for arbitration and statement of claim alleging that NordicTrack breached the terms of a licensing and product development agreement by failing to compensate him with royalties for certain design features of its WalkFit treadmill and certain similar products. This case is still in the discovery stage. The results of an arbitration hearing scheduled for early December 1995 in Chicago, Illinois will be binding on both parties. While the Company believes it has meritorious defenses, no assurance can be given of a favorable outcome in either the ICON lawsuit or the Wilkinson claim. An unfavorable outcome in both matters could have a material adverse effect on the Company's financial condition. An unfavorable decision in either matter could also adversely affect the operating results for the period or periods in which such decision occurs. 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 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 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. 11 12 Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended July 31, 1995. Executive Officers of the Company - --------------------------------- The executive officers of the Company are as follows:
Name Age Position ---- --- -------- Charles M. Leighton 60 Chairman of the Board of Directors and Chief Executive Officer G. Robert Tod 56 President, Chief Operating Officer and Director Robert J. Samuelson 42 Senior Vice President, Chief Financial Officer Glenn E. Davis 41 Vice President and Controller
Mr. Leighton, a founder of the Company, has been Chairman of the Board of Directors and Chief Executive Officer since the incorporation of the Company in 1969. Mr. Leighton is a director of The New England and New England Investment Companies, Inc. Mr. Tod, a founder of the Company, has been a member of the Board of Directors and President and Chief Operating Officer since the incorporation of the Company in 1969. Mr. Tod is a director of SCI Systems, Inc. and EG&G, Inc. Mr. Samuelson has been Senior Vice President and Chief Financial Officer since November 1989. From September 1988 to November 1989 he was Vice President, Corporate Development. Mr. Samuelson is a director of Duracraft, Inc. Mr. Davis has been Controller of the Company since May 1984 and a Vice President since November 1989. 12 13 PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters -------------------------------------------------------------------- The Company's common stock is traded on the New York Stock Exchange under the symbol "CML". The following table sets forth for the fiscal periods indicated the high and low sales prices per share of the Common Stock as reported on the New York Stock Exchange.
Fiscal 1995 Fiscal 1994 ----------- ----------- Quarter High Low High Low ------- ---- --- ---- --- First $11.88 $8.88 $32.38 $19.33 Second 11.38 9.50 32.12 16.75 Third 10.75 7.00 22.50 13.50 Fourth 9.12 7.00 15.12 8.50
The Company declared cash dividends of $0.09 and $0.08 per share on its Common Stock during fiscal 1995 and fiscal 1994, respectively. The number of shareholders of record of the Company's Common Stock as of October 6, 1994 was 6,032.
Item 6. Selected Financial Data ----------------------- (in thousands, except per share data) Year Ended July 31, --------------------- 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- Net sales $712,613 $655,791 $539,992 $386,646 $229,529 Income from continuing operations before extra- ordinary gain and cumulative effect of accounting change 15,906 50,563 56,072 41,408 21,812 Income per share from continuing operations before extra- ordinary gain and cumulative effect of accounting change 0.32 0.98 1.07 0.80 0.49 Cash dividends declared per share 0.09 0.08 0.06 0.03 -- Working capital 116,533 103,742 101,191 26,456 16,923 Total assets 340,081 384,663 340,171 218,806 163,734 Noncurrent liabilities 69,021 84,356 80,719 25,431 72,462 Stockholders' equity 188,552 219,237 184,250 130,017 49,678
13 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. --------------------------------------------------------------- INTRODUCTION During 1995, in order to focus its resources on businesses which offer the greatest growth prospects and highest rates of return on investment, the Company decided to sell its Britches of Georgetowne subsidiary ("Britches") and has accounted for Britches as a discontinued operation in the accompanying consolidated financial statements. The Company's continuing operations encompass two industry segments: (i) NordicTrack markets physical fitness and exercise equipment and other health-related products through direct response advertising in print and on television and through specialty stores and kiosks operated by its wholly-owned subsidiary, NordicAdvantage and (ii) The Nature Company segment includes The Nature Company which markets a wide range of products through catalogs and its own retail stores that enhance the observation, understanding and appreciation of nature; Smith & Hawken, a leading marketer of gardening tools, plants and accessories, acquired in February 1993; and Hear Music, an early stage retail concept that sells music-related merchandise. Industry segment information is presented in Note 11 of Notes to Consolidated Financial Statements. RESULTS OF CONTINUING OPERATIONS - FISCAL 1995 AND 1994 CML Consolidated Net sales increased by $56.8 million to $712.6 million, or 8.7% over 1994. Income from continuing operations was $15.9 million in 1995 compared to $50.6 million in 1994, a decrease of 68.5%. Retail store sales increased by $66.9 million to $392.9 million, or 20.5%, over 1994. The increase in retail store sales was primarily attributable to new stores at NordicAdvantage, Smith & Hawken and Hear Music. During 1995, NordicAdvantage, The Nature Company, Smith & Hawken and Hear Music opened 26, 1, 9 and 5 new stores, respectively. The percentage of the Company's total sales derived from retail store sales increased to 55.1% in 1995 from 49.7% in 1994 primarily due to the opening of new retail stores. Direct response and mail order sales in 1995 decreased $10.1 million, or 3.1% , over the prior year to $319.7 million. The decrease in direct response and mail order sales was primarily attributable to lower direct response sales at NordicTrack partially offset by higher mail order sales within The Nature Company segment. The Company expects future sales growth will primarily result from a growth in retail sales due to the opening of NordicAdvantage and Smith & Hawken stores. The Company's international operations were not significant during 1995 and are not expected to be significant for the next several years. Cost of goods sold increased as a percentage of sales from 35.9% in 1994 to 39.8% in 1995. Selling, general and administrative expenses increased as a percentage of sales from 51.8% in 1994 to 56.5% in 1995. The increase in cost of goods sold as a percentage of sales was primarily due to the re-design or discontinuation of certain unprofitable products and writedowns of related surplus and obsolete inventories, high refurbishment costs resulting from the increased returns of a treadmill product introduced during 1995 and higher markdowns recorded by The Nature Company segment as part of a strategy to re-merchandise The Nature Company concept. The increase in selling, general and administrative expenses as a percentage of sales was primarily due to higher direct marketing expenses and reduced advertising efficiencies at NordicTrack, fixed costs at stores which experienced a decrease in comparable store sales during 1995 and costs resulting from organizational changes at NordicTrack and The Nature Company. Interest expense decreased to $1.1 million, or 0.2% of sales, in 1995 compared to interest expense of $2.0 million, or 0.3% of sales in 1994. The decrease in interest expense was due 14 15 primarily to higher interest expense attributable to Britches which has been accounted for as a discontinued operation in the accompanying consolidated financial statements. The provision for income taxes increased as a percentage of pretax income from 36.1% in 1994 to 37.4% in 1995. NordicTrack Net sales increased from $455.6 million in 1994 to $504.1 million in 1995, or 10.6%. Retail store and kiosk sales increased $59.8 million, or 35.4%, to $228.6 million in 1995 compared to $168.8 million in 1994. Direct response and mail order sales decreased $11.3 million, or 3.9%, to $275.5 million in 1995 from $286.8 million in 1994. The increase in retail sales was primarily due to 26 new retail stores opened during 1995 and a greater number of kiosks. Comparable store sales decreased by 12.3% during 1995. During 1995, NordicTrack accounted for approximately 70.7% and over 100.0% of the Company's consolidated sales and operating income from continuing operations before corporate expenses, respectively. In 1994, approximately 69.5% of the Company's consolidated sales and 95.9% of the Company's consolidated operating income before corporate expenses were attributable to NordicTrack. NordicTrack's gross margin decreased to 64.9% in 1995 from 69.0% in 1994 primarily due to the re-design or discontinuation of certain unprofitable products and writedowns of related surplus and obsolete inventories and higher refurbishment costs resulting from increased returns of a treadmill product introduced during 1995. Selling, general and administrative expenses increased as a percentage of sales from 50.4% in 1994 to 55.7% in 1995 primarily due to higher direct marketing expenses, reduced advertising efficiencies, fixed costs at stores which experienced a decrease in comparable store sales during 1995 and costs resulting from organizational changes. NordicTrack's operating income decreased $38.5 million, or 45.4%, to $46.3 million in 1995 from $84.8 million in 1994. Operating income decreased as a percentage of sales from 18.6% in 1994 to 9.2% in 1995 due to lower gross margins and higher selling, general and administrative expenses. NordicTrack expects to continue opening new stores and developing and marketing new physical fitness exercise equipment and other related products. NordicTrack expects to spend approximately $14.0 million in 1996 for new retail stores and additional equipment for its manufacturing, distribution and telemarketing facilities. The Company believes that new stores opened in 1996 will, on average, contribute positively in 1996 and future years. The Nature Company Segment Net sales increased by 4.1% from $200.2 million in 1994 to $208.5 million in 1995 due to the opening of 15 new retail stores. Retail store sales increased $7.1 million, or 4.5%, to $164.3 million in 1995 compared to $157.2 million in 1994. Mail order sales increased $1.2 million to $44.2 million, or 2.8%, from $43.0 million in 1994 due to an increase in mail order sales at Smith & Hawken. Comparable store sales for The Nature Company segment decreased 7.5% during 1995. The Nature Company segment's gross margin decreased to 48.9% in 1995 from 53.2% in 1994 due to higher markdowns resulting from a strategy to re-merchandise The Nature Company concept. The Nature Company segment's selling, general and administrative expenses increased as a percentage of sales from 51.4% in 1994 to 55.2% in 1995 primarily due to fixed costs at stores which experienced a decrease in comparable store sales during 1995 and costs resulting from organizational changes at The Nature Company. The Nature Company segment incurred an operating loss of $13.2 million during 1995 compared with operating income of $3.6 million in 1994. The decrease in operating income was attributable primarily to lower gross margins and higher selling, general and administrative expenses. The Nature Company and Smith & Hawken expect to continue developing and marketing proprietary products. The Company also plans to continue testing its music and science concepts which are not expected to contribute significantly to the Company's overall results of operations for the next several years. The Nature Company segment expects to spend approximately $14.5 million in 1996 for new retail stores and additional equipment for 15 16 its data processing, distribution and telemarketing facilities. The Company believes that new stores opened in 1996 will, on average, contribute positively in 1996 and future years. RESULTS OF CONTINUING OPERATIONS - FISCAL 1994 AND 1993 CML Consolidated Net sales increased by $115.8 million to $655.8 million, or 21.4% over 1993. Income from continuing operations was $50.6 million in 1994 compared to $56.1 million in 1993, a decrease of 9.8%. Retail store sales in 1994 increased $73.1 million, or 28.9%, over 1993 to $326.0 million. The increase in retail store sales was attributable to new stores at NordicAdvantage and The Nature Company segment. During 1994, NordicTrack and The Nature Company segment opened 41 and 22 new stores, respectively. Direct response and mail order sales in 1994 increased $42.7 million, or 14.9%, over the prior year to $329.8 million. The increase in direct response and mail order sales was primarily attributable to higher direct response sales at NordicTrack and mail order sales at Smith & Hawken, acquired in February 1993. The percentage of the Company's total sales derived from direct response and mail order decreased to 50.3% in 1994 from 53.2% in 1993. Cost of goods sold decreased as a percentage of sales to 35.9% in 1994 from 36.9% in 1993. Selling, general and administrative expenses increased as a percentage of sales from 45.6% in 1993 to 51.8% in 1994. The decrease in cost of goods sold as a percentage of sales was primarily due to improved manufacturing efficiencies at NordicTrack and higher initial markons at The Nature Company. The increase in selling, general and administrative expenses as a percentage of sales was primarily due to higher advertising expenses at NordicTrack and lower sales at stores open more than a year. Interest expense increased $0.8 million, or 66.7%, from 1993 to $2.0 million in 1994 primarily due to the inclusion for an entire year of interest on the $57.5 million of 5-1/2% convertible subordinated debentures which were issued during 1993. Interest expense increased from 0.2% of sales in 1993 to 0.3% of sales in 1994. The provision for income taxes decreased as a percentage of pretax income from 39.8% in 1993 to 36.1% in 1994 primarily due to the carrryback to prior years of capital losses. NordicTrack Net sales increased from $377.8 million in 1993 to $455.6 million in 1994, or 20.6%. Retail store and kiosk sales increased $51.0 million, or 43.3%, to $168.8 million in 1994 compared to $117.8 million in 1993. Direct response and mail order sales increased $26.8 million or 10.3% to $286.8 million in 1994 from $260.0 million in 1993. The increase in retail sales was primarily due to the opening of 41 retail stores. Comparable store sales increased by 0.9% during 1994. In 1993, approximately 70.0% of the Company's consolidated sales and approximately 94.2% of the Company's consolidated operating income before corporate expenses were attributable to NordicTrack. NordicTrack's gross margin increased to 69.0% in 1994 from 68.3% in 1993 primarily due to increased manufacturing efficiencies and higher sales of established products. Selling, general and administrative expenses increased as a percentage of sales from 41.8% in 1993 to 50.4% in 1994 primarily due to higher advertising and other marketing expenses and costs associated with settlement of a lawsuit. Operating income decreased $15.4 million or 15.4% to $84.8 million in 1994 from $100.2 million in 1993. Operating income decreased as a percentage of sales from 26.5% in 1993 to 18.6% in 1994 due primarily to higher selling, general and administrative expenses. NordicTrack spent approximately $22.7 million on capital expenditures during 1994 primarily for new retail stores and additional manufacturing, distribution and telemarketing facilities and related equipment. The Nature Company Segment Net sales increased by 23.4% from $162.2 million in 1993 to $200.2 million in 1994 primarily due to the opening of 22 new retail stores and the inclusion of Smith & Hawken, 16 17 acquired in February 1993, for an entire year. Retail store sales increased $22.0 million or 16.3% to $157.2 million in 1994 compared to $135.2 million in 1993. Mail order sales increased $16.0 million to $43.0 million in 1994 from $27.0 million in 1993 primarily due to the inclusion of Smith & Hawken for an entire year. Comparable store sales decreased by 4.7% during 1994. The Nature Company segment's gross margin increased to 53.2% in 1994 from 51.0% in 1993 due to higher initial markons and higher sales of proprietary products which have higher gross margins. The Nature Company segment's selling, general and administrative expenses increased as a percentage of sales from 47.2% in 1993 to 51.4% in 1994 primarily due to fixed costs at stores which experienced a decrease in comparable store sales during 1994. Operating income decreased from $6.2 million, or 3.8% of sales, in 1993 to $3.6 million, or 1.8% of sales, in 1994 due to the increase in selling, general and administrative expenses. The Nature Company segment spent approximately $23.3 million on capital expenditures during 1994 primarily for new retail stores and data processing facilities and related equipment. LIQUIDITY Cash Flows from Operating Activities The Company has used internally generated funds, bank borrowings and proceeds from the sale of securities to finance its operations and growth. In 1995, net cash provided by operating activities was $30.6 million compared with $45.5 million in 1994 and $70.9 million in 1993. The decrease in 1995 was primarily due to lower operating results partially offset by higher depreciation and amortization. Depreciation and amortization has increased from $18.8 million in 1993 to $24.2 million in 1994 to $30.7 million in 1995 primarily as a result of the Company's investment in additional retail stores, manufacturing, distribution and data processing facilities. The loss on disposal of property, plant and equipment during 1995 of $4.5 million was primarily due to dispositions of equipment at NordicTrack and Britches. The Company's investment in working capital decreased $8.4 million in 1995 (before accounting for Britches as a discontinued operation) after increasing $34.7 million and $8.5 million in 1994 and 1993, respectively. Cash Flows from Investing Activities In 1995, net cash used in investing activities was $36.3 million compared with $61.0 million in 1994 and $59.6 million in 1993. Capital expenditures funded by the Company's operations were $36.3 million in 1995, $61.1 million in 1994 and $44.4 million in 1993. NordicTrack and The Nature Company segment spent approximately $11.9 million and $16.2 million, respectively, on capital expenditures during 1995 primarily for new retail stores and additional telemarketing and data processing facilities and related equipment. In February 1993, the Company acquired certain assets and assumed certain liabilities of the gardening business of Smith & Hawken, Ltd. for a net cash purchase price of $15.1 million. Cash Flows from Financing Activities The Company used $14.9 million and $19.6 million of cash for financing activities in 1995 and 1994, respectively, and generated $49.2 million of cash from financing activities in 1993. At July 31, 1995, $10.0 million was borrowed under the Company's revolving credit agreement to finance seasonal working capital requirements. The Company repurchased $8.4 million, $16.3 million and $4.4 million of its common stock in 1995, 1994 and 1993, respectively. During 1995, the Company spent $12.0 million to repurchase a portion of the $57.5 million of 5-1/2% convertible subordinated debentures which it issued during 1993. The Company repaid $1.2 million of an economic development loan during 1995. In addition, the Company increased the dividends paid on its common stock from $2.7 million in 1993 to $4.0 million in 1994 and $4.2 million in 1995. 17 18 Capital Resources During 1995, the Company amended its revolving credit agreement. The new agreement which expires July 31, 1997, provides for a revolving credit of $100.0 million through December 29, 1995 and $70.0 million thereafter. The agreement also provides for a reduction in the revolving credit commitment for net cash proceeds received from the sale of assets not in the ordinary course of business or the issuance of subordinated debt or equity securities. The Company believes a sale of its Britches subsidiary would have a positive effect on the Company's capital resources. At July 31, 1995, letters of credit totalling $19.8 million and advances totalling $10.0 million were outstanding under the agreement. Total bank borrowings averaged $4.1 million during 1995 and $8.0 million during 1993. The Company did not borrow under the revolving credit agreement during 1994. See Note 4 of Notes to Consolidated Financial Statements for additional information on long-term debt. The Company believes that internally generated funds, available bank lines of credit and proceeds from the sale of certain assets, including Britches, will be sufficient to meet its current and long-term operating needs and anticipated capital expenditures. Inflation has not had a significant effect on the Company's operations. The Company is involved in various legal proceedings and claims and two former subsidiaries of the Company are involved in two separate environmental matters. See Note 8 of Notes to Consolidated Financial Statements for additional information on commitments and contingencies. The Company plans to adopt Statement of Financial Accounting Standard ("SFAS") No. 121 in 1996. The Company does not expect SFAS No. 121 will have a significant effect on its consolidated financial statements. 18 19 Item 8. Financial Statements and Supplementary Data. -------------------------------------------- See Index to the Company's Financial Statements and the accompanying financial statements, notes and schedules which are filed as part of this Form 10-K following the signature page. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. --------------------------------------------------------------- Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant. --------------------------------------------------- The response to this item is contained in part under the caption "Executive Officers of the Company" in Part I hereof, and the remainder is incorporated by reference to the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on December 1, 1995 (the "1995 Proxy Statement") at "Election of Directors." Item 11. Executive Compensation. ----------------------- The response to this item is incorporated herein by reference to the Company's 1995 Proxy Statement at "Election of Directors,""Compensation Committee Report on Executive Compensation,""Compensation Committee Interlocks and Insider Participation,""Summary Compensation,""Stock Option Grants,""Year-End Option Table" and "Comparative Stock Performance." Item 12. Security Ownership of Certain Beneficial Owners and Management. --------------------------------------------------------------- The response to this item is incorporated herein by reference to the Company's 1995 Proxy Statement at "Security Ownership of Certain Beneficial Owners and Management." Item 13. Certain Relationships and Related Transactions. ----------------------------------------------- The response to this item is incorporated herein by reference to the Company's 1995 Proxy Statement at "Election of Directors -- Certain Transactions." 19 20 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. ----------------------------------------------------------------- (a) Documents filed as a part of this Form 10-K. -------------------------------------------- 1. FINANCIAL STATEMENTS. The Financial Statements listed in the Index to Financial Statements and Financial Statement Schedules are filed as part of this Annual Report on Form 10-K. 2. FINANCIAL STATEMENT SCHEDULE. The Financial Statement Schedule listed in the Index to Financial Statements and Financial Statement Schedule is filed as part of this Annual Report on Form 10-K. 3. EXHIBITS. The Exhibits listed in the Exhibit Index immediately preceding such Exhibits are filed as part of this Annual Report on Form 10-K. (b) Reports on Form 8-K. -------------------- None. 20 21 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. CML GROUP, INC. By: /s/Charles M. Leighton ------------------------------------ Charles M. Leighton Chairman and Chief Executive Officer Date: October 30, 1995 ------------------------------------ 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 and on the dates indicated.
Name Title Date - ---------------------- ------------------------------- -------------------- Chairman of the Board of ) Directors and Chief Executive ) /s/Charles M. Leighton Officer (Principal Executive ) - ----------------------- Officer) ) Charles M. Leighton ) ) Senior Vice President and ) /s/Robert J. Samuelson Chief Financial Officer ) - ----------------------- (Principal Financial Officer) ) Robert J. Samuelson ) ) /s/Glenn E. Davis Vice President and Controller ) - ----------------------- (Principal Accounting Officer) ) Glenn E. Davis ) ) /s/G. Robert Tod President, Chief Operating ) October 30, 1995 - ----------------------- Officer and Director ) G. Robert Tod ) ) /s/Howard H. Callaway Director ) - ----------------------- ) Howard H. Callaway ) ) Director ) - ----------------------- ) Thomas H. Lenagh ) ) /s/Homer L. Luther, Jr. Director ) - ----------------------- ) Homer L. Luther, Jr. ) ) Director ) - ----------------------- ) Roy W. Menninger, MD ) ) /s/Alison Taunton-Rigby Director ) - ----------------------- ) Alison Taunton-Rigby ) ) /s/Lauren M. Tyler Director ) - ----------------------- ) Lauren M. Tyler ) ) /s/Ralph F. Verni Director ) - ----------------------- ) Ralph F. Verni )
21 22 INDEX TO FINANCIAL STATEMENTS, SUPPLEMENTARY DATA AND FINANCIAL STATEMENT SCHEDULE OF CML GROUP, INC.
Page No. -------- Financial Statements: Independent Auditors' Report 23 Consolidated Statements of Operations - Years Ended July 31, 1995, 1994 and 1993 24 Consolidated Balance Sheets - July 31, 1995 and July 31, 1994 25-26 Consolidated Statements of Cash Flows - Years Ended July 31, 1995, 1994 and 1993 27-28 Consolidated Statements of Changes in Stockholders' Equity - Years Ended July 31, 1995, 1994 and 1993 29 Notes to Consolidated Financial Statements 30-38 Supplementary Data: Selected Quarterly Financial Data 39 Financial Statement Schedule: Schedule II - Valuation and Qualifying Accounts 40
All other schedules are omitted because they are either not applicable or the required information is included in the financial statements or notes thereto. 22 23 INDEPENDENT AUDITORS' REPORT ---------------------------- To the Stockholders and Directors of CML Group, Inc.: We have audited the accompanying consolidated balance sheets of CML Group, Inc. and its subsidiaries as of July 31, 1995 and 1994, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended July 31, 1995. Our audits also included the financial statement schedule listed in the Index at Item 14. These financial statements and the financial statement schedule are the responsibility of the management of CML Group, Inc. Our responsibility is to express an opinion on the financial statements and the financial statement schedule 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, such consolidated financial statements present fairly, in all material respects, the financial position of CML Group, Inc. and its subsidiaries at July 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended July 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ DELOITTE & TOUCHE LLP Boston, Massachusetts September 27, 1995 23 24 CML Group, Inc. and Subsidiaries Consolidated Statements of Operations
Year Ended July 31, - -------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 - -------------------------------------------------------------------------------------------------------------------- Net sales $712,613,000 $655,791,000 $539,992,000 - -------------------------------------------------------------------------------------------------------------------- Less costs and expenses: Cost of goods sold 283,338,000 235,247,000 199,380,000 Selling, general and administrative expenses 402,732,000 339,420,000 246,200,000 Interest expense 1,134,000 1,995,000 1,239,000 - -------------------------------------------------------------------------------------------------------------------- 687,204,000 576,662,000 446,819,000 - -------------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes and extraordinary gain 25,409,000 79,129,000 93,173,000 Provision for income taxes (Note 6) 9,503,000 28,566,000 37,101,000 - -------------------------------------------------------------------------------------------------------------------- Income from continuing operations before extraordinary gain 15,906,000 50,563,000 56,072,000 - -------------------------------------------------------------------------------------------------------------------- Income (loss) from discontinued operations (Note 3): Income (loss) from operations, net of income taxes (1,346,000) 1,156,000 1,861,000 Provision for loss on disposal of discontinued operations, net of income tax benefit (35,678,000) -- -- - -------------------------------------------------------------------------------------------------------------------- (37,024,000) 1,156,000 1,861,000 - -------------------------------------------------------------------------------------------------------------------- Income (loss) before extraordinary gain (21,118,000) 51,719,000 57,933,000 Extraordinary gain, net of income taxes of $1,313,000 (Note 5) 2,198,000 -- -- - -------------------------------------------------------------------------------------------------------------------- Net income (loss) $(18,920,000) $ 51,719,000 $ 57,933,000 - -------------------------------------------------------------------------------------------------------------------- Earnings (loss) per share (Note 1): Income from continuing operations before extraordinary gain Primary $0.32 $0.98 $1.08 Fully diluted $0.32 $0.98 $1.07 Income (loss) before extraordinary gain Primary $(0.42) $1.00 $1.11 Fully diluted $(0.42) $1.00 $1.11 Net income (loss) Primary $(0.38) $1.00 $1.11 Fully diluted $(0.38) $1.00 $1.11 - -------------------------------------------------------------------------------------------------------------------- Weighted average number of shares 50,381,718 51,590,758 51,995,494 - --------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 24 25 CML Group, Inc. and Subsidiaries Consolidated Balance Sheets
July 31, - --------------------------------------------------------------------------------------------------- Assets 1995 1994 - --------------------------------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 8,338,000 $ 28,929,000 Accounts receivable - trade, less allowance for doubtful accounts of $2,141,000 in 1995 and $1,402,000 in 1994 51,949,000 42,075,000 Prepaid income taxes (Notes 1 and 6) 8,710,000 6,688,000 Inventories (Note 1): Raw materials 12,970,000 12,617,000 Work in process 3,096,000 3,552,000 Finished goods 49,378,000 64,564,000 - --------------------------------------------------------------------------------------------------- Total inventories 65,444,000 80,733,000 Other current assets (Note 1) 30,286,000 26,387,000 Net assets of business held for sale (Note 3) 34,314,000 -- - --------------------------------------------------------------------------------------------------- Total current assets 199,041,000 184,812,000 - --------------------------------------------------------------------------------------------------- Property, plant and equipment (Notes 1 and 8): Land and buildings 19,865,000 20,172,000 Machinery and equipment 77,522,000 79,228,000 Leasehold improvements 80,710,000 113,910,000 - --------------------------------------------------------------------------------------------------- 178,097,000 213,310,000 Less accumulated depreciation 65,057,000 65,705,000 - --------------------------------------------------------------------------------------------------- Property, plant and equipment, net 113,040,000 147,605,000 - --------------------------------------------------------------------------------------------------- Goodwill (Notes 1 and 2) 12,521,000 34,889,000 Other assets 15,479,000 17,357,000 - --------------------------------------------------------------------------------------------------- $340,081,000 $384,663,000 ===================================================================================================
See Notes to Consolidated Financial Statements. 25 26 CML Group, Inc. and Subsidiaries Consolidated Balance Sheets
July 31, - ----------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity 1995 1994 - ----------------------------------------------------------------------------------------------------- Current liabilities: Current portion of long-term debt (Note 4) $ 203,000 $ 226,000 Accounts payable 35,156,000 33,868,000 Accrued compensation 6,905,000 8,423,000 Accrued advertising 4,381,000 5,302,000 Accrued sales returns 4,572,000 3,161,000 Accrued income taxes (Note 6) 1,892,000 483,000 Other accrued expenses 29,399,000 29,607,000 - ----------------------------------------------------------------------------------------------------- Total current liabilities 82,508,000 81,070,000 - ----------------------------------------------------------------------------------------------------- Noncurrent liabilities: Long-term debt (Note 4) 10,082,000 1,292,000 Convertible subordinated debentures (Note 5) 41,593,000 57,500,000 Other noncurrent liabilities (Note 8) 17,346,000 25,564,000 - ----------------------------------------------------------------------------------------------------- Total noncurrent liabilities 69,021,000 84,356,000 - ----------------------------------------------------------------------------------------------------- Commitments and contingencies (Note 8) - ----------------------------------------------------------------------------------------------------- Stockholders' equity (Notes 1, 7 and 9): Common stock par value $.10 per share Authorized - 120,000,000 shares Issued - 52,076,674 shares in 1995 and 51,851,180 shares in 1994 5,207,000 5,185,000 Additional paid-in capital 79,805,000 78,736,000 Retained earnings 140,444,000 163,825,000 - ----------------------------------------------------------------------------------------------------- 225,456,000 247,746,000 Less treasury stock, at cost, 2,797,791 shares in 1995 and 1,865,941 shares in 1994 36,904,000 28,509,000 - ----------------------------------------------------------------------------------------------------- 188,552,000 219,237,000 - ----------------------------------------------------------------------------------------------------- $340,081,000 $384,663,000 =====================================================================================================
See Notes to Consolidated Financial Statements. 26 27 CML Group, Inc. and Subsidiaries Consolidated Statements of Cash Flows
Year Ended July 31, - ------------------------------------------------------------------------------------------------------------ 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income (loss) $(18,920,000) $ 51,719,000 $57,933,000 - ------------------------------------------------------------------------------------------------------------ Adjustments to reconcile net income (loss) to net cash provided by operating activities: Gain on acquisition of convertible subordinated debentures (3,511,000) -- -- Depreciation and amortization 30,723,000 24,156,000 18,777,000 Provision for doubtful notes receivable -- -- 650,000 Restructuring charges -- -- (1,000,000) Provision for loss on disposal of discontinued operations 40,988,000 -- -- Loss on disposal of property, plant and equipment 4,475,000 2,864,000 2,617,000 Writeoff of goodwill -- -- 472,000 Changes in assets and liabilities: Accounts receivable - trade (10,865,000) (18,191,000) (8,658,000) Prepaid income taxes (2,022,000) 439,000 765,000 Inventories (3,759,000) (12,240,000) (9,159,000) Other current assets (5,391,000) (13,139,000) (2,990,000) Accounts payable and accrued expenses (410,000) 11,209,000 5,506,000 Accrued income taxes (572,000) (2,772,000) 5,943,000 Other assets and noncurrent liabilities (181,000) 1,459,000 82,000 - ------------------------------------------------------------------------------------------------------------ Total adjustments 49,475,000 (6,215,000) 13,005,000 - ------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 30,555,000 45,504,000 70,938,000 - ------------------------------------------------------------------------------------------------------------ Cash flows from investing activities: Acquisitions of property, plant and equipment (36,291,000) (61,126,000) (44,362,000) Acquisition of Smith & Hawken, Ltd., net of cash acquired -- -- (15,459,000) Increase in notes receivable -- -- (366,000) Reduction in notes receivable -- 109,000 591,000 - ------------------------------------------------------------------------------------------------------------ Net cash used in investing activities $(36,291,000) $(61,017,000) $(59,596,000) - ------------------------------------------------------------------------------------------------------------
(Continued) 27 28 CML Group, Inc. and Subsidiaries Consolidated Statements of Cash Flows
Year Ended July 31, - -------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 - -------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Increase in long-term debt $ 10,000,000 $ -- $ -- Reduction in long-term debt (1,233,000) (314,000) (3,846,000) Proceeds from sale of convertible debentures -- -- 57,500,000 Dividends paid (4,236,000) (4,045,000) (2,673,000) Exercise of stock options and employee stock purchase rights 1,000,000 1,079,000 2,522,000 Acquisition of convertible subordinated debentures (11,991,000) -- -- Acquisition of treasury shares (8,395,000) (16,288,000) (4,352,000) - -------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (14,855,000) (19,568,000) 49,151,000 - -------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (20,591,000) (35,081,000) 60,493,000 Cash and cash equivalents at beginning of year 28,929,000 64,010,000 3,517,000 - -------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 8,338,000 $ 28,929,000 $64,010,000 ==================================================================================================================== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 3,302,000 $ 3,535,000 $ 1,062,000 - -------------------------------------------------------------------------------------------------------------------- Income taxes $ 17,580,000 $ 37,417,000 $33,029,000 - --------------------------------------------------------------------------------------------------------------------
(Concluded) The Company recorded tax benefits of $91,000, $1,781,000 and $1,882,000 during 1995, 1994 and 1993, respectively, resulting from the exercise of stock options. During 1993, the purchaser of Boston Whaler's net assets exercised a warrant to purchase 2,400,000 shares of common stock at $5.2083 per share. In accordance with the terms of the warrant, the Company withheld 657,895 shares in payment of the exercise price. See Notes to Consolidated Financial Statements. 28 29 CML Group, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders' Equity
Common Stock Treasury Stock -------------------- -------------------- Additional Retained Shares Par Value Paid-in-Capital Earnings Shares Cost - ----------------------------------------------------------------------------------------------------------------------------------- Balance, August 1, 1992 32,654,450 $3,265,000 $67,684,000 $ 61,234,000 416,738 $ 2,166,000 Exercise of stock purchase warrant 1,600,000 160,000 12,340,000 -- 438,597 12,500,000 Exercise of stock options 123,132 12,000 (4,799,000) -- (352,173) (5,884,000) Employee stock purchase plan sales -- -- (49,000) -- (71,862) (1,477,000) Tax benefit from exercise of stock options -- -- 1,882,000 -- -- -- Issuance of deferred compensation plan shares 9,152 1,000 13,000 -- -- -- Acquisition of treasury shares -- -- -- -- 161,231 5,086,000 Cash dividends $(0.06 per share) -- -- -- (3,031,000) -- -- Stock split, three-for-two 17,193,364 1,720,000 (1,724,000) -- 296,267 -- Net income -- -- -- 57,933,000 -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Balance, July 31, 1993 51,580,098 5,158,000 75,347,000 116,136,000 888,798 12,391,000 Exercise of stock options 219,110 22,000 995,000 -- -- -- Employee stock purchase plan sales 51,972 5,000 613,000 -- -- -- Tax benefit from exercise of stock options -- -- 1,781,000 -- -- -- Acquisition of treasury shares -- -- -- -- 977,143 16,118,000 Cash dividends $(0.08 per share) -- -- -- (4,030,000) -- -- Net income -- -- -- 51,719,000 -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Balance, July 31, 1994 51,851,180 5,185,000 78,736,000 163,825,000 1,865,941 28,509,000 Exercise of stock options 172,470 17,000 645,000 -- -- -- Employee stock purchase plan sales 53,024 5,000 333,000 -- -- -- Tax benefit from exercise of stock options -- -- 91,000 -- -- -- Acquisition of treasury shares -- -- -- -- 931,850 8,395,000 Cash dividends $(0.09 per share) -- -- -- (4,461,000) -- -- Net loss -- -- -- (18,920,000) -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Balance, July 31, 1995 52,076,674 $5,207,000 $79,805,000 $140,444,000 2,797,791 $36,904,000 ===================================================================================================================================
See Notes to Consolidated Financial Statements. 29 30 CML Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 - Summary of Significant Accounting Policies Basis of Consolidation The consolidated financial statements include the accounts of CML Group, Inc. and its wholly-owned subsidiaries (the "Company"). All significant intercompany transactions and balances are eliminated. Cash Equivalents The Company considers all highly liquid debt instruments with purchased remaining maturities of three months or less to be cash equivalents. Cash equivalents consist primarily of money market mutual funds. Inventories Inventories are stated at the lower of cost or market with cost being determined by either the first-in, first-out or average cost methods. Direct Response and Catalog Costs Costs of direct response and catalogs are amortized in proportion to the sales they generate over periods not exceeding three months and six months, respectively. Direct response and catalog costs are included in other current assets. Property, Plant and Equipment Property, plant and equipment are stated at cost and depreciated using the straight-line method over their estimated useful lives which range from three to forty years or over the terms of the related leases, if such periods are shorter. Goodwill Goodwill is amortized on a straight-line basis over various periods not exceeding forty years. On an annual basis, the Company reviews the carrying value of goodwill against projections of undiscounted cash flows to evaluate the propriety of its amortization period. Accumulated amortization was $1,495,000 and $7,113,000 at July 31, 1995 and 1994, respectively. During fiscal 1995, the Company wrote-off the goodwill and accumulated amortization relating to Britches of Georgetowne (Note 3). Income Taxes Prepaid income taxes reflect the tax effects of temporary differences between financial reporting and income tax reporting which result principally from the valuation of finished goods inventories, the treatment of prepaid and accrued expenses, net operating losses and depreciation methods. Earnings Per Share Primary earnings per share are calculated using the weighted average number of common and common equivalent shares outstanding during the year. Fully diluted earnings per share assume that the convertible subordinated debentures were converted at the beginning of the year or the time of issuance, whichever is later, and net income was adjusted for the resultant reduction in interest costs, net of tax. New Accounting Standards The Company plans to adopt Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of" in 1996. The Company does not expect that SFAS No. 121 will have a significant effect on the Company's consolidated financial statements when adopted in 1996. Reclassifications Certain fiscal 1994 and 1993 amounts have been reclassified to conform to the fiscal 1995 presentation. 30 31 Note 2 - Acquisition On February 25, 1993, the Company acquired certain assets and assumed certain liabilities of the gardening business of Smith & Hawken, Ltd. for a cash purchase price of $15,136,000. The acquisition has been accounted for as a purchase. The Company has recorded $9,512,000 of goodwill resulting from the acquisition which is being amortized over forty years. Note 3 - Discontinued Operations During the third quarter of fiscal 1995, the Company decided to sell its Britches of Georgetowne subsidiary ("Britches") and, therefore, has accounted for the planned divestiture of Britches as a discontinued operation in the accompanying consolidated financial statements. As a result of 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 the write-off of goodwill, the write-down of Britches' net assets to estimated net realizable value and Britches' estimated operating losses until disposal, which is anticipated to occur in 1996. Britches' net sales were $127,034,000, $116,606,000 and $105,476,000 in fiscal 1995, 1994 and 1993, respectively. Britches' results of operations for fiscal 1995 are shown net of an income tax benefit of $627,000 and fiscal 1994 and 1993 results are shown net of income tax expense of $907,000 and $1,522,000, respectively. Note 4 - Long-Term Debt Long-term debt consisted of the following at July 31:
1995 1994 - -------------------------------------------------------------------------- Revolving credit loan $10,000,000 $ -- Note payable 199,000 1,352,000 Obligations under capital leases (Note 8) 86,000 166,000 - -------------------------------------------------------------------------- 10,285,000 1,518,000 Less current portion 203,000 226,000 - -------------------------------------------------------------------------- Long-term debt $10,082,000 $1,292,000 ==========================================================================
Revolving Credit Agreement The Company's revolving credit agreement, which expires July 31, 1997, allows the Company to borrow up to $100,000,000 through December 29, 1995 and $70,000,000 thereafter. The total commitment, which is secured by the shares and guarantees of the Company's subsidiaries, includes provisions relating to certain operating and financial requirements and conditions and requires the balance outstanding be repaid for a period of ninety consecutive days each year. The Company is required to pay a facility fee of four-tenths of one percent of the total commitment. The agreement also provides for a reduction in the revolving credit commitment for net cash proceeds received from the sale of assets not in the ordinary course of business or the issuance of subordinated debt or equity securities. The interest rate on advances outstanding under the revolving credit agreement approximates the prime rate. At July 31, 1995, the prime rate was 8.75%. During fiscal 1995, borrowings under the revolving credit agreement averaged $4,066,000 with a maximum of $24,700,000 outstanding at any time. The average interest rate on advances outstanding during the year was 7.4% and the average effective rate, after giving effect to commitment fees was 11.5%. The Company did not borrow under the revolving credit agreement during 1994. Note Payable The note payable, which bears interest at 2%, is due in monthly installments of approximately $6,000 through June 1998. 31 32 Note 5 - Convertible Subordinated Debentures On January 20, 1993, the Company issued $57,500,000 of 51/2% convertible subordinated debentures due January 15, 2003. During fiscal 1995, the Company repurchased $15,907,000 principal amount of the debentures and recorded an extraordinary gain of $2,198,000, net of income taxes of $1,313,000. Interest on the debentures outstanding is payable semi-annually in arrears on January 15 and July 15 of each year. The debentures are convertible into shares of the Company's common stock at a conversion price of $25.917 per share, subject to adjustment under certain circumstances. The debentures are redeemable at the option of the Company, in whole or in part, at redemption prices which decrease from 102-1/2% in 1996 to par in 1998 except that until January 15, 1996, the debentures cannot be redeemed unless the closing price of the Company's common stock shall have attained a certain specified level for a specified period of time. The estimated fair value of the convertible subordinated debentures as of July 31, 1995 was $32,027,000, based upon quoted market prices. All other financial instruments are carried at amounts that approximate fair value. Note 6 - Income Taxes The provision for income taxes consists of the following:
Year Ended July 31, - ------------------------------------------------------------------------------------ 1995 1994 1993 - ------------------------------------------------------------------------------------ Current Federal $ 9,311,000 $25,154,000 $30,651,000 State and foreign 1,856,000 3,351,000 6,687,000 - ------------------------------------------------------------------------------------ 11,167,000 28,505,000 37,338,000 Deferred Federal (1,555,000) 243,000 146,000 State and foreign (109,000) (182,000) (383,000) - ------------------------------------------------------------------------------------ Total $ 9,503,000 $28,566,000 $37,101,000 - ------------------------------------------------------------------------------------ Continuing operations $ 9,503,000 $28,566,000 $37,101,000 Discontinued operations (5,937,000) 907,000 1,522,000 Extraordinary gain (Note 5) 1,313,000 -- -- - ------------------------------------------------------------------------------------ Total $ 4,879,000 $29,473,000 $38,623,000 ====================================================================================
32 33 The sources of prepaid and deferred income taxes and the related tax effect are as follows:
Year Ended July 31, - ------------------------------------------------------------------------------------------------ 1995 1994 - ------------------------------------------------------------------------------------------------ Current Assets Inventories $ 4,325,000 $ 4,416,000 Settlement expenses -- 1,400,000 Compensation expenses 1,190,000 697,000 Occupancy expenses 107,000 383,000 Receivable reserves 2,595,000 1,905,000 Discontinued operations 2,408,000 -- Other 3,100,000 2,850,000 Less valuation allowance (2,267,000) (1,610,000) - ------------------------------------------------------------------------------------------------ 11,458,000 10,041,000 - ------------------------------------------------------------------------------------------------ Noncurrent Assets Depreciation and amortization 836,000 2,272,000 Net operating losses 1,553,000 2,114,000 Compensation expenses 675,000 909,000 Occupancy expenses 1,756,000 2,377,000 Loss on investments 329,000 494,000 Other 2,309,000 1,213,000 Less valuation allowance (1,255,000) (1,394,000) - ------------------------------------------------------------------------------------------------ 6,203,000 7,985,000 - ------------------------------------------------------------------------------------------------ Total assets $17,661,000 $18,026,000 - ------------------------------------------------------------------------------------------------ Current Liabilities Catalog costs $826,000 $497,000 Advertising costs 1,606,000 1,789,000 Other 316,000 1,067,000 - ------------------------------------------------------------------------------------------------ 2,748,000 3,353,000 - ------------------------------------------------------------------------------------------------ Noncurrent Liabilities Goodwill 1,381,000 1,118,000 Other -- 1,077,000 - ------------------------------------------------------------------------------------------------ 1,381,000 2,195,000 - ------------------------------------------------------------------------------------------------ Total liabilities $ 4,129,000 $ 5,548,000 - ------------------------------------------------------------------------------------------------ Total net prepaid tax $13,532,000 $12,478,000 ================================================================================================
The valuation allowance at July 31, 1995 of $3,522,000 includes a net increase during the current year of $518,000 due primarily to foreign losses. The valuation allowance relates primarily to future deductible amounts of a capital nature and net operating loss carryforwards that may not be realized. Net operating loss carryforwards begin expiring in 2000. A reconciliation of the statutory federal income tax rate to the effective tax rate for continuing operations is as follows:
1995 1994 1993 - ------------------------------------------------------------- Statutory federal income tax rate 35.0% 35.0% 35.0% State and foreign income taxes net of federal tax effect 5.1 2.8 4.2 Amortization of goodwill 0.2 0.1 0.2 Realization of capital losses -- (2.4) -- Benefit of foreign sales corporation (1.0) -- -- Research and development credits (0.8) (0.6) (0.3) Other (1.1) 1.2 0.7 - ------------------------------------------------------------- Effective tax rate 37.4% 36.1% 39.8% =============================================================
33 34 Note 7 - Stock Options, Stock Purchase Plan and Employee Benefit Plans Stock Option Plans At July 31, 1995, there were 889,098 and 2,663,650 shares reserved for issuance pursuant to the Company's 1982 and 1991 Stock Option Plans, respectively. The terms of both Plans generally provide for options to be granted at fair market value as of the date of grant for a term of no longer than ten years. The options generally become exercisable over the first five years. At July 31, 1995, options to purchase 889,098 shares and 437,111 shares were exercisable under the 1982 and 1991 Plans, respectively. Option activity under the 1982 and 1991 Plans is summarized as follows:
1991 Plan 1982 Plan - --------------------------------------------------------------------------------------- Options outstanding, August 1, 1992 63,750 2,231,448 Granted 417,400 -- Exercised $(1.77-$18.83 per share) (16,650) (761,358) Terminated (2,400) (88,932) - --------------------------------------------------------------------------------------- Options outstanding, July 31, 1993 462,100 1,381,158 Granted 404,225 -- Exercised $(2.17-$20.42 per share) (19,700) (199,410) Terminated (1,700) (74,580) - --------------------------------------------------------------------------------------- Options outstanding, July 31, 1994 844,925 1,107,168 Granted 383,472 -- Exercised $(2.21-$7.12 per share) -- (172,470) Terminated (142,300) (45,600) - --------------------------------------------------------------------------------------- Options outstanding, July 31, 1995 1,086,097 889,098 =======================================================================================
The average exercise price of options outstanding under the 1982 Stock Option Plan at July 31, 1995, 1994 and 1993 was $3.72, $3.88 and $3.87, respectively. The average exercise price of options outstanding under the 1991 Stock Option Plan at July 31, 1995, 1994 and 1993 was $12.69, $16.03 and $18.10, respectively. During 1993, the Company reserved 90,000 shares for issuance pursuant to the 1993 Director Option Plan which provides for options to be granted to non-employee directors at fair market value as of the date of grant for a term of ten years. The options vest in three equal annual installments beginning on the first anniversary of the date of grant. A total of 63,000 options had been granted to non-employee directors and were outstanding at July 31, 1995 at an average exercise price of $18.85 per option. At July 31, 1995 options to purchase 33,000 shares were exercisable. Employee Stock Purchase Plans The Company's 1993 Employee Stock Purchase Plan authorizes the issuance of 900,000 shares in three annual offerings. The first offering which ended June 14, 1994, resulted in the issuance of 51,972 shares to 595 employees at a price of $11.90 per share. The second offering ended June 14, 1995, and resulted in the issuance of 53,024 shares to 290 employees at a price of $6.38 per share. Under the third offering which ends June 14, 1996, 977 employees have elected to receive 302,849 shares. Employee Benefit Plans The Company maintains defined contribution benefit plans covering substantially all of its employees. The Company makes annual contributions to the plans based on a percentage of employee compensation or at the discretion of the Board of Directors as provided by the terms of each plan. Contributions by the Company to the various plans charged to operations in 1995, 1994 and 1993 were $2,113,000, $2,735,000 and $1,804,000, respectively. 34 35 Note 8 - Commitments and Contingencies Leases The Company leases certain manufacturing and distribution facilities, retail space and vehicles and equipment under agreements expiring over the next 15 years. Most of the leases for retail space provide for renewal options, contain normal escalation clauses and require the Company to pay real estate taxes and other expenses. Properties under capital leases consist of machinery and equipment and are as follows:
July 31, 1995 1994 - --------------------------------------------------------------------------------------------------- Machinery and equipment $144,000 $1,529,000 Less accumulated amortization 88,000 1,430,000 - --------------------------------------------------------------------------------------------------- Machinery and equipment, net $ 56,000 $ 99,000 ===================================================================================================
Future minimum lease payments under leases that have initial or remaining noncancelable lease terms in excess of one year at July 31, 1995 are as follows:
Capital Operating Leases Leases - -------------------------------------------------------------------- Year ending July 31: 1996 $ 54,000 $ 40,099,000 1997 13,000 38,326,000 1998 8,000 35,594,000 1999 25,000 32,488,000 2000 -- 29,792,000 Thereafter -- 112,359,000 - -------------------------------------------------------------------- Total minimum lease payments 100,000 288,658,000 Less portion representing interest 14,000 -- - -------------------------------------------------------------------- $ 86,000 $288,658,000 ====================================================================
The total minimum payments required under operating leases do not include contingent rentals which may be paid under certain store leases on the basis of a percentage of sales in excess of stipulated amounts. The total amount of rentals charged to operations in 1995, 1994 and 1993 was $47,415,000, $39,944,000 and $28,657,000, respectively. Contingent rentals were approximately $5,406,000 in 1995, $4,414,000 in 1994 and $2,499,000 in 1993. Included in other noncurrent liabilities at July 31, 1995 and 1994 are store construction credits of $8,499,000 and $13,831,000, respectively, and deferred rent liabilities of $3,730,000 and $6,760,000, respectively. Litigation In May 1994, ICON, Inc. commenced a civil suit against NordicTrack in federal court alleging patent infringement arising out of NordicTrack's design of its WalkFit treadmill and certain similar products. Discovery has been substantially completed and NordicTrack's motion for summary judgement is currently pending before the court. In January 1995, an individual, William Wilkinson, filed a demand for arbitration and statement of claim alleging that NordicTrack breached the terms of a licensing and product development agreement by failing to compensate him for certain design features of its WalkFit treadmill and certain similar products. This case is still in the discovery stage. 35 36 While the Company believes that it has meritorious defenses, no assurance can be given of a favorable outcome in either the ICON lawsuit or the Wilkinson claim. An unfavorable outcome in both matters could have a material adverse effect on the Company's financial condition. An unfavorable outcome in either or both matters could also adversely affect the operating results for the period or periods in which such outcome occurs. 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 federal court against the Company and two of its officers. 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 the two officers 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 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 a third party. 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 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 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 begun to implement the groundwater phase of the cleanup, which the EPA originally estimated would cost approximately $4.0 million. The Company believes that the EPA's estimated cost for cleanup, including the proposed remedial actions, is excessive and involves unnecessary actions. In addition, a portion of the proposed 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. 36 37 In June 1992, the EPA notified the Company it may be liable for the release of hazardous substances by the Company's former Boston Whaler 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 clean-up costs is not available. Letters of Credit At July 31, 1995, the Company was contingently liable for outstanding letters of credit in the amount of $19,817,000. Note 9 - Preferred Stock Rights and Preference Stock Preferred Stock Rights On June 22, 1988, the Company's Board of Directors declared a dividend of one sixth of a preferred stock purchase right for each share of common stock outstanding at the close of business on July 22, 1988. Under certain circumstances, a right may be exercised to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock of the Company at an exercise price of $92.00. The rights become exercisable only if an entity has acquired 20% or more of the Company's common stock, or announces an offer which would result in such entity acquiring 30% or more of the Company's common stock. After the rights become exercisable, if the Company is a party to certain merger or business combination transactions or transfers 50% or more of its assets or earnings power, or if the acquirer engages in certain self-dealing transactions, each right not owned by a 20% or more stockholder enables its holder to purchase for $92.00 that number of shares of common stock of the acquiring or surviving entity (or of the Company in certain instances) which equals the exercise price of the right divided by one-half of the current market price of the common stock of the acquiring or surviving entity (or of the Company), as applicable, at the date of the occurrence of the event. The rights expire July 22, 1998 and may be redeemed by the Company at $.02 per right in certain circumstances. Preference Stock The Company has 2,000,000 shares, $.10 par value, of preference stock authorized, none of which was issued and outstanding at July 31, 1995. Note 10 - Related Party Transactions In conjunction with the acquisition of a subsidiary, the Company leases certain retail and distribution facilities from the subsidiary's former owners. During 1995, the Company signed a new lease expiring in 1999 which covers the distribution facility. Rent paid to the former owners of the subsidiary during 1995, 1994 and 1993 was $1,990,000, $2,006,000 and $2,267,000, respectively. Minimum annual rentals total $1,853,000 in 1996 and average approximately $1,159,000 from 1997 through 1999 and $196,000 annually thereafter through 2003. 37 38 Note 11 - Industry Segments During fiscal 1995, the Company decided to sell its Britches of Georgetowne subsidiary ("Britches") and, accordingly has treated Britches as a discontinued operation in the accompanying consolidated financial statements. As a result, the Company operates in two industry segments: (i) The Nature Company segment, which includes Smith & Hawken, sells nature, gardening, music and science related items; and (ii) NordicTrack sells physical fitness exercise products. Sales between segments are not significant. The following table summarizes the Company's continuing operations by industry segment. The Nature Company's operating results include amortization of goodwill recorded on the books of the corporate office.
Year Ended July 31, 1995 1994 1993 - ---------------------------------------------------------------------------------------------------- Net Sales: NordicTrack $504,105,000 $455,597,000 $377,822,000 The Nature Company 208,508,000 200,194,000 162,170,000 - ---------------------------------------------------------------------------------------------------- $712,613,000 $655,791,000 $539,992,000 ==================================================================================================== Operating Income (Loss): NordicTrack $ 46,284,000 $ 84,827,000 $100,164,000 The Nature Company (13,224,000) 3,645,000 6,216,000 - ---------------------------------------------------------------------------------------------------- 33,060,000 88,472,000 106,380,000 Interest and Corporate Expenses (7,651,000) (9,343,000) (13,207,000) - ---------------------------------------------------------------------------------------------------- $ 25,409,000 $ 79,129,000 $ 93,173,000 ==================================================================================================== Identifiable Assets at July 31: NordicTrack $137,113,000 $134,189,000 $ 88,640,000 The Nature Company 131,653,000 130,630,000 110,887,000 Discontinued Operations 34,314,000 81,537,000 68,871,000 Corporate and Other 37,001,000 38,307,000 71,773,000 - ---------------------------------------------------------------------------------------------------- $340,081,000 $384,663,000 $340,171,000 ==================================================================================================== Depreciation and Amortization: NordicTrack $ 9,949,000 $ 6,997,000 $ 4,759,000 The Nature Company 12,879,000 10,804,000 7,973,000 Discontinued Operations 7,316,000 5,843,000 5,582,000 Corporate and Other 579,000 512,000 463,000 - ---------------------------------------------------------------------------------------------------- $ 30,723,000 $ 24,156,000 $ 18,777,000 ==================================================================================================== Capital Expenditures: NordicTrack $ 11,941,000 $ 22,657,000 $ 19,860,000 The Nature Company 16,178,000 23,274,000 16,368,000 Discontinued Operations 8,079,000 14,988,000 7,489,000 Corporate and Other 93,000 207,000 645,000 - ---------------------------------------------------------------------------------------------------- $ 36,291,000 $ 61,126,000 $ 44,362,000 ====================================================================================================
38 39 CML Group, Inc. and Subsidiaries Selected Quarterly Financial Data (Unaudited) (In thousands, except per share data)
Fiscal 1995, Quarter Ended Fiscal 1994, Quarter Ended --------------------------------------- --------------------------------------- Oct. 29, Jan. 28, Apr. 29, July 31, Oct. 30, Jan. 29, Apr. 30, July 31, 1994 1995 1995 1995 1993 1994 1994 1994 - -------------------------------------------------------------------------------------------------------------------------- Net sales $129,198 $278,992 $179,525 $124,898 $110,348 $249,355 $176,775 $119,313 - -------------------------------------------------------------------------------------------------------------------------- Gross profit 81,544 176,364 108,527 62,840 72,569 161,146 117,621 69,208 - -------------------------------------------------------------------------------------------------------------------------- Income (loss) before extraordinary gain 881 40,553 (40,703) (21,849) 7,141 38,302 17,062 (10,786) Net income (loss) 881 41,678 (39,630) (21,849) 7,141 38,302 17,062 (10,786) - -------------------------------------------------------------------------------------------------------------------------- Earnings (loss) per share: Income (loss) before extraordinary gain $0.02 $0.78 $(0.82) $(0.44) $0.14 $0.72 $0.33 $(0.21) Net income (loss) per share $0.02 $0.80 $(0.80) $(0.44) $0.14 $0.72 $0.33 $(0.21) - --------------------------------------------------------------------------------------------------------------------------
During the third quarter of fiscal 1995, the Company recorded a provision for loss on disposal of $40,988,000 before income taxes as a result of the decision to sell its Britches of Georgetowne subsidiary. The fourth quarter of fiscal 1994 includes a pre-tax charge of $4,000,000 to settle a lawsuit with Soloflex, Inc. 39 40 Schedule II CML GROUP, INC. and SUBSIDIARIES VALUATION and QUALIFYING ACCOUNTS
Balance at Charged Balance Beginning to Costs at End Description of Year and Expenses Deductions of Year ----------- --------- ------------ ---------- ------ Allowance for Doubtful Accounts Receivable: Year Ended July 31, 1993 829,000 592,000 784,000 637,000 Year Ended July 31, 1994 637,000 1,639,000 874,000 1,402,000 Year Ended July 31, 1995 1,402,000 6,734,000 5,995,000 2,141,000 Allowance for Doubtful Notes Receivable: Year Ended July 31, 1993 397,000 650,000 -- 1,047,000 Year Ended July 31, 1994 1,047,000 -- 993,000 54,000 Year Ended July 31, 1995 54,000 -- 45,000 9,000 Accrual for Loss on Disposal and Restructuring Costs: Year Ended July 31, 1993 12,235,000 (1,000,000) 4,942,000 6,293,000 Year Ended July 31, 1994 6,293,000 -- 1,804,000 4,489,000 Year Ended July 31, 1995 4,489,000 40,988,000 39,201,000 6,276,000
40 41 EXHIBIT INDEX
Page No. -------- 3(a) -- Restated Certificate of Incorporation, as amended, of the Company is incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-8 filed December 11, 1992 (File No. 33-55660). -- 3(b) -- By-Laws, as amended, of the Company are incorporated herein by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-8 filed January 23, 1992 (File No. 33-45073). -- 4(a) -- Specimen certificate for shares of Common Stock of the Company is incorporated herein by reference to Exhibit 4 to the Company's Registration Statement on Form S-1 (File No. 2-86828). -- 4(b) -- Form of Rights Certificate is incorporated herein by reference to Exhibit B to Exhibit 1 to the Company's Form 8-A filed July 13, 1988. -- 4(c) -- Rights Agreement, dated as of June 28, 1988, between the Company and The First National Bank of Boston is incorporated herein by reference to Exhibit 1 to the Company's Form 8-A filed July 13, 1988, as amended by the Company's Form 8 filed August 5, 1988. -- 4(d) -- Specimen certificates for the Company's 5-1/2% Convertible Subordinated Debentures Due 2003 are incorporated herein by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q filed March 16, 1993. -- 4(e) -- Terms of the Company's 5-1/2% Convertible Subordinated Debentures Due 2003 are incorporated herein by reference to Exhibit A to Exhibit 19.2 to the Company's Quarterly Report on Form 10-Q filed March 16, 1993. -- *10(a) -- 1982 Stock Option Plan, as amended, and Forms of Option Agreements are incorporated herein by reference to Exhibit 10(y) to the Company's Registration Statement on Form S-1 (File No. 2-86828). --
41 42
Page No. -------- *10(b) -- Amendment to Section 18 of the 1982 Stock Option Plan, dated October 7, 1987, is incorporated herein by reference to Exhibit 10(g) to the Company's Annual Report on Form 10-K filed October 28, 1988. -- *10(c) -- Amendment to Section 5(a) of the 1982 Stock Option Plan, dated December 5, 1991, is incorporated herein by reference to Exhibit 10(c) to the Company's Annual Report on Form 10-K filed October 21, 1992, as amended by the Company's Form 8 filed October 28, 1992. -- 10(d) -- Third Amended and Restated Revolving Credit Agreement, dated as of July 31, 1993, among the Company, Citibank, N.A., BayBank Boston, N.A. and The First National Bank of Boston is incorporated herein by reference to Exhibit 10(d) to the Company's Annual Report on Form 10-K filed October 29, 1993. -- *10(e) -- Amended and Restated Employment and Consulting Agreement, dated as of September 14, 1989, among the Company, P.S.I. NordicTrack, Inc. and Edward A. Pauls is incorporated herein by reference to Exhibit 10(w) to the Company's Annual Report on Form 10-K filed October 30, 1989. -- *10(f) -- Amended and Restated Employment and Consulting Agreement, dated as of September 14, 1989, among the Company, P.S.I. NordicTrack, Inc. and Florence Pauls is incorporated herein by reference to Exhibit 10(x) to the Company's Annual Report on Form 10-K filed October 30, 1989. -- *10(g) -- 1987 Employees' Severance Benefit Plan, dated October 7, 1987, is incorporated herein by reference to Exhibit 10(bb) to the Company's Annual Report on Form 10-K filed October 28, 1988. --
42 43
Page No. -------- 10(h) -- Purchase and Sale Agreement, dated as of July 30, 1990, as amended, among Carroll Reed, Inc., the Company, CR Acquisitions, Inc., Encomium Ltd., and The Eagle's Eye International Limited is incorporated herein by reference to Exhibits 2.1 and 2.2 to the Company's Current Report on Form 8-K dated August 24, 1990. -- 10(i) -- Purchase and Sale Agreement by and among OCR, Inc., the Company, CRSS Ski & Sport, Inc., and Frederick L. Leighton, dated September 20, 1990, is incorporated herein by reference to Exhibit 10(z) to the Company's Annual Report on Form 10-K filed October 29, 1990. -- *10(j) -- Employment Agreement among the Company and James Bostic, dated February 5, 1990, is incorporated herein by reference to Exhibit 10(aa) to the Company's Annual Report on Form 10-K filed October 29, 1990. -- *10(k) -- 1991 Stock Option Plan and Forms of Option Agreements are incorporated herein by reference to Exhibit 10(m) to the Company's Annual Report on Form 10-K filed October 21, 1992, as amended by the Company's Form 8 filed October 28, 1992. -- *10(l) -- Form of Split Dollar Life Insurance Policy for the Benefit of Certain Executive Officers is incorporated herein by reference to Exhibit 10(n) to the Company's Annual Report on Form 10-K filed October 21, 1992, as amended by the Company's Form 8 filed October 28, 1992. -- *10(m) -- 1993 Director Option Plan is incorporated herein by reference to Exhibit 10(n) to the Company's Annual Report on Form 10-K filed October 29, 1993. --
43 44
Page No. -------- *10(n) -- 1993 Employee Stock Purchase Plan is incorporated herein by reference to Exhibit 10(o) to the Company's Annual Report on Form 10-K filed October 29, 1993. -- 10(o) -- Subscription Agreement, dated as of January 12, 1993, among the Company, Lehman Brothers International (Europe), Deutsche Bank A.G. London, Lombard Odier International Underwriters, S.A., Swiss Bank Corporation and S.G. Warburg Securities is incorporated herein by reference to Exhibit 19.1 to the Company's Quarterly Report on Form 10-Q filed March 16, 1993. -- 10(p) -- Fiscal Agency Agreement, dated as of January 20, 1993, between the Company and Chemical Bank is incorporated herein by reference to Exhibit 19.2 to the Company's Quarterly Report on Form 10-Q filed March 16, 1993. -- 11 -- Statement Regarding Computation of Fully Diluted Earnings Per Share. 45 21 -- Subsidiaries of the Registrant. 46 23 -- Consent of Deloitte & Touche LLP. 47 27 -- Financial Data Schedule. 48 - ----------------- * Management contract or compensatory plan or arrangement filed herewith in response to Item 14(a)(3) of the instructions to Form 10-K.
44 EX-11 2 STATEMENT REGARDING COMPUTATION OF EARNINGS 1 Exhibit 11 ---------- CML GROUP, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS (LOSS) PER SHARE
Year Ended July 31, ----------------------------------------------------------- 1995 1994 1993 ---- ---- ---- Primary earnings (loss) per share: Weighted average number of shares outstanding: Common 49,659,991 50,468,396 50,076,241 Shares deemed outstanding from the assumed exercise of stock options and a warrant and from deferred compensation awards 721,727 1,122,362 1,919,253 ------------ ----------- ----------- Total 50,381,718 51,590,758 51,995,494 Net income (loss) $(18,920,000) $51,719,000 $57,933,000 ============ =========== =========== Primary earnings (loss) per share $(0.38) $1.00 $1.11 ====== ===== ===== Fully diluted earnings (loss) per share: Weighted average number of shares outstanding, as above 50,381,718 51,590,758 51,995,494 Shares deemed outstanding from the assumed conversion of convertible subordinated debentures 1,919,411 2,218,649 1,109,325 Additional shares deemed outstanding from the assumed exercise of stock options 10,651 26,855 122,628 ------------ ----------- ----------- Total 52,311,780 53,836,262 53,227,447 ============ =========== =========== Additional income from the elimination of the interest cost of the convertible subordinated debentures, net of income tax effect $ 1,821,709 $ 2,134,000 $ 1,065,000 Fully diluted earnings (loss) per share $(0.38) $1.00 $1.11 ====== ===== =====
45 EX-21 3 SUBSIDIARIES OF THE REGISTRANT 1 Exhibit 21 CML GROUP, INC. SUBSIDIARIES OF CML GROUP, INC.*
Jurisdiction Name of Subsidiary of Incorporation ------------------ ---------------- OBW, Inc. Massachusetts Britches of Georgetowne, Inc.** Delaware Britches of Georgetowne, Inc.** Texas Britches Holdings, Inc. Delaware Extension 229, Inc. Virginia Canterbury Tales (H.K.) Limited Hong Kong Britches (HK) Limited Hong Kong Easitrades Limited Hong Kong Butcon Limited Hong Kong Bontik Limited Hong Kong OCR, Inc. Delaware C.R.S.S. Advertising, Inc. New Hampshire The Nature Company*** California The Nature Company (Canada), Inc.*** Canada The Nature Company Limited*** United Kingdom The Nature Company International, Inc.*** California ODG, Inc. Nevada NordicTrack, Inc.+ Minnesota NordicTrack GmbH+ Germany NordicTrack (U.K.) Ltd.+ United Kingdom NordicTrack (Australia) Pty Ltd.+ Australia Nordic Advantage, Inc. Minnesota Nordic Advantage of Columbus, Inc. Minnesota Nordic Advantage of Ontario, Inc. Canada Nordic Advantage of Canada, Ltd. Minnesota NordicTrack (Netherlands) B.V. Netherlands NordicEdge, Inc. Minnesota WFH Group, Inc. Delaware Biscuit Factory Publications Incorporated++ Massachusetts CML International (FSC), Ltd. U.S. Virgin Is. Smith & Hawken, Ltd.+++ Delaware ----------------------- * Direct and indirect wholly-owned subsidiaries ** Does business as Britches of Georgetowne and Britches Great Outdoors *** Does business as The Nature Company + Does business as NordicTrack ++ Does business as Hear Music +++ Does business as Smith & Hawken
46 EX-23 4 CONSENT OF DELOITTE & TOUCHE LLP 1 Exhibit 23 --------- INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 2-89564, No. 33-34998, No. 33-48864, No. 33-45073, No. 33-58952 and No. 33-55660 of CML Group, Inc. and its subsidiaries each on Form S-8, and Registration Statements No. 33-40936, No. 33-40224 and No. 33-58054 of CML Group, Inc. and its subsidiaries each on Form S-3, of our report dated September 27, 1995 appearing in this Annual Report on Form 10-K of CML Group, Inc. and its subsidiaries for the year ended July 31, 1995. /s/ DELOITTE & TOUCHE LLP Boston, Massachusetts October 30, 1995 47 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF CML GROUP, INC. FOR THE TWELVE MONTHS ENDED JULY 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 12-MOS JUL-31-1995 AUG-01-1994 JUL-31-1995 8,338,000 0 54,090,000 2,141,000 65,444,000 199,041,000 178,097,000 65,057,000 340,081,000 82,508,000 41,593,000 5,207,000 0 0 183,345,000 340,081,000 712,613,000 712,613,000 283,338,000 283,338,000 0 6,734,000 1,134,000 25,409,000 9,503,000 15,906,000 (37,024,000) 2,198,000 0 (18,920,000) (0.38) (0.38)
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