<PAGE> 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, 1994
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)
<TABLE>
<S> <C>
DELAWARE 04-2451745
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
524 MAIN STREET, ACTON, MASSACHUSETTS 01720
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (508) 264-4155
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
-------------------------------- -----------------------
<S> <C>
Common Stock, $.10 par value New York Stock Exchange
Preference Stock Purchase Rights New York Stock Exchange
</TABLE>
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 $435,954,342 based on the closing price of the
Common Stock as reported on the New York Stock Exchange on October 15, 1994.
Number of shares of Common Stock outstanding as of October 15, 1994:
49,987,789 shares.
Page 1 of 51 Pages
Exhibit Index Begins at Page 44
<PAGE> 2
<TABLE>
Documents Incorporated by Reference
<CAPTION>
Part of Report into
Documents which Incorporated
--------- -------------------
<S> <C>
Portions of Proxy Statement for the Items 10, 11, 12 & 13 of
Annual Meeting of Stockholders to be Part III
held December 1, 1994 to be filed with the
Securities and Exchange Commission on
or about November 2, 1994 pursuant to
Reg. 240.14a-6(b) under the Securities
Exchange Act of 1934.
</TABLE>
2
<PAGE> 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; (ii) nature-,
gardening-, music- and science-related gifts and accessories; and (iii) high
quality men's apparel. 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,
1994, the Company operated 318 retail stores and 20 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], Britches of Georgetowne [R] and Britches Great
Outdoors [TM].
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.
In the last five years, the Company has sold four subsidiaries and
restructured the operations of three divisions as part of its strategy
to focus on businesses which have the greatest growth prospects and
offer the greatest potential return on investment. During fiscal 1992,
the Company decided to restructure the remaining operations of its
Britches for Women and Mason & Sullivan divisions by eliminating major
product lines and consolidating stores, offices and distribution
facilities
CML may make acquisitions in the future to complement and expand
its current business operations. Criteria used by the Company in
evaluating potential acquisitions include high-quality proprietary
consumer products, specialty marketing capabilities, potential fit with
one of the Company's existing businesses and commitment of the existing
management team.
CML's specialty retailing companies comprise three 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; (ii) The
Nature Company 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 two early stage retail concepts, Hear
Music and Scientific Revolution that sell music- and science-related
merchandise, respectively; and (iii) Britches for Men markets high
quality men's apparel through its own retail stores.
Britches sells its products through two separate retail formats:
(i) Britches Great Outdoors stores sell men's and unisex sportswear and
casual outdoor clothing and (ii) Britches of Georgetowne stores sell
men's tailored professional business clothing.
3
<PAGE> 4
Information on each of the Company's industry segments is
presented in Note 10 - Industry Segments of Notes to Consolidated
Financial Statements.
For the fiscal year ended July 31, 1994, approximately 57.3% of
the Company's total revenues was derived from retail stores and mall
kiosks compared to approximately 55.5% in fiscal 1993 and 55.9% in
fiscal 1992. In fiscal 1994, direct response and mail order sales
accounted for approximately 42.7% of total revenues compared to 44.5% in
fiscal 1993 and 44.1% in fiscal 1992.
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 products are also sold by 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 procuct line consists of several models of
cross country ski exercisers which range in price from $300 to $1,500.
NordicTrack's cross country ski exercisers utilize a unique 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. In November 1993, NordicTrack introduced Walkfit [TM], a
nonmotorized treadmill with a price of approximately $600.
NordicTrack's principal anaerobic product, the NordicFlex Gold [TM],
was introduced in December 1991. NordicFlex Gold is offered in two models at
$1,000 and $1,300. The NordicFlex Gold incorporates a unique isokinetic
resistance device which provides resistance in relation to the force exerted.
The NordicFlex Gold provides users the upper and lower body exercise needed to
build and maintain strength, muscle tone and flexibility, and allows the user
to tailor an individual fitness program with 32 different exercises.
During fiscal 1994, approximately 37.1% of NordicTrack's net sales was
derived from NordicAdvantage's retail operations, and the remaining 62.9% was
derived from its direct response and mail order operations. NordicAdvantage
opened 41 retail stores during fiscal 1994 compared to 29 and 15 stores opened
during fiscal 1993 and 1992, respectively. At the end of fiscal 1994,
NordicAdvantage operated 88 stores compared to 47 stores at July 31, 1993.
NordicAdvantage plans to open 25 stores during fiscal 1995. These stores are
generally approximately 1,300 square feet in size and are located in high
traffic urban and suburban malls in affluent areas. 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.
4
<PAGE> 5
NordicTrack operates a retail store in Germany and a retail store and
direct response marketing facility in the United Kingdom. To date,
international sales have not been significant.
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
- - ------------------
The Nature Company segment includes The Nature Company which
creates, sources and sells products that enhance observation,
understanding and appreciation of the natural world; Smith & Hawken, a
leading marketer of gardening tools, plants and accessories, acquired in
February 1993; and two early stage retail concepts, Hear Music and
Scientific Revolution, that sell music- and science-related merchandise,
respectively. 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 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 an older customer than
most music stores. Scientific Revolution sells merchandise that
celebrates great accomplishments in science, exploration and the
ingenuity of mankind.
During fiscal 1994, approximately 78.5% of The Nature Company
segment's sales was derived from its retail operations, and the
remaining 21.5% was derived from its mail order operations. The Nature
Company segment opened 22 stores during fiscal 1994 compared to 29
stores opened during fiscal 1993. At the end of fiscal 1994, The Nature
Company segment operated 133 stores compared to 111 stores at the end
of fiscal 1993. The segment's retail stores, which vary in size from
1,290 square feet to 8,200 square feet and average 2,889 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. The Nature Company segment plans to open
approximately 20 stores during fiscal 1995.
The Nature Company segment mailed approximately 25 million catalogs
during fiscal 1994 and generated $43.0 million in total mail-order revenues.
The companies included in The Nature Company segment currently share
executive management, real estate services, order processing services,
fulfillment and distribution services, accounting and finance and management
information services and systems. The Nature Company 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 segments.
Britches for Men
- - ----------------
Men's tailored professional clothing is sold 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.
5
<PAGE> 6
BGT stores, which vary in size from 3,219 square feet to 7,536 square
feet and average 5,268 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, 1994 and
1993. The Company does not plan to open any BGT stores during
fiscal 1995.
Men's sportswear and casual outdoor clothing, designed for casual
weekend living, are sold 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").
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 6,484 square feet and average 3,688
square feet. Britches opened 27 new BGO stores during fiscal 1994
compared to six BGO stores opened during fiscal 1993. At the end of
fiscal 1994, Britches operated 83 BGO stores compared to 56 stores at
the end of fiscal 1993. The Company plans to open 12 BGO stores during
fiscal 1995.
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.
<TABLE>
Shown below are the Company's principal trade names and trademarks
and the estimated number of years in existence:
<CAPTION>
Principal Trade Names Years in
and Trademarks Existence
----------------------- ---------
<S> <C>
NordicTrack [R] Over 15
NordicAdvantage, Inc. [TM] Over 3
The Nature Company [TM] Over 15
Smith & Hawken [R] Over 10
Hear Music Over 3
Britches Great Outdoors [TM] Over 20
Britches of Georgetowne [R] Over 25
</TABLE>
Distribution
- - ------------
NordicTrack's products are manufactured principally at its
Glencoe, Minnesota production facility and shipped from that facility to
its direct response customers. NordicTrack products are also sold by
its wholly-owned subsidiary, NordicAdvantage which operates specialty
retail stores and kiosks. The Nature Company segment's products are
6
<PAGE> 7
shipped by its suppliers to its distribution center in Florence,
Kentucky and reshipped by The Nature Company 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
Suppliers
- - ---------
The Company has many domestic and foreign suppliers, none of which
accounts for more than 5% of its purchases. Generally, the Company is
not dependent upon any single source for any 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
three facilities in Minnesota comprising approximately 277,000 square feet of
manufacturing space. 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. Many of the competitors of The Nature Company, Smith &
Hawken, Hear Music and Britches 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.
NordicTrack competes with other companies which design, manufacture and
distribute physical fitness and exercise equipment. NordicTrack's competitors
include Soloflex, Inc., Proform Fitness Products, Inc., Diversified Products
Corp., Road Master Industries, Inc. and Consumer Direct, Inc.
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.
Smith & Hawken competes with mail order catalogs which sell
gardening-related merchandise such as Gardeners'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 and Land's End. BGT and BGO also compete with smaller,
generally regional specialty stores.
7
<PAGE> 8
Competition in the direct response and mail order business
has intensified in recent years due to an increase in both the number of
competitors and in the number of catalogs mailed.
Seasonality
- - -----------
<TABLE>
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 in each
quarter of fiscal 1994:
<CAPTION>
Percentage
Fiscal Quarter Ended of Sales
-------------------- ----------
<S> <C>
October 18%
January 38%
April 25%
July 19%
----
Total 100%
====
</TABLE>
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 52% and 61% of
the Company's working capital assets, excluding cash and cash
equivalents, at July 31, 1994 and 1993, 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,
Britches of Georgetowne 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 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
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<PAGE> 9
activities by the owners of the adjoining parcel. Representatives of
the Company have engaged in discussions with the EPA regarding
responsibility for the environmental problems and the costs of cleanup.
The owners of the adjoining parcel are bankrupt. The EPA commenced
cleanup activities at the site in July 1992.
The EPA has expended approximately $1.4 million for the removal
phase of the site cleanup which has now been completed. The EPA had
estimated that the removal costs would exceed $3.0 million, but only a
small portion of the solid waste removed from the site was ultimately
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 recently begun to implement the groundwater phase of the
cleanup, which was originally estimated by the EPA to cost approximately
$4.0 million.
The Company believes that the EPA's estimated cost for cleanup,
including the 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 a former subsidiary at a
hazardous waste treatment and storage facility in Southington,
Connecticut. The EPA has calculated the Company's volumetric
contribution at less than two tenths of one percent. The EPA has not
completed its Remedial Investigation/Feasibility Study and, therefore,
an estimate of cleanup costs is not available.
Employees
- - ---------
At July 31, 1994, 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.
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. A
NordicTrack subsidiary operates a retail store in Germany and a retail store
and direct response marketing facility in the United Kingdom. The Nature
Company has licensed the right to use its name, trademarks and generally to
copy its design concept, trade dress and merchandise to licensees in Japan and
Australia. At July 31, 1994, the Japanese and Australian licensees operated
11 and 7 retail stores, respectively.
Sales between the Company's operating units are not significant.
9
<PAGE> 10
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.
<TABLE>
Shown below is a summary of the Company's principal facilities at
July 31, 1994.
<CAPTION>
Square Feet
----------------------------
Owned Leased Total
----- ------ -----
<S> <C> <C> <C>
Distribution Facilities
for Direct Response, Mail
Order and Retail Operations 90,500 687,300 777,800
Retail Selling Space 8,958 869,160 878,118
Manufacturing Space 232,500 45,000 277,500
Office and Administrative
Space 180,500 128,000 308,500
-------- ---------- ----------
Total 512,458 1,729,460 2,241,918
======== ========== ==========
</TABLE>
The leases covering the Company's distribution, retail and manufacturing
facilities expire at various dates over the next 16 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 1994 was approximately $39.9 million. For additional
information regarding the Company's lease obligations, see Note 9-
Commitments and Contingencies of Notes to Consolidated Financial
Statements.
Item 3. Legal Proceedings
-----------------
In October 1992, The Nature Company filed a lawsuit against
Natural Wonders, Inc. in the United States District Court for the
Northern District of California which seeks both damages and injunctive
relief to remedy alleged false representations, intellectual property
infringement and unfair competition by Natural Wonders. In November
1992, Natural Wonders responded by filing counterclaims against The
Nature Company alleging unfair competition, interference with Natural
Wonders' contractual relations and prospective business advantage in
violation of state and federal antitrust laws, and seeking damages
treble the amount to be proved at trial. The Nature Company is
opposing the counterclaim.
The lawsuit with Natural Wonders is still in the discovery stage
and, while the Company believes that it will prevail, no assurance can
be given of a favorable outcome. The Company believes that an
unfavorable outcome would not have a material adverse effect on the
Company's financial condition but could adversely affect the Company's
operating results for the period or periods in which such outcome
occurs.
In May 1993, Soloflex, Inc. commenced a civil suit against
NordicTrack in the United States District Court for the District of
Oregon alleging false advertising, intellectual property
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<PAGE> 11
infringement, trademark dilution and other common law causes of action,
all allegedly arising out of NordicTrack's advertising. On September
28, 1994, NordicTrack settled the lawsuit with Soloflex and recorded a
charge of $4,000,000 against its 1994 results to cover its share of the
legal costs associated with this suit.
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.
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, 1994.
Executive Officers of the Company
- - ---------------------------------
<TABLE>
The executive officers of the Company are as follows:
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Charles M. Leighton 59 Chairman of the Board of Directors and Chief Executive Officer
G. Robert Tod 55 President, Chief Operating Officer and Director
Robert J. Samuelson 41 Senior Vice President, Chief Financial Officer
Glenn E. Davis 40 Vice President and Controller
</TABLE>
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.
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.
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<PAGE> 12
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".
<TABLE>
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.
<CAPTION>
Fiscal 1994 Fiscal 1993
----------- -----------
Quarter High Low High Low
------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First $32.38 $19.33 $21.08 $13.58
Second 32.12 16.75 24.00 18.50
Third 22.50 13.50 26.17 17.33
Fourth 15.12 8.50 29.33 18.50
</TABLE>
The Company declared cash dividends of $0.08 and $0.06 per share on its
Common Stock during fiscal 1994 and fiscal 1993, respectively.
The number of shareholders of record of the Company's Common Stock as of
October 6, 1994 was 5,156.
<TABLE>
Item 6. Selected Financial Data
------------------------
(in thousands, except per share data)
<CAPTION>
Year Ended July 31,
-------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $772,397 $645,468 $494,456 $338,854 $278,815
Income from continuing
operations before extra-
ordinary credit and cumulative
effect of accounting change 51,719 57,933 36,751 20,718 13,954
Income per share from
continuing operations before extra-
ordinary credit and cumulative
effect of accounting change 1.00 1.11 0.71 0.45 0.33
Cash dividends declared per share 0.08 0.06 0.03 --- ---
Working capital 103,742 101,191 26,456 16,923 37,977
Total assets 384,663 340,171 218,806 163,734 171,634
Noncurrent liabilities 84,356 80,719 25,431 72,462 116,018
Stockholders' equity 219,237 184,250 130,017 49,678 25,364
</TABLE>
12
<PAGE> 13
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
---------------------
Introduction
The Company and its subsidiaries operate in three 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; (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 observation, understanding and appreciation of
nature; Smith & Hawken, a leading marketer of gardening tools, plants and
accessories, acquired in February 1993; and two early stage retail concepts,
Hear Music and Scientific Revolution, that sell music- and science-related
merchandise, respectively, and (iii) Britches markets high quality men's
apparel through its own retail stores. Industry segment information is
presented in Note 10 of Notes to Consolidated Financial Statements.
Results of Operations - Fiscal 1994 and 1993
CML Consolidated
Net sales increased by $126.9 million to $772.4 million, or 19.7% over 1993.
Income from continuing operations was $51.7 million in 1994 compared to $57.9
million in 1993, a decrease of 10.7%.
Retail store sales in 1994 increased $84.2 million, or 23.5%, over 1993 to
$442.6 million. The increase in retail store sales was attributable to new
stores at NordicAdvantage, The Nature Company and Britches. During 1994,
NordicAdvantage, The Nature Company and Britches opened 41, 22 and 27 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 42.7% in 1994 from 44.5% in 1993 and 44.1% in 1992.
The Company expects future growth will primarily result from a growth in
retail sales due to the opening of new NordicAdvantage, Smith & Hawken and
Hear Music stores.
During 1994 the Company continued to test certain of its concepts
internationally. The Company plans to continue such tests but does not expect
the results of its international operations to be significant for the next
several years.
Cost of goods sold decreased as a percentage of sales to 38.2% in 1994 from
39.3% in 1993. Selling, general and administrative expenses increased as a
percentage of sales from 45.6% in 1993 to 51.0% 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 markon at Britches
and The Nature Company. The increase in selling, general and administrative
expenses as a percentage of sales was primarily due to higher direct marketing
expenses at NordicTrack and fixed costs at stores which experienced a decrease
in comparable store sales during 1994.
Interest expense increased by $0.7 million, or 38.9%, from 1993 to $2.5 million
in 1994 primarily due to the inclusion for an entire year of the $57.5 million
of 5 1/2% convertible subordinated debentures which were issued during
1993. As a percentage of sales, interest expense remained unchanged at 0.3%.
The provision for income taxes decreased as a percentage of pretax income from
40.0% in 1993 to 36.3% in 1994 primarily due to the carryback of capital
losses to prior years.
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. During 1994, NordicTrack accounted for approximately 59.0% and
93.2% of the Company's consolidated sales and operating income before corporate
expenses, respectively. In 1993, approximately 58.5%
13
<PAGE> 14
of the Company's consolidated sales and approximately 91.6% of the Company's
consolidated operating income before corporate expenses and restructuring
charges 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 direct marketing expenses and costs associated with settlement of the
Soloflex 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 expects to continue opening new stores and developing and marketing
new physical fitness and exercise equipment and other health-related products.
NordicTrack expects to make significant capital expenditures in 1995 for new
retail stores and additional equipment for its manufacturing, distribution and
telemarketing facilities. NordicTrack currently expects to spend $6.2 million
for 25 new retail stores in 1995. The Company believes the opening of new
stores will have a positive effect on operating results in 1995 and beyond.
The Nature Company Segment
Net sales increased by 23.4% from $162.2 million in 1993 to $200.2 million in
1994 due to the opening of 22 new retail stores and the inclusion of
Smith & Hawken, 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 plans to increase the number of new Smith & Hawken
and Hear Music store openings and to reduce the number of new Nature Company
store openings in 1995. The Nature Company and Smith & Hawken expect to
continue developing and marketing proprietary products. The Company also plans
to continue testing and expanding its music and science concepts which are not
expected to contribute significantly to the Company's overall results of
operations for the next few years.
The Nature Company segment expects to make significant capital expenditures in
1995 for new retail stores and additional equipment for its data processing,
distribution and telemarketing facilities. The Nature Company segment currently
expects to spend $10.0 million for 20 new stores in 1995. The Company believes
the new stores will contribute positively to operating results in 1995 and
subsequent years.
Britches of Georgetowne
As a result of the decision made during 1992 to close the Britches for Women
division, Britches operates in one industry segment, men's clothing. This
segment consists of Britches Great Outdoors for Men which sells men's casual
outdoor clothing and Britches of Georgetowne which sells men's tailored
professional clothing.
Sales of the Britches for Men division increased $11.1 million or 10.5% from
$105.5 million in 1993 to $116.6 million in 1994. The increase in sales was due
primarily to the opening of 27 Britches Great Outdoors stores during 1994.
Comparable store sales decreased by 5.4% during 1994. Gross margin for the
Britches for Men division increased from 48.5% in 1993 to 48.9% in 1994
primarily due to a higher initial markup.
Selling, general and administrative expenses increased from 45.7% of sales in
1993 to 46.7% of sales in 1994 primarily due to fixed costs at stores which
experienced a decrease in comparable store sales during 1994. Operating income
decreased from $3.0 million, or 2.8% of sales, in 1993 to $2.6 million, or 2.2%
of sales, in 1994.
14
<PAGE> 15
Britches expects to continue opening Britches Great Outdoors stores and
developing and marketing high quality men's apparel under its own private
label.
Britches expects to make significant capital expenditures in 1995 for new
retail stores and additional equipment for its data processing and distribution
facilities. Britches currently expects to spend $5.0 million for 12 new retail
stores in 1995. The Company believes the opening of new stores will have a
positive effect on operating results in 1995 and future years.
Results of Operations - Fiscal 1993 and 1992
CML Consolidated
Net sales increased by $151.0 million to $645.5 million, or 30.5% over 1992.
Income from continuing operations was $57.9 million in 1993 compared to $36.8
million in 1992, an increase of 57.3%.
Retail store sales in 1993 increased $82.2 million, or 29.8%, over 1992 to
$358.4 million. The increase in retail store sales was attributable primarily
to new stores at NordicAdvantage, The Nature Company and Britches and an
increase in comparable store sales at NordicAdvantage. During 1993,
NordicAdvantage, The Nature Company and Britches opened 29, 29 and 6 stores,
respectively. Britches closed two stores during 1993.
Direct response and mail order sales in 1993 increased $68.8 million, or 31.5%,
over the prior year to $287.1 million. The percentage of the Company's total
sales derived from direct response and mail order increased from 44.1% in
1992 to 44.5% in 1993. 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.
Cost of goods sold increased as a percentage of sales from 39.1% in 1992 to
39.3% in 1993. Selling, general and administrative expenses increased as a
percentage of sales from 45.1% in 1992 to 45.6% in 1993. The increase in cost
of goods sold as a percentage of sales was primarily due to the introduction of
new products at NordicTrack, markdowns at The Nature Company and the
acquisition of Smith & Hawken. The increase in selling, general and
administrative expenses as a percentage of sales was primarily due to the new
products at NordicTrack and an increase in the proportion of NordicTrack's
consolidated sales attributable to retail stores. NordicTrack's new products
typically have lower gross margins and higher marketing costs than its more
established products.
Interest expense increased $0.5 million, or 38.5%, from 1992 to $1.8 million in
1993. As a percentage of sales, interest expense remained unchanged at 0.3%.
During 1993, the Company issued $57.5 million of convertible subordinated
debentures due 2003. The debentures which bear interest at 5 1/2% annually are
convertible under certain circumstances into common stock at $25.917 per share.
NordicTrack
Net sales increased from $266.8 million in 1992 to $377.8 million in 1993, or
41.6%. Retail store and kiosk sales increased $54.2 million, or 85.2%, to
$117.8 million in 1993 compared to $63.6 million in 1992. Direct response and
mail order sales increased $56.8 million, or 28.0%, to $260.0 million in 1993
from $203.2 million in 1992. The increase in retail sales was due to the
opening of 29 retail stores and a 26.7% increase in comparable store sales.
NordicTrack's gross margin decreased from 71.1% in 1992 to 68.3% in 1993
primarily due to manufacturing inefficiencies associated with the introduction
of new products. Selling, general and administrative expenses increased as a
percentage of sales from 40.1% in 1992 to 41.8% in 1993 primarily due to higher
advertising and other marketing expenses resulting from the development and
introduction of new products and a larger proportion of retail store sales.
Operating income increased $17.4 million or 21.0% from $82.8 million in 1992 to
$100.2 million in 1993. Operating income decreased as a percentage of sales
from 31.0% in 1992 to 26.5% in 1993.
NordicTrack spent approximately $19.9 million on capital expenditures
during 1993 primarily for new retail stores and additional manufacturing,
telemarketing and data processing facilities and related equipment.
15
<PAGE> 16
The Nature Company Segment
Net sales increased by 39.2% from $116.5 million in 1992 to $162.2 million in
1993 primarily due to the opening of 29 new retail stores and the acquisition
of Smith & Hawken in February 1993. Retail store sales increased $31.2 million
or 30.0% to $135.2 million in 1993 compared to $104.0 million in 1992. Mail
order sales increased $14.5 million to $27.0 million in 1993 from $12.5 million
in 1992 primarily due to $13.6 million of mail order sales at Smith & Hawken.
Comparable store sales decreased by 1.4% during 1993.
The Nature Company segment's gross margin decreased to 51.0% in 1993 from 52.2%
in 1992 due to higher markdowns, the acquisition of Smith & Hawken which has
lower gross margins and the start-up of two new retail test concepts, Hear
Music and Scientific Revolution, which also have lower gross margins.
The Nature Company segment's selling, general and administrative expenses
increased as a percentage of sales from 44.8% in 1992 to 47.2% in 1993.
Operating income decreased from $8.5 million, or 7.3% of sales, in 1992 to $6.2
million, or 3.8% of sales, in 1993.
The Nature Company segment spent approximately $16.4 million on capital
expenditures during 1993 primarily for new retail stores and additional
distribution, data processing and telemarketing facilities and related
equipment.
Britches of Georgetowne
Sales of the Britches for Men division increased $11.4 million or 12.1% from
$94.1 million in 1992 to $105.5 million in 1993. The increase in sales was
primarily due to the opening of 6 Great Outdoors stores during 1993. Comparable
store sales increased by 0.4%, during 1993. Gross margin for the Britches for
Men division increased from 45.9% in 1992 to 48.5% in 1993 due primarily to a
higher initial markup.
Selling, general and administrative expenses increased from 43.7% of sales in
1992 to 45.7% of sales in 1993. Operating income increased from $2.1 million,
or 2.2% of sales, in 1992 to $3.0 million, or 2.8% of sales, in 1993.
Britches spent approximately $7.5 million on capital expenditures during 1993
primarily for new retail stores and related equipment.
Restructuring Charges
During the third quarter of 1992, the Company recorded a restructuring charge
of $11.2 million relating to the elimination of major product lines and the
consolidation of stores, offices and distribution facilities of the Company's
Britches Great Outdoors for Women and Mason & Sullivan divisions.
Approximately $7.7 million of the total restructuring charge related to the
closing of Britches Great Outdoors for Women. The restructuring charge
consisted primarily of the writeoff of fixed assets and estimated lease
termination costs. During 1993, the Company completed a substantial part of the
consolidation of the division on terms which were more favorable than
originally estimated and accordingly, reversed $1.0 million of the
restructuring charges recorded during 1992.
Approximately $3.5 million of the restructuring charge related to the closing
of Mason & Sullivan. The restructuring charge consisted primarily of the
writeoff of goodwill and fixed assets.
The Company believes that since these divisions have historically generated
operating losses, the closing of the divisions will have a positive effect on
the future operating results of the Company.
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 continuing operations and growth. In
1994, net cash provided by operating activities was $45.5 million compared with
$70.9 million in 1993 and $59.1 million in 1992. The decrease in 1994 was
primarily due to increased investment in working capital and lower operating
results partially offset by higher depreciation and amortization. Depreciation
and amortization has increased from $13.1 million in 1992 to $18.8 million in
1993 to $24.2 million in 1994 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 1994
of $2.9 million was primarily due to dispositions of assets at NordicTrack and
Britches. The Company's
16
<PAGE> 17
investment in working capital increased $13.0 million, $8.6 million and $34.7
million in 1992, 1993 and 1994, respectively. The increased investment in
working capital in 1994 was primarily used to fund growth in all three industry
segments.
Cash Flows from Investing Activities
In 1994, net cash used in investing activities was $61.0 million compared with
$59.6 million in 1993 and $43.4 million in 1992.
Capital expenditures funded by the Company's continuing operations were $61.1
million in 1994, $44.4 million in 1993 and $43.3 million in 1992. NordicTrack,
The Nature Company segment and Britches spent approximately $22.7 million, $23.3
million and $15.0 million, respectively, on capital expenditures during 1994
primarily for new retail stores and additional manufacturing, 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
Net cash used in financing activities during 1994 was $19.6 million compared
with net cash generated of $49.2 million in 1993 and net cash used of $14.2
million in 1992. The Company repurchased approximately $16.3 million and $4.4
million of its common stock in 1994 and 1993, respectively. During 1993, the
Company issued $57.5 million of 5 1/2% convertible subordinated debentures. The
Company used cash flow from operating activities to reduce long-term debt by
$15.6 million in 1992 and $3.8 million in 1993. In addition, the Company has
increased the dividends paid on its common stock from $1.0 million in 1992 to
$2.7 million in 1993 and $4.0 million in 1994.
Capital Resources
During 1994, the Company entered into a new revolving credit agreement which
expires September 30, 1996. The new agreement provides for a revolving credit
of $60.0 million and a letter of credit facility of $10.0 million. The
agreement allows the Company to issue letters of credit which aggregate more
than $10.0 million to the extent that advances under the revolving credit are
less than $60.0 million. At July 31, 1994, letters of credit totalling $17.7
million were outstanding under the agreement. Total bank borrowings averaged
$8.0 million during 1993 and $9.0 million during 1992. The Company did not
borrow under the revolving credit agreement during 1994. See Note 7 of Notes to
Consolidated Financial Statements.
The Company believes that internally generated funds and available bank lines
of credit 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 which have
arisen in the ordinary course of business.
Two former subsidiaries of the Company are involved in two separate
environmental matters. See Note 9 of Notes to Consolidated Financial
Statements.
The Company does not own any securities covered by Statement of
Financial Accounting Standards No. 115. The Company adopted Statement of
Position No. 93-7 during 1994.
17
<PAGE> 18
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
See Index to the Company's Financial Statements, Supplementary Data
and Financial Statement Schedules 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, 1994 (the "1994 Proxy
Statement") at "Election of Directors."
Item 11. Executive Compensation.
----------------------
The response to this item is incorporated herein by reference to the
1994 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
1994 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
1994 Proxy Statement at "Election of Directors -- Certain Transactions."
18
<PAGE> 19
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, Supplementary Data and Financial
Statement Schedules are filed as part of this Annual Report on
Form 10-K.
2. FINANCIAL STATEMENT SCHEDULES. The Financial Statement Schedules
listed in the Index to Financial Statements, Supplementary Data
and Financial Statement Schedules are 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.
19
<PAGE> 20
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 29, 1994
-------------------------------------
<TABLE>
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.
<CAPTION>
Name Title Date
- - ----------------------- ----------------------------- ---------------------
<S> <C> <C>
)
Chairman of the Board of )
/s/ Charles M. Leighton Directors and Chief Executive )
- - ------------------------- Officer (Principal Executive )
Charles M. Leighton Officer) )
)
)
/s/ Robert J. Samuelson Senior Vice President and )
- - ------------------------- Chief Financial Officer )
Robert J. Samuelson (Principal Financial Officer) )
)
/s/ Glenn E. Davis )
- - ------------------------- Vice President and Controller )
Glenn E. Davis (Principal Accounting Officer) )
)
/s/ G. Robert Tod President, Chief Operating ) October 29, 1994
- - ------------------------- Officer and Director )
G. Robert Tod )
)
/s/ Howard H. Callaway Director )
- - ------------------------- )
Howard H. Callaway )
)
/s/ Thomas H. Lenagh Director )
- - ------------------------- )
Thomas H. Lenagh )
)
Director )
- - ------------------------- )
Homer L. Luther, Jr. )
)
/s/ Roy W. Menninger Director )
- - ------------------------- )
Roy W. Menninger, MD )
)
Director )
- - ------------------------- )
Alison Taunton-Rigby )
)
/s/ Ralph F. Verni Director )
- - ------------------------- )
Ralph F. Verni )
</TABLE>
20
<PAGE> 21
<TABLE>
INDEX TO FINANCIAL STATEMENTS,
SUPPLEMENTARY DATA
AND
FINANCIAL STATEMENT SCHEDULES
OF
CML GROUP, INC.
<CAPTION>
Page No.
--------
<S> <C>
Financial Statements:
Independent Auditors' Report 22
Consolidated Statements of Income - Years Ended
July 31, 1994, 1993 and 1992 23
Consolidated Balance Sheets - July 31, 1994
and July 31, 1993 24 - 25
Consolidated Statements of Cash Flows -
Years Ended July 31, 1994, 1993 and 1992 26 - 27
Consolidated Statements of Changes in
Stockholders' Equity - Years Ended July 31,
1994, 1993 and 1992 28
Notes to Consolidated Financial Statements 29 - 37
Supplementary Data:
Selected Quarterly Financial Data 38
Financial Statement Schedules:
Schedule V - Property, Plant and Equipment 39
Schedule VI - Accumulated Depreciation and
Amortization of Property, Plant and
Equipment 40
Schedule VIII - Valuation and Qualifying Accounts 41
Schedule IX - Short-Term Borrowings 42
Schedule X - Supplementary Income Statement
Information 43
</TABLE>
All other schedules are omitted because they are either not applicable or the
required information is included in the financial statements or notes
thereto.
21
<PAGE> 22
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, 1994 and 1993, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the years in the three-year period ended July 31, 1994. Our
audits also included the financial statement schedules listed in the Index at
Item 14. These financial statements and financial statement schedules are the
responsibility of the management of CML Group, Inc. Our responsibility is to
express an opinion on the financial statements and financial statement
schedules 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, 1994 and 1993, and the results of their operations
and their cash flows for each of the years in the three-year period ended July
31, 1994, in conformity with generally accepted accounting principles. Also,
in our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
September 29, 1994
22
<PAGE> 23
<TABLE>
CML Group, Inc. and Subsidiaries
Consolidated Statements of Income
<CAPTION>
Year Ended July 31,
- - ------------------------------------------------------------------------------------------------------
1994 1993 1992
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $772,397,000 $645,468,000 $494,456,000
- - ------------------------------------------------------------------------------------------------------
Less costs and expenses:
Cost of goods sold 294,886,000 253,686,000 193,276,000
Selling, general and administrative expenses 393,829,000 294,418,000 222,917,000
Restructuring charges (Note 3) - (1,000,000) 13,221,000
Interest expense 2,490,000 1,808,000 1,348,000
- - ------------------------------------------------------------------------------------------------------
691,205,000 548,912,000 430,762,000
- - ------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes
and cumulative effect of accounting change 81,192,000 96,556,000 63,694,000
Provision for income taxes (Note 5) 29,473,000 38,623,000 26,943,000
- - ------------------------------------------------------------------------------------------------------
Income from continuing operations before cumulative
effect of accounting change 51,719,000 57,933,000 36,751,000
Provision for loss on disposal of discontinued
operations, net of income tax benefit (Note 4) - - (4,373,000)
- - ------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change 51,719,000 57,933,000 32,378,000
Cumulative effect of accounting change (Note 1) - - 8,093,000
- - ------------------------------------------------------------------------------------------------------
Net income $ 51,719,000 $ 57,933,000 $ 40,471,000
======================================================================================================
Earnings per share (Note 1):
Income from continuing operations before cumulative
effect of accounting change
Primary $1.00 $1.11 $0.73
Fully diluted $1.00 $1.11 $0.71
Income before cumulative effect of accounting change
Primary $1.00 $1.11 $0.65
Fully diluted $1.00 $1.11 $0.63
Cumulative effect of accounting change
Primary - - $0.16
Fully diluted - - $0.16
Net income
Primary $1.00 $1.11 $0.81
Fully diluted $1.00 $1.11 $0.79
- - ------------------------------------------------------------------------------------------------------
Weighted average number of shares 51,590,758 51,995,494 50,319,325
- - ------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
23
<PAGE> 24
<TABLE>
CML Group, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
July 31,
- - -------------------------------------------------------------------------------------------
Assets 1994 1993
- - -------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 28,929,000 $ 64,010,000
Accounts receivable - trade, less allowance for
doubtful accounts of $1,402,000 in 1994 and
$637,000 in 1993 42,075,000 23,884,000
Prepaid income taxes (Notes 1 and 5) 6,688,000 7,127,000
Inventories (Note 1):
Raw materials 12,617,000 8,940,000
Work in process 3,552,000 2,603,000
Finished goods 64,564,000 56,950,000
- - -------------------------------------------------------------------------------------------
Total inventories 80,733,000 68,493,000
Other current assets (Note 1) 26,387,000 12,879,000
- - -------------------------------------------------------------------------------------------
Total current assets 184,812,000 176,393,000
- - -------------------------------------------------------------------------------------------
Property, plant and equipment
(Notes 1 and 9):
Land and buildings 20,172,000 14,663,000
Machinery and equipment 79,228,000 56,379,000
Leasehold improvements 113,910,000 89,122,000
- - -------------------------------------------------------------------------------------------
213,310,000 160,164,000
Less accumulated depreciation 65,705,000 48,707,000
- - -------------------------------------------------------------------------------------------
Property, plant and equipment, net 147,605,000 111,457,000
- - -------------------------------------------------------------------------------------------
Goodwill (Notes 1 and 2) 34,889,000 33,847,000
Other assets 17,357,000 18,474,000
- - -------------------------------------------------------------------------------------------
$384,663,000 $340,171,000
===========================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
24
<PAGE> 25
<TABLE>
CML Group, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
July 31,
- - -------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity 1994 1993
- - -------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt (Note 7) $ 226,000 $ 303,000
Accounts payable 33,868,000 36,199,000
Accrued compensation 8,423,000 7,537,000
Accrued advertising 5,302,000 2,476,000
Accrued income taxes (Note 5) 483,000 5,036,000
Other accrued expenses 32,768,000 23,651,000
- - -------------------------------------------------------------------------------------------
Total current liabilities 81,070,000 75,202,000
- - -------------------------------------------------------------------------------------------
Noncurrent liabilities:
Long-term debt (Note 7) 1,292,000 1,529,000
Convertible subordinated debentures (Note 6) 57,500,000 57,500,000
Other noncurrent liabilities (Note 9) 25,564,000 21,690,000
- - -------------------------------------------------------------------------------------------
Total noncurrent liabilities 84,356,000 80,719,000
- - -------------------------------------------------------------------------------------------
Commitments and contingencies (Note 9)
- - -------------------------------------------------------------------------------------------
Stockholders' equity (Notes 1, 8 and 11):
Common stock par value $.10 per share
Authorized - 120,000,000 shares
Issued - 51,851,180 shares in 1994 and
51,580,098 shares in 1993 5,185,000 5,158,000
Additional paid-in capital 78,736,000 75,347,000
Retained earnings 163,825,000 116,136,000
- - -------------------------------------------------------------------------------------------
247,746,000 196,641,000
Less treasury stock, at cost, 1,865,941 shares
in 1994 and 888,798 shares in 1993 28,509,000 12,391,000
- - -------------------------------------------------------------------------------------------
219,237,000 184,250,000
- - -------------------------------------------------------------------------------------------
$384,663,000 $340,171,000
===========================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
25
<PAGE> 26
<TABLE>
CML Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<CAPTION>
Year Ended July 31,
- - ---------------------------------------------------------------------------------------------------
1994 1993 1992
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $51,719,000 $57,933,000 $40,471,000
- - ---------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting method - - (8,093,000)
Depreciation and amortization 24,156,000 18,777,000 13,084,000
Provision for doubtful notes receivable - 650,000 -
Restructuring charges - (1,000,000) 13,221,000
Provision for loss on disposal of discontinued
operations - - 7,054,000
Provision for loss on investments - - 1,232,000
Loss on disposal of property, plant and equipment 2,864,000 2,617,000 661,000
Writeoff of goodwill - 472,000 -
Changes in assets and liabilities (net of effect of
restructuring charges):
Accounts receivable - trade (18,191,000) (8,658,000) (6,876,000)
Prepaid income taxes 439,000 765,000 (5,673,000)
Inventories (12,240,000) (9,159,000) (15,708,000)
Other current assets (13,139,000) (2,990,000) (352,000)
Accounts payable and accrued expenses 11,209,000 5,506,000 14,786,000
Accrued income taxes (2,772,000) 5,943,000 784,000
Other assets and noncurrent liabilities 1,459,000 82,000 4,556,000
- - ---------------------------------------------------------------------------------------------------
Total adjustments (6,215,000) 13,005,000 18,676,000
- - ---------------------------------------------------------------------------------------------------
Net cash provided by operating activities 45,504,000 70,938,000 59,147,000
- - ---------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisitions of property, plant and equipment (61,126,000) (44,362,000) (43,312,000)
Acquisition of Smith & Hawken, Ltd., net of cash
acquired - (15,459,000) -
Increase in notes receivable - (366,000) -
Reduction in notes receivable 109,000 591,000 565,000
Increase in investments - - (703,000)
- - ---------------------------------------------------------------------------------------------------
Net cash used in investing activities ($61,017,000) ($59,596,000) ($43,450,000)
- - ---------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
26
<PAGE> 27
<TABLE>
CML Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<CAPTION>
Year Ended July 31,
- - -----------------------------------------------------------------------------------------------------------
1994 1993 1992
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Reduction of long-term debt ($ 314,000) ($ 3,846,000) ($15,631,000)
Proceeds from sale of convertible debentures - 57,500,000 -
Dividends paid (4,045,000) (2,673,000) (960,000)
Exercise of stock options and employee stock
purchase rights 1,079,000 2,522,000 2,405,000
Acquisition of treasury shares (16,288,000) (4,352,000) -
- - -----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (19,568,000) 49,151,000 (14,186,000)
- - -----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (35,081,000) 60,493,000 1,511,000
Cash and cash equivalents at beginning of year 64,010,000 3,517,000 2,006,000
- - -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $28,929,000 $64,010,000 $ 3,517,000
===========================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 3,535,000 $ 1,062,000 $ 1,301,000
- - -----------------------------------------------------------------------------------------------------------
Income taxes $37,417,000 $33,029,000 $30,602,000
- - -----------------------------------------------------------------------------------------------------------
<FN>
During 1992, $37,691,000 of convertible subordinated debentures were converted into 7,236,672 shares of common stock.
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.
The Company recorded tax benefits of $1,781,000, $1,882,000 and $2,586,000 during 1994, 1993 and 1992, respectively, resulting from
the exercise of stock options.
See Notes to Consolidated Financial Statements.
</TABLE>
27
<PAGE> 28
<TABLE>
CML Group, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
<CAPTION>
Common Stock Treasury Stock
--------------------- Additional Retained -------------------
Shares Par Value Paid-in-Capital Earnings Shares Cost
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 1, 1991 13,707,724 $1,371,000 $28,510,000 $22,368,000 326,658 $2,571,000
Exercise of stock options 207,140 20,000 1,543,000 - (87,210) (338,000)
Employee stock purchase plan sales 137 - 393,000 - (44,078) (459,000)
Tax benefit from exercise of stock options - - 2,586,000 - - -
Conversion of subordinated debentures 2,412,224 241,000 36,285,000 - - -
Acquisition of treasury shares - - - - 12,999 392,000
Cash dividends ($0.03 per share) - - - (1,605,000) - -
Stock split, two-for-one 16,327,225 1,633,000 (1,633,000) - 208,369 -
Net income - - - 40,471,000 - -
- - ----------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 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
==================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE> 29
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
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 Marketing and Catalog Costs
Costs of direct marketing and catalogs are amortized in proportion to the sales
they generate over periods not exceeding three months and six months,
respectively. Direct marketing 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
$7,113,000 and $6,022,000 at July 31, 1994 and 1993, respectively.
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 accrued expenses
deductible in future periods 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.
Accounting Change
During fiscal 1992, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." The cumulative
effect of this accounting change increased 1992's net income by $8,093,000 or
$.16 per share. The effect on 1992's provision for income taxes was not
significant.
New Accounting Standards
The Company does not own any securities covered by SFAS No. 115. The Company
has adopted Statement of Position No. 93-7.
Reclassifications
Certain 1993 and 1992 amounts have been reclassified to conform to the 1994
presentation.
29
<PAGE> 30
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. Pro forma results of
operations for the year ended July 31, 1993 are not presented as the effect was
not significant.
NOTE 3 - RESTRUCTURING CHARGES
The Company recorded a restructuring charge of $11,250,000 during the third
quarter of 1992 relating to the elimination of major product lines and the
consolidation of stores, offices and distribution facilities of the Company's
Mason & Sullivan and Britches Great Outdoors for Women divisions. The
restructuring charge included the writeoff of goodwill and fixed assets and
reserves for lease termination and severance costs. During 1993, the Company
completed a substantial part of the consolidation of the Britches Great
Outdoors for Women division on terms which were more favorable than originally
estimated and accordingly reversed $1,000,000 of the restructuring charge
recorded in 1992.
In addition, during 1992, the Company determined that its investment in two
unrelated specialty retailing companies had become permanently impaired due to
continued poor operating performance and accordingly wrote-off the investments'
remaining $1,971,000 net book value.
NOTE 4 - DISCONTINUED OPERATIONS
The 1992 provision for loss on disposal of discontinued operations, net of
income tax benefit, consists of losses resulting from the sale of SyberVision
and Carroll Reed and the writeoff of notes receivable arising from the sale of
The Outdoorsman.
In 1992, the Company recorded a provision for loss on disposal of $5,401,000,
before income tax benefit, in connection with the sale of SyberVision. Included
in the total provision was a $1,713,000 writeoff associated with the
restructuring of a note, the provision of $988,000 related to certain real
estate and equipment leases guaranteed by the Company prior to the sale and
$2,700,000 for legal and settlement costs relating to a lawsuit arising from
events which occurred prior to the sale of SyberVision.
Due to changes in estimates of certain accrued expenses during 1992, the
Company recorded a provision for loss on disposal of $753,000, before income
tax benefit, as a result of the sale of Carroll Reed during fiscal 1991.
The provision for loss on disposal before income tax benefit in 1992 also
included the writeoff of $900,000 of the notes receivable arising from the sale
of The Outdoorsman in 1988.
The 1992 provision for loss on disposal of discontinued operations shown in the
consolidated statement of income is net of an income tax benefit of $2,681,000.
30
<PAGE> 31
NOTE 5 - INCOME TAXES
<TABLE>
The provision for income taxes consists of the following:
<CAPTION>
YEAR ENDED JULY 31,
- - ---------------------------------------------------------------------
1994 1993 1992
- - ---------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $25,928,000 $30,513,000 $24,333,000
State and foreign 3,384,000 7,093,000 5,872,000
- - ---------------------------------------------------------------------
29,312,000 37,606,000 30,205,000
Deferred
Federal 332,000 1,235,000 (5,501,000)
State and foreign (171,000) (218,000) (442,000)
- - ---------------------------------------------------------------------
Total $29,473,000 $38,623,000 $24,262,000
=====================================================================
Continuing operations $29,473,000 $38,623,000 $26,943,000
Discontinued operations - - (2,681,000)
- - ---------------------------------------------------------------------
Total $29,473,000 $38,623,000 $24,262,000
=====================================================================
</TABLE>
<TABLE>
The sources of prepaid and deferred income taxes and the related tax effect are
as follows:
<CAPTION>
Year Ended July 31,
- - --------------------------------------------------------------------------
1994 1993
- - --------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Inventories $ 4,416,000 $ 4,813,000
Settlement expenses 1,400,000 -
Restructuring charges 295,000 1,172,000
Occupancy expenses 383,000 846,000
Receivable reserves 1,905,000 1,482,000
Other 3,252,000 2,121,000
Less valuation allowance (1,610,000) (2,055,000)
- - --------------------------------------------------------------------------
10,041,000 8,379,000
- - --------------------------------------------------------------------------
Noncurrent Assets
Depreciation and amortization 2,272,000 2,683,000
Net operating losses 2,114,000 363,000
Compensation expenses 909,000 753,000
Occupancy expenses 2,377,000 1,698,000
Loss on investments 494,000 2,864,000
Other 1,213,000 660,000
Less valuation allowance (1,394,000) (1,664,000)
- - --------------------------------------------------------------------------
7,985,000 7,357,000
- - --------------------------------------------------------------------------
Total assets $18,026,000 $15,736,000
==========================================================================
Current Liabilities
Occupancy expenses $ 6,000 $ 22,000
Other 3,347,000 1,230,000
- - --------------------------------------------------------------------------
3,353,000 1,252,000
- - --------------------------------------------------------------------------
Noncurrent Liabilities
Occupancy expenses 1,077,000 988,000
Other 1,118,000 601,000
- - --------------------------------------------------------------------------
2,195,000 1,589,000
- - --------------------------------------------------------------------------
Total liabilities $ 5,548,000 $ 2,841,000
==========================================================================
Total net prepaid tax $12,478,000 $12,895,000
==========================================================================
</TABLE>
31
<PAGE> 32
The valuation allowance at July 31, 1994 of $3,004,000 includes a net reduction
during the current year of $715,000 due primarily to the realization of certain
capital losses. The valuation allowance relates primarily to future deductible
amounts of a capital nature and net operating loss carryforwards that may not
be realized. Refundable taxes of $1,747,000 in the current year are due
primarily to the carryback to prior years of capital losses. Net operating loss
carryforwards begin expiring in 2000.
<TABLE>
A reconciliation of the statutory federal income tax rate to the effective tax
rate for continuing operations is as follows:
<CAPTION>
1994 1993 1992
- - -----------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 34.0%
State and foreign income taxes
net of federal tax effect 2.8 4.6 6.2
Amortization of goodwill 0.4 0.6 1.3
Realization of capital losses (2.3) - -
Other 0.4 (0.2) 0.8
- - -----------------------------------------------------------------
Effective tax rate 36.3% 40.0% 42.3%
=================================================================
</TABLE>
NOTE 6 - CONVERTIBLE SUBORDINATED DEBENTURES
On January 20, 1993, the Company issued $57,500,000 of 5 1/2% convertible
subordinated debentures due January 15, 2003. Interest on the debentures 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 103 1/2% in 1995 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,
1994 was $41,400,000, based upon quoted market prices. All other financial
instruments are carried at amounts that approximate fair value.
On July 8, 1987 the Company issued $38,500,000 of 7 1/2% convertible
subordinated debentures due in the year 2012. During 1991, $809,000 principal
amount of the debentures were converted into 155,328 shares of common stock at
$5.2083 per share. During 1992, the remaining debentures were called for
redemption and all were converted into 7,236,672 shares of common stock.
NOTE 7 - LONG-TERM DEBT
<TABLE>
Long-term debt consisted of the following at July 31:
<CAPTION>
1994 1993
- - ----------------------------------------------------------
<S> <C> <C>
Revolving credit loan $ - $ -
Note payable 1,352,000 1,489,000
Obligations under capital
leases (Note 9) 166,000 343,000
- - ----------------------------------------------------------
1,518,000 1,832,000
Less current portion 226,000 303,000
- - ----------------------------------------------------------
Long-term debt $1,292,000 $1,529,000
==========================================================
</TABLE>
Revolving Credit Agreement
The Company's revolving credit agreement, which expires September 30, 1996,
provides for a revolving credit of $60,000,000 and a letter of credit facility
of $10,000,000. The agreement allows the Company to issue letters of credit
which aggregate more than $10,000,000 to the extent that advances under the
revolving credit are less than $60,000,000. The Company is required to pay a
commitment fee of three-tenths of one percent of the unused portion of the
revolving credit. 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 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.
32
<PAGE> 33
Advances outstanding under the revolving credit line bear interest at the
prime rate. At July 31, 1994, the prime rate was 7.25%.
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 $12,000 through May 1998 with a balloon payment of $800,000 due
June 30, 1998.
NOTE 8 - STOCK OPTIONS, STOCK PURCHASE PLAN AND EMPLOYEE BENEFIT PLANS
Stock Option Plans
At July 31, 1994, there were 1,107,168 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, 1994, options to purchase 850,116 shares and 240,805 shares
were exercisable under the 1982 and 1991 Plans, respectively.
<TABLE>
Option activity under the 1982 and 1991 Plans is summarized as follows:
<CAPTION>
1991 Plan 1982 Plan
- - ----------------------------------------------------------------------
<S> <C> <C>
Options outstanding, August 1, 1991 - 3,106,692
Granted 63,750 30,000
Exercised ($1.59-$7.13 per share) - (874,044)
Terminated - (31,200)
- - ----------------------------------------------------------------------
Options outstanding, July 31, 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
======================================================================
</TABLE>
The average exercise price of options outstanding under the 1982 Stock Option
Plan at July 31, 1994, 1993 and 1992 was $3.88, $3.87 and $3.53, respectively.
The average exercise price of options outstanding under the 1991 Stock Option
Plan at July 31, 1994, 1993 and 1992 was $16.03, $18.10 and $13.75,
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 54,000 options had been
granted to non-employee directors and were outstanding at July 31, 1994 at an
average exercise price of $20.66 per option. At July 31, 1994 options to
purchase 15,000 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 of 300,000 shares. 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. Under the second offering which ends
June 14, 1995, 1,391 employees have elected to receive 239,768 shares.
The Company's 1990 Employee Stock Purchase Plan authorized the issuance of
1,350,000 shares of common stock in three annual offerings of 450,000 shares.
The second offering, which ended on June 14, 1992, resulted in the issuance of
132,645 shares to 426 employees at a price of $6.42 per share. The third
offering, which ended on June 14, 1993, resulted in the issuance of 107,793
shares to 665 employees at a price of $13.25 per share.
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
33
<PAGE> 34
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
1994, 1993 and 1992 were $2,735,000, $1,804,000 and $762,000, respectively.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain manufacturing and distribution facilities, retail
space and vehicles and equipment under agreements expiring over the next 16
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.
<TABLE>
Properties under capital leases consist of machinery and equipment and are as
follows:
<CAPTION>
July 31,
- - ------------------------------------------------------------------
1994 1993
- - ------------------------------------------------------------------
<S> <C> <C>
Machinery and equipment $1,529,000 $1,726,000
Less accumulated amortization 1,430,000 1,386,000
- - ------------------------------------------------------------------
Machinery and equipment, net $ 99,000 $ 340,000
==================================================================
</TABLE>
<TABLE>
Future minimum lease payments under leases that have initial or remaining
noncancelable lease terms in excess of one year at July 31, 1994 are as
follows:
<CAPTION>
Capital Operating
Leases Leases
- - --------------------------------------------------------------------
<S> <C> <C>
Year ending July 31:
1995 $ 99,000 $ 34,740,000
1996 77,000 33,105,000
1997 6,000 29,556,000
1998 - 27,928,000
1999 - 26,035,000
Thereafter - 110,832,000
- - --------------------------------------------------------------------
Total minimum lease payments 182,000 262,196,000
Less portion representing interest 16,000 -
- - --------------------------------------------------------------------
$166,000 $262,196,000
====================================================================
</TABLE>
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 1994, 1993 and 1992 was $39,944,000,
$28,657,000 and $26,653,000, respectively. Contingent rentals were
approximately $4,414,000 in 1994, $2,499,000 in 1993 and $1,749,000 in 1992.
Included in other noncurrent liabilities at July 31, 1994 and 1993 are store
construction allowances of $13,831,000 and $11,626,000, respectively, and
deferred rent liabilities of $6,760,000 and $5,622,000, respectively.
Litigation
In October 1992, The Nature Company filed a lawsuit against Natural
Wonders, Inc. in federal court which seeks both damages and injunctive relief
to remedy alleged false representations, intellectual property infringement and
unfair competition by Natural Wonders. In November 1992, Natural Wonders
responded by filing counterclaims against The Nature Company alleging unfair
competition, interference with Natural Wonders' contractual relations and
prospective business advantage in violation of state and federal antitrust
laws.
The lawsuit with Natural Wonders is still in the discovery stage and, while the
Company believes that it will prevail, no assurance can be given of a favorable
outcome. The Company believes that an unfavorable outcome would not have a
material adverse effect on the Company's financial condition but could
adversely affect the operating results for the period or periods in which such
outcome occurs.
In May 1993, Soloflex, Inc. commenced a civil suit against NordicTrack in
federal court alleging false advertising, intellectual property infringement,
trademark dilution and other common law causes of action, all allegedly arising
out of NordicTrack's advertising. On September 28, 1994, NordicTrack settled
the lawsuit with Soloflex and
34
<PAGE> 35
recorded a charge of $4,000,000 against its 1994 results to cover its share of
the legal costs associated with this suit.
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 others. No manufacturing or other activities
involving hazardous substances have ever been conducted by the Company or its
affiliates on the Superfund site in Conway. The environmental problems
affecting the land resulted from activities by the owners of the adjoining
parcel. Representatives of the Company have engaged in discussions with the EPA
regarding responsibility for the environmental problems and the costs of
cleanup. The owners of the adjoining parcel are bankrupt. The EPA commenced
cleanup activities at the site in July 1992.
The EPA has expended approximately $1.4 million for the removal phase of the
site cleanup, which has now been completed. The EPA had estimated that the
removal costs would exceed $3.0 million, but only a small portion of the solid
waste removed from the site was ultimately 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 recently 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 clean-up costs
is not available.
Letters of Credit
At July 31, 1994, the Company was contingently liable for outstanding letters
of credit in the amount of $17,740,000.
NOTE 10 - INDUSTRY SEGMENTS
During 1992, the Company restructured its Britches for Women and Mason &
Sullivan divisions. As a result, the Company operates in three industry
segments: (i) Britches for Men sells high quality men's apparel; (ii) The
Nature Company segment, which includes Smith & Hawken, sells nature, gardening,
music and science related items; and (iii) NordicTrack sells physical fitness
exercise products. Sales between segments are not significant.The following
table summarizes the Company's operations by industry segment.
35
<PAGE> 36
<TABLE>
The operating results shown for Britches for Men and The Nature Company include
amortization of goodwill recorded on the books of the corporate office. The
operating losses for Britches for Women and Mason & Sullivan for 1992 include
restructuring charges of $7,750,000 and $3,500,000, respectively.
<CAPTION>
Year Ended July 31,
- - -------------------------------------------------------------------------------------
1994 1993 1992
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales:
Britches for Men $116,606,000 $105,476,000 $ 94,064,000
Britches for Women - - 13,746,000
The Nature Company 200,194,000 162,170,000 116,469,000
NordicTrack 455,597,000 377,822,000 266,821,000
Mason & Sullivan - - 3,356,000
- - -------------------------------------------------------------------------------------
$772,397,000 $645,468,000 $494,456,000
=====================================================================================
Operating Income (Loss):
Britches for Men $ 2,558,000 $ 2,952,000 $ 2,106,000
Britches for Women - 1,000,000 (9,346,000)
The Nature Company 3,645,000 6,216,000 8,462,000
NordicTrack 84,827,000 100,164,000 82,804,000
Mason & Sullivan - - (3,744,000)
- - -------------------------------------------------------------------------------------
91,030,000 110,332,000 80,282,000
Interest and Corporate Expenses (9,838,000) (13,776,000) (16,588,000)
- - -------------------------------------------------------------------------------------
$ 81,192,000 $ 96,556,000 $ 63,694,000
=====================================================================================
Identifiable Assets at July 31:
Britches for Men $ 81,537,000 $ 68,871,000 $ 66,979,000
Britches for Women - - 3,890,000
The Nature Company 130,630,000 110,887,000 70,937,000
NordicTrack 134,189,000 88,640,000 52,213,000
Mason & Sullivan - - 1,202,000
Corporate and Other 38,307,000 71,773,000 23,585,000
- - -------------------------------------------------------------------------------------
$384,663,000 $340,171,000 $218,806,000
=====================================================================================
Depreciation and Amortization:
Britches for Men $ 5,843,000 $ 5,582,000 $ 4,383,000
Britches for Women - - 741,000
The Nature Company 10,804,000 7,973,000 5,086,000
NordicTrack 6,997,000 4,759,000 2,240,000
Mason & Sullivan - - 165,000
Corporate and Other 512,000 463,000 469,000
- - -------------------------------------------------------------------------------------
$ 24,156,000 $ 18,777,000 $ 13,084,000
=====================================================================================
Capital Expenditures:
Britches for Men $ 14,988,000 $ 7,489,000 $ 6,827,000
Britches for Women - - 245,000
The Nature Company 23,274,000 16,368,000 18,886,000
NordicTrack 22,657,000 19,860,000 15,588,000
Mason & Sullivan - - 63,000
Corporate and Other 207,000 645,000 1,703,000
- - -------------------------------------------------------------------------------------
$ 61,126,000 $ 44,362,000 $ 43,312,000
=====================================================================================
</TABLE>
NOTE 11 - 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
36
<PAGE> 37
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, 1994.
NOTE 12 - RELATED PARTY TRANSACTIONS
In conjunction with the acquisition of two subsidiaries, the Company leases
certain retail, distribution and manufacturing facilities from the former
owners of these subsidiaries. Rent paid to the former owners of these
subsidiaries during 1994, 1993 and 1992 was $2,006,000, $2,267,000 and
$2,239,000, respectively. Minimum annual rentals average approximately
$1,752,000 in 1995 and 1996 and $180,000 annually thereafter through 2003.
37
<PAGE> 38
<TABLE>
CML Group, Inc. and Subsidiaries
Supplementary Data
Selected Quarterly Financial Data (Unaudited)
<CAPTION>
Fiscal 1994, Quarter Ended Fiscal 1993, Quarter Ended
- - ---------------------------------------------------------------------- -------------------------------------------
Oct. 30, Jan. 29, Apr. 30, July 31, Oct. 31, Jan. 30, May 1, July 31,
1993 1994 1994 1994 1992 1993 1993 1993
- - ---------------------------------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $137,187 $291,970 $198,088 $145,152 $107,177 $236,362 $169,363 $132,566
Gross profit 86,366 181,891 127,426 81,828 64,503 144,805 107,342 75,132
Net income (loss) 7,141 38,302 17,062 (10,786) 5,743 32,538 15,015 4,637
Earnings (loss) per share $0.14 $0.72 $0.33 ($0.21) $0.11 $0.63 $0.29 $0.09
- - ----------------------------------------------------------------------- ------------------------------------------
<FN>
The fourth quarter of fiscal 1994 includes a pre-tax charge of $4,000,000 to settle a lawsuit with Soloflex, Inc.
</TABLE>
38
<PAGE> 39
<TABLE>
Schedule V
----------
CML GROUP, INC. and SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
<CAPTION>
Balance at
Beginning Additions Retirements Balance at
Classification of Year at Cost or Sales Acquisitions End of Year
- - ---------------------- ---------- --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Year Ended July 31, 1992:
Land $ 399,000 $ 686,000 $ -- $ -- $ 1,085,000
Buildings 2,588,000 5,663,000 -- -- 8,251,000
Machinery & Equipment 28,624,000 15,195,000 2,973,000 -- 40,846,000
Leasehold improvements 56,110,000 21,768,000 6,546,000 -- 71,332,000
------------ ----------- ---------- ---------- ------------
$ 87,721,000 $43,312,000 $9,519,000 $ -- $121,514,000
============ =========== ========== ========== ============
Year Ended July 31, 1993:
Land $ 1,085,000 $ 397,000 $ -- $ 173,000 $ 1,655,000
Buildings 8,251,000 4,322,000 33,000 468,000 13,008,000
Machinery & Equipment 40,846,000 19,803,000 5,136,000 866,000 56,379,000
Leasehold improvements 71,332,000 19,840,000 2,696,000 646,000 89,122,000
------------ ----------- ---------- ---------- ------------
$121,514,000 $44,362,000 $7,865,000 $2,153,000 $160,164,000
============ =========== ========== ========== ============
Year Ended July 31, 1994:
Land $ 1,655,000 $ 292,000 $ 46,000 $ -- $ 1,901,000
Buildings 13,008,000 5,263,000 -- -- 18,271,000
Machinery & Equipment 56,379,000 26,142,000 3,293,000 -- 79,228,000
Leasehold improvements 89,122,000 29,429,000 4,641,000 -- 113,910,000
------------ ----------- ---------- ---------- ------------
$160,164,000 $61,126,000 $8,034,000 $ -- $213,310,000
============ =========== ========== ========== ============
</TABLE>
39
<PAGE> 40
<TABLE>
Schedule VI
-----------
CML GROUP, INC. and SUBSIDIARIES
ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
<CAPTION>
Balance at
Beginning Additions Retirements Balance at
Classification of Year at Cost or Sales Acquisitions End of Year
- - ---------------------- ---------- --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Year Ended July 31, 1992:
Buildings $ 655,000 $ 123,000 $ -- $ -- $ 778,000
Machinery & Equipment 12,774,000 5,521,000 2,116,000 -- 16,179,000
Leasehold improvements 16,268,000 6,489,000 3,369,000 -- 19,388,000
----------- ----------- ---------- ---------- -----------
$29,697,000 $12,133,000 $5,485,000 $ -- $36,345,000
=========== =========== ========== ========== ===========
Year Ended July 31, 1993:
Buildings $ 778,000 $ 501,000 $ 33,000 $ -- $ 1,246,000
Machinery & Equipment 16,179,000 8,560,000 3,257,000 -- 21,482,000
Leasehold improvements 19,388,000 8,549,000 1,958,000 -- 25,979,000
----------- ----------- ---------- ---------- -----------
$36,345,000 $17,610,000 $5,248,000 $ -- $48,707,000
=========== =========== ========== ========== ===========
Year Ended July 31, 1994:
Buildings $ 1,246,000 $ 803,000 $ -- $ -- $ 2,049,000
Machinery & Equipment 21,842,000 11,833,000 2,270,000 -- 31,045,000
Leasehold improvements 25,979,000 9,532,000 2,900,000 -- 32,611,000
----------- ----------- ---------- ---------- -----------
$48,707,000 $22,168,000 $5,170,000 $ -- $65,705,000
=========== =========== ========== ========== ===========
</TABLE>
40
<PAGE> 41
<TABLE>
Schedule VIII
-------------
CML GROUP, INC. and SUBSIDIARIES
VALUATION and QUALIFYING ACCOUNTS
<CAPTION>
Balance at Charged Balance
Beginning to Costs at End
Description of Year and Expenses Deductions of Year
----------- ---------- ------------ ---------- -------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts Receivable:
Year Ended July 31, 1992 $228,000 $1,415,000 $814,000 $ 829,000
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
Allowance for Doubtful Notes Receivable:
Year Ended July 31, 1992 $ 1,744,000 $290,000 $1,637,000 $ 397,000
Year Ended July 31, 1993 397,000 650,000 --- 1,047,000
Year Ended July 31, 1994 1,047,000 --- 993,000 54,000
Accrual for Loss on Disposal and Restructuring Costs:
Year Ended July 31, 1992 $6,790,000 $20,275,000 $14,830,000 $12,235,000
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
Income Tax Valuation Allowance:
Year Ended July 31, 1992 $ ---- $3,186,000* $ ---- $ 3,186,000
Year Ended July 31, 1993 3,186,000 533,000 ---- 3,719,000
Year Ended July 31, 1994 3,719,000 1,761,000 2,476,000 3,004,000
<FN>
*Includes $922,000 which arose during the current year and $2,264,000 related to the cumulative effect of adopting Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
</TABLE>
41
<PAGE> 42
<TABLE>
Schedule IX
-----------
CML GROUP, INC. and SUBSIDIARIES
SHORT-TERM BORROWINGS
<CAPTION>
Maximum Average Weighted
Balance at Weighted Amount Amount Out- Average
End Average Outstanding standing During Interest Rate
Category of Year Interest Rate During the Year the Year(1) During the Year(2)
-------- ---------- ------------- --------------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Year Ended July 31, 1992
Seasonal Bank Line (3) --- --- $1,500,000 $16,000 8.0%
Year Ended July 31, 1993
Seasonal Bank Line (3) --- --- $11,000,000 $712,000 6.0%
Year Ended July 31, 1994
Seasonal Bank Line (3) --- --- --- --- ---
<FN>
(1) Based on average daily borrowing.
(2) Calculated by dividing the total annual interest by the average daily borrowing.
(3) See Note 7 of Notes to CML Group, Inc. Consolidated Financial Statements.
</TABLE>
42
<PAGE> 43
<TABLE>
Schedule X
----------
CML GROUP, INC. and SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
<CAPTION>
Charged to Costs and Expenses
For the Year Ended July 31,
--------------------------------------
Item 1994 1993 1992
---------- ---- ---- ----
<S> <C> <C> <C>
Advertising costs $117,664,000 $80,445,000 $52,987,000
</TABLE>
43
<PAGE> 44
<TABLE>
EXHIBIT INDEX
<CAPTION>
Page No.
-------
<S> <C> <C> <C>
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). --
</TABLE>
44
<PAGE> 45
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C> <C>
*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. --
</TABLE>
45
<PAGE> 46
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C> <C>
*10(h) -- 1990 Employee Stock Purchase Plan is
incorporated herein by reference to Exhibit
28 to the Company's Registration Statement
on Form S-8 filed May 21, 1990 (File No.
33-34998). --
10(i) -- 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(j) -- 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(k) -- 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(l) -- 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(m) -- 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(n) -- 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. --
</TABLE>
46
<PAGE> 47
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C> <C>
*10(o) -- 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(p) -- 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(q) -- 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. 48
21 -- Subsidiaries of the Registrant. 49
23 -- Consent of Deloitte & Touche LLP. 50
27 -- Financial Data Schedule. 51
__________________
* Management contract or compensatory plan or arrangement filed herewith in
response to Item 14(a)(3) of the instructions to the Form 10-K
</TABLE>
47
<PAGE> 1
<TABLE>
Exhibit 11
----------
CML GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
Year Ended July 31,
-------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Primary earnings per share:
Weighted average number of shares outstanding:
Common 50,468,396 50,076,241 47,150,185
Shares deemed outstanding from
the assumed exercise of stock
options and a warrant and from
deferred compensation awards 1,122,362 1,919,253 3,169,140
----------- ----------- -----------
Total 51,590,758 51,995,494 50,319,325
=========== =========== ===========
Net income $51,719,000 $57,933,000 $40,471,000
=========== =========== ===========
Primary earnings per share $1.00 $1.11 $0.81
===== ===== =====
Fully diluted earnings per share:
Weighted average number of shares
outstanding, as above 51,590,758 51,995,494 50,319,325
Shares deemed outstanding from
the assumed conversion of
convertible subordinated
debentures 2,218,649 1,109,325 827,070
Additional shares deemed
outstanding from the assumed
exercise of stock options 26,855 122,628 556,090
---------- ---------- ----------
Total 53,836,262 53,227,447 51,702,485
=========== =========== ===========
Additional income from the
elimination of the interest cost of
the convertible subordinated
debentures, net of income tax effect $2,134,000 $1,065,000 $161,000
Fully diluted earnings per share $1.00 $1.11 $0.79
===== ===== =====
</TABLE>
48
<PAGE> 1
<TABLE>
Exhibit 21
----------
CML GROUP, INC.
SUBSIDIARIES OF CML GROUP, INC.*
-------------------------------
<CAPTION>
Jurisdiction
Name of Subsidiary of Incorporation
------------------ ----------------
<S> <C>
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
WFH Group, Inc. Delaware
Biscuit Factory Publications Incorporated++ Massachusetts
CML International (FSC), Ltd. U.S. Virgin Is.
Smith & Hawken, Ltd.+++ Delaware
<FN>
--------------
* 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
</TABLE>
49
<PAGE> 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
29, 1994 appearing in this Annual Report on Form 10-K of CML
Group, Inc. and its subsidiaries for the year ended July 31,
1994.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 29, 1994
50
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CML GROUP INC. FOR THE YEAR ENDED JULY 31, 1994, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1994
<PERIOD-START> AUG-01-1993
<PERIOD-END> JUL-31-1994
<EXCHANGE-RATE> 1.
<CASH> 28929000
<SECURITIES> 0
<RECEIVABLES> 42075000
<ALLOWANCES> 1402000
<INVENTORY> 80733000
<CURRENT-ASSETS> 26387000
<PP&E> 213310000
<DEPRECIATION> 65705000
<TOTAL-ASSETS> 384663000
<CURRENT-LIABILITIES> 81070000
<BONDS> 58792000
<COMMON> 5185000
0
0
<OTHER-SE> 242561000
<TOTAL-LIABILITY-AND-EQUITY> 384663000
<SALES> 772397000
<TOTAL-REVENUES> 772397000
<CGS> 294886000
<TOTAL-COSTS> 294886000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2490000
<INCOME-PRETAX> 81192000
<INCOME-TAX> 29473000
<INCOME-CONTINUING> 51719000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51719000
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 1.00
</TABLE>
