-----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, HGHg2NZFgooJgeVu25CoZc7/nxYCcEIIgl827wEnnru6XuA9kT3pUdSk83c+jC9P cx5837IAOox1JzkBFkBRCw== 0000950135-96-001386.txt : 19960318 0000950135-96-001386.hdr.sgml : 19960318 ACCESSION NUMBER: 0000950135-96-001386 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960127 FILED AS OF DATE: 19960315 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CML GROUP INC CENTRAL INDEX KEY: 0000729576 STANDARD INDUSTRIAL CLASSIFICATION: [3949] IRS NUMBER: 042451745 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-09630 FILM NUMBER: 96535507 BUSINESS ADDRESS: STREET 1: 524 MAIN ST CITY: ACTON STATE: MA ZIP: 01720 BUSINESS PHONE: 5082644155 MAIL ADDRESS: STREET 1: 524 MAIN STREET CITY: ACTON STATE: MA ZIP: 01720 10-Q/A 1 CML GROUP, INC. 1 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A AMENDMENT NO. 1 TO FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JANUARY 27, 1996 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 of Incorporation) (IRS Employer Identification Number) 524 Main Street, Acton, Massachusetts 01720 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (508) 264-4155 -------------- Not Applicable --------------------------------------------------- (Former name, former address and former fiscal year if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Number of shares outstanding of each of the issuer's classes of common stock: 49,219,681 shares of common stock, $.10 par value, as of March 5, 1996. - -------------------------------------------------------------------------------- 2 The undersigned registrant hereby amends the following items, financial statements, exhibits or other portions of its Quarterly Report on Form 10-Q for the fiscal quarter ended January 27, 1996 as set forth in the pages attached hereto: Part I: Financial Information, Item 1: Financial Statements. Part I, Item 1 is hereby amended and replaced in its entirety by the financial statements attached hereto to reflect a correction to the Consolidated Condensed Statements of Cash Flows whereby the number "($45,0711,000)" on the "net income (loss)" line is replaced by "($45,071,000)". 2 3 Part I: FINANCIAL INFORMATION Item 1. Financial Statements -------------------- CML GROUP, INC. & SUBSIDIARIES Consolidated Condensed Balance Sheets ------------------------------------- ASSETS
January 27, 1996 July 31, 1995 ---------------- ------------- Current assets: Cash and cash equivalents $ 17,375,000 $ 8,338,000 Accounts receivable 34,255,000 51,949,000 Refundable income taxes 13,410,000 -- Prepaid income taxes 21,340,000 8,710,000 Inventories: Raw materials 5,946,000 12,970,000 Work in process 3,097,000 3,096,000 Finished goods 50,429,000 49,378,000 ------------ ------------ Total inventories 59,472,000 65,444,000 Other current assets 17,911,000 30,286,000 Net assets of business held for sale 12,048,000 34,314,000 ------------ ------------ Total current assets 175,811,000 199,041,000 ------------ ------------ Property, plant and equipment, at cost: Land and buildings 20,006,000 19,865,000 Machinery and equipment 81,846,000 77,522,000 Leasehold improvements 85,636,000 80,710,000 ------------ ------------ 187,488,000 178,097,000 Less accumulated depreciation 74,176,000 65,057,000 ------------ ------------ 113,312,000 113,040,000 ------------ ------------ Goodwill 12,341,000 12,521,000 Other assets 14,063,000 15,479,000 ------------ ------------ $315,527,000 $340,081,000 ============ ============
See Notes to Consolidated Condensed Financial Statements. 3 4 CML GROUP, INC. & SUBSIDIARIES Consolidated Condensed Balance Sheets ------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY
January 27, 1996 July 31, 1995 ---------------- ------------- Current liabilities: Current portion of long-term debt $ 187,000 $ 203,000 Accounts payable 38,033,000 35,156,000 Accrued compensation 8,320,000 6,905,000 Accrued advertising 12,990,000 4,381,000 Accrued sales returns 6,377,000 4,572,000 Accrued income taxes 273,000 1,892,000 Accrued expenses related to discontinued operations 9,627,000 3,234,000 Other accrued expenses 40,652,000 26,165,000 ------------ ------------ Total current liabilities 116,459,000 82,508,000 ------------ ------------ Noncurrent liabilities: Long-term debt 43,000 10,082,000 Convertible subordinated debentures 41,593,000 41,593,000 Other noncurrent liabilities 17,613,000 17,346,000 ------------ ------------ Total noncurrent liabilities 59,249,000 69,021,000 ------------ ------------ Stockholders' equity: Common stock, par value $.10 per share Authorized - 120,000,000 shares Issued - 52,170,994 shares and 52,076,674 shares 5,217,000 5,207,000 Additional paid-in capital 80,093,000 79,805,000 Retained earnings 92,912,000 140,444,000 ------------ ------------ 178,222,000 225,456,000 Less treasury stock, at cost, 3,025,648 shares and 2,797,791 shares 38,403,000 36,904,000 ------------ ------------ 139,819,000 188,552,000 ------------ ------------ $315,527,000 $340,081,000 ============ ============
See Notes to Consolidated Condensed Financial Statements. 4 5 CML GROUP, INC. & SUBSIDIARIES Consolidated Condensed Statements of Operations ----------------------------------------------- For the periods ended January 27, 1996 and January 28, 1995
Three Months Six Months --------------------------- --------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- Net sales $222,547,000 $278,992,000 $331,412,000 $408,190,000 ------------ ------------ ------------ ------------ Less costs and expenses: Cost of goods sold 107,492,000 106,263,000 156,087,000 156,572,000 Selling, general and administrative expenses 135,738,000 112,512,000 219,777,000 188,372,000 Interest expense 1,041,000 376,000 1,573,000 953,000 ------------ ------------ ------------ ------------ 244,271,000 219,151,000 377,437,000 345,897,000 ------------ ------------ ------------ ------------ Income (loss) from continuing operations before income taxes and extraordinary credit (21,724,000) 59,841,000 (46,025,000) 62,293,000 Provision (benefit) for income taxes (7,286,000) 22,938,000 (16,569,000) 23,858,000 ------------ ------------ ------------ ------------ Income (loss) from continuing operations before extraordinary credit (14,438,000) 36,903,000 (29,456,000) 38,435,000 ------------ ------------ ------------ ------------ Discontinued operations: Income from operations, net of income taxes -- 3,650,000 -- 2,999,000 Provision for loss on disposal, net of income tax benefit (15,615,000) -- (15,615,000) -- ------------ ------------ ------------ ------------ (15,615,000) 3,650,000 (15,615,000) 2,999,000 ------------ ------------ ------------ ------------ Income (loss) before extraordinary credit (30,053,000) 40,553,000 (45,071,000) 41,434,000 Extraordinary credit - early extinguishment of debt, net of income taxes -- 1,125,000 -- 1,125,000 ------------ ------------ ------------ ------------ Net income (loss) ($30,053,000) $ 41,678,000 ($45,071,000) $ 42,559,000 ============ ============ ============ ============ Earnings (loss) per share: Income (loss) from continuing operations before extraordinary credit: Primary ($0.29) $0.73 ($0.60) $0.76 ===== ===== ===== ===== Fully diluted ($0.29) $0.71 ($0.60) $0.75 ===== ===== ===== ===== Income (loss) before extraordinary credit: Primary ($0.61) $0.80 ($0.91) $0.82 ===== ===== ===== ===== Fully diluted ($0.61) $0.78 ($0.91) $0.80 ===== ===== ===== ===== Net income (loss): Primary ($0.61) $0.82 ($0.91) $0.84 ===== ===== ===== ===== Fully diluted ($0.61) $0.80 ($0.91) $0.82 ===== ===== ===== ===== Weighted average number of shares outstanding 49,559,508 50,680,233 49,665,626 50,743,006
See Notes to Consolidated Condensed Financial Statements. 5 6 CML GROUP, INC. & SUBSIDIARIES Consolidated Condensed Statements of Cash Flows -----------------------------------------------
For the Six Months Ended ----------------------------------------- January 27, 1996 January 28, 1995 ---------------- ---------------- Cash flows from operating activities: Net income (loss) ($45,071,000) $ 42,559,000 ------------ ------------ Adjustments to reconcile net income (loss) to net cash provided by operating activities: Provision for loss on disposal of discontinued operation 24,023,000 -- Gain on early extinguishment of debt -- (1,814,000) Depreciation and amortization 15,931,000 14,496,000 Loss on disposal of property, plant and equipment 2,268,000 2,939,000 Changes in working capital items 39,734,000 600,000 (Increase) decrease in other assets 1,445,000 (2,476,000) Increase in other noncurrent liabilities 530,000 1,648,000 ------------ ------------ Total adjustments 83,931,000 15,393,000 ------------ ------------ Net cash provided by operating activities 38,860,000 57,952,000 ------------ ------------ Cash flows from investing activities: Additions to property, plant and equipment (16,137,000) (19,918,000) Reduction in notes receivable 31,000 40,000 ------------ ------------ Net cash used in investing activities (16,106,000) (19,878,000) ------------ ------------ Cash flows from financing activities: Decrease in long-term debt (10,055,000) (1,121,000) Acquisition of convertible debentures -- (5,778,000) Dividends paid (2,461,000) (2,001,000) Exercise of stock options 95,000 282,000 Acquisition of treasury stock (1,296,000) (2,179,000) ------------ ------------ Net cash used in financing activities (13,717,000) (10,797,000) ------------ ------------ Net increase in cash and cash equivalents during the period 9,037,000 27,277,000 Cash and cash equivalents at the beginning of the period 8,338,000 28,929,000 ------------ ------------ Cash and cash equivalents at the end of the period $ 17,375,000 $ 56,206,000 ============ ============
See Notes to Consolidated Condensed Financial Statements. 6 7 CML GROUP, INC & SUBSIDIARIES Notes to Consolidated Condensed Financial Statements ---------------------------------------------------- Note 1 - ------ The accompanying consolidated condensed financial statements and notes should be read in conjunction with the financial statements contained in the Company's Annual Report on Form 10-K. In the opinion of management, the accompanying consolidated condensed financial statements include all adjustments necessary for a fair presentation of the results of the interim periods presented and, except for the adjustments relating to the decision to sell Britches of Georgetowne (see Note 2), all such adjustments are of a normal recurring nature. The retail industry is seasonal in nature and the results of operations for the interim periods presented may not be indicative of the results for a full year. Certain 1995 amounts have been reclassified to conform to the 1996 presentation. Note 2 - Discontinued Operation - ------------------------------- In March 1996, the Company signed a letter of intent for the sale of its Britches of Georgetowne subsidiary for a cash purchase price of $13.5 million, plus the assumption of liabilities, subject to certain adjustments. In connection with the planned sale of Britches, the Company recorded an additional provision for loss on disposal, in the second quarter of fiscal 1996, of $15,615,000, net of an income tax benefit of $8,408,000. The pretax provision for loss on disposal includes a further write-down of Britches' net assets to estimated net realizable value and the accrual of estimated operating losses through the expected sale date. The estimated net realizable value of Britches' net assets has been included in current assets on the accompanying consolidated condensed balance sheet at January 27, 1996. The sale is subject to negotiation and execution of a definitive purchase agreement. Note 3 - Long-term Debt - ----------------------- Consolidated long-term debt is summarized as follows:
January 27, 1996 July 31, 1995 ---------------- ------------- Revolving credit loan $ -- $10,000,000 Note payable 119,000 199,000 Obligations under capital leases 111,000 86,000 -------- ----------- 230,000 10,285,000 Less current portion 187,000 203,000 -------- ----------- Long-term debt $ 43,000 $10,082,000 ======== ===========
The Company is in violation of certain covenants under its existing $55 million revolving credit facility and is restricted from borrowing under such facility. The Company's lenders, however, continue to issue letters of credit on behalf of the Company and the Company had letters of credit outstanding in an aggregate amount of $20,484,000 as of January 27, 1996. The Company has signed a commitment letter with two banks for a new three-year $100 million revolving credit facility to be secured by the assets of the Company and its subsidiaries. The new facility, which is subject to completion of due diligence and execution of a definitive agreement, will include requirements relating to the achievement of certain earnings levels by NordicTrack and The Nature Company. 7 8 In addition, the agreement will restrict dividends and advances between the Company and its subsidiaries. Advances outstanding under the agreement will bear interest at the prime rate plus 3/4 of 1%. Note 4 - Contingencies - ---------------------- Litigation ---------- In May 1994, ICON Health & Fitness, Inc. ("ICON") commenced a civil suit against NordicTrack in the United States District Court for the District of Utah alleging infringement of three patents arising out of NordicTrack's design of its WalkFit treadmill and certain other similar products. Discovery has been completed. In November 1995, the Court granted NordicTrack's Motion for Summary Judgment relating to one of ICON's three patent infringement claims. ICON's other two claims have been scheduled for trial during the summer of 1996. While the Company believes it has meritorious defenses, no assurance can be given of a favorable outcome in the ICON lawsuit. An unfavorable outcome could have a material adverse effect on the Company's operating results for the period in which such decision occurs and could also have a material adverse effect on the Company's financial condition. 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. Included in the Company's loss from continuing operations for the quarter ended January 27, 1996 is a $4.0 million pre-tax charge for the settlement of this claim in January 1996. 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 to dismiss this lawsuit. A hearing on this motion was held on December 14, 1995. In February 1996, NordicTrack agreed to a proposed consent agreement with the Federal Trade Commission ("FTC") to settle allegations that it made false and unsubstantiated weight loss and weight maintenance claims in advertising its cross-country ski exercise machines. The FTC alleged that NordicTrack based these claims on studies with various methodological flaws. The proposed consent agreement would prohibit NordicTrack from misrepresenting the existence or results of any study or survey relating to weight loss and making certain claims with respect to its exercise equipment without reliable supporting evidence. The proposed consent agreement will be published in the Federal Register and will be subject to public comment for 60 days, after which the FTC will decide whether to make it final. No civil penalties are expected to be imposed by the FTC as a result of the proposed consent agreement. 8 9 On or about February 23, 1996, an alleged purchaser of a NordicTrack cross-country ski exercise machine filed a Class Action Complaint, entitled Elissa Crespi, on behalf of Herself and All Other Similarly Situated v. NordicTrack, Inc., against NordicTrack in the Supreme Court of the State of New York, County of New York (the "Crespi Complaint"). On or about February 26, 1996, another alleged purchaser of a cross-country ski exercise machine filed a Class Action Complaint in the same court, entitled Wendy Penel, on behalf of Herself and All Others Similarly Situated, v. NordicTrack, Inc. (the "Penel Complaint"). The Crespi Complaint alleges that NordicTrack made false and misleading claims concerning the weight-loss of persons using its ski-exerciser and thereby defrauded its customers, breached warranties and violated Section 349 of the New York General Business Law. The Penel Complaint alleges that NordicTrack misrepresented the results of a weight-loss study and made unsubstantiated claims regarding weight loss and/or weight maintenance benefits from the use of NordicTrack's cross-country ski exercise machines. The Penel Complaint asserts claims of negligent misrepresentation, breach of an express warranty, and common law fraud. Each plaintiff seeks to represent a class consisting of all persons in the United States who purchased NordicTrack ski exercisers. The plaintiff in the Crespi Complaint seeks for herself and the alleged class unspecified actual and punitive damages, rescission, attorneys' fees, costs and an order requiring NordicTrack to make corrective disclosures. The plaintiff in the Penel Complaint seeks restitution of all amounts paid by her and the alleged class members for NordicTrack cross-country ski exercise machines, together with interest, attorneys' fees, costs, and any additional and consequential damages for injuries suffered by the plaintiff and alleged class members. NordicTrack believes it has meritorious defenses to these complaints and intends to vigorously contest these lawsuits. These lawsuits are in the earliest stages and the Company is unable to determine the likelihood and possible impact on the Company of unfavorable outcomes. 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. 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 9 10 were less than the EPA originally estimated. The EPA has implemented 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. Tax Matters ----------- The Internal Revenue Service ("IRS") has been engaged in an examination of the Company's tax returns for the fiscal years 1987 through 1991. The Company has been advised by the IRS that the examination will be completed in the near future. Although the Company has not received an official notice, based on recent discussions with IRS personnel, the Company expects that the IRS will propose certain adjustments which, if sustained by the IRS, would result in a tax deficiency for the years under examination. The adjustments expected to be proposed by the IRS primarily relate to: (i) the disallowance of deductions taken by the Company with respect to incentive compensation payments made to the former owners of NordicTrack (acquired in June 1986) and to the former owners of Britches of Georgetowne (acquired in August 1983); and (ii) the valuation of certain assets acquired in connection with the acquisition of Britches. The Company believes that the tax deductions taken were valid and in accordance with the Internal Revenue Code. However, at this stage no assurance can be given of a favorable outcome on these matters. If the IRS proposed adjustments are sustained, any back taxes owed and associated interest could have a material adverse effect on the Company's operating results for the period in which such issues are finally resolved and could also have a material adverse effect on the Company's financial condition. Note 5 - Dividends - ------------------ On December 1, 1995, the Board of Directors declared a cash dividend of $0.025 per share, payable March 21, 1996 to shareholders of record as of March 6, 1996. 10 11 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized. CML GROUP, INC. Date: March 15, 1996 By: /s/Glenn E. Davis ----------------- Glenn E. Davis Vice President, Finance Principal Financial Officer 11 -----END PRIVACY-ENHANCED MESSAGE-----